e10vq
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
     
þ   Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2010
Commission File Number: 001-34084
POPULAR, INC.
 
(Exact name of registrant as specified in its charter)
     
Puerto Rico   66-0667416
     
(State or other jurisdiction of   (IRS Employer Identification Number)
incorporation or organization)    
     
Popular Center Building    
209 Muñoz Rivera Avenue, Hato Rey    
San Juan, 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.
     þ Yes          o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
     o Yes          o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer þ Accelerated filer o  Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
     o Yes          þ 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 639,539,900 shares outstanding as of May 5, 2010.
 
 

 


 

POPULAR, INC.
INDEX
         
    Page  
Part I — Financial Information
       
 
       
Item 1. Financial Statements
       
 
       
    4  
 
       
    5  
 
       
    6  
 
       
    7  
 
       
    8  
 
       
    9  
 
       
    78  
 
       
    117  
 
       
    123  
 
       
       
 
       
    123  
 
       
    125  
 
       
    127  
 
       
    128  
 
       
    129  
 EX-12.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

 


Table of Contents

Forward-Looking Information
The information included in this Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may relate to Popular, Inc’s (the “Corporation”) financial condition, results of operations, plans, objectives, future performance and business, including, but not limited to, statements with respect to the adequacy of the allowance for loan losses, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity, and the effect of legal proceedings and new accounting standards on the Corporation’s financial condition and results of operations. 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.
These statements are not guarantees of future performance and involve certain risks, uncertainties, estimates and assumptions by management that are difficult to predict.
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;
 
    difficulties in combining the operations of acquired entities, including in connection with our acquisition of certain assets and assumption of certain liabilities of Westernbank Puerto Rico from the FDIC;
 
    changes in interest rates, as well as the magnitude of such changes;
 
    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;
 
    regulatory approvals that may be necessary to undertake certain actions or consummate strategic transactions such as acquisitions and dispositions;
 
    the relative strength or weakness of the consumer and commercial credit sectors and of the real estate markets in Puerto Rico and the other markets in which borrowers are located;
 
    the performance of the stock and bond markets;
 
    competition in the financial services industry;
 
    additional Federal Deposit Insurance Corporation (“FDIC”) assessments; and
 
    possible legislative, tax or regulatory changes.
Investors should refer to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009 as well as “Part II, Item 1A” of this Form 10-Q for a discussion of such factors and certain risks and uncertainties to which the Corporation is subject.
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 juries.
All forward-looking statements included in this document are based upon information available to the Corporation as of the date of this document, 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 to reflect occurrences or unanticipated events or circumstances after the date of such statements.

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ITEM 1. FINANCIAL STATEMENTS
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
                         
(In thousands, except share information)   March 31, 2010   December 31, 2009   March 31, 2009
 
ASSETS
                       
Cash and due from banks
  $ 592,175     $ 677,330     $ 703,483  
 
Money market investments:
                       
Federal funds sold
          159,807       175,403  
Securities purchased under agreements to resell
    304,109       293,125       319,702  
Time deposits with other banks
    700,644       549,865       930,366  
 
Total money market investments
    1,004,753       1,002,797       1,425,471  
 
Trading account securities, at fair value:
                       
Pledged securities with creditors’ right to repledge
    346,819       415,653       533,665  
Other trading securities
    33,330       46,783       162,982  
Investment securities available-for-sale, at fair value:
                       
Pledged securities with creditors’ right to repledge
    2,193,615       2,330,441       2,455,629  
Other investment securities available-for-sale
    4,342,131       4,364,273       4,508,609  
Investment securities held-to-maturity, at amortized cost (fair value at March 31, 2010 — $207,850; December 31, 2009 - $213,146; March 31, 2009 — $314,580)
    209,596       212,962       318,894  
Other investment securities, at lower of cost or realizable value (realizable value at March 31, 2010 - $158,375; December 31, 2009 - $165,497; March 31, 2009 - $268,278)
    156,864       164,149       222,013  
Loans held-for-sale measured at lower of cost or fair value
    106,412       90,796       308,206  
 
Loans held-in-portfolio
    23,189,598       23,827,263       25,355,753  
Less — Unearned income
    111,299       114,150       117,767  
Allowance for loan losses
    1,277,036       1,261,204       1,057,125  
 
Total loans held-in-portfolio, net
    21,801,263       22,451,909       24,180,861  
 
Premises and equipment, net
    579,451       584,853       624,212  
Other real estate
    134,887       125,483       95,773  
Accrued income receivable
    131,243       126,080       142,114  
Servicing assets (at fair value on March 31, 2010 - $173,359; December 31, 2009 - $169,747; March 31, 2009 - $177,295)
    175,776       172,505       181,095  
Other assets (See Note 9)
    1,378,011       1,322,159       1,177,078  
Goodwill
    604,349       604,349       606,440  
Other intangible assets
    41,762       43,803       50,867  
Assets from discontinued operations
                12,036  
 
Total assets
  $ 33,832,437     $ 34,736,325     $ 37,709,428  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                       
Liabilities:
                       
Deposits:
                       
Non-interest bearing
  $ 4,476,255     $ 4,495,301     $ 4,372,366  
Interest bearing
    20,884,057       21,429,593       22,777,401  
 
Total deposits
    25,360,312       25,924,894       27,149,767  
Assets sold under agreements to repurchase
    2,491,506       2,632,790       2,881,997  
Other short-term borrowings
    23,263       7,326       29,453  
Notes payable
    2,529,092       2,648,632       3,399,063  
Other liabilities
    941,063       983,866       1,104,813  
Liabilities from discontinued operations
                12,421  
 
Total liabilities
    31,345,236       32,197,508       34,577,514  
 
Commitments and contingencies (See Note 15)
                       
 
Stockholders’ equity:
                       
Preferred stock, 30,000,000 shares authorized; 2,006,391 shares issued and outstanding at March 31, 2010 and December 31, 2009 (March 31, 2009 — 24,410,000) (aggregate liquidation preference value at March 31, 2010 and December 31, 2009 - $50,160 (March 31, 2009 - $1,521,875)
    50,160       50,160       1,485,287  
Common stock, $0.01 par value per share at March 31, 2010 and December 31, 2009 (March 31, 2009 - $6 par value); 700,000,000 shares authorized at March 31, 2010 and December 31, 2009 (March 31, 2009 — 470,000,000); 639,544,895 shares issued at March 31, 2010 and December 31, 2009 (March 31, 2009 — 282,034,819) and 639,539,900 outstanding at March 31, 2010 (December 31, 2009 — 639,540,105; March 31, 2009 - 282,034,819)
    6,395       6,395       1,692,209  
Surplus
    2,804,238       2,804,238       496,455  
Accumulated deficit
    (377,807 )     (292,752 )     (451,355 )
Treasury stock — at cost, 4,995 shares as of March 31, 2010 (December 31, 2009 — 4,790 shares)
    (16 )     (15 )      
Accumulated other comprehensive income (loss), net of tax of ($29,809) (December 31, 2009 — ($33,964); March 31, 2009 — ($61,563))
    4,231       (29,209 )     (90,682 )
 
Total stockholders’ equity
    2,487,201       2,538,817       3,131,914  
 
Total liabilities and stockholders’ equity
  $ 33,832,437     $ 34,736,325     $ 37,709,428  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

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POPULAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
                 
    Quarter ended  
    March 31,  
(In thousands, except per share information)   2010     2009  
 
INTEREST INCOME:
               
Loans
  $ 354,649     $ 401,768  
Money market investments
    1,042       3,133  
Investment securities
    64,926       73,483  
Trading account securities
    6,578       10,808  
 
Total interest income
    427,195       489,192  
 
INTEREST EXPENSE:
               
Deposits
    92,974       148,039  
Short-term borrowings
    15,259       20,703  
Long-term debt
    50,045       47,964  
 
Total interest expense
    158,278       216,706  
 
Net interest income
    268,917       272,486  
Provision for loan losses
    240,200       372,529  
 
Net interest income after provision for loan losses
    28,717       (100,043 )
Service charges on deposit accounts
    50,578       53,741  
Other service fees (See Note 20)
    101,320       98,533  
Net gain on sale and valuation adjustments of investment securities
    81       176,146  
Trading account (loss) profit
    (223 )     6,823  
Loss on sale of loans, including adjustments to indemnity reserves, and valuation adjustments on loans held-for-sale
    (12,222 )     (13,813 )
Other operating income
    18,332       13,301  
 
 
    186,583       234,688  
 
OPERATING EXPENSES:
               
Personnel costs:
               
Salaries
    95,873       105,323  
Pension and other benefits
    25,059       39,968  
 
Total personnel costs
    120,932       145,291  
Net occupancy expenses
    28,876       26,441  
Equipment expenses
    23,453       26,104  
Other taxes
    12,304       13,176  
Professional fees
    27,049       24,901  
Communications
    10,772       11,827  
Business promotion
    8,295       7,910  
Printing and supplies
    2,369       2,790  
FDIC deposit insurance
    15,318       9,117  
Other operating expenses
    29,496       34,234  
Amortization of intangibles
    2,049       2,406  
 
Total operating expenses
    280,913       304,197  
 
Loss from continuing operations before income tax
    (94,330 )     (69,509 )
Income tax benefit
    (9,275 )     (26,933 )
 
Loss from continuing operations
    (85,055 )     (42,576 )
Loss from discontinued operations, net of income tax
          (9,946 )
 
NET LOSS
    ($85,055 )     ($52,522 )
 
NET LOSS APPLICABLE TO COMMON STOCK
    ($85,055 )     ($77,200 )
 
 
NET LOSS PER COMMON SHARE — BASIC AND DILUTED:
               
Net loss from continuing operations
    ($0.13 )     ($0.24 )
Net loss from discontinued operations
          (0.03 )
 
Net loss per common share
    ($0.13 )     ($0.27 )
 
DIVIDENDS DECLARED PER COMMON SHARE
        $ 0.02  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

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POPULAR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
                 
    Quarter ended March 31,  
(In thousands)   2010     2009  
 
Preferred stock:
               
Balance at beginning of year
  $ 50,160     $ 1,483,525  
Accretion of Series C preferred stock discount
          1,762  
 
Balance at end of period
    50,160       1,485,287  
 
Common stock:
               
Balance at beginning of year
    6,395       1,773,792  
Treasury stock retired
          (81,583 )
 
Balance at end of period
    6,395       1,692,209  
 
Surplus:
               
Balance at beginning of year
    2,804,238       621,879  
Stock options expense on unexercised options, net of forfeitures
          132  
Treasury stock retired
          (125,556 )
 
Balance at end of period
    2,804,238       496,455  
 
Accumulated deficit:
               
Balance at beginning of year
    (292,752 )     (374,488 )
Net loss
    (85,055 )     (52,522 )
Cash dividends declared on common stock
          (5,641 )
Cash dividends declared on preferred stock
          (16,942 )
Accretion of Series C preferred stock discount
          (1,762 )
 
Balance at end of period
    (377,807 )     (451,355 )
 
Accumulated other comprehensive income (loss):
               
Balance at beginning of year
    (29,209 )     (28,829 )
Other comprehensive income (loss), net of tax
    33,440       (61,853 )
 
Balance at end of period
    4,231       (90,682 )
 
Treasury stock — at cost:
               
Balance at beginning of year
    (15 )     (207,515 )
Purchase of common stock
    (1 )     (1 )
Reissuance of common stock
          377  
Treasury stock retired
          207,139  
 
Balance at end of period
    (16 )      
 
Total stockholders’ equity
  $ 2,487,201     $ 3,131,914  
 
Disclosure of changes in number of shares:
                         
    March 31,   December 31,   March 31,
    2010   2009   2009
 
Preferred Stock:
                       
Balance at beginning of year
    2,006,391       24,410,000       24,410,000  
Preferred stock — Series A and B exchanged for common stock
          (21,468,609 )      
Preferred stock — Series C exchanged for trust preferred securities
          (935,000 )      
 
Balance at end of period
    2,006,391       2,006,391       24,410,000  
 
Common Stock — Issued:
                       
Balance at beginning of year
    639,544,895       295,632,080       295,632,080  
Treasury stock retired
          (13,597,261 )     (13,597,261 )
Shares issued in exchange of Series A and B preferred stock and early extinguishment of debt (exchange of trust preferred securities for common stock)
          357,510,076        
 
Balance at end of period
    639,544,895       639,544,895       282,034,819  
 
Treasury stock
    (4,995 )     (4,790 )      
 
Common Stock — outstanding
    639,539,900       639,540,105       282,034,819  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

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POPULAR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
                 
    Quarter ended
    March 31,
(In thousands)   2010   2009
 
Net loss
    ($85,055 )     ($52,522 )
 
Other comprehensive income (loss) before tax:
               
Foreign currency translation adjustment
    954       120  
Adjustment of pension and postretirement benefit plans
    1,750       61,240  
Unrealized holding gains on securities available-for-sale arising during the period
    36,111       15,313  
Reclassification adjustment for losses (gains) included in net loss
    10       (176,146 )
Unrealized net losses on cash flow hedges
    (31 )     (1,586 )
Reclassification adjustment for (gains) losses included in net loss
    (1,199 )     2,414  
 
Other comprehensive income (loss) before tax:
    37,595       (98,645 )
Income tax (expense) benefit
    (4,155 )     36,792  
 
Total other comprehensive income (loss), net of tax
    33,440       (61,853 )
 
Comprehensive loss, net of tax
    ($51,615 )     ($114,375 )
 
Tax effects allocated to each component of other comprehensive income (loss):
                 
    Quarter ended
    March 31,
(In thousands)   2010   2009
 
Underfunding of pension and postretirement benefit plans
    ($883 )     ($22,783 )
Unrealized holding gains on securities available-for-sale arising during the period
    (3,748 )     (2,757 )
Reclassification adjustment for losses (gains) included in net loss
    (4 )     62,462  
Unrealized net losses on cash flows hedges
    12       618  
Reclassification adjustment for (gains) losses included in net loss
    468       (748 )
 
Income tax (expense) benefit
    ($4,155 )   $ 36,792  
 
Disclosure of accumulated other comprehensive income (loss):
                         
    March 31,   December 31,   March 31,
(In thousands)   2010   2009   2009
 
Foreign currency translation adjustment
    ($39,722 )     ($40,676 )     ($38,948 )
 
Underfunding of pension and postretirement benefit plans
    (126,036 )     (127,786 )     (198,969 )
Tax effect
    47,683       48,566       76,858  
 
Underfunding of pension and postretirement benefit plans, net of tax
    (78,353 )     (79,220 )     (122,111 )
 
Unrealized holding gains on securities available-for-sale
    140,211       104,090       89,141  
Tax effect
    (17,886 )     (14,134 )     (15,913 )
 
Unrealized holding gains on securities available-for-sale, net of tax
    122,325       89,956       73,228  
 
Unrealized (losses) gains on cash flows hedges
    (31 )     1,199       (3,469 )
Tax effect
    12       (468 )     618  
 
Unrealized (losses) gains on cash flows hedges, net of tax
    (19 )     731       (2,851 )
 
Accumulated other comprehensive income (loss)
  $ 4,231       ($29,209 )     ($90,682 )
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

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POPULAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    Quarter ended  
    March 31,  
(In thousands)   2010     2009  
 
Cash flows from operating activities:
               
Net loss
    ($85,055 )     ($52,522 )
 
Adjustments to reconcile net loss to net cash provided by operating activities:
               
Depreciation and amortization of premises and equipment
    15,391       17,049  
Provision for loan losses
    240,200       372,529  
Amortization of intangibles
    2,049       2,406  
Amortization and fair value adjustments of servicing assets
    470       5,257  
Amortization of discount on junior subordinated debentures
    5,084        
Net gain on sale and valuation adjustments of investment securities
    (81 )     (176,146 )
Gains from changes in fair value related to instruments measured at fair value pursuant to the fair value option
          (816 )
Net gain on disposition of premises and equipment
    (1,645 )     (76 )
Net loss on sale of loan, including adjustments to indemnity reserves and valuation adjustments on loans held-for-sale
    12,222       13,073  
Net amortization of premiums and accretion of discounts on investments
    6,099       4,288  
Net amortization of premiums and deferred loan origination fees and costs
    1,783       763  
Earnings from investments under the equity method
    (7,716 )     (3,493 )
Stock options expense
          132  
Deferred income taxes, net of valuation
    (20,168 )     (50,497 )
Net disbursements on loans held-for-sale
    (166,868 )     (317,338 )
Acquisitions of loans held-for-sale
    (59,436 )     (113,360 )
Proceeds from sale of loans held-for-sale
    21,654       26,901  
Net decrease in trading securities
    221,975       212,367  
Net (increase) decrease in accrued income receivable
    (5,163 )     14,039  
Net decrease in other assets
    5,592       52,769  
Net decrease in interest payable
    (16,357 )     (13,936 )
Net increase in postretirement benefit obligation
    1,097       868  
Net (decrease) increase in other liabilities
    (5,983 )     46,550  
 
Total adjustments
    250,199       93,329  
 
Net cash provided by operating activities
    165,144       40,807  
 
Cash flows from investing activities:
               
Net increase in money market investments
    (1,979 )     (630,817 )
Purchases of investment securities:
               
Available-for-sale
    (208,004 )     (2,939,134 )
Held-to-maturity
    (31,844 )     (25,770 )
Other
    (8,191 )     (17,701 )
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
               
Available-for-sale
    373,676       363,863  
Held-to-maturity
    35,229       1,669  
Other
    15,476       13,355  
Proceeds from sale of investment securities available-for-sale
          3,546,944  
Net repayments on loans
    398,734       349,877  
Proceeds from sale of loans
    6,398       278,481  
Acquisition of loan portfolios
    (39,611 )     (4,883 )
Mortgage servicing rights purchased
    (182 )     (327 )
Acquisition of premises and equipment
    (15,049 )     (23,186 )
Proceeds from sale of premises and equipment
    6,707       2,807  
Proceeds from sale of foreclosed assets
    32,905       34,915  
 
Net cash provided by investing activities
    564,265       950,093  
 
Cash flows from financing activities:
               
Net decrease in deposits
    (564,592 )     (396,730 )
Net decrease in assets sold under agreements to repurchase
    (141,284 )     (669,611 )
Net increase in other short-term borrowings
    15,937       24,519  
Payments of notes payable
    (124,624 )     (47,938 )
Proceeds from issuance of notes payable
          60,238  
Dividends paid
          (42,881 )
Treasury stock acquired
    (1 )     (1 )
 
Net cash used in financing activities
    (814,564 )     (1,072,404 )
 
Net decrease in cash and due from banks
    (85,155 )     (81,504 )
Cash and due from banks at beginning of period
    677,330       784,987  
 
Cash and due from banks at end of period
  $ 592,175     $ 703,483  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
Note: The Consolidated Statement of Cash Flows for the quarter ended March 31, 2009 includes the cash flows from operating, investing and financing activities associated with discontinued operations.

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Notes to Unaudited Consolidated Financial Statements
 
Note 1 — Nature of Operations and Basis of Presentation
Note 2 — Adoption of New Accounting Standards and Issued But Not Yet Effective Accounting Standards
Note 3 — Discontinued Operations
Note 4 — Restrictions on Cash and Due from Banks and Certain Securities
Note 5 — Pledged Assets
Note 6 — Investment Securities Available-For-Sale
Note 7 Investment Securities Held-to-Maturity
Note 8 — Transfers of Financial Assets and Mortgage Servicing Rights
Note 9 — Other Assets
Note 10 — Goodwill and Other Intangible Assets
Note 11 — Derivative Instruments and Hedging Activities
Note 12 — Borrowings
Note 13 — Trust Preferred Securities
Note 14 — Stockholders’ Equity
Note 15 — Commitments, Contingencies and Guarantees
Note 16 — Non-consolidated Variable Interest Entities
Note 17 — Fair Value Measurement
Note 18 — Fair Value of Financial Instruments
Note 19 — Net Loss per Common Share
Note 20 — Other Service Fees
Note 21 — Pension and Postretirement Benefits
Note 22 — Stock-Based Compensation
Note 23 — Income Taxes
Note 24 — Supplemental Disclosure on the Consolidated Statements of Cash Flows
Note 25 — Segment Reporting
Note 26 — Subsequent Events
Note 27 — Condensed Consolidating Financial Information of Guarantor and Issuers of Registered Guaranteed Securities

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Notes to Unaudited Consolidated Financial Statements
Note 1 — Nature of Operations and Basis of Presentation
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 United States, the Caribbean and Latin America. In Puerto Rico, the Corporation provides retail and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as auto and equipment leasing and financing, mortgage loans, investment banking, broker-dealer and insurance services through specialized subsidiaries. In the United States, the Corporation operates Banco Popular North America (“BPNA”), including its wholly-owned subsidiary E-LOAN. BPNA is a community bank providing a broad range of financial services and products to the communities it serves. BPNA operates branches in New York, California, Illinois, New Jersey and Florida. E-LOAN markets deposit accounts under its name for the benefit of BPNA. The Corporation, through its subsidiary EVERTEC, provides transaction processing services throughout the Caribbean and Latin America, as well as internally servicing many of its subsidiaries’ system infrastructures and transactional processing businesses. On April 30, 2010, BPPR acquired certain assets and assumed certain liabilities of Puerto Rico-based Westernbank Puerto Rico (“Westernbank”) from the Federal Deposit Insurance Corporation (the “FDIC”) in an assisted transaction (herein, the “FDIC-assisted transaction”). Refer to Note 26 to these consolidated financial statements for additional information on this FDIC-assisted transaction. The financial impact of this acquisition is not recognized in the Corporation’s consolidated financial statements as of March 31, 2010.
The consolidated financial statements include the accounts of Popular, Inc. and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated interim financial statements have been prepared without audit. The statement of condition data as of December 31, 2009 was derived from audited financial statements. The unaudited interim financial statements are, in the opinion of management, a fair statement of the results for the periods reported and include all necessary adjustments, all of a normal recurring nature, for a fair statement of such results.
Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from the unaudited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements of the Corporation for the year ended December 31, 2009, included in the Corporation’s Form 10-K filed on March 1, 2010 (the “2009 Annual Report”). 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.
Note 2 — Adoption of New Accounting Standards and Issued But Not Yet Effective Accounting Standards
FASB Accounting Standards Update 2009-16, Transfers and Servicing (Accounting Standards Codification (“ASC”) Topic 860) — Accounting for Transfer of Financial Assets (“ASU 2009-16”)
ASU 2009-16 amends previous guidance relating to transfers of financial assets and eliminates the concept of a qualifying special purpose entity, removes the exception for guaranteed mortgage securitizations when a transferor had not surrendered control over the transferred financial assets, changes the requirements for derecognizing financial assets, and includes additional disclosures requiring more information about transfers of financial assets in which entities have continuing exposure to the risks related to the transferred financial assets. Among the most significant amendments and additions to this guidance are changes to the conditions for sales of a financial asset which objective is to determine whether a transferor and its consolidated affiliates included in the financial statements have surrendered control over transferred financial assets or third-party beneficial interests; and the addition of the meaning of the term participating interest which represents a proportionate (pro rata) ownership interest in an entire financial asset. The requirements for sale accounting must be applied only to a financial asset in its entirety, a pool of financial assets in its entirety, or participating interests as defined in ASC Subparagraph 860-10-40-6A. This guidance must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and

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annual reporting periods thereafter. Earlier application was prohibited. The recognition and measurement provisions should be applied to transfers that occur on or after the effective date. On and after the effective date, existing qualifying special-purpose entities should be evaluated for consolidation by reporting entities in accordance with the applicable consolidation guidance in the Codification. The Corporation adopted this new authoritative accounting guidance effective January 1, 2010. The Corporation evaluated transfers of financial assets executed during the quarter ended March 31, 2010 pursuant to the new accounting guidance, principally consisting of guaranteed mortgage securitizations (Government National Mortgage Association (“GNMA”) and Federal National Mortgage Association (“FNMA”) mortgage-backed securities), and determined that the adoption of ASU 2009-16 did not have a significant impact on the Corporation’s results of operations or financial position for such period.
A securitization of a financial asset, a participating interest in a financial asset, or a pool of financial assets in which the Corporation (and its consolidated affiliates) (a) surrenders control over the assets transferred and (b) receives cash or other proceeds is accounted for as a sale. Control is considered to be surrendered only if all three of the following conditions are met: (1) the assets have been legally isolated; (2) the transferee has the ability to pledge or exchange the assets; and (3) the transferor otherwise no longer maintains effective control over the assets. When the Corporation transfers financial assets and the transfer fails any one of the above criteria, the Corporation is prevented from derecognizing the transferred financial assets and the transaction is accounted for as a secured borrowing.
The Corporation recognizes and initially measures at fair value a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in either of the following situations: (1) a transfer of an entire financial asset, a group of entire financial assets, or a participating interest in an entire financial asset that meets the requirements for sale accounting, or (2) an acquisition or assumption of a servicing obligation of financial assets that do not pertain to the Corporation or its consolidated subsidiaries. Upon adoption of ASU 2009-16, the Corporation does not recognize either a servicing asset or a servicing liability if it transfers or securitizes financial assets in a transaction that does not meet the requirements for sale accounting and is accounted for as a secured borrowing.
Refer to Note 8 to the consolidated financial statements for disclosures on transfers of financial assets and servicing assets retained as part of guaranteed mortgage securitizations.
FASB Accounting Standards Update 2009-17, Consolidations (ASC Topic 810) — Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASU 2009-17”) and FASB Accounting Standards Update 2010-10, Consolidation (ASC Topic 810): Amendments for Certain Investment Funds (“ASU 2010-10”)
ASU 2009-17 amends the guidance applicable to variable interest entities (“VIE”) and changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. This guidance replaces a quantitative-based risks and rewards calculation for determining which entity, if any, has both (a) a controlling financial interest in a variable interest entity with an approach focused on identifying which entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. This guidance requires reconsideration of whether an entity is a variable interest entity when any changes in facts or circumstances occur such that the holders of the equity investment at risk, as a group, lose the power to direct the activities of the entity that most significantly impact the entity’s economic performance. It also requires ongoing assessments of whether a variable interest holder is the primary beneficiary of a variable interest entity. The amendments to the consolidated guidance affect all entities that were within the scope of the original guidance, as well as qualifying special-purpose entities (“QSPEs”) that were previously excluded from the guidance. ASU 2009-17 requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. The Corporation adopted this new authoritative accounting guidance effective January 1, 2010. The new accounting guidance on variable interest entities did not have an effect on the Corporation’s consolidated statement of condition or results of operations upon adoption.

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The principal variable interest entities evaluated by the Corporation during the quarter ended March 31, 2010 included: (1) GNMA and FNMA guaranteed mortgage securitizations and for which management has concluded that the Corporation is not the primary beneficiary (refer to Note 16 to the consolidated financial statements) and (2) the trust preferred securities for which management believes that the Corporation does not possess a significant variable interest on the trusts (refer to Note 13 to the consolidated financial statements).
Additionally, the Corporation has variable interests in certain investments that have the attributes of investment companies, as well as limited partnership investments in venture capital companies. However, in January 2010, the FASB issued ASU 2010-10, Consolidation (ASC Topic 810), Amendment for Certain Investment Funds, which deferred the effective date of the provisions of ASU 2009-17 for a reporting entity’s interest in an entity that has all the attributes of an investment company; or for which it is industry practice to apply measurement principles for financial reporting purposes that are consistent with those followed by investment companies. The deferral allows asset managers that have no obligation to fund potentially significant losses of an investment entity to continue to apply the previous accounting guidance to investment entities that have the attributes of entities subject to ASC Topic 946 (the “Investment Company Guide”). The FASB also decided to defer the application of ASU 2009-17 for money market funds subject to Rule 2a-7 of the Investment Company Act of 1940. Asset managers would continue to apply the applicable existing guidance to those entities that qualify for the deferral. ASU 2010-10 did not defer the disclosure requirements in ASU 2009-17.
The Corporation was not required to consolidate existing variable interest entities for which it has a variable interest as of March 31, 2010. Refer to Note 16 to the consolidated financial statements for required disclosures associated with the guaranteed mortgage securitizations in which the Corporation holds a variable interest.
FASB Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (ASC Topic 820) - Improving Disclosures about Fair Value Measurements (“ASU 2010-06”)
ASU 2010-06, issued in January 2010, revises two disclosure requirements concerning fair value measurements and clarifies two others. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers. It will also require the presentation of purchases, sales, issuances and settlements within Level 3 on a gross basis rather than a net basis. The amendments also clarify that disclosures should be disaggregated by class of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and non-recurring fair value measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll-forward of activity in Level 3 fair value measurements, which are effective for interim and annual reporting periods beginning after December 15, 2010. This guidance

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impacts disclosures only and will not have an effect on the Corporation’s consolidated statements of condition or results of operations. The Corporation’s disclosures about fair value measurements are presented in Note 17 to the consolidated financial statements.
FASB Accounting Standards Update 2010-11, Derivatives and Hedging (ASC Topic 815): Scope Exception Related to Embedded Credit Derivatives (“ASU 2010-11”)
ASU 2010-11 clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. The credit derivative that qualifies for the exemption is related only to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. The amendments in ASU 2010-11 are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after March 5, 2010. The Corporation does not expect that the adoption of this standard will have a significant effect, if any, on its consolidated financial statements.
FASB Accounting Standards Update 2010-18,Receivables (Accounting Standards Codification (“ASC”) Topic 310) — Effect of a Loan Modification When the Loan is Part of a Pool That is Accounted for as a Single Asset (“ASU 2010-18”)
The amendments in ASU 2010-18, issued in April 2010, affect any entity that acquires loans subject to ASC Subtopic 310-30, that accounts for some or all of those loans within pools, and that subsequently modifies one or more of those loans after acquisition. ASC Subtopic 310-30 provides guidance on accounting for acquired loans that have evidence of credit deterioration upon acquisition. As a result of the amendments in ASU 2010-18, modifications of loans that are accounted for within a pool under ASC Subtopic 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. The amendments in ASU 2010-18 do not affect the accounting for loans under the scope of Subtopic 310-30 that are not accounted for within pools. Loans accounted for individually under Subtopic 310-30 continue to be subject to the troubled debt restructuring accounting provisions within ASC Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors. The amendments in ASU 2010-18 are effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The amendments are to be applied prospectively. Early application is permitted. Upon initial adoption of the guidance in ASU 2010-18, an entity may make a onetime election to terminate accounting for loans as a pool under Subtopic 310-30. This election may be applied on a pool-by-pool basis and does not preclude an entity from applying pool accounting to subsequent acquisitions of loans with credit deterioration. The Corporation is currently evaluating the impact that the adoption of ASU 2010-18 may have in its consolidated financial statements.
Note 3 — Discontinued Operations
In 2008, the Corporation discontinued the operations of Popular Financial Holdings (“PFH”) by selling assets and closing service branches and other units. The loss from discontinued operations for the quarter ended March 31, 2009 was $9.9 million, net of taxes. This loss was primarily related to salary and other expenses incurred in providing loan portfolio servicing to affiliated companies and other costs for full-time equivalent employees (“FTEs”) that were retained for a transition period.
Note 4 — Restrictions on Cash and Due from Banks and Certain Securities
The Corporation’s subsidiary banks are required by federal and state regulatory agencies to maintain average reserve balances with the Federal Reserve Bank or other banks. Those required average reserve balances were $753 million as of March 31, 2010 (December 31, 2009 — $721 million; March 31, 2009 — $694 million). Cash and due from banks as well as other short-term, highly-liquid securities are used to cover the required average reserve balances.

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As required by the Puerto Rico International Banking Center Regulatory Act, as of March 31, 2010, December 31, 2009, and March 31, 2009, the Corporation maintained separately for its two international banking entities (“IBEs”), $0.6 million in time deposits, equally divided for the two IBEs, which were considered restricted assets.
As part of a line of credit facility with a financial institution, as of March 31, 2010, the Corporation maintained restricted cash of $1 million (December 31, 2009 and March 31, 2009 — $2 million) as collateral for the line of credit. The cash is being held in certificates of deposits which mature in less than 90 days. The line of credit is used to support letters of credit.
As of March 31, 2010, the Corporation maintained restricted cash of $4 million (December 31, 2009 - $3 million) to support a letter of credit. The cash is being held in an interest-bearing money market account.
As of March 31, 2010, the Corporation had restricted cash of $0.8 million (December 31, 2009 — $1 million; March 31, 2009 — $2 million) to support a letter of credit related to a service settlement agreement that expires in June 2010.
Note 5 — Pledged Assets
Certain securities and loans were pledged principally to secure public and trust deposits, assets sold under agreements to repurchase, other borrowings and credit facilities available, derivative positions and loan servicing agreements.
The classification and carrying amount of the Corporation’s pledged assets, in which the secured parties are not permitted to sell or repledge the collateral, were as follows:
                         
    March 31,   December 31,   March 31,
(In thousands)   2010   2009   2009
 
Investment securities available-for-sale, at fair value
  $ 1,873,545     $ 1,923,338     $ 1,975,253  
Investment securities held-to-maturity, at amortized cost
    125,770       125,769       225,770  
Loans held-for-sale measured at lower of cost or fair value
    2,507       2,254       41,231  
Loans held-in-portfolio
    8,374,460       8,993,967       7,837,478  
 
Total pledged securities and loans
  $ 10,376,282     $ 11,045,328     $ 10,079,732  
 
Pledged securities and loans in which the creditor has the right by custom or contract to repledge are presented separately in the consolidated statements of condition.
Investment securities available-for-sale and held-to-maturity totaling $1.5 billion as of March 31, 2010 serve as collateral to secure public funds.
The Corporation’s banking subsidiaries have the ability to borrow funds from the Federal Home Loan Bank of New York (“FHLB) and from the Federal Reserve Bank of New York (“Fed”). As of March 31, 2010, the banking subsidiaries had short-term and long-term credit facilities authorized with the FHLB aggregating $1.9 billion. Refer to Note 12 to the consolidated financial statements for borrowings outstanding under these credit facilities. As of March 31, 2010, the credit facilities authorized with the FHLB were collateralized by $3.2 billion in loans held-in-portfolio and investment securities available-for-sale. Also, the Corporation’s banking subsidiaries had a borrowing capacity at the Fed discount window of $3.4 billion, which remained unused as of such date. The amount available under this credit facility is dependent upon the balance of loans and securities pledged as collateral. As of March 31, 2010, the credit facilities with the Fed were collateralized by $5.2 billion in loans held-in-portfolio. These pledged assets are included in the above table and were not reclassified and separately reported in the consolidated statement of condition as of March 31, 2010.

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Note 6 — Investment Securities Available-For-Sale
The amortized cost, gross unrealized gains and losses, fair value and weighted average yield of investment securities available-for-sale as of March 31, 2010, December 31, 2009 and March 31, 2009 were as follows:
                                         
    AS OF MARCH 31, 2010  
            Gross     Gross             Weighted  
    Amortized     Unrealized     Unrealized     Fair     Average  
(In thousands)   Cost     Gains     Losses     Value     Yield  
 
U.S. Treasury securities
                                       
After 1 to 5 years
  $ 56,767           $ 81     $ 56,686       1.53 %
After 5 to 10 years
    29,193     $ 1,349             30,542       3.80  
 
Total U.S. Treasury securities
    85,960       1,349       81       87,228       2.30  
 
Obligations of U.S. Government sponsored entities
                                       
Within 1 year
    338,331       5,017             343,348       3.67  
After 1 to 5 years
    1,247,333       59,077       385       1,306,025       3.65  
After 5 to 10 years
    27,812       473             28,285       4.96  
After 10 years
    26,886       718             27,604       5.68  
 
Total obligations of U.S. Government sponsored entities
    1,640,362       65,285       385       1,705,262       3.71  
 
Obligations of Puerto Rico, States and political subdivisions
                                       
Within 1 year
    5                   5       3.77  
After 1 to 5 years
    22,166       54       2       22,218       4.08  
After 5 to 10 years
    50,909       254       2,589       48,574       5.08  
After 10 years
    7,840       111             7,951       5.27  
 
Total obligations of Puerto Rico, States and political subdivisions
    80,920       419       2,591       78,748       4.82  
 
Collateralized mortgage obligations — federal agencies
                                       
After 1 to 5 years
    5,232       171             5,403       4.59  
After 5 to 10 years
    111,222       1,894       114       113,002       2.71  
After 10 years
    1,335,392       25,982       2,248       1,359,126       2.96  
 
Total collateralized mortgage obligations — federal agencies
    1,451,846       28,047       2,362       1,477,531       2.95  
 
Collateralized mortgage obligations — private label
                                       
After 5 to 10 years
    18,757       19       573       18,203       2.07  
After 10 years
    98,289       187       7,330       91,146       2.48  
 
Total collateralized mortgage obligations — private label
    117,046       206       7,903       109,349       2.41  
 
Mortgage-backed securities — agencies
                                       
Within 1 year
    25,679       356             26,035       3.46  
After 1 to 5 years
    22,885       624       1       23,508       3.97  
After 5 to 10 years
    194,798       10,822       8       205,612       4.81  
After 10 years
    2,767,080       49,182       2,905       2,813,357       4.36  
 
Total mortgage-backed securities — agencies
    3,010,442       60,984       2,914       3,068,512       4.38  
 
Equity securities
    8,959       580       423       9,116       3.28  
 
Total investment securities available-for-sale
  $ 6,395,535     $ 156,870     $ 16,659     $ 6,535,746       3.82 %
 

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    AS OF DECEMBER 31, 2009
            Gross   Gross           Weighted
    Amortized   Unrealized   Unrealized   Fair   Average
(In thousands)   Cost   Gains   Losses   Value   Yield
 
U.S. Treasury securities
                                       
After 5 to 10 years
  $ 29,359     $ 1,093           $ 30,452       3.80 %
 
Obligations of U.S. Government sponsored entities
                                       
Within 1 year
    349,424       7,491             356,915       3.67  
After 1 to 5 years
    1,177,318       58,151             1,235,469       3.79  
After 5 to 10 years
    27,812       680             28,492       4.96  
After 10 years
    26,884       176             27,060       5.68  
 
Total obligations of U.S. Government sponsored entities
    1,581,438       66,498             1,647,936       3.82  
 
Obligations of Puerto Rico, States and political subdivisions
                                       
After 1 to 5 years
    22,311       7     $ 15       22,303       6.92  
After 5 to 10 years
    50,910       249       632       50,527       5.08  
After 10 years
    7,840             61       7,779       5.26  
 
Total obligations of Puerto Rico, States and political subdivisions
    81,061       256       708       80,609       5.60  
 
Collateralized mortgage obligations — federal agencies
                                       
Within 1 year
    41                   41       3.78  
After 1 to 5 years
    4,875       120             4,995       4.44  
After 5 to 10 years
    125,397       2,105       404       127,098       2.85  
After 10 years
    1,454,833       19,060       5,837       1,468,056       3.03  
 
Total collateralized mortgage obligations — federal agencies
    1,585,146       21,285       6,241       1,600,190       3.02  
 
Collateralized mortgage obligations — private label
                                       
After 5 to 10 years
    20,885             653       20,232       2.00  
After 10 years
    105,669       109       8,452       97,326       2.59  
 
Total collateralized mortgage obligations — private label
    126,554       109       9,105       117,558       2.50  
 
Mortgage-backed securities — agencies
                                       
Within 1 year
    26,878       512             27,390       3.61  
After 1 to 5 years
    30,117       823             30,940       3.94  
After 5 to 10 years
    205,480       8,781             214,261       4.80  
After 10 years
    2,915,689       32,102       10,203       2,937,588       4.40  
 
Total mortgage-backed securities — agencies
    3,178,164       42,218       10,203       3,210,179       4.42  
 
Equity securities
    8,902       233       1,345       7,790       3.65  
 
Total investment securities available-for-sale
  $ 6,590,624     $ 131,692     $ 27,602     $ 6,694,714       3.91 %
 

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    AS OF MARCH 31, 2009
            Gross   Gross           Weighted
    Amortized   Unrealized   Unrealized   Fair   Average
(In thousands)   Cost   Gains   Losses   Value   Yield
 
U.S. Treasury securities
                                       
After 5 to 10 years
  $ 29,859     $ 2,561           $ 32,420       3.80 %
 
Obligations of U.S. Government sponsored entities
                                       
Within 1 year
    123,546       2,083             125,629       4.40  
After 1 to 5 years
    1,400,585       74,190             1,474,775       3.97  
After 5 to 10 years
    27,811       1,170             28,981       5.02  
After 10 years
    26,879       598             27,477       5.67  
 
Total obligations of U.S. Government sponsored entities
    1,578,821       78,041             1,656,862       4.05  
 
Obligations of Puerto Rico, States and political subdivisions
                                       
Within 1 year
    4,500       50             4,550       6.10  
After 1 to 5 years
    2,169           $ 10       2,159       4.95  
After 5 to 10 years
    67,894       316       4,965       63,245       4.78  
After 10 years
    29,443       41       193       29,291       5.21  
 
Total obligations of Puerto Rico, States and political subdivisions
    104,006       407       5,168       99,245       4.96  
 
Collateralized mortgage obligations — federal agencies
                                       
Within 1 year
    378                   378       5.50  
After 1 to 5 years
    4,881       37       21       4,897       5.62  
After 5 to 10 years
    159,733       1,396       897       160,232       3.17  
After 10 years
    1,454,426       18,221       14,326       1,458,321       3.15  
 
Total collateralized mortgage obligations — federal agencies
    1,619,418       19,654       15,244       1,623,828       3.16  
 
Collateralized mortgage obligations — private label
                                       
Within 1 year
    335             3       332       5.25  
After 5 to 10 years
    29,433             2,396       27,037       2.41  
After 10 years
    143,437             32,614       110,823       3.61  
 
Total collateralized mortgage obligations — private label
    173,205             35,013       138,192       3.41  
 
Mortgage-backed securities — agencies
                                       
Within 1 year
    14,087       106             14,193       3.73  
After 1 to 5 years
    83,775       1,638       3       85,410       3.84  
After 5 to 10 years
    93,042       3,628       62       96,608       5.05  
After 10 years
    2,931,499       43,825       820       2,974,504       4.56  
 
Total mortgage-backed securities — agencies
    3,122,403       49,197       885       3,170,715       4.55  
 
Equity securities
    13,053       34       3,772       9,315       2.37  
 
Others
                                       
After 1 to 5 years
    191,972       744       278       192,438       1.74  
After 5 to 10 years
    42,360             1,137       41,223       5.06  
 
Total others
    234,332       744       1,415       233,661       2.34  
 
Total investment securities available-for-sale
  $ 6,875,097     $ 150,638     $ 61,497     $ 6,964,238       4.00 %
 

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The following table shows the Corporation’s amortized cost, gross unrealized losses and fair value of investment securities available-for-sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2010, December 31, 2009 and March 31, 2009.
                         
    AS OF MARCH 31, 2010

    Less than 12 months
            Gross    
    Amortized   Unrealized   Fair
(In thousands)   Cost   Losses   Value
 
U.S. Treasury securities
  $ 56,767     $ 81     $ 56,686  
Obligations of U.S. government sponsored entities
    105,107       385       104,722  
Obligations of Puerto Rico, States and political subdivisions
    10,231       2       10,229  
Collateralized mortgage obligations — federal agencies
    181,432       1,474       179,958  
Collateralized mortgage obligations — private label
    215       11       204  
Mortgage-backed securities — agencies
    634,182       2,855       631,327  
Equity securities
    3,357       65       3,292  
 
Total
  $ 991,291     $ 4,873     $ 986,418  
 
                         
    12 months or more
            Gross    
    Amortized   Unrealized   Fair
(In thousands)   Cost   Losses   Value
 
Obligations of Puerto Rico, States and political subdivisions
  $ 44,009     $ 2,589     $ 41,420  
Collateralized mortgage obligations — federal agencies
    177,953       888       177,065  
Collateralized mortgage obligations — private label
    99,266       7,892       91,374  
Mortgage-backed securities — agencies
    3,250       59       3,191  
Equity securities
    4,302       358       3,944  
 
Total
  $ 328,780     $ 11,786     $ 316,994  
 
                         
    Total
            Gross    
    Amortized   Unrealized   Fair
(In thousands)   Cost   Losses   Value
 
U.S. Treasury securities
  $ 56,767     $ 81     $ 56,686  
Obligations of U.S. government sponsored entities
    105,107       385       104,722  
Obligations of Puerto Rico, States and political subdivisions
    54,240       2,591       51,649  
Collateralized mortgage obligations — federal agencies
    359,385       2,362       357,023  
Collateralized mortgage obligations — private label
    99,481       7,903       91,578  
Mortgage-backed securities — agencies
    637,432       2,914       634,518  
Equity securities
    7,659       423       7,236  
 
Total investment securities available-for-sale in unrealized loss position
  $ 1,320,071     $ 16,659     $ 1,303,412  
 

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    AS OF DECEMBER 31, 2009

    Less than 12 months
            Gross    
    Amortized   Unrealized   Fair
(In thousands)   Cost   Losses   Value
 
Obligations of Puerto Rico, States and political subdivisions
  $ 2,395     $ 8     $ 2,387  
Collateralized mortgage obligations — federal agencies
    302,584       3,667       298,917  
Collateralized mortgage obligations — private label
    6,734       18       6,716  
Mortgage-backed securities — agencies
    915,158       10,130       905,028  
Equity securities
    3,328       981       2,347  
 
Total
  $ 1,230,199     $ 14,804     $ 1,215,395  
 
                         
    12 months or more
            Gross    
    Amortized   Unrealized   Fair
(In thousands)   Cost   Losses   Value
 
Obligations of Puerto Rico, States and political subdivisions
  $ 64,129     $ 700     $ 63,429  
Collateralized mortgage obligations — federal agencies
    361,788       2,574       359,214  
Collateralized mortgage obligations — private label
    106,991       9,087       97,904  
Mortgage-backed securities — agencies
    3,639       73       3,566  
Equity securities
    4,262       364       3,898  
 
Total
  $ 540,809     $ 12,798     $ 528,011  
 
                         
    Total
            Gross    
    Amortized   Unrealized   Fair
(In thousands)   Cost   Losses   Value
 
Obligations of Puerto Rico, States and political subdivisions
  $ 66,524     $ 708     $ 65,816  
Collateralized mortgage obligations — federal agencies
    664,372       6,241       658,131  
Collateralized mortgage obligations — private label
    113,725       9,105       104,620  
Mortgage-backed securities — agencies
    918,797       10,203       908,594  
Equity securities
    7,590       1,345       6,245  
 
Total investment securities available-for-sale in unrealized loss position
  $ 1,771,008     $ 27,602     $ 1,743,406  
 

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    AS OF MARCH 31, 2009

    Less than 12 months
            Gross    
    Amortized   Unrealized   Fair
(In thousands)   Cost   Losses   Value
 
Obligations of Puerto Rico, States and political subdivisions
  $ 42,415     $ 324     $ 42,091  
Collateralized mortgage obligations — federal agencies
    263,287       4,968       258,319  
Collateralized mortgage obligations — private label
    9,080       1,542       7,538  
Mortgage-backed securities — agencies
    36,601       280       36,321  
Equity securities
    7,907       3,713       4,194  
Others
    53,287       1,415       51,872  
 
Total
  $ 412,577     $ 12,242     $ 400,335  
 
                         
    12 months or more
            Gross    
    Amortized   Unrealized   Fair
(In thousands)   Cost   Losses   Value
 
Obligations of Puerto Rico, States and political subdivisions
  $ 44,143     $ 4,844     $ 39,299  
Collateralized mortgage obligations — federal agencies
    467,706       10,276       457,430  
Collateralized mortgage obligations — private label
    163,810       33,471       130,339  
Mortgage-backed securities — agencies
    82,371       605       81,766  
Equity securities
    1,808       59       1,749  
 
Total
  $ 759,838     $ 49,255     $ 710,583  
 
                         
    Total
            Gross    
    Amortized   Unrealized   Fair
(In thousands)   Cost   Losses   Value
 
Obligations of Puerto Rico, States and political subdivisions
  $ 86,558     $ 5,168     $ 81,390  
Collateralized mortgage obligations — federal agencies
    730,993       15,244       715,749  
Collateralized mortgage obligations — private label
    172,890       35,013       137,877  
Mortgage-backed securities — agencies
    118,972       885       118,087  
Equity securities
    9,715       3,772       5,943  
Others
    53,287       1,415       51,872  
 
Total investment securities available-for-sale in unrealized loss position
  $ 1,172,415     $ 61,497     $ 1,110,918  
 
Management evaluates investment securities for other-than-temporary (“OTTI”) declines in fair value on a quarterly basis. Once a decline in value is determined to be other-than- temporary, the value of a debt security is reduced and a corresponding charge to earnings is recognized for anticipated credit losses. Also, for equity securities that are considered other-than-temporarily impaired, the excess of the security’s carrying value over its fair value at the evaluation date is accounted for as a loss in the results of operations. The OTTI analysis requires management to consider various factors, which include, but are not limited to: (1) the length of time and the extent to which fair value has been less than the amortized cost basis, (2) the financial condition of the issuer or issuers, (3) actual collateral attributes, (4) the payment structure of the debt security and the likelihood of the issuer being able to make payments, (5) any rating changes by a rating agency, (6) adverse conditions specifically related to the security, industry, or a geographic area, and (7) management’s intent to sell the security or whether it is more likely than not that the Corporation would be required to sell the security before a forecasted recovery occurs.
As of March 31, 2010, management performed its quarterly analysis of all debt securities in an unrealized loss position. Based on the analyses performed, management concluded that no individual debt security was other-than-temporarily impaired as of such date. As of March 31, 2010, the Corporation does not have the intent to sell debt

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securities in an unrealized loss position and it is not more likely than not that the Corporation will have to sell the investment securities prior to recovery of their amortized cost basis. Also, management evaluated the Corporation’s portfolio of equity securities as of March 31, 2010. During the quarter ended March 31, 2010, the Corporation did not record any significant other-than-temporary impairment losses on equity securities. Management has the intent and ability to hold the investments in equity securities that are at a loss position as of March 31, 2010 for a reasonable period of time for a forecasted recovery of fair value up to (or beyond) the cost of these investments.
The unrealized losses associated with “Obligations of Puerto Rico, States and political subdivisions” are primarily associated to approximately $43 million in Commonwealth of Puerto Rico Appropriation Bonds (“Appropriation Bonds”). As of March 31, 2010, those bonds were rated Ba1, one notch below investment grade by Moody’s Investors Service (“Moody’s”), while Standard & Poor’s (“S&P”) rates them as investment grade. Subsequently, on April 16, 2010, Moody’s rating was changed to Baa1 (investment grade). Management will continue monitoring those securities as part of its ongoing OTTI assessments.
The unrealized losses reported for “Collateralized mortgage obligations — federal agencies” are principally associated to CMOs that were issued by U.S. Government-sponsored entities and agencies, primarily Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”), institutions which the government has affirmed its commitment to support, and Government National Mortgage Association (“GNMA”), which has the full faith and credit of the U.S. Government. These collateralized mortgage obligations are rated AAA by the major rating agencies and are backed by residential mortgages. The unrealized losses in this portfolio were primarily attributable to changes in interest rates and levels of market liquidity relative to when the investment securities were purchased and not due to credit quality of the securities.
The unrealized losses associated with “Collateralized mortgage obligations — private label” are primarily related to securities backed by residential mortgages. In addition to verifying the credit ratings for the private-label CMOs, management analyzed the underlying mortgage loan collateral for these bonds. Various statistics or metrics were reviewed for each private-label CMO, including among others, the weighted average loan-to-value, FICO score, and delinquency and foreclosure rates of the underlying assets in the securities. As of March 31, 2010, there were no “sub-prime” or “Alt-A” securities in the Corporation’s private-label CMOs portfolios. For private-label CMOs with unrealized losses as of March 31, 2010, credit impairment was assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements that exist in that structure. The cash flow model incorporates actual cash flows through the current period and then projects the expected cash flows using a number of assumptions, including default rates, loss severity and prepayment rates. Management’s assessment also considered tests using more stressful parameters. Based on the assessments, management concluded that the tranches of the private-label CMOs held by the Corporation were not other-than-temporarily impaired as of March 31, 2010, thus management expects to recover the amortized cost basis of the securities.
All of the Corporation’s securities classified as mortgage-backed securities were issued by U.S. Government-sponsored entities and agencies, primarily GNMA and FNMA, thus as previously expressed, have the guarantee or support of the U.S. Government. These mortgage-backed securities are rated AAA by the major rating agencies and are backed by residential mortgages. Most of the mortgage-backed securities held as of March 31, 2010 with unrealized losses had been purchased at a premium during 2009, and although their fair values have declined, they continue to exceed the par value of the securities. The unrealized losses in this portfolio were generally attributable to changes in interest rates relative to when the investment securities were purchased and not due to credit quality of the securities.

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There were no securities sold during the quarter ended March 31, 2010. During the quarter ended March 31, 2009, the Corporation recognized gross realized gains of $182.7 million and proceeds of $3.5 billion on the sale of investment securities available-for-sale.
The following table states the names of issuers and the aggregate amortized cost and fair value of the securities of such issuer (includes available-for-sale and held-to-maturity securities), in which the aggregate amortized cost of such securities exceeds 10% of stockholders’ equity. This information excludes securities of the U.S. Government agencies and corporations. 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.
                                                 
    March 31, 2010   December 31, 2009   March 31, 2009
(In thousands)   Amortized Cost   Fair Value   Amortized Cost   Fair Value   Amortized Cost   Fair Value
 
FNMA
  $ 1,043,826     $ 1,070,275     $ 970,744     $ 991,825     $ 1,226,321     $ 1,239,608  
FHLB
    1,379,524       1,441,839       1,385,535       1,449,454       1,466,561       1,540,697  
Freddie Mac
    816,939       833,476       959,316       971,556       909,344       915,635  

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Note 7 — Investment Securities Held-to-Maturity
The amortized cost, gross unrealized gains and losses, fair value and weighted average yield of investment securities held-to-maturity as of March 31, 2010, December 31, 2009 and March 31, 2009 were as follows:
                                         
    AS OF MARCH 31, 2010

            Gross   Gross           Weighted
    Amortized   Unrealized   Unrealized   Fair   Average
(In thousands)   Cost   Gains   Losses   Value   Yield
 
U.S. Treasury securities
                                       
Within 1 year
  $ 25,783           $ 5     $ 25,778       0.22 %
 
Obligations of Puerto Rico, States and political subdivisions
                                       
Within 1 year
    7,110     $ 27             7,137       2.12  
After 1 to 5 years
    109,820       431             110,251       5.52  
After 5 to 10 years
    17,808       71       352       17,527       5.94  
After 10 years
    46,050             1,906       44,144       3.88  
 
Total obligations of Puerto Rico, States and political subdivisions
    180,788       529       2,258       179,059       5.01  
 
Collateralized mortgage obligations — private label
                                       
After 10 years
    215             12       203       5.45  
 
Others
                                       
Within 1 year
    1,560                   1,560       2.38  
After 1 to 5 years
    1,250                   1,250       0.84  
 
Total others
    2,810                   2,810       1.69  
 
Total investment securities held-to-maturity
  $ 209,596     $ 529     $ 2,275     $ 207,850       4.38 %
 
                                         
    AS OF DECEMBER 31, 2009

            Gross   Gross           Weighted
    Amortized   Unrealized   Unrealized   Fair   Average
(In thousands)   Cost   Gains   Losses   Value   Yield
 
U.S. Treasury securities
                                       
Within 1 year
  $ 25,777     $ 4           $ 25,781       0.11 %
 
Obligations of Puerto Rico, States and political subdivisions
                                       
Within 1 year
    7,015       6             7,021       2.04  
After 1 to 5 years
    109,415       3,157     $ 6       112,566       5.51  
After 5 to 10 years
    17,112       39       452       16,699       5.79  
After 10 years
    48,600             2,552       46,048       4.00  
 
Total obligations of Puerto Rico, States and political subdivisions
    182,142       3,202       3,010       182,334       5.00  
 
Collateralized mortgage obligations — private label
                                       
After 10 years
    220             12       208       5.45  
 
Others
                                       
Within 1 year
    3,573                   3,573       3.77  
After 1 to 5 years
    1,250                   1,250       1.66  
 
Total others
    4,823                   4,823       3.22  
 
Total investment securities held-to-maturity
  $ 212,962     $ 3,206     $ 3,022     $ 213,146       4.37 %
 

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    AS OF MARCH 31, 2009

            Gross   Gross           Weighted
    Amortized   Unrealized   Unrealized   Fair   Average
(In thousands)   Cost   Gains   Losses   Value   Yield
 
Obligations of U.S. Government sponsored entities
                                       
Within 1 year
  $ 25,770           $ 54     $ 25,716       0.38 %
 
Obligations of Puerto Rico, States and political subdivisions
                                       
Within 1 year
    106,985     $ 8             106,993       2.87  
After 1 to 5 years
    109,245       116       173       109,188       5.51  
After 5 to 10 years
    16,819       1       872       15,948       5.77  
After 10 years
    50,340             3,339       47,001       4.46  
 
Total obligations of Puerto Rico, States and political subdivisions
    283,389       125       4,384       279,130       4.34  
 
Collateralized mortgage obligations — private label
                                       
After 10 years
    236             13       223       5.45  
 
Others
                                       
Within 1 year
    7,749       12             7,761       5.30  
After 1 to 5 years
    1,750                   1,750       3.14  
 
Total others
    9,499       12             9,511       4.90  
 
Total investment securities held-to-maturity
  $ 318,894     $ 137     $ 4,451     $ 314,580       4.04 %
 
The following table shows the Corporation’s amortized cost, gross unrealized losses and fair value of investment securities held-to-maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2010, December 31, 2009 and March 31, 2009:
                         
    AS OF MARCH 31, 2010

    Less than 12 months
            Gross    
    Amortized   Unrealized   Fair
(In thousands)   Cost   Losses   Value
 
U.S. Treasury securities
  $ 25,783     $ 5     $ 25,778  
Obligations of Puerto Rico, States and political subdivisions
    24,715       1,529       23,186  
 
Total
  $ 50,498     $ 1,534     $ 48,964  
 
                         
    12 months or more
            Gross    
    Amortized   Unrealized   Fair
(In thousands)   Cost   Losses   Value
 
Obligations of Puerto Rico, States and political subdivisions
  $ 33,795     $ 729     $ 33,066  
Collateralized mortgage obligations — private label
    215       12       203  
 
Total
  $ 34,010     $ 741     $ 33,269  
 
                         
    Total
            Gross    
    Amortized   Unrealized   Fair
(In thousands)   Cost   Losses   Value
 
U.S. Treasury securities
  $ 25,783     $ 5     $ 25,778  
Obligations of Puerto Rico, States and political subdivisions
    58,510       2,258       56,252  
Collateralized mortgage obligations — private label
    215       12       203  
 
Total investment securities held-to-maturity in unrealized loss position
  $ 84,508     $ 2,275     $ 82,233  
 

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    AS OF DECEMBER 31, 2009

    Less than 12 months
            Gross    
    Amortized   Unrealized   Fair
(In thousands)   Cost   Losses   Value
 
Obligations of Puerto Rico, States and political subdivisions
  $ 23,095     $ 1,908     $ 21,187  
 
                         
    12 months or more
            Gross    
    Amortized   Unrealized   Fair
(In thousands)   Cost   Losses   Value
 
Obligations of Puerto Rico, States and political subdivisions
  $ 38,820     $ 1,102     $ 37,718  
Collateralized mortgage obligations — private label
    220       12       208  
 
Total
  $ 39,040     $ 1,114     $ 37,926  
 
                         
    Total
            Gross    
    Amortized   Unrealized   Fair
(In thousands)   Cost   Losses   Value
 
Obligations of Puerto Rico, States and political subdivisions
  $ 61,915     $ 3,010     $ 58,905  
Collateralized mortgage obligations — private label
    220       12       208  
 
Total investment securities held-to-maturity in unrealized loss position
  $ 62,135     $ 3,022     $ 59,113  
 
                         
    AS OF MARCH 31, 2009

    Less than 12 months
            Gross    
    Amortized   Unrealized   Fair
(In thousands)   Cost   Losses   Value
 
Obligations of U.S. Government sponsored entities
  $ 25,770     $ 54     $ 25,716  
Obligations of Puerto Rico, States and political subdivisions
    145,224       1,724       143,500  
Others
    250             250  
 
Total
  $ 171,244     $ 1,778     $ 169,466  
 
                         
    12 months or more
            Gross    
    Amortized   Unrealized   Fair
(In thousands)   Cost   Losses   Value
 
Obligations of Puerto Rico, States and political subdivisions
  $ 23,645     $ 2,660     $ 20,985  
Collateralized mortgage obligations — private label
    236       13       223  
Others
    250             250  
 
Total
  $ 24,131     $ 2,673     $ 21,458  
 

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    Total
            Gross    
    Amortized   Unrealized   Fair
(In thousands)   Cost   Losses   Value
 
Obligations of U.S. Government sponsored entities
  $ 25,770     $ 54     $ 25,716  
Obligations of Puerto Rico, States and political subdivisions
    168,869       4,384       164,485  
Collateralized mortgage obligations — private label
    236       13       223  
Others
    500             500  
 
Total investment securities held-to-maturity in unrealized loss position
  $ 195,375     $ 4,451     $ 190,924  
 
As indicated in Note 6 to these consolidated financial statements, management evaluates investment securities for other-than-temporary (“OTTI”) declines in fair value on a quarterly basis.
The “Obligations of Puerto Rico, States and political subdivisions” classified as held-to-maturity as of March 31, 2010 are primarily associated with securities issued by municipalities of Puerto Rico and are generally not rated by a credit rating agency. The Corporation performs periodic credit quality reviews on these issuers. The decline in fair value as of March 31, 2010 was attributable to changes in interest rates and not credit quality; thus no other-than-temporary decline in value was recorded in these held-to-maturity securities. As of March 31, 2010, the Corporation does not have the intent to sell securities held-to-maturity and it is not more likely than not that the Corporation will have to sell these investment securities prior to recovery of their amortized cost basis.
Note 8 — Transfers of Financial Assets and Mortgage Servicing Rights
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. The securities issued through these transactions are guaranteed by the corresponding agency and, as such, under seller/servicer agreements the Corporation is required to service the loans in accordance with the agencies’ servicing guidelines and standards. Substantially all mortgage loans securitized by the Corporation in GNMA and FNMA securities have fixed rates and represent conforming loans. As seller, the Corporation has made certain representations and warranties with respect to the originally transferred loans and, in some instances, has sold loans with credit recourse to a government-sponsored entity, namely FNMA. Refer to Note 15 to the consolidated financial statements for a description of such arrangements.
During the quarter ended March 31, 2010, the Corporation retained servicing rights on guaranteed mortgage securitizations (FNMA and GNMA) and whole loan sales involving approximately $231 million in principal balance outstanding (March 31, 2009 — $335 million). Gains of approximately $4.5 million were realized on these transactions during the quarter ended March 31, 2010 (March 31, 2009 — $585 thousand in losses). All loan sales or securitizations performed during the quarter ended March 31, 2010 were without credit recourse arrangements.
Mortgage servicing rights
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.
Classes of mortgage servicing rights were determined based on the different markets or types of assets being serviced. The Corporation recognizes the servicing rights of its banking subsidiaries that are related to residential mortgage loans as a class of servicing rights. These mortgage servicing rights (“MSRs”) are measured at fair value. Fair value determination is performed on a subsidiary basis, with assumptions varying in accordance with the types of assets or markets served.
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

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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 residential MSRs measured using the fair value method for the quarters ended March 31, 2010 and March 31, 2009.
                 
(In thousands)   2010   2009
 
Fair value as of January 1
  $ 169,747     $ 176,034  
Purchases
    182       327  
Servicing from securitizations or asset transfers
    3,900       5,719  
Changes due to payments on loans (1)
    (3,734 )     (3,582 )
Changes in fair value due to changes in valuation model inputs or assumptions
    3,264       (1,203 )
 
Fair value as of March 31
  $ 173,359     $ 177,295  
 
 
(1)   Represents changes due to collection / realization of expected cash flows over time.
 
Residential mortgage loans serviced for others were $17.6 billion as of March 31, 2010 (December 31, 2009 — $17.7 billion; March 31, 2009 — $17.6 billion).
Net mortgage servicing fees, a component of other service fees in the consolidated statements of operations, include the changes from period to period in the fair value of the MSRs, which may result from changes in the valuation model inputs or assumptions (principally reflecting changes in discount rates and prepayment speed assumptions) and other changes, including changes due to collection / realization of expected cash flows. Mortgage servicing fees, excluding fair value adjustments, for the quarter ended March 31, 2010 amounted to $10.9 million (March 31, 2009 — $11.7 million). The banking subsidiaries receive servicing fees based on a percentage of the outstanding loan balance. As of March 31, 2010, those weighted average mortgage servicing fees were 0.27% (March 31, 2009 — 0.27%). Under these servicing agreements, the banking subsidiaries do not generally earn significant prepayment penalty fees on the underlying loans serviced.
The discussion that follows includes information on assumptions used in the valuation model of the MSRs, originated and purchased.
Key economic assumptions used in measuring the servicing rights retained at the date of the residential mortgage loan securitizations and whole loan sales by the banking subsidiaries during the quarter ended March 31, 2010 and year ended December 31, 2009 were as follows:
                 
    March 31, 2010   December 31, 2009
 
Prepayment speed
    7.4 %     7.8 %
Weighted average life
  13.5 years   12.8 years
Discount rate (annual rate)
    11.1 %     11.0 %
 
Key economic assumptions used to estimate the fair value of MSRs derived from sales and securitizations of mortgage loans performed by the banking subsidiaries and the sensitivity to immediate changes in those assumptions as of March 31, 2010 and December 31, 2009 were as follows:
                 
    Originated MSRs
(In thousands)   March 31, 2010   December 31, 2009
 
Fair value of retained interests
  $ 102,235     $ 97,870  
Weighted average life
  11.8 years   8.8 years
Weighted average prepayment speed (annual rate)
    8.5 %     11.4 %
Impact on fair value of 10% adverse change
    ($3,289 )     ($3,182 )
Impact on fair value of 20% adverse change
    ($6,500 )     ($7,173 )
Weighted average discount rate (annual rate)
    12.90 %     12.41 %
Impact on fair value of 10% adverse change
    ($4,300 )     ($2,715 )
Impact on fair value of 20% adverse change
    ($8,362 )     ($6,240 )
 

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The banking subsidiaries also own servicing rights purchased from other financial institutions. The fair value of purchased MSRs, their related valuation assumptions and the sensitivity to immediate changes in those assumptions as of period end were as follows:
                 
    Purchased MSRs
(In thousands)   March 31, 2010   December 31, 2009
 
Fair value of retained interests
  $ 71,124     $ 71,877  
Weighted average life
  13.5 years   9.9 years
Weighted average prepayment speed (annual rate)
    7.4 %     10.1 %
Impact on fair value of 10% adverse change
    ($2,597 )     ($2,697 )
Impact on fair value of 20% adverse change
    ($4,562 )     ($5,406 )
Weighted average discount rate (annual rate)
    11.6 %     11.1 %
Impact on fair value of 10% adverse change
    ($3,223 )     ($2,331 )
Impact on fair value of 20% adverse change
    ($5,728 )     ($4,681 )
 
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.
As of March 31, 2010, the Corporation serviced $4.3 billion (December 31, 2009 — $4.5 billion; March 31, 2009 — $4.8 billion) in residential mortgage loans with credit recourse to the Corporation.
Under the GNMA securitizations, the Corporation has the right to repurchase, 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. As of March 31, 2010, the Corporation had recorded $138 million in mortgage loans on its financial statements related to this buy-back option program (December 31, 2009 — $124 million; March 31, 2009 — $128 million).
Note 9 — Other Assets
The caption of other assets in the consolidated statements of condition consists of the following major categories:
                         
    March 31,   December 31,   March 31,
(In thousands)   2010   2009   2009
 
Net deferred tax assets (net of valuation allowance)
  $ 366,224     $ 363,967     $ 364,499  
Bank-owned life insurance program
    234,008       232,387       226,695  
Prepaid FDIC insurance assessment
    193,166       206,308        
Other prepaid expenses
    125,387       130,762       121,293  
Investments under the equity method
    106,147       99,772       94,691  
Derivative assets
    72,356       71,822       100,809  
Trade receivables from brokers and counterparties
    57,536       1,104       46,533  
Others
    223,187       216,037       222,558  
 
Total other assets
  $ 1,378,011     $ 1,322,159     $ 1,177,078  
 

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Note 10 — Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the three months ended March 31, 2010 and 2009, allocated by reportable segments, were as follows (refer to Note 25 for the definition of the Corporation’s reportable segments):
                                         
2010
                    Purchase            
    Balance as of   Goodwill   accounting           Balance as of
(In thousands)   January 1, 2010   acquired   adjustments   Other   March 31, 2010
 
Banco Popular de Puerto Rico:
                                       
Commercial Banking
  $ 31,729                       $ 31,729  
Consumer and Retail Banking
    117,000                         117,000  
Other Financial Services
    8,296                         8,296  
Banco Popular North America:
                                       
Banco Popular North America
    402,078                         402,078  
E-LOAN
                             
EVERTEC
    45,246                         45,246  
 
Total Popular, Inc.
  $ 604,349                       $ 604,349  
 
                                         
2009
                    Purchase            
    Balance as of   Goodwill   accounting           Balance as of
(In thousands)   January 1, 2009   acquired   adjustments   Other   March 31, 2009
 
Banco Popular de Puerto Rico:
                                       
Commercial Banking
  $ 31,729                       $ 31,729  
Consumer and Retail Banking
    117,000           $ 1             117,001  
Other Financial Services
    8,330             (103 )           8,227  
Banco Popular North America:
                                       
Banco Popular North America
    404,237                         404,237  
E-LOAN
                             
EVERTEC
    44,496             750             45,246  
 
Total Popular, Inc.
  $ 605,792           $ 648           $ 606,440  
 
The gross amount of goodwill and accumulated impairment losses at the beginning and the end of the quarter by reportable segment were as follows:
                                                 
2010
    Balance at   Accumulated   Balance at   Balance at   Accumulated   Balance at
    January 1, 2010   Impairment   January 1, 2010   March 31, 2010   Impairment   March 31, 2010
(In thousands)   (Gross amounts)   Losses   (Net amounts)   (Gross amounts)   Losses   (Net amounts)
 
Banco Popular de Puerto Rico:
                                               
Commercial Banking
  $ 31,729           $ 31,729     $ 31,729           $ 31,729  
Consumer and Retail Banking
    117,000             117,000       117,000             117,000  
Other Financial Services
    8,296             8,296       8,296             8,296  
Banco Popular North America:
                                               
Banco Popular North America
    402,078             402,078       402,078             402,078  
E-LOAN
    164,411     $ 164,411             164,411     $ 164,411        
EVERTEC
    45,429       183       45,246       45,429       183       45,246  
 
Total Popular, Inc.
  $ 768,943     $ 164,594     $ 604,349     $ 768,943     $ 164,594     $ 604,349  
 

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2009
    Balance at   Accumulated   Balance at   Balance at   Accumulated   Balance at
    January 1, 2009   Impairment   January 1, 2009   March 31, 2009   Impairment   March 31, 2009
(In thousands)   (Gross amounts)   Losses   (Net amounts)   (Gross amounts)   Losses   (Net amounts)
 
Banco Popular de Puerto Rico:
                                               
Commercial Banking
  $ 31,729           $ 31,729     $ 31,729           $ 31,729  
Consumer and Retail Banking
    117,000             117,000       117,001             117,001  
Other Financial Services
    8,330             8,330       8,227             8,227  
Banco Popular North America:
                                               
Banco Popular North America
    404,237             404,237       404,237             404,237  
E-LOAN
    164,411     $ 164,411             164,411     $ 164,411        
EVERTEC
    44,679       183       44,496       45,429       183       45,246  
 
Total Popular, Inc.
  $ 770,386     $ 164,594     $ 605,792     $ 771,034     $ 164,594     $ 606,440  
 
The purchase accounting adjustments in the EVERTEC reportable segment for the quarter ended March 31, 2009 are related to contingency payments on acquisitions made prior to January 1, 2009.
As of March 31, 2010, December 31, 2009 and March 31, 2009 the Corporation had $6 million of identifiable intangible assets, other than goodwill, with indefinite useful lives.
The following table reflects the components of other intangible assets subject to amortization:
                                                 
    March 31, 2010   December 31, 2009   March 31, 2009
    Gross   Accumulated   Gross   Accumulated   Gross   Accumulated
(In thousands)   Amount   Amortization   Amount   Amortization   Amount   Amortization
 
Core deposits
  $ 65,379     $ 32,706     $ 65,379     $ 30,991     $ 65,380     $ 25,846  
 
                                               
Other customer relationships
    8,743       6,048       8,816       5,804       8,816       4,792  
 
                                               
Other intangibles
    125       80       125       71       2,980       2,020  
 
 
                                               
Total
  $ 74,247     $ 38,834     $ 74,320     $ 36,866     $ 77,176     $ 32,658  
 
During the quarter ended March 31, 2010, the Corporation recognized $2.0 million in amortization related to other intangible assets with definite useful lives (March 31, 2009 — $2.4 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 2010
  $ 5,629  
Year 2011
    6,982  
Year 2012
    5,967  
Year 2013
    5,784  
Year 2014
    5,146  
Year 2015
    3,037  
 

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Note 11 — Derivative Instruments and Hedging Activities
Refer to Note 31 to the consolidated financial statements included in the 2009 Annual Report for a complete description of the Corporation’s derivative activities.
The following discussion and tables provide a description of the derivative instruments used as part of the Corporation’s interest rate risk management strategies. The use of derivatives is incorporated as part of the Corporation’s overall interest rate risk management strategy to minimize significant unplanned fluctuations in earnings and cash flows that are caused by interest rate volatility. The Corporation’s goal is to manage interest rate sensitivity by modifying the repricing or maturity characteristics of certain balance sheet assets and liabilities so that the net interest income is not, on a material basis, adversely affected by movements in interest rates. The Corporation uses derivatives in its trading activities to facilitate customer transactions, to take proprietary positions and as a means of risk management. As a result of interest rate fluctuations, hedged fixed and variable interest rate assets and liabilities will appreciate or depreciate in fair value. The effect of this unrealized appreciation or depreciation is expected to be substantially offset by the Corporation’s gains or losses on the derivative instruments that are linked to these hedged assets and liabilities. As a matter of policy, the Corporation does not use highly leveraged derivative instruments for interest rate risk management.
By using derivative instruments, the Corporation exposes itself to credit and market risk. If a counterparty fails to fulfill its performance obligations under a derivative contract, the Corporation’s credit risk will equal the fair value of the derivative asset. Generally, when the fair value of a derivative contract is positive, this indicates that the counterparty owes the Corporation, thus creating a repayment risk for the Corporation. To manage the level of credit risk, the Corporation deals with counterparties of good credit standing, enters into master netting agreements whenever possible and, when appropriate, obtains collateral. The derivative assets include a $6.9 million negative adjustment as a result of the credit risk of the counterparties as of March 31, 2010 (December 31, 2009 — $5.1 million negative adjustment; March 31, 2009 — $5.6 million negative adjustment). On the other hand, when the fair value of a derivative contract is negative, the Corporation owes the counterparty and, therefore, the fair value of derivative liabilities incorporates nonperformance risk or the risk that the obligation will not be fulfilled. The derivative liabilities include a $2.6 million positive adjustment related to the incorporation of the Corporation’s own credit risk as of March 31, 2010 (December 31, 2009 — $2.1 million positive adjustment; March 31, 2009 — $3.7 million positive adjustment).
Market risk is the adverse effect that a change in interest rates, currency exchange rates, or implied volatility rates might have on the value of a financial instrument. The Corporation manages the market risk associated with interest rates and, to a limited extent, with fluctuations in foreign currency exchange rates by establishing and monitoring limits for the types and degree of risk that may be undertaken. The Corporation regularly measures this risk by using static gap analysis, simulations and duration analysis.
Pursuant to the Corporation’s accounting policy, the fair value of derivatives is not offset with the amounts for the right to reclaim cash collateral or the obligation to return cash collateral. As of March 31, 2010, the amount recognized for the right to reclaim cash collateral under master netting arrangements was $82 million and the amount recognized for the obligation to return cash collateral was $5 million (December 31, 2009 — $88 million and $4 million, respectively).
Certain of the Corporation’s derivative instruments include financial covenants tied to the corresponding banking subsidiary well-capitalized status and credit rating. These agreements could require exposure collateralization, early termination or both. The aggregate fair value of all derivative instruments with contingent features that were in a liability position as of March 31, 2010 was $70 million (December 31, 2009 — $66 million). Based on the contractual obligations established on these derivative instruments, the Corporation has fully collateralized these positions by pledging collateral of $82 million as of March 31, 2010 (December 31, 2009 — $88 million).

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Financial instruments designated as cash flow hedges or non-hedging derivatives outstanding as of March 31, 2010 and December 31, 2009 were as follows:
                                         
As of March 31, 2010
            Derivative Assets   Derivative Liabilities
            Statement of           Statement of    
    Notional   Condition           Condition   Fair
(In thousands)   Amount   Classification   Fair Value   Classification   Value
 
Derivatives designated as hedging instruments:
                                       
Forward commitments
  $ 111,300     Other assets   $ 242     Other liabilities   $ 273  
 
Total derivatives designated as hedging instruments
  $ 111,300             $ 242             $ 273  
 
Derivatives not designated as hedging instruments:
                                       
Forward contracts
  $ 144,400     Trading account securities   $ 236     Other liabilities   $ 161  
Interest rate swaps associated with:
                                       
- swaps with corporate clients
    995,976     Other assets     65,547              
- swaps offsetting position of corporate clients’ swaps
    995,976                 Other liabilities     71,518  
Foreign currency and exchange rate commitments with clients
    641                 Other liabilities     4  
Foreign currency and exchange rate commitments with counterparty
    637     Other assets     7     Other liabilities     1  
Interest rate caps and floors
    139,804     Other assets     186              
Interest rate caps and floors for the benefit of corporate clients
    139,804                 Other liabilities     186  
Indexed options on deposits
    99,750     Other assets     6,374              
Bifurcated embedded options
    76,666                 Interest bearing deposits     4,755  
 
Total derivatives not designated as hedging instruments
  $ 2,593,654             $ 72,350             $ 76,625  
 
Total derivative assets and liabilities
  $ 2,704,954             $ 72,592             $ 76,898  
 
                                         
As of December 31, 2009
            Derivative Assets   Derivative Liabilities
            Statement of           Statement of    
    Notional   Condition   Fair   Condition   Fair
(In thousands)   Amount   Classification   Value   Classification   Value
 
Derivatives designated as hedging instruments:
                                       
Forward commitments
  $ 120,800     Other assets   $ 1,346     Other liabilities   $ 22  
 
Total derivatives designated as hedging instruments
  $ 120,800             $ 1,346             $ 22  
 
Derivatives not designated as hedging instruments:
                                       
Forward contracts
  $ 165,300     Trading account securities   $ 1,253     Other liabilities   $ 79  
Interest rate swaps associated with:
                                       
- swaps with corporate clients
    1,006,154     Other assets     63,120     Other liabilities     131  
- swaps offsetting position of corporate clients’ swaps
    1,006,154     Other assets     131     Other liabilities     67,358  
Interest rate caps and floors
    139,859     Other assets     249              
Interest rate caps and floors for the benefit of corporate clients
    139,859                 Other liabilities     249  
Indexed options on deposits
    110,900     Other assets     6,976              
Bifurcated embedded options
    84,316                 Interest bearing deposits     5,402  
 
Total derivatives not designated as hedging instruments
  $ 2,652,542             $ 71,729             $ 73,219  
 
Total derivative assets and liabilities
  $ 2,773,342             $ 73,075             $ 73,241  
 

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Cash Flow Hedges
The Corporation utilizes forward contracts to hedge the sale of mortgage-backed securities with duration terms over one month. Interest rate forwards are contracts for the delayed delivery of securities, which the seller agrees to deliver on a specified future date at a specified price or yield. These forward contracts are hedging a forecasted transaction and thus qualify for cash flow hedge accounting. Changes in the fair value of the derivatives are recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) corresponding to these forward contracts is expected to be reclassified to earnings in the next twelve months. These contracts have a maximum remaining maturity of 82 days as of March 31, 2010.
For cash flow hedges, gains and losses on derivative contracts that are reclassified from accumulated other comprehensive income (loss) to current period earnings are included in the line in which the hedged item is recorded and during the period in which the forecasted transaction impacts earnings, as presented in the tables below:
                                         
Quarter ended March 31, 2010
                            Classification of    
                            Gain (Loss)   Amount of Gain
                            Recognized in   (Loss) Recognized
    Amount of   Classification in the           Income on   in Income on
    Gain (Loss)   Statement of   Amount of Gain   Derivatives   Derivatives
    Recognized in   Operations of the   (Loss)   (Ineffective Portion   (Ineffective Portion
    OCI on   Gain (Loss)   Reclassified from   and Amount   and Amount
    Derivatives   Reclassified from   AOCI into   Excluded from   Excluded from
    (Effective   AOCI into Income   Income (Effective   Effectiveness   Effectiveness
(In thousands)   Portion)   (Effective Portion)   Portion)   Testing)   Testing)
 
Forward commitments
    ($31 )   Trading account (loss) profit   $ 1,199     Trading account (loss) profit      
 
Total cash flow hedges
    ($31 )           $ 1,199                
 
OCI — “Other Comprehensive Income”
AOCI — “Accumulated Other Comprehensive Income”
 
                                         
Quarter ended March 31, 2009
                            Classification of    
                            Gain (Loss)    
                            Recognized in   Amount of Gain
    Amount of   Classification in the           Income on   (Loss) Recognized
    Gain (Loss)   Statement of   Amount of Gain   Derivatives   in Income on
    Recognized in   Operations of the   (Loss)   (Ineffective Portion   Derivatives
    OCI on   Gain (Loss)   Reclassified from   and Amount   (Ineffective Portion
    Derivatives   Reclassified from   AOCI into   Excluded from   and Amount
    (Effective   AOCI into Income   Income (Effective   Effectiveness   Excluded from
(In thousands)   Portion)   (Effective Portion)   Portion)   Testing)   Effectiveness Testing)
 
Forward commitments
    ($1,586 )   Trading account (loss) profit     ($1,917 )   Trading account (loss) profit      
Interest rate swaps
        Interest expense     (497 )            
 
Total cash flow hedges
    ($1,586 )             ($2,414 )              
 
OCI — “Other Comprehensive Income”
AOCI — “Accumulated Other Comprehensive Income”

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Non-Hedging Activities
For the quarters ended March 31, 2010 and 2009, the Corporation recognized a loss of $4.3 million and $12.4 million, respectively, related to its non-hedging derivatives, as detailed in the tables below.
                 
    Quarter ended March 31, 2010
    Classification of Gain   Amount of Gain (Loss)
    (Loss) Recognized in   Recognized in Income on
(In thousands)   Income on Derivatives   Derivatives
 
Forward contracts
  Trading account (loss) profit     ($3,071 )
Interest rate swap contracts
  Other operating income     (1,734 )
Foreign currency and exchange rate commitments
  Interest expense     2  
Indexed options
  Interest expense     263  
Bifurcated embedded options
  Interest expense     286  
 
Total
            ($4,254 )
 
                 
    Quarter ended March 31, 2009
    Classification of Gain   Amount of Gain (Loss)
    (Loss) Recognized in   Recognized in Income on
(In thousands)   Income on Derivatives   Derivatives
 
Forward contracts
  Trading account (loss) profit     ($8,052 )
Interest rate swap contracts
  Other operating income     (3,970 )
Foreign currency and exchange rate commitments
  Interest expense     1  
Foreign currency and exchange rate commitments
  Other operating income     9  
Indexed options
  Interest expense     (1,216 )
Bifurcated embedded options
  Interest expense     877  
 
Total
            ($12,351 )
 
Forward Contracts
The Corporation has forward contracts to sell mortgage-backed securities with terms lasting less than a month, which are accounted for as trading derivatives. Changes in their fair value are recognized in trading account profit (loss).
Interest Rates Swaps and Foreign Currency and Exchange Rate Commitments
In addition to using derivative instruments as part of its interest rate risk management strategy, the Corporation also utilizes derivatives, such as interest rate swaps and foreign exchange contracts, in its capacity as an intermediary on behalf of its customers. The Corporation minimizes its market risk and credit risk by taking offsetting positions under the same terms and conditions with credit limit approvals and monitoring procedures. Market value changes on these swaps and other derivatives are recognized in earnings in the period of change.
Interest Rate Caps and Floors
The Corporation enters into interest rate caps and floors as an intermediary on behalf of its customers and simultaneously takes offsetting positions under the same terms and conditions, thus minimizing its market and credit risks.

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Note 12 — Borrowings
Assets sold under agreements to repurchase were as follows:
                         
    March 31,   December 31,   March 31,
(In thousands)   2010   2009   2009
 
Assets sold under agreements to repurchase
  $ 2,491,506     $ 2,632,790     $ 2,881,997  
 
The repurchase agreements outstanding as of March 31, 2010 were collateralized by $2.2 billion in investment securities available-for-sale and $347 million in trading securities. It is the Corporation’s policy to maintain effective control over assets sold under agreements to repurchase; accordingly, such securities continue to be carried on the consolidated statements of condition.
In addition, there were repurchase agreements outstanding collateralized by $181 million in securities purchased underlying agreements to resell which the Corporation has the right to repledge. It is the Corporation’s policy to take possession of securities purchased under agreements to resell. However, the counterparties to such agreements maintain effective control over such securities, and accordingly are not reflected in the Corporation’s consolidated statements of condition.
Other short-term borrowings consisted of:
                         
    March 31,   December 31,   March 31,
(In thousands)   2010   2009   2009
 
Secured borrowing with clearing broker with an interest rate of 1.50%
        $ 6,000        
Unsecured borrowings with private investors paying interest at fixed rates ranging from 0.35% to 3.125%
              $ 28,128  
Term funds purchased paying interest at maturity at fixed rates ranging from 0.90% to 0.95%
  $ 22,000              
Others
    1,263       1,326       1,325  
 
Total other short-term borrowings
  $ 23,263     $ 7,326     $ 29,453  
 

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Notes payable consisted of:
                         
    March 31,   December 31,   March 31,
(In thousands)   2010   2009   2009
 
Advances with the FHLB:
                       
-with maturities ranging from 2010 through 2015 paying interest at monthly fixed rates ranging from 1.48% to 5.10% (March 31, 2009 — 1.48% to 5.06%)
  $ 1,056,708     $ 1,103,627     $ 1,108,986  
-maturing in 2010 paying interest quarterly at a fixed rate of 5.10%
    20,000       20,000       20,000  
 
                       
Term notes paying interest monthly at fixed rates ranging from 3.00% to 6.00%
                3,100  
 
                       
Term notes with maturities ranging from 2010 to 2013 paying interest semiannually at fixed rates ranging from 5.25% to 13.00% (March 31, 2009 — 4.70% to 7.50%)
    381,926       382,858       961,122  
 
                       
Term notes with maturities ranging from 2010 to 2013 paying interest monthly at a floating rate of 3.00% over the 10-year U.S. Treasury note rate
    1,339       1,528       3,233  
 
                       
Term notes maturing in 2011 paying interest quarterly at a floating rate of 9.75% (March 31, 2009 — 0.40% to 3.75%) over the 3-month LIBOR rate
    175,000       250,000       425,537  
 
                       
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% (Refer to Note 13)
    439,800       439,800       849,672  
 
                       
Junior subordinated deferrable interest debentures (related to trust preferred securities) ($936,000 less discount of $507,335 as of March 31, 2010) with no stated maturity and a fixed interest rate of 5.00% until, but excluding December 5, 2013 and 9.00% thereafter (Refer to Note 13)
    428,665       423,650        
 
                       
Others
    25,654       27,169       27,413  
 
Total notes payable
  $ 2,529,092     $ 2,648,632     $ 3,399,063  
 
Note:   Refer to the Corporation’s Form 10-K for the year ended December 31, 2009, for rates and maturity information corresponding to the borrowings outstanding as of such date. Key index rates as of March 31, 2010 and March 31, 2009, respectively, were as follows: 3-month LIBOR rate = 0.29% and 1.19%; 10-year U.S. Treasury note = 3.83% and 2.67%.
 
Included in the table above are $175 million in term notes with interest that adjusts in the event of senior debt rating downgrades. These floating rate term notes have an interest rate of 9.75% over the 3-month LIBOR and mature in September 2011. A future reduction in the Corporation’s senior debt rating could increment the cost of these term notes by an additional 75 basis points per notch.
The maturities of borrowings as of March 31, 2010 were as follows:
                                 
    Repurchase   Short-term        
(In thousands)   agreements   borrowings   Notes payable   Total
 
Year
                               
2010
  $ 1,329,316     $ 23,263     $ 338,837     $ 1,691,416  
2011
    50,000             522,260       572,260  
2012
    75,000             631,917       706,917  
2013
    49,000             129,780       178,780  
2014
    350,000             10,824       360,824  
Later years
    638,190             466,809       1,104,999  
No stated maturity
                936,000       936,000  
 
Subtotal
    2,491,506       23,263       3,036,427       5,551,196  
Less: Discount
                (507,335 )     (507,335 )
 
Total borrowings
  $ 2,491,506     $ 23,263     $ 2,529,092     $ 5,043,861  
 

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Note 13 — Trust Preferred Securities
As of March 31, 2010 and 2009, the Corporation had established four trusts (BanPonce Trust I, Popular Capital Trust I, Popular North America Capital Trust I and Popular Capital Trust II) for the purpose of issuing trust preferred securities (also referred to as “capital securities”) to the public. The proceeds from such issuances, together with the proceeds of 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. In August 2009, the Corporation established the Popular Capital Trust III for the purpose of exchanging the shares of Series C preferred stock held by the U.S. Treasury at the time for trust preferred securities issued by this trust. In connection with this exchange, the trust used the Series C preferred stock, together with the proceeds of issuance and sale of common securities of the trust, to purchase junior subordinated debentures issued by the Corporation.
The sole assets of the five trusts consisted of the junior subordinated debentures of the Corporation and the related accrued interest receivable. These trusts are not consolidated by the Corporation.
The junior subordinated debentures are included by the Corporation as notes payable in the consolidated statements of 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.

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Financial data pertaining to the trusts as of March 31, 2010 and December 31, 2009 were as follows:
                                         
                    Popular North        
(In thousands)   BanPonce   Popular Capital   America Capital   Popular Capital   Popular Capital
Issuer   Trust I   Trust I   Trust I   Trust II   Trust III
 
Capital securities
  $ 52,865     $ 181,063     $ 91,651     $ 101,023     $ 935,000  
Distribution rate
    8.327 %     6.700 %     6.564 %     6.125 %   5.000% until, but excluding December 5, 2013 and 9.000% thereafter  
Common securities
  $ 1,637     $ 5,601     $ 2,835     $ 3,125     $ 1,000  
Junior subordinated debentures aggregate liquidation amount
  $ 54,502     $ 186,664     $ 94,486     $ 104,148     $ 936,000  
Stated maturity date
  February 2027     November 2033     September 2034     December 2034     Perpetual  
Reference notes
  (a),(c),(f),(g)     (b),(d),(f)     (a),(c),(f)     (b),(d),(f)     (b),(d),(h),(i)  
 
Financial data pertaining to the trusts as of March 31, 2009 were as follows:
                                         
                    Popular North        
(In thousands)   BanPonce   Popular Capital   America Capital   Popular Capital   Popular Capital
Issuer   Trust I   Trust I   Trust I   Trust II   Trust III
 
Capital securities
  $ 144,000     $ 300,000     $ 250,000     $ 130,000        
Distribution rate
    8.327 %     6.700 %     6.564 %     6.125 %      
Common securities
  $ 4,640     $ 9,279     $ 7,732     $ 4,021        
Junior subordinated debentures aggregate liquidation amount
  $ 148,640     $ 309,279     $ 257,732     $ 134,021        
Stated maturity date
  February 2027     November 2033     September 2034     December 2034        
Reference notes
  (a),(c),(e),(f),(g)     (b),(d),(f)     (a),(c),(f)     (b),(d),(f)        
 
(a)   Statutory business trust that is wholly-owned by Popular North America (“PNA”) and indirectly wholly-owned by the Corporation.
 
(b)   Statutory business trust that is wholly-owned by the Corporation.
 
(c)   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.
 
(d)   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.
 
(e)   The original issuance was for $150 million. The Corporation had reacquired $6 million of the 8.327% capital securities.
 
(f)   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.
 
(g)   Same as (f) above, except that the investment company event does not apply for early redemption.
 
(h)   The debentures are perpetual and may be redeemed by Popular at any time, subject to the consent of the Board of Governors of the Federal Reserve System.
 
(i)   Carrying value of junior subordinates debentures of $429 million as of March 31, 2010 ($936 million aggregate liquidation amount, net of $507 million discount) and $424 million as of December 31, 2009 ($936 million aggregate liquidation amount, net of $512 million discount).

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In accordance with the Federal Reserve Board guidance, the trust preferred securities represent restricted core capital elements and qualify as Tier 1 Capital, subject to quantitative limits. The aggregate amount of restricted core capital elements that may be included in the Tier 1 Capital of a banking organization must not exceed 25% of the sum of all core capital elements (including cumulative perpetual preferred stock and trust preferred securities). At March 31, 2010, the Corporation’s restricted core capital elements exceeded the 25% limitation and, as such, $40 million of the outstanding trust preferred securities were disallowed as Tier 1 capital (December 31, 2009 — $7 million). Amounts of restricted core capital elements in excess of this limit generally may be included in Tier 2 capital, subject to further limitations. The Federal Reserve Board revised the quantitative limit which would limit restricted core capital elements included in the Tier 1 capital of a bank holding company to 25% of the sum of core capital elements (including restricted core capital elements), net of goodwill less any associated deferred tax liability. The new limit would be effective on March 31, 2011.
Note 14 — Stockholders’ Equity
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 totaled $402 million as of March 31, 2010 (December 31, 2009 — $402 million; March 31, 2009 — $392 million). There were no transfers between the statutory reserve account and the retained earnings account during the quarters ended March 31, 2010 and 2009.
Note 15 — Commitments, Contingencies and Guarantees
Commercial letters of credit and standby letters of credit amounted to $18 million and $124 million, respectively, as of March 31, 2010 (December 31, 2009 — $13 million and $134 million; March 31, 2009 — $18 million and $189 million). There were also other commitments outstanding and contingent liabilities, such as commitments to extend credit.
As of March 31, 2010, the Corporation recorded a liability of $0.7 million (December 31, 2009 and March 31, 2009 — $0.7 million), which represents the unamortized balance of the obligations undertaken in issuing the guarantees under the standby letters of credit. The Corporation recognizes at fair value the obligation at inception of the standby letters of credit. The fair value approximates the fee received from the customer for issuing such commitments. These fees are deferred and recognized over the commitment period. This liability is included as part of other liabilities in the consolidated statements of condition. The contract amounts in standby letters of credit outstanding represent the maximum potential amount of future payments the Corporation could be required to make under the guarantees in the event of nonperformance by the customers. These standby letters of credit are used by the customer as a credit enhancement and typically expire without being drawn upon. In the event of nonperformance by the customers, the Corporation has rights to the underlying collateral provided, if any, which normally includes cash and marketable securities, real estate, receivables, among others. Management does not anticipate any material losses related to these instruments.
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. Also, from time to time, the Corporation may have sold, in bulk sale transactions, residential mortgage loans subject to credit recourse or to certain representations and warranties from the Corporation to the purchaser. These representations and warranties may relate, for example, to borrower creditworthiness, loan documentation, collateral, prepayment and early payment defaults. The Corporation may be required to repurchase the loans under the credit recourse agreements or representation and warranties.
As of March 31, 2010, the Corporation serviced $4.3 billion (December 31, 2009 — $4.5 billion; March 31, 2009 — $4.8 billion) in residential mortgage loans subject to credit recourse provisions, principally loans associated with FNMA and Freddie Mac programs. In the event of any customer default, pursuant to the credit recourse provided, the Corporation may be required to repurchase the loan or reimburse for the incurred loss. The maximum potential amount of future payments that the Corporation would be required to make under the

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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. During the quarter ended March 31, 2010, the Corporation repurchased approximately $18 million in mortgage loans subject to the credit recourse provisions. In the event of nonperformance by the borrower, the Corporation has rights to the underlying collateral securing the mortgage loan. The Corporation suffers 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 of the related property. Historically, the losses associated to these credit recourse arrangements, which pertained to residential mortgage loans in Puerto Rico, have not been significant. As of March 31, 2010, the Corporation’s liability established to cover the estimated credit loss exposure related to loans sold or serviced with credit recourse amounted to $29 million (December 31, 2009 — $16 million; March 31, 2009 — $15 million).
When the Corporation sells or securitizes mortgage loans, it generally makes customary representations and warranties regarding the characteristics of the loans sold. The Corporation’s mortgage operations in Puerto Rico group conforming mortgage loans into pools which are exchanged for FNMA and GNMA mortgage-backed securities, which are generally sold to private investors, or may sell the loans directly to FNMA or other private investors for cash. To the extent the loans do not meet specified characteristics, the Corporation may be required to repurchase such loans or indemnify for losses. As required under the government agency programs, quality review procedures are performed by the Corporation to ensure that asset guideline qualifications are met. The Corporation has not recorded any specific contingent liability in the consolidated financial statements for these customary representation and warranties related to loans sold by the Corporation’s mortgage operations in Puerto Rico, and management believes that, based on historical data, the probability of payments and expected losses under these representation and warranty arrangements is not significant.
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. As of March 31, 2010, the Corporation serviced $17.6 billion in mortgage loans, including the loans serviced with credit recourse (December 31, 2009 — $17.7 billion; March 31, 2009 — $17.6 billion). The Corporation generally recovers funds advanced pursuant to these arrangements from the mortgage owner, from liquidation proceeds from mortgage loans foreclosed or, in the case of FHA/VA loans, under the applicable FHA and VA insurance and guarantee 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. As of March 31, 2010, the amount of funds advanced by the Corporation under such mortgage loan servicing agreements was approximately $21 million (December 31, 2009 — $14 million; March 31, 2009 — $8 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.
As of March 31, 2010, the Corporation established reserves for customary representation and warranties related to loans sold by its U.S. subsidiary E-LOAN. Loans had been sold to investors on a servicing released basis subject to certain representation and warranties. Although the risk of loss or default was generally assumed by the investors, the Corporation is required to make certain representations relating to borrower creditworthiness, loan documentation and collateral, which if not complied, may result in requiring the Corporation to repurchase the loans or indemnify investors for any related losses associated to these loans. The loans had been sold prior to 2009. As of March 31, 2010, the Corporation’s reserve for estimated losses from such representation and warranty arrangements amounted to $32 million, which was included as part of other liabilities in the consolidated statement of condition (December 31, 2009 — $33 million; March 31, 2009 — $10 million). E-LOAN is no longer originating and selling loans, since the subsidiary ceased these activities during 2008. On a quarterly basis, the Corporation reassesses its estimate for expected losses associated to E-LOAN’s customary representation and warranty arrangements. The analysis incorporates expectations on future disbursements based on quarterly repurchases and make-whole events. The analysis also considers factors such as the average length-time between the loan’s funding date and the loan repurchase date as observed in the historical loan data. During the quarter ended March 31, 2010, E-LOAN charged-

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off approximately $3 million against this representation and warranty reserve associated with loan repurchases and indemnification or make-whole events (quarter ended March 31, 2009 — $1 million). Make-whole events are typically defaulted cases in which the investor attempts to recover by collateral or guarantees, and the seller is obligated to cover any impaired or unrecovered portion of the loan.
During 2008, the Corporation provided indemnifications for the breach of certain representations or warranties in connection with various sales of assets by the discontinued operations of PFH. These sales were on a non-credit recourse basis. The agreements primarily include indemnification for breaches of certain key representations and warranties, some of which expire within a definite time period; others survive until the expiration of the applicable statute of limitations, and others do not expire. Certain of the indemnifications are subject to a cap or maximum aggregate liability defined as a percentage of the purchase price. The indemnifications agreements outstanding as of March 31, 2010 are related principally to make-whole arrangements. As of March 31, 2010, the Corporation’s reserve related to PFH’s indemnity arrangements amounted to $10 million (December 31, 2009 — $9 million; March 31, 2009 — $15 million). During the quarter ended March 31, 2010, the Corporation recorded charge-offs with respect to the PFH’s representation and warranty arrangements amounting to approximately $0.5 million (quarter ended March 31, 2009 — $0.6 million). The reserve balance as of March 31, 2010 contemplates historical indemnity payments. Certain indemnification provisions, which included, for example, reimbursement of premiums on early loan payoffs and repurchase obligations for defaulted loans within a short-term timeframe, expired during 2009. Popular, Inc. Holding Company and Popular North America have agreed to guarantee certain obligations of PFH with respect to the indemnification obligations.
During 2009, the Corporation sold a lease portfolio of approximately $0.3 billion. As of March 31, 2010, the reserve established to provide for any losses on the breach of certain representations and warranties included in the associated sale agreements amounted to $4 million (December 31, 2009 - $6 million; March 31, 2009 - $12 million). This reserve is included as part of other liabilities in the consolidated statement of condition.
Popular, Inc. Holding Company (“PIHC”) fully and unconditionally guarantees certain borrowing obligations issued by certain of its wholly-owned consolidated subsidiaries totaling $0.6 billion as of March 31, 2010 (December 31, 2009 — $0.6 billion; March 31, 2009 — $1.7 billion). In addition, as of March 31, 2010, PIHC fully and unconditionally guaranteed on a subordinated basis $1.4 billion of capital securities (trust preferred securities) (December 31, 2009 — $1.4 billion; March 31, 2009 — $824 million) issued by wholly-owned issuing trust entities to the extent set forth in the applicable guarantee agreement. Refer to Note 13 to the consolidated financial statements for further information on the trust preferred securities.
Legal Proceedings
The Corporation and its subsidiaries are defendants in a number of legal proceedings arising in the ordinary course of business. Based on the opinion of legal counsel, management believes that the final disposition of these matters, except for the matters described below which are in very early stages and management cannot currently predict their outcome, will not have a material adverse effect on the Corporation’s business, results of operations, financial condition and liquidity.
Between May 14, 2009 and May 10, 2010, five putative class actions and two derivative claims were filed in the United States District Court for the District of Puerto Rico and the Puerto Rico Court of First Instance, San Juan Part, against Popular, Inc. and certain of its directors and officers, among others. The five class actions have now been consolidated into two separate actions: a securities class action captioned Hoff v. Popular, Inc., et al. (consolidated with Otero v. Popular, Inc., et al.) and an Employee Retirement Income Security Act (ERISA) class action entitled In re Popular, Inc. ERISA Litigation (comprised of the consolidated cases of Walsh v. Popular, Inc. et al.; Montañez v. Popular, Inc., et al.; and Dougan v. Popular, Inc., et al.).
On October 19, 2009, plaintiffs in the Hoff case filed a consolidated class action complaint which includes as defendants the underwriters in the May 2008 offering of Series B Preferred Stock. The consolidated action purports to be on behalf of purchasers of Popular’s securities between January 24, 2008 and February 19, 2009 and alleges that the defendants violated Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act by issuing a series of allegedly false and/or misleading statements and/or omitting to disclose material facts necessary to make statements made by the Corporation not false and misleading. The consolidated action also alleges that the defendants violated Section 11, Section 12(a)(2) and Section 15 of the

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Securities Act by making allegedly untrue statements and/or omitting to disclose material facts necessary to make statements made by the Corporation not false and misleading in connection with the May 2008 offering of Series B Preferred Stock. The consolidated securities class action complaint seeks class certification, an award of compensatory damages and reasonable costs and expenses, including counsel fees. On January 11, 2010, Popular and the individual defendants moved to dismiss the consolidated securities class action complaint.
On November 30, 2009, plaintiffs in the ERISA case filed a consolidated class action complaint. The consolidated complaint purports to be on behalf of employees participating in the Popular, Inc. U.S.A. 401(k) Savings and Investment Plan and the Popular, Inc. Puerto Rico Savings and Investment Plan from January 24, 2008 to the date of the Complaint to recover losses pursuant to Sections 409 and 502(a)(2) of the ERISA against Popular, certain directors, officers and members of plan committees, each of whom is alleged to be a plan fiduciary. The consolidated complaint alleges that the defendants breached their alleged fiduciary obligations by, among other things, failing to eliminate Popular stock as an investment alternative in the plans. The complaint seeks to recover alleged losses to the plans and equitable relief, including injunctive relief and a constructive trust, along with costs and attorneys’ fees. On December 21, 2009, and in compliance with a scheduling order issued by the Court, Popular and the individual defendants submitted an answer to the amended complaint. Shortly thereafter, on December 31, 2009, Popular and the individual defendants filed a motion to dismiss the consolidated class action complaint or, in the alternative, for judgment on the pleadings. On May 5, 2010, a magistrate judge issued a report and recommendation in which he recommended that the motion to dismiss be denied except with respect to Banco Popular de Puerto Rico, as to which he recommended that the motion be granted.
The derivative actions (García v. Carrión, et al. and Díaz v. Carrión, et al.) have been brought purportedly for the benefit of nominal defendant Popular, Inc. against certain executive officers and directors and allege breaches of fiduciary duty, waste of assets and abuse of control in connection with our issuance of allegedly false and misleading financial statements and financial reports and the offering of the Series B Preferred Stock. The derivative complaints seek a judgment that the action is a proper derivative action, an award of damages and restitution, and costs and disbursements, including reasonable attorneys’ fees, costs and expenses. On October 9, 2009, the Court coordinated for purposes of discovery the García action and the consolidated securities class action. On October 15, 2009, Popular and the individual defendants moved to dismiss the García complaint for failure to make a demand on the Board of Directors prior to initiating litigation. On November 20, 2009, and pursuant to a stipulation among the parties, plaintiffs filed an amended complaint, and on December 21, 2009, Popular and the individual defendants moved to dismiss the García amended complaint. The Díaz case, filed in the Puerto Rico Court of First Instance, San Juan, has been removed to the U.S. District Court for the District of Puerto Rico. On October 13, 2009, Popular and the individual defendants moved to consolidate the García and Díaz actions. On October 26, 2009, plaintiff moved to remand the Díaz case to the Puerto Rico Court of First Instance and to stay defendants’ consolidation motion pending the outcome of the remand proceedings. At a scheduling conference held on January 14, 2010, the Court stayed discovery in both the Hoff and García matters pending resolution of their respective motions to dismiss.
On April 13, 2010, the Puerto Rico Court of First Instance in San Juan granted summary judgment dismissing a separate complaint brought by plaintiff in the García action that sought to enforce an alleged right to inspect the books and records of the Corporation in support of the pending derivative action. The Court held that the plaintiff had not propounded a “proper purpose” under Puerto Rico law for such inspection. On April 28, 2010, the plaintiff in that action moved for reconsideration of the Court’s dismissal.
At this early stage, it is not possible for management to assess the probability of an adverse outcome, or reasonably estimate the amount of any potential loss. It is possible that the ultimate resolution of these matters, if unfavorable, may be material to the Corporation’s results of operations.

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Note 16 —Non-Consolidated Variable Interest Entities
As indicated in Note 8 to the consolidated financial statements, the Corporation transfers residential mortgage loans in guaranteed loan securitizations or whole loan sales. The Corporation’s continuing involvement in these transfers 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 statement of condition as available-for-sale and trading securities. Refer to Note 17 to the consolidated financial statements for securities held as of March 31, 2010, the designated fair value hierarchy level and valuation techniques associated to such securities. For information on servicing assets refer to Notes 8 and 17 to the consolidated financial statements. Also, Note 8 provides the principal balance of loans sold and the associated gain recognized during the quarter ended March 31, 2010 related to the residential mortgage loans sold or securitized.
The Corporation is involved with various special purpose entities mainly in guaranteed mortgage securitization transactions. These special purpose entities are deemed to be variable interest entities (“VIEs”) since they lack equity investments at risk. As part of the adoption of ASU 2009-17, during the first quarter of 2010, the Corporation evaluated these guaranteed mortgage securitization structures in which it participates, including GNMA and FNMA, and concluded that the Corporation is not the primary beneficiary of these VIEs, and therefore, are not required to be consolidated in the Corporation’s financial statements. The Corporation qualitatively assessed whether it held a controlling financial interest in these VIEs, which included analyzing if it had both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity that could potentially be significant to the VIE. The Corporation concluded that, essentially, these entities (FNMA and GNMA) control the design of the VIE, 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 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, collateralized mortgage obligations and private label collateralized mortgage obligations issued by third party VIEs in which it has no other form of continuing involvement. Refer to Note 17 to the consolidated financial statements for additional information on the debt securities outstanding as of March 31, 2010, December 31, 2009 and March 31, 2009, which are classified as available-for-sale and trading securities in the Corporation’s consolidated statement of condition. In addition, the Corporation may retain 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. Pursuant to ASC Subtopic 810-10, the servicing fees that the Corporation receives for its servicing role are considered variable interests in the VIEs because the servicing fees are subordinated to the principal and interest that first needs to be paid to the mortgage-backed securities’ investors and to the guaranty fees that need to be paid to the federal agencies.

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The following table presents the carrying amount and classification of the assets and liabilities related to the Corporation’s variable interests in non-consolidated VIEs and the maximum exposure to loss as a result of the Corporation’s involvement as servicer with non-consolidated VIEs as of March 31, 2010 and December 31, 2009.
                 
    March 31,   December 31,
(In thousands)   2010   2009
 
Assets
               
Servicing assets:
               
Mortgage servicing rights
  $ 108,184     $ 104,984  
 
Total servicing assets
  $ 108,184     $ 104,984  
 
Other assets:
               
Servicing advances
  $ 2,999     $ 2,029  
 
Total other assets
  $ 2,999     $ 2,029  
 
Total
  $ 111,183     $ 107,013  
 
Maximum exposure to loss
  $ 111,183     $ 107,013  
 
The size of the non-consolidated VIEs, in which the Corporation has a variable interest in the form of servicing fees, measured as the total unpaid principal balance of the loans, amounted to $9.3 billion as of March 31, 2010 and December 31, 2009.
Maximum exposure to loss represents the maximum loss, under a worst case scenario, that would be incurred by the Corporation, as servicer for the VIEs, assuming all loans serviced are delinquent and that the value of the Corporation’s interests and any associated collateral declines to zero, without any consideration of recovery. The Corporation determined that the maximum exposure to loss includes the fair value of the MSRs and the assumption that the servicing advances as of March 31, 2010 and December 31, 2009 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.
Note 17 — Fair Value Measurement
ASC Subtopic 820-10 “Fair Value Measurements and Disclosures” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels in order to increase consistency and comparability in fair value measurements and disclosures. The hierarchy is broken down into three levels based on the reliability of inputs as follows:
    Level 1- Unadjusted quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date. Valuation on these instruments does not necessitate a significant degree of judgment since valuations are based on quoted prices that are readily available in an active market.
 
    Level 2- Quoted prices other than those included in Level 1 that are observable either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or that can be corroborated by observable market data for substantially the full term of the financial instrument.
 
    Level 3- Inputs are unobservable and significant to the fair value measurement. Unobservable inputs reflect the Corporation’s own assumptions about assumptions that market participants would use in pricing the asset or liability.
The Corporation maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Fair value is based upon quoted market prices when available. If listed prices or quotes are not available, the Corporation employs internally-developed models that primarily use market-based inputs including yield curves, interest rates, volatilities, and credit curves, among others. Valuation adjustments are limited to those necessary to ensure that the financial instrument’s fair value is adequately representative of the price that would be received or paid in the marketplace. These adjustments include amounts that reflect counterparty credit quality, the Corporation’s credit standing, constraints on liquidity and unobservable parameters that are applied consistently.

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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 the fair value could significantly affect the results.
Fair Value on a Recurring Basis
The following fair value hierarchy tables present information about the Corporation’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2010, December 31, 2009 and March 31, 2009:
                                 
    As of March 31, 2010
                            Balance as of
                            March 31,
(In millions)   Level 1   Level 2   Level 3   2010
 
Assets
                               
 
Continuing Operations
                               
 
Investment securities available-for-sale:
                               
 
U.S. Treasury securities
        $ 87           $ 87  
Obligations of U.S. Government sponsored entities
          1,705             1,705  
Obligations of Puerto Rico, States and political subdivisions
          79             79  
Collateralized mortgage obligations — federal agencies
          1,478             1,478  
Collateralized mortgage obligations — private label
          109             109  
Mortgage-backed securities — agencies
          3,033     $ 36       3,069  
Equity securities
  $ 4       5             9  
 
Total investment securities available-for-sale
  $ 4     $ 6,496     $ 36     $ 6,536  
 
Trading account securities, excluding derivatives:
                               
Obligations of Puerto Rico, States and political subdivisions
        $ 4           $ 4  
Collateralized mortgage obligations
          1     $ 3       4  
Residential mortgage-backed securities — agencies
          163       197       360  
Other
          9       3       12  
 
Total trading account securities
          $ 177     $ 203     $ 380  
 
Mortgage servicing rights
              $ 173     $ 173  
Derivatives (Refer to Note 11)
        $ 73           $ 73  
 
Total
  $ 4     $ 6,746     $ 412     $ 7,162  
 
 
                               
Liabilities
                               
 
Continuing Operations
                               
Derivatives (Refer to Note 11)
          ($77 )           ($77 )
 
Total
          ($77 )           ($77 )
 

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    As of December 31, 2009
                            Balance as of
                            December 31,
(In millions)   Level 1   Level 2   Level 3   2009
 
Assets
                               
 
Continuing Operations
                               
 
Investment securities available-for-sale:
                               
 
U.S. Treasury securities
        $ 30           $ 30  
Obligations of U.S. Government sponsored entities
          1,648             1,648  
Obligations of Puerto Rico, States and political subdivisions
          81             81  
Collateralized mortgage obligations — federal agencies
          1,600             1,600  
Collateralized mortgage obligations — private label
          118             118  
Mortgage-backed securities — agencies
          3,176     $ 34       3,210  
Equity securities
  $ 3       5             8  
 
Total investment securities available-for-sale
  $ 3     $ 6,658     $ 34     $ 6,695  
 
Trading account securities, excluding derivatives:
                               
Obligations of Puerto Rico, States and political subdivisions
        $ 13           $ 13  
Collateralized mortgage obligations
          1     $ 3       4  
Residential mortgage-backed securities — agencies
          208       224       432  
Other
          9       3       12  
 
Total trading account securities
        $ 231     $ 230     $ 461  
 
Mortgage servicing rights
              $ 170     $ 170  
Derivatives (Refer to Note 11)
        $ 73           $ 73  
 
Total
  $ 3     $ 6,962     $ 434     $ 7,399  
 
 
                               
Liabilities
                               
 
Continuing Operations
                               
Derivatives (Refer to Note 11)
          ($73 )           ($73 )
 
Total
          ($73 )           ($73 )
 

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    As of March 31, 2009
                            Balance as of
                            March 31,
(In millions)   Level 1   Level 2   Level 3   2009
 
Assets
                               
 
Continuing Operations
                               
 
Investment securities available-for-sale:
                               
 
U.S. Treasury securities
        $ 32           $ 32  
Obligations of U.S. Government sponsored entities
          1,657             1,657  
Obligations of Puerto Rico, States and political subdivisions
          99             99  
Corporate bonds
          234             234  
Collateralized mortgage obligations — federal agencies
          1,624             1,624  
Collateralized mortgage obligations — private label
          138             138  
Mortgage-backed securities — agencies
          3,135     $ 36       3,171  
Equity securities
  $ 5       4             9  
 
Total investment securities available-for-sale
  $ 5     $ 6,923     $ 36     $ 6,964  
 
Trading account securities, excluding derivatives:
                               
U.S. Treasury securities and obligations of U.S. Government sponsored entities
        $ 1           $ 1  
Obligations of Puerto Rico, States and political subdivisions
          12             12  
Collateralized mortgage obligations
          2     $ 3       5  
Residential mortgage-backed securities — agencies
          376       276       652  
Other
          22       5       27  
 
Total trading account securities
        $ 413     $ 284     $ 697  
 
Mortgage servicing rights
              $ 177     $ 177  
Derivatives (Refer to Note 11)
        $ 101           $ 101  
 
Discontinued Operations
                               
 
Loans measured at fair value pursuant to fair value option
              $ 5     $ 5  
 
Total
  $ 5     $ 7,437     $ 502     $ 7,944  
 
 
                               
Liabilities
                               
 
Continuing Operations
                               
Derivatives (Refer to Note 11)
          ($111 )           ($111 )
 
Total
          ($111 )           ($111 )
 

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The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarters ended March 31, 2010 and 2009:
                                                 
Quarter ended March 31, 2010
                                            Changes in
                                            unrealized
                                            gains (losses)
                                            included in
                            Purchases,           earnings
                            sales,           related to
                    Gains (losses)   issuances,           assets and
    Balance   Gains   included in   settlements,           liabilities still
    as of   (losses)   other   and   Balance as   held as of
    January   included in   comprehensive   paydowns   of March   March 31,
(In millions)   1, 2010   earnings   income   (net)   31, 2010   2010
 
Assets
                                               
 
Continuing Operations
                                               
Investment securities available-for-sale:
                                               
Mortgage-backed securities — agencies
  $ 34                 $ 2     $ 36        
 
Total investment securities available-for-sale
  $ 34                 $ 2     $ 36        
 
Trading account securities:
                                               
Collateralized mortgage obligations
  $ 3                       $ 3        
Residential mortgage — backed securities- agencies
    224                   ($27 )     197     $ 1 (a)
Other
    3                         3        
 
Total trading account securities
  $ 230                   ($27 )   $ 203     $ 1  
 
Mortgage servicing rights
  $ 170       ($1 )         $ 4     $ 173     $ 3 (b)
 
Total
  $ 434       ($1 )           ($21 )   $ 412     $ 4  
 
a)   Gains (losses) are included in “Trading account profit” in the statement of operations
 
b)   Gains (losses) are included in “Other service fees” in the statement of operations

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Quarter ended March 31, 2009
                                                    Changes in
                                                    unrealized
                                                    gains (losses)
                                                    included in
                                    Purchases,           earnings
                                    sales,           related to
                    Gains (losses)   Increase   issuances,           assets and
    Balance   Gains   included in   (decrease)   settlements,           liabilities still
    as of   (losses)   other   in accrued   and   Balance as   held as of
    January 1,   included in   comprehensive   interest   paydowns   of March   March 31,
(In millions)   2009   earnings   income   receivable   (net)   31, 2009   2009
 
Assets
                                                       
 
Continuing Operations
                                                       
Investment securities available-for-sale:
                                                       
Mortgage-backed securities — agencies
  $ 37                         ($1 )   $ 36        
 
Total investment securities available-for-sale
  $ 37                         ($1 )   $ 36        
 
Trading account securities:
                                                       
Collateralized mortgage obligations
  $ 3                             $ 3        
Residential mortgage- backed securities- Federal agencies
    292     $ 2                   ($18 )     276     $ 3  
Other
    5                               5        
 
Total trading account securities
  $ 300     $ 2                   ($18 )   $ 284     $ 3 (a)
 
Mortgage servicing rights
  $ 176       ($5 )               $ 6     $ 177       ($1 )(c)
 
Discontinued Operations
                                                       
Loans measured at fair value pursuant to fair value option
  $ 5     $ 1                   ($1 )   $ 5       (b)
 
Total
  $ 518       ($2 )                 ($14 )   $ 502     $ 2  
 
a)   Gains (losses) are included in “Trading account profit” in the statement of operations
 
b)   Gains (losses) are included in “Loss from discontinued operations, net of tax” in the statement of operations
 
c)   Gains (losses) are included in “Other service fees” in the statement of operations
 
There were no transfers in and / or out of Level 3 for financial instruments measured at fair value on a recurring basis during the quarters ended March 31, 2010 and 2009. Also, there were no transfers in and / or out of Level 1 and Level 2 during the quarters ended March 31, 2010 and 2009. If transfers were to be recognized, the Corporation’s policy is to recognize them as of the end of the reporting period.
Gains and losses (realized and unrealized) included in earnings for the quarters ended March 31, 2010 and 2009 for Level 3 assets and liabilities included in the previous tables are reported in the consolidated statement of operations as follows:
                                 
    Quarter ended March 31, 2010   Quarter ended March 31, 2009
            Changes in           Changes in
            unrealized gains           unrealized gains
            (losses) relating to           (losses) relating to
    Total gains (losses)   assets / liabilities   Total gains (losses)   assets / liabilities
    included in   still held at   included in   still held at
(In millions)   earnings   reporting date   earnings   reporting date
 
Continuing Operations
                               
Other service fees
    ($1 )   $ 3       ($5 )     ($1 )
Trading account profit
          1       2       3  
Discontinued Operations
                               
Loss from discontinued operations, net of tax
                1        
 
Total
    ($1 )   $ 4       ($2 )   $ 2  
 

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Additionally, in accordance with generally accepted accounting principles, the Corporation may be required to measure certain assets at fair value on a nonrecurring basis in periods subsequent to their initial recognition. The adjustments to fair value usually result from the application of lower of cost or fair value accounting, identification of impaired loans requiring specific reserves under ASC Subsection 310-10-35 “Accounting by Creditors for Impairment of a Loan”, or write-downs of individual assets. The following tables present financial and non-financial assets that were subject to a fair value measurement on a nonrecurring basis during the quarters ended March 31, 2010 and 2009, and which were still included in the consolidated statement of condition as of such dates. The amounts disclosed represent the aggregate fair value measurements of those assets as of the end of the reporting period.
                                 
Carrying value as of March 31, 2010
(In millions)   Level 1   Level 2   Level 3   Total
 
Assets
                               
Continuing Operations
                               
Loans (1)
              $ 372     $ 372  
Loans held–for–sale (2)
                14       14  
Other real estate owned (3)
                25       25  
 
Total
                  $ 411     $ 411  
 
 
(1)   Relates mostly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations, in accordance with the provisions of ASC Subsection 310-10-35.
 
(2)   Relates to lower of cost or fair value adjustments of loans held–for–sale. These adjustments were principally determined based on negotiated price terms for the loans.
 
(3)   Represents the fair value of foreclosed real estate and other collateral owned that were measured at fair value.
 
                                 
Carrying value as of March 31, 2009
(In millions)   Level 1   Level 2   Level 3   Total
 
Assets
                               
Continuing Operations
                               
Loans (1)
              $ 265     $ 265  
Loans held-for-sale (2)
                18       18  
Other real estate owned (3)
                30       30  
Other foreclosed assets (3)
                6       6  
Discontinued Operations
                               
Loans held-for-sale (2)
                2       2  
Other real estate owned (3)
                1       1  
 
Total
              $ 322     $ 322  
 
 
(1)   Relates mostly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations, in accordance with the provisions of ASC Subsection 310-10-35.
 
(2)   Relates to lower of cost or fair value adjustments of loans held-for-sale and loans transferred from loans held-in-portfolio to loans held-for-sale. These adjustments were principally determined based on negotiated price terms for the loans.
 
(3)   Represents the fair value of foreclosed real estate and other collateral owned that were measured at fair value.
 
Following is a description of the Corporation’s valuation methodologies used for assets and liabilities measured at fair value. The disclosure requirements exclude certain financial instruments and non-financial instruments. Accordingly, the aggregate fair value of the financial instruments disclosed do not represent management’s estimate of the underlying value of the Corporation.
Trading Account Securities and Investment Securities Available-for-Sale
    U.S. Treasury securities: The fair value of U.S. Treasury securities is based on yields that are interpolated from the constant maturity treasury curve. These securities are classified as Level 2.
 
    Obligations of U.S. Government sponsored entities: The Obligations of U.S. Government sponsored entities include U.S. agency securities, which fair value is based on an active exchange market and on quoted market prices for similar securities. The U.S. agency securities are classified as Level 2.

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    Obligations of Puerto Rico, States and political subdivisions: Obligations of Puerto Rico, States and political subdivisions include municipal bonds. The bonds are segregated and the like characteristics divided into specific sectors. Market inputs used in the evaluation process include all or some of the following: trades, bid price or spread, two sided markets, quotes, benchmark curves including but not limited to Treasury benchmarks, LIBOR and swap curves, market data feeds such as MSRB, discount and capital rates, and trustee reports. The municipal bonds are classified as Level 2.
 
    Mortgage-backed securities — agencies: Certain agency mortgage-backed securities (“MBS”) are priced based on a bond’s theoretical value from similar bonds defined by credit quality and market sector. Their fair value incorporates an option adjusted spread. The agency MBS are classified as Level 2. Other agency MBS such as GNMA Puerto Rico Serials are priced using an internally-developed pricing matrix with quoted prices from local broker dealers. These particular MBS are classified as Level 3.
 
    Collateralized mortgage obligations: Agency and private collateralized mortgage obligations (“CMOs”) are priced based on a bond’s theoretical value from similar bonds defined by credit quality and market sector and for which fair value incorporates an option adjusted spread. The option adjusted spread model includes prepayment and volatility assumptions, ratings (whole loans collateral) and spread adjustments. These investment securities are classified as Level 2.
 
    Equity securities: Equity securities with quoted market prices obtained from an active exchange market are classified as Level 1. Other equity securities that do not trade in highly liquid markets are classified as Level 2.
 
    Corporate securities and mutual funds (included as “other” in the “trading account securities” category): Quoted prices for these security types are obtained from broker dealers. Given that the quoted prices are for similar instruments or do not trade in highly liquid markets, the corporate securities and mutual funds are classified as Level 2. The important variables in determining the prices of Puerto Rico tax-exempt mutual fund shares are net asset value, dividend yield and type of assets in the fund. All funds trade based on a relevant dividend yield taking into consideration the aforementioned variables. In addition, demand and supply also affect the price. Corporate securities that trade less frequently or are in distress are classified as Level 3.
Derivatives
Interest rate swaps, interest rate caps and indexed options are traded in over-the-counter active markets. These derivatives are indexed to an observable interest rate benchmark, such as LIBOR or equity indexes, and are priced using an income approach based on present value and option pricing models using observable inputs. Other derivatives are liquid and have quoted prices, such as forward contracts or “to be announced securities” (“TBAs”). All of these derivatives are classified as Level 2. The non-performance risk is determined using internally-developed models that consider the collateral held, the remaining term, and the creditworthiness of the entity that bears the risk, and uses available public data or internally-developed data related to current spreads that denote their probability of default.
Mortgage servicing rights
Mortgage servicing rights (“MSRs”) do not trade in an active market with readily observable prices. MSRs are priced internally using a discounted cash flow model. The valuation model considers servicing fees, portfolio characteristics, prepayment assumptions, delinquency rates, late charges, other ancillary revenues, cost to service and other economic factors. Due to the unobservable nature of certain valuation inputs, the MSRs are classified as Level 3.
Loans held-in-portfolio considered impaired under ASC Subsection 310-10-35 that are collateral dependent
The impairment is measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations, in accordance with the provisions of ASC Subsection 310-10-35. Currently, the associated loans considered impaired are classified as Level 3.

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Loans measured at fair value pursuant to lower of cost or fair value adjustments
Loans measured at fair value on a nonrecurring basis pursuant to lower of cost or fair value were priced based on bids received from potential buyers, secondary market prices, and discounted cash flow models which incorporate internally-developed assumptions for prepayments and credit loss estimates. These loans are classified as Level 3.
Other real estate owned and other foreclosed assets
Other real estate owned includes real estate properties securing mortgage, consumer, and commercial loans. Other foreclosed assets include automobiles securing auto loans. The fair value of foreclosed assets may be determined using an external appraisal, broker price opinion or an internal valuation. These foreclosed assets are classified as Level 3 given certain internal adjustments that may be made to external appraisals.
Note 18 — 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. Fair value estimates are made at a specific point in time based on the type of financial instrument and relevant market information. Many of these estimates involve various assumptions and may vary significantly from amounts that could be realized in actual transactions.
The information about the estimated fair values of financial instruments presented hereunder excludes all nonfinancial instruments and certain other specific items.
Derivatives are considered financial instruments and their carrying value equals fair value. For disclosures about the fair value of derivative instruments refer to Note 11 to the consolidated financial statements.
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.
The fair values reflected herein have been determined based on the prevailing interest rate environment as of March 31, 2010 and December 31, 2009, respectively. 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. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Corporation. The methods and assumptions used to estimate the fair values of significant financial instruments as of March 31, 2010 and December 31, 2009 are described in the paragraphs below.
Short-term financial assets and liabilities have relatively short maturities, or no defined maturities, and little or no credit risk. The carrying amounts reported in the consolidated statements of condition approximate fair value because of the short-term maturity of those instruments or because they carry interest rates which approximate market. Included in this category are: cash and due from banks, federal funds sold and securities purchased under agreements to resell, time deposits with other banks, bankers acceptances and assets sold under agreements to repurchase and short-term borrowings. Resell and repurchase agreements with long-term maturities are valued using discounted cash flows based on market rates currently available for agreements with similar terms and remaining maturities.
Trading and investment securities, except for investments classified as other investment securities in the consolidated statement of condition, are financial instruments that regularly trade on secondary markets. The estimated fair value of these securities was determined using either market prices or dealer quotes, where available, or quoted market prices of financial instruments with similar characteristics. Trading account securities and securities available-for-sale are reported at their respective fair values in the consolidated statements of condition since they are marked-to-market for accounting purposes. These instruments are detailed in the consolidated statements of condition and in Notes 6 and 7.

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The estimated fair value for loans held-for-sale was based on secondary market prices, bids received from potential buyers and discounted cash flow models. The fair values of the loans held-in-portfolio have been determined for groups of loans with similar characteristics. Loans were segregated by type such as commercial, construction, residential mortgage, consumer, and credit cards. Each loan category was further segmented based on loan characteristics, including interest rate terms, credit quality and vintage. Generally, fair values were estimated based on an exit price by discounting scheduled cash flows for the segmented groups of loans using a discount rate that considers interest, credit and expected return by market participant under current market conditions. Additionally, prepayment, default and recovery assumptions have been applied in the mortgage loan portfolio valuations. Generally accepted accounting principles do not require a fair valuation of the lease financing portfolio, therefore it is included in the loans total at its carrying amount.
The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, savings, NOW, and money market accounts was, for purposes of this disclosure, equal to the amount payable on demand as of the respective dates. The fair value of certificates of deposit was based on the discounted value of contractual cash flows using interest rates being offered on certificates with similar maturities. The value of these deposits in a transaction between willing parties is in part dependent of the buyer’s ability to reduce the servicing cost and the attrition that sometimes occurs. Therefore, the amount a buyer would be willing to pay for these deposits could vary significantly from the presented fair value.
Long-term borrowings were valued using discounted cash flows, based on market rates currently available for debt with similar terms and remaining maturities and in certain instances using quoted market rates for similar instruments as of March 31, 2010 and December 31, 2009.
As part of the fair value estimation procedures of certain liabilities, including repurchase agreements (regular and structured) and FHLB advances, the Corporation considered, where applicable, the collateralization levels as part of its evaluation of non-performance risk. Also, for certificates of deposit, the non-performance risk was determine using internally-developed models that consider, where applicable, the collateral held, amounts insured, the remaining term, and the credit premium of the institution.
Commitments to extend credit were valued using the fees currently charged to enter into similar agreements. For those commitments where a future stream of fees is charged, the fair value was estimated by discounting the projected cash flows of fees on commitments. The fair value of letters of credit was based on fees currently charged on similar agreements.

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Carrying or notional amounts, as applicable, and estimated fair values for financial instruments were:
                                 
    March 31, 2010   December 31, 2009
    Carrying   Fair   Carrying   Fair
(In thousands)   amount   value   amount   value
 
Financial Assets:
                               
Cash and money market investments
  $ 1,596,928     $ 1,596,928     $ 1,680,127     $ 1,680,127  
Trading securities
    380,149       380,149       462,436       462,436  
Investment securities available-for-sale
    6,535,746       6,535,746       6,694,714       6,694,714  
Investment securities held-to-maturity
    209,596       207,850       212,962       213,146  
Other investment securities
    156,864       158,375       164,149       165,497  
Loans held-for-sale
    106,412       110,253       90,796       91,542  
Loans held-in-portfolio, net
    21,801,263       19,798,779       22,451,909       20,021,224  
Financial liabilities:
                               
Deposits
  $ 25,360,312     $ 25,491,135     $ 25,924,894     $ 26,076,515  
Assets sold under agreements to repurchase
    2,491,506       2,618,208       2,632,790       2,759,438  
Short-term borrowings
    23,263       23,263       7,326       7,326  
Notes payable
    2,529,092       2,386,871       2,648,632       2,453,037  
                                 
    Notional   Fair   Notional   Fair
(In thousands)   amount   Value   Amount   Value
 
Commitments to extend credit
  $ 6,744,092     $ 3,805     $ 7,013,148     $ 882  
Letters of credit
    142,772       2,164     147,647     1,565  
Note 19 —Net Loss per Common Share
The computation of net loss per common share (“EPS”) follows:
                 
    Quarter ended
    March 31,
(In thousands, except share information)   2010   2009
 
Net loss from continuing operations
    ($85,055 )     ($42,576 )
Net loss from discontinued operations
          (9,946 )
Preferred stock dividends
          (22,916 )
Preferred stock discount accretion
          (1,762 )
 
 
               
Net loss applicable to common stock
    ($85,055 )     ($77,200 )
 
 
               
Average common shares outstanding
    639,003,599       281,834,434  
Average potential common shares
           
 
Average common shares outstanding — assuming dilution
    639,003,599       281,834,434  
 
 
               
Basic and diluted EPS from continuing operations
    ($0.13 )     ($0.24 )
Basic and diluted EPS from discontinued operations
          (0.03 )
 
Basic and diluted EPS
    ($0.13 )     ($0.27 )
 
Potential common shares consist of common stock issuable under the assumed exercise of stock options and under restricted stock awards using the treasury stock method. This method assumes that the potential common shares are issued and the proceeds from exercise, in addition to the amount of compensation cost attributed to future services, are used to purchase common stock at the exercise date. The difference between the number of potential shares issued and the shares purchased is added as incremental shares to the actual number of shares outstanding to compute diluted earnings per share. Warrants, stock options and restricted stock awards that result in lower potential shares issued than shares purchased under the treasury stock method are not included in the computation of dilutive earnings per share since their inclusion would have an antidilutive effect in earnings per common share.

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For the quarter ended March 31, 2010, there were 2,552,663 weighted average antidilutive stock options outstanding (March 31, 2009 —2,938,506). Additionally, the Corporation has outstanding a warrant to purchase 20,932,836 shares of common stock, which has an antidilutive effect as of March 31, 2010.
Note 20 — Other Service Fees
The caption of other service fees in the consolidated statements of operations consists of the following major categories:
                 
    Quarter ended
    March 31,
(In thousands)   2010   2009
 
Debit card fees
  $ 26,593     $ 26,373  
Credit card fees and discounts
    23,297       24,005  
Processing fees
    13,962       13,408  
Mortgage servicing fees, net of fair value adjustments
    11,359       6,880  
Insurance fees
    10,990       12,004  
Sale and administration of investment products
    7,167       7,329  
Other fees
    7,952       8,534  
 
Total other service fees
  $ 101,320     $ 98,533  
 
Note 21 — Pension and Postretirement Benefits
The Corporation has noncontributory defined benefit pension plans and supplementary benefit pension plans for regular employees of certain of its subsidiaries. Effective May 1, 2009, the accrual of the benefits under the BPPR retirement plan was frozen to all participants. Pursuant to the amendment, the retirement plan participants will not receive any additional credit for compensation earned and service performed after April 30, 2009 for purposes of calculating benefits under the retirement plans.
The components of net periodic pension cost for the quarters ended March 31, 2010 and 2009 were as follows:
                                 
    Pension Plans   Benefit Restoration Plans
    Quarters ended   Quarters ended
    March 31,   March 31,
(In thousands)   2010   2009   2010   2009
 
Service cost
        $ 2,443           $ 225  
Interest cost
  $ 7,953       8,547     $ 384       444  
Expected return on plan assets
    (7,776 )     (6,877 )     (403 )     (318 )
Amortization of prior service cost (credit)
          44             (8 )
Amortization of net loss
    2,206       4,183       99       313  
 
Net periodic cost
    2,383       8,340       80       656  
Curtailment loss (gain)
          820             (341 )
 
Total cost
  $ 2,383     $ 9,160     $ 80     $ 315  
 
There were no contributions made to the pension and benefit restoration plans during the quarter ended March 31, 2010. The total contributions expected to be paid during the year 2010 for the pension and benefit restoration plans amount to approximately $3.2 million.

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The Corporation also provides certain health care benefits for retired employees of certain subsidiaries. The components of net periodic postretirement benefit cost for the quarters ended March 31, 2010 and 2009 were as follows:
                 
    Quarters ended
    March 31,
(In thousands)   2010   2009
 
Service cost
  $ 432     $ 549  
Interest cost
    1,609       2,026  
Amortization of prior service cost
    (262 )     (261 )
Amortization of net gain
    (294 )      
 
Total net periodic cost
  $ 1,485     $ 2,314  
 
For the quarter ended March 31, 2010, contributions made to the postretirement benefit plan amounted to approximately $1.1 million. The total contributions expected to be paid during the year 2010 for the postretirement benefit plan amount to approximately $5.2 million.
Note 22 — Stock-Based Compensation
The Corporation maintained a Stock Option Plan (the “Stock Option Plan”), which permitted the granting of incentive awards in the form of qualified stock options, incentive stock options, or non-statutory stock options of the Corporation. In April 2004, the Corporation’s shareholders adopted the Popular, Inc. 2004 Omnibus Incentive Plan (the “Incentive Plan”), which replaced and superseded the Stock Option Plan. Nevertheless, all outstanding award grants under the Stock Option Plan continue to remain in effect as of March 31, 2010 under the original terms of the Stock Option Plan.
Stock Option Plan
Employees and directors of the Corporation or any of its subsidiaries were eligible to participate in the Stock Option Plan. The Board of Directors or the Compensation Committee of the Board had the absolute discretion to determine the individuals that were eligible to participate in the Stock Option Plan. This plan provided for the issuance of Popular, Inc.’s common stock at a price equal to its fair market value at the grant date, subject to certain plan provisions. The shares are to be made available from authorized but unissued shares of common stock or treasury stock. The Corporation’s policy has been to use authorized but unissued shares of common stock to cover each grant. The maximum option term is ten years from the date of grant. Unless an option agreement provides otherwise, all options granted are 20% exercisable after the first year and an additional 20% is exercisable after each subsequent year, subject to an acceleration clause at termination of employment due to retirement.
The following table presents information on stock options outstanding as of March 31, 2010:
                                         
(Not in thousands)
                    Weighted-Average        
            Weighted-Average   Remaining Life of   Options   Weighted-Average
Exercise Price   Options   Exercise Price of   Options Outstanding   Exercisable   Exercise Price of
Range per Share   Outstanding   Options Outstanding   In Years   (fully vested)   Options Exercisable
 
$14.39 - $18.50
    1,245,277     $ 15.85       2.50       1,245,277     $ 15.85  
$19.25 - $27.20
    1,307,386     $ 25.21       4.23       1,307,386     $ 25.21  
 
$14.39 - $27.20
    2,552,663     $ 20.64       3.39       2,552,663     $ 20.64  
 
There was no intrinsic value of options outstanding as of March 31, 2010 (March 31, 2009 - $0.2 million). There was no intrinsic value of options exercisable as of March 31, 2010 and 2009.

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The following table summarizes the stock option activity and related information:
                 
    Options   Weighted-Average
(Not in thousands)   Outstanding   Exercise Price
 
Outstanding as of January 1, 2009
    2,965,843     $ 20.59  
Granted
           
Exercised
           
Forfeited
    (59,631 )     26.42  
Expired
    (353,549 )     19.25  
 
Outstanding as of December 31, 2009
    2,552,663     $ 20.64  
Granted
           
Exercised
           
Forfeited
           
Expired
           
 
Outstanding as of March 31, 2010
    2,552,663     $ 20.64  
 
The stock options exercisable at March 31, 2010 totaled 2,552,663 (March 31, 2009 — 2,842,628). There were no stock options exercised during the quarters ended March 31, 2010 and 2009. Thus, there was no intrinsic value of options exercised during the quarters ended March 31, 2010 and 2009.
There were no new stock option grants issued by the Corporation under the Stock Option Plan during 2009 and 2010.
For the quarter ended March 31, 2010, there was no stock option expense recognized (March 31, 2009 - $0.1 million, with a tax benefit of $56 thousand).
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. The shares may be made available from common stock purchased by the Corporation for such purpose, authorized but unissued shares of common stock or treasury stock. The Corporation’s policy with respect to the shares of restricted stock has been to purchase such shares in the open market to cover each grant.
Under the Incentive Plan, the Corporation has issued restricted shares, which become vested based on the employees’ continued service with Popular. Unless otherwise stated in an agreement, the compensation cost associated with the shares of restricted stock is determined based on a two-prong vesting schedule. The first part is vested ratably over five years commencing at the date of grant and the second part is vested at termination of employment after attainment of 55 years of age and 10 years of service. The five-year vesting part is accelerated at termination of employment after attaining 55 years of age and 10 years of service.

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The following table summarizes the restricted stock activity under the Incentive Plan for members of management:
                 
    Restricted   Weighted-Average
(Not in thousands)   Stock   Grant Date Fair Value
 
Non-vested as of January 1, 2009
    248,339     $ 22.83  
Granted
           
Vested
    (104,791 )     21.93  
Forfeited
    (5,036 )     19.95  
 
Non-vested as of December 31, 2009
    138,512     $ 23.62  
Granted
    962,373       2.02  
Vested
    (136,241 )     8.37  
Forfeited
    (206 )     19.95  
 
Non-vested as of March 31, 2010
    964,438     $ 4.22  
 
During the quarter ended March 31, 2010, 962,373 shares of restricted stock under the Incentive Plan were awarded to management consistent with the requirements of the TARP Interim Final Rule. The awards were determined upon consideration of management’s execution of critical 2009 initiatives to manage the Corporation’s liquidity and capitalization, strategically reposition its United States operations, and improve management effectiveness and cost control. The shares will vest on the secondary anniversary of the grant date, and they may become payable in 25% increments as the Corporation repays each 25% portion of the aggregate financial assistance received under the United States Treasury Department’s Capital Purchase Program under the Emergency Economic Stabilization Act of 2008. In addition, the grants are also subject to further performance criteria as the Corporation must achieve profitability for at least one fiscal year for awards to be payable. During the quarter ended March 31, 2009, no shares of restricted stock were awarded to management under the Incentive Plan.
Beginning in 2007, 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 performance goals during a three-year performance cycle. The compensation cost associated with the performance shares is recorded ratably over a three-year performance period. The performance shares are granted at the end of the three-year period and vest at grant date, except when the participant’s employment is terminated by the Corporation without cause. In such case, the participant would receive a pro-rata amount of shares calculated as if the Corporation would have met the performance goal for the performance period. As of March 31, 2010, 12,426 shares have been granted under this plan (March 31, 2009 — 23,299).
During the quarter ended March 31, 2010, the Corporation recognized $0.3 million of restricted stock expense related to management incentive awards, with a tax benefit of $0.1 million (March 31, 2009 — $0.2 million, with a tax benefit of $68 thousand). The fair market value of the restricted stock vested was $1.3 million at grant date and $0.3 million at vesting date. This triggers a shortfall, net of windfalls, of $1.0 million that was recorded as an additional income tax expense at the applicable income tax rate, net of the deferred tax asset valuation allowance. During the quarter ended March 31, 2010, the Corporation recognized $0.1 million of performance shares expense, with a tax benefit of $60 thousand (March 31, 2009 — credit of $0.1 million, with a tax expense of $78 thousand). The total unrecognized compensation cost related to non-vested restricted stock awards and performance shares to members of management as of March 31, 2010 was $1.4 million and is expected to be recognized over a weighted-average period of 2.6 years.

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The following table summarizes the restricted stock activity under the Incentive Plan for members of the Board of Directors:
                 
    Restricted   Weighted-Average
(Not in thousands)   Stock   Grant Date Fair Value
 
Non-vested as of January 1, 2009
           
Granted
    270,515     $ 2.62  
Vested
    (270,515 )     2.62  
Forfeited
           
 
Non-vested as of December 31, 2009
           
Granted
    35,133     $ 2.12  
Vested
    (35,133 )     2.12  
Forfeited
           
 
Non-vested as of March 31, 2010
           
 
During the quarter ended March 31, 2010, the Corporation granted 35,133 shares of restricted stock to members of the Board of Directors of Popular, Inc. and BPPR, which became vested at grant date (March 31, 2009 — 22,311). During this period, the Corporation recognized $0.1 million of restricted stock expense related to these restricted stock grants, with a tax benefit of $47 thousand (March 31, 2009 — $0.1 million, with a tax benefit of $47 thousand). The fair value at vesting date of the restricted stock vested during the quarter ended March 31, 2010 for directors was $74 thousand.
Note 23 — Income Taxes
The reconciliation of unrecognized tax benefits was as follows:
                 
(In millions)   2010   2009
 
Balance as of January 1
  $ 41.8     $ 40.5  
Additions for tax positions — January through March
    0.4       1.0  
Reduction as a result of settlements — January through March
    (14.3 )     (0.6 )
 
Balance as of March 31
  $ 27.9     $ 40.9  
 
As of March 31, 2010, the related accrued interest approximated $6.5 million (March 31, 2009 - $5.4 million). Management determined that as of March 31, 2010 and 2009 there was no need to accrue for the payment of penalties.
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 $33.0 million as of March 31, 2010 (March 31, 2009 — $44.7 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. As of March 31, 2010, the following years remain subject to examination in the U.S. Federal jurisdiction: 2008 and thereafter; and in the Puerto Rico jurisdiction, 2005 and thereafter. The U.S. Internal Revenue Service (“IRS”) completed an examination of the Corporation’s U.S. operations tax return for 2007. As a result of the audit, the IRS has not proposed any material adjustments; accordingly, the Corporation recognized a tax benefit of $14.3 million during the quarter ended March 31, 2010.
The Corporation does not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.

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The following table presents the components of the Corporation’s deferred tax assets and liabilities.
                 
    March 31,   December 31,
(In thousands)   2010   2009
 
Deferred tax assets:
               
Tax credits available for carryforward
  $ 11,398     $ 11,026  
Net operating loss and donation carryforward available
    887,958       843,968  
Postretirement and pension benefits
    104,679       103,979  
Deferred loan origination fees
    8,004       7,880  
Allowance for loan losses
    547,785       536,277  
Deferred gains
    13,787       14,040  
Accelerated depreciation
    2,397       2,418  
Intercompany deferred gains
    6,861       7,015  
Other temporary differences
    21,165       39,096  
 
Total gross deferred tax assets
    1,604,034       1,565,699  
 
 
               
Deferred tax liabilities:
               
Differences between assigned values and the tax basis of the assets and liabilities recognized in purchase business combinations
    27,352       25,896  
Deferred loan origination costs
    9,158       9,708  
Unrealized net gain on trading and available-for-sale securities
    36,677       30,323  
Other temporary differences
    6,284       5,923  
 
Total gross deferred tax liabilities
    79,471       71,850  
 
Gross deferred tax assets less liabilities
    1,524,563       1,493,849  
Less: Valuation allowance
    (1,158,316 )     (1,129,882 )
 
Net deferred tax assets
  $ 366,247     $ 363,967  
 
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 all of the deferred tax asset will not be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. The determination of whether a deferred tax asset is realizable is based on weighting all available evidence, including both positive and negative evidence. The realization of deferred tax assets, including carryforwards and deductible temporary differences, depends upon the existence of sufficient taxable income of the same character during the carryback or carryforward period. The analysis considers all sources of taxable income available to realize the deferred tax asset, including the future reversal of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in prior carryback years and tax-planning strategies.
The Corporation’s U.S. mainland operations are in a cumulative loss position for the three-year period ended March 31, 2010. For purposes of assessing the realization of the deferred tax assets in the U.S. mainland, this cumulative taxable loss position is considered significant negative evidence and has caused management to conclude that the Corporation will not be able to realize the associated deferred tax assets in the future. As of March 31, 2010, the Corporation recorded a valuation allowance of $1.2 billion on the deferred tax assets of its U.S. operations. As of March 31, 2010, the Corporation’s deferred tax assets related to its Puerto Rico operations amounted to $385 million. The Corporation assessed the realization of the Puerto Rico portion of the net deferred tax assets and based on the weighting of all available evidence has concluded that it is more likely than not that such net deferred tax assets will be realized.

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Note 24 — Supplemental Disclosure on the Consolidated Statements of Cash Flows
Additional disclosures on non-cash activities for the three-month period are listed in the following table:
                 
(In thousands)   March 31, 2010   March 31, 2009
 
Non-cash activities:
               
Loans transferred to other real estate
  $ 32,032     $ 30,631  
Loans transferred to other property
    9,733       9,897  
 
Total loans transferred to foreclosed assets
    41,765       40,528  
Transfers from loans held-in-portfolio to loans held-for-sale
    20,248       732  
Transfers from loans held-for-sale to loans held-in-portfolio
    167       16,174  
Loans securitized into investment securities (a)
    205,056       311,104  
Recognition of mortgage servicing rights on securitizations or asset transfers
    3,900       5,719  
Treasury stock retired
          207,139  
 
 
(a)   Includes loans securitized into investment securities and subsequently sold before quarter end.
Note 25 — Segment Reporting
The Corporation’s corporate structure consists of three reportable segments — Banco Popular de Puerto Rico, Banco Popular North America and EVERTEC.
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 as of March 31, 2010, 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 in residential mortgage loan originations. The consumer and retail banking area also incorporates income related with the investment of excess funds from the branch network, as well as a proportionate share of the investment function of BPPR.
  Other financial services include the trust and asset management service units of BPPR, the brokerage and investment banking operations of Popular Securities, and the insurance agency and reinsurance businesses of Popular Insurance, Popular Insurance V.I., Popular Risk Services, and Popular Life Re. Most of the services that are provided by these subsidiaries generate profits based on fee income.
Banco Popular North America:
Banco Popular North America’s reportable segment consists of the banking operations of BPNA, E-LOAN, Popular Equipment Finance, Inc. and Popular Insurance Agency, U.S.A. BPNA operates through a retail branch network in the U.S. mainland, while E-LOAN supports BPNA’s deposit gathering through its online platform. All direct lending activities at E-LOAN were ceased during the fourth quarter of 2008. Popular Equipment Finance, Inc. also holds a running-off loan portfolio as this subsidiary ceased originating loans during 2009. Popular Insurance Agency, U.S.A. offers investment and insurance services across the BPNA branch network.

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EVERTEC:
This reportable segment includes the financial transaction processing and technology functions of the Corporation, including EVERTEC, with offices in Puerto Rico, Florida, the Dominican Republic and Venezuela; and ATH Costa Rica, S.A., EVERTEC LATINOAMERICA, SOCIEDAD ANONIMA and T.I.I. Smart Solutions Inc. located in Costa Rica. In addition, this reportable segment includes the equity investments in Consorcio de Tarjetas Dominicanas, S.A. (“CONTADO”) and Servicios Financieros, S.A. de C.V. (“Serfinsa”), which operate in the Dominican Republic and El Salvador, respectively. This segment provides processing and technology services to other units of the Corporation as well as to third parties, principally other financial institutions in Puerto Rico, the Caribbean and Central America.
The Corporate group consists primarily of the holding companies: Popular, Inc., Popular North America and Popular International Bank, excluding the equity investments in CONTADO and Serfinsa, which due to the nature of their operations are included as part of the EVERTEC segment. The Corporate group also includes the expenses of certain corporate areas that are identified as critical to the organization: Finance, Risk Management and Legal.
The accounting policies of the individual operating segments are the same as those of the Corporation. Transactions between reportable segments are primarily conducted at market rates, resulting in profits that are eliminated for reporting consolidated results of operations.
The results of operations included in the tables below for the quarter ended March 31, 2009 exclude the results of operations of the discontinued business of PFH. Segment assets as of March 31, 2009 also exclude the assets of the discontinued operations.
2010
For the quarter ended March 31, 2010
                                 
    Banco Popular de   Banco Popular           Intersegment
(In thousands)   Puerto Rico   North America   EVERTEC   Eliminations
 
Net interest income (expense)
  $ 219,363     $ 78,854       ($227 )      
Provision for loan losses
    108,372       131,828              
Non-interest income
    110,717       16,559       62,197       ($37,450 )
Amortization of intangibles
    951       910       188        
Depreciation expense
    9,595       2,431       3,172        
Other operating expenses
    183,121       63,628       41,318       (37,455 )
Income tax expense
    1,015       786       7,113       2  
 
Net income (loss)
  $ 27,026       ($104,170 )   $ 10,179     $ 3  
 
Segment Assets
  $ 23,165,773     $ 10,399,867     $ 230,901       ($93,768 )
 

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For the quarter ended March 31, 2010
                                 
    Total Reportable            
(In thousands)   Segments   Corporate   Eliminations   Popular, Inc.
 
Net interest income (expense)
  $ 297,990       ($29,235 )   $ 162     $ 268,917  
Provision for loan losses
    240,200                   240,200  
Non-interest income
    152,023       6,548       (705 )     157,866  
Amortization of intangibles
    2,049                   2,049  
Depreciation expense
    15,198       193             15,391  
Other operating expenses
    250,612       14,089       (1,228 )     263,473  
Income tax expense (benefit)
    8,916       (18,406 )     215       (9,275 )
 
Net loss
    ($66,962 )     ($18,563 )   $ 470       ($85,055 )
 
Segment Assets
  $ 33,702,773     $ 5,338,760       ($5,209,096 )   $ 33,832,437  
 
2009
For the quarter ended March 31, 2009
                                 
    Banco Popular de   Banco Popular           Intersegment
(In thousands)   Puerto Rico   North America   EVERTEC   Eliminations
 
Net interest income (expense)
  $ 216,162     $ 76,520       ($245 )      
Provision for loan losses
    151,334       221,195              
Non-interest income
    310,821       3,771       61,528       ($36,269 )
Amortization of intangibles
    1,284       911       211        
Depreciation expense
    10,155       2,847       3,479       (18 )
Other operating expenses
    187,483       77,847       42,600       (36,169 )
Income tax (benefit) expense
    (3,084 )     (9,033 )     5,112       (32 )
 
Net income (loss)
  $ 179,811       ($213,476 )   $ 9,881       ($50 )
 
Segment Assets
  $ 24,720,327     $ 12,214,139     $ 243,289       ($68,609 )
 
For the quarter ended March 31, 2009
                                 
    Total Reportable                   Total
(In thousands)   Segments   Corporate   Eliminations   Popular, Inc.
 
Net interest income (expense)
  $ 292,437       ($20,217 )   $ 266     $ 272,486  
Provision for loan losses
    372,529                   372,529  
Non-interest income (loss)
    339,851       (3,595 )     (1,525 )     334,731  
Amortization of intangibles
    2,406                   2,406  
Depreciation expense
    16,463       586             17,049  
Other operating expenses
    271,761       14,950       (1,969 )     284,742  
Income tax benefit
    (7,037 )     (20,173 )     277       (26,933 )
 
Net loss
    ($23,834 )     ($19,175 )   $ 433       ($42,576 )
 
Segment Assets
  $ 37,109,146     $ 6,222,909       ($5,634,663 )   $ 37,697,392  
 

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Additional disclosures with respect to the Banco Popular de Puerto Rico reportable segment are as follows:
2010
For the quarter ended March 31, 2010
                                         
                                    Total Banco
    Commercial   Consumer and   Other Financial           Popular de
(In thousands)   Banking   Retail Banking   Services   Eliminations   Puerto Rico
 
Net interest income
  $ 71,062     $ 145,732     $ 2,503     $ 66     $ 219,363  
Provision for loan losses
    73,171       35,201                   108,372  
Non-interest income
    25,524       64,901       20,114       178       110,717  
Amortization of intangibles
    28       784       139             951  
Depreciation expense
    3,962       5,328       305             9,595  
Other operating expenses
    47,033       121,926       14,234       (72 )     183,121  
Income tax (benefit) expense
    (14,812 )     12,887       2,811       129       1,015  
 
Net (loss) income
    ($12,796 )   $ 34,507     $ 5,128     $ 187     $ 27,026  
 
Segment Assets
  $ 9,330,813     $ 17,073,027     $ 426,524       ($3,664,591 )   $ 23,165,773  
 
2009
For the quarter ended March 31, 2009
                                         
                                    Total Banco
    Commercial   Consumer and   Other Financial           Popular de
(In thousands)   Banking   Retail Banking   Services   Eliminations   Puerto Rico
 
Net interest income
  $ 74,495     $ 138,279     $ 3,220     $ 168     $ 216,162  
Provision for loan losses
    94,863       56,471                   151,334  
Non-interest income
    77,042       213,031       20,990       (242 )     310,821  
Amortization of intangibles
    76       1,032       176             1,284  
Depreciation expense
    5,070       4,753       332             10,155  
Other operating expenses
    49,955       123,195       14,387       (54 )     187,483  
Income tax (benefit) expense
    (24,505 )     18,527       2,899       (5 )     (3,084 )
 
Net income
  $ 26,078     $ 147,332     $ 6,416       ($15 )   $ 179,811  
 
Segment Assets
  $ 10,500,488     $ 17,839,568     $ 517,035       ($4,136,764 )   $ 24,720,327  
 
Additional disclosures with respect to the Banco Popular North America reportable segment are as follows:
2010
For the quarter ended March 31, 2010
                                 
                            Total
    Banco Popular                   Banco Popular
(In thousands)   North America   E-LOAN   Eliminations   North America
 
Net interest income
  $ 77,376     $ 1,534       ($56 )   $ 78,854  
Provision for loan losses
    119,706       12,122             131,828  
Non-interest income (loss)
    18,185       (1,626 )           16,559  
Amortization of intangibles
    910                   910  
Depreciation expense
    2,180       251             2,431  
Other operating expenses
    61,721       1,907             63,628  
Income tax expense
    786                   786  
 
Net loss
    ($89,742 )     ($14,372 )     ($56 )     ($104,170 )
 
Segment Assets
  $ 11,040,381     $ 526,937       ($1,167,451 )   $ 10,399,867  
 

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2009
For the quarter ended March 31, 2009
                                 
                            Total
    Banco Popular                   Banco Popular
(In thousands)   North America   E-LOAN   Eliminations   North America
 
Net interest income
  $ 70,914     $ 5,269     $ 337     $ 76,520  
Provision for loan losses
    186,552       34,643             221,195  
Non-interest income (loss)
    8,869       (5,074 )     (24 )     3,771  
Amortization of intangibles
    911                   911  
Depreciation expense
    2,535       312             2,847  
Other operating expenses
    69,944       7,903             77,847  
Income tax benefit
    (1,410 )     (7,623 )           (9,033 )
 
Net loss
    ($178,749 )     ($35,040 )   $ 313       ($213,476 )
 
Segment Assets
  $ 12,730,112     $ 715,761       ($1,231,734 )   $ 12,214,139  
 
A breakdown of intersegment eliminations, particularly revenues, by segment in which the revenues are recorded follows:
INTERSEGMENT REVENUES*
                 
    Quarter ended
    March 31,   March 31,
(In thousands)   2010   2009
 
Banco Popular de Puerto Rico:
               
Commercial Banking
  $ 1       ($1 )
Consumer and Retail Banking
    1       (2 )
Other Financial Services
    (70 )     (68 )
Banco Popular North America
    6       11  
EVERTEC
    (37,388 )     (36,209 )
 
Total intersegment revenues from continuing operations
    ($37,450 )     ($36,269 )
 
 
*   For purposes of the intersegment revenues disclosure, revenues include interest income (expense) related to internal funding and other income derived from intercompany transactions, mainly related to processing / information technology services.

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A breakdown of revenues and selected balance sheet information by geographical area follows:
Geographic Information
                 
    Quarter ended
    March 31,   March 31,
(In thousands)   2010   2009
 
Revenues (1)
               
Puerto Rico
  $ 308,580     $ 507,130  
United States
    89,638       59,083  
Other
    28,565       41,004  
 
Total consolidated revenues from continuing operations
  $ 426,783     $ 607,217  
 
 
(1)   Total revenues include net interest income, service charges on deposit accounts, other service fees, net gain (loss) on sale and valuation adjustments of investment securities, trading account profit (loss), gain (loss) on sale of loans and valuation adjustments on loans held-for-sale, and other operating income.
                         
    March 31,   December 31,   March 31,
(In thousands)   2010   2009   2009
 
Selected Balance Sheet Information: (1)
                       
Puerto Rico
                       
Total assets
  $ 22,035,181     $ 22,480,832     $ 24,067,736  
Loans
    13,989,155       14,176,793       14,979,412  
Deposits
    16,383,261       16,634,123       16,659,788  
Mainland United States
                       
Total assets
  $ 10,569,801     $ 11,033,114     $ 12,499,283  
Loans
    8,370,929       8,825,559       9,862,219  
Deposits
    7,874,502       8,242,604       9,428,140  
Other
                       
Total assets
  $ 1,227,455     $ 1,222,379     $ 1,130,373  
Loans
    824,627       801,557       704,561  
Deposits (2)
    1,102,549       1,048,167       1,061,839  
 
(1)   Does not include balance sheet information of the discontinued operations for the period ended March 31, 2009.
 
(2)   Represents deposits from BPPR operations located in the U.S. and British Virgin Islands.
Note 26 — Subsequent Events
Increase in authorized shares of common stock
On May 4, 2010, the stockholders of the Corporation approved an amendment to the Corporation’s Certificate of Incorporation to increase the number of authorized shares of common stock from 700,000,000 shares to 1,700,000,000.
Issuance of depository shares
In April 2010, the Corporation raised $1.15 billion through the sale of 46,000,000 depositary shares, each representing a 1/40th interest in a share of Contingent Convertible Perpetual Non-Cumulative Preferred Stock, Series D, no par value, $1,000 liquidation preference per share. The preferred stock represented by depositary shares will automatically convert into shares of Popular common stock at a conversion rate of 8.3333 shares of common stock for each depositary share on May 11, 2010, which is the 5th business day after the Corporation’s common shareholders approved the amendment to the Corporation’s restated certificate of incorporation to increase the number of authorized shares of common stock. The conversion of the preferred stock will result in the issuance of over 383 million additional shares of common stock. The net proceeds from the public offering amounted to approximately $1.1 billion, after deducting the underwriting discount and estimated offering expenses.

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FDIC-assisted transaction
On April 30, 2010, the Corporation’s banking subsidiary, BPPR (“the Bank”), acquired certain assets and assumed certain deposit liabilities of Westernbank Puerto Rico, a Puerto Rico chartered non-member bank headquartered in Mayagüez, Puerto Rico (“Westernbank”) from the Federal Deposit Insurance Corporation (the “FDIC”), as receiver for Westernbank, in an assisted transaction (herein, the “FDIC-assisted transaction”).
BPPR acquired approximately $9.2 billion in assets and assumed approximately $2.5 billion in non-brokered deposit liabilities. No brokered deposit liabilities were assumed. As part of the transaction, BPPR issued a five-year $5.8 billion note to the FDIC bearing an annual interest rate of 2.50%. The note is secured by all loans and foreclosed real estate acquired by BPPR from the FDIC that are subject to the shared-loss agreements and certain related assets.
In connection with the acquisition, BPPR entered into loss sharing agreements with the FDIC with respect to approximately $8.7 billion of loans, including single family residential mortgage loans and commercial loans (referred to collectively as “Covered Assets”). Pursuant to the terms of the loss sharing agreements, the FDIC’s obligation to reimburse BPPR for losses with respect to Covered Assets begins with the first dollar of loss incurred. The FDIC will reimburse BPPR for 80% of losses with respect to Covered Assets, and BPPR will reimburse the FDIC for 80% of recoveries with respect to losses for which the FDIC paid BPPR 80% reimbursement under the loss sharing agreements. The loss sharing agreement applicable to single-family residential mortgage loans provides for FDIC loss and recoveries sharing for ten years. The loss sharing agreement applicable to commercial loans provides for FDIC loss sharing for five years and BPPR reimbursement to the FDIC for eight years, in each case, on the same terms and conditions as described above.
BPPR also acquired Westernbank Insurance Corp., a wholly-owned subsidiary of the former Westernbank and a general insurance agent placing property, casualty, life, and disability insurance, primarily to mortgage customers of the former Westernbank. No other subsidiaries or other assets were acquired or liabilities assumed from the former Westernbank or its parent entity, W Holding Company Inc. The terms of the purchase and assumption agreement provide for the FDIC to indemnify BPPR against claims with respect to liabilities and assets of the former Westernbank or any of its affiliates not assumed or otherwise purchased by BPPR and with respect to certain other claims by third parties.
In addition, as part of the consideration for the transaction, the FDIC received a cash-settled value appreciation instrument (the “Value Appreciation Instrument”) in which BPPR agreed to make a cash payment to the holder thereof equal to the product of (a) 50 million and (b) the amount by which the average volume weighted price of the Corporation’s common stock over the two NASDAQ trading days immediately prior to the date on which the Value Appreciation Instrument is exercised exceeds $3.43 (the Corporation’s 20-day trailing average common stock price on April 27). The Value Appreciation Instrument is exercisable by the holder thereof, in whole or in part, from and including May 7, 2010 to May 7, 2011.
All of the former Westernbank’s 46 branches and offices throughout Puerto Rico have reopened as branches and offices of BPPR. The physical branch locations and leases were not immediately acquired by BPPR in the acquisition. BPPR has an option, exercisable until July 29, 2010, to acquire, at fair market value, any bank premises that were owned by, or any leases relating to bank premises held by, the former Westernbank (including ATM locations). BPPR is currently reviewing the bank premises and related leases of the former Westernbank. In addition, BPPR has an option, exercisable until May 30, 2010, to elect to assume or reject any contracts that provided for the rendering of services by or to the former Westernbank.
The FDIC-assisted transaction will be accounted for using the acquisition method of accounting, and as such, the acquired assets and assumed liabilities are to be recognized initially at fair value.
The foregoing amounts represent Westernbank’s book value and do not reflect fair value. These amounts are estimates and, accordingly, are subject to adjustment based upon final settlement with the FDIC. The Corporation is currently awaiting the final settlement with the FDIC and, given the limited timeframe since the effective date of the FDIC-assisted transaction, fair value determinations on assets acquired and liabilities assumed and supplemental pro-forma information, to the extent required, are not available.

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Other matters
In connection with the FDIC-assisted transaction, the Corporation made a commitment to the Board of Governors of the Federal Reserve System (the “Federal Reserve”) that, if BPPR was a successful bidder in an FDIC-assisted transaction, the Corporation would raise additional Tier 1 capital of at least $500 million either through the sale of certain assets, which could include a sale of EVERTEC, BPPR’s merchant acquiring business and certain other of Popular’s financial transaction processing and technology services operations, or through the issuance of additional Tier 1 capital to investors, or some combination thereof. If the Corporation does not raise the additional capital from the sale of assets, it would be required to issue additional Tier 1 capital securities, which could include, among other things, common stock or preferred stock, to meet this commitment.
The Corporation has evaluated events subsequent to March 31, 2010 and has determined that there are no events requiring recognition in the consolidated financial statements for the quarter ended March 31, 2010.
Note 27 — 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 International Bank, Inc. (“PIBI”), Popular North America, Inc. (“PNA”), and all other subsidiaries of the Corporation as of March 31, 2010, December 31, 2009 and March 31, 2009, and the results of their operations and cash flows for the quarters ended March 31, 2010 and 2009.
PIBI is an operating subsidiary of PIHC and is the holding company of its wholly-owned subsidiaries: ATH Costa Rica S.A., EVERTEC LATINOAMERICA, SOCIEDAD ANONIMA, T.I.I. Smart Solutions Inc., Popular Insurance V.I., Inc. and PNA.
PNA is an operating subsidiary of PIBI and is the holding company of its wholly-owned subsidiaries:
    PFH, including its wholly-owned subsidiary Equity One, Inc.; and
 
    Banco Popular North America (“BPNA”), including its wholly-owned subsidiaries Popular Equipment Finance, Inc., Popular Insurance Agency, U.S.A., and E-LOAN, Inc.
PIHC fully and unconditionally guarantees all registered debt securities issued by PNA.
The principal source of income for the PIHC consists of dividends from BPPR. As members subject to the regulations of the Federal Reserve System, BPPR and BPNA must obtain the approval of the Federal Reserve Board for any dividend if the total of all dividends declared by each entity during the calendar year would exceed the total of its net income for that year, as defined by the Federal Reserve Board, combined with its retained net income for the preceding two years, less any required transfers to surplus or to a fund for the retirement of any preferred stock. The payment of dividends by BPPR may also be affected by other regulatory requirements and policies, such as the maintenance of certain minimum capital levels. As of March 31, 2010, BPPR could have declared a dividend of approximately $81 million (March 31, 2009 — $82 million) without the approval of the Federal Reserve Board. As of December 31, 2009, BPPR was required to obtain the approval of the Federal Reserve Board to declare a dividend. As of March 31, 2010, December 31, 2009 and March 31, 2009, BPNA was required to obtain the approval of the Federal Reserve Board to declare a dividend. The Corporation has never received dividend payments from its U.S. subsidiaries. Refer to Popular, Inc.’s Form 10-K for the year ended December 31, 2009 for further information on dividend restrictions imposed by regulatory requirements and policies on the payment of dividends by BPPR and BPNA.

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POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CONDITION
MARCH 31, 2010
(UNAUDITED)
                                                 
                            All other        
    Popular, Inc.   PIBI   PNA   subsidiaries   Elimination   Popular, Inc.
(In thousands)   Holding Co.   Holding Co.   Holding Co.   and eliminations   entries   Consolidated
 
ASSETS
                                               
Cash and due from banks
  $ 796     $ 25     $ 736     $ 592,482       ($1,864 )   $ 592,175  
Money market investments
    51       348       219       1,004,654       (519 )     1,004,753  
Trading account securities, at fair value
                            380,149               380,149  
Investment securities available-for-sale, at fair value
            3,678               6,533,693       (1,625 )     6,535,746  
Investment securities held-to-maturity, at amortized cost
    395,783       1,250               182,563       (370,000 )     209,596  
Other investment securities, at lower of cost or realizable value
    10,850       1       4,492       141,521               156,864  
Investment in subsidiaries
    2,988,199       693,198       1,130,907               (4,812,304 )        
Loans held-for-sale measured at lower of cost or fair value
                            106,412               106,412  
 
Loans held-in-portfolio
    77,187                       23,180,571       (68,160 )     23,189,598  
Less — Unearned income
                            111,299               111,299  
Allowance for loan losses
    60                       1,276,976               1,277,036  
 
 
    77,127                       21,792,296       (68,160 )     21,801,263  
 
Premises and equipment, net
    2,874               125       576,452               579,451  
Other real estate
    74                       134,813               134,887  
Accrued income receivable
    128       7       31       131,094       (17 )     131,243  
Servicing assets
                            175,776               175,776  
Other assets
    35,328       79,585       18,317       1,290,748       (45,967 )     1,378,011  
Goodwill
                            604,349               604,349  
Other intangible assets
    554                       41,208               41,762  
 
 
  $ 3,511,764     $ 778,092     $ 1,154,827     $ 33,688,210       ($5,300,456 )   $ 33,832,437  
 
 
                                               
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                               
Liabilities:
                                               
Deposits:
                                               
Non-interest bearing
                          $ 4,478,119       ($1,864 )   $ 4,476,255  
Interest bearing
                            20,884,576       (519 )     20,884,057  
 
 
                            25,362,695       (2,383 )     25,360,312  
Assets sold under agreements to repurchase
                            2,491,506               2,491,506  
Other short-term borrowings
                  $ 9,100       82,323       (68,160 )     23,263  
Notes payable at cost
  $ 994,477               430,914       1,103,701               2,529,092  
Subordinated notes
                            370,000       (370,000 )        
Other liabilities
    30,086     $ 48       46,075       912,685       (47,831 )     941,063  
 
 
    1,024,563       48       486,089       30,322,910       (488,374 )     31,345,236  
 
Stockholders’ equity:
                                               
Preferred stock
    50,160                                       50,160  
Common stock
    6,395       3,961       2       52,322       (56,285 )     6,395  
Surplus
    2,797,328       3,497,438       3,381,208       4,697,181       (11,568,917 )     2,804,238  
Accumulated deficit
    (370,897 )     (2,700,825 )     (2,729,863 )     (1,422,759 )     6,846,537       (377,807 )
Treasury stock, at cost
    (16 )                                     (16 )
Accumulated other comprehensive income (loss), net of tax
    4,231       (22,530 )     17,391       38,556       (33,417 )     4,231  
 
 
    2,487,201       778,044       668,738       3,365,300       (4,812,082 )     2,487,201  
 
 
  $ 3,511,764     $ 778,092     $ 1,154,827     $ 33,688,210       ($5,300,456 )   $ 33,832,437  
 

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POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CONDITION
DECEMBER 31, 2009
(UNAUDITED)
                                                 
                            All other        
                            subsidiaries        
    Popular, Inc.   PIBI   PNA   and   Elimination   Popular, Inc.
(In thousands)   Holding Co.   Holding Co.   Holding Co.   eliminations   entries   Consolidated
 
ASSETS
                                               
Cash and due from banks
  $ 1,174     $ 300     $ 738     $ 677,606       ($2,488 )   $ 677,330  
Money market investments
    51       56,144       238       1,002,702       (56,338 )     1,002,797  
Trading account securities, at fair value
                            462,436               462,436  
Investment securities available-for-sale, at fair value
            2,448               6,694,053       (1,787 )     6,694,714  
Investment securities held-to-maturity, at amortized cost
    455,777       1,250               185,935       (430,000 )     212,962  
Other investment securities, at lower of cost or realizable value
    10,850       1       4,492       148,806               164,149  
Investment in subsidiaries
    3,046,342       733,737       1,156,680               (4,936,759 )        
Loans held-for-sale measured at lower of cost or fair value
                            90,796               90,796  
 
Loans held-in-portfolio
    109,632                       23,844,455       (126,824 )     23,827,263  
Less — Unearned income
                            114,150               114,150  
Allowance for loan losses
    60                       1,261,144               1,261,204  
 
 
    109,572                       22,469,161       (126,824 )     22,451,909  
 
Premises and equipment, net
    2,907               125       581,821               584,853  
Other real estate
    74                       125,409               125,483  
Accrued income receivable
    120       127       132       125,857       (156 )     126,080  
Servicing assets
                            172,505               172,505  
Other assets
    33,828       73,308       21,162       1,242,099       (48,238 )     1,322,159  
Goodwill
                            604,349               604,349  
Other intangible assets
    554                       43,249               43,803  
 
 
  $ 3,661,249     $ 867,315     $ 1,183,567     $ 34,626,784       ($5,602,590 )   $ 34,736,325  
 
 
                                               
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                               
Liabilities:
                                               
Deposits:
                                               
Non-interest bearing
                          $ 4,497,730       ($2,429 )   $ 4,495,301  
Interest bearing
                            21,485,931       (56,338 )     21,429,593  
 
 
                            25,983,661       (58,767 )     25,924,894  
Assets sold under agreements to repurchase
                            2,632,790               2,632,790  
Other short-term borrowings
  $ 24,225             $ 700       107,226       (124,825 )     7,326  
Notes payable at cost
    1,064,462               433,846       1,152,324       (2,000 )     2,648,632  
Subordinated notes
                            430,000       (430,000 )        
Other liabilities
    33,745     $ 40       45,547       954,525       (49,991 )     983,866  
 
 
    1,122,432       40       480,093       31,260,526       (665,583 )     32,197,508  
 
Stockholders’ equity:
                                               
Preferred stock
    50,160                                       50,160  
Common stock
    6,395       3,961       2       52,322       (56,285 )     6,395  
Surplus
    2,797,328       3,437,437       3,321,208       4,637,181       (11,388,916 )     2,804,238  
Accumulated deficit
    (285,842 )     (2,541,802 )     (2,627,520 )     (1,329,311 )     6,491,723       (292,752 )
Treasury stock, at cost
    (15 )                                     (15 )
Accumulated other comprehensive (loss) income, net of tax
    (29,209 )     (32,321 )     9,784       6,066       16,471       (29,209 )
 
 
    2,538,817       867,275       703,474       3,366,258       (4,937,007 )     2,538,817  
 
 
  $ 3,661,249     $ 867,315     $ 1,183,567     $ 34,626,784       ($5,602,590 )   $ 34,736,325  
 

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POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CONDITION
MARCH 31, 2009
(UNAUDITED)
                                                 
                            All other        
    Popular, Inc.   PIBI   PNA   Subsidiaries   Elimination   Popular, Inc.
(In thousands)   Holding Co.   Holding Co.   Holding Co.   and eliminations   entries   Consolidated
 
ASSETS
                                               
Cash and due from banks
  $ 1,100     $ 64     $ 7,685     $ 696,327       ($1,693 )   $ 703,483  
Money market investments
    39,801       41,301       233,420       1,423,560       (312,611 )     1,425,471  
Trading account securities, at fair value
                            696,647               696,647  
Investment securities available-for-sale, at fair value
    436,513       4,502               6,523,223               6,964,238  
Investment securities held-to-maturity, at amortized cost
    455,770       1,250               291,874       (430,000 )     318,894  
Other investment securities, at lower of cost or realizable value
    14,425       1       12,392       195,195               222,013  
Investment in subsidiaries
    2,493,412       106,585       1,305,682               (3,905,679 )        
Loans held-for-sale measured at lower of cost or fair value
                            308,206               308,206  
 
Loans held-in-portfolio
    512,600                       25,364,875       (521,722 )     25,355,753  
Less — Unearned income
                            117,767               117,767  
Allowance for loan losses
    60                       1,057,065               1,057,125  
 
 
    512,540                       24,190,043       (521,722 )     24,180,861  
 
Premises and equipment, net
    21,392               127       602,693               624,212  
Other real estate
    74                       95,699               95,773  
Accrued income receivable
    1,921       115       2,483       140,129       (2,534 )     142,114  
Servicing assets
                            181,095               181,095  
Other assets
    29,218       68,640       21,253       1,085,813       (27,846 )     1,177,078  
Goodwill
                            606,440               606,440  
Other intangible assets
    554                       50,313               50,867  
Assets from discontinued operations
                            12,036               12,036  
 
 
  $ 4,006,720     $ 222,458     $ 1,583,042     $ 37,099,293       ($5,202,085 )   $ 37,709,428  
 
 
                                               
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                               
Liabilities:
                                               
Deposits:
                                               
Non-interest bearing
                          $ 4,374,001       ($1,635 )   $ 4,372,366  
Interest bearing
                            23,050,212       (272,811 )     22,777,401  
 
 
                            27,424,213       (274,446 )     27,149,767  
Assets sold under agreements to repurchase
                            2,921,797       (39,800 )     2,881,997  
Other short-term borrowings
  $ 37,549             $ 10,302       501,324       (519,722 )     29,453  
Notes payable at cost
    793,300               1,445,031       1,162,732       (2,000 )     3,399,063  
Subordinated notes
                            430,000       (430,000 )        
Other liabilities
    43,957     $ 115       49,189       1,042,136       (30,584 )     1,104,813  
Liabilities from discontinued operations
                            12,421               12,421  
 
 
    874,806       115       1,504,522       33,494,623       (1,296,552 )     34,577,514  
 
Stockholders’ equity:
                                               
Preferred stock
    1,485,287                                       1,485,287  
Common stock
    1,692,209       3,961       2       52,318       (56,281 )     1,692,209  
Surplus
    487,661       2,301,193       2,184,964       4,291,726       (8,769,089 )     496,455  
Accumulated deficit
    (442,561 )     (2,030,846 )     (2,097,149 )     (697,357 )     4,816,558       (451,355 )
Accumulated other comprehensive loss, net of tax
    (90,682 )     (51,965 )     (9,297 )     (42,017 )     103,279       (90,682 )
 
 
    3,131,914       222,343       78,520       3,604,670       (3,905,533 )     3,131,914  
 
 
  $ 4,006,720     $ 222,458     $ 1,583,042     $ 37,099,293       ($5,202,085 )   $ 37,709,428  
 
 
                                               
 
                                               
 
                                               

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Table of Contents

POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2010
(UNAUDITED)
                                                 
                            All other        
    Popular, Inc.   PIBI   PNA   subsidiaries   Elimination   Popular, Inc.
(In thousands)   Holding Co.   Holding Co.   Holding Co.   and eliminations   entries   Consolidated
 
INTEREST AND DIVIDEND INCOME:
                                               
Dividend income from subsidiaries
  $ 87,400     $ 7,500                       ($94,900 )        
Loans
    943                     $ 354,508       (802 )   $ 354,649  
Money market investments
            212               1,042       (212 )     1,042  
Investment securities
    7,166       9     $ 81       64,512       (6,842 )     64,926  
Trading account securities
                            6,578               6,578  
 
 
    95,509       7,721       81       426,640       (102,756 )     427,195  
 
INTEREST EXPENSE:
                                               
Deposits
                            93,186       (212 )     92,974  
Short-term borrowings
    28               31       15,986       (786 )     15,259  
Long-term debt
    30,235               7,675       19,155       (7,020 )     50,045  
 
 
    30,263               7,706       128,327       (8,018 )     158,278  
 
Net interest income (loss)
    65,246       7,721       (7,625 )     298,313       (94,738 )     268,917  
Provision for loan losses
                            240,200               240,200  
 
Net interest income (loss) after provision for loan losses
    65,246       7,721       (7,625 )     58,113       (94,738 )     28,717  
Service charges on deposit accounts
                            50,578               50,578  
Other service fees