Note 30 – Segment Reporting

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

On September 30, 2010, the Corporation completed the sale of a 51% ownership interest in EVERTEC, which included the merchant acquiring business of BPPR. EVERTEC was reported as a reportable segment prior to such date, while the merchant acquiring business was originally included in the BPPR reportable segment through June 30, 2010. As a result of the sale, the Corporation no longer presents EVERTEC as a reportable segment and therefore, historical financial information for the processing and merchant acquiring businesses have been reclassified under the Corporate group for all periods presented. Additionally, the Corporation retained Tarjetas y Transacciones en Red Tranred, C.A. (“TRANRED”) (formerly EVERTEC DE VENEZUELA, C.A). and its equity investments in Consorcio de Tarjetas Dominicanas, S.A. (“CONTADO”) and Serfinsa, which were included in the EVERTEC reportable segment through June 30, 2010. As indicated in Note 4 to the consolidated financial statements, the Corporation sold its equity investments in CONTADO and Serfinsa during 2011. In 2011, the Corporation recorded $8.7 million in operating expenses because of the write-off of its investment in TRANRED as the Corporation determined to wind-down these operations. The results for TRANRED and the equity investments are included in the Corporate group for all periods presented. Revenue from the 49% ownership interest in EVERTEC is reported as non-interest income in the Corporate group.

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 June 30, 2011, additional disclosures are provided for the business areas included in this reportable segment, as described below:

•

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

•

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

•

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

Banco Popular North America:

Banco Popular North America’s reportable segment consists of the banking operations of BPNA, E-LOAN, Popular Equipment Finance, Inc. and Popular Insurance Agency, U.S.A. BPNA operates through a retail branch network in the U.S. mainland, while E-LOAN supports BPNA’s deposit gathering through its online platform. All direct lending activities at E-LOAN were ceased during the fourth quarter of 2008. Popular Equipment Finance, Inc. also holds a running-off loan portfolio as this subsidiary ceased originating loans during 2009. Popular Insurance Agency, U.S.A. offers investment and insurance services across the BPNA branch network.

The Corporate group consists primarily of the holding companies: Popular, Inc., Popular North America and Popular International Bank. Also, as discussed previously, it includes the results of EVERTEC for all periods presented. The Corporate group also includes the expenses of certain corporate areas that are identified as critical to the organization: Finance, Risk Management and Legal.

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

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

2011


For the quarter ended June 30, 2011
(In thousands)	Banco Popular de Puerto Rico			Banco Popular North America		Intersegment Eliminations
Net interest income	$	325,167		$	74,601	$	—
Provision for loan losses		119,324			24,993		—
Non-interest income		113,144			19,127		—
Amortization of intangibles		1,575			680		—
Depreciation expense		9,101			1,853		—
Loss on early extinguishment of debt		289			—		—
Other operating expenses		205,666			62,708		—
Income tax (benefit) expense		(37,476	)		934		—

Net income	$	139,832		$	2,560	$	—

Segment assets	$	29,790,465		$	8,895,036	$	(53,482	)


For the quarter ended June 30, 2011
(In thousands)	Reportable Segments			Corporate			Eliminations			Total Popular, Inc.
Net interest income (loss)	$	399,768		$	(25,441	)	$	215		$	374,542
Provision for loan losses		144,317			—			—			144,317
Non-interest income		132,271			9,781			(17,892	)		124,160
Amortization of intangibles		2,255			—			—			2,255
Depreciation expense		10,954			436			—			11,390
Loss on early extinguishment of debt		289			—			—			289
Other operating expenses		268,374			17,028			(17,536	)		267,866
Income tax benefit		(36,542	)		(1,556	)		(2	)		(38,100	)

Net income (loss)	$	142,392		$	(31,568	)	$	(139	)	$	110,685

Segment assets	$	38,632,019		$	5,368,602		$	(4,987,279	)	$	39,013,342


For the six months ended June 30, 2011
(In thousands)	Banco Popular de Puerto Rico		Banco Popular North America		Intersegment Eliminations
Net interest income	$	620,612	$	149,415	$	—
Provision for loan losses		186,580		33,056		—
Non-interest income		234,871		36,544		—
Amortization of intangibles		3,150		1,360		—
Depreciation expense		18,733		3,844		—
Loss on early extinguishment of debt		528		—		—
Other operating expenses		394,396		120,935		—
Income tax expense		108,668		1,872		—

Net income	$	143,428	$	24,892	$	—


For the six months ended June 30, 2011
(In thousands)	Reportable Segments		Corporate			Eliminations			Total Popular, Inc.
Net interest income (loss)	$	770,027	$	(52,648	)	$	522		$	717,901
Provision for loan losses		219,636		—			—			219,636
Non-interest income		271,415		52,023			(34,910	)		288,528
Amortization of intangibles		4,510		—			—			4,510
Depreciation expense		22,577		873			—			23,450
Loss on early extinguishment of debt		528		8,000			—			8,528
Other operating expenses		515,331		40,121			(35,091	)		520,361
Income tax expense (benefit)		110,540		(1,714	)		301			109,127

Net income (loss)	$	168,320	$	(47,905	)	$	402		$	120,817

2010


For the quarter ended June 30, 2010
(In thousands)	Banco Popular de Puerto Rico		Banco Popular North America			Intersegment Eliminations
Net interest income	$	267,665	$	75,323		$	—
Provision for loan losses		122,267		79,991			—
Non-interest income		129,283		15,926			—
Amortization of intangibles		1,358		910			—
Depreciation expense		9,158		2,450			—
Loss on early extinguishment of debt		430		—			—
Other operating expenses		209,181		64,923			—
Income tax expense		21,466		798			—

Net income (loss)	$	33,088	$	(57,823	)	$	—

Segment assets	$	32,183,595	$	9,857,865		$	(29,074	)


For the quarter ended June 30, 2010
(In thousands)	Reportable Segments			Corporate			Eliminations			Total Popular, Inc.
Net interest income (loss)	$	342,988		$	(28,556	)	$	163		$	314,595
Provision for loan losses		202,258			—			—			202,258
Non-interest income		145,209			88,900			(35,282	)		198,827
Amortization of intangibles		2,268			187			—			2,455
Depreciation expense		11,608			3,760			—			15,368
Loss on early extinguishment of debt		430			—			—			430
Other operating expenses		274,104			69,671			(33,612	)		310,163
Income tax expense		22,264			4,970			3			27,237

Net loss	$	(24,735	)	$	(18,244	)	$	(1,510	)	$	(44,489	)

Segment assets	$	42,012,386		$	5,160,641		$	(4,825,188	)	$	42,347,839


For the six months ended June 30, 2010
(In thousands)	Banco Popular de Puerto Rico		Banco Popular North America			Intersegment Eliminations
Net interest income	$	486,962	$	154,177		$	—
Provision for loan losses		230,639		211,819			—
Non-interest income		217,952		32,485			—
Amortization of intangibles		2,309		1,820			—
Depreciation expense		18,433		4,881			—
Loss on early extinguishment of debt		978		—			—
Other operating expenses		374,659		128,551			—
Income tax expense		20,557		1,584			—

Net income (loss)	$	57,339	$	(161,993	)	$	—


For the six months ended June 30, 2010
(In thousands)	Reportable Segments			Corporate			Eliminations			Total Popular, Inc.
Net interest income (loss)	$	641,139		$	(57,952	)	$	325		$	583,512
Provision for loan losses		442,458			—			—			442,458
Non-interest income		250,437			174,563			(68,307	)		356,693
Amortization of intangibles		4,129			375			—			4,504
Depreciation expense		23,314			7,445			—			30,759
Loss on early extinguishment of debt		978			—			—			978
Other operating expenses		503,210			137,043			(67,165	)		573,088
Income tax expense (benefit)		22,141			(4,399	)		220			17,962

Net loss	$	(104,654	)	$	(23,853	)	$	(1,037	)	$	(129,544	)

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

2011


For the quarter ended June 30, 2011
Banco Popular de Puerto Rico
(In thousands)	Commercial Banking			Consumer and Retail Banking			Other Financial Services		Eliminations			Total Banco Popular de Puerto Rico
Net interest income	$	138,859		$	183,694		$	2,574	$	40		$	325,167
Provision for loan losses		104,291			15,033			—		—			119,324
Non-interest income		41,981			46,507			24,542		114			113,144
Amortization of intangibles		26			1,396			153		—			1,575
Depreciation expense		4,165			4,698			238		—			9,101
Loss on early extinguishment of debt		289			—			—		—			289
Other operating expenses		60,357			130,356			14,996		(43	)		205,666
Income tax (benefit) expense		(18,850	)		(21,481	)		2,778		77			(37,476	)

Net income	$	30,562		$	100,199		$	8,951	$	120		$	139,832

Segment assets	$	14,601,062		$	21,109,988		$	928,437	$	(6,849,022	)	$	29,790,465


For the six months ended June 30, 2011
Banco Popular de Puerto Rico
(In thousands)	Commercial Banking		Consumer and Retail Banking		Other Financial Services		Eliminations			Total Banco Popular de Puerto Rico
Net interest income	$	258,419	$	357,164	$	4,948	$	81		$	620,612
Provision for loan losses		132,186		54,394		—		—			186,580
Non-interest income		87,339		101,408		46,065		59			234,871
Amortization of intangibles		52		2,790		308		—			3,150
Depreciation expense		8,544		9,714		475		—			18,733
Loss on early extinguishment of debt		528		—		—		—			528
Other operating expenses		115,265		248,583		30,646		(98	)		394,396
Income tax expense		57,990		45,363		5,222		93			108,668

Net income	$	31,193	$	97,728	$	14,362	$	145		$	143,428

2010


For the quarter ended June 30, 2010
Banco Popular de Puerto Rico
(In thousands)	Commercial Banking			Consumer and Retail Banking		Other Financial Services		Eliminations			Total Banco Popular de Puerto Rico
Net interest income	$	105,450		$	159,762	$	2,387	$	66		$	267,665
Provision for loan losses		77,546			44,721		—		—			122,267
Non-interest income		40,506			60,485		28,361		(69	)		129,283
Amortization of intangibles		172			1,044		142		—			1,358
Depreciation expense		4,081			4,775		302		—			9,158
Loss on early extinguishment of debt		430			—		—		—			430
Other operating expenses		71,432			121,218		16,600		(69	)		209,181
Income tax (benefit) expense		(2,709	)		19,069		5,079		27			21,466

Net (loss) income	$	(4,996	)	$	29,420	$	8,625	$	39		$	33,088

Segment assets	$	16,376,017		$	23,431,824	$	622,672	$	(8,246,918	)	$	32,183,595


For the six months ended June 30, 2010
Banco Popular de Puerto Rico
(In thousands)	Commercial Banking			Consumer and Retail Banking		Other Financial Services		Eliminations			Total Banco Popular de Puerto Rico
Net interest income	$	176,512		$	305,428	$	4,890	$	132		$	486,962
Provision for loan losses		150,717			79,922		—		—			230,639
Non-interest income		66,030			103,338		48,475		109			217,952
Amortization of intangibles		200			1,828		281		—			2,309
Depreciation expense		8,043			9,783		607		—			18,433
Loss on early extinguishment of debt		978			—		—		—			978
Other operating expenses		117,917			226,049		30,834		(141	)		374,659
Income tax (benefit) expense		(17,521	)		30,032		7,890		156			20,557

Net (loss) income	$	(17,792	)	$	61,152	$	13,753	$	226		$	57,339

Additional disclosures with respect to the Banco Popular North America reportable segments are as follows:

2011


For the quarter ended June 30, 2011
Banco Popular North America
(In thousands)	Banco Popular North America		E-LOAN			Eliminations			Total Banco Popular North America
Net interest income	$	74,201	$	400		$	—		$	74,601
Provision for loan losses		18,306		6,687			—			24,993
Non-interest income		18,354		773			—			19,127
Amortization of intangibles		680		—			—			680
Depreciation expense		1,853		—			—			1,853
Other operating expenses		58,085		4,623			—			62,708
Income tax expense		934		—			—			934

Net income ( loss)	$	12,697	$	(10,137	)	$	—		$	2,560

Segment assets	$	9,578,377	$	451,472		$	(1,134,813	)	$	8,895,036


For the six months ended June 30, 2011
Banco Popular North America
(In thousands)	Banco Popular North America		E-LOAN			Eliminations		Total Banco Popular North America
Net interest income	$	148,501	$	914		$	—	$	149,415
Provision for loan losses		18,911		14,145			—		33,056
Non-interest income		35,728		816			—		36,544
Amortization of intangibles		1,360		—			—		1,360
Depreciation expense		3,844		—			—		3,844
Other operating expenses		114,040		6,895			—		120,935
Income tax expense		1,872		—			—		1,872

Net income ( loss)	$	44,202	$	(19,310	)	$	—	$	24,892

2010


For the quarter ended June 30, 2010
Banco Popular North America
(In thousands)	Banco Popular North America			E-LOAN			Eliminations			Total Banco Popular North America
Net interest income	$	74,664		$	659		$	—		$	75,323
Provision for loan losses		66,285			13,706			—			79,991
Non-interest income (loss)		20,882			(4,956	)		—			15,926
Amortization of intangibles		910			—			—			910
Depreciation expense		2,174			276			—			2,450
Other operating expenses		63,347			1,576			—			64,923
Income tax expense		798			—			—			798

Net loss	$	(37,968	)	$	(19,855	)	$	—		$	(57,823	)

Segment assets	$	10,518,983		$	494,622		$	(1,155,740	)	$	9,857,865


For the six months ended June 30, 2010
Banco Popular North America
(In thousands)	Banco Popular North America			E-LOAN			Eliminations			Total Banco Popular North America
Net interest income	$	152,040		$	2,193		$	(56	)	$	154,177
Provision for loan losses		185,991			25,828			—			211,819
Non-interest income (loss)		39,067			(6,582	)		—			32,485
Amortization of intangibles		1,820			—			—			1,820
Depreciation expense		4,354			527			—			4,881
Other operating expenses		125,068			3,483			—			128,551
Income tax expense		1,584			—			—			1,584

Net loss	$	(127,710	)	$	(34,227	)	$	(56	)	$	(161,993	)

Geographic Information


	Quarter ended				Six months ended
(In thousands)	June 30, 2011		June 30, 2010		June 30, 2011		June 30, 2010
Revenues:^[1]
Puerto Rico	$	387,091	$	397,087	$	783,340	$	705,667
United States		87,809		87,334		176,213		176,972
Other		23,802		29,001		46,876		57,566

Total consolidated revenues	$	498,702	$	513,422	$	1,006,429	$	940,205

[1]

Total revenues include net interest income, service charges on deposit accounts, other service fees, net gain on sale and valuation adjustments of investment securities, trading account profit, net gain on sale of loans and valuation adjustments on loans held-for-sale, adjustments to indemnity reserves on loans sold, FDIC loss share income, fair value change in equity appreciation instrument and other operating income.

Selected Balance Sheet Information:


(In thousands)	June 30, 2011		December 31, 2010		June 30, 2010
Puerto Rico
Total assets	$	28,711,644	$	28,464,243	$	31,111,794
Loans		18,708,521		18,729,654		18,858,989
Deposits		20,393,713		19,149,753		18,784,350
United States
Total assets	$	9,041,616	$	9,087,737	$	9,974,846
Loans		6,240,633		6,978,007		7,921,222
Deposits		6,443,794		6,566,710		7,250,120
Other
Total assets	$	1,260,082	$	1,170,982	$	1,261,199
Loans		834,161		751,194		841,610
Deposits ^[1]		1,122,922		1,045,737		1,079,103

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