Segment Reporting

6 Months Ended

Jun. 30, 2018

Note 33 – Segment reporting

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

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

Banco Popular de Puerto Rico:

Given that Banco Popular de Puerto Rico constitutes a significant portion of the Corporation’s results of operations and total assets at June 30, 2018, additional disclosures are provided for the business areas included in this reportable segment, as described below:

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

Popular U.S.:

Popular U.S. reportable segment consists of the banking operations of PB, E-LOAN, Inc., Popular Equipment Finance, Inc. and Popular Insurance Agency, U.S.A. PB operates through a retail branch network in the U.S. mainland under the name of Popular, while E-LOAN, Inc. supported PB’s deposit gathering through its online platform until March 31, 2017, when said operations were transferred to Popular Direct, a division of PB. During 2017, the E-LOAN brand was transferred to BPPR and is being used to offer personal loans through an online platform. 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 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, Leon. The Corporate group also includes the expenses of certain corporate areas that are identified as critical to the organization including: Finance, Risk Management and Legal.

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

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

2018

For the quarter ended June 30, 2018
				Banco Popular				Intersegment
(In thousands)				de Puerto Rico		Popular Bank		Eliminations
Net interest income			$	352,721	$	75,477	$	(2)
Provision for loan losses				44,425		15,649		-
Non-interest income				220,190		5,139		(140)
Amortization of intangibles				2,158		166		-
Depreciation expense				10,406		2,163		-
Other operating expenses				254,921		45,806		(137)
Income tax (benefit) expense				(24,180)		4,231		-
Net income			$	285,181	$	12,601	$	(5)
Segment assets			$	37,883,250	$	9,468,740	$	(110,936)


For the quarter ended June 30, 2018
		Reportable
(In thousands)		Segments		Corporate		Eliminations		Total Popular, Inc.
Net interest income (expense)	$	428,196	$	(14,060)	$	-	$	414,136
Provision (reversal) for loan losses		60,074		(20)		-		60,054
Non-interest income		225,189		10,790		(1,170)		234,809
Amortization of intangibles		2,324		-		-		2,324
Depreciation expense		12,569		173		-		12,742
Other operating expenses		300,590		22,689		(677)		322,602
Income tax (benefit) expense		(19,949)		(8,423)		(188)		(28,560)
Net income (loss)	$	297,777	$	(17,689)	$	(305)	$	279,783
Segment assets	$	47,241,054	$	5,344,785	$	(5,050,662)	$	47,535,177

For the six months ended June 30, 2018
				Banco Popular				Intersegment
(In thousands)				de Puerto Rico		Popular Bank		Eliminations
Net interest income			$	684,989	$	150,470	$	2
Provision for loan losses				102,894		28,264		-
Non-interest income				316,815		9,480		(279)
Amortization of intangibles				4,317		332		-
Depreciation expense				20,934		4,281		-
Other operating expenses				495,450		91,026		(273)
Income tax expense				1,667		5,320		-
Net income			$	376,542	$	30,727	$	(4)
Segment assets			$	37,883,250	$	9,468,740	$	(110,936)


For the six months ended June 30, 2018
		Reportable
(In thousands)		Segments		Corporate		Eliminations		Total Popular, Inc.
Net interest income (expense)	$	835,461	$	(28,278)	$	-	$	807,183
Provision (reversal) for loan losses		131,158		(41)		-		131,117
Non-interest income		326,016		23,738		(1,448)		348,306
Amortization of intangibles		4,649		-		-		4,649
Depreciation expense		25,215		360		-		25,575
Other operating expenses		586,203		44,771		(1,528)		629,446
Income tax expense (benefit)		6,987		(13,435)		43		(6,405)
Net income (loss)	$	407,265	$	(36,195)	$	37	$	371,107
Segment assets	$	47,241,054	$	5,344,785	$	(5,050,662)	$	47,535,177

2017

For the quarter ended June 30, 2017
				Banco Popular				Intersegment
(In thousands)				de Puerto Rico		Popular Bank		Eliminations
Net interest income			$	319,667	$	69,702	$	(50)
Provision for loan losses				50,373		7,791		-
Non-interest income				102,140		5,204		(146)
Amortization of intangibles				2,178		166		-
Depreciation expense				9,812		2,160		-
Other operating expenses				233,729		40,267		(138)
Income tax expense				31,652		10,029		(23)
Net income			$	94,063	$	14,493	$	(35)
Segment assets			$	32,004,896	$	8,974,157	$	(14,533)


For the quarter ended June 30, 2017
		Reportable
(In thousands)		Segments		Corporate		Eliminations		Total Popular, Inc.
Net interest income (expense)	$	389,319	$	(14,840)	$	-	$	374,479
Provision for loan losses		58,164		270		(5,955)		52,479
Non-interest income		107,198		10,912		(1,317)		116,793
Amortization of intangibles		2,344		-		-		2,344
Depreciation expense		11,972		157		-		12,129
Other operating expenses		273,858		19,275		(771)		292,362
Income tax expense (benefit)		41,658		(8,036)		2,110		35,732
Net income (loss)	$	108,521	$	(15,594)	$	3,299	$	96,226
Segment assets	$	40,964,520	$	5,013,932	$	(4,735,783)	$	41,242,669

For the six months ended June 30, 2017
				Banco Popular				Intersegment
(In thousands)				de Puerto Rico		Popular Bank		Eliminations
Net interest income			$	629,879	$	136,821	$	(214)
Provision for loan losses				80,491		18,371		-
Non-interest income				201,872		10,135		(290)
Amortization of intangibles				4,357		332		-
Depreciation expense				19,545		4,063		-
Other operating expenses				470,030		81,980		(276)
Income tax expense				65,650		17,319		(93)
Net income			$	191,678	$	24,891	$	(135)
Segment assets			$	32,004,896	$	8,974,157	$	(14,533)


For the six months ended June 30, 2017
		Reportable
(In thousands)		Segments		Corporate		Eliminations		Total Popular, Inc.
Net interest income (expense)	$	766,486	$	(29,909)	$	-	$	736,577
Provision for loan losses		98,862		270		(5,955)		93,177
Non-interest income		211,717		22,339		(1,394)		232,662
Amortization of intangibles		4,689		-		-		4,689
Depreciation expense		23,608		320		-		23,928
Other operating expenses		551,734		39,201		(1,399)		589,536
Income tax expense (benefit)		82,876		(16,459)		2,321		68,738
Net income (loss)	$	216,434	$	(30,902)	$	3,639	$	189,171
Segment assets	$	40,964,520	$	5,013,932	$	(4,735,783)	$	41,242,669

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

2018

For the quarter ended June 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	$	145,674	$	205,795	$	1,258	$	(6)	$	352,721
Provision for loan losses		9,754		34,671		-		-		44,425
Non-interest income		23,930		69,967		23,764		102,529		220,190
Amortization of intangibles		51		1,071		1,036		-		2,158
Depreciation expense		4,341		5,912		153		-		10,406
Other operating expenses		60,639		172,031		14,367		7,884		254,921
Income tax expense (benefit)		24,697		11,732		3,279		(63,888)		(24,180)
Net income	$	70,122	$	50,345	$	6,187	$	158,527	$	285,181
Segment assets	$	26,355,657	$	21,007,705	$	536,164	$	(10,016,276)	$	37,883,250

[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 9 and 31 to the Consolidated Financial Statements for additional information.

For the six months ended June 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	$	284,944	$	397,229	$	2,834	$	(18)	$	684,989
Provision for loan losses		30,447		72,447		-		-		102,894
Non-interest income		36,492		131,824		46,213		102,286		316,815
Amortization of intangibles		103		2,140		2,074		-		4,317
Depreciation expense		8,630		11,997		307		-		20,934
Other operating expenses		120,900		334,521		32,400		7,629		495,450
Income tax expense (benefit)		41,572		19,189		4,794		(63,888)		1,667
Net income	$	119,784	$	88,759	$	9,472	$	158,527	$	376,542
Segment assets	$	26,355,657	$	21,007,705	$	536,164	$	(10,016,276)	$	37,883,250

[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 9 and 31 to the Consolidated Financial Statements for additional information.

2017

For the quarter ended June 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	$	128,364	$	189,997	$	1,295	$	11	$	319,667
Provision for loan losses		896		49,477		-		-		50,373
Non-interest income		21,335		58,520		22,346		(61)		102,140
Amortization of intangibles		50		1,073		1,055		-		2,178
Depreciation expense		4,346		5,285		181		-		9,812
Other operating expenses		54,602		166,694		12,505		(72)		233,729
Income tax expense		26,779		1,068		3,805		-		31,652
Net income	$	63,026	$	24,920	$	6,095	$	22	$	94,063
Segment assets	$	19,409,235	$	18,254,883	$	468,540	$	(6,127,762)	$	32,004,896

For the six months ended June 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	$	248,660	$	378,129	$	3,082	$	8	$	629,879
Provision for loan losses		323		80,168		-		-		80,491
Non-interest income		40,763		116,591		44,657		(139)		201,872
Amortization of intangibles		104		2,140		2,113		-		4,357
Depreciation expense		8,608		10,552		385		-		19,545
Other operating expenses		115,435		327,958		26,797		(160)		470,030
Income tax expense		48,855		10,051		6,744		-		65,650
Net income	$	116,098	$	63,851	$	11,700	$	29	$	191,678
Segment assets	$	19,409,235	$	18,254,883	$	468,540	$	(6,127,762)	$	32,004,896

Geographic Information
		Quarter ended				Six months ended
(in thousands)		June 30, 2018		June 30, 2017		June 30, 2018		June 30, 2017
Revenues:
Puerto Rico	$	542,173	$	394,086	$	941,587	$	778,534
United States		87,045		78,283		173,573		153,126
Other		19,727		18,903		40,329		37,579
Total consolidated revenues	$	648,945	$	491,272	$	1,155,489	$	969,239

[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)		June 30, 2018		December 31, 2017
Puerto Rico
Total assets	$	36,721,033	$	33,705,624
Loans		17,036,052		17,591,078
Deposits		30,748,039		27,575,292
United States
Total assets	$	9,921,233	$	9,648,865
Loans		6,937,782		6,608,056
Deposits		7,086,447		6,635,153
Other
Total assets	$	892,911	$	922,848
Loans		708,541		743,329
Deposits ^[1]		1,543,075		1,243,063
[1] Represents deposits from BPPR operations located in the U.S. and British Virgin Islands.