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| UNITED STATES |
| SECURITIES AND EXCHANGE COMMISSION |
| Washington, D.C. 20549 |
| Form 10-Q |
[X] | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| For the quarterly period ended September 30, 2019 |
| Or |
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| Commission File Number: 001-34084 |
POPULAR, INC.
(Exact name of registrant as specified in its charter)
Puerto Rico |  | 66-0667416
(State or other jurisdiction of Incorporation or |  | (IRS Employer Identification Number)
organization) |  |
Popular Center Building |  |  |
209 Muñoz Rivera Avenue |  |  |
Hato Rey, Puerto Rico |  | 00918
(Address of principal executive offices) |  | (Zip code)
(787) 765-9800
(Registrant’s telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Stock ($0.01 par value) | BPOP | The NASDAQ Stock Market
6.70% Cumulative Monthly Income Trust Preferred Securities | BPOPN | The NASDAQ Stock Market
6.125% Cumulative Monthly Income Trust Preferred Securities | BPOPM | The NASDAQ Stock Market
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.
| [X] Yes | [ ] No |  |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
| [X] Yes | [ ] No |  |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer [X] | Accelerated filer [ ] | Non-accelerated filer [ ] |
Smaller reporting company [ ] | Emerging growth company [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| [ ] Yes | [X] 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, 96,739,607 shares outstanding as of November 5, 2019.

POPULAR INC |  |
INDEX |  |
Part I – Financial Information | Page |
Item 1. Financial Statements |  |
Unaudited Consolidated Statements of Financial Condition at September 30, 2019 and |  |
December 31, 2018 | 6 |
Unaudited Consolidated Statements of Operations for the quarters |  |
and nine months ended September 30, 2019 and 2018 | 7 |
Unaudited Consolidated Statements of Comprehensive Income for the |  |
quarters and nine months ended September 30, 2019 and 2018 | 8 |
Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the |  |
quarters and nine months ended September 30, 2019 and 2018 | 9 |
Unaudited Consolidated Statements of Cash Flows for the nine months |  |
ended September 30, 2019 and 2018 | 11 |
Notes to Unaudited Consolidated Financial Statements | 13 |
Item 2. Management’s Discussion and Analysis of Financial Condition and |  |
Results of Operations | 124 |
Item 3. Quantitative and Qualitative Disclosures about Market Risk | 169 |
Item 4. Controls and Procedures | 169 |
Part II – Other Information |  |
Item 1. Legal Proceedings | 170 |
Item 1A. Risk Factors | 170 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 170 |
Item 3. Defaults Upon Senior Securities | 170 |
Item 4. Mine Safety Disclosures | 170 |
Item 5. Other Information | 171 |
Item 6. Exhibits | 171 |
Signatures | 172 |

3

Forward-Looking Information

This Form 10-Q contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including, without limitation, statements about Popular Inc.’s (the “Corporation,” “Popular,” “we,” “us,” “our”) business, financial condition, results of operations, plans, objectives and future performance. These statements are not guarantees of future performance, are based on management’s current expectations and, by their nature, involve risks, uncertainties, estimates and assumptions. Potential factors, some of which are beyond the Corporation’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Risks and uncertainties include without limitation the effect of competitive and economic factors, and our reaction to those factors, the adequacy of the allowance for loan losses, delinquency trends, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity, and the effect of legal and regulatory 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.

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 or decline in the economy and employment levels, as well as general business and economic conditions in the geographic areas we serve and, in particular, in the Commonwealth of Puerto Rico (the “Commonwealth” or “Puerto Rico”), where a significant portion of our business is concentrated;

the impact of the current fiscal and economic challenges of Puerto Rico and the measures taken and to be taken by the Puerto Rico Government and the Federally-appointed oversight board on the economy, our customers and our business;

the impact of the pending debt restructuring proceedings under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”) and of other actions taken or to be taken to address Puerto Rico’s fiscal challenges on the value of our portfolio of Puerto Rico government securities and loans to governmental entities and of our commercial, mortgage and consumer loan portfolios where private borrowers could be directly affected by governmental action;

the impact of Hurricanes Irma and Maria, and the measures taken to recover from these hurricanes (including the availability of relief funds and insurance proceeds), on the economy of Puerto Rico, the U.S. Virgin Islands and the British Virgin Islands, and on our customers and our business;

changes in interest rates and market liquidity, which may reduce interest margins, impact funding sources and affect our ability to originate and distribute financial products in the primary and secondary markets;

the fiscal and monetary policies of the federal government and its agencies;

changes in federal bank regulatory and supervisory policies, including required levels of capital and the impact of proposed capital standards on our capital ratios;

additional Federal Deposit Insurance Corporation (“FDIC”) assessments;

regulatory approvals that may be necessary to undertake certain actions or consummate strategic transactions such as acquisitions and dispositions;

hurricanes and other weather-related events, as well as man-made disasters, which could cause a disruption in our operations or other adverse consequences for our business;

the ability to successfully integrate the auto finance business acquired from Wells Fargo & Company, as well as unexpected costs, including as a result of any unrecorded liabilities or issues not identified during the due diligence investigation of the business or, that may not be subject to indemnification or reimbursement under the acquisition agreement, and risks that the business may suffer as a result of the transaction, including due to adverse effects on relationships with customers, employees and service providers;

4

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;

possible legislative, tax or regulatory changes; and

a failure in or breach of our operational or security systems or infrastructure or those of EVERTEC, Inc., our provider of core financial transaction processing and information technology services, or of other third parties providing services to us, including as a result of cyberattacks, e-fraud, denial-of-services and computer intrusion, that might result in loss or breach of customer data, disruption of services, reputational damage or additional costs to Popular.

Other possible events or factors that could cause results or performance to differ materially from those expressed in these forward-looking statements include the following:

negative economic conditions that adversely affect housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of non-performing assets, charge-offs and provision expense;

changes in market rates and prices which may adversely impact the value of financial assets and liabilities;

liabilities resulting from litigation and regulatory investigations;

changes in accounting standards, rules and interpretations;

our ability to grow our core businesses;

decisions to downsize, sell or close units or otherwise change our business mix; and

management’s ability to identify and manage these and other risks.

Moreover, the outcome of legal and regulatory proceedings, as discussed in “Part II, Item 1. Legal Proceedings,” is inherently uncertain and depends on judicial interpretations of law and the findings of regulators, judges and/or juries. Investors should refer to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018, as well as “Part II, Item 1A” of this Form 10-Q for a discussion of such factors and certain risks and uncertainties to which the Corporation is subject.

All forward-looking statements included in this Form 10-Q are based upon information available to Popular as of the date of this Form 10-Q, and other than as required by law, including the requirements of applicable securities laws, we assume no obligation to update or revise any such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

5

POPULAR, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

|  |  |  | September 30, | December 31,
(In thousands, except share information) | 2019 | 2018
Assets: |  |  |  |
Cash and due from banks | $ | 502,060 | $ | 394,035
Money market investments: |  |  |  |
|  | Time deposits with other banks |  | 5,168,585 |  | 4,171,048
|  | Total money market investments |  | 5,168,585 |  | 4,171,048
Trading account debt securities, at fair value: |  |  |  |
|  | Pledged securities with creditors’ right to repledge |  | 605 |  | 598
|  | Other trading account debt securities |  | 35,698 |  | 37,189
Debt securities available-for-sale, at fair value: |  |  |  |
|  | Pledged securities with creditors’ right to repledge |  | 222,806 |  | 280,502
|  | Other debt securities available-for-sale |  | 16,256,304 |  | 13,019,682
Debt securities held-to-maturity, at amortized cost (fair value 2019 - $103,918; 2018 - $102,653) |  | 97,707 |  | 101,575
Equity securities (realizable value 2019 -$166,451); (2018 - $159,821) |  | 160,458 |  | 155,584
Loans held-for-sale, at lower of cost or fair value |  | 56,370 |  | 51,422
Loans held-in-portfolio |  | 27,181,241 |  | 26,663,713
|  | Less – Unearned income |  | 173,266 |  | 155,824
|  | Allowance for loan losses |  | 512,365 |  | 569,348
|  | Total loans held-in-portfolio, net |  | 26,495,610 |  | 25,938,541
Premises and equipment, net |  | 547,063 |  | 569,808
Other real estate |  | 117,928 |  | 136,705
Accrued income receivable |  | 164,778 |  | 166,022
Mortgage servicing assets, at fair value |  | 150,652 |  | 169,777
Other assets |  | 1,811,190 |  | 1,714,134
Goodwill |  | 671,122 |  | 671,122
Other intangible assets |  | 21,479 |  | 26,833
Total assets | $ | 52,480,415 | $ | 47,604,577
Liabilities and Stockholders’ Equity |  |  |  |
Liabilities: |  |  |  |
| Deposits: |  |  |  |
|  | Non-interest bearing | $ | 8,771,970 | $ | 9,149,036
|  | Interest bearing |  | 35,394,225 |  | 30,561,003
|  | Total deposits |  | 44,166,195 |  | 39,710,039
Assets sold under agreements to repurchase |  | 213,097 |  | 281,529
Other short-term borrowings |  | - |  | 42
Notes payable |  | 1,166,670 |  | 1,256,102
Other liabilities |  | 1,026,005 |  | 921,808
|  | Total liabilities |  | 46,571,967 |  | 42,169,520
Commitments and contingencies (Refer to Note 22) |  |  |  |
Stockholders’ equity: |  |  |  |
Preferred stock, 30,000,000 shares authorized; 2,006,391 shares issued and outstanding |  | 50,160 |  | 50,160
Common stock, $0.01 par value; 170,000,000 shares authorized;104,375,495 shares issued (2018 - 104,320,303) and 96,714,664 shares outstanding (2018 - 99,942,845) |  | 1,044 |  | 1,043
Surplus |  | 4,317,556 |  | 4,365,606
Retained earnings |  | 2,071,198 |  | 1,651,731
Treasury stock - at cost, 7,660,831 shares (2018 - 4,377,458) |  | (392,630) |  | (205,509)
Accumulated other comprehensive loss, net of tax |  | (138,880) |  | (427,974)
|  | Total stockholders’ equity |  | 5,908,448 |  | 5,435,057
Total liabilities and stockholders’ equity | $ | 52,480,415 | $ | 47,604,577
The accompanying notes are an integral part of these Consolidated Financial Statements.

6

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

|  |  | Quarters ended September 30, |  | Nine months ended September 30,
(In thousands, except per share information) | 2019 |  | 2018 |  | 2019 |  | 2018
Interest income: |  |  |  |  |  |  |  |  |  |  |
| Loans | $ | 453,315 |  | $ | 430,637 |  | $ | 1,355,232 |  | $ | 1,190,498
| Money market investments |  | 19,119 |  |  | 27,581 |  |  | 70,873 |  |  | 86,258
| Investment securities |  | 99,542 |  |  | 70,147 |  |  | 274,819 |  |  | 185,537
|  | Total interest income |  | 571,976 |  |  | 528,365 |  |  | 1,700,924 |  |  | 1,462,293
Interest expense: |  |  |  |  |  |  |  |  |  |  |
| Deposits |  | 78,760 |  |  | 55,134 |  |  | 228,035 |  |  | 139,050
| Short-term borrowings |  | 1,572 |  |  | 1,622 |  |  | 4,828 |  |  | 5,387
| Long-term debt |  | 14,653 |  |  | 20,140 |  |  | 43,791 |  |  | 59,204
|  | Total interest expense |  | 94,985 |  |  | 76,896 |  |  | 276,654 |  |  | 203,641
Net interest income |  | 476,991 |  |  | 451,469 |  |  | 1,424,270 |  |  | 1,258,652
Provision for loan losses - non-covered loans |  | 36,539 |  |  | 54,387 |  |  | 118,555 |  |  | 183,774
Provision for loan losses - covered loans |  | - |  |  | - |  |  | - |  |  | 1,730
Net interest income after provision for loan losses |  | 440,452 |  |  | 397,082 |  |  | 1,305,715 |  |  | 1,073,148
Service charges on deposit accounts |  | 40,969 |  |  | 38,147 |  |  | 119,277 |  |  | 111,704
Other service fees |  | 71,309 |  |  | 64,316 |  |  | 209,647 |  |  | 187,794
Mortgage banking activities (Refer to Note 11) |  | 10,492 |  |  | 11,269 |  |  | 18,645 |  |  | 33,408
Net loss on sale of debt securities |  | (20) |  |  | - |  |  | (20) |  |  | -
Net gain (loss), including impairment on equity securities |  | 213 |  |  | 370 |  |  | 2,174 |  |  | (42)
Net profit (loss) on trading account debt securities |  | 295 |  |  | (122) |  |  | 977 |  |  | (299)
Indemnity reserves on loans sold expense |  | (3,411) |  |  | (3,029) |  |  | (1,664) |  |  | (6,482)
FDIC loss-share income (Refer to Note 30) |  | - |  |  | - |  |  | - |  |  | 94,725
Other operating income |  | 22,865 |  |  | 40,070 |  |  | 68,432 |  |  | 78,519
|  | Total non-interest income |  | 142,712 |  |  | 151,021 |  |  | 417,468 |  |  | 499,327
Operating expenses: |  |  |  |  |  |  |  |  |  |  |
Personnel costs |  | 147,682 |  |  | 139,757 |  |  | 432,298 |  |  | 389,941
Net occupancy expenses |  | 24,595 |  |  | 18,602 |  |  | 71,431 |  |  | 63,829
Equipment expenses |  | 21,596 |  |  | 18,303 |  |  | 62,624 |  |  | 53,284
Other taxes |  | 14,028 |  |  | 11,923 |  |  | 38,267 |  |  | 33,701
Professional fees |  | 98,561 |  |  | 83,860 |  |  | 281,275 |  |  | 260,748
Communications |  | 5,881 |  |  | 6,054 |  |  | 17,685 |  |  | 17,342
Business promotion |  | 18,365 |  |  | 15,478 |  |  | 52,158 |  |  | 44,265
FDIC deposit insurance |  | 2,923 |  |  | 8,610 |  |  | 13,007 |  |  | 22,534
Other real estate owned (OREO) expenses |  | (185) |  |  | 7,950 |  |  | 3,729 |  |  | 21,028
Other operating expenses |  | 40,630 |  |  | 52,576 |  |  | 107,354 |  |  | 111,462
Amortization of intangibles |  | 2,399 |  |  | 2,324 |  |  | 7,082 |  |  | 6,973
|  | Total operating expenses |  | 376,475 |  |  | 365,437 |  |  | 1,086,910 |  |  | 1,025,107
Income before income tax |  | 206,689 |  |  | 182,666 |  |  | 636,273 |  |  | 547,368
Income tax expense |  | 41,370 |  |  | 42,018 |  |  | 131,923 |  |  | 35,613
Net Income | $ | 165,319 |  | $ | 140,648 |  | $ | 504,350 |  | $ | 511,755
Net Income Applicable to Common Stock | $ | 164,389 |  | $ | 139,718 |  | $ | 501,558 |  | $ | 508,963
Net Income per Common Share – Basic | $ | 1.71 |  | $ | 1.38 |  | $ | 5.17 |  | $ | 5.01
Net Income per Common Share – Diluted | $ | 1.70 |  | $ | 1.38 |  | $ | 5.16 |  | $ | 5.00
The accompanying notes are an integral part of these Consolidated Financial Statements.

7

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

|  | Quarters ended, |  | Nine months ended,
|  | September 30, |  | September 30,
(In thousands) | 2019 |  | 2018 |  | 2019 |  | 2018
Net income | $ | 165,319 |  | $ | 140,648 |  | $ | 504,350 |  | $ | 511,755
Reclassification to retained earnings due to cumulative effect of accounting change |  | - |  |  | - |  |  | (50) |  |  | (605)
Other comprehensive income (loss) before tax: |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustment |  | 155 |  |  | (605) |  |  | (2,287) |  |  | (3,968)
Amortization of net losses of pension and postretirement benefit plans |  | 5,877 |  |  | 5,386 |  |  | 17,629 |  |  | 16,157
Amortization of prior service credit of pension and postretirement benefit plans |  | - |  |  | (868) |  |  | - |  |  | (2,603)
Unrealized holding gains (losses) on debt securities arising during the period |  | 53,553 |  |  | (43,781) |  |  | 306,857 |  |  | (201,193)
| Reclassification adjustment for losses included in net income |  | 20 |  |  | - |  |  | 20 |  |  | -
Unrealized net (losses) gains on cash flow hedges |  | (3,538) |  |  | 341 |  |  | (5,358) |  |  | 1,296
| Reclassification adjustment for net losses (gains) included in net income |  | 1,221 |  |  | 147 |  |  | 3,142 |  |  | (870)
Other comprehensive income (loss) before tax |  | 57,288 |  |  | (39,380) |  |  | 319,953 |  |  | (191,786)
Income tax (expense) benefit |  | (4,955) |  |  | 1,983 |  |  | (30,859) |  |  | 8,249
Total other comprehensive income (loss), net of tax |  | 52,333 |  |  | (37,397) |  |  | 289,094 |  |  | (183,537)
Comprehensive income, net of tax | $ | 217,652 |  | $ | 103,251 |  | $ | 793,444 |  | $ | 328,218
Tax effect allocated to each component of other comprehensive income (loss):
|  | Quarters ended |  | Nine months ended,
|  | September 30, |  | September 30,
(In thousands) | 2019 |  | 2018 |  | 2019 |  | 2018
Amortization of net losses of pension and postretirement benefit plans | $ | (2,204) |  | $ | (2,101) |  | $ | (6,611) |  | $ | (6,301)
Amortization of prior service credit of pension and postretirement benefit plans |  | - |  |  | 339 |  |  | - |  |  | 1,016
Unrealized holding gains (losses) on debt securities arising during the period |  | (2,583) |  |  | 3,936 |  |  | (24,032) |  |  | 13,701
| Reclassification adjustment for losses included in net income |  | (4) |  |  | - |  |  | (4) |  |  | -
Unrealized net (losses) gains on cash flow hedges |  | 337 |  |  | (133) |  |  | 1,009 |  |  | (506)
| Reclassification adjustment for net losses (gains) included in net income |  | (501) |  |  | (58) |  |  | (1,221) |  |  | 339
Income tax (expense) benefit | $ | (4,955) |  | $ | 1,983 |  | $ | (30,859) |  | $ | 8,249
The accompanying notes are an integral part of the Consolidated Financial Statements. |  |  |  |  |  |

8

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

|  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  | other |  |  |
|  |  | Common | Preferred |  |  | Retained |  | Treasury |  | comprehensive |  |  |
(In thousands) | stock | stock | Surplus | earnings |  | stock |  | loss |  | Total
Balance at June 30, 2018 | $ | 1,043 | $ | 50,160 | $ | 4,302,946 | $ | 1,515,058 |  | $ | (82,754) |  | $ | (496,792) |  | $ | 5,289,661
Net income |  |  |  |  |  |  |  | 140,648 |  |  |  |  |  |  |  |  | 140,648
Issuance of stock |  |  |  |  |  | 822 |  |  |  |  |  |  |  |  |  |  | 822
Dividends declared: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Common stock[1] |  |  |  |  |  |  |  | (25,084) |  |  |  |  |  |  |  |  | (25,084)
| Preferred stock |  |  |  |  |  |  |  | (930) |  |  |  |  |  |  |  |  | (930)
Common stock purchases[2] |  |  |  |  |  | (23,020) |  |  |  |  | (102,079) |  |  |  |  |  | (125,099)
Common stock reissuance |  |  |  |  |  | 103 |  |  |  |  | 711 |  |  |  |  |  | 814
Stock based compensation |  |  |  |  |  | 664 |  |  |  |  | 250 |  |  |  |  |  | 914
Other comprehensive loss, net of tax |  |  |  |  |  |  |  |  |  |  |  |  |  | (37,397) |  |  | (37,397)
Balance at September 30, 2018 | $ | 1,043 | $ | 50,160 | $ | 4,281,515 | $ | 1,629,692 |  | $ | (183,872) |  | $ | (534,189) |  | $ | 5,244,349
Balance at June 30, 2019 | $ | 1,044 | $ | 50,160 | $ | 4,316,225 | $ | 1,935,826 |  | $ | (392,208) |  | $ | (191,213) |  | $ | 5,719,834
Net income |  |  |  |  |  |  |  | 165,319 |  |  |  |  |  |  |  |  | 165,319
Issuance of stock |  | - |  |  |  | 909 |  |  |  |  |  |  |  |  |  |  | 909
Dividends declared: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Common stock[1] |  |  |  |  |  |  |  | (29,017) |  |  |  |  |  |  |  |  | (29,017)
| Preferred stock |  |  |  |  |  |  |  | (930) |  |  |  |  |  |  |  |  | (930)
Common stock purchases |  |  |  |  |  |  |  |  |  |  | (1,367) |  |  |  |  |  | (1,367)
Common stock reissuance |  |  |  |  |  | 50 |  |  |  |  | 914 |  |  |  |  |  | 964
Stock based compensation |  |  |  |  |  | 372 |  |  |  |  | 31 |  |  |  |  |  | 403
Other comprehensive income, net of tax |  |  |  |  |  |  |  |  |  |  |  |  |  | 52,333 |  |  | 52,333
Balance at September 30, 2019 | $ | 1,044 | $ | 50,160 | $ | 4,317,556 | $ | 2,071,198 |  | $ | (392,630) |  | $ | (138,880) |  | $ | 5,908,448
[1] | Dividends declared per common share during the quarter ended September 30, 2019 - $0.30 (2018 - $0.25).
[2] | During the quarter ended September 30, 2018, the Corporation entered into a $125 million accelerated share repurchase transaction with respect to its common stock, which was accounted for as a treasury stock transaction. Refer to Note 19 for additional information.

|  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  | other |  |  |
|  |  | Common | Preferred |  |  | Retained |  | Treasury |  | comprehensive |  |  |
(In thousands) | stock | stock | Surplus | earnings |  | stock |  | loss |  | Total
Balance at December 31, 2017 | $ | 1,042 | $ | 50,160 | $ | 4,298,503 | $ | 1,194,994 |  | $ | (90,142) |  | $ | (350,652) |  | $ | 5,103,905
Cumulative effect of accounting change |  |  |  |  |  |  |  | 1,935 |  |  |  |  |  |  |  |  | 1,935
Net income |  |  |  |  |  |  |  | 511,755 |  |  |  |  |  |  |  |  | 511,755
Issuance of stock |  | 1 |  |  |  | 2,564 |  |  |  |  |  |  |  |  |  |  | 2,565
Dividends declared: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Common stock[1] |  |  |  |  |  |  |  | (76,200) |  |  |  |  |  |  |  |  | (76,200)
| Preferred stock |  |  |  |  |  |  |  | (2,792) |  |  |  |  |  |  |  |  | (2,792)
Common stock purchases[2] |  |  |  |  |  | (23,020) |  |  |  |  | (104,423) |  |  |  |  |  | (127,443)
Common stock reissuance |  |  |  |  |  | 143 |  |  |  |  | 2,008 |  |  |  |  |  | 2,151
Stock based compensation |  |  |  |  |  | 3,325 |  |  |  |  | 8,685 |  |  |  |  |  | 12,010
Other comprehensive loss, net of tax |  |  |  |  |  |  |  |  |  |  |  |  |  | (183,537) |  |  | (183,537)
Balance at September 30, 2018 | $ | 1,043 | $ | 50,160 | $ | 4,281,515 | $ | 1,629,692 |  | $ | (183,872) |  | $ | (534,189) |  | $ | 5,244,349
Balance at December 31, 2018 | $ | 1,043 | $ | 50,160 | $ | 4,365,606 | $ | 1,651,731 |  | $ | (205,509) |  | $ | (427,974) |  | $ | 5,435,057
Cumulative effect of accounting change |  |  |  |  |  |  |  | 4,905 |  |  |  |  |  |  |  |  | 4,905
Net income |  |  |  |  |  |  |  | 504,350 |  |  |  |  |  |  |  |  | 504,350
Issuance of stock |  | 1 |  |  |  | 2,632 |  |  |  |  |  |  |  |  |  |  | 2,633
Dividends declared: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Common stock[1] |  |  |  |  |  |  |  | (86,996) |  |  |  |  |  |  |  |  | (86,996)
| Preferred stock |  |  |  |  |  |  |  | (2,792) |  |  |  |  |  |  |  |  | (2,792)
Common stock purchases[3] |  |  |  |  |  | (52,670) |  |  |  |  | (203,336) |  |  |  |  |  | (256,006)
Common stock reissuance |  |  |  |  |  | 274 |  |  |  |  | 3,616 |  |  |  |  |  | 3,890
Stock based compensation |  |  |  |  |  | 1,714 |  |  |  |  | 12,599 |  |  |  |  |  | 14,313
Other comprehensive income, net of tax |  |  |  |  |  |  |  |  |  |  |  |  |  | 289,094 |  |  | 289,094
Balance at September 30, 2019 | $ | 1,044 | $ | 50,160 | $ | 4,317,556 | $ | 2,071,198 |  | $ | (392,630) |  | $ | (138,880) |  | $ | 5,908,448
[1] | Dividends declared per common share during the nine months ended September 30, 2019 - $0.90 (2018 - $0.75).
[2] | During the quarter ended September 30, 2018, the Corporation entered into a $125 million accelerated share repurchase transaction with respect to its common stock, which was accounted for as a treasury stock transaction. Refer to Note 19 for additional information.
[3] | On February 28, 2019, the Corporation entered into a $250 million accelerated share repurchase transaction with respect to its common stock, which was accounted for as a treasury stock transaction. Refer to Note 19 for additional information.

9

|  |  |  |  |  |  |  |  |  |  | September 30, |  | September 30,
Disclosure of changes in number of shares: |  |  |  |  |  |  |  |  |  |  | 2019 |  | 2018
Preferred Stock: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Balance at beginning and end of period |  |  |  |  |  |  |  |  |  |  |  |  |  | 2,006,391 |  |  | 2,006,391
Common Stock – Issued: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Balance at beginning of period |  |  |  |  |  |  |  |  |  |  |  |  |  | 104,320,303 |  |  | 104,238,159
| Issuance of stock |  |  |  |  |  |  |  |  |  |  |  |  |  | 55,192 |  |  | 66,370
| Balance at end of period |  |  |  |  |  |  |  |  |  |  |  |  |  | 104,375,495 |  |  | 104,304,529
| Treasury stock |  |  |  |  |  |  |  |  |  |  |  |  |  | (7,660,831) |  |  | (3,968,188)
Common Stock – Outstanding |  |  |  |  |  |  |  |  |  |  |  |  |  | 96,714,664 |  |  | 100,336,341
The accompanying notes are an integral part of these Consolidated Financial Statements.

10

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

| Nine months ended September 30,
(In thousands) |  | 2019 |  |  | 2018
Cash flows from operating activities: |  |  |  |  |
Net income | $ | 504,350 |  | $ | 511,755
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |
| Provision for loan losses |  | 118,555 |  |  | 185,504
| Amortization of intangibles |  | 7,082 |  |  | 6,973
| Depreciation and amortization of premises and equipment |  | 42,928 |  |  | 39,083
| Net accretion of discounts and amortization of premiums and deferred fees |  | (126,548) |  |  | (43,533)
| Share-based compensation |  | 11,418 |  |  | 5,962
| Impairment losses on long-lived assets |  | 2,591 |  |  | 272
| Fair value adjustments on mortgage servicing rights |  | 25,853 |  |  | 13,123
| FDIC loss share income |  | - |  |  | (94,725)
| Indemnity reserves on loans sold expense |  | 1,664 |  |  | 6,482
| Earnings from investments under the equity method, net of dividends or distributions |  | (18,461) |  |  | (14,772)
| Deferred income tax expense (benefit) |  | 110,058 |  |  | (97,708)
| (Gain) loss on: |  |  |  |  |
|  | Disposition of premises and equipment and other productive assets |  | (5,133) |  |  | 17,694
|  | Proceeds from insurance claims |  | - |  |  | (14,411)
|  | Sale of debt securities |  | 20 |  |  | -
|  | Sale of loans, including valuation adjustments on loans held-for-sale and mortgage banking activities |  | (11,360) |  |  | (6,734)
|  | Sale of foreclosed assets, including write-downs |  | (15,858) |  |  | (638)
| Acquisitions of loans held-for-sale |  | (157,993) |  |  | (173,644)
| Proceeds from sale of loans held-for-sale |  | 51,067 |  |  | 51,131
| Net originations on loans held-for-sale |  | (208,875) |  |  | (186,063)
| Net decrease (increase) in: |  |  |  |  |
|  | Trading debt securities |  | 333,013 |  |  | 346,455
|  | Equity securities |  | (6,482) |  |  | (2,480)
|  | Accrued income receivable |  | 7,724 |  |  | 51,868
|  | Other assets |  | (12,837) |  |  | 234,836
| Net (decrease) increase in: |  |  |  |  |
|  | Interest payable |  | (6,900) |  |  | (9,933)
|  | Pension and other postretirement benefits obligation |  | (4,979) |  |  | 3,392
|  | Other liabilities |  | (102,049) |  |  | (197,035)
Total adjustments |  | 34,498 |  |  | 121,099
Net cash provided by operating activities |  | 538,848 |  |  | 632,854
Cash flows from investing activities: |  |  |  |  |
| Net (increase) decrease in money market investments |  | (1,000,840) |  |  | 647,519
| Purchases of investment securities: |  |  |  |  |
|  | Available-for-sale |  | (13,579,074) |  |  | (6,968,920)
|  | Equity |  | (15,474) |  |  | (11,304)
| Proceeds from calls, paydowns, maturities and redemptions of investment securities: |  |  |  |  |
|  | Available-for-sale |  | 10,671,630 |  |  | 3,925,362
|  | Held-to-maturity |  | 5,325 |  |  | 7,184
| Proceeds from sale of investment securities: |  |  |  |  |
|  | Available-for-sale |  | 99,445 |  |  | -
|  | Equity |  | 17,083 |  |  | 20,925
| Net (disbursements) repayments on loans |  | (324,479) |  |  | (15,604)
| Proceeds from sale of loans |  | 77,327 |  |  | 1,354
| Acquisition of loan portfolios |  | (421,482) |  |  | (461,117)
| Payments to acquire other intangible |  | (793) |  |  | -
| Net payments (to) from FDIC under loss sharing agreements |  | - |  |  | (25,012)
| Payments to acquire businesses, net of cash acquired |  | - |  |  | (1,830,050)
| Return of capital from equity method investments |  | 2,747 |  |  | 2,501
| Acquisition of premises and equipment |  | (45,961) |  |  | (53,144)
| Proceeds from insurance claims |  | - |  |  | 14,411
| Proceeds from sale of: |  |  |  |  |
|  | Premises and equipment and other productive assets |  | 17,186 |  |  | 6,991
|  | Foreclosed assets |  | 83,848 |  |  | 85,622
Net cash used in investing activities |  | (4,413,512) |  |  | (4,653,282)

11

Cash flows from financing activities: |  |  |  |  |
| Net increase (decrease) in: |  |  |  |  |
|  | Deposits |  | 4,454,466 |  |  | 4,193,859
|  | Assets sold under agreements to repurchase |  | (68,433) |  |  | (90,805)
|  | Other short-term borrowings |  | (41) |  |  | (95,008)
| Payments of notes payable |  | (144,991) |  |  | (226,976)
| Principal payments of finance leases |  | (1,269) |  |  | -
| Proceeds from issuance of notes payable |  | 75,000 |  |  | 434,706
| Proceeds from issuance of common stock |  | 6,523 |  |  | 10,852
| Dividends paid |  | (85,863) |  |  | (79,115)
| Net payments for repurchase of common stock |  | (250,574) |  |  | (125,326)
| Payments related to tax withholding for share-based compensation |  | (5,432) |  |  | (2,205)
Net cash provided by financing activities |  | 3,979,386 |  |  | 4,019,982
Net increase (decrease) in cash and due from banks, and restricted cash |  | 104,722 |  |  | (446)
Cash and due from banks, and restricted cash at beginning of period |  | 403,251 |  |  | 412,629
Cash and due from banks, and restricted cash at the end of the period | $ | 507,973 |  | $ | 412,183
The accompanying notes are an integral part of these Consolidated Financial Statements.

12

Notes to Consolidated Financial

Statements (Unaudited)

| Note 1 - | Nature of operations | 14
| Note 2 - | Basis of presentation and summary of s ignificant accounting policies | 15
| Note 3 - | New accounting pronouncements | 16
| Note 4 - | Business combination | 20
| Note 5 - | Restrictions on cash and due from banks and certain securities | 21
| Note 6 - | Debt securities available-for-sale | 22
| Note 7 - | Debt securities held-to-maturity | 25
| Note 8 - | Loans | 27
| Note 9 - | Allowance for loan losses | 32
| Note 10 - | FDIC loss share asset and true-up payment obligation | 50
| Note 11 - | Mortgage banking activities | 51
| Note 12 - | Transfers of financial assets and mortgage servicing assets | 52
| Note 13 - | Other real estate owned | 55
| Note 14 - | Other assets | 56
| Note 15 - | Goodwill and other intangible assets | 57
| Note 16 - | Deposits | 61
| Note 17 - | Borrowings | 62
| Note 18 - | Other liabilities | 64
| Note 19 - | Stockholders’ equity | 65
| Note 20 - | Other comprehensive loss | 66
| Note 21 - | Guarantees | 68
| Note 22 - | Commitments and contingencies | 70
| Note 23- | Non-consolidated variable interest entities | 77
| Note 24 - | Related party transactions | 79
| Note 25 - | Fair value measurement | 82
| Note 26 - | Fair value of financial instruments | 88
| Note 27 - | Net income per common share | 91
| Note 28 - | Revenue from contracts with customers | 92
| Note 29 - | Leases | 94
| Note 30 - | FDIC loss share income | 96
| Note 31 - | Pension and postretirement benefits | 97
| Note 32 - | Stock-based compensation | 98
| Note 33 - | Income taxes | 100
| Note 34 - | Supplemental disclosure on the consolidated statements of cash flows | 104
| Note 35 - | Segment reporting | 105
| Note 36 - | Condensed consolidating financial information of guarantor and issuers of registered guaranteed securities | 110

13

Note 1 – Nature of operations

Popular, Inc. (the “Corporation” or “Popular”) is a diversified, publicly-owned financial holding company subject to the supervision and regulation of the Board of Governors of the Federal Reserve System. The Corporation has operations in Puerto Rico, the mainland United States (“U.S.”) and the U.S. and British Virgin Islands. In Puerto Rico, the Corporation provides retail, mortgage, and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as investment banking, broker-dealer, auto and equipment leasing and financing, and insurance services through specialized subsidiaries. In the mainland U.S., the Corporation provides retail, mortgage and commercial banking services through its New York-chartered banking subsidiary, Popular Bank (“PB”), which has branches located in New York, New Jersey and Florida.

14

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The consolidated interim financial statements have been prepared without audit. The Consolidated Statement of Financial Condition data at December 31, 2018 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, 2018, included in the Corporation’s 2018 Form 10-K. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

15

Note 3 - New accounting pronouncements

Recently Adopted Accounting Standards Updates
Standard |  | Description | Date of adoption | Effect on the financial statements
FASB Accounting Standards Update (“ASU”) 2019-01, Leases (Topic 842): Codification Improvements |  | The FASB issued ASU 2019-01 in March 2019 which, among other things, reinstates the specific fair value guidance in ASC Topic 840 for lessors that are not manufacturers or dealers to continue to measure the fair value of an underlying asset at its cost and clarifies that lessors that are depository or lending institutions in the scope of ASC Topic 942 are required to present the principal portion of lessee payments received from sales-type or direct financing leases as cash flows from investing activities. | January 1, 2019 | The Corporation early adopted ASU 2019-01 during the first quarter of 2019, but was not impacted by the adoption of this ASU.
FASB Accounting Standards Updates (“ASUs”), Leases (Topic 842) |  | The FASB has issued a series of ASUs which supersede ASC Topic 840 and set out the principles for the recognition, measurement, presentation and disclosure of leases for both lessors and lessees. The new guidance requires lessees to apply a dual approach, classifying leases as either finance or operating leases. A lessee is also required to record a right-of-use asset (“ROU asset”) and a lease liability for all leases with a term greater than 12 months regardless of their classification. The new standard requires lessors to account for leases using an approach that is substantially equivalent to previous guidance for sales-type leases, direct financing leases and operating leases. In addition, the new leases standard requires lessors, among other things, to present lessor costs paid by the lessee to the lessor on a gross basis. | January 1, 2019 | The Corporation adopted the new leases standard during the first quarter of 2019 using the modified retrospective approach. The Corporation made the following elections: to not reassess at the date of adoption whether any existing contracts were or contained leases, their lease classification, and initial direct costs; applied the transition provisions of the new leases standard at the adoption date; used hindsight in evaluating lessee options to extend or terminate a lease; and to not apply ASC Topic 842 to short-term leases.
| As of January 1, 2019, the Corporation recognized ROU assets of $139 million, net of deferred rent liability of $15 million, and lease liabilities of $154 million on its operating leases. In addition, the Corporation recorded a positive cumulative effect adjustment of $4.8 million to retained earnings as a result of the reclassification of previously deferred gains on sale and operating lease back transactions.

16

Standard |  | Description | Date of adoption | Effect on the financial statements
FASB Accounting Standards Update (“ASU”) 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes |  | The FASB issued ASU 2018-16 in October 2018 which permits use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to other permissible U.S. benchmark rates. | January 1, 2019 | The Corporation adopted ASU 2018-16 during the first quarter of 2019. As such, the Corporation will consider this guidance for qualifying new hedging relationships entered into on or after the effective date.
FASB Accounting Standards Update (“ASU”) 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income |  | The FASB issued ASU 2018-02 in February 2018, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. These stranded tax effects result from recognizing in income the impact of changes in tax rates even when the related tax effects were recognized in accumulated other comprehensive income. The amendments also require certain disclosures about stranded tax effects. | January 1, 2019 | The Corporation adopted ASU 2018-02 during the first quarter of 2019. As of December 31, 2018, the Corporation maintained a full valuation allowance on the deferred tax assets that were recognized in accumulated other comprehensive income related to its U.S. operations. As such, the Corporation was not impacted by the adoption of this accounting pronouncement during the first quarter of 2019.
FASB Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities |  | The FASB issued ASU 2017-12 in August 2017, which makes more financial and nonfinancial hedging strategies eligible for hedge accounting and changes how companies assess effectiveness by, among other things, eliminating the requirement for entities to recognize hedge ineffectiveness each reporting period for cash flow hedges and requiring presentation of the changes in fair value of cash flow hedges in the same income statement line item(s) as the earnings effect of the hedged items when the hedged item affects earnings. | January 1, 2019 | The Corporation adopted ASU 2017-12 during the first quarter of 2019. The cumulative effect adjustment recorded to retained earnings to reverse the hedge ineffectiveness as of December 31, 2018 was not significant. There were no changes in presentation since the earnings effect of the hedges and the hedged items are already presented in the same income statement line item. In addition, the Corporation elected to continue to perform subsequent assessments of hedge effectiveness quantitatively.

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Additionally, adoption of the following standards effective during the first quarter of 2019 did not have a significant impact on the Corporation’s Consolidated Financial Statements:

FASB Accounting Standards Update (“ASU”) 2018-09, Codification Improvements

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

FASB Accounting Standards Update (“ASU”) 2017-11, Earnings per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): Part I: Accounting for Certain Financial Instruments with Down Round Features; Part II: Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception

FASB Accounting Standards Update (“ASU”) 2017-08, Receivables– Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities

Accounting Standards Not Yet Adopted

FASB Accounting Standards Update (“ASUs”) 2019-07, Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates

The FASB issued ASU 2019-07 in July 2019, which updates the SEC portion of its codification literature with already effective SEC final rules that simplified disclosures and modernized the reporting and disclosure of information by registered investment companies.

FASB Accounting Standards Updates (“ASUs”), Financial Instruments – Credit Losses (Topic 326)

The FASB issued a series of ASUs mainly related to the recently issued standards on credit losses (Topic 326), which replace the incurred loss model with a current expected credit loss (“CECL”) model. The CECL model applies to financial assets subject to credit losses and measured at amortized cost and certain off-balance sheet exposures. Amendments to Topic 326 are mainly in the areas of accrued interest receivable, transfers of loans and debt securities between classifications, inclusion of expected recoveries in the allowance for credit losses and permitting a prepay-adjusted effective interest rate except for TDRs. For additional information on ASU 2016-13, refer to Note 3 to the Consolidated Financial Statements included in the 2018 Form 10-K.

The amendments of these updates are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted as of January 1, 2019.

The Corporation has continued its evaluation and implementation efforts with respect to CECL. Model development related to CECL has been substantially completed and is currently undergoing third-party validation procedures. Other implementation efforts are underway, including fulfillment of additional data needs for new disclosures and reporting requirements, related software implementation and the drafting of accounting policies.

The ultimate impact of the adoption of CECL will depend on the composition of the Corporation’s portfolios as well as the economic conditions and forecast at the time of adoption.

Based on its preliminary analysis and the information currently available, utilizing loan balances and macroeconomic scenarios as of June 30, 2019, the Corporation expects that its allowance for loan and lease losses would increase by a range from $360 million to $400 million, or 85% to 95%, excluding purchased credit impaired loans. This increase is driven by the Puerto Rico mortgage, auto and credit cards loans portfolio. This increase would be reflected as a decrease to the opening balance of retained earnings, net of income taxes.

The Corporation expects to continue to be well capitalized under the Basel III regulatory framework after the adoption of this standard. The Corporation will avail itself of the option to phase in over a period of three years the day one effects on regulatory capital from the adoption of CECL. Since the Corporation’s allowance for credit losses already exceeds 1.25% of its risk weighted assets, the incremental allowance resulting from the adoption of CECL will be excluded from Total Regulatory Capital. Considering

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the phase in period provided by the regulatory framework, the estimated decrease to the common equity tier one and total capital ratios would be of approximately 30 bps.

These estimates are preliminary and are subject to further work and analysis by the Corporation as part of its implementation efforts, including the consideration of qualitative factors, which may impact reserves, review of significant assumptions and the finalization of the model validation process.

For other recently issued Accounting Standards Updates not yet effective, refer to Note 3 to the Consolidated Financial Statements included in the 2018 Form 10-K.

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Note 4 – Business combination

On August 1, 2018, Popular, Inc., through its subsidiary Popular Auto, LLC (“Popular Auto”), acquired and assumed from Reliable Financial Services, Inc. and Reliable Finance Holding Co. (“Reliable”), subsidiaries of Wells Fargo & Company, certain assets and liabilities related to their auto finance business in Puerto Rico (the “Reliable Transaction” or “Transaction”). Popular Auto acquired approximately $1.6 billion in retail auto loans and $341 million in primarily auto-related commercial loans. The Corporation completed the integration of these operations during the third quarter of 2019 and continues to operate this business under the name of Popular Auto.

Wells Fargo retained approximately $398 million in retail auto loans as part of the Transaction and subsequently sold the same to a third party. Popular Auto has entered into a separate servicing agreement with respect to such loans.

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

The following table presents the fair values of the consideration and major classes of identifiable assets acquired and liabilities assumed by the Corporation as of August 1, 2018, net of cumulative measurement period adjustments as of period end.

|  | Book value prior to |  |  |  |  |  |  |  |
|  | purchase accounting |  |  | Fair value |  |  | Measurement |  | As recorded by
(In thousands) | adjustments |  |  | adjustments |  |  | period adjustments |  | Popular, Inc.
Cash consideration | $ | 1,843,256 |  | $ | - |  | $ | - |  | $ | 1,843,256
Assets: |  |  |  |  |  |  |  |  |  |  |
Loans | $ | 1,912,866 |  | $ | (126,908) | [1] | $ | 16,505 | [1] | $ | 1,802,463
Premises and equipment |  | 1,246 |  |  | - |  |  | - |  |  | 1,246
Accrued income receivable |  | 1,466 |  |  | - |  |  | - |  |  | 1,466
Other assets |  | 5,020 |  |  | - |  |  | (91) |  |  | 4,929
Trademark |  | - |  |  | 488 |  |  | - |  |  | 488
Total assets | $ | 1,920,598 |  | $ | (126,420) |  | $ | 16,414 |  | $ | 1,810,592
Liabilities: |  |  |  |  |  |  |  |  |  |  |
Other liabilities | $ | 11,164 |  | $ | - |  | $ | - |  | $ | 11,164
Total liabilities | $ | 11,164 |  | $ | - |  | $ | - |  | $ | 11,164
Net assets acquired | $ | 1,909,434 |  | $ | (126,420) |  | $ | 16,414 |  | $ | 1,799,428
Goodwill on acquisition |  |  |  |  |  |  |  |  |  | $ | 43,828
[1] | The fair value discount is comprised of $106 million related to the retail auto loans portfolio and $ 4 million related to the commercial loans portfolio.

During the fourth quarter of 2018, measurement period adjustments amounting to $16.5 million, were made to the estimated fair values of the loans acquired as part of the Transaction to reflect new information obtained about facts and circumstances that existed as of the acquisition date. The increase in the fair value of retail auto loans and commercial loans by $12.2 million and $4.3 million, respectively, was mainly attributed to decreases in credit loss expectations. The related cumulative adjustment to the amortization of the fair value discounts for the retail and commercial portfolios offset each other, resulting in an immaterial impact to the Corporation’s results.

Contractual cash flows for retail auto loans and commercial loans amounted to $1.8 billion and $348 million, respectively, from which $105 million and $3 million, respectively, are not expected to be collected.

For a description of the methods used to determine the fair values of significant assets acquired on the Reliable Transaction, refer to Note 4 of the Consolidated Statements included in the 2018 Form 10-K.

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

The Corporation’s banking subsidiaries, BPPR and PB, are required by federal and state regulatory agencies to maintain average reserve balances with the Federal Reserve Bank of New York (the “Fed”) or other banks. Those required average reserve balances amounted to $ 1.6 billion at September 30, 2019 (December 31, 2018 - $ 1.6 billion). Cash and due from banks, as well as other highly liquid securities, are used to cover the required average reserve balances.

At September 30, 2019, the Corporation held $ 49 million in restricted assets in the form of funds deposited in money market accounts, debt securities available for sale and equity securities (December 31, 2018 - $ 62 million). The restricted assets held in debt securities available for sale and equity securities consist primarily of assets held for the Corporation’s non-qualified retirement plans and fund deposits guaranteeing possible liens or encumbrances over the title of insured properties.

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Note 6 – Debt securities available-for-sale

The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of debt securities available-for-sale at September 30, 2019 and December 31, 2018.

|  | At September 30, 2019 |
|  |  |  | Gross | Gross |  |  | Weighted |
|  | Amortized | unrealized | unrealized | Fair | average |
(In thousands) | cost | gains | losses | value | yield |
U.S. Treasury securities |  |  |  |  |  |  |  |  |  |
| Within 1 year | $ | 5,593,503 | $ | 2,924 | $ | 1,789 | $ | 5,594,638 | 1.88 | %
| After 1 to 5 years |  | 4,200,129 |  | 86,143 |  | 862 |  | 4,285,410 | 2.34 |
| After 5 to 10 years |  | 624,188 |  | 1,912 |  | 1,860 |  | 624,240 | 1.60 |
Total U.S. Treasury securities |  | 10,417,820 |  | 90,979 |  | 4,511 |  | 10,504,288 | 2.05 |
Obligations of U.S. Government sponsored entities |  |  |  |  |  |  |  |  |  |
| Within 1 year |  | 127,485 |  | 6 |  | 174 |  | 127,317 | 1.40 |
| After 1 to 5 years |  | 60,005 |  | 1 |  | 231 |  | 59,775 | 1.48 |
Total obligations of U.S. Government sponsored entities |  | 187,490 |  | 7 |  | 405 |  | 187,092 | 1.43 |
Obligations of Puerto Rico, States and political subdivisions |  |  |  |  |  |  |  |  |  |
| Within 1 year |  | 6,975 |  | - |  | 44 |  | 6,931 | - |
Total obligations of Puerto Rico, States and political subdivisions |  | 6,975 |  | - |  | 44 |  | 6,931 | - |
Collateralized mortgage obligations - federal agencies |  |  |  |  |  |  |  |  |  |
| After 1 to 5 years |  | 725 |  | - |  | 1 |  | 724 | 2.02 |
| After 5 to 10 years |  | 91,024 |  | 32 |  | 1,210 |  | 89,846 | 1.64 |
| After 10 years |  | 541,407 |  | 4,410 |  | 5,751 |  | 540,066 | 2.09 |
Total collateralized mortgage obligations - federal agencies |  | 633,156 |  | 4,442 |  | 6,962 |  | 630,636 | 2.02 |
Mortgage-backed securities |  |  |  |  |  |  |  |  |  |
| Within 1 year |  | 37 |  | - |  | - |  | 37 | 2.05 |
| After 1 to 5 years |  | 39,627 |  | 861 |  | 2 |  | 40,486 | 3.35 |
| After 5 to 10 years |  | 315,038 |  | 2,623 |  | 1,391 |  | 316,270 | 2.04 |
| After 10 years |  | 4,751,236 |  | 64,743 |  | 22,982 |  | 4,792,997 | 2.61 |
Total mortgage-backed securities |  | 5,105,938 |  | 68,227 |  | 24,375 |  | 5,149,790 | 2.58 |
Other |  |  |  |  |  |  |  |  |  |
| After 1 to 5 years |  | 364 |  | 9 |  | - |  | 373 | 3.62 |
Total other |  | 364 |  | 9 |  | - |  | 373 | 3.62 |
Total debt securities available-for-sale[1] | $ | 16,351,743 | $ | 163,664 | $ | 36,297 | $ | 16,479,110 | 2.20 | %
[1] | Includes $12.9 billion pledged to secure public and trust deposits, assets sold under agreements to repurchase, credit facilities and loan servicing agreements that the secured parties are not permitted to sell or repledge the collateral, of which $11.7 billion serve as collateral for public funds.

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|  | At December 31, 2018 |
|  |  |  | Gross | Gross |  |  | Weighted |
|  | Amortized | unrealized | unrealized | Fair | average |
(In thousands) | cost | gains | losses | value | yield |
U.S. Treasury securities |  |  |  |  |  |  |  |  |  |
| Within 1 year | $ | 3,565,571 | $ | 108 | $ | 5,319 | $ | 3,560,360 | 2.10 | %
| After 1 to 5 years |  | 4,483,741 |  | 13,647 |  | 35,213 |  | 4,462,175 | 2.25 |
| After 5 to 10 years |  | 245,891 |  | 3,770 |  | - |  | 249,661 | 2.84 |
Total U.S. Treasury securities |  | 8,295,203 |  | 17,525 |  | 40,532 |  | 8,272,196 | 2.21 |
Obligations of U.S. Government sponsored entities |  |  |  |  |  |  |  |  |  |
| Within 1 year |  | 212,951 |  | - |  | 1,406 |  | 211,545 | 1.44 |
| After 1 to 5 years |  | 123,857 |  | 1 |  | 2,094 |  | 121,764 | 1.51 |
Total obligations of U.S. Government sponsored entities |  | 336,808 |  | 1 |  | 3,500 |  | 333,309 | 1.47 |
Obligations of Puerto Rico, States and political subdivisions |  |  |  |  |  |  |  |  |  |
| After 1 to 5 years |  | 6,926 |  | - |  | 184 |  | 6,742 | 0.70 |
Total obligations of Puerto Rico, States and political subdivisions |  | 6,926 |  | - |  | 184 |  | 6,742 | 0.70 |
Collateralized mortgage obligations - federal agencies |  |  |  |  |  |  |  |  |  |
| After 1 to 5 years |  | 749 |  | - |  | 7 |  | 742 | 1.92 |
| After 5 to 10 years |  | 115,744 |  | 1 |  | 4,715 |  | 111,030 | 1.71 |
| After 10 years |  | 638,995 |  | 1,584 |  | 23,680 |  | 616,899 | 2.10 |
Total collateralized mortgage obligations - federal agencies |  | 755,488 |  | 1,585 |  | 28,402 |  | 728,671 | 2.04 |
Mortgage-backed securities |  |  |  |  |  |  |  |  |  |
| Within 1 year |  | 431 |  | 4 |  | - |  | 435 | 4.30 |
| After 1 to 5 years |  | 6,762 |  | 43 |  | 1 |  | 6,804 | 2.74 |
| After 5 to 10 years |  | 365,727 |  | 1,090 |  | 8,499 |  | 358,318 | 2.19 |
| After 10 years |  | 3,710,731 |  | 10,679 |  | 128,189 |  | 3,593,221 | 2.45 |
Total mortgage-backed securities |  | 4,083,651 |  | 11,816 |  | 136,689 |  | 3,958,778 | 2.43 |
Other |  |  |  |  |  |  |  |  |  |
| After 5 to 10 years |  | 486 |  | 2 |  | - |  | 488 | 3.62 |
Total other |  | 486 |  | 2 |  | - |  | 488 | 3.62 |
Total debt securities available-for-sale[1] | $ | 13,478,562 | $ | 30,929 | $ | 209,307 | $ | 13,300,184 | 2.25 | %
[1] | Includes $8.9 billion pledged to secure public and trust deposits, assets sold under agreements to repurchase, credit facilities and loan servicing agreements that the secured parties are not permitted to sell or repledge the collateral, of which $7.9 billion serve as collateral for public funds.

The weighted average yield on investment securities available-for-sale is based on amortized cost; therefore, it does not give effect to changes in fair value.

Securities not due on a single contractual maturity date, such as mortgage-backed securities and collateralized mortgage obligations, are classified based on the period of final contractual maturity. The expected maturities of collateralized mortgage obligations, mortgage-backed securities and certain other securities may differ from their contractual maturities because they may be subject to prepayments or may be called by the issuer.

During the quarter ended September 30, 2019, the Corporation sold U.S. Treasury Bills. The proceeds from these sales were $ 99 million. No debt securities available-for-sale were sold during the nine months ended September 30, 2018.

The following table presents the Corporation’s gross realized gains and losses on the sale of debt securities available-for-sale for the quarters and nine months ended September 30, 2019 and 2018.

| For the quarter ended September 30, | Nine months ended September 30,
(In thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Gross realized gains | $ | - | $ | - | $ | - | $ | -
Gross realized losses |  | (20) |  | - |  | (20) |  | -
Net realized losses on sale of debt securities available-for-sale | $ | (20) | $ | - | $ | (20) | $ | -

The following tables present the Corporation’s fair value and gross unrealized losses of debt securities available-for-sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2019 and December 31, 2018.

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|  | At September 30, 2019
| Less than 12 months | 12 months or more | Total
|  |  |  | Gross |  |  | Gross |  |  | Gross
|  | Fair | unrealized | Fair | unrealized | Fair | unrealized
(In thousands) | value | losses | value | losses | value | losses
U.S. Treasury securities | $ | 900,818 | $ | 2,376 | $ | 639,001 | $ | 2,135 | $ | 1,539,819 | $ | 4,511
Obligations of U.S. Government sponsored entities |  | 9,947 |  | 25 |  | 176,356 |  | 380 |  | 186,303 |  | 405
Obligations of Puerto Rico, States and political subdivisions |  | - |  | - |  | 6,931 |  | 44 |  | 6,931 |  | 44
Collateralized mortgage obligations - federal agencies |  | 103,443 |  | 467 |  | 343,994 |  | 6,495 |  | 447,437 |  | 6,962
Mortgage-backed securities |  | 177,382 |  | 480 |  | 1,977,343 |  | 23,895 |  | 2,154,725 |  | 24,375
Total debt securities available-for-sale in an unrealized loss position | $ | 1,191,590 | $ | 3,348 | $ | 3,143,625 | $ | 32,949 | $ | 4,335,215 | $ | 36,297

|  | At December 31, 2018
| Less than 12 months | 12 months or more | Total
|  |  |  | Gross |  |  | Gross |  |  | Gross
|  | Fair | unrealized | Fair | unrealized | Fair | unrealized
(In thousands) | value | losses | value | losses | value | losses
U.S. Treasury securities | $ | 3,189,007 | $ | 4,188 | $ | 2,607,276 | $ | 36,343 | $ | 5,796,283 | $ | 40,531
Obligations of U.S. Government sponsored entities |  | 14,847 |  | 46 |  | 318,271 |  | 3,454 |  | 333,118 |  | 3,500
Obligations of Puerto Rico, States and political subdivisions |  | - |  | - |  | 6,742 |  | 184 |  | 6,742 |  | 184
Collateralized mortgage obligations - federal agencies |  | 66,652 |  | 489 |  | 587,869 |  | 27,913 |  | 654,521 |  | 28,402
Mortgage-backed securities |  | 125,872 |  | 2,280 |  | 3,478,635 |  | 134,410 |  | 3,604,507 |  | 136,690
Total debt securities available-for-sale in an unrealized loss position | $ | 3,396,378 | $ | 7,003 | $ | 6,998,793 | $ | 202,304 | $ | 10,395,171 | $ | 209,307

As of September 30, 2019, the portfolio of available-for-sale debt securities reflects gross unrealized losses of approximately $36 million, driven mainly by mortgage-backed securities, U.S. Treasury securities and collateralized mortgage obligations.

Management evaluates debt securities for other-than-temporary (“OTTI”) declines in fair value on a quarterly basis. Once a decline in value is determined to be other-than-temporary, the value of a debt security is reduced and a corresponding charge to earnings is recognized for anticipated credit losses. The OTTI analysis requires management to consider various factors, which include, but are not limited to: (1) the length of time and the extent to which fair value has been less than the amortized cost basis, (2) the financial condition of the issuer or issuers, (3) actual collateral attributes, (4) the payment structure of the debt security and the likelihood of the issuer being able to make payments, (5) any rating changes by a rating agency, (6) adverse conditions specifically related to the security, industry, or a geographic area, and (7) management’s intent to sell the debt security or whether it is more likely than not that the Corporation would be required to sell the debt security before a forecasted recovery occurs.

At September 30, 2019, management performed its quarterly analysis of all debt securities in an unrealized loss position. Based on the analysis performed, management concluded that no individual debt security was other-than-temporarily impaired as of such date. At September 30, 2019, the Corporation did not have the intent to sell debt securities in an unrealized loss position and it was not more likely than not that the Corporation would have to sell the debt securities prior to recovery of their amortized cost basis.

The following table states the name of issuers, and the aggregate amortized cost and fair value of the debt securities of such issuer (includes available-for-sale and held-to-maturity debt securities), in which the aggregate amortized cost of such securities exceeds 10% of stockholders’ equity. This information excludes debt securities backed by the full faith and credit of the U.S. Government. Investments in obligations issued by a state of the U.S. and its political subdivisions and agencies, which are payable and secured by the same source of revenue or taxing authority, other than the U.S. Government, are considered securities of a single issuer.

|  | September 30, 2019 |  | December 31, 2018
(In thousands) | Amortized cost | Fair value | Amortized cost | Fair value
FNMA | $ | 3,334,102 | $ | 3,351,007 | $ | 2,999,110 | $ | 2,901,904
Freddie Mac |  | 1,722,954 |  | 1,739,165 |  | 1,095,855 |  | 1,058,013

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Note 7 –Debt securities held-to-maturity

The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of debt securities held-to-maturity at September 30, 2019 and December 31, 2018.

|  | At September 30, 2019 |
|  |  |  | Gross | Gross |  |  | Weighted |
|  | Amortized | unrealized | unrealized | Fair | average |
(In thousands) | cost | gains | losses | value | yield |
Obligations of Puerto Rico, States and political subdivisions |  |  |  |  |  |  |  |  |  |
| Within 1 year | $ | 3,745 | $ | - | $ | 33 | $ | 3,712 | 6.02 | %
| After 1 to 5 years |  | 17,580 |  | - |  | 269 |  | 17,311 | 6.11 |
| After 5 to 10 years |  | 18,195 |  | - |  | 1,861 |  | 16,334 | 3.11 |
| After 10 years |  | 46,078 |  | 8,375 |  | 2 |  | 54,451 | 1.69 |
Total obligations of Puerto Rico, States and political subdivisions |  | 85,598 |  | 8,375 |  | 2,165 |  | 91,808 | 3.09 |
Collateralized mortgage obligations - federal agencies |  |  |  |  |  |  |  |  |  |
| After 1 to 5 years |  | 48 |  | 2 |  | - |  | 50 | 6.44 |
Total collateralized mortgage obligations - federal agencies |  | 48 |  | 2 |  | - |  | 50 | 6.44 |
Securities in wholly owned statutory business trusts |  |  |  |  |  |  |  |  |  |
| After 10 years |  | 11,561 |  | - |  | - |  | 11,561 | 6.51 |
Total securities in wholly owned statutory business trusts |  | 11,561 |  | - |  | - |  | 11,561 | 6.51 |
Other |  |  |  |  |  |  |  |  |  |
| After 1 to 5 years |  | 500 |  | - |  | 1 |  | 499 | 2.97 |
Total other |  | 500 |  | - |  | 1 |  | 499 | 2.97 |
Total debt securities held-to-maturity | $ | 97,707 | $ | 8,377 | $ | 2,166 | $ | 103,918 | 3.50 | %

|  | At December 31, 2018 |
|  |  |  | Gross | Gross |  |  | Weighted |
|  | Amortized | unrealized | unrealized | Fair | average |
(In thousands) | cost | gains | losses | value | yield |
Obligations of Puerto Rico, States and political subdivisions |  |  |  |  |  |  |  |  |  |
| Within 1 year | $ | 3,510 | $ | - | $ | 36 | $ | 3,474 | 5.99 | %
| After 1 to 5 years |  | 16,505 |  | - |  | 1,081 |  | 15,424 | 6.07 |
| After 5 to 10 years |  | 23,885 |  | - |  | 1,704 |  | 22,181 | 3.61 |
| After 10 years |  | 45,559 |  | 3,943 |  | 47 |  | 49,455 | 1.79 |
Total obligations of Puerto Rico, States and political subdivisions |  | 89,459 |  | 3,943 |  | 2,868 |  | 90,534 | 3.23 |
Collateralized mortgage obligations - federal agencies |  |  |  |  |  |  |  |  |  |
| After 5 to 10 years |  | 55 |  | 3 |  | - |  | 58 | 5.45 |
Total collateralized mortgage obligations - federal agencies |  | 55 |  | 3 |  | - |  | 58 | 5.45 |
Securities in wholly owned statutory business trusts |  |  |  |  |  |  |  |  |  |
| After 10 years |  | 11,561 |  | - |  | - |  | 11,561 | 6.51 |
Total securities in wholly owned statutory business trusts |  | 11,561 |  | - |  | - |  | 11,561 | 6.51 |
Other |  |  |  |  |  |  |  |  |  |
| After 1 to 5 years |  | 500 |  | - |  | - |  | 500 | 2.97 |
Total other |  | 500 |  | - |  | - |  | 500 | 2.97 |
Total debt securities held-to-maturity | $ | 101,575 | $ | 3,946 | $ | 2,868 | $ | 102,653 | 3.60 | %

Debt securities not due on a single contractual maturity date, such as collateralized mortgage obligations, are classified in the period of final contractual maturity. The expected maturities of collateralized mortgage obligations and certain other securities may differ from their contractual maturities because they may be subject to prepayments or may be called by the issuer.

The following tables present the Corporation’s fair value and gross unrealized losses of debt securities held-to-maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2019 and December 31, 2018.

25

|  | At September 30, 2019
| Less than 12 months | 12 months or more | Total
|  |  |  | Gross |  |  | Gross |  |  | Gross
|  | Fair | unrealized | Fair | unrealized | Fair | unrealized
(In thousands) | value | losses | value | losses | value | losses
Obligations of Puerto Rico, States and political subdivisions | $ | 22,427 | $ | 318 | $ | 9,713 | $ | 1,847 | $ | 32,140 | $ | 2,165
Other |  | 499 |  | 1 |  | - |  | - |  | 499 |  | 1
Total debt securities held-to-maturity in an unrealized loss position | $ | 22,926 | $ | 319 | $ | 9,713 | $ | 1,847 | $ | 32,639 | $ | 2,166

|  | At December 31, 2018
|  | Less than 12 months | 12 months or more | Total
|  |  |  | Gross |  |  | Gross |  |  | Gross
|  | Fair | unrealized | Fair | unrealized | Fair | unrealized
(In thousands) | value | losses | value | losses | value | losses
Obligations of Puerto Rico, States and political subdivisions | $ | 27,471 | $ | 1,165 | $ | 13,307 | $ | 1,703 | $ | 40,778 | $ | 2,868
Total debt securities held-to-maturity in an unrealized loss position | $ | 27,471 | $ | 1,165 | $ | 13,307 | $ | 1,703 | $ | 40,778 | $ | 2,868

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

The “Obligations of Puerto Rico, States and political subdivisions” classified as held-to-maturity at September 30, 2019 are primarily associated with securities issued by municipalities of Puerto Rico and are generally not rated by a credit rating agency. This includes $40 million of general and special obligation bonds issued by three municipalities of Puerto Rico, which are payable primarily from certain property taxes imposed by the issuing municipality. In the case of general obligations, they also benefit from a pledge of the full faith, credit and unlimited taxing power of the issuing municipality, which is required by law to levy property taxes in an amount sufficient for the payment of debt service on such general obligation bonds.

The portfolio also includes $46 million in securities for which the underlying source of payment is second mortgage loans in Puerto Rico residential properties (not the government), but in which a government instrumentality provides a guarantee in the event of default and subsequent foreclosure of the underlying property. The Corporation performs periodic credit quality reviews on these issuers. Based on the quarterly analysis performed, management concluded that no individual debt security held-to-maturity was other-than-temporarily impaired at September 30, 2019. A deterioration of the Puerto Rico economy or of the fiscal health of the Government of Puerto Rico and/or its instrumentalities (including if any of the issuing municipalities become subject to a debt restructuring proceeding under PROMESA) could further affect the value of these securities, resulting in losses to the Corporation. The Corporation does not have the intent to sell debt securities held-to-maturity and it is more likely than not that the Corporation will not have to sell these debt securities prior to recovery of their amortized cost basis.

Refer to Note 22 for additional information on the Corporation’s exposure to the Puerto Rico Government.

26

Note 8 – Loans

For a summary of the accounting policies related to loans, interest recognition and allowance for loan losses refer to Note 2 - Summary of significant accounting policies of the 2018 Form 10-K.

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

During the quarter and nine months ended September 30, 2019, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $81 million and $266 million, respectively; and of consumer loans of $64 million and $222 million, respectively. For the nine months ended September 30, 2019 the Corporation recorded purchases of commercial loans (including loan participations) amounting to $43 million. During the quarter and nine months ended September 30, 2018, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $147 million and $480 million, respectively; and of consumer loans of $48 million and $152 million, respectively.

The Corporation performed whole-loan sales involving approximately $18 million and $46 million of residential mortgage loans during the quarter and nine months ended September 30, 2019, respectively (September 30, 2018 - $19 million and $45 million, respectively). Also, the Corporation securitized approximately $ 88 million and $ 247 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter and nine months ended September 30, 2019, respectively (September 30, 2018 - $ 110 million and $ 320 million, respectively). Furthermore, the Corporation securitized approximately $ 33 million and $ 84 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter and nine months ended September 30, 2019, respectively (September 30, 2018 - $ 26 million and $ 72 million, respectively). During the quarter and nine months ended September 30, 2019, the Corporation performed sales of commercial and construction loans, including loan participations amounting to $47 million and $81 million, respectively.

Delinquency status

The following table presents the composition of loans held-in-portfolio (“HIP”), net of unearned income, by past due status, and by loan class including those that are in non-performing status or that are accruing interest but are past due 90 days or more at September 30, 2019 and December 31, 2018.

September 30, 2019
Puerto Rico
|  |  |  | Past due |  |  |  |  |  |  |  | Past due 90 days or more
|  |  | 30-59 |  | 60-89 |  | 90 days |  | Total |  |  |  |  |  |  | Non-accrual |  |  | Accruing
(In thousands) |  | days |  | days |  | or more |  | past due |  | Current |  | Loans HIP |  |  | loans |  | loans[1]
Commercial multi-family |  | $ | 331 |  | $ | - |  | $ | 1,824 |  | $ | 2,155 |  | $ | 146,395 |  | $ | 148,550 |  |  | $ | 1,784 |  | $ | -
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-owner occupied |  |  | 25,497 |  |  | 3,449 |  |  | 47,692 |  |  | 76,638 |  |  | 2,020,511 |  |  | 2,097,149 |  |  |  | 43,349 |  |  | -
| Owner occupied |  |  | 9,284 |  |  | 2,682 |  |  | 90,507 |  |  | 102,473 |  |  | 1,514,624 |  |  | 1,617,097 |  |  |  | 75,513 |  |  | -
Commercial and industrial |  |  | 31,435 |  |  | 6,703 |  |  | 46,104 |  |  | 84,242 |  |  | 3,221,615 |  |  | 3,305,857 |  |  |  | 45,720 |  |  | 311
Construction |  |  | - |  |  | 263 |  |  | 274 |  |  | 537 |  |  | 123,535 |  |  | 124,072 |  |  |  | 274 |  |  | -
Mortgage |  |  | 287,578 |  |  | 142,727 |  |  | 876,960 |  |  | 1,307,265 |  |  | 4,928,311 |  |  | 6,235,576 |  |  |  | 296,025 |  |  | 459,704
Leasing |  |  | 10,906 |  |  | 2,745 |  |  | 2,733 |  |  | 16,384 |  |  | 1,006,100 |  |  | 1,022,484 |  |  |  | 2,733 |  |  | -
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Credit cards |  |  | 10,099 |  |  | 7,080 |  |  | 16,459 |  |  | 33,638 |  |  | 1,002,579 |  |  | 1,036,217 |  |  |  | - |  |  | 16,459
| Home equity lines of credit |  |  | 15 |  |  | - |  |  | 887 |  |  | 902 |  |  | 4,981 |  |  | 5,883 |  |  |  | 887 |  |  | -
| Personal |  |  | 13,724 |  |  | 10,012 |  |  | 19,418 |  |  | 43,154 |  |  | 1,306,449 |  |  | 1,349,603 |  |  |  | 18,710 |  |  | 15
| Auto |  |  | 85,717 |  |  | 19,973 |  |  | 22,954 |  |  | 128,644 |  |  | 2,719,114 |  |  | 2,847,758 |  |  |  | 22,954 |  |  | -
| Other |  |  | 660 |  |  | 617 |  |  | 13,149 |  |  | 14,426 |  |  | 127,910 |  |  | 142,336 |  |  |  | 12,824 |  |  | 325
Total |  | $ | 475,246 |  | $ | 196,251 |  | $ | 1,138,961 |  | $ | 1,810,458 |  | $ | 18,122,124 |  | $ | 19,932,582 |  |  | $ | 520,773 |  | $ | 476,814
[1] | Loans HIP of $ 141 million accounted for under ASC Subtopic 310-30 are excluded from the above table as they are considered to be performing due to the application of the accretion method, in which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analysis.

27

September 30, 2019
Popular U.S.
|  |  |  | Past due |  |  |  |  |  |  |  | Past due 90 days or more
|  |  | 30-59 |  | 60-89 |  | 90 days |  | Total |  |  |  |  |  |  | Non-accrual |  |  | Accruing
(In thousands) |  | days |  | days |  | or more |  | past due |  | Current |  | Loans HIP |  |  | loans |  | loans[1]
Commercial multi-family |  | $ | - |  | $ | - |  | $ | 2,097 |  | $ | 2,097 |  | $ | 1,598,517 |  | $ | 1,600,614 |  |  | $ | 2,097 |  | $ | -
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-owner occupied |  |  | - |  |  | - |  |  | 292 |  |  | 292 |  |  | 1,953,919 |  |  | 1,954,211 |  |  |  | 292 |  |  | -
| Owner occupied |  |  | 4,884 |  |  | 243 |  |  | 259 |  |  | 5,386 |  |  | 313,733 |  |  | 319,119 |  |  |  | 259 |  |  | -
Commercial and industrial |  |  | 2,449 |  |  | 76 |  |  | 48,563 |  |  | 51,088 |  |  | 1,114,764 |  |  | 1,165,852 |  |  |  | 683 |  |  | -
Construction |  |  | - |  |  | - |  |  | 10,060 |  |  | 10,060 |  |  | 619,924 |  |  | 629,984 |  |  |  | 10,060 |  |  | -
Mortgage |  |  | 1,159 |  |  | 4,049 |  |  | 9,517 |  |  | 14,725 |  |  | 918,318 |  |  | 933,043 |  |  |  | 9,517 |  |  | -
Legacy |  |  | 54 |  |  | 89 |  |  | 2,318 |  |  | 2,461 |  |  | 20,731 |  |  | 23,192 |  |  |  | 2,318 |  |  | -
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Credit cards |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 78 |  |  | 78 |  |  |  | - |  |  | -
| Home equity lines of credit |  |  | 685 |  |  | 894 |  |  | 10,117 |  |  | 11,696 |  |  | 112,806 |  |  | 124,502 |  |  |  | 10,117 |  |  | -
| Personal |  |  | 1,852 |  |  | 1,499 |  |  | 1,670 |  |  | 5,021 |  |  | 319,084 |  |  | 324,105 |  |  |  | 1,670 |  |  | -
| Other |  |  | 20 |  |  | - |  |  | 6 |  |  | 26 |  |  | 667 |  |  | 693 |  |  |  | 6 |  |  | -
Total |  | $ | 11,103 |  | $ | 6,850 |  | $ | 84,899 |  | $ | 102,852 |  | $ | 6,972,541 |  | $ | 7,075,393 |  |  | $ | 37,019 |  | $ | -
[1] | Loans HIP of $ 48 million accounted for under ASC Subtopic 310-30 are excluded from the above table as they are considered to be performing due to the application of the accretion method, in which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analysis.

September 30, 2019
Popular, Inc.
|  |  | Past due |  |  |  |  |  |  |  | Past due 90 days or more
|  | 30-59 |  | 60-89 |  | 90 days |  | Total |  |  |  |  |  | Non-accrual |  |  | Accruing
(In thousands) | days |  | days |  | or more |  | past due |  | Current |  | Loans HIP[3] [4] |  |  | loans |  | loans[5]
Commercial multi-family | $ | 331 |  | $ | - |  | $ | 3,921 |  | $ | 4,252 |  | $ | 1,744,912 |  | $ | 1,749,164 |  |  | $ | 3,881 |  | $ | -
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-owner occupied |  | 25,497 |  |  | 3,449 |  |  | 47,984 |  |  | 76,930 |  |  | 3,974,430 |  |  | 4,051,360 |  |  |  | 43,641 |  |  | -
| Owner occupied |  | 14,168 |  |  | 2,925 |  |  | 90,766 |  |  | 107,859 |  |  | 1,828,357 |  |  | 1,936,216 |  |  |  | 75,772 |  |  | -
Commercial and industrial |  | 33,884 |  |  | 6,779 |  |  | 94,667 |  |  | 135,330 |  |  | 4,336,379 |  |  | 4,471,709 |  |  |  | 46,403 |  |  | 311
Construction |  | - |  |  | 263 |  |  | 10,334 |  |  | 10,597 |  |  | 743,459 |  |  | 754,056 |  |  |  | 10,334 |  |  | -
Mortgage[1] |  | 288,737 |  |  | 146,776 |  |  | 886,477 |  |  | 1,321,990 |  |  | 5,846,629 |  |  | 7,168,619 |  |  |  | 305,542 |  |  | 459,704
Leasing |  | 10,906 |  |  | 2,745 |  |  | 2,733 |  |  | 16,384 |  |  | 1,006,100 |  |  | 1,022,484 |  |  |  | 2,733 |  |  | -
Legacy[2] |  | 54 |  |  | 89 |  |  | 2,318 |  |  | 2,461 |  |  | 20,731 |  |  | 23,192 |  |  |  | 2,318 |  |  | -
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Credit cards |  | 10,099 |  |  | 7,080 |  |  | 16,459 |  |  | 33,638 |  |  | 1,002,657 |  |  | 1,036,295 |  |  |  | - |  |  | 16,459
| Home equity lines of credit |  | 700 |  |  | 894 |  |  | 11,004 |  |  | 12,598 |  |  | 117,787 |  |  | 130,385 |  |  |  | 11,004 |  |  | -
| Personal |  | 15,576 |  |  | 11,511 |  |  | 21,088 |  |  | 48,175 |  |  | 1,625,533 |  |  | 1,673,708 |  |  |  | 20,380 |  |  | 15
| Auto |  | 85,717 |  |  | 19,973 |  |  | 22,954 |  |  | 128,644 |  |  | 2,719,114 |  |  | 2,847,758 |  |  |  | 22,954 |  |  | -
| Other |  | 680 |  |  | 617 |  |  | 13,155 |  |  | 14,452 |  |  | 128,577 |  |  | 143,029 |  |  |  | 12,830 |  |  | 325
Total | $ | 486,349 |  | $ | 203,101 |  | $ | 1,223,860 |  | $ | 1,913,310 |  | $ | 25,094,665 |  | $ | 27,007,975 |  |  | $ | 557,792 |  | $ | 476,814

[1] | It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured.
[2] | The legacy portfolio is comprised of commercial loans, construction loans and lease financings related to certain lending products exited by the Corporation as part of restructuring efforts carried out in prior years at the Popular U.S. segment.
[3] | Loans held-in-portfolio are net of $ 173 million in unearned income and exclude $ 56 million in loans held-for-sale.
[4] | Includes $6.7 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $4.6 billion were pledged at the Federal Home Loan Bank ("FHLB") as collateral for borrowings and $2.1 billion at the Federal Reserve Bank ("FRB") for discount window borrowings.
[5] | Loans HIP of $189 million accounted for under ASC Subtopic 310-30 are excluded from the above table as they are considered to be performing due to the application of the accretion method, in which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analysis.

28

December 31, 2018
Puerto Rico
|  |  |  | Past due |  |  |  |  |  |  |  | Past due 90 days or more
|  |  |  | 30-59 |  |  | 60-89 |  |  | 90 days |  | Total |  |  |  |  |  |  |  | Non-accrual |  |  | Accruing
(In thousands) |  |  | days |  |  | days |  |  | or more |  | past due |  | Current |  | Loans HIP |  |  | loans |  | loans[1]
Commercial multi-family |  | $ | 1,441 |  | $ | 112 |  | $ | 598 |  | $ | 2,151 |  | $ | 143,477 |  | $ | 145,628 |  |  | $ | 546 |  | $ | -
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-owner occupied |  |  | 92,075 |  |  | 839 |  |  | 45,691 |  |  | 138,605 |  |  | 2,183,996 |  |  | 2,322,601 |  |  |  | 39,257 |  |  | -
| Owner occupied |  |  | 6,681 |  |  | 10,839 |  |  | 99,235 |  |  | 116,755 |  |  | 1,605,498 |  |  | 1,722,253 |  |  |  | 88,069 |  |  | -
Commercial and industrial |  |  | 4,137 |  |  | 641 |  |  | 55,321 |  |  | 60,099 |  |  | 3,122,062 |  |  | 3,182,161 |  |  |  | 55,078 |  |  | 243
Construction |  |  | - |  |  | - |  |  | 1,788 |  |  | 1,788 |  |  | 84,167 |  |  | 85,955 |  |  |  | 1,788 |  |  | -
Mortgage |  |  | 275,367 |  |  | 128,104 |  |  | 1,043,607 |  |  | 1,447,078 |  |  | 4,986,245 |  |  | 6,433,323 |  |  |  | 323,565 |  |  | 595,525
Leasing |  |  | 7,663 |  |  | 1,827 |  |  | 3,313 |  |  | 12,803 |  |  | 921,970 |  |  | 934,773 |  |  |  | 3,313 |  |  | -
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Credit cards |  |  | 9,504 |  |  | 7,391 |  |  | 16,035 |  |  | 32,930 |  |  | 1,014,343 |  |  | 1,047,273 |  |  |  | - |  |  | 16,035
| Home equity lines of credit |  |  | - |  |  | 97 |  |  | 165 |  |  | 262 |  |  | 5,089 |  |  | 5,351 |  |  |  | 11 |  |  | 154
| Personal |  |  | 13,069 |  |  | 7,907 |  |  | 18,515 |  |  | 39,491 |  |  | 1,211,134 |  |  | 1,250,625 |  |  |  | 17,887 |  |  | 35
| Auto |  |  | 52,204 |  |  | 9,862 |  |  | 24,177 |  |  | 86,243 |  |  | 2,522,542 |  |  | 2,608,785 |  |  |  | 24,050 |  |  | 127
| Other |  |  | 566 |  |  | 288 |  |  | 14,958 |  |  | 15,812 |  |  | 128,932 |  |  | 144,744 |  |  |  | 14,534 |  |  | 424
Total |  | $ | 462,707 |  | $ | 167,907 |  | $ | 1,323,403 |  | $ | 1,954,017 |  | $ | 17,929,455 |  | $ | 19,883,472 |  |  | $ | 568,098 |  | $ | 612,543
[1] | Non-covered loans HIP of $143 million accounted for under ASC Subtopic 310-30 are excluded from the above table as they are considered to be performing due to the application of the accretion method, in which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analysis.

December 31, 2018
Popular U.S.
|  |  |  | Past due |  |  |  |  |  |  |  |  | Past due 90 days or more
|  |  |  | 30-59 |  |  | 60-89 |  |  | 90 days |  |  | Total |  |  |  |  |  |  |  | Non-accrual |  |  | Accruing
(In thousands) |  |  | days |  |  | days |  |  | or more |  |  | past due |  |  | Current |  |  | Loans HIP |  |  | loans |  | loans[1]
Commercial multi-family |  | $ | 3,163 |  | $ | - |  | $ | - |  | $ | 3,163 |  | $ | 1,398,377 |  | $ | 1,401,540 |  |  | $ | - |  | $ | -
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-owner occupied |  |  | 707 |  |  | 288 |  |  | 365 |  |  | 1,360 |  |  | 1,880,384 |  |  | 1,881,744 |  |  |  | 365 |  |  | -
| Owner occupied |  |  | 5,125 |  |  | 1,728 |  |  | 381 |  |  | 7,234 |  |  | 291,705 |  |  | 298,939 |  |  |  | 381 |  |  | -
Commercial and industrial |  |  | 2,354 |  |  | 995 |  |  | 73,726 |  |  | 77,075 |  |  | 1,011,078 |  |  | 1,088,153 |  |  |  | 330 |  |  | -
Construction |  |  | - |  |  | - |  |  | 12,060 |  |  | 12,060 |  |  | 681,434 |  |  | 693,494 |  |  |  | 12,060 |  |  | -
Mortgage |  |  | 13,615 |  |  | 3,197 |  |  | 11,033 |  |  | 27,845 |  |  | 774,090 |  |  | 801,935 |  |  |  | 11,033 |  |  | -
Legacy |  |  | 195 |  |  | 445 |  |  | 2,627 |  |  | 3,267 |  |  | 22,682 |  |  | 25,949 |  |  |  | 2,627 |  |  | -
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Credit cards |  |  | 2 |  |  | - |  |  | - |  |  | 2 |  |  | 36 |  |  | 38 |  |  |  | - |  |  | -
| Home equity lines of credit |  |  | 886 |  |  | 464 |  |  | 13,579 |  |  | 14,929 |  |  | 128,123 |  |  | 143,052 |  |  |  | 13,579 |  |  | -
| Personal |  |  | 2,319 |  |  | 1,723 |  |  | 2,610 |  |  | 6,652 |  |  | 282,697 |  |  | 289,349 |  |  |  | 2,610 |  |  | -
| Other |  |  | - |  |  | - |  |  | 4 |  |  | 4 |  |  | 220 |  |  | 224 |  |  |  | 4 |  |  | -
Total |  | $ | 28,366 |  | $ | 8,840 |  | $ | 116,385 |  | $ | 153,591 |  | $ | 6,470,826 |  | $ | 6,624,417 |  |  | $ | 42,989 |  | $ | -
[1] | Non-covered loans HIP of $ 73 million accounted for under ASC Subtopic 310-30 are excluded from the above table as they are considered to be performing due to the application of the accretion method, in which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analysis.

29

December 31, 2018
Popular, Inc.
|  |  | Past due |  |  |  |  |  |  |  | Past due 90 days or more
|  |  | 30-59 |  |  | 60-89 |  |  | 90 days |  |  | Total |  |  |  |  |  |  | Non-accrual |  |  | Accruing
(In thousands) |  | days |  |  | days |  |  | or more |  |  | past due |  | Current |  | Loans HIP[3] [4] |  |  | loans |  | loans[5]
Commercial multi-family | $ | 4,604 |  | $ | 112 |  | $ | 598 |  | $ | 5,314 |  | $ | 1,541,854 |  | $ | 1,547,168 |  |  | $ | 546 |  | $ | -
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-owner occupied |  | 92,782 |  |  | 1,127 |  |  | 46,056 |  |  | 139,965 |  |  | 4,064,380 |  |  | 4,204,345 |  |  |  | 39,622 |  |  | -
| Owner occupied |  | 11,806 |  |  | 12,567 |  |  | 99,616 |  |  | 123,989 |  |  | 1,897,203 |  |  | 2,021,192 |  |  |  | 88,450 |  |  | -
Commercial and industrial |  | 6,491 |  |  | 1,636 |  |  | 129,047 |  |  | 137,174 |  |  | 4,133,140 |  |  | 4,270,314 |  |  |  | 55,408 |  |  | 243
Construction |  | - |  |  | - |  |  | 13,848 |  |  | 13,848 |  |  | 765,601 |  |  | 779,449 |  |  |  | 13,848 |  |  | -
Mortgage[1] |  | 288,982 |  |  | 131,301 |  |  | 1,054,640 |  |  | 1,474,923 |  |  | 5,760,335 |  |  | 7,235,258 |  |  |  | 334,598 |  |  | 595,525
Leasing |  | 7,663 |  |  | 1,827 |  |  | 3,313 |  |  | 12,803 |  |  | 921,970 |  |  | 934,773 |  |  |  | 3,313 |  |  | -
Legacy[2] |  | 195 |  |  | 445 |  |  | 2,627 |  |  | 3,267 |  |  | 22,682 |  |  | 25,949 |  |  |  | 2,627 |  |  | -
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Credit cards |  | 9,506 |  |  | 7,391 |  |  | 16,035 |  |  | 32,932 |  |  | 1,014,379 |  |  | 1,047,311 |  |  |  | - |  |  | 16,035
| Home equity lines of credit |  | 886 |  |  | 561 |  |  | 13,744 |  |  | 15,191 |  |  | 133,212 |  |  | 148,403 |  |  |  | 13,590 |  |  | 154
| Personal |  | 15,388 |  |  | 9,630 |  |  | 21,125 |  |  | 46,143 |  |  | 1,493,831 |  |  | 1,539,974 |  |  |  | 20,497 |  |  | 35
| Auto |  | 52,204 |  |  | 9,862 |  |  | 24,177 |  |  | 86,243 |  |  | 2,522,542 |  |  | 2,608,785 |  |  |  | 24,050 |  |  | 127
| Other |  | 566 |  |  | 288 |  |  | 14,962 |  |  | 15,816 |  |  | 129,152 |  |  | 144,968 |  |  |  | 14,538 |  |  | 424
Total | $ | 491,073 |  | $ | 176,747 |  | $ | 1,439,788 |  | $ | 2,107,608 |  | $ | 24,400,281 |  | $ | 26,507,889 |  |  | $ | 611,087 |  | $ | 612,543

[1] | It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured.
[2] | The legacy portfolio is comprised of commercial loans, construction loans and lease financings related to certain lending products exited by the Corporation as part of restructuring efforts carried out in prior years at the Popular U.S. segment.
[3] | Loans held-in-portfolio are net of $ 156 million in unearned income and exclude $ 51 million in loans held-for-sale.
[4] | Includes $6.9 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $4.8 billion were pledged at the FHLB as collateral for borrowings and $2.1 billion at the FRB for discount window borrowings.
[5] | Non-covered loans HIP of $216 million accounted for under ASC Subtopic 310-30 are excluded from the above table as they are considered to be performing due to the application of the accretion method, in which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analysis.

At September 30, 2019, mortgage loans held-in-portfolio include $1.4 billion of loans insured by the Federal Housing Administration (“FHA”), or guaranteed by the U.S. Department of Veterans Affairs (“VA”) of which $461 million are 90 days or more past due, including $99 million of loans rebooked under the GNMA buyback option, discussed below (December 31, 2018 - $1.4 billion, $598 million and $134 million, respectively). Within this portfolio, loans in a delinquency status of 90 days or more are reported as accruing loans as opposed to non-performing since the principal repayment is insured. These balances include $241 million of residential mortgage loans in Puerto Rico that are no longer accruing interest as of September 30, 2019 (December 31, 2018 - $283 million). Additionally, the Corporation has approximately $65 million in reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not accruing interest at September 30, 2019 (December 31, 2018 - $69 million).

Loans with a delinquency status of 90 days past due as of September 30, 2019 include $99 million in loans previously pooled into GNMA securities (December 31, 2018 - $134 million). Under the GNMA program, issuers such as BPPR have the option but not the obligation to repurchase loans that are 90 days or more past due. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements of BPPR with an offsetting liability.

Loans acquired with deteriorated credit quality accounted for under ASC 310-30

The following provides information of loans acquired with evidence of credit deterioration as of the acquisition date, accounted for under the guidance of ASC 310-30.

The outstanding principal balance of acquired loans accounted pursuant to ASC Subtopic 310-30, amounted to $1.9 billion at September 30, 2019 (December 31, 2018 - $2.2 billion). The carrying amount of these loans consisted of loans determined to be impaired at the time of acquisition, which are accounted for in accordance with ASC Subtopic 310-30 (“credit impaired loans”), and loans that were considered to be performing at the acquisition date, accounted for by analogy to ASC Subtopic 310-30 (“non-credit impaired loans”).

30

The following table provides the carrying amount of acquired loans accounted for under ASC 310-30 by portfolio at September 30, 2019 and December 31, 2018.

Carrying amount
(In thousands) |  | September 30, 2019 |  | December 31, 2018
Commercial real estate | $ | 683,046 | $ | 801,774
Commercial and industrial |  | 134,962 |  | 84,465
Mortgage |  | 871,803 |  | 982,821
Consumer |  | 12,563 |  | 14,496
Carrying amount |  | 1,702,374 |  | 1,883,556
Allowance for loan losses |  | (94,610) |  | (122,135)
Carrying amount, net of allowance | $ | 1,607,764 | $ | 1,761,421

At September 30, 2019, none of the acquired loans accounted for under ASC Subtopic 310-30 were considered non-performing loans. Therefore, interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, was recognized on all acquired loans.

Changes in the carrying amount and the accretable yield for the loans accounted pursuant to the ASC Subtopic 310-30, for the quarters and nine months ended September 30, 2019 and 2018, were as follows:

Carrying amount of acquired loans accounted for pursuant to ASC 310-30
|  | For the quarter ended |  | For the nine months ended
(In thousands) |  | September 30, 2019 |  | September 30, 2018 |  |  | September 30, 2019 |  | September 30, 2018
Beginning balance | $ | 1,789,237 | $ | 2,033,457 |  | $ | 1,883,556 | $ | 2,108,993
Additions |  | 11,891 |  | 3,062 |  |  | 27,639 |  | 8,334
Accretion |  | 35,502 |  | 38,886 |  |  | 111,083 |  | 121,752
Collections / loan sales / charge-offs |  | (134,256) |  | (84,783) |  |  | (319,904) |  | (248,457)
Ending balance[1] | $ | 1,702,374 | $ | 1,990,622 |  | $ | 1,702,374 | $ | 1,990,622
Allowance for loan losses |  | (94,610) |  | (168,559) |  |  | (94,610) |  | (168,559)
Ending balance, net of ALLL | $ | 1,607,764 | $ | 1,822,063 |  | $ | 1,607,764 | $ | 1,822,063
[1] | At September 30, 2019, includes $1.2 billion of loans considered non-credit impaired at the acquisition date (September 30, 2018 - $1.5 billion).

Activity in the accretable yield of acquired loans accounted for pursuant to ASC 310-30
|  | For the quarter ended |  | For the nine months ended
(In thousands) |  | September 30, 2019 |  | September 30, 2018 |  |  | September 30, 2019 |  | September 30, 2018
Beginning balance | $ | 1,042,407 | $ | 1,178,042 |  | $ | 1,092,504 | $ | 1,214,488
Additions |  | 7,711 |  | 315 |  |  | 19,577 |  | 3,752
Accretion |  | (35,502) |  | (38,886) |  |  | (111,083) |  | (121,752)
Change in expected cash flows |  | 5,043 |  | (16,739) |  |  | 18,661 |  | 26,244
Ending balance[1] | $ | 1,019,659 | $ | 1,122,732 |  | $ | 1,019,659 | $ | 1,122,732
[1] | At September 30, 2019, includes $ 0.7 billion of loans considered non-credit impaired at the acquisition date (September 30, 2018 - $ 0.8 billion).

31

Note 9 – Allowance for loan losses

The Corporation follows a systematic methodology to establish and evaluate the adequacy of the allowance for loan losses (“ALLL”) to provide for inherent losses in the loan portfolio. This methodology includes the consideration of factors such as current economic conditions, portfolio risk characteristics, prior loss experience and results of periodic credit reviews of individual loans. The provision for loan losses charged to current operations is based on this methodology. Loan losses are charged and recoveries are credited to the ALLL.

The Corporation’s assessment of the ALLL is determined in accordance with the guidance of loss contingencies in ASC Subtopic 450-20 and loan impairment guidance in ASC Section 310-10-35. Also, the Corporation determines the ALLL on purchased impaired loans and purchased loans accounted for under ASC Subtopic 310-30, by evaluating decreases in expected cash flows after the acquisition date.

The accounting guidance provides for the recognition of a loss allowance for groups of homogeneous loans. The determination of the general ALLL includes the following principal factors:

Base net loss rates, which are based on the moving average of annualized net loss rates computed over a 5-year historical loss period for the commercial and construction loan portfolios, and an 18-month period for the consumer and mortgage loan portfolios. The base net loss rates are applied by loan type and by legal entity.

Recent loss trend adjustment, which replaces the base loss rate with a 12-month average loss rate, when these trends are higher than the respective base loss rates. The objective of this adjustment is to allow for a more recent loss trend to be captured and reflected in the ALLL estimation process.

For the period ended September 30, 2019, 24% (September 30, 2018 - 80%) of the ALLL for the BPPR segment loan portfolios utilized the recent loss trend adjustment instead of the base loss. The effect of replacing the base loss with the recent loss trend adjustment was mainly concentrated in the commercial real estate non-owner occupied portfolio for 2019 and in the mortgage, leasing and overall consumer portfolios for 2018.

For the period ended September 30, 2019, 13% (September 30, 2018 - 6 %) of the Popular U.S. segment loan portfolios utilized the recent loss trend adjustment instead of the base loss. The effect of replacing the base loss with the recent loss trend adjustment was concentrated in the construction and commercial real estate owner occupied portfolios for 2019 and in the consumer portfolios for 2018.

Environmental factors, which include credit and macroeconomic indicators such as unemployment rate, economic activity index and delinquency rates, adopted to account for current market conditions that are likely to cause estimated credit losses to differ from historical losses. The Corporation reflects the effect of these environmental factors on each loan group as an adjustment that, as appropriate, increases the historical loss rate applied to each group. Environmental factors provide updated perspective on credit and economic conditions. Regression analysis is used to select these indicators and quantify the effect on the general ALLL. The Corporation’s methodology also includes qualitative judgmental reserves based on stressed credit quality assumptions to provide for probable losses in the loan portfolios not embedded in the historical loss rates.

During the third quarter of 2019, management completed the recalibration analysis of the environmental factors adjustments. The environmental factors adjustments are developed by performing regression analyses on selected credit and economic indicators for each applicable loan segment. The environmental factor models used to account for changes in current credit and macroeconomic conditions were reviewed and recalibrated based on the latest applicable trends.

The effect of the recalibration resulted in an increase of $4.6 million to the environmental factors adjustments reserve at the Popular U.S. segment.

The following tables present the changes in the allowance for loan losses, loan ending balances and whether such loans and the allowance pertain to loans individually or collectively evaluated for impairment for the quarters and nine months ended September 30, 2019 and 2018.

32

For the quarter ended September 30, 2019
Puerto Rico
(In thousands) | Commercial |  | Construction |  | Mortgage |  | Leasing |  | Consumer |  | Total
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 190,227 |  | $ | 2,996 |  | $ | 127,930 |  | $ | 6,907 |  | $ | 148,131 |  | $ | 476,191
| Provision (reversal of provision) |  | (18,036) |  |  | (4,916) |  |  | 6,494 |  |  | 3,739 |  |  | 47,198 |  |  | 34,479
| Charge-offs |  | (15,419) |  |  | (27) |  |  | (13,886) |  |  | (4,040) |  |  | (46,398) |  |  | (79,770)
| Recoveries |  | 4,787 |  |  | 3,013 |  |  | 1,197 |  |  | 587 |  |  | 10,286 |  |  | 19,870
Ending balance | $ | 161,559 |  | $ | 1,066 |  | $ | 121,735 |  | $ | 7,193 |  | $ | 159,217 |  | $ | 450,770
Specific ALLL | $ | 30,130 |  | $ | 57 |  | $ | 40,483 |  | $ | 71 |  | $ | 21,009 |  | $ | 91,750
General ALLL | $ | 131,429 |  | $ | 1,009 |  | $ | 81,252 |  | $ | 7,122 |  | $ | 138,208 |  | $ | 359,020
Loans held-in-portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans | $ | 407,124 |  | $ | 274 |  | $ | 523,876 |  | $ | 624 |  | $ | 95,356 |  | $ | 1,027,254
Loans held-in-portfolio excluding impaired loans |  | 6,761,529 |  |  | 123,798 |  |  | 5,711,700 |  |  | 1,021,860 |  |  | 5,286,441 |  |  | 18,905,328
Total loans held-in-portfolio | $ | 7,168,653 |  | $ | 124,072 |  | $ | 6,235,576 |  | $ | 1,022,484 |  | $ | 5,381,797 |  | $ | 19,932,582

For the quarter ended September 30, 2019
Popular U.S.
(In thousands) | Commercial |  | Construction |  | Mortgage |  | Legacy |  | Consumer |  | Total
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 35,302 |  | $ | 6,887 |  | $ | 4,586 |  | $ | 774 |  | $ | 19,926 |  | $ | 67,475
| Provision (reversal of provision) |  | (2,507) |  |  | 2,826 |  |  | 288 |  |  | (280) |  |  | 1,733 |  |  | 2,060
| Charge-offs |  | (5,912) |  |  | (2,215) |  |  | - |  |  | (2) |  |  | (4,619) |  |  | (12,748)
| Recoveries |  | 2,279 |  |  | - |  |  | 18 |  |  | 299 |  |  | 2,212 |  |  | 4,808
Ending balance | $ | 29,162 |  | $ | 7,498 |  | $ | 4,892 |  | $ | 791 |  | $ | 19,252 |  | $ | 61,595
Specific ALLL | $ | - |  | $ | - |  | $ | 2,385 |  | $ | - |  | $ | 1,711 |  | $ | 4,096
General ALLL | $ | 29,162 |  | $ | 7,498 |  | $ | 2,507 |  | $ | 791 |  | $ | 17,541 |  | $ | 57,499
Loans held-in-portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans | $ | 2,097 |  | $ | 10,060 |  | $ | 9,441 |  | $ | - |  | $ | 9,761 |  | $ | 31,359
Loans held-in-portfolio excluding impaired loans |  | 5,037,699 |  |  | 619,924 |  |  | 923,602 |  |  | 23,192 |  |  | 439,617 |  |  | 7,044,034
Total loans held-in-portfolio | $ | 5,039,796 |  | $ | 629,984 |  | $ | 933,043 |  | $ | 23,192 |  | $ | 449,378 |  | $ | 7,075,393

For the quarter ended September 30, 2019
Popular, Inc.
(In thousands) | Commercial |  | Construction |  | Mortgage |  | Legacy | Leasing |  | Consumer |  | Total
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 225,529 |  | $ | 9,883 |  | $ | 132,516 |  | $ | 774 | $ | 6,907 |  | $ | 168,057 |  | $ | 543,666
| Provision (reversal of provision) |  | (20,543) |  |  | (2,090) |  |  | 6,782 |  |  | (280) |  | 3,739 |  |  | 48,931 |  |  | 36,539
| Charge-offs |  | (21,331) |  |  | (2,242) |  |  | (13,886) |  |  | (2) |  | (4,040) |  |  | (51,017) |  |  | (92,518)
| Recoveries |  | 7,066 |  |  | 3,013 |  |  | 1,215 |  |  | 299 |  | 587 |  |  | 12,498 |  |  | 24,678
Ending balance | $ | 190,721 |  | $ | 8,564 |  | $ | 126,627 |  | $ | 791 | $ | 7,193 |  | $ | 178,469 |  | $ | 512,365
Specific ALLL | $ | 30,130 |  | $ | 57 |  | $ | 42,868 |  | $ | - | $ | 71 |  | $ | 22,720 |  | $ | 95,846
General ALLL | $ | 160,591 |  | $ | 8,507 |  | $ | 83,759 |  | $ | 791 | $ | 7,122 |  | $ | 155,749 |  | $ | 416,519
Loans held-in-portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans | $ | 409,221 |  | $ | 10,334 |  | $ | 533,317 |  | $ | - | $ | 624 |  | $ | 105,117 |  | $ | 1,058,613
Loans held-in-portfolio excluding impaired loans |  | 11,799,228 |  |  | 743,722 |  |  | 6,635,302 |  |  | 23,192 |  | 1,021,860 |  |  | 5,726,058 |  |  | 25,949,362
Total loans held-in-portfolio | $ | 12,208,449 |  | $ | 754,056 |  | $ | 7,168,619 |  | $ | 23,192 | $ | 1,022,484 |  | $ | 5,831,175 |  | $ | 27,007,975

33

For the nine months ended September 30, 2019
Puerto Rico
(In thousands) | Commercial |  | Construction |  | Mortgage |  | Leasing |  | Consumer |  | Total
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 207,214 |  | $ | 886 |  | $ | 142,978 |  | $ | 11,486 |  | $ | 144,594 |  | $ | 507,158
| Provision (reversal of provision) |  | (18,245) |  |  | (2,877) |  |  | 11,342 |  |  | 2,276 |  |  | 102,412 |  |  | 94,908
| Charge-offs |  | (40,275) |  |  | (79) |  |  | (37,056) |  |  | (8,467) |  |  | (120,187) |  |  | (206,064)
| Recoveries |  | 12,865 |  |  | 3,136 |  |  | 4,471 |  |  | 1,898 |  |  | 32,398 |  |  | 54,768
Ending balance | $ | 161,559 |  | $ | 1,066 |  | $ | 121,735 |  | $ | 7,193 |  | $ | 159,217 |  | $ | 450,770
Specific ALLL | $ | 30,130 |  | $ | 57 |  | $ | 40,483 |  | $ | 71 |  | $ | 21,009 |  | $ | 91,750
General ALLL | $ | 131,429 |  | $ | 1,009 |  | $ | 81,252 |  | $ | 7,122 |  | $ | 138,208 |  | $ | 359,020
Loans held-in-portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans | $ | 407,124 |  | $ | 274 |  | $ | 523,876 |  | $ | 624 |  | $ | 95,356 |  | $ | 1,027,254
Loans held-in-portfolio excluding impaired loans |  | 6,761,529 |  |  | 123,798 |  |  | 5,711,700 |  |  | 1,021,860 |  |  | 5,286,441 |  |  | 18,905,328
Total loans held-in-portfolio | $ | 7,168,653 |  | $ | 124,072 |  | $ | 6,235,576 |  | $ | 1,022,484 |  | $ | 5,381,797 |  | $ | 19,932,582

For the nine months ended September 30, 2019
Popular U.S.
(In thousands) | Commercial |  | Construction |  | Mortgage |  | Legacy |  | Consumer |  | Total
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 31,901 |  | $ | 6,538 |  | $ | 4,434 |  | $ | 969 |  | $ | 18,348 |  | $ | 62,190
| Provision (reversal of provision) |  | 9,519 |  |  | 3,167 |  |  | 899 |  |  | (1,467) |  |  | 11,529 |  |  | 23,647
| Charge-offs |  | (15,737) |  |  | (2,215) |  |  | (594) |  |  | 142 |  |  | (15,879) |  |  | (34,283)
| Recoveries |  | 3,479 |  |  | 8 |  |  | 153 |  |  | 1,147 |  |  | 5,254 |  |  | 10,041
Ending balance | $ | 29,162 |  | $ | 7,498 |  | $ | 4,892 |  | $ | 791 |  | $ | 19,252 |  | $ | 61,595
Specific ALLL | $ | - |  | $ | - |  | $ | 2,385 |  | $ | - |  | $ | 1,711 |  | $ | 4,096
General ALLL | $ | 29,162 |  | $ | 7,498 |  | $ | 2,507 |  | $ | 791 |  | $ | 17,541 |  | $ | 57,499
Loans held-in-portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans | $ | 2,097 |  | $ | 10,060 |  | $ | 9,441 |  | $ | - |  | $ | 9,761 |  | $ | 31,359
Loans held-in-portfolio excluding impaired loans |  | 5,037,699 |  |  | 619,924 |  |  | 923,602 |  |  | 23,192 |  |  | 439,617 |  |  | 7,044,034
Total loans held-in-portfolio | $ | 5,039,796 |  | $ | 629,984 |  | $ | 933,043 |  | $ | 23,192 |  | $ | 449,378 |  | $ | 7,075,393

For the nine months ended September 30, 2019
Popular, Inc.
(In thousands) | Commercial |  | Construction |  | Mortgage |  | Legacy | Leasing |  | Consumer |  | Total
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 239,115 |  | $ | 7,424 |  | $ | 147,412 |  | $ | 969 | $ | 11,486 |  | $ | 162,942 |  | $ | 569,348
| Provision (reversal of provision) |  | (8,726) |  |  | 290 |  |  | 12,241 |  |  | (1,467) |  | 2,276 |  |  | 113,941 |  |  | 118,555
| Charge-offs |  | (56,012) |  |  | (2,294) |  |  | (37,650) |  |  | 142 |  | (8,467) |  |  | (136,066) |  |  | (240,347)
| Recoveries |  | 16,344 |  |  | 3,144 |  |  | 4,624 |  |  | 1,147 |  | 1,898 |  |  | 37,652 |  |  | 64,809
Ending balance | $ | 190,721 |  | $ | 8,564 |  | $ | 126,627 |  | $ | 791 | $ | 7,193 |  | $ | 178,469 |  | $ | 512,365
Specific ALLL | $ | 30,130 |  | $ | 57 |  | $ | 42,868 |  | $ | - | $ | 71 |  | $ | 22,720 |  | $ | 95,846
General ALLL | $ | 160,591 |  | $ | 8,507 |  | $ | 83,759 |  | $ | 791 | $ | 7,122 |  | $ | 155,749 |  | $ | 416,519
Loans held-in-portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans | $ | 409,221 |  | $ | 10,334 |  | $ | 533,317 |  | $ | - | $ | 624 |  | $ | 105,117 |  | $ | 1,058,613
Loans held-in-portfolio excluding impaired loans |  | 11,799,228 |  |  | 743,722 |  |  | 6,635,302 |  |  | 23,192 |  | 1,021,860 |  |  | 5,726,058 |  |  | 25,949,362
Total loans held-in-portfolio | $ | 12,208,449 |  | $ | 754,056 |  | $ | 7,168,619 |  | $ | 23,192 | $ | 1,022,484 |  | $ | 5,831,175 |  | $ | 27,007,975

34

For the quarter ended September 30, 2018
Puerto Rico
(In thousands) | Commercial |  | Construction |  | Mortgage |  | Leasing |  | Consumer |  | Total
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 190,926 |  | $ | 765 |  | $ | 182,103 |  | $ | 14,285 |  | $ | 179,066 |  | $ | 567,145
| Provision (reversal of provision) |  | 21,548 |  |  | (12) |  |  | 10,145 |  |  | (422) |  |  | 20,618 |  |  | 51,877
| Charge-offs |  | (7,335) |  |  | (21) |  |  | (23,526) |  |  | (2,088) |  |  | (42,180) |  |  | (75,150)
| Recoveries |  | 4,966 |  |  | 146 |  |  | 1,564 |  |  | 531 |  |  | 9,097 |  |  | 16,304
Ending balance | $ | 210,105 |  | $ | 878 |  | $ | 170,286 |  | $ | 12,306 |  | $ | 166,601 |  | $ | 560,176
Specific ALLL | $ | 52,250 |  | $ | - |  | $ | 43,841 |  | $ | 297 |  | $ | 24,906 |  | $ | 121,294
General ALLL | $ | 157,855 |  | $ | 878 |  | $ | 126,445 |  | $ | 12,009 |  | $ | 141,695 |  | $ | 438,882
Loans held-in-portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans | $ | 356,007 |  | $ | 1,829 |  | $ | 508,258 |  | $ | 931 |  | $ | 107,184 |  | $ | 974,209
Loans held-in-portfolio excluding impaired loans |  | 7,051,469 |  |  | 75,964 |  |  | 6,023,018 |  |  | 902,609 |  |  | 4,796,084 |  |  | 18,849,144
Total loans held-in-portfolio | $ | 7,407,476 |  | $ | 77,793 |  | $ | 6,531,276 |  | $ | 903,540 |  | $ | 4,903,268 |  | $ | 19,823,353

For the quarter ended September 30, 2018
Popular U.S.
(In thousands) | Commercial |  | Construction |  | Mortgage |  | Legacy |  | Consumer |  | Total
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 50,920 |  | $ | 6,937 |  | $ | 4,363 |  | $ | 700 |  | $ | 12,953 |  | $ | 75,873
| Provision (reversal of provision) |  | (14,744) |  |  | 7,305 |  |  | (65) |  |  | (1,008) |  |  | 11,022 |  |  | 2,510
| Charge-offs |  | (2,792) |  |  | - |  |  | (17) |  |  | (81) |  |  | (5,015) |  |  | (7,905)
| Recoveries |  | 1,051 |  |  | - |  |  | 20 |  |  | 766 |  |  | 1,227 |  |  | 3,064
Ending balance | $ | 34,435 |  | $ | 14,242 |  | $ | 4,301 |  | $ | 377 |  | $ | 20,187 |  | $ | 73,542
Specific ALLL | $ | - |  | $ | 5,530 |  | $ | 2,364 |  | $ | - |  | $ | 1,349 |  | $ | 9,243
General ALLL | $ | 34,435 |  | $ | 8,712 |  | $ | 1,937 |  | $ | 377 |  | $ | 18,838 |  | $ | 64,299
Loans held-in-portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans | $ | - |  | $ | 17,866 |  | $ | 8,825 |  | $ | - |  | $ | 7,388 |  | $ | 34,079
Loans held-in-portfolio excluding impaired loans |  | 4,586,231 |  |  | 847,706 |  |  | 764,069 |  |  | 27,566 |  |  | 429,164 |  |  | 6,654,736
Total loans held-in-portfolio | $ | 4,586,231 |  | $ | 865,572 |  | $ | 772,894 |  | $ | 27,566 |  | $ | 436,552 |  | $ | 6,688,815

35

For the quarter ended September 30, 2018
Popular, Inc.
(In thousands) | Commercial | Construction | Mortgage | Legacy | Leasing | Consumer | Total
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 241,846 | $ | 7,702 | $ | 186,466 | $ | 700 | $ | 14,285 | $ | 192,019 | $ | 643,018
| Provision (reversal of provision) |  | 6,804 |  | 7,293 |  | 10,080 |  | (1,008) |  | (422) |  | 31,640 |  | 54,387
| Charge-offs |  | (10,127) |  | (21) |  | (23,543) |  | (81) |  | (2,088) |  | (47,195) |  | (83,055)
| Recoveries |  | 6,017 |  | 146 |  | 1,584 |  | 766 |  | 531 |  | 10,324 |  | 19,368
Ending balance | $ | 244,540 | $ | 15,120 | $ | 174,587 | $ | 377 | $ | 12,306 | $ | 186,788 | $ | 633,718
Specific ALLL | $ | 52,250 | $ | 5,530 | $ | 46,205 | $ | - | $ | 297 | $ | 26,255 | $ | 130,537
General ALLL | $ | 192,290 | $ | 9,590 | $ | 128,382 | $ | 377 | $ | 12,009 | $ | 160,533 | $ | 503,181
Loans held-in-portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans | $ | 356,007 | $ | 19,695 | $ | 517,083 | $ | - | $ | 931 | $ | 114,572 | $ | 1,008,288
Loans held-in-portfolio excluding impaired loans |  | 11,637,700 |  | 923,670 |  | 6,787,087 |  | 27,566 |  | 902,609 |  | 5,225,248 |  | 25,503,880
Total loans held-in-portfolio | $ | 11,993,707 | $ | 943,365 | $ | 7,304,170 | $ | 27,566 | $ | 903,540 | $ | 5,339,820 | $ | 26,512,168

For the nine months ended September 30, 2018
Puerto Rico - Non-covered loans
(In thousands) | Commercial |  | Construction |  | Mortgage |  | Leasing |  | Consumer |  | Total
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 171,531 |  | $ | 1,286 |  | $ | 159,081 |  | $ | 11,991 |  | $ | 174,215 |  | $ | 518,104
| Provision (reversal of provision) |  | 52,846 |  |  | (1,042) |  |  | 24,564 |  |  | 5,022 |  |  | 71,610 |  |  | 153,000
| Charge-offs |  | (25,626) |  |  | 9 |  |  | (50,164) |  |  | (6,404) |  |  | (101,703) |  |  | (183,888)
| Recoveries |  | 11,354 |  |  | 625 |  |  | 3,383 |  |  | 1,697 |  |  | 22,291 |  |  | 39,350
| Allowance transferred from covered loans |  | - |  |  | - |  |  | 33,422 |  |  | - |  |  | 188 |  |  | 33,610
Ending balance | $ | 210,105 |  | $ | 878 |  | $ | 170,286 |  | $ | 12,306 |  | $ | 166,601 |  | $ | 560,176
Specific ALLL | $ | 52,250 |  | $ | - |  | $ | 43,841 |  | $ | 297 |  | $ | 24,906 |  | $ | 121,294
General ALLL | $ | 157,855 |  | $ | 878 |  | $ | 126,445 |  | $ | 12,009 |  | $ | 141,695 |  | $ | 438,882
Loans held-in-portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired non-covered loans | $ | 356,007 |  | $ | 1,829 |  | $ | 508,258 |  | $ | 931 |  | $ | 107,184 |  | $ | 974,209
Non-covered loans held-in-portfolio excluding impaired loans |  | 7,051,469 |  |  | 75,964 |  |  | 6,023,018 |  |  | 902,609 |  |  | 4,796,084 |  |  | 18,849,144
Total non-covered loans held-in-portfolio | $ | 7,407,476 |  | $ | 77,793 |  | $ | 6,531,276 |  | $ | 903,540 |  | $ | 4,903,268 |  | $ | 19,823,353

For the nine months ended September 30, 2018
Puerto Rico - Covered Loans
(In thousands) | Commercial |  | Construction |  | Mortgage |  | Leasing |  | Consumer |  | Total
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | - |  | $ | - |  | $ | 32,521 |  | $ | - |  | $ | 723 |  | $ | 33,244
| Provision (reversal of provision) |  | - |  |  | - |  |  | 2,265 |  |  | - |  |  | (535) |  |  | 1,730
| Charge-offs |  | - |  |  | - |  |  | (1,446) |  |  | - |  |  | (2) |  |  | (1,448)
| Recoveries |  | - |  |  | - |  |  | 82 |  |  | - |  |  | 2 |  |  | 84
| Allowance transferred to non-covered loans |  | - |  |  | - |  |  | (33,422) |  |  | - |  |  | (188) |  |  | (33,610)
Ending balance | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | -
Specific ALLL | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | -
General ALLL | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | -
Loans held-in-portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired covered loans | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | -
Covered loans held-in-portfolio excluding impaired loans |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | -
Total covered loans held-in-portfolio | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | -

36

For the nine months ended September 30, 2018
Popular U.S.
(In thousands) | Commercial |  | Construction |  | Mortgage |  | Legacy |  | Consumer |  | Total
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 44,134 |  | $ | 7,076 |  | $ | 4,541 |  | $ | 798 |  | $ | 15,529 |  | $ | 72,078
| Provision (reversal of provision) |  | 9,004 |  |  | 7,166 |  |  | (529) |  |  | (1,714) |  |  | 16,847 |  |  | 30,774
| Charge-offs |  | (22,435) |  |  | - |  |  | (160) |  |  | (252) |  |  | (16,329) |  |  | (39,176)
| Recoveries |  | 3,732 |  |  | - |  |  | 449 |  |  | 1,545 |  |  | 4,140 |  |  | 9,866
Ending balance | $ | 34,435 |  | $ | 14,242 |  | $ | 4,301 |  | $ | 377 |  | $ | 20,187 |  | $ | 73,542
Specific ALLL | $ | - |  | $ | 5,530 |  | $ | 2,364 |  | $ | - |  | $ | 1,349 |  | $ | 9,243
General ALLL | $ | 34,435 |  | $ | 8,712 |  | $ | 1,937 |  | $ | 377 |  | $ | 18,838 |  | $ | 64,299
Loans held-in-portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans | $ | - |  | $ | 17,866 |  | $ | 8,825 |  | $ | - |  | $ | 7,388 |  | $ | 34,079
Loans held-in-portfolio excluding impaired loans |  | 4,586,231 |  |  | 847,706 |  |  | 764,069 |  |  | 27,566 |  |  | 429,164 |  |  | 6,654,736
Total loans held-in-portfolio | $ | 4,586,231 |  | $ | 865,572 |  | $ | 772,894 |  | $ | 27,566 |  | $ | 436,552 |  | $ | 6,688,815

For the nine months ended September 30, 2018
Popular, Inc.
(In thousands) | Commercial | Construction | Mortgage | Legacy | Leasing | Consumer | Total
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 215,665 | $ | 8,362 | $ | 196,143 | $ | 798 | $ | 11,991 | $ | 190,467 | $ | 623,426
| Provision (reversal of provision) |  | 61,850 |  | 6,124 |  | 26,300 |  | (1,714) |  | 5,022 |  | 87,922 |  | 185,504
| Charge-offs |  | (48,061) |  | 9 |  | (51,770) |  | (252) |  | (6,404) |  | (118,034) |  | (224,512)
| Recoveries |  | 15,086 |  | 625 |  | 3,914 |  | 1,545 |  | 1,697 |  | 26,433 |  | 49,300
Ending balance | $ | 244,540 | $ | 15,120 | $ | 174,587 | $ | 377 | $ | 12,306 | $ | 186,788 | $ | 633,718
Specific ALLL | $ | 52,250 | $ | 5,530 | $ | 46,205 | $ | - | $ | 297 | $ | 26,255 | $ | 130,537
General ALLL | $ | 192,290 | $ | 9,590 | $ | 128,382 | $ | 377 | $ | 12,009 | $ | 160,533 | $ | 503,181
Loans held-in-portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans | $ | 356,007 | $ | 19,695 | $ | 517,083 | $ | - | $ | 931 | $ | 114,572 | $ | 1,008,288
Loans held-in-portfolio excluding impaired loans |  | 11,637,700 |  | 923,670 |  | 6,787,087 |  | 27,566 |  | 902,609 |  | 5,225,248 |  | 25,503,880
Total loans held-in-portfolio | $ | 11,993,707 | $ | 943,365 | $ | 7,304,170 | $ | 27,566 | $ | 903,540 | $ | 5,339,820 | $ | 26,512,168

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

| ASC 310-30
| For the quarters ended | For the nine months ended
(In thousands) | September 30, 2019 |  | September 30, 2018 | September 30, 2019 | September 30, 2018
Balance at beginning of period | $ | 120,818 |  | $ | 156,328 | $ | 122,135 | $ | 119,505
Provision (reversal of provision) |  | (14,617) |  |  | 17,854 |  | (2,007) |  | 78,317
Net charge-offs |  | (11,591) |  |  | (5,623) |  | (25,518) |  | (29,263)
Balance at end of period | $ | 94,610 |  | $ | 168,559 | $ | 94,610 | $ | 168,559

37

Impaired loans

The following tables present loans individually evaluated for impairment at September 30, 2019 and December 31, 2018.

September 30, 2019
Puerto Rico
| Impaired Loans – With an | Impaired Loans |  |  |  |  |  |
| Allowance | With No Allowance | Impaired Loans - Total
|  |  | Unpaid |  |  |  |  | Unpaid |  |  | Unpaid |  |
| Recorded | principal | Related | Recorded | principal | Recorded | principal |  | Related
(In thousands) | investment | balance | allowance | investment | balance | investment | balance |  | allowance
Commercial multi-family | $ | 2,249 | $ | 2,284 | $ | 249 | $ | - | $ | - | $ | 2,249 | $ | 2,284 | $ | 249
Commercial real estate non-owner occupied |  | 76,055 |  | 88,496 |  | 14,012 |  | 110,859 |  | 121,418 |  | 186,914 |  | 209,914 |  | 14,012
Commercial real estate owner occupied |  | 111,600 |  | 130,895 |  | 5,607 |  | 27,573 |  | 59,748 |  | 139,173 |  | 190,643 |  | 5,607
Commercial and industrial |  | 50,024 |  | 51,327 |  | 10,262 |  | 28,764 |  | 51,037 |  | 78,788 |  | 102,364 |  | 10,262
Construction |  | 274 |  | 274 |  | 57 |  | - |  | - |  | 274 |  | 274 |  | 57
Mortgage |  | 419,665 |  | 477,034 |  | 40,483 |  | 104,211 |  | 139,550 |  | 523,876 |  | 616,584 |  | 40,483
Leasing |  | 624 |  | 624 |  | 71 |  | - |  | - |  | 624 |  | 624 |  | 71
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Credit cards |  | 26,049 |  | 26,049 |  | 3,018 |  | - |  | - |  | 26,049 |  | 26,049 |  | 3,018
Personal |  | 68,147 |  | 68,147 |  | 17,824 |  | - |  | - |  | 68,147 |  | 68,147 |  | 17,824
Auto |  | 333 |  | 333 |  | 62 |  | - |  | - |  | 333 |  | 333 |  | 62
Other |  | 827 |  | 827 |  | 105 |  | - |  | - |  | 827 |  | 827 |  | 105
Total Puerto Rico | $ | 755,847 | $ | 846,290 | $ | 91,750 | $ | 271,407 | $ | 371,753 | $ | 1,027,254 | $ | 1,218,043 | $ | 91,750

September 30, 2019
Popular U.S.
| Impaired Loans – With an | Impaired Loans |  |  |  |  |  |
| Allowance | With No Allowance | Impaired Loans - Total
|  |  | Unpaid |  |  |  |  | Unpaid |  |  | Unpaid |  |
| Recorded | principal | Related | Recorded | principal | Recorded | principal | Related
(In thousands) | investment | balance | allowance | investment | balance | investment | balance | allowance
Commercial multi-family | $ | - | $ | - | $ | - | $ | 2,097 | $ | 2,539 | $ | 2,097 | $ | 2,539 | $ | -
Construction |  | - |  | - |  | - |  | 10,060 |  | 18,127 |  | 10,060 |  | 18,127 |  | -
Mortgage |  | 6,961 |  | 7,313 |  | 2,385 |  | 2,480 |  | 2,844 |  | 9,441 |  | 10,157 |  | 2,385
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
HELOCs |  | 7,575 |  | 7,575 |  | 1,708 |  | 2,085 |  | 2,169 |  | 9,660 |  | 9,744 |  | 1,708
Personal |  | 27 |  | 27 |  | 3 |  | 74 |  | 74 |  | 101 |  | 101 |  | 3
Total Popular U.S. | $ | 14,563 | $ | 14,915 | $ | 4,096 | $ | 16,796 | $ | 25,753 | $ | 31,359 | $ | 40,668 | $ | 4,096

September 30, 2019
Popular, Inc.
| Impaired Loans – With an | Impaired Loans |  |  |  |  |  |
| Allowance | With No Allowance | Impaired Loans - Total
|  |  | Unpaid |  |  |  |  | Unpaid |  |  | Unpaid |  |
| Recorded | principal | Related | Recorded | principal | Recorded | principal | Related
(In thousands) | investment | balance | allowance | investment | balance | investment | balance | allowance
Commercial multi-family | $ | 2,249 | $ | 2,284 | $ | 249 | $ | 2,097 | $ | 2,539 | $ | 4,346 | $ | 4,823 | $ | 249
Commercial real estate non-owner occupied |  | 76,055 |  | 88,496 |  | 14,012 |  | 110,859 |  | 121,418 |  | 186,914 |  | 209,914 |  | 14,012
Commercial real estate owner occupied |  | 111,600 |  | 130,895 |  | 5,607 |  | 27,573 |  | 59,748 |  | 139,173 |  | 190,643 |  | 5,607
Commercial and industrial |  | 50,024 |  | 51,327 |  | 10,262 |  | 28,764 |  | 51,037 |  | 78,788 |  | 102,364 |  | 10,262
Construction |  | 274 |  | 274 |  | 57 |  | 10,060 |  | 18,127 |  | 10,334 |  | 18,401 |  | 57
Mortgage |  | 426,626 |  | 484,347 |  | 42,868 |  | 106,691 |  | 142,394 |  | 533,317 |  | 626,741 |  | 42,868
Leasing |  | 624 |  | 624 |  | 71 |  | - |  | - |  | 624 |  | 624 |  | 71
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Credit Cards |  | 26,049 |  | 26,049 |  | 3,018 |  | - |  | - |  | 26,049 |  | 26,049 |  | 3,018
HELOCs |  | 7,575 |  | 7,575 |  | 1,708 |  | 2,085 |  | 2,169 |  | 9,660 |  | 9,744 |  | 1,708
Personal |  | 68,174 |  | 68,174 |  | 17,827 |  | 74 |  | 74 |  | 68,248 |  | 68,248 |  | 17,827
Auto |  | 333 |  | 333 |  | 62 |  | - |  | - |  | 333 |  | 333 |  | 62
Other |  | 827 |  | 827 |  | 105 |  | - |  | - |  | 827 |  | 827 |  | 105
Total Popular, Inc. | $ | 770,410 | $ | 861,205 | $ | 95,846 | $ | 288,203 | $ | 397,506 | $ | 1,058,613 | $ | 1,258,711 | $ | 95,846

38

December 31, 2018
Puerto Rico
| Impaired Loans – With an | Impaired Loans |  |  |  |  |  |
| Allowance | With No Allowance | Impaired Loans - Total
|  |  | Unpaid |  |  |  |  | Unpaid |  |  | Unpaid |  |
| Recorded | principal | Related | Recorded | principal | Recorded | principal |  | Related
(In thousands) | investment | balance | allowance | investment | balance | investment | balance |  | allowance
Commercial multi-family | $ | 932 | $ | 932 | $ | 4 | $ | - | $ | - | $ | 932 | $ | 932 | $ | 4
Commercial real estate non-owner occupied |  | 85,583 |  | 86,282 |  | 27,494 |  | 96,005 |  | 138,378 |  | 181,588 |  | 224,660 |  | 27,494
Commercial real estate owner occupied |  | 113,592 |  | 132,677 |  | 7,857 |  | 26,474 |  | 60,485 |  | 140,066 |  | 193,162 |  | 7,857
Commercial and industrial |  | 65,208 |  | 67,094 |  | 16,835 |  | 10,724 |  | 20,968 |  | 75,932 |  | 88,062 |  | 16,835
Construction |  | 1,788 |  | 1,788 |  | 56 |  | - |  | - |  | 1,788 |  | 1,788 |  | 56
Mortgage |  | 408,767 |  | 458,010 |  | 38,760 |  | 100,701 |  | 135,084 |  | 509,468 |  | 593,094 |  | 38,760
Leasing |  | 1,099 |  | 1,099 |  | 320 |  | - |  | - |  | 1,099 |  | 1,099 |  | 320
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Credit cards |  | 28,829 |  | 28,829 |  | 4,571 |  | - |  | - |  | 28,829 |  | 28,829 |  | 4,571
Personal |  | 72,989 |  | 72,989 |  | 19,098 |  | - |  | - |  | 72,989 |  | 72,989 |  | 19,098
Auto |  | 1,161 |  | 1,161 |  | 228 |  | - |  | - |  | 1,161 |  | 1,161 |  | 228
Other |  | 1,256 |  | 1,256 |  | 186 |  | - |  | - |  | 1,256 |  | 1,256 |  | 186
Total Puerto Rico | $ | 781,204 | $ | 852,117 | $ | 115,409 | $ | 233,904 | $ | 354,915 | $ | 1,015,108 | $ | 1,207,032 | $ | 115,409

December 31, 2018
Popular U.S.
| Impaired Loans – With an | Impaired Loans |  |  |  |  |  |
| Allowance | With No Allowance | Impaired Loans - Total
|  |  | Unpaid |  |  |  |  | Unpaid |  |  | Unpaid |  |
| Recorded | principal | Related | Recorded | principal | Recorded | principal | Related
(In thousands) | investment | balance | allowance | investment | balance | investment | balance | allowance
Construction | $ | - | $ | - | $ | - | $ | 12,060 | $ | 18,127 | $ | 12,060 | $ | 18,127 | $ | -
Mortgage |  | 7,237 |  | 8,899 |  | 2,451 |  | 2,183 |  | 3,127 |  | 9,420 |  | 12,026 |  | 2,451
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
HELOCs |  | 6,236 |  | 6,285 |  | 1,558 |  | 1,498 |  | 1,572 |  | 7,734 |  | 7,857 |  | 1,558
Personal |  | 631 |  | 631 |  | 252 |  | 142 |  | 143 |  | 773 |  | 774 |  | 252
Total Popular U.S. | $ | 14,104 | $ | 15,815 | $ | 4,261 | $ | 15,883 | $ | 22,969 | $ | 29,987 | $ | 38,784 | $ | 4,261

December 31, 2018
Popular, Inc.
| Impaired Loans – With an | Impaired Loans |  |  |  |  |  |
| Allowance | With No Allowance | Impaired Loans - Total
|  |  | Unpaid |  |  |  |  | Unpaid |  |  | Unpaid |  |
| Recorded | principal | Related | Recorded | principal | Recorded | principal | Related
(In thousands) | investment | balance | allowance | investment | balance | investment | balance | allowance
Commercial multi-family | $ | 932 | $ | 932 | $ | 4 | $ | - | $ | - | $ | 932 | $ | 932 | $ | 4
Commercial real estate non-owner occupied |  | 85,583 |  | 86,282 |  | 27,494 |  | 96,005 |  | 138,378 |  | 181,588 |  | 224,660 |  | 27,494
Commercial real estate owner occupied |  | 113,592 |  | 132,677 |  | 7,857 |  | 26,474 |  | 60,485 |  | 140,066 |  | 193,162 |  | 7,857
Commercial and industrial |  | 65,208 |  | 67,094 |  | 16,835 |  | 10,724 |  | 20,968 |  | 75,932 |  | 88,062 |  | 16,835
Construction |  | 1,788 |  | 1,788 |  | 56 |  | 12,060 |  | 18,127 |  | 13,848 |  | 19,915 |  | 56
Mortgage |  | 416,004 |  | 466,909 |  | 41,211 |  | 102,884 |  | 138,211 |  | 518,888 |  | 605,120 |  | 41,211
Leasing |  | 1,099 |  | 1,099 |  | 320 |  | - |  | - |  | 1,099 |  | 1,099 |  | 320
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Credit Cards |  | 28,829 |  | 28,829 |  | 4,571 |  | - |  | - |  | 28,829 |  | 28,829 |  | 4,571
HELOCs |  | 6,236 |  | 6,285 |  | 1,558 |  | 1,498 |  | 1,572 |  | 7,734 |  | 7,857 |  | 1,558
Personal |  | 73,620 |  | 73,620 |  | 19,350 |  | 142 |  | 143 |  | 73,762 |  | 73,763 |  | 19,350
Auto |  | 1,161 |  | 1,161 |  | 228 |  | - |  | - |  | 1,161 |  | 1,161 |  | 228
Other |  | 1,256 |  | 1,256 |  | 186 |  | - |  | - |  | 1,256 |  | 1,256 |  | 186
Total Popular, Inc. | $ | 795,308 | $ | 867,932 | $ | 119,670 | $ | 249,787 | $ | 377,884 | $ | 1,045,095 | $ | 1,245,816 | $ | 119,670

The following tables present the average recorded investment and interest income recognized on impaired loans for the quarters and nine months ended September 30, 2019 and 2018.

39

For the quarter ended September 30, 2019
| Puerto Rico |  | Popular U.S. |  | Popular, Inc.
| Average |  | Interest |  | Average |  | Interest |  | Average |  | Interest
| recorded |  | income |  | recorded |  | income |  | recorded |  | income
(In thousands) | investment |  | recognized |  | investment |  | recognized |  | investment |  | recognized
Commercial multi-family | $ | 1,641 |  | $ | 12 |  | $ | 2,309 |  | $ | - |  | $ | 3,950 |  | $ | 12
Commercial real estate non-owner occupied |  | 182,078 |  |  | 2,561 |  |  | - |  |  | - |  |  | 182,078 |  |  | 2,561
Commercial real estate owner occupied |  | 138,325 |  |  | 1,698 |  |  | 720 |  |  | - |  |  | 139,045 |  |  | 1,698
Commercial and industrial |  | 74,674 |  |  | 888 |  |  | - |  |  | - |  |  | 74,674 |  |  | 888
Construction |  | 1,031 |  |  | - |  |  | 11,060 |  |  | - |  |  | 12,091 |  |  | -
Mortgage |  | 522,567 |  |  | 4,399 |  |  | 9,417 |  |  | 155 |  |  | 531,984 |  |  | 4,554
Leasing |  | 745 |  |  | - |  |  | - |  |  | - |  |  | 745 |  |  | -
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Credit cards |  | 26,346 |  |  | - |  |  | - |  |  | - |  |  | 26,346 |  |  | -
HELOCs |  | - |  |  | - |  |  | 9,749 |  |  | - |  |  | 9,749 |  |  | -
Personal |  | 69,103 |  |  | 64 |  |  | 107 |  |  | - |  |  | 69,210 |  |  | 64
Auto |  | 742 |  |  | - |  |  | - |  |  | - |  |  | 742 |  |  | -
Other |  | 939 |  |  | - |  |  | - |  |  | - |  |  | 939 |  |  | -
Total Popular, Inc. | $ | 1,018,191 |  | $ | 9,622 |  | $ | 33,362 |  | $ | 155 |  | $ | 1,051,553 |  | $ | 9,777

For the quarter ended September 30, 2018
| Puerto Rico |  | Popular U.S. |  | Popular, Inc.
| Average |  | Interest |  | Average |  | Interest |  | Average |  | Interest
| recorded |  | income |  | recorded |  | income |  | recorded |  | income
(In thousands) | investment |  | recognized |  | investment |  | recognized |  | investment |  | recognized
Commercial multi-family | $ | 1,100 |  | $ | 9 |  | $ | - |  | $ | - |  | $ | 1,100 |  | $ | 9
Commercial real estate non-owner occupied |  | 132,927 |  |  | 1,371 |  |  | - |  |  | - |  |  | 132,927 |  |  | 1,371
Commercial real estate owner occupied |  | 148,931 |  |  | 1,636 |  |  | - |  |  | - |  |  | 148,931 |  |  | 1,636
Commercial and industrial |  | 74,770 |  |  | 1,053 |  |  | - |  |  | - |  |  | 74,770 |  |  | 1,053
Construction |  | 2,194 |  |  | - |  |  | 17,884 |  |  | - |  |  | 20,078 |  |  | -
Mortgage |  | 507,919 |  |  | 3,561 |  |  | 9,277 |  |  | 43 |  |  | 517,196 |  |  | 3,604
Leasing |  | 1,031 |  |  | - |  |  | - |  |  | - |  |  | 1,031 |  |  | -
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Credit cards |  | 31,998 |  |  | - |  |  | - |  |  | - |  |  | 31,998 |  |  | -
HELOCs |  | - |  |  | - |  |  | 6,208 |  |  | - |  |  | 6,208 |  |  | -
Personal |  | 72,353 |  |  | 65 |  |  | 768 |  |  | - |  |  | 73,121 |  |  | 65
Auto |  | 1,067 |  |  | - |  |  | - |  |  | - |  |  | 1,067 |  |  | -
Other |  | 1,136 |  |  | - |  |  | - |  |  | - |  |  | 1,136 |  |  | -
Total Popular, Inc. | $ | 975,426 |  | $ | 7,695 |  | $ | 34,137 |  | $ | 43 |  | $ | 1,009,563 |  | $ | 7,738

For the nine months ended September 30, 2019
| Puerto Rico |  | Popular U.S. |  | Popular, Inc.
| Average |  | Interest |  | Average |  | Interest |  | Average |  | Interest
| recorded |  | income |  | recorded |  | income |  | recorded |  | income
(In thousands) | investment |  | recognized |  | investment |  | recognized |  | investment |  | recognized
Commercial multi-family | $ | 1,284 |  | $ | 36 |  | $ | 1,155 |  | $ | - |  | $ | 2,439 |  | $ | 36
Commercial real estate non-owner occupied |  | 180,401 |  |  | 6,987 |  |  | - |  |  | - |  |  | 180,401 |  |  | 6,987
Commercial real estate owner occupied |  | 139,086 |  |  | 4,831 |  |  | 783 |  |  | - |  |  | 139,869 |  |  | 4,831
Commercial and industrial |  | 72,668 |  |  | 2,744 |  |  | - |  |  | - |  |  | 72,668 |  |  | 2,744
Construction |  | 1,410 |  |  | - |  |  | 11,560 |  |  | - |  |  | 12,970 |  |  | -
Mortgage |  | 517,492 |  |  | 12,423 |  |  | 9,423 |  |  | 296 |  |  | 526,915 |  |  | 12,719
Leasing |  | 902 |  |  | - |  |  | - |  |  | - |  |  | 902 |  |  | -
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Credit cards |  | 27,350 |  |  | - |  |  | - |  |  | - |  |  | 27,350 |  |  | -
HELOCs |  | - |  |  | - |  |  | 8,855 |  |  | - |  |  | 8,855 |  |  | -
Personal |  | 70,700 |  |  | 208 |  |  | 447 |  |  | - |  |  | 71,147 |  |  | 208
Auto |  | 952 |  |  | - |  |  | - |  |  | - |  |  | 952 |  |  | -
Other |  | 1,093 |  |  | - |  |  | - |  |  | - |  |  | 1,093 |  |  | -
Total Popular, Inc. | $ | 1,013,338 |  | $ | 27,229 |  | $ | 32,223 |  | $ | 296 |  | $ | 1,045,561 |  | $ | 27,525

40

For the nine months ended September 30, 2018
| Puerto Rico |  | Popular U.S. |  | Popular, Inc.
| Average |  | Interest |  | Average |  | Interest |  | Average |  | Interest
| recorded |  | income |  | recorded |  | income |  | recorded |  | income
(In thousands) | investment |  | recognized |  | investment |  | recognized |  | investment |  | recognized
Commercial multi-family | $ | 634 |  | $ | 28 |  | $ | - |  | $ | - |  | $ | 634 |  | $ | 28
Commercial real estate non-owner occupied |  | 128,143 |  |  | 4,278 |  |  | - |  |  | - |  |  | 128,143 |  |  | 4,278
Commercial real estate owner occupied |  | 151,192 |  |  | 4,786 |  |  | - |  |  | - |  |  | 151,192 |  |  | 4,786
Commercial and industrial |  | 67,775 |  |  | 2,793 |  |  | - |  |  | - |  |  | 67,775 |  |  | 2,793
Construction |  | 2,170 |  |  | 25 |  |  | 8,942 |  |  | - |  |  | 11,112 |  |  | 25
Mortgage |  | 508,930 |  |  | 13,790 |  |  | 9,217 |  |  | 130 |  |  | 518,147 |  |  | 13,920
Leasing |  | 1,220 |  |  | - |  |  | - |  |  | - |  |  | 1,220 |  |  | -
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Credit cards |  | 32,734 |  |  | - |  |  | - |  |  | - |  |  | 32,734 |  |  | -
HELOCs |  | - |  |  | - |  |  | 5,446 |  |  | - |  |  | 5,446 |  |  | -
Personal |  | 67,049 |  |  | 320 |  |  | 769 |  |  | - |  |  | 67,818 |  |  | 320
Auto |  | 1,476 |  |  | - |  |  | - |  |  | - |  |  | 1,476 |  |  | -
Other |  | 1,246 |  |  | - |  |  | - |  |  | - |  |  | 1,246 |  |  | -
Total Popular, Inc. | $ | 962,569 |  | $ | 26,020 |  | $ | 24,374 |  | $ | 130 |  | $ | 986,943 |  | $ | 26,150

Modifications

A modification of a loan constitutes a troubled debt restructuring when a borrower is experiencing financial difficulty and the modification constitutes a concession. For a summary of the accounting policy related to troubled debt restructurings (“TDRs”), refer to the Summary of Significant Accounting Policies included in Note 2 to the 2018 Form 10-K.

TDRs amounted to $ 1.6 billion at September 30, 2019 (December 31, 2018 - $ 1.5 billion). The amount of outstanding commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs amounted to $16 million related to the commercial loan portfolio at September 30, 2019 (December 31, 2018 - $16 million).

At September 30, 2019, the mortgage loan TDRs include $614 million guaranteed by U.S. sponsored entities at BPPR, compared to $543 million at December 31, 2018.

The following table presents the loans classified as TDRs according to their accruing status and the related allowance at September 30, 2019 and December 31, 2018.

| September 30, 2019 |  |  | December 31, 2018
(In thousands) |  | Accruing |  | Non-Accruing |  | Total |  | Related Allowance |  |  |  | Accruing |  | Non-Accruing |  | Total |  | Related Allowance
Loans held-in-portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial | $ | 234,214 | $ | 116,508 | $ | 350,722 | $ | 15,971 |  |  | $ | 229,758 | $ | 130,921 | $ | 360,679 | $ | 46,889
Construction |  | - |  | 274 |  | 274 |  | 57 |  |  |  | - |  | 1,788 |  | 1,788 |  | 56
Mortgage |  | 996,000 |  | 132,755 |  | 1,128,755 |  | 42,029 |  |  |  | 906,712 |  | 135,758 |  | 1,042,470 |  | 41,211
Leases |  | 343 |  | 245 |  | 588 |  | 71 |  |  |  | 668 |  | 440 |  | 1,108 |  | 320
Consumer |  | 86,115 |  | 15,914 |  | 102,029 |  | 22,260 |  |  |  | 94,193 |  | 15,651 |  | 109,844 |  | 24,523
Loans held-in-portfolio | $ | 1,316,672 | $ | 265,696 | $ | 1,582,368 | $ | 80,388 |  |  | $ | 1,231,331 | $ | 284,558 | $ | 1,515,889 | $ | 112,999

The following tables present the loan count by type of modification for those loans modified in a TDR during the quarters and nine months ended September 30, 2019 and 2018. Loans modified as TDRs for the U.S. operations are considered insignificant to the Corporation.

41

| Popular, Inc.
| For the quarter ended September 30, 2019 |  | For the nine months ended September 30, 2019
| Reduction in interest rate | Extension of maturity date | Combination of reduction in interest rate and extension of maturity date | Other |  | Reduction in interest rate | Extension of maturity date | Combination of reduction in interest rate and extension of maturity date | Other
Commercial multi-family | - | - | - | - |  | - | 1 | - | -
Commercial real estate non-owner occupied | - | 3 | - | - |  | - | 6 | - | -
Commercial real estate owner occupied | - | 4 | - | - |  | 1 | 19 | - | -
Commercial and industrial | 2 | 7 | - | - |  | 2 | 41 | - | -
Mortgage | 2 | 43 | 207 | 3 |  | 33 | 98 | 494 | 5
Leasing | - | 1 | 1 | - |  | - | 1 | 2 | -
Consumer: |  |  |  |  |  |  |  |  |
Credit cards | 111 | - | 1 | 41 |  | 394 | - | 2 | 161
HELOCs | - | 2 | 2 | - |  | - | 14 | 11 | -
Personal | 183 | 1 | - | - |  | 527 | 4 | - | 1
Auto | - | 1 | - | - |  | - | 5 | 1 | -
Other | 7 | - | - | - |  | 22 | - | - | -
Total | 305 | 62 | 211 | 44 |  | 979 | 189 | 510 | 167

| Popular, Inc.
| For the quarter ended September 30, 2018 |  | For the nine months ended September 30, 2018
| Reduction in interest rate | Extension of maturity date | Combination of reduction in interest rate and extension of maturity date | Other |  | Reduction in interest rate | Extension of maturity date | Combination of reduction in interest rate and extension of maturity date | Other
Commercial multi-family | - | 1 | - | - |  | - | 2 | - | -
Commercial real estate non-owner occupied | 1 | 3 | - | - |  | 3 | 14 | - | -
Commercial real estate owner occupied | 1 | 12 | - | - |  | 4 | 54 | - | -
Commercial and industrial | 2 | 25 | - | - |  | 6 | 75 | - | -
Construction | - | - | - | - |  | 1 | - | - | -
Mortgage | 28 | 7 | 70 | 11 |  | 73 | 17 | 173 | 56
Leasing | - | - | 3 | - |  | - | - | 4 | -
Consumer: |  |  |  |  |  |  |  |  |
Credit cards | 115 | - | - | 72 |  | 426 | - | 3 | 382
HELOCs | - | 8 | 1 | 1 |  | - | 20 | 8 | 1
Personal | 511 | 1 | - | - |  | 1,139 | 4 | - | -
Auto | - | 4 | 1 | - |  | - | 6 | 2 | -
Other | 1 | - | 1 | - |  | 21 | - | 2 | -
Total | 659 | 61 | 76 | 84 |  | 1,673 | 192 | 192 | 439

42

The following tables present by class, quantitative information related to loans modified as TDRs during the quarters and nine months ended September 30, 2019 and 2018.

For the quarter ended September 30, 2019
(Dollars in thousands) | Loan count | Pre-modification outstanding recorded investment | Post-modification outstanding recorded investment | Increase (decrease) in the allowance for loan losses as a result of modification
Commercial real estate non-owner occupied | 3 | $ | 16,822 | $ | 16,822 | $ | (86)
Commercial real estate owner occupied | 4 |  | 2,966 |  | 2,959 |  | (48)
Commercial and industrial | 9 |  | 1,436 |  | 1,384 |  | 103
Mortgage | 255 |  | 23,583 |  | 21,907 |  | 746
Leasing | 2 |  | 237 |  | 238 |  | -
Consumer: |  |  |  |  |  |  |
Credit cards | 153 |  | 1,375 |  | 1,355 |  | 109
HELOCs | 4 |  | 276 |  | 246 |  | 25
Personal | 184 |  | 2,546 |  | 2,544 |  | 677
Auto | 1 |  | 7 |  | 7 |  | 1
Other | 7 |  | 31 |  | 31 |  | 2
Total | 622 | $ | 49,279 | $ | 47,493 | $ | 1,529

For the quarter ended September 30, 2018
(Dollars in thousands) | Loan count | Pre-modification outstanding recorded investment | Post-modification outstanding recorded investment | Increase (decrease) in the allowance for loan losses as a result of modification
Commercial multi-family | 1 | $ | 810 | $ | 808 | $ | 63
Commercial real estate non-owner occupied | 4 |  | 1,523 |  | 1,521 |  | 100
Commercial real estate owner occupied | 13 |  | 7,578 |  | 7,525 |  | 160
Commercial and industrial | 27 |  | 2,411 |  | 2,388 |  | 139
Mortgage | 116 |  | 15,143 |  | 13,507 |  | 640
Leasing | 3 |  | 75 |  | 73 |  | 23
Consumer: |  |  |  |  |  |  |
Credit cards | 187 |  | 1,693 |  | 1,838 |  | 234
HELOCs | 10 |  | 913 |  | 906 |  | 66
Personal | 512 |  | 8,026 |  | 8,025 |  | 2,660
Auto | 5 |  | 63 |  | 63 |  | 11
Other | 2 |  | 392 |  | 392 |  | 67
Total | 880 | $ | 38,627 | $ | 37,046 | $ | 4,163

43

Popular, Inc.
For the nine months ended September 30, 2019
(Dollars in thousands) | Loan count | Pre-modification outstanding recorded investment | Post-modification outstanding recorded investment | Increase (decrease) in the allowance for loan losses as a result of modification
Commercial multi-family | 1 | $ | 154 | $ | 116 | $ | (5)
Commercial real estate non-owner occupied | 6 |  | 19,389 |  | 19,379 |  | 721
Commercial real estate owner occupied | 20 |  | 6,378 |  | 6,110 |  | 9
Commercial and industrial | 43 |  | 9,749 |  | 10,219 |  | 888
Mortgage | 630 |  | 64,533 |  | 58,818 |  | 2,104
Leasing | 3 |  | 264 |  | 266 |  | 7
Consumer: |  |  |  |  |  |  |
Credit cards | 557 |  | 4,690 |  | 4,823 |  | 466
HELOCs | 25 |  | 2,359 |  | 2,256 |  | 345
Personal | 532 |  | 8,836 |  | 8,839 |  | 2,312
Auto | 6 |  | 70 |  | 73 |  | 13
Other | 22 |  | 177 |  | 177 |  | 27
Total | 1,845 | $ | 116,599 | $ | 111,076 | $ | 6,887

Popular, Inc.
For the nine months ended September 30, 2018
(Dollars in thousands) | Loan count | Pre-modification outstanding recorded investment | Post-modification outstanding recorded investment | Increase (decrease) in the allowance for loan losses as a result of modification
Commercial multi-family | 2 | $ | 1,377 | $ | 1,375 | $ | 106
Commercial real estate non-owner occupied | 17 |  | 28,969 |  | 28,908 |  | 6,854
Commercial real estate owner occupied | 58 |  | 27,648 |  | 26,433 |  | 1,143
Commercial and industrial | 81 |  | 49,633 |  | 48,882 |  | 13,963
Construction | 1 |  | 4,210 |  | 4,293 |  | 474
Mortgage | 319 |  | 40,741 |  | 36,442 |  | 1,874
Leasing | 4 |  | 98 |  | 96 |  | 30
Consumer: |  |  |  |  |  |  |
Credit cards | 811 |  | 8,097 |  | 8,642 |  | 1,086
HELOCs | 29 |  | 2,638 |  | 2,579 |  | 440
Personal | 1,143 |  | 18,351 |  | 18,346 |  | 5,390
Auto | 8 |  | 139 |  | 122 |  | 21
Other | 23 |  | 595 |  | 593 |  | 98
Total | 2,496 | $ | 182,496 | $ | 176,711 | $ | 31,479

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

44

Popular, Inc.
| Defaulted during the quarter endedSeptember 30, 2019 |  | Defaulted during the nine months ended September 30, 2019
(Dollars in thousands) | Loan count |  | Recorded investment as of first default date |  | Loan count |  | Recorded investment as of first default date
Commercial real estate non-owner occupied | - | $ | - |  | 1 | $ | 47
Commercial real estate owner occupied | 1 |  | 68 |  | 3 |  | 495
Commercial and industrial | 1 |  | 34 |  | 4 |  | 7,082
Mortgage | 32 |  | 2,099 |  | 31 |  | 3,148
Leasing | - |  | - |  | 1 |  | 22
Consumer: |  |  |  |  |  |  |
Credit cards | 68 |  | 551 |  | 222 |  | 2,063
Personal | 62 |  | 1,144 |  | 163 |  | 4,768
Auto | 2 |  | 24 |  | 2 |  | 24
Other | 1 |  | 5 |  | 2 |  | 7
Total | 167 | $ | 3,925 |  | 429 | $ | 17,656

Popular, Inc.
| Defaulted during the quarter endedSeptember 30, 2018 |  | Defaulted during the nine months ended September 30, 2018
(Dollars in thousands) | Loan count |  | Recorded investment as of first default date |  | Loan count |  | Recorded investment as of first default date
Commercial real estate non-owner occupied | - | $ | - |  | 1 | $ | 17
Commercial real estate owner occupied | 1 |  | 255 |  | 4 |  | 392
Commercial and industrial | 1 |  | 5 |  | 7 |  | 81
Mortgage | 42 |  | 5,280 |  | 74 |  | 9,520
Consumer: |  |  |  |  |  |  |
Credit cards | 86 |  | 707 |  | 150 |  | 2,301
HELOCs | 1 |  | 144 |  | 1 |  | 144
Personal | 27 |  | 362 |  | 67 |  | 1,656
Auto | - |  | - |  | 3 |  | 79
Other | 1 |  | 3 |  | 2 |  | 10
Total | 159 | $ | 6,756 |  | 309 | $ | 14,200

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

Credit Quality

The following table presents the outstanding balance, net of unearned income, of loans held-in-portfolio based on the Corporation’s assignment of obligor risk ratings as defined at September 30, 2019 and December 31, 2018. For the definitions of the obligor risk ratings, refer to the Credit Quality section of Note 9 to the Consolidated Financial Statements included in the Corporation’s Form 10K for the year ended December 31, 2018.

45

September 30, 2019
|  |  |  | Special |  |  |  |  |  |  |  |  | Pass/ |  |
(In thousands) | Watch | Mention | Substandard | Doubtful | Loss | Sub-total | Unrated | Total
Puerto Rico |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial multi-family | $ | 2,262 | $ | 3,604 | $ | 2,062 | $ | - | $ | - | $ | 7,928 | $ | 140,622 | $ | 148,550
Commercial real estate non-owner occupied |  | 530,310 |  | 107,723 |  | 272,491 |  | 12,046 |  | - |  | 922,570 |  | 1,174,579 |  | 2,097,149
Commercial real estate owner occupied |  | 201,442 |  | 218,294 |  | 202,055 |  | 1,711 |  | - |  | 623,502 |  | 993,595 |  | 1,617,097
Commercial and industrial |  | 660,142 |  | 100,309 |  | 121,777 |  | 8,113 |  | 9 |  | 890,350 |  | 2,415,507 |  | 3,305,857
| Total Commercial |  | 1,394,156 |  | 429,930 |  | 598,385 |  | 21,870 |  | 9 |  | 2,444,350 |  | 4,724,303 |  | 7,168,653
Construction |  | 947 |  | - |  | 20,535 |  | - |  | - |  | 21,482 |  | 102,590 |  | 124,072
Mortgage |  | 2,239 |  | 1,547 |  | 137,220 |  | - |  | - |  | 141,006 |  | 6,094,570 |  | 6,235,576
Leasing |  | - |  | - |  | 2,690 |  | - |  | 43 |  | 2,733 |  | 1,019,751 |  | 1,022,484
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Credit cards |  | - |  | - |  | 16,459 |  | - |  | - |  | 16,459 |  | 1,019,758 |  | 1,036,217
| HELOCs |  | - |  | - |  | 727 |  | - |  | 171 |  | 898 |  | 4,985 |  | 5,883
| Personal |  | 82 |  | - |  | 18,741 |  | - |  | - |  | 18,823 |  | 1,330,780 |  | 1,349,603
| Auto |  | - |  | - |  | 22,736 |  | - |  | 217 |  | 22,953 |  | 2,824,805 |  | 2,847,758
| Other |  | 492 |  | 11 |  | 14,067 |  | - |  | - |  | 14,570 |  | 127,766 |  | 142,336
| Total Consumer |  | 574 |  | 11 |  | 72,730 |  | - |  | 388 |  | 73,703 |  | 5,308,094 |  | 5,381,797
Total Puerto Rico | $ | 1,397,916 | $ | 431,488 | $ | 831,560 | $ | 21,870 | $ | 440 | $ | 2,683,274 | $ | 17,249,308 | $ | 19,932,582
Popular U.S. |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial multi-family | $ | 70,392 | $ | 13,906 | $ | 8,591 | $ | - | $ | - | $ | 92,889 | $ | 1,507,725 | $ | 1,600,614
Commercial real estate non-owner occupied |  | 82,184 |  | 36,279 |  | 101,886 |  | - |  | - |  | 220,349 |  | 1,733,862 |  | 1,954,211
Commercial real estate owner occupied |  | 31,949 |  | 14,542 |  | 7,133 |  | - |  | - |  | 53,624 |  | 265,495 |  | 319,119
Commercial and industrial |  | 23,671 |  | 366 |  | 50,251 |  | - |  | - |  | 74,288 |  | 1,091,564 |  | 1,165,852
| Total Commercial |  | 208,196 |  | 65,093 |  | 167,861 |  | - |  | - |  | 441,150 |  | 4,598,646 |  | 5,039,796
Construction |  | 31,892 |  | 22,881 |  | 56,613 |  | - |  | - |  | 111,386 |  | 518,598 |  | 629,984
Mortgage |  | - |  | - |  | 9,517 |  | - |  | - |  | 9,517 |  | 923,526 |  | 933,043
Legacy |  | 454 |  | 209 |  | 1,837 |  | - |  | - |  | 2,500 |  | 20,692 |  | 23,192
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Credit cards |  | - |  | - |  | - |  | - |  | - |  | - |  | 78 |  | 78
| HELOCs |  | - |  | - |  | 2,246 |  | - |  | 7,872 |  | 10,118 |  | 114,384 |  | 124,502
| Personal |  | - |  | - |  | 1,379 |  | - |  | 291 |  | 1,670 |  | 322,435 |  | 324,105
| Other |  | - |  | - |  | 6 |  | - |  | - |  | 6 |  | 687 |  | 693
| Total Consumer |  | - |  | - |  | 3,631 |  | - |  | 8,163 |  | 11,794 |  | 437,584 |  | 449,378
Total Popular U.S. | $ | 240,542 | $ | 88,183 | $ | 239,459 | $ | - | $ | 8,163 | $ | 576,347 | $ | 6,499,046 | $ | 7,075,393
Popular, Inc. |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial multi-family | $ | 72,654 | $ | 17,510 | $ | 10,653 | $ | - | $ | - | $ | 100,817 | $ | 1,648,347 | $ | 1,749,164
Commercial real estate non-owner occupied |  | 612,494 |  | 144,002 |  | 374,377 |  | 12,046 |  | - |  | 1,142,919 |  | 2,908,441 |  | 4,051,360
Commercial real estate owner occupied |  | 233,391 |  | 232,836 |  | 209,188 |  | 1,711 |  | - |  | 677,126 |  | 1,259,090 |  | 1,936,216
Commercial and industrial |  | 683,813 |  | 100,675 |  | 172,028 |  | 8,113 |  | 9 |  | 964,638 |  | 3,507,071 |  | 4,471,709
| Total Commercial |  | 1,602,352 |  | 495,023 |  | 766,246 |  | 21,870 |  | 9 |  | 2,885,500 |  | 9,322,949 |  | 12,208,449
Construction |  | 32,839 |  | 22,881 |  | 77,148 |  | - |  | - |  | 132,868 |  | 621,188 |  | 754,056
Mortgage |  | 2,239 |  | 1,547 |  | 146,737 |  | - |  | - |  | 150,523 |  | 7,018,096 |  | 7,168,619
Legacy |  | 454 |  | 209 |  | 1,837 |  | - |  | - |  | 2,500 |  | 20,692 |  | 23,192
Leasing |  | - |  | - |  | 2,690 |  | - |  | 43 |  | 2,733 |  | 1,019,751 |  | 1,022,484
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Credit cards |  | - |  | - |  | 16,459 |  | - |  | - |  | 16,459 |  | 1,019,836 |  | 1,036,295
| HELOCs |  | - |  | - |  | 2,973 |  | - |  | 8,043 |  | 11,016 |  | 119,369 |  | 130,385
| Personal |  | 82 |  | - |  | 20,120 |  | - |  | 291 |  | 20,493 |  | 1,653,215 |  | 1,673,708
| Auto |  | - |  | - |  | 22,736 |  | - |  | 217 |  | 22,953 |  | 2,824,805 |  | 2,847,758
| Other |  | 492 |  | 11 |  | 14,073 |  | - |  | - |  | 14,576 |  | 128,453 |  | 143,029
| Total Consumer |  | 574 |  | 11 |  | 76,361 |  | - |  | 8,551 |  | 85,497 |  | 5,745,678 |  | 5,831,175
Total Popular, Inc. | $ | 1,638,458 | $ | 519,671 | $ | 1,071,019 | $ | 21,870 | $ | 8,603 | $ | 3,259,621 | $ | 23,748,354 | $ | 27,007,975
The following table presents the weighted average obligor risk rating at September 30, 2019 for those classifications that consider a range of rating scales.

46

Weighted average obligor risk rating | (Scales 11 and 12) |  |  |  | (Scales 1 through 8)
Puerto Rico: |  |  |  |  | Substandard |  |  |  |  |  |  | Pass |  |
Commercial multi-family |  |  |  |  |  | 11.87 |  |  |  |  |  |  |  | 6.02 |  |
Commercial real estate non-owner occupied |  |  |  |  |  | 11.15 |  |  |  |  |  |  |  | 6.81 |  |
Commercial real estate owner occupied |  |  |  |  |  | 11.35 |  |  |  |  |  |  |  | 7.27 |  |
Commercial and industrial |  |  |  |  |  | 11.29 |  |  |  |  |  |  |  | 7.14 |  |
| Total Commercial |  |  |  |  |  | 11.25 |  |  |  |  |  |  |  | 7.07 |  |
Construction |  |  |  |  |  | 11.01 |  |  |  |  |  |  |  | 7.85 |  |
Popular U.S. : |  |  |  |  | Substandard |  |  |  |  |  |  | Pass |  |
Commercial multi-family |  |  |  |  |  | 11.24 |  |  |  |  |  |  |  | 7.36 |  |
Commercial real estate non-owner occupied |  |  |  |  |  | 11.00 |  |  |  |  |  |  |  | 6.93 |  |
Commercial real estate owner occupied |  |  |  |  |  | 11.04 |  |  |  |  |  |  |  | 7.47 |  |
Commercial and industrial |  |  |  |  |  | 11.01 |  |  |  |  |  |  |  | 6.60 |  |
| Total Commercial |  |  |  |  |  | 11.02 |  |  |  |  |  |  |  | 7.02 |  |
Construction |  |  |  |  |  | 11.18 |  |  |  |  |  |  |  | 7.72 |  |
Legacy |  |  |  |  |  | 11.34 |  |  |  |  |  |  |  | 7.95 |  |

47

December 31, 2018
|  |  |  | Special |  |  |  |  |  |  |  |  | Pass/ |  |
(In thousands) | Watch | Mention | Substandard | Doubtful | Loss | Sub-total | Unrated | Total
Puerto Rico |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial multi-family | $ | 1,634 | $ | 4,548 | $ | 3,590 | $ | - | $ | - | $ | 9,772 | $ | 135,856 | $ | 145,628
Commercial real estate non-owner occupied |  | 470,506 |  | 233,173 |  | 342,962 |  | - |  | - |  | 1,046,641 |  | 1,275,960 |  | 2,322,601
Commercial real estate owner occupied |  | 262,476 |  | 174,510 |  | 291,468 |  | 2,078 |  | - |  | 730,532 |  | 991,721 |  | 1,722,253
Commercial and industrial |  | 655,092 |  | 130,641 |  | 156,515 |  | 177 |  | 73 |  | 942,498 |  | 2,239,663 |  | 3,182,161
| Total Commercial |  | 1,389,708 |  | 542,872 |  | 794,535 |  | 2,255 |  | 73 |  | 2,729,443 |  | 4,643,200 |  | 7,372,643
Construction |  | 147 |  | 634 |  | 1,788 |  | - |  | - |  | 2,569 |  | 83,386 |  | 85,955
Mortgage |  | 3,057 |  | 2,182 |  | 154,506 |  | - |  | - |  | 159,745 |  | 6,273,578 |  | 6,433,323
Leasing |  | - |  | - |  | 3,301 |  | - |  | 12 |  | 3,313 |  | 931,460 |  | 934,773
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Credit cards |  | - |  | - |  | 16,035 |  | - |  | - |  | 16,035 |  | 1,031,238 |  | 1,047,273
| HELOCs |  | - |  | - |  | 165 |  | - |  | - |  | 165 |  | 5,186 |  | 5,351
| Personal |  | 849 |  | 19 |  | 18,827 |  | - |  | - |  | 19,695 |  | 1,230,930 |  | 1,250,625
| Auto |  | - |  | - |  | 24,093 |  | - |  | 84 |  | 24,177 |  | 2,584,608 |  | 2,608,785
| Other |  | - |  | - |  | 14,743 |  | - |  | 215 |  | 14,958 |  | 129,786 |  | 144,744
| Total Consumer |  | 849 |  | 19 |  | 73,863 |  | - |  | 299 |  | 75,030 |  | 4,981,748 |  | 5,056,778
Total Puerto Rico | $ | 1,393,761 | $ | 545,707 | $ | 1,027,993 | $ | 2,255 | $ | 384 | $ | 2,970,100 | $ | 16,913,372 | $ | 19,883,472
Popular U.S. |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial multi-family | $ | 85,901 | $ | 7,123 | $ | 6,979 | $ | - | $ | - | $ | 100,003 | $ | 1,301,537 | $ | 1,401,540
Commercial real estate non-owner occupied |  | 152,635 |  | 9,839 |  | 46,555 |  | - |  | - |  | 209,029 |  | 1,672,715 |  | 1,881,744
Commercial real estate owner occupied |  | 49,415 |  | 23,963 |  | 2,394 |  | - |  | - |  | 75,772 |  | 223,167 |  | 298,939
Commercial and industrial |  | 5,825 |  | 1,084 |  | 76,459 |  | - |  | - |  | 83,368 |  | 1,004,785 |  | 1,088,153
| Total Commercial |  | 293,776 |  | 42,009 |  | 132,387 |  | - |  | - |  | 468,172 |  | 4,202,204 |  | 4,670,376
Construction |  | 35,375 |  | 37,741 |  | 58,005 |  | - |  | - |  | 131,121 |  | 562,373 |  | 693,494
Mortgage |  | - |  | - |  | 11,032 |  | - |  | - |  | 11,032 |  | 790,903 |  | 801,935
Legacy |  | 534 |  | 224 |  | 2,409 |  | - |  | - |  | 3,167 |  | 22,782 |  | 25,949
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Credit cards |  | - |  | - |  | - |  | - |  | - |  | - |  | 38 |  | 38
| HELOCs |  | - |  | - |  | 2,615 |  | - |  | 10,964 |  | 13,579 |  | 129,473 |  | 143,052
| Personal |  | - |  | - |  | 1,910 |  | - |  | 701 |  | 2,611 |  | 286,738 |  | 289,349
| Other |  | - |  | - |  | 4 |  | - |  | - |  | 4 |  | 220 |  | 224
| Total Consumer |  | - |  | - |  | 4,529 |  | - |  | 11,665 |  | 16,194 |  | 416,469 |  | 432,663
Total Popular U.S. | $ | 329,685 | $ | 79,974 | $ | 208,362 | $ | - | $ | 11,665 | $ | 629,686 | $ | 5,994,731 | $ | 6,624,417
Popular, Inc. |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial multi-family | $ | 87,535 | $ | 11,671 | $ | 10,569 | $ | - | $ | - | $ | 109,775 | $ | 1,437,393 | $ | 1,547,168
Commercial real estate non-owner occupied |  | 623,141 |  | 243,012 |  | 389,517 |  | - |  | - |  | 1,255,670 |  | 2,948,675 |  | 4,204,345
Commercial real estate owner occupied |  | 311,891 |  | 198,473 |  | 293,862 |  | 2,078 |  | - |  | 806,304 |  | 1,214,888 |  | 2,021,192
Commercial and industrial |  | 660,917 |  | 131,725 |  | 232,974 |  | 177 |  | 73 |  | 1,025,866 |  | 3,244,448 |  | 4,270,314
| Total Commercial |  | 1,683,484 |  | 584,881 |  | 926,922 |  | 2,255 |  | 73 |  | 3,197,615 |  | 8,845,404 |  | 12,043,019
Construction |  | 35,522 |  | 38,375 |  | 59,793 |  | - |  | - |  | 133,690 |  | 645,759 |  | 779,449
Mortgage |  | 3,057 |  | 2,182 |  | 165,538 |  | - |  | - |  | 170,777 |  | 7,064,481 |  | 7,235,258
Legacy |  | 534 |  | 224 |  | 2,409 |  | - |  | - |  | 3,167 |  | 22,782 |  | 25,949
Leasing |  | - |  | - |  | 3,301 |  | - |  | 12 |  | 3,313 |  | 931,460 |  | 934,773
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Credit cards |  | - |  | - |  | 16,035 |  | - |  | - |  | 16,035 |  | 1,031,276 |  | 1,047,311
| HELOCs |  | - |  | - |  | 2,780 |  | - |  | 10,964 |  | 13,744 |  | 134,659 |  | 148,403
| Personal |  | 849 |  | 19 |  | 20,737 |  | - |  | 701 |  | 22,306 |  | 1,517,668 |  | 1,539,974
| Auto |  | - |  | - |  | 24,093 |  | - |  | 84 |  | 24,177 |  | 2,584,608 |  | 2,608,785
| Other |  | - |  | - |  | 14,747 |  | - |  | 215 |  | 14,962 |  | 130,006 |  | 144,968
| Total Consumer |  | 849 |  | 19 |  | 78,392 |  | - |  | 11,964 |  | 91,224 |  | 5,398,217 |  | 5,489,441
Total Popular, Inc. | $ | 1,723,446 | $ | 625,681 | $ | 1,236,355 | $ | 2,255 | $ | 12,049 | $ | 3,599,786 | $ | 22,908,103 | $ | 26,507,889
The following table presents the weighted average obligor risk rating at December 31, 2018 for those classifications that consider a range of rating scales.

48

Weighted average obligor risk rating | (Scales 11 and 12) |  |  |  | (Scales 1 through 8)
Puerto Rico: |  |  |  |  | Substandard |  |  |  |  |  |  | Pass |  |
Commercial multi-family |  |  |  |  |  | 11.20 |  |  |  |  |  |  |  | 6.02 |  |
Commercial real estate non-owner occupied |  |  |  |  |  | 11.11 |  |  |  |  |  |  |  | 6.93 |  |
Commercial real estate owner occupied |  |  |  |  |  | 11.29 |  |  |  |  |  |  |  | 7.25 |  |
Commercial and industrial |  |  |  |  |  | 11.33 |  |  |  |  |  |  |  | 7.15 |  |
| Total Commercial |  |  |  |  |  | 11.22 |  |  |  |  |  |  |  | 7.09 |  |
Construction |  |  |  |  |  | 12.00 |  |  |  |  |  |  |  | 7.64 |  |
Popular U.S.: |  |  |  |  | Substandard |  |  |  |  |  |  | Pass |  |
Commercial multi-family |  |  |  |  |  | 11.00 |  |  |  |  |  |  |  | 7.39 |  |
Commercial real estate non-owner occupied |  |  |  |  |  | 11.01 |  |  |  |  |  |  |  | 6.82 |  |
Commercial real estate owner occupied |  |  |  |  |  | 11.16 |  |  |  |  |  |  |  | 7.55 |  |
Commercial and industrial |  |  |  |  |  | 11.96 |  |  |  |  |  |  |  | 7.26 |  |
| Total Commercial |  |  |  |  |  | 11.56 |  |  |  |  |  |  |  | 7.14 |  |
Construction |  |  |  |  |  | 11.21 |  |  |  |  |  |  |  | 7.85 |  |
Legacy |  |  |  |  |  | 11.17 |  |  |  |  |  |  |  | 7.94 |  |

49

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

In connection with the Westernbank FDIC-assisted transaction, BPPR entered into loss-share arrangements with the FDIC with respect to the covered loans and other real estate owned. Pursuant to the terms of the loss-share arrangements, the FDIC’s obligation to reimburse BPPR for losses with respect to covered assets began with the first dollar of loss incurred. The FDIC reimbursed BPPR for 80% of losses with respect to covered assets, and BPPR reimbursed the FDIC for 80% of recoveries with respect to losses for which the FDIC paid reimbursement under loss-share arrangements. The loss-share component of the arrangements applicable to commercial (including construction) and consumer loans expired during the quarter ended June 30, 2015, but the arrangement provided for reimbursement of recoveries to the FDIC to continue through the quarter ending June 30, 2018, and for the single family mortgage loss-share component of such agreement to expire in the quarter ended June 30, 2020.

As of March 31, 2018, the Corporation had an FDIC loss share asset of $44.5 million related to the covered assets. As part of the loss-share agreements, BPPR had agreed to make a true-up payment to the FDIC 45 days following the last day (such day, the “true-up measurement date”) of the final shared-loss month, or upon the final disposition of all covered assets under the loss-share agreements, in the event losses on the loss-share agreements fail to reach expected levels. The estimated fair value of such true-up payment obligation at March 31, 2018 was approximately $171 million and was included as a contingent consideration within the caption of other liabilities in the Consolidated Statements of Financial Condition.

On May 22, 2018, the Corporation entered into a Termination Agreement (the “Termination Agreement”) with the FDIC to terminate all loss-share arrangements in connection with the Westernbank FDIC-assisted transaction. Under the terms of the Termination Agreement, BPPR made a payment of approximately $23.7 million (the “Termination Payment”) to the FDIC as consideration for the termination of the loss-share agreements. Popular recorded a gain of $102.8 million within the FDIC loss share income caption in the Consolidated Statements of Operations calculated based on the difference between the Termination Payment and the net amount of the true-up payment obligation and the FDIC loss share asset.

The following table sets forth the activity in the FDIC loss-share asset for the nine months ended September 30, 2018.

|  | Nine months ended
(In thousands) |  | September 30, 2018
Balance at beginning of period | $ | 46,316
FDIC loss-share Termination Agreement |  | (45,659)
Amortization |  | (934)
Credit impairment losses to be covered under loss-sharing agreements |  | 104
Reimbursable expenses |  | 537
Net payments from FDIC under loss-sharing agreements |  | (364)
Balance at end of period | $ | -
Balance due to the FDIC for recoveries on covered assets |  | -
Balance at end of period | $ | -

As a result of the Termination Agreement, assets that were covered by the loss share agreement, including covered loans in the amount of approximately $514.6 million and covered real estate owned assets in the amount of approximately $15.3 million as of March 31, 2018, were reclassified as non-covered. The Corporation now recognizes entirely all future credit losses, expenses, gains, and recoveries related to the formerly covered assets with no offset due to or from the FDIC.

50

Note 11 – Mortgage banking activities

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

The following table presents the components of mortgage banking activities:

|  | Quarters ended September 30, | Nine months ended September 30,
(In thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Mortgage servicing fees, net of fair value adjustments: |  |  |  |  |  |  |  |
| Mortgage servicing fees | $ | 11,797 | $ | 12,324 | $ | 35,400 | $ | 37,205
| Mortgage servicing rights fair value adjustments |  | (4,842) |  | (4,194) |  | (25,853) |  | (13,123)
Total mortgage servicing fees, net of fair value adjustments |  | 6,955 |  | 8,130 |  | 9,547 |  | 24,082
Net gain on sale of loans, including valuation on loans held-for-sale |  | 5,421 |  | 3,014 |  | 14,653 |  | 6,531
Trading account (loss) profit: |  |  |  |  |  |  |  |
| Unrealized (losses) gains on outstanding derivative positions |  | 227 |  | 45 |  | - |  | (131)
| Realized (losses) gains on closed derivative positions |  | (2,111) |  | 80 |  | (5,555) |  | 2,926
Total trading account (loss) profit |  | (1,884) |  | 125 |  | (5,555) |  | 2,795
Total mortgage banking activities | $ | 10,492 | $ | 11,269 | $ | 18,645 | $ | 33,408

51

Note 12 – Transfers of financial assets and mortgage servicing assets

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

No liabilities were incurred as a result of these securitizations during the quarters and nine months ended September 30, 2019 and 2018 because they did not contain any credit recourse arrangements. During the quarter and nine months ended September 30, 2019, the Corporation recorded a net gain of $4.9 million and $13.4 million, respectively (September 30, 2018 - $2.9 million and $6.2 million, respectively) related to the residential mortgage loans securitized.

The following tables present the initial fair value of the assets obtained as proceeds from residential mortgage loans securitized during the quarters and nine months ended September 30, 2019 and 2018:

|  | Proceeds Obtained During the Quarter Ended September 30, 2019
(In thousands) | Level 1 | Level 2 | Level 3 | Initial Fair Value
Assets |  |  |  |  |  |  |  |
Trading account debt securities: |  |  |  |  |  |  |  |
Mortgage-backed securities - GNMA | $ | - | $ | 88,139 | $ | - | $ | 88,139
Mortgage-backed securities - FNMA |  | - |  | 32,519 |  | - |  | 32,519
Total trading account debt securities | $ | - | $ | 120,658 | $ | - | $ | 120,658
Mortgage servicing rights | $ | - | $ | - | $ | 2,216 | $ | 2,216
Total | $ | - | $ | 120,658 | $ | 2,216 | $ | 122,874

|  | Proceeds Obtained During the Nine Months Ended September 30, 2019
(In thousands) | Level 1 | Level 2 | Level 3 | Initial Fair Value
Assets |  |  |  |  |  |  |  |
Trading account debt securities: |  |  |  |  |  |  |  |
Mortgage-backed securities - GNMA | $ | - | $ | 247,091 | $ | - | $ | 247,091
Mortgage-backed securities - FNMA |  | - |  | 84,021 |  | - |  | 84,021
Total trading account debt securities | $ | - | $ | 331,112 | $ | - | $ | 331,112
Mortgage servicing rights | $ | - | $ | - | $ | 6,028 | $ | 6,028
Total | $ | - | $ | 331,112 | $ | 6,028 | $ | 337,140

|  | Proceeds Obtained During the Quarter Ended September 30, 2018
(In thousands) | Level 1 | Level 2 | Level 3 | Initial Fair Value
Assets |  |  |  |  |  |  |  |
Debt securities available-for-sale: |  |  |  |  |  |  |  |
Mortgage-backed securities - FNMA | $ | - | $ | 2,498 | $ | - | $ | 2,498
Total debt securities available-for-sale | $ | - | $ | 2,498 | $ | - | $ | 2,498
Trading account debt securities: |  |  |  |  |  |  |  |
Mortgage-backed securities - GNMA | $ | - | $ | 109,911 | $ | - | $ | 109,911
Mortgage-backed securities - FNMA |  | - |  | 23,625 |  | - |  | 23,625
Total trading account debt securities | $ | - | $ | 133,536 | $ | - | $ | 133,536
Mortgage servicing rights | $ | - | $ | - | $ | 2,625 | $ | 2,625
Total | $ | - | $ | 136,034 | $ | 2,625 | $ | 138,659

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|  | Proceeds Obtained During the Nine Months Ended September 30, 2018
(In thousands) | Level 1 | Level 2 | Level 3 | Initial Fair Value
Assets |  |  |  |  |  |  |  |
Debt securities available-for-sale: |  |  |  |  |  |  |  |
Mortgage-backed securities - FNMA | $ | - | $ | 9,458 | $ | - | $ | 9,458
Total debt securities available-for-sale | $ | - | $ | 9,458 | $ | - | $ | 9,458
Trading account debt securities: |  |  |  |  |  |  |  |
Mortgage-backed securities - GNMA | $ | - | $ | 319,769 | $ | - | $ | 319,769
Mortgage-backed securities - FNMA |  | - |  | 62,853 |  | - |  | 62,853
Total trading account debt securities | $ | - | $ | 382,622 | $ | - | $ | 382,622
Mortgage servicing rights | $ | - | $ | - | $ | 7,198 | $ | 7,198
Total | $ | - | $ | 392,080 | $ | 7,198 | $ | 399,278

During the nine months ended September 30, 2019, the Corporation retained servicing rights on whole loan sales involving approximately $45 million in principal balance outstanding (September 30, 2018 - $43 million), with realized gains of approximately $1.3 million (September 30, 2018 - gains of $0.6 million). All loan sales performed during the nine months ended September 30, 2019 and 2018 were without credit recourse agreements.

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

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

The following table presents the changes in MSRs measured using the fair value method for the nine months ended September 30, 2019 and 2018.

Residential MSRs
(In thousands) | September 30, 2019 | September 30, 2018
Fair value at beginning of period | $ | 169,777 | $ | 168,031
Additions |  | 6,728 |  | 7,871
Changes due to payments on loans[1] |  | (8,449) |  | (10,194)
Reduction due to loan repurchases |  | (1,411) |  | (2,929)
Changes in fair value due to changes in valuation model inputs or assumptions |  | (15,993) |  | -
Fair value at end of period | $ | 150,652 | $ | 162,779
[1] | Represents changes due to collection / realization of expected cash flows over time. |  |  |  |

Residential mortgage loans serviced for others were $15.0 billion at September 30, 2019 (December 31, 2018 -$15.7 billion).

Net mortgage servicing fees, a component of mortgage banking activities in the Consolidated Statements of Operations, include the changes from period to period in the fair value of the MSRs, including changes due to collection / realization of expected cash flows. The banking subsidiaries receive servicing fees based on a percentage of the outstanding loan balance. These servicing fees are credited to income when they are collected. At September 30, 2019, those weighted average mortgage servicing fees were 0.30% (September 30, 2018 - 0.30%). Under these servicing agreements, the banking subsidiaries do not generally earn significant prepayment penalty fees on the underlying loans serviced.

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The section below includes information on assumptions used in the valuation model of the MSRs, originated and purchased. Key economic assumptions used in measuring the servicing rights derived from loans securitized or sold by the Corporation during the quarters and nine months ended September 30, 2019 and 2018 were as follows:

| Quarters ended |  | Nine months ended |
| September 30, 2019 |  | September 30, 2018 |  | September 30, 2019 |  | September 30, 2018 |
Prepayment speed | 6.8 | % | 4.4 | % | 6.9 | % | 4.4 | %
Weighted average life (in years) | 9.6 |  | 11.4 |  | 9.6 |  | 11.4 |
Discount rate (annual rate) | 10.8 | % | 11.0 | % | 10.9 | % | 11.1 | %

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

|  | Originated MSRs | Purchased MSRs
|  | September 30, | December 31, | September 30, | December 31,
(In thousands) | 2019 | 2018 | 2019 | 2018
Fair value of servicing rights | $ | 59,798 |  | $ | 69,400 |  | $ | 90,854 |  | $ | 100,377 |
Weighted average life (in years) |  | 6.5 |  |  | 7.1 |  |  | 6.0 |  |  | 6.6 |
Weighted average prepayment speed (annual rate) |  | 6.4 | % |  | 5.1 | % |  | 7.0 | % |  | 5.5 | %
| Impact on fair value of 10% adverse change | $ | (1,536) |  | $ | (1,430) |  | $ | (2,562) |  | $ | (2,200) |
| Impact on fair value of 20% adverse change | $ | (3,017) |  | $ | (2,817) |  | $ | (5,014) |  | $ | (4,328) |
Weighted average discount rate (annual rate) |  | 11.4 | % |  | 11.5 | % |  | 11.0 | % |  | 11.0 | %
| Impact on fair value of 10% adverse change | $ | (2,375) |  | $ | (3,125) |  | $ | (3,443) |  | $ | (4,354) |
| Impact on fair value of 20% adverse change | $ | (4,585) |  | $ | (6,019) |  | $ | (6,656) |  | $ | (8,394) |

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

At September 30, 2019, the Corporation serviced $1.2 billion (December 31, 2018 - $1.3 billion) in residential mortgage loans with credit recourse to the Corporation. Refer to Note 21 for information on changes in the Corporation’s liability of estimated losses related to loans serviced with credit recourse.

Under the GNMA securitizations, the Corporation, as servicer, has the right to repurchase (but not the obligation), at its option and without GNMA’s prior authorization, any loan that is collateral for a GNMA guaranteed mortgage-backed security when certain delinquency criteria are met. At the time that individual loans meet GNMA’s specified delinquency criteria and are eligible for repurchase, the Corporation is deemed to have regained effective control over these loans if the Corporation was the pool issuer. At September 30, 2019, the Corporation had recorded $99 million in mortgage loans on its Consolidated Statements of Financial Condition related to this buy-back option program (December 31, 2018 - $134 million). As long as the Corporation continues to service the loans that continue to be collateral in a GNMA guaranteed mortgage-backed security, the MSR is recognized by the Corporation. During the nine months ended September 30, 2019, the Corporation repurchased approximately $88 million (September 30, 2018 - $264 million) of mortgage loans under the GNMA buy-back option program. The determination to repurchase these loans was based on the economic benefits of the transaction, which results in a reduction of the servicing costs for these severely delinquent loans, mostly related to principal and interest advances. Furthermore, the risk associated with the loans is reduced due to their guaranteed nature. The Corporation places these loans under its loss mitigation programs and once brought back to current status, these may be either retained in portfolio or re-sold in the secondary market.

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Note 13 – Other real estate owned

The following tables present the activity related to Other Real Estate Owned (“OREO”), for the quarters and nine months ended September 30, 2019 and 2018.

|  | For the quarter ended September 30, 2019
|  | Non-covered |  | Non-covered |  |
|  | OREO |  | OREO |  |
(In thousands) |  | Commercial/Construction |  | Mortgage |  | Total
Balance at beginning of period | $ | 18,548 | $ | 100,303 | $ | 118,851
Write-downs in value |  | (348) |  | (745) |  | (1,093)
Additions |  | 1,080 |  | 16,572 |  | 17,652
Sales |  | (2,069) |  | (15,182) |  | (17,251)
Other adjustments |  | - |  | (231) |  | (231)
Ending balance | $ | 17,211 | $ | 100,717 | $ | 117,928

|  | For the nine months ended September 30, 2019
|  | Non-covered |  | Non-covered |  |
|  | OREO |  | OREO |  |
(In thousands) |  | Commercial/Construction |  | Mortgage |  | Total
Balance at beginning of period | $ | 21,794 | $ | 114,911 | $ | 136,705
Write-downs in value |  | (1,327) |  | (3,896) |  | (5,223)
Additions |  | 4,259 |  | 41,042 |  | 45,301
Sales |  | (7,515) |  | (50,742) |  | (58,257)
Other adjustments |  | - |  | (598) |  | (598)
Ending balance | $ | 17,211 | $ | 100,717 | $ | 117,928

|  |  | For the quarter ended September 30, 2018
|  |  | Non-covered |  | Non-covered |  |
|  |  | OREO |  | OREO |  |
(In thousands) |  | Commercial/Construction |  | Mortgage |  | Total
Balance at beginning of period | $ | 25,262 | $ | 116,801 | $ | 142,063
Write-downs in value |  | (487) |  | (2,584) |  | (3,071)
Additions |  | 2,006 |  | 11,517 |  | 13,523
Sales |  | (1,309) |  | (17,296) |  | (18,605)
Other adjustments |  | - |  | (130) |  | (130)
Ending balance | $ | 25,472 | $ | 108,308 | $ | 133,780

|  |  | For the nine months ended September 30, 2018
|  |  | Non-covered |  | Non-covered |  | Covered |  |
|  |  | OREO |  | OREO |  | OREO |  |
(In thousands) |  | Commercial/Construction |  | Mortgage |  | Mortgage |  | Total
Balance at beginning of period | $ | 21,411 | $ | 147,849 | $ | 19,595 | $ | 188,855
Write-downs in value |  | (1,889) |  | (9,123) |  | (287) |  | (11,299)
Additions |  | 9,047 |  | 17,047 |  | - |  | 26,094
Sales |  | (3,932) |  | (62,051) |  | (3,282) |  | (69,265)
Other adjustments |  | 835 |  | (747) |  | (693) |  | (605)
Transfer to non-covered status[1] |  | - |  | 15,333 |  | (15,333) |  | -
Ending balance | $ | 25,472 | $ | 108,308 | $ | - | $ | 133,780
[1] | Represents the reclassification of OREOs to the non-covered category, pursuant to the Termination Agreement of all shared-loss agreements with the Federal Deposit Insurance Corporation related to loans acquired from Westernbank, that was completed on May 22, 2018.

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Note 14 − Other assets

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

(In thousands) | September 30, 2019 | December 31, 2018
Net deferred tax assets (net of valuation allowance) | $ | 909,638 | $ | 1,049,895
Investments under the equity method |  | 236,551 |  | 228,072
Prepaid taxes |  | 38,622 |  | 33,842
Other prepaid expenses |  | 91,115 |  | 82,742
Derivative assets |  | 15,234 |  | 13,603
Trades receivable from brokers and counterparties |  | 67,050 |  | 40,088
Principal, interest and escrow servicing advances |  | 84,060 |  | 88,371
Guaranteed mortgage loan claims receivable |  | 95,424 |  | 59,613
Operating ROU assets (Note 29) |  | 137,076 |  | -
Finance ROU assets (Note 29) |  | 12,663 |  | -
Others |  | 123,757 |  | 117,908
Total other assets | $ | 1,811,190 | $ | 1,714,134

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Note 15 – Goodwill and other intangible assets

Goodwill

There were no changes in the carrying amount of goodwill for the quarters and nine months ended September 30, 2019.

The changes in the carrying amount of goodwill for the nine months ended September 30, 2018, allocated by reportable segments, were as follows (refer to Note 35 for the definition of the Corporation’s reportable segments):

2018
|  |  |  |  | Purchase |  |  |  |
| Balance at | Goodwill on | accounting | Goodwill | Balance at
(In thousands) | January 1, 2018 | acquisition | adjustments | impairment | September 30, 2018
Banco Popular de Puerto Rico | $ | 276,420 | $ | 60,242 | $ | - | $ | - | $ | 336,662
Popular U.S. |  | 350,874 |  | - |  | - |  | - |  | 350,874
Total Popular, Inc. | $ | 627,294 | $ | 60,242 | $ | - | $ | - | $ | 687,536

The goodwill recognized during the quarter ended September 30, 2018 in the reportable segment of Banco Popular de Puerto Rico of $60.2 million was related to the Reliable Transaction. Refer to Note 4, Business combination, for additional information.

Other Intangible Assets

At September 30, 2019 and December 31, 2018, the Corporation had $6.1 million of identifiable intangible assets with indefinite useful lives, mostly associated with the E-LOAN trademark.

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

|  | Gross Carrying |  | Accumulated |  | Net Carrying
(In thousands) |  | Amount |  | Amortization |  | Value
September 30, 2019 |  |  |  |  |  |
| Core deposits | $ | 37,224 | $ | 28,861 | $ | 8,363
| Other customer relationships |  | 36,644 |  | 30,065 |  | 6,579
| Trademark |  | 488 |  | 114 |  | 374
Total other intangible assets | $ | 74,356 | $ | 59,040 | $ | 15,316
December 31, 2018 |  |  |  |  |  |
| Core deposits | $ | 37,224 | $ | 26,070 | $ | 11,154
| Other customer relationships |  | 34,915 |  | 25,847 |  | 9,068
| Trademark |  | 488 |  | 41 |  | 447
Total other intangible assets | $ | 72,627 | $ | 51,958 | $ | 20,669

During the quarter ended September 30, 2019, the Corporation recognized $ 2.4 million in amortization expense related to other intangible assets with definite useful lives (September 30, 2018 - $ 2.3 million). During the nine months ended September 30, 2019, the Corporation recognized $ 7.1 million in amortization related to other intangible assets with definite useful lives (September 30, 2018 - $ 7.0 million).

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

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(In thousands) |  |
Remaining 2019 | $ | 2,288
Year 2020 |  | 5,410
Year 2021 |  | 2,600
Year 2022 |  | 1,724
Year 2023 |  | 1,684
Later years |  | 1,610

Results of the Annual Goodwill Impairment Test

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

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

The Corporation performed the annual goodwill impairment evaluation for the entire organization during the third quarter of 2019 using July 31, 2019 as the annual evaluation date. The reporting units utilized for this evaluation were those that are one level below the business segments, which are the legal entities within the reportable segment. The Corporation follows push-down accounting, as such all goodwill is assigned to the reporting units when carrying out a business combination.

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

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

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

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a selection of comparable acquisition and capital raising transactions;

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

the potential future earnings of the reporting unit; and

the market growth and new business assumptions.

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

For purposes of the discounted cash flows (“DCF”) approach, the valuation is based on estimated future cash flows. The financial projections used in the DCF valuation analysis for each reporting unit are based on the most recent (as of the valuation date) financial projections presented to the Corporation’s Asset / Liability Management Committee (“ALCO”). The growth assumptions included in these projections are based on management’s expectations for each reporting unit’s financial prospects considering economic and industry conditions as well as particular plans of each entity (i.e. restructuring plans, de-leveraging, etc.). The cost of equity used to discount the cash flows was calculated using the Ibbotson Build-Up Method and ranged from 11.14% to 12.58% for the 2019 analysis. The Ibbotson Build-Up Method builds up a cost of equity starting with the rate of return of a “risk-free” asset (20-year U.S. Treasury note) and adds to it additional risk elements such as equity risk premium, size premium and industry risk premium. The resulting discount rates were analyzed in terms of reasonability given the current market conditions and adjustments were made when necessary.

BPPR passed Step 1 in the annual test as of July 31, 2019. The results indicated that the average estimated fair value calculated in Step 1 using all valuation methodologies exceeded BPPR’s equity value by approximately $1.2 billion or 37%. Accordingly, there was no indication of impairment on the goodwill recorded in BPPR at July 31, 2019 and there was no need for a Step 2 analysis.

PB also passed Step 1 in the annual test as of July 31, 2019. The results indicated that the average estimated fair value calculated in Step 1 using all valuation methodologies exceeded PB’s equity value by approximately $338 million or 21%. Accordingly, there was no indication of impairment on the goodwill recorded in PB at July 31, 2019 and there was no need for a Step 2 analysis.

The goodwill balance of BPPR and PB, as legal entities, represented approximately 91% of the Corporation’s total goodwill balance as of the July 31, 2019 valuation date.

Furthermore, as part of the analyses, management performed a reconciliation of the aggregate fair values determined for the reporting units to the market capitalization of the Corporation concluding that the fair value results determined for the reporting units in the July 31, 2019 annual assessment were reasonable.

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

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

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

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September 30, 2019
| Balance at |  |  | Balance at | Balance at |  |  | Balance at
| January 1, | Accumulated | January 1, | September 30, | Accumulated | September 30,
| 2019 | impairment | 2019 | 2019 | impairment | 2019
(In thousands) | (gross amounts) | losses | (net amounts) | (gross amounts) | losses | (net amounts)
Banco Popular de Puerto Rico | $ | 324,049 | $ | 3,801 | $ | 320,248 | $ | 324,049 | $ | 3,801 | $ | 320,248
Popular U.S. |  | 515,285 |  | 164,411 |  | 350,874 |  | 515,285 |  | 164,411 |  | 350,874
Total Popular, Inc. | $ | 839,334 | $ | 168,212 | $ | 671,122 | $ | 839,334 | $ | 168,212 | $ | 671,122

December 31, 2018
| Balance at |  |  | Balance at | Balance at |  |  | Balance at
| January 1, | Accumulated | January 1, | December 31, | Accumulated | December 31,
| 2018 | impairment | 2018 | 2018 | impairment | 2018
(In thousands) | (gross amounts) | losses | (net amounts) | (gross amounts) | losses | (net amounts)
Banco Popular de Puerto Rico | $ | 280,221 | $ | 3,801 | $ | 276,420 | $ | 324,049 | $ | 3,801 | $ | 320,248
Popular U.S. |  | 515,285 |  | 164,411 |  | 350,874 |  | 515,285 |  | 164,411 |  | 350,874
Total Popular, Inc. | $ | 795,506 | $ | 168,212 | $ | 627,294 | $ | 839,334 | $ | 168,212 | $ | 671,122

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Note 16 – Deposits

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

(In thousands) | September 30, 2019 | December 31, 2018
Savings accounts | $ | 10,602,678 | $ | 9,722,824
NOW, money market and other interest bearing demand deposits |  | 16,995,390 |  | 13,221,415
Total savings, NOW, money market and other interest bearing demand deposits |  | 27,598,068 |  | 22,944,239
Certificates of deposit: |  |  |  |
| Under $100,000 |  | 3,259,238 |  | 3,260,330
| $100,000 and over |  | 4,536,919 |  | 4,356,434
Total certificates of deposit |  | 7,796,157 |  | 7,616,764
Total interest bearing deposits | $ | 35,394,225 | $ | 30,561,003

A summary of certificates of deposit by maturity at September 30, 2019 follows:

(In thousands) |  |
2019 | $ | 2,444,749
2020 |  | 2,429,159
2021 |  | 1,094,553
2022 |  | 734,807
2023 |  | 514,984
2024 and thereafter |  | 577,905
Total certificates of deposit | $ | 7,796,157

At September 30, 2019, the Corporation had brokered deposits amounting to $ 0.6 billion (December 31, 2018 - $ 0.5 billion).

The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans was $5 million at September 30, 2019 (December 31, 2018 - $5 million).

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Note 17 – Borrowings

Assets sold under agreements to repurchase amounted $213 million at September 30, 2019 and $282 million December 31, 2018.

The Corporation’s repurchase transactions are overcollateralized with the securities detailed in the table below. The Corporation’s repurchase agreements have a right of set-off with the respective counterparty under the supplemental terms of the master repurchase agreements. In an event of default each party has a right of set-off against the other party for amounts owed in the related agreement and any other amount or obligation owed in respect of any other agreement or transaction between them. Pursuant to the Corporation’s accounting policy, the repurchase agreements are not offset with other repurchase agreements held with the same counterparty.

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

Repurchase agreements accounted for as secured borrowings

|  | September 30, 2019 | December 31, 2018
|  |  | Repurchase |  | Repurchase |
(In thousands) |  | liability |  | liability |
U.S. Treasury securities |  |  |  |  |
| Within 30 days | $ | 9,400 | $ | 138,689 |
| After 30 to 90 days |  | 29,386 |  | 79,374 |
| After 90 days |  | 142,818 |  | 19,558 |
Total U.S. Treasury securities |  | 181,604 |  | 237,621 |
Obligations of U.S. government sponsored entities |  |  |  |  |
| After 30 to 90 days |  | - |  | 6,055 |
Total obligations of U.S. government sponsored entities |  | - |  | 6,055 |
Mortgage-backed securities |  |  |  |  |
| Within 30 days |  | 30,184 |  | 6,859 |
| After 90 days |  | - |  | 20,465 |
Total mortgage-backed securities |  | 30,184 |  | 27,324 |
Collateralized mortgage obligations |  |  |  |  |
| Within 30 days |  | 1,309 |  | 10,529 |
Total collateralized mortgage obligations |  | 1,309 |  | 10,529 |
Total | $ | 213,097 | $ | 281,529 |

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

There were no other short-term borrowings outstanding at September 30, 2019, compared to $42 thousand at December 31, 2018.

The following table presents the composition of notes payable at September 30, 2019 and December 31, 2018.

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(In thousands) | September 30, 2019 |  | December 31, 2018
Advances with the FHLB with maturities ranging from 2019 through 2029 paying interest at monthly fixed rates ranging from 1.04% to 4.19% | $ | 472,355 |  | $ | 524,052
Advances with the FHLB paying interest monthly at a floating rate |  | - |  |  | 13,000
Advances with the FHLB maturing on 2019 paying interest quarterly at a floating rate of 0.24% over the 3 month LIBOR |  | 14,430 |  |  | 19,724
Unsecured senior debt securities maturiting on 2023 paying interest semiannually at a fixed rate of 6.125%, net of debt issuance costs of $ 5,010 |  | 294,990 |  |  | 294,039
Junior subordinated deferrable interest debentures (related to trust preferred securities) with maturities ranging from 2033 to 2034 with fixed interest rates ranging from 6.125% to 6.7%, net of debt issuance costs of $402 |  | 384,895 |  |  | 384,875
Capital lease obligations |  | - |  |  | 20,412
Total notes payable | $ | 1,166,670 |  | $ | 1,256,102
Note: Refer to the Corporation's 2018 Form 10-K for rates information at December 31, 2018.

A breakdown of borrowings by contractual maturities at September 30, 2019 is included in the table below.

| Assets sold under |  |  |
(In thousands) | agreements to repurchase | Notes payable |  | Total
2019 | $ | 70,279 | $ | 65,309 |  | $ | 135,588
2020 |  | 142,818 |  | 139,996 |  |  | 282,814
2021 |  | - |  | 50,040 |  |  | 50,040
2022 |  | - |  | 103,148 |  |  | 103,148
2023 |  | - |  | 318,251 |  |  | 318,251
Later years |  | - |  | 489,926 |  |  | 489,926
Total borrowings | $ | 213,097 | $ | 1,166,670 |  | $ | 1,379,767

At September 30, 2019 and December 31, 2018, the Corporation had FHLB borrowing facilities whereby the Corporation could borrow up to $3.7 billion and $3.4 billion, respectively, of which $0.5 billion and $0.6 billion, respectively, were used. In addition, at September 30, 2019 and December 31, 2018, the Corporation had placed $0.8 billion and $0.9 billion, respectively, of the available FHLB credit facility as collateral for a municipal letter of credit to secure deposits. The FHLB borrowing facilities are collateralized with LHIP, and do not have restrictive covenants or callable features.

Also, at September 30, 2019, the Corporation has a borrowing facility at the discount window of the Federal Reserve Bank of New York amounting to $1.1 billion (2018 - $1.2 billion), which remained unused at September 30, 2019 and December 31, 2018. The facility is a collateralized source of credit that is highly reliable even under difficult market conditions.

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Note 18 − Other liabilities

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

(In thousands) | September 30, 2019 | December 31, 2018
Accrued expenses | $ | 249,979 | $ | 276,120
Accrued interest payable |  | 37,411 |  | 44,638
Accounts payable |  | 71,366 |  | 66,381
Dividends payable |  | 29,016 |  | 25,092
Trades payable |  | 26,782 |  | 64
Liability for GNMA loans sold with an option to repurchase |  | 98,758 |  | 134,260
Reserves for loan indemnifications |  | 49,204 |  | 67,066
Reserve for operational losses |  | 41,501 |  | 40,921
Operating lease liabilities (Note 29) |  | 152,421 |  | -
Finance lease liabilities (Note 29) |  | 19,606 |  | -
Pension benefit obligation |  | 45,239 |  | 68,736
Postretirement benefit obligation |  | 154,304 |  | 153,415
Others |  | 50,418 |  | 45,115
Total other liabilities | $ | 1,026,005 | $ | 921,808

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Note 19 – Stockholders’ equity

As of September 30, 2019, stockholder’s equity totaled $5.9 billion. During the nine months ended September 30, 2019, the Corporation declared cash dividends on its common stock of $ 87.0 million (September 30, 2018 - $76.2

million). The quarterly dividend declared to shareholders of record as of the close of business on August 30, 2019, which amounted to $29.0 million, was paid on October 1, 2019

. Dividends per share declared for the quarter and nine months ended September 30, 2019 were $0.30 and $0.90, respectively (2018 - $0.25 and $0.75, respectively).

During the quarter ended September 30, 2018, the Corporation entered into a $125 million accelerated share repurchase transaction (“ASR”) and, in connection therewith, received an initial delivery of 2,000,000 shares of common stock (the “Initial Shares”), which was accounted for as a treasury stock transaction. As a result of the receipt of the Initial Shares, the Corporation recognized in shareholders’ equity approximately $102 million in treasury stock and $23 million as a reduction of capital surplus. The Corporation completed the ASR during the fourth quarter of 2018 and received 438,180 additional shares of common stock. The final number of shares delivered at settlement was based on the average daily volume weighted average price (“VWAP”) of its common stock, net of a discount, during the term of the ASR of $51.27.

On February 28, 2019, the Corporation entered into a $250 million “ASR” transaction with respect to its common stock, which was accounted for as a treasury stock transaction. As a result of the receipt of the initial shares, the Corporation recognized in shareholders’ equity approximately $200 million in treasury stock and $50 million as a reduction in capital surplus. The Corporation expects to further adjust its treasury stock and capital surplus accounts to reflect the delivery or receipt of cash or shares upon the termination of the ASR agreement, which will depend on the average price of the Corporation’s shares during the term of the ASR.

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Note 20 – Other comprehensive loss

The following table presents changes in accumulated other comprehensive loss by component for the quarters and nine months ended September 30, 2019 and 2018.

|  | Changes in Accumulated Other Comprehensive Loss by Component [1]
|  |  |  | Quarters ended | Nine months ended
|  |  | September 30, | September 30,
(In thousands) |  |  | 2019 |  | 2018 |  | 2019 |  | 2018
Foreign currency translation | Beginning Balance | $ | (52,378) | $ | (46,397) | $ | (49,936) | $ | (43,034)
|  | Other comprehensive income (loss) |  | 155 |  | (605) |  | (2,287) |  | (3,968)
|  | Net change |  | 155 |  | (605) |  | (2,287) |  | (3,968)
|  | Ending balance | $ | (52,223) | $ | (47,002) | $ | (52,223) | $ | (47,002)
Adjustment of pension and postretirement benefit plans | Beginning Balance | $ | (196,491) | $ | (199,895) | $ | (203,836) | $ | (205,408)
|  | Amounts reclassified from accumulated other comprehensive loss for amortization of net losses |  | 3,673 |  | 3,285 |  | 11,018 |  | 9,856
|  | Amounts reclassified from accumulated other comprehensive loss for amortization of prior service credit |  | - |  | (529) |  | - |  | (1,587)
|  | Net change |  | 3,673 |  | 2,756 |  | 11,018 |  | 8,269
|  | Ending balance | $ | (192,818) | $ | (197,139) | $ | (192,818) | $ | (197,139)
Unrealized net holding gains (losses) on debt securities | Beginning Balance | $ | 58,044 | $ | (250,422) | $ | (173,811) | $ | (102,775)
|  | Other comprehensive income (loss) |  | 50,970 |  | (39,845) |  | 282,825 |  | (187,492)
|  | Amounts reclassified from accumulated other comprehensive income (loss) for loss on securities |  | 16 |  | - |  | 16 |  | -
|  | Net change |  | 50,986 |  | (39,845) |  | 282,841 |  | (187,492)
|  | Ending balance | $ | 109,030 | $ | (290,267) | $ | 109,030 | $ | (290,267)
Unrealized holding gains on equity securities | Beginning Balance | $ | - | $ | - | $ | - | $ | 605
|  | Reclassification to retained earnings due to cumulative effect adjustment of accounting change |  | - |  | - |  | - |  | (605)
|  | Net change |  | - |  | - |  | - |  | (605)
|  | Ending balance | $ | - | $ | - | $ | - | $ | -
Unrealized net (losses) gains on cash flow hedges | Beginning Balance | $ | (388) | $ | (78) | $ | (391) | $ | (40)
|  | Reclassification to retained earnings due to cumulative effect adjustment of accounting change |  | - |  | - |  | (50) |  | -
|  | Other comprehensive (loss) income before reclassifications |  | (3,201) |  | 208 |  | (4,349) |  | 790
|  | Amounts reclassified from accumulated other comprehensive loss |  | 720 |  | 89 |  | 1,921 |  | (531)
|  | Net change |  | (2,481) |  | 297 |  | (2,478) |  | 259
|  | Ending balance | $ | (2,869) | $ | 219 | $ | (2,869) | $ | 219
|  | Total | $ | (138,880) | $ | (534,189) | $ | (138,880) | $ | (534,189)
[1] | All amounts presented are net of tax. |  |  |  |  |  |  |  |

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The following table presents the amounts reclassified out of each component of accumulated other comprehensive loss during the quarters and nine months ended September 30, 2019 and 2018.

|  | Reclassifications Out of Accumulated Other Comprehensive Loss
|  |  |  | Quarters ended | Nine months ended
|  | Affected Line Item in the | September 30, | September 30,
(In thousands) | Consolidated Statements of Operations |  | 2019 |  | 2018 |  | 2019 |  | 2018
Adjustment of pension and postretirement benefit plans |  |  |  |  |  |  |  |  |
| Amortization of net losses | Personnel costs | $ | (5,877) | $ | (5,386) | $ | (17,629) | $ | (16,157)
| Amortization of prior service credit | Personnel costs |  | - |  | 868 |  | - |  | 2,603
|  | Total before tax |  | (5,877) |  | (4,518) |  | (17,629) |  | (13,554)
|  | Income tax benefit |  | 2,204 |  | 1,762 |  | 6,611 |  | 5,285
|  | Total net of tax | $ | (3,673) | $ | (2,756) | $ | (11,018) | $ | (8,269)
Unrealized holding gains (losses) on debt securities |  |  |  |  |  |  |  |  |
| Realized loss on sale of debt securities | Net loss on sale of debt securities |  | (20) |  | - |  | (20) |  | -
|  | Total before tax |  | (20) |  | - |  | (20) |  | -
|  | Income tax benefit |  | 4 |  | - |  | 4 |  | -
|  | Total net of tax | $ | (16) | $ | - | $ | (16) | $ | -
Unrealized net (losses) gains on cash flow hedges |  |  |  |  |  |  |  |  |
| Forward contracts | Mortgage banking activities | $ | (1,337) | $ | (147) | $ | (3,258) | $ | 870
| Interest rate swaps | Other operating income |  | 116 |  | - |  | 116 |  | -
|  | Total before tax |  | (1,221) |  | (147) |  | (3,142) |  | 870
|  | Income tax benefit (expense) |  | 501 |  | 58 |  | 1,221 |  | (339)
|  | Total net of tax | $ | (720) | $ | (89) | $ | (1,921) | $ | 531
|  | Total reclassification adjustments, net of tax | $ | (4,409) | $ | (2,845) | $ | (12,955) | $ | (7,738)

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Note 21 – Guarantees

At September 30, 2019, the Corporation recorded a liability of $0.2 million (December 31, 2018 - $0.3 million), which represents the unamortized balance of the obligations undertaken in issuing the guarantees under the standby letters of credit. Management does not anticipate any material losses related to these instruments.

From time to time, the Corporation securitized mortgage loans into guaranteed mortgage-backed securities subject to limited, and in certain instances, lifetime credit recourse on the loans that serve as collateral for the mortgage-backed securities. The Corporation has not sold any mortgage loans subject to credit recourse since 2009. At September 30, 2019, the Corporation serviced $1.2 billion (December 31, 2018 - $1.3 billion) in residential mortgage loans subject to credit recourse provisions, principally loans associated with FNMA and FHLMC residential mortgage loan securitization programs. In the event of any customer default, pursuant to the credit recourse provided, the Corporation is required to repurchase the loan or reimburse the third party investor for the incurred loss. The maximum potential amount of future payments that the Corporation would be required to make under the recourse arrangements in the event of nonperformance by the borrowers is equivalent to the total outstanding balance of the residential mortgage loans serviced with recourse and interest, if applicable. During the quarter and nine months ended September 30, 2019, the Corporation repurchased approximately $15 million and $38 million, respectively, of unpaid principal balance in mortgage loans subject to the credit recourse provisions (September 30, 2018 - $4 million and $13 million, respectively). In the event of nonperformance by the borrower, the Corporation has rights to the underlying collateral securing the mortgage loan. The Corporation suffers ultimate losses on these loans when the proceeds from a foreclosure sale of the property underlying a defaulted mortgage loan are less than the outstanding principal balance of the loan plus any uncollected interest advanced and the costs of holding and disposing the related property. At September 30, 2019, the Corporation’s liability established to cover the estimated credit loss exposure related to loans sold or serviced with credit recourse amounted to $45 million (December 31, 2018 - $56 million).

The following table shows the changes in the Corporation’s liability of estimated losses related to loans serviced with credit recourse provisions during the quarters and nine months ended September 30, 2019 and 2018.

|  | Quarters ended September 30, |  |  | Nine months ended September 30,
(In thousands) | 2019 | 2018 |  | 2019 | 2018
Balance as of beginning of period | $ | 48,100 | $ | 57,425 |  | $ | 56,230 | $ | 58,820
Provision for recourse liability |  | 2,755 |  | 3,000 |  |  | 3,711 |  | 5,991
Net charge-offs |  | (5,394) |  | (2,678) |  |  | (14,480) |  | (7,064)
Balance as of end of period | $ | 45,461 | $ | 57,747 |  | $ | 45,461 | $ | 57,747

When the Corporation sells or securitizes mortgage loans, it generally makes customary representations and warranties regarding the characteristics of the loans sold. To the extent the loans do not meet specified characteristics, the Corporation may be required to repurchase such loans or indemnify for losses and bear any subsequent loss related to the loans. There were no repurchases of loans under representation and warranty arrangements during the quarter and nine months period ended September 30, 2019, compared to $2 million and $12 million, respectively for the same periods of last year. A substantial amount of these loans reinstates to performing status or have mortgage insurance, and thus the ultimate losses on the loans are not deemed significant.

From time to time, the Corporation sells loans and agrees to indemnify the purchaser for credit losses or any breach of certain representations and warranties made in connection with the sale. The following table presents the changes in the Corporation’s liability for estimated losses associated with indemnifications and representations and warranties related to loans sold by BPPR for the quarters and nine months ended September 30, 2019 and 2018.

|  | Quarters ended September 30, |  | Nine months ended September 30,
(In thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Balance as of beginning of period | $ | 3,825 | $ | 11,153 | $ | 10,837 | $ | 11,742
Provision (reversal) for representation and warranties |  | (81) |  | (104) |  | (4,488) |  | 194
Net charge-offs |  | - |  | (39) |  | (75) |  | (926)
Settlements paid |  | - |  | - |  | (2,530) |  | -
Balance as of end of period | $ | 3,744 | $ | 11,010 | $ | 3,744 | $ | 11,010

During the second quarter of 2019, the Corporation recorded the release of a $4.4 million reserve taken in connection with a sale of loans completed during the year 2013.

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Servicing agreements relating to the mortgage-backed securities programs of FNMA and GNMA, and to mortgage loans sold or serviced to certain other investors, including FHLMC, require the Corporation to advance funds to make scheduled payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers. At September 30, 2019, the Corporation serviced $15.0 billion in mortgage loans for third-parties, including the loans serviced with credit recourse (December 31, 2018 - $15.7 billion). The Corporation generally recovers funds advanced pursuant to these arrangements from the mortgage owner, from liquidation proceeds when the mortgage loan is foreclosed or, in the case of FHA/VA loans, under the applicable FHA and VA insurance and guarantees programs. However, in the meantime, the Corporation must absorb the cost of the funds it advances during the time the advance is outstanding. The Corporation must also bear the costs of attempting to collect on delinquent and defaulted mortgage loans. In addition, if a defaulted loan is not cured, the mortgage loan would be canceled as part of the foreclosure proceedings and the Corporation would not receive any future servicing incom e with respect to that loan. At September 30, 2019, the outstanding balance of funds advanced by the Corporation under such mortgage loan servicing agreements was approximately $84 million (December 31, 2018 - $88 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 addition al administrative costs related to increases in collection efforts.Popular, Inc. Holding Company (“PIHC”) fully and unconditionally guarantees certain borrowing obligations issued by certain of its 100% owned consolidated subsidiaries amounting to $94 million at September 30, 2019 and December 31, 2018. In addition, at September 30, 2019 and December 31, 2018, PIHC fully and unconditionally guaranteed on a subordinated basis $374 million of capital securities (trust preferred securities) issued by wholly-owned issuing trust entities to the extent set forth in the applicable guarantee agreement. Refer to Note 20 to the Consolidated Financial Statements in the 2018 Form 10-K for further information on the trust preferred securities.

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Note 22 – Commitments and contingencies

Off-balance sheet risk

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

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

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

(In thousands) | September 30, 2019 | December 31, 2018
Commitments to extend credit: |  |  |  |
| Credit card lines | $ | 4,575,290 | $ | 4,468,481
| Commercial and construction lines of credit |  | 2,854,512 |  | 2,751,390
| Other consumer unused credit commitments |  | 260,098 |  | 254,491
Commercial letters of credit |  | 4,798 |  | 2,695
Standby letters of credit |  | 79,400 |  | 26,479
Commitments to originate or fund mortgage loans |  | 45,814 |  | 22,629

At September 30, 2019 and December 31, 2018, the Corporation maintained a reserve of approximately $8 million for potential losses associated with unfunded loan commitments related to commercial and consumer lines of credit.

Business concentration

Since the Corporation’s business activities are concentrated primarily in Puerto Rico, its results of operations and financial condition are dependent upon the general trends of the Puerto Rico economy and, in particular, the residential and commercial real estate markets. The concentration of the Corporation’s operations in Puerto Rico exposes it to greater risk than other banking companies with a wider geographic base. Its asset and revenue composition by geographical area is presented in Note 35 to the Consolidated Financial Statements.

Puerto Rico remains in the midst of a profound fiscal and economic crisis. In response to such crisis, the U.S. Congress enacted the Puerto Rico Oversight Management and Economic Stability Act (“PROMESA”) in 2016, which, among other things, established a Fiscal Oversight and Management Board for Puerto Rico (the “Oversight Board”) and a framework for the restructuring of the debts of the Commonwealth, its instrumentalities and municipalities. The Commonwealth and several of its instrumentalities have commenced debt restructuring proceedings under PROMESA. As of the date of this report, while municipalities have been recently designated as covered entities under PROMESA, no municipality has commenced, or has been authorized by the Oversight Board to commence, any such debt restructuring proceeding under PROMESA.

At September 30, 2019 and December 31, 2018, the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities totaled $432 million and $458 million, respectively, which amounts were fully outstanding on such dates. Of this amount, $391 million consists of loans and $41 million are securities ($413 million and $ 45 million at December 31, 2018). Substantially all of the amount outstanding at September 30, 2019 were obligations from various Puerto Rico municipalities. In most cases, these were “general obligations” of a municipality, to which the applicable municipality has pledged its good faith, credit and unlimited taxing power, or “special obligations” of a municipality, to which the applicable municipality has pledged other revenues. At September 30, 2019, 75% of the Corporation’s exposure to municipal loans and securities was concentrated in the municipalities of San Juan, Guaynabo, Carolina and Bayamón. On July 1, 2019 the Corporation received principal payments amounting to $22 million from various obligations from Puerto Rico municipalities.

The following table details the loans and investments representing the Corporation’s direct exposure to the Puerto Rico government according to their maturities as of September 30, 2019:

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(In thousands) |  | Investment Portfolio |  | Loans |  | Total Outstanding |  | Total Exposure
Central Government |  |  |  |  |  |  |  |
After 1 to 5 years | $ | 7 | $ | - | $ | 7 | $ | 7
After 5 to 10 years |  | 35 |  | - |  | 35 |  | 35
After 10 years |  | 549 |  | - |  | 549 |  | 549
Total Central Government |  | 591 |  | - |  | 591 |  | 591
Municipalities |  |  |  |  |  |  |  |
Within 1 year |  | 3,745 |  | 78,108 |  | 81,853 |  | 81,853
After 1 to 5 years |  | 17,580 |  | 139,283 |  | 156,863 |  | 156,863
After 5 to 10 years |  | 18,195 |  | 82,967 |  | 101,162 |  | 101,162
After 10 years |  | 655 |  | 90,601 |  | 91,256 |  | 91,256
Total Municipalities |  | 40,175 |  | 390,959 |  | 431,134 |  | 431,134
Total Direct Government Exposure | $ | 40,766 | $ | 390,959 | $ | 431,725 | $ | 431,725

In addition, at September 30, 2019, the Corporation had $355 million in loans insured or securities issued by Puerto Rico governmental entities but for which the principal source of repayment is non-governmental ($368 million at December 31, 2018). These included $281 million in residential mortgage loans insured by the Puerto Rico Housing Finance Authority (“HFA”), a governmental instrumentality that has been designated as a covered entity under PROMESA (December 31, 2018 - $293 million). These mortgage loans are secured by first mortgages on Puerto Rico residential properties and the HFA insurance covers losses in the event of a borrower default and subsequent foreclosure of the underlying property. The Corporation also had at September 30, 2019, $46 million in bonds issued by HFA which are secured by second mortgage loans on Puerto Rico residential properties, and for which HFA also provides insurance to cover losses in the event of a borrower default and subsequent foreclosure of the underlying property (December 31, 2018 - $45 million). In the event that the mortgage loans insured by HFA and held by the Corporation directly or those serving as collateral for the HFA bonds default and the collateral is insufficient to satisfy the outstanding balance of these loans, HFA’s ability to honor its insurance will depend, among other factors, on the financial condition of HFA at the time such obligations become due and payable. Although the Governor is currently authorized by local legislation to impose a temporary moratorium on the financial obligations of the HFA, the Governor has not exercised this power as of the date hereof. In addition, at September 30, 2019, the Corporation had $7 million in securities issued by HFA that have been economically defeased and refunded and for which securities consisting of U.S. agencies and Treasury obligations have been escrowed (December 31, 2018 - $7 million), and $21 million of commercial real estate notes issued by government entities but that are payable from rent paid by non-governmental parties (December 31, 2018 - $23 million).

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

The Corporation has operations in the United States Virgin Islands (the “USVI”) and has approximately $72 million in direct exposure to USVI government entities. The USVI has been experiencing a number of fiscal and economic challenges that could adversely affect the ability of its public corporations and instrumentalities to service their outstanding debt obligations.

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Legal Proceedings

The nature of Popular’s business ordinarily results in a certain number of claims, litigation, investigations, and legal and administrative cases and proceedings (“Legal Proceedings”). When the Corporation determines that it has meritorious defenses to the claims asserted, it vigorously defends itself. The Corporation will consider the settlement of cases (including cases where it has meritorious defenses) when, in management’s judgment, it is in the best interest of both the Corporation and its shareholders to do so. On at least a quarterly basis, Popular assesses its liabilities and contingencies relating to outstanding Legal Proceedings utilizing the latest information available. For matters where it is probable that the Corporation will incur a material loss and the amount can be reasonably estimated, the Corporation establishes an accrual for the loss. Once established, the accrual is adjusted on at least a quarterly basis as appropriate to reflect any relevant developments. For matters where a material loss is not probable, or the amount of the loss cannot be reasonably estimated, no accrual is established.

In certain cases, exposure to loss exists in excess of the accrual to the extent such loss is reasonably possible, but not probable. Management believes and estimates that the range of reasonably possible losses (with respect to those matters where such limits may be determined, in excess of amounts accrued) for current Legal Proceedings ranged from $0 to approximately $27.2 million as of September 30, 2019. For certain other cases, management cannot reasonably estimate the possible loss at this time. Any estimate involves significant judgment, given the varying stages of the Legal Proceedings (including the fact that many of them are currently in preliminary stages), the existence of multiple defendants in several of the current Legal Proceedings whose share of liability has yet to be determined, the numerous unresolved issues in many of the Legal Proceedings, and the inherent uncertainty of the various potential outcomes of such Legal Proceedings. Accordingly, management’s estimate will change from time-to-time, and actual losses may be more or less than the current estimate.

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

Set forth below is a description of the Corporation’s significant Legal Proceedings.

BANCO POPULAR DE PUERTO RICO

Hazard Insurance Commission-Related Litigation

Popular, Inc., BPPR and Popular Insurance, LLC (the “Popular Defendants”) have been named defendants in a putative class action complaint captioned Pérez Díaz v. Popular, Inc., et al, filed before the Court of First Instance, Arecibo Part. The complaint seeks damages and preliminary and permanent injunctive relief on behalf of the purported class against the Popular Defendants, as well as Antilles Insurance Company and MAPFRE-PRAICO Insurance Company (the “Defendant Insurance Companies”). Plaintiffs allege that the Popular Defendants have been unjustly enriched by failing to reimburse them for commissions paid by the Defendant Insurance Companies to the insurance agent and/or mortgagee for policy years when no claims were filed against their hazard insurance policies. They demand the reimbursement to the purported “class” of an estimated $400 million plus legal interest, for the “good experience” commissions allegedly paid by the Defendant Insurance Companies during the relevant time period, as well as injunctive relief seeking to enjoin the Defendant Insurance Companies from paying commissions to the insurance agent/mortgagee and ordering them to pay those fees directly to the insured. A motion for dismissal on the merits filed by the Defendant Insurance Companies was denied with a right to replead following limited targeted discovery. The Court of Appeals and the Puerto Rico Supreme Court both denied the Popular Defendants’ request to review the lower court’s denial of the motion to dismiss. In December 2017, plaintiffs amended the complaint and, on January 2018, defendants filed an answer thereto. Separately, in October 2017, the Court entered an order whereby it broadly certified the class, after which the Popular Defendants filed a certiorari petition before the Puerto Rico Court of Appeals in relation to the class certification, which the Court declined to entertain. In November 2018 and in January 2019, Plaintiffs filed voluntary dismissal petitions against MAPFRE-PRAICO Insurance Company and Antilles Insurance Company, respectively, leaving the Popular Defendants as the sole remaining defendants in the action.

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In April 2019, the Court amended the class definition to limit it to individual homeowners whose residential units were subject to a mortgage from BPPR who, in turn, obtained risk insurance policies with Antilles Insurance or MAPFRE Insurance through Popular Insurance from 2002 to 2015, and who did not make insurance claims against said policies during their effective term. The Court set March 20, 2020 as the deadline to complete discovery and scheduled a pre-trial hearing and tentative trial dates for the second half of 2020.

BPPR has separately been named a defendant in a putative class action complaint captioned Ramirez Torres, et al. v. Banco Popular de Puerto Rico, et al, filed before the Puerto Rico Court of First Instance, San Juan Part. The complaint seeks damages and preliminary and permanent injunctive relief on behalf of the purported class against the same Popular Defendants, as well as other financial institutions with insurance brokerage subsidiaries in Puerto Rico. Plaintiffs contend that in November 2015 Antilles Insurance Company obtained approval from the Puerto Rico Insurance Commissioner to market an endorsement that allowed its customers to obtain reimbursement on their insurance deductible for good experience, but that defendants failed to offer this product or disclose its existence to their customers, favoring other products instead, in violation of their duties as insurance brokers. Plaintiffs seek a determination that defendants unlawfully failed to comply with their duty to disclose the existence of this new insurance product, as well as double or treble damages (the latter subject to a determination that defendants engaged in monopolistic practices in failing to offer this product). In July 2017, after co-defendants filed motions to dismiss the complaint and opposed the request for preliminary injunctive relief, the Court dismissed the complaint with prejudice. In August 2017, plaintiffs appealed this judgment and, in March 2018, the Court of Appeals reversed the Court of First Instance’s dismissal. The Puerto Rico Supreme Court denied review. At the request of the parties, the Court agreed to first decide certain threshold questions of law but, on August 15, 2019, the Popular Defendants and the Plaintiffs filed a Joint Motion where they informed the Court that Plaintiffs were simultaneously filing voluntary dismissals with prejudice against all other parties. On September 13, 2019, a status hearing was held where the Plaintiffs and the Popular Defendants informed the Court that the parties were in the process of stipulating a class for settlement purposes. The Court set a status hearing for November 14, 2019, where the parties currently expect to submit settlement terms for the Court’s approval.

Mortgage-Related Litigation and Claims

BPPR has been named a defendant in a putative class action captioned Lilliam González Camacho, et al. v. Banco Popular de Puerto Rico, et al., filed before the United States District Court for the District of Puerto Rico on behalf of mortgage-holders who have allegedly been subjected to illegal foreclosures and/or loan modifications through their mortgage servicers. Plaintiffs maintain that when they sought to reduce their loan payments, defendants failed to provide them with such reduced loan payments, instead subjecting them to lengthy loss mitigation processes while filing foreclosure claims against them in parallel (or dual tracking). Plaintiffs assert that such actions violate the Home Affordable Modification Program (“HAMP”), the Home Affordable Refinance Program (“HARP”) and other federally sponsored loan modification programs, as well as the Puerto Rico Mortgage Debtor Assistance Act and the Truth in Lending Act (“TILA”). For the alleged violations stated above, plaintiffs request that all defendants (over 20, including all local banks) be held jointly and severally liable in an amount no less than $400 million. BPPR filed a motion to dismiss in August 2017, as did most co-defendants, and, in March 2018, the District Court dismissed the complaint in its entirety. After being denied reconsideration by the District Court, on August 2018, plaintiffs filed a Notice of Appeal to the U.S. Court of Appeals for the First Circuit. The Court of Appeals has entered an order where it consolidated three pending appeals related to the same subset of facts. The plaintiffs filed their appellate brief on August 16, 2019, but on September 24, 2019, the Court of Appeals ordered plaintiffs to submit a new brief for the consolidated appeals that complied with the applicable appellate procedural rules. On October 4, 2019, plaintiffs filed a revised brief, which defendants believe yet again do not comply with applicable court rules. On November 4, 2019, defendants filed their appellate brief, along with a motion to dismiss the appeal due to the plaintiffs’ repeated failure to comply with the Circuit Court’s rules and orders.

BPPR has also been named a defendant in another putative class action captioned Yiries Josef Saad Maura v. Banco Popular, et al., filed by the same counsel who filed the González Camacho action referenced above, on behalf of residential customers of the defendant banks who have allegedly been subject to illegal foreclosures and/or loan modifications through their mortgage servicers. As in González Camacho, plaintiffs contend that when they sought to reduce their loan payments, defendants failed to provide them with such reduced loan payments, instead subjecting them to lengthy loss mitigation processes while filing foreclosure claims against them in parallel, all in violation of TILA, the Real Estate Settlement Procedures Act (“RESPA”), the Equal Credit Opportunity Act (“ECOA”), the Fair Credit Reporting Act (“FCRA”), the Fair Debt Collection Practices Act (“FDCPA”) and other consumer-protection laws and regulations. Plaintiffs did not include a specific amount of damages in their complaint. After waiving service of

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process, BPPR filed a motion to dismiss the complaint on the same grounds as those asserted in the González Camacho action (as did most co-defendants, separately). BPPR further filed a motion to oppose class certification, which the Court granted in September 2018. On April 5, 2019, the Court entered an Opinion and Order granting BPPR’s and several other defendants’ motions to dismiss with prejudice. Plaintiffs filed a Motion for Reconsideration on April 15, 2019, which Popular timely opposed. The Court held a hearing on May 14, 2019 to entertain the Motion for Reconsideration and other pending miscellaneous motions and, on September 30, 2019, issued an Amended Opinion and Order dismissing plaintiffs’ claims against all defendants, denying the reconsideration requests and other pending motions, and issuing final judgment. On October 17, 2019, the Plaintiffs filed a Motion for Reconsideration of the Court’s Amended Opinion and Order, which BPPR opposed on October 31, 2019.

BPPR has been named a defendant in a complaint for damages and breach of contract captioned Héctor Robles Rodriguez et al. v. Municipio de Ceiba, et al. Plaintiffs are residents of a development called Hacienda Las Lomas. Through the Doral Bank-FDIC assisted transaction, BPPR acquired a significant number of mortgage loans within this development and is currently the primary mortgage lender in the project. Plaintiffs claim damages against the developer, contractor, the relevant insurance companies, and most recently, their mortgage lenders, because of a landslide that occurred in October 2015, affecting various streets and houses within the development. Plaintiffs specifically allege that the mortgage lenders, including BPPR, should be deemed liable for their alleged failure to properly inspect the subject properties. Plaintiffs demand $30 million in damages plus attorney’s fees, costs and the annulment of their mortgages. BPPR extended plaintiffs four consecutive six-month payment forbearances, the last of which is still in effect, and it is engaged in settlement discussions with plaintiffs. In November 2017, the FDIC notified BPPR that it had agreed to indemnify the Bank in connection with its Doral Bank-related exposure, pursuant to the terms of the relevant Purchase and Assumption Agreement with the FDIC. The FDIC filed a Notice of Removal to the United States District Court for the District of Puerto Rico on March 2018 and, in April 2018, the state court stayed the proceedings in response thereto. In October 2018, the Court granted the FDIC’s motion to stay the proceedings until plaintiffs have exhausted administrative remedies and, thereafter, the FDIC filed a motion to dismiss all claims for lack of subject matter jurisdiction due to plaintiffs’ failure to properly make any applicable administrative claims. Such motion was referred to a Magistrate Judge, which on May 17, 2019 recommended that the motion be granted and all claims against the FDIC be dismissed. On September 30, 2019, the District Judge issued an order where she adopted the Report and Recommendation of the Magistrate Judge granting the FDIC’s Motion to Dismiss and remanding the remaining claims related to mortgage loans not acquired from Doral (approximately eight (8) loans) to the Commonwealth of Puerto Rico’s Court of First Instance. The District Judge has yet to issue an Opinion and Order triggering the applicable appeal terms.

Mortgage-Related Investigations

The Corporation and its subsidiaries from time to time receive requests for information from departments of the U.S. government that investigate mortgage-related conduct. In particular, BPPR has received subpoenas and other requests for information from the Federal Housing Finance Agency’s Office of the Inspector General, the Civil Division of the Department of Justice, the Special Inspector General for the Troubled Asset Relief Program and the Federal Department of Housing and Urban Development’s Office of the Inspector General mainly concerning real estate appraisals and residential and construction loans in Puerto Rico.

Separately, in July 2017, management learned that certain letters related to approximately 23,000 residential mortgage loans generated by the Corporation to comply with Bureau of Consumer Financial Protection (“CFPB”) rules requiring written notification to borrowers who have submitted a loss mitigation application were not mailed to borrowers over a period of up to approximately three-years due to a systems interface error. Loss mitigation is a process whereby creditors work with mortgage loan borrowers who are having difficulties making their loan payments on their debt. The Corporation corrected the systems interface error that caused the letters not to be sent, notified applicable regulators, completed a review of its mortgage files to assess the scope of potential customer impact and conducted outreach and remediation efforts with respect to borrowers potentially affected by the systems interface error.

The Corporation has also engaged in remediation with respect to other printing and mailings incidents and other servicing matters in its mortgage servicing operation.

The Corporation is engaged in ongoing dialogue with applicable regulators with respect to the aforementioned mortgage servicing matters and there can be no assurances as to the outcome thereof. At this point, we are not able to estimate the financial impact of the foregoing.

Other Significant Proceedings

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

On November 30, 2018, the Court issued an order where it ruled that: (1) the Lenders, as petitioning creditors, satisfied the three-prong requirement for filing an involuntary petition; (2) nonetheless, bad faith is an independent cause for dismissal of an involuntary petition under section 303(b) of the Bankruptcy Code; and (3) the Involuntary Debtors failed to show that dismissal pursuant to section 305(a)(1) abstention is in the best interest of both the creditors and the debtors. Hearings to consider whether the involuntary petitions were filed in bad faith, that is, for an improper purpose that constitutes an abuse of the bankruptcy process were held during June and July 2019. On October 11, 2019, the Court entered an Opinion and Order determining that the involuntary petitions were not filed in bad faith and issued an order for relief under Chapter 11 of the U.S. Bankruptcy Code granting the involuntary petitions. On October 25, 2019, the debtors filed a Notice of Appeal to the U.S. District Court, which the Lenders expect to timely oppose.

POPULAR BANK

Employment-Related Litigation

On July 30, 2019, Popular Bank (“PB”) was served in a putative class complaint in which it was named as a defendant along with five (5) current PB employees (collectively, the “AB Defendants”), captioned Aileen Betances, et al. v. Popular Bank, et al., filed before the Supreme Court of the State of New York (the “AB Action”). The complaint, filed by five (5) current and former PB employees, seeks to recover damages for the AB Defendants' alleged violation of local and state sexual harassment, discrimination and retaliation laws. Additionally, on July 30, 2019, PB was served in a putative class complaint in which it was named as a defendant along with six (6) current PB employees (collectively, the “DR Defendants”), captioned Damian Reyes, et al. v. Popular Bank, et al., filed before the Supreme Court of the State of New York (the “DR Action”). The DR Action, filed by three (3) current and former PB employees, seeks to recover damages for the DR Defendants’ alleged violation of local and state discrimination and retaliation laws. Plaintiffs in both complaints are represented by the same legal counsel, and five of the six named individual defendants in the DR Action are the same named individual defendants in the AB Action. Both complaints are related, among other things, to allegations of purported sexual harassment and/or misconduct by a former PB employee as well as PB’s actions in connection thereto and seek no less than $100 million in damages each. On October 21, 2019, PB and the other defendants filed several Motions to Dismiss. Plaintiffs have until December 11, 2019 to respond.

POPULAR SECURITIES

Puerto Rico Bonds and Closed-End Investment Funds

The volatility in prices and declines in value that Puerto Rico municipal bonds and closed-end investment companies that invest primarily in Puerto Rico municipal bonds have experienced since August 2013 have led to regulatory inquiries, customer complaints and arbitrations for most broker-dealers in Puerto Rico, including Popular Securities. Popular Securities has received customer complaints and is named as a respondent (among other broker-dealers) in 193 arbitration proceedings with aggregate claimed amounts of approximately $245 million, including one arbitration with claimed damages of approximately $30 million. While Popular Securities believes it has meritorious defenses to the claims asserted in these proceedings, it has often determined that it is in its best interest to settle certain claims rather than expend the money and resources required to see such cases to completion. The Puerto Rico Government’s defaults and non-payment of its various debt obligations, as well as the Commonwealth’s and the Financial Oversight Management Board’s (the “Oversight Board”) decision to pursue restructurings under Title III and Title VI of PROMESA, have increased and may continue to increase the number of customer complaints (and claimed damages) filed against

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Popular Securities concerning Puerto Rico bonds and closed-end investment companies that invest primarily in Puerto Rico bonds. An adverse result in the arbitration proceedings described above, or a significant increase in customer complaints, could have a material adverse effect on Popular.

PROMESA Title III Proceedings

In 2017, the Oversight Board engaged the law firm of Kobre & Kim to carry out an independent investigation on behalf of the Oversight Board regarding, among other things, the causes of the Puerto Rico financial crisis. Popular, Inc., BPPR and Popular Securities (collectively, the “Popular Companies”) were served by, and cooperated with, the Oversight Board in connection with requests for the preservation and voluntary production of certain documents and witnesses with respect to Kobre & Kim’s independent investigation.

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

After the publication of the Final Report, the Oversight Board created a special claims committee (“SCC”) and, before the end of the applicable two-year statute of limitations for the filing of such claims pursuant to the U.S. Bankruptcy Code, the SCC, along with the Commonwealth’s Unsecured Creditors’ Committee (“UCC”), filed various avoidance, fraudulent transfer and other claims against third parties, including government vendors and financial institutions and other professionals involved in bond issuances being challenged as invalid by the SCC and the UCC. Prior to the filing of those claims, the Popular Companies, the SCC and the UCC entered into a tolling agreement with respect to potential claims the SCC and the UCC, on behalf of the Commonwealth or other Title III debtors, may assert against the Popular Companies for the avoidance and recovery of payments and/or transfers made to the Popular Companies or as a result of any role of the Popular Companies in the offering of the aforementioned challenged bond issuances.

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Note 23 – Non-consolidated variable interest entities

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

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

The Corporation holds variable interests in these VIEs in the form of agency mortgage-backed securities and collateralized mortgage obligations, including those securities originated by the Corporation and those acquired from third parties. Additionally, the Corporation holds agency mortgage-backed securities and agency collateralized mortgage obligations issued by third party VIEs in which it has no other form of continuing involvement. Refer to Note 25 to the Consolidated Financial Statements for additional information on the debt securities outstanding at September 30, 2019 and December 31, 2018, which are classified as available-for-sale and trading securities in the Corporation’s Consolidated Statements of Financial Condition. In addition, the Corporation holds variable interests in the form of servicing fees, since it retains the right to service the transferred loans in those government-sponsored special purpose entities (“SPEs”) and may also purchase the right to service loans in other government-sponsored SPEs that were transferred to those SPEs by a third-party.

The following table presents the carrying amount and classification of the assets related to the Corporation’s variable interests in non-consolidated VIEs and the maximum exposure to loss as a result of the Corporation’s involvement as servicer of GNMA and FNMA loans at September 30, 2019 and December 31, 2018.

(In thousands) | September 30, 2019 | December 31, 2018
Assets |  |  |  |
Servicing assets: |  |  |  |
| Mortgage servicing rights | $ | 113,148 | $ | 136,280
Total servicing assets | $ | 113,148 | $ | 136,280
Other assets: |  |  |  |
| Servicing advances | $ | 31,839 | $ | 37,988
Total other assets | $ | 31,839 | $ | 37,988
Total assets | $ | 144,987 | $ | 174,268
Maximum exposure to loss | $ | 144,987 | $ | 174,268

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 $10.0 billion at September 30, 2019 (December 31, 2018 - $10.6 billion).

The Corporation determined that the maximum exposure to loss includes the fair value of the MSRs and the assumption that the servicing advances at September 30, 2019 and December 31, 2018, 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.

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

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

BPPR provided financing to these entities for the acquisition of the assets. In addition, BPPR provided these joint ventures with a non-revolving advance facility to cover unfunded commitments and costs-to-complete related to certain construction projects, and a revolving working capital line to fund certain operating expenses of the joint venture. As part of these transactions, BPPR received $ 48 million and $92 million, for PRLP 2011 Holdings, LLC and PR Asset Portfolio 2013-1 International, LLC, respectively, in cash and a 24.9% equity interest in each joint venture. The Corporation is not required to provide any other financial support to these joint ventures. BPPR accounted for both transactions as a true sale pursuant to ASC Subtopic 860-10.

The Corporation determined that PRLP 2011 Holdings, LLC and PR Asset Portfolio 2013-1 International, LLC are VIEs but it is not the primary beneficiary. All decisions are made by Caribbean Property Group (“CPG”) (or an affiliate thereof) (the “Manager”), except for certain limited material decisions which would require the unanimous consent of all members. The Manager is authorized to execute and deliver on behalf of the joint ventures any and all documents, contracts, certificates, agreements and instruments, and to take any action deemed necessary in the benefit of the joint ventures. All financing facilities extended by BPPR to these joint ventures have been repaid in full. The Corporation maintains a variable interests in these VIEs in the form of the 24.9% equity interest. The equity interest is accounted for under the equity method of accounting pursuant to ASC Subtopic 323-10.

The following tables present the carrying amount and classification of the assets and liabilities related to the Corporation’s variable interests in the non-consolidated VIEs, PRLP 2011 Holdings, LLC and PR Asset Portfolio 2013-1 International, LLC, and their maximum exposure to loss at September 30, 2019 and December 31, 2018.

| PRLP 2011 Holdings, LLC | PR Asset Portfolio 2013-1 International, LLC
(In thousands) | September 30, 2019 | December 31, 2018 | September 30, 2019 | December 31, 2018
Assets |  |  |  |  |  |  |  |
Other assets: |  |  |  |  |  |  |  |
| Equity investment | $ | 6,393 | $ | 6,469 | $ | 3,409 | $ | 5,794
Total assets | $ | 6,393 | $ | 6,469 | $ | 3,409 | $ | 5,794
Liabilities |  |  |  |  |  |  |  |
Deposits | $ | (909) | $ | (2,566) | $ | (9,582) | $ | (7,994)
Total liabilities | $ | (909) | $ | (2,566) | $ | (9,582) | $ | (7,994)
Total net assets | $ | 5,484 | $ | 3,903 | $ | (6,173) | $ | (2,200)
Maximum exposure to loss | $ | 5,484 | $ | 3,903 | $ | - | $ | -

The Corporation determined that the maximum exposure to loss under a worst case scenario at September 30, 2019 would be not recovering the net assets held by the Corporation as of the reporting date.

ASU 2009-17 requires that an ongoing primary beneficiary assessment should be made to determine whether the Corporation is the primary beneficiary of any of the VIEs it is involved with. The conclusion on the assessment of these non-consolidated VIEs has not changed since their initial evaluation. The Corporation concluded that it is still not the primary beneficiary of these VIEs, and therefore, these VIEs are not required to be consolidated in the Corporation’s financial statements at September 30, 2019.

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Note 24 – Related party transactions

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

EVERTEC

The Corporation has an investment in EVERTEC, Inc. (“EVERTEC”), which provides various processing and information technology services to the Corporation and its subsidiaries and gives BPPR access to the ATH network owned and operated by EVERTEC. As of September 30, 2019, the Corporation held 11,654,803 shares of EVERTEC, representing an ownership stake of 16.20%. The Corporation continues to have significant influence over EVERTEC. Accordingly, the investment in EVERTEC is accounted for under the equity method and is evaluated for impairment if events or circumstances indicate that a decrease in value of the investment has occurred that is other than temporary.

The Corporation received $ 1.7 million in dividend distributions during the nine months ended September 30, 2019, from its investments in EVERTEC’s holding company (September 30, 2018 - $ 0.6 million). The Corporation’s equity in EVERTEC is presented in the table which follows and is included as part of “other assets” in the Consolidated Statements of Financial Condition.

(In thousands) |  | September 30, 2019 |  |  | December 31, 2018
Equity investment in EVERTEC | $ | 69,380 |  | $ | 60,591

The Corporation had the following financial condition balances outstanding with EVERTEC at September 30, 2019 and December 31, 2018. Items that represent liabilities to the Corporation are presented with parenthesis.

(In thousands) | September 30, 2019 | December 31, 2018
Accounts receivable (Other assets) | $ | 2,561 | $ | 6,829
Deposits |  | (47,108) |  | (28,606)
Accounts payable (Other liabilities) |  | (1,512) |  | (3,671)
Net total | $ | (46,059) | $ | (25,448)

The Corporation’s proportionate share of income or loss from EVERTEC is included in other operating income in the consolidated statements of operations. The following table presents the Corporation’s proportionate share of EVERTEC’s income (loss) and changes in stockholders’ equity for the quarters and nine months ended September 30, 2019 and 2018.

|  | Quarter ended |  |  | Nine months ended
(In thousands) |  | September 30, 2019 |  |  | September 30, 2019
Share of income from the investment in EVERTEC | $ | 4,010 |  | $ | 12,709
Share of other changes in EVERTEC's stockholders' equity |  | 621 |  |  | 703
Share of EVERTEC's changes in equity recognized in income | $ | 4,631 |  | $ | 13,412

|  | Quarter ended |  |  | Nine months ended
(In thousands) |  | September 30, 2018 |  |  | September 30, 2018
Share of income from the investment in EVERTEC | $ | 3,682 |  | $ | 10,586
Share of other changes in EVERTEC's stockholders' equity |  | (34) |  |  | 601
Share of EVERTEC's changes in equity recognized in income | $ | 3,648 |  | $ | 11,187

The following tables present the transactions and service payments between the Corporation and EVERTEC (as an affiliate) and their impact on the results of operations for the quarters and nine months ended September 30, 2019 and 2018. Items that represent expenses to the Corporation are presented with parenthesis.

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|  | Quarter ended | Nine months ended |
(In thousands) | September 30, 2019 | September 30, 2019 | Category
Interest expense on deposits |  | $ | (27) |  | $ | (59) | Interest expense
ATH and credit cards interchange income from services to EVERTEC |  |  | 6,221 |  |  | 22,897 | Other service fees
Rental income charged to EVERTEC |  |  | 1,744 |  |  | 5,337 | Net occupancy
Processing fees on services provided by EVERTEC |  |  | (55,901) |  |  | (164,255) | Professional fees
Other services provided to EVERTEC |  |  | 247 |  |  | 873 | Other operating expenses
Total |  | $ | (47,716) |  | $ | (135,207) |

|  | Quarter ended | Nine months ended |
(In thousands) |  | September 30, 2018 | September 30, 2018 | Category
Interest expense on deposits |  | $ | (21) |  | $ | (46) | Interest expense
ATH and credit cards interchange income from services to EVERTEC |  |  | 8,486 |  |  | 24,940 | Other service fees
Rental income charged to EVERTEC |  |  | 1,781 |  |  | 5,297 | Net occupancy
Processing fees on services provided by EVERTEC |  |  | (48,360) |  |  | (142,443) | Professional fees
Other services provided to EVERTEC |  |  | 279 |  |  | 884 | Other operating expenses
Total |  | $ | (37,835) |  | $ | (111,368) |

PRLP 2011 Holdings, LLC and PR Asset Portfolio 2013-1 International, LLC

As indicated in Note 23 to the Consolidated Financial Statements, the Corporation holds a 24.9% equity interest in PRLP 2011 Holdings, LLC and PR Asset Portfolio 2013-1 International, LLC.

The Corporation’s equity in PRLP 2011 Holdings, LLC and PR Asset Portfolio 2013-1 International, LLC is presented in the table which follows and is included as part of “other assets” in the Consolidated Statements of Financial Condition.

|  | PRLP 2011 Holdings, LLC |  | PR Asset Portfolio 2013-1 International, LLC
(In thousands) |  | September 30, 2019 |  | December 31, 2018 |  | September 30, 2019 |  | December 31, 2018
Equity investment | $ | 6,393 | $ | 6,469 | $ | 3,409 | $ | 5,794

The Corporation held deposits from these entities, as follows:

| PRLP 2011 Holdings, LLC |  | PR Asset Portfolio 2013-1 International, LLC
(In thousands) | September 30, 2019 | December 31, 2018 |  | September 30, 2019 | December 31, 2018
Deposits (non-interest bearing) | $ | (909) | $ | (2,566) |  | $ | (9,582) | $ | (7,994)

The Corporation’s proportionate share of income or loss from these entities is presented in the following table and is included in other operating income in the Consolidated Statements of Operations.

|  | PRLP 2011 Holdings, LLC |  |  | PR Asset Portfolio 2013-1 International, LLC
|  | Quarter ended |  | Nine months ended |  |  | Quarter ended |  | Nine months ended
(In thousands) |  | September 30, 2019 |  | September 30, 2018 |  | September 30, 2019 |  | September 30, 2018 |  |  | September 30, 2019 |  | September 30, 2018 |  | September 30, 2019 |  | September 30, 2018
Share of income (loss) from the equity investment | $ | (65) | $ | 55 | $ | (76) | $ | (257) |  | $ | (236) | $ | 112 | $ | 306 | $ | (5,297)

During the nine months ended September 30, 2019, the Corporation received $ 2.7 million in capital distributions from its investment in PR Asset Portfolio 2013-1 International, LLC (September 30, 2018 - $ 2.0 million). There were no transactions between the Corporation and PRLP 2011 Holdings, LLC during the nine months ended September 30, 2019 and 2018.

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Centro Financiero BHD León

At September 30, 2019, the Corporation had a 15.84% equity interest in Centro Financiero BHD León, S.A. (“BHD León”), one of the largest banking and financial services groups in the Dominican Republic. During the nine months ended September 30, 2019, the Corporation recorded $ 20.1 million in earnings from its investment in BHD León (September 30, 2018 - $ 22.1 million), which had a carrying amount of $ 150.0 million at September 30, 2019 (December 31, 2018 - $ 140.4 million). On December 2017, BPPR extended a credit facility of $ 40 million to BHD León. This credit facility was repaid during the quarter ended March 31, 2018. The Corporation received $ 12.6 million in dividend distributions during the nine months ended September 30, 2019 from its investment in BHD León (September 30, 2018 - $ 12.6 million).

On June 30, 2017, BPPR extended an $8 million credit facility to Grupo Financiero Leon, S.A. Panamá (“GFL”), a shareholder of BHD León with an outstanding balance of $8 million at September 30, 2018. The sources of repayment for this loan were the dividends to be received by GFL from its investment in BHD León. BPPR’s credit facility ranked pari passu with another $8 million credit facility extended to GFL by BHD International Panama, an affiliate of BHD León. This credit facility was repaid during the quarter ended June 30, 2018.

Investment Companies

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

For the nine months ended September 30, 2019 administrative fees charged to these investment companies amounted to $ 4.8 million (September 30, 2018 - $ 5.1 million) and waived fees amounted to $ 1.6 million (September 30, 2018 - $ 1.6 million), for a net fee of $ 3.2 million (September 30, 2018 - $ 3.5 million).

The Corporation, through its subsidiary BPPR, has also entered into certain uncommitted credit facilities with those investment companies. As of September 30, 2019, the available lines of credit facilities amounted to $ 330 million (December 31, 2018 - $ 330 million). The aggregate sum of all outstanding balances under all credit facilities that may be made available by BPPR, from time to time, to those investment companies for which BPPR acts as investment advisor or co-investment advisor, shall never exceed the lesser of $200 million or 10% of BPPR’s capital. At September 30, 2019 there was no outstanding balance for these credit facilities.

Other related party transactions

On August 2018, BPPR acquired certain assets and assumed certain liabilities of Reliable Financial Services and Reliable Finance Holding Company, Puerto Rico-based subsidiaries of Wells Fargo & Company engaged in the auto finance business in Puerto Rico. Refer to Note 4 for additional information on this transaction. As part of the acquisition transaction, the Corporation entered into an agreement with Reliable Financial Services to sublease the space necessary to continue the acquired operations. Reliable Financial Services’ underlying lease agreement was with an entity in which the Corporation’s Chairman of the Board and his family members hold an ownership interest. This lease expired on April 30, 2019 pursuant to its terms. During the quarter ended March 31, 2019, the Corporation paid to Reliable Financial Services approximately $0.4 million under the sublease.

81

Note 25 – Fair value measurement

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

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

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

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

The Corporation maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Fair value is based upon quoted market prices when available. If listed prices or quotes are not available, the Corporation employs internally-developed models that primarily use market-based inputs including yield curves, interest rates, volatilities, and credit curves, among others. Valuation adjustments are limited to those necessary to ensure that the financial instrument’s fair value is adequately representative of the price that would be received or paid in the marketplace. These adjustments include amounts that reflect counterparty credit quality, the Corporation’s credit standing, constraints on liquidity and unobservable parameters that are applied consistently. There have been no changes in the Corporation’s methodologies used to estimate the fair value of assets and liabilities from those disclosed in the 2018 Form 10-K.

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

Fair Value on a Recurring and Nonrecurring Basis

The following fair value hierarchy tables present information about the Corporation’s assets and liabilities measured at fair value on a recurring basis at September 30, 2019 and December 31, 2018:

82

At September 30, 2019
(In thousands) | Level 1 | Level 2 | Level 3 | Total
RECURRING FAIR VALUE MEASUREMENTS |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |
Debt securities available-for-sale: |  |  |  |  |  |  |  |
U.S. Treasury securities | $ | 4,487,422 | $ | 6,016,866 | $ | - | $ | 10,504,288
Obligations of U.S. Government sponsored entities |  | - |  | 187,092 |  | - |  | 187,092
Obligations of Puerto Rico, States and political subdivisions |  | - |  | 6,931 |  | - |  | 6,931
Collateralized mortgage obligations - federal agencies |  | - |  | 630,636 |  | - |  | 630,636
Mortgage-backed securities |  | - |  | 5,148,581 |  | 1,209 |  | 5,149,790
Other |  | - |  | 373 |  | - |  | 373
Total debt securities available-for-sale | $ | 4,487,422 | $ | 11,990,479 | $ | 1,209 | $ | 16,479,110
Trading account debt securities, excluding derivatives: |  |  |  |  |  |  |  |
U.S. Treasury securities | $ | 2,758 | $ | 2 | $ | - | $ | 2,760
Obligations of Puerto Rico, States and political subdivisions |  | - |  | 649 |  | - |  | 649
Collateralized mortgage obligations |  | - |  | 79 |  | 557 |  | 636
Mortgage-backed securities |  | - |  | 28,772 |  | 26 |  | 28,798
Other |  | - |  | 3,004 |  | 456 |  | 3,460
Total trading account debt securities, excluding derivatives | $ | 2,758 | $ | 32,506 | $ | 1,039 | $ | 36,303
Equity securities | $ | - | $ | 19,778 | $ | - | $ | 19,778
Mortgage servicing rights |  | - |  | - |  | 150,652 |  | 150,652
Derivatives |  | - |  | 15,234 |  | - |  | 15,234
Total assets measured at fair value on a recurring basis | $ | 4,490,180 | $ | 12,057,997 | $ | 152,900 | $ | 16,701,077
Liabilities |  |  |  |  |  |  |  |
Derivatives | $ | - | $ | (14,069) | $ | - | $ | (14,069)
Total liabilities measured at fair value on a recurring basis | $ | - | $ | (14,069) | $ | - | $ | (14,069)

83

At December 31, 2018
(In thousands) | Level 1 | Level 2 | Level 3 | Total
RECURRING FAIR VALUE MEASUREMENTS |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |
Debt securities available-for-sale: |  |  |  |  |  |  |  |
U.S. Treasury securities | $ | 2,719,740 | $ | 5,552,456 | $ | - | $ | 8,272,196
Obligations of U.S. Government sponsored entities |  | - |  | 333,309 |  | - |  | 333,309
Obligations of Puerto Rico, States and political subdivisions |  | - |  | 6,742 |  | - |  | 6,742
Collateralized mortgage obligations - federal agencies |  | - |  | 728,671 |  | - |  | 728,671
Mortgage-backed securities |  | - |  | 3,957,545 |  | 1,233 |  | 3,958,778
Other |  | - |  | 488 |  | - |  | 488
Total debt securities available-for-sale | $ | 2,719,740 | $ | 10,579,211 | $ | 1,233 | $ | 13,300,184
Trading account debt securities, excluding derivatives: |  |  |  |  |  |  |  |
U.S. Treasury securities | $ | 6,278 | $ | - | $ | - | $ | 6,278
Obligations of Puerto Rico, States and political subdivisions |  | - |  | 134 |  | - |  | 134
Collateralized mortgage obligations |  | - |  | 48 |  | 611 |  | 659
Mortgage-backed securities |  | - |  | 27,214 |  | 43 |  | 27,257
Other |  | - |  | 2,974 |  | 485 |  | 3,459
Total trading account debt securities, excluding derivatives | $ | 6,278 | $ | 30,370 | $ | 1,139 | $ | 37,787
Equity securities | $ | - | $ | 13,296 | $ | - | $ | 13,296
Mortgage servicing rights |  | - |  | - |  | 169,777 |  | 169,777
Derivatives |  | - |  | 13,603 |  | - |  | 13,603
Total assets measured at fair value on a recurring basis | $ | 2,726,018 | $ | 10,636,480 | $ | 172,149 | $ | 13,534,647
Liabilities |  |  |  |  |  |  |  |
Derivatives | $ | - | $ | (12,320) | $ | - | $ | (12,320)
Total liabilities measured at fair value on a recurring basis | $ | - | $ | (12,320) | $ | - | $ | (12,320)

The fair value information included in the following tables is not as of period end, but as of the date that the fair value measurement was recorded during the quarters and nine months ended September 30, 2019 and 2018 and excludes nonrecurring fair value measurements of assets no longer outstanding as of the reporting date.

Nine months ended September 30, 2019
(In thousands) | Level 1 | Level 2 | Level 3 | Total |  |
NONRECURRING FAIR VALUE MEASUREMENTS |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  | Write-downs
Loans[1] | $ | - | $ | - | $ | 65,922 | $ | 65,922 | $ | (10,761)
Other real estate owned[2] |  | - |  | - |  | 17,942 |  | 17,942 |  | (3,486)
Other foreclosed assets[2] |  | - |  | - |  | 1,221 |  | 1,221 |  | (153)
Long-lived assets held-for-sale[3] |  | - |  | - |  | 2,500 |  | 2,500 |  | (2,591)
Total assets measured at fair value on a nonrecurring basis | $ | - | $ | - | $ | 87,585 | $ | 87,585 | $ | (16,991)
[1] | Relates mostly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations, in accordance with the provisions of ASC Section 310-10-35. Costs to sell are excluded from the reported fair value amount.
[2] | Represents the fair value of foreclosed real estate and other collateral owned that were written down to their fair value. Costs to sell are excluded from the reported fair value amount.
[3] | Represents the fair value of long-lived assets held-for-sale that were written down to their fair value.

84

Nine months ended September 30, 2018
(In thousands) | Level 1 | Level 2 | Level 3 | Total |  |
NONRECURRING FAIR VALUE MEASUREMENTS |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  | Write-downs
Loans[1] | $ | - | $ | - | $ | 79,347 | $ | 79,347 | $ | (28,769)
Other real estate owned[2] |  | - |  | - |  | 42,572 |  | 42,572 |  | (8,744)
Other foreclosed assets[2] |  | - |  | - |  | 2,596 |  | 2,596 |  | (957)
Total assets measured at fair value on a nonrecurring basis | $ | - | $ | - | $ | 124,515 | $ | 124,515 | $ | (38,470)
[1] | Relates mostly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations, in accordance with the provisions of ASC Section 310-10-35. Costs to sell are excluded from the reported fair value amount.
[2] | Represents the fair value of foreclosed real estate and other collateral owned that were written down to their fair value. Costs to sell are excluded from the reported fair value amount.

The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarters and nine months ended September 30, 2019 and 2018.

| Quarter ended September 30, 2019
|  | MBS | CMOs |  |  | Other |  |  |  |
|  | classified | classified |  |  | securities |  |  |  |
|  | as debt | as trading | MBS | classified |  |  |  |
|  | securities | account | classified as | as trading | Mortgage |
|  | available- | debt | trading account | account debt | servicing | Total
(In thousands) | for-sale | securities | debt securities | securities | rights | assets
Balance at June 30, 2019 | $ | 1,235 | $ | 618 | $ | 26 | $ | 468 | $ | 153,021 | $ | 155,368
Gains (losses) included in earnings |  | - |  | (1) |  | - |  | (12) |  | (4,842) |  | (4,855)
Gains (losses) included in OCI |  | (1) |  | - |  | - |  | - |  | - |  | (1)
Additions |  | - |  | 1 |  | - |  | - |  | 2,473 |  | 2,474
Settlements |  | (25) |  | (61) |  | - |  | - |  | - |  | (86)
Balance at September 30, 2019 | $ | 1,209 | $ | 557 | $ | 26 | $ | 456 | $ | 150,652 | $ | 152,900
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2019 | $ | - | $ | 1 | $ | - | $ | 5 | $ | (1,575) | $ | (1,569)

| Nine months ended September 30, 2019
|  | MBS |  |  |  |  | Other |  |  |  |
|  | classified | CMOs |  |  | securities |  |  |  |
|  | as investment | classified | MBS | classified |  |  |  |
|  | securities | as trading | classified as | as trading | Mortgage |
|  | available- | account | trading account | account | servicing | Total
(In thousands) | for-sale | securities | securities | securities | rights | assets
Balance at January 1, 2019 | $ | 1,233 | $ | 611 | $ | 43 | $ | 485 | $ | 169,777 | $ | 172,149
Gains (losses) included in earnings |  | - |  | - |  | (1) |  | (29) |  | (25,853) |  | (25,883)
Gains (losses) included in OCI |  | 1 |  | - |  | - |  | - |  | - |  | 1
Additions |  | - |  | 65 |  | 25 |  | - |  | 6,728 |  | 6,818
Settlements |  | (25) |  | (119) |  | (41) |  | - |  | - |  | (185)
Balance at September 30, 2019 | $ | 1,209 | $ | 557 | $ | 26 | $ | 456 | $ | 150,652 | $ | 152,900
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2019 | $ | - | $ | - | $ | 1 | $ | 13 | $ | (15,993) | $ | (15,979)

85

| Quarter ended September 30, 2018
|  | MBS |  |  |  |  | Other |  |  |  |
|  | classified | CMOs |  |  | securities |  |  |  |
|  | as investment | classified | MBS | classified |  |  |  |
|  | securities | as trading | classified as | as trading | Mortgage |
|  | available- | account | trading account | account | servicing | Total
(In thousands) | for-sale | securities | securities | securities | rights | assets
Balance at June 30, 2018 | $ | 1,264 | $ | 670 | $ | 43 | $ | 506 | $ | 164,025 | $ | 166,508
Gains (losses) included in earnings |  | - |  | - |  | - |  | (8) |  | (4,194) |  | (4,202)
Gains (losses) included in OCI |  | (1) |  | - |  | - |  | - |  | - |  | (1)
Additions |  | - |  | 7 |  | - |  | - |  | 2,946 |  | 2,953
Settlements |  | - |  | (33) |  | - |  | - |  | - |  | (33)
Balance at September 30, 2018 | $ | 1,263 | $ | 644 | $ | 43 | $ | 498 | $ | 162,777 | $ | 165,225
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2018 | $ | - | $ | - | $ | - | $ | 3 | $ | - | $ | 3

| Nine months ended September 30, 2018
|  | MBS |  |  |  |  | Other |  |  |  |  |  |  |  |
|  | classified | CMOs |  |  | securities |  |  |  |  |  |  |  |
|  | as investment | classified | MBS | classified |  |  |  |  |  |  |  |
|  | securities | as trading | classified as | as trading | Mortgage |  |  |  |
|  | available- | account | trading account | account | servicing | Total | Contingent | Total
(In thousands) | for-sale | securities | securities | securities | rights | assets | consideration [1] | liabilities
Balance at January 1, 2018 | $ | 1,288 | $ | 529 | $ | 43 | $ | 529 | $ | 168,031 | $ | 170,420 | $ | (164,858) | $ | (164,858)
Gains (losses) included in earnings |  | - |  | 6 |  | - |  | (31) |  | (13,123) |  | (13,148) |  | (6,112) |  | (6,112)
Gains (losses) included in OCI |  | 1 |  | - |  | - |  | - |  | - |  | 1 |  | - |  | -
Additions |  | - |  | 260 |  | - |  | - |  | 7,869 |  | 8,129 |  | - |  | -
Settlements |  | (26) |  | (151) |  | - |  | - |  | - |  | (177) |  | 170,970 |  | 170,970
Balance at September 30, 2018 | $ | 1,263 | $ | 644 | $ | 43 | $ | 498 | $ | 162,777 | $ | 165,225 | $ | - | $ | -
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2018 | $ | - | $ | 6 | $ | - | $ | 14 | $ | - | $ | 20 | $ | - | $ | -
[1] | Effective May 22, 2018, the Corporation entered into a Termination Agreement with the FDIC to terminate the Corporation's loss share arrangement ahead of their contractual maturities. Refer to Note 10 for additional information.

Gains and losses (realized and unrealized) included in earnings for the quarters and nine months ended September 30, 2019 and 2018 for Level 3 assets and liabilities included in the previous tables are reported in the consolidated statement of operations as follows:

| Quarter ended September 30, 2019 | Nine months ended September 30, 2019
|  |  | Changes in unrealized |  |  | Changes in unrealized
| Total gains | gains (losses) relating to | Total gains | gains (losses) relating to
| (losses) included | assets still held at | (losses) included | assets still held at
(In thousands) | in earnings | reporting date | in earnings | reporting date
Mortgage banking activities | $ | (4,842) | $ | (1,575) | $ | (25,853) | $ | (15,993)
Trading account profit (loss) |  | (13) |  | 6 |  | (30) |  | 14
Total | $ | (4,855) | $ | (1,569) | $ | (25,883) | $ | (15,979)

86

| Quarter ended September 30, 2018 | Nine months ended September 30, 2018
|  |  | Changes in unrealized |  |  | Changes in unrealized
| Total gains | gains (losses) relating to | Total gains | gains (losses) relating to
| (losses) included | assets still held at | (losses) included | assets still held at
(In thousands) | in earnings | reporting date | in earnings | reporting date
FDIC loss share expense | $ | - | $ | - | $ | (6,112) | $ | -
Mortgage banking activities |  | (4,194) |  | - |  | (13,123) |  | -
Trading account profit (loss) |  | (8) |  | 3 |  | (25) |  | 20
Total | $ | (4,202) | $ | 3 | $ | (19,260) | $ | 20

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

|  |  | Fair value |  |  |  |  |
|  | at September 30, |  |  |  |  |
(In thousands) |  | 2019 |  | Valuation technique | Unobservable inputs | Weighted average (range) [1]
CMO's - trading | $ | 557 |  | Discounted cash flow model | Weighted average life | 1.7 years (1.4 - 1.8 years) |
|  |  |  |  |  | Yield | 4.0% (3.9% - 4.4%) |
|  |  |  |  |  | Prepayment speed | 18.5% (15.2% - 20.7%) |
Other - trading | $ | 456 |  | Discounted cash flow model | Weighted average life | 5.2 years |
|  |  |  |  |  | Yield | 12.0% |
|  |  |  |  |  | Prepayment speed | 10.8% |
Mortgage servicing rights | $ | 150,652 |  | Discounted cash flow model | Prepayment speed | 6.8% (0.2% - 19.9%) |
|  |  |  |  |  | Weighted average life | 6.2 years (0.1 - 13.9 years) |
|  |  |  |  |  | Discount rate | 11.2% (9.5% - 14.7%) |
Loans held-in-portfolio | $ | 62,442 | [2] | External appraisal | Haircut applied on |  |
|  |  |  |  |  | external appraisals | 10.3% (10.0% - 21.0%) |
Other real estate owned | $ | 15,003 | [3] | External appraisal | Haircut applied on |  |
|  |  |  |  |  | external appraisals | 23.5% (10.0% - 35.0%) |
[1] | Weighted average of significant unobservable inputs used to develop Level 3 fair value measurements were calculated by relative fair value.
[2] | Loans held-in-portfolio in which haircuts were not applied to external appraisals were excluded from this table.
[3] | Other real estate owned in which haircuts were not applied to external appraisals were excluded from this table.

The significant unobservable inputs used in the fair value measurement of the Corporation’s collateralized mortgage obligations and interest-only collateralized mortgage obligation (reported as “other”), which are classified in the “trading” category, are yield, constant prepayment rate, and weighted average life. S ignificant increases (decreases) in any of those inputs in isolation would result in significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the constant prepayment rate will generate a directionally opposite change in the weighted average life. For example, as the average life is reduced by a higher constant prepayment rate, a lower yield will be realized, and when there is a reduction in the constant prepayment rate, the average life of these collateralized mortgage obligations will extend, thus resulting in a higher yield.The significant unobservable inputs used in the fair value measurement of the Corporation’s mortgage servicing rights are constant prepayment rates and discount rates. Increases in interest rates may result in lower prepayments. Discount rates vary according to products and / or portfolios depending on the perceived risk. Increases in discount rates result in a lower fair value measurement.

87

Note 26 – Fair value of financial instruments

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

The fair values reflected herein have been determined based on the prevailing rate environment at September 30, 2019 and December 31, 2018, as applicable. In different interest rate environments, fair value estimates can differ significantly, especially for certain fixed rate financial instruments. In addition, the fair values presented do not attempt to estimate the value of the Corporation’s fee generating businesses and anticipated future business activities, that is, they do not represent the Corporation’s value as a going concern. There have been no changes in the Corporation’s valuation methodologies and inputs used to estimate the fair values for each class of financial assets and liabilities not measured at fair value.

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

88

|  | September 30, 2019
| Carrying |  |  |  |
(In thousands) | amount | Level 1 | Level 2 | Level 3 | Fair value
Financial Assets: |  |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 502,060 | $ | 502,060 | $ | - | $ | - | $ | 502,060
Money market investments |  | 5,168,585 |  | 5,162,672 |  | 5,913 |  | - |  | 5,168,585
Trading account debt securities, excluding derivatives[1] |  | 36,303 |  | 2,758 |  | 32,506 |  | 1,039 |  | 36,303
Debt securities available-for-sale[1] |  | 16,479,110 |  | 4,487,422 |  | 11,990,479 |  | 1,209 |  | 16,479,110
Debt securities held-to-maturity: |  |  |  |  |  |  |  |  |  |
| Obligations of Puerto Rico, States and political subdivisions | $ | 85,598 | $ | - | $ | - | $ | 91,808 | $ | 91,808
| Collateralized mortgage obligation-federal agency |  | 48 |  | - |  | - |  | 50 |  | 50
| Securities in wholly owned statutory business trusts |  | 11,561 |  | - |  | 11,561 |  | - |  | 11,561
| Other |  | 500 |  | - |  | 499 |  | - |  | 499
Total debt securities held-to-maturity | $ | 97,707 | $ | - | $ | 12,060 | $ | 91,858 | $ | 103,918
Equity securities: |  |  |  |  |  |  |  |  |  |
| FHLB stock | $ | 46,729 | $ | - | $ | 46,729 | $ | - | $ | 46,729
| FRB stock |  | 92,648 |  | - |  | 92,648 |  | - |  | 92,648
| Other investments |  | 21,081 |  | - |  | 19,778 |  | 7,296 |  | 27,074
Total equity securities | $ | 160,458 | $ | - | $ | 159,155 | $ | 7,296 | $ | 166,451
Loans held-for-sale | $ | 56,370 | $ | - | $ | - | $ | 57,572 | $ | 57,572
Loans held-in-portfolio |  | 26,495,610 |  | - |  | - |  | 24,603,515 |  | 24,603,515
Mortgage servicing rights |  | 150,652 |  | - |  | - |  | 150,652 |  | 150,652
Derivatives |  | 15,234 |  | - |  | 15,234 |  | - |  | 15,234
|  | September 30, 2019
| Carrying |  |  |  |
(In thousands) | amount | Level 1 | Level 2 | Level 3 | Fair value
Financial Liabilities: |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |
| Demand deposits | $ | 36,370,038 | $ | - | $ | 36,370,038 | $ | - | $ | 36,370,038
| Time deposits |  | 7,796,157 |  | - |  | 7,648,739 |  | - |  | 7,648,739
Total deposits | $ | 44,166,195 | $ | - | $ | 44,018,777 | $ | - | $ | 44,018,777
Assets sold under agreements to repurchase | $ | 213,097 | $ | - | $ | 212,812 | $ | - | $ | 212,812
Notes payable: |  |  |  |  |  |  |  |  |  |
| FHLB advances | $ | 486,785 | $ | - | $ | 496,552 | $ | - | $ | 496,552
| Unsecured senior debt securities |  | 294,990 |  | - |  | 322,014 |  | - |  | 322,014
| Junior subordinated deferrable interest debentures (related to trust preferred securities) |  | 384,895 |  | - |  | 406,485 |  | - |  | 406,485
Total notes payable | $ | 1,166,670 | $ | - | $ | 1,225,051 | $ | - | $ | 1,225,051
Derivatives | $ | 14,069 | $ | - | $ | 14,069 | $ | - | $ | 14,069
[1] | Refer to Note 25 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level

89

|  | December 31, 2018
| Carrying |  |  |  |
(In thousands) | amount | Level 1 | Level 2 | Level 3 | Fair value
Financial Assets: |  |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 394,035 | $ | 394,035 | $ | - | $ | - | $ | 394,035
Money market investments |  | 4,171,048 |  | 4,161,832 |  | 9,216 |  | - |  | 4,171,048
Trading account debt securities, excluding derivatives[1] |  | 37,787 |  | 6,278 |  | 30,370 |  | 1,139 |  | 37,787
Debt securities available-for-sale[1] |  | 13,300,184 |  | 2,719,740 |  | 10,579,211 |  | 1,233 |  | 13,300,184
Debt securities held-to-maturity: |  |  |  |  |  |  |  |  |  |
| Obligations of Puerto Rico, States and political subdivisions | $ | 89,459 | $ | - | $ | - | $ | 90,534 | $ | 90,534
| Collateralized mortgage obligation-federal agency |  | 55 |  | - |  | - |  | 58 |  | 58
| Securities in wholly owned statutory business trusts |  | 11,561 |  | - |  | 11,561 |  | - |  | 11,561
| Other |  | 500 |  | - |  | 500 |  | - |  | 500
Total debt securities held-to-maturity | $ | 101,575 | $ | - | $ | 12,061 | $ | 90,592 | $ | 102,653
Equity securities: |  |  |  |  |  |  |  |  |  |
| FHLB stock | $ | 51,628 | $ | - | $ | 51,628 | $ | - | $ | 51,628
| FRB stock |  | 89,358 |  | - |  | 89,358 |  | - |  | 89,358
| Other investments |  | 14,598 |  | - |  | 13,296 |  | 5,539 |  | 18,835
Total equity securities | $ | 155,584 | $ | - | $ | 154,282 | $ | 5,539 | $ | 159,821
Loans held-for-sale | $ | 51,422 | $ | - | $ | - | $ | 52,474 | $ | 52,474
Loans held-in-portfolio |  | 25,938,541 |  | - |  | - |  | 23,143,027 |  | 23,143,027
Mortgage servicing rights |  | 169,777 |  | - |  | - |  | 169,777 |  | 169,777
Derivatives |  | 13,603 |  | - |  | 13,603 |  | - |  | 13,603
|  | December 31, 2018
| Carrying |  |  |  |
(In thousands) | amount | Level 1 | Level 2 | Level 3 | Fair value
Financial Liabilities: |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |
| Demand deposits | $ | 32,093,274 | $ | - | $ | 32,093,274 | $ | - | $ | 32,093,274
| Time deposits |  | 7,616,765 |  | - |  | 7,392,698 |  | - |  | 7,392,698
Total deposits | $ | 39,710,039 | $ | - | $ | 39,485,972 | $ | - | $ | 39,485,972
Assets sold under agreements to repurchase | $ | 281,529 | $ | - | $ | 281,535 | $ | - | $ | 281,535
Other short-term borrowings[2] | $ | 42 | $ | - | $ | 42 | $ | - | $ | 42
Notes payable: |  |  |  |  |  |  |  |  |  |
| FHLB advances | $ | 556,776 | $ | - | $ | 553,111 | $ | - | $ | 553,111
| Unsecured senior debt |  | 294,039 |  | - |  | 302,664 |  | - |  | 302,664
| Junior subordinated deferrable interest debentures (related to trust preferred securities) |  | 384,875 |  | - |  | 381,079 |  | - |  | 381,079
| Capital lease obligations |  | 20,412 |  | - |  | - |  | 20,412 |  | 20,412
Total notes payable | $ | 1,256,102 | $ | - | $ | 1,236,854 | $ | 20,412 | $ | 1,257,266
Derivatives | $ | 12,320 | $ | - | $ | 12,320 | $ | - | $ | 12,320
[1] | Refer to Note 25 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level.
[2] | Refer to Note 17 to the Consolidated Financial Statements for the composition of other short-term borrowings.

The notional amount of commitments to extend credit at September 30, 2019 and December 31, 2018 is $ 7.7 billion and $ 7.5 billion, respectively, and represents the unused portion of credit facilities granted to customers. The notional amount of letters of credit at September 30, 2019 and December 31, 2018 is $ 84 million and $ 29 million respectively, and represents the contractual amount that is required to be paid in the event of nonperformance. The fair value of commitments to extend credit and letters of credit, which are based on the fees charged to enter into those agreements, are not material to Popular’s financial statements.

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Note 27 – Net income per common share

The following table sets forth the computation of net income per common share (“EPS”), basic and diluted, for the quarters and nine months ended September 30, 2019 and 2018:

|  | Quarters ended September 30, | Nine months ended September 30,
(In thousands, except per share information) | 2019 | 2018 | 2019 | 2018
Net income | $ | 165,319 | $ | 140,648 | $ | 504,350 | $ | 511,755
Preferred stock dividends |  | (930) |  | (930) |  | (2,792) |  | (2,792)
Net income applicable to common stock | $ | 164,389 | $ | 139,718 | $ | 501,558 | $ | 508,963
Average common shares outstanding |  | 96,357,117 |  | 101,067,300 |  | 97,073,177 |  | 101,549,711
Average potential dilutive common shares |  | 121,210 |  | 181,854 |  | 139,219 |  | 182,219
Average common shares outstanding - assuming dilution |  | 96,478,327 |  | 101,249,154 |  | 97,212,396 |  | 101,731,930
Basic EPS | $ | 1.71 | $ | 1.38 | $ | 5.17 | $ | 5.01
Diluted EPS | $ | 1.70 | $ | 1.38 | $ | 5.16 | $ | 5.00

As disclosed in Note 19, during the quarter ended March 31, 2019, the Corporation entered into a $250 million accelerated share repurchase transaction (“ASR”) and, in connection therewith, received an initial delivery of 3,500,000 shares of common stock. The initial share delivery was accounted for as a treasury stock transaction. As part of this transaction, the Corporation entered into a forward contract, which remains outstanding as of September 30, 2019, for which the Corporation expects to receive additional shares upon termination of the ASR agreement. The diluted EPS computation for the quarter and nine months ended September 30, 2019 excludes 1,189,974 and 1,184,666 antidilutive shares, respectively, related to the ASR.

For the quarter and nine months ended September 30, 2019, the Corporation calculated the impact of potential dilutive common shares under the treasury stock method, consistent with the method used for the preparation of the financial statements for the year ended December 31, 2018. For a discussion of the calculation under the treasury stock method, refer to Note 32 of the Consolidated Financial Statements included in the 2018 Form 10-K.

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Note 28 – Revenue from contracts with customers

The following table presents the Corporation’s revenue streams from contracts with customers by reportable segment for the quarters and nine months ended September 30, 2019 and 2018:

|  | Quarter ended September 30, |  | Nine months ended September 30,
(In thousands) | 2019 |  |  | 2019
|  |  | BPPR |  | Popular U.S. |  |  | BPPR |  | Popular U.S.
Service charges on deposit accounts | $ | 37,245 | $ | 3,724 |  | $ | 108,344 | $ | 10,933
Other service fees: |  |  |  |  |  |  |  |  |
| Debit card fees |  | 11,459 |  | 260 |  |  | 34,110 |  | 813
| Insurance fees, excluding reinsurance |  | 8,921 |  | 1,152 |  |  | 29,786 |  | 2,753
| Credit card fees, excluding late fees and membership fees |  | 21,901 |  | 217 |  |  | 61,579 |  | 656
| Sale and administration of investment products |  | 5,714 |  | - |  |  | 16,705 |  | -
| Trust fees |  | 5,277 |  | - |  |  | 15,844 |  | -
Total revenue from contracts with customers [1] | $ | 90,517 | $ | 5,353 |  | $ | 266,368 | $ | 15,155
[1] | The amounts include intersegment transactions of $ 0.2 million and $ 2.3 million, respectively, for the quarter and nine months ended September 30, 2019.
|  | Quarter ended September 30, |  | Nine months ended September 30,
(In thousands) | 2018 |  |  | 2018
|  |  | BPPR |  | Popular U.S. |  |  | BPPR |  | Popular U.S.
Service charges on deposit accounts | $ | 34,869 | $ | 3,278 |  | $ | 101,824 | $ | 9,880
Other service fees: |  |  |  |  |  |  |  |  |
| Debit card fees |  | 10,723 |  | 261 |  |  | 33,543 |  | 763
| Insurance fees, excluding reinsurance |  | 8,210 |  | 1,187 |  |  | 24,097 |  | 2,642
| Credit card fees, excluding late fees and membership fees |  | 19,029 |  | 221 |  |  | 54,513 |  | 698
| Sale and administration of investment products |  | 5,696 |  | - |  |  | 16,071 |  | -
| Trust fees |  | 5,034 |  | - |  |  | 15,593 |  | -
Total revenue from contracts with customers [1] | $ | 83,561 | $ | 4,947 |  | $ | 245,641 | $ | 13,983
[1] | The amounts include intersegment transactions of $ 0.2 million and $ 1.9 million, respectively, for the quarter and nine months ended September 30, 2018.

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

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

Service charges on deposit accounts

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

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Debit card fees

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

Insurance fees

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

Credit card fees

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

Sale and administration of investment products

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

Commission income from investment products is recognized on the trade date since clearing, trade execution, and custody services are satisfied when the customer acquires or disposes of the rights to obtain the economic benefits of the investment products and brokerage contracts have no fixed duration and are terminable at will by either party. The Corporation is acting as principal in these transactions since it performs the service of providing the customer with the ability to acquire or dispose of the rights to obtain the economic benefits of investment products.

Asset management fees are satisfied over time and are recognized in arrears. At contract inception, the estimate of the asset management fee is constrained from the inclusion in the transaction price since the promised consideration is dependent on the market and thus is highly susceptible to factors outside the manager’s influence. As advisor, the broker-dealer subsidiary is acting as principal.

Underwriting fees are recognized at a point in time, when the investment products are sold in the open market at a markup. When the broker-dealer subsidiary is lead underwriter, it is acting as an agent. In turn, when it is a participating underwriter, it is acting as principal.

Mutual fund fees, such as distribution fees, are considered variable consideration and are recognized over time, as the uncertainty of the fees to be received is resolved as NAV is determined and investor activity occurs. The promise to provide distribution-related services is considered a single performance obligation as it requires the provision of a series of distinct services that are substantially the same and have the same pattern of transfer. When the broker-dealer subsidiary is acting as a distributor, it is acting as principal. In turn, when it acts as third-party dealer, it is acting as an agent.

Trust fees

Trust fees are recognized from retirement plan, mutual fund administration, investment management, trustee, escrow, and custody and safekeeping services. These asset management services are considered a single performance obligation as it requires the provision of a series of distinct services that are substantially the same and have the same pattern of transfer. The performance obligation is satisfied over time, except for optional services and certain other services that are satisfied at a point in time. Revenues are recognized in arrears, when, or as, the services are rendered. The Corporation is acting as principal since, as asset manager, it has the obligation to provide the specified service to the customer and has the ultimate discretion in establishing the fee paid by the customer for the specified services.

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Note 29 – Leases

The Corporation enters in the ordinary course of business into operating and finance leases for land, buildings and equipment. These contracts generally do not include purchase options or residual value guarantees. The remaining lease terms of 0.1 to 34.3 years considers options to extend the leases for up to 20.0 years. The Corporation identifies leases when it has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

The Corporation recognizes right-of-use assets (“ROU assets”) and lease liabilities related to operating and finance leases in its Consolidated Statements of Financial Condition under the caption of other assets and other liabilities, respectively. Refer to Note 14 and Note 18, respectively, for information on the balances of these lease assets and liabilities.

The Corporation uses the incremental borrowing rate for purposes of discounting lease payments for operating and finance leases, since it does not have enough information to determine the rates implicit in the leases. The discount rates are based on fixed-rate and fully amortizing borrowing facilities of its banking subsidiaries that are collateralized. For leases held by non-banking subsidiaries, a credit spread is added to this rate based on financing transactions with a similar credit risk profile.

The following table presents the undiscounted cash flows of operating and finance leases for each of the following periods:

(In thousands) |  | Remaining 2019 |  | 2020 |  | 2021 |  | 2022 |  | 2023 |  | Later Years |  | Total Lease Payments |  | Less: Imputed Interest |  | Total
Operating Leases | $ | 7,566 | $ | 28,034 | $ | 25,444 | $ | 21,688 | $ | 19,405 | $ | 77,693 | $ | 179,830 | $ | (27,409) | $ | 152,421
Finance Leases |  | 739 |  | 3,003 |  | 3,093 |  | 3,187 |  | 3,284 |  | 11,186 |  | 24,492 |  | (4,886) |  | 19,606

The following table presents the lease cost recognized by the Corporation in the Consolidated Statements of Operations as follows:

|  |  | Quarter ended | Nine months ended
(In thousands) | September 30,2019 | September 30,2019
Finance lease cost: |  |  |  |
| Amortization of ROU assets | $ | 422 | $ | 1,265
| Interest on lease liabilities |  | 296 |  | 901
Operating lease cost |  | 7,233 |  | 23,156
Short-term lease cost |  | 97 |  | 172
Variable lease cost |  | 3 |  | 5
Sublease income |  | (29) |  | (84)
Total lease cost | $ | 8,022 | $ | 25,415

Total rental expense for all operating leases, except those with terms of a month or less that were not renewed, for the quarter and nine months ended September 30, 2018 was $7.2 million and $22.2 million, respectively, which is included in net occupancy, equipment and communication expenses, according to their nature. Total amortization and interest expense for capital leases for the quarter ended September 30, 2018 was $0.3 million and $0.3 million, respectively. Total amortization and interest expense for capital leases for the nine months ended September 30, 2018 was $1.0 million and $0.8 million, respectively.

The following table presents supplemental cash flow information and other related information related to operating and finance leases.

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|  |  |  | Nine months ended
(Dollars in thousands) |  | September 30,2019
Cash paid for amounts included in the measurement of lease liabilities: |  |  |
| Operating cash flows from operating leases | $ | 22,527
| Operating cash flows from finance leases |  | 906
| Financing cash flows from finance leases |  | 1,269
ROU assets obtained in exchange for new lease obligations: |  |
| Operating leases | $ | 7,882
Weighted-average remaining lease term: |  |  |
| Operating leases |  | 8.6 | years
| Finance leases |  | 7.5 | years
Weighted-average discount rate: |  |  |
| Operating leases |  | 3.6 | %
| Finance leases |  | 6.0 | %

As of September 30, 2019, the Corporation has additional operating leases contracts that have not yet commenced with an undiscounted contract amount of $26 million, which will have lease terms ranging from 10 to 20 years.

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Note 30 – FDIC loss share income

On May 22, 2018, the Corporation entered into a Termination Agreement with the FDIC to terminate all loss-share arrangements in connection with the Westernbank FDIC-assisted transaction. Refer to Note 10 for additional information of the Termination Agreement with the FDIC. The caption of FDIC loss-share income in the Consolidated Statements of Operations consists of the following major categories:

|  |  |  | Nine months ended
(In thousands) |  |  | September 30, 2018
Amortization |  |  |  | $ | (934)
80% mirror accounting on credit impairment losses |  |  |  |  | 104
80% mirror accounting on reimbursable expenses |  |  |  |  | 537
80% mirror accounting on recoveries on covered assets, including rental income on OREOs, subject to reimbursement to the FDIC |  |  |  |  | (1,658)
Change in true-up payment obligation |  |  |  |  | (6,112)
Gain on FDIC loss-share Termination Agreement[1] |  |  |  |  | 102,752
Other |  |  |  |  | 36
Total FDIC loss-share income |  |  |  | $ | 94,725
[1] | Refer to Note 10 for additional information of the Termination Agreement with the FDIC.

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Note 31 – Pension and postretirement benefits

The Corporation has a non-contributory defined benefit pension plan and supplementary pension benefit restoration plans for regular employees of certain of its subsidiaries (the “Pension Plans”). The accrual of benefits under the Pension Plans is frozen to all participants. The Corporation also provides certain postretirement health care benefits for retired employees of certain subsidiaries (the “OPEB Plan”)

The components of net periodic cost for the Pension Plans and the OPEB Plan for the periods presented were as follows:

|  | Pension Plans |  | OPEB Plan
|  | Quarters ended September 30, |  | Quarters ended September 30,
(In thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Personnel Cost: |  |  |  |  |  |  |  |
Service cost | $ | - | $ | - | $ | 190 | $ | 257
Other operating expenses: |  |  |  |  |  |  |  |
Interest cost |  | 7,109 |  | 6,373 |  | 1,489 |  | 1,390
Expected return on plan assets |  | (8,096) |  | (10,060) |  | - |  | -
Amortization of prior service cost/(credit) |  | - |  | - |  | - |  | (868)
Amortization of net loss |  | 5,877 |  | 5,065 |  | - |  | 321
Total net periodic pension cost | $ | 4,890 | $ | 1,378 | $ | 1,679 | $ | 1,100

|  | Pension Plans |  | OPEB Plan
|  | Nine months ended September 30, |  | Nine months ended September 30,
(In thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Personnel Cost: |  |  |  |  |  |  |  |
Service cost | $ | - | $ | - | $ | 570 | $ | 771
Other operating expenses: |  |  |  |  |  |  |  |
Interest cost |  | 21,329 |  | 19,119 |  | 4,466 |  | 4,171
Expected return on plan assets |  | (24,288) |  | (30,180) |  | - |  | -
Amortization prior service cost/(credit) |  | - |  | - |  | - |  | (2,603)
Amortization of net loss |  | 17,629 |  | 15,195 |  | - |  | 962
Total net periodic pension cost | $ | 14,670 | $ | 4,134 | $ | 5,036 | $ | 3,301

The Corporation paid the following contributions to the plans during the quarter ended September 30, 2019 and expects to pay the following contributions for the year ending December 31, 2019.

| For the quarters ended | For the year ending
(In thousands) | 30-Sep-19 | 31-Dec-19
Pension Plans | $ | 20,057 | $ | 20,229
OPEB Plan | $ | 1,472 | $ | 8,128

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Note 32 - Stock-based compensation

Incentive Plan

The Popular, Inc. 2004 Omnibus Incentive Plan (the “Incentive Plan”) permits the issuance of several types of stock based compensation for employees and directors of the Corporation and/or any of its subsidiaries. Participants in the Incentive Plan are designated by the Compensation Committee of the Board of Directors (or its delegate as determined by the Board). Under the Incentive Plan, the Corporation has issued restricted stock and performance shares for its employees and restricted stock and restricted stock units (“RSU”) to its directors.

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

The performance share awards consist of the opportunity to receive shares of Popular, Inc.’s common stock provided that the Corporation achieves certain goals during a three-year performance cycle. The goals will be based on two metrics weighted equally: the Relative Total Shareholder Return (“TSR”) and the Absolute Earnings per Share (“EPS”) goals. The TSR metric is considered to be a market condition under ASC 718. For equity settled awards based on a market condition, the fair value is determined as of the grant date and is not subsequently revised based on actual performance. The EPS performance metric is considered to be a performance condition under ASC 718. The fair value is determined based on the probability of achieving the EPS goal as of each reporting period. The TSR and EPS metrics are equally weighted and work independently. The number of shares that will ultimately vest ranges from 50% to a 150% of target based on both market (TSR) and performance (EPS) conditions. The performance shares vest at the end of the three-year performance cycle. If a participant terminates employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service, the performance shares shall continue outstanding and vest at the end of the performance cycle.

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

(Not in thousands) | Shares |  | Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2017 | 295,340 | $ | 30.75
Granted | 239,062 |  | 45.81
Performance Shares Quantity Adjustment | 234,076 |  | 33.09
Vested | (372,271) |  | 35.83
Forfeited | (14,021) |  | 37.35
Non-vested at December 31, 2018 | 382,186 | $ | 36.41
Granted | 218,169 |  | 55.55
Performance Shares Quantity Adjustment | 22,973 |  | 55.51
Vested | (275,727) |  | 44.97
Non-vested at September 30, 2019 | 347,601 | $ | 41.77

During the quarter ended September 30, 2019, 619 shares of restricted stock (September 30, 2018 – 8,395) were awarded to management under the Incentive Plan. During the quarters ended September 30, 2019 and 2018, no performance shares were awarded to management under the Incentive Plan. For the nine months ended September 30, 2019, 152,773 shares of restricted stock (September 30, 2018 – 163,701) and 65,396 performance shares (September 30, 2018 - 72,414) were awarded to management under the incentive plan.

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During the quarter ended September 30, 2019, the Corporation recognized $1.0 million of restricted stock expense related to management incentive awards, with a tax benefit of $0.2 million (September 30, 2018 - $1.1 million, with a tax benefit of $0.2 million). For the nine months ended September 30, 2019, the Corporation recognized $6.8 million of restricted stock expense related to management incentive awards, with a tax benefit of $1.1 million (September 30, 2018 - $5.9 million, with a tax benefit of $0.9 million). For the nine months ended September 30, 2019, the fair market value of the restricted stock and performance shares vested was $13.7 million at grant date and $18.9 million at vesting date. This triggers a windfall of $1.9 million that was recorded as a reduction on income tax expense. During the quarter ended September 30, 2019 the Corporation recognized $0.4 million of performance shares expense, with a tax benefit of $23 thousand (September 30, 2018 - $0.6 million, with a tax benefit of $12 thousand). For the nine months ended September 30, 2019, the Corporation recognized $4.3 million of performance shares expense, with a tax benefit of $0.3 million (September 30, 2018 - $3.8 million, with a tax benefit of $0.3 million). The total unrecognized compensation cost related to non-vested restricted stock awards and performance shares to members of management at September 30, 2019 was $9.2 million and is expected to be recognized over a weighted-average period of 2.5 years.

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

(Not in thousands) | Restricted Stock shares |  | Weighted-Average Grant Date Fair Value per Share | Restricted Stock units |  | Weighted-Average Grant Date Fair Value per Unit
Non-vested at December 31, 2017 | - | $ | - | - | $ | -
Granted | 25,159 |  | 46.71 | - |  | -
Vested | (25,159) |  | 46.71 | - |  | -
Forfeited | - |  | - | - |  | -
Non-vested at December 31, 2018 | - | $ | - | - | $ | -
Granted | 1,052 |  | 49.25 | 27,449 |  | 57.64
Vested | (1,052) |  | 49.25 | (27,449) |  | 57.64
Forfeited | - |  | - | - |  | -
Non-vested at September 30, 2019 | - | $ | - | - | $ | -

Effective on May 2019, all equity awards granted to the directors may be paid in either restricted stocks or RSU, at the directors’ election. For the year 2019, all directors elected RSU. The directors’ equity awards will vest and become non-forfeitable on the grant date of such award. At the director’s option, the shares of common stocks underlying the RSU award shall be delivered to the director after its retirement, either on a fix date or in annual installments. To the extent that cash dividends are paid on the Corporation’s outstanding common stocks, the director will receive an additional number of RSU that reflect reinvested dividend equivalent.

During the quarter ended September 30, 2019, no shares of restricted stock were granted to members of the Board of Directors of Popular, Inc. (September 30, 2018 - 2,765) and 1,989 RSUs were granted to members of the Board of Directors of Popular, Inc. During this period, the Corporation did not recognize any expense related to these restricted stock shares, (September 30, 2018 - $0.1 million, with a tax benefit of $16 thousand), and the expense related to these RSUs was of $0.1 million. For the nine months ended September 30, 2019, the Corporation granted 1,052 shares of restricted stock to members of the Board of Directors of Popular, Inc., which became vested at grant date (September 30, 2018 – 25,159) and 27,449 RSU to members of the Board of Directors of Popular, Inc., which became vested at grant date. During this period, the Corporation recognized $52 thousand of restricted stock expense related to these restricted stock shares, with a tax benefit of $6 thousand (September 30, 2018 - $1.6 million, with a tax benefit of $0.2 million) and $1.5 million of restricted stock expense related to these RSU, with a tax benefit of $0.2 million. The fair value at vesting date of the restricted stock shares and RSU vested during the nine months ended September 30, 2019 for directors was $52 thousand and $1.5 million respectively.

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Note 33 – Income taxes

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

|  |  | Quarters ended |
|  |  | September 30, 2019 |  |  |  | September 30, 2018 |
(In thousands) |  | Amount | % of pre-tax income |  |  |  | Amount | % of pre-tax income |
Computed income tax expense at statutory rates | $ | 77,508 | 38 | % |  | $ | 71,240 | 39 | %
Net benefit of tax exempt interest income |  | (38,103) | (18) |  |  |  | (24,941) | (14) |
Deferred tax asset valuation allowance |  | 3,170 | 1 |  |  |  | 5,606 | 3 |
Difference in tax rates due to multiple jurisdictions |  | (4,233) | (2) |  |  |  | (5,203) | (3) |
Effect of income subject to preferential tax rate |  | (2,243) | (1) |  |  |  | (2,031) | (1) |
Unrecognized tax benefits |  | - | - |  |  |  | (1,621) | (1) |
State and local taxes |  | 2,180 | 1 |  |  |  | 3,115 | 2 |
Others |  | 3,091 | 1 |  |  |  | (4,147) | (2) |
Income tax (benefit) expense | $ | 41,370 | 20 | % |  | $ | 42,018 | 23 | %

|  |  | Nine months ended |
|  |  | September 30, 2019 |  |  |  | September 30, 2018 |
(In thousands) |  | Amount | % of pre-tax income |  |  |  | Amount | % of pre-tax income |
Computed income tax expense at statutory rates | $ | 238,602 | 38 | % |  | $ | 213,474 | 39 | %
Net benefit of tax exempt interest income |  | (95,986) | (15) |  |  |  | (70,341) | (13) |
Deferred tax asset valuation allowance |  | 9,915 | 2 |  |  |  | 17,018 | 3 |
Difference in tax rates due to multiple jurisdictions |  | (9,851) | (2) |  |  |  | (10,400) | (2) |
Effect of income subject to preferential tax rate[1] |  | (7,458) | (1) |  |  |  | (108,087) | (20) |
Unrecognized tax benefits |  | - | - |  |  |  | (1,621) | - |
State and local taxes |  | 5,535 | 1 |  |  |  | 6,196 | 1 |
Others |  | (8,834) | (2) |  |  |  | (10,626) | (2) |
Income tax (benefit) expense | $ | 131,923 | 21 | % |  | $ | 35,613 | 6 | %
[1] | For the nine months ended September 30, 2018, includes the impact of the Tax Closing Agreement entered into in connection with the FDIC Transaction.

Income tax expense of $35.6 million for the nine months ended September 30, 2018, reflects the impact of the Termination Agreement with the FDIC. As result of the termination Agreement the Corporation recognized an additional income tax expense of $49.8 million associated with the “deemed sale” incremental tax liability at the capital gains rate per the Tax Closing Agreement entered between the Puerto Rico Department of the Treasury and the Corporation. In addition, the Corporation recognized an income tax benefit of $158.7 million related to the increase in deferred tax assets due to increase in the tax basis of the loans as a result of the “deemed sale” for a net tax benefit of $108.9 million. Also, the Corporation recorded an income tax expense of $45.0 million related to the gain resulting from the Termination Agreement, mainly related to the reversal of net deferred tax liability of the true-up payment obligation and the FDIC Loss Share Asset.

Effective for taxable years beginning after December 31, 2018, Act No. 257 of 2018, which amended the Puerto Rico Internal Revenue Code, reduced the Puerto Rico corporate income tax rate from 39% to 37.5%.

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

100

|  |  | September 30, 2019
(In thousands) |  | PR |  | US |  | Total
Deferred tax assets: |  |  |  |  |  |
Tax credits available for carryforward | $ | 16,442 | $ | 7,757 | $ | 24,199
Net operating loss and other carryforward available |  | 128,899 |  | 711,507 |  | 840,406
Postretirement and pension benefits |  | 74,833 |  | - |  | 74,833
Allowance for loan losses |  | 425,855 |  | 18,680 |  | 444,535
Deferred gains |  | - |  | 2,443 |  | 2,443
Accelerated depreciation |  | 1,963 |  | 5,626 |  | 7,589
FDIC-assisted transaction |  | 85,609 |  | - |  | 85,609
Intercompany deferred gains |  | 1,377 |  | - |  | 1,377
Difference in outside basis from pass-through entities |  | 18,570 |  | - |  | 18,570
Other temporary differences |  | 28,722 |  | 8,189 |  | 36,911
| Total gross deferred tax assets |  | 782,270 |  | 754,202 |  | 1,536,472
Deferred tax liabilities: |  |  |  |  |  |
Indefinite-lived intangibles |  | 36,578 |  | 43,164 |  | 79,742
Unrealized net gain (loss) on trading and available-for-sale securities |  | 40,840 |  | 1,029 |  | 41,869
Deferred loan origination costs |  | (2,741) |  | 3,027 |  | 286
Other temporary differences |  | 12,432 |  | 1,109 |  | 13,541
| Total gross deferred tax liabilities |  | 87,109 |  | 48,329 |  | 135,438
Valuation allowance |  | 99,766 |  | 392,643 |  | 492,409
Net deferred tax asset | $ | 595,395 | $ | 313,230 | $ | 908,625
|  |  | December 31, 2018
(In thousands) |  | PR |  | US |  | Total
Deferred tax assets: |  |  |  |  |  |
Tax credits available for carryforward | $ | 15,900 | $ | 7,757 | $ | 23,657
Net operating loss and other carryforward available |  | 116,154 |  | 720,933 |  | 837,087
Postretirement and pension benefits |  | 83,390 |  | - |  | 83,390
Deferred loan origination fees |  | 3,216 |  | (1,280) |  | 1,936
Allowance for loan losses |  | 516,643 |  | 18,612 |  | 535,255
Deferred gains |  | - |  | 2,551 |  | 2,551
Accelerated depreciation |  | 1,963 |  | 5,786 |  | 7,749
FDIC-assisted transaction |  | 95,851 |  | - |  | 95,851
Intercompany deferred gains |  | 1,518 |  | - |  | 1,518
Difference in outside basis from pass-through entities |  | 20,209 |  | - |  | 20,209
Other temporary differences |  | 24,957 |  | 7,522 |  | 32,479
| Total gross deferred tax assets |  | 879,801 |  | 761,881 |  | 1,641,682
Deferred tax liabilities: |  |  |  |  |  |
Indefinite-lived intangibles |  | 34,081 |  | 39,597 |  | 73,678
Unrealized net gain (loss) on trading and available-for-sale securities |  | 23,823 |  | (12,783) |  | 11,040
Other temporary differences |  | 10,579 |  | 1,109 |  | 11,688
| Total gross deferred tax liabilities |  | 68,483 |  | 27,923 |  | 96,406
Valuation allowance |  | 89,852 |  | 406,455 |  | 496,307
Net deferred tax asset | $ | 721,466 | $ | 327,503 | $ | 1,048,969

101

The net deferred tax asset shown in the table above at September 30, 2019 is reflected in the consolidated statements of financial condition as $0.9 billion in net deferred tax assets in the “Other assets” caption (December 31, 2018 - $1.0 billion) and $1.0 million in deferred tax liabilities in the “Other liabilities” caption (December 31, 2018 - $926 thousand), reflecting the aggregate deferred tax assets or liabilities of individual tax-paying subsidiaries of the Corporation in their respective tax jurisdiction, Puerto Rico or the United States.

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

At September 30, 2019 the net deferred tax asset of the U.S. operations amounted to $706 million with a valuation allowance of approximately $393 million, for a net deferred tax asset of approximately $313 million. As of September 30, 2019, management estimated that the U.S. operations would earn enough pre-tax Income during the carryover period to realize the total amount of net deferred tax asset after valuation allowance. After weighting all available positive and negative evidence, management concluded that is more likely than not that a portion of the deferred tax asset from the U.S. operation, amounting to approximately $313 million, will be realized. Management will continue to evaluate the realization of the deferred tax asset each quarter and adjust as any changes arises.

At September 30, 2019, the Corporation’s net deferred tax assets related to its Puerto Rico operations amounted to $595 million.

The Corporation’s Puerto Rico Banking operation is not in a cumulative three year loss position and has sustained profitability for the three year period ended September 30, 2019. This is considered a strong piece of objectively verifiable positive evidence that outweights any negative evidence considered by management in the evaluation of the realization of the deferred tax asset. Based on this evidence and management’s estimate of future taxable income, the Corporation has concluded that it is more likely than not that such net deferred tax asset of the Puerto Rico Banking operations will be realized.

The Popular, Inc., holding company (“PIHC”) operation is in a cumulative loss position taking into account taxable income exclusive of reversing temporary differences, for the three year period ended September 30, 2019. Management expects these losses will be a trend in future years. This objectively verifiable negative evidence is considered by management as strong negative evidence that will suggest that income in future years will be insufficient to support the realization of all deferred tax asset. After weighting of all positive and negative evidence management concluded, as of the reporting date, that it is more likely than not that the PIHC will not be able to realize any portion of the deferred tax assets, considering the criteria of ASC Topic 740. Accordingly, a valuation allowance is recorded on the deferred tax asset at the PIHC, which amounted to $99.8 million as of September 30, 2019.

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

(In millions) |  | 2019 |  |  | 2018
Balance at January 1 | $ | 7.2 |  | $ | 7.3
Additions for tax positions - January through March |  | 0.3 |  |  | 0.2
Balance at March 31 | $ | 7.5 |  | $ | 7.5
Additions for tax positions - April through June |  | 0.2 |  |  | 0.3
Balance at June 30 | $ | 7.7 |  | $ | 7.8
Additions for tax positions - July through September |  | - |  |  | 0.3
Reduction as a result of lapse of statute of limitations - July through September |  | - |  |  | (1.2)
Balance at September 30 | $ | 7.7 |  | $ | 6.9

102

At September 30, 2019, the total amount of accrued interest recognized in the statement of financial condition approximated $3.1 million (December 31, 2018 - $2.8 million). The total interest expense recognized at September 30, 2019 was $317 thousand (September 30, 2018 - $477 thousand). Management determined that at September 30, 2019 and December 31, 2018 there was no need to accrue for the payment of penalties. The Corporation’s policy is to report interest related to unrecognized tax benefits in income tax expense, while the penalties, if any, are reported in other operating expenses in the consolidated statements of operations.

After consideration of the effect on U.S. federal tax of unrecognized U.S. state tax benefits, the total amount of unrecognized tax benefits, including U.S. and Puerto Rico, that if recognized, would affect the Corporation’s effective tax rate, was approximately $10.1 million at September 30, 2019 (December 31, 2018 - $9.0 million).

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

The Corporation and its subsidiaries file income tax returns in Puerto Rico, the federal jurisdiction, various states and political subdivisions, and foreign jurisdictions. At September 30, 2019, the following years remain subject to examination in the U.S. Federal jurisdiction: 2015 and thereafter; and in the Puerto Rico jurisdiction, 2014 and thereafter. The Corporation anticipates a reduction in the total amount of unrecognized tax benefits within the next 12 months, which could amount to approximately $3.2 million.

103

Note 34 – Supplemental disclosure on the consolidated statements of cash flows

Additional disclosures on cash flow information and non-cash activities for the nine months ended September 30, 2019 and September 30, 2018 are listed in the following table:

(In thousands) |  | September 30, 2019 |  | September 30, 2018
Non-cash activities: |  |  |  |
Loans transferred to other real estate | $ | 44,575 | $ | 23,188
Loans transferred to other property |  | 40,384 |  | 30,973
Total loans transferred to foreclosed assets |  | 84,959 |  | 54,161
Loans transferred to other assets |  | 14,174 |  | 11,218
Financed sales of other real estate assets |  | 11,710 |  | 11,962
Financed sales of other foreclosed assets |  | 22,047 |  | 12,347
Total financed sales of foreclosed assets |  | 33,757 |  | 24,309
Transfers from loans held-for-sale to loans held-in-portfolio |  | 7,735 |  | 20,063
Loans securitized into investment securities[1] |  | 331,112 |  | 392,080
Trades receivable from brokers and counterparties |  | 66,389 |  | 57,290
Trades payable to brokers and counterparties |  | 26,782 |  | 22,244
Receivables from investments maturities |  | - |  | 19,000
Recognition of mortgage servicing rights on securitizations or asset transfers |  | 6,728 |  | 7,871
Interest capitalized on loans subject to the temporary payment moratorium |  | - |  | 481
Loans booked under the GNMA buy-back option |  | 52,711 |  | 380,329
Capitalization of lease right of use asset |  | 169,123 |  | -
Gain from the FDIC Termination Agreement |  | - |  | 102,752
Payable to Wells Fargo related to auto finance business acquisition |  | - |  | 13,193
[1] | Includes loans securitized into trading securities and subsequently sold before quarter end. |  |  |  |

The following table provides a reconciliation of cash and due from banks, and restricted cash reported within the Consolidated Statement of Financial Condition that sum to the total of the same such amounts shown in the Consolidated Statement of Cash Flows.

(In thousands) | September 30, 2019 | September 30, 2018
Cash and due from banks | $ | 476,815 | $ | 378,468
Restricted cash and due from banks |  | 25,245 |  | 22,481
Restricted cash in money market investments |  | 5,913 |  | 11,234
Total cash and due from banks, and restricted cash[2] | $ | 507,973 | $ | 412,183
[2] | Refer to Note 5 - Restrictions on cash and due from banks and certain securities for nature of restrictions.

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Note 35 – Segment reporting

The Corporation’s corporate structure consists of two reportable segments – Banco Popular de Puerto Rico and Popular U.S.

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

Banco Popular de Puerto Rico:

Given that Banco Popular de Puerto Rico constitutes a significant portion of the Corporation’s results of operations and total assets at September 30, 2019, additional disclosures are provided for the business areas included in this reportable segment, as described below:

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

Consumer and retail banking represents the branch banking operations of BPPR which focus on retail clients. It includes the consumer lending business operations of BPPR, as well as the lending operations of Popular Auto and Popular Mortgage. Popular Auto focuses on auto and lease financing, while Popular Mortgage focuses principally on residential mortgage loan originations. During 2018, the Reliable brand was transferred to Popular, Inc. and is being used by Popular Auto. 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. Popular Insurance V.I. was dissolved on December 31, 2018.

Popular U.S.:

Popular U.S. reportable segment consists of the banking operations of Popular Bank (PB) and Popular Insurance Agency, U.S.A. PB operates through a retail branch network in the U.S. mainland under the name of Popular. Popular Insurance Agency, U.S.A. offers investment and insurance services across the PB branch network.

The Corporate group consists primarily of the holding companies Popular, Inc., Popular North America, Popular International Bank and certain of the Corporation’s investments accounted for under the equity method, including EVERTEC and Centro Financiero BHD, León.

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.

Effective on January 1, 2019, the Corporation’s management changed the measurement basis for its reportable segments. Historically, for management reporting purposes, the Corporation had reversed the effect of the intercompany billings from Popular Inc., holding company, to its subsidiaries for certain services or expenses incurred on their behalf. In addition, the Corporation used to reflect an income tax expense allocation for several of its subsidiaries which are Limited Liability Companies (“LLCs”) and had made an election to be treated as a pass through entities for income tax purposes. The Corporation’s management has determined to discontinue making these adjustments, effective on January 1, 2019, for purposes of its management and reportable segment reporting. The Corporation reflected these changes in the measurement of the reportable segments’ results prospectively beginning on January 1, 2019. For the quarter ended September 30, 2018, the intercompany billings from Popular, Inc. to the Banco Popular de Puerto Rico and Popular U.S. reportable segments amounted to $21.8 million and $3.3 million, respectively. For the nine months

105

ended September 30, 2018, the intercompany billings from Popular, Inc to the Banco Popular de Puerto Rico and Popular U.S. reportable segments amounted to $59.3 million and $9.5 million, respectively.

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

2019
For the quarter ended September 30, 2019
|  |  |  | Banco Popular |  |  |  | Intersegment
(In thousands) |  |  |  | de Puerto Rico |  | Popular U.S. |  | Eliminations
Net interest income |  |  | $ | 412,182 | $ | 74,391 | $ | 4
Provision for loan losses |  |  |  | 34,481 |  | 2,060 |  | -
Non-interest income |  |  |  | 124,868 |  | 5,953 |  | (140)
Amortization of intangibles |  |  |  | 2,208 |  | 167 |  | -
Depreciation expense |  |  |  | 11,972 |  | 2,046 |  | -
Other operating expenses |  |  |  | 309,815 |  | 51,616 |  | (136)
Income tax expense |  |  |  | 35,286 |  | 6,216 |  | -
Net income |  |  | $ | 143,288 | $ | 18,239 | $ | -
Segment assets |  |  | $ | 42,080,292 | $ | 10,095,526 | $ | (14,414)
For the quarter ended September 30, 2019
|  | Reportable |  |  |  |  |  |
(In thousands) |  | Segments |  | Corporate |  | Eliminations |  | Total Popular, Inc.
Net interest income (expense) | $ | 486,577 | $ | (9,586) | $ | - | $ | 476,991
Provision for loan losses |  | 36,541 |  | (2) |  | - |  | 36,539
Non-interest income |  | 130,681 |  | 12,137 |  | (106) |  | 142,712
Amortization of intangibles |  | 2,375 |  | 24 |  | - |  | 2,399
Depreciation expense |  | 14,018 |  | 186 |  | - |  | 14,204
Other operating expenses |  | 361,295 |  | (647) |  | (776) |  | 359,872
Income tax expense (benefit) |  | 41,502 |  | (392) |  | 260 |  | 41,370
Net income (loss) | $ | 161,527 | $ | 3,382 | $ | 410 | $ | 165,319
Segment assets | $ | 52,161,404 | $ | 5,134,608 | $ | (4,815,597) | $ | 52,480,415

For the nine months ended September 30, 2019
|  |  |  | Banco Popular |  |  |  | Intersegment
(In thousands) |  |  |  | de Puerto Rico |  | Popular U.S. |  | Eliminations
Net interest income |  |  | $ | 1,231,088 | $ | 221,856 | $ | (53)
Provision for loan losses |  |  |  | 94,651 |  | 23,647 |  | -
Non-interest income |  |  |  | 369,026 |  | 17,309 |  | (421)
Amortization of intangibles |  |  |  | 6,510 |  | 499 |  | -
Depreciation expense |  |  |  | 36,154 |  | 6,215 |  | -
Other operating expenses |  |  |  | 887,941 |  | 151,966 |  | (409)
Income tax expense |  |  |  | 117,413 |  | 15,528 |  | -
Net income |  |  | $ | 457,445 | $ | 41,310 | $ | (65)
Segment assets |  |  | $ | 42,080,292 | $ | 10,095,526 | $ | (14,414)
For the nine months ended September 30, 2019
|  | Reportable |  |  |  |  |  |
(In thousands) |  | Segments |  | Corporate |  | Eliminations |  | Total Popular, Inc.
Net interest income (expense) | $ | 1,452,891 | $ | (28,621) | $ | - | $ | 1,424,270
Provision for loan losses |  | 118,298 |  | 257 |  | - |  | 118,555
Non-interest income |  | 385,914 |  | 33,537 |  | (1,983) |  | 417,468
Amortization of intangibles |  | 7,009 |  | 73 |  | - |  | 7,082
Depreciation expense |  | 42,369 |  | 559 |  | - |  | 42,928
Other operating expenses |  | 1,039,498 |  | (233) |  | (2,365) |  | 1,036,900
Income tax expense (benefit) |  | 132,941 |  | (1,158) |  | 140 |  | 131,923
Net income | $ | 498,690 | $ | 5,418 | $ | 242 | $ | 504,350
Segment assets | $ | 52,161,404 | $ | 5,134,608 | $ | (4,815,597) | $ | 52,480,415

106

2018
For the quarter ended September 30, 2018
|  |  |  | Banco Popular |  |  |  | Intersegment
(In thousands) |  |  |  | de Puerto Rico |  | Popular U.S. |  | Eliminations
Net interest income |  |  | $ | 388,533 | $ | 76,184 | $ | 3
Provision for loan losses |  |  |  | 51,911 |  | 2,510 |  | -
Non-interest income |  |  |  | 135,762 |  | 5,530 |  | (141)
Amortization of intangibles |  |  |  | 2,157 |  | 167 |  | -
Depreciation expense |  |  |  | 11,135 |  | 2,185 |  | -
Other operating expenses |  |  |  | 282,124 |  | 44,279 |  | (136)
Income tax expense |  |  |  | 39,421 |  | 10,439 |  | -
Net income |  |  | $ | 137,547 | $ | 22,134 | $ | (2)
Segment assets |  |  | $ | 38,338,571 | $ | 9,388,787 | $ | (112,222)
For the quarter ended September 30, 2018
|  | Reportable |  |  |  |  |  |
(In thousands) |  | Segments |  | Corporate |  | Eliminations |  | Total Popular, Inc.
Net interest income (expense) | $ | 464,720 | $ | (13,251) | $ | - | $ | 451,469
Provision (reversal) for loan losses |  | 54,421 |  | (34) |  | - |  | 54,387
Non-interest income |  | 141,151 |  | 9,960 |  | (90) |  | 151,021
Amortization of intangibles |  | 2,324 |  | - |  | - |  | 2,324
Depreciation expense |  | 13,320 |  | 188 |  | - |  | 13,508
Other operating expenses |  | 326,267 |  | 23,995 |  | (657) |  | 349,605
Income tax expense (benefit) |  | 49,860 |  | (8,070) |  | 228 |  | 42,018
Net income (loss) | $ | 159,679 | $ | (19,370) | $ | 339 | $ | 140,648
Segment assets | $ | 47,615,136 | $ | 5,478,884 | $ | (5,174,592) | $ | 47,919,428

For the nine months ended September 30, 2018
|  |  |  | Banco Popular |  |  |  | Intersegment
(In thousands) |  |  |  | de Puerto Rico |  | Popular U.S. |  | Eliminations
Net interest income |  |  | $ | 1,073,522 | $ | 226,654 | $ | 5
Provision for loan losses |  |  |  | 154,805 |  | 30,774 |  | -
Non-interest income |  |  |  | 452,577 |  | 15,010 |  | (420)
Amortization of intangibles |  |  |  | 6,474 |  | 499 |  | -
Depreciation expense |  |  |  | 32,069 |  | 6,466 |  | -
Other operating expenses |  |  |  | 777,574 |  | 135,305 |  | (409)
Income tax expense |  |  |  | 41,088 |  | 15,759 |  | -
Net income |  |  | $ | 514,089 | $ | 52,861 | $ | (6)
Segment assets |  |  | $ | 38,338,571 | $ | 9,388,787 | $ | (112,222)
For the nine months ended September 30, 2018
|  | Reportable |  |  |  |  |  |
(In thousands) |  | Segments |  | Corporate |  | Eliminations |  | Total Popular, Inc.
Net interest income (expense) | $ | 1,300,181 | $ | (41,529) | $ | - | $ | 1,258,652
Provision (reversal) for loan losses |  | 185,579 |  | (75) |  | - |  | 185,504
Non-interest income |  | 467,167 |  | 33,698 |  | (1,538) |  | 499,327
Amortization of intangibles |  | 6,973 |  | - |  | - |  | 6,973
Depreciation expense |  | 38,535 |  | 548 |  | - |  | 39,083
Other operating expenses |  | 912,470 |  | 68,766 |  | (2,185) |  | 979,051
Income tax expense (benefit) |  | 56,847 |  | (21,505) |  | 271 |  | 35,613
Net income (loss) | $ | 566,944 | $ | (55,565) | $ | 376 | $ | 511,755
Segment assets | $ | 47,615,136 | $ | 5,478,884 | $ | (5,174,592) | $ | 47,919,428

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

107

2019
For the quarter ended September 30, 2019
Banco Popular de Puerto Rico
|  |  |  | Consumer |  | Other |  |  |  | Total Banco
|  | Commercial |  | and Retail |  | Financial |  |  |  | Popular de
(In thousands) |  | Banking |  | Banking |  | Services |  | Eliminations |  | Puerto Rico
Net interest income | $ | 160,038 | $ | 250,944 | $ | 1,212 | $ | (12) | $ | 412,182
Provision (reversal) for loan losses |  | (23,619) |  | 58,100 |  | - |  | - |  | 34,481
Non-interest income |  | 25,196 |  | 75,854 |  | 24,545 |  | (727) |  | 124,868
Amortization of intangibles |  | 50 |  | 1,072 |  | 1,086 |  | - |  | 2,208
Depreciation expense |  | 5,064 |  | 6,753 |  | 155 |  | - |  | 11,972
Other operating expenses |  | 82,817 |  | 210,753 |  | 16,986 |  | (741) |  | 309,815
Income tax expense |  | 29,340 |  | 2,649 |  | 3,297 |  | - |  | 35,286
Net income | $ | 91,582 | $ | 47,471 | $ | 4,233 | $ | 2 | $ | 143,288
Segment assets | $ | 35,590,229 | $ | 23,714,260 | $ | 379,126 | $ | (17,603,323) | $ | 42,080,292

For the nine months ended September 30, 2019
Banco Popular de Puerto Rico
|  |  |  | Consumer |  | Other |  |  |  | Total Banco
|  | Commercial |  | and Retail |  | Financial |  |  |  | Popular de
(In thousands) |  | Banking |  | Banking |  | Services |  | Eliminations |  | Puerto Rico
Net interest income | $ | 464,441 | $ | 762,913 | $ | 3,857 | $ | (123) | $ | 1,231,088
Provision (reversal) for loan losses |  | (22,756) |  | 117,407 |  | - |  | - |  | 94,651
Non-interest income |  | 74,481 |  | 220,064 |  | 76,733 |  | (2,252) |  | 369,026
Amortization of intangibles |  | 147 |  | 3,218 |  | 3,145 |  | - |  | 6,510
Depreciation expense |  | 14,615 |  | 21,071 |  | 468 |  | - |  | 36,154
Other operating expenses |  | 229,767 |  | 611,348 |  | 49,076 |  | (2,250) |  | 887,941
Income tax expense |  | 88,353 |  | 19,878 |  | 9,182 |  | - |  | 117,413
Net income | $ | 228,796 | $ | 210,055 | $ | 18,719 | $ | (125) | $ | 457,445
Segment assets | $ | 35,590,229 | $ | 23,714,260 | $ | 379,126 | $ | (17,603,323) | $ | 42,080,292

| 2018
| For the quarter ended September 30, 2018
| Banco Popular de Puerto Rico
|  |  |  |  | Consumer |  | Other |  | Eliminations |  | Total Banco
|  |  | Commercial |  | and Retail |  | Financial |  | and Other |  | Popular de
(In thousands) |  | Banking |  | Banking |  | Services |  | Adjustments [1] |  | Puerto Rico
Net interest income | $ | 145,397 | $ | 241,920 | $ | 1,232 | $ | (16) | $ | 388,533
Provision for loan losses |  | 25,580 |  | 26,331 |  | - |  | - |  | 51,911
Non-interest income |  | 23,630 |  | 88,866 |  | 23,663 |  | (397) |  | 135,762
Amortization of intangibles |  | 50 |  | 1,069 |  | 1,038 |  | - |  | 2,157
Depreciation expense |  | 4,697 |  | 6,287 |  | 151 |  | - |  | 11,135
Other operating expenses |  | 78,628 |  | 183,626 |  | 20,279 |  | (409) |  | 282,124
Income tax expense |  | 11,068 |  | 27,436 |  | 917 |  | - |  | 39,421
Net income | $ | 49,004 | $ | 86,037 | $ | 2,510 | $ | (4) | $ | 137,547
Segment assets | $ | 28,247,478 | $ | 22,672,941 | $ | 336,311 | $ | (12,918,159) | $ | 38,338,571

108

| For the nine months ended September 30, 2018
| Banco Popular de Puerto Rico
|  |  |  | Consumer |  | Other |  | Eliminations |  | Total Banco
|  | Commercial |  | and Retail |  | Financial |  | and Other |  | Popular de
(In thousands) |  | Banking |  | Banking |  | Services |  | Adjustments [1] |  | Puerto Rico
Net interest income | $ | 430,341 | $ | 639,149 | $ | 4,066 | $ | (34) | $ | 1,073,522
Provision for loan losses |  | 56,027 |  | 98,778 |  | - |  | - |  | 154,805
Non-interest income |  | 60,122 |  | 220,690 |  | 69,876 |  | 101,889 |  | 452,577
Amortization of intangibles |  | 153 |  | 3,209 |  | 3,112 |  | - |  | 6,474
Depreciation expense |  | 13,327 |  | 18,284 |  | 458 |  | - |  | 32,069
Other operating expenses |  | 199,528 |  | 518,147 |  | 52,679 |  | 7,220 |  | 777,574
Income tax expense |  | 52,640 |  | 46,625 |  | 5,711 |  | (63,888) |  | 41,088
Net income | $ | 168,788 | $ | 174,796 | $ | 11,982 | $ | 158,523 | $ | 514,089
Segment assets | $ | 28,247,478 | $ | 22,672,941 | $ | 336,311 | $ | (12,918,159) | $ | 38,338,571
[1] | Includes the impact of the Termination Agreement with the FDIC and the Tax Closing Agreement entered into in connection with the FDIC transaction. These transactions resulted in a gain of $102.8 million reported in the non-interest income line, other operating expenses of $8.1 million and a net tax benefit of $63.9 million. Refer to Notes 10 and 33 to the Consolidated Financial Statements for additional information.

Geographic Information |  |  |  |
|  |  | Quarter ended |  | Nine months ended
(In thousands) |  | September 30, 2019 |  | September 30, 2018 |  | September 30, 2019 |  | September 30, 2018
Revenues:[1] |  |  |  |  |  |  |  |
Puerto Rico | $ | 505,608 | $ | 493,512 | $ | 1,507,386 | $ | 1,435,099
United States |  | 94,510 |  | 90,659 |  | 278,330 |  | 264,232
Other |  | 19,585 |  | 18,319 |  | 56,022 |  | 58,648
Total consolidated revenues | $ | 619,703 | $ | 602,490 | $ | 1,841,738 | $ | 1,757,979
[1] | Total revenues include net interest income, service charges on deposit accounts, other service fees, mortgage banking activities, net gain (loss), including impairment on equity securities, net profit (loss) on trading account debt securities, indemnity reserves on loans sold expense, FDIC loss-share income and other operating income.

Selected Balance Sheet Information:
(In thousands) |  | September 30, 2019 |  | December 31, 2018
Puerto Rico |  |  |  |
| Total assets | $ | 40,883,975 | $ | 36,863,930
| Loans |  | 18,752,442 |  | 18,837,742
| Deposits |  | 35,110,213 |  | 31,237,529
United States |  |  |  |
| Total assets | $ | 10,716,967 | $ | 9,847,944
| Loans |  | 7,649,658 |  | 7,034,075
| Deposits |  | 7,676,409 |  | 6,878,599
Other |  |  |  |
| Total assets | $ | 879,473 | $ | 892,703
| Loans |  | 662,245 |  | 687,494
| Deposits[1] |  | 1,379,573 |  | 1,593,911
[1] | Represents deposits from BPPR operations located in the U.S. and British Virgin Islands.

109

Note 36 – Condensed consolidating financial information of guarantor and issuers of registered guaranteed securities

The following condensed consolidating financial information presents the financial position of Popular, Inc. Holding Company (“PIHC”) (parent only), Popular North America, Inc. (“PNA”) and all other subsidiaries of the Corporation at September 30, 2019 and December 31, 2018, and the results of their operations and cash flows for periods ended September 30, 2019 and 2018.

PNA is an operating, 100% owned subsidiary of PIHC and is the holding company of its wholly-owned subsidiaries: Equity One, Inc. and Popular Bank (“PB”), including PB’s wholly-owned subsidiaries Popular Equipment Finance, Inc., Popular Insurance Agency, U.S.A., and E-LOAN, Inc.

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

110

Condensed Consolidating Statement of Financial Condition (Unaudited) |  |  |  |  |  |  |
| At September 30, 2019
|  |  |  |  |  |  | All other |  |  |  |
|  |  | Popular Inc. | PNA |  | subsidiaries and |  | Elimination |  | Popular, Inc.
(In thousands) |  | Holding Co. | Holding Co. |  | eliminations |  | entries |  | Consolidated
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 114,897 | $ | - |  | $ | 502,058 |  | $ | (114,895) |  | $ | 502,060
Money market investments |  |  | 141,513 |  | 12,657 |  |  | 5,168,072 |  |  | (153,657) |  |  | 5,168,585
Trading account debt securities, at fair value |  |  | - |  | - |  |  | 36,303 |  |  | - |  |  | 36,303
Debt securities available-for-sale, at fair value |  |  | - |  | - |  |  | 16,479,110 |  |  | - |  |  | 16,479,110
Debt securities held-to-maturity, at amortized cost |  |  | 8,726 |  | 2,835 |  |  | 86,146 |  |  | - |  |  | 97,707
Equity securities |  |  | 9,918 |  | 20 |  |  | 150,702 |  |  | (182) |  |  | 160,458
Investment in subsidiaries |  |  | 6,150,826 |  | 1,794,752 |  |  | - |  |  | (7,945,578) |  |  | -
Loans held-for-sale, at lower of cost or fair value |  |  | - |  | - |  |  | 56,370 |  |  | - |  |  | 56,370
Loans held-in-portfolio |  |  | 32,163 |  | - |  |  | 27,143,123 |  |  | 5,955 |  |  | 27,181,241
| Less - Unearned income |  |  | - |  | - |  |  | 173,266 |  |  | - |  |  | 173,266
| Allowance for loan losses |  |  | 412 |  | - |  |  | 511,953 |  |  | - |  |  | 512,365
| Total loans held-in-portfolio, net |  |  | 31,751 |  | - |  |  | 26,457,904 |  |  | 5,955 |  |  | 26,495,610
Premises and equipment, net |  |  | 3,583 |  | - |  |  | 543,480 |  |  | - |  |  | 547,063
Other real estate |  |  | 146 |  | - |  |  | 117,782 |  |  | - |  |  | 117,928
Accrued income receivable |  |  | 277 |  | 17 |  |  | 164,596 |  |  | (112) |  |  | 164,778
Mortgage servicing assets, at fair value |  |  | - |  | - |  |  | 150,652 |  |  | - |  |  | 150,652
Other assets |  |  | 91,858 |  | 24,432 |  |  | 1,713,547 |  |  | (18,647) |  |  | 1,811,190
Goodwill |  |  | - |  | - |  |  | 671,123 |  |  | (1) |  |  | 671,122
Other intangible assets |  |  | 6,488 |  | - |  |  | 14,991 |  |  | - |  |  | 21,479
Total assets |  | $ | 6,559,983 | $ | 1,834,713 |  | $ | 52,312,836 |  | $ | (8,227,117) |  | $ | 52,480,415
Liabilities and Stockholders' Equity |  |  |  |  |  |  |  |  |  |  |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-interest bearing |  | $ | - | $ | - |  | $ | 8,886,865 |  | $ | (114,895) |  | $ | 8,771,970
| Interest bearing |  |  | - |  | - |  |  | 35,547,882 |  |  | (153,657) |  |  | 35,394,225
| Total deposits |  |  | - |  | - |  |  | 44,434,747 |  |  | (268,552) |  |  | 44,166,195
Assets sold under agreements to repurchase |  |  | - |  | - |  |  | 213,097 |  |  | - |  |  | 213,097
Notes payable |  |  | 585,802 |  | 94,084 |  |  | 486,784 |  |  | - |  |  | 1,166,670
Other liabilities |  |  | 65,802 |  | 1,651 |  |  | 977,742 |  |  | (19,190) |  |  | 1,026,005
Total liabilities |  |  | 651,604 |  | 95,735 |  |  | 46,112,370 |  |  | (287,742) |  |  | 46,571,967
Stockholders' equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Preferred stock |  |  | 50,160 |  | - |  |  | - |  |  | - |  |  | 50,160
Common stock |  |  | 1,044 |  | 2 |  |  | 56,307 |  |  | (56,309) |  |  | 1,044
Surplus |  |  | 4,308,851 |  | 4,173,120 |  |  | 5,782,145 |  |  | (9,946,560) |  |  | 4,317,556
Retained earnings (accumulated deficit) |  |  | 2,079,725 |  | (2,437,754) |  |  | 494,889 |  |  | 1,934,338 |  |  | 2,071,198
Treasury stock, at cost |  |  | (392,521) |  | - |  |  | - |  |  | (109) |  |  | (392,630)
Accumulated other comprehensive loss,net of tax |  |  | (138,880) |  | 3,610 |  |  | (132,875) |  |  | 129,265 |  |  | (138,880)
Total stockholders' equity |  |  | 5,908,379 |  | 1,738,978 |  |  | 6,200,466 |  |  | (7,939,375) |  |  | 5,908,448
Total liabilities and stockholders' equity |  | $ | 6,559,983 | $ | 1,834,713 |  | $ | 52,312,836 |  | $ | (8,227,117) |  | $ | 52,480,415

111

Condensed Consolidating Statement of Financial Condition (Unaudited) |  |  |  |  |  |
| At December 31, 2018
|  |  |  |  |  | All other |  |  |  |
|  |  | Popular, Inc. | PNA |  | subsidiaries and |  | Elimination |  | Popular, Inc.
(In thousands) |  | Holding Co. | Holding Co. |  | eliminations |  | entries |  | Consolidated
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 68,022 | $ | - |  | $ | 394,035 |  | $ | (68,022) |  | $ | 394,035
Money market investments |  |  | 176,256 |  | 15,288 |  |  | 4,170,792 |  |  | (191,288) |  |  | 4,171,048
Trading account debt securities, at fair value |  |  | - |  | - |  |  | 37,787 |  |  | - |  |  | 37,787
Debt securities available-for-sale, at fair value |  |  | - |  | - |  |  | 13,300,184 |  |  | - |  |  | 13,300,184
Debt securities held-to-maturity, at amortized cost |  |  | 8,726 |  | 2,835 |  |  | 90,014 |  |  | - |  |  | 101,575
Equity securities |  |  | 6,693 |  | 20 |  |  | 149,012 |  |  | (141) |  |  | 155,584
Investment in subsidiaries |  |  | 5,704,119 |  | 1,700,082 |  |  | - |  |  | (7,404,201) |  |  | -
Loans held-for-sale, at lower of cost or fair value |  |  | - |  | - |  |  | 51,422 |  |  | - |  |  | 51,422
Loans held-in-portfolio |  |  | 32,678 |  | - |  |  | 26,625,080 |  |  | 5,955 |  |  | 26,663,713
| Less - Unearned income |  |  | - |  | - |  |  | 155,824 |  |  | - |  |  | 155,824
| Allowance for loan losses |  |  | 155 |  | - |  |  | 569,193 |  |  | - |  |  | 569,348
| Total loans held-in-portfolio, net |  |  | 32,523 |  | - |  |  | 25,900,063 |  |  | 5,955 |  |  | 25,938,541
Premises and equipment, net |  |  | 3,394 |  | - |  |  | 566,414 |  |  | - |  |  | 569,808
Other real estate |  |  | 146 |  | - |  |  | 136,559 |  |  | - |  |  | 136,705
Accrued income receivable |  |  | 284 |  | 116 |  |  | 165,767 |  |  | (145) |  |  | 166,022
Mortgage servicing assets, at fair value |  |  | - |  | - |  |  | 169,777 |  |  | - |  |  | 169,777
Other assets |  |  | 76,073 |  | 27,639 |  |  | 1,626,119 |  |  | (15,697) |  |  | 1,714,134
Goodwill |  |  | - |  | - |  |  | 671,123 |  |  | (1) |  |  | 671,122
Other intangible assets |  |  | 6,559 |  | - |  |  | 20,274 |  |  | - |  |  | 26,833
Total assets |  | $ | 6,082,795 | $ | 1,745,980 |  | $ | 47,449,342 |  | $ | (7,673,540) |  | $ | 47,604,577
Liabilities and Stockholders' Equity |  |  |  |  |  |  |  |  |  |  |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-interest bearing |  | $ | - | $ | - |  | $ | 9,217,058 |  | $ | (68,022) |  | $ | 9,149,036
| Interest bearing |  |  | - |  | - |  |  | 30,752,291 |  |  | (191,288) |  |  | 30,561,003
| Total deposits |  |  | - |  | - |  |  | 39,969,349 |  |  | (259,310) |  |  | 39,710,039
Assets sold under agreements to repurchase |  |  | - |  | - |  |  | 281,529 |  |  | - |  |  | 281,529
Other short-term borrowings |  |  | - |  | - |  |  | 42 |  |  | - |  |  | 42
Notes payable |  |  | 584,851 |  | 94,063 |  |  | 577,188 |  |  | - |  |  | 1,256,102
Other liabilities |  |  | 62,799 |  | 3,287 |  |  | 871,733 |  |  | (16,011) |  |  | 921,808
Total liabilities |  |  | 647,650 |  | 97,350 |  |  | 41,699,841 |  |  | (275,321) |  |  | 42,169,520
Stockholders' equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Preferred stock |  |  | 50,160 |  | - |  |  | - |  |  | - |  |  | 50,160
Common stock |  |  | 1,043 |  | 2 |  |  | 56,307 |  |  | (56,309) |  |  | 1,043
Surplus |  |  | 4,357,079 |  | 4,172,983 |  |  | 5,790,324 |  |  | (9,954,780) |  |  | 4,365,606
Retained earnings (accumulated deficit) |  |  | 1,660,258 |  | (2,479,503) |  |  | 327,713 |  |  | 2,143,263 |  |  | 1,651,731
Treasury stock, at cost |  |  | (205,421) |  | - |  |  | - |  |  | (88) |  |  | (205,509)
Accumulated other comprehensive loss,net of tax |  |  | (427,974) |  | (44,852) |  |  | (424,843) |  |  | 469,695 |  |  | (427,974)
Total stockholders' equity |  |  | 5,435,145 |  | 1,648,630 |  |  | 5,749,501 |  |  | (7,398,219) |  |  | 5,435,057
Total liabilities and stockholders' equity |  | $ | 6,082,795 | $ | 1,745,980 |  | $ | 47,449,342 |  | $ | (7,673,540) |  | $ | 47,604,577

112

Condensed Consolidating Statement of Operations (Unaudited) |  |  |  |  |  |  |  |  |
|  |  |  | Quarter ended September 30, 2019
|  |  |  |  |  |  |  | All other |  |  |  |  |  |
|  |  | Popular, Inc. | PNA | subsidiaries and | Elimination | Popular, Inc.
(In thousands) |  | Holding Co. | Holding Co. | eliminations | entries | Consolidated
Interest and dividend income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Dividend income from subsidiaries |  | $ | 102,000 |  | $ | - |  | $ | - |  | $ | (102,000) |  | $ | -
| Loans |  |  | 576 |  |  | - |  |  | 452,739 |  |  | - |  |  | 453,315
| Money market investments |  |  | 758 |  |  | 55 |  |  | 19,120 |  |  | (814) |  |  | 19,119
| Investment securities |  |  | 160 |  |  | 46 |  |  | 99,336 |  |  | - |  |  | 99,542
| Total interest and dividend income |  |  | 103,494 |  |  | 101 |  |  | 571,195 |  |  | (102,814) |  |  | 571,976
Interest expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Deposits |  |  | - |  |  | - |  |  | 79,574 |  |  | (814) |  |  | 78,760
| Short-term borrowings |  |  | - |  |  | - |  |  | 1,572 |  |  | - |  |  | 1,572
| Long-term debt |  |  | 9,632 |  |  | 1,556 |  |  | 3,465 |  |  | - |  |  | 14,653
| Total interest expense |  |  | 9,632 |  |  | 1,556 |  |  | 84,611 |  |  | (814) |  |  | 94,985
Net interest income (expense) |  |  | 93,862 |  |  | (1,455) |  |  | 486,584 |  |  | (102,000) |  |  | 476,991
Provision (reversal) for loan losses- non-covered loans |  |  | (2) |  |  | - |  |  | 36,541 |  |  | - |  |  | 36,539
Net interest income (expense) after provision (reversal) for loan losses |  |  | 93,864 |  |  | (1,455) |  |  | 450,043 |  |  | (102,000) |  |  | 440,452
Service charges on deposit accounts |  |  | - |  |  | - |  |  | 40,969 |  |  | - |  |  | 40,969
Other service fees |  |  | - |  |  | - |  |  | 71,393 |  |  | (84) |  |  | 71,309
Mortgage banking activities |  |  | - |  |  | - |  |  | 10,492 |  |  | - |  |  | 10,492
Net gain, including impairment on equity securities |  |  | 64 |  |  | - |  |  | 148 |  |  | 1 |  |  | 213
Net loss on sale of debt securities |  |  | - |  |  | - |  |  | (20) |  |  | - |  |  | (20)
Net profit on trading account debt securities |  |  | - |  |  | - |  |  | 295 |  |  | - |  |  | 295
Indemnity reserves on loans sold expense |  |  | - |  |  | - |  |  | (3,411) |  |  | - |  |  | (3,411)
Other operating income (expense) |  |  | 4,626 |  |  | (350) |  |  | 18,610 |  |  | (21) |  |  | 22,865
| Total non-interest income |  |  | 4,690 |  |  | (350) |  |  | 138,476 |  |  | (104) |  |  | 142,712
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Personnel costs |  |  | 14,207 |  |  | - |  |  | 133,475 |  |  | - |  |  | 147,682
Net occupancy expenses |  |  | 1,006 |  |  | - |  |  | 23,589 |  |  | - |  |  | 24,595
Equipment expenses |  |  | 917 |  |  | 1 |  |  | 20,678 |  |  | - |  |  | 21,596
Other taxes |  |  | 61 |  |  | - |  |  | 13,967 |  |  | - |  |  | 14,028
Professional fees |  |  | 6,370 |  |  | 13 |  |  | 92,263 |  |  | (85) |  |  | 98,561
Communications |  |  | 150 |  |  | - |  |  | 5,731 |  |  | - |  |  | 5,881
Business promotion |  |  | 754 |  |  | - |  |  | 17,611 |  |  | - |  |  | 18,365
FDIC deposit insurance |  |  | - |  |  | - |  |  | 2,923 |  |  | - |  |  | 2,923
Other real estate owned (OREO) expenses |  |  | - |  |  | - |  |  | (185) |  |  | - |  |  | (185)
Other operating expenses |  |  | (24,112) |  |  | 14 |  |  | 65,418 |  |  | (690) |  |  | 40,630
Amortization of intangibles |  |  | 24 |  |  | - |  |  | 2,375 |  |  | - |  |  | 2,399
| Total operating expenses |  |  | (623) |  |  | 28 |  |  | 377,845 |  |  | (775) |  |  | 376,475
Income (loss) before income tax and equity in (losses) earnings of subsidiaries |  |  | 99,177 |  |  | (1,833) |  |  | 210,674 |  |  | (101,329) |  |  | 206,689
Income tax (benefit) expense |  |  | - |  |  | (385) |  |  | 41,494 |  |  | 261 |  |  | 41,370

113

Income (loss) before equity in (losses) earnings of subsidiaries |  |  | 99,177 |  |  | (1,448) |  |  | 169,180 |  |  | (101,590) |  |  | 165,319
Equity in undistributed earnings of subsidiaries |  |  | 66,142 |  |  | 18,210 |  |  | - |  |  | (84,352) |  |  | -
Net income |  | $ | 165,319 |  | $ | 16,762 |  | $ | 169,180 |  | $ | (185,942) |  | $ | 165,319
Comprehensive income, net of tax |  | $ | 217,652 |  | $ | 25,872 |  | $ | 222,592 |  | $ | (248,464) |  | $ | 217,652

114

Condensed Consolidating Statement of Operations (Unaudited) |  |  |  |  |  |  |  |  |
|  |  |  | Nine months ended September 30, 2019
|  |  |  |  |  |  |  | All other |  |  |  |  |  |
|  |  | Popular, Inc. | PNA | subsidiaries and | Elimination | Popular, Inc.
(In thousands) |  | Holding Co. | Holding Co. | eliminations | entries | Consolidated
Interest and dividend income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Dividend income from subsidiaries |  | $ | 356,300 |  | $ | - |  | $ | - |  | $ | (356,300) |  | $ | -
| Loans |  |  | 1,661 |  |  | - |  |  | 1,353,571 |  |  | - |  |  | 1,355,232
| Money market investments |  |  | 2,498 |  |  | 161 |  |  | 70,873 |  |  | (2,659) |  |  | 70,873
| Investment securities |  |  | 473 |  |  | 139 |  |  | 274,207 |  |  | - |  |  | 274,819
| Total interest and dividend income |  |  | 360,932 |  |  | 300 |  |  | 1,698,651 |  |  | (358,959) |  |  | 1,700,924
Interest expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Deposits |  |  | - |  |  | - |  |  | 230,694 |  |  | (2,659) |  |  | 228,035
| Short-term borrowings |  |  | - |  |  | - |  |  | 4,828 |  |  | - |  |  | 4,828
| Long-term debt |  |  | 28,896 |  |  | 4,671 |  |  | 10,224 |  |  | - |  |  | 43,791
| Total interest expense |  |  | 28,896 |  |  | 4,671 |  |  | 245,746 |  |  | (2,659) |  |  | 276,654
Net interest income (expense) |  |  | 332,036 |  |  | (4,371) |  |  | 1,452,905 |  |  | (356,300) |  |  | 1,424,270
Provision for loan losses- non-covered loans |  |  | 257 |  |  | - |  |  | 118,298 |  |  | - |  |  | 118,555
Net interest income (expense) after provision (reversal) for loan losses |  |  | 331,779 |  |  | (4,371) |  |  | 1,334,607 |  |  | (356,300) |  |  | 1,305,715
Service charges on deposit accounts |  |  | - |  |  | - |  |  | 119,277 |  |  | - |  |  | 119,277
Other service fees |  |  | 2 |  |  | - |  |  | 211,565 |  |  | (1,920) |  |  | 209,647
Mortgage banking activities |  |  | - |  |  | - |  |  | 18,645 |  |  | - |  |  | 18,645
Net loss on sale of debt securities |  |  | - |  |  | - |  |  | (20) |  |  | - |  |  | (20)
Net gain, including impairment on equity securities |  |  | 934 |  |  | - |  |  | 1,261 |  |  | (21) |  |  | 2,174
Net gain on trading account debt securities |  |  | - |  |  | - |  |  | 977 |  |  | - |  |  | 977
Indemnity reserves on loans sold expense |  |  | - |  |  | - |  |  | (1,664) |  |  | - |  |  | (1,664)
Other operating income (expense) |  |  | 13,431 |  |  | (984) |  |  | 56,026 |  |  | (41) |  |  | 68,432
| Total non-interest income (expense) |  |  | 14,367 |  |  | (984) |  |  | 406,067 |  |  | (1,982) |  |  | 417,468
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Personnel costs |  |  | 46,910 |  |  | - |  |  | 385,388 |  |  | - |  |  | 432,298
Net occupancy expenses |  |  | 3,231 |  |  | - |  |  | 68,243 |  |  | (43) |  |  | 71,431
Equipment expenses |  |  | 2,616 |  |  | 3 |  |  | 60,005 |  |  | - |  |  | 62,624
Other taxes |  |  | 185 |  |  | 1 |  |  | 38,081 |  |  | - |  |  | 38,267
Professional fees |  |  | 13,780 |  |  | 68 |  |  | 267,841 |  |  | (414) |  |  | 281,275
Communications |  |  | 483 |  |  | - |  |  | 17,202 |  |  | - |  |  | 17,685
Business promotion |  |  | 2,435 |  |  | - |  |  | 49,723 |  |  | - |  |  | 52,158
FDIC deposit insurance |  |  | - |  |  | - |  |  | 13,007 |  |  | - |  |  | 13,007
Other real estate owned (OREO) expenses |  |  | - |  |  | - |  |  | 3,729 |  |  | - |  |  | 3,729
Other operating expenses |  |  | (69,904) |  |  | 43 |  |  | 179,123 |  |  | (1,908) |  |  | 107,354
Amortization of intangibles |  |  | 73 |  |  | - |  |  | 7,009 |  |  | - |  |  | 7,082
| Total operating expenses |  |  | (191) |  |  | 115 |  |  | 1,089,351 |  |  | (2,365) |  |  | 1,086,910
Income (loss) before income tax and equity (losses) in earnings of subsidiaries |  |  | 346,337 |  |  | (5,470) |  |  | 651,323 |  |  | (355,917) |  |  | 636,273
Income tax (benefit) expense |  |  | - |  |  | (1,149) |  |  | 132,932 |  |  | 140 |  |  | 131,923

115

Income (loss) before equity in earnings of subsidiaries |  |  | 346,337 |  |  | (4,321) |  |  | 518,391 |  |  | (356,057) |  |  | 504,350
Equity in undistributed earnings of subsidiaries |  |  | 158,013 |  |  | 41,248 |  |  | - |  |  | (199,261) |  |  | -
Net income |  | $ | 504,350 |  | $ | 36,927 |  | $ | 518,391 |  | $ | (555,318) |  | $ | 504,350
Comprehensive income, net of tax |  | $ | 793,444 |  | $ | 85,389 |  | $ | 810,359 |  | $ | (895,748) |  | $ | 793,444

116

Condensed Consolidating Statement of Operations (Unaudited) |  |  |  |  |  |  |  |  |
|  |  |  | Quarter ended September 30, 2018
|  |  |  |  |  |  |  | All other |  |  |  |  |  |
|  | Popular, Inc. | PNA | subsidiaries and | Elimination | Popular, Inc.
(In thousands) | Holding Co. | Holding Co. | eliminations | entries | Consolidated
Interest and dividend income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Dividend income from subsidiaries |  | $ | 52,000 |  | $ | - |  | $ | - |  | $ | (52,000) |  | $ | -
| Loans |  |  | 537 |  |  | - |  |  | 430,122 |  |  | (22) |  |  | 430,637
| Money market investments |  |  | 2,429 |  |  | 16 |  |  | 27,582 |  |  | (2,446) |  |  | 27,581
| Investment securities |  |  | 150 |  |  | 72 |  |  | 69,925 |  |  | - |  |  | 70,147
| Total interest and dividend income |  |  | 55,116 |  |  | 88 |  |  | 527,629 |  |  | (54,468) |  |  | 528,365
Interest expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Deposits |  |  | - |  |  | - |  |  | 57,580 |  |  | (2,446) |  |  | 55,134
| Short-term borrowings |  |  | - |  |  | 22 |  |  | 1,622 |  |  | (22) |  |  | 1,622
| Long-term debt |  |  | 14,045 |  |  | 2,390 |  |  | 3,705 |  |  | - |  |  | 20,140
| Total interest expense |  |  | 14,045 |  |  | 2,412 |  |  | 62,907 |  |  | (2,468) |  |  | 76,896
Net interest income (expense) |  |  | 41,071 |  |  | (2,324) |  |  | 464,722 |  |  | (52,000) |  |  | 451,469
Provision (reversal) for loan losses- non-covered loans |  |  | (34) |  |  | - |  |  | 54,421 |  |  | - |  |  | 54,387
Net interest income (expense) after provision (reversal) for loan losses |  |  | 41,105 |  |  | (2,324) |  |  | 410,301 |  |  | (52,000) |  |  | 397,082
Service charges on deposit accounts |  |  | - |  |  | - |  |  | 38,147 |  |  | - |  |  | 38,147
Other service fees |  |  | - |  |  | - |  |  | 64,382 |  |  | (66) |  |  | 64,316
Mortgage banking activities |  |  | - |  |  | - |  |  | 11,269 |  |  | - |  |  | 11,269
Net gain, including impairment on equity securities |  |  | 172 |  |  | - |  |  | 216 |  |  | (18) |  |  | 370
Net loss on trading account debt securities |  |  | - |  |  | - |  |  | (122) |  |  | - |  |  | (122)
Indemnity reserves on loans sold expense |  |  | - |  |  | - |  |  | (3,029) |  |  | - |  |  | (3,029)
Other operating income (expense) |  |  | 3,643 |  |  | (118) |  |  | 36,551 |  |  | (6) |  |  | 40,070
| Total non-interest income (expense) |  |  | 3,815 |  |  | (118) |  |  | 147,414 |  |  | (90) |  |  | 151,021
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Personnel costs |  |  | 15,803 |  |  | - |  |  | 123,954 |  |  | - |  |  | 139,757
Net occupancy expenses |  |  | 984 |  |  | - |  |  | 17,618 |  |  | - |  |  | 18,602
Equipment expenses |  |  | 1,037 |  |  | - |  |  | 17,266 |  |  | - |  |  | 18,303
Other taxes |  |  | 71 |  |  | - |  |  | 11,852 |  |  | - |  |  | 11,923
Professional fees |  |  | 3,889 |  |  | 20 |  |  | 80,017 |  |  | (66) |  |  | 83,860
Communications |  |  | 144 |  |  | - |  |  | 5,910 |  |  | - |  |  | 6,054
Business promotion |  |  | 520 |  |  | - |  |  | 14,958 |  |  | - |  |  | 15,478
FDIC deposit insurance |  |  | - |  |  | - |  |  | 8,610 |  |  | - |  |  | 8,610
Other real estate owned (OREO) expenses |  |  | - |  |  | - |  |  | 7,950 |  |  | - |  |  | 7,950
Other operating expenses |  |  | (23,600) |  |  | 13 |  |  | 76,754 |  |  | (591) |  |  | 52,576
Amortization of intangibles |  |  | - |  |  | - |  |  | 2,324 |  |  | - |  |  | 2,324
| Total operating expenses |  |  | (1,152) |  |  | 33 |  |  | 367,213 |  |  | (657) |  |  | 365,437
Income (loss) before income tax and equity in earnings (losses) of subsidiaries |  |  | 46,072 |  |  | (2,475) |  |  | 190,502 |  |  | (51,433) |  |  | 182,666
Income tax (benefit) expense |  |  | - |  |  | (520) |  |  | 42,310 |  |  | 228 |  |  | 42,018

117

Income (loss) before equity in earnings (losses) of subsidiaries |  |  | 46,072 |  |  | (1,955) |  |  | 148,192 |  |  | (51,661) |  |  | 140,648
Equity in undistributed earnings of subsidiaries |  |  | 94,576 |  |  | 19,722 |  |  | - |  |  | (114,298) |  |  | -
Net income |  | $ | 140,648 |  | $ | 17,767 |  | $ | 148,192 |  | $ | (165,959) |  | $ | 140,648
Comprehensive income, net of tax |  | $ | 103,251 |  | $ | 11,770 |  | $ | 111,369 |  | $ | (123,139) |  | $ | 103,251

118

Condensed Consolidating Statement of Operations (Unaudited) |  |  |  |  |  |  |  |  |
|  |  |  | Nine months ended September 30, 2018
|  |  |  |  |  |  |  | All other |  |  |  |  |  |
|  |  | Popular, Inc. | PNA | subsidiaries and | Elimination | Popular, Inc.
(In thousands) |  | Holding Co. | Holding Co. | eliminations | entries | Consolidated
Interest and dividend income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Dividend income from subsidiaries |  | $ | 402,000 |  | $ | - |  | $ | - |  | $ | (402,000) |  | $ | -
| Loans |  |  | 1,601 |  |  | - |  |  | 1,188,946 |  |  | (49) |  |  | 1,190,498
| Money market investments |  |  | 4,267 |  |  | 18 |  |  | 86,258 |  |  | (4,285) |  |  | 86,258
| Investment securities |  |  | 447 |  |  | 233 |  |  | 184,857 |  |  | - |  |  | 185,537
| Total interest and dividend income |  |  | 408,315 |  |  | 251 |  |  | 1,460,061 |  |  | (406,334) |  |  | 1,462,293
Interest expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Deposits |  |  | - |  |  | - |  |  | 143,335 |  |  | (4,285) |  |  | 139,050
| Short-term borrowings |  |  | - |  |  | 49 |  |  | 5,387 |  |  | (49) |  |  | 5,387
| Long-term debt |  |  | 40,280 |  |  | 7,773 |  |  | 11,151 |  |  | - |  |  | 59,204
| Total interest expense |  |  | 40,280 |  |  | 7,822 |  |  | 159,873 |  |  | (4,334) |  |  | 203,641
Net interest income (expense) |  |  | 368,035 |  |  | (7,571) |  |  | 1,300,188 |  |  | (402,000) |  |  | 1,258,652
Provision (reversal) for loan losses- non-covered loans |  |  | (75) |  |  | - |  |  | 183,849 |  |  | - |  |  | 183,774
Provision for loan losses- covered loans |  |  | - |  |  | - |  |  | 1,730 |  |  | - |  |  | 1,730
Net interest income (expense) after provision (reversal) for loan losses |  |  | 368,110 |  |  | (7,571) |  |  | 1,114,609 |  |  | (402,000) |  |  | 1,073,148
Service charges on deposit accounts |  |  | - |  |  | - |  |  | 111,704 |  |  | - |  |  | 111,704
Other service fees |  |  | - |  |  | - |  |  | 189,253 |  |  | (1,459) |  |  | 187,794
Mortgage banking activities |  |  | - |  |  | - |  |  | 33,408 |  |  | - |  |  | 33,408
Net gain (loss), including impairment on equity securities |  |  | 176 |  |  | - |  |  | (170) |  |  | (48) |  |  | (42)
Net loss on trading account debt securities |  |  | - |  |  | - |  |  | (299) |  |  | - |  |  | (299)
Indemnity reserves on loans sold expense |  |  | - |  |  | - |  |  | (6,482) |  |  | - |  |  | (6,482)
FDIC loss-share income |  |  | - |  |  | - |  |  | 94,725 |  |  | - |  |  | 94,725
Other operating income |  |  | 11,139 |  |  | 278 |  |  | 67,133 |  |  | (31) |  |  | 78,519
| Total non-interest income |  |  | 11,315 |  |  | 278 |  |  | 489,272 |  |  | (1,538) |  |  | 499,327
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Personnel costs |  |  | 43,365 |  |  | - |  |  | 346,576 |  |  | - |  |  | 389,941
Net occupancy expenses |  |  | 3,081 |  |  | - |  |  | 60,748 |  |  | - |  |  | 63,829
Equipment expenses |  |  | 2,581 |  |  | 2 |  |  | 50,701 |  |  | - |  |  | 53,284
Other taxes |  |  | 168 |  |  | 1 |  |  | 33,532 |  |  | - |  |  | 33,701
Professional fees |  |  | 13,245 |  |  | 128 |  |  | 247,764 |  |  | (389) |  |  | 260,748
Communications |  |  | 380 |  |  | - |  |  | 16,962 |  |  | - |  |  | 17,342
Business promotion |  |  | 1,323 |  |  | - |  |  | 42,942 |  |  | - |  |  | 44,265
FDIC deposit insurance |  |  | - |  |  | - |  |  | 22,534 |  |  | - |  |  | 22,534
Other real estate owned (OREO) expenses |  |  | - |  |  | - |  |  | 21,028 |  |  | - |  |  | 21,028
Other operating expenses |  |  | (64,352) |  |  | 67 |  |  | 177,543 |  |  | (1,796) |  |  | 111,462
Amortization of intangibles |  |  | - |  |  | - |  |  | 6,973 |  |  | - |  |  | 6,973
| Total operating expenses |  |  | (209) |  |  | 198 |  |  | 1,027,303 |  |  | (2,185) |  |  | 1,025,107
Income (loss) before income tax and equity (losses) in earnings of subsidiaries |  |  | 379,634 |  |  | (7,491) |  |  | 576,578 |  |  | (401,353) |  |  | 547,368
Income tax expense (benefit) |  |  | - |  |  | 372 |  |  | 34,970 |  |  | 271 |  |  | 35,613

119

Income (loss) before equity in earnings of subsidiaries |  |  | 379,634 |  |  | (7,863) |  |  | 541,608 |  |  | (401,624) |  |  | 511,755
Equity in undistributed earnings of subsidiaries |  |  | 132,121 |  |  | 45,772 |  |  | - |  |  | (177,893) |  |  | -
Net income |  | $ | 511,755 |  | $ | 37,909 |  | $ | 541,608 |  | $ | (579,517) |  | $ | 511,755
Comprehensive income, net of tax |  | $ | 328,218 |  | $ | 3,755 |  | $ | 358,368 |  | $ | (362,123) |  | $ | 328,218

120

Condensed Consolidating Statement of Cash Flows (Unaudited)

|  |  |  |  |  | Nine months ended September 30, 2019
|  |  |  |  |  |  |  |  |  | All other |  |  |  |
|  |  |  |  |  | Popular, Inc. |  | PNA |  | subsidiaries |  | Elimination |  | Popular, Inc.
(In thousands) |  | Holding Co. |  | Holding Co. |  | and eliminations |  | entries |  | Consolidated
Cash flows from operating activities: |  |  |  |  |  |  |  |  |  |
Net income | $ | 504,350 | $ | 36,927 | $ | 518,391 | $ | (555,318) | $ | 504,350
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |  |  |  |  |  |  |  |  |
| Equity in earnings of subsidiaries, net of dividends or distributions |  | (158,013) |  | (41,248) |  | - |  | 199,261 |  | -
| Provision for loan losses |  | 257 |  | - |  | 118,298 |  | - |  | 118,555
| Amortization of intangibles |  | 73 |  | - |  | 7,009 |  | - |  | 7,082
| Depreciation and amortization of premises and equipment |  | 559 |  | - |  | 42,369 |  | - |  | 42,928
| Net accretion of discounts and amortization of premiums and deferred fees |  | 933 |  | 20 |  | (127,501) |  | - |  | (126,548)
| Share-based compensation |  | 7,517 |  | - |  | 3,901 |  | - |  | 11,418
| Impairment losses on long-lived assets |  | - |  | - |  | 2,591 |  | - |  | 2,591
| Fair value adjustments on mortgage servicing rights |  | - |  | - |  | 25,853 |  | - |  | 25,853
| Indemnity reserves on loans sold expense |  | - |  | - |  | 1,664 |  | - |  | 1,664
| (Earnings) losses from investments under the equity method, net of dividends or distributions |  | (11,683) |  | 984 |  | (7,762) |  | - |  | (18,461)
| Deferred income tax (benefit) expense |  | - |  | (1,149) |  | 111,067 |  | 140 |  | 110,058
| Loss (gain) on: |  |  |  |  |  |  |  |  |  |
|  |  | Disposition of premises and equipment and other productive assets |  | 39 |  | - |  | (5,172) |  | - |  | (5,133)
|  |  | Sale of debt securities |  | - |  | - |  | 20 |  | - |  | 20
|  |  | Sale of loans, including valuation adjustments on loans held for sale and mortgage banking activities |  | - |  | - |  | (11,360) |  | - |  | (11,360)
|  |  | Sale of foreclosed assets, including write-downs |  | - |  | - |  | (15,858) |  | - |  | (15,858)
| Acquisitions of loans held-for-sale |  | - |  | - |  | (157,993) |  | - |  | (157,993)
| Proceeds from sale of loans held-for-sale |  | - |  | - |  | 51,067 |  | - |  | 51,067
| Net originations on loans held-for-sale |  | - |  | - |  | (208,875) |  | - |  | (208,875)
| Net decrease (increase) in: |  |  |  |  |  |  |  |  |  |
|  |  | Trading debt securities |  | - |  | - |  | 333,013 |  | - |  | 333,013
|  |  | Equity securities |  | (3,225) |  | - |  | (3,257) |  | - |  | (6,482)
|  |  | Accrued income receivable |  | 7 |  | 99 |  | 7,651 |  | (33) |  | 7,724
|  |  | Other assets |  | (1,559) |  | 43 |  | (14,130) |  | 2,809 |  | (12,837)
| Net decrease in: |  |  |  |  |  |  |  |  |  |
|  |  | Interest payable |  | (4,594) |  | (1,551) |  | (788) |  | 33 |  | (6,900)
|  |  | Pension and other postretirement benefits obligations |  | - |  | - |  | (4,979) |  | - |  | (4,979)
|  |  | Other liabilities |  | (681) |  | (85) |  | (98,071) |  | (3,212) |  | (102,049)
Total adjustments |  | (170,370) |  | (42,887) |  | 48,757 |  | 198,998 |  | 34,498
Net cash provided by (used in) operating activities |  | 333,980 |  | (5,960) |  | 567,148 |  | (356,320) |  | 538,848
Cash flows from investing activities: |  |  |  |  |  |  |  |  |  |
| Net decrease (increase) in money market investments |  | 35,000 |  | 2,631 |  | (1,000,840) |  | (37,631) |  | (1,000,840)
| Purchases of investment securities: |  |  |  |  |  |  |  |  |  |
|  |  | Available-for-sale |  | - |  | - |  | (13,579,074) |  | - |  | (13,579,074)
|  |  | Equity |  | - |  | - |  | (15,515) |  | 41 |  | (15,474)
| Proceeds from calls, paydowns, maturities and redemptions of investment securities: |  |  |  |  |  |  |  |  |  |
|  |  | Available-for-sale |  | - |  | - |  | 10,671,630 |  | - |  | 10,671,630
|  |  | Held-to-maturity |  | - |  | - |  | 5,325 |  | - |  | 5,325
| Proceeds from sale of investment securities: |  |  |  |  |  |  |  |  |  |
|  |  | Available for sale |  | - |  | - |  | 99,445 |  | - |  | 99,445
|  |  | Equity |  | - |  | - |  | 17,083 |  | - |  | 17,083
| Net repayments (disbursements) on loans |  | 533 |  | - |  | (325,012) |  | - |  | (324,479)
| Proceeds from sale of loans |  | - |  | - |  | 77,327 |  | - |  | 77,327
| Acquisition of loan portfolios |  | - |  | - |  | (421,482) |  | - |  | (421,482)
| Payments to acquire other intangible |  | - |  | - |  | (793) |  | - |  | (793)
| Return of capital from equity method investments |  | - |  | 3,329 |  | (582) |  | - |  | 2,747
| Capital contribution to subsidiary |  | (4,000) |  | - |  | - |  | 4,000 |  | -
| Return of capital from wholly-owned subsidiaries |  | 13,000 |  | - |  | - |  | (13,000) |  | -
| Acquisition of premises and equipment |  | (791) |  | - |  | (45,170) |  | - |  | (45,961)

121

| Proceeds from sale of: |  |  |  |  |  |  |  |  |  |
|  |  | Premises and equipment and other productive assets |  | 3 |  | - |  | 17,183 |  | - |  | 17,186
|  |  | Foreclosed assets |  | - |  | - |  | 83,848 |  | - |  | 83,848
Net cash provided by (used in) investing activities |  | 43,745 |  | 5,960 |  | (4,416,627) |  | (46,590) |  | (4,413,512)
Cash flows from financing activities: |  |  |  |  |  |  |  |  |  |
| Net increase (decrease) in: |  |  |  |  |  |  |  |  |  |
|  |  | Deposits |  | - |  | - |  | 4,463,708 |  | (9,242) |  | 4,454,466
|  |  | Assets sold under agreements to repurchase |  | - |  | - |  | (68,433) |  | - |  | (68,433)
|  |  | Other short-term borrowings |  | - |  | - |  | (41) |  | - |  | (41)
| Payments of notes payable |  | - |  | - |  | (144,991) |  | - |  | (144,991)
| Principal payments of finance leases |  | - |  | - |  | (1,269) |  | - |  | (1,269)
| Proceeds from issuance of notes payable |  | - |  | - |  | 75,000 |  | - |  | 75,000
| Proceeds from issuance of common stock |  | 11,256 |  | - |  | (4,733) |  | - |  | 6,523
| Dividends paid to parent company |  | - |  | - |  | (356,300) |  | 356,300 |  | -
| Dividends paid |  | (85,863) |  | - |  | - |  | - |  | (85,863)
| Net payments for repurchase of common stock |  | (250,566) |  | - |  | 13 |  | (21) |  | (250,574)
| Return of capital to parent company |  | - |  | - |  | (13,000) |  | 13,000 |  | -
| Capital contribution from parent |  | - |  | - |  | 4,000 |  | (4,000) |  | -
| Payments related to tax withholding for share-based compensation |  | (5,420) |  | - |  | (12) |  | - |  | (5,432)
Net cash (used in) provided by financing activities |  | (330,593) |  | - |  | 3,953,942 |  | 356,037 |  | 3,979,386
Net increase in cash and due from banks, and restricted cash |  | 47,132 |  | - |  | 104,463 |  | (46,873) |  | 104,722
Cash and due from banks, and restricted cash at beginning of period |  | 68,278 |  | - |  | 402,995 |  | (68,022) |  | 403,251
Cash and due from banks, and restricted cash at end of period | $ | 115,410 | $ | - | $ | 507,458 | $ | (114,895) | $ | 507,973

122

Condensed Consolidating Statement of Cash Flows (Unaudited)

|  |  |  |  |  | Nine months ended September 30, 2018
|  |  |  |  |  |  |  |  |  | All other |  |  |  |
|  |  |  |  |  | Popular, Inc. |  | PNA |  | subsidiaries |  | Elimination |  | Popular, Inc.
(In thousands) |  | Holding Co. |  | Holding Co. |  | and eliminations |  | entries |  | Consolidated
Cash flows from operating activities: |  |  |  |  |  |  |  |  |  |
Net income | $ | 511,755 | $ | 37,909 | $ | 541,608 | $ | (579,517) | $ | 511,755
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |  |  |  |  |  |  |  |  |
| Equity in earnings of subsidiaries, net of dividends or distributions |  | (132,121) |  | (45,772) |  | - |  | 177,893 |  | -
| Provision (reversal) for loan losses |  | (75) |  | - |  | 185,579 |  | - |  | 185,504
| Amortization of intangibles |  | - |  | - |  | 6,973 |  | - |  | 6,973
| Depreciation and amortization of premises and equipment |  | 548 |  | - |  | 38,535 |  | - |  | 39,083
| Net accretion of discounts and amortization of premiums and deferred fees |  | 1,624 |  | 20 |  | (45,177) |  | - |  | (43,533)
| Share-based compensation |  | 4,149 |  | - |  | 1,813 |  | - |  | 5,962
| Impairment losses on long-lived assets |  | - |  | - |  | 272 |  | - |  | 272
| Fair value adjustments on mortgage servicing rights |  | - |  | - |  | 13,123 |  | - |  | 13,123
| FDIC loss-share income |  | - |  | - |  | (94,725) |  | - |  | (94,725)
| Adjustments to indemnity reserves on loans sold |  | - |  | - |  | 6,482 |  | - |  | 6,482
| Earnings from investments under the equity method, net of dividends or distributions |  | (10,557) |  | (278) |  | (3,937) |  | - |  | (14,772)
| Deferred income tax benefit |  | - |  | (1,453) |  | (96,525) |  | 270 |  | (97,708)
| Loss (gain) on: |  |  |  |  |  |  |  |  |  |
|  |  | Disposition of premises and equipment and other productive assets |  | 15 |  | - |  | 17,679 |  | - |  | 17,694
|  |  | Proceeds from insurance claims |  | - |  | - |  | (14,411) |  | - |  | (14,411)
|  |  | Sale of loans, including valuation adjustments on loans held for sale and mortgage banking activities |  | - |  | - |  | (6,734) |  | - |  | (6,734)
|  |  | Sale of foreclosed assets, including write-downs |  | - |  | - |  | (638) |  | - |  | (638)
| Acquisitions of loans held-for-sale |  | - |  | - |  | (173,644) |  | - |  | (173,644)
| Proceeds from sale of loans held-for-sale |  | - |  | - |  | 51,131 |  | - |  | 51,131
| Net originations on loans held-for-sale |  | - |  | - |  | (186,063) |  | - |  | (186,063)
| Net decrease (increase) in: |  |  |  |  |  |  |  |  |  |
|  |  | Trading debt securities |  | - |  | - |  | 346,556 |  | (101) |  | 346,455
|  |  | Equity securities |  | (1,779) |  | - |  | (701) |  | - |  | (2,480)
|  |  | Accrued income receivable |  | (411) |  | 90 |  | 51,779 |  | 410 |  | 51,868
|  |  | Other assets |  | (2,352) |  | 52 |  | 237,585 |  | (449) |  | 234,836
| Net (decrease) increase in: |  |  |  |  |  |  |  |  |  |
|  |  | Interest payable |  | (7,007) |  | (3,441) |  | 925 |  | (410) |  | (9,933)
|  |  | Pension and other postretirement benefits obligations |  | - |  | - |  | 3,392 |  | - |  | 3,392
|  |  | Other liabilities |  | 2,160 |  | 9 |  | (198,958) |  | (246) |  | (197,035)
Total adjustments |  | (145,806) |  | (50,773) |  | 140,311 |  | 177,367 |  | 121,099
Net cash provided by (used in) operating activities |  | 365,949 |  | (12,864) |  | 681,919 |  | (402,150) |  | 632,854
Cash flows from investing activities: |  |  |  |  |  |  |  |  |  |
| Net (increase) decrease in money market investments |  | (395,000) |  | (7,230) |  | 647,519 |  | 402,230 |  | 647,519
| Purchases of investment securities: |  |  |  |  |  |  |  |  |  |
|  |  | Available-for-sale |  | - |  | - |  | (6,968,920) |  | - |  | (6,968,920)
|  |  | Equity |  | - |  | - |  | (11,456) |  | 152 |  | (11,304)
| Proceeds from calls, paydowns, maturities and redemptions of investment securities: |  |  |  |  |  |  |  |  |  |
|  |  | Available-for-sale |  | - |  | - |  | 3,925,362 |  | - |  | 3,925,362
|  |  | Held-to-maturity |  | - |  | 1,637 |  | 5,547 |  | - |  | 7,184
| Proceeds from sale of investment securities: |  |  |  |  |  |  |  |  |  |
|  |  | Equity |  | - |  | - |  | 20,925 |  | - |  | 20,925
| Net repayments (disbursements) on loans |  | 395 |  | - |  | (15,999) |  | - |  | (15,604)
| Proceeds from sale of loans |  | - |  | - |  | 1,354 |  | - |  | 1,354
| Acquisition of loan portfolios |  | - |  | - |  | (461,117) |  | - |  | (461,117)
| Net payments (to) from FDIC under loss-sharing agreements |  | - |  | - |  | (25,012) |  | - |  | (25,012)
| Payments to acquire businesses, net of cash acquired |  | - |  | - |  | (1,830,050) |  | - |  | (1,830,050)
| Return of capital from equity method investments |  | - |  | 497 |  | 2,004 |  | - |  | 2,501
| Capital contribution to subsidiary |  | (82,000) |  | - |  | - |  | 82,000 |  | -
| Return of capital from wholly-owned subsidiaries |  | 13,000 |  | - |  | - |  | (13,000) |  | -

123

| Acquisition of premises and equipment |  | (755) |  | - |  | (52,389) |  | - |  | (53,144)
| Proceeds from insurance claims |  | - |  | - |  | 14,411 |  | - |  | 14,411
| Proceeds from sale of: |  |  |  |  |  |  |  |  |  |
|  |  | Premises and equipment and other productive assets |  | 195 |  | - |  | 6,796 |  | - |  | 6,991
|  |  | Foreclosed assets |  | - |  | - |  | 85,622 |  | - |  | 85,622
Net cash used in investing activities |  | (464,165) |  | (5,096) |  | (4,655,403) |  | 471,382 |  | (4,653,282)
Cash flows from financing activities: |  |  |  |  |  |  |  |  |  |
| Net increase (decrease) in: |  |  |  |  |  |  |  |  |  |
|  |  | Deposits |  | - |  | - |  | 4,596,970 |  | (403,111) |  | 4,193,859
|  |  | Assets sold under agreements to repurchase |  | - |  | - |  | (90,805) |  | - |  | (90,805)
|  |  | Other short-term borrowings |  | - |  | - |  | (95,008) |  | - |  | (95,008)
| Payments of notes payable |  | - |  | (54,502) |  | (172,474) |  | - |  | (226,976)
| Proceeds from issuance of notes payable |  | 294,706 |  | - |  | 140,000 |  | - |  | 434,706
| Proceeds from issuance of common stock |  | 11,441 |  | - |  | (589) |  | - |  | 10,852
| Dividends paid to parent company |  | - |  | - |  | (402,000) |  | 402,000 |  | -
| Dividends paid |  | (79,115) |  | - |  | - |  | - |  | (79,115)
| Net payments for repurchase of common stock |  | (125,323) |  | - |  | - |  | (3) |  | (125,326)
| Return of capital to parent company |  | - |  | - |  | (13,000) |  | 13,000 |  | -
| Capital contribution from parent |  | - |  | 72,000 |  | 10,000 |  | (82,000) |  | -
| Payments related to tax withholding for share-based compensation |  | (2,162) |  | - |  | (43) |  | - |  | (2,205)
Net cash (used in) provided by financing activities |  | 99,547 |  | 17,498 |  | 3,973,051 |  | (70,114) |  | 4,019,982
Net increase (decrease) in cash and due from banks, and restricted cash |  | 1,331 |  | (462) |  | (433) |  | (882) |  | (446)
Cash and due from banks, and restricted cash at beginning of period |  | 48,120 |  | 462 |  | 412,225 |  | (48,178) |  | 412,629
Cash and due from banks, and restricted cash at end of period | $ | 49,451 | $ | - | $ | 411,792 | $ | (49,060) | $ | 412,183

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

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

The Corporation is a diversified, publicly-owned financial holding company subject to the supervision and regulation of the Board of Governors of the Federal Reserve System. The Corporation has operations in Puerto Rico, the United States (“U.S.”) mainland and the U.S. and British Virgin Islands. In Puerto Rico, the Corporation provides retail, mortgage and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as investment banking, broker-dealer, auto and equipment leasing and financing, and insurance services through specialized subsidiaries. The Corporation’s mortgage origination business is conducted under the brand name Popular Mortgage, a division of BPPR. In the U.S. mainland, the Corporation provides retail, mortgage and commercial banking services through its New York-chartered banking subsidiary, Popular Bank (“PB”), which has branches located in New York, New Jersey and Florida. Note 35 to the Consolidated Financial Statements presents information about the Corporation’s business segments.

The Corporation has several investments which it accounts for under the equity method. As of September 30, 2019, the Corporation had a 16.20% interest in EVERTEC, Inc., whose operating subsidiaries provide transaction processing services throughout the Caribbean and Latin America, and service many of the Corporation’s systems infrastructure and transaction processing businesses. During the quarter ended September 30, 2019, the Corporation recorded $ 4.6 million in earnings from its investment in EVERTEC, which had a carrying amount of $69 million as of the end of the quarter. Also, the Corporation had a 15.84% equity interest in Centro Financiero BHD León, S.A. (“BHD León”), one of the largest banking and financial services groups in the Dominican Republic. During the quarter ended September 30, 2019, the Corporation recorded $7.8 million in earnings from its investment in BHD León, which had a carrying amount of $150 million, as of the end of the quarter.

OVERVIEW

Table 1 provides selected financial data and performance indicators for the quarters and nine months periods ended September 30, 2019 and 2018.

124

Adjusted results of operations – Non-GAAP financial measure

Adjusted net income

The Corporation prepares its Consolidated Financial Statements using accounting principles generally accepted in the United States (“U.S. GAAP” or the “reported basis”). In addition to analyzing the Corporation’s results on a reported basis, management monitors “Adjusted net income” of the Corporation and excludes the impact of certain transactions on the results of its operations. Adjusted net income is a non-GAAP financial measure. Management believes that Adjusted net income provides meaningful information about the underlying performance of the Corporation’s ongoing operations. No adjustments to net income are reflected for the quarters ended September 30, 2019 and 2018 or the nine months ended September 30, 2019. Refer to Table 29 for a reconciliation of net income to Adjusted net income for the nine months ended September 30, 2018.

Net interest income on a taxable equivalent basis

Net interest income, on a taxable equivalent basis, is presented with its different components in Tables 2 and 3 for the quarters and nine month periods ended September 30, 2019 as compared with the same period in 2018, segregated by major categories of interest earning assets and interest-bearing liabilities.

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

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

Financial highlights for the quarter ended September 30, 2019

For the quarter ended September 30, 2019, the Corporation recorded net income of $ 165.3 million, compared to net income of $ 140.6 mi llion for the same quarter of the previous year. The results for the third quarter of 2019 reflect higher net interest income by $25.5 million mainly due to higher volume of debt securities and higher income from the auto loans portfolio, which increased as result of the acquisition and assumption from Reliable Financial Services, Inc. and Reliable Finance Holding Co. (“Reliable”), subsidiaries of Wells Fargo & Company, of certain assets and liabilities related to their auto finance business in Puerto Rico (the “Reliable Transaction”), discussed in Note 4 to the Consolidated Financial Statements. The increase in interest income was partially offset by higher interest expense on deposits. The provision for loan losses decreased by $17.8 million mainly in the BPPR segment as a result of improvements in the loss trends in the mortgage portfolio. Non-interest income was lower by $8.3 million mostly due to hurricane-related insurance recoveries and loss mitigation incentives received in 2018. Operating expenses were higher by $11.0 million mainly due to higher professional fees and personnel costs, partially offset by a write-down of $19.6 million of capitalized software costs related to a technology project discontinued by the Corporation during the third quarter of 2018.

Total assets at September 30, 2019 amounted to $52.5 billion, compared to $47.6 billion, at December 31, 2018. The increase of $4.9 billion was mainly due to higher investments in debt securities available-for-sale at BPPR, and a higher loan portfolio balance mostly driven by growth of auto loans and leases at the BPPR segment coupled with an increase of commercial loans at PB.

Total deposits at September 30, 2019 increased by $4.5 billion when compared to deposits at December 31, 2018, mainly due to an increase of $3.7 billion in Puerto Rico public sector deposits at BPPR.

Capital ratios continued to be strong. As of September 30, 2019, the Corporation’s common equity tier 1 capital ratio was 1

125

7.46%, while the total capital ratio was 20.05%. Refer to Table 8 for capital ratios.

Refer to the Operating Results Analysis and Financial Condition Analysis within this MD&A for additional discussion of significant quarterly variances and items impacting the financial performance of the Corporation.

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

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

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

The description of the Corporation’s business contained in Item 1 of the Corporation’s 2018 Form 10-K, while not all inclusive, discusses additional information about the business of the Corporation and risk factors, many beyond the Corporation’s control that, in addition to the other information in this Form 10-Q, readers should consider. Also, refer to Part II, Item 1A - Risk Factors, of this Form 10-Q for additional information.

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

126

Table 1 - Financial Highlights |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial Condition Highlights |  |  |  |  |  |
|  | Ending balances at |  |  | Average for the nine months ended
(In thousands) |  | September 30, 2019 | December 31, 2018 |  |  | Variance |  |  | September 30, 2019 |  | September 30, 2018 |  | Variance |
Money market investments | $ | 5,168,585 |  | $ | 4,171,048 |  | $ | 997,537 |  | $ | 1,378,565 |  | $ | 6,460,967 |  | $ | (5,082,402) |
Investment securities |  | 16,773,578 |  |  | 13,595,130 |  |  | 3,178,448 |  |  | 15,641,751 |  |  | 11,729,726 |  |  | 3,912,025 |
Loans |  | 27,064,345 |  |  | 26,559,311 |  |  | 505,034 |  |  | 26,714,236 |  |  | 24,633,267 |  |  | 2,080,969 |
Earning assets |  | 49,006,508 |  |  | 44,325,489 |  |  | 4,681,019 |  |  | 43,734,552 |  |  | 42,823,960 |  |  | 910,592 |
Total assets |  | 52,480,415 |  |  | 47,604,577 |  |  | 4,875,838 |  |  | 49,796,212 |  |  | 46,208,621 |  |  | 3,587,591 |
Deposits |  | 44,166,195 |  |  | 39,710,039 |  |  | 4,456,156 |  |  | 41,695,960 |  |  | 38,014,622 |  |  | 3,681,338 |
Borrowings |  | 1,379,767 |  |  | 1,537,673 |  |  | (157,906) |  |  | 2,271,227 |  |  | 2,758,342 |  |  | (487,115) |
Stockholders’ equity |  | 5,908,448 |  |  | 5,435,057 |  |  | 473,391 |  |  | 5,655,011 |  |  | 5,400,225 |  |  | 254,786 |
Operating Highlights | Quarters ended September 30, |  | Nine months ended September 30, |
(In thousands, except per share information) |  | 2019 |  |  | 2018 |  |  | Variance |  |  | 2019 |  |  | 2018 |  |  | Variance |
Net interest income | $ | 476,991 |  | $ | 451,469 |  | $ | 25,522 |  | $ | 1,424,270 |  | $ | 1,258,652 |  | $ | 165,618 |
Provision for loan losses - non-covered loans |  | 36,539 |  |  | 54,387 |  |  | (17,848) |  |  | 118,555 |  |  | 183,774 |  |  | (65,219) |
Provision for loan losses - covered loans |  | - |  |  | - |  |  | - |  |  | - |  |  | 1,730 |  |  | (1,730) |
Non-interest income |  | 142,712 |  |  | 151,021 |  |  | (8,309) |  |  | 417,468 |  |  | 499,327 |  |  | (81,859) |
Operating expenses |  | 376,475 |  |  | 365,437 |  |  | 11,038 |  |  | 1,086,910 |  |  | 1,025,107 |  |  | 61,803 |
Income before income tax |  | 206,689 |  |  | 182,666 |  |  | 24,023 |  |  | 636,273 |  |  | 547,368 |  |  | 88,905 |
Income tax expense (benefit) |  | 41,370 |  |  | 42,018 |  |  | (648) |  |  | 131,923 |  |  | 35,613 |  |  | 96,310 |
Net income | $ | 165,319 |  | $ | 140,648 |  | $ | 24,671 |  | $ | 504,350 |  | $ | 511,755 |  | $ | (7,405) |
Net income applicable to common stock | $ | 164,389 |  | $ | 139,718 |  | $ | 24,671 |  | $ | 501,558 |  | $ | 508,963 |  | $ | (7,405) |
Net income per common share – Basic | $ | 1.71 |  | $ | 1.38 |  | $ | 0.33 |  | $ | 5.17 |  | $ | 5.01 |  | $ | 0.16 |
Net income per common share – Diluted | $ | 1.70 |  | $ | 1.38 |  | $ | 0.32 |  | $ | 5.16 |  | $ | 5.00 |  | $ | 0.16 |
Dividends declared per common share - Basic | $ | 0.30 |  | $ | 0.25 |  | $ | 0.05 |  | $ | 0.90 |  | $ | 0.75 |  | $ | 0.15 |
|  |  |  |  | Quarters ended September 30, |  |  |  | Nine months ended September 30,
Selected Statistical Information |  |  |  |  | 2019 |  |  | 2018 |  |  |  |  |  | 2019 |  |  | 2018 |
Common Stock Data |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End market price |  |  |  | $ | 54.08 |  |  | 51.25 |  |  |  |  | $ | 54.08 |  |  | 51.25 |
Book value per common share at period end |  |  |  |  | 60.57 |  |  | 51.77 |  |  |  |  |  | 60.57 |  |  | 51.77 |
Profitability Ratios |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Return on assets |  |  |  |  | 1.29 | % | 1.17 | % |  |  |  | 1.35 | % | 1.48 | %
Return on common equity |  |  |  |  | 11.44 |  |  | 10.10 |  |  |  |  |  | 11.96 |  |  | 12.72 |
Net interest spread |  |  | 3.73 |  |  | 3.81 |  |  |  |  |  | 3.82 |  |  | 3.69 |
Net interest spread (taxable equivalent) - Non-GAAP |  |  | 4.18 |  |  | 4.14 |  |  |  |  |  | 4.22 |  |  | 4.01 |
Net interest margin |  |  | 4.00 |  |  | 4.07 |  |  |  |  |  | 4.10 |  |  | 3.92 |
Net interest margin (taxable equivalent) - Non-GAAP |  |  | 4.45 |  |  | 4.40 |  |  |  |  |  | 4.51 |  |  | 4.24 |
Capitalization Ratios |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Average equity to average assets |  |  |  |  | 11.29 | % | 11.66 | % |  |  |  | 11.36 | % | 11.69 | %
Common equity Tier 1 capital |  |  |  |  | 17.46 |  |  | 16.19 |  |  |  |  |  | 17.46 |  |  | 16.19 |
Tier I capital |  |  |  |  | 17.46 |  |  | 16.19 |  |  |  |  |  | 17.46 |  |  | 16.19 |
Total capital |  |  |  |  | 20.05 |  |  | 18.42 |  |  |  |  |  | 20.05 |  |  | 18.42 |
Tier 1 leverage |  |  |  |  | 9.87 |  |  | 9.60 |  |  |  |  |  | 9.87 |  |  | 9.60 |

127

CRITICAL ACCOUNTING POLICIES / ESTIMATES

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

Management has discussed the development and selection of the critical accounting policies and estimates with the Corporation’s Audit Committee. The Corporation has identified as critical accounting policies those related to: (i) Fair Value Measurement of Financial Instruments; (ii) Loans and Allowance for Loan Losses; (iii) Loans Acquired with Deteriorated Credit Quality Accounted for Under ASC 310-30; (iv) Income Taxes; (v) Goodwill; and (vi) Pension and Postretirement Benefit Obligations. For a summary of these critical accounting policies and estimates, refer to that particular section in the MD&A included in Popular, Inc.’s 2018 Form 10-K. Also, refer to Note 2 to the Consolidated Financial Statements included in the 2018 Form 10-K for a summary of the Corporation’s significant accounting policies, including those related to business combinations, and to Note 3 to the Consolidated Financial Statements included in this Form 10Q for information on recently adopted accounting standard updates.

128

OPERATING RESULTS ANALYSIS

NET INTEREST INCOME

Net interest income was $477.0 million for the third quarter of 2019, an increase of $25.5 million when compared to $451.5 million for the same quarter of 2018. Taxable equivalent net interest income was $530.6 million for the third quarter of 2019, an increase of $42.5 million when compared to $488.1 million for the same quarter of 2018. The increase in $17.0 million in the taxable equivalent adjustment is directly related to a higher volume of tax-exempt investments and loans in Puerto Rico. Net interest margin for the third quarter of 2019 was 4.00%, a decrease of 7 basis points when compared to 4.07% for the same quarter of the previous year. Net interest margin, on a taxable equivalent basis, for the third quarter of 2019 was 4.45%, an increase of 5 basis points when compared to 4.40% for the same quarter of 2018. The detailed variances of the increase in net interest income are described below:

Positive variances:

Higher interest income from investment securities due to a higher volume of U.S. Treasuries and agencies related to recent purchases to deploy liquidity and the benefit from the Puerto Rico tax exemption of these assets and higher yield; and

Higher interest income from loans:

Commercial loans, driven by higher volume of loans in the U.S. portfolio. Also improved yields related to the effect on the variable rate portfolio of several increases in interest rates during 2018 and the origination in a higher interest rate environment, offset by two 25 bps decreases in the end of July and mid-September 2019;

Lease portfolio due to improved origination activity at Popular Auto; and

Higher volume of auto loans mainly due to the Reliable Transaction, and improved activity in auto loan financing in Puerto Rico.

Negative variances:

Lower interest income from money market investments due to the the use of excess liquidity to acquire the Reliable portfolio and investment securities, partially offset by higher yield related to the cumulative impact of the four Federal Reserve interest rate increases that occurred in 2018 offset by decreases in rates in 2019, as discussed above. The average yield of the money market investments portfolio increased 17 basis points when compared to the same period in 2018, partially offset by lower volume by $2.0 billion, due to, as mentioned above, the acquisition of the Reliable portfolio and investment securities, mostly in Puerto Rico; and

Higher interest expense on deposits mainly due to higher cost in the U.S. by 36 basis points and 15 basis points in P.R. driven by higher volume through the direct digital channel at Popular Bank and higher cost of P.R. government deposits.

Interest income for the quarter ended September 30, 2019, included the amortization of deferred loans fees, prepayment penalties, late fees and the amortization of premium/discounts, amounting to $13.1 million or an increase of $5.6 million mainly due to the fair value discount amortization related to the Reliable Transaction.

Due to the Corporation’s current asset sensitive position, the recent reductions of 25 bps of the fed funds rate by the Federal Open Market Committee (“FOMC”) on July 31, 2019, September 18, 2019 and October 30, 2019, and further expectation of lower interest rates will negatively impact our future results. See the Risk Management: Market / Interest Rate Risk section of this MD&A for additional information related to the Corporation’s interest rate risk.

129

| Table 2 - Analysis of Levels & Yields on a Taxable Equivalent Basis for Continuing Operations (Non-GAAP)
| Quarters ended September 30, |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Variance
| Average Volume |  | Average Yields / Costs |  |  |  | Interest |  | Attributable to
| 2019 |  | 2018 | Variance |  | 2019 |  | 2018 |  | Variance |  |  |  |  |  | 2019 |  | 2018 |  | Variance |  | Rate |  | Volume
| (In millions) |  |  |  |  |  |  |  |  |  |  | (In thousands)
$ | 3,532 | $ | 5,514 | $ | (1,982) |  | 2.15 | % | 1.98 | % | 0.17 | % |  | Money market investments | $ | 19,119 | $ | 27,581 | $ | (8,462) | $ | 2,114 | $ | (10,576)
| 17,022 |  | 12,954 |  | 4,068 |  | 3.25 |  | 2.97 |  | 0.28 |  |  | Investment securities |  | 139,130 |  | 96,573 |  | 42,557 |  | 9,575 |  | 32,982
| 63 |  | 79 |  | (16) |  | 8.18 |  | 7.81 |  | 0.37 |  |  | Trading securities |  | 1,289 |  | 1,553 |  | (264) |  | 70 |  | (334)
|  |  |  |  |  |  |  |  |  |  |  |  |  | Total money market, |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  | investment and trading |  |  |  |  |  |  |  |  |  |
| 20,617 |  | 18,547 |  | 2,070 |  | 3.08 |  | 2.70 |  | 0.38 |  |  |  | securities |  | 159,538 |  | 125,707 |  | 33,831 |  | 11,759 |  | 22,072
|  |  |  |  |  |  |  |  |  |  |  |  |  | Loans: |  |  |  |  |  |  |  |  |  |
| 12,167 |  | 11,814 |  | 353 |  | 6.11 |  | 6.09 |  | 0.02 |  |  |  | Commercial |  | 187,270 |  | 181,228 |  | 6,042 |  | 596 |  | 5,446
| 809 |  | 932 |  | (123) |  | 6.50 |  | 6.45 |  | 0.05 |  |  |  | Construction |  | 13,256 |  | 15,151 |  | (1,895) |  | 114 |  | (2,009)
| 1,004 |  | 885 |  | 119 |  | 6.03 |  | 5.99 |  | 0.04 |  |  |  | Leasing |  | 15,133 |  | 13,247 |  | 1,886 |  | 97 |  | 1,789
| 7,127 |  | 7,142 |  | (15) |  | 5.37 |  | 5.29 |  | 0.08 |  |  |  | Mortgage |  | 95,708 |  | 94,439 |  | 1,269 |  | 1,462 |  | (193)
| 2,918 |  | 2,832 |  | 86 |  | 11.77 |  | 11.91 |  | (0.15) |  |  |  | Consumer |  | 86,544 |  | 85,043 |  | 1,501 |  | (1,186) |  | 2,687
| 2,867 |  | 1,986 |  | 881 |  | 9.44 |  | 10.03 |  | (0.59) |  |  |  | Auto |  | 68,183 |  | 50,226 |  | 17,957 |  | (3,150) |  | 21,107
| 26,892 |  | 25,591 |  | 1,301 |  | 6.89 |  | 6.82 |  | 0.07 |  |  | Total loans |  | 466,094 |  | 439,334 |  | 26,760 |  | (2,067) |  | 28,827
$ | 47,509 | $ | 44,138 | $ | 3,371 |  | 5.24 | % | 5.09 | % | 0.15 | % |  | Total earning assets | $ | 625,632 | $ | 565,041 | $ | 60,591 | $ | 9,692 | $ | 50,899
|  |  |  |  |  |  |  |  |  |  |  |  |  | Interest bearing deposits: |  |  |  |  |  |  |  |  |  |
$ | 15,958 | $ | 13,201 | $ | 2,757 |  | 0.94 | % | 0.69 | % | 0.25 | % |  |  | NOW and money market [1] | $ | 37,670 | $ | 22,974 | $ | 14,696 | $ | 8,766 | $ | 5,930
| 10,241 |  | 9,797 |  | 444 |  | 0.46 |  | 0.37 |  | 0.09 |  |  |  | Savings |  | 11,839 |  | 9,043 |  | 2,796 |  | 2,267 |  | 529
| 7,829 |  | 7,419 |  | 410 |  | 1.48 |  | 1.24 |  | 0.24 |  |  |  | Time deposits |  | 29,251 |  | 23,117 |  | 6,134 |  | 4,723 |  | 1,411
| 34,028 |  | 30,417 |  | 3,611 |  | 0.92 |  | 0.72 |  | 0.20 |  |  | Total deposits |  | 78,760 |  | 55,134 |  | 23,626 |  | 15,756 |  | 7,870
| 236 |  | 298 |  | (62) |  | 2.64 |  | 2.16 |  | 0.48 |  |  | Short-term borrowings |  | 1,573 |  | 1,622 |  | (49) |  | 356 |  | (405)
|  |  |  |  |  |  |  |  |  |  |  |  |  | Other medium and |  |  |  |  |  |  |  |  |  |
| 1,204 |  | 1,563 |  | (359) |  | 4.88 |  | 5.16 |  | (0.28) |  |  |  | long-term debt |  | 14,653 |  | 20,140 |  | (5,487) |  | (815) |  | (4,672)
|  |  |  |  |  |  |  |  |  |  |  |  |  | Total interest bearing |  |  |  |  |  |  |  |  |  |
| 35,468 |  | 32,278 |  | 3,190 |  | 1.06 |  | 0.95 |  | 0.11 |  |  |  | liabilities |  | 94,986 |  | 76,896 |  | 18,090 |  | 15,297 |  | 2,793
| 8,794 |  | 8,860 |  | (66) |  |  |  |  |  |  |  |  | Demand deposits |  |  |  |  |  |  |  |  |  |
| 3,247 |  | 3,000 |  | 247 |  |  |  |  |  |  |  |  | Other sources of funds |  |  |  |  |  |  |  |  |  |
$ | 47,509 | $ | 44,138 | $ | 3,371 |  | 0.79 | % | 0.69 | % | 0.10 | % |  | Total source of funds |  | 94,986 |  | 76,896 |  | 18,090 |  | 15,297 |  | 2,793
|  |  |  |  |  |  |  |  |  |  |  |  |  | Net interest margin/ |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  | 4.45 | % | 4.40 | % | 0.05 | % |  |  | income on a taxable equivalent basis (Non-GAAP) |  | 530,646 |  | 488,145 |  | 42,501 | $ | (5,605) | $ | 48,106
|  |  |  |  |  |  | 4.18 | % | 4.14 | % | 0.04 | % |  | Net interest spread |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Taxable equivalent adjustment |  | 53,656 |  | 36,676 |  | 16,980 |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Net interest margin/ income |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  | 4.00 | % | 4.07 | % | (0.07) | % |  |  | non-taxable equivalent basis (GAAP) | $ | 476,990 | $ | 451,469 | $ | 25,521 |  |  |  |
Note: The changes that are not due solely to volume or rate are allocated to volume and rate based on the proportion of the change in each category.
[1] Includes interest bearing demand deposits corresponding to certain government entities in Puerto Rico.

130

Net interest income for the nine-months period ended September 30, 2019 was $1.4 billion, compared to $1.3 billion for the same period of 2018. Taxable equivalent net interest income was $1.6 billion for the nine months ended September 30, 2019, an increase of $206.0 million when compared to the $1.4 billion for the same period of 2018. Net interest margin was 4.10%, an increase of 18 basis points when compared to 3.92% for the same period in 2018. Net interest margin, on a taxable equivalent basis, for the nine months ended September 30, 2019 was 4.51%, an increase of 27 basis points when compared to the 4.24% for the same period of 2018. The drivers of the variances in net interest income for the nine-month period are similar to the quarterly variances previously described.

Positive variances:

Higher interest income from investment securities mainly due to the acquisition of U.S. Treasuries and agencies, in part to deploy excess liquidity and benefit from the Puerto Rico tax exemption of these assets;

Higher interest income from commercial loans, driven by higher volume in the U.S. and loans acquired in the Reliable Transaction; and

Higher interest income in the auto and lease portfolios in P.R. due to both the Reliable two-month income as of September 2018 vs nine-month income in 2019 and the organic growth at Popular Auto.

Negative variances:

Lower interest income from money market investments due to the use of excess liquidity to acquire the Reliable portfolio and investment securities; and

Increase in deposits cost due to the increase in P.R. government deposits and higher volumes to fund the loan growth in the U.S.

Interest income for the nine months ended September 30, 2019 included the amortization of deferred loans fees, prepayment penalties, late fees and the amortization of premium/discounts, amounting to $43.6 million income, compared with $26.6 million income for the same period in 2018. The increase is driven by the fair value discount amortization related to the Reliable Transaction.

131

Table 3 - Analysis of Levels & Yields on a Taxable Equivalent Basis from Continuing Operations (Non-GAAP) |
Nine months ended September 30,
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Variance
Average Volume |  | Average Yields / Costs |  |  |  | Interest |  | Attributable to
| 2019 |  | 2018 | Variance |  | 2019 |  | 2018 |  | Variance |  |  |  |  |  | 2019 |  | 2018 |  | Variance |  | Rate |  | Volume
| (In millions) |  |  |  |  |  |  |  |  |  |  | (In thousands)
$ | 4,049 | $ | 6,461 | $ | (2,412) |  | 2.34 | % | 1.78 | % | 0.56 | % |  | Money market investments | $ | 70,874 | $ | 86,258 | $ | (15,384) | $ | 22,222 | $ | (37,606)
| 15,576 |  | 11,652 |  | 3,924 |  | 3.22 |  | 2.92 |  | 0.30 |  |  | Investment securities |  | 375,705 |  | 254,638 |  | 121,067 |  | 29,402 |  | 91,665
| 66 |  | 78 |  | (12) |  | 7.81 |  | 7.53 |  | 0.28 |  |  | Trading securities |  | 3,852 |  | 4,387 |  | (535) |  | 159 |  | (694)
|  |  |  |  |  |  |  |  |  |  |  |  |  | Total money market, |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  | investment and trading |  |  |  |  |  |  |  |  |  |
| 19,691 |  | 18,191 |  | 1,500 |  | 3.06 |  | 2.53 |  | 0.53 |  |  |  | securities |  | 450,431 |  | 345,283 |  | 105,148 |  | 51,783 |  | 53,365
|  |  |  |  |  |  |  |  |  |  |  |  |  | Loans: |  |  |  |  |  |  |  |  |  |
| 12,137 |  | 11,607 |  | 530 |  | 6.20 |  | 5.97 |  | 0.23 |  |  |  | Commercial |  | 562,355 |  | 518,306 |  | 44,049 |  | 19,964 |  | 24,085
| 807 |  | 919 |  | (112) |  | 6.69 |  | 6.27 |  | 0.42 |  |  |  | Construction |  | 40,424 |  | 43,083 |  | (2,659) |  | 2,770 |  | (5,429)
| 973 |  | 852 |  | 121 |  | 6.06 |  | 5.99 |  | 0.07 |  |  |  | Leasing |  | 44,222 |  | 38,255 |  | 5,967 |  | 449 |  | 5,518
| 7,125 |  | 7,109 |  | 16 |  | 5.36 |  | 5.31 |  | 0.05 |  |  |  | Mortgage |  | 286,305 |  | 283,039 |  | 3,266 |  | 2,620 |  | 646
| 2,865 |  | 2,857 |  | 8 |  | 11.88 |  | 11.49 |  | 0.40 |  |  |  | Consumer |  | 254,615 |  | 245,436 |  | 9,179 |  | 7,719 |  | 1,460
| 2,807 |  | 1,290 |  | 1,517 |  | 9.69 |  | 9.27 |  | 0.42 |  |  |  | Auto |  | 203,489 |  | 89,413 |  | 114,076 |  | 4,273 |  | 109,803
| 26,714 |  | 24,634 |  | 2,080 |  | 6.96 |  | 6.60 |  | 0.36 |  |  | Total loans |  | 1,391,410 |  | 1,217,532 |  | 173,878 |  | 37,795 |  | 136,083
$ | 46,405 | $ | 42,825 | $ | 3,580 |  | 5.30 | % | 4.88 | % | 0.42 | % |  | Total earning assets | $ | 1,841,841 | $ | 1,562,815 | $ | 279,026 | $ | 89,578 | $ | 189,448
|  |  |  |  |  |  |  |  |  |  |  |  |  | Interest bearing deposits: |  |  |  |  |  |  |  |  |  |
$ | 14,994 | $ | 12,298 | $ | 2,696 |  | 0.99 | % | 0.55 | % | 0.44 | % |  |  | NOW and money market [1] | $ | 110,699 | $ | 50,219 | $ | 60,480 | $ | 45,603 | $ | 14,877
| 10,053 |  | 9,341 |  | 712 |  | 0.43 |  | 0.31 |  | 0.12 |  |  |  | Savings |  | 32,200 |  | 22,006 |  | 10,194 |  | 7,703 |  | 2,491
| 7,778 |  | 7,621 |  | 157 |  | 1.46 |  | 1.17 |  | 0.29 |  |  |  | Time deposits |  | 85,136 |  | 66,825 |  | 18,311 |  | 17,553 |  | 758
| 32,825 |  | 29,260 |  | 3,565 |  | 0.93 |  | 0.64 |  | 0.29 |  |  | Total deposits |  | 228,035 |  | 139,050 |  | 88,985 |  | 70,859 |  | 18,126
| 242 |  | 379 |  | (137) |  | 2.67 |  | 1.90 |  | 0.77 |  |  | Short-term borrowings |  | 4,828 |  | 5,387 |  | (559) |  | 1,760 |  | (2,319)
|  |  |  |  |  |  |  |  |  |  |  |  |  | Other medium and |  |  |  |  |  |  |  |  |  |
| 1,210 |  | 1,575 |  | (365) |  | 4.73 |  | 5.01 |  | (0.28) |  |  |  | long-term debt |  | 43,791 |  | 59,204 |  | (15,413) |  | (3,587) |  | (11,826)
|  |  |  |  |  |  |  |  |  |  |  |  |  | Total interest bearing |  |  |  |  |  |  |  |  |  |
| 34,277 |  | 31,214 |  | 3,063 |  | 1.08 |  | 0.87 |  | 0.21 |  |  |  | liabilities |  | 276,654 |  | 203,641 |  | 73,013 |  | 69,032 |  | 3,981
| 8,871 |  | 8,755 |  | 116 |  |  |  |  |  |  |  |  | Demand deposits |  |  |  |  |  |  |  |  |  |
| 3,257 |  | 2,856 |  | 401 |  |  |  |  |  |  |  |  | Other sources of funds |  |  |  |  |  |  |  |  |  |
$ | 46,405 | $ | 42,825 | $ | 3,580 |  | 0.79 | % | 0.64 | % | 0.15 | % |  | Total source of funds |  | 276,654 |  | 203,641 |  | 73,013 |  | 69,032 |  | 3,981
|  |  |  |  |  | 4.51 | % | 4.24 | % | 0.27 | % |  | Net interest margin/ income on a taxable equivalent basis (Non-GAAP) |  | 1,565,187 |  | 1,359,174 |  | 206,013 | $ | 20,546 | $ | 185,467
|  |  |  |  |  |  | 4.22 | % | 4.01 | % | 0.21 | % |  | Net interest spread |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  | Taxable equivalent adjustment |  | 140,918 |  | 100,522 |  | 40,396 |  |  |  |
|  |  |  |  |  |  | 4.10 | % | 3.92 | % | 0.18 | % |  | Net interest margin/ income non-taxable equivalent basis (GAAP) | $ | 1,424,269 | $ | 1,258,652 | $ | 165,617 |  |  |  |
Note: The changes that are not due solely to volume or rate are allocated to volume and rate based on the proportion of the change in each category.
[1] Includes interest bearing demand deposits corresponding to certain government entities in Puerto Rico.

132

Provision for Loan Losses

The following discussion with respect to the provision for loan losses includes the provision for loans previously classified as “covered” as a result of the FDIC Shared-Loss Agreements, which were terminated during the second quarter of 2018.

The Corporation’s provision for loan losses was $36.5 million for the quarter ended September 30, 2019, compared to $54.4 million for the quarter ended September 30, 2018, a decrease of $17.9 million, mostly related to the BPPR segment.

The provision for loan losses for the BPPR segment was $34.5 million for the quarter ended September 30, 2019, compared to $51.9 million for the quarter ended September 30, 2018, a decrease of $17.4 million. The decrease in the provision was mostly due to revisions in the same period of 2018 to certain loss estimates, which prompted an increase in the reserves for the purchased credit impaired loans accounted for under ASC 310-30.

The Popular U.S. segment continued to reflect strong growth and favorable credit quality metrics. The provision for loan losses for this segment amounted to $2.1 million for the quarter ended September 30, 2019, compared to $2.5 million for the same quarter in 2018.

The Corporation’s total provision for loan losses was $118.6 million for the nine months ended September 30, 2019, compared to $185.5 million for the nine months ended September 30, 2018, a decrease of $66.9 million.

The provision for loan losses for the BPPR segment totaled $94.9 million for the nine months ended September 30, 2019, compared to $154.7 million for the same period in 2018, a decrease of $59.8 million. The decrease in the provision for the nine months ended September 30, 2019 was mainly due to the above-mentioned revisions to certain loss estimates and to incremental reserves for two large impaired commercial borrowers during the same period in 2018, coupled with the continued credit quality improvements in the mortgage portfolio during 2019. These positive variances were in part offset by higher reserves for the auto loans portfolio.

The provision for loan losses for the Popular U.S. segment amounted to $23.6 million for the nine months ended September 30, 2019, compared to $30.8 million for the same period in 2018, a decrease of $7.2 million, mostly related to lower charge-offs from the taxi medallion portfolio.

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

133

Non-Interest Income

Non-interest income amounted to $142.7 million for the quarter ended September 30, 2019, compared to $151.0 million for the same quarter of the previous year. The decrease in non-interest income by $8.3 million was primarily driven by:

lower income from mortgage banking activities by $0.8 million mainly due to higher realized losses on closed derivatives positions by $2.2 million, higher unfavorable fair value adjustments on mortgage servicing rights by $0.7 million and lower mortgage servicing fees by $0.5 million, partially offset by higher gains on securitization transactions by $2.1 million; and

lower other operating income by $17.2 million mainly due to $9.5 million in insurance recoveries related to Hurricane Maria received during 2018 and lower modification fees received for the successful completion of loss mitigation alternatives by $7.1 million since those received in 2018 were related to hurricane relief efforts;

Partially offset by:

higher service charges on deposit accounts by $2.8 million due to higher fees on transactional cash management services at BPPR; and

higher other service fees by $7.0 million mainly due to higher credit and debit card fees by $4.8 million as a result of higher interchange transactional volumes and higher credit card late fees, and higher other fees by $1.4 million mainly due to placement fees recognized during the quarter and higher retail auto loan servicing fee income.

Non-interest income amounted to $417.5 million for the nine months ended September 30, 2019, compared to $499.3 million for the same period of the previous year. Excluding the unfavorable variance on the FDIC loss share income of $94.7 million, non-interest income increased by $12.9 million primarily driven by:

higher service charges on deposit accounts by $7.6 million due to higher fees on transactional cash management services at BPPR;

higher other service fees by $21.9 million mainly due to higher credit and debit card fees by $6.8 million and $0.6 million, respectively, as a result of higher interchange transactional volumes, higher insurance commission revenues by $5.0 million in part due to $3.5 million in contingent commissions received during the second quarter of 2019, and higher other fees by $8.6 million mainly due to higher retail auto loan servicing fee income;

higher net gain on equity securities by $2.2 million mainly on deferred compensation plans that have an offsetting expense in personnel costs;

higher net profit on trading account debt securities by $1.3 million due to higher unrealized gains; and

a favorable variance in adjustments to indemnity reserves of $4.8 million mainly due to the release of a $4.4 million reserve established in connection with a 2013 transaction;

Partially offset by:

lower income from mortgage banking activities by $14.8 million mainly due to higher unfavorable fair value adjustments on mortgage servicing rights by $12.7 million driven by higher estimated prepayment and lower earnings rate due to lower interest rates; and

lower other operating income by $10.1 million mainly due to $9.5 million in insurance recoveries related to Hurricane Maria received during 2018 and lower modification fees received for the successful completion of loss mitigation alternatives by $9.4 million, partially offset by higher net earnings from the portfolio of investments under the equity method by $4.9 million, higher other income by $2.2 million related to recoveries of previously charged-off loans from the portfolio acquired as part of the Reliable Transaction, and higher gains on sales of daily rental units by $1.7 million.

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Operating Expenses

Operating expenses amounted to $376.5 million for the quarter ended September 30, 2019, an increase of $11.0 million when compared with the same quarter of 2018, driven primarily by:

Higher personnel cost by $7.9 million due to higher salaries by $6.5 million as a result of annual merit increases during the quarter and a higher headcount, an increase of $5.0 million related to the Corporation’s Profit-Sharing Plan, tied to the Corporation’s financial performance; partially offset by lower commission, incentives and other bonuses by $3.0 million;

Higher net occupancy expenses by $6.0 million mainly due to a hurricane-related insurance claim reimbursement of $3.4 million received in 2018; and

Higher professional fees by $14.7 million due to higher programming, processing and other technology services by $7.9 million and higher advisory expenses by $7.0 million related to corporate initiatives.

These increases were partially offset by:

Lower FDIC deposit insurance costs by $5.7 million, mainly due to the small bank assessment credit received at Popular Bank;

Lower OREO expenses by $8.1 million due to higher gains on sale and lower write-downs of mortgage properties at BPPR; and

Lower other operating expenses by $11.9 million due to a write-down of $19.6 million of capitalized software costs related to a technology project discontinued by the Corporation during the third quarter of 2018, partially offset by $2.6 million loss recorded in 2019 related to an undeveloped corporate site which was placed for sale and higher pension plan costs by $3.5 million.

Operating expenses amounted to $1.1 billion for the nine months ended September 30, 2019, increased by $61.8 million when compared with the same period of 2018, driven primarily by:

Higher personnel cost by $42.4 million, largely impacted by a higher headcount mainly due to the Reliable Transaction, due to higher salaries by $20.7 million, higher commission, incentives and other bonuses by $4.1 million and higher other personnel cost by $15.0 million, which includes the impact of the increase in Profit-Sharing plan accrual of $11.4 million;

Higher net occupancy expenses by $7.6 million due to higher depreciation and maintenance costs;

Higher equipment expenses by $9.3 million driven by technology initiatives, software and maintenance expenses;

Higher other taxes by $4.6 million due to higher municipal license from higher revenue and personal property taxes;

Higher professional fees by $20.5 million due to higher programing, processing and other technology by $23.3 million and higher collections, appraisal and other credit related fees by $1.9 million; partially offset by lower legal fees by $4.6 million; and

Higher business promotions by $7.9 million due to higher advertising cost, expenses associated with the transition of the Reliable brand and higher customer reward program expense.

These increases were partially offset by:

Lower FDIC deposit insurance costs by $9.5 million due to the termination of the temporary surcharge assessed by the FDIC to raise its Reserve Ratio and due to the small bank assessment credit received at Popular Bank;

Lower OREO expenses by $17.3 million due to higher gains on sale and lower write-downs of mortgage properties at BPPR; and

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Lower other operating expenses by $4.1 million, mostly due to the above-mentioned capitalized software write-down of $19.6 million during 2018 and lower operational losses in 2019 by $8.2 million; partially offset by higher pension plan costs by $10.5 million, higher credit and debit card processing expenses by $4.4 million as a result of incentives received during 2018 for exceeding volume targets, a $2.6 million loss related to an undeveloped corporate site which was placed for sale and higher provision for unused commitments by $2.0 million.

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Table 4 - Operating Expenses |  |  |  |  |  |  |  |  |  |
| Quarters ended September 30, |  | Nine months ended September 30,
(In thousands) | 2019 | 2018 | Variance |  | 2019 |  | 2018 |  | Variance
Personnel costs: |  |  |  |  |  |  |  |  |  |  |  |
| Salaries | $ | 90,016 | $ | 83,535 | $ | 6,481 | $ | 260,627 | $ | 239,940 | $ | 20,687
| Commissions, incentives and other bonuses |  | 22,360 |  | 25,365 |  | (3,005) |  | 70,757 |  | 66,685 |  | 4,072
| Pension, postretirement and medical insurance |  | 10,356 |  | 8,670 |  | 1,686 |  | 30,523 |  | 27,962 |  | 2,561
| Other personnel costs, including payroll taxes |  | 24,950 |  | 22,187 |  | 2,763 |  | 70,391 |  | 55,354 |  | 15,037
| Total personnel costs |  | 147,682 |  | 139,757 |  | 7,925 |  | 432,298 |  | 389,941 |  | 42,357
Net occupancy expenses |  | 24,595 |  | 18,602 |  | 5,993 |  | 71,431 |  | 63,829 |  | 7,602
Equipment expenses |  | 21,596 |  | 18,303 |  | 3,293 |  | 62,624 |  | 53,284 |  | 9,340
Other taxes |  | 14,028 |  | 11,923 |  | 2,105 |  | 38,267 |  | 33,701 |  | 4,566
Professional fees: |  |  |  |  |  |  |  |  |  |  |  |
| Collections, appraisals and other credit related fees |  | 4,131 |  | 3,371 |  | 760 |  | 12,596 |  | 10,657 |  | 1,939
| Programming, processing and other technology services |  | 63,092 |  | 55,187 |  | 7,905 |  | 184,303 |  | 161,039 |  | 23,264
| Legal fees, excluding collections |  | 2,415 |  | 4,284 |  | (1,869) |  | 10,350 |  | 14,954 |  | (4,604)
| Other professional fees |  | 28,923 |  | 21,018 |  | 7,905 |  | 74,026 |  | 74,098 |  | (72)
| Total professional fees |  | 98,561 |  | 83,860 |  | 14,701 |  | 281,275 |  | 260,748 |  | 20,527
Communications |  | 5,881 |  | 6,054 |  | (173) |  | 17,685 |  | 17,342 |  | 343
Business promotion |  | 18,365 |  | 15,478 |  | 2,887 |  | 52,158 |  | 44,265 |  | 7,893
FDIC deposit insurance |  | 2,923 |  | 8,610 |  | (5,687) |  | 13,007 |  | 22,534 |  | (9,527)
Other real estate owned (OREO) expenses |  | (185) |  | 7,950 |  | (8,135) |  | 3,729 |  | 21,028 |  | (17,299)
Other operating expenses: |  |  |  |  |  |  |  |  |  |  |  |
| Credit and debit card processing, volume and interchange expenses |  | 9,450 |  | 8,946 |  | 504 |  | 27,573 |  | 23,189 |  | 4,384
| Operational losses |  | 8,832 |  | 7,770 |  | 1,062 |  | 18,498 |  | 26,695 |  | (8,197)
| All other |  | 22,348 |  | 35,860 |  | (13,512) |  | 61,283 |  | 61,578 |  | (295)
| Total other operating expenses |  | 40,630 |  | 52,576 |  | (11,946) |  | 107,354 |  | 111,462 |  | (4,108)
Amortization of intangibles |  | 2,399 |  | 2,324 |  | 75 |  | 7,082 |  | 6,973 |  | 109
Total operating expenses | $ | 376,475 | $ | 365,437 | $ | 11,038 | $ | 1,086,910 | $ | 1,025,107 | $ | 61,803

INCOME TAXES

For the quarter ended September 30, 2019, the Corporation recorded an income tax expense of $41.4 million, compared to $42.0 million for the same quarter of the previous year. The reduction in income tax expense was primarily due to an increase in net exempt interest income compared to the third quarter of 2018, including a tax benefit of $4.1 million related to revisions to the amount of exempt income from the previous quarters partially offset by an increase in taxable income. Additionally, there was a reduction in the Puerto Rico statutory tax rate from 39% to 37.5% effective on December 2018.

For the nine months period ended September 30, 2019, income tax expense amounted to $131.9 million, compared to $35.6 million for the same period of 2018. The increase in income tax expense is mainly due to an income tax benefit of $108.9 million related to the Tax Closing Agreement entered into in connection with the FDIC Transaction, net of an income tax expense of $45.0 million from the gain resulting from the Termination Agreement with the FDIC recognized during 2018.

At September 30, 2019, the Corporation had a deferred tax asset amounting to $0.9 billion, net of a valuation allowance of $0.5 billion. The deferred tax asset related to the U.S. operations was $0.3 billion, net of a valuation allowance of $0.4 billion.

Refer to Note 33 to the Consolidated Financial Statements for a reconciliation of the statutory income tax rate to the effective tax rate and additional information on deferred tax asset balances.

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REPORTABLE SEGMENT RESULTS

The Corporation’s reportable segments for managerial reporting purposes consist of Banco Popular de Puerto Rico and Popular U.S. A Corporate grou p has been defined to support the reportable segments.

For a description of the Corporation’s reportable segments, including additional financial information and the underlying management accounting process, refer to Note 35 to the Consolidated Financial Statements.

As discussed in Note 35, effective on January 1, 2019, the Corporation’s management changed the measurement basis for its reportable segments. Historically, for management reporting purposes, the Corporation had reversed the effect of the intercompany billings from itself, as holding company, to its subsidiaries for certain services or expenses incurred on their behalf. In addition, the Corporation used to reflect an income tax expense allocation for several of its subsidiaries which are Limited Liability Companies (“LLCs”) and had made an election to be treated as pass through entities for income tax purposes. The Corporation’s management has determined to discontinue making these adjustments, effective on January 1, 2019, for purposes of its management and reportable segment reporting. The Corporation reflected these changes in the measurement of the reportable segments’ results prospectively beginning on January 1, 2019.

The Corporate group reported a net income of $3.4 million for the quarter ended September 30, 2019, compared with a net loss of $19.4 million for the same quarter of the previous year. The change was mostly driven by lower operating expenses by $24.6 million due to the corporate expense allocations to its subsidiaries as a result of the change in the segment reporting measurement discussed above. The Corporate group also recorded lower net interest expense by $3.7 million due to the repayment in 2018 of the $450 million, 7% Senior Notes due on 2019, net of the issuance of $300 million, 6.125% Senior Notes due on 2023, during the third quarter of 2018. For the nine months ended September 30, 2019, the Corporate group reported a net income of $5.4 million, compared to a net loss of $55.6 million. The favorable variance is mainly due to lower operating expenses by $68.9 million, due to the change in segment reporting, and lower net interest expense by $14.5 million due to the aforementioned changes in notes payable, partially offset by a lower income tax benefit of $20.3 million due to the favorable variance in pre-tax income.

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

Banco Popular de Puerto Rico

The Banco Popular de Puerto Rico reportable segment’s net income amounted to $143.3 million for the quarter ended September 30, 2019, compared with net income of $137.5 million for the same quarter of the previous year. The principal factors that contributed to the variance in the financial results include the following:

Higher net interest income by $23.6 million due to higher income from loans, reflecting growth in the auto portfolio and higher volume of debt securities, partially offset by higher expense on deposits mainly from higher volumes and cost in the public sector;

The net interest margin for the quarter ended September 30, 2019 was 4.26% compared to 4.35% for the same period in the previous year. The decrease in net interest margin is driven by earning assets mix and the increase in the deposit costs, mainly from the public sector.

The total provision expense for the third quarter of 2019 was $34.5 million, compared to $51.9 million for the same quarter of the previous year. The decrease of $17.4 million was mainly due to revisions to certain loss estimates resulting in higher reserves for the purchased credit impaired loans accounted under ASC 310-30 during the third quarter of 2018;

Non-interest income was lower by $10.9 million mainly due to the hurricane related insurance recoveries and loss mitigation incentives received during the third quarter of 2018, partially offset by higher other service fees and service charges on deposit accounts;

Higher operating expenses by $28.6 million due to higher personnel costs resulting from a higher headcount, mainly from the Reliable Transaction, and higher incentives, including the Corporation’s profit-sharing plan, higher professional fees and higher corporate allocations, partially offset by lower mortgage OREO expenses and a capitalized software write-down of $19.6 million recorded during 2018; and

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Lower income tax expense by $4.1 million mainly due to the positive tax adjustment of $4.1 million related to the revisions to the amount of exempt income, as discussed in the Income Tax section of this MD&A.

For the BPPR segment, net income for the nine months ended September 30, 2019 amounted to $457.4 million, compared with net income of $514.1 million for the same period of the previous year. Excluding the positive adjustments, net of tax, of $158.5 million resulting from the FDIC Termination Agreement, discussed in Table 29 of this MD&A, the net income for the BPPR segment increased by $101.8 million when compared to the same period of the previous year. The principal factors that contributed to the variance in the financial results include the following:

Higher net interest income by $157.6 million due to higher interest income from loans, driven by the auto loans portfolio and higher income from debt securities due to volumes, partially offset by higher interest expense from deposits mainly due to higher volumes and cost in the public sector and lower income from money market securities due to deployments to acquire debt securities;

The net interest margin for the nine months ended September 30, 2019 was 4.36% compared to 4.19% for the same period in the previous year. The increase in net interest margin is driven by earning assets mix due to the deployment of excess liquidity to acquire the Reliable portfolio and the purchase of investment securities.

The total provision expense for the nine months ended September 30, 2019 was $94.7 million, compared to $154.8 million for the same period of the previous year. The decrease of $60.1 million was mainly due the above mentioned revisions to certain loss estimates and to incremental reserves for two large impaired commercial borrowers during 2018 and improvements in the loss trends of the mortgage portfolio during 2019, partially offset by higher reserves for the auto loans portfolio;

Non-interest income of $369.0 million was lower by $83.6 million, compared to 2018. Excluding the variance on the FDIC loss share income of $94.7 million, due to the termination of the FDIC Shared-Loss Agreements discussed in Table 29 of this MD&A, non-interest income increased by $11.1 million, mainly due to higher other service fees and service charges on deposit accounts, partially offset by an unfavorable fair value adjustment of mortgage servicing rights and the above mentioned insurance recoveries and loss mitigation incentives received in 2018;

Higher operating expenses by $114.5 million due to h igher personnel costs due to a higher headcount mainly due to the Reliable Transaction, higher incentives and the impact of the profit-sharing plan, higher professional fees and corporate allocations, partially offset by lower mortgage OREO expenses; and

Income tax expense was higher by $76.3 million. Excluding the net tax benefit of $63.9 million recorded in 2018 in connection with the FDIC Termination Agreements, as discussed in Table 29 of this MD&A, income tax expense was higher by $12.4 million mainly due to higher taxable income and the above mentioned $4.1 million positive adjustment related to exempt income.

Popular U.S.

For the quarter ended September 30, 2019, the reportable segment of Popular U.S. reported a net income of $18.2 million, compared with a net income of $22.1 million for the same quarter of the previous year. The factors that contributed to the variance in the financial results included the following:

Lower net interest income by $1.8 million due to higher interest expense on deposits, mainly from the digital deposit channel, partially offset by higher interest income from commercial loans due to continued loan growth. For the third quarter of 2019, the net interest margin for the Popular U.S. segment was 3.29%, compared to 3.50% for the same period of the previous year.

Lower provision for loan losses by $0.4 million; and

Higher operating expenses by $7.2 million mainly due to higher personnel costs driven by higher salaries, higher professional fees, higher corporate allocations and higher legal contingency reserves, partially offset by a lower FDIC insurance expense due to the small bank assessment credit received in the third quarter of 2019.

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For the nine months ended September 30, 2019, the reportable segment of Popular U.S. reported a net income of $41.3 million, compared with a net income of $52.9 million for the same period of the previous year. The factors that contributed to the variance in the financial results included the following:

Lower net interest income by $4.8 million due to higher interest expense on deposits, offset by higher interest income from commercial loans, as discussed above. For the nine months ended September 30, 2019, the net interest margin for the Popular U.S. segment was 3.37%, compared to 3.53% for the same period of the previous year;

Lower provision for loan losses by $7.2 million mainly related to the taxi medallion portfolio;

Higher non-interest income by $2.3 million mainly from higher service charges on deposit accounts; and

Higher operating expenses by $16.4 million mainly due to higher personnel costs due to the factors mentioned above, higher corporate allocations and higher legal contingency reserves.

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FINANCIAL CONDITION ANALYSIS

Assets

The Corporation’s total assets were $52.5 billion at September 30, 2019, compared to $47.6 billion at December 31, 2018. Refer to the Consolidated Statements of Financial Condition included in this report for additional information.

Money market investments, trading and investment securities

Money market investments totaled $5.2 billion at September 30, 2019, compared to $4.2 billion at December 31, 2018. The increase was mainly due to an increase in Puerto Rico public sector deposits.

Debt securities available-for-sale increased by $3.2 billion to $16.5 billion at September 30, 2019. The increase was mainly due to the purchases of mortgage-backed securities and U.S. Treasury securities at BPPR, partially offset by maturities and paydowns. Refer to Note 6 to the Consolidated Financial Statements for additional information with respect to the Corporation’s debt securities available-for-sale.

Loans

Refer to Table 5 for a breakdown of the Corporation’s loan portfolio, the principal category of earning assets. Also, refer to Note 8 in the Consolidated Financial Statements for detailed information about the Corporation’s loan portfolio composition and loan purchases and sales.

Loans held-in-portfolio increased by $0.5 billion to $ 27.0 billion at September 30, 2019 mainly driven by the growth of auto loans and leases at the BPPR segment, coupled with an increase of commercial loans at PB.

Table 5 - Loans Ending Balances |  |  |  |
(In thousands) |  | September 30, 2019 |  | December 31, 2018 |  | Variance
Loans held-in-portfolio: |  |  |  |  |  |
Commercial | $ | 12,208,449 | $ | 12,043,019 | $ | 165,430
Construction |  | 754,056 |  | 779,449 |  | (25,393)
Legacy[1] |  | 23,192 |  | 25,949 |  | (2,757)
Lease financing |  | 1,022,484 |  | 934,773 |  | 87,711
Mortgage |  | 7,168,619 |  | 7,235,258 |  | (66,639)
Auto |  | 2,847,758 |  | 2,608,785 |  | 238,973
Consumer |  | 2,983,417 |  | 2,880,656 |  | 102,761
Total loans held-in-portfolio |  | 27,007,975 |  | 26,507,889 |  | 500,086
Loans held-for-sale: |  |  |  |  |  |
Mortgage |  | 56,370 |  | 51,422 |  | 4,948
Total loans held-for-sale |  | 56,370 |  | 51,422 |  | 4,948
Total loans | $ | 27,064,345 | $ | 26,559,311 | $ | 505,034
[1] The legacy portfolio is comprised of commercial loans, construction loans and lease financings related to certain lending products exited by the Corporation as part of restructuring efforts carried out in prior years at the Popular U.S. segment.

Other assets

Other assets increased by $0.1 billion mainly due to the recognition of right-of-use assets as a result of the implementation of the new lease accounting standard, as discussed in Note 3, which required balance sheet recognition of operating lease contracts. Refer to Note 14 for a breakdown of the principal categories that comprise the caption of “Other Assets” in the Consolidated Statements of Financial Condition at September 30, 2019 and December 31, 2018.

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Liabilities

The Corporation’s total liabilities were $46.6 billion at September 30, 2019, compared to $42.2 billion at December 31, 2018.

Deposits and Borrowings

The composition of the Corporation’s financing sources to total assets at September 30, 2019 and December 31, 2018 is included in Table 6.

Table 6 - Financing to Total Assets |  |  |  |  |  |
| September 30, | December 31, | % increase (decrease) |  | % of total assets
(In millions) |  | 2019 |  | 2018 | from 2018 to 2019 |  | 2019 |  | 2018 |
Non-interest bearing deposits | $ | 8,772 | $ | 9,149 | (4.1) | % | 16.7 | % | 19.2 | %
Interest-bearing core deposits |  | 30,322 |  | 25,714 | 17.9 |  | 57.8 |  | 54.0 |
Other interest-bearing deposits |  | 5,072 |  | 4,847 | 4.6 |  | 9.7 |  | 10.2 |
Repurchase agreements |  | 213 |  | 282 | (24.5) |  | 0.4 |  | 0.6 |
Notes payable |  | 1,167 |  | 1,256 | (7.1) |  | 2.2 |  | 2.7 |
Other liabilities |  | 1,026 |  | 922 | 11.3 |  | 1.9 |  | 1.9 |
Stockholders’ equity |  | 5,908 |  | 5,435 | 8.7 |  | 11.3 |  | 11.4 |

Deposits

The Corporation’s deposits totaled $44.2 billion at September 30, 2019, compared to $39.7 billion at December 31, 2018. The deposits increase of $4.5 billion was mainly due to an increase of $3.7 billion in Puerto Rico public sector deposits at BPPR and an increase in savings, NOW and money market deposits at PB. Refer to Table 7 for a breakdown of the Corporation’s deposits at September 30, 2019 and December 31, 2018.

Table 7 - Deposits Ending Balances
(In thousands) | September 30, 2019 |  | December 31, 2018 |  | Variance
Demand deposits [1] | $ | 19,191,657 |  | $ | 16,077,023 |  | $ | 3,114,634
Savings, NOW and money market deposits (non-brokered) |  | 16,778,332 |  |  | 15,616,247 |  |  | 1,162,085
Savings, NOW and money market deposits (brokered) |  | 400,049 |  |  | 400,004 |  |  | 45
Time deposits (non-brokered) |  | 7,614,393 |  |  | 7,500,544 |  |  | 113,849
Time deposits (brokered CDs) |  | 181,764 |  |  | 116,221 |  |  | 65,543
Total deposits | $ | 44,166,195 |  | $ | 39,710,039 |  | $ | 4,456,156
[1] | Includes interest and non-interest bearing demand deposits.

Borrowings

The Corporation’s borrowings amounted to $1.4 billion at September 30, 2019, a decrease of $0.2 billion from December 31, 2018, mainly due to maturities of Federal Home Loan Bank advances and repurchase agreements at PB. Refer to Note 17 to the C onsolidated Financial Statements for detailed information on the Corporation’s borrowings. Also, refer to the Liquidity section in this MD&A for additional information on the Corporation’s funding sources.

Other liabilities

The Corporation’s other liabilities amounted to $1.0 billion at September 30, 2019, an increase of $0.1 billion when compared to December 31, 2018, mainly due to the recognition of operating lease liabilities, as discussed above, partially offset by a decrease in the liability for rebooked GNMA loans sold with an option to repurchase.

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Stockholders’ Equity

Stockholders’ equity totaled $5.9 billion at September 30, 2019, an increase of $473.4 million, principally due to the net income of $504.4 million for the nine months ended September 30, 2019 and higher unrealized gains on debt securities available-for-sale by $282.8 million, offset by the impact of the $250 million accelerated share repurchase transaction and declared dividends of $87.0 million on common stock and $2.8 million in dividends on preferred stock. Refer to the Consolidated Statements of Financial Condition, Comprehensive Income and of Changes in Stockholders’ Equity for information on the composition of stockholders’ equity.

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REGULATORY CAPITAL

The Corporation, BPPR and PB are subject to regulatory capital requirements established by the Federal Reserve Board. The risk-based capital standards applicable to the Corporation, BPPR and PB (“Basel III capital rules”) are based on the final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee on Banking Supervision. As of September 30, 2019, t he Corporation’s, BPPR’s and PB’s capital ratios continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.

The risk-based capital ratios presented in Table 8, which include common equity tier 1, Tier 1 capital, total capital and leverage capital as of September 30, 2019 and December 31, 2018, are calculated based on the Basel III capital rules related to the measurement of capital, risk-weighted assets and average assets.

Table 8 - Capital Adequacy Data |  |  |  |  |  |
(Dollars in thousands) |  | September 30, 2019 |  |  | December 31, 2018 |
Common equity tier 1 capital: |  |  |  |  |  |
| Common stockholders equity - GAAP basis | $ | 5,858,288 |  | $ | 5,384,897 |
| AOCI related adjustments due to opt-out election |  | 86,657 |  |  | 378,038 |
| Goodwill, net of associated deferred tax liability (DTL) |  | (590,584) |  |  | (596,695) |
| Intangible assets, net of associated DTLs |  | (21,479) |  |  | (26,833) |
| Deferred tax assets and other deductions |  | (397,374) |  |  | (507,896) |
Common equity tier 1 capital | $ | 4,935,508 |  | $ | 4,631,511 |
Additional tier 1 capital: |  |  |  |  |  |
| Preferred stock |  | 50,160 |  |  | 50,160 |
| Other additional tier 1 capital deductions |  | (50,160) |  |  | (50,160) |
Additional tier 1 capital | $ | - |  | $ | - |
Tier 1 capital | $ | 4,935,508 |  | $ | 4,631,511 |
Tier 2 capital: |  |  |  |  |  |
| Trust preferred securities subject to phase in as tier 2 |  | 373,737 |  |  | 373,737 |
| Other inclusions (deductions), net |  | 357,487 |  |  | 348,951 |
Tier 2 capital | $ | 731,224 |  | $ | 722,688 |
Total risk-based capital | $ | 5,666,732 |  | $ | 5,354,199 |
Minimum total capital requirement to be well capitalized | $ | 2,826,359 |  | $ | 2,740,372 |
Excess total capital over minimum well capitalized | $ | 2,840,373 |  | $ | 2,613,827 |
Total risk-weighted assets | $ | 28,263,590 |  | $ | 27,403,718 |
Total assets for leverage ratio | $ | 49,987,257 |  | $ | 46,876,424 |
Risk-based capital ratios: |  |  |  |  |  |
| Common equity tier 1 capital |  | 17.46 | % |  | 16.90 | %
| Tier 1 capital |  | 17.46 |  |  | 16.90 |
| Total capital |  | 20.05 |  |  | 19.54 |
| Tier 1 leverage |  | 9.87 |  |  | 9.88 |

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The Basel III capital rules provide that a depository institution will be deemed to be well capitalized if it maintains a leverage ratio of at least 5%, a common equity Tier 1 ratio of at least 6.5%, a Tier 1 capital ratio of at least 8% and a total risk-based ratio of at least 10%. Management has determined that as of September 30, 2019, the Corporation, BPPR and PB continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.

The increase in the common equity Tier I capital ratio, Tier I capital ratio, and total capital ratio as of September 30, 2019 as compared to December 31, 2018 was mainly attributed to the nine months period earnings, partially offset by higher risk weighted assets driven by the growth in auto loans and leases, and the accelerated share repurchase transaction of $250 million completed on the first quarter of 2019. The leverage capital ratio decrease slightly mainly impacted by the increase in average total assets.

Simplifications to the Capital Rule Pursuant to the Economic Growth and Regulatory Paperwork Reduction Act of 1996

On July 9, 2019, the federal banking regulatory agencies issued a final rule that simplified several requirements in the agencies' regulatory capital rules. These rules, effective on April 1, 2020, simplify the regulatory capital requirement for mortgage servicing assets (MSAs), deferred tax assets arising from temporary differences and investments in the capital of unconsolidated financial institutions by raising the CET1 deduction threshold from 10% to 25%. The 15% CET 1 deduction threshold which applies to aggregate amount of such items would be eliminated. The rule also requires, among other changes, increasing from 100% to 250% the risk weight to MSAs and temporary difference deferred tax asset not deducted from capital. For investments in the capital of unconsolidated financial institutions, the risk weight would be based on the exposure category of the investment. As a result of these rules, the Corporation’s risk-based capital ratios are expected to decrease driven by the change in risk weighting. On a pro forma basis as of September 30, 2019, the impact would have been a reduction of approximately 63 bps.

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Non-GAAP financial measures

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

Table 9 provides a reconciliation of total stockholders’ equity to tangible common equity and total assets to tangible assets as of September 30, 2019, and December 31, 2018.

Table 9 - Reconciliation of Tangible Common Equity and Tangible Assets |  |  |  |  |
(In thousands, except share or per share information) |  |  | September 30, 2019 |  |  |  | December 31, 2018 |
Total stockholders’ equity |  | $ | 5,908,448 |  |  | $ | 5,435,057 |
Less: Preferred stock |  |  | (50,160) |  |  |  | (50,160) |
Less: Goodwill |  |  | (671,122) |  |  |  | (671,122) |
Less: Other intangibles |  |  | (21,479) |  |  |  | (26,833) |
Total tangible common equity |  | $ | 5,165,687 |  |  | $ | 4,686,942 |
Total assets |  | $ | 52,480,415 |  |  | $ | 47,604,577 |
Less: Goodwill |  |  | (671,122) |  |  |  | (671,122) |
Less: Other intangibles |  |  | (21,479) |  |  |  | (26,833) |
Total tangible assets |  | $ | 51,787,814 |  |  | $ | 46,906,622 |
Tangible common equity to tangible assets |  |  | 9.97 | % |  |  | 9.99 | %
Common shares outstanding at end of period |  |  | 96,714,664 |  |  |  | 99,942,845 |
Tangible book value per common share |  | $ | 53.41 |  |  | $ | 46.90 |

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OFF-BALANCE SHEET ARRANGEMENTS AND OTHER COMMITMENTS

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

Contractual Obligations and Commercial Commitments

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

Purchase obligations include major legal and binding contractual obligations outstanding at September 30, 2019, primarily for services, equipment and real estate construction projects. Services include software licensing and maintenance, facilities maintenance, supplies purchasing, and other goods or services used in the operation of the business. Generally, these contracts are renewable or cancelable at least annually, although in some cases the Corporation has committed to contracts that may extend for several years to secure favorable pricing concessions. Purchase obligations amounted to $219 million at September 30, 2019 of which approximately 45% mature in 2019, 42% in 2020, 11% in 2021 and 2% thereafter.

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

Refer to Note 17 in the Consolidated Financial Statements for a breakdown of long-term borrowings by maturity.

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

Table 10 presents the contractual amounts related to the Corporation’s off-balance sheet lending and other activities at September 30, 2019.

Table 10 - Off-Balance Sheet Lending and Other Activities
|  |  | Amount of commitment - Expiration Period
(In thousands) |  | 2019 | Years 2020 - 2021 | Years 2022 - 2023 | Years 2024 - thereafter | Total
Commitments to extend credit |  | $ | 5,709,076 | $ | 1,643,752 | $ | 199,220 | $ | 137,852 | $ | 7,689,900
Commercial letters of credit |  |  | 2,688 |  | 2,110 |  | - |  | - |  | 4,798
Standby letters of credit |  |  | 13,414 |  | 65,986 |  | - |  | - |  | 79,400
Commitments to originate or fund mortgage loans |  |  | 36,164 |  | 9,650 |  | - |  | - |  | 45,814
Total |  | $ | 5,761,342 | $ | 1,721,498 | $ | 199,220 | $ | 137,852 | $ | 7,819,912

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RISK MANAGEMENT

Market / Interest Rate Risk

The financial results and capital levels of the Corporation are constantly exposed to market, interest rate and liquidity risks.

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

Most of the assets subject to market valuation risk are securities in the debt securities portfolio classified as available-for-sale. Refer to Notes 6 and 7 for further information on the debt securities available-for-sale and held-to-maturity portfolios. Debt securities classified as available-for-sale amounted to $16.5 billion as of September 30, 2019. Other assets subject to market risk include loans held-for-sale, which amounted to $56 million, mortgage servicing rights (“MSRs”) which amounted to $151 million and securities classified as “trading”, which amounted to $36 million, as of September 30, 2019.

Management believes that market risk is currently not a material source of risk at the Corporation.

Interest Rate Risk (“IRR”)

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

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

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

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

Management assesses interest rate risk by comparing various NII simulations under different interest rate scenarios that differ in direction of interest rate changes, the degree of change and the projected shape of the yield curve. For example, the types of rate scenarios processed during the quarter include flat rates, implied forwards, parallel and non-parallel rate shocks. Management also performs analyses to isolate and measure basis and prepayment risk exposures.

The asset and liability management group performs validation procedures on various assumptions used as part of the simulation analyses as well as validations of results on a monthly basis. In addition, the model and processes used to assess IRR are subject to independent validations according to the guidelines established in the Model Governance and Validation policy.

The Corporation processes NII simulations under interest rate scenarios in which the yield curve is assumed to rise and decline by the same amount (parallel shifts). The rate scenarios considered in these market risk simulations reflect parallel changes of -100, -200, +100, +200 and +400 basis points during the succeeding twelve-month period. Simulation analyses are based on many assumptions, including relative levels of market interest rates across all yield curve points and indexes, interest rate spreads, loan prepayments and deposit elasticity. Thus, they should not be relied upon as indicative of actual results. Further, the estimates do not contemplate actions that management could take to respond to changes in interest rates. By their nature, these forward-looking computations are only estimates and may be different from what may actually occur in the future. The following table presents the results of the simulations at September 30, 2019 and December 31, 2018, assuming a static balance sheet and parallel changes over flat spot rates over a one-year time horizon:

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Table 11 - Net Interest Income Sensitivity (One Year Projection)
| September 30, 2019 |  |  | December 31, 2018
(Dollars in thousands) |  | Amount Change | Percent Change |  |  | Amount Change | Percent Change |
Change in interest rate |  |  |  |  |  |  |  |
+400 basis points | $ | 121,277 | 6.40 | % | $ | 151,871 | 8.12 | %
+200 basis points |  | 61,282 | 3.23 |  |  | 76,479 | 4.09 |
+100 basis points |  | 31,005 | 1.64 |  |  | 39,234 | 2.10 |
-100 basis points |  | (38,293) | (2.02) |  |  | (26,305) | (1.41) |
-200 basis points |  | (179,557) | (9.48) |  |  | (145,819) | (7.80) |

At September 30, 2019, the simulations showed that the Corporation maintains an asset-sensitive position. This is primarily due to (i) a high level of money market and short-term investments that are highly sensitive to changes in interest rates, (ii) approximately 30% of the Corporation’s loan portfolio being comprised of variable rate loans, and (iii) low elasticity of the Corporation’s core deposit base. The asset sensitive position is more asymmetric in the more extreme -200 basis point scenario, as the Company does not expect it could lower deposit costs below zero. Due to the Corporation’s current asset sensitive position as detailed above, the recent drop of 25 bps of the fed funds rate by the FOMC and further expectation of lower interest rates will negatively impact our future results. However, other factors like balance sheet size, asset mix and the shape of the yield curve will also impact these results.

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

Trading

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

At September 30, 2019, the Corporation held trading securities with a fair value of $36 million, representing approximately 0.1% of the Corporation’s total assets, compared with $38 million and 0.1%, respectively, at December 31, 2018. As shown in Table 12, the trading portfolio consists principally of mortgage-backed securities which at September 30, 2019 were investment grade securities. As of September 30, 2019, the trading portfolio also included $3 million in U.S. Treasury securities and $0.6 million in Puerto Rico government obligations ($6 million and $0.1 million as of December 31, 2018, respectively). Trading instruments are recognized at fair value, with changes resulting from fluctuations in market prices, interest rates or exchange rates reported in current period earnings. The Corporation recognized a net trading account gain of $295 thousand for the quarter ended September 30, 2019 and a net trading account loss of $122 thousand for the quarter ended September 30, 2018.

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Table 12 - Trading Portfolio |  |  |  |  |  |  |  |  |  |
|  | September 30, 2019 |  |  | December 31, 2018 |
(Dollars in thousands) |  | Amount |  | Weighted Average Yield[1] |  |  | Amount |  | Weighted Average Yield[1] |
Mortgage-backed securities | $ | 28,798 |  | 5.30 | % | $ | 27,257 |  | 5.49 | %
U.S. Treasury securities |  | 2,760 |  | 1.55 |  |  | 6,278 |  | 2.13 |
Collateralized mortgage obligations |  | 636 |  | 5.72 |  |  | 659 |  | 5.62 |
Puerto Rico government obligations |  | 649 |  | 2.56 |  |  | 134 |  | 0.26 |
Interest-only strips |  | 456 |  | 12.05 |  |  | 484 |  | 12.05 |
Other |  | 3,004 |  | 3.38 |  |  | 2,975 |  | 3.54 |
Total | $ | 36,303 |  | 4.90 | % | $ | 37,787 |  | 4.85 | %
[1] Not on a taxable equivalent basis. |  |  |  |  |  |  |  |  |  |

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

The Corporation’s trading portfolio had a 5-day VAR of approximately $0.2 million for the last week in September 2019. There are numerous assumptions and estimates associated with VAR modeling, and actual results could differ from these assumptions and estimates. Backtesting is performed to compare actual results against maximum estimated losses, in order to evaluate model and assumptions accuracy.

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

FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS

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

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

Refer to Note 25 to the Consolidated Financial Statements for information on the Corporation’s fair value measurement required by the applicable accounting standard.

A description of the Corporation’s valuation methodologies used for the assets and liabilities measured at fair value is included in Note 29 to the Consolidated Financial Statements in the 2018 Form 10-K. Also, Refer to the Critical Accounting Policies / Estimates in the 2018 Form 10-K for additional information on the accounting guidance and the Corporation’s policies or procedures related to fair value measurements.

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Liquidity

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

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

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

Deposits, including customer deposits, brokered deposits and public funds deposits, continue to be the most significant source of funds for the Corporation, funding 84% of the Corporation’s total assets at September 30, 2019 and 83% at December 31, 2018. The ratio of total ending loans to deposits was 61% at September 30, 2019, compared to 67% at December 31, 2018. In addition to traditional deposits, the Corporation maintains borrowing arrangements, which amounted to approximately $1.4 billion at September 30, 2019 (December 31, 2018 - $1.5 billion). A detailed description of the Corporation’s borrowings, including their terms, is included in Note 17 to the Consolidated Financial Statements. Also, the Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements provide information on the Corporation’s cash inflows and outflows.

The following sections provide further information on the Corporation’s major funding activities and needs, as well as the risks involved in these activities. Note 36 to the Consolidated Financial Statements provides consolidating statements of condition, of operations and of cash flows which separately presents the Corporation’s bank holding companies and its subsidiaries as part of the “All other subsidiaries and eliminations” column.

Banking Subsidiaries

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

Refer to Note 17 to the Consolidated Financial Statements, for additional information of the Corporation’s borrowing facilities available through its banking subsidiaries.

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

The banking subsidiaries maintain sufficient funding capacity to address large increases in funding requirements such as deposit outflows. The Corporation has established liquidity guidelines that require the banking subsidiaries to have sufficient liquidity to cover all short-term borrowings and a portion of deposits.

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

Deposits are a key source of funding as they tend to be less volatile than institutional borrowings and their cost is less sensitive to changes in market rates. Refer to Table 7 for a breakdown of deposits by major types. Core deposits are generated from a large base of consumer, corporate and institutional customers. Core deposits include all non-interest bearing deposits, savings deposits and certificates of deposit under $100,000, excluding brokered deposits with denominations under $100,000. Core deposits have historically provided the Corporation with a sizable source of relatively stable and low-cost funds. Core deposits totaled $ 39.1 billion, or 89% of total deposits, at September 30, 2019, compared with $34.9 billion, or 88% of total deposits, at December 31, 2018. Core deposits financed 80% of the Corporation’s earning assets at September 30, 2019, compared with 79% at December 31, 2018.

The distribution by maturity of certificates of deposits with denominations of $100,000 and over at September 30, 2019 is presented in the table that follows:

Table 13 - Distribution by Maturity of Certificate of Deposits of $100,000 and Over |  |  |
(In thousands) |  |  |
3 months or less |  | $ | 1,981,393
3 to 6 months |  |  | 417,670
6 to 12 months |  |  | 651,099
Over 12 months |  |  | 1,486,757
Total |  | $ | 4,536,919

The Corporation had $ 0.6 billion in brokered deposits at September 30, 2019 and $0.5 billion at December 31, 2018, which financed approximately 1%, of its total assets. In the event that any of the Corporation’s banking subsidiaries’ regulatory capital ratios fall below those required by a well-capitalized institution or are subject to capital restrictions by the regulators, that banking subsidiary faces the risk of not being able to raise or maintain brokered deposits and faces limitations on the rate paid on deposits, which may hinder the Corporation’s ability to effectively compete in its retail markets and could affect its deposit raising efforts.

At September 30, 2019, management believes that the banking subsidiaries had sufficient current and projected liquidity sources to meet their anticipated cash flow obligations, as well as special needs and off-balance sheet commitments, in the ordinary course of business and have sufficient liquidity resources to address a stress event. Although the banking subsidiaries have historically been able to replace maturing deposits and advances, no assurance can be given that they would be able to replace those funds in the future if the Corporation’s financial condition or general market conditions were to deteriorate. The Corporation’s financial flexibility will be severely constrained if its banking subsidiaries are unable to maintain access to funding or if adequate financing is not available to accommodate future financing needs at acceptable interest rates. The banking subsidiaries also are required to deposit cash or qualifying securities to meet margin requirements. To the extent that the value of securities previously pledged as collateral declines because of market changes, the Corporation will be required to deposit additional cash or securities to meet its margin requirements, thereby adversely affecting its liquidity. Finally, if management is required to rely more heavily on more expensive funding sources to meet its future growth, revenues may not increase proportionately to cover costs. In this case, profitability would be adversely affected.

Bank Holding Companies

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

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

The BHC’s have in the past borrowed in the money markets and in the corporate debt market primarily to finance their non-banking subsidiaries, however, the cash needs of the Corporation’s non-banking subsidiaries other than to repay indebtedness and interest are now minimal. These sources of funding have become more costly due to the reductions in the Corporation’s credit ratings. The Corporation’s principal credit ratings are below “investment grade”, which affects the Corporation’s ability to raise funds in the capital markets. The Corporation has an automatic shelf registration statement filed and effective with the Securities and Exchange Commission, which permits the Corporation to issue an unspecified amount of debt or equity securities.

The outstanding balance of notes payable at the BHC’s amounted to $680 million at September 30, 2019 and $679 million at December 31, 2018.

The contractual maturities of the BHC’s notes payable at September 30, 2019 are presented in Table 14.

Table 14 - Distribution of BHC's Notes Payable by Contractual Maturity |  |
Year |  | (In thousands)
2023 | $ | 294,990
Later years |  | 384,895
Total | $ | 679,885

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

Non-banking subsidiaries

The principal sources of funding for the non-banking subsidiaries include internally generated cash flows from operations, loan sales, repurchase agreements, capital injections and borrowed funds from their direct parent companies or the holding companies. The principal uses of funds for the non-banking subsidiaries include repayment of maturing debt, operational expenses and payment of dividends to the BHCs. The liquidity needs of the non-banking subsidiaries are minimal since most of them are funded internally from operating cash flows or from intercompany borrowings or capital contributions from their holding companies. On July 1, 2019, Popular Securities received a capital contribution amounting to $4 million from Popular, Inc.

Dividends

During the nine months ended September 30, 2019, the Corporation declared quarterly dividends on its outstanding common stock of $0.30 per share, for a year-to-date total of $87.0 million. The dividends for the Corporation’s Series A and Series B preferred stock amounted to $2.8 million. During the nine months ended September 30, 2019, the BHC’s received dividends amounting to $350 million from BPPR, $6 million in dividends from its non-banking subsidiaries, $2 million in dividends from EVERTEC’s parent company, $3 million from an investment in equity investee and $13 million in dividends from its investments in BHD Leon.

Other Funding Sources and Capital

The debt securities portfolio provides an additional source of liquidity, which may be realized through either securities sales or repurchase agreements. The Corporation’s debt securities portfolio consists primarily of liquid U.S. government debt securities, U.S. government sponsored agency debt securities, U.S. government sponsored agency mortgage-backed securities, and U.S. government sponsored agency collateralized mortgage obligations that can be used to raise funds in the repo markets. The availability of the repurchase agreement would be subject to having sufficient unpledged collateral available at the time the transactions are to be consummated, in addition to overall liquidity and risk appetite of the various counterparties. The Corporation’s unpledged debt securities amounted to $3.5 billion at September 30, 2019 and $4.3 billion at December 31, 2018. A substantial portion of these debt securities could be used to raise financing in the U.S. money markets or from secured lending sources.

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

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Risks to Liquidity

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

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

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

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

The Corporation’s banking subsidiaries have historically not used unsecured capital market borrowings to finance its operations, and therefore are less sensitive to the level and changes in the Corporation’s overall credit ratings.

Obligations Subject to Rating Triggers or Collateral Requirements

The Corporation’s banking subsidiaries currently do not use borrowings that are rated by the major rating agencies, as these banking subsidiaries are funded primarily with deposits and secured borrowings. The banking subsidiaries had $9 million in deposits at September 30, 2019 that are subject to rating triggers.

In addition, certain mortgage servicing and custodial agreements that BPPR has with third parties include rating covenants. In the event of a credit rating downgrade, the third parties have the right to require the institution to engage a substitute cash custodian for escrow deposits and/or increase collateral levels securing the recourse obligations. Also, as discussed in Note 21 to the Consolidated Financial Statements, the Corporation services residential mortgage loans subject to credit recourse provisions. Certain contractual agreements require the Corporation to post collateral to secure such recourse obligations if the institution’s required credit ratings are not maintained. Collateral pledged by the Corporation to secure recourse obligations amounted to approximately $69 million at September 30, 2019. The Corporation could be required to post additional collateral under the agreements. Management expects that it would be able to meet additional collateral requirements if and when needed. The requirements to post collateral under certain agreements or the loss of escrow deposits could reduce the Corporation’s liquidity resources and impact its operating results.

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Credit Risk

Geographic and Government Risk

The Corporation is exposed to geographic and government risk. The Corporation’s assets and revenue composition by geographical area and by business segment reporting are presented in Note 35 to the Consolidated Financial Statements.

Commonwealth of Puerto Rico

A significant portion of our financial activities and credit exposure is concentrated in the Commonwealth of Puerto Rico (the “Commonwealth” or “Puerto Rico”), which faces severe economic and fiscal challenges.

Economic Performance

The Commonwealth’s economy entered a recession in the fourth quarter of fiscal year 2006, and the Commonwealth’s gross national product (“GNP”) has contracted (in real terms) every fiscal year between 2007 and 2018, with the exception of fiscal year 2012. Pursuant to the latest Puerto Rico Planning Board (the “Planning Board”) estimates, published on July 3, 2019, the Commonwealth’s real GNP for fiscal years 2017 and 2018 decreased by 3% and 4.7%, respectively. The Planning Board’s report also projects that real GNP will increase approximately 2% and 3.6% in fiscal years 2019 and 2020, respectively, in part due to the influx of federal funds and private insurance payments to repair damage caused by Hurricanes Irma and María. For information regarding the economic projections of the 2019 Commonwealth Fiscal Plan, see Fiscal Plans, Commonwealth Fiscal Plan, below.

Recent Political Developments

In June 2019, two former senior Puerto Rico government officials were indicted by federal law enforcement agencies on fraud and other charges. This and other scandals involving Puerto Rico Governor, Ricardo Rosselló Nevares, and other senior government officials led to massive protests and, ultimately, to Mr. Rosselló’s resignation, which became effective on August 2, 2019. Mr. Pedro Pierluisi, a former Resident Commissioner of Puerto Rico in the U.S. Congress was nominated by former Governor Rosselló on July 31, 2019 to serve as the Puerto Rico Secretary of State (who under the Puerto Rico Constitution is first in line to succeed the Governor in the event of a vacancy) and was sworn in as Governor after Mr. Rosselló’s resignation became effective. However, on August 7, 2019, Mr. Pierluisi’s accession to the governorship was declared unconstitutional by the Puerto Rico Supreme Court and Wanda Vázquez Garced, Secretary of Justice, was sworn in as Governor.

Fiscal Crisis

The Commonwealth remains in the midst of a profound fiscal crisis affecting the central government and many of its instrumentalities, public corporations and municipalities. This fiscal crisis has been primarily the result of economic contraction, persistent and significant budget deficits, a high debt burden, unfunded legacy obligations, and lack of access to the capital markets, among other factors. As a result of the crisis, the Commonwealth and certain of its instrumentalities have been unable to make debt service payments on their outstanding bonds and notes since 2016. The escalating fiscal and economic crisis and imminent widespread defaults prompted the U.S. Congress to enact the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) in June 2016, which, as further discussed below, established two mechanisms for the restructuring of the obligations of the Commonwealth, its public corporations, instrumentalities and municipalities. The Commonwealth and several of its instrumentalities are currently in the process of restructuring their debts through such mechanisms.

PROMESA

PROMESA created a seven-member federally-appointed oversight board (the “Oversight Board”) with ample powers over the fiscal and economic affairs of the Commonwealth, its public corporations, instrumentalities and municipalities. Pursuant to PROMESA, the Oversight Board will remain in place until market access is restored and balanced budgets, in accordance with modified accrual accounting, are produced for at least four consecutive years. In August 2016, President Obama appointed the seven voting members of the Oversight Board through the process established in PROMESA, which authorized the President to select the

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members from several lists required to be submitted by congressional leaders. On February 15, 2019, however, the First Circuit of the U.S. Court of Appeals (the “First Circuit”) declared such appointments unconstitutional on the grounds that they did not comply with the Appointments Clause of the U.S. Constitution, which requires that principal federal officers be appointed by the President, with the advice and consent of the U.S. Senate. The First Circuit, however, validated the Oversight Board’s past acts and did not dismiss the petitions under Title III of PROMESA, as the plaintiffs had requested. In doing so, the First Circuit relied on a doctrine known as the “de facto officer doctrine,” which provides that acts performed by an officer that has assumed official duties without having been properly appointed to an office are valid even if it is later discovered that the officer’s appointment is legally deficient. The parties challenging the constitutionality of PROMESA appealed the First Circuit’s decision to the U.S. Supreme Court and the First Circuit stayed its decision pending the appeal. The U.S. Supreme Court held oral arguments on this case on October 15, 2019 and is expected to issue a decision before the end of its current term (June 2020). Given the lack of precedents interpreting the provisions of PROMESA, no assurances can be given as to the outcome of the appeal. Any outcome that results in the voidance of the Oversight Board’s past actions could create further fiscal instability and adversely affect the Puerto Rico economy.

In October 2016, the Oversight Board designated the Commonwealth and all of its public corporations and instrumentalities as “covered entities” under PROMESA. The only Commonwealth government entities that were not subject to such initial designation were the Commonwealth’s municipalities. On May 9, 2019, however, the Oversight Board designated all of the Commonwealth’s municipalities as covered entities. It also announced that it will launch a pilot initiative requiring the development of fiscal plans and budgets for ten municipalities. Further, it requested the development of a fiscal plan for the Municipal Revenue Collection Center, the entity primarily responsible for the collection of property taxes on behalf of municipalities.

At the Oversight Board’s request, covered entities are required to submit fiscal plans and annual budgets to the Oversight Board for its review and approval. They are also required to seek Oversight Board approval to issue, guarantee or modify their debts and to enter into contracts with an aggregate value of $10 million or more. Finally, covered entities are potentially eligible to avail themselves of the restructuring processes provided by PROMESA. One of such restructuring processes, Title VI, is a largely out-of-court process through which a government entity and its financial creditors can agree on terms to restructure such entity’s debt. If a supermajority of creditors of a certain category agrees, that agreement can bind all other creditors in such category. The other one, Title III, draws on the federal bankruptcy code and provides a court-supervised process for a comprehensive restructuring led by the Oversight Board. Access to either of these procedures is dependent on compliance with certain requirements established in PROMESA, including the approval of the Oversight Board.

Fiscal Plans

Commonwealth Fiscal Plan. The Oversight Board has certified several versions of fiscal plans for the Commonwealth since 2017. The most recent fiscal plan for the Commonwealth certified by the Oversight Board is dated as of May 9, 2019 (the “2019 Commonwealth Fiscal Plan”).

The 2019 Commonwealth Fiscal Plan estimates a 4.7% contraction in real GNP in fiscal year 2018, after accounting for the impact of disaster relief funding and the measures and structural reforms contemplated by the plan. It also projects that disaster relief spending will have a short-term stimulative effect on the economy, which, combined with the estimated effects of the proposed fiscal measures and structural reforms, will result in real GNP growth of approximately 4% and 1.5% in fiscal years 2019 and 2020, respectively. The Commonwealth’s population is estimated to steadily decline at rates of approximately 1% to 2% annually through fiscal year 2024.

Before accounting for the impact of the measures and structural reforms contemplated therein, the 2019 Commonwealth Fiscal Plan projects a pre-contractual debt service surplus in fiscal years 2018 through 2020. This surplus is not projected to continue after fiscal year 2020, as federal disaster relief funding slows down. The 2019 Commonwealth Fiscal Plan projects that, without major Government action, the Commonwealth would suffer an annual primary deficit starting in fiscal year 2021. The Oversight Board estimates that the fiscal measures contemplated by the 2019 Commonwealth Fiscal Plan will drive approximately $13.6 billion in savings and extra revenue through fiscal year 2024. However, even after accounting for the impact of the fiscal measures and structural reforms and before contractual debt service, the projections reflect an annual deficit starting in fiscal year 2038. After contractual debt service, the surplus projected in fiscal years 2019 to 2024 drops significantly and annual deficits begin in fiscal year 2027. Based on such long-term projections, the 2019 Commonwealth Fiscal Plan concludes that the Commonwealth cannot afford to meet all of its contractual debt obligations, even with aggressive implementation of the structural reforms and measures contemplated by the plan.

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The 2019 Commonwealth Fiscal Plan does not contemplate the restructuring of the debt of the Commonwealth’s municipalities. It does, however, contemplate the gradual reduction and the ultimate elimination of budgetary subsidies provided by the Commonwealth to municipalities, which constitute a material portion of the operating revenues of certain municipalities. Commonwealth appropriations to municipalities were reduced by $150 million in fiscal year 2018 and by an additional $45 million in 2019 (from approximately $370 million in fiscal year 2017 to approximately $220 million in fiscal year 2018 (exclusive of one-time hurricane related appropriations) and approximately $175 in fiscal year 2019). The 2019 Commonwealth Fiscal Plan provides for additional reductions in such appropriations every fiscal year, holding appropriations constant at approximately 45-50% of current levels starting in fiscal year 2022, before ultimately phasing out all subsidies in fiscal year 2024.

Other Fiscal Plans. Pursuant to PROMESA, the Oversight Board has also requested and certified fiscal plans for several public corporations and instrumentalities. Such plans conclude that such entities cannot afford to meet all of their contractual obligations as currently scheduled.

The certified fiscal plan for the Puerto Rico Electric Power Authority (“PREPA”), Puerto Rico’s electric power utility, contemplates the transformation of Puerto Rico’s electric system through, among other things, the establishment of a public-private partnership with respect to PREPA’s transmission and distribution system, and calls for significant structural reforms at PREPA. The plan also contemplates changes to the treatment of the municipal contribution in lieu of taxes, which could result in increased electricity expenses for municipalities.

The certified fiscal plan for Government Development Bank for Puerto Rico (“GDB”) contemplated the wind-down of GDB and the distribution of the cash flows of GDB’s loan portfolio among its creditors (including its municipal depositors) through a debt restructuring proceeding under Title VI of PROMESA. Such restructuring was approved by the U.S. District Court for the District of Puerto Rico (the “U.S. District Court”) and subsequently consummated on November 29, 2018.

Pending Title III and Title VI Proceedings

On May 3, 2017, the Oversight Board, on behalf of the Commonwealth, filed a petition in the U.S. District Court to restructure the Commonwealth’s liabilities under Title III of PROMESA. The Oversight Board has subsequently filed analogous petitions with respect to the Puerto Rico Sales Tax Financing Corporation (“COFINA”), the Employees Retirement System of the Government of the Commonwealth of Puerto Rico (“ERS”), the Puerto Rico Highways and Transportation Authority (“HTA”), PREPA and the Puerto Rico Public Buildings Authority (“PBA”).

On October 19, 2018, the Oversight Board filed a plan of adjustment for COFINA (as subsequently amended, the “COFINA Plan of Adjustment”), as well as a motion to approve a settlement of certain disputes between the Commonwealth and COFINA regarding the ownership of a portion of the sales and use tax pledged to the payment of COFINA’s bonds (the “COFINA Settlement”). The COFINA Plan of Adjustment provided for the restructuring of COFINA’s bonds based on the COFINA Settlement, which contemplated that the Commonwealth would receive approximately 46.35% of the yearly revenues previously allocated to COFINA. The COFINA Settlement and the COFINA Plan of Adjustment were confirmed by the U.S. District Court on February 4, 2019 and the restructuring transaction contemplated thereby was consummated on February 12, 2019.

On September 27, 2019, the Oversight Board filed a plan of adjustment for the Commonwealth, ERS and PBA in the pending debt restructuring proceedings under Title III of PROMESA. The proposed plan of adjustment, which has not yet been confirmed by the Title III court and may suffer significant changes before confirmation, provides a framework for the Commonwealth to exit bankruptcy. As of the date of this report, the Oversight Board has not filed plans of adjustment for PREPA or HTA.

Exposure of the Corporation

The credit quality of BPPR’s loan portfolio reflects, among other things, the general economic conditions in Puerto Rico and other adverse conditions affecting Puerto Rico consumers and businesses. The effects of the prolonged recession are reflected in limited loan demand, an increase in the rate of foreclosures and delinquencies on loans granted in Puerto Rico. While PROMESA provides a process to address the Commonwealth’s fiscal crisis, the length and complexity of the Title III proceedings for the Commonwealth

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and various of its instrumentalities, the adjustment measures required by the fiscal plans and the long-term impact of Hurricanes Irma and Maria present significant economic risks. In addition, the measures taken to address the fiscal crisis and those that will have to be taken in the near future will likely affect many of our individual customers and customers’ businesses, which could cause credit losses that adversely affect us and may negatively affect consumer confidence. This, in turn, could result in reductions in consumer spending that may also adversely impact our interest and non-interest revenues. If global or local economic conditions worsen or the Government of Puerto Rico and the Oversight Board are unable to adequately manage the Commonwealth’s fiscal and economic challenges, including by consummating an orderly restructuring of its debt obligations while continuing to provide essential services, these adverse effects could continue or worsen in ways that we are not able to predict.

At September 30, 2019 and December 31, 2018, the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities totaled to $432 million and $458 million, respectively, which amounts were fully outstanding on such dates. Further deterioration of the Commonwealth’s fiscal and economic situation could adversely affect the value of our Puerto Rico government obligations, resulting in losses to us. Of the amount outstanding, $391 million consists of loans and $41 million are securities ($413 million and $45 million, respectively, at December 31, 2018). Substantially all of the amount outstanding at September 30, 2019 were obligations from various Puerto Rico municipalities. In most cases, these were “general obligations” of a municipality, to which the applicable municipality has pledged its good faith, credit and unlimited taxing power, or “special obligations” of a municipality, to which the applicable municipality has pledged other revenues. On July 1, 2019 the Corporation received principal payments amounting to $22 million from various obligations from Puerto Rico municipalities. At September 30, 2019, 75% of the Corporation’s exposure to municipal loans and securities was concentrated in the municipalities of San Juan, Guaynabo, Carolina and Bayamón. As discussed above, the Oversight Board recently designated all Commonwealth’s municipalities as covered entities under PROMESA and requested the development of fiscal plans and budgets from ten municipalities as part of a new pilot initiative. The Corporation does not have direct exposure to any of the municipalities that are currently part of such pilot initiative. For a more detailed description of the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities, refer to Note 22 – Commitments and Contingencies.

In addition, at September 30, 2019, the Corporation had $355 million in loans insured or securities issued by Puerto Rico governmental entities, but for which the principal source of repayment is non-governmental ($368 million at December 31, 2018). These included $281 million in residential mortgage loans insured by the Puerto Rico Housing Finance Authority (“HFA”), a governmental instrumentality that has been designated as a covered entity under PROMESA (December 31, 2018 - $293 million). These mortgage loans are secured by first mortgages on Puerto Rico residential properties and the HFA insurance covers losses in the event of a borrower default and subsequent foreclosure of the underlying property. The Corporation also had, at Septermber 30, 2019, $46 million in bonds issued by HFA which are secured by second mortgage loans on Puerto Rico residential properties, and for which HFA also provides insurance to cover losses in the event of a borrower default, and subsequent foreclosure of the underlying property (December 31, 2018 - $45 million). In the event that the mortgage loans insured by HFA and held by the Corporation directly or those serving as collateral for the HFA bonds default and the collateral is insufficient to satisfy the outstanding balance of this loans, HFA’s ability to honor its insurance will depend, among other factors, on the financial condition of HFA at the time such obligations become due and payable. Although the Governor is currently authorized by local legislation to impose a temporary moratorium on the financial obligations of the HFA, she has not exercised this power as of the date hereof. In addition, at September 30, 2019, the Corporation had $7 million in securities issued by HFA that have been economically defeased and refunded and for which securities consisting of U.S. agencies and Treasury obligations have been escrowed (December 31, 2018 - $7 million), and $21 million of commercial real estate notes issued by government entities, but that are payable from rent paid by non-governmental parties (December 31, 2018 - $23 million).

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

BPPR also has a significant amount of deposits from the Commonwealth, its instrumentalities, and municipalities. The amount of such deposits may fluctuate depending on the financial condition and liquidity of such entities, as well as on the ability of BPPR to maintain these customer relationships.

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The Corporation may also have direct exposure with regards to avoidance and other causes of action initiated by the Oversight Board on behalf of the Commonwealth or other Title III debtors. For additional information regarding such exposure, refer to Note 22 of the Consolidated Financial Statements.

United States Virgin Islands

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

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

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

At September 30, 2019, the Corporation’s direct exposure to USVI instrumentalities and public corporations amounted to approximately $72 million, of which $64 million is outstanding (compared to $76 million and $68 million, respectively, at December 31, 2018). Of the amount outstanding, approximately (i) $42 million represents loans to the West Indian Company LTD, a government-owned company that owns and operates a cruise ship pier and shopping mall complex in St. Thomas, (ii) $14 million represents loans to the Virgin Islands Water and Power Authority, a public corporation of the USVI that operates USVI’s water production and electric generation plants, and (iii) $8 million represents loans to the Virgin Islands Public Finance Authority, a public corporation of the USVI created for the purpose of raising capital for public projects (compared to $42 million, $14 million and $12 million, respectively, at December 31, 2018).

U.S. Government

As further detailed in Notes 6 and 7 to the Consolidated Financial Statements, a substantial portion of the Corporation’s investment securities represented exposure to the U.S. Government in the form of U.S. Government sponsored entities, as well as agency mortgage-backed and U.S. Treasury securities. In addition, $1.2 billion of residential mortgages and $68 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at September 30, 2019 (compared to $1.2 billion and $74 million, respectively, at December 31, 2018).

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Non-Performing Assets

Non-performing assets include primarily past-due loans that are no longer accruing interest, renegotiated loans, and real estate property acquired through foreclosure. A summary, including certain credit quality metrics, is presented in Table 15.

As of September 30, 2019, the Puerto Rico segment continued to reflect positive credit quality trends, when compared to December 31, 2018, with continued improvements in non-performing assets and stable net charge-off trends. The charge-offs for the BPPR segment reflect the impact of previously reserved troubled debt restructured commercial real estate loans and revisions to the auto loans charge-of policy. The credit quality metrics of our U.S. operation also remained favorable. The Corporation continues to be attentive to the performance of its portfolios and related credit metrics. The following presents credit quality results for the third quarter of 2019.

Total non-performing assets (“NPAs”) decreased by $72 million when compared with December 31, 2018. This decrease was primarily driven by lower non-performing loans (“NPLs”) in the Puerto Rico segment by $47 million, combined with lower other real estate owned loans (“OREOs”) by $19 million. The decrease in the BPPR’s NPLs was mostly due to lower mortgage and commercial NPLs by $28 million and $17 million, respectively.

At September 30, 2019, NPLs secured by real estate amounted to $425 million in the Puerto Rico operations and $39 million in the Popular U.S. operations. These figures were $459 million and $49 million, respectively, at December 31, 2018.

The Corporation’s commercial loan portfolio secured by real estate (“CRE”) amounted to $7.7 billion at September 30, 2019, of which $1.9 billion was secured with owner occupied properties, compared with $7.8 billion and $2.0 billion, respectively, at December 31, 2018. CRE NPLs amounted to $123 million at September 30, 2019, compared with $129 million at December 31, 2018. The CRE NPL ratios for the BPPR and Popular U.S. segments were 3.12% and 0.07%, respectively, at September 30, 2019, compared with 3.05% and 0.02%, respectively, at December 31, 2018.

In addition to the NPLs included in Table 15, at September 30, 2019, there were $201 million of performing loans, mostly commercial loans, which in management’s opinion, are currently subject to potential future classification as non-performing and are considered impaired (December 31, 2018 - $153 million).

For the quarter ended September 30, 2019, total inflows of NPLs held-in-portfolio, excluding consumer loans, increased by $24 million, or 32%, when compared to the inflows for the same quarter in 2018. Inflows of NPLs held-in-portfolio at the BPPR segment increased by $26 million, or 37%, compared to the third quarter of 2018, mostly driven by higher commercial inflows by $20 million, primarily due to the above-mentioned previously accruing restructured commercial real estate loans.

Inflows of NPLs held-in-portfolio at the Popular U.S. segment decreased by $2 million, or 29%, from the same quarter in 2018.

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Table 15 - Non-Performing Assets
| September 30, 2019 |  |  | December 31, 2018 |
(Dollars in thousands) |  | BPPR |  | Popular U.S. |  | Popular, Inc. |  | As a % of loans HIP by category |  |  | BPPR |  | Popular U.S. |  | Popular, Inc. |  | As a % of loans HIP by category |
Commercial | $ | 166,366 | $ | 3,331 | $ | 169,697 |  | 1.4 | % | $ | 182,950 | $ | 1,076 | $ | 184,026 |  | 1.5 | %
Construction |  | 274 |  | 10,060 |  | 10,334 |  | 1.4 |  |  | 1,788 |  | 12,060 |  | 13,848 |  | 1.8 |
Legacy[1] |  | - |  | 2,318 |  | 2,318 |  | 10.0 |  |  | - |  | 2,627 |  | 2,627 |  | 10.1 |
Leasing |  | 2,733 |  | - |  | 2,733 |  | 0.3 |  |  | 3,313 |  | - |  | 3,313 |  | 0.4 |
Mortgage |  | 296,025 |  | 9,517 |  | 305,542 |  | 4.3 |  |  | 323,565 |  | 11,033 |  | 334,598 |  | 4.6 |
Auto |  | 22,954 |  | - |  | 22,954 |  | 0.8 |  |  | 24,050 |  | - |  | 24,050 |  | 0.9 |
Consumer |  | 32,421 |  | 11,793 |  | 44,214 |  | 1.5 |  |  | 32,432 |  | 16,193 |  | 48,625 |  | 1.7 |
Total non-performing loans held-in-portfolio |  | 520,773 |  | 37,019 |  | 557,792 |  | 2.1 | % |  | 568,098 |  | 42,989 |  | 611,087 |  | 2.3 | %
Other real estate owned (“OREO”) |  | 115,548 |  | 2,380 |  | 117,928 |  |  |  |  | 134,063 |  | 2,642 |  | 136,705 |  |  |
Total non-performing assets[2] | $ | 636,321 | $ | 39,399 | $ | 675,720 |  |  |  | $ | 702,161 | $ | 45,631 | $ | 747,792 |  |  |
Accruing loans past due 90 days or more[3] [4] | $ | 476,814 | $ | - | $ | 476,814 |  |  |  | $ | 612,543 | $ | - | $ | 612,543 |  |  |
Ratios: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-performing assets to total assets |  | 1.52 | % | 0.37 | % | 1.29 | % |  |  |  | 1.86 | % | 0.46 | % | 1.57 | % |  |
Non-performing loans held-in-portfolio to loans held-in-portfolio |  | 2.61 |  | 0.52 |  | 2.07 |  |  |  |  | 2.86 |  | 0.65 |  | 2.31 |  |  |
Allowance for loan losses to loans held-in-portfolio |  | 2.26 |  | 0.87 |  | 1.90 |  |  |  |  | 2.55 |  | 0.94 |  | 2.15 |  |  |
Allowance for loan losses to non-performing loans, excluding held-for-sale |  | 86.56 |  | 166.39 |  | 91.86 |  |  |  |  | 89.27 |  | 144.66 |  | 93.17 |  |  |

HIP = “held-in-portfolio”

[1] The legacy portfolio is comprised of commercial loans, construction loans and lease financings related to certain lending products exited by the Corporation as part of restructuring efforts carried out in prior years at the Popular U.S. segment.

[2] There were no non-performing loans held-for-sale as of September 30, 2019 and December 31, 2018.

[3] The carrying value of loans accounted for under ASC Sub-topic 310-30 that are contractually 90 days or more past due was $189 million at September 30, 2019 (December 31, 2018 - $216 million). This amount is excluded from the above table as the loans’ accretable yield interest recognition is independent from the underlying contractual loan delinquency status.

[4] It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. These balances include $241 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of September 30, 2019 (December 31, 2018 - $283 million). These balances also include approximately $99 million of loans rebooked due to a repurchase option with GNMA liability (December 31, 2018 - $134 million). The Corporation has approximately $65 million in reverse mortgage loans which are guaranteed by FHA, but which are currently not accruing interest. Due to the guaranteed nature of the loans, it is the Corporation’s policy to exclude these balances from non-performing assets (December 31, 2018 - $69 million).

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Table 16 - Activity in Non-Performing Loans Held-in-Portfolio (Excluding Consumer Loans) |  |
|  | For the quarter ended September 30, 2019 |  | For the nine months ended September 30, 2019
(Dollars in thousands) |  | BPPR |  | Popular U.S. | Popular, Inc. |  | BPPR |  | Popular U.S. | Popular, Inc.
Beginning balance | $ | 459,973 | $ | 30,088 | $ | 490,061 | $ | 508,303 | $ | 26,796 | $ | 535,099
Plus: |  |  |  |  |  |  |  |  |  |  |  |
| New non-performing loans |  | 93,910 |  | 4,040 |  | 97,950 |  | 204,106 |  | 14,480 |  | 218,586
| Advances on existing non-performing loans |  | - |  | 290 |  | 290 |  | - |  | 380 |  | 380
Less: |  |  |  |  |  |  |  |  |  |  |  |
| Non-performing loans transferred to OREO |  | (7,713) |  | (197) |  | (7,910) |  | (20,484) |  | (490) |  | (20,974)
| Non-performing loans charged-off |  | (10,738) |  | (3,514) |  | (14,252) |  | (43,683) |  | (4,783) |  | (48,466)
| Loans returned to accrual status / loan collections |  | (72,767) |  | (5,481) |  | (78,248) |  | (185,577) |  | (11,157) |  | (196,734)
Ending balance NPLs[1] | $ | 462,665 | $ | 25,226 | $ | 487,891 | $ | 462,665 | $ | 25,226 | $ | 487,891
[1] Includes $2.3 million of NPLs related to the legacy portfolio.
Table 17 - Activity in Non-Performing Loans Held-in-Portfolio (Excluding Consumer Loans) |  |
|  | For the quarter ended September 30, 2018 |  | For the nine months ended September 30, 2018
(Dollars in thousands) |  | BPPR |  | Popular U.S. | Popular, Inc. |  | BPPR |  | Popular U.S. | Popular, Inc.
Beginning balance | $ | 538,597 | $ | 35,130 | $ | 573,727 | $ | 467,923 | $ | 21,730 | $ | 489,653
Plus: |  |  |  |  |  |  |  |  |  |  |  |
| New non-performing loans |  | 68,347 |  | 6,069 |  | 74,416 |  | 353,416 |  | 33,629 |  | 387,045
| Advances on existing non-performing loans |  | - |  | 58 |  | 58 |  | 763 |  | 64 |  | 827
| Reclassification from covered loans |  | - |  | - |  | - |  | 3,413 |  | - |  | 3,413
Less: |  |  |  |  |  |  |  |  |  |  |  |
| Non-performing loans transferred to OREO |  | (6,168) |  | (183) |  | (6,351) |  | (14,280) |  | (183) |  | (14,463)
| Non-performing loans charged-off |  | (23,769) |  | (17) |  | (23,786) |  | (58,425) |  | (330) |  | (58,755)
| Loans returned to accrual status / loan collections |  | (55,128) |  | (6,068) |  | (61,196) |  | (230,931) |  | (19,921) |  | (250,852)
Ending balance NPLs[1] | $ | 521,879 | $ | 34,989 | $ | 556,868 | $ | 521,879 | $ | 34,989 | $ | 556,868
[1] Includes $3.4 million of NPLs related to the legacy portfolio.

Table 18 - Activity in Non-Performing Commercial Loans Held-in-Portfolio |  |
|  | For the quarter ended September 30, 2019 |  | For the nine months ended September 30, 2019
(Dollars in thousands) |  | BPPR |  | Popular U.S. |  | Popular, Inc. |  |  | BPPR |  | Popular U.S. |  | Popular, Inc.
Beginning balance | $ | 149,139 | $ | 6,209 | $ | 155,348 |  | $ | 182,950 | $ | 1,076 | $ | 184,026
Plus: |  |  |  |  |  |  |  |  |  |  |  |  |
| New non-performing loans |  | 43,650 |  | 734 |  | 44,384 |  |  | 56,413 |  | 7,316 |  | 63,729
Less: |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-performing loans transferred to OREO |  | (972) |  | - |  | (972) |  |  | (3,683) |  | - |  | (3,683)
| Non-performing loans charged-off |  | (2,005) |  | (1,302) |  | (3,307) |  |  | (22,854) |  | (2,032) |  | (24,886)
| Loans returned to accrual status / loan collections |  | (23,446) |  | (2,310) |  | (25,756) |  |  | (46,460) |  | (3,029) |  | (49,489)
Ending balance NPLs | $ | 166,366 | $ | 3,331 | $ | 169,697 |  | $ | 166,366 | $ | 3,331 | $ | 169,697

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Table 19 - Activity in Non-Performing Commercial Loans Held-in-Portfolio |  |
|  | For the quarter ended September 30, 2018 |  | For the nine months ended September 30, 2018
(Dollars in thousands) |  | BPPR |  | Popular U.S. |  | Popular, Inc. |  |  | BPPR |  | Popular U.S. |  | Popular, Inc.
Beginning balance | $ | 162,781 | $ | 2,168 | $ | 164,949 |  | $ | 161,226 | $ | 3,839 | $ | 165,065
Plus: |  |  |  |  |  |  |  |  |  |  |  |  |
| New non-performing loans |  | 23,894 |  | 1,663 |  | 25,557 |  |  | 92,867 |  | 3,637 |  | 96,504
| Advances on existing non-performing loans |  | - |  | - |  | - |  |  | 647 |  | - |  | 647
Less: |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-performing loans transferred to OREO |  | (1,480) |  | - |  | (1,480) |  |  | (5,985) |  | - |  | (5,985)
| Non-performing loans charged-off |  | (5,179) |  | (3) |  | (5,182) |  |  | (19,726) |  | (234) |  | (19,960)
| Loans returned to accrual status / loan collections |  | (8,745) |  | (2,414) |  | (11,159) |  |  | (57,758) |  | (5,828) |  | (63,586)
Ending balance NPLs | $ | 171,271 | $ | 1,414 | $ | 172,685 |  | $ | 171,271 | $ | 1,414 | $ | 172,685

Table 20 - Activity in Non-Performing Construction Loans Held-in-Portfolio |  |
|  | For the quarter ended September 30, 2019 |  | For the nine months ended September 30, 2019
(Dollars in thousands) |  | BPPR |  | Popular U.S. |  | Popular, Inc. |  |  | BPPR |  | Popular U.S. |  | Popular, Inc.
Beginning balance | $ | 1,788 | $ | 12,060 | $ | 13,848 |  | $ | 1,788 | $ | 12,060 | $ | 13,848
Plus: |  |  |  |  |  |  |  |  |  |  |  |  |
| Advances on existing non-performing loans |  | - |  | 215 |  | 215 |  |  | - |  | 215 |  | 215
Less: |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-performing loans charged-off |  | - |  | (2,215) |  | (2,215) |  |  | - |  | (2,215) |  | (2,215)
| Loans returned to accrual status / loan collections |  | (1,514) |  | - |  | (1,514) |  |  | (1,514) |  | - |  | (1,514)
Ending balance NPLs | $ | 274 | $ | 10,060 | $ | 10,334 |  | $ | 274 | $ | 10,060 | $ | 10,334

Table 21 - Activity in Non-Performing Construction Loans Held-in-Portfolio |  |
|  | For the quarter ended September 30, 2018 |  | For the nine months ended September 30, 2018
(Dollars in thousands) |  | BPPR |  | Popular U.S. |  | Popular, Inc. |  |  | BPPR |  | Popular U.S. |  | Popular, Inc.
Beginning balance | $ | 2,559 | $ | 17,901 | $ | 20,460 |  | $ | - | $ | - | $ | -
Plus: |  |  |  |  |  |  |  |  |  |  |  |  |
| New non-performing loans |  | - |  | - |  | - |  |  | 4,177 |  | 17,901 |  | 22,078
| Advances on existing non-performing loans |  | - |  | - |  | - |  |  | 116 |  | - |  | 116
Less: |  |  |  |  |  |  |  |  |  |  |  |  |
| Loans returned to accrual status / loan collections |  | (730) |  | (35) |  | (765) |  |  | (2,464) |  | (35) |  | (2,499)
Ending balance NPLs | $ | 1,829 | $ | 17,866 | $ | 19,695 |  | $ | 1,829 | $ | 17,866 | $ | 19,695

163

Table 22 - Activity in Non-Performing Mortgage Loans Held-in-Portfolio |  |
|  | For the quarter ended September 30, 2019 |  | For the nine months ended September 30, 2019
(Dollars in thousands) |  | BPPR |  | Popular U.S. |  | Popular, Inc. |  |  | BPPR |  | Popular U.S. |  | Popular, Inc.
Beginning balance | $ | 309,046 | $ | 9,350 | $ | 318,396 |  | $ | 323,565 | $ | 11,033 | $ | 334,598
Plus: |  |  |  |  |  |  |  |  |  |  |  |  |
| New non-performing loans |  | 50,260 |  | 3,306 |  | 53,566 |  |  | 147,693 |  | 6,954 |  | 154,647
| Advances on existing non-performing loans |  | - |  | 37 |  | 37 |  |  | - |  | 119 |  | 119
Less: |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-performing loans transferred to OREO |  | (6,741) |  | (197) |  | (6,938) |  |  | (16,801) |  | (490) |  | (17,291)
| Non-performing loans charged-off |  | (8,733) |  | - |  | (8,733) |  |  | (20,829) |  | (539) |  | (21,368)
| Loans returned to accrual status / loan collections |  | (47,807) |  | (2,979) |  | (50,786) |  |  | (137,603) |  | (7,560) |  | (145,163)
Ending balance NPLs | $ | 296,025 | $ | 9,517 | $ | 305,542 |  | $ | 296,025 | $ | 9,517 | $ | 305,542

Table 23 - Activity in Non-Performing Mortgage loans Held-in-Portfolio |  |
|  | For the quarter ended September 30, 2018 |  | For the nine months ended September 30, 2018
(Dollars in thousands) |  | BPPR |  | Popular U.S. |  | Popular, Inc. |  |  | BPPR |  | Popular U.S. |  | Popular, Inc.
Beginning balance | $ | 373,257 | $ | 11,398 | $ | 384,655 |  | $ | 306,697 | $ | 14,852 | $ | 321,549
Plus: |  |  |  |  |  |  |  |  |  |  |  |  |
| New non-performing loans |  | 44,453 |  | 4,406 |  | 48,859 |  |  | 256,372 |  | 11,019 |  | 267,391
| Advances on existing non-performing loans |  | - |  | 52 |  | 52 |  |  | - |  | 52 |  | 52
| Reclassification from covered loans |  | - |  | - |  | - |  |  | 3,413 |  | - |  | 3,413
Less: |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-performing loans transferred to OREO |  | (4,688) |  | (183) |  | (4,871) |  |  | (8,295) |  | (183) |  | (8,478)
| Non-performing loans charged-off |  | (18,590) |  | (14) |  | (18,604) |  |  | (38,699) |  | (96) |  | (38,795)
| Loans returned to accrual status / loan collections |  | (45,653) |  | (3,353) |  | (49,006) |  |  | (170,709) |  | (13,338) |  | (184,047)
Ending balance NPLs | $ | 348,779 | $ | 12,306 | $ | 361,085 |  | $ | 348,779 | $ | 12,306 | $ | 361,085

Loan Delinquencies

Another key measure used to evaluate and monitor the Corporation’s asset quality is loan delinquencies. Loans delinquent 30 days or more, as a percentage of their related portfolio category at September 30, 2019 and December 31 2018, are presented below.

Table 24 - Loan Delinquencies
(Dollars in thousands) |  | September 30, 2019 |  |  | December 31, 2018
| Loans delinquent 30 days or more | Total loans | Total delinquencies as a percentage of total loans | Loans delinquent 30 days or more | Total loans | Total delinquencies as a percentage of total loans
Commercial | $ | 324,371 | $ | 12,208,449 |  | 2.66 | % | $ | 406,442 | $ | 12,043,019 |  | 3.37 | %
Construction |  | 10,597 |  | 754,056 |  | 1.41 |  |  | 13,848 |  | 779,449 |  | 1.78 |
Legacy |  | 2,461 |  | 23,192 |  | 10.61 |  |  | 3,267 |  | 25,949 |  | 12.59 |
Leasing |  | 16,384 |  | 1,022,484 |  | 1.60 |  |  | 12,803 |  | 934,773 |  | 1.37 |
Mortgage |  | 1,321,990 |  | 7,168,619 |  | 18.44 |  |  | 1,474,923 |  | 7,235,258 |  | 20.39 |
Consumer |  | 237,507 |  | 5,831,175 |  | 4.07 |  |  | 196,325 |  | 5,489,441 |  | 3.58 |
Loans held-for-sale |  | 50 |  | 56,370 |  | 0.09 |  |  | 173 |  | 51,422 |  | 0.34 |
Total | $ | 1,913,360 | $ | 27,064,345 |  | 7.07 | % | $ | 2,107,781 | $ | 26,559,311 |  | 7.94 | %

164

Allowance for Loan Losses

The allowance for loan and lease losses (“ALLL”), which represents management’s estimate of credit losses inherent in the loan portfolio, is maintained at a sufficient level to provide for estimated credit losses on individually evaluated loans as well as estimated credit losses inherent in the remainder of the loan portfolio. The Corporation’s management evaluates the adequacy of the ALLL on a quarterly basis. In this evaluation, management considers current economic conditions and the resulting impact on Popular Inc.’s loan portfolio, the composition of the portfolio by loan type and risk characteristics, historical loss experience, results of periodic credit reviews of individual loans, regulatory requirements and loan impairment measurement, among other factors.

The Corporation must rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown, such as economic developments affecting specific customers, industries or markets. Other factors that can affect management’s estimates are the years of historical data when estimating losses, changes in underwriting standards, financial accounting standards and loan impairment measurements, among others. Changes in the financial condition of individual borrowers, in economic conditions, in historical loss experience and in the condition of the various markets in which collateral may be sold, may also affect the required level of the allowance for loan losses. Consequently, the business financial condition, liquidity, capital and results of operations could also be affected. Refer to Note 2 to the Consolidated Financial Statements included in the 2018 Form 10-K for a description of the Corporation’s allowance for loans losses methodology.

At September 30, 2019, the ALLL amounted to $512 million, a decrease of $57 million, when compared with December 31, 2018. The BPPR ALLL decreased by $56 million, mostly due to commercial charge-offs taken during the year on previously reserved loans, continued improvements in the credit loss trends of the mortgage portfolio, and an $8.2 million reserve release from a $40 million loan relationship, in the ASC 310-30 portfolio, sold during the quarter. These positive variances were partially offset by higher reserves for the auto loans portfolio. The Popular U.S. segment remained essentially flat at $62 million. The provision for loan losses for the third quarter of 2019 amounted to $36.5 million, compared to $54.4 million in the same period in the prior year. Refer to the Provision for Loan Losses section of this MD&A for additional information.

Preliminary impact estimate of the adoption of FASB Accounting Standards Updates (“ASUs”), Financial Instruments – Credit Losses (Topic 326)

Refer to Note 3 to the Consolidated Financial Statements included in this Form 10-Q for an update on the Corporation’s implementation efforts for the current expected credit loss model (“CECL”), pursuant to FASB Accounting Standards Updates (“ASUs”), Financial Instruments – Credit Losses (Topic 326).

Annualized net charge offs

The following table presents annualized net charge-offs to average loans held-in-portfolio (“HIP”) by loan category for the quarters and nine months periods ended September 30, 2019 and 2018.

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Table 25 - Annualized Net Charge-offs (Recoveries) to Average Loans Held-in-Portfolio |
|  | Quarters ended
|  | September 30, 2019 |  | September 30, 2018
|  | BPPR |  | Popular U.S. |  | Popular Inc. |  | BPPR |  | Popular U.S. |  | Popular Inc. |
Commercial |  | 0.59 | % | 0.29 | % | 0.47 | % | 0.13 | % | 0.15 | % | 0.14 | %
Construction |  | (10.43) |  | 1.29 |  | (0.39) |  | (0.63) |  | ― |  | (0.05) |
Leases |  | 1.38 |  | ― |  | 1.38 |  | 0.70 |  | ― |  | 0.70 |
Legacy |  | ― |  | (5.01) |  | (5.01) |  | ― |  | (9.63) |  | (9.63) |
Mortgage |  | 0.82 |  | (0.01) |  | 0.71 |  | 1.38 |  | ― |  | 1.24 |
Consumer |  | 2.71 |  | 2.13 |  | 2.66 |  | 3.02 |  | 3.42 |  | 3.06 |
Total annualized net charge-offs to average loans held-in-portfolio |  | 1.21 | % | 0.45 | % | 1.01 | % | 1.24 | % | 0.29 | % | 1.00 | %
|  | Nine months ended
|  | September 30, 2019 |  | September 30, 2018
|  | BPPR |  | Popular U.S. |  | Popular Inc. |  | BPPR |  | Popular U.S. |  | Popular Inc. |
Commercial |  | 0.50 | % | 0.34 | % | 0.44 | % | 0.27 | % | 0.56 | % | 0.38 | %
Construction |  | (3.97) |  | 0.42 |  | (0.14) |  | (0.93) |  | ― |  | (0.09) |
Leases |  | 0.90 |  | ― |  | 0.90 |  | 0.74 |  | ― |  | 0.74 |
Legacy |  | ― |  | (7.05) |  | (7.05) |  | ― |  | (5.69) |  | (5.69) |
Mortgage |  | 0.70 |  | 0.07 |  | 0.62 |  | 1.01 |  | (0.05) |  | 0.90 |
Consumer |  | 2.24 |  | 3.21 |  | 2.31 |  | 2.88 |  | 3.56 |  | 2.95 |
Total annualized net charge-offs to average loans held-in-portfolio |  | 1.02 | % | 0.47 | % | 0.88 | % | 1.07 | % | 0.61 | % | 0.95 | %

Net charge-offs (“NCOs”) for the quarter ended September 30, 2019 amounted to $67.8 million, increasing by $4.2 million when compared to the same quarter in 2018. This increase was primarily driven by higher commercial and construction NCOs in the Popular U.S. segment.

Net charge-offs for the nine months ended September 30, 2019 amounted to $175.5 million, increasing slightly by $1.7 million when compared to the same period in 2018. The BPPR segment increased by $6.8 million mainly driven by higher commercial and consumer NCOs of $13.1 million and $8.4 million, respectively, partially offset by improvements in the mortgage NCOs by $14.2 million. The increase in commercial NCOs was mostly related to the previously reserved restructured commercial real estate loans, for which impaired amounts were charged-off during the third quarter of 2019, while the increase in consumer NCOs was mostly related to revisions and alignments in the auto loans charge-off policy.

166

Table 26 - Composition of ALLL |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
September 30, 2019 |
(Dollars in thousands) | Commercial | Construction |  | Legacy [1] |  | Leasing |  | Mortgage | Consumer | Total |  |
Specific ALLL | $ | 30,130 |  | $ | 57 |  | $ | - | $ | 71 |  | $ | 42,868 |  | $ | 22,720 |  | $ | 95,846 |  |
Impaired loans | $ | 409,221 |  | $ | 10,334 |  | $ | - | $ | 624 |  | $ | 533,317 |  | $ | 105,117 |  | $ | 1,058,613 |  |
Specific ALLL to impaired loans |  | 7.36 | % |  | 0.55 | % |  | - | % | 11.38 | % |  | 8.04 | % |  | 21.61 | % |  | 9.05 | % |
General ALLL | $ | 160,591 |  | $ | 8,507 |  | $ | 791 | $ | 7,122 |  | $ | 83,759 |  | $ | 155,749 |  | $ | 416,519 |  |
Loans held-in-portfolio, excluding impaired loans | $ | 11,799,228 |  | $ | 743,722 |  | $ | 23,192 | $ | 1,021,860 |  | $ | 6,635,302 |  | $ | 5,726,058 |  | $ | 25,949,362 |  |
General ALLL to loans held-in-portfolio, excluding impaired loans |  | 1.36 | % |  | 1.14 | % |  | 3.41 | % | 0.70 | % |  | 1.26 | % |  | 2.72 | % |  | 1.61 | % |
Total ALLL | $ | 190,721 |  | $ | 8,564 |  | $ | 791 | $ | 7,193 |  | $ | 126,627 |  | $ | 178,469 |  | $ | 512,365 |  |
Total loans held-in-portfolio | $ | 12,208,449 |  | $ | 754,056 |  | $ | 23,192 | $ | 1,022,484 |  | $ | 7,168,619 |  | $ | 5,831,175 |  | $ | 27,007,975 |  |
ALLL to loans held-in-portfolio |  | 1.56 | % |  | 1.14 | % |  | 3.41 | % | 0.70 | % |  | 1.77 | % |  | 3.06 | % |  | 1.90 | % |
[1] The legacy portfolio is comprised of commercial loans, construction loans and lease financings related to certain lending products exited by the Corporation as part of restructuring efforts carried out in prior years at the Popular U.S. segment. |
Table 27 - Composition of ALLL |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
December 31, 2018 |
(Dollars in thousands) | Commercial | Construction |  | Legacy[1] |  | Leasing |  | Mortgage | Consumer | Total |  |
Specific ALLL | $ | 52,190 |  | $ | 56 |  | $ | - | $ | 320 |  | $ | 41,211 |  | $ | 25,893 |  | $ | 119,670 |  |
Impaired loans | $ | 398,518 |  | $ | 13,848 |  | $ | - | $ | 1,099 |  | $ | 518,888 |  | $ | 112,742 |  | $ | 1,045,095 |  |
Specific ALLL to impaired loans |  | 13.10 | % |  | 0.40 | % |  | - | % | 29.12 | % |  | 7.94 | % |  | 22.97 | % |  | 11.45 | % |
General ALLL | $ | 186,925 |  | $ | 7,368 |  | $ | 969 | $ | 11,166 |  | $ | 106,201 |  | $ | 137,049 |  | $ | 449,678 |  |
Loans held-in-portfolio, excluding impaired loans | $ | 11,644,501 |  | $ | 765,601 |  | $ | 25,949 | $ | 933,674 |  | $ | 6,716,370 |  | $ | 5,376,699 |  | $ | 25,462,794 |  |
General ALLL to loans held-in-portfolio, excluding impaired loans |  | 1.61 | % |  | 0.96 | % |  | 3.73 | % | 1.20 | % |  | 1.58 | % |  | 2.55 | % |  | 1.77 | % |
Total ALLL | $ | 239,115 |  | $ | 7,424 |  | $ | 969 | $ | 11,486 |  | $ | 147,412 |  | $ | 162,942 |  | $ | 569,348 |  |
Total loans held-in-portfolio | $ | 12,043,019 |  | $ | 779,449 |  | $ | 25,949 | $ | 934,773 |  | $ | 7,235,258 |  | $ | 5,489,441 |  | $ | 26,507,889 |  |
ALLL to loans held-in-portfolio |  | 1.99 | % |  | 0.95 | % |  | 3.73 | % | 1.23 | % |  | 2.04 | % |  | 2.97 | % |  | 2.15 | % |
[1] The legacy portfolio is comprised of commercial loans, construction loans and lease financings related to certain lending products exited by the Corporation as part of restructuring efforts carried out in prior years at the Popular U.S. segment. |

Troubled debt restructurings

The Corporation’s TDR loans amounted to $1.6 billion at September 30, 2019, increasing by $66 million, or approximately 4.39%, from December 31, 2018, mainly driven by higher TDRs in the BPPR segment by $65 million. The increase in BPPR was mostly related to higher mortgage TDRs by $86 million, of which $71 million were government guaranteed loans, partially offset by decreases of $10 million and $9 million in the BPPR commercial and consumer TDRs, respectively. TDRs in accruing status increased by $85 million from December 31, 2018, while non-accruing TDRs decreased by $19 million.

Refer to Note 9 to the Consolidated Financial Statements for additional information on modifications considered troubled debt restructurings, including certain qualitative and quantitative data about troubled debt restructurings performed in the past twelve months.

The following tables present the approximate amount and percentage of commercial impaired loans for which the Corporation relied on appraisals dated more than one year old for purposes of impairment requirements at September 30, 2019 and December 31, 2018.

167

Appraisals may be adjusted due to their age and the type, location and condition of the property, area or general market conditions to reflect the expected change in value between the effective date of the appraisal and the impairment measurement date. Refer to the Allowance for Loan Losses section of Note 2, “Summary of significant accounting policies" of the Corporation’s 2018 Form 10-K for more information.

Table 28 - Impaired Loans with Appraisals Dated 1 year or Older |  |  |  |
September 30, 2019
| Total Impaired Loans – Held-in-portfolio (HIP) |  |  |
(In thousands) | Loan Count |  |  | Outstanding Principal Balance |  | Impaired Loans with Appraisals Over One-Year Old [1] |
Commercial | 128 |  | $ | 349,020 |  | 17 | %
Construction | 2 |  |  | 10,060 |  | - |
[1] Based on outstanding balance of total impaired loans. |  |  |  |  |  |  |
December 31, 2018
| Total Impaired Loans – Held-in-portfolio (HIP) |  |  |
(In thousands) | Loan Count |  |  | Outstanding Principal Balance |  | Impaired Loans with Appraisals Over One-Year Old [1] |
Commercial | 110 |  | $ | 335,044 |  | 3 | %
Construction | 1 |  |  | 1,788 |  | - |
[1] Based on outstanding balance of total impaired loans. |  |  |  |  |  |  |

ADOPTION OF NEW ACCOUNTING STANDARDS AND ISSUED BUT NOT YET EFFECTIVE ACCOUNTING STANDARDS

Refer to Note 3, “New Accounting Pronouncements” to the Consolidated Financial Statements.

168

Adjusted net income – Non-GAAP Financial Measure

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

No adjustments are reflected for the quarters ended September 30, 2019 and 2018 or the nine months ended September 30, 2019. The following table describes adjustments to net income for the nine months ended September 30, 2018.

Table 29 - Adjusted Net Income for the Nine Months Ended September 30, 2018 (Non-GAAP)
(Unaudited) |  | For the nine months ended September 30, 2018
(In thousands) |  | Pre-tax | Income tax effect |  | Impact on net income
U.S. GAAP Net income |  |  |  | $ | 511,755
Non-GAAP adjustments: |  |  |  |  |
Termination of FDIC Shared-Loss Agreements[1] |  | $(94,633) | $45,059 |  | (49,574)
Tax Closing Agreement[2] |  | - | (108,946) |  | (108,946)
Adjusted net income (Non-GAAP) |  |  |  | $ | 353,235
[1]On May 22, 2018, BPPR entered into a Termination Agreement with the FDIC to terminate all Shared-Loss Agreements in connection with the acquisition of certain assets and assumption of certain liabilities of Westernbank Puerto Rico in 2010. As a result, BPPR recognized a pre-tax gain of $94.6 million, net of the related professional and advisory fees of $8.1 million associated with the Termination Agreement. Refer to Note 10 - FDIC Loss-Share Asset and True Up Payment Obligation for additional information.
[2]Represents the impact of the Termination Agreement on income taxes. In June 2012, the Corporation entered into a Tax Closing Agreement with the Puerto Rico Department of the Treasury to clarify the tax treatment related to the loans acquired in the FDIC Transaction in accordance with the provisions of the Puerto Rico Tax Code. Based on the provisions of this Tax Closing Agreement, the Corporation recognized a net income tax benefit of $108.9 million during the second quarter of 2018. Refer to Note 33- Income Taxes for additional information.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures for the current period can be found in the Market Risk section of this report, which includes changes in market risk exposures from disclosures presented in the Corporation’s 2018 Form 10-K.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Corporation’s management, with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Corporation’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Corporation’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Corporation in the reports that it files or submits under the Exchange Act and such information is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosures.

Internal Control Over Financial Reporting

There have been no changes in the Corporation’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

169

Part II - Other Information

Item 1. Legal Proceedings

For a discussion of Legal Proceedings, see Note 22, Commitments and Contingencies, to the Consolidated Financial Statements.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed under “Part I - Item 1A - Risk Factors” in our 2018 Form 10-K. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Also refer to the discussion in “Part I - Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report for additional information that may supplement or update the discussion of risk factors below and in our 2018 Form 10-K.

There have been no material changes to the risk factors previously disclosed under Item 1A of the Corporation’s 2018 Form 10-K.

The risks described in our 2018 Form 10-K and in this report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, liquidity, results of operations and capital position.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

In April 2004, the Corporation’s shareholders adopted the Popular, Inc. 2004 Omnibus Incentive Plan. As of September 30, 2019, the maximum number of shares of common stock remaining available for future issuance under this plan was 782,072. During the quarter ended September 30, 2019, the Corporation added to treasury stock 24,079 shares of common stock related to shares that were withheld under Popular’s employee restricted share awards to satisfy tax requirements.

The following table sets forth the details of purchases of Common Stock during the quarter ended September 30, 2019:

Issuer Purchases of Equity Securities
Not in thousands |  |  |  |
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
July 1- July 31 | 24,079 | $ | 54.24 | - | $52,670,000
August 1- August 31 |  |  |  | - | 52,670,000
September 1- September 30 |  |  |  | - | 52,670,000
Total September 30, 2019 | 24,079 | $ | 54.24 | - | $52,670,000

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

170

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Index

Exhibit No | Exhibit Description
10.1 | Director Compensation Letter, Election Form and Restricted Stock Unit Award Agreement for Richard L. Carrión, dated July 1, 2019 (1)
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)
32.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)
101. INS | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline Document.
101.SCH | Inline Taxonomy Extension Schema Document(1)
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document(1)
101.DEF | Inline XBRL Taxonomy Extension Definitions Linkbase Document(1)
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document(1)
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document(1)
104 | The cover page of Popular, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL (included within the Exhibit 101 attachments)(1)

(1)Included herewith

171

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| POPULAR, INC.
| (Registrant)
Date: November 8, 2019 | By: /s/ Carlos J. Vázquez
| Carlos J. Vázquez
| Executive Vice President &
| Chief Financial Officer
Date: November 8, 2019 | By: /s/ Jorge J. García
| Jorge J. García
| Senior Vice President & Corporate Comptroller

172