Segment Reporting

6 Months Ended

Jun. 30, 2019

Disclosure Text Block

Segment Reporting

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 June 30, 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. For the quarter ended June 30, 2018, the intercompany billings from Popular, Inc to the Banco Popular de Puerto Rico and Popular U.S. reportable segments amounted to $20.6 million and $3.4 million, respectively. For the six months

ended June 30, 2018, the intercompany billings from Popular, Inc to the Banco Popular de Puerto Rico and Popular U.S. reportable segments amounted to $37.5 million and $6.2 million, respectively.

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

2019
For the quarter ended June 30, 2019
				Banco Popular				Intersegment
(In thousands)				de Puerto Rico		Popular U.S.		Eliminations
Net interest income			$	411,549	$	74,637	$	(61)
Provision for loan losses				28,821		11,216		-
Non-interest income				123,388		5,492		(140)
Amortization of intangibles				2,180		166		-
Depreciation expense				12,243		2,001		-
Other operating expenses				297,428		51,741		(137)
Income tax expense				36,751		4,097		-
Net income			$	157,514	$	10,908	$	(64)
Segment assets			$	40,698,293	$	9,723,815	$	(114,605)
For the quarter ended June 30, 2019
		Reportable
(In thousands)		Segments		Corporate		Eliminations		Total Popular, Inc.
Net interest income (expense)	$	486,125	$	(9,809)	$	-	$	476,316
Provision for loan losses		40,037		154		-		40,191
Non-interest income		128,740		11,339		(1,753)		138,326
Amortization of intangibles		2,346		25		-		2,371
Depreciation expense		14,244		185		-		14,429
Other operating expenses		349,032		(1,944)		(873)		346,215
Income tax expense (benefit)		40,848		(180)		(338)		40,330
Net income (loss)	$	168,358	$	3,290	$	(542)	$	171,106
Segment assets	$	50,307,503	$	5,062,632	$	(4,752,914)	$	50,617,221

For the six months ended June 30, 2019
				Banco Popular				Intersegment
(In thousands)				de Puerto Rico		Popular U.S.		Eliminations
Net interest income			$	818,906	$	147,465	$	(57)
Provision for loan losses				60,170		21,587		-
Non-interest income				244,158		11,356		(281)
Amortization of intangibles				4,302		332		-
Depreciation expense				24,182		4,169		-
Other operating expenses				578,126		100,350		(273)
Income tax expense				82,127		9,312		-
Net income			$	314,157	$	23,071	$	(65)
Segment assets			$	40,698,293	$	9,723,815	$	(114,605)
For the six months ended June 30, 2019
		Reportable
(In thousands)		Segments		Corporate		Eliminations		Total Popular, Inc.
Net interest income (expense)	$	966,314	$	(19,035)	$	-	$	947,279
Provision for loan losses		81,757		259		-		82,016
Non-interest income		255,233		21,400		(1,877)		274,756
Amortization of intangibles		4,634		49		-		4,683
Depreciation expense		28,351		373		-		28,724
Other operating expenses		678,203		414		(1,589)		677,028
Income tax expense (benefit)		91,439		(766)		(120)		90,553
Net income	$	337,163	$	2,036	$	(168)	$	339,031
Segment assets	$	50,307,503	$	5,062,632	$	(4,752,914)	$	50,617,221

2018
For the quarter ended June 30, 2018
				Banco Popular				Intersegment
(In thousands)				de Puerto Rico		Popular U.S.		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 U.S.		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

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

2019
For the quarter ended June 30, 2019
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	$	152,943	$	257,301	$	1,327	$	(22)	$	411,549
Provision for loan losses		2,855		25,966		-		-		28,821
Non-interest income		25,696		68,806		29,654		(768)		123,388
Amortization of intangibles		48		1,074		1,058		-		2,180
Depreciation expense		4,897		7,191		155		-		12,243
Other operating expenses		74,021		207,925		16,263		(781)		297,428
Income tax expense		27,819		5,486		3,446		-		36,751
Net income	$	68,999	$	78,465	$	10,059	$	(9)	$	157,514
Segment assets	$	32,240,745	$	23,582,849	$	381,020	$	(15,506,321)	$	40,698,293

For the six months ended June 30, 2019
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	$	304,403	$	511,969	$	2,645	$	(111)	$	818,906
Provision for loan losses		863		59,307		-		-		60,170
Non-interest income		49,285		144,210		52,188		(1,525)		244,158
Amortization of intangibles		97		2,146		2,059		-		4,302
Depreciation expense		9,551		14,318		313		-		24,182
Other operating expenses		146,950		400,595		32,090		(1,509)		578,126
Income tax expense		59,013		17,229		5,885		-		82,127
Net income	$	137,214	$	162,584	$	14,486	$	(127)	$	314,157
Segment assets	$	32,240,745	$	23,582,849	$	381,020	$	(15,506,321)	$	40,698,293

	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			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 10 and 32 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			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 10 and 32 to the Consolidated Financial Statements for additional information.

Geographic Information
			Quarter ended				Six months ended
(In thousands)			June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Revenues:[1]
Puerto Rico		$	501,640	$	542,173	$	1,001,778	$	941,587
United States			93,964		87,045		183,820		173,573
Other			19,038		19,727		36,437		40,329
Total consolidated revenues		$	614,642	$	648,945	$	1,222,035	$	1,155,489
[1]	Total revenues include net interest income, service charges on deposit accounts, other service fees, mortgage banking activities, net gain (loss), including impairment on equity securities, net profit (loss) on trading account debt securities, adjustments (expense) to indemnity reserves on loans sold, FDIC loss share income and other operating income.

Selected Balance Sheet Information:
(In thousands)			June 30, 2019		December 31, 2018
Puerto Rico
	Total assets	$	39,417,569	$	36,863,930
	Loans		18,879,047		18,837,742
	Deposits		33,574,495		31,237,529
United States
	Total assets	$	10,324,391	$	9,847,944
	Loans		7,511,132		7,034,075
	Deposits		6,951,081		6,878,599
Other
	Total assets	$	875,261	$	892,703
	Loans		669,594		687,494
	Deposits[1]		1,534,261		1,593,911
[1]	Represents deposits from BPPR operations located in the U.S. and British Virgin Islands.