Segment Reporting

3 Months Ended

Mar. 31, 2019

Note 34 – 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 March 31, 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.

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

2019
For the quarter ended March 31, 2019
				Banco Popular				Intersegment
(In thousands)				de Puerto Rico		Popular Bank		Eliminations
Net interest income			$	407,357	$	72,828	$	4
Provision for loan losses				31,349		10,371		-
Non-interest income				120,770		5,864		(141)
Amortization of intangibles				2,122		166		-
Depreciation expense				11,939		2,168		-
Other operating expenses				280,698		48,609		(136)
Income tax expense				45,376		5,215		-
Net income			$	156,643	$	12,163	$	(1)
Segment assets			$	38,896,514	$	9,585,380	$	(113,126)

For the quarter ended March 31, 2019
		Reportable
(In thousands)		Segments		Corporate		Eliminations		Total Popular, Inc.
Net interest income (expense)	$	480,189	$	(9,226)	$	-	$	470,963
Provision for loan losses		41,720		105		-		41,825
Non-interest income		126,493		10,061		(124)		136,430
Amortization of intangibles		2,288		24		-		2,312
Depreciation expense		14,107		188		-		14,295
Other operating expenses		329,171		2,358		(716)		330,813
Income tax expense		50,591		(586)		218		50,223
Net income (loss)	$	168,805	$	(1,254)	$	374	$	167,925
Segment assets	$	48,368,768	$	5,021,367	$	(4,709,528)	$	48,680,607

2018
For the quarter ended March 31, 2018
				Banco Popular				Intersegment
(In thousands)				de Puerto Rico		Popular Bank		Eliminations
Net interest income			$	332,268	$	74,993	$	4
Provision for loan losses				58,469		12,615		-
Non-interest income				96,625		4,341		(139)
Amortization of intangibles				2,159		166		-
Depreciation expense				10,528		2,118		-
Other operating expenses				240,529		45,220		(136)
Income tax benefit				25,847		1,089		-
Net income			$	91,361	$	18,126	$	1
Segment assets			$	36,244,300	$	9,227,093	$	(14,471)

For the quarter ended March 31, 2018
		Reportable
(In thousands)		Segments		Corporate		Eliminations		Total Popular, Inc.
Net interest income (expense)	$	407,265	$	(14,218)	$	-	$	393,047
Provision (reversal) for loan losses		71,084		(21)		-		71,063
Non-interest income		100,827		12,948		(278)		113,497
Amortization of intangibles		2,325		-		-		2,325
Depreciation expense		12,646		187		-		12,833
Other operating expenses		285,613		22,082		(851)		306,844
Income tax expense (benefit)		26,936		(5,012)		231		22,155
Net income (loss)	$	109,488	$	(18,506)	$	342	$	91,324
Segment assets	$	45,456,922	$	5,033,543	$	(4,733,704)	$	45,756,761

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

2019
For the quarter ended March 31, 2019
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	$	151,460	$	254,668	$	1,318	$	(89)	$	407,357
Provision for loan losses		(1,992)		33,341		-		-		31,349
Non-interest income		23,589		75,404		22,534		(757)		120,770
Amortization of intangibles		49		1,072		1,001		-		2,122
Depreciation expense		4,654		7,127		158		-		11,939
Other operating expenses		72,929		192,670		15,827		(728)		280,698
Income tax expense		31,194		11,743		2,439		-		45,376
Net income	$	68,215	$	84,119	$	4,427	$	(118)	$	156,643
Segment assets	$	29,478,917	$	23,039,995	$	327,487	$	(13,949,885)	$	38,896,514

2018
For the quarter ended March 31, 2018
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	$	139,270	$	191,434	$	1,576	$	(12)	$	332,268
Provision for loan losses		20,693		37,776		-		-		58,469
Non-interest income		12,562		61,857		22,449		(243)		96,625
Amortization of intangibles		52		1,069		1,038		-		2,159
Depreciation expense		4,289		6,085		154		-		10,528
Other operating expenses		60,261		162,490		18,033		(255)		240,529
Income tax expense		16,875		7,457		1,515		-		25,847
Net income	$	49,662	$	38,414	$	3,285	$	-	$	91,361
Segment assets	$	23,652,941	$	20,618,670	$	346,096	$	(8,373,407)	$	36,244,300

Geographic Information
		Quarter ended
(In thousands)		March 31, 2019		March 31, 2018
Revenues:^[1]
Puerto Rico	$	500,138	$	399,414
United States		89,856		86,528
Other		17,399		20,602
Total consolidated revenues	$	607,393	$	506,544

[1] Total revenues include net interest income, service charges on deposit accounts, other service fees, mortgage banking activities, net profit (loss) on trading account debt securities, net gain (loss), including impairment on equity securities, adjustments (expense) to indemnity reserves on loans sold, FDIC loss share expense and other operating income.

Selected Balance Sheet Information:
(In thousands)		March 31, 2019		December 31, 2018
Puerto Rico
Total assets	$	37,656,205	$	36,863,930
Loans		18,855,650		18,837,742
Deposits		32,343,773		31,237,529
United States
Total assets	$	10,145,457	$	9,847,944
Loans		7,158,946		7,034,075
Deposits		7,048,008		6,878,599
Other
Total assets	$	878,945	$	892,703
Loans		677,097		687,494
Deposits ^[1]		1,488,057		1,593,911
[1] Represents deposits from BPPR operations located in the U.S. and British Virgin Islands.