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

For the nine months ended September 30, 2017
Puerto Rico - Non-covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	189,686		$	1,353		$	143,320		$	7,662		$	125,963		$	467,984
Provision (reversal of provision)		29,945			(2,218	)		77,692			6,516			76,831			188,766
Charge-offs		(38,219	)		(3,646	)		(53,936	)		(5,030	)		(81,607	)		(182,438	)
Recoveries		24,274			6,210			2,557			1,284			15,612			49,937
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 nine months ended September 30, 2017
Puerto Rico - Covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	—		$	—		$	30,159		$	—		$	191		$	30,350
Provision (reversal of provision)		—			—			3,253			—			1,002			4,255
Charge-offs		—			—			(2,700	)		—			(134	)		(2,834	)
Recoveries		—			—			1,279			—			7			1,286
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

36

For the nine months ended September 30, 2017
U.S. Mainland
(In thousands)	Commercial			Construction			Mortgage			Legacy			Consumer			Total
Allowance for credit losses:
Beginning balance	$	12,968		$	8,172		$	4,614		$	1,343		$	15,220		$	42,317
Provision (reversal of provision)		53,491			(1,049	)		(173	)		(1,554	)		10,200			60,915
Charge-offs		(4,774	)		—			(1,064	)		(669	)		(14,476	)		(20,983	)
Recoveries		1,598			—			880			1,752			3,128			7,358
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

For the nine months ended September 30, 2017
Popular, Inc.
(In thousands)	Commercial			Construction			Mortgage			Legacy			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	202,654		$	9,525		$	178,093		$	1,343		$	7,662		$	141,374		$	540,651
Provision (reversal of provision)		83,436			(3,267	)		80,772			(1,554	)		6,516			88,033			253,936
Charge-offs		(42,993	)		(3,646	)		(57,700	)		(669	)		(5,030	)		(96,217	)		(206,255	)
Recoveries		25,872			6,210			4,716			1,752			1,284			18,747			58,581
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

For the quarter ended September 30, 2016
Puerto Rico - Non-covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	199,827		$	3,605		$	136,724		$	10,094		$	130,471		$	480,721
Provision (reversal of provision)		13,746			(605	)		13,841			(1,363	)		10,662			36,281
Charge-offs		(13,799	)		(951	)		(16,002	)		(1,429	)		(25,470	)		(57,651	)
Recoveries		10,600			65			765			613			12,649			24,692
Ending balance	$	210,374		$	2,114		$	135,328		$	7,915		$	128,312		$	484,043
Specific ALLL	$	58,527		$	—		$	43,567		$	540		$	23,708		$	126,342
General ALLL	$	151,847		$	2,114		$	91,761		$	7,375		$	104,604		$	357,701
Loans held-in-portfolio:
Impaired non-covered loans	$	328,868		$	—		$	487,972		$	1,899		$	108,341		$	927,080
Non-covered loans held-in-portfolio excluding impaired loans		6,925,290			81,054			5,476,876			680,911			3,185,490			16,349,621
Total non-covered loans held-in-portfolio	$	7,254,158		$	81,054		$	5,964,848		$	682,810		$	3,293,831		$	17,276,701

37

For the quarter ended September 30, 2016
Puerto Rico - Covered Loans
(In thousands)	Commercial			Construction		Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	—		$	—	$	29,951		$	—		$	630		$	30,581
Provision (reversal of provision)		—			—		845			—			(95	)		750
Charge-offs		—			—		(973	)		—			(411	)		(1,384	)
Recoveries		—			—		312			—			3			315
Ending balance	$	—		$	—	$	30,135		$	—		$	127		$	30,262
Specific ALLL	$	—		$	—	$	—		$	—		$	—		$	—
General ALLL	$	—		$	—	$	30,135		$	—		$	127		$	30,262
Loans held-in-portfolio:
Impaired covered loans	$	—		$	—	$	—		$	—		$	—		$	—
Covered loans held-in-portfolio excluding impaired loans		—			—		571,349			—			16,862			588,211
Total covered loans held-in-portfolio	$	—		$	—	$	571,349		$	—		$	16,862		$	588,211
For the quarter ended September 30, 2016
U.S. Mainland - Continuing Operations
(In thousands)	Commercial			Construction		Mortgage			Legacy			Consumer			Total
Allowance for credit losses:
Beginning balance	$	9,854		$	7,460	$	4,762		$	1,852		$	13,490		$	37,418
Provision (reversal of provision)		2,765			368		1,380			(690	)		2,490			6,313
Charge-offs		(155	)		—		(2,022	)		(145	)		(2,884	)		(5,206	)
Recoveries		1,328			—		80			665			952			3,025
Ending balance	$	13,792		$	7,828	$	4,200		$	1,682		$	14,048		$	41,550
Specific ALLL	$	—		$	—	$	1,990		$	—		$	725		$	2,715
General ALLL	$	13,792		$	7,828	$	2,210		$	1,682		$	13,323		$	38,835
Loans held-in-portfolio:
Impaired loans	$	—		$	—	$	8,896		$	—		$	2,588		$	11,484
Loans held-in-portfolio excluding impaired loans		3,283,022			650,298		800,763			47,914			525,790			5,307,787
Total loans held-in-portfolio	$	3,283,022		$	650,298	$	809,659		$	47,914		$	528,378		$	5,319,271

For the quarter ended September 30, 2016
Popular, Inc.
(In thousands)	Commercial			Construction			Mortgage			Legacy			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	209,681		$	11,065		$	171,437		$	1,852		$	10,094		$	144,591		$	548,720
Provision (reversal of provision)		16,511			(237	)		16,066			(690	)		(1,363	)		13,057			43,344
Charge-offs		(13,954	)		(951	)		(18,997	)		(145	)		(1,429	)		(28,765	)		(64,241	)
Recoveries		11,928			65			1,157			665			613			13,604			28,032
Ending balance	$	224,166		$	9,942		$	169,663		$	1,682		$	7,915		$	142,487		$	555,855
Specific ALLL	$	58,527		$	—		$	45,557		$	—		$	540		$	24,433		$	129,057
General ALLL	$	165,639		$	9,942		$	124,106		$	1,682		$	7,375		$	118,054		$	426,798
Loans held-in-portfolio:
Impaired loans	$	328,868		$	—		$	496,868		$	—		$	1,899		$	110,929		$	938,564
Loans held-in-portfolio excluding impaired loans		10,208,312			731,352			6,848,988			47,914			680,911			3,728,142			22,245,619
Total loans held-in-portfolio	$	10,537,180		$	731,352		$	7,345,856		$	47,914		$	682,810		$	3,839,071		$	23,184,183

38

For the nine months ended September 30, 2016
Puerto Rico - Non-covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	186,925		$	4,957		$	128,327		$	10,993		$	138,721		$	469,923
Provision (reversal of provision)		30,630			(5,786	)		50,398			(190	)		43,451			118,503
Charge-offs		(47,256	)		(3,026	)		(45,924	)		(4,435	)		(78,860	)		(179,501	)
Recoveries		35,706			5,055			2,527			1,547			24,838			69,673
Net recoveries (write-downs)		4,369			914			—			—			162			5,445
Ending balance	$	210,374		$	2,114		$	135,328		$	7,915		$	128,312		$	484,043
Specific ALLL	$	58,527		$	—		$	43,567		$	540		$	23,708		$	126,342
General ALLL	$	151,847		$	2,114		$	91,761		$	7,375		$	104,604		$	357,701
Loans held-in-portfolio:
Impaired non-covered loans	$	328,868		$	—		$	487,972		$	1,899		$	108,341		$	927,080
Non-covered loans held-in-portfolio excluding impaired loans		6,925,290			81,054			5,476,876			680,911			3,185,490			16,349,621
Total non-covered loans held-in-portfolio	$	7,254,158		$	81,054		$	5,964,848		$	682,810		$	3,293,831		$	17,276,701
For the nine months ended September 30, 2016
Puerto Rico - Covered Loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	—		$	—		$	33,967		$	—		$	209		$	34,176
Provision (reversal of provision)		—			—			(1,476	)		—			(75	)		(1,551	)
Charge-offs		—			—			(3,078	)		—			(17	)		(3,095	)
Recoveries		—			—			722			—			10			732
Ending balance	$	—		$	—		$	30,135		$	—		$	127		$	30,262
Specific ALLL	$	—		$	—		$	—		$	—		$	—		$	—
General ALLL	$	—		$	—		$	30,135		$	—		$	127		$	30,262
Loans held-in-portfolio:
Impaired covered loans	$	—		$	—		$	—		$	—		$	—		$	—
Covered loans held-in-portfolio excluding impaired loans		—			—			571,349			—			16,862			588,211
Total covered loans held-in-portfolio	$	—		$	—		$	571,349		$	—		$	16,862		$	588,211
For the nine months ended September 30, 2016
U.S. Mainland
(In thousands)	Commercial			Construction			Mortgage			Legacy			Consumer			Total
Allowance for credit losses:
Beginning balance	$	9,908		$	3,912		$	4,985		$	2,687		$	11,520		$	33,012
Provision (reversal of provision)		1,651			3,916			1,403			(2,665	)		7,394			11,699
Charge-offs		(1,040	)		—			(2,595	)		(388	)		(8,194	)		(12,217	)
Recoveries		3,273			—			407			2,048			3,328			9,056
Ending balance	$	13,792		$	7,828		$	4,200		$	1,682		$	14,048		$	41,550
Specific ALLL	$	—		$	—		$	1,990		$	—		$	725		$	2,715
General ALLL	$	13,792		$	7,828		$	2,210		$	1,682		$	13,323		$	38,835
Loans held-in-portfolio:
Impaired loans	$	—		$	—		$	8,896		$	—		$	2,588		$	11,484
Loans held-in-portfolio excluding impaired loans		3,283,022			650,298			800,763			47,914			525,790			5,307,787
Total loans held-in-portfolio	$	3,283,022		$	650,298		$	809,659		$	47,914		$	528,378		$	5,319,271

39

For the nine months ended September 30, 2016
Popular, Inc.
(In thousands)	Commercial			Construction			Mortgage			Legacy			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	196,833		$	8,869		$	167,279		$	2,687		$	10,993		$	150,450		$	537,111
Provision (reversal of provision)		32,281			(1,870	)		50,325			(2,665	)		(190	)		50,770			128,651
Charge-offs		(48,296	)		(3,026	)		(51,597	)		(388	)		(4,435	)		(87,071	)		(194,813	)
Recoveries		38,979			5,055			3,656			2,048			1,547			28,176			79,461
Net recoveries (write-downs)		4,369			914			—			—			—			162			5,445
Ending balance	$	224,166		$	9,942		$	169,663		$	1,682		$	7,915		$	142,487		$	555,855
Specific ALLL	$	58,527		$	—		$	45,557		$	—		$	540		$	24,433		$	129,057
General ALLL	$	165,639		$	9,942		$	124,106		$	1,682		$	7,375		$	118,054		$	426,798
Loans held-in-portfolio:
Impaired loans	$	328,868		$	—		$	496,868		$	—		$	1,899		$	110,929		$	938,564
Loans held-in-portfolio excluding impaired loans		10,208,312			731,352			6,848,988			47,914			680,911			3,728,142			22,245,619
Total loans held-in-portfolio	$	10,537,180		$	731,352		$	7,345,856		$	47,914		$	682,810		$	3,839,071		$	23,184,183

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

	ASC 310-30
	For the quarters ended						For the nine months ended
(In thousands)	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Balance at beginning of period	$	65,674		$	66,995		$	68,877		$	63,563
Provision (reversal of provision)		2,995			6,710			8,214			2,640
Net recoveries (charge-offs)		(1,569	)		(4,134	)		(9,991	)		3,368
Balance at end of period	$	67,100		$	69,571		$	67,100		$	69,571

Impaired loans

The following tables present loans individually evaluated for impairment at September 30, 2017 and December 31, 2016.

September 30, 2017
Puerto Rico
	Impaired Loans – With an						Impaired Loans
	Allowance						With No Allowance				Impaired Loans - Total
			Unpaid						Unpaid				Unpaid
	Recorded		principal		Related		Recorded		principal		Recorded		principal		Related
(In thousands)	investment		balance		allowance		investment		balance		investment		balance		allowance
Commercial multi-family	$	204	$	204	$	30	$	—	$	—	$	204	$	204	$	30
Commercial real estate non-owner occupied		109,814		120,252		25,535		7,617		12,780		117,431		133,032		25,535
Commercial real estate owner occupied		120,196		178,892		8,729		28,389		59,034		148,585		237,926		8,729
Commercial and industrial		46,807		49,869		6,569		15,677		25,105		62,484		74,974		6,569
Mortgage		452,734		502,908		49,129		57,400		69,694		510,134		572,602		49,129
Leasing		1,468		1,468		450		—		—		1,468		1,468		450
Consumer:
Credit cards		35,782		35,782		5,500		—		—		35,782		35,782		5,500
Personal		63,015		63,015		15,616		—		—		63,015		63,015		15,616
Auto		2,049		2,049		440		—		—		2,049		2,049		440
Other		1,102		1,102		174		—		—		1,102		1,102		174
Total Puerto Rico	$	833,171	$	955,541	$	112,172	$	109,083	$	166,613	$	942,254	$	1,122,154	$	112,172

40

September 30, 2017
U.S. mainland
	Impaired Loans – With an						Impaired Loans
	Allowance						With No Allowance				Impaired Loans - Total
			Unpaid						Unpaid				Unpaid
	Recorded		principal		Related		Recorded		principal		Recorded		principal		Related
(In thousands)	investment		balance		allowance		investment		balance		investment		balance		allowance
Mortgage	$	6,501	$	8,282	$	2,292	$	2,593	$	3,513	$	9,094	$	11,795	$	2,292
Consumer:
HELOCs		2,149		2,158		501		519		536		2,668		2,694		501
Personal		554		555		226		217		217		771		772		226
Total U.S. mainland	$	9,204	$	10,995	$	3,019	$	3,329	$	4,266	$	12,533	$	15,261	$	3,019
September 30, 2017
Popular, Inc.
	Impaired Loans – With an						Impaired Loans
	Allowance						With No Allowance				Impaired Loans - Total
			Unpaid						Unpaid				Unpaid
	Recorded		principal		Related		Recorded		principal		Recorded		principal		Related
(In thousands)	investment		balance		allowance		investment		balance		investment		balance		allowance
Commercial multi-family	$	204	$	204	$	30	$	—	$	—	$	204	$	204	$	30
Commercial real estate non-owner occupied		109,814		120,252		25,535		7,617		12,780		117,431		133,032		25,535
Commercial real estate owner occupied		120,196		178,892		8,729		28,389		59,034		148,585		237,926		8,729
Commercial and industrial		46,807		49,869		6,569		15,677		25,105		62,484		74,974		6,569
Mortgage		459,235		511,190		51,421		59,993		73,207		519,228		584,397		51,421
Leasing		1,468		1,468		450		—		—		1,468		1,468		450
Consumer:
Credit Cards		35,782		35,782		5,500		—		—		35,782		35,782		5,500
HELOCs		2,149		2,158		501		519		536		2,668		2,694		501
Personal		63,569		63,570		15,842		217		217		63,786		63,787		15,842
Auto		2,049		2,049		440		—		—		2,049		2,049		440
Other		1,102		1,102		174		—		—		1,102		1,102		174
Total Popular, Inc.	$	842,375	$	966,536	$	115,191	$	112,412	$	170,879	$	954,787	$	1,137,415	$	115,191
December 31, 2016
Puerto Rico
	Impaired Loans – With an						Impaired Loans
	Allowance						With No Allowance				Impaired Loans - Total
			Unpaid						Unpaid				Unpaid
	Recorded		principal		Related		Recorded		principal		Recorded		principal		Related
(In thousands)	investment		balance		allowance		investment		balance		investment		balance		allowance
Commercial multi-family	$	82	$	82	$	34	$	—	$	—	$	82	$	82	$	34
Commercial real estate non-owner occupied		104,119		105,047		24,537		15,935		29,631		120,054		134,678		24,537
Commercial real estate owner occupied		131,634		169,013		13,007		31,962		50,094		163,596		219,107		13,007
Commercial and industrial		46,862		49,301		4,797		7,828		11,478		54,690		60,779		4,797
Mortgage		426,737		466,249		42,428		70,751		87,806		497,488		554,055		42,428
Leasing		1,817		1,817		535		—		—		1,817		1,817		535
Consumer:
Credit cards		37,464		37,464		5,588		—		—		37,464		37,464		5,588
Personal		66,043		66,043		16,955		—		—		66,043		66,043		16,955
Auto		2,117		2,117		474		—		—		2,117		2,117		474
Other		991		991		168		—		—		991		991		168
Total Puerto Rico	$	817,866	$	898,124	$	108,523	$	126,476	$	179,009	$	944,342	$	1,077,133	$	108,523
December 31, 2016
U.S. mainland
	Impaired Loans – With an						Impaired Loans
	Allowance						With No Allowance				Impaired Loans - Total
			Unpaid						Unpaid				Unpaid
	Recorded		principal		Related		Recorded		principal		Recorded		principal		Related
(In thousands)	investment		balance		allowance		investment		balance		investment		balance		allowance
Mortgage	$	6,381	$	7,971	$	2,182	$	2,495	$	3,369	$	8,876	$	11,340	$	2,182
Consumer:
HELOCs		2,421		2,429		667		300		315		2,721		2,744		667
Personal		39		39		5		79		79		118		118		5
Total U.S. mainland	$	8,841	$	10,439	$	2,854	$	2,874	$	3,763	$	11,715	$	14,202	$	2,854

41

December 31, 2016
Popular, Inc.
	Impaired Loans – With an						Impaired Loans
	Allowance						With No Allowance				Impaired Loans - Total
			Unpaid						Unpaid				Unpaid
	Recorded		principal		Related		Recorded		principal		Recorded		principal		Related
(In thousands)	investment		balance		allowance		investment		balance		investment		balance		allowance
Commercial multi-family	$	82	$	82	$	34	$	—	$	—	$	82	$	82	$	34
Commercial real estate non-owner occupied		104,119		105,047		24,537		15,935		29,631		120,054		134,678		24,537
Commercial real estate owner occupied		131,634		169,013		13,007		31,962		50,094		163,596		219,107		13,007
Commercial and industrial		46,862		49,301		4,797		7,828		11,478		54,690		60,779		4,797
Mortgage		433,118		474,220		44,610		73,246		91,175		506,364		565,395		44,610
Leasing		1,817		1,817		535		—		—		1,817		1,817		535
Consumer:
Credit Cards		37,464		37,464		5,588		—		—		37,464		37,464		5,588
HELOCs		2,421		2,429		667		300		315		2,721		2,744		667
Personal		66,082		66,082		16,960		79		79		66,161		66,161		16,960
Auto		2,117		2,117		474		—		—		2,117		2,117		474
Other		991		991		168		—		—		991		991		168
Total Popular, Inc.	$	826,707	$	908,563	$	111,377	$	129,350	$	182,772	$	956,057	$	1,091,335	$	111,377

The following tables present the average recorded investment and interest income recognized on impaired loans for the quarters and nine months ended September 30, 2017 and 2016.

For the quarter ended September 30, 2017
	Puerto Rico				U.S. Mainland				Popular, Inc.
	Average		Interest		Average		Interest		Average		Interest
	recorded		income		recorded		income		recorded		income
(In thousands)	investment		recognized		investment		recognized		investment		recognized
Commercial multi-family	$	141	$	1	$	—	$	—	$	141	$	1
Commercial real estate non-owner occupied		117,650		1,272		—		—		117,650		1,272
Commercial real estate owner occupied		151,580		1,413		—		—		151,580		1,413
Commercial and industrial		61,950		531		—		—		61,950		531
Mortgage		507,689		3,211		8,995		60		516,684		3,271
Leasing		1,568		—		—		—		1,568		—
Consumer:
Credit cards		35,727		—		—		—		35,727		—
Helocs		—		—		2,572		—		2,572		—
Personal		64,091		—		763		—		64,854		—
Auto		2,065		—		—		—		2,065		—
Other		991		—		—		—		991		—
Total Popular, Inc.	$	943,452	$	6,428	$	12,330	$	60	$	955,782	$	6,488
For the quarter ended September 30, 2016
	Puerto Rico				U.S. Mainland				Popular, Inc.
	Average		Interest		Average		Interest		Average		Interest
	recorded		income		recorded		income		recorded		income
(In thousands)	investment		recognized		investment		recognized		investment		recognized
Commercial multi-family	$	43	$	1	$	—	$	—	$	43	$	1
Commercial real estate non-owner occupied		140,083		1,345		—		—		140,083		1,345
Commercial real estate owner occupied		136,565		1,408		—		—		136,565		1,408
Commercial and industrial		55,685		483		—		—		55,685		483
Construction		518		—		—		—		518		—
Mortgage		482,067		3,538		8,730		68		490,797		3,606
Leasing		2,005		—		—		—		2,005		—
Consumer:
Credit cards		38,431		—		—		—		38,431		—
Helocs		—		—		1,883		—		1,883		—
Personal		67,077		—		651		—		67,728		—
Auto		2,501		—		—		—		2,501		—
Other		728		—		—		—		728		—
Total Popular, Inc.	$	925,703	$	6,775	$	11,264	$	68	$	936,967	$	6,843

42

For the nine months ended September 30, 2017
	Puerto Rico				U.S. Mainland				Popular, Inc.
	Average		Interest		Average		Interest		Average		Interest
	recorded		income		recorded		income		recorded		income
(In thousands)	investment		recognized		investment		recognized		investment		recognized
Commercial multi-family	$	111	$	4	$	—	$	—	$	111	$	4
Commercial real estate non-owner occupied		118,243		3,997		—		—		118,243		3,997
Commercial real estate owner occupied		158,046		4,640		—		—		158,046		4,640
Commercial and industrial		61,072		1,682		—		—		61,072		1,682
Mortgage		503,628		11,394		8,947		156		512,575		11,550
Leasing		1,689		—		—		—		1,689		—
Consumer:
Credit cards		36,718		—		—		—		36,718		—
HELOCs		—		—		2,632		—		2,632		—
Personal		64,962		—		440		—		65,402		—
Auto		2,079		—		—		—		2,079		—
Other		891		—		—		—		891		—
Total Popular, Inc.	$	947,439	$	21,717	$	12,019	$	156	$	959,458	$	21,873
For the nine months ended September 30, 2016
	Puerto Rico				U.S. Mainland				Popular, Inc.
	Average		Interest		Average		Interest		Average		Interest
	recorded		income		recorded		income		recorded		income
(In thousands)	investment		recognized		investment		recognized		investment		recognized
Commercial multi-family		21		4		—		—		21		4
Commercial real estate non-owner occupied	$	129,372	$	3,971	$	—	$	—	$	129,372	$	3,971
Commercial real estate owner occupied		147,305		4,349		—		—		147,305		4,349
Commercial and industrial		58,518		1,466		—		—		58,518		1,466
Construction		1,384		—		—		—		1,384		—
Mortgage		475,108		10,311		8,046		133		483,154		10,444
Leasing		2,201		—		—		—		2,201		—
Consumer:
Credit cards		38,344		—		—		—		38,344		—
HELOCs		—		—		1,741		—		1,741		—
Personal		67,624		—		632		—		68,256		—
Auto		2,689		—		—		—		2,689		—
Other		606		—		—		—		606		—
Total Popular, Inc.	$	923,172	$	20,101	$	10,419	$	133	$	933,591	$	20,234

Modifications

Troubled debt restructurings (“TDRs”) related to non-covered loan portfolios amounted to $ 1.3 billion at September 30, 2017 (December 31, 2016 - $ 1.2 billion). The amount of outstanding commitments to lend additional funds to debtors owing receivables whose terms have been modified in troubled debt restructurings amounted $8 million related to the commercial loan portfolio at September 30, 2017 (December 31, 2016 - $8 million).

At September 30, 2017, the mortgage loan TDRs include $444 million guaranteed by U.S. sponsored entities at BPPR, compared to $407 million at December 31, 2016.

A modification of a loan constitutes a troubled debt restructuring when a borrower is experiencing financial difficulty and the modification constitutes a concession. For a summary of the accounting policy related to TDRs, refer to the summary of significant accounting policies included in Note 2 of the 2016 Form 10-K.

The following tables present the non-covered and covered loans classified as TDRs according to their accruing status and the related allowance at September 30, 2017 and December 31, 2016.

43

	Popular, Inc.
	Non-Covered Loans
	September 30, 2017								December 31, 2016
(In thousands)	Accruing		Non-Accruing		Total		Related Allowance		Accruing		Non-Accruing		Total		Related Allowance
Commercial	$	163,349	$	66,492	$	229,841	$	37,471	$	176,887	$	83,157	$	260,044	$	40,810
Mortgage		793,478		131,424		924,902		51,421		744,926		127,071		871,997		44,610
Leases		963		370		1,333		450		1,383		434		1,817		535
Consumer		95,795		12,004		107,799		22,457		100,277		12,442		112,719		23,857
Total	$	1,053,585	$	210,290	$	1,263,875	$	111,799	$	1,023,473	$	223,104	$	1,246,577	$	109,812
	Popular, Inc.
	Covered Loans
	September 30, 2017								December 31, 2016
(In thousands)	Accruing		Non-Accruing		Total		Related Allowance		Accruing		Non-Accruing		Total		Related Allowance
Mortgage	$	3,320	$	2,617	$	5,937	$	—	$	2,950	$	2,580	$	5,530	$	—
Total	$	3,320	$	2,617	$	5,937	$	—	$	2,950	$	2,580	$	5,530	$	—

The following tables present the loan count by type of modification for those loans modified in a TDR during the quarters and nine months ended September 30, 2017 and 2016. Loans modified as TDRs for the U.S. operations are considered insignificant to the Corporation.

Popular, Inc.
	For the quarter ended September 30, 2017								For the nine months ended September 30, 2017
	Reduction in interest rate		Extension of maturity date		Combination of reduction in interest rate and extension of maturity date		Other		Reduction in interest rate		Extension of maturity date		Combination of reduction in interest rate and extension of maturity date		Other
Commercial real estate non-owner occupied		—		—		—		—		4		1		—		—
Commercial real estate owner occupied		—		3		—		—		3		12		—		—
Commercial and industrial		1		15		—		—		3		36		—		—
Mortgage		13		14		83		16		45		35		301		116
Leasing		—		—		1		—		—		1		6		—
Consumer:
Credit cards		140		—		4		114		425		—		5		424
HELOCs		—		—		2		—		—		1		3		—
Personal		187		2		1		2		699		6		1		3
Auto		—		1		2		—		—		5		4		1
Other		11		—		—		—		27		1		—		1
Total		352		35		93		132		1,206		98		320		545

44

Popular, Inc.
	For the quarter ended September 30, 2016								For the nine months ended September 30, 2016
	Reduction in interest rate		Extension of maturity date		Combination of reduction in interest rate and extension of maturity date		Other		Reduction in interest rate		Extension of maturity date		Combination of reduction in interest rate and extension of maturity date		Other
Commercial real estate non-owner occupied		3		—		—		—		5		1		—		—
Commercial real estate owner occupied		9		—		—		—		38		5		—		—
Commercial and industrial		8		—		—		—		22		1		—		—
Mortgage		17		24		134		43		55		58		376		133
Leasing		—		1		—		—		—		1		—		—
Consumer:
Credit cards		218		—		1		158		603		—		1		531
HELOCs		—		—		—		—		—		—		2		1
Personal		241		6		1		—		761		16		1		1
Auto		—		4		4		2		—		11		8		2
Other		6		—		—		—		27		—		—		—
Total		502		35		140		203		1,511		93		388		668

The following tables present by class, quantitative information related to loans modified as TDRs during the quarters and nine months ended September 30, 2017 and 2016.

Popular, Inc.
For the quarter ended September 30, 2017
(Dollars in thousands)	Loan count		Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Increase (decrease) in the allowance for loan losses as a result of modification
Commercial real estate owner occupied		3	$	272	$	269	$	29
Commercial and industrial		16		1,022		1,044		111
Mortgage		126		17,692		16,633		1,103
Leasing		1		27		27		8
Consumer:
Credit cards		258		2,881		3,114		375
HELOCs		2		203		203		23
Personal		192		2,945		2,944		673
Auto		3		42		42		8
Other		11		46		46		6
Total		612	$	25,130	$	24,322	$	2,336
Popular, Inc.
For the quarter ended September 30, 2016
(Dollars in thousands)	Loan count		Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Increase (decrease) in the allowance for loan losses as a result of modification
Commercial real estate non-owner occupied		3	$	469	$	3,085	$	860
Commercial real estate owner occupied		9		773		1,874		136
Commercial and industrial		8		246		301		21
Mortgage		218		25,255		24,681		1,780
Leasing		1		15		15		3
Consumer:
Credit cards		377		3,321		3,715		450
Personal		248		4,481		4,547		853
Auto		10		123		134		27
Other		6		23		23		4
Total		880	$	34,706	$	38,375	$	4,134

45

Popular, Inc.
For the nine months ended September 30, 2017
(Dollars in thousands)	Loan count		Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Increase (decrease) in the allowance for loan losses as a result of modification
Commercial real estate non-owner occupied		5	$	2,069	$	1,901	$	145
Commercial real estate owner occupied		15		2,975		2,951		172
Commercial and industrial		39		1,850		3,967		579
Mortgage		497		58,777		54,965		3,343
Leasing		7		263		262		74
Consumer:
Credit cards		854		7,785		8,514		1,019
HELOCs		4		689		686		36
Personal		709		11,979		11,982		2,704
Auto		10		2,043		1,999		362
Other		29		2,002		2,002		70
Total		2,169	$	90,432	$	89,229	$	8,504
Popular, Inc.
For the nine months ended September 30, 2016
(Dollars in thousands)	Loan count		Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Increase (decrease) in the allowance for loan losses as a result of modification
Commercial real estate non-owner occupied		6	$	6,989	$	9,589	$	5,029
Commercial real estate owner occupied		43		11,623		11,648		473
Commercial and industrial		23		3,832		3,884		1
Mortgage		622		69,591		67,702		5,407
Leasing		1		15		15		3
Consumer:
Credit cards		1,135		10,352		11,768		1,677
HELOCs		3		355		398		216
Personal		779		13,089		13,195		2,784
Auto		21		256		274		52
Other		27		78		80		14
Total		2,660	$	116,180	$	118,553	$	15,656

The following tables present by class, TDRs that were subject to payment default and that had been modified as a TDR during the twelve months preceding the default date. Payment default is defined as a restructured loan becoming 90 days past due after being modified, foreclosed or charged-off, whichever occurs first. The recorded investment at September 30, 2017 is inclusive of all partial paydowns and charge-offs since the modification date. Loans modified as a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.

46

Popular, Inc.
	Defaulted during the quarter ended September 30, 2017				Defaulted during the nine months ended September 30, 2017
(Dollars in thousands)	Loan count		Recorded investment as of first default date		Loan count		Recorded investment as of first default date
Commercial real estate non-owner occupied		—	$	—		2	$	457
Commercial real estate owner occupied		—		—		3		1,749
Commercial and industrial		1		36		4		601
Mortgage		48		4,216		110		10,112
Consumer:
Credit cards		135		1,212		274		2,661
HELOCs		—		—		1		97
Personal		67		1,222		138		3,230
Auto		1		19		5		99
Other		—		—		1		9
Total		252	$	6,705		538	$	19,015
Popular, Inc.
	Defaulted during the quarter ended September 30, 2016				Defaulted during the nine months ended September 30, 2016
(Dollars in thousands)	Loan count		Recorded investment as of first default date		Loan count		Recorded investment as of first default date
Commercial real estate non-owner occupied		—	$	—		2	$	327
Commercial real estate owner occupied		3		773		10		3,276
Commercial and industrial		3		758		5		785
Mortgage		52		5,409		132		14,132
Leasing		—		—		4		29
Consumer:
Credit cards		109		1,084		221		2,259
Personal		34		623		93		2,375
Auto		3		63		6		111
Other		5		10		5		10
Total		209	$	8,720		478	$	23,304

Commercial, consumer and mortgage loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Corporation evaluates the loan for possible further impairment. The allowance for loan losses may be increased or partial charge-offs may be taken to further write-down the carrying value of the loan.

Credit Quality

The following table presents the outstanding balance, net of unearned income, of non-covered loans held-in-portfolio based on the Corporation’s assignment of obligor risk ratings as defined at September 30, 2017 and December 31, 2016.

47

September 30, 2017
			Special										Pass/
(In thousands)	Watch		Mention		Substandard		Doubtful		Loss		Sub-total		Unrated		Total
Puerto Rico[1]
Commercial multi-family	$	1,477	$	968	$	6,315	$	—	$	—	$	8,760	$	137,791	$	146,551
Commercial real estate non-owner occupied		375,756		329,210		321,592		—		—		1,026,558		1,498,237		2,524,795
Commercial real estate owner occupied		252,655		141,304		333,947		2,248		—		730,154		942,119		1,672,273
Commercial and industrial		268,283		124,237		217,459		473		51		610,503		2,215,489		2,825,992
Total Commercial		898,171		595,719		879,313		2,721		51		2,375,975		4,793,636		7,169,611
Construction		75		5,353		269		—		—		5,697		82,008		87,705
Mortgage		2,637		3,277		193,127		—		—		199,041		5,616,464		5,815,505
Leasing		—		—		2,649		—		35		2,684		752,197		754,881
Consumer:
Credit cards		—		—		20,626		—		—		20,626		1,062,620		1,083,246
HELOCs		—		—		48		—		—		48		6,076		6,124
Personal		333		653		21,107		—		—		22,093		1,192,238		1,214,331
Auto		—		—		12,244		—		16		12,260		809,744		822,004
Other		—		—		16,079		—		396		16,475		148,190		164,665
Total Consumer		333		653		70,104		—		412		71,502		3,218,868		3,290,370
Total Puerto Rico	$	901,216	$	605,002	$	1,145,462	$	2,721	$	498	$	2,654,899	$	14,463,173	$	17,118,072
U.S. mainland
Commercial multi-family	$	15,688	$	6,387	$	5,962	$	—	$	—	$	28,037	$	1,153,150	$	1,181,187
Commercial real estate non-owner occupied		43,205		44,483		37,493		—		—		125,181		1,444,014		1,569,195
Commercial real estate owner occupied		25,840		3,451		8,916		—		—		38,207		250,577		288,784
Commercial and industrial		3,480		554		156,947		—		—		160,981		857,337		1,018,318
Total Commercial		88,213		54,875		209,318		—		—		352,406		3,705,078		4,057,484
Construction		30,681		2,391		50,574		—		—		83,646		651,974		735,620
Mortgage		—		—		14,347		—		—		14,347		699,383		713,730
Legacy		731		467		3,690		—		—		4,888		32,620		37,508
Consumer:
Credit cards		—		—		13		—		—		13		67		80
HELOCs		—		—		7,565		—		4,395		11,960		184,858		196,818
Personal		—		—		1,624		—		717		2,341		311,502		313,843
Auto		—		—		—		—		—		—		3		3
Other		—		—		21		—		—		21		271		292
Total Consumer		—		—		9,223		—		5,112		14,335		496,701		511,036
Total U.S. mainland	$	119,625	$	57,733	$	287,152	$	—	$	5,112	$	469,622	$	5,585,756	$	6,055,378
Popular, Inc.
Commercial multi-family	$	17,165	$	7,355	$	12,277	$	—	$	—	$	36,797	$	1,290,941	$	1,327,738
Commercial real estate non-owner occupied		418,961		373,693		359,085		—		—		1,151,739		2,942,251		4,093,990
Commercial real estate owner occupied		278,495		144,755		342,863		2,248		—		768,361		1,192,696		1,961,057
Commercial and industrial		271,763		124,791		374,406		473		51		771,484		3,072,826		3,844,310
Total Commercial		986,384		650,594		1,088,631		2,721		51		2,728,381		8,498,714		11,227,095
Construction		30,756		7,744		50,843		—		—		89,343		733,982		823,325
Mortgage		2,637		3,277		207,474		—		—		213,388		6,315,847		6,529,235
Legacy		731		467		3,690		—		—		4,888		32,620		37,508
Leasing		—		—		2,649		—		35		2,684		752,197		754,881
Consumer:
Credit cards		—		—		20,639		—		—		20,639		1,062,687		1,083,326
HELOCs		—		—		7,613		—		4,395		12,008		190,934		202,942
Personal		333		653		22,731		—		717		24,434		1,503,740		1,528,174
Auto		—		—		12,244		—		16		12,260		809,747		822,007
Other		—		—		16,100		—		396		16,496		148,461		164,957
Total Consumer		333		653		79,327		—		5,524		85,837		3,715,569		3,801,406
Total Popular, Inc.	$	1,020,841	$	662,735	$	1,432,614	$	2,721	$	5,610	$	3,124,521	$	20,048,929	$	23,173,450

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The following table presents the weighted average obligor risk rating at September 30, 2017 for those classifications that consider a range of rating scales.

Weighted average obligor risk rating	(Scales 11 and 12)		(Scales 1 through 8)
Puerto Rico:[1]	Substandard		Pass
Commercial multi-family		11.18		5.98
Commercial real estate non-owner occupied		11.07		7.01
Commercial real estate owner occupied		11.25		7.16
Commercial and industrial		11.21		7.19
Total Commercial		11.18		7.11
Construction		11.37		7.73
U.S. mainland:	Substandard		Pass
Commercial multi-family		11.00		7.24
Commercial real estate non-owner occupied		11.21		6.68
Commercial real estate owner occupied		11.05		7.14
Commercial and industrial		11.60		6.15
Total Commercial		11.49		6.76
Construction		11.00		7.68
Legacy		11.12		7.93

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

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December 31, 2016
			Special										Pass/
(In thousands)	Watch		Mention		Substandard		Doubtful		Loss		Sub-total		Unrated		Total
Puerto Rico[1]
Commercial multi-family	$	2,016	$	383	$	6,108	$	—	$	—	$	8,507	$	166,033	$	174,540
Commercial real estate non-owner occupied		310,510		377,858		342,054		155		—		1,030,577		1,533,708		2,564,285
Commercial real estate owner occupied		310,484		109,873		360,941		17,788		—		799,086		992,389		1,791,475
Commercial and industrial		136,091		133,270		227,360		11,514		12		508,247		2,163,670		2,671,917
Total Commercial		759,101		621,384		936,463		29,457		12		2,346,417		4,855,800		7,202,217
Construction		50		1,705		1,668		—		—		3,423		82,135		85,558
Mortgage		4,407		1,987		190,090		—		—		196,484		5,720,016		5,916,500
Leasing		—		—		3,062		—		—		3,062		699,831		702,893
Consumer:
Credit cards		—		—		18,725		—		—		18,725		1,081,882		1,100,607
HELOCs		—		—		185		—		—		185		8,166		8,351
Personal		1,068		812		21,496		—		—		23,376		1,126,801		1,150,177
Auto		—		—		12,321		—		—		12,321		814,271		826,592
Other		—		—		19,311		—		—		19,311		156,218		175,529
Total Consumer		1,068		812		72,038		—		—		73,918		3,187,338		3,261,256
Total Puerto Rico	$	764,626	$	625,888	$	1,203,321	$	29,457	$	12	$	2,623,304	$	14,545,120	$	17,168,424
U.S. mainland
Commercial multi-family	$	13,537	$	7,796	$	658	$	—	$	—	$	21,991	$	1,042,305	$	1,064,296
Commercial real estate non-owner occupied		57,111		9,778		1,720		—		—		68,609		1,288,707		1,357,316
Commercial real estate owner occupied		9,271		—		9,119		—		—		18,390		225,355		243,745
Commercial and industrial		3,048		937		153,793		—		—		157,778		773,155		930,933
Total Commercial		82,967		18,511		165,290		—		—		266,768		3,329,522		3,596,290
Construction		3,000		8,153		16,950		—		—		28,103		662,639		690,742
Mortgage		—		—		11,711		—		—		11,711		768,150		779,861
Legacy		921		786		4,400		—		—		6,107		39,186		45,293
Consumer:
Credit cards		—		—		30		—		—		30		128		158
HELOCs		—		—		1,923		—		2,839		4,762		247,413		252,175
Personal		—		—		1,252		—		609		1,861		238,746		240,607
Auto		—		—		—		—		—		—		9		9
Other		—		—		8		—		—		8		180		188
Total Consumer		—		—		3,213		—		3,448		6,661		486,476		493,137
Total U.S. mainland	$	86,888	$	27,450	$	201,564	$	—	$	3,448	$	319,350	$	5,285,973	$	5,605,323
Popular, Inc.
Commercial multi-family	$	15,553	$	8,179	$	6,766	$	—	$	—	$	30,498	$	1,208,338	$	1,238,836
Commercial real estate non-owner occupied		367,621		387,636		343,774		155		—		1,099,186		2,822,415		3,921,601
Commercial real estate owner occupied		319,755		109,873		370,060		17,788		—		817,476		1,217,744		2,035,220
Commercial and industrial		139,139		134,207		381,153		11,514		12		666,025		2,936,825		3,602,850
Total Commercial		842,068		639,895		1,101,753		29,457		12		2,613,185		8,185,322		10,798,507
Construction		3,050		9,858		18,618		—		—		31,526		744,774		776,300
Mortgage		4,407		1,987		201,801		—		—		208,195		6,488,166		6,696,361
Legacy		921		786		4,400		—		—		6,107		39,186		45,293
Leasing		—		—		3,062		—		—		3,062		699,831		702,893
Consumer:
Credit cards		—		—		18,755		—		—		18,755		1,082,010		1,100,765
HELOCs		—		—		2,108		—		2,839		4,947		255,579		260,526
Personal		1,068		812		22,748		—		609		25,237		1,365,547		1,390,784
Auto		—		—		12,321		—		—		12,321		814,280		826,601
Other		—		—		19,319		—		—		19,319		156,398		175,717
Total Consumer		1,068		812		75,251		—		3,448		80,579		3,673,814		3,754,393
Total Popular, Inc.	$	851,514	$	653,338	$	1,404,885	$	29,457	$	3,460	$	2,942,654	$	19,831,093	$	22,773,747

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The following table presents the weighted average obligor risk rating at December 31, 2016 for those classifications that consider a range of rating scales.

Weighted average obligor risk rating	(Scales 11 and 12)		(Scales 1 through 8)
Puerto Rico:[1]	Substandard		Pass
Commercial multi-family		11.12		5.95
Commercial real estate non-owner occupied		11.07		6.91
Commercial real estate owner occupied		11.23		7.09
Commercial and industrial		11.09		7.19
Total Commercial		11.14		7.06
Construction		11.00		7.67
U.S. mainland:	Substandard		Pass
Commercial multi-family		11.31		7.26
Commercial real estate non-owner occupied		11.70		6.67
Commercial real estate owner occupied		11.05		7.32
Commercial and industrial		11.65		6.15
Total Commercial		11.62		6.78
Construction		11.00		7.67
Legacy		11.10		7.91

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

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Note 10 – FDIC loss-share asset and true-up payment obligation

In connection with the Westernbank FDIC-assisted transaction, BPPR entered into loss-share arrangements with the FDIC with respect to the covered loans and other real estate owned. Pursuant to the terms of the loss-share arrangements, the FDIC’s obligation to reimburse BPPR for losses with respect to covered assets begins with the first dollar of loss incurred. The FDIC reimburses BPPR for 80% of losses with respect to covered assets, and BPPR reimburses the FDIC for 80% of recoveries with respect to losses for which the FDIC paid reimbursement under loss-share arrangements. The loss-share agreement applicable to single-family residential mortgage loans provides for FDIC loss and recoveries sharing for ten years expiring at the end of the quarter ending June 30, 2020.

The following table sets forth the activity in the FDIC loss-share asset for the periods presented.

	Quarters ended September 30,						Nine months ended September 30,
(In thousands)	2017			2016			2017			2016
Balance at beginning of period	$	53,070		$	218,122		$	69,334		$	310,221
Accretion (amortization)		567			(1,259	)		(62	)		(9,337	)
Credit impairment losses (reversal) to be covered under loss-sharing agreements		(329	)		659			1,945			(959	)
Reimbursable expenses		588			853			2,232			7,038
Net payments from FDIC under loss-sharing agreements		(4,502	)		(10,897	)		(18,505	)		(99,485	)
Arbitration award expense		—			(54,924	)		—			(54,924	)
Other adjustments attributable to FDIC loss-sharing agreements		—			(87	)		(5,550	)		(87	)
Balance at end of period	$	49,394		$	152,467		$	49,394		$	152,467
Balance due to the FDIC for recoveries on covered assets [1]		(924	)		(7,080	)		(924	)		(7,080	)
Balance at end of period	$	48,470		$	145,387		$	48,470		$	145,387

[1] Balance due to the FDIC for recoveries on covered assets for the quarter and nine months ended September 30, 2016 amounting to $ 7.1 million was included in other liabilities in the accompanying Consolidated Statement of Condition (December 31, 2016 - $27.6 million).

The loss-share component of the arrangements applicable to commercial (including construction) and consumer loans expired during the quarter ended June 30, 2015. The agreement provides for reimbursement of recoveries to the FDIC to continue through the quarter ending June 30, 2018, and for the single family mortgage loss-share component of such agreement to expire on April 30, 2020.

The weighted average life of the single family loan portfolio accounted for under ASC 310-30 subject to the FDIC loss-sharing agreement at September 30, 2017 is 7.1 years.

As part of the loss-share agreements, BPPR has agreed to make a true-up payment to the FDIC on the date that is 45 days following the last day (such day, the “true-up measurement date”) of the final shared-loss month, or upon the final disposition of all covered assets under the loss-share agreements, in the event losses on the loss-share agreements fail to reach expected levels. The estimated fair value of such true-up payment obligation is recorded as contingent consideration, which is included in the caption of other liabilities in the consolidated statements of financial condition. Under the loss sharing agreements, BPPR will pay to the FDIC 50% of the excess, if any, of: (i) 20% of the intrinsic loss estimate of $4.6 billion (or $925 million) (as determined by the FDIC) less (ii) the sum of: (A) 25% of the asset discount (per bid) (or ($1.1 billion)); plus (B) 25% of the cumulative shared-loss payments (defined as the aggregate of all of the payments made or payable to BPPR minus the aggregate of all of the payments made or payable to the FDIC); plus (C) the sum of the period servicing amounts for every consecutive twelve-month period prior to and ending on the true-up measurement date in respect of each of the loss-sharing agreements during which the loss-sharing provisions of the applicable loss-sharing agreement is in effect (defined as the product of the simple average of the principal amount of shared- loss loans and shared-loss assets at the beginning and end of such period times 1%).

Of the four components used to estimate the true-up payment obligation (intrinsic loss estimate, asset discount, cumulative shared-loss payments, and period servicing amounts) only the cumulative shared-loss payments and the period servicing amounts will change on a quarterly basis. These two variables are the main drivers of changes in the undiscounted true-up payment obligation. In

52

order to estimate the true-up obligation, actual and expected portfolio performance for loans under both the commercial and residential loss sharing agreement are contemplated. The cumulative shared loss payments and cumulative servicing amounts are derived from our quarterly loss reassessment process for covered loans accounted for under ASC 310-30.

Once the undiscounted true-up payment obligation is determined, the fair value is estimated based on the contractual remaining term to settle the obligation and a discount rate that is composed of the sum of the interpolated U.S. Treasury Note (“T Note”), defined by the remaining term of the true-up payment obligation, and a risk premium determined by the spread of the Corporation’s outstanding senior unsecured debt over the equivalent T Note.

The following table provides the fair value and the undiscounted amount of the true-up payment obligation at September 30, 2017 and December 31, 2016.

(In thousands)	September 30, 2017		December 31, 2016
Carrying amount (fair value)	$	166,876	$	153,158
Undiscounted amount	$	188,660	$	188,258

The increase in the fair value of the true-up payment obligation was principally driven by a decrease in the discount rate from 5.97% in 2016 to 4.47% in 2017 due to a lower risk premium. The estimated fair value of the true-up payment obligation corresponds to the difference between the initial estimated losses to be reimbursed by the FDIC and the revised estimate of reimbursable losses. As the amount of estimated reimbursable losses decreases, the value of the true-up payment obligation increases.

As described above, the estimate of the true-up payment obligation is determined by applying the provisions of the loss sharing agreements and will change on a quarterly basis. The amount of the estimate of the true-up payment obligation is expected to change in future periods and may be subject to the interpretation of provisions of the loss sharing agreements.

The loss-share agreements contain specific terms and conditions regarding the management of the covered assets that BPPR must follow in order to receive reimbursement on losses from the FDIC. Under the loss-share agreements, BPPR must:

• manage and administer the covered assets and collect and effect charge-offs and recoveries with respect to such covered assets in a manner consistent with its usual and prudent business and banking practices and, with respect to single family shared-loss loans, the procedures (including collection procedures) customarily employed by BPPR in servicing and administering mortgage loans for its own account and the servicing procedures established by FNMA or the Federal Home Loan Mortgage Corporation (“FHLMC”), as in effect from time to time, and in accordance with accepted mortgage servicing practices of prudent lending institutions;

• exercise its best judgment in managing, administering and collecting amounts on covered assets and effecting charge-offs with respect to the covered assets;

• use commercially reasonable efforts to maximize recoveries with respect to losses on single family shared-loss assets and best efforts to maximize collections with respect to commercial shared-loss assets;

• retain sufficient staff to perform the duties under the loss-share agreements;

• adopt and implement accounting, reporting, record-keeping and similar systems with respect to the commercial shared-loss assets;

• comply with the terms of the modification guidelines approved by the FDIC or another federal agency for any single-family shared-loss loan;

• provide notice with respect to proposed transactions pursuant to which a third party or affiliate will manage, administer or collect any commercial shared-loss assets;

• file monthly and quarterly certificates with the FDIC specifying the amount of losses, charge-offs and recoveries; and

• maintain books and records sufficient to ensure and document compliance with the terms of the loss-share agreements.

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Note 11 – Mortgage banking activities

Income from mortgage banking activities includes mortgage servicing fees earned in connection with administering residential mortgage loans and valuation adjustments on mortgage servicing rights. It also includes gain on sales and securitizations of residential mortgage loans and trading gains and losses on derivative contracts used to hedge the Corporation’s securitization activities. In addition, lower-of-cost-or-market valuation adjustments to residential mortgage loans held for sale, if any, are recorded as part of the mortgage banking activities.

The following table presents the components of mortgage banking activities:

	Quarters ended September 30,						Nine months ended September 30,
(In thousands)	2017			2016			2017			2016
Mortgage servicing fees, net of fair value adjustments:
Mortgage servicing fees	$	12,012		$	14,520		$	38,485		$	43,997
Mortgage servicing rights fair value adjustments		(10,262	)		(6,062	)		(24,262	)		(18,879	)
Total mortgage servicing fees, net of fair value adjustments		1,750			8,458			14,223			25,118
Net gain on sale of loans, including valuation on loans held-for-sale		4,244			8,857			16,875			24,441
Trading account loss:
Unrealized (losses) gains on outstanding derivative positions		(147	)		95			(104	)		(44	)
Realized losses on closed derivative positions		(608	)		(2,138	)		(3,645	)		(7,465	)
Total trading account loss		(755	)		(2,043	)		(3,749	)		(7,509	)
Total mortgage banking activities	$	5,239		$	15,272		$	27,349		$	42,050

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Note 12 – Transfers of financial assets and mortgage servicing assets

The Corporation typically transfers conforming residential mortgage loans in conjunction with GNMA and FNMA securitization transactions whereby the loans are exchanged for cash or securities and servicing rights. As seller, the Corporation has made certain representations and warranties with respect to the originally transferred loans and, in the past, has sold certain loans with credit recourse to a government-sponsored entity, namely FNMA. Refer to Note 21 to the consolidated financial statements for a description of such arrangements.

No liabilities were incurred as a result of these securitizations during the quarters and nine months ended September 30, 2017 and 2016 because they did not contain any credit recourse arrangements. During the quarter ended September 30, 2017, the Corporation recorded a net gain of $3.9 million (September 30, 2016 - $8.4 million) related to the residential mortgage loans securitized. During the nine months ended September 30, 2017, the Corporation recorded a net gain of $15.0 million (September 30, 2016 - $22.6 million) related to the residential mortgage loans securitized.

The following tables present the initial fair value of the assets obtained as proceeds from residential mortgage loans securitized during the quarters and nine months ended September 30, 2017 and 2016:

	Proceeds Obtained During the Quarter Ended September 30, 2017
(In thousands)	Level 1		Level 2		Level 3		Initial Fair Value
Assets
Investments securities available for sale:
Mortgage-backed securities—FNMA	$	—	$	4,329	$	—	$	4,329
Total investment securities available-for-sale	$	—	$	4,329	$	—	$	4,329
Trading account securities:
Mortgage-backed securities—GNMA	$	—	$	85,722	$	—	$	85,722
Mortgage-backed securities—FNMA		—		16,452		—		16,452
Total trading account securities	$	—	$	102,174	$	—	$	102,174
Mortgage servicing rights	$	—	$	—	$	1,588	$	1,588
Total	$	—	$	106,503	$	1,588	$	108,091
	Proceeds Obtained During the Nine Months Ended September 30, 2017
(In thousands)	Level 1		Level 2		Level 3		Initial Fair Value
Assets
Investments securities available for sale:
Mortgage-backed securities—FNMA	$	—	$	16,049	$	—	$	16,049
Total investment securities available-for-sale	$	—	$	16,049	$	—	$	16,049
Trading account securities:
Mortgage-backed securities—GNMA	$	—	$	368,660	$	—	$	368,660
Mortgage-backed securities—FNMA		—		69,798		—		69,798
Total trading account securities	$	—	$	438,458	$	—	$	438,458
Mortgage servicing rights	$	—	$	—	$	6,766	$	6,766
Total	$	—	$	454,507	$	6,766	$	461,273

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	Proceeds Obtained During the Quarter Ended September 30, 2016
(In thousands)	Level 1		Level 2		Level 3		Initial Fair Value
Assets
Investments securities available for sale:
Mortgage-backed securities—GNMA	$	—	$	20,686	$	—	$	20,686
Mortgage-backed securities—FNMA		—		5,138		—		5,138
Total investment securities available-for-sale	$	—	$	25,824	$	—	$	25,824
Trading account securities:
Mortgage-backed securities—GNMA	$	—	$	140,255	$	—	$	140,255
Mortgage-backed securities—FNMA		—		44,574		—		44,574
Total trading account securities	$	—	$	184,829	$	—	$	184,829
Mortgage servicing rights	$	—	$	—	$	2,695	$	2,695
Total	$	—	$	210,653	$	2,695	$	213,348
	Proceeds Obtained During the Nine Months Ended September 30, 2016
(In thousands)	Level 1		Level 2		Level 3		Initial Fair Value
Assets
Investments securities available for sale:
Mortgage-backed securities—GNMA	$	—	$	20,686	$	—	$	20,686
Mortgage-backed securities—FNMA		—		5,138		—		5,138
Total investment securities available-for-sale	$	—	$	25,824	$	—	$	25,824
Trading account securities:
Mortgage-backed securities—GNMA	$	—	$	444,382	$	—	$	444,382
Mortgage-backed securities—FNMA		—		123,888		—		123,888
Total trading account securities	$	—	$	568,270	$	—	$	568,270
Mortgage servicing rights	$	—	$	—	$	7,235	$	7,235
Total	$	—	$	594,094	$	7,235	$	601,329

During the nine months ended September 30, 2017, the Corporation retained servicing rights on whole loan sales involving approximately $49 million in principal balance outstanding (September 30, 2016 - $46 million), with realized gains of approximately $1.8 million (September 30, 2016 - gains of $1.9 million). All loan sales performed during the nine months ended September 30, 2017 and 2016 were without credit recourse agreements.

The Corporation recognizes as assets the rights to service loans for others, whether these rights are purchased or result from asset transfers such as sales and securitizations. These mortgage servicing rights (“MSRs”) are measured at fair value.

The Corporation uses a discounted cash flow model to estimate the fair value of MSRs. The discounted cash flow model incorporates assumptions that market participants would use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income, prepayment and late fees, among other considerations. Prepayment speeds are adjusted for the Corporation’s loan characteristics and portfolio behavior.

The following table presents the changes in MSRs measured using the fair value method for the nine months ended September 30, 2017 and 2016.

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Residential MSRs
(In thousands)	September 30, 2017			September 30, 2016
Fair value at beginning of period	$	196,889		$	211,405
Additions		7,530			7,843
Changes due to payments on loans[1]		(12,794	)		(13,381	)
Reduction due to loan repurchases		(1,605	)		(1,183	)
Changes in fair value due to changes in valuation model inputs or assumptions		(9,863	)		(4,315	)
Other disposals		—			(15	)
Fair value at end of period	$	180,157		$	200,354

[1] Represents the change due to collection / realization of expected cash flow over time.

Residential mortgage loans serviced for others were $17.1 billion at September 30, 2017 (December 31, 2016 - $18.0 billion).

Net mortgage servicing fees, a component of mortgage banking activities in the consolidated statements of operations, include the changes from period to period in the fair value of the MSRs, including changes due to collection / realization of expected cash flows. The banking subsidiaries receive servicing fees based on a percentage of the outstanding loan balance. These servicing fees are recognized as income when they are collected. At September 30, 2017, those weighted average mortgage servicing fees were 0.29% (September 30, 2016 – 0.29%). Under these servicing agreements, the banking subsidiaries do not generally earn significant prepayment penalty fees on the underlying loans serviced.

The section below includes information on assumptions used in the valuation model of the MSRs, originated and purchased.

Key economic assumptions used in measuring the servicing rights derived from loans securitized or sold by the Corporation during the quarters and nine months ended September 30, 2017 and 2016 were as follows:

	Quarters ended		Nine months ended
	September 30, 2017	September 30, 2016	September 30, 2017	September 30, 2016
Prepayment speed	4.9%	4.6%	4.3%	5.2%
Weighted average life	10.5 years	10.6 years	10.9 years	10.1 years
Discount rate (annual rate)	10.9%	11.0%	10.9%	11.0%

Key economic assumptions used to estimate the fair value of MSRs derived from sales and securitizations of mortgage loans performed by the banking subsidiaries and servicing rights purchased from other financial institutions, and the sensitivity to immediate changes in those assumptions, were as follows as of the end of the periods reported:

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	Originated MSRs						Purchased MSRs
	September 30,			December 31,			September 30,			December 31,
(In thousands)	2017			2016			2017			2016
Fair value of servicing rights	$	77,786		$	88,056		$	102,371		$	108,833
Weighted average life (in years)		7.2			7.8			6.4			6.9
Weighted average prepayment speed (annual rate)		5.4	%		4.6	%		6.0	%		4.8	%
Impact on fair value of 10% adverse change	$	(1,931	)	$	(1,668	)	$	(2,637	)	$	(2,051	)
Impact on fair value of 20% adverse change	$	(3,796	)	$	(3,590	)	$	(5,172	)	$	(4,400	)
Weighted average discount rate (annual rate)		11.5	%		11.5	%		11.0	%		11.0	%
Impact on fair value of 10% adverse change	$	(3,626	)	$	(3,851	)	$	(4,484	)	$	(4,369	)
Impact on fair value of 20% adverse change	$	(6,982	)	$	(7,699	)	$	(8,640	)	$	(8,778	)

The sensitivity analyses presented in the tables above for servicing rights are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10 and 20 percent variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the sensitivity tables included herein, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities.

At September 30, 2017, the Corporation serviced $1.5 billion (December 31, 2016 - $1.7 billion) in residential mortgage loans with credit recourse to the Corporation.

Under the GNMA securitizations, the Corporation, as servicer, has the right to repurchase (but not the obligation), at its option and without GNMA’s prior authorization, any loan that is collateral for a GNMA guaranteed mortgage-backed security when certain delinquency criteria are met. At the time that individual loans meet GNMA’s specified delinquency criteria and are eligible for repurchase, the Corporation is deemed to have regained effective control over these loans if the Corporation was the pool issuer. At September 30, 2017, the Corporation had recorded $92 million in mortgage loans on its Consolidated Statements of Financial Condition related to this buy-back option program (December 31, 2016 - $49 million). As long as the Corporation continues to service the loans that continue to be collateral in a GNMA guaranteed mortgage-backed security, the MSR is recognized by the Corporation. During the nine months ended September 30, 2017, the Corporation repurchased approximately $ 113 million (September 30, 2016 - $67 million) of mortgage loans under the GNMA buy-back option program. The determination to repurchase these loans was based on the economic benefits of the transaction, which results in a reduction of the servicing costs for these severely delinquent loans, mostly related to principal and interest advances. Furthermore, due to their guaranteed nature, the risk associated with the loans is minimal. The Corporation places these loans under its loss mitigation programs and once brought back to current status, these may be either retained in portfolio or re-sold in the secondary market.

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Note 13 – Other real estate owned

The following tables present the activity related to Other Real Estate Owned (“OREO”), for the quarters and nine months ended September 30, 2017 and 2016.

	For the quarter ended September 30, 2017
	Non-covered			Non-covered			Covered
	OREO			OREO			OREO
(In thousands)	Commercial/Construction			Mortgage			Mortgage			Total
Balance at beginning of period	$	23,949		$	157,147		$	25,350		$	206,446
Write-downs in value(1)		(2,702	)		(2,856	)		(234	)		(5,792	)
Additions		982			18,669			1,560			21,211
Sales		(743	)		(18,185	)		(4,395	)		(23,323	)
Other adjustments		—			467			(736	)		(269	)
Ending balance	$	21,486		$	155,242		$	21,545		$	198,273

(1) Includes $2.7 million related to the damages from Hurricane Maria, of which $1.3 million were for commercial and $1.4 million for residential.

	For the nine months ended September 30, 2017
	Non-covered			Non-covered			Covered
	OREO			OREO			OREO
(In thousands)	Commercial/Construction			Mortgage			Mortgage			Total
Balance at beginning of period	$	20,401		$	160,044		$	32,128		$	212,573
Write-downs in value(1)		(4,681	)		(14,715	)		(2,980	)		(22,376	)
Additions		8,604			69,585			9,775			87,964
Sales		(2,707	)		(61,068	)		(15,184	)		(78,959	)
Other adjustments		(131	)		1,396			(2,194	)		(929	)
Ending balance	$	21,486		$	155,242		$	21,545		$	198,273

(1) Includes $2.7 million related to the damages from Hurricane Maria, of which $1.3 million were for commercial and $1.4 million for residential.

	For the quarter ended September 30, 2016
	Non-covered			Non-covered			Covered
	OREO			OREO			OREO
(In thousands)	Commercial/Construction			Mortgage			Mortgage			Total
Balance at beginning of period	$	24,110		$	152,915		$	37,984		$	215,009
Write-downs in value		(255	)		(2,859	)		(667	)		(3,781	)
Additions		2,388			27,355			4,212			33,955
Sales		(5,052	)		(13,866	)		(3,803	)		(22,721	)
Other adjustments		—			92			(312	)		(220	)
Ending balance	$	21,191		$	163,637		$	37,414		$	222,242

	For the nine months ended September 30, 2016
	Non-covered			Non-covered			Covered
	OREO			OREO			OREO
(In thousands)	Commercial/Construction			Mortgage			Mortgage			Total
Balance at beginning of period	$	32,471		$	122,760		$	36,685		$	191,916
Write-downs in value		(2,533	)		(6,489	)		(1,533	)		(10,555	)
Additions		5,500			83,255			13,935			102,690
Sales		(13,632	)		(34,769	)		(10,759	)		(59,160	)
Other adjustments		(615	)		(1,120	)		(914	)		(2,649	)
Ending balance	$	21,191		$	163,637		$	37,414		$	222,242

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Note 14 – Other assets

The caption of other assets in the consolidated statements of financial condition consists of the following major categories:

(In thousands)	September 30, 2017		December 31, 2016
Net deferred tax assets (net of valuation allowance)	$	1,207,597	$	1,243,668
Investments under the equity method		210,067		218,062
Prepaid taxes		164,531		172,550
Other prepaid expenses		87,136		90,320
Derivative assets		14,234		14,085
Trades receivable from brokers and counterparties		999		46,630
Receivables from investments maturities		270,000		—
Principal, interest and escrow servicing advances		71,167		69,711
Guaranteed mortgage loan claims receivable		174,964		152,403
Others		129,232		138,081
Total other assets	$	2,329,927	$	2,145,510

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Note 15 – Goodwill and other intangible assets

Goodwill

There were no changes in the carrying amount of goodwill for the quarter and nine months ended September 30, 2017. The changes in the carrying amount of goodwill for the nine months ended September 30, 2016, allocated by reportable segments, were as follows (refer to Note 34 for the definition of the Corporation’s reportable segments):

2016
					Purchase
	Balance at		Goodwill on		accounting		Goodwill			Balance at
(In thousands)	January 1, 2016		acquisition		adjustments		impairment			September 30, 2016
Banco Popular de Puerto Rico	$	280,221	$	—	$	—	$	(3,801	)	$	276,420
Banco Popular North America		346,167		—		4,707		—			350,874
Total Popular, Inc.	$	626,388	$	—	$	4,707	$	(3,801	)	$	627,294

On February 27, 2015, BPPR, in alliance with other co-bidders, including BPNA, acquired certain assets and all deposits (other than certain brokered deposits) of former Doral Bank, from the Federal Deposit Insurance Corporation (“FDIC”) as receiver (the “Doral Bank Transaction”). During the quarter ended June 30, 2016, the Corporation recorded purchase accounting adjustments of $4.7 million, resulting in a total goodwill of $167.8 million recognized related to the Doral Bank Transaction.

Other Intangible Assets

At September 30, 2017 and December 31, 2016, the Corporation had $ 6.1 million of identifiable intangible assets, with indefinite useful lives, mostly associated with the E-LOAN trademark.

The following table reflects the components of other intangible assets subject to amortization:

	Gross				Net
	Carrying		Accumulated		Carrying
(In thousands)	Amount		Amortization		Value
September 30, 2017
Core deposits	$	37,224	$	21,416	$	15,808
Other customer relationships		36,449		20,404		16,045
Total other intangible assets	$	73,673	$	41,820	$	31,853
December 31, 2016
Core deposits	$	37,274	$	18,624	$	18,650
Other customer relationships		36,449		16,162		20,287
Total other intangible assets	$	73,723	$	34,786	$	38,937

During the quarter ended September 30, 2017, the Corporation recognized $ 2.3 million in amortization expense related to other intangible assets with definite useful lives (September 30, 2016 - $ 3.1 million). During the nine months ended September 30, 2017, the Corporation recognized $ 7.0 million in amortization related to other intangible assets with definite useful lives (September 30, 2016 - $ 9.3 million).

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The following table presents the estimated amortization of the intangible assets with definite useful lives for each of the following periods:

(In thousands)
Remaining 2017	$	2,344
Year 2018		9,286
Year 2019		9,042
Year 2020		4,967
Year 2021		2,157
Year 2022		1,281
Later years		2,776

Results of the Annual Goodwill Impairment Test

The Corporation’s goodwill and other identifiable intangible assets having an indefinite useful life are tested for impairment, at least annually and on a more frequent basis if events or circumstances indicate impairment could have taken place. Such events could include, among others, a significant adverse change in the business climate, an adverse action by a regulator, an unanticipated change in the competitive environment and a decision to change the operations or dispose of a reporting unit.

Under applicable accounting standards, goodwill impairment analysis is a two-step test. The first step of the goodwill impairment test involves comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, the second step must be performed. The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated possible impairment. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the individual assets, liabilities and identifiable intangibles (including any unrecognized intangible assets, such as unrecognized core deposits and trademark) as if the reporting unit was being acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The Corporation estimates the fair values of the assets and liabilities of a reporting unit, consistent with the requirements of the fair value measurements accounting standard, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of the assets and liabilities reflects market conditions, thus volatility in prices could have a material impact on the determination of the implied fair value of the reporting unit goodwill at the impairment test date. The adjustments to measure the assets, liabilities and intangibles at fair value are for the purpose of measuring the implied fair value of goodwill and such adjustments are not reflected in the consolidated statement of condition. If the implied fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted under applicable accounting standards.

The Corporation performed the annual goodwill impairment evaluation for the entire organization during the third quarter of 2017 using July 31, 2017 as the annual evaluation date. The reporting units utilized for this evaluation were those that are one level below the business segments, which are the legal entities within the reportable segment. The Corporation follows push-down accounting, as such all goodwill is assigned to the reporting units when carrying out a business combination.

In determining the fair value of a reporting unit, the Corporation generally uses a combination of methods, including market price multiples of comparable companies and transactions, as well as discounted cash flow analysis. Management evaluates the particular circumstances of each reporting unit in order to determine the most appropriate valuation methodology. The Corporation evaluates the results obtained under each valuation methodology to identify and understand the key value drivers in order to ascertain that the results obtained are reasonable and appropriate under the circumstances. Elements considered include current market and economic conditions, developments in specific lines of business, and any particular features in the individual reporting units.

The computations require management to make estimates and assumptions. Critical assumptions that are used as part of these evaluations include:

• a selection of comparable publicly traded companies, based on nature of business, location and size;

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• a selection of comparable acquisition and capital raising transactions;

• the discount rate applied to future earnings, based on an estimate of the cost of equity;

• the potential future earnings of the reporting unit; and

• the market growth and new business assumptions.

For purposes of the market comparable approach, valuations were determined by calculating average price multiples of relevant value drivers from a group of companies that are comparable to the reporting unit being analyzed and applying those price multiples to the value drivers of the reporting unit. Multiples used are minority based multiples and thus, no control premium adjustment is made to the comparable companies market multiples. While the market price multiple is not an assumption, a presumption that it provides an indicator of the value of the reporting unit is inherent in the valuation. The determination of the market comparables also involves a degree of judgment.

For purposes of the discounted cash flows (“DCF”) approach, the valuation is based on estimated future cash flows. The financial projections used in the DCF valuation analysis for each reporting unit are based on the most recent (as of the valuation date) financial projections presented to the Corporation’s Asset / Liability Management Committee (“ALCO”). The growth assumptions included in these projections are based on management’s expectations for each reporting unit’s financial prospects considering economic and industry conditions as well as particular plans of each entity (i.e. restructuring plans, de-leveraging, etc.). The cost of equity used to discount the cash flows was calculated using the Ibbotson Build-Up Method and ranged from 11.58% to 14.49% for the 2017 analysis. The Ibbotson Build-Up Method builds up a cost of equity starting with the rate of return of a “risk-free” asset (20-year U.S. Treasury note) and adds to it additional risk elements such as equity risk premium, size premium and industry risk premium. The resulting discount rates were analyzed in terms of reasonability given the current market conditions and adjustments were made when necessary.

BPPR passed Step 1 in the annual test as of July 31, 2017. The results indicated that the average estimated fair value calculated in Step 1 using all valuation methodologies exceeded BPPR’s equity value by approximately $871 million or 26%. Accordingly, there was no indication of impairment on the goodwill recorded in BPPR at July 31, 2017 and there was no need for a Step 2 analysis. As indicated in Note 2, during the month of September Hurricanes Irma and Maria made landfall and subsequently caused extensive destruction in the U.S. and British Virgin Islands and Puerto Rico, disrupting the markets in which BPPR does business. The hurricanes have and may continue to impact the Corporation’s financial results, as detailed in Note 2, which may have an effect on BPPR’s estimated fair value. However, given the excess of BPPR’s fair value over its carrying amount, the Corporation has determined, based on the information currently available, that there is no indication of impairment of goodwill. The Corporation will continue monitoring the impact of the hurricanes as new information becomes available.

BPNA passed Step 1 in the annual test as of July 31, 2017. The results indicated that the average estimated fair value calculated in Step 1 using all valuation methodologies exceeded BPNA’s equity value by approximately $183 million or 11%. Accordingly, there was no indication of impairment on the goodwill recorded in BPNA at July 31, 2017 and there was no need for a Step 2 analysis.

The goodwill balance of BPPR and BPNA, as legal entities, represented approximately 98% of the Corporation’s total goodwill balance as of the July 31, 2017 valuation date.

Furthermore, as part of the analyses, management performed a reconciliation of the aggregate fair values determined for the reporting units to the market capitalization of Popular, Inc. concluding that the fair value results determined for the reporting units in the July 31, 2017 annual assessment were reasonable.

The goodwill impairment evaluation process requires the Corporation to make estimates and assumptions with regard to the fair value of the reporting units. Actual values may differ significantly from these estimates. Such differences could result in future impairment of goodwill that would, in turn, negatively impact the Corporation’s results of operations and the reporting units where the goodwill is recorded. Declines in the Corporation’s market capitalization could increase the risk of goodwill impairment in the future.

Management monitors events or changes in circumstances between annual tests to determine if these events or changes in circumstances would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The following tables present the gross amount of goodwill and accumulated impairment losses by reportable segments.

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September 30, 2017
	Balance at				Balance at		Balance at				Balance at
	January 1,		Accumulated		January 1,		September 30,		Accumulated		September 30,
	2017		impairment		2017		2017		impairment		2017
(In thousands)	(gross amounts)		losses		(net amounts)		(gross amounts)		losses		(net amounts)
Banco Popular de Puerto Rico	$	280,221	$	3,801	$	276,420	$	280,221	$	3,801	$	276,420
Banco Popular North America		515,285		164,411		350,874		515,285		164,411		350,874
Total Popular, Inc.	$	795,506	$	168,212	$	627,294	$	795,506	$	168,212	$	627,294
December 31, 2016
	Balance at				Balance at		Balance at				Balance at
	January 1,		Accumulated		January 1,		December 31,		Accumulated		December 31,
	2016		impairment		2016		2016		impairment		2016
(In thousands)	(gross amounts)		losses		(net amounts)		(gross amounts)		losses		(net amounts)
Banco Popular de Puerto Rico	$	280,221	$	—	$	280,221	$	280,221	$	3,801	$	276,420
Banco Popular North America		510,578		164,411		346,167		515,285		164,411		350,874
Total Popular, Inc.	$	790,799	$	164,411	$	626,388	$	795,506	$	168,212	$	627,294

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Note 16 – Deposits

Total interest bearing deposits as of the end of the periods presented consisted of:

(In thousands)	September 30, 2017		December 31, 2016
Savings accounts	$	8,348,091	$	7,793,533
NOW, money market and other interest bearing demand deposits		10,838,465		8,012,706
Total savings, NOW, money market and other interest bearing demand deposits		19,186,556		15,806,239
Certificates of deposit:
Under $100,000		3,549,599		3,570,956
$100,000 and over		4,062,924		4,138,586
Total certificates of deposit		7,612,523		7,709,542
Total interest bearing deposits	$	26,799,079	$	23,515,781

A summary of certificates of deposit by maturity at September 30, 2017 follows:

(In thousands)
2017	$	1,784,658
2018		2,421,822
2019		1,047,982
2020		1,079,172
2021		727,779
2022 and thereafter		551,110
Total certificates of deposit	$	7,612,523

At September 30, 2017, the Corporation had brokered deposits amounting to $ 0.6 billion (December 31, 2016 - $ 0.6 billion).

The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans was $16 million at September 30, 2017 (December 31, 2016 - $6 million).

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Note 17 – Borrowings

The following table presents the composition of assets sold under agreements to repurchase at September 30, 2017 and December 31, 2016.

(In thousands)	September 30, 2017		December 31, 2016
Assets sold under agreements to repurchase	$	374,405	$	479,425
Total assets sold under agreements to repurchase	$	374,405	$	479,425

The following table presents information related to the Corporation’s repurchase transactions accounted for as secured borrowings that are collateralized with investment securities available-for-sale, other assets held-for-trading purposes or which have been obtained under agreements to resell. It is the Corporation’s policy to maintain effective control over assets sold under agreements to repurchase; accordingly, such securities continue to be carried on the consolidated statements of financial condition.

Repurchase agreements accounted for as secured borrowings

	September 30, 2017		December 31, 2016
(In thousands)	Repurchase liability		Repurchase liability
U.S. Treasury Securities
Within 30 days	$	69,030	$	32,700
After 30 to 90 days		53,781		—
After 90 days		142,306		19,819
Total U.S. Treasury Securities		265,117		52,519
Obligations of U.S. government sponsored entities
Within 30 days		—		95,720
After 30 to 90 days		30,835		142,299
After 90 days		35,400		25,380
Total obligations of U.S. government sponsored entities		66,235		263,399
Mortgage-backed securities
Within 30 days		—		39,108
After 30 to 90 days		—		58,552
After 90 days		31,383		54,560
Total mortgage-backed securities		31,383		152,220
Collateralized mortgage obligations
Within 30 days		11,670		11,287
Total collateralized mortgage obligations		11,670		11,287
Total	$	374,405	$	479,425

Repurchase agreements in portfolio are generally short-term, often overnight. As such our risk is very limited. We manage the liquidity risks arising from secured funding by sourcing funding globally from a diverse group of counterparties, providing a range of securities collateral and pursuing longer durations, when appropriate.

The following table presents information related to the Corporation’s other short-term borrowings for the periods ended September 30, 2017 and December 31, 2016.

(In thousands)	September 30, 2017		December 31, 2016
Advances with the FHLB paying interest at maturity with fixed rates ranging from 1.32% to 1.44%	$	239,398	$	—
Others		1,200		1,200
Total other short-term borrowings	$	240,598	$	1,200

Note: Refer to the Corporation’s 2016 Form 10-K for rates information at December 31, 2016.

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The following table presents the composition of notes payable at September 30, 2017 and December 31, 2016.

(In thousands)	September 30, 2017		December 31, 2016
Advances with the FHLB with maturities ranging from 2017 through 2029 paying interest at monthly fixed rates ranging from 0.81% to 4.19 %	$	569,889	$	608,193
Advances with the FHLB with maturities ranging from 2018 through 2019 paying interest monthly at a floating rate ranging from 0.22% to 0.34% over the 1 month LIBOR		34,164		34,164
Advances with the FHLB with maturities ranging from 2018 through 2019 paying interest quarterly at a floating rate from 0.09% to 0.24% over the 3 month LIBOR		25,019		30,313
Unsecured senior debt securities maturing on 2019 paying interest semiannually at a fixed rate of 7.00%, net of debt issuance costs of $3,648 (2016 - $5,212)		446,351		444,788
Junior subordinated deferrable interest debentures (related to trust preferred securities) with maturities ranging from 2027 to 2034 with fixed interest rates ranging from 6.125% to 8.327%, net of debt issuance costs of $456 (2016 - $476)		439,344		439,323
Others		17,294		18,071
Total notes payable	$	1,532,061	$	1,574,852

Note: Refer to the Corporation’s 2016 Form 10-K for rates information at December 31, 2016.

A breakdown of borrowings by contractual maturities at September 30, 2017 is included in the table below.

	Assets sold under		Short-term
(In thousands)	agreements to repurchase		borrowings		Notes payable		Total
Year 2017	$	165,315	$	205,598	$	32,536	$	403,449
2018		209,090		35,000		220,086		464,176
2019		—		—		608,530		608,530
2020		—		—		112,088		112,088
2021		—		—		21,694		21,694
Later years		—		—		537,127		537,127
Total borrowings	$	374,405	$	240,598	$	1,532,061	$	2,147,064

At September 30, 2017 and December 31, 2016, the Corporation had FHLB borrowing facilities whereby the Corporation could borrow up to $3.9 billion and $3.8 billion, respectively, of which $868 million and $673 million, respectively, were used. In addition, at September 30, 2017 and December 31, 2016, the Corporation had placed $200 million of the available FHLB credit facility as collateral for a municipal letter of credit to secure deposits. The FHLB borrowing facilities are collateralized with loans held-in-portfolio, and do not have restrictive covenants or callable features.

Also, at September 30, 2017, the Corporation has a borrowing facility at the discount window of the Federal Reserve Bank of New York amounting to $1.2 billion (2016 - $1.2 billion), which remained unused at September 30, 2017 and December 31, 2016. The facility is a collateralized source of credit that is highly reliable even under difficult market conditions.

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Note 18 – Offsetting of financial assets and liabilities

The following tables present the potential effect of rights of setoff associated with the Corporation’s recognized financial assets and liabilities at September 30, 2017 and December 31, 2016.

As of September 30, 2017
							Gross Amounts Not Offset in the Statement of Financial Position
(In thousands)	Gross Amount of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets Presented in the Statement of Financial Position		Financial Instruments		Securities Collateral Received		Cash Collateral Received		Net Amount
Derivatives	$	14,234	$	—	$	14,234	$	33	$	—	$	—	$	14,201
Total	$	14,234	$	—	$	14,234	$	33	$	—	$	—	$	14,201
As of September 30, 2017
							Gross Amounts Not Offset in the Statement of Financial Position
(In thousands)	Gross Amount of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities Presented in the Statement of Financial Position		Financial Instruments		Securities Collateral Pledged		Cash Collateral Pledged		Net Amount
Derivatives	$	12,841	$	—	$	12,841	$	33	$	16	$	—	$	12,792
Repurchase agreements		374,405		—		374,405		—		374,405		—		—
Total	$	387,246	$	—	$	387,246	$	33	$	374,421	$	—	$	12,792
As of December 31, 2016
							Gross Amounts Not Offset in the Statement of Financial Position
(In thousands)	Gross Amount of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets Presented in the Statement of Financial Position		Financial Instruments		Securities Collateral Received		Cash Collateral Received		Net Amount
Derivatives	$	14,094	$	—	$	14,094	$	551	$	—	$	—	$	13,543
Reverse repurchase agreements		23,637		—		23,637		—		23,637		—		—
Total	$	37,731	$	—	$	37,731	$	551	$	23,637	$	—	$	13,543

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As of December 31, 2016
							Gross Amounts Not Offset in the Statement of Financial Position
(In thousands)	Gross Amount of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities Presented in the Statement of Financial Position		Financial Instruments		Securities Collateral Pledged		Cash Collateral Received		Net Amount
Derivatives	$	12,842	$	—	$	12,842	$	551	$	747	$	—	$	11,544
Repurchase agreements		479,425		—		479,425		—		479,425		—		—
Total	$	492,267	$	—	$	492,267	$	551	$	480,172	$	—	$	11,544

The Corporation’s derivatives are subject to agreements which allow a right of set-off with each respective counterparty. In addition, the Corporation’s Repurchase Agreements and Reverse Repurchase Agreements have a right of set-off with the respective counterparty under the supplemental terms of the Master Repurchase Agreements. In an event of default each party has a right of set-off against the other party for amounts owed in the related agreement and any other amount or obligation owed in respect of any other agreement or transaction between them.

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Note 19 – Stockholders’ equity

On January 23, 2017, the Corporation’s Board of Directors approved an increase in the Company’s quarterly common stock dividend from $0.15 per share to $0.25 per share. During the nine months ended September 30, 2017, the Corporation declared dividends on its common stock of $ 76.6 million. The quarterly dividend declared to shareholders of record as of the close of business on September 14, 2017, which amounted to $25.5 million, was paid on October 2, 2017. Also, during the first quarter of 2017, the Corporation completed a $75 million privately negotiated accelerated share repurchase transaction (“ASR”). As part of this transaction, the Corporation received 1,847,372 shares and recognized $79.5 million in treasury stock, based on the stock’s spot price, offset by a $4.5 million adjustment to capital surplus, resulting from the decline in the Corporation’s stock price during the term of the ASR.

BPPR statutory reserve

The Banking Act of the Commonwealth of Puerto Rico requires that a minimum of 10% of BPPR’s net income for the year be transferred to a statutory reserve account until such statutory reserve equals the total of paid-in capital on common and preferred stock. Any losses incurred by a bank must first be charged to retained earnings and then to the reserve fund. Amounts credited to the reserve fund may not be used to pay dividends without the prior consent of the Puerto Rico Commissioner of Financial Institutions. The failure to maintain sufficient statutory reserves would preclude BPPR from paying dividends. BPPR’s statutory reserve fund amounted to $513 million at September 30, 2017 (December 31, 2016 - $513 million). There were no transfers between the statutory reserve account and the retained earnings account during the quarters and nine months ended September 30, 2017 and September 30, 2016.

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Note 20 – Other comprehensive loss

The following table presents changes in accumulated other comprehensive loss by component for the quarters and nine months ended September 30, 2017 and 2016.

	Changes in Accumulated Other Comprehensive Loss by Component [1]
		Quarters ended						Nine months ended
		September 30,						September 30,
(In thousands)		2017			2016			2017			2016
Foreign currency translation	Beginning Balance	$	(41,405	)	$	(38,070	)	$	(39,956	)	$	(35,930	)
	Other comprehensive loss		(390	)		(325	)		(1,839	)		(2,465	)
	Net change		(390	)		(325	)		(1,839	)		(2,465	)
	Ending balance	$	(41,795	)	$	(38,395	)	$	(41,795	)	$	(38,395	)
Adjustment of pension and postretirement benefit plans	Beginning Balance	$	(205,928	)	$	(205,743	)	$	(211,610	)	$	(211,276	)
	Amounts reclassified from accumulated other comprehensive loss for amortization of net losses		3,421			3,348			10,263			10,041
	Amounts reclassified from accumulated other comprehensive loss for amortization of prior service credit		(580	)		(580	)		(1,740	)		(1,740	)
	Net change		2,841			2,768			8,523			8,301
	Ending balance	$	(203,087	)	$	(202,975	)	$	(203,087	)	$	(202,975	)
Unrealized holding gains (losses) on investments	Beginning Balance	$	(55,742	)	$	98,761		$	(68,318	)	$	(9,560	)
	Other comprehensive income (loss) before reclassifications		9,350			(14,131	)		15,331			94,023
	Other-than-temporary impairment amount reclassified from accumulated other comprehensive (loss) income		—			—			6,740			167
	Amounts reclassified from accumulated other comprehensive (loss) income for gains on securities		(82	)		(316	)		(227	)		(316	)
	Net change		9,268			(14,447	)		21,844			93,874
	Ending balance	$	(46,474	)	$	84,314		$	(46,474	)	$	84,314
Unrealized net losses on cash flow hedges	Beginning Balance	$	132		$	(560	)	$	(402	)	$	(120	)
	Other comprehensive loss before reclassifications		(250	)		(685	)		(869	)		(2,843	)
	Amounts reclassified from accumulated other comprehensive income (loss)		142			1,006			1,295			2,724
	Net change		(108	)		321			426			(119	)
	Ending balance	$	24		$	(239	)	$	24		$	(239	)
	Total	$	(291,332	)	$	(157,295	)	$	(291,332	)	$	(157,295	)

[1] All amounts presented are net of tax.

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The following table presents the amounts reclassified out of each component of accumulated other comprehensive loss during the quarters and nine months ended September 30, 2017 and 2016.

	Reclassifications Out of Accumulated Other Comprehensive Loss
		Quarters ended						Nine months ended
	Affected Line Item in the	September 30,						September 30,
(In thousands)	Consolidated Statements of Operations	2017			2016			2017			2016
Adjustment of pension and postretirement benefit plans
Amortization of net losses	Personnel costs	$	(5,606	)	$	(5,488	)	$	(16,819	)	$	(16,461	)
Amortization of prior service credit	Personnel costs		950			950			2,850			2,850
	Total before tax		(4,656	)		(4,538	)		(13,969	)		(13,611	)
	Income tax benefit		1,815			1,770			5,446			5,310
	Total net of tax	$	(2,841	)	$	(2,768	)	$	(8,523	)	$	(8,301	)
Unrealized holding gains (losses) on investments
Other-than-temporary impairment	Other-than-temporary impairment losses on available-for-sale debt securities	$	—		$	—		$	(8,299	)	$	(209	)
Realized gains on sale of securities	Net gain on sale of investment securities		103			349			284			349
	Total before tax		103			349			(8,015	)		140
	Income tax (expense) benefit		(21	)		(33	)		1,502			9
	Total net of tax	$	82		$	316		$	(6,513	)	$	149
Unrealized net losses on cash flow hedges
Forward contracts	Mortgage banking activities	$	(232	)	$	(1,650	)	$	(2,122	)	$	(4,466	)
	Total before tax		(232	)		(1,650	)		(2,122	)		(4,466	)
	Income tax benefit		90			644			827			1,742
	Total net of tax	$	(142	)	$	(1,006	)	$	(1,295	)	$	(2,724	)
	Total reclassification adjustments, net of tax	$	(2,901	)	$	(3,458	)	$	(16,331	)	$	(10,876	)

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Note 21 – Guarantees

At September 30, 2017, the Corporation recorded a liability of $0.3 million (December 31, 2016—$0.3 million), which represents the unamortized balance of the obligations undertaken in issuing the guarantees under the standby letters of credit. Management does not anticipate any material losses related to these instruments.

From time to time, the Corporation securitized mortgage loans into guaranteed mortgage-backed securities subject to limited, and in certain instances, lifetime credit recourse on the loans that serve as collateral for the mortgage-backed securities. The Corporation has not sold any mortgage loans subject to credit recourse since 2009. At September 30, 2017, the Corporation serviced $ 1.5 billion (December 31, 2016 - $ 1.7 billion) in residential mortgage loans subject to credit recourse provisions, principally loans associated with FNMA and FHLMC residential mortgage loan securitization programs. In the event of any customer default, pursuant to the credit recourse provided, the Corporation is required to repurchase the loan or reimburse the third party investor for the incurred loss. The maximum potential amount of future payments that the Corporation would be required to make under the recourse arrangements in the event of nonperformance by the borrowers is equivalent to the total outstanding balance of the residential mortgage loans serviced with recourse and interest, if applicable. During the quarter and nine months ended September 30, 2017, the Corporation repurchased approximately $ 7 million and $ 22 million, respectively, of unpaid principal balance in mortgage loans subject to the credit recourse provisions (September 30, 2016 - $ 11 million and $ 34 million, respectively). In the event of nonperformance by the borrower, the Corporation has rights to the underlying collateral securing the mortgage loan. The Corporation suffers ultimate losses on these loans when the proceeds from a foreclosure sale of the property underlying a defaulted mortgage loan are less than the outstanding principal balance of the loan plus any uncollected interest advanced and the costs of holding and disposing the related property. At September 30, 2017, the Corporation’s liability established to cover the estimated credit loss exposure related to loans sold or serviced with credit recourse amounted to $ 52 million (December 31, 2016 - $ 54 million).

The following table shows the changes in the Corporation’s liability of estimated losses related to loans serviced with credit recourse provisions during the quarters and nine months ended September 30, 2017 and 2016.

	Quarters ended September 30,						Nine months ended September 30,
(In thousands)	2017			2016			2017			2016
Balance as of beginning of period	$	49,395		$	56,931		$	54,489		$	58,663
Provision for recourse liability		6,375			4,086			11,104			11,613
Net charge-offs		(3,718	)		(4,737	)		(13,541	)		(13,996	)
Balance as of end of period	$	52,052		$	56,280		$	52,052		$	56,280

When the Corporation sells or securitizes mortgage loans, it generally makes customary representations and warranties regarding the characteristics of the loans sold. To the extent the loans do not meet specified characteristics, the Corporation may be required to repurchase such loans or indemnify for losses and bear any subsequent loss related to the loans. During the nine months ended September 30, 2017 and 2016, BPPR did not repurchase loans under representation and warranty arrangements. A substantial amount of these loans reinstate to performing status or have mortgage insurance, and thus the ultimate losses on the loans are not deemed significant.

From time to time, the Corporation sells loans and agrees to indemnify the purchaser for credit losses or any breach of certain representations and warranties made in connection with the sale. The following table presents the changes in the Corporation’s liability for estimated losses associated with indemnifications and representations and warranties related to loans sold by BPPR for the quarters and nine months ended September 30, 2017 and 2016.

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	Quarters ended September 30,						Nine months ended September 30,
(In thousands)	2017			2016			2017			2016
Balance as of beginning of period	$	10,545		$	10,702		$	10,936		$	8,087
Provision (reversal) for representation and warranties		(140	)		(34	)		(521	)		2,767
Net charge-offs		—			(27	)		(10	)		(213	)
Balance as of end of period	$	10,405		$	10,641		$	10,405		$	10,641

Servicing agreements relating to the mortgage-backed securities programs of FNMA and GNMA, and to mortgage loans sold or serviced to certain other investors, including FHLMC, require the Corporation to advance funds to make scheduled payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers. At September 30, 2017, the Corporation serviced $17.1 billion in mortgage loans for third-parties, including the loans serviced with credit recourse (December 31, 2016 - $18.0 billion). The Corporation generally recovers funds advanced pursuant to these arrangements from the mortgage owner, from liquidation proceeds when the mortgage loan is foreclosed or, in the case of FHA/VA loans, under the applicable FHA and VA insurance and guarantees programs. However, in the meantime, the Corporation must absorb the cost of the funds it advances during the time the advance is outstanding. The Corporation must also bear the costs of attempting to collect on delinquent and defaulted mortgage loans. In addition, if a defaulted loan is not cured, the mortgage loan would be canceled as part of the foreclosure proceedings and the Corporation would not receive any future servicing income with respect to that loan. At September 30, 2017, the outstanding balance of funds advanced by the Corporation under such mortgage loan servicing agreements was approximately $71 million, including advances on the portfolio acquired from Doral Bank (December 31, 2016 - $70 million). To the extent the mortgage loans underlying the Corporation’s servicing portfolio experience increased delinquencies, the Corporation would be required to dedicate additional cash resources to comply with its obligation to advance funds as well as incur additional administrative costs related to increases in collection efforts.

Popular, Inc. Holding Company (“PIHC”) fully and unconditionally guarantees certain borrowing obligations issued by certain of its wholly-owned consolidated subsidiaries amounting to $ 149 million at September 30, 2017 and December 31, 2016. In addition, at September 30, 2017 and December 31, 2016, PIHC fully and unconditionally guaranteed on a subordinated basis $ 427 million of capital securities (trust preferred securities) issued by wholly-owned issuing trust entities to the extent set forth in the applicable guarantee agreement. Refer to Note 23 to the Consolidated Financial Statements in the 2016 Form 10-K for further information on the trust preferred securities.

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Note 22 – Commitments and contingencies

Off-balance sheet risk

The Corporation is a party to financial instruments with off-balance sheet credit risk in the normal course of business to meet the financial needs of its customers. These financial instruments include loan commitments, letters of credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition.

The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and financial guarantees is represented by the contractual notional amounts of those instruments. The Corporation uses the same credit policies in making these commitments and conditional obligations as it does for those reflected on the consolidated statements of financial condition.

Financial instruments with off-balance sheet credit risk, whose contract amounts represent potential credit risk as of the end of the periods presented were as follows:

(In thousands)	September 30, 2017		December 31, 2016
Commitments to extend credit:
Credit card lines	$	4,311,987	$	4,562,981
Commercial and construction lines of credit		2,723,002		2,966,656
Other consumer unused credit commitments		250,565		261,856
Commercial letters of credit		2,288		1,490
Standby letters of credit		31,287		34,644
Commitments to originate or fund mortgage loans		9,706		25,622

At September 30, 2017 and December 31, 2016, the Corporation maintained a reserve of approximately $9 million for potential losses associated with unfunded loan commitments related to commercial and consumer lines of credit.

Business concentration

Since the Corporation’s business activities are concentrated primarily in Puerto Rico, its results of operations and financial condition are dependent upon the general trends of the Puerto Rico economy and, in particular, the residential and commercial real estate markets. The concentration of the Corporation’s operations in Puerto Rico exposes it to greater risk than other banking companies with a wider geographic base. Its asset and revenue composition by geographical area is presented in Note 34 to the Consolidated Financial Statements.

Puerto Rico is in the midst of a profound fiscal and economic crisis, was recently significantly impacted by two major hurricanes and has commenced several proceedings under the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”) to restructure its outstanding obligations and those of certain of its instrumentalities.

In September 2017, Puerto Rico was impacted by Hurricanes Irma and Maria. Most relevant, Hurricane Maria made landfall on September 20, 2017, causing severe wind and flood damage to infrastructure, homes and businesses throughout Puerto Rico. Following the passage of Hurricane Maria, all Puerto Rico was left without electrical power, other basic utility and infrastructure services were severely curtailed and the government imposed a mandatory curfew. As of the date of this report, most businesses and homes in Puerto Rico remain without power, other basic utility and infrastructure remains significantly impacted, and many businesses are operating partially or remain closed. 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. For a discussion of the impact of the hurricanes on the Corporation’s operations and financial results during the third quarter of 2017, refer to Note 2 - Hurricanes impact.

The U.S. Congress enacted PROMESA on June 30, 2016 in response to the Commonwealth’s ongoing fiscal and economic crisis. PROMESA, among other things, (i) established a seven-member oversight board (the “Oversight Board”) with broad powers over the finances of the Commonwealth and its instrumentalities, (ii) established an automatic stay on litigation, which expired on May 1,

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2017, that applied to all financial obligations of the Commonwealth, its instrumentalities and municipalities (including to all municipal obligations owned by the Corporation), (iii) required the Commonwealth (and any instrumentality thereof designated as a “covered entity” under PROMESA) to submit its budgets, and if the Oversight Board so requests, a fiscal plan for certification by the Oversight Board, and (iv) established two separate processes for the restructuring of the outstanding liabilities of the Commonwealth, its instrumentalities and municipalities: (a) Title VI, a largely out-of-court process through which a government entity and its financial creditors can agree on terms to restructure such entity’s debts, and (b) Title III, a court-supervised process for a comprehensive restructuring similar to Chapter 9 of the U.S. Bankruptcy Code.

The Oversight Board has designated a number of entities as “covered entities” under PROMESA, including the Commonwealth, all of its public corporations (including COFINA) and retirement systems, and all affiliates and subsidiaries of the foregoing. While the Oversight Board has the power to designate any of the Commonwealth’s municipalities as covered entities under PROMESA, it has not done so as of the date hereof. The Oversight Board has further approved fiscal plans for certain of these “covered entities,” including the Commonwealth, the Government Development Bank for Puerto Rico (“GDB”) and several other public corporations. The Commonwealth’s fiscal plan covers various public instrumentalities with outstanding debts payable from taxes, fees or other government revenues, including COFINA. The fiscal plans were prepared and approved prior to the impact of Hurricanes Irma and Maria and are thus based on pre-hurricane assumptions of government revenues, economic activity and outmigration. The approved fiscal plans indicate based on such assumptions that the applicable government entities are unable to pay their outstanding obligations as currently scheduled, thus recognizing a need for a significant debt restructuring. On October 31, 2017, the Oversight Board requested revised fiscal plans for the Commonwealth and various public corporations to take into account the impact of Hurricanes Irma and Maria. The Oversight Board expects that the revised fiscal plans would be certified by January or February 2018.

On May 3, 2017, the Oversight Board, on behalf of the Commonwealth, filed a petition in the U.S. District Court for the District of Puerto Rico to restructure the Commonwealth’s liabilities under Title III of PROMESA. The Oversight Board has subsequently filed analogous petitions with respect to COFINA, the Employees Retirement System, the Puerto Rico Highways and Transportation Authority and the Puerto Rico Electric Power Authority. The Oversight Board has also authorized GDB to pursue a restructuring of its financial indebtedness under Title VI of PROMESA. Although as of the date hereof, these entities are the only entities for which the Oversight Board has sought to use the restructuring authority provided by PROMESA, the Oversight Board may use the restructuring authority of Title III or Title VI of PROMESA for other Commonwealth instrumentalities, including its municipalities, in the future.

At September 30, 2017, the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities amounted to $ 484 million, of which approximately $ 482 million is outstanding ($584 million and $ 529 million, respectively, at December 31, 2016). Of the amount outstanding, $ 433 million consists of loans and $ 49 million are securities ($ 459 million and $ 70 million at December 31, 2016). All of amount outstanding ($ 512 million of the total amount outstanding at December 31, 2016) represents obligations from various municipalities in Puerto Rico for which, in most cases, the good faith, credit and unlimited taxing power of the applicable municipality has been pledged to their repayment. Such general obligation bonds and notes are payable primarily from, and have a lien on, certain special property taxes, which each municipality is required by law to levy in an amount sufficient for the payment of its outstanding general obligation bonds and notes. Those special property taxes are collected by the Municipal Revenue Collection Center (“CRIM”), or directly by some municipalities, and deposited into the Municipal Public Debt Redemption Fund (a trust for which GDB acts as trustee and which is currently held in various accounts and subaccounts at BPPR (except for the portion corresponding to repayment of municipal general obligation bonds held by GDB, which was deposited at GDB until April 2016)). Funds in the Redemption Fund are required to be used for the payment of the municipality’s general obligation bonds and notes. To the extent that a municipality’s funds in the Redemption Fund are insufficient to pay the obligations in full, CRIM is required to transfer to such Redemption Fund other property tax revenues of the applicable municipality to satisfy the insufficiency.

During the third quarter of 2017, the Corporation sold all of its COFINA bonds at a gain of approximately $0.1 million. The Corporation had recorded an other-than-temporary impairment charge of $8.3 million in respect of those bonds during the second quarter of 2017 as a result of the filing of the Title III proceeding in respect of COFINA and the non-payment of interest on the COFINA bonds in June 2017, pursuant to a court order issued in such proceeding.

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The following table details the loans and investments representing the Corporation’s direct exposure to the Puerto Rico government according to their maturities:

(In thousands)	Investment Portfolio		Loans		Total Outstanding		Total Exposure
Central Government
After 1 to 5 years	$	5	$	—	$	5	$	5
After 5 to 10 years		12		—		12		12
After 10 years		30		—		30		30
Total Central Government		47		—		47		47
Government Development Bank (GDB)
After 1 to 5 years		3		—		3		3
Total Government Development Bank (GDB)		3		—		3		3
Puerto Rico Highways and Transportation Authority
After 5 to 10 years		4		—		4		4
Total Puerto Rico Highways and Transportation Authority		4		—		4		4
Municipalities
Within 1 year		3,295		11,341		14,636		16,478
After 1 to 5 years		15,485		192,904		208,389		208,389
After 5 to 10 years		29,240		106,368		135,608		135,608
After 10 years		1,025		122,038		123,063		123,063
Total Municipalities		49,045		432,651		481,696		483,538
Total Direct Government Exposure	$	49,099	$	432,651	$	481,750	$	483,592

In addition, at September 30, 2017, the Corporation had $391 million in indirect exposure to loans or securities issued or guaranteed by Puerto Rico governmental entities but whose principal source of repayment are non-governmental entities. In such obligations, the Puerto Rico government entity guarantees any shortfall in collateral in the event of borrower default ($406 million at December 31, 2016). These included $313 million in residential mortgage loans guaranteed by the Puerto Rico Housing Finance Authority (“HFA”), an entity that has been designated as a covered entity under PROMESA (December 31, 2016 - $326 million). These mortgage loans are secured by the underlying properties and the HFA guarantee serves to cover shortfalls in collateral in the event of a borrower default. Although the Governor is currently authorized by local legislation to impose a temporary moratorium on the financial obligations of the HFA, he has not exercised this power as of the date hereof. Also, the Corporation had $43 million in Puerto Rico housing bonds issued by HFA, which are secured by second mortgage loans on Puerto Rico residential properties, $6 million in pass-through securities that have been economically defeased and refunded and for which collateral including U.S. agencies and Treasury obligations has been escrowed, and $29 million of commercial real estate notes issued by government entities, but payable from rent paid by third parties ($43 million, $6 million and $31 million at December 31, 2016, respectively).

BPPR’s commercial loan portfolio also includes loans to private borrowers who are service providers, lessors, suppliers or have other relationships with the government. These borrowers could be negatively affected by the fiscal measures to be implemented to address the Commonwealth’s fiscal crisis and the ongoing Title III proceedings under PROMESA described above. Similarly, BPPR’s mortgage and consumer loan portfolios include loans to government employees which could also be negatively affected by fiscal measures such as employee layoffs or furloughs.

The Corporation has operations in the United States Virgin Islands (the “USVI”) and has approximately $82 million in direct exposure to USVI government entities. The USVI has been experiencing a number of fiscal and economic challenges that could adversely affect the ability of its public corporations and instrumentalities to service their outstanding debt obligations. In addition, in September 2017, the USVI was also severely impacted by Hurricanes Irma and Maria, which will pose additional challenges to the USVI government and could further materially adversely affect the USVI economy.

Other contingencies

As indicated in Note 10 to the Consolidated Financial Statements, as part of the loss sharing agreements related to the Westernbank FDIC-assisted transaction, the Corporation agreed to make a true-up payment to the FDIC on the date that is 45 days following the last day of the final shared loss month, or upon the final disposition of all covered assets under the loss sharing agreements in the event losses on the loss sharing agreements fail to reach expected levels. The fair value of the true-up payment obligation was estimated at $ 167 million at September 30, 2017 (December 31, 2016 - $ 153 million). For additional information refer to Note 10.

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Legal Proceedings

The nature of Popular’s business ordinarily results in a certain number of claims, litigation, investigations, and legal and administrative cases and proceedings (“Legal Proceedings”). When the Corporation determines that it has meritorious defenses to the claims asserted, it vigorously defends itself. The Corporation will consider the settlement of cases (including cases where it has meritorious defenses) when, in management’s judgment, it is in the best interest of both the Corporation and its shareholders to do so.

On at least a quarterly basis, Popular assesses its liabilities and contingencies relating to outstanding Legal Proceedings utilizing the latest information available. For matters where it is probable that the Corporation will incur a material loss and the amount can be reasonably estimated, the Corporation establishes an accrual for the loss. Once established, the accrual is adjusted on at least a quarterly basis as appropriate to reflect any relevant developments. For matters where a material loss is not probable or the amount of the loss cannot be estimated, no accrual is established.

In certain cases, exposure to loss exists in excess of the accrual to the extent such loss is reasonably possible, but not probable. Management believes and estimates that the aggregate range of reasonably possible losses (with respect to those matters where such limits may be determined, in excess of amounts accrued), for current Legal Proceedings ranges from $0 to approximately $27.8 million as of September 30, 2017. For certain other cases, management cannot reasonably estimate the possible loss at this time. Any estimate involves significant judgment, given the varying stages of the Legal Proceedings (including the fact that many of them are currently in preliminary stages), the existence of multiple defendants in several of the current Legal Proceedings whose share of liability has yet to be determined, the numerous unresolved issues in many of the Legal Proceedings, and the inherent uncertainty of the various potential outcomes of such Legal Proceedings. Accordingly, management’s estimate will change from time-to-time, and actual losses may be more or less than the current estimate.

While the outcome of Legal Proceedings is inherently uncertain, based on information currently available, advice of counsel, and available insurance coverage, management believes that the amount it has already accrued is adequate and any incremental liability arising from the Corporation’s Legal Proceedings in matters in which a loss amount can be reasonably estimated will not have a material adverse effect on the Corporation’s consolidated financial position. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the Corporation’s consolidated financial position in a particular period.

Set forth below is a description of the Corporation’s significant legal proceedings.

BANCO POPULAR DE PUERTO RICO

Hazard Insurance Commission-Related Litigation

Popular, Inc., BPPR and Popular Insurance, LLC (the “Popular Defendants”) have been named defendants in a putative class action complaint captioned Perez Díaz v. Popular, Inc., et al, filed before the Court of First Instance, Arecibo Part. The complaint seeks damages and preliminary and permanent injunctive relief on behalf of the purported class against the Popular Defendants, as well as Antilles Insurance Company and MAPFRE-PRAICO Insurance Company (the “Defendant Insurance Companies”). Plaintiffs essentially allege that the Popular Defendants have been unjustly enriched by failing to reimburse them for commissions paid by the Defendant Insurance Companies to the insurance agent and/or mortgagee for policy years when no claims were filed against their hazard insurance policies. They demand the reimbursement to the purported “class” of an estimated $400 million plus legal interest, for the “good experience” commissions allegedly paid by the Defendant Insurance Companies during the relevant time period, as well as injunctive relief seeking to enjoin the Defendant Insurance Companies from paying commissions to the insurance agent/mortgagee and ordering them to pay those fees directly to the insured. A hearing on the request for preliminary injunction and other matters was held on February 15, 2017, as a result of which plaintiffs withdrew their request for preliminary injunctive relief. A motion for dismissal on the merits, which the Defendant Insurance Companies filed shortly before hearing, was denied with a right to replead following limited targeted discovery. On March 24, 2017, the Popular Defendants filed a certiorari petition with the Puerto

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Rico Court of Appeals seeking a review of the lower court’s denial of the motion to dismiss. The Court of Appeals denied the Popular Defendant’s request, and the Popular Defendants appealed this determination to the Puerto Rico Supreme Court, which declined review. A motion for reconsideration is pending resolution. Separately, a class certification hearing was held in June and the Court requested post-hearing briefs on this issue. On October 26, 2017, the Court entered an order whereby it broadly certified the class. At a hearing held on November 2, 2017, the Court encouraged the parties to reach agreement on discovery and class notification procedures. The Court further allowed defendants until January 4, 2018 to answer the complaint. A follow-up hearing was set for March 6, 2018. BPPR is currently evaluating its next steps, which may include filing an interlocutory appeal of the class certification order.

BPPR has separately been named a defendant in a putative class action complaint captioned Ramirez Torres, et al. v. Banco Popular de Puerto Rico, et al, filed before the Puerto Rico Court of First Instance, San Juan Part. The complaint seeks damages and preliminary and permanent injunctive relief on behalf of the purported class against the same Popular Defendants, as well other financial institutions with insurance brokerage subsidiaries in Puerto Rico. Plaintiffs essentially contend that in November 2015, Antilles Insurance Company obtained approval from the Puerto Rico Insurance Commissioner to market an endorsement that allowed its customers to obtain reimbursement on their insurance deductible for good experience, but that defendants failed to offer this product or disclose its existence to their customers, favoring other products instead, in violation of their duties as insurance brokers. Plaintiffs seek a determination that defendants unlawfully failed to comply with their duty to disclose the existence of this new insurance product, as well as double or treble damages (the latter subject to a determination that defendants engaged in anti-monopolistic practices in failing to offer this product). Between late March and early April, co-defendants filed motions to dismiss the complaint and opposed the request for preliminary injunctive relief. A co-defendant filed a third-party Complaint against Antilles Insurance Company. A preliminary injunction and class certification hearing originally scheduled for April 6th was subsequently postponed, pending resolution of the motions to dismiss. On July 31, 2017, the Court dismissed the complaint with prejudice. In August 2017, plaintiffs appealed this judgment.

A third putative class action also tangentially related to hazard insurance policies and captioned Morales v. Banco Popular de Puerto Rico, et al., was filed in May 2017. Plaintiffs aver that BPPR forced-placed hazard insurance on their mortgaged properties in violation of Puerto Rico’s implied covenant of good faith, BPPR’s alleged fiduciary duties as the escrow account manager of their mortgage loans, the Truth in Lending Act (TILA) and the Racketeer Influenced and Corrupt Organizations Act (RICO). Plaintiffs seek class certification, an order enjoining BPPR and other unnamed defendants from maintaining their allegedly fraudulent practices concerning forced-placed hazard insurance, unspecified compensatory damages, costs and attorneys’ fees. On July 19, 2017, BPPR filed a motion for summary judgment, which is pending resolution.

Mortgage-Related Litigation and Claims

BPPR has been named a defendant in a putative class action captioned Lilliam González Camacho, et al. v. Banco Popular de Puerto Rico, et al., filed before the United States District Court for the District of Puerto Rico on behalf of mortgage-holders who have allegedly been subjected to illegal foreclosures and/or loan modifications through their mortgage servicers. Plaintiffs essentially contend that when they sought to reduce their loan payments, defendants failed to provide them with reduced loan payments, instead subjecting them to lengthy loss mitigation processes while filing foreclosure claims against them in parallel. Plaintiffs assert that such actions violate HAMP, HARP and other loan modification programs, as well as the Puerto Rico Mortgage Debtor Assistance Act and TILA. For the alleged violations stated above, Plaintiffs request that all Defendants (over 20 separate defendants have been named, including all local banks), jointly and severally, respond in an amount of no less than $400 million. BPPR waived service of process in June and filed a motion to dismiss in August which is pending resolution.

BPPR has also been named a defendant in two separate putative class actions captioned Costa Dorada Apartment Corp., et al. v. Banco Popular de Puerto Rico, et al., and Yiries Josef Saad Maura v. Banco Popular, et al., filed by the same counsel who filed the González Camacho action referenced above, on behalf of commercial and residential customers of the defendant banks who have allegedly been subject to illegal foreclosures and/or loan modifications through their mortgage servicers. Plaintiffs essentially contend that when they sought to reduce their loan payments, defendants failed to provide them with reduced loan payments, instead subjecting them to lengthy loss mitigation processes while filing foreclosure claims against them in parallel (dual tracking), all in violation of TILA, the Real Estate Settlement Procedures Act (“RESPA”), the Equal Credit Opportunity Act (“ECOA”), the Fair Credit Reporting Act (“FCRA”), the Fair Debt Collection Practices Act (“FDCPA”) and other consumer-protection laws and regulations. They demand approximately $1 billion (in Costa Dorada) and unspecified damages (in Saad Maura). Banco Popular has not yet been served with summons in relation to either matter.

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BPPR has been named a defendant in a complaint for damages and breach of contract captioned Héctor Robles Rodriguez et al. v. Municipio de Ceiba, et al. Plaintiffs are residents of a development called Hacienda Las Lomas. Through the Doral Bank-FDIC assisted transaction, BPPR acquired a significant number of mortgage loans within in this development and is currently the primary creditor in the project. Plaintiffs claim damages against the developer, contractor, the relevant insurance companies, and most recently, their mortgage lenders, as a result of a landslide that occurred in October 2015, affecting various streets and houses within the development. Plaintiffs specifically allege that the mortgage lenders, including BPPR, should be deemed liable for their alleged failure to properly inspect the subject properties. Plaintiffs demand in excess of $30 million in damages and the annulment of their mortgage deeds. BPPR has recently engaged in preliminary settlement discussions with plaintiffs.

Mortgage-Related Investigations

The Corporation and its subsidiaries from time to time receive requests for information from departments of the U.S. government that investigate mortgage-related conduct. In particular, BPPR has received subpoenas and other requests for information from the Federal Housing Finance Agency’s Office of the Inspector General, the Civil Division of the Department of Justice, the Special Inspector General for the Troubled Asset Relief Program and the Federal Department of Housing and Urban Development’s Office of the Inspector General mainly concerning real estate appraisals and residential and construction loans in Puerto Rico. The Corporation is cooperating with these requests and is in discussions with the relevant U.S. government departments regarding the resolution of such matters. There can be no assurances as to the outcome of those discussions.

Separately, it has come to the attention of management that certain letters generated by the Corporation to comply with Consumer Financial Protection Bureau (“CFPB”) rules requiring written notification to borrowers who have submitted a loss mitigation application were not mailed to borrowers over a period of up to approximately three-years due to a systems interface error. Loss mitigation is a process whereby creditors work with mortgage loan borrowers who are having difficulties making their loan payments on their debt. The loss mitigation process applies both to mortgage loans held by the Corporation and to mortgage loans serviced by the Corporation for third parties. The Corporation has corrected the systems interface error that caused the letters not to be sent.

The Corporation has notified applicable regulators and is conducting a review of its mortgage files to assess the scope of potential customer impact. Based on currently available information, we believe that although the mailing error extended to approximately 20,000 residential mortgage loans (approximately 50% of which are serviced by the Corporation for third parties), the number of borrowers actually affected by the mailing error was substantially lower due to, among other things, the fact that more than half of all borrowers potentially subject to such error closed on a permanent loss mitigation alternative and the fact that the Corporation regularly uses means other than the mail to communicate with borrowers, including hand delivery of written notices at our mortgage servicing centers or bank branches.

The Corporation will begin outreach to potentially affected borrowers with outstanding loans that have not closed on a permanent loss mitigation alternative during the fourth quarter of 2017 and expects that it will be able to make a final determination with respect to the action it will take regarding all potentially impacted borrowers by the first quarter of 2018. At this point, we are not able to estimate the financial impact of the failure to mail the loss mitigation notices.

Other Significant Proceedings

In June 2017, a syndicate comprised of BPPR and other local banks (the “Lenders”) filed an involuntary Chapter 11 bankruptcy proceeding against Betteroads Asphalt and Betterecycling Corporation (the “Involuntary Debtors”). This filing followed attempts by the Lenders to restructure and resolve the Involuntary Debtors’ obligations and outstanding defaults under a certain credit agreement, first through good faith negotiations and subsequently, through the filing of a collection action against the Involuntary Debtors in local court. The involuntary debtors subsequently counterclaimed, asserting damages in excess of $900 million. The Lenders ultimately joined in the commencement of these involuntary bankruptcy proceedings against the Debtors in order to preserve and recover the Involuntary Debtors’ assets, having confirmed that the Involuntary Debtors were transferring assets out of their estate for little or no consideration. The Involuntary Debtors subsequently filed a motion to dismiss the proceedings and for damages against the syndicate, arguing both that this petition was filed in bad faith and that there was a bona fide dispute as to the petitioners’ claims, as set forth in the counterclaim filed by the Involuntary Debtors in local court. The court allowed limited discovery to take place prior to an evidentiary hearing (still unscheduled and to be held after the discovery cut-off date) to determine the merits of debtors’ motion to dismiss. A separate hearing will be heard in November to entertain creditors’ motion to appoint a trustee.

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POPULAR SECURITIES

Puerto Rico Bonds and Closed-End Investment Funds

The volatility in prices and declines in value that Puerto Rico municipal bonds and closed-end investment companies that invest primarily in Puerto Rico municipal bonds have experienced since August 2013 have led to regulatory inquiries, customer complaints and arbitrations for most broker-dealers in Puerto Rico, including Popular Securities. Popular Securities has received customer complaints and is named as a respondent (among other broker-dealers) in 86 arbitration proceedings with aggregate claimed amounts of approximately $209 million, including one arbitration with claimed damages of approximately $78 million in which another Puerto Rico broker-dealer is a co-defendant. While Popular Securities believes it has meritorious defenses to the claims asserted in these proceedings, it has often determined that it is in its best interest to settle such claims rather than expend the money and resources required to see such cases to completion. The Government’s defaults and non-payment of its various debt obligations, the Commonwealth government’s and the Financial Oversight Management Board’s decision to pursue restructurings under Title III and Title VI of PROMESA have increased and may continue to increase the number of customer complaints (and claimed damages) filed against Popular Securities concerning Puerto Rico bonds, including bonds issued by COFINA and GDB, and closed-end investment companies that invest primarily in Puerto Rico bonds. An adverse result in the matters described above or a significant increase in customer complaints could have a material adverse effect on Popular.

Subpoenas for Production of Documents in connection with PROMESA Title III Proceedings

Popular Securities has, together with Popular, Inc. and BPPR (collectively, the “Popular Companies”) recently filed an appearance in connection with the Commonwealth of Puerto Rico’s pending Title III bankruptcy proceeding. Its appearance was prompted by a request by the Commonwealth’s Unsecured Creditors’ Committee (“UCC”) to allow a broad discovery program under Rule 2004 to investigate, among other things, the causes of the Puerto Rico financial crisis. The Rule 2004 request seeks broad discovery not only from the Popular Companies, but also from Banco Santander de Puerto Rico (“Santander”) and others, spanning in excess of eleven (11) years. In their respective objections, both the Popular Companies and Santander argued that these requests go substantially beyond the permissible scope of Rule 2004 discovery programs and should either be denied outright or substantially modified. A hearing before Magistrate Judge Gail Dein was held on August 9, 2017. At the hearing, the Court requested that the UCC and the Oversight Board, who opposed the UCC’s request, submit further briefing on this subject. The parties are to argue their respective positions at the upcoming omnibus hearing, to be held on November 15, 2017.

Since the August 2017 hearing, the Popular Companies have been served with additional requests for the preservation and voluntary production of certain COFINA-related documents from the UCC and the COFINA Agent in connection with the COFINA-Commonwealth adversary complaint, as well as from the Oversight Board’s Independent Investigator, Kobre & Kim. BPPR is cooperating with all such requests but has asked that such requests be submitted in the form of a subpoena to address privacy and confidentiality considerations pertaining to some of the documents involved in the production.

POPULAR COMMUNITY BANK

Josefina Valle v. Popular Community Bank

PCB has been named a defendant in a putative class action complaint captioned Josefina Valle, et al. v. Popular Community Bank, filed in November 2012 in the New York State Supreme Court (New York County). Plaintiffs, PCB customers, allege among other things that PCB has engaged in unfair and deceptive acts and trade practices in connection with the assessment of overdraft fees and payment processing on consumer deposit accounts. The complaint further alleges that PCB improperly disclosed its consumer overdraft policies and that the overdraft rates and fees assessed by PCB violate New York’s usury laws. Plaintiffs seek unspecified damages, including punitive damages, interest, disbursements, and attorneys’ fees and costs.

A motion to dismiss was filed on September 9, 2013. On October 25, 2013, plaintiffs filed an amended complaint seeking to limit the putative class to New York account holders. A motion to dismiss the amended complaint was filed in February 2014. In August 2014, the Court entered an order granting in part PCB’s motion to dismiss. The sole surviving claim relates to PCB’s item processing policy. On September 10, 2014, plaintiffs filed a motion for leave to file a second amended complaint to correct certain deficiencies noted in the court’s decision and order. PCB subsequently filed a motion in opposition to plaintiff’s motion for leave to amend and further sought to compel arbitration. In June 2015, this matter was reassigned to a new judge and on July 22, 2015, such Court denied PCB’s motion to compel arbitration and granted plaintiffs’ motion for leave to amend the complaint to replead certain claims based on item processing reordering, misstatement of balance information and failure to notify customers in advance of potential overdrafts. The Court did not, however, allow plaintiffs to replead their claim for the alleged breach of the implied

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covenant of good faith and fair dealing. On August 12, 2015, Plaintiffs filed a second amended complaint. On August 24, 2015, PCB filed a Notice of Appeal as to the order granting leave to file the second amended complaint and on September 17, 2015, it filed a motion to dismiss the second amended complaint. On February 18, 2016, the Court granted in part and denied in part PCB’s pending motion to dismiss. The Court dismissed plaintiffs’ unfair and deceptive acts and trade practices claim to the extent it sought to recover overdraft fees incurred prior to September 2011. On March 28, 2016, PCB filed an answer to second amended complaint and on April 7, 2016, it filed a notice of appeal on the partial denial of PCB’s motion to dismiss. A mediation session held on September 21, 2016 proved unsuccessful. On January 3, 2017, PCB filed a brief with the Appellate Division in support of its appeal of the lower Court’s prior order that granted in part and denied in part PCB’s motion to dismiss plaintiffs’ second amended complaint. Oral argument was held on April 4, 2017. On April 25, 2017, the Court issued an order denying PCB’s appeal from the partial denial of our motion to dismiss. The parties have since, been engaged in settlement discussions, which are currently at an advanced stage.

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Note 23 – Non-consolidated variable interest entities

The Corporation is involved with four statutory trusts which it created to issue trust preferred securities to the public. These trusts are deemed to be variable interest entities (“VIEs”) since the equity investors at risk have no substantial decision-making rights. The Corporation does not hold any variable interest in the trusts, and therefore, cannot be the trusts’ primary beneficiary. Furthermore, the Corporation concluded that it did not hold a controlling financial interest in these trusts since the decisions of the trusts are predetermined through the trust documents and the guarantee of the trust preferred securities is irrelevant since in substance the sponsor is guaranteeing its own debt.

Also, the Corporation is involved with various special purpose entities mainly in guaranteed mortgage securitization transactions, including GNMA and FNMA. These special purpose entities are deemed to be VIEs since they lack equity investments at risk. The Corporation’s continuing involvement in these guaranteed loan securitizations includes owning certain beneficial interests in the form of securities as well as the servicing rights retained. The Corporation is not required to provide additional financial support to any of the variable interest entities to which it has transferred the financial assets. The mortgage-backed securities, to the extent retained, are classified in the Corporation’s Consolidated Statements of Financial Condition as available-for-sale or trading securities. The Corporation concluded that, essentially, these entities (FNMA and GNMA) control the design of their respective VIEs, dictate the quality and nature of the collateral, require the underlying insurance, set the servicing standards via the servicing guides and can change them at will, and can remove a primary servicer with cause, and without cause in the case of FNMA. Moreover, through their guarantee obligations, agencies (FNMA and GNMA) have the obligation to absorb losses that could be potentially significant to the VIE.

The Corporation holds variable interests in these VIEs in the form of agency mortgage-backed securities and collateralized mortgage obligations, including those securities originated by the Corporation and those acquired from third parties. Additionally, the Corporation holds agency mortgage-backed securities, agency collateralized mortgage obligations and private label collateralized mortgage obligations issued by third party VIEs in which it has no other form of continuing involvement. Refer to Note 25 to the Consolidated Financial Statements for additional information on the debt securities outstanding at September 30, 2017 and December 31, 2016, which are classified as available-for-sale and trading securities in the Corporation’s consolidated statements of financial condition. In addition, the Corporation holds variable interests in the form of servicing fees, since it retains the right to service the transferred loans in those government-sponsored special purpose entities (“SPEs”) and may also purchase the right to service loans in other government-sponsored SPEs that were transferred to those SPEs by a third-party.

The following table presents the carrying amount and classification of the assets related to the Corporation’s variable interests in non-consolidated VIEs and the maximum exposure to loss as a result of the Corporation’s involvement as servicer of GNMA and FNMA loans at September 30, 2017 and December 31, 2016.

(In thousands)	September 30, 2017		December 31, 2016
Assets
Servicing assets:
Mortgage servicing rights	$	152,072	$	158,562
Total servicing assets	$	152,072	$	158,562
Other assets:
Servicing advances	$	22,955	$	20,787
Total other assets	$	22,955	$	20,787
Total assets	$	175,027	$	179,349
Maximum exposure to loss	$	175,027	$	179,349

The size of the non-consolidated VIEs, in which the Corporation has a variable interest in the form of servicing fees, measured as the total unpaid principal balance of the loans, amounted to $11.9 billion at September 30, 2017 (December 31, 2016—$12.3 billion).

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The Corporation determined that the maximum exposure to loss includes the fair value of the MSRs and the assumption that the servicing advances at September 30, 2017 and December 31, 2016, will not be recovered. The agency debt securities are not included as part of the maximum exposure to loss since they are guaranteed by the related agencies.

In September of 2011, BPPR sold construction and commercial real estate loans to a newly created joint venture, PRLP 2011 Holdings, LLC. In March of 2013, BPPR completed a sale of commercial and construction loans, and commercial and single family real estate owned to a newly created joint venture, PR Asset Portfolio 2013-1 International, LLC.

These joint ventures were created for the limited purpose of acquiring the loans from BPPR; servicing the loans through a third-party servicer; ultimately working out, resolving and/or foreclosing the loans; and indirectly owning, operating, constructing, developing, leasing and selling any real properties acquired by the joint ventures through deed in lieu of foreclosure, foreclosure, or by resolution of any loan.

BPPR provided financing to PRLP 2011 Holdings, LLC and PR Asset Portfolio 2013-1 International, LLC for the acquisition of the assets in an amount equal to the acquisition loan of $86 million and $182 million, respectively. The acquisition loans have a 5-year maturity and bear a variable interest at 30-day LIBOR plus 300 basis points and are secured by a pledge of all of the acquiring entity’s assets. In addition, BPPR provided these joint ventures with a non-revolving advance facility (the “advance facility”) of $69 million and $35 million, respectively, to cover unfunded commitments and costs-to-complete related to certain construction projects, and a revolving working capital line (the “working capital line”) of $20 million and $30 million, respectively, to fund certain operating expenses of the joint venture. As part of these transactions, BPPR received $ 48 million and $92 million, respectively, in cash and a 24.9% equity interest in each joint venture. The Corporation is not required to provide any other financial support to these joint ventures.

BPPR accounted for both transactions as a true sale pursuant to ASC Subtopic 860-10.

The Corporation has determined that PRLP 2011 Holdings, LLC and PR Asset Portfolio 2013-1 International, LLC are VIEs but it is not the primary beneficiary. All decisions are made by Caribbean Property Group (“CPG”) (or an affiliate thereof) (the “Manager”), except for certain limited material decisions which would require the unanimous consent of all members. The Manager is authorized to execute and deliver on behalf of the joint ventures any and all documents, contracts, certificates, agreements and instruments, and to take any action deemed necessary in the benefit of the joint ventures.

The Corporation holds variable interests in these VIEs in the form of the 24.9% equity interests and the financing provided to these joint ventures. The equity interest is accounted for under the equity method of accounting pursuant to ASC Subtopic 323-10.

The following tables present the carrying amount and classification of the assets and liabilities related to the Corporation’s variable interests in the non-consolidated VIEs, PRLP 2011 Holdings, LLC and PR Asset Portfolio 2013-1 International, LLC, and their maximum exposure to loss at September 30, 2017 and December 31, 2016.

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	PRLP 2011 Holdings, LLC						PR Asset Portfolio 2013-1 International, LLC
(In thousands)	September 30, 2017			December 31, 2016			September 30, 2017			December 31, 2016
Assets
Loans held-in-portfolio:
Advances under the working capital line	$	—		$	—		$	—		$	1,391
Advances under the advance facility		—			—			—			2,475
Total loans held-in-portfolio	$	—		$	—		$	—		$	3,866
Accrued interest receivable	$	—		$	—		$	—		$	19
Other assets:
Equity investment	$	7,362		$	9,167		$	14,167		$	22,378
Total assets	$	7,362		$	9,167		$	14,167		$	26,263
Liabilities
Deposits	$	(480	)	$	(1,127	)	$	(16,900	)	$	(9,692	)
Total liabilities	$	(480	)	$	(1,127	)	$	(16,900	)	$	(9,692	)
Total net assets	$	6,882		$	8,040		$	(2,733	)	$	16,571
Maximum exposure to loss	$	6,882		$	8,040		$	—		$	16,571

The Corporation determined that the maximum exposure to loss under a worst case scenario at September 30, 2017 would be not recovering the net assets held by the Corporation as of the reporting date.

ASU 2009-17 requires that an ongoing primary beneficiary assessment should be made to determine whether the Corporation is the primary beneficiary of any of the VIEs it is involved with. The conclusion on the assessment of these non-consolidated VIEs has not changed since their initial evaluation. The Corporation concluded that it is still not the primary beneficiary of these VIEs, and therefore, these VIEs are not required to be consolidated in the Corporation’s financial statements at September 30, 2017.

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Note 24 – Related party transactions

The Corporation considers its equity method investees as related parties. The following provides information on transactions with equity method investees considered related parties.

EVERTEC

The Corporation has an investment in EVERTEC, Inc. (“EVERTEC”), which provides various processing and information technology services to the Corporation and its subsidiaries and gives BPPR access to the ATH network owned and operated by EVERTEC. As of September 30, 2017, the Corporation’s stake in EVERTEC was 16.10%.The Corporation continues to have significant influence over EVERTEC. Accordingly, the investment in EVERTEC is accounted for under the equity method and is evaluated for impairment if events or circumstances indicate that a decrease in value of the investment has occurred that is other than temporary.

The Corporation received $ 3.5 million in dividend distributions during the nine months ended September 30, 2017 from its investments in EVERTEC’s holding company (September 30, 2016—$ 3.5 million). The Corporation’s equity in EVERTEC is presented in the table which follows and is included as part of “other assets” in the Consolidated Statements of Financial Condition.

(In thousands)	September 30, 2017		December 31, 2016
Equity investment in EVERTEC	$	45,810	$	38,904

The Corporation had the following financial condition balances outstanding with EVERTEC at September 30, 2017 and December 31, 2016. Items that represent liabilities to the Corporation are presented with parenthesis.

(In thousands)	September 30, 2017			December 31, 2016
Accounts receivable (Other assets)	$	5,221		$	6,394
Deposits		(20,712	)		(14,899	)
Accounts payable (Other liabilities)		(4,070	)		(20,372	)
Net total	$	(19,561	)	$	(28,877	)

The Corporation’s proportionate share of income or loss from EVERTEC is included in other operating income in the consolidated statements of operations. The following table presents the Corporation’s proportionate share of EVERTEC’s income (loss) and changes in stockholders’ equity for the quarters and nine months ended September 30, 2017 and 2016.

(In thousands)	Quarter ended September 30, 2017		Nine months ended September 30, 2017
Share of income from the investment in EVERTEC	$	1,200	$	8,143
Share of other changes in EVERTEC’s stockholders’ equity		366		2,034
Share of EVERTEC’s changes in equity recognized in income	$	1,566	$	10,177
(In thousands)	Quarter ended September 30, 2016		Nine months ended September 30, 2016
Share of income from the investment in EVERTEC	$	3,198	$	9,397
Share of other changes in EVERTEC’s stockholders’ equity		426		(899	)
Share of EVERTEC’s changes in equity recognized in income	$	3,624	$	8,498

The following tables present the transactions and service payments between the Corporation and EVERTEC (as an affiliate) and their impact on the results of operations for the quarters and nine months ended September 30, 2017 and 2016. Items that represent expenses to the Corporation are presented with parenthesis.

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(In thousands)	Quarter ended September 30, 2017			Nine months ended September 30, 2017			Category
Interest expense on deposits	$	(12	)	$	(33	)		Interest expense
ATH and credit cards interchange income from services to EVERTEC		7,061			22,656			Other service fees
Rental income charged to EVERTEC		1,737			5,119			Net occupancy
Processing fees on services provided by EVERTEC		(43,855	)		(132,289	)		Professional fees
Other services provided to EVERTEC		291			900			Other operating expenses
Total	$	(34,778	)	$	(103,647	)
(In thousands)	Quarter ended September 30, 2016			Nine months ended September 30, 2016			Category
Interest expense on deposits	$	(15	)	$	(51	)		Interest expense
ATH and credit cards interchange income from services to EVERTEC		7,533			21,948			Other service fees
Rental income charged to EVERTEC		1,760			5,232			Net occupancy
Processing fees on services provided by EVERTEC		(44,923	)		(131,701	)		Professional fees
Other services provided to EVERTEC		269			783			Other operating expenses
Total	$	(35,376	)	$	(103,789	)

PRLP 2011 Holdings LLC

As indicated in Note 23 to the consolidated financial statements, the Corporation holds a 24.9% equity interest in PRLP 2011 Holdings LLC and currently holds certain deposits from the entity.

The Corporation’s equity in PRLP 2011 Holdings, LLC is presented in the table which follows and is included as part of “other assets” in the Consolidated Statements of Financial Condition.

(In thousands)	September 30, 2017		December 31, 2016
Equity investment in PRLP 2011 Holdings, LLC	$	7,362	$	9,167

The Corporation had the following financial condition balances outstanding with PRLP 2011 Holdings, LLC at September 30, 2017 and December 31, 2016.

(In thousands)	September 30, 2017			December 31, 2016
Deposits (non-interest bearing)	$	(480	)	$	(1,127	)

The Corporation’s proportionate share of income or loss from PRLP 2011 Holdings, LLC is included in other operating income in the Consolidated Statements of Operations. The following table presents the Corporation’s proportionate share of loss from PRLP 2011 Holdings, LLC for the quarters and nine months ended September 30, 2017 and 2016.

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(In thousands)	Quarter ended September 30, 2017		Nine months ended September 30, 2017
Share of income (loss) from the equity investment in PRLP 2011 Holdings, LLC	$	101	$	(808	)
(In thousands)	Quarter ended September 30, 2016		Nine months ended September 30, 2016
Share of income (loss) from the equity investment in PRLP 2011 Holdings, LLC	$	511	$	(83	)

During the nine months ended September 30, 2017, the Corporation received $ 1.0 million in capital distributions from its investment in PRLP 2011 Holdings, LLC (September 30, 2016—$ 3.4 million). The following table presents transactions between the Corporation and PRLP 2011 Holdings, LLC and their impact on the Corporation’s results of operations for the quarter and nine months ended September 30, 2016.

(In thousands)	Quarter ended September 30, 2016		Nine months ended September 30, 2016		Category
Interest income on loan to PRLP 2011 Holdings, LLC	$	—	$	11		Interest income

PR Asset Portfolio 2013-1 International, LLC

As indicated in Note 23 to the Consolidated Financial Statements, effective March 2013 the Corporation holds a 24.9% equity interest in PR Asset Portfolio 2013-1 International, LLC and currently provides certain financing to the joint venture as well as holds certain deposits from the entity.

The Corporation’s equity in PR Asset Portfolio 2013-1 International, LLC is presented in the table which follows and is included as part of “other assets” in the Consolidated Statements of Financial Condition.

(In thousands)	September 30, 2017		December 31, 2016
Equity investment in PR Asset Portfolio 2013-1 International, LLC	$	14,167	$	22,378

The Corporation had the following financial condition balances outstanding with PR Asset Portfolio 2013-1 International, LLC, at September 30, 2017 and December 31, 2016.

(In thousands)	September 30, 2017			December 31, 2016
Loans	$	—		$	3,866
Accrued interest receivable		—			19
Deposits		(16,900	)		(9,692	)
Net total	$	(16,900	)	$	(5,807	)

The Corporation’s proportionate share of income or loss from PR Asset Portfolio 2013-1 International, LLC is included in other operating income in the consolidated statements of operations. The following table presents the Corporation’s proportionate share of income (loss) from PR Asset Portfolio 2013-1 International, LLC for the quarters and nine months ended September 30, 2017 and 2016.

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(In thousands)	Quarter ended September 30, 2017			Nine months ended September 30, 2017
Share of loss from the equity investment in PR Asset Portfolio 2013-1 International, LLC	$	(1,299	)	$	(1,150	)
(In thousands)	Quarter ended September 30, 2016			Nine months ended September 30, 2016
Share of loss from the equity investment in PR Asset Portfolio 2013-1 International, LLC	$	(587	)	$	(910	)

During the nine months ended September 30, 2017, the Corporation received $ 7.1 million in capital distribution from its investment in PR Asset Portfolio 2013-1 International, LLC. No capital distribution was received by the Corporation during the nine months ended September 30, 2016. The following table presents transactions between the Corporation and PR Asset Portfolio 2013-1 International, LLC and their impact on the Corporation’s results of operations for the quarters and nine months ended September 30, 2017 and 2016.

(In thousands)	Quarter ended September 30, 2017			Nine months ended September 30, 2017			Category
Interest income on loan to PR Asset Portfolio 2013-1 International, LLC	$	—		$	9			Interest income
Interest expense on deposits		(8	)		(23	)		Interest expense
Total	$	(8	)	$	(14	)
(In thousands)	Quarter ended September 30, 2016			Nine months ended September 30, 2016			Category
Interest income on loan to PR Asset Portfolio 2013-1 International, LLC	$	189		$	923			Interest income
Interest expense on deposits		(1	)		(3	)		Interest expense
Total	$	188		$	920

Centro Financiero BHD León

At September 30, 2017, the Corporation had a 15.84% stake in Centro Financiero BHD Leon, S.A. (“BHD Leon”), one of the largest banking and financial services groups in the Dominican Republic. During the nine months ended September 30, 2017, the Corporation recorded $ 17.3 million in earnings from its investment in BHD Leon (2016 - $ 18.5 million), which had a carrying amount of $ 129.1 million at September 30, 2017 (December 31, 2016 - $ 125.5 million). As of December 31, 2016 BPPR had extended a credit facility of $ 50 million to BHD León, with an outstanding balance of $ 25 million. This credit facility expired during March 2017. The Corporation received $ 11.8 million in dividend distributions during the nine months ended September 30, 2017 from its investment in BHD Leon (September 30, 2016 - $ 12.1 million).

On June 30, 2017, BPPR extended an $8 million credit facility to Grupo Financiero Leon, S.A. Panamá (“GFL”), a shareholder of BHD Leon. The sources of repayment for this loan are the dividends to be received by GFL from its investment in BHD Leon. BPPR’s credit facility ranks pari passu with another $8 million credit facility extended to GFL by BHD International Panama, an affiliate of BHD Leon.

Puerto Rico Investment Companies

The Corporation provides advisory services to several Puerto Rico investment companies in exchange for a fee. The Corporation also provides administrative, custody and transfer agency services to these investment companies. These fees are calculated at an annual rate of the average net assets of the investment company, as defined in each agreement. Due to its advisory role, the Corporation considers these investment companies as related parties.

For the nine months ended September 30, 2017 administrative fees charged to these investment companies amounted to $ 5.8 million (2016- $ 6.0 million) and waived fees amounted to $ 1.7 million (2016 - $ 2.1 million), for a net fee of $ 4.1 million (2016 - $ 3.9 million).

89

The Corporation, through its subsidiary Banco Popular de Puerto Rico, has also entered into lines of credit facilities with these companies. As of September 30, 2017, the available lines of credit facilities amounted to $357 million (December 31 2016—$357 million). The aggregate sum of all outstanding balances under all credit facilities that may be made available by BPPR, from time to time, to those Puerto Rico investment companies for which BPPR acts as investment advisor or co-investment advisor, shall never exceed the lesser of $200 million or 10% of BPPR’s capital.

Other Related Party Transactions

In April 2010, in connection with the acquisition of the Westernbank assets from the FDIC, as receiver, BPPR acquired a term loan to a corporate borrower partially owned by an investment corporation in which the Corporation’s Executive Chairman, at that time the Chief Executive Officer, as well as certain of his family members, hold an ownership interest. At the time the loan was acquired by BPPR, it had an unpaid principal balance of $40.2 million.

In May 2017, this loan was sold by BPPR to Popular, Inc., holding company (“PIHC”). At the time of sale, the loan had an unpaid principal balance of $37.9 million. PIHC paid $37.9 million to BPPR for the loan, of which $6.0 million was recognized by BPPR as a capital contribution representing the difference between the fair value and the book value of the loan at the time of transfer. Immediately upon being acquired by BHC, the loan’s maturity was extended by 90 days (under the same terms as originally contracted) to provide the BHC additional time to evaluate a refinancing or long-term extension of the loan. In August 2017, the credit facility was refinanced with a stated maturity in February 2019. As of September 30, 2017, the unpaid principal balance amounted to $37.7 million.

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Note 25 – Fair value measurement    

ASC Subtopic 820-10 “Fair Value Measurements and Disclosures” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels in order to increase consistency and comparability in fair value measurements and disclosures. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

• Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date. Valuation on these instruments does not necessitate a significant degree of judgment since valuations are based on quoted prices that are readily available in an active market.

• Level 2 - Quoted prices other than those included in Level 1 that are observable either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or that can be corroborated by observable market data for substantially the full term of the financial instrument.

• Level 3 - Inputs are unobservable and significant to the fair value measurement. Unobservable inputs reflect the Corporation’s own assumptions about assumptions that market participants would use in pricing the asset or liability.

The Corporation maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Fair value is based upon quoted market prices when available. If listed prices or quotes are not available, the Corporation employs internally-developed models that primarily use market-based inputs including yield curves, interest rates, volatilities, and credit curves, among others. Valuation adjustments are limited to those necessary to ensure that the financial instrument’s fair value is adequately representative of the price that would be received or paid in the marketplace. These adjustments include amounts that reflect counterparty credit quality, the Corporation’s credit standing, constraints on liquidity and unobservable parameters that are applied consistently. There have been no changes in the Corporation’s methodologies used to estimate the fair value of assets and liabilities from those disclosed in the 2016 Form 10-K.

The estimated fair value may be subjective in nature and may involve uncertainties and matters of significant judgment for certain financial instruments. Changes in the underlying assumptions used in calculating fair value could significantly affect the results.

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Fair Value on a Recurring and Nonrecurring Basis

The following fair value hierarchy tables present information about the Corporation’s assets and liabilities measured at fair value on a recurring basis at September 30, 2017 and December 31, 2016:

At September 30, 2017
(In thousands)	Level 1		Level 2			Level 3			Total
RECURRING FAIR VALUE MEASUREMENTS
Assets
Investment securities available-for-sale:
U.S. Treasury securities	$	—	$	2,764,863		$	—		$	2,764,863
Obligations of U.S. Government sponsored entities		—		611,646			—			611,646
Obligations of Puerto Rico, States and political subdivisions		—		6,615			—			6,615
Collateralized mortgage obligations—federal agencies		—		1,015,597			—			1,015,597
Mortgage-backed securities		—		4,658,238			1,288			4,659,526
Equity securities		—		1,885			—			1,885
Other		—		869			—			869
Total investment securities available-for-sale	$	—	$	9,059,713		$	1,288		$	9,061,001
Trading account securities, excluding derivatives:
Obligations of Puerto Rico, States and political subdivisions	$	—	$	172		$	—		$	172
Collateralized mortgage obligations		—		276			572			848
Mortgage-backed securities—federal agencies		—		32,709			43			32,752
Other		—		11,630			549			12,179
Total trading account securities, excluding derivatives	$	—	$	44,787		$	1,164		$	45,951
Mortgage servicing rights	$	—	$	—		$	180,157		$	180,157
Derivatives		—		14,234			—			14,234
Total assets measured at fair value on a recurring basis	$	—	$	9,118,734		$	182,609		$	9,301,343
Liabilities
Derivatives	$	—	$	(12,841	)	$	—		$	(12,841	)
Contingent consideration		—		—			(166,876	)		(166,876	)
Total liabilities measured at fair value on a recurring basis	$	—	$	(12,841	)	$	(166,876	)	$	(179,717	)

92

At December 31, 2016
(In thousands)	Level 1		Level 2			Level 3			Total
RECURRING FAIR VALUE MEASUREMENTS
Assets
Investment securities available-for-sale:
U.S. Treasury securities	$	—	$	2,136,620		$	—		$	2,136,620
Obligations of U.S. Government sponsored entities		—		711,850			—			711,850
Obligations of Puerto Rico, States and political subdivisions		—		22,771			—			22,771
Collateralized mortgage obligations—federal agencies		—		1,221,526			—			1,221,526
Mortgage-backed securities		—		4,103,940			1,392			4,105,332
Equity securities		—		2,122			—			2,122
Other		—		9,585			—			9,585
Total investment securities available-for-sale	$	—	$	8,208,414		$	1,392		$	8,209,806
Trading account securities, excluding derivatives:
Obligations of Puerto Rico, States and political subdivisions	$	—	$	1,164		$	—		$	1,164
Collateralized mortgage obligations		—		—			1,321			1,321
Mortgage-backed securities—federal agencies		—		37,991			4,755			42,746
Other		—		13,963			602			14,565
Total trading account securities, excluding derivatives	$	—	$	53,118		$	6,678		$	59,796
Mortgage servicing rights	$	—	$	—		$	196,889		$	196,889
Derivatives		—		14,094			—			14,094
Total assets measured at fair value on a recurring basis	$	—	$	8,275,626		$	204,959		$	8,480,585
Liabilities
Derivatives	$	—	$	(12,842	)	$	—		$	(12,842	)
Contingent consideration		—		—			(153,158	)		(153,158	)
Total liabilities measured at fair value on a recurring basis	$	—	$	(12,842	)	$	(153,158	)	$	(166,000	)

The fair value information included in the following tables is not as of period end, but as of the date that the fair value measurement was recorded during the quarters and nine months ended September 30, 2017 and 2016 and excludes nonrecurring fair value measurements of assets no longer outstanding as of the reporting date.

Nine months ended September 30, 2017
(In thousands)	Level 1		Level 2		Level 3		Total
NONRECURRING FAIR VALUE MEASUREMENTS
Assets									Write-downs
Loans[1]	$	—	$	—	$	66,221	$	66,221	$	(16,282	)
Other real estate owned[2] [3]		—		—		89,825		89,825		(17,405	)
Other foreclosed assets[2]		—		—		2,223		2,223		(475	)
Total assets measured at fair value on a nonrecurring basis	$	—	$	—	$	158,269	$	158,269	$	(34,162	)

[1] Relates mostly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations, in accordance with the provisions of ASC Section 310-10-35. Costs to sell are excluded from the reported fair value amount.

[2] Represents the fair value of foreclosed real estate and other collateral owned that were written down to their fair value. Costs to sell are excluded from the reported fair value amount.

[3] Write-downs include $2.7 million related to estimated damages caused by Hurricanes Irma and Maria based on the sample of properties examined.

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Nine months ended September 30, 2016
(In thousands)	Level 1		Level 2		Level 3		Total
NONRECURRING FAIR VALUE MEASUREMENTS
Assets									Write-downs
Loans[1]	$	—	$	—	$	61,309	$	61,309	$	(31,097	)
Other real estate owned[2]		—		—		39,996		39,996		(8,482	)
Other foreclosed assets[2]		—		—		46		46		(2	)
Total assets measured at fair value on a nonrecurring basis	$	—	$	—	$	101,351	$	101,351	$	(39,581	)

[1] Relates mostly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations, in accordance with the provisions of ASC Section 310-10-35. Costs to sell are excluded from the reported fair value amount.

[2] Represents the fair value of foreclosed real estate and other collateral owned that were written down to their fair value. Costs to sell are excluded from the reported fair value amount.

The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarters and nine months ended September 30, 2017 and 2016.

Quarter ended September 30, 2017
	MBS									Other
	classified			CMOs						securities
	as investment			classified			MBS			classified
	securities			as trading			classified as			as trading			Mortgage
	available-			account			trading account			account			servicing			Total			Contingent			Total
(In thousands)	for-sale			securities			securities			securities			rights			assets			consideration			liabilities
Balance at June 30, 2017	$	1,289		$	858		$	4,334		$	557		$	188,728		$	195,766		$	(163,668	)	$	(163,668	)
Gains (losses) included in earnings		—			5			(77	)		(8	)		(10,262	)		(10,342	)		(3,208	)		(3,208	)
Gains (losses) included in OCI		(1	)		—			—			—			—			(1	)		—			—
Additions		—			31			—			—			1,691			1,722			—			—
Settlements		—			(46	)		(326	)		—			—			(372	)		—			—
Transfers out of Level 3		—			(276	)		(3,888	)		—			—			(4,164	)		—			—
Balance at September 30, 2017	$	1,288		$	572		$	43		$	549		$	180,157		$	182,609		$	(166,876	)	$	(166,876	)
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2017	$	—		$	1		$	—		$	1		$	(6,241	)	$	(6,239	)	$	(3,208	)	$	(3,208	)
Nine months ended September 30, 2017
	MBS									Other
	classified			CMOs						securities
	as investment			classified			MBS			classified
	securities			as trading			classified as			as trading			Mortgage
	available-			account			trading account			account			servicing			Total			Contingent			Total
(In thousands)	for-sale			securities			securities			securities			rights			assets			consideration			liabilities
Balance at January 1, 2017	$	1,392		$	1,321		$	4,755		$	602		$	196,889		$	204,959		$	(153,158	)	$	(153,158	)
Gains (losses) included in earnings		—			—			(124	)		(53	)		(24,262	)		(24,439	)		(13,718	)		(13,718	)
Gains (losses) included in OCI		9			—			—			—			—			9			—			—
Additions		—			39			332			—			7,530			7,901			—			—
Sales		—			(365	)		(156	)		—			—			(521	)		—			—
Settlements		(25	)		(147	)		(876	)		—			—			(1,048	)		—			—
Transfers out of Level 3		(88	)		(276	)		(3,888	)		—			—			(4,252	)		—			—
Balance at September 30, 2017	$	1,288		$	572		$	43		$	549		$	180,157		$	182,609		$	(166,876	)	$	(166,876	)
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2017	$	—		$	(5	)	$	(23	)	$	22		$	(9,863	)	$	(9,869	)	$	(13,718	)	$	(13,718	)

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Quarter ended September 30, 2016
	MBS									Other
	classified			CMOs						securities
	as investment			classified			MBS			classified
	securities			as trading			classified as			as trading			Mortgage
	available-			account			trading account			account			servicing			Total			Contingent			Total
(In thousands)	for-sale			securities			securities			securities			rights			assets			consideration			liabilities
Balance at June 30, 2016	$	1,398		$	1,399		$	5,364		$	640		$	203,577		$	212,378		$	(128,511	)	$	(128,511	)
Gains (losses) included in earnings		—			10			(32	)		(17	)		(6,062	)		(6,101	)		(6,611	)		(6,611	)
Gains (losses) included in OCI		(1	)		—			—			—			—			(1	)		—			—
Additions		—			5			128			—			2,854			2,987			—			—
Sales		—			—			(110	)		—			—			(110	)		—			—
Settlements		—			(43	)		(100	)		—			(15	)		(158	)		—			—
Balance at September 30, 2016	$	1,397		$	1,371		$	5,250		$	623		$	200,354		$	208,995		$	(135,122	)	$	(135,122	)
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2016	$	—		$	10		$	(29	)	$	8		$	(1,082	)	$	(1,093	)	$	(6,611	)	$	(6,611	)
Nine months ended September 30, 2016
	MBS									Other
	classified			CMOs						securities
	as investment			classified			MBS			classified
	securities			as trading			classified as			as trading			Mortgage
	available-			account			trading account			account			servicing			Total			Contingent			Total
(In thousands)	for-sale			securities			securities			securities			rights			assets			consideration			liabilities
Balance at January 1, 2016	$	1,434		$	1,831		$	6,454		$	687		$	211,405		$	221,811		$	(120,380	)	$	(120,380	)
Gains (losses) included in earnings		(2	)		(3	)		85			(64	)		(18,879	)		(18,863	)		(14,742	)		(14,742	)
Gains (losses) included in OCI		15			—			—			—			—			15			—			—
Additions		—			214			1,076			—			7,843			9,133			—			—
Sales		—			(308	)		(1,826	)		—			—			(2,134	)		—			—
Settlements		(50	)		(363	)		(539	)		—			(15	)		(967	)		—			—
Balance at September 30, 2016	$	1,397		$	1,371		$	5,250		$	623		$	200,354		$	208,995		$	(135,122	)	$	(135,122	)
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2016	$	—		$	4		$	74		$	29		$	(4,315	)	$	(4,208	)	$	(14,742	)	$	(14,742	)

During the quarter and nine months ended September 30, 2017, certain MBS and CMO’s amounting to $4.2 million and $4.3 million, respectively, were transferred from Level 3 to Level 2 due to a change in valuation technique from an internally-prepared pricing matrix and discounted cash flow model, respectively, to a bond’s theoretical value. There were no transfers in and / or out of Level 1, Level 2, or Level 3 for financial instruments measured at fair value on a recurring basis during the quarter and nine months ended September 30, 2016.

Gains and losses (realized and unrealized) included in earnings for the quarters and nine months ended September 30, 2017 and 2016 for Level 3 assets and liabilities included in the previous tables are reported in the consolidated statement of operations as follows:

	Quarter ended September 30, 2017						Nine months ended September 30, 2017
				Changes in unrealized						Changes in unrealized
	Total gains			gains (losses) relating to			Total gains			gains (losses) relating to
	(losses) included			assets still held at			(losses) included			assets still held at
(In thousands)	in earnings			reporting date			in earnings			reporting date
FDIC loss share expense	$	(3,208	)	$	(3,208	)	$	(13,718	)	$	(13,718	)
Mortgage banking activities		(10,262	)		(6,241	)		(24,262	)		(9,863	)
Trading account profit (loss)		(80	)		2			(177	)		(6	)
Total	$	(13,550	)	$	(9,447	)	$	(38,157	)	$	(23,587	)

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	Quarter ended September 30, 2016						Nine months ended September 30, 2016
(In thousands)	Total gains (losses) included in earnings			Changes in unrealized gains (losses) relating to assets still held at reporting date			Total gains (losses) included in earnings			Changes in unrealized gains (losses) relating to assets still held at reporting date
Interest income	$	—		$	—		$	(2	)	$	—
FDIC loss share expense		(6,611	)		(6,611	)		(14,742	)		(14,742	)
Mortgage banking activities		(6,062	)		(1,082	)		(18,879	)		(4,315	)
Trading account profit (loss)		(39	)		(11	)		18			107
Total	$	(12,712	)	$	(7,704	)	$	(33,605	)	$	(18,950	)

The following table includes quantitative information about significant unobservable inputs used to derive the fair value of Level 3 instruments, excluding those instruments for which the unobservable inputs were not developed by the Corporation such as prices of prior transactions and/or unadjusted third-party pricing sources.

(In thousands)	Fair value at September 30, 2017			Valuation technique		Unobservable inputs		Weighted average (range)
CMO’s - trading	$	572			Discounted cash flow model		Weighted average life	2.1 years (1.6 - 2.2 years)
						Yield		3.9% (3.7% - 4.2%)
							Prepayment speed	21.2% (20.2% - 22.9%)
Other - trading	$	549			Discounted cash flow model		Weighted average life	5.3 years
						Yield		12.5%
							Prepayment speed	10.8%
Mortgage servicing rights	$	180,157			Discounted cash flow model		Prepayment speed	5.8% (0.3% - 18.0%)
						Weighted average life		6.7 years (0.1 - 15.6 years)
							Discount rate	11.2% (9.5% - 15.0%)
Contingent consideration	$	(166,876	)		Discounted cash flow model		Credit loss rate on covered loans	3.9% (0.0% - 100.0%)
						Risk premium component
							of discount rate	2.9%
Loans held-in-portfolio	$	66,221	[1]		External appraisal		Haircut applied on
							external appraisals	25.0% (11.6% - 54.1%)
Other real estate owned	$	83,870	[2]		External appraisal		Haircut applied on
							external appraisals	21.3% (20.0% - 30.0%)

[1] Loans held-in-portfolio in which haircuts were not applied to external appraisals were excluded from this table.

[2] Other real estate owned in which haircuts were not applied to external appraisals were excluded from this table.

The significant unobservable inputs used in the fair value measurement of the Corporation’s collateralized mortgage obligations and interest-only collateralized mortgage obligation (reported as “other”), which are classified in the “trading” category, are yield, constant prepayment rate, and weighted average life. Significant increases (decreases) in any of those inputs in isolation would result in significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the constant prepayment rate will generate a directionally opposite change in the weighted average life. For example, as the average life is reduced by a higher constant prepayment rate, a lower yield will be realized, and when there is a reduction in the constant prepayment rate, the average life of these collateralized mortgage obligations will extend, thus resulting in a higher yield. These particular financial instruments are valued internally by the Corporation’s investment banking and broker-dealer unit utilizing internal valuation techniques. The unobservable inputs incorporated into the internal discounted cash flow models used to derive the fair value of collateralized mortgage obligations and interest-only collateralized mortgage obligation (reported as “other”), which are classified in the “trading” category, are reviewed by the Corporation’s Corporate Treasury unit on a quarterly basis. In the case of Level 3 financial instruments which fair value is based on broker quotes, the Corporation’s Corporate Treasury unit reviews the inputs used by the broker-dealers for reasonableness utilizing information available from other published sources and validates that the fair value measurements were developed in accordance with ASC Topic 820. The Corporate Treasury unit also substantiates the inputs used by validating the prices with other broker-dealers, whenever possible.

The significant unobservable inputs used in the fair value measurement of the Corporation’s mortgage servicing rights are constant prepayment rates and discount rates. Increases in interest rates may result in lower prepayments. Discount rates vary according to products and / or portfolios depending on the perceived risk. Increases in discount rates result in a lower fair value measurement.

96

The Corporation’s Corporate Comptroller’s unit is responsible for determining the fair value of MSRs, which is based on discounted cash flow methods based on assumptions developed by an external service provider, except for prepayment speeds, which are adjusted internally for the local market based on historical experience. The Corporation’s Corporate Treasury unit validates the economic assumptions developed by the external service provider on a quarterly basis. In addition, an analytical review of prepayment speeds is performed quarterly by the Corporate Comptroller’s unit. The Corporation’s MSR Committee analyzes changes in fair value measurements of MSRs and approves the valuation assumptions at each reporting period. Changes in valuation assumptions must also be approved by the MSR Committee. The fair value of MSRs are compared with those of the external service provider on a quarterly basis in order to validate if the fair values are within the materiality thresholds established by management to monitor and investigate material deviations. Back-testing is performed to compare projected cash flows with actual historical data to ascertain the reasonability of the projected net cash flow results.

97

Note 26 – Fair value of financial instruments

The fair value of financial instruments is the amount at which an asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. For those financial instruments with no quoted market prices available, fair values have been estimated using present value calculations or other valuation techniques, as well as management’s best judgment with respect to current economic conditions, including discount rates, estimates of future cash flows, and prepayment assumptions. Many of these estimates involve various assumptions and may vary significantly from amounts that could be realized in actual transactions.

The fair values reflected herein have been determined based on the prevailing rate environment at September 30, 2017 and December 31, 2016, as applicable. In different interest rate environments, fair value estimates can differ significantly, especially for certain fixed rate financial instruments. In addition, the fair values presented do not attempt to estimate the value of the Corporation’s fee generating businesses and anticipated future business activities, that is, they do not represent the Corporation’s value as a going concern. There have been no changes in the Corporation’s valuation methodologies and inputs used to estimate the fair values for each class of financial assets and liabilities not measured at fair value, but for which the fair value is disclosed from those disclosed in the 2016 Form 10-K.

The following tables present the carrying amount and estimated fair values of financial instruments with their corresponding level in the fair value hierarchy. The aggregate fair value amounts of the financial instruments disclosed do not represent management’s estimate of the underlying value of the Corporation.

	September 30, 2017
(In thousands)	Carrying amount		Level 1		Level 2		Level 3		Fair value
Financial Assets:
Cash and due from banks	$	517,437	$	517,437	$	—	$	—	$	517,437
Money market investments		5,488,212		5,479,268		8,944		—		5,488,212
Trading account securities, excluding derivatives[1]		45,951		—		44,787		1,164		45,951
Investment securities available-for-sale[1]		9,061,001		—		9,059,713		1,288		9,061,001
Investment securities held-to-maturity:
Obligations of Puerto Rico, States and political subdivisions	$	92,369	$	—	$	—	$	73,460	$	73,460
Collateralized mortgage obligation-federal agency		69		—		—		73		73
Other		1,000		—		742		237		979
Total investment securities held-to-maturity	$	93,438	$	—	$	742	$	73,770	$	74,512
Other investment securities:
FHLB stock	$	64,208	$	—	$	64,208	$	—	$	64,208
FRB stock		94,644		—		94,644		—		94,644
Trust preferred securities		13,198		—		13,198		—		13,198
Other investments		1,915		—		—		5,091		5,091
Total other investment securities	$	173,965	$	—	$	172,050	$	5,091	$	177,141
Loans held-for-sale	$	68,864	$	—	$	—	$	70,499	$	70,499
Loans not covered under loss sharing agreement with the FDIC		22,559,594		—		—		20,896,277		20,896,277
Loans covered under loss sharing agreements with the FDIC		491,797		—		—		483,155		483,155
FDIC loss share asset		48,470		—		—		37,703		37,703
Mortgage servicing rights		180,157		—		—		180,157		180,157
Derivatives		14,234		—		14,234		—		14,234

98

	September 30, 2017
(In thousands)	Carrying amount		Level 1		Level 2		Level 3		Fair value
Financial Liabilities:
Deposits:
Demand deposits	$	26,636,413	$	—	$	26,636,413	$	—	$	26,636,413
Time deposits		7,612,523		—		7,504,546		—		7,504,546
Total deposits	$	34,248,936	$	—	$	34,140,959	$	—	$	34,140,959
Assets sold under agreements to repurchase	$	374,405	$	—	$	374,377	$	—	$	374,377
Other short-term borrowings[2]	$	240,598	$	—	$	240,598	$	—	$	240,598
Notes payable:
FHLB advances	$	629,072	$	—	$	629,538	$	—	$	629,538
Unsecured senior debt securities		446,351		—		470,043		—		470,043
Junior subordinated deferrable interest debentures (related to trust preferred securities)		439,344		—		411,776		—		411,776
Others		17,294		—		—		17,294		17,294
Total notes payable	$	1,532,061	$	—	$	1,511,357	$	17,294	$	1,528,651
Derivatives	$	12,841	$	—	$	12,841	$	—	$	12,841
Contingent consideration	$	166,876	$	—	$	—	$	166,876	$	166,876

[1] Refer to Note 25 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level.

[2] Refer to Note 17 to the Consolidated Financial Statements for the composition of other short-term borrowings.

99

	December 31, 2016
(In thousands)	Carrying amount		Level 1		Level 2		Level 3		Fair value
Financial Assets:
Cash and due from banks	$	362,394	$	362,394	$	—	$	—	$	362,394
Money market investments		2,890,217		2,854,777		35,440		—		2,890,217
Trading account securities, excluding derivatives[1]		59,796		—		53,118		6,678		59,796
Investment securities available-for-sale[1]		8,209,806		—		8,208,414		1,392		8,209,806
Investment securities held-to-maturity:
Obligations of Puerto Rico, States and political subdivisions	$	96,027	$	—	$	—	$	73,540	$	73,540
Collateralized mortgage obligation-federal agency		74		—		—		78		78
Other		2,000		—		1,738		220		1,958
Total investment securities held-to-maturity	$	98,101	$	—	$	1,738	$	73,838	$	75,576
Other investment securities:
FHLB stock	$	58,033	$	—	$	58,033	$	—	$	58,033
FRB stock		94,672		—		94,672		—		94,672
Trust preferred securities		13,198		—		13,198		—		13,198
Other investments		1,915		—		—		4,987		4,987
Total other investment securities	$	167,818	$	—	$	165,903	$	4,987	$	170,890
Loans held-for-sale	$	88,821	$	—	$	504	$	89,509	$	90,013
Loans not covered under loss sharing agreement with the FDIC		22,263,446		—		—		20,578,904		20,578,904
Loans covered under loss sharing agreements with the FDIC		542,528		—		—		515,808		515,808
FDIC loss share asset		69,334		—		—		63,187		63,187
Mortgage servicing rights		196,889		—		—		196,889		196,889
Derivatives		14,094		—		14,094		—		14,094
	December 31, 2016
(In thousands)	Carrying amount		Level 1		Level 2		Level 3		Fair value
Financial Liabilities:
Deposits:
Demand deposits	$	22,786,682	$	—	$	22,786,682	$	—	$	22,786,682
Time deposits		7,709,542		—		7,708,724		—		7,708,724
Total deposits	$	30,496,224	$	—	$	30,495,406	$	—	$	30,495,406
Assets sold under agreements to repurchase	$	479,425	$	—	$	479,439	$	—	$	479,439
Other short-term borrowings[2]	$	1,200	$	—	$	1,200	$	—	$	1,200
Notes payable:
FHLB advances	$	672,670	$	—	$	671,872	$	—	$	671,872
Unsecured senior debt		444,788		—		466,263		—		466,263
Junior subordinated deferrable interest debentures (related to trust preferred securities)		439,323		—		399,370		—		399,370
Others		18,071		—		—		18,071		18,071
Total notes payable	$	1,574,852	$	—	$	1,537,505	$	18,071	$	1,555,576
Derivatives	$	12,842	$	—	$	12,842	$	—	$	12,842
Contingent consideration	$	153,158	$	—	$	—	$	153,158	$	153,158

[1] Refer to Note 25 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level.

[2] Refer to Note 17 to the Consolidated Financial Statements for the composition of other short-term borrowings.

100

The notional amount of commitments to extend credit at September 30, 2017 and December 31, 2016 is $ 7.3 billion and $ 7.8 billion, respectively, and represents the unused portion of credit facilities granted to customers. The notional amount of letters of credit at September 30, 2017 and December 31, 2016 is $ 34 million and $ 36 million, respectively, and represents the contractual amount that is required to be paid in the event of nonperformance. The fair value of commitments to extend credit and letters of credit, which are based on the fees charged to enter into those agreements, are not material to Popular’s financial statements.

101

Note 27 – Net income per common share

The following table sets forth the computation of net income per common share (“EPS”), basic and diluted, for the quarters and nine months ended September 30, 2017 and 2016:

	Quarters ended September 30,						Nine months ended September 30,
(In thousands, except per share information)	2017			2016			2017			2016
Net income	$	20,664		$	46,810		$	209,835		$	220,796
Preferred stock dividends		(930	)		(930	)		(2,792	)		(2,792	)
Net income applicable to common stock	$	19,734		$	45,880		$	207,043		$	218,004
Average common shares outstanding		101,652,352			103,296,443			102,057,607			103,243,851
Average potential dilutive common shares		111,520			168,942			127,937			140,098
Average common shares outstanding— assuming dilution		101,763,872			103,465,385			102,185,544			103,383,949
Basic EPS	$	0.19		$	0.44		$	2.03		$	2.11
Diluted EPS	$	0.19		$	0.44		$	2.03		$	2.11

As disclosed in Note 19, during the quarter ended March 31, 2017, the Corporation completed a $75 million privately negotiated accelerated share repurchase transaction. As part of this transaction, the Corporation entered into a forward contract in which the final number of shares delivered at settlement was based on the average daily volume weighted average price (“VWAP”) of its common stock, net of a discount, during the term of the ASR. Based on the discounted VWAP of $40.60, the Corporation received 1,847,372 shares of its outstanding common stock.

For the quarter and nine months ended September 30, 2017, the Corporation calculated the impact of potential dilutive common shares under the treasury method, consistent with the method used for the preparation of the financial statements for the year ended December 31, 2016. For a discussion of the calculation under the treasury stock method, refer to Note 35 of the consolidated financial statements included in the 2016 Form 10-K.

For the quarters and nine months ended September 30, 2017 and 2016, there were no stock options outstanding.

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Note 28 – Other service fees

The caption of other services fees in the consolidated statements of operations consists of the following major categories:

	Quarters ended September 30,				Nine months ended September 30,
(In thousands)	2017		2016		2017		2016
Debit card fees	$	10,359	$	11,483	$	33,478	$	34,153
Insurance fees		13,076		15,943		39,410		42,678
Credit card fees		16,699		17,644		54,280		52,202
Sale and administration of investment products		5,496		5,542		16,377		15,798
Trust fees		4,817		4,968		14,675		14,029
Other fees		3,034		3,589		10,604		10,636
Total other services fees	$	53,481	$	59,169	$	168,824	$	169,496

103

Note 29 – FDIC loss share expense

The caption of FDIC loss-share expense in the consolidated statements of operations consists of the following major categories:

	Quarters ended September 30,						Nine months ended September 30,
(In thousands)	2017			2016			2017			2016
Accretion (amortization)	$	567		$	(1,259	)	$	(62	)	$	(9,337	)
80% mirror accounting on credit impairment losses (reversal)[1]		(329	)		659			1,945			(959	)
80% mirror accounting on reimbursable expenses		588			853			2,232			7,038
80% mirror accounting on recoveries on covered assets, including rental income on OREOs, subject to reimbursement to the FDIC		(1,601	)		(522	)		2,832			(5,123	)
Change in true-up payment obligation		(3,208	)		(6,611	)		(13,718	)		(14,742	)
Arbitration award expense		—			(54,924	)		—			(54,924	)
Other		35			81			(5,909	)		602
Total FDIC loss-share expense	$	(3,948	)	$	(61,723	)	$	(12,680	)	$	(77,445	)

[1] Reductions in expected cash flows for ASC 310-30 loans, which may impact the provision for loan losses, may consider reductions in both principal and interest cash flow expectations. The amount covered under the FDIC loss-sharing agreements for interest not collected from borrowers is limited under the agreements (approximately 90 days); accordingly, these amounts are not subject fully to the 80% mirror accounting.

104

Note 30 – Pension and postretirement benefits

The Corporation has a non-contributory defined benefit pension plan and supplementary pension benefit restoration plans for regular employees of certain of its subsidiaries. The accrual of benefits under the plans is frozen to all participants.

The components of net periodic pension cost for the periods presented were as follows:

	Pension Plan						Benefit Restoration Plans
	Quarters ended September 30,						Quarters ended September 30,
(In thousands)	2017			2016			2017			2016
Interest cost	$	6,120		$	6,291		$	352		$	348
Expected return on plan assets		(10,186	)		(9,623	)		(502	)		(538	)
Amortization of net loss		5,053			4,881			411			332
Total net periodic pension cost (benefit)	$	987		$	1,549		$	261		$	142

	Pension Plans						Benefit Restoration Plans
	Nine months ended September 30,						Nine months ended September 30,
(In thousands)	2017			2016			2017			2016
Interest Cost	$	18,359		$	18,873		$	1,057		$	1,044
Expected return on plan assets		(30,557	)		(28,869	)		(1,508	)		(1,614	)
Amortization of net loss		15,160			14,640			1,233			996
Total net periodic pension cost (benefit)	$	2,962		$	4,644		$	782		$	426

During the quarter ended September 30, 2017 the Corporation made a contribution to the pension and benefit restoration plans of $16.1 million. The total contributions expected to be paid during the year 2017 for the pension and benefit restoration plans amount to approximately $16.2 million.

The Corporation also provides certain postretirement health care benefits for retired employees of certain subsidiaries. The table that follows presents the components of net periodic postretirement benefit cost.

	Postretirement Benefit Plan
	Quarters ended September 30,						Nine months ended September 30,
(In thousands)	2017			2016			2017			2016
Service cost	$	256		$	289		$	769		$	867
Interest cost		1,426			1,505			4,277			4,515
Amortization of prior service cost		(950	)		(950	)		(2,850	)		(2,850	)
Amortization of net loss		142			275			426			825
Total net periodic postretirement benefit cost	$	874		$	1,119		$	2,622		$	3,357

Contributions made to the postretirement benefit plan for the quarter ended September 30, 2017 amounted to approximately $1.4 million. The total contributions expected to be paid during the year 2017 for the postretirement benefit plan amount to approximately $6.4 million.

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Note 31 - Stock-based compensation

Incentive Plan

In April 2004, the Corporation’s shareholders adopted the Popular, Inc. 2004 Omnibus Incentive Plan (the “Incentive Plan”). The Incentive Plan permits the granting of incentive awards in the form of Annual Incentive Awards, Long-term Performance Unit Awards, Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Units or Performance Shares. Participants in the Incentive Plan are designated by the Compensation Committee of the Board of Directors (or its delegate as determined by the Board). Employees and directors of the Corporation and/or any of its subsidiaries are eligible to participate in the Incentive Plan.

Under the Incentive Plan, the Corporation has issued restricted shares, which become vested based on the employees’ continued service with Popular. Unless otherwise stated in an agreement, the compensation cost associated with the shares of restricted stock is determined based on a two-prong vesting schedule. The first part is vested ratably over five years commencing at the date of grant (the “graduated vesting portion”) and the second part is vested at termination of employment after attainment of 55 years of age and 10 years of service (the “retirement vesting portion”). The graduated vesting portion is accelerated at termination of employment after attaining 55 years of age and 10 years of service. The vesting schedule for restricted shares granted on or after 2014 was modified as follows, the first part is vested ratably over four years commencing at the date of the grant (the “graduated vesting portion”) and the second part is vested at termination of employment after attainment of the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service (the “retirement vesting portion”). The graduated vesting portion is accelerated at termination of employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service.

The following table summarizes the restricted stock and performance shares activity under the Incentive Plan for members of management.

(Not in thousands)	Shares			Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2015		495,731		$	28.25
Granted		344,488			25.86
Quantity adjusted by TSR factor		39,566			24.37
Vested		(487,784	)		27.72
Forfeited		(8,019	)		29.13
Non-vested at December 31, 2016		383,982		$	26.35
Granted		212,200			42.57
Quantity adjusted by TSR factor		(39,414	)		33.77
Vested		(188,399	)		35.47
Non-vested at September 30, 2017		368,369		$	30.24

During the quarter ended September 30, 2017 and 2016, no shares of restricted stock were awarded to management under the Incentive Plan. For the nine months ended September 30, 2017, 138,516 shares of restricted stock (September 30, 2016 – 279,890) were awarded to management under the Incentive Plan.

Beginning in 2015, the Corporation authorized the issuance of performance shares, in addition to restricted shares, under the Incentive Plan. The performance share awards consist of the opportunity to receive shares of Popular, Inc.’s common stock provided that the Corporation achieves certain goals during a three-year performance cycle. The goals will be based on two metrics weighted equally: the Relative Total Shareholder Return (“TSR”) and the Absolute Earnings per Share (“EPS”) goals. The TSR metric is considered to be a market condition under ASC 718. For equity settled awards based on a market condition, the fair value is determined as of the grant date and is not subsequently revised based on actual performance. The EPS performance metric is considered to be a performance condition under ASC 718. The fair value is determined based on the probability of achieving the EPS goal as of each reporting period. The TSR and EPS metrics are equally weighted and work independently. The number of shares that will ultimately vest ranges from 50% to a 150% of target based on both market (TSR) and performance (EPS) conditions. The performance shares vest at the end of the three-year performance cycle. The vesting is accelerated at termination of employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service. During the quarters ended September 30, 2017 and 2016 no performance shares were granted. For the nine months ended September 30, 2017, 73,684 (September 30, 2016—64,598) performance shares were granted under this plan.

106

During the quarter ended September 30, 2017, the Corporation recognized $ 1.0 million of restricted stock expense related to management incentive awards, with a tax benefit of $ 0.2 million (September 30, 2016—$ 1.0 million, with a tax benefit of $ 0.2 million). For the nine months ended September 30, 2017, the Corporation recognized $ 4.8 million of restricted stock expense related to management incentive awards, with a tax benefit of $ 0.9 million (September 30, 2016—$ 6.6 million, with a tax benefit of $ 1.2 million). For the nine months ended September 30, 2017, the fair market value of the restricted stock vested was $4.4 million at grant date and $6.4 million at vesting date. This triggers a windfall of $0.8 million that was recorded as a reduction on income tax expense. During the quarter ended September 30, 2017 the Corporation recognized $0.3 million of performance shares expense, with a tax benefit of $42 thousand (September 30, 2016—$0.1 million, with a tax benefit of $11 thousand). For the nine months ended September 30, 2017, the Corporation recognized $2.4 million of performance shares expense, with a tax benefit of $0.2 million (September 30, 2016—$1.3 million, with a tax benefit of $0.1 million). The total unrecognized compensation cost related to non-vested restricted stock awards and performance shares to members of management at September 30, 2017 was $ 7.9 million and is expected to be recognized over a weighted-average period of 2.5 years.

The following table summarizes the restricted stock activity under the Incentive Plan for members of the Board of Directors:

(Not in thousands)	Restricted Stock			Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2015		—		$	—
Granted		40,517			29.77
Vested		(40,517	)		29.77
Forfeited		—			—
Non-vested at December 31, 2016		—		$	—
Granted		25,771			38.42
Vested		(25,771	)		38.42
Forfeited		—			—
Non-vested at September 30, 2017		—		$	—

During the quarters ended September 30, 2017 and 2016, the Corporation granted no shares of restricted stock to members of the Board of Directors of Popular, Inc. During this period, the Corporation recognized $0.3 million of restricted stock expense related to these restricted stock grants, with a tax benefit of $39 thousand (September 30, 2016—$0.3 million, with a tax benefit of $31 thousand). For the nine months ended September 30, 2017, the Corporation granted 25,771 shares of restricted stock to members of the Board of Directors of Popular, Inc., which became vested at grant date (September 30, 2016 – 40,517). During this period, the Corporation recognized $ 1.0 million of restricted stock expense related to these restricted stock grants, with a tax benefit of $0.1 million (September 30, 2016 - $0.8 million, with a tax benefit of $84 thousand). The fair value at vesting date of the restricted stock vested during the nine months ended September 30, 2017 for directors was $ 1.0 million.

107

Note 32 – Income taxes

The reason for the difference between the income tax expense applicable to income before provision for income taxes and the amount computed by applying the statutory tax rate in Puerto Rico, were as follows:

	Quarters ended
	September 30, 2017						September 30, 2016
(In thousands)	Amount			% of pre-tax income			Amount			% of pre-tax income
Computed income tax expense at statutory rates	$	272			39	%	$	24,434			39	%
Net benefit of tax exempt interest income		(19,563	)		(2,803	)		(15,620	)		(25	)
Deferred tax asset valuation allowance		5,142			737			5,698			9
Difference in tax rates due to multiple jurisdictions		189			27			(897	)		(1	)
Effect of income subject to preferential tax rate		(3,313	)		(475	)		6,364			10
Unrecognized tax benefits		(1,185	)		(170	)		(4,442	)		(7	)
State and local taxes		(64	)		(9	)		1,557			2
Others		(1,444	)		(207	)		(1,255	)		(2	)
Income tax (benefit) expense	$	(19,966	)		(2,861	)%	$	15,839			25	%
	Nine months ended
	September 30, 2017						September 30, 2016
(In thousands)	Amount			% of pre-tax income			Amount			% of pre-tax income
Computed income tax expense at statutory rates	$	100,857			39	%	$	117,525			39	%
Net benefit of tax exempt interest income		(56,408	)		(22	)		(47,094	)		(16	)
Deferred tax asset valuation allowance		15,262			6			14,407			5
Difference in tax rates due to multiple jurisdictions		(1,601	)		(1	)		(2,874	)		(1	)
Effect of income subject to preferential tax rate		(9,825	)		(4	)		(1,772	)		(1	)
Unrecognized tax benefits		(1,185	)		—			(4,442	)		(1	)
State and local taxes		2,800			1			6,642			2
Others		(1,128	)		—			(1,842	)		(1	)
Income tax expense	$	48,772			19	%	$	80,550			26	%

Income tax benefit amounted to $20 million for the quarter ended September 30, 2017, compared with an income tax expense of $15.8 million for the same quarter of 2016. The reduction in income tax expense was primarily due to lower taxable income before tax and higher tax benefit on net exempt interest income.

For the nine months period ended September 30,2017, income tax expense amounted to $48.8 million compared to $80.5 million for the nine months period ended September 30,2016. The reduction in income tax expense was primarily due to lower income before tax and higher tax benefit on net exempt interest income.

108

The following table presents a breakdown of the significant components of the Corporation’s deferred tax assets and liabilities.

	September 30, 2017
(In thousands)	PR			US			Total
Deferred tax assets:
Tax credits available for carryforward	$	16,069		$	1,958		$	18,027
Net operating loss and other carryforward available		117,273			1,106,550			1,223,823
Postretirement and pension benefits		83,925			—			83,925
Deferred loan origination fees		3,768			1,480			5,248
Allowance for loan losses		616,572			38,524			655,096
Deferred gains		—			4,262			4,262
Accelerated depreciation		1,325			10,280			11,605
Intercompany deferred (loss) gains		(31	)		—			(31	)
Difference between the assigned values and the tax basis of assets and liabilities recognized in purchase business combinations		17,107			—			17,107
Other temporary differences		22,750			13,512			36,262
Total gross deferred tax assets		878,758			1,176,566			2,055,324
Deferred tax liabilities:
FDIC-assisted transaction		58,009			—			58,009
Indefinite-lived intangibles		31,083			48,414			79,497
Unrealized net gain on trading and available-for-sale securities		31,127			(7,537	)		23,590
Other temporary differences		9,429			585			10,014
Total gross deferred tax liabilities		129,648			41,462			171,110
Valuation allowance		62,213			615,873			678,086
Net deferred tax asset	$	686,897		$	519,231		$	1,206,128
	December 31, 2016
(In thousands)	PR			US			Total
Deferred tax assets:
Tax credits available for carryforward	$	16,552		$	1,958		$	18,510
Net operating loss and other carryforward available		112,929			1,125,293			1,238,222
Postretirement and pension benefits		94,741			—			94,741
Deferred loan origination fees		4,335			2,287			6,622
Allowance for loan losses		628,127			20,980			649,107
Deferred gains		—			4,884			4,884
Accelerated depreciation		605			9,223			9,828
Intercompany deferred (loss) gains		2,496			—			2,496
Difference between the assigned values and the tax basis of assets and liabilities recognized in purchase business combinations		13,160			—			13,160
Other temporary differences		16,417			14,710			31,127
Total gross deferred tax assets		889,362			1,179,335			2,068,697
Deferred tax liabilities:
FDIC-assisted transaction		58,363			—			58,363
Indefinite-lived intangibles		28,412			45,562			73,974
Unrealized net gain on trading and available-for-sale securities		30,334			(8,999	)		21,335
Other temporary differences		7,892			585			8,477
Total gross deferred tax liabilities		125,001			37,148			162,149
Valuation allowance		46,951			617,336			664,287
Net deferred tax asset	$	717,410		$	524,851		$	1,242,261

The net deferred tax asset shown in the table above at September 30, 2017 is reflected in the consolidated statements of financial condition as $1.2 billion in net deferred tax assets in the “Other assets” caption (December 31, 2016—$1.2 billion) and $1.4 million in deferred tax liabilities in the “Other liabilities” caption (December 31, 2016—$1.4 million), reflecting the aggregate deferred tax assets or liabilities of individual tax-paying subsidiaries of the Corporation in their respective tax jurisdiction, Puerto Rico or the United States.

109

A deferred tax asset should be reduced by a valuation allowance if based on the weight of all available evidence, it is more likely than not (a likelihood of more than 50%) that some portion or the entire deferred tax asset will not be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. The determination of whether a deferred tax asset is realizable is based on weighting all available evidence, including both positive and negative evidence. The realization of deferred tax assets, including carryforwards and deductible temporary differences, depends upon the existence of sufficient taxable income of the same character during the carryback or carryforward period. The analysis considers all sources of taxable income available to realize the deferred tax asset, including the future reversal of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in prior carryback years and tax-planning strategies.

At September 30, 2017 the net deferred tax asset of the U.S. operations amounted to $1.1 billion with a valuation allowance of approximately $616 million, for a net deferred tax asset of approximately $519 million. As of September 30, 2017, management estimated that the U.S. operations would earn enough pre-tax Income during the carryover period to realize the total amount of net deferred tax asset after valuation allowance. After weighting all available positive and negative evidence, management concluded that is more likely than not that a portion of the deferred tax asset from the U.S. operation, amounting to approximately $519 million, will be realized. Management will continue to evaluate the realization of the deferred tax asset each quarter and adjust as any changes arises.

At September 30, 2017, the Corporation’s net deferred tax assets related to its Puerto Rico operations amounted to $687 million.

The Corporation’s Puerto Rico Banking operation is not in a cumulative three year loss position and has sustained profitability for the three year period ended September 30, 2017. This is considered a strong piece of objectively verifiable positive evidence that outweights any negative evidence considered by management in the evaluation of the realization of the deferred tax asset. Based on this evidence and management’s estimate of future taxable income, the Corporation has concluded that it is more likely than not that such net deferred tax asset of the Puerto Rico Banking operations will be realized.

The Popular, Inc., holding company (“PIHC”) operation is in a cumulative loss position taking into account taxable income exclusive of reversing temporary differences, for the three year period ended September 30, 2017. Management expects these losses will be a trend in future years. This objectively verifiable negative evidence is considered by management as strong negative evidence that will suggest that income in future years will be insufficient to support the realization of all deferred tax asset. After weighting of all positive and negative evidence management concluded, as of the reporting date, that it is more likely than not that the PIHC will not be able to realize any portion of the deferred tax assets, considering the criteria of ASC Topic 740. Accordingly, a full valuation allowance is recorded on the deferred tax asset at the PIHC, which amounted to $62 million as of September 30, 2017.

110

The reconciliation of unrecognized tax benefits, excluding interest, was as follows:

(In millions)	2017			2016
Balance at January 1	$	7.4		$	9.0
Additions for tax positions - January through March		0.2			0.2
Additions for tax positions taken in prior years - January through March		—			0.2
Balance at March 31	$	7.6		$	9.4
Additions for tax positions - April through June		0.3			0.3
Reduction as a result of settlements - April through June		(0.3	)		—
Balance at June 30	$	7.6		$	9.7
Additions for tax positions - July through September		0.3			0.3
Additions for tax positions taken in prior years - July through September		—			0.1
Reduction as a result of lapse of statute of limitations - July through September		(0.9	)		(3.0	)
Balance at September 30	$	7.0		$	7.1

At September 30, 2017, the total amount of interest recognized in the statement of financial condition approximated $2.6 million (December 31, 2016—$2.9 million). The total interest expense recognized at September 30, 2017 was $458 thousand net of a reduction of $505 thousand due to settlement and $353 thousand due to the expiration of the statute of limitation (December 31, 2016—$1.2 million). Management determined that at September 30, 2017 and December 31, 2016 there was no need to accrue for the payment of penalties. The Corporation’s policy is to report interest related to unrecognized tax benefits in income tax expense, whiles the penalties, if any, are reported in other operating expenses in the consolidated statements of operations.

After consideration of the effect on U.S. federal tax of unrecognized U.S. state tax benefits, the total amount of unrecognized tax benefits, including U.S. and Puerto Rico, that if recognized, would affect the Corporation’s effective tax rate, was approximately $8.5 million at September 30, 2017 (December 31, 2016—$9.0 million).

The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to the statutes of limitation, changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the addition or elimination of uncertain tax positions.

The Corporation and its subsidiaries file income tax returns in Puerto Rico, the U.S. federal jurisdiction, various U.S. states and political subdivisions, and foreign jurisdictions. At September 30, 2017, the following years remain subject to examination in the U.S. Federal jurisdiction: 2014 and thereafter; and in the Puerto Rico jurisdiction, 2013 and thereafter. The Corporation anticipates a reduction in the total amount of unrecognized tax benefits within the next 12 months, which could amount to approximately $4.5 million.

111

Note 33 – Supplemental disclosure on the consolidated statements of cash flows

Additional disclosures on cash flow information and non-cash activities for the nine months ended September 30, 2017 and September 30, 2016 are listed in the following table:

(In thousands)	September 30, 2017		September 30, 2016
Non-cash activities:
Loans transferred to other real estate	$	80,992	$	93,412
Loans transferred to other property		22,987		22,408
Total loans transferred to foreclosed assets		103,979		115,820
Financed sales of other real estate assets		10,621		11,861
Financed sales of other foreclosed assets		5,964		13,426
Total financed sales of foreclosed assets		16,585		25,287
Transfers from loans held-for-sale to loans held-in-portfolio		1,705		5,947
Loans securitized into investment securities[1]		454,507		594,094
Trades receivable from brokers and counterparties		999		80,125
Trades payable to brokers and counterparties		999		22,174
Receivables from investments maturities		270,000		—
Recognition of mortgage servicing rights on securitizations or asset transfers		7,530		7,886

[1] Includes loans securitized into trading securities and subsequently sold before quarter end.

112

Note 34 – Segment reporting

The Corporation’s corporate structure consists of two reportable segments – Banco Popular de Puerto Rico and Banco Popular North America. These reportable segments pertain only to the continuing operations of Popular, Inc.

Management determined the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. The segments were determined based on the organizational structure, which focuses primarily on the markets the segments serve, as well as on the products and services offered by the segments.

Banco Popular de Puerto Rico:

Given that Banco Popular de Puerto Rico constitutes a significant portion of the Corporation’s results of operations and total assets at September 30, 2017, additional disclosures are provided for the business areas included in this reportable segment, as described below:

• Commercial banking represents the Corporation’s banking operations conducted at BPPR, which are targeted mainly to corporate, small and middle size businesses. It includes aspects of the lending and depository businesses, as well as other finance and advisory services. BPPR allocates funds across business areas based on duration matched transfer pricing at market rates. This area also incorporates income related with the investment of excess funds, as well as a proportionate share of the investment function of BPPR.

• Consumer and retail banking represents the branch banking operations of BPPR which focus on retail clients. It includes the consumer lending business operations of BPPR, as well as the lending operations of Popular Auto and Popular Mortgage. Popular Auto focuses on auto and lease financing, while Popular Mortgage focuses principally on residential mortgage loan originations. The consumer and retail banking area also incorporates income related with the investment of excess funds from the branch network, as well as a proportionate share of the investment function of BPPR.

• Other financial services include the trust and asset management service units of BPPR, the brokerage and investment banking operations of Popular Securities, and the insurance agency and reinsurance businesses of Popular Insurance, Popular Insurance V.I., Popular Risk Services, and Popular Life Re. Most of the services that are provided by these subsidiaries generate profits based on fee income.

Banco Popular North America:

Banco Popular North America’s reportable segment consists of the banking operations of BPNA, E-LOAN, Inc., Popular Equipment Finance, Inc. and Popular Insurance Agency, U.S.A. BPNA operates through a retail branch network in the U.S. mainland under the name of Popular Community Bank, while E-LOAN, Inc. supported BPNA’s deposit gathering through its online platform until March 31, 2017, when said operations were transferred to Popular Direct, a division of BPNA. Popular Equipment Finance, Inc. also holds a running-off loan portfolio as this subsidiary ceased originating loans during 2009. Popular Insurance Agency, U.S.A. offers investment and insurance services across the BPNA branch network.

The Corporate group consists primarily of the holding companies: Popular, Inc., Popular North America, Popular International Bank and certain of the Corporation’s investments accounted for under the equity method, including EVERTEC and Centro Financiero BHD, Leon. The Corporate group also includes the expenses of certain corporate areas that are identified as critical to the organization: Finance, Risk Management and Legal.

The accounting policies of the individual operating segments are the same as those of the Corporation. Transactions between reportable segments are primarily conducted at market rates, resulting in profits that are eliminated for reporting consolidated results of operations.

113

The tables that follow present the results of operations and total assets by reportable segments:

2017

For the quarter ended September 30, 2017
(In thousands)				Banco Popular de Puerto Rico			Banco Popular North America			Intersegment Eliminations
Net interest income				$	321,145		$	71,453		$	7
Provision for loan losses					118,177			42,544			—
Non-interest income					88,170			5,124			(141	)
Amortization of intangibles					2,178			167			—
Depreciation expense					9,751			2,128			—
Other operating expenses					243,564			41,960			(138	)
Income tax benefit					(8,704	)		(4,117	)		—
Net income (loss)				$	44,349		$	(6,105	)	$	4
Segment assets				$	33,031,839		$	9,323,647		$	(24,615	)
For the quarter ended September 30, 2017
(In thousands)	Reportable Segments			Corporate			Eliminations			Total Popular, Inc.
Net interest income (expense)	$	392,605		$	(14,434	)	$	—		$	378,171
Provision for loan losses		160,721			38			—			160,759
Non-interest income		93,153			7,277			(56	)		100,374
Amortization of intangibles		2,345			—			—			2,345
Depreciation expense		11,879			159			—			12,038
Other operating expenses		285,386			17,944			(625	)		302,705
Income tax benefit		(12,821	)		(7,360	)		215			(19,966	)
Net income (loss)	$	38,248		$	(17,938	)	$	354		$	20,664
Segment assets	$	42,330,871		$	5,003,304		$	(4,732,908	)	$	42,601,267
For the nine months ended September 30, 2017
(In thousands)				Banco Popular de Puerto Rico			Banco Popular North America			Intersegment Eliminations
Net interest income				$	951,024		$	208,274		$	(207	)
Provision for loan losses					198,668			60,915			—
Non-interest income					290,042			15,259			(431	)
Amortization of intangibles					6,535			499			—
Depreciation expense					29,296			6,191			—
Other operating expenses					713,594			123,940			(414	)
Income tax expense					56,946			13,202			(93	)
Net income				$	236,027		$	18,786		$	(131	)
Segment assets				$	33,031,839		$	9,323,647		$	(24,615	)
For the nine months ended September 30, 2017
(In thousands)	Reportable Segments			Corporate			Eliminations			Total Popular, Inc.
Net interest income (expense)	$	1,159,091		$	(44,343	)	$	—		$	1,114,748
Provision for loan losses		259,583			308			(5,955	)		253,936
Non-interest income		304,870			29,616			(1,450	)		333,036
Amortization of intangibles		7,034			—			—			7,034
Depreciation expense		35,487			479			—			35,966
Other operating expenses		837,120			57,145			(2,024	)		892,241
Income tax expense (benefit)		70,055			(23,819	)		2,536			48,772
Net income (loss)	$	254,682		$	(48,840	)	$	3,993		$	209,835
Segment assets	$	42,330,871		$	5,003,304		$	(4,732,908	)	$	42,601,267

114

2016

For the quarter ended September 30, 2016
(In thousands)			Banco Popular de Puerto Rico			Banco Popular North America			Intersegment Eliminations
Net interest income			$	303,656		$	65,339		$	(281	)
Provision for loan losses				37,064			6,313			—
Non-interest income				60,453			5,381			28
Amortization of intangibles				2,931			166			—
Goodwill impairment charge				3,801			—			—
Depreciation expense				9,774			1,666			—
Other operating expenses				246,451			47,374			(639	)
Income tax expense				14,479			6,037			162
Net income			$	49,609		$	9,164		$	224
Segment assets			$	30,403,259		$	8,450,901		$	(16,818	)
For the quarter ended September 30, 2016
(In thousands)	Reportable Segments		Corporate			Eliminations			Total Popular, Inc.
Net interest income (expense)	$	368,714	$	(15,140	)	$	113		$	353,687
Provision (reversal) for loan losses		43,377		(33	)		—			43,344
Non-interest income		65,862		10,468			(352	)		75,978
Amortization of intangibles		3,097		—			—			3,097
Goodwill impairment charge		3,801		—			—			3,801
Depreciation expense		11,440		144			—			11,584
Other operating expenses		293,186		12,164			(160	)		305,190
Income tax expense (benefit)		20,678		(4,807	)		(32	)		15,839
Net income (loss)	$	58,997	$	(12,140	)	$	(47	)	$	46,810
Segment assets	$	38,837,342	$	4,949,819		$	(4,732,865	)	$	39,054,296

115

For the nine months ended September 30, 2016
(In thousands)			Banco Popular de Puerto Rico			Banco Popular North America			Intersegment Eliminations
Net interest income			$	919,366		$	193,102		$	(281	)
Provision for loan losses				116,987			11,699			—
Non-interest income				257,260			15,581			28
Amortization of intangibles				8,809			499			—
Goodwill impairment charge				3,801			—			—
Depreciation expense				29,885			4,343			—
Other operating expenses				705,825			133,101			(639	)
Income tax expense				77,651			25,597			162
Net income			$	233,668		$	33,444		$	224
Segment assets			$	30,403,259		$	8,450,901		$	(16,818	)
For the nine months ended September 30, 2016
(In thousands)	Reportable Segments		Corporate			Eliminations			Total Popular, Inc.
Net interest income (expense)	$	1,112,187	$	(45,537	)	$	—		$	1,066,650
Provision (reversal) for loan losses		128,686		(35	)		—			128,651
Non-interest income		272,869		26,707			(1,465	)		298,111
Amortization of intangibles		9,308		—			—			9,308
Goodwill impairment charge		3,801		—			—			3,801
Depreciation expense		34,228		497			—			34,725
Other operating expenses		838,287		50,613			(1,970	)		886,930
Income tax expense (benefit)		103,410		(23,068	)		208			80,550
Net income (loss)	$	267,336	$	(46,837	)	$	297		$	220,796
Segment assets	$	38,837,342	$	4,949,819		$	(4,732,865	)	$	39,054,296

Additional disclosures with respect to the Banco Popular de Puerto Rico reportable segment are as follows:

2017

For the quarter ended September 30, 2017
Banco Popular de Puerto Rico
(In thousands)	Commercial Banking		Consumer and Retail Banking			Other Financial Services		Eliminations			Total Banco Popular de Puerto Rico
Net interest income	$	132,101	$	186,827		$	2,213	$	4		$	321,145
Provision for loan losses		27,647		90,530			—		—			118,177
Non-interest income		19,733		46,022			22,473		(58	)		88,170
Amortization of intangibles		54		1,066			1,058		—			2,178
Depreciation expense		4,386		5,207			158		—			9,751
Other operating expenses		61,843		164,981			16,809		(69	)		243,564
Income tax (benefit) expense		11,925		(22,811	)		2,182		—			(8,704	)
Net income (loss)	$	45,979	$	(6,124	)	$	4,479	$	15		$	44,349
Segment assets	$	21,258,790	$	18,501,519		$	522,008	$	(7,250,478	)	$	33,031,839

116

For the nine months ended September 30, 2017
Banco Popular de Puerto Rico
(In thousands)	Commercial Banking		Consumer and Retail Banking			Other Financial Services		Eliminations			Total Banco Popular de Puerto Rico
Net interest income	$	380,761	$	564,956		$	5,295	$	12		$	951,024
Provision for loan losses		27,970		170,698			—		—			198,668
Non-interest income		60,496		162,613			67,130		(197	)		290,042
Amortization of intangibles		158		3,206			3,171		—			6,535
Depreciation expense		12,994		15,759			543		—			29,296
Other operating expenses		177,278		492,939			43,606		(229	)		713,594
Income tax expense (benefit)		60,780		(12,760	)		8,926		—			56,946
Net income	$	162,077	$	57,727		$	16,179	$	44		$	236,027
Segment assets	$	21,258,790	$	18,501,519		$	522,008	$	(7,250,478	)	$	33,031,839

2016

For the quarter ended September 30, 2016
Banco Popular de Puerto Rico
(In thousands)	Commercial Banking			Consumer and Retail Banking		Other Financial Services		Eliminations			Total Banco Popular de Puerto Rico
Net interest income	$	116,362		$	186,445	$	1,379	$	(530	)	$	303,656
Provision for loan losses		13,213			23,851		—		—			37,064
Non-interest (expense) income		(24,191	)		59,284		25,444		(84	)		60,453
Amortization of intangibles		22			1,838		1,071		—			2,931
Goodwill impairment charge		—			—		3,801		—			3,801
Depreciation expense		4,188			5,380		206		—			9,774
Other operating expenses		60,630			165,124		20,781		(84	)		246,451
Income tax expense		7,542			6,894		43		—			14,479
Net income	$	6,576		$	42,642	$	921	$	(530	)	$	49,609
Segment assets	$	16,032,323		$	17,753,118	$	371,027	$	(3,753,209	)	$	30,403,259

For the nine months ended September 30, 2016
Banco Popular de Puerto Rico
(In thousands)	Commercial Banking		Consumer and Retail Banking		Other Financial Services		Eliminations			Total Banco Popular de Puerto Rico
Net interest income	$	355,061	$	557,489	$	4,674	$	2,142		$	919,366
Provision for loan losses		26,969		90,018		—		—			116,987
Non-interest income		16,776		168,860		71,883		(259	)		257,260
Amortization of intangibles		92		5,484		3,233		—			8,809
Goodwill impairment charge		—		—		3,801		—			3,801
Depreciation expense		12,735		16,491		659		—			29,885
Other operating expenses		183,706		467,448		54,930		(259	)		705,825
Income tax expense		48,939		24,410		4,302		—			77,651
Net income	$	99,396	$	122,498	$	9,632	$	2,142		$	233,668
Segment assets	$	16,032,323	$	17,753,118	$	371,027	$	(3,753,209	)	$	30,403,259

117

Geographic Information

	Quarter ended				Nine months ended
(in thousands)	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Revenues:
Puerto Rico	$	378,790	$	333,006	$	1,157,324	$	1,097,944
United States		81,652		77,816		234,778		209,999
Other		18,103		18,843		55,682		56,818
Total consolidated revenues	$	478,545	$	429,665	$	1,447,784	$	1,364,761

[1] Total revenues include net interest income (expense), service charges on deposit accounts, other service fees, mortgage banking activities, net gain (loss) and valuation adjustments on investment securities, trading account (loss) profit, net (loss) gain on sale of loans and valuation adjustments on loans held-for-sale, adjustments to indemnity reserves on loans sold, FDIC loss share (expense) income and other operating income.

Selected Balance Sheet Information:

(In thousands)	September 30, 2017		December 31, 2016
Puerto Rico
Total assets	$	31,901,778	$	28,813,289
Loans		16,589,392		16,880,868
Deposits		26,729,468		23,185,551
United States
Total assets	$	9,788,336	$	8,928,475
Loans		6,433,673		5,799,562
Deposits		6,508,324		6,266,473
Other
Total assets	$	911,153	$	919,845
Loans		744,103		755,017
Deposits [1]		1,011,144		1,044,200

[1] Represents deposits from BPPR operations located in the U.S. and British Virgin Islands.

118

Note 35 – Condensed consolidating financial information of guarantor and issuers of registered guaranteed securities

The following condensed consolidating financial information presents the financial position of Popular, Inc. Holding Company (“PIHC”) (parent only), Popular North America, Inc. (“PNA”) and all other subsidiaries of the Corporation at September 30, 2017 and December 31, 2016, and the results of their operations and cash flows for periods ended September 30, 2017 and 2016.

PNA is an operating, wholly-owned subsidiary of PIHC and is the holding company of its wholly-owned subsidiaries: Equity One, Inc. and Banco Popular North America (“BPNA”), including BPNA’s wholly-owned subsidiaries Popular Equipment Finance, Inc., Popular Insurance Agency, U.S.A., and E-LOAN, Inc.

PIHC fully and unconditionally guarantees all registered debt securities issued by PNA.

119

Condensed Consolidating Statement of Financial Condition (Unaudited)

	At September 30, 2017
(In thousands)	Popular Inc. Holding Co.			PNA Holding Co.			All other subsidiaries and eliminations			Elimination entries			Popular, Inc. Consolidated
Assets:
Cash and due from banks	$	44,155		$	462		$	517,440		$	(44,620	)	$	517,437
Money market investments		238,696			2,771			5,487,783			(241,038	)		5,488,212
Trading account securities, at fair value		3,600			—			42,459			(108	)		45,951
Investment securities available-for-sale, at fair value		—			—			9,061,001			—			9,061,001
Investment securities held-to-maturity, at amortized cost		—			—			93,438			—			93,438
Other investment securities, at lower of cost or realizable value		9,850			4,492			159,623			—			173,965
Investment in subsidiaries		5,673,204			1,825,240			—			(7,498,444	)		—
Loans held-for-sale, at lower of cost or fair value		—			—			68,864			—			68,864
Loans held-in-portfolio:
Loans not covered under loss-sharing agreements with the FDIC		32,877			—			23,263,215			5,955			23,302,047
Loans covered under loss-sharing agreements with the FDIC		—			—			524,854			—			524,854
Less - Unearned income		—			—			128,597			—			128,597
Allowance for loan losses		311			—			646,602			—			646,913
Total loans held-in-portfolio, net		32,566			—			23,012,870			5,955			23,051,391
FDIC loss-share asset		—			—			48,470			—			48,470
Premises and equipment, net		3,174			—			529,358			—			532,532
Other real estate not covered under loss-sharing agreements with the FDIC		—			—			176,728			—			176,728
Other real estate covered under loss-sharing agreements with the FDIC		—			—			21,545			—			21,545
Accrued income receivable		227			31			146,157			(76	)		146,339
Mortgage servicing assets, at fair value		—			—			180,157			—			180,157
Other assets		70,896			28,490			2,256,415			(25,874	)		2,329,927
Goodwill		—			—			627,294			—			627,294
Other intangible assets		6,114			—			31,902			—			38,016
Total assets	$	6,082,482		$	1,861,486		$	42,461,504		$	(7,804,205	)	$	42,601,267
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	—		$	—		$	7,494,477		$	(44,620	)	$	7,449,857
Interest bearing		—			—			27,040,117			(241,038	)		26,799,079
Total deposits		—			—			34,534,594			(285,658	)		34,248,936
Assets sold under agreements to repurchase		—			—			374,405			—			374,405
Other short-term borrowings		—			—			240,598			—			240,598
Notes payable		737,163			148,532			646,366			—			1,532,061
Other liabilities		59,799			2,589			881,605			(24,157	)		919,836
Total liabilities		796,962			151,121			36,677,568			(309,815	)		37,315,836
Stockholders’ equity:
Preferred stock		50,160			—			—			—			50,160
Common stock		1,042			2			56,307			(56,309	)		1,042
Surplus		4,256,526			4,100,807			5,700,621			(9,792,901	)		4,265,053
Retained earnings (accumulated deficit)		1,359,257			(2,372,062	)		316,220			2,047,315			1,350,730
Treasury stock, at cost		(90,133	)		—			—			(89	)		(90,222	)
Accumulated other comprehensive loss, net of tax		(291,332	)		(18,382	)		(289,212	)		307,594			(291,332	)
Total stockholders’ equity		5,285,520			1,710,365			5,783,936			(7,494,390	)		5,285,431
Total liabilities and stockholders’ equity	$	6,082,482		$	1,861,486		$	42,461,504		$	(7,804,205	)	$	42,601,267

120

Condensed Consolidating Statement of Financial Condition (Unaudited)

	At December 31, 2016
(In thousands)	Popular, Inc. Holding Co.			PNA Holding Co.			All other subsidiaries and eliminations			Elimination entries			Popular, Inc. Consolidated
Assets:
Cash and due from banks	$	47,783		$	591		$	362,101		$	(48,081	)	$	362,394
Money market investments		252,347			13,263			2,891,670			(267,063	)		2,890,217
Trading account securities, at fair value		2,640			—			57,297			(132	)		59,805
Investment securities available-for-sale, at fair value		—			—			8,209,806			—			8,209,806
Investment securities held-to-maturity, at amortized cost		—			—			98,101			—			98,101
Other investment securities, at lower of cost or realizable value		9,850			4,492			153,476			—			167,818
Investment in subsidiaries		5,609,611			1,818,127			—			(7,427,738	)		—
Loans held-for-sale, at lower of cost or fair value		—			—			88,821			—			88,821
Loans held-in-portfolio:
Loans not covered under loss-sharing agreements with the FDIC		1,142			—			22,894,030			—			22,895,172
Loans covered under loss-sharing agreements with the FDIC		—			—			572,878			—			572,878
Less - Unearned income		—			—			121,425			—			121,425
Allowance for loan losses		2			—			540,649			—			540,651
Total loans held-in-portfolio, net		1,140			—			22,804,834			—			22,805,974
FDIC loss-share asset		—			—			69,334			—			69,334
Premises and equipment, net		3,067			—			540,914			—			543,981
Other real estate not covered under loss-sharing agreements with the FDIC		81			—			180,364			—			180,445
Other real estate covered under loss-sharing agreements with the FDIC		—			—			32,128			—			32,128
Accrued income receivable		112			138			137,882			(90	)		138,042
Mortgage servicing assets, at fair value		—			—			196,889			—			196,889
Other assets		61,770			25,146			2,073,562			(14,968	)		2,145,510
Goodwill		—			—			627,294			—			627,294
Other intangible assets		553			—			44,497			—			45,050
Total assets	$	5,988,954		$	1,861,757		$	38,568,970		$	(7,758,072	)	$	38,661,609
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	—		$	—		$	7,028,524		$	(48,081	)	$	6,980,443
Interest bearing		—			—			23,782,844			(267,063	)		23,515,781
Total deposits		—			—			30,811,368			(315,144	)		30,496,224
Assets sold under agreements to repurchase		—			—			479,425			—			479,425
Other short-term borrowings		—			—			1,200			—			1,200
Notes payable		735,600			148,512			690,740			—			1,574,852
Other liabilities		55,309			6,034			865,861			(15,253	)		911,951
Total liabilities		790,909			154,546			32,848,594			(330,397	)		33,463,652
Stockholders’ equity:
Preferred stock		50,160			—			—			—			50,160
Common stock		1,040			2			56,307			(56,309	)		1,040
Surplus		4,246,495			4,111,207			5,717,066			(9,819,746	)		4,255,022
Retained earnings (accumulated deficit)		1,228,834			(2,382,049	)		264,944			2,108,578			1,220,307
Treasury stock, at cost		(8,198	)		—			—			(88	)		(8,286	)
Accumulated other comprehensive loss, net of tax		(320,286	)		(21,949	)		(317,941	)		339,890			(320,286	)
Total stockholders’ equity		5,198,045			1,707,211			5,720,376			(7,427,675	)		5,197,957
Total liabilities and stockholders’ equity	$	5,988,954		$	1,861,757		$	38,568,970		$	(7,758,072	)	$	38,661,609

121

Condensed Consolidating Statement of Operations (Unaudited)    

	Quarter ended September 30, 2017
(In thousands)	Popular, Inc. Holding Co.			PNA Holding Co.			All other subsidiaries and eliminations			Elimination entries			Popular, Inc. Consolidated
Interest and dividend income:
Dividend income from subsidiaries	$	27,500		$	—		$	—		$	(27,500	)	$	—
Loans		405			—			371,574			—			371,979
Money market investments		730			13			15,529			(743	)		15,529
Investment securities		142			81			47,053			—			47,276
Trading account securities		—			—			1,099			—			1,099
Total interest and dividend income		28,777			94			435,255			(28,243	)		435,883
Interest expense:
Deposits		—			—			37,801			(743	)		37,058
Short-term borrowings		—			—			1,524			—			1,524
Long-term debt		13,118			2,693			3,319			—			19,130
Total interest expense		13,118			2,693			42,644			(743	)		57,712
Net interest income (expense)		15,659			(2,599	)		392,611			(27,500	)		378,171
Provision for loan losses- non-covered loans		40			—			157,619			—			157,659
Provision for loan losses- covered loans		—			—			3,100			—			3,100
Net interest income (expense) after provision for loan losses		15,619			(2,599	)		231,892			(27,500	)		217,412
Service charges on deposit accounts		—			—			39,273			—			39,273
Other service fees		—			—			53,551			(70	)		53,481
Mortgage banking activities		—			—			5,239			—			5,239
Net gain on sale of investment securities		—			—			103			—			103
Trading account profit		137			—			98			18			253
Net loss on sale of loans, including valuation adjustments on loans held-for-sale		—			—			(420	)		—			(420	)
Adjustments (expense) to indemnity reserves on loans sold		—			—			(6,406	)		—			(6,406	)
FDIC loss-share expense		—			—			(3,948	)		—			(3,948	)
Other operating income		1,564			31			11,208			(4	)		12,799
Total non-interest income		1,701			31			98,698			(56	)		100,374
Operating expenses:
Personnel costs		11,438			—			108,198			—			119,636
Net occupancy expenses		976			—			21,278			—			22,254
Equipment expenses		885			1			15,571			—			16,457
Other taxes		55			—			10,803			—			10,858
Professional fees		2,555			18			68,269			(70	)		70,772
Communications		125			—			5,269			—			5,394
Business promotion		454			—			14,762			—			15,216
FDIC deposit insurance		—			—			6,271			—			6,271
Other real estate owned (OREO) expenses		42			—			11,682			—			11,724
Other operating expenses		(17,572	)		13			54,275			(555	)		36,161
Amortization of intangibles		—			—			2,345			—			2,345
Total operating expenses		(1,042	)		32			318,723			(625	)		317,088
Income (loss) before income tax and equity in earnings (losses) of subsidiaries		18,362			(2,600	)		11,867			(26,931	)		698
Income tax benefit		—			(910	)		(19,271	)		215			(19,966	)
Income (loss) before equity in earnings (losses) of subsidiaries		18,362			(1,690	)		31,138			(27,146	)		20,664
Equity in undistributed earnings (losses) of subsidiaries		2,302			(7,681	)		—			5,379			—
Net Income (Loss)	$	20,664		$	(9,371	)	$	31,138		$	(21,767	)	$	20,664
Comprehensive income (loss), net of tax	$	32,275		$	(7,732	)	$	42,516		$	(34,784	)	$	32,275

122

Condensed Consolidating Statement of Operations (Unaudited)    

	Nine months ended September 30, 2017
(In thousands)	Popular, Inc. Holding Co.			PNA Holding Co.			All other subsidiaries and eliminations			Elimination entries			Popular, Inc. Consolidated
Interest and dividend income:
Dividend income from subsidiaries	$	184,000		$	—		$	—		$	(184,000	)	$	—
Loans		534			—			1,102,250			—			1,102,784
Money market investments		1,820			52			33,233			(1,872	)		33,233
Investment securities		425			242			140,032			—			140,699
Trading account securities		—			—			3,895			—			3,895
Total interest and dividend income		186,779			294			1,279,410			(185,872	)		1,280,611
Interest expense:
Deposits		—			—			106,779			(1,872	)		104,907
Short-term borrowings		—			—			3,734			—			3,734
Long-term debt		39,353			8,076			9,793			—			57,222
Total interest expense		39,353			8,076			120,306			(1,872	)		165,863
Net interest income (expense)		147,426			(7,782	)		1,159,104			(184,000	)		1,114,748
Provision for loan losses- non-covered loans		309			—			255,327			(5,955	)		249,681
Provision for loan losses- covered loans		—			—			4,255			—			4,255
Net interest income (expense) after provision for loan losses		147,117			(7,782	)		899,522			(178,045	)		860,812
Service charges on deposit accounts		—			—			119,882			—			119,882
Other service fees		—			—			170,282			(1,458	)		168,824
Mortgage banking activities		—			—			27,349			—			27,349
Net gain on sale of investment securities		—			—			284			—			284
Other-than-temporary impairment losses on investment securities		—			—			(8,299	)		—			(8,299	)
Trading account profit (loss)		297			—			(1,003	)		26			(680	)
Net gain on sale of loans, including valuation adjustments on loans held-for-sale		—			—			(420	)		—			(420	)
Adjustments (expense) to indemnity reserves on loans sold		—			—			(11,302	)		—			(11,302	)
FDIC loss-share expense		—			—			(12,680	)		—			(12,680	)
Other operating income		10,739			1,256			38,101			(18	)		50,078
Total non-interest income		11,036			1,256			322,194			(1,450	)		333,036
Operating expenses:
Personnel costs		37,226			—			326,832			—			364,058
Net occupancy expenses		2,925			—			62,370			—			65,295
Equipment expenses		1,952			1			46,724			—			48,677
Other taxes		147			—			32,420			—			32,567
Professional fees		8,743			(474	)		205,047			(360	)		212,956
Communications		407			—			16,835			—			17,242
Business promotion		1,413			—			38,745			—			40,158
FDIC deposit insurance		—			—			18,936			—			18,936
Other real estate owned (OREO) expenses		42			—			41,170			—			41,212
Other operating expenses		(53,227	)		39			141,958			(1,664	)		87,106
Amortization of intangibles		—			—			7,034			—			7,034
Total operating expenses		(372	)		(434	)		938,071			(2,024	)		935,241
Income (loss) before income tax and equity in earnings of subsidiaries		158,525			(6,092	)		283,645			(177,471	)		258,607
Income tax (benefit) expense		—			(2,132	)		48,368			2,536			48,772
Income (loss) before equity in earnings of subsidiaries		158,525			(3,960	)		235,277			(180,007	)		209,835
Equity in undistributed earnings of subsidiaries		51,310			13,947			—			(65,257	)		—
Net Income	$	209,835		$	9,987		$	235,277		$	(245,264	)	$	209,835
Comprehensive income, net of tax	$	238,789		$	13,554		$	264,006		$	(277,560	)	$	238,789

123

Condensed Consolidating Statement of Operations (Unaudited)    

	Quarter ended September 30, 2016
(In thousands)	Popular, Inc. Holding Co.			PNA Holding Co.			All other subsidiaries and eliminations			Elimination entries			Popular, Inc. Consolidated
Interest and dividend income:
Dividend income from subsidiaries	$	24,200		$	—		$	—		$	(24,200	)	$	—
Loans		21			—			363,529			—			363,550
Money market investments		398			27			4,568			(425	)		4,568
Investment securities		141			81			37,510			—			37,732
Trading account securities		—			—			1,449			—			1,449
Total interest and dividend income		24,760			108			407,056			(24,625	)		407,299
Interest expense:
Deposits		—			—			32,787			(425	)		32,362
Short-term borrowings		—			—			2,132			—			2,132
Long-term debt		13,118			2,692			3,308			—			19,118
Total interest expense		13,118			2,692			38,227			(425	)		53,612
Net interest income (expense)		11,642			(2,584	)		368,829			(24,200	)		353,687
Provision (reversal) for loan losses- non-covered loans		(33	)		—			42,627			—			42,594
Provision for loan losses- covered loans		—			—			750			—			750
Net interest income (expense) after provision for loan losses		11,675			(2,584	)		325,452			(24,200	)		310,343
Service charges on deposit accounts		—			—			40,776			—			40,776
Other service fees		—			—			59,233			(64	)		59,169
Mortgage banking activities		—			—			15,272			—			15,272
Net gain on sale of investment securities		184			—			165			—			349
Trading account profit (loss)		77			—			(163	)		(27	)		(113	)
Net gain on sale of loans, including valuation adjustments on loans held-for-sale		—			—			8,549			—			8,549
Adjustments (expense) to indemnity reserves on loans sold		—			—			(4,390	)		—			(4,390	)
FDIC loss-share expense		—			—			(61,723	)		—			(61,723	)
Other operating income		4,002			152			13,955			(20	)		18,089
Total non-interest income		4,263			152			71,674			(111	)		75,978
Operating expenses:
Personnel costs		11,137			—			110,087			—			121,224
Net occupancy expenses		939			—			20,687			—			21,626
Equipment expenses		776			1			15,145			—			15,922
Other taxes		46			—			11,278			—			11,324
Professional fees		2,642			31			78,658			(65	)		81,266
Communications		140			—			5,645			—			5,785
Business promotion		516			—			12,210			—			12,726
FDIC deposit insurance		—			—			5,854			—			5,854
Other real estate owned (OREO) expenses		(16	)		—			11,311			—			11,295
Other operating expenses		(19,795	)		3			50,077			(533	)		29,752
Amortization of intangibles		—			—			3,097			—			3,097
Goodwill impairment charge		—			—			3,801			—			3,801
Total operating expenses		(3,615	)		35			327,850			(598	)		323,672
Income (loss) before income tax and equity in earnings of subsidiaries		19,553			(2,467	)		69,276			(23,713	)		62,649
Income tax (benefit) expense		(2	)		(864	)		16,504			201			15,839
Income (loss) before equity in earnings of subsidiaries		19,555			(1,603	)		52,772			(23,914	)		46,810
Equity in undistributed earnings of subsidiaries		27,255			9,190			—			(36,445	)		—
Net Income	$	46,810		$	7,587		$	52,772		$	(60,359	)	$	46,810
Comprehensive income, net of tax	$	35,127		$	3,426		$	41,429		$	(44,855	)	$	35,127

124

Condensed Consolidating Statement of Operations (Unaudited)    

	Nine months ended September 30, 2016
(In thousands)	Popular, Inc. Holding Co.			PNA Holding Co.			All other subsidiaries and eliminations			Elimination entries			Popular, Inc. Consolidated
Interest and dividend income:
Dividend income from subsidiaries	$	78,100		$	—		$	—		$	(78,100	)	$	—
Loans		60			—			1,096,408			—			1,096,468
Money market investments		976			78			11,320			(1,054	)		11,320
Investment securities		522			242			109,964			—			110,728
Trading account securities		—			—			5,013			—			5,013
Total interest and dividend income		79,658			320			1,222,705			(79,154	)		1,223,529
Interest expense:
Deposits		—			—			93,889			(1,054	)		92,835
Short-term borrowings		—			—			6,051			—			6,051
Long-term debt		39,353			8,077			10,563			—			57,993
Total interest expense		39,353			8,077			110,503			(1,054	)		156,879
Net interest income (expense)		40,305			(7,757	)		1,112,202			(78,100	)		1,066,650
Provision (reversal) for loan losses- non-covered loans		(36	)		—			130,238			—			130,202
Provision (reversal) for loan losses- covered loans		—			—			(1,551	)		—			(1,551	)
Net interest income (expense) after provision for loan losses		40,341			(7,757	)		983,515			(78,100	)		937,999
Service charges on deposit accounts		—			—			120,934			—			120,934
Other service fees		—			—			170,896			(1,400	)		169,496
Mortgage banking activities		—			—			42,050			—			42,050
Net gain on sale of investment securities		1,767			—			165			—			1,932
Other-than temporary impairment losses on investment securities		—			—			(209	)		—			(209	)
Trading account profit		136			—			733			(27	)		842
Net gain on sale of loans, including valuation adjustments on loans held-for-sale		—			—			8,245			—			8,245
Adjustments (expense) to indemnity reserves on loans sold		—			—			(14,234	)		—			(14,234	)
FDIC loss-share expense		—			—			(77,445	)		—			(77,445	)
Other operating income (loss)		9,070			(2,787	)		40,255			(38	)		46,500
Total non-interest income (expense)		10,973			(2,787	)		291,390			(1,465	)		298,111
Operating expenses:
Personnel costs		37,192			—			327,831			—			365,023
Net occupancy expenses		2,700			—			61,070			—			63,770
Equipment expenses		1,864			1			43,866			—			45,731
Other taxes		140			—			31,549			—			31,689
Professional fees		7,854			91			229,754			(349	)		237,350
Communications		417			—			17,700			—			18,117
Business promotion		1,467			—			36,074			—			37,541
FDIC deposit insurance		—			—			18,586			—			18,586
Other real estate owned (OREO) expenses		52			—			33,364			—			33,416
Other operating expenses		(56,173	)		46			128,181			(1,622	)		70,432
Amortization of intangibles		—			—			9,308			—			9,308
Goodwill impairment charge		—			—			3,801			—			3,801
Total operating expenses		(4,487	)		138			941,084			(1,971	)		934,764
Income (loss) before income tax and equity in earnings of subsidiaries		55,801			(10,682	)		333,821			(77,594	)		301,346
Income tax expense (benefit)		1			(3,739	)		84,080			208			80,550
Income (loss) before equity in earnings of subsidiaries		55,800			(6,943	)		249,741			(77,802	)		220,796
Equity in undistributed earnings of subsidiaries		164,996			30,289			—			(195,285	)		—
Net Income	$	220,796		$	23,346		$	249,741		$	(273,087	)	$	220,796
Comprehensive income, net of tax	$	320,387		$	47,064		$	350,689		$	(397,753	)	$	320,387

125

Condensed Consolidating Statement of Cash Flows (Unaudited)

	Nine months ended September 30, 2017
(In thousands)	Popular, Inc. Holding Co.			PNA Holding Co.			All other subsidiaries and eliminations			Elimination entries			Popular, Inc. Consolidated
Cash flows from operating activities:
Net income	$	209,835		$	9,987		$	235,277		$	(245,264	)	$	209,835
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in earnings of subsidiaries, net of dividends or distributions		(51,310	)		(13,947	)		—			65,257			—
Provision for loan losses		309			—			253,627			—			253,936
Amortization of intangibles		—			—			7,034			—			7,034
Depreciation and amortization of premises and equipment		480			—			35,486			—			35,966
Net accretion of discounts and amortization of premiums and deferred fees		1,565			—			(18,936	)		—			(17,371	)
Impairment losses on long-lived assets		—			—			11,286			—			11,286
Other-than-temporary impairment on investment securities		—			—			8,299			—			8,299
Fair value adjustments on mortgage servicing rights		—			—			24,262			—			24,262
FDIC loss-share expense		—			—			12,680			—			12,680
Adjustments (expense) to indemnity reserves on loans sold		—			—			11,302			—			11,302
Earnings from investments under the equity method		(10,728	)		(1,256	)		(15,366	)		—			(27,350	)
Deferred income tax (benefit) expense		—			(2,132	)		32,389			214			30,471
(Gain) loss on:
Disposition of premises and equipment and other productive assets		(17	)		—			5,035			—			5,018
Sale and valuation adjustments of investment securities		—			21			(305	)		—			(284	)
Sale of loans, including valuation adjustments on loans held for sale and mortgage banking activities		—			—			(16,455	)		—			(16,455	)
Sale of foreclosed assets, including write-downs		42			—			19,186			—			19,228
Acquisitions of loans held-for-sale		—			—			(204,813	)		—			(204,813	)
Proceeds from sale of loans held-for-sale		—			—			68,326			—			68,326
Net originations on loans held-for-sale		—			—			(283,709	)		—			(283,709	)
Net (increase) decrease in:
Trading securities		(961	)		—			499,826			(25	)		498,840
Accrued income receivable		(115	)		107			(8,274	)		(15	)		(8,297	)
Other assets		1,331			45			(3,115	)		15,193			13,454
Net (decrease) increase in:
Interest payable		(7,875	)		(2,685	)		1,246			15			(9,299	)
Pension and other postretirement benefits obligations		—			—			(13,760	)		—			(13,760	)
Other liabilities		2,115			(760	)		22,742			(8,919	)		15,178
Total adjustments		(65,164	)		(20,607	)		447,993			71,720			433,942
Net cash provided by (used in) operating activities		144,671			(10,620	)		683,270			(173,544	)		643,777

126

Cash flows from investing activities:
Net decrease (increase) in money market investments		13,651			10,491			(2,596,111	)		(26,025	)		(2,597,994	)
Purchases of investment securities:
Available-for-sale		—			—			(2,356,389	)		—			(2,356,389	)
Other		—			—			(23,822	)		—			(23,822	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale		—			—			1,225,915			—			1,225,915
Held-to-maturity		—			—			6,229			—			6,229
Proceeds from sale of investment securities:
Available for sale		—			—			14,888			—			14,888
Other		—			—			17,675			—			17,675
Net repayments (disbursements) on loans		172			—			(77,572	)		—			(77,400	)
Proceeds from sale of loans		—			—			38,279			(37,864	)		415
Acquisition of loan portfolios		(31,909	)		—			(454,076	)		37,864			(448,121	)
Acquisition of trademark		(5,560	)		—			5,560			—			—
Net payments from FDIC under loss-sharing agreements		—			—			(11,520	)		—			(11,520	)
Return of capital from equity method investments		500			—			8,056			—			8,556
Capital contribution to subsidiary		(5,955	)		—			5,955			—			—
Return of capital from wholly-owned subsidiaries		22,400			10,400			40			(32,840	)		—
Acquisition of premises and equipment		(594	)		—			(39,564	)		—			(40,158	)
Proceeds from sale of:
Premises and equipment and other productive assets		21			—			6,961			—			6,982
Foreclosed assets		39			—			85,666			—			85,705
Net cash (used in) provided by investing activities		(7,235	)		20,891			(4,143,830	)		(58,865	)		(4,189,039	)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits		—			—			3,721,882			29,485			3,751,367
Assets sold under agreements to repurchase		—			—			(105,020	)		—			(105,020	)
Other short-term borrowings		—			—			239,398			—			239,398
Payments of notes payable		—			—			(89,375	)		—			(89,375	)
Proceeds from issuance of notes payable		—			—			45,000			—			45,000
Proceeds from issuance of common stock		5,515			—			—			—			5,515
Dividends paid to parent company		—			—			(179,500	)		179,500			—
Dividends paid		(69,162	)		—			—			—			(69,162	)
Net payments for repurchase of common stock		(75,661	)		—			(1	)		—			(75,662	)
Return of capital to parent company		—			(10,400	)		10,400			—			—
Capital contribution from parent		—			—			5,955			(5,955	)		—
Payments related to tax withholding for share-based compensation		(1,756	)		—			(32,840	)		32,840			(1,756	)
Net cash (used in) provided by financing activities		(141,064	)		(10,400	)		3,615,899			235,870			3,700,305
Net (decrease) increase in cash and due from banks		(3,628	)		(129	)		155,339			3,461			155,043
Cash and due from banks at beginning of period		47,783			591			362,101			(48,081	)		362,394
Cash and due from banks at end of period	$	44,155		$	462		$	517,440		$	(44,620	)	$	517,437

During the nine months ended September 30, 2017 there have not been any cash flows associated with discontinued operations.

127

Condensed Consolidating Statement of Cash Flows (Unaudited)

	Nine months ended September 30, 2016
(In thousands)	Popular, Inc. Holding Co.			PNA Holding Co.			All other subsidiaries and eliminations			Elimination entries			Popular, Inc. Consolidated
Cash flows from operating activities:
Net income	$	220,796		$	23,346		$	249,741		$	(273,087	)	$	220,796
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in earnings of subsidiaries, net of dividends or distributions		(164,996	)		(30,289	)		—			195,285			—
Provision (reversal) for loan losses		(36	)		—			128,687			—			128,651
Goodwill impairment losses		—			—			3,801			—			3,801
Amortization of intangibles		—			—			9,308			—			9,308
Depreciation and amortization of premises and equipment		497			—			34,228			—			34,725
Net accretion of discounts and amortization of premiums and deferred fees		1,565			21			(38,339	)		—			(36,753	)
Other-than-temporary impairment on investment securities		—			—			209			—			209
Fair value adjustments on mortgage servicing rights		—			—			18,879			—			18,879
FDIC loss-share expense		—			—			77,445			—			77,445
Adjustments (expense) to indemnity reserves on loans sold		—			—			14,234			—			14,234
(Earnings) losses from investments under the equity method		(9,070	)		2,787			(17,529	)		—			(23,812	)
Deferred income tax expense (benefit)		1			(3,739	)		65,448			208			61,918
(Gain) loss on:
Disposition of premises and equipment and other productive assets		(1	)		—			3,604			—			3,603
Sale and valuation adjustments of investment securities		(1,767	)		—			(165	)		—			(1,932	)
Sale of loans, including valuation adjustments on loans held for sale and mortgage banking activities		—			—			(32,982	)		—			(32,982	)
Sale of foreclosed assets, including write-downs		52			—			13,108			—			13,160
Acquisitions of loans held-for-sale		—			—			(223,189	)		—			(223,189	)
Proceeds from sale of loans held-for-sale		—			—			58,003			—			58,003
Net originations on loans held-for-sale		—			—			(365,353	)		—			(365,353	)
Net (increase) decrease in:
Trading securities		(475	)		—			578,487			121			578,133
Accrued income receivable		(6	)		80			4,459			10			4,543
Other assets		2,304			(26	)		(26,170	)		(4,309	)		(28,201	)
Net (decrease) increase in:
Interest payable		(7,875	)		(2,685	)		(983	)		(10	)		(11,553	)
Pension and other postretirement benefits obligations		—			—			(56,537	)		—			(56,537	)
Other liabilities		(5,724	)		(543	)		(2,801	)		3,776			(5,292	)
Total adjustments		(185,531	)		(34,394	)		245,852			195,081			221,008
Net cash provided by (used in) operating activities		35,265			(11,048	)		495,593			(78,006	)		441,804
Cash flows from investing activities:
Net (increase) decrease in money market investments		(22,111	)		10,835			(1,785,091	)		12,965			(1,783,402	)
Purchases of investment securities:
Available-for-sale		—			—			(2,408,514	)		—			(2,408,514	)
Other		—			—			(14,017	)		—			(14,017	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale		—			—			951,447			—			951,447
Held-to-maturity		—			—			4,182			—			4,182
Other		—			—			11,051			—			11,051
Proceeds from sale of investment securities:
Available for sale		278			—			1,278			—			1,556
Other		1,583			—			6,423			—			8,006
Net repayments (disbursements) on loans		25			—			(93,379	)		—			(93,354	)

128

Proceeds from sale of loans		—			—			134,114			—			134,114
Acquisition of loan portfolios		—			—			(355,507	)		—			(355,507	)
Net payments from FDIC under loss-sharing agreements		—			—			95,407			—			95,407
Return of capital from equity method investments		118			206			—			—			324
Return of capital from wholly-owned subsidiaries		14,000			—			—			(14,000	)		—
Acquisition of premises and equipment		(794	)		—			(77,503	)		—			(78,297	)
Proceeds from sale of:
Premises and equipment and other productive assets		56			—			5,463			—			5,519
Foreclosed assets		434			—			54,166			—			54,600
Net cash (used in) provided by investing activities		(6,411	)		11,041			(3,470,480	)		(1,035	)		(3,466,885	)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits		—			—			3,116,067			3,607			3,119,674
Federal funds purchased and assets sold under agreements to repurchase		—			—			3,106			—			3,106
Payments of notes payable		—			—			(230,608	)		—			(230,608	)
Proceeds from issuance of notes payable		—			—			165,047			—			165,047
Proceeds from issuance of common stock		5,718			—			—			—			5,718
Dividends paid to parent company		—			—			(78,100	)		78,100			—
Dividends paid		(49,438	)		—			—			—			(49,438	)
Net payments for repurchase of common stock		(1,453	)		—			(1	)		(93	)		(1,547	)
Return of capital to parent company		—			—			(14,000	)		14,000			—
Net cash (used in) provided by financing activities		(45,173	)		—			2,961,511			95,614			3,011,952
Net decrease in cash and due from banks		(16,319	)		(7	)		(13,376	)		16,573			(13,129	)
Cash and due from banks at beginning of period		24,298			600			363,620			(24,844	)		363,674
Cash and due from banks at end of period	$	7,979		$	593		$	350,244		$	(8,271	)	$	350,545

During the nine months ended September 30, 2017 there have not been any cash flows associated with discontinued operations.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report includes management’s discussion and analysis (“MD&A”) of the consolidated financial position and financial performance of Popular, Inc. (the “Corporation” or “Popular”). All accompanying tables, financial statements and notes included elsewhere in this report should be considered an integral part of this analysis.

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 (“U.S.”) mainland, and the U.S. and British Virgin Islands. 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. The Corporation’s mortgage origination business is conducted under the brand name Popular Mortgage, a division of BPPR. In the U.S. mainland, the Corporation operates Banco Popular North America (“BPNA”). The BPNA franchise operates under the name Popular Community Bank (“PCB”). BPNA focuses efforts and resources on the core community banking business. BPNA operates branches in New York, New Jersey and Southern Florida. Note 34 to the Consolidated Financial Statements presents information about the Corporation’s business segments.

The Corporation has several investments which it accounts for under the equity method. As of September 30, 2017, the Corporation had a 16.10% interest in the holding company of EVERTEC, which provides transaction processing services throughout the Caribbean and Latin America, including servicing many of the Corporation’s system infrastructures and transaction processing businesses. During the quarter ended September 30, 2017, the Corporation recorded $ 1.6 million in earnings from its investment in EVERTEC, which had a carrying amount of $ 46 million as of the end of the quarter. Also, the Corporation had a 15.84% stake in Centro Financiero BHD Leon, S.A. (“BHD Leon”), one of the largest banking and financial services groups in the Dominican Republic. During the quarter ended September 30, 2017, the Corporation recorded $5.5 million in earnings from its investment in BHD Leon, which had a carrying amount of $129 million, as of the end of the quarter.

129

HURRICANES IRMA AND MARIA

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. As of November 7, 2017, 85% of BPPR’s bank branches were open and 69% of ATMs were operating. 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.

After the hurricanes, Popular has worked diligently to provide service to the Puerto Rico and Virgin Islands markets, including reopening retail locations and providing assistance to the communities it serves. A priority for Popular has been to maintain cash in its branches and ATM’s and to mobilize its workforce to ensure continuity of service to its customers and that of other financial institutions. Popular has implemented several initiatives to provide assistance to individuals and businesses impacted by the hurricanes. Actions taken by Popular, directly or through its affiliated P.R. and U.S.-based foundations, include:

Payment Moratoriums. Payment moratoriums for eligible customers of up to three months in mortgage, consumer, auto and commercial loans, subject to certain terms and conditions.

130

Fee Waivers. The waiver of certain fees and service charges, including late-payment charges and ATM transaction fees in hurricane-affected areas.

Employee Relief. Popular increased the Employee Relief Fund to $750,000 to assist affected employees. Popular also assisted employees by providing means to obtain water, food and other supplies, child care services, orientation on how to submit claims to the Federal Emergency Management Agency (“FEMA”) and other special offers.

Other Charitable Initiatives. The Corporation’s philanthropic arms, Fundación Banco Popular and the Popular Community Bank Foundation, launched relief efforts for the victims of hurricane Irma and Maria, through the “Embracing Puerto Rico” and “Embracing the Islands” campaigns, to which Popular has donated $1.1 million. As needs unfold, the Foundations are expected to direct funding to address immediate and long-term needs arising from the impact of the hurricanes. Popular also contributed to “Unidos por Puerto Rico”, a fundraising campaign spearheaded by Puerto Rico’s First Lady and was one of two sponsors of the “Somos Una Voz” concert that has raised over $35 million for earthquake victims in Mexico and hurricane victims in Texas, Florida, Puerto Rico and the Caribbean. Fundación Banco Popular is leveraging the relationships it has developed with non-profit organizations and community leaders throughout its almost 40-year history, delivering assistance directly to those who need it most.

Financial impact of the hurricanes

During the third quarter of 2017, the Corporation recorded $79.4 million in pre-tax hurricane-related expenses, including an incremental provision for loan losses of $69.9 million. These amounts are net of amounts receivable for related insurance claims of $7.5 million related to physical damages to the Corporation’s premises, equipment and other real estate owned (“OREO”).

In addition to the 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. These revenue captions reflect approximately $11 million in lower income when compared to the previous quarter, primarily driven by the disruption in our operations over the last 10 days of the quarter.

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.

Hurricanes impact on loan delinquencies

As noted in Note 8 to the accompanying Financial Statements, due to the disruptions caused by Hurricanes Irma and Maria, the Corporation’s payment channels, collection efforts and loss mitigation operations were interrupted and mainly unavailable for the last 10 days of the quarter. This disruption contributed to an increase in the level of loan delinquencies as of September 30, 2017, as detailed in following schedule:

Puerto Rico
September 30, 2017
	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 and construction	$	69,175	$	20,641	$	184,935	$	274,751	$	6,982,565	$	7,257,316
Mortgage		583,383		221,646		856,307		1,661,336		4,154,169		5,815,505
Consumer		99,899		44,579		72,355		216,833		3,828,418		4,045,251
Total	$	752,457	$	286,866	$	1,113,597	$	2,152,920	$	14,965,152	$	17,118,072
June 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 and construction	$	102,701	$	21,394	$	190,033	$	314,128	$	6,938,862	$	7,252,990
Mortgage		307,222		151,129		743,059		1,201,410		4,616,873		5,818,283
Consumer		65,064		24,077		68,689		157,830		3,847,562		4,005,392
Total	$	474,987	$	196,600	$	1,001,781	$	1,673,368	$	15,403,297	$	17,076,665
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 and construction	$	130,959	$	12,437	$	198,911	$	342,307	$	6,945,468	$	7,287,775
Mortgage		289,635		136,558		801,251		1,227,444		4,689,056		5,916,500
Consumer		64,113		25,602		74,289		164,004		3,800,145		3,964,149
Total	$	484,707	$	174,597	$	1,074,451	$	1,733,755	$	15,434,669	$	17,168,424

The disruption in payment channels, particularly our branch network, contributed to the spike in mortgage loans past due 30-89 days. Traditionally, one third of mortgage loan payments are made by our clients directly at our branches, many of which were unavailable for the last 10 days of the quarter. While the aggregate unpaid principal balance of mortgage loans past due 30-89 days increased by approximately $346.7 million at September 30, 2017 when compared to June 30, 2017, borrowers of loans with an aggregate approximate unpaid principal balance of $304.2 million, recorded as 30-89 past due at September 30, 2017, returned to current status as of the end of October. These borrowers made their September loan payments during the month of October and either also made their scheduled October payment or benefited from the loan payment moratorium extended by Popular.

We expect the hurricanes to continue to impact the Corporation’s earnings for the quarter ending December 31, 2017 and future periods. For additional information of the financial impact associated with the hurricanes, refer to Note 2 to the accompanying Financial Statements. Also, refer to the Net Interest Income, Non-Interest Income, Operating Expenses and Credit Quality sections in this MD&A for additional discussions of the impact of the hurricanes in the Corporation’s financial statements.

OVERVIEW

Table 1 provides selected financial data and performance indicators for the quarters and nine months ended September 30, 2017 and 2016.

Adjusted results of operations – Non-GAAP financial measure

Adjusted net income

The Corporation prepares its Consolidated Financial Statements using accounting principles generally accepted in the United States (“U.S. GAAP” or the “reported basis”). In addition to analyzing the Corporation’s results on a reported basis, management monitors “Adjusted net income” of the Corporation and excludes the impact of certain transactions on the results of its operations. Adjusted net income is a non-GAAP financial measure. Management believes that Adjusted net income provides meaningful information about the underlying performance of the Corporation’s ongoing operations.

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For the quarter and nine months ended September 30, 2017, there were no adjustments identified by management to arrive at an Adjusted net income presentation. Refer to Tables 36 and 37 for a reconciliation of the reported results to the Adjusted net income for the quarter and nine months ended September 30, 2016.

Net interest income on a taxable equivalent basis

Net interest income, on a taxable equivalent basis, is presented with its different components in Tables 2 and 3 for the quarter and nine months ended September 30, 2017 as compared with the same period in 2016, segregated by major categories of interest earning assets and interest-bearing liabilities.

The interest earning assets include investment securities and loans that are exempt from income tax, principally in Puerto Rico. The main sources of tax-exempt interest income are certain investments in obligations of the U.S. Government, its agencies and sponsored entities, and certain obligations of the Commonwealth of Puerto Rico and its agencies and municipalities and assets held by the Corporation’s international banking entities. To facilitate the comparison of all interest related to these assets, the interest income has been converted to a taxable equivalent basis, using the applicable statutory income tax rates for each period. The taxable equivalent computation considers the interest expense and other related expense disallowances required by the Puerto Rico tax law. Under this law, the exempt interest can be deducted up to the amount of taxable income. Net interest income on a taxable equivalent basis is a non-GAAP financial measure. Management believes that this presentation provides meaningful information since it facilitates the comparison of revenues arising from taxable and exempt sources.

Non-GAAP financial measures used by the Corporation may not be comparable to similarly named Non-GAAP financial measures used by other companies.

Financial highlights for the quarter ended September 30, 2017

• For the quarter ended September 30, 2017, the Corporation recorded net income of $ 20.7 million, compared to net income of $ 46.8 million for the same quarter of the previous year. The results for the quarter reflect the estimated impact of the hurricanes, which includes pre-tax expenses of $79.4 million, as discussed above.

• Net interest income was $378.2 million for the third quarter of 2017, an increase of $24.5 million when compared with the same quarter of 2016. Taxable equivalent net interest income was $406.6 million for the third quarter of 2017, an increase of $31.2 million when compared to $375.4 million for the same quarter of 2016. The increase in net interest income was mostly due to higher volume of money market and investment securities, higher income from commercial loans, offset by lower income from mortgage loans, the Westernbank portfolio and higher deposit costs. Net interest margin for the third quarter of 2017 was 3.96%, a decrease of 16 basis points when compared to 4.12% for the same quarter of the previous year due mainly to changes in the asset mix.. Net Interest margin, on a taxable equivalent basis, for the third quarter of 2017 was 4.26%, a decrease of 11 basis points when compared to 4.37% for the same quarter of 2016. Refer to the Net Interest Income section of this MD&A for additional information.

• The total provision for loan losses was $160.8 million, an increase of $117.4 million, compared to the same quarter of 2016, mainly related to the $69.9 million incremental provision related to the hurricanes impact and a provision of $37.0 million on the U.S. segment for the taxi medallion portfolio.

• Non-performing assets, excluding covered loans and OREO, increased by $24 million from December 31, 2016, mostly related to higher P.R. mortgage non-performing loans (“NPLs”) of $20 million, affected by disruptions to payment channels, collections and loss mitigation efforts related to the hurricanes. Refer to the Provision for Loan Losses and Credit Risk section of this MD&A for an explanation of the main factors impacting the provision for loan losses and a detailed analysis of net charge-offs, non-performing assets, allowance for loan losses and selected loan losses statistics.

• Non-interest income increased by $24.4 million mainly due to a favorable variance in the FDIC loss share of $57.8 million mainly as a result of a $54.9 million charge related to the arbitration award recorded during the third quarter of 2016, partially offset by lower other service fees and mortgage banking activities, impacted by the business disruption caused by the hurricanes, lower gain on sale of loans and lower income from equity method investments.

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• Operating expenses decreased by $6.6 million mostly due to lower personnel costs, professional fees mainly related to legal expenses and the $3.8 million goodwill impairment charge recorded in Popular Securities in the third quarter of 2016, partially offset by higher business promotions and the write downs of premises, equipment and OREOs associated with Hurricane Maria.

• For the third quarter of 2017, the Corporation recorded an income tax benefit of $20.0 million, reflecting the losses associated with the hurricanes and the benefit associated with exempt income, compared to an income tax expense of $15.8 million for the same quarter of the previous year.

• Total assets at September 30, 2017 amounted to $42.6 billion, compared to $38.7 billion, at December 31, 2016. The increase of approximately $3.9 billion was mainly at BPPR due to higher money market investments and securities available-for-sale due to higher liquidity driven by an increase in deposits balances, mainly from the Puerto Rico government.

• Total deposits at September 30, 2017 increased by $3.8 billion when compared to deposits at December 31, 2016, mainly due to an increase in deposits from the Puerto Rico public sector.

• Stockholders’ equity totaled $5.3 billion at September 30, 2017 and $5.2 billion at December 31, 2016, an increase of $87.5 million. Such increase was due to the Corporation’s net income of $209.8 million and a decrease in accumulated other comprehensive loss by $29.0 million, partially offset by the declaration of dividends of $ 76.6 million on common stock ($0.25 per share) and $ 2.8 million on preferred stock and the impact of the common stock repurchase plan of $75 million completed during the first quarter of 2017. Refer to the Financial Condition Analysis section of this MD&A for additional information.

• Capital ratios continued to be strong. As of September 30, 2017, the Corporation’s Common equity Tier 1 Capital ratio was 16.63%, while the Total Capital ratio was 19.62%. Refer to Table 14 for capital ratios.

As a financial services company, the Corporation’s earnings are significantly affected by general business and economic conditions in the markets which we serve. Lending and deposit activities and fee income generation are influenced by the level of business spending and investment, consumer income, spending and savings, capital market activities, competition, customer preferences, interest rate conditions and prevailing market rates on competing products.

The Corporation continuously monitors general business and economic conditions, industry-related indicators and trends, competition, interest rate volatility, credit quality indicators, loan and deposit demand, operational and systems efficiencies, revenue enhancements and changes in the regulation of financial services companies.

Hurricanes Irma and Maria have had and continue to have an impact on the people and communities in which the Corporation does business. The Corporation will continue to monitor the effects of these hurricanes on its operations and clients. Popular, as the leading financial institution in Puerto Rico, is committed to partnering with our neighbors and communities to aid in the rebuilding process.

The Corporation operates in a highly regulated environment and may be adversely affected by changes in federal and local laws and regulations. Also, competition with other financial institutions could adversely affect its profitability.

The description of the Corporation’s business contained in Item 1 of the Corporation’s 2016 Form 10-K, while not all inclusive, discusses additional information about the business of the Corporation and risk factors, many beyond the Corporation’s control that, in addition to the other information in this Form 10-Q, readers should consider. Also, refer to Item 1A—Risk Factors, of this Form 10-Q for additional information.

The Corporation’s common stock is traded on the NASDAQ Global Select Market under the symbol BPOP.

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Table 1—Financial Highlights

Financial Condition Highlights

	Ending balances at								Average for the nine months ended
(In thousands)	September 30, 2017			December 31, 2016		Variance			September 30, 2017		September 30, 2016			Variance
Money market investments	$	5,488,212		$	2,890,217	$	2,597,995		$	4,131,750	$	2,911,043		$	1,220,707
Investment and trading securities		9,374,355			8,535,530		838,825			9,517,128		7,224,704			2,292,424
Loans		23,767,168			23,435,446		331,722			23,403,999		23,057,383			346,616
Earning assets		38,629,735			34,861,193		3,768,542			37,052,877		33,193,130			3,859,747
Total assets		42,601,267			38,661,609		3,939,658			40,781,408		37,119,732			3,661,676
Deposits		34,248,936			30,496,224		3,752,712			32,602,038		28,534,115			4,067,923
Borrowings		2,147,064			2,055,477		91,587			1,981,012		2,382,051			(401,039	)
Stockholders’ equity		5,285,431			5,197,957		87,474			5,333,137		5,259,959			73,178
Liabilities from discontinued operations		—			—		—			—		1,815			(1,815	)
Operating Highlights
	Quarters ended September 30,								Nine months ended September 30,
(In thousands, except per share information)	2017			2016		Variance			2017		2016			Variance
Net interest income	$	378,171		$	353,687	$	24,484		$	1,114,748	$	1,066,650		$	48,098
Provision for loan losses - non-covered loans		157,659			42,594		115,065			249,681		130,202			119,479
Provision (reversal) for loan losses - covered loans		3,100			750		2,350			4,255		(1,551	)		5,806
Non-interest income		100,374			75,978		24,396			333,036		298,111			34,925
Operating expenses		317,088			323,672		(6,584	)		935,241		934,764			477
Income before income tax		698			62,649		(61,951	)		258,607		301,346			(42,739	)
Income tax (benefit) expense		(19,966	)		15,839		(35,805	)		48,772		80,550			(31,778	)
Net income	$	20,664		$	46,810	$	(26,146	)	$	209,835	$	220,796		$	(10,961	)
Net income applicable to common stock	$	19,734		$	45,880	$	(26,146	)	$	207,043	$	218,004		$	(10,961	)
Net income per Common Share – Basic	$	0.19		$	0.44	$	(0.25	)	$	2.03	$	2.11		$	(0.08	)
Net income per Common Share – Diluted	$	0.19		$	0.44	$	(0.25	)	$	2.03	$	2.11		$	(0.08	)
Dividends declared per common share – Basic	$	0.25		$	0.15	$	0.10		$	0.75	$	0.45		$	0.30

	Quarters ended September 30,						Nine months ended September 30,
Selected Statistical Information	2017			2016			2017			2016
Common Stock Data
Market price
High	$	43.12		$	39.74		$	45.75		$	39.74
Low		35.27			28.00			35.27			22.62
End		35.94			38.22			35.94			38.22
Book value per common share at period end		51.31			51.85			51.31			51.85
Profitability Ratios
Return on assets		0.20	%		0.49	%		0.69	%		0.79	%
Return on common equity		1.47			3.46			5.24			5.59
Net interest spread		3.75			3.90			3.81			4.06
Net interest spread (taxable equivalent) - Non-GAAP		4.05			4.15			4.10			4.32
Net interest margin		3.96			4.12			4.02			4.29
Net interest margin (taxable equivalent) - Non-GAAP		4.26			4.37			4.31			4.55

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Capitalization Ratios
Average equity to average assets	12.92	%	13.98	%	13.08	%	14.17	%
Common equity Tier 1 capital	16.63		16.64		16.63		16.64
Tier I capital	16.63		16.64		16.63		16.64
Total capital	19.62		19.65		19.62		19.65
Tier 1 leverage	10.29		11.21		10.29		11.21

CRITICAL ACCOUNTING POLICIES / ESTIMATES

The accounting and reporting policies followed by the Corporation and its subsidiaries conform to generally accepted accounting principles in the United States of America and general practices within the financial services industry. Various elements of the Corporation’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. These estimates are made under facts and circumstances at a point in time and changes in those facts and circumstances could produce actual results that differ from those estimates.

Management has discussed the development and selection of the critical accounting policies and estimates with the Corporation’s Audit Committee. The Corporation has identified as critical accounting policies those related to: (i) Fair Value Measurement of Financial Instruments; (ii) Loans and Allowance for Loan Losses; (iii) Acquisition Accounting for Loans and Related Indemnification Asset; (iv) Income Taxes; (v) Goodwill, and (vi) Pension and Postretirement Benefit Obligations. For a summary of these critical accounting policies and estimates, refer to that particular section in the MD&A included in Popular, Inc.’s 2016 Form 10-K. Also, refer to Note 2 to the Consolidated Financial Statements included in the 2016 Form 10-K for a summary of the Corporation’s significant accounting policies.

During the third quarter of 2017, the Corporation performed the annual goodwill impairment evaluation for the entire organization using July 31, 2017 as the annual evaluation date and determined that there was no indication of impairment on recorded goodwill. For additional information on the results of the goodwill impairment analysis, refer to Note 15.

OPERATING RESULTS ANALYSIS

NET INTEREST INCOME

Net interest income was $378.2 million for the third quarter of 2017, an increase of $24.5 million when compared to $353.7 million for the same quarter of 2016. Taxable equivalent net interest income was $406.6 million for the third quarter of 2017, an increase of $31.2 million when compared to $375.4 million for the same quarter of 2016. Net interest margin for the third quarter of 2017 was 3.96%, a decrease of 16 basis points when compared to 4.12% for the same quarter of the previous year. Net Interest margin, on a taxable equivalent basis, for the third quarter of 2017 was 4.26%, a decrease of 11 basis points when compared to 4.37% for the same quarter of 2016. The decrease in net interest margin is mostly related to the change in asset mix, due to a higher proportion of money market, investment and trading securities to total earning assets (38% this quarter versus 33% in the third quarter of 2016) as compared to the proportion of loans to earning assets which carry a higher yield. The main reasons for the increase in net interest income are described below:

Positive variances:

• Higher interest income from money market investments due to both an increase in volume of funds available to invest, related to an increase in Puerto Rico government deposits, and to recent increases in rates by the U.S. Federal Reserve. Average rate of such portfolios for the quarter increased 76 basis points when compared to the same period in 2016;

• Higher interest income from investment securities mainly due to higher volumes, particularly on U.S. Treasuries and mortgage-backed securities related to recent purchases;

• Higher income from commercial and construction loans, driven by higher volume of loans in the U.S. and improved yields in Puerto Rico mostly associated to the impact on the variable rate portfolio of the above- mentioned rise in rates by the U.S. Federal Reserve.

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Negative variances:

• Lower interest income from mortgage loans due to lower average balances resulting from lower lending activity and portfolio run-off in P.R. and the U.S. and lower yields impacted by loan delinquencies as a result of the business disruption from Hurricanes Irma and Maria;

• Lower interest income from loans acquired in the Westernbank FDIC-assisted transaction (“WB Loans”) related to the normal portfolio run-off, as well as lower yields; and

• Higher interest expense on deposits mainly due to higher volumes in most categories, predominantly the increase in deposits from the Puerto Rico government and higher volumes in the U.S. to fund loan growth. These increases were partially offset by a lower average volume of brokered certificates of deposits.

Interest income for the quarter ended September 30, 2017 included the amortization of deferred loans fees, prepayment penalties, late fees and the amortization of premium/discounts, amounting to $4.7 million, compared to $5.1 million for the same period in 2016.

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Table 2—Analysis of Levels & Yields on a Taxable Equivalent Basis for Continuing Operations (Non-GAAP)

Quarters ended September 30,

Average Volume							Average Yields / Costs										Interest							Variance Attributable to
2017		2016		Variance			2017			2016			Variance				2017		2016		Variance			Rate			Volume
(In millions)																	(In thousands)
$	4,866	$	3,537	$	1,329			1.27	%		0.51	%		0.76	%	Money market investments	$	15,529	$	4,567	$	10,962		$	8,857		$	2,105
	9,536		7,494		2,042			2.74			2.68			0.06		Investment securities		65,331		50,165		15,166			2,891			12,275
	81		128		(47	)		7.43			5.85			1.58		Trading securities		1,521		1,876		(355	)		433			(788	)
	14,483		11,159		3,324			2.27			2.03			0.24		Total money market, investment and trading securities		82,381		56,608		25,773			12,181			13,592
																Loans:
	10,065		9,269		796			5.26			5.05			0.21		Commercial		133,354		117,762		15,592			5,181			10,411
	826		739		87			5.77			5.44			0.33		Construction		12,003		10,115		1,888			657			1,231
	750		669		81			6.37			6.72			(0.35	)	Leasing		11,944		11,240		704			(602	)		1,306
	6,444		6,637		(193	)		5.53			5.56			(0.03	)	Mortgage		89,160		92,169		(3,009	)		(347	)		(2,662	)
	3,782		3,847		(65	)		10.44			10.37			0.07		Consumer		99,527		100,268		(741	)		189			(930	)
	21,867		21,161		706			6.29			6.24			0.05		Sub-total loans		345,988		331,554		14,434			5,078			9,356
	1,681		1,881		(200	)		8.50			8.65			(0.15	)	WB loans		35,939		40,867		(4,928	)		(809	)		(4,119	)
	23,548		23,042		506			6.45			6.44			0.01		Total loans		381,927		372,421		9,506			4,269			5,237
$	38,031	$	34,201	$	3,830			4.86	%		5.00	%		(0.14	)%	Total earning assets	$	464,308	$	429,029	$	35,279		$	16,450		$	18,829
																Interest bearing deposits:
$	10,465	$	7,326	$	3,139			0.39	%		0.38	%		0.01	%	NOW and money market [1]	$	10,278	$	7,014	$	3,264		$	650		$	2,614
	8,260		7,550		710			0.24			0.24			—		Savings		5,025		4,613		412			(93	)		505
	7,543		7,859		(316	)		1.14			1.05			0.09		Time deposits		21,756		20,735		1,021			1,744			(723	)
	26,268		22,735		3,533			0.56			0.57			(0.01	)	Total deposits		37,059		32,362		4,697			2,301			2,396
	431		818		(387	)		1.40			1.04			0.36		Short-term borrowings		1,523		2,131		(608	)		607			(1,215	)
	1,551		1,580		(29	)		4.94			4.85			0.09		Other medium and long-term debt		19,130		19,118		12			47			(35	)
	28,250		25,133		3,117			0.81			0.85			(0.04	)	Total interest bearing liabilities		57,712		53,611		4,101			2,955			1,146
	7,235		6,676		559											Demand deposits
	2,546		2,392		154											Other sources of funds
$	38,031	$	34,201	$	3,830			0.60	%		0.63	%		(0.03	)%	Total source of funds		57,712		53,611		4,101			2,955			1,146
								4.26	%		4.37	%		(0.11	)%	Net interest margin/ income on a taxable equivalent basis (Non-GAAP)		406,596		375,418		31,178		$	13,495		$	17,683
								4.05	%		4.15	%		(0.10	)%	Net interest spread Taxable equivalent adjustment		28,425		21,731		6,694
								3.96	%		4.12	%		(0.16	)%	Net interest margin/ income non-taxable equivalent basis (GAAP)	$	378,171	$	353,687	$	24,484

Note: The changes that are not due solely to volume or rate are allocated to volume and rate based on the proportion of the change in each category.

[1] Includes interest bearing demand deposits corresponding to certain government entities in Puerto Rico.

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Net interest income for the nine months ended September 30, 2017 was $1.1 billion, an increase of $48 million from the same period in 2016. Taxable equivalent net interest income was $1.2 billion for the nine months ended September 30, 2017, an increase of $64.0 million when compared to the same period of 2016. The increase of $16 million on the taxable equivalent adjustment for the period is related to a higher volume of exempt investment securities in the Puerto Rico portfolio. Net interest margin was 4.02%, a decrease of 27 basis points when compared to 4.29% for the same period in 2016. Net interest margin, on a taxable equivalent basis, for the nine months ended September 30, 2017 was 4.31%, a decrease of 24 basis points when compared to the 4.55% for the same period of 2016. The variances in net interest income for the nine-month period are similar to the quarterly variances described above: positive variances in earning assets due to higher volume of investment securities and money markets and continued growth in the commercial portfolio in the U.S. and the leasing portfolio in Puerto Rico. The negative variances were due to lower volumes from WB loans, mortgage and consumer loans due to lower lending activity and the amortization of the portfolios, and the increase in interest expense on deposits due to higher volumes to fund the loan growth in the U.S. and the increase in Puerto Rico government deposits.

Interest income for the nine months ended September 30, 2017 included the amortization of deferred loans fees, prepayment penalties, late fees and the amortization of premium/discounts, amounting to $16.9 million, compared to $13.3 million for the same period in 2016.

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Table 3—Analysis of Levels & Yields on a Taxable Equivalent Basis from Continuing Operations (Non-GAAP)    

Nine months ended September 30,

Average Volume							Average Yields / Costs										Interest							Variance Attributable to
2017		2016		Variance			2017			2016			Variance				2017		2016		Variance			Rate			Volume
(In millions)																	(In thousands)
$	4,132	$	2,911	$	1,221			1.08	%		0.52	%		0.56	%	Money market investments	$	33,234	$	11,320	$	21,914		$	16,110		$	5,804
	9,422		7,096		2,326			2.73			2.76			(0.03	)	Investment securities		192,551		146,943		45,608			2,281			43,327
	95		129		(34	)		7.36			6.69			0.67		Trading securities		5,230		6,463		(1,233	)		596			(1,829	)
	13,649		10,136		3,513			2.26			2.17			0.09		Total money market, investment and trading securities		231,015		164,726		66,289			18,987			47,302
																Loans:
	9,863		9,126		737			5.20			5.08			0.12		Commercial		383,246		346,778		36,468			7,972			28,496
	819		722		97			5.57			5.39			0.18		Construction		34,154		29,150		5,004			976			4,028
	729		650		79			6.46			6.74			(0.28	)	Leasing		35,317		32,866		2,451			(1,391	)		3,842
	6,522		6,736		(214	)		5.58			5.53			0.05		Mortgage		272,881		279,209		(6,328	)		2,611			(8,939	)
	3,728		3,839		(111	)		10.51			10.45			0.06		Consumer		293,079		300,416		(7,337	)		(586	)		(6,751	)
	21,661		21,073		588			6.28			6.26			0.02		Sub-total loans		1,018,677		988,419		30,258			9,582			20,676
	1,743		1,984		(241	)		8.59			9.12			(0.53	)	WB loans		112,022		135,565		(23,543	)		(7,743	)		(15,800	)
	23,404		23,057		347			6.45			6.51			(0.06	)	Total loans		1,130,699		1,123,984		6,715			1,839			4,876
$	37,053	$	33,193	$	3,860			4.91	%		5.18	%		(0.27	)%	Total earning assets	$	1,361,714	$	1,288,710	$	73,004		$	20,826		$	52,178
																Interest bearing deposits:
$	9,647	$	6,689	$	2,958			0.38	%		0.38	%		—	%	NOW and money market [1]	$	27,690	$	19,217	$	8,473		$	1,501		$	6,972
	8,146		7,438		708			0.24			0.24			—		Savings		14,883		13,307		1,576			225			1,351
	7,653		7,928		(275	)		1.09			1.02			0.07		Time deposits		62,334		60,311		2,023			4,560			(2,537	)
	25,446		22,055		3,391			0.55			0.56			(0.01	)	Total deposits		104,907		92,835		12,072			6,286			5,786
	425		810		(385	)		1.17			1.00			0.17		Short-term borrowings		3,734		6,050		(2,316	)		743			(3,059	)
	1,556		1,572		(16	)		4.91			4.92			(0.01	)	Other medium and long-term debt		57,222		57,993		(771	)		(301	)		(470	)
	27,427		24,437		2,990			0.81			0.86			(0.05	)	Total interest bearing liabilities		165,863		156,878		8,985			6,728			2,257
	7,156		6,484		672											Demand deposits
	2,470		2,272		198											Other sources of funds
$	37,053	$	33,193	$	3,860			0.60	%		0.63	%		(0.03	)%	Total source of funds		165,863		156,878		8,985			6,728			2,257
								4.31	%		4.55	%		(0.24	)%	Net interest margin/ income on a taxable equivalent basis (Non-GAAP)		1,195,851		1,131,832		64,019		$	14,098		$	49,921
								4.10	%		4.32	%		(0.22	)%	Net interest spread
																Taxable equivalent adjustment		81,102		65,182		15,920
								4.02	%		4.29	%		(0.27	)%	Net interest margin/ income non-taxable equivalent basis (GAAP)	$	1,114,749	$	1,066,650	$	48,099

Note: The changes that are not due solely to volume or rate are allocated to volume and rate based on the proportion of the change in each category.

[1] Includes interest bearing demand deposits corresponding to certain government entities in Puerto Rico.

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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 on the Corporation’s loan portfolios as of September 30, 2017, 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 of the loan loss estimates 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 the three-month payment moratoriums offered to certain eligible borrowers, as discussed above. 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 the assessment and review could result in further loan loss provisions in future periods.

The Corporation’s total provision for loan losses was $160.8 million for the quarter ended September 30, 2017, compared to $43.3 million for the quarter ended September 30, 2016, an increase of $117.5 million, mainly related to the $69.9 million hurricanes impact and a provision of $37.0 million on the U.S. segment for the taxi medallion portfolio.

The provision for loan losses for the non-covered loan portfolio totaled $157.7 million, compared to $42.6 million for the same quarter in 2016, an increase of $115.1 million, mostly related to the same factors previously described. The incremental provision related to the hurricanes for the non-covered loans amounted to $66.4 million. Also, total non-covered net charge-offs increased by $17.9 million when compared with the same quarter in 2016, mainly in the mortgage and consumer portfolios at BPPR.

The provision for loan losses for the non-covered loan portfolio at the BPPR segment totaled $115.1 million, compared to $36.3 million for the same quarter in 2016. The increase was mainly related to the previously described hurricanes impact of $66.4 million. Also, net charge-offs reflected an increase of $12.3 million, driven by higher consumer net charge-offs of $14.4 million, in part due to a $7.1 million recovery in the third quarter of 2016 related to the sale of previously charged-off credit cards and personal loans.

The provision for loan losses for the BPNA segment amounted to $42.5 million, compared to $6.3 million for the same quarter in 2016. The provision increase of $36.2 million was mainly due to a provision of $37.0 million for the taxi medallion portfolio acquired from the FDIC in the Doral Bank transaction, accounted under ASC 310-30. As of September 30, 2017, the taxi medallion portfolio had an unpaid principal balance of $233 million. Net of reserves, the carrying value of this portfolio is $93 million or approximately 40% of its unpaid principal balance, representing less than 1% of the Corporation’s total loan portfolio. This portfolio is mainly concentrated in New York City, which accounts for 95% of the portfolio balance, with an average carrying loan value of $261 thousand per medallion. Credit trends at BPNA continued to be favorable, excluding the taxi medallions portfolio, with low levels of non-performing loans and net charge-offs. Net charge-offs remain stable when compared to the quarter ended September 30, 2016, reflecting a slight increase of $5.5 million.

For the third quarter of 2017, the covered loan portfolio reflected a provision expense of $3.1 million, compared to $750 thousand provision for the same quarter in 2016. This increase was mainly due to adjustments in the estimated cash flows of purchased credit impaired loans accounted for under ASC 310-10 to reflect the three-month payment moratoriums offered to certain eligible borrowers.

For the nine months ended September 30, 2017, the Corporation’s total provision for loan losses totaled $253.9 million, compared with $128.7 million for the same period in 2016, increasing by $125.2 million. For the nine months ended September 30, 2017, the provision for loan losses for the non-covered loan portfolio increased by $119.5 million when compared to the same period of 2016. The provision for the covered portfolio increased by $5.8 million for the nine months ended September 30, 2017, when compared to the same period of 2016. The increase in provision was mostly driven by the hurricanes and the taxi medallion impacts, as previously described.

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Refer to the Credit Risk Management and Loan Quality sections of this MD&A for a detailed analysis of net charge-offs, non-performing assets, the allowance for loan losses and selected loan losses statistics.

NON-INTEREST INCOME

Non-interest income increased by $24.4 million for the quarter ended September 30, 2017, compared with the same quarter of the previous year. The increase in non-interest income was principally due to:

• Favorable variance in FDIC loss share expense of $57.8 million as a result of a $54.9 million charge related to the arbitration award recorded during the third quarter of 2016 and lower fair value adjustments to the true-up payment obligation which were mainly impacted by changes in the discount rate. Refer to Table 4 for a breakdown of FDIC loss share expense by major categories.

This increase was partially offset by:

• Lower other service fees by $5.7 million mainly in credit and debit card fees at BPPR as a result of lower interchange income resulting from lower transaction volumes due to the business disruption in the regions impacted by the hurricanes and lower debit card and credit card fees related to waivers during the month of September as a result of the disaster relief measures for customers implemented in response to Hurricanes Irma and Maria;

• Lower income from mortgage banking activities by $10.0 million due to lower net gain on sale of loans mostly due to lower volume from securitization transactions in part due to the business disruption caused by the hurricanes; higher unfavorable fair value adjustments on mortgage servicing rights; and lower mortgage servicing fees driven by an increase in delinquency, due to the impact of the hurricanes;

• Lower net gain on sale of loans by $9.0 million principally due to the sale of a nonaccrual public sector credit during the third quarter of 2016;

• Unfavorable variance in adjustments to indemnity reserves of $2.0 million, mostly due to an increase in the reserve for credit recourse; and

• Lower other operating income by $5.3 million mainly due to lower aggregate net earnings from investments under the equity method.

Non-interest income increased by $34.9 million for the nine months ended September 30, 2017, compared with the same period of the previous year. The increase in non-interest income was due to:

• Favorable variance in adjustments to indemnity reserves of $2.9 million, mostly due to an increase of $2.5 million in the reserve, during the second quarter of 2016, related to the residential mortgage loans bulk sale completed during 2013 by BPPR;

• Favorable variance in FDIC loss share expense of $64.8 million as a result of the accretion of the indemnification asset, lower mirror accounting on recoveries on covered assets, and a $54.9 million arbitration award charge recorded during the third quarter of 2016, partially offset by a $5.5 million unfavorable adjustment related to commercial restructured loans; and

• Higher other operating income by $3.6 million due to higher aggregate net earnings from investments under the equity method.

These favorable variances were partially offset by:

• Lower income from mortgage banking activities by $14.7 million due to lower net gain on sale of loans mostly due to lower volume from securitization transactions and lower mortgage servicing fees driven by an increase in delinquency, and higher unfavorable fair value adjustments on mortgage servicing rights, partially offset by lower realized losses on closed derivative positions;

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• Higher other-than-temporary impairment losses on investment securities by $8.1 million mainly due to the other-than-temporary impairment charge of $8.3 million recorded during the second quarter of 2017 on senior Puerto Rico Sales Tax Financing Corporation (“COFINA”) bonds classified as available-for-sale, which were subsequently sold in the third quarter of 2017; and

• Lower net gain on sale of loans by $8.7 million principally due to the sale of a nonaccrual public sector credit during the third quarter of 2016.

The following table provides a summary of the revenues and expenses derived from the assets acquired in the Westernbank FDIC-assisted transaction during the quarters and nine months ended September 30, 2017 and 2016.

Table 4—Financial Information—Westernbank FDIC-Assisted Transaction    

	Quarters ended September 30,									Nine months ended September 30,
(In thousands)	2017			2016			Variance			2017			2016			Variance
Interest income on WB Loans	$	35,939		$	40,867		$	(4,928	)	$	112,021		$	135,566		$	(23,545	)
FDIC loss-share expense:
Accretion (amortization) of loss-share indemnification asset		567			(1,259	)		1,826			(62	)		(9,337	)		9,275
80% mirror accounting on credit impairment losses (reversal)[1]		(329	)		659			(988	)		1,945			(959	)		2,904
80% mirror accounting on reimbursable expenses		588			853			(265	)		2,232			7,038			(4,806	)
80% mirror accounting on recoveries on covered assets, including rental income on OREOs, subject to reimbursement to the FDIC		(1,601	)		(522	)		(1,079	)		2,832			(5,123	)		7,955
Change in true-up payment obligation		(3,208	)		(6,611	)		3,403			(13,718	)		(14,742	)		1,024
Arbitration award expense[2]		—			(54,924	)		54,924			—			(54,924	)		54,924
Other		35			81			(46	)		(5,909	)		602			(6,511	)
Total FDIC loss-share expense		(3,948	)		(61,723	)		57,775			(12,680	)		(77,445	)		64,765
Total revenues		31,991			(20,856	)		52,847			99,341			58,121			41,220
Provision (reversal of provision) for loan losses		14,751			6,612			8,139			13,835			(1,026	)		14,861
Total revenues less provision (reversal of provision) for loan losses	$	17,240		$	(27,468	)	$	44,708		$	85,506		$	59,147		$	26,359

[1] Reductions in expected cash flows for ASC 310-30 loans, which may impact the provision for loan losses, may consider reductions in both principal and interest cash flow expectations. The amount covered under the FDIC loss-sharing agreements for interest not collected from borrowers is limited under the agreements (approximately 90 days); accordingly, these amounts are not subject fully to the 80% mirror accounting.

Average balances
	Quarters ended September 30,							Nine months ended September 30,
(In millions)	2017		2016		Variance			2017		2016		Variance
WB Loans	$	1,681	$	1,881	$	(200	)	$	1,743	$	1,984	$	(241	)
FDIC loss-share asset		52		192		(140	)		50		212		(162	)

Operating Expenses

Operating expenses decreased by $6.6 million for the quarter ended September 30, 2017, compared with the same quarter of the previous year. Refer to Table 5 for a breakdown of operating expenses by major categories. The decrease in operating expenses was driven primarily by:

• Lower personnel cost by $1.6 million mainly due to lower pension, postretirement and medical insurance;

• Lower professional fees by $10.5 million mainly due to lower legal fees related to the FDIC arbitration proceedings that were completed in 2016; and

• A goodwill impairment charge of $3.8 million at the securities subsidiary during 2016, recorded as part of the Corporation’s annual goodwill impairment analysis.

These decreases were partially offset by:

• Higher business promotion by $2.5 million mainly due to higher donations, which includes $1.1 million in donations to the hurricane relief efforts; and

• Higher other operating expenses by $6.4 million due to $3.9 million of write-down of premises and equipment related to Hurricanes Irma and Maria and higher credit and debit card processing, volume and interchange expenses mainly due to volume based credits earned during 2016; partially offset by lower operational losses.

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Operating expenses increased by $0.5 million for the nine months ended September 30, 2017, when compared to the same period in 2016. The increase in operating expenses was driven primarily by:

• Higher equipment expense by $2.9 million mainly due to higher software and maintenance expenses;

• Higher business promotion by $2.6 million due higher donations, which includes $1.1 million in donations to the hurricane relief efforts and higher customer reward program expense;

• Higher OREO expenses by $7.8 million as a result of higher write-downs on valuation of mortgage properties at BPPR during the second and third quarter of 2017; and

• Higher other operating expenses by $16.7 million as a result of a write-down of $7.6 million recognized during the first quarter of 2017, related to capitalized software cost for a project that was discontinued by the Corporation; $3.9 million of write-down of premises and equipment and other costs related to Hurricanes Irma and Maria.

These increases were partially offset by:

• Lower professional fees by $24.4 million mainly due to lower legal fees related to the FDIC arbitration proceedings, which were resolved during 2016, and lower expenses related to programming, processing and other technology services;

• Lower amortization of intangibles by $2.3 million mainly due to core deposits intangible fully amortized in 2016 at BPPR; and

• A goodwill impairment charge of $3.8 million at the securities subsidiary during 2016, recorded as part of the Corporation’s annual goodwill impairment analysis.

Table 5—Operating Expenses

	Quarters ended September 30,							Nine months ended September 30,
(In thousands)	2017		2016		Variance			2017		2016		Variance
Personnel costs:
Salaries	$	78,976	$	77,770	$	1,206		$	235,055	$	230,860	$	4,195
Commissions, incentives and other bonuses		16,879		18,528		(1,649	)		55,252		56,279		(1,027	)
Pension, postretirement and medical insurance		11,535		13,413		(1,878	)		35,369		38,803		(3,434	)
Other personnel costs, including payroll taxes		12,246		11,513		733			38,382		39,081		(699	)
Total personnel costs		119,636		121,224		(1,588	)		364,058		365,023		(965	)
Net occupancy expenses		22,254		21,626		628			65,295		63,770		1,525
Equipment expenses		16,457		15,922		535			48,677		45,731		2,946
Other taxes		10,858		11,324		(466	)		32,567		31,689		878
Professional fees:
Collections, appraisals and other credit related fees		3,559		4,005		(446	)		11,161		13,479		(2,318	)
Programming, processing and other technology services		49,717		52,174		(2,457	)		149,377		152,270		(2,893	)
Legal fees, excluding collections		2,928		11,428		(8,500	)		8,538		27,691		(19,153	)
Other professional fees		14,568		13,659		909			43,880		43,910		(30	)
Total professional fees		70,772		81,266		(10,494	)		212,956		237,350		(24,394	)
Communications		5,394		5,785		(391	)		17,242		18,117		(875	)
Business promotion		15,216		12,726		2,490			40,158		37,541		2,617
FDIC deposit insurance		6,271		5,854		417			18,936		18,586		350
Other real estate owned (OREO) expenses		11,724		11,295		429			41,212		33,416		7,796
Other operating expenses:
Credit and debit card processing, volume and interchange expenses		7,375		3,640		3,735			19,348		15,979		3,369
Operational losses		13,222		19,609		(6,387	)		27,973		29,416		(1,443	)
All other		15,564		6,503		9,061			39,785		25,037		14,748
Total other operating expenses		36,161		29,752		6,409			87,106		70,432		16,674
Amortization of intangibles		2,345		3,097		(752	)		7,034		9,308		(2,274	)
Goodwill impairment charge		—		3,801		(3,801	)		—		3,801		(3,801	)
Total operating expenses	$	317,088	$	323,672	$	(6,584	)	$	935,241	$	934,764	$	477

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INCOME TAXES

For the quarter ended September 30, 2017, the Corporation recorded income tax benefit of $20.0 million, compared to an income tax expense of $15.8 million for the same quarter of the previous year. The income tax benefit for the quarter reflects the impact of the losses related to the hurricanes, which result in a reduction of taxable income and the related effective tax rate in our Puerto Rico operations, as the level of exempt income increases in proportion to the Corporation’s taxable income.

On November 2, 2017, the House Ways and Means Committee unveiled a bill to reform the U.S. tax code. If the Tax Cuts and Jobs Act (H.R. 1) is enacted as currently proposed, the U.S. corporate tax rate will be reduced from the current 35% to 20%. This reduction would result in a reduction of the deferred tax asset and the valuation allowance pertaining to the U.S. operations with a net impact to income tax expense. If such change had occurred as of September 30, 2017, the Corporation would have recognized a one time income tax expense of approximately $190 million. This reduction in the tax rate will also result in the decrease of the effective tax rate of the Corporation in future periods. The future impact in earnings of the lower tax rate will depend on the sources and mix of the income earned in future periods. The Corporation expects that the changes to the U.S. corporate income tax rate, as currently proposed, will not have a material impact on the total deferred tax asset and the effective tax rate of the Puerto Rico operations.

The reduction in the deferred tax asset of the U.S. operations, as a result of the lower U.S. corporate income tax rate, would not have a significant impact on regulatory capital of the Corporation, since substantially all of U.S. deferred tax asset, net of the valuation allowance, is deducted from the regulatory capital calculation.

At September 30, 2017, Popular had a tangible book value per common share of $44.79. The deferred tax asset of the P.R. operations and the U.S. operations amounted to $6.73 and $5.09 of the total tangible book value per share, respectively.

Refer to Note 32 to the Consolidated Financial Statements for a reconciliation of the statutory income tax rate to the effective tax rate and additional information on income taxes.

REPORTABLE SEGMENT RESULTS

The Corporation’s reportable segments for managerial reporting purposes consist of Banco Popular de Puerto Rico and Banco Popular North America. A Corporate group has been defined to support the reportable segments. For managerial reporting purposes, the costs incurred by the Corporate group are not allocated to the reportable segments.

For a description of the Corporation’s reportable segments, including additional financial information and the underlying management accounting process, refer to Note 34 to the Consolidated Financial Statements.

The Corporate group reported a net loss of $17.9 million for the quarter ended September 30, 2017, compared with a net loss of $12.1 million for the same quarter of the previous year. The change was mostly driven by lower income from equity method investments and higher other operating expenses due to a reserve release recorded in the third quarter of 2016, partially offset by a higher income tax benefit. For the nine months ended September 30, 2017, the Corporate group reported a net loss of $48.8 million, compared with a net loss of $46.8 million for the same period of the previous year. The unfavorable variance was mainly driven by higher other operating expenses, partially offset by higher income from equity method investments.

Highlights on the earnings results for the reportable segments are discussed below:

Banco Popular de Puerto Rico

The Banco Popular de Puerto Rico reportable segment’s net income amounted to $44.3 million for the quarter ended September 30, 2017, compared with net income of $49.6 million for the same quarter of the previous year. The principal factors that contributed to the variance in the financial results included the following:

• Higher net interest income by $17.5 million mostly due to:

• Higher income from money market and investment securities by $18.3 million due to higher liquidity from higher volume in deposit balances; and

• Higher income from commercial loans by $7.3 million, mostly associated to the impact on the variable rate portfolio of a higher interest rate environment in 2017;

Partially offset by:

• Lower income from mortgage loans by $2.6 million due to lower average balances and lower yields impacted by loan delinquencies as a result of the business disruption from Hurricanes Irma and Maria;

• Lower income from the WB loans portfolio by $4.9 million due mainly to the normal portfolio run-off; and

• Higher interest expense on deposits by $1.9 million mainly due to higher average balance of deposits.

The net interest margin was 4.28% for the quarter ended September 30, 2017, compared to 4.49% for the same period in 2016.

• Provision expense for the third quarter of 2017 was $118.2 million, an increase of $81.1 million compared to the same period of the previous year, mainly due to $69.9 million in additional provision reflecting the estimated impact of Hurricanes Irma and Maria and higher net charge-offs principally in the mortgage and consumer loan portfolios.

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• Higher non-interest income by $27.7 million mainly due to:

• Favorable variance in FDIC loss share expense of $57.8 million as a result of a $54.9 million charge related to the arbitration award recorded during the third quarter of 2016 and lower fair value adjustments to the true-up payment obligation;

Partially offset by:

• Lower other service fees by $6.0 million mainly in credit and debit card fees as a result of lower interchange income resulting from lower transaction volumes due to the business disruption in the regions impacted by the hurricanes and lower debit card and credit card fees related to waivers during the month of September as a result of the disaster relief measures for customers implemented in response to Hurricanes Irma and Maria;

• Lower income from mortgage banking activities by $10.1 million, due to lower net gain on sale of loans mostly due to lower volume from securitization transactions in part due to the business disruption caused by the hurricanes; higher unfavorable fair value adjustments on mortgage servicing rights; and lower mortgage servicing fees; and

• Lower gain on sale of loans by $9.0 million mainly due to the sale of a nonaccrual public sector credit during the third quarter of 2016.

• Operating expenses were lower by $7.5 million mainly due to:

• Lower personnel cost by $1.6 million mainly due to lower pension, postretirement and medical insurance;

• Lower professional services expenses by $8.7 million mainly from lower legal and other costs associated with the FDIC arbitration proceedings during the third quarter of 2016; and

• A goodwill impairment charge of $3.8 million at the securities subsidiary, recorded as part of the Corporation’s annual goodwill impairment analysis during 2016;

Partially offset by:

• Higher occupancy expenses by $1.1 million due to higher utilities expense and higher maintenance expense;

• Higher business promotion by $1.2 million mainly due to higher donations, which includes $1.1 million in donations to the hurricane relief efforts;

• Higher OREO expenses by $1.6 million due to the write-down of $2.7 million related to Hurricane Maria and higher holding costs on mortgage properties, partially offset by higher gains on sales of residential properties; and

• Higher other operating expenses by $3.5 million, due mainly to $3.9 million in write-downs of premises and equipment related to Hurricane Maria and higher credit and debit card processing, volume and interchange expenses mainly due to volume based credits earned during 2016, partially offset by lower operational losses.

• Income tax benefit of $8.7 million, compared to an income tax expense of $14.5 million for the same quarter of 2016, reflecting the estimated losses associated with the hurricanes and the benefit associated with exempt income.

Net income for the nine months ended September 30, 2017 amounted to $236.0 million, compared to $233.7 million for the same period of the previous year. The principal factors that contributed to the variance in the financial results included the following:

• Higher net interest income by $31.7 million mostly due to:

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• Higher income from money market and investment securities by $46.3 million due to higher liquidity from higher volume in deposits balances; and

• Lower borrowing costs by $3.4 million due to lower average balances;

Partially offset by:

• A decrease of $15.1 million in interest income from loans driven by a decline of $23.5 million in income from the WB loans portfolio due mainly to lower average balances as part of the normal portfolio run-off and loan resolutions and lower income from mortgage loans by $3.1 million due to lower originations volume, partially offset by higher income from commercial loans by $11.5 million due to higher yields; and

• Higher interest expense on deposits by $3.0 million due to higher average balance of deposits.

• Higher provision for loan losses by $81.7 million, mainly due to the provision of $69.9 million related to the hurricanes, a $6.0 million provision from an inter-company transfer completed in the second quarter of 2017, which is eliminated in the consolidated results, and higher consumer net charge-offs.

• Higher non-interest income by $32.8 million, mainly due to:

• Favorable variance in adjustments to indemnity reserves of $3.5 million, mostly due to an increase of $2.5 million in the reserve, during the second quarter of 2016, related to the residential mortgage loans bulk sale completed during 2013; and

• Favorable variance in FDIC loss share expense of $64.8 million as a result of the accretion of the indemnification asset, lower mirror accounting on recoveries on covered assets, and a $54.9 million arbitration award charge recorded during the third quarter of 2016, partially offset by a $5.5 million unfavorable adjustment related to commercial restructured loans;

Partially offset by:

• Lower mortgage banking activities by $14.8 million due to lower net gain on sale of loans mostly due to lower volume from securitization transactions and lower mortgage servicing fees, and higher unfavorable fair value adjustments on mortgage servicing rights, partially offset by lower realized losses on closed derivative positions;

• The other-than-temporary impairment charge on the COFINA bonds of $8.3 million recorded in the second quarter of 2017, compared to an impairment of $0.2 million in the second quarter of 2016; and

• Lower gain on sale of loans by $8.7 million mainly due to the sale of a nonaccrual public sector credit during the third quarter of 2016.

• Higher operating expenses by $1.1 million, mainly due to:

• Higher occupancy expenses by $2.3 million due to higher utilities expense and higher maintenance expense;

• Higher business promotion expenses by $2.3 million, which includes the $1.1 million in donations for hurricane relief efforts;

• Higher OREO expenses by $8.4 million, due to higher write-downs of properties during the second and third quarters of 2017, including the write-downs related to the hurricanes amounting to $2.7 million, and higher holding costs on mortgage properties, partially offset by higher gains on sales of commercial and residential properties; and

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• Higher other operating expenses by $16.0 million due mainly to a write-down of $7.6 million recognized during the first quarter of 2017 related to capitalized software cost for a project that was discontinued by the Corporation, and $3.9 million in write-downs of premises and equipment and other costs related to Hurricane Maria;

Partially offset by:

• Lower professional fees by $22.6 million due mainly due to lower legal fees related to the FDIC arbitration proceedings, which were resolved during 2016 and lower expenses related to programming, processing and other technology services;

• Lower amortization of intangibles by $2.3 million mainly due to core deposit intangibles that became fully amortized in 2016; and

• A goodwill impairment charge of $3.8 million at the securities subsidiary, recorded as part of the Corporation’s annual goodwill impairment analysis during 2016.

• Lower income tax expense by $20.7 million, reflecting the estimated losses associated with the hurricanes and the benefit associated with exempt income.

Banco Popular North America

For the quarter ended September 30, 2017, the reportable segment of Banco Popular North America reported a net loss of $6.1 million, compared to net income of $9.2 million for the same quarter of the previous year. The factors that contributed to the variance in the financial results included the following:

• Higher net interest income by $6.1 million due to:

• Higher income from mortgage-backed securities by $2.2 million, due to higher average balances; and

• Higher income from commercial loans by $6.8 million, driven by loan portfolio growth;

Partially offset by:    

• Higher deposits expense by $3.1 million due to higher volumes and costs, principally in money market and time deposits, to fund loan growth.

Net interest margin was 3.50% for the third quarter of 2017, compared to 3.61% for the same period of the previous year.

• Higher provision for loan losses by $36.2 million, when compared to the same quarter of the previous year, driven by higher impairments on the taxi medallion loan portfolio.

• Non-interest income for the third quarter of 2017 was $5.1 million, with no significant variances when compared with $5.4 million for the same period of the previous year.

• Lower operating expenses by $5.0 million, compared to the third quarter in 2016, mainly driven by:

• Lower professional services by $1.7 million driven by lower technology support service fees;

• Lower OREO expenses by $1.2 million due mainly to an insurance recovery; and

• Lower other operating expenses by $2.5 million due to provisions for legal settlements recorded in the third quarter of 2016.

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• Income tax benefit of $4.1 million, reflecting the pre-tax loss for the quarter, compared to an income tax expense of $6.0 million for the same quarter of 2016.

Net income for the nine months ended September 30, 2017 amounted to $18.8 million, compared to $33.4 million for the same period of the previous year. The main factors that contributed to the variance in the financial results included the following:

• Net interest income was $208.3 million, an increase of $15.2 million compared to the same period of the previous year due to:

• Higher income from money market and investment securities by $4.5 million, mainly due to higher volumes of mortgage-backed securities; and

• Higher income from loans by $20.9 million, mainly from higher levels of commercial and construction loans, offset by lower volumes of mortgage and consumer loans;

Partially offset by:

• Higher interest expense on deposits by $9.9 million driven by a higher volume of money market, savings and non-brokered time deposits to fund loan growth.

• Provision for loan losses was $60.9 million, an increase of $49.2 million compared to the same period in 2016, driven mostly by higher impairments on the taxi medallion loan portfolio.

• Non-interest income amounted to $15.3 million, with no significant variances compared to $15.6 million for the same period of the previous year.

• Operating expenses amounted to $130.6 million, a decrease of $7.3 million compared to the same period in 2016 due to:

• Lower professional fees by $2.4 million due to lower technology support service fees; and

• Lower other operating expenses by $5.2 million due to provisions for legal settlements recorded in 2016.

• Favorable variance in income tax expense of $12.4 million, driven mainly by lower taxable income.

FINANCIAL CONDITION ANALYSIS                

Assets

The Corporation’s total assets were $42.6 billion at September 30, 2017, compared to $38.7 billion at December 31, 2016. Refer to the Consolidated Statements of Financial Condition included in this report.

Money market investments, trading and investment securities

Money market investments totaled $5.5 billion at September 30, 2017, compared to $2.9 billion at December 31, 2016. The increase was mainly at BPPR due to higher liquidity driven by an increase in deposits.

Trading account securities amounted to $46 million at September 30, 2017, compared to $60 million at December 31, 2016. Refer to the Market Risk section of this MD&A for a table that provides a breakdown of the trading portfolio by security type.

Investment securities available-for-sale and held-to-maturity amounted to $9.2 billion at September 30, 2017, compared with $8.3 billion at December 31, 2016. The increase of $0.9 billion was mainly at BPPR due to purchases of U.S. Treasury securities and mortgage-backed agency pools driven by an increase in funds available to invest from increased liquidity, as discussed above.

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Table 6 provides a breakdown of the Corporation’s portfolio of investment securities available-for-sale (“AFS”) and held-to-maturity (“HTM”) on a combined basis. Also, Notes 6 and 7 to the Consolidated Financial Statements provide additional information with respect to the Corporation’s investment securities AFS and HTM.

Table 6—Breakdown of Investment Securities Available-for-Sale and Held-to-Maturity

(In thousands)	September 30, 2017		December 31, 2016
U.S. Treasury securities	$	2,764,863	$	2,136,620
Obligations of U.S. Government sponsored entities		611,646		711,850
Obligations of Puerto Rico, States and political subdivisions		98,984		118,798
Collateralized mortgage obligations		1,015,666		1,221,600
Mortgage-backed securities		4,659,526		4,105,332
Equity securities		1,885		2,122
Others		1,869		11,585
Total investment securities AFS and HTM	$	9,154,439	$	8,307,907

Loans

Refer to Table 7 for a breakdown of the Corporation’s loan portfolio, the principal category of earning assets. Loans covered under the FDIC loss sharing agreements are presented separately in Table 7. The risks on covered loans are significantly different as a result of the loss protection provided by the FDIC. 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 loans. As of September 30, 2017, the Corporation’s covered loans portfolio amounted to $525 million, comprised mainly of residential mortgage loans.

The Corporation’s total loan portfolio amounted to $ 23.8 billion at September 30, 2017, compared to $23.4 billion at December 31, 2016. Refer to Note 8 for detailed information about the Corporation’s loan portfolio composition and loan purchases and sales.

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Table 7—Loans Ending Balances    

(In thousands)	September 30, 2017		December 31, 2016		Variance
Loans not covered under FDIC loss sharing agreements:
Commercial	$	11,227,095	$	10,798,507	$	428,588
Construction		823,325		776,300		47,025
Legacy[1]		37,508		45,293		(7,785	)
Lease financing		754,881		702,893		51,988
Mortgage		6,529,235		6,696,361		(167,126	)
Consumer		3,801,406		3,754,393		47,013
Total non-covered loans held-in-portfolio		23,173,450		22,773,747		399,703
Loans covered under FDIC loss sharing agreements:
Mortgage		510,211		556,570		(46,359	)
Consumer		14,643		16,308		(1,665	)
Total covered loans held-in-portfolio		524,854		572,878		(48,024	)
Total loans held-in-portfolio		23,698,304		23,346,625		351,679
Loans held-for-sale:
Mortgage		68,864		88,821		(19,957	)
Total loans held-for-sale		68,864		88,821		(19,957	)
Total loans	$	23,767,168	$	23,435,446	$	331,722

[1] 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.

Non-covered loans

The non-covered loans held-in-portfolio increased by $400 million to $ 23.2 billion at September 30, 2017. The net increase was mainly driven by the growth of commercial loans at BPNA.

The loans held-for-sale portfolio decreased by $20 million from December 31, 2016, mainly at BPPR due to lower originations of mortgage loans held-for-sale.

Covered loans

The covered loans portfolio amounted to $525 million at September 30, 2017, compared to $573 million at December 31, 2016. The decrease of $48 million is due to normal portfolio run-off. Refer to Table 7 for a breakdown of the covered loans by major loan type categories.

Tables 8 and 9 provide the activity in the carrying amount and outstanding discount on the Westernbank loans accounted for under ASC 310-30. The outstanding accretable discount is impacted by changes in cash flow expectations on the loan pool based on quarterly revisions of the portfolio. An increase in the accretable discount is recognized as interest income using the effective yield method over the estimated life of each applicable loan pool.

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Table 8—Activity in the Carrying Amount of Westernbank Loans Accounted for Under ASC 310-30

	Quarter ended						Nine months ended
	September 30,						September 30,
(In thousands)	2017			2016			2017			2016
Beginning balance	$	1,617,787		$	1,799,943		$	1,738,329		$	1,974,501
Accretion		34,790			39,590			108,170			131,599
Collections / loan sales / charge-offs[1]		(64,030	)		(71,994	)		(257,952	)		(338,561	)
Ending balance[2]	$	1,588,547		$	1,767,539		$	1,588,547		$	1,767,539
Allowance for loan losses (ALLL)		(67,100	)		(69,571	)		(67,100	)		(69,571	)
Ending balance, net of ALLL	$	1,521,447		$	1,697,968		$	1,521,447		$	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).

Table 9—Activity in the Accretable Yield on Westernbank Loans Accounted for Under ASC 310-30

	Quarter ended September 30,						Nine months ended September 30,
(In thousands)	2017			2016			2017			2016
Beginning balance	$	942,668		$	1,071,680		$	1,010,087		$	1,112,458
Accretion[1]		(34,790	)		(39,590	)		(108,170	)		(131,599	)
Change in expected cash flows		1,451			6,602			7,412			57,833
Ending balance	$	909,329		$	1,038,692		$	909,329		$	1,038,692

[1] Positive to earnings, which is included in interest income.

FDIC loss share asset

Table 10 sets forth the activity in the FDIC loss share asset for the quarters and nine months ended September 30, 2017 and 2016.

Table 10 – Activity of Loss Share Asset

	Quarters ended September 30,						Nine months ended September 30,
(In thousands)	2017			2016			2017			2016
Balance at beginning of period	$	53,070		$	218,122		$	69,334		$	310,221
Accretion (amortization)		567			(1,259	)		(62	)		(9,337	)
Credit impairment losses (reversal) to be covered under loss-sharing agreements		(329	)		659			1,945			(959	)
Reimbursable expenses		588			853			2,232			7,038
Net payments from FDIC under loss-sharing agreements		(4,502	)		(10,897	)		(18,505	)		(99,485	)
Arbitration award expense		—			(54,924	)		—			(54,924	)
Other adjustments attributable to FDIC loss-sharing agreements		—			(87	)		(5,550	)		(87	)
Balance at end of period	$	49,394		$	152,467		$	49,394		$	152,467
Balance due to the FDIC for recoveries on covered assets [1]		(924	)		(7,080	)		(924	)		(7,080	)
Balance at end of period	$	48,470		$	145,387		$	48,470		$	145,387

[1] Balance due to the FDIC for recoveries on covered assets for the quarter and nine months ended September 30, 2016 amounting to $ 7.1 million was included in other liabilities in the accompanying Consolidated Statement of Condition (December 31, 2016—$27.6 million).

The FDIC loss share indemnification asset is recognized on the same basis as the assets subject to the loss share protection from the FDIC, except that the amortization / accretion terms differ. The Corporation revises its expected cash flows and estimated credit losses on a quarterly basis. Decreases in expected reimbursements from the FDIC due to improvements in expected cash flows to be received from borrowers, as compared with the initial estimates, are recognized as a reduction to non-interest income prospectively over the life of the loss share agreements. This is because the indemnification asset balance is reduced to the expected reimbursement amount from the FDIC (amortization). In contrast, an increase to non-interest income is recognized as a result of increases in expected reimbursements due to higher loss estimates (accretion). Table 11 presents the activity associated with the outstanding balance of the FDIC loss share asset accretion (amortization) for the periods presented.

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Table 11—Activity in the Remaining FDIC Loss-Share Asset Accretion (Amortization)

	Quarters ended September 30,						Nine months ended September 30,
(In thousands)	2017			2016			2017			2016
Balance at beginning of period[1]	$	(725	)	$	23,191		$	4,812		$	26,100
Accretion (amortization)[2]		567			(1,259	)		(62	)		(9,337	)
Impact of change in projected losses		(2,399	)		(14,627	)		(7,307	)		(9,458	)
Balance at end of period	$	(2,557	)	$	7,305		$	(2,557	)	$	7,305

[1] Positive balance represents negative discount (debit to assets), while a negative balance represents a discount (credit to assets).

[2] Amortization results in a negative impact to non-interest income, while accretion results in a positive impact to non-interest income, particularly FDIC loss-share expense.

Other real estate owned

Other real estate owned represents real estate property received in satisfaction of debt. At September 30, 2017, OREO decreased to $198 million from $213 million at December 31, 2016 mainly due to a decrease in residential properties at BPPR and the write-down of $2.7 million for damages associated with Hurricane Maria. Refer to Note 13 to the Consolidated Financial Statements for the activity in other real estate owned. The amounts included as “covered other real estate” are subject to the FDIC loss sharing agreements.

Other assets

Refer to Note 14 for a breakdown of the principal categories that comprise the caption of “Other Assets” in the consolidated statements of financial condition at September 30, 2017 and December 31, 2016. Other assets increased by $0.2 billion from December 31, 2016 to September 30, 2017, mainly driven by an increase in accounts receivable related to maturities of U.S. Treasury securities pending to be settled.

Liabilities

The Corporation’s total liabilities were $37.3 billion at September 30, 2017 compared to $33.5 billion at December 31, 2016. Refer to the Corporation’s Consolidated Statements of Financial Condition included in this Form 10-Q.

Deposits and Borrowings

The composition of the Corporation’s financing sources to total assets at September 30, 2017 and December 31, 2016 is included in Table 12.

Table 12—Financing to Total Assets

	September 30,		December 31,		% increase (decrease)			% of total assets
(In millions)	2017		2016		from 2016 to 2017			2017			2016
Non-interest bearing deposits	$	7,450	$	6,980		6.7	%		17.4	%		18.0	%
Interest-bearing core deposits		22,172		18,776		18.1			52.0			48.6
Other interest-bearing deposits		4,627		4,740		(2.4	)		10.9			12.3
Repurchase agreements		374		480		(22.1	)		0.9			1.2
Other short-term borrowings		241		1		N.M.			0.6			—
Notes payable		1,532		1,575		(2.7	)		3.6			4.1
Other liabilities		920		912		0.9			2.2			2.4
Stockholders’ equity		5,285		5,198		1.7			12.4			13.4

N.M.—Not meaningful.

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Deposits

The Corporation’s deposits totaled $34.2 billion at September 30, 2017 compared to $30.5 billion at December 31, 2016. The deposits increase of $3.8 billion was mainly due to an increase in commercial savings and NOW deposits and demand deposits from the Puerto Rico public sector at BPPR. Refer to Table 13 for a breakdown of the Corporation’s deposits at September 30, 2017 and December 31, 2016.

Table 13—Deposits Ending Balances    

(In thousands)	September 30, 2017		December 31, 2016		Variance
Demand deposits [1]	$	11,576,048	$	9,053,897	$	2,522,151
Savings, NOW and money market deposits (non-brokered)		14,638,191		13,327,298		1,310,893
Savings, NOW and money market deposits (brokered)		422,174		405,487		16,687
Time deposits (non-brokered)		7,446,922		7,486,717		(39,795	)
Time deposits (brokered CDs)		165,601		222,825		(57,224	)
Total deposits	$	34,248,936	$	30,496,224	$	3,752,712

[1] Includes interest and non-interest bearing demand deposits.    

Borrowings

The Corporation’s borrowings remained flat at $2.1 billion at September 30, 2017 and December 31, 2016. Refer to Note 17 to the Consolidated Financial Statements for detailed information on the Corporation’s borrowings. Also, refer to the Liquidity section in this MD&A for additional information on the Corporation’s funding sources.

Stockholders’ Equity

Stockholders’ equity totaled $5.3 billion at September 30, 2017, compared with $5.2 billion at December 31, 2016. The increase was related to the Corporation’s net income of $209.8 million for the nine months ended September 30, 2017 and a decrease in accumulated other comprehensive loss by $29.0 million in part due to the reclassification to earnings of the entire unrealized loss of the COFINA bonds which was deemed other-than-temporary, partially offset by the declaration of dividends of $ 76.6 million on common stock ($0.25 per share) and $ 2.8 million on preferred stock and the impact of the common stock repurchase plan of $75 million completed during the first quarter of 2017. Refer to the consolidated statements of financial condition, comprehensive income and of changes in stockholders’ equity for information on the composition of stockholders’ equity.

REGULATORY CAPITAL

The Corporation, BPPR and BPNA are subject to regulatory capital requirements established by the Federal Reserve Board. The current risk-based capital standards applicable to the Corporation, BPPR and BPNA (“Basel III capital rules”), which have been effective since January 1, 2015, are based on the final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee on Banking Supervision. As of September 30, 2017, the Corporation’s, BPPR’s and BPNA’s capital ratios continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.

The risk-based capital ratios presented in Table 14, which include common equity tier 1, Tier 1 capital, total capital and leverage capital as of September 30, 2017 and December 31, 2016, are calculated based on the Basel III capital rules related to the measurement of capital, risk-weighted assets and average assets.

.

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Table 14 — Capital Adequacy Data

(Dollars in thousands)	September 30, 2017			December 31, 2016
Common equity tier 1 capital:
Common stockholders equity—GAAP basis	$	5,235,271		$	5,147,797
AOCI related adjustments due to opt-out election		249,537			280,330
Goodwill, net of associated deferred tax liability (DTL)		(546,745	)		(554,614	)
Intangible assets, net of associated DTLs		(30,413	)		(25,662	)
Deferred tax assets and other deductions		(743,132	)		(726,643	)
Common equity tier 1 capital	$	4,164,518		$	4,121,208
Additional tier 1 capital:
Preferred stock		50,160			50,160
Other additional tier 1 capital deductions		(50,160	)		(50,160	)
Additional tier 1 capital	$	—		$	—
Tier 1 capital	$	4,164,518		$	4,121,208
Tier 2 capital:
Trust preferred securities subject to phase in as tier 2		426,602			426,602
Other inclusions (deductions), net		322,145			321,405
Tier 2 capital	$	748,747		$	748,007
Total risk-based capital	$	4,913,265		$	4,869,215
Minimum total capital requirement to be well capitalized	$	2,504,315		$	2,500,133
Excess total capital over minimum well capitalized	$	2,408,950		$	2,369,082
Total risk-weighted assets	$	25,043,146		$	25,001,334
Total assets for leverage ratio	$	40,452,663		$	37,785,070
Risk-based capital ratios:
Common equity tier 1 capital		16.63	%		16.48	%
Tier 1 capital		16.63			16.48
Total capital		19.62			19.48
Tier 1 leverage		10.29			10.91

The Basel III capital rules provide that a depository institution will be deemed to be well capitalized if it maintains a leverage ratio of at least 5%, a common equity Tier 1 ratio of at least 6.5%, a Tier 1 capital ratio of at least 8% and a total risk-based ratio of at least 10%. Management has determined that as of September 30, 2017, the Corporation, BPPR and BPNA continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.

The increase in the common equity tier I capital ratio, tier I capital ratio and total capital ratio as of September 30, 2017 as compared to December 31, 2016 was mainly attributed to the nine months period earnings, partially offset by the common stock repurchase of $75 million completed during the first quarter of 2017, the payment of dividends on common and preferred stock and the transition period impact on deferred tax assets. The decrease in the leverage ratio was mainly attributed to the increase in average total assets. Refer to Table 1, Financial Condition Highlights, for information of average assets and to the Financial Condition Analysis section of this MD&A for a discussion of significant variances in assets.

Non-GAAP financial measures

The tangible common equity ratio, tangible assets and tangible book value per common share, which are presented in the table that follows, are non-GAAP measures. Management and many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase accounting method of accounting for mergers and acquisitions. Neither tangible common equity nor tangible assets or related measures should be considered in isolation or as a substitute for stockholders’ equity, total assets or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Corporation calculates its tangible common equity, tangible assets and any other related measures may differ from that of other companies reporting measures with similar names.

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Table 15 provides a reconciliation of total stockholders’ equity to tangible common equity and total assets to tangible assets as of September 30, 2017, and December 31, 2016.

Table 15 — Reconciliation of Tangible Common Equity and Tangible Assets

(In thousands, except share or per share information)	September 30, 2017			December 31, 2016
Total stockholders’ equity	$	5,285,431		$	5,197,957
Less: Preferred stock		(50,160	)		(50,160	)
	$	5,235,271		$	5,147,797
Common shares outstanding at end of period		102,026,417			103,790,932
Common equity per share	$	51.31		$	49.60
Total stockholders’ equity	$	5,285,431		$	5,197,957
Less: Preferred stock		(50,160	)		(50,160	)
Less: Goodwill		(627,294	)		(627,294	)
Less: Other intangibles		(38,016	)		(45,050	)
Total tangible common equity	$	4,569,961		$	4,475,453
Total assets	$	42,601,267		$	38,661,609
Less: Goodwill		(627,294	)		(627,294	)
Less: Other intangibles		(38,016	)		(45,050	)
Total tangible assets	$	41,935,957		$	37,989,265
Tangible common equity to tangible assets		10.90	%		11.78	%
Common shares outstanding at end of period		102,026,417			103,790,932
Tangible book value per common share	$	44.79		$	43.12

OFF-BALANCE SHEET ARRANGEMENTS AND OTHER COMMITMENTS

In the ordinary course of business, the Corporation engages in financial transactions that are not recorded on the balance sheet, or may be recorded on the balance sheet in amounts that are different than the full contract or notional amount of the transaction. As a provider of financial services, the Corporation routinely enters into commitments with off-balance sheet risk to meet the financial needs of its customers. These commitments may include loan commitments and standby letters of credit. These commitments are subject to the same credit policies and approval process used for on-balance sheet instruments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. Other types of off-balance sheet arrangements that the Corporation enters in the ordinary course of business include derivatives, operating leases and provision of guarantees, indemnifications, and representation and warranties. Refer to Note 21 for a detailed discussion related to the Corporation’s obligations under credit recourse and representation and warranties arrangements.

Contractual Obligations and Commercial Commitments

The Corporation has various financial obligations, including contractual obligations and commercial commitments, which require future cash payments on debt and lease agreements. Also, in the normal course of business, the Corporation enters into contractual arrangements whereby it commits to future purchases of products or services from third parties. Obligations that are legally binding agreements, whereby the Corporation agrees to purchase products or services with a specific minimum quantity defined at a fixed, minimum or variable price over a specified period of time, are defined as purchase obligations.

Purchase obligations include major legal and binding contractual obligations outstanding at September 30, 2017, primarily for services, equipment and real estate construction projects. Services include software licensing and maintenance, facilities maintenance, supplies purchasing, and other goods or services used in the operation of the business. Generally, these contracts are renewable or cancelable at least annually, although in some cases the Corporation has committed to contracts that may extend for several years to secure favorable pricing concessions. Purchase obligations amounted to $160 million at September 30, 2017 of which approximately 30% mature in 2017, 33% in 2018, 21% in 2019 and 16% thereafter.

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The Corporation also enters into derivative contracts under which it is required either to receive or pay cash, depending on changes in interest rates. These contracts are carried at fair value on the Consolidated Statement of Financial Condition with the fair value representing the net present value of the expected future cash receipts and payments based on market rates of interest as of the statement of condition date. The fair value of the contract changes daily as interest rates change. The Corporation may also be required to post additional collateral on margin calls on the derivatives and repurchase transactions.

Refer to Note 17 for a breakdown of long-term borrowings by maturity.

The Corporation utilizes lending-related financial instruments in the normal course of business to accommodate the financial needs of its customers. The Corporation’s exposure to credit losses in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and commercial letters of credit is represented by the contractual notional amount of these instruments. The Corporation uses credit procedures and policies in making those commitments and conditional obligations as it does in extending loans to customers. Since many of the commitments may expire without being drawn upon, the total contractual amounts are not representative of the Corporation’s actual future credit exposure or liquidity requirements for these commitments.

Table 16 presents the contractual amounts related to the Corporation’s off-balance sheet lending and other activities at September 30, 2017.

Table 16 — Off-Balance Sheet Lending and Other Activities

	Amount of commitment—Expiration Period
(In thousands)	2017		Years 2018 - 2019		Years 2020 - 2021		Years 2022 - thereafter		Total
Commitments to extend credit	$	5,181,205	$	1,870,710	$	126,462	$	107,177	$	7,285,554
Commercial letters of credit		2,281		7		—		—		2,288
Standby letters of credit		11,828		19,459		—		—		31,287
Commitments to originate or fund mortgage loans		5,468		4,238		—		—		9,706
Total	$	5,200,782	$	1,894,414	$	126,462	$	107,177	$	7,328,835

At September 30, 2017 and December 31, 2016, the Corporation maintained a reserve of approximately $9 million for probable losses associated with unfunded loan commitments related to commercial and consumer lines of credit. The estimated reserve is principally based on the expected draws on these facilities using historical trends and the application of the corresponding reserve factors determined under the Corporation’s allowance for loan losses methodology. This reserve for unfunded loan commitments remains separate and distinct from the allowance for loan losses and is reported as part of other liabilities in the consolidated statement of financial condition.

Refer to Note 22 to the Consolidated Financial Statements for additional information on credit commitments and contingencies.

RISK MANAGEMENT

Managing risk is an essential component of the Corporation’s business. Risk identification and monitoring are key elements in the overall risk management. Popular has a strong disciplined risk management culture where risk management is a shared responsibility by all employees.

Risk Management Framework

Popular’s risk management framework seeks to ensure that there is an effective process in place to manage risk across the organization. Popular’s risk management framework incorporates three interconnected dependencies: risk appetite, stress testing, and capital planning. The stress testing process incorporates key risks within the context of the Risk Appetite Statement (RAS)

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defined in our Risk Management Policy. The process analyzes and delineates how much risk Popular is prepared to assume in pursuit of its business strategy and how much capital Popular’s activities will consume in light of a forward-looking assessment of the potential impact of adverse economic conditions. The RAS includes risk tolerance, limits, and types of risks the Corporation is willing to accept, as well as processes to maintain compliance with those limits.

Principal Risk Types

• Credit Risk – Potential for default or loss resulting from an obligor’s failure to meet the terms of any contract with the Corporation or any of its subsidiaries, or failure otherwise to perform as agreed. Credit risk arises from all activities where success depends on counterparty, issuer, or borrower performance.

• Interest Rate Risk (“IRR”) – The risk to earnings or capital arising from changes in interest rates. Interest rate risk arises from differences between the timing of rate changes and the timing of cash flows (repricing risk); from changing rate relationships among different yield curves affecting bank lending and borrowing activities (basis risk); from changing rate relationships across the spectrum of maturities (yield curve risk); and from interest related options embedded in bank products (options risk).

• Market Risk – Potential for economic loss resulting from changes in market prices of the assets or liabilities in the Corporation’s or in any of its subsidiaries’ portfolios.

• Liquidity Risk – Potential for loss resulting from the Corporation or its subsidiaries not being able to meet their financial obligations when they come due. This could be a result of market conditions, the ability of the Corporation to liquidate assets or manage or diversify various funding sources. This risk also encompasses the possibility that an instrument cannot be closed out or sold at its economic value, which might be a result of stress in the market or in a specific security type given its credit, volume and maturity.

• Operational Risk – Possibility that inadequate or failed systems and internal controls or procedures, human error, fraud or external influences such as disasters, can cause losses. It includes the risk for those processes that have been outsourced to third parties and the risk of the inadequate use of models.

• Compliance Risk – Potential for loss resulting from violations of or non-conformance with laws, rules, regulations, or prescribed practices.

• Regulatory and Legal Risk—Risk of negative impact to business activities, earnings or capital, regulatory relationships or reputation as a result of failure to comply with or a failure to adapt to current and changing regulations, law, rules, regulatory expectations, existing contracts or ethical standards.

• Strategic Risk – Potential for loss arising from adverse business decisions or improper implementation of business decisions. Also, it incorporates how management analyzes external factors that impact the strategic direction of the Corporation.

• Reputational Risk – Potential for loss arising from negative public opinion.

Risk Governance

The Corporation’s Board of Directors (the “Board”) has established a Risk Management Committee (“RMC”) to undertake the responsibilities of overseeing and approving the Corporation’s Risk Management Program, as well as the Corporation’s Capital Plan. The Capital Plan is a plan to maintain sufficient regulatory capital at the Corporation, BPPR and BPNA, which considers current and future regulatory capital requirements, expected future profitability and credit trends and, at least, two macroeconomic scenarios, including a base and stress scenario.

The RMC, as an oversight body, monitors and approves corporate policies to identify measure, monitor and control risks while maintaining the effectiveness and efficiency of the business and operational processes. As an approval body for the Corporation, the RMC reviews and approves relevant risk management policies and critical processes. Also, it periodically reports to the Board about its activities.

The Board and RMC have delegated to the Corporation’s management the implementation of the risk management processes. This implementation is split into two separate but coordinated efforts that include (i) business and / or operational units who identify, manage and control the risks resulting from their activities, and (ii) a Risk Management Group (“RMG”). In general, the RMG is mandated with responsibilities such as assessing and reporting to the Corporation’s management and RMC the risk positions of the Corporation; developing and implementing mechanisms, policies and procedures to identify, measure and monitor risks; implementing measurement mechanisms and infrastructure to achieve effective risk monitoring; developing and implementing the necessary management information and reporting mechanisms; and monitoring and testing the adequacy of the Corporation’s policies, strategies and guidelines.

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The RMG is responsible for the overall coordination of risk management efforts throughout the Corporation and is composed of three reporting divisions: (i) Credit Risk Management, (ii) Compliance Management, and (iii) Financial and Operational Risk Management. The latter includes an Enterprise Risk Management function that facilitates, among other aspects, the identification, coordination, and management of multiple and cross-enterprise risks. The Corporation’s Model Validation and Loan Review group, which reports directly to the RMC and administratively to the Chief Risk Officer, also provides important risk management functions by validating critical models used in the Corporation and by assessing the adequacy of the Corporation’s lending risk function.

Additionally, the Internal Auditing Division provides an independent assessment of the Corporation’s internal control structure and related systems and processes. The Internal Audit Division also provides an assessment of the effectiveness of the Corporation’s risk management function.

Moreover, management oversight of the Corporation’s risk-taking and risk management activities is conducted through management committees:

• CRESCO (Credit Strategy Committee) – Manages the Corporation’s overall credit exposure and approves credit policies, standards and guidelines that define, quantify, and monitor credit risk. Through this committee, management reviews asset quality ratios, trends and forecasts, problem loans, establishes the provision for loan losses and assesses the methodology and adequacy of the allowance for loan losses on a quarterly basis.

• ALCO (Asset / Liability Management Committee) – Oversees and approves the policies and processes designed to ensure sound market risk and balance sheet strategies, including the interest rate, liquidity, investment and trading policies. The ALCO monitors the capital position and plan for the Corporation and approves all capital management strategies, including capital market transactions and capital distributions. The ALCO also monitors forecasted results and their impact on capital, liquidity, and net interest margin of the Corporation.

• ORCO (Operational Risk Committee) – Monitors operational risk management activities to ensure the development and consistent application of operational risk policies, processes and procedures that measure, limit and manage the Corporation’s operational risks while maintaining the effectiveness and efficiency of the operating and businesses’ processes.

• Compliance Committees – Monitors regulatory compliance activities to ensure to compliance with legal and regulatory requirements and the Corporation’s policies.

• ERM (Enterprise Management Committee) – Monitors Market, Interest, Liquidity, Compliance, Regulatory, Legal, Strategic, Operational (including Information Security & Cyber), and Reputational risks in the Risk Appetite Statement (RAS) and within the Corporation’s ERM framework.

There are other management committees such as the Fair Lending, Section 23A & B, New Products, Fiduciary Risk, and the BSA/Anti-Money Laundering Committees, among others, which provide oversight of specific business risks.

Market / Interest Rate Risk

The financial results and capital levels of the Corporation are constantly exposed to market, interest rate and liquidity risks. The ALCO and the Corporate Finance Group are responsible for planning and executing the Corporation’s market, interest rate risk, funding activities and strategy, and for implementing the policies and procedures approved by the RMC and the ALCO. In addition, the Financial and Operational Risk Management Division is responsible for the independent monitoring and reporting of adherence with established policies to the Risk Management Committee, and enhancing and strengthening controls surrounding interest, liquidity and market risk. The ALCO generally meets on a weekly basis and reviews the Corporation’s current and forecasted asset and liability levels as well as desired pricing strategies and other relevant financial management and interest rate and risk topics. Also, on a monthly basis the ALCO reviews various interest rate risk sensitivity metrics, ratios and portfolio information, including but not limited to, the Corporation’s liquidity positions, projected sources and uses of funds, interest rate risk positions and economic conditions.

Market risk refers to the risk of a reduction in the Corporation’s capital due to changes in the market valuation of its assets and/or liabilities.

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Most of the assets subject to market valuation risk are securities in the investment portfolio classified as available-for-sale. Refer to Notes 6 and 7 for further information on the investment portfolio. Investment securities classified as available-for-sale amounted to $9.1 billion as of September 30, 2017. Other assets subject to market risk include loans held-for-sale, which amounted to $69 million, mortgage servicing rights (“MSRs”) which amounted to $180 million and securities classified as “trading”, which amounted to $46 million, as of September 30, 2017.

Liabilities subject to market risk include the FDIC clawback obligation, which amounted to $ 167 million at September 30, 2017.

Management believes that market risk is currently not a material source of risk at the Corporation. A significant portion of the Corporation’s financial activities is concentrated in Puerto Rico, which has been going through a fiscal and economic crisis and was recently impacted by two major hurricanes. Refer to the Geographic and Government Risk section of this MD&A for highlights on the current status of Puerto Rico’s fiscal and economic condition.

Interest Rate Risk (“IRR’)

The Corporation’s net interest income is subject to various categories of interest rate risk, including repricing, basis, yield curve and option risks. In managing interest rate risk, management may alter the mix of floating and fixed rate assets and liabilities, change pricing schedules, adjust maturities through sales and purchases of investment securities, and enter into derivative contracts, among other alternatives.

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate rate risk position given line of business forecasts, management objectives, market expectations and policy constraints.

Management utilizes various tools to assess IRR, including simulation modeling, static gap analysis, and Economic Value of Equity (EVE). The three methodologies complement each other and are used jointly in the evaluation of the Corporation’s IRR. Simulation modeling is prepared for a five-year period, which in conjunction with the EVE analysis, provides Management a better view of long term IRR.

Net interest income simulation analysis performed by legal entity and on a consolidated basis is a tool used by the Corporation in estimating the potential change in net interest income resulting from hypothetical changes in interest rates. Sensitivity analysis is calculated using a simulation model which incorporates actual balance sheet figures detailed by maturity and interest yields or costs.

Management assesses interest rate risk by comparing various net interest income simulations under different interest rate scenarios that differ in direction of interest rate changes, the degree of change over time, the speed of change and the projected shape of the yield curve. For example, the types of rate scenarios processed during the year included economic most likely scenarios, flat rates, yield curve twists, and parallel rate shocks. Management also performs analyses to isolate and measure basis and prepayment risk exposures.

The asset and liability management group performs validation procedures on various assumptions used as part of the sensitivity analysis as well as validations of results on a monthly basis. In addition, the model and processes used to assess IRR are subject to independent validations according to the guidelines established in the Model Governance and Validation policy. Due to the importance of critical assumptions in measuring market risk, the risk models incorporate third-party developed data for critical assumptions such as prepayment speeds on mortgage loans and mortgage-backed securities.

The Corporation processes net interest income simulations under interest rate scenarios in which the yield curve is assumed to rise and decline by the same amount. The rate scenarios considered in these market risk simulations reflect parallel changes of -200, +200 and +400 basis points during the succeeding twelve-month period. Simulation analyses are based on many assumptions, including relative levels of market interest rates across all yield curve points and indexes, interest rate spreads, loan prepayments and deposit elasticity. Thus, they should not be relied upon as indicative of actual results. Further, the estimates do not contemplate actions that management could take to respond to changes in interest rates. By their nature, these forward-looking computations are only estimates and may be different from what may actually occur in the future. The following table presents the results of the simulations at September 30, 2017 and December 31, 2016, assuming a static balance sheet and parallel changes over flat spot rates over a one-year time horizon:

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Table 17—Net Interest Income Sensitivity (One Year Projection)

	September 30, 2017						December 31, 2016
(Dollars in thousands)	Amount Change			Percent Change			Amount Change			Percent Change
Change in interest rate											—
+400 basis points	$	400,335			25.36	%	$	236,945			16.52	%
+200 basis points		204,155			12.93			121,181			8.45
-200 basis points		(176,049	)		(11.15	)		(35,314	)		(2.46	)

At September 30, 2017, the simulations showed that the Corporation maintains an asset-sensitive position. This is primarily due to (i) a high level of money market investments that are highly sensitive to changes in interest rates, (ii) approximately 31% of the Corporation’s loan portfolio being comprised of Prime and Libor-based loans, and (iii) low elasticity of the Corporation’s core deposit base. The increase in sensitivity from December 31, 2016 in the +200 and +400 scenarios is mainly driven by an increase in money market investments of $2.6 billion, from $2.9 billion at December 31, 2016 to $5.5 billion at September 30, 2017, that was due to growth in public fund deposits that have low sensitivity to changes in rates. The increase in sensitivity in the -200 scenario is also driven by the increase in money market investments that reflect full changes in rates across all scenarios, combined with the increases in the Federal Funds Target Rate in March and June of 2017 by the Federal Reserve, which led to an increase in the magnitude of the -200 basis points scenario.

The Corporation maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in net interest income or market value that are caused by interest rate volatility. The market value of these derivatives is subject to interest rate fluctuations and counterparty credit risk adjustments which could have a positive or negative effect in the Corporation’s earnings.

The Corporation’s loan and investment portfolios are subject to prepayment risk, which results from the ability of a third-party to repay debt obligations prior to maturity. Prepayment risk also could have a significant impact on the duration of mortgage-backed securities and collateralized mortgage obligations, since prepayments could shorten (or lower prepayments could extend) the weighted average life of these portfolios.

Trading

The Corporation engages in trading activities in the ordinary course of business at its subsidiaries, Banco Popular de Puerto Rico and Popular Securities. Popular Securities’ trading activities consist primarily of market-making activities to meet expected customers’ needs related to its retail brokerage business and purchases and sales of U.S. Government and government sponsored securities with the objective of realizing gains from expected short-term price movements. BPPR’s trading activities consist primarily of holding U.S. Government sponsored mortgage-backed securities classified as “trading” and hedging the related market risk with “TBA” (to-be-announced) market transactions. The objective is to derive spread income from the portfolio and not to benefit from short-term market movements. In addition, BPPR uses forward contracts or TBAs to hedge its securitization pipeline. Risks related to variations in interest rates and market volatility are hedged with TBAs that have characteristics similar to that of the forecasted security and its conversion timeline.

At September 30, 2017, the Corporation held trading securities with a fair value of $46 million, representing approximately 0.1% of the Corporation’s total assets, compared with $60 million and 0.2%, respectively, at December 31, 2016. As shown in Table 18, the trading portfolio consists principally of mortgage-backed securities relating to BPPR’s mortgage activities described above, which at September 30, 2017 were investment grade securities. As of September 30, 2017, the trading portfolio also included $1.3 million in Puerto Rico government obligations and shares of closed-end funds that invest primarily in Puerto Rico government obligations ($2.6 million as of December 31, 2016). Trading instruments are recognized at fair value, with changes resulting from fluctuations in market prices, interest rates or exchange rates reported in current period earnings. The Corporation recognized a net trading account gain of $0.3 million for the quarter ended September 30, 2017, compared to a loss of $0.1 million for the quarter ended September 30, 2016. Table 18 provides the composition of the trading portfolio at September 30, 2017 and December 31, 2016.

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Table 18—Trading Portfolio    

	September 30, 2017					December 31, 2016
(Dollars in thousands)	Amount		Weighted Average Yield [1]			Amount		Weighted Average Yield [1]
Mortgage-backed securities	$	32,752		5.23	%	$	42,746		4.85	%
Collateralized mortgage obligations		848		5.46			1,321		5.27
Puerto Rico government obligations		172		0.29			1,164		5.51
Interest-only strips		549		12.48			602		12.35
Other[2]		11,630		2.61			13,972		3.03
Total	$	45,951		4.64	%	$	59,805		4.52	%

[1] Not on a taxable equivalent basis.

[2] Includes trading derivatives for the period ended December 31, 2016.

The Corporation’s trading activities are limited by internal policies. For each of the two subsidiaries, the market risk assumed under trading activities is measured by the 5-day net value-at-risk (“VAR”), with a confidence level of 99%. The VAR measures the maximum estimated loss that may occur over a 5-day holding period, given a 99% probability.

The Corporation’s trading portfolio had a 5-day VAR of approximately $0.3 million for the last week in September 2017. There are numerous assumptions and estimates associated with VAR modeling, and actual results could differ from these assumptions and estimates. Backtesting is performed to compare actual results against maximum estimated losses, in order to evaluate model and assumptions accuracy.

In the opinion of management, the size and composition of the trading portfolio does not represent a significant source of market risk for the Corporation.

FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS

The Corporation currently measures at fair value on a recurring basis its trading assets, available-for-sale securities, derivatives, mortgage servicing rights and contingent consideration. Occasionally, the Corporation may be required to record at fair value other assets on a nonrecurring basis, such as loans held-for-sale, impaired loans held-in-portfolio that are collateral dependent and certain other assets. These nonrecurring fair value adjustments typically result from the application of lower of cost or fair value accounting or write-downs of individual assets.

The fair value of assets and liabilities may include market or credit related adjustments, where appropriate. During the quarter ended September 30, 2017, inclusion of credit risk in the fair value of the derivatives resulted in a net loss of $38 thousand recorded in the other operating income and interest expense captions of the Consolidated Statement of Operations, which consisted of a loss of $54 thousand resulting from the Corporation’s own credit risk standing adjustment and a gain of $16 thousand from the assessment of the counterparties’ credit risk. During the nine months ended September 30, 2017, inclusion of credit risk in the fair value of the derivatives resulted in a net loss of $140 thousand recorded in the other operating income and interest expense captions of the Consolidated Statement of Operations, which consisted of a loss of $68 thousand resulting from the Corporation’s own credit standing adjustment and a loss of $72 thousand from the assessment of the counterparties’ credit risk.

The Corporation categorizes its assets and liabilities measured at fair value under the three-level hierarchy. The level within the hierarchy is based on whether the inputs to the valuation methodology used for fair value measurement are observable.

Refer to Note 25 to the consolidated financial statements for information on the Corporation’s fair value measurement disclosures required by the applicable accounting standard. At September 30, 2017, approximately $ 9.1 billion, or 98%, of the assets measured at fair value on a recurring basis used market-based or market-derived valuation inputs in their valuation methodology and, therefore, were classified as Level 1 or Level 2. The majority of instruments measured at fair value were classified as Level 2, including U.S. Treasury securities, obligations of U.S. Government sponsored entities, obligations of Puerto Rico, States and political subdivisions, most mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”), and derivative instruments.

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Broker quotes used for fair value measurements inherently reflect any lack of liquidity in the market since they represent an exit price from the perspective of the market participants. Financial assets that were fair valued using broker quotes amounted to $ 7 million at September 30, 2017, of which $ 1 million were Level 3 assets and $ 6 million were Level 2 assets. Level 3 assets consisted principally of tax-exempt GNMA mortgage-backed securities. Fair value for these securities was based on an internally-prepared matrix derived from local broker quotes. The main input used in the matrix pricing was non-binding local broker quotes obtained from limited trade activity. Therefore, these securities were classified as Level 3.

Refer to Note 34 to the consolidated financial statements in the 2016 Form 10-K for a description of the Corporation’s valuation methodologies used for the assets and liabilities measured at fair value. Also, refer to the Critical Accounting Policies / Estimates in the 2016 Form 10-K for additional information on the accounting guidance and the Corporation’s policies or procedures related to fair value measurements.

Inputs are evaluated to ascertain that they consider current market conditions, including the relative liquidity of the market. When a market quote for a specific security is not available, the pricing service provider generally uses observable data to derive an exit price for the instrument, such as benchmark yield curves and trade data for similar products. To the extent trading data is not available, the pricing service provider relies on specific information including dialogue with brokers, buy side clients, credit ratings, spreads to established benchmarks and transactions on similar securities to draw correlations based on the characteristics of the evaluated instrument. If for any reason the pricing service provider cannot observe data required to feed its model, it discontinues pricing the instrument. During the quarter and nine months ended September 30, 2017, none of the Corporation’s investment securities were subject to pricing discontinuance by the pricing service providers. The pricing methodology and approach of our primary pricing service providers is concluded to be consistent with the fair value measurement guidance. In addition, during the quarter and nine months ended September 30, 2017, the Corporation did not adjust any prices obtained from pricing service providers or broker dealers for its trading account securities and investment securities available-for-sale.

Furthermore, management assesses the fair value of its portfolio of investment securities at least on a quarterly basis, which includes analyzing changes in fair value that have resulted in losses that may be considered other-than-temporary. Factors considered include, for example, the nature of the investment, severity and duration of possible impairments, industry reports, sector credit ratings, economic environment, creditworthiness of the issuers and any guarantees.

Securities are classified in the fair value hierarchy according to product type, characteristics and market liquidity. At the end of each period, management assesses the fair value hierarchy for each asset or liability measured. The fair value measurement analysis performed by the Corporation includes validation procedures with alternate pricing sources when available and review of market changes, pricing methodology, assumption and level hierarchy changes, and evaluation of distressed transactions. Management has established materiality thresholds according to the investment class to monitor and investigate material deviations in prices obtained from the primary pricing service provider and the secondary pricing source used as support for the valuation results.

Liquidity

The objective of effective liquidity management is to ensure that the Corporation has sufficient liquidity to meet all of its financial obligations, finance expected future growth and maintain a reasonable safety margin for cash commitments under both normal and stressed market conditions. The Board is responsible for establishing the Corporation’s tolerance for liquidity risk, including approving relevant risk limits and policies. The Board has delegated the monitoring of these risks to the RMC and the ALCO. The management of liquidity risk, on a long-term and day-to-day basis, is the responsibility of the Corporate Treasury Division. The Corporation’s Corporate Treasurer is responsible for implementing the policies and procedures approved by the Board and for monitoring the Corporation’s liquidity position on an ongoing basis. Also, the Corporate Treasury Division coordinates corporate wide liquidity management strategies and activities with the reportable segments, oversees policy breaches and manages the escalation process. The Financial and Operational Risk Management Division is responsible for the independent monitoring and reporting of adherence with established policies.

An institution’s liquidity may be pressured if, for example, its credit rating is downgraded, it experiences a sudden and unexpected substantial cash outflow, or some other event causes counterparties to avoid exposure to the institution. Factors that the Corporation does not control, such as the economic outlook, adverse ratings of its principal markets and regulatory changes, could also affect its ability to obtain funding.

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Liquidity is managed by the Corporation at the level of the holding companies that own the banking and non-banking subsidiaries. It is also managed at the level of the banking and non-banking subsidiaries. The Corporation has adopted policies and limits to monitor more effectively the Corporation’s liquidity position and that of the banking subsidiaries. Additionally, contingency funding plans are used to model various stress events of different magnitudes and affecting different time horizons that assist management in evaluating the size of the liquidity buffers needed if those stress events occur. However, such models may not predict accurately how the market and customers might react to every event, and are dependent on many assumptions.

On January 23, 2017, the Corporation’s Board of Directors approved an increase in the Company’s quarterly common stock dividend from $0.15 per share to $0.25 per share. During the nine months ended September 30, 2017, the Corporation declared dividends on its common stock of $ 76.6 million and completed a $75 million privately negotiated accelerated share repurchase transaction. Refer to additional information on Note 19 – Stockholder’s equity.

Deposits, including customer deposits, brokered deposits and public funds deposits, continue to be the most significant source of funds for the Corporation, funding 80% of the Corporation’s total assets at September 30, 2017 and 79% at December 31, 2016. The ratio of total ending loans to deposits was 69% at September 30, 2017, compared to 77% at December 31, 2016. In addition to traditional deposits, the Corporation maintains borrowing arrangements. At September 30, 2017, these borrowings consisted primarily of $ 374 million in assets sold under agreement to repurchase, $868 million in advances with the FHLB, $439 million in junior subordinated deferrable interest debentures (net of debt issuance cost) related to trust preferred securities and $446 million in term notes (net of debt issuance cost) issued to partially fund the repayment of TARP funds. A detailed description of the Corporation’s borrowings, including their terms, is included in Note 17 to the Consolidated Financial Statements. Also, the Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements provide information on the Corporation’s cash inflows and outflows.

Given the widespread level of disruption to basic infrastructure and commercial activity in the regions impacted by the passage of hurricanes Irma and Maria, BPPR decided to adopt certain measures to assist its customers in affected areas. These measures include the waiver of certain fees and charges, such as late payment charges and ATM transaction fees, and a temporary payment moratorium of three months to eligible borrowers across most loan portfolios during which BPPR will continue to accrue interest on the loans.

These measures, while important to assist in the recovery of our customers post-hurricane, will negatively impact our results of operations and liquidity. For example, the waiver of fees and other charges impacted the Corporation’s revenues for the third quarter and revenues in the fourth quarter will also be negatively impacted by such waivers. The moratorium measures, whose ultimate effect will depend in part on the number of customers who take advantage of such plans, will also impact our liquidity not only due to principal and interest payments that BPPR will not receive during the period, but also as a result of loans serviced by the Corporation where we are required to advance to the owners the payment of principal and interest on a scheduled basis even when such payment is not collected from the borrower.

Management believes that the liquidity impact of these measures will not be significant in light of BPPR’s existing liquidity resources and that BPPR has sufficient liquidity to meet anticipated cash flow obligations. Deposits at BPPR as of September 30, 2017 were higher by approximately $1.0 billion than as of the end of the second quarter.

The following sections provide further information on the Corporation’s major funding activities and needs, as well as the risks involved in these activities. A detailed description of the Corporation’s borrowings and available lines of credit, including its terms, is included in Note 17 to the Consolidated Financial Statements. Also, the Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements provide information on the Corporation’s cash inflows and outflows.

Banking Subsidiaries

Primary sources of funding for the Corporation’s banking subsidiaries (BPPR and BPNA), or “the banking subsidiaries,” include retail and commercial deposits, brokered deposits, unpledged investment securities, mortgage loan securitization, and, to a lesser extent, loan sales. In addition, the Corporation maintains borrowing facilities with the FHLB and at the discount window of the Federal Reserve Board (the “FRB”), and has a considerable amount of collateral pledged that can be used to quickly raise funds under these facilities.

The principal uses of funds for the banking subsidiaries include loan originations, investment portfolio purchases, loan purchases and repurchases, repayment of outstanding obligations (including deposits), and operational expenses. Also, the banking subsidiaries assume liquidity risk related to collateral posting requirements for certain activities mainly in connection with contractual commitments, recourse provisions, servicing advances, derivatives, credit card licensing agreements and support to several mutual funds administered by BPPR.

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During the nine months ended September 30, 2017, BPPR declared cash dividends of $169 million, a portion of which was used by Popular, Inc. for the payments of the cash dividends on its outstanding common stock and to complete the repurchase of $75 million in treasury stock as part of the privately negotiated accelerated share repurchase transaction completed during the first quarter of 2017, as mentioned above.

During the nine months ended September 30, 2017, BPNA declared a dividend of $10.4 million to Popular North America, its holding company, who in turn declared a $10.4 million dividend to Popular, Inc.

Note 35 to the Consolidated Financial Statements provides a consolidating statement of cash flows which includes the Corporation’s banking subsidiaries as part of the “All other subsidiaries and eliminations” column.

The banking subsidiaries maintain sufficient funding capacity to address large increases in funding requirements such as deposit outflows. This capacity is comprised mainly of available liquidity derived from secured funding sources, as well as on-balance sheet liquidity in the form of cash balances maintained at the Fed and unused secured lines held at the FRB and FHLB, in addition to liquid unpledged securities. The Corporation has established liquidity guidelines that require the banking subsidiaries to have sufficient liquidity to cover all short-term borrowings and a portion of deposits.

The Corporation’s ability to compete successfully in the marketplace for deposits, excluding brokered deposits, depends on various factors, including pricing, service, convenience and financial stability as reflected by operating results, credit ratings (by nationally recognized credit rating agencies), and importantly, FDIC deposit insurance. Although a downgrade in the credit ratings of the Corporation’s banking subsidiaries may impact their ability to raise retail and commercial deposits or the rate that it is required to pay on such deposits, management does not believe that the impact should be material. Deposits at all of the Corporation’s banking subsidiaries are federally insured (subject to FDIC limits) and this is expected to mitigate the potential effect of a downgrade in the credit ratings.

Deposits are a key source of funding as they tend to be less volatile than institutional borrowings and their cost is less sensitive to changes in market rates. Refer to Table 13 for a breakdown of deposits by major types. Core deposits are generated from a large base of consumer, corporate and institutional customers. Core deposits include all non-interest bearing deposits, savings deposits and certificates of deposit under $100,000, excluding brokered deposits with denominations under $100,000. Core deposits have historically provided the Corporation with a sizable source of relatively stable and low-cost funds. Core deposits totaled $ 29.6 billion, or 86% of total deposits, at September 30, 2017, compared with $25.8 billion, or 84% of total deposits, at December 31, 2016. Core deposits financed 77% of the Corporation’s earning assets at September 30, 2017, compared with 76% at December 31, 2016.

Certificates of deposit with denominations of $100,000 and over at September 30, 2017 totaled $ 4.1 billion, or 12% of total deposits (December 31, 2016—$4.1 billion, or 14% of total deposits). Their distribution by maturity at September 30, 2017 is presented in the table that follows:

Table 19 — Distribution by Maturity of Certificate of Deposits of $100,000 and Over

(In thousands)
3 months or less	$	1,283,156
3 to 6 months		312,315
6 to 12 months		837,864
Over 12 months		1,629,589
Total	$	4,062,924

At September 30, 2017 approximately 1% of the Corporation’s assets were financed by brokered deposits (December 31, 2016 – 2%). The Corporation had $ 0.6 billion in brokered deposits at September 30, 2017 and December 31, 2016. In the event that any of the Corporation’s banking subsidiaries’ regulatory capital ratios fall below those required by a well-capitalized institution or are subject to capital restrictions by the regulators, that banking subsidiary faces the risk of not being able to raise or maintain brokered deposits and faces limitations on the rate paid on deposits, which may hinder the Corporation’s ability to effectively compete in its retail markets and could affect its deposit raising efforts.

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To the extent that the banking subsidiaries are unable to obtain sufficient liquidity through core deposits, the Corporation may meet its liquidity needs through short-term borrowings by pledging securities for borrowings under repurchase agreements, by pledging additional loans and securities through the available secured lending facilities, or by selling liquid assets. These measures are subject to availability of collateral.

The Corporation’s banking subsidiaries have the ability to borrow funds from the FHLB. At September 30, 2017 and December 31, 2016, the banking subsidiaries had credit facilities authorized with the FHLB aggregating to $3.9 billion, based on assets pledged with the FHLB at those dates. Outstanding borrowings under these credit facilities totaled $868 million at September 30, 2017 and $673 million at December 31, 2016. Such advances are collateralized by loans held-in-portfolio, do not have restrictive covenants and do not have any callable features. At September 30, 2017 the credit facilities authorized with the FHLB were collateralized by $5.0 billion in loans held-in-portfolio (December 31, 2016—$4.9 billion). Refer to Note 17 to the Consolidated Financial Statements for additional information on the terms of FHLB advances outstanding.

At September 30, 2017 and December 31, 2016, the Corporation’s borrowing capacity at the Fed’s Discount Window amounted to approximately $1.2 billion, which remained unused as of both dates. The amount available under this borrowing facility is dependent upon the balance of performing loans, securities pledged as collateral and the haircuts assigned to such collateral. At September 30, 2017, this credit facility with the Fed was collateralized by $2.2 billion of loans held-in-portfolio (December 31, 2016—$2.3 billion).

At September 30, 2017, management believes that the banking subsidiaries had sufficient current and projected liquidity sources to meet their anticipated cash flow obligations, as well as special needs and off-balance sheet commitments, in the ordinary course of business and have sufficient liquidity resources to address a stress event. Although the banking subsidiaries have historically been able to replace maturing deposits and advances, no assurance can be given that they would be able to replace those funds in the future if the Corporation’s financial condition or general market conditions were to deteriorate. The Corporation’s financial flexibility will be severely constrained if its banking subsidiaries are unable to maintain access to funding or if adequate financing is not available to accommodate future financing needs at acceptable interest rates. The banking subsidiaries also are required to deposit cash or qualifying securities to meet margin requirements. To the extent that the value of securities previously pledged as collateral declines because of market changes, the Corporation will be required to deposit additional cash or securities to meet its margin requirements, thereby adversely affecting its liquidity. Finally, if management is required to rely more heavily on more expensive funding sources to meet its future growth, revenues may not increase proportionately to cover costs. In this case, profitability would be adversely affected.

Bank Holding Companies

The principal sources of funding for the bank holding companies (the “BHC’s”), which are Popular, Inc. (holding company only) (“PIHC”) and Popular North America, Inc. (“PNA”), include cash on hand, investment securities, dividends received from banking and non-banking subsidiaries (subject to regulatory limits and authorizations) asset sales, credit facilities available from affiliate banking subsidiaries and proceeds from potential securities offerings.

The principal use of these funds include the repayment of debt, and interest payments to holders of senior debt and junior subordinated deferrable interest (related to trust preferred securities) and capitalizing its banking subsidiaries.

During the nine months ended September 30, 2017, PIHC received $169 million in dividends from BPPR, $12 million in dividends from PIBI, $10.4 million in dividends from PNA and $3.5 million in dividends from EVERTEC’s parent company. PIHC also received $0.5 million in distributions from its investment in PRB Investors LP, an equity method investment, and $10.5 million in dividends from its non-banking subsidiaries. During the quarter ended September 30, 2017, a non-banking subsidiary declared a dividend of $4.5 million to PIHC. In addition, during the nine months ended September 30, 2017 Popular International Bank received $11.8 million in dividends from its investment in BHD Leon. During the nine months ended September 30, 2017, PNA received $10.4 million in dividends from BPNA.

Another use of liquidity at the parent holding company is the payment of dividends on its outstanding stock. During the nine months ended September 30, 2017, the Corporation declared quarterly dividends on its outstanding common stock of $0.25 per share, for a total of $ 76.6 million and completed a $75 million privately negotiated accelerated share repurchase transaction. Refer to additional information on Note 19 – Stockholder’s equity. The dividends for the Corporation’s Series A and Series B preferred stock amounted to $ 2.8 million for the nine months ended September 30, 2017.

The BHC’s have in the past borrowed in the money markets and in the corporate debt market primarily to finance their non-banking subsidiaries, however, the cash needs of the Corporation’s non-banking subsidiaries other than to repay indebtedness and interest

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are now minimal. These sources of funding have become more costly due to the reductions in the Corporation’s credit ratings. The Corporation’s principal credit ratings are below “investment grade” which affects the Corporation’s ability to raise funds in the capital markets. The Corporation has an automatic shelf registration statement filed and effective with the Securities and Exchange Commission, which permits the Corporation to issue an unspecified amount of debt or equity securities.

Note 35 to the Consolidated Financial Statements provides a statement of condition, of operations and of cash flows for the two BHC’s. The loans held-in-portfolio in such financial statements is principally associated with intercompany transactions.

The outstanding balance of notes payable at the BHC’s amounted to $886 million at September 30, 2017, compared with $884 million at December 31, 2016. The repayment of the BHC’s obligations represents a potential cash need which is expected to be met with a combination of internal liquidity resources stemming mainly from future dividend receipts and new borrowings.

The contractual maturities of the BHC’s notes payable at September 30, 2017 are presented in Table 20.

Table 20—Distribution of BHC’s Notes Payable by Contractual Maturity    

Year	(In thousands)
2017	$	—
2018		—
2019		446,351
2020		—
2021		—
Later years		439,344
Total	$	885,695

As indicated previously, the BHC did not issue new registered debt in the capital markets during the nine months ended September 30, 2017.

The BHCs liquidity position continues to be adequate with sufficient cash on hand, investments and other sources of liquidity which are expected to be enough to meet all BHCs obligations during the foreseeable future.

Non-banking subsidiaries

The principal sources of funding for the non-banking subsidiaries include internally generated cash flows from operations, loan sales, repurchase agreements, capital injection and borrowed funds from their direct parent companies or the holding companies. The principal uses of funds for the non-banking subsidiaries include repayment of maturing debt, operational expenses and payment of dividends to the BHCs. The liquidity needs of the non-banking subsidiaries are minimal since most of them are funded internally from operating cash flows or from intercompany borrowings from their holding companies, BPPR or BPNA.

Other Funding Sources and Capital

The investment securities portfolio provides an additional source of liquidity, which may be realized through either securities sales or repurchase agreements. The Corporation’s investment securities portfolio consists primarily of liquid U.S. government investment securities, sponsored U.S. agency securities, government sponsored mortgage-backed securities, and collateralized mortgage obligations that can be used to raise funds in the repo markets. The availability of the repurchase agreement would be subject to having sufficient unpledged collateral available at the time the transactions are to be consummated, in addition to overall liquidity and risk appetite of the various counterparties. The Corporation’s unpledged investment and trading securities, excluding other investment securities, amounted to $2.1 billion at September 30, 2017 and $3.7 billion at December 31, 2016. A substantial portion of these securities could be used to raise financing quickly in the U.S. money markets or from secured lending sources.

Additional liquidity may be provided through loan maturities, prepayments and sales. The loan portfolio can also be used to obtain funding in the capital markets. In particular, mortgage loans and some types of consumer loans, have secondary markets which the Corporation could use.

Risks to Liquidity

Total lines of credit outstanding are not necessarily a measure of the total credit available on a continuing basis. Some of these lines could be subject to collateral requirements, standards of creditworthiness, leverage ratios and other regulatory requirements, among other factors. Derivatives, such as those embedded in long-term repurchase transactions or interest rate swaps, and off-balance sheet exposures, such as recourse, performance bonds or credit card arrangements, are subject to collateral requirements. As their fair value increases, the collateral requirements may increase, thereby reducing the balance of unpledged securities.

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The importance of the Puerto Rico market for the Corporation is an additional risk factor that could affect its financing activities. In the case of a deterioration in economic and fiscal conditions in Puerto Rico, the credit quality of the Corporation could be affected and result in higher credit costs. The Puerto Rico economy continues to face various challenges, including significant pressures in some sectors of the residential real estate market and the recent impact of two major hurricanes. Refer to the Geographic and Government Risk section of this MD&A for some highlights on the current status of the Puerto Rico economy and the ongoing fiscal crisis.

Factors that the Corporation does not control, such as the economic outlook and credit ratings of its principal markets and regulatory changes, could also affect its ability to obtain funding. In order to prepare for the possibility of such scenario, management has adopted contingency plans for raising financing under stress scenarios when important sources of funds that are usually fully available are temporarily unavailable. These plans call for using alternate funding mechanisms, such as the pledging of certain asset classes and accessing secured credit lines and loan facilities put in place with the FHLB and the FRB.

The credit ratings of Popular’s debt obligations are a relevant factor for liquidity because they impact the Corporation’s ability to borrow in the capital markets, its cost and access to funding sources. Credit ratings are based on the financial strength, credit quality and concentrations in the loan portfolio, the level and volatility of earnings, capital adequacy, the quality of management, geographic concentration in Puerto Rico, the liquidity of the balance sheet, the availability of a significant base of core retail and commercial deposits, and the Corporation’s ability to access a broad array of wholesale funding sources, among other factors.

The Corporation’s banking subsidiaries have historically not used unsecured capital market borrowings to finance its operations, and therefore are less sensitive to the level and changes in the Corporation’s overall credit ratings. At the BHCs, the volume of capital market borrowings has declined substantially, as the non-banking lending businesses that it had historically funded have been shut down and the need to raise unsecured senior debt has been substantially reduced.

Obligations Subject to Rating Triggers or Collateral Requirements

The Corporation’s banking subsidiaries currently do not use borrowings that are rated by the major rating agencies, as these banking subsidiaries are funded primarily with deposits and secured borrowings. The banking subsidiaries had $12 million in deposits at September 30, 2017 that are subject to rating triggers.

Some of the Corporation’s derivative instruments include financial covenants tied to the bank’s well-capitalized status and certain formal regulatory actions. These agreements could require exposure collateralization, early termination or both. The fair value of derivative instruments in a liability position subject to financial covenants approximated $19 thousand at September 30, 2017, with the Corporation providing collateral totaling $95 thousand to cover the net liability position with counterparties on these derivative instruments.

In addition, certain mortgage servicing and custodial agreements that BPPR has with third parties include rating covenants. In the event of a credit rating downgrade, the third parties have the right to require the institution to engage a substitute cash custodian for escrow deposits and/or increase collateral levels securing the recourse obligations. Also, as discussed in Note 21 to the Consolidated Financial Statements, the Corporation services residential mortgage loans subject to credit recourse provisions. Certain contractual agreements require the Corporation to post collateral to secure such recourse obligations if the institution’s required credit ratings are not maintained. Collateral pledged by the Corporation to secure recourse obligations amounted to approximately $51 million at September 30, 2017. The Corporation could be required to post additional collateral under the agreements. Management expects that it would be able to meet additional collateral requirements if and when needed. The requirements to post collateral under certain agreements or the loss of escrow deposits could reduce the Corporation’s liquidity resources and impact its operating results.

Credit Risk

Geographic and Government Risk

The Corporation is exposed to geographic and government risk. The Corporation’s assets and revenue composition by geographical area and by business segment reporting are presented in Note 34 to the Consolidated Financial Statements.

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Commonwealth of Puerto Rico

A significant portion of our financial activities and credit exposure is concentrated in the Commonwealth of Puerto Rico (the “Commonwealth” or “Puerto Rico”), which continues to be in a severe economic and fiscal crisis and was recently significantly impacted by two major hurricanes.

Hurricanes Impact

During the month of September 2017, Hurricanes Irma and Maria, two major hurricanes, caused extensive destruction in Puerto Rico, disrupting the primary market in which BPPR does business. Most relevant, Hurricane Maria made landfall on September 20, 2017, causing severe wind and flood damage to infrastructure, homes and businesses 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 was declared a disaster zone by President Trump due to the impact of the hurricanes, thus making it 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 remain without power, other basic utility and infrastructure remains significantly impacted, and many businesses are operating partially or remain closed. Electronic transactions, a significant source of revenue for BPPR, 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 activity and reduction in the government’s tax revenues.

For a discussion of the impact of the hurricanes on the Corporation’s operations and financial results during the third quarter of 2017, refer to Note 2—Hurricanes impact, on the accompanying financial statements. For additional discussion of risk factors related to the impact of the hurricanes, see Item 1A of this report.

Fiscal and Economic Crisis

Even before the hurricanes, the Commonwealth was experiencing a severe economic and fiscal crisis resulting from continuing economic contraction, persistent and significant budget deficits, a high debt burden, unfunded legacy obligations and lack of access to the capital markets, among other factors. Further, the Commonwealth and several of its public instrumentalities are currently in the process of restructuring their outstanding obligations in proceedings under Titles III and VI of the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”) enacted in June 2016 by the U.S. Federal Government.

The Commonwealth’s deficits were historically covered with bond financings, loans from the Government Development Bank for Puerto Rico (“GDB”) and other extraordinary one-time revenue measures, as well through the deferment of the cost of certain legacy obligations, such as pensions. The Commonwealth’s structural imbalance between revenue and expenditure and unfunded legacy obligations, coupled with the deterioration of GDB’s liquidity situation and the Commonwealth’s recent inability to access the capital markets, resulted in the government becoming unable to pay scheduled debt payments while continuing to provide government services.

Recent Economic Performance

Puerto Rico entered into recession in the fourth quarter of fiscal year 2006. Puerto Rico’s gross national product (GNP) has thereafter contracted in real terms every year between fiscal year 2007 and fiscal year 2016 (inclusive), with the exception of growth of 0.5% in fiscal year 2012 (likely as a result of the large amount of governmental stimulus and deficit spending in that fiscal year). According to Puerto Rico Planning Board estimates released in March 2017 (before the impact of the hurricanes), gross national

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product is projected to further contract by 1.7% and 1.5% during fiscal years 2017 and 2018, respectively. The latest Economic Activity Index issued by GDB, which is an indicator of general economic activity and not a direct measurement of GNP, reflected a 1.49% reduction in the average for fiscal year 2017, compared to the prior fiscal year. During the first month of fiscal year 2018 (July 2017), the Economic Activity Index reflected a 2.1% average reduction compared to the corresponding figure for fiscal year 2017. As discussed above, Hurricanes Irma and Maria have had, at least in the short-term, a material adverse impact on economic activity, that is likely to be reflected in GNP estimates and the Economic Activity Index during fiscal year 2018.

Fiscal and Liquidity Measures

The Commonwealth’s challenges have resulted in a severe fiscal and liquidity crisis, which has forced the government to implement extraordinary measures in order to continue to fund its operational expenses and provide essential services to its residents. Measures taken by the previous administration to tackle the government’s structural budgetary imbalance included (a) reforming the Commonwealth’s retirement systems, (b) enacting Act No. 66-2014, as amended (“Act 66”), a fiscal emergency law that, among other things, froze formula appropriations, salaries and benefits under collective bargaining agreements, (c) implementing certain extraordinary revenue raising measures, including an increase in the sales and use tax (“SUT”) rate from 7% to 11.5% and the implementation of a Commonwealth SUT of 4% with respect to certain business-to-business services, (d) requiring the two largest government retirement systems to pre-fund the payment of retirement benefits to participants, (e) delaying the payment of third-party payables, income tax refunds and amounts due to public corporations, and (f) enacting Puerto Rico Emergency Moratorium and Rehabilitation Act (the “Moratorium Act”), pursuant to which the Commonwealth and certain of its instrumentalities suspended the payment of debt service on their respective debts and retained certain revenues assigned to particular public corporations, redirecting the same for the funding of operational expenses. The Moratorium Act also imposed significant constraints on the operations of GDB, including stringent restrictions on the withdrawal of deposits from GDB (including deposits of the Commonwealth’s municipalities).

The Administration of Governor Ricardo Rosselló Nevares, sworn in January 2017, has also implemented various measures to address the Commonwealth’s fiscal crisis and liquidity problems, including enacting legislation to (a) extend until fiscal year 2021 certain of the provisions of Act 66, (b) extend for 10 years the temporary excise tax imposed by Act No. 154-2010, (c) reduce government expenses (including by reducing payroll related-expenses, such as those related to temporary workers and certain employee benefits), (d) increase government revenues (including by increasing fines and cigarette excise taxes), and (e) authorize the Commonwealth’s central government to use funds from public corporations to cover its liquidity and budgetary needs (including, under certain circumstances, the sales-and-use tax revenue securitized through the Puerto Rico Sales Tax Financing Corporation (“COFINA”)).

On January 29, 2017, the Rosselló Administration enacted Act No. 5-2017 (“Act 5”), also known as the “Financial Emergency and Fiscal Responsibility Act,” to replace certain provisions of the Moratorium Act. Among other things, Act 5, as amended, extended the Governor’s power to suspend debt service obligations until December 31, 2017 (subject to further extensions through executive orders), by prioritizing the payment of essential services over debt service. Act 5 grandfathers executive orders issued pursuant to the Moratorium Act and stipulates that the same shall continue in full force and effect until amended, rescinded or superseded.

The Government has stated that certain of these emergency liquidity measures are unsustainable and have significant negative economic effects. Also, the Commonwealth and the Oversight Board (defined below) have indicated that they expect that these measures will not be sufficient to address the Commonwealth’s fiscal and liquidity needs and that additional extraordinary fiscal and liquidity measures will need to be implemented, including those outlined in the Commonwealth’s fiscal plan (discussed below), to allow the Commonwealth to continue providing essential government services. The Commonwealth and the Oversight Board have indicated that, absent such additional measures, the Commonwealth may experience significant cash shortfalls during fiscal year 2018.

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Recent Defaults

The following entities have not made payments of principal and/or interest in full on certain of their respective bonds and notes as of the date of this report: the Commonwealth, GDB, the Puerto Rico Public Buildings Authority, the Puerto Rico Infrastructure Financing Authority, the Puerto Rico Highways and Transportation Authority (“HTA”), the Puerto Rico Public Finance Corporation, the Convention Center District Authority, the Employees Retirement System (“ERS”), the University of Puerto Rico and the Puerto Rico Electric Power Authority (“PREPA”). Further, pursuant to a court order issued in COFINA’s Title III proceeding (discussed below) on May 30, 2017, funds held by the trustee of the COFINA bonds have not been applied for the payment of such bonds pending the resolution of various disputes in respect of such funds.

Enactment of PROMESA

In general terms, PROMESA seeks to provide the Commonwealth with (i) fiscal and economic discipline through the creation of a seven-member federally-appointed oversight board (the “Oversight Board), (ii) relief from creditor lawsuits through the enactment of a temporary stay on litigation to enforce rights or remedies related to outstanding liabilities of the Commonwealth and its instrumentalities and municipalities (which expired on May 1, 2017) and (iii) two separate processes for the restructuring of the debt obligations of such entities. PROMESA also includes other miscellaneous provisions, including relief from certain wage and hour laws and regulations and provisions for identification and expedited permitting of critical infrastructure projects.

On August 31, 2016, President Obama appointed the seven voting members of the Oversight Board. Pursuant to PROMESA, the Oversight Board shall remain in place until market access is restored and balanced budgets, in accordance with modified accrual accounting, are produced for at least four consecutive years.

The Oversight Board has designated a number of entities as covered entities under PROMESA, including the Commonwealth, all of its public corporations and retirement systems, and all affiliates and subsidiaries of the foregoing. While the Oversight Board has the power to designate any of the Commonwealth’s municipalities as covered entities under PROMESA, it has not done so as of the date hereof. The designation of an entity as a covered entity has various implications under PROMESA. First, it means that the Governor will have to submit such entity’s annual budgets and, if the Oversight Board so requests, its fiscal plans, to the Oversight Board for its review and approval. Second, covered territorial instrumentalities may not issue debt or guarantee, exchange, modify, repurchase, redeem, or enter into similar transactions with respect to their debts without the prior approval of the Oversight Board. Finally, covered entities could also potentially be eligible to use the restructuring procedures provided by PROMESA. The first, Title VI, is a largely out-of-court process through which a government entity and its financial creditors can agree on terms to restructure such entity’s debt. If a supermajority of creditors of a certain category agrees, that agreement can bind all other creditors in such category. The second, Title III, draws on the federal bankruptcy code and provides a court-supervised process for a comprehensive restructuring led by the Oversight Board. Access to either of these procedures is dependent on compliance with certain requirements established in PROMESA, including the approval of the Oversight Board.

The initial stay of litigation imposed by PROMESA expired on May 1, 2017. The automatic stay imposed by PROMESA applied to covered actions against all government instrumentalities in Puerto Rico, even those that may not be immediately within the jurisdiction and purview of the Oversight Board, such as municipalities. An automatic stay is currently in effect, however, with respect to such entities that are subject to ongoing debt restructuring proceedings under Title III of PROMESA.

Fiscal Plans

PROMESA requires the Commonwealth to submit a fiscal plan to the Oversight Board that, among other things, (i) provides for estimates of revenues and expenditures in conformance with agreed accounting standards, (ii) ensures the funding of essential services, (iii) eliminates structural deficits, (iv) provides adequate funding for public pension systems and (v) provides for a debt burden that is sustainable. Furthermore, the fiscal plan must respect the relative lawful priorities or lawful liens under local law.

On February 28, 2017, the Rosselló administration submitted its draft fiscal plan to the Oversight Board. A revised version of such fiscal plan was submitted to the Oversight Board on March 13, 2017, which the Oversight Board certified on such date, after introducing certain amendments. The Commonwealth’s fiscal plan covers, in addition to the Commonwealth itself, various public instrumentalities with outstanding debts payable from taxes, fees or other government revenues (including COFINA).

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The Commonwealth’s fiscal plan, as certified in March 2017, estimates that, absent the revenue enhancing and expense reduction measures set forth therein and assuming the payment of debt service as contracted, the Commonwealth’s 10-year budget gap would reach approximately $66.9 billion. Further, the fiscal plan projects that, assuming the successful implementation of all measures set forth therein, the Commonwealth and the entities covered by the Commonwealth’s fiscal plan will only have $7.8 billion available for the payment of debt service during said 10-year period (compared to $35 billion of contractual debt service) and thus recognizes the need for debt restructuring by the Commonwealth and the instrumentalities covered by said fiscal plan (including COFINA).

The Commonwealth’s fiscal plan does not contemplate a restructuring of the debt of Puerto Rico’s municipalities. The Commonwealth’s fiscal plan contemplates, however, as part of its expense reduction measures, the gradual elimination of budgetary subsidies provided to municipalities. Those subsidies constitute a material portion of the operating revenues of certain municipalities. The Commonwealth’s fiscal plan is publicly available in the Oversight Board’s website.

Pursuant to PROMESA, the Oversight Board has also requested and approved fiscal plans for (i) GDB, (ii) HTA, (iii) PREPA, (iv) the Puerto Rico Aqueduct and Sewer Authority and (v) the Public Corporation for the Supervision and Insurance of Cooperatives. All such fiscal plans reflect that the applicable government entity is unable to pay its financial obligations in full, thus recognizing the need for debt relief. The Oversight Board has also requested fiscal plans from certain other public corporations and instrumentalities, which are subject to ongoing review and have not been approved by the Oversight Board as of the date hereof.

PREPA’s fiscal plan assumes changes to the treatment of the municipal contribution in lieu of taxes, which could result in increased electricity expenses for municipalities. GDB’s fiscal plan contemplates the wind-down of GDB’s operations and the distribution of the cash flows of GDB’s loan portfolio among its creditors (including depositors). Pursuant to the Restructuring Support Agreement, dated May 15, 2017, entered into by and among GDB and a significant portion of its financial creditors (the “GDB RSA”), GDB noteholders and municipal depositors would be eligible to exchange their claims against GDB for one of three tranches of bonds to be issued by a new government entity and which would have varied upfront exchange ratios (ranging from 55% to 75%) and coupon rates (ranging from 3.5% to 7.5%). The new bonds would be payable from payments received in respect of certain assets to be transferred by GDB to such new government entity (consisting largely of municipal loans). The legality of the modification of GDB’s financial obligations outlined in the GDB RSA is currently being challenged in court by certain dissenting municipalities with deposits in GDB.

On August 4, 2017, the Board also released its proposal for achieving a reduction in pension benefit outlays of 10% by fiscal year 2020. The proposal, which would be pursued through a court-approved plan of adjustment under Title III of PROMESA (described below), would reduce pension benefit payments in a progressive manner, so that lower income retirees would see a lower or no reduction in benefits while those with higher benefits would see larger reductions. The Oversight Board estimates that under this proposal, 25% of retirees would see no reductions and the median retiree would receive less than a 10% reduction. The Government, however, has stated that it will seek to protect pension benefit payments to retirees in full.

On October 31, 2017, the Oversight Board requested revised fiscal plans for the Commonwealth and various public corporations to take into account the impact of Hurricanes Irma and Maria. The Oversight Board expects that the revised fiscal plans would be certified by January or February 2018.

Pending Title III and Title VI Proceedings

On May 3, 2017, the Oversight Board, on behalf of the Commonwealth, filed a petition in the U.S. District Court for the District of Puerto Rico to restructure the Commonwealth’s liabilities under Title III of PROMESA. The Oversight Board has subsequently filed analogous petitions with respect to COFINA, ERS, HTA and PREPA. As of the date of this report, the plans of adjustment for said entities’ debts have not been filed. Based on the projection of funds available for debt service under the applicable fiscal plans, however, the restructuring is expected to result in significant discounts on creditor recoveries.

On July 12, 2017, the Oversight Board conditionally authorized GDB to pursue the modification of its financial obligations outlined in the GDB RSA pursuant to Title VI of PROMESA.

Exposure of the Corporation

The credit quality of BPPR’s loan portfolio necessarily reflects, among other things, the general economic conditions in Puerto Rico and other adverse conditions affecting Puerto Rico consumers and businesses. The effects of the prolonged recession are reflected in limited loan demand, an increase in the rate of foreclosures and delinquencies on loans granted in Puerto Rico. While PROMESA provides a process to address the Commonwealth’s fiscal crisis, the length and complexity of the Title III proceedings for the Commonwealth and various of its instrumentalities, the adjustment measures required by the fiscal plans and the impact of Hurricanes Irma and Maria suggest a risk of further significant economic contraction. In addition, the measures taken to address the

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fiscal crisis and those that will have to be taken in the near future will likely affect many of our individual customers and customers’ businesses, which could cause credit losses that adversely affect us and may negatively affect consumer confidence. This, in turn, results in reductions in consumer spending that may also adversely impact our interest and non-interest revenues. If global or local economic conditions worsen or the Government of Puerto Rico and the Oversight Board are unable to adequately manage the Commonwealth’s post-hurricane recovery efforts and pre-existing fiscal crisis, including by consummating an orderly restructuring of its debt obligations while continuing to provide essential services, these adverse effects could continue or worsen in ways that we are not able to predict. For additional discussion of risk factors related to the impact of the hurricanes, see Item 1A of this report.

At September 30, 2017, the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities amounted to $ 484 million, of which approximately $ 482 million is outstanding ($584 million and $529 million, respectively, at December 31, 2016). Deterioration of the Commonwealth’s fiscal and economic situation, including any negative ratings implications, could further adversely affect the value of our Puerto Rico government obligations, resulting in losses to us. Of the amount outstanding, $ 433 million consists of loans and $ 49 million are securities ($459 million and $70 million, respectively, at December 31, 2016). All of the amount outstanding at September 30, 2017 were obligations from various Puerto Rico municipalities. In most cases, these were “general obligations” of a municipality, to which the applicable municipality has pledged its good faith, credit and unlimited taxing power, or “special obligations” of a municipality, to which the applicable municipality has pledged other revenues ($512 million at December 31, 2016). At September 30, 2017, 74% of the Corporation’s exposure to municipal loans and securities was concentrated in the municipalities of San Juan, Guaynabo, Carolina and Bayamón. Although the PROMESA Oversight Board has not designated any of the Commonwealth’s 78 municipalities as covered entities under PROMESA, it may decide to do so in the future. For a more detailed description of the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities, refer to Note 22 – Commitments and contingencies.

During the third quarter of 2017, the Corporation sold all of its COFINA bonds at a gain of approximately $0.1 million. The Corporation had recorded an other-than-temporary impairment charge of $8.3 million in respect of those bonds during the second quarter of 2017 as a result of the filing of the Title III proceeding in respect of COFINA and the non-payment of interest on the COFINA bonds in June 2017 pursuant to a court order issued in such proceeding.

In addition, at September 30, 2017, the Corporation had $391 million in indirect exposure to loans or securities issued or guaranteed by Puerto Rico governmental entities, but whose principal source of repayment are non-governmental entities. In such obligations, the Puerto Rico governmental entity guarantees any shortfall in collateral in the event of borrower default ($406 million at December 31, 2016). These included $313 million in residential mortgage loans guaranteed by the Puerto Rico Housing Finance Authority (“HFA”), an entity that has been designated as a covered entity under PROMESA (December 31, 2016 - $326 million). These mortgage loans are secured by the underlying properties and the HFA guarantee serves to cover shortfalls in collateral in the event of a borrower default. Although the Governor is currently authorized by local legislation to impose a temporary moratorium on the financial obligations of HFA, he has not exercised this power as of the date hereof. Also, the Corporation had $43 million in Puerto Rico housing bonds issued by HFA, which are secured by second mortgage loans on Puerto Rico residential properties, $6 million in pass-through securities that have been economically defeased and refunded and for which collateral including U.S. agencies and Treasury obligations has been escrowed, and $29 million of commercial real estate notes issued by government entities, but payable from rent paid by private parties ($43 million, $6 million and $31 million December 31, 2016, respectively).

BPPR’s commercial loan portfolio also includes loans to private borrowers who are service providers, lessors, suppliers or have other relationships with the government. These borrowers could be negatively affected by the fiscal measures to be implemented to address the Commonwealth’s fiscal crisis and the ongoing Title III proceedings under PROMESA described above. Similarly, BPPR’s mortgage and consumer loan portfolios include loans to government employees which could also be negatively affected by fiscal measures such as employee layoffs or furloughs.

United States Virgin Islands

The Corporation has operations in the United States Virgin Islands (the “USVI”) and has credit exposure to USVI government entities.

The USVI has been experiencing a number of fiscal and economic challenges that could adversely affect the ability of its public corporations and instrumentalities to service their outstanding debt obligations, and was also severely impacted by Hurricanes Irma and María. PROMESA does not apply to the USVI and, as such, there is currently no federal legislation permitting the restructuring of the debts of the USVI and its public corporations and instrumentalities.

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To the extent that the fiscal condition of the USVI continues to deteriorate, the U.S. Congress or the Government of the USVI may enact legislation allowing for the restructuring of the financial obligations of USVI government entities or imposing a stay on creditor remedies, including by making PROMESA applicable to the USVI.

At September 30, 2017, the Corporation’s direct exposure to USVI instrumentalities and public corporations amounted to approximately $82 million, of which approximately $74 million is outstanding. Of the amount outstanding, approximately (i) $43 million represents loans to the West Indian Company LTD, a government-owned company that owns and operates a cruise ship pier and shopping mall complex in St. Thomas, (ii) $14 million represents loans to the Virgin Islands Water and Power Authority, a public corporation of the USVI that operates USVI’s water production and electric generation plants, and (iii) $17 million represents loans to the Virgin Islands Public Finance Authority, a public corporation of the USVI created for the purpose of raising capital for public projects.

U.S. Government

As further detailed in Notes 6 and 7 to the Consolidated Financial Statements, a substantial portion of the Corporation’s investment securities represented exposure to the U.S. Government in the form of U.S. Government sponsored entities, as well as agency mortgage-backed and U.S. Treasury securities. In addition, $896 million of residential mortgages and $87 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at September 30, 2017.

Non-Performing Assets

Non-performing assets include primarily past-due loans that are no longer accruing interest, renegotiated loans, and real estate property acquired through foreclosure. A summary, including certain credit quality metrics, is presented in Table 21.

On June 30, 2015, the shared-loss arrangement under the commercial loss share agreement with the FDIC related to the loans acquired from Westernbank as part of the FDIC assisted transaction in 2010 expired. Loans and OREO’s that remain covered under the terms of the single-family loss share agreement, which expires on June 30, 2020, continue to be presented as covered assets in the accompanying tables and credit metrics as of September 30, 2017.

Because of the application of ASC Subtopic 310-30 to the Westernbank acquired loans and the loss protection provided by the FDIC which limits the risks on the covered loans, the Corporation has determined to provide certain quality metrics in this MD&A that exclude such covered loans to facilitate the comparison between loan portfolios and across periods. The Corporation believes the inclusion of these loans in certain asset quality ratios in the numerator or denominator (or both) would result in a distortion to these ratios. In addition, because charge-offs related to the acquired loans are recorded against the non-accretable balance, the net charge-off ratio including the acquired loans is lower for the single-family loan portfolios which includes covered loans. The inclusion of these loans in the asset quality ratios could result in a lack of comparability across periods, and could negatively impact comparability with other portfolios that were not impacted by acquisition accounting. The Corporation believes that the presentation of asset quality measures, excluding covered loans and related amounts from both the numerator and denominator, provides a better perspective into underlying trends related to the quality of its loan portfolio.

Certain of the asset quality measures were impacted by the damages caused by the hurricanes, which led to higher delinquencies and nonperforming loans, as payment channels, collection efforts and loss mitigation operations were interrupted and mainly unavailable for the last 10 days of the quarter. A provision was made to the allowance for loans losses based on management’s best estimate of the impact of the hurricanes on the ability of the borrowers to repay their loans, in light of an already fragile economy in Puerto Rico prior to the hurricanes. Management will continue to carefully assess the exposure of the portfolios to hurricane-related factors, economic trends, and their effect on credit quality. The U.S. operations continued to reflect positive results with strong growth and favorable credit quality metrics.

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In response to the hurricanes’ effects on its customers, the Corporation implemented a 90-day moratorium, equal to three months of suspended payments for consumer and certain commercial borrowers that were current or less than ninety days past due in their payments as of September 30, 2017. As a result of the moratorium, eligible loans for which the borrower takes advantage of the moratorium do not affect the asset quality measures as the suspended payments are not deemed to be delinquent and the Corporation continues to accrue interest on these loans.

Non-performing assets, excluding covered loans and OREO, increased by $24 million from December 31, 2016, mostly related to higher P.R. mortgage NPLs of $20 million, affected by disruptions to payment channels, collections and loss mitigation efforts related to hurricane María. Refer to Table 21 which presents the information of non-performing assets.

At September 30, 2017, non-performing loans secured by real estate held-in-portfolio, excluding covered loans, amounted to $471 million in the Puerto Rico operations and $33 million in the U.S. operations. These figures compare to $467 million in the Puerto Rico operations and $21 million in the U.S. operations at December 31, 2016. In addition to the non-performing loans included in Table 21 at September 30, 2017, there were $159 million of non-covered performing loans, mostly commercial loans, which in management’s opinion, are currently subject to potential future classification as non-performing and are considered impaired, compared with $169 million at December 31, 2016.

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Table 21—Non-Performing Assets

	September 30, 2017										December 31, 2016
(Dollars in thousands)	BPPR		BPNA		Popular, Inc.			As a % of loans HIP by category [4]			BPPR		BPNA		Popular, Inc.			As a % of loans HIP by category [4]
Commercial	$	160,043	$	5,309	$	165,352			1.5	%	$	159,655	$	3,693	$	163,348			1.5	%
Construction		99		—		99			—			—		—		—			—
Legacy[1]		—		3,268		3,268			8.7			—		3,337		3,337			7.4
Leasing		2,684		—		2,684			0.4			3,062		—		3,062			0.4
Mortgage		337,967		14,348		352,315			5.4			318,194		11,713		329,907			4.9
Consumer		47,873		14,337		62,210			1.6			51,597		6,664		58,261			1.6
Total non-performing loans held-in-portfolio, excluding covered loans		548,666		37,262		585,928			2.5	%		532,508		25,407		557,915			2.5	%
Non-performing loans held-for-sale [2]		—		—		—						—		—		—
Other real estate owned (“OREO”), excluding covered OREO		174,406		2,322		176,728						177,412		3,033		180,445
Total non-performing assets, excluding covered assets	$	723,072	$	39,584	$	762,656					$	709,920	$	28,440	$	738,360
Covered loans and OREO [3]		24,951		—		24,951						36,044		—		36,044
Total non-performing assets	$	748,023	$	39,584	$	787,607					$	745,964	$	28,440	$	774,404
Accruing loans past due 90 days or more[5] [6]	$	465,127	$	—	$	465,127					$	426,652	$	—	$	426,652
Ratios excluding covered loans:[7]
Non-performing loans held-in-portfolio to loans held-in-portfolio		3.21		0.62		2.53	%					3.10		0.45		2.45	%
Allowance for loan losses to loans held-in-portfolio		3.06		1.48		2.65						2.73		0.75		2.24
Allowance for loan losses to non-performing loans, excluding held-for-sale		95.55		240.48		104.77						87.88		166.56		91.47
Ratios including covered loans:
Non-performing assets to total assets		2.28		0.40		1.85	%					2.51		0.32		2.00	%
Non-performing loans held-in-portfolio to loans held-in-portfolio		3.13		0.62		2.49						3.02		0.45		2.41
Allowance for loan losses to loans held-in-portfolio		3.16		1.48		2.73						2.81		0.75		2.32
Allowance for loan losses to non-performing loans, excluding held-for-sale		100.95		240.48		109.77						92.90		166.56		96.23

HIP = “held-in-portfolio”

[1] 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.

[2] There were no non-performing loans held-for-sale as of September 30, 2017 and December 31, 2016.

[3] The amount consists of $3 million in non-performing covered loans accounted for under ASC Subtopic 310-20 and $22 million in covered OREO as of September 30, 2017 (December 31, 2016—$4 million and $32 million, respectively). It excludes covered loans accounted for under ASC Subtopic 310-30 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.

[4] Loans held-in-portfolio used in the computation exclude $525 million in covered loans at September 30, 2017 (December 31, 2016 —$573 million).

[5] The carrying value of loans accounted for under ASC Sub-topic 310-30 that are contractually 90 days or more past due was $251 million at September 30, 2017 (December 31, 2016—$282 million). This amount is excluded from the above table as the loans’ accretable yield interest recognition is independent from the underlying contractual loan delinquency status.

[6] 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 insured by FHA or guaranteed by the VA that are no longer accruing interest as of September 30, 2017 (December 31, 2016—$181 million). Furthermore, the Corporation has approximately $57 million in reverse mortgage loans 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 (December 31, 2016—$68 million).

[7] These asset quality ratios have been adjusted to remove the impact of covered loans and covered foreclosed property. Appropriate adjustments to the numerator and denominator have been reflected in the calculation of these ratios. Management believes the inclusion of acquired loans in certain asset quality ratios that include non-performing assets, past due loans or net charge-offs in the numerator and denominator results in distortions of these ratios and they may not be comparable to other periods presented or to other portfolios that were not impacted by purchase accounting.

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Accruing loans past due 90 days or more are composed primarily of credit cards, residential mortgage loans insured by FHA / VA, 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 to purchase, 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.

The Corporation’s commercial loan portfolio secured by real estate (“CRE”), excluding covered loans, amounted to $7.4 billion at September 30, 2017, of which $2.0 billion was secured with owner occupied properties, compared with $7.2 billion and $2.0 billion, respectively, at December 31, 2016. CRE non-performing loans, excluding covered loans, amounted to $118 million at September 30, 2017, compared with $130 million at December 31, 2016. The CRE non-performing loans ratios for the BPPR and BPNA segments were 2.63% and 0.12%, respectively, at September 30, 2017, compared with 2.83% and 0.07%, respectively, at December 31, 2016.

For the quarter ended September 30, 2017, total non-performing loan inflows, excluding consumer loans, increased by $5 million, or 5%, when compared to the inflows for the same quarter in 2016. Inflows of non-performing loans held-in-portfolio at the BPPR segment increased by $4 million, or 4%, compared to the inflows for the third quarter of 2016, mostly related to higher mortgage inflows of $10 million, impacted by Hurricane María. Inflows of non-performing loans held-in-portfolio at BPNA remained flat when compared to the same quarter in 2016.

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Table 22—Activity in Non-Performing Loans Held-in-Portfolio (Excluding Consumer and Covered Loans)

	For the quarter ended September 30, 2017									For the nine months ended September 30, 2017
(Dollars in thousands)	BPPR			BPNA			Popular, Inc.			BPPR			BPNA			Popular, Inc.
Beginning balance	$	469,505		$	19,641		$	489,146		$	477,849		$	18,743		$	496,592
Plus:
New non-performing loans		105,498			9,376			114,874			316,638			21,615			338,253
Advances on existing non-performing loans		—			64			64			—			123			123
Less:
Non-performing loans transferred to OREO		(9,484	)		—			(9,484	)		(38,921	)		(46	)		(38,967	)
Non-performing loans charged-off		(14,451	)		(129	)		(14,580	)		(62,339	)		(859	)		(63,198	)
Loans returned to accrual status / loan collections		(52,959	)		(6,027	)		(58,986	)		(195,118	)		(16,651	)		(211,769	)
Ending balance NPLs	$	498,109		$	22,925		$	521,034		$	498,109		$	22,925		$	521,034

Table 23—Activity in Non-Performing Loans Held-in-Portfolio (Excluding Consumer and Covered Loans)

	For the quarter ended September 30, 2016									For the nine months ended September 30, 2016
(Dollars in thousands)	BPPR			BPNA			Popular, Inc.			BPPR			BPNA			Popular, Inc.
Beginning balance	$	498,665		$	21,360		$	520,025		$	519,385		$	21,101		$	540,486
Plus:
New non-performing loans		101,010			8,369			109,379			307,456			40,966			348,422
Advances on existing non-performing loans		—			299			299			—			310			310
Reclassification from construction loans to commercial loans		2,436			—			2,436			2,436			—			2,436
Less:
Non-performing loans transferred to OREO		(16,621	)		(428	)		(17,049	)		(41,590	)		(873	)		(42,463	)
Non-performing loans charged-off		(18,384	)		(2,281	)		(20,665	)		(60,207	)		(3,376	)		(63,583	)
Loans returned to accrual status / loan collections		(66,277	)		(5,915	)		(72,192	)		(226,651	)		(36,724	)		(263,375	)
Reclassification from construction loans to commercial loans		(2,436	)		—			(2,436	)		(2,436	)		—			(2,436	)
Ending balance NPLs	$	498,393		$	21,404		$	519,797		$	498,393		$	21,404		$	519,797

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Table 24—Activity in Non-Performing Commercial Loans Held-in-Portfolio (Excluding Covered Loans)

	For the quarter ended September 30, 2017									For the nine months ended September 30, 2017
(Dollars in thousands)	BPPR			BPNA			Popular, Inc.			BPPR			BPNA			Popular, Inc.
Beginning balance	$	162,863		$	4,001		$	166,864		$	159,655		$	3,693		$	163,348
Plus:
New non-performing loans		8,085			4,027			12,112			55,494			6,409			61,903
Advances on existing non-performing loans		—			—			—			—			4			4
Less:
Non-performing loans transferred to OREO		(76	)		—			(76	)		(6,028	)		—			(6,028	)
Non-performing loans charged-off		(3,587	)		(49	)		(3,636	)		(27,924	)		(117	)		(28,041	)
Loans returned to accrual status / loan collections		(7,242	)		(2,670	)		(9,912	)		(21,154	)		(4,680	)		(25,834	)
Ending balance NPLs	$	160,043		$	5,309		$	165,352		$	160,043		$	5,309		$	165,352

Table 25—Activity in Non-Performing Commercial Loans Held-in-Portfolio (Excluding Covered Loans)

	For the quarter ended September 30, 2016									For the nine months ended September 30, 2016
(Dollars in thousands)	BPPR			BPNA			Popular, Inc.			BPPR			BPNA			Popular, Inc.
Beginning balance	$	172,584		$	3,031		$	175,615		$	177,902		$	3,914		$	181,816
Plus:
New non-performing loans		12,520			1,609			14,129			60,206			18,927			79,133
Advances on existing non-performing loans		—			164			164			—			173			173
Reclassification from construction loans to commercial loans		2,436			—			2,436			2,436			—			2,436
Less:
Non-performing loans transferred to OREO		(2,223	)		—			(2,223	)		(5,141	)		—			(5,141	)
Non-performing loans charged-off		(7,918	)		(141	)		(8,059	)		(28,086	)		(776	)		(28,862	)
Loans returned to accrual status / loan collections		(10,352	)		(1,139	)		(11,491	)		(40,270	)		(18,714	)		(58,984	)
Ending balance NPLs	$	167,047		$	3,524		$	170,571		$	167,047		$	3,524		$	170,571

Table 26—Activity in Non-Performing Construction Loans Held-in-Portfolio (Excluding Covered Loans)

	For the quarter ended September 30, 2017						For the nine months ended September 30, 2017
(Dollars in thousands)	BPPR		BPNA		Popular, Inc.		BPPR		BPNA		Popular, Inc.
Beginning balance	$	—	$	—	$	—	$	—	$	—	$	—
Plus:
New non-performing loans		99		—		99		99		—		99
Ending balance NPLs	$	99	$	—	$	99	$	99	$	—	$	99

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Table 27—Activity in Non-Performing Construction Loans Held-in-Portfolio (Excluding Covered Loans)

	For the quarter ended September 30, 2016									For the nine months ended September 30, 2016
(Dollars in thousands)	BPPR			BPNA			Popular, Inc.			BPPR			BPNA			Popular, Inc.
Beginning balance	$	2,423		$	100		$	2,523		$	3,550		$	—		$	3,550
Plus:
New non-performing loans		1,150			—			1,150			1,543			671			2,214
Less:
Non-performing loans transferred to OREO		—			—			—			(304	)		—			(304	)
Non-performing loans charged-off		(985	)		—			(985	)		(1,103	)		—			(1,103	)
Loans returned to accrual status / loan collections		(152	)		(100	)		(252	)		(1,250	)		(671	)		(1,921	)
Reclassification form construction loans to commercial loans		(2,436	)		—			(2,436	)		(2,436	)		—			(2,436	)
Ending balance NPLs	$	—		$	—		$	—		$	—		$	—		$	—

Table 28—Activity in Non-Performing Mortgage Loans Held-in-Portfolio (Excluding Covered Loans)

	For the quarter ended September 30, 2017									For the nine months ended September 30, 2017
(Dollars in thousands)	BPPR			BPNA			Popular, Inc.			BPPR			BPNA			Popular, Inc.
Beginning balance	$	306,642		$	12,280		$	318,922		$	318,194		$	11,713		$	329,907
Plus:
New non-performing loans		97,314			5,349			102,663			261,045			15,092			276,137
Less:
Non-performing loans transferred to OREO		(9,408	)		—			(9,408	)		(32,893	)		(46	)		(32,939	)
Non-performing loans charged-off		(10,864	)		(66	)		(10,930	)		(34,415	)		(715	)		(35,130	)
Loans returned to accrual status / loan collections		(45,717	)		(3,215	)		(48,932	)		(173,964	)		(11,696	)		(185,660	)
Ending balance NPLs	$	337,967		$	14,348		$	352,315		$	337,967		$	14,348		$	352,315

Table 29—Activity in Non-Performing Mortgage loans Held-in-Portfolio (Excluding Covered Loans)

	For the quarter ended September 30, 2016									For the nine months ended September 30, 2016
(Dollars in thousands)	BPPR			BPNA			Popular, Inc.			BPPR			BPNA			Popular, Inc.
Beginning balance	$	323,658		$	14,390		$	338,048		$	337,933		$	13,538		$	351,471
Plus:
New non-performing loans		87,340			6,715			94,055			245,707			20,167			265,874
Less:
Non-performing loans transferred to OREO		(14,398	)		(384	)		(14,782	)		(36,145	)		(829	)		(36,974	)
Non-performing loans charged-off		(9,481	)		(1,994	)		(11,475	)		(31,018	)		(2,400	)		(33,418	)
Loans returned to accrual status / loan collections		(55,773	)		(4,297	)		(60,070	)		(185,131	)		(16,046	)		(201,177	)
Ending balance NPLs	$	331,346		$	14,430		$	345,776		$	331,346		$	14,430		$	345,776

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Allowance for Loan Losses

Non-Covered Loan Portfolio

The allowance for loan losses, which represents management’s estimate of credit losses inherent in the loan portfolio, is maintained at a sufficient level to provide for estimated credit losses on individually evaluated loans as well as estimated credit losses inherent in the remainder of the loan portfolio. The Corporation’s management evaluates the adequacy of the allowance for loan losses on a quarterly basis. In this evaluation, management considers current economic conditions and the resulting impact on Popular Inc.’s loan portfolio, the composition of the portfolio by loan type and risk characteristics, historical loss experience, results of periodic credit reviews of individual loans, regulatory requirements and loan impairment measurement, among other factors.

The Corporation must rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown, such as economic developments affecting specific customers, industries or markets. Other factors that can affect management’s estimates are the years of historical data when estimating losses, changes in underwriting standards, financial accounting standards and loan impairment measurements, among others. Changes in the financial condition of individual borrowers, in economic conditions, in historical loss experience and in the condition of the various markets in which collateral may be sold may all affect the required level of the allowance for loan losses. Consequently, the business financial condition, liquidity, capital and results of operations could also be affected. Refer to Note 9 and the Critical Accounting Policies / Estimates section of this MD&A for a description of the Corporation’s allowance for loans losses methodology.

Refer to the following table for a summary of the activity in the allowance for loan losses and selected loan losses statistics for the quarters and nine months ended September 30, 2017 and 2016.

180

Table 30—Allowance for Loan Losses and Selected Loan Losses Statistics - Quarterly Activity    

	Quarters ended September 30,
	2017			2017		2017			2016		2016		2016
(Dollars in thousands)	Non-covered loans			Covered loans		Total			Non-covered loans		Covered loans		Total
Balance at beginning of period	$	509,206		$	30,808	$	540,014		$	518,139	$	30,581	$	548,720
Provision for loan losses		157,659			3,100		160,759			42,594		750		43,344
		666,865			33,908		700,773			560,733		31,331		592,064
Charged-offs:
BPPR
Commercial		5,573			—		5,573			13,799		—		13,799
Construction		(9	)		—		(9	)		951		—		951
Leases		1,733			—		1,733			1,429		—		1,429
Mortgage		17,460			863		18,323			16,002		973		16,975
Consumer		31,793			24		31,817			25,470		411		25,881
Total BPPR charged-offs		56,550			887		57,437			57,651		1,384		59,035
BPNA
Commercial		4,553			—		4,553			155		—		155
Legacy[1]		86			—		86			145		—		145
Mortgage		113			—		113			2,022		—		2,022
Consumer		4,957			—		4,957			2,884		—		2,884
Total BPNA charged-offs		9,709			—		9,709			5,206		—		5,206
Popular, Inc.
Commercial		10,126			—		10,126			13,954		—		13,954
Construction		(9	)		—		(9	)		951		—		951
Leases		1,733			—		1,733			1,429		—		1,429
Legacy		86			—		86			145		—		145
Mortgage		17,573			863		18,436			18,024		973		18,997
Consumer		36,750			24		36,774			28,354		411		28,765
Total charge-offs		66,259			887		67,146			62,857		1,384		64,241
Recoveries:
BPPR
Commercial		6,011			—		6,011			10,600		—		10,600
Construction		41			—		41			65		—		65
Leases		238			—		238			613		—		613
Mortgage		389			32		421			765		312		1,077
Consumer		4,570			4		4,574			12,649		3		12,652
Total BPPR recoveries		11,249			36		11,285			24,692		315		25,007
BPNA
Commercial		271			—		271			1,328		—		1,328
Legacy[1]		383			—		383			665		—		665
Mortgage		287			—		287			80		—		80
Consumer		1,060			—		1,060			952		—		952
Total BPNA recoveries		2,001			—		2,001			3,025		—		3,025
Popular, Inc.
Commercial		6,282			—		6,282			11,928		—		11,928
Construction		41			—		41			65		—		65
Leases		238			—		238			613		—		613
Legacy		383			—		383			665		—		665
Mortgage		676			32		708			845		312		1,157
Consumer		5,630			4		5,634			13,601		3		13,604
Total recoveries		13,250			36		13,286			27,717		315		28,032

181

Net loans charged-offs (recovered):
BPPR
Commercial		(438	)		—		(438	)		3,199			—		3,199
Construction		(50	)		—		(50	)		886			—		886
Leases		1,495			—		1,495			816			—		816
Mortgage		17,071			831		17,902			15,237			661		15,898
Consumer		27,223			20		27,243			12,821			408		13,229
Total BPPR net loans charged-offs (recovered)		45,301			851		46,152			32,959			1,069		34,028
BPNA
Commercial		4,282			—		4,282			(1,173	)		—		(1,173	)
Legacy[1]		(297	)		—		(297	)		(520	)		—		(520	)
Mortgage		(174	)		—		(174	)		1,942			—		1,942
Consumer		3,897			—		3,897			1,932			—		1,932
Total BPNA net loans charged-offs (recovered)		7,708			—		7,708			2,181			—		2,181
Popular, Inc.
Commercial		3,844			—		3,844			2,026			—		2,026
Construction		(50	)		—		(50	)		886			—		886
Leases		1,495			—		1,495			816			—		816
Legacy		(297	)		—		(297	)		(520	)		—		(520	)
Mortgage		16,897			831		17,728			17,179			661		17,840
Consumer		31,120			20		31,140			14,753			408		15,161
Total net loans charged-offs (recovered)		53,009			851		53,860			35,140			1,069		36,209
Balance at end of period	$	613,856		$	33,057	$	646,913		$	525,593		$	30,262	$	555,855
Specific ALLL	$	115,191		$	—	$	115,191		$	129,057		$	—	$	129,057
General ALLL	$	498,665		$	33,057	$	531,722		$	396,536		$	30,262	$	426,798
Ratios:
Annualized net charge-offs to average loans held-in-portfolio		0.92	%				0.92	%		0.63	%				0.63	%
Provision for loan losses to net charge-offs[3]		2.97	x				2.98	x		1.21	x				1.20	x

[1] 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.

[2] Net recoveries are related to loans sold or reclassified to held-for-sale.

[3] Excluding provision for loan losses and net recoveries related to loans sold.

182

Table 31—Allowance for Loan Losses and Selected Loan Losses Statistics - Year-to-date Activity

	Nine months ended September 30,
	2017		2017		2017		2016		2016			2016
(Dollars in thousands)	Non-covered loans		Covered loans		Total		Non-covered loans		Covered loans			Total
Balance at beginning of period	$	510,301	$	30,350	$	540,651	$	502,935	$	34,176		$	537,111
Provision (reversal) for loan losses		249,681		4,255		253,936		130,202		(1,551	)		128,651
		759,982		34,605		794,587		633,137		32,625			665,762
Charged-offs:
BPPR
Commercial		38,219		—		38,219		47,256		—			47,256
Construction		3,646		—		3,646		3,026		—			3,026
Leases		5,030		—		5,030		4,435		—			4,435
Mortgage		53,936		2,700		56,636		45,924		3,078			49,002
Consumer		81,607		134		81,741		78,860		17			78,877
Total BPPR charged-offs		182,438		2,834		185,272		179,501		3,095			182,596
BPNA
Commercial		4,774		—		4,774		1,040		—			1,040
Legacy[1]		669		—		669		388		—			388
Mortgage		1,064		—		1,064		2,595		—			2,595
Consumer		14,476		—		14,476		8,194		—			8,194
Total BPNA charged-offs		20,983		—		20,983		12,217		—			12,217
Popular, Inc.
Commercial		42,993		—		42,993		48,296		—			48,296
Construction		3,646		—		3,646		3,026		—			3,026
Leases		5,030		—		5,030		4,435		—			4,435
Legacy		669		—		669		388		—			388
Mortgage		55,000		2,700		57,700		48,519		3,078			51,597
Consumer		96,083		134		96,217		87,054		17			87,071
Total charge-offs		203,421		2,834		206,255		191,718		3,095			194,813
Recoveries:
BPPR
Commercial		24,274		—		24,274		35,706		—			35,706
Construction		6,210		—		6,210		5,055		—			5,055
Leases		1,284		—		1,284		1,547		—			1,547
Mortgage		2,557		1,279		3,836		2,527		722			3,249
Consumer		15,612		7		15,619		24,838		10			24,848
Total BPPR recoveries		49,937		1,286		51,223		69,673		732			70,405
BPNA
Commercial		1,598		—		1,598		3,273		—			3,273
Legacy[1]		1,752		—		1,752		2,048		—			2,048
Mortgage		880		—		880		407		—			407
Consumer		3,128		—		3,128		3,328		—			3,328
Total BPNA recoveries		7,358		—		7,358		9,056		—			9,056
Popular, Inc.
Commercial		25,872		—		25,872		38,979		—			38,979
Construction		6,210		—		6,210		5,055		—			5,055
Leases		1,284		—		1,284		1,547		—			1,547
Legacy		1,752		—		1,752		2,048		—			2,048
Mortgage		3,437		1,279		4,716		2,934		722			3,656
Consumer		18,740		7		18,747		28,166		10			28,176
Total recoveries		57,295		1,286		58,581		78,729		732			79,461

183

Net loans charged-offs (recovered):
BPPR
Commercial		13,945			—		13,945			11,550			—		11,550
Construction		(2,564	)		—		(2,564	)		(2,029	)		—		(2,029	)
Leases		3,746			—		3,746			2,888			—		2,888
Mortgage		51,379			1,421		52,800			43,397			2,356		45,753
Consumer		65,995			127		66,122			54,022			7		54,029
Total BPPR net loans charged-offs (recovered)		132,501			1,548		134,049			109,828			2,363		112,191
BPNA
Commercial		3,176			—		3,176			(2,233	)		—		(2,233	)
Legacy[1]		(1,083	)		—		(1,083	)		(1,660	)		—		(1,660	)
Mortgage		184			—		184			2,188			—		2,188
Consumer		11,348			—		11,348			4,866			—		4,866
Total BPNA net loans charged-offs (recovered)		13,625			—		13,625			3,161			—		3,161
Popular, Inc.
Commercial		17,121			—		17,121			9,317			—		9,317
Construction		(2,564	)		—		(2,564	)		(2,029	)		—		(2,029	)
Leases		3,746			—		3,746			2,888			—		2,888
Legacy		(1,083	)		—		(1,083	)		(1,660	)		—		(1,660	)
Mortgage		51,563			1,421		52,984			45,585			2,356		47,941
Consumer		77,343			127		77,470			58,888			7		58,895
Total net loans charged-offs (recovered)		146,126			1,548		147,674			112,989			2,363		115,352
Net recoveries[2]		—			—		—			5,445			—		5,445
Balance at end of period	$	613,856		$	33,057	$	646,913		$	525,593		$	30,262	$	555,855
Specific ALLL	$	115,191		$	—	$	115,191		$	129,057		$	—	$	129,057
General ALLL	$	498,665		$	33,057	$	531,722		$	396,536		$	30,262	$	426,798
Ratios:
Annualized net charge-offs to average loans held-in-portfolio		0.85	%				0.84	%		0.67	%				0.67	%
Provision for loan losses to net charge-offs[3]		1.71	x				1.72	x		1.15	x				1.12	x

[1] 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.

[2] Net recoveries are related to loans sold.

[3] Excluding provision for loan losses and net recoveries related to loans sold or reclassified to held-for-sale.

The following table presents annualized net charge-offs to average loans held-in-portfolio (“HIP”) for the non-covered portfolio by loan category for the quarters and nine months ended September 30, 2017 and 2016.

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Table 32—Annualized Net Charge-offs (Recoveries) to Average Loans Held-in-Portfolio (Non-covered loans)    

	Quarters ended
	September 30, 2017									September 30, 2016
	BPPR			BPNA			Popular Inc.			BPPR			BPNA			Popular Inc.
Commercial		(0.02	)%		0.43	%		0.14	%		0.18	%		(0.15	)%		0.08	%
Construction		(0.22	)		—			(0.02	)		3.34			—			0.48
Leases		0.80			—			0.80			0.49			—			0.49
Legacy		—			(3.11	)		(3.11	)		—			(4.26	)		(4.26	)
Mortgage		1.19			(0.10	)		1.04			1.04			0.94			1.03
Consumer		3.31			3.08			3.28			1.55			1.41			1.53
Total annualized net charge-offs to average loans held-in-portfolio		1.07	%		0.52	%		0.92	%		0.77	%		0.17	%		0.63	%
	Nine months ended
	September 30, 2017									September 30, 2016
	BPPR			BPNA			Popular Inc.			BPPR			BPNA			Popular Inc.
Commercial		0.26	%		0.11	%		0.21	%		0.21	%		(0.10	)%		0.12	%
Construction		(3.77	)		—			(0.42	)		(2.52	)		—			(0.38	)
Leases		0.69			—			0.69			0.59			—			0.59
Legacy		—			(3.59	)		(3.59	)		—			(4.11	)		(4.11	)
Mortgage		1.18			0.03			1.05			0.98			0.34			0.90
Consumer		2.71			3.10			2.76			2.17			1.21			2.04
Total annualized net charge-offs to average loans held-in-portfolio		1.04	%		0.31	%		0.85	%		0.85	%		0.08	%		0.67	%

185

Table 33—Composition of ALLL

	September 30, 2017
(Dollars in thousands)	Commercial			Construction			Legacy [2]			Leasing			Mortgage			Consumer			Total[3]
Specific ALLL	$	40,863		$	—		$	—		$	450		$	51,421		$	22,457		$	115,191
Impaired loans [1]	$	328,704		$	—		$	—		$	1,468		$	519,228		$	105,387		$	954,787
Specific ALLL to impaired loans [1]		12.43	%		—	%		—	%		30.65	%		9.90	%		21.31	%		12.06	%
General ALLL	$	228,106		$	8,822		$	872		$	9,982		$	122,469		$	128,414		$	498,665
Loans held-in-portfolio, excluding impaired loans [1]	$	10,898,391		$	823,325		$	37,508		$	753,413		$	6,010,007		$	3,696,019		$	22,218,663
General ALLL to loans held-in-portfolio, excluding impaired loans [1]		2.09	%		1.07	%		2.32	%		1.32	%		2.04	%		3.47	%		2.24	%
Total ALLL	$	268,969		$	8,822		$	872		$	10,432		$	173,890		$	150,871		$	613,856
Total non-covered loans held-in-portfolio [1]	$	11,227,095		$	823,325		$	37,508		$	754,881		$	6,529,235		$	3,801,406		$	23,173,450
ALLL to loans held-in-portfolio [1]		2.40	%		1.07	%		2.32	%		1.38	%		2.66	%		3.97	%		2.65	%

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

[2] The legacy portfolio is comprised of commercial loans, construction loans and lease financings related to certain lending products exited by the Corporation as part of restructuring efforts carried out in prior years at the BPNA segment.

[3] Excludes covered loans acquired on the Westernbank FDIC-assisted transaction. At September 30, 2017, the general allowance on the covered loans amounted to $33.1 million.

Table 34—Composition of ALLL    

	December 31, 2016
(Dollars in thousands)	Commercial			Construction			Legacy[2]			Leasing			Mortgage			Consumer			Total[3]
Specific ALLL	$	42,375		$	—		$	—		$	535		$	44,610		$	23,857		$	111,377
Impaired loans [1]	$	338,422		$	—		$	—		$	1,817		$	506,364		$	109,454		$	956,057
Specific ALLL to impaired loans [1]		12.52	%		—	%		—	%		29.44	%		8.81	%		21.80	%		11.65	%
General ALLL	$	160,279		$	9,525		$	1,343		$	7,127		$	103,324		$	117,326		$	398,924
Loans held-in-portfolio, excluding impaired loans [1]	$	10,460,085		$	776,300		$	45,293		$	701,076		$	6,189,997		$	3,644,939		$	21,817,690
General ALLL to loans held-in-portfolio, excluding impaired loans [1]		1.53	%		1.23	%		2.97	%		1.02	%		1.67	%		3.22	%		1.83	%
Total ALLL	$	202,654		$	9,525		$	1,343		$	7,662		$	147,934		$	141,183		$	510,301
Total non-covered loans held-in-portfolio [1]	$	10,798,507		$	776,300		$	45,293		$	702,893		$	6,696,361		$	3,754,393		$	22,773,747
ALLL to loans held-in-portfolio [1]		1.88	%		1.23	%		2.97	%		1.09	%		2.21	%		3.76	%		2.24	%

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

[2] The legacy portfolio is comprised of commercial loans, construction loans and lease financings related to certain lending products exited by the Corporation as part of restructuring efforts carried out in prior years at the BPNA segment.

[3] Excludes covered loans acquired on the Westernbank FDIC-assisted transaction. At December 31, 2016, the general allowance on the covered loans amounted to $30.4 million.

Non-covered loans portfolio

At September 30, 2017, the allowance for loan losses, increased by $104 million when compared with December 31, 2016.

The allowance for loan losses at the BPPR segment increased by $56 million to $524 million, or 3.06% of non-covered loans held-in-portfolio when compared to December 31, 2016. The environmental factors reserve, which considers unemployment and deterioration in economic activity, increased by $64 million to $122 million based on management’s best estimate, including the

186

hurricanes’ impact on the loan portfolios using currently available information. While the total reserve was increased to $122 million as the near mid-range loss estimate, management’s loan loss estimate ranged from approximately $70 million to $160 million. Since there is significant uncertainty with respect to the full extent of the impact due to the unprecedented nature of Hurricane Maria, 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. The ratio of the allowance to non-performing loans held-in-portfolio was 95.55% at September 30, 2017, compared with 87.88% at December 31, 2016.

The allowance for loan losses at the BPNA segment increased to $90 million, or 1.48% of loans held-in-portfolio, compared with $42 million, or 0.75% of loans held-in-portfolio, at December 31, 2016, driven by higher reserves for the U.S. Taxi Medallion portfolio. The ratio of the allowance to non-performing loans held-in-portfolio at the BPNA segment was 240.48% at September 30, 2017, compared with 166.56% at December 31, 2016.

Covered loans portfolio

The Corporation’s allowance for loan losses for the covered loan portfolio acquired in the Westernbank FDIC-assisted transaction amounted to $33 million at September 30, 2017, compared to $30 million at December 31, 2016. This increase was mainly due to adjustments in the estimated cash flows of purchased credit impaired loans accounted for under ASC 310-10 to reflect the three-month payment moratorium offered to certain eligible borrowers.

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 Subtopic 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 loans individually evaluated for impairment.

Troubled debt restructurings

The Corporation’s TDR loans, excluding covered loans, amounted to $1.3 billion at September 30, 2017, increasing by $17 million, or 1.4%, from December 31, 2016. TDRs in accruing status increased by $30 million from December 31, 2016 to $1.1 billion at September 30, 2017, due to sustained borrower performance, while non-accruing TDRs decreased by $13 million.

Refer to Note 9 to the consolidated financial statements for additional information on modifications considered troubled debt restructurings, including certain qualitative and quantitative data about troubled debt restructurings performed in the past twelve months.

The tables that follow present the approximate amount and percentage of non-covered commercial impaired loans for which the Corporation relied on appraisals dated more than one year old for purposes of impairment requirements at September 30, 2017 and December 31, 2016.

187

Table 35—Non-Covered Impaired Loans with Appraisals Dated 1 year or Older    

	September 30, 2017
	Total Impaired Loans – Held-in-portfolio (HIP)
(In thousands)	Loan Count		Outstanding Principal Balance		Impaired Loans with Appraisals Over One- Year Old [1]
Commercial		115	$	273,925		13	%

[1] Based on outstanding balance of total impaired loans.     

	December 31, 2016
	Total Impaired Loans – Held-in-portfolio (HIP)
(In thousands)	Loan Count		Outstanding Principal Balance		Impaired Loans with Appraisals Over One- Year Old [1]
Commercial		118	$	283,782		8	%

[1] Based on outstanding balance of total impaired loans.     

ADOPTION OF NEW ACCOUNTING STANDARDS AND ISSUED BUT NOT YET EFFECTIVE ACCOUNTING STANDARDS

Refer to Note 4, “New Accounting Pronouncements” to the Consolidated Financial Statements.

188

Adjusted net income – Non-GAAP Financial Measure

The Corporation prepares its Consolidated Financial Statements using accounting principles generally accepted in the United States (“U.S. GAAP” or the “reported basis”). In addition to analyzing the Corporation’s results on a reported basis, management monitors the “adjusted net income” of the Corporation and excludes the impact of certain transactions on the results of its operations. Adjusted net income is a non-GAAP financial measure. Management believes that the adjusted net income provides meaningful information about the underlying performance of the Corporation’s ongoing operations.

No adjustments are reflected for the quarter and nine months ended September 30, 2017. Tables 36 and 37 present a reconciliation of reported results to Adjusted net income for the quarter and nine months ended September 30, 2016.

Table 36—Adjusted Net Income for the Quarter Ended September 30, 2016 (Non-GAAP)

(Unaudited)
(In thousands)	Pre-tax		Income tax effect			Impact on net income
U.S. GAAP Net income						$	46,810
Non-GAAP adjustments:
FDIC arbitration award[1]		54,924		(10,985	)		43,939
Goodwill impairment charge[2]		3,801		—			3,801
Adjusted net income (Non-GAAP)						$	94,550

^[1]  Represents the arbitration decision denying BPPR’s request for reimbursement in certain shared loss claims. Gains and losses related to assets acquired from Westernbank as part of the FDIC assisted transaction are subject to the capital gains tax rate of 20%.

^[2]  Represents goodwill impairment charge in the Corporation’s securities subsidiary. The securities subsidiary is a limited liability company with a partnership election. Accordingly, its earnings flow through Popular, Inc., holding company, for income tax purposes. Since Popular, Inc. has a full valuation allowance on its deferred tax assets, this results in an effective tax rate of 0%.

Table 37—Adjusted Net Income for the Nine Months Ended September 30, 2016 (Non-GAAP)

(Unaudited)
(In thousands)	Pre-tax			Income tax effect			Impact on net income
U.S. GAAP Net income							$	220,796
Non-GAAP Adjustments:
Impact of EVERTEC restatement [1]		2,173			—			2,173
Bulk sale of WB loans and OREO [2]		(891	)		347			(544	)
FDIC arbitration award[3]		54,924			(10,985	)		43,939
Goodwill impairment charge[4]		3,801			—			3,801
Adjusted net income (Non-GAAP)							$	270,165

^[1]  Represents Popular Inc.’s proportionate share of the cumulative impact of EVERTEC restatement and other corrective adjustments to its financial statements, as disclosed in EVERTEC’s 2015 Annual Report on Form 10K.Due to the preferential tax rate on the income from EVERTEC, the tax effect of this transaction was insignificant to the Corporation.

^[2]  Represents the impact of the bulk sale of Westernbank loans and OREO. Gains and losses related to assets acquired from Westernbank as part of the FDIC assisted transaction are subject to the capital gains tax rate of 20%.

^[3]  Represents the arbitration decision denying BPPR’s request for reimbursement in certain shared loss claims. Gains and losses related to assets acquired from Westernbank as part of the FDIC assisted transaction are subject to the capital gains tax rate of 20%.

^[4]  Represents goodwill impairment charge in the Corporation’s securities subsidiary. The securities subsidiary is a limited liability company with a partnership election. Accordingly, its earnings flow through Popular, Inc., holding company, for income tax purposes. Since Popular, Inc. has a full valuation allowance on its deferred tax assets, this results in an effective tax rate of 0%.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures for the current period can be found in the Market Risk section of this report, which includes changes in market risk exposures from disclosures presented in the Corporation’s 2016 Form 10-K.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Corporation’s management, with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Corporation’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Corporation’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Corporation in the reports that it files or submits under the Exchange Act and such information is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosures.

Internal Control Over Financial Reporting

During the quarter ended September 30, 2017, due to the disruption in power and telecommunications caused by hurricanes Irma and Maria and the resulting inability of certain of the Corporation’s bank branches to communicate electronic data through our network, some automated processes for the recording or capture of certain bank branch transactions were performed manually. Management implemented certain temporary modifications to its internal controls, the effectiveness of which has not been tested, in order to be able to capture and record these transactions. Based on the information currently available, management believes that these changes in the Corporation’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2017 have not materially affected, nor are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Part II - Other Information    

Item 1. Legal Proceedings

For a discussion of Legal Proceedings, see Note 22, “Commitments and Contingencies, to the Consolidated Financial Statements.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed below and under “Part I - Item 1A - Risk Factors” in our 2016 Form 10-K. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Also refer to the discussion in “Part I - Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report for additional information that may supplement or update the discussion of risk factors below and in our 2016 Form 10-K.

There have been no material changes to the risk factors previously disclosed under Item 1A of the Corporation’s 2016 Form 10-K, except for the items listed below.

The risks described in our 2016 Form 10-K and in this report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, liquidity, results of operations and capital position.

Recent hurricanes caused extensive damage in Puerto Rico, our primary market, and in other markets in which we operate, which could have a material adverse effect on such jurisdictions’ economies and could materially adversely affect us.

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During the month of September 2017, Hurricanes Irma and Maria, two major hurricanes, caused extensive destruction in Puerto Rico, the U.S. Virgin Islands (“USVI”) and the British Virgin Islands (“BVI”), disrupting the primary markets in which Banco Popular de Puerto Rico (“BPPR”) does business. Most relevant, Hurricane Maria made landfall on September 20, 2017, causing severe wind and flood damage to infrastructure, homes and businesses 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.

Our credit exposure is concentrated in Puerto Rico, which accounted as of September 30, 2017 for approximately 80% of our year-to-date revenues, 75% of our total assets and 78% of our deposits. As such, our financial condition and results of operations are dependent upon the general trends of the Puerto Rico economy and, in particular, the residential and commercial real estate markets and asset values in Puerto Rico. The deterioration in economic activity and potential impact on asset values resulting from the hurricanes, when added to Puerto Rico’s ongoing fiscal crisis and recession, could materially adversely affect our business, financial condition, liquidity, results of operations and capital position in a manner greater than estimated by management and reflected in our financial statements for the quarter ended September 30, 2017. To a lesser extent, we are also exposed to other areas that were similarly affected by the hurricanes, such as the US and British Virgin Islands, where as of September 30, 2017 we had 2% of our total assets, 3% of our deposits and accounted for approximately 3% of our year-to-date revenues.

Recent hurricanes caused significant disruptions to our BPPR operations and negatively impacted our results of operations as well as certain of the Corporation’s asset quality ratios. Furthermore, while the Corporation has made an allowance for loan losses based on management’s current best estimate of the impact of the hurricanes, there is significant uncertainty with respect to the full extent of the impact of the hurricanes and, as a result, the financial impact on the Corporation’s financial condition and results of operations could be significantly greater.

The recent hurricanes, especially Hurricane Maria, significantly disrupted our operations and negatively impacted certain of the Corporation’s asset quality ratios. Hurricane Maria impacted our branch and ATM network, with certain branches and ATMs still closed to this day. As of November 7, 2017, we have been able to resume operations in approximately 85% of BPPR’s branches and 69% of our ATMs are operational. The lack of power and telecommunications services has also affected the infrastructure necessary to process electronic transactions by our customers. Our ability to reopen our remaining branches and ATMs, as well as the recovery of merchant transaction activity, principally depends on the government’s ability to restore electricity and other basic infrastructure, the timing of which remains uncertain.

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These hurricanes adversely affected our operations and financial performance during the third quarter of 2017, resulting in additional operating expenses (net of insurance receivables) of approximately $9.5 million and an incremental provision for loan losses related to the impact of the hurricanes of approximately $69.9 million. In addition, our non-interest income was lower by $16.4 million when compared to the second quarter of 2017, reflecting, in part, the effect of the disruption caused by the hurricanes in a number of categories, including credit and debit card fees and other service fees and charges.

The effects of the hurricanes continue to adversely affect our operations during the fourth quarter of 2017 as most of the island continues to be without power and our operations, and those of many of our customers, continue to be significantly affected. Although management has made estimates as to the probable losses related to the hurricanes as part of its evaluation of the allowance for loan and lease losses, such estimates involve significant judgment and are made in the context of significant uncertainty as to the impact that the hurricanes will have on the credit quality of our loan portfolios. In affected areas, the value of our loan collateral and the extent to which damages to properties collateralizing loans, among other factors, may further impact those estimates of losses. The extent of the economic impact of the hurricanes is also impossible to determine with certainty at this time as it is partly dependent on the time it takes the government to restore power and other basic infrastructure services and the effects of the potential influx of Federal emergency funds and private insurance proceeds. As management continues to assess the impact of these hurricanes on economic activity, asset values in Puerto Rico, and our customers in particular, our results of operations may continue to be adversely affected, and such adverse impact could be material to us and exceed management’s current estimates.

Measures implemented by Popular to address customer needs as a result of the recent hurricanes, including fee waivers and temporary payment moratorium across most loan portfolios, have had, and are expected to continue to have, a negative impact on results of operations and liquidity.

Given the widespread level of disruption to basic infrastructure and commercial activity in the regions impacted by the passage of hurricanes Irma and Maria, BPPR decided to adopt certain measures to assist its customers in affected areas. These measures include the waiver of certain fees and charges, such as late payment charges and ATM transaction fees and a temporary payment moratorium of three months to eligible borrowers across most loan portfolios during which BPPR will continue to accrue interest on the loans.

These measures, while important to assist in the recovery of our customers post-hurricane, will negatively impact our results of operations and liquidity. For example, the waiver of fees and other charges impacted the Corporation’s revenues for the third quarter and the Corporation estimates that revenues in the fourth quarter will also be negatively impacted by such waivers. The moratorium measures, whose ultimate effect will depend in part on the number of customers who take advantage of such plans, will also impact our liquidity not only due to principal and interest payments that BPPR will not receive during the period, but also as a result of loans serviced by the Corporation where we are required to advance to the owners the payment of principal and interest on a scheduled basis even when such payment is not collected from the borrower.

Management believes that the liquidity impact of these measures will not be significant in light of BPPR’s existing liquidity resources and that BPPR has sufficient liquidity to meet anticipated cash flow obligations. However, no assurance can be given that BPPR will have access to sufficient liquidity sources, or that BPPR may not have to rely on more expensive funding sources, if there were unanticipated demands on its liquidity due to deteriorating market conditions or any future stress event. Furthermore, because of the moratoriums, we will have limited visibility as to the impact of the hurricanes on the financial condition of our retail customers and the credit quality of our loan portfolio until the end of the moratorium period when borrowers have to resume loan repayments.

Recent hurricanes have significantly affected government operations in Puerto Rico and the USVI, which could materially affect the value of our portfolio of government securities and loans to government entities in Puerto Rico and the USVI.

The recent hurricanes have caused significant disruption in economic activity and government operations in Puerto Rico and the USVI. While it is too early to quantify the effects of these hurricanes on the financial condition of the affected government entities, the negative economic and other effects from the hurricanes could result in reduced revenues from taxes and services as well as extraordinary expenses that may not be fully offset by Federal and other extraordinary assistance. We have direct exposure to

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various Puerto Rico and USVI government entities, the majority of which consists of loans to various Puerto Rico municipalities that are principally backed by property tax revenues. Further deterioration of the fiscal situation of the Puerto Rico and USVI government entities to which we have exposure could adversely affect the value of our loans and securities that are directly or indirectly payable from or guaranteed by Puerto Rico and USVI government entities, resulting in losses to us. For a discussion of our exposure to the Puerto Rico and USVI government entities, refer to the Geographic and Government Risk section in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this report.

Recent hurricanes have caused significant disruptions in power and telecommunications in Puerto Rico, which have required us to adopt temporary modifications to our internal controls, the effectiveness of which has not been tested by management in connection with our annual Sarbanes-Oxley Act assessment and which, if determined to be ineffective, could materially affect our internal control over financial reporting. If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.

The loss of power and telecommunications and the resulting inability of certain of the Corporation’s bank branches to communicate electronic data through our network caused some automated processes for the recording or capture of certain bank branch transactions to be performed manually. While management has evaluated and believes that the temporary modifications implemented and mitigating controls in place are adequate to maintain an effective control over financial reporting, management has not yet tested the effectiveness of these modified controls in connection with its annual assessment of the effectiveness of internal control over financial reporting pursuant to the requirements of Section 404 of the Sarbanes-Oxley Act and cannot be certain that the new temporary processes will ensure that we maintain adequate controls over the processing of certain bank transactions. Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. If these controls were deemed ineffective, management or our outside auditors could conclude that there is a deficiency in our internal control over financial reporting, which, until remediated, could result in misstatements to our interim or annual consolidated financial statements and disclosures that may not be prevented or detected on a timely basis. If such deficiency rises to the level of a material weakness in internal control over financial reporting, it would mean that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Any failure to maintain effective internal controls could also cause us to fail to meet our reporting obligations on a timely basis and cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

In April 2004, the Corporation’s shareholders adopted the Popular, Inc. 2004 Omnibus Incentive Plan. The Corporation has to date used shares purchased in the market to make grants under the Plan. As of September 30, 2017 the maximum number of shares of common stock that may have been granted under this plan was 3,500,000.

There were no purchases of Common Stock during the quarter ended September 30, 2017 under the 2004 Omnibus Incentive Plan.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit Index

Exhibit No.	Exhibit Description
12.1	Computation of the ratios of earnings to fixed charges and preferred stock dividends(1)
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)
101.INS XBRL	Instance Document(1)
101.SCH XBRL	Taxonomy Extension Schema Document(1)
101.CAL XBRL	Taxonomy Extension Calculation Linkbase Document(1)
101.DEF XBRL	Taxonomy Extension Definitions Linkbase Document(1)
101.LAB XBRL	Taxonomy Extension Label Linkbase Document(1)
101.PRE XBRL	Taxonomy Extension Presentation Linkbase Document(1)

(1) Included herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	POPULAR, INC.
	(Registrant)
Date: November 9, 2017	By:	/s/ Carlos J. Vázquez
		Carlos J. Vázquez
		Executive Vice President &
		Chief Financial Officer
Date: November 9, 2017	By:	/s/ Jorge J. García
		Jorge J. García
		Senior Vice President & Corporate Comptroller

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