Loans

6 Months Ended

Jun. 30, 2018

Note 7 – Loans

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 2017 Form 10-K.

The Corporation has presented the loans covered by the loss-sharing agreements with the FDIC separately as “covered loans” since the risk of loss was significantly different than those not covered under the loss-sharing agreements, due to the loss protection provided by the FDIC. As discussed in Note 9, on May 22, 2018, the Corporation entered into a Termination Agreement with the FDIC to terminate all loss-share arrangements in connection with the Westernbank FDIC-assisted transaction. As a result of the Termination Agreement, assets that were covered by the loss share agreement, including covered loans in the amount of approximately $514.6 million as of March 31, 2018, were reclassified as non-covered. The Corporation now recognizes entirely all future credit losses, expenses, gains, and recoveries related to the formerly covered assets with no offset due to or from the FDIC.

During the quarter and six months ended June 30, 2018, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $177 million and $333 million, respectively and consumer loans of $53 million and $105 million, respectively. During the quarter and six months ended June 30, 2017, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $124 million and $260 million, respectively; consumer loans of $108 million and $150 million, respectively; and leases of $2 million, for the six months ended June 30, 2017.

The Corporation performed whole-loan sales involving approximately $16 million and $26 million of residential mortgage loans during the quarter and six months ended June 30, 2018, respectively (June 30, 2017 - $26 million and $54 million, respectively). Also, the Corporation securitized approximately $97 million and $210 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter and six months ended June 30, 2018, respectively (June 30, 2017 - $136 million and $283 million, respectively). Furthermore, the Corporation securitized approximately $20 million and $46 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter and six months ended June 30, 2018, respectively (June 30, 2017 - $37 million and $65 million, respectively).

Delinquency status

The following table presents the composition of loans held-in-portfolio (“HIP”), net of unearned income, by past due status, and by loan class including those that are in non-performing status or that accruing interest but are past due 90 days or more at June 30, 2018 and December 31, 2017

June 30, 2018
Puerto Rico

			Past due											Past due 90 days or more
		30-59		60-89		90 days		Total						Non-accrual			Accruing
(In thousands)		days		days		or more		past due		Current		Loans HIP		loans		loans^[1]
Commercial multi-family		$	331	$	-	$	2,274	$	2,605	$	144,860	$	147,465	$	790	$	-
Commercial real estate:
	Non-owner occupied		3,703		126,456		34,861		165,020		2,148,452		2,313,472		27,506		-
	Owner occupied		28,402		9,722		112,786		150,910		1,584,275		1,735,185		86,000		-
Commercial and industrial			3,308		3,004		49,058		55,370		2,796,106		2,851,476		48,485		573
Construction			-		-		2,559		2,559		94,616		97,175		2,559		-
Mortgage			308,128		132,591		1,389,963		1,830,682		4,812,444		6,643,126		373,257		871,011
Leasing			6,392		2,008		3,696		12,096		860,002		872,098		3,696		-
Consumer:
	Credit cards		9,997		7,700		29,024		46,721		1,032,813		1,079,534		-		29,024
	Home equity lines of credit		54		176		349		579		5,044		5,623		12		337
	Personal		11,757		8,066		21,051		40,874		1,198,261		1,239,135		19,910		32
	Auto		24,984		7,377		12,855		45,216		869,847		915,063		12,855		-
	Other		169		143		15,264		15,576		132,189		147,765		14,768		496
Total		$	397,225	$	297,243	$	1,673,740	$	2,368,208	$	15,678,909	$	18,047,117	$	589,838	$	901,473
[1]	Loans HIP of $183 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.

June 30, 2018
Popular U.S.

			Past due											Past due 90 days or more
		30-59		60-89		90 days		Total						Non-accrual			Accruing
(In thousands)		days		days		or more		past due		Current		Loans HIP		loans		loans^[1]
Commercial multi-family		$	633	$	19	$	-	$	652	$	1,319,746	$	1,320,398	$	-	$	-
Commercial real estate:
	Non-owner occupied		-		10,852		365		11,217		1,865,077		1,876,294		365		-
	Owner occupied		1,587		1,918		1,435		4,940		279,742		284,682		1,435		-
Commercial and industrial			222		1,661		82,738		84,621		976,400		1,061,021		368		-
Construction			4,428		-		17,901		22,329		779,819		802,148		17,901		-
Mortgage			1,051		3,804		11,398		16,253		717,332		733,585		11,398		-
Legacy			471		15		3,663		4,149		25,101		29,250		3,663		-
Consumer:
	Credit cards		1		-		12		13		56		69		12		-
	Home equity lines of credit		1,287		425		15,900		17,612		140,181		157,793		15,900		-
	Personal		2,075		1,666		2,318		6,059		289,889		295,948		2,318		-
	Other		-		-		1		1		210		211		1		-
Total		$	11,755	$	20,360	$	135,731	$	167,846	$	6,393,553	$	6,561,399	$	53,361	$	-
[1]	Loans HIP of $82 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.

June 30, 2018
Popular, Inc.

			Past due											Past due 90 days or more
		30-59		60-89		90 days		Total						Non-accrual			Accruing
(In thousands)		days		days		or more		past due		Current		Loans HIP^{[3] [4]}		loans		loans^[5]
Commercial multi-family		$	964	$	19	$	2,274	$	3,257	$	1,464,606	$	1,467,863	$	790	$	-
Commercial real estate:
	Non-owner occupied		3,703		137,308		35,226		176,237		4,013,529		4,189,766		27,871		-
	Owner occupied		29,989		11,640		114,221		155,850		1,864,017		2,019,867		87,435		-
Commercial and industrial			3,530		4,665		131,796		139,991		3,772,506		3,912,497		48,853		573
Construction			4,428		-		20,460		24,888		874,435		899,323		20,460		-
Mortgage^[1]			309,179		136,395		1,401,361		1,846,935		5,529,776		7,376,711		384,655		871,011
Leasing			6,392		2,008		3,696		12,096		860,002		872,098		3,696		-
Legacy^[2]			471		15		3,663		4,149		25,101		29,250		3,663		-
Consumer:
	Credit cards		9,998		7,700		29,036		46,734		1,032,869		1,079,603		12		29,024
	Home equity lines of credit		1,341		601		16,249		18,191		145,225		163,416		15,912		337
	Personal		13,832		9,732		23,369		46,933		1,488,150		1,535,083		22,228		32
	Auto		24,984		7,377		12,855		45,216		869,847		915,063		12,855		-
	Other		169		143		15,265		15,577		132,399		147,976		14,769		496
Total		$	408,980	$	317,603	$	1,809,471	$	2,536,054	$	22,072,462	$	24,608,516	$	643,199	$	901,473

[1]	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.
[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 Popular U.S. segment.
[3]	Loans held-in-portfolio are net of $144 million in unearned income and exclude $74 million in loans held-for-sale.
[4]	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 $0.4 billion serve as collateral for public funds.
[5]	Loans HIP of $265 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.

December 31, 2017
Puerto Rico

			Past due											Past due 90 days or more
			30-59		60-89		90 days	Total				Non-covered		Non-accrual			Accruing
(In thousands)			days		days		or more	past due		Current		loans HIP		loans		loans^[1]
Commercial multi-family		$	-	$	426	$	1,210	$	1,636	$	144,763	$	146,399	$	1,115	$	-
Commercial real estate:
	Non-owner occupied		39,617		131		28,045		67,793		2,336,766		2,404,559		18,866		-
	Owner occupied		7,997		2,291		123,929		134,217		1,689,397		1,823,614		101,068		-
Commercial and industrial			3,556		1,251		40,862		45,669		2,845,658		2,891,327		40,177		685
Construction			-		-		170		170		95,199		95,369		-		-
Mortgage			217,890		77,833		1,596,763		1,892,486		4,684,293		6,576,779		306,697		1,204,691
Leasing			10,223		1,490		2,974		14,687		795,303		809,990		2,974		-
Consumer:
	Credit cards		7,319		4,464		18,227		30,010		1,063,211		1,093,221		-		18,227
	Home equity lines of credit		438		395		257		1,090		4,997		6,087		-		257
	Personal		13,926		6,857		19,981		40,764		1,181,548		1,222,312		19,460		141
	Auto		24,405		5,197		5,466		35,068		815,745		850,813		5,466		-
	Other		537		444		16,765		17,746		139,842		157,588		15,617		1,148
Total		$	325,908	$	100,779	$	1,854,649	$	2,281,336	$	15,796,722	$	18,078,058	$	511,440	$	1,225,149
[1]	Non-covered loans HIP of $118 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.

December 31, 2017
Popular U.S.

			Past due											Past due 90 days or more
			30-59		60-89		90 days		Total			Non-covered		Non-accrual			Accruing
(In thousands)			days		days		or more		past due		Current		loans HIP	loans		loans^[1]
Commercial multi-family		$	395	$	-	$	784	$	1,179	$	1,209,514	$	1,210,693	$	784	$	-
Commercial real estate:
	Non-owner occupied		4,028		1,186		1,599		6,813		1,681,498		1,688,311		1,599		-
	Owner occupied		2,684		-		862		3,546		315,429		318,975		862		-
Commercial and industrial			1,121		5,278		97,427		103,826		901,157		1,004,983		594		-
Construction			-		-		-		-		784,660		784,660		-		-
Mortgage			13,453		6,148		14,852		34,453		659,175		693,628		14,852		-
Legacy			291		417		3,039		3,747		29,233		32,980		3,039		-
Consumer:
	Credit cards		3		2		11		16		84		100		11		-
	Home equity lines of credit		4,653		3,675		14,997		23,325		158,760		182,085		14,997		-
	Personal		3,342		2,149		2,779		8,270		289,732		298,002		2,779		-
	Other		-		-		-		-		319		319		-		-
Total		$	29,970	$	18,855	$	136,350	$	185,175	$	6,029,561	$	6,214,736	$	39,517	$	-
[1]	Non-covered loans HIP of $97 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.

December 31, 2017
Popular, Inc.

			Past due												Past due 90 days or more
			30-59		60-89		90 days		Total			Non-covered			Non-accrual			Accruing
(In thousands)			days		days		or more		past due	Current			loans HIP^{[3] [4]}		loans		loans^[5]
Commercial multi-family		$	395	$	426	$	1,994	$	2,815	$	1,354,277		$	1,357,092	$	1,899	$	-
Commercial real estate:
	Non-owner occupied		43,645		1,317		29,644		74,606		4,018,264			4,092,870		20,465		-
	Owner occupied		10,681		2,291		124,791		137,763		2,004,826			2,142,589		101,930		-
Commercial and industrial			4,677		6,529		138,289		149,495		3,746,815			3,896,310		40,771		685
Construction			-		-		170		170		879,859			880,029		-		-
Mortgage^[1]			231,343		83,981		1,611,615		1,926,939		5,343,468			7,270,407		321,549		1,204,691
Leasing			10,223		1,490		2,974		14,687		795,303			809,990		2,974		-
Legacy^[2]			291		417		3,039		3,747		29,233			32,980		3,039		-
Consumer:
	Credit cards		7,322		4,466		18,238		30,026		1,063,295			1,093,321		11		18,227
	Home equity lines of credit		5,091		4,070		15,254		24,415		163,757			188,172		14,997		257
	Personal		17,268		9,006		22,760		49,034		1,471,280			1,520,314		22,239		141
	Auto		24,405		5,197		5,466		35,068		815,745			850,813		5,466		-
	Other		537		444		16,765		17,746		140,161			157,907		15,617		1,148
Total		$	355,878	$	119,634	$	1,990,999	$	2,466,511	$	21,826,283		$	24,292,794	$	550,957	$	1,225,149

[1]	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.
[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 Popular U.S. segment.
[3]	Loans held-in-portfolio are net of $131 million in unearned income and exclude $132 million in loans held-for-sale.
[4]	Includes $7.1 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $4.6 billion were pledged at the FHLB as collateral for borrowings, $2.0 billion at the FRB for discount window borrowings and $0.5 billion serve as collateral for public funds.
[5]	Non-covered loans HIP of $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.

At June 30, 2018, mortgage loans held-in-portfolio include $1.5 billion of loans insured by the Federal Housing Administration (“FHA”), or guaranteed by the U.S. Department of Veterans Affairs (“VA”) of which $877 million are 90 days or more past due, including $298 million of loans rebooked under the GNMA buyback option, discussed below (December 31, 2017 - $1.8 billion, $1.2 billion and $840 million, respectively). Within this portfolio, loans in a delinquency status of 90 days or more are reported as accruing loans as opposed to non-performing since the principal repayment is insured. These balances include $216 million of residential mortgage loans in Puerto Rico that are no longer accruing interest as of June 30, 2018 (December 31, 2017 - $178 million). Additionally, the Corporation has approximately $66 million in reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not accruing interest at June 30, 2018 (December 31, 2017 - $58 million).

Loans with a delinquency status of 90 days past due as of June 30, 2018 include $298 million in loans previously pooled into GNMA securities (December 31, 2017 - $840 million). Under the GNMA program, issuers such as BPPR have the option but not the obligation to repurchase loans that are 90 days or more past due. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements of the Bank with an offsetting liability.

Covered loans

The following table presents the composition of covered loans held-in-portfolio by past due status, and by loan class that are in non-performing status or are accruing interest but are past due 90 days or more at December 31, 2017.

December 31, 2017

			Past due											Past due 90 days or more
			30-59	60-89		90 days		Total				Covered		Non-accrual		Accruing
(In thousands)			days	days		or more		past due			Current	loans HIP^[2]		loans		loans
Mortgage		$	16,640	$	5,453	$	59,018	$	81,111	$	421,818	$	502,929	$	3,165	$	-
Consumer			518		147		988		1,653		12,692		14,345		188		-
Total covered loans^[1]		$	17,158	$	5,600	$	60,006	$	82,764	$	434,510	$	517,274	$	3,353	$	-
[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.
[2]	Includes $279 million pledged to secure credit facilities at the FHLB which are not permitted to sell or repledge the collateral.

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.

The outstanding principal balance of acquired loans accounted pursuant to ASC Subtopic 310-30, amounted to $2.3 billion at June 30, 2018 (December 31, 2017 - $2.5 billion). The carrying amount of these 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.

Carrying amount of acquired loans accounted for pursuant to ASC 310-30
		For the quarter ended				For the six months ended
(In thousands)			June 30, 2018		June 30, 2017		June 30, 2018		June 30, 2017
Beginning balance		$	2,085,191	$	2,245,624	$	2,108,993	$	2,301,024
Additions			-		4,298		5,272		9,879
Accretion			40,806		44,910		82,866		90,638
Collections / loan sales / charge-offs			(92,540)		(126,168)		(163,674)		(232,877)
Ending balance^[1]		$	2,033,457	$	2,168,664	$	2,033,457	$	2,168,664
Allowance for loan losses			(156,328)		(103,597)		(156,328)		(103,597)
Ending balance, net of ALLL		$	1,877,129	$	2,065,067	$	1,877,129	$	2,065,067
[1]	At June 30, 2018, includes $1.5 billion of loans considered non-credit impaired at the acquisition date (June 30, 2017 - $1.6 billion).

Activity in the accretable yield of acquired loans accounted for pursuant to ASC 310-30
		For the quarter ended				For the six months ended
(In thousands)			June 30, 2018		June 30, 2017		June 30, 2018		June 30, 2017
Beginning balance		$	1,204,726	$	1,290,984	$	1,214,488	$	1,288,983
Additions			-		2,601		3,437		5,855
Accretion			(40,806)		(44,910)		(82,866)		(90,638)
Change in expected cash flows			14,122		(3,003)		42,983		41,472
Ending balance^[1]		$	1,178,042	$	1,245,672	$	1,178,042	$	1,245,672
[1]	At June 30, 2018, includes $0.9 billion of loans considered non-credit impaired at the acquisition date (June 30, 2017 - $0.9 billion).

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

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