UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form10-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~~2018

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 Incorporation or organization)		(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 RegulationS-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, anon-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 Rule12b-2 of the Exchange Act:

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 Rule12b-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~~100,352,514 shares outstanding as of November ~~6, 2017.~~5, 2018.

POPULAR, INC.

INDEX


Part I – Financial Information	Page
~~Part I – Financial Information~~

Item 1. Financial Statements

Unaudited Consolidated Statements of Financial Condition at September 30, ~~2017~~2018 and December 31, ~~2016~~2017		5

Unaudited Consolidated Statements of Operations for the quarters and nine months ended September 30, ~~2017~~2018 and ~~2016~~2017		6

Unaudited Consolidated Statements of Comprehensive Income for the quarters and nine months ended September 30, ~~2017~~2018 and ~~2016~~2017		7

Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, ~~2017~~2018 and ~~2016~~2017		8

Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2018 and ~~2016~~2017		9

Notes to Unaudited Consolidated Financial Statements		10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		~~129~~127

Item 3. Quantitative and Qualitative Disclosures about Market Risk		~~190~~170

Item 4. Controls and Procedures		~~190~~170

Part II – Other Information

Item 1. Legal Proceedings		~~190~~170

Item 1A. Risk Factors		~~190~~171

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		~~193~~171

Item 3. Defaults Upon Senior Securities		~~193~~171

Item 4. Mine Safety Disclosures		~~193~~171

Item 5. Other ~~information~~Information		~~193~~171

Item 6. Exhibits		~~194~~172

Signatures		~~195~~

Forward-Looking Information

This Form10-Q contains ~~forward-looking statements~~“forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including, without limitation, statements 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 private borrowers that have relationships with the government, 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 ability to successfully integrate the auto finance business acquired from Wells Fargo & Company, as well as unexpected costs, including, without limitation, costs due to exposure to any unrecorded liabilities or issues not identified during the due diligence investigation of the business or that are not subject to indemnification or reimbursement, and risks that the business may suffer as a result of the transaction, including due to adverse effects on relationships with customers, employees and service providers;

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, includinge-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.

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 ofnon-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 Form10-K for the year ended December 31, ~~2016~~2017 as well as “Part II, Item 1A” of this Form10-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 Form10-Q are based upon information available to Popular as of the date of this Form10-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.

POPULAR, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)


(In thousands, except share information)	September 30, 2017			December 31, 2016				September 30, 2018			December 31, 2017
Assets:
Cash and due from banks	$	517,437		$	362,394			$	400,949		$	402,857

Money market investments:
Securities purchased under agreements to resell		—			23,637
Time deposits with other banks		5,488,212			2,866,580				4,609,061			5,255,119

Total money market investments		5,488,212			2,890,217				4,609,061			5,255,119

Trading account securities, at fair value:
Trading account debt securities, at fair value:
Pledged securities with creditors’ right to repledge		636			11,486				600			625
Other trading securities		45,315			48,319				37,131			33,301
Investment securitiesavailable-for-sale, at fair value:
Debt securitiesavailable-for-sale, at fair value:
Pledged securities with creditors’ right to repledge		378,227			491,843				295,437			393,634
Other investment securitiesavailable-for-sale		8,682,774			7,717,963				12,752,180			9,783,289
Investment securitiesheld-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
Debt securitiesheld-to-maturity, at amortized cost (fair value 2018 - $105,074; 2017 - $97,501)									101,238			107,019
Equity securities (realizable value 2018 -$162,741); (2017 - $168,417)									157,962			165,103
Loansheld-for-sale, at lower of cost or fair value		68,864			88,821				51,742			132,395

Loansheld-in-portfolio:
Loans not covered under loss-sharing agreements with the FDIC		23,302,047			22,895,172				26,661,951			24,423,427
Loans covered under loss-sharing agreements with the FDIC		524,854			572,878				—			517,274
Less – Unearned income		128,597			121,425				149,783			130,633
Allowance for loan losses		646,913			540,651				633,718			623,426

Total loansheld-in-portfolio, net		23,051,391			22,805,974				25,878,450			24,186,642

FDIC loss-share asset		48,470			69,334				—			45,192
Premises and equipment, net		532,532			543,981				557,104			547,142
Other real estate not covered under loss-sharing agreements with the FDIC		176,728			180,445				133,780			169,260
Other real estate covered under loss-sharing agreements with the FDIC		21,545			32,128				—			19,595
Accrued income receivable		146,339			138,042				163,443			213,844
Mortgage servicing assets, at fair value		180,157			196,889				162,779			168,031
Other assets		2,329,927			2,145,510				1,900,850			1,991,323
Goodwill		627,294			627,294				687,536			627,294
Other intangible assets		38,016			45,050				29,186			35,672

Total assets	$	42,601,267		$	38,661,609			$	47,919,428		$	44,277,337

Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	7,449,857		$	6,980,443			$	8,803,752		$	8,490,945
Interest bearing		26,799,079			23,515,781				30,845,075			26,962,563

Total deposits		34,248,936			30,496,224				39,648,827			35,453,508

Assets sold under agreements to repurchase		374,405			479,425				300,116			390,921
Other short-term borrowings		240,598			1,200				1,200			96,208
Notes payable		1,532,061			1,574,852				1,744,687			1,536,356
Other liabilities		919,836			911,951				980,249			1,696,439

Total liabilities		37,315,836			33,463,652				42,675,079			39,173,432

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
Preferred stock, 30,000,000 shares authorized; 2,006,391 shares issued and outstanding									50,160			50,160
Common stock, $0.01 par value; 170,000,000 shares authorized; 104,304,529 shares issued (2017 - 104,238,159) and 100,336,341 shares outstanding (2017 - 102,068,981)									1,043			1,042
Surplus		4,265,053			4,255,022				4,281,515			4,298,503
Retained earnings		1,350,730			1,220,307				1,629,692			1,194,994
Treasury stock - at cost, 2,171,107 shares (2016 - 267,752)		(90,222	)		(8,286	)
Treasury stock - at cost, 3,968,188 shares (2017 - 2,169,178)									(183,872	)		(90,142	)
Accumulated other comprehensive loss, net of tax		(291,332	)		(320,286	)			(534,189	)		(350,652	)

Total stockholders’ equity		5,285,431			5,197,957				5,244,349			5,103,905

Total liabilities and stockholders’ equity	$	42,601,267		$	38,661,609			$	47,919,428		$	44,277,337

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Quarters ended September 30,						Nine months ended September 30,
(In thousands, except per share information)	2018			2017			2018			2017
Interest income:
Loans	$	430,637		$	371,979		$	1,190,498		$	1,102,784
Money market investments		27,581			15,529			86,258			33,233
Investment securities		70,147			48,375			185,537			144,594

Total interest income		528,365			435,883			1,462,293			1,280,611

Interest expense:
Deposits		55,134			37,058			139,050			104,907
Short-term borrowings		1,622			1,524			5,387			3,734
Long-term debt		20,140			19,130			59,204			57,222

Total interest expense		76,896			57,712			203,641			165,863

Net interest income		451,469			378,171			1,258,652			1,114,748
Provision for loan losses -non-covered loans		54,387			157,659			183,774			249,681
Provision for loan losses - covered loans		—			3,100			1,730			4,255

Net interest income after provision for loan losses		397,082			217,412			1,073,148			860,812

Service charges on deposit accounts		38,147			39,273			111,704			119,882
Other service fees		64,316			53,481			187,794			168,824
Mortgage banking activities (Refer to Note 11)		11,269			5,239			33,408			27,349
Net gain on sale of debt securities		—			83			—			83
Other-than-temporary impairment losses on debt securities		—			—			—			(8,299	)
Net gain (loss), including impairment on equity securities		370			20			(42	)		201
Net (loss) profit on trading account debt securities		(122	)		253			(299	)		(680	)
Net loss on sale of loans, including valuation adjustments on loansheld-for-sale		—			(420	)		—			(420	)
Adjustments (expense) to indemnity reserves on loans sold		(3,029	)		(6,406	)		(6,482	)		(11,302	)
FDIC loss-share (expense) income (Refer to Note 29)		—			(3,948	)		94,725			(12,680	)
Other operating income		40,070			12,799			78,519			50,078

Totalnon-interest income		151,021			100,374			499,327			333,036

Operating expenses:
Personnel costs		139,757			117,769			389,941			358,457
Net occupancy expenses		18,602			22,254			63,829			65,295
Equipment expenses		18,303			16,457			53,284			48,677
Other taxes		11,923			10,858			33,701			32,567
Professional fees		83,860			70,772			260,748			212,956
Communications		6,054			5,394			17,342			17,242
Business promotion		15,478			15,216			44,265			40,158
FDIC deposit insurance		8,610			6,271			22,534			18,936
Other real estate owned (OREO) expenses		7,950			11,724			21,028			41,212
Other operating expenses		52,576			38,028			111,462			92,707
Amortization of intangibles		2,324			2,345			6,973			7,034

Total operating expenses		365,437			317,088			1,025,107			935,241

Income before income tax		182,666			698			547,368			258,607
Income tax expense (benefit)		42,018			(19,966	)		35,613			48,772

Net Income	$	140,648		$	20,664		$	511,755		$	209,835

Net Income Applicable to Common Stock	$	139,718		$	19,734		$	508,963		$	207,043

Net Income per Common Share – Basic	$	1.38		$	0.19		$	5.01		$	2.03

Net Income per Common Share – Diluted	$	1.38		$	0.19		$	5.00		$	2.03

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

~~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 loansheld-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


Totalnon-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.~~

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Quarters ended,						Nine months ended,
	September 30,						September 30,						Quarters ended, September 30,						Nine months ended, September 30,
(In thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Net income	$	20,664		$	46,810		$	209,835		$	220,796		$	140,648		$	20,664		$	511,755		$	209,835

Other comprehensive income (loss) before tax:
Reclassification to retained earnings due to cumulative effect of accounting change														—			—			(605	)		—
Other comprehensive (loss) income before tax:
Foreign currency translation adjustment		(390	)		(325	)		(1,839	)		(2,465	)		(605	)		(390	)		(3,968	)		(1,839	)
Amortization of net losses of pension and postretirement benefit plans		5,606			5,488			16,819			16,461			5,386			5,606			16,157			16,819
Amortization of prior service credit of pension and postretirement benefit plans		(950	)		(950	)		(2,850	)		(2,850	)		(868	)		(950	)		(2,603	)		(2,850	)
Unrealized holding gains (losses) on investments arising during the period		9,240			(15,428	)		15,137			98,900
Unrealized holding (losses) gains on debt securities arising during the period														(43,781	)		9,180			(201,193	)		14,912
Other-than-temporary impairment included in net income		—			—			8,299			209			—			—			—			8,299
Reclassification adjustment for gains included in net income		(103	)		(349	)		(284	)		(349	)		—			(83	)		—			(83	)
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
Unrealized holding gains on equity securities arising during the period														—			60			—			225
Reclassification adjustment for gains included in net income														—			(20	)		—			(201	)
Unrealized net gains (losses) on cash flow hedges														341			(410	)		1,296			(1,424	)
Reclassification adjustment for net losses (gains) included in net income														147			232			(870	)		2,122

Other comprehensive income (loss) before tax		13,225			(11,037	)		35,980			109,710
Income tax expense		(1,614	)		(646	)		(7,026	)		(10,119	)
Other comprehensive (loss) income before tax														(39,380	)		13,225			(191,786	)		35,980
Income tax benefit (expense)														1,983			(1,614	)		8,249			(7,026	)

Total other comprehensive income (loss), net of tax		11,611			(11,683	)		28,954			99,591
Total other comprehensive (loss) income, net of tax														(37,397	)		11,611			(183,537	)		28,954

Comprehensive income, net of tax	$	32,275		$	35,127		$	238,789		$	320,387		$	103,251		$	32,275		$	328,218		$	238,789


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	)

Tax effect allocated to each component of other comprehensive (loss) income:


	Quarters ended September 30,						Nine months ended, September 30,
(In thousands)	2018			2017			2018			2017
Amortization of net losses of pension and postretirement benefit plans	$	(2,101	)	$	(2,185	)	$	(6,301	)	$	(6,556	)
Amortization of prior service credit of pension and postretirement benefit plans		339			370			1,016			1,110
Unrealized holding (losses) gains on debt securities arising during the period		3,936			122			13,701			239
Other-than-temporary impairment included in net income		—			—			—			(1,559	)
Reclassification adjustment for gains included in net income		—			17			—			17
Unrealized holding gains on equity securities arising during the period		—			(12	)		—			(45	)
Reclassification adjustment for gains included in net income		—			4			—			40
Unrealized net gains (losses) on cash flow hedges		(133	)		160			(506	)		555
Reclassification adjustment for net losses (gains) included in net income		(58	)		(90	)		339			(827	)

Income tax benefit (expense)	$	1,983		$	(1,614	)	$	8,249		$	(7,026	)

The accompanying notes are an integral part of the ~~consolidated financial statements.~~Consolidated Financial Statements.

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			Common stock		Preferred stock		Surplus			Retained earnings			Treasury stock			Accumulated other comprehensive 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		$	1,040	$	50,160	$	4,255,022		$	1,220,307		$	(8,286	)	$	(320,286	)	$	5,197,957
Net income									209,835									209,835										209,835									209,835
Issuance of stock		2				5,513												5,515			2				5,513												5,515
Dividends declared:
Common stock									(76,620	)								(76,620	)									(76,620	)								(76,620	)
Preferred stock									(2,792	)								(2,792	)									(2,792	)								(2,792	)
Common stock purchases						4,518						(81,936	)					(77,418	)						4,518						(81,936	)					(77,418	)
Other comprehensive income, net of tax															28,954			28,954																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		$	1,042	$	50,160	$	4,265,053		$	1,350,730		$	(90,222	)	$	(291,332	)	$	5,285,431

Balance at December 31, 2017																				$	1,042	$	50,160	$	4,298,503		$	1,194,994		$	(90,142	)	$	(350,652	)	$	5,103,905
Cumulative effect of accounting change																												1,935									1,935
Net income																												511,755									511,755
Issuance of stock																					1				2,564												2,565
Dividends declared:
Common stock																												(76,200	)								(76,200	)
Preferred stock																												(2,792	)								(2,792	)
Common stock purchases																									(23,020	)					(104,423	)					(127,443	)
Common stock reissuance																									143						2,008						2,151
Stock based compensation																									3,325						8,685						12,010
Other comprehensive income, net of tax																																		(183,537	)		(183,537	)

Balance at September 30, 2018																				$	1,043	$	50,160	$	4,281,515		$	1,629,692		$	(183,872	)	$	(534,189	)	$	5,244,349
														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


Disclosure of changes in number of shares:	September 30, 2018			September 30, 2017
Preferred Stock:
Balance at beginning and end of period		2,006,391			2,006,391

Common Stock – Issued:
Balance at beginning of period		104,238,159			104,058,684
Issuance of stock		66,370			138,840

Balance at end of period		104,304,529			104,197,524
Treasury stock		(3,968,188	)		(2,171,107	)

Common Stock – Outstanding		100,336,341			102,026,417

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine months ended September 30,						Nine months ended September 30,
(In thousands)	2017			2016			2018			2017
Cash flows from operating activities:
Net income	$	209,835		$	220,796		$	511,755		$	209,835

Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		253,936			128,651			185,504			253,936
Goodwill impairment losses		—			3,801
Amortization of intangibles		7,034			9,308			6,973			7,034
Depreciation and amortization of premises and equipment		35,966			34,725			39,083			35,966
Net accretion of discounts and amortization of premiums and deferred fees		(17,371	)		(36,753	)		(43,533	)		(17,371	)
Share-based compensation								5,962			—
Impairment losses on long-lived assets		11,286			—			272			11,286
Other-than-temporary impairment on investment securities		8,299			209
Other-than-temporary impairment on debt securities								—			8,299
Fair value adjustments on mortgage servicing rights		24,262			18,879			13,123			24,262
FDIC loss share expense		12,680			77,445
FDIC loss share (income) expense								(94,725	)		12,680
Adjustments (expense) to indemnity reserves on loans sold		11,302			14,234			6,482			11,302
Earnings from investments under the equity method		(27,350	)		(23,812	)
Deferred income tax expense		30,471			61,918
Earnings from investments under the equity method, net of dividends or distributions								(14,772	)		(11,514	)
Deferred income tax (benefit) expense								(97,708	)		30,471
Loss (gain) on:
Disposition of premises and equipment and other productive assets		5,018			3,603			17,694			5,018
Sale and valuation adjustments of investment securities		(284	)		(1,932	)
Proceeds from insurance claims								(14,411	)		—
Sale and valuation adjustments of debt securities								—			(83	)
Sale of loans, including valuation adjustments on loansheld-for-sale and mortgage banking activities		(16,455	)		(32,982	)		(6,734	)		(16,455	)
Sale of foreclosed assets, including write-downs		19,228			13,160			(638	)		19,228
Acquisitions of loansheld-for-sale		(204,813	)		(223,189	)		(173,644	)		(204,813	)
Proceeds from sale of loansheld-for-sale		68,326			58,003			51,131			68,326
Net originations on loansheld-for-sale		(283,709	)		(365,353	)		(186,063	)		(283,709	)
Net decrease (increase) in:
Trading securities		498,840			578,133
Trading debt securities								346,455			499,714
Equity securities								(2,480	)		(613	)
Accrued income receivable		(8,297	)		4,543			51,868			(8,297	)
Other assets		13,454			(28,201	)		234,836			(1,882	)
Net (decrease) increase in:
Interest payable		(9,299	)		(11,553	)		(9,933	)		(9,299	)
Pension and other postretirement benefits obligation		(13,760	)		(56,537	)		3,392			(13,760	)
Other liabilities		15,178			(5,292	)		(197,035	)		15,178

Total adjustments		433,942			221,008			121,099			434,904

Net cash provided by operating activities		643,777			441,804			632,854			644,739

Cash flows from investing activities:
Net increase in money market investments		(2,597,994	)		(1,783,402	)
Net increase (decrease) in money market investments								647,519			(2,600,853	)
Purchases of investment securities:
Available-for-sale		(2,356,389	)		(2,408,514	)		(6,968,920	)		(2,356,385	)
Other		(23,822	)		(14,017	)
Equity								(11,304	)		(23,822	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale		1,225,915			951,447			3,925,362			1,225,915
Held-to-maturity		6,229			4,182			7,184			6,229
Other		—			11,051
Proceeds from sale of investment securities:
Available-for-sale		14,888			1,556			—			14,423
Other		17,675			8,006
Equity								20,925			17,675
Net disbursements on loans		(77,400	)		(93,354	)		(15,604	)		(77,400	)
Proceeds from sale of loans		415			134,114			1,354			415
Acquisition of loan portfolios		(448,121	)		(355,507	)		(461,117	)		(448,121	)
Net payments (to) from FDIC under loss sharing agreements		(11,520	)		95,407			(25,012	)		(11,520	)
Payments to acquire businesses, net of cash acquired								(1,830,050	)		—
Return of capital from equity method investments		8,556			324			2,501			8,056
Acquisition of premises and equipment		(40,158	)		(78,297	)		(53,144	)		(40,158	)
Proceeds from insurance claims								14,411			—
Proceeds from sale of:
Premises and equipment and other productive assets		6,982			5,519			6,991			6,982
Foreclosed assets		85,705			54,600			85,622			85,705

Net cash used in investing activities		(4,189,039	)		(3,466,885	)		(4,653,282	)		(4,192,859	)

Cash flows from financing activities:
Net increase (decrease) in:
Deposits		3,751,367			3,119,674			4,193,859			3,751,367
Federal funds purchased and assets sold under agreements to repurchase		(105,020	)		3,106
Assets sold under agreements to repurchase								(90,805	)		(105,020	)
Other short-term borrowings		239,398			—			(95,008	)		239,398
Payments of notes payable		(89,375	)		(230,608	)		(226,976	)		(89,375	)
Proceeds from issuance of notes payable		45,000			165,047			434,706			45,000
Proceeds from issuance of common stock		5,515			5,718			10,852			5,515
Dividends paid		(69,162	)		(49,438	)		(79,115	)		(69,162	)
Net payments for repurchase of common stock		(75,662	)		(1,547	)		(125,326	)		(75,662	)
Payments related to tax withholding for share-based compensation		(1,756	)		—			(2,205	)		(1,756	)

Net cash provided by financing activities		3,700,305			3,011,952			4,019,982			3,700,305

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
Net (decrease) increase in cash and due from banks, and restricted cash								(446	)		152,185
Cash and due from banks, and restricted cash at beginning of period								412,629			374,196

Cash and due from banks at the end of the period	$	517,437		$	350,545
Cash and due from banks, and restricted cash at the end of the period							$	412,183		$	526,381

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

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		1512
Note 43 -	New accounting pronouncements		1613
Note 4 - Business combination		19
Note 5 -	Restrictions on cash and due from banks and certain securities		1821
Note 6 -	~~Investment~~ Debt securitiesavailable-for-sale		1922
Note 7 -	~~Investment~~ Debt securitiesheld-to-maturity		23
~~Note 8 -~~	~~Loans~~		25
Note 8 - Loans		27
Note 9 -	Allowance for loan losses		3433
Note 10 -	FDIC loss share asset andtrue-up payment obligation		5251
Note 11 -	Mortgage banking activities		53
Note 12 - Transfers of financial assets and mortgage servicing assets		54
Note 1213 -	~~Transfers of financial assets and mortgage servicing assets~~ Other real estate owned		5558
Note 1314 -	Other ~~real estate owned~~assets		59
Note 1415 -	~~Other~~ Goodwill and other intangible assets		60
Note 1516 -	~~Goodwill and other intangible assets~~ Deposits		6164
Note 1617 -	~~Deposits~~ Borrowings		65
~~Note 17 -~~	~~Borrowings~~		66
Note 18 -	~~Offsetting of financial assets and liabilities~~ Trust preferred securities		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		8382
Note 24 -	Related party transactions		8684
Note 25 -	Fair value measurement		9188
Note 26 -	Fair value of financial instruments		9895
Note 27 -	Net income per common share		99
Note 28 - Revenue from contracts with customers		100
Note 29 - FDIC loss share expense		102
Note 2830 -	~~Other service fees~~ Pension and postretirement benefits		103
Note 2931 -	~~FDIC loss share expense~~ Stock-based compensation		~~104~~
~~Note 30 -~~	~~Pension and postretirement benefits~~		105
Note 3132 -	~~Stock-based compensation~~ Income taxes		~~106~~107
~~Note 32 -~~	~~Income taxes~~		~~108~~
Note 33 -	Supplemental disclosure on the consolidated statements of cash flows		111
Note 34 - Segment reporting		112
~~Note 34 -~~	~~Segment reporting~~		~~113~~
Note 35 -	Condensed consolidating financial information of guarantor and issuers of registered guaranteed securities		~~119~~117

Note 1 – Nature of operations

Popular, Inc. (the “Corporation” or “Popular”) 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 mainland United States and ~~the Caribbean.~~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. In the U.S. mainland, the Corporation ~~operates Banco~~provides retail, mortgage and commercial banking services through its New York-chartered banking subsidiary, Popular ~~North America~~Bank (“~~BPNA”~~PB”)~~. BPNA focuses efforts and resources on the core community banking business. BPNA operates~~, which has branches located in New York, New Jersey and ~~South Florida~~Florida.

Prior to April 9, 2018, PB operated under the legal name of Banco Popular North America and conducted business under the assumed name of Popular Community Bank.

On August 1, 2018, Popular, Inc., through its subsidiary Popular Auto, LLC, acquired and assumed from Reliable Financial Services, Inc. and Reliable Finance Holding Co. (“Reliable”), subsidiaries of Wells Fargo & Company, certain assets and liabilities related to their auto finance business in Puerto Rico (the “Reliable Transaction” or “Transaction”). Refer to Note 4, Business combination, for further details on the Reliable Transaction.

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.

(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


Totalpre-tax hurricane expenses
   $ 79,389

~~[1]~~

~~Includes $3.5 million in provision for covered loans.~~

~~Provision for Loan Losses~~

~~Damages associated with Hurricanes Irma and Maria impacted certain of the Corporation’s asset quality measures, including higher delinquencies andnon-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 ASC310-30,~~ 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.

~~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~~2017 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 reclassifications have been made to the 2017 Consolidated Financial Statements and notes to the financial statements to conform to the 2018 presentation.

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,~~2017, included in the Corporation’s ~~2016~~2017 Form10-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.

Business Combination

The Corporation determined that the acquisition of certain assets and assumption of certain liabilities in connection with the Reliable Transaction constitutes a business combination as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 “Business Combinations”. The assets and liabilities, both tangible and intangible, were initially recorded at their estimated fair values. Fair values were determined based on the requirements of FASB ASC Topic 820 “Fair Value Measurements”. These fair value estimates are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair value becomes available. Acquisition-related costs are expensed as incurred. Refer to Note 4, Business combination, for additional information of assets acquired and liabilities assumed in connection with the Transaction.

Note 43 – New accounting pronouncements

Recently Adopted Accounting Standards Updates

FASB Accounting Standards Update (“ASU”)2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Liabilities

The FASB issued ASU2018-03 in February 2018, which clarifies certain aspects of the guidance in ASU2016-01, principally related to equity securities without a readily determinable fair value.

The Corporation was not impacted by these technical corrections and improvements upon adoption of this ASU.

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 ASU2017-07 in March 2017, which requires that an employer disaggregate the service cost component from the other components of net benefit cost of pension and postretirement benefit plans. 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.

As a result of the adoption of this accounting pronouncement, the Corporation recognized $6.7 million during the nine months ended September 30, 2018 (September 30, 2017—$5.6 million) as components of net periodic benefit cost other than service cost in the other operating expenses caption, which would have otherwise previously been recognized as personnel cost. The presentation for prior periods has been adjusted to reflect the new classification. Effective January 1, 2018, these expenses are no longer capitalized as part of loan origination costs.

FASB Accounting Standards Update (“ASU”)2017-05, Other Income– Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets

The FASB issued ASU2017-05 in February 2017, which, among other things, clarifies the scope of the derecognition of nonfinancial assets, the definition of in substance financial assets, and impacts the accounting for partial sales of nonfinancial assets by requiring full gain recognition upon the sale.

The adoption of this standard during the first quarter of 2018 did not have a material impact on the Corporation’s financial statements.

FASB Accounting Standards Update (“ASU”)2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business

The FASB issued ASU2017-01 in January 2017, which revises the definition of a business by providing an initial screen to determine when an integrated set of assets and activities (“set”) is not a business. Also, the amendments, among other things, specify the minimum inputs and processes required for a set to meet the definition of a business when the initial screen is not met and narrow the definition of the term output so that the term is consistent with Topic 606.

The Corporation adopted ASU2017-01 during the first quarter of 2018. As such, the Corporation will consider this guidance in any business combinations completed after the effective date. Refer to Note 4, Business combination, for additional information on assets acquired and liabilities assumed in connection with the Reliable Transaction.

FASB Accounting Standards Update (“ASU”)2016-18, Statement of Cash Flows (Topic 230): Restricted Cash

The FASB issued ASU2016-18 in November 2016, which requires entities to present the changes in total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The new guidance also requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet if restricted cash and restricted cash equivalents are presented in a different line item in the balance sheet.

As a result of the adoption of this accounting pronouncement, the Corporation included restricted cash and restricted cash equivalents within money market investments of $11.2 million at September 30, 2018 (September 30, 2017—$8.9 million) in the Consolidated Statements of Cash Flows. In addition, the Corporation presented a reconciliation of the totals in the Consolidated Statements of Cash Flows to the related captions in the Consolidated Statements of Condition in Note 33, Supplemental disclosure on the consolidated statements of cash flows.

FASB Accounting Standards Update (“ASU”)2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory

The FASB issued ASU2016-16 in October 2016, which eliminates the exception for all intra-entity sales of assets other than inventory that requires deferral of the tax effects until the transferred asset is sold to a third party or otherwise recovered through use. The new guidance requires a reporting entity to recognize the tax impact from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though thepre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer.

As a result of the adoption of this accounting pronouncement during the first quarter of 2018, the Corporation recorded a positive cumulative effect adjustment of $1.3 million to retained earnings to reflect the net tax benefit resulting from intra-entity sales of assets.

FASB Accounting Standards Update (“ASU”)2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments

The FASB issued ASU2016-15 in August 2016, which addresses specific cash flow issues with the objective of reducing existing diversity in practice, which may lead to a difference in the classification of transactions between operating, financing or investing activities. Among other things, the guidance provides an accounting policy election for classifying distributions received from equity method investees and clarifies the application of the predominance principle.

As a result of the adoption of this accounting pronouncement, the Corporation reclassified from investing to operating activities $0.5 million in the Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 as a result of electing the cumulative earnings approach for classifying distributions received from equity investees.

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

The FASB has issued a series of ASUs which, among other things, clarify the principles for recognizing revenue and develop a common revenue standard. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services, that is, the satisfaction of performance obligations, to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. A five-step process is defined to achieve this core principle. The new guidance also requires disclosures to enable users of financial statements to understand the nature, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

The Corporation adopted this accounting pronouncement during the first quarter of 2018 using the modified retrospective approach. The Corporation elected the practical expedient that permits an entity to expense incremental costs of obtaining contracts, given the amortization periods were one year or less. There were no material changes in the presentation and timing of when revenues are recognized. ASC Topic 606 was applied to contracts that were not completed as of January 1, 2018. There was no impact in the evaluation of these contracts. Refer to additional disclosures on Note 28, Revenue from contracts with customers.

FASB Accounting Standards Update (“ASU”)2016-01, Financial Instruments—Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

The FASB issued ASU2016-01 in January 2016, which primarily affects the accounting for equity investments and financial liabilities under the fair value option as follows: require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; simplify the impairment assessment of equity investments without readily determinable fair values; require changes in fair value due to instrument-specific credit risk to be presented separately in other comprehensive income for financial liabilities under the fair value option; and clarify that the need for a valuation allowance on a deferred tax asset related toavailable-for-sale securities should be evaluated in combination with the entity’s other deferred tax assets. In addition, the ASU also impacts the presentation and disclosure requirements of financial instruments.

As a result of the adoption of this accounting pronouncement during the first quarter of 2018, the Corporation aggregated $11 million previously classified asavailable-for-sale and as trading to those under the other investment securities caption and reclassified under the caption of equity securities. In addition, a positive cumulative effect adjustment of $0.6 million was recognized due to the reclassification of unrealized gains of equity securitiesavailable-for-sale, net of tax, from accumulated other comprehensive loss to retained earnings.

The adoption ofFASB Accounting Standards Update (“ASU”)2017-09, Compensation– Stock Compensation (Topic 718): Scope of Modification Accounting, effective during the first quarter of 2018, did not have a significant impact on the Consolidated Financial Statements.

Recently Issued Accounting Standards Updates

FASB Accounting Standards Update (“ASU”)~~2017-12,~~2018-18, ~~Derivatives~~Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and ~~Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~Topic 606

The FASB issued ASU~~2017-12~~2018-18 in ~~August 2017,~~November 2018 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~~provides guidance on how to assess whether certain collaborative arrangement transactions should be accounted 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.under Topic 606.

The amendments in this ~~Update~~ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2018. Early~~2019, with 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~~expect to be impacted by these amendments since it does not have ~~a material effect on its consolidated statements of financial condition and results of operations since hedge ineffectiveness has been immaterial to the Corporationand the earnings effect of the hedges and the hedged items are already presented in the same income statement line item.~~collaborative arrangements.

FASB Accounting Standards Update (“ASU”)~~2017-11,~~2018-17, ~~Earnings per Share~~Consolidation (Topic ~~260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815)~~810): ~~Part I: Accounting~~Targeted Improvements to Related Party Guidance for ~~Certain Financial Instruments with Down Round Features; Part II: Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic~~Variable Interest Entities ~~and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception~~

The FASB issued ASU~~2017-11~~2018-17 in ~~July 2017,~~October 2018, which ~~changes~~requires entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the ~~classification analysis~~equivalent of ~~certain equity-linked financial instruments with down round features. When~~a direct interest in its entirety 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~~decision-making fee 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.~~variable interest.

The amendments in this ~~Update~~ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2018. Early~~2019, with early adoption permitted. These amendments should be applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented.

The Corporation does not expect to be materially impacted by these amendments.

FASB Accounting Standards Update (“ASU”)2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes

The FASB issued ASU2018-16 in October 2018 which permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to other permissible U.S. benchmark rates.

The amendments in this ASU are required to be adopted concurrently with the amendments in ASU2017-12, which are effective in the first quarter of 2019. The amendments should be adopted on a prospective basis for qualifying new orre-designated hedging relationships entered into on or after the date of adoption.

The Corporation will consider this guidance for qualifying new hedging relationships entered into on or after the effective date.

FASB Accounting Standards Update (“ASU”)2018-15, Intangibles – Goodwill and Other –Internal-Use Software (Subtopic350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

The FASB issued ASU2018-15 in August 2018 which, among other things, aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtaininternal-use software, and clarifies the term over which such capitalized implementation costs should be amortized.

The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted.

The Corporation does not expect to be materially impacted by these amendments.

FASB Accounting Standards Update (“ASU”)2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans

The FASB issued ASU2018-14 in August 2018, which modifies the disclosure requirements for employers that sponsor defined benefit pension or postretirement plans. The most significant changes include the removal of the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and the effects of aone-percentage point change in assumed health care cost trend rates on the aggregate of the service and interest cost components of net periodic benefit costs and benefit obligation for postretirement health care benefits. In addition, certain disclosure requirements were added which include, but are not limited to, an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.

The amendments in this ASU are effective for fiscal years ending after December 15, 2020, with early adoption permitted. The amendments in this ~~Update may~~ASU should be applied ~~using either~~on a ~~modified~~ retrospective ~~approach or a full retrospective approach.~~basis to all periods presented.

Upon adoption of this standard, the Corporation will be impacted principally by the simplified disclosures on defined benefit plans.

FASB Accounting Standards Update (“ASU”)2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement

The FASB issued ASU2018-13 in August 2018, which modifies the disclosure requirements on fair value measurements. The most significant changes include, among other things, the removal of the requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. In addition, certain disclosure requirements were added, which include but are not limited to, how the weighted average of significant unobservable inputs used to develop Level 3 fair value measurements was calculated.

The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted.

Upon adoption of this standard, the Corporation will be impacted principally by the simplified disclosures on fair value measurements.

FASB Accounting Standards Update (“ASU”)2018-12, Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts

The FASB issued ASU2018-12 in August 2018, which makes targeted improvements to the existing recognition, measurement, presentation, and disclosure requirements for long-duration contracts issued by an insurance entity.

The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

The Corporation does not anticipate that the adoption of this accounting pronouncement will have a ~~material effect~~significant impact 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.~~Consolidated Financial Statements.

FASB Accounting Standards Update (“ASU”)~~2017-09,~~2018-11, ~~Compensation– Stock Compensation~~Leases (Topic ~~718)~~842): ~~Scope of Modification Accounting~~Targeted Improvements

The FASB issued ASU~~2017-09~~2018-11 in ~~May 2017,~~July 2018, which ~~clarifies~~provides entities with an additional and optional transition method that ~~modification accounting is required only if~~allows entities to apply the ~~fair value, the vesting conditions, or the classification~~transition provisions of the ~~award (as equity or liability) changes as~~new leases standard at the adoption date, instead of at the earliest comparative period presented. If elected, comparative periods will continue to be presented in accordance with ASC Topic 840. Also, the amendments provide lessors with a ~~result~~practical expedient, by class of ~~the change in terms or conditions.~~underlying asset, to not separate nonlease components, subject to certain circumstances.

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 (Subtopic310-20):~~ ~~Premium Amortization on Purchased Callable Debt Securities~~

~~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 will elect this optional transition method to initially apply the new leases standard as of January 1, 2019. On the other hand, the Corporation does not ~~anticipate that~~expect to elect 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.practical expedient provided to lessors.

FASB Accounting Standards Update (“ASU”)~~2017-07,~~2018-10, ~~Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~Codification Improvements to Topic 842, Leases

The FASB issued ASU~~2017-07~~2018-10 in ~~March 2017,~~July 2018, which ~~requires that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide guidance on~~makes various technical corrections to clarify how to ~~present~~apply certain aspects of the ~~service cost component~~new leases standard such as lease reassessment of lease classification, variable lease payments that depend on an index or a rate, lease term 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.~~purchase option, certain transition adjustments, among others.

The amendments in this ~~Update~~ASU 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.2018.

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.be materially impacted by these Codification improvements.

FASB Accounting Standards Update (“ASU”)~~2016-13,~~2018-09, ~~Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~Codification Improvements

The ~~Corporation has continued its evaluation and implementation efforts~~FASB issued ASU2018-09 in July 2018, which makes various codification improvements in the areas of excess tax benefits on share-based compensation awards, income tax accounting for ~~ASU2016-13,~~ 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.business combinations, derivatives offsetting, liability or equity-classified financial instruments, among others.

The ~~Corporation plans~~amendments in this ASU are effective immediately, except for amendments that require transition guidance, which are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018; and amendments to ~~adopt ASU2016-13~~guidance not yet effective which are effective on ~~January 1, 2020 using a modified retrospective approach. Although early adoption is permitted beginning in~~ the ~~first quarter of 2019,~~same date as the original Updates.

The Corporation does not expect to ~~make~~be materially impacted by these Codification improvements.

FASB Accounting Standards Update (“ASU”)2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting

The FASB issued ASU2018-07 in June 2018, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees, although differences remain in the accounting for attribution and a contractual term election for valuing nonemployee equity share options.

The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted.

The Corporation does not expect to be impacted by these amendments since it does not enter into share-based payment transactions for acquiring goods and services from nonemployees.

FASB Accounting Standards Update (“ASU”)2018-06, Codification Improvements to Topic 942, Financial Services – Depository and Lending

The FASB issued ASU2018-06 in May 2018, which removes outdated guidance related to the Comptroller of the Currency’s Banking Circular 202, “Accounting for Net Deferred Taxes” in ASC Topic 942.

The amendments in this ASU were effective upon issuance of the Update. The Corporation was not impacted by this Codification improvement.

FASB Accounting Standards Update (“ASU”)2016-02, Leases (Topic 842)

The FASB issued ASU2016-02 in February 2016, which supersedes ASC Topic 840 and sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessors and lessees. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record aright-of-use asset (“ROU”) and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that ~~election.~~is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases.

The amendments of this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted.

The ASU is expected to impact the Corporation’s Consolidated Financial Statements since the Corporation has operating and land lease arrangements for which it is the lessee. The Corporation expects ~~an increase in~~to recognize lease liabilities of approximately $0.2 billion, with a corresponding recognition of ROU assets on its ~~allowance for loan and lease losses due to the consideration of lifetime credit losses as part of the calculation.~~ operating leases.

For ~~additional information on ASU2016-13~~ ~~and~~ other recently issued Accounting Standards Updates not yet effective, refer to Note 34 to the Consolidated Financial Statements included in the ~~2016~~2017 Form10-K.

~~FASB Accounting Standards Updates~~

Note 4 – Business combination

On August 1, 2018, Popular Auto, LLC (“~~ASUs”~~Popular Auto”), ~~Revenue from Contracts~~Banco Popular de Puerto Rico’s auto finance subsidiary, completed the acquisition of certain assets and the assumption of certain liabilities related to Wells Fargo & Company’s (“Wells Fargo”) auto finance business in Puerto Rico (“Reliable”). Popular Auto acquired approximately $1.6 billion in retail auto loans and $341 million in primarily auto-related commercial loans. Reliable will continue operating as a Division of Popular Auto in parallel with ~~Customers (Topic 606)~~Popular Auto’s existing operations for a period after closing to provide continuity of service to Reliable customers while allowing Popular to assess best practices before completing the integration of the two operations.

Wells Fargo retained approximately $398 million in retail auto loans and has separately entered into a loan servicing agreement with Popular Auto with respect to such loans.

Popular entered into the Transaction as part of its growth strategy to increase its market share in the auto finance business in Puerto Rico.

The ~~Corporation’s implementation efforts regarding ASU2014-09,~~ ~~Revenue from Contracts with Customers, have included a scoping analysis~~following table presents the fair values of ~~revenue streams~~the consideration and major classes of identifiable assets acquired and liabilities assumed by the Corporation as of August 1, 2018.


(In thousands)	Book value prior to purchase accounting adjustments		Fair value adjustments			As recorded by Popular, Inc.
Cash consideration	$	1,843,256	$	—		$	1,843,256

Assets:
Loans		1,912,866		(126,908	)^[1]		1,785,958
Premises and equipment		1,246		—			1,246
Accrued income receivable		1,466		—			1,466
Other assets		5,020		—			5,020
Trademark		—		488			488

Total assets	$	1,920,598	$	(126,420	)	$	1,794,178

Liabilities:
Other liabilities	$	11,164	$	—		$	11,164

Total liabilities	$	11,164	$	—		$	11,164

Net assets acquired	$	1,909,434	$	(126,420	)	$	1,783,014

Goodwill on acquisition						$	60,242

[1] The fair value discount is comprised of $118 million related ~~costs, reviewing~~to the ~~associated contracts, evaluating~~retail auto loans portfolio and $9 million related to the ~~timing~~commercial loans portfolio.

The fair values initially assigned to the assets acquired and liabilities assumed are preliminary and are subject to refinement for up to one year after the closing date of ~~when revenues are currently being recognized in light~~the acquisition as new information relative to closing date fair values becomes available. Because of ~~when~~ the ~~performance obligations are fulfilled~~short time period between the August 1, 2018 closing of the transaction 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,~~September 30, 2018 reporting date, the Corporation continues to ~~evaluate certain costs, including card interchange transactions,~~analyze its estimates of fair value on loans acquired. As the Corporation finalizes its analyses, there may be adjustments to the recorded carrying values, and thus the recognized goodwill may increase or decrease.

Following is a description of the methods used to determine ~~if these should be presented~~the fair values of significant assets acquired on the Reliable Transaction:

Loans

Retail Auto Loans

Fair values for retail auto loans were based on a ~~gross basis or~~discounted cash flow methodology. Aggregation into pools considered characteristics such as ~~an offset~~payment terms, remaining terms, and credit quality. Principal and interest projections considered prepayment rates and credit loss expectations. The discount rates were developed based on the relative risk of the cash flows as of the valuation date, taking into account the expected life of the loans. Retail auto loans were accounted for under ASC Subtopic310-20. As of August 1, 2018, contractual cash flows amounted to $1.8 billion, from which $112 million are not expected to be collected.

Commercial Loans

Fair values for commercial loans were based on a probability of default/loss given default (“PD/LGD”) methodology. The PD was determined based on characteristics such as payment terms, remaining terms, and credit quality. Commercial loans were accounted for under ASC Subtopic310-20. As of August 1, 2018, contractual cash flows amounted to $348 million, from which $8 million are not expected to be collected.

Goodwill

The amount of goodwill is the ~~corresponding revenues. Although~~residual difference between the consideration transferred to Wells Fargo and the fair value of the assets acquired, net of the liabilities assumed. The goodwill is deductible for income tax purposes.

Trademark

The fair value of the Reliable trademark was calculated using the relief-from-royalty method. The Reliable trademark is subject to amortization, since Popular intends to use the trademark for a limited period of time.

The operating results of the Corporation ~~expects changes on~~for the ~~presentation~~quarter ended September 30, 2018 include the operating results produced by the acquired assets and liabilities assumed for the period of ~~certain costs related~~August 1, 2018 to ~~its brokerage, underwriting~~September 30, 2018. This includes approximately $35.7 million in gross revenues, including $13.4 million in accretion of the fair value discount, and ~~valuation services~~approximately $8.6 million in ~~its broker-dealer subsidiary, it does not anticipate these changes in presentation to be material to the Corporation’s financial statements.~~operating expenses, including $3.8 million of transaction-related expenses. The Corporation ~~will adopt this guidance on January 1, 2018 using~~believes that given the ~~modified retrospective approach.~~amount of assets and liabilities assumed and the size of the operations acquired in relation to Popular’s operations, the historical results of Reliable are not significant to Popular’s results, and thus no pro forma information is presented.

Note 5 – Restrictions on cash and due from banks and certain securities

The Corporation’s banking subsidiaries, BPPR and ~~BPNA,~~PB, 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~~$1.5 billion at September 30, ~~2017~~2018 (December 31, ~~2016 -~~ 2017—$ ~~1.2~~1.4 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,~~2018, the Corporation held ~~$38~~$47 million in restricted assets in the form of funds deposited in money market accounts, ~~trading account securities and investment~~debt securities available for sale and equity securities (December 31, ~~2016 - $31~~2017—$41 million). The ~~amounts~~restricted assets held in ~~trading account securities and investment~~debt securities available for sale and equity securities consist primarily of ~~restricted~~ assets held for the Corporation’snon-qualified retirement plans and fund deposits guaranteeing possible liens or encumbrances over the title of insured properties.

Note 6 – ~~Investment~~Debt securitiesavailable-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~~debt securitiesavailable-for-sale at September 30, ~~2017~~2018 and December 31, ~~2016.~~2017.


	At September 30, 2017											At September 30, 2018
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield			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	%	$	3,305,842	$	16	$	6,510	$	3,299,348		1.75	%
After 1 to 5 years		2,179,553		1,276		9,446		2,171,383		1.41			4,348,322		—		76,258		4,272,064		2.22	��
After 5 to 10 years													295,352		9		4,811		290,550		2.64

Total U.S. Treasury securities		2,773,893		1,279		10,309		2,764,863		1.32			7,949,516		25		87,579		7,861,962		2.04

Obligations of U.S. Government sponsored entities
Within 1 year		204,201		97		282		204,016		1.22			220,063		1		1,081		218,983		1.46
After 1 to 5 years		408,988		254		1,612		407,630		1.46			188,811		4		4,004		184,811		1.45

Total obligations of U.S. Government sponsored entities		613,189		351		1,894		611,646		1.38			408,874		5		5,085		403,794		1.45

Obligations of Puerto Rico, States and political subdivisions
After 1 to 5 years		6,605		10		—		6,615		2.49			6,861		—		182		6,679		1.33

Total obligations of Puerto Rico, States and political subdivisions		6,605		10		—		6,615		2.49			6,861		—		182		6,679		1.33

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			906		—		8		898		1.92
After 5 to 10 years		39,546		149		320		39,375		2.33			115,854		—		6,397		109,457		1.67
After 10 years		974,289		4,276		19,982		958,583		2.00			681,359		1,208		34,310		648,257		2.10

Total collateralized mortgage obligations—federal agencies		1,031,245		4,698		20,346		1,015,597		2.03			798,119		1,208		40,715		758,612		2.03

Mortgage-backed securities
Within 1 year		740		16		—		756		4.39			879		11		—		890		4.46
After 1 to 5 years		14,721		295		189		14,827		3.70			4,748		23		148		4,623		2.31
After 5 to 10 years		329,955		3,117		2,079		330,993		2.26			351,597		949		11,726		340,820		2.21
After 10 years		4,335,400		27,249		49,699		4,312,950		2.46			3,834,855		9,383		174,558		3,669,680		2.43

Total mortgage-backed securities		4,680,816		30,677		51,967		4,659,526		2.45			4,192,079		10,366		186,432		4,016,013		2.41

Equity securities (without contractual maturity)		985		900		—		1,885		8.22

Other
After 5 to 10 years		848		21		—		869		3.62			556		1		—		557		3.62

Total other		848		21		—		869		3.62			556		1		—		557		3.62

Total investment securitiesavailable-for-sale^[1]	$	9,107,581	$	37,936	$	84,516	$	9,061,001		1.99	%
Total debt securitiesavailable-for-sale^[1]												$	13,356,005	$	11,605	$	319,993	$	13,047,617		2.14	%

[1]

Includes ~~$6.7~~$8.5 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~~$7.6 billion serve as collateral for public funds.

   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 securitiesavailable-for-sale^[1]
   $ 8,279,363    $ 43,379    $ 112,936    $ 8,209,806    1.94 %


	At December 31, 2017
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
U.S. Treasury securities
Within 1 year	$	1,112,791	$	8	$	2,101	$	1,110,698		1.06	%
After 1 to 5 years		2,550,116		—		26,319		2,523,797		1.55
After 5 to 10 years		293,579		281		191		293,669		2.24

Total U.S. Treasury securities		3,956,486		289		28,611		3,928,164		1.46

Obligations of U.S. Government sponsored entities
Within 1 year		276,304		21		818		275,507		1.26
After 1 to 5 years		336,922		22		3,518		333,426		1.48

Total obligations of U.S. Government sponsored entities		613,226		43		4,336		608,933		1.38

Obligations of Puerto Rico, States and political subdivisions
After 1 to 5 years		6,668		—		59		6,609		2.30

Total obligations of Puerto Rico, States and political subdivisions		6,668		—		59		6,609		2.30

Collateralized mortgage obligations - federal agencies
Within 1 year		40		—		—		40		2.60
After 1 to 5 years		16,972		173		75		17,070		2.90
After 5 to 10 years		36,186		57		526		35,717		2.31
After 10 years		914,568		2,789		26,431		890,926		2.01

Total collateralized mortgage obligations - federal agencies		967,766		3,019		27,032		943,753		2.03

Mortgage-backed securities
Within 1 year		484		8		—		492		4.23
After 1 to 5 years		14,599		206		211		14,594		3.50
After 5 to 10 years		339,161		2,390		3,765		337,786		2.21
After 10 years		4,385,368		19,493		69,071		4,335,790		2.46

Total mortgage-backed securities		4,739,612		22,097		73,047		4,688,662		2.44

Other
After 5 to 10 years		789		13		—		802		3.62

Total other		789		13		—		802		3.62

Total debt securitiesavailable-for-sale^[1]	$	10,284,547	$	25,461	$	133,085	$	10,176,923		1.96	%

[1]

Includes ~~$4.1~~$6.6 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~~$5.6 billion serve as collateral for public funds.

The weighted average yield on investment securitiesavailable-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.

There were no securities sold during the nine months ended September 30, 2018. During the nine months ended September 30, 2017, the Corporation sold ~~equity securities and~~ obligations from the Puerto Rico government and its political subdivisions with a realized gain of ~~$284~~$83 thousand. The proceeds from these sales were ~~$14.9~~$14.4 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~~debt securitiesavailable-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~~2018 and December 31, ~~2016.~~2017.

   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 securitiesavailable-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 securitiesavailable-for-sale in an unrealized loss position
   $ 5,641,750    $ 90,451    $ 373,987    $ 22,485    $ 6,015,737    $ 112,936


	At September 30, 2018
	Less than 12 months				12 months or more				Total
			Gross				Gross				Gross
	Fair		unrealized		Fair		unrealized		Fair		unrealized
(In thousands)	value		losses		value		losses		value		losses
U.S. Treasury securities	$	5,699,061	$	57,506	$	1,617,265	$	30,073	$	7,316,326	$	87,579
Obligations of U.S. Government sponsored entities		62,347		135		340,364		4,950		402,711		5,085
Obligations of Puerto Rico, States and political subdivisions		6,679		182		—		—		6,679		182
Collateralized mortgage obligations—federal agencies		122,520		2,481		576,298		38,234		698,818		40,715
Mortgage-backed securities		973,548		35,262		2,760,024		151,170		3,733,572		186,432

Total debt securitiesavailable-for-sale in an unrealized loss position	$	6,864,155	$	95,566	$	5,293,951	$	224,427	$	12,158,106	$	319,993


	At December 31, 2017
	Less than 12 months				12 months or more				Total
			Gross				Gross				Gross
	Fair		unrealized		Fair		unrealized		Fair		unrealized
(In thousands)	value		losses		value		losses		value		losses
U.S. Treasury securities	$	2,608,473	$	14,749	$	1,027,066	$	13,862	$	3,635,539	$	28,611
Obligations of U.S. Government sponsored entities		214,670		1,108		376,807		3,228		591,477		4,336
Obligations of Puerto Rico, States and political subdivisions		6,609		59		—		—		6,609		59
Collateralized mortgage obligations—federal agencies		153,336		2,110		595,339		24,922		748,675		27,032
Mortgage-backed securities		1,515,295		12,529		2,652,359		60,518		4,167,654		73,047

Total debt securitiesavailable-for-sale in an unrealized loss position	$	4,498,383	$	30,555	$	4,651,571	$	102,530	$	9,149,954	$	133,085

As of September 30, ~~2017,~~2018, the portfolio ofavailable-for-sale ~~investment portfolio~~debt securities reflects gross unrealized losses of approximately ~~$85~~$320 million, driven mainly by mortgage-backed securities, U.S. Treasury ~~Securities, Collateralized Mortgage Obligations,~~securities, and ~~Mortgage Backed Securities.~~collateralized mortgage obligations.

Management evaluates ~~investment~~debt 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,~~At September 30, 2018, 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~~other-than-temporarily impaired as of 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,~~2018, 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~~debt 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.~~

The following table states the name of issuers, and the aggregate amortized cost and fair value of the debt securities of such issuer (includesavailable-for-sale andheld-to-maturity debt securities), in which the aggregate amortized cost of such securities exceeds 10% of stockholders’ equity. This information excludes debt 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				September 30, 2018				December 31, 2017
(In thousands)	Amortized cost		Fair value		Amortized cost		Fair value		Amortized cost		Fair value		Amortized cost		Fair value
FNMA	$	3,531,694	$	3,502,711	$	3,255,844	$	3,211,443	$	3,132,301	$	2,993,841	$	3,621,537	$	3,572,474
Freddie Mac		1,397,117		1,383,523		1,381,197		1,361,933		1,119,833		1,066,880		1,358,708		1,335,685

Note 7 ~~– Investment~~–Debt securitiesheld-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~~debt securitiesheld-to-maturity at September 30, ~~2017~~2018 and December 31, ~~2016.~~2017.


												At September 30, 2018
														Gross		Gross				Weighted
	At September 30, 2017											Amortized		unrealized		unrealized		Fair		average
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield			cost		gains		losses		value		yield
Obligations of Puerto Rico, States and political subdivisions
Within 1 year	$	3,295	$	—	$	1,835	$	1,460		5.97	%	$	3,510	$	8	$	3	$	3,515		6.00	%
After 1 to 5 years		15,485		—		7,142		8,343		6.05			16,505		497		1		17,001		6.07
After 5 to 10 years		29,240		—		13,145		16,095		3.89			23,885		1,127		575		24,437		3.61
After 10 years		44,349		3,660		447		47,562		1.94			45,221		3,004		219		48,006		1.87

Total obligations of Puerto Rico, States and political subdivisions		92,369		3,660		22,569		73,460		3.39			89,121		4,636		798		92,959		3.28

Collateralized mortgage obligations - federal agencies
After 5 to 10 years		69		4		—		73		5.45			56		3		—		59		5.45

Total collateralized mortgage obligations - federal agencies		69		4		—		73		5.45			56		3		—		59		5.45

Trust preferred securities
After 10 years													11,561		—		—		11,561		6.51

Total trust preferred securities													11,561		—		—		11,561		6.51

Other
Within 1 year		500		—		13		487		1.96
After 1 to 5 years		500		—		8		492		2.97			500		—		5		495		2.97

Total other		1,000		—		21		979		2.47			500		—		5		495		2.97

Total investment securitiesheld-to-maturity^[1]	$	93,438	$	3,664	$	22,590	$	74,512		3.38	%
Total debt securitiesheld-to-maturity^[1]												$	101,238	$	4,639	$	803	$	105,074		3.65	%

[1]	Includes ~~$92.4~~$89.1 million pledged to secure public and trust deposits that the secured parties are not permitted to sell or repledge the collateral.


												At December 31, 2017
														Gross		Gross				Weighted
	At December 31, 2016											Amortized		unrealized		unrealized		Fair		average
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield			cost		gains		losses		value		yield
Obligations of Puerto Rico, States and political subdivisions
Within 1 year	$	3,105	$	—	$	1,240	$	1,865		5.90	%	$	3,295	$	—	$	79	$	3,216		5.96	%
After 1 to 5 years		14,540		—		5,957		8,583		6.02			15,485		—		4,143		11,342		6.05
After 5 to 10 years		18,635		—		7,766		10,869		6.20			29,240		—		8,905		20,335		3.89
After 10 years		59,747		1,368		8,892		52,223		1.91			44,734		3,834		222		48,346		1.93

Total obligations of Puerto Rico, States and political subdivisions		96,027		1,368		23,855		73,540		3.49			92,754		3,834		13,349		83,239		3.38

Collateralized mortgage obligations - federal agencies
After 5 to 10 years		74		4		—		78		5.45			67		4		—		71		5.45

Total collateralized mortgage obligations - federal agencies		74		4		—		78		5.45			67		4		—		71		5.45

Trust preferred securities
After 5 to 10 years													1,637		—		—		1,637		8.33
After 10 years													11,561		—		—		11,561		6.51

Total trust preferred securities													13,198		—		—		13,198		6.73

Other
Within 1 year		1,000		—		3		997		1.65			500		—		7		493		1.96
After 1 to 5 years		1,000		—		39		961		2.44			500		—		—		500		2.97

Total other		2,000		—		42		1,958		2.05			1,000		—		7		993		2.47

Total investment securitiesheld-to-maturity^[1]	$	98,101	$	1,372	$	23,897	$	75,576		3.46	%
Total debt securitiesheld-to-maturity^[1]												$	107,019	$	3,838	$	13,356	$	97,501		3.79	%

[1]	Includes ~~$53.1~~$92.8 million pledged to secure public and trust deposits that the secured parties are not permitted to sell or repledge the collateral.

~~Securities~~Debt 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~~debt securitiesheld-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~~2018 and December 31, ~~2016.~~2017.

   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 securitiesheld-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 securitiesheld-to-maturity in an unrealized loss position
   $ 31,785    $ 1,711    $ 32,164    $ 22,186    $ 63,949    $ 23,897


	At September 30, 2018
	Less than 12 months				12 months or more				Total
			Gross				Gross				Gross
	Fair		unrealized		Fair		unrealized		Fair		unrealized
(In thousands)	value		losses		value		losses		value		losses
Obligations of Puerto Rico, States and political subdivisions	$	17,359	$	219	$	14,431	$	579	$	31,790	$	798
Other		—		—		495		5		495		5

Total debt securitiesheld-to-maturity in an unrealized loss position	$	17,359	$	219	$	14,926	$	584	$	32,285	$	803


	At December 31, 2017
	Less than 12 months				12 months or more				Total
			Gross				Gross				Gross
	Fair		unrealized		Fair		unrealized		Fair		unrealized
(In thousands)	value		losses		value		losses		value		losses
Obligations of Puerto Rico, States and political subdivisions	$	—	$	—	$	35,696	$	13,349	$	35,696	$	13,349
Other		—		—		743		7		743		7

Total debt securitiesheld-to-maturity in an unrealized loss position	$	—	$	—	$	36,439	$	13,356	$	36,439	$	13,356

As indicated in Note 6 to these Consolidated Financial Statements, management evaluates ~~investment~~debt securities for OTTI declines in fair value on a quarterly basis.

The “Obligations of Puerto Rico, States and political subdivisions” classified asheld-to-maturity at September 30, ~~2017~~2018 are primarily associated with securities issued by municipalities of Puerto Rico and are generally not rated by a credit rating agency. This includes ~~$49~~$45 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~~$44 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 securityheld-to-maturity was other-than-temporarily impaired at September 30, ~~2017.~~2018. Further deterioration of the Puerto Rico economy or of the fiscal crisis of the Government of Puerto Rico or(including if any of ~~Puerto Rico’s economy~~the issuing municipalities become subject to a debt restructuring proceeding under PROMESA) could further affect the value of these securities, resulting in losses to the Corporation. The Corporation does not have the intent to sell debt securitiesheld-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 22for additional information on the Corporation’s exposure to the Puerto Rico Government.

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 Subtopic310-30.~~ ~~Under ASC Subtopic310-30,~~ 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 considerednon-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 innon-accrual~~ ~~status when past due in accordance with the Corporation’snon-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—3 - Summary of significant accounting policies of the ~~2016~~2017 Form10-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 10, 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 asnon-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.

As previously disclosed in Note 4, as a result of the Reliable Transaction completed on August 1, 2018, Popular Auto, LLC, acquired approximately $1.6 billion in retail auto loans and $341 million in primarily auto-related commercial loans. These loans are included in the information presented in this note.

During the quarter and nine months ended September 30, 2018, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $147 million and $480 million, respectively and consumer loans of $48 million and $152 million, respectively. 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$19 million and ~~$63~~$45 million of residential mortgage loans during the quarter and nine months ended September 30, ~~2017,~~2018, respectively (September 30, ~~2016—$13~~2017 - $9 million and ~~$53~~$63 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~~$110 million and ~~$ 369~~$320 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter and nine months ended September 30, ~~2017,~~2018, respectively (September 30, ~~2016—$ 161~~2017 - $86 million and ~~$ 465~~$369 million, respectively). Furthermore, the Corporation securitized approximately ~~$ 21~~$26 million and ~~$ 86~~$72 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter and nine months ended September 30, ~~2017,~~2018, respectively (September 30, ~~2016~~2017 - ~~$ 50~~$21 million and ~~$ 129~~$86 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~~Delinquency status

The following table presents the composition of~~non-covered~~ loansheld-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.~~

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 estatenon-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 estatenon-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

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 estatenon-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~~ ~~loansheld-in-portfolio~~ ~~are net of $129 million in unearned income and exclude $69 million in loansheld-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 estatenon-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

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 estatenon-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 estatenon-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~~ ~~loansheld-in-portfolio~~ ~~are net of $121 million in unearned income and exclude $89 million in loansheld-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 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 presentnon-covered~~ ~~loansheld-in-portfolio~~ by loan class including those that are innon-performing status or that are accruing interest but are past due 90 days or more at September 30, ~~2017~~2018 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.2017.

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 estatenon-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


September 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	$	466	$	242	$	2,061	$	2,769	$	145,459	$	148,228	$	577	$	—
Commercial real estate:
Non-owner occupied		34,587		1,612		86,831		123,030		2,234,301		2,357,331		29,288		—
Owner occupied		12,947		3,260		120,401		136,608		1,598,897		1,735,505		93,192		—
Commercial and industrial		8,313		503		48,425		57,241		3,109,171		3,166,412		48,214		211
Construction		2,306		—		1,829		4,135		73,658		77,793		1,829		—
Mortgage		285,917		136,265		1,215,269		1,637,451		4,893,825		6,531,276		348,779		735,454
Leasing		7,416		2,259		3,009		12,684		890,856		903,540		3,009		—
Consumer:
Credit cards		9,515		6,178		16,768		32,461		1,005,372		1,037,833		—		16,768
Home equity lines of credit		159		391		107		657		4,824		5,481		11		96
Personal		12,609		7,162		19,780		39,551		1,203,845		1,243,396		18,939		1
Auto		53,347		10,783		22,165		86,295		2,382,315		2,468,610		22,097		68
Other		443		92		15,344		15,879		132,069		147,948		14,868		476

Total	$	428,025	$	168,747	$	1,551,989	$	2,148,761	$	17,674,592	$	19,823,353	$	580,803	$	753,074

[1]

~~Non-covered~~ ~~loans~~

Loans HIP of ~~$192~~$218 million accounted for under ASC Subtopic310-30 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.


September 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	$	2,581	$	17	$	—	$	2,598	$	1,325,974	$	1,328,572	$	—	$	—
Commercial real estate:
Non-owner occupied		—		13,993		365		14,358		1,885,035		1,899,393		365		—
Owner occupied		1,578		618		389		2,585		285,820		288,405		389		—
Commercial and industrial		1,350		2,036		86,220		89,606		980,255		1,069,861		660		—
Construction		20,588		—		17,866		38,454		827,118		865,572		17,866		—
Mortgage		932		3,112		12,306		16,350		756,544		772,894		12,306		—
Legacy		23		269		3,403		3,695		23,871		27,566		3,403		—
Consumer:
Credit cards		1		—		5		6		57		63		5		—
Home equity lines of credit		1,739		594		13,938		16,271		129,274		145,545		13,938		—
Personal		2,164		1,778		2,753		6,695		283,966		290,661		2,753		—
Other		—		4		—		4		279		283		—		—

Total	$	30,956	$	22,421	$	137,245	$	190,622	$	6,498,193	$	6,688,815	$	51,685	$	—

[2]1]

~~For purposes~~

Loans HIP of ~~this~~$86 million accounted for under ASC Subtopic310-30 are excluded from the above table~~non-performing~~ as they are considered to be performing due to the application of the accretion method, in which these loans ~~excludenon-performing~~will accrete interest income over the remaining life of the loans~~held-for-sale.~~ using estimated cash flow analysis.


September 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	$	3,047	$	259	$	2,061	$	5,367	$	1,471,433	$	1,476,800	$	577	$	—
Commercial real estate:
Non-owner occupied		34,587		15,605		87,196		137,388		4,119,336		4,256,724		29,653		—
Owner occupied		14,525		3,878		120,790		139,193		1,884,717		2,023,910		93,581		—
Commercial and industrial		9,663		2,539		134,645		146,847		4,089,426		4,236,273		48,874		211
Construction		22,894		—		19,695		42,589		900,776		943,365		19,695		—
Mortgage^[1]		286,849		139,377		1,227,575		1,653,801		5,650,369		7,304,170		361,085		735,454
Leasing		7,416		2,259		3,009		12,684		890,856		903,540		3,009		—
Legacy^[2]		23		269		3,403		3,695		23,871		27,566		3,403		—
Consumer:
Credit cards		9,516		6,178		16,773		32,467		1,005,429		1,037,896		5		16,768
Home equity lines of credit		1,898		985		14,045		16,928		134,098		151,026		13,949		96
Personal		14,773		8,940		22,533		46,246		1,487,811		1,534,057		21,692		1
Auto		53,347		10,783		22,165		86,295		2,382,315		2,468,610		22,097		68
Other		443		96		15,344		15,883		132,348		148,231		14,868		476

Total	$	458,981	$	191,168	$	1,689,234	$	2,339,383	$	24,172,785	$	26,512,168	$	632,488	$	753,074

[3]1]

[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]	Loansheld-in-portfolio are net of $150 million in unearned income and exclude $52 million in loansheld-for-sale.

[4]

Includes $7.2 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, $2.1 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 $304 million accounted for under ASC Subtopic310-30 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 Subtopic310-30 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 Subtopic310-30 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 ~~in Puerto Rico~~ insured by FHA or guaranteed by the VA ~~that are no longer~~as accruing ~~interest~~loans past due 90 days or more as opposed tonon-performing since the principal repayment is insured.

[2]

The legacy portfolio is comprised of ~~September 30, 2017. Furthermore,~~commercial loans, construction loans and lease financings related to certain lending products exited by the Corporation ~~has approximately $57~~as part of restructuring efforts carried out in prior years at the Popular U.S. segment.

[3]

Loansheld-in-portfolio are net of $131 million in ~~reverse mortgage~~unearned income and exclude $132 million in 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 fromnon-performing~~held-for-sale. ~~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 estatenon-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]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 byHIP of $215 million accounted for under ASC Subtopic310-30 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 tablenon-performing~~ ~~loans excludenon-performing~~ ~~loansheld-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 tonon-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.~~

At September 30, 2018, mortgage loansheld-in-portfolio include $1.4 billion of loans insured by the Federal Housing Administration (“FHA”), or guaranteed by the U.S. Department of Veterans Affairs (“VA”) of which $739 million are 90 days or more past due, including $195 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 tonon-performing since the principal repayment is insured. These balances include $238 million of residential mortgage loans in Puerto Rico that are no longer accruing interest as of September 30, 2018 (December 31, 2017 - $178 million). Additionally, the Corporation has approximately $53 million in reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not accruing interest at September 30, 2018 (December 31, 2017—$58 million).

Loans with a delinquency status of 90 days past due as of September 30, 2018 include $195 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 ~~tables present~~table presents the composition of covered loansheld-in-portfolio by past due status, and by loan class that are innon-performing status or are accruing interest but are past due 90 days or more at ~~September 30, 2017 and~~ December 31, ~~2016 for covered loansheld-in-portfolio.~~ ~~The information considers covered loans accounted for under ASC Subtopic310-20~~ ~~and ASC Subtopic310-30.~~2017.


September 30, 2017
December 31, 2017														December 31, 2017
															Past due												Past due 90 days or more
	Past due														30-59		60-89		90 days		Total				Covered		Non-accrual		Accruing
(In thousands)	30-59 days		60-89 days		90 days or more			Total past due		Current		Covered loans HIP [1]			days		days		or more		past due		Current		loans HIP^[2]		loans		loans
Mortgage	$	47,726	$	16,104	$	60,973		$	124,803	$	385,408	$	510,211		$	16,640	$	5,453	$	59,018	$	81,111	$	421,818	$	502,929	$	3,165	$	—
Consumer		1,503		442		1,004			2,949		11,694		14,643			518		147		988		1,653		12,692		14,345		188		—
							��
Total covered loans	$	49,229	$	16,546	$	61,977		$	127,752	$	397,102	$	524,854
Total covered loans^[1]															$	17,158	$	5,600	$	60,006	$	82,764	$	434,510	$	517,274	$	3,353	$	—

[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 innon-performing~~ ~~status and accruing loanspast-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 Subtopic310-30 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 Subtopic310-20,~~ 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).~~
[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 ASC310-30

The following provides information of loans acquired with evidence of credit deterioration as of the acquisition date, accounted for under the guidance of ASC310-30.

~~Loans~~The outstanding principal balance of acquired ~~from Westernbank as part of an FDIC-assisted transaction~~

loans accounted pursuant to ASC Subtopic310-30, amounted to $2.3 billion at September 30, 2018 (December 31, 2017—$2.5 billion). The carrying amount of ~~the Westernbank~~these loans consisted of loans determined to be impaired at the time of acquisition, which are accounted for in accordance with ASC Subtopic310-30 (“credit impaired loans”), and loans that were considered to be performing at the acquisition date, accounted for by analogy to ASC Subtopic310-30(“non-credit impaired loans”)~~, as detailed in~~.

The following table provides 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 ASC310-30~~ ~~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~~for under ASC ~~Subtopic~~310-30 ~~amounted to $1.9 billion~~by portfolio at September 30, ~~2017 (December~~2018 and December 31, ~~2016 - $2.1 billion).~~ 2017.


Carrying amount
(In thousands)	September 30, 2018			December 31, 2017
Commercial real estate	$	876,521		$	923,424
Commercial and industrial		86,000			88,130
Construction		—			170
Mortgage		1,012,789			1,079,611
Consumer		15,312			17,658

Carrying amount		1,990,622			2,108,993
Allowance for loan losses		(168,559	)		(119,505	)

Carrying amount, net of allowance	$	1,822,063		$	1,989,488

At September 30, ~~2017,~~2018, none of the acquired loans ~~from the Westernbank FDIC-assisted transaction~~ accounted for under ASC Subtopic310-30 were considerednon-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 Subtopic310-30, for the quarters and the nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, were as follows:

   Activity in the accretable yield
   Westernbank loans ASC310-30
   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


	Activity in the accretable yield
	Westernbank loans ASC310-30
	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
Carrying amount of acquired loans accounted for pursuant to ASC310-30											Carrying amount of acquired loans accounted for pursuant to ASC310-30
																				For the quarter ended								For the nine months ended
(In thousands)				Non-credit impaired loans					Credit impaired loans									Total				Non-credit impaired loans				Credit impaired loans				Total				September 30, 2018				September 30, 2017	September 30, 2018	September 30, 2017
Beginning balance			$			1,010,087							$	1,112,458			$	2,033,457			$				2,168,664						$	2,108,993			$	2,301,024
Accretion						(108,170	)					(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 ASC310-30
	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
Additions																								3,062				4,792				8,334				14,671
Accretion		34,064				726			34,790				38,597			993				39,590				38,886				42,735				121,752				133,373
Collections / loan sales / charge-offs		(61,737	)			(2,293	)		(64,030	)			(69,030	)		(2,964	)			(71,994	)			(84,783	)			(82,245	)			(248,457	)			(315,122	)

Ending balance^[1]	$	1,551,523			$	37,024		$	1,588,547			$	1,724,180		$	43,359			$	1,767,539			$	1,990,622			$	2,133,946			$	1,990,622			$	2,133,946
Allowance for loan losses ASC310-30 Westernbank loans		(61,034	)			(6,066	)		(67,100	)			(62,114	)		(7,457	)			(69,571	)
Allowance for loan losses																								(168,559	)			(138,030	)			(168,559	)			(138,030	)

Ending balance, net of ALLL	$	1,490,489			$	30,958		$	1,521,447			$	1,662,066		$	35,902			$	1,697,968			$	1,822,063			$	1,995,916			$	1,822,063			$	1,995,916

[1]

~~The carrying amount~~

At September 30, 2018, includes $1.5 billion of loans ~~acquired from Westernbank and accounted for under ASC~~considered~~310-30~~non-credit ~~which remain subject to~~impaired at the ~~loss sharing agreement with the FDIC amounted to approximately $ 515 million as of September~~acquisition date (September 30, 2017 ~~(September 30, 2016- $578 million)~~- $1.6 billion).

   Carrying amount of Westernbank loans accounted for pursuant to ASC310-30
   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 ASC310-30 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


Activity in the accretable yield of acquired loans accounted for pursuant to ASC310-30
	For the quarter ended						For the nine months ended
(In thousands)	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Beginning balance	$	1,178,042		$	1,245,672		$	1,214,488		$	1,288,983
Additions		315			2,882			3,752			8,737
Accretion		(38,886	)		(42,735	)		(121,752	)		(133,373	)
Change in expected cash flows		(16,739	)		(6,475	)		26,244			34,997

Ending balance^[1]	$	1,122,732		$	1,199,344		$	1,122,732		$	1,199,344

[1]	~~For the nine months ended~~ At September 30, ~~2016,~~2018, includes ~~the impact of the bulk sale~~$0.8 billion of loans ~~with a carrying value of approximately $99 million.~~

~~[2]~~

~~The carrying amount of loans acquired from Westernbank and accounted for under ASC~~considered~~310-30~~non-credit ~~which remain subject to~~impaired at the ~~loss sharing agreement with the FDIC amounted to approximately $515 million as of September~~acquisition date (September 30, 2017 ~~(September 30, 2016- $578 million)~~- $0.9 billion).

~~Other loans acquired with deteriorated credit quality~~

~~The outstanding principal balance of other acquired loans accounted pursuant to ASC Subtopic310-30,~~ ~~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 Subtopic310-30~~ ~~were considerednon-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 other acquired loans accounted pursuant to the ASC Subtopic310-30,~~ ~~for the quarters and nine months ended September 30, 2017 and 2016 were as follows:~~

Activity in the accretable yield - other acquired loans ASC310-30

(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 ASC310-30

(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 ASC310-30

(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 ASC310-30 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 ASC310-30

(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 ASC310-30 other acquired loans
   (70,930 )    (18,550 )




Ending balance, net of ALLL
   $ 474,469    $ 543,372

Note 9 – Allowance for loan losses

The Corporation follows a systematic methodology to establish and evaluate the adequacy of the allowance for loan losses (“ALLL”) 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.~~ALLL.

The Corporation’s assessment of the ~~allowance for loan losses~~ALLL is determined in accordance with the guidance of loss contingencies in ASC Subtopic450-20 and loan impairment guidance in ASCSection 310-10-35. Also, the Corporation determines the ~~allowance for loan losses~~ALLL on purchased impaired loans and purchased loans accounted for under ASC Subtopic310-30, 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~~general ALLL includes the following principal factors:

Base net loss rates, which are based on the moving average of annualized net loss rates computed over a5-year historical loss period for the commercial and construction loan portfolios, and an18-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 a12-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%~~2018, 80% (September 30, ~~2016 - 49%~~2017—45%) of the ALLL for~~non-covered~~ the BPPR segment loan portfolios utilized the recent loss trend adjustment instead of the base loss. The recent loss trends were impacted by charge-off activity related to the impact of Hurricanes Irma and Maria. The effect of replacing the base loss with the recent loss trend adjustment was mainly concentrated in the mortgage, leasing and overall consumer portfolios for 2018 and in the leasing, credit cards, personal, auto and other consumer ~~loan portfolios~~loans for ~~2017 and in the leasing, auto, other consumer loan and mortgage loan portfolios for 2016.~~2017.

For the period ended September 30, ~~2017, 5%~~2018, 6% (September 30, ~~2016 - 4~~2017—5 %) of ~~our BPNA~~the Popular U.S. 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~~portfolio for ~~2017~~2018 and ~~2016.~~2017.

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~~ALLL.

During the third quarter of 2018, management completed the annual review of the ~~allowance~~components of the ALLL models. As part of this review, management updated core metrics related to the estimation process for ~~loan losses.~~

~~As discussed~~evaluating the adequacy of the general ALLL. These updates to the ALLL models, which are described in ~~Note 2, Hurricanes impact,~~the paragraph below, were implemented as of September 30, 2018 and resulted in a net decrease to the ALLL of $6.1 million.

Management made the following revisions to the ALLL models during the third quarter ~~ended September 30, 2017, an incremental provision expense~~ of ~~$69.9 million was made~~2018:

Annual review and recalibration of the environmental factors adjustments. The environmental factors adjustments are developed by performing regression analyses on selected credit and economic indicators for each applicable loan segment. During the third quarter of 2018, the environmental factor models used to account for changes in current credit and macroeconomic conditions were reviewed and recalibrated based on the latest applicable trends.

The effect of the recalibration 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 environmentenvironmental factors adjustments resulted in ~~Puerto Rico prior~~a decrease to the ~~hurricanes. Refer to Note 2 for additional information.~~ALLL of $5.9 million and $0.2 million at the BPPR and Popular U.S. segments, respectively.

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~~2018 and ~~2016.~~2017.

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




Loansheld-in-portfolio:

Impairednon-covered loans
   $ 328,704 $ —      $ 510,134 $ 1,468 $ 101,948 $ 942,254
Non-covered loansheld-in-portfolio excluding impaired loans
   6,840,907 87,705    5,305,371 753,413 3,188,422 16,175,818




Totalnon-covered loansheld-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




Loansheld-in-portfolio:

Impaired covered loans
   $ —   $ —      $ —   $ —   $ —   $ —
Covered loansheld-in-portfolio excluding impaired loans
   —   —      510,211 —   14,643 524,854




Total covered loansheld-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




Loansheld-in-portfolio:

Impaired loans
   $ —   $ —      $ 9,094 $ —   $ 3,439 $ 12,533
Loansheld-in-portfolio excluding impaired loans
   4,057,484 735,620    704,636 37,508 507,597 6,042,845




Total loansheld-in-portfolio
   $ 4,057,484 $ 735,620    $ 713,730 $ 37,508 $ 511,036 $ 6,055,378

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




Loansheld-in-portfolio:

Impaired loans
   $ 328,704 $ —      $ 519,228 $ —   $ 1,468 $ 105,387 $ 954,787
Loansheld-in-portfolio excluding impaired loans
   10,898,391 823,325    6,520,218 37,508 753,413 3,710,662 22,743,517




Total loansheld-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


Loansheld-in-portfolio:

Impairednon-covered loans
   $ 328,704 $ —   $ 510,134 $ 1,468 $ 101,948 $ 942,254
Non-covered loansheld-in-portfolio excluding impaired loans
   6,840,907 87,705 5,305,371 753,413 3,188,422 16,175,818


Totalnon-covered loansheld-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


Loansheld-in-portfolio:

Impaired covered loans
   $ —   $ —   $ —   $ —   $ —   $ —
Covered loansheld-in-portfolio excluding impaired loans
   —   —   510,211 —   14,643 524,854


Total covered loansheld-in-portfolio
   $ —   $ —   $ 510,211 $ —   $ 14,643 $ 524,854

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


Loansheld-in-portfolio:

Impaired loans
   $ —   $ —   $ 9,094 $ —   $ 3,439 $ 12,533
Loansheld-in-portfolio excluding impaired loans
   4,057,484 735,620 704,636 37,508 507,597 6,042,845


Total loansheld-in-portfolio
   $ 4,057,484 $ 735,620 $ 713,730 $ 37,508 $ 511,036 $ 6,055,378


For the quarter ended September 30, 2018
Puerto Rico
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	190,926		$	765		$	182,103		$	14,285		$	179,066		$	567,145
Provision (reversal of provision)		21,548			(12	)		10,145			(422	)		20,618			51,877
Charge-offs		(7,335	)		(21	)		(23,526	)		(2,088	)		(42,180	)		(75,150	)
Recoveries		4,966			146			1,564			531			9,097			16,304

Ending balance	$	210,105		$	878		$	170,286		$	12,306		$	166,601		$	560,176

Specific ALLL	$	52,250		$	—		$	43,841		$	297		$	24,906		$	121,294

General ALLL	$	157,855		$	878		$	126,445		$	12,009		$	141,695		$	438,882

Loansheld-in-portfolio:
Impairednon-covered loans	$	356,007		$	1,829		$	508,258		$	931		$	107,184		$	974,209
Non-covered loansheld-in-portfolio excluding impaired loans		7,051,469			75,964			6,023,018			902,609			4,796,084			18,849,144

Totalnon-covered loansheld-in-portfolio	$	7,407,476		$	77,793		$	6,531,276		$	903,540		$	4,903,268		$	19,823,353


For the quarter ended September 30, 2018
Popular U.S.
(In thousands)	Commercial			Construction			Mortgage			Legacy			Consumer			Total
Allowance for credit losses:
Beginning balance	$	50,920		$	6,937		$	4,363		$	700		$	12,953		$	75,873
Provision (reversal of provision)		(14,744	)		7,305			(65	)		(1,008	)		11,022			2,510
Charge-offs		(2,792	)		—			(17	)		(81	)		(5,015	)		(7,905	)
Recoveries		1,051			—			20			766			1,227			3,064

Ending balance	$	34,435		$	14,242		$	4,301		$	377		$	20,187		$	73,542

Specific ALLL	$	—		$	5,530		$	2,364		$	—		$	1,349		$	9,243

General ALLL	$	34,435		$	8,712		$	1,937		$	377		$	18,838		$	64,299

Loansheld-in-portfolio:
Impaired loans	$	—		$	17,866		$	8,825		$	—		$	7,388		$	34,079
Loansheld-in-portfolio excluding impaired loans		4,586,231			847,706			764,069			27,566			429,164			6,654,736

Total loansheld-in-portfolio	$	4,586,231		$	865,572		$	772,894		$	27,566		$	436,552		$	6,688,815


For the nine months ended September 30, 2017
For the quarter ended September 30, 2018																							For the quarter ended September 30, 2018
Popular, Inc.	Popular, Inc.																						Popular, Inc.
(In thousands)		Commercial			Construction			Mortgage			Legacy			Leasing			Consumer			Total				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			$	241,846		$	7,702		$	186,466		$	700		$	14,285		$	192,019		$	643,018
Provision (reversal of provision)			83,436			(3,267	)		80,772			(1,554	)		6,516			88,033			253,936				6,804			7,293			10,080			(1,008	)		(422	)		31,640			54,387
Charge-offs			(42,993	)		(3,646	)		(57,700	)		(669	)		(5,030	)		(96,217	)		(206,255	)			(10,127	)		(21	)		(23,543	)		(81	)		(2,088	)		(47,195	)		(83,055	)
Recoveries			25,872			6,210			4,716			1,752			1,284			18,747			58,581				6,017			146			1,584			766			531			10,324			19,368

Ending balance		$	268,969		$	8,822		$	205,881		$	872		$	10,432		$	151,937		$	646,913			$	244,540		$	15,120		$	174,587		$	377		$	12,306		$	186,788		$	633,718

Specific ALLL		$	40,863		$	—		$	51,421		$	—		$	450		$	22,457		$	115,191			$	52,250		$	5,530		$	46,205		$	—		$	297		$	26,255		$	130,537

General ALLL		$	228,106		$	8,822		$	154,460		$	872		$	9,982		$	129,480		$	531,722			$	192,290		$	9,590		$	128,382		$	377		$	12,009		$	160,533		$	503,181

Loansheld-in-portfolio:
Impaired loans		$	328,704		$	—		$	519,228		$	—		$	1,468		$	105,387		$	954,787			$	356,007		$	19,695		$	517,083		$	—		$	931		$	114,572		$	1,008,288
Loansheld-in-portfolio excluding impaired loans			10,898,391			823,325			6,520,218			37,508			753,413			3,710,662			22,743,517				11,637,700			923,670			6,787,087			27,566			902,609			5,225,248			25,503,880

Total loansheld-in-portfolio		$	11,227,095		$	823,325		$	7,039,446		$	37,508		$	754,881		$	3,816,049		$	23,698,304			$	11,993,707		$	943,365		$	7,304,170		$	27,566		$	903,540		$	5,339,820		$	26,512,168


For the nine months ended September 30, 2018
PuertoRico - Non-covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	171,531		$	1,286		$	159,081		$	11,991		$	174,215		$	518,104
Provision (reversal of provision)		52,846			(1,042	)		24,564			5,022			71,610			153,000
Charge-offs		(25,626	)		9			(50,164	)		(6,404	)		(101,703	)		(183,888	)
Recoveries		11,354			625			3,383			1,697			22,291			39,350
Allowance transferred from covered loans^[1]		—			—			33,422			—			188			33,610

Ending balance	$	210,105		$	878		$	170,286		$	12,306		$	166,601		$	560,176

Specific ALLL	$	52,250		$	—		$	43,841		$	297		$	24,906		$	121,294

General ALLL	$	157,855		$	878		$	126,445		$	12,009		$	141,695		$	438,882

Loansheld-in-portfolio:
Impairednon-covered loans	$	356,007		$	1,829		$	508,258		$	931		$	107,184		$	974,209
Non-covered loansheld-in-portfolio excluding impaired loans		7,051,469			75,964			6,023,018			902,609			4,796,084			18,849,144

Totalnon-covered loansheld-in-portfolio	$	7,407,476		$	77,793		$	6,531,276		$	903,540		$	4,903,268		$	19,823,353

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


Loansheld-in-portfolio:

Impairednon-covered loans
   $ 328,868 $ —   $ 487,972 $ 1,899 $ 108,341 $ 927,080
Non-covered loansheld-in-portfolio excluding impaired loans
   6,925,290 81,054 5,476,876 680,911 3,185,490 16,349,621


Totalnon-covered loansheld-in-portfolio
   $ 7,254,158 $ 81,054 $ 5,964,848 $ 682,810 $ 3,293,831 $ 17,276,701

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




Loansheld-in-portfolio:

Impaired covered loans
   $ —   $ —      $ —   $ —   $ —   $ —
Covered loansheld-in-portfolio excluding impaired loans
   —   —      571,349 —   16,862 588,211




Total covered loansheld-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




Loansheld-in-portfolio:

Impaired loans
   $ —   $ —      $ 8,896 $ —   $ 2,588 $ 11,484
Loansheld-in-portfolio excluding impaired loans
   3,283,022 650,298    800,763 47,914 525,790 5,307,787




Total loansheld-in-portfolio
   $ 3,283,022 $ 650,298    $ 809,659 $ 47,914 $ 528,378 $ 5,319,271




[1]
Represents the allowance transferred from covered tonon-covered loans at June 30, 2018, due to the Termination Agreement with the FDIC.


For the quarter ended September 30, 2016
Popular, Inc.
For the nine months ended September 30, 2018																						For the nine months ended September 30, 2018
Puerto Rico - Covered loans																						Puerto Rico - Covered loans
(In thousands)	Commercial			Construction			Mortgage			Legacy			Leasing			Consumer			Total				Commercial		Construction		Mortgage			Leasing		Consumer			Total
Allowance for credit losses:
Beginning balance	$	209,681		$	11,065		$	171,437		$	1,852		$	10,094		$	144,591		$	548,720			$	—	$	—	$	32,521		$	—	$	723		$	33,244
Provision (reversal of provision)		16,511			(237	)		16,066			(690	)		(1,363	)		13,057			43,344				—		—		2,265			—		(535	)		1,730
Charge-offs		(13,954	)		(951	)		(18,997	)		(145	)		(1,429	)		(28,765	)		(64,241	)			—		—		(1,446	)		—		(2	)		(1,448	)
Recoveries		11,928			65			1,157			665			613			13,604			28,032				—		—		82			—		2			84
Allowance transferred tonon-covered loans																								—		—		(33,422	)		—		(188	)		(33,610	)

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			$	—	$	—	$	—		$	—	$	—		$	—

Loansheld-in-portfolio:
Impaired loans	$	328,868		$	—		$	496,868		$	—		$	1,899		$	110,929		$	938,564
Loansheld-in-portfolio excluding impaired loans		10,208,312			731,352			6,848,988			47,914			680,911			3,728,142			22,245,619
Impaired covered loans																							$	—	$	—	$	—		$	—	$	—		$	—
Covered loansheld-in-portfolio excluding impaired loans																								—		—		—			—		—			—

Total loansheld-in-portfolio	$	10,537,180		$	731,352		$	7,345,856		$	47,914		$	682,810		$	3,839,071		$	23,184,183
Total covered loansheld-in-portfolio																							$	—	$	—	$	—		$	—	$	—		$	—

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


Loansheld-in-portfolio:

Impairednon-covered loans
   $ 328,868 $ —   $ 487,972 $ 1,899 $ 108,341 $ 927,080
Non-covered loansheld-in-portfolio excluding impaired loans
   6,925,290 81,054 5,476,876 680,911 3,185,490 16,349,621


Totalnon-covered loansheld-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


Loansheld-in-portfolio:

Impaired covered loans
   $ —   $ —   $ —   $ —   $ —   $ —
Covered loansheld-in-portfolio excluding impaired loans
   —   —   571,349 —   16,862 588,211


Total covered loansheld-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


Loansheld-in-portfolio:

Impaired loans
   $ —   $ —   $ 8,896 $ —   $ 2,588 $ 11,484
Loansheld-in-portfolio excluding impaired loans
   3,283,022 650,298 800,763 47,914 525,790 5,307,787


Total loansheld-in-portfolio
   $ 3,283,022 $ 650,298 $ 809,659 $ 47,914 $ 528,378 $ 5,319,271


For the nine months ended September 30, 2018
Popular U.S.
(In thousands)	Commercial			Construction		Mortgage			Legacy			Consumer			Total
Allowance for credit losses:
Beginning balance	$	44,134		$	7,076	$	4,541		$	798		$	15,529		$	72,078
Provision (reversal of provision)		9,004			7,166		(529	)		(1,714	)		16,847			30,774
Charge-offs		(22,435	)		—		(160	)		(252	)		(16,329	)		(39,176	)
Recoveries		3,732			—		449			1,545			4,140			9,866

Ending balance	$	34,435		$	14,242	$	4,301		$	377		$	20,187		$	73,542

Specific ALLL	$	—		$	5,530	$	2,364		$	—		$	1,349		$	9,243

General ALLL	$	34,435		$	8,712	$	1,937		$	377		$	18,838		$	64,299

Loansheld-in-portfolio:
Impaired loans	$	—		$	17,866	$	8,825		$	—		$	7,388		$	34,079
Loansheld-in-portfolio excluding impaired loans		4,586,231			847,706		764,069			27,566			429,164			6,654,736

Total loansheld-in-portfolio	$	4,586,231		$	865,572	$	772,894		$	27,566		$	436,552		$	6,688,815


For the nine months ended September 30, 2018
Popular, Inc.
(In thousands)	Commercial			Construction		Mortgage			Legacy			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	215,665		$	8,362	$	196,143		$	798		$	11,991		$	190,467		$	623,426
Provision (reversal of provision)		61,850			6,124		26,300			(1,714	)		5,022			87,922			185,504
Charge-offs		(48,061	)		9		(51,770	)		(252	)		(6,404	)		(118,034	)		(224,512	)
Recoveries		15,086			625		3,914			1,545			1,697			26,433			49,300

Ending balance	$	244,540		$	15,120	$	174,587		$	377		$	12,306		$	186,788		$	633,718

Specific ALLL	$	52,250		$	5,530	$	46,205		$	—		$	297		$	26,255		$	130,537

General ALLL	$	192,290		$	9,590	$	128,382		$	377		$	12,009		$	160,533		$	503,181

Loansheld-in-portfolio:
Impaired loans	$	356,007		$	19,695	$	517,083		$	—		$	931		$	114,572		$	1,008,288
Loansheld-in-portfolio excluding impaired loans		11,637,700			923,670		6,787,087			27,566			902,609			5,225,248			25,503,880

Total loansheld-in-portfolio	$	11,993,707		$	943,365	$	7,304,170		$	27,566		$	903,540		$	5,339,820		$	26,512,168


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		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

Loansheld-in-portfolio:
Impairednon-covered loans	$	328,704		$	—	$	510,134		$	1,468		$	101,948		$	942,254
Non-covered loansheld-in-portfolio excluding impaired loans		6,840,907			87,705		5,305,371			753,413			3,188,422			16,175,818

Totalnon-covered loansheld-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, 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


Loansheld-in-portfolio:

Impaired loans
   $ 328,868 $ —   $ 496,868 $ —   $ 1,899 $ 110,929 $ 938,564
Loansheld-in-portfolio excluding impaired loans
   10,208,312 731,352 6,848,988 47,914 680,911 3,728,142 22,245,619


Total loansheld-in-portfolio
   $ 10,537,180 $ 731,352 $ 7,345,856 $ 47,914 $ 682,810 $ 3,839,071 $ 23,184,183


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		—			—		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

Loansheld-in-portfolio:
Impaired covered loans	$	—		$	—	$	—		$	—		$	—		$	—
Covered loansheld-in-portfolio excluding impaired loans		—			—		510,211			—			14,643			524,854

Total covered loansheld-in-portfolio	$	—		$	—	$	510,211		$	—		$	14,643		$	524,854


For the quarter ended September 30, 2017
Popular U.S.
(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

Loansheld-in-portfolio:
Impaired loans	$	—		$	—	$	9,094		$	—		$	3,439		$	12,533
Loansheld-in-portfolio excluding impaired loans		4,057,484			735,620		704,636			37,508			507,597			6,042,845

Total loansheld-in-portfolio	$	4,057,484		$	735,620	$	713,730		$	37,508		$	511,036		$	6,055,378


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

Loansheld-in-portfolio:
Impaired loans	$	328,704		$	—	$	519,228		$	—		$	1,468		$	105,387		$	954,787
Loansheld-in-portfolio excluding impaired loans		10,898,391			823,325		6,520,218			37,508			753,413			3,710,662			22,743,517

Total loansheld-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

Loansheld-in-portfolio:
Impairednon-covered loans	$	328,704		$	—		$	510,134		$	1,468		$	101,948		$	942,254
Non-covered loansheld-in-portfolio excluding impaired loans		6,840,907			87,705			5,305,371			753,413			3,188,422			16,175,818

Totalnon-covered loansheld-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		—			—			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

Loansheld-in-portfolio:
Impaired covered loans	$	—		$	—		$	—		$	—		$	—		$	—
Covered loansheld-in-portfolio excluding impaired loans		—			—			510,211			—			14,643			524,854

Total covered loansheld-in-portfolio	$	—		$	—		$	510,211		$	—		$	14,643		$	524,854


For the nine months ended September 30, 2017
Popular U.S.
(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

Loansheld-in-portfolio:
Impaired loans	$	—		$	—		$	9,094		$	—		$	3,439		$	12,533
Loansheld-in-portfolio excluding impaired loans		4,057,484			735,620			704,636			37,508			507,597			6,042,845

Total loansheld-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

Loansheld-in-portfolio:
Impaired loans	$	328,704		$	—		$	519,228		$	—		$	1,468		$	105,387		$	954,787
Loansheld-in-portfolio excluding impaired loans		10,898,391			823,325			6,520,218			37,508			753,413			3,710,662			22,743,517

Total loansheld-in-portfolio	$	11,227,095		$	823,325		$	7,039,446		$	37,508		$	754,881		$	3,816,049		$	23,698,304

The following table provides the activity in the allowance for loan losses related to ~~Westernbank~~ loans accounted for pursuant to ASC Subtopic310-30.


	ASC310-30											ASC310-30
	For the quarters ended						For the nine months ended					For the quarters ended						For the nine months ended
(In thousands)	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016		September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Balance at beginning of period	$	65,674		$	66,995		$	68,877		$	63,563	$	156,328		$	103,597		$	119,505		$	91,308
Provision (reversal of provision)		2,995			6,710			8,214			2,640
Net recoveries (charge-offs)		(1,569	)		(4,134	)		(9,991	)		3,368
Provision													17,854			41,683			78,317			64,336
Net charge-offs													(5,623	)		(7,250	)		(29,263	)		(17,614	)

Balance at end of period	$	67,100		$	69,571		$	67,100		$	69,571	$	168,559		$	138,030		$	168,559		$	138,030

Impaired loans

The following tables present loans individually evaluated for impairment at September 30, ~~2017~~2018 and December 31, ~~2016.~~2017.


September 30, 2017
September 30, 2018																		September 30, 2018
Puerto Rico	Puerto Rico																	Puerto Rico
		Impaired Loans – With an						Impaired Loans											Impaired Loans – With an						Impaired Loans
		Allowance						With No Allowance				Impaired Loans - Total							Allowance						With No Allowance				Impaired Loans - Total
				Unpaid						Unpaid				Unpaid							Unpaid						Unpaid				Unpaid
		Recorded		principal		Related		Recorded		principal		Recorded		principal		Related			Recorded		principal		Related		Recorded		principal		Recorded		principal		Related
(In thousands)		investment		balance		allowance		investment		balance		investment		balance		allowance			investment		balance		allowance		investment		balance		investment		balance		allowance
Commercial multi-family		$	204	$	204	$	30	$	—	$	—	$	204	$	204	$	30		$	1,501	$	1,501	$	13	$	—	$	—	$	1,501	$	1,501	$	13
Commercial real estatenon-owner occupied			109,814		120,252		25,535		7,617		12,780		117,431		133,032		25,535			85,259		86,091		27,582		48,690		61,520		133,949		147,611		27,582
Commercial real estate owner occupied			120,196		178,892		8,729		28,389		59,034		148,585		237,926		8,729			116,746		138,880		8,489		29,740		63,750		146,486		202,630		8,489
Commercial and industrial			46,807		49,869		6,569		15,677		25,105		62,484		74,974		6,569			64,437		66,344		16,166		9,634		19,878		74,071		86,222		16,166
Construction																				—		—		—		1,829		1,829		1,829		1,829		—
Mortgage			452,734		502,908		49,129		57,400		69,694		510,134		572,602		49,129			444,980		506,941		43,841		63,278		84,504		508,258		591,445		43,841
Leasing			1,468		1,468		450		—		—		1,468		1,468		450			931		931		297		—		— ��		931		931		297
Consumer:
Credit cards			35,782		35,782		5,500		—		—		35,782		35,782		5,500			30,674		30,674		5,193		—		—		30,674		30,674		5,193
Personal			63,015		63,015		15,616		—		—		63,015		63,015		15,616			74,114		74,114		19,296		—		—		74,114		74,114		19,296
Auto			2,049		2,049		440		—		—		2,049		2,049		440			1,099		1,099		225		—		—		1,099		1,099		225
Other			1,102		1,102		174		—		—		1,102		1,102		174			1,297		1,297		192		—		—		1,297		1,297		192

Total Puerto Rico		$	833,171	$	955,541	$	112,172	$	109,083	$	166,613	$	942,254	$	1,122,154	$	112,172		$	821,038	$	907,872	$	121,294	$	153,171	$	231,481	$	974,209	$	1,139,353	$	121,294

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 estatenon-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 estatenon-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


September 30, 2018
Popular U.S.
	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
Construction	$	17,866	$	18,128	$	5,530	$	—	$	—	$	17,866	$	18,128	$	5,530
Mortgage		6,629		8,231		2,364		2,196		3,137		8,825		11,368		2,364
Consumer:
HELOCs		5,335		5,366		1,102		1,288		1,354		6,623	$	6,720	$	1,102
Personal		633		633		247		132		132		765	$	765	$	247

Total Popular U.S.	$	30,463	$	32,358	$	9,243	$	3,616	$	4,623	$	34,079	$	36,981	$	9,243


September 30, 2018
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	$	1,501	$	1,501	$	13	$	—	$	—	$	1,501	$	1,501	$	13
Commercial real estatenon-owner occupied		85,259		86,091		27,582		48,690		61,520		133,949		147,611		27,582
Commercial real estate owner occupied		116,746		138,880		8,489		29,740		63,750		146,486		202,630		8,489
Commercial and industrial		64,437		66,344		16,166		9,634		19,878		74,071		86,222		16,166
Construction		17,866		18,128		5,530		1,829		1,829		19,695		19,957		5,530
Mortgage		451,609		515,172		46,205		65,474		87,641		517,083		602,813		46,205
Leasing		931		931		297		—		—		931		931		297
Consumer:
Credit Cards		30,674		30,674		5,193		—		—		30,674		30,674		5,193
HELOCs		5,335		5,366		1,102		1,288		1,354		6,623		6,720		1,102
Personal		74,747		74,747		19,543		132		132		74,879		74,879		19,543
Auto		1,099		1,099		225		—		—		1,099		1,099		225
Other		1,297		1,297		192		—		—		1,297		1,297		192

Total Popular, Inc.	$	851,501	$	940,230	$	130,537	$	156,787	$	236,104	$	1,008,288	$	1,176,334	$	130,537


December 31, 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	$	206	$	206	$	32	$	—	$	—	$	206	$	206	$	32
Commercial real estatenon-owner occupied		101,485		102,262		23,744		11,454		27,522		112,939		129,784		23,744
Commercial real estate owner occupied		127,634		153,495		10,221		24,634		57,219		152,268		210,714		10,221
Commercial and industrial		43,493		46,918		2,985		14,549		23,977		58,042		70,895		2,985
Mortgage		450,226		504,006		46,354		58,807		75,228		509,033		579,234		46,354
Leasing		1,456		1,456		475		—		—		1,456		1,456		475
Consumer:
Credit cards		33,676		33,676		5,569		—		—		33,676		33,676		5,569
Personal		62,488		62,488		15,690		—		—		62,488		62,488		15,690
Auto		2,007		2,007		425		—		—		2,007		2,007		425
Other		1,009		1,009		165		—		—		1,009		1,009		165

Total Puerto Rico	$	823,680	$	907,523	$	105,660	$	109,444	$	183,946	$	933,124	$	1,091,469	$	105,660


December 31, 2017
Popular U.S.
	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	$	6,774	$	8,439	$	2,478	$	2,468	$	3,397	$	9,242	$	11,836	$	2,478
Consumer:
HELOCs		3,530		3,542		722		761		780		4,291		4,322		722
Personal		542		542		231		224		224		766		766		231

Total Popular U.S.	$	10,846	$	12,523	$	3,431	$	3,453	$	4,401	$	14,299	$	16,924	$	3,431

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 estatenon-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


December 31, 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	$	206	$	206	$	32	$	—	$	—	$	206	$	206	$	32
Commercial real estatenon-owner occupied		101,485		102,262		23,744		11,454		27,522		112,939		129,784		23,744
Commercial real estate owner occupied		127,634		153,495		10,221		24,634		57,219		152,268		210,714		10,221
Commercial and industrial		43,493		46,918		2,985		14,549		23,977		58,042		70,895		2,985
Mortgage		457,000		512,445		48,832		61,275		78,625		518,275		591,070		48,832
Leasing		1,456		1,456		475		—		—		1,456		1,456		475
Consumer:
Credit Cards		33,676		33,676		5,569		—		—		33,676		33,676		5,569
HELOCs		3,530		3,542		722		761		780		4,291		4,322		722
Personal		63,030		63,030		15,921		224		224		63,254		63,254		15,921
Auto		2,007		2,007		425		—		—		2,007		2,007		425
Other		1,009		1,009		165		—		—		1,009		1,009		165

Total Popular, Inc.	$	834,526	$	920,046	$	109,091	$	112,897	$	188,347	$	947,423	$	1,108,393	$	109,091

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~~2018 and ~~2016.~~2017.


For the quarter ended September 30, 2018														For the quarter ended September 30, 2018
															Puerto Rico				Popular U.S.				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															$	1,100	$	9	$	—	$	—	$	1,100	$	9
Commercial real estatenon-owner occupied																132,927		1,371		—		—		132,927		1,371
Commercial real estate owner occupied																148,931		1,636		—		—		148,931		1,636
Commercial and industrial																74,770		1,053		—		—		74,770		1,053
Construction																2,194		—		17,884		—		20,078		—
Mortgage																507,919		3,561		9,277		43		517,196		3,604
Leasing																1,031		—		—		—		1,031		—
Consumer:
Credit cards																31,998		—		—		—		31,998		—
HELOCs																—		—		6,208		—		6,208		—
Personal																72,353		65		768		—		73,121		65
Auto																1,067		—		—		—		1,067		—
Other																1,136		—		—		—		1,136		—

Total Popular, Inc.															$	975,426	$	7,695	$	34,137	$	43	$	1,009,563	$	7,738


For the quarter ended September 30, 2017	For the quarter ended September 30, 2017													For the quarter ended September 30, 2017
		Puerto Rico				U.S. Mainland				Popular, Inc.					Puerto Rico				Popular U.S.				Popular, Inc.
		Average		Interest		Average		Interest		Average		Interest			Average		Interest		Average		Interest		Average		Interest
		recorded		income		recorded		income		recorded		income			recorded		income		recorded		income		recorded		income
(In thousands)		investment		recognized		investment		recognized		investment		recognized			investment		recognized		investment		recognized		investment		recognized
Commercial multi-family		$	141	$	1	$	—	$	—	$	141	$	1		$	141	$	1	$	—	$	—	$	141	$	1
Commercial real estatenon-owner occupied			117,650		1,272		—		—		117,650		1,272			117,650		1,272		—		—		117,650		1,272
Commercial real estate owner occupied			151,580		1,413		—		—		151,580		1,413			151,580		1,413		—		—		151,580		1,413
Commercial and industrial			61,950		531		—		—		61,950		531			61,950		531		—		—		61,950		531
Mortgage			507,689		3,211		8,995		60		516,684		3,271			507,689		3,211		8,995		60		516,684		3,271
Leasing			1,568		—		—		—		1,568		—			1,568		—		—		—		1,568		—
Consumer:
Credit cards			35,727		—		—		—		35,727		—			35,727		—		—		—		35,727		—
Helocs			—		—		2,572		—		2,572		—
HELOCs																—		—		2,572		—		2,572		—
Personal			64,091		—		763		—		64,854		—			64,091		—		763		—		64,854		—
Auto			2,065		—		—		—		2,065		—			2,065		—		—		—		2,065		—
Other			991		—		—		—		991		—			991		—		—		—		991		—

Total Popular, Inc.		$	943,452	$	6,428	$	12,330	$	60	$	955,782	$	6,488		$	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 estatenon-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

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 estatenon-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 estatenon-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


For the nine months ended September 30, 2018
	Puerto Rico				Popular U.S.				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	$	634	$	28	$	—	$	—	$	634	$	28
Commercial real estatenon-owner occupied		128,143		4,278		—		—		128,143		4,278
Commercial real estate owner occupied		151,192		4,786		—		—		151,192		4,786
Commercial and industrial		67,775		2,793		—		—		67,775		2,793
Construction		2,170		25		8,942		—		11,112		25
Mortgage		508,930		13,790		9,217		130		518,147		13,920
Leasing		1,220		—		—		—		1,220		—
Consumer:
Credit cards		32,734		—		—		—		32,734		—
HELOCs		—		—		5,446		—		5,446		—
Personal		67,049		320		769		—		67,818		320
Auto		1,476		—		—		—		1,476		—
Other		1,246		—		—		—		1,246		—

Total Popular, Inc.	$	962,569	$	26,020	$	24,374	$	130	$	986,943	$	26,150


For the nine months ended September 30, 2017
	Puerto Rico				Popular U.S.				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 estatenon-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

Modifications

~~Troubled debt restructurings (“TDRs”) related tonon-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,~~troubled debt restructurings (“TDRs’), refer to the ~~summary~~Summary of ~~significant accounting policies~~Significant Accounting Policies included in Note ~~2 of~~3 to the ~~2016~~2017 Form10-K.

TDRs amounted to $1.4 billion at September 30, 2018 (December 31, 2017—$1.3 billion). The amount of outstanding commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs amounted to $17 million related to the commercial loan portfolio at September 30, 2018 (December 31, 2017—$8 million).

At September 30, 2018, the mortgage loan TDRs include $503 million guaranteed by U.S. sponsored entities at BPPR, compared to $449 million at December 31, 2017.

The following ~~tables present~~table presents thenon-covered and covered loans classified as TDRs according to their accruing status and the related allowance at September 30, ~~2017~~2018 and December 31, ~~2016.~~2017.

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 $ —


	Popular, Inc.
	September 30, 2018								December 31, 2017
(In thousands)	Accruing		Non- Accruing		Total		Related Allowance		Accruing		Non- Accruing		Total		Related Allowance
Non-covered loansheld-in-portfolio:
Commercial	$	200,196	$	119,250	$	319,446	$	46,694	$	161,220	$	59,626	$	220,846	$	32,472
Construction		—		1,829		1,829		5,530		—		—		—		—
Mortgage		863,654		133,708		997,362		46,205		803,278		126,798		930,076		48,832
Leases		772		220		992		297		863		393		1,256		475
Consumer		96,279		15,104		111,383		25,354		93,916		12,233		106,149		22,802

Non-covered loansheld-in-portfolio		1,160,901	$	270,111	$	1,431,012	$	124,080	$	1,059,277	$	199,050	$	1,258,327	$	104,581

Covered loansheld-in-portfolio:
Mortgage	$	—	$	—	$	—	$	—	$	2,658	$	3,227	$	5,885	$	—

Covered loansheld-in-portfolio	$	—	$	—	$	—	$	—	$	2,658	$	3,227	$	5,885	$	—

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~~2018 and ~~2016.~~2017. 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		Popular, Inc.
																	For the quarter ended September 30, 2018								For the nine months ended September 30, 2018
																	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 multi-family																		—		1		—		—		—		2		—		—
Commercial real estatenon-owner occupied		—		—		—		—		4		1		—		—		1		3		—		—		3		14		—		—
Commercial real estate owner occupied		—		3		—		—		3		12		—		—		1		12		—		—		4		54		—		—
Commercial and industrial		1		15		—		—		3		36		—		—		2		25		—		—		6		75		—		—
Construction																		—		—		—		—		1		—		—		—
Mortgage		13		14		83		16		45		35		301		116		28		7		70		11		73		17		173		56
Leasing		—		—		1		—		—		1		6		—		—		—		3		—		—		—		4		—
Consumer:
Credit cards		140		—		4		114		425		—		5		424		115		—		—		72		426		—		3		382
HELOCs		—		—		2		—		—		1		3		—		—		8		1		1		—		20		8		1
Personal		187		2		1		2		699		6		1		3		511		1		—		—		1,139		4		—		—
Auto		—		1		2		—		—		5		4		1		—		4		1		—		—		6		2		—
Other		11		—		—		—		27		1		—		1		1		—		1		—		21		—		2		—

Total		352		35		93		132		1,206		98		320		545		659		61		76		84		1,673		192		192		439

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 estatenon-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


	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 estatenon-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

The following tables present by class, quantitative information related to loans modified as TDRs during the quarters and nine months ended September 30, ~~2017~~2018 and ~~2016.~~2017.


Popular, Inc.										Popular, Inc.
For the quarter ended September 30, 2018										For the quarter ended September 30, 2018
(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 multi-family												1	$	810	$	808	$	63
Commercial real estatenon-owner occupied												4		1,523		1,521		100
Commercial real estate owner occupied												13		7,578		7,525		160
Commercial and industrial												27		2,411		2,388		139
Mortgage												116		15,143		13,507		640
Leasing												3		75		73		23
Consumer:
Credit cards												187		1,693		1,838		234
HELOCs												10		913		906		66
Personal												512		8,026		8,025		2,660
Auto												5		63		63		11
Other												2		392		392		67

Total												880	$	38,627	$	37,046	$	4,163


Popular, Inc.	Popular, Inc.									Popular, Inc.
For the quarter ended September 30, 2017	For the quarter ended September 30, 2017									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			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			3	$	272	$	269	$	29
Commercial and industrial			16		1,022		1,044		111			16		1,022		1,044		111
Mortgage			126		17,692		16,633		1,103			126		17,692		16,633		1,103
Leasing			1		27		27		8			1		27		27		8
Consumer:
Credit cards			258		2,881		3,114		375			258		2,881		3,114		375
HELOCs			2		203		203		23			2		203		203		23
Personal			192		2,945		2,944		673			192		2,945		2,944		673
Auto			3		42		42		8			3		42		42		8
Other			11		46		46		6			11		46		46		6

Total			612	$	25,130	$	24,322	$	2,336			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 estatenon-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

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 estatenon-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 estatenon-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


Popular, Inc.
For the nine months ended September 30, 2018
(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 multi-family		2	$	1,377	$	1,375	$	106
Commercial real estatenon-owner occupied		17		28,969		28,908		6,854
Commercial real estate owner occupied		58		27,648		26,433		1,143
Commercial and industrial		81		49,633		48,882		13,963
Construction		1		4,210		4,293		474
Mortgage		319		40,741		36,442		1,874
Leasing		4		98		96		30
Consumer:
Credit cards		811		8,097		8,642		1,086
HELOCs		29		2,638		2,579		440
Personal		1,143		18,351		18,346		5,390
Auto		8		139		122		21
Other		23		595		593		98

Total		2,496	$	182,496	$	176,711	$	31,479


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 estatenon-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

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 orcharged-off, whichever occurs first. The recorded investment at September 30, ~~2017~~2018 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.

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 estatenon-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 estatenon-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


Popular, Inc.
	Defaulted during the quarter ended September 30, 2018				Defaulted during the nine months ended September 30, 2018
(Dollars in thousands)	Loan count		Recorded investment as of first default date		Loan count		Recorded investment as of first default date
Commercial real estatenon-owner occupied		—	$	—		1	$	17
Commercial real estate owner occupied		1		255		4		392
Commercial and industrial		1		5		7		81
Mortgage		42		5,280		74		9,520
Consumer:
Credit cards		86		707		150		2,301
HELOCs		1		144		1		144
Personal		27		362		67		1,656
Auto		—		—		3		79
Other		1		3		2		10

Total		159	$	6,756		309	$	14,200


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 estatenon-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

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~~ loansheld-in-portfolio based on the Corporation’s assignment of obligor risk ratings as defined at September 30, ~~2017~~2018 and December 31, ~~2016.~~2017. For the definitions of the obligor risk ratings, refer to the Credit Quality section of Note 10 to the Consolidated Financial Statements included in the Corporation’s Form 10K for the year ended December 31, 2017.

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 estatenon-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 estatenon-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 estatenon-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


September 30, 2018
(In thousands)	Watch		Special Mention		Substandard		Doubtful		Loss		Sub-total		Pass/ Unrated		Total
Puerto Rico
Commercial multi-family	$	2,137	$	4,605	$	4,223	$	—	$	—	$	10,965	$	137,263	$	148,228
Commercial real estatenon-owner occupied		494,377		237,756		413,077		—		—		1,145,210		1,212,121		2,357,331
Commercial real estate owner occupied		323,248		129,932		381,435		2,192		—		836,807		898,698		1,735,505
Commercial and industrial		787,901		145,193		178,806		198		157		1,112,255		2,054,157		3,166,412

Total Commercial		1,607,663		517,486		977,541		2,390		157		3,105,237		4,302,239		7,407,476
Construction		—		889		1,829		—		—		2,718		75,075		77,793
Mortgage		3,475		1,994		169,236		—		—		174,705		6,356,571		6,531,276
Leasing		—		—		2,928		—		81		3,009		900,531		903,540
Consumer:
Credit cards		—		—		16,768		—		—		16,768		1,021,065		1,037,833
HELOCs		—		—		108		—		—		108		5,373		5,481
Personal		636		160		19,854		—		—		20,650		1,222,746		1,243,396
Auto		—		—		22,003		—		162		22,165		2,446,445		2,468,610
Other		102		—		15,222		—		158		15,482		132,466		147,948

Total Consumer		738		160		73,955		—		320		75,173		4,828,095		4,903,268

Total Puerto Rico	$	1,611,876	$	520,529	$	1,225,489	$	2,390	$	558	$	3,360,842	$	16,462,511	$	19,823,353

Popular U.S.
Commercial multi-family	$	52,062	$	8,010	$	6,048	$	—	$	—	$	66,120	$	1,262,452	$	1,328,572
Commercial real estatenon-owner occupied		79,381		9,027		36,692		—		—		125,100		1,774,293		1,899,393
Commercial real estate owner occupied		46,366		7,624		8,955		—		—		62,945		225,460		288,405
Commercial and industrial		5,437		117		89,879		—		—		95,433		974,428		1,069,861

Total Commercial		183,246		24,778		141,574		—		—		349,598		4,236,633		4,586,231
Construction		69,547		15,698		64,493		—		—		149,738		715,834		865,572
Mortgage		—		—		12,306		—		—		12,306		760,588		772,894
Legacy		565		228		2,495		—		—		3,288		24,278		27,566
Consumer:
Credit cards		—		—		4		—		—		4		59		63
HELOCs		—		—		2,049		—		11,889		13,938		131,607		145,545
Personal		—		—		1,864		—		888		2,752		287,909		290,661
Other		—		—		—		—		—		—		283		283

Total Consumer		—		—		3,917		—		12,777		16,694		419,858		436,552

Total Popular U.S.	$	253,358	$	40,704	$	224,785	$	—	$	12,777	$	531,624	$	6,157,191	$	6,688,815

Popular, Inc.
Commercial multi-family	$	54,199	$	12,615	$	10,271	$	—	$	—	$	77,085	$	1,399,715	$	1,476,800
Commercial real estatenon-owner occupied		573,758		246,783		449,769		—		—		1,270,310		2,986,414		4,256,724
Commercial real estate owner occupied		369,614		137,556		390,390		2,192		—		899,752		1,124,158		2,023,910
Commercial and industrial		793,338		145,310		268,685		198		157		1,207,688		3,028,585		4,236,273

Total Commercial		1,790,909		542,264		1,119,115		2,390		157		3,454,835		8,538,872		11,993,707
Construction		69,547		16,587		66,322		—		—		152,456		790,909		943,365
Mortgage		3,475		1,994		181,542		—		—		187,011		7,117,159		7,304,170
Legacy		565		228		2,495		—		—		3,288		24,278		27,566
Leasing		—		—		2,928		—		81		3,009		900,531		903,540
Consumer:
Credit cards		—		—		16,772		—		—		16,772		1,021,124		1,037,896
HELOCs		—		—		2,157		—		11,889		14,046		136,980		151,026
Personal		636		160		21,718		—		888		23,402		1,510,655		1,534,057
Auto		—		—		22,003		—		162		22,165		2,446,445		2,468,610
Other		102		—		15,222		—		158		15,482		132,749		148,231

Total Consumer		738		160		77,872		—		13,097		91,867		5,247,953		5,339,820

Total Popular, Inc.	$	1,865,234	$	561,233	$	1,450,274	$	2,390	$	13,335	$	3,892,466	$	22,619,702	$	26,512,168

The following table presents the weighted average obligor risk rating at September 30, ~~2017~~2018 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 estatenon-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 estatenon-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.~~


Weighted average obligor risk rating	(Scales 11 and 12)		(Scales 1 through 8)
	Substandard		Pass
Puerto Rico:
Commercial multi-family		11.18		5.73
Commercial real estatenon-owner occupied		11.07		6.91
Commercial real estate owner occupied		11.23		7.16
Commercial and industrial		11.27		7.05

Total Commercial		11.17		7.01

Construction		12.00		7.55


	Substandard		Pass
Popular U.S. :
Commercial multi-family		11.00		7.35
Commercial real estatenon-owner occupied		11.01		6.77
Commercial real estate owner occupied		11.04		7.50
Commercial and industrial		11.97		6.49

Total Commercial		11.62		6.91

Construction		11.28		7.77

Legacy		11.16		7.94

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 estatenon-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 estatenon-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 estatenon-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


December 31, 2017
(In thousands)	Watch		Special Mention		Substandard		Doubtful		Loss		Sub-total		Pass/ Unrated		Total
Puerto Rico^[1]
Commercial multi-family	$	1,387	$	1,708	$	6,831	$	—	$	—	$	9,926	$	136,473	$	146,399
Commercial real estatenon-owner occupied		327,811		335,011		307,579		—		—		970,401		1,434,158		2,404,559
Commercial real estate owner occupied		243,966		215,652		354,990		2,124		—		816,732		1,006,882		1,823,614
Commercial and industrial		453,546		108,554		241,695		471		126		804,392		2,086,935		2,891,327

Total Commercial		1,026,710		660,925		911,095		2,595		126		2,601,451		4,664,448		7,265,899
Construction		110		4,122		1,545		—		—		5,777		89,592		95,369
Mortgage		2,748		3,564		155,074		—		—		161,386		6,415,393		6,576,779
Leasing		—		—		1,926		—		1,048		2,974		807,016		809,990
Consumer:
Credit cards		—		—		18,227		—		—		18,227		1,074,994		1,093,221
HELOCs		—		—		257		—		—		257		5,830		6,087
Personal		429		659		20,790		—		—		21,878		1,200,434		1,222,312
Auto		—		—		5,446		—		20		5,466		845,347		850,813
Other		—		—		16,324		—		440		16,764		140,824		157,588

Total Consumer		429		659		61,044		—		460		62,592		3,267,429		3,330,021

Total Puerto Rico	$	1,029,997	$	669,270	$	1,130,684	$	2,595	$	1,634	$	2,834,180	$	15,243,878	$	18,078,058

Popular U.S.
Commercial multi-family	$	11,808	$	6,345	$	7,936	$	—	$	—	$	26,089	$	1,184,604	$	1,210,693
Commercial real estatenon-owner occupied		46,523		16,561		37,178		—		—		100,262		1,588,049		1,688,311
Commercial real estate owner occupied		28,183		30,893		8,590		—		—		67,666		251,309		318,975
Commercial and industrial		4,019		603		123,935		—		—		128,557		876,426		1,004,983

Total Commercial		90,533		54,402		177,639		—		—		322,574		3,900,388		4,222,962
Construction		36,858		8,294		54,276		—		—		99,428		685,232		784,660
Mortgage		—		—		14,852		—		—		14,852		678,776		693,628
Legacy		688		426		3,302		—		—		4,416		28,564		32,980
Consumer:
Credit cards		—		—		11		—		—		11		89		100
HELOCs		—		—		6,084		—		8,914		14,998		167,087		182,085
Personal		—		—		2,069		—		704		2,773		295,229		298,002
Other		—		—		—		—		—		—		319		319

Total Consumer		—		—		8,164		—		9,618		17,782		462,724		480,506

Total Popular U.S.	$	128,079	$	63,122	$	258,233	$	—	$	9,618	$	459,052	$	5,755,684	$	6,214,736

Popular, Inc.
Commercial multi-family	$	13,195	$	8,053	$	14,767	$	—	$	—	$	36,015	$	1,321,077	$	1,357,092
Commercial real estatenon-owner occupied		374,334		351,572		344,757		—		—		1,070,663		3,022,207		4,092,870
Commercial real estate owner occupied		272,149		246,545		363,580		2,124		—		884,398		1,258,191		2,142,589
Commercial and industrial		457,565		109,157		365,630		471		126		932,949		2,963,361		3,896,310

Total Commercial		1,117,243		715,327		1,088,734		2,595		126		2,924,025		8,564,836		11,488,861
Construction		36,968		12,416		55,821		—		—		105,205		774,824		880,029
Mortgage		2,748		3,564		169,926		—		—		176,238		7,094,169		7,270,407
Legacy		688		426		3,302		—		—		4,416		28,564		32,980
Leasing		—		—		1,926		—		1,048		2,974		807,016		809,990
Consumer:
Credit cards		—		—		18,238		—		—		18,238		1,075,083		1,093,321
HELOCs		—		—		6,341		—		8,914		15,255		172,917		188,172
Personal		429		659		22,859		—		704		24,651		1,495,663		1,520,314
Auto		—		—		5,446		—		20		5,466		845,347		850,813
Other		—		—		16,324		—		440		16,764		141,143		157,907

Total Consumer		429		659		69,208		—		10,078		80,374		3,730,153		3,810,527

Total Popular, Inc.	$	1,158,076	$	732,392	$	1,388,917	$	2,595	$	11,252	$	3,293,232	$	20,999,562	$	24,292,794

The following table presents the weighted average obligor risk rating at December 31, ~~2016~~2017 for those classifications that consider a range of rating scales.


Weighted average obligor risk rating	(Scales 11 and 12)		(Scales 1 through 8)		(Scales 11 and 12)		(Scales 1 through 8)
					Substandard		Pass
Puerto Rico:^[1]	Substandard		Pass
Commercial multi-family		11.12		5.95		11.16		5.89
Commercial real estatenon-owner occupied		11.07		6.91		11.06		6.99
Commercial real estate owner occupied		11.23		7.09		11.28		7.14
Commercial and industrial		11.09		7.19		11.16		7.11

Total Commercial		11.14		7.06		11.17		7.06

Construction		11.00		7.67		11.00		7.76


U.S. mainland:	Substandard		Pass
					Substandard		Pass
Popular U.S.:
Commercial multi-family		11.31		7.26		11.00		7.28
Commercial real estatenon-owner occupied		11.70		6.67		11.04		6.74
Commercial real estate owner occupied		11.05		7.32		11.10		7.14
Commercial and industrial		11.65		6.15		11.82		6.17

Total Commercial		11.62		6.78		11.59		6.80

Construction		11.00		7.67		11.00		7.70

Legacy		11.10		7.91		11.11		7.93

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

The increase in the Watch category for Puerto Rico commercial loans of $581 million, from December 31, 2017, is impacted by the $341 million auto-related commercial loan portfolio acquired as part of the Reliable Transaction. These loans were placed in Watch status until the Corporation completes its internal review process.

Note 10 – FDIC loss-share asset andtrue-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~~began with the first dollar of loss incurred. The FDIC ~~reimburses~~reimbursed BPPR for 80% of losses with respect to covered assets, and BPPR ~~reimburses~~reimbursed 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~~2015, but the arrangement provided 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~~in the quarter ended June 30, 2020.

~~The weighted average life~~As of March 31, 2018, the ~~single family loan portfolio accounted for under ASC310-30~~ ~~subject~~Corporation had an FDIC loss share asset of $45.6 million, net of amounts owed to the FDIC ~~loss-sharing agreement at September 30, 2017 is 7.1 years.~~

of $1.1 million, related to the covered assets. As part of the loss-share agreements, BPPR ~~has~~had agreed to make atrue-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 suchtrue-up payment obligation ~~is recorded~~at March 31, 2018 was approximately $171 million (December 31, 2017 - $165 million) and was included as a contingent consideration ~~which is included in~~within the caption of other liabilities in the ~~consolidated statements~~Consolidated Statements of ~~financial condition.~~Financial Condition.

On May 22, 2018, the Corporation entered into a Termination Agreement (the “Termination Agreement”) with the FDIC to terminate all loss-share arrangements in connection with the Westernbank FDIC-assisted transaction. Under the ~~loss sharing agreements,~~terms of the Termination Agreement, BPPR ~~will pay~~made a payment of approximately $23.7 million (the “Termination Payment”) to the FDIC ~~50%~~as consideration for the termination of the ~~excess, if any, of: (i) 20%~~loss-share agreements. Popular recorded a gain of $102.8 million within the ~~intrinsic~~FDIC 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 thetrue-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 changesshare (expense) income caption in the ~~undiscountedtrue-up~~ ~~payment obligation. In~~

~~order to estimate thetrue-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 undiscountedtrue-up~~ ~~payment obligation is determined, the fair value is estimated~~Consolidated Statements of Operations calculated based on the ~~contractual remaining term to settle~~difference between the ~~obligation~~Termination Payment and ~~a discount rate that is composed of~~ the ~~sum of the interpolated U.S. Treasury Note (“T Note”), defined by the remaining term~~net amount of thetrue-up payment obligation and ~~a risk premium determined by~~ the ~~spread of the Corporation’s outstanding senior unsecured debt over the equivalent T Note.~~FDIC loss share asset.

The following table ~~provides~~sets forth the ~~fair value and~~activity in the ~~undiscounted amount of~~FDIC loss-share asset for the~~true-up~~ ~~payment obligation at September 30, 2017 and December 31, 2016.~~ periods presented.

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


	Quarters ended September 30,					Nine months ended September 30,
(In thousands)	2018		2017			2018			2017
Balance at beginning of period	$	—	$	53,070		$	46,316		$	69,334
FDIC loss-share Termination Agreement		—		—			(45,659	)		—
Accretion (amortization)		—		567			(934	)		(62	)
Credit impairment losses (reversal) to be covered under loss-sharing agreements		—		(329	)		104			1,945
Reimbursable expenses		—		588			537			2,232
Net payments from FDIC under loss-sharing agreements		—		(4,502	)		(364	)		(18,505	)
Other adjustments attributable to FDIC loss-sharing agreements		—		—			—			(5,550	)

Balance at end of period	$	—	$	49,394		$	—		$	49,394

Balance due to the FDIC for recoveries on covered assets		—		(924	)		—			(924	)

Balance at end of period	$	—	$	48,470		$	—		$	48,470

~~The increase in~~

As a result of the ~~fair value of thetrue-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 thetrue-up~~ ~~payment obligation corresponds to the difference between the initial estimated losses to be reimbursed~~Termination Agreement, assets that were covered by the ~~FDIC and the revised estimate of reimbursable losses. As~~loss share agreement, including covered loans in the amount of ~~estimated reimbursable losses decreases, the value of thetrue-up~~ ~~payment obligation increases.~~

~~As described above, the estimate of thetrue-up~~ ~~payment obligation is determined by applying the provisions of the loss sharing agreements~~approximately $514.6 million and ~~will change on a quarterly basis. The amount of the estimate of thetrue-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~~real estate owned 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 approximately $15.3 million as of March 31, 2018, were reclassified asnon-covered. The Corporation now recognizes entirely all future credit losses, ~~charge-offs~~expenses, gains, and ~~recoveries; and~~

~~maintain books and records sufficient~~recoveries related to ~~ensure and document compliance~~the formerly covered assets with no offset due to or from the ~~terms of the loss-share agreements.~~FDIC.

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,						Quarters ended September 30,						Nine months ended September 30,
(In thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Mortgage servicing fees, net of fair value adjustments:
Mortgage servicing fees	$	12,012		$	14,520		$	38,485		$	43,997		$	12,324		$	12,012		$	37,205		$	38,485
Mortgage servicing rights fair value adjustments		(10,262	)		(6,062	)		(24,262	)		(18,879	)		(4,194	)		(10,262	)		(13,123	)		(24,262	)

Total mortgage servicing fees, net of fair value adjustments		1,750			8,458			14,223			25,118			8,130			1,750			24,082			14,223

Net gain on sale of loans, including valuation on loansheld-for-sale		4,244			8,857			16,875			24,441			3,014			4,244			6,531			16,875

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	)
Trading account profit (loss):
Unrealized gains (losses) on outstanding derivative positions														45			(147	)		(131	)		(104	)
Realized gains (losses) on closed derivative positions														80			(608	)		2,926			(3,645	)

Total trading account loss		(755	)		(2,043	)		(3,749	)		(7,509	)
Total trading account profit (loss)														125			(755	)		2,795			(3,749	)

Total mortgage banking activities	$	5,239		$	15,272		$	27,349		$	42,050		$	11,269		$	5,239		$	33,408		$	27,349

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~~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~~2018 and ~~2016~~2017 because they did not contain any credit recourse arrangements. During the quarter and nine months ended September 30, ~~2017,~~2018, the Corporation recorded a net gain of ~~$3.9~~$2.9 million and $6.2 million, respectively (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~~2017—$3.9 million and $15.0 million, ~~(September 30, 2016 - $22.6 million)~~respectively) 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~~2018 and ~~2016:~~2017:

   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 securitiesavailable-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 securitiesavailable-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


	Proceeds Obtained During the Quarter Ended September 30, 2018
(In thousands)	Level 1		Level 2		Level 3		Initial Fair Value
Assets
Debt securitiesavailable-for-sale:
Mortgage-backed securities - FNMA	$	—	$	2,498	$	—	$	2,498

Total debt securitiesavailable-for-sale	$	—	$	2,498	$	—	$	2,498

Trading account debt securities:
Mortgage-backed securities - GNMA	$	—	$	109,911	$	—	$	109,911
Mortgage-backed securities - FNMA		—		23,625		—		23,625

Total trading account debt securities	$	—	$	133,536	$	—	$	133,536

Mortgage servicing rights	$	—	$	—	$	2,625	$	2,625

Total	$	—	$	136,034	$	2,625	$	138,659


	Proceeds Obtained During the Nine Months Ended September 30, 2018
(In thousands)	Level 1		Level 2		Level 3		Initial Fair Value
Assets
Debt securitiesavailable-for-sale:
Mortgage-backed securities - FNMA	$	—	$	9,458	$	—	$	9,458

Total debt securitiesavailable-for-sale	$	—	$	9,458	$	—	$	9,458

Trading account debt securities:
Mortgage-backed securities - GNMA	$	—	$	319,769	$	—	$	319,769
Mortgage-backed securities - FNMA		—		62,853		—		62,853

Total trading account debt securities	$	—	$	382,622	$	—	$	382,622

Mortgage servicing rights	$	—	$	—	$	7,198	$	7,198

Total	$	—	$	392,080	$	7,198	$	399,278

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 securitiesavailable-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 securitiesavailable-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


	Proceeds Obtained During the Quarter Ended September 30, 2017
(In thousands)	Level 1		Level 2		Level 3		Initial Fair Value
Assets
Debt securitiesavailable-for-sale:
Mortgage-backed securities - FNMA	$	—	$	4,329	$	—	$	4,329

Total debt securitiesavailable-for-sale	$	—	$	4,329	$	—	$	4,329

Trading account debt securities:
Mortgage-backed securities - GNMA	$	—	$	85,722	$	—	$	85,722
Mortgage-backed securities - FNMA		—		16,452		—		16,452

Total trading account debt 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
Debt securitiesavailable-for-sale:
Mortgage-backed securities - FNMA	$	—	$	16,049	$	—	$	16,049

Total debt securitiesavailable-for-sale	$	—	$	16,049	$	—	$	16,049

Trading account debt securities:
Mortgage-backed securities - GNMA	$	—	$	368,660	$	—	$	368,660
Mortgage-backed securities - FNMA		—		69,798		—		69,798

Total trading account debt securities	$	—	$	438,458	$	—	$	438,458

Mortgage servicing rights	$	—	$	—	$	6,766	$	6,766

Total	$	—	$	454,507	$	6,766	$	461,273

During the nine months ended September 30, ~~2017,~~2018, the Corporation retained servicing rights on whole loan sales involving approximately ~~$49~~$43 million in principal balance outstanding (September 30, ~~2016 - $46~~2017—$49 million), with realized gains of approximately ~~$1.8~~$0.6 million (September 30, ~~2016 -~~ 2017—gains of ~~$1.9~~$1.8 million). All loan sales performed during the nine months ended September 30, ~~2017~~2018 and ~~2016~~2017 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”~~MSR”) 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~~2018 and ~~2016.~~2017.

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


Residential MSRs
(In thousands)	September 30, 2018			September 30, 2017
Fair value at beginning of period	$	168,031		$	196,889
Additions		7,871			7,530
Changes due to payments on loans^[1]		(10,194	)		(12,794	)
Reduction due to loan repurchases		(2,929	)		(1,605	)
Changes in fair value due to changes in valuation model inputs or assumptions		—			(9,863	)

Fair value at end of period	$	162,779		$	180,157

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

Residential mortgage loans serviced for others were ~~$17.1~~$15.9 billion at September 30, ~~2017~~2018 (December 31, ~~2016 - $18.0~~2017 -$16.1 billion).

Net mortgage servicing fees, a component of mortgage banking activities in the ~~consolidated statements~~Consolidated Statements of ~~operations,~~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~~credited to income when they are collected. At September 30, ~~2017,~~2018, those weighted average mortgage servicing fees were ~~0.29%~~0.30% (September 30, ~~2016 –~~ 2017—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~~2018 and ~~2016~~2017 were as follows:


	Quarters ended		Nine months ended		Quarters ended						Nine months ended
	September 30, 2017	September 30, 2016	September 30, 2017	September 30, 2016	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Prepayment speed	4.9%	4.6%	4.3%	5.2%		4.4	%		4.9	%		4.4	%		4.3	%
Weighted average life	10.5 years	10.6 years	10.9 years	10.1 years
Weighted average life (in years)						11.4			10.5			11.4			10.9
Discount rate (annual rate)	10.9%	11.0%	10.9%	11.0%		11.0	%		10.9	%		11.1	%		10.9	%

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:


	Originated MSRs						Purchased MSRs						Originated MSRs						Purchased MSRs
	September 30,			December 31,			September 30,			December 31,			September 30,			December 31,			September 30,			December 31,
(In thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Fair value of servicing rights	$	77,786		$	88,056		$	102,371		$	108,833		$	67,545		$	73,951		$	95,234		$	94,080
Weighted average life (in years)		7.2			7.8			6.4			6.9			7.2			7.3			6.7			6.5
Weighted average prepayment speed (annual rate)		5.4	%		4.6	%		6.0	%		4.8	%		5.0	%		5.1	%		5.4	%		5.7	%
Impact on fair value of 10% adverse change	$	(1,931	)	$	(1,668	)	$	(2,637	)	$	(2,051	)	$	(1,371	)	$	(1,503	)	$	(2,023	)	$	(2,070	)
Impact on fair value of 20% adverse change	$	(3,796	)	$	(3,590	)	$	(5,172	)	$	(4,400	)	$	(2,702	)	$	(2,976	)	$	(3,982	)	$	(3,999	)
Weighted average discount rate (annual rate)		11.5	%		11.5	%		11.0	%		11.0	%		11.5	%		11.5	%		11.0	%		11.0	%
Impact on fair value of 10% adverse change	$	(3,626	)	$	(3,851	)	$	(4,484	)	$	(4,369	)	$	(3,005	)	$	(3,091	)	$	(4,071	)	$	(3,785	)
Impact on fair value of 20% adverse change	$	(6,982	)	$	(7,699	)	$	(8,640	)	$	(8,778	)	$	(5,789	)	$	(5,971	)	$	(7,850	)	$	(7,235	)

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,~~2018, the Corporation serviced ~~$1.5~~$1.4 billion (December 31, ~~2016 - $1.7~~2017—$1.5 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,~~2018, the Corporation had recorded ~~$92~~$195 million in mortgage loans on its Consolidated Statements of Financial Condition related to thisbuy-back option program (December 31, ~~2016 - $49~~2017—$840 million). As long as the Corporation continues to service the loans that continue to be collateral in a GNMA guaranteed mortgage-backed security, the MSR is recognized by the Corporation. During the nine months ended September 30, ~~2017,~~2018, the Corporation repurchased approximately ~~$ 113~~$264 million (September 30, ~~2016 - $67~~2017—$113 million) of mortgage loans under the GNMAbuy-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 orre-sold in the secondary market.

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~~2018 and ~~2016.~~2017.


	For the quarter ended September 30, 2017												For the quarter ended September 30, 2018
	Non-covered			Non-covered			Covered						Non-covered			Non-covered
	OREO			OREO			OREO						OREO			OREO
(In thousands)	Commercial/Construction			Mortgage			Mortgage			Total			Commercial/Construction			Mortgage			Total
Balance at beginning of period	$	23,949		$	157,147		$	25,350		$	206,446		$	25,262		$	116,801		$	142,063
Write-downs in value⁽¹⁾		(2,702	)		(2,856	)		(234	)		(5,792	)		(487	)		(2,584	)		(3,071	)
Additions		982			18,669			1,560			21,211			2,006			11,517			13,523
Sales		(743	)		(18,185	)		(4,395	)		(23,323	)		(1,309	)		(17,296	)		(18,605	)
Other adjustments		—			467			(736	)		(269	)		—			(130	)		(130	)

Ending balance	$	21,486		$	155,242		$	21,545		$	198,273		$	25,472		$	108,308		$	133,780


	For the nine months ended September 30, 2018
	Non-covered			Non-covered			Covered
	OREO			OREO			OREO
(In thousands)	Commercial/Construction			Mortgage			Mortgage			Total
Balance at beginning of period	$	21,411		$	147,849		$	19,595		$	188,855
Write-downs in value		(1,889	)		(9,123	)		(287	)		(11,299	)
Additions		9,047			17,047			—			26,094
Sales		(3,932	)		(62,051	)		(3,282	)		(69,265	)
Other adjustments		835			(747	)		(693	)		(605	)
Transfer tonon-covered status^[1]		—			15,333			(15,333	)		—

Ending balance	$	25,472		$	108,308		$	—		$	133,780

~~(1)~~[1]

Represents the reclassification of OREOs to thenon-covered category, pursuant to the Termination Agreement of all shared-loss agreements with the Federal Deposit Insurance Corporation related to loans acquired from Westernbank, that was completed on May 22, 2018.


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

Ending balance	$	21,486		$	155,242		$	21,545		$	198,273		$	21,486		$	155,242		$	21,545		$	198,273

~~(1)~~[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

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		September 30, 2018		December 31, 2017
Net deferred tax assets (net of valuation allowance)	$	1,207,597	$	1,243,668	$	1,144,417	$	1,035,110
Investments under the equity method		210,067		218,062		223,222		215,349
Prepaid taxes		164,531		172,550		34,859		168,852
Other prepaid expenses		87,136		90,320		80,131		84,771
Derivative assets		14,234		14,085		18,977		16,539
Trades receivable from brokers and counterparties		999		46,630		57,290		7,514
Receivables from investments maturities		270,000		—		51,000		70,000
Principal, interest and escrow servicing advances		71,167		69,711		94,298		107,299
Guaranteed mortgage loan claims receivable		174,964		152,403		77,704		163,819
Others		129,232		138,081		118,952		122,070

Total other assets	$	2,329,927	$	2,145,510	$	1,900,850	$	1,991,323

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,~~2018, allocated by reportable segments, were as follows (refer to Note 34 for the definition of the Corporation’s reportable segments):


2016
2018												2018
					Purchase												Purchase
	Balance at		Goodwill on		accounting		Goodwill			Balance at			Balance at		Goodwill on		accounting		Goodwill		Balance at
(In thousands)	January 1, 2016		acquisition		adjustments		impairment			September 30, 2016			January 1, 2018		acquisition		adjustments		impairment		September 30,2018
Banco Popular de Puerto Rico	$	280,221	$	—	$	—	$	(3,801	)	$	276,420		$	276,420	$	60,242	$	—	$	—	$	336,662
Banco Popular North America		346,167		—		4,707		—			350,874
Popular U.S.														350,874		—		—		—		350,874

Total Popular, Inc.	$	626,388	$	—	$	4,707	$	(3,801	)	$	627,294		$	627,294	$	60,242	$	—	$	—	$	687,536

~~On February 27, 2015, BPPR, in alliance with otherco-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”). DuringThe goodwill recognized during the quarter ended ~~June~~September 30, ~~2016,~~2018 in the ~~Corporation recorded purchase accounting adjustments~~reportable segment of ~~$4.7~~Banco Popular de Puerto Rico of $60.2 million ~~resulting in a total goodwill of $167.8 million recognized~~was related to the ~~Doral Bank~~Reliable Transaction. Refer to Note 4, Business combination, for additional information.

There were no changes in the carrying amount of goodwill for the nine months ended September 30, 2017.

Other Intangible Assets

At September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Corporation had ~~$ 6.1~~$6.1 million of identifiable intangible assets with indefinite useful lives, mostly associated with theE-LOAN trademark.

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


	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
(In thousands)	Amount		Amortization		Value		Amount		Amortization		Value
September 30, 2017
September 30, 2018
Core deposits							$	37,224	$	25,139	$	12,085
Other customer relationships								35,632		25,182		10,450
Trademark								488		17		471

Total other intangible assets							$	73,344	$	50,338	$	23,006

December 31, 2017
Core deposits	$	37,224	$	21,416	$	15,808	$	37,224	$	22,347	$	14,877
Other customer relationships		36,449		20,404		16,045		35,683		21,051		14,632

Total other intangible assets	$	73,673	$	41,820	$	31,853	$	72,907	$	43,398	$	29,509

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

The trademark recognized during the quarter ended September 30, 2018 of $0.5 million was related to the Reliable Transaction. Refer to Note 4, Business combination, for additional information.

During the quarter ended September 30, ~~2017,~~2018, the Corporation recognized ~~$ 2.3~~$2.3 million in amortization expense related to other intangible assets with definite useful lives (September 30, ~~2016 -~~ 2017—$ ~~3.1~~2.3 million). During the nine months ended September 30, ~~2017,~~2018, the Corporation recognized ~~$ 7.0~~$7.0 million in amortization related to other intangible assets with definite useful lives (September 30, ~~2016 -~~ 2017—$ ~~9.3~~7.0 million).

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


(In thousands)
Remaining 2018	$	2,337
Year 2019		9,140
Year 2020		5,065
Year 2021		2,254
Year 2022		1,378
Year 2023		1,338
Later years		1,494

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 atwo-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~~2018 using July 31, ~~2017~~2018 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;

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 IbbotsonBuild-Up Method and ranged from ~~11.58%~~11.42% to ~~14.49%~~13.93% for the ~~2017~~2018 analysis. The IbbotsonBuild-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.~~2018. 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~~$2.4 billion or ~~26%~~77%. Accordingly, there was no indication of impairment on the goodwill recorded in BPPR at July 31, ~~2017~~2018 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~~PB passed Step 1 in the annual test as of July 31, ~~2017.~~2018. The results indicated that the average estimated fair value calculated in Step 1 using all valuation methodologies exceeded ~~BPNA’s~~PB’s equity value by approximately ~~$183~~$407 million or ~~11%~~28%. Accordingly, there was no indication of impairment on the goodwill recorded in ~~BPNA~~PB at July 31, ~~2017~~2018 and there was no need for a Step 2 analysis.

The goodwill balance of BPPR and ~~BPNA,~~PB, as legal entities, represented approximately 98% of the Corporation’s total goodwill balance as of the July 31, ~~2017~~2018 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.~~the Corporation concluding that the fair value results determined for the reporting units in the July 31, ~~2017~~2018 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.


September 30, 2018
	Balance at				Balance at		Balance at				Balance at
	January 1,		Accumulated		January 1,		September 30,		Accumulated		September 30,
	2018		impairment		2018		2018		impairment		2018
(In thousands)	(gross amounts)		losses		(net amounts)		(gross amounts)		losses		(net amounts)
Banco Popular de Puerto Rico	$	280,221	$	3,801	$	276,420	$	340,463	$	3,801	$	336,662
Popular U.S.		515,285		164,411		350,874		515,285		164,411		350,874

Total Popular, Inc.	$	795,506	$	168,212	$	627,294	$	855,748	$	168,212	$	687,536


December 31, 2017
	Balance at				Balance at		Balance at				Balance at
	January 1,		Accumulated		January 1,		December 31,		Accumulated		December 31,
	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
Popular U.S.		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

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

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		September 30, 2018		December 31, 2017
Savings accounts	$	8,348,091	$	7,793,533	$	9,711,063	$	8,561,718
NOW, money market and other interest bearing demand deposits		10,838,465		8,012,706		13,721,732		10,885,967

Total savings, NOW, money market and other interest bearing demand deposits		19,186,556		15,806,239		23,432,795		19,447,685

Certificates of deposit:
Under $100,000		3,549,599		3,570,956		3,346,204		3,446,575
$100,000 and over		4,062,924		4,138,586		4,066,076		4,068,303

Total certificates of deposit		7,612,523		7,709,542		7,412,280		7,514,878

Total interest bearing deposits	$	26,799,079	$	23,515,781	$	30,845,075	$	26,962,563

A summary of certificates of deposit by maturity at September 30, ~~2017~~2018 follows:


(In thousands)
2017	$	1,784,658
2018		2,421,822	$	1,969,701
2019		1,047,982		2,233,844
2020		1,079,172		1,361,441
2021		727,779		829,654
2022 and thereafter		551,110
2022				513,048
2023 and thereafter				504,592

Total certificates of deposit	$	7,612,523	$	7,412,280

At September 30, ~~2017,~~2018, the Corporation had brokered deposits amounting to ~~$ 0.6~~$0.5 billion (December 31, ~~2016 -~~ 2017—$ ~~0.6~~0.5 billion).

The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans was ~~$16~~$3 million at September 30, ~~2017~~2018 (December 31, ~~2016 - $6~~2017—$4 million).

Note 17 – Borrowings

The following table presents the ~~composition~~balances of assets sold under agreements to repurchase at September 30, ~~2017~~2018 and December 31, ~~2016.~~2017.


(In thousands)	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
Assets sold under agreements to repurchase	$	374,405	$	479,425	$	300,116	$	390,921

Total assets sold under agreements to repurchase	$	374,405	$	479,425	$	300,116	$	390,921

The Corporation’s repurchase transactions are overcollateralized with the securities detailed in the table below. The Corporation’s repurchase agreements have a right ofset-off with the respective counterparty under the supplemental terms of the master repurchase agreements. In an event of default each party has a right ofset-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.

The following table presents information related to the Corporation’s repurchase transactions accounted for as secured borrowings that are collateralized with ~~investment~~debt securitiesavailable-for-sale, other assetsheld-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~~Consolidated Statements of ~~financial condition.~~Financial Condition.

Repurchase agreements accounted for as secured borrowings


	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
(In thousands)	Repurchase liability		Repurchase liability		Repurchase liability		Repurchase liability
U.S. Treasury Securities
U.S. Treasury securities
Within 30 days	$	69,030	$	32,700	$	93,129	$	148,516
After 30 to 90 days		53,781		—		19,831		87,357
After 90 days		142,306		19,819		159,292		43,500

Total U.S. Treasury Securities		265,117		52,519
Total U.S. Treasury securities						272,252		279,373

Obligations of U.S. government sponsored entities
Within 30 days		—		95,720		—		30,656
After 30 to 90 days		30,835		142,299		—		19,463
After 90 days		35,400		25,380		6,055		15,937

Total obligations of U.S. government sponsored entities		66,235		263,399		6,055		66,056

Mortgage-backed securities
Within 30 days		—		39,108		12,228		31,383
After 30 to 90 days		—		58,552
After 90 days		31,383		54,560

Total mortgage-backed securities		31,383		152,220		12,228		31,383

Collateralized mortgage obligations
Within 30 days		11,670		11,287		9,581		14,109

Total collateralized mortgage obligations		11,670		11,287		9,581		14,109

Total	$	374,405	$	479,425	$	300,116	$	390,921

Repurchase agreements in this 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~~2018 and December 31, ~~2016.~~2017.

(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


(In thousands)	September 30, 2018		December 31, 2017
Advances with the FHLB	$	—	$	95,000
Others		1,200		1,208

Total other short-term borrowings	$	1,200	$	96,208

Note: Refer to the Corporation’s ~~2016~~2017 Form10-K for rates information at December 31, ~~2016.~~

2017.

During the quarter ended September 30, 2018, Popular North America, Inc. (“PNA”), a wholly-owned subsidiary of the Corporation, redeemed all outstanding capital securities issued by BanPonce Trust I (the “Trust”), a statutory trust established by PNA, along with the common securities issued by the Trust, which resulted in the concurrent extinguishment of the related junior subordinated debentures with an aggregate book value of $55 million. Refer to Note 18 for additional information on the redemption of these trust preferred securities.

Also, during the quarter ended September 30, 2018, the Corporation issued an aggregate of $300 million principal amount of its 6.125% senior notes due 2023 and recorded debt issuance costs of $6.3 million. On October 15, 2018, the Corporation used the net proceeds, together with available cash, to redeem $450 million of its outstanding 7.00% senior notes due 2019.

The following table presents the composition of notes payable at September 30, ~~2017~~2018 and December 31, ~~2016.~~2017.

(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


(In thousands)	September 30, 2018		December 31, 2017
Advances with the FHLB with maturities ranging from 2018 through 2029 paying interest at monthly fixed rates ranging from 0.89% to 4.19 %	$	567,031	$	572,307
Advances with the FHLB with maturing in 2019 paying interest monthly at a floating rate of 0.34% over the 1 month LIBOR		13,000		34,164
Advances with the FHLB with maturing in 2019 paying interest quarterly at a floating rate from 0.12% to 0.24% over the 3 month LIBOR		19,724		25,019
Unsecured senior debt securities with maturities ranging from 2019 through 2023 paying interest semiannually at fixed rates ranging from of 6.125% to 7.00%, net of debt issuance costs of $7,841		742,159		446,873
Junior subordinated deferrable interest debentures (related to trust preferred securities) with maturities ranging from 2033 to 2034 with fixed interest rates ranging from 6.125% to 6.7%, net of debt issuance costs of $429		384,869		439,351
Others		17,904		18,642

Total notes payable	$	1,744,687	$	1,536,356

Note: Refer to the Corporation’s ~~2016~~2017 Form10-K for rates information at December 31, ~~2016.~~2017.

A breakdown of borrowings by contractual maturities at September 30, ~~2017~~2018 is included in the table below.


	Assets sold under		Short-term
(In thousands)	agreements to repurchase		borrowings		Notes payable		Total		Assets sold under agreements to repurchase		Short-term borrowings		Notes payable			Total
Year 2017	$	165,315	$	205,598	$	32,536	$	403,449
2018		209,090		35,000		220,086		464,176	$	134,769	$	1,200	$	83,103		$	219,072
2019		—		—		608,530		608,530		165,347		—		650,159	^[1]		815,506
2020		—		—		112,088		112,088		—		—		111,960			111,960
2021		—		—		21,694		21,694		—		—		21,877			21,877
2022										—		—		105,175			105,175
Later years		—		—		537,127		537,127		—		—		772,413			772,413

Total borrowings	$	374,405	$	240,598	$	1,532,061	$	2,147,064	$	300,116	$	1,200	$	1,744,687		$	2,046,003

[1]	On October 15, 2018, the Corporation redeemed $450 million principal amount of its senior notes due on 2019.

At September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Corporation had FHLB borrowing facilities whereby the Corporation could borrow up to ~~$3.9~~$3.4 billion and ~~$3.8~~$3.9 billion, respectively, of which ~~$868~~$600 million and ~~$673~~$726 million, respectively, were used. In addition, at September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Corporation had placed ~~$200~~$1.1 billion and $260 million, respectively, of the available FHLB credit facility as collateral for a municipal letter of credit to secure deposits. The FHLB borrowing facilities are collateralized with loansheld-in-portfolio, and do not have restrictive covenants or callable features.

Also, at September 30, ~~2017,~~2018, 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~~(2017—$1.1 billion), which remained unused at September 30, ~~2017~~2018 and December 31, ~~2016.~~2017. The facility is a collateralized source of credit that is highly reliable even under difficult market conditions.

Note 18 – ~~Offsetting~~Trust preferred securities

Statutory trusts established by the Corporation (BanPonce Trust I, Popular Capital Trust I, Popular North America Capital Trust I and Popular Capital Trust II) had issued trust preferred securities (also referred to as “capital securities”) to the public. The proceeds from such issuances, together with the proceeds of ~~financial~~the related issuances of common securities of the trusts (the “common securities”), were used by the trusts to purchase junior subordinated deferrable interest debentures (the “junior subordinated debentures”) issued by the Corporation.

The sole assets of the trusts consisted of the junior subordinated debentures of the Corporation and ~~liabilities~~the related accrued interest receivable. These trusts are not consolidated by the Corporation pursuant to accounting principles generally accepted in the United States of America.

The junior subordinated debentures are included by the Corporation as notes payable in the Consolidated Statements of Financial Condition, while the common securities issued by the issuer trusts are included as other investment securities. The common securities of each trust are wholly-owned, or indirectly wholly-owned, by the Corporation.

During the quarter ended September 30, 2018, Popular North America, Inc. (“PNA”), a wholly-owned subsidiary of the Corporation, redeemed all outstanding capital securities issued by BanPonce Trust I (the “Trust”), a statutory trust established by PNA, with an aggregate book value of $53 million, along with the common securities issued by the Trust, which resulted in the concurrent extinguishment of the related junior subordinated debentures amounting to $55 million, as discussed in Note 17.

The following tables present financial data pertaining to the ~~potential effect of rights of setoff associated with the Corporation’s recognized financial assets and liabilities~~different trusts at September 30, ~~2017~~2018 and December 31, ~~2016.~~2017.

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


(Dollars in thousands)	As of September 30, 2018
Issuer	Popular Capital Trust I			Popular North America Capital Trust I			Popular Capital Trust Il
Capital securities	$	181,063		$	91,651		$	101,023
Distribution rate		6.700	%		6.564	%		6.125	%
Common securities	$	5,601		$	2,835		$	3,125
Junior subordinated debentures aggregate liquidation amount	$	186,664		$	94,486		$	104,148
Stated maturity date		November 2033			September 2034			December 2034
Reference notes		[2],[4],[5]			[1],[3],[5]			[2],[4],[5]

[1]	Statutory business trust that is wholly-owned by PNA and indirectly wholly-owned by the Corporation.

[2]	Statutory business trust that is wholly-owned by the Corporation.

[3]	The obligations of PNA under the junior subordinated debentures and its guarantees of the capital securities under the trust are fully and unconditionally guaranteed on a subordinated basis by the Corporation to the extent set forth in the applicable guarantee agreement.

[4]	These capital securities are fully and unconditionally guaranteed on a subordinated basis by the Corporation to the extent set forth in the applicable guarantee agreement.

[5]

The Corporation has the right, subject to any required prior approval from the Federal Reserve, to redeem after certain dates or upon the occurrence of certain events mentioned below, the junior subordinated debentures at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest to the date of redemption. The maturity of the junior subordinated debentures may be shortened at the option of the Corporation prior to their stated maturity dates (i) on or after the stated optional redemption dates stipulated in the agreements, in whole at any time or in part from time to time, or (ii) in whole, but not in part, at any time within 90 days following the occurrence and during the continuation of a tax event, an investment company event or a capital treatment event as set forth in the indentures relating to the capital securities, in each case subject to regulatory approval.

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


(Dollars in thousands)	As of December 31, 2017
Issuer	BanPonce Trust I			Popular Capital Trust I			Popular North America Capital Trust I			Popular Capital Trust Il
Capital securities	$	52,865		$	181,063		$	91,651		$	101,023
Distribution rate		8.327	%		6.700	%		6.564	%		6.125	%
Common securities	$	1,637		$	5,601		$	2,835		$	3,125
Junior subordinated debentures aggregate liquidation amount	$	54,502		$	186,664		$	94,486		$	104,148
Stated maturity date		February 2027			November 2033			September 2034			December 2034
Reference notes		[1],[3],[6]			[2],[4],[5]			[1],[3],[5]			[2],[4],[5]

~~The Corporation’s derivatives~~

[1]	Statutory business trust that is wholly-owned by PNA and indirectly wholly-owned by the Corporation.

[2]	Statutory business trust that is wholly-owned by the Corporation.

[3]	The obligations of PNA under the junior subordinated debentures and its guarantees of the capital securities under the trust are fully and unconditionally guaranteed on a subordinated basis by the Corporation to the extent set forth in the applicable guarantee agreement.

[4]	These capital securities are fully and unconditionally guaranteed on a subordinated basis by the Corporation to the extent set forth in the applicable guarantee agreement.

[5]

[6]	Same as [5] above, except that the investment company event does not apply for early redemption.

At September 30, 2018, the Corporation had $374 million in trust preferred securities outstanding which do not qualify for Tier 1 capital treatment, but instead qualify for Tier 2 capital treatment, compared to ~~agreements which allow~~$427 million at December 31, 2017, as a ~~right ofset-off~~ ~~with each respective counterparty. In addition, the Corporation’s Repurchase Agreements and Reverse Repurchase Agreements have a right ofset-off~~ ~~with the respective counterparty under the supplemental terms~~result of the ~~Master Repurchase Agreements. In an event of default each party has a right ofset-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.~~previously mentioned redemption by PNA.

Note 19 – Stockholders’ equity

~~On January 23, 2017, the Corporation’s Board~~As of ~~Directors approved an increase in the Company’s quarterly common stock dividend from $0.15 per share to $0.25 per share.~~September 30, 2018, stockholder’s equity totaled $5.2 billion. During the nine months ended September 30, ~~2017,~~2018, the Corporation declared dividends on its common stock of $ ~~76.6~~76.2 million. The quarterly dividend declared to shareholders of record as of the close of business on ~~September 14, 2017,~~August 23, 2018, which amounted to ~~$25.5~~$25.1 million, was paid on October ~~2, 2017. Also, during~~1, 2018. Dividends per share declared for the ~~first~~ quarter ~~of 2017,~~and nine months ended September 30, 2018 were $0.25 and $0.75, respectively (2017 - $0.25 and $0.75, respectively).

During the quarter ended September 30, 2018, the Corporation ~~completed~~entered into a ~~$75~~$125 million ~~privately negotiated~~ accelerated share repurchase transaction (“ASR”). and, in connection therewith, received an initial delivery of 2,000,000 shares of common stock (the “Initial Shares”), which was accounted for as a treasury stock transaction. As ~~part~~a result of ~~this transaction,~~the receipt of the Initial Shares, the Corporation ~~received 1,847,372 shares and~~ recognized ~~$79.5~~in shareholders’ equity approximately $102 million in treasury stock ~~based~~and $23 million as a reduction of capital surplus. During the fourth quarter of 2018, the Corporation expects to further adjust its treasury stock and capital surplus accounts to reflect the delivery or receipt of cash or shares upon the termination of the ASR agreement, which will depend on the ~~stock’s spot~~average price ~~offset by a $4.5 million adjustment to capital surplus, resulting from the decline in~~of the Corporation’s ~~stock price~~shares 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.

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~~2018 and ~~2016.~~2017.


	Changes in Accumulated Other Comprehensive Loss by Component [1]
		Quarters ended						Nine months ended						Changes in Accumulated Other Comprehensive Loss by Component [1]
		September 30,						September 30,							Quarters ended September 30,						Nine months ended September 30,
(In thousands)		2017			2016			2017			2016				2018			2017			2018			2017
Foreign currency translation	Beginning Balance	$	(41,405	)	$	(38,070	)	$	(39,956	)	$	(35,930	)	Beginning Balance	$	(46,397	)	$	(41,405	)	$	(43,034	)	$	(39,956	)

	Other comprehensive loss		(390	)		(325	)		(1,839	)		(2,465	)	Other comprehensive loss		(605	)		(390	)		(3,968	)		(1,839	)

	Net change		(390	)		(325	)		(1,839	)		(2,465	)	Net change		(605	)		(390	)		(3,968	)		(1,839	)

	Ending balance	$	(41,795	)	$	(38,395	)	$	(41,795	)	$	(38,395	)	Ending balance	$	(47,002	)	$	(41,795	)	$	(47,002	)	$	(41,795	)

Adjustment of pension and postretirement benefit plans	Beginning Balance	$	(205,928	)	$	(205,743	)	$	(211,610	)	$	(211,276	)	Beginning Balance	$	(199,895	)	$	(205,928	)	$	(205,408	)	$	(211,610	)

	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 net losses		3,285			3,421			9,856			10,263
	Amounts reclassified from accumulated other comprehensive loss for amortization of prior service credit		(580	)		(580	)		(1,740	)		(1,740	)	Amounts reclassified from accumulated other comprehensive loss for amortization of prior service credit		(529	)		(580	)		(1,587	)		(1,740	)

	Net change		2,841			2,768			8,523			8,301		Net change		2,756			2,841			8,269			8,523

	Ending balance	$	(203,087	)	$	(202,975	)	$	(203,087	)	$	(202,975	)	Ending balance	$	(197,139	)	$	(203,087	)	$	(197,139	)	$	(203,087	)

Unrealized holding gains (losses) on investments	Beginning Balance	$	(55,742	)	$	98,761		$	(68,318	)	$	(9,560	)
Unrealized net holding losses on debt securities														Beginning Balance	$	(250,422	)	$	(56,414	)	$	(102,775	)	$	(69,003	)

	Other comprehensive income (loss) before reclassifications		9,350			(14,131	)		15,331			94,023		Other comprehensive (loss) income before reclassifications		(39,845	)		9,302			(187,492	)		15,151
	Other-than-temporary impairment amount reclassified from accumulated other comprehensive (loss) income		—			—			6,740			167		Other-than-temporary impairment amount reclassified from accumulated other comprehensive loss		—			—			—			6,740
	Amounts reclassified from accumulated other comprehensive (loss) income for gains on securities		(82	)		(316	)		(227	)		(316	)	Amounts reclassified from accumulated other comprehensive loss for gains on securities		—			(66	)		—			(66	)

	Net change		9,268			(14,447	)		21,844			93,874		Net change		(39,845	)		9,236			(187,492	)		21,825

	Ending balance	$	(46,474	)	$	84,314		$	(46,474	)	$	84,314		Ending balance	$	(290,267	)	$	(47,178	)	$	(290,267	)	$	(47,178	)

Unrealized net losses on cash flow hedges	Beginning Balance	$	132		$	(560	)	$	(402	)	$	(120	)
Unrealized holding gains on equity securities														Beginning Balance	$	—		$	672		$	605		$	685

	Other comprehensive loss before reclassifications		(250	)		(685	)		(869	)		(2,843	)	Reclassification to retained earnings due to cumulative effect adjustment of accounting change		—			—			(605	)		—
	Amounts reclassified from accumulated other comprehensive income (loss)		142			1,006			1,295			2,724		Other comprehensive income before reclassifications		—			48			—			180
														Amounts reclassified from accumulated other comprehensive income for gains on securities		—			(16	)		—			(161	)
	Net change		(108	)		321			426			(119	)
														Net change		—			32			(605	)		19
	Ending balance	$	24		$	(239	)	$	24		$	(239	)
														Ending balance	$	—		$	704		$	—		$	704
	Total	$	(291,332	)	$	(157,295	)	$	(291,332	)	$	(157,295	)

Unrealized net (losses) gains


on cash flow hedges	Beginning Balance	$	(78	)	$	132		$	(40	)	$	(402	)

	Other comprehensive income (loss) before reclassifications		208			(250	)		790			(869	)
	Amounts reclassified from accumulated other comprehensive (loss) income		89			142			(531	)		1,295

	Net change		297			(108	)		259			426

	Ending balance	$	219		$	24		$	219		$	24

	Total	$	(534,189	)	$	(291,332	)	$	(534,189	)	$	(291,332	)

[1]	All amounts presented are net of tax.

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~~2018 and ~~2016.~~2017.


	Reclassifications Out of Accumulated Other Comprehensive Loss
		Quarters ended						Nine months ended						Reclassifications Out of Accumulated Other Comprehensive Loss
	Affected Line Item in the	September 30,						September 30,						Affected Line Item in the	Quarters ended September 30,						Nine months ended September 30,
(In thousands)	Consolidated Statements of Operations	2017			2016			2017			2016			Consolidated Statements of Operations	2018			2017			2018			2017
Adjustment of pension and postretirement benefit plans
Amortization of net losses	Personnel costs	$	(5,606	)	$	(5,488	)	$	(16,819	)	$	(16,461	)	Personnel costs	$	(5,386	)	$	(5,606	)	$	(16,157	)	$	(16,819	)
Amortization of prior service credit	Personnel costs		950			950			2,850			2,850		Personnel costs		868			950			2,603			2,850

	Total before tax		(4,656	)		(4,538	)		(13,969	)		(13,611	)	Total before tax		(4,518	)		(4,656	)		(13,554	)		(13,969	)

	Income tax benefit		1,815			1,770			5,446			5,310		Income tax benefit		1,762			1,815			5,285			5,446

	Total net of tax	$	(2,841	)	$	(2,768	)	$	(8,523	)	$	(8,301	)	Total net of tax	$	(2,756	)	$	(2,841	)	$	(8,269	)	$	(8,523	)

Unrealized holding gains (losses) on investments
Unrealized holding losses on debt securities
Other-than-temporary impairment	Other-than-temporary impairment losses onavailable-for-sale debt securities	$	—		$	—		$	(8,299	)	$	(209	)	Other-than-temporary impairment losses onavailable-for-sale debt securities	$	—		$	—		$	—		$	(8,299	)
Realized gains on sale of securities	Net gain on sale of investment securities		103			349			284			349
Realized gains on sale of debt securities														Net gain on sale of debt securities		—			83			—			83

	Total before tax		103			349			(8,015	)		140		Total before tax		—			83			—			(8,216	)

	Income tax (expense) benefit		(21	)		(33	)		1,502			9		Income tax (expense) benefit		—			(17	)		—			1,542

	Total net of tax	$	82		$	316		$	(6,513	)	$	149		Total net of tax	$	—		$	66		$	—		$	(6,674	)

Unrealized net losses on cash flow hedges
Unrealized holding gains on equity securities
Realized gain on sale of equity securities														Net gain on equity securities	$	—		$	20		$	—		$	201

														Total before tax		—			20			—			201

														Income tax expense		—			(4	)		—			(40	)

														Total net of tax	$	—		$	16		$	—		$	161

Unrealized net (losses) gains on cash flow hedges
Forward contracts	Mortgage banking activities	$	(232	)	$	(1,650	)	$	(2,122	)	$	(4,466	)	Mortgage banking activities	$	(147	)	$	(232	)	$	870		$	(2,122	)

	Total before tax		(232	)		(1,650	)		(2,122	)		(4,466	)	Total before tax		(147	)		(232	)		870			(2,122	)

	Income tax benefit		90			644			827			1,742		Income tax benefit (expense)		58			90			(339	)		827

	Total net of tax	$	(142	)	$	(1,006	)	$	(1,295	)	$	(2,724	)	Total net of tax	$	(89	)	$	(142	)	$	531		$	(1,295	)

	Total reclassification adjustments, net of tax	$	(2,901	)	$	(3,458	)	$	(16,331	)	$	(10,876	)	Total reclassification adjustments, net of tax	$	(2,845	)	$	(2,901	)	$	(7,738	)	$	(16,331	)

Note 21 – Guarantees

At September 30, ~~2017,~~2018, the Corporation recorded a liability of $0.3 million (December 31, ~~2016—~~2017—$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,~~2018, the Corporation serviced ~~$ 1.5~~$1.4 billion (December 31, ~~2016 -~~ 2017—$ ~~1.7~~1.5 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,~~2018, the Corporation repurchased approximately ~~$ 7~~$4 million and ~~$ 22~~$13 million, respectively, of unpaid principal balance in mortgage loans subject to the credit recourse provisions (September 30, ~~2016~~2017-$ 117 million and ~~$ 34~~$22 million, respectively). In the event of nonperformance by the borrower, the Corporation has rights to the underlying collateral securing the mortgage loan. The Corporation suffers ultimate losses on these loans when the proceeds from a foreclosure sale of the property underlying a defaulted mortgage loan are less than the outstanding principal balance of the loan plus any uncollected interest advanced and the costs of holding and disposing the related property. At September 30, ~~2017,~~2018, the Corporation’s liability established to cover the estimated credit loss exposure related to loans sold or serviced with credit recourse amounted to ~~$ 52~~$58 million (December 31, ~~2016 -~~ 2017—$ 5459 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~~2018 and ~~2016.~~2017.


	Quarters ended September 30,						Nine months ended September 30,						Quarters ended September 30,						Nine months ended September 30,
(In thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Balance as of beginning of period	$	49,395		$	56,931		$	54,489		$	58,663		$	57,425		$	49,395		$	58,820		$	54,489
Provision for recourse liability		6,375			4,086			11,104			11,613			3,000			6,375			5,991			11,104
Net charge-offs		(3,718	)		(4,737	)		(13,541	)		(13,996	)		(2,678	)		(3,718	)		(7,064	)		(13,541	)

Balance as of end of period	$	52,052		$	56,280		$	52,052		$	56,280		$	57,747		$	52,052		$	57,747		$	52,052

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 quarter and nine months ended September 30, ~~2017~~2018, BPPR repurchased $2 million and ~~2016, BPPR did not repurchase~~$12 million, respectively, in loans under representation and warranty ~~arrangements.~~arrangements (there were no loan repurchases during the same period of the prior year). 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~~2018 and ~~2016.~~2017.

   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


	Quarters ended September 30,						Nine months ended September 30,
(In thousands)	2018			2017			2018			2017
Balance as of beginning of period	$	11,153		$	10,545		$	11,742		$	10,936
Provision (reversal) for representation and warranties		(104	)		(140	)		194			(521	)
Net charge-offs		(39	)		—			(926	)		(10	)

Balance as of end of period	$	11,010		$	10,405		$	11,010		$	10,405

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,~~2018, the Corporation serviced ~~$17.1~~$15.9 billion in mortgage loans for third-parties, including the loans serviced with credit recourse (December 31, ~~2016 - $18.0~~2017—$16.1 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,~~2018, the outstanding balance of funds advanced by the Corporation under such mortgage loan servicing agreements was approximately ~~$71~~$94 million ~~including advances on the portfolio acquired from Doral Bank~~ (December 31, ~~2016 - $70~~2017—$107 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~~$94 million and $149 million, respectively, at September 30, ~~2017~~2018 and December 31, ~~2016.~~2017. In addition, at September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, PIHC fully and unconditionally guaranteed on a subordinated basis ~~$ 427~~$374 million and $427 million, respectively, 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 2318 to the Consolidated Financial Statements ~~in the 2016 Form10-K~~ for further information on the trust preferred securities.

Note 22 – Commitments and contingencies

Off-balance sheet risk

The Corporation is a party to financial instruments withoff-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 withoff-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		September 30, 2018		December 31, 2017
Commitments to extend credit:
Credit card lines	$	4,311,987	$	4,562,981	$	4,462,603	$	4,303,256
Commercial and construction lines of credit		2,723,002		2,966,656		2,772,111		3,011,673
Other consumer unused credit commitments		250,565		261,856		255,798		250,029
Commercial letters of credit		2,288		1,490		2,561		2,116
Standby letters of credit		31,287		34,644		30,036		33,633
Commitments to originate or fund mortgage loans		9,706		25,622		23,724		15,297

At September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Corporation maintained a reserve of approximately $9$8 million and $10 million, respectively, 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. In response to such crisis, ~~was recently significantly impacted by two major hurricanes and has commenced several proceedings under~~the U.S. Congress enacted the Puerto Rico Oversight Management and Economic Stability Act (“PROMESA”) ~~to restructure~~in 2016, which, among other things, established a Fiscal Oversight and Management Board for Puerto Rico (the “Oversight Board”) and a framework for the restructuring of the debts of the Commonwealth, its ~~outstanding obligations~~instrumentalities and ~~those of certain~~municipalities. The Commonwealth and several 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.instrumentalities have commenced debt restructuring proceedings under PROMESA. 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~~no municipality has commenced, 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,

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 certificationhas been authorized by the Oversight Board ~~and (iv) established two separate processes for the~~to commence, any such debt restructuring ~~of the outstanding liabilities of the Commonwealth, its instrumentalities and municipalities: (a) Title VI, a largelyout-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”~~proceeding 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,~~2018, the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities amounted to ~~$ 484~~$458 million, which was fully outstanding atquarter-end (compared to a direct exposure of approximately $484 million, which ~~approximately $ 482 million is~~was fully outstanding ~~($584 million and $ 529 million, respectively,~~ at December 31, ~~2016)~~2017). Of ~~the~~this amount, ~~outstanding, $ 433~~$413 million consists of loans and ~~$ 49~~$45 million are securities ($ ~~459~~435 million and ~~$ 70~~$49 million at December 31, ~~2016)~~2017). ~~All of amount outstanding ($ 512 million~~Substantially all of the ~~total~~ amount outstanding at ~~December 31, 2016) represents~~September 30, 2018 consisted of obligations from various ~~municipalities in~~ Puerto Rico ~~for which, in~~municipalities. In most cases, these are “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 ~~been~~ pledged other revenues. At September 30, 2018, 75% of the Corporation’s exposure to ~~their repayment. Such general obligation bonds~~municipal loans 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, whichsecurities was ~~deposited at GDB until April 2016)). Funds~~concentrated in the ~~Redemption Fund are required to be used for the payment~~municipalities of ~~the municipality’s general obligation bonds~~San Juan, Guaynabo, Carolina 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,~~Bayamón. On July 2, 2018 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~~received principal payments amounting to $23 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 thenon-payment~~ ~~of interest on the COFINA bonds in June 2017, pursuant to a court order issued in such proceeding.~~from various obligations from Puerto Rico municipalities.

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		Investment Portfolio		Loans		Total Outstanding		Total Exposure
Central Government
After 1 to 5 years	$	5	$	—	$	5	$	5	$	6	$	—	$	6	$	6
After 5 to 10 years		12		—		12		12		43		—		43		43
After 10 years		30		—		30		30		27		—		27		27

Total Central Government		47		—		47		47		76		—		76		76

Government Development Bank (GDB)
After 1 to 5 years		3		—		3		3
Within 1 year										4		—		4		4

Total Government Development Bank (GDB)		3		—		3		3		4		—		4		4

Puerto Rico Highways and Transportation Authority
After 5 to 10 years		4		—		4		4		5		—		5		5

Total Puerto Rico Highways and Transportation Authority		4		—		4		4		5		—		5		5

Municipalities
Within 1 year		3,295		11,341		14,636		16,478		3,510		15,265		18,775		18,775
After 1 to 5 years		15,485		192,904		208,389		208,389		16,505		198,022		214,527		214,527
After 5 to 10 years		29,240		106,368		135,608		135,608		23,885		101,693		125,578		125,578
After 10 years		1,025		122,038		123,063		123,063		845		98,185		99,030		99,030

Total Municipalities		49,045		432,651		481,696		483,538		44,745		413,165		457,910		457,910

Total Direct Government Exposure	$	49,099	$	432,651	$	481,750	$	483,592	$	44,830	$	413,165	$	457,995	$	457,995

In addition, at September 30, ~~2017,~~2018, the Corporation had ~~$391~~$374 million in ~~indirect exposure to~~ loans or securities issued or guaranteed by Puerto Rico governmental entities ~~but~~ whose principal source of repayment ~~are non-governmental entities.~~isnon-governmental. In such obligations, the Puerto Rico government entity guarantees any shortfall in collateral in the event of borrower default ($~~406~~386 million at December 31, ~~2016)~~2017). These included ~~$313~~$299 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~~2017—$310 million). These mortgage loans are secured by the underlying properties and the HFA guarantee ~~serves~~serve 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, at September 30, 2018 and December 31, 2017, the Corporation had ~~$43~~$44 million in Puerto Rico housing bonds issued by HFA, which are secured by second mortgage loans on Puerto Rico residential properties, $6and for which HFA also provides a guarantee to cover shortfalls, $7 million in pass-through securities issued by HFA that have been economically defeased and refunded and for which collateral including U.S. agencies and Treasury obligations has been escrowed, and ~~$29~~$24 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~~September 30, 2018 (December 31, ~~2016, respectively)~~2017—$25 million).

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~~$78 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 atrue-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.~~

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 reasonably 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~~$24.4 million as of September 30, ~~2017.~~2018. 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 fromtime-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 in a reporting period, if unfavorable, ~~may be~~could have a material toadverse effect on the Corporation’s consolidated financial position ~~in a~~for that particular period.

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

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.~~On December 21, 2017, plaintiffs sought to amend the complaint and, on January 2018, defendants filed an answer thereto. 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.~~class; the Popular Defendants filed a certiorari petition before the Puerto Rico Court of Appeals in relation to the class certification, but on March 4, 2018, the Court of Appeals declined to entertain such petition. 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~~Although the case is still in discovery stage, the parties have not yet reached an agreement as to ~~answer the complaint. Afollow-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.~~notification procedures.

BPPR has separately been named a defendant in a putative class action complaint captioned~~Ramirez~~ Ramírez Torres, et al. v. Banco Popular de Puerto Rico, et al, filed before the Puerto Rico Court of First Instance, San Juan ~~Part~~.Part. The complaint seeks damages and preliminary and permanent injunctive relief on behalf of the purported class against the same Popular Defendants, as well as 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. Aco-defendant filed a third-party Complaint against Antilles Insurance Company. A preliminary injunction and class certification hearing originally scheduled for April ~~6th~~6, 2017 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~~judgment and, on March 21, 2018, the Court of Appeals reversed the Court of First Instance’s dismissal. On May 18, 2018, defendants each filed Petitions of Certiorari to ~~hazard insurance policies and captioned~~~~Morales v. Banco Popular de~~the Puerto Rico ~~et al.~~~~, was filed in May 2017. Plaintiffs aver that BPPR forced-placed hazard insurance~~Supreme Court. The Petitions of Certiorari were all denied 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)June 26, 2018 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,all parties but BPPR filed a ~~motion~~timely Motion for ~~summary judgment,~~Reconsideration of such denial. Those Motions for Reconsideration were denied and one defendant filed a Second Motion for Reconsideration to the Puerto Rico Supreme Court, which is ~~pending resolution.~~still pending.

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~~maintain that when they sought to reduce their loan payments, defendants failed to provide them with such reduced loan payments, instead subjecting them to lengthy loss mitigation processes while filing foreclosure claims against them in ~~parallel.~~parallel (or dual tracking). Plaintiffs assert that such actions violate ~~HAMP, HARP~~the Home Affordable Modification Program (“HAMP”), the Home Affordable Refinance Program (“HARP”) and other federally sponsored loan modification programs, as well as the Puerto Rico Mortgage Debtor Assistance Act and ~~TILA.~~the Truth in Lending Act (“TILA”). For the alleged violations stated above, ~~Plaintiffs~~plaintiffs request that all ~~Defendants~~defendants (over 20, ~~separate defendants have been named,~~ including all local banks), be held jointly and severally ~~respond~~liable in an amount of no less than $400 million. BPPR waived service of process in June 2017 and filed a motion to dismiss in August 2017, as did mostco-defendants. On March 28, 2018, the Court dismissed the complaint in its entirety. On April 9, 2018, plaintiffs filed a motion for reconsideration of such dismissal, which was denied on August 17, 2018. On August 29, 2018, plaintiffs filed a Notice of Appeal to the U.S. Court of Appeals for the First Circuit. Plaintiffs’ appellate brief is ~~pending resolution.~~due on December 3, 2018 and Defendants’ response brief will be due 30 days thereafter.

BPPR has also been named a defendant in ~~two separate~~another putative class ~~actions~~action 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.al., filed by the same counsel who filed theGonzález 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~~As in González Camacho, plaintiffs contend that when they sought to reduce their loan payments, defendants failed to provide them with such 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~~Plaintiffs did not include a specific amount of damages ~~(in~~~~Saad Maura~~)in their complaint. On January 3, 2018, plaintiffs requested that BPPR waive service of process, which it agreed to do on February 1, 2018. BPPR subsequently filed a motion to dismiss the complaint on the same grounds as those asserted in the González Camacho action (as did mostco-defendants, separately). ~~Banco Popular has not yet been served with summons in relation~~BPPR further filed a motion to ~~either matter.~~oppose class certification, which the Court granted, denying the motion for class certification on September 26, 2018. On October 8, 2018, plaintiffs filed a Motion for Reconsideration of such denial, which BPPR opposed on October 22, 2018. Those motions are still pending.

BPPR has been named a defendant in a complaint for damages and breach of contract captionedHéctor Robles Rodriguez et al. v. Municipio de Ceiba, et al.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~~mortgage lender in the project. Plaintiffs claim damages against the developer, contractor, the relevant insurance companies, and most recently, their mortgage lenders, ~~as a result~~because 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 plus attorney’s fees, costs and the annulment of their ~~mortgage deeds.~~mortgages. BPPR ~~has recently~~extended plaintiffs four consecutivesix-month payment forbearances, the last of which is still in effect, and it is engaged in ~~preliminary~~ settlement discussions with plaintiffs. In November 2017, the FDIC notified BPPR that it had agreed to indemnify the Bank in connection with its Doral Bank-related exposure, pursuant to the terms of the relevant Purchase and Assumption Agreement

with the FDIC. The FDIC filed a Notice of Removal to the United States District Court for the District of Puerto Rico (“USDC”) on March 27, 2018 and, on April 11 2018, the state court stayed the proceedings in response thereto. On April 13, 2018, the FDIC requested the USDC to stay the proceedings until plaintiffs have exhausted administrative remedies. This motion is still pending, along with several motions for remand to state court filed by 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~~in July 2017, management learned 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~~conducted a review of its mortgage files to assess the scope of potential customer impact. ~~Based on currently available information, we believe~~The review, which has been completed, found that ~~although~~while the mailing error extended to approximately ~~20,000~~23,000 residential mortgage loans (approximately 50% of which are serviced by the Corporation for third parties), the number of borrowers actually ~~affected~~harmed by the mailing error was substantially ~~lower~~lower. This was 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 email and hand delivery of written notices at our mortgage servicing centers or bank branches. Importantly, more than half of all borrowers potentially subject to such error actually closed on a loss mitigation alternative.

~~The~~During the fourth quarter of 2017, the Corporation ~~will begin~~began 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~~loans. These efforts are substantially complete. The Corporation is engaged in ongoing dialogue with applicable regulators with respect to ~~the action it will take regarding all potentially impacted borrowers by the first quarter~~this matter. The Corporation has also engaged in remediation with respect to, and notified regulators of, ~~2018.~~other printing and mailings incidents in its mortgage servicing operation that occurred after Hurricane Maria. At this point, we are not able to estimate the financial impact of the failure to print and mail ~~the loss mitigation notices.~~letters to mortgage borrowers.

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 discoverycut-off~~ ~~date)~~ to determine the merits of debtors’ motion to dismiss. ~~A separate~~At a hearing ~~will be heard~~held in November 2017, the Court determined that it was inclined to ~~entertain creditors’~~rule against the dismissal of the complaint but requested that the parties submit supplemental briefs on the subject, which the parties did; however, no decision has been rendered to date. On September 17, 2018, the Lenders filed a motion requesting the Court to ~~appoint a trustee.~~expedite its determination on the motion for Summary Judgment filed by the Lenders on November 2017, since there were continuing acts by Involuntary Debtor insiders to transfer all revenues and assets to such insiders and shield such revenues and assets from the Lenders and other legitimate creditors. This motion is still pending.

POPULAR SECURITIES

Puerto Rico Bonds andClosed-End Investment Funds

The volatility in prices and declines in value that Puerto Rico municipal bonds andclosed-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 86152 arbitration proceedings with aggregate claimed amounts of approximately ~~$209~~$260 million, including one arbitration with claimed damages of approximately $78 million in which another Puerto Rico broker-dealer is aco-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~~certain claims rather than expend the money and resources required to see such cases to completion. The Puerto Rico Government’s defaults andnon-payment of its various debt obligations, as well as the ~~Commonwealth government’s~~Commonwealth’s and the Financial Oversight Management Board’s (the “Oversight Board”) 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, andclosed-end investment companies that invest primarily in Puerto Rico bonds. An adverse result in the ~~matters~~arbitration proceedings 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~~relation to 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~~sought 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 Oversight Board, as well as 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, whoothers, opposed the UCC’s request. Magistrate Dein denied the UCC’s request ~~submit further briefing~~without prejudice and allowed the law firm of Kobre & Kim to carry out its own independent investigation on ~~this subject. The parties are to argue their respective positions at~~behalf of the ~~upcoming omnibus hearing, to be held on November 15, 2017.~~Oversight Board.

~~Since the August 2017 hearing, the~~The Popular Companies have separately been served with additional requests for the preservation and voluntary production of certain ~~COFINA-related~~ documents and witnesses from the UCC and the COFINA ~~Agent~~Agents in connection with the COFINA-Commonwealth adversary complaint, as well as from the Oversight Board’s Independent Investigator, Kobre & ~~Kim. BPPR is cooperating~~Kim, with respect to its independent investigation. The Popular Companies cooperated with all such requests ~~but has~~and 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.

On August 20, 2018, Kobre & Kim issued its Final Report, which contained various references to the Popular Companies, including allegations that Popular Securities participated as an underwriter in Commonwealth’s 2014 issuance of government obligation bonds notwithstanding having allegedly advised against it. The report discussed that such allegation could give rise to an unjust enrichment claim against the Popular Companies and could also serve as a basis to equitably subordinate any claim it files in the Title III proceeding to other claims.

POPULAR ~~COMMUNITY~~ BANK

Josefina Valle v. Popular Community Bank (now Popular Bank)

~~PCB~~PB has been named a defendant in a putative class action complaint captionedJosefina Valle, et al. v. Popular Community Bank,filed in November 2012 in the New York State Supreme Court (New York County). Plaintiffs, ~~PCB~~PB customers, ~~allege~~alleged among other things that ~~PCB has~~PB 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~~alleged that ~~PCB~~PB improperly disclosed its consumer overdraft policies and that the overdraft rates and fees assessed by ~~PCB~~PB violate New York’s usury laws. Plaintiffs ~~seek~~sought unspecified damages, including punitive damages, interest, disbursements, and attorneys’ fees and costs.

After several procedural steps that included a ruling partially granting PB’s motion to dismiss ~~was filed on September 9, 2013. On October 25, 2013, plaintiffs filed~~and the filing of an amended complaint ~~seeking to limit the putative class to New York account holders. A motion to dismiss the amended complaint~~that 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 andalso partially dismissed, 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

~~covenant of good faith and fair dealing. On~~ August 12, 2015, ~~Plaintiffs~~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, itPB filed a motion to dismiss the second amended ~~complaint. On~~complaint and on February 18, 2016, the Court granted it in part and denied it in part, ~~PCB’s pending motion to dismiss. The Court dismissed~~dismissing 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~~PB filed an answer to the second amended complaint and, on ~~April 7, 2016, it filed a notice~~November 13, 2017, the parties reached an agreement in principle. Under this agreement, an amount up to $5.2 million would be paid to qualified claimants. In March 2018, the Court entered an order for the preliminary approval of ~~appeal~~the settlement. On July 23, 2018, the claims process closed and, on August 6, 2018, the ~~partial denial~~Court granted its final approval of ~~PCB’s motion to dismiss. A mediation session held~~the settlement agreement, entering such final order on August 13, 2018. The settlement became final and unappealable 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.12, 2018.

Note 23 –Non-consolidated variable interest entities

The Corporation is involved with ~~four~~three 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 asavailable-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~~agency 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~~2018 and December 31, ~~2016,~~2017, which are classified asavailable-for-sale and trading securities in the Corporation’s ~~consolidated statements~~Consolidated Statements of ~~financial condition.~~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 innon-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~~2018 and December 31, ~~2016.~~2017.


(In thousands)	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
Assets
Servicing assets:
Mortgage servicing rights	$	152,072	$	158,562	$	130,454	$	132,692

Total servicing assets	$	152,072	$	158,562	$	130,454	$	132,692

Other assets:
Servicing advances	$	22,955	$	20,787	$	37,548	$	47,742

Total other assets	$	22,955	$	20,787	$	37,548	$	47,742

Total assets	$	175,027	$	179,349	$	168,002	$	180,434

Maximum exposure to loss	$	175,027	$	179,349	$	168,002	$	180,434

The size of thenon-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~~$10.7 billion at September 30, ~~2017~~2018 (December 31, ~~2016—~~2017—$~~12.3~~11.7 billion).

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~~2018 and December 31, ~~2016,~~2017, 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 Portfolio2013-1 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 Portfolio2013-1 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~~had a5-year maturity and bear a variable interest at30-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 anon-revolving advance facility (the “advance facility”) of $69 million and $35 million, respectively, to cover unfunded commitments andcosts-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 Subtopic860-10.

The Corporation has determined that PRLP 2011 Holdings, LLC and PR Asset Portfolio2013-1 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 Subtopic323-10.

The following tables present the carrying amount and classification of the assets and liabilities related to the Corporation’s variable interests in thenon-consolidated VIEs, PRLP 2011 Holdings, LLC and PR Asset Portfolio2013-1 International, LLC, and their maximum exposure to loss at September 30, ~~2017~~2018 and December 31, ~~2016.~~

2017.


	PRLP 2011 Holdings, LLC						PR Asset Portfolio 2013-1 International, LLC						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			September 30, 2018			December 31, 2017			September 30, 2018			December 31, 2017
Assets
Loansheld-in-portfolio:
Advances under the working capital line	$	—		$	—		$	—		$	1,391
Advances under the advance facility		—			—			—			2,475

Total loansheld-in-portfolio	$	—		$	—		$	—		$	3,866

Accrued interest receivable	$	—		$	—		$	—		$	19
Other assets:
Equity investment	$	7,362		$	9,167		$	14,167		$	22,378		$	6,942		$	7,199		$	5,569		$	12,874

Total assets	$	7,362		$	9,167		$	14,167		$	26,263		$	6,942		$	7,199		$	5,569		$	12,874

Liabilities

Deposits	$	(480	)	$	(1,127	)	$	(16,900	)	$	(9,692	)	$	(280	)	$	(20	)	$	(8,433	)	$	(10,501	)

Total liabilities	$	(480	)	$	(1,127	)	$	(16,900	)	$	(9,692	)	$	(280	)	$	(20	)	$	(8,433	)	$	(10,501	)

Total net assets	$	6,882		$	8,040		$	(2,733	)	$	16,571		$	6,662		$	7,179		$	(2,864	)	$	2,373

Maximum exposure to loss	$	6,882		$	8,040		$	—		$	16,571		$	6,662		$	7,179		$	—		$	2,373

The Corporation determined that the maximum exposure to loss under a worst case scenario at September 30, ~~2017~~2018 would be not recovering the net assets held by the Corporation as of the reporting date.

ASU2009-17 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 thesenon-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.~~2018.

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,~~2018, the ~~Corporation’s~~Corporation held 11,654,803 shares of EVERTEC, an ownership stake ~~in EVERTEC was 16.10%.The~~of 16.03%. 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~~0.6 million in dividend distributions during the nine months ended September 30, ~~2017~~2018, from its investments in EVERTEC’s holding company (September 30, ~~2016—~~2017—$ 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		September 30, 2018		December 31, 2017
Equity investment in EVERTEC	$	45,810	$	38,904	$	57,839	$	47,532

The Corporation had the following financial condition balances outstanding with EVERTEC at September 30, ~~2017~~2018 and December 31, ~~2016.~~2017. Items that represent liabilities to the Corporation are presented with parenthesis.


(In thousands)	September 30, 2017			December 31, 2016			September 30, 2018			December 31, 2017
Accounts receivable (Other assets)	$	5,221		$	6,394		$	6,233		$	6,830
Deposits		(20,712	)		(14,899	)		(52,339	)		(22,284	)
Accounts payable (Other liabilities)		(4,070	)		(20,372	)		(4,326	)		(2,040	)

Net total	$	(19,561	)	$	(28,877	)	$	(50,432	)	$	(17,494	)

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~~2018 and ~~2016.~~2017.


(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

						Quarter ended			Nine months ended
(In thousands)	Quarter ended September 30, 2016		Nine months ended September 30, 2016			September 30, 2018			September 30, 2018
Share of income from the investment in EVERTEC	$	3,198	$	9,397		$	3,682		$	10,586
Share of other changes in EVERTEC’s stockholders’ equity		426		(899	)		(34	)		601

Share of EVERTEC’s changes in equity recognized in income	$	3,624	$	8,498		$	3,648		$	11,187


	Quarter ended		Nine months ended
(In thousands)	September 30, 2017		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

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~~2018 and ~~2016.~~2017. Items that represent expenses to the Corporation are presented with parenthesis.

(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 )


	Quarter ended			Nine months ended
(In thousands)	September 30, 2018			September 30, 2018			Category
Interest expense on deposits	$	(21	)	$	(46	)		Interest expense
ATH and credit cards interchange income from services to EVERTEC		8,486			24,940			Other service fees
Rental income charged to EVERTEC		1,781			5,297			Net occupancy
Processing fees on services provided by EVERTEC		(48,360	)		(142,443	)		Professional fees
Other services provided to EVERTEC		279			884			Other operating expenses

Total	$	(37,835	)	$	(111,368	)


	Quarter ended			Nine months ended
(In thousands)	September 30, 2017			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	)

PRLP 2011 Holdings LLC

As indicated in Note 23 to the ~~consolidated financial statements,~~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		September 30, 2018		December 31, 2017
Equity investment in PRLP 2011 Holdings, LLC	$	7,362	$	9,167	$	6,942	$	7,199

The Corporation had the following financial condition balances outstanding with PRLP 2011 Holdings, LLC at September 30, ~~2017~~2018 and December 31, ~~2016.~~2017.


(In thousands)	September 30, 2017			December 31, 2016			September 30, 2018			December 31, 2017
Deposits(non-interest bearing)	$	(480	)	$	(1,127	)	$	(280	)	$	(20	)

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~~2018 and ~~2016.~~2017.

(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 )


	Quarter ended		Nine months ended
(In thousands)	September 30, 2018		September 30, 2018
Share of income (loss) from the equity investment in PRLP 2011 Holdings, LLC	$	55	$	(257	)

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

~~During the nine months ended September 30, 2017,~~No capital distributions were received by the Corporation ~~received $ 1.0 million in capital distributions~~ from its investment in PRLP 2011 Holdings, LLC during the nine months ended September 30, 2018 (September 30, ~~2016—~~2017—$ ~~3.4~~1.0 million). ~~The following table presents~~There were no transactions between the Corporation and PRLP 2011 Holdings, LLC ~~and their impact on~~during the ~~Corporation’s results of operations for the quarter and nine months~~quarters ended September 30, ~~2016.~~2018 and 2017.

(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 Portfolio2013-1 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 Portfolio2013-1 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 Portfolio2013-1 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		September 30, 2018		December 31, 2017
Equity investment in PR Asset Portfolio2013-1 International, LLC	$	14,167	$	22,378	$	5,569	$	12,874

The Corporation had the following financial condition balances outstanding with PR Asset Portfolio2013-1 International, LLC at September 30, ~~2017~~2018 and December 31, ~~2016.~~2017.

(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 )


(In thousands)	September 30, 2018			December 31, 2017
Deposits	$	(8,433	)	$	(10,501	)

The Corporation’s proportionate share of income or loss from PR Asset Portfolio2013-1 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 Portfolio2013-1 International, LLC for the quarters and nine months ended September 30, ~~2017~~2018 and ~~2016.~~

2017.


(In thousands)							Quarter ended September 30, 2018			Nine months ended September 30, 2018
Share of income (loss) from the equity investment in PR Asset Portfolio2013-1 International, LLC							$	112		$	(5,297	)

(In thousands)	Quarter ended September 30, 2017			Nine months ended September 30, 2017			Quarter ended September 30, 2017			Nine months ended September 30, 2017
Share of loss from the equity investment in PR Asset Portfolio2013-1 International, LLC	$	(1,299	)	$	(1,150	)	$	(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 Portfolio2013-1 International, LLC	$	(587	)	$	(910	)

During the nine months ended September 30, ~~2017,~~2018, the Corporation received $ ~~7.1~~2.0 million in capital ~~distribution~~distributions from its investment in PR Asset Portfolio2013-1 International, ~~LLC. No capital distribution was~~LLC (September 30, 2017—$ 7.1 million). The Corporation received ~~by the Corporation~~$0.7 million in dividend distributions during the nine months ended September 30, 2017, which were declared by PR Asset Portfolio2013-1 International, LLC during the quarter ended December 31, 2016. The following table presents transactions between the Corporation and PR Asset

Portfolio2013-1 International, LLC and their impact on the Corporation’s results of operations for the quarters and nine months ended September 30, ~~2017~~2018 and ~~2016.~~2017.


									Quarter ended			Nine months ended
(In thousands)	Quarter ended September 30, 2017			Nine months ended September 30, 2017			Category		September 30, 2018			September 30, 2018			Category
Interest income on loan to PR Asset Portfolio2013-1 International, LLC	$	—		$	9			Interest income
Interest expense on deposits		(8	)		(23	)		Interest expense	$	(5	)	$	(16	)		Interest expense

Total	$	(8	)	$	(14	)

									Quarter ended			Nine months ended
(In thousands)	Quarter ended September 30, 2016			Nine months ended September 30, 2016			Category		September 30, 2017			September 30, 2017			Category
Interest income on loan to PR Asset Portfolio2013-1 International, LLC	$	189		$	923			Interest income	$	—		$	9			Interest income
Interest expense on deposits		(1	)		(3	)		Interest expense		(8	)		(23	)		Interest expense

Total	$	188		$	920				$	(8	)	$	(14	)

Centro Financiero BHD ~~Leó~~León

At September 30, ~~2017,~~2018, 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,~~2018, the Corporation recorded $ ~~17.3~~22.1 million in earnings from its investment in BHD Leon ~~(2016 -~~ (September 30, 2017—$ ~~18.5~~17.3 million), which had a carrying amount of $ ~~129.1~~140.4 million at September 30, ~~2017~~2018 (December 31, ~~2016 -~~ 2017—$ ~~125.5~~135.0 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 was repaid and expired during March 2017. On December 2017, BPPR extended a credit facility of $ 40 million to BHD León. This credit facility was repaid during the quarter ended March 31, 2018. The Corporation received $ ~~11.8~~12.6 million in dividend distributions during the nine months ended September 30, ~~2017~~2018 from its investment in BHD Leon (September 30, ~~2016 -~~ 2017—$ ~~12.1~~11.8 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~~were the dividends to be received by GFL from its investment in BHD Leon. BPPR’s credit facility ~~ranks~~ranked pari passu with another $8 million credit facility extended to GFL by BHD International Panama, an affiliate of BHD Leon. This credit facility was repaid during the quarter ended June 30, 2018.

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~~2018 administrative fees charged to these investment companies amounted to $ ~~5.8~~5.1 million ~~(2016-~~ (September 30, 2017—$ ~~6.0~~5.8 million) and waived fees amounted to $ ~~1.7~~1.6 million ~~(2016 - $ 2.1~~(September 30, 2017 —$ 1.7 million), for a net fee of $ ~~4.1~~3.5 million ~~(2016 -~~ (September 30, 2017—$ ~~3.9~~4.1 million).

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,~~2018, the available lines of credit facilities amounted to ~~$357~~$337 million (December 31, ~~2016—~~2017—$~~357~~356 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 orco-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~~2018 there was no outstanding balance ~~amounted to $37.7 million.~~for these credit facilities.

Note 25 – Fair value measurement

ASC Subtopic820-10 “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~~2017 Form10-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.

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~~2018 and December 31, ~~2016:~~2017:


At September 30, 2017
At September 30, 2018												At September 30, 2018
(In thousands)	Level 1		Level 2			Level 3			Total				Level 1		Level 2			Level 3		Total
RECURRING FAIR VALUE MEASUREMENTS
Assets
Investment securitiesavailable-for-sale:
Debt securitiesavailable-for-sale:
U.S. Treasury securities	$	—	$	2,764,863		$	—		$	2,764,863			$	2,496,517	$	5,365,445		$	—	$	7,861,962
Obligations of U.S. Government sponsored entities		—		611,646			—			611,646				—		403,794			—		403,794
Obligations of Puerto Rico, States and political subdivisions		—		6,615			—			6,615				—		6,679			—		6,679
Collateralized mortgage obligations—federal agencies		—		1,015,597			—			1,015,597
Collateralized mortgage obligations — federal agencies														—		758,612			—		758,612
Mortgage-backed securities		—		4,658,238			1,288			4,659,526				—		4,014,750			1,263		4,016,013
Equity securities		—		1,885			—			1,885
Other		—		869			—			869				—		557			—		557

Total investment securitiesavailable-for-sale	$	—	$	9,059,713		$	1,288		$	9,061,001
Total debt securitiesavailable-for-sale													$	2,496,517	$	10,549,837		$	1,263	$	13,047,617

Trading account securities, excluding derivatives:
Trading account debt securities, excluding derivatives:
U.S. Treasury securities													$	5,183	$	—		$	—	$	5,183
Obligations of Puerto Rico, States and political subdivisions	$	—	$	172		$	—		$	172				—		143			—		143
Collateralized mortgage obligations		—		276			572			848				—		48			644		692
Mortgage-backed securities—federal agencies		—		32,709			43			32,752
Mortgage-backed securities														—		28,194			43		28,237
Other		—		11,630			549			12,179				—		2,978			498		3,476

Total trading account securities, excluding derivatives	$	—	$	44,787		$	1,164		$	45,951
Total trading account debt securities, excluding derivatives													$	5,183	$	31,363		$	1,185	$	37,731

Equity securities													$	—	$	14,154		$	—	$	14,154
Mortgage servicing rights	$	—	$	—		$	180,157		$	180,157				—		—			162,779		162,779
Derivatives		—		14,234			—			14,234				—		18,977			—		18,977

Total assets measured at fair value on a recurring basis	$	—	$	9,118,734		$	182,609		$	9,301,343			$	2,501,700	$	10,614,331		$	165,227	$	13,281,258

Liabilities
Derivatives	$	—	$	(12,841	)	$	—		$	(12,841	)		$	—	$	(16,554	)	$	—	$	(16,554	)
Contingent consideration		—		—			(166,876	)		(166,876	)

Total liabilities measured at fair value on a recurring basis	$	—	$	(12,841	)	$	(166,876	)	$	(179,717	)		$	—	$	(16,554	)	$	—	$	(16,554	)

At December 31, 2016

(In thousands)
   Level 1    Level 2    Level 3    Total
RECURRING FAIR VALUE MEASUREMENTS

Assets

Investment securitiesavailable-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 securitiesavailable-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 )


At December 31, 2017
(In thousands)	Level 1		Level 2			Level 3			Total
RECURRING FAIR VALUE MEASUREMENTS
Assets
Debt securitiesavailable-for-sale:
U.S. Treasury securities	$	503,385	$	3,424,779		$	—		$	3,928,164
Obligations of U.S. Government sponsored entities		—		608,933			—			608,933
Obligations of Puerto Rico, States and political subdivisions		—		6,609			—			6,609
Collateralized mortgage obligations - federal agencies		—		943,753			—			943,753
Mortgage-backed securities		—		4,687,374			1,288			4,688,662
Other		—		802			—			802

Total debt securitiesavailable-for-sale	$	503,385	$	9,672,250		$	1,288		$	10,176,923

Trading account debt securities, excluding derivatives:
U.S. Treasury securities	$	261	$	—		$	—		$	261
Obligations of Puerto Rico, States and political subdivisions		—		159			—			159
Collateralized mortgage obligations		—		—			529			529
Mortgage-backed securities		—		29,237			43			29,280
Other		—		2,988			529			3,517

Total trading account debt securities, excluding derivatives	$	261	$	32,384		$	1,101		$	33,746

Equity securities	$	—	$	11,076		$	—		$	11,076
Mortgage servicing rights		—		—			168,031			168,031
Derivatives		—		16,719			—			16,719

Total assets measured at fair value on a recurring basis	$	503,646	$	9,732,429		$	170,420		$	10,406,495

Liabilities
Derivatives	$	—	$	(14,431	)	$	—		$	(14,431	)
Contingent consideration		—		—			(164,858	)		(164,858	)

Total liabilities measured at fair value on a recurring basis	$	—	$	(14,431	)	$	(164,858	)	$	(179,289	)

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~~2018 and ~~2016~~2017 and excludes nonrecurring fair value measurements of assets no longer outstanding as of the reporting date.


Nine months ended September 30, 2017
Nine months ended September 30, 2018												Nine months ended September 30, 2018
(In thousands)	Level 1		Level 2		Level 3		Total						Level 1		Level 2		Level 3		Total
NONRECURRING FAIR VALUE MEASUREMENTS
Assets									Write-downs													Write- downs

Loans^[1]	$	—	$	—	$	66,221	$	66,221	$	(16,282	)		$	—	$	—	$	79,347	$	79,347	$	(28,769	)
Other real estate owned^{[2] [3]}		—		—		89,825		89,825		(17,405	)
Other real estate owned^[2]														—		—		42,572		42,572		(8,744	)
Other foreclosed assets^[2]		—		—		2,223		2,223		(475	)			—		—		2,596		2,596		(957	)

Total assets measured at fair value on a nonrecurring basis	$	—	$	—	$	158,269	$	158,269	$	(34,162	)		$	—	$	—	$	124,515	$	124,515	$	(38,470	)

[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 ASCSection 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.~~

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 )


Nine moths 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]

[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.

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~~2018 and ~~2016.~~2017.

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 )


Quarter ended September 30, 2018
	MBS			CMOs					Other
	classified			classified					securities
	as debt			as trading			MBS		classified
	securities			account			classified as		as trading			Mortgage
	available-			debt			trading account		account debt			servicing			Total
(In thousands)	for-sale			securities			debt securities		securities			rights			assets
Balance at June 30, 2018	$	1,264		$	670		$	43	$	506		$	164,025		$	166,508
Gains (losses) included in earnings		—			—			—		(8	)		(4,194	)		(4,202	)
Gains (losses) included in OCI		(1	)		—			—		—			—			(1	)
Additions		—			7			—		—			2,946			2,953
Settlements		—			(33	)		—		—			—			(33	)

Balance at September 30, 2018	$	1,263		$	644		$	43	$	498		$	162,777		$	165,225

Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2018	$	—		$	—		$	—	$	3		$	—		$	3


Nine months ended September 30, 2018
(In thousands)	MBS classified as investment securities available- for-sale			CMOs classified as trading account securities			MBS classified as trading account securities		Other securities classified as trading account securities			Mortgage servicing rights			Total assets			Contingent consideration^[1]			Total liabilities
Balance at January 1, 2018	$	1,288		$	529		$	43	$	529		$	168,031		$	170,420		$	(164,858	)	$	(164,858	)
Gains (losses) included in earnings		—			6			—		(31	)		(13,123	)		(13,148	)		(6,112	)		(6,112	)
Gains (losses) included in OCI		1			—			—		—			—			1			—			—
Additions		—			260			—		—			7,869			8,129			—			—
Settlements		(26	)		(151	)		—		—			—			(177	)		170,970			170,970

Balance at September 30, 2018	$	1,263		$	644		$	43	$	498		$	162,777		$	165,225		$	—		$	—

Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2018	$	—		$	6		$	—	$	14		$	—		$	20		$	—		$	—

[1]	Effective May 22, 2018, the Corporation entered into a Termination Agreement with the FDIC to terminate the Corporation’s loss share arrangement ahead of their contractual maturities. Refer to Note 10 for additional information.

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 )


Quarter ended September 30, 2017
(In thousands)	MBS classified as debt securities available- for-sale			CMOs classified as trading account debt securities			MBS classified as trading account debt securities			Other securities classified as trading account debt securities			Mortgage servicing rights			Total assets			Contingent consideration			Total 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
(In thousands)	MBS classified as investment securities available- for-sale			CMOs classified as trading account securities			MBS classified as trading account securities			Other securities classified as trading account securities			Mortgage servicing rights			Total assets			Contingent consideration			Total 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	)

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, 2018. 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~~discontinued 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~~2018 and ~~2016~~2017 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, 2018					Nine months ended September 30, 2018
				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	$	—		$	—	$	(6,112	)	$	—
Mortgage banking activities		(4,194	)		—		(13,123	)		—
Trading account profit (loss)		(8	)		3		(25	)		20

Total	$	(4,202	)	$	3	$	(19,260	)	$	20

   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 )


													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
	Quarter ended September 30, 2016						Nine months ended September 30, 2016						(losses) included			assets still held at			(losses) included			assets still held at
(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			in earnings			reporting date			in earnings			reporting date
Interest income	$	—		$	—		$	(2	)	$	—
FDIC loss share expense		(6,611	)		(6,611	)		(14,742	)		(14,742	)	$	(3,208	)	$	(3,208	)	$	(13,718	)	$	(13,718	)
Mortgage banking activities		(6,062	)		(1,082	)		(18,879	)		(4,315	)		(10,262	)		(6,241	)		(24,262	)		(9,863	)
Trading account profit (loss)		(39	)		(11	)		18			107			(80	)		2			(177	)		(6	)

Total	$	(12,712	)	$	(7,704	)	$	(33,605	)	$	(18,950	)	$	(13,550	)	$	(9,447	)	$	(38,157	)	$	(23,587	)

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.

Fair value

at September 30,

(In thousands)

Fair value
at September 30,
2017

Valuation technique

Unobservable inputs

Weighted average (range)

2018

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)

644

Discounted cash flow model

Weighted average life

1.9 years (1.3 - 2.2 years)

Yield

3.9% (3.7% - 4.2%)

Yield

3.8% (3.7% - 4.2%)

Prepayment speed

21.2% (20.2% - 22.9%)

Prepayment speed

18.9% (16.3% -20.8%)

Other - trading

549

Discounted cash flow model

Weighted average life

5.3 years

498

Discounted cash flow model

Weighted average life

5.2 years

Yield

12.5%

Yield

12.0%

Prepayment speed

10.8%

Prepayment speed

10.8%

Mortgage servicing rights

180,157

Discounted cash flow model

Prepayment speed

5.8% (0.3% - 18.0%)

162,779

Discounted cash flow model

Prepayment speed

5.3% (0.1% - 16.9%)

Weighted average life

6.7 years (0.1 - 15.6 years)

Weighted average life

8.0 years (0.1 - 16.0 years)

Discount rate

11.2% (9.5% - 15.0%)

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%

Loansheld-in-portfolio

66,221

^[1]

External appraisal

Haircut applied on

66,710

^[1]

External appraisal

Haircut applied on

external appraisals

25.0% (11.6% - 54.1%)

external appraisals

10.2% (10.0%-11.8%)

Other real estate owned

83,870

^[2]

External appraisal

Haircut applied on

36,989

^[2]

External appraisal

Haircut applied on

external appraisals

21.3% (20.0% - 30.0%)

external appraisals

23.8% (15.0% -30.0%)

[1]	Loansheld-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.

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.

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~~2018 and December 31, ~~2016,~~2017, 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~~2017 Form10-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, 2018
	September 30, 2017										Carrying
(In thousands)	Carrying amount		Level 1		Level 2		Level 3		Fair value		amount		Level 1		Level 2		Level 3		Fair value
Financial Assets:
Cash and due from banks	$	517,437	$	517,437	$	—	$	—	$	517,437	$	400,949	$	400,949	$	—	$	—	$	400,949
Money market investments		5,488,212		5,479,268		8,944		—		5,488,212		4,609,061		4,597,827		11,234		—		4,609,061
Trading account securities, excluding derivatives^[1]		45,951		—		44,787		1,164		45,951
Investment securitiesavailable-for-sale^[1]		9,061,001		—		9,059,713		1,288		9,061,001
Investment securitiesheld-to-maturity:
Trading account debt securities, excluding derivatives^[1]												37,731		5,183		31,363		1,185		37,731
Debt securitiesavailable-for-sale^[1]												13,047,617		2,496,517		10,549,837		1,263		13,047,617
Debt securitiesheld-to-maturity:
Obligations of Puerto Rico, States and political subdivisions	$	92,369	$	—	$	—	$	73,460	$	73,460	$	89,121	$	—	$	—	$	92,959	$	92,959
Collateralized mortgage obligation-federal agency		69		—		—		73		73		56		—		—		59		59
Trust preferred securities												11,561		—		11,561		—		11,561
Other		1,000		—		742		237		979		500		—		495		—		495

Total investment securitiesheld-to-maturity	$	93,438	$	—	$	742	$	73,770	$	74,512
Total debt securitiesheld-to-maturity											$	101,238	$	—	$	12,056	$	93,018	$	105,074

Other investment securities:
Equity securities:
FHLB stock	$	64,208	$	—	$	64,208	$	—	$	64,208	$	53,562	$	—	$	53,562	$	—	$	53,562
FRB stock		94,644		—		94,644		—		94,644		88,945		—		88,945		—		88,945
Trust preferred securities		13,198		—		13,198		—		13,198
Other investments		1,915		—		—		5,091		5,091		15,455		—		14,152		6,082		20,234

Total other investment securities	$	173,965	$	—	$	172,050	$	5,091	$	177,141
Total equity securities											$	157,962	$	—	$	156,659	$	6,082	$	162,741

Loansheld-for-sale	$	68,864	$	—	$	—	$	70,499	$	70,499	$	51,742	$	—	$	—	$	52,151	$	52,151
Loans not covered under loss sharing agreement with the FDIC		22,559,594		—		—		20,896,277		20,896,277		25,878,450		—		—		23,709,245		23,709,245
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		162,779		—		—		162,779		162,779
Derivatives		14,234		—		14,234		—		14,234		18,977		—		18,977		—		18,977

   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


	September 30, 2018
	Carrying
(In thousands)	amount		Level 1		Level 2		Level 3		Fair value
Financial Liabilities:
Deposits:
Demand deposits	$	32,236,547	$	—	$	32,236,547	$	—	$	32,236,547
Time deposits		7,412,280		—		7,187,889		—		7,187,889

Total deposits	$	39,648,827	$	—	$	39,424,436	$	—	$	39,424,436

Assets sold under agreements to repurchase	$	300,116	$	—	$	300,150	$	—	$	300,150
Other short-term borrowings^[2]	$	1,200	$	—	$	1,200	$	—	$	1,200
Notes payable:
FHLB advances	$	599,755	$	—	$	591,397	$	—	$	591,397
Unsecured senior debt securities		742,159		—		763,863		—		763,863
Junior subordinated deferrable interest debentures (related to trust preferred securities)		384,869		—		371,913		—		371,913
Others		17,904		—		—		17,904		17,904

Total notes payable	$	1,744,687	$	—	$	1,727,173	$	17,904	$	1,745,077

Derivatives	$	16,554	$	—	$	16,554	$	—	$	16,554

[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.

   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 securitiesavailable-for-sale^[1]
   8,209,806    —      8,208,414    1,392    8,209,806
Investment securitiesheld-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 securitiesheld-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










Loansheld-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


	December 31, 2017
	Carrying
(In thousands)	amount		Level 1		Level 2		Level 3		Fair value
Financial Assets:
Cash and due from banks	$	402,857	$	402,857	$	—	$	—	$	402,857
Money market investments		5,255,119		5,245,346		9,773		—		5,255,119
Trading account debt securities, excluding derivatives^[1]		33,746		261		32,384		1,101		33,746
Debt securitiesavailable-for-sale^[1]		10,176,923		503,385		9,672,250		1,288		10,176,923
Debt securitiesheld-to-maturity:
Obligations of Puerto Rico, States and political subdivisions	$	92,754	$	—	$	—	$	83,239	$	83,239
Collateralized mortgage obligation-federal agency		67		—		—		71		71
Trust preferred securities		13,198		—		13,198		—		13,198
Other		1,000		—		750		243		993

Total debt securitiesheld-to-maturity	$	107,019	$	—	$	13,948	$	83,553	$	97,501

Equity securities:
FHLB stock	$	57,819	$	—	$	57,819	$	—	$	57,819
FRB stock		94,308		—		94,308		—		94,308
Other investments		12,976		—		11,076		5,214		16,290

Total equity securities	$	165,103	$	—	$	163,203	$	5,214	$	168,417

Loansheld-for-sale	$	132,395	$	—	$	—	$	134,839	$	134,839
Loans not covered under loss sharing agreement with the FDIC		23,702,612		—		—		21,883,003		21,883,003
Loans covered under loss sharing agreements with the FDIC		484,030		—		—		465,893		465,893
FDIC loss share asset		45,192		—		—		33,323		33,323
Mortgage servicing rights		168,031		—		—		168,031		168,031
Derivatives		16,719		—		16,719		—		16,719

	December 31, 2017
	Carrying
(In thousands)	amount		Level 1		Level 2		Level 3		Fair value
Financial Liabilities:
Deposits:
Demand deposits	$	27,938,630	$	—	$	27,938,630	$	—	$	27,938,630
Time deposits		7,514,878		—		7,381,232		—		7,381,232

Total deposits	$	35,453,508	$	—	$	35,319,862	$	—	$	35,319,862

Assets sold under agreements to repurchase	$	390,921	$	—	$	390,752	$	—	$	390,752
Other short-term borrowings^[2]	$	96,208	$	—	$	96,208	$	—	$	96,208
Notes payable:
FHLB advances	$	631,490	$	—	$	628,839	$	—	$	628,839
Unsecured senior debt		446,873		—		463,554		—		463,554
Junior subordinated deferrable interest debentures (related to trust preferred securities)		439,351		—		406,883		—		406,883
Others		18,642		—		—		18,642		18,642

Total notes payable	$	1,536,356	$	—	$	1,499,276	$	18,642	$	1,517,918

Derivatives	$	14,431	$	—	$	14,431	$	—	$	14,431

Contingent consideration	$	164,858	$	—	$	—	$	164,858	$	164,858

[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.

The notional amount of commitments to extend credit at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 is $ ~~7.3~~7.5 billion and $ ~~7.8~~7.6 billion, respectively, and represents the unused portion of credit facilities granted to customers. The notional amount of letters of credit at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 is $ 3433 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.

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~~2018 and ~~2016:~~2017:


	Quarters ended September 30,						Nine months ended September 30,						Quarters ended September 30,						Nine months ended September 30,
(In thousands, except per share information)	2017			2016			2017			2016			2018			2017			2018			2017
Net income	$	20,664		$	46,810		$	209,835		$	220,796		$	140,648		$	20,664		$	511,755		$	209,835
Preferred stock dividends		(930	)		(930	)		(2,792	)		(2,792	)		(930	)		(930	)		(2,792	)		(2,792	)

Net income applicable to common stock	$	19,734		$	45,880		$	207,043		$	218,004		$	139,718		$	19,734		$	508,963		$	207,043

Average common shares outstanding		101,652,352			103,296,443			102,057,607			103,243,851			101,067,300			101,652,352			101,549,711			102,057,607
Average potential dilutive common shares		111,520			168,942			127,937			140,098			181,854			111,520			182,219			127,937

Average common shares outstanding— assuming dilution		101,763,872			103,465,385			102,185,544			103,383,949
Average common shares outstanding—assuming dilution														101,249,154			101,763,872			101,731,930			102,185,544

Basic EPS	$	0.19		$	0.44		$	2.03		$	2.11		$	1.38		$	0.19		$	5.01		$	2.03

Diluted EPS	$	0.19		$	0.44		$	2.03		$	2.11		$	1.38		$	0.19		$	5.00		$	2.03

As disclosed in Note 19, during the quarter ended ~~March 31, 2017,~~September 30, 2018, the Corporation ~~completed~~entered into a ~~$75~~$125 million ~~privately negotiated~~ accelerated share repurchase transaction (“ASR”) and, in connection therewith, received an initial delivery of 2,000,000 shares of common stock. The initial share delivery was accounted for as a treasury stock transaction. As part of this transaction, the Corporation entered into a forward contract, inwhich remains outstanding as of September 30, 2018, for which the ~~final number of~~Corporation expects to receive additional 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~~upon termination of the ~~ASR. Based on~~ASR agreement. The diluted earnings per share computation for the ~~discounted VWAP of $40.60,~~quarter and nine months ended September 30, 2018 excludes 476,749 antidilutive shares related to the ~~Corporation received 1,847,372 shares of its outstanding common stock.~~ASR.

For the quarter and nine months ended September 30, ~~2017,~~2018, the Corporation calculated the impact of potential dilutive common shares under the treasury stock method, consistent with the method used for the preparation of the financial statements for the year ended December 31, ~~2016.~~2017. For a discussion of the calculation under the treasury stock method, refer to Note 3534 of the ~~consolidated financial statements~~Consolidated Financial Statements included in the ~~2016~~2017 Form10-K.

~~For~~

Note 28 – Revenue from contracts with customers

The following tables present the Corporation’s revenue streams from contracts with customers by reportable segment for the quarters and nine months ended September 30, ~~2017~~2018 and ~~2016, there were~~2017:


	Quarter ended September 30,				Nine months ended September 30,
(In thousands)	2018				2018
	BPPR		Popular U.S.		BPPR		Popular U.S.
Service charges on deposit accounts	$	34,869	$	3,278	$	101,824	$	9,880
Other service fees:
Debit card fees		10,723		261		33,543		763
Insurance fees, excluding reinsurance		8,210		1,187		24,097		2,642
Credit card fees, excluding late fees and membership fees		19,029		221		54,513		698
Sale and administration of investment products		5,696		—		16,071		—
Trust fees		5,034		—		15,593		—

Total revenue from contracts with customers [1]	$	83,561	$	4,947	$	245,641	$	13,983

[1]	The amounts include intersegment transactions of $0.2 million and $1.9 million, respectively, for the quarter and nine months ended September 30, 2018.


	Quarter ended September 30,				Nine months ended September 30,
(In thousands)	2017				2017
	BPPR		Popular U.S.		BPPR		Popular U.S.
Service charges on deposit accounts	$	35,920	$	3,353	$	109,926	$	9,956
Other service fees:
Debit card fees		10,148		211		32,831		647
Insurance fees, excluding reinsurance		7,512		785		23,827		2,227
Credit card fees, excluding late fees and membership fees		13,516		223		43,380		655
Sale and administration of investment products		5,496		—		16,377		—
Trust fees		4,887		—		15,035		—

Total revenue from contracts with customers [1]	$	77,479	$	4,572	$	241,376	$	13,485

[1]	The amounts include intersegment transactions of $0.2 million and $1.9 million, respectively, for the quarter and nine months ended September 30, 2017.

Revenue from contracts with customers is recognized when, or as, the performance obligations are satisfied by the Corporation by transferring the promised services to the customers. A service is transferred to the customer when, or as, the customer obtains control of that service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized based on the services that have been rendered to date. Revenue from a performance obligation satisfied at a point in time is recognized when the customer obtains control over the service. The transaction price, or the amount of revenue recognized, reflects the consideration the Corporation expects to be entitled to in exchange for those promised services. In determining the transaction price, the Corporation considers the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Corporation is the principal in a transaction if it obtains control of the specified goods or services before they are transferred to the customer. If the Corporation acts as principal, revenues are presented in the gross amount of consideration to which it expects to be entitled and are not netted with any related expenses. On the other hand, the Corporation is an agent if it does not control the specified goods or services before they are transferred to the customer. If the Corporation acts as an agent, revenues are presented in the amount of consideration to which it expects to be entitled, net of related expenses.

Following is a description of the nature and timing of revenue streams from contracts with customers:

Service charges on deposit accounts

Service charges on deposit accounts are earned on retail and commercial deposit activities and include, but are not limited to, nonsufficient fund fees, overdraft fees and checks stop payment fees. These transaction-based fees are recognized at a point in time, upon occurrence of an activity or event or upon the occurrence of a condition which triggers the fee assessment. The Corporation is acting as principal in these transactions.

Debit card fees

Debit card fees include, but are not limited to, interchange fees, surcharging income and foreign transaction fees. These transaction-based fees are recognized at a point in time, upon occurrence of an activity or event or upon the occurrence of a condition which triggers the fee assessment. Interchange fees are recognized upon settlement of the debit card payment transactions. The Corporation is acting as principal in these transactions.

Insurance fees

Insurance fees include, but are not limited to, commissions and contingent commissions. Commissions and fees are recognized when related policies are effective since the Corporation does not have an enforceable right to payment for services completed to date. An allowance is created for expected adjustments to commissions earned related to policy cancellations. Contingent commissions are recorded on an accrual basis when the amount to be received is notified by the insurance company. The Corporation is acting as an agent since it arranges for the sale of the policies and receives commissions if, and when, it achieves the sale.

Credit card fees

Credit card fees include, but are not limited to, interchange fees, additional card fees, cash advance fees, balance transfer fees, foreign transaction fees, and returned payments fees. Credit card fees are recognized at a point in time, upon the occurrence of an activity or an event. Interchange fees are recognized upon settlement of the credit card payment transactions. The Corporation is acting as principal in these transactions.

Sale and administration of investment products

Fees from the sale and administration of investment products include, but are not limited to, commission income from the sale of investment products, asset management fees, underwriting fees, and mutual fund fees.

Commission income from investment products is recognized on the trade date since clearing, trade execution, and custody services are satisfied when the customer acquires or disposes of the rights to obtain the economic benefits of the investment products and brokerage contracts have no ~~stock options outstanding.~~

fixed duration and are terminable at will by either party. The Corporation is acting as principal in these transactions since it performs the service of providing the customer with the ability to acquire or dispose of the rights to obtain the economic benefits of investment products.

Asset management fees are satisfied over time and are recognized in arrears. At contract inception, the estimate of the asset management fee is constrained from the inclusion in the transaction price since the promised consideration is dependent on the market and thus is highly susceptible to factors outside the manager’s influence. As advisor, the broker-dealer subsidiary is acting as principal.

Underwriting fees are recognized at a point in time, when the investment products are sold in the open market at a markup. When the broker-dealer subsidiary is lead underwriter, it is acting as an agent. In turn, when it is a participating underwriter, it is acting as principal.

Mutual fund fees, such as distribution fees, are considered variable consideration and are recognized over time, as the uncertainty of the fees to be received is resolved as NAV is determined and investor activity occurs. The promise to provide distribution-related services is considered a single performance obligation as it requires the provision of a series of distinct services that are substantially the same and have the same pattern of transfer. When the broker-dealer subsidiary is acting as a distributor, it is acting as principal. In turn, when it acts as third-party dealer, it is acting as an agent.

Trust fees

Trust fees are recognized from retirement plan, mutual fund administration, investment management, trustee, escrow, and custody and safekeeping services. These asset management services are considered a single performance obligation as it requires the provision of a series of distinct services that are substantially the same and have the same pattern of transfer. The performance obligation is satisfied over time, except for optional services and certain other services that are satisfied at a point in time. Revenues are recognized in arrears, when, or as, the services are rendered. The Corporation is acting as principal since, as asset manager, it has the obligation to provide the specified service to the customer and has the ultimate discretion in establishing the fee paid by the customer for the specified services.

Note 2829 – ~~Other service fees~~FDIC loss share (expense) income

The caption of ~~other services fees~~FDIC loss-share (expense) income in the ~~consolidated statements~~Consolidated Statements of ~~operations~~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

~~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,						Quarters ended September 30,					Nine months ended September 30,
(In thousands)	2017			2016			2017			2016			2018		2017			2018			2017
Accretion (amortization)	$	567		$	(1,259	)	$	(62	)	$	(9,337	)	$	—	$	567		$	(934	)	$	(62	)
80% mirror accounting on credit impairment losses (reversal)^[1]		(329	)		659			1,945			(959	)
80% mirror accounting on credit impairment losses (reversal)														—		(329	)		104			1,945
80% mirror accounting on reimbursable expenses		588			853			2,232			7,038			—		588			537			2,232
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	)		—		(1,601	)		(1,658	)		2,832
Change intrue-up payment obligation		(3,208	)		(6,611	)		(13,718	)		(14,742	)		—		(3,208	)		(6,112	)		(13,718	)
Arbitration award expense		—			(54,924	)		—			(54,924	)
Gain on FDIC loss-share Termination Agreement^[1]														—		—			102,752			—
Other		35			81			(5,909	)		602			—		35			36			(5,909	)

Total FDIC loss-share expense	$	(3,948	)	$	(61,723	)	$	(12,680	)	$	(77,445	)
Total FDIC loss-share (expense) income													$	—	$	(3,948	)	$	94,725		$	(12,680	)

[1]

~~Reductions in expected cash flows~~

Refer to Note 10 for ~~ASC310-30~~ ~~loans, which may impact~~additional information of the ~~provision for loan losses, may consider reductions in both principal and interest cash flow expectations. The amount covered under~~Termination Agreement with 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.FDIC.

Note 30 – Pension and postretirement benefits

The Corporation has anon-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						Pension Plan						Benefit Restoration Plans
	Nine months ended September 30,						Nine months ended September 30,						Quarters ended September 30,						Quarters ended September 30,
(In thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Interest Cost	$	18,359		$	18,873		$	1,057		$	1,044
Other operating expenses:
Interest cost													$	6,029		$	6,120		$	344		$	352
Expected return on plan assets		(30,557	)		(28,869	)		(1,508	)		(1,614	)		(9,551	)		(10,186	)		(509	)		(502	)
Amortization of net loss		15,160			14,640			1,233			996			4,716			5,053			349			411

Total net periodic pension cost (benefit)	$	2,962		$	4,644		$	782		$	426		$	1,194		$	987		$	184		$	261


													Pension Plans						Benefit Restoration Plans
													Nine months ended September 30,						Nine months ended September 30,
(In thousands)													2018			2017			2018			2017
Other operating expenses:
Interest cost													$	18,086		$	18,359		$	1,033		$	1,057
Expected return on plan assets														(28,653	)		(30,557	)		(1,527	)		(1,508	)
Amortization of net loss														14,147			15,160			1,048			1,233

Total net periodic pension cost (benefit)													$	3,580		$	2,962		$	554		$	782

During the quarter ended September 30, ~~2017~~2018 the Corporation made a contribution to the pension and benefit restoration plans of ~~$16.1 million.~~$59 thousand. The total contributions expected to be paid during the year ~~2017~~2018 for the pension and benefit restoration plans amount to approximately ~~$16.2 million.~~$235 thousand.

During the quarters ended September 30, 2018 and 2017, there is no service cost recognized as part of the net periodic pension cost since the accrual of benefits for all participants has been frozen. As part of the implementation of ASU2017-07, the other components of net periodic pension cost were reclassified from “Personnel costs” to “Other operating expenses” in the consolidated statement of operations in the amount of $1.2 million for the quarter ended September 30, 2017 and $3.7 million for the nine months ended September 30, 2017.

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												Postretirement Benefit Plan
	Quarters ended September 30,						Nine months ended September 30,						Quarters ended September 30,						Nine months ended September 30,
(In thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Personnel Costs:
Service cost	$	256		$	289		$	769		$	867		$	257		$	256		$	771		$	769
Other operating expenses:
Interest cost		1,426			1,505			4,277			4,515			1,390			1,426			4,171			4,277
Amortization of prior service cost		(950	)		(950	)		(2,850	)		(2,850	)		(868	)		(950	)		(2,603	)		(2,850	)
Amortization of net loss		142			275			426			825			321			142			962			426

Total net periodic postretirement benefit cost	$	874		$	1,119		$	2,622		$	3,357
Total postretirement cost													$	1,100		$	874		$	3,301		$	2,622

Contributions made to the postretirement benefit plan for the quarter ended September 30, ~~2017~~2018 amounted to approximately $1.4 million. The total contributions expected to be paid during the year ~~2017~~2018 for the postretirement benefit plan amount to approximately ~~$6.4~~$6.3 million.

As part of the implementation of ASU2017-07, the other components of net periodic postretirement benefit cost other than the service cost components were reclassified from “Personnel costs” to “Other operating expenses” in the consolidated statement of operations in the amount of $0.6 million for the quarter ended September 30, 2017 and $1.9 million for the nine months ended September 30, 2017.

Note ~~31 -~~ 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 atwo-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.

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, 2016		383,982		$	26.35
Granted		212,200			42.57
Performance Shares Quantity Adjustment		(232,989	)		29.10
Vested		(67,853	)		48.54

Non-vested at December 31, 2017		295,340		$	30.75
Granted		236,115			45.69
Performance Shares Quantity Adjustment		182,813			30.58
Vested		(293,707	)		34.40
Forfeited		(6,652	)		33.14

Non-vested at September 30, 2018		413,909		$	36.57

During the quarter ended September 30, 2018, 8,395 shares of restricted stock were awarded to management under the Incentive Plan. No shares of restricted stock were awarded to management for the quarter ended September 30, 2017. During the quarters ended September 30, ~~2017~~2018 and ~~2016~~2017, no performance shares were ~~granted.~~awarded to management under the Incentive Plan. For the nine months ended September 30, ~~2017, 73,684~~2018, 163,701 shares of restricted stock (September 30, ~~2016—64,598)~~2017 – 138,516) and 72,414 performance shares (September 30, 2017— 73,684) were ~~granted~~awarded to management under ~~this~~the incentive plan.

During the quarter ended September 30, ~~2017,~~2018, the Corporation recognized ~~$ 1.0~~$1.1 million of restricted stock expense related to management incentive awards, with a tax benefit of ~~$ 0.2~~$0.2 million (September 30, ~~2016—~~2017—$1.0 million, with a tax benefit of ~~$ 0.2~~$0.2 million). For the nine months ended September 30, ~~2017,~~2018, the Corporation recognized ~~$ 4.8~~$5.9 million of restricted stock expense related to management incentive awards, with a tax benefit of ~~$ 0.9~~$0.9 million (September 30, ~~2016—~~2017—$ ~~6.6~~4.8 million, with a tax benefit of ~~$ 1.2~~$0.9 million). For the nine months ended September 30, ~~2017,~~2018, the fair market value of the restricted stock and performance shares vested was ~~$4.4~~$6 million at grant date and ~~$6.4~~$8 million at vesting date. This triggers a windfall of ~~$0.8~~$0.7 million that was recorded as a reduction on income tax expense. During the quarter ended September 30, ~~2017~~2018 the Corporation recognized ~~$0.3~~$0.6 million of performance shares expense, with a tax benefit of ~~$42~~$12 thousand (September 30, ~~2016—~~2017—$~~0.1~~0.3 million, with a tax benefit of ~~$11~~$42 thousand). For the nine months ended September 30, ~~2017,~~2018, the Corporation recognized ~~$2.4~~$3.8 million of performance shares expense, with a tax benefit of ~~$0.2~~$0.3 million (September 30, ~~2016—~~2017—$~~1.3~~2.4 million, with a tax benefit of ~~$0.1~~$0.2 million). The total unrecognized compensation cost related tonon-vested restricted stock awards and performance shares to members of management at September 30, ~~2017~~2018 was ~~$ 7.9~~$8.3 million and is expected to be recognized over a weighted-average period of ~~2.5~~2.6 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		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		25,771			38.42
Vested		(25,771	)		38.42		(25,771	)		38.42
Forfeited		—			—		—			—

Non-vested at September 30, 2017		—		$	—
Non-vested at December 31, 2017							—		$	—
Granted							25,159			46.71
Vested							(25,159	)		46.71
Forfeited							—			—

Non-vested at September 30, 2018							—		$	—

During the ~~quarters~~quarter ended September 30, ~~2017 and 2016,~~2018, the Corporation granted no2,765 shares of restricted stock to members of the Board of Directors of Popular, Inc. No shares of restricted stock were recognized to the members of the Board of Directors of Popular, Inc. for the quarter ended September 30, 2017. During this period, the Corporation recognized ~~$0.3~~$0.1 million of restricted stock expense related to these restricted stock grants, with a tax benefit of ~~$39~~$16 thousand (September 30, ~~2016—~~2017—$0.3 million, with a tax benefit of ~~$31~~$39 thousand). For the nine months ended September 30, ~~2017,~~2018, the Corporation granted ~~25,771~~25,159 shares of restricted stock to members of the Board of Directors of Popular, Inc.~~, which became vested at grant date~~ (September 30, ~~2016~~2017 – ~~40,517)~~25,771). During this period, the Corporation recognized ~~$ 1.0~~$1.6 million of restricted stock expense related to these restricted stock grants, with a tax benefit of ~~$0.1~~$0.2 million (September 30, ~~2016 - $0.8~~2017—$1.0 million, with a tax benefit of ~~$84 thousand)~~$0.1 million). The fair value at vesting date of the restricted stock vested during the nine months ended September 30, ~~2017~~2018 for directors was ~~$ 1.0~~$1.2 million.

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												Quarters ended
	September 30, 2017						September 30, 2016						September 30, 2018						September 30, 2017
(In thousands)	Amount			% of pre-tax income			Amount			% of pre-tax income			Amount			% of pre-tax income			Amount			% of pre-tax income
Computed income tax expense at statutory rates	$	272			39	%	$	24,434			39	%	$	71,240			39	%	$	272			39	%
Net benefit of tax exempt interest income		(19,563	)		(2,803	)		(15,620	)		(25	)		(24,941	)		(14	)		(19,563	)		(2,803	)
Deferred tax asset valuation allowance		5,142			737			5,698			9			5,606			3			5,142			737
Difference in tax rates due to multiple jurisdictions		189			27			(897	)		(1	)		(5,203	)		(3	)		189			27
Effect of income subject to preferential tax rate		(3,313	)		(475	)		6,364			10			(2,031	)		(1	)		(3,313	)		(475	)
Unrecognized tax benefits		(1,185	)		(170	)		(4,442	)		(7	)		(1,621	)		(1	)		(1,185	)		(170	)
State and local taxes		(64	)		(9	)		1,557			2			3,115			2			(64	)		(9	)
Others		(1,444	)		(207	)		(1,255	)		(2	)		(4,147	)		(2	)		(1,444	)		(207	)

Income tax (benefit) expense	$	(19,966	)		(2,861	)%	$	15,839			25	%	$	42,018			23	%	$	(19,966	)		(2,861	)%


	Nine months ended												Nine months ended
	September 30, 2017						September 30, 2016						September 30, 2018						September 30, 2017
(In thousands)	Amount			% of pre-tax income			Amount			% ofpre-tax income			Amount			% ofpre-tax income			Amount			% ofpre-tax income
Computed income tax expense at statutory rates	$	100,857			39	%	$	117,525			39	%	$	213,474			39	%	$	100,857			39	%
Net benefit of tax exempt interest income		(56,408	)		(22	)		(47,094	)		(16	)		(70,341	)		(13	)		(56,408	)		(22	)
Deferred tax asset valuation allowance		15,262			6			14,407			5			17,018			3			15,262			6
Difference in tax rates due to multiple jurisdictions		(1,601	)		(1	)		(2,874	)		(1	)		(10,400	)		(2	)		(1,601	)		(1	)
Effect of income subject to preferential tax rate		(9,825	)		(4	)		(1,772	)		(1	)
Effect of income subject to preferential tax rate^[1]														(108,087	)		(20	)		(9,825	)		(4	)
Unrecognized tax benefits		(1,185	)		—			(4,442	)		(1	)		(1,621	)		—			(1,185	)		—
State and local taxes		2,800			1			6,642			2			6,196			1			2,800			1
Others		(1,128	)		—			(1,842	)		(1	)		(10,626	)		(2	)		(1,128	)		—

Income tax expense	$	48,772			19	%	$	80,550			26	%
Income tax (benefit) expense													$	35,613			6	%	$	48,772			19	%

[1]	For the nine months ended September 30, 2018, includes the impact of the Tax Closing Agreement entered into in connection with the Westernbank FDIC-assisted Transaction.

Income tax ~~benefit amounted to $20~~expense of $35.6 million for the ~~quarter~~nine months ended September 30, ~~2017, compared~~2018 reflects the impact of the Termination Agreement with the FDIC, discussed in Note 10. In June 2012, the Puerto Rico Department of the Treasury and the Corporation entered into a Tax Closing Agreement (the “Tax Closing Agreement”) to clarify the tax treatment related to the loans acquired in the FDIC Transaction in accordance with the provisions of the Puerto Rico Tax Code. The Tax Closing Agreement provides that these loans are capital assets and any principal amount collected in excess of the amount paid for such loans will be taxed as a capital gain. The Tax Closing Agreement further provides that the Corporation’s tax liability upon the termination of the Shared-Loss Agreements be calculated based on the “deemed sale” of the underlying loans. As a result, in connection with the Termination Agreement with the FDIC, the Corporation recognized an additional income tax expense of $49.8 million associated with the “deemed sale” incremental tax liability at the capital gains rate per the Tax Closing Agreement. In addition, the Corporation recognized an income tax benefit of $158.7 million related to the increase in deferred tax assets due to increase in the tax basis of the loans as a result of the “deemed sale” for a net tax benefit of $108.9 million. Also, the Corporation recorded an income tax expense of ~~$15.8~~$45.0 million ~~for~~related to the ~~same quarter~~gain resulting from the Termination Agreement, mainly related to the reversal of ~~2016. The reduction in income~~net deferred tax ~~expense was primarily due to lower taxable income before tax~~liability of thetrue-up payment obligation 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.FDIC Loss Share Asset.

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 andavailable-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 andavailable-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


	September 30, 2018
(In thousands)	PR		US			Total
Deferred tax assets:
Tax credits available for carryforward	$	16,500	$	7,859		$	24,359
Net operating loss and other carryforward available		114,193		734,822			849,015
Postretirement and pension benefits		81,525		—			81,525
Deferred loan origination fees		3,258		(996	)		2,262
Allowance for loan losses		569,336		21,922			591,258
Deferred gains		—		2,653			2,653
Accelerated depreciation		1,300		7,076			8,376
FDIC-assisted transaction		105,249		—			105,249
Intercompany deferred (loss) gains		1,284		—			1,284
Difference in outside basis from pass-through entities		25,495		—			25,495
Other temporary differences		28,387		7,513			35,900

Total gross deferred tax assets		946,527		780,849			1,727,376

Deferred tax liabilities:
Indefinite-lived intangibles		34,579		39,419			73,998
Unrealized net gain (loss) on trading andavailable-for-sale securities		11,609		(18,615	)		(7,006	)
Other temporary differences		11,302		845			12,147

Total gross deferred tax liabilities		57,490		21,649			79,139

Valuation allowance		84,282		421,162			505,444

Net deferred tax asset	$	804,755	$	338,038		$	1,142,793


	December 31, 2017
(In thousands)	PR		US			Total
Deferred tax assets:
Tax credits available for carryforward	$	16,069	$	7,979		$	24,048
Net operating loss and other carryforward available		115,512		708,158			823,670
Postretirement and pension benefits		85,488		—			85,488
Deferred loan origination fees		3,669		958			4,627
Allowance for loan losses		603,462		20,708			624,170
Deferred gains		—		2,670			2,670
Accelerated depreciation		1,300		7,083			8,383
Intercompany deferred (loss) gains		224		—			224
Difference in outside basis from pass-through entities		30,424		—			30,424
Other temporary differences		25,084		6,901			31,985

Total gross deferred tax assets		881,232		754,457			1,635,689

Deferred tax liabilities:
FDIC-assisted transaction		60,402		—			60,402
Indefinite-lived intangibles		31,973		33,009			64,982
Unrealized net gain (loss) on trading andavailable-for-sale securities		26,364		(7,961	)		18,403
Other temporary differences		9,876		386			10,262

Total gross deferred tax liabilities		128,615		25,434			154,049

Valuation allowance		67,263		380,561			447,824

Net deferred tax asset	$	685,354	$	348,462		$	1,033,816

The net deferred tax asset shown in the table above at September 30, ~~2017~~2018 is reflected in the consolidated statements of financial condition as ~~$1.2~~$1.1 billion in net deferred tax assets in the “Other assets” caption (December 31, ~~2016—~~2017—$~~1.2~~1.0 billion) and ~~$1.4~~$1.6 million in deferred tax liabilities in the “Other liabilities” caption (December 31, ~~2016—~~2017—$~~1.4~~1.3 million), reflecting the aggregate deferred tax assets or liabilities of individualtax-paying subsidiaries of the Corporation in their respective tax jurisdiction, Puerto Rico or the United States.

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 andtax-planning strategies.

At September 30, ~~2017~~2018 the net deferred tax asset of the U.S. operations amounted to ~~$1.1 billion~~$759 million with a valuation allowance of approximately ~~$616~~$421 million, for a net deferred tax asset of approximately ~~$519~~$338 million. As of September 30, ~~2017,~~2018, management estimated that the U.S. operations would earn enoughpre-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~~$338 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,~~2018, the Corporation’s net deferred tax assets related to its Puerto Rico operations amounted to ~~$687~~$805 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.~~2018. 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.~~2018. 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~~$84 million as of September 30, ~~2017.~~2018.

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


(In millions)	2017			2016			2018			2017
Balance at January 1	$	7.4		$	9.0		$	7.3		$	7.4
Additions for tax positions - January through March		0.2			0.2			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		$	7.5		$	7.6
Additions for tax positions - April through June		0.3			0.3			0.3			0.3
Reduction as a result of settlements - April through June		(0.3	)		—			—			(0.3	)

Balance at June 30	$	7.6		$	9.7		$	7.8		$	7.6
Additions for tax positions - July through September		0.3			0.3			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	)		(1.2	)		(0.9	)

Balance at September 30	$	7.0		$	7.1		$	6.9		$	7.0

At September 30, ~~2017,~~2018, the total amount of accrued interest recognized in the statement of financial condition approximated ~~$2.6~~$2.7 million (December 31, ~~2016—~~2017—$~~2.9~~2.7 million). The total interest expense recognized at September 30, ~~2017~~2018 was ~~$458~~$477 thousand net of a reduction of ~~$505 thousand due to settlement and $353~~$483 thousand due to the expiration of the statute of ~~limitation (December 31, 2016—$1.2 million)~~limitations (September 30, 2017 - $458 thousand). Management determined that at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 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~~while 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~~$8.9 million at September 30, ~~2017~~2018 (December 31, ~~2016—$9.0~~2017 - $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,~~2018, the following years remain subject to examination in the U.S. Federal jurisdiction: ~~2014~~2015 and thereafter; and in the Puerto Rico jurisdiction, ~~2013~~2014 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~~$4.6 million.

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

Additional disclosures on cash flow information andnon-cash activities for the nine months ended September 30, ~~2017~~2018 and September 30, ~~2016~~2017 are listed in the following table:


(In thousands)	September 30, 2017		September 30, 2016		September 30, 2018		September 30, 2017
Non-cash activities:
Loans transferred to other real estate	$	80,992	$	93,412	$	23,188	$	80,992
Loans transferred to other property		22,987		22,408		30,973		22,987

Total loans transferred to foreclosed assets		103,979		115,820		54,161		103,979
Loans transferred to other assets						11,218		4,519
Financed sales of other real estate assets		10,621		11,861		11,962		10,621
Financed sales of other foreclosed assets		5,964		13,426		12,347		5,964

Total financed sales of foreclosed assets		16,585		25,287		24,309		16,585
Transfers from loans held-for-sale to loans held-in-portfolio		1,705		5,947		20,063		1,705
Loans securitized into investment securities^[1]		454,507		594,094		392,080		454,507
Trades receivable from brokers and counterparties		999		80,125		57,290		999
Trades payable to brokers and counterparties		999		22,174		22,244		999
Receivables from investments maturities		270,000		—		19,000		270,000
Recognition of mortgage servicing rights on securitizations or asset transfers		7,530		7,886		7,871		7,530

Interest capitalized on loans subject to the temporary payment moratorium						481		—
Loans booked under the GNMAbuy-back option						380,329		43,783
Gain from the FDIC Termination Agreement						102,752		—
Payable to Wells Fargo related to auto finance business acquisition						13,193		—

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

The following table provides a reconciliation of cash and due from banks, and restricted cash reported within the Consolidated Statement of Financial Condition that sum to the total of the same such amounts shown in the Consolidated Statement of Cash Flows.


(In thousands)	September 30, 2018		September 30, 2017
Cash and due from banks	$	382,892	$	500,513
Restricted cash and due from banks		18,057		16,924
Restricted cash in money market investments		11,234		8,944

Total cash and due from banks, and restricted cash^[2]	$	412,183	$	526,381

[2]	Refer to Note 5—Restrictions on cash and due from banks and certain securities for nature of restrictions.

Note 34 – Segment reporting

The Corporation’s corporate structure consists of two reportable segments – Banco Popular de Puerto Rico and ~~Banco~~ Popular ~~North America.~~U.S. 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,~~2018, 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:~~U.S.:

~~Banco~~ Popular ~~North America’s~~U.S. reportable segment consists of the banking operations of ~~BPNA,~~PB,E-LOAN, Inc., Popular Equipment Finance, Inc. and Popular Insurance Agency, U.S.A. ~~BPNA~~PB operates through a retail branch network in the U.S. mainland under the name of Popular, ~~Community Bank,~~ whileE-LOAN, Inc. supported ~~BPNA’s~~PB’s deposit gathering through its online platform until March 31, 2017, when said operations were transferred to Popular Direct, a division of ~~BPNA.~~PB. During 2017, theE-LOAN brand was transferred to Popular Inc. and is being used by BPPR to offer personal loans through an online platform. Popular Equipment Finance, Inc. also holds arunning-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~~PB branch network.

The Corporate group consists primarily of the holding ~~companies:~~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:~~organization including: 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.

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

~~2017~~


2018
For the quarter ended September 30, 2018
(In thousands)	Banco Popular de Puerto Rico		Popular Bank		Intersegment Eliminations
Net interest income	$	388,533	$	76,184	$	3
Provision for loan losses		51,911		2,510		—
Non-interest income		135,762		5,530		(141	)
Amortization of intangibles		2,157		167		—
Depreciation expense		11,135		2,185		—
Other operating expenses		282,124		44,279		(136	)
Income tax expense		39,421		10,439		—

Net income	$	137,547	$	22,134	$	(2	)

Segment assets	$	38,338,571	$	9,388,787	$	(112,222	)

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

~~2016~~


For the quarter ended September 30, 2018
(In thousands)	Reportable Segments		Corporate			Eliminations			Total Popular, Inc.
Net interest income (expense)	$	464,720	$	(13,251	)	$	—		$	451,469
Provision (reversal) for loan losses		54,421		(34	)		—			54,387
Non-interest income		141,151		9,960			(90	)		151,021
Amortization of intangibles		2,324		—			—			2,324
Depreciation expense		13,320		188			—			13,508
Other operating expenses		326,267		23,995			(657	)		349,605
Income tax expense (benefit)		49,860		(8,070	)		228			42,018

Net income (loss)	$	159,679	$	(19,370	)	$	339		$	140,648

Segment assets	$	47,615,136	$	5,478,884		$	(5,174,592	)	$	47,919,428


For the quarter ended September 30, 2016
For the nine months ended September 30, 2018												For the nine months ended September 30, 2018
(In thousands)			Banco Popular de Puerto Rico			Banco Popular North America			Intersegment Eliminations				Banco Popular de Puerto Rico		Popular Bank		Intersegment Eliminations
Net interest income			$	303,656		$	65,339		$	(281	)		$	1,073,522	$	226,654	$	5
Provision for loan losses				37,064			6,313			—				154,805		30,774		—
Non-interest income				60,453			5,381			28				452,577		15,010		(420	)
Amortization of intangibles				2,931			166			—				6,474		499		—
Goodwill impairment charge				3,801			—			—
Depreciation expense				9,774			1,666			—				32,069		6,466		—
Other operating expenses				246,451			47,374			(639	)			777,574		135,305		(409	)
Income tax expense				14,479			6,037			162				41,088		15,759		—

Net income			$	49,609		$	9,164		$	224			$	514,089	$	52,861	$	(6	)

Segment assets			$	30,403,259		$	8,450,901		$	(16,818	)		$	38,338,571	$	9,388,787	$	(112,222	)


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


For the nine months ended September 30, 2018
(In thousands)	Reportable Segments		Corporate			Eliminations			Total Popular, Inc.
Net interest income (expense)	$	1,300,181	$	(41,529	)	$	—		$	1,258,652
Provision (reversal) for loan losses		185,579		(75	)		—			185,504
Non-interest income		467,167		33,698			(1,538	)		499,327
Amortization of intangibles		6,973		—			—			6,973
Depreciation expense		38,535		548			—			39,083
Other operating expenses		912,470		68,766			(2,185	)		979,051
Income tax expense (benefit)		56,847		(21,505	)		271			35,613

Net income (loss)	$	566,944	$	(55,565	)	$	376		$	511,755

Segment assets	$	47,615,136	$	5,478,884		$	(5,174,592	)	$	47,919,428

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


2017
For the quarter ended September 30, 2017
(In thousands)	Banco Popular de Puerto Rico			Popular Bank			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		Popular Bank		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

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

~~2017~~


2018
For the quarter ended September 30, 2018
Banco Popular de Puerto Rico
(In thousands)	Commercial Banking		Consumer and Retail Banking		Other Financial Services		Eliminations and Other Adjustments [1]			Total Banco Popular de Puerto Rico
Net interest income	$	145,397	$	241,920	$	1,232	$	(16	)	$	388,533
Provision for loan losses		25,580		26,331		—		—			51,911
Non-interest income		23,630		88,866		23,663		(397	)		135,762
Amortization of intangibles		50		1,069		1,038		—			2,157
Depreciation expense		4,697		6,287		151		—			11,135
Other operating expenses		78,628		183,626		20,279		(409	)		282,124
Income tax expense		11,068		27,436		917		—			39,421

Net income	$	49,004	$	86,037	$	2,510	$	(4	)	$	137,547

Segment assets	$	28,247,478	$	22,672,941	$	336,311	$	(12,918,159	)	$	38,338,571

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

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

~~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


For the nine months ended September 30, 2018
Banco Popular de Puerto Rico
(In thousands)	Commercial Banking		Consumer and Retail Banking		Other Financial Services		Eliminations and Other Adjustments [1]			Total Banco Popular de Puerto Rico
Net interest income	$	430,341	$	639,149	$	4,066	$	(34	)	$	1,073,522
Provision for loan losses		56,027		98,778		—		—			154,805
Non-interest income		60,122		220,690		69,876		101,889			452,577
Amortization of intangibles		153		3,209		3,112		—			6,474
Depreciation expense		13,327		18,284		458		—			32,069
Other operating expenses		199,528		518,147		52,679		7,220			777,574
Income tax expense		52,640		46,625		5,711		(63,888	)		41,088

Net income	$	168,788	$	174,796	$	11,982	$	158,523		$	514,089

Segment assets	$	28,247,478	$	22,672,941	$	336,311	$	(12,918,159	)	$	38,338,571

[1]

Includes the impact of the Termination Agreement with the FDIC and the Tax Closing Agreement entered into in connection with the FDIC transaction. These transactions resulted in a gain of $102.8 million reported in thenon-interest income line, other operating expenses of $8.1 million and a net tax benefit of $63.9 million. Refer to Notes 10 and 32 to the Consolidated Financial Statements for additional information.


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 expense (benefit)		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


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

Geographic Information


	Quarter ended				Nine months ended
(in thousands)	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Revenues:
Puerto Rico	$	493,512	$	378,790	$	1,435,099	$	1,157,324
United States		90,659		81,652		264,232		234,778
Other		18,319		18,103		58,648		55,682

Total consolidated revenues	$	602,490	$	478,545	$	1,757,979	$	1,447,784

[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 loansheld-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		September 30, 2018		December 31, 2017
Puerto Rico
Total assets	$	31,901,778	$	28,813,289	$	37,167,038	$	33,705,624
Loans		16,589,392		16,880,868		18,782,224		17,591,078
Deposits		26,729,468		23,185,551		31,171,092		27,575,292
United States
Total assets	$	9,788,336	$	8,928,475	$	9,855,363	$	9,648,865
Loans		6,433,673		5,799,562		7,085,761		6,608,056
Deposits		6,508,324		6,266,473		6,956,336		6,635,153
Other
Total assets	$	911,153	$	919,845	$	897,027	$	922,848
Loans		744,103		755,017		695,925		743,329
Deposits^[1]		1,011,144		1,044,200		1,521,399		1,243,063

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

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~~2018 and December 31, ~~2016,~~2017, and the results of their operations and cash flows for periods ended September 30, ~~2017~~2018 and ~~2016.~~2017.

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~~Bank (“~~BPNA”~~PB”), including ~~BPNA’s~~PB’s wholly-owned subsidiaries Popular Equipment Finance, Inc., Popular Insurance Agency, U.S.A., andE-LOAN, Inc.

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

Condensed Consolidating Statement of Financial Condition (Unaudited)


	At September 30, 2017																At September 30, 2018
(In thousands)	Popular Inc. Holding Co.			PNA Holding Co.			All other subsidiaries and eliminations			Elimination entries			Popular, Inc. Consolidated				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			$	49,058		$	—		$	400,951		$	(49,060	)	$	400,949
Money market investments		238,696			2,771			5,487,783			(241,038	)		5,488,212				641,393			10,037			4,608,668			(651,037	)		4,609,061
Trading account securities, at fair value		3,600			—			42,459			(108	)		45,951
Investment securitiesavailable-for-sale, at fair value		—			—			9,061,001			—			9,061,001
Investment securitiesheld-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
Trading account debt securities, at fair value																		—			—			37,731			—			37,731
Debt securitiesavailable-for-sale, at fair value																		—			—			13,047,617			—			13,047,617
Debt securitiesheld-to-maturity, at amortized cost																		8,725			2,835			89,678			—			101,238
Equity securities																		6,889			20			151,206			(153	)		157,962
Investment in subsidiaries		5,673,204			1,825,240			—			(7,498,444	)		—				5,514,865			1,657,977			—			(7,172,842	)		—
Loansheld-for-sale, at lower of cost or fair value		—			—			68,864			—			68,864				—			—			51,742			—			51,742

Loansheld-in-portfolio:
Loans not covered under loss-sharing agreements with the FDIC		32,877			—			23,263,215			5,955			23,302,047				32,819			—			26,623,177			5,955			26,661,951
Loans covered under loss-sharing agreements with the FDIC		—			—			524,854			—			524,854
Less - Unearned income		—			—			128,597			—			128,597
Less—Unearned income																		—			—			149,783			—			149,783
Allowance for loan losses		311			—			646,602			—			646,913				192			—			633,526			—			633,718

Total loansheld-in-portfolio, net		32,566			—			23,012,870			5,955			23,051,391				32,627			—			25,839,868			5,955			25,878,450

FDIC loss-share asset		—			—			48,470			—			48,470
Premises and equipment, net		3,174			—			529,358			—			532,532				3,253			—			553,851			—			557,104
Other real estate not covered under loss-sharing agreements with the FDIC		—			—			176,728			—			176,728				7			—			133,773			—			133,780
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				781			22			163,261			(621	)		163,443
Mortgage servicing assets, at fair value		—			—			180,157			—			180,157				—			—			162,779			—			162,779
Other assets		70,896			28,490			2,256,415			(25,874	)		2,329,927				74,623			35,494			1,805,267			(14,534	)		1,900,850
Goodwill		—			—			627,294			—			627,294				—			—			687,536			—			687,536
Other intangible assets		6,114			—			31,902			—			38,016				6,113			—			23,073			—			29,186

Total assets	$	6,082,482		$	1,861,486		$	42,461,504		$	(7,804,205	)	$	42,601,267			$	6,338,334		$	1,706,385		$	47,757,001		$	(7,882,292	)	$	47,919,428

Liabilities and Stockholders’ Equity																Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	—		$	—		$	7,494,477		$	(44,620	)	$	7,449,857			$	—		$	—		$	8,852,812		$	(49,060	)	$	8,803,752
Interest bearing		—			—			27,040,117			(241,038	)		26,799,079				—			—			31,496,112			(651,037	)		30,845,075

Total deposits		—			—			34,534,594			(285,658	)		34,248,936				—			—			40,348,924			(700,097	)		39,648,827

Assets sold under agreements to repurchase		—			—			374,405			—			374,405				—			—			300,116			—			300,116
Other short-term borrowings		—			—			240,598			—			240,598				—			—			1,200			—			1,200
Notes payable		737,163			148,532			646,366			—			1,532,061				1,032,971			94,057			617,659			—			1,744,687
Other liabilities		59,799			2,589			881,605			(24,157	)		919,836				60,927			1,844			933,167			(15,689	)		980,249

Total liabilities		796,962			151,121			36,677,568			(309,815	)		37,315,836				1,093,898			95,901			42,201,066			(715,786	)		42,675,079

Stockholders’ equity:
Preferred stock		50,160			—			—			—			50,160				50,160			—			—			—			50,160
Common stock		1,042			2			56,307			(56,309	)		1,042				1,043			2			56,307			(56,309	)		1,043
Surplus		4,256,526			4,100,807			5,700,621			(9,792,901	)		4,265,053				4,272,988			4,172,920			5,726,616			(9,891,009	)		4,281,515
Retained earnings (accumulated deficit)		1,359,257			(2,372,062	)		316,220			2,047,315			1,350,730				1,638,219			(2,498,798	)		305,100			2,185,171			1,629,692
Treasury stock, at cost		(90,133	)		—			—			(89	)		(90,222	)			(183,785	)		—			—			(87	)		(183,872	)
Accumulated other comprehensive loss, net of tax		(291,332	)		(18,382	)		(289,212	)		307,594			(291,332	)			(534,189	)		(63,640	)		(532,088	)		595,728			(534,189	)

Total stockholders’ equity		5,285,520			1,710,365			5,783,936			(7,494,390	)		5,285,431				5,244,436			1,610,484			5,555,935			(7,166,506	)		5,244,349

Total liabilities and stockholders’ equity	$	6,082,482		$	1,861,486		$	42,461,504		$	(7,804,205	)	$	42,601,267			$	6,338,334		$	1,706,385		$	47,757,001		$	(7,882,292	)	$	47,919,428

Condensed Consolidating Statement of Financial Condition (Unaudited)


	At December 31, 2016																At December 31, 2017
(In thousands)	Popular, Inc. Holding Co.			PNA Holding Co.			All other subsidiaries and eliminations			Elimination entries			Popular, Inc. Consolidated				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			$	47,663		$	462		$	402,910		$	(48,178	)	$	402,857
Money market investments		252,347			13,263			2,891,670			(267,063	)		2,890,217				246,457			2,807			5,254,662			(248,807	)		5,255,119
Trading account securities, at fair value		2,640			—			57,297			(132	)		59,805
Investment securitiesavailable-for-sale, at fair value		—			—			8,209,806			—			8,209,806
Investment securitiesheld-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
Trading account debt securities, at fair value																		—			—			33,926			—			33,926
Debt securitiesavailable-for-sale, at fair value																		—			—			10,176,923			—			10,176,923
Debt securitiesheld-to-maturity, at amortized cost																		8,726			4,472			93,821			—			107,019
Equity securities																		5,109			20			160,075			(101	)		165,103
Investment in subsidiaries		5,609,611			1,818,127			—			(7,427,738	)		—				5,494,410			1,646,287			—			(7,140,697	)		—
Loansheld-for-sale, at lower of cost or fair value		—			—			88,821			—			88,821				—			—			132,395			—			132,395

Loansheld-in-portfolio:
Loans not covered under loss-sharing agreements with the FDIC		1,142			—			22,894,030			—			22,895,172				33,221			—			24,384,251			5,955			24,423,427
Loans covered under loss-sharing agreements with the FDIC		—			—			572,878			—			572,878				—			—			517,274			—			517,274
Less - Unearned income		—			—			121,425			—			121,425
Less—Unearned income																		—			—			130,633			—			130,633
Allowance for loan losses		2			—			540,649			—			540,651				266			—			623,160			—			623,426

Total loansheld-in-portfolio, net		1,140			—			22,804,834			—			22,805,974				32,955			—			24,147,732			5,955			24,186,642

FDIC loss-share asset		—			—			69,334			—			69,334				—			—			45,192			—			45,192
Premises and equipment, net		3,067			—			540,914			—			543,981				3,365			—			543,777			—			547,142
Other real estate not covered under loss-sharing agreements with the FDIC		81			—			180,364			—			180,445				—			—			169,260			—			169,260
Other real estate covered under loss-sharing agreements with the FDIC		—			—			32,128			—			32,128				—			—			19,595			—			19,595
Accrued income receivable		112			138			137,882			(90	)		138,042				369			112			213,574			(211	)		213,844
Mortgage servicing assets, at fair value		—			—			196,889			—			196,889				—			—			168,031			—			168,031
Other assets		61,770			25,146			2,073,562			(14,968	)		2,145,510				61,319			34,312			1,912,727			(17,035	)		1,991,323
Goodwill		—			—			627,294			—			627,294				—			—			627,294			—			627,294
Other intangible assets		553			—			44,497			—			45,050				6,114			—			29,558			—			35,672

Total assets	$	5,988,954		$	1,861,757		$	38,568,970		$	(7,758,072	)	$	38,661,609			$	5,906,487		$	1,688,472		$	44,131,452		$	(7,449,074	)	$	44,277,337

Liabilities and Stockholders’ Equity																Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	—		$	—		$	7,028,524		$	(48,081	)	$	6,980,443			$	—		$	—		$	8,539,123		$	(48,178	)	$	8,490,945
Interest bearing		—			—			23,782,844			(267,063	)		23,515,781				—			—			27,211,370			(248,807	)		26,962,563

Total deposits		—			—			30,811,368			(315,144	)		30,496,224				—			—			35,750,493			(296,985	)		35,453,508

Assets sold under agreements to repurchase		—			—			479,425			—			479,425				—			—			390,921			—			390,921
Other short-term borrowings		—			—			1,200			—			1,200				—			—			96,208			—			96,208
Notes payable		735,600			148,512			690,740			—			1,574,852				737,685			148,539			650,132			—			1,536,356
Other liabilities		55,309			6,034			865,861			(15,253	)		911,951				64,813			5,276			1,641,383			(15,033	)		1,696,439

Total liabilities		790,909			154,546			32,848,594			(330,397	)		33,463,652				802,498			153,815			38,529,137			(312,018	)		39,173,432

Stockholders’ equity:
Preferred stock		50,160			—			—			—			50,160				50,160			—			—			—			50,160
Common stock		1,040			2			56,307			(56,309	)		1,040				1,042			2			56,307			(56,309	)		1,042
Surplus		4,246,495			4,111,207			5,717,066			(9,819,746	)		4,255,022				4,289,976			4,100,848			5,728,978			(9,821,299	)		4,298,503
Retained earnings (accumulated deficit)		1,228,834			(2,382,049	)		264,944			2,108,578			1,220,307				1,203,521			(2,536,707	)		165,878			2,362,302			1,194,994
Treasury stock, at cost		(8,198	)		—			—			(88	)		(8,286	)			(90,058	)		—			—			(84	)		(90,142	)
Accumulated other comprehensive loss, net of tax		(320,286	)		(21,949	)		(317,941	)		339,890			(320,286	)			(350,652	)		(29,486	)		(348,848	)		378,334			(350,652	)

Total stockholders’ equity		5,198,045			1,707,211			5,720,376			(7,427,675	)		5,197,957				5,103,989			1,534,657			5,602,315			(7,137,056	)		5,103,905

Total liabilities and stockholders’ equity	$	5,988,954		$	1,861,757		$	38,568,970		$	(7,758,072	)	$	38,661,609			$	5,906,487		$	1,688,472		$	44,131,452		$	(7,449,074	)	$	44,277,337

Condensed Consolidating Statement of Operations (Unaudited)


	Quarter ended September 30, 2017															Quarter ended September 30, 2018
(In thousands)	Popular, Inc. Holding Co.			PNA Holding Co.			All other subsidiaries and eliminations			Elimination entries			Popular, Inc. Consolidated			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	)	$	—		$	52,000		$	—		$	—		$	(52,000	)	$	—
Loans		405			—			371,574			—			371,979			537			—			430,122			(22	)		430,637
Money market investments		730			13			15,529			(743	)		15,529			2,429			16			27,582			(2,446	)		27,581
Investment securities		142			81			47,053			—			47,276			150			72			69,925			—			70,147
Trading account securities		—			—			1,099			—			1,099

Total interest and dividend income		28,777			94			435,255			(28,243	)		435,883			55,116			88			527,629			(54,468	)		528,365

Interest expense:
Deposits		—			—			37,801			(743	)		37,058			—			—			57,580			(2,446	)		55,134
Short-term borrowings		—			—			1,524			—			1,524			—			22			1,622			(22	)		1,622
Long-term debt		13,118			2,693			3,319			—			19,130			14,045			2,390			3,705			—			20,140

Total interest expense		13,118			2,693			42,644			(743	)		57,712			14,045			2,412			62,907			(2,468	)		76,896

Net interest income (expense)		15,659			(2,599	)		392,611			(27,500	)		378,171			41,071			(2,324	)		464,722			(52,000	)		451,469
Provision for loan losses-non-covered loans		40			—			157,619			—			157,659
Provision for loan losses- covered loans		—			—			3,100			—			3,100
Provision (reversal) for loan losses-non-covered loans																	(34	)		—			54,421			—			54,387

Net interest income (expense) after provision for loan losses		15,619			(2,599	)		231,892			(27,500	)		217,412
Net interest income (expense) after provision (reversal) for loan losses																	41,105			(2,324	)		410,301			(52,000	)		397,082

Service charges on deposit accounts		—			—			39,273			—			39,273			—			—			38,147			—			38,147
Other service fees		—			—			53,551			(70	)		53,481			—			—			64,382			(66	)		64,316
Mortgage banking activities		—			—			5,239			—			5,239			—			—			11,269			—			11,269
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 loansheld-for-sale		—			—			(420	)		—			(420	)
Net gain, including impairment on equity securities																	172			—			216			(18	)		370
Net profit on trading account debt securities																	—			—			(122	)		—			(122	)
Adjustments (expense) to indemnity reserves on loans sold		—			—			(6,406	)		—			(6,406	)		—			—			(3,029	)		—			(3,029	)
FDIC loss-share expense		—			—			(3,948	)		—			(3,948	)
Other operating income		1,564			31			11,208			(4	)		12,799
Other operating income (expense)																	3,643			(118	)		36,551			(6	)		40,070

Totalnon-interest income		1,701			31			98,698			(56	)		100,374
Totalnon-interest income (expense)																	3,815			(118	)		147,414			(90	)		151,021

Operating expenses:
Personnel costs		11,438			—			108,198			—			119,636			15,803			—			123,954			—			139,757
Net occupancy expenses		976			—			21,278			—			22,254			984			—			17,618			—			18,602
Equipment expenses		885			1			15,571			—			16,457			1,037			—			17,266			—			18,303
Other taxes		55			—			10,803			—			10,858			71			—			11,852			—			11,923
Professional fees		2,555			18			68,269			(70	)		70,772			3,889			20			80,017			(66	)		83,860
Communications		125			—			5,269			—			5,394			144			—			5,910			—			6,054
Business promotion		454			—			14,762			—			15,216			520			—			14,958			—			15,478
FDIC deposit insurance		—			—			6,271			—			6,271			—			—			8,610			—			8,610
Other real estate owned (OREO) expenses		42			—			11,682			—			11,724			—			—			7,950			—			7,950
Other operating expenses		(17,572	)		13			54,275			(555	)		36,161			(23,600	)		13			76,754			(591	)		52,576
Amortization of intangibles		—			—			2,345			—			2,345			—			—			2,324			—			2,324

Total operating expenses		(1,042	)		32			318,723			(625	)		317,088			(1,152	)		33			367,213			(657	)		365,437

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 income tax and equity in earnings of subsidiaries																	46,072			(2,475	)		190,502			(51,433	)		182,666
Income tax (benefit) expense																	—			(520	)		42,310			228			42,018

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			—
Income (loss) before equity in earnings of subsidiaries																	46,072			(1,955	)		148,192			(51,661	)		140,648
Equity in undistributed earnings of subsidiaries																	94,576			19,722			—			(114,298	)		—

Net Income (Loss)	$	20,664		$	(9,371	)	$	31,138		$	(21,767	)	$	20,664
Net income																$	140,648		$	17,767		$	148,192		$	(165,959	)	$	140,648

Comprehensive income (loss), net of tax	$	32,275		$	(7,732	)	$	42,516		$	(34,784	)	$	32,275
Comprehensive income, net of tax																$	103,251		$	11,770		$	111,369		$	(123,139	)	$	103,251

Condensed Consolidating Statement of Operations (Unaudited)


	Nine months ended September 30, 2017															Nine months ended September 30, 2018
(In thousands)	Popular, Inc. Holding Co.			PNA Holding Co.			All other subsidiaries and eliminations			Elimination entries			Popular, Inc. Consolidated			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	)	$	—		$	402,000		$	—		$	—		$	(402,000	)	$	—
Loans		534			—			1,102,250			—			1,102,784			1,601			—			1,188,946			(49	)		1,190,498
Money market investments		1,820			52			33,233			(1,872	)		33,233			4,267			18			86,258			(4,285	)		86,258
Investment securities		425			242			140,032			—			140,699			447			233			184,857			—			185,537
Trading account securities		—			—			3,895			—			3,895

Total interest and dividend income		186,779			294			1,279,410			(185,872	)		1,280,611			408,315			251			1,460,061			(406,334	)		1,462,293

Interest expense:
Deposits		—			—			106,779			(1,872	)		104,907			—			—			143,335			(4,285	)		139,050
Short-term borrowings		—			—			3,734			—			3,734			—			49			5,387			(49	)		5,387
Long-term debt		39,353			8,076			9,793			—			57,222			40,280			7,773			11,151			—			59,204

Total interest expense		39,353			8,076			120,306			(1,872	)		165,863			40,280			7,822			159,873			(4,334	)		203,641

Net interest income (expense)		147,426			(7,782	)		1,159,104			(184,000	)		1,114,748			368,035			(7,571	)		1,300,188			(402,000	)		1,258,652
Provision for loan losses-non-covered loans		309			—			255,327			(5,955	)		249,681
Provision (reversal) for loan losses-non-covered loans																	(75	)		—			183,849			—			183,774
Provision for loan losses- covered loans		—			—			4,255			—			4,255			—			—			1,730			—			1,730

Net interest income (expense) after provision for loan losses		147,117			(7,782	)		899,522			(178,045	)		860,812
Net interest income (expense) after provision (reversal) for loan losses																	368,110			(7,571	)		1,114,609			(402,000	)		1,073,148

Service charges on deposit accounts		—			—			119,882			—			119,882			—			—			111,704			—			111,704
Other service fees		—			—			170,282			(1,458	)		168,824			—			—			189,253			(1,459	)		187,794
Mortgage banking activities		—			—			27,349			—			27,349			—			—			33,408			—			33,408
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 loansheld-for-sale		—			—			(420	)		—			(420	)
Net gain (loss), including impairment on equity securities																	176			—			(170	)		(48	)		(42	)
Net loss on trading account debt securities																	—			—			(299	)		—			(299	)
Adjustments (expense) to indemnity reserves on loans sold		—			—			(11,302	)		—			(11,302	)		—			—			(6,482	)		—			(6,482	)
FDIC loss-share expense		—			—			(12,680	)		—			(12,680	)
FDIC loss-share income																	—			—			94,725			—			94,725
Other operating income		10,739			1,256			38,101			(18	)		50,078			11,139			278			67,133			(31	)		78,519

Totalnon-interest income		11,036			1,256			322,194			(1,450	)		333,036			11,315			278			489,272			(1,538	)		499,327

Operating expenses:
Personnel costs		37,226			—			326,832			—			364,058			43,365			—			346,576			—			389,941
Net occupancy expenses		2,925			—			62,370			—			65,295			3,081			—			60,748			—			63,829
Equipment expenses		1,952			1			46,724			—			48,677			2,581			2	��		50,701			—			53,284
Other taxes		147			—			32,420			—			32,567			168			1			33,532			—			33,701
Professional fees		8,743			(474	)		205,047			(360	)		212,956			13,245			128			247,764			(389	)		260,748
Communications		407			—			16,835			—			17,242			380			—			16,962			—			17,342
Business promotion		1,413			—			38,745			—			40,158			1,323			—			42,942			—			44,265
FDIC deposit insurance		—			—			18,936			—			18,936			—			—			22,534			—			22,534
Other real estate owned (OREO) expenses		42			—			41,170			—			41,212			—			—			21,028			—			21,028
Other operating expenses		(53,227	)		39			141,958			(1,664	)		87,106			(64,352	)		67			177,543			(1,796	)		111,462
Amortization of intangibles		—			—			7,034			—			7,034			—			—			6,973			—			6,973

Total operating expenses		(372	)		(434	)		938,071			(2,024	)		935,241			(209	)		198			1,027,303			(2,185	)		1,025,107

Income (loss) before income tax and equity in earnings of subsidiaries		158,525			(6,092	)		283,645			(177,471	)		258,607			379,634			(7,491	)		576,578			(401,353	)		547,368
Income tax (benefit) expense		—			(2,132	)		48,368			2,536			48,772
Income tax expense																	—			372			34,970			271			35,613

Income (loss) before equity in earnings of subsidiaries		158,525			(3,960	)		235,277			(180,007	)		209,835			379,634			(7,863	)		541,608			(401,624	)		511,755
Equity in undistributed earnings of subsidiaries		51,310			13,947			—			(65,257	)		—			132,121			45,772			—			(177,893	)		—

Net Income	$	209,835		$	9,987		$	235,277		$	(245,264	)	$	209,835
Net income																$	511,755		$	37,909		$	541,608		$	(579,517	)	$	511,755

Comprehensive income, net of tax	$	238,789		$	13,554		$	264,006		$	(277,560	)	$	238,789		$	328,218		$	3,755		$	358,368		$	(362,123	)	$	328,218

Condensed Consolidating Statement of Operations (Unaudited)


	Quarter ended September 30, 2016															Quarter ended September 30, 2017
(In thousands)	Popular, Inc. Holding Co.			PNA Holding Co.			All other subsidiaries and eliminations			Elimination entries			Popular, Inc. Consolidated			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	)	$	—		$	27,500		$	—		$	—		$	(27,500	)	$	—
Loans		21			—			363,529			—			363,550			405			—			371,574			—			371,979
Money market investments		398			27			4,568			(425	)		4,568			730			13			15,529			(743	)		15,529
Investment securities		141			81			37,510			—			37,732			142			81			48,152			—			48,375
Trading account securities		—			—			1,449			—			1,449

Total interest and dividend income		24,760			108			407,056			(24,625	)		407,299			28,777			94			435,255			(28,243	)		435,883

Interest expense:
Deposits		—			—			32,787			(425	)		32,362			—			—			37,801			(743	)		37,058
Short-term borrowings		—			—			2,132			—			2,132			—			—			1,524			—			1,524
Long-term debt		13,118			2,692			3,308			—			19,118			13,118			2,693			3,319			—			19,130

Total interest expense		13,118			2,692			38,227			(425	)		53,612			13,118			2,693			42,644			(743	)		57,712

Net interest income (expense)		11,642			(2,584	)		368,829			(24,200	)		353,687			15,659			(2,599	)		392,611			(27,500	)		378,171
Provision (reversal) for loan losses-non-covered loans		(33	)		—			42,627			—			42,594
Provision for loan losses-non-covered loans																	40			—			157,619			—			157,659
Provision for loan losses- covered loans		—			—			750			—			750			—			—			3,100			—			3,100

Net interest income (expense) after provision for loan losses		11,675			(2,584	)		325,452			(24,200	)		310,343			15,619			(2,599	)		231,892			(27,500	)		217,412

Service charges on deposit accounts		—			—			40,776			—			40,776			—			—			39,273			—			39,273
Other service fees		—			—			59,233			(64	)		59,169			—			—			53,551			(70	)		53,481
Mortgage banking activities		—			—			15,272			—			15,272			—			—			5,239			—			5,239
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 loansheld-for-sale		—			—			8,549			—			8,549
Net gain on sale of debt securities																	—			—			83			—			83
Net gain, including impairment on equity securities																	—			—			20			—			20
Net profit on trading account debt securities																	137			—			98			18			253
Net loss on sale of loans, including valuation adjustments on loansheld-for-sale																	—			—			(420	)		—			(420	)
Adjustments (expense) to indemnity reserves on loans sold		—			—			(4,390	)		—			(4,390	)		—			—			(6,406	)		—			(6,406	)
FDIC loss-share expense		—			—			(61,723	)		—			(61,723	)		—			—			(3,948	)		—			(3,948	)
Other operating income		4,002			152			13,955			(20	)		18,089			1,564			31			11,208			(4	)		12,799

Totalnon-interest income		4,263			152			71,674			(111	)		75,978			1,701			31			98,698			(56	)		100,374

Operating expenses:
Personnel costs		11,137			—			110,087			—			121,224			11,438			—			106,331			—			117,769
Net occupancy expenses		939			—			20,687			—			21,626			976			—			21,278			—			22,254
Equipment expenses		776			1			15,145			—			15,922			885			1			15,571			—			16,457
Other taxes		46			—			11,278			—			11,324			55			—			10,803			—			10,858
Professional fees		2,642			31			78,658			(65	)		81,266			2,555			18			68,269			(70	)		70,772
Communications		140			—			5,645			—			5,785			125			—			5,269			—			5,394
Business promotion		516			—			12,210			—			12,726			454			—			14,762			—			15,216
FDIC deposit insurance		—			—			5,854			—			5,854			—			—			6,271			—			6,271
Other real estate owned (OREO) expenses		(16	)		—			11,311			—			11,295			42			—			11,682			—			11,724
Other operating expenses		(19,795	)		3			50,077			(533	)		29,752			(17,572	)		13			56,142			(555	)		38,028
Amortization of intangibles		—			—			3,097			—			3,097			—			—			2,345			—			2,345
Goodwill impairment charge		—			—			3,801			—			3,801

Total operating expenses		(3,615	)		35			327,850			(598	)		323,672			(1,042	)		32			318,723			(625	)		317,088

Income (loss) before income tax and equity in earnings of subsidiaries		19,553			(2,467	)		69,276			(23,713	)		62,649
Income (loss) before income tax and equity (losses) in earnings of subsidiaries																	18,362			(2,600	)		11,867			(26,931	)		698
Income tax (benefit) expense		(2	)		(864	)		16,504			201			15,839			—			(910	)		(19,271	)		215			(19,966	)

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	)		—
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	$	46,810		$	7,587		$	52,772		$	(60,359	)	$	46,810
Net income (loss)																$	20,664		$	(9,371	)	$	31,138		$	(21,767	)	$	20,664

Comprehensive income, net of tax	$	35,127		$	3,426		$	41,429		$	(44,855	)	$	35,127
Comprehensive income (loss), net of tax																$	32,275		$	(7,732	)	$	42,516		$	(34,784	)	$	32,275

Condensed Consolidating Statement of Operations (Unaudited)


	Nine months ended September 30, 2016															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			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	)	$	—		$	184,000		$	—		$	—		$	(184,000	)	$	—
Loans		60			—			1,096,408			—			1,096,468			534			—			1,102,250			—			1,102,784
Money market investments		976			78			11,320			(1,054	)		11,320			1,820			52			33,233			(1,872	)		33,233
Investment securities		522			242			109,964			—			110,728			425			242			143,927			—			144,594
Trading account securities		—			—			5,013			—			5,013

Total interest and dividend income		79,658			320			1,222,705			(79,154	)		1,223,529			186,779			294			1,279,410			(185,872	)		1,280,611

Interest expense:
Deposits		—			—			93,889			(1,054	)		92,835			—			—			106,779			(1,872	)		104,907
Short-term borrowings		—			—			6,051			—			6,051			—			—			3,734			—			3,734
Long-term debt		39,353			8,077			10,563			—			57,993			39,353			8,076			9,793			—			57,222

Total interest expense		39,353			8,077			110,503			(1,054	)		156,879			39,353			8,076			120,306			(1,872	)		165,863

Net interest income (expense)		40,305			(7,757	)		1,112,202			(78,100	)		1,066,650			147,426			(7,782	)		1,159,104			(184,000	)		1,114,748
Provision (reversal) for loan losses-non-covered loans		(36	)		—			130,238			—			130,202
Provision (reversal) for loan losses- covered loans		—			—			(1,551	)		—			(1,551	)
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		40,341			(7,757	)		983,515			(78,100	)		937,999			147,117			(7,782	)		899,522			(178,045	)		860,812

Service charges on deposit accounts		—			—			120,934			—			120,934			—			—			119,882			—			119,882
Other service fees		—			—			170,896			(1,400	)		169,496			—			—			170,282			(1,458	)		168,824
Mortgage banking activities		—			—			42,050			—			42,050			—			—			27,349			—			27,349
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 loansheld-for-sale		—			—			8,245			—			8,245
Net gain on sale of debt securities																	—			—			83			—		��	83
Other-than-temporary impairment losses on debt securities																	—			—			(8,299	)		—			(8,299	)
Net gain, including impairment on equity securities																	—			—			201			—			201
Net profit (loss) on trading account debt securities																	297			—			(1,003	)		26			(680	)
Net loss on sale of loans, including valuation adjustments on loansheld-for-sale																	—			—			(420	)		—			(420	)
Adjustments (expense) to indemnity reserves on loans sold		—			—			(14,234	)		—			(14,234	)		—			—			(11,302	)		—			(11,302	)
FDIC loss-share expense		—			—			(77,445	)		—			(77,445	)		—			—			(12,680	)		—			(12,680	)
Other operating income (loss)		9,070			(2,787	)		40,255			(38	)		46,500
Other operating income																	10,739			1,256			38,101			(18	)		50,078

Totalnon-interest income (expense)		10,973			(2,787	)		291,390			(1,465	)		298,111
Totalnon-interest income																	11,036			1,256			322,194			(1,450	)		333,036

Operating expenses:
Personnel costs		37,192			—			327,831			—			365,023			37,226			—			321,231			—			358,457
Net occupancy expenses		2,700			—			61,070			—			63,770			2,925			—			62,370			—			65,295
Equipment expenses		1,864			1			43,866			—			45,731			1,952			1			46,724			—			48,677
Other taxes		140			—			31,549			—			31,689			147			—			32,420			—			32,567
Professional fees		7,854			91			229,754			(349	)		237,350			8,743			(474	)		205,047			(360	)		212,956
Communications		417			—			17,700			—			18,117			407			—			16,835			—			17,242
Business promotion		1,467			—			36,074			—			37,541			1,413			—			38,745			—			40,158
FDIC deposit insurance		—			—			18,586			—			18,586			—			—			18,936			—			18,936
Other real estate owned (OREO) expenses		52			—			33,364			—			33,416			42			—			41,170			—			41,212
Other operating expenses		(56,173	)		46			128,181			(1,622	)		70,432			(53,227	)		39			147,559			(1,664	)		92,707
Amortization of intangibles		—			—			9,308			—			9,308			—			—			7,034			—			7,034
Goodwill impairment charge		—			—			3,801			—			3,801

Total operating expenses		(4,487	)		138			941,084			(1,971	)		934,764			(372	)		(434	)		938,071			(2,024	)		935,241

Income (loss) before income tax and equity in earnings of subsidiaries		55,801			(10,682	)		333,821			(77,594	)		301,346			158,525			(6,092	)		283,645			(177,471	)		258,607
Income tax expense (benefit)		1			(3,739	)		84,080			208			80,550
Income tax (benefit) expense																	—			(2,132	)		48,368			2,536			48,772

Income (loss) before equity in earnings of subsidiaries		55,800			(6,943	)		249,741			(77,802	)		220,796			158,525			(3,960	)		235,277			(180,007	)		209,835
Equity in undistributed earnings of subsidiaries		164,996			30,289			—			(195,285	)		—			51,310			13,947			—			(65,257	)		—

Net Income	$	220,796		$	23,346		$	249,741		$	(273,087	)	$	220,796
Net income																$	209,835		$	9,987		$	235,277		$	(245,264	)	$	209,835

Comprehensive income, net of tax	$	320,387		$	47,064		$	350,689		$	(397,753	)	$	320,387		$	238,789		$	13,554		$	264,006		$	(277,560	)	$	238,789

Condensed Consolidating Statement of Cash Flows (Unaudited)


																Nine months ended September 30, 2018
	Nine months ended September 30, 2017															Popular, Inc. Holding Co.			PNA Holding Co.			All other subsidiaries and eliminations			Elimination entries			Popular, Inc. Consolidated
(In thousands)	Popular, Inc. Holding Co.			PNA Holding Co.			All other subsidiaries and eliminations			Elimination entries			Popular, Inc. Consolidated			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		$	511,755		$	37,909		$	541,608		$	(579,517	)	$	511,755

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			—			(132,121	)		(45,772	)		—			177,893			—
Provision for loan losses		309			—			253,627			—			253,936			(75	)		—			185,579			—			185,504
Amortization of intangibles		—			—			7,034			—			7,034			—			—			6,973			—			6,973
Depreciation and amortization of premises and equipment		480			—			35,486			—			35,966			548			—			38,535			—			39,083
Net accretion of discounts and amortization of premiums and deferred fees		1,565			—			(18,936	)		—			(17,371	)		1,624			20			(45,177	)		—			(43,533	)
Share-based compensation																	4,149			—			1,813			—			5,962
Impairment losses on long-lived assets		—			—			11,286			—			11,286			—			—			272			—			272
Other-than-temporary impairment on investment securities		—			—			8,299			—			8,299
Fair value adjustments on mortgage servicing rights		—			—			24,262			—			24,262			—			—			13,123			—			13,123
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:
FDIC loss-share income																	—			—			(94,725	)		—			(94,725	)
Adjustments to indemnity reserves on loans sold																	—			—			6,482			—			6,482
Earnings from investments under the equity method, net of dividends or distributions																	(10,557	)		(278	)		(3,937	)		—			(14,772	)
Deferred income tax benefit																	—			(1,453	)		(96,525	)		270			(97,708	)
Loss (gain) on:
Disposition of premises and equipment and other productive assets		(17	)		—			5,035			—			5,018			15			—			17,679			—			17,694
Sale and valuation adjustments of investment securities		—			21			(305	)		—			(284	)
Proceeds from insurance claims																	—			—			(14,411	)		—			(14,411	)
Sale of loans, including valuation adjustments on loans held for sale and mortgage banking activities		—			—			(16,455	)		—			(16,455	)		—			—			(6,734	)		—			(6,734	)
Sale of foreclosed assets, including write-downs		42			—			19,186			—			19,228			—			—			(638	)		—			(638	)
Acquisitions of loansheld-for-sale		—			—			(204,813	)		—			(204,813	)		—			—			(173,644	)		—			(173,644	)
Proceeds from sale of loansheld-for-sale		—			—			68,326			—			68,326			—			—			51,131			—			51,131
Net originations on loansheld-for-sale		—			—			(283,709	)		—			(283,709	)		—			—			(186,063	)		—			(186,063	)
Net (increase) decrease in:
Net decrease (increase) in:
Trading securities		(961	)		—			499,826			(25	)		498,840			—			—			346,556			(101	)		346,455
Equity securities																	(1,779	)		—			(701	)		—			(2,480	)
Accrued income receivable		(115	)		107			(8,274	)		(15	)		(8,297	)		(411	)		90			51,779			410			51,868
Other assets		1,331			45			(3,115	)		15,193			13,454			(2,352	)		52			237,585			(449	)		234,836
Net (decrease) increase in:
Interest payable		(7,875	)		(2,685	)		1,246			15			(9,299	)		(7,007	)		(3,441	)		925			(410	)		(9,933	)
Pension and other postretirement benefits obligations		—			—			(13,760	)		—			(13,760	)		—			—			3,392			—			3,392
Other liabilities		2,115			(760	)		22,742			(8,919	)		15,178			2,160			9			(198,958	)		(246	)		(197,035	)

Total adjustments		(65,164	)		(20,607	)		447,993			71,720			433,942			(145,806	)		(50,773	)		140,311			177,367			121,099

Net cash provided by (used in) operating activities		144,671			(10,620	)		683,270			(173,544	)		643,777			365,949			(12,864	)		681,919			(402,150	)		632,854

Cash flows from investing activities:
Net (increase) decrease in money market investments																	(395,000	)		(7,230	)		647,519			402,230			647,519
Purchases of investment securities:
Available-for-sale																	—			—			(6,968,920	)		—			(6,968,920	)
Equity																	—			—			(11,456	)		152			(11,304	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale																	—			—			3,925,362			—			3,925,362
Held-to-maturity																	—			1,637			5,547			—			7,184
Proceeds from sale of investment securities:
Equity																	—			—			20,925			—			20,925
Net repayments (disbursements) on loans																	395			—			(15,999	)		—			(15,604	)
Proceeds from sale of loans																	—			—			1,354			—			1,354
Acquisition of loan portfolios																	—			—			(461,117	)		—			(461,117	)

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.~~


Net payments (to) from FDIC under loss-sharing agreements		—			—			(25,012	)		—			(25,012	)
Payments to acquire businesses, net of cash acquired		—			—			(1,830,050	)		—			(1,830,050	)
Return of capital from equity method investments		—			497			2,004			—			2,501
Capital contribution to subsidiary		(82,000	)		—			—			82,000			—
Return of capital from wholly-owned subsidiaries		13,000			—			—			(13,000	)		—
Acquisition of premises and equipment		(755	)		—			(52,389	)		—			(53,144	)
Proceeds from insurance claims		—			—			14,411			—			14,411
Proceeds from sale of:
Premises and equipment and other productive assets		195			—			6,796			—			6,991
Foreclosed assets		—			—			85,622			—			85,622

Net cash used in investing activities		(464,165	)		(5,096	)		(4,655,403	)		471,382			(4,653,282	)

Cash flows from financing activities:
Net increase (decrease) in:
Deposits		—			—			4,596,970			(403,111	)		4,193,859
Assets sold under agreements to repurchase		—			—			(90,805	)		—			(90,805	)
Other short-term borrowings		—			—			(95,008	)		—			(95,008	)
Payments of notes payable		—			(54,502	)		(172,474	)		—			(226,976	)
Proceeds from issuance of notes payable		294,706			—			140,000			—			434,706
Proceeds from issuance of common stock		11,441			—			(589	)		—			10,852
Dividends paid to parent company		—			—			(402,000	)		402,000			—
Dividends paid		(79,115	)		—			—			—			(79,115	)
Net payments for repurchase of common stock		(125,323	)		—			—			(3	)		(125,326	)
Return of capital to parent company		—			—			(13,000	)		13,000			—
Capital contribution from parent		—			72,000			10,000			(82,000	)		—
Payments related to tax withholding for share-based compensation		(2,162	)		—			(43	)		—			(2,205	)

Net cash provided by financing activities		99,547			17,498			3,973,051			(70,114	)		4,019,982

Net increase (decrease) in cash and due from banks, and restricted cash		1,331			(462	)		(433	)		(882	)		(446	)
Cash and due from banks, and restricted cash at beginning of period		48,120			462			412,225			(48,178	)		412,629

Cash and due from banks, and restricted cash at end of period	$	49,451		$	—		$	411,792		$	(49,060	)	$	412,183

Condensed Consolidating Statement of Cash Flows (Unaudited)


	Nine months ended September 30, 2016															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			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		$	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		(164,996	)		(30,289	)		—			195,285			—			(51,310	)		(13,947	)		—			65,257			—
Provision (reversal) for loan losses		(36	)		—			128,687			—			128,651
Goodwill impairment losses		—			—			3,801			—			3,801
Provision for loan losses																	309			—			253,627			—			253,936
Amortization of intangibles		—			—			9,308			—			9,308			—			—			7,034			—			7,034
Depreciation and amortization of premises and equipment		497			—			34,228			—			34,725			480			—			35,486			—			35,966
Net accretion of discounts and amortization of premiums and deferred fees		1,565			21			(38,339	)		—			(36,753	)		1,565			21			(18,957	)		—			(17,371	)
Other-than-temporary impairment on investment securities		—			—			209			—			209
Impairment losses on long-lived assets																	—			—			11,286			—			11,286
Other-than-temporary impairment on debt securities																	—			—			8,299			—			8,299
Fair value adjustments on mortgage servicing rights		—			—			18,879			—			18,879			—			—			24,262			—			24,262
FDIC loss-share expense		—			—			77,445			—			77,445			—			—			12,680			—			12,680
Adjustments (expense) to indemnity reserves on loans sold		—			—			14,234			—			14,234			—			—			11,302			—			11,302
(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
Earnings from investments under the equity method, net of dividends or distributions																	(6,732	)		(1,256	)		(3,526	)		—			(11,514	)
Deferred income tax (benefit) expense																	—			(2,132	)		32,389			214			30,471
(Gain) loss on:
Disposition of premises and equipment and other productive assets		(1	)		—			3,604			—			3,603			(17	)		—			5,035			—			5,018
Sale and valuation adjustments of investment securities		(1,767	)		—			(165	)		—			(1,932	)		—			—			(83	)		—			(83	)
Sale of loans, including valuation adjustments on loans held for sale and mortgage banking activities		—			—			(32,982	)		—			(32,982	)		—			—			(16,455	)		—			(16,455	)
Sale of foreclosed assets, including write-downs		52			—			13,108			—			13,160			42			—			19,186			—			19,228
Acquisitions of loansheld-for-sale		—			—			(223,189	)		—			(223,189	)		—			—			(204,813	)		—			(204,813	)
Proceeds from sale of loansheld-for-sale		—			—			58,003			—			58,003			—			—			68,326			—			68,326
Net originations on loansheld-for-sale		—			—			(365,353	)		—			(365,353	)		—			—			(283,709	)		—			(283,709	)
Net (increase) decrease in:
Trading securities		(475	)		—			578,487			121			578,133
Net decrease (increase) in:
Trading debt securities																	—			—			499,714			—			499,714
Equity securities																	(961	)		—			373			(25	)		(613	)
Accrued income receivable		(6	)		80			4,459			10			4,543			(115	)		107			(8,274	)		(15	)		(8,297	)
Other assets		2,304			(26	)		(26,170	)		(4,309	)		(28,201	)		(2,165	)		45			(14,955	)		15,193			(1,882	)
Net (decrease) increase in:
Interest payable		(7,875	)		(2,685	)		(983	)		(10	)		(11,553	)		(7,875	)		(2,685	)		1,246			15			(9,299	)
Pension and other postretirement benefits obligations		—			—			(56,537	)		—			(56,537	)		—			—			(13,760	)		—			(13,760	)
Other liabilities		(5,724	)		(543	)		(2,801	)		3,776			(5,292	)		2,115			(760	)		22,742			(8,919	)		15,178

Total adjustments		(185,531	)		(34,394	)		245,852			195,081			221,008			(64,664	)		(20,607	)		448,455			71,720			434,904

Net cash provided by (used in) operating activities		35,265			(11,048	)		495,593			(78,006	)		441,804			145,171			(10,620	)		683,732			(173,544	)		644,739

Cash flows from investing activities:
Net (increase) decrease in money market investments		(22,111	)		10,835			(1,785,091	)		12,965			(1,783,402	)
Net decrease (increase) in money market investments																	13,733			10,491			(2,599,052	)		(26,025	)		(2,600,853	)
Purchases of investment securities:
Available-for-sale		—			—			(2,408,514	)		—			(2,408,514	)		—			—			(2,356,385	)		—			(2,356,385	)
Other		—			—			(14,017	)		—			(14,017	)
Equity																	—			—			(23,822	)		—			(23,822	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale		—			—			951,447			—			951,447			—			—			1,225,915			—			1,225,915
Held-to-maturity		—			—			4,182			—			4,182			—			—			6,229			—			6,229
Other		—			—			11,051			—			11,051
Proceeds from sale of investment securities:
Available for sale		278			—			1,278			—			1,556			—			—			14,423			—			14,423
Other		1,583			—			6,423			—			8,006
Net repayments (disbursements) on loans		25			—			(93,379	)		—			(93,354	)
Equity																	—			—			17,675			—			17,675
Net repayments on loans																	172			—			(77,572	)		—			(77,400	)

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


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		—			—			8,056			—			8,056
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		(7,653	)		20,891			(4,147,232	)		(58,865	)		(4,192,859	)

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		(3,546	)		(129	)		152,399			3,461			152,185
Cash and due from banks, and restricted cash at beginning of period		48,130			591			373,556			(48,081	)		374,196

Cash and due from banks, and restricted cash at end of period	$	44,584		$	462		$	525,955		$	(44,620	)	$	526,381

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

ITEM 2.

~~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~~provides retail, mortgage and commercial banking services through its New York-chartered banking subsidiary, Popular ~~North America (“BPNA”). The BPNA franchise operates under the name Popular Community~~ Bank (“~~PCB”~~PB”)~~. BPNA focuses efforts and resources on the core community banking business. BPNA operates~~, which has branches located 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,~~2018, the Corporation had a ~~16.10%~~16.03% interest in the holding company of EVERTEC, which provides transaction processing services throughout the Caribbean and Latin America, ~~including servicing~~and services many of the Corporation’s ~~system infrastructures~~systems infrastructure and transaction processing businesses. During the quarter ended September 30, ~~2017,~~2018, the Corporation recorded $ ~~1.6~~3.6 million in earnings from its investment in EVERTEC, which had a carrying amount of ~~$ 46~~$58 million as of the end of the quarter. Also, the Corporation had a 15.84% stake in Centro Financiero BHD ~~Leon,~~León, S.A. (“BHD ~~Leon”~~León”), one of the largest banking and financial services groups in the Dominican Republic. During the quarter ended September 30, ~~2017,~~2018, the Corporation recorded ~~$5.5~~$6.3 million in earnings from its investment in BHD ~~Leon,~~León, which had a carrying amount of ~~$129~~$140 million, as of the end of the quarter.

~~HURRICANES IRMA AND MARIA~~SIGNIFICANT EVENTS

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 municipalitiesAcquisition 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~~Wells Fargo’s Auto Finance Business in Puerto Rico ~~as a Category 4 hurricane, causing extensive destruction and flooding throughout Puerto Rico. Following~~

On August 1, 2018, Popular Auto, LLC (“Popular Auto”), BPPR’s auto finance subsidiary, completed the ~~passage~~acquisition 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 curtailedcertain assets and the ~~government imposed a mandatory curfew. The hurricanes caused a significant disruption~~assumption of certain liabilities from Reliable Financial Services, Inc. and Reliable Finance Holding Co. (“Reliable”), subsidiaries of Wells Fargo & Company (“Wells Fargo”) related to ~~the island’s economic activity. Most~~their auto finance business ~~establishments, including retailers and wholesalers, financial institutions, manufacturing facilities and hotels, were closed for several days.~~

Popular Auto acquired approximately $1.6 billion in retail auto loans and $341 million in primarily auto-related commercial loans. Reliable will continue operating as a Division of Popular Auto in parallel with Popular Auto’s existing operations for a period after closing to provide continuity of service to Reliable customers while allowing Popular to assess best practices before completing the ~~USVI remain without power, other basic utility~~integration of the two operations. Substantially all Reliable employees received and ~~infrastructure remains significantly impacted,~~accepted offers of employment from Popular Auto.

Wells Fargo retained approximately $398 million in retail auto loans as part of the transaction and ~~many businesses are partially~~has entered into a loan servicing agreement with Popular Auto with respect to such loans.

During the quarter ended September 30, 2018, the Reliable acquisition contributed approximately $11.7 million to net income, composed of net interest income of $30.7 million, $5.1 million of operating ~~or remain closed. Electronic transactions,~~income, including servicing fees from the retained Wells Fargo portfolio, and expenses of $8.6 million, including $3.8 million of transaction related expenses.

Common Stock Repurchase Plan

During the quarter ended September 30, 2018, the Corporation entered into a ~~significant source~~$125 million accelerated share repurchase transaction (“ASR”) and, in connection therewith, received an initial delivery of ~~revenue~~2,000,000 shares of the Corporation’s common stock (the “Initial Shares”), which was accounted for ~~the bank, have also declined significantly~~ as a treasury stock transaction. 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~~receipt 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,~~Initial Shares, the Corporation ~~had implemented its business continuity action program. Although the Corporation’s business critical systems experienced minimal outages~~recognized in shareholders’ equity approximately $102 million in treasury stock and $23 million as a ~~result~~reduction 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.~~

~~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 almost40-year~~ ~~history, delivering assistance directly to those who need it most.~~

~~Financial impact of the hurricanes~~

capital surplus. During ~~the third quarter of 2017, the Corporation recorded $79.4 million inpre-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 of 2018, the Corporation expects to further adjust its treasury stock and capital surplus accounts to reflect the ~~amount~~delivery or receipt of cash or shares upon the termination of the ASR agreement, which will depend on the ~~speed at which electricity, telecommunications~~average price of the Corporation’s shares during the term of the ASR.

Redemption of Trust Preferred Securities

On September 7, 2018, Popular North America, Inc. (“PNA”), a wholly-owned subsidiary of the Corporation, completed the redemption of all outstanding 8.327% Capital Securities, Series A (liquidation amount $1,000 per security and ~~general merchant services can be restored across~~$52,865,000 in the ~~region.~~aggregate) issued by BanPonce Trust I, a Delaware statutory trust established by PNA. The redemption price of each security was equal to 100% of the liquidation amount of the securities plus accumulated and unpaid distributions up to and excluding the redemption date.

~~Hurricanes impact on loan delinquencies~~Issuance of Senior Notes

~~As noted~~On September 11, 2018, the Corporation issued $300 million aggregate principal amount of 6.125% Senior Notes due 2023 (the “Notes”) in ~~Note 8~~an underwritten public offering pursuant to an effective shelf registration statement filed with the Securities and Exchange Commission. On October 15, 2018 ( the “Redemption Date”), the Corporation used the net proceeds of the offering and available cash to redeem $450 million aggregate principal amount of its outstanding 7.00% Senior Notes due 2019 (the “2019 Notes”).

The redemption price of the 2019 Notes was equal to the ~~accompanying Financial Statements,~~sum of the present values of the remaining scheduled payments of principal and interest on the 2019 Notes that would have been due after the Redemption Date and on or prior to June 1, 2019, discounted to the ~~disruptions caused by Hurricanes Irma and Maria,~~Redemption Date on a semiannual basis at the ~~Corporation’s payment channels, collection efforts and loss mitigation operations were interrupted and mainly unavailable for~~Treasury Rate plus 50 basis points, plus unpaid interest accrued to, but not including 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 paymentsRedemption Date. As such, during the ~~month~~fourth quarter of ~~October and either also made their scheduled October payment or benefited from~~2018, the ~~loan payment moratorium extended by Popular.~~

~~We expect the hurricanes~~Corporation expects 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~~recognize approximately $13 million in expenses associated with the ~~hurricanes, refer to Note 2 to~~accelerated amortization of debt issuance costs and 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~~redemption price of the ~~impact of the hurricanes in the Corporation’s financial statements.~~2019 Notes.

OVERVIEW

Table 1 provides selected financial data and performance indicators for the quarters and nine months ended September 30, ~~2017~~2018 and ~~2016.~~2017.

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 anon-GAAP financial measure. Management believes that Adjusted net income provides meaningful information about the underlying performance of the Corporation’s ongoing operations.

~~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~~Table 29 for a reconciliation of ~~the reported results~~net income to ~~the~~ Adjusted net income for the quarter and nine months period ended September 30, ~~2016.~~2018. No adjustments are reflected for the third quarter of 2018 and 2017.

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~~quarters and nine months periods ended September 30, ~~2017~~2018 as compared with the same period in ~~2016,~~2017, 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 oftax-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 anon-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 namedNon-GAAP financial measures used by other companies.

Financial highlights for the quarter ended September 30, ~~2017~~2018

For the quarter ended September 30, ~~2017,~~2018, the Corporation recorded net income of $ ~~20.7~~140.6 million, compared to net income of $ ~~46.8~~20.7 million for the same quarter of the previous year. The results for the quarter reflect ~~the estimated impact of the hurricanes, which includespre-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~~a higher net interest income ~~was $406.6~~by $73.3 million ~~for~~mainly due to the ~~third quarter of 2017, an increase of $31.2 million when compared to $375.4 million for~~income from the ~~same quarter of 2016. The increase in net interest income was mostly due to~~portfolio acquired from Reliable, higher volume of money market and investment securities, ~~higher income from commercial loans, offset by lower income from mortgage loans,~~and the ~~Westernbank portfolio and higher deposit costs. Net~~increase in 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~~rates. Commercial loan growth 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~~Popular Bank. also contributed to the ~~Net Interest Income section of this MD&A for additional information.~~

increase. 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~~decreased by ~~$24 million from December 31, 2016, mostly related to higher P.R. mortgagenon-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~~$106.4 million mainly due to last year’s incremental provision based on management’s best estimate of the impact of Hurricanes Irma and María ~~favorable variance in~~(the “hurricanes”) on the ~~FDIC loss share of $57.8 million mainly as a result of a $54.9 million charge~~Corporation’s loan portfolios, and higher reserves related to the ~~arbitration award recorded during the third quarter of 2016, partially offset~~Popular Bank’s taxi medallion portfolio.Non-interest income was higher by ~~lower~~$50.6 million and included $9.5 million in insurance recoveries received related to Hurricane María, higher other service fees by $10.8 million driven by credit card activity and higher mortgage banking ~~activities, impacted~~activity income by ~~the business disruption caused by the hurricanes, lower gain on sale of loans and lower income from equity method investments.~~

~~Operating expenses decreased by $6.6~~$6.0 million ~~mostly~~ due to lower MSRs fair value adjustment. Operating expenses were higher by $48.3 million, which included a write-down of $19.6 million of a capitalized software costs related to a technology project that was discontinued by the Corporation and higher personnel costs ~~professional fees mainly~~by $22 million, including $3.9 million 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.Reliable acquisition.

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~~2018 amounted to ~~$42.6~~$47.9 billion, compared to ~~$38.7~~$44.3 billion, at December 31, ~~2016.~~2017. The increase of approximately ~~$3.9~~$3.6 billion was mainly ~~at BPPR~~ due to higher ~~money market~~ investments ~~and~~in debt securitiesavailable-for-sale, ~~due to~~as the Corporation deployed increased liquidity from deposits. The assets composition also reflects the higher ~~liquidity~~loan portfolio balance driven by ~~an increase in deposits balances, mainly from~~ the ~~Puerto Rico government.~~acquisition of Reliable.

Total deposits at September 30, ~~2017~~2018 increased by ~~$3.8~~$4.2 billion when compared to deposits at December 31, ~~2016,~~2017, mainly due to an increase in public, retail and commercial 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,~~BPPR, including 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.$2.9 billion from Puerto Rico government deposits.

Capital ratios continued to be strong. As of September 30, ~~2017,~~2018, the Corporation’s ~~Common~~common equity ~~Tier~~tier 1 ~~Capital~~capital ratio was ~~16.63%~~16.19%, while the ~~Total Capital~~total capital ratio was ~~19.62%~~18.82%. Refer to Table 148 for capital ratios.

Refer to the Operating Results Analysis and Financial Condition Analysis within this MD&A for additional discussion of significant quarterly variances and items impacting the financial performance of the Corporation.

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~~2017 Form10-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 Form10-Q, readers should consider. Also, refer to Item 1A—Risk Factors, of this Form10-Q for additional information.

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

Table 1—Financial Highlights

Financial Condition Highlights


	Ending balances at								Average for the nine months ended								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			September 30, 2018		December 31, 2017			Variance			September 30, 2018		September 30, 2017		Variance
Money market investments	$	5,488,212		$	2,890,217	$	2,597,995		$	4,131,750	$	2,911,043		$	1,220,707		$	4,609,061	$	5,255,119		$	(646,058	)	$	6,460,967	$	4,131,750	$	2,329,217
Investment and trading securities		9,374,355			8,535,530		838,825			9,517,128		7,224,704			2,292,424
Investment securities																		13,344,548		10,482,971			2,861,577			11,729,726		9,517,128		2,212,598
Loans		23,767,168			23,435,446		331,722			23,403,999		23,057,383			346,616			26,563,910		24,942,463			1,621,447			24,633,267		23,403,999		1,229,268
Earning assets		38,629,735			34,861,193		3,768,542			37,052,877		33,193,130			3,859,747			44,517,519		40,680,553			3,836,966			42,823,960		37,052,877		5,771,083
Total assets		42,601,267			38,661,609		3,939,658			40,781,408		37,119,732			3,661,676			47,919,428		44,277,337			3,642,091			46,208,621		40,781,408		5,427,213
Deposits		34,248,936			30,496,224		3,752,712			32,602,038		28,534,115			4,067,923			39,648,827		35,453,508			4,195,319			38,014,622		32,602,038		5,412,584
Borrowings		2,147,064			2,055,477		91,587			1,981,012		2,382,051			(401,039	)		2,046,003		2,023,485			22,518			2,758,342		1,981,012		777,330
Stockholders’ equity		5,285,431			5,197,957		87,474			5,333,137		5,259,959			73,178			5,244,349		5,103,905			140,444			5,400,225		5,333,137		67,088
Liabilities from discontinued operations		—			—		—			—		1,815			(1,815	)

Operating Highlights																	Quarters ended September 30,								Nine months ended September 30,
	Quarters ended September 30,								Nine months ended September 30,
(In thousands, except per share information)	2017			2016		Variance			2017		2016			Variance			2018		2017			Variance			2018		2017		Variance
Net interest income	$	378,171		$	353,687	$	24,484		$	1,114,748	$	1,066,650		$	48,098		$	451,469	$	378,171		$	73,298		$	1,258,652	$	1,114,748	$	143,904
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
Provision for loanlosses—non-covered loans																		54,387		157,659			(103,272	)		183,774		249,681		(65,907	)
Provision for loan losses—covered loans																		—		3,100			(3,100	)		1,730		4,255		(2,525	)
Non-interest income		100,374			75,978		24,396			333,036		298,111			34,925			151,021		100,374			50,647			499,327		333,036		166,291
Operating expenses		317,088			323,672		(6,584	)		935,241		934,764			477			365,437		317,088			48,349			1,025,107		935,241		89,866

Income before income tax		698			62,649		(61,951	)		258,607		301,346			(42,739	)		182,666		698			181,968			547,368		258,607		288,761
Income tax (benefit) expense		(19,966	)		15,839		(35,805	)		48,772		80,550			(31,778	)
Income tax expense (benefit)																		42,018		(19,966	)		61,984			35,613		48,772		(13,159	)

Net income	$	20,664		$	46,810	$	(26,146	)	$	209,835	$	220,796		$	(10,961	)	$	140,648	$	20,664		$	119,984		$	511,755	$	209,835	$	301,920

Net income applicable to common stock	$	19,734		$	45,880	$	(26,146	)	$	207,043	$	218,004		$	(10,961	)	$	139,718	$	19,734		$	119,984		$	508,963	$	207,043	$	301,920

Net income per Common Share – Basic	$	0.19		$	0.44	$	(0.25	)	$	2.03	$	2.11		$	(0.08	)
Net income per common share – Basic																	$	1.38	$	0.19		$	1.19		$	5.01	$	2.03	$	2.98

Net income per Common Share – Diluted	$	0.19		$	0.44	$	(0.25	)	$	2.03	$	2.11		$	(0.08	)
Net income per common share – Diluted																	$	1.38	$	0.19		$	1.19		$	5.00	$	2.03	$	2.97

Dividends declared per common share – Basic	$	0.25		$	0.15	$	0.10		$	0.75	$	0.45		$	0.30
Dividends declared per common share—Basic																	$	0.25	$	0.25		$	—		$	0.75	$	0.75	$	—


	Quarters ended September 30,						Nine months ended September 30,						Quarters ended September 30,						Nine months ended September 30,
Selected Statistical Information	2017			2016			2017			2016			2018			2017			2018			2017
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
End market price													$	51.25			35.94		$	51.25			35.94
Book value per common share at period end		51.31			51.85			51.31			51.85			51.77			51.31			51.77			51.31

Profitability Ratios
Return on assets		0.20	%		0.49	%		0.69	%		0.79	%		1.17	%		0.20	%		1.48	%		0.69	%
Return on common equity		1.47			3.46			5.24			5.59			10.10			1.47			12.72			5.24
Net interest spread		3.75			3.90			3.81			4.06			3.81			3.75			3.69			3.81
Net interest spread(taxable equivalent) - Non-GAAP		4.05			4.15			4.10			4.32
Net interest spread (taxableequivalent)—Non-GAAP														4.14			4.05			4.01			4.10
Net interest margin		3.96			4.12			4.02			4.29			4.07			3.96			3.92			4.02
Net interest margin (taxable equivalent) -Non-GAAP		4.26			4.37			4.31			4.55
Net interest margin (taxableequivalent)—Non-GAAP														4.40			4.26			4.24			4.31

Capitalization Ratios
Average equity to average assets														11.66	%		12.92	%		11.69	%		13.08	%
Common equity Tier 1 capital														16.19			16.63			16.19			16.63
Tier I capital														16.19			16.63			16.19			16.63
Total capital														18.42			19.62			18.42			19.62
Tier 1 leverage														9.60			10.29			9.60			10.29

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;~~Loans; (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~~2017 Form10-K. ~~Also, refer~~Refer to Note 23 to the Consolidated Financial Statements included in the ~~2016~~2017 Form10-K for a summary of the Corporation’s significant accounting ~~policies.~~

~~During~~policies and to Note 3 to the ~~third quarter of 2017, the Corporation performed the annual goodwill impairment evaluation~~Consolidated Financial Statements included in this Form 10Q 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,~~recently adopted accounting standard updates. Also, refer to Note ~~15.~~2 for accounting policies related to business combinations.

OPERATING RESULTS ANALYSIS

NET INTEREST INCOME

Net interest income was ~~$378.2~~$451.5 million for the third quarter of ~~2017,~~2018, an increase of ~~$24.5~~$73.3 million when compared to ~~$353.7~~$378.2 million for the same quarter of ~~2016.~~2017. Taxable equivalent net interest income was ~~$406.6~~$488.1 million for the third quarter of ~~2017,~~2018, an increase of ~~$31.2~~$81.5 million when compared to ~~$375.4~~$406.6 million for the same quarter of ~~2016.~~2017. The increase in $8.3 million in the taxable equivalent adjustment is directly related to a higher volume oftax-exempt investments in P.R. Net interest margin for the third quarter of ~~2017~~2018 was ~~3.96%~~4.07%, ~~a decrease~~an increase of 1611 basis points when compared to ~~4.12%~~3.96% for the same quarter of the previous year. Net Interest margin, on a taxable equivalent basis, for the third quarter of ~~2017~~2018 was ~~4.26%~~4.40%, ~~a decrease~~an increase of 1114 basis points when compared to ~~4.37%~~4.26% for the same quarter of ~~2016. The decrease~~2017.The increase in net interest margin is mostly related to the ~~change~~deployment of excess liquidity to acquire the Reliable portfolio and purchase of approximately $3 billion 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~~thereby improving the ~~third quarter of 2016) as compared to the proportion of loans to earning assets which carry a higher~~after-tax asset yield. The ~~main reasons for~~detailed variances of 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~~higher yield 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 7671 basis points when compared to the same period in ~~2016;~~2017. Since October 2017 the U.S. Federal Reserve has increased the federal funds rate by 100 basis points. A higher volume of funds available to invest, resulting from the increases in P.R. Government, retail and commercial deposits, also contributed to the increase in interest income;

Higher interest income from investment securities mainly due to higher volumes ~~particularly on~~from U.S. Treasuries ~~and mortgage-backed securities~~ related to recent ~~purchases;~~purchases, in part to deploy excess liquidity, as mentioned above. Most of the interest income on these securities is exempt from income tax in P.R. therefore improving the return on investment;

Higher income from commercial and construction loans, driven by higher volume of loans, mainly from loans acquired in the Reliable Transaction, higher volume in the U.S. and improved yields ~~in Puerto Rico mostly associated~~related to the ~~impact~~effect on the variable rate portfolio of the ~~above- mentioned~~above-mentioned rise in interest rates byand originations in a higher interest rate environment; and

Higher income from consumer loans mostly from the ~~U.S. Federal Reserve.~~loans acquired in the Reliable Transaction, and the growth of the auto loan business in P.R.

Negative variances:

Lower interest income from mortgage loans due to lower ~~average balances resulting from lower lending activity and~~ portfolio~~run-off~~ balance in ~~P.R. and~~ the U.S. and lower yields in P.R. impacted by ~~loan delinquencies as a result~~borrowers who did not make payments after the end of the ~~business disruption from Hurricanes Irma~~moratorium period and ~~Maria;~~entered intonon-accrual status; and

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

Higher interest expense on deposits mainly due to higher volumes and cost 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~~2018, included the amortization of deferred loans fees, prepayment penalties, late fees and the amortization of premium/discounts, amounting to $18.7 million in income including $13.4 million of fair value discount amortization related to the Reliable Transaction, compared with $4.7 million ~~compared to $5.1 million~~in income for the same period in ~~2016.~~2017.

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

Quarters ended September 30,


																																																					Variance
Average Volume	Average Volume						Average Yields / Costs										Interest							Variance Attributable to						Average Volume						Average Yields / Costs										Interest							Attributable to
2017		2016		Variance			2017			2016			Variance				2017		2016		Variance			Rate			Volume
2018																														2018	2017		Variance			2018			2017			Variance				2018		2017		Variance			Rate			Volume
(In millions)	(In millions)																(In thousands)													(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		5,514	$	4,866	$	648			1.98	%		1.27	%		0.71	%	Money market investments	$	27,581	$	15,529	$	12,052		$	9,764		$	2,288
	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		12,954		9,536		3,418			2.97			2.74			0.23		Investment securities		96,573		65,331		31,242			10,835			20,407
																														79		81		(2	)		7.81			7.43			0.38		Trading securities		1,553		1,521		32			76			(44	)
																Loans:
	10,065		9,269		796			5.26			5.05			0.21		Commercial		133,354		117,762		15,592			5,181			10,411		18,547		14,483		4,064			2.70			2.27			0.43		Total money market, investment and trading securities		125,707		82,381		43,326			20,675			22,651
	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																	Loans:
	6,444		6,637		(193	)		5.53			5.56			(0.03	)	Mortgage		89,160		92,169		(3,009	)		(347	)		(2,662	)	11,814		11,131		683			6.09			5.72			0.37		Commercial		181,228		160,442		20,786			10,649			10,137
	3,782		3,847		(65	)		10.44			10.37			0.07		Consumer		99,527		100,268		(741	)		189			(930	)	932		826		106			6.45			5.76			0.69		Construction		15,151		11,994		3,157			1,517			1,640
																														885		750		135			5.99			6.37			(0.38	)	Leasing		13,247		11,945		1,302			(753	)		2,055
	21,867		21,161		706			6.29			6.24			0.05		Sub-total loans		345,988		331,554		14,434			5,078			9,356		7,142		7,035		107			5.29			5.44			(0.15	)	Mortgage		94,439		95,703		(1,264	)		(2,710	)		1,446
	1,681		1,881		(200	)		8.50			8.65			(0.15	)	WB loans		35,939		40,867		(4,928	)		(809	)		(4,119	)	4,818		3,806		1,012			11.14			10.62			0.52		Consumer		135,269		101,843		33,426			7,979			25,447

	23,548		23,042		506			6.45			6.44			0.01		Total loans		381,927		372,421		9,506			4,269			5,237		25,591		23,548		2,043			6.82			6.45			0.37		Total loans		439,334		381,927		57,407			16,682			40,725

$	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		44,138	$	38,031	$	6,107			5.09	%		4.86	%		0.23	%	Total earning assets	$	565,041	$	464,308	$	100,733		$	37,357		$	63,376

																Interest bearing deposits:																													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		13,201	$	10,465	$	2,736			0.69	%		0.39	%		0.30	%	NOW and money market [1]	$	22,974	$	10,278	$	12,696		$	9,319		$	3,377
	8,260		7,550		710			0.24			0.24			—		Savings		5,025		4,613		412			(93	)		505		9,797		8,260		1,537			0.37			0.24			0.13		Savings		9,043		5,025		4,018			2,760			1,258
	7,543		7,859		(316	)		1.14			1.05			0.09		Time deposits		21,756		20,735		1,021			1,744			(723	)	7,419		7,543		(124	)		1.24			1.14			0.10		Time deposits		23,117		21,756		1,361			2,118			(757	)

	26,268		22,735		3,533			0.56			0.57			(0.01	)	Total deposits		37,059		32,362		4,697			2,301			2,396		30,417		26,268		4,149			0.72			0.56			0.16		Total deposits		55,134		37,059		18,075			14,197			3,878

	431		818		(387	)		1.40			1.04			0.36		Short-term borrowings		1,523		2,131		(608	)		607			(1,215	)	298		431		(133	)		2.16			1.40			0.76		Short-term borrowings		1,622		1,523		99			530			(431	)
	1,551		1,580		(29	)		4.94			4.85			0.09		Other medium and long-term debt		19,130		19,118		12			47			(35	)	1,563		1,551		12			5.16			4.94			0.22		Other medium and long-term debt		20,140		19,130		1,010			633			377

	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																	Total interest bearing
																														32,278		28,250		4,028			0.95			0.81			0.14		liabilities		76,896		57,712		19,184			15,360			3,824
	7,235		6,676		559											Demand deposits
	2,546		2,392		154											Other sources of funds														8,860		7,235		1,625											Demand deposits
																														3,000		2,546		454											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		44,138	$	38,031	$	6,107			0.69	%		0.60	%		0.09	%	Total source of funds		76,896		57,712		19,184			15,360			3,824

								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									4.40	%		4.26	%		0.14	%	Net interest margin/ income on a taxable equivalent basis(Non-GAAP)		488,145		406,596		81,549		$	21,997		$	59,552

								4.05	%		4.15	%		(0.10	)%	Net interest spread Taxable equivalent adjustment		28,425		21,731		6,694															4.14	%		4.05	%		0.09	%	Net interest spread

								3.96	%		4.12	%		(0.16	)%	Net interest margin/ incomenon-taxable equivalent basis (GAAP)	$	378,171	$	353,687	$	24,484																							Taxable equivalent adjustment		36,676		28,425		8,251

																																					4.07	%		3.96	%		0.11	%	Net interest margin/ incomenon-taxable equivalent basis (GAAP)	$	451,469	$	378,171	$	73,298

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.

Net interest income for the nine months ended September 30, ~~2017~~2018 was $1.3 billion compared to $1.1 billion ~~an increase of $48 million from~~for the same period ~~in 2016.~~of 2017. Taxable equivalent net interest income was ~~$1.2~~$1.4 billion for the nine months ended September 30, ~~2017,~~2018, an increase of ~~$64.0~~$163.3 million when compared to the $1.2 billion for 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.~~2017. Net interest margin was ~~4.02%~~3.92%, a decrease of 2710 basis points when compared to ~~4.29%~~4.02% for the same period in ~~2016.~~2017. Net interest margin, on a taxable equivalent basis, for the nine months ended September 30, ~~2017~~2018 was ~~4.31%~~4.24%, a decrease of 247 basis points when compared to the ~~4.55%~~4.31% for the same period of ~~2016.~~2017. The ~~variances~~main drivers of the increase in net interest income ~~for the nine-month period are similar to the quarterly variances described above: positive variances in earning assets due to~~are: a higher volume of investment securities and money ~~markets~~market investments driven by the increase in government, commercial and ~~continued growth~~retail deposits in P.R., the ~~commercial portfolio~~increase in ~~the U.S. and the leasing portfolio in Puerto Rico. The negative variances were due to lower volumes from WB loans, mortgage~~commercial and consumer loans ~~due~~mostly associated to ~~lower lending activity~~the Reliable Transaction and the ~~amortization~~U.S. loan growth. The increase in market rates since March 2017 by 150 basis points was a positive factor in the yield of ~~the portfolios, and the~~most earning assets, partially offset by an increase in interest ~~expense on~~cost of P.R. government deposits ~~due to higher volumes~~and U.S. deposits to fund ~~the~~ loan ~~growth~~growth. The decrease in net interest margin is related to a higher proportion of money market and investment securities to earning assets of 42% as compared to 37% in the ~~U.S. and the increase~~same period in ~~Puerto Rico government deposits.~~2017.

Interest income for the nine months ended September 30, ~~2017~~2018, included the amortization of deferred loans fees, prepayment penalties, late fees and the amortization of premium/discounts, amounting to $26.6 million in income including $13.4 million of fair value discount amortization related to the Reliable Transaction, compared with $16.9 million ~~compared to $13.3 million~~in income for the same period in ~~2016.~~2017.

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

Nine months ended September 30,


Average Volume	Average Volume						Average Yields / Costs										Interest							Variance Attributable to						Average Volume						Average Yields / Costs										Interest							Variance Attributable to
2017		2016		Variance			2017			2016			Variance				2017		2016		Variance			Rate			Volume
2018																														2018	2017		Variance			2018			2017			Variance				2018		2017		Variance			Rate			Volume
(In millions)	(In millions)																(In thousands)													(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		6,461	$	4,132	$	2,329			1.78	%		1.08	%		0.70	%	Money market investments	$	86,258	$	33,234	$	53,024		$	28,604		$	24,420
	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		11,652		9,429		2,223			2.92			2.73			0.19		Investment securities		254,638		192,680		61,958			27,865			34,093
																														78		88		(10	)		7.53			7.78			(0.25	)	Trading securities		4,387		5,101		(714	)		(162	)		(552	)
																Loans:
	9,863		9,126		737			5.20			5.08			0.12		Commercial		383,246		346,778		36,468			7,972			28,496		18,191		13,649		4,542			2.53			2.26			0.27		Total money market, investment and trading securities		345,283		231,015		114,268			56,307			57,961
	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																	Loans:
	6,522		6,736		(214	)		5.58			5.53			0.05		Mortgage		272,881		279,209		(6,328	)		2,611			(8,939	)	11,607		10,968		639			5.97			5.70			0.27		Commercial		518,306		467,787		50,519			22,603			27,916
	3,728		3,839		(111	)		10.51			10.45			0.06		Consumer		293,079		300,416		(7,337	)		(586	)		(6,751	)	919		820		99			6.27			5.55			0.72		Construction		43,083		34,047		9,036			4,718			4,318
																														852		729		123			5.99			6.46			(0.47	)	Leasing		38,255		35,325		2,930			(2,732	)		5,662
	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		7,109		7,133		(24	)		5.31			5.48			(0.17	)	Mortgage		283,039		293,107		(10,068	)		(9,083	)		(985	)
	1,743		1,984		(241	)		8.59			9.12			(0.53	)	WB loans		112,022		135,565		(23,543	)		(7,743	)		(15,800	)	4,147		3,754		393			10.80			10.70			0.10		Consumer		334,849		300,433		34,416			5,475			28,941

	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		24,634		23,404		1,230			6.60			6.45			0.15		Total loans		1,217,532		1,130,699		86,833			20,981			65,852

$	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		42,825	$	37,053	$	5,772			4.88	%		4.91	%		(0.03	)%	Total earning assets	$	1,562,815	$	1,361,714	$	201,101		$	77,288		$	123,813

																Interest bearing deposits:																													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		12,298	$	9,809	$	2,489			0.55	%		0.38	%		0.17	%	NOW and money market [1]	$	50,219	$	27,950	$	22,269		$	15,969		$	6,300
	8,146		7,438		708			0.24			0.24			—		Savings		14,883		13,307		1,576			225			1,351		9,341		7,984		1,357			0.31			0.25			0.06		Savings		22,006		14,883		7,123			3,585			3,538
	7,653		7,928		(275	)		1.09			1.02			0.07		Time deposits		62,334		60,311		2,023			4,560			(2,537	)	7,621		7,653		(32	)		1.17			1.09			0.08		Time deposits		66,825		62,074		4,751			1,001			3,750

	25,446		22,055		3,391			0.55			0.56			(0.01	)	Total deposits		104,907		92,835		12,072			6,286			5,786		29,260		25,446		3,814			0.64			0.55			0.09		Total deposits		139,050		104,907		34,143			20,555			13,588

	425		810		(385	)		1.17			1.00			0.17		Short-term borrowings		3,734		6,050		(2,316	)		743			(3,059	)	379		425		(46	)		1.90			1.17			0.73		Short-term borrowings		5,387		3,734		1,653			2,032			(379	)
	1,556		1,572		(16	)		4.91			4.92			(0.01	)	Other medium and long-term debt		57,222		57,993		(771	)		(301	)		(470	)	1,575		1,556		19			5.01			4.90			0.11		Other medium and long-term debt		59,204		57,222		1,982			1,444			538

	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		31,214		27,427		3,787			0.87			0.81			0.06		Total interest bearing liabilities		203,641		165,863		37,778			24,031			13,747

	7,156		6,484		672											Demand deposits														8,755		7,156		1,599											Demand deposits
	2,470		2,272		198											Other sources of funds														2,856		2,470		386											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		42,825	$	37,053	$	5,772			0.64	%		0.60	%		0.04	%	Total source of funds		203,641		165,863		37,778			24,031			13,747

								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									4.24	%		4.31	%		(0.07	)%	Net interest margin/ income on a taxable equivalent basis(Non-GAAP)		1,359,174		1,195,851		163,323		$	53,257		$	110,066

								4.10	%		4.32	%		(0.22	)%	Net interest spread																					4.01	%		4.10	%		(0.09	)%	Net interest spread

																Taxable equivalent adjustment		81,102		65,182		15,920																							Taxable equivalent adjustment		100,522		81,102		19,420

								4.02	%		4.29	%		(0.27	)%	Net interest margin/ incomenon-taxable equivalent basis (GAAP)	$	1,114,749	$	1,066,650	$	48,099															3.92	%		4.02	%		(0.10	)%	Net interest margin/ incomenon-taxable equivalent basis (GAAP)	$	1,258,652	$	1,114,749	$	143,903

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.

Provision for Loan Losses

~~Damages associated with Hurricanes Irma and Maria impacted certain of~~The following discussion includes the ~~Corporation’s asset quality measures, including higher delinquencies andnon-performing~~ ~~loans. Payment channels, collection efforts and loss mitigation operations were interrupted during the last month of the quarter~~provision for loans previously classified as “covered” as a result of the ~~hurricanes. An~~Shared-Loss Agreements entered into in connection with the acquisition of certain assets and assumption of certain liabilities of Westernbank Puerto Rico through an FDIC-assisted transaction in 2010 ( the “FDIC transaction”) and terminated during the second quarter of 2018 pursuant to a termination agreement entered into between BPPR and the FDIC (the “Termination Agreement”).

The provision for loan losses for the portfolio previously classified as covered amounted to $1.7 million for the nine months period ended September 30, 2018 and $4.3 million for the same period of prior year.

The Corporation’s total provision for loan losses was $54.4 million for the quarter ended September 30, 2018, compared to $160.8 million for the quarter ended September 30, 2017, a decrease of $106.4 million, mostly related to last year’s 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 Hurricanes Irma and María (“the ~~hurricanes~~hurricanes”) on the Corporation’s loan portfolios, ascoupled with an impact 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~~$37.2 million during 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 ASC310-30,~~ 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~~Popular U.S. ~~segment for the~~ taxi medallion portfolio.

The provision for loan losses for ~~thenon-covered~~ ~~loan portfolio totaled $157.7~~Puerto Rico was $51.9 million, compared to ~~$42.6~~$115.1 million for the same quarter in ~~2016, an increase~~2017, a decrease of ~~$115.1~~$63.2 million, ~~mostly related to the same factors previously described. The incremental provision related to the hurricanes for thenon-covered~~ ~~loans amounted to $66.4 million. Also, totalnon-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 thenon-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 last year’s incremental provision resulting from 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~~as mentioned above.

The Popular U.S. segment continued to ~~a $7.1 million recovery~~reflect strong growth and favorable credit quality metrics, except in the ~~third quarter~~case of ~~2016 related to the sale of previouslycharged-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 sale of Doral Bank, ~~transaction, accounted under ASC310-30.~~ ~~As of September 30, 2017,~~which continues to reflect the ~~taxi~~pressure on medallion ~~portfolio had an unpaid principal balance of $233 million. Net of reserves,~~collateral values, particularly in 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~~metro area. The provision for ~~95% of~~loan losses for the ~~portfolio balance, with an average carrying loan value of $261 thousand per medallion. Credit trends at BPNA continued~~Popular U.S. segment amounted to ~~be favorable, excluding the taxi medallions portfolio, with low levels ofnon-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~~$2.5 million, compared to ~~$750 thousand provision~~$42.5 million for the same quarter in ~~2016. This increase~~2017, a decrease of $40.0 million, mainly related to a lower provision for the taxi medallion portfolio.

The Corporation’s total provision for loan losses was ~~mainly due to adjustments in the estimated cash flows of purchased credit impaired loans accounted~~$183.8 million for ~~under ASC310-10~~ ~~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~~2018, compared to ~~the same period of 2016. The provision for the covered portfolio increased by $5.8~~$249.7 million for the nine months ended September 30, 2017, ~~when~~a decrease of $65.9 million.

The provision for loan losses for Puerto Rico totaled $153.0 million for the nine months ended September 30, 2018, compared to $188.8 million for the same period in 2017, a decrease of ~~2016.~~$35.8 million. As mentioned above, the provision for the same period in 2017 included $69.9 million associated with the hurricane-related reserve. The decrease in the provision for the nine months ended September 30, 2018 includes downward adjustments of $39.2 million to the hurricane-related reserves, as well as the effects of the annual ALLL review and recalibration completed during the third quarter of 2018, resulting in a decrease of $5.9 million. These downward adjustments were partially offset by the effect of management’s review of certain loss estimates prompting an increase in the reserves for the purchased credit impaired loans accounted for under ASC310-30 of $20.5 million.

The provision ~~was mostly driven by~~for loan losses for the ~~hurricanes and~~Popular U.S. segment amounted to $30.8 million for the nine months ended September 30, 2018, compared to $60.9 million for the same period in 2017, a decrease of $30.1 million. The decrease is mainly related to the taxi medallion ~~impacts, as previously described.~~portfolio, partially offset by management’s review of certain loss assumptions in the consumer portfolio, resulting in a reserve increase of $6.9 million. The effect of the annual recalibration was immaterial to the U.S. portfolio.

Refer to the Credit Risk ~~Management and Loan Quality sections~~section 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~~Non-Interest ~~INCOME~~Income

Non-interest income ~~increased by $24.4~~amounted to $151.0 million for the quarter ended September 30, ~~2017,~~2018, including $9.5 million of insurance recoveries related to Hurricane Maria, compared ~~with~~to $100.4 million for the same quarter of the previous year. ~~The increase~~Excluding the favorable variance on the FDIC loss share (expense) income of $3.9 million, after the termination of the FDIC Shared-Loss Agreements in May 2018,non-interest income ~~was principally due to:~~increased by $46.7 million primarily driven by:

~~Favorable variance in FDIC loss share expense of $57.8~~

Higher other service fees by $10.8 million mainly due to higher credit card fees by $4.8 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 thetrue-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~~higher interchange income resulting from ~~lower transaction volumes~~higher transactional volumes; higher insurance commission revenues by $1.0 million; and higher other fees by $4.1 million in part due to ~~the business disruption in the regions impacted by the hurricanes and lower debit card and credit card~~retail auto loan servicing 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;~~received from Wells Fargo;

~~Lower~~

Higher income from mortgage banking activities by ~~$10.0~~$6.0 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;~~rights by $6.1 million and higher realized gains on closed derivatives positions by $0.7 million, partially offset by lower ~~mortgage servicing fees driven~~gains on securitization transactions by ~~an increase in delinquency, due to the impact of the hurricanes;~~$1.1 million;

~~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~~Favorable variance in adjustments to indemnity reserves of ~~$2.0~~$3.4 million ~~mostly due~~related to ~~an increase in the reserve for~~loans previously sold with credit ~~recourse;~~recourse at BPPR; and

~~Lower~~

Higher other operating income by ~~$5.3~~$27.3 million mainly ~~due~~resulting from the previously mentioned insurance recoveries of $9.5 million, modification fees received for the successful completion of loss mitigation alternatives related to ~~lower aggregate~~hurricane relief measures of $8.9 million, higher aggregated net earnings from investments under the equity ~~method.~~method by $4.0 million, and $2.7 million in other income related to the Reliable operations mostly associated to recoveries of previously charged-off loans.

These increases were partially offset by lower service charges on deposit accounts by $1.1 million due to lower fees on transactional cash management services mainly due to higher credits for compensating balances.

Non-interest income increased by ~~$34.9~~$166.3 million for the nine months ended September 30, ~~2017,~~2018, compared with the same period of the previous year. ~~The increase in~~Excluding the favorable variance on the FDIC loss share (expense) income of $107.4 million,non-interest income ~~was due to:~~increased by $58.9 million primarily driven by:

~~Favorable variance in adjustments to indemnity reserves of $2.9~~

Higher other service fees by $19.0 million ~~mostly~~mainly 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~~higher credit card fees by ~~BPPR;~~

~~Favorable variance in FDIC loss share expense of $64.8~~$11.6 million as a result of ~~the accretion of the indemnification asset, lower mirror accounting on recoveries on covered assets,~~higher interchange income resulting from higher transactional volumes and ~~a $54.9~~higher other fees by $6.1 million ~~arbitration award charge recorded during the third quarter of 2016, partially offset by a $5.5 million unfavorable adjustment related~~in part due to ~~commercial restructured loans; and~~retail auto loan servicing fees received from Wells Fargo;

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~~$6.1 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 by $11.1 million and higher realized gains on closed derivatives positions by $6.6 million, partially offset by lower ~~realized losses~~gains on ~~closed derivative positions;~~

~~Higher other-than-temporary impairment losses on investment securities~~securitization transactions by ~~$8.1 million mainly due to the~~$8.9 million;

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 asavailable-for-sale,~~ ~~which were subsequently sold in the third quarter of~~ 2017; ~~and~~

~~Lower net gain~~

Favorable variance in adjustments to indemnity reserves of $4.8 million related to loans previously sold with credit recourse at BPPR; and

Higher other operating income by $28.4 million mainly resulting from the previously mentioned insurance recoveries of $9.5 million, modification fees received for the successful completion of loss mitigation alternatives related to hurricane relief measures of $12.7 million, $2.7 million in other income related to the Reliable operations mostly associated to recoveries of previously charged-off loans, and higher daily auto rental revenues.

These favorable variances were partially offset by lower service charges on ~~sale of loans~~deposit accounts by ~~$8.7~~$8.2 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.lower fees on transactional cash management services mainly due to higher credits for compensating balances.

~~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 intrue-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 ASC310-30~~ 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~~amounted to $365.4 million for the quarter ended September 30, ~~2017,~~2018, including a write-down of $19.6 million of capitalized software costs related to a technology project discontinued by the Corporation. Other variances which contributed to the increase of $48.3 million when compared with the same quarter of the previous ~~year.~~year are detailed below. Refer to Table 54 for a breakdown of operating expenses by major categories. ~~The decrease in operating expenses was driven primarily by:~~

~~Lower~~

Higher personnel cost by ~~$1.6~~$22.0 million ~~mainly~~including $3.9 million related to the Reliable acquisition, due to ~~lower pension, postretirement~~higher salaries of $4.6 million as result of higher headcount and ~~medical insurance;~~salary increases; and higher commissions, incentives and other bonuses of $8.5 million. The remaining increase in personnel costs is mainly related to annual incentives tied to the Corporation’s improved performance;

~~Lower~~

Higher 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~~$13.1 million mainly due to higher ~~donations, which includes $1.1~~programming, processing and other technology expenses by $5.5 million; higher advisory services by $2.4 million ~~in donations to the hurricane relief efforts;~~ and higher legal fees, excluding collection fees by $1.4 million; and

Higher other operating expenses by ~~$6.4~~$14.5 million due to ~~$3.9 million of~~the above-mentioned capitalized software 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;~~$19.6 million, partially offset by lower ~~operational losses.~~reserves for legal contingencies by $5.5 million.

Operating expenses ~~increased by $0.5 million~~amounted to $1.0 billion for the nine months ended September 30, ~~2017, when compared~~2018, including the above-mentioned capitalized software write-down of $19.6 million. Other variances which contributed to the ~~same period in 2016. The~~ increase of $89.9 million in operating expenses ~~was driven primarily by:~~were the following:

Higher personnel cost by $31.5 million mainly due to higher salaries of $4.9 million as result of higher headcount and salary increases and higher commissions, incentives and other bonuses of $11.4 million. The remaining increase in personnel costs is mainly related to annual incentives tied to the Corporation’s improved performance and higher cost of fringe benefits impacted by the increase in headcount;

Higher equipment expense by ~~$2.9~~$4.6 million mainly due to higher software and maintenance ~~expenses;~~expense;

Higher professional fees by $47.8 million mainly due to professional and advisory expenses associated with the termination of the FDIC Shared-Loss Agreements of $8.1 million; higher advisory services by $15.4 million at BPPR for regulatory related initiatives; higher programming, processing and other technology expenses by $11.7 million and higher legal fees excluding collections fees by $6.4 million; and

Higher business promotion expenses by ~~$2.6~~$4.1 million due to higher ~~donations, which includes $1.1 million in donations to the hurricane relief efforts~~advertising, promotions and higher ~~customer reward~~credit card rewards program ~~expense;~~

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~~OREO expenses by ~~$24.4~~$20.2 million ~~mainly~~ due to lower ~~legal fees related to the FDIC arbitration proceedings, which were resolved during 2016,~~write-downs on valuation of mortgage, commercial and ~~lower expenses related to programming, processing~~construction properties by $11.0 million and ~~other technology services;~~

~~Lower amortization of intangibles~~higher gain on sales by ~~$2.3~~$4.7 million mainly as a result of moratorium on foreclosures due to ~~core deposits intangible fully amortized in 2016 at BPPR; and~~

hurricanes related relief efforts.

~~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—4—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

   Quarters ended September 30, Nine months ended September 30,
(In thousands)
   2018    2017    Variance 2018    2017    Variance
Personnel costs:

Salaries
   $ 83,535    $ 78,976    $ 4,559 $ 239,940    $ 235,055    $ 4,885
Commissions, incentives and other bonuses
   25,365    16,879    8,486 66,685    55,252    11,433
Pension, postretirement and medical insurance
   8,670    9,668    (998 ) 27,962    29,768    (1,806 )
Other personnel costs, including payroll taxes
   22,187    12,246    9,941 55,354    38,382    16,972










Total personnel costs
   139,757    117,769    21,988 389,941    358,457    31,484










Net occupancy expenses
   18,602    22,254    (3,652 ) 63,829    65,295    (1,466 )
Equipment expenses
   18,303    16,457    1,846 53,284    48,677    4,607
Other taxes
   11,923    10,858    1,065 33,701    32,567    1,134
Professional fees:

Collections, appraisals and other credit related fees
   3,371    3,559    (188 ) 10,657    11,161    (504 )
Programming, processing and other technology services
   55,187    49,717    5,470 161,039    149,377    11,662
Legal fees, excluding collections
   4,284    2,928    1,356 14,954    8,538    6,416
Other professional fees
   21,018    14,568    6,450 74,098    43,880    30,218










Total professional fees
   83,860    70,772    13,088 260,748    212,956    47,792










Communications
   6,054    5,394    660 17,342    17,242    100
Business promotion
   15,478    15,216    262 44,265    40,158    4,107
FDIC deposit insurance
   8,610    6,271    2,339 22,534    18,936    3,598
Other real estate owned (OREO) expenses
   7,950    11,724    (3,774 ) 21,028    41,212    (20,184 )
Other operating expenses:

Credit and debit card processing, volume and interchange expenses
   8,946    7,375    1,571 23,189    19,348    3,841
Operational losses
   7,770    13,222    (5,452 ) 26,695    27,973    (1,278 )
All other
   35,860    17,431    18,429 61,578    45,386    16,192










Total other operating expenses
   52,576    38,028    14,548 111,462    92,707    18,755










Amortization of intangibles
   2,324    2,345    (21 ) 6,973    7,034    (61 )










Total operating expenses
   $ 365,437    $ 317,088    $ 48,349 $ 1,025,107    $ 935,241    $ 89,866

INCOME TAXES

For the quarter ended September 30, ~~2017,~~2018, the Corporation recorded income tax ~~benefit~~expense of ~~$20.0~~$42.0 million, compared to an income tax ~~expense~~benefit of ~~$15.8~~$20.0 million for the same quarter of the previous year. The increase in income tax ~~benefit for~~expense was primarily due to an increase in taxable income during the third quarter ~~reflects~~of 2018 compared to the ~~impact~~same quarter of 2017 which was impacted by the losses related to the hurricanes ~~which result in a reduction~~that took place during the third quarter 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.~~2017.

~~On November 2,~~

In December 2017, the ~~House Ways and Means Committee unveiled a bill to reform the U.S. tax code. If the~~Federal Tax Cuts and Jobs Act ~~(H.R. 1) is~~(“TCJA”) was enacted, ~~as currently proposed,~~which reduced the U.S. federal corporate income tax rate from a maximum rate of 35% to a single tax rate of 21%. The Act contains other provisions, which became effective on January 1, 2018 and which may impact the Corporation’s tax calculations and related income tax expense in future years. The effective tax rate reflects the impact to our U.S. operations of the reduction in the federal income tax rate, from 35% to 21%, pursuant to the TCJA.

The Government of Puerto Rico has proposed a tax reform, which is pending approval by the legislative assembly and the Governor, that would reduce the maximum corporate tax rates from a current rate ~~will~~of 39% to 37.5%. According to the Certified Fiscal Plan (as defined below), any tax reform should be ~~reduced from~~revenue-neutral, with stabilizing mechanisms to offset revenue shortfalls. The PROMESA Oversight Board could also assert the ~~current 35%~~power to ~~20%. This~~veto any tax reform legislation that in their view is inconsistent with the Certified Fiscal Plan.

A reduction in corporate tax rates to 37.5%, if approved, would result in a ~~reduction~~write down of the Corporation’s deferred tax asset ~~and the valuation allowance pertaining~~(“DTA”) related to its P.R. operations of approximately $29.5 million, with a corresponding charge to the ~~U.S. operations with a net impact to~~Corporation’s income tax expense. If such ~~change had~~a reduction in the Corporation’s DTA from its P.R. operations would have occurred as of September 30, ~~2017, the Corporation~~2018, Common Equity Tier 1 Capital and Total Regulatory Capital would have ~~recognized~~been reduced by approximately 3 bps. On a ~~one time~~forward-looking basis, a reduction of the maximum corporate income tax ~~expense of approximately $190 million. This~~rate to 37.5% could result in a reduction in the ~~tax rate will also result in the decrease of the~~Corporation’s effective tax rate of ~~the Corporation in future periods. The future impact in earnings of the lower tax rate will depend~~less than 1% 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.an annual basis.

At September 30, ~~2017, Popular~~2018, the Corporation had a ~~tangible book value per common share~~DTA amounting to $1.2 billion, net of ~~$44.79.~~a valuation allowance of $0.5 billion. The ~~deferred tax asset of the P.R. operations and~~DTA related to the U.S. operations ~~amounted to $6.73 and $5.09~~was $0.3 billion, net of ~~the total tangible book value per share, respectively.~~a valuation allowance of $0.4 billion.

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.~~DTA balances.

REPORTABLE SEGMENT RESULTS

The Corporation’s reportable segments for managerial reporting purposes consist of Banco Popular de Puerto Rico and Popular U.S. (previously Banco Popular North ~~America.~~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~~$19.4 million for the quarter ended September 30, ~~2017,~~2018, compared with a net loss of ~~$12.1~~$17.9 million for the same quarter of the previous year. The change was mostly driven by ~~lower~~higher personnel costs by $4.4 million, mainly due to higher incentives, partially offset by higher net interest income by $1.2 million mainly from ~~equity method~~money market investments and higher other ~~operating expenses~~income by $2.6 million 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 incomeearnings 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~~$137.5 million for the quarter ended September 30, ~~2017,~~2018, compared with net income of ~~$49.6~~$44.3 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~~$67.4 million ~~mostly~~ due to:

~~Higher~~

higher income from money market ~~and investment securities~~investments by ~~$18.3~~$12.5 million due to an increase in volume of funds available to invest related to higher ~~liquidity~~average balance of deposits, and the increases in interest rates by the Federal Reserve since October 2017, which totaled 100 basis points;

higher interest income from investments in debt securities by $21.9 million driven by higher volume ~~in deposit balances;~~ and yields of U.S. Treasuries;

~~Higher~~

higher income from commercial loans by ~~$7.3~~$12.7 million, ~~mostly associated~~mainly related to the ~~impact on the~~portfolio acquired from Reliable and variable rate loans due to the increase in interest rates; and

higher income from consumer loans by $34.8 million mainly related to the portfolio acquired from Reliable and the sustained growth of ~~a higher interest rate environment~~the auto loan business in ~~2017;~~P.R.

Partially offset by:

~~Lower income from mortgage loans~~

higher cost of public and private deposits by ~~$2.6~~$15.1 million ~~due to lower~~driven by the increase in average balances and ~~lower yields impacted by loan delinquencies as a result~~higher cost of ~~the business disruption from Hurricanes Irma and Maria;~~

deposits.

~~Lower income from the WB loans portfolio by $4.9 million due mainly to the normal portfoliorun-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,~~2018 was 4.35% compared to ~~4.49%~~4.28% for the same period in ~~2016.~~previous year. The increase in net margins is driven by earning assets mix due to the deployment of excess liquidity to acquire the Reliable portfolio and the purchase of investment securities;

~~Provision~~

The total provision expense for the second quarter of 2018 was $51.9 million, compared $118.2 million for the same quarter of the previous year. The decrease is due mainly to the incremental provision of $69.9 million recorded in the third quarter of 2017 ~~was $118.2 million, an increase of $81.1 million compared to the same period~~based on management’s estimate 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~~the hurricanes in the ~~mortgage and consumer~~ loan portfolios.

Highernon-interest income by ~~$27.7~~$47.6 million ~~mainly~~ due to:

~~Favorable variance in FDIC loss share expense of $57.8~~

Higher other service fees by $10.4 million due to higher credit card fees by $4.8 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 thetrue-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~~higher interchange income resulting from ~~lower transaction~~higher transactional volumes and higher other fees by $4.1 million in part due to ~~the business disruption in the regions impacted by the hurricanes and lower debit card and credit card~~retail auto loan servicing 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;~~received from Wells Fargo;

~~Lower~~

Higher income from mortgage banking activities by ~~$10.1~~$6.1 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~~

lower reserves for loans previously sold with credit recourse by $3.4 million;

favorable variance on ~~sale~~the FDIC loss share (expense) income of ~~loans~~$3.9 million, after the termination of the FDIC Shared-Loss Agreements in May 2018; and

higher other income by $24.7 million mainly resulting from the insurance recoveries of $9.5 million related to the hurricane, modification fees received for the successful completion of loss mitigation alternatives related to hurricane relief measures of $8.9 million and $2.7 million in other income related to the Reliable operations mostly associated to recoveries of previously charged-off loans.

Higher operating expenses by $39.9 million due to:

higher personnel costs by $12.0 million, including $3.9 million related to the Reliable acquisition, due to higher salaries of $9.0 million ~~mainly due~~as result of higher headcount and salary increases; and higher commissions, incentives and other bonuses of $3.0 million, including annual incentives which are tied to the ~~sale of a nonaccrual public sector credit during the third quarter of 2016.~~Corporation’s improved performance;

~~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~~higher professional services expenses by ~~$8.7~~$11.4 million, ~~mainly from lower legal~~due to programming, processing and other ~~costs associated with the FDIC arbitration proceedings during the third quarter of 2016;~~technology expenses, advisory services and legal fees;

~~A goodwill impairment charge~~

a write-down of ~~$3.8~~$19.6 million, atrelated to a capitalized software cost of a technology project discontinued by the ~~securities subsidiary, recorded as part of the Corporation’s annual goodwill impairment analysis during 2016;~~Corporation.

Partially offset by:

~~Higher~~

lower occupancy ~~expenses~~expense 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~~$3.2 million due mainly to ~~$3.9~~hurricane related expenses incurred in 2017;

lower OREO expenses of $4.7 million indue to lower write-downs on valuation of ~~premises and equipment~~mortgage properties impacted by lower foreclosure activity during 2018 as a result of foreclosure moratorium related to ~~Hurricane Maria~~hurricane relief efforts; 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~~

Higher income tax expense ~~of $14.5~~by $48.1 million ~~for the same quarter of 2016, reflecting the estimated losses associated with the hurricanes and the benefit associated with exempt~~mainly related to higher taxable income.

Net income for the nine months ended September 30, ~~2017~~2018 amounted to $514.1 million, compared to $236.0 million for the same period of the previous year. Excluding the $158.5 million combined positive impact of the Termination Agreement and the Tax Closing Agreement, discussed in Notes 10 and 32, the net income for the BPPR segment for the nine months ended September 30, 2018 was of $355.6 million, an increase of $119.6 million, when 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~~$122.5 million, ~~mostly~~ due ~~to:~~

~~Higher income from~~mainly to higher volume of money market and investment securities, ~~by $46.3 million due to higher liquidity~~ from higher ~~volume in deposits balances;~~balance of funds available to invest and

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

~~Partially offset by:~~

~~A decrease of $15.1 million~~ the increase in interest rates, and higher income from commercial and consumer loans ~~driven by a decline of $23.5 million in income from~~mainly related to the ~~WB loans portfolio due mainly to lower average balances as part of the normal portfoliorun-off~~ ~~and loan resolutions and lower income from mortgage loans by $3.1 million due to lower originations volume,~~Reliable Transaction, partially offset by higher ~~income from commercial loans by $11.5 million due~~cost of deposits, as mentioned above;

Net interest margin was 4.19% compared to 4.37% for the same period of the previous year. The decrease in net interest margin is related to a higher ~~yields;~~proportion of money market and

investment securities to earning assets.

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

~~Higher~~Lower provision for loan losses by ~~$81.7~~$43.9 million due mainly to the incremental provision related to the hurricanes recorded in 2017, discussed above, partially offset by higher provisions on purchased credit impaired loans;

Highernon-interest income of $55.1 million, excluding FDIC loss-share income (expense), due to:

higher other service fees by $18.4 million mainly from credit card activity;

higher mortgage banking activities by $6.2 million mainly due to lower fair value adjustment on mortgage servicing rights;

the other-than-temporary impairment of $8.3 million recorded in 2017 related to P.R. COFINA bonds;

lower indemnity reserves by $4.8 million mainly for loans previously sold with credit recourse; and

higher other operating income by $24.5 million, including the above-mentioned insurance recoveries of $9.5 million and modification fees received for loss mitigation efforts of $12.7 million;

Partially offset by

lower service charges on deposit accounts by $8.1 million, due to lower fees on transactional cash management services due to higher credits for compensating balances.

Higher operating expenses by $66.7 million due to higher personnel costs by $16.0 million due to higher salaries and incentives; higher equipment expense by $4.3 million due to higher depreciation expense on daily rental auto units; higher professional service expenses by $40.8 million due to higher legal expenses and advisory services; and a write-down of $19.6 million related to capitalized software cost for abandoned project ; partially offset by lower OREO expenses by $20.7 million due to lower write-downs on mortgage properties related to lower inflows and a $7.6 million write-down on capitalized software costs recorded in 2017; and

A provision for income tax of ~~$69.9~~$105.0 million, excluding the net tax benefit of $63.9 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,~~Termination Agreement and ~~higher consumer net charge-offs.~~

~~Highernon-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~~Tax Closing Agreement mentioned above recorded in the second quarter of ~~2017,~~2018, an increase of $48.0 million 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~~previous year due to higher ~~utilities expense and higher maintenance expense;~~taxable income.

~~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

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~~U.S.

For the quarter ended September 30, ~~2017,~~2018, the reportable segment of ~~Banco~~ Popular ~~North America~~U.S. reported a net income of $22.1 million, compared with 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~~$4.7 million ~~due to:~~

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

~~Higher~~ income from commercial and construction loans by ~~$6.8~~$11.8 million driven by loan portfolio ~~growth;~~

~~Partially~~growth and higher yields, partially offset ~~by:~~

~~Higher deposits~~by higher interest expense ~~by $3.1 million due to higher volumes and costs, principally in money market and time~~on deposits to fund loan ~~growth.~~growth by $5.7 million.

~~Net interest margin was 3.50% for~~For the third quarter of ~~2017,~~2018, the net interest margin for the Popular U.S. segment was 3.50%, flat when compared ~~to 3.61% for~~with the same period ~~of the previous year.~~in 2017;

~~Higher~~

Lower provision for loan losses by ~~$36.2~~$40.0 million, ~~when compared~~mostly related to ~~the same quarter of the previous year, driven by higher~~lower impairments on the taxi medallion loan ~~portfolio.~~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~~Higher operating expenses by ~~$5.0~~$2.4 million ~~compared~~mainly due to ~~the third quarter in 2016, mainly driven by:~~

~~Lower professional services~~higher personnel costs by ~~$1.7~~$3.8 million ~~driven by lower technology support service fees;~~

~~Lower~~due to higher salaries and incentives and higher OREO expenses by ~~$1.2~~$1.0 million, partially offset by lower business promotion by $1.5 million due ~~mainly~~ to ~~an insurance recovery;~~lower advertising, and

~~Lower~~ lower other operating expenses by ~~$2.5~~$2.1 million, ~~due~~mainly related to ~~provisions for~~ legal ~~settlements recorded in the third quarter of 2016.~~contingency reserves; and

Income tax ~~benefit~~unfavorable variance of ~~$4.1~~$14.6 million ~~reflecting thepre-tax~~ ~~loss for the quarter, compared to an income tax expense of $6.0 million for the same quarter of 2016.~~primarily driven by higher taxable income.

Net income for the nine months ended September 30, ~~2017~~2018 amounted to ~~$18.8~~$52.9 million, compared to ~~$33.4~~$18.8 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~~

Higher 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~~$18.4 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 due to portfolio growth and the increase in interest rates, partially offset by ~~lower volumes~~higher costs of ~~mortgage and consumer loans;~~deposits;

~~Partially offset by:~~

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

~~Provision for loan losses was $60.9 million, an increase of $49.2 million~~margin remained flat at 3.53%, 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~~3.52% for the same period of the previous year.

Lower provision for loan losses by $30.1 million mainly related to the taxi medallion portfolio;

~~Operating~~

Higher 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~~$11.6 million due mainly to ~~lower technology support service fees;~~higher personnel costs by $3.7 million, higher professional services by $2.0 million mainly due to higher regulatory related advisory services related and

~~Lower~~ higher other operating expenses by ~~$5.2~~$4.4 million mainly related to losses on disposition of assets due to rebranding costs and higher write-downs of taxi medallion repossessed property; and

Higher provision for income tax by $2.6 million due to ~~provisions for legal settlements recorded in 2016.~~

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

FINANCIAL CONDITION ANALYSIS

Assets

The Corporation’s total assets were ~~$42.6~~$47.9 billion at September 30, ~~2017,~~2018, compared to ~~$38.7~~$44.3 billion at December 31, ~~2016.~~2017. Refer to the Consolidated Statements of Financial Condition included in this ~~report.~~report for additional information.

Money market investments, trading and investment securities

Money market investments totaled ~~$5.5~~$4.6 billion at September 30, ~~2017,~~2018, compared to ~~$2.9~~$5.3 billion at December 31, ~~2016.~~2017. The ~~increase~~decrease was mainly at BPPR due to ~~higher liquidity driven by an increase~~the cash consideration of $1.8 billion paid in ~~deposits.~~connection with the Reliable Transaction and purchases of U.S. Treasury securities.

Trading account debt securities amounted to ~~$46~~$38 million at September 30, ~~2017,~~2018, compared to ~~$60~~$34 million at December 31, ~~2016.~~2017. 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~~Debt securitiesavailable-for-sale ~~andheld-to-maturity~~amounted to ~~$9.2~~$13.0 billion at September 30, ~~2017,~~2018,compared ~~with $8.3~~to $10.2 billion at December 31, ~~2016.~~2017. The increase of ~~$0.9~~$2.8 billion was mainly at BPPR due to purchases of U.S. Treasury securities, partially offset bypay-downs of mortgage-backed securities, U.S. agencies and ~~mortgage-backed agency pools driven by an increase in funds available~~collateralized mortgage obligations. Refer to ~~invest from increased liquidity, as discussed above.~~

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

~~Table 6—Breakdown of Investment SecuritiesAvailable-for-Sale~~ ~~andHeld-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 75 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~~Also, refer to Note 8 for detailed information about the Corporation’s loan portfolio composition and loan purchases and sales.

Loansheld-in-portfolio increased by $1.7 billion to $ 26.5 billion at September 30, 2018 due to $1.8 billion in retail auto and commercial loans recognized as part of the Reliable Transaction and growth in commercial loans at PB by $0.4 billion, partially offset by a reduction of $0.6 billion in mortgage loans rebooked at BPPR which are subject to the GNMA repurchase option.

The loansheld-for-sale portfolio decreased by $81 million from December 31, 2017 due to a higher volume of securitization activity of mortgage loansheld-for-sale at BPPR.

Table 7—5—Loans Ending Balances


(In thousands)	September 30, 2017		December 31, 2016		Variance			September 30, 2018		December 31, 2017		Variance
Loans not covered under FDIC loss sharing agreements:
Commercial	$	11,227,095	$	10,798,507	$	428,588		$	11,993,707	$	11,488,861	$	504,846
Construction		823,325		776,300		47,025			943,365		880,029		63,336
Legacy^[1]		37,508		45,293		(7,785	)		27,566		32,980		(5,414	)
Lease financing		754,881		702,893		51,988			903,540		809,990		93,550
Mortgage		6,529,235		6,696,361		(167,126	)		7,304,170		7,270,407		33,763
Consumer		3,801,406		3,754,393		47,013			5,339,820		3,810,527		1,529,293

Totalnon-covered loansheld-in-portfolio		23,173,450		22,773,747		399,703			26,512,168		24,292,794		2,219,374

Loans covered under FDIC loss sharing agreements:
Mortgage		510,211		556,570		(46,359	)		—		502,930		(502,930	)
Consumer		14,643		16,308		(1,665	)		—		14,344		(14,344	)

Total covered loansheld-in-portfolio		524,854		572,878		(48,024	)		—		517,274		(517,274	)

Total loansheld-in-portfolio		23,698,304		23,346,625		351,679			26,512,168		24,810,068		1,702,100

Loansheld-for-sale:
Mortgage		68,864		88,821		(19,957	)		51,742		132,395		(80,653	)

Total loansheld-for-sale		68,864		88,821		(19,957	)		51,742		132,395		(80,653	)

Total loans	$	23,767,168	$	23,435,446	$	331,722		$	26,563,910	$	24,942,463	$	1,621,447

[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~~Popular U.S. segment.

~~Non-covered~~ ~~loans~~

~~Thenon-covered~~ ~~loansheld-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 loansheld-for-sale~~ ~~portfolio decreased by $20 million from December 31, 2016, mainly at BPPR due to lower originations of mortgage loansheld-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 portfoliorun-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 ASC310-30.~~ 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.

~~Table 8—Activity in the Carrying Amount of Westernbank Loans Accounted for Under ASC310-30~~

   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 ASC310-30~~ ~~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 ASC310-30~~

   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~~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]~~

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~~$45 million was eliminated as a result of ~~increases in expected reimbursements due to higher loss estimates (accretion). Table 11 presents~~ the ~~activity associated~~Termination Agreement with the ~~outstanding balance of~~FDIC. Refer to Note 10 to the ~~FDIC loss share asset accretion (amortization)~~Consolidated Financial Statements for additional information on the ~~periods presented.~~Termination Agreement.

~~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 tonon-interest~~ ~~income, while accretion results in a positive impact tonon-interest~~ ~~income, particularly FDIC loss-share expense.~~

Other real estate owned

Other real estate owned (“OREO”) represents real estate property received in satisfaction of debt. At September 30, ~~2017,~~2018, OREO decreased to ~~$198~~$134 million from ~~$213~~$189 million at December 31, ~~2016~~2017 mainly due to a decrease in residential properties at ~~BPPR and the write-down of $2.7 million for damages associated with Hurricane Maria.~~BPPR. Refer to Note 13 to the Consolidated Financial Statements for the activity in other real estate owned. ~~The amounts included~~

Accrued income receivable

Accrued income receivable decreased by $50 million principally in consumer and mortgage loans due to collections and capitalizations of interest deferred as ~~“covered other real estate” are subject to the FDIC loss sharing agreements.~~part of hurricane relief loan modification programs.

Other assets

Other assets decreased by $90 million mainly due to a decline in guaranteed mortgage loan claims of $146 million as a result of the foreclosure moratorium onFHA-insured mortgages and a decrease in prepaid taxes of $134 million, partially offset by an increase in net deferred tax assets of $109 million mostly associated to the income tax benefit of $108.9 million recorded during the second quarter related to the Tax Closing Agreement entered into in connection with the FDIC Transaction described in Note 32 and an increase in trades receivable by $50 million. Refer to Note 14 for a breakdown of the principal categories that comprise the caption of “Other Assets” in the ~~consolidated statements~~Consolidated Statements of ~~financial condition~~Financial Condition at September 30, ~~2017~~2018 and December 31, ~~2016. Other assets~~2017.

Goodwill

Goodwill increased by ~~$0.2 billion from December 31, 2016~~$60 million due to ~~September 30, 2017, mainly driven by an increase in accounts receivable related to maturities~~the goodwill recognized during the third quarter of ~~U.S. Treasury securities pending to be settled.~~2018 as a result of the Reliable Transaction.

Liabilities

The Corporation’s total liabilities were ~~$37.3~~$42.7 billion at September 30, ~~2017~~2018, compared to ~~$33.5~~$39.2 billion at December 31, ~~2016. Refer to the Corporation’s Consolidated Statements of Financial Condition included in this Form10-Q.~~2017.

Deposits and Borrowings

The composition of the Corporation’s financing sources to total assets at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 is included in Table ~~12.~~6.

Table ~~12—~~6—Financing to Total Assets


	September 30,		December 31,		% increase (decrease)			% of total assets						September 30,		December 31,		% increase (decrease)			% of total assets
(In millions)	2017		2016		from 2016 to 2017			2017			2016			2018		2017		from 2017 to 2018			2018			2017
Non-interest bearing deposits	$	7,450	$	6,980		6.7	%		17.4	%		18.0	%	$	8,804	$	8,491		3.7	%		18.4	%		19.2	%
Interest-bearing core deposits		22,172		18,776		18.1			52.0			48.6			26,273		22,394		17.3			54.8			50.6
Other interest-bearing deposits		4,627		4,740		(2.4	)		10.9			12.3			4,572		4,569		0.1			9.5			10.3
Repurchase agreements		374		480		(22.1	)		0.9			1.2			300		391		(23.3	)		0.6			0.9
Other short-term borrowings		241		1		N.M.			0.6			—			1		96		N.M.			—			0.2
Notes payable		1,532		1,575		(2.7	)		3.6			4.1			1,745		1,536		13.6			3.7			3.5
Other liabilities		920		912		0.9			2.2			2.4			980		1,696		(42.2	)		2.1			3.8
Stockholders’ equity		5,285		5,198		1.7			12.4			13.4			5,244		5,104		2.7			10.9			11.5

N.M.—Not meaningful.

Deposits

The Corporation’s deposits totaled ~~$34.2~~$39.6 billion at September 30, ~~2017~~2018, compared to ~~$30.5~~$35.5 billion at December 31, ~~2016.~~2017. The deposits increase of ~~$3.8~~$4.1 billion was ~~mainly due~~mostly associated to an increase of $2.9 billion in ~~commercial savings and NOW deposits and demand deposits from the~~ Puerto Rico public sector deposits, and an increase of $0.7 billion in retail and commercial savings deposits at both Popular Bank and BPPR. Refer to Table 137 for a breakdown of the Corporation’s deposits at September 30, ~~2017~~2018 and December 31, ~~2016.~~2017.

Table ~~13—~~7—Deposits Ending Balances


(In thousands)	September 30, 2017		December 31, 2016		Variance			September 30, 2018		December 31, 2017		Variance
Demand deposits [1]	$	11,576,048	$	9,053,897	$	2,522,151		$	16,120,156	$	12,460,081	$	3,660,075
Savings, NOW and money market deposits(non-brokered)		14,638,191		13,327,298		1,310,893			15,714,275		15,054,242		660,033
Savings, NOW and money market deposits (brokered)		422,174		405,487		16,687			402,116		424,307		(22,191	)
Time deposits(non-brokered)		7,446,922		7,486,717		(39,795	)		7,280,854		7,411,140		(130,286	)
Time deposits (brokered CDs)		165,601		222,825		(57,224	)		131,426		103,738		27,688

Total deposits	$	34,248,936	$	30,496,224	$	3,752,712		$	39,648,827	$	35,453,508	$	4,195,319

[1]	Includes interest andnon-interest bearing demand deposits.

Borrowings

The Corporation’s borrowings ~~remained flat at $2.1~~amounted to $2.0 billion at September 30, ~~2017 and~~2018, an increase of $22.5 million from December 31, ~~2016.~~2017, mostly associated to the issuance of $300 million in senior notes, partially offset by the repayment of $55 million in junior subordinated debentures in connection with the redemption of the capital securities issued by BanPonce Trust I during the third quarter of 2018. This increase was offset by a reduction in assets sold under agreements to repurchase and other short-term borrowings. 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.

Other liabilities

The Corporation’s other liabilities amounted to $1.0 billion at September 30, 2018, a decrease of $0.7 billion when compared to December 31, 2017, due to a decrease in the liability for rebooked GNMA loans sold with an option to repurchase of $0.6 billion and the elimination of thetrue-up payment obligation with the FDIC of $0.2 billion as a result of the Termination Agreement with the FDIC.

Stockholders’ Equity

Stockholders’ equity totaled ~~$5.3~~$5.2 billion at September 30, ~~2017, compared with $5.2~~2018, an increase of $140 million from $5.1 billion at December 31, ~~2016. The increase was related~~2017, principally due to ~~the Corporation’s~~ net income of ~~$209.8~~$511.8 million for the nine months ended September 30, ~~2017~~2018 and a ~~decrease in accumulated other comprehensive loss by $29.0~~cumulative effect of accounting change of $1.9 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~~recognition of $102.0 million in treasury stock and $23.0 million as a reduction to capital surplus as part of the $125 million accelerated share repurchase transaction, higher unrealized losses on debt securitiesavailable-for-sale by $188.1 million, declared dividends of ~~$ 76.6~~$76.2 million on common stock ($0.25 per share) and ~~$ 2.8~~$2.8 million in dividends on preferred ~~stock and the impact of the common stock repurchase plan of $75 million completed during the first quarter of 2017.~~stock. Refer to the ~~consolidated statements~~Consolidated Statements of ~~financial condition, comprehensive income~~Financial Condition, Comprehensive Income and of ~~changes~~Changes in ~~stockholders’ equity~~Stockholders’ Equity for information on the composition of stockholders’ equity.

REGULATORY CAPITAL

The Corporation, BPPR and ~~BPNA~~PB 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~~PB (“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,~~2018, the Corporation’s, BPPR’s and ~~BPNA’s~~PB’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,~~8, which include common equity tier 1, Tier 1 capital, total capital and leverage capital as of September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, are calculated based on the Basel III capital rules related to the measurement of capital, risk-weighted assets and average assets.

Table ~~14 —~~ 8—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 toopt-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


(Dollars in thousands)	September 30, 2018			December 31, 2017
Common equity tier 1 capital:
Common stockholders equity—GAAP basis	$	5,194,189		$	5,053,745
AOCI related adjustments due toopt-out election		487,187			307,618
Goodwill, net of associated deferred tax liability (DTL)		(612,722	)		(561,604	)
Intangible assets, net of associated DTLs		(29,186	)		(28,538	)
Deferred tax assets and other deductions		(586,808	)		(544,702	)

Common equity tier 1 capital	$	4,452,660		$	4,226,519

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	$	4,452,660		$	4,226,519

Tier 2 capital:
Trust preferred securities subject to phase in as tier 2		373,737			426,602
Other inclusions (deductions), net		351,915			332,144

Tier 2 capital	$	725,652		$	758,746

Total risk-based capital	$	5,178,312		$	4,985,265

Minimum total capital requirement to be well capitalized	$	2,750,878		$	2,593,570

Excess total capital over minimum well capitalized	$	2,427,434		$	2,391,695

Total risk-weighted assets	$	27,508,780		$	25,935,696

Total assets for leverage ratio	$	46,364,012		$	42,185,805

Risk-based capital ratios:
Common equity tier 1 capital		16.19	%		16.30	%
Tier 1 capital		16.19			16.30
Total capital		18.82			19.22
Tier 1 leverage		9.60			10.02

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,~~2018, the Corporation, BPPR and ~~BPNA~~PB continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.

The ~~increase~~decrease in the common equity tier I capital ratio, tier I capital ratio, ~~and~~ total capital ratio, and leverage ratio as of September 30, ~~2017~~2018 as compared to December 31, ~~2016~~2017 was mainly attributed to higher risk weighted assets driven by the increase in auto loans from the Reliable acquisition and the accelerated share repurchase transaction, partially offset by 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.earnings.

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, arenon-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.

Table 159 provides a reconciliation of total stockholders’ equity to tangible common equity and total assets to tangible assets as of September 30, ~~2017,~~2018, and December 31, ~~2016.~~2017.

Table ~~15 —~~ 9—Reconciliation of Tangible Common Equity and Tangible Assets


(In thousands, except share or per share information)	September 30, 2017			December 31, 2016			September 30, 2018			December 31, 2017
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		$	5,244,349		$	5,103,905
Less: Preferred stock		(50,160	)		(50,160	)		(50,160	)		(50,160	)
Less: Goodwill		(627,294	)		(627,294	)		(687,536	)		(627,294	)
Less: Other intangibles		(38,016	)		(45,050	)		(29,186	)		(35,672	)

Total tangible common equity	$	4,569,961		$	4,475,453		$	4,477,467		$	4,390,779

Total assets	$	42,601,267		$	38,661,609		$	47,919,428		$	44,277,337
Less: Goodwill		(627,294	)		(627,294	)		(687,536	)		(627,294	)
Less: Other intangibles		(38,016	)		(45,050	)		(29,186	)		(35,672	)

Total tangible assets	$	41,935,957		$	37,989,265		$	47,202,706		$	43,614,371

Tangible common equity to tangible assets		10.90	%		11.78	%		9.49	%		10.07	%
Common shares outstanding at end of period		102,026,417			103,790,932			100,336,341			102,068,981
Tangible book value per common share	$	44.79		$	43.12		$	44.62		$	43.02

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 withoff-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 foron-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 ofoff-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,~~2018, 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~~$355 million at September 30, ~~2017~~2018 of which approximately ~~30%~~27% mature in ~~2017, 33% in~~ 2018, ~~21%~~37% in 2019, 17% in 2020 and ~~16%~~19% thereafter.

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 1610 presents the contractual amounts related to the Corporation’soff-balance sheet lending and other activities at September 30, ~~2017.~~2018.

Table ~~16 —~~10—Off-Balance Sheet Lending and Other Activities


	Amount of commitment—Expiration Period										Amount of commitment—Expiration Period
(In thousands)	2017		Years 2018 - 2019		Years 2020 - 2021		Years 2022 - thereafter		Total		2018		Years 2019 - 2020		Years 2021 - 2022		Years 2023 - thereafter		Total
Commitments to extend credit	$	5,181,205	$	1,870,710	$	126,462	$	107,177	$	7,285,554	$	5,731,634	$	1,506,846	$	153,033	$	98,999	$	7,490,512
Commercial letters of credit		2,281		7		—		—		2,288		1,183		1,378		—		—		2,561
Standby letters of credit		11,828		19,459		—		—		31,287		7,670		22,366		—		—		30,036
Commitments to originate or fund mortgage loans		5,468		4,238		—		—		9,706		20,835		2,889		—		—		23,724

Total	$	5,200,782	$	1,894,414	$	126,462	$	107,177	$	7,328,835	$	5,761,322	$	1,533,479	$	153,033	$	98,999	$	7,546,833

At September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Corporation maintained a reserve of approximately $9$8 million and $10 million, respectively, 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)

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 ornon-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.

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.

Most of the assets subject to market valuation risk are securities in the ~~investment~~debt securities portfolio classified asavailable-for-sale. Refer to Notes 6 and 7 for further information on the ~~investment~~debt securities available for sale and held to maturity portfolio. ~~Investment~~Debt securities classified asavailable-for-sale amounted to ~~$9.1~~$13.0 billion as of September 30, ~~2017.~~2018. Other assets subject to market risk include loansheld-for-sale, which amounted to ~~$69~~$52 million, mortgage servicing rights (“MSRs”) which amounted to ~~$180~~$163 million and securities classified as “trading”, which amounted to ~~$46~~$38 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.~~2018.

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 Net Interest Income (“NII“) 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~~NII simulation modeling is prepared for a five-year period, which in conjunction with the EVE analysis, provides ~~Management~~management a better view of ~~long term~~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~~NII 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,~~quarter include flat rates, ~~yield curve twists,~~implied forwards, parallel and ~~parallel~~non-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~~simulation analyses 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~~NII simulations under interest rate scenarios in which the yield curve is assumed to rise and decline by the same ~~amount.~~amount (parallel shifts). 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~~2018 and December 31, ~~2016,~~2017, assuming a static balance sheet and parallel changes over flat spot rates over aone-year time horizon:

Table ~~17—~~11—Net Interest Income Sensitivity (One Year Projection)


	September 30, 2017						December 31, 2016						September 30, 2018						December 31, 2017
(Dollars in thousands)	Amount Change			Percent Change			Amount Change			Percent Change			Amount Change			Percent Change			Amount Change			Percent Change
Change in interest rate											—
+400 basis points	$	400,335			25.36	%	$	236,945			16.52	%	$	174,738			9.42	%	$	227,970			14.26	%
+200 basis points		204,155			12.93			121,181			8.45			88,492			4.77			114,943			7.19
-200 basis points		(176,049	)		(11.15	)		(35,314	)		(2.46	)		(195,892	)		(10.56	)		(176,095	)		(11.01	)

~~At September 30,~~The results of the NII simulations at December 31, 2017 in the table above have been adjusted from those reported in the Corporation’s Form10-K to align the assumptions used with respect to interest rates onnon-maturity public funds deposits to contractual terms of their related depository agreements. Previously, in the Corporation’s Form10-K the assumptions with respect to such deposits had been based on the historical behavior of commercial and public deposits in the aggregate and did not consider the fact that contracts governing suchnon-maturity public deposits contained provisions that require BPPR, in certain circumstances, to make adjustments to the interest rate payable on such deposits based upon changes in market interest rates. Although as a result of such adjustment the magnitude of the Corporation’s sensitivity to increases in interest rates became lower at December 31, 2017, the ~~simulations showed that the~~ Corporation ~~maintains~~remained in an ~~asset-sensitive position. This is primarily~~asset sensitive position due mainly to, among other reasons: (i) a high level of money market investments that are highly sensitive to changes in interest rates, (ii) approximately ~~31%~~34% of the Corporation’s loan portfolio ~~being~~was comprised of Prime and Libor-based loans at December 31, 2017 and (iii) low elasticity of the Corporation’s core deposit base.

At September 30, 2018, the simulations showed that the Corporation maintains an asset-sensitive position. The ~~increase~~overall decrease in sensitivity from December 31, ~~2016~~2017 in the -200, +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~~a larger net interest income orbase due to increases in consumer loans, commercial loans and investment securities. These effects were partially offset by increases in interest bearing non-maturity deposits, including more elastic public sector deposits, which are more sensitive to increases in 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.rates.

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~~BPPR 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,~~2018, the Corporation held trading securities with a fair value of ~~$46~~$38 million, representing approximately 0.1% of the Corporation’s total assets, compared with ~~$60~~$34 million and ~~0.2%~~0.1%, respectively, at December 31, ~~2016.~~2017. As shown in Table ~~18,~~12, the trading portfolio consists principally of mortgage-backed securities ~~relating to BPPR’s mortgage activities described above,~~ which at September 30, ~~2017~~2018 were investment grade securities. As of September 30, ~~2017,~~2018, the trading portfolio also included ~~$1.3~~$5 million in U.S. Treasury securities and $0.1 million in Puerto Rico government obligations ($0.3 million and ~~shares ofclosed-end~~ ~~funds that invest primarily in Puerto Rico government obligations ($2.6~~$0.2 million as of December 31, ~~2016)~~2017, respectively). 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~~loss of ~~$0.3 million~~$122 thousand for the quarter ended September 30, ~~2017, compared to~~2018 and a ~~loss~~net trading account gain of ~~$0.1 million~~$253 thousand for the quarter ended September 30, ~~2016. Table 18 provides the composition of the trading portfolio at September 30, 2017 and December 31, 2016.~~2017.

Table ~~18—~~12—Trading Portfolio


	September 30, 2017					December 31, 2016					September 30, 2018					December 31, 2017
(Dollars in thousands)	Amount		Weighted Average Yield [1]			Amount		Weighted Average Yield [1]			Amount		Weighted Average Yield^[1]			Amount		Weighted Average Yield^[1]
Mortgage-backed securities	$	32,752		5.23	%	$	42,746		4.85	%	$	28,237		5.37	%	$	29,280		5.40	%
U.S. Treasury securities												5,183		1.23			261		1.31
Collateralized mortgage obligations		848		5.46			1,321		5.27			692		5.64			529		5.74
Puerto Rico government obligations		172		0.29			1,164		5.51			143		0.26			159		0.28
Interest-only strips		549		12.48			602		12.35			498		11.95			529		12.58
Other[2]		11,630		2.61			13,972		3.03
Other^[2]												2,978		3.19			3,168		2.43

Total	$	45,951		4.64	%	$	59,805		4.52	%	$	37,731		4.70	%	$	33,926		5.18	%

[1]	Not on a taxable equivalent basis.

[2]	Includes trading derivatives ~~for the period ended~~at December 31, ~~2016.~~2017.

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 the5-day netvalue-at-risk (“VAR”), with a confidence level of 99%. The VAR measures the maximum estimated loss that may occur over a5-day holding period, given a 99% probability.

The Corporation’s trading portfolio had a5-day VAR of approximately ~~$0.3~~$0.2 million for the last week in September ~~2017.~~2018. 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,~~debt securities, debt securitiesavailable-for-sale, certain equity 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 loansheld-for-sale, impaired loansheld-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~~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.

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 wasnon-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 Form10-K~~ ~~for a~~A description of the Corporation’s valuation methodologies used for the assets and liabilities measured at fair ~~value.~~value is included in Note 31 to the Consolidated Financial Statements in the 2017 Form10-K. Also, refer to the Critical Accounting Policies / Estimates in the ~~2016~~2017 Form10-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 andday-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.

Liquidity is managed by the Corporation at the level of the holding companies that own the banking andnon-banking subsidiaries. It is also managed at the level of the banking andnon-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%~~83% of the Corporation’s total assets at September 30, ~~2017~~2018 and ~~79%~~80% at December 31, ~~2016.~~2017. The ratio of total ending loans to deposits was ~~69%~~67% at September 30, ~~2017,~~2018, compared to ~~77%~~70% at December 31, ~~2016.~~2017. In addition to traditional deposits, the Corporation maintains borrowing ~~arrangements. At~~arrangements, which amounted to approximately $2.0 billion 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.2018. 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.

As previously mentioned, during the third quarter of 2018, the Corporation executed several actions corresponding to its capital and ~~revenues~~liquidity strategic plans. These include the redemption by Popular North America of all outstanding 8.327% Capital Securities, Series A issued by BanPonce Trust I, which had an aggregate liquidation amount of $52.9 million; entering into an accelerated share repurchase plan of $125 million; and the issuance of $300 million of 6.125% Senior Notes due 2023, the proceeds of which, along withcash-on-hand, were used to redeem $450 million of 7% Senior Notes due 2019, on October 15, 2018. Refer to additional details of these transactions 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~~Overview section of ~~customers who take advantage of such plans, will also impact our liquidity not only due~~this MD&A and to ~~principal~~Notes 17, Borrowings, 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~~19, Stockholder’s Equity, 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.accompanying financial statements.

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 provides consolidating statements of ~~Cash Flows in the accompanying Consolidated Financial Statements provide information on~~condition, of operations and of cash flows which separately presents the Corporation’s ~~cash inflows~~bank holding companies and ~~outflows.~~its subsidiaries as part of the “All other subsidiaries and eliminations” column.

Banking Subsidiaries

Primary sources of funding for the Corporation’s banking subsidiaries (BPPR and ~~BPNA)~~PB), 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.

Refer to Note 17 to the Consolidated Financial Statements, for additional information of the Corporation’s borrowing facilities available through its banking subsidiaries.

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.

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 ason-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 137 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 allnon-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 andlow-cost funds. Core deposits totaled $ ~~29.6~~35.1 billion, or ~~86%~~88% of total deposits, at September 30, ~~2017,~~2018, compared with ~~$25.8~~$30.9 billion, or ~~84%~~87% of total deposits, at December 31, ~~2016.~~2017. Core deposits financed ~~77%~~79% of the Corporation’s earning assets at September 30, ~~2017,~~2018, compared with 76% at December 31, ~~2016.~~2017.

~~Certificates~~

The distribution by maturity of ~~deposit~~certificates of deposits 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~~2018 is presented in the table that follows:

Table ~~19 —~~ 13—Distribution by Maturity of Certificate of Deposits of $100,000 and Over


(In thousands)
3 months or less	$	1,283,156	$	1,269,624
3 to 6 months		312,315		397,705
6 to 12 months		837,864		680,958
Over 12 months		1,629,589		1,717,789

Total	$	4,062,924	$	4,066,076

~~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~~0.5 billion in brokered deposits at September 30, ~~2017~~2018 and December 31, ~~2016.~~2017, which financed approximately 1%, of its total assets. 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.

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 loansheld-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,~~2018, 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 andoff-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”),~~PNA, include cash on hand, investment securities, dividends received from banking andnon-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~~includes 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, anon-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 theirnon-banking subsidiaries, however, the cash needs of the Corporation’snon-banking subsidiaries other than to repay indebtedness and interest

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 35to the Consolidated Financial Statements provides a statement of condition, of operations and of cash flows for the two BHC’s. The loansheld-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~~$1.1 billion at September 30, ~~2017,~~2018, compared with ~~$884~~$886 million at December 31, ~~2016.~~2017. The increase is related to the issuance of $300 million in senior notes, partially offset by repayment of $55 million of junior subordinated debentures in connection with the ~~BHC’s obligations represents a potential cash need which is expected to be met with a combination~~redemption of ~~internal liquidity resources stemming mainly from future dividend receipts and new borrowings.~~the capital securities issued by BanPonce Trust I, as mentioned above.

The contractual maturities of the BHC’s notes payable at September 30, ~~2017~~2018 are presented in Table ~~20.~~14.

Table ~~20—~~14—Distribution of BHC’s Notes Payable by Contractual Maturity


Year	(In thousands)		��	(In thousands)
2017	$	—
2018		—		$	—
2019		446,351			448,436
2020		—			—
2021		—			—
2022					—
Later years		439,344			678,592

Total	$	885,695		$	1,127,028

~~As indicated previously,~~On October 15, 2018, the ~~BHC did not issue new registered debt in~~Corporation redeemed the ~~capital markets during the nine months ended September 30, 2017.~~outstanding senior notes due on 2019.

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 thenon-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 thenon-banking subsidiaries include repayment of maturing debt, operational expenses and payment of dividends to the BHCs. The liquidity needs of thenon-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.~~PB.

Dividends

During the nine months ended September 30, 2018, the Corporation declared quarterly dividends on its outstanding common stock of $0.25 per share, for a total of $ 76.2 million. The dividends for the Corporation’s Series A and Series B preferred stock amounted to $ 2.8 million. PIHC received dividends amounting to $396 million from BPPR, $13 million from PNA and $6 million in dividends from itsnon-banking subsidiaries. A portion of these dividends was used by Popular, Inc. for the payments of the cash dividends on its outstanding common stock.

Other Funding Sources and Capital

The ~~investment~~debt securities portfolio provides an additional source of liquidity, which may be realized through either securities sales or repurchase agreements. The Corporation’s ~~investment~~debt 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~~debt securities, amounted to ~~$2.1~~$4.3 billion at September 30, ~~2017~~2018 and ~~$3.7~~$3.2 billion at December 31, ~~2016.~~2017. A substantial portion of these debt 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, andoff-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.

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.~~hurricanes in September 2017. 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 thenon-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~~2018 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~~$61 million at September 30, ~~2017.~~2018. 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.

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~~crisis.

Economic Performance

The Commonwealth’s economy entered a recession in the fourth quarter of fiscal year 2006, and the Commonwealth’s gross national product (“GNP”) has contracted (in real terms) every fiscal year between 2007 and 2017, with the exception of fiscal year 2012. Pursuant to the latest Puerto Rico Planning Board (the “Planning Board”) estimates, published in January 2018, the Commonwealth’s real GNP for fiscal years 2016 and 2017 decreased by 1.3% and 2.4%, respectively. The Planning Board’s GNP forecast for fiscal year 2018, which was ~~recently significantly impacted by two major hurricanes.~~

~~Hurricanes Impact~~

~~During~~released in April 2017 and has not been revised, projects a contraction of 1.5%. This analysis does not account for the ~~month~~impact of hurricanes Irma and María in September 2017, ~~Hurricanes Irma and Maria, two major hurricanes, caused extensive destruction~~which is expected to have a materially adverse effect on the Commonwealth’s GNP in ~~Puerto Rico, disrupting~~fiscal year 2018. Considering 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’sadverse 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~~and the ~~significant recovery operation that is underway~~offsetting effect of certain measures and reforms, proposed 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,~~Oversight Board (as hereinafter defined) as well as ~~their long-term impact on~~of significant amounts of disaster relief funding, the Revised Commonwealth Fiscal Plan (as hereinafter defined) estimates an 8.0% contraction in real GNP in fiscal year 2018. For additional information regarding the economic ~~activity,~~projections of the ~~damages are substantial and have, at least~~Revised Commonwealth Fiscal Plan, see Fiscal Plans,Commonwealth Fiscal Plan, below.

Fiscal Crisis

The Commonwealth is in the ~~short-term, had~~midst of 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~~profound fiscal crisis ~~resulting from~~affecting the central government and many of its instrumentalities, public corporations and municipalities. The fiscal crisis is primarily the result of 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,~~As a result of the crisis, the Commonwealth and ~~several~~certain of its ~~public~~ instrumentalities ~~are currently in the process of restructuring~~have been unable to make debt service payments on their outstanding ~~obligations in proceedings under Titles III~~bonds and ~~VI of~~notes since 2016. The escalating fiscal and economic crisis and the imminent widespread defaults prompted the U.S. Congress to enact the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) ~~enacted~~ in June 2016, bywhich, as further discussed below, established two mechanisms for 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 extraordinaryone-time~~ ~~revenue measures, as well through the deferment~~restructuring 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

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~~Commonwealth, 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 topre-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, instrumentalities and ~~(f) enacting Puerto Rico Emergency Moratorium and Rehabilitation Act (the “Moratorium Act”), pursuant to which the~~municipalities. The Commonwealth and ~~certain~~several 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 ActNo. 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 outlinedcurrently 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~~process of restructuring their debts through such ~~additional measures, the Commonwealth may experience significant cash shortfalls during fiscal year 2018.~~

mechanisms.

~~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~~created a seven-member federally-appointed oversight board (the “Oversight ~~Board), (ii) relief from creditor lawsuits through~~Board”) with ample powers over the ~~enactment of a temporary stay on litigation to enforce rights or remedies related to outstanding liabilities~~fiscal and economic affairs of the Commonwealth, ~~and~~ its public corporations, 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.~~municipalities. Pursuant to PROMESA, the Oversight Board ~~shall~~will 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 and 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~~instrumentalities as “covered entities” under PROMESA. None of the Commonwealth’s municipalities have been designated as covered entities ~~under PROMESA, it has not done so~~ as of the date ~~hereof. The designation~~ of ~~an entity~~this report but may be designated as ~~a covered entity has various implications under PROMESA. First, it means that~~such in the ~~Governor will have~~future. Covered entities are required to submit ~~such entity’s~~their annual budgets and, if the Oversight Board so requests, ~~its~~their fiscal plans, to the Oversight Board for its review and approval. ~~Second, covered territorial instrumentalities may not~~They are also required to seek Oversight Board approval to issue, ~~debt~~guarantee or ~~guarantee, exchange,~~ modify ~~repurchase, redeem, or~~their debts and to enter into ~~similar transactions~~contracts with ~~respect to their debts without the prior approval~~an aggregate value of ~~the Oversight Board.~~$10 million or more. Finally, covered entities ~~could~~are also potentially be eligible to ~~use~~avail themselves of the restructuring ~~procedures~~processes provided by PROMESA. ~~The first,~~One of such restructuring processes, Title VI, is a largelyout-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,~~other one, 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~~Commonwealth Fiscal Plan. The Oversight Board has certified several versions of fiscal plans for the Commonwealth ~~to submit a~~since 2017. The most recent fiscal plan tofor the Commonwealth certified by the Oversight Board is dated as of October 23, 2018 (the “Revised Commonwealth Fiscal Plan”). The Revised Commonwealth Fiscal Plan estimates a 16.1% contraction in real GNP in fiscal year 2018, without accounting for the impact of disaster relief funding or the measures and structural reforms contemplated by the plan. Taking into account such factors, the Revised Commonwealth Fiscal Plan estimates an 8.0% contraction in real GNP in fiscal year 2018. It also projects that ~~among other things, (i) provides~~disaster relief spending will have a short-term stimulative effect on the economy, which, combined with the estimated effects of the proposed fiscal measures and structural reforms, will result in variable GNP growth from fiscal years 2019 through 2022, followed by GNP contraction in fiscal year 2023 as disaster relief funding drops off considerably. The Commonwealth’s population is estimated to steadily decline at an average rate of 1.12% from fiscal years 2019 through 2023, reaching an approximately 1% annual decline in the long-term.

Before accounting for ~~estimates~~the impact of ~~revenues~~the measures and ~~expenditures~~structural reforms contemplated therein, the Revised Commonwealth Fiscal Plan projects apre-contractual debt service surplus in ~~conformance with agreed accounting standards, (ii) ensures~~fiscal years 2018 through 2020. This surplus is not projected to continue after fiscal year 2020, as federal disaster relief funding slows down. The Revised Commonwealth Fiscal Plan projects that, without major Government action, the ~~funding~~Commonwealth would suffer an annual primary deficit starting in fiscal year 2021. After the application 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~~measures and structural reforms contemplated therein, the ~~relative lawful priorities or lawful liens under local law.~~

~~On February 28, 2017, the Rosselló administration submitted its draft~~Revised Commonwealth Fiscal Plan projects apre-contractual debt service surplus of approximately $17 billion from 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,~~years 2018 through 2023. However, 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).

~~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 contractual debt service, ~~as contracted,~~ the ~~Commonwealth’s10-year~~ ~~budget gap would reach approximately $66.9 billion. Further,~~surplus projected for such period drops significantly and annual deficits begin in fiscal year 2027. Moreover, even after

the implementation of the fiscal measures and structural reforms contemplated by the plan and before contractual debt service, the Revised Commonwealth Fiscal Plan projects ~~that, assuming~~an annual deficit starting in fiscal year 2034. Based on such long-term projections, the ~~successful implementation of all measures set forth therein,~~Revised Commonwealth Fiscal Plan concludes that the Commonwealth ~~and the entities covered by the Commonwealth’s fiscal plan will only have $7.8 billion available for the payment~~cannot afford to meet all of ~~debt service during said10-year~~ ~~period (compared to $35 billion of~~its contractual debt ~~service) and thus recognizes the need for debt restructuring by the Commonwealth and the instrumentalities covered by said fiscal plan (including COFINA).~~obligations.

The ~~Commonwealth’s fiscal plan~~Revised Commonwealth Fiscal Plan does not contemplate a restructuring of the debt of ~~Puerto Rico’s~~the Commonwealth’s municipalities. ~~The Commonwealth’s fiscal plan contemplates,~~It does, however, ~~as part of its expense~~contemplate the gradual reduction ~~measures,~~and the ~~gradual~~ultimate elimination of budgetary subsidies provided by the Commonwealth to ~~municipalities. Those subsidies~~municipalities, which constitute a material portion of the operating revenues of certain municipalities. Commonwealth appropriations to municipalities were reduced by $150 million in fiscal year 2018 and by an additional $45 million in 2019 (from approximately $370 million in fiscal year 2017 to approximately $220 million in fiscal year 2018 and approximately $175 in fiscal year 2019). The ~~Commonwealth’s~~Revised Commonwealth Fiscal Plan provides for additional reductions in such appropriations every fiscal ~~plan is publicly available~~year, holding appropriations constant at approximately45-50% of current levels starting in ~~the Oversight Board’s website.~~fiscal year 2022, before ultimately phasing out all subsidies in fiscal year 2024.

Other Fiscal Plans.Pursuant to PROMESA, in 2017, the Oversight Board ~~has~~ also requested and ~~approved~~certified fiscal plans for ~~(i) GDB, (ii) HTA, (iii) PREPA, (iv)~~several public corporations and instrumentalities. However, following the hurricanes, the Oversight Board requested that the government submit new fiscal plans for such entities. The Oversight Board certified revised fiscal plans for said entities in 2018, which conclude that such entities cannot afford to meet all of their contractual obligations.

The certified fiscal plan for the Puerto Rico ~~Aqueduct and Sewer~~Electric Power 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~~(“PREPA”), Puerto Rico’s electric power utility, assumes changes to the treatment of the municipal contribution in lieu of taxes, which could result in increased electricity expenses for municipalities. ~~GDB’s~~

The certified fiscal plan for Government Development Bank for Puerto Rico (“GDB”) contemplates the wind-down of ~~GDB’s operations~~GDB and the distribution of the cash flows of GDB’s loan portfolio among its creditors (including its municipal depositors)~~. Pursuant to~~ through a debt restructuring proceeding under Title VI of PROMESA, which was recently approved by the ~~Restructuring Support Agreement, dated May 15, 2017, entered into by and among GDB and a significant portion~~U.S. District Court for the District of ~~its financial creditors~~Puerto Rico (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%“U.S. District Court”) and ~~coupon rates (ranging from 3.5% to 7.5%). The new bonds would be payable from payments received~~contemplates significant reductions 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.creditor recoveries.

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~~the Puerto Rico Sales Tax Financing Corporation (“COFINA”), the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, the Puerto Rico Highways and Transportation Authority and PREPA.

On October 19, 2018, the Oversight Board filed a plan of adjustment for COFINA (the “COFINA Plan of Adjustment”), as well as a motion to approve a settlement of certain disputes between the Commonwealth and COFINA regarding the ownership of a portion of the sales and use tax pledged to the payment of COFINA’s bonds (the “COFINA Settlement”). The COFINA Plan of Adjustment, which is still subject to approval through the Title III process, provides for the restructuring of COFINA’s bonds based on the COFINA Settlement, which contemplates that the Commonwealth will receive approximately 46.35% of the yearly revenues previously allocated to COFINA. As of the date of this report, the plans of adjustment for ~~said entities’ debts~~the other Title III debtors 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~~September 12, ~~2017, the Oversight Board conditionally authorized~~2018, GDB commenced a process to ~~pursue the modification of~~restructure its ~~financial obligations outlined in the GDB RSA~~debts pursuant to Title VI of ~~PROMESA.~~PROMESA in the U.S. District Court. On November 6, 2018, the U.S. District Court approved GDB’s restructuring pursuant to Title VI of PROMESA upon concluding that all applicable requirements of PROMESA had been satisfied. The restructuring transaction is expected to close in the following weeks.

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

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 andnon-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~~fiscal and~~pre-existing~~ ~~fiscal~~ economic 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, 2018 and December 31, 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~~$458 million and ~~$529~~$484 million, respectively which is fully outstanding at September 30, 2018 and December 31, ~~2016).~~2017. Deterioration of the Commonwealth’s fiscal and economic situation, including any negative ratings implications, could further adversely affect the value of our Puerto Rico government obligations, resulting in losses to us. Of the amount outstanding, ~~$ 433~~$413 million consists of loans and ~~$ 49~~$45 million are securities ($~~459~~435 million and ~~$70~~$49 million, respectively, at December 31, ~~2016)~~2017). ~~All~~Substantially all of the amount outstanding at September 30, ~~2017~~2018 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~~revenues. On July 2, 2018, the Corporation received principal payments amounting to $23 million ~~at December 31, 2016).~~from various obligations from Puerto Rico municipalities. At September 30, ~~2017, 74%~~2018, 75% 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,~~2018, the Corporation had ~~$391~~$374 million in ~~indirect exposure to~~ loans or securities issued or guaranteed by Puerto Rico governmental entities, but whose principal source of repayment arenon-governmental entities. In such obligations, the Puerto Rico governmental entity guarantees any shortfall in collateral in the event of borrower default ($~~406~~386 million at December 31, ~~2016)~~2017). These included ~~$313~~$299 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~~2017—$310 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, at September 30, 2018, the Corporation had ~~$43~~$44 million in Puerto Rico housing bonds issued by HFA, which are secured by second mortgage loans on Puerto Rico residential properties, $6and for which HFA also provides a guarantee to cover shortfalls, $7 million in pass-through securities issued by HFA that have been economically defeased and refunded and for which collateral including U.S. agencies and Treasury obligations has been escrowed, and ~~$29~~$24 million of commercial real estate notes issued by government entities, but payable from rent paid by private parties ($4344 million, $6$7 million and ~~$31~~$25 million at December 31, ~~2016,~~2017, 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 current and former government employees which could also be negatively affected by fiscal measures such as employee layoffs or ~~furloughs.~~furloughs or reductions in pension benefits.

BPPR also has a significant amount of deposits from the Commonwealth, its instrumentalities, and municipalities. The amount of such deposits may fluctuate depending on the financial condition and liquidity of such entities, as well as on the ability of BPPR to maintain these customer relationships.

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.

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,~~2018, the Corporation’s direct exposure to USVI instrumentalities and public corporations amounted to approximately ~~$82~~$78 million, of which ~~approximately $74~~$69 million is ~~outstanding.~~outstanding (compared to $82 million and $73 million, respectively, at December 31, 2017). Of the amount outstanding, approximately ~~(i) $43~~$42 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~~$13 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.~~projects (compared to $43 million, $14 million and $16 million, respectively, at December 31, 2017).

U.S. Government

As further detailed in Notes 65 and 76 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~~$1.2 billion of residential mortgages and ~~$87~~$78 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at September 30, ~~2017.~~2018 (compared to $1.7 billion and $88 million, respectively, at December 31, 2017).

Non-Performing Assets

At theone-year mark after the hurricanes made landfall in Puerto Rico and the USVI, the third quarter results reflect improvements in credit quality, with most of the metrics improving or trending back topre-hurricane levels. The Corporation continues to closely monitor its loan portfolios and related credit metrics given remaining challenges in the Puerto Rico’s fiscal and economic outlook.

When compared topre-hurricane levels, June 30, 2017, loans with a delinquency of 90 days past due have increased by $550 million. From this amount, approximately $362 million represents loans that are still in accruing status, mainly related to the portfolio of mortgage loans insured under FHA or guaranteed by the VA.

Refer to the following table for information on delinquencies:

Table 15—Puerto Rico Loans Delinquency


	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]

September 30, 2018
Commercial and construction	$	58,619	$	5,617	$	259,547	$	323,783	$	7,161,486	$	7,485,269	$	173,100	$	211
Mortgage, including GNMA rebooked loans		285,917		136,265		1,215,269		1,637,451		4,893,825		6,531,276		348,779		735,454
Credit cards		9,515		6,178		16,768		32,461		1,005,372		1,037,833		—		16,768
Auto		53,347		10,783		22,165		86,295		2,382,315		2,468,610		22,097		68
Other consumer (personal, HELOCs, leases)		20,627		9,904		38,240		68,771		2,231,594		2,300,365		36,827		573

Total	$	428,025	$	168,747	$	1,551,989	$	2,148,761	$	17,674,592	$	19,823,353	$	580,803	$	753,074


December 31, 2017
Commercial and construction	$	51,170	$	4,099	$	194,216	$	249,485	$	7,111,783	$	7,361,268	$	161,226	$	685
Mortgage, including GNMA rebooked loans		217,890		77,833		1,596,763		1,892,486		4,684,293		6,576,779		306,697		1,204,691
Credit cards		7,319		4,464		18,227		30,010		1,063,211		1,093,221		—		18,227
Auto		24,405		5,197		5,466		35,068		815,745		850,813		5,466		—
Other consumer (personal, HELOCs, leases)		25,124		9,186		39,977		74,287		2,121,690		2,195,977		38,051		1,546

Total	$	325,908	$	100,779	$	1,854,649	$	2,281,336	$	15,796,722	$	18,078,058	$	511,440	$	1,225,149
				��

September 30, 2017
Commercial and construction	$	69,175	$	20,641	$	184,935	$	274,751	$	6,982,565	$	7,257,316	$	160,142	$	384
Mortgage, including GNMA rebooked loans		583,383		221,646		856,307		1,661,336		4,154,169		5,815,505		337,967		443,377
Credit cards		17,523		9,863		20,626		48,012		1,035,234		1,083,246		—		20,626
Auto		44,331		18,933		12,259		75,523		746,481		822,004		12,259		—
Other consumer (personal, HELOCs, leases)		38,045		15,783		39,470		93,298		2,046,703		2,140,001		38,298		740

Total	$	752,457	$	286,866	$	1,113,597	$	2,152,920	$	14,965,152	$	17,118,072	$	548,666	$	465,127


June 30, 2017
Commercial and construction	$	102,701	$	21,394	$	190,033	$	314,128	$	6,938,862	$	7,252,990	$	162,863	$	229
Mortgage, including GNMA rebooked loans		307,222		151,129		743,059		1,201,410		4,616,873		5,818,283		306,642		370,756
Credit cards		12,067		7,831		19,012		38,910		1,052,164		1,091,074		—		19,012
Auto		31,917		6,955		10,634		49,506		776,453		825,959		10,634		—
Other consumer (personal, HELOCs, leases)		21,080		9,291		39,043		69,414		2,018,945		2,088,359		37,243		1,572

Total	$	474,987	$	196,600	$	1,001,781	$	1,673,368	$	15,403,297	$	17,076,665	$	517,382	$	391,569

[1]

Loans HIP accounted for under ASC Subtopic310-30 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. These loans amounted to $218 million as of September 30, 2018, $118 million as of December 31, 2017, $100 million as of September 30, 2017 and $93 million as of June 30, 2017.

The results of the Popular U.S. core operation remained stable with strong growth and favorable credit quality metrics. The U.S. taxi medallion portfolio acquired from the FDIC in the sale of Doral Bank continues to reflect the pressure on medallion collateral values, particularly in the New York City metro area.

As a result of the Reliable Transaction, on August 1, 2018, Popular Auto acquired approximately $1.6 billion in retail auto loans and $341 million in primarily auto-related commercial loans. The following presents asset quality results for the third quarter of 2018, including the Reliable acquired portfolios.

Non-performing assets include primarilypast-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~~16. Total non- performing assets increased by $23 million when compared 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 Subtopic310-30~~ ~~to the Westernbank acquired loans and the loss protection provided~~December 31, 2017, driven 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 netcharge-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.

~~In response to the hurricanes’ effects on its customers, the Corporation implemented a90-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~~following variances: (1) higher P.R. mortgage NPLs of ~~$20~~$42 million, ~~affected~~mostly due to loans which failed to make a payment after the end of the moratorium period; (2) higher U.S. construction NPLs of $18 million, driven by ~~disruptions to payment channels, collections and loss mitigation efforts~~the classification asnon-performing of a single borrower during the previous quarter; (3) higher P.R. consumer NPLs of $15 million, which includes $9 million related to the Reliable auto business; partially offset by (4) lower P.R. mortgage OREOs of $37 million related to increased sales activity, and lower inflows as a result of the foreclosure moratorium offered as part of the hurricane ~~María. Refer to Table 21~~relief efforts, which ~~presents the information~~was extended through part of~~non-performing~~ ~~assets.~~ 2018.

At September 30, ~~2017,~~2018,non-performing loans secured by real estateheld-in-portfolio, ~~excluding covered loans,~~ amounted to ~~$471~~$488 million in the Puerto Rico operations and ~~$33~~$49 million in the U.S. operations. These figures compare to ~~$467~~$449 million in the Puerto Rico operations and ~~$21~~$36 million in the U.S. operations at December 31, ~~2016.~~2017. In addition to thenon-performing loans included in Table 2116, at September 30, ~~2017,~~2018, there were ~~$159~~$155 million of~~non-covered~~ performing loans, mostly commercial loans, which in management’s opinion, are currently subject to potential future classification asnon-performing and are considered impaired ~~compared with $169 million at December~~(December 31, ~~2016.~~2017—$155 million).

Table~~21—~~16—Non-Performing Assets


		September 30, 2017										December 31, 2016											September 30, 2018										December 31, 2017
(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]				BPPR		Popular U.S.		Popular, Inc.			As a % of loans HIP by category [4]			BPPR		Popular U.S.		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	%		$	171,271	$	1,414	$	172,685			1.4	%	$	161,226	$	3,839	$	165,065			1.4	%
Construction			99		—		99			—			—		—		—			—				1,829		17,866		19,695			2.1			—		—		—			—
Legacy^[1]			—		3,268		3,268			8.7			—		3,337		3,337			7.4				—		3,403		3,403			12.3			—		3,039		3,039			9.2
Leasing			2,684		—		2,684			0.4			3,062		—		3,062			0.4				3,009		—		3,009			0.3			2,974		—		2,974			0.4
Mortgage			337,967		14,348		352,315			5.4			318,194		11,713		329,907			4.9				348,779		12,306		361,085			4.9			306,697		14,852		321,549			4.4
Consumer			47,873		14,337		62,210			1.6			51,597		6,664		58,261			1.6				55,915		16,696		72,611			1.4			40,543		17,787		58,330			1.5

Totalnon-performing loansheld-in-portfolio, excluding covered loans			548,666		37,262		585,928			2.5	%		532,508		25,407		557,915			2.5	%			580,803		51,685		632,488			2.4	%		511,440		39,517		550,957			2.3	%
Non-performing loansheld-for-sale^[2]			—		—		—						—		—		—
Other real estate owned (“OREO”), excluding covered OREO			174,406		2,322		176,728						177,412		3,033		180,445							130,631		3,149		133,780						167,253		2,007		169,260

Totalnon-performing assets, excluding covered assets		$	723,072	$	39,584	$	762,656					$	709,920	$	28,440	$	738,360						$	711,434	$	54,834	$	766,268					$	678,693	$	41,524	$	720,217
Covered loans and OREO^[3]			24,951		—		24,951						36,044		—		36,044
Covered loans and OREO^[2]																								—		—		—						22,948		—		22,948

Totalnon-performing assets		$	748,023	$	39,584	$	787,607					$	745,964	$	28,440	$	774,404
Totalnon-performing assets^[3]																							$	711,434	$	54,834	$	766,268					$	701,641	$	41,524	$	743,165

Accruing loans past due 90 days or more^{[5] [6]}		$	465,127	$	—	$	465,127					$	426,652	$	—	$	426,652						$	753,074	$	—	$	753,074					$	1,225,149	$	—	$	1,225,149

Ratios excluding covered loans:^[7]
Non-performing loansheld-in-portfolio to loansheld-in-portfolio			3.21		0.62		2.53	%					3.10		0.45		2.45	%						2.93		0.77		2.39	%					2.83		0.64		2.27	%
Allowance for loan losses to loansheld-in-portfolio			3.06		1.48		2.65						2.73		0.75		2.24							2.83		1.10		2.39						2.87		1.16		2.43
Allowance for loan losses tonon-performing loans, excludingheld-for-sale			95.55		240.48		104.77						87.88		166.56		91.47							96.45		142.29		100.19						101.30		182.40		107.12

Ratios including covered loans:	Ratios including covered loans:																					Ratios including covered loans:
Non-performing assets to total assets			2.28		0.40		1.85	%					2.51		0.32		2.00	%						1.87		0.56		1.60	%					2.03		0.43		1.68	%
Non-performing loansheld-in-portfolio to loansheld-in-portfolio			3.13		0.62		2.49						3.02		0.45		2.41							2.93		0.77		2.39						2.77		0.64		2.23
Allowance for loan losses to loansheld-in-portfolio			3.16		1.48		2.73						2.81		0.75		2.32							2.83		1.10		2.39						2.96		1.16		2.51
Allowance for loan losses tonon-performing loans, excludingheld-for-sale			100.95		240.48		109.77						92.90		166.56		96.23							96.45		142.29		100.19						107.10		182.40		112.47

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~~Popular U.S. segment.

[2]	~~There were nonon-performing~~ ~~loansheld-for-sale~~ ~~as of September 30, 2017 and December 31, 2016.~~

~~[3]~~

The amount consists of $3 million innon-performing covered loans accounted for under ASC Subtopic310-20 and ~~$22~~$20 million in covered OREO as of ~~September 30, 2017 (December 31, 2016—$4 million and $32 million, respectively).~~December 2017. It excludes covered loans accounted for under ASC Subtopic310-30 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.

[3]	There were nonon-performing loansheld-for-sale as of September 30, 2018 and December 31, 2017.

[4]	Loansheld-in-portfolio used in the computation exclude ~~$525~~$517 million in covered loans at ~~September 30, 2017 (December 31, 2016 —$573 million).~~December 2017.

[5]

The carrying value of loans accounted for under ASCSub-topic310-30 that are contractually 90 days or more past due was ~~$251~~$304 million at September 30, ~~2017~~2018 (December 31, ~~2016—~~2017—$~~282~~272 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 tonon-performing since the principal repayment is insured. These balances include ~~$157~~$238 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of September 30, ~~2017~~2018 (December 31, ~~2016—~~2017—$~~181~~178 million). ~~Furthermore, the~~These balances also include approximately $195 million of loans rebooked due to a repurchase option with GNMA liability (December 31, 2017—$840 million). The Corporation has approximately ~~$57~~$53 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 fromnon-performing assets (December 31, ~~2016—~~2017—$6858 million).

[7]

~~These~~

At December 31, 2017 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 includenon-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.

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’sbuy-back option program. ~~Servicers of loans underlying~~Under the GNMA ~~mortgage-backed securities must report~~program, issuers such as ~~their own assets the defaulted loans that they~~BPPR have the option, but not the obligation, to ~~purchase, even when they elect not~~repurchase loans that are 90 days or more past due. For accounting purposes, these loans subject to ~~exercise that~~the repurchase option are required to be reflected on the financial statements of the issuer with an offsetting liability. As of September 30, 2018, and December 31, 2017, loans past due 90 days or more include approximately $195 million and $840 million, respectively, in loans previously pooled into GNMA securities with abuy-back option. While the borrowers for our serviced GNMA portfolio benefited from the loan payment moratorium as part of the hurricane relief efforts, the delinquency status of these loans continued to be reported to GNMA without considering the moratorium. 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~~$7.8 billion at September 30, ~~2017,~~2018, of which $2.0 billion was secured with owner occupied properties, compared with ~~$7.2~~$7.6 billion and ~~$2.0~~$2.1 billion, respectively, at December 31, ~~2016.~~2017. CREnon-performing loans ~~excluding covered loans,~~ amounted to ~~$118~~$124 million at September 30, ~~2017,~~2018, flat when compared with ~~$130 million at~~ December 31, ~~2016.~~2017. The CREnon-performing loans ratios for the BPPR and ~~BPNA~~Popular U.S. segments were ~~2.63%~~2.90% and ~~0.12%~~0.02%, respectively, at September 30, ~~2017,~~2018, compared with ~~2.83%~~2.77% and ~~0.07%~~0.10%, respectively, at December 31, ~~2016.~~2017.

For the quarter ended September 30, ~~2017,~~2018, totalnon-performing loan inflows, excluding consumer loans, ~~increased~~decreased by $5$40 million, or 5%35%, when compared to the inflows for the same quarter in ~~2016.~~2017. Inflows ofnon-performing loansheld-in-portfolio at the BPPR segment ~~increased~~decreased by $4$37 million, or 4%35%, compared to the inflows for the third quarter of ~~2016,~~2017, mostly related to ~~higher~~lower mortgage inflows of ~~$10~~$53 million, ~~impacted~~offset by ~~Hurricane María.~~higher P.R. commercial inflows of $16 million. Mortgage inflows for the third quarter of 2017 were affected by the disruption in payment channels due to hurricane damage. On the other hand, higher commercial inflows for the third quarter of 2018 were associated with a $16 million relationship. Inflows ofnon-performing loansheld-in-portfolio at ~~BPNA remained flat when compared to~~the Popular U.S. segment decreased by $3 million, or 35%, from the same quarter in ~~2016.~~2017, mostly driven by lower commercial inflows of $2 million.

Table ~~22—~~17—Activity inNon-Performing LoansHeld-in-Portfolio (Excluding Consumer Loans)


	For the quarter ended September 30, 2018									For the nine months ended September 30, 2018
(Dollars in thousands)	BPPR			Popular U.S.			Popular, Inc.			BPPR			Popular U.S.			Popular, Inc.
Beginning balance	$	538,597		$	35,130		$	573,727		$	467,923		$	21,730		$	489,653
Plus:
Newnon-performing loans		68,347			6,069			74,416			353,416			33,629			387,045
Advances on existingnon-performing loans		—			58			58			763			64			827
Reclassification from covered loans		—			—			—			3,413			—			3,413
Less:
Non-performing loans transferred to OREO		(6,168	)		(183	)		(6,351	)		(14,280	)		(183	)		(14,463	)
Non-performing loanscharged-off		(23,769	)		(17	)		(23,786	)		(58,425	)		(330	)		(58,755	)
Loans returned to accrual status / loan collections		(55,128	)		(6,068	)		(61,196	)		(230,931	)		(19,921	)		(250,852	)

Ending balance NPLs^[1]	$	521,879		$	34,989		$	556,868		$	521,879		$	34,989		$	556,868

[1]	Includes $3.4 million of NPLs related to the legacy portfolio.

Table 18—Activity inNon-Performing LoansHeld-in-Portfolio (Excluding Consumer and Covered Loans)


	For the quarter ended September 30, 2017									For the nine months ended September 30, 2017									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.			BPPR			Popular U.S.			Popular, Inc.			BPPR			Popular U.S.			Popular, Inc.
Beginning balance	$	469,505		$	19,641		$	489,146		$	477,849		$	18,743		$	496,592		$	469,505		$	19,641		$	489,146		$	477,849		$	18,743		$	496,592
Plus:
Newnon-performing loans		105,498			9,376			114,874			316,638			21,615			338,253			105,498			9,376			114,874			316,638			21,615			338,253
Advances on existingnon-performing loans		—			64			64			—			123			123			—			64			64			—			123			123
Less:
Non-performing loans transferred to OREO		(9,484	)		—			(9,484	)		(38,921	)		(46	)		(38,967	)		(9,484	)		—			(9,484	)		(38,921	)		(46	)		(38,967	)
Non-performing loanscharged-off		(14,451	)		(129	)		(14,580	)		(62,339	)		(859	)		(63,198	)		(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	)		(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
Ending balance NPLs^[1]																			$	498,109		$	22,925		$	521,034		$	498,109		$	22,925		$	521,034

[1]	Includes $3.3 million of NPLs related to the legacy portfolio.

Table ~~23—~~19—Activity inNon-Performing Commercial LoansHeld-in-Portfolio ~~(Excluding Consumer and Covered Loans)~~


	For the quarter ended September 30, 2016									For the nine months ended September 30, 2016									For the quarter ended September 30, 2018									For the nine months ended September 30, 2018
(Dollars in thousands)	BPPR			BPNA			Popular, Inc.			BPPR			BPNA			Popular, Inc.			BPPR			Popular U.S.			Popular, Inc.			BPPR			Popular U.S.			Popular, Inc.
Beginning balance	$	498,665		$	21,360		$	520,025		$	519,385		$	21,101		$	540,486		$	162,781		$	2,168		$	164,949		$	161,226		$	3,839		$	165,065
Plus:
Newnon-performing loans		101,010			8,369			109,379			307,456			40,966			348,422			23,894			1,663			25,557			92,867			3,637			96,504
Advances on existingnon-performing loans		—			299			299			—			310			310			—			—			—			647			—			647
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	)		(1,480	)		—			(1,480	)		(5,985	)		—			(5,985	)
Non-performing loanscharged-off		(18,384	)		(2,281	)		(20,665	)		(60,207	)		(3,376	)		(63,583	)		(5,179	)		(3	)		(5,182	)		(19,726	)		(234	)		(19,960	)
Loans returned to accrual status / loan collections		(66,277	)		(5,915	)		(72,192	)		(226,651	)		(36,724	)		(263,375	)		(8,745	)		(2,414	)		(11,159	)		(57,758	)		(5,828	)		(63,586	)
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		$	171,271		$	1,414		$	172,685		$	171,271		$	1,414		$	172,685

Table ~~24—~~20—Activity inNon-Performing Commercial LoansHeld-in-Portfolio (Excluding Covered Loans)


	For the quarter ended September 30, 2017									For the nine months ended September 30, 2017									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.			BPPR			Popular U.S.			Popular, Inc.			BPPR			Popular U.S.			Popular, Inc.
Beginning balance	$	162,863		$	4,001		$	166,864		$	159,655		$	3,693		$	163,348		$	162,863		$	4,001		$	166,864		$	159,655		$	3,693		$	163,348
Plus:
Newnon-performing loans		8,085			4,027			12,112			55,494			6,409			61,903			8,085			4,027			12,112			55,494			6,409			61,903
Advances on existingnon-performing loans		—			—			—			—			4			4			—			—			—			—			4			4
Less:
Non-performing loans transferred to OREO		(76	)		—			(76	)		(6,028	)		—			(6,028	)		(76	)		—			(76	)		(6,028	)		—			(6,028	)
Non-performing loanscharged-off		(3,587	)		(49	)		(3,636	)		(27,924	)		(117	)		(28,041	)		(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	)		(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		$	160,043		$	5,309		$	165,352		$	160,043		$	5,309		$	165,352

Table ~~25—~~21—Activity inNon-Performing ~~Commercial~~Construction LoansHeld-in-Portfolio ~~(Excluding Covered Loans)~~


	For the quarter ended September 30, 2016									For the nine months ended September 30, 2016									For the quarter ended September 30, 2018									For the nine months ended September 30, 2018
(Dollars in thousands)	BPPR			BPNA			Popular, Inc.			BPPR			BPNA			Popular, Inc.			BPPR			Popular U.S.			Popular, Inc.			BPPR			Popular U.S.			Popular, Inc.
Beginning balance	$	172,584		$	3,031		$	175,615		$	177,902		$	3,914		$	181,816		$	2,559		$	17,901		$	20,460		$	—		$	—		$	—
Plus:
Newnon-performing loans		12,520			1,609			14,129			60,206			18,927			79,133			—			—			—			4,177			17,901			22,078
Advances on existingnon-performing loans		—			164			164			—			173			173
Reclassification from construction loans to commercial loans		2,436			—			2,436			2,436			—			2,436
Advances on existingnon-covered loans																				—			—			—			116			—			116
Less:
Non-performing loans transferred to OREO		(2,223	)		—			(2,223	)		(5,141	)		—			(5,141	)
Non-performing loanscharged-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	)		(730	)		(35	)		(765	)		(2,464	)		(35	)		(2,499	)

Ending balance NPLs	$	167,047		$	3,524		$	170,571		$	167,047		$	3,524		$	170,571		$	1,829		$	17,866		$	19,695		$	1,829		$	17,866		$	19,695

Table ~~26—~~22—Activity inNon-Performing Construction LoansHeld-in-Portfolio (Excluding Covered Loans)


	For the quarter ended September 30, 2017						For the nine months ended September 30, 2017						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.		BPPR		Popular U.S.		Popular, Inc.		BPPR		Popular U.S.		Popular, Inc.
Beginning balance	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Plus:
Newnon-performing loans		99		—		99		99		—		99		99		—		99		99		—		99

Ending balance NPLs	$	99	$	—	$	99	$	99	$	—	$	99	$	99	$	—	$	99	$	99	$	—	$	99

Table ~~27—Activity inNon-Performing~~ ~~Construction LoansHeld-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:

Newnon-performing loans
   1,150 —   1,150 1,543 671 2,214
Less:

Non-performing loans transferred to OREO
   —   —   —   (304 ) —   (304 )
Non-performing loanscharged-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—~~23—Activity inNon-Performing Mortgage LoansHeld-in-Portfolio ~~(Excluding Covered Loans)~~


	For the quarter ended September 30, 2017									For the nine months ended September 30, 2017									For the quarter ended September 30, 2018									For the nine months ended September 30, 2018
(Dollars in thousands)	BPPR			BPNA			Popular, Inc.			BPPR			BPNA			Popular, Inc.			BPPR			Popular U.S.			Popular, Inc.			BPPR			Popular U.S.			Popular, Inc.
Beginning balance	$	306,642		$	12,280		$	318,922		$	318,194		$	11,713		$	329,907		$	373,257		$	11,398		$	384,655		$	306,697		$	14,852		$	321,549
Plus:
Newnon-performing loans		97,314			5,349			102,663			261,045			15,092			276,137			44,453			4,406			48,859			256,372			11,019			267,391
Advances on existingnon-performing loans																				—			52			52			—			52			52
Reclassification from covered loans																				—			—			—			3,413			—			3,413
Less:
Non-performing loans transferred to OREO		(9,408	)		—			(9,408	)		(32,893	)		(46	)		(32,939	)		(4,688	)		(183	)		(4,871	)		(8,295	)		(183	)		(8,478	)
Non-performing loanscharged-off		(10,864	)		(66	)		(10,930	)		(34,415	)		(715	)		(35,130	)		(18,590	)		(14	)		(18,604	)		(38,699	)		(96	)		(38,795	)
Loans returned to accrual status / loan collections		(45,717	)		(3,215	)		(48,932	)		(173,964	)		(11,696	)		(185,660	)		(45,653	)		(3,353	)		(49,006	)		(170,709	)		(13,338	)		(184,047	)

Ending balance NPLs	$	337,967		$	14,348		$	352,315		$	337,967		$	14,348		$	352,315		$	348,779		$	12,306		$	361,085		$	348,779		$	12,306		$	361,085

Table ~~29—~~24—Activity inNon-Performing Mortgage loansHeld-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:

Newnon-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 loanscharged-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

   For the quarter ended September 30, 2017 For the nine months ended September 30, 2017
(Dollars in thousands)
   BPPR Popular
U.S. Popular, Inc. BPPR Popular U.S. Popular, Inc.
Beginning balance
   $ 306,642 $ 12,280 $ 318,922 $ 318,194 $ 11,713 $ 329,907
Plus:

Newnon-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 loanscharged-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

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~~

At September 30, 2018, the allowance for loan losses, amounted to $634 million, an increase of $44 million when compared with December 31, 2017, mostly driven by an increase in the BPPR segment of $42 million, principally driven by the reclassification of $34 million allowance from loans previously classified as covered during the previous quarter. During the third quarter of 2018, the annual review and ~~selected~~recalibration of the ALLL models was completed resulting in a decrease of $6 million. The provision for loan losses ~~statistics~~for the third quarter of 2018 amounted to $54.4 million, compared to $157.7 million in the same period in the prior year. The third quarter of 2017 included a charge of $64.3 million related to hurricane María’s estimated impact on the P.R. loan portfolios. Refer to the Provision for Loan Losses section of this MD&A for additional information.

The following table presents annualized net charge-offs to average loansheld-in-portfolio (“HIP”) for thenon-covered portfolio by loan category for the quarters and nine months ended September 30, ~~2017~~2018 and ~~2016.~~

2017.

Table ~~30—Allowance for Loan Losses and Selected Loan Losses Statistics - Quarterly Activity~~ 25—Annualized Net Charge-offs (Recoveries) to AverageNon-covered LoansHeld-in-Portfolio


	Quarters ended September 30,														Quarters ended
	2017			2017		2017			2016		2016		2016		September 30, 2018									September 30, 2017
(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
															BPPR			Popular U.S.			Popular Inc.			BPPR			Popular U.S.			Popular Inc.
		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		0.13	%		0.15	%		0.14	%		(0.02	)%		0.43	%		0.14	%
Construction		(9	)		—		(9	)		951		—		951		(0.63	)		—			(0.05	)		(0.22	)		—			(0.02	)
Leases		1,733			—		1,733			1,429		—		1,429		0.70			—			0.70			0.80			—			0.80
Legacy		86			—		86			145		—		145		—			(9.63	)		(9.63	)		—			(3.11	)		(3.11	)
Mortgage		17,573			863		18,436			18,024		973		18,997		1.38			—			1.24			1.19			(0.10	)		1.04
Consumer		36,750			24		36,774			28,354		411		28,765		3.02			3.42			3.06			3.31			3.08			3.28

Total charge-offs		66,259			887		67,146			62,857		1,384		64,241
Total annualized net charge-offs to averagenon-covered loansheld-in-portfolio																1.24	%		0.29	%		1.00	%		1.07	%		0.52	%		0.92	%

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
															Nine months ended
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
															September 30, 2018									September 30, 2017
Total BPNA recoveries		2,001			—		2,001			3,025		—		3,025
															BPPR			Popular U.S.			Popular Inc.			BPPR			Popular U.S.			Popular Inc.
Popular, Inc.
Commercial		6,282			—		6,282			11,928		—		11,928		0.27	%		0.56	%		0.38	%		0.26	%		0.11	%		0.21	%
Construction		41			—		41			65		—		65		(0.93	)		—			(0.09	)		(3.77	)		—			(0.42	)
Leases		238			—		238			613		—		613		0.74			—			0.74			0.69			—			0.69
Legacy		383			—		383			665		—		665		—			(5.69	)		(5.69	)		—			(3.59	)		(3.59	)
Mortgage		676			32		708			845		312		1,157		1.01			(0.05	)		0.90			1.18			0.03			1.05
Consumer		5,630			4		5,634			13,601		3		13,604		2.88			3.56			2.95			2.71			3.10			2.76

Total recoveries		13,250			36		13,286			27,717		315		28,032
Total annualized net charge-offs to averagenon-covered loansheld-in-portfolio																1.07	%		0.61	%		0.95	%		1.04	%		0.31	%		0.85	%

Net charge-offs for the quarter ended September 30, 2018 amounted to $63.7 million, increasing by $10.7 million when compared to the same quarter in 2017, driven by higher BPPR consumer and mortgage net charge-offs, mostly due to post-moratorium effects, accounted for in the hurricane-related reserve.

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 loansheld-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

Table 26—Composition of ALLL


	September 30, 2018
(Dollars in thousands)	Commercial			Construction			Legacy ^[1]			Leasing			Mortgage			Consumer			Total^[3]
Specific ALLL	$	52,250		$	5,530		$	—		$	297		$	46,205		$	26,255		$	130,537
Impaired loans	$	356,007		$	19,695		$	—		$	931		$	517,083		$	114,572		$	1,008,288
Specific ALLL to impaired loans		14.68	%		28.08	%		—	%		31.90	%		8.94	%		22.92	%		12.95	%

General ALLL	$	192,290		$	9,590		$	377		$	12,009		$	128,382		$	160,533		$	503,181
Loansheld-in-portfolio, excluding impaired loans	$	11,637,700		$	923,670		$	27,566		$	902,609		$	6,787,087		$	5,225,248		$	25,503,880
General ALLL to loansheld-in-portfolio, excluding impaired loans		1.65	%		1.04	%		1.37	%		1.33	%		1.89	%		3.07	%		1.97	%

Total ALLL	$	244,540		$	15,120		$	377		$	12,306		$	174,587		$	186,788		$	633,718
Total loansheld-in-portfolio	$	11,993,707		$	943,365		$	27,566		$	903,540		$	7,304,170		$	5,339,820		$	26,512,168
ALLL to loansheld-in-portfolio		2.04	%		1.60	%		1.37	%		1.36	%		2.39	%		3.50	%		2.39	%

[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~~Popular U.S. segment.

~~[2]~~

~~Net recoveries are related to loans sold or reclassified toheld-for-sale.~~

~~[3]~~

~~Excluding provision for loan losses and net recoveries related to loans sold.~~

Table ~~31—Allowance for Loan Losses and Selected Loan Losses Statistics -Year-to-date~~ ~~Activity~~27—Composition of ALLL

   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

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 loansheld-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
   December 31, 2017
(Dollars in thousands)
   Commercial Construction Legacy^[1] Leasing Mortgage Consumer Total
Specific ALLLnon-covered loans
   $ 36,982 $ —   $ —   $ 475 $ 48,832 $ 22,802 $ 109,091
Impairednon-covered loans
   $ 323,455 $ —   $ —   $ 1,456 $ 518,275 $ 104,237 $ 947,423
Specific ALLL tonon-covered impaired loans
   11.43 % —   % —   % 32.62 % 9.42 % 21.88 % 11.51 %


General ALLLnon-covered loans
   $ 178,683 $ 8,362 $ 798 $ 11,516 $ 114,790 $ 166,942 $ 481,091
Non-covered loansheld-in-portfolio, excluding impaired loans
   $ 11,165,406 $ 880,029 $ 32,980 $ 808,534 $ 6,752,132 $ 3,706,290 $ 23,345,371
General ALLL tonon-covered loansheld-in-portfolio, excluding impaired loans
   1.60 % 0.95 % 2.42 % 1.42 % 1.70 % 4.50 % 2.06 %


Total ALLLnon-covered loans
   $ 215,665 $ 8,362 $ 798 $ 11,991 $ 163,622 $ 189,744 $ 590,182
Totalnon-covered loansheld-in-portfolio
   $ 11,488,861 $ 880,029 $ 32,980 $ 809,990 $ 7,270,407 $ 3,810,527 $ 24,292,794
ALLL tonon-covered loansheld-in-portfolio
   1.88 % 0.95 % 2.42 % 1.48 % 2.25 % 4.98 % 2.43 %

[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~~Popular U.S. segment.

~~[2]~~

~~Net recoveries are related to loans sold.~~

~~[3]~~

~~Excluding provision for loan losses and net recoveries related to loans sold or reclassified toheld-for-sale.~~

~~The following table presents annualized net charge-offs to average loansheld-in-portfolio~~ ~~(“HIP”) for thenon-covered~~ ~~portfolio by loan category for the quarters and nine months ended September 30, 2017 and 2016.~~

~~Table 32—Annualized Net Charge-offs (Recoveries) to Average LoansHeld-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 loansheld-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 loansheld-in-portfolio
   1.04 % 0.31 % 0.85 % 0.85 % 0.08 % 0.67 %

~~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
Loansheld-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 loansheld-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
Totalnon-covered loansheld-in-portfolio^[1]
   $ 11,227,095 $ 823,325 $ 37,508 $ 754,881 $ 6,529,235 $ 3,801,406 $ 23,173,450
ALLL to loansheld-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]~~

~~[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
Loansheld-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 loansheld-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
Totalnon-covered loansheld-in-portfolio^[1]
   $ 10,798,507 $ 776,300 $ 45,293 $ 702,893 $ 6,696,361 $ 3,754,393 $ 22,773,747
ALLL to loansheld-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]~~

~~[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% ofnon-covered~~ ~~loansheld-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

~~hurricanes’ impact on the loan portfolios using currently available information. While the total reserve was increased to $122 million as the nearmid-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~~ ~~loansheld-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 loansheld-in-portfolio,~~ ~~compared with $42 million, or 0.75% of loansheld-in-portfolio,~~ ~~at December 31, 2016, driven by higher reserves for the U.S. Taxi Medallion portfolio. The ratio of the allowance tonon-performing~~ ~~loansheld-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 Subtopic310-30~~ ~~are recognized by recording an allowance for loan losses in the current period. For purposes of loans accounted for under ASC Subtopic310-20~~ 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 ASCSection 310-10-35~~ ~~for loans individually evaluated for impairment.~~

Troubled debt restructurings

The Corporation’s TDR loans ~~excluding covered loans,~~ amounted to ~~$1.3~~$1.4 billion at September 30, ~~2017,~~2018, increasing by ~~$17~~$173 million, or ~~1.4%~~approximately 14%, from December 31, ~~2016.~~2017, driven by higher commercial and mortgage TDRs in the BPPR segment of $99 million and $68 million, respectively. TDRs in accruing status increased by ~~$30~~$102 million from December 31, ~~2016 to $1.1 billion at September 30,~~ 2017, ~~due to sustained borrower performance,~~ whilenon-accruing TDRs ~~decreased~~increased by ~~$13~~$71 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 following tables ~~that follow~~ present the approximate amount and percentage ofnon-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~~2018 and December 31, ~~2016.~~

2017.

Appraisals may be adjusted due to their age and the type, location and condition of the property, area or general market conditions to reflect the expected change in value between the effective date of the appraisal and the impairment measurement date. Refer to the Allowance for Loan Losses section of Note 3, “Summary of significant accounting policies” of the Corporation’s 2017 Form10-K for more information.

Table~~35—~~28—Non-Covered Impaired Loans with Appraisals Dated 1 year or Older


	September 30, 2017
September 30, 2018								September 30, 2018
	Total Impaired Loans – Held-in-portfolio (HIP)								Total Impaired Loans – Held-in-portfolio (HIP)				Impaired Loans with
(In thousands)	Loan Count		Outstanding Principal Balance		Impaired Loans with Appraisals Over One- Year Old [1]				Loan Count		Outstanding Principal Balance		Appraisals Over One- Year Old [1]
Commercial		115	$	273,925		13	%			110	$	289,993		6	%
Construction										1		1,829		—

[1]	Based on outstanding balance of total impaired loans.


	December 31, 2016
December 31, 2017								December 31, 2017
	Total Impaired Loans – Held-in-portfolio (HIP)								Total Impaired Loans – Held-in-portfolio (HIP)				Impaired Loans with
(In thousands)	Loan Count		Outstanding Principal Balance		Impaired Loans with Appraisals Over One- Year Old [1]				Loan Count		Outstanding Principal Balance		Appraisals Over One- Year Old [1]
Commercial		118	$	283,782		8	%			112	$	267,302		30	%

[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 4,3, “New Accounting Pronouncements” to the Consolidated Financial Statements.

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 anon-GAAP financial measure. Management believes that the adjusted net income provides meaningful information to investors 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~~Table 29 presents a reconciliation of reported results to Adjusted net income for the ~~quarter and~~ nine months ended September 30, ~~2016.~~2018. No adjustments are reflected for the quarter ended September 30, 2018 or September 30,2017 or the nine months ended September 30, 2017.

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—~~29—Adjusted Net Income for the Nine Months Ended September 30, ~~2016~~2018(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


(Unaudited)
(In thousands)	Pre-tax			Income tax effect			Impact on net income
U.S. GAAP Net income							$	511,755
Non-GAAP adjustments:
Termination of FDIC Shared-Loss Agreements^[1]	$	(94,633	)	$	45,059			(49,574	)
Tax Closing Agreement^[2]		—			(108,946	)		(108,946	)

Adjusted net income(Non-GAAP)							$	353,235

^[1]

~~Represents Popular Inc.’s proportionate share~~

On May 22, 2018, BPPR entered into a Termination Agreement with the FDIC to terminate all Shared-Loss Agreements in connection with the acquisition of certain assets and assumption of certain liabilities of Westernbank Puerto Rico in 2010. As a result, BPPR recognized apre-tax gain of $94.6 million, net of the ~~cumulative impact~~related professional and advisory fees of ~~EVERTEC restatement~~$8.1 million associated with the Termination Agreement. Refer to Note 10—FDIC Loss-Share Asset 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.True Up Payment Obligation for additional information.

^[2]

Represents the impact of the ~~bulk sale~~Termination Agreement on income taxes. In June 2012, the Corporation entered into a Tax Closing Agreement with the Puerto Rico Department of ~~Westernbank loans and OREO. Gains and losses~~the Treasury to clarify the tax treatment related to ~~assets~~the loans acquired ~~from Westernbank as part~~in the FDIC Transaction in accordance with the provisions of the ~~FDIC assisted transaction are subject to~~Puerto Rico Tax Code. Based on the ~~capital gains tax rate~~provisions of ~~20%.~~

^[3]	~~Represents~~this Tax Closing Agreement, 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~~Corporation recognized a ~~limited liability company with a partnership election. Accordingly, its earnings flow through Popular, Inc., holding company, for~~net income tax ~~purposes. Since Popular, Inc. has a full valuation allowance on its deferred tax assets, this results in an effective tax rate~~benefit of ~~0%.~~$108.9 million during the second quarter of 2018. Refer to Note32- Income Taxes for additional information.

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~~2017 Form10-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 Rules13a-15(e) and15d-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 notThere have been ~~tested, in order to be able to capture and record these transactions. Based on the information currently available, management believes that these~~no changes in the Corporation’s internal control over financial reporting (as such term is defined in Rules13a-15(f) and15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, ~~2017~~2018 that have ~~not~~ materially affected, ~~nor~~or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Part ~~II -~~ II—Other Information

Item 1.Legal Proceedings

For a discussion of Legal Proceedings, see Note 22, ~~“Commitments~~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 -~~ I—Item ~~1A -~~ 1A—Risk Factors” in our ~~2016~~2017 Form10-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 -~~ 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~~2017 Form10-K.

There have been no material changes to the risk factors previously disclosed under Item 1A of the Corporation’s ~~2016~~2017 Form~~10-K,~~10-K. ~~except for the items listed below.~~

The risks described in our ~~2016~~2017 Form10-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.

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.

~~Our credit exposure is concentrated in Puerto Rico, which accounted as of September 30, 2017 for approximately 80% of ouryear-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.

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

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

On July 23, 2018, the Corporation’s Board of Directors approved a common stock repurchase plan of up to $125 million. In August 2018, the Corporation entered into a $125 million accelerated share repurchase transaction. As part of this transaction, the Corporation received an initial delivery of 2,000,000 shares of common stock. Such shares are held as treasury stock.

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~~2018, the maximum number of shares of common stock that ~~may~~could have been granted under this plan was 3,500,000. In September 2018, the Corporation added to treasury stock 850 shares of common stock related to shares that were withheld under Popular’s employee restricted share awards to satisfy tax requirements.

~~There were no~~The following table sets forth the details of purchases of Common Stock during the quarter ended September 30, ~~2017 under the 2004 Omnibus Incentive Plan.~~2018:

Issuer Purchases of Equity Securities


Not in thousands
Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
July1- July 31		—	$	—		—		125,000,000
August1- August 31		2,000,000		50.99		2,000,000		23,020,000
September1- September 30		850		50.34		—		23,020,000

Total September 30, 2018		2,000,850	$	50.99		2,000,000		23,020,000

Item 3.Defaults upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

None.

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~~		XBRL Instance Document⁽¹⁾

101.SCH ~~XBRL~~		XBRL Taxonomy Extension Schema Document⁽¹⁾

101.CAL ~~XBRL~~		XBRL Taxonomy Extension Calculation Linkbase Document⁽¹⁾

101.DEF ~~XBRL~~		XBRL Taxonomy Extension Definitions Linkbase Document⁽¹⁾

101.LAB ~~XBRL~~		XBRL Taxonomy Extension Label Linkbase Document⁽¹⁾

101.PRE ~~XBRL~~		XBRL Taxonomy Extension Presentation Linkbase Document⁽¹⁾

(1)	Included herewith

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~~8, 2018	By:	/s/ Carlos J. Vázquez
		Carlos J. Vázquez
		Executive Vice President &
		Chief Financial Officer

Date: November ~~9, 2017~~8, 2018	By:	/s/ Jorge J. García
		Jorge J. García
		Senior Vice President & Corporate Comptroller

173

~~195~~


(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

Totalpre-tax hurricane expenses	$	79,389


Activity in the accretable yield - other acquired loans ASC310-30
(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 ASC310-30
(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


	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	$	—


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 estatenon-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 estatenon-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


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 estatenon-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 estatenon-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 estatenon-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


(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


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


(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	)


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


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	)


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 loansheld-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

Large accelerated filer

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