SEGMENT INFORMATION

3 Months Ended

Sep. 30, 2014

SEGMENT INFORMATION

NOTE 21 – SEGMENT INFORMATION

Based upon the Corporation's organizational structure and the information provided to the Chief Executive Officer of the Corporation and, to a lesser extent, the Board of Directors, the operating segments are driven primarily by the Corporation's lines of business for its operations in Puerto Rico, the Corporation's principal market, and by geographic areas for its operations outside of Puerto Rico. As of September 30, 2014, the Corporation had six reportable segments: Commercial and Corporate Banking; Mortgage Banking; Consumer (Retail) Banking; Treasury and Investments; United States Operations, and Virgin Islands Operations. Management determined the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. Others factors such as the Corporation's organizational chart, nature of the products, distribution channels, and the economic characteristics of the product were also considered in the determination of the reportable segments.

The Commercial and Corporate Banking segment consists of the Corporation's lending and other services for large customers represented by specialized and middle-market clients and the public sector. The Commercial and Corporate Banking segment offers commercial loans, including commercial real estate and construction loans, and floor plan financings, as well as other products, such as cash management and business management services. The Mortgage Banking segment consists of the origination, sale, and servicing of a variety of residential mortgage loans. The Mortgage Banking segment also acquires and sells mortgages in the secondary markets. In addition, the Mortgage Banking segment includes mortgage loans purchased from other local banks and mortgage bankers. The Consumer (Retail) Banking segment consists of the Corporation's consumer lending and deposit-taking activities conducted mainly through its branch network and loan centers. The Treasury and Investments segment is responsible for the Corporation's investment portfolio and treasury functions executed to manage and enhance liquidity. This segment lends funds to the Commercial and Corporate Banking, Mortgage Banking and Consumer (Retail) Banking segments to finance their lending activities and borrows from those segments and from the United States Operations segment. The Consumer (Retail) Banking and the United States Operations segments also lend funds to other segments. The interest rates charged or credited by Treasury and Investments, the Consumer (Retail) Banking and the United States Operations segments are allocated based on market rates. The difference between the allocated interest income or expense and the Corporation's actual net interest income from centralized management of funding costs is reported in the Treasury and Investments segment. The United States Operations segment consists of all banking activities conducted by FirstBank in the United States mainland, including commercial and retail banking services. The Virgin Islands Operations segment consists of all banking activities conducted by the Corporation in the USVI and BVI, including commercial and retail banking services.

The accounting policies of the segments are the same as those referred to in Note 1- “Nature of Business and Summary of Significant Accounting Policies.”

The Corporation evaluates the performance of the segments based on net interest income, the estimated provision for loan and lease losses, non-interest income and direct non-interest expenses. The segments are also evaluated based on the average volume of their interest-earning assets less the allowance for loan and lease losses.

The following table presents information about the reportable segments:
(In thousands)	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
For the quarter ended September 30, 2014:
Interest income	$	30,038	$	52,725	$	39,737	$	12,335	$	11,541	$	10,286	$	156,662
Net (charge) credit for transfer of funds		(9,541)		4,162		(3,354)		5,601		3,132		-		-
Interest expense		-		(5,902)		-		(17,323)		(4,855)		(888)		(28,968)
Net interest income		20,497		50,985		36,383		613		9,818		9,398		127,694
(Provision) release for loan and lease losses		(5,261)		(18,634)		(8,900)		-		6,791		(995)		(26,999)
Non-interest income (loss)		3,643		9,409		1,104		(190)		621		1,587		16,174
Direct non-interest expenses		(9,896)		(31,670)		(10,265)		(1,481)		(6,015)		(11,118)		(70,445)
Segment income (loss)	$	8,983	$	10,090	$	18,322	$	(1,058)	$	11,215	$	(1,128)	$	46,424
Average earnings assets	$	2,189,861	$	2,021,207	$	3,398,113	$	2,676,556	$	958,790	$	672,392	$	11,916,919
(In thousands)	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
For the quarter ended September 30, 2013:
Interest income	$	27,307	$	57,967	$	43,085	$	14,801	$	9,201	$	9,842	$	162,203
Net (charge) credit for transfer of funds		(8,948)		771		(3,294)		9,223		2,248		-		-
Interest expense		-		(6,933)		-		(18,330)		(5,088)		(947)		(31,298)
Net interest income		18,359		51,805		39,791		5,694		6,361		8,895		130,905
(Provision) release for loan and lease losses		(6,040)		(15,190)		(4,516)		-		2,473		1,078		(22,195)
Non-interest income (loss)		4,812		9,261		1,133		(1,390)		281		1,871		15,968
Direct non-interest expenses		(10,073)		(30,954)		(14,039)		(3,022)		(6,847)		(10,192)		(75,127)
Segment income	$	7,058	$	14,922	$	22,369	$	1,282	$	2,268	$	1,652	$	49,551
Average earnings assets	$	1,981,707	$	2,086,403	$	3,842,877	$	2,666,427	$	766,405	$	665,812	$	12,009,631

	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
Nine-month period ended September 30, 2014:
Interest income	$	83,230	$	163,406	$	122,861	$	41,906	$	33,316	$	30,937	$	475,656
Net (charge) credit for transfer of funds		(26,823)		11,933		(9,402)		15,985		8,307		-		-
Interest expense		-		(18,580)		-		(50,867)		(14,507)		(2,781)		(86,735)
Net interest income		56,407		156,759		113,459		7,024		27,116		28,156		388,921
(Provision) release for loan and lease losses		(12,734)		(58,604)		(36,424)		-		23,231		(1,127)		(85,658)
Non-interest income		9,446		30,044		4,021		207		1,773		5,244		50,735
Direct non-interest expenses		(30,068)		(95,195)		(37,537)		(4,121)		(20,504)		(28,806)		(216,231)
Segment income	$	23,051	$	33,004	$	43,519	$	3,110	$	31,616	$	3,467	$	137,767
Average earnings assets	$	2,059,427	$	1,953,726	$	3,731,842	$	2,700,429	$	896,667	$	666,279	$	12,008,370
	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
Nine-month period ended September 30, 2013:
Interest income	$	82,996	$	174,210	$	128,890	$	38,845	$	26,905	$	31,252	$	483,098
Net (charge) credit for transfer of funds		(28,850)		(948)		(11,034)		33,738		7,094		-		-
Interest expense		-		(20,774)		-		(60,305)		(16,788)		(2,945)		(100,812)
Net interest income		54,146		152,488		117,856		12,278		17,211		28,307		382,286
(Provision) release for loan and lease losses		(83,572)		(37,513)		(96,848)		-		4,907		(7,756)		(220,782)
Non-interest income (loss)		9,400		29,558		3,922		(67,123)		1,168		5,899		(17,176)
Direct non-interest expenses		(38,291)		(90,820)		(45,620)		(6,977)		(21,101)		(34,686)		(237,495)
Segment (loss) income	$	(58,317)	$	53,713	$	(20,690)	$	(61,822)	$	2,185	$	(8,236)	$	(93,167)
Average earnings assets	$	2,057,792	$	1,970,184	$	4,067,908	$	2,710,260	$	731,143	$	666,989	$	12,204,276

The following table presents a reconciliation of the reportable segment financial information to the consolidated totals:
		Quarter Ended				Nine-Month Period Ended
		September 30,				September 30,
		2014		2013		2014		2013
Net income (loss):
Total income (loss) for segments and other		$	46,424	$	49,551	$	137,767	$	(93,167)
Other non-interest (loss) income (1)			-		(5,908)		(7,280)		(10,798)
Other operating expenses (2)			(23,159)		(24,027)		(68,303)		(70,992)
Income (loss) before income taxes			23,265		19,616		62,184		(174,957)
Income tax expense			(64)		(3,676)		(675)		(4,319)
Total consolidated net income (loss)		$	23,201	$	15,940	$	61,509	$	(179,276)
Average assets:
Total average earning assets for segments		$	11,916,919	$	12,009,631	$	12,008,370	$	12,204,276
Other average earning assets (1)			-		18,382		2,216		19,983
Average non-earning assets			650,624		558,349		654,845		641,427
Total consolidated average assets		$	12,567,543	$	12,586,362	$	12,665,431	$	12,865,686
(1)	The activities related to the Bank's equity interest in CPG/GS are presented as an Other non-interest income (loss) and as Other average earning assets in the table above.
(2)	Expenses pertaining to corporate administrative functions that support the operating segments but are not specifically attributable to or managed by any segment are not included in the reported financial results of the operating segments. The unallocated corporate expenses include certain general and administrative expenses and related depreciation and amortization expenses.