Segment Reporting

12 Months Ended

Dec. 31, 2018

Note 39 – 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 December 31, 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. 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), 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 Popular Inc. and is being used by BPPR 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.

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 will reflect 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:

December 31, 2018
				Banco Popular				Intersegment
(In thousands)				de Puerto Rico		Popular U.S.		Eliminations
Net interest income			$	1,482,178	$	304,576	$	(2)
Provision for loan losses				198,442		29,881		-
Non-interest income				592,938		19,988		(560)
Amortization of intangibles				8,620		665		-
Depreciation expense				43,504		9,053		-
Other operating expenses				1,073,012		182,154		(546)
Income tax expense				121,195		25,294		-
Net income			$	630,343	$	77,517	$	(16)
Segment assets			$	38,037,696	$	9,381,636	$	(114,923)


December 31, 2018
		Reportable
(In thousands)		Segments		Corporate		Eliminations		Total Popular, Inc.
Net interest income (expense)	$	1,786,752	$	(51,875)	$	-	$	1,734,877
Provision (reversal) for loan losses		228,323		(251)		-		228,072
Non-interest income		612,366		42,914		(2,786)		652,494
Amortization of intangibles		9,285		41		-		9,326
Depreciation expense		52,557		743		-		53,300
Loss on early extinguishment of debt		-		12,522		-		12,522
Other operating expenses		1,254,620		94,640		(2,846)		1,346,414
Income tax expense (benefit)		146,489		(26,947)		37		119,579
Net income (loss)	$	707,844	$	(89,709)	$	23	$	618,158
Segment assets	$	47,304,409	$	5,099,491	$	(4,799,323)	$	47,604,577

December 31, 2017
				Banco Popular				Intersegment
(In thousands)				de Puerto Rico		Popular U.S.		Eliminations
Net interest income			$	1,279,844	$	280,946	$	(217)
Provision for loan losses				253,032		77,944		-
Non-interest income				364,164		20,430		(572)
Amortization of intangibles				8,713		665		-
Depreciation expense				39,162		8,553		-
Other operating expenses				957,924		170,042		(551)
Income tax expense				72,741		191,749		(93)
Net income (loss)			$	312,436	$	(147,577)	$	(145)
Segment assets			$	34,843,668	$	9,168,256	$	(16,992)


December 31, 2017
		Reportable
(In thousands)		Segments		Corporate		Eliminations		Total Popular, Inc.
Net interest income (expense)	$	1,560,573	$	(58,609)	$	-	$	1,501,964
Provision for loan losses		330,976		403		(5,955)		325,424
Non-interest income		384,022		37,949		(2,804)		419,167
Amortization of intangibles		9,378		-		-		9,378
Depreciation expense		47,715		649		-		48,364
Other operating expenses		1,127,415		74,731		(2,692)		1,199,454
Income tax expense (benefit)		264,397		(35,835)		2,268		230,830
Net income (loss)	$	164,714	$	(60,608)	$	3,575	$	107,681
Segment assets	$	43,994,932	$	5,046,153	$	(4,763,748)	$	44,277,337



December 31, 2016
				Banco Popular				Intersegment
(In thousands)				de Puerto Rico		Popular U.S.		Eliminations
Net interest income			$	1,224,771	$	258,416	$	(474)
Provision for loan losses				154,785		15,266		-
Non-interest income				243,368		21,651		(119)
Amortization of intangibles				11,479		665		-
Goodwill impairment charge				3,801		-		-
Depreciation expense				39,505		6,715		-
Other operating expenses				952,894		174,585		(779)
Income tax expense				75,615		36,712		92
Net income			$	230,060	$	46,124	$	94
Segment assets			$	29,841,854	$	8,629,439	$	(31,397)


December 31, 2016
		Reportable
(In thousands)		Segments		Corporate		Eliminations		Total Popular, Inc.
Net interest income (expense)	$	1,482,713	$	(60,658)	$	-	$	1,422,055
Provision (reversal) for loan losses		170,051		(35)		-		170,016
Non-interest income		264,900		35,705		(2,669)		297,936
Amortization of intangibles		12,144		-		-		12,144
Goodwill impairment charge		3,801		-		-		3,801
Depreciation expense		46,220		654		-		46,874
Other operating expenses		1,126,700		68,694		(2,578)		1,192,816
Income tax expense (benefit)		112,419		(33,617)		(18)		78,784
Net income (loss)	$	276,278	$	(60,649)	$	(73)	$	215,556
Segment assets	$	38,439,896	$	4,982,113	$	(4,760,400)	$	38,661,609

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

December 31, 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	$	584,293	$	892,735	$	5,201	$	(51)	$	1,482,178
Provision for loan losses		105,604		92,838		-		-		198,442
Non-interest income		84,762		311,775		95,199		101,202		592,938
Amortization of intangibles		208		4,275		4,137		-		8,620
Depreciation expense		17,668		25,222		614		-		43,504
Other operating expenses		276,158		718,990		71,344		6,520		1,073,012
Income tax expense		76,255		100,925		7,903		(63,888)		121,195
Net income	$	193,162	$	262,260	$	16,402	$	158,519	$	630,343
Segment assets	$	27,712,852	$	22,712,950	$	376,992	$	(12,765,098)	$	38,037,696

[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 10 and 37 to the Consolidated Financial Statements for additional information.

December 31, 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	$	518,404	$	753,922	$	7,499	$	19	$	1,279,844
Provision for loan losses		8,911		244,121		-		-		253,032
Non-interest income		79,630		194,741		90,222		(429)		364,164
Amortization of intangibles		211		4,274		4,228		-		8,713
Depreciation expense		17,338		21,120		704		-		39,162
Other operating expenses		239,369		656,998		62,030		(473)		957,924
Income tax expense (benefit)		93,378		(31,404)		10,767		-		72,741
Net income	$	238,827	$	53,554	$	19,992	$	63	$	312,436
Segment assets	$	21,735,909	$	20,180,173	$	520,717	$	(7,593,131)	$	34,843,668



December 31, 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	$	472,948	$	742,854	$	6,172	$	2,797	$	1,224,771
Provision for loan losses		12,884		141,901		-		-		154,785
Non-interest income		(91,411)		232,113		103,005		(339)		243,368
Amortization of intangibles		145		7,042		4,292		-		11,479
Goodwill impairment charge		-		-		3,801		-		3,801
Depreciation expense		16,956		21,684		865		-		39,505
Other operating expenses		251,375		631,234		70,624		(339)		952,894
Income tax expense		41,639		24,068		9,908		-		75,615
Net income	$	58,538	$	149,038	$	19,687	$	2,797	$	230,060
Segment assets	$	15,263,278	$	17,592,743	$	406,429	$	(3,420,596)	$	29,841,854

Geographic Information

(In thousands)		2018		2017		2016
Revenues:^[1]
Puerto Rico	$	1,953,671	$	1,527,758	$	1,361,663
United States		357,680		318,093		283,349
Other		76,020		75,280		74,979
Total consolidated revenues	$	2,387,371	$	1,921,131	$	1,719,991

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

Selected Balance Sheet Information
(In thousands)		2018		2017		2016
Puerto Rico
Total assets	$	36,863,930	$	33,705,624	$	28,813,289
Loans		18,837,742		17,591,078		16,880,868
Deposits		31,237,529		27,575,292		23,185,551
United States
Total assets	$	9,847,944	$	9,648,865	$	8,928,475
Loans		7,034,075		6,608,056		5,799,562
Deposits		6,878,599		6,635,153		6,266,473
Other
Total assets	$	892,703	$	922,848	$	919,845
Loans		687,494		743,329		755,017
Deposits ^[1]		1,593,911		1,243,063		1,044,200
[1] Represents deposits from BPPR operations located in the U.S. and British Virgin Islands.