Business Segment

6 Months Ended

Jun. 30, 2018

NOTE 23 – BUSINESS SEGMENTS

Oriental segregates its businesses into the following major reportable segments of business: Banking, Wealth Management, and Treasury. Management established the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. Other factors such as Oriental’s organization, nature of its products, distribution channels and economic characteristics of the products were also considered in the determination of the reportable segments. Oriental measures the performance of these reportable segments based on pre-established goals of different financial parameters such as net income, net interest income, loan production, and fees generated. Oriental’s methodology for allocating non-interest expenses among segments is based on several factors such as revenue, employee headcount, occupied space, dedicated services or time, among others. These factors are reviewed on a periodical basis and may change if the conditions warrant.

Banking includes the Bank’s branches and traditional banking products such as deposits and commercial, consumer and mortgage loans. Mortgage banking activities are carried out by the Bank’s mortgage banking division, whose principal activity is to originate mortgage loans for Oriental’s own portfolio. As part of its mortgage banking activities, Oriental may sell loans directly into the secondary market or securitize conforming loans into mortgage-backed securities.

Wealth Management is comprised of the Bank’s trust division, Oriental Financial Services, Oriental Insurance, and OPC. The core operations of this segment are financial planning, money management and investment banking, brokerage services, insurance sales activity, corporate and individual trust and retirement services, as well as retirement plan administration services.

The Treasury segment encompasses all of Oriental’s asset/liability management activities, such as purchases and sales of investment securities, interest rate risk management, derivatives, and borrowings. Intersegment sales and transfers, if any, are accounted for as if the sales or transfers were to third parties, that is, at current market prices.

Following are the results of operations and the selected financial information by operating segment for the quarters and six-month periods ended June 30, 2018 and 2017:

	Quarter Ended June 30, 2018
				Wealth				Total Major				Consolidated
	Banking			Management		Treasury		Segments		Eliminations		Total
	(In thousands)
Interest income	$	78,133	$	14	$	9,859	$	88,006	$	-	$	88,006
Interest expense		(7,132)		-		(3,286)		(10,418)		-		(10,418)
Net interest income		71,001		14		6,573		77,588		-		77,588
Provision for loan and lease losses		(14,744)		-		(3)		(14,747)		-		(14,747)
Non-interest income		12,240		6,448		15		18,703		-		18,703
Non-interest expenses		(46,109)		(5,282)		(909)		(52,300)		-		(52,300)
Intersegment revenue		542		-		-		542		(542)		-
Intersegment expenses		-		(208)		(334)		(542)		542		-
Income before income taxes	$	22,930	$	972	$	5,342	$	29,244	$	-	$	29,244
Income tax expense		8,943		379		273		9,595		-		9,595
Net income	$	13,987	$	593	$	5,069	$	19,649	$	-	$	19,649
Total assets	$	6,006,889	$	29,253	$	1,447,949	$	7,484,091	$	(982,529)	$	6,501,562



	Quarter Ended June 30, 2017
				Wealth				Total Major				Consolidated
	Banking			Management		Treasury		Segments		Eliminations		Total
	(In thousands)
Interest income	$	77,019	$	18	$	8,903	$	85,940	$	-	$	85,940
Interest expense		(6,820)		-		(3,557)		(10,377)		-		(10,377)
Net interest income		70,199		18		5,346		75,563		-		75,563
Provision for loan and lease losses		(26,526)		-		(10)		(26,536)		-		(26,536)
Non-interest income		11,776		6,329		6,781		24,886		-		24,886
Non-interest expenses		(47,402)		(4,100)		(1,314)		(52,816)		-		(52,816)
Intersegment revenue		346		-		71		417		(417)		-
Intersegment expenses		(71)		(254)		(92)		(417)		417		-
Income before income taxes	$	8,322	$	1,993	$	10,782	$	21,097	$	-	$	21,097
Income tax expense (benefit)		3,246		777		(30)		3,993		-		3,993
Net income	$	5,076	$	1,216	$	10,812	$	17,104	$	-	$	17,104
Total assets	$	5,490,287	$	22,531	$	1,692,603	$	7,205,421	$	(969,595)	$	6,235,826

	Six-Month Period Ended June 30, 2018
			Wealth				Total Major				Consolidated
	Banking		Management		Treasury		Segments		Eliminations		Total
	(In thousands)
Interest income	$	152,507	$	26	$	18,643	$	171,176	$	-	$	171,176
Interest expense		(13,422)		-		(6,172)		(19,594)		-		(19,594)
Net interest income		139,085		26		12,471		151,582		-		151,582
Provision for loan and lease losses, net		(30,199)		-		(8)		(30,207)		-		(30,207)
Non-interest income		24,433		12,756		28		37,217		-		37,217
Non-interest expenses		(94,190)		(8,568)		(1,663)		(104,421)		-		(104,421)
Intersegment revenue		903		-		-		903		(903)		-
Intersegment expenses		-		(387)		(516)		(903)		903		-
Income before income taxes	$	40,032	$	3,827	$	10,312	$	54,171	$	-	$	54,171
Income tax expense		15,612		1,493		500		17,605		-		17,605
Net income	$	24,420	$	2,334	$	9,812	$	36,566	$	-	$	36,566
Total assets	$	6,006,889	$	29,253	$	1,447,949	$	7,484,091	$	(982,529)	$	6,501,562

	Six-Month Period Ended June 30, 2017
			Wealth				Total Major				Consolidated
	Banking		Management		Treasury		Segments		Eliminations		Total
	(In thousands)
Interest income	$	154,592	$	30	$	17,496	$	172,118	$	-	$	172,118
Interest expense		(13,634)		-		(8,303)		(21,937)		-		(21,937)
Net interest income		140,958		30		9,193		150,181		-		150,181
Provision for loan and lease losses, net		(44,168)		-		(22)		(44,190)		-		(44,190)
Non-interest income		25,003		12,257		6,700		43,960		-		43,960
Non-interest expenses		(93,456)		(8,320)		(2,724)		(104,500)		-		(104,500)
Intersegment revenue		810		-		142		952		(952)		-
Intersegment expenses		(142)		(565)		(245)		(952)		952		-
Income before income taxes	$	29,005	$	3,402	$	13,044	$	45,451	$	-	$	45,451
Income tax expense		11,312		1,327		558		13,197		-		13,197
Net income	$	17,693	$	2,075	$	12,486	$	32,254	$	-	$	32,254
Total assets	$	5,490,287	$	22,531	$	1,692,603	$	7,205,421	$	(969,595)	$	6,235,826