SEGMENT INFORMATION

3 Months Ended

Mar. 31, 2019

NOTE 26 – SEGMENT INFORMATION

Based upon the Corporation’s organizational structure and the information provided to the Chief Executive Officer and, to a lesser extent, the Board of Directors of the Corporation, the operating segments are based primarily on 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 March 31, 2019, 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. Other factors such as the Corporation’s organizational chart, nature of the products, distribution channels, and the economic characteristics of the products 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 that are 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. 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, “Basis of Presentation and Significant Accounting Policies,” in the audited consolidated financial statements of the Corporation for the year ended December 31, 2018, which are included in the Corporation’s 2018 Annual Report on Form 10-K.

The Corporation evaluates the performance of the segments based on net interest income, the 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 for the quarters ended March 31, 2019 and 2018:

(In thousands)	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate Banking		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
For the quarter ended March 31, 2019:
Interest income	$	30,857	$	49,975	$	37,387	$	16,249	$	24,157	$	7,847	$	166,472
Net (charge) credit for transfer of funds		(13,108)		19,662		(16,454)		11,250		(1,350)		-		-
Interest expense		-		(8,103)		-		(10,704)		(6,598)		(886)		(26,291)
Net interest income		17,749		61,534		20,933		16,795		16,209		6,961		140,181
(Provision) releases for loan and lease losses		(6,412)		(9,412)		8,050		-		(4,364)		318		(11,820)
Non-interest income		3,606		14,007		2,518		74		533		1,805		22,543
Direct non-interest expenses		(8,481)		(29,404)		(8,989)		(723)		(8,362)		(7,740)		(63,699)
Segment income	$	6,462	$	36,725	$	22,512	$	16,146	$	4,016	$	1,344	$	87,205

Average earnings assets	$	2,188,093	$	1,824,240	$	2,499,709	$	2,392,467	$	1,902,771	$	472,912	$	11,280,192


(In thousands)	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate Banking		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
For the quarter ended March 31, 2018:
Interest income	$	32,321	$	42,550	$	32,337	$	14,254	$	19,527	$	8,429	$	149,418
Net (charge) credit for transfer of funds		(11,116)		15,222		(13,417)		9,974		(663)		-		-
Interest expense		-		(6,723)		-		(11,710)		(5,472)		(820)		(24,725)
Net interest income		21,205		51,049		18,920		12,518		13,392		7,609		124,693
Provision for loan and lease losses		(381)		(5,793)		(6,800)		-		(1,459)		(6,111)		(20,544)
Non-interest income		4,084		11,930		1,259		2,378		1,408		1,725		22,784
Direct non-interest expenses		(7,720)		(26,901)		(6,714)		(948)		(7,956)		(7,622)		(57,861)
Segment income (loss)	$	17,188	$	30,285	$	6,665	$	13,948	$	5,385	$	(4,399)	$	69,072

Average earnings assets	$	2,293,482	$	1,566,795	$	2,632,220	$	2,470,830	$	1,709,918	$	571,199	$	11,244,444

The following table presents a reconciliation of the reportable segment financial information to the consolidated totals:

		Quarter Ended
		March 31,
		2019		2018

Net income:

Total income for segments and other		$	87,205	$	69,072
Other operating expenses (1)			(26,273)		(28,166)
Income before income taxes			60,932		40,906
Income tax expense			17,618		7,758
Total consolidated net income		$	43,314	$	33,148

Average assets:

Total average earning assets for segments		$	11,280,192	$	11,244,444
Average non-earning assets			1,003,706		947,460
Total consolidated average assets		$	12,283,898	$	12,191,904

(1)	Expenses pertaining to corporate administrative functions that support the operating segment, 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.