SEGMENT INFORMATION

9 Months Ended

Sep. 30, 2018

NOTE 26 – 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 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 September 30, 2018, 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 product, were also considered in the determination of the reportable segment.

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 also lends funds to the Commercial and Corporate Banking, Mortgage Banking and Consumer (Retail) Banking segments to finance their lending resources and borrows from those segments. The Consumer (Retail) Banking and the United States Operations segments also lend funds to the 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,” in the audited consolidated financial statements included in the 2017 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:

(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, 2018:
Interest income	$	31,746	$	46,052	$	34,644	$	15,911	$	21,227	$	7,912	$	157,492
Net (charge) credit for transfer of funds		(12,153)		20,947		(14,933)		6,446		(307)		-		-
Interest expense		-		(7,164)		-		(11,075)		(5,840)		(892)		(24,971)
Net interest income		19,593		59,835		19,711		11,282		15,080		7,020		132,521

(Provision) release for loan and lease losses		635		2,485		(10,684)		-		(5,130)		1,170		(11,524)
Non-interest income (loss)		4,552		12,323		(685)		151		624		1,558		18,523
Direct non-interest expenses		(12,001)		(28,210)		(7,911)		(878)		(8,279)		(7,194)		(64,473)
Segment income	$	12,779	$	46,433	$	431	$	10,555	$	2,295	$	2,554	$	75,047

Average earnings assets	$	2,248,691	$	1,645,170	$	2,486,910	$	2,637,825	$	1,752,007	$	527,468	$	11,298,071


(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, 2017:
Interest income	$	32,317	$	43,769	$	31,083	$	13,374	$	18,446	$	9,006	$	147,995
Net (charge) credit for transfer of funds		(11,268)		9,351		(8,748)		11,198		(533)		-		-
Interest expense		-		(6,520)		-		(12,924)		(4,932)		(787)		(25,163)
Net interest income		21,049		46,600		22,335		11,648		12,981		8,219		122,832

Provision for loan and lease losses		(20,495)		(33,067)		(13,621)		-		(789)		(7,041)		(75,013)
Non-interest income		2,908		11,242		1,014		1,459		697		1,325		18,645
Direct non-interest expenses		(8,174)		(27,193)		(8,102)		(1,014)		(7,605)		(7,254)		(59,342)
Segment (loss) income	$	(4,712)	$	(2,418)	$	1,626	$	12,093	$	5,284	$	(4,751)	$	7,122

Average earnings assets	$	2,434,963	$	1,758,653	$	2,477,266	$	2,228,990	$	1,581,726	$	602,366	$	11,083,964

(In thousands)	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
Nine-Month Period Ended September 30, 2018
Interest income	$	95,927	$	132,652	$	102,255	$	45,593	$	61,634	$	24,482	$	462,543
Net (charge) credit for transfer of funds		(35,027)		54,233		(43,181)		25,125		(1,150)		-		-
Interest expense		-		(20,863)		-		(34,475)		(16,959)		(2,561)		(74,858)
Net interest income		60,900		166,022		59,074		36,243		43,525		21,921		387,685

Provision for loan and lease losses		(4,004)		(16,011)		(19,744)		-		(8,186)		(3,659)		(51,604)
Non-interest income		13,302		35,504		2,785		2,600		2,492		5,096		61,779
Direct non-interest expenses		(30,192)		(84,173)		(22,710)		(2,777)		(24,768)		(22,224)		(186,844)
Segment income	$	40,006	$	101,342	$	19,405	$	36,066	$	13,063	$	1,134	$	211,016

Average earnings assets	$	2,269,960	$	1,601,812	$	2,546,090	$	2,597,967	$	1,734,970	$	546,610	$	11,297,409


(In thousands)	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
Nine-Month Period Ended September 30, 2017
Interest income	$	99,361	$	130,055	$	90,858	$	41,788	$	50,910	$	27,625	$	440,597
Net (charge) credit for transfer of funds		(34,466)		20,799		(27,071)		41,858		(1,120)		-		-
Interest expense		-		(18,603)		-		(36,842)		(13,499)		(2,368)		(71,312)
Net interest income		64,895		132,251		63,787		46,804		36,291		25,257		369,285

Provision for loan and lease losses		(40,598)		(47,976)		(20,906)		-		(885)		(8,186)		(118,551)
Non-interest income		11,258		37,224		2,972		(10,273)		1,776		4,480		47,437
Direct non-interest expenses		(27,675)		(82,677)		(27,240)		(3,190)		(23,579)		(20,922)		(185,283)
Segment income	$	7,880	$	38,822	$	18,613	$	33,341	$	13,603	$	629	$	112,888

Average earnings assets	$	2,469,037	$	1,771,376	$	2,500,180	$	2,176,164	$	1,492,727	$	609,765	$	11,019,249

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,
		2018		2017		2018		2017

Net income :

Total income for segments and other		$	75,047	$	7,122	$	211,016	$	112,888
Other operating expenses (1)			(26,392)		(26,272)		(80,264)		(77,282)
Income (loss) before income taxes			48,655		(19,150)		130,752		35,606
Income tax (expense) benefit			(12,332)		8,398		(30,249)		7,181
Total consolidated net income (loss)		$	36,323	$	(10,752)	$	100,503	$	42,787

Average assets:

Total average earning assets for segments		$	11,298,071	$	11,083,964	$	11,297,409	$	11,019,249
Average non-earning assets			929,362		900,334		945,671		896,071
Total consolidated average assets		$	12,227,433	$	11,984,298	$	12,243,080	$	11,915,320

(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.