Segment Reporting

9 Months Ended

Sep. 30, 2017

Note 34 – Segment reporting

The Corporation’s corporate structure consists of two reportable segments – Banco Popular de Puerto Rico and Banco Popular North America. These reportable segments pertain only to the continuing operations of Popular, Inc.

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

Banco Popular de Puerto Rico:

Given that Banco Popular de Puerto Rico constitutes a significant portion of the Corporation’s results of operations and total assets at September 30, 2017, additional disclosures are provided for the business areas included in this reportable segment, as described below:

Commercial banking represents the Corporation’s banking operations conducted at BPPR, which are targeted mainly to corporate, small and middle size businesses. It includes aspects of the lending and depository businesses, as well as other finance and advisory services. BPPR allocates funds across business areas based on duration matched transfer pricing at market rates. This area also incorporates income related with the investment of excess funds, as well as a proportionate share of the investment function of BPPR.
Consumer and retail banking represents the branch banking operations of BPPR which focus on retail clients. It includes the consumer lending business operations of BPPR, as well as the lending operations of Popular Auto and Popular Mortgage. Popular Auto focuses on auto and lease financing, while Popular Mortgage focuses principally on residential mortgage loan originations. The consumer and retail banking area also incorporates income related with the investment of excess funds from the branch network, as well as a proportionate share of the investment function of BPPR.
Other financial services include the trust and asset management service units of BPPR, the brokerage and investment banking operations of Popular Securities, and the insurance agency and reinsurance businesses of Popular Insurance, Popular Insurance V.I., Popular Risk Services, and Popular Life Re. Most of the services that are provided by these subsidiaries generate profits based on fee income.

Banco Popular North America:

Banco Popular North America’s reportable segment consists of the banking operations of BPNA, E-LOAN, Inc., Popular Equipment Finance, Inc. and Popular Insurance Agency, U.S.A. BPNA operates through a retail branch network in the U.S. mainland under the name of Popular Community Bank, while E-LOAN, Inc. supported BPNA’s deposit gathering through its online platform until March 31, 2017, when said operations were transferred to Popular Direct, a division of BPNA. 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, Popular International Bank and certain of the Corporation’s investments accounted for under the equity method, including EVERTEC and Centro Financiero BHD, Leon. The Corporate group also includes the expenses of certain corporate areas that are identified as critical to the organization: Finance, Risk Management and Legal.

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

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

2017

For the quarter ended September 30, 2017
				Banco Popular		Banco Popular		Intersegment
(In thousands)				de Puerto Rico		North America		Eliminations
Net interest income			$	321,145	$	71,453	$	7
Provision for loan losses				118,177		42,544		-
Non-interest income				88,170		5,124		(141)
Amortization of intangibles				2,178		167		-
Depreciation expense				9,751		2,128		-
Other operating expenses				243,564		41,960		(138)
Income tax benefit				(8,704)		(4,117)		-
Net income (loss)			$	44,349	$	(6,105)	$	4
Segment assets			$	33,031,839	$	9,323,647	$	(24,615)


For the quarter ended September 30, 2017
		Reportable
(In thousands)		Segments		Corporate		Eliminations		Total Popular, Inc.
Net interest income (expense)	$	392,605	$	(14,434)	$	-	$	378,171
Provision for loan losses		160,721		38		-		160,759
Non-interest income		93,153		7,277		(56)		100,374
Amortization of intangibles		2,345		-		-		2,345
Depreciation expense		11,879		159		-		12,038
Other operating expenses		285,386		17,944		(625)		302,705
Income tax benefit		(12,821)		(7,360)		215		(19,966)
Net income (loss)	$	38,248	$	(17,938)	$	354	$	20,664
Segment assets	$	42,330,871	$	5,003,304	$	(4,732,908)	$	42,601,267

For the nine months ended September 30, 2017
				Banco Popular		Banco Popular		Intersegment
(In thousands)				de Puerto Rico		North America		Eliminations
Net interest income			$	951,024	$	208,274	$	(207)
Provision for loan losses				198,668		60,915		-
Non-interest income				290,042		15,259		(431)
Amortization of intangibles				6,535		499		-
Depreciation expense				29,296		6,191		-
Other operating expenses				713,594		123,940		(414)
Income tax expense				56,946		13,202		(93)
Net income			$	236,027	$	18,786	$	(131)
Segment assets			$	33,031,839	$	9,323,647	$	(24,615)


For the nine months ended September 30, 2017
		Reportable
(In thousands)		Segments		Corporate		Eliminations		Total Popular, Inc.
Net interest income (expense)	$	1,159,091	$	(44,343)	$	-	$	1,114,748
Provision for loan losses		259,583		308		(5,955)		253,936
Non-interest income		304,870		29,616		(1,450)		333,036
Amortization of intangibles		7,034		-		-		7,034
Depreciation expense		35,487		479		-		35,966
Other operating expenses		837,120		57,145		(2,024)		892,241
Income tax expense (benefit)		70,055		(23,819)		2,536		48,772
Net income (loss)	$	254,682	$	(48,840)	$	3,993	$	209,835
Segment assets	$	42,330,871	$	5,003,304	$	(4,732,908)	$	42,601,267

2016

For the quarter ended September 30, 2016
				Banco Popular		Banco Popular		Intersegment
(In thousands)				de Puerto Rico		North America		Eliminations
Net interest income			$	303,656	$	65,339	$	(281)
Provision for loan losses				37,064		6,313		-
Non-interest income				60,453		5,381		28
Amortization of intangibles				2,931		166		-
Goodwill impairment charge				3,801		-		-
Depreciation expense				9,774		1,666		-
Other operating expenses				246,451		47,374		(639)
Income tax expense				14,479		6,037		162
Net income			$	49,609	$	9,164	$	224
Segment assets			$	30,403,259	$	8,450,901	$	(16,818)


For the quarter ended September 30, 2016
		Reportable
(In thousands)		Segments		Corporate		Eliminations		Total Popular, Inc.
Net interest income (expense)	$	368,714	$	(15,140)	$	113	$	353,687
Provision (reversal) for loan losses		43,377		(33)		-		43,344
Non-interest income		65,862		10,468		(352)		75,978
Amortization of intangibles		3,097		-		-		3,097
Goodwill impairment charge		3,801		-		-		3,801
Depreciation expense		11,440		144		-		11,584
Other operating expenses		293,186		12,164		(160)		305,190
Income tax expense (benefit)		20,678		(4,807)		(32)		15,839
Net income (loss)	$	58,997	$	(12,140)	$	(47)	$	46,810
Segment assets	$	38,837,342	$	4,949,819	$	(4,732,865)	$	39,054,296

For the nine months ended September 30, 2016
				Banco Popular		Banco Popular		Intersegment
(In thousands)				de Puerto Rico		North America		Eliminations
Net interest income			$	919,366	$	193,102	$	(281)
Provision for loan losses				116,987		11,699		-
Non-interest income				257,260		15,581		28
Amortization of intangibles				8,809		499		-
Goodwill impairment charge				3,801		-		-
Depreciation expense				29,885		4,343		-
Other operating expenses				705,825		133,101		(639)
Income tax expense				77,651		25,597		162
Net income			$	233,668	$	33,444	$	224
Segment assets			$	30,403,259	$	8,450,901	$	(16,818)


For the nine months ended September 30, 2016
		Reportable
(In thousands)		Segments		Corporate		Eliminations		Total Popular, Inc.
Net interest income (expense)	$	1,112,187	$	(45,537)	$	-	$	1,066,650
Provision (reversal) for loan losses		128,686		(35)		-		128,651
Non-interest income		272,869		26,707		(1,465)		298,111
Amortization of intangibles		9,308		-		-		9,308
Goodwill impairment charge		3,801		-		-		3,801
Depreciation expense		34,228		497		-		34,725
Other operating expenses		838,287		50,613		(1,970)		886,930
Income tax expense (benefit)		103,410		(23,068)		208		80,550
Net income (loss)	$	267,336	$	(46,837)	$	297	$	220,796
Segment assets	$	38,837,342	$	4,949,819	$	(4,732,865)	$	39,054,296

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

2017

For the quarter ended September 30, 2017
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	$	132,101	$	186,827	$	2,213	$	4	$	321,145
Provision for loan losses		27,647		90,530		-		-		118,177
Non-interest income		19,733		46,022		22,473		(58)		88,170
Amortization of intangibles		54		1,066		1,058		-		2,178
Depreciation expense		4,386		5,207		158		-		9,751
Other operating expenses		61,843		164,981		16,809		(69)		243,564
Income tax (benefit) expense		11,925		(22,811)		2,182		-		(8,704)
Net income (loss)	$	45,979	$	(6,124)	$	4,479	$	15	$	44,349
Segment assets	$	21,258,790	$	18,501,519	$	522,008	$	(7,250,478)	$	33,031,839

For the nine months ended September 30, 2017
Banco Popular de Puerto Rico
				Consumer		Other				Total Banco
		Commercial		and Retail		Financial				Popular de
(In thousands)		Banking		Banking		Services		Eliminations		Puerto Rico
Net interest income	$	380,761	$	564,956	$	5,295	$	12	$	951,024
Provision for loan losses		27,970		170,698		-		-		198,668
Non-interest income		60,496		162,613		67,130		(197)		290,042
Amortization of intangibles		158		3,206		3,171		-		6,535
Depreciation expense		12,994		15,759		543		-		29,296
Other operating expenses		177,278		492,939		43,606		(229)		713,594
Income tax expense (benefit)		60,780		(12,760)		8,926		-		56,946
Net income	$	162,077	$	57,727	$	16,179	$	44	$	236,027
Segment assets	$	21,258,790	$	18,501,519	$	522,008	$	(7,250,478)	$	33,031,839

2016

For the quarter ended September 30, 2016
Banco Popular de Puerto Rico
				Consumer		Other				Total Banco
		Commercial		and Retail		Financial				Popular de
(In thousands)		Banking		Banking		Services		Eliminations		Puerto Rico
Net interest income	$	116,362	$	186,445	$	1,379	$	(530)	$	303,656
Provision for loan losses		13,213		23,851		-		-		37,064
Non-interest (expense) income		(24,191)		59,284		25,444		(84)		60,453
Amortization of intangibles		22		1,838		1,071		-		2,931
Goodwill impairment charge		-		-		3,801		-		3,801
Depreciation expense		4,188		5,380		206		-		9,774
Other operating expenses		60,630		165,124		20,781		(84)		246,451
Income tax expense		7,542		6,894		43		-		14,479
Net income	$	6,576	$	42,642	$	921	$	(530)	$	49,609
Segment assets	$	16,032,323	$	17,753,118	$	371,027	$	(3,753,209)	$	30,403,259

For the nine months ended September 30, 2016
Banco Popular de Puerto Rico
				Consumer		Other				Total Banco
		Commercial		and Retail		Financial				Popular de
(In thousands)		Banking		Banking		Services		Eliminations		Puerto Rico
Net interest income	$	355,061	$	557,489	$	4,674	$	2,142	$	919,366
Provision for loan losses		26,969		90,018		-		-		116,987
Non-interest income		16,776		168,860		71,883		(259)		257,260
Amortization of intangibles		92		5,484		3,233		-		8,809
Goodwill impairment charge		-		-		3,801		-		3,801
Depreciation expense		12,735		16,491		659		-		29,885
Other operating expenses		183,706		467,448		54,930		(259)		705,825
Income tax expense		48,939		24,410		4,302		-		77,651
Net income	$	99,396	$	122,498	$	9,632	$	2,142	$	233,668
Segment assets	$	16,032,323	$	17,753,118	$	371,027	$	(3,753,209)	$	30,403,259

Geographic Information
		Quarter ended				Nine months ended
(in thousands)		September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Revenues:
Puerto Rico	$	378,790	$	333,006	$	1,157,324	$	1,097,944
United States		81,652		77,816		234,778		209,999
Other		18,103		18,843		55,682		56,818
Total consolidated revenues	$	478,545	$	429,665	$	1,447,784	$	1,364,761

[1] Total revenues include net interest income (expense), service charges on deposit accounts, other service fees, mortgage banking activities, net gain (loss) and valuation adjustments on investment securities, trading account (loss) profit, net (loss) gain on sale of loans and valuation adjustments on loans held-for-sale, adjustments to indemnity reserves on loans sold, FDIC loss share (expense) income and other operating income.

Selected Balance Sheet Information:
(In thousands)		September 30, 2017		December 31, 2016
Puerto Rico
Total assets	$	31,901,778	$	28,813,289
Loans		16,589,392		16,880,868
Deposits		26,729,468		23,185,551
United States
Total assets	$	9,788,336	$	8,928,475
Loans		6,433,673		5,799,562
Deposits		6,508,324		6,266,473
Other
Total assets	$	911,153	$	919,845
Loans		744,103		755,017
Deposits ^[1]		1,011,144		1,044,200
[1] Represents deposits from BPPR operations located in the U.S. and British Virgin Islands.

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

+ References

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+ Details