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FIRST BANCORP /PR/ - Annual Report: 2021 (Form 10-K)

fbp1231202110k
 
 
 
 
 
 
 
 
UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K
(Mark one)
 
[X]
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended
December 31, 2021
or
 
[ ]
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
 
COMMISSION FILE NUMBER
001-14793
FIRST BANCORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED
 
IN ITS CHARTER)
Puerto Rico
66-0561882
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1519 Ponce de León Avenue, Stop 23
00908
Santurce
,
Puerto Rico
(Zip Code)
(Address of principal executive office)
Registrant’s telephone number, including area code:
(
787
)
729-8200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock ($0.10 par value)
FBP
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned
 
issuer, as defined in Rule 405 of the Securities
 
Act.
 
Yes
 
☑
 
No
 
☐
Indicate by check mark if the registrant is not required to file reports
 
pursuant to Section 13 or 15(d) of the Act. Yes
 
☐
 
No
 
☑
Indicate by check mark whether the registrant (1) has filed all
 
reports required to be filed by Section 13 or 15(d) of the Securities
 
Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports),
 
and (2) has been subject to such filing requirements for the
 
past 90 days.
Yes
 
☑
 
No
☐
Indicate by check mark whether the registrant has submitted
 
electronically every Interactive Data File required to be submitted
 
pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period
 
that the registrant was required to submit such files).
Yes
 
☑
 
No
 
☐
Indicate by check mark whether the registrant is a large
 
accelerated filer, an accelerated filer,
 
a non-accelerated filer, a smaller reporting company,
 
or an emerging growth company.
 
See the
definitions of “large accelerated filer,”
 
“accelerated filer,” “smaller reporting company,”
 
and “emerging growth company” in Rule 12b-2 of the Exchange
 
Act.
 
Large accelerated filer
☑
Accelerated filer
 
☐
 
Non-accelerated filer
 
☐
Smaller reporting company
☐
Emerging growth company
☐
 
If an emerging growth company,
 
indicate by check mark if the registrant has elected not to use
 
the extended transition period for complying with any new or revised
 
financial accounting
standards provided pursuant to Section 13 (a) of the Exchange Act.
 
☐
 
Indicate by check mark whether the registrant has filed a
 
report on and attestation to its management’s
 
assessment of the effectiveness of its internal control
 
over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
 
registered public accounting firm that prepared or issued its
 
audit report.
 
☑
 
Indicate by check mark whether the registrant is a shell company
 
(as defined in Rule 12b-2 of the Exchange Act).
 
Yes
 
☐
 
No
 
☑
The aggregate market value of the voting common equity held
 
by non-affiliates of the registrant as of June 30,
 
2021 (the last trading day of the registrant’s
 
most recently completed second
fiscal quarter) was $
2,418,491,241
 
based on the closing price of $11.92 per share of the
 
registrant’s common stock on the New
 
York Stock Exchange
 
on June 30, 2021. The registrant had no
nonvoting common equity outstanding as of June 30, 2021.
 
For the purposes of the foregoing calculation only,
 
the registrant has defined affiliates to include (a) the executive
 
officers named in
Part III of this Annual Report on Form 10-K; (b) all directors
 
of the registrant; and (c) each shareholder,
 
including the registrant’s employee benefit
 
plans but excluding shareholders that file on
Schedule 13G, known to the registrant to be the beneficial owner
 
of 5% or more of the outstanding shares of common stock
 
of the registrant as of June 30, 2021. The registrant’s
 
response to
this item is not intended to be an admission that any person
 
is an affiliate of the registrant for any purposes other than this
 
response.
Indicate the number of shares outstanding of each of the
 
registrant’s classes of common stock,
 
as of the latest practicable date:
198,414,429
 
shares as of February 15, 2022.
Documents incorporated by reference:
Portions of the definitive proxy statement relating
 
to the registrant’s annual meeting of stockholders
 
scheduled to be held on May 20, 2022 are
incorporated by reference in response to Items 10, 11,
 
12, 13 and 14 of Part III of this Form 10-K.
 
3
Forward-Looking Statements
This Form 10-K contains forward-looking
 
statements within the meaning
 
of Section 27A of the
 
Securities Act of 1933,
 
as amended
(the “Securities
 
Act”), and
 
Section 21E of
 
the Securities Exchange
 
Act of 1934,
 
as amended (the
 
“Exchange Act”),
 
which are subject
to the safe harbor created by such sections. When
 
used in this Form 10-K or future filings
 
by First BanCorp. (the “Corporation,” “we,”
“us,” or “our”)
 
with the U.S.
 
Securities and
 
Exchange Commission (the
 
“SEC”), in the
 
Corporation’s
 
press releases or
 
in other public
or
 
stockholder
 
communications
 
made
 
by
 
the
 
Corporation,
 
or
 
in
 
oral
 
statements
 
made
 
on
 
behalf
 
of
 
the
 
Corporation
 
by,
 
or
 
with
 
the
approval of,
 
an authorized executive
 
officer,
 
the words or
 
phrases “would,” “intends,”
 
“will,” “expect,”
 
“should,”,
 
“plans”, “forecast”
“anticipate,”
 
“look
 
forward,”
 
“believes,”
 
and
 
other
 
terms
 
of
 
similar
 
meaning
 
or
 
import
 
in
 
connection
 
with
 
any
 
discussion
 
of
 
future
operating, financial or other performance are meant to identify “forward
 
-looking statements.”
The Corporation cautions readers
 
not to place undue reliance on
 
any such “forward-looking statements,” which
 
speak only as of the
date
 
made,
 
and
 
advises
 
readers
 
that
 
these
 
forward-looking
 
statements
 
are
 
not
 
guarantees
 
of
 
future
 
performance
 
and
 
involve
 
certain
risks,
 
uncertainties,
 
estimates,
 
and
 
assumptions
 
by
 
us
 
that
 
are
 
difficult
 
to
 
predict.
 
Various
 
factors,
 
some
 
of
 
which
 
are
 
beyond
 
our
control, could cause actual results to differ materially from
 
those expressed in, or implied by,
 
such forward-looking statements.
 
Factors that could
 
cause results to
 
differ from
 
those expressed in
 
the Corporation’s
 
forward-looking statements
 
include, but
 
are not
limited to, risks described or referenced in Part I, Item 1A, “Risk Factors,” and the
 
following:
●
uncertainties
 
relating
 
to
 
the
 
impact
 
of
 
the
 
ongoing
 
COVID-19
 
pandemic
 
or
 
any
 
future
 
regional
 
or
 
global
 
health
 
crisis,
including new
 
variants and
 
mutations of
 
the virus,
 
such as
 
the Omicron
 
variant, and
 
the efficacy
 
and acceptance
 
of various
vaccines
 
and
 
treatments
 
for
 
the
 
disease,
 
on
 
the
 
Corporation’s
 
business,
 
operations,
 
employees,
 
credit
 
quality,
 
financial
condition and net
 
income, including because
 
of uncertainties
 
as to the
 
extent and duration
 
of the pandemic
 
and the impact
 
of
the pandemic on consumer spending, borrowing and saving
 
habits, the underemployment and unemployment rates, which can
adversely affect repayment patterns, the Puerto
 
Rico economy and the global economy,
 
as well as the risk that the COVID-19
pandemic may
 
exacerbate any
 
other factor
 
that could
 
cause our
 
actual results
 
to differ
 
materially from
 
those expressed
 
in or
implied by any forward-looking statements;
 
●
risks related
 
to the
 
effect on
 
the Corporation
 
and its
 
customers of
 
governmental, regulatory
 
or central
 
bank responses
 
to the
COVID-19
 
pandemic
 
and
 
the
 
Corporation’s
 
participation
 
in
 
any
 
such
 
responses
 
or
 
programs,
 
such
 
as
 
the
 
Small
 
Business
Administration
 
Paycheck
 
Protection
 
Program
 
(“SBA
 
PPP”)
 
established
 
by
 
the
 
Coronavirus
 
Aid,
 
Relief,
 
and
 
Economic
Security Act of 2020,
 
as amended (the “CARES Act
 
of 2020”), including any
 
judgments, claims, damages, penalties,
 
fines or
reputational
 
damage
 
resulting
 
from
 
claims
 
or
 
challenges
 
against
 
the
 
Corporation
 
by
 
governments,
 
regulators,
 
customers
 
or
otherwise, relating to the Corporation’s
 
participation in any such responses or programs;
●
risks,
 
uncertainties
 
and
 
other
 
factors
 
related
 
to
 
the
 
Corporation’s
 
acquisition
 
of
 
Banco
 
Santander
 
Puerto
 
Rico
 
(“BSPR”),
including
 
the risks
 
that the
 
Corporation’s
 
may not
 
realize, either
 
fully or
 
on a
 
timely basis,
 
the cost
 
savings and
 
any other
synergies from
 
the acquisition
 
that the
 
Corporation expected,
 
because of
 
deposit attrition,
 
customer loss
 
and/or revenue
 
loss
as a
 
result of
 
unexpected factors
 
or events,
 
including those
 
that are
 
outside of
 
our control
 
following the
 
acquisition, and
 
the
impact on the Corporation’s results of
 
operations and financial condition of other business acquisitions, or dispositions;
●
uncertainty as to
 
the ultimate outcomes
 
of the recently
 
approved Puerto Rico’s
 
debt restructuring plan
 
(“Plan of Adjustment”
or “PoA”)
 
and its
 
2022 fiscal
 
plan, or
 
any revisions
 
to it,
 
on our
 
clients and
 
loan portfolios,
 
and any
 
potential impact
 
from
future economic or political developments in Puerto Rico;
●
the impact that a resumption of
 
a slowing economy and unemployment
 
or underemployment may have on
 
the performance of
our
 
loan
 
and
 
lease
 
portfolio,
 
the
 
market
 
price
 
of
 
our
 
investment
 
securities,
 
the
 
availability
 
of
 
sources
 
of
 
funding
 
and
 
the
demand for our products;
●
uncertainty
 
as
 
to
 
the
 
availability
 
of
 
wholesale
 
funding
 
sources,
 
such
 
as
 
securities
 
sold
 
under
 
agreements
 
to
 
repurchase,
Federal Home Loan Bank (“FHLB”) advances and brokered certificates of
 
deposit (“brokered CDs”);
●
the effect
 
of a
 
resumption of
 
deteriorating economic
 
conditions in
 
the real
 
estate markets
 
and the
 
consumer and
 
commercial
sectors
 
and
 
their
 
impact
 
on
 
the credit
 
quality
 
of
 
the Corporation’s
 
loans
 
and
 
other
 
assets, which
 
may
 
contribute
 
to, among
other
 
things,
 
higher
 
than
 
targeted
 
levels
 
of
 
non-performing
 
assets,
 
charge-offs
 
and
 
provisions
 
for
 
credit
 
losses,
 
and
 
may
subject the Corporation to further risk from loan defaults and foreclosures;
●
the
 
impact
 
of
 
changes
 
in
 
accounting
 
standards
 
or
 
assumptions
 
in
 
applying
 
those
 
standards,
 
including
 
the
 
impact
 
of
 
the
ongoing COVID-19
 
pandemic on forecasted
 
economic variables
 
considered for
 
the determination
 
of the allowance
 
for credit
losses (“ACL”) required by the current expected credit losses (“CECL”) accounting
 
standard;
4
●
the ability of the
 
Corporation’s banking
 
subsidiary FirstBank Puerto
 
Rico (“FirstBank” or the
 
“Bank”)
 
to realize the benefits
of its net deferred tax assets;
●
the ability of FirstBank to generate sufficient cash flow to make dividend
 
payments to the Corporation;
●
the impact
 
of rising
 
interest rates
 
and
 
inflation
 
on the
 
Corporation,
 
including
 
a decrease
 
in demand
 
for
 
new mortgage
 
loan
originations
 
and
 
refinancings
 
and
 
increased
 
competition
 
for
 
borrowers,
 
which
 
would
 
likely
 
pressure
 
the
 
Corporation’s
margins and have an adverse impact on origination volumes and
 
financial performance;
●
adverse
 
changes
 
in
 
general
 
economic
 
conditions
 
in
 
Puerto
 
Rico,
 
the
 
United
 
States
 
(“U.S.”),
 
the
 
U.S.
 
Virgin
 
Islands
 
(the
“USVI”),
 
and
 
the
 
British
 
Virgin
 
Islands
 
(the
 
“BVI”),
 
including
 
the
 
interest
 
rate
 
environment,
 
market
 
liquidity,
 
housing
absorption rates, real estate prices, and disruptions in the U.S. capital
 
markets, including as a result of the ongoing COVID-19
pandemic,
 
which
 
may
 
further
 
reduce
 
interest
 
margins,
 
affect
 
funding
 
sources
 
and
 
demand
 
for
 
all
 
of
 
the
 
Corporation’s
products and services, and reduce the Corporation’s
 
revenues and earnings and the value of the Corporation’s
 
assets;
●
the
 
effect
 
of
 
changes
 
in
 
the
 
interest
 
rate
 
environment,
 
including
 
the
 
cessation
 
of
 
the
 
London
 
Interbank
 
Offered
 
Rate
(“LIBOR”), which could adversely affect the Corporation’s
 
results of operations, cash flows and liquidity;
●
an adverse change in the Corporation’s
 
ability to attract new clients and retain existing ones;
●
the risk that additional
 
portions of the unrealized
 
losses in the Corporation’s
 
investment portfolio are determined
 
to be credit-
related, including
 
additional charges
 
to the provision
 
for credit losses
 
on the Corporation’s
 
remaining exposure
 
to the Puerto
Rico government’s
 
debt securities
 
held as
 
part of
 
the available-for
 
-sale securities
 
portfolio
 
with a
 
fair value
 
of $2.9
 
million
($3.6 million amortized cost) and an ACL of $0.3 million;
●
uncertainty about
 
legislative, tax
 
or regulatory
 
changes that
 
affect financial
 
services companies
 
in Puerto
 
Rico, the
 
U.S. and
the
 
USVI
 
and
 
BVI,
 
which
 
could
 
affect
 
the
 
Corporation’s
 
financial
 
condition
 
or
 
performance
 
and
 
could
 
cause
 
the
Corporation’s actual results for future
 
periods to differ materially from prior results and anticipated
 
or projected results;
●
changes
 
in
 
the
 
fiscal
 
and
 
monetary
 
policies
 
and
 
regulations
 
of
 
the
 
U.S.
 
federal
 
government
 
and
 
the
 
Puerto
 
Rico
 
and
 
other
governments,
 
including
 
those
 
determined
 
by
 
the
 
Board
 
of
 
the
 
Governors
 
of
 
the
 
Federal
 
Reserve
 
System
 
(the
 
“Federal
Reserve Board”),
 
the Federal
 
Reserve Bank
 
of New
 
York
 
(the “New
 
York
 
FED”, “FED”
 
or “Federal
 
Reserve”), the
 
Federal
Deposit Insurance Corporation (the “FDIC”),
 
government-sponsored housing agencies, and
 
regulators in Puerto Rico, and the
USVI and BVI;
●
the
 
risk
 
of
 
possible
 
failure
 
or
 
circumvention
 
of
 
the
 
Corporation’s
 
internal
 
controls
 
and
 
procedures
 
and
 
the
 
risk
 
that
 
the
Corporation’s risk management
 
policies may not be adequate;
●
the
 
Corporation’s
 
ability
 
to
 
identify
 
and
 
prevent
 
cyber-security
 
incidents,
 
such
 
as
 
data
 
security
 
breaches,
 
ransomware,
malware, “denial of service” attacks, “hacking”
 
and identity theft, and the occurrence of any of
 
which may result in misuse or
misappropriation
 
of
 
confidential
 
or
 
proprietary
 
information,
 
and
 
could
 
result
 
in
 
the
 
disruption
 
or
 
damage
 
to
 
our
 
systems,
increased costs and losses or an adverse effect to our reputation;
●
the
 
risk
 
that
 
the
 
FDIC
 
may
 
increase
 
the
 
deposit
 
insurance
 
premium
 
and/or
 
require
 
special
 
assessments
 
to
 
replenish
 
its
insurance fund, causing an additional increase in the Corporation’s
 
non-interest expenses;
 
5
●
a need
 
to recognize
 
impairments on
 
the Corporation’s
 
financial instruments,
 
goodwill and
 
other intangible
 
assets relating
 
to
business acquisitions, including as a result of the ongoing COVID-19 pandemic;
●
the
 
effect
 
of
 
changes
 
in
 
the
 
interest
 
rate
 
environment
 
on
 
the
 
global
 
economy,
 
on
 
the
 
Corporation’s
 
businesses,
 
business
practices,
 
and
 
results
 
of
 
operations,
 
including
 
the
 
impact
 
of
 
rising
 
interest
 
rates
 
and
 
inflation
 
on
 
the
 
Corporation
 
and
 
a
decrease
 
in
 
demand
 
for
 
new
 
mortgage
 
loan
 
originations
 
and
 
refinancings
 
and
 
increased
 
competition
 
for
 
borrowers,
 
which
could pressure the Corporation’s
 
margins and have an adverse impact on origination volumes and
 
financial performance;
●
the risk
 
that the
 
impact
 
of the
 
occurrence
 
of any
 
of these
 
uncertainties
 
on the
 
Corporation’s
 
capital would
 
preclude
 
further
growth of the Bank and preclude the Corporation’s
 
Board of Directors from declaring dividends;
●
uncertainty as
 
to whether
 
FirstBank will
 
be able
 
to continue
 
to satisfy
 
its regulators
 
regarding,
 
among other
 
things, its
 
asset
quality,
 
liquidity
 
plans,
 
maintenance
 
of
 
capital
 
levels
 
and
 
compliance
 
with
 
applicable
 
laws,
 
regulations
 
and
 
related
requirements; and
●
general competitive factors and industry consolidation.
 
The
 
Corporation
 
does
 
not
 
undertake,
 
and
 
specifically
 
disclaims
 
any
 
obligation,
 
to
 
update
 
any
 
“forward-looking
 
statements”
 
to
reflect
 
occurrences
 
or
 
unanticipated
 
events
 
or
 
circumstances
 
after
 
the
 
date
 
of
 
such
 
statements,
 
except
 
as
 
required
 
by
 
the
 
federal
securities laws.
 
6
PART
 
I
Item 1.
Business
GENERAL
First
 
BanCorp.
 
is
 
a
 
publicly
 
owned
 
financial
 
holding
 
company
 
that
 
is
 
subject
 
to
 
regulation,
 
supervision
 
and
 
examination
 
by
 
the
Federal Reserve
 
Board. The
 
Corporation was
 
incorporated under
 
the laws
 
of the
 
Commonwealth of
 
Puerto Rico
 
to serve
 
as the
 
bank
holding company for FirstBank.
 
The Corporation is a full-service
 
provider of financial services and
 
products with operations in Puerto
Rico, the
 
U.S., the
 
USVI and
 
the BVI.
 
As of
 
December 31,
 
2021, the
 
Corporation had
 
total assets
 
of $20.8
 
billion, total
 
deposits of
$17.8 billion, and total stockholders’ equity of $2.1
 
billion.
The
 
Corporation
 
provides
 
a wide
 
range
 
of financial
 
services for
 
retail,
 
commercial
 
and institutional
 
clients.
 
The
 
Corporation
 
has
two
 
wholly-owned
 
subsidiaries:
 
FirstBank
 
and
 
FirstBank
 
Insurance
 
Agency,
 
Inc.
 
(“FirstBank
 
Insurance
 
Agency”).
 
FirstBank
 
is
 
a
Puerto Rico-chartered commercial bank, and FirstBank Insurance
 
Agency is a Puerto Rico-chartered insurance agency.
FirstBank is subject to
 
the supervision, examination
 
and regulation of both
 
the Office of the
 
Commissioner of Financial Institutions
of
 
Puerto
 
Rico
 
(“OCIF”)
 
and
 
the
 
FDIC.
 
Deposits
 
are
 
insured
 
through
 
the
 
FDIC
 
Deposit
 
Insurance
 
Fund
 
(the
 
“DIF”).
 
In
 
addition,
within FirstBank,
 
the Bank’s
 
USVI operations
 
are subject
 
to regulation
 
and examination
 
by the
 
United States
 
Virgin
 
Islands Banking
Board; its BVI
 
operations are subject
 
to regulation by
 
the British Virgin
 
Islands Financial Services
 
Commission; and
 
its operations in
the state
 
of Florida
 
are subject
 
to regulation
 
and examination
 
by the
 
Florida Office
 
of Financial
 
Regulation. The
 
Consumer Financial
Protection Bureau
 
(“CFPB”) regulates
 
FirstBank’s
 
consumer financial
 
products and
 
services.
 
FirstBank Insurance
 
Agency is
 
subject
to the supervision,
 
examination and regulation
 
of the Office of
 
the Insurance Commissioner
 
of the Commonwealth of
 
Puerto Rico and
the Division of Banking and Insurance Financial Regulation in the USVI.
 
FirstBank conducts its
 
business through its main
 
office located in
 
San Juan, Puerto Rico, 64
 
banking branches in Puerto
 
Rico, eight
banking branches in
 
the USVI and
 
the BVI, and
 
11 banking
 
branches in the
 
state of Florida
 
(USA). FirstBank has
 
four wholly owned
subsidiaries
 
with
 
operations
 
in
 
Puerto
 
Rico:
 
First
 
Federal
 
Finance
 
Corp.
 
(d/b/a
 
Money
 
Express
 
La Financiera),
 
a
 
finance
 
company
specializing
 
in
 
the
 
origination
 
of
 
small
 
loans
 
with
 
28
 
offices
 
in
 
Puerto
 
Rico;
 
First
 
Management
 
of
 
Puerto
 
Rico,
 
a
 
Puerto
 
Rico
corporation,
 
which
 
holds
 
tax-exempt
 
assets;
 
FirstBank
 
Overseas
 
Corporation,
 
an
 
international
 
banking
 
entity
 
(an
 
“IBE”)
 
organized
under
 
the International
 
Banking
 
Entity
 
Act of
 
Puerto
 
Rico;
 
and
 
one dormant
 
company formerly
 
engaged
 
in the
 
operation
 
of certain
other real estate owned (“OREO”) property.
For a
 
discussion
 
of certain
 
significant
 
events that
 
have occurred
 
in 2021,
 
please refer
 
to “Significant
 
Events”
 
included
 
in Item
 
7.
Management’s Discussion and
 
Analysis of Financial Condition and Results of Operations of this Form
 
10-K.
BUSINESS SEGMENTS
The Corporation has six reportable segments: Commercial and Corporate
 
Banking; Mortgage Banking; Consumer (Retail) Banking;
Treasury and Investments; United States
 
Operations; and Virgin
 
Islands Operations. These segments are described below,
 
as well as in
Note 36 - “Segment Information,” to the consolidated
 
financial statements for the year ended December 31, 2021 included in
 
Item 8 of
this Form 10-K.
Commercial and Corporate Banking
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 government
 
sector in
 
the Puerto
 
Rico region.
 
FirstBank has
 
developed
expertise
 
in
 
a
 
wide
 
variety
 
of
 
industries.
 
The
 
Commercial
 
and
 
Corporate
 
Banking
 
segment
 
offers
 
commercial
 
loans,
 
including
commercial real estate and construction
 
loans, as well as other products,
 
such as cash management and business
 
management services.
A
 
substantial
 
portion
 
of
 
the
 
commercial
 
and
 
corporate
 
banking
 
portfolio
 
is
 
secured
 
by
 
the
 
underlying
 
real
 
estate
 
collateral
 
and
 
the
personal guarantees of the borrowers.
 
Mortgage Banking
The Mortgage
 
Banking operations
 
consist of
 
the origination,
 
sale and
 
servicing of
 
a variety
 
of residential
 
mortgage loan
 
products
and
 
related
 
hedging
 
activities
 
in
 
the
 
Puerto
 
Rico
 
region.
 
Originations
 
are
 
sourced
 
through
 
different
 
channels,
 
such
 
as
 
FirstBank
branches
 
and
 
purchases
 
from
 
mortgage
 
bankers,
 
and
 
in
 
association
 
with
 
new
 
project
 
developers.
 
The
 
Mortgage
 
Banking
 
segment
focuses on
 
originating residential
 
real estate
 
loans, some
 
of which
 
conform to
 
the U.S.
 
Federal Housing
 
Administration (the
 
“FHA”),
U.S.
 
Veterans
 
Administration
 
(the
 
“VA”)
 
and
 
the
 
U.S.
 
Department
 
of
 
Agriculture
 
Rural
 
Development
 
(the
 
“RD”)
 
standards.
7
Originated loans that
 
meet the FHA’s
 
standards qualify for
 
the FHA’s
 
insurance program whereas
 
loans that meet the
 
standards of the
VA
or RD are guaranteed by those respective federal agencies.
Mortgage
 
loans that
 
do not
 
qualify
 
under the
 
FHA,
VA
or RD
 
programs
 
are referred
 
to as
 
conventional
 
loans. Conventional
 
real
estate loans
 
can be
 
conforming or
 
non-conforming. Conforming
 
loans are residential
 
real estate loans
 
that meet
 
the standards
 
for sale
under
 
the
 
U.S.
 
Federal
 
National
 
Mortgage
 
Association
 
(“FNMA”)
 
and
 
the
 
U.S.
 
Federal
 
Home
 
Loan
 
Mortgage
 
Corporation
(“FHLMC”) programs.
 
Loans that
 
do not
 
meet FNMA
 
or FHLMC
 
standards are
 
referred to
 
as non-conforming
 
residential real
 
estate
loans. The
 
Corporation’s
 
strategy is
 
to penetrate
 
markets by
 
providing customers
 
with a
 
variety of
 
high-quality mortgage
 
products to
serve
 
their
 
financial
 
needs
 
through
 
a
 
faster
 
and
 
simpler
 
process
 
and
 
at
 
competitive
 
prices.
 
The
 
Mortgage
 
Banking
 
segment
 
also
acquires and
 
sells mortgages
 
in the
 
secondary markets.
 
Residential real
 
estate conforming
 
loans are
 
sold to
 
investors like
 
FNMA and
FHLMC.
 
Most
 
of
 
the
 
Corporation’s
 
residential
 
mortgage
 
loan
 
portfolio
 
consists
 
of
 
fixed-rate,
 
fully
 
amortizing,
 
full
 
documentation
loans. The
 
Corporation has
 
commitment authority
 
to issue Government
 
National Mortgage
 
Association (“GNMA”)
 
mortgage-backed
securities (“MBS”).
 
Under this
 
program,
 
the Corporation
 
has been
 
selling FHA/VA
 
mortgage
 
loans into
 
the secondary
 
market since
2009.
Consumer (Retail) Banking
The
 
Consumer
 
(Retail)
 
Banking
 
segment
 
consists
 
of
 
the
 
Corporation’s
 
consumer
 
lending
 
and
 
deposit-taking
 
activities
 
conducted
mainly through FirstBank’s
 
branch network in the Puerto Rico region.
 
Loans to consumers include auto loans,
 
finance leases, boat and
personal loans,
 
credit card loans,
 
and lines of
 
credit.
 
Deposit products include
 
interest-bearing and non-interest-bearing
 
checking and
savings accounts,
 
Individual Retirement
 
Accounts (“IRAs”)
 
and retail
 
certificates of
 
deposit (“re
 
tail CDs”).
 
Retail deposits
 
gathered
through each
 
branch of
 
FirstBank’s
 
retail network
 
serve as
 
one of
 
the funding
 
sources for
 
the lending
 
and investment
 
activities. This
segment also includes the Corporation’s
 
insurance agency activities in the Puerto Rico region.
Treasury and Investments
The
 
Treasury
 
and
 
Investments
 
segment
 
is
 
responsible
 
for
 
the
 
Corporation’s
 
treasury
 
and
 
investment
 
management
 
functions.
 
The
treasury
 
function,
 
which
 
includes
 
funding
 
and
 
liquidity
 
management,
 
lends
 
funds
 
to
 
the
 
Commercial
 
and
 
Corporate
 
Banking,
Mortgage
 
Banking,
 
the
 
Consumer
 
(Retail)
 
Banking
 
and
 
the
 
United
 
States
 
operations
 
segments
 
to
 
finance
 
their
 
respective
 
lending
activities
 
and
 
borrows
 
from
 
those segments.
 
The Treasury
 
and
 
Investment
 
segment
 
also obtains
 
funding
 
through
 
brokered deposits,
advances from the FHLB, and repurchase agreements involving investment
 
securities, among other possible funding sources.
United States Operations
The
 
United
 
States Operations
 
segment
 
consists of
 
all banking
 
activities conducted
 
by FirstBank
 
on
 
the U.S.
 
mainland.
 
FirstBank
provides
 
a
 
wide range
 
of banking
 
services to
 
individual
 
and
 
corporate
 
customers,
 
primarily
 
in
 
southern
 
Florida
 
through
 
11
 
banking
branches.
 
The
 
United
 
States
 
Operations
 
segment
 
offers
 
an
 
array
 
of
 
both
 
consumer
 
and
 
commercial
 
banking
 
products
 
and
 
services.
Consumer banking
 
products include
 
checking, savings
 
and money
 
market accounts,
 
retail CDs,
 
internet banking
 
services, residential
mortgages,
 
home
 
equity
 
loans,
 
and
 
lines
 
of
 
credit.
 
Retail
 
deposits,
 
as
 
well
 
as
 
FHLB
 
advances
 
and
 
brokered
 
CDs
 
assigned
 
to
 
this
segment, serve as funding sources for its lending
 
activities.
The commercial banking services include
 
checking, savings and money market
 
accounts, retail CDs, internet banking services,
 
cash
management
 
services,
 
remote
 
deposit
 
capture,
 
and
 
automated
 
clearing
 
house,
 
or
 
ACH,
 
transactions.
 
Loan
 
products
 
include
 
the
traditional commercial and industrial and commercial real estate products,
 
such as lines of credit, term loans and construction loans.
Virgin Islands Operations
The
 
Virgin
 
Islands
 
Operations
 
segment
 
consists
 
of
 
all
 
banking
 
activities
 
conducted
 
by
 
FirstBank
 
in
 
the
 
USVI
 
and
 
BVI
 
regions,
including
 
consumer and
 
commercial banking
 
services, with
 
a total
 
of eight
 
banking branches
 
serving
 
the islands
 
in the
 
USVI of
 
St.
Thomas,
 
St.
 
Croix,
 
and
 
St.
 
John,
 
and
 
the
 
island
 
of
 
Tortola
 
in
 
the
 
BVI.
 
The
 
Virgin
 
Islands
 
Operations
 
segment
 
is
 
driven
 
by
 
its
consumer, commercial lending and deposit
 
-taking activities.
 
Loans
 
to
 
consumers
 
include
 
auto
 
and
 
boat
 
loans,
 
lines
 
of
 
credit,
 
and
 
personal
 
and
 
residential
 
mortgage
 
loans.
 
Deposit
 
products
include
 
interest-bearing
 
and
 
non-interest-bearing
 
checking
 
and
 
savings
 
accounts,
 
IRAs,
 
and
 
retail
 
CDs.
 
Retail
 
deposits
 
gathered
through each branch serve as the funding sources for its own lending activities.
8
ENVIRONMENTAL
 
,
 
SOCIAL AND GOVERNANCE (ESG) PROGRAM OVERVIEW
The
 
Corporation
 
is
 
committed
 
to
 
supporting
 
our
 
clients,
 
employees,
 
shareholders
 
and
 
communities
 
in
 
which
 
we
 
serve.
 
With
oversight from our Board of Directors, the Corporation
 
is focused on implementing ESG practices to support
 
environmental and social
sustainability with an effective governance framework.
During
 
2021,
 
the
 
Corporation
 
made
 
progress
 
towards
 
formally
 
establishing
 
our
 
ESG
 
Program
 
by
 
adopting
 
an
 
ESG
 
framework
through
 
which
 
we
 
will
 
establish
 
and
 
communicate
 
the
 
Corporation’s
 
ESG
 
strategy
 
and
 
overarching
 
governance
 
policy,
 
with
anticipated plans to publish an ESG report during 2022.
The
 
Corporate
 
Governance
 
and
 
Nominating
 
Committee
 
of the
 
Board
 
of
 
Directors
 
has
 
direct oversight
 
of
 
ESG policies,
 
practices
and disclosures.
 
Additionally, during
 
2021, the Corporation established
 
an ESG Committee at the
 
management level, which primarily
is
 
responsible
 
for
 
driving
 
the
 
Corporation’s
 
ESG
 
policies
 
and
 
strategy
 
and
 
reporting
 
regularly
 
to
 
the
 
Corporate
 
Governance
 
and
Nominating Committee.
 
The ESG
 
Committee will
 
align priorities
 
and initiatives
 
for the
 
year,
 
provide strategy
 
recommendations and
lead
 
the
 
reporting
 
process
 
on
 
ESG
 
related
 
topics.
 
The
 
ESG
 
Committee
 
is
 
composed
 
of
 
a
 
core,
 
cross-functional
 
group
 
of
 
senior
management,
 
with
 
representatives
 
from
 
our
 
Investor
 
Relations,
 
Corporate
 
Affairs,
 
Corporate
 
Communications,
 
Human
 
Resources,
Risk, Credit and Finance functions.
The Corporation
 
intends to
 
report to
 
shareholders and
 
other key
 
stakeholders regarding
 
these efforts
 
with an
 
ESG Report
 
that will
align
 
with
 
leading
 
standards
 
and
 
frameworks,
 
including
 
the
 
Sustainability
 
Accounting
 
Standards
 
Board
 
and
 
the
 
United
 
Nations
Sustainable Development
 
Goals. The Corporation
 
expects to publish
 
the Corporation’s
 
inaugural 2021 ESG
 
Report during the
 
second
quarter of 2022.
HUMAN CAPITAL MANAGEMENT
First BanCorp.
 
strives to be recognized as a leading and diversified financial institution,
 
offering a superior experience to our clients
and employees. We
 
believe that the key to our success is caring about our team as much
 
as we care about our customers. Our goal is to
be an “Employer of Choice” within our
 
primary operating regions, which we
 
believe can be achieved and sustained by adding
 
value to
our
 
employees’
 
lives
 
and
 
providing
 
the
 
right
 
work
 
experience.
 
The
 
core
 
of
 
our
 
Employer
 
Value
 
Proposition,
 
“The
 
Experience
 
of
Being 1”, is our commitment to our employees’ wellbeing, success, professional
 
development, and work environment.
Structure
As of December
 
31, 2021,
 
the Corporation
 
and its subsidiaries
 
had 3,075
 
regular employees,
 
nearly all
 
of whom
 
are full-time. The
Corporation
 
had 2,722
 
employees in
 
the Puerto
 
Rico region,
 
200 employees
 
in the
 
Florida region,
 
and 153
 
employees in
 
the Virgin
Islands region. As
 
of December 31, 2021,
 
approximately 67% of the
 
total employees and 57%
 
of the top and
 
middle management, are
women.
 
The
 
overall
 
headcount
 
was
 
7.45%
 
lower
 
than
 
as
 
of
 
December
 
31,
 
2020,
 
primarily
 
as
 
a
 
result
 
of
 
the
 
completion
 
of
 
the
integration
 
of
 
BSPR
 
operations.
 
The
 
Human
 
Resources
 
Division
 
reports
 
to
 
the
 
Corporation’s
 
Chief
 
Risk
 
Officer
 
and
 
manages
 
all
aspects
 
related
 
to
 
the
 
Corporation’s
 
human
 
capital,
 
including
 
talent
 
recruiting
 
and
 
engagement,
 
training
 
and
 
development,
 
and
compensation and benefits.
 
The
 
Human
 
Resources
 
Division
 
efforts
 
are
 
overseen
 
by
 
the
 
Corporation’s
 
Chief
 
Executive
 
Officer
 
(CEO)
 
and
 
the
 
executive
management
 
team
 
through
 
regular
 
work-related
 
interactions.
 
Our
 
leaders
 
focus
 
on
 
strengthening
 
employee
 
management
 
and
engagement,
 
and
 
maximizing
 
collaboration
 
between
 
departments
 
and
 
talents
 
by
 
promoting
 
an
 
open-door
 
culture
 
that
 
stimulates
frequent communication
 
between employees
 
and management.
 
This provides
 
more opportunities
 
to identify
 
employees' needs,
 
obtain
feedback
 
about
 
work
 
experience,
 
and
 
adapt
 
our
 
employee
 
engagement
 
as
 
we
 
believe
 
is
 
appropriate.
 
In
 
addition,
 
the
 
Corporation’s
Board
 
of Directors
 
and
 
the Board’s
 
Compensation
 
and Benefits
 
Committee
 
monitor
 
and are
 
regularly
 
updated
 
on the
 
Corporation’s
human capital management strategies.
 
Recruitment and Retention
First
 
BanCorp.
 
is
 
an
 
equal
 
opportunity
 
employer,
 
which
 
considers
 
qualified
 
candidates
 
for
 
employment
 
to
 
fill
 
its
 
available
positions.
 
Our
 
efforts
 
are
 
focused
 
on
 
attracting
 
and
 
retaining
 
the
 
best
 
talent
 
for
 
the
 
Corporation,
 
including
 
college
 
graduates.
 
The
attraction and selection process includes:
●
Building our employer brand by participating in professional events and
 
job fairs and maintaining a relationship with
universities through internship programs and career forums.
9
●
A partnership with hiring managers to ensure an accurate match between
 
role and candidate and reasonably speed up the
recruitment process to secure top candidates.
●
A robust management information system to enhance the effectiveness
 
of the recruitment process and provide candidates with
a unique experience.
●
A robust on-boarding process to engage and support the new employee’s
 
induction process, including our mentorship program
for new hires,
 
“FirstPal”.
Our
 
commitment
 
to
 
employee
 
engagement
 
continues
 
throughout
 
the
 
employee’s
 
time
 
with
 
the
 
Corporation.
 
Therefore,
 
we
 
have
talent management processes to attract
 
and engage the best talent and
 
promote professional development and
 
career growth, including,
promoting
 
internal
 
career
 
opportunities,
 
performance
 
management
 
processes,
 
annual
 
talent
 
review,
 
and
 
robust
 
succession
 
planning,
among
 
other
 
practices.
 
We
 
also
 
promote
 
our
 
commitment
 
to
 
our
 
communities
 
through
 
our
 
volunteer
 
and
 
community
 
reinvestment
programs. In
 
2021, despite
 
the COVID-19
 
pandemic,
 
we supported
 
14 organizations
 
with volunteer
 
work and over
 
80 others
 
through
donations.
We
 
believe
 
that
 
financial
 
security
 
is critical
 
for
 
our
 
employees.
 
Our
 
goal is to
 
maintain
 
compensation
 
levels that
 
are competitive
with comparable
 
job categories
 
in similar
 
organizations.
 
Our salary
 
administration program
 
is designed
 
to provide
 
compensation that
is
 
consistent
 
with
 
our
 
employees’
 
assigned
 
duties
 
and
 
responsibilities
 
in
 
order
 
to
 
recognize
 
differences
 
in
 
individual
 
performance
levels and to attract the right talent for each job.
In
 
addition
 
to
 
salary,
 
some
 
job
 
positions
 
are
 
eligible
 
to
 
participate
 
in
 
variable
 
pay
 
programs.
 
The
 
Corporation
 
has
 
different
incentive
 
programs
 
for
 
most
 
of
 
the
 
business
 
units.
 
These
 
incentive
 
programs
 
are
 
periodically
 
reviewed
 
to
 
align
 
them
 
to
 
business
strategies
 
and
 
ensure
 
sound
 
risk
 
management.
 
Further,
 
the
 
Corporation’s
 
Management
 
Award
 
Program
 
is
 
used
 
to
 
recognize
 
and
reward outstanding
 
performance for
 
exempt employees
 
who do
 
not participate
 
in other
 
variable pay
 
programs. The Corporation
 
also
has a Long-Term
 
Incentive Plan for
 
top-performing leaders and
 
employees with high
 
potential. These programs
 
provide awards based
upon
 
the
 
Corporation’s
 
and
 
individual’s
 
performance
 
and
 
are
 
key
 
for
 
the
 
attraction
 
and
 
engagement
 
of
 
the
 
best
 
talent
.
The
Corporation’s investment
 
in its employees has resulted
 
in a stable-tenured workforce,
 
with an average tenure
 
of 10 years of service. In
2021, employee’s
 
voluntary turnover increased
 
globally affecting most
 
industries. Our employee
 
voluntary turnover rate
 
for 2021
 
was
18.4%, mostly related
 
to hourly employees
 
in call centers
 
and branches. Voluntary
 
turnover for all
 
other positions was
 
9.5%,
 
for high
performers employees’ turnover was relatively low at 7.5%.
Talent Development
First BanCorp. believes
 
that a culture
 
of learning
 
and development maximizes
 
the talent of
 
human capital and
 
is the foundation
 
for
sustained business success.
 
The
 
Corporation
 
provides
 
face-to-face,
 
online
 
and
 
virtual
 
training,
 
development
 
activities,
 
special
 
projects,
 
and
 
partial
 
tuition
reimbursement
 
to
 
complete
 
a
 
bachelor’s
 
or
 
master's
 
degree.
 
Training
 
is
 
offered
 
on
 
various
 
subjects
 
that
 
are
 
classified
 
into
 
the
following
 
five
 
main
 
areas:
 
fundamentals,
 
compliance
 
and
 
corporate
 
governance,
 
specialized
 
technical
 
subjects,
 
professional
development,
 
and
 
leadership
 
development.
 
Our
 
training
 
and
 
development
 
programs
 
strives
 
to
 
reflect
 
both
 
the
 
employees’
 
and
 
the
organization’s needs.
We
 
offer
 
more
 
than
 
7,000
 
training
 
opportunities
 
through
 
online
 
courses
 
and
 
in-person
 
or
 
virtual
 
classes.
 
In
 
2021,
 
due
 
to
 
the
COVID-19 pandemic,
 
we provided
 
over 70
 
training opportunities
 
(both internal
 
and external)
 
through
 
virtual and
 
online modalities.
This
 
action
 
allowed
 
our
 
employees
 
to
 
keep
 
learning
 
even
 
when
 
they
 
were
 
working
 
remotely.
 
For
 
2021,
 
we
 
delivered
 
more
 
than
119,000 hours of training. Furthermore,
 
employees each completed on average 32.21 training hours.
Every
 
year
 
around
 
100
 
new
 
and
 
existing
 
supervisors
 
and
 
managers
 
receive
 
training.
 
For
 
new
 
supervisors,
 
we
 
offer
 
a
 
program
intended to
 
train in basic
 
supervision, leadership
 
and communication
 
skills, and our
 
human resources policies
 
and practices. We
 
have
delivered more
 
than 9,000
 
hours of
 
supervision and
 
management-related
 
training over
 
the last
 
three years.
 
In addition,
 
our program
for active
 
supervisors and
 
managers encourages
 
leaders to
 
review their
 
leadership skills
 
with feedback
 
received from
 
instructors and
coworkers.
 
In
 
the
 
past
 
five
 
years,
 
the
 
program
 
has
 
been
 
delivered
 
to
 
60%
 
of
 
our
 
current
 
leaders,
 
including
 
new
 
leaders
 
from
 
the
acquired BSPR business, accounting for over 20,000 training hours since the
 
program was launched.
 
10
Health & Wellness
Health
 
and
 
wellness
 
programs
 
are
 
a
 
strong
 
component
 
of
 
the
 
benefits
 
we
 
provide
 
to
 
our
 
employees.
 
First
 
BanCorp.
 
provides
competitive
 
benefits
 
programs
 
that
 
are
 
intended
 
to
 
address
 
even
 
the
 
most
 
pressing
 
needs
 
of
 
our
 
employees
 
and
 
their
 
families
 
to
promote
 
physical, emotional,
 
and
 
financial health.
 
Our comprehensive
 
benefits
 
package includes
 
health, dental
 
and vision
 
insurance
offered
 
through different
 
insurance company
 
options that
 
enable an
 
employee to
 
choose the
 
one that
 
best accommodates
 
their needs
and
 
those of
 
their family.
 
We
 
also offer
 
life insurance
 
and disability
 
plans; and
 
a retirement-defined
 
contribution
 
plan option
 
where
both employee and employer contribute.
To
 
promote work-life
 
balance, we
 
grant a variety
 
of paid
 
time off
 
for vacation,
 
illness, maternity
 
and paternity
 
leave, bereavement
leave, marriage and personal days,
 
in-house health services, and a complete
 
wellness program, including nutrition, fitness,
 
health fairs,
personal
 
finance
 
education,
 
and
 
preventive
 
healthcare
 
activities,
 
among
 
others.
 
The
 
Corporation
 
contributes
 
a
 
substantial
 
portion
towards
 
the costs of all these benefits.
Initiatives for
 
the safety and
 
security of employees
 
have always been
 
an important priority.
 
In 2021, in
 
response to the
 
COVID-19
pandemic,
 
over
 
60%
 
of
 
the
 
Corporation’s
 
employees
 
were
 
able
 
to
 
work
 
remotely.
 
Additional
 
activities
 
implemented
 
by
 
the
Corporation to support employees included:
●
COVID-19 monitoring, and contact tracing processes.
●
Free testing for all employees.
●
Paid leave for employees affected by the virus and special leave of
 
absence without pay for unique needs.
●
Enhanced cleaning activities, installed barriers (plexiglass or similar materials)
 
to comply with social distance guidelines and
protect customers and employees, provided
 
face masks, hand sanitizers and cleaning materials, and implemented the taking
 
of
the temperature of all employees and customers who enter the Corporation’s
 
facilities.
●
Training activities related to COVID-19, safety
 
measures, stress management,
 
and remote work.
●
Implemented a COVID-19 vaccination mandate to protect our workforce.
●
Offered multiple onsite vaccination clinics, including vaccination
 
booster clinics.
11
WEBSITE ACCESS TO REPORT
The Corporation
 
makes available
 
annual reports
 
on Form
 
10-K, quarterly
 
reports on Form
 
10-Q, and
 
current reports
 
on Form
 
8-K,
and amendments
 
to those
 
reports, and
 
proxy statements
 
on Schedule
 
14A, filed
 
or furnished
 
pursuant to
 
section 13(a),
 
14(a) or
 
15(d)
of the Exchange Act,
 
free of charge on
 
or through its internet
 
website at www.1firstbank.com
 
(under “Investor Relations”),
 
as soon as
reasonably practicable
 
after the
 
Corporation
 
electronically files
 
such material
 
with, or
 
furnishes it
 
to, the
 
SEC. The
 
SEC maintains
 
a
website that
 
contains
 
reports, proxy
 
and information
 
statements, and
 
other information
 
regarding issuers
 
that file
 
electronically
 
with
the SEC at www.sec.gov.
The Corporation
 
also makes
 
available the
 
Corporation’s
 
corporate governance
 
guidelines and
 
principles, the
 
charters of
 
the audit,
asset/liability,
 
compensation
 
and
 
benefits,
 
credit,
 
risk,
 
trust,
 
corporate
 
governance
 
and
 
nominating
 
committees
 
and
 
the
 
codes
 
of
conduct
 
and
 
independence
 
principles
 
mentioned
 
below,
 
free
 
of
 
charge
 
on
 
or
 
through
 
its
 
internet
 
website
 
at
 
www.1firstbank.com
(under “Investor Relations”):
•
 
Code of Ethics for CEO and Senior Financial Officers
•
 
Code of Ethics applicable to all employees
•
 
Corporate Governance Guidelines and Principles
•
 
Independence Principles for Directors
The corporate governance
 
guidelines and principles
 
and the aforementioned
 
charters and codes may
 
also be obtained free
 
of charge
by
 
sending
 
a written
 
request
 
to Mrs. Sara
 
Alvarez
 
Cabrero, Executive
 
Vice
 
President,
 
General
 
Counsel
 
and
 
Secretary of
 
the
 
Board,
PO Box 9146, San Juan, Puerto Rico 00908.
Website
 
addresses
 
referenced
 
in
 
this
 
Annual
 
Report
 
on
 
Form
 
10-K
 
are
 
provided
 
for
 
convenience
 
only,
 
and
 
the
 
content
 
on
 
the
referenced websites does not constitute a part of this Annual Report on
 
Form 10-K.
12
MARKET AREA AND COMPETITION
Puerto
 
Rico,
 
where
 
the
 
banking
 
market
 
is
 
highly
 
competitive,
 
is
 
the
 
main
 
geographic
 
service
 
area
 
of
 
the
 
Corporation.
 
As
 
of
December
 
31,
 
2021,
 
the
 
Corporation
 
also
 
had
 
a
 
presence
 
in
 
the
 
state
 
of
 
Florida
 
and
 
in
 
the
 
USVI
 
and
 
BVI.
 
Puerto
 
Rico
 
banks
 
are
subject to the same federal laws, regulations and supervision that apply
 
to similar institutions in the United States mainland.
Competitors include
 
other banks,
 
insurance companies,
 
mortgage banking
 
companies, small
 
loan companies,
 
automobile financing
companies,
 
leasing companies,
 
brokerage firms
 
with retail
 
operations,
 
credit unions
 
and certain
 
retailers that
 
operate in
 
Puerto Rico,
the Virgin
 
Islands and
 
the state
 
of Florida,
 
as well
 
as Fintechs
 
and
 
emerging
 
competition
 
from digital
 
platforms.
 
The Corporation’s
businesses
 
compete
 
with
 
these
 
other
 
firms
 
with
 
respect
 
to
 
the
 
range
 
of
 
products
 
and
 
services
 
offered
 
and
 
the
 
types
 
of
 
clients,
customers and industries served.
The
 
Corporation’s
 
ability
 
to
 
compete
 
effectively
 
depends
 
on
 
the
 
relative
 
performance
 
of
 
its
 
products,
 
the
 
degree
 
to
 
which
 
the
features
 
of
 
its
 
products
 
appeal
 
to
 
customers,
 
and
 
the
 
extent
 
to
 
which
 
the
 
Corporation
 
meets
 
clients’
 
needs
 
and
 
expectations.
 
The
Corporation’s ability to compete also depends
 
on its ability to attract and retain professional and other personnel, and on its reputation.
The
 
Corporation
 
encounters
 
intense
 
competition
 
in attracting
 
and
 
retaining
 
deposits
 
and
 
in
 
its consumer
 
and
 
commercial
 
lending
activities. The
 
Corporation
 
competes for
 
loans with
 
other financial
 
institutions, some
 
of which
 
are larger
 
and have
 
greater resources
available than
 
those of
 
the Corporation.
 
Management believes
 
that the
 
Corporation has
 
been able
 
to compete
 
effectively for
 
deposits
and loans by
 
offering a variety
 
of account products
 
and loans with competitive
 
features, by pricing
 
its products at competitive
 
interest
rates,
 
by
 
offering
 
convenient
 
branch
 
locations,
 
and
 
by
 
emphasizing
 
the
 
quality
 
of
 
its service.
 
The
 
Corporation’s
 
ability
 
to
 
originate
loans depends
 
primarily on
 
the rates
 
and fees
 
charged and
 
the service
 
it provides
 
to its
 
borrowers in
 
making prompt
 
credit decisions.
There can
 
be no
 
assurance that
 
in the
 
future the
 
Corporation will
 
be able
 
to continue
 
to increase its
 
deposit base
 
or originate
 
loans in
the manner or on the terms on which it has done so in the past.
SUPERVISION AND REGULATION
The
 
Corporation
 
and
 
FirstBank,
 
its
 
bank
 
subsidiary,
 
are
 
subject
 
to
 
comprehensive
 
federal
 
and
 
Puerto
 
Rican
 
supervision
 
and
regulation.
 
These
 
supervisory
 
and
 
regulatory
 
requirements
 
apply
 
to
 
all
 
aspects
 
of
 
the
 
Corporation’s
 
and
 
the
 
Bank’s
 
activities,
including commercial
 
and consumer
 
lending, deposit
 
taking, management,
 
governance and
 
other activities.
 
As part
 
of this
 
regulatory
framework, the
 
Corporation and
 
the Bank
 
are subject
 
to extensive
 
consumer financial
 
regulatory legal
 
and supervisory
 
requirements.
Further,
 
U.S.
 
financial
 
supervision
 
and
 
regulation
 
is
 
dynamic
 
in
 
nature,
 
and
 
supervisory
 
and
 
regulatory
 
requirements
 
are
 
subject
 
to
change
 
as
 
new
 
legislative
 
and
 
regulatory
 
actions
 
are
 
taken.
 
Future
 
legislation
 
may
 
increase
 
the
 
regulation
 
and
 
oversight
 
of
 
the
Corporation and the
 
Bank. Any change in
 
applicable laws or regulations,
 
however, may
 
have a material adverse
 
effect on the business
of commercial banks and bank holding companies, including the Bank and
 
the Corporation.
Bank Holding Company Activities and Other Limitations
The
 
Corporation
 
is
 
registered
 
under,
 
and
 
subject
 
to,
 
supervision
 
and
 
regulation
 
by
 
the
 
Federal
 
Reserve
 
Board
 
under
 
the
 
Bank
Holding Company
 
Act of
 
1956, as
 
amended (the
 
“Bank Holding
 
Company Act”).
 
The Corporation
 
is subject
 
to ongoing
 
regulation,
supervision, and examination by the Federal Reserve Board, and
 
is required to file with the Federal Reserve Board periodic and annual
reports and other information concerning its own business operations
 
and those of its subsidiaries.
The Bank Holding
 
Company Act also permits
 
a bank holding company
 
to elect to become
 
a financial holding
 
company and engage
in a
 
broad range
 
of activities
 
that are
 
financial in
 
nature. The
 
Corporation elected
 
to be
 
a financial
 
holding company
 
under the
 
Bank
Holding
 
Company
 
Act.
 
Financial
 
holding
 
companies may
 
engage,
 
directly
 
or indirectly,
 
in any
 
activity
 
that is
 
determined
 
to be
 
(i)
financial
 
in
 
nature,
 
(ii)
 
incidental
 
to
 
such
 
financial
 
activity,
 
or
 
(iii)
 
complementary
 
to
 
a
 
financial
 
activity
 
and
 
does
 
not
 
pose
 
a
substantial risk
 
to the
 
safety and
 
soundness of
 
depository institutions
 
or the
 
financial system
 
generally.
 
The Bank
 
Holding Company
Act
 
specifically
 
provides
 
that
 
the
 
following
 
activities
 
have
 
been
 
determined
 
to
 
be
 
“financial
 
in
 
nature”:
 
(i)
 
lending,
 
trust
 
and
 
other
banking
 
activities;
 
(ii)
 
insurance
 
activities;
 
(iii)
 
financial
 
or
 
economic
 
advice
 
or
 
services;
 
(iv)
 
pooled
 
investments;
 
(v)
 
securities
underwriting
 
and
 
dealing; (vi)
 
domestic
 
activities permitted
 
for
 
an existing
 
bank holding
 
company;
 
(vii)
 
foreign
 
activities permitted
for an existing bank holding company; and (viii) merchant banking
 
activities.
A
 
financial
 
holding
 
company
 
that
 
ceases
 
to
 
meet
 
certain
 
standards
 
is
 
subject
 
to
 
a
 
variety
 
of
 
restrictions,
 
depending
 
on
 
the
circumstances,
 
including
 
precluding
 
the
 
undertaking
 
of
 
new
 
financial
 
activities
 
or
 
the
 
acquisition
 
of
 
shares
 
or
 
control
 
of
 
other
companies.
 
Until
 
compliance
 
is
 
restored,
 
the
 
Federal
 
Reserve
 
Board
 
has
 
broad
 
discretion
 
to
 
impose
 
appropriate
 
limitations
 
on
 
the
financial
 
holding
 
company’s
 
activities.
 
If
 
compliance
 
is
 
not
 
restored
 
within
 
180
 
days,
 
the
 
Federal
 
Reserve
 
Board
 
may
 
ultimately
require the
 
financial holding
 
company to
 
divest its
 
depository institutions
 
or,
 
in the
 
alternative, to
 
discontinue or
 
divest any
 
activities
that are not permitted
 
to non-financial holding companies.
 
The Corporation and FirstBank
 
must be well-capitalized
 
and well-managed
13
for
 
regulatory
 
purposes,
 
and
 
FirstBank
 
must
 
earn
 
“satisfactory”
 
or
 
better
 
ratings
 
on
 
its
 
periodic
 
Community
 
Reinvestment
 
Act
(“CRA”) examinations for the Corporation to preserve its financial
 
holding company status.
Under
 
federal
 
law
 
and
 
Federal
 
Reserve
 
Board
 
policy,
 
a
 
bank
 
holding
 
company
 
such
 
as
 
the
 
Corporation
 
is
 
expected
 
to
 
act
 
as
 
a
source of financial
 
and managerial strength
 
to its banking
 
subsidiaries and
 
to commit required
 
levels of support
 
to them. This
 
support
may be required
 
at times when,
 
absent such policy,
 
the bank holding
 
company might not
 
otherwise provide
 
such support. In
 
the event
of
 
a
 
bank
 
holding
 
company’s
 
bankruptcy,
 
any
 
commitment
 
by
 
the
 
bank
 
holding
 
company
 
to
 
a
 
federal
 
bank
 
regulatory
 
agency
 
to
maintain capital of a subsidiary bank will be assumed by the bankruptcy
 
trustee and be entitled to a priority of payment.
 
In addition, any
 
capital loans by a
 
bank holding company
 
to any of
 
its subsidiary banks
 
must be subordinated
 
in right of payment
to deposits
 
and to
 
certain other
 
indebtedness of
 
such subsidiary
 
bank. As
 
of December
 
31, 2021,
 
and the
 
date hereof,
 
FirstBank was
and is the only depository
 
institution subsidiary of the Corporation.
 
Federal law directs the Federal Reserve
 
Board to adopt regulations
implementing the statutory source-of-strength requirements; how
 
ever, such regulations have not yet been proposed.
Regulatory Capital Requirements
The federal
 
banking agencies
 
have implemented
 
rules for
 
U.S. banks
 
that establish
 
minimum
 
regulatory
 
capital requirements,
 
the
components
 
of
 
regulatory
 
capital,
 
and
 
the
 
risk-based
 
capital
 
treatment
 
of
 
bank
 
assets
 
and
 
off-balance
 
sheet
 
exposures.
 
These
 
rules
currently
 
apply
 
to
 
the
 
Corporation
 
and
 
FirstBank,
 
and
 
generally
 
are
 
intended
 
to
 
align
 
U.S.
 
regulatory
 
capital
 
requirements
 
with
international regulatory capital standards
 
adopted by the Basel Committee on Banking
 
Supervision (“Basel Committee”), in particular,
the most recent international capital accord adopted in
 
2010 (and revised in 2011) known
 
as “Basel III.”
 
The current rules increase the
quantity
 
and quality
 
of capital
 
required
 
by,
 
among other
 
things, establishing
 
a minimum
 
common
 
equity capital
 
requirement
 
and an
additional common
 
equity Tier
 
1 capital
 
conservation buffer.
 
In addition,
 
the current
 
rules revise
 
and harmonize
 
the bank
 
regulators’
rules for
 
calculating risk-weighted
 
assets to
 
enhance risk
 
sensitivity and
 
address weaknesses
 
that have
 
been identified,
 
by applying
 
a
variation
 
of the
 
Basel III
 
“Standardized
 
Approach” for
 
the risk-weighting
 
of bank
 
assets and
 
off-balance
 
sheet exposures
 
to all
 
U.S.
banking organizations other than large
 
internationally active banks.
International
 
regulatory developments
 
also can
 
affect
 
the regulation
 
and
 
supervision
 
of U.S.
 
banking
 
organizations,
 
including
 
the
Corporation
 
and FirstBank.
 
Both the
 
Basel Committee
 
and the
 
Financial Stability
 
Board (established
 
in April
 
2009 by
 
the Group
 
of
Twenty
 
Finance
 
Ministers
 
and
 
Central
 
Bank
 
Governors)
 
have
 
agreed
 
to
 
take
 
action
 
to
 
strengthen
 
regulation
 
and
 
supervision
 
of
 
the
financial
 
system
 
with
 
greater
 
international
 
consistency,
 
cooperation,
 
and
 
transparency,
 
including
 
the
 
adoption
 
of
 
Basel
 
III
 
and
 
a
commitment to raise capital standards and liquidity buffers
 
within the banking system under Basel III. In addition, 12 U.S.C. 5371
 
(the
“Collins
 
Amendment”),
 
among
 
other
 
things,
 
eliminates
 
certain
 
trust-preferred
 
securities
 
(“TRuPs”)
 
from
 
Tier
 
1
 
capital.
 
Preferred
securities
 
issued
 
under
 
the
 
U.S.
 
Treasury’s
 
Troubled
 
Asset
 
Relief
 
Program
 
(“TARP”)
 
are
 
exempt
 
from
 
this
 
change.
 
Bank
 
holding
companies,
 
such
 
as
 
the
 
Corporation,
 
were
 
required
 
to
 
fully
 
phase
 
out
 
these
 
instruments
 
from
 
Tier
 
1
 
capital
 
by
 
January
 
1,
 
2016;
however, these instruments
 
may remain in Tier
 
2 capital until the instruments
 
are redeemed or mature.
 
As of December 31, 2021,
 
the
Corporation
 
had $178.3
 
million in
 
TRuPs that
 
were subject
 
to a
 
full phase-out
 
from Tier
 
1 capital
 
under the
 
final regulatory
 
capital
rules discussed above.
Consistent
 
with
 
Basel
 
Committee
 
actions
 
noted
 
above,
 
the
 
Federal
 
Reserve
 
Board
 
has
 
adopted
 
risk-based
 
and
 
leverage
 
capital
adequacy guidelines
 
pursuant to which
 
it assesses the
 
adequacy of
 
capital in examining
 
and supervising a
 
bank holding
 
company and
in
 
analyzing
 
applications
 
to
 
it
 
under
 
the
 
Bank
 
Holding
 
Company
 
Act.
 
The
 
Corporation
 
and
 
FirstBank
 
became
 
subject
 
to
 
the
 
U.S.
Basel III
 
capital rules
 
beginning on
 
January 1,
 
2015, and
 
compute risk-weighted
 
assets using
 
the Standardized
 
Approach required
 
by
these rules.
The
 
Basel III
 
rules
 
require
 
the
 
Corporation
 
to
 
maintain
 
an additional
 
capital
 
conservation
 
buffer
 
of
 
2.5%
 
to
 
avoid
 
limitations on
both (i)
 
capital distributions
 
(
e.g.
, repurchases
 
of capital
 
instruments, dividends
 
and interest payments
 
on capital
 
instruments) and
 
(ii)
discretionary bonus payments to executive officers
 
and heads of major business lines.
Under
 
the fully
 
phased-in Basel
 
III
 
rules, in
 
order to
 
be considered
 
adequately
 
capitalized and
 
not subject
 
to the
 
above-described
limitations,
 
the Corporation
 
is required
 
to maintain:
 
(i) a
 
minimum
 
common equity
 
Tier
 
1 Capital
 
(“CET1”)
 
to risk-weighted
 
assets
ratio of
 
at least
 
4.5%, plus
 
the 2.5%
 
“capital conservation
 
buffer,”
 
resulting in
 
a required
 
minimum CET1
 
ratio of
 
at least
 
7%; (ii)
 
a
minimum ratio
 
of total Tier
 
1 capital to
 
risk-weighted assets
 
of at least
 
6.0%, plus
 
the 2.5% capital
 
conservation buffer,
 
resulting in
 
a
required
 
minimum Tier
 
1 capital
 
ratio of
 
8.5%; (iii)
 
a minimum
 
ratio of
 
total Tie
 
r
 
1 plus
 
Tier
 
2 capital
 
to risk-weighted
 
assets of
 
at
least 8.0%, plus
 
the 2.5% capital
 
conservation buffer,
 
resulting in a required
 
minimum total capital ratio
 
of 10.5%; and
 
(iv) a required
minimum leverage ratio of 4%, calculated as the ratio of Tier
 
1 capital to average on-balance sheet (non-risk adjusted) assets.
The
 
Basel
 
III
 
rules
 
have
 
increased
 
our
 
regulatory
 
capital
 
requirements
 
and
 
require
 
us
 
to
 
hold
 
more
 
capital
 
against
 
certain
 
of
 
our
assets and off
 
-balance sheet exposures.
 
The Corporation’s
 
CET1 capital ratio,
 
Tier 1
 
capital ratio, total
 
capital ratio, and
 
the leverage
ratio under the Basel III rules, as of December 31, 2021, were 17.
 
80%, 17.80%, 20.50%, and 10.14%, respectively.
 
14
Further,
 
as part
 
of its
 
response
 
to the
 
impact
 
of COVID-19,
 
on March
 
31, 2020,
 
federal banking
 
agencies
 
issued an
 
interim final
rule that
 
provided the
 
option to
 
temporarily
 
delay the
 
effects of
 
CECL on
 
regulatory
 
capital for
 
two years,
 
followed by
 
a three-year
transition
 
period.
 
The
 
interim
 
final
 
rule
 
provides
 
that,
 
at
 
the
 
election
 
of
 
a
 
qualified
 
banking
 
organization,
 
the
 
initial
 
impact
 
of
 
the
adoption of CECL on retained
 
earnings plus 25% of the change
 
in the ACL (excluding PCD loans)
 
from January 1, 2020 to
 
December
31, 2021 will be delayed
 
for two years and phased-in
 
at 25% per year beginning on
 
January 1, 2022 over a three
 
-year period, resulting
in a total transition period of five years. The Corporation
 
and the Bank elected to phase in the full effect of CECL on
 
regulatory capital
over the five-year transition period.
The Corporation
 
and the
 
Bank compute
 
risk-weighted assets
 
using the
 
Standardized Approach
 
required by
 
the Basel
 
III rules.
 
The
Standardized Approach
 
for risk-weightings
 
has expanded
 
the risk-weighting
 
categories from
 
the four
 
major risk-weighting
 
categories
under the previous regulatory
 
capital rules (0%, 20%,
 
50%, and 100%) to
 
a much larger and
 
more risk-sensitive number of
 
categories,
depending on the
 
nature of the assets.
 
In a number
 
of cases, the Standardized
 
Approach resulted in higher
 
risk weights for a
 
variety of
asset
 
categories.
 
Specific
 
changes
 
to
 
the
 
risk-weightings
 
of
 
assets
 
included,
 
among
 
other
 
things:
 
(i)
 
applying
 
a
 
150%
 
risk
 
weight
instead of a 100% risk
 
weight for high volatility commercial
 
real estate acquisition, development
 
and construction loans, (ii) assigning
a 150%
 
risk weight
 
to exposures
 
that are
 
90 days
 
past due
 
(other than
 
qualifying residential
 
mortgage exposures,
 
which remain
 
at an
assigned
 
risk-weighting
 
of 100%),
 
(iii) establishing
 
a 20%
 
credit conversion
 
factor for
 
the unused
 
portion of
 
a commitment
 
with an
original maturity
 
of one
 
year or
 
less that
 
is not unconditionally
 
cancellable, in
 
contrast to
 
the 0%
 
risk-weighting under
 
the prior
 
rules
and
 
(iv) requiring
 
capital to
 
be maintained
 
against on-balance-sheet
 
and
 
off-balance-sheet
 
exposures
 
that result
 
from certain
 
cleared
transactions, guarantees and credit derivatives, and collateralized transactions
 
(such as repurchase agreement transactions).
 
 
 
 
 
 
 
 
15
 
Set forth below are the Corporation's and FirstBank's capital ratios as of December
 
31, 2021 based on Federal
Reserve and FDIC guidelines:
Banking Subsidiary
First BanCorp.
FirstBank
Well-
Capitalized
Minimum
As of December 31, 2021
Total capital (Total
 
capital to
 
risk-weighted assets)
20.50%
20.23%
10.00%
CET1 Capital (CET1
 
capital to risk-weighted assets)
17.80%
18.12%
6.50%
Tier 1 capital ratio (Tier
 
1 capital
 
to risk-weighted assets)
17.80%
19.03%
8.00%
Leverage ratio
(1)
10.14%
10.85%
5.00%
_______________
(1)
 
Tier 1 capital to average assets.
Consumer Financial Protection Bureau
The CFPB has
 
primary examination
 
and enforcement authority
 
over FirstBank and
 
other banks with
 
over $10 billion
 
in assets with
respect to consumer financial products and services.
CFPB regulations
 
issued over
 
the past
 
few years
 
implement 2010
 
amendments
 
to the
 
Equal Credit
 
Opportunity
 
Act, the
 
Truth
 
in
Lending
 
Act
 
(“TILA”),
 
and
 
the
 
Real
 
Estate
 
Settlement
 
Procedures
 
Act
 
(“RESPA”).
 
In
 
general,
 
among
 
other
 
changes,
 
these
regulations
 
collectively:
 
(i)
 
require
 
lenders
 
to
 
make
 
a
 
reasonable,
 
good
 
faith
 
determination
 
of
 
a
 
prospective
 
residential
 
mortgage
borrower’s ability
 
to repay
 
based on
 
specific underwriting
 
criteria and
 
set standards
 
related to
 
the determination
 
by mortgage
 
lenders
of
 
a
 
consumer’s
 
ability
 
to
 
repay
 
the
 
mortgage;
 
(ii)
 
require
 
stricter
 
underwriting
 
of
 
“qualified
 
mortgages,”
 
discussed
 
below,
 
that
presumptively
 
satisfy
 
the
 
ability
 
to
 
pay
 
requirement
 
(thereby
 
providing
 
the
 
lender
 
a
 
safe
 
harbor
 
from
 
non-compliance
 
claims);
 
(iii)
specify new limitations on
 
loan originator compensation and establish
 
criteria for the qualifications
 
of, and registration or licensing
 
of,
loan originators;
 
(iv) expand
 
the coverage
 
of the
 
Home Ownership
 
and Equity
 
Protections Act
 
of 1994
 
to high-cost
 
mortgage loans;
(v) expand mandated
 
loan escrow accounts
 
for certain loans;
 
(vi) establish appraisal
 
requirements under
 
the Equal Credit Opportunity
Act and
 
require lenders
 
to provide
 
a free
 
copy of
 
all appraisals to
 
applicants for
 
first lien
 
loans; (vii)
 
establish appraisal
 
standards for
most
 
“higher-risk
 
mortgages”
 
under
 
TILA;
 
(viii)
 
combine
 
in
 
a
 
single
 
form
 
required
 
loan
 
disclosures
 
under
 
TILA
 
and
 
RESPA;
 
(ix)
define
 
a
 
“qualified
 
mortgage”
 
;
 
and
 
(x)
 
afford
 
safe
 
harbor
 
legal
 
protections
 
for
 
lenders
 
making
 
qualified
 
loans
 
that
 
are
 
not
 
“higher
priced.”
The
 
CFPB
 
also
 
has
 
issued
 
regulations
 
setting
 
forth
 
new
 
mortgage
 
servicing
 
rules
 
that
 
apply
 
to
 
the
 
Bank.
 
The
 
regulations
 
affect
notices
 
given
 
to
 
consumers
 
as
 
to
 
delinquency,
 
foreclosure
 
alternatives
 
and
 
loss
 
mitigation,
 
modification
 
applications,
 
interest
 
rate
adjustments and options for avoiding “force-placed” insurance.
 
Further,
 
the
 
CFPB
 
has
 
adopted
 
rules
 
and
 
forms
 
that
 
combine
 
certain
 
disclosures
 
that
 
consumers
 
receive
 
in
 
connection
 
with
applying
 
for
 
and
 
closing
 
on
 
a
 
mortgage
 
loan
 
under
 
the
 
TILA
 
and
 
the
 
RESPA.
 
Consistent
 
with
 
this
 
requirement,
 
the
 
CFPB
amended
 
Regulation
 
X (RESPA)
 
and
 
Regulation
 
Z (TILA)
 
to
 
establish
 
disclosure
 
requirements
 
and
 
forms
 
in
 
Regulation
 
Z for
most
 
closed
 
-end
 
consumer
 
credit
 
transactions
 
secured
 
by
 
real
 
property.
 
In
 
addition
 
to
 
combining
 
the
 
existing
 
disclosure
requirements
 
and
 
implementing
 
new
 
requirements
 
imposed
 
by
 
federal
 
law,
 
the
 
rule
 
provides
 
extensive
 
guidance
 
regarding
compliance
 
with
 
those
 
requirements.
Stress-Testing
 
and Capital Planning Requirements
Federal
 
regulations
 
currently
 
do
 
not
 
impose
 
formal
 
stress-testing
 
requirements
 
on
 
banking
 
organizations
 
with
 
total
 
assets
 
of
 
less
than $100 billion,
 
such as the
 
Corporation and
 
FirstBank.
 
The federal banking
 
agencies have indicated
 
through interagency guidance
that the capital
 
planning and risk
 
management practices
 
of institutions with total
 
of assets of
 
less than $100
 
billion will continue
 
to be
reviewed
 
through the
 
regular supervisory
 
process.
 
Although
 
the Corporation
 
will continue
 
to monitor
 
its capital
 
consistent with
 
the
safety
 
and
 
soundness
 
expectations
 
of
 
the
 
federal regulators,
 
the
 
Corporation
 
will no
 
longer conduct
 
company-run
 
stress testing
 
as a
result of
 
the legislative
 
and regulatory
 
amendments.
 
However,
 
the Corporation
 
continues to
 
use customized
 
stress testing
 
to support
the business and as part of its capital planning process.
 
16
The Volcker
 
Rule
 
Section 13 of
 
the Bank Holding
 
Company Act (commonly
 
known as the
 
Volcker
 
Rule) , subject
 
to important exceptions,
 
generally
prohibits a banking
 
entity such as the Corporation
 
or the Bank from
 
acquiring or retaining any
 
ownership in, or acting
 
as sponsor to, a
hedge
 
fund
 
or
 
private
 
equity
 
fund
 
(“covered
 
fund”).
 
The
 
Volcker
 
Rule
 
also
 
prohibits
 
these
 
entities
 
from
 
engaging,
 
for
 
their
 
own
account, in short-term proprietary trading of certain securities, derivatives,
 
commodity futures and options on these instruments.
Final
 
regulations
 
implementing
 
the
 
Volcker
 
Rule
 
have
 
been
 
adopted
 
by
 
the
 
financial
 
regulatory
 
agencies
 
and
 
are
 
now
 
generally
effective.
 
The Corporation and
 
the Bank are not engaged
 
in “proprietary trading” as
 
defined in the Volcker
 
Rule. In addition, the
 
Corporation
undertook
 
a
 
review
 
of
 
its
 
investments
 
to
 
determine
 
if
 
any
 
meet
 
the
 
Volcker
 
Rule’s
 
definition
 
of
 
“covered
 
funds”.
 
Based
 
on
 
that
review, the Corporation
 
concluded that its investments are not considered covered funds under the Volcker
 
Rule.
 
Community Reinvestment Act and Home Mortgage Disclosure Act Regulations
 
The CRA encourages
 
banks to help
 
meet the credit
 
needs of the
 
local communities
 
in which a
 
bank offers
 
their services, including
low- and moderate-income individuals, consistent with the safe and
 
sound operation of the bank.
The
 
CRA
 
requires
 
the
 
federal
 
supervisory
 
agencies,
 
as
 
part
 
of
 
the
 
general
 
examination
 
of
 
supervised
 
banks,
 
to
 
assess
 
a
 
bank’s
record of meeting
 
the credit needs of
 
its community,
 
assign a performance rating,
 
and take such record
 
and rating into account
 
in their
evaluation of certain applications
 
by such bank. The
 
CRA also requires all institutions
 
to make public disclosure
 
of their CRA ratings.
FirstBank received a “satisfactory” CRA rating in its most recent examination
 
by the FDIC.
Failure
 
to
 
adequately
 
serve
 
the
 
communities
 
could
 
result
 
in
 
the
 
denial
 
by
 
the
 
regulators
 
of
 
proposals
 
to
 
merge,
 
consolidate
 
or
acquire new assets, as well as expand or relocate branches.
 
The federal bank
 
regulatory agencies have
 
amended their respective
 
CRA regulations primarily
 
to conform to
 
changes made by
 
the
CFPB
 
to
 
Regulation
 
C, which
 
implements
 
the Home
 
Mortgage
 
Disclosure
 
Act.
 
The Home
 
Mortgage
 
Disclosure Act
 
requires
 
many
financial institutions to maintain, report, and publicly disclose loan-level
 
information about mortgages.
USA PATRIOT
 
Act and Other Anti-Money Laundering Requirements
 
As a regulated
 
depository institution,
 
FirstBank is subject
 
to the
 
Bank Secrecy
 
Act, which imposes
 
a variety of
 
reporting and
 
other
requirements,
 
including
 
the requirement
 
to file
 
suspicious
 
activity and
 
currency
 
transaction
 
reports that
 
are designed
 
to assist
 
in the
detection and prevention
 
of money laundering,
 
terrorist financing and
 
other criminal activities.
 
In addition, under
 
Title III
 
of the USA
PATRIOT
 
Act of 2001, also
 
known as the International
 
Money Laundering Abatement
 
and Anti-Terrorism
 
Financing Act of 2001,
 
all
financial
 
institutions
 
are
 
required
 
to,
 
among
 
other
 
things,
 
identify
 
their
 
customers,
 
adopt
 
formal
 
and
 
comprehensive
 
anti-money
laundering programs,
 
scrutinize or
 
prohibit altogether
 
certain transactions
 
of special
 
concern, and
 
be prepared
 
to respond
 
to inquiries
from U.S. law enforcement agencies concerning their customers and
 
their transactions.
 
On
 
January
 
1,
 
2021,
 
major
 
legislative
 
amendments
 
to
 
U.S.
 
anti-money
 
laundering
 
requirements
 
became
 
effective
 
through
 
the
enactment
 
of
 
Division
 
F
 
of
 
the
 
National
 
Defense
 
Authorization
 
Act
 
for
 
fiscal
 
year
 
2021,
 
otherwise
 
known
 
as
 
the
 
Anti-Money
Laundering Act
 
of 2020
 
(“AML Act”).
 
The new
 
legislation includes
 
a variety
 
of provisions
 
that are
 
designed to
 
modernize the
 
anti-
money laundering regulatory regime
 
and remediate gaps in the U.S.’s
 
approach to anti-money laundering
 
and countering the financing
of terrorism, including the creation
 
of a national database of absence
 
corporate beneficial ownership along
 
with significantly enhanced
reporting
 
requirements,
 
increased
 
penalties
 
for
 
Bank
 
Secrecy
 
Act
 
violations,
 
clarification
 
of
 
Suspicious
 
Activity
 
Report
 
filing
 
and
sharing
 
requirements,
 
and
 
provisions
 
addressing
 
the
 
adverse
 
consequences
 
of
 
“de-risking,”
 
namely,
 
the
 
practice
 
of
 
financial
institutions’ termination or
 
limitation of business relationships
 
with clients or classes
 
of clients in order
 
to manage the risks associated
with such clients.
Regulations implementing the Bank Secrecy Act and the
 
USA PATRIOT
 
Act are published and primarily enforced
 
by the Financial
Crimes Enforcement Network (“FinCEN”), a bureau
 
of the U.S. Treasury.
 
Failure of a financial institution, such as the Corporation or
the
 
Bank,
 
to
 
comply
 
with
 
the
 
requirements
 
of
 
the
 
Bank
 
Secrecy
 
Act
 
or
 
the
 
USA
 
PATRIOT
 
Act
 
could
 
have
 
serious
 
legal
 
and
reputational
 
consequences
 
for
 
the
 
institution,
 
including
 
the
 
possibility
 
of
 
regulatory
 
enforcement
 
or
 
other
 
legal
 
actions,
 
such
 
as
significant
 
civil
 
monetary
 
penalties.
 
The
 
Corporation
 
is
 
also
 
required
 
to
 
comply
 
with
 
federal
 
economic
 
and
 
trade
 
sanctions
requirements enforced by the Office of Foreign Assets Control
 
(“OFAC”), a bureau
 
of the U.S. Treasury.
 
17
The Corporation believes
 
it has adopted appropriate
 
policies, procedures and controls
 
to address compliance with
 
the Bank Secrecy
Act, USA
 
PATRIOT
 
Act and
 
economic/trade
 
sanctions requirements,
 
and to
 
implement banking
 
agency,
 
FinCEN, OFAC
 
and
 
other
U.S. Treasury
 
regulations.
 
Further,
 
FinCEN is
 
expected to
 
propose regulations
 
in the
 
near future
 
that implement
 
the requirements
 
of
the
 
AML
 
Act,
 
and
 
the
 
Corporation
 
will
 
adjust
 
its
 
policies,
 
procedures
 
and
 
controls
 
accordingly
 
upon
 
the
 
adoption
 
of
 
any
 
final
regulations.
State Chartered Non-Member Bank and Banking Laws and Regulations
in General
FirstBank is
 
subject to
 
regulation and
 
examination by
 
the OCIF,
 
the CFPB
 
and the
 
FDIC, and
 
is subject
 
to comprehensive
 
federal
and
 
state
 
(Commonwealth
 
of
 
Puerto
 
Rico)
 
regulations
 
that
 
regulate,
 
among
 
other
 
things,
 
the
 
scope
 
of
 
their
 
businesses,
 
their
investments, their reserves
 
against deposits, the
 
timing and availability
 
of deposited funds,
 
and the nature
 
and amount of
 
collateral for
certain loans.
 
The
 
OCIF,
 
the
 
CFPB
 
and
 
the
 
FDIC
 
periodically
 
examine
 
FirstBank
 
to
 
test
 
the
 
Bank’s
 
conformance
 
to
 
safe
 
and
 
sound
 
banking
practices
 
and
 
compliance
 
with
 
various
 
statutory
 
and
 
regulatory
 
requirements.
 
This
 
regulation
 
and
 
supervision
 
establish
 
a
comprehensive framework and oversight
 
of activities in which the Bank
 
can engage.
 
The regulation and supervision by the
 
FDIC also
are intended
 
for the
 
protection of
 
the FDIC’s
 
insurance fund
 
and depositors.
 
The regulatory
 
structure gives
 
the regulatory
 
authorities
discretion in
 
connection with their
 
supervisory and
 
enforcement activities and
 
examination policies, including
 
policies with respect
 
to
the classification
 
of assets
 
and
 
the establishment
 
of adequate
 
loan
 
loss reserves
 
for
 
regulatory
 
purposes.
 
This enforcement
 
authority
includes,
 
among
 
other
 
things,
 
the
 
ability
 
to
 
assess
 
civil
 
monetary
 
penalties,
 
issue
 
cease-and-desist
 
or
 
removal
 
orders,
 
and
 
initiate
injunctive
 
actions
 
against
 
banking
 
organizations
 
and
 
institution-affiliated
 
parties.
 
In
 
general,
 
these
 
enforcement
 
actions
 
may
 
be
initiated for
 
violations of
 
laws and
 
regulations and
 
for engaging
 
in unsafe
 
or unsound
 
practices. In
 
addition, certain
 
bank actions
 
are
required
 
by
 
statute
 
and
 
implementing
 
regulations.
 
Other
 
actions
 
or
 
failure
 
to
 
act
 
may
 
provide
 
the
 
basis
 
for
 
enforcement
 
action,
including the filing of misleading or untimely reports with regulatory
 
authorities.
Dividend Restrictions
 
The Federal Reserve Board’s
 
“Applying Supervisory Guidance
 
and Regulations on the
 
Payment of Dividends, Stock
 
Redemptions,
and
 
Stock
 
Repurchases
 
at
 
Bank
 
Holding
 
Companies”
 
(the “Supervisory
 
Letter”)
 
discusses the
 
ability
 
of bank
 
holding
 
companies
 
to
declare
 
dividends
 
and
 
to
 
repurchase
 
equity
 
securities.
 
The
 
Supervisory
 
Letter
 
is
 
generally
 
consistent
 
with
 
prior
 
Federal
 
Reserve
supervisory policies and guidance, although it places greater emphasis on
 
discussions with the regulators prior to dividend declarations
and
 
redemption
 
or repurchase
 
decisions
 
even
 
when not
 
explicitly required
 
by the
 
regulations.
 
The
 
Federal
 
Reserve
 
Board
 
provides
that the principles discussed in the Supervisory Letter are applicable to all bank
 
holding companies.
 
The
 
Supervisory
 
Letter
 
also
 
includes
 
a
 
policy
 
statement
 
that,
 
as
 
a
 
matter
 
of
 
prudent
 
banking,
 
a
 
bank
 
holding
 
company
 
should
generally
 
not
 
maintain
 
a
 
given
 
rate
 
of
 
cash
 
dividends
 
unless
 
its
 
net
 
income
 
available
 
to
 
common
 
shareholders
 
for
 
the
 
past
 
four
quarters, net of dividends
 
previously paid during that period,
 
has been sufficient
 
to fully fund the dividends
 
and the prospective rate of
earnings
 
retention
 
appears
 
to
 
be
 
consistent
 
with
 
the
 
organization’s
 
capital
 
needs,
 
asset
 
quality,
 
and
 
overall
 
current
 
and
 
prospective
financial
 
condition. The
 
Corporation
 
is subject
 
to certain
 
restrictions generally
 
imposed on
 
Puerto
 
Rico corporations
 
with respect
 
to
the declaration
 
and payment
 
of dividends
 
(
i.e
., that
 
dividends may
 
be paid
 
out only
 
from the
 
Corporation’s
 
capital surplus
 
or,
 
in the
absence
 
of such
 
excess, from
 
the Corporation’s
 
net earnings
 
for
 
such fiscal
 
year
 
and/or the
 
preceding
 
fiscal year).
 
Furthermore,
 
the
Federal
 
Reserve Board’s
 
regulatory capital
 
rule (Regulation
 
Q) limits
 
the amount
 
of capital
 
a bank
 
holding
 
company may
 
distribute
under
 
certain
 
circumstances.
 
Regulation
 
Q
 
helps
 
ensure
 
banks
 
maintain
 
strong
 
capital
 
positions
 
that
 
will
 
enable
 
them
 
to
 
continue
lending
 
to
 
creditworthy
 
households
 
and
 
businesses
 
even
 
after
 
unforeseen
 
losses
 
and
 
during
 
severe
 
economic
 
downturn.
 
A
 
banking
organization must
 
maintain a capital
 
conservation buffer
 
of CET1 capital
 
in an amount
 
greater than 2.5%
 
of total risk
 
weighted assets
to avoid being subject to limitations on capital distributions.
The
 
principal
 
source
 
of
 
funds
 
for
 
the
 
Corporation’s
 
parent
 
holding
 
company
 
is
 
dividends
 
declared
 
and
 
paid
 
by
 
its
 
subsidiary,
FirstBank. The ability
 
of FirstBank to declare
 
and pay dividends on
 
its capital stock is
 
regulated by the Puerto
 
Rico Banking Law,
 
the
Federal
 
Deposit
 
Insurance
 
Act
 
(the
 
“FDIA”),
 
and
 
FDIC
 
regulations.
 
In
 
general
 
terms,
 
the
 
Puerto
 
Rico
 
Banking
 
Law
 
provides
 
that
when
 
the
 
expenditures
 
of
 
a
 
bank
 
are
 
greater
 
than
 
receipts,
 
the
 
excess
 
of
 
expenditures
 
over
 
receipts
 
shall
 
be
 
charged
 
against
undistributed profits
 
of the bank
 
and the
 
balance, if
 
any,
 
shall be charged
 
against the required
 
reserve fund
 
of the bank.
 
If the reserve
fund
 
is not
 
sufficient
 
to cover
 
such
 
balance
 
in whole
 
or
 
in part,
 
the outstanding
 
amount must
 
be
 
charged
 
against the
 
bank’s
 
capital
account. The Puerto Rico Banking
 
Law provides that, until said capital
 
has been restored to its original
 
amount and the reserve fund to
20%
 
of
 
the
 
original
 
capital,
 
the
 
bank
 
may
 
not
 
declare
 
any
 
dividends.
 
In
 
general,
 
the
 
FDIA
 
and
 
the
 
FDIC
 
regulations
 
restrict
 
the
payment of
 
dividends when
 
a bank
 
is undercapitalized
 
(as discussed
 
in
Prompt
 
Corrective
 
Action
 
below), when
 
a bank
 
has failed
 
to
pay insurance assessments, or when there are safety and soundness concerns
 
regarding such bank.
Refer
 
to
 
Part
 
II,
 
Item
 
5,
 
“Market
 
for
 
Registrant’s
 
Common
 
Equity,
 
Related
 
Stockholder
 
Matters
 
and
 
Issuer
 
Purchases
 
of
 
Equity
Securities” of this Annual Report on Form 10-K
 
for further information on the Corporation’s
 
distribution of dividends and repurchases
of equity securities.
18
Financial Privacy and Cybersecurity
The
 
federal
 
financial
 
institution
 
regulations
 
limit
 
the
 
ability
 
of
 
banks
 
and
 
other
 
financial
 
institutions
 
to
 
disclose
 
non-public
information about
 
consumers to non-affiliated
 
third parties. These
 
limitations require
 
disclosure of privacy
 
policies to consumers
 
and,
in
 
some
 
circumstances,
 
allow
 
consumers
 
to
 
prevent
 
disclosure
 
of
 
certain
 
personal
 
information
 
to
 
a
 
non-affiliated
 
third
 
party.
 
These
regulations affect how consumer information is used
 
in diversified financial companies and conveyed to outside vendors.
 
The
 
federal
 
banking
 
regulators
 
regularly
 
issue
 
guidance
 
regarding
 
cybersecurity
 
intended
 
to
 
enhance
 
cyber
 
risk
 
management
standards among financial
 
institutions. A financial
 
institution is expected
 
to establish multiple
 
lines of defense
 
and to ensure
 
their risk
management processes
 
address the
 
risk posed
 
by potential
 
threats to
 
the institution.
 
A financial
 
institution’s
 
management is
 
expected
to
 
maintain
 
sufficient
 
processes
 
to
 
effectively
 
respond
 
and
 
recover
 
the
 
institution’s
 
operations
 
after
 
a
 
cyber-attack.
 
A
 
financial
institution
 
is
 
also
 
expected
 
to
 
develop
 
appropriate
 
processes
 
to
 
enable
 
recovery
 
of
 
data
 
and
 
business
 
operations
 
if
 
a
 
critical
 
service
provider
 
of
 
the
 
institution
 
falls
 
victim
 
to
 
this
 
type
 
of
 
cyber-attack.
 
The
 
Corporation’s
 
Information
 
Security
 
Program
 
reflects
 
these
requirements.
Limitations on Transactions with Affiliates
 
and Insiders
Certain transactions between FDIC-insured
 
banks financial institutions such
 
as FirstBank and its affiliates
 
are governed by Sections
23A and
 
23B of the
 
Federal Reserve Act
 
and by
 
Federal Reserve
 
Regulation W.
 
An affiliate
 
of a bank
 
is, in general,
 
any corporation
or entity that controls, is controlled by,
 
or is under common control with the bank.
 
In a holding company context, the parent bank holding
 
company and any companies that are controlled by such
 
parent bank holding
company are affiliates
 
of the bank.
 
Generally,
 
Sections 23A and
 
23B of the
 
Federal Reserve Act
 
(i) limit the
 
extent to which
 
the bank
or
 
its subsidiaries
 
may
 
engage
 
in
 
“covered
 
transactions”
 
(defined
 
below)
 
with
 
any
 
one
 
affiliate
 
to
 
an
 
amount
 
equal
 
to 10%
 
of
 
such
bank’s
 
capital stock
 
and surplus,
 
and contain
 
an aggregate
 
limit on
 
all such
 
transactions with
 
all affiliates
 
to an
 
amount equal
 
to 20%
of such
 
bank’s
 
capital stock
 
and surplus
 
and (ii) require
 
that all “covered
 
transactions” be
 
on terms
 
that are substantially
 
the same, or
at least as favorable to the bank or affiliate,
 
as those provided to a non-affiliate. The term “covered
 
transaction” includes the making of
loans,
 
purchase
 
of
 
assets,
 
issuance
 
of
 
a
 
guarantee,
 
credit
 
derivatives,
 
securities
 
lending
 
and
 
other
 
similar
 
transactions
 
entailing
 
the
provision of financial
 
support by the bank
 
to an affiliate.
 
In addition, loans or
 
other extensions of credit
 
by the bank to
 
the affiliate are
required to be collateralized in accordance with the requirements set forth in
 
Section 23A of the Federal Reserve Act.
 
In
 
addition,
 
Sections
 
22(h)
 
and
 
(g)
 
of
 
the
 
Federal
 
Reserve
 
Act,
 
implemented
 
through
 
Regulation
 
O,
 
place
 
restrictions
 
on
commercial bank loans to executive
 
officers, directors, and principal stockholders
 
of the bank and its affiliates.
 
Under Section 22(h) of
the Federal Reserve
 
Act, bank loans to
 
a director, an
 
executive officer,
 
a greater than 10%
 
stockholder of the
 
bank, and certain related
interests of these persons,
 
may not exceed, together
 
with all other outstanding
 
loans to such persons
 
and affiliated interests,
 
the bank’s
limit on loans
 
to one borrower,
 
which is generally
 
equal to 15%
 
of the bank’s
 
unimpaired capital and
 
surplus in the
 
case of loans
 
that
are not fully secured,
 
and an additional 10% of
 
the bank's unimpaired capital
 
and unimpaired surplus in
 
the case of loans that
 
are fully
secured by
 
readily marketable
 
collateral having
 
a market
 
value at
 
least equal
 
to the
 
amount of
 
the loan.
 
Section 22(h)
 
of the
 
Federal
Reserve Act also requires
 
that loans to directors,
 
executive officers, and
 
principal stockholders be made
 
on terms that are substantially
the same
 
as offered
 
in comparable
 
transactions to
 
other persons
 
and also
 
requires prior
 
board approval
 
for certain
 
loans. In
 
addition,
the
 
aggregate
 
amount
 
of
 
extensions
 
of
 
credit
 
by
 
a
 
bank
 
to
 
insiders
 
cannot
 
exceed
 
the
 
bank’s
 
unimpaired
 
capital
 
and
 
surplus.
Furthermore, Section 22(g) of the Federal Reserve Act places additional
 
restrictions on loans to executive officers.
Executive Compensation
The federal banking agencies have
 
adopted interagency guidance governing
 
incentive-based compensation programs,
 
which applies
to
 
all
 
banking
 
organizations
 
regardless
 
of
 
asset
 
size.
 
This
 
guidance
 
uses
 
a
 
principles-based
 
approach
 
to
 
ensure
 
that
 
incentive-based
compensation arrangements
 
appropriately tie
 
rewards to
 
longer-term performance
 
and do
 
not undermine
 
the safety
 
and soundness
 
of
banking organizations
 
or create
 
undue risks
 
to the
 
financial system.
 
The interagency
 
guidance is
 
based on
 
three major
 
principles: (i)
balanced risk-taking
 
incentives; (ii) compatibility
 
with effective
 
controls and
 
risk management; and
 
(iii) strong
 
corporate governance.
 
The guidance further provides
 
that, where appropriate, the
 
banking agencies will take supervisory
 
or enforcement action to ensure
 
that
material deficiencies that pose a threat to the safety and soundness of the
 
organization are promptly addressed.
 
In
 
May
 
2016,
 
the
 
federal
 
banking
 
agencies,
 
along
 
with
 
other
 
federal
 
regulatory
 
agencies,
 
proposed
 
regulations
 
(first
 
proposed
 
in
2011)
 
governing
 
incentive-based
 
compensation
 
practices
 
at
 
covered
 
banking
 
institutions,
 
which
 
would
 
include,
 
among
 
others,
 
all
banking organizations
 
with assets of
 
$1 billion
 
or greater.
 
These proposed
 
rules are
 
intended to
 
better align
 
the financial rewards
 
for
covered
 
employees
 
with
 
an
 
institution’s
 
long-term
 
safety
 
and
 
soundness.
 
Portions
 
of
 
these
 
proposed
 
rules
 
would
 
apply
 
to
 
the
Corporation
 
and
 
FirstBank.
 
Those
 
applicable
 
provisions
 
would
 
generally
 
(i)
 
prohibit
 
types
 
and
 
features
 
of
 
incentive-based
compensation arrangements that encourage
 
inappropriate risk because they are “excessive”
 
or “could lead to material financial
 
loss” at
the
 
banking
 
institution;
 
(ii)
 
require
 
incentive-based
 
compensation
 
arrangements
 
to
 
adhere
 
to
 
three
 
basic
 
principles:
 
(1)
 
a
 
balance
19
between risk and reward;
 
(2) effective risk
 
management and controls;
 
and (3) effective
 
governance; and (iii) require
 
appropriate board
of directors
 
(or committee)
 
oversight
 
and recordkeeping
 
and disclosures
 
to the
 
banking institution’s
 
primary regulatory
 
agency.
 
The
nature and substance of any final action to adopt these proposed rules, and the
 
timing of any such action, are not known at this time.
Prompt Corrective Action
 
The
 
Prompt
 
Corrective
 
Action
 
(“PCA”)
 
provisions
 
of
 
the
 
FDIA
 
require
 
the
 
federal
 
bank
 
regulatory
 
agencies
 
to
 
take
 
prompt
corrective action against any insured depository institution
 
(“institutions”) that are undercapitalized.
 
The FDIA establishes five capital
categories:
 
well-capitalized,
 
adequately
 
capitalized,
 
undercapitalized,
 
significantly
 
undercapitalized,
 
and
 
critically
 
undercapitalized.
Well-capitalized
 
institutions significantly exceed the required minimum level
 
for each relevant capital measure.
 
A
 
bank’s
 
capital
 
category,
 
as
 
determined
 
by
 
applying
 
the
 
prompt
 
corrective
 
action
 
provisions
 
of
 
the
 
law,
 
may
 
not
 
constitute
 
an
accurate
 
representation
 
of
 
the
 
overall
 
financial
 
condition
 
or
 
prospects
 
of
 
a
 
bank,
 
such
 
as
 
the
 
Bank,
 
and
 
should
 
be
 
considered
 
in
conjunction with other available information regarding the financial condition
 
and results of operations of the bank.
Deposit Insurance
The
 
increase
 
in deposit
 
insurance coverage
 
to up
 
to $250,000
 
per customer,
 
the FDIC’s
 
expanded
 
authority to
 
increase insurance
premiums,
 
as
 
well
 
as
 
the
 
increase
 
in
 
the
 
number
 
of
 
bank
 
failures
 
after
 
the
 
2008
 
financial
 
crisis,
 
resulted
 
in
 
an
 
increase
 
in
 
deposit
insurance assessments
 
for all
 
banks, including
 
FirstBank. The
 
FDIA further
 
requires that
 
the designated
 
reserve ratio
 
for the
 
DIF for
any year
 
not be
 
less than
 
1.35% of
 
estimated insured
 
deposits or
 
the comparable
 
percentage of
 
the new
 
deposit assessment
 
base.
 
In
addition, the FDIC must take the
 
necessary actions for the reserve ratio to
 
reach 1.35% of estimated insured deposits by September
 
30,
2020.
 
The FDIC managed to reach the goal early,
 
achieving a reserve ratio of 1.36% in September 2018. However,
 
in the third quarter
of 2020,
 
the FDIC announced
 
that the
 
reserve ratio
 
of the
 
DIF fell 9
 
basis points
 
between the
 
first and
 
second quarters
 
of 2020,
 
from
1.39%
 
to
 
1.30%.
 
The
 
decline
 
was
 
attributed
 
to
 
an
 
unprecedented
 
surge
 
in
 
deposits.
 
The
 
FDIC approved a
 
plan
 
that is
 
expected
to restore the
 
DIF to
 
at least
 
1.35% within
 
eight years,
 
as required
 
by the
 
FDIA. Under
 
the plan,
 
the FDIC
 
will maintain
 
the current
schedules of
 
assessment
 
rates
 
for
 
all banks; monitor
 
deposit
 
balance
 
trends,
 
potential
 
losses and
 
other
 
factors
 
that
 
affect
 
the
 
reserve
ratio; and
 
provide updates
 
to its
 
loss and
 
income projections
 
at least
 
twice a
 
year.
 
The FDIC
 
has also
 
adopted a
 
final rule
 
raising its
industry
 
target ratio
 
of reserves
 
to insured
 
deposits to
 
2%, 65
 
basis points
 
above the
 
statutory minimum,
 
but the
 
FDIC has
 
indicated
that it does not project that goal to be met for several years.
FDIC Insolvency Authority
Under Puerto Rico banking laws (discussed
 
below), the OCIF may appoint the
 
FDIC as conservator or receiver of
 
a failed or failing
FDIC-insured Puerto Rican bank,
 
such as the Bank, and
 
the FDIA authorizes the FDIC to
 
accept such an appointment.
 
In addition, the
FDIC
 
has
 
broad
 
authority
 
under
 
the
 
FDIA
 
to
 
appoint
 
itself
 
as
 
conservator
 
or
 
receiver
 
of
 
a
 
failed
 
or
 
failing
 
state
 
bank,
 
including
 
a
Puerto Rican
 
bank. If
 
the FDIC is
 
appointed conservator
 
or receiver
 
of a
 
bank upon
 
the bank’s
 
insolvency or
 
the occurrence
 
of other
events, the
 
FDIC may sell
 
or transfer some,
 
part or all
 
of a bank’s
 
assets and liabilities
 
to another bank,
 
or liquidate the
 
bank and pay
out insured depositors, as well as uninsured depositors
 
and other creditors to the extent of the closed bank’s
 
available assets. As part of
its insolvency
 
authority,
 
the FDIC has
 
the authority,
 
among other
 
things, to
 
take possession
 
of and
 
administer the
 
receivership estate,
pay out
 
estate claims,
 
and repudiate
 
or disaffirm
 
certain types
 
of contracts
 
to which
 
the bank
 
was a
 
party if
 
the FDIC
 
believes such
contract is burdensome and
 
its disaffirmance will aid
 
in the administration of
 
the receivership.
 
In resolving the estate of
 
a failed bank,
the
 
FDIC,
 
as
 
receiver,
 
will
 
first
 
satisfy
 
its
 
own
 
administrative
 
expenses.
 
The
 
claims
 
of
 
holders
 
of
 
U.S.
 
deposit
 
liabilities
 
also
 
have
priority over those of other general unsecured creditors.
Activities and Investments
The
 
activities
 
as
 
“principal”
 
of
 
FDIC-insured,
 
state-chartered
 
banks,
 
such
 
as
 
FirstBank,
 
are
 
generally
 
limited
 
to
 
those
 
that
 
are
permissible for national
 
banks. Similarly,
 
under regulations dealing
 
with equity investments, an
 
insured state-chartered bank generally
may not directly
 
or indirectly acquire
 
or retain any equity
 
investments of a
 
type, or in an
 
amount, that is not
 
permissible for a national
bank.
Federal Home Loan Bank System
FirstBank is
 
a member
 
of the
 
FHLB system.
 
The FHLB
 
system consists
 
of eleven
 
regional FHLBs
 
governed and
 
regulated by
 
the
Federal
 
Housing
 
Finance
 
Agency.
 
The
 
FHLBs
 
serve
 
as
 
reserve
 
or
 
credit
 
facilities
 
for
 
member
 
institutions
 
within
 
their
 
assigned
regions.
 
FirstBank is a member
 
of the FHLB of
 
New York
 
and, as such,
 
is required to
 
acquire and hold
 
shares of capital
 
stock in the
 
FHLB
of New York
 
in an amount calculated
 
in accordance with the
 
requirements set forth in
 
applicable laws and regulations.
 
FirstBank is in
compliance
 
with
 
the
 
stock
 
ownership
 
requirements
 
of
 
the
 
FHLB
 
of
 
New
 
York.
 
All
 
loans,
 
advances
 
and
 
other
 
extensions
 
of
 
credit
20
made
 
by the
 
FHLB to
 
FirstBank
 
are secured
 
by a
 
portion
 
of FirstBank’s
 
mortgage
 
loan portfolio,
 
certain other
 
investments and
 
the
capital stock of the FHLB held by FirstBank.
Ownership and Control
Because
 
of
 
FirstBank’s
 
status
 
as
 
an
 
FDIC-insured
 
bank,
 
as
 
defined
 
in
 
the
 
Bank
 
Holding
 
Company
 
Act,
 
the
 
Corporation,
 
as
 
the
owner of
 
FirstBank’s
 
common stock,
 
is subject to
 
certain restrictions and
 
disclosure obligations
 
under various
 
federal laws, includin
 
g
the
 
Bank
 
Holding
 
Company
 
Act
 
and
 
the
 
Change
 
in
 
Bank
 
Control
 
Act
 
(the
 
“CBCA”).
 
Regulations
 
adopted
 
pursuant
 
to
 
the
 
Bank
Holding Company Act and
 
the CBCA generally require prior
 
Federal Reserve Board or other
 
federal banking agency approval or
 
non-
objection
 
for an acquisition of control
 
of an “insured institution”
 
(as defined in the
 
Act) or holding company
 
thereof by any person
 
(or
persons acting in
 
concert). Control is deemed
 
to exist if, among
 
other things, a person
 
(or group of persons
 
acting in concert)
 
acquires
25% or more
 
of any class of
 
voting stock of
 
an insured institution
 
or holding company
 
thereof. Under the
 
CBCA, control is presumed
to exist
 
subject to
 
rebuttal if
 
a person
 
(or group
 
of persons
 
acting in
 
concert) acquires
 
10% or
 
more of
 
any class
 
of voting
 
stock and
either (i)
 
the corporation
 
has registered securities
 
under Section
 
12 of
 
the Exchange Act,
 
or (ii) no
 
person (or
 
group of persons
 
acting
in
 
concert)
 
will own,
 
control
 
or
 
hold
 
the
 
power
 
to
 
vote
 
a
 
greater
 
percentage
 
of that
 
class of
 
voting
 
securities
 
immediately
 
after
 
the
transaction. The
 
concept of acting
 
in concert is
 
very broad
 
and is subject
 
to certain rebuttable
 
presumptions, including,
 
among others,
that relatives,
 
business partners,
 
management officials,
 
affiliates and
 
others are
 
presumed to
 
be acting
 
in concert
 
with each
 
other and
their businesses. The regulations of the FDIC implementing the CBCA are generally
 
similar to those described above.
 
The Puerto
 
Rico Banking
 
Law requires
 
the approval
 
of the
 
OCIF for
 
changes in
 
control of
 
a Puerto
 
Rico bank.
 
See “Puerto
 
Rico
Banking Law” below for further detail.
Standards for Safety and Soundness
The
 
FDIA
 
requires
 
the
 
FDIC
 
and
 
the
 
other
 
federal
 
bank
 
regulatory
 
agencies
 
to
 
prescribe
 
standards
 
of
 
safety
 
and
 
soundness,
 
by
regulations or
 
guidelines, relating
 
generally to
 
operations and
 
management, asset
 
growth, asset quality,
 
earnings, stock
 
valuation, and
compensation.
 
The
 
implementing
 
regulations
 
and
 
guidelines
 
of
 
the
 
FDIC
 
and
 
the
 
other
 
federal
 
bank
 
regulatory
 
agencies
 
establish
general
 
standards
 
relating
 
to
 
internal
 
controls
 
and
 
information
 
systems,
 
internal
 
audit
 
systems,
 
loan
 
documentation,
 
credit
underwriting,
 
interest
 
rate
 
exposure,
 
asset
 
growth,
 
and
 
compensation,
 
fees
 
and
 
benefits.
 
In
 
general,
 
the
 
regulations
 
and
 
guidelines
require,
 
among
 
other
 
things,
 
appropriate
 
systems
 
and
 
practices
 
to
 
identify
 
and
 
manage
 
the
 
risks
 
and
 
exposures
 
specified
 
in
 
the
guidelines.
 
The
 
regulations
 
and
 
guidelines
 
prohibit
 
excessive
 
compensation
 
as
 
an
 
unsafe
 
and
 
unsound
 
practice
 
and
 
describe
compensation
 
as
 
excessive
 
when
 
the
 
amounts
 
paid
 
are
 
unreasonable
 
or
 
disproportionate
 
to
 
the
 
services
 
performed
 
by
 
an
 
executive
officer, employee,
 
director or principal shareholder.
 
Failure to comply with these standards can
 
result in administrative enforcement or
other adverse actions against the bank.
Brokered Deposits
FDIC regulations
 
adopted
 
under the
 
FDIA govern
 
the receipt
 
of brokered
 
deposits by
 
banks. Well
 
-capitalized
 
institutions are
 
not
subject
 
to
 
limitations
 
on
 
brokered
 
deposits,
 
while
 
adequately-capitalized
 
institutions
 
are
 
able
 
to
 
accept,
 
renew
 
or
 
rollover
 
brokered
deposits only
 
with a
 
waiver from
 
the FDIC
 
and subject
 
to certain
 
restrictions on
 
the interest
 
paid on
 
such deposits.
 
Undercapitalized
institutions
 
are
 
not
 
permitted
 
to
 
accept
 
brokered
 
deposits.
 
In
 
October
 
2020,
 
the
 
FDIC
 
adopted
 
revisions
 
to
 
its
 
brokered
 
deposit
regulations that
 
became effective
 
on April
 
1, 2021,
 
with full
 
compliance extended
 
for financial
 
institutions to
 
put in
 
place systems
 
to
implement
 
the
 
new
 
regulatory
 
regime
 
and
 
to
 
allow
 
the
 
FDIC
 
to
 
develop
 
internal
 
processes
 
and
 
systems
 
to
 
ensure
 
a
 
consistent
 
and
robust review process until January 1, 2022.
 
The Coronavirus Aid, Relief and Economic Security Act (the “ CARES Act of 2020”)
 
In response to the
 
economic effects of
 
the COVID-19 pandemic, on
 
March 27, 2020, the
 
U.S. Government enacted the
 
CARES Act
of
 
2020,
 
as
 
amended
 
by
 
the
 
Consolidated
 
Appropriations
 
Act,
 
2021.
 
The
 
CARES
 
Act
 
of
 
2020,
 
as
 
amended,
 
includes
 
numerous
provisions
 
applicable
 
to
 
financial
 
institutions,
 
including
 
(i)
 
permitting
 
banks
 
to
 
suspend
 
requirements
 
under
 
GAAP
 
for
 
loan
modifications to borrowers
 
affected by COVID-19,
 
provided that such loans
 
were not more than
 
30 days past due
 
as of December
 
31,
2019, that
 
would otherwise
 
result in
 
a loan’s
 
classification as
 
TDR or
 
evaluation for
 
impairment, until
 
the earlier
 
of 60
 
days after
 
the
termination
 
date of
 
the pandemic
 
emergency
 
or January
 
1, 2022
 
(as amended
 
and extended),
 
(ii) permitting
 
borrowers whose
 
loans
are
 
federally
 
backed
 
to
 
request
 
a
 
forbearance
 
for
 
up
 
to
 
180
 
days,
 
which
 
can
 
be
 
extended
 
for
 
up
 
to
 
an
 
additional
 
180
 
days
 
at
 
the
borrower’s
 
timely
 
request,
 
without
 
incurring
 
fees,
 
penalties
 
or
 
interest
 
beyond
 
those
 
the
 
borrower
 
would
 
have
 
incurred
 
had
 
the
borrower made all scheduled payments, and without exposing
 
the lender to adverse supervisory action, (iii) as discussed further
 
above,
permitting financial
 
institutions that
 
implement CECL
 
during the
 
2020 calendar
 
year the
 
option to
 
delay for
 
two years
 
an estimate
 
of
CECL's effect
 
on regulatory
 
capital, relative
 
to the
 
incurred loss
 
methodology's effect
 
on regulatory
 
capital, followed
 
by a
 
three-year
transition period, and (iv) creation
 
of the SBA PPP program under
 
which small businesses may obtain
 
loans guaranteed by the SBA
 
to
pay payroll
 
and group
 
health costs, salaries
 
and commissions,
 
mortgage and
 
rent payments, utilities,
 
and interest
 
and other
 
qualifying
expenses.
 
The
 
SBA
 
fully-guarantees
 
SBA
 
PPP
 
loans,
 
and
 
SBA
 
PPP
 
loans
 
may
 
be
 
forgiven
 
by
 
the
 
SBA
 
so
 
long
 
as, during
 
the
applicable
 
loan
 
forgiveness
 
covered
 
period, employee
 
and compensation
 
levels
 
of
 
the
 
business are
 
maintained
 
and
 
60%
 
of
 
the
 
loan
21
proceeds
 
are used
 
for payroll
 
expenses,
 
with the
 
remaining 40%
 
of the
 
loan proceeds
 
used for
 
other qualifying
 
expenses. SBA
 
PPP
loans carry an interest
 
rate of 1% and have
 
a two-year term (or five
 
years for loans originated
 
after June 5, 2020).
 
For loans originated
under the
 
SBA’s
 
PPP loan
 
program, interest
 
and principal
 
payment on
 
these loans
 
were originally
 
deferred for
 
six months
 
following
the
 
funding
 
date,
 
during
 
which
 
time
 
interest
 
would
 
continue
 
to
 
accrue.
 
On
 
October
 
7,
 
2020,
 
the
 
Paycheck
 
Protection
 
Program
Flexibility Act of 2020 (the “Flexibility
 
Act”) extended the deferral period for borrower
 
payments of principal, interest, and fees
 
on all
SBA PPP
 
loans
 
to
 
the
 
date
 
that
 
the
 
SBA remits
 
the
 
borrower’s
 
loan
 
forgiveness
 
amount to
 
the
 
lender
 
(or,
 
if the
 
borrower
 
does
 
not
apply for
 
loan forgiveness,
 
10 months
 
after the
 
end of
 
the borrower’s
 
loan forgiveness
 
covered period).
 
The extension
 
of the
 
deferral
period under the
 
Flexibility Act automatically
 
applied to all SBA
 
PPP
 
loans. The Corporation
 
has chosen to support
 
its customers and
the communities
 
it serves by
 
participating in
 
the SBA PPP
 
loan program
 
and loan modifications
 
in compliance
 
with the provisions
 
of
the CARES Act of 2020.
 
COVID-Related Regulatory Activities
 
During 2020, the federal
 
banking agencies took several
 
actions to mitigate the
 
stress on regulated banks
 
resulting from the COVID-
19
 
pandemic.
 
These
 
actions
 
were
 
generally
 
designed
 
to
 
facilitate
 
the
 
ability
 
of
 
banks
 
to
 
provide
 
responsible
 
credit
 
and
 
liquidity
 
to
businesses and
 
individuals affected
 
by the COVID-19
 
pandemic, and mitigate
 
the distorting effects
 
under regulatory
 
capital and other
requirements
 
resulting
 
from
 
the
 
pandemic.
 
In
 
addition
 
to
 
the
 
CECL
 
regulatory
 
capital
 
relief
 
discussed
 
above,
 
the
 
banking
 
agencies
adopted regulations
 
that, among
 
other things:
 
neutralized the
 
regulatory
 
capital and
 
liquidity effects
 
of banks
 
participating in
 
certain
COVID-related
 
Federal
 
Reserve
 
liquidity
 
facilities;
 
deferred
 
appraisal
 
and
 
valuation
 
requirements
 
after
 
the
 
closing
 
of
 
certain
residential
 
and
 
commercial
 
real
 
estate
 
transactions;
 
provided
 
temporary
 
relief
 
for
 
banks
 
from
 
the
 
FDIC’s
 
audit
 
and
 
reporting
requirements
 
for banks
 
that experienced
 
large
 
cash inflows
 
resulting
 
from participation
 
in the
 
SBA’s
 
PPP and
 
other COVID-related
facilities, or
 
otherwise resulting
 
from the
 
effects of
 
government stimulus
 
efforts.
 
These regulatory
 
actions were
 
taken in
 
conjunction
with
 
federal
 
financial
 
regulatory
 
efforts
 
to
 
encourage
 
banks
 
and
 
other
 
depositories
 
to
 
provide
 
responsible
 
credit
 
and
 
other
 
financial
assistance to consumers and small businesses in response to the pandemic.
 
Puerto Rico Banking Law
As
 
a
 
commercial
 
bank
 
organized
 
under
 
the
 
laws
 
of
 
the
 
Commonwealth
 
of
 
Puerto
 
Rico,
 
FirstBank
 
is
 
subject
 
to
 
supervision,
examination and regulation by the
 
commissioner of OCIF (the “Commissioner”)
 
pursuant to the Puerto Rico
 
Banking Law of 1933, as
amended (the “Banking Law”).
The Banking
 
Law contains various
 
provisions relating to
 
FirstBank and its
 
affairs, including
 
its incorporation and
 
organization, the
rights and responsibilities of its
 
directors, officers and
 
stockholders and its corporate powers,
 
lending limitations, capital requirements,
and investment requirements. In addition,
 
the Commissioner is given extensive rule-making
 
power and administrative discretion under
the Banking Law.
The Banking Law requires
 
every bank to maintain
 
a legal reserve, which shall
 
not be less than
 
20% of its demand
 
liabilities, except
government deposits (federal,
 
state and municipal) that
 
are secured by actual
 
collateral. The reserve is required
 
to be composed of
 
any
of
 
the
 
following
 
securities
 
or
 
a
 
combination
 
thereof:
 
(i) legal
 
tender
 
of
 
the
 
United
 
States;
 
(ii) checks
 
on
 
banks
 
or
 
trust
 
companies
located in any
 
part of Puerto
 
Rico that are
 
to be presented
 
for collection during
 
the day following
 
the day on
 
which they are
 
received;
(iii) money deposited
 
in other
 
banks provided
 
said deposits
 
are authorized
 
by the
 
Commissioner and
 
subject to
 
immediate collection;
(iv) federal
 
funds
 
sold
 
to any
 
Federal
 
Reserve
 
Bank
 
and
 
securities
 
purchased
 
under
 
agreements to
 
resell
 
executed
 
by the
 
bank
 
with
such funds
 
that are
 
subject to
 
be repaid
 
to the
 
bank on
 
or before
 
the close
 
of the
 
next
 
business day;
 
and
 
(v) any other
 
asset that
 
the
Commissioner identifies from time to time.
Section
 
17
 
of
 
the
 
Banking
 
Law
 
permits
 
Puerto
 
Rico
 
commercial
 
banks
 
to
 
make
 
loans
 
to
 
any
 
one
 
person,
 
firm,
 
partnership
 
or
corporation in an aggregate
 
amount of up to
 
15% of the sum of:
 
(i) the bank’s
 
paid-in capital; (ii) the bank’s
 
reserve fund; (iii) 50% of
the bank’s
 
retained earnings, subject
 
to certain limitations;
 
and (iv) any other
 
components that the
 
Commissioner may determine
 
from
time to time. If such loans are secured by
 
collateral worth at least 25% of the amount of the
 
loan, the aggregate maximum amount may
reach 33.33% of
 
the sum of
 
the bank’s
 
paid-in capital, reserve
 
fund, 50% of
 
retained earnings, subject
 
to certain limitations,
 
and such
other components
 
that the
 
Commissioner may
 
determine from
 
time to
 
time. There
 
are no
 
restrictions under
 
the Banking
 
Law on
 
the
amount of loans that
 
may be wholly secured
 
by bonds, securities and
 
other evidences of indebtedness
 
of the government of
 
the United
States,
 
or
 
of
 
the
 
Commonwealth
 
of
 
Puerto
 
Rico,
 
or
 
by
 
bonds,
 
not
 
in
 
default,
 
of
 
municipalities
 
or
 
instrumentalities
 
of
 
the
Commonwealth of Puerto Rico.
 
The Banking Law
 
requires that Puerto
 
Rico commercial banks prepare
 
each year a balance
 
summary of their
 
operations and submit
such balance
 
summary
 
for approval
 
at a
 
regular meeting
 
of stockholders,
 
together with
 
an explanatory
 
report thereon.
 
The Banking
Law also requires
 
that at least
 
10% of the
 
yearly net income
 
of a Puerto
 
Rico commercial bank
 
be credited annually
 
to a reserve
 
fund
until such reserve fund is in amount equal to the total paid-in-capital of the bank.
22
The
 
Banking
 
Law
 
also
 
provides
 
that
 
when
 
the
 
expenditures
 
of
 
a
 
Puerto
 
Rico
 
commercial
 
bank
 
are
 
greater
 
than
 
its
 
receipts,
 
the
excess
 
of the expenditures over
 
receipts must be charged
 
against the undistributed profits
 
of the bank, and
 
the balance, if any,
 
charged
against
 
the
 
reserve
 
fund,
 
as a
 
reduction
 
thereof.
 
If
 
there
 
is no
 
reserve
 
fund
 
sufficient
 
to cover
 
such balance
 
in
 
whole or
 
in part,
 
the
outstanding amount
 
must be
 
charged against
 
the capital
 
account and
 
no dividend
 
may be declared
 
until said
 
capital has
 
been restored
to its original amount and the amount in the reserve fund equals 20% of
 
the original capital.
The Finance Board, which
 
is composed of nine members
 
from enumerated Puerto Rico
 
Government agencies, instrumentalities and
public
 
corporations,
 
including
 
the
 
Commissioner,
 
has
 
the
 
authority
 
to
 
regulate
 
the
 
maximum
 
interest
 
rates
 
and
 
finance
 
charges
 
that
may be
 
charged on
 
loans to
 
individuals
 
and unincorporated
 
businesses in
 
Puerto Rico.
 
The current
 
regulations of
 
the Finance
 
Board
provide that the applicable
 
interest rate on loans
 
to individuals and unincorporated
 
businesses, including real estate
 
development loans
but excluding
 
certain other personal
 
and commercial loans
 
secured by mortgages
 
on real estate
 
properties, is
 
to be determined
 
by free
competition. Accordingly,
 
the regulations do
 
not set a maximum
 
rate for charges
 
on retail installment
 
sales contracts, small
 
loans, and
credit card purchases. Furthermore, there
 
is no maximum rate set for installment sales contracts involving
 
motor vehicles, commercial,
agricultural and industrial equipment, commercial electric appliances and
 
insurance premiums.
International Banking Center Regulatory Act of Puerto Rico (“IBE Act 52”)
 
The business and operations
 
of FirstBank International Branch
 
(“FirstBank IBE” or the “IBE
 
division of FirstBank”)
 
and FirstBank
Overseas Corporation (the IBE
 
subsidiary of FirstBank) are
 
subject to supervision and
 
regulation by the Commissioner.
 
FirstBank and
FirstBank
 
Overseas
 
Corporation
 
were
 
created
 
under
 
Puerto
 
Rico
 
Act
 
52-1989,
 
as
 
amended,
 
known
 
as
 
the
 
“International
 
Banking
Center
 
Regulatory
 
Act”
 
(the
 
IBE
 
Act
 
52),
 
which
 
provides
 
for
 
total
 
Puerto
 
Rico
 
tax
 
exemption
 
on
 
net
 
income
 
derived
 
by
 
an
 
IBE
operating in
 
Puerto Rico
 
on the specific
 
activities identified
 
in the
 
IBE Act 52.
 
An IBE
 
that operates
 
as a
 
unit of a
 
bank pays
 
income
taxes at the corporate standard
 
rates to the extent that
 
the IBE’s net
 
income exceeds 20% of the bank’s
 
total net taxable income. Under
the IBE Act 52, certain
 
sales, encumbrances, assignments, mergers,
 
exchanges or transfers of shares,
 
interests or participation(s) in the
capital
 
of
 
an
 
IBE
 
may
 
not be
 
initiated
 
without
 
the
 
prior
 
approval
 
of the
 
Commissioner.
 
The
 
IBE
 
Act
 
52
 
and
 
the regulations
 
issued
thereunder
 
by
 
the
 
Commissioner
 
(the
 
“IBE
 
Regulations”)
 
limit
 
the
 
business
 
activities
 
that
 
may
 
be
 
carried
 
out
 
by
 
an
 
IBE.
 
Such
activities are limited in part to persons and assets located outside of Puerto
 
Rico.
Pursuant to
 
the IBE Act
 
52 and the
 
IBE Regulations,
 
each of FirstBank
 
IBE and FirstBank
 
Overseas Corporation
 
must maintain
 
in
Puerto
 
Rico
 
books
 
and
 
records
 
of
 
its
 
transactions
 
in
 
the
 
ordinary
 
course
 
of
 
business.
 
FirstBank
 
IBE
 
and
 
FirstBank
 
Overseas
Corporation are
 
also required
 
thereunder to
 
submit to
 
the Commissioner
 
quarterly and
 
annual reports
 
of their
 
financial condition
 
and
results of operations, including annual audited financial statements.
The IBE Act
 
52 empowers
 
the Commissioner
 
to revoke
 
or suspend,
 
after notice
 
and hearing, a
 
license issued thereunder
 
if, among
other things, the IBE fails to
 
comply with the IBE Act 52, the IBE
 
Regulations or the terms of its license,
 
or if the Commissioner finds
that the business or affairs of the IBE are conducted in a manner
 
that is not consistent with the public interest.
In 2012, the Puerto Rico
 
government approved Act Number
 
273 (“Act 273”).
 
Act 273 replaces, prospectively,
 
IBE Act 52 with the
objective of
 
improving the
 
conditions for
 
conducting international
 
financial transactions
 
in Puerto Rico.
 
An IBE
 
existing on
 
the date
of approval
 
of Act
 
273, such
 
as FirstBank
 
IBE and
 
FirstBank Overseas
 
Corporation, can
 
continue operating
 
under IBE
 
Act 52,
 
or,
 
it
can
 
voluntarily
 
convert
 
to
 
an
 
International
 
Financial
 
Entity
 
(“IFE”)
 
under
 
Act
 
273
 
so
 
it
 
may
 
broaden
 
its
 
scope
 
of
 
Eligible
 
IFE
Activities, as defined below,
 
and obtain a grant of tax exemption under Act 273.
IFEs are
 
licensed by
 
the Commissioner,
 
and authorized
 
to conduct
 
certain
 
Act 273
 
specified
 
financial transactions
 
(“Eligible IFE
Activities”). Once licensed, an
 
IFE can request a grant
 
of tax exemption (“Tax
 
Grant”) from the Puerto
 
Rico Department of Economic
Development
 
and Commerce,
 
which will
 
enumerate
 
and secure
 
the following
 
tax benefits
 
provided by
 
Act 273
 
as contractual
 
rights
(
i.e.
, regardless of future changes in Puerto Rico law) for a 15-year period:
(i)
to the IFE:
 
●
a fixed
 
4% Puerto Rico income tax rate on the net income derived by the IFE from
 
its Eligible IFE Activities; and
●
full property and municipal license tax exemptions on such activities.
(ii)
to its shareholders:
 
●
6% income tax rate on distributions to Puerto Rico resident
 
shareholders of earnings and profits derived from the
 
Eligible IFE
Activities; and
 
●
full Puerto Rico income tax exemption on such distributions to non
 
-Puerto Rico resident shareholders.
 
 
23
The primary purpose of IFEs
 
is to attract Unites States and
 
foreign investors to Puerto Rico.
 
Consequently,
 
Act 273 authorizes IFEs
to engage
 
in traditional
 
banking and
 
financial transactions,
 
principally
 
with non-residents
 
of Puerto
 
Rico. Furthermore,
 
the scope
 
of
Eligible IFE Activities encompasses a wider variety of transactions
 
than those previously authorized to IBEs.
 
Act
 
187,
 
as
 
amended,
 
enacted
 
on
 
November
 
17,
 
2015,
 
requires
 
an
 
IBE
 
to
 
obtain
 
from
 
the
 
Commissioner
 
a
 
Certificate
 
of
Compliance every two years that certifies its compliance with the provisions
 
of IBE Act 52.
As
 
of
 
the
 
date
 
of
 
the
 
issuance
 
of
 
this
 
Annual
 
Report
 
on
 
Form
 
10-K,
 
FirstBank
 
IBE
 
and
 
FirstBank
 
Overseas
 
Corporation
 
are
operating under IBE Act 52.
Future Legislation and Regulation
 
Financial
 
legislation
 
and
 
regulation
 
is
 
dynamic
 
in
 
nature,
 
and
 
is
 
subject
 
to
 
regular
 
changes.
 
With
 
the
 
change
 
in
 
presidential
administrations and the assumption
 
by the Democratic party
 
of control of Congress,
 
legislative and regulatory action
 
of a “regulatory”
nature
 
is
 
possible,
 
although
 
the
 
agenda
 
of
 
the
 
Biden
 
administration
 
on
 
financial
 
services
 
legislative
 
and
 
regulatory
 
matters
 
has
 
not
been
 
specifically
 
outlined
 
at
 
this
 
time.
 
Additional
 
consumer
 
protection
 
laws
 
may
 
be
 
enacted,
 
and
 
the
 
FDIC,
 
Federal
 
Reserve,
 
and
CFPB
 
have
 
adopted,
 
and
 
may
 
adopt
 
in
 
the
 
future,
 
new
 
regulations
 
that
 
address,
 
among
 
other
 
things,
 
banks’
 
credit
 
card,
 
overdraft,
collection, privacy
 
and mortgage lending
 
practices.
 
Similarly,
 
changes in
 
Puerto Rico law
 
or actions by
 
the Commissioner
 
may have
an
 
impact
 
on
 
FirstBank’s
 
financial
 
condition
 
and
 
activities.
 
Additional
 
consumer
 
protection
 
regulatory
 
activity
 
is
 
possible
 
in
 
the
future.
 
Any proposals
 
and legislation,
 
if finally
 
adopted and
 
implemented, could
 
change banking
 
laws and
 
our operating
 
environment and
that
 
of
 
our
 
subsidiaries
 
in
 
ways
 
that
 
would
 
be
 
substantial
 
and
 
unpredictable.
 
We
 
cannot
 
determine
 
whether
 
such
 
proposals
 
and
legislation will be adopted,
 
or the ultimate effect
 
that such proposals and
 
legislation, if enacted, or
 
regulations issued to implement
 
the
same, would have upon our financial condition or results of operations.
Puerto Rico Income Taxes
Under the
 
Puerto Rico Internal
 
Revenue Code
 
of 2011,
 
as amended (the
 
“2011 PR
 
Code”), the
 
Corporation and
 
its subsidiaries are
treated
 
as
 
separate
 
taxable
 
entities
 
and
 
are
 
not
 
entitled
 
to
 
file
 
consolidated
 
tax
 
returns
 
and,
 
thus,
 
the
 
Corporation
 
is
 
generally
 
not
entitled
 
to
 
utilize
 
losses
 
from
 
one
 
subsidiary
 
to
 
offset
 
gains
 
in
 
another
 
subsidiary.
 
Accordingly,
 
to
 
obtain
 
a
 
tax
 
benefit
 
from
 
a
 
net
operating
 
loss
 
(“NOL”),
 
a
 
particular
 
subsidiary
 
must
 
be
 
able
 
to
 
demonstrate
 
sufficient
 
taxable
 
income
 
within
 
the
 
applicable
 
NOL
carry-forward
 
period.
 
The 2011
 
PR Code
 
provides
 
a dividend
 
received
 
deduction
 
of 100%
 
on dividends
 
received from
 
“controlled”
subsidiaries subject to taxation in Puerto Rico and 85% on dividends
 
received from other taxable domestic corporations.
 
The
 
Corporation
 
has
 
maintained
 
an
 
effective
 
tax
 
rate
 
lower
 
than
 
the
 
maximum
 
statutory
 
rate
 
in
 
Puerto
 
Rico,
 
which
 
has
 
resulted
mainly
 
from
 
investments
 
in
 
government
 
obligations
 
and
 
MBS
 
exempt
 
from
 
U.S.
 
and
 
Puerto
 
Rico
 
income
 
taxes
 
and
 
from
 
doing
business through an
 
IBE unit of the
 
Bank, and through the
 
Bank’s subsidiary,
 
FirstBank Overseas Corporation,
 
whose interest income
and gain on sales is exempt from Puerto Rico income taxation.
United States Income Taxes
 
As
 
a
 
Puerto
 
Rico
 
corporation,
 
First
 
BanCorp.
 
is
 
treated
 
as
 
a
 
foreign
 
corporation
 
for
 
U.S.
 
and
 
USVI
 
income
 
tax
 
purposes
 
and,
accordingly,
 
is generally
 
subject to
 
U.S. and
 
USVI income
 
tax only
 
on its income
 
from sources
 
within the
 
U.S. and
 
USVI or
 
income
effectively
 
connected with
 
the conduct
 
of a
 
trade or
 
business in
 
those jurisdictions.
 
Any
 
such tax
 
paid
 
in the
 
U.S. and
 
USVI is
 
also
creditable against the Corporation’s
 
Puerto Rico tax liability, subject
 
to certain conditions and limitations.
Insurance Operations Regulation
FirstBank Insurance Agency
 
is registered as an
 
insurance agency with
 
the Insurance Commissioner of
 
Puerto Rico and is subject
 
to
regulations
 
issued
 
by
 
the
 
Insurance
 
Commissioner
 
and
 
the
 
Division
 
of
 
Banking
 
and
 
Insurance
 
Financial
 
Regulation
 
in
 
the
 
USVI
relating
 
to,
 
among
 
other
 
things,
 
the
 
licensing
 
of
 
employees
 
and
 
sales
 
and
 
solicitation
 
and
 
advertising
 
practices,
 
and
 
by
 
the
 
Federal
Reserve as to certain consumer protection provisions mandated by
 
the Gramm-Leach-Bliley Act and its implementing regulations.
Mortgage Banking Operations
In
 
addition
 
to
 
FDIC
 
and
 
CFPB
 
regulations,
 
FirstBank
 
is
 
subject
 
to
 
the
 
rules
 
and
 
regulations
 
of
 
the
 
FHA,
 
VA,
 
FNMA,
 
FHLMC,
GNMA, and
 
the U.S.
 
Department of
 
Housing and
 
Urban Development
 
(“HUD”)
 
with respect
 
to originating,
 
processing,
 
selling and
servicing mortgage
 
loans and the
 
issuance and
 
sale of MBS.
 
Those rules
 
and regulations, among
 
other things,
 
prohibit discrimination
and
 
establish
 
underwriting
 
guidelines
 
that
 
include
 
provisions
 
for
 
inspections
 
and
 
appraisals,
 
require
 
credit
 
reports
 
on
 
prospective
borrowers
 
and
 
fix
 
maximum
 
loan
 
amounts,
 
and,
 
with
 
respect
 
to
VA
loans,
 
fix
 
maximum
 
interest
 
rates.
 
Moreover,
 
lenders
 
such
 
as
FirstBank are required
 
annually to submit
 
audited financial statements
 
to the FHA, VA,
 
FNMA, FHLMC, GNMA and
 
HUD and each
regulatory entity
 
has its
 
own financial
 
requirements. FirstBank’s
 
affairs are
 
also subject
 
to supervision
 
and examination
 
by the
 
FHA,
24
VA,
 
FNMA,
 
FHLMC,
 
GNMA
 
and
 
HUD
 
at
 
all
 
times
 
to
 
assure
 
compliance
 
with
 
applicable
 
regulations,
 
policies
 
and
 
procedures.
Mortgage origination activities are subject
 
to, among other requirements, the Equal
 
Credit Opportunity Act, TILA and
 
the RESPA
 
and
the
 
regulations
 
promulgated
 
thereunder
 
that,
 
among
 
other
 
things,
 
prohibit
 
discrimination
 
and
 
require
 
the
 
disclosure
 
of certain
 
basic
information to
 
mortgagors concerning
 
credit terms
 
and settlement
 
costs. FirstBank
 
is licensed
 
by the
 
Commissioner under
 
the Puerto
Rico
 
Mortgage
 
Banking
 
Law,
 
and,
 
as
 
such,
 
is
 
subject
 
to
 
regulation
 
by
 
the
 
Commissioner,
 
with
 
respect
 
to,
 
among
 
other
 
things,
licensing requirements and the establishment of maximum origination
 
fees on certain types of mortgage loan products.
 
25
Item 1A.
Risk Factors
There
 
follows
 
a
 
discussion
 
about
 
material
 
risks
 
and
 
uncertainties
 
that
 
could
 
impact
 
the
 
Corporation’s
 
businesses,
 
results
 
of
operations
 
and financial
 
condition, including
 
by causing
 
the Corporation’s
 
actual results
 
to differ
 
materially from
 
those projected
 
in
any
 
forward-looking
 
statements.
 
Other
 
risks
 
and
 
uncertainties,
 
including
 
those
 
not
 
currently
 
known
 
to
 
the
 
Corporation
 
or
 
its
management and those that the Corporation or its management
 
currently deems to be immaterial, could also affect
 
the Corporation in a
materially adverse
 
way in
 
future periods.
 
Thus, the
 
following should
 
not be
 
considered a
 
complete discussion
 
of all
 
of the
 
risks and
uncertainties the Corporation may face. See the discussion
 
under “Forward-Looking
 
Statements,”
 
in this Annual
 
Report on Form
 
10-K.
RISKS RELATING
 
TO THE CORPORATION’S
 
BUSINESS
Our level of non-performing assets may adversely affect our future results from
 
operations.
 
As of December 31, 2021,
 
we continued to have a
 
relevant amount of nonaccrual
 
loans, even though nonaccrual loans
 
decreased by
$94.4
 
million
 
to
 
$110.7
 
million
 
as
 
of
 
December
 
31,
 
2021,
 
or
 
46%,
 
from
 
$205.1
 
million
 
as
 
of
 
December
 
31,
 
2020.
 
Our
 
nonaccrual
loans represent
 
approximately 1%
 
of our
 
$11.1
 
billion loan
 
portfolio as
 
of December
 
31, 2021.
 
Non-performing
 
assets decreased
 
by
$135.4 million to $158.1 million as
 
of December 31, 2021,
 
or 46%, from $293.5
 
million as of December
 
31, 2020. If we
 
are unable to
effectively maintain the quality
 
of our loan portfolio, our financial
 
condition and results of operations
 
may be materially and adversely
affected.
Certain funding sources may not be available to us and our funding sources may
 
prove insufficient and/or costly to replace.
 
FirstBank
 
relies
 
primarily
 
on
 
customer
 
deposits,
 
the
 
issuance
 
of
 
brokered
 
CDs,
 
and
 
advances
 
from
 
the
 
FHLB
 
of
 
New
 
York
 
to
maintain its lending
 
activities and to replace
 
certain maturing liabilities.
 
As of December 31,
 
2021, we had $100.4
 
million in brokered
CDs
 
outstanding,
 
representing
 
approximately
 
1%
 
of
 
our
 
total
 
deposits,
 
and
 
a
 
reduction
 
of
 
$115.8
 
million
 
from
 
the
 
year
 
ended
December
 
31, 2020.
 
Approximately
 
$63.6 million
 
in brokered
 
CDs mature
 
over the
 
twelve months
 
ending December
 
31, 202
 
2, and
the average
 
term to
 
maturity of
 
the brokered
 
CDs outstanding
 
as of
 
December 31,
 
2021 was
 
approximately
 
1.2 years.
 
None of
 
these
CDs
 
are
 
callable
 
at
 
the
 
Corporation’s
 
option.
 
In
 
addition,
 
the
 
Corporation
 
had
 
$200
 
million
 
of
 
FHLB
 
advances
 
outstanding
 
as
 
of
December 31, 2021 that are scheduled
 
to mature during 2022.
Although FirstBank has historically
 
been able to replace maturing deposits
 
and advances, we may not be
 
able to replace these funds
in the future if our financial condition or general
 
market conditions change. If we are unable to maintain access to
 
funding sources, our
results of operations and liquidity would be adversely affected.
Alternate
 
sources
 
of
 
funding
 
may
 
carry
 
higher
 
costs
 
than
 
sources
 
currently
 
utilized.
 
If
 
we
 
are
 
required
 
to
 
rely
 
heavily
 
on
 
more
expensive funding sources, profitability would be adversely affected.
We
 
may
 
determine
 
to
 
seek
 
debt
 
financing
 
in
 
the
 
future
 
to
 
achieve
 
our
 
long-term
 
business
 
objectives.
 
Additional
 
borrowings,
 
if
sought, may not be available to us, or if available,
 
may not be on acceptable terms. The availability of additional
 
financing will depend
on
 
a
 
variety
 
of
 
factors,
 
such
 
as
 
market
 
conditions,
 
the
 
general
 
availability
 
of
 
credit,
 
our
 
credit
 
ratings
 
and
 
our
 
credit
 
capacity.
 
In
addition,
 
FirstBank may seek to sell loans as an additional source of liquidity.
 
If additional financing sources are unavailable or are not
available on acceptable terms,
 
our profitability and future prospects could be adversely affected.
We depend
 
on cash dividends from FirstBank to meet our cash obligations.
 
As a holding company,
 
dividends from FirstBank, our banking subsidiary,
 
have provided a substantial portion of our cash flow used
to
 
service
 
the
 
interest
 
payments
 
on
 
our
 
TRuPs
 
and
 
other
 
obligations.
 
FirstBank
 
is
 
limited
 
by
 
law
 
in
 
its
 
ability
 
to
 
make
 
dividend
payments
 
and other
 
distributions
 
to us
 
based on
 
its earnings
 
and
 
capital position.
 
A failure
 
by
 
FirstBank
 
to generate
 
sufficient
 
cash
flow to make
 
dividend payments to
 
us may have
 
a negative impact
 
on our results
 
of operation
 
and financial
 
condition. Also, a
 
failure
by
 
the
 
bank
 
holding
 
company
 
to
 
access
 
sufficient
 
liquidity
 
resources
 
to
 
meet
 
all
 
projected
 
cash
 
needs
 
in
 
the
 
ordinary
 
course
 
of
business may have a detrimental impact on our financial condition and ability
 
to compete in the market.
Our allowance for credit losses may not be adequate to cover actual losses, and we may be
 
required to materially increase our
allowance, which may adversely affect our capital
 
ratios, financial condition and results of operations.
 
We are subject,
 
among other things, to the risk of loss from loan
 
defaults and foreclosures with respect to the loans we originate
 
and
purchase. We
 
recognize periodic
 
credit loss
 
expenses on
 
loans, which
 
leads to
 
reductions in
 
our income
 
from operations,
 
in order
 
to
maintain
 
our ACL
 
on loans
 
at a
 
level that
 
our management
 
deems to
 
be appropriate
 
based upon
 
an assessment
 
of the
 
quality
 
of the
loan and
 
lease portfolios.
 
Management may
 
fail to
 
accurately estimate
 
the level
 
of loan
 
and lease
 
losses or
 
may have
 
to increase
 
our
credit loss
 
expense on
 
loans in
 
the future
 
as a
 
result of
 
new information
 
regarding existing
 
loans, future
 
increase in
 
nonaccrual loans
beyond
 
what
 
was
 
forecasted,
 
foreclosure
 
actions
 
and
 
loan
 
modifications,
 
changes
 
in
 
current
 
and
 
expected
 
economic
 
and
 
other
26
conditions affecting
 
borrowers or
 
for other
 
reasons beyond
 
our control.
 
In addition,
 
the bank
 
regulatory agencies
 
periodically review
the
 
adequacy
 
of our
 
ACL on
 
loans
 
and
 
may
 
require
 
an
 
increase in
 
the
 
credit loss
 
expense on
 
loans or
 
the recognition
 
of
 
additional
classified loans and loan charge-offs, based
 
on judgments that differ from those of management.
 
The
 
level
 
of
 
the
 
allowance
 
reflects
 
management’s
 
estimates
 
based
 
upon
 
various
 
assumptions
 
and
 
judgments
 
as
 
to
 
specific
 
credit
risks,
 
its
 
evaluation
 
of
 
industry
 
concentrations,
 
loan
 
loss
 
experience,
 
current
 
loan
 
portfolio
 
quality,
 
present
 
economic,
 
political
 
and
regulatory
 
conditions,
 
unidentified
 
losses
 
inherent
 
in
 
the
 
current
 
loan
 
portfolio
 
and,
 
since
 
the
 
beginning
 
of
 
2020,
 
reasonable
 
and
supportable forecasts. The determination of
 
the appropriate level of the ACL on
 
loans inherently involves a high degree of
 
subjectivity
and
 
requires
 
management
 
to make
 
significant
 
estimates and
 
judgments
 
regarding
 
current credit
 
risks and
 
future
 
trends, all
 
of which
may undergo
 
material changes.
 
If our
 
estimates prove
 
to be
 
incorrect, our
 
ACL on
 
loans may
 
not be
 
sufficient to
 
cover losses
 
in our
loan portfolio and our credit loss expense on loans could increase substantially.
 
In addition, any increases in our credit loss expense on
 
loans or any loan losses in excess of our ACL on loans could have a material
adverse effect on our future capital ratios, financial
 
condition and results of operations.
 
The Corporation’s force-placed
 
insurance policies could be disputed by the customer.
The Corporation
 
maintains force-placed
 
insurance policies
 
that have
 
been put
 
into place
 
when a
 
borrower’s
 
insurance policy
 
on a
property has been
 
canceled, lapsed or was
 
deemed insufficient and
 
the borrower did not
 
secure a replacement policy.
 
A borrower may
make
 
a claim
 
against the
 
Corporation
 
under
 
such force
 
-placed insurance
 
policy and
 
the failure
 
of the
 
Corporation
 
to resolve
 
such a
claim
 
to
 
the
 
borrower’s
 
satisfaction
 
may
 
result
 
in
 
a
 
dispute
 
between
 
the
 
borrower
 
and
 
the
 
Corporation,
 
which
 
if
 
not
 
adequately
resolved, could have an adverse effect on the Corporation
.
Downgrades in our credit ratings could further increase the cost of
 
borrowing funds.
The
 
Corporation’s
 
ability to
 
access new
 
non-deposit
 
sources of
 
funding
 
could be
 
adversely
 
affected
 
by downgrades
 
in our
 
credit
ratings. The Corporation’s
 
liquidity is to a
 
certain extent contingent upon
 
its ability to obtain
 
external sources of funding
 
to finance its
operations. The
 
Corporation’s
 
current credit
 
ratings and
 
any downgrades
 
in such
 
credit ratings
 
can hinder
 
the Corporation’s
 
access to
new
 
forms
 
of
 
external
 
funding
 
and/or
 
cause
 
external
 
funding
 
to
 
be
 
more
 
expensive,
 
which
 
could
 
in
 
turn
 
adversely
 
affect
 
results
 
of
operations.
Defective and repurchased loans may harm our business and financial condition.
 
In
 
connection
 
with
 
the
 
sale
 
and
 
securitization
 
of
 
loans,
 
we
 
are
 
required
 
to
 
make
 
a
 
variety
 
of
 
customary
 
representations
 
and
warranties relating
 
to the
 
loans sold
 
or securitized.
 
Our obligations
 
with respect
 
to these
 
representations and
 
warranties are
 
generally
outstanding
 
for
 
the
 
life
 
of
 
the
 
loan,
 
and
 
relate
 
to,
 
among
 
other
 
things:
 
(i)
 
compliance
 
with
 
laws
 
and
 
regulations;
 
(ii)
 
underwriting
standards; (iii)
 
the accuracy
 
of information
 
in the
 
loan documents
 
and loan
 
files; and
 
(iv) the
 
characteristics and
 
enforceability of
 
the
loan.
A loan that
 
does not comply
 
with the representations
 
and warranties made
 
may take longer
 
to sell, may
 
impact our ability to
 
obtain
third-party
 
financing
 
for
 
the
 
loan,
 
and
 
may
 
not
 
be
 
saleable
 
or
 
may
 
be
 
saleable
 
only
 
at
 
a
 
significant
 
discount.
 
If
 
such a
 
loan
 
is
 
sold
before
 
we
 
detect
 
non-compliance,
 
we
 
may
 
be
 
obligated
 
to repurchase
 
the
 
loan
 
and
 
bear
 
any
 
associated
 
loss directly,
 
or
 
we
 
may
 
be
obligated
 
to
 
indemnify
 
the purchaser
 
against
 
any
 
loss,
 
either
 
of
 
which
 
could
 
reduce
 
our cash
 
available
 
for
 
operations
 
and
 
liquidity.
Management
 
believes
 
that
 
it has
 
established
 
controls
 
to
 
ensure
 
that
 
loans
 
are
 
originated
 
in
 
accordance
 
with
 
the
 
secondary
 
market’s
requirements, but certain employees may make mistakes or may deliberately
 
violate our lending policies.
Our controls and procedures
 
may fail or be circumvented,
 
our risk management policies and
 
procedures may be inadequate
 
and
operational risks could adversely affect our consolidated
 
results of operations.
 
We
 
may fail
 
to identify
 
and manage
 
risks related
 
to a
 
variety of
 
aspects of
 
our business,
 
including, but
 
not limited
 
to, operational
risk,
 
interest-rate
 
risk,
 
trading
 
risk,
 
fiduciary
 
risk,
 
legal
 
and
 
compliance
 
risk,
 
liquidity
 
risk
 
and
 
credit
 
risk.
 
We
 
have
 
adopted
 
and
periodically
 
improve
 
various
 
controls,
 
procedures,
 
policies
 
and
 
systems
 
to
 
monitor
 
and
 
manage
 
risk.
 
Any
 
improvements
 
to
 
our
controls, procedures,
 
policies and
 
systems, however,
 
may not
 
be adequate
 
to identify
 
and manage
 
the risks
 
in our
 
various businesses.
If our
 
risk framework
 
is ineffective,
 
either because
 
it fails to
 
keep pace
 
with changes in
 
the financial
 
markets or
 
our businesses or
 
for
other
 
reasons,
 
we
 
could
 
incur
 
losses,
 
suffer
 
reputational
 
damage,
 
or
 
find
 
ourselves
 
out
 
of
 
compliance
 
with
 
applicable
 
regulatory
mandates or expectations.
 
We may also be
 
subject to disruptions from external events,
 
such as natural disasters and cyber-attacks, which could cause delays
 
or
disruptions
 
to
 
operational
 
functions,
 
including
 
information
 
processing
 
and
 
financial
 
market
 
settlement
 
functions.
 
In
 
addition,
 
our
customers,
 
vendors
 
and
 
counterparties
 
could
 
suffer
 
from
 
such
 
events.
 
Should
 
these
 
events
 
affect
 
us,
 
or
 
the
 
customers,
 
vendors
 
or
27
counterparties with
 
which we
 
conduct business,
 
our consolidated
 
results of
 
operations could
 
be negatively
 
affected. When
 
we record
balance
 
sheet
 
reserves
 
for
 
probable
 
loss
 
contingencies
 
related
 
to
 
operational
 
losses,
 
we
 
may
 
be
 
unable
 
to
 
accurately
 
estimate
 
our
potential
 
exposure,
 
and
 
any
 
reserves
 
we
 
establish
 
to
 
cover
 
operational
 
losses
 
may
 
not
 
be
 
sufficient
 
to
 
cover
 
our
 
actual
 
financial
exposure, which
 
may have
 
a material
 
impact on
 
our consolidated
 
results of
 
operations or
 
financial condition
 
for the
 
periods in
 
which
we recognize the losses.
Our businesses may be adversely affected by litigation.
We
 
have, in
 
the past,
 
been party
 
to claims
 
and legal
 
actions by
 
our customers,
 
or subject
 
to regulatory
 
supervisory actions
 
by the
government on
 
behalf of
 
customers, relating
 
to our
 
performance of
 
fiduciary or
 
contractual responsibilities.
 
In the
 
past, we
 
have also
been
 
subject
 
to
 
securities
 
class
 
action
 
litigation
 
by
 
our
 
shareholders
 
and
 
we
 
have
 
also
 
faced
 
employment
 
lawsuits
 
and
 
other
 
legal
claims. In
 
any future
 
claims or
 
actions, demands
 
for substantial
 
monetary damages
 
may be
 
asserted against
 
us, resulting
 
in financial
liability
 
or
 
an
 
adverse
 
effect
 
on
 
our
 
reputation
 
among
 
investors
 
or
 
on
 
customer
 
demand
 
for
 
our
 
products
 
and
 
services.
 
A
 
securities
class
 
action
 
suit
 
against
 
us
 
in
 
the
 
future
 
could
 
result
 
in
 
substantial
 
costs,
 
potential
 
liabilities
 
and
 
the
 
diversion
 
of
 
management’s
attention
 
and
 
resources.
 
We
 
may
 
be
 
unable
 
to
 
accurately
 
estimate
 
our
 
exposure
 
to
 
litigation
 
risk
 
when
 
we
 
record
 
balance
 
sheet
reserves
 
for
 
probable
 
loss
 
contingencies.
 
As
 
a
 
result,
 
reserves
 
we
 
establish
 
to
 
cover
 
any
 
settlements
 
or
 
judgements
 
may
 
not
 
be
sufficient
 
to cover
 
our actual
 
financial
 
exposure, which
 
has occurred
 
in the
 
past and
 
may occur
 
in the
 
future, resulting
 
in a
 
material
adverse impact on our consolidated results of operations or financial condition.
 
In
 
the
 
ordinary
 
course
 
of
 
our
 
business,
 
we
 
are
 
also
 
subject
 
to
 
various
 
regulatory,
 
governmental
 
and
 
law
 
enforcement
 
inquiries,
investigations
 
and subpoenas.
 
These may
 
be directed
 
generally to
 
participants in
 
the businesses
 
in which
 
we are
 
involved or
 
may be
specifically directed
 
at us. In
 
regulatory enforcement
 
matters, claims for
 
disgorgement, the
 
imposition of
 
penalties and
 
the imposition
of other remedial sanctions are possible.
 
The resolution
 
of legal
 
actions or
 
regulatory
 
matters, when
 
unfavorable, has
 
had, and
 
could in
 
the future
 
have, a
 
material adverse
effect on our consolidated results of operations for
 
the quarter in which such actions or matters are resolved or a reserve is established.
 
Our businesses may be negatively affected by adverse
 
publicity or other reputational harm.
Our relationships
 
with many of
 
our customers
 
are predicated upon
 
our reputation
 
as a fiduciary
 
and a service
 
provider that adheres
to
 
the
 
highest
 
standards
 
of
 
ethics,
 
service
 
quality
 
and
 
regulatory
 
compliance.
 
Adverse
 
publicity,
 
regulatory
 
actions,
 
litigation,
operational
 
failures,
 
the failure
 
to meet
 
customer
 
expectations
 
and
 
other
 
issues with
 
respect
 
to one
 
or
 
more of
 
our
 
businesses could
materially and
 
adversely affect
 
our reputation,
 
or our
 
ability to
 
attract and
 
retain customers
 
or obtain
 
sources of
 
funding for
 
the same
or other businesses. Preserving
 
and enhancing our reputation
 
also depends on maintaining
 
systems and procedures that
 
address known
risks
 
and
 
regulatory
 
requirements,
 
as
 
well
 
as
 
our
 
ability
 
to
 
identify
 
and
 
mitigate
 
additional
 
risks
 
that
 
arise
 
due
 
to
 
changes
 
in
 
our
businesses,
 
the
 
market
 
places
 
in
 
which
 
we
 
operate,
 
the
 
regulatory
 
environment
 
and
 
customer
 
expectations.
 
If
 
we
 
fail
 
to
 
promptly
address matters that bear on our reputation,
 
our reputation may be materially adversely affected and our
 
business may suffer.
Any impairment of our goodwill or other intangible assets may adversely affect
 
our operating results.
If our goodwill or other intangible assets become impaired, we may be
 
required to record a significant charge to earnings.
Goodwill is
 
tested for
 
impairment on
 
an annual
 
basis, and
 
more frequently
 
if events
 
or circumstances
 
lead management
 
to believe
the values of
 
goodwill may
 
be impaired.
 
Other intangible assets
 
are amortized
 
over the projected
 
useful lives of
 
the related intangible
asset,
 
generally
 
on
 
a
 
straight-line
 
basis,
 
and
 
these
 
assets
 
are
 
reviewed
 
periodically
 
for
 
impairment
 
when
 
event
 
or
 
changes
 
in
circumstances
 
indicate
 
that
 
the
 
carrying
 
amount
 
may
 
not
 
exceed
 
their
 
fair
 
value.
 
Factors
 
that
 
may
 
be
 
considered
 
a
 
change
 
in
circumstances
 
indicating
 
that
 
the
 
carrying
 
value
 
of
 
the
 
goodwill
 
or
 
amortizable
 
intangible
 
assets
 
may
 
not
 
be
 
recoverable
 
includes
reduced future
 
cash flow estimates,
 
decreases in the
 
current market
 
price of
 
our common
 
shares, negative
 
information concerning
 
the
terminal value of similarly situated insured depository institutions
 
,
 
and slower growth rates in the industry.
The goodwill
 
annual impairment
 
evaluation process
 
includes a
 
qualitative assessment
 
of events
 
and circumstances
 
that may
 
affect
the reporting
 
unit's fair
 
value to
 
determine whether
 
it was
 
more likely
 
than not
 
that the
 
fair value
 
of any
 
reporting unit
 
was less
 
than
it’s
 
carrying
 
amount,
 
including
 
goodwill.
 
If
 
the
 
result
 
of
 
the
 
qualitative
 
assessment
 
indicates
 
that
 
it
 
is
 
more
 
likely
 
than
 
not
 
that
 
the
carrying
 
value
 
of
 
goodwill
 
exceed
 
its
 
fair
 
value,
 
a
 
quantitative
 
analysis
 
is
 
made
 
to
 
determine
 
the
 
amount
 
of
 
goodwill
 
impairment.
Analyzing
 
goodwill
 
includes
 
consideration
 
of
 
various
 
factors
 
that
 
continue
 
to
 
rapidly
 
evolve
 
and
 
for
 
which
 
significant
 
uncertainty
remains, including
 
the impact of
 
the COVID-19 pandemic
 
on the economy.
 
Further weakening
 
in the economic
 
environment, such
 
as
decline in the performance of the reporting
 
units or other factors, could cause the fair value of one
 
or more of the reporting units to fall
below
 
their
 
carrying
 
value,
 
resulting
 
in
 
a
 
goodwill
 
impairment
 
charge.
 
Actual
 
values may
 
differ
 
significantly
 
from this
 
assessment.
Such differences
 
could result in
 
future impairment of
 
goodwill that would,
 
in turn, negatively
 
impact our results
 
of operations and
 
the
reporting
 
unit to
 
which the
 
goodwill relates.
 
During the
 
fourth
 
quarter of
 
2021, management
 
performed
 
a qualitative
 
analysis of
 
the
28
carrying
 
amount
 
of
 
goodwill,
 
and
 
concluded
 
that
 
it
 
is
 
more-likely-than-not
 
that
 
the
 
fair
 
value
 
of
 
the
 
reporting
 
units
 
exceeded
 
its
carrying value.
 
As of
 
December 31,
 
2021, the
 
book value
 
of our
 
goodwill was
 
$38.6 million,
 
which was
 
recorded at
 
FirstBank.
 
If an
 
impairment
determination
 
is
 
made
 
in
 
a
 
future
 
reporting
 
period,
 
our
 
earnings
 
and
 
book
 
value
 
of
 
goodwill
 
will
 
be
 
reduced
 
by
 
the
 
amount
 
of
 
the
impairment. If an impairment
 
loss is recorded, it
 
will have little or no
 
impact on the tangible book
 
value of our Common Stock,
 
or our
regulatory capital
 
levels, but such
 
an impairment
 
loss could significantly
 
reduce FirstBanks’ earnings
 
and thereby restrict
 
FirstBank’s
ability to make dividend payments to us without prior
 
regulatory approval, because Federal Reserve policy states
 
that the bank holding
company dividends should be paid from current earnings.
 
Recognition of deferred tax assets is dependent upon the generation of future taxable
 
income by the Bank.
 
As
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation
 
had
 
a
 
deferred
 
tax
 
asset
 
of
 
$208.5
 
million
 
(net
 
of
 
a
 
valuation
 
allowance
 
of
 
$107.3
million,
 
including
 
a
 
valuation
 
allowance
 
of
 
$69.7
 
million
 
against the
 
deferred
 
tax
 
assets
 
of
 
FirstBank).
 
Under
 
Puerto
 
Rico
 
law,
 
the
Corporation
 
and its
 
subsidiaries, including
 
FirstBank, are
 
treated as
 
separate taxable
 
entities and
 
are not
 
entitled to
 
file consolidated
tax
 
returns.
 
Accordingly,
 
to
 
obtain
 
a
 
tax
 
benefit
 
from
 
net
 
operating
 
losses
 
(“NOLs”),
 
a
 
particular
 
subsidiary
 
must
 
be
 
able
 
to
demonstrate sufficient
 
taxable income.
 
To
 
obtain the
 
full benefit
 
of the
 
applicable deferred
 
tax asset
 
attributable to
 
NOLs, FirstBank
must have sufficient taxable income within
 
the applicable carryforward period. Pursuant to the 2011
 
PR Code, the carryforward period
for NOLs
 
incurred during
 
taxable years
 
that commenced
 
after December
 
31, 2004
 
and ended
 
before January
 
1, 2013
 
is 12
 
years; for
NOLs incurred
 
during taxable
 
years commencing
 
after December
 
31, 2012,
 
the carryover
 
period is
 
10 years.
 
Accounting for
 
income
taxes
 
requires
 
that
 
companies
 
assess
 
whether
 
a
 
valuation
 
allowance
 
should
 
be
 
recorded
 
against
 
their
 
deferred
 
tax
 
asset based
 
on
 
an
assessment of
 
the amount
 
of the
 
deferred tax
 
asset that
 
is more
 
likely than
 
not to
 
be realized.
 
Due to
 
significant estimates
 
utilized in
determining
 
the valuation
 
allowance and
 
the potential
 
for changes
 
in facts
 
and circumstances,
 
in the
 
future, the
 
Corporation may
 
not
be able to reverse the remaining valuation allowance or may need to increase
 
its current deferred tax asset valuation allowance.
The Corporation’s
 
judgments regarding
 
tax accounting
 
policies and
 
the resolution
 
of tax
 
disputes may
 
impact the
 
Corporation’s
earnings and cash
 
flow, and
 
changes in the
 
tax laws of
 
multiple jurisdictions can
 
materially affect
 
our operations, tax
 
obligations,
and effective tax rate.
 
Significant
 
judgment
 
is
 
required
 
in
 
determining
 
the
 
Corporation’s
 
effective
 
tax
 
rate
 
and
 
in
 
evaluating
 
its
 
tax
 
positions.
 
The
Corporation
 
provides
 
for
 
uncertain
 
tax
 
positions
 
when
 
such
 
tax
 
positions
 
do
 
not
 
meet
 
the
 
recognition
 
thresholds
 
or
 
measurement
criteria prescribed by applicable GAAP.
 
Fluctuations in federal,
 
state, local, and foreign
 
taxes or a change
 
to uncertain tax positions,
 
including related interest
 
and penalties,
may impact
 
the Corporation’s
 
effective tax
 
rate. When particular
 
tax matters arise,
 
a number
 
of years
 
may elapse before
 
such matters
are audited
 
and finally
 
resolved. In
 
addition,
 
the Puerto
 
Rico Department
 
of Treasury
 
(“PRTD”),
 
the U.S.
 
Internal
 
Revenue Service
(“IRS”),
 
and
 
the
 
tax
 
authorities
 
in
 
the
 
jurisdictions
 
in
 
which
 
we
 
operate
 
may
 
challenge
 
our
 
tax
 
positions
 
and
 
we
 
may
 
estimate
 
and
provide
 
for
 
potential liabilities
 
that may
 
arise out
 
of tax
 
audits to
 
the extent
 
that uncertain
 
tax positions
 
fail to
 
meet the
 
recognition
standard under
 
applicable GAAP.
 
Unfavorable resolution
 
of any
 
tax matter
 
could increase
 
the effec
 
tive tax
 
rate and
 
could result
 
in a
material increase in our tax expense. Resolution of a tax issue may require
 
the use of cash in the year of resolution.
First BanCorp. is subject
 
to Puerto Rico income
 
tax on its income
 
from all sources. FirstBank
 
is treated as a
 
foreign corporation for
U.S. and USVI income
 
tax purposes and is
 
generally subject to U.S.
 
and USVI income tax
 
only on its income
 
from sources within the
U.S.
 
and
 
USVI
 
or
 
income
 
effectively
 
connected
 
with
 
the
 
conduct
 
of
 
a
 
trade
 
or
 
business
 
in
 
those
 
regions.
 
The
 
USVI
 
jurisdiction
imposes
 
income
 
taxes
 
based
 
on
 
the
 
U.S.
 
Internal
 
Revenue
 
Code
 
under
 
the
 
“mirror
 
system”
 
established
 
by
 
the
 
Naval
 
Service
Appropriations Act of 1922. However,
 
the USVI jurisdiction also imposes an additional 10% surtax on the USVI tax liability,
 
if any.
These
 
tax
 
laws
 
are
 
complex
 
and
 
subject
 
to
 
different
 
interpretations.
 
We
 
must
 
make
 
judgments
 
and
 
interpretations
 
about
 
the
application
 
of
 
these
 
inherently
 
complex
 
tax
 
laws
 
when
 
determining
 
our
 
provision
 
for
 
income
 
taxes,
 
our
 
deferred
 
tax
 
assets
 
and
liabilities, and
 
our valuation
 
allowance. In
 
addition, legislative
 
changes, particularly
 
changes in
 
tax laws,
 
could adversely
 
impact our
results of operations.
Changes in applicable
 
tax laws in
 
Puerto Rico, the
 
U.S., or other
 
jurisdictions or tax
 
authorities’ new interpretations
 
could result in
increases in our overall taxes and the Corporation’s
 
financial condition or results of operations may be adversely impacted.
Our ability to use our net operating loss (“NOL”) carryforwards may be
 
limited.
The
 
Corporation
 
has
 
Puerto
 
Rico,
 
U.S.
 
and
 
USVI
 
sourced
 
NOL
 
carryforwards.
 
Section
 
382
 
of
 
the
 
U.S.
 
Internal
 
Revenue
 
Code
(“Section 382”) limits the ability
 
to utilize U.S. and USVI
 
NOLs for income tax purposes,
 
respectively,
 
at such jurisdictions following
an
 
event
 
of
 
an
 
ownership
 
change.
 
Generally,
 
an
 
“ownership
 
change”
 
occurs
 
when
 
certain
 
shareholders
 
increase
 
their
 
aggregate
ownership
 
by
 
more
 
than
 
50
 
percentage
 
points
 
over
 
their
 
lowest
 
ownership
 
percentage
 
over
 
a
 
three-year
 
testing
 
period.
 
Section
 
 
 
29
1034.04(u)
 
of the
 
2011
 
PR Code
 
is significantly
 
similar to
 
Section 382.
 
However,
 
Act 60-2019
 
amended the
 
PR Code
 
to repeal
 
the
corporate NOL carryover limitations upon change in control for taxable
 
years beginning after December 31, 2018.
 
Upon the occurrence of a Section 382 ownership change, the use of
 
NOLs attributable to the period prior to the ownership change is
subject
 
to
 
limitations
 
and
 
only
 
a
 
portion
 
of
 
the
 
U.S.
 
and
 
USVI
 
NOLs,
 
as
 
applicable,
 
may
 
be
 
used
 
by
 
the
 
Corporation
 
to
 
offset
 
the
annual
 
U.S.
 
and
 
USVI
 
taxable
 
income,
 
if
 
any.
 
In
 
2017,
 
the
 
Corporation
 
completed
 
a
 
formal
 
ownership
 
change
 
analysis
 
within
 
the
meaning of Section 382 covering
 
a comprehensive period, and concluded
 
that an ownership change, for U.S. and
 
USVI purposes only,
had
 
occurred
 
during
 
such
 
period.
 
The
 
Section
 
382
 
limitation
 
has
 
resulted
 
in
 
higher
 
U.S.
 
and
 
USVI
 
income
 
tax
 
liabilities
 
than
 
we
would have incurred in the absence of such limitation.
 
It is possible that
 
the utilization of our
 
U.S. and USVI NOLs
 
could be further
 
limited due to future
 
changes in our stock
 
ownership,
as
 
a
 
result
 
of
 
either
 
sales
 
of
 
our
 
outstanding
 
shares
 
or
 
issuances
 
of
 
new
 
shares
 
that
 
could
 
separately
 
or
 
cumulatively
 
trigger
 
an
ownership
 
change
 
and,
 
consequently,
 
a
 
Section
 
382
 
limitation.
 
Any
 
further
 
Section
 
382
 
limitations
 
may
 
result
 
in
 
greater
 
U.S.
 
and
USVI tax
 
liabilities than
 
we would
 
incur
 
in the
 
absence
 
of such
 
a limitation
 
and
 
any
 
increased liabilities
 
could
 
adversely affect
 
our
earnings and cash
 
flow.
 
We
 
may be able
 
to mitigate the adverse
 
effects associated with
 
a Section 382
 
limitation in the U.S.
 
and USVI
to the extent that we could credit any resulting
 
additional U.S. and USVI tax liability against our tax
 
liability in Puerto Rico. However,
our
 
ability
 
to
 
reduce
 
our
 
Puerto
 
Rico
 
tax
 
liability
 
through
 
such
 
a
 
credit
 
or
 
deduction
 
will
 
depend
 
on
 
our
 
tax
 
profile
 
at
 
each
 
annual
taxable period, which is dependent on various factors.
RISKS RELATED
 
TO THE BSPR
 
ACQUISITION
We may not be able
 
to realize the anticipated benefits of the BSPR acquisition.
Our future
 
growth and
 
profitability depend,
 
in part,
 
on the
 
ability to
 
successfully manage
 
the operations
 
we acquired
 
in the
 
BSPR
Acquisition. The
 
success of
 
the BSPR Acquisition
 
will depend
 
on, among
 
other things,
 
the accuracy
 
of our
 
assessment of
 
the quality
of the acquired
 
assets, and our
 
ability to realize
 
anticipated cost savings
 
and manage the
 
acquired companies in
 
a manner that
 
permits
growth
 
opportunities
 
and
 
does
 
not
 
materially
 
disrupt
 
our
 
or
 
the
 
acquired
 
business’s
 
existing
 
customer
 
relationships
 
and
 
service
 
or
result in
 
decreased revenue
 
resulting from
 
any loss
 
of customers.
 
The loss of
 
key employees
 
in connection
 
with the
 
acquisition could
adversely affect our ability to successfully conduct
 
the combined operations. If we are not able to successfully
 
achieve our objective to
realize the
 
anticipated benefits
 
of the
 
acquisition and
 
fully integrate
 
BSPR’s
 
business, that
 
could be
 
a material
 
adverse effect
 
on our
business or financial condition, results of operations, and future prospects.
RISKS RELATING
 
TO TECHNOLOGY AND CYBERSECURITY
 
We
 
must respond to
 
rapid technological changes,
 
and these changes
 
may be more
 
difficult or expensive
 
than anticipated.
 
We
 
may
also
 
be
 
negatively
 
affected
 
if
 
we
 
fail
 
to
 
identify
 
and
 
address
 
operational
 
risks
 
associated
 
with
 
the
 
introduction
 
of
 
or
 
changes
 
to
products and services.
Like
 
most
 
financial
 
institutions,
 
FirstBank
 
significantly
 
depends
 
on
 
technology
 
to
 
deliver
 
its
 
products
 
and
 
other
 
services
 
and
 
to
otherwise conduct
 
business. To
 
remain technologically
 
competitive and
 
operationally efficient,
 
FirstBank invests
 
in system
 
upgrades,
new
 
technological
 
solutions,
 
and
 
other
 
technology
 
initiatives.
If
 
competitors
 
introduce
 
new
 
products
 
and
 
services
 
embodying
 
new
technologies,
 
or if
 
new industry
 
standards and
 
practices emerge,
 
our existing
 
product
 
and service
 
offerings,
 
technology and
 
systems
may become obsolete.
 
Furthermore, if we fail
 
to adopt or develop
 
new technologies or
 
to adapt our products
 
and services to emerging
industry
 
standards, we
 
may lose
 
current
 
and future
 
customers, which
 
could have
 
a material
 
adverse effect
 
on our
 
business, financial
condition and
 
results of
 
operations. The
 
financial services
 
industry is
 
changing rapidly
 
and, in
 
order to
 
remain competitive,
 
we must
continue
 
to
 
enhance
 
and
 
improve
 
the
 
functionality
 
and
 
features
 
of
 
our
 
products,
 
services
 
and
 
technologies.
 
These
 
changes
 
may
 
be
more difficult or expensive to implement than we anticipate.
When
 
we
 
launch
 
a
 
new
 
product
 
or
 
service,
 
introduce
 
a
 
new
 
platform
 
for
 
the
 
delivery
 
or
 
distribution
 
of
 
products
 
or
 
services
(including mobile
 
connectivity and
 
cloud computing),
 
or make changes
 
to an existing
 
product or service,
 
we may not
 
fully appreciate
or
 
identify
 
new operational
 
risks that
 
may
 
arise
 
from those
 
changes,
 
or
 
we may
 
fail
 
to
 
implement
 
adequate
 
controls
 
to mitigate
 
the
risks
 
associated
 
with
 
those
 
changes.
 
Significant
 
failure
 
in
 
this regard
 
could
 
diminish
 
our ability
 
to
 
operate
 
our
 
business or
 
result
 
in
potential
 
liability
 
to
 
our
 
customers
 
and
 
third
 
parties,
 
increased
 
operating
 
expenses,
 
weaker
 
competitive
 
standing,
 
and
 
significant
reputational, legal
 
and regulatory
 
costs. Any
 
of the
 
foregoing consequences
 
could materially
 
and adversely
 
affect our
 
businesses and
results of operations.
 
30
Our operational or security systems or
 
infrastructure, or those of third parties,
 
could fail or be breached. Any such
 
future incidents
could potentially
 
disrupt our business
 
and adversely
 
impact our
 
results of
 
operations, liquidity,
 
and financial
 
condition, as
 
well as
cause legal or reputational harm.
The potential
 
for operational
 
risk exposure
 
exists throughout our
 
business and,
 
as a result
 
of our
 
interactions with, and
 
reliance on,
third
 
parties,
 
is
 
not
 
limited
 
to
 
our
 
own
 
internal
 
operational
 
functions.
 
Our
 
operational
 
and
 
security
 
systems
 
and
 
infrastructure,
including our computer systems,
 
data management, and internal
 
processes, as well as those
 
of third parties that
 
perform key aspects of
our
 
business
 
operations,
 
such
 
as
 
data
 
processing,
 
information
 
security,
 
recording
 
and
 
monitoring
 
transactions,
 
online
 
banking
interfaces and services,
 
internet connections, and
 
network access are
 
integral to our
 
performance. We
 
rely on our
 
employees and third
parties in
 
our day-to-day
 
and ongoing
 
operations,
 
who may,
 
because of
 
human error,
 
misconduct,
 
malfeasance,
 
failure, or
 
breach of
our or of third-party systems or infrastructure, expose us to risk.
 
Our ability to
 
implement backup systems
 
and other safeguards
 
with respect to
 
third-party systems is more
 
limited than with
 
respect
to
 
our
 
own
 
systems.
 
In
 
addition,
 
our
 
financial,
 
accounting,
 
data
 
processing,
 
backup,
 
or
 
other
 
operating
 
or
 
security
 
systems
 
and
infrastructure may fail to
 
operate properly or become
 
disabled, damaged, or otherwise
 
compromised as a result of
 
a number of factors,
including
 
events that
 
are wholly
 
or partially
 
beyond our
 
control.
 
We
 
may
 
need to
 
take our
 
systems offline
 
if they
 
become infected
with malware or a computer
 
virus or because of another form of
 
cyberattack. If backup systems are utilized,
 
they may not process data
as quickly as our primary
 
systems and some data might
 
not have been saved to backup
 
systems, potentially resulting in a temporary
 
or
permanent loss of such data.
 
 
We
 
frequently update
 
our systems
 
to support
 
our operations
 
and growth
 
and to
 
remain compliant
 
with applicable
 
laws, rules,
 
and
regulations. In
 
addition, we
 
review and
 
strengthen our
 
security systems
 
in response
 
to any
 
cyber incident.
 
Such strengthening
 
entails
significant
 
costs
 
and
 
risks
 
associated
 
with
 
implementing
 
new
 
systems
 
and
 
integrating
 
them
 
with
 
existing
 
ones,
 
including
 
potential
business
 
interruptions
 
and
 
the
 
risk
 
that
 
this
 
strengthening
 
may
 
not
 
be
 
one-hundred
 
percent
 
effective.
 
Implementation
 
and
 
testing
 
of
controls
 
related
 
to
 
our
 
computer
 
systems,
 
security
 
monitoring,
 
and
 
retaining
 
and
 
training personnel
 
required
 
to
 
operate our
 
systems
also entail significant
 
costs. Such operational
 
risk exposures could
 
adversely impact
 
our operations,
 
liquidity,
 
and financial condition,
as well as
 
cause reputational
 
harm. In
 
addition, we may
 
not have adequate
 
insurance coverage
 
to compensate
 
for losses from
 
a major
interruption.
Cyber-attacks,
 
system
 
risks
 
and
 
data
 
protection
 
breaches
 
could
 
adversely
 
affect
 
our
 
ability
 
to
 
conduct
 
business,
 
manage
 
our
exposure to risk or
 
expand our business, result
 
in the disclosure or
 
misuse of confidential
 
or proprietary information,
 
increase our
costs to
 
maintain and
 
update our
 
operational
 
and security
 
systems and
 
infrastructure, and
 
present significant
 
reputational,
 
legal
and regulatory costs
.
Our
 
business
 
is
 
highly
 
dependent
 
on
 
the
 
security,
 
controls
 
and
 
efficacy
 
of
 
our
 
infrastructure,
 
computer
 
and
 
data
 
management
systems,
 
as
 
well
 
as
 
those
 
of
 
our
 
customers,
 
suppliers,
 
and
 
other
 
third
 
parties.
 
To
 
access
 
our
 
network,
 
products
 
and
 
services,
 
our
employees,
 
customers, suppliers,
 
and other
 
third parties,
 
including downstream
 
service providers,
 
the financial
 
services industry
 
and
financial
 
data
 
aggregators,
 
with
 
whom
 
we
 
interact,
 
on
 
whom
 
we
 
rely
 
or
 
who
 
have
 
access
 
to
 
our
 
customers'
 
personal
 
or
 
account
information, increasingly
 
use personal mobile
 
devices or computing
 
devices that are
 
outside of our
 
network and control
 
environments
and
 
are
 
subject
 
to
 
their
 
own
 
cybersecurity
 
risks.
 
Our
 
business
 
relies
 
on
 
effective
 
access
 
management
 
and
 
the
 
secure
 
collection,
processing,
 
transmission,
 
storage and
 
retrieval
 
of confidential,
 
proprietary,
 
personal and
 
other
 
information
 
in our
 
computer
 
and data
management systems and networks,
 
and in the computer and data management systems and networks of third
 
parties.
 
Information
 
security
 
risks
 
for
 
financial
 
institutions
 
have
 
significantly
 
increased
 
in
 
recent
 
years,
 
especially
 
given
 
the
 
increasing
sophistication and activities
 
of organized
 
computer criminals, hackers,
 
and terrorists and
 
our expansion of
 
online customer services
 
to
better meet our customer’s needs. These threats
 
may derive from fraud or malice on the
 
part of our employees or third-party providers,
or
 
may
 
result
 
from
 
human
 
error
 
or
 
accidental
 
technological
 
failure.
 
These
 
threats
 
include
 
cyber-attacks,
 
such
 
as
 
computer
 
viruses,
malicious
 
or
 
destructive
 
code,
 
phishing
 
attacks,
 
denial
 
of
 
service
 
attacks,
 
or
 
other
 
security
 
breach
 
tactics
 
that
 
could
 
result
 
in
 
the
unauthorized
 
release,
 
gathering,
 
monitoring,
 
misuse,
 
loss,
 
destruction,
 
or
 
theft
 
of
 
confidential,
 
proprietary,
 
and
 
other
 
information,
including
 
intellectual
 
property,
 
of
 
ours,
 
our
 
employees,
 
our
 
customers,
 
or
 
third
 
parties,
 
damages
 
to
 
systems,
 
or
 
otherwise
 
material
disruption to our or our customers’ or other third parties’ network
 
access or business operations, both domestically and internationally.
 
While
 
we
 
maintain
 
an
 
Information
 
Security
 
Program
 
that
 
continuously
 
monitors
 
cyber-related
 
risks
 
and
 
ultimately
 
ensures
protection
 
for
 
the
 
processing,
 
transmission
 
and
 
storage
 
of confidential,
 
proprietary,
 
and other
 
information
 
in our
 
computer
 
systems,
and networks as well as
 
vendor management program
 
to oversee third party and
 
vendor risks, there is no
 
guarantee that we will not
 
be
exposed to or
 
be affected by
 
a cybersecurity incident.
 
Cyber threats are
 
rapidly changing and
 
future attacks or
 
breaches could lead
 
to
other
 
security
 
breaches
 
of
 
the networks,
 
systems,
 
or
 
devices
 
that
 
our
 
customers
 
use
 
to
 
access our
 
integrated
 
products
 
and
 
services,
which,
 
in
 
turn,
 
could
 
result
 
in
 
unauthorized
 
disclosure,
 
release,
 
gathering,
 
monitoring,
 
misuse,
 
loss
 
or
 
destruction
 
of
 
confidential,
proprietary,
 
and
 
other
 
information
 
(including
 
account
 
data
 
information)
 
or
 
data
 
security
 
compromises.
 
As
 
cyber
 
threats
 
continue
 
to
evolve, we
 
may be required
 
to expend significant
 
additional resources
 
to modify or
 
enhance our protective
 
measures, investigate,
 
and
remediate any information security vulnerabilities or incidents and
 
develop our capabilities to respond and recover.
 
The full extent of a
 
31
particular
 
cyberattack, and
 
the steps
 
that the
 
Corporation may
 
need to
 
take to
 
investigate such
 
attack, may
 
not be
 
immediately clear,
and it
 
could take
 
considerable additional
 
time for us
 
to determine
 
the complete
 
scope of
 
information compromised,
 
at which time
 
the
impact
 
on the
 
Corporation and
 
measures
 
to recover
 
and restore
 
to a
 
business as
 
usual state
 
may be
 
difficult
 
to assess.
 
These factors
may
 
also
 
inhibit
 
our
 
ability
 
to
 
provide
 
full
 
and
 
reliable
 
information
 
about
 
the
 
cyberattack
 
to
 
our
 
customers,
 
third-party
 
vendors,
regulators, and the public.
 
A successful penetration or circumvention of our system
 
security, or the systems of
 
our customers, suppliers, and other third parties,
could cause us serious negative consequences, including significant
 
operational, reputational, legal, and regulatory costs and concerns.
 
 
Any of these
 
adverse consequences could
 
adversely impact our
 
results of operations,
 
liquidity,
 
and financial condition.
 
In addition,
our
 
insurance
 
policies
 
may
 
not
 
be
 
adequate
 
to
 
compensate
 
us
 
for
 
the
 
potential
 
costs
 
and
 
other
 
losses
 
arising
 
from
 
cyber
 
attacks,
failures of
 
information technology
 
systems, or
 
security breaches,
 
and such
 
insurance policies
 
may not
 
be available
 
to us in
 
the future
on
 
economically
 
reasonable
 
terms, or
 
at
 
all.
 
Insurers
 
may
 
also
 
deny
 
us
 
coverage
 
as to
 
any
 
future
 
claim.
 
Any of
 
these
 
results
 
could
harm our growth prospects, financial condition, business, and reputation.
The Corporation
 
is subject
 
to stringent
 
and changing
 
privacy laws,
 
regulations, and
 
standards as
 
well as
 
policies, contracts,
 
and
other
 
obligations
 
related
 
to
 
data
 
privacy
 
and
 
security.
 
Our
 
failure
 
to
 
comply
 
with
 
privacy
 
laws and
 
regulations,
 
as
 
well as
 
other
legal obligations, could have a material adverse effect
 
on our business.
State,
 
federal,
 
and
 
foreign
 
governments
 
are
 
increasingly
 
enacting
 
laws
 
and
 
regulations
 
governing
 
the
 
collection,
 
use,
 
retention,
sharing,
 
transfer,
 
and security
 
of personally
 
identifiable information
 
and data.
 
A variety
 
of federal,
 
state, local,
 
and foreign
 
laws and
regulations,
 
orders,
 
rules,
 
codes,
 
regulatory
 
guidance,
 
and
 
certain
 
industry
 
standards
 
regarding
 
privacy,
 
data
 
protection,
 
consumer
protection,
 
information
 
security,
 
and
 
the
 
processing
 
of
 
personal
 
information
 
and
 
other
 
data
 
apply
 
to
 
our
 
business.
 
State
 
laws
 
are
changing
 
rapidly,
 
and
 
new
 
legislation
 
proposed
 
or
 
enacted
 
in
 
a
 
number
 
of
 
other
 
states
 
imposes,
 
or
 
has
 
the
 
potential
 
to
 
impose,
additional obligations
 
on companies
 
that process
 
confidential, sensitive
 
and personal
 
information, and
 
will continue
 
to shape
 
the data
privacy
 
environment
 
nationally.
 
The U.S.
 
federal
 
government
 
is also
 
significantly
 
focused on
 
privacy
 
matters.
 
Any failure
 
by us
 
or
any of our business partners to comply with applicable laws, rules,
 
and regulations may result in investigations or actions against us by
governmental entities, private
 
claims and litigation, fines,
 
penalties or other liabilities.
 
Such events may increase
 
our expenses, expose
us to
 
liabilities, and
 
impair our reputation,
 
which could have
 
a material
 
adverse effect
 
on our business.
 
While we
 
aim to comply
 
with
applicable data
 
protection laws and
 
obligations in all
 
material respects, there
 
is no assurance
 
that we will
 
not be subject
 
to claims that
we
 
have
 
violated
 
such
 
laws
 
and
 
obligations,
 
will
 
be
 
able
 
to
 
successfully
 
defend
 
against
 
such
 
claims,
 
or
 
will
 
not
 
be
 
subject
 
to
significant fines
 
and penalties
 
in the
 
event of
 
non-compliance. Additionally,
 
to the
 
extent multiple
 
state-level laws
 
are introduced
 
in
the U.S. with
 
inconsistent or conflicting
 
standards and there
 
is no federal
 
law to preempt
 
such laws, compliance
 
with such laws
 
could
be
 
difficult
 
and
 
costly
 
to
 
achieve,
 
or
 
impossible
 
to
 
achieve,
 
and
 
we
 
could
 
be
 
subject
 
to
 
fines
 
and
 
penalties
 
in
 
the
 
event
 
of
 
non-
compliance.
RISKS RELATING
 
TO THE BUSINESS ENVIRONMENT AND OUR
 
INDUSTRY
 
The currently evolving situation related to the ongoing COVID-19 pandemic has
 
had a
 
material adverse effect and may
 
continue to
have a materially
 
adverse effect
 
on the Corporation’s
 
business,
 
financial
 
condition
 
and results
 
of operations.
The
 
ongoing
 
COVID-19
 
pandemic
 
created
 
a
 
global
 
public-health
 
crisis
 
that
 
resulted
 
in
 
challenging
 
economic
 
conditions
 
for
 
our
business
 
and
 
is
 
likely
 
to
 
continue
 
to
 
do
 
so.
 
The
 
economic
 
impact
 
of
 
the
 
COVID-19
 
pandemic
 
has
 
caused
 
significant
 
volatility
 
and
disruption
 
in
 
the
 
financial
 
markets
 
of
 
Puerto
 
Rico
 
and
 
the
 
other
 
markets
 
in
 
which
 
the
 
Corporation
 
operates.
 
The
 
uncertainty
surrounding
 
the
 
future
 
economic
 
conditions
 
has
 
been
 
a
 
challenge
 
to
 
management's
 
ability
 
of
 
estimating
 
the
 
pandemic's
 
impact
 
on
credit quality, revenues,
 
and assets values.
While many areas of
 
consumer spending have rebounded
 
since the initial outbreak
 
of the COVID-19 pandemic
 
on March 11,
 
2020,
new variants of
 
the virus continue
 
to emerge, such
 
as the recent Omicron
 
variant, which have
 
resulted in a rapid
 
increase in infections
and
 
disruptions
 
in
 
the
 
economic
 
recovery.
 
As
 
of
 
December
 
31,
 
2021,
 
certain
 
guidelines
 
and
 
executives’
 
orders,
 
issued
 
by
 
the
governments
 
in
 
which
 
the
 
Corporation
 
operates,
 
remained
 
in
 
effect
 
and
 
continue
 
to
 
impact
 
how
 
individuals
 
interact
 
and
 
how
businesses and
 
the governments
 
operate. The
 
operations and
 
financial results
 
of the
 
Corporation have
 
been and
 
could continue
 
to be
adversely affected by some of these guidelines, executives’
 
orders, and any new strain of the virus.
 
Considering
 
the
 
effects
 
of
 
the
 
COVID-19
 
pandemic
 
on
 
the
 
economy
 
and
 
market
 
conditions,
 
the
 
U.S.
 
government
 
and
 
local
governments have enacted stimulus packages and other programs
 
and forms of relief, such as the SBA PPP program established
 
by the
CARES
 
Act
 
of
 
2020.
 
Loans
 
that
 
the
 
Corporation
 
grants
 
under
 
the
 
SBA
 
PPP
 
are
 
at
 
below
 
market
 
interest
 
rates.
 
The
 
Corporation’s
participation
 
in the
 
SBA PPP,
 
Main Street
 
and any
 
other such
 
programs or
 
stimulus packages
 
may give
 
rise to
 
claims, including
 
by
governments,
 
regulators,
 
or
 
customers
 
or
 
through
 
class action
 
lawsuits,
 
or
 
judgments
 
against the
 
Corporation
 
that
 
may
 
result
 
in
 
the
payment of
 
damages or
 
the imposition
 
of fines,
 
penalties or
 
restrictions by
 
regulatory authorities,
 
or result
 
in reputational
 
harm. The
32
occurrence
 
of
 
any
 
of
 
the
 
foregoing
 
could
 
have
 
a
 
material
 
adverse
 
effect
 
on
 
the
 
Corporation’s
 
results
 
of
 
operations
 
or
 
financial
condition.
 
The Company continues to
 
follow all safety guidelines
 
and government mandates
 
regarding COVID-19 protocols
 
and vaccinations,
and announced
 
that all employees,
 
service providers,
 
and consultants of
 
the Corporation must
 
have the booster
 
shot of the COVID-19
vaccine
 
by
 
March
 
1,
 
2022,
 
with
 
few
 
exceptions.
 
The
 
extent
 
to
 
which
 
the
 
COVID-19
 
pandemic
 
impacts
 
our
 
business,
 
results
 
of
operations,
 
and financial
 
condition, as
 
well as
 
our regulatory
 
capital and
 
liquidity ratios,
 
will depend
 
on future
 
developments, which
are
 
highly
 
uncertain
 
and
 
cannot
 
be
 
predicted,
 
including
 
the
 
scope
 
and
 
duration
 
of
 
the
 
COVID-19
 
pandemic
 
and
 
actions
 
taken
 
by
governmental authorities and other third parties in response to the pandemic
 
.
The Corporation’s
 
credit quality
 
and
 
the value
 
of our
 
portfolio of
 
Puerto Rico
 
government
 
securities has
 
been and
 
in the
 
future
may
 
be
 
adversely
 
affected
 
by
 
Puerto
 
Rico’s
 
economic
 
condition,
 
and
 
may
 
be
 
affected
 
by
 
actions
 
taken
 
by
 
the
 
Puerto
 
Rico
government
 
or the PROMESA oversight board to address the ongoing fiscal and economic
 
challenges in Puerto Rico.
A significant
 
portion
 
of the
 
Corporation’s
 
business activities
 
and credit
 
exposure
 
is concentrated
 
in the
 
Commonwealth of
 
Puerto
Rico, which has experienced an economic and fiscal crisis for more
 
than a decade.
In March
 
2020, on
 
top of
 
the hurricanes
 
and earthquakes
 
experienced in
 
2017 and
 
2020, respectively,
 
Puerto Rico
 
confronted the
COVID-19
 
pandemic,
 
which created
 
an unprecedented
 
public health
 
crisis. The
 
COVID-19
 
pandemic
 
has been
 
a devastating
 
health
crisis for
 
the Island,
 
causing over
 
4,000 deaths
 
and spikes
 
in unemployment
 
due to
 
impacts on
 
the tourism
 
industry and
 
government
lockdowns
 
put
 
in place
 
to curb
 
the spread
 
of the
 
disease.
 
The
 
shock
 
of the
 
pandemic
 
on employment,
 
and related
 
local and
 
federal
stimulus funding, impacted
 
Puerto Rico’s economy
 
in a variety of ways.
 
While economic activity was
 
severely reduced, extraordinary
unemployment
 
insurance
 
and
 
other
 
direct
 
transfer
 
programs
 
more
 
than
 
offset
 
the
 
estimated
 
income
 
loss
 
due
 
to
 
less
 
activity.
 
As
 
a
result,
 
personal
 
income
 
has
 
temporarily
 
increased
 
on
 
a
 
net
 
basis.
 
Puerto
 
Rico
 
also
 
received
 
additional
 
federal
 
support,
 
with
 
the
Coronavirus Response and
 
Relief Supplemental Appropriations
 
Act (CRRSA) and
 
American Rescue Plan
 
(ARP) Act bringing
 
around
$7
 
and
 
$18
 
billion,
 
respectively,
 
in
 
federal
 
funding
 
to be
 
available
 
for
 
recovery
 
efforts
 
in 2021.
 
Significantly,
 
the ARP
 
Act
 
created
new
 
and
 
permanent
 
economic
 
support
 
programs
 
for
 
Puerto Rico
 
such
 
as,
 
an
 
expanded
 
Earned
 
Income
 
Tax
 
Credit
 
(EITC)
 
program,
with up
 
to $600
 
million
 
in federal
 
support,
 
and permanent
 
expansion
 
of eligibility
 
criteria of
 
the Child
 
Tax
 
Credit (CTC).
 
Both are
projected
 
to have
 
permanent effects
 
on income
 
and growth,
 
and the
 
EITC expansion
 
is expected
 
to support
 
timely realization
 
of the
human capital and welfare structural reform benefits.
Based
 
on
 
the
 
most
 
recent
 
fiscal
 
plan
 
certified
 
by
 
the
 
PROMESA
 
oversight
 
board
 
on
 
January
 
27,
 
2022,
 
Puerto
 
Rico’s
 
real
 
GNP
decline in
 
fiscal year
 
2020 will
 
be followed
 
by a
 
forecasted rebound
 
in fiscal
 
year 2021
 
and fiscal year
 
2022 as
 
the full impact
 
of the
federal economic support takes hold.
 
However,
 
there remains
 
considerable uncertainty
 
about the
 
ultimate duration
 
and magnitude
 
of the
 
pandemic with
 
new variants
 
of
the virus emerging
 
and expected to continue
 
to emerge, and thus
 
the size of
 
the associated economic
 
losses. The 2021 Certified
 
Fiscal
Plan accounted for the impact of federal funds
 
granted through several government programs, including
 
the CARES Act of 2020 and a
$787 million
 
local package of
 
direct assistance
 
to workers
 
and businesses
 
(the “Puerto
 
Rico COVID-19
 
Stimulus Package”).
 
Updates
in the 2022
 
fiscal plan are
 
limited in scope and
 
do not revisit the
 
broad range of
 
forecasts and assumptions
 
included in the
 
2021 fiscal
plan. The 2022 fiscal
 
plan also incorporates
 
terms of the confirmed
 
plan of adjustments, detail
 
on the use of
 
funds from the
 
Municipal
Revenue Collection
 
Center (CRIM,
 
by its
 
Spanish acronym),
 
and on
 
the status
 
of PayGo
 
payments. Finally,
 
the plan
 
includes details
on the
 
LUMA transaction
 
and costs
 
related to
 
the mobilization
 
of certain
 
previous Puerto
 
Rico Electric
 
Power Authority
 
(“PREPA”)
employees
 
to Commonwealth
 
agencies as
 
well as
 
certain budgetary
 
decisions and
 
adjustments that
 
were part
 
of the
 
fiscal year
 
2022
budget.
Furthermore,
 
on
 
January
 
18, 2022,
 
U.S.
 
District Court
 
of
 
Puerto
 
Rico
 
confirmed
 
the
 
Commonwealth
 
Plan
 
of
 
Adjustment,
 
which
restructures
 
approximately
 
$35
 
billion
 
of
 
debt
 
and
 
other
 
claims
 
against
 
the
 
Commonwealth
 
of
 
Puerto
 
Rico,
 
the
 
Public
 
Buildings
Authority (“PBA”),
 
and the
 
Employee Retirement
 
System (“ERS”),
 
as well
 
as more
 
than $50
 
billion of
 
unfunded pension
 
liabilities.
The Plan
 
of Adjustment
 
saves Puerto
 
Rico more
 
than $50
 
billion in
 
debt service
 
and reduces
 
outstanding obligations
 
to just
 
over $7
billion.
In addition,
 
the 2021 Certified
 
Fiscal Plan also
 
provides a
 
roadmap for
 
a series of
 
fiscal and
 
structural reforms
 
in areas such
 
as: (i)
human
 
capital
 
and
 
labor,
 
(ii)
 
ease
 
of
 
doing
 
business,
 
(iii)
 
power
 
sector
 
reform,
 
and
 
(iv)
 
infrastructure
 
reform,
 
and
 
other
 
fiscal
measures;
 
however,
 
the
 
certified
 
fiscal
 
plan
 
provides
 
a
 
one-year
 
delay
 
in
 
most
 
categories
 
of
 
government
 
rightsizing
 
to
 
allow
 
the
government
 
to focus
 
its efforts
 
on implementation
 
of efficiency
 
reforms.
 
Also, the
 
Plan of
 
Adjustment
 
includes
 
a mechanism
 
to set
aside resources to fund the Puerto Rico’s
 
pension obligations, which has been historically neglected and underfunded.
As of December
 
31, 2021, the
 
Corporation had $360.1
 
million of direct
 
exposure to the
 
Puerto Rico government,
 
its municipalities
and
 
public
 
corporations,
 
compared
 
to
 
$394.8
 
million
 
as
 
of
 
December
 
31,
 
2020.
 
As
 
of
 
December
 
31,
 
2021,
 
approximately
 
$187.8
million of the
 
exposure consisted of loans
 
and obligations of municip
 
alities in Puerto Rico
 
that are supported by
 
assigned property tax
33
revenues
 
and
 
for
 
which,
 
in
 
most cases,
 
the
 
good
 
faith,
 
credit,
 
and
 
unlimited
 
taxing
 
power of
 
the
 
applicable
 
municipality
 
have
 
been
pledged to
 
their repayment,
 
and $122.8
 
million consisted
 
of municipal
 
revenue and
 
special obligation
 
bonds. Approximately
 
61% of
the Corporation’s
 
exposure to
 
Puerto Rico’s
 
government consisted
 
primarily of
 
senior priority
 
obligations concentrated
 
in four
 
of the
largest
 
municipalities
 
in
 
Puerto
 
Rico.
 
The
 
municipalities
 
are
 
required
 
by
 
law
 
to
 
levy
 
special
 
property
 
taxes
 
in
 
such
 
amounts
 
as
 
are
required for the payment of all of their respective general obligation
 
bonds and notes.
 
In
 
addition,
 
as
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation
 
had
 
$92.8
 
million
 
in
 
exposure
 
to
 
residential
 
mortgage
 
loans
 
that
 
are
guaranteed
 
by
 
the
 
Puerto
 
Rico
 
Housing
 
Finance
 
Authority
 
(“PRHFA”),
 
compared
 
to
 
$106.5
 
million
 
as
 
of
 
December
 
31,
 
2020.
Residential
 
mortgage
 
loans
 
guaranteed
 
by
 
the
 
PRHFA
 
are
 
secured
 
by
 
the
 
underlying
 
properties
 
and
 
the
 
guarantees
 
serve
 
to
 
cover
shortfalls in collateral in the event of a borrower
 
default. The Puerto Rico government guarantees up to $75
 
million of the principal for
all
 
loans
 
under
 
the
 
mortgage
 
loan
 
insurance
 
program.
 
According
 
to
 
the
 
most
 
recently
 
released
 
audited
 
financial
 
statements
 
of
 
the
PRHFA, as of June
 
30, 2019, the PRHFA’s
 
mortgage loans insurance program covered loans in an
 
aggregate amount of approximately
$557 million. The regulations adopted
 
by the Authority require the establishment
 
of adequate reserves to guarantee the
 
solvency of the
mortgage loans
 
insurance program;
 
as of
 
June 30,
 
2019, the
 
Authority was
 
not in
 
compliance with
 
the regulations.
 
At June
 
30, 2019,
the Authority had an unrestricted deficit of approximately $5.2 million
 
in the mortgage loans insurance program.
As of December
 
31, 2021, the
 
Corporation had
 
$2.7 billion of
 
public sector deposits
 
in Puerto Rico,
 
compared to $1.8
 
billion as of
December 31,
 
2020. Approximately
 
19% of
 
the public
 
sector deposits
 
as of December
 
31, 2021
 
is from municipalities
 
and municipal
agencies
 
in
 
Puerto
 
Rico
 
and
 
81%
 
is
 
from
 
public
 
corporations,
 
the
 
central
 
government
 
and
 
agencies,
 
and
 
U.S.
 
federal
 
government
agencies in Puerto Rico.
Further deterioration
 
in economic
 
activity,
 
delays in
 
the receipt
 
of disaster
 
relief funds
 
allocated to
 
Puerto Rico,
 
and the
 
potential
impact on
 
asset values
 
resulting from
 
past or
 
future natural
 
disaster events,
 
when added
 
to Puerto
 
Rico’s
 
ongoing fiscal
 
crisis, could
materially
 
adversely affect our business, financial condition, liquidity,
 
results of operations and capital position.
Difficult market conditions have affected
 
the financial industry and may adversely affect us in the future.
Given that most of our business is in Puerto Rico and
 
the U.S. and given the degree of interrelation
 
between Puerto Rico’s economy
and that
 
of the
 
U.S., we
 
are exposed
 
to downturns
 
in the
 
U.S. economy,
 
including factors
 
such as
 
employment levels
 
in the
 
U.S. and
real estate
 
valuations. The
 
deterioration of
 
these conditions
 
adversely affected
 
us in
 
the past
 
and, in
 
the future
 
could adversely
 
affect
the
 
credit
 
performance
 
of
 
mortgage
 
loans,
 
and
 
result
 
in
 
significant
 
write-downs
 
of
 
asset
 
values
 
by
 
financial
 
institutions,
 
including
government-sponsored entities as well as major commercial banks
 
and investment banks.
 
In particular, we may face the following
 
risks:
 
●
Our
 
ability
 
to
 
assess
 
the
 
creditworthiness
 
of
 
our
 
customers
 
may
 
be
 
impaired
 
if
 
the
 
models
 
and
 
approaches
 
we
 
use
 
to
select, manage, and underwrite the loans become less predictive of future behaviors.
●
The
 
models
 
used
 
to
 
estimate
 
losses
 
inherent
 
in
 
the
 
credit
 
exposure,
 
particularly
 
those
 
under
 
CECL,
 
require
 
difficult,
subjective,
 
and
 
complex
 
judgments,
 
including
 
forecasts
 
of
 
economic
 
conditions
 
and
 
how
 
these
 
economic
 
predictions
might impair the ability of the borrowers to repay
 
their loans, which may no longer be capable of accurate
 
estimation and
which may, in turn, impact
 
the reliability of the models.
●
Our ability
 
to borrow from
 
other financial
 
institutions or
 
to engage
 
in sales of
 
mortgage loans
 
to third parties
 
(including
mortgage
 
loan securitization
 
transactions with
 
government-sponsored
 
entities and
 
repurchase agreements)
 
on favorable
terms,
 
or
 
at
 
all,
 
could
 
be
 
adversely
 
affected
 
by
 
further
 
disruptions
 
in
 
the
 
capital
 
or
 
credit
 
markets
 
or
 
other
 
events,
including deteriorating investor expectations.
●
Competitive
 
dynamics
 
in
 
the
 
industry
 
could
 
change
 
as
 
a
 
result
 
of
 
consolidation
 
of
 
financial
 
services
 
companies
 
in
connection with current market conditions.
●
Expected
 
future
 
regulation
 
of
 
our
 
industry
 
may
 
increase
 
our
 
compliance
 
costs
 
and
 
limit
 
our
 
ability
 
to
 
pursue
 
business
opportunities.
●
There may be downward pressure on our stock price.
 
Any
 
future
 
deterioration
 
of
 
economic
 
conditions
 
in
 
the
 
U.S.
 
and
 
disruptions
 
in
 
the
 
financial
 
markets
 
could
 
adversely
 
affect
 
our
ability to access capital, our business, financial condition, and results of
 
operations.
34
Additionally,
 
the
 
residential
 
mortgage
 
loan
 
origination
 
business
 
is
 
impacted
 
by
 
home
 
values
 
and
 
has
 
historically
 
been
 
cyclical,
enjoying periods of strong growth and profitability followed by periods
 
of shrinking volumes and industry-wide losses. During periods
of
 
rising
 
interest
 
rates,
 
the
 
refinancing
 
of
 
many
 
mortgage
 
products
 
tends
 
to
 
decrease
 
as
 
the
 
economic
 
incentives
 
for
 
borrowers
 
to
refinance their existing mortgage loans are reduced.
 
The actual
 
rates of delinquencies,
 
foreclosures, and
 
losses on loans
 
have been higher
 
during the economic
 
slowdown in the
 
U.S. in
the late
 
2000s and
 
early 2010s
 
and in
 
Puerto Rico
 
since 2006.
 
Unemployment, volatile
 
interest rates,
 
and declines
 
in housing
 
prices
have had a
 
negative effect on
 
the ability of
 
borrowers to repay
 
their mortgage loans.
 
Any sustained period
 
of increased delinquencies,
foreclosures,
 
or
 
losses could
 
adversely
 
affect
 
our
 
ability to
 
sell loans,
 
the prices
 
we
 
receive
 
for
 
loans,
 
the values
 
of mortgage
 
loans
held for
 
sale, or
 
residual interests
 
in securitizations,
 
which could
 
adversely affect
 
our financial
 
condition and
 
results of
 
operations. In
addition, any additional material decline in real estate
 
values would further weaken the loan-to-value
 
ratios and increase the possibility
of loss if a
 
borrower defaults. In
 
such event, we
 
will be subject to
 
the risk of loss
 
on such real estate
 
arising from borrower
 
defaults to
the extent not covered by third-party credit enhancement.
Continuation
 
of
 
the
 
economic
 
slowdown
 
and
 
decline
 
in
 
the
 
U.S.
 
Virgin
 
Islands
 
and
 
British
 
Virgin
 
Islands
 
could
 
continue
 
to
harm our results of operations.
 
For
 
many
 
years,
 
the
 
USVI
 
has
 
been
 
experiencing
 
a
 
number
 
of
 
fiscal
 
and
 
economic
 
challenges
 
that
 
have
 
deteriorated
 
the
 
overall
financial
 
and
 
economic
 
conditions
 
in
 
the
 
area.
 
According
 
to
 
the
 
United
 
States
 
Bureau
 
of
 
Economic
 
Analysis
 
(“BEA”),
 
real
 
gross
domestic product
 
(“GDP”) estimates
 
show that
 
the economy
 
grew by
 
5.7% in
 
2021 in
 
contrast to
 
a decrease
 
of 3.4
 
percent in
 
2020.
Growth
 
in
 
2021
 
reflected
 
increases
 
in
 
all
 
major
 
subcomponents,
 
led
 
by
 
personal
 
consumption
 
expenditures,
 
nonresidential
 
fixed
investment, export, residential
 
fixed investment and
 
private inventory investment.
 
Additionally, disaster-related
 
insurance payouts and
federal assistance supported
 
the reconstruction
 
and major repairs
 
of businesses and
 
homes that were
 
destroyed or heavily
 
damaged by
two major
 
hurricanes in
 
2017. Nevertheless,
 
the COVID-19
 
pandemic has
 
been an
 
impactful and
 
unprecedented health
 
crisis for
 
the
USVI, causing
 
numerous deaths
 
and spikes
 
in unemployment
 
due to
 
impacts on
 
the tourism
 
industry and
 
government lockdowns
 
put
in place to curb the spread of the disease.
As
 
a
 
result
 
of
 
the
 
COVID-19
 
pandemic,
 
similar
 
to
 
Puerto
 
Rico,
 
the
 
USVI
 
government
 
has
 
been
 
processing
 
stimulus
 
checks
 
and
unemployment
 
compensation
 
checks.
 
According
 
to
 
information
 
published
 
by
 
the
 
USVI
 
government,
 
as
 
of
 
January
 
4,
 
2022,
 
the
government
 
had
 
issued
 
53,684
 
unemployment
 
insurance
 
checks
 
and
 
an
 
additional
 
29,451
 
Federal
 
Pandemic
 
Unemployment
Compensation
 
checks,
 
totaling
 
approximately
 
$94
 
million.
 
In
 
addition,
 
as
 
of
 
May
 
16,
 
2021,
 
the
 
government
 
announced
 
that
 
1,620
businesses from Virgin
 
Islands have been approved for the SBA PPP,
 
totaling more than $120.3 million.
 
On December
 
8, 2021,
 
Moody’s
 
Investor Services
 
(“Moody’s”)
 
announced the
 
completion of
 
its periodic
 
review of
 
ratings of
 
the
Virgin
 
Islands
 
Water
 
and
 
Power
 
Authority
 
(“VI
 
WAPA”).
 
The
 
Caa2
 
electric
 
system
 
revenue
 
bonds
 
rating
 
is
 
constrained
 
by
 
VI
WAPA’s
limited unrestricted
 
liquidity sources,
 
unsustainable debt
 
load and
 
capital expenditures,
 
including its
 
inability to file
 
audited
financial
 
statements on
 
a timely
 
basis, according
 
to the
 
rating
 
agency.
 
On May
 
28, 2020,
 
Moody’s
 
announced
 
the completion
 
of its
periodic
 
rating
 
review
 
of
 
the
 
USVI
 
government.
 
Despite
 
the
 
recent
 
improvement
 
in
 
the
 
government’s
 
liquidity
 
and
 
short-term
financial position,
 
the Caa3 rating
 
reflects the risk
 
that the reemergence
 
of a significant
 
structural deficit,
 
combined with the
 
expected
insolvency of the Government Employees’ Retirement System (“GERS”), will lead
 
the government to restructure its debt.
 
PROMESA
 
does
 
not
 
apply
 
to
 
the
 
USVI
 
and,
 
as
 
such,
 
there
 
is
 
currently
 
no
 
federal
 
legislation
 
permitting
 
the
 
restructuring
 
of
 
the
debts of
 
the USVI
 
and
 
its public
 
corporations
 
and instrumentalities.
 
To
 
the extent
 
that the
 
fiscal condition
 
of the
 
USVI government
continues to
 
deteriorate, the
 
U.S. Congress
 
or the government
 
of the
 
USVI may enact
 
legislation allowing
 
for the restructuring
 
of the
financial
 
obligations
 
of
 
the
 
USVI
 
government
 
entities
 
or
 
imposing
 
a
 
stay
 
on
 
creditor
 
remedies,
 
including
 
by
 
making
 
PROMESA
applicable to the USVI.
 
As of
 
December 31,
 
2021, the
 
Corporation had
 
$39.2 million
 
in loans
 
to USVI
 
government and
 
public corporations,
 
compared to
$61.8 million as of December 31,
 
2020. As of December 31, 2021,
 
all loans were currently performing
 
and up to date on principal
 
and
interest payments.
 
With
 
respect
 
to
 
the BVI
 
region,
 
the government
 
has
 
indicated
 
that
 
the economic
 
impact of
 
the COVID-19
 
pandemic
 
is felt
 
most
strongly
 
in
 
the
 
tourism
 
sector,
 
which
 
accounts
 
for
 
roughly
 
one
 
third
 
of
 
its
 
GDP.
 
Recent
 
reports
 
published
 
by
 
the
 
BVI
 
government
projects
 
a GDP
 
decline
 
of 13%
 
to 17%
 
in 2020,
 
given the
 
prevailing
 
conditions in
 
the tourism
 
sector.
 
In the
 
BVI, the
 
borders were
closed
 
to tourism
 
for approximately
 
nine
 
months in
 
2020 and
 
was among
 
the last
 
to reopen
 
its border
 
to commercial
 
air traffic.
 
On
December
 
1,
 
2020,
 
the
 
government
 
began
 
its
 
third
 
phase
 
in
 
the
 
border
 
reopening
 
process
 
allowing
 
international
 
travel
 
and
 
the
 
re-
opening of
 
the tourism
 
industry albeit
 
with strict
 
restrictions in
 
place, including
 
multiple tests
 
and a
 
mandatory
 
four-day quarantine.
Additionally,
 
seaports in
 
the BVI
 
reopened
 
on April
 
5, 2021
 
for international
 
travel. As
 
of December
 
31, 2021,
 
the Corporation
 
had
loans
 
totaling
 
$142.7
 
million
 
with
 
exposure
 
to
 
the
 
BVI
 
region,
 
primarily
 
residential
 
mortgage
 
and
 
commercial
 
mortgage
 
loans,
 
of
which $15.4 million are in nonaccrual status.
35
Further deterioration
 
in economic
 
conditions in
 
USVI and
 
the BVI
 
region could
 
adversely affect
 
our business,
 
financial condition,
liquidity, results of operations
 
and capital position.
Credit quality may result in additional losses.
 
Our business depends
 
on the creditworthiness
 
of our customers
 
and counterparties
 
and the value
 
of the assets
 
securing our loans
 
or
underlying our
 
investments. A
 
material decrease
 
in the
 
credit quality
 
of the
 
customer base
 
or material
 
changes in
 
the risk profile
 
of a
market, industry
 
or group of
 
customers could materially
 
and adversely affect
 
our business, financial
 
condition, allowance levels,
 
asset
impairments, liquidity,
 
capital and results of operations.
 
We
 
had a
 
commercial and
 
construction loan
 
portfolio held
 
for investment
 
in the
 
amount of
 
$5.2
 
billion as
 
of December
 
31, 2021.
Due to
 
their nature,
 
these loans
 
entail a
 
higher credit
 
risk than
 
consumer and
 
residential mortgage
 
loans, since
 
they are larger
 
in size,
concentrate
 
more
 
risk
 
in
 
a
 
single
 
borrower
 
and
 
are
 
generally
 
more
 
sensitive
 
to
 
economic
 
downturns.
 
Furthermore,
 
in
 
the
 
case
 
of
 
a
slowdown
 
in the
 
real estate
 
market,
 
it may
 
be difficult
 
to dispose
 
of the
 
properties
 
securing
 
these loans
 
upon any
 
foreclosure of
 
the
properties. We
 
may incur losses over
 
the near term, either because of continued deterioration
 
in the quality of loans or because of sales
of
 
problem
 
loans,
 
which
 
would
 
likely
 
accelerate
 
the
 
recognition
 
of
 
losses. Any
 
such
 
losses
 
could
 
adversely
 
impact
 
our
 
overall
financial performance and results of operations.
Changes in collateral values of properties located in stagnant or distressed
 
economies may require increased reserves
.
 
Further
 
deterioration
 
of
 
the
 
value
 
of
 
real
 
estate
 
collateral
 
securing
 
our
 
construction,
 
commercial
 
and
 
residential
 
mortgage
 
loan
portfolios,
 
whether
 
located
 
in
 
Puerto
 
Rico
 
or
 
elsewhere,
 
would
 
result
 
in
 
increased
 
credit
 
losses. As
 
of
 
December
 
31,
 
2021,
approximately
 
19% and
 
27% of
 
our loan
 
portfolio
 
held for
 
investment
 
consisted
 
of commercial
 
mortgage
 
and residential
 
real estate
loans, respectively.
Whether the collateral
 
that underlies our
 
loans is located
 
in Puerto Rico, the
 
USVI, the BVI, or
 
the U.S. mainland,
 
the performance
of our
 
loan portfolio
 
and the
 
collateral value
 
backing the
 
transactions are
 
dependent upon
 
the performance
 
of, and
 
conditions within,
each specific
 
real estate market. Puerto
 
Rico, where most
 
of the collateral
 
is located, has
 
been through
 
a period of
 
sustained recession
since 2006.
 
Construction
 
and commercial
 
loans, mostly
 
secured by
 
commercial
 
and residential
 
real estate
 
properties,
 
entail a
 
higher
credit risk
 
than consumer
 
and residential
 
mortgage loans
 
since they
 
are larger
 
in size,
 
may have
 
less collateral
 
coverage, concentrate
more risk
 
in a
 
single borrower
 
and are
 
generally more
 
sensitive to
 
economic
 
downturns. As
 
of December
 
31, 2021,
 
our commercial
mortgage
 
and
 
construction
 
real
 
estate
 
loans
 
held
 
for
 
investment
 
in
 
Puerto
 
Rico
 
amounted
 
to
 
$1.7
 
billion,
 
or
 
73%
 
of
 
the
 
total
 
$2.3
billion
 
commercial
 
mortgage
 
and
 
construction
 
real
 
estate loan
 
portfolios,
 
which
 
constituted
 
21%
 
of
 
the
 
total
 
loan
 
portfolio
 
held
 
for
investment.
We
 
measure credit
 
losses for
 
collateral dependent
 
loans based
 
on the
 
fair value
 
of the
 
collateral, which
 
is generally
 
obtained from
appraisals, adjusted
 
for undiscounted
 
selling costs
 
as appropriate.
 
Updated appraisals
 
are obtained
 
when we
 
determine that
 
loans are
collateral
 
dependent
 
and
 
are
 
updated
 
annually
 
thereafter.
 
In
 
addition,
 
appraisals
 
are
 
also
 
obtained
 
for
 
certain
 
residential
 
mortgage
loans on a spot
 
basis based on specific
 
characteristics, such as delinquency
 
levels, and age of
 
the appraisal. The appraised
 
value of the
collateral may decrease, or we may
 
not be able to recover collateral at
 
its appraised value. A significant decline
 
in collateral valuations
for
 
collateral
 
dependent
 
loans
 
has
 
required
 
and,
 
in
 
the
 
future,
 
may
 
require,
 
increases
 
in
 
our
 
credit
 
loss
 
expense
 
on
 
loans. Any
 
such
increase would have an adverse effect on our future financial condition
 
and results of operations.
Interest rate
 
shifts, such
 
as increases
 
in interest
 
rates that
 
may
 
reduce demand
 
for mortgage
 
and other
 
loans, may
 
reduce net
interest income.
 
Shifts in
 
short-term
 
interest rates
 
have
 
reduced net
 
interest income
 
in the
 
past and,
 
in the
 
future, may
 
reduce net
 
interest income,
which
 
is the
 
principal
 
component
 
of our
 
earnings. Net
 
interest income
 
is the
 
difference
 
between
 
the amounts
 
received by
 
us on
 
our
interest-earning assets and the
 
interest paid by us on
 
our interest-bearing liabilities. Differences
 
in the re-pricing structure of
 
our assets
and liabilities
 
may result
 
in changes
 
in our
 
profits when
 
interest rates
 
change.
 
For instance,
 
higher interest
 
rates increase
 
the cost
 
of
mortgage and
 
other loans
 
to consumers
 
and businesses
 
and may
 
reduce future
 
demand for
 
such loans,
 
which may
 
negatively impact
our profits by reducing the amount of loan interest income due to declines
 
in volume.
Additionally,
 
basis risk is
 
the risk of
 
adverse consequences resulting
 
from unequal changes
 
in the difference,
 
also referred to
 
as the
“spread” or
 
basis, between
 
the rates
 
for two
 
or more
 
different
 
instruments with
 
the same
 
maturity and
 
occurs when
 
market rates
 
for
different financial
 
instruments or
 
the indices
 
used to
 
price assets and
 
liabilities change
 
at different
 
times or
 
by different
 
amounts. For
example, the interest expense
 
for liability instruments might
 
not change by the
 
same amount as interest income
 
received from loans or
investments.
 
To
 
the
 
extent
 
that
 
the
 
interest
 
rates
 
on
 
loans
 
and
 
borrowings
 
change
 
at
 
different
 
rates
 
and
 
by
 
different
 
amounts,
 
the
margin between
 
our variable rate-based
 
assets and the cost
 
of the interest-bearing
 
liabilities might be
 
compressed and adversely
 
affect
net interest income.
 
36
Accelerated prepayments may adversely affect net interest income.
In
 
general,
 
fixed-income
 
portfolio
 
yields
 
decrease
 
if
 
pre-payment
 
amounts
 
are
 
invested
 
at
 
lower
 
rates. Net
 
interest
 
income
 
could
also
 
be
 
affected
 
by
 
prepayments
 
of
 
MBS.
 
Acceleration
 
in
 
the
 
prepayments
 
of
 
MBS
 
would
 
lower
 
yields
 
on
 
these
 
securities,
 
as
 
the
amortization of
 
premiums paid
 
upon the
 
acquisition of
 
these securities would
 
accelerate. Conversely,
 
acceleration
 
in the prepayments
of MBS would
 
increase yields on
 
securities purchased at
 
a discount, as
 
the accretion of
 
the discount would
 
accelerate. These risks
 
are
directly linked
 
to future
 
period market
 
interest rate
 
fluctuations. Also,
 
net interest
 
income in
 
future periods
 
might be
 
affected by
 
our
investment in callable securities because decreases in interest rates might
 
prompt the early redemption of such securities.
The discontinuation of LIBOR could adversely affect
 
the interest rates we pay or receive, could prompt regulatory questions, result
in costly disputes about relevant alternative interest rates and require costly systems and
 
analytics changes.
 
In July
 
2017, the
 
United Kingdom’s Financial Conduct Authority (the
 
“FCA”), which regulates LIBOR, officially announced that
 
it
intended to
 
stop persuading
 
or compelling
 
banks to submit
 
information
 
to the administrator
 
of LIBOR after
 
2021. In March
 
2021, the FCA
confirmed that publication of the
 
overnight and one
 
month, three-month, six-month, and twelvemonth U.S. Dollar LIBOR settings will
cease or become
 
no longer
 
representative
 
of the market
 
the rates
 
seek to measure
 
(i.e., non-representative)
 
immediately
 
after June
 
30, 2023,
and all other U.S. Dollar
 
LIBOR settings,
 
including the one week
 
and two-month U.S. Dollar
 
LIBOR settings,
 
became non-representative
immediately after December 31, 2021. The Federal Reserve, the Office of
 
the Comptroller of the Currency,
 
and the FDIC
 
also released
supervisory guidance encouraging banks to
 
cease entering into
 
new contracts that
 
use U.S.
 
Dollar LIBOR as
 
reference rate as
 
soon as
practicable and in any event by
 
December 31, 2021. Banking regulators in the U.S. and
 
globally have increased regulatory scrutiny
 
and
intensified
 
supervisory
 
focus of
 
financial
 
institutions
 
LIBOR transition
 
plans, preparations,
 
and readiness.
Significant amounts of
 
loans, mortgages,
 
securities, derivatives, and
 
other
 
financial instruments are
 
referenced to
 
LIBOR, and
 
any
inability of
 
market
 
participants and
 
regulators to
 
successfully introduce benchmark
 
rates
 
to
 
replace
 
LIBOR
 
and
 
implement effective
transitional
 
arrangements
 
to address the
 
discontinuation
 
of LIBOR could result
 
in disruption
 
in the financial
 
markets. Therefore,
 
regulators
and market participants
 
in various jurisdictions
 
have been working to recommend
 
alternative
 
rates to LIBOR for each respective
 
currency
that are compliant
 
with the International
 
Organization
 
of Securities
 
Commission’s standards
 
for transaction-based
 
benchmarks.
 
In the U.S.
the Alternative Reference Rate
 
Committee (“AARC”), a
 
group of
 
market participants convened by
 
the Federal
 
Reserve, identified the
Secured Overnight
 
Financing
 
Rate (“SOFR”)
 
as its recommended
 
alternative
 
to LIBOR. The
 
Federal Reserve
 
started publishing
 
the SOFR
in April 2018. The
 
SOFR is a
 
broad measure of the cost
 
of overnight borrowings collateralized
 
by Treasury securities in the repurchase
agreement market. During 2021, the ARRC
 
recommended using the
 
Chicago Mercantile Exchange Group’s (“CME”) forward-looking
Term
 
SOFR
 
rates
 
for
 
cash
 
products
 
and
 
derivatives, limited
 
to
 
end-users
 
hedging
 
cash
 
products.
 
An
 
end-user
 
is
 
described
 
as
 
any
counterparty
 
to the underlying
 
cash product,
 
such as a
 
borrower, lender,
 
or guarantor.
 
These parties
 
may enter
 
into Term SOFR
 
rates swaps,
caps, swaptions,
 
or other derivatives
 
to hedge cash product
 
exposures.
 
The market transition
 
away from LIBOR to an
 
alternative
 
reference
rate is complex and could
 
have a range of adverse effects
 
on our business, financial
 
condition, and
 
results of operations.
 
In particular, any
such transition
 
could:
●
Adversely
 
affect the
 
interest
 
rates received
 
or paid on,
 
the revenue
 
and expenses
 
associated
 
with or the
 
value of
 
the Corporation’s
LIBOR-based assets
 
and
 
liabilities, which include
 
certain variable
 
rate
 
loans, primarily
 
commercial and
 
construction loans,
private
 
label
 
MBSs,
 
the
 
Corporation’s
 
junior
 
subordinated
 
debentures,
 
and
 
certain
 
other
 
financial
 
arrangements
 
such
 
as
derivatives. As of December 31, 2021, the most significant
 
of the Corporation’s LIBOR-based assets and liabilities
 
consists of
$2.0
 
billion of
 
commercial and
 
construction loans, $134.4
 
million of
 
Puerto Rico
 
municipalities bonds held
 
as
 
part
 
of
 
the
Corporation’s
 
held-to-maturity
 
investment
 
securities
 
portfolio,
 
and $183.8
 
million
 
of junior
 
subordinated
 
debentures;
●
Prompt inquiries
 
or other
 
actions from
 
regulators
 
in respect
 
of the Corporation’s
 
preparation
 
and readiness
 
for the replacement
 
of
LIBOR with
 
an alternative
 
reference
 
rate; and
●
Result in
 
disputes,
 
litigation
 
or other actions
 
with counterparties
 
regarding
 
the interpretation
 
and enforceability
 
of certain
 
fallback
language
 
in LIBOR-based
 
contracts.
 
The transition away from LIBOR to an alternative reference
 
rate will require the transition to, or development of, appropriate
 
systems
and analytics to effectively
 
transition the Corporation’s
 
risk management and other
 
processes from LIBOR-based
 
products to those based
on the applicable
 
alternative
 
reference
 
rate, such
 
as SOFR.
 
The Corporation
 
has developed
 
a LIBOR
 
Transition Working Group
 
(“LTWG”)
to
 
define the
 
scope and
 
potential impact
 
that
 
the
 
replacement of
 
LIBOR
 
will have
 
across the
 
Corporation's LIBOR-based assets and
liabilities outstanding
 
overseen by the
 
Corporation’s Management Investments
 
& Asset-Liability Committee and the Board of
 
Directors
Asset-Liability
 
Committee.
 
The LTWG is composed by officers of the major areas affected,
 
including: Treasury, Legal,
 
Corporate Loans,
Credit, Operations,
 
Systems,
 
Asset-Liability
 
Management,
 
Risk, Accounting,
 
Financial
 
Reporting,
 
Public Relations,
 
and Strategic
 
Planning,
which together,
 
developed a
 
LIBOR Transition
 
workplan
 
and timetable
 
of
 
their respective areas;
 
identifying the systems,
 
models, and
applications
 
impacted
 
by the transition;
 
and the resources
 
necessary
 
for the transition.
 
As part of
 
this transition
 
plan, the
 
Corporation
 
started
including fallback
 
language on new and renewed
 
contracts tied
 
to LIBOR to provide for the determination
 
of an ARR and had adhered to
the
 
LIBOR
 
Fallbacks Protocol of
 
the
 
International Swaps and
 
Derivatives Association. In
 
addition, effective
 
December 31,
 
2021
 
the
37
Corporation discontinued entering into
 
new
 
contracts that
 
use
 
U.S. Dollar
 
LIBOR as
 
the reference
 
rate. Currently,
 
the
 
Corporation is
primarily offering CME’s Term SOFR rate as the ARRs to LIBOR. The Bank may also offer other industry-accepted
 
benchmark interest
rates
 
that
 
can
 
be
 
supported for
 
commercial transactions. The
 
Corporation continues
 
working
 
with
 
the
 
update
 
of
 
systems, processes,
documentation and models, with additional
 
updates expected through 2023.There
 
can be no guarantee that these efforts will successfully
mitigate
 
the operational
 
risks associated
 
with the
 
transition
 
away from
 
LIBOR to
 
an alternative
 
reference
 
rate.
The manner
 
and impact
 
of the transition
 
from LIBOR
 
to an alternative
 
reference
 
rate, as
 
well as
 
the effect
 
of these
 
developments
 
on our
funding costs,
 
loan and
 
investment
 
securities
 
portfolios,
 
asset-liability
 
management,
 
and business,
 
is uncertain.
 
We are subject to Environmental,
 
Social and Governance (ESG) risks that could adversely affect
 
our reputation and the market
price of our securities.
The Corporation
 
is subject
 
to a variety
 
of risks
 
arising
 
from ESG
 
matters.
 
ESG matters
 
include
 
climate
 
risk, hiring
 
practices,
 
the diversity
of our
 
work force, and racial and
 
social justice issues involving our personnel, customers and third parties with whom we
 
otherwise do
business.
 
Risks arising
 
from ESG
 
matters
 
may adversely
 
affect, among
 
other things,
 
our reputation
 
and the
 
market price
 
of our securities.
For example,
 
we may be exposed
 
to negative
 
publicity
 
based on the
 
identity and
 
activities
 
of those to whom
 
we lend and with
 
which we
otherwise do
 
business and
 
the
 
public’s
 
view
 
of
 
the
 
approach and
 
performance of
 
our
 
customers and
 
business partners
 
with
 
respect
to ESG matters.
 
Any such
 
negative
 
publicity
 
could arise
 
from adverse
 
news coverage
 
in traditional
 
media and
 
could also
 
spread through
 
the
use of social media platforms.
 
The Corporation’s relationships
 
and reputation with
 
its existing and prospective
 
customers and third
 
parties
with which we
 
do business
 
could be damaged
 
if we were to become
 
the subject
 
of any such negative
 
publicity. This,
 
in turn, could
 
have an
adverse effect on our ability to
 
attract and retain customers and employees and could have a negative impact on
 
our business,
 
financial
condition and results of operations.
Additionally, concerns over
 
the
 
long-term impacts of
 
climate change
 
have
 
led and
 
will continue
 
to
 
lead to
 
governmental efforts to
mitigate
 
those
 
impacts. Consumers
 
and
 
businesses also
 
may
 
change
 
their
 
behavior on
 
their
 
own
 
as
 
a
 
result
 
of
 
these
 
concerns. The
Corporation and its customers will need to
 
respond to new laws
 
and regulations as well as
 
consumer and business preferences resulting
from climate
 
change concerns.
Finally,
 
shareholders,
 
customers
 
and
 
other
 
stakeholders
 
have
 
begun
 
to
 
consider
 
how
 
corporations
 
are
 
addressing
 
ESG
issues.
 
Investor
 
advocacy
 
groups,
 
investment
 
funds
 
and
 
influential
 
investors
 
are
 
also
 
increasingly
 
focused
 
on
 
these
 
practices,
especially
 
as
 
they
 
relate
 
to
 
the
 
environment,
 
health
 
and
 
safety,
 
diversity,
 
labor
 
conditions
 
and
 
human
 
rights.
 
Increased ESG related
compliance costs could
 
result in increases to
 
our overall operational
 
costs.
 
Failure to adapt to
 
or comply with regulatory
 
requirements
or
 
investor
 
or
 
stakeholder
 
expectations
 
and
 
standards
 
could
 
negatively
 
impact
 
our
 
reputation,
 
ability
 
to
 
do
 
business
 
with
 
certain
partners,
 
and
 
our
 
stock
 
price.
 
New
 
government
 
regulations
 
could
 
also
 
result
 
in
 
new
 
or more
 
stringent
 
forms
 
of ESG
 
oversight
 
and
expanding mandatory and voluntary reporting, diligence, and disclosure.
Our results of
 
operations could be
 
adversely affected
 
by natural disasters, political
 
crises, negative global
 
climate patterns or other
catastrophic events.
Natural
 
disasters, which
 
nature and
 
severity may
 
be impacted
 
by climate
 
change,
 
such as
 
hurricanes,
 
floods, extreme
 
cold
 
events
and
 
other
 
adverse
 
weather
 
conditions;
 
political
 
crises,
 
such
 
as
 
terrorist
 
attacks,
 
war,
 
labor
 
unrest,
 
other
 
political
 
instability,
 
trade
policies and
 
sanctions, including
 
the repercussions
 
of the
 
attack by
 
Russia on
 
Ukraine; negative
 
global climate
 
patterns, especially
 
in
water
 
stressed
 
regions;
 
or other
 
catastrophic
 
events,
 
such as
 
fires
 
or other
 
disasters
 
occurring
 
at our
 
locations,
 
whether
 
occurring
 
in
Puerto
 
Rico,
 
the
 
U.S.,
 
or
 
internationally,
 
could
 
cause
 
a
 
significant
 
adverse
 
effect
 
on
 
the
 
economy
 
and
 
disrupt
 
our
 
operations.
 
For
example,
 
Puerto
 
Rico
 
experienced
 
hurricanes
 
and
 
earthquakes
 
in
 
2017
 
and
 
2020,
 
which
 
had
 
an
 
adverse
 
effect
 
on
 
our
 
operations
created
 
by
 
decreases
 
in
 
loan
 
demand
 
and
 
deposit
 
level.
 
Further,
 
climate
 
change
 
may
 
increase
 
both
 
the
 
frequency
 
and
 
severity
 
of
extreme weather conditions and natural
 
disasters, which may affect our
 
business operations, either in a particular
 
region or globally,
 
as
well as the
 
activities of our
 
customers. The Corporation
 
is also not able
 
to predict the
 
positive or negative
 
effects that future
 
events or
changes to the U.S. or global economy,
 
financial markets, or regulatory and business environment could have on our operations.
Climate change may materially adversely affect the Corporation's
 
business and results of operations.
Concerns over
 
the long-term effects
 
of climate change
 
have led and
 
will continue to
 
lead to governmental
 
efforts around
 
the world
to mitigate
 
those impacts.
 
Consumers and
 
businesses also
 
may
 
voluntarily
 
change their
 
behavior
 
as a
 
result of
 
these concerns.
 
The
Corporation
 
and
 
its
 
customers
 
will
 
need
 
to
 
respond
 
to
 
new
 
laws
 
and
 
regulations
 
as
 
well
 
as
 
consumer
 
and
 
business
 
preferences
resulting
 
from
 
climate
 
change
 
concerns.
 
The
 
Corporation
 
and
 
its
 
customers
 
may
 
face
 
cost
 
increases,
 
asset
 
value
 
reductions
 
and
operating process
 
changes. The
 
impact on
 
our customers
 
will likely
 
vary depending
 
on their
 
specific attributes,
 
including reliance
 
on
or role in fossil fuel activities. Among the impacts to the Corporation,
 
we could face reductions in creditworthiness on the part of some
customers
 
or in
 
the value
 
of assets
 
securing
 
loans. The
 
Corporation’s
 
efforts
 
to take
 
these risks
 
into account
 
in making
 
lending and
 
38
other
 
decisions,
 
including
 
by
 
increasing
 
our
 
business
 
with
climate-responsible
 
companies,
 
may
 
not
 
be
 
effective
 
in
 
protecting
 
the
Corporation from the negative impact of new laws and regulations or changes in
 
consumer or business behavior.
Labor shortages and constraints in the supply chain could adversely affect
 
our clients’ operations as well as our operations.
Many sectors
 
in Puerto Rico,
 
the United States,
 
Virgin
 
Islands and around
 
the world are
 
experiencing a shortage
 
of workers. Many
of our commercial clients have
 
been impacted by this shortage
 
along with disruptions and constraints
 
in the supply chain, which
 
could
adversely
 
impact their
 
operations
 
and could
 
lead to
 
reduced cash
 
flow and
 
difficulty
 
in making
 
loan repayments.
 
The Corporation’s
industry has also been affected by the shortage
 
of workers, with respect to certain roles, as well as increasing
 
wages for entry level and
certain professional roles.
 
This may lead to open
 
positions remaining unfilled for
 
longer periods of time,
 
which may affect the
 
level of
service provided by the Corporation, or a need to increase wages to attract workers.
 
The failure of other financial institutions could adversely affect
 
us.
 
Our ability to engage
 
in routine financing transactions
 
could be adversely affected
 
by future failures of financial
 
institutions and the
actions and
 
commercial soundness
 
of other
 
financial institutions.
 
Financial institutions
 
are interrelated
 
as a result
 
of trading,
 
clearing,
counterparty
 
and
 
other relationships.
 
We
 
have
 
exposure
 
to different
 
industries
 
and
 
counterparties
 
and
 
routinely
 
execute
 
transactions
with counterparties
 
in the financial
 
services industry,
 
including brokers
 
and dealers,
 
commercial banks,
 
investment banks,
 
investment
companies and other
 
institutional clients. In
 
certain of these transactions,
 
we are required to
 
post collateral to
 
secure the obligations
 
to
the
 
counterparties.
 
In the
 
event
 
of
 
a bankruptcy
 
or
 
insolvency
 
proceeding
 
involving
 
one of
 
such counterparties,
 
we
 
may
 
experience
delays in recovering
 
the assets posted as
 
collateral, or we
 
may incur a
 
loss to the extent
 
that the counterparty
 
was holding collateral in
excess of the obligation to such counterparty or under other circumstances.
In addition, many of these transactions
 
expose us to credit risk in
 
the event of a default by our
 
counterparty or client. The credit
 
risk
may be exacerbated when
 
the collateral held by us cannot
 
be realized or is liquidated
 
at prices not sufficient
 
to recover the full amount
of the loan
 
or derivative
 
exposure due to
 
us. Any losses
 
resulting from
 
our routine funding
 
transactions may
 
materially and adversely
affect our financial condition and results of operations.
RISK RELATING
 
TO THE REGULATION
 
OF OUR INDUSTRY
 
We are subject to certain regulatory
 
restrictions that may adversely affect our operations.
We
 
are subject
 
to supervision
 
and regulation
 
by the
 
Federal Reserve
 
Board and
 
the FDIC.
 
We
 
are a
 
bank holding
 
company and
 
a
financial holding
 
company under
 
the Bank
 
Holding Company
 
Act of
 
1956, as
 
amended. The
 
Bank is
 
also subject
 
to supervision
 
and
regulation by the Puerto Rico Office of the Commissioner of Financial
 
Institutions.
Under
 
federal
 
law,
 
financial
 
holding
 
companies
 
are
 
permitted
 
to
 
engage
 
in
 
a
 
broader
 
range
 
of
 
“financial”
 
activities
 
than
 
those
permitted
 
to
 
bank
 
holding
 
companies
 
that
 
are
 
not
 
financial
 
holding
 
companies.
 
A
 
financial
 
holding
 
company
 
that
 
ceases
 
to
 
meet
certain
 
standards
 
is
 
subject
 
to
 
a
 
variety
 
of
 
restrictions,
 
depending
 
on
 
the
 
circumstances,
 
including
 
the
 
prohibition
 
from
 
undertaking
new activities
 
or acquiring
 
shares or
 
control of
 
other companies.
 
If we
 
fail to
 
comply with
 
the requirements
 
from our
 
regulators,
 
we
may
 
become
 
subject
 
to
 
regulatory
 
enforcement
 
action
 
and
 
other
 
adverse
 
regulatory
 
actions
 
that
 
might
 
have
 
a
 
material
 
and
 
adverse
effect on our operations.
 
The FDIC insures
 
deposits at
 
FDIC-insured depository
 
institutions up
 
to certain limits
 
(currently,
 
$250,000 per
 
depositor account).
The FDIC charges insured
 
depository institutions premiums to
 
maintain the DIF.
 
In the event of a bank
 
failure, the FDIC takes control
of a failed
 
bank and, if
 
necessary,
 
pays all insured
 
deposits up to
 
the statutory deposit
 
insurance limits using
 
the resources of
 
the DIF.
The FDIC
 
is required
 
by law to
 
maintain adequate
 
funding of
 
the DIF,
 
and the
 
FDIC may
 
increase premium
 
assessments to
 
maintain
such
 
funding.
 
The
 
Dodd-Frank
 
Wall
 
Street
 
Reform
 
and
 
Consumer
 
Protection
 
Act
 
(the
 
“Dodd-Frank
 
Act”)
 
requires
 
the
 
FDIC
 
to
increase the DIF’s
 
reserves against future losses, which
 
will require institutions with assets
 
greater than $10 billion, such as
 
FirstBank,
to bear an increased responsibility for funding the prescribed reserve to
 
support the DIF.
 
The
 
FDIC
 
may
 
increase
 
FirstBank’s
 
premiums
 
or
 
impose
 
additional
 
assessments
 
or
 
prepayment
 
requirements
 
in
 
the
 
future.
 
The
Dodd-Frank Act removed the statutory cap for the reserve ratio, leaving
 
the FDIC free to set this cap going forward.
 
Our
 
compensation
 
practices
 
are
 
subject
 
to
 
oversight
 
by
 
the
 
Federal
 
Reserve
 
Board
 
and
 
the
 
FDIC.
 
Any
 
deficiencies
 
in
 
our
compensation
 
practices
 
may
 
be
 
incorporated
 
into
 
our
 
supervisory
 
ratings,
 
which
 
can
 
affect
 
our
 
ability
 
to
 
make
 
acquisitions
 
or
perform other actions. In addition,
 
the regulation of our compensation practices may change in the future.
Our
 
compensation
 
practices
 
are
 
subject
 
to
 
oversight
 
by
 
the
 
Federal
 
Reserve
 
Board
 
and
 
the
 
FDIC.
 
As
 
discussed
 
above,
 
the
Corporation currently
 
is subject
 
to the
 
2010 interagency
 
guidance governing
 
the incentive
 
compensation activities
 
of regulated
 
banks
and bank
 
holding companies.
 
Our failure
 
to satisfy
 
these restrictions
 
and guidelines
 
could expose
 
us to
 
adverse regulatory
 
criticism,
39
lowered
 
supervisory
 
ratings,
 
and
 
restrictions
 
on
 
our
 
operations
 
and
 
acquisition
 
activities.
 
In
 
addition,
 
the
 
federal
 
banking
 
agencies
have
 
proposed
 
regulations
 
under
 
the
 
Dodd-Frank
 
Act
 
that
 
place
 
restrictions
 
on
 
the
 
incentive
 
compensation
 
practices
 
of
 
banking
organizations with $1 billion or more in assets.
 
The scope
 
and content of
 
the U.S. banking
 
regulators’ policies on
 
executive compensation
 
are continuing
 
to develop and
 
are likely
to continue evolving in
 
the future. It cannot be
 
determined at this time whether
 
compliance with such policies
 
will adversely affect the
ability of the Corporation and its subsidiaries to hire, retain and motivate
 
their key employees.
We
 
are
 
subject
 
to
 
regulatory
 
capital
 
adequacy
 
guidelines,
 
and,
 
if
 
we
 
fail
 
to
 
meet
 
these
 
guidelines,
 
our
 
business
 
and
 
financial
condition will be adversely affected.
 
We
 
are subject
 
to stringent
 
regulatory
 
capital requirements.
 
Although
 
the Corporation
 
and FirstBank
 
met general
 
well-capitalized
capital ratios
 
as of
 
December 31,
 
2021 and
 
we expect
 
both companies
 
will continue
 
to exceed
 
the minimum
 
risk-based and
 
leverage
capital
 
ratio
 
requirements
 
for
 
well-capitalized
 
status
 
under
 
the
 
current
 
capital
 
rules,
 
we
 
cannot
 
assure
 
that
 
we
 
will
 
remain
 
at
 
such
levels.
 
If
 
we
 
fail
 
to
 
meet
 
these
 
minimum
 
capital
 
guidelines
 
and
 
other
 
regulatory
 
requirements,
 
our
 
business
 
and
 
financial
 
condition
will
 
be
 
materially
 
and
 
adversely
 
affected.
 
If
 
we
 
fail
 
to
 
maintain
 
certain
 
capital
 
levels,
 
or
 
are
 
deemed
 
not
 
well
 
managed
 
under
regulatory
 
exam
 
procedures,
 
or
 
if
 
we
 
experience
 
certain
 
regulatory
 
violations,
 
our
 
status
 
as
 
a
 
financial
 
holding
 
company,
 
and
 
our
ability to offer
 
certain financial products will be
 
compromised and our financial
 
condition and results of operations
 
could be adversely
affected.
 
Monetary
 
policies
 
and
 
regulations
 
of
 
the
 
Federal
 
Reserve
 
Board
 
could
 
adversely
 
affect
 
our
 
business,
 
financial
 
condition
 
and
results of operations.
In addition
 
to being
 
affected
 
by general
 
economic conditions,
 
our earnings
 
and growth
 
are affected
 
by the
 
policies of
 
the Federal
Reserve Board. An important
 
function of the Federal
 
Reserve Board is to regulate
 
the money supply and
 
credit conditions. Among the
instruments
 
used
 
by
 
the
 
Federal
 
Reserve
 
Board
 
to
 
implement
 
these
 
objectives
 
are
 
open
 
market
 
operations
 
in
 
U.S.
 
government
securities,
 
adjustments
 
of
 
the
 
discount
 
rate
 
and
 
changes
 
in
 
reserve
 
requirements
 
for
 
bank
 
deposits.
 
These
 
instruments
 
are
 
used
 
in
varying combinations to
 
influence overall economic
 
growth and the
 
distribution of credit,
 
bank loans, investments
 
and deposits. Their
use also affects interest rates charged on
 
loans or paid on deposits.
 
The
 
monetary
 
policies
 
and
 
regulations
 
of
 
the
 
Federal
 
Reserve
 
Board
 
have
 
had
 
a
 
significant
 
effect
 
on
 
the
 
operating
 
results
 
of
commercial
 
banks
 
in
 
the
 
past
 
and
 
are
 
expected
 
to
 
continue
 
to
 
do
 
so
 
in
 
the
 
future.
 
The
 
effects
 
of
 
such
 
policies
 
upon
 
our
 
business,
financial condition and results of operations may be adverse.
 
We
 
are
 
subject
 
to
 
numerous
 
laws
 
designed
 
to
 
protect
 
consumers,
 
including
 
the
 
Community
 
Reinvestment
 
Act
 
and
 
fair
 
lending
laws, and failure to comply with these laws could lead to a wide variety of sanctions.
 
The
 
Community
 
Reinvestment
 
Act,
 
the
 
Equal
 
Credit
 
Opportunity
 
Act,
 
the
 
Fair
 
Housing
 
Act
 
and
 
other
 
fair
 
lending
 
laws
 
and
regulations impose nondiscriminatory
 
lending requirements
 
on financial institutions.
 
The U.S. Department
 
of Justice and other
 
federal
agencies
 
are
 
responsible
 
for
 
enforcing
 
these
 
laws and
 
regulations.
 
A
 
successful
 
regulatory
 
challenge
 
to
 
an
 
institution's
 
performance
under the Community Reinvestment
 
Act, the Equal Credit
 
Opportunity Act, the Fair
 
Housing Act or any
 
of the other fair lending
 
laws
and regulations
 
could result in
 
a wide variety
 
of sanctions, including
 
damages and civil
 
money penalties, injunctive
 
relief, restrictions
on mergers and acquisitions
 
activity, restrictions
 
on expansion and restrictions on entering
 
new business lines. Private parties may
 
also
have the
 
ability to
 
challenge an
 
institution's performance
 
under fair
 
lending laws
 
in private
 
class action
 
litigation. Such
 
actions could
have a material adverse effect on our business, financial
 
condition and results of operations.
We
 
face
 
a
 
risk
 
of
 
noncompliance
 
and
 
enforcement
 
action
 
related
 
to
 
the
 
Bank
 
Secrecy
 
Act
 
and
 
other
 
anti-money
 
laundering
statutes and regulations.
The
 
Bank
 
Secrecy
 
Act,
 
the
 
USA
 
PATRIOT
 
Act,
 
and
 
other
 
laws
 
and
 
regulations
 
require
 
financial
 
institutions
 
to
 
institute
 
and
maintain
 
an
 
effective
 
anti-money
 
laundering
 
program
 
and
 
file
 
suspicious
 
activity
 
and
 
currency
 
transaction
 
reports
 
as
 
appropriate,
among
 
other
 
duties.
 
The
 
Financial
 
Crimes
 
Enforcement
 
Network
 
is
 
authorized
 
to
 
impose
 
significant
 
civil
 
money
 
penalties
 
for
violations
 
of
 
those
 
requirements
 
and
 
has
 
recently
 
engaged
 
in
 
coordinated
 
enforcement
 
efforts
 
with
 
the
 
individual
 
federal
 
banking
regulators, as well
 
as the U.S. Department
 
of Justice’s
 
Drug Enforcement Administra
 
tion. We
 
are also subject
 
to increased scrutiny
 
of
our compliance with
 
trade and economic sanctions
 
requirements and rules
 
enforced by OFAC.
 
If our policies, procedures
 
and systems
are deemed
 
deficient, we
 
would be
 
subject to
 
liability,
 
including fines
 
and regulatory
 
actions, which
 
may include
 
restrictions on
 
our
ability to pay dividends and the necessity to obtain
 
regulatory approvals to proceed with certain aspects
 
of our business plan, including
our acquisition plans. Failure
 
to maintain and implement adequate
 
programs to combat money laundering
 
and terrorist financing could
also have serious reputational
 
consequences for us. Any
 
of these results could have
 
a material adverse effect
 
on our business, financial
condition and results of operations.
40
Item 1B. Unresolved Staff Comments
 
None.
 
Item 2. Properties
As of January 13, 2022, First BanCorp. owned the following three
 
main offices located in Puerto Rico:
-
Headquarters
 
–
 
Located
 
at
 
First
 
Federal
 
Building,
 
1519
 
Ponce
 
de
 
León
 
Avenue,
 
Santurce,
 
Puerto
 
Rico,
 
a
 
16-story
 
office
building. Approximately
 
51% of
 
the building,
 
including 100,000
 
square feet
 
underground three
 
level parking
 
garage and
 
an
adjacent parking lot are occupied by the Corporation.
-
Service
 
Center –
 
a building
 
located
 
on 1130
 
Muñoz
 
Rivera Avenue,
 
Hato Rey,
 
Puerto
 
Rico. These
 
facilities
 
accommodate
branch
 
operations,
 
First
 
Mortgage,
 
Collections
 
and
 
Loss
 
Mitigation,
 
data
 
processing
 
and
 
administrative
 
and
 
certain
headquarter offices. The
 
building houses 180,000
 
square feet of modern
 
facilities, over 1,000 employees
 
from operations, the
FirstBank Insurance
 
Agency headquarters,
 
and the
 
customer service
 
department. In
 
addition, it
 
has parking
 
for 750
 
vehicles
and
 
9
 
training
 
rooms,
 
including
 
classrooms
 
for
 
training
 
tellers
 
and
 
a
 
computer
 
room
 
for
 
interactive
 
trainings,
 
as
 
well
 
as
 
a
spacious cafeteria for employees and customers. This facility is fully occupied
 
by the Corporation.
-
Consumer Lending
 
Center –
 
A three-story
 
building with
 
29,000 square
 
feet and
 
a three-level
 
parking garage
 
located at
 
876
Muñoz Rivera
 
Avenue,
 
Hato Rey,
 
Puerto Rico. This
 
facility is fully
 
occupied by
 
the Corporation.
 
Other uses include
 
a retail
branch, Money Express, Auto Financing and Leasing and a First Insurance
 
office, among other.
The
 
Corporation
 
owns 20
 
retail branch
 
es and
 
77 office
 
premises and
 
parking
 
lots.
 
It
 
leases 96
 
branch
 
premises,
 
loan
 
and
 
office
centers and other facilities. In certain situations, financial
 
services such as mortgage and insurance businesses and commercial
 
banking
services
 
are
 
in
 
the
 
same
 
building
 
or
 
branch.
 
All
 
these
 
premises
 
are
 
in
 
Puerto
 
Rico,
 
Florida,
 
the
 
USVI
 
and
 
the
 
BVI.
 
Management
believes that the Corporation’s properties
 
are well maintained and are suitable for the Corporation’s
 
business as presently conducted.
Item 3. Legal Proceedings
Reference
 
is
 
made
 
to
 
Note
 
33,
 
“Regulatory
 
Matters,
 
Commitments
 
and
 
Contingencies,”
 
to
 
the
 
consolidated
 
financial
 
statements
 
in
Item 8 of this Annual Report on Form 10-K, which is incorporated herein
 
by reference.
Item 4. Mine Safety Disclosure.
Not applicable.
 
41
PART
 
II
Item 5. Market for Registrant’s Common Equity
 
and Related Stockholder Matters and Issuer Purchases of
 
Equity Securities
Information about Market and Holders
The Corporation’s
 
common stock
 
is traded
 
on the
 
New York
 
Stock Exchange
 
(“NYSE”) under
 
the symbol
 
FBP.
 
On February
 
15,
2022, there
 
were 307 holders
 
of record
 
of the Corporation’s
 
common stock,
 
not including
 
beneficial owners
 
whose shares are
 
held in
the name of brokers or other nominees.
As
 
of
 
December 31,
 
2021
 
and
 
December 31,
 
2020,
 
the
 
Corporation
 
had
 
21,836,611
 
and
 
4,799,284
 
shares
 
held
 
as treasury
 
stock,
respectively.
 
Refer to
 
“Purchase of
 
equity securities
 
by the
 
issuer and
 
affiliated
 
purchasers”
 
section below
 
for more
 
information
 
on
 
common stock repurchases during 2021, also held as treasury stock.
Information
 
regarding transactions
 
related to
 
common
 
stock and
 
securities authorized
 
for issuance
 
under the
 
Corporation’s
 
equity
compensation
 
plan is
 
set forth
 
in Note
 
22 -
 
“Stock-Based
 
Compensation”
 
of the
 
Notes to
 
Consolidated
 
Financial
 
Statements
 
and
 
in
Part III, Item 12 of this Annual Report on Form 10-K.
Dividends
Since
 
November
 
2018,
 
the
 
Corporation
 
has
 
been
 
making
 
quarterly
 
cash
 
dividend
 
payments
 
on
 
its
 
shares
 
of
 
common
 
stock.
 
On
October 22, 2021 the Corporation
 
announced that it had increased the quarterly
 
cash dividend payment on common stocks,
 
from $0.07
to
 
$0.10
 
per
 
share,
 
commencing
 
in
 
the
 
fourth
 
quarter
 
of
 
2021.
 
On
 
February
 
10,
 
2022
 
the
 
Corporation
 
announced
 
that
 
its
 
Board
 
of
Directors declared
 
a quarterly cash
 
dividend, of $0.
 
10 per common
 
share, payable on
 
March 11,
 
2022 to shareholders
 
of record at
 
the
close of
 
business on
 
February 25,
 
2022. The
 
Corporation intends
 
to continue
 
to pay quarterly
 
dividends on
 
common stock.
 
However,
the
 
Corporation’s
 
common
 
stock
 
dividends,
 
including
 
the
 
declaration,
 
timing
 
and
 
amount,
 
remain
 
subject
 
to
 
consideration
 
and
approval by the Corporation’s
 
Board Directors at the relevant
 
times. On November 30, 2021
 
(the “Redemption Date”) the Corporation
redeemed
 
all of
 
its 1,444,146
 
outstanding
 
shares
 
of
 
non-convertible,
 
non-cumulative
 
perpetual
 
monthly
 
income
 
Series
 
A through
 
E
Preferred
 
Stock
 
for
 
its
 
liquidation
 
value
 
of
 
$25
 
per
 
share
 
or
 
$36.1
 
million.
 
Monthly
 
dividend
 
payments
 
on
 
non-convertible,
 
non-
cumulative perpetual monthly income
 
preferred stock were paid by the
 
Corporation until the Redemption Date.
 
Information regarding
restrictions on dividends,
 
as required by this
 
Item, is set forth
 
in Item 1: “Business
 
– Dividend Restrictions”
 
and incorporated into
 
this
Item by reference.
42
The 2011
 
PR Code, as
 
amended, requires the
 
withholding of income
 
taxes from dividend
 
income sourced
 
within Puerto Rico
 
to be
received
 
by
 
any
 
individual,
 
resident
 
of
 
Puerto
 
Rico
 
or
 
not,
 
trusts
 
and
 
estates
 
and
 
by
 
non-resident
 
custodians,
 
partnerships,
 
and
corporations.
Residents of Puerto Rico
A special tax of 15% withheld at
 
source is imposed, in lieu of a regular
 
tax, on any eligible dividends paid to
 
individuals, trusts, and
estates.
 
Eligible
 
dividends
 
include
 
dividends
 
paid
 
by
 
a
 
domestic
 
Puerto
 
Rico
 
corporation.
 
However,
 
the
 
taxpayer
 
can
 
perform
 
an
election to be excluded from the 15% special tax and be taxed at regular
 
rates. Once this election is made it is irrevocable. The election
allows the
 
taxpayer to
 
include in
 
ordinary income
 
the eligible
 
dividends received
 
and take
 
a credit
 
for the
 
amount of
 
tax withheld
 
in
excess, if any.
 
Individuals that
 
are residents
 
of Puerto
 
Rico are
 
subject to
 
an alternative
 
minimum tax
 
(“AMT”) on
 
the AMT
 
Net Income
 
if their
regular
 
tax
 
liability
 
is
 
less
 
than
 
the
 
alternative
 
minimum
 
tax
 
liability.
 
The
 
AMT
 
applies
 
to
 
individual
 
taxpayers
 
whose
 
AMT
 
Net
taxable
 
income exceeds
 
$25,000.
 
The individual
 
AMT rate
 
ranges
 
from 1%
 
to 24%
 
depending
 
on the
 
AMT Net
 
Income. The
 
AMT
Net Income
 
includes
 
various categories
 
of tax-exempt
 
income and
 
income subject
 
to preferential
 
rates as
 
provided by
 
the PR
 
Code,
such as
 
dividends on
 
the Corporation’s
 
common stock
 
and long-term
 
capital gains
 
recognized on
 
the disposition
 
of the Corporation’s
common stock.
Nonresident U.S. Citizens
Dividends paid to a U.S. citizen who is not a resident of Puerto Rico will be subject
 
to a 15% income tax.
 
Nonresident U.S. citizens
have the right to partial
 
or total exemptions when
 
a Withholding Tax
 
Exemption Certificate (PR Treasury
 
Department Form AS 2732)
is properly
 
completed and
 
filed with
 
the Corporation.
 
The Corporation,
 
as withholding
 
agent, is
 
authorized to
 
withhold a
 
tax of
 
15%
only from the excess of the income paid over the applicable tax-exempt
 
amount.
Nonresident individuals that are
 
not US citizens
 
Dividends paid to any
 
individual who is not a
 
citizen of the United States and
 
who is not a resident
 
of Puerto Rico will generally
 
be
subject to a 15% Puerto Rico income tax which will be withheld at source.
 
Foreign Corporations and Partnerships
Corporations
 
and partnerships
 
not organized
 
under Puerto
 
Rico
 
laws that
 
have
 
not engaged
 
in a
 
trade
 
or business
 
in Puerto
 
Rico
during
 
the
 
taxable
 
year
 
in
 
which
 
the
 
dividend,
 
if
 
any,
 
is
 
paid
 
are
 
subject
 
to
 
the
 
10%
 
dividend
 
tax
 
withholding.
 
Corporations
 
or
partnerships not organized
 
under the laws of
 
Puerto Rico that have
 
engaged in a trade
 
or business in Puerto
 
Rico are not subject
 
to the
10% withholding, but they must declare any dividend as ordinary income
 
on their Puerto Rico income tax return.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
43
Purchase of equity securities by the issuer and affiliated
 
purchasers
The following
 
table provides
 
information relating
 
to the Corporation’s
 
purchases of
 
shares of its
 
common stock
 
and redemption
 
of
its preferred stock in the fourth quarter of 2021.
Approximate Dollar
 
Value of
 
Shares
Total
 
Number of
That May Yet
 
be
Shares Purchased
Purchased Under
Average
 
as Part of Publicly
These Plans or
Total
 
number of
 
Price
Announced Plans
Programs
Period
shares purchased
 
Paid
Or Programs
 
(In thousands)
(1)
October 1, 2021 to October 31, 2021:
 
Common Stock
498,917
$
13.67
498,300
November 1, 2021 to November 30, 2021:
Common Stock
2,400,000
14.21
2,400,000
Preferred Stock, Series A
197,386
25.00
197,386
Preferred Stock, Series B
296,146
25.00
296,146
Preferred Stock, Series C
249,852
25.00
249,852
Preferred Stock, Series D
285,522
25.00
285,522
Preferred Stock, Series E
415,240
25.00
415,240
December 1, 2021 to December 31, 2021:
Common Stock
1,720,714
13.35
1,720,714
Total
6,063,777
(2)(3)
6,063,160
$
50,000
(1)
As of December 31,
 
2021, the Corporation was
 
authorized to purchase up to
 
$300 million of the
 
Corporation’s stock under the
 
program, that was publicly
 
announced
on April 26,
 
2021 and expires
 
on June 30,
 
2022, of which
 
$250 million had
 
been utilized.
 
The remaining $50 million
 
in the table
 
represents the amount available
 
to
repurchase shares under
 
the program as
 
of December 31,
 
2021.
 
The program does not
 
obligate the Corporation to
 
acquire any specific
 
number of shares.
 
Under the
program,
 
shares may
 
be repurchased
 
through open
 
market purchases,
 
accelerated share
 
repurchases and/or
 
privately negotiated
 
transactions, including
 
under plans
complying with Rule 10b5-1 under the Exchange Act.
(2)
Includes 617 shares of common stock acquired by the Corporation to cover minimum tax withholding obligations upon the vesting
 
of restricted stock and performance
units.
 
The
 
Corporation
 
intends
 
to
 
continue
 
to
 
satisfy
 
statutory
 
tax
 
withholding
 
obligations
 
in
 
connection
 
with
 
the
 
vesting
 
of
 
outstanding
 
restricted
 
stock
 
and
performance units through the withholding of shares.
(3)
Includes 3,869,014 shares of common stock repurchased in the open market
 
at an average price of $13.74 for a total purchase price of approximately $53.2 million,
 
and
750,000 shares of common stock repurchased through privately negotiated transactions at
 
an average price of $14.33 for a
 
total purchase price of approximately $10.7
million.
On April
 
26, 2021,
 
the Corporation
 
announced that
 
its Board
 
of Directors
 
approved a
 
stock repurchase
 
program, under
 
which the
Corporation
 
may repurchase
 
up to
 
$300 million
 
of its
 
outstanding stock,
 
including common
 
and preferred
 
stock, commencing
 
in the
second
 
quarter
 
of
 
2021
 
through
 
June
 
30,
 
2022.
 
Repurchases
 
under
 
the
 
program
 
may
 
be
 
executed
 
through
 
open
 
market
 
purchases,
accelerated
 
share
 
repurchases
 
and/or
 
privately
 
negotiated
 
transactions
 
or
 
plans,
 
including
 
under
 
plans
 
complying
 
with
 
Rule
 
10b5-1
under the Exchange Act.
 
During 2021, the Corporation repurchased
 
16,740,467 shares of its common stock
 
for $213.9 million and, as
mentioned
 
above,
 
Corporation
 
redeemed
 
all of
 
its outstanding
 
shares of
 
non-convertible,
 
non-cumulative
 
perpetual
 
monthly
 
income
Series A through E Preferred Stock for its liquidation value of $36.1
 
million.
fbp1231202110kp44i0.gif
44
STOCK PERFORMANCE GRAPH
The
 
following
 
Performance
 
Graph
 
shall
 
not
 
be
 
deemed
 
incorporated
 
by
 
reference
 
by
 
any
 
general
 
statement
 
incorporating
 
by
reference
 
this Annual
 
Report
 
on
 
Form 10-K
 
into any
 
filing under
 
the
 
Securities Act
 
(collectively,
 
“the
 
Acts”)
 
or
 
the Exchange
 
Act,
except
 
to
 
the
 
extent
 
that First
 
BanCorp.
 
specifically
 
incorporates
 
this
 
information
 
by
 
reference,
 
and
 
shall not
 
otherwise
 
be
 
deemed
filed under these Acts.
The
 
graph
 
below
 
compares
 
the
 
cumulative
 
total
 
stockholder
 
return
 
of
 
First
 
BanCorp.
 
during
 
the
 
measurement
 
period
 
with
 
the
cumulative
 
total
 
return,
 
assuming
 
reinvestment
 
of
 
dividends
 
of
 
the
 
S&P
 
500
 
Index
 
and the
 
S&P
 
Supercom
 
Banks
 
Index
 
(the
 
“Peer
Group”).
 
The Performance
 
Graph assumes
 
that $100
 
was invested
 
on December
 
31, 2016
 
in each
 
of First
 
BanCorp. common
 
stock,
the S&P
 
500 Index
 
and the
 
Peer Group.
 
The comparisons
 
in this
 
table are
 
set forth
 
in response
 
to SEC
 
disclosure requirements,
 
and
are therefore not intended to forecast or be indicative of future performance
 
of First BanCorp.’s common
 
stock.
 
 
The
 
cumulative
 
total
 
stockholder
 
return
 
was
 
obtained
 
by
 
dividing
 
(i) the
 
cumulative
 
amount
 
of
 
dividends
 
per
 
share,
 
assuming
dividend
 
reinvestment
 
since
 
the
 
measurement
 
point,
 
December 31,
 
2016
 
plus
 
(ii) the
 
change
 
in
 
the
 
per
 
share
 
price
 
since
 
the
measurement date, by the share price at the measurement date.
 
45
Item
 
6. [Reserved]
46
Item 7. Management’s
 
Discussion
 
and Analysis
 
of Financial
 
Condition
 
and Results
 
of Operations
 
(“MD&A”)
The following MD&A
 
relates to the
 
accompanying audited consolidated
 
financial statements of
 
First BanCorp. (the
 
“Corporation,”
“we,” “us,”
 
“our,”
 
or “First
 
BanCorp.”) and
 
should be
 
read in
 
conjunction
 
with such
 
financial statements
 
and the
 
notes thereto.
 
This
section
 
also
 
presents
 
certain
 
financial
 
measures
 
that
 
are
 
not
 
based
 
on
 
generally
 
accepted
 
accounting
 
principles
 
in
 
the United
 
States
(“GAAP”).
 
See “Basis of
 
Presentation” below
 
for information
 
about why the
 
non-GAAP financial
 
measures are
 
being presented
 
and
the reconciliation of
 
the non-GAAP financial measures
 
to the most comparable
 
GAAP financial measures for
 
which the reconciliation
is not presented earlier.
The detailed financial discussion that follows focuses on
 
2021 results compared to 2020.
 
For a discussion of 2020 results compared
to
 
2019,
 
see
 
Item
 
7,
 
Management’s
 
Discussion
 
and
 
Analysis
 
of
 
Financial
 
Condition
 
and
 
Results
 
of
 
Operations
 
included
 
in
 
the
Corporation’s Annual
 
Report on Form 10-K for the year ended December 31, 2020, which is incorpora
 
ted herein by reference.
DESCRIPTION OF BUSINESS
First BanCorp.
 
is a diversified
 
financial holding
 
company headquartered
 
in San Juan,
 
Puerto Rico offering
 
a full range
 
of financial
products to
 
consumers and
 
commercial customers
 
through various
 
subsidiaries. First
 
BanCorp.
 
is the
 
holding company
 
of FirstBank
Puerto
 
Rico
 
and
 
FirstBank
 
Insurance
 
Agency.
 
Through
 
its wholly
 
-owned
 
subsidiaries,
 
the
 
Corporation
 
operates
 
in
 
Puerto
 
Rico,
 
the
USVI, the BVI, and the state of Florida, concentrating
 
on commercial banking, residential mortgage loans,
 
finance leases, credit cards,
personal loans, small loans, auto loans, and insurance agency activities.
SIGNIFICANT EVENTS
Stock Repurchase Program
On April
 
26, 2021,
 
the Corporation
 
announced that
 
its Board
 
of Directors
 
approved a
 
stock repurchase
 
program, under
 
which the
Corporation
 
may repurchase
 
up to
 
$300 million
 
of its
 
outstanding stock,
 
including common
 
and preferred
 
stock, commencing
 
in the
second
 
quarter of
 
2021 through
 
June 30,
 
2022. During
 
the year
 
ended December
 
31, 2021,
 
the Corporation
 
repurchased 16,740,467
shares of
 
its common
 
stock for
 
$213.9 million.
 
In addition,
 
on November
 
30, 2021,
 
the Corporation
 
redeemed all
 
of its
 
outstanding
shares of
 
non-convertible, non-cumulative
 
perpetual monthly
 
income, Series
 
A through
 
E Preferred
 
Stock for
 
its liquidation
 
value of
$36.1 million.
 
Furthermore,
 
during the
 
first quarter
 
of 2022
 
the Corporation
 
repurchased 3,409,697
 
million shares
 
of common
 
stock
for the remaining $50 million authorized under the stock repurchase
 
program.
COVID-19 Pandemic and Economy
The
 
ongoing
 
COVID-19
 
pandemic
 
has
 
caused
 
unprecedented
 
and
 
continuing
 
uncertainty,
 
volatility
 
and
 
disruption
 
in
 
financial
markets
 
and
 
in
 
governmental,
 
commercial
 
and
 
consumer
 
activity
 
in
 
worldwide,
 
including
 
in
 
the
 
markets
 
in
 
which
 
the
 
Corporation
operates. In
 
response, federal,
 
state, and
 
local governments
 
have taken
 
and continue
 
to take
 
actions designed
 
to mitigate
 
the effect
 
of
the virus on
 
public health and
 
to address the
 
economic impact of
 
the virus. As
 
restrictive measures were
 
eased during the
 
end of 2020
and into 2021, based
 
upon positive signs of
 
recovery driven by
 
vaccination and government
 
stimulus programs, economic
 
activity has
improved.
 
As
 
of
 
February
 
18,
 
2022,
 
approximately
 
6.6
 
million
 
vaccines
 
of
 
COVID-19
 
have
 
been
 
administered.
 
Approximately
 
2.9
 
million
people
 
have received
 
at least
 
one
 
dose of
 
the COVID-19
 
vaccine and
 
approximately 2.6
 
million
 
people,
 
or approximately
 
84.9% of
Puerto Rico’s eligible population,
 
have completed the vaccination process and 54.3% have received the booster
 
shot.
 
The
 
Corporation
 
continues
 
to
 
operate
 
consistent
 
with
 
guidance
 
from
 
federal
 
and
 
local
 
authorities.
 
The
 
Corporation’s
 
banking
branches
 
are
 
operating
 
during
 
regular
 
hours
 
following
 
health
 
and
 
safety
 
requirements
 
to
 
comply
 
with
 
federal
 
and
 
local
 
health
mandates, including, among other things, deep cleaning, face mask requirements
 
,
 
and strict social distancing measures. On February 8,
2022,
 
the
 
Corporation
 
announced
 
that
 
as
 
part
 
of
 
COVID-19
 
protocols,
 
all
 
employees,
 
service
 
providers
 
and
 
consultants
 
of
 
the
Corporation
 
must
 
have
 
the
 
booster
 
shot
 
of
 
the
 
COVID-19
 
vaccine
 
by
 
March
 
1,
 
2022,
 
with
 
few
 
exceptions.
 
Additional
 
vaccine
mandates
 
have
 
been announced
 
in jurisdictions
 
in which
 
our businesses
 
operate.
 
Adoption
 
of electronic
 
channels continues
 
to grow
significantly during
 
the ongoing
 
pandemic,
 
with active
 
digital banking
 
users growing
 
by 16%
 
during 2021
 
while capturing
 
over 40%
of deposits through digital and self-service channels.
Our
 
results
 
of
 
operations
 
for the
 
year
 
of
 
2021
 
continue
 
to reflect
 
an
 
improvement
 
from
 
the
 
disruption
 
caused
 
by
 
the COVID-19
pandemic. However,
 
we maintain a
 
cautious view
 
of the
 
macroeconomic outlook
 
due to
 
continuing uncertainty
 
regarding the
 
pace of
recovery
 
in the
 
economy and
 
uncertainty
 
related to
 
the COVID-19
 
pandemic,
 
including the
 
emergence
 
of new
 
variants of
 
the virus,
such as
 
the Omicron
 
variant, which
 
appears to
 
be the
 
most transmissible
 
variant to
 
date. Uncertainties
 
associated with
 
the pandemic
include
 
the
 
duration
 
of
 
the
 
COVID-19
 
outbreak
 
and
 
any
 
related
 
infections,
 
including
 
those
 
from
 
new
 
variants
 
of
 
the
 
virus,
 
the
47
effectiveness of
 
COVID-19 vaccines,
 
vaccination rates
 
among the
 
population, the
 
impact on
 
our customers,
 
employees,
 
and vendors,
and the impact to the economy as a whole.
 
The
 
CARES
 
Act
 
or
 
“CARES
 
Act
 
of
 
2020”,
 
as
 
amended
 
by
 
the
 
Consolidated
 
Appropriations
 
Act,
 
2021,
 
included
 
an allocation
 
of
$659
 
billion
 
for
 
SBA PPP
 
loans.
 
SBA
 
PPP loans
 
are
 
forgivable,
 
in
 
whole
 
or in
 
part,
 
if the
 
proceeds
 
are
 
used for
 
payroll and
 
other
permitted
 
purposes in
 
accordance
 
with the
 
requirements
 
of the
 
program.
 
These loans
 
carry a
 
fixed
 
rate of
 
1.00% and
 
a term
 
of two
years
 
(loans
 
made
 
before
 
June
 
5,
 
2020)
 
or
 
five
 
years
 
(loans
 
made
 
on
 
or
 
after
 
June
 
5,
 
2020),
 
if
 
not
 
forgiven,
 
in
 
whole
 
or
 
in
 
part.
Payments are
 
deferred until either
 
the date on
 
which the SBA
 
remits the amount
 
of forgiveness proceeds
 
to the lender
 
or the date
 
that
is 10
 
months after
 
the last
 
day of
 
the covered
 
period if
 
the borrower
 
does not
 
apply for
 
forgiveness within
 
that 10-month
 
period. On
December
 
27,
 
2020,
 
President
 
Trump
 
signed
 
another
 
COVID-19
 
relief
 
bill
 
that
 
extended
 
and
 
modified
 
several
 
provisions
 
of
 
the
program.
 
This
 
included
 
an
 
additional
 
allocation
 
of
 
$284
 
billion.
 
The
 
SBA
 
reactivated
 
the
 
program
 
on
 
January
 
11,
 
2021
 
and
 
the
program ended on May 31, 2021.
As
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation’s
 
SBA
 
PPP
 
loan
 
portfolio
 
amounted
 
to
 
$145.0
 
million,
 
net
 
of
 
unearned
 
fees
 
of
 
$7.9
million.
 
As applicable,
 
the unearned
 
fees are
 
accreted
 
into income
 
based
 
on the
 
contractual period
 
of
 
two or
 
five years.
 
Upon
 
SBA
forgiveness,
 
unamortized
 
fees
 
are
 
then
 
recognized
 
into
 
interest
 
income.
 
During
 
the
 
years
 
ended
 
December
 
31,
 
2021
 
and
 
2020,
 
the
Corporation
 
received
 
forgiveness
 
remittances
 
and
 
consumer
 
payments
 
related
 
to
 
approximately
 
$543.6
 
million
 
and
 
$48.9
 
million,
respectively,
 
in principal balance of
 
SBA PPP loans. As
 
of December 31,
 
2021, we have processed
 
forgiveness to approximately
 
80%
of our customers.
 
Forgiveness remittances in the year ended 2021 accelerated
 
the fee income recognition by $13.2 million.
Total
 
deposits, excluding
 
brokered deposits
 
and government
 
deposits, continued
 
to increase
 
and were
 
$14.2
 
billion as
 
of December
31,
 
2021,
 
an
 
increase
 
of
 
$1.4
 
billion
 
from
 
December
 
31,
 
2020.
 
In
 
addition,
 
government
 
deposits
 
increased
 
by
 
$1.2
 
billion
 
to
 
$3.3
billion as of December 31, 2021,
 
compared to $2.1 billion as of December
 
31, 2020. The strong growth in deposits
 
continues to reflect
the effect
 
of government
 
relief programs
 
on the
 
liquidity levels
 
of our
 
customers, including
 
increases in
 
the balance
 
of transactional
accounts
 
of municipalities
 
in Puerto
 
Rico and
 
the local
 
government
 
of the
 
USVI in
 
connection
 
with the
 
American
 
Rescue Plan
 
Act
(“ARPA”)
 
funding for states and local
 
governments. Our liquidity levels
 
and capital position remain strong,
 
with capital ratios that are
well
 
above
 
regulatory
 
requirements.
 
This
 
robust
 
liquidity
 
and
 
capital
 
levels
 
provide
 
us
 
with
 
significant
 
flexibility
 
to
 
maintain
 
the
strength
 
of
 
our
 
balance
 
sheet
 
and
 
return
 
capital
 
to
 
shareholders
 
through
 
share
 
repurchases
 
and
 
dividend
 
payments,
 
subject
 
to
regulatory considerations.
During
 
2021
 
economic
 
conditions
 
started
 
to
 
show
 
significant
 
signs
 
of
 
recovery,
 
which
 
included
 
improved
 
consumer
 
demand
evidenced by rise
 
in retail sales, auto
 
and home sales
 
and recovery in
 
the payroll employment
 
in Puerto Rico
 
where it reached
 
98% of
the
 
pre-pandemic
 
level. The
 
early
 
signs of
 
economic
 
recovery have
 
impacted positively
 
the
 
Corporation
 
which
 
among
 
other
 
things,
during
 
2021 grew
 
total loan
 
originations
 
by approximately
 
17% when
 
compared
 
to 2020
 
and
 
is reflecting
 
a strong
 
commercial
 
loan
pipeline. Additionally,
 
on January 27,
 
2022, the PROMESA
 
oversight board certified
 
the 2022 Fiscal Plan
 
for Puerto Rico
 
(the “2022
Fiscal Plan”).
 
The 2022
 
Fiscal Plan reflects
 
the Commonwealth
 
Plan of Adjustment
 
recently confirmed
 
by the U.S.
 
District Court for
the District of
 
Puerto Rico. Relative to
 
the previous fiscal
 
plan, the 2022 Fiscal
 
Plan incorporates a
 
new set of expenditure
 
projections
that
 
factor
 
in
 
the
 
now-established
 
debt
 
service
 
requirements
 
pursuant
 
to
 
the
 
Plan
 
of
 
Adjustment,
 
as
 
well
 
as
 
additional
 
investments
enabled
 
by
 
the
 
increased
 
resources
 
available
 
to
 
the
 
government.
 
The
 
2022
 
Fiscal
 
Plan
 
prioritizes
 
resource
 
allocations
 
across
 
three
major
 
themes:
 
(i)
 
investing
 
in
 
the
 
operational
 
capacity
 
of
 
the
 
government
 
to
 
deliver
 
services
 
with
 
Civil
 
Service
 
Reform,
 
(ii)
prioritizing obligations to current and future retirees, and (iii) creating
 
a fiscally responsible post-bankruptcy government.
Integration
 
of BSPR
During the
 
year ended
 
December 31, 2021,
 
the Corporation completed
 
the conversion
 
of all BSPR’s
 
core systems into
 
FirstBank’s
systems.
 
In
 
conjunction
 
with
 
the
 
conversion
 
of
 
BSPR’s
 
core
 
systems,
 
the
 
Corporation
 
had
 
consolidated
 
a
 
total
 
of
 
nine
 
banking
branches
 
and
 
the
 
Corporation
 
decided
 
late
 
during
 
the
 
fourth
 
quarter
 
of
 
2021
 
to
 
consolidate
 
four
 
additional
 
branches,
 
which
 
are
expected to be completed during the first half of 2022.
 
 
In
 
addition,
 
during
 
the
 
year
 
ended
 
December
 
31,
 
2021,
 
the
 
Corporation
 
continued
 
to
 
execute
 
in
 
reducing
 
personnel
 
and
 
service
contract
 
expenses
 
and
 
completing
 
other
 
business
 
rationalization
 
activities.
 
Cumulative
 
merger
 
and
 
restructuring
 
expenses
 
of
 
$64.4
million have been incurred through December
 
31, 2021, of which $26.4 million
 
was incurred during 2021. The total amount
 
of merger
and
 
restructuring
 
costs
 
related
 
to
 
the
 
BSPR acquisition
 
was
 
originally
 
estimated
 
to
 
be
 
approximately
 
$65
 
million.
 
The
 
Corporation
does not expect any
 
additional significant merger
 
and restructuring expenses
 
during 2022. The Corporation
 
also has estimated that
 
the
combined
 
entities
 
will
 
achieve
 
total
 
annual
 
pre-tax
 
savings
 
of
 
approximately
 
$49
 
million,
 
which
 
are
 
expected
 
to
 
be
 
fully
 
realized
during 2022.
LIBOR Transition
Following
 
the
 
2017
 
announcement
 
by
 
the
 
United
 
Kingdom’s
 
Financial
 
Conduct
 
Authority
 
(the
 
“FCA”)
 
that
 
it
 
would
 
no
 
longer
compel
 
participating
 
banks
 
to
 
submit
 
rates
 
for
 
the
 
London
 
Interbank
 
Offered
 
Rate
 
(LIBOR)
 
after
 
2021,
 
regulators
 
and
 
market
48
participants
 
in
 
various
 
jurisdictions
 
have
 
identified
 
recommended
 
replacement
 
rates
 
for
 
LIBOR,
 
and
 
many
 
have
 
published
recommended
 
conventions to
 
allow new
 
and existing
 
products to
 
incorporate
 
fallbacks or
 
that reference
 
these Alternative
 
Reference
Rates
 
(“ARRs”).
 
In
 
March
 
2021,
 
the
 
FCA
 
confirmed
 
that
 
publication
 
of
 
the
 
overnight
 
and
 
one
 
month,
 
three-month,
 
six-month
 
and
twelve-month U.S.
 
Dollar LIBOR settings
 
will cease or
 
become no longer
 
representative of the
 
market the rates
 
seek to measure
 
(i.e.,
non-representative) immediately after June 30, 2023, and all other
 
U.S. Dollar LIBOR settings, including the one week and two-month
U.S. Dollar LIBOR settings,
 
became non-representative
 
after December 31,
 
2021. The Federal
 
Reserve, the Office
 
of the Comptroller
of
 
the
 
Currency,
 
and
 
the
 
FDIC
 
also
 
released
 
supervisory
 
guidance
 
encouraging
 
banks
 
to
 
cease
 
entering
 
into
 
new
 
contracts
 
that
 
use
U.S. Dollar
 
LIBOR as
 
reference
 
rate as
 
soon as
 
practicable and
 
in any
 
event by
 
December 31,
 
2021. Banking
 
regulators in
 
the U.S.
and
 
globally
 
have
 
increased
 
regulatory
 
scrutiny
 
and
 
intensified
 
supervisory
 
focus
 
of
 
financial
 
institutions
 
LIBOR
 
transition
 
plans,
preparations and readiness.
Significant
 
amounts
 
of
 
financial
 
instruments
 
in
 
the
 
market
 
are
 
referenced
 
to
 
U.S.
 
Dollar
 
LIBOR,
 
and
 
any
 
inability
 
of
 
market
participants
 
and
 
regulators
 
to
 
successfully
 
introduce
 
benchmark
 
rates
 
to
 
replace
 
LIBOR
 
and
 
implement
 
effective
 
transitional
arrangements to
 
address the
 
discontinuation of
 
LIBOR could
 
result in
 
disruption in
 
the financial
 
markets. In
 
the U.S.,
 
the Alternative
Reference Rates
 
Committee (“ARRC”),
 
a group
 
of market
 
participants convened
 
by the
 
Federal Reserve,
 
recommended the
 
Secured
Overnight Financing
 
Rate (“SOFR”) as
 
a replacement
 
index for U.S.
 
Dollar LIBOR-indexed
 
contracts. SOFR is
 
an overnight
 
interest
rate based
 
on U.S.
 
Dollar Treasury
 
repurchase agreements.
 
On March
 
2, 2020
 
the New
 
York
 
Fed began
 
daily publication
 
of 30,
 
90,
and 180-day compound
 
historical averages of
 
SOFR. In addition,
 
the ARRC has developed
 
a detailed supporting framework
 
for using
SOFR, including
 
tools such
 
as fallbacks
 
and recommended
 
conventions for
 
new use
 
of SOFR in
 
various products.
 
On July
 
29, 2021,
the ARRC
 
formally
 
recommended the
 
Chicago Mercantile
 
Exchange Group’s
 
(“CME”) forward-looking
 
Term
 
SOFR rates
 
for one
 
-,
three-,
 
six-
 
and
 
twelve-month
 
tenors,
 
marking
 
the
 
final
 
step
 
in
 
the
 
ARRC’s
 
Paced
 
Transition
 
Plan
 
it
 
released
 
in
 
2017.
 
The
 
ARRC
recommended using
 
the CME’s
 
Term
 
SOFR rates
 
for cash
 
products and
 
derivatives, limited
 
to end-users
 
hedging cash
 
products. An
end-user is
 
described as
 
any counterparty
 
to the underlying
 
cash product,
 
such as a
 
borrower,
 
lender, or
 
guarantor.
 
These parties
 
may
enter into Term
 
SOFR rates swaps, caps, swaptions,
 
or other derivatives to
 
hedge cash product exposures.
 
The Corporation may offset
such exposure with an upstream dealer.
The
 
Corporation
 
continues
 
to
 
execute
 
its
 
LIBOR
 
Transition
 
workplan.
 
As
 
part
 
of
 
this
 
transition
 
plan,
 
the
 
Corporation
 
started
including fallback language on new and renewed
 
contracts tied to LIBOR to provide for the determination
 
of an ARR and had adhered
to the LIBOR Fallbacks Protocol of the International
 
Swaps and Derivatives Association. In addition, effective
 
December 31, 2021 the
Corporation discontinued entering
 
into new contracts that
 
use the use U.S. Dollar
 
LIBOR as reference rate.
 
Currently,
 
the Corporation
is primarily
 
offering
 
CME’s
 
Term
 
SOFR rate
 
as the
 
ARRs to
 
LIBOR. The
 
Bank may
 
also offer
 
other industry-accepted
 
benchmark
interest
 
rates
 
that
 
can
 
be
 
supported
 
for
 
commercial
 
transactions.
 
The
 
Corporation
 
continues
 
working
 
with
 
the
 
update
 
of
 
systems,
processes, documentation, and models, with additional updates expected
 
through 2023.
As of
 
December 31,
 
2021, the
 
most significant
 
of the
 
Corporation’s
 
LIBOR-based assets
 
and liabilities
 
consists of
 
$2.0 billion
 
of
variable rate
 
commercial and
 
construction loans,
 
approximately $58.4
 
million of
 
U.S. agencies
 
debt securities
 
and private
 
label MBS
held as part of
 
the Corporation’s
 
available-for-sale investment
 
securities portfolio, $134.4
 
million of Puerto Rico
 
municipalities bonds
held
 
as
 
part
 
of
 
the
 
Corporation’s
 
held-to-maturity
 
investment
 
securities
 
portfolio,
 
and
 
$183.8
 
million
 
of
 
junior
 
subordinated
debentures.
The Corporation
 
is monitoring
 
the development
 
and adoption
 
of SOFR
 
and
 
other
 
credit sensitive
 
ARRs and
 
their liquidity
 
in the
market. The manner and impact
 
of the transition from LIBOR to
 
an ARR, as well as the effect
 
of these developments on our
 
loans and
investment securities portfolios, asset-liability management, systems, processes,
 
and business, is uncertain.
 
 
 
 
 
 
 
 
49
OVERVIEW OF RESULTS
 
OF OPERATIONS
First
 
BanCorp.'s
 
results
 
of
 
operations
 
depend
 
primarily
 
on
 
its
 
net
 
interest
 
income,
 
which
 
is
 
the
 
difference
 
between
 
the
 
interest
income
 
earned
 
on
 
its
 
interest-earning
 
assets,
 
including
 
investment
 
securities
 
and
 
loans,
 
and
 
the
 
interest
 
expense
 
incurred
 
on
 
its
interest-bearing
 
liabilities,
 
including
 
deposits
 
and
 
borrowings.
 
Net
 
interest
 
income
 
is
 
affected
 
by
 
various
 
factors,
 
including:
 
(i)
 
the
interest rate environment;
 
(ii) the volumes, mix,
 
and composition of interest-earning
 
assets and (iii) interest-bearing
 
liabilities; and the
re-pricing characteristics
 
of these assets
 
and liabilities.
 
The Corporation's
 
results of operations
 
also depend
 
on the provision
 
for credit
losses,
 
non-interest
 
expenses
 
(such
 
as
 
personnel,
 
occupancy,
 
the
 
deposit
 
insurance
 
premium
 
and
 
other
 
costs),
 
non-interest
 
income
(mainly
 
service
 
charges
 
and
 
fees
 
on
 
deposits,
 
and
 
insurance
 
income),
 
gains
 
(losses)
 
on
 
sales
 
of
 
investments,
 
gains
 
(losses)
 
on
mortgage banking activities, and income taxes.
The
 
Corporation
 
had
 
net
 
income
 
of
 
$281.0
 
million,
 
or
 
$1.31
 
per
 
diluted
 
common
 
share,
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021,
compared to
 
$102.3 million,
 
or $0.46
 
per diluted
 
common share,
 
for the
 
year ended
 
December 31,
 
2020. The
 
Corporation completed
the acquisition
 
of BSPR effective
 
September 1,
 
2020.
 
The Corporation’s
 
financial statements
 
for the
 
year ended
 
December 31,
 
2020
include
 
four
 
months
 
of
 
BSPR’s
 
operations,
 
post-acquisition,
 
which
 
impacts
 
the
 
comparability
 
of
 
the
 
fiscal
 
year
 
2021
 
results
 
to
 
the
fiscal year 2020 results.
 
Other relevant selected financial data for the periods presented is included below:
December 31,
 
2021
December 31,
 
2020
Key Performance Indicator:
Return on Average
 
Assets
1.38
0.67
Return on Average
 
Total Equity
12.56
4.59
Efficiency Ratio
57.45
59.62
50
The key
 
drivers of
 
the Corporation’s
 
GAAP financial
 
results for
 
the year
 
ended December
 
31, 202
 
1, compared
 
to the
 
year ended
December 31, 2020, include the following:
●
Net interest income for
 
the year ended December
 
31, 2021 was $729.9
 
million, compared to $600.3
 
million for the year ended
December
 
31,
 
2020.
 
The increase
 
was driven
 
by
 
a $5.1
 
billion
 
increase
 
in
 
average
 
interest-earning
 
assets reflecting
 
the
 
late
third-quarter 2020 acquisition
 
of BSPR, as well
 
as higher investment
 
securities and interest-bearing
 
cash balances and
 
a lower
cost
 
of
 
deposits.
 
The
 
increase
 
in
 
net
 
interest
 
income
 
additionally
 
includes
 
the
 
effect
 
of
 
approximately
 
$13.2
 
million
 
of
accelerated
 
deferred
 
PPP loans
 
fees
 
recognized
 
upon receipt
 
of forgiveness
 
payments from
 
the SBA.
 
These variances
 
were
partially offset by the effect of lower market
 
interest rates on investment yields.
The net
 
interest margin
 
decreased by
 
42 basis
 
points to
 
3.73% for
 
the year
 
ended December
 
31, 2021,
 
compared to
 
4.15% for
 
the
year ended
 
December 31,
 
2020. The decrease
 
reflected the impact
 
of lower
 
interest rates and
 
changes in the
 
balance sheet mix
 
with a
higher
 
proportion
 
of
 
lower-yielding
 
assets,
 
such
 
as
 
interest-bearing
 
cash
 
deposited
 
at
 
the
 
New
 
York
 
Fed
 
and
 
investment
 
securities
from continued
 
strong deposit growth,
 
to total interest-earning
 
assets. The total
 
average balance
 
of interest-bearing
 
cash balances and
investment securities
 
increased by $3.8 billion
 
to 42% of
 
total average interest-earning
 
assets, compared to
 
30% in 2020.
 
In addition,
the proportion
 
of average
 
total loan
 
portfolio balance
 
to total
 
average interest-earning
 
assets in
 
2021 decreased
 
to 58%,
 
compared to
70% in 2020.
 
See “Net Interest Income” below for additional information.
 
●
The
 
provision
 
for
 
credit losses
 
on
 
loans,
 
finance
 
leases, and
 
debt
 
securities
 
decreased
 
by $236.7
 
million
 
to
 
a net
 
benefit,
 
or
provision
 
recapture,
 
of $65.7
 
million
 
for
 
the year
 
ended
 
December
 
31,
 
2021,
 
compared
 
to an
 
expense
 
of $171.0
 
million
 
for
2020. The
 
variance reflects
 
the effect
 
of reserve
 
releases in
 
2021, primarily
 
due to
 
continued improvements
 
in the
 
outlook of
certain
 
macroeconomic
 
variables
 
and
 
lower
 
loans
 
outstanding.
 
The
 
expense
 
recorded
 
in
 
2020
 
included
 
the
 
effects
 
of
significant
 
reserve
 
builds due
 
to the
 
deterioration
 
of the
 
macroeconomic
 
outlook
 
as a
 
result of
 
the impact
 
of the
 
COVID-19
pandemic,
 
as
 
well
 
as
 
a
 
charge
 
of
 
$38.9
 
million
 
related
 
to the
 
Day
 
1
 
reserves
 
required
 
by
 
the
 
current
 
expected
 
credit
 
losses
(“CECL”) methodology
 
for non-PCD
 
loans and
 
unfunded lending
 
commitments acquired
 
in conjunction
 
with the
 
acquisition
of BSPR.
Net
 
charge-offs
 
totaled
 
$55.1
 
million
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021,
 
or
 
0.48%
 
of
 
average
 
loans,
 
an
 
increase
 
of
 
$7.2
million,
 
compared
 
to net
 
charge-offs
 
of
 
$47.9 million,
 
or 0.48%
 
of average
 
loans, for
 
the year
 
ended December
 
31, 2020.
 
Total
 
net
charge-offs for
 
the year ended
 
December 31,
 
2021 included $23.1
 
million in net
 
charge-offs related
 
to a bulk
 
sale of $52.5
 
million of
residential mortgage
 
nonaccrual loans and
 
related servicing advance
 
receivables.
 
Adjusted for those
 
net charge-offs,
 
total net charge-
offs
 
in 2021
 
were $32.0
 
million, or
 
0.28% of
 
average loans.
 
See “Provision
 
for Credit
 
Losses” and
 
“Risk Management”
 
below for
analyses of the ACL and non-performing assets and related ratios.
●
The Corporation
 
recorded non-interest
 
income of
 
$121.2 million
 
for the
 
year ended
 
December 31,
 
2021, compared
 
to $111.2
million
 
for
 
2020.
 
The
 
increase
 
was
 
primarily
 
related
 
to:
 
(i)
 
a
 
$21.6
 
million
 
total
 
increase
 
in
 
transactional
 
fee
 
income
 
from
service
 
charges
 
and
 
fees
 
on
 
deposits,
 
ATMs
 
fees,
 
credit,
 
and
 
debit
 
cards
 
and
 
POS
 
interchange
 
fees,
 
and
 
merchant-related
activities due
 
to the
 
effect
 
of the
 
BSPR acquisition
 
as well
 
as increased
 
transaction volumes
 
due to
 
the adverse
 
effect
 
of the
COVID-19 pandemic and related stay-at-home orders
 
on economic activity in the first half of 2020; (ii)
 
a $2.9 million increase
in
 
revenues
 
from
 
mortgage
 
banking
 
activities
 
reflecting
 
both a
 
higher volume
 
of loan
 
sales and
 
an
 
increase
 
in
 
servicing
 
fee
income; and (iii)
 
a $2.6 million increase
 
in insurance commissions
 
income driven by
 
a higher volume of
 
loan originations and
higher sell of annuities and accidental death policies.
 
These variances were partially offset
 
by: (i) a $13.2 million gain on sales
of investment securities recorded in 2020; and (ii) a $5.0
 
million benefit recorded in 2020 resulting from
 
the final settlement of
the Corporation’s
 
business interruption
 
insurance
 
claim associated
 
with lost
 
profits
 
caused
 
by
 
Hurricanes Irma
 
and Maria
 
in
2017. See “Non-Interest Income” below for additional information.
●
Non-interest expenses
 
for the year
 
ended December 31,
 
2021 were
 
$489.0 million, compared
 
to $424.2 million
 
in 2020. Non-
interest
 
expenses
 
for
 
2021
 
included
 
$26.4
 
million
 
of
 
merger
 
and
 
restructuring
 
costs
 
associated
 
with
 
the
 
acquisition
 
and
integration
 
of
 
BSPR, compared
 
to
 
$26.5
 
million
 
in
 
2020.
 
Total
 
non-interest
 
expenses
 
in
 
2021
 
also
 
included
 
$3.0
 
million
 
of
COVID-19
 
pandemic-related
 
expenses,
 
primarily
 
related
 
to
 
additional
 
cleaning,
 
safety
 
materials,
 
and
 
security
 
measures,
compared to
 
$5.4 million
 
in 2020.
 
Total
 
non-interest expenses
 
in 2020
 
are also
 
net of
 
a $1.2
 
million benefit
 
from hurricane-
related expenses
 
insurance recoveries.
 
Adjusted for
 
the above-mentioned
 
merger,
 
COVID-19 expenses,
 
and hurricane-related
expenses insurance
 
recoveries, total
 
non-interest expenses
 
increased by
 
$66.1 million
 
compared to
 
2020, primarily
 
related to
incremental expenses
 
associated with
 
operations, personnel
 
and branches
 
acquired from
 
BSPR.
 
See “Non-Interest
 
Expenses”
below for additional information.
●
For the year ended December 31,
 
2021, the Corporation recorded an
 
income tax expense of $146.8 million,
 
compared to $14.1
million for 2020.
 
The increase was primarily
 
related to higher
 
pre-tax income driven
 
by credit losses reserve
 
releases in 2021,
compared to
 
significant charges
 
to the provision
 
recorded during
 
2020, and a
 
higher level of
 
taxable income.
 
In addition,
 
the
income tax expense
 
reported in 2020
 
was net of
 
the effect
 
of an $8.0
 
million partial reversal
 
of the Corporation’s
 
deferred tax
asset valuation allowance.
51
●
As of December
 
31, 2021, total
 
assets were approximately
 
$20.8 billion,
 
an increase of
 
$2.0 billion from
 
December 31, 2020.
The
 
increase
 
was
 
primarily
 
related
 
to
 
a
 
$1.8
 
billion
 
increase
 
in
 
investment
 
securities,
 
driven
 
by
 
purchases
 
of
 
U.S.
 
agencies
MBS and U.S. agencies callable
 
and bullet debentures, and an increase
 
of $1.0
 
billion in cash and cash equivalents
 
attributable
to the liquidity obtained
 
from the growth in deposits
 
and loan repayments.
 
These variances were partially
 
offset by a decrease
of $731.8
 
million in total
 
loans, consisting of
 
a $558.2
 
million decrease
 
in residential mortgage
 
loans (including
 
as a result
 
of
the
 
bulk
 
sale
 
of
 
$52.5
 
million
 
of
 
nonaccrual
 
loans),
 
and
 
a
 
$452.0
 
million
 
decrease
 
in
 
commercial
 
and
 
construction
 
loans
(including
 
a
 
$260.9
 
million
 
decrease
 
in
 
the
 
SBA
 
PPP
 
loan
 
portfolio),
 
partially
 
offset
 
by
 
an
 
increase
 
of
 
$278.4
 
million
 
in
consumer loans and finance leases.
 
See “Financial Condition and Operating Data Analysis” below for
 
additional information.
 
●
As
 
of
 
December
 
31,
 
2021,
 
total
 
liabilities
 
were
 
$18.7
 
billion,
 
an
 
increase
 
of
 
$2.2
 
billion
 
from
 
December
 
31,
 
2020.
 
The
increase
 
was
 
mainly
 
driven
 
by
 
a
 
$2.6
 
billion
 
growth
 
in
 
total
 
deposits,
 
excluding
 
brokered
 
deposits,
 
partially
 
offset
 
by
 
the
repayment at maturity of $240.0 million of FHLB advances and a
 
$93.8 million decrease in brokered deposits.
 
The increase of
$2.6 million
 
in non-brokered
 
deposits included
 
a $1.6
 
billion growth
 
in demand
 
deposits, as
 
well as
 
a $1.2
 
billion growth
 
in
government
 
deposits,
 
partially
 
offset
 
by
 
reductions
 
in
 
time
 
deposits.
 
See
 
“Risk
 
Management
 
–
 
Liquidity
 
Risk
 
and
 
Capital
Adequacy” below for additional information about the Corporation’s
 
funding sources.
●
As
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation’s
 
stockholders’
 
equity
 
was
 
$2.1
 
billion,
 
a
 
decrease
 
of
 
$173.4
 
million
 
from
December
 
31,
 
2020.
 
The
 
decrease
 
was
 
driven
 
by
 
the
 
approximately
 
$317.8
 
million
 
of
 
capital
 
returned
 
to
 
the
 
Corporation’s
stockholders during 2021
 
consisting of: (i) the repurchase
 
of 16.7 million shares
 
of common stock for
 
a total purchase price of
approximately $213.9 million; (ii) common and preferred
 
stock dividends totaling $67.8 million; and (iii) the redemption of
 
all
of its outstanding
 
shares of Series A
 
through E Preferred
 
Stock for its total
 
liquidation value of
 
$36.1 million. The
 
decrease in
total
 
stockholders’
 
equity
 
also
 
included
 
the
 
effect
 
of
 
a
 
$139.5
 
million
 
decrease
 
in
 
Other
 
Comprehensive
 
Income
 
mostly
attributable to
 
the decrease
 
in the
 
fair value
 
of available-for-sale
 
investment securities.
 
These variances
 
were partially
 
offset
by earnings generated
 
during 2021.
 
The Corporation
 
increased
 
its common
 
stock dividend twice
 
during 2021, increasing
 
the
quarterly
 
dividend rate
 
from $0.05
 
in the
 
fourth quarter
 
of 2020
 
to $0.07
 
in the
 
first quarter
 
of 2021
 
and $0.10
 
in the
 
fourth
quarter of
 
2021.
 
The Corporation’s
 
common
 
equity tier
 
1 (“CET1”)
 
capital, tier
 
1 capital,
 
total capital
 
,
 
and leverage
 
ratios
were 17.80%, 17.80%,
 
20.50%, and 10.14%,
 
respectively,
 
as of December
 
31, 2021, compared
 
to CET1 capital,
 
tier 1 capital,
total capital,
 
and leverage ratios
 
of 17.31%, 17.61%,
 
20.37%, and 11.26%,
 
respectively,
 
as of December
 
31, 2020.
 
See “Risk
Management – Capital” below for additional information.
●
Total
 
loan
 
production,
 
including
 
purchases,
 
refinancings,
 
renewals,
 
and
 
draws
 
from
 
existing
 
revolving
 
and
 
non-revolving
commitments, but excluding
 
the utilization activity
 
on outstanding
 
credit cards,
 
was $4.8 billion
 
for the
 
year ended
 
December
31, 2021, compared to $4.2 billion for 2020.
 
As mentioned above, the Corporation originated
 
$283.6
 
million of SBA PPP loans
during 2021, compared to $390.3 million in 2020.
 
In addition, during the year ended December 31,
 
2020, the Corporation also
participated in
 
the Main
 
Street Lending
 
Program (“Main
 
Street”) and
 
originated approximately $184.4
 
million of
 
Main Street
loans.
 
This program, authorized under
 
the CARES Act of 2020 and established
 
by the Federal Reserve, was designed
 
to support
lending
 
to
 
small
 
and
 
medium-sized
 
businesses
 
that
 
were
 
in
 
sound
 
financial
 
condition
 
before
 
the
 
onset
 
of
 
the
 
COVID-19
pandemic. Excluding
 
SBA PPP
 
and Main
 
Street loan
 
originations, total
 
loan originations
 
increased by
 
$940.9 million
 
to $4.5
billion in 2021,
 
compared to $3.6
 
billion for 2020,
 
consisting of: (i)
 
a $510.9
 
million increase in
 
commercial and construction
loan originations,
 
primarily in
 
the Florida
 
region; (ii)
 
a $366.7
 
million increase
 
in consumer
 
loan originations,
 
predominantly
auto loans and finance leases, reflecting the effect of the disruptions caused by the COVID-19 pandemic-related lockdowns and
quarantines;
 
and
 
(iii)
 
a
 
$63.3
 
million
 
increase
 
in
 
residential
 
mortgage
 
loan
 
originations,
 
benefited
 
from
 
a
 
larger
 
volume
 
of
conforming loan
 
originations and
 
refinancings driven
 
by the
 
effect
 
of lower
 
mortgage loan
 
interest rates
 
and increased
 
home
purchase activity during 2021.
●
Total
 
non-performing
 
assets
 
were
 
$158.1
 
million
 
as
 
of
 
December
 
31,
 
2021,
 
a
 
decrease
 
of
 
$135.4
 
million,
 
or
 
46%,
 
from
December
 
31,
 
2020.
 
The
 
decrease
 
was
 
primarily
 
related
 
to:
 
(i)
 
a
 
$70.2
 
million
 
decrease
 
in
 
nonaccrual
 
residential
 
mortgage
loans, primarily
 
as a
 
result of
 
the bulk
 
sale of
 
$52.5
 
million of
 
nonaccrual loans;
 
(ii) a
 
$42.2
 
million decrease
 
in the
 
OREO
portfolio balance, including the sale
 
of two commercial OREO
 
properties in the Puerto
 
Rico region totaling $30.7 million;
 
(iii)
an
 
$18.3
 
million
 
decrease
 
in
 
nonaccrual
 
commercial
 
and
 
construction
 
loans;
 
and
 
(iv)
 
a
 
$5.8
 
million
 
decrease
 
in
 
nonaccrual
consumer loans and finance leases.
 
See “Risk Management – Non-Accruing and Non-Performing Assets” below for additional
information.
●
Adversely classified commercial and construction loans increased by $22.1 million to $177.3 million as of
 
December 31, 2021,
compared to
 
December 31,
 
2020. The
 
increase was
 
driven by
 
the downgrade
 
of four
 
commercial relationships
 
totaling $76.5
million. Partially offset by the upgrades
 
of two commercial relationship in the Puerto
 
Rico region totaling $31.3 million,
 
the sale
of $3.1
 
million construction
 
loan in
 
the Puerto
 
Rico region
 
and the
 
sale of
 
a $15.1
 
million classified
 
commercial loan
 
in the
Florida
 
region.
 
The
 
Corporation
 
is
 
closely
 
monitoring
 
its
 
loan
 
portfolio
 
to
 
identify
 
potential
 
at-risk
 
segments,
 
payment
performance,
 
the
 
need
 
for
 
permanent
 
modifications,
 
and
 
the
 
performance
 
of
 
different
 
sectors
 
of
 
the
 
economy
 
in
 
all
 
of
 
the
markets where the Corporation
 
operates.
 
 
52
The Corporation’s
 
financial results for
 
2021
 
and 2020 included
 
the following items
 
that management believes
 
are not reflective
 
of
core
 
operating
 
performance,
 
are
 
not
 
expected
 
to
 
reoccur
 
with
 
any
 
regularity
 
or
 
may
 
reoccur
 
at
 
uncertain
 
times
 
and
 
in
 
uncertain
amounts (the “Special Items”):
Year
 
ended December 31, 2021
●
Merger and restructuring
 
costs of $26.4
 
million ($16.5 million
 
after-tax) in connection
 
with the BSPR acquisition
 
integration
process
 
and
 
related
 
restructuring
 
initiatives.
 
Merger
 
and
 
restructuring
 
costs
 
in
 
2021
 
included
 
approximately
 
$6.5
 
million
related to
 
the previously
 
announced Employee
 
Voluntary
 
Separation Program
 
(the “VSP”)
 
as well
 
as involuntary
 
separation
actions
 
implemented
 
in
 
the
 
Puerto
 
Rico
 
region.
 
In
 
addition,
 
these
 
costs
 
included
 
costs
 
related
 
to
 
system
 
conversions,
accelerated
 
depreciation
 
charges
 
related
 
to
 
planned
 
closures
 
and
 
consolidation
 
of
 
branches
 
in
 
accordance
 
with
 
the
Corporation’s integration
 
and restructuring plan, and other integration related efforts.
●
Costs
 
of
 
$3.0
 
million
 
($1.9
 
million
 
after-tax)
 
related
 
to
 
the
 
COVID-19
 
pandemic
 
response
 
efforts,
 
consisting
 
primarily
 
of
costs related to additional cleaning, safety materials, and security measures.
Year
 
ended December 31, 2020
●
Merger
 
and
 
restructuring
 
costs
 
of
 
$26.5
 
million
 
($16.6
 
million
 
after-tax)
 
in
 
connection
 
with
 
the
 
acquisition
 
of
 
BSPR
 
and
related
 
restructuring
 
initiatives.
 
Merger
 
and
 
restructuring
 
costs
 
in
 
2020
 
primarily
 
included
 
consulting,
 
legal,
 
valuation,
 
and
other
 
professional
 
service
 
fees
 
associated
 
with
 
the
 
acquisition,
 
a
 
VSP
 
offered
 
to
 
eligible
 
employees,
 
retention
 
and
 
other
compensation bonuses, and expenses related to system conversions
 
and other integration-related efforts.
●
Gain on
 
sales of
 
U.S. agencies
 
MBS and
 
U.S Treasury
 
notes of
 
$13.2 million.
 
The gain
 
on tax-exempt
 
securities or
 
realized
at the tax-exempt international banking entity subsidiary level had
 
no effect on the income tax expense recorded in 2020.
●
Tax benefit of $8.0 million
 
related to the partial reversal of the deferred tax asset valuation allowance.
●
Costs of
 
$5.4 million
 
($3.4 million
 
after-tax)
 
related to
 
the COVID-19
 
pandemic response
 
efforts,
 
primarily costs
 
related to
additional cleaning, safety materials, and security measures.
●
Gain of $0.1
 
million realized on
 
the repurchase
 
of $0.4 million
 
of trust-preferred
 
securities (“TRuPs”).
 
The gain,
 
realized at
the holding company level, had no effect on the income tax expense
 
in 2020.
●
Benefit
 
of
 
$6.2
 
million
 
($3.8
 
million
 
after-tax)
 
from
 
insurance
 
recoveries.
 
Insurance
 
recoveries
 
in
 
2020
 
included
 
a
 
$5.0
million benefit related
 
to the final
 
settlement of the
 
Corporation’s
 
business interruption
 
insurance claim related
 
to lost profits
caused by Hurricanes Irma and Maria in 2017.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
53
The following
 
table reconciles
 
for 2021
 
and 2020
 
the reported
 
net income
 
to adjusted
 
net income,
 
a non-GAAP
 
financial measure
that excludes the Special Items identified above:
Year
 
Ended December 31,
2021
2020
(In thousands)
Net income, as reported (GAAP)
$
281,025
$
102,273
Adjustments:
 
Merger and restructuring costs
26,435
26,509
Gain on sales of investment securities
-
(13,198)
Partial reversal of deferred tax asset valuation allowance
-
(8,000)
COVID-19 pandemic-related expenses
2,958
5,411
Gain on early extinguishment of debt
 
-
(94)
Benefit from hurricane-related insurance recoveries
-
(6,153)
Income tax impact of adjustments
(1)
(11,023)
(9,663)
Adjusted net income (Non-GAAP)
$
299,395
$
97,085
(1)
See "Basis of Presentation" below for the individual tax impact related
 
to reconciling items
54
CRITICAL ACCOUNTING POLICIES AND PRACTICES
The
 
accounting
 
principles
 
of the
 
Corporation
 
and
 
the
 
methods
 
of
 
applying
 
these
 
principles
 
conform
 
to
 
GAAP.
 
In
 
preparing
 
the
consolidated
 
financial
 
statements
 
management
 
is
 
required
 
to
 
make
 
estimates,
 
assumptions,
 
and
 
judgments
 
that
 
affect
 
the
 
amounts
recorded for assets,
 
liabilities and contingent
 
liabilities as of
 
the date of
 
the financial statements
 
and the reported
 
amounts of revenues
and
 
expenses
 
during
 
the
 
reporting
 
periods.
 
The
 
Corporation’s
 
critical
 
accounting
 
estimates
 
that
 
are
 
particularly
 
susceptible
 
to
significant
 
changes
 
include:
 
(i)
 
the
 
ACL;
 
(ii)
 
valuation
 
of
 
financial
 
instruments;
 
(iii)
 
acquired
 
loans;
 
and
 
(iv)
 
income
 
taxes.
 
Actual
results could differ from estimates and assumptions if
 
different outcomes or conditions prevail.
 
Allowance for Credit Losses
The Corporation
 
maintains an ACL
 
for loans
 
and finance
 
leases based upon
 
management’s
 
estimate of the
 
lifetime expected
 
credit
losses in the loan portfolio, as of the balance sheet date,
 
excluding loans held for sale. Additionally,
 
the Corporation maintains an ACL
for
 
debt
 
securities
 
classified
 
as
 
either
 
held-to-maturity
 
or
 
available-for-sale,
 
and
 
other
 
off-balance
 
sheet
 
credit
 
exposures
(
e.g.
, unfunded
 
loan commitments).
 
For loans
 
and
 
finance leases,
 
unfunded
 
loan
 
commitments, and
 
held-to-maturity
 
debt
 
securities,
the
 
estimate
 
of
 
lifetime
 
credit
 
losses
 
includes
 
the
 
use
 
of
 
quantitative
 
models
 
that
 
incorporate
 
forward-looking
 
macroeconomic
scenarios
 
that
 
are
 
applied
 
over
 
the
 
contractual
 
lives
 
of
 
the
 
portfolios,
 
adjusted,
 
as
 
appropriate,
 
for
 
prepayments
 
and
 
permitted
extension
 
options
 
using
 
historical
 
experience.
 
The
 
ACL
 
for
 
available-for-sale
 
debt
 
securities
 
is
 
measured
 
using
 
a
 
risk-adjusted
discounted cash flow
 
approach that also
 
considers relevant current
 
and forward-looking economic
 
variables and the
 
ACL is limited to
the difference
 
between the
 
fair value
 
of
 
the security
 
and its
 
amortized
 
cost. Judgment
 
is specifically
 
applied
 
in the
 
determination of
economic assumptions, the length of
 
the initial loss forecast period, the
 
reversion of losses beyond the initial
 
forecast period, historical
loss expectations, usage of macroeconomic
 
scenarios, and qualitative factors, which may
 
not be adequately captured in the
 
loss model,
as further discussed below.
The macroeconomic
 
scenarios utilized by
 
the Corporation include
 
variables that have
 
historically been key
 
drivers of increases and
decreases
 
in
 
credit
 
losses.
 
These
 
variables
 
include,
 
but
 
are
 
not
 
limited
 
to,
 
unemployment
 
rates,
 
housing
 
and
 
commercial
 
real
 
estate
prices, gross domestic
 
product levels, retail
 
sales, interest-rate forecasts,
 
corporate bond spreads,
 
and changes in
 
equity market prices.
The
 
Corporation
 
derives
 
the
 
economic
 
forecasts
 
it
 
uses
 
in
 
its
 
ACL
 
model
 
from
 
Moody's
 
Analytics.
 
The
 
latter
 
has
 
a
 
large
 
team
 
of
economists, data-base managers and operational engineers with a history
 
of producing monthly economic forecasts for over 25 years.
As of December 31, 2021, the Corporation used
 
the base-case economic scenario from Moody’s
 
Analytics in its estimation of credit
losses. The Corporation
 
has currently set
 
an initial forecast
 
period (“reasonable
 
and supportable
 
period”) of two
 
years and a
 
reversion
period of up to three
 
years, utilizing a straight-line
 
approach and reverting back
 
to the historical macroeconomic
 
mean for Puerto Rico
and the Virgin
 
Islands regions. For the
 
Florida region, the methodology
 
considers a reasonable and
 
supportable forecast period
 
and an
implicit
 
reversion
 
towards
 
the historical
 
trend
 
that
 
varies for
 
each
 
macroeconomic
 
variable,
 
achieving
 
the steady
 
state by
 
year
 
five.
After the
 
reversion period,
 
a historical
 
loss forecast
 
period covering
 
the remaining
 
contractual life,
 
adjusted for
 
prepayments, is
 
used
based
 
on
 
the
 
change
 
in
 
key
 
historical
 
economic
 
variables
 
during
 
representative
 
historical
 
expansionary
 
and
 
recessionary
 
periods.
Changes in economic forecasts impact
 
the probability of default (“PD”),
 
loss-given default (“LGD”), and
 
exposure at default (“EAD”)
for each instrument,
 
and therefore influence
 
the amount of
 
future cash flows
 
for each instrument
 
that the Corporation
 
does not expect
to collect.
Although
 
no
 
one
 
economic
 
variable
 
can
 
fully
 
demonstrate
 
the
 
sensitivity
 
of
 
the
 
ACL
 
calculation
 
to
 
changes
 
in
 
the
 
economic
variables
 
used
 
in
 
the
 
model,
 
the
 
Corporation
 
has
 
identified
 
certain
 
economic
 
variables
 
that
 
have
 
significant
 
influence
 
in
 
the
Corporation’s
 
model
 
for
 
determining
 
the
 
ACL.
 
As
 
of
 
December 31,
 
2021,
 
the
 
Corporation’s
 
ACL
 
model
 
considered
 
the
 
following
assumptions for key economic variables in the base-case scenario:
●
Average
 
Commercial
 
Real Estate
 
Price Index
 
year-over-year
 
appreciation
 
of approximately
 
2.90%
 
in the
 
first quarter
 
of
2022,
 
followed
 
by
 
increases
 
ranging
 
from
 
0.52%
 
–
 
5.16%
 
during
 
the
 
remainder
 
of
 
2022.
 
The
 
average
 
projected
commercial real estate price index appreciation for 2023 is forecasted
 
at 8.68%.
●
Regional Home
 
Price Index
 
in Puerto Rico
 
(purchase only
 
prices), year-over-year
 
increase of
 
approximately 1.59%
 
in the
first quarter of 2022,
 
followed by estimates ranging
 
from (0.53)% - 2.77%
 
during the remainder of
 
2022 and 2023. For the
Florida region
 
(all transactions, including
 
refinances), year-over-year
 
increase of approximately
 
8.11%, in
 
the first quarter
of
 
2022,
 
followed
 
by
 
estimates
 
ranging
 
from
 
(2.42)%
 
–
 
2.18%
 
for
 
the
 
Florida
 
region
 
during
 
the
 
remainder
 
of 2022
 
and
2023.
●
Levels
 
of
 
regional
 
unemployment
 
in
 
Puerto
 
Rico
 
at
 
approximately
 
7.60%
 
in
 
the
 
first
 
quarter
 
of
 
2022,
 
followed
 
by
improvements
 
throughout
 
the
 
remainder
 
of
 
2022
 
to
 
an
 
approximate
 
level
 
of
 
7.32%
 
by
 
the
 
end
 
of
 
2022.
 
For
 
the
 
Florida
region and the
 
U.S. mainland, unemployment
 
rate of 3.71% and
 
4.07%, respectively,
 
in the first
 
quarter of 2022,
 
followed
by modest improvements
 
throughout the
 
remainder of 2022
 
to an approximate
 
level of 2.81%
 
in Florida and
 
3.51% in the
55
U.S. mainland by
 
the end of
 
2022. The average
 
unemployment for the
 
Puerto Rico, Florida
 
and the U.S.
 
mainland regions
for 2023 is forecasted at 7.60%, 2.88%,
 
and 3.49%, respectively.
 
●
A year-over-year increase in real gross domestic
 
product (“GDP”) in the U.S. mainland of approximately 5.33%
 
in the first
quarter of
 
2022, followed
 
by increasing
 
levels of real
 
GDP growth
 
between 2.74%
 
– 4.54% during
 
the remainder
 
of 2022
and 2023.
Further,
 
the
 
Corporation
 
periodically
 
considers
 
the
 
need
 
for
 
qualitative
 
adjustments
 
to
 
the
 
ACL.
 
Qualitative
 
adjustments
 
may
 
be
related to and include, but not be limited to, factors
 
such as: (i) management’s assessment
 
of economic forecasts used in the model and
how
 
those
 
forecasts
 
align
 
with
 
management’s
 
overall
 
evaluation
 
of
 
current
 
and
 
expected
 
economic
 
conditions;
 
(ii)
 
organization
specific
 
risks
 
such
 
as
 
credit
 
concentrations,
 
collateral
 
specific
 
risks,
 
nature,
 
and
 
size
 
of
 
the
 
portfolio
 
and
 
external
 
factors
 
that
 
may
ultimately impact credit
 
quality,
 
and (iii) other
 
limitations associated
 
with factors such
 
as changes in
 
underwriting and loan
 
resolution
strategies, among
 
others. The
 
qualitative factors
 
that carried the
 
most significant
 
weight as of
 
December 31,
 
2021 were
 
the economic
uncertainty
 
related
 
to
 
the
 
recent
 
strain
 
of
 
the
 
COVID-19
 
virus
 
and
 
the
 
potential
 
lag
 
of
 
recovery
 
in
 
certain
 
industries,
 
such
 
as
 
the
transportation
 
and hospitality
 
industries,
 
and loan
 
modifications related
 
to commercial
 
real estate
 
loans as
 
a result
 
of the
 
COVID-19
situation. The
 
qualitative factors
 
applied at
 
December 31,
 
2021, and
 
the importance
 
and levels of
 
the qualitative
 
factors applied,
 
may
change in future periods
 
depending on the level
 
of changes to items such
 
as the uncertainty of
 
economic conditions and management's
assessment of
 
the level of
 
credit risk within
 
the loan portfolio
 
as a result
 
of such changes,
 
compared to the
 
amount of ACL
 
calculated
by the model. The evaluation of qualitative factors is inherently imprecise
 
and requires significant management judgment.
The ACL can also be
 
impacted by factors outside the Corporation’s
 
control, which include unanticipated
 
changes in asset quality of
the portfolio, such as increases in risk rating downgrades in our
 
commercial portfolio, deterioration in borrower delinquencies or credit
scores in our residential real estate and consumer portfolio.
 
Further, the current fair value of
 
collateral is utilized to assess the expected
credit losses when a financial asset is considered to be collateral dependent.
It
 
is
 
difficult
 
to
 
estimate
 
how
 
potential
 
changes
 
in
 
any
 
one
 
factor
 
or
 
input
 
might
 
affect
 
the
 
overall
 
ACL
 
because
 
management
considers a
 
wide variety
 
of factors
 
and inputs
 
in estimating
 
the ACL.
 
Changes in
 
the factors
 
and inputs
 
considered may
 
not occur
 
at
the
 
same
 
rate
 
and
 
may
 
not
 
be
 
consistent
 
across
 
all
 
geographies
 
or
 
product
 
types,
 
and
 
changes
 
in
 
factors
 
and
 
inputs
 
may
 
be
directionally
 
inconsistent, such
 
that improvement
 
in one
 
factor or
 
input may
 
offset
 
deterioration
 
in others.
 
However,
 
to demonstrate
the
 
sensitivity
 
of
 
credit
 
loss
 
estimates
 
to
 
macroeconomic
 
forecasts
 
as
 
of
 
December
 
31,
 
2021,
 
management
 
compared
 
the
 
modeled
estimates under the base scenario against a more
 
adverse scenario. Under this adverse scenario,
 
as an example, average unemployment
rate for
 
the Puerto
 
Rico region increases
 
to 8.75%
 
for year 2022
 
and 8.24% dur
 
ing 2023 compared
 
to 7.38% and
 
7.60%, respectively
for the same periods, on the base scenario projection.
To
 
demonstrate the sensitivity
 
to key economic
 
parameters used in
 
the calculation of
 
our ACL at December
 
31, 2021, management
calculated the difference
 
between our quantitative
 
ACL and this adverse
 
scenario. Excluding consideration
 
of qualitative adjustments,
this sensitivity analysis
 
would result in
 
a hypothetical increase
 
in our ACL
 
of approximately $40
 
million at December
 
31, 2021.
 
This
analysis
 
relates
 
only
 
to
 
the
 
modeled
 
credit
 
loss estimates
 
and
 
is not
 
intended
 
to estimate
 
changes
 
in
 
the overall
 
ACL as
 
it does
 
not
reflect
 
any
 
potential
 
changes
 
in
 
other
 
adjustments
 
to
 
the
 
qualitative
 
calculation,
 
which
 
would
 
also
 
be
 
influenced
 
by
 
the
 
judgment
management
 
applies to
 
the modeled
 
lifetime
 
loss estimates
 
to reflect
 
the uncertainty
 
and imprecision
 
of these
 
modeled
 
lifetime loss
estimates
 
based
 
on
 
current
 
circumstances
 
and
 
conditions.
 
Recognizing
 
that
 
forecasts
 
of
 
macroeconomic
 
conditions
 
are
 
inherently
uncertain,
 
particularly
 
in
 
light
 
of
 
the
 
recent
 
economic
 
conditions,
 
management
 
believes
 
that
 
its
 
process
 
to
 
consider
 
the
 
available
information
 
and
 
associated
 
risks
 
and
 
uncertainties
 
is
 
appropriately
 
governed
 
and
 
that
 
its
 
estimates
 
of
 
expected
 
credit
 
losses
 
were
reasonable and appropriate for the period ended December 31, 2021.
As of
 
December 31,
 
2021, the
 
total ACL
 
for loans,
 
held-to-maturity and
 
available-for-sale
 
securities, and
 
off-balance
 
sheet credit
exposure decreased to $280.2
 
million, from $401.1 million
 
as of December 31, 2020.
 
The ACL reduction of
 
$120.9 million during the
year
 
ended
 
December
 
31,
 
2021
 
consisted
 
of
 
net
 
charge-offs
 
of
 
$55.2
 
million
 
and
 
a
 
provision
 
for
 
credit
 
losses
 
net
 
benefit
 
of
 
$65.7
million.
 
The
 
provision
 
for
 
credit
 
losses
 
net
 
benefit
 
recorded
 
during
 
2021
 
primarily
 
reflects
 
an
 
improvement
 
in
 
the
 
outlook
 
of
macroeconomic
 
variables
 
to
 
which
 
the
 
reserve
 
is
 
correlated,
 
including
 
improvements
 
in
 
the
 
commercial
 
real
 
estate
 
price
 
index
 
and
unemployment rate forecasts, and the overall decrease
 
in the size of the residential mortgage and the commercial and construction
 
loan
portfolios.
 
Our
 
process
 
for
 
determining
 
the
 
ACL
 
is
 
further
 
discussed
 
in
 
Note
 
1
 
–
 
Nature
 
of
 
Business
 
and
 
Summary
 
of
 
Significant
Accounting Policies, to the
 
accompanying audited consolidated financial
 
statements included in Item 8
 
of this Annual Report on Form
10-K.
56
Valuation
 
of financial instruments
The measurement
 
of fair value
 
is fundamental
 
to the Corporation’s
 
presentation of
 
its financial condition
 
and results of
 
operations.
The Corporation
 
holds debt
 
and equity
 
securities, derivatives,
 
and other
 
financial instruments
 
at fair
 
value. The
 
Corporation holds
 
its
investments
 
and
 
liabilities
 
mainly
 
to manage
 
liquidity
 
needs and
 
interest rate
 
risks.
 
The Corporation’s
 
significant
 
assets reflected
 
at
fair value on the Corporation’s financial
 
statements consisted of available-for-sale investment
 
securities.
 
The
 
Corporation
 
categorizes
 
the
 
fair
 
value
 
of
 
its
 
available-for-sale
 
debt
 
securities
 
using
 
a
 
three-level
 
hierarchy
 
for
 
fair
 
value
measurements
 
that
 
distinguishes
 
between
 
market
 
participant
 
assumptions
 
developed
 
based
 
on
 
market
 
data
 
obtained
 
from
 
sources
independent
 
of
 
the
 
Corporation
 
(observable
 
inputs)
 
and
 
the
 
Corporation’s
 
own
 
assumptions
 
about
 
market
 
participant
 
assumptions
developed
 
based
 
on
 
the
 
best
 
information
 
available
 
in
 
the
 
circumstances
 
(unobservable
 
inputs).
 
The
 
hierarchy
 
of
 
inputs
 
used
 
in
determining
 
the
 
fair
 
value
 
maximizes
 
the
 
use
 
of
 
observable
 
inputs
 
and
 
minimizes
 
the
 
use
 
of
 
unobservable
 
inputs
 
by
 
requiring
 
that
observable inputs be
 
used when available.
 
The hierarchy level assigned
 
to each security
 
in the Corporation’s
 
investment portfolio was
based on management’s
 
assessment of the transparency and reliability of the
 
inputs used to estimate the fair values at the measurement
date. See Note 30
 
– Fair Value,
 
to the audited consolidated
 
financial statements included
 
in Item 8 of
 
this Annual Report on
 
Form 10-
K for additional
 
information.
The fair
 
value of
 
available-for-sale investment
 
securities was
 
the market
 
value based
 
on quoted
 
market prices
 
(as is
 
the case
 
with
U.S. Treasury
 
notes), when
 
available (Level
 
1). If
 
quoted market
 
prices are
 
unavailable, the
 
fair value
 
is based
 
on market
 
prices for
identical
 
or
 
comparable
 
assets
 
(as
 
is
 
the
 
case
 
with
 
MBS
 
and
 
callable
 
U.S.
 
agency
 
debt)
 
that
 
are
 
based
 
on
 
observable
 
market
parameters,
 
including
 
benchmark
 
yields,
 
reported
 
trades,
 
quotes
 
from
 
brokers
 
or
 
dealers,
 
issuer
 
spreads,
 
bids,
 
offers,
 
and
 
reference
data, including
 
market research
 
operations (Level
 
2). Observable
 
prices in
 
the market
 
already consider
 
the risk
 
of nonperformance.
 
If
listed prices or
 
quotes are not
 
available, fair value
 
is based upon
 
discounted cash
 
flow models that
 
use unobservable
 
inputs due to
 
the
limited market activity of the instrument, as is the case with private label
 
MBS held by the Corporation (Level 3).
Private label MBS
 
are collateralized
 
by fixed-rate
 
mortgages on single-family
 
residential properties
 
in the U.S.;
 
the interest rate
 
on
the securities is variable,
 
tied to 3-month LIBOR
 
and limited to the
 
weighted-average coupon of
 
the underlying collateral.
 
The market
valuation represents
 
the estimated
 
net cash
 
flows over
 
the projected
 
life of
 
the pool
 
of underlying
 
assets applying
 
a discount
 
rate that
reflects market
 
observed floating
 
spreads over
 
LIBOR, with
 
a widening
 
spread based
 
on a nonrated
 
security.
 
The market
 
valuation is
derived
 
from
 
a
 
model
 
that
 
utilizes
 
relevant
 
assumptions
 
such
 
as
 
the
 
prepayment
 
rate,
 
default
 
rate,
 
and
 
loss
 
severity
 
on
 
a
 
loan
 
level
basis. The
 
Corporation modeled
 
the cash
 
flow from
 
the fixed-rate
 
mortgage collateral
 
using
 
a static
 
cash flow
 
analysis according
 
to
collateral attributes
 
of the
 
underlying mortgage
 
pool (
i.e.
, loan
 
term, current
 
balance, note
 
rate, rate
 
adjustment type,
 
rate adjustment
frequency,
 
rate
 
caps,
 
and
 
others)
 
in
 
combination
 
with
 
prepayment
 
forecasts
 
based
 
on
 
historical
 
portfolio
 
performance.
 
The
Corporation models the variable cash flow of the security using the 3-month
 
LIBOR forward curve.
Under
 
ASC 326,
 
adopted on
 
January
 
1, 2020,
 
declines in
 
fair value
 
that are
 
credit-related are
 
now recorded
 
on the
 
balance sheet
through
 
an
 
ACL
 
with
 
a
 
corresponding
 
adjustment
 
to
 
earnings
 
and
 
declines
 
that
 
are
 
noncredit-related
 
are
 
recognized
 
through
 
other
comprehensive income/loss.
If the
 
Corporation intends
 
to sell a
 
debt security
 
in an
 
unrealized loss
 
position or
 
determines that
 
it is more
 
likely than
 
not that
 
the
Corporation
 
will be
 
required
 
to sell
 
a debt
 
security before
 
it recovers
 
its amortized
 
cost basis,
 
the debt
 
security is
 
impaired
 
and it
 
is
written down to fair
 
value with all losses recognized
 
in earnings.
 
As of December 31, 2021,
 
the Corporation did not
 
intend to sell any
debt securities
 
in an
 
unrealized
 
loss position
 
and it
 
is not
 
more likely
 
than not
 
that the
 
Corporation
 
will be
 
required to
 
sell any
 
debt
securities before recovery of their amortized cost basis.
For
 
debt
 
securities
 
in
 
an unrealized
 
loss position
 
for
 
which the
 
Corporation
 
does not
 
intend
 
to sell
 
the debt
 
security
 
and
 
it is
 
not
more likely than
 
not that the
 
Corporation will
 
be required to
 
sell the debt
 
security,
 
the Corporation determines
 
whether the loss
 
is due
to
 
credit-related
 
factors
 
or
 
noncredit-related
 
factors.
 
For
 
debt
 
securities
 
in
 
an
 
unrealized
 
loss
 
position
 
for
 
which
 
the
 
losses
 
are
determined to
 
be the result
 
of both credit
 
-related and noncredit-related
 
factors, the
 
credit loss is
 
determined as
 
the difference
 
between
the present value of the cash flows expected to be collected, and the amortized
 
cost basis of the debt security.
 
Available-for-sale
 
debt securities
 
held by
 
the Corporation
 
at year-end
 
primarily consisted
 
of securities
 
issued by
 
U.S. government-
sponsored entities
 
(“GSEs”), and
 
the aforementioned
 
private label
 
MBS.
 
Given the
 
explicit and
 
implicit guarantees
 
provided by
 
the
U.S. federal government, the Corporation believes the credit risk
 
in securities issued by the GSEs is low.
 
For the year ended December
31,
 
2021,
 
the
 
Corporation
 
determined
 
the
 
credit
 
losses
 
for
 
private
 
label
 
MBS
 
based
 
on
 
a
 
risk-adjusted
 
discounted
 
cash
 
flow
methodology
 
that
 
considers
 
qualitative
 
and
 
quantitative
 
factors
 
specific
 
to
 
the
 
instruments,
 
including
 
PDs
 
and
 
LGDs
 
that
 
consider,
among
 
other
 
things,
 
historical
 
payment
 
performance,
 
loan-to-value
 
attributes,
 
and
 
relevant
 
current
 
and
 
forward-looking
macroeconomic
 
variables,
 
such
 
as
 
regional
 
unemployment
 
rates
 
and
 
the
 
housing
 
price
 
index
 
obtained
 
from
 
the
 
economic
 
scenarios
described in the ACL discussion above.
 
57
The
 
Corporation
 
recognized
 
a
 
provision
 
benefit
 
on
 
available-for-sale
 
debt
 
securities,
 
of
 
$0.1 million
 
during
 
the
 
year
 
ended
December 31, 2021, compared to $1.6 million provision expense for
 
the year ended December 31, 2020.
 
Acquired Loans
Loans
 
acquired
 
through
 
a
 
purchase
 
or
 
a
 
business
 
combination
 
are
 
recorded
 
at
 
their
 
fair
 
value
 
as
 
of
 
the
 
acquisition
 
date.
 
The
acquisition method
 
of accounting
 
allows for
 
a measurement
 
period to
 
make adjustments
 
to an
 
acquisition for
 
up to
 
one year
 
after the
acquisition date
 
for new
 
information that
 
existed at
 
the acquisition
 
date but
 
may not
 
have been
 
known or
 
available at
 
that time.
 
The
Corporation
 
performs
 
an
 
assessment
 
of
 
acquired
 
loans
 
to
 
first
 
determine
 
if
 
such
 
loans
 
have
 
experienced
 
more
 
than
 
insignificant
deterioration
 
in credit
 
quality since
 
their origination
 
and thus
 
should be
 
classified and
 
accounted
 
for as
 
purchased credit
 
deteriorated
(“PCD”) loans. For loans that
 
have not experienced
 
more than insignificant deterioration
 
in credit quality since
 
origination, referred to
as non-PCD loans, the Corporation
 
records such loans at fair
 
value, with any resulting
 
discount or premium accreted
 
or amortized into
interest income
 
over the
 
remaining life
 
of the
 
loan using
 
the interest
 
method. Additionally,
 
upon the
 
purchase or
 
acquisition of
 
non-
PCD loans,
 
the
 
Corporation
 
measures
 
and
 
records
 
an
 
ACL based
 
on
 
the Corporation’s
 
methodology
 
for
 
determining
 
the
 
ACL.
 
The
ACL for non-PCD loans is recorded through a charge
 
to the provision for credit losses in the period in which
 
the loans were purchased
or acquired.
Acquired loans that
 
are classified as
 
PCD are recognized
 
at fair value.
 
The ACL estimated
 
for PCD loans
 
as of the acquisition
 
date
is recorded
 
as a gross
 
-up of
 
the loan balance
 
and the ACL.
 
Any remaining
 
discount or
 
premium after
 
the gross-up
 
is then recognized
as an
 
adjustment to
 
yield over
 
the remaining
 
life of
 
the loan.
 
After the
 
acquisition date,
 
the accounting
 
for acquired
 
loans and
 
leases,
including
 
PCD
 
and
 
non-PCD
 
loans,
 
follows
 
the
 
same
 
accounting
 
guidance
 
as
 
loans
 
and
 
leases
 
originated
 
by
 
the
 
Corporation.
Characteristics
 
relevant
 
to
 
the
 
classification
 
of
 
PCD
 
loans
 
include:
 
delinquency,
 
payment
 
history
 
since
 
origination,
 
credit
 
scores
migration, and/or
 
other factors
 
the Corporation
 
may become
 
aware of
 
through its
 
initial analysis
 
of acquired
 
loans that
 
may indicate
there
 
has
 
been
 
more
 
than
 
insignificant
 
deterioration
 
in
 
credit
 
quality
 
since
 
a
 
loan’s
 
origination.
 
In
 
connection
 
with
 
the
 
BSPR
acquisition
 
on
 
September
 
1,
 
2020,
 
the
 
Corporation
 
acquired
 
PCD
 
loans
 
and
 
non-PCD
 
loans
 
with
 
an
 
aggregate
 
fair
 
value
 
of
approximately $752.8 million and
 
$1.8 billion, respectively.
 
The fair value of the
 
loans acquired from BSPR was estimated
 
based on a
discounted
 
cash flow
 
method under
 
which the
 
present value
 
of the
 
contractual
 
cash flows
 
was calculated
 
based on
 
certain valuation
assumptions
 
such
 
as
 
default
 
rates,
 
loss
 
severity,
 
and
 
prepayment
 
rates,
 
consistent
 
with
 
the
 
Corporation’s
 
CECL
 
methodology,
 
and
discounted using a market
 
rate of return that accounts
 
for both the time value
 
of money and investment
 
risk factors.
 
The discount rate
utilized to analyze
 
fair value considered
 
the cost of funds
 
rate, capital charge,
 
servicing costs, and liquidity
 
premium, mostly based
 
on
industry
 
standards. For
 
further information,
 
refer to
 
Note 2
 
– Business
 
Combination
 
to the
 
audited consolidated
 
financial statements
included in Item 8 of this Annual Report on Form 10-K for additional information.
For PCD
 
loans that,
 
prior to
 
the adoption
 
of CECL,
 
were classified
 
as purchased
 
credit impaired
 
(“PCI”) loans
 
and accounted
 
for
under ASC
 
Subtopic 310-30,
 
“Loans and
 
Debt Securities
 
Acquired
 
with Deteriorated
 
Credit Quality”
 
(“ASC Subtopic
 
310-30”), the
Corporation adopted CECL using the prospective
 
transition approach. As allowed by CECL, the Corporation
 
elected to maintain pools
of
 
loans
 
accounted
 
for
 
under
 
ASC
 
Subtopic
 
310-30
 
as “units
 
of
 
accounts,”
 
conceptually
 
treating
 
each
 
pool
 
as
 
a
 
single
 
asset.
 
As
 
of
December
 
31,
 
2021,
 
such
 
PCD
 
loans
 
consisted
 
of
 
$115.1
 
million
 
of
 
residential
 
mortgage
 
loans
 
and
 
$2.4
 
million
 
of
 
commercial
mortgage loans acquired by
 
the Corporation as part
 
of previously completed asset
 
acquisitions. As the Corporation
 
elected to maintain
pools of units
 
of account for
 
loans previously accounted
 
for under ASC
 
Subtopic 310-30,
 
the Corporation
 
is not able
 
to remove loans
from the pools until they are paid off, written
 
off, or sold (consistent with the Corporation’s
 
practice prior to adoption of CECL), but is
required
 
to follow
 
CECL for
 
purposes
 
of the
 
ACL. Regarding
 
interest income
 
recognition for
 
PCD loans
 
that existed
 
at the
 
time of
adoption of
 
CECL, the prospective
 
transition approach
 
for PCD loans
 
required by
 
CECL was applied
 
at a pool
 
level, which
 
froze the
effective interest rate
 
of the pools as
 
of January 1, 2020.
 
According to regulatory guidance,
 
the determination of nonaccrual
 
or accrual
status
 
for
 
PCD
 
loans
 
that
 
the
 
Corporation
 
has
 
elected
 
to
 
maintain
 
in
 
previously
 
existing
 
pools
 
pursuant
 
to
 
the
 
policy
 
election
 
right
upon
 
adoption of
 
CECL should
 
be made
 
at the
 
pool
 
level, not
 
the individual
 
asset level.
 
In addition,
 
the guidance
 
provides
 
that the
Corporation can continue accruing
 
interest and not report the
 
PCD loans as being in
 
nonaccrual status if the following
 
criteria are met:
(i) the Corporation can reasonably estimate the timing
 
and amounts of cash flows expected to be collected,
 
and (ii) the Corporation did
not acquire the asset primarily for
 
the rewards of ownership of the underlying
 
collateral, such as for use in operations
 
or improving the
collateral
 
for
 
resale.
 
Thus,
 
the
 
Corporation
 
continues
 
to
 
exclude
 
these
 
pools
 
of
 
PCD
 
loans
 
from
 
nonaccrual
 
loan
 
statistics.
 
In
accordance
 
with
 
CECL,
 
the
 
Corporation
 
did
 
not
 
reassess
 
whether
 
modifications
 
to
 
individual
 
acquired
 
loans
 
accounted
 
for
 
within
pools were TDR as of the date of adoption.
Income Taxes
 
The Corporation is required to estimate income taxes in preparing
 
its consolidated financial statements. This involves the estimation
of
 
current
 
income
 
tax
 
expense
 
together
 
with
 
an
 
assessment
 
of
 
temporary
 
differences
 
between
 
the
 
carrying
 
amounts
 
of
 
assets
 
and
liabilities
 
for
 
financial
 
reporting
 
purposes
 
and
 
the
 
amounts
 
used
 
for
 
income
 
tax
 
purposes.
 
The
 
determination
 
of
 
current
 
income
 
tax
expense
 
involves
 
estimates
 
and
 
assumptions
 
that
 
require
 
the
 
Corporation
 
to
 
assume
 
certain
 
positions
 
based
 
on
 
its
 
interpretation
 
of
58
current tax regulations. Management assesses the relative benefits
 
and risks of the appropriate tax treatment of transactions, taking
 
into
account statutory,
 
judicial and regulatory
 
guidance, and recognizes
 
tax benefits
 
only when deemed
 
probable. Changes
 
in assumptions
affecting estimates
 
may be required
 
in the future
 
and estimated tax
 
liabilities may need
 
to be increased
 
or decreased accordingly.
 
The
Corporation
 
adjusts the
 
accrual of
 
tax contingencies
 
in light
 
of changing
 
facts and
 
circumstances, such
 
as the
 
progress of
 
tax audits,
case law
 
and emergi
 
ng legislation.
 
The Corporation’s
 
effective tax
 
rate includes
 
the impact
 
of tax
 
contingencies and
 
changes to
 
such
accruals,
 
as
 
considered
 
appropriate
 
by
 
management.
 
When
 
particular
 
tax
 
matters
 
arise,
 
a
 
number
 
of
 
years
 
may
 
elapse
 
before
 
such
matters are
 
audited by
 
the taxing
 
authorities and
 
finally resolved.
 
Favorable resolution
 
of such matters
 
or the
 
expiration of
 
the statute
of limitations may result in the release of tax contingencies that
 
the Corporation recognizes as a reduction to its effective
 
tax rate in the
year of resolution.
 
Unfavorable settlement
 
of any particular
 
issue could increase
 
the effective
 
tax rate and
 
may require the
 
use of cash
in the year of resolution.
The
 
determination
 
of
 
deferred
 
tax
 
expense
 
or
 
benefit
 
is
 
based
 
on
 
changes
 
in
 
the
 
carrying
 
amounts
 
of
 
assets
 
and
 
liabilities
 
that
generate
 
temporary differences.
 
The carrying
 
value
 
of the
 
Corporation’s
 
net deferred
 
tax asset
 
assumes
 
that the
 
Corporation
 
will be
able
 
to
 
generate
 
sufficient
 
future
 
taxable
 
income
 
based
 
on
 
estimates
 
and
 
assumptions.
 
If
 
these
 
estimates
 
and
 
related
 
assumptions
change, the
 
Corporation may
 
be required
 
to record valuation
 
allowances against
 
its deferred
 
tax assets, resulting
 
in additional
 
income
tax expense
 
in the
 
consolidated statements
 
of income.
 
Management evaluates
 
its deferred
 
tax assets
 
on a
 
quarterly basis
 
and assesses
the need
 
for a valuation
 
allowance, if any.
 
A valuation allowance
 
is established when
 
management believes
 
that it is
 
more likely
 
than
not that
 
some portion
 
of its
 
deferred tax
 
assets will
 
not be
 
realized. The
 
determination of
 
whether a
 
valuation allowance
 
for deferred
tax assets
 
is appropriate
 
is subject to
 
considerable judgment
 
and requires
 
the evaluation
 
of positive
 
and negative
 
evidence that
 
can be
objectively
 
verified.
 
Positive
 
evidence
 
necessary
 
to
 
overcome
 
the
 
negative
 
evidence
 
includes
 
whether
 
future
 
taxable
 
income
 
in
sufficient
 
amounts
 
and
 
character
 
within
 
the
 
carryforward
 
periods
 
is available
 
under
 
the tax
 
law.
 
Consideration
 
must
 
be given
 
to
 
all
sources
 
of
 
taxable
 
income,
 
including,
 
as
 
applicable,
 
the
 
future
 
reversal
 
of
 
existing
 
temporary
 
differences,
 
future
 
taxable
 
income
forecasts exclusive
 
of the
 
reversal of
 
temporary
 
differences and
 
carryforwards,
 
and tax
 
planning strategies.
 
When negative
 
evidence
(e.g.,
 
cumulative
 
losses
 
in
 
recent
 
years,
 
history
 
of
 
operating
 
loss
 
or
 
tax
 
credit
 
carryforwards
 
expiring
 
unused)
 
exists,
 
more
 
positive
evidence
 
than negative
 
evidence will
 
be necessary.
 
The Corporation
 
has concluded
 
that based
 
on the
 
level of
 
positive evidence,
 
it is
more
 
likely
 
than not
 
that the
 
deferred
 
tax asset
 
will be
 
realized,
 
net of
 
the existing
 
valuation allowances
 
at December
 
31,
 
2021 and
2020. However,
 
there is
 
no guarantee
 
that the
 
tax benefits
 
associated with
 
the deferred
 
tax assets
 
will be
 
fully realized.
 
The positive
evidence
 
considered by
 
management in
 
arriving at
 
its conclusion
 
included factors
 
such as:
 
FirstBank’s
 
four-year
 
cumulative income
position;
 
sustained
 
periods
 
of
 
profitability;
 
management’s
 
proven
 
ability
 
to
 
forecast
 
future
 
income
 
accurately
 
and
 
execute
 
tax
strategies; forecasts
 
of future
 
profitability
 
under several
 
potential scenarios
 
that support
 
the partial
 
utilization of
 
NOLs prior
 
to their
expiration
 
from
 
2022
 
through
 
2024;
 
and
 
the
 
utilization
 
of
 
NOLs
 
over
 
the
 
past
 
four-years.
 
The
 
negative
 
evidence
 
considered
 
by
management
 
included:
 
uncertainties
 
about
 
the
 
state
 
of
 
the
 
Puerto
 
Rico
 
economy,
 
including
 
considerations
 
relating
 
to
 
the
 
effect
 
of
hurricane and pandemic
 
recovery funds together
 
with Puerto Rico government
 
debt restructuring and
 
the ultimate sustainability
 
of the
latest fiscal plan certified by the PROMESA oversight board.
Refer to Note
 
28 - Income
 
Taxes,
 
to the audited
 
consolidated financial
 
statements included
 
in Item 8
 
of this Form
 
10-K for further
information related to Income Taxes.
OTHER ESTIMATES
In addition
 
to the
 
critical accounting
 
estimates we
 
make in connection
 
with the
 
ACL, fair
 
value measurements,
 
and the accounting
for income taxes,
 
goodwill and identifiable
 
intangible assets, pension
 
and postretirement benefit
 
obligations, and provisions
 
for losses
that
 
may
 
arise
 
from
 
litigation
 
and
 
regulatory
 
proceedings
 
(including
 
governmental
 
investigations)
 
are
 
also
 
based
 
on
 
estimates
 
and
assumptions.
Goodwill is assessed
 
for impairment
 
annually in the
 
fourth quarter or
 
more frequently
 
if events occur
 
or circumstances change
 
that
indicate an
 
impairment may
 
exist. When
 
assessing goodwill
 
for impairment,
 
first, a
 
qualitative assessment
 
can be
 
made to
 
determine
whether it is more
 
likely than not that
 
the estimated fair value
 
of a reporting unit
 
is less than its estimated
 
carrying value. If the results
of the
 
qualitative assessment
 
are not
 
conclusive, a
 
quantitative goodwill
 
test is
 
performed. Alternatively,
 
a quantitative
 
goodwill test
can
 
be
 
performed
 
without
 
performing
 
a
 
qualitative
 
assessment.
 
Identifiable
 
intangible
 
assets
 
are
 
tested
 
for
 
impairment
 
whenever
events or
 
changes in
 
circumstances suggest
 
that an
 
asset’s
 
or asset
 
group’s
 
carrying value
 
may not
 
be fully
 
recoverable. Judgment
 
is
required
 
to
 
evaluate
 
whether
 
indications
 
of
 
potential
 
impairment
 
have
 
occurred,
 
and
 
to
 
test
 
intangible
 
assets
 
for
 
impairment,
 
if
required. The
 
amortization of identified
 
intangible assets recognized
 
in a business
 
combination is based
 
upon the
 
estimated economic
benefits
 
to
 
be
 
received
 
over
 
their
 
economic
 
life,
 
which
 
is
 
also
 
subjective.
 
Customer
 
attrition
 
rates
 
that
 
are
 
based
 
on
 
historical
experience
 
are
 
used
 
to
 
determine
 
the
 
estimated
 
economic
 
life
 
of
 
certain
 
intangibles
 
assets,
 
including
 
but
 
not
 
limited
 
to,
 
customers
deposit intangible.
See Note 1 –
 
Nature of Business
 
and Summary
 
of Significant Accounting
 
Policies, Note 2
 
– Business Combination
 
,
 
and Note 14
 
–
Goodwill and Other Intangibles, to the audited consolidated
 
financial statements included in Item 8 of this Annual
 
Report on Form 10-
K for further information
 
about goodwill and identifiable
 
intangible assets, including intangible
 
assets recorded in connection
 
with the
acquisition of BSPR.
59
As part of the BSPR acquisition,
 
the Corporation maintains two frozen
 
qualified noncontributory defined benefit
 
pension plans, and
a related
 
complementary post-retirements
 
benefits plan
 
covering medical
 
benefits and
 
life insurance
 
after retirement.
 
Calculation of
the
 
obligations
 
and
 
related
 
expenses
 
under
 
these
 
plans
 
requires
 
the
 
use
 
of
 
actuarial
 
valuation
 
methods
 
and
 
assumptions,
 
which
 
are
subject
 
to
 
management
 
judgment
 
and
 
may
 
differ
 
if
 
different
 
assumptions
 
are
 
used.
 
See
 
Note
 
25
 
–
 
Employee
 
Benefit
 
Plans,
 
to
 
the
audited consolidated financial
 
statements included in
 
Item 8 of this
 
Annual Report on
 
Form 10-K for disclosures
 
related to the benefit
plans.
 
As necessary,
 
we
 
also estimate
 
and
 
provide
 
for potential
 
losses that
 
may
 
arise out
 
of litigation
 
and
 
regulatory
 
proceedings to
 
the
extent
 
that
 
such losses
 
are
 
probable
 
and
 
can be
 
reasonably
 
estimated.
 
Judgment
 
is required
 
in making
 
these
 
estimates
 
and
 
our
 
final
liabilities
 
may
 
ultimately
 
be
 
materially
 
different.
 
Our
 
total
 
estimated
 
liability
 
in
 
respect
 
of
 
litigation
 
and
 
regulatory
 
proceedings
 
is
determined
 
on a case-by-case
 
basis and
 
represents an
 
estimate of
 
probable losses
 
after considering,
 
among other
 
factors, the
 
progress
of each
 
case, proceeding
 
or investigation,
 
our experience
 
and the
 
experience of
 
others in
 
similar cases,
 
proceedings or
 
investigations,
and the opinions and views of legal counsel.
 
RESULTS
 
OF OPERATIONS
Net Interest Income
Net interest
 
income is
 
the excess of
 
interest earned
 
by First BanCorp.
 
on its interest-earning
 
assets over
 
the interest
 
incurred on its
interest-bearing
 
liabilities.
 
First
 
BanCorp.’s
 
net
 
interest
 
income
 
is
 
subject
 
to
 
interest
 
rate
 
risk
 
due
 
to
 
the
 
repricing
 
and
 
maturity
mismatch of
 
the Corporation’s
 
assets and
 
liabilities.
 
Net interest
 
income for
 
the year
 
ended December
 
31, 2021
 
was $729.9
 
million,
compared to $600.3
 
million for 2020.
 
On a tax-equivalent basis
 
and excluding the
 
changes in the fair
 
value of derivative instruments,
net
 
interest
 
income
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021
 
was
 
$753.7
 
million
 
compared
 
to
 
$621.4
 
million
 
for
 
the
 
year
 
ended
December 31, 2020.
The
 
following
 
tables
 
include a
 
detailed
 
analysis
 
of net
 
interest income
 
for
 
the indicated
 
periods.
 
Part I
 
presents
 
average volumes
(based
 
on
 
the
 
average
 
daily
 
balance)
 
and
 
rates
 
on
 
an
 
adjusted
 
tax-equivalent
 
basis
 
and
 
Part
 
II
 
presents,
 
also
 
on
 
an
 
adjusted
 
tax-
equivalent basis,
 
the extent
 
to which
 
changes in
 
interest rates
 
and changes
 
in the
 
volume of
 
interest-related assets
 
and liabilities
 
have
affected
 
the Corporation’s
 
net interest
 
income. For
 
each category
 
of interest-earning
 
assets and
 
interest-bearing
 
liabilities, the
 
tables
provide
 
information
 
on
 
changes
 
in
 
(i)
 
volume
 
(changes
 
in
 
volume
 
multiplied
 
by
 
prior
 
period
 
rates)
 
and
 
(ii)
 
rate
 
(changes
 
in
 
rate
multiplied by
 
prior period
 
volumes). The
 
Corporation has
 
allocated rate-volume
 
variances (changes
 
in rate
 
multiplied by
 
changes in
volume) to either the changes in volume or the changes in rate based upon
 
the effect of each factor on the combined totals.
Net
 
interest
 
income
 
on
 
an
 
adjusted
 
tax-equivalent
 
basis and
 
excluding
 
the
 
change
 
in the
 
fair
 
value
 
of
 
derivative
 
instruments
 
is a
non-GAAP
 
financial
 
measure.
 
For
 
the
 
definition
 
of
 
this
 
non-GAAP
 
financial
 
measure,
 
refer
 
to
 
the
 
discussion
 
in
 
"Basis
 
of
Presentation" below.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
60
Part I
Average volume
Interest income
(1)
 
/ expense
Average rate
(1)
Year Ended December
 
31,
2021
2020
2021
2020
2021
2020
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
$
2,012,617
$
1,258,683
$
2,662
$
3,388
0.13
%
0.27
%
Government obligations
(2)
2,065,522
878,537
27,058
21,222
1.31
%
2.42
%
MBS
4,064,343
2,236,262
57,159
48,683
1.41
%
2.18
%
FHLB stock
28,208
32,160
1,394
1,959
4.94
%
6.09
%
Other investments
10,254
6,238
61
41
0.59
%
0.66
%
Total investments
(3)
8,180,944
4,411,880
88,334
75,293
1.08
%
1.71
%
Residential mortgage loans
3,277,087
3,119,400
177,747
166,019
5.42
%
5.32
%
Construction loans
181,470
168,967
12,766
9,094
7.03
%
5.38
%
Commercial and Industrial and Commercial Mortgage loans
5,228,150
4,387,419
261,333
214,830
5.00
%
4.90
%
Finance leases
518,757
440,796
38,532
32,515
7.43
%
7.38
%
Consumer loans
2,207,685
1,952,120
239,725
216,263
10.86
%
11.08
%
Total loans
(4)(5)
11,413,149
10,068,702
730,103
638,721
6.40
%
6.34
%
 
Total interest-earning assets
$
19,594,093
$
14,480,582
$
818,437
$
714,014
4.18
%
4.93
%
Interest-bearing liabilities:
Interest-bearing checking accounts
$
3,667,523
$
2,197,980
$
5,776
$
5,933
0.16
%
0.27
%
Savings accounts
4,494,757
3,190,743
6,586
11,116
0.15
%
0.35
%
Retail certificates of deposit ("CDs")
2,636,303
2,741,388
26,138
43,350
0.99
%
1.58
%
Brokered CDs
141,959
357,965
2,982
7,989
2.10
%
2.23
%
Interest-bearing deposits
10,940,542
8,488,076
41,482
68,388
0.38
%
0.81
%
Loans payable
-
8,415
-
21
-
%
0.25
%
Other borrowed funds
484,244
475,492
15,098
13,000
3.12
%
2.73
%
FHLB advances
354,055
505,478
8,199
11,251
2.32
%
2.23
%
Total interest-bearing liabilities
$
11,778,841
$
9,477,461
$
64,779
$
92,660
0.55
%
0.98
%
Net interest income on a tax-equivalent
basis and excluding valuations
$
753,658
$
621,354
Interest rate spread
3.63
%
3.95
%
Net interest margin
3.85
%
4.29
%
(1)
On an adjusted
 
tax-equivalent basis. The
 
Corporation estimated the adjusted
 
tax-equivalent yield by
 
dividing the interest
 
rate spread on
 
exempt assets by
 
1 less
the Puerto
 
Rico statutory
 
tax rate
 
of 37.5%
 
and adding
 
to it
 
the cost
 
of interest
 
-bearing liabilities.
 
The tax-equivalent
 
adjustment
 
recognizes
 
the income
 
tax
savings when comparing taxable and tax-exempt assets.
 
Management believes that it is a standard practice in the banking industry
 
to present net interest income,
interest
 
rate
 
spread
 
and
 
net
 
interest
 
margin
 
on
 
a
 
fully
 
tax-equivalent
 
basis.
 
Therefore,
 
management
 
believes
 
these
 
measures
 
provide
 
useful
 
information
 
to
investors by
 
allowing
 
them to
 
make
 
peer comparisons.
 
The Corporation
 
excludes
 
changes
 
in the
 
fair value
 
of derivatives
 
from interest
 
income and
 
interest
expense because the changes in valuation do not affect
 
interest received or paid.
(2)
Government obligations include debt issued by government-sponsored
 
agencies.
(3)
Unrealized gains and losses on available-for-sale securities
 
are excluded from the average volumes.
(4)
Average loan balances include
 
the average of nonaccrual loans.
(5)
Interest income
 
on loans
 
includes $10.5
 
million and
 
$7.3 million
 
for the
 
years ended
 
December 31,
 
2021 and
 
2020, respectively,
 
of income
 
from prepayment
penalties and late fees related to the Corporation’s
 
loan portfolio.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
61
Part II
2021 Compared to 2020
Increase (decrease)
Due to:
Volume
Rate
Total
(In thousands)
Interest income on interest-earning assets:
Money market and other short-term investments
$
1,513
$
(2,239)
$
(726)
Government obligations
22,111
(16,275)
5,836
MBS
32,753
(24,277)
8,476
FHLB stock
(223)
(342)
(565)
Other investments
25
(5)
20
Total investments
56,179
(43,138)
13,041
Residential mortgage loans
8,509
3,219
11,728
Construction loans
713
2,959
3,672
Commercial and Industrial and Commercial Mortgage loans
41,940
4,563
46,503
Finance leases
5,789
228
6,017
Consumer loans
28,032
(4,570)
23,462
Total loans
84,983
6,399
91,382
Total interest income
$
141,162
$
(36,739)
$
104,423
Interest expense on interest-bearing liabilities:
Brokered CDs
$
(4,563)
$
(444)
$
(5,007)
Non-brokered interest-bearing deposits
14,669
(36,568)
(21,899)
Loans Payable
(21)
-
(21)
Other borrowed funds
243
1,855
2,098
FHLB advances
(3,438)
386
(3,052)
Total interest expense
6,890
(34,771)
(27,881)
Change in net interest income
$
134,272
$
(1,968)
$
132,304
Portions of the Corporation’s
 
interest-earning assets, mostly investments
 
in obligations of some U.S.
 
government agencies and U.S.
government-sponsored
 
entities (“GSEs”),
 
generate interest
 
that is
 
exempt from
 
income tax,
 
principally in
 
Puerto Rico.
 
Also, interest
and gains
 
on sales of
 
investments held by
 
the Corporation’s
 
international banking
 
entities (“IBEs”) are
 
tax-exempt under
 
Puerto Rico
tax law
 
(see “Income
 
Taxes”
 
below for
 
additional information).
 
Management believes
 
that the
 
presentation of
 
interest income
 
on an
adjusted
 
tax-equivalent
 
basis facilitates
 
the comparison
 
of all
 
interest data
 
related to
 
these assets.
 
The Corporation
 
estimated the
 
tax
equivalent yield by dividing the interest rate spread on exempt
 
assets by 1 less the Puerto Rico statutory tax rate (37.5%) and
 
adding to
it the average
 
cost of interest-bearing
 
liabilities. The computation
 
considers the interest
 
expense disallowance required
 
by Puerto Rico
tax law.
 
 
Management
 
believes
 
that
 
the
 
presentation
 
of
 
net
 
interest
 
income
 
excluding
 
the
 
effects
 
of
 
the
 
changes
 
in
 
the
 
fair
 
value
 
of
 
the
derivative
 
instruments
 
(“valuations”)
 
provides
 
additional
 
information
 
about
 
the
 
Corporation’s
 
net
 
interest
 
income
 
and
 
facilitates
comparability and analysis from
 
period to period. The changes
 
in the fair value of
 
the derivative instruments have
 
no effect on interest
due on interest-bearing liabilities or interest earned on interest-earning
 
assets.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
62
 
The following table reconciles net interest income in accordance with
 
GAAP to net interest income, excluding valuations, and net
interest income on an adjusted tax-equivalent basis for the indicated periods.
 
The table also reconciles net interest spread and net
interest margin on a GAAP basis to these items excluding valuations, and
 
on an adjusted tax-equivalent basis:
Year Ended December 31,
2021
2020
(Dollars in thousands)
Interest income - GAAP
$
794,708
$
692,982
Unrealized gain on derivative instruments
(24)
(27)
Interest income excluding valuations
794,684
692,955
Tax-equivalent adjustment
23,753
21,059
Interest income on a tax-equivalent basis
 
and excluding valuations
818,437
714,014
Interest expense - GAAP
64,779
92,660
Net interest income - GAAP
$
729,929
$
600,322
Net interest income excluding valuations
$
729,905
$
600,295
Net interest income on a tax-equivalent basis
 
and excluding valuations
$
753,658
$
621,354
Average Balances
 
Loans and leases
$
11,413,149
$
10,068,702
Total securities, other short-term investments and interest-bearing
 
cash balances
8,180,944
4,411,880
Average Interest-Earning Assets
$
19,594,093
$
14,480,582
Average Interest-Bearing Liabilities
$
11,778,841
$
9,477,461
Average Yield/Rate
Average yield on interest-earning assets - GAAP
4.06%
4.79%
Average rate on interest-bearing liabilities - GAAP
0.55%
0.98%
Net interest spread - GAAP
3.51%
3.81%
Net interest margin - GAAP
3.73%
4.15%
Average yield on interest-earning assets excluding valuations
4.06%
4.79%
Average rate on interest-bearing liabilities
0.55%
0.98%
Net interest spread excluding valuations
3.51%
3.81%
Net interest margin excluding valuations
3.73%
4.15%
Average yield on interest-earning assets on a tax-equivalent
 
basis and excluding valuations
4.18%
4.93%
Average rate on interest-bearing liabilities
0.55%
0.98%
Net interest spread on a tax-equivalent basis
 
and excluding valuations
3.63%
3.95%
Net interest margin on a tax-equivalent basis and excluding
 
valuations
3.85%
4.29%
63
Interest
 
income
 
on
 
interest-earning
 
assets
 
primarily
 
represents
 
interest
 
earned
 
on
 
loans
 
held
 
for
 
investment
 
and
 
investment
securities.
Interest
 
expense
 
on
 
interest-bearing
 
liabilities
 
primarily
 
represents
 
interest
 
paid
 
on
 
brokered
 
CDs,
 
retail
 
deposits,
 
repurchase
agreements, advances from the FHLB, and junior subordinated debentures.
Unrealized
 
gains or
 
losses on
 
derivatives
 
represent
 
changes in
 
the
 
fair value
 
of derivatives,
 
primarily
 
interest
 
rate
 
caps used
 
for
protection against rising interest rates.
Net
 
interest
 
income
 
amounted
 
to
 
$729.9
 
million
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021,
 
an
 
increase
 
of
 
$129.6
 
million,
 
when
compared to $600.3
 
million for the
 
year ended December
 
31, 2020.
 
The $129.6 million
 
increase in net
 
interest income was
 
primarily
due to:
●
A $47.4 million
 
increase
 
in interest
 
income on
 
commercial
 
and construction
 
loans, mainly
 
due to an $853.2
 
million
 
increase
 
in the
average balance
 
of this portfolio
 
that reflects
 
the effect of both
 
loans acquired
 
in conjunction
 
with the BSPR acquisition
 
and SBA
PPP loans originated
 
through 2020
 
and 2021. Total discount
 
accretion
 
related to
 
fair value
 
marks on commercial
 
and construction
loans acquired
 
in the BSPR
 
acquisition
 
amounted
 
to $9.2 million
 
in 2021,
 
compared
 
to $5.5 million
 
in 2020. Additionally,
 
interest
income
 
for
 
2021
 
includes
 
$20.9
 
million
 
earned
 
on
 
SBA
 
PPP
 
loans,
 
including $13.2
 
million
 
of
 
accelerated PPP
 
loan
 
fees
recognized upon
 
receipt of forgiveness
 
payments in 2021, compared
 
to $7.5 million interest
 
income on SBA PPP loans recorded
in 2020. This variance also reflects
 
the benefit of interest income
 
of $2.9 million realized from deferred
 
interest recognized
 
on a
construction
 
loan paid-off
 
in 2021.
These variances
 
were partially
 
offset by lower
 
interest rates.
 
As of December
 
31, 2021, the interest
 
rate on approximately
 
39% of
the Corporation’s commercial
 
and construction loans, excluding
 
SBA PPP loans, was based upon LIBOR indices and 16% was
based upon the Prime rate index.
 
For the year ended December 31, 2021, the average
 
one-month LIBOR rate declined
 
42 basis
points,
 
the
 
average three-month
 
LIBOR
 
rate
 
declined 49
 
basis
 
points,
 
and
 
the
 
average Prime
 
rate
 
declined 29
 
basis
 
points
compared
 
to the
 
average
 
rate of
 
such indices
 
in 2020.
●
A $29.5 million increase
 
in interest income
 
on consumer loans
 
and finance leases,
 
mainly due to a $333.5 million
 
increase in the
average balance
 
of this portfolio,
 
largely related to
 
auto loans and finance
 
leases. The increase
 
in the average balance
 
reflects the
effect of
 
both consumer
 
loans acquired
 
in connection
 
with the
 
BSPR acquisition
 
and organic
 
growth.
 
 
●
A $27.9 million decrease in total interest expense, primarily due to: (i) a $21.9 million decrease in interest expense on interest-
bearing checking, savings and non-brokered time deposits, primarily
 
related to the effect
 
of lower rates paid
 
in response to the
current level of the Federal Fund target
 
rate that more than offset the effect
 
of the $2.7 billion increase in average
 
balance; (ii) a
$5.0 million
 
decrease
 
in interest
 
expense on
 
brokered
 
CDs, primarily
 
related to
 
the $216.0
 
million decrease
 
in the average
 
balance
in
 
related deposits; (iii)
 
a
 
$3.1 million
 
decrease in
 
interest expense on
 
FHLB advances, primarily related
 
to
 
a
 
$151.4 million
decrease
 
in
 
the
 
average
 
balance
 
of
 
FHLB
 
advances;
 
and
 
(iv)
 
a
 
$1.2
 
million
 
decrease
 
in
 
interest
 
expense
 
related
 
to
 
the
downward
 
repricing of
 
floating-rate junior
 
subordinated debentures
 
tied to
 
the three-month
 
LIBOR index.
 
These variances
were partially
 
offset by
 
a $3.3 million
 
increase in interest
 
expense on
 
repurchase agreements
 
primarily related
 
to the upward
repricing
 
of
 
$200
 
million
 
repurchase
 
agreements
 
(flipper
 
repos)
 
for
 
which
 
its
 
interest
 
rate
 
changed
 
early
 
in
 
2021
 
from
variable rates tied to 3-month LIBOR to a fixed rate of 3.90%.
 
●
A
 
$
11.3
 
million increase in
 
interest income on
 
residential mortgage loans,
 
primarily related to
 
a
 
$157.7 million
 
increase the
average
 
balance of
 
this portfolio,
 
primarily
 
related
 
to loans
 
acquired
 
in the BSPR
 
acquisition.
●
An $14.3 million increase in interest income on
 
investment securities,
 
driven by a
 
$3.0 billion increase in the average balance,
primarily U.S. agencies
 
MBS and
 
debt securities,
 
partially offset
 
by higher
 
premium amortization
 
expense related
 
to higher
prepayment rates of U.S. agencies MBS and lower reinvestment yields.
 
Partially offset by:
 
●
A $0.7 million decrease
 
in interest income
 
from interest-bearing
 
cash balances,
 
which consisted
 
primarily of deposits
 
maintained
at
 
the
 
New
 
York
 
Fed.
 
Balances at
 
the
 
New
 
York
 
Fed
 
earned 0.13%
 
during 2021,
 
compared to
 
0.44%
 
in
 
2020,
 
a
 
decrease
attributable to declines
 
in the Federal Funds target rate in the latter part of the first quarter of 2020. The adverse effect of lower
rates was
 
partially
 
offset by a $753.9
 
million increase
 
in the average
 
balance of
 
interest-bearing
 
cash balances,
 
primarily
 
related to
the strong
 
growth in
 
deposits.
The net
 
interest margin
 
decreased by
 
42 basis
 
points to
 
3.73% for
 
2021, compared
 
to 4.15%
 
for 2020.
 
The decrease
 
for the
 
2021
periods was
 
primarily attributable
 
to a
 
higher proportion
 
of lower-yielding
 
assets, such
 
as interest-bearing
 
cash deposited
 
at the
 
New
64
York
 
Fed and investment securities from
 
continued strong deposit growth,
 
to total interest-earning assets. The
 
total average balance of
interest-bearing
 
cash
 
balances
 
and
 
investment
 
securities
 
increased
 
by $3.8
 
billion
 
to
 
42%
 
of
 
total
 
average
 
interest-earning
 
assets,
compared to 30% for the same period of 2020.
Provision for Credit Losses
The provision for credit
 
losses consists of provisions for
 
credit losses on loans and
 
finance leases, unfunded loan
 
commitments, and
held-to-maturity and available-for-sale debt securities.
 
The principal changes in the provision for credit losses by main categories
 
follow:
Provision for credit losses for
 
loans and finance leases
The provision for credit losses for loans and finance
 
leases decreased by $230.4 million to a net benefit of $61.7
 
million for the year
ended
 
December 31,
 
2021,
 
compared
 
to
 
an expense
 
of $168.7
 
million
 
for 2020.
 
The results
 
for
 
the year
 
ended December
 
31, 2020
included
 
a
 
$37.5
 
million
 
Day
 
1
 
provision
 
for
 
credit
 
losses
 
related
 
to
 
non-PCD
 
loans
 
acquired
 
in
 
conjunction
 
with
 
the
 
BSPR
acquisition. Meanwhile, the provision
 
for credit losses for year 2020 do not
 
include $28.7 million of reserves established
 
at acquisition
date for
 
PCD loans
 
acquired
 
in conjunction
 
with the
 
BSPR acquisition.
 
Unlike non-PCD
 
loans, the
 
initial ACL
 
for PCD
 
loans was
established through an adjustment
 
to the acquired loan balance
 
and not through a charge
 
to the provision for credit
 
losses in the period
in which the loans were acquired. The variances by major portfolio
 
category are as follow:
●
Provision for credit losses for
 
the commercial and construction
 
loans portfolio was a net
 
benefit of $65.3 million
 
for the year
ended December 31,
 
2021, compared to
 
an expense of
 
$89.9 million for
 
the year ended
 
December 31, 2020.
 
The net benefit
recorded
 
in
 
2021,
 
reflects
 
continued
 
improvements
 
in
 
the
 
long-term
 
outlook
 
of
 
forecasted
 
macroeconomic
 
variables,
primarily
 
in the
 
commercial real
 
estate price
 
index, and
 
the overall
 
decrease in
 
the size
 
of this
 
portfolio in
 
the Puerto
 
Rico
region. The significant reserve builds
 
in the prior year were due to
 
the deterioration in forecasted economic
 
conditions due to
the COVID-19 pandemic reflected across multiple sectors with higher
 
increases in the ACL made for loans in the hospitality,
office and
 
retail real
 
estate industries.
 
The expense
 
for the year
 
2020 included
 
a $13.8 million
 
Day 1
 
provision recorded
 
for
non-PCD commercial and construction loans acquired in conjunction with
 
the BSPR acquisition.
●
Provision for credit
 
losses for the
 
consumer loan and
 
finance lease portfolio
 
was $20.6 million
 
for the year
 
ended December
31, 2021, compared
 
to $56.4 million for
 
the year ended December
 
31, 2020. The charges
 
to the provision
 
in 2021 reflect the
effect of increases
 
in cumulative historical
 
charge-off levels related
 
to the credit card
 
and personal loan portfolios,
 
as well as
charges to
 
the provision
 
for auto loans
 
and finance
 
leases that, among
 
other things, accounted
 
for the overall
 
increase in the
size of
 
these portfolios.
 
The significant
 
reserve builds
 
in the
 
prior year
 
were due
 
to the
 
deterioration of
 
the macroeconomic
outlook as a result of the COVID-19
 
pandemic primarily reflected in auto loans,
 
finance leases, and credit card loans,
 
as well
as
 
a
 
$10.1
 
million
 
Day
 
1
 
provision
 
recorded
 
for
 
non-PCD
 
consumer
 
loans
 
acquired
 
in
 
conjunction
 
with
 
the
 
BSPR
acquisition.
●
Provision
 
for
 
credit losses
 
for
 
the residential
 
mortgage
 
loan portfolio
 
was a
 
net benefit
 
of $17.0
 
million
 
for the
 
year ended
December
 
31,
 
2021,
 
compared
 
to
 
an
 
expense
 
of
 
$22.4
 
million
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2020.
 
The
 
net
 
benefit
recorded
 
in 2021
 
reflects the
 
effect
 
of both
 
continued improvements
 
in the
 
long-term
 
outlook
 
of macroeconomic
 
variables,
such as regional unemployment rates
 
and Home Price Index, and the overall
 
portfolio decrease. The significant reserve builds
in the
 
prior year
 
were due
 
to the
 
deterioration of
 
the macroeconomic
 
outlook
 
as a
 
result of
 
the COVID-19
 
pandemic
 
and a
$13.6
 
million
 
Day
 
1
 
provision
 
recorded
 
for
 
non-PCD
 
residential
 
mortgage
 
loans
 
acquired
 
in
 
conjunction
 
with
 
the
 
BSPR
acquisition.
See
 
“Risk
 
Management
 
–
 
Credit
 
Risk
 
Management”
 
below
 
for
 
an
 
analysis
 
of
 
the
 
ACL,
 
non-performing
 
assets,
 
and
 
related
information,
 
and
 
see
 
“Financial
 
Condition
 
and
 
Operating
 
Data
 
Analysis
 
–
 
Loan
 
Portfolio
 
and
 
Risk
 
Management
 
—
 
Credit
 
Risk
Management”
 
below for
 
additional information
 
concerning the
 
Corporation’s
 
loan
 
portfolio exposure
 
in the
 
geographic
 
areas where
the Corporation does business.
65
Provision for credit losses for
 
unfunded loan commitments
The provision for
 
credit losses for
 
unfunded commercial and
 
construction loan commitments
 
and standby letters
 
of credit was a
 
net
benefit of
 
$3.6 million
 
for the year
 
ended December
 
31, 2021,
 
compared to
 
a charge
 
of $1.2
 
million recorded
 
for the
 
year 2020.
 
The
net
 
benefit
 
recorded
 
in
 
2021
 
periods
 
was
 
mainly
 
related
 
to
 
continued
 
improvements
 
in
 
forecasted
 
macroeconomic
 
variables.
 
The
provision
 
recorded
 
in
 
2020
 
primarily
 
consisted
 
of
 
a
 
$1.3
 
million
 
charge
 
recorded
 
in
 
connection
 
with
 
unfunded
 
loan
 
commitments
assumed in the BSPR acquisition.
 
Provision for credit losses for
 
held-to-maturity and available-for-sale debt
 
securities
As of
 
December 31,
 
2021, the
 
held-to-maturity
 
debt securities
 
portfolio
 
consisted of
 
Puerto Rico
 
municipal bonds.
 
The provision
for credit losses for
 
held-to-maturity securities was
 
a net benefit of
 
$0.2 million for the
 
year ended December 31,
 
2021, compared to a
benefit of
 
$0.6 million
 
for year
 
ended December
 
31, 2020.
 
The net
 
benefit recorded
 
in 2021
 
was mainly
 
related to
 
improvements in
forecasted macroeconomic variables
 
and the repayment of
 
certain bonds, partially
 
offset by changes
 
in some issuers’ financial
 
metrics
based
 
on
 
their most
 
recent
 
financial
 
statements.
 
The
 
net
 
benefit
 
recorded
 
in 2020
 
was primarily
 
related
 
to the
 
repayment
 
of
 
certain
bonds.
 
In
 
the
 
third
 
quarter
 
of
 
2020,
 
the
 
Corporation
 
recorded
 
a
 
$1.3
 
million
 
initial
 
reserve
 
for
 
PCD
 
debt
 
securities
 
acquired
 
in
conjunction
 
with
 
the
 
BSPR acquisition.
 
Similar
 
to
 
PCD loans,
 
such
 
initial
 
reserve
 
for PCD
 
debt
 
securities
 
acquired
 
in
 
conjunction
with
 
the
 
BSPR
 
acquisition
 
was
 
not
 
established
 
through
 
a
 
charge
 
to
 
the
 
provision
 
for
 
credit
 
losses,
 
but
 
rather
 
through
 
an
 
initial
adjustment
 
to
 
the
 
debt
 
securities’
 
amortized
 
cost
 
basis.
 
Meanwhile,
 
the
 
ACL
 
for
 
available-for-sale
 
securities
 
of
 
$1.1
 
million
 
as
 
of
December 31, 2021 remained
 
relatively unchanged since the
 
beginning of the year.
 
The Corporation recorded charges
 
to the provision
for
 
credit
 
losses
 
for
 
available-for-sale
 
securities
 
of
 
$1.6
 
million
 
during
 
2020.
 
These
 
charges
 
were
 
in
 
connection
 
with
 
private
 
label
MBS and a residential mortgage
 
pass-through MBS issued by
 
the PRHFA
 
and resulted from a
 
decline in the present value
 
of expected
cash
 
flows
 
based
 
upon
 
the
 
performance
 
of
 
the
 
underlying
 
mortgages
 
and
 
the
 
effect
 
of
 
a
 
deterioration
 
in
 
forecasted
 
economic
conditions due to the COVID-19 pandemic.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
66
Non-Interest Income
 
 
The following table presents the composition of non-interest income for
 
the indicated periods:
Year ended
 
December 31,
2021
2020
(In thousands)
Service charges on deposit accounts
$
35,284
$
24,612
Mortgage banking activities
24,998
22,124
Insurance income
11,945
9,364
Other operating income
48,937
41,834
Non-interest income before net gain on investment securities
and gain on early extinguishment of debt
121,164
97,934
Net gain on sale of investment securities
-
13,198
Gain on early extinguishment of debt
-
94
Total
$
121,164
$
111,226
Non-interest
 
income
 
primarily
 
consists
 
of
 
income
 
from
 
service
 
charges
 
on
 
deposit
 
accounts,
 
commissions
 
derived
 
from
 
various
banking and insurance activities, gains and losses on
 
mortgage banking activities, interchange and other
 
fees related to debit and credit
cards, and net gains and losses on investment securities.
 
Service charges
 
on deposit
 
accounts include
 
monthly fees,
 
overdraft fees,
 
and other
 
fees on
 
deposit accounts,
 
as well
 
as corporate
cash management fees.
Income
 
from
 
mortgage
 
banking
 
activities
 
includes
 
gains
 
on
 
sales
 
and
 
securitizations
 
of
 
loans,
 
revenues
 
earned
 
for
 
administering
residential
 
mortgage
 
loans
 
originated
 
by
 
the
 
Corporation
 
and
 
subsequently
 
sold
 
with
 
servicing
 
retained,
 
and
 
unrealized
 
gains
 
and
losses
 
on
 
forward
 
contracts
 
used
 
to
 
hedge
 
the
 
Corporation’s
 
securitization
 
pipeline.
 
In
 
addition,
 
lower-of-cost-or-market
 
valuation
adjustments to
 
the Corporation’s
 
residential mortgage
 
loans held-for-sale
 
portfolio and
 
servicing rights
 
portfolio, if
 
any,
 
are recorded
as part of mortgage banking activities.
Insurance
 
income consists
 
mainly of
 
insurance
 
commissions
 
earned by
 
the Corporation’s
 
subsidiary, FirstBank
 
Insurance
 
Agency, Inc.
The other operating
 
income category
 
is composed of miscellaneous
 
fees such as debit, credit
 
card and POS interchange
 
fees, as well as
contractual
 
shared
 
revenues
 
from merchant
 
contracts.
 
The
 
net gain
 
(loss)
 
on investment
 
securities
 
reflects
 
gains or
 
losses as
 
a
 
result
 
of sales
 
that
 
are
 
consistent with
 
the
 
Corporation’s
investment policies.
The gain
 
on early
 
extinguishment
 
of debt
 
is related
 
to the
 
repurchase in
 
2020 of
 
$0.4 million
 
in TRuPs
 
of FBP
 
Statutory
 
Trust
 
I.
 
The
 
Corporation
 
repurchased
 
TRuPs
 
resulted
 
in
 
a
 
commensurate
 
reduction
 
in
 
the
 
related
 
amount
 
of
 
the
 
floating
 
rate
 
junior
subordinated debentures
 
(“Subordinated Debt”).
 
The Corporation’s
 
purchase price equated
 
to 75% of
 
the $0.4 million
 
par value.
 
The
25%
 
discount
 
resulted
 
in
 
a
 
gain
 
of
 
$0.1
 
million
 
which
 
is
 
reflected
 
in
 
the
 
consolidated
 
statements
 
of
 
income
 
as
 
a
 
Gain
 
on
 
early
extinguishment of debt. As of December 31, 2021, the
 
Corporation still had Subordinated Debt outstanding in
 
the aggregate amount of
$183.8 million.
 
67
Non-interest income amounted
 
to $121.2 million
 
for the year ended
 
December 31, 2021, compared
 
to $111
 
.2 million for 2020.
 
The
$10.0 million increase in non-interest income was primarily due
 
to:
●
A
 
$10.7
 
million
 
increase
 
in
 
service
 
charges
 
on
 
deposits
 
accounts, driven
 
by
 
the
 
income
 
generated
 
by
 
the
 
acquired
 
BSPR
operations,
 
primarily
 
reflecting
 
an
 
increase
 
in
 
the
 
number
 
of
 
cash
 
management
 
transactions
 
of
 
commercial
 
clients,
 
and
 
an
increase in the monthly service fee charged on certain checking
 
and savings products.
 
●
A $2.9 million increase in
 
revenues from mortgage banking activities,
 
driven by a $2.9 million incre
 
ase in service fee income
and a $1.8 million
 
increase in realized gain
 
on sales of residential
 
mortgage loans in
 
the secondary market, partially
 
offset by
a $1.1 million decrease related to the net change in mark-to-market
 
gains and losses from both interest rate lock commitments
and
 
To-Be-Announced
 
(“TBA”)
 
MBS
 
forward
 
contracts
 
and
 
a
 
$0.9
 
million
 
increase
 
in
 
net
 
amortization
 
and
 
impairment
charges related to
 
mortgage servicing rights. Total
 
loans sold in the secondary
 
market to U.S. GSEs during
 
2021 amounted to
$519.6 million,
 
with a
 
related net
 
gain of
 
$20.0 million
 
(net of
 
realized losses
 
of $0.9
 
million on
 
TBA hedges,
 
compared to
total loans
 
sold in
 
the secondary
 
market in
 
2020 of
 
$476.4 million,
 
with a
 
related net
 
gain of
 
$18.1 million
 
(net of
 
realized
losses of $2.0 million on TBA hedges).
●
A
 
$7.1
 
million
 
increase
 
in
 
Other
 
operating
 
income
 
in
 
the
 
table
 
above,
 
primarily
 
reflecting:
 
(i)
 
a
 
$10.9
 
million
 
increase
 
in
transactional fee
 
income from credit
 
and debit
 
cards, ATMs,
 
POS, and
 
merchant-related activity
 
reflecting both
 
the effect
 
of
the BSPR
 
acquisition
 
as well
 
as increased
 
transaction volumes
 
due to
 
the impact
 
of the
 
COVID-19
 
pandemic on
 
economic
activity
 
in
 
2020;
 
(ii)
 
a
 
$1.0
 
million
 
increase
 
in
 
fees
 
and
 
commissions
 
from
 
other
 
banking
 
services
 
such
 
as
 
wire
 
transfers,
insurance
 
referrals,
 
and
 
official
 
checks;
 
and
 
(iii)
 
a
 
$0.7
 
million
 
increase
 
in
 
non-deferrable
 
loan
 
fees,
 
such
 
as
 
unused
commitment loan
 
fees. These
 
variances were
 
partially offset
 
by the
 
effect of
 
the $5.0
 
million benefit
 
recorded in
 
the second
quarter of 2020
 
resulting from the
 
final settlement of
 
the Corporation’s
 
business interruption
 
insurance claim associated
 
with
lost profits caused by Hurricanes Irma and Maria in 2017.
●
A $2.6
 
million increase in insurance
 
income, driven by higher property
 
insurance commissions, impacted by
 
a higher volume
of residential
 
mortgage loan
 
originations during
 
2021, when
 
compared to
 
2020, and
 
higher sells
 
of annuities
 
and accidental
death policies.
The above-described
 
increases were
 
partially offset
 
by the
 
effect in
 
2020 of
 
a $13.2
 
million gain
 
on sales
 
of investment
 
securities
consisting
 
of: (i)
 
a $13.0
 
million gain
 
on sales
 
of approximately
 
$392.2
 
million on
 
available-for-sale
 
U.S. agencies
 
MBS; and
 
(ii) a
$0.2 million gain on sales of approximately $803.3 million of available
 
-for-sale U.S. Treasury notes acquired
 
in the BSPR acquisition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
68
Non-Interest Expenses
The following table presents the components of non-interest expenses for
 
the indicated periods:
Year
 
ended December 31,
2021
2020
(In thousands)
Employees' compensation and benefits
$
200,457
$
177,073
Occupancy and equipment
93,253
74,633
FDIC deposit insurance premium
6,544
6,488
Taxes, other than
 
income taxes
22,151
17,762
Professional fees:
Collections, appraisals and other credit-related fees
4,715
5,563
Outsourced technology services
41,106
33,974
Other professional fees
14,135
13,096
Credit and debit card processing expenses
22,169
19,144
Business promotion
15,359
12,145
Communications
9,387
8,437
Net (gain) loss on OREO and OREO operations expenses
(2,160)
3,598
Merger and restructuring costs
26,435
26,509
Other
 
35,423
25,818
Total
$
488,974
$
424,240
Non-interest expenses
 
for the
 
year ended
 
December 31,
 
2021 were
 
$489.0 million,
 
compared to
 
$424.2 million
 
for the
 
year ended
December 31, 2020.
 
Included in non-interest expenses are the following Special Items:
●
Merger and
 
restructuring costs
 
associated with
 
the acquisition
 
of BSPR of
 
$26.4 million
 
in 2021,
 
compared to
 
$26.5 million
for 2020. These
 
costs in 2021 primarily
 
included charges related
 
to voluntary and
 
involuntary employee separation
 
programs
implemented
 
in
 
the
 
Puerto
 
Rico
 
region,
 
as
 
well
 
as
 
consulting
 
fees,
 
expenses
 
related
 
to
 
system
 
conversions,
 
and
 
other
integration related efforts, such
 
as service contracts cancellation penalties, accelerated
 
depreciation charges related to
 
planned
closures,
 
and consolidation of branches in accordance with the Corporation’s
 
integration and restructuring plan.
 
 
●
COVID-19 pandemic-related expenses of $3.0 million in 2021
 
,
 
compared
 
to
 
$5.4
 
million
 
in
 
2020.
 
In
 
2021
 
these
 
costs
primarily
 
consisted
 
of:
 
(i)
 
expenses
 
of
 
$2.6
 
million
 
associated
 
with
 
cleaning
 
and
 
security
 
protocols,
 
included
 
as
 
part
 
of
Occupancy and
 
equipment costs
 
in the
 
table above;
 
(ii) $0.3
 
million in
 
sales and
 
use taxes,
 
included as
 
part of
 
Taxes,
 
other
than income taxes in the table above;
 
and (iii) expenses of $0.1 million in
 
connection with employee-related expenses such
 
as
expenses for
 
the administration
 
and referrals
 
of COVID-19
 
tests, recorded
 
as part
 
of Employees’
 
compensation and
 
benefits
in the table
 
above.
 
For the year ended
 
December 31, 2020, these
 
costs primarily
 
consisted of: (i)
 
expenses of $1.8
 
million in
connection with bonuses
 
paid to branch personnel
 
and other essential employees
 
for working during the
 
pandemic, as well as
employee-related expenses
 
such as
 
expenses for
 
the administration
 
of COVID-19
 
tests, and
 
purchases of
 
personal protective
materials,
 
recorded
 
as
 
part
 
of
 
Employees’
 
compensation
 
and
 
benefits
 
in
 
the
 
table
 
above
 
;
 
(ii)
 
expenses
 
of
 
$2.7
 
million
associated with
 
cleaning and
 
security protocols,
 
included as
 
part of
 
Occupancy and
 
equipment costs
 
in the
 
table above;
 
(iii)
expenses
 
of
 
$0.6
 
million
 
related
 
to
 
communications
 
established
 
with
 
customers,
 
included
 
as
 
part
 
of
 
Business
 
promotion
expenses in the table
 
above; (iv) $0.3 million
 
in sales and use
 
taxes, included as part
 
of Taxes,
 
other than income taxes
 
in the
table above; and (v) $0.1 million in other miscellaneous expenses, included
 
as part of Other expenses in the table above.
 
●
Benefit from
 
hurricane-related expenses
 
insurance recoveries
 
recorded as
 
contra-expense in
 
2020 amounting
 
to $1.2 million,
primarily related to repairs and
 
maintenance expenses, included as
 
a contra expense of Occupancy
 
and equipment costs in the
table above.
On
 
a
 
non-GAAP
 
basis,
 
adjusted
 
non-interest
 
expenses,
 
excluding
 
the
 
effect
 
of
 
the
 
Special
 
Items
 
mentioned
 
above,
 
amounted
 
to
$459.6 million for 2021, compared
 
to $393.5 million for 2020.
 
The $66.1 million increase in adjusted
 
non-interest expenses primarily
reflects the effect of operations,
 
personnel, and branches acquired from
 
BSPR. Some of the most significant variances
 
in adjusted non-
interest expenses follows:
●
A
 
$25.1
 
million
 
increase
 
in
 
adjusted
 
employees’
 
compensation
 
and
 
benefit
 
expenses,
 
primarily
 
driven
 
by
 
incremental
expenses related to personnel retained from the acquisition of BSPR.
 
 
69
●
A
 
$17.9
 
million
 
increase
 
in
 
adjusted
 
occupancy
 
and
 
equipment
 
expenses,
 
primarily related
 
to
 
incremental
 
expenses
associated with
 
the BSPR
 
acquired
 
operations including,
 
among others,
 
depreciation, software
 
maintenance, electricity,
 
and
rental expenses.
 
●
A $7.2 million
 
increase in
 
adjusted professional
 
service fees,
 
including an
 
increase of
 
approximately $7.0
 
million related
 
to
temporary technology
 
processing costs of
 
the acquired BSPR
 
operations up
 
to the completion
 
of system conversions
 
early in
the third quarter
 
of 2021, and
 
a $0.7 million
 
increase in consulting
 
and legal fees.
 
These variances were,
 
partially offset
 
by a
$0.5 million decrease in attorneys’ collection fees, appraisals, and other credit-related
 
fees.
●
A $
9.6
 
million
 
increase
 
in adjusted
 
Other
 
non-interest
 
expense,
 
in
 
the table
 
above, including
 
a
 
$5.5
 
million increase
 
in
 
the
amortization
 
of
 
intangible
 
assets, primarily
 
associated
 
with
 
the
 
intangibles
 
assets
 
recognized
 
in
 
connection
 
with
 
the
 
BSPR
acquisition,
 
and
 
a
 
$2.8
 
million
 
increase
 
in
 
insurance
 
and
 
supervisory
 
expenses,
 
primarily
 
associated
 
with
 
higher
 
costs
 
on
insurance policies.
●
A
 
$4.4
 
million
 
increase
 
in
 
adjusted
 
taxes,
 
other
 
than
 
income
 
taxes
 
expenses,
 
primarily
 
related
 
to
 
incremental
 
municipal
license taxes and property taxes of the acquired operations.
 
●
A $3.6
 
million increase
 
in adjusted
 
business promotion
 
expenses, primarily
 
related to
 
a $2.4
 
million increase
 
in advertising,
marketing, and public relations activities, and a $1.1 million increase in the
 
cost of the credit card rewards program.
●
A
 
$3.0
 
million
 
increase
 
in
 
credit
 
and
 
debit
 
card
 
processing
 
expenses, primarily
 
related
 
to
 
incremental
 
expenses
 
of
 
the
acquired
 
operations
 
and higher
 
transaction volumes
 
due to
 
the effect
 
of the
 
COVID-19 pandemic
 
on economic
 
activity last
year.
●
A
 
$1.0
 
million
 
increase
 
in
 
communication
 
expenses, primarily
 
related
 
to
 
incremental
 
expenses
 
on
 
telephone,
 
data,
 
and
postage related to the acquired operations.
The above-described increases were
 
partially offset by a $5.8
 
million decrease in the net
 
loss on OREO operations, primarily
 
due to
higher realized gains on sales of residential and commercial OREO properties.
70
Income Taxes
Income
 
tax
 
expense
 
includes
 
Puerto
 
Rico
 
and
 
USVI
 
income
 
taxes,
 
as
 
well
 
as
 
applicable
 
U.S.
 
federal
 
and
 
state
 
taxes.
 
The
Corporation
 
is
 
subject
 
to
 
Puerto
 
Rico
 
income
 
tax
 
on
 
its
 
income
 
from
 
all
 
sources.
 
As
 
a
 
Puerto
 
Rico
 
corporation,
 
First
 
BanCorp.
 
is
treated
 
as
 
a
 
foreign
 
corporation
 
for
 
U.S.
 
and
 
USVI
 
income
 
tax
 
purposes
 
and,
 
accordingly,
 
is
 
generally
 
subject
 
to
 
U.S.
 
and
 
USVI
income tax only
 
on its income
 
from sources
 
within the U.S.
 
and USVI or
 
income effectively
 
connected with
 
the conduct of
 
a trade or
business in
 
those jurisdictions.
 
Any such
 
tax paid
 
in the
 
U.S. and
 
USVI is
 
also creditable
 
against the
 
Corporation’s
 
Puerto Rico
 
tax
liability, subject to certain
 
conditions and limitations.
Under the
 
Puerto Rico Internal
 
Revenue Code
 
of 2011,
 
as amended (the
 
“2011 PR
 
Code”), the
 
Corporation and
 
its subsidiaries are
treated
 
as
 
separate
 
taxable
 
entities
 
and
 
are
 
not
 
entitled
 
to
 
file
 
consolidated
 
tax
 
returns
 
and,
 
thus,
 
the
 
Corporation
 
is
 
generally
 
not
entitled to utilize
 
losses from one
 
subsidiary to offset
 
gains in another
 
subsidiary.
 
Accordingly,
 
in order to
 
obtain a tax
 
benefit from
 
a
NOL, a
 
particular subsidiary
 
must be
 
able to
 
demonstrate sufficient
 
taxable income
 
within the
 
applicable NOL
 
carry-forward period.
Pursuant to
 
the 2011
 
PR Code, the
 
carry-forward period
 
for NOLs incurred
 
during taxable years
 
that commenced
 
after December
 
31,
2004 and ended before January 1, 2013 is 12 years;
 
for NOLs incurred during taxable years commencing after
 
December 31, 2012, the
carryover
 
period
 
is
 
10
 
years.
 
The
 
2011
 
PR
 
Code
 
provides
 
a
 
dividend
 
received
 
deduction
 
of
 
100%
 
on
 
dividends
 
received
 
from
“controlled” subsidiaries subject to taxation in Puerto Rico and 85% on
 
dividends received from other taxable domestic corporations.
The
 
Corporation
 
has
 
maintained
 
an
 
effective
 
tax
 
rate
 
lower
 
than
 
the
 
maximum
 
statutory
 
rate
 
of
 
37.5%
 
mainly
 
by
 
investing
 
in
government
 
obligations
 
and
 
MBS
 
exempt
 
from
 
U.S.
 
and
 
Puerto
 
Rico
 
income
 
taxes
 
and
 
by doing
 
business
 
through
 
an
 
International
Banking Entity
 
(“IBE”) unit
 
of the Bank,
 
and through
 
the Bank’s
 
subsidiary,
 
FirstBank Overseas Corporation,
 
whose interest income
and gains on sales is
 
exempt from Puerto
 
Rico income taxation. The
 
IBE unit and FirstBank Overseas
 
Corporation were created under
the
 
International
 
Banking
 
Entity
 
Act
 
of
 
Puerto
 
Rico,
 
which provides
 
for
 
total
 
Puerto
 
Rico
 
tax
 
exemption
 
on net
 
income derived
 
by
IBEs operating in Puerto Rico on the specific activities
 
identified in the IBE Act. An IBE that operates
 
as a unit of a bank pays income
taxes at the corporate standard rates to the extent that the IBE’s
 
net income exceeds 20% of the bank’s
 
total net taxable income.
The CARES
 
Act of
 
2020 includes
 
several provisions
 
to stimulate
 
the U.S.
 
economy in
 
the midst
 
of the
 
COVID-19 pandemic.
 
The
CARES Act
 
of 2020
 
includes tax
 
provisions that
 
temporarily modified
 
the taxable
 
income limitations
 
for NOL
 
usage to
 
offset future
taxable income, NOL
 
carryback provisions and other
 
related income and
 
non-income based tax
 
laws. Due to the
 
fact that the COVID-
19
 
pandemic
 
is still
 
ongoing,
 
the
 
federal
 
government
 
extended
 
some
 
of
 
the
 
benefits
 
and
 
continued
 
the
 
economic
 
stimulus
 
from
 
the
CARES Act of 2020. The Corporation
 
has evaluated such provisions and determined
 
that the impact of the CARES Act on
 
the income
tax provision and deferred tax assets as of December 31, 2021 was not significant.
For
 
the
 
year
 
ended
 
December
 
31,
 
2021,
 
the
 
Corporation
 
recorded
 
an
 
income
 
tax
 
expense
 
of
 
$146.8
 
million
 
compared
 
to
 
$14.1
million
 
for
 
2020.
 
The variances
 
were
 
primarily
 
related
 
to higher
 
pre-tax
 
income driven
 
by credit
 
losses reserve
 
releases in
 
the
 
year
ended
 
December
 
31,
 
2021,
 
compared
 
to
 
significant
 
charges
 
to
 
the
 
provision
 
recorded
 
during
 
2020,
 
and
 
a
 
higher
 
level
 
of
 
taxable
income. The
 
Corporation’s
 
effective tax
 
rate for
 
2021, excluding
 
entities from
 
which a
 
tax benefit
 
cannot be
 
recognized and
 
discrete
items,
 
increased
 
to
 
33.9%,
 
compared
 
to
 
17%
 
for
 
2020.
 
The
 
income
 
tax
 
expense
 
reported
 
in
 
2020
 
was
 
net
 
of
 
the
 
effect
 
of
 
an
 
$8.0
million partial
 
reversal of the
 
Corporation’s
 
deferred tax
 
asset valuation
 
allowance recorded after
 
consideration of
 
significant positive
evidence on the utilization of NOLs due to the acquisition of BSPR.
Total
 
deferred
 
tax
 
assets
 
of
 
FirstBank,
 
the
 
banking
 
subsidiary,
 
amounted
 
to
 
$208.4
 
million
 
as
 
of
 
December
 
31,
 
2021,
 
net
 
of
 
a
valuation
 
allowance
 
of
 
$69.7 million,
 
compared
 
to
 
total deferred
 
tax asset
 
of
 
$329.1
 
million,
 
net
 
of
 
a
 
valuation
 
allowance
 
of
 
$59.9
million, as
 
of December
 
31, 2020.
 
The decrease
 
in deferred
 
tax assets
 
was mainly
 
driven by
 
the aforementioned
 
credit losses reserve
releases
 
and
 
the
 
usage
 
of
 
net
 
operating
 
losses.
 
The
 
increase
 
in
 
the
 
valuation
 
allowance
 
was
 
primarily
 
related
 
to
 
the
 
change
 
in
 
the
market
 
value
 
of
 
available-for-sale
 
securities.
 
The
 
Corporation
 
maintains
 
a
 
full
 
valuation
 
allowance
 
for
 
its
 
deferred
 
tax
 
assets
associated
 
with
 
capital
 
losses
 
carry
 
forward.
 
Therefore,
 
changes
 
in
 
the
 
unrealized
 
losses
 
of
 
available-for-sale
 
securities
 
result
 
in
 
a
change in the deferred tax asset and an equal change in the valuation allowance
 
without having an effect on earnings.
After completion
 
of the deferred
 
tax asset
 
valuation allowance
 
analysis for
 
the fourth
 
quarter of
 
2021 management
 
concluded that,
as of
 
December 31,
 
2021, it
 
is more
 
likely than
 
not that
 
FirstBank, will
 
generate sufficient
 
taxable income
 
to realize
 
$66.3 million
 
of
its deferred tax assets related to NOLs within the applicable carry-forward
 
periods.
The
 
positive evidence
 
considered
 
by management
 
in arriving
 
at its
 
conclusion
 
includes factors
 
such as:
 
(i) FirstBank’s
 
three-year
cumulative
 
income
 
position;
 
(ii)
 
sustained
 
periods
 
of
 
profitability;
 
(iii)
 
management’s
 
proven
 
ability
 
to
 
forecast
 
future
 
income
accurately
 
and
 
execute
 
tax
 
strategies;
 
(iv)
 
forecasts
 
of
 
future
 
profitability
 
under
 
several
 
potential
 
scenarios
 
that
 
support
 
the
 
partial
utilization of
 
NOLs prior
 
to their
 
expiration from
 
2022 through
 
2024; (v)
 
and the
 
utilization of
 
NOLs over
 
the past
 
three-years.
 
The
negative
 
evidence
 
considered
 
by
 
management
 
includes
 
uncertainties
 
around
 
the
 
state
 
of
 
the
 
Puerto
 
Rico
 
economy,
 
including
considerations on
 
the impact of
 
the pandemic recovery
 
funds together with
 
the ultimate sustainability
 
of the latest
 
fiscal plan certified
by the PROMESA oversight board.
71
Management’s
 
estimate
 
of
 
future
 
taxable
 
income
 
is
 
based
 
on
 
internal
 
projections
 
that
 
consider
 
historical
 
performance,
 
multiple
internal scenarios and
 
assumptions, as well as
 
external data that
 
management believes is
 
reasonable. If events
 
are identified that affect
the Corporation’s
 
ability to utilize
 
its deferred tax
 
assets, the analysis
 
will be updated
 
to determine if
 
any adjustments to
 
the valuation
allowance
 
are
 
required.
 
If
 
actual
 
results
 
differ
 
significantly
 
from
 
the
 
current
 
estimates
 
of
 
future
 
taxable
 
income,
 
even
 
if
 
caused
 
by
adverse
 
macro-economic
 
conditions,
 
the
 
remaining
 
valuation
 
allowance
 
may
 
need
 
to
 
be
 
increased.
 
Such
 
an
 
increase
 
could
 
have
 
a
material
 
adverse
 
effect
 
on
 
the
 
Corporation’s
 
financial
 
condition
 
and
 
results
 
of
 
operations.
 
Conversely,
 
a
 
higher
 
than
 
projected
proportion
 
of
 
taxable
 
income to
 
exempt
 
income
 
could
 
lead to
 
a
 
higher
 
usage
 
of
 
available NOLs
 
and
 
a
 
lower
 
amount of
 
disallowed
NOLs from projected
 
levels of tax-exempt income,
 
per the 2011
 
PR code, which in
 
turn could result in
 
further releases to the
 
deferred
tax valuation
 
allowance; any
 
such decreases
 
could have
 
a material positive
 
effect on
 
the Corporation’s
 
financial condition
 
and results
of operations.
As of December
 
31, 2021, approxima
 
tely $177.9 million
 
of the deferred
 
tax assets of
 
the Corporation
 
are attributable to
 
temporary
differences or tax credit
 
carryforwards that have no expiration date,
 
compared to $210.7 million in the
 
year ended December 31, 2020.
The
 
valuation
 
allowance
 
attributable
 
to
 
FirstBank’s
 
deferred
 
tax
 
assets
 
of
 
$69.7
 
million
 
as
 
of
 
December
 
31,
 
2021
 
is
 
related
 
to
 
the
estimated
 
NOL
 
disallowance
 
attributable
 
to
 
projected
 
levels
 
of
 
tax-exempt
 
income,
 
NOLs
 
attributable
 
to
 
the
 
Virgin
 
Islands
jurisdiction,
 
and
 
capital
 
losses. The
 
remaining
 
balance
 
of $37.6
 
million
 
of
 
the
 
Corporation’s
 
deferred
 
tax
 
asset valuation
 
allowance
non-attributable to FirstBank is mainly related to NOLs and capital
 
losses at the holding company level. The Corporation will continue
to
 
provide
 
a
 
valuation
 
allowance
 
against
 
its
 
deferred
 
tax
 
assets
 
in
 
each
 
applicable
 
tax
 
jurisdiction
 
until
 
the
 
need
 
for
 
a
 
valuation
allowance is eliminated.
 
The need for
 
a valuation allowance
 
is eliminated when
 
the Corporation determines
 
that it is
 
more likely than
not the
 
deferred tax
 
assets will
 
be realized.
 
The ability
 
to recognize
 
the remaining
 
deferred tax
 
assets that
 
continue to
 
be subject
 
to a
valuation allowance
 
will be evaluated
 
on a quarterly
 
basis to determine
 
if there are
 
any significant events
 
that would affect
 
the ability
to utilize these deferred tax assets.
The Corporation
 
has U.S.
 
and USVI
 
sourced NOL
 
carryforwards. Section
 
382 of
 
the U.S.
 
Internal Revenue
 
Code (“Section
 
382”)
limits the ability
 
to utilize U.S. and
 
USVI NOLs for income
 
tax purposes in
 
such jurisdictions following
 
an event that is considered
 
to
be an “ownership change.”
 
Generally, an
 
“ownership change” occurs when
 
certain shareholders increase their
 
aggregate ownership by
more
 
than
 
50
 
percentage
 
points
 
over
 
their
 
lowest
 
ownership
 
percentage
 
over
 
a
 
three-year
 
testing
 
period.
 
Upon
 
the
 
occurrence
 
of
 
a
Section 382
 
ownership change,
 
the use
 
of NOLs
 
attributable to
 
the period
 
prior to
 
the ownership
 
change is
 
subject to
 
limitations and
only a portion of the U.S. and USVI NOLs may be used by the Corporation
 
to offset its annual U.S. and USVI taxable income, if any.
In
 
2017,
 
the
 
Corporation
 
completed
 
a
 
formal
 
ownership
 
change
 
analysis
 
within
 
the
 
meaning
 
of
 
Section
 
382
 
covering
 
a
comprehensive
 
period
 
and
 
concluded
 
that
 
an
 
ownership
 
change
 
had
 
occurred
 
during
 
such
 
period.
 
The
 
Section
 
382
 
limitation
 
has
resulted
 
in
 
higher
 
U.S.
 
and
 
USVI
 
income
 
tax
 
liabilities
 
than
 
we
 
would
 
have
 
incurred
 
in
 
the
 
absence
 
of
 
such
 
limitation.
 
The
Corporation has mitigated to an extent the adverse effects
 
associated with the Section 382 limitation as any such tax paid in
 
the U.S. or
USVI is
 
creditable against
 
Puerto Rico
 
tax liabilities
 
or taken
 
as a
 
deduction against
 
taxable income.
 
However,
 
our ability
 
to reduce
our
 
Puerto
 
Rico
 
tax
 
liability
 
through
 
such
 
a
 
credit
 
or
 
deduction
 
depends
 
on
 
our
 
tax
 
profile
 
at
 
each
 
annual
 
taxable
 
period,
 
which
 
is
dependent
 
on
 
various
 
factors.
 
For
 
2021,
 
2020
 
and
 
2019,
 
the
 
Corporation
 
incurred
 
an
 
income
 
tax
 
expense
 
of
 
approximately
 
$6.8
million, $4.9 million,
 
and $4.5 million,
 
respectively,
 
related to its U.S.
 
operations.
 
The limitation did not
 
impact the USVI operations
in 2021, 2020, and 2019.
 
The Corporation
 
accounts for uncertain
 
tax positions under
 
the provisions
 
of ASC Topic
 
740. The Corporation’s
 
policy is to
 
report
interest and penalties
 
related to unrecognized
 
tax benefits in income
 
tax expense. As
 
of December 31,
 
2021, the Corporation
 
had $0.2
million of
 
accrued interest
 
and penalties
 
related to
 
uncertain tax
 
positions in
 
the amount
 
of $1.0
 
million that
 
it acquired
 
from BSPR,
which,
 
if recognized,
 
would decrease
 
the
 
effective
 
income tax
 
rate in
 
future
 
periods. The
 
amount
 
of
 
unrecognized
 
tax benefits
 
may
increase
 
or
 
decrease
 
in
 
the
 
future
 
for
 
various
 
reasons,
 
including
 
adding
 
amounts
 
for
 
current
 
tax
 
year
 
positions,
 
expiration
 
of
 
open
income
 
tax returns
 
due
 
to the
 
statute of
 
limitations,
 
changes
 
in management’s
 
judgment about
 
the level
 
of uncertainty,
 
the status
 
of
examinations,
 
litigation, and
 
legislative activity,
 
and the
 
addition or
 
elimination of
 
uncertain tax
 
positions. The
 
statute of
 
limitations
under the 2011
 
PR code is four years;
 
the statute of limitations for
 
U.S. and USVI income tax
 
purposes is three years after
 
a tax return
is due or filed, whichever
 
is later. The
 
completion of an audit by the
 
taxing authorities or the expiration
 
of the statute of limitations for
a
 
given
 
audit
 
period
 
could
 
result
 
in
 
an
 
adjustment
 
to
 
the
 
Corporation’s
 
liability
 
for
 
income
 
taxes.
 
Any
 
such
 
adjustment
 
could
 
be
material to the results of
 
operations for any given quarterly
 
or annual period based, in
 
part, upon the results of
 
operations for the given
period.
 
For U.S.
 
and USVI
 
income tax
 
purposes,
 
all tax
 
years subsequent
 
to 2017
 
remain open
 
to examination.
 
For Puerto
 
Rico tax
purposes, all tax years subsequent to 2016 remain open to examination.
72
OPERATING SEGMENTS
Based
 
upon
 
the
 
Corporation’s
 
organizational
 
structure
 
and
 
the
 
information
 
provided
 
to
 
the
 
Chief
 
Executive
 
Officer
 
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
 
December
 
31,
 
2021,
 
the
Corporation
 
had
 
six
 
reportable
 
segments:
 
Commercial
 
and
 
Corporate
 
Banking;
 
Consumer
 
(Retail)
 
Banking;
 
Mortgage
 
Banking;
Treasury
 
and Investments;
 
United States operations;
 
and Virgin
 
Islands operations.
 
Management determined
 
the reportable segments
based
 
on
 
the
 
internal
 
structure
 
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. For additional information regarding First BanCorp.’s
 
reportable
segments, please
 
refer to
 
Note 36
 
- Segment
 
Information, to
 
the audited
 
consolidated financial
 
statements included
 
in Item
 
8 of
 
this
Annual Report on Form 10-K.
The accounting policies of the segments are the same
 
as those described in Note 1 - Nature of
 
Business and Summary of Significant
Accounting
 
Policies,
 
to
 
the
 
audited
 
consolidated
 
financial
 
statements
 
included
 
in
 
Item
 
8
 
of
 
this Annual
 
Report
 
on
 
Form
 
10-K.
 
The
Corporation
 
evaluates
 
the
 
performance
 
of
 
the
 
segments
 
based
 
on
 
net
 
interest
 
income,
 
the
 
provision
 
for
 
credit
 
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
 
ACL.
 
For
 
the
 
years
 
ended
 
December
 
31,
 
2021
 
and
 
2020,
 
other
 
operating
 
expenses
 
not
 
allocated
 
to
 
a
 
particular
 
segment
amounted
 
to $192.2
 
million and
 
$165.4 million,
 
respectively.
 
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.
The
 
Treasury
 
and
 
Investments
 
segment
 
lends
 
funds
 
to
 
the
 
Consumer
 
(Retail)
 
Banking,
 
Mortgage
 
Banking,
 
Commercial
 
and
Corporate
 
Banking
 
and United
 
States operations
 
segments
 
to finance
 
their lending
 
activities and
 
borrows
 
from those
 
segments. The
Consumer
 
(Retail)
 
Banking
 
segment
 
also
 
lends
 
funds
 
to
 
other
 
segments.
 
The
 
Corporation
 
allocates
 
the
 
interest
 
rates
 
charged
 
or
credited by the
 
Treasury and
 
Investment and the
 
Consumer (Retail) Banking
 
segments 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.
Commercial and Corporate Banking
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.
 
FirstBank has
 
developed
 
expertise in
 
a wide
 
variety
 
of
industries.
 
The
 
Commercial
 
and
 
Corporate
 
Banking
 
segment
 
offers
 
commercial
 
loans,
 
including
 
commercial
 
real
 
estate
 
and
construction
 
loans, as
 
well as
 
other products,
 
such as
 
cash management
 
and business
 
management
 
services. A
 
substantial portion
 
of
the commercial
 
and corporate
 
banking portfolio
 
is secured
 
by the
 
underlying real
 
estate collateral
 
and the
 
personal guarantees
 
of the
borrowers. Since
 
commercial loans
 
involve greater
 
credit risk
 
than a
 
typical residential
 
mortgage loan
 
because they
 
are larger
 
in size
and
 
more
 
risk
 
is
 
concentrated
 
in
 
a
 
single
 
borrower,
 
the
 
Corporation
 
has
 
and
 
maintains
 
a
 
credit
 
risk
 
management
 
infrastructure
designed
 
to mitigate
 
potential losses
 
associated with
 
commercial lending,
 
including underwriting
 
and loan
 
review functions,
 
sales of
loan participations, and continuous monitoring of concentrations within
 
portfolios.
The highlights
 
of the
 
Commercial and
 
Corporate Banking
 
segment’s
 
financial results
 
for the
 
years ended
 
December 31,
 
2021
 
and
2020 include the following:
●
Segment
 
income
 
before
 
taxes
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021
 
increased
 
to
 
$239.3
 
million,
 
compared
 
to
 
$45.0
million for 2020, for the reasons discussed below.
●
Net
 
interest
 
income
 
for
 
the year
 
ended
 
December
 
31,
 
2021
 
was $191.9
 
million,
 
compared
 
to $135.6
 
million
 
for 2020.
 
The increase in net interest
 
income was primarily
 
attributable to the increase
 
in the average balance
 
of the loan portfolio,
driven by
 
the effect
 
of commercial
 
loans acquired
 
in conjunction
 
with the
 
BSPR acquisition,
 
and accelerated
 
PPP loans
fees recognized upon receipt of forgiveness payments from
 
the SBA in 2021.
 
●
For 2021, the provision for
 
credit losses was a net benefit
 
of $67.5 million net benefit,
 
compared to a net charge
 
of $74.6
million
 
for
 
2020.
 
The
 
net
 
benefit
 
recorded
 
in
 
2021
 
reflects
 
continued
 
improvements
 
in
 
the
 
long-term
 
outlook
 
of
forecasted macroeconomic
 
variables, primarily
 
in the commercial
 
real estate price
 
index, and
 
the overall
 
decrease in the
size
 
of
 
this
 
portfolio
 
in
 
the
 
Puerto
 
Rico
 
region.
 
The
 
charge
 
to
 
the
 
provision
 
in
 
2020
 
included
 
a
 
$13.8
 
million
 
charge
related to the
 
initial reserves required
 
for non-PCD commercial loans
 
acquired in conjunction
 
with the BSPR acquisition
and higher
 
reserve builds
 
reflecting the
 
effect of
 
the COVID-19
 
pandemic on
 
forecasted macroeconomic
 
variables used
in the Corporation’s CECL model.
 
73
●
Total
 
non-interest income
 
for the
 
year ended
 
December 31,
 
2021 amounted
 
to $16.0
 
million compared
 
to $12.6
 
million
for 2020.
 
The increase was mainly related to a $4.2 million increase in service charges
 
on deposits, primarily due to cash
management
 
fee income
 
from corporate
 
customers, partially
 
offset
 
by the
 
effect
 
in 2020
 
of fee
 
income of
 
$0.5 million
recorded in
 
connection with
 
participation interests
 
sold on Main
 
Street loans
 
originated in
 
the Puerto
 
Rico region,
 
and a
benefit of approxim
 
ately $0.8 million
 
related to the
 
portion of the
 
business interruption
 
insurance recoveries allocated
 
to
this operating segment.
 
●
Direct non-interest
 
expenses for
 
the year
 
ended December
 
31, 2021
 
were $36.2
 
million, compared
 
to $28.6
 
million for
2020. The increase primarily
 
reflects the effect
 
of incremental expenses
 
related to the acquired
 
commercial operations of
BSPR, primarily employees’ compensation and professional service fees related
 
to this operating segment.
 
Consumer (Retail) Banking
The
 
Consumer
 
(Retail)
 
Banking
 
segment
 
consists
 
of
 
the
 
Corporation’s
 
consumer
 
lending
 
and
 
deposit-taking
 
activities
 
conducted
mainly
 
through
 
FirstBank’s
 
branch
 
network
 
and
 
loan
 
centers
 
in
 
Puerto
 
Rico.
 
Loans
 
to
 
consumers
 
include
 
auto,
 
boat,
 
and
 
personal
loans, credit
 
card loans,
 
and lines
 
of credit.
 
Deposit products
 
include interest-bearing
 
and non-interest
 
bearing checking
 
and savings
accounts, individual
 
retirement accounts
 
(“IRAs”), and
 
retail CDs.
 
Retail deposits
 
gathered through
 
each branch
 
of FirstBank’s
 
retail
network serve as one of the funding sources for the lending and investment
 
activities.
Consumer lending
 
historically has
 
been mainly
 
driven by
 
auto loan
 
originations. The
 
Corporation follows
 
a strategy
 
of seeking
 
to
provide outstanding service to selected auto dealers that provide the
 
channel for the bulk of the Corporation’s
 
auto loan originations.
 
Personal
 
loans, credit
 
cards,
 
and,
 
to a
 
lesser extent,
 
boat
 
loans also
 
contribute
 
to interest
 
income
 
generated
 
on consumer
 
lending.
Management
 
plans
 
to
 
continue
 
to
 
be
 
active
 
in
 
the
 
consumer
 
loan
 
market,
 
applying
 
the
 
Corporation’s
 
strict
 
underwriting
 
standards.
Other activities included in this segment are finance leases and insurance
 
activities in Puerto Rico.
The
 
highlights
 
of
 
the
 
Consumer
 
(Retail)
 
Banking
 
segment’s
 
financial
 
results
 
for
 
the
 
years
 
ended
 
December
 
31,
 
2021
 
and
 
2020
include the following:
●
Segment
 
income
 
before
 
taxes
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021
 
increased
 
to
 
$165.8
 
million,
 
compared
 
to
 
$86.4
million for 2020, for the reasons discussed below.
●
Net
 
interest
 
income
 
for
 
the year
 
ended
 
December
 
31,
 
2021
 
was $281.7
 
million,
 
compared
 
to $220.7
 
million
 
for 2020.
 
The
 
increase
 
was
 
mainly
 
due
 
to
 
an
 
increase
 
in
 
the
 
average
 
volume
 
of
 
consumer
 
loans
 
in
 
Puerto
 
Rico
 
that
 
reflects
 
the
effect of
 
both consumer
 
loans acquired
 
in conjunction
 
with the
 
BSPR acquisition
 
and organic
 
growth, as
 
well as
 
higher
income
 
from
 
funds
 
loaned
 
to
 
other
 
business
 
segments
 
due
 
to
 
the
 
growth
 
in
 
non-brokered
 
deposits,
 
mainly
 
demand
deposits, that, among other things, served as a funding source for lending activities
 
of other operating segments.
●
The
 
provision
 
for
 
credit
 
losses
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021
 
decreased
 
by
 
$33.8
 
million
 
to
 
$20.3
 
million,
compared to
 
$54.1 million
 
for the year
 
ended
 
December 31,
 
2020. The
 
decrease reflects
 
the effect
 
of significant
 
reserve
builds in
 
2020 due
 
to the
 
deterioration of
 
the macroeconomic
 
outlook as
 
a result
 
of the
 
COVID-19 pandemic
 
primarily
reflected
 
in
 
auto
 
loans,
 
finance
 
leases,
 
and
 
credit
 
card
 
loans,
 
as
 
well
 
as
 
the
 
effect
 
in
 
2020
 
of
 
the
 
$10.1
 
million
 
Day 1
provision recorded for non-PCD consumer loans acquired in conjunction
 
with the BSPR acquisition.
 
●
Non-interest income for the
 
year ended December 31, 2021
 
was $69.8 million, compared
 
to $51.0 million for 2020.
 
The
increase was
 
primarily
 
related to
 
a $6.4
 
million increase
 
in service
 
charges
 
on deposits
 
primarily
 
related to
 
the income
generated
 
by
 
the
 
acquired
 
BSPR
 
operations,
 
as
 
well
 
as
 
an
 
increase
 
in
 
the
 
monthly
 
service
 
fee
 
charged
 
on
 
certain
checking
 
and
 
savings
 
products.
 
In
 
addition,
 
transaction
 
fee
 
income
 
from
 
credit
 
and
 
debit
 
cards
 
and
 
merchant-related
activities
 
increased
 
by
 
$9.9
 
million,
 
and
 
insurance
 
commission
 
income
 
in
 
Puerto
 
Rico
 
increased
 
by
 
$2.4
 
million,
primarily
 
related
 
to an
 
increased customer
 
activity as
 
compared
 
to year
 
2020 that
 
was adversely
 
affected
 
by pandemic
stay-at-home orders
 
and related interruptions.
 
These variances were
 
partially offset
 
by the effect
 
in 2020 of
 
a benefit of
approximately
 
$2.4
 
million
 
related
 
to
 
the
 
portion
 
of
 
the
 
business
 
interruption
 
insurance
 
recoveries
 
allocated
 
to
 
this
operating segment.
●
Direct non-interest expenses for
 
the year ended December
 
31, 2021 were $165.4 million,
 
compared to $131.1 million
 
for
2020.
 
The
 
increase
 
was
 
primarily
 
due
 
to
 
incremental
 
expenses
 
related
 
to
 
the
 
acquired
 
operations
 
of
 
BSPR,
 
primarily
employees’
 
compensation,
 
occupancy
 
and
 
equipment,
 
temporary
 
technology
 
processing
 
costs,
 
credit
 
and
 
debit
 
cards
processing fees, municipal taxes and core deposit intangible amortization
 
related to this operating segment.
 
74
Mortgage Banking
The
 
Mortgage
 
Banking
 
segment
 
conducts
 
its
 
operations
 
mainly
 
through
 
FirstBank.
 
The
 
segment’s
 
operations
 
consist
 
of
 
the
origination, sale, and
 
servicing of a variety
 
of residential mortgage loan
 
products. Originations are
 
sourced through different
 
channels,
such
 
as
 
FirstBank
 
branches
 
and
 
purchases
 
from
 
mortgage
 
bankers,
 
and
 
in
 
association
 
with
 
new
 
project
 
developers.
 
The
 
mortgage
banking segment
 
focuses on
 
originating
 
residential real
 
estate loans,
 
some of
 
which conform
 
to the
 
Federal Housing
 
Administration
(the
 
“FHA”),
 
the
 
Veterans
 
Administration
 
(the
 
“
VA
”),
 
and
 
U.S.
 
Department
 
of
 
Agriculture
 
Rural
 
Development
 
(“RD”)
 
standards.
Loans originated that meet
 
the FHA’s
 
standards qualify for
 
the FHA’s
 
insurance program whereas loans
 
that meet the standards
 
of the
VA
or the U.S. Department of Agriculture Rural Development (“RD”) are
 
guaranteed by their respective federal agencies.
Mortgage
 
loans that
 
do not
 
qualify under
 
the FHA,
 
VA,
 
or RD
 
programs
 
are referred
 
to as
 
conventional
 
loans. Conventional
 
real
estate loans can
 
be conforming or
 
non-conforming.
 
Conforming loans are
 
residential real estate
 
loans that meet
 
the standards for
 
sale
under
 
the
 
U.S.
 
Federal
 
National
 
Mortgage
 
Association
 
(“FNMA”)
 
and
 
the
 
U.S.
 
Federal
 
Home
 
Loan
 
Mortgage
 
Corporation
(“FHLMC”) programs.
 
Loans that
 
do not
 
meet FNMA
 
or FHLMC
 
standards are
 
referred to
 
as non-conforming
 
residential real
 
estate
loans. The
 
Corporation’s
 
strategy is
 
to penetrate
 
markets by
 
providing customers
 
with a
 
variety of
 
high quality
 
mortgage products
 
to
serve
 
their
 
financial
 
needs
 
through
 
a
 
faster
 
and
 
simpler
 
process
 
and
 
at
 
competitive
 
prices.
 
The
 
Mortgage
 
Banking
 
segment
 
also
acquires and
 
sells mortgages
 
in the
 
secondary markets.
 
Residential real
 
estate conforming
 
loans are
 
sold to
 
investors like
 
FNMA and
FHLMC.
 
The Corporation has commitment authority to issue GNMA MBS.
The highlights
 
of the
 
Mortgage Banking
 
segment’s
 
financial results
 
for the
 
years ended
 
December 31,
 
2021 and
 
2020 include
 
the
following:
●
Segment
 
income
 
before
 
taxes
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021
 
increased
 
to
 
$115.8
 
million,
 
compared
 
to
 
$42.5
million for 2020, for the reasons discussed below.
●
Net interest income for
 
the year ended December
 
31, 2021 was $104.6
 
million, compared to
 
$76.0 million for 2020.
 
The
increase in
 
net interest
 
income was
 
mainly due
 
to both
 
the increase
 
in the
 
average balance
 
of residential
 
mortgage loans
in the Puerto
 
Rico region driven
 
by residential mortgage
 
loans acquired in
 
conjunction with the
 
BSPR acquisition, and
 
a
decrease in the
 
cost of funds borrowed
 
from other segments
 
resulting from overall
 
lower short-term market
 
interest rates
as compared to 2020 overall levels.
 
●
The provision
 
for credit losses
 
for 2021
 
was a net
 
benefit of $16.0
 
million, compared
 
to an expense
 
of $22.5 million
 
for
2020.
 
The
 
net
 
benefit
 
recorded
 
in
 
2021
 
reflects
 
the
 
effect
 
of
 
reserve
 
releases
 
associated
 
with
 
both
 
continued
improvements
 
in
 
the
 
long-term
 
outlook
 
of
 
macroeconomic
 
variables,
 
such
 
as
 
regional
 
unemployment
 
rates
 
and
 
Home
Price
 
Index,
 
and
 
the
 
overall
 
portfolio
 
decrease.
 
The
 
significant
 
reserve
 
builds
 
in
 
the
 
prior
 
year
 
were
 
due
 
to
 
the
deterioration of the
 
macroeconomic outlook
 
as a result
 
of the COVID-19
 
pandemic and a
 
$13.6 million Day
 
1 provision
recorded for non-PCD residential mortgage loans acquired in conjunction
 
with the BSPR acquisition.
 
●
Non-interest income for the
 
year ended December 31, 2021
 
was $24.3 million, compared
 
to $22.1 million for 2020.
 
The
increase
 
was mainly
 
due
 
to a
 
$1.5
 
million
 
increase
 
in service
 
fee income
 
and
 
a $1.9
 
million increase
 
in realized
 
gains
from sales of
 
residential mortgage
 
loans.
 
These variances were
 
partially offset
 
by the effect
 
in 2020 of
 
a benefit of
 
$0.7
million related to the portion of the business interruption insurance
 
recoveries allocated to this operating segment.
 
●
Direct non-interest
 
expenses for
 
the year
 
ended December
 
31, 2021
 
were $29.1
 
million, compared
 
to $33.1
 
million for
2020.
 
The decrease
 
was
 
mainly
 
related
 
to a
 
$5.4
 
million decrease
 
in losses
 
on
 
OREO operations,
 
primarily
 
related
 
to
higher
 
gains realized
 
on
 
the sale
 
of residential
 
OREO properties,
 
partially
 
offset
 
by the
 
effect
 
of incremental
 
expenses
related to the acquired operations of BSPR, primarily employees’ compensation
 
related to this operating segment.
Treasury and
 
Investments
The
 
Treasury
 
and
 
Investments
 
segment
 
is
 
responsible
 
for
 
the
 
Corporation’s
 
treasury
 
and
 
investment
 
management
 
functions.
 
The
treasury function, which
 
includes funding and
 
liquidity management, lends
 
funds to the
 
Commercial and Corporate
 
Banking segment,
the Mortgage
 
Banking segment,
 
the Consumer
 
(Retail) Banking
 
segment,
 
and the
 
United States
 
operations
 
segment
 
to finance
 
their
respective lending
 
activities and
 
borrows from
 
those segments.
 
The Treasury
 
function also
 
obtains funds
 
through brokered
 
deposits,
advances from the FHLB, and repurchase agreements involving investment
 
securities, among other possible funding sources.
The investment function is intended to implement a leverage strategy
 
for the purposes of liquidity management, interest rate risk
management and earnings enhancement.
The interest rates charged or credited by Treasury
 
and Investments are based on market rates.
75
The
 
highlights
 
of
 
the
 
Treasury
 
and
 
Investments
 
segment’s
 
financial
 
results
 
for
 
the
 
years
 
ended
 
December
 
31,
 
2021
 
and
 
2020
include the following:
●
Segment
 
income
 
before
 
taxes
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021
 
decreased
 
to
 
$55.6
 
million,
 
compared
 
to
 
$95.4
million for 2020, for the reasons discussed below.
●
Net interest
 
income for
 
the year ended
 
December 31,
 
2021 was $59.
 
3
 
million, compared
 
to net
 
interest income
 
of $87.9
million for 2020.
 
The decrease was mainly related
 
to lower income from funds
 
loaned to other business segments
 
due to
a higher proportion
 
of the lending
 
activities of other
 
operating segments being
 
funded by the
 
growth in demand
 
deposits
of the
 
Consumer
 
(Retail) Banking
 
operating
 
segment,
 
partially offset
 
by the
 
overall
 
increase in
 
the average
 
balance
 
of
U.S. agencies MBS and debt securities.
 
●
Non-interest income
 
for the
 
year ended
 
December 31,
 
2021 amounted
 
to $0.2
 
million, compared
 
to non-interest
 
income
of
 
$13.7
 
million
 
for
 
2020.
 
The
 
variance
 
primarily
 
reflects
 
the
 
effect
 
of
 
the
 
$13.2
 
million
 
gain
 
realized
 
on
 
sales
 
of
available-for-sale investment securities in 2020.
 
●
Direct non-interest expenses
 
for 2021 were $4.1
 
million, compared to $3.4
 
million for 2020.
 
The increase was primarily
reflected in employees’ compensation expense and professional service
 
fees.
United States Operations
The
 
United
 
States Operations
 
segment
 
consists of
 
all banking
 
activities conducted
 
by FirstBank
 
on
 
the U.S.
 
mainland.
 
FirstBank
provides
 
a
 
wide
 
range
 
of
 
banking
 
services
 
to
 
individual
 
and
 
corporate
 
customers
 
primarily
 
in
 
southern
 
Florida
 
through
 
11
 
banking
branches.
 
The United
 
States Operations
 
segment
 
offers
 
an array
 
of both
 
consumer and
 
commercial
 
banking products,
 
and
 
services.
Consumer banking
 
products include
 
checking, savings
 
and money
 
market accounts,
 
retail CDs,
 
internet banking
 
services, residential
mortgages, and
 
home equity
 
loans and
 
lines of
 
credit. Retail
 
deposits, as
 
well as
 
FHLB advances
 
and brokered
 
CDs, allocated
 
to this
operation serve as funding sources for its lending activities.
The commercial banking services include
 
checking, savings and money market
 
accounts, retail CDs, internet banking services,
 
cash
management services, remote data capture,
 
and automated clearing house, or ACH, transactions.
 
Loan products include the traditional
commercial and industrial (“C&I”) and commercial real estate products,
 
such as lines of credit, term loans, and construction loans.
The highlights of the
 
United States operations segment’s
 
financial results for the years
 
ended December 31, 2021 and
 
2020, include
the following:
●
Segment
 
income
 
before
 
taxes
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021
 
increased
 
to
 
$37.0
 
million,
 
compared
 
to
 
$12.3
million for 2020, for the reasons discussed below.
●
Net interest income
 
for the year
 
ended December 31,
 
2021 was $66.0
 
million, compared to
 
$54.0 million for
 
2020.
 
The
increase was mainly due
 
to a decrease in interest
 
expense associated with lower
 
average volumes of FHLB
 
advances and
brokered
 
CDs
 
allocated
 
to
 
this
 
operating
 
segment,
 
as
 
well
 
as
 
accelerated
 
PPP
 
loan
 
fees
 
recognized
 
upon
 
receipt
 
of
forgiveness
 
payments
 
from
 
SBA
 
in
 
2021.
 
These
 
variances
 
more
 
than
 
offset
 
the
 
effect
 
of
 
the
 
downward
 
repricing
 
of
variable-rate commercial and construction loans due to lower prevailing market
 
interest rates during 2021.
 
●
For 2021, the
 
provision for
 
credit losses was
 
a net benefit
 
of $1.0 million,
 
compared to a
 
net charge
 
of $12.6 million
 
for
2020.
 
The
 
net
 
benefit
 
recorded
 
in
 
2021,
 
reflects
 
continued
 
improvements
 
in
 
the
 
long-term
 
outlook
 
of
 
forecasted
macroeconomic variables,
 
primarily in the
 
commercial real estate
 
price index,
 
and the overall
 
decrease in the
 
size of the
residential portfolio
 
in this
 
operating segment.
 
The significant
 
reserves builds
 
in the
 
prior year
 
reflects the
 
effect of
 
the
COVID-19 pandemic on forecasted macroeconomic variables used in
 
the Corporation’s CECL model.
●
Total non
 
-interest income for the year
 
ended December 31, 2021
 
amounted to $4.0 million,
 
compared to $4.6 million
 
for
2020.
 
The decrease was primarily related to
 
the effect in 2020 of fee
 
income of $1.0 million recorded in connection
 
with
the
 
sale
 
of
 
the
 
95%
 
participation
 
interests
 
in
 
Main
 
Street
 
loans
 
originated
 
in
 
2020,
 
partially
 
offset
 
by
 
a
 
$0.3
 
million
increase in service fee income.
●
Direct non-interest
 
expenses for
 
the year
 
ended December
 
31, 2021
 
were $33.9
 
million, compared
 
to $33.8
 
million for
2020.
 
The
 
increase
 
was
 
mainly
 
due
 
to
 
a
 
decrease
 
in
 
deferred
 
loan
 
origination
 
costs,
 
including
 
the
 
effect
 
of
 
a
 
lower
volume of SBA
 
PPP loans originated
 
in 2021, partially
 
offset by a
 
decrease in professional
 
service fees and
 
in the FDIC
insurance premium expense allocated to this segment.
76
Virgin
 
Islands Operations
The Virgin
 
Islands Operations
 
segment consists
 
of all
 
banking activities
 
conducted by
 
FirstBank in
 
the USVI
 
and BVI,
 
including
consumer
 
and commercial
 
banking
 
services,
 
with
 
a total
 
of eight
 
banking
 
branches
 
currently
 
serving
 
the islands
 
in
 
the USVI
 
of St.
Thomas,
 
St.
 
Croix,
 
and
 
St.
 
John,
 
and
 
the
 
island
 
of
 
Tortola
 
in
 
the
 
BVI.
 
The
 
Virgin
 
Islands
 
Operations
 
segment
 
is
 
driven
 
by
 
its
consumer, commercial lending, and deposit
 
-taking activities.
 
Loans
 
to
 
consumers
 
include
 
auto
 
and
 
boat
 
loans,
 
lines
 
of
 
credit,
 
and
 
personal
 
and
 
residential
 
mortgage
 
loans.
 
Deposit
 
products
include
 
interest-bearing
 
and
 
non-interest-bearing
 
checking
 
and
 
savings
 
accounts,
 
IRAs,
 
and
 
retail
 
CDs.
 
Retail
 
deposits
 
gathered
through each branch serve as the funding sources for its own lending activities.
The
 
highlights
 
of
 
the
 
Virgin
 
Islands
 
operations’
 
financial
 
results
 
for
 
the
 
years
 
ended
 
December
 
31,
 
2021
 
and
 
2020
 
include
 
the
following:
●
Segment income before
 
taxes for the year
 
ended December 31, 2021
 
increased to $6.5 million,
 
compared to $0.2 million
for 2020, for the reasons discussed below.
●
Net interest income
 
for the year
 
ended December 31,
 
2021 was $26.4
 
million, compared to
 
$26.1 million for
 
2020.
 
The
increase in
 
net interest
 
income was
 
primarily related
 
to the decrease
 
in the
 
interest rate
 
paid on
 
interest-bearing deposits
attributed to lower market
 
interest rates, and accelerated
 
PPP loan fees recognized
 
upon receipt of forgiveness
 
payments
from SBA
 
in 2021,
 
partially offset
 
by a
 
decrease in
 
the average
 
balance of
 
residential mortgage
 
loans in
 
this operating
segment.
●
The
 
Corporation
 
recognized
 
a
 
provision
 
for
 
credit
 
losses
 
net
 
benefit
 
of
 
$1.3
 
million
 
for
 
the
 
year
 
ended
 
December
 
31,
2021, compared to
 
a provision expense of
 
$4.4 million for 2020.
 
The variance was
 
primarily related to reserve
 
builds in
2020
 
in
 
connection
 
with
 
the
 
effect
 
of
 
the
 
COVID-19
 
pandemic
 
on
 
macroeconomic
 
variables
 
employed
 
in
 
the
Corporation’s CECL model,
 
primarily for the commercial portfolios.
●
Non-interest
 
income for
 
the year
 
ended December
 
31, 2021
 
was $6.9
 
million, compared
 
to $7.3
 
million for
 
2020.
 
The
decrease was mainly
 
related to the
 
effect in 2020
 
of a $1.0
 
million benefit recorded
 
in connection with
 
hurricane-related
insurance
 
recoveries,
 
primarily
 
due
 
to
 
the
 
portion
 
of
 
the
 
business
 
interruption
 
insurance
 
recoveries
 
allocated
 
to
 
this
operating
 
segment.
 
This
 
variance
 
was
 
partially
 
offset
 
by
 
a
 
$0.4
 
million
 
increase
 
in
 
fee-based
 
income
 
from
 
credit
 
and
debit
 
cards
 
as
 
well
 
as
 
merchant-related
 
activities,
 
and
 
a
 
$0.1
 
million
 
increase
 
in
 
service
 
charges
 
on
 
deposits,
 
both
affected in 2020 by disruptions in business activities caused by the
 
COVID-19 pandemic.
●
Direct non
 
-interest expenses
 
for
 
the year
 
ended December
 
31,
 
2021 were
 
$28.1
 
million compared
 
to $28.8
 
million
 
for
2020.
 
The
 
decrease
 
was
 
mainly
 
due
 
to
 
a
 
reduction
 
of
 
$1.1
 
million
 
in
 
net
 
OREO
 
losses,
 
primarily
 
related
 
to
 
higher
realized gains
 
on sales
 
of residential
 
OREO properties,
 
and a
 
decrease of
 
$0.8 million
 
in employees’
 
compensation and
benefits.
 
These variances
 
were partially
 
offset by
 
accelerated depreciation
 
charges related
 
to the
 
closing of
 
branches in
the Virgin
 
Islands region and an increase in professional service fees.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
77
FINANCIAL CONDITION AND OPERATING
 
DATA
 
ANALYSIS
Financial Condition
 
The following table presents an average balance sheet of the Corporation for the following
 
years:
December 31,
2021
2020
2019
(In thousands)
ASSETS
Interest-earning assets:
Money market and other short-term investments
$
2,012,617
$
1,258,683
$
649,065
U.S. and Puerto Rico government obligations
2,065,522
878,537
632,959
MBS
4,064,343
2,236,262
1,382,589
FHLB stock
28,208
32,160
40,661
Other investments
10,254
6,238
3,403
Total investments
8,180,944
4,411,880
2,708,677
Residential mortgage loans
3,277,087
3,119,400
3,043,672
Construction loans
181,470
168,967
97,605
Commercial loans
5,228,150
4,387,419
3,731,499
Finance leases
518,757
440,796
370,566
Consumer loans
2,207,685
1,952,120
1,738,745
Total loans
11,413,149
10,068,702
8,982,087
Total interest-earning
 
assets
19,594,093
14,480,582
11,690,764
Total non-interest-earning
 
assets
(1)
708,940
752,064
761,370
Total assets
$
20,303,033
$
15,232,646
$
12,452,134
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing checking accounts
$
3,667,523
$
2,197,980
$
1,320,458
Savings accounts
4,494,757
3,190,743
2,377,508
Retail CDs
2,636,303
2,741,388
2,540,289
Brokered CDs
141,959
357,965
500,766
Interest-bearing deposits
10,940,542
8,488,076
6,739,021
Loans payable
-
8,415
-
Other borrowed funds
484,244
475,492
294,798
FHLB advances
354,055
505,478
715,433
Total interest-bearing
 
liabilities
11,778,841
9,477,461
7,749,252
Total non-interest-bearing
 
liabilities
(2)
6,285,942
3,525,101
2,542,708
Total liabilities
18,064,783
13,002,562
10,291,960
Stockholders' equity:
Preferred stock
32,938
36,104
36,104
Common stockholders' equity
2,205,312
2,193,980
2,124,070
Stockholders' equity
2,238,250
2,230,084
2,160,174
Total liabilities and stockholders'
 
equity
$
20,303,033
$
15,232,646
$
12,452,134
_________
(1) Includes, among other things, the ACL on loans and finance leases and debt securities.
(2) Includes, among other things, non-interest-bearing deposits.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
78
The Corporation’s
 
total average assets
 
were $20.3
 
billion for the
 
year ended December
 
31, 2021, compared
 
to $15.2 billion
 
for the
year
 
ended
 
December
 
31,
 
2020,
 
an
 
increase
 
of
 
$5.1
 
billion.
 
The
 
variance
 
primarily
 
reflects:
 
(i)
 
an
 
increase
 
of
 
$3.8
 
billion
 
in
 
the
average
 
balance
 
of
 
investment
 
securities
 
and
 
interest-bearing
 
cash
 
balances,
 
reflecting
 
both
 
increased
 
purchases
 
of
 
investment
securities and
 
growth in
 
cash balances supported
 
by strong deposit
 
growth during
 
2021; and (ii)
 
a $1.3 billion
 
increase in the
 
average
balance of total
 
loans, reflecting the
 
effect of loans
 
acquired in conjunction
 
with the BSPR
 
acquisition,
 
the volume of SBA
 
PPP loans
originated in 2020 and 2021, and organic growth of the Corporation’s
 
consumer loan portfolio.
 
The
 
Corporation’s
 
total
 
average
 
liabilities
 
were
 
$18.1
 
billion
 
as
 
of
 
December
 
31,
 
2021,
 
an
 
increase
 
of
 
$5.1
 
billion
 
compared
 
to
December 31, 2020. The
 
increase was mainly related to
 
a $2.7 billion increase in
 
the average balance of non-brokered
 
interest-bearing
deposits and
 
a $2.8 million
 
increase in the
 
average balance of
 
non-interest-bearing deposits,
 
primarily reflecting
 
the effect of
 
deposits
assumed in
 
conjunction with
 
the BSPR
 
acquisition, as
 
well as
 
the effect
 
of government
 
relief programs
 
on the
 
liquidity levels
 
of our
customers,
 
including
 
government
 
entities.
 
The
 
aforementioned
 
variances
 
were
 
partially
 
offset
 
by
 
a
 
$216.0
 
million
 
decrease
 
in
 
the
average balance of brokered CDs and a $151.4 million decrease in the average balance
 
of FHLB advances.
 
Assets
 
The
 
Corporation’s
 
total assets
 
were $20.8
 
billion
 
as of
 
December 31,
 
2021, an
 
increase of
 
$2.0 billion
 
from December
 
31, 2020.
The
 
increase
 
was
 
primarily
 
related
 
to
 
a
 
$1.8
 
billion
 
increase
 
in
 
investment
 
securities,
 
mainly
 
driven
 
by
 
purchases
 
of
 
U.S.
 
agencies
MBS and
 
U.S. agencies
 
callable and
 
bullet debentures
 
and an
 
increase of
 
$1.0 billion
 
in cash
 
equivalents attributable
 
to the
 
liquidity
obtained
 
from the
 
growth in
 
deposits and
 
loan repayments.
 
These variances
 
were partially
 
offset
 
by a
 
decrease of
 
$731.8 million
 
in
total loans, as further discussed below.
Loans Receivable, including Loans Held for Sale
 
The following
 
table presents the
 
composition of
 
the Corporation's
 
loan portfolio,
 
including loans
 
held for
 
sale, as of
 
the end
of each of the last five years:
2021
2020
2019
2018
2017
(In thousands)
Residential mortgage loans
$
2,978,895
$
3,521,954
$
2,933,773
$
3,163,208
$
3,290,957
Commercial loans:
Commercial mortgage loans
2,167,469
2,230,602
1,444,586
1,522,662
1,614,972
Construction loans
138,999
212,500
111,317
79,429
111,397
Commercial and Industrial loans
(1)
2,887,251
3,202,590
2,230,876
2,148,111
2,083,253
Total commercial loans
5,193,719
5,645,692
3,786,779
3,750,202
3,809,622
Consumer loans and finance leases
2,888,044
2,609,643
2,281,653
1,944,713
1,749,897
Total loans held for investment
11,060,658
11,777,289
9,002,205
8,858,123
8,850,476
Less:
Allowance for credit losses for loans and finance
leases
(269,030)
(385,887)
(155,139)
(196,362)
(231,843)
Total loans held for investment, net
10,791,628
11,391,402
8,847,066
8,661,761
8,618,633
Loans held for sale
35,155
50,289
39,477
43,186
32,980
Total loans, net
$
10,826,783
$
11,441,691
$
8,886,543
$
8,704,947
$
8,651,613
(1)
As of December 31, 2021 and 2020, includes $145.0 million and
 
$406.0 million, respectively, of SBA
 
PPP loans.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
79
As of
 
December 31,
 
2021, the
 
Corporation’s
 
total loan
 
portfolio, before
 
the ACL,
 
amounted to
 
$11.1
 
billion, a
 
decrease of
 
$731.8
million
 
when
 
compared
 
to
 
December
 
31,
 
2020. The
 
decrease
 
consisted
 
of
 
reductions
 
of
 
$611.6
 
million
 
in
 
the
 
Puerto
 
Rico
 
region,
$75.1
 
million
 
in
 
the
 
Virgin
 
Islands
 
region,
 
and
 
$45.1
 
million
 
in
 
the
 
Florida
 
region.
 
On
 
a
 
portfolio
 
basis,
 
the
 
decrease
 
consisted
 
of
reductions
 
of
 
$558.2
 
million
 
in
 
residential
 
mortgage
 
loans
 
and
 
$452.0
 
million
 
in
 
commercial
 
and
 
construction
 
loans
 
(including
 
a
$261.0 million decrease
 
in the SBA PPP loan
 
portfolio), partially offset
 
by an increase of
 
$278.4 million in consumer
 
loans, including
a
 
$377.1
 
million
 
increase
 
in
 
auto
 
loans
 
and
 
leases.
 
As
 
further
 
discussed
 
below,
 
the
 
decrease
 
in
 
commercial
 
and
 
construction
 
loans
reflects, among other
 
things, the effect
 
of the payoff
 
of loans related
 
to six large
 
commercial relationships totaling
 
$211.1 million
 
and
the
 
sale
 
of
 
four
 
criticized
 
commercial
 
loan
 
participations
 
totaling
 
$43.1
 
million
 
in
 
the Florida
 
region. The
 
decline
 
in
 
the
 
residential
mortgage loan
 
portfolio reflects
 
the $52.5
 
million bulk
 
sale of
 
nonaccrual loans,
 
as well
 
as repayments
 
and charge
 
-offs, which
 
more
than offset the volume of new loan originations kept on the balance
 
sheet.
As of December 31,
 
2021, the loans held
 
for the Corporation’s
 
investment portfolio was comprised
 
of commercial and construction
loans
 
(47%),
 
residential
 
real
 
estate
 
loans
 
(27%),
 
and
 
consumer
 
and
 
finance
 
leases
 
(26%).
 
Of
 
the
 
total
 
gross
 
loan
 
portfolio
 
held
 
for
investment
 
of
 
$11.1
 
billion
 
as
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation
 
had
 
credit
 
risk
 
concentration
 
of
 
approximately
 
79%
 
in
 
the
Puerto Rico region,
 
18% in the
 
United States region
 
(mainly in the
 
state of Florida),
 
and 3% in
 
the Virgin
 
Islands region, as
 
shown in
the following table:
As of December 31, 2021
Puerto Rico
Virgin Islands
United States
Total
(In thousands)
Residential mortgage loans
$
2,361,322
$
188,251
$
429,322
$
2,978,895
Commercial mortgage loans
1,635,137
67,094
465,238
2,167,469
Construction loans
38,789
4,344
95,866
138,999
Commercial and Industrial loans
(1)
1,867,082
79,515
940,654
2,887,251
Total commercial
 
loans
3,541,008
150,953
1,501,758
5,193,719
Consumer loans and finance leases
2,820,102
52,282
15,660
2,888,044
Total loans held
 
for investment, gross
$
8,722,432
$
391,486
$
1,946,740
$
11,060,658
Loans held for sale
33,002
177
1,976
35,155
Total loans, gross
$
8,755,434
$
391,663
$
1,948,716
$
11,095,813
(1) As of December 31, 2021, includes $145.0 million of SBA PPP loans
 
consisting of $102.8 million in the Puerto Rico region, $8.2
 
million in the Virgin Islands region,
 
and
$34.0 million in the United States region.
As of December 31, 2020
Puerto Rico
Virgin Islands
United States
Total
(In thousands)
Residential mortgage loans
$
2,788,827
$
213,376
$
519,751
$
3,521,954
Commercial mortgage loans
1,793,095
60,129
377,378
2,230,602
Construction loans
73,619
11,397
127,484
212,500
Commercial and Industrial loans
(1)
2,135,291
129,440
937,859
3,202,590
Total commercial
 
loans
4,002,005
200,966
1,442,721
5,645,692
Consumer loans and finance leases
2,531,206
51,726
26,711
2,609,643
Total loans held
 
for investment, gross
$
9,322,038
$
466,068
$
1,989,183
$
11,777,289
Loans held for sale
44,994
681
4,614
50,289
Total loans, gross
$
9,367,032
$
466,749
$
1,993,797
$
11,827,578
(1) As of December 31, 2020, includes $406.0 million of SBA PPP loans
 
consisting of $301.1 million in the Puerto Rico region, $27.4
 
million in the Virgin Islands region,
 
and
$77.5 million in the United States region.
First
 
BanCorp.
 
relies
 
primarily
 
on
 
its
 
retail
 
network
 
of
 
branches
 
to
 
originate
 
residential
 
and
 
consumer
 
personal
 
loans.
 
The
Corporation
 
manages
 
its construction
 
and
 
commercial
 
loan originations
 
through
 
centralized
 
units
 
and
 
most
 
of
 
its originations
 
come
from existing customers,
 
as well as through referrals and direct solicitations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
80
 
The following table sets forth certain additional data (including loan production)
 
related to the Corporation's loan portfolio net of
the ACL on loans and finance leases as of and for the dates indicated:
For the Year
 
Ended December 31,
2021
2020
2019
2018
2017
(Dollars in thousands)
Beginning balance as of January 1
$
11,441,691
$
8,886,543
$
8,704,947
$
8,651,613
$
8,731,276
Residential real estate loans originated
and purchased
623,290
560,012
491,210
531,971
549,147
Construction loans originated
102,538
126,499
69,440
65,243
58,103
C&I and commercial mortgage loans
 
originated and purchased
2,994,893
2,751,058
2,411,863
1,737,366
1,729,659
Finance leases originated
240,419
152,254
178,986
164,334
93,670
Consumer loans originated
1,287,487
915,107
1,194,650
991,950
785,516
Total loans originated
 
and purchased
5,248,627
4,504,930
4,346,149
3,490,864
3,216,095
Loans acquired from BSPR
-
2,514,700
-
-
-
Sales of loans
(620,227)
(657,498)
(433,079)
(420,549)
(375,754)
Repayments and prepayments
(5,495,131)
(3,661,289)
(3,717,874)
(2,959,438)
(2,788,758)
Other increases (decreases)
(1)
251,823
(145,695)
(13,600)
(57,543)
(131,246)
Net (decrease) increase
(614,908)
2,555,148
181,596
53,334
(79,663)
Ending balance as of December 31
$
10,826,783
$
11,441,691
$
8,886,543
$
8,704,947
$
8,651,613
Percentage (decrease) increase
(5.37)%
28.75%
2.09%
0.62%
(0.91)%
_____________
(1)
Includes, among other things, the change in the ACL on loans
 
and finance leases and cancellation of loans due to the repossession
 
of the collateral and loans repurchased
Residential Real Estate Loans
As of December
 
31, 2021,
 
the Corporation’s
 
total residential mortgage
 
loan portfolio,
 
including held
 
for sale, decreased
 
by $558.2
million, as compared
 
to the balance
 
as of December
 
31, 2020. The
 
decline reflects reductions
 
in all regions
 
driven by repayments
 
and
charge-offs,
 
which
 
more than
 
offset
 
the volume
 
of new
 
loan
 
originations
 
kept
 
on the
 
balance
 
sheet. In
 
addition,
 
the decrease
 
in
 
the
residential mortgage loan portfolio
 
reflects the sale of $52.5 million
 
of non-performing residential mortgage
 
loans. Consistent with the
Corporation’s
 
strategies, the
 
residential mortgage
 
loan portfolio
 
decreased by
 
$439.5 million
 
in the
 
Puerto Rico
 
region, $93.1
 
million
in the Florida region, and $25.6
 
million in the Virgin
 
Islands region. Approximately 88%
 
of the $499.7 million in residential
 
mortgage
loan
 
originations
 
in
 
the
 
Puerto
 
Rico
 
region
 
during
 
2021
 
consisted
 
of
 
conforming
 
loan
 
originations
 
and
 
refinancings.
 
Conforming
mortgage
 
loans
 
are
 
generally
 
originated
 
with
 
the
 
intent
 
to
 
sell
 
in
 
the
 
secondary
 
market
 
to
 
GNMA
 
and
 
U.S.
 
government-sponsored
agencies.
 
The majority
 
of the
 
Corporation’s
 
outstanding balance
 
of residential
 
mortgage loans
 
in the
 
Puerto Rico
 
and Virgin
 
Islands regions
consisted of
 
fixed-rate loans
 
that traditionally
 
carry higher yields
 
than residential
 
mortgage loans
 
in the
 
Florida region.
 
In the
 
Florida
region,
 
approximately
 
55%
 
of
 
the
 
residential
 
mortgage
 
loan
 
portfolio
 
consisted
 
of
 
hybrid
 
adjustable-rate
 
mortgages.
 
In
 
accordance
with the Corporation’s
 
underwriting guidelines,
 
residential mortgage
 
loans are primarily
 
fully-documented loans,
 
and the Corporation
does not originate negative amortization loans.
Residential
 
mortgage
 
loan
 
originations
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021
 
amounted
 
to
 
$623.3
 
million,
 
compared
 
to
 
$560.0
million
 
for 2020.
 
The increase
 
in residential
 
mortgage loan
 
originations
 
of $63.3
 
million reflect
 
increases
 
of $96.0
 
million and
 
$1.6
million,
 
in
 
the
 
Puerto
 
Rico
 
and
 
Virgin
 
Islands
 
regions,
 
respectively,
 
partially
 
offset
 
by
 
a
 
decrease
 
of
 
$34.3
 
million
 
in
 
the
 
Florida
region.
 
The overall increase
 
reflects
 
the effect
 
of a higher
 
volume of
 
refinanced loans and
 
conforming loan
 
originations driven
 
by the
effect of lower mortgage
 
loan interest rates and increased home
 
purchase activity,
 
in particular during the first half
 
of the year,
 
and the
effect
 
in
 
2020
 
of
 
disruptions in the
 
loan underwriting and
 
closing processes caused by
 
the almost
 
two-month lockdown related to
 
the
COVID-19 pandemic
 
that was
 
implemented
 
in Puerto
 
Rico on
 
March 16,
 
2020.
81
Commercial and Construction Loans
As of
 
December 31,
 
2021, the
 
Corporation’s
 
commercial and
 
construction loan
 
portfolio decreased
 
by $452.0
 
million (including
 
a
$261.0 million
 
decrease in
 
the SBA
 
PPP loan
 
portfolio),
 
to $5.2
 
billion, as
 
compared to
 
the balance
 
as of
 
December 31,
 
2020.
 
The
decrease
 
in commercial
 
and
 
construction
 
loans was
 
primarily
 
reflected
 
in the
 
Puerto
 
Rico region,
 
which declined
 
by $461.0
 
million
(including a $198.3
 
million decrease in the
 
SBA PPP loan portfolio),
 
as compared to the
 
balance as of December
 
31, 2020. Excluding
the $198.3 million
 
decrease in the SBA
 
PPP loan portfolio, commercial
 
and construction loans in
 
the Puerto Rico region
 
decreased by
$262.7
 
million,
 
driven
 
by
 
the
 
payoff
 
of
 
five
 
large
 
commercial
 
mortgage
 
loan
 
relationships
 
totaling
 
$156.8
 
million,
 
a
 
$22.9
 
million
decrease
 
in the
 
outstanding balance
 
of loans
 
extended
 
to municipalities
 
and
 
other government
 
units, a
 
$13.8
 
million decrease
 
in the
balance of
 
floor plan
 
lines of
 
credit, several
 
commercial and
 
industrial term
 
loans individually
 
in excess
 
of $3
 
million that
 
were paid
off
 
during
 
the
 
2021
 
and
 
totaled
 
approximately
 
$26.5
 
million,
 
principal
 
repayments
 
that
 
reduced
 
by
 
$79.9
 
million
 
the
 
balance
 
of
revolving lines of credit related to ten commercial and industrial relationships
 
,
 
and additional repayments.
 
In the
 
Virgin
 
Islands region,
 
commercial and
 
construction loans
 
decreased by
 
$50.0 million
 
(including a
 
$19.2 million
 
decrease in
the SBA
 
PPP loan
 
portfolio) as
 
compared to
 
the balance
 
as of December
 
31, 2020.
 
Excluding the
 
$19.2 million
 
decrease in
 
the SBA
PPP loan portfolio,
 
commercial and construction
 
loans in the Virgin
 
Islands region decreased by
 
$30.8 million primarily
 
due to a $6.0
million repayment of a nonaccrual construction loan and the early payoff
 
of a $23.2 million government loan.
 
In the
 
Florida region,
 
commercial and
 
construction
 
loans increased
 
by $59.0
 
million (net
 
of a
 
$43.5
 
million
 
decrease in
 
the SBA
PPP loan
 
portfolio).
 
Excluding the
 
$43.0
 
million decrease
 
in the
 
SBA PPP
 
loan
 
portfolio, commercial
 
and construction
 
loans in
 
the
Florida region increased by $102.5 million, driven by
 
the origination of several commercial loans individually in excess of $10
 
million
related
 
to
 
thirteen
 
commercial
 
and
 
industrial
 
relationships
 
and
 
totaling
 
$249.5
 
million,
 
partially
 
offset
 
by
 
the
 
sale
 
of
 
four
 
criticized
commercial loan participations totaling $43.1 million and the early payoff
 
of a $54.3 million commercial loan.
As mentioned
 
above, the SBA
 
reactivated the
 
PPP in January
 
2021. The Corporation
 
originated additional
 
PPP loans up
 
to the end
of
 
the
 
program
 
on
 
May
 
31,
 
2021.
 
As
 
of
 
December
 
31,
 
2021,
 
SBA
 
PPP
 
loans,
 
net
 
of
 
unearned
 
fees
 
of
 
$7.9
 
million,
 
totaled
 
$145.0
million, compared
 
to $406.0
 
million as
 
of December
 
31, 2020.
 
In 2021,
 
the Corporation
 
originated $283.6
 
million in
 
PPP loans
 
and
received forgiveness remittances and customer payments
 
of approximately $543.6 million in the principal balance of PPP loans.
As of
 
December
 
31,
 
2021,
 
the Corporation
 
had
 
$178.4
 
million
 
outstanding
 
in
 
loans
 
extended
 
to
 
the Puerto
 
Rico
 
government,
 
its
municipalities
 
and
 
public
 
corporations,
 
compared
 
to
 
$201.3
 
million
 
as
 
of
 
December
 
31,
 
2020.
 
As
 
of
 
December
 
31,
 
2021,
approximately $100.3 million
 
consisted of loans
 
extended to municipalities
 
in Puerto Rico that
 
are supported by assigned
 
property tax
revenues
 
and
 
$32.2
 
million
 
consisted
 
of
 
municipal
 
special
 
obligation
 
bonds.
 
In
 
addition
 
to
 
loans
 
extended
 
to
 
municipalities,
 
the
Corporation’s exposure
 
to the Puerto Rico government
 
as of December 31, 2021
 
included $12.5 million in loans granted
 
to an affiliate
of PREPA
 
and $33.4 million in loans to an agency of the Puerto Rico central government.
The
 
Corporation
 
also
 
has
 
credit
 
exposure
 
to
 
USVI
 
government
 
entities.
 
As
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation
 
had
 
$39.2
million in
 
loans to
 
USVI government
 
and public
 
corporations, compared
 
to $61.8
 
million as
 
of December
 
31, 2020.
 
All the
 
amount
outstanding
 
as
 
of
 
December
 
31,
 
2021,
 
is
 
owed
 
by
 
the
 
public
 
corporations
 
of
 
the
 
USVI.
 
As
 
of
 
December
 
31,
 
2021,
 
all
 
loans
 
were
currently performing and up to date on principal and interest payments.
 
As
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation’s
 
total
 
exposure
 
to
 
shared
 
national
 
credit
 
(“SNC”)
 
loans
 
(including
 
unused
commitments)
 
amounted
 
to
 
$918.6
 
million,
 
compared
 
to
 
$882.9
 
million
 
as
 
of
 
December
 
31,
 
2020.
 
As
 
of
 
December
 
31,
 
2021,
approximately
 
$148.5
 
million
 
of
 
the
 
SNC
 
exposure
 
related
 
to
 
the
 
portfolio
 
in
 
Puerto
 
Rico
 
region
 
and
 
$770.1
 
million
 
related
 
to
 
the
portfolio in the Florida region.
Commercial
 
and
 
construction
 
loan
 
originations
 
(excluding
 
government
 
loans)
 
amounted
 
to
 
$3.1
 
billion
 
for
 
the
 
year
 
ended
December 31, 2021, compared to $2.8 billion
 
for 2020. Total commercial
 
and construction loan originations in 2021 include
 
SBA PPP
loan originations
 
of $283.6
 
million, compared
 
to $390.2
 
million in
 
2020.
 
Excluding SBA
 
PPP loans
 
and the
 
$184.4 million
 
of Main
Street
 
loans
 
originated
 
in
 
2020,
 
commercial
 
and
 
construction
 
loan
 
originations
 
increased
 
$510.9
 
million
 
compared
 
to
 
2020.
 
The
increase consisted of increases
 
of $184.9 million, $302.6
 
million, and $23.4 million
 
in the Puerto Rico, Florida,
 
and the Virgin
 
Islands
regions, respectively.
 
The increase
 
in 2021
 
reflects an
 
increase in
 
the utilization
 
of floor
 
plan and
 
other commercial
 
lines of
 
credit in
the Puerto Rico
 
region,
 
as compared to
 
2020, as well as
 
a higher volume
 
of commercial and
 
industrial loan originations
 
in the Florida
region. The increase also
 
reflects
 
the effect in 2020
 
of disruptions caused by the
 
COVID-19 pandemic and related
 
restrictive measures
on economic activities.
 
Government
 
loan
 
originations
 
for
 
2021
 
amounted
 
to
 
$62.8
 
million,
 
compared
 
to
 
$41.3
 
million
 
for
 
2020.
 
Government
 
loan
originations
 
in
 
both
 
years
 
primarily
 
consisted
 
of
 
the
 
refinancing
 
and
 
renewal
 
of
 
certain
 
facilities
 
in
 
both
 
the
 
Virgin
 
Islands
 
and
 
the
Puerto
 
Rico
 
regions,
 
as
 
well
 
as
 
the
 
utilization
 
of
 
an
 
arranged
 
overdraft
 
line
 
of
 
credit
 
of
 
a
 
government
 
entity
 
in
 
the
 
Virgin
 
Islands
region.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
82
The
 
composition
 
of
 
the
 
Corporation’s
 
construction
 
loan
 
portfolio
 
held
 
for
 
investment
 
as
 
of
 
December
 
31,
 
2021
 
and
 
2020
 
by
category and geographic location follows:
As of December 31, 2021
Puerto Rico
Virgin Islands
United
 
States
Total
(In thousands)
Loans for residential housing projects:
Mid-rise
(1)
$
-
$
956
$
-
$
956
Single-family, detached
5,924
-
8,621
14,545
Total for residential housing projects
5,924
956
8,621
15,501
Construction loans to individuals secured by residential properties
48
-
-
48
Loans for commercial projects
27,839
2,251
86,348
116,438
Land loans – residential
4,137
1,137
897
6,171
Land loans – commercial
841
-
-
841
Total construction loan portfolio, gross
38,789
4,344
95,866
138,999
ACL
(942)
(210)
(2,896)
(4,048)
Total construction loan portfolio, net
$
37,847
$
4,134
$
92,970
$
134,951
(1)
Mid-rise relates to buildings of up to 7 stories.
As of December 31, 2020
Puerto Rico
Virgin Islands
United
 
States
Total
(In thousands)
Loans for residential housing projects:
Mid-rise
(1)
$
116
$
956
$
-
$
1,072
Single-family, detached
14,685
459
4,980
20,124
Total for residential housing projects
14,801
1,415
4,980
21,196
Construction loans to individuals secured by residential properties
48
-
-
48
Loans for commercial projects
48,185
8,635
120,888
177,708
Land loans – residential
5,685
1,347
1,616
8,648
Land loans – commercial
4,900
-
-
4,900
Total construction loan portfolio, gross
73,619
11,397
127,484
212,500
ACL
(1,752)
(880)
(2,748)
(5,380)
Total construction loan portfolio, net
$
71,867
$
10,517
$
124,736
$
207,120
(1)
Mid-rise relates to buildings of up to 7 stories.
The
 
following
 
table
 
presents
 
further
 
information
 
related
 
to
 
the
 
Corporation’s
 
construction
 
portfolio
 
as
 
of
 
and
 
for
 
the year
 
ended
December 31, 2021:
 
(Dollars in thousands)
Total undisbursed funds under existing commitments
$
197,917
Construction loans held for investment in nonaccrual status
$
2,664
Net recoveries - Construction loans
 
$
76
ACL - Construction loans
$
4,048
Nonaccrual construction loans to total construction loans
1.92
%
ACL of construction loans to total construction loans held
 
for investment
2.91
%
Net recoveries to total average construction loans
(0.04)
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
83
Consumer Loans and Finance Leases
As of December
 
31, 2021, the
 
Corporation’s
 
consumer loan and
 
finance lease portfolio
 
increased by $278.4
 
million to $2.9
 
billion,
as compared
 
to the portfolio
 
balance of
 
$2.6 billion
 
as of December
 
31, 2020.
 
The increase
 
primarily reflects
 
increases in
 
auto loans,
and finance leases
 
which increased by
 
$275.1 million and
 
$102.0 million, respectively,
 
partially offset by
 
reductions in personal
 
loans
and credit cards loans of $61.8
 
million and $29.6 million, respectively.
 
The growth in consumer loans is
 
mainly reflected in the Puerto
Rico region and was driven by an increased level of loan originations
 
.
Originations
 
of
 
auto
 
loans
 
(including
 
finance
 
leases)
 
in
 
2021
 
amounted
 
to
 
$932.7
 
million,
 
compared
 
to
 
$614.9
 
million
 
for
 
2020.
Personal
 
loan
 
originations
 
in
 
2021,
 
other
 
than
 
credit
 
card
 
loans,
 
amounted
 
to
 
$172.7
 
million,
 
compared
 
to
 
$123.8
 
million
 
in
2020. Most of
 
the increase
 
in consumer
 
loan originations
 
in 2021,
 
when compared
 
to 2020,
 
was in
 
the Puerto
 
Rico region,
 
reflecting
the
 
effect
 
in
 
2020
 
of
 
quarantines
 
and
 
lockdowns
 
of
 
non-essential
 
businesses
 
in
 
connection
 
with
 
the
 
COVID-19
 
pandemic
 
during
2020. The utilization activity
 
on the outstanding
 
credit card portfolio in
 
2021
 
amounted to approximately
 
$422.5 million, compared
 
to
$328.7 million in 2020.
Maturities of Loans Receivable
 
The
 
following
 
table
 
presents
 
the
 
loans
 
held
 
for
 
investment
 
portfolio
 
as
 
of
 
December
 
31,
 
2021
 
by
 
contractual
 
maturities
 
and
 
interest
rates:
After One Year
After Five Years
Total Portfolio
One Year or Less
Through Five Years
Through 15 Years
After 15 Years
(In thousands)
Residential mortgage
$
64,573
$
448,302
$
1,323,446
$
1,142,574
$
2,978,895
Construction loans
119,177
17,262
1,907
653
138,999
Commercial mortgage loans
821,786
1,135,248
203,547
6,888
2,167,469
C&I loans
1,156,946
1,389,138
333,884
7,283
2,887,251
Consumer loans
873,285
1,800,464
213,330
965
2,888,044
Total loans
(1)
$
3,035,767
$
4,790,414
$
2,076,114
$
1,158,363
$
11,060,658
__
Amount due in one year or less at:
Amount due after one year:
Total Portfolio
Fixed Interest Rates
Variable Interest Rates
Fixed Interest Rates
Variable Interest Rates
Residential mortgage
$
57,846
$
6,727
$
2,670,020
$
244,302
$
2,978,895
Construction loans
3,442
115,735
4,918
14,904
138,999
Commercial mortgage loans
578,848
242,938
818,898
526,785
2,167,469
C&I loans
258,576
898,370
516,992
1,213,313
2,887,251
Consumer loans
665,193
208,092
2,005,308
9,451
2,888,044
Total loans
(1)
$
1,563,905
$
1,471,862
$
6,016,136
$
2,008,755
$
11,060,658
(1)
Scheduled repayments are included in the maturity category in which the payment is due.
 
The amounts provided do not reflect prepayment assumptions related to the loan portfolio.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
84
Investment Activities
As part
 
of its
 
liquidity,
 
revenue
 
diversification,
 
and
 
interest rate
 
risk
 
strategies,
 
First BanCorp.
 
maintains
 
an investment
 
portfolio
that is
 
classified as
 
available-for-sale
 
or held
 
to maturity.
 
The Corporation’s
 
total available-for-sale
 
investment securities
 
portfolio as
of December
 
31, 2021
 
amounted to $6.5
 
billion, a $1.8
 
billion increase
 
from December
 
31, 2020. The
 
increase was mainly
 
driven by
purchases
 
of
 
approximately
 
$3.4
 
billion
 
of
 
U.S.
 
agencies
 
MBS and
 
U.S.
 
agencies
 
callable
 
and
 
bullet
 
debentures,
 
partially
 
offset
 
by
prepayments of
 
$1.1 billion
 
of U.S. agencies
 
MBS, approximately
 
$267.8 million
 
of U.S. agencies
 
bonds that
 
matured or were
 
called
prior to maturity
 
during 2021, and
 
a $143.1 million decrease
 
in the fair value
 
of available-for-sale investment
 
securities attributable to
changes in
 
market interest
 
rates. Long-term
 
market interest
 
remain at
 
low levels
 
but are
 
expected to
 
increase during
 
2022 and
 
2023,
which
 
could
 
impact
 
prepayment
 
speed
 
and
 
valuation
 
of
 
the
 
investment
 
portfolio.
 
These
 
risks
 
are
 
directly
 
linked
 
to
 
future
 
period
market interest rate fluctuations.
As
 
of
 
December
 
31,
 
2021,
 
approximately
 
99%
 
of
 
the
 
Corporation’s
 
available-for-sale
 
securities
 
portfolio
 
was
 
invested
 
in
 
U.S.
government
 
and
 
agencies
 
debentures
 
and
 
fixed-rate
 
GSEs’
 
MBS
 
(mainly
 
GNMA,
 
FNMA,
 
and
 
FHLMC
 
fixed-rate
 
securities).
 
In
addition, as
 
of December
 
31, 2021,
 
the Corporation
 
held a
 
bond issued
 
by the
 
PRHFA,
 
classified as
 
available for
 
sale, specifically
 
a
residential pass-through
 
MBS in
 
the aggregate
 
amount of
 
$3.6 million
 
(fair value
 
- $2.9
 
million). This
 
residential pass-through
 
MBS
issued
 
by
 
the
 
PRHFA
 
is
 
collateralized
 
by
 
certain
 
second
 
mortgages
 
originated
 
under
 
a
 
program
 
launched
 
by
 
the
 
Puerto
 
Rico
government
 
in
 
2010
 
and
 
had
 
an
 
unrealized
 
loss
 
of
 
$0.7
 
million
 
as
 
of
 
December
 
31,
 
2021,
 
of
 
which
 
$0.3
 
million
 
is
 
due
 
to
 
credit
deterioration
 
and
 
was charged
 
against
 
earnings through
 
an ACL
 
during
 
2020.
 
Due to
 
deterioration
 
in the
 
delinquency
 
status of
 
the
underlying second mortgage loans of this MBS issued by the PRHFA,
 
the Corporation classified the investment in nonaccrual status in
the second quarter of 2021.
 
As of December
 
31, 2021,
 
the Corporation’s
 
held-to-maturity investment
 
securities portfolio,
 
before the
 
ACL, amounted
 
to $178.1
million, compared to $189.5 million
 
as of December 31, 2020.
 
As of December 31, 2021, the
 
ACL for held-to-maturity debt
 
securities
was $8.6
 
million, down
 
$0.2 million
 
from $8.8
 
million as of
 
December 31,
 
2020. Held-to-maturity
 
investment securities
 
consisted of
financing
 
arrangements
 
with
 
Puerto
 
Rico
 
municipalities
 
issued
 
in
 
bond
 
form,
 
which
 
the
 
Corporation
 
accounts
 
for
 
as securities,
 
but
which were underwritten as loans with
 
features that are typically found in commercial
 
loans. These obligations typically are
 
not issued
in
 
bearer
 
form,
 
are
 
not
 
registered
 
with
 
the
 
SEC,
 
and
 
are
 
not
 
rated
 
by
 
external
 
credit
 
agencies.
 
These
 
bonds
 
have
 
seniority
 
to
 
the
payment
 
of
 
operating
 
costs
 
and
 
expenses
 
of
 
the
 
municipality
 
and,
 
in
 
most
 
cases,
 
are
 
supported
 
by
 
assigned
 
property
 
tax
 
revenues.
Approximately
 
73% of
 
the Corporation’s
 
municipality
 
bonds consisted
 
of obligations
 
issued by
 
four of
 
the largest
 
municipalities
 
in
Puerto Rico.
 
The municipalities are
 
required by law
 
to levy special
 
property taxes
 
in such amounts
 
as are required
 
for the payment
 
of
all of their
 
respective general obligation
 
bonds and loans.
 
Given the uncertainties
 
as to the effects
 
that the fiscal
 
position of the
 
Puerto
Rico central government,
 
the COVID-19 pandemic,
 
and the measures taken,
 
or to be taken,
 
by other government entities
 
may have on
municipalities, the Corporation cannot be certain whether
 
future charges to the ACL on these securities will be required.
See
 
“Risk Management
 
–
 
Exposure
 
to Puerto
 
Rico
 
Government”
 
below
 
for
 
information
 
and
 
details
 
about
 
the Corporation’s
 
total
direct exposure to the Puerto Rico government, including municipalities
 
.
The following table presents the carrying values of investments as of the indicated
 
dates:
December 31,
December 31,
2021
2020
(In thousands)
Money market investments
$
2,682
$
60,572
Investment securities available for sale, at fair value:
U.S. government and agencies obligations
2,405,468
1,187,674
Puerto Rico government obligations
2,850
2,899
MBS
4,044,443
3,455,796
Other
1,000
650
Total investment
 
securities available for sale, at fair value
6,453,761
4,647,019
Investment securities held to maturity,
 
at amortized cost:
Puerto Rico municipal bonds
178,133
189,488
ACL for held-to-maturity debt securities
(8,571)
(8,845)
169,562
180,643
Equity securities, including $21.5 million and $31.2 million of FHLB stock
as of December 31, 2021 and 2020, respectively
32,169
37,588
Total money market
 
investments and investment securities
$
6,658,174
$
4,925,822
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
85
MBS as of the indicated dates consisted of:
December 31,
 
December 31,
2021
2020
(In thousands)
Available for
 
sale:
FHLMC certificates
$
1,418,670
$
1,149,871
GNMA certificates
388,344
699,492
FNMA certificates
1,704,585
1,320,281
Collateralized mortgage obligations issued or
 
guaranteed by FHLMC, FNMA or GNMA
525,610
277,724
Private label MBS
7,234
8,428
Total MBS
$
4,044,443
$
3,455,796
 
The carrying values of investment securities classified as available for sale and held to maturity
 
as of
December 31, 2021 by contractual maturity (excluding MBS) are shown
 
below:
Carrying
Amount
Weighted-Average
Yield %
(In thousands)
U.S. government and agencies obligations:
Due after one year through five years
$
1,996,352
0.61
Due after five years through ten years
393,104
0.90
Due after ten years
16,012
0.63
2,405,468
0.66
Puerto Rico government and municipalities obligations:
Due within one year
2,995
5.39
Due after one year through five years
14,785
2.35
Due after five years through ten years
90,584
4.25
Due after ten years
72,619
3.87
180,983
3.96
Other investment securities
Due within one year
500
0.72
Due after one year through five years
500
0.84
1,000
0.78
Total
2,587,451
0.89
MBS
4,044,443
1.26
ACL on held-to-maturity debt securities
(8,571)
-
Total investment
 
securities available for sale and held to maturity
$
6,623,323
1.11
Net
 
interest
 
income
 
of
 
future
 
periods
 
could
 
be
 
affected
 
by
 
prepayments
 
of
 
MBS.
 
Any
 
acceleration
 
in
 
the
 
prepayments
 
of
 
MBS
would lower yields
 
on these securities,
 
since the amortization
 
of premiums paid
 
upon acquisition of
 
these securities would
 
accelerate.
Conversely,
 
acceleration
 
of
 
the
 
prepayments
 
of
 
MBS
 
would
 
increase
 
yields
 
on
 
securities
 
purchased
 
at
 
a
 
discount,
 
since
 
the
amortization of
 
the discount
 
would accelerate.
 
These risks
 
are directly
 
linked to
 
future period
 
market interest
 
rate fluctuations.
 
Also,
net
 
interest
 
income
 
in
 
future
 
periods
 
might
 
be
 
affected
 
by
 
the
 
Corporation’s
 
investment
 
in
 
callable
 
securities.
 
As
 
of
 
December
 
31,
2021,
 
the Corporation
 
had approximately
 
$2.0 billion
 
in debt
 
securities (U.S.
 
agencies
 
government
 
securities)
 
with embedded
 
calls,
primarily purchased at par
 
or at a discount, and
 
with an average yield
 
of 0.66%. See “Risk Management”
 
below for further analysis of
the
 
effects
 
of
 
changing
 
interest
 
rates
 
on
 
the
 
Corporation’s
 
net
 
interest
 
income
 
and
 
the
 
Corporation’s
 
interest
 
rate
 
risk
 
management
strategies.
 
Also
 
refer
 
to
 
Note
 
5
 
–
 
Investment
 
Securities,
 
to
 
the
 
audited
 
consolidated
 
financial
 
statements
 
included
 
in
 
Item
 
8
 
of
 
this
Annual Report on Form 10-K, for additional information regarding
 
the Corporation’s investment portfolio.
 
 
 
 
 
 
 
 
86
RISK MANAGEMENT
General
Risks
 
are
 
inherent
 
in
 
virtually
 
all
 
aspects
 
of
 
the
 
Corporation’s
 
business
 
activities
 
and
 
operations.
 
Consequently,
 
effective
 
risk
management
 
is
 
fundamental
 
to
 
the
 
success
 
of
 
the
 
Corporation.
 
The
 
primary
 
goals
 
of
 
risk
 
management
 
are
 
to
 
ensure
 
that
 
the
Corporation’s
 
risk-taking activities are
 
consistent with the
 
Corporation’s
 
objectives and risk
 
tolerance, and that
 
there is an appropriate
balance between risk and reward in order to maximize stockholder value.
The
 
Corporation
 
has
 
in
 
place
 
a
 
risk
 
management
 
framework
 
to
 
monitor,
 
evaluate
 
and
 
manage
 
the
 
principal
 
risks
 
assumed
 
in
conducting its activities. First BanCorp.’s
 
business is subject to 11 broad categories
 
of risks: (i) liquidity risk; (ii) interest rate risk; (iii)
market risk; (iv) credit risk; (v) operational risk;
 
(vi) legal and regulatory risk; (vii) reputational risk; (viii)
 
model risk; (ix) capital risk;
(x) strategic
 
risk; and
 
(xi) information
 
technology risk.
 
First BanCorp.
 
has adopted
 
policies and
 
procedures
 
designed to
 
identify and
manage the risks to which the Corporation is exposed.
Risk Definition
Liquidity Risk
Liquidity risk is the risk to earnings or capital arising from the possibility that the
 
Corporation will not have sufficient cash to meet
its short-term liquidity demands, such as from deposit redemptions or loan
 
commitments. See Liquidity Risk and Capital Adequacy
below for further details.
Interest Rate Risk
Interest rate risk is the risk arising from adverse movements in interest rates. See
Interest Rate Risk Management
 
below for further
details.
Market Risk
Market
 
risk
 
is
 
the
 
risk
 
arising
 
from
 
adverse
 
movements
 
in
 
market
 
rates
 
or
 
prices,
 
such
 
as
 
interest
 
rates
 
or
 
equity
 
prices.
 
The
Corporation
 
evaluates
 
market
 
risk
 
together
 
with
 
interest
 
rate
 
risk.
 
Both
 
changes
 
in
 
market
 
values
 
and
 
changes
 
in
 
interest
 
rates
 
are
evaluated and forecasted.
 
See
Interest Rate Risk Management
 
below for further details.
Credit Risk
Credit risk
 
is the
 
risk arising
 
from a
 
borrower’s or
 
a counterparty’s
 
failure to
 
meet the
 
terms of
 
a contract
 
with the
 
Corporation or
otherwise to perform as agreed. See
Credit Risk Management
 
below for further details.
Operational Risk
 
Operational
 
risk
 
is
 
the
 
risk
 
arising
 
from
 
problems
 
with
 
the
 
delivery
 
of
 
services
 
or
 
products.
 
This
 
risk
 
is
 
a
 
function
 
of
 
internal
controls,
 
information
 
systems,
 
employees
 
and
 
operating
 
processes.
 
It
 
also
 
includes
 
risks
 
associated
 
with
 
the
 
Corporation’s
preparedness
 
for
 
the
 
occurrence
 
of
 
an
 
unforeseen
 
event.
 
This
 
risk
 
is
 
inherent
 
across
 
all
 
functions,
 
products,
 
and
 
services
 
of
 
the
Corporation. See
Operational Risk
 
below for further details.
Legal and Regulatory Risk
Legal
 
and
 
regulatory
 
risk is
 
the risk
 
arising
 
from
 
the Corporation’s
 
failure
 
to comply
 
with laws
 
or
 
regulations
 
that can
 
adversely
affect the Corporation’s
 
reputation and/or increase its exposure to litigation or penalties.
 
Reputational Risk
Reputational
 
risk
 
is
 
the
 
risk
 
arising
 
from
 
any
 
adverse
 
effect
 
on
 
the
 
Corporation’s
 
market
 
value,
 
capital,
 
or
 
earnings
 
arising
 
from
negative public opinion,
 
whether true or not.
 
This risk affects the
 
Corporation’s
 
ability to establish new
 
relationships or services,
 
or to
continue servicing existing relationships.
Model Risk
Model risk
 
is the potential
 
for adverse
 
consequences from
 
decisions based
 
upon incorrect
 
or misused
 
model outputs
 
and reports
 
or
based upon
 
an incomplete or
 
inaccurate model.
 
The use of
 
models exposes the
 
Corporation to some
 
level of model
 
risk. Model errors
 
 
 
 
 
87
can
 
contribute
 
to
 
incorrect
 
valuations
 
and
 
lead
 
to
 
operational
 
errors,
 
inappropriate
 
business
 
decisions,
 
or
 
incorrect
 
financial
 
entries.
The Corporation seeks to reduce model risk through rigorous model identification
 
and validation.
Capital Risk
Capital risk
 
is the
 
risk that
 
the Corporation
 
may lose
 
value on
 
its capital
 
or have
 
an inadequate
 
capital plan,
 
which would
 
result in
insufficient capital
 
resources to meet
 
minimum regulatory
 
requirements (the Corporation’s
 
authority to operate
 
as a bank is dependent
upon the maintenance of adequate capital resources), support its credit rating,
 
or support its growth and strategic options.
 
Strategic Risk
Strategic
 
risk
 
is
 
the
 
risk
 
arising
 
from
 
adverse
 
business
 
decisions,
 
poor
 
implementation
 
of
 
business
 
decisions,
 
or
 
lack
 
of
responsiveness
 
to
 
changes
 
in
 
the
 
banking
 
industry,
 
and
 
operating
 
environment.
 
This
 
risk
 
is
 
a
 
function
 
of
 
the
 
compatibility
 
of
 
the
Corporation’s strategic
 
goals, the business strategies
 
developed to achieve
 
those goals, the resources deployed
 
against these goals, and
the quality of implementation.
Information Technology
 
Risk
Information technology
 
risk is
 
the risk
 
arising from
 
the loss of
 
confidentiality,
 
integrity,
 
or availability
 
of information
 
systems and
risk
 
of
 
cyber
 
incidents
 
or
 
data
 
breaches.
 
It
 
includes
 
business
 
risks
 
associated
 
with
 
the
 
use,
 
ownership,
 
operation,
 
involvement,
influence, and adoption of information technology within the Corporation.
Risk Governance
The
 
following
 
discussion
 
highlights
 
the
 
roles
 
and
 
responsibilities
 
of
 
the
 
key
 
participants
 
in
 
the
 
Corporation’s
 
risk
 
management
framework:
Board of Directors
The
 
Board
 
of Directors
 
oversees the
 
Corporation’s
 
overall
 
risk governance
 
program
 
with the
 
assistance
 
of the
 
Board
 
committees
discussed below.
Risk Committee
The Board of
 
Directors of the Corporation
 
appoints the Risk Committee
 
to assist the Board
 
in fulfilling its responsibility
 
to oversee
the
 
Corporation’s
 
management
 
of
 
its
 
company-wide
 
risk
 
management
 
framework.
 
The
 
committee’s
 
role
 
is
 
one
 
of
 
oversight,
recognizing
 
that management
 
is responsible
 
for designing,
 
implementing,
 
and maintaining
 
an effective
 
risk management
 
framework.
The committee’s primary
 
responsibilities are to:
●
Review and discuss management’s
 
assessment of the Corporation’s
 
aggregate enterprise-wide profile
 
and the alignment of the
Corporation’s risk profile with
 
the Corporation’s strategic plan,
 
goals, and objectives;
●
Review and recommend to the Board the parameters and establishment of
 
the Corporation’s risk tolerance and risk
 
appetite;
●
Receive
 
reports
 
from
 
management
 
and,
 
if
 
appropriate,
 
other
 
Board
 
committees,
 
regarding
 
the
 
Corporation’s
 
policies
 
and
procedures
 
related
 
to
 
the
 
Corporation’s
 
adherence
 
to
 
risk
 
limits
 
and
 
its
 
established
 
risk
 
tolerance
 
and
 
risk
 
appetite
 
or
 
on
selected risk topics;
 
●
Oversee the strategies,
 
policies, procedures, and
 
systems established by
 
management to identify,
 
assess, measure, and
 
manage
the
 
major
 
risks
 
facing
 
the
 
Corporation,
 
which
 
may
 
include
 
an
 
overview
 
of
 
the
 
Corporation’s
 
credit
 
risk,
 
operational
 
risk,
technology risk,
 
compliance risk,
 
interest rate
 
risk, liquidity
 
risk, market
 
risk, and
 
reputational risk,
 
as well
 
as management’s
capital management, planning,
 
and process;
 
●
Oversee management’s activities with
 
respect to capital planning, including stress testing and model risk;
●
Review and discuss with management risk assessments for new products
 
and services; and
●
Oversee the Corporation’s regulatory
 
compliance.
 
 
 
 
88
Asset and Liability Committee
The
 
Board of
 
Directors
 
appoints the
 
Asset and
 
Liability
 
Committee
 
to assist
 
the Board
 
in its
 
oversight
 
of the
 
Corporation’s
 
asset
and liability
 
management policies
 
related to
 
the management
 
of the
 
Corporation’s
 
funds, investments,
 
liquidity,
 
and interest
 
rate risk,
and the use of derivatives. In doing so, the committee’s
 
primary functions involve:
●
The establishment of a process to enable the identification, assessment, and
 
management of risks that could affect the
Corporation’s assets and liabilities management;
●
The identification of the Corporation’s
 
risk tolerance levels for yield maximization relating to its assets and liabilities
management; and
●
The evaluation of the adequacy,
 
effectiveness,
 
and compliance with the Corporation’s
 
risk management process relating to
the Corporation’s assets and liabilities management,
 
including management’s role in
 
that process.
Credit Committee
The Board of Directors appoints the Credit Committee to assist the
 
Board in its oversight of the Corporation’s
 
policies related to the
Corporation’s lending function,
 
hereafter “Credit Management.” The committee’s
 
primary responsibilities are to:
●
Review the quality of the Corporation’s
 
credit portfolio and the trends affecting that portfolio;
●
Oversee the effectiveness and administration of credit-related
 
policies;
 
●
Approve loans as required by the lending authorities approved by
 
the Board; and
●
Report to the Board regarding Credit Management.
Audit Committee
The
 
Board
 
of
 
Directors
 
appoints
 
the
 
Audit
 
Committee
 
to
 
assist
 
the
 
Board
 
of
 
Directors
 
in
 
fulfilling
 
its
 
responsibility
 
to
 
oversee
management regarding:
 
●
The
 
conduct
 
and
 
integrity
 
of
 
the
 
Corporation’s
 
financial
 
reporting
 
to
 
any
 
governmental
 
or
 
regulatory
 
body,
 
stockholders,
other users of the Corporation’s financial
 
reports and the public;
●
The performance of the Corporation’s
 
internal audit function;
●
The Corporation’s internal
 
control over financial reporting and disclosure controls and procedures;
●
The
 
qualifications,
 
engagement,
 
compensation,
 
independence,
 
and
 
performance
 
of
 
the
 
Corporation’s
 
independent
 
auditors,
their
 
conduct
 
of
 
the
 
annual
 
audit
 
of
 
the
 
Corporation’s
 
financial
 
statements,
 
and
 
their
 
engagement
 
to
 
provide
 
any
 
other
services;
●
The application of the Corporation’s
 
related parties transaction policy as established by the Board of Directors;
 
●
The
 
application
 
of
 
the
 
Corporation’s
 
code
 
of
 
business
 
conduct
 
and
 
ethics
 
as
 
established
 
by
 
management
 
and
 
the
 
Board
 
of
Directors;
 
●
The preparation
 
of the
 
Audit Committee
 
report required
 
to be
 
included
 
in the
 
proxy statement
 
for the
 
Corporation’s
 
annual
stockholders’ meeting by the rules of the SEC; and
●
Oversee the Corporation’s legal risk.
 
 
 
 
 
 
89
Corporate Governance and Nominating Committee
The
 
Board
 
of Directors
 
appoints the
 
Corporate
 
Governance
 
and
 
Nominating
 
Committee
 
to develop,
 
review,
 
and assess
 
corporate
governance principles.
 
The Corporate
 
Governance and
 
Nominating Committee
 
is responsible
 
for director
 
succession, orientation
 
and
compensation,
 
identifying
 
and
 
recommending
 
new
 
director
 
candidates,
 
overseeing
 
the
 
evaluation
 
of
 
the
 
Board
 
and
 
management,
recommending
 
to
 
the
 
Board
 
the
 
designation
 
of
 
a
 
candidate
 
to
 
hold
 
the
 
position
 
of
 
the
 
Chairman
 
of
 
the
 
Board,
 
and
 
directing
 
and
overseeing
 
the
 
Corporation’s
 
executive
 
succession
 
plan.
 
In
 
addition,
 
the
 
Corporate
 
Governance
 
and
 
Nominating
 
Committee
 
is
responsible for overseeing the Corporation’s
 
ESG policies.
Compensation and Benefits Committee
The
 
Board
 
of
 
Directors
 
appoints
 
the
 
Compensation
 
and
 
Benefits
 
Committee
 
to
 
oversee
 
compensation
 
policies
 
and
 
practices
including
 
the
 
evaluation
 
and
 
recommendation
 
to
 
the
 
Board
 
of
 
the
 
proper
 
and
 
competitive
 
salaries
 
and
 
incentive
 
compensation
programs of
 
the executive
 
officers and
 
key employees
 
of the
 
Corporation. The
 
Committee recommends
 
guidelines and
 
principles for
compensation
 
programs of
 
executive officers
 
and key
 
employees of
 
the Corporation,
 
including establishing
 
a clear
 
link between
 
pay
and performance and safeguards against the encouragement of excessive risk-taking.
 
Trust Committee
The
 
Board
 
of
 
Directors
 
of
 
the
 
Bank
 
appoints
 
the
 
Trust
 
Committee
 
to
 
assist
 
the
 
Board
 
of
 
Directors
 
in
 
fulfilling
 
its
 
oversight
responsibilities with respect to the Trust
 
Department and its fiduciary responsibilities. The
 
Trust Committee’s
 
main responsibilities are
to
 
ensure
 
proper
 
exercise
 
of
 
the
 
fiduciary
 
powers
 
of
 
the
 
Bank
 
and
 
to
 
review
 
the
 
activities
 
of
 
the
 
Trust
 
Department.
 
The
 
Trust
Committee shall have jurisdiction over all aspects of the Trust
 
Department and may act on behalf of the Board of Directors.
Management Roles and Responsibilities
While
 
the
 
Board
 
of
 
Directors
 
has
 
the
 
responsibility
 
to
 
oversee
 
the
 
risk
 
governance
 
program,
 
management
 
is
 
responsible
 
for
implementing
 
the necessary
 
policies and
 
procedures,
 
and internal
 
controls. To
 
carry out
 
these responsibilities,
 
the Corporation
 
has a
clearly
 
defined
 
risk governance
 
culture. To
 
ensure that
 
risk management
 
is communicated
 
at all
 
levels of
 
the Corporation,
 
and each
area understands
 
its specific
 
role, the
 
Corporation has
 
established several
 
management level
 
committees to
 
support risk
 
oversight, as
follows:
 
Executive Risk Management Committee
The
 
Executive
 
Risk
 
Management
 
Committee
 
is
 
responsible
 
for
 
exercising
 
oversight
 
of
 
information
 
regarding
 
First
 
BanCorp.’s
enterprise
 
risk
 
management
 
framework,
 
including
 
the
 
significant
 
policies,
 
procedures,
 
and
 
practices
 
employed
 
to
 
manage
 
the
identified
 
risk
 
categories
 
(credit
 
risk,
 
operational
 
risk,
 
legal
 
and
 
regulatory
 
risk,
 
reputational
 
risk,
 
model
 
risk,
 
and
 
capital
 
risk).
 
In
carrying
 
out
 
its
 
oversight
 
responsibilities,
 
each
 
committee
 
member
 
is
 
entitled
 
to
 
rely
 
on
 
the
 
integrity
 
and
 
expertise
 
of
 
those
 
people
providing
 
information
 
to
 
the committee
 
and
 
on
 
the
 
accuracy
 
and
 
completeness
 
of
 
such
 
information,
 
absent
 
actual
 
knowledge
 
of
 
an
inaccuracy.
The
 
Chief
 
Executive
 
Officer
 
appoints
 
the
 
Executive
 
Risk Management
 
Committee
 
and members
 
of
 
the Corporation’s
 
senior
 
and
executive management have
 
the opportunity to
 
share their insights about
 
the types of risks
 
that could impede
 
the Corporation’s
 
ability
to achieve
 
its business
 
objectives. The
 
Chief Risk
 
Officer
 
of the
 
Corporation directs
 
the agenda
 
for
 
the meetings
 
and the
 
Enterprise
Risk Management
 
(“ERM”) and
 
Operational Risk
 
Director serves
 
as secretary
 
of the
 
committee and
 
maintains the
 
minutes on
 
behalf
of the committee. The General Auditor also participates of the committee as an
 
observer.
The
 
committee
 
provides
 
assistance
 
and
 
support
 
to
 
the
 
Chief
 
Risk
 
Officer
 
to
 
promote
 
effective
 
risk
 
management
 
throughout
 
the
Corporation.
 
The
 
Chief
 
Risk
 
Officer
 
and
 
the
 
ERM
 
and
 
Operational
 
Risk
 
Director
 
report
 
to
 
the
 
Committee
 
matters
 
related
 
to
 
the
enterprise risk management framework of the Corporation, including, but not
 
limited to:
●
The risk governance structure;
●
The risk competencies of the Corporation;
●
The Corporation’s risk appetite
 
statement and risk tolerance; and
●
The risk management
 
strategy and associated risk
 
management initiatives and
 
how both support
 
the business strategy
and business model of the Corporation.
 
 
90
Other Management Committees
As
 
part
 
of
 
its
 
governance
 
framework,
 
the
 
Corporation
 
has
 
various
 
additional
 
risk
 
management
 
related-committees.
 
These
committees are
 
jointly responsible
 
for ensuring
 
adequate risk
 
measurement and
 
management in
 
their respective
 
areas of authority.
 
At
the management level, these committees include:
●
Management’s
 
Investment and
 
Asset Liability Committee
 
(the
 
“MIALCO”) – oversees
 
interest rate
 
and market
 
risk, liquidity
management
 
and
 
other
 
related
 
matters.
 
Refer
 
to
 
Liquidity
 
Risk
 
and
 
Capital
 
Adequacy
 
and
Interest
 
Rate
 
Risk
 
Management
below for further details.
●
Information Technology
 
Steering Committee –
 
oversees and counsels
 
on matters related
 
to information
 
technology and cyber
security, including
 
the development of information management policies and procedures
 
throughout the Corporation.
 
●
Bank Secrecy Act Committee – oversees, monitors,
 
and reports on the Corporation’s compliance
 
with the Bank Secrecy Act.
●
Credit Committees (consisting
 
of a Credit Management
 
Committee and a
 
Delinquency Committee) –
 
oversees and establishes
standards for credit
 
risk management processes
 
within the Corporation.
 
The Credit Management
 
Committee is responsible
 
for
the approval
 
of loans
 
above an
 
established size
 
threshold. The
 
Delinquency Committee
 
is responsible
 
for the
 
periodic review
of
 
(i) past-due
 
loans, (ii)
 
overdrafts,
 
(iii)
 
non-accrual
 
loans, (iv)
 
OREO assets,
 
and
 
(v)
 
the Bank’s
 
internal
 
credit-risk
 
rating
classification.
●
Vendor
 
Management
 
Committee
 
–
 
oversees
 
policies,
 
procedures,
 
and
 
related
 
practices
 
related
 
to
 
the
 
Corporation’s
 
vendor
management
 
efforts.
 
The
 
Vendor
 
Management
 
Committee’s
 
primary
 
functions
 
involve
 
the
 
establishment
 
of
 
processes
 
and
procedures to enable the recognition, assessment, management,
 
and monitoring of vendor management risks.
●
ESG
 
Committee
 
–
 
primarily
 
responsible
 
for
 
driving
 
the
 
Corporation’s
 
ESG
 
policies,
 
strategy
 
and
 
reporting
 
regularly
 
to
 
the
Corporate Governance and Nominating
 
Committee. The ESG Committee aligns
 
priorities and initiatives for
 
the year, provides
strategy recommendations and leads the reporting process on ESG related topics.
 
●
The Community
 
Reinvestment Act
 
Executive Committee
 
– oversees,
 
monitors,
 
and reports
 
on the
 
Corporation’s
 
compliance
with
 
Community
 
Reinvestment
 
Act
 
regulatory
 
requirements.
 
The
 
Bank
 
is
 
committed
 
to
 
developing
 
and
 
implementing
programs and products that
 
increase access to credit and
 
create a positive impact
 
on low and moderate
 
income individuals and
communities.
●
Anti-Fraud
 
Committee
 
–
 
oversees
 
the
 
Corporation’s
 
policies,
 
procedures
 
and
 
related
 
practices
 
relating
 
to
 
the
 
Corporation’s
anti-fraud measures.
●
Regulatory
 
Compliance
 
Committee
 
–
 
oversees
 
the
 
Corporation’s
 
Regulatory
 
Compliance
 
Management
 
System.
 
The
Regulatory
 
Compliance
 
Committee
 
reviews
 
and
 
discusses
 
any
 
regulatory
 
compliance
 
laws
 
and
 
regulations
 
that
 
impact
performance
 
of
 
regulatory
 
compliance
 
policies,
 
programs
 
and
 
procedures.
 
The
 
Regulatory
 
Compliance
 
Committee
 
also
ensures the coordination of regulatory compliance requirements throughout
 
departments and business units.
●
Regulatory Reporting Committee
 
– oversees and
 
assists the senior
 
officers in fulfilling
 
their responsibility for oversight
 
of the
accuracy
 
and
 
timeliness
 
of
 
the
 
required
 
regulatory
 
reports
 
and
 
related
 
policies
 
and
 
procedures,
 
addresses
 
changes
 
and/or
concerns
 
communicated
 
by
 
the
 
regulators,
 
and
 
addresses
 
issues
 
identified
 
during
 
the
 
regulatory
 
reporting
 
process.
 
The
Regulatory
 
Reporting
 
Committee
 
oversees,
 
and
 
updates,
 
as
 
necessary,
 
the
 
established
 
controls
 
and
 
procedures
 
designed
 
to
ensure that information in regulatory reports is recorded, processed, and
 
accurately reported and on a timely basis.
 
●
Complaints
 
Management
 
Committee
 
–
 
assists
 
in
 
overseeing
 
the
 
complaint
 
management
 
process
 
implemented
 
across
 
the
Corporation
 
within
 
the
 
Corporation’s
 
three
 
marketplaces;
 
Puerto
 
Rico,
 
the
 
Virgin
 
Islands,
 
and
 
Florida.
 
The
 
Complaints
Management
 
Committee
 
supports
 
the
 
Corporation’s
 
complaints
 
management
 
program
 
relating
 
to
 
resolution
 
of
 
complaints
within the
 
lines of
 
business. When
 
appropriate, the
 
Complaints Management
 
Committee evaluates
 
existing corrective
 
actions
within the lines of business related to complaints and complaint management practices
 
within those business units.
 
●
Project
 
Portfolio
 
Management
 
Committee
 
–
 
reviews
 
and
 
oversees
 
the
 
performance
 
of
 
the
 
portfolio
 
and
 
individual
 
projects
during
 
the
 
Project
 
Management
 
Cycle
 
(Initiation,
 
Planning,
 
Execution,
 
Control
 
&
 
Monitoring,
 
and
 
Closing).
 
The
 
Project
Portfolio
 
Management
 
Committee
 
balances
 
conflicting
 
demands
 
between
 
projects,
 
decides
 
on
 
priorities
 
assigned
 
to
 
each
project
 
based on
 
organizational
 
priorities
 
and
 
capacity,
 
and oversees
 
project
 
budgets, risks,
 
and
 
actions taken
 
to control
 
and
mitigate risks.
 
91
●
Current Expected Credit Losses (“CECL”)
 
Committee – oversees the Corporation’s
 
requirements for the calculation of CECL,
including the implementation
 
of new models,
 
if necessary,
 
selection of vendors
 
and monitoring of the
 
guidance from different
regulatory
 
agencies
 
with
 
regards
 
to
 
CECL
 
requirements.
 
The
 
CECL
 
Committee
 
reviews
 
estimated
 
credit
 
loss
 
inputs,
 
key
assumptions, and
 
qualitative overlays.
 
In addition,
 
the Committee
 
approves the
 
determination of
 
reasonable and
 
supportable
periods
 
used
 
with
 
respect
 
to macroeconomic
 
forecasts,
 
and
 
the
 
historical
 
loss reversion
 
method
 
and
 
parameters.
 
The CECL
Committee reports to the Audit Committee the results of the ACL each reporting
 
period.
●
Capital Planning
 
Committee –
 
oversees the
 
Capital Planning
 
Process and
 
is responsible
 
for operating
 
in accordance
 
with the
Capital
 
Policy
 
and
 
ensuring
 
compliance
 
with
 
its
 
guidelines.
 
The
 
Capital
 
Planning
 
Committee
 
develops
 
and
 
proposes
 
to
 
the
Board
 
changes
 
to
 
the
 
Capital
 
Policy
 
and
 
the
 
capital
 
plan
 
targets,
 
limits,
 
performance
 
metrics,
 
internal
 
stress
 
testing
 
and
guidelines for Capital Management Activities.
●
Business Continuity – responsible
 
to create governance
 
and planning structure that
 
will enable FirstBank to
 
craft an enterprise
Business Continuity
 
Management (BCM)
 
program that
 
ensures the
 
Bank is able
 
to continue business
 
operations after a
 
major
disruption occurs.
●
Emergency Committee
 
– Responsible to activate
 
and emergency or
 
disaster recovery procedure
 
to ensure the safety
 
of Bank’s
personnel and the continuity of critical Bank services.
Officers
As part of its governance framework, the following officers
 
play a key role in the Corporation’s risk
 
management process:
●
The Chief Executive
 
Officer (“CEO”) is
 
responsible for the
 
overall risk governance
 
structure of the Corporation.
 
The CEO is
ultimately responsible for business strategies, strategic objectives, risk management
 
priorities, and policies.
●
The
 
Chief Operating
 
Officer
 
(“COO”)
 
manages
 
the Corporation’s
 
operational
 
framework,
 
including
 
information
 
technology
(“IT”),
 
facilities,
 
banking
 
operations,
 
corporate
 
security,
 
and
 
enterprise
 
architecture.
 
The
 
COO
 
oversees
 
the
 
effective
 
and
efficient execution of the various technology initiatives
 
to support the Corporation’s growth and
 
improve overall efficiency.
●
The Chief Risk Officer
 
(“CRO”) is responsible for
 
the oversight of the
 
risk management of the
 
Corporation as well as
 
the risk
governance
 
processes.
 
The
 
CRO, together
 
with
 
the
 
ERM
 
and
 
Operational
 
Risk Director,
 
monitor
 
key
 
risks
 
and
 
manage the
operational
 
risk
 
program.
 
The
 
CRO
 
provides
 
the
 
leadership
 
and
 
strategy
 
for
 
the
 
Corporation’s
 
risk
 
management
 
and
monitoring
 
activities and
 
is responsible
 
for the
 
oversight
 
of regulatory
 
compliance, loan
 
review,
 
model risk,
 
and operational
risk
 
management.
 
The
 
CRO
 
supervises
 
talent
 
management
 
efforts,
 
maintains
 
adequate
 
succession
 
planning
 
practices
 
and
promotes
 
employee
 
engagement.
 
The
 
Human
 
Resources
 
Director
 
supports
 
the
 
CRO
 
in
 
the
 
human
 
capital
 
and
 
talent
management efforts.
 
●
Chief Credit Officer, Portfolio
 
Risk Manager, Loan Review Manager
 
and other Senior Executives are responsible for
managing and executing the Corporation’s
 
credit risk program.
 
●
The
 
Chief
 
Financial
 
Officer
 
(“CFO”),
 
together
 
with
 
the
 
Corporation’s
 
Treasurer
 
and
 
the
 
Asset
 
and
 
Liability
 
Management
(“ALM”) Director,
 
and Financial Risk Manager manage
 
the Corporation’s
 
interest rate and market and
 
liquidity risk programs
and,
 
together
 
with
 
the
 
Chief
 
Accounting
 
Officer
 
and
 
the
 
Corporate
 
Controller,
 
are
 
responsible
 
for
 
the
 
implementation
 
of
accounting
 
policies
 
and
 
practices
 
in
 
accordance
 
with
 
GAAP
 
and
 
applicable
 
regulatory
 
requirements.
 
The
 
ERM
 
and
Operational
 
Risk
 
Director
 
assists
 
the
 
CFO
 
in
 
the
 
review
 
of
 
the
 
Corporation’s
 
internal
 
control
 
over
 
financial
 
reporting
 
and
disclosure controls and procedures.
●
The
 
Chief
 
Accounting
 
Officer
 
and
 
the
 
Corporate
 
Controller
 
is
 
responsible
 
for
 
the
 
development
 
and
 
implementation
 
of
 
the
Corporation’s
 
accounting policies
 
and practices
 
and the
 
review and
 
monitoring of
 
critical accounts
 
and transactions
 
to ensure
that they are reported in accordance with GAAP and applicable regulatory
 
requirements.
●
The
 
Strategic
 
Planning
 
Director
 
is
 
responsible
 
for
 
the
 
development
 
of
 
the
 
Corporation’s
 
strategic
 
and
 
business
 
plan,
 
by
coordinating
 
and
 
collaborating
 
with
 
the
 
executive
 
team
 
and
 
all
 
corporate
 
bodies
 
concerned
 
with
 
the
 
strategic
 
and
 
business
planning process.
●
The Investors Relations and Capital Planning
 
Officer is responsible for improving
 
the effective communication with
 
investors,
while
 
enhancing
 
the
 
Corporation’s
 
capital
 
plan
 
based
 
on
 
the
 
stress
 
test
 
processes
 
and
 
proactively
 
managing
 
capital.
 
The
Investor
 
Relations
 
and
 
Capital
 
Planning
 
Officer
 
works
 
with
 
the
 
Treasury,
 
ALM
 
and
 
Financial
 
Analysis,
 
Corporate
 
Credit
92
Risk,
 
and
 
Strategic
 
Planning
 
units
 
in
 
order
 
to
 
follow
 
a
 
holistic
 
approach
 
to
 
proactively
 
manage
 
risk
 
and
 
returns
 
for
shareholders under the stress testing framework.
 
●
The ERM and Operational Risk Director is responsible for
 
driving the identification, assessment, measurement, mitigation
 
and
monitoring of key risks throughout the Corporation. The ERM and
 
Operational Risk Director promotes and instills a culture of
risk
 
control,
 
identifies
 
and
 
monitors
 
the
 
resolution
 
of
 
major
 
and
 
critical
 
operational
 
risk
 
issues
 
across
 
the
 
Corporation,
 
and
serves
 
as
 
a
 
key
 
advisor
 
to
 
business
 
executives
 
with
 
regards
 
to
 
risk
 
exposure
 
to
 
the
 
organization,
 
corrective
 
actions
 
and
corporate
 
policies
 
and
 
best
 
practices
 
to
 
mitigate
 
risks.
 
The
 
Financial
 
and
 
Model
 
Risk
 
Manager,
 
IT
 
Risk
 
Manager,
 
Retail
Quality Assurance Manager,
 
Regulatory Affairs
 
Manager and Corporate
 
Risk Managers assist
 
the ERM and
 
Operational Risk
Director in the monitoring of key risks and oversight of risk management
 
practices.
●
The
 
Compliance
 
Director
 
is
 
responsible
 
for
 
oversight
 
of
 
regulatory
 
compliance.
 
The
 
Compliance
 
Director
 
maintains
 
an
inventory of applicable regulations, implements an enterprise-wide
 
compliance risk assessment, and monitors compliance with
significant
 
regulations.
 
The Compliance
 
Director
 
is responsible
 
for
 
building
 
awareness
 
of,
 
and
 
educating
 
business units
 
and
subsidiaries on, regulatory risks.
●
The General
 
Counsel is
 
responsible
 
for
 
the oversight
 
of legal
 
risks, including
 
matters such
 
as contract
 
structuring,
 
litigation
risk,
 
and
 
all
 
legal-related
 
aspects.
 
The
 
Corporate
 
Affairs
 
Officer
 
assists
 
the
 
General
 
Counsel
 
with
 
various
 
legal
 
areas,
including, but not limited, to SEC reporting matters, insurance coverage
 
and liability, and contract
 
structuring.
●
The Chief
 
Information
 
Officer
 
(“CIO”)
 
is responsible
 
for overseeing
 
technology
 
services provided
 
by IT
 
vendors including:
(i) the
 
fulfillment of
 
contractual obligations
 
and responsibilities;
 
(ii) the
 
development
 
of policies
 
and standards
 
related to
 
the
technology;
 
(iii)
 
services
 
provided;
 
(iv)
 
billing
 
and
 
invoice
 
processing;
 
(v)
 
Service
 
Level
 
Agreement
 
(SLA)
 
metrics
 
and
compliance; and vi) the Business Continuity Strategy.
●
The Corporate
 
Security Officer
 
(“CSO”) is
 
responsible for
 
the oversight
 
of information
 
security policies
 
and procedures,
 
and
the ongoing
 
monitoring
 
of existing
 
and new
 
vendors’ due
 
diligence for
 
information security.
 
In addition,
 
the CSO
 
identifies
risk factors, and determines solutions to security needs.
 
Liquidity Risk and Capital Adequacy,
 
Interest Rate Risk, Credit Risk, Operational Risk,
 
Legal and Compliance Risk and
Concentration Risk Management
The
 
following
 
discussion
 
highlights
 
First
 
BanCorp.’s
 
adopted
 
policies
 
and
 
procedures
 
for
 
liquidity
 
risk
 
and
 
capital
 
adequacy,
interest rate risk, credit risk, operational risk, legal and compliance risk,
 
and concentration risk.
Liquidity Risk and Capital Adequacy
Liquidity
 
risk
 
involves
 
the
 
ongoing
 
ability
 
to
 
accommodate
 
liability
 
maturities
 
and
 
deposit
 
withdrawals,
 
fund
 
asset growth
 
and
business operations,
 
and meet
 
contractual obligations
 
through unconstrained
 
access to funding
 
at reasonable
 
market rates. Liquidity
management
 
involves
 
forecasting
 
funding
 
requirements
 
and
 
maintaining
 
sufficient
 
capacity
 
to
 
meet
 
liquidity
 
needs
 
and
accommodate
 
fluctuations
 
in
 
asset
 
and
 
liability
 
levels
 
due
 
to
 
changes
 
in
 
the
 
Corporation’s
 
business
 
operations
 
or
 
unanticipated
events.
 
 
The Corporation
 
manages liquidity
 
at two
 
levels. The
 
first is
 
the liquidity
 
of the
 
parent company,
 
which is
 
the holding
 
company
that owns
 
the banking
 
and non-banking
 
subsidiaries.
 
The second
 
is the
 
liquidity of
 
the banking
 
subsidiary.
 
During the
 
year
 
ended
December 31, 2021, the
 
Corporation continued to pay
 
quarterly interest payments on
 
the subordinated debentures
 
associated with its
TRuPs, the
 
monthly dividend
 
income on
 
its non-cumulative
 
perpetual monthly
 
income preferred
 
stock, and
 
quarterly dividends
 
on
its
 
common
 
stock.
 
In
 
addition, since
 
the
 
inception of
 
the
 
$300
 
million stock
 
repurchase program through
 
December 31,
 
2021, the
Corporation has repurchased 16.74 million
 
shares at
 
a
 
cost of
 
$213.9 million and
 
redeemed all of
 
its outstanding shares of
 
Series A
through E
 
Preferred
 
Stock for
 
its liquidation
 
value of
 
$36.1 million.
 
The
 
Asset
 
and
 
Liability
 
Committee
 
of
 
the
 
Corporation’s
 
Board
 
of
 
Directors
 
is
 
responsible
 
for
 
overseeing
 
management’s
establishment
 
of
 
the
 
Corporation’s
 
liquidity
 
policy,
 
as
 
well
 
as
 
approving
 
operating
 
and
 
contingency
 
procedures
 
and
 
monitoring
liquidity on an ongoing basis. The
 
MIALCO, which reports to the Board
 
of Directors’ Asset and Liability Committee,
 
uses measures
of liquidity developed by management that involve
 
the use of several assumptions to review the Corporation’s
 
liquidity position on a
monthly basis. The MIALCO oversees liquidity management, interest
 
rate risk, and other related matters.
 
The MIALCO is composed of
 
senior management officers,
 
including the Chief Executive Officer,
 
the Chief Financial Officer,
 
the
Chief Risk
 
Officer,
 
the Business
 
Group
 
Director,
 
the Strategy
 
Management Director,
 
the Treasury
 
and Investments
 
Risk Manager,
the Financial Planning and ALM Director
 
,
 
and the Treasurer.
 
The Treasury and Investments
 
Division is responsible for planning and
93
executing the Corporation’s
 
funding activities and strategy,
 
monitoring liquidity availability on
 
a daily basis, and reviewing liquidity
measures
 
on
 
a
 
weekly
 
basis.
 
The
 
Treasury
 
and
 
Investments
 
Accounting
 
and
 
Operations
 
area
 
of
 
the
 
Comptroller’s
 
Department
 
is
responsible
 
for
 
calculating
 
the liquidity
 
measurements
 
used
 
by
 
the
 
Treasury
 
and
 
Investment
 
Division
 
to
 
review
 
the
 
Corporation’s
liquidity
 
position
 
on
 
a
 
monthly
 
basis.
 
The
 
Financial
 
Planning
 
and
 
ALM
 
Division
 
is
 
responsible
 
to
 
estimates
 
the
 
liquidity
 
gap
 
for
longer periods.
To
 
ensure
 
adequate liquidity
 
through the
 
full range
 
of potential
 
operating
 
environments and
 
market conditions,
 
the Corporation
conducts
 
its
 
liquidity
 
management
 
and
 
business
 
activities
 
in
 
a
 
manner
 
that
 
is
 
intended
 
to
 
preserve
 
and
 
enhance
 
funding
 
stability,
flexibility,
 
and
 
diversity.
 
Key
 
components
 
of
 
this
 
operating
 
strategy
 
include
 
a
 
strong
 
focus
 
on
 
the
 
continued
 
development
 
of
customer-based
 
funding, the
 
maintenance
 
of direct
 
relationships with
 
wholesale
 
market funding
 
providers, and
 
the maintenance
 
of
the ability to liquidate certain assets when, and if, requirements warrant.
 
The
 
Corporation
 
develops
 
and
 
maintains
 
contingency
 
funding
 
plans.
 
These
 
plans
 
evaluate
 
the
 
Corporation’s
 
liquidity
 
position
under various
 
operating circumstances
 
and are
 
designed to
 
help ensure
 
that the
 
Corporation will
 
be able
 
to operate
 
through periods
of stress when
 
access to normal
 
sources of funds
 
is constrained. The
 
plans project funding
 
requirements during
 
a potential period
 
of
stress, specify and
 
quantify sources of
 
liquidity,
 
outline actions and
 
procedures for effectively
 
managing liquidity through
 
a difficult
period, and define
 
roles and responsibilities
 
for the Corporation’s
 
employees. Under the
 
contingency funding plans,
 
the Corporation
stresses the
 
balance sheet
 
and the liquidity
 
position to
 
critical levels
 
that mimic
 
difficulties in
 
generating funds
 
or even maintaining
the current
 
funding position
 
of the
 
Corporation and
 
the Bank
 
and are
 
designed to
 
help ensure
 
the ability
 
of the
 
Corporation and
 
the
Bank to honor
 
their respective commitments.
 
The Corporation has
 
established liquidity
 
triggers that the
 
MIALCO monitors in
 
order
to
 
maintain
 
the
 
ordinary
 
funding
 
of
 
the
 
banking
 
business.
 
The
 
MIALCO
 
developed
 
contingency
 
funding
 
plans
 
for
 
the
 
following
three scenarios:
 
a credit
 
rating downgrade,
 
an economic
 
cycle downturn
 
event, and
 
a concentration
 
event. The
 
Board of
 
Directors’
Asset and Liability Committee reviews and approves these plans on an annual
 
basis.
The Corporation
 
manages its
 
liquidity in
 
a proactive
 
manner,
 
in an
 
effort to
 
maintain a
 
sound liquidity
 
position. It
 
uses multiple
measures
 
to
 
monitor
 
the
 
liquidity
 
position,
 
including
 
core
 
liquidity,
 
basic
 
liquidity,
 
and
 
time-based
 
reserve
 
measures.
 
As
 
of
December 31,
 
2021, the
 
estimated core
 
liquidity reserve
 
(which includes
 
cash and
 
free liquid
 
assets) was
 
$5.6 billion,
 
or 27.0%
 
of
total
 
assets,
 
compared
 
to
 
$4.1
 
billion,
 
or
 
21.6%
 
of
 
total
 
assets
 
as
 
of
 
December
 
31,
 
2020.
 
The
 
basic
 
liquidity
 
ratio
 
(which
 
adds
available secured lines of credit to the core liquidity)
 
was approximately 32.7% of total assets as of December 31,
 
2021, compared to
27.9% of total
 
assets as of
 
December
 
31, 2020.
 
As of December
 
31, 2021, the
 
Corporation had $1.2
 
billion available
 
for additional
credit from the
 
FHLB. Unpledged liquid
 
securities, mainly fixed-rate
 
MBS and U.S. agency
 
debentures, amounted to
 
approximately
$3.1
 
billion as of
 
December 31, 2021.
 
The Corporation does
 
not rely on
 
uncommitted inter-bank
 
lines of credit
 
(federal funds lines)
to fund its
 
operations and does
 
not include them
 
in the basic liquidity
 
measure. As of
 
December 31, 2021,
 
the holding company
 
had
$20.8
 
million
 
of
 
cash
 
and
 
cash
 
equivalents.
 
Cash
 
and
 
cash
 
equivalents
 
at
 
the
 
Bank
 
level
 
as
 
of
 
December
 
31,
 
2021
 
were
approximately $2.5
 
billion. The Bank
 
had $100.4
 
million in brokered
 
CDs as of
 
December 31, 2021,
 
of which approximately
 
$63.6
million
 
mature
 
over
 
the
 
next
 
twelve
 
months.
 
In
 
addition,
 
the
 
Corporation
 
had
 
non-maturity
 
brokered
 
deposits
 
totaling
 
$247.5
million as of
 
December 31, 2021.
 
Liquidity at the
 
Bank level is
 
highly dependent
 
on bank deposits,
 
which fund
 
86% of the
 
Bank’s
assets (or 85%, excluding brokered CDs).
Furthermore, as
 
a provider of
 
financial services,
 
the Corporation routinely
 
enters into commitments
 
with off-balance
 
sheet risk to
meet the
 
financial needs
 
of its
 
customers. These
 
financial instruments
 
may include
 
loan commitments
 
and standby
 
letters of
 
credit.
These
 
commitments
 
are
 
subject
 
to
 
the
 
same
 
credit
 
policies
 
and
 
approval
 
processes
 
used
 
for
 
on-balance
 
sheet
 
instruments.
 
These
instruments involve, to varying degrees,
 
elements of credit and interest rate risk
 
in excess of the amount recognized in
 
the statements
of financial
 
condition. As
 
of December
 
31, 2021,
 
the Corporation’s
 
commitments to
 
extend credit
 
amounted to
 
approximately $2.3
billion,
 
of
 
which
 
$1.2
 
billion
 
related
 
to
 
credit
 
card
 
loans.
 
Commercial
 
and
 
financial
 
standby
 
letters
 
of
 
credit
 
amounted
 
to
approximately $151.1 million. Commitments
 
to extend credit are agreements
 
to lend to a customer
 
as long as there is
 
no violation of
any
 
condition
 
established
 
in
 
the
 
contract.
 
Since
 
certain
 
commitments
 
are
 
expected
 
to
 
expire
 
without
 
being
 
drawn
 
upon,
 
the
 
total
commitment
 
amount
 
does
 
not
 
necessarily
 
represent
 
future
 
cash
 
requirements.
 
For
 
most
 
of
 
the
 
commercial
 
lines
 
of
 
credit,
 
the
Corporation
 
has
 
the
 
option
 
to
 
reevaluate
 
the
 
agreement
 
prior
 
to
 
additional
 
disbursements.
 
There
 
have
 
been
 
no
 
significant
 
or
unexpected draws
 
on existing
 
commitments. In
 
the case
 
of credit
 
cards and
 
personal lines
 
of credit,
 
the Corporation
 
can cancel
 
the
unused credit facility at any time and without cause.
The
 
Corporation
 
engages
 
in
 
the ordinary
 
course
 
of business
 
in
 
other
 
financial
 
transactions
 
that
 
are not
 
recorded
 
on the
 
balance
sheet,
 
or
 
may
 
be
 
recorded
 
on
 
the
 
balance
 
sheet
 
in
 
amounts
 
that
 
are
 
different
 
from
 
the
 
full
 
contract
 
or
 
notional
 
amount
 
of
 
the
transaction and thus,
 
affecting the Corporation’s
 
liquidity position.
 
These transactions are
 
designed to (i)
 
meet the financial needs
 
of
customers, (ii) manage the
 
Corporation’s credit,
 
market and liquidity risks, (iii)
 
diversify the Corporation’s
 
funding sources, and (iv)
optimize capital.
 
In addition to the
 
aforementioned off-balance
 
sheet debt obligations
 
and unfunded commitments
 
to extend credit,
 
the Corporation
has obligations and commitments to make future
 
payments under contracts, amounting to approximately
 
$3.3 billion as of December
31,
 
2021.
 
Our
 
material
 
cash requirements
 
comprise
 
primarily
 
of
 
contractual
 
obligations
 
to
 
make
 
future
 
payments
 
related
 
to
 
time
94
deposits,
 
short-term
 
borrowings,
 
long-term
 
debt,
 
and
 
operating
 
lease
 
obligations.
 
We
 
also
 
have
 
other
 
contractual
 
cash
 
obligations
related
 
to
 
certain
 
binding
 
agreements
 
we
 
have
 
entered
 
into
 
for
 
services
 
including,
 
outsourcing
 
of
 
technology
 
services,
 
security,
advertising and
 
other services
 
which are
 
not material
 
to our
 
liquidity needs.
 
We
 
currently anticipate
 
that our
 
available funds,
 
credit
facilities, and cash flow from operations will be sufficient
 
to meet our operational cash needs for the foreseeable future.
Off-balance sheet
 
transactions are continuously
 
monitored to consider
 
their potential impact
 
to our liquidity
 
position and changes
are applied to the balance between sources and uses of funds as deemed appropriate
 
to maintain a sound liquidity position.
Sources of Funding
The
 
Corporation
 
utilizes
 
different
 
sources
 
of
 
funding
 
to
 
help
 
ensure
 
that
 
adequate
 
levels
 
of
 
liquidity
 
are
 
available
 
when
 
needed.
Diversification of
 
funding sources is
 
of great importance
 
to protect the
 
Corporation’s
 
liquidity from market
 
disruptions. The principal
sources
 
of
 
short-term
 
funds
 
are
 
deposits,
 
including
 
brokered
 
deposits,
 
securities
 
sold
 
under
 
agreements
 
to
 
repurchase,
 
and
 
lines
 
of
credit with the FHLB.
The Asset and Liability Committee
 
reviews credit availability on
 
a regular basis. The Corporation has
 
also sold mortgage loans as
 
a
supplementary source
 
of funding and
 
participates in the
 
Borrower-in-Custody (“BIC”)
 
Program of the
 
FED. The Corporation
 
has also
obtained long-term funding in the past through the issuance of notes
 
and long-term brokered CDs.
 
As of December
 
31, 2021,
 
the amounts of
 
brokered CDs had
 
decreased by
 
$115.8 million
 
to $100.4
 
million from brokered
 
CDs of
$216.2 million
 
as of
 
December 31,
 
2020.
 
Non-maturity brokered
 
deposits, such
 
as money
 
market accounts
 
maintained by
 
a deposit
broker,
 
increased in
 
2021 by
 
$22.0 million
 
to $247.5
 
million as
 
of December
 
31, 2021.
 
Consistent with
 
its strategy,
 
the Corporation
has
 
been
 
seeking
 
to
 
add
 
core
 
deposits.
 
As
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation’s
 
deposits,
 
excluding
 
brokered
 
deposits
 
and
government deposits,
 
increased by $1.4 billion to $14.2
 
billion, compared to $12.8 billion as of
 
December 31, 2020. This increase
 
was
primarily reflected in both commercial and retail demand deposits, partially
 
offset by a decrease in retail CDs.
 
The
 
Corporation
 
continues
 
to
 
have
 
access
 
to
 
financing
 
through
 
counterparties
 
to
 
repurchase
 
agreements,
 
the
 
FHLB,
 
and
 
other
agents, such
 
as wholesale funding
 
brokers. While liquidity
 
is an ongoing
 
challenge for all
 
financial institutions,
 
management believes
that
 
the
 
Corporation’s
 
available
 
borrowing
 
capacity
 
and
 
efforts
 
to
 
grow
 
retail
 
deposits
 
will
 
be
 
adequate
 
to
 
provide
 
the
 
necessary
funding for the Corporation’s business
 
plans in the foreseeable future.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
95
The Corporation’s principal
 
sources of funding are discussed below:
Deposits
The following table presents the composition of total deposits as of the indicated
 
dates:
Weighted Average
 
Cost as of
As of December 31,
December 31, 2021
2021
2020
(Dollars in thousands)
Interest-bearing savings accounts
0.14%
$
4,729,387
$
4,088,969
Interest-bearing checking accounts
0.15%
3,492,645
3,651,806
CDs
0.86%
2,535,349
3,030,485
Interest-bearing deposits
0.31%
10,757,381
10,771,260
Non-interest-bearing deposits
7,027,513
4,546,123
Total
$
17,784,894
$
15,317,383
Interest-bearing deposits:
Average balance
 
outstanding
$
10,940,542
$
8,488,076
Non-interest-bearing deposits:
Average balance
 
outstanding
$
6,063,715
$
3,318,945
Weighted average
 
rate during
the period on interest-bearing deposits
0.38%
0.81%
Estimate of
 
Uninsured
 
Deposits
 
-
At December
 
31,
 
2021 and
 
2020,
 
the estimated
 
amount of
 
uninsured
 
deposits totaled
 
$8.9
 
billion
and $6.8
 
billion, respectively,
 
generally representing
 
the portion
 
of deposits
 
in domestic
 
offices that
 
exceed the
 
FDIC insurance
 
limit
of $250,000
 
and amounts
 
in any
 
other uninsured
 
deposit account.
 
The amount
 
of uninsured
 
deposits is
 
calculated based
 
on the
 
same
methodologies and assumptions used for our bank regulatory reporting
 
requirements.
 
 
The following table presents by contractual maturities the amount of U.S. time deposits in
 
excess of FDIC insurance limits
(over $250,000) and other time deposits that are otherwise uninsured
 
as of December 31, 2021:
(In thousands)
3 months
or less
3 months to
6 months
6 months to
1 year
Over 1
year
Total
U.S. time deposits in excess of FDIC insurance
limits
(1)
$
233,079
$
104,043
$
184,501
$
179,085
$
700,708
Other uninsured deposits
$
23,378
$
9,911
$
14,881
$
4,917
$
53,087
(1)
Exclude $100.4 million
 
of CDs
 
issued to deposit
 
brokers in the
 
form of large
 
certificates of deposits
 
that are generally
 
participated out
 
by brokers in
 
shares of less
 
than the FDIC
insurance limit.
Brokered
 
CDs
 
– Total
 
brokered CDs decreased
 
during 2021
 
by $115.8
 
million to $100.4
 
million as of
 
December 31, 2021,
 
compared
to $216.2 million as of December 31, 2020.
 
The average remaining term to maturity of the brokered CDs outstanding
 
as of December 31, 2021 was approximately 1.2 years.
 
The
 
use
 
of
 
brokered
 
CDs
 
has
 
historically
 
been
 
an
 
additional
 
source
 
of
 
funding
 
for
 
the
 
Corporation.
 
It
 
provides
 
an
 
additional
efficient
 
channel
 
for
 
funding diversification
 
and
 
interest
 
rate management.
 
Brokered
 
CDs are
 
insured
 
by
 
the FDIC
 
up to
 
regulatory
limits; and can
 
be obtained faster than
 
regular retail deposits.
 
In addition, the
 
Corporation may obtain
 
funds from brokers deposited
 
in
non-maturity money market accounts tied to short-term money market rates
 
such as the Federal funds rate.
Government deposits
 
– As of
 
December 31,
 
2021, the Corporation
 
had $2.7 billion
 
of Puerto Rico
 
public sector deposits
 
($2.5 billion
in transactional accounts and $173.7 million
 
in time deposits), compared to $1.8 billion
 
as of December 31, 2020. Approximately
 
19%
of
 
the
 
public
 
sector
 
deposits
 
as
 
of
 
December
 
31,
 
2021
 
was
 
from
 
municipalities
 
and
 
municipal
 
agencies
 
in
 
Puerto
 
Rico
 
and
 
81%
was from
 
public
 
corporations,
 
the
 
central
 
government
 
and
 
agencies,
 
and
 
U.S.
 
federal
 
government
 
agencies
 
in
 
Puerto
 
Rico.
 
The
increase was primarily
 
related to the
 
funding of
 
certain operational
 
reserve accounts
 
of PREPA
 
to operate
 
Puerto Rico’s
 
electric grid,
as well as
 
increases in the
 
balance of transactional
 
deposit accounts of
 
certain municipalities in
 
connection with the
 
American Rescue
Plan Act (“ARPA”)
 
funding for states and local governments.
96
In
 
addition,
 
as
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation
 
had
 
$568.4
 
million
 
of
 
government
 
deposits
 
in
 
the
 
Virgin
 
Islands
 
region
(December
 
31,
 
2020
 
- $280.2
 
million)
 
and
 
$9.6
 
million
 
in
 
the
 
Florida
 
region.
 
(December
 
31,
 
2020
 
-
 
$9.7
 
million).
 
The increase
 
in
government deposits in
 
the Virgin
 
Islands region also
 
reflects the effect
 
of ARPA
 
federal funds received
 
by the central
 
government in
the second quarter of 2021.
Retail deposits
– The
 
Corporation’s
 
deposit products
 
also include
 
regular savings
 
accounts, demand
 
deposit accounts,
 
money market
accounts,
 
and
 
retail
 
CDs.
 
Total
 
deposits,
 
excluding
 
brokered
 
deposits
 
and
 
government
 
deposits,
 
increased
 
by
 
$1.4
 
billion
 
to
 
$14.2
billion from
 
a balance of
 
$12.8 billion as
 
of December 31,
 
2020, reflecting
 
increases of $1.1
 
billion in the
 
Puerto Rico region,
 
$196.2
million
 
in
 
the
 
Florida
 
region,
 
and
 
$98.1
 
million
 
in
 
the
 
Virgin
 
Islands
 
region.
 
On
 
a
 
deposit
 
type
 
basis,
 
the
 
increase
 
was
 
primarily
reflected
 
in both
 
commercial
 
and
 
retail demand
 
deposits,
 
partially
 
offset
 
by a
 
decrease
 
in retail
 
CDs. The
 
BSPR system
 
conversion
resulted in a
 
net reclassification
 
of approximately
 
$724 million
 
in balances from
 
interest-bearing demand
 
deposits, and certain
 
saving
products, to non-interest-bearing products at the time of conversion on July
 
12, 2021.
 
Refer to “Net Interest Income”
 
above for information about
 
average balances of interest-bearing
 
deposits, and the average interest
 
rate
paid on deposits for the years ended December 31, 2021 and 2020.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
97
Borrowings
 
As of December 31, 2021, total borrowings amounted to $683.8 million, compared
 
to $923.8 million
as of December 31, 2020.
 
The following table presents the composition of total borrowings as of the dates indicated:
Weighted Average
 
Rate as of
 
As of December 31,
December 31, 2021
2021
2020
(Dollars in thousands)
Securities sold under agreements
 
to repurchase
3.35%
$
300,000
$
300,000
Advances from FHLB
2.16%
200,000
440,000
Other borrowings
2.80%
183,762
183,762
Total
$
683,762
$
923,762
Weighted average
 
rate during
 
the period
2.78%
2.47%
Securities
 
sold
 
under
 
agreements
 
to
 
repurchase
 
-
The
 
Corporation’s
 
investment
 
portfolio
 
is
 
funded
 
in
 
part
 
with
 
repurchase
agreements.
 
The
 
Corporation’s
 
outstanding
 
securities
 
sold
 
under
 
repurchase
 
agreements
 
amounted
 
to
 
$300
 
million
 
as
 
of
 
each
 
of
December 31,
 
2021 and
 
2020, respectively.
 
One of the
 
Corporation’s
 
strategies has
 
been the
 
use of
 
structured repurchase
 
agreements
and
 
long-term
 
repurchase
 
agreements
 
to
 
reduce
 
liquidity
 
risk
 
and
 
manage
 
exposure
 
to
 
interest
 
rate
 
risk
 
by
 
lengthening
 
the
 
final
maturities
 
of
 
its
 
liabilities
 
while
 
keeping
 
funding
 
costs
 
at
 
reasonable
 
levels.
 
In
 
addition
 
to
 
these
 
repurchase
 
agreements,
 
the
Corporation
 
has
 
been
 
able
 
to
 
maintain
 
access
 
to
 
credit
 
by
 
using
 
cost-effective
 
sources
 
such
 
as
 
FHLB
 
advances.
 
See
 
Note
 
18
 
–
Securities Sold Under Agreements to Repurchase, in the accompanying
 
audited consolidated financial statements included in Item 8 of
this Form 10-K, for further details about repurchase agreements outstanding
 
by counterparty and maturities.
 
Under the Corporation’s
 
repurchase agreements, as
 
is the case with
 
derivative contracts,
 
the Corporation is
 
required to pledge
 
cash
or qualifying securities to meet margin requirements.
 
To the extent that the value
 
of securities previously pledged as collateral declines
due to changes in interest
 
rates, a liquidity crisis or
 
any other factor, the
 
Corporation is required to deposit
 
additional cash or securities
to meet its margin requirements, thereby adversely affecting
 
its liquidity.
 
Given
 
the
 
quality
 
of
 
the
 
collateral
 
pledged,
 
the
 
Corporation
 
has
 
not
 
experienced
 
margin
 
calls
 
from
 
counterparties
 
arising
 
from
credit-quality-related write-downs in valuations.
Advances from
 
the FHLB –
The Bank is
 
a member of
 
the FHLB system
 
and obtains advances
 
to fund its
 
operations under a
 
collateral
agreement with the FHLB that requires the Bank to maintain
 
qualifying mortgages
 
and/or investments as collateral for advances taken.
As of
 
December 31,
 
2021, the
 
outstanding balance
 
of long-term
 
fixed rate
 
FHLB advances
 
was $200.0
 
million, compared
 
to $440.0
million as of
 
December 31, 2020.
 
As of December
 
31, 2021, the
 
Corporation had $1.2
 
billion available for
 
additional credit on
 
FHLB
lines of credit.
Trust-Preferred
 
Securities
 
–
In
 
2004,
 
FBP
 
Statutory
 
Trust
 
I,
 
a
 
statutory
 
trust
 
that
 
is
 
wholly-owned
 
by
 
the
 
Corporation
 
and
 
not
consolidated
 
in
 
the
 
Corporation’s
 
financial
 
statements,
 
sold
 
to
 
institutional
 
investors
 
$100
 
million
 
of
 
its
 
variable-rate
 
TRuPs.
 
FBP
Statutory Trust
 
I used
 
the proceeds
 
of the
 
issuance, together
 
with the
 
proceeds of
 
the purchase
 
by the
 
Corporation of
 
$3.1 million
 
of
FBP Statutory
 
Trust
 
I
 
variable
 
rate
 
common
 
securities, to
 
purchase
 
$103.1
 
million
 
aggregate
 
principal
 
amount
 
of the
 
Corporation’s
junior subordinated deferrable debentures.
Also
 
in
 
2004,
 
FBP
 
Statutory
 
Trust
 
II,
 
a
 
statutory
 
trust
 
that
 
is
 
wholly-owned
 
by
 
the
 
Corporation
 
and
 
not
 
consolidated
 
in
 
the
Corporation’s
 
financial statements,
 
sold to institutional
 
investors $125
 
million of its
 
variable-rate TRuPs.
 
FBP Statutory
 
Trust II
 
used
the proceeds
 
of the
 
issuance, together
 
with the
 
proceeds of
 
the purchase
 
by the
 
Corporation of
 
$3.9 million
 
of FBP Statutory
 
Trust II
variable
 
rate
 
common
 
securities,
 
to
 
purchase
 
$128.9
 
million
 
aggregate
 
principal
 
amount
 
of
 
the
 
Corporation’s
 
junior
 
subordinated
deferrable debentures.
The subordinated debentures
 
are presented in
 
the Corporation’s
 
consolidated statements of
 
financial condition as
 
other borrowings.
The variable-rate TRuPs are fully and unconditionally
 
guaranteed by the Corporation. The $100 million
 
junior subordinated deferrable
debentures
 
issued
 
by
 
the
 
Corporation
 
in
 
April
 
2004
 
and
 
the
 
$125
 
million
 
issued
 
in
 
September
 
2004
 
mature
 
on
 
June
 
17,
 
2034
 
and
September
 
20,
 
2034,
 
respectively;
 
however,
 
under
 
certain
 
circumstances,
 
the
 
maturity
 
of
 
the
 
subordinated
 
debentures
 
may
 
be
98
shortened (such shortening would result in a mandatory
 
redemption of the variable-rate TRuPs). The Collins Amendment of the Dodd-
Frank
 
Act
 
eliminated
 
certain
 
TRuPs
 
from
 
Tier
 
1
 
Capital.
 
Bank
 
holding
 
companies,
 
such
 
as
 
the
 
Corporation,
 
were
 
required
 
to
 
fully
phase out
 
these instruments
 
from Tier
 
I capital
 
by January
 
1, 2016;
 
however,
 
they may
 
remain in
 
Tier 2
 
capital until
 
the instruments
are redeemed or mature.
As of
 
each of
 
December 31,
 
2021
 
and 2020,
 
the Corporation
 
had subordinated
 
debentures outstanding
 
in the
 
aggregate amount
 
of
$183.8
 
million.
 
As
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation
 
was
 
current
 
on
 
all
 
interest
 
payments
 
due
 
related
 
to
 
its
 
subordinated
debentures.
Other Sources of
 
Funds and Liquidity
 
- The Corporation’s
 
principal uses of funds are for
 
the origination of loans and the repayment
 
of
maturing deposits and borrowings.
 
In connection with its mortgage banking
 
activities, the Corporation has invested
 
in technology and
personnel to enhance the Corporation’s
 
secondary mortgage market capabilities.
The enhanced
 
capabilities improve
 
the Corporation’s
 
liquidity profile
 
as they
 
allow the
 
Corporation
 
to derive
 
liquidity,
 
if needed,
from the sale
 
of mortgage loans
 
in the secondary
 
market. The U.S. (including
 
Puerto Rico) secondary
 
mortgage market is
 
still highly-
liquid, in
 
large part
 
because of
 
the sale
 
of mortgages
 
through guarantee
 
programs of
 
the FHA,
 
VA,
 
U.S. Department
 
of Housing
 
and
Urban Development
 
(“HUD”), FNMA, and
 
FHLMC. During
 
the year
 
ended December 31,
 
2021, the
 
Corporation sold approximately
$191.4
 
million of FHA/VA
 
mortgage loans to GNMA, which packages them into MBS.
 
 
In
 
addition,
 
the
 
FED
 
has
 
taken
 
several
 
steps to
 
promote
 
economic
 
and
 
financial
 
stability
 
in
 
response
 
to
 
the significant
 
economic
disruption
 
caused by
 
the COVID-19
 
pandemic.
 
These
 
actions are
 
intended
 
to stimulate
 
economic
 
activity
 
by reducing
 
interest
 
rates
and provide
 
liquidity to
 
financial markets
 
so that
 
participants have
 
access to
 
needed funding.
 
Federal funds
 
target rate
 
remained at
 
a
range of
 
0% to
 
0.25%, making
 
the Primary
 
Credit FED
 
Discount Window
 
Program a
 
cost-efficient
 
contingent source
 
of funding
 
for
the Corporation given
 
the highly-volatile market
 
conditions. Although
 
currently not in
 
use, as of
 
December 31, 2021,
 
the Corporation
had approximately $1.2 billion available for funding under the FED’s
 
BIC Program.
 
Effect of Credit Ratings on Access to Liquidity
The
 
Corporation’s
 
liquidity
 
is
 
contingent
 
upon
 
its
 
ability
 
to
 
obtain
 
external
 
sources
 
of
 
funding
 
to
 
finance
 
its
 
operations.
 
The
Corporation’s
 
current credit
 
ratings and any
 
downgrade in credit
 
ratings can hinder
 
the Corporation’s
 
access to new
 
forms of external
funding
 
and/or
 
cause
 
external
 
funding
 
to
 
be
 
more
 
expensive,
 
which
 
could,
 
in
 
turn,
 
adversely
 
affect
 
its
 
results
 
of
 
operations.
 
Also,
changes in
 
credit ratings
 
may further
 
affect the
 
fair value
 
of unsecured
 
derivatives whose
 
value takes
 
into account
 
the Corporation’s
own credit risk.
 
The Corporation
 
does not
 
have any
 
outstanding debt
 
or derivative
 
agreements that
 
would be
 
affected by
 
credit rating
 
downgrades.
Furthermore, given the Corporation’s
 
non-reliance on corporate debt or
 
other instruments directly linked in
 
terms of pricing or volume
to credit
 
ratings, the
 
liquidity of
 
the Corporation
 
has not been
 
affected in
 
any material
 
way by downgrades.
 
The Corporation’s
 
ability
to access new non-deposit sources of funding, however,
 
could be adversely affected by credit downgrades.
As of
 
the date
 
hereof,
 
the Corporation’s
 
credit as
 
a long-term
 
issuer is
 
rated
 
B+ by
 
S&P and
 
BB by
 
Fitch. As
 
of the
 
date hereof,
FirstBank’s
 
credit ratings
 
as a
 
long-term
 
issuer are
 
B1 by
 
Moody’s,
 
four notches
 
below their
 
definition
 
of investment
 
grade;
 
BB by
S&P,
 
two
 
notches
 
below
 
their
 
definition
 
of
 
investment
 
grade;
 
and
 
BB
 
by
 
Fitch,
 
two
 
notches
 
below
 
their
 
definition
 
of
 
investment
grade.
 
The
 
Corporation’s
 
credit
 
ratings
 
are
 
dependent
 
on
 
a
 
number
 
of
 
factors,
 
both
 
quantitative
 
and
 
qualitative,
 
and
 
are
 
subject
 
to
change
 
at any
 
time. The
 
disclosure of
 
credit ratings
 
is not
 
a recommendation
 
to buy,
 
sell, or
 
hold the
 
Corporation’s
 
securities. Each
rating should be evaluated independently of any other rating.
Cash Flows
Cash and cash
 
equivalents were $2.5
 
billion as of
 
December 31, 2021,
 
an increase of
 
$1.0 billion when
 
compared to the
 
balance as
of December
 
31, 2020.
 
The following
 
discussion highlights
 
the major
 
activities and
 
transactions that
 
affected
 
the Corporation’s
 
cash
flows during 2021 and 2020:
 
Cash Flows from Operating Activities
First BanCorp.’s
 
operating assets and
 
liabilities vary significantly
 
in the normal course
 
of business due to
 
the amount and timing
 
of
cash flows.
 
Management believes
 
that cash
 
flows from
 
operations, available
 
cash balances,
 
and the
 
Corporation’s
 
ability to
 
generate
cash through
 
short and long-term
 
borrowings will be
 
sufficient to
 
fund the Corporation’
 
s
 
operating liquidity
 
needs for the
 
foreseeable
future.
For the years ended December
 
31, 2021 and 2020, net
 
cash provided by operating activities
 
was $399.7 million and
 
$297.7 million,
respectively.
 
Net cash generated
 
from operating
 
activities was higher
 
than reported
 
net income,
 
largely as
 
a result of
 
adjustments for
99
items such as deferred
 
income tax, depreciation,
 
and amortization, as
 
well as the cash
 
generated from sales of
 
loans held for sale,
 
and,
in 2020, the provision for credit losses expense.
Cash Flows from Investing Activities
The Corporation’s
 
investing activities primarily
 
relate to originating
 
loans to be
 
held for investment,
 
as well as
 
purchasing, selling,
and
 
repaying
 
available-for-sale
 
and
 
held-to-maturity investment
 
securities. For
 
the year
 
ended
 
December
 
31, 2021,
 
net cash
 
used in
investing
 
activities
 
was
 
$1.3
 
billion,
 
primarily
 
due
 
to
 
purchases
 
of
 
U.S.
 
agencies
 
investment
 
securities
 
and
 
liquidity
 
used
 
to
 
fund
commercial and
 
consumer loan
 
originations, partially
 
offset by
 
principal collected
 
on loans
 
and U.S.
 
agencies MBS
 
prepayments,
 
as
well as proceeds from U.S. agencies bonds called prior to
 
maturity, the bulk sale of
 
residential mortgage nonaccrual loans, and the sale
of criticized commercial and construction loans
.
 
For the year
 
ended December 31,
 
2020, net cash
 
used in investing
 
activities was $1.2
 
billion, primarily
 
resulting from purchases
 
of
U.S.
 
agencies,
 
MBS and
 
the funding
 
of
 
commercial
 
and
 
consumer
 
loan
 
originations,
 
partially
 
offset
 
by principal
 
collected
 
on loans
and
 
on
 
U.S. agencies
 
MBS prepayments,
 
proceeds from
 
U.S. agencies
 
bonds
 
that matured
 
or were
 
called
 
prior
 
to maturity,
 
and
 
the
excess of cash acquired in the BSPR acquisition over the cash consideration
 
paid at closing.
 
 
Cash Flows from Financing Activities
The Corporation’s
 
financing activities
 
primarily
 
include the
 
receipt of
 
deposits and
 
the issuance
 
of brokered
 
CDs, the
 
issuance of
and payments
 
on long-term
 
debt, the
 
issuance of
 
equity instruments,
 
return of
 
capital, and
 
activities related
 
to its
 
short-term funding.
For
 
the
 
year
 
ended
 
December 31,
 
2021,
 
net
 
cash
 
provided
 
by
 
financing
 
activities
 
was $1.9
 
billion,
 
mainly
 
reflecting an
 
increase
 
in
non-brokered deposits, partially offset
 
by dividends paid on common and preferred
 
stock, repurchases of common and preferred
 
stock,
and repayment of matured FHLB advances and brokered CDs.
For the
 
year ended
 
December 31,
 
2020, net
 
cash provided by
 
financing activities
 
was $1.8
 
billion, mainly
 
reflecting an
 
increase in
non-brokered
 
deposits
 
and,
 
to
 
a
 
lesser
 
extent,
 
proceed
 
from
 
the
 
early
 
cancellation
 
of
 
long-term
 
reverse
 
repurchase
 
agreements
 
that
were previously
 
offset against
 
variable-rate repurchase
 
agreements, partially
 
offset by
 
dividends paid
 
on common and
 
preferred stock
and repayment of matured FHLB advances.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100
Capital
As of December 31, 2021, the Corporation’s
 
stockholders’ equity was $2.1 billion, a decrease
 
of $173.4 million from December 31,
2020. The decrease
 
was driven by
 
the approximately $317.8
 
million of capital
 
returned to the
 
Corporation’s
 
stockholders during 2021
consisting of:
 
(i) the
 
repurchase of
 
16.7 million
 
shares of
 
common stock
 
for a
 
total purchase
 
price of
 
approximately $213.9
 
million;
(ii) common
 
and preferred
 
stock dividends
 
totaling $67.8
 
million; and
 
(iii) the
 
redemption of
 
all of
 
its outstanding
 
shares of
 
Series A
through E
 
Preferred Stock
 
for its total
 
liquidation value
 
of $36.1
 
million. The
 
decrease in
 
total stockholders’
 
equity also
 
included the
effect of
 
a $139.5
 
million decrease
 
in Other
 
Comprehensive Income
 
mostly attributable
 
to the
 
decrease in
 
the fair
 
value of
 
available-
for-sale investment
 
securities. These variances
 
were partially offset
 
by earnings generated
 
during 2021.
 
The Corporation
 
increase its
common stock dividend
 
twice during 2021,
 
increasing the quarterly
 
dividend rate from
 
$0.05 in the fourth
 
quarter of 2020
 
to $0.07 in
the first
 
quarter of
 
2021 and
 
$0.10 in
 
the fourth
 
quarter of
 
2021.
 
The Corporation
 
intends to continue
 
to pay
 
quarterly dividends
 
on
common
 
stock.
 
The
 
Corporation’s
 
common
 
stock
 
dividends,
 
including
 
the
 
declaration,
 
timing
 
and
 
amount,
 
remain
 
subject
 
to
 
the
consideration and approval by the Corporation’s
 
Board of Directors at the relevant times.
On April
 
26, 2021,
 
the Corporation
 
announced that
 
its Board
 
of Directors
 
approved a
 
stock repurchase
 
program, under
 
which the
Corporation may
 
repurchase up
 
to $300 million
 
of its outstanding
 
stock, commencing
 
in the second
 
quarter of
 
2021 through June
 
30,
2022.
 
Repurchases
 
under
 
the
 
program
 
may
 
be
 
executed
 
through
 
open
 
market
 
purchases,
 
accelerated
 
share
 
repurchases,
 
and/or
privately
 
negotiated
 
transactions
 
or
 
plans,
 
including
 
under
 
plans
 
complying
 
with
 
Rule
 
10b5-1
 
under
 
the
 
Exchange
 
Act.
 
The
Corporation’s
 
stock
 
repurchase
 
program
 
will
 
be
 
subject
 
to
 
various
 
factors,
 
including
 
the
 
Corporation’s
 
capital
 
position,
 
liquidity,
financial performance and
 
alternative uses of capital, stock
 
trading price, and
 
general market conditions.
 
The repurchase program may
be modified,
 
extended, suspended,
 
or terminated
 
at any
 
time at the
 
Corporation’s
 
discretion and
 
includes the
 
redemption of
 
the $36.1
million
 
in
 
outstanding
 
shares
 
of
 
the
 
Corporation’s
 
Series
 
A
 
through
 
E
 
Noncumulative
 
Perpetual
 
Monthly
 
Income
 
Preferred
 
Stock.
 
The Corporation’s
 
share repurchase program
 
does not obligate
 
it to acquire
 
any specific number
 
of shares.
 
As of December
 
31, 2021,
the
 
Corporation
 
had
 
remaining
 
authorization
 
to repurchase
 
approximately
 
$50
 
million
 
of common
 
stock under
 
the
 
stock repurchase
program.
During
 
the first
 
quarter
 
of 2022,
 
the Corporation
 
repurchased
 
3.4
 
million
 
shares of
 
common
 
stock for
 
the
 
remaining $50
 
million
authorized under the aforementioned
 
$300 million stock repurchase
 
program.
 
The Parent Company has
 
no operations and depends
 
on
dividends,
 
distributions
 
and
 
other
 
payments
 
from
 
its
 
subsidiaries
 
to
 
fund
 
dividend
 
payments,
 
stock
 
repurchases,
 
and
 
to
 
fund
 
all
payments on its obligations, including debt obligations.
Set forth below are First BanCorp.'s and FirstBank's regulatory capital
 
ratios as of December 31, 2021 and 2020:
Banking Subsidiary
To be well
capitalized -
thresholds
First BanCorp.
 
(1)
FirstBank
(1)
As of December 31,
 
2021
Total capital ratio (Total
 
capital to risk-weighted assets)
20.50%
20.23%
10.00%
CET1 capital ratio
 
 
(CET1 capital to risk-weighted assets)
 
17.80%
18.12%
6.50%
Tier 1 capital ratio (Tier 1 capital to risk-weighted assets)
17.80%
19.03%
8.00%
Leverage ratio
 
10.14%
10.85%
5.00%
Banking Subsidiary
To be well
capitalized -
thresholds
First BanCorp.
 
(1)
FirstBank
(1)
As of December 31, 2020
Total capital ratio (Total
 
capital to risk-weighted assets)
20.37%
19.91%
10.00%
CET1 capital ratio
 
 
(CET1 capital to risk-weighted assets)
17.31%
16.05%
6.50%
Tier 1 capital ratio (Tier 1 capital to risk-weighted assets)
17.61%
18.65%
8.00%
Leverage ratio
 
11.26%
11.92%
5.00%
(1)
As permitted by the regulatory capital framework, the Corporation
 
elected to delay for two years the day-one impact related to
 
the adoption of CECL on January 1, 2020
plus 25% of the change in the ACL from January 1, 2020 to
 
December 31, 2021. Such effects, will be phased
 
in at 25% per year beginning on January 1, 2022.
101
The
 
Corporation
 
and
 
FirstBank
 
compute
 
risk-weighted
 
assets
 
using
 
the
 
standardized
 
approach
 
required
 
by
 
U.S.
 
Basel
 
III
 
capital
rules (“Basel
 
III rules”).
 
The Basel
 
III rules
 
require the
 
Corporation to
 
maintain an
 
additional capital
 
conservation buffer
 
of 2.5%
 
of
additional
 
CET1 capital
 
to avoid
 
limitations
 
on both
 
(i) capital
 
distributions
 
(
e.g.
, repurchases
 
of
 
capital instruments,
 
dividends
 
and
interest
 
payments
 
on
 
capital
 
instruments),
 
and
 
(ii)
 
discretionary
 
bonus
 
payments
 
to
 
executive
 
officers
 
and
 
heads
 
of
 
major
 
business
lines.
Under
 
the
 
Basel
 
III
 
rules,
 
in
 
order
 
to
 
be
 
considered
 
adequately
 
capitalized
 
and
 
not
 
subject
 
to
 
the
 
above
 
noted
 
limitations,
 
the
Corporation is
 
required to
 
maintain: (i) a
 
minimum CET1
 
capital to risk-weighted
 
assets ratio of
 
at least 4.5%,
 
plus the 2.5%
 
“capital
conservation buffer,”
 
resulting in a required
 
minimum CET1 capital
 
ratio of at
 
least 7%; (ii) a
 
minimum ratio of
 
total Tier 1
 
capital to
risk-weighted assets of at least
 
6.0%, plus the 2.5%
 
capital conservation buffer,
 
resulting in a required minimum
 
Tier 1 capital ratio
 
of
8.5%;
 
(iii)
 
a
 
minimum
 
ratio
 
of
 
total
 
Tier
 
1
 
plus
 
Tier
 
2
 
capital
 
to
 
risk-weighted
 
assets
 
of
 
at
 
least
 
8.0%,
 
plus
 
the
 
2.5%
 
capital
conservation buffer,
 
resulting in
 
a required
 
minimum total
 
capital ratio
 
of 10.5%;
 
and (iv)
 
a required
 
minimum leverage
 
ratio of
 
4%,
calculated as the ratio of Tier 1 capital to average
 
on-balance sheet (non-risk adjusted) assets.
 
As part
 
of its
 
response to
 
the impact
 
of COVID-19,
 
on March
 
31, 2020,
 
the federal
 
banking agencies
 
issued an
 
interim final
 
rule
that
 
provided
 
the
 
option
 
to
 
temporarily
 
delay
 
the
 
effects
 
of
 
CECL
 
on
 
regulatory
 
capital
 
for
 
two
 
years,
 
followed
 
by
 
a
 
three-year
transition period.
 
The interim final
 
rule provides that,
 
at the election
 
of a qualified
 
banking organization,
 
the initial impact
 
to retained
earnings
 
related
 
to
 
the
 
adoption
 
of
 
CECL
 
plus 25%
 
of
 
the
 
change
 
in
 
the
 
ACL
 
(excluding
 
PCD
 
loans)
 
from
 
January
 
1,
 
2020
 
to
December
 
31,
 
2021
 
will
 
be
 
delayed
 
for
 
two
 
years
 
and
 
phased-in
 
at 25%
 
per
 
year
 
beginning
 
on
 
January
 
1,
 
2022
 
over
 
a
 
three-year
period,
 
resulting
 
in
 
a
 
total
 
transition
 
period
 
of
 
five
 
years.
 
Accordingly,
 
as
 
of
 
December
 
31,
 
2021,
 
the
 
capital
 
measures
 
of
 
the
Corporation and
 
the Bank
 
shown in the
 
table above
 
excluded $64.8 million
 
that represents the
 
initial impact
 
to retained
 
earnings plus
25% of the increase in the ACL (as defined in the interim final rule)
 
from January 1, 2020 to December 31, 2021. The federal financial
regulatory agencies may
 
take other measures
 
affecting regulatory capital
 
to address the COVID-19
 
pandemic, although the
 
nature and
impact of such measures cannot be predicted at this time.
The tangible common
 
equity ratio and
 
tangible book value
 
per common share
 
are non-GAAP financial
 
measures generally used
 
by
the
 
financial
 
community
 
to
 
evaluate
 
capital
 
adequacy.
 
Tangible
 
common
 
equity
 
is
 
total equity
 
less
 
preferred
 
equity,
 
goodwill,
 
core
deposit intangibles,
 
purchased credit card
 
relationship intangible
 
assets and insurance
 
customer relationship
 
intangible asset. Tangible
assets
 
are
 
total
 
assets
 
less
 
intangible
 
assets
 
such
 
as
 
goodwill,
 
core
 
deposit
 
intangibles,
 
purchased
 
credit
 
card
 
relationships
 
and
insurance customer asset relationships. See “Basis of Presentation”
 
below for additional information.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
102
The
 
following
 
table
 
is
 
a
 
reconciliation
 
of
 
the
 
Corporation’s
 
tangible
 
common
 
equity
 
and
 
tangible
 
assets,
 
non-GAAP
financial measures, to total equity and total assets, respectively,
 
as of December 31, 2021 and 2020, respectively:
December 31,
 
December 31,
(In thousands, except ratios and per share information)
2021
2020
Total equity
 
- GAAP
$
2,101,767
$
2,275,179
Preferred equity
-
(36,104)
Goodwill
(38,611)
(38,632)
Purchased credit card relationship intangible
(1,198)
(4,733)
Core deposit intangible
(28,571)
(35,842)
Insurance customer relationship intangible
(165)
(318)
Tangible common
 
equity
$
2,033,222
$
2,159,550
Total assets - GAAP
$
20,785,275
$
18,793,071
Goodwill
(38,611)
(38,632)
Purchased credit card relationship intangible
(1,198)
(4,733)
Core deposit intangible
(28,571)
(35,842)
Insurance customer relationship intangible
(165)
(318)
Tangible assets
$
20,716,730
$
18,713,546
Common shares outstanding
201,827
218,235
Tangible common
 
equity ratio
9.81%
11.54%
Tangible book
 
value per common share
$
10.07
$
9.90
The Banking Law
 
of the Commonwealth of
 
Puerto Rico requires that
 
a minimum of 10%
 
of FirstBank’s
 
net income for the
 
year be
transferred
 
to a
 
legal surplus
 
reserve
 
until such
 
surplus
 
equals the
 
total of
 
paid-in-capital on
 
common and
 
preferred stock.
 
Amounts
transferred
 
to
 
the
 
legal
 
surplus
 
reserve
 
from
 
retained
 
earnings
 
are
 
not
 
available
 
for
 
distribution
 
to
 
the
 
Corporation,
 
including
 
for
payment
 
as dividends
 
to the
 
stockholders,
 
without
 
the prior
 
consent
 
of the
 
Puerto Rico
 
Commissioner
 
of Financial
 
Institutions.
 
The
Puerto Rico Banking Law
 
provides that, when the
 
expenditures of a Puerto
 
Rico commercial bank are
 
greater than receipts, the excess
of
 
the
 
expenditures
 
over
 
receipts
 
must
 
be
 
charged
 
against
 
the
 
undistributed
 
profits
 
of
 
the
 
bank,
 
and
 
the
 
balance,
 
if
 
any,
 
must
 
be
charged against
 
the legal
 
surplus reserve,
 
as a
 
reduction thereof.
 
If the
 
legal surplus
 
reserve is
 
not sufficient
 
to cover
 
such balance
 
in
whole or
 
in part,
 
the outstanding
 
amount must
 
be charged
 
against the
 
capital account
 
and the
 
Bank cannot
 
pay dividends
 
until it
 
can
replenish the
 
legal surplus
 
reserve to
 
an amount
 
of at
 
least 20% of
 
the original
 
capital contributed.
 
During the
 
years ended
 
December
31, 2021 and
 
2020, the Corporation
 
transferred $28.3 million
 
and $11.7
 
million, respectively,
 
to the legal
 
surplus reserve. FirstBank’s
legal
 
surplus
 
reserve,
 
included
 
as
 
part
 
of
 
retained
 
earnings
 
in
 
the
 
Corporation’s
 
consolidated
 
statements
 
of
 
financial
 
condition,
amounted to $137.6 and $109.3 million as of December 31, 2021
 
and 2020, respectively.
103
 
Interest
 
Rate Risk
 
Management
First
 
BanCorp
 
manages
 
its
 
asset/liability
 
position
 
to
 
limit
 
the
 
effects
 
of
 
changes
 
in
 
interest
 
rates
 
on
 
net
 
interest
 
income
 
and
 
to
maintain a stable
 
level of profitability under
 
varying interest rate scenarios.
 
The MIALCO oversees
 
interest rate risk, and,
 
in doing so,
the
 
MIALCO assesses,
 
among
 
other things,
 
current and
 
expected conditions
 
in world
 
financial markets,
 
competition and
 
prevailing
rates in the local deposit market, liquidity,
 
the pipeline of loan originations, securities market values, recent
 
or proposed changes to the
investment
 
portfolio,
 
alternative
 
funding
 
sources and
 
related
 
costs,
 
hedging
 
and
 
the possible
 
purchase
 
of derivatives,
 
such
 
as swaps
and caps, and any
 
tax or regulatory issues
 
which may be pertinent
 
to these areas. The
 
MIALCO approves funding
 
decisions in light of
the Corporation’s overall strategies
 
and objectives.
On a monthly
 
and/or quarterly basis, the
 
Corporation performs a
 
consolidated net interest
 
income simulation analysis
 
to estimate the
potential change
 
in future
 
earnings from
 
projected changes
 
in interest
 
rates. These
 
simulations are
 
carried out
 
over a
 
one-to-five-year
time horizon and
 
assumes upward and
 
downward yield curve
 
shifts. The rate
 
scenarios considered in
 
these simulations reflect
 
gradual
upward
 
and
 
downward
 
interest
 
rate
 
movements
 
of
 
200
 
basis
 
points
 
during
 
a
 
twelve-month
 
period.
 
The
 
Corporation
 
carries
 
out
 
the
simulations in two ways:
(1) Using a static balance sheet, as the Corporation had on the simulation date,
 
and
(2) Using a dynamic balance sheet based on recent patterns and current
 
strategies.
The balance
 
sheet is
 
divided into
 
groups of
 
assets and
 
liabilities by
 
maturity or
 
re-pricing structure
 
and their
 
corresponding interest
yields and
 
costs. As interest
 
rates rise or
 
fall, these
 
simulations incorporate
 
expected future
 
lending rates,
 
current and
 
expected future
funding sources
 
and costs,
 
the possible
 
exercise of
 
options, changes
 
in prepayment
 
rates, deposit
 
decay and
 
other factors,
 
which may
be important in projecting net interest income.
 
The Corporation uses
 
a simulation model
 
to project future movements
 
in the Corporation’s
 
balance sheet and
 
income statement. The
starting point of the projections corresponds to the actual values on
 
the balance sheet on the date of the simulations.
These
 
simulations
 
are
 
highly complex
 
and
 
are based
 
on many
 
assumptions
 
that are
 
intended
 
to reflect
 
the general
 
behavior
 
of
 
the
balance sheet components over
 
the period in question.
 
It is unlikely that actual
 
events will match these
 
assumptions in most cases.
 
For
this reason,
 
the results of
 
these forward-looking
 
computations are only
 
approximations of the
 
true sensitivity of
 
net interest income
 
to
changes in
 
market interest
 
rates. The
 
Corporation uses
 
several benchmarks
 
and market rate
 
curves in
 
the modeling
 
process, primarily
the
 
LIBOR/SWAP
 
curve,
 
Prime
 
Rate,
 
Treasury,
 
FHLB
 
rates,
 
brokered
 
CDs
 
rates,
 
repurchase
 
agreements
 
rates
 
and
 
the
 
30
 
years
mortgage commitment rate.
As
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation
 
forecasted
 
the
 
12-month
 
net
 
interest
 
income
 
assuming
 
January
 
31,
 
2022
 
interest
 
rate
curves remain constant. Then,
 
net interest income was estimated
 
under rising and falling rates
 
scenarios. For rising rates
 
scenarios, the
Corporation
 
assumed
 
a
 
gradual
 
(ramp)
 
parallel
 
upward
 
shift
 
of
 
the
 
yield
 
curve
 
during
 
the
 
first
 
twelve
 
months
 
(the
 
“+200
 
ramp”
scenario). Conversely,
 
for the falling rates scenario,
 
it assumed a gradual (ramp) parallel downward
 
shift of the yield curves during
 
the
first
 
twelve
 
months
 
(the
 
“-200 ramp”
 
scenario).
 
However,
 
given
 
the current
 
low levels
 
of
 
interest
 
rates
 
and rate
 
compression
 
in
 
the
short term, along
 
with the current yield
 
curve slope, a
 
full downward shift
 
of 200 basis points
 
would represent an
 
unrealistic scenario.
Therefore,
 
under
 
the
 
falling
 
rate
 
scenario,
 
rates
 
move
 
downward
 
up
 
to
 
200
 
basis
 
points,
 
but
 
without
 
reaching
 
zero.
 
The
 
resulting
scenario shows interest rates close to zero in most cases, reflecting a flattening
 
yield curve instead of a parallel downward scenario.
The
 
Libor/Swap
 
curve
 
for
 
January
 
2022,
 
as
 
compared
 
to
 
December
 
2020,
 
reflected
 
a
 
27
 
basis
 
points
 
increase
 
in
 
the
 
short-term
horizon, between
 
one to 12
 
months, while market
 
rates increased by
 
126 basis points
 
in the medium
 
term, that is
 
between two
 
to five
years. In the
 
long-term, that is
 
over a five-year-time
 
horizon, market rates
 
increased by 93
 
basis points, as
 
compared to December
 
31,
2020
 
levels.
 
A
 
similar
 
pattern
 
on
 
market
 
rates
 
changes
 
were
 
observed
 
in
 
the
 
Treasury
 
curve
 
for
 
the
 
short,
 
medium,
 
and
 
long-term
horizons mentioned above with
 
a 26 basis points increase
 
in the short-term horizon, 123
 
basis points increase in the
 
medium term, and
65 basis points increase in the long-term horizon.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
104
 
The following table presents the results of the simulations as of December 31, 2021
 
and 2020.
 
Consistent with prior years, these
exclude non-cash changes in the fair value of derivatives:
December 31, 2021
December 31, 2020
Net Interest Income Risk
Net Interest Income Risk
(Projected for the next 12 months)
(Projected for the next 12 months)
Static Simulation
Growing Balance Sheet
Static Simulation
Growing Balance Sheet
(Dollars in millions)
Change
% Change
Change
% Change
Change
% Change
Change
% Change
+ 200 bps ramp
$
34.5
4.81
%
$
39.1
5.17
%
$
32.3
4.53
%
$
36.0
4.96
%
- 200 bps ramp
$
(12.2)
(1.70)
%
$
(13.5)
(1.78)
%
$
(12.1)
(1.69)
%
$
(13.9)
(1.91)
%
The Corporation continues
 
to manage
 
its balance
 
sheet structure
 
to control
 
and limit
 
the overall
 
interest rate
 
risk. As
 
of December
31,
 
2021,
 
the
 
simulations
 
showed
 
that
 
the
 
Corporation
 
continues
 
to
 
maintain
 
an
 
asset-sensitive
 
position.
 
The
 
Corporation
 
has
continued repositioning the balance
 
sheet and improving the
 
funding mix, mainly driven
 
by increasing the average
 
balance of interest-
bearing deposits
 
with low-rate
 
elasticity and non
 
-interest-bearing deposits,
 
and reductions
 
in brokered
 
CDs, time deposits,
 
and FHLB
Advances.
 
The above-mentioned
 
growth in
 
deposits, along
 
with proceeds
 
from loan
 
repayments, U.S.
 
agency bonds
 
that matured
 
or
were
 
called
 
prior
 
to
 
maturity
 
and
 
prepayments
 
of
 
US
 
agency
 
MBS,
 
that
 
have
 
been
 
reinvested
 
contributed
 
to
 
fund
 
the
 
continued
increase in the investment securities portfolio, while maintaining higher
 
liquidity levels.
 
 
The increased
 
net interest
 
income sensitivity
 
for the +200bps
 
ramp as
 
compared to
 
December 31,
 
2020 was
 
driven by higher
 
cash
balances
 
with
 
short
 
term
 
repricing,
 
an
 
increase
 
in
 
the
 
investment
 
securities
 
portfolio
 
balance,
 
lower
 
prepayment
 
cash
 
flows
 
in
 
the
investment securities portfolio
 
due to the level
 
of securities purchased
 
during 2021 under a
 
low interest rate
 
environment as compared
to the higher
 
rates forecasted in
 
the short, medium
 
and long-term tenors,
 
and lower balances in
 
certificate of deposits.
 
The decrease in
net interest
 
income sensitivity
 
for the
 
-200bps ramp
 
under the
 
growing balance
 
sheet scenario
 
was driven
 
by the
 
current low
 
level of
interest
 
rates
 
that
 
resulted
 
in
 
reduced
 
prepayments
 
in
 
the
 
investment
 
securities
 
portfolio
 
lower
 
impact
 
from
 
short
 
term
 
repricing
categories.
 
Also, as
 
a result
 
of this
 
lower
 
rate environment,
 
near
 
floor levels,
 
a full
 
down parallel
 
movement of
 
-200bps will
 
not be
possible.
 
 
Taking
 
into consideration
 
the above-mentioned
 
facts for
 
modeling purposes,
 
as of December
 
31, 2021,
 
the net interest
 
income for
the
 
next
 
12
 
months
 
under
 
a
 
growing
 
balance
 
sheet
 
scenario
 
was
 
estimated
 
to
 
increase
 
by
 
$39.1
 
million
 
in
 
the
 
rising
 
rate
 
scenario,
compared to an
 
estimated increase of
 
$36.0 million as
 
of December 31,
 
2020.
 
Under the falling
 
rate, growing balance
 
sheet scenario,
the
 
net
 
interest
 
income
 
was
 
estimated
 
to
 
decrease
 
by
 
$13.5
 
million,
 
compared
 
to
 
an
 
estimated
 
decrease
 
of
 
$13.9
 
million
 
as
 
of
December 31, 2020,
 
reflecting the effect
 
of current low levels
 
of market interest
 
rates on the base
 
scenario and the model
 
assumptions
for the falling rate scenarios described above (i.e., no negative interest rates
 
modeled).
 
 
 
 
105
Derivatives
 
First
 
BanCorp.
 
uses derivative
 
instruments
 
and
 
other
 
strategies
 
to
 
manage
 
its exposure
 
to
 
interest
 
rate
 
risk
 
caused
 
by
 
changes
 
in
interest rates beyond management’s
 
control.
The following summarizes major strategies, including derivative activities
 
that the Corporation uses in managing interest rate risk:
 
Interest Rate
 
Cap Agreements
 
- Interest rate
 
cap agreements provide
 
the right to receive
 
cash if a referen
 
ce interest rate rises
 
above
a contractual
 
rate. The
 
value of
 
the interest
 
rate cap
 
increases as
 
the reference
 
interest rate
 
rises. The
 
Corporation enters
 
into interest
rate cap agreements for protection from rising interest rates.
Forward Contracts
 
- Forward contracts
 
are sales of TBA
 
MBS that will
 
settle over the
 
standard delivery date
 
and do not qualify
 
as
“regular-way”
 
security
 
trades.
 
Regular-way
 
security
 
trades
 
are
 
contracts
 
that
 
have
 
no
 
net
 
settlement
 
provision
 
and
 
no
 
market
mechanism
 
to
 
facilitate
 
net
 
settlement
 
and
 
that
 
provide
 
for
 
delivery
 
of
 
a
 
security
 
within
 
the
 
timeframe
 
generally
 
established
 
by
regulations
 
or
 
conventions
 
in
 
the
 
market-place
 
or
 
exchange
 
in
 
which
 
the
 
transaction
 
is
 
being
 
executed.
 
The
 
forward
 
sales
 
are
considered derivative
 
instruments that
 
need to be
 
marked-to-market. The
 
Corporation uses
 
these securities
 
to economically
 
hedge the
FHA/VA
 
residential
 
mortgage
 
loan
 
securitizations
 
of
 
the
 
mortgage-banking
 
operations.
 
The
 
Corporation
 
also
 
reports
 
as
 
forward
contracts the
 
mandatory mortgage
 
loan sales
 
commitments entered
 
into with
 
GSEs that
 
require or
 
permit net
 
settlement via
 
a pair-off
transaction
 
or
 
the
 
payment
 
of
 
a
 
pair-off
 
fee.
 
Unrealized
 
gains
 
(losses)
 
are
 
recognized
 
as
 
part
 
of
 
mortgage
 
banking
 
activities
 
in
 
the
consolidated statements of income.
Interest
 
Rate
 
Lock
 
Commitments
 
–
 
Interest
 
rate
 
lock
 
commitments
 
are
 
agreements
 
under
 
which
 
the
 
Corporation
 
agrees to
 
extend
credit to
 
a borrower
 
under certain
 
specified terms
 
and conditions
 
in which
 
the interest
 
rate and
 
the maximum
 
amount of
 
the loan
 
are
set prior
 
to funding.
 
Under each
 
agreement, the
 
Corporation commits
 
to lend
 
funds to
 
a potential
 
borrower generally
 
on a
 
fixed rate
basis, regardless of whether interest rates change in the market.
Interest rate
 
swaps
 
– The
 
Corporation acquired
 
interest rate
 
swaps as
 
a result
 
of the
 
BSPR acquisition.
 
An interest
 
rate swap
 
is an
agreement between
 
two entities to
 
exchange cash flows
 
in the future.
 
The agreements acquired
 
from BSPR consist
 
of the Corporation
offering
 
borrower-facing
 
derivative
 
products using
 
a “back-to-back”
 
structure in
 
which the
 
borrower-facing
 
derivative transaction
 
is
paired with
 
an identical,
 
offsetting transaction
 
with an
 
approved dealer-counterparty.
 
By using
 
a back-to-back
 
trading structure,
 
both
the commercial
 
borrower and
 
the Corporation
 
are largely
 
insulated from
 
market risk
 
and volatil
 
ity.
 
The agreements
 
set the
 
dates on
which the cash flows
 
will be paid and
 
the manner in which the
 
cash flows will be
 
calculated. The fair value
 
s
 
of interest rate swaps
 
are
recorded as components
 
of other assets
 
in the Corporation’s
 
consolidated statements
 
of financial condition.
 
Changes in the
 
fair values
of
 
interest
 
rate
 
swaps,
 
which
 
occur
 
due
 
to
 
changes
 
in
 
interest
 
rates,
 
are
 
recorded
 
in
 
the
 
consolidated
 
statements
 
of
 
income
 
as
 
a
component of interest income on loans.
For detailed information regarding
 
the volume of derivative activities (
e.g.
, notional amounts), location
 
and fair values of derivative
instruments
 
in
 
the
 
consolidated
 
statements
 
of
 
financial
 
condition
 
and
 
the
 
amount
 
of
 
gains
 
and
 
losses
 
reported
 
in
 
the
 
consolidated
statements of
 
income, see
 
Note 34
 
- Derivative
 
Instruments and
 
Hedging
 
Activities, to
 
the audited
 
consolidated financial
 
statements
included in Item 8 of this Annual Report on Form 10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
106
The following tables summarize the fair value changes in the Corporation’s
 
derivatives, as well as the sources of the fair values, as of
or for the indicated dates or periods:
Asset Derivatives
Liability Derivatives
Year
 
Ended
Year
 
Ended
(In thousands)
December 31, 2021
December 31, 2021
Fair value of contracts outstanding at the beginning of the year
$
2,482
$
(1,920)
Changes in fair value during the year
(977)
742
Fair value of contracts outstanding as of December 31, 2021
$
1,505
$
(1,178)
Sources of Fair Value
Payment due by Period
Maturity
Less Than
One Year
Maturity
 
1-3 Years
Maturity
 
3-5 Years
Maturity in
Excess of 5
Years
Total Fair
Value
(In thousands)
As of December 31, 2021
Pricing from observable market inputs
 
- Asset Derivatives
$
399
$
8
$
-
$
1,098
$
1,505
Pricing from observable market inputs - Liability Derivatives
(78)
(8)
-
(1,092)
(1,178)
$
321
$
-
$
-
$
6
$
327
Derivative instruments,
 
such as
 
interest rate
 
caps, are
 
subject to
 
market risk.
 
As is
 
the case
 
with investment
 
securities, the
 
market
value
 
of
 
derivative
 
instruments
 
is
 
largely
 
a
 
function
 
of the
 
financial
 
market’s
 
expectations
 
regarding
 
the future
 
direction
 
of
 
interest
rates.
 
Accordingly,
 
current
 
market
 
values
 
are
 
not
 
necessarily
 
indicative
 
of
 
the
 
future
 
impact
 
of
 
derivative
 
instruments
 
on
 
earnings.
This will depend, in part, on the level of interest rates, as well as the expectations
 
for rates in the future.
 
As
 
of
 
December
 
31,
 
2021
 
and
 
2020,
 
the
 
Corporation
 
considered
 
all
 
of
 
its
 
derivative
 
instruments
 
to
 
be
 
undesignated
 
economic
hedges.
The
 
use
 
of
 
derivatives
 
involves
 
market
 
and
 
credit
 
risk.
 
The
 
market
 
risk
 
of
 
derivatives
 
stems
 
principally
 
from
 
the
 
potential
 
for
changes in
 
the value
 
of derivative
 
contracts based
 
on changes
 
in interest
 
rates. The
 
credit risk
 
of derivatives
 
arises from
 
the potential
for
 
default of
 
the counterparty.
 
To
 
manage
 
this credit
 
risk, the
 
Corporation
 
deals with
 
counterparties
 
that it
 
considers
 
to be
 
of good
credit
 
standing,
 
enters
 
into
 
master
 
netting
 
agreements
 
whenever
 
possible
 
and,
 
when
 
appropriate,
 
obtains
 
collateral.
 
Master
 
netting
agreements
 
incorporate
 
rights
 
of
 
set-off
 
that
 
provide
 
for
 
the
 
net
 
settlement
 
of
 
contracts
 
with
 
the
 
same
 
counterparty
 
in
 
the
 
event
 
of
default.
107
Credit Risk
 
Management
First BanCorp.
 
is subject to credit
 
risk mainly with
 
respect to its portfolio
 
of loans receivable
 
and off-balance-sheet
 
instruments,
 
mainly
loan commitments.
 
Loans receivable
 
represents loans
 
that First BanCorp.
 
holds for investment
 
and, therefore,
 
First BanCorp. is at risk for
the term of the loan. Loan commitments represent commitments
 
to extend credit, subject to specific conditions,
 
for specific amounts and
maturities. These commitments
 
may expose the Corporation to credit risk and are subject
 
to the same review and approval process as for
loans made by
 
the Bank. See
 
“Liquidity Risk and Capital Adequacy” above for
 
further details. The Corporation manages its credit risk
through its
 
credit policy,
 
underwriting,
 
independent
 
loan review
 
and quality
 
control
 
procedures,
 
statistical
 
analysis,
 
comprehensive
 
financial
analysis,
 
and
 
established
 
management
 
committees.
 
The
 
Corporation
 
also
 
employs
 
proactive
 
collection
 
and
 
loss
 
mitigation
 
efforts.
Furthermore, personnel
 
performing structured
 
loan workout functions are responsible
 
for mitigating defaults and minimizing
 
losses upon
default
 
within
 
each
 
region
 
and
 
for
 
each
 
business
 
segment. In
 
the
 
case
 
of
 
the
 
commercial and
 
industrial, commercial
 
mortgage and
construction
 
loan portfolios,
 
the Special Asset
 
Group (“SAG”)
 
focuses on strategies
 
for the accelerated
 
reduction of
 
non-performing
 
assets
through note
 
sales, short sales,
 
loss mitigation programs,
 
and sales of OREO. In addition to the management
 
of the resolution process
 
for
problem loans, the SAG oversees collection
 
efforts for all loans to prevent migration to the nonaccrual and/or adversely
 
classified status.
The SAG
 
utilizes
 
relationship
 
officers,
 
collection
 
specialists
 
and attorneys.
The Corporation
 
may also
 
have risk
 
of default
 
in the securities
 
portfolio.
 
The securities
 
held
 
by the Corporation
 
are principally
 
fixed-rate
U.S. agencies MBS and U.S. Treasury and agencies securities.
 
Thus, a substantial portion
 
of these instruments is backed
 
by mortgages, a
guarantee
 
of a U.S.
 
GSE or the
 
full faith
 
and credit
 
of the U.S.
 
government.
Management, consisting of the
 
Corporation’s Commercial Credit Risk
 
Officer, Retail
 
Credit Risk Officer,
 
Chief Credit Officer,
 
and
other senior executives, has the primary responsibility
 
for setting strategies to achieve the Corporation’s credit risk goals and objectives.
Management
 
has documented
 
these goals
 
and objectives
 
in the
 
Corporation’s
 
Credit Policy.
Allowance
 
for Credit
 
Losses and
 
Non-performing
 
Assets
Allowance
 
for Credit
 
Losses
 
for Loans
 
and Finance
 
Leases
The ACL
 
for loans
 
and finance
 
leases represents
 
the estimate
 
of the
 
level of
 
reserves appropriate
 
to absorb
 
expected credit
 
losses
over the estimated life of
 
the loans. The amount of the allowance
 
is determined using relevant available
 
information, from internal and
external sources, relating
 
to past events, current
 
conditions, and reasonable
 
and supportable forecasts.
 
Historical credit loss experience
is
 
a
 
significant
 
input
 
for
 
the
 
estimation
 
of
 
expected
 
credit
 
losses,
 
as
 
well
 
as
 
adjustments
 
to
 
historical
 
loss
 
information
 
made
 
for
differences in current loan-specific
 
risk characteristics, such as differences
 
in underwriting standards, portfolio mix,
 
delinquency level,
or
 
term.
 
Additionally,
 
the
 
Corporation’s
 
assessment
 
involves
 
evaluating
 
key
 
factors,
 
which
 
include
 
credit
 
and
 
macroeconomic
indicators,
 
such as
 
changes in
 
unemployment
 
rates, property
 
values, and
 
other relevant
 
factors to
 
account for
 
current and
 
forecasted
market conditions
 
that are
 
likely to
 
cause estimated
 
credit losses over
 
the life
 
of the
 
loans to differ
 
from historical
 
credit losses.
 
Such
factors are
 
subject to
 
regular review
 
and may
 
change to
 
reflect updated
 
performance trends
 
and expectations,
 
particularly in
 
times of
severe stress. The
 
process includes judgments
 
and quantitative elements
 
that may be
 
subject to significant
 
change. The ACL
 
for loans
and finance leases is reviewed at least on a quarterly basis as part of the Corporation’s
 
continued evaluation of its asset quality.
 
As
 
of
 
December
 
31,
 
2021,
 
the
 
ACL
 
for
 
loans
 
and
 
finance
 
leases
 
was
 
$269.0
 
million,
 
down
 
$116.9
 
million
 
from
 
December
 
31,
2020.
 
The
 
decrease
 
in
 
the
 
ACL
 
for
 
loans
 
and
 
finance
 
leases
 
primarily
 
reflects
 
an
 
improvement
 
in
 
the
 
outlook
 
of
 
macroeconomic
variables to
 
which the
 
reserve is
 
correlated,
 
as well
 
as charge-offs
 
taken against
 
the previously-established
 
$20.9 million
 
reserve for
residential
 
mortgage
 
nonaccrual
 
loans
 
sold
 
in
 
the
 
third
 
quarter
 
of
 
2021.
 
Refer
 
to
 
Note
 
1
 
–
 
Nature
 
of
 
Business
 
and
 
Summary
 
of
Significant Accounting Policies, in the audited consolidated financial
 
statements included in Item 8 of this Annual Report on
 
Form 10-
K, for additional information for description of the methodologies used
 
by the Corporation to determine the ACL.
The ratio
 
of the
 
ACL for
 
loans and
 
finance leases
 
to total
 
loans held
 
for investment
 
decreased to
 
2.43% as
 
of December
 
31, 2021,
compared to
 
3.28% as
 
of December
 
31, 2020.
 
On a
 
non-GAAP basis,
 
excluding SBA
 
PPP loans,
 
the ratio
 
of the
 
ACL for
 
loans and
finance leases to adjusted total
 
loans held for investment was 2.46%
 
as of December 31, 2021, compared
 
to 3.39% as of December 31,
2020.
 
For
 
the
 
definition
 
and
 
reconciliation
 
of
 
this
 
non-GAAP
 
financial
 
measure,
 
refer
 
to
 
the
 
discussion
 
in
 
“Basis
 
of
 
Presentation”
below. An explanation
 
of the change for each portfolio follows:
●
The
 
ACL
 
to
 
total
 
loans
 
ratio
 
for
 
the
 
residential
 
mortgage
 
portfolio
 
decreased
 
from
 
3.42%
 
as
 
of
 
December
 
31,
 
2020
 
to
2.51% as of
 
December 31, 2021.
 
The reduction is mainly
 
related to the bulk
 
sale of residential mortgage
 
nonaccrual in the
third quarter, as well as reductions related to
 
the improvement in the outlook of macroeconomic variables.
●
The
 
ACL to
 
total
 
loans
 
ratio
 
for
 
the
 
commercial
 
mortgage
 
portfolio
 
decreased
 
from
 
4.90% as
 
of
 
December
 
31,
 
2020
 
to
2.43%
 
as of December 31, 2021,
 
primarily reflecting an improvement
 
in the outlook of macroeconomic
 
variables to which
108
the
 
reserve
 
is
 
correlated,
 
including
 
improvements
 
in
 
the
 
commercial
 
real
 
estate
 
price
 
index
 
and
 
unemployment
 
rate
forecasts.
 
●
The ACL to total
 
loans ratio for the
 
commercial and industrial portfolio
 
increased slightly from 1.18%
 
as of December 31,
2020
 
to
 
1.19%
 
as
 
of
 
December
 
31,
 
2021.
 
On
 
a
 
non-GAAP
 
basis,
 
excluding
 
SBA
 
PPP
 
loans,
 
the
 
ratio
 
of
 
the
 
ACL
 
for
commercial
 
and
 
industrial
 
loans
 
to
 
adjusted
 
total
 
commercial
 
and
 
industrial
 
loans
 
held
 
for
 
investment
 
was
 
1.25%
 
as
 
of
December 31, 2021, compared
 
to 1.36% as of December
 
31, 2020, primarily reflecting the
 
effect of an improvement
 
in the
outlook
 
of
 
macroeconomic
 
variables
 
to
 
which
 
the
 
reserve
 
is
 
correlated,
 
including
 
improvements
 
in
 
unemployment
 
rate
forecasts and overall continued growth of gross domestic product
 
in the U.S. mainland.
 
●
The ACL
 
to total
 
loans ratio
 
for the
 
construction loan
 
portfolio increased
 
from 2.53%
 
as of
 
December 31,
 
2020 to
 
2.91%
as
 
of
 
December
 
31,
 
2021,
 
primarily
 
reflecting
 
the
 
effect
 
of
 
updated
 
borrowers’
 
financial
 
metrics,
 
partially
 
offset
 
by
 
the
release of the
 
reserve previously-established
 
for the $6.0
 
million nonaccrual construction
 
loan repaid in
 
the first quarter
 
of
2021.
●
The ACL to
 
total loans ratio
 
for the consumer
 
loan portfolio decreased
 
from 4.33% as
 
of December
 
31, 2020
 
to 3.57% as
of
 
December
 
31,
 
2021,
 
primarily
 
related
 
to
 
improvements
 
in
 
macroeconomic
 
variables,
 
as
 
well
 
as
 
the
 
shift
 
in
 
the
composition
 
of
 
this
 
portfolio
 
that
 
experienced
 
increases
 
in auto
 
loans
 
and
 
finance
 
leases
 
and
 
reductions
 
in
 
personal
 
and
small loan portfolios that carried a higher ACL coverage.
The ratio
 
of the
 
total ACL
 
for loans
 
and finance
 
leases to
 
nonaccrual
 
loans held
 
for investment
 
was 242.99%
 
as of
 
December 31,
2021, compared to 188.16% as of December 31, 2020.
 
Substantially all of
 
the Corporation’s
 
loan portfolio is
 
located within the
 
boundaries of the
 
U.S. economy.
 
Whether the collateral
 
is
located in
 
Puerto Rico,
 
the U.S.
 
and British
 
Virgin
 
Islands, or
 
the U.S.
 
mainland (mainly
 
in the
 
state of
 
Florida), the
 
performance of
the Corporation’s
 
loan portfolio and
 
the value of
 
the collateral supporting
 
the transactions are
 
dependent upon the
 
performance of and
conditions
 
within each
 
specific area’s
 
real estate
 
market. The
 
Corporation believes
 
it sets
 
adequate loan-to-value
 
ratios following
 
its
regulatory and credit policy standards.
As shown
 
in the
 
following
 
table, the
 
ACL for
 
loans and
 
finance leases
 
amounted
 
to $269.0
 
million as
 
of December
 
31,
 
2021, or
2.43% of
 
total loans,
 
compared with
 
$385.9 million,
 
or 3.28%
 
of total
 
loans, as
 
of December
 
31, 2020.
 
See “Results
 
of Operation
 
-
Provision for Credit Losses” above for additional information.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
109
The following table sets forth an analysis of the activity in the ACL for loans and finance
 
leases during the periods indicated:
Year Ended December
 
31,
2021
2020
2019
2018
2017
(Dollars in thousands)
Allowance for credit losses for loans and finance leases,
 
beginning of year
$
385,887
$
155,139
$
196,362
$
231,843
$
205,603
Impact of adopting CECL
-
81,165
-
-
-
Initial allowance on PCD loans
-
28,744
-
-
-
Provision for credit losses - (benefit) expense:
Residential mortgage
(1)
(16,957)
22,427
14,091
13,202
50,744
Commercial mortgage
(2)
(55,358)
81,125
(1,697)
23,074
30,054
Commercial and Industrial
(3)
(8,549)
6,627
(13,696)
(8,440)
1,018
Construction
(4)
(1,408)
2,105
(1,496)
7,032
4,835
Consumer and finance leases
(5)
20,552
56,433
43,023
24,385
57,603
Total provision for credit losses
 
- (benefit) expense
(6)
(61,720)
168,717
40,225
59,253
144,254
Charge-offs:
Residential mortgage
(33,294)
(11,017)
(22,742)
(24,775)
(28,186)
Commercial mortgage
(1,494)
(3,330)
(15,088)
(23,911)
(39,092)
Commercial and Industrial
(1,887)
(3,634)
(7,206)
(9,704)
(19,855)
Construction
(87)
(76)
(391)
(8,296)
(3,607)
Consumer and finance leases
(43,948)
(46,483)
(52,160)
(50,106)
(44,030)
Total charge offs
(80,710)
(64,540)
(97,587)
(116,792)
(134,770)
Recoveries:
Residential mortgage
4,777
1,519
2,663
3,392
2,437
Commercial mortgage
281
1,936
398
7,925
270
Commercial and Industrial
6,776
3,192
3,554
1,819
5,755
Construction
163
184
665
334
732
Consumer and finance leases
13,576
9,831
8,859
8,588
7,562
Total recoveries
25,573
16,662
16,139
22,058
16,756
Net charge-offs
(55,137)
(47,878)
(81,448)
(94,734)
(118,014)
Allowance for credit losses for loans and finance leases,
 
end of year
$
269,030
$
385,887
$
155,139
$
196,362
$
231,843
Allowance for credit losses for loans and finance leases to
 
year-end total
 
loans held for investment
2.43%
3.28%
1.72%
2.22%
2.62%
Net charge-offs to average loans outstanding
 
during the year
0.48%
0.48%
0.91%
1.09%
1.33%
Provision for credit losses - (benefit) expense for loans and
 
finance leases to net charge-offs
 
during the year
-1.12x
3.52x
0.49x
0.63x
1.22x
Provision for credit losses - (benefit) expense for loans and
 
finance leases to net charge-offs
during the year, excluding the effect of
 
the hurricane-related reserve releases/charges
in 2019, 2018 and 2017 (7)
-1.12x
3.52x
0.57x
0.80x
0.62x
(1)
Net of a $0.4 million net loan loss reserve release for the year ended December 31,
 
2018 associated with revised estimates of the effects of Hurricanes Irma and Maria. For
 
the year ended December
31, 2017, includes a charge to the provision of $14.6 million associated with the effects
 
of Hurricanes Irma and Maria.
(2)
Net of a $1.9 million net loan loss reserve release for the year ended December 31,
 
2018 associated with revised estimates of the effects of Hurricanes Irma and Maria. For
 
the year ended December
31, 2017, includes a charge to the provision of $12.1 million associated with the effects
 
of Hurricanes Irma and Maria.
(3)
Net of loan loss reserve releases
 
of $3.4 million and $5.5
 
million for the years ended December
 
31, 2019 and 2018, respectively,
 
associated with revised estimates of the effects
 
of Hurricanes Irma
and Maria. For the year ended December 31, 2017, includes a charge to the provision of $15.9 million
 
associated with the effects of Hurricanes Irma and Maria.
(4)
Net of a $0.7 million net loan loss reserve release for the year ended December 31,
 
2018 associated with revised estimates of the effects of Hurricanes Irma and Maria. For
 
the year ended December
31, 2017, includes a charge to the provision of $3.7 million associated with the effects
 
of Hurricanes Irma and Maria.
(5)
Net of loan reserve releases of
 
$3.0 million and $8.4 million
 
for the years ended December 31,
 
2019 and 2018, respectively,
 
associated with revised estimates of
 
the effects of Hurricanes
 
Irma and
Maria. For the year ended December 31, 2017, includes a charge to the provision of $25.0
 
million associated with the effects of Hurricanes Irma and Maria.
(6)
Net of loan reserve releases of $6.4 million and $16.9
 
million for the years ended December 31, 2019 and 2018,
 
respectively, associated with revised estimates
 
of the effects of Hurricanes Irma and
Maria. For the year ended December 31, 2017, includes a provision of $71.3 million associated with the effects
 
of Hurricanes Irma and Maria.
(7)
Non-GAAP financial measure, see "Basis of Presentation" below for a reconciliation of this measure.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
110
 
The following table sets forth information concerning the allocation of the Corporation’s
 
ACL for loans and finance leases by loan
category and the percentage of loan balances in each category to the total of
 
such loans as of the dates indicated:
As of December 31,
2021
2020
2019
2018
2017
Amount
Loan
portfolio
to total
loans
Amount
Loan
portfolio
to total
loans
Amount
Loan
portfolio
to total
loans
Amount
Loan
portfolio
to total
loans
Amount
Loan
portfolio
to total
loans
(Dollars in thousands)
Residential mortgage loans
$
74,837
27%
$
120,311
30%
$
44,806
33%
$
50,794
36%
$
58,975
37%
Commercial mortgage loans
52,771
20%
109,342
19%
39,194
16%
55,581
17%
48,493
18%
Construction loans
4,048
1%
5,380
2%
2,370
1%
3,592
1%
4,522
1%
Commercial and Industrial loans
34,284
26%
37,944
27%
15,198
25%
32,546
24%
48,871
24%
Consumer loans and finance leases
103,090
26%
112,910
22%
53,571
25%
53,849
22%
70,982
20%
$
269,030
100%
$
 
385,887
100%
$
 
155,139
100%
$
 
196,362
100%
$
 
231,843
100%
 
The following table sets forth information concerning the composition of the
 
Corporation's loan portfolio and related ACL as of
December 31, 2021 and 2020 by loan category:
As of December 31, 2021
Residential
Mortgage Loans
Commercial
Mortgage Loans
C&I Loans
Consumer and
Finance Leases
Construction
Loans
(Dollars in thousands)
Total
Total loans held for investment:
 
Amortized cost of loans
$
2,978,895
$
2,167,469
$
2,887,251
$
138,999
$
2,888,044
$
11,060,658
 
Allowance for credit losses
74,837
52,771
34,284
4,048
103,090
269,030
 
Allowance for credit losses to amortized cost
2.51
%
2.43
%
1.19
%
2.91
%
3.57
%
2.43
%
As of December 31, 2020
Residential
Mortgage Loans
Commercial
Mortgage Loans
C&I Loans
Consumer and
Finance Leases
Construction
Loans
(Dollars in thousands)
Total
Total loans held for investment:
 
Amortized cost of loans
$
3,521,954
$
2,230,602
$
3,202,590
$
212,500
$
2,609,643
$
11,777,289
 
Allowance for credit losses
120,311
109,342
37,944
5,380
112,910
385,887
 
Allowance for credit losses to amortized cost
3.42
%
4.90
%
1.18
%
2.53
%
4.33
%
3.28
%
111
Allowance
 
for Credit
 
Losses for
 
Unfunded
 
Loan Commitments
The Corporation
 
estimates
 
expected
 
credit losses
 
over the
 
contractual
 
period in
 
which the
 
Corporation
 
is exposed
 
to credit
 
risk as a
 
result
of a contractual obligation to extend credit, such as pursuant to unfunded loan commitments
 
and standby letters of credit for commercial
and
 
construction loans, unless
 
the
 
obligation is
 
unconditionally cancellable by
 
the
 
Corporation. The
 
ACL
 
for
 
off-balance sheet
 
credit
exposures is
 
adjusted as a
 
provision
 
for credit loss
 
expense. As
 
of December 31,
 
2021, the ACL for
 
off-balance
 
sheet credit
 
exposures was
$1.5
 
million, down
 
$3.6
 
million from
 
$5.1
 
million as
 
of
 
December 31,
 
2020.
 
The
 
decrease was
 
mainly
 
related to
 
improvements in
forecasted
 
macroeconomic
 
variables.
Allowance for Credit Losses for Held-to-Maturity
 
Debt Securities
As of December
 
31, 2021, the
 
held-to-maturity
 
securities
 
portfolio
 
consisted
 
of Puerto Rico
 
municipal
 
bonds. As of
 
December 31,
 
2021,
the ACL for
 
held-to-maturity
 
debt securities
 
was $8.6
 
million,
 
down $0.2
 
million from
 
$8.8 million
 
as of December
 
31, 2020.
 
The decrease
was mainly
 
related to
 
improvements in forecasted macroeconomic variables and the
 
repayment of certain
 
bonds during 2021,
 
partially
offset by
 
increases
 
related
 
to changes
 
in some
 
issuers’
 
financial
 
metrics
 
based on
 
their most
 
recent financial
 
statements.
 
Allowance
 
for Credit
 
Losses for
 
Available-for-Sale
 
Debt Securities
As of December 31, 2021, the
 
ACL for available-for-sale debt securities
 
was $1.1 million, down $0.2 million from $1.3 million as of
December
 
31, 2020.
 
Nonaccrual Loans and Non-performing Assets
Total
 
non-performing assets
 
consist of
 
nonaccrual loans
 
(generally loans
 
held
 
for
 
investment or
 
loans
 
held
 
for
 
sale
 
on
 
which
 
the
recognition
 
of interest
 
income was
 
discontinued
 
when the
 
loan became
 
90 days past
 
due or earlier
 
if the full
 
and timely
 
collection
 
of interest
or principal
 
is uncertain),
 
foreclosed
 
real estate and
 
other repossessed
 
properties,
 
and non-performing
 
investment
 
securities,
 
if any. When a
loan is placed in
 
nonaccrual status, any interest previously
 
recognized and not collected is reversed and charged against interest income.
Cash payments received
 
are recognized when
 
collected in accordance
 
with the contractual
 
terms of the loans. The principal
 
portion of the
payment is used to
 
reduce the principal balance of the loan, whereas the
 
interest portion is recognized on a cash basis
 
(when collected).
However,
 
when
 
management believes
 
that
 
the
 
ultimate
 
collectability of
 
principal is
 
in
 
doubt,
 
the
 
interest
 
portion
 
is
 
applied
 
to
 
the
outstanding principal.
 
The risk exposure of this portfolio is diversified as to individual borrowers and industries, among other factors.
 
In
addition,
 
a large portion
 
is secured
 
with real
 
estate collateral.
Nonaccrual Loans Policy
Residential Real Estate Loans
 
— The Corporation generally classifies real estate loans in
 
nonaccrual status when it has not received
interest and principal for a period of 90 days or more.
Commercial
 
and
 
Construction
 
Loans
 
—
 
The
 
Corporation
 
classifies
 
commercial
 
loans
 
(including
 
commercial
 
real
 
estate
 
and
construction loans) in nonaccrual
 
status when it has not
 
received interest and principal
 
for a period of 90
 
days or more or when
 
it does
not expect to collect all of the principal or interest due to deterioration in the financial
 
condition of the borrower.
Finance Leases
 
— The Corporation
 
classifies finance leases
 
in nonaccrual status
 
when it has not
 
received interest and
 
principal for
a period of 90 days or more.
Consumer Loans
 
— The Corporation
 
classifies consumer
 
loans in nonaccrual
 
status when it
 
has not received
 
interest and
 
principal
for a period of 90 days or more. Credit card loans continue to accrue finance
 
charges and fees until charged-off at 180
 
days delinquent.
Purchased Credit
 
Deteriorated Loans
— For PCD loans
 
the nonaccrual status
 
is determined in
 
the same manner
 
as for other loans,
except for PCD loans that
 
prior to the adoption of
 
CECL were classified as purchased
 
credit impaired (“PCI”) loans
 
and accounted for
under
 
ASC Subtopic
 
310-30, “Receivables
 
– Loans
 
and Debt
 
Securities Acquired
 
with Deteriorated
 
Credit Quality”
 
(ASC Subtopic
310-30). As allowed by CECL,
 
the Corporation elected to maintain
 
pools of loans accounted for under
 
ASC Subtopic 310-30 as “units
of
 
accounts,”
 
conceptually
 
treating
 
each
 
pool
 
as
 
a
 
single
 
asset.
 
Regarding
 
interest
 
income
 
recognition,
 
the
 
prospective
 
transition
approach
 
for
 
PCD
 
loans
 
was
 
applied
 
at
 
a
 
pool
 
level
 
which
 
froze
 
the
 
effective
 
interest
 
rate
 
of
 
the
 
pools
 
as
 
of
 
January
 
1,
 
2020.
According
 
to
 
regulatory
 
guidance,
 
the
 
determination
 
of
 
nonaccrual
 
or
 
accrual
 
status
 
for
 
PCD
 
loans
 
with
 
respect
 
to
 
which
 
the
Corporation
 
has
 
made
 
a
 
policy
 
election
 
to
 
maintain
 
previously
 
existing
 
pools
 
upon
 
adoption
 
of
 
CECL
 
should
 
be
 
made
 
at
 
the
 
pool
level,
 
not
 
the
 
individual
 
asset
 
level.
 
In
 
addition,
 
the
 
guidance
 
provides
 
that
 
the
 
Corporation
 
can
 
continue
 
accruing
 
interest
 
and
 
not
report
 
the PCD
 
loans as
 
being
 
in nonaccrual
 
status if
 
the following
 
criteria
 
are met:
 
(i) the
 
Corporation
 
can reasonably
 
estimate the
timing and amounts of
 
cash flows expected to
 
be collected, and (ii)
 
the Corporation did not
 
acquire the asset primarily
 
for the rewards
of ownership
 
of the
 
underlying collateral,
 
such as
 
the use
 
in operations
 
or improving
 
the collateral
 
for resale.
 
Thus, the
 
Corporation
continues to exclude these pools of PCD loans from nonaccrual loan statistics.
112
Other Real Estate Owned
OREO acquired
 
in settlement of
 
loans is carried
 
at fair value
 
less estimated costs
 
to sell off
 
the real estate.
 
Appraisals are obtained
periodically, generally
 
on an annual basis.
Other Repossessed Property
The
 
other
 
repossessed
 
property
 
category
 
generally
 
included
 
repossessed
 
boats
 
and
 
autos
 
acquired
 
in
 
settlement
 
of
 
loans.
Repossessed boats and autos are recorded at the lower of cost or estimated fair
 
value.
Other Non-Performing Assets
This
 
category
 
consisted
 
of a
 
residential
 
pass-through
 
MBS
 
issued
 
by
 
the
 
PRHFA placed
 
in
 
non-performing
 
status
 
in
 
the
 
second
quarter of 2021 based on the delinquency status of the underlying second
 
mortgage loans.
Loans Past-Due 90 Days and Still Accruing
These are accruing loans
 
that are contractually delinquent
 
90 days or more. These
 
past-due loans are either
 
current as to interest but
delinquent
 
as to
 
the payment
 
of
 
principal
 
or are
 
insured
 
or guaranteed
 
under
 
applicable FHA,
VA
,
 
or
 
other
 
government-guaranteed
programs for residential mortgage loans. Furthermore,
 
as required by instructions in regulatory reports, loans past due
 
90 days and still
accruing
 
include
 
loans
 
previously
 
pooled
 
into
 
GNMA
 
securities
 
for
 
which
 
the
 
Corporation
 
has
 
the
 
option
 
but
 
not
 
the
 
obligation
 
to
repurchase loans
 
that meet
 
GNMA’s
 
specified delinquency
 
criteria (
e.g.
, borrowers
 
fails to
 
make any
 
payment for
 
three consecutive
months).
 
For accounting
 
purposes, these
 
GNMA loans
 
subject to
 
the repurchase
 
option are
 
required to
 
be reflected
 
on the
 
financial
statements with an offsetting liability.
TDRs are
 
classified
 
as either
 
accrual
 
or nonaccrual
 
loans. A
 
loan
 
on nonaccrual
 
status and
 
restructured
 
as a
 
TDR will
 
remain
 
on
nonaccrual
 
status until
 
the borrower
 
has proven
 
the ability
 
to perform
 
under the
 
modified structure,
 
generally
 
for a
 
minimum
 
of six
months,
 
and there
 
is evidence
 
that
 
such payments
 
can and
 
are
 
likely
 
to continue
 
as agreed.
 
The Corporation
 
considers performance
prior to the restructuring, or significant events that coincide with the
 
restructuring, in assessing whether the borrower can meet the new
terms,
 
which
 
may
 
result
 
in
 
the
 
loan
 
being
 
returned
 
to
 
accrual
 
status
 
at
 
the
 
time
 
of
 
the
 
restructuring
 
or
 
after
 
a
 
shorter
 
performance
period. If
 
the borrower’s
 
ability to
 
meet the
 
revised payment
 
schedule is
 
uncertain, the
 
loan remains
 
classified as
 
a nonaccrual
 
loan.
For a discussion of permissible
 
loan modifications under the
 
amended CARES Act of 2020
 
for loans otherwise eligible for
 
TDR, refer
to
 
Note
 
1
 
–
 
Nature
 
of
 
Business
 
and
 
Summary
 
of
 
Significant
 
Accounting
 
Policies,
 
to
 
the
 
audited
 
consolidated
 
financial
 
statements
included in Item 8 of this Form 10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
113
The following table presents non-performing assets as of the dates indicated:
December 31,
December 31,
December 31,
December 31,
December 31,
2021
2020
2019
2018
2017
(Dollars in thousands)
Nonaccrual loans held for investment:
Residential mortgage
$
55,127
$
125,367
$
121,408
$
147,287
$
178,291
Commercial mortgage
(1)
25,337
29,611
40,076
109,536
156,493
Commercial and Industrial
(1)
17,135
20,881
18,773
30,382
85,839
Construction
(1)
2,664
12,971
9,782
8,362
52,113
Consumer and finance leases
10,454
16,259
20,629
20,406
16,818
Total nonaccrual loans held for investment
(1)
110,717
205,089
210,668
315,973
489,554
OREO
40,848
83,060
101,626
131,402
147,940
Other repossessed property
3,687
5,357
5,115
3,576
4,802
Other assets
 
(2)
2,850
-
-
-
-
Total non-performing assets,
 
excluding nonaccrual
 
loans held for sale
158,102
293,506
317,409
450,951
642,296
Nonaccrual loans held for sale
(1)
-
-
-
16,111
8,290
Total non-performing assets,
including nonaccrual loans held for sale
(3)(4)
$
158,102
$
293,506
$
317,409
$
467,062
$
650,586
Past due loans 90 days and still accruing
(5)(6)
$
115,448
$
146,889
$
135,490
$
158,527
$
160,725
Non-performing assets to total assets
 
0.76
%
1.56
%
2.52
%
3.81
%
5.31
%
Nonaccrual loans held for investment to
total loans held for investment
1.00
%
1.74
%
2.34
%
3.57
%
5.53
%
Allowance for credit losses for loans and finance leases
$
269,030
$
385,887
$
155,139
$
196,362
$
231,843
Allowance for credit losses for loans and finance leases
 
to total nonaccrual loans held for investment
242.99
%
188.16
%
73.64
%
62.15
%
47.36
%
Allowance for credit losses for loans and finance leases to
 
total nonaccrual loans held for investment,
excluding residential real estate loans
483.95
%
484.04
%
173.81
%
116.41
%
74.48
%
(1)
During the first and
 
third quarters of 2018,
 
the Corporation transferred $74.4
 
million (net of
 
fair value write-downs
 
of $22.2 million recorded
 
at the time of
 
transfers) in nonaccrual
loans to held for
 
sale. Loans transferred
 
to held for sale
 
consisted of nonaccrual
 
commercial mortgage loans
 
totaling $39.6 million
 
(net of fair
 
value write-downs of
 
$13.8 million),
nonaccrual construction loans
 
totaling $33.0 million (net
 
of fair value write-downs
 
of $6.7 million) and
 
nonaccrual commercial and
 
industrial loans totaling $1.8
 
million (net of fair
value write-downs of $1.7 million). These loans were eventually
 
sold or paid in full during 2019 and 2018.
(2)
Residential pass-through
 
MBS issued
 
by the
 
PRHFA
 
held as
 
part of
 
the available-for
 
-sale investment
 
securities portfolio
 
with an
 
amortized cost
 
of $3.6
 
million recorded
 
on the
Corporation's books at its fair value of $2.9 million.
(3)
Excludes PCD loans
 
previously accounted for
 
under ASC Subtopic
 
310-30 for which
 
the Corporation made
 
the accounting policy
 
election of maintaining
 
pools of loans
 
accounted
for under ASC
 
Subtopic 310-30
 
as “units of
 
account” both at
 
the time of
 
adoption of
 
CECL on January
 
1, 2020 and
 
on an ongoing
 
basis for credit
 
loss measurement.
 
These loans
accrete interest
 
income based
 
on the
 
effective interest
 
rate of
 
the loan
 
pools determined
 
at the
 
time of
 
adoption of
 
CECL and
 
will continue
 
to be
 
excluded from
 
nonaccrual loan
statistics as long as
 
the Corporation can reasonably
 
estimate the timing and
 
amount of cash flows
 
expected to be collected
 
on the loan pools.
 
The amortized cost of
 
such loans as of
December 31, 2021, 2020, 2019, 2018 and 2017 amounted to $117.5
 
million, $130.9 million, $136.7 million, $146.6
 
million and $158.2 million, respectively.
(4)
Nonaccrual loans exclude
 
$363.4 million, $393.3
 
million, $398.3 million,
 
$478.9 million and
 
$374.7 million of
 
TDR loans that
 
were in compliance
 
with the modified
 
terms and in
accrual status as of December 31, 2021, 2020, 2019, 2018
 
and 2017, respectively.
(5)
It is
 
the Corporation's
 
policy to
 
report delinquent
 
residential mortgage
 
loans insured
 
by the
 
FHA, guaranteed
 
by the
 
VA,
 
and other
 
government-insured loans
 
as loans
 
past-due 90
days and still accruing as opposed
 
to nonaccrual loans since the principal repayment
 
is insured. The Corporation continues accruing
 
interest on these loans until they have
 
passed the
15 months delinquency mark, taking into consideration
 
the FHA interest curtailment process.
 
These balances include $46.6 million of residential
 
mortgage loans insured by the FHA
that were over 15 months delinquent as of December 31, 2021.
(6)
These include rebooked
 
loans, which were previously
 
pooled into GNMA securities,
 
amounting to $7.2
 
million, $10.7 million, $35.3
 
million, $43.6 million, and
 
$62.1 million as of
December 31,
 
2021, 2020,
 
2019, 2018,
 
and 2017,
 
respectively.
 
Under the
 
GNMA program,
 
the Corporation
 
has the
 
option but
 
not the
 
obligation to
 
repurchase loans
 
that meet
GNMA’s
 
specified delinquency criteria. For accounting purposes,
 
the loans subject to the repurchase option are required
 
to be reflected on the financial statements
 
with an offsetting
liability.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
114
The following table shows non-performing assets by geographic segment
 
as of the indicated dates:
December 31,
December 31,
December 31,
December 31,
December 31,
2021
2020
2019
2018
2017
(Dollars in thousands)
Puerto Rico:
Nonaccrual loans held for investment:
Residential mortgage
$
39,256
$
101,763
$
97,214
$
120,707
$
147,852
Commercial mortgage
(1)
15,503
18,733
23,963
44,925
128,232
Commercial and Industrial
(2)
14,708
18,876
16,155
26,005
79,809
Construction
(3)
1,198
5,323
2,024
6,220
14,506
Consumer and finance leases
10,177
15,081
19,483
19,366
16,122
Total nonaccrual loans held for investment
80,842
159,776
158,839
217,223
386,521
OREO
36,750
78,618
96,585
124,124
140,063
Other repossessed property
3,456
5,120
4,810
3,357
4,723
Other assets
(4)
2,850
-
-
-
-
Total non-performing assets, excluding nonaccrual loans
123,898
243,514
260,234
344,704
531,307
Nonaccrual loans held for sale
(1) (2) (3)
-
-
-
16,111
8,290
Total non-performing assets, including nonaccrual
held for sale
(5)
$
123,898
$
243,514
$
260,234
$
360,815
$
539,597
Past-due loans 90 days and still accruing
(6)
$
114,001
$
144,619
$
129,463
$
153,269
$
151,724
Virgin Islands:
Nonaccrual loans held for investment:
Residential mortgage
$
8,719
$
9,182
$
10,903
$
12,106
$
22,110
Commercial mortgage
9,834
10,878
16,113
19,368
25,309
Commercial and Industrial
1,476
1,444
2,303
4,377
6,030
Construction
(7)
1,466
7,648
7,758
2,142
37,607
Consumer
144
354
467
710
281
Total nonaccrual loans held for investment
21,639
29,506
37,544
38,703
91,337
OREO
3,450
4,411
4,909
6,704
6,306
Other repossessed property
187
109
146
76
26
Total non-performing assets
$
25,276
$
34,026
$
42,599
$
45,483
$
97,669
Past-due loans 90 days and still accruing
$
1,265
$
2,020
$
5,898
$
5,258
$
9,001
United States:
Nonaccrual loans held for investment:
Residential mortgage
$
7,152
$
14,422
$
13,291
$
14,474
$
8,329
Commercial mortgage
-
-
-
45,243
2,952
Commercial and Industrial
951
561
315
-
-
Consumer
133
824
679
330
415
Total nonaccrual loans held for investment
8,236
15,807
14,285
60,047
11,696
OREO
648
31
132
574
1,571
Other repossessed property
44
128
159
143
53
Total non-performing assets
$
8,928
$
15,966
$
14,576
$
60,764
$
13,320
Past-due loans 90 days and still accruing
$
182
$
250
$
129
$
-
$
-
(1)
During 2018, the Corporation transferred to
 
held for sale nonaccrual commercial mortgage
 
loans in the Puerto Rico region totaling $39.6
 
million (net of fair value write-downs
 
of $13.8 million
recorded at the time of transfers). These loans were eventually
 
sold or paid in full during 2019 and 2018.
(2)
During 2018,
 
the Corporation
 
transferred to
 
held for
 
sale nonaccrual
 
commercial and
 
industrial loans
 
in the
 
Puerto Rico
 
region totaling
 
$1.8 million
 
(net of
 
fair value
 
write-downs of
 
$1.7
million). The commercial and industrial loans transferred to held for
 
sale were eventually sold during the first quarter of 2019.
(3)
During 2018, the Corporation transferred to held for sale
 
a $3.0 million nonaccrual construction loan in the Puerto
 
Rico region (net of $1.6 million fair value write-down).
 
This loan was paid in
full in 2019.
(4)
Residential pass-through MBS
 
issued by the
 
PRHFA held
 
as part of
 
the available-for-sale
 
investment securities portfolio
 
with an amortized
 
cost of $3.6
 
million recorded on
 
the Corporation's
books at its fair value of $2.9 million.
(5)
Excludes PCD loans
 
previously accounted
 
for under ASC
 
Subtopic 310-30
 
for which the
 
Corporation made the
 
accounting policy
 
election of maintaining
 
pools of loans
 
accounted for
 
under
ASC Subtopic 310-30 as “units
 
of account” both at the
 
time of adoption of CECL on
 
January 1, 2020 and on
 
an ongoing basis for credit loss
 
measurement. These loans accrete
 
interest income
based on the effective interest
 
rate of the loan pools determined at
 
the time of adoption of CECL and will
 
continue to be excluded from nonaccrual
 
loan statistics as long as the
 
Corporation can
reasonably estimate
 
the timing
 
and amount
 
of cash flows
 
expected to
 
be collected on
 
the loan pools.
 
The amortized
 
cost of such
 
loans as of
 
December 31, 2021,
 
2020, 2019,
 
2018 and 2017
amounted to $117.5 million, $130.9 million,
 
$136.7 million, $146.6 million and $158.2 million, respectively.
(6)
These include rebooked
 
loans, which were previously
 
pooled into GNMA securities,
 
amounting to $7.2 million,
 
$10.7 million, $35.3
 
million, $43.6 million, and
 
$62.1 million as of
 
December
31,
 
2021,
 
2020,
 
2019,
 
2018,
 
and
 
2017,
 
respectively.
 
Under
 
the
 
GNMA program,
 
the
 
Corporation
 
has
 
the
 
option but
 
not
 
the
 
obligation
 
to
 
repurchase
 
loans
 
that
 
meet
 
GNMA’s
 
specified
delinquency criteria. For accounting purposes, the loans subject
 
to the repurchase option are required to be reflected on the financial
 
statements with an offsetting liability.
(7)
During
 
2018,
 
the
 
Corporation
 
transferred
 
to
 
held
 
for
 
sale
 
a
 
$30.0
 
million
 
nonaccrual
 
construction
 
loan
 
in
 
the
 
Virgin
 
Islands
 
region
 
(net
 
of
 
a
 
$5.1
 
million
 
fair
 
value
 
write-down).
 
The
construction loans transferred to held for sale was eventually
 
sold during the fourth quarter of 2018.
115
Total
 
nonaccrual
 
loans
 
were
 
$110.7
 
million
 
as
 
of
 
December
 
31,
 
2021.
 
This
 
represents
 
a
 
decrease
 
of
 
$94.4
 
million
 
from
 
$205.1
million as
 
of December
 
31, 2020.
 
The decrease
 
was primarily
 
related to
 
a $70.2
 
million reduction
 
in nonaccrual
 
residential mortgage
loans,
 
driven
 
by the
 
bulk
 
sale of
 
$52.5
 
million
 
of
 
nonaccrual residential
 
mortgage
 
loans
 
during
 
the
 
third
 
quarter
 
of
 
2021 as
 
further
described
 
below.
 
In
 
addition,
 
there
 
was
 
an
 
$18.3
 
million
 
decrease
 
in
 
nonaccrual
 
commercial
 
and
 
construction
 
nonaccrual
 
loans,
including through the repayment of
 
a $6.0 million construction loan relationship
 
in the Virgin
 
Islands region, the sale of a
 
$3.1 million
construction
 
loans
 
in
 
the
 
Puerto
 
Rico
 
region,
 
and
 
other
 
large
 
repayments
 
as
 
explained
 
below,
 
and
 
a
 
$5.8
 
million
 
decrease
 
in
nonaccrual consumer loans.
 
Nonaccrual commercial
 
mortgage loans decreased
 
by $4.3 million
 
to $25.3 million
 
as of December
 
31, 2021 from
 
$29.6 million as
of
 
December
 
31,
 
2020.
 
The
 
decrease
 
was
 
primarily
 
related
 
to
 
collections
 
of
 
approximately
 
$4.3
 
million
 
during
 
2021,
 
including
 
the
payoff of
 
two commercial mortgage
 
loan in the
 
Puerto Rico region
 
amounting to $2.4
 
million, charge-offs
 
and the transfer
 
of loans to
OREO,
 
partially
 
offset
 
by
 
inflows.
 
Total
 
inflows
 
of
 
nonaccrual
 
commercial
 
mortgage
 
loans
 
were
 
$5.1
 
million
 
for
 
the
 
year
 
ended
December 31, 2021, compared to $1.9 million for 2020.
Nonaccrual
 
commercial
 
and
 
industrial
 
loans
 
decreased
 
by
 
$3.8
 
million
 
to
 
$17.1
 
million
 
as
 
of
 
December
 
31,
 
2021
 
from
 
$20.9
million as of December 31, 2020. The decrease was mainly
 
related to collections of approximately $6.5 million during
 
2021, including
a paydown that reduced
 
by $1.4 million the carrying
 
value of a nonaccrual
 
commercial and industrial loan
 
in the Puerto Rico region, a
$1.2 million nonaccrual commercial and industrial
 
loan paid off in the Puerto Rico region,
 
and the transfer of loans to OREO, partially
offset
 
by
 
inflows.
 
Total
 
inflows of
 
nonaccrual
 
commercial
 
and
 
industrial
 
loans
 
were
 
$4.4
 
million
 
for
 
the
 
year
 
ended December
 
31,
2021, compared to $11.4 million for 2020.
Nonaccrual construction
 
loans decreased
 
by $10.3
 
million to
 
$2.7 million
 
as of
 
December 31,
 
2021, compared
 
to $13.0
 
million as
of
 
December
 
31,
 
2020.
 
The
 
decrease
 
was
 
primarily
 
related
 
to
 
the
 
aforementioned
 
$6.0
 
million
 
repayment
 
of
 
a
 
construction
 
loan
relationship in the Virgin
 
Islands region and the sale of a $3.1 million loan in the Puerto Rico region.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
116
 
The following tables present the activity of commercial and construction
 
nonaccrual loans held for investment for the
indicated periods:
Commercial
Mortgage
Commercial &
Industrial
Construction
Total
(In thousands)
Year ended
 
December 31, 2021
Beginning balance
$
29,611
$
20,881
$
12,971
$
63,463
Plus:
Additions to nonaccrual
 
5,090
4,367
23
9,480
Less:
Loans returned to accrual status
(2,376)
(752)
(319)
(3,447)
Nonaccrual loans transferred to OREO
(1,011)
(1,441)
(252)
(2,704)
Nonaccrual loans charge-offs
(1,433)
(629)
(86)
(2,148)
Loan collections and others
(4,326)
(6,471)
(6,585)
(17,382)
Reclassification
(218)
1,180
-
962
Nonaccrual loans sold, net of charge offs
-
-
(3,088)
(3,088)
Ending balance
 
$
25,337
$
17,135
$
2,664
$
45,136
Commercial
Mortgage
Commercial &
Industrial
Construction
Total
(In thousands)
Year ended
 
December 31, 2020
Beginning balance
$
40,076
$
18,773
$
9,782
$
68,631
Plus:
Additions to nonaccrual
1,875
11,367
3,691
16,933
Less:
Loans returned to accrual status
(1,838)
(1,291)
-
(3,129)
Nonaccrual loans transferred to OREO
(126)
(263)
-
(389)
Nonaccrual loans charge-offs
(3,327)
(3,600)
(75)
(7,002)
Loan collections and others
(6,373)
(4,781)
(427)
(11,581)
Reclassification
(676)
676
-
-
Ending balance
 
$
29,611
$
20,881
$
12,971
$
63,463
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
117
Nonaccrual residential
 
mortgage loans
 
decreased by
 
$70.3 million
 
to $55.1
 
million as
 
of December
 
31, 2021,
 
compared to
 
$125.4
million
 
as
 
of
 
December
 
31,
 
2020.
 
The
 
decrease
 
was
 
driven
 
by
 
the
 
aforementioned
 
bulk
 
sale
 
of
 
$52.5
 
million
 
of
 
nonaccrual
 
loans,
loans brought current and
 
restored to accrual status, as
 
well as collections, including
 
the repayment of two large
 
nonaccrual residential
mortgage
 
loans totaling
 
$3.9 million,
 
partially
 
offset
 
by
 
inflows. The
 
inflows
 
of nonaccrual
 
residential
 
mortgage
 
loans during
 
2021
were $33.5 million, a decrease of $0.2 million, compared to inflows of $33.7 million
 
for 2020.
 
During
 
the
 
third
 
quarter
 
of
 
2021,
 
the
 
Corporation
 
sold
 
$52.5
 
million
 
of
 
non-performing
 
residential
 
mortgage
 
loans
 
and
 
related
servicing
 
advances
 
of
 
$2.0
 
million.
 
The
 
Corporation
 
received
 
$31.5
 
million,
 
or
 
58%
 
of
 
book
 
value
 
before
 
reserves,
 
for
 
the
 
$54.5
million
 
of non
 
-performing
 
loans and
 
related
 
servicing
 
advances.
 
Approximately
 
$20.9
 
million
 
of reserves
 
had
 
been allocated
 
to
 
the
loans
 
sold.
 
The
 
transaction
 
resulted
 
in
 
total
 
net
 
charge-offs
 
of
 
$23.1
 
million
 
and
 
an
 
additional
 
loss
 
of
 
approximately
 
$2.1
 
million
recorded
 
as
 
a
 
charge
 
to
 
the
 
provision
 
for
 
credit
 
losses
 
in
 
the
 
third
 
quarter. The
 
Corporation's
 
primary
 
goal
 
with
 
respect
 
to
 
this
transaction was to accelerate the disposition of non-performing
 
assets.
 
The following table presents the activity of residential nonaccrual loans
 
held for investment for the indicated periods:
Year
 
ended
Year
 
ended
December 31, 2021
December 31, 2020
(In thousands)
Beginning balance
 
$
125,367
$
121,408
 
Plus:
Additions to nonaccrual
33,543
33,735
 
Less:
Loans returned to accrual status
 
(15,918)
(12,719)
Nonaccrual loans transferred to OREO
(8,058)
(4,248)
Nonaccrual loans charge-offs
(26,735)
(7,206)
Loan collections and others
(20,595)
(5,603)
Reclassification
 
(962)
-
Nonaccrual loans sold, net of charge-offs
(31,515)
-
Ending balance
 
$
55,127
$
125,367
The amount
 
of nonaccrual
 
consumer loans,
 
including finance
 
leases, decreased
 
by $5.8
 
million to
 
$10.5
 
million as
 
December 31,
2021, compared to
 
$16.2 million as
 
of December 31,
 
2020. The decrease
 
was primarily in
 
auto loans, small
 
loans, and finance
 
leases,
driven by
 
collections and
 
charge-offs recorded
 
in 2021,
 
partially offset
 
by inflows.
 
The inflows
 
of nonaccrual
 
consumer loans
 
during
the year ended December 31, 2021
 
amounted to $37.6 million compared to inflows of $42.1 million in 2020.
As of
 
December
 
31,
 
2021,
 
approximately
 
$23.8
 
million
 
of the
 
loans
 
placed
 
in nonaccrual
 
status,
 
mainly
 
commercial
 
loans, were
current,
 
or
 
had
 
delinquencies
 
of
 
less
 
than
 
90
 
days
 
in
 
their
 
interest
 
payments,
 
including
 
$13.5
 
million
 
of
 
TDRs
 
maintained
 
in
nonaccrual
 
status
 
until
 
the
 
restructured
 
loans
 
meet
 
the
 
criteria
 
of
 
sustained
 
payment
 
performance
 
under
 
the
 
revised
 
terms
 
for
reinstatement to
 
accrual status
 
and there
 
is no
 
doubt about
 
full collectability.
 
Collections on
 
these loans
 
are being
 
recorded on
 
a cash
basis through earnings, or on a cost-recovery basis, as conditions warrant.
 
During
 
the
 
year
 
ended
 
December
 
31,
 
2021,
 
interest
 
income
 
of
 
approximately
 
$2.3
 
million
 
related
 
to
 
nonaccrual
 
loans
 
with
 
a
carrying value
 
of $37.3
 
million as
 
of December
 
31, 2021, mainly
 
nonaccrual construction
 
and commercial
 
loans, was applied
 
against
the related principal balances under the cost-recovery method.
 
118
Total
 
loans
 
in
 
early
 
delinquency
 
(
i.e.
, 30-89
 
days
 
past
 
due
 
loans,
 
as defined
 
in
 
regulatory
 
report
 
instructions)
 
amounted
 
to
 
$90.3
million as of December 31,
 
2021, a decrease of $58.5
 
million compared to $148.8 million
 
as of December 31, 2020.
 
The variances by
major portfolio categories follow:
 
●
Residential mortgage
 
loans in
 
early delinquency
 
decreased by
 
$32.3 million
 
to $34.2
 
million as
 
of December
 
31, 2021,
 
and
consumer
 
loans
 
in
 
early
 
delinquency
 
decreased
 
by
 
$6.3
 
million
 
to
 
$49.4
 
million
 
as
 
of
 
December
 
31,
 
2021.
 
The
 
decreases
reflect
 
the
 
combination
 
of
 
loans
 
brought
 
current
 
during
 
the
 
year
 
ended
 
December
 
31,
 
2021
 
and
 
loans
 
that
 
migrated
 
to
nonaccrual status.
 
●
Commercial and construction loans in early delinquency decreased
 
by $19.2
 
million to $6.7 million as of December 31, 2021,
the decrease was primarily related to the refinancing of two matured
 
commercial loans.
 
In addition,
 
the Corporation provides
 
homeownership preservation
 
assistance to its
 
customers through
 
a loss mitigation
 
program in
Puerto Rico. Depending
 
upon the nature
 
of borrower’s
 
financial condition,
 
restructurings or loan
 
modifications through
 
this program,
as
 
well
 
as
 
other
 
restructurings
 
of
 
individual
 
commercial,
 
commercial
 
mortgage,
 
construction,
 
and
 
residential
 
mortgage
 
loans
 
fit
 
the
definition of
 
a TDR.
 
A restructuring
 
of a
 
debt constitutes
 
a TDR
 
if the
 
creditor,
 
for economic
 
or legal
 
reasons related
 
to the
 
debtor’s
financial difficulties,
 
grants a
 
concession to
 
the debtor
 
that it
 
would not
 
otherwise consider.
 
Modifications involve
 
changes in
 
one or
more of
 
the loan
 
terms that
 
bring a
 
defaulted loan
 
current and
 
provide sustainable
 
affordability.
 
Changes may
 
include, among
 
others,
the extension
 
of the
 
maturity of
 
the loan
 
and modifications
 
of the
 
loan rate.
 
See Note
 
8 –
 
Loans Held
 
for Investment,
 
to the
 
audited
consolidated
 
financial
 
statements
 
included
 
in
 
Item
 
8
 
of
 
this
 
Annual
 
Report
 
on
 
Form
 
10-K,
 
for
 
additional
 
information
 
and
 
statistics
about the Corporation’s TDR loans.
TDR
 
loans
 
are
 
classified
 
as
 
either
 
accrual
 
or
 
nonaccrual
 
loans.
 
Loans
 
in
 
accrual
 
status
 
may
 
remain
 
in
 
accrual
 
status
 
when
 
their
contractual terms
 
have been
 
modified in
 
a TDR
 
if the
 
loans had
 
demonstrated performance
 
prior to
 
the restructuring
 
and payment
 
in
full
 
under
 
the
 
restructured
 
terms
 
is
 
expected.
 
Otherwise,
 
a
 
loan
 
on
 
nonaccrual
 
status
 
and
 
restructured
 
as
 
a
 
TDR
 
will
 
remain
 
on
nonaccrual
 
status until
 
the borrower
 
has proven
 
the ability
 
to perform
 
under the
 
modified structure,
 
generally
 
for a
 
minimum
 
of six
months, and
 
there is evidence
 
that such payments
 
can, and are
 
likely to, continue
 
as agreed. Performance
 
prior to the
 
restructuring, or
significant events that coincide with the restructuring,
 
are included in assessing whether the borrower can meet
 
the new terms and may
result
 
in
 
the
 
loan
 
being
 
returned
 
to
 
accrual
 
status
 
at
 
the
 
time
 
of
 
the
 
restructuring
 
or
 
after
 
a
 
shorter
 
performance
 
period.
 
If
 
the
borrower’s
 
ability
 
to
 
meet
 
the
 
revised
 
payment
 
schedule
 
is
 
uncertain,
 
the
 
loan
 
remains
 
classified
 
as
 
a
 
nonaccrual
 
loan.
 
Loan
modifications
 
increase the
 
Corporation’s
 
interest income
 
by returning
 
a nonaccrual
 
loan to
 
performing
 
status, if
 
applicable,
 
increase
cash flows by providing for payments to be made by the borrower,
 
and limit increases in foreclosure and OREO costs.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
119
The following table provides a breakdown between accrual and nonaccrual TDRs as of the indicated date:
As of December 31, 2021
(In thousands)
Accrual
Nonaccrual
(1)
Total TDRs
Conventional residential mortgage loans
$
237,627
$
20,946
$
258,573
Construction loans
1,845
458
2,303
Commercial mortgage loans
52,873
15,960
68,833
Commercial and Industrial loans
59,792
10,628
70,420
Consumer loans:
Auto loans
4,208
3,076
7,284
Finance leases
975
-
975
Personal loans
973
1
974
Credit cards
2,583
-
2,583
Consumer loans - Other
2,518
275
2,793
Total Troubled
 
Debt Restructurings
$
363,394
$
51,344
$
414,738
(1)
Included in nonaccrual loans are $13.5 million in loans that
 
are performing under the terms of the restructuring agreement but
 
are reported in nonaccrual status
until the restructured loans meet the criteria of sustained
 
payment performance under the revised terms for reinstatement
 
to accrual status and are deemed fully
collectible.
Under the provisions
 
of the CARES
 
Act of 2020,
 
as amended by
 
the Consolidated Appropriations
 
Act, 2021 enacted
 
on December
27, 2020,
 
financial institutions
 
may permit
 
loan modifications
 
for borrowers
 
affected by
 
the COVID-19
 
pandemic through
 
January 1,
2022
 
without categorizing
 
the modifications
 
as TDRs, as
 
long as the
 
loans meet certain
 
conditions, including
 
the requirement that
 
the
loan
 
was
 
not
 
more
 
than
 
30
 
days
 
past
 
due
 
as
 
of
 
December
 
31,
 
2019.
 
As
 
of
 
December
 
31,
 
2021,
 
commercial
 
loans
 
totaling
 
$342.4
million,
 
or 3.10%
 
of the
 
balance of
 
the total
 
loan portfolio
 
held
 
for
 
investment, were
 
permanently
 
modified under
 
the provisions
 
of
Section 4013
 
of the
 
CARES Act
 
of 2020,
 
as amended
 
by Division
 
N, Title
 
V,
 
Section 541
 
of the
 
Consolidated
 
Appropriations
 
Act.
These
 
permanent
 
modifications
 
primarily
 
relate
 
to
 
commercial
 
borrowers
 
in
 
industries
 
with
 
longer
 
expected
 
recovery times,
 
mostly
hospitality,
 
retail
 
and
 
entertainment
 
industries.
 
With
 
respect
 
to
 
temporary
 
deferred
 
repayment
 
arrangements
 
established
 
in
 
2020
 
to
assist borrowers
 
affected by
 
the COVID-19
 
pandemic, as
 
of December
 
31, 2021,
 
all loans
 
previously modified
 
under such
 
programs
have completed their deferral period.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
120
The OREO portfolio, which is
 
part of non-performing assets, decreased
 
by $42.2 million to $40.8 million
 
as of December 31, 2021,
compared
 
to
 
$83.0
 
million
 
as
 
of
 
December
 
31,
 
2020.
 
The
 
following
 
tables
 
show
 
the
 
composition
 
of
 
the
 
OREO
 
portfolio
 
as
 
of
December 31,
 
2021 and
 
2020, as
 
well as
 
the activity
 
of the
 
OREO portfolio
 
by geographic
 
area during
 
the year
 
ended December
 
31,
2021:
OREO Composition by Region
 
As of December 31,
 
2021
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Residential
 
$
28,396
$
489
$
648
$
29,533
Commercial
4,521
2,810
-
7,331
Construction
3,833
151
-
3,984
$
36,750
$
3,450
$
648
$
40,848
As of December 31, 2020
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Residential
 
$
31,517
$
870
$
31
$
32,418
Commercial
41,176
3,180
-
44,356
Construction
5,925
361
-
6,286
$
78,618
$
4,411
$
31
$
83,060
OREO Activity by Region
 
For the year ended December 31, 2021
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Beginning Balance
$
78,618
$
4,411
$
31
$
83,060
Additions
17,798
669
882
19,349
Sales
(52,649)
(1,540)
(265)
(54,454)
Write-down adjustments
(7,017)
(90)
-
(7,107)
Ending Balance
$
36,750
$
3,450
$
648
$
40,848
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
121
Net Charge-offs and Total
 
Credit Losses
 
Net
 
charge-offs
 
totaled
 
$55.1
 
million,
 
or
 
0.48%
 
of
 
average
 
loans,
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021,
 
compared
 
to
 
$47.9
million, or
 
0.48% of
 
average loans,
 
for the
 
year ended
 
December 31,
 
2020.
 
The bulk
 
sale of
 
nonaccrual
 
residential mortgage
 
loans
added $23.1
 
million
 
in net
 
charge-off
 
for the
 
year ended
 
December 31,
 
2021.
 
Excluding the
 
effect of
 
net charge
 
-offs related
 
to the
bulk sale, total net charge-offs in 2021 were $32.0
 
million, or 0.28% of average loans.
 
 
Residential
 
mortgage
 
loans
 
net
 
charge-offs
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021
 
were
 
$28.5
 
million,
 
or
 
0.87%
 
of
 
average
residential mortgage
 
loans, compared
 
to $9.5
 
million, or
 
0.30% of
 
average residential
 
mortgage loans,
 
for the
 
year ended
 
December
31, 2020. Excluding
 
the effect of net
 
charge-offs related
 
to the bulk sale, residential
 
mortgage loans net charge
 
-offs for the year
 
ended
December
 
31,
 
2021
 
were
 
$5.4
 
million,
 
or
 
0.17%
 
of
 
average
 
residential
 
mortgage
 
loans.
 
Approximately
 
$5.7
 
million
 
in
 
charge-offs
during
 
2021 resulted
 
from valuations
 
of collateral
 
dependent
 
residential
 
mortgage loans
 
given high
 
delinquency
 
levels, compared
 
to
$7.9 million in
 
2020. Also, the overall
 
level of charge-offs
 
for the portfolio decreased
 
during 2021 as
 
compared to 2020, as
 
a result of
improvements
 
in
 
the
 
credit
 
quality
 
indicators
 
for
 
the
 
residential
 
mortgage
 
loan
 
portfolio.
 
In
 
addition,
 
the
 
residential
 
mortgage
 
net
charge-offs
 
related to
 
foreclosures amounted
 
to $2.8
 
million during
 
the year
 
ended December
 
31, 2021,
 
compared to
 
$1.6 million
 
for
the same period of 2020, partially offsetting the aforementioned
 
decreases.
Commercial mortgage
 
loan net charge
 
-offs were
 
$1.2 million, or
 
0.06% of average
 
commercial mortgage
 
loans, for the
 
year ended
December
 
31,
 
2021
 
compared
 
to
 
$1.4
 
million,
 
or
 
0.08%
 
of
 
average
 
commercial
 
mortgage
 
loans,
 
for
 
the
 
year
 
ended
 
December
 
31,
2020.
 
Commercial
 
and
 
industrial
 
loans
 
net
 
recoveries
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021
 
were
 
$4.9
 
million,
 
or
 
0.16%
 
of
 
average
commercial
 
and industrial
 
loans, compared
 
to net
 
charge-offs
 
of $0.4
 
million, or
 
0.02% of
 
average commercial
 
and industrial
 
loans,
for
 
2020.
 
Commercial
 
and
 
industrial
 
loan
 
loss
 
net
 
recoveries
 
for
 
2021
 
included
 
a
 
$5.2
 
million
 
recovery
 
in
 
connection
 
with
 
the
paydown of a nonaccrual commercial and industrial loan participation in
 
the Puerto Rico region.
Construction loans net recoveries for
 
the year ended December 31, 2021
 
were $0.1 million, or 0.04%
 
of average construction loans,
compared to net recoveries of $0.1 million, or 0.06% of average construction
 
loans, for 2020.
Net
 
charge-offs
 
of
 
consumer
 
loans
 
and
 
finance
 
leases
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021
 
were
 
$30.4
 
million,
 
or
 
1.11%
 
of
average
 
consumer loans
 
and finance
 
leases, compared
 
to $36.7
 
million, or
 
1.53% of
 
average consumer
 
loans and
 
finance leases,
 
for
2020. The decrease in 2021 was primarily reflected in the auto loans,
 
finance leases and small personal loans portfolios.
The following table shows the ratios of net charge-offs
 
(or recoveries) to average loans by loan category for the last five
years:
For the year ended December 31,
 
2021
2020
2019
2018
2017
Residential mortgage
(1)
0.87
%
0.30
%
0.66
%
0.67
%
0.79
%
Commercial mortgage
 
0.06
%
0.08
%
0.97
%
1.03
%
2.42
%
Commercial and Industrial
(0.16)
%
0.02
%
0.16
%
0.38
%
0.66
%
Construction
 
(0.04)
%
(0.06)
%
(0.28)
%
6.75
%
2.05
%
Consumer loans and finance leases
 
1.11
%
1.53
%
2.05
%
2.31
%
2.12
%
Total loans
(1)
0.48
%
0.48
%
0.91
%
1.09
%
1.33
%
(1)
For the year ended December 31,
 
2021, includes net charge-offs totaling
 
$23.1 million associated with the bulk
 
sale of residential nonaccrual loans and
 
related servicing advance
receivables. Excluding net
 
charge-offs associated
 
with the bulk
 
sale, residential
 
mortgage and total
 
net charge
 
offs to related
 
average loans
 
for the year
 
ended 2021 was
 
0.17%
and 0.28%, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
122
The following table presents net charge-offs
 
(or recoveries) to average loans held in various portfolios by geographic segment for the
last five years:
December 31,
December 31,
December 31,
December 31,
December 31,
2021
2020
2019
2018
2017
PUERTO RICO:
Residential mortgage
(1)
1.09
%
0.39
%
0.89
%
0.86
%
1.05
%
Commercial mortgage
0.08
%
0.26
%
0.36
%
1.23
%
3.36
%
Commercial and Industrial
(0.30)
%
-
%
0.39
%
0.56
%
0.96
%
Construction
 
(0.05)
%
(0.11)
%
0.54
%
6.18
%
6.38
%
Consumer and finance leases
1.10
%
1.51
%
2.05
%
2.31
%
2.14
%
Total loans
(1)
0.59
%
0.62
%
1.05
%
1.28
%
1.74
%
VIRGIN ISLANDS:
Residential mortgage
0.06
%
0.17
%
0.30
%
0.48
%
0.11
%
Commercial mortgage
(0.23)
%
(0.18)
%
(0.25)
%
(0.14)
%
(0.13)
%
Commercial and Industrial
-
%
-
%
(1.60)
%
0.16
%
(0.01)
%
Construction
 
-
%
(0.04)
%
(0.13)
%
14.00
%
(0.99)
%
Consumer and finance leases
1.16
%
0.65
%
1.35
%
2.70
%
1.77
%
Total loans
0.13
%
0.13
%
(0.11)
%
1.49
%
0.10
%
FLORIDA:
Residential mortgage
(0.01)
%
-
%
(0.03)
%
0.02
%
0.04
%
Commercial mortgage
(0.01)
%
(0.48)
%
2.67
%
0.72
%
(0.01)
%
Commercial and Industrial
0.10
%
0.04
%
-
%
0.01
%
-
%
Construction
 
(0.04)
%
(0.05)
%
(0.79)
%
(0.84)
%
(0.74)
%
Consumer and finance leases
2.15
%
4.35
%
2.98
%
1.75
%
1.69
%
Total loans
0.07
%
-
%
0.65
%
0.22
%
0.06
%
(1)
For
 
the
 
year
 
ended
 
December
 
31,
 
2021,
 
includes
 
net
 
charge-offs
 
totaling
 
$23.1
 
million
 
associated
 
with
 
the
 
bulk
 
sale
 
of
 
residential
 
nonaccrual
 
loans
 
and
 
related
 
servicing
 
advance
receivables. Excluding net
 
charge-offs associated
 
with the bulk sale,
 
residential mortgage and
 
total net charge
 
offs to related
 
average loans for the
 
year ended 2021 was
 
0.21% and 0.34%,
respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
123
The above
 
ratios are
 
not necessarily
 
indicative of
 
the results
 
expected in
 
subsequent periods.
 
Total
 
net charge
 
-offs plus
 
losses on
OREO
 
operations
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021
 
amounted
 
to
 
$53.0
 
million,
 
or
 
0.46%
 
of
 
average
 
loans
 
and
 
repossessed
assets, compared to losses of $51.5 million, or a loss rate of 0.51%, for the year
 
ended December 31, 2020.
The following table presents information about the OREO inventory
 
and credit losses for the periods indicated:
Year Ended
 
December 31,
2021
2020
(Dollars in thousands)
OREO
OREO balances, carrying value:
Residential
$
29,533
$
32,418
Commercial
7,331
44,356
Construction
3,984
6,286
Total
$
40,848
$
83,060
OREO activity (number of properties):
Beginning property inventory
513
697
Properties acquired
167
120
Properties disposed
(262)
(304)
Ending property inventory
418
513
Average holding period (in days)
Residential
700
626
Commercial
2,018
2,170
Construction
2,115
2,151
Total average holding period (in days)
1,075
1,566
OREO operations gain (loss):
Market adjustments and gains (losses) on sale:
Residential
$
4,166
$
(29)
Commercial
(1,182)
(886)
Construction
820
(484)
Total gains (losses) on sales
3,804
(1,399)
Other OREO operations expenses
(1,644)
(2,199)
Net Gain (Loss) on OREO operations
$
2,160
$
(3,598)
(CHARGE-OFFS) RECOVERIES
Residential charge-offs, net
$
(28,517)
$
(9,498)
Commercial recoveries (charge-offs), net
3,676
(1,836)
Construction recoveries, net
76
108
Consumer and finance leases charge-offs, net
(30,372)
(36,652)
Total charge-offs, net
(55,137)
(47,878)
TOTAL CREDIT LOSSES
(1)
$
(52,977)
$
(51,476)
LOSS RATIO PER CATEGORY
(2)
:
Residential
0.74%
0.30%
Commercial
-0.05%
0.06%
Construction
-0.48%
0.21%
Consumer
1.11%
1.53%
TOTAL CREDIT LOSS RATIO
(3)
0.46%
0.51%
(1)
 
Equal to net loss on OREO operations plus charge-offs, net.
(2)
Calculated as net charge-offs plus market adjustments, impairments (net of insurance
 
recoveries), and gains (losses) on sale of
OREO divided by average loans and repossessed assets.
(3)
 
Calculated as net charge-offs plus net loss on OREO operations divided by
 
average loans and repossessed assets.
124
Operational Risk
The
 
Corporation
 
faces
 
ongoing
 
and
 
emerging
 
risk
 
and
 
regulatory
 
pressure
 
related
 
to
 
the
 
activities
 
that
 
surround
 
the
 
delivery
 
of
banking
 
and
 
financial
 
products.
 
Coupled
 
with
 
external
 
influences,
 
such
 
as
 
market
 
conditions,
 
security
 
risks,
 
and
 
legal
 
risks,
 
the
potential for
 
operational and
 
reputational loss
 
has increased.
 
To
 
mitigate and
 
control operational
 
risk, the
 
Corporation has
 
developed,
and continues to
 
enhance, specific internal
 
controls, policies, and procedures
 
that are designed to
 
identify and manage operational
 
risk
at
 
appropriate
 
levels
 
throughout
 
the
 
organization.
 
The
 
purpose
 
of
 
these
 
mechanisms
 
is
 
to
 
provide
 
reasonable
 
assurance
 
that
 
the
Corporation’s business operations
 
are functioning within the policies and limits established by management.
The
 
Corporation
 
classifies operational
 
risk
 
into
 
two
 
major
 
categories:
 
business-specific
 
and
 
corporate-wide
 
affecting
 
all business
lines.
 
For
 
business
 
specific
 
risks,
 
a
 
risk
 
assessment
 
group
 
works
 
with
 
the
 
various
 
business
 
units
 
to
 
ensure
 
consistency
 
in
 
policies,
processes
 
and
 
assessments.
 
With
 
respect
 
to
 
corporate-wide
 
risks,
 
such
 
as
 
information
 
security,
 
business
 
recovery,
 
and
 
legal
 
and
compliance, the
 
Corporation has specialized
 
groups, such
 
as the Legal
 
Department, Information
 
Security,
 
Corporate Compliance,
 
and
Operations. These groups
 
assist the lines of
 
business in the
 
development and implementation
 
of risk management
 
practices specific to
the needs of the business groups.
Legal and Compliance Risk
Legal and compliance risk includes
 
the risk of noncompliance with applicable
 
legal and regulatory requirements, the
 
risk of adverse
legal
 
judgments
 
against
 
the
 
Corporation,
 
and
 
the
 
risk
 
that
 
a
 
counterparty’s
 
performance
 
obligations
 
will
 
be
 
unenforceable.
 
The
Corporation
 
is
 
subject
 
to
 
extensive
 
regulation
 
in
 
the
 
different
 
jurisdictions
 
in
 
which
 
it
 
conducts
 
its
 
business,
 
and
 
this
 
regulatory
scrutiny has
 
been significantly
 
increasing over
 
the years.
 
The Corporation
 
has established,
 
and continues
 
to enhance,
 
procedures that
are designed
 
to ensure
 
compliance with
 
all applicable
 
statutory,
 
regulatory
 
and any
 
other legal
 
requirements.
 
The Corporation
 
has a
Compliance
 
Director
 
who
 
reports
 
to
 
the
 
Chief
 
Risk
 
Officer
 
and
 
is
 
responsible
 
for
 
the
 
oversight
 
of
 
regulatory
 
compliance
 
and
implementation
 
of an
 
enterprise-wide compliance
 
risk assessment
 
process.
 
The Compliance
 
division
 
has officer
 
roles in
 
each major
business area with direct reporting responsibilities to the Corporate Compliance
 
Group.
Concentration Risk
The Corporation conducts
 
its operations in
 
a geographically concentrated
 
area, as its main
 
market is Puerto
 
Rico. Of the total
 
gross
loan portfolio
 
held for investment
 
of $11.1
 
billion as of
 
December 31, 2021,
 
the Corporation had
 
credit risk of
 
approximately 79%
 
in
the Puerto Rico region, 18% in the United States region, and 3% in the Virgin
 
Islands region.
Update on the Puerto Rico Fiscal Situation
 
 
A significant
 
portion
 
of the
 
Corporation’s
 
business activities
 
and credit
 
exposure
 
is concentrated
 
in the
 
Commonwealth of
 
Puerto
Rico, which has experienced an economic and fiscal crisis for more
 
than a decade.
Economic Indicators
According to
 
the latest
 
revised estimates
 
published by
 
the Puerto
 
Rico Planning
 
Board (“PRPB”)
 
in July
 
2021, Puerto
 
Rico’s
 
real
gross national product
 
(“GNP”) grew by 1.8%
 
during fiscal year
 
2019 (previously at
 
1.5%). Also, the
 
PRPB published its
 
preliminary
real
 
GNP
 
estimate
 
for
 
fiscal
 
year
 
2020,
 
suggesting
 
that
 
the
 
Puerto
 
Rico
 
economy
 
contracted
 
by
 
3.2%.
 
According
 
to the
 
PRPB,
 
the
economic
 
growth
 
seen
 
during fiscal
 
year
 
2019
 
primarily
 
reflects the
 
economic
 
stimulus generated
 
by
 
the
 
influx of
 
federal
 
recovery
funds in response to
 
the natural disasters that affected
 
Puerto Rico in September
 
2017, while the contraction
 
experienced in fiscal year
2020 was primarily driven by the adverse impact of the COVID-19
 
pandemic and the related mandatory restrictions.
Fiscal Plan
On
 
January
 
27,
 
2022,
 
the
 
PROMESA
 
oversight
 
board
 
certified
 
the
 
2022
 
Fiscal
 
Plan
 
for
 
Puerto
 
Rico.
 
Similar
 
to
 
previous
 
fiscal
plans,
 
the
 
2022
 
Fiscal
 
Plan
 
incorporates
 
updated
 
information
 
related
 
to
 
the
 
macroeconomic
 
environment,
 
as
 
well
 
as
 
government
revenues,
 
expenditures,
 
structural
 
reform
 
efforts,
 
and
 
recent
 
increases
 
in
 
federal
 
funding.
 
More
 
importantly,
 
the
 
2022
 
Fiscal
 
Plan
reflects the Commonwealth
 
Plan of Adjustment
 
recently confirmed by
 
the U.S. District Court
 
for the District
 
of Puerto Rico.
 
Relative
to the
 
previous
 
fiscal plan,
 
the 2022
 
Fiscal Plan
 
incorporates a
 
new set
 
of expenditure
 
projections that
 
factor in
 
the now-established
debt
 
service
 
requirements
 
pursuant
 
to
 
the
 
Plan of
 
Adjustment,
 
as well
 
as additional
 
investments
 
enabled
 
by the
 
increased resources
available
 
to
 
the
 
government.
 
The
 
2022
 
Fiscal
 
Plan
 
prioritizes
 
resource
 
allocations
 
across
 
three
 
major
 
themes:
 
(i)
 
investing
 
in
 
the
operational capacity of
 
the government to deliver
 
services with Civil Service
 
Reform, (ii) prioritizing
 
obligations to current
 
and future
retirees, and (iii) creating a fiscally responsible post-bankruptcy government.
The
 
2022
 
Fiscal
 
Plan
 
contains
 
an
 
updated
 
macroeconomic
 
forecast
 
that
 
reflects
 
the
 
adverse
 
impact
 
of
 
the
 
pandemic-induced
recession at
 
the end of
 
fiscal year
 
2020, followed
 
by a
 
forecasted rebound
 
and recovery
 
in fiscal years
 
2021 through
 
2023. Similar
 
to
125
the
 
previous
 
fiscal
 
plan,
 
the
 
2022
 
Fiscal
 
Plan
 
incorporates
 
a
 
real
 
growth
 
series
 
that
 
was
 
adjusted
 
for
 
the
 
short-term
 
income
 
effects
resulting
 
from
 
the
 
extraordinary
 
unemployment
 
insurance
 
and
 
other
 
pandemic-related
 
direct
 
transfer
 
programs.
 
Specifically,
 
the
revised fiscal plan
 
estimates that Puerto
 
Rico’s GNP
 
will grow by
 
5.2% in the
 
current fiscal year
 
2022, followed by
 
a 0.6% growth
 
in
fiscal year
 
2023.
 
Excluding
 
the effect
 
on household
 
income from
 
the unprecedented
 
pandemic-related
 
federal government
 
stimulus,
the 2022 Fiscal Plan estimates that real GNP growth would be 2.6% and 0.9% in
 
fiscal years 2022 and 2023, respectively.
Over the
 
past few
 
years, Puerto
 
Rico has
 
received an
 
infusion of
 
historical levels
 
of federal
 
support, creating
 
new opportunities
 
to
address
 
high
 
priority
 
needs.
 
The
 
2022
 
Fiscal
 
Plan
 
projects
 
that
 
approximately
 
$84
 
billion
 
of
 
disaster
 
relief
 
funding
 
in
 
total,
 
from
federal and
 
private sources,
 
will be disbursed
 
in the reconstruction
 
process over a
 
period of 18
 
years (2018 to
 
2035). Moreover,
 
since
the previous
 
fiscal plan
 
was certified
 
in 2021,
 
the Commonwealth’s
 
available resources
 
have significantly
 
increased principally
 
as a
result
 
of
 
two
 
major
 
developments:
 
(i)
 
incremental
 
federal
 
funding
 
for
 
health
 
care
 
as
 
a
 
result
 
of
 
the
 
recent
 
guidance
 
issued
 
by
 
the
Centers for
 
Medicare and
 
Medicaid Services
 
(“CMS”), which
 
increases the
 
federal funding
 
cap by
 
over $2
 
billion per
 
year,
 
and (ii)
improved local
 
revenue collections
 
as a
 
result of
 
a better-than-expected
 
recovery,
 
increased local
 
consumption and
 
economic activity
enabled by
 
enhanced income
 
support programs
 
(e.g. incremental
 
funding of
 
approximately $460
 
million for
 
the Nutrition
 
Assistance
Program). The 2022
 
Fiscal Plan provides
 
a roadmap to take
 
maximum advantage of
 
this unique opportunity,
 
create an environment
 
of
fiscal stability,
 
and develop the
 
conditions for long-term
 
growth and
 
economic development.
 
Nonetheless, the fiscal
 
plan continues to
underline the need to implement structural reforms to maximize the positive
 
impact of federal recovery funds.
Debt Restructuring
After more
 
than four years
 
since the
 
Commonwealth entered
 
Title III,
 
on January
 
18, 2022,
 
the U.S.
 
District Court
 
for the
 
District
of
 
Puerto
 
Rico
 
(the
 
“Court”)
 
issued
 
an
 
order
 
to
 
confirm
 
the PoA
 
to
 
restructure
 
approximately
 
$35
 
billion
 
of
 
debt
 
and
 
other
 
claims
against the
 
Commonwealth of
 
Puerto Rico,
 
the PBA,
 
and the
 
ERS; and
 
more than
 
$50 billion
 
of pension
 
liabilities. According
 
to the
PROMESA
 
oversight
 
board,
 
the
 
Plan
 
of
 
Adjustment
 
provides
 
a
 
one-time
 
cash
 
payment
 
to
 
creditors,
 
as
 
well
 
as
 
the
 
issuance
 
of
approximately $7.4
 
billion in new
 
debt and
 
contingent value
 
instruments (“CVIs”),
 
among other
 
items. In
 
addition, the PoA
 
provides
certain
 
Commonwealth
 
employees
 
with
 
various
 
benefits.
 
Confirmation
 
of
 
the
 
PoA
 
marks
 
a
 
major
 
milestone
 
in
 
the
 
overall
 
debt
restructuring process and creates a foundation for Puerto Rico’s
 
recovery and economic growth.
Key pending debt restructurings include
 
the PREPA,
 
for which the PROMESA oversight board
 
said in a status report filed with
 
the
Court
 
on
 
January
 
19,
 
2021,
 
that
 
it
 
intends
 
to
 
move
 
forward
 
with
 
the
 
settlement
 
set
 
forth
 
in
 
the
 
Restructuring
 
Support
 
Agreement
(“RSA”)
 
and
 
will
 
continue
 
efforts
 
to
 
propose
 
a
 
plan
 
of
 
adjustment
 
for
 
PREPA
 
by
 
the
 
end
 
of
 
March
 
2022;
 
however,
 
such
 
date
 
is
dependent
 
on
 
certain
 
factors
 
outside
 
the
 
government
 
parties’
 
control
 
that
 
might
 
push
 
the
 
filing
 
of
 
a
 
plan
 
into
 
the
 
second
 
quarter
 
of
2022.
Exposure to the Puerto Rico Government
As of December
 
31, 2021, the Corporation
 
had $360.1 million of
 
direct exposure to
 
the Puerto Rico government,
 
its municipalities,
and
 
public
 
corporations,
 
compared
 
to
 
$394.8
 
million
 
as
 
of
 
December
 
31,
 
2020.
 
As
 
of
 
December
 
31,
 
2021,
 
approximately
 
$187.8
million of the
 
exposure consisted of loans
 
and obligations of municipalities
 
in Puerto Rico that
 
are supported by assigned
 
property tax
revenues
 
and
 
for
 
which,
 
in
 
most
 
cases,
 
the
 
good
 
faith,
 
credit
 
and
 
unlimited
 
taxing
 
power
 
of
 
the
 
applicable
 
municipality
 
have
 
been
pledged to
 
their repayment,
 
and $122.8
 
million consisted
 
of municipal
 
revenue and
 
special obligation
 
bonds.
 
Approximately 61%
 
of
the Corporation’s
 
exposure to
 
Puerto Rico’s
 
government consisted
 
primarily of
 
senior priority
 
obligations concentrated
 
in four
 
of the
largest
 
municipalities
 
in
 
Puerto
 
Rico.
 
The
 
municipalities
 
are
 
required
 
by
 
law
 
to
 
levy
 
special
 
property
 
taxes
 
in
 
such
 
amounts
 
as
 
are
required for the payment
 
of all of their respective
 
general obligation bonds
 
and notes. Furthermore, municipalities
 
are also likely to be
affected
 
by
 
the
 
negative
 
economic
 
and
 
other
 
effects
 
resulting
 
from
 
the
 
COVID-19
 
pandemic,
 
as
 
well
 
as
 
expense,
 
revenue,
 
or
 
cash
management measures
 
taken to
 
address the
 
Puerto Rico
 
government’s
 
fiscal problems
 
and measures
 
included in
 
fiscal plans
 
of other
government
 
entities.
 
In
 
addition
 
to
 
municipalities,
 
the
 
total
 
direct
 
exposure
 
also
 
included
 
$12.5
 
million
 
in
 
loans
 
to
 
an
 
affiliate
 
of
PREPA,
 
$33.4 million
 
in loans
 
to an
 
agency of
 
the Puerto
 
Rico central
 
government,
 
and obligations
 
of the
 
Puerto Rico
 
government,
specifically a residential
 
pass-through MBS issued
 
by the PRHFA,
 
at an amortized
 
cost of $3.6 million
 
as part of its available-for
 
-sale
investment securities portfolio (fair value of $2.9 million as of December
 
31, 2021).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
126
The
 
following
 
table
 
details
 
the
 
Corporation’s
 
total
 
direct
 
exposure
 
to
 
Puerto
 
Rico
 
government
 
obligations
 
according
 
to
 
their
maturities:
As of December 31,
 
2021
Investment
 
Portfolio
Total
(Amortized cost)
Loans
Exposure
(In thousands)
Puerto Rico Housing Finance Authority:
 
After 10 years
$
3,574
$
-
$
3,574
Total
 
Puerto Rico Housing Finance Authority
3,574
-
3,574
Puerto Rico public corporation:
 
After 5 to 10 years
-
3,454
3,454
 
After 10 years
-
29,988
29,988
Total Puerto Rico public
 
corporation
-
33,442
33,442
 
Affiliate of the Puerto Rico Electric Power Authority:
 
After 1 to 5 years
-
12,511
12,511
Total Puerto Rico government
 
affiliate
-
12,511
12,511
Total
 
Puerto Rico public corporation and government affiliate
-
45,953
45,953
Municipalities:
 
Due within one year
2,995
8,052
11,047
 
After 1 to 5 years
14,785
76,336
91,121
 
After 5 to 10 years
90,584
48,075
138,659
 
After 10 years
69,769
-
69,769
Total
 
Municipalities
178,133
132,463
310,596
Total
 
Direct Government Exposure
$
181,707
$
178,416
$
360,123
In
 
addition,
 
as
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation
 
had
 
$92.8
 
million
 
in
 
exposure
 
to
 
residential
 
mortgage
 
loans
 
that
 
are
guaranteed by
 
the PRHFA,
 
a governmental
 
instrumentality that has
 
been designated as
 
a covered entity
 
under PROMESA (December
31,
 
2020
 
-
 
$106.5 million).
 
Residential
 
mortgage
 
loans guaranteed
 
by
 
the
 
PRHFA
 
are
 
secured by
 
the underlying
 
properties
 
and
 
the
guarantees serve
 
to cover shortfalls
 
in collateral in
 
the event of
 
a borrower default.
 
The Puerto Rico
 
government guarantees
 
up to $75
million
 
of
 
the
 
principal
 
for
 
all
 
loans
 
under
 
the
 
mortgage
 
loan
 
insurance
 
program.
 
According
 
to
 
the
 
most
 
recently
 
released
 
audited
financial
 
statements
 
of
 
the
 
PRHFA,
 
as
 
of
 
June
 
30,
 
2019,
 
the
 
PRHFA’s
 
mortgage
 
loans
 
insurance
 
program
 
covered
 
loans
 
in
 
an
aggregate
 
amount
 
of
 
approximately
 
$557
 
million.
 
The
 
regulations
 
adopted
 
by
 
the
 
PRHFA
 
require
 
the
 
establishment
 
of
 
adequate
reserves
 
to
 
guarantee
 
the
 
solvency
 
of
 
the
 
mortgage
 
loan
 
insurance
 
fund.
 
As
 
of
 
June
 
30,
 
2019,
 
the
 
most
 
recent
 
date
 
as
 
to
 
which
information is available,
 
the PRHFA
 
was not in
 
compliance with the regulations
 
and had an unrestricted
 
deficit of approximately
 
$5.2
million in the mortgage loans insurance program.
As of December
 
31, 2021, the
 
Corporation had
 
$2.7 billion of
 
public sector deposits
 
in Puerto Rico,
 
compared to $1.8
 
billion as of
December
 
31,
 
2020.
 
Approximately
 
19%
 
of
 
the
 
public
 
sector
 
deposits
 
as
 
of
 
December
 
31,
 
2021
 
was
 
from
 
municipalities
 
and
municipal
 
agencies
 
in
 
Puerto
 
Rico
 
and
 
81%
 
was
 
from
 
public
 
corporations,
 
the
 
central
 
government
 
and
 
agencies,
 
and
 
U.S.
 
federal
government agencies in Puerto Rico.
127
Exposure to USVI government
The Corporation has operations in the USVI and has credit exposure
 
to USVI government entities.
 
For
 
many
 
years,
 
the
 
USVI
 
has
 
been
 
experiencing
 
a
 
number
 
of
 
fiscal
 
and
 
economic
 
challenges
 
that
 
have
 
deteriorated
 
the
 
overall
financial and
 
economic conditions
 
in the area.
 
Between 2008 and
 
2017, the
 
USVI real GDP
 
contracted at
 
a compound annual
 
growth
rate of -4.2%. On May 26, 2021, the United States Bureau
 
of Economic Analysis (the “BEA”) released estimates
 
of GDP estimates for
the
 
USVI
 
for
 
2019.
 
According
 
to
 
the
 
BEA,
 
the
 
USVI’s
 
real
 
GDP
 
increased
 
2.2%
 
in
 
2019.
 
Also,
 
the
 
BEA
 
revised
 
the
 
previously
published real
 
GDP growth
 
estimate for
 
2018 from
 
1.5% to 1.6%.
 
Growth in
 
2019 was
 
primarily driven
 
by increases
 
in private
 
fixed
investment,
 
exports
 
and
 
consumer
 
spending.
 
These
 
increases
 
were
 
partially
 
offset
 
by
 
decreases
 
in
 
inventory
 
investment
 
and
government spending.
 
Private fixed investment
 
doubled from the
 
previous year,
 
reflecting growth in
 
business purchases of
 
equipment
and
 
in
 
construction,
 
including
 
homes.
 
In
 
addition,
 
disaster-related
 
insurance
 
payouts
 
and
 
federal
 
assistance
 
supported
 
the
reconstruction
 
and
 
major
 
repairs
 
of
 
businesses
 
and
 
homes
 
that
 
were
 
destroyed
 
or
 
heavily
 
damaged
 
by
 
the
 
two
 
major
 
hurricanes
 
in
September 2017.
 
Although economic
 
activity in the
 
USVI showed signs
 
of improvements during
 
2018 and 2019,
 
the economic threat
resulting
 
from
 
the
 
COVID-19
 
pandemic
 
is
 
anticipated
 
to
 
diminish
 
growth
 
throughout
 
2020
 
and
 
2021.
 
Notwithstanding,
 
similar
 
to
Puerto Rico,
 
the USVI
 
has benefited
 
from the
 
various rounds
 
of economic
 
stimulus programs
 
deployed by
 
the Federal
 
Government.
Overall total pandemic-related relief funding allocated to
 
the USVI exceeds $1.5 billion.
 
On
 
October
 
28,
 
2021,
 
the U.S.
 
Census
 
Bureau
 
released
 
the 2020
 
Census
 
population
 
and housing
 
unit
 
count
 
for
 
the USVI.
 
As of
April
 
1,
 
2020,
 
the
 
USVI’s
 
population
 
was 87,146,
 
representing
 
a
 
18.1%
 
decline
 
from
 
the 2010
 
Census
 
population
 
of 106,405.
 
The
housing unit count was 57,257 in 2020, representing an increase of 2.4%
 
from the 2010 Census housing unit count of 55,901.
 
PROMESA
 
does
 
not
 
apply
 
to
 
the
 
USVI
 
and,
 
as
 
such,
 
there
 
is
 
currently
 
no
 
federal
 
legislation
 
permitting
 
the
 
restructuring
 
of
 
the
debts of
 
the USVI
 
and
 
its public
 
corporations
 
and instrumentalities.
 
To
 
the extent
 
that the
 
fiscal condition
 
of the
 
USVI government
continues to
 
deteriorate, the
 
U.S. Congress
 
or the government
 
of the
 
USVI may enact
 
legislation allowing
 
for the restructuring
 
of the
financial
 
obligations
 
of
 
the
 
USVI
 
government
 
entities
 
or
 
imposing
 
a
 
stay
 
on
 
creditor
 
remedies,
 
including
 
by
 
making
 
PROMESA
applicable to the USVI.
On
 
February
 
8,
 
2022,
 
the
 
Virgin
 
Islands
 
Public
 
Finance
 
Authority
 
(“VIPFA”)
 
issued
 
a
 
voluntary
 
notice
 
to
 
inform
 
that
 
the
Government of the
 
Virgin
 
Islands (the “GVI”)
 
is evaluating a refinancing
 
of all the outstanding
 
matching revenue fund revenue
 
bonds
issued by
 
the VIPFA
 
as part of
 
a broader
 
plan to increase
 
liquidity to
 
the GVI
 
in order
 
to provide
 
additional dedicated
 
funding to
 
the
Employees’
 
Retirement
 
System
 
of
 
the
 
Virgin
 
Islands.
 
According
 
to
 
the
 
VIPFA,
 
the
 
proposed
 
refinancing
 
would
 
be
 
accomplished
through
 
a
 
securitization
 
of
 
the
 
matching
 
fund
 
revenues,
 
with
 
the
 
proceeds
 
of
 
one
 
or
 
more
 
new
 
series
 
of
 
bonds
 
(the
 
“Securitization
Bonds”)
 
expected
 
to
 
be
 
issued
 
by
 
the
 
Matching
 
Fund
 
Special
 
Purpose
 
Securitization
 
Corporation
 
(the
 
“Issuer”),
 
a
 
special
 
purpose
vehicle
 
created
 
pursuant
 
to
 
recently
 
enacted
 
legislation.
 
Such
 
securitization,
 
if
 
pursued,
 
is
 
expected
 
to
 
include
 
the
 
repayment,
refunding or defeasance
 
of all of the
 
outstanding matching
 
fund revenue bonds
 
through the issuance
 
of such Securitization
 
Bonds and
possibly
 
a
 
cash
 
tender
 
for
 
the
 
outstanding
 
matching
 
fund
 
revenue
 
bonds
 
and/or
 
an
 
exchange
 
of
 
such
 
outstanding
 
matching
 
fund
revenue bonds for Securitization Bonds.
As
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation
 
had
 
$39.2
 
million
 
in
 
loans
 
to
 
USVI
 
government
 
instrumentalities
 
and
 
public
corporations, compared
 
to $61.8
 
million as
 
of December
 
31, 2020.
 
All the
 
amount outstanding
 
as of
 
December 31,
 
2021, is
 
owed by
the public
 
corporations of
 
the USVI.
 
As of
 
December 31,
 
2021, all
 
loans were
 
currently performing
 
and up
 
to date
 
on principal
 
and
interest payments.
128
BASIS OF PRESENTATION
The Corporation
 
has included
 
in this
 
Form 10-K
 
the following
 
financial measures
 
that are
 
not recognized
 
under GAAP,
 
which are
referred to as non-GAAP financial measures:
 
1.
Net
 
interest
 
income,
 
interest
 
rate
 
spread,
 
and
 
net
 
interest
 
margin
 
excluding
 
the
 
changes
 
in
 
the
 
fair
 
value
 
of
 
derivative
instruments
 
and
 
on
 
a
 
tax-equivalent
 
basis
 
are
 
reported
 
in
 
order
 
to
 
provide
 
to
 
investors
 
additional
 
information
 
about
 
the
Corporation’s
 
net
 
interest
 
income
 
that
 
management
 
uses
 
and
 
believes
 
should
 
facilitate comparability
 
and
 
analysis
 
of
 
the
periods presented.
 
The changes in the
 
fair value of
 
derivative instruments have
 
no effect on
 
interest due or
 
interest earned on
interest-bearing
 
liabilities
 
or
 
interest-earning
 
assets,
 
respectively.
 
The
 
tax-equivalent
 
adjustment
 
to
 
net
 
interest
 
income
recognizes
 
the income
 
tax savings
 
when comparing
 
taxable and
 
tax-exempt
 
assets and
 
assumes a
 
marginal
 
income tax
 
rate.
Income
 
from tax-exempt
 
earning assets
 
is increased
 
by an
 
amount equivalent
 
to the
 
taxes that
 
would have
 
been paid
 
if this
income
 
had
 
been
 
taxable
 
at
 
statutory
 
rates.
 
Management
 
believes
 
that
 
it
 
is
 
a
 
standard
 
practice
 
in
 
the
 
banking
 
industry
 
to
present net
 
interest income,
 
interest rate spread,
 
and net interest
 
margin on
 
a fully tax-equivalent
 
basis. This
 
adjustment puts
all earning assets, most notab
 
ly tax-exempt securities and tax-exempt
 
loans, on a common basis that
 
facilitates comparison of
results to
 
the results
 
of peers.
 
See “Results
 
of Operations
 
- Net
 
Interest
 
Income”
 
above for
 
the table
 
that reconciles
 
the net
interest
 
income
 
calculated
 
and
 
presented
 
in
 
accordance
 
with
 
GAAP
 
with
 
the
 
non-GAAP
 
financial
 
measure
 
“net
 
interest
income excluding
 
fair value
 
changes and
 
on a tax-equivalent
 
basis.” The table
 
also reconciles
 
net interest
 
spread and
 
margin
calculated and
 
presented in
 
accordance with
 
GAAP with
 
the non-GAAP
 
financial measures
 
“net interest
 
spread and
 
margin
excluding fair value changes and on a tax-equivalent basis.”
2.
The
 
tangible
 
common
 
equity
 
ratio
 
and
 
tangible
 
book
 
value
 
per
 
common
 
share
 
are
 
non-GAAP
 
financial
 
measures
 
that
management believes
 
are generally
 
used by
 
the financial
 
community to
 
evaluate capital
 
adequacy.
 
Tangible
 
common equity
is
 
total
 
equity
 
less
 
preferred
 
equity,
 
goodwill,
 
core
 
deposit
 
intangibles,
 
and
 
other
 
intangibles,
 
such
 
as
 
the
 
purchased
 
credit
card relationship
 
intangible and the
 
insurance customer
 
relationship intangible.
 
Tangible
 
assets are total
 
assets less goodwill,
core
 
deposit
 
intangibles,
 
and
 
other
 
intangibles,
 
such
 
as
 
the
 
purchased
 
credit
 
card
 
relationship
 
intangible
 
and
 
the
 
insurance
customer
 
relationship
 
intangible.
 
Management
 
and
 
many
 
stock
 
analysts
 
use
 
the
 
tangible
 
common
 
equity
 
ratio
 
and
 
tangible
book
 
value
 
per
 
common
 
share
 
in
 
conjunction
 
with
 
more
 
traditional
 
bank
 
capital
 
ratios
 
to
 
compare
 
the
 
capital
 
adequacy
 
of
banking organizations with
 
significant amounts of goodwill
 
or other intangible assets,
 
typically stemming from
 
the use of the
purchase method
 
of accounting for
 
mergers and
 
acquisitions. Accordingly,
 
the Corporation
 
believes that
 
disclosures of
 
these
financial measures
 
may be
 
useful to
 
investors. Neither
 
tangible common
 
equity nor
 
tangible assets,
 
or the
 
related measures,
should be
 
considered in
 
isolation or
 
as a
 
substitute for
 
stockholders’
 
equity,
 
total assets,
 
or any
 
other measure
 
calculated in
accordance
 
with
 
GAAP.
 
Moreover,
 
the
 
manner
 
in
 
which
 
the
 
Corporation
 
calculates
 
its
 
tangible
 
common
 
equity,
 
tangible
assets, and
 
any other
 
related measures
 
may differ
 
from that
 
of other
 
companies reporting
 
measures with
 
similar names.
 
See
“Risk Management – Capital” above for a reconciliation of the Corporation’s
 
tangible common equity and tangible assets.
3.
ACL
 
for
 
loans
 
and
 
finance
 
leases
 
to
 
adjusted
 
total
 
loans
 
held
 
for
 
investment
 
ratio
 
is
 
a
 
non-GAAP
 
financial
 
measure
 
that
excludes SBA PPP
 
loans amounting
 
to $145.0 million
 
and $406.0 million
 
as of December 31, 2021
 
and December 31,
 
2020,
respectively.
 
The SBA PPP loans
 
are fully-guaranteed
 
by the SBA, and
 
the principal amount
 
of the loans
 
may be forgiven
 
in
full
 
or
 
in
 
part,
 
thus
 
presenting
 
less credit
 
risk
 
than
 
a
 
non-SBA
 
PPP
 
loan.
 
Management
 
believes
 
the
 
use
 
of
 
this non
 
-GAAP
measure
 
provides
 
additional
 
understanding
 
when
 
assessing
 
the
 
Corporation’s
 
reserve
 
coverage
 
and
 
facilitates
 
comparison
with other periods. See below for
 
the reconciliation of the GAAP ratio
 
of ACL for loans and finance
 
leases to total loans held
for investment to the Non-GAAP ratio of the ACL for loans and finance leases to adjusted
 
total loans held for investment.
4.
Adjusted
 
provision
 
for
 
credit losses
 
for
 
loans
 
and
 
finance
 
leases to
 
net
 
charge-offs
 
ratio is
 
a
 
non-GAAP
 
financial
 
measure
that
 
excludes
 
the
 
effect
 
related
 
to
 
the
 
net
 
loan
 
loss reserve
 
release
 
of
 
$6.4
 
million
 
and
 
$16.9
 
million
 
recorded
 
in
 
the years
ended December 31, 2019
 
and 2018, respectively,
 
and the $71.3 million charge
 
to the provision for the
 
year ended December
31, 2017, resulting from
 
revised estimates of the qualitative
 
reserve associated with the
 
effects of Hurricanes Irma
 
and Maria.
Management believes
 
that this
 
information helps
 
investors understand
 
the adjusted
 
measure without
 
regard to
 
items that
 
are
not expected
 
to reoccur
 
with any
 
regularity or
 
may reoccur
 
at uncertain
 
times and
 
in uncertain
 
amounts on
 
reported
 
results
and facilitates comparisons with
 
other periods.
 
See below for the reconciliation
 
of the GAAP ratio of
 
the provision for credit
losses for
 
loans and
 
finance leases
 
to net
 
charge-offs
 
to the
 
Non-GAAP
 
ratio of
 
the adjusted
 
provision
 
for credit
 
losses for
loans and finance leases to net charge-offs.
5.
To
 
supplement
 
the
 
Corporation’s
 
financial
 
statements
 
presented
 
in
 
accordance
 
with
 
GAAP,
 
the
 
Corporation
 
uses,
 
and
believes that investors would benefit
 
from disclosure of, non-GAAP financial measures
 
that reflect adjustments to net income
and non
 
-interest expenses
 
to exclude
 
items that
 
management
 
identifies as
 
Special Items
 
because management
 
believes they
are not
 
reflective of
 
core operating
 
performance, are
 
not expected
 
to reoccur with
 
any regularity or
 
may reoccur
 
at uncertain
times
 
and
 
in
 
uncertain
 
amounts.
 
This
 
Form
 
10-K
 
includes
 
the
 
following
 
non-GAAP
 
financial
 
measures
 
for
 
the
 
year
 
ended
December 31, 2021 and 2020 that reflect the described items that were excluded
 
for one of those reasons.
129
Adjusted net income reflects the effect of the following
 
exclusions:
●
Merger and restructuring costs of $26.4 million and $26.5
 
million recorded in 2021 and 2020, respectively,
 
related
to transaction costs and restructuring initiatives in connection with the
 
acquisition of BSPR.
●
COVID-19 pandemic-related expenses of $3.0 million and $5.4 million
 
in 2021 and 2020, respectively.
●
Gains of $13.2 million on the sales of U.S. agencies MBS and U.S. Treasury
 
notes recorded in 2020.
●
The $8.0 million benefit related to the partial reversal of the deferred tax
 
asset valuation allowance recorded during
2020.
●
Total benefit of $6.2
 
million recorded in 2020 resulting from hurricane-related insurance recoveries.
●
Gain of $0.1 million on the repurchase of $0.4 million in TRuPs in 2020 reflected
 
in the statement of income as
Gain on early extinguishment of debt.
●
The tax-related effects of all the pre-tax items mentioned in the
 
above bullets as follows:
−
Tax
 
benefit
 
of
 
$9.9
 
million
 
for
 
both
 
years
 
2021
 
and
 
2020,
 
related
 
to
 
merge
 
and
 
restructuring
 
costs
 
in
connection with the acquisition of BSPR (calculated based on the statutory
 
tax rate of 37.5%).
−
Tax
 
benefit
 
of
 
$1.1
 
million
 
and
 
$2.0
 
million
 
in
 
2021
 
and
 
2020,
 
respectively,
 
in
 
connection
 
with
 
the
COVID-19 pandemic-related expenses (calculated based on the statutory
 
tax rate of 37.5%)
−
No tax expense was recorded for the gain on sales of U.S. agencies MBS and U.S. Treasury
 
Notes in 2020.
 
−
Tax
 
expense
 
of
 
$2.3
 
million
 
in
 
2020
 
related
 
to
 
the
 
benefit
 
of
 
hurricane-related
 
insurance
 
recoveries
(calculated based on the statutory tax rate of 37.5%).
−
The
 
gains
 
realized
 
on
 
the
 
repurchase
 
of
 
TRuPs
 
in
 
2020
 
recorded
 
at
 
the
 
holding
 
company
 
level,
 
had
 
no
effect on the income tax expense in 2020.
See “Overview of Results
 
of Operations”
 
above for the reconciliation
 
of the non-GAAP financial
 
measure “adjusted
 
net income” to the
GAAP financial
 
measure.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
130
Adjusted non-interest expenses -
 
The
 
following tables reconcile for
 
the years
 
ended December 31,
 
2021 and
 
2020 the
 
GAAP non-
interest expenses
 
to
 
adjusted non-interest expenses,
 
which is
 
a
 
non-GAAP financial measure
 
that
 
excludes the
 
relevant Special
 
Items
discussed
 
above:
2021
Non-Interest
Expenses
(GAAP)
Merger and
Restructuring
Costs
COVID 19
Pandemic-Related
Expenses
Adjusted (Non-
GAAP)
(In thousands)
Non-interest expenses
$
488,974
$
26,435
$
2,958
$
459,581
Employees' compensation and benefits
200,457
-
67
200,390
Occupancy and equipment
 
93,253
-
2,601
90,652
Business promotion
15,359
-
22
15,337
Professional service fees
59,956
-
-
59,956
Taxes, other than income taxes
22,151
-
261
21,890
FDIC deposit insurance
6,544
-
-
6,544
Net gain on OREO and OREO expenses
(2,160)
-
-
(2,160)
Credit and debit card processing expenses
22,169
-
-
22,169
Communications
9,387
-
-
9,387
Merger and restructuring costs
26,435
26,435
-
-
Other non-interest expenses
35,423
-
7
35,416
2020
Non-Interest
Expenses
(GAAP)
Merger and
Restructuring
Costs
COVID 19
Pandemic-Related
Expenses
Hurricane-
Related Insurance
Recoveries
Adjusted
(Non-GAAP)
(In thousands)
Non-interest expenses
$
424,240
$
26,509
$
5,411
$
(1,153)
$
393,473
Employees' compensation and benefits
177,073
-
1,772
-
175,301
Occupancy and equipment
 
74,633
-
2,713
(789)
72,709
Business promotion
12,145
-
581
(184)
11,748
Professional service fees
52,633
-
8
(180)
52,805
Taxes, other than income taxes
17,762
-
274
-
17,488
FDIC deposit insurance
6,488
-
-
-
6,488
Net loss on OREO and OREO expenses
3,598
-
-
-
3,598
Credit and debit card processing expenses
19,144
-
-
-
19,144
Communications
8,437
-
16
-
8,421
Merger and restructuring costs
26,509
26,509
-
-
-
Other non-interest expenses
25,818
-
47
-
25,771
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
131
Allowance for
 
credit losses
 
on loans and finance
 
leases to adjusted
 
total loans
 
held for investment
 
ratio – The following
 
tables reconcile
the “ACL for loans and finance leases to total loans held for investment ratio,” the GAAP financial
 
measure, to the non-GAAP financial
measure “ACL for loans and finance
 
leases to adjusted total
 
loans held for investment
 
ratio,” as of December 31, 2021 and 2020, and the
“provision for
 
credit losses
 
for loans and finance
 
leases to net charge-offs
 
ratio,” the GAAP financial
 
measure, to the non-GAAP
 
financial
measure “adjusted
 
provision
 
for credit losses
 
for loans and
 
finance leases
 
to net charge-offs
 
ratio,” for
 
the years ended
 
December
 
31, 2021,
2020 and
 
2019:
Allowance for Credit Losses for Loans and Finance Leases
to Loans Held for Investment
 
(GAAP to Non-GAAP reconciliation)
As of December 31, 2021
Allowance for Credit Losses for
 
Loans Held for
Investment
Loans and Finance Leases
(In thousands)
Allowance for credit losses for loans and finance leases and
 
loans held for investment (GAAP)
$
269,030
$
11,060,658
 
Less:
 
SBA PPP loans
-
145,019
Allowance for credit losses for loans and finance leases and adjusted
 
loans held for investment,
 
 
excluding SBA PPP loans (Non-GAAP)
$
269,030
$
10,915,639
Allowance for credit losses for loans and finance leases to loans
 
held for investment (GAAP)
2.43
%
Allowance for credit losses for loans and finance leases to adjusted
 
loans held for investment,
 
 
excluding SBA PPP loans (Non-GAAP)
2.46
%
Allowance for Credit Losses for Loans and Finance Leases
to Loans Held for Investment
 
(GAAP to Non-GAAP reconciliation)
As of December 31, 2020
Allowance for Credit Losses for
 
Loans Held for
Investment
Loans and Finance Leases
(In thousands)
Allowance for credit losses for loans and finance leases and
 
loans held for investment (GAAP)
$
385,887
$
11,777,289
 
Less:
 
SBA PPP loans
-
405,953
Allowance for credit losses for loans and finance leases and adjusted
 
loans held for investment,
 
 
excluding SBA PPP loans (Non-GAAP)
$
385,887
$
11,371,336
Allowance for credit losses for loans and finance leases to loans
 
held for investment (GAAP)
3.28
%
Allowance for credit losses for loans and finance leases to adjusted
 
loans held for investment,
 
 
excluding SBA PPP loans (Non-GAAP)
3.39
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
132
Provision for credit losses - (benefit) expense
Finance Leases to Net Charge-Offs
(GAAP to Non GAAP reconciliation)
Year Ended
December 31, 2021
December 31, 2020
December 31, 2019
Provision for Credit
Losses - (benefit)
expense
Net Charge-
Offs
Provision for Credit
Losses - (benefit)
expense
Net Charge-Offs
Provision for Credit
Losses - (benefit)
expense
Net Charge-Offs
(In thousands)
Provision for credit losses - (benefit) expense and net charge-offs (GAAP)
$
(61,720)
$
55,137
$
40,225
$
81,448
$
59,253
$
94,734
Less Special Item:
Hurricane-related qualitative reserve release (provision)
-
-
6,425
-
16,943
-
Provision for credit losses - (benefit) expense and net charge-offs,
excluding special item (Non-GAAP)
$
(61,720)
$
55,137
$
46,650
$
81,448
$
76,196
$
94,734
Provision for credit losses - (benefit) expense to net charge-offs (GAAP)
-111.94
%
49.39
%
62.55
%
Provision for credit losses - (benefit) expense to net charge-offs,
 
excluding special items (Non-GAAP)
 
-111.94
%
57.28
%
80.43
%
Management
 
believes that
 
the presentation
 
of adjusted
 
net income,
 
adjusted non-interest
 
expenses
 
and
 
adjustments to
 
the various
components of
 
non-interest expenses,
 
the ratio
 
of allowance
 
for credit
 
losses to
 
adjusted total
 
loans held
 
for investment,
 
and the
 
ratio
of adjusted
 
provision for
 
credit losses
 
for loans
 
and finance
 
leases to
 
net charge
 
-offs enhance
 
the ability
 
of analysts
 
and investors
 
to
analyze
 
trends
 
in
 
the
 
Corporation’s
 
business
 
and
 
understand
 
the
 
performance
 
of
 
the
 
Corporation.
 
In
 
addition,
 
the
 
Corporation
 
may
utilize
 
these
 
non-GAAP
 
financial
 
measures
 
as a
 
guide
 
in
 
its
 
budgeting
 
and
 
long-term
 
planning
 
process.
 
Any
 
analysis
 
of
 
these
 
non-
GAAP financial measures should be used only in conjunction with results
 
presented in accordance with GAAP.
CEO and CFO Certifications
First BanCorp.’s Chief Executive
 
Officer and Chief Financial Officer have
 
filed with the SEC certifications required by Section 302
and Section 906 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1, 31.2,
 
32.1 and 32.2 to this Annual Report on Form 10-K.
 
In addition, in 2021, First BanCorp’s
 
Chief Executive Officer provided to the NYSE his annual certification,
 
as required for all
NYSE listed companies, that he was not aware of any violation by the Corporation
 
of the NYSE corporate governance listing
standards.
Item 7A. Quantitative and Qualitative Disclosures about Market
 
Risk
 
The information required
 
herein is incorporated by
 
reference to the
 
information included under the
 
sub-caption “Interest Rate Risk
Management” in Item
 
7 “Management’s
 
Discussion and Analysis of
 
Financial Condition and
 
Results of Operations,”
 
of this Form 10-
K.
 
133
Item 8. Financial Statements and Supplementary Data
FIRST BANCORP.
INDEX TO CONSOLIDATED
 
FINANCIAL STATEMENTS
 
 
(PCAOB No.
173
)
……………………………..
134
 
…………………………………………
137
 
……………………………………………………………...
138
 
 
……...…………………………………………………………………...
139
 
 
……...………………………………………………….
140
 
………………………………………………………………………
141
 
………………………………………………..
142
 
…………………………………………………………………..
143
 
134
REPORT OF INDEPENDENT REGISTERED
 
PUBLIC ACCOUNTING FIRM
Stockholders and the Board of Directors
 
of First BanCorp.
Santurce, Puerto Rico
Opinions on the Financial Statements and Internal Control
 
over Financial Reporting
We
 
have audited
 
the accompanying
 
consolidated statement of
 
financial condition
 
of First BanCorp.
 
(the "Company")
 
as of December
31, 2021
 
and 2020,
 
the related
 
consolidated
 
statements of
 
income, comprehensive
 
income, cash
 
flows, and
 
changes in
 
stockholders’
equity
 
for each
 
of the
 
years in
 
the three-year
 
period ended
 
December
 
31, 2021,
 
and the
 
related
 
notes (collectively
 
referred
 
to as
 
the
"financial statements"). We
 
also have audited the
 
Company’s internal
 
control over financial reporting
 
as of December 31,
 
2021, based
criteria established
 
in Internal
 
Control –
 
Integrated Framework:
 
(2013) issued
 
by the
 
Committee of
 
Sponsoring Organizations
 
of the
Treadway Commission (COSO).
In our opinion,
 
the financial statements
 
referred to above
 
present fairly,
 
in all material
 
respects, the financial
 
position of the
 
Company
as of
 
December 31,
 
2021 and
 
2020, and
 
the results
 
of its
 
operations and
 
its cash
 
flows for
 
each of
 
the years
 
in the
 
three-year period
ended December
 
31, 2021 in
 
conformity with
 
accounting principles
 
generally accepted
 
in the United
 
States of America.
 
Also, in our
opinion, the Company maintained,
 
in all material respects, effective
 
internal control over financial
 
reporting as of December
 
31, 2021,
based on criteria established in Internal Control – Integrated Framework:
 
(2013) issued by COSO.
Change in Accounting Principle
As
 
discussed
 
in
 
Notes
 
1
 
and
 
9
 
to
 
the
 
financial
 
statements,
 
the
 
Company
 
has
 
changed
 
its
 
method
 
of
 
accounting
 
for
 
credit
 
losses
effective
 
January 1,
 
2020 due
 
to the
 
adoption of
 
Financial Accounting
 
Standards Board
 
(FASB)
 
Accounting Standards
 
Codifications
No. 326,
 
Financial Instruments
 
– Credit
 
Losses (Topic
 
326). The
 
Company adopted
 
the new
 
credit loss
 
standard using
 
the modified
retrospective
 
method
 
such
 
that
 
prior
 
period
 
amounts
 
are
 
not
 
adjusted
 
and
 
continue
 
to
 
be
 
reported
 
in
 
accordance
 
with
 
previously
applicable generally accepted accounting principles.
Basis for Opinions
The
 
Company’s
 
management
 
is
 
responsible
 
for
 
these
 
financial
 
statements,
 
for
 
maintaining
 
effective
 
internal
 
control
 
over
 
financial
reporting,
 
and
 
for
 
its
 
assessment
 
of
 
the
 
effectiveness
 
of
 
internal
 
control
 
over
 
financial
 
reporting,
 
included
 
in
 
the
 
accompanying
Management’s
 
Report
 
on
 
Internal
 
Control
 
over
 
Financial
 
Reporting. Our
 
responsibility is
 
to
 
express
 
an
 
opinion
 
on
 
the
 
Company’s
financial statements and
 
an opinion
 
on the
 
Company’s internal
 
control over
 
financial reporting based
 
on our
 
audits.
 
We
 
are a
 
public
accounting firm
 
registered with
 
the Public
 
Company Accounting
 
Oversight Board
 
(United States)
 
("PCAOB") and
 
are required
 
to
 
be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities
 
and Exchange
 
Commission and
 
the PCAOB.
 
We conducted
 
our audits in accordance with the
 
standards of the PCAOB. Those standards require
 
that we plan and perform the audits
to obtain reasonable
 
assurance about whether
 
the financial statements are
 
free of material misstatement,
 
whether due to error
 
or fraud,
and whether effective internal control over financial reporting
 
was maintained in all material respects.
 
 
135
Our
 
audits
 
of
 
the
 
financial
 
statements
 
included
 
performing
 
procedures
 
to
 
assess
 
the
 
risks
 
of
 
material
 
misstatement
 
of
 
the
 
financial
statements, whether due to error or fraud,
 
and performing procedures that respond to
 
those risks. Such procedures included examining,
on
 
a
 
test basis,
 
evidence
 
regarding
 
the
 
amounts
 
and
 
disclosures
 
in
 
the
 
financial
 
statements.
 
Our
 
audits
 
also
 
included
 
evaluating
 
the
accounting
 
principles
 
used
 
and
 
significant
 
estimates
 
made
 
by
 
management,
 
as
 
well
 
as
 
evaluating
 
the
 
overall
 
presentation
 
of
 
the
financial statements. Our audit
 
of internal control over
 
financial reporting included obtaining
 
an understanding of internal control
 
over
financial reporting, assessing the risk that a material weakness
 
exists, and testing and evaluating the design
 
and operating effectiveness
of internal
 
control based
 
on the assessed
 
risk. Our
 
audits also
 
included performing
 
such other
 
procedures as
 
we considered
 
necessary
in the circumstances.
 
We believe that our audits
 
provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s
 
internal control over financial reporting is a
 
process designed to provide reasonable assurance
 
regarding the reliability of
financial reporting and
 
the preparation of
 
financial statements for
 
external purposes in
 
accordance with
 
generally accepted accounting
principles.
 
A
 
company’s
 
internal
 
control
 
over
 
financial
 
reporting
 
includes
 
those
 
policies
 
and
 
procedures
 
that
 
(1)
 
pertain
 
to
 
the
maintenance
 
of
 
records
 
that,
 
in
 
reasonable
 
detail,
 
accurately
 
and
 
fairly
 
reflect
 
the
 
transactions
 
and
 
dispositions
 
of
 
the
 
assets
 
of
 
the
company; (2) provide
 
reasonable assurance that
 
transactions are recorded
 
as necessary to permit
 
preparation of financial
 
statements in
accordance with
 
generally accepted
 
accounting principles,
 
and that
 
receipts and
 
expenditures of
 
the company
 
are being
 
made only
 
in
accordance
 
with
 
authorizations
 
of
 
management
 
and
 
directors
 
of
 
the
 
company;
 
and
 
(3)
 
provide
 
reasonable
 
assurance
 
regarding
prevention or timely detection of unauthorized acquisition, use, or
 
disposition of the company’s
 
assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over
 
financial reporting may not prevent or detect misstatements.
 
Also, projections
of any evaluation
 
of effectiveness to
 
future periods are
 
subject to the
 
risk that controls
 
may become inadequate
 
because of
 
changes in
conditions, or that the degree of compliance with the policies or procedures
 
may deteriorate.
 
Critical Audit Matters
The
 
critical
 
audit
 
matter
 
communicated
 
below
 
is a
 
matter
 
arising
 
from
 
the
 
current
 
period
 
audit
 
of
 
the
 
financial
 
statements
 
that
 
was
communicated or required
 
to be communicated
 
to the audit
 
committee and that:
 
(1) relates to accounts
 
or disclosures that
 
are material
to the financial
 
statements and (2)
 
involved our especially
 
challenging, subjective,
 
or complex judgments.
 
The communication of
 
the
critical
 
audit
 
matter
 
does
 
not
 
alter
 
in
 
any
 
way
 
our
 
opinion
 
on
 
the
 
financial
 
statements,
 
taken
 
as
 
a
 
whole,
 
and
 
we
 
are
 
not,
 
by
communicating
 
the
 
critical
 
audit
 
matter
 
below,
 
providing
 
a
 
separate
 
opinion
 
on
 
the
 
critical
 
audit
 
matter
 
or
 
on
 
the
 
accounts
 
or
disclosures to which it relates.
Allowance for Credit Losses – Model and Forecast of Macroeconomic Variables
As described
 
in Notes
 
1 and
 
9 to
 
the financial
 
statements, the
 
allowance for
 
credit losses
 
(“ACL”) for
 
loans and
 
finance leases
 
is an
accounting
 
estimate
 
of
 
expected
 
credit
 
losses
 
over
 
the
 
contractual
 
life
 
of
 
financial
 
assets
 
carried
 
at
 
amortized
 
cost
 
and
 
off-balance-
sheet credit exposures.
The calculation
 
of the
 
ACL for
 
loans and
 
finance leases,
 
is primarily
 
measured based
 
on a
 
probability of
 
default /
 
loss given
 
default
modeled approach. A significant
 
amount of judgment was required
 
when assessing the reasonableness and
 
quality of the model design
and
 
construction,
 
including
 
whether
 
the
 
models
 
were
 
relevant
 
to
 
the
 
Company’s
 
loan
 
portfolio
 
and
 
were
 
suitable
 
for
 
use.
 
Additionally,
 
the estimate
 
of the
 
probability of
 
default and
 
loss given
 
default assumptions
 
uses relevant
 
current and
 
forward-looking
macroeconomic variables,
 
such as:
 
unemployment rate;
 
housing and
 
real estate
 
price indices;
 
interest rates;
 
market risk
 
factors; and
gross domestic
 
product, and
 
considers conditions
 
throughout Puerto
 
Rico, the
 
Virgin
 
Islands,
 
and the
 
State of
 
Florida. A
 
significant
amount of
 
judgment is required
 
to assess the
 
reasonableness of
 
the macroeconomic variables.
 
Changes in the
 
model design as
 
well as
changes to these assumptions could have a material effect on the
 
Company’s financial results.
136
The
 
model
 
and
 
the
 
current
 
and
 
forward-looking
 
macroeconomic
 
variables
 
used
 
contribute
 
significantly
 
to
 
the
 
determination
 
of
 
the
ACL for
 
loans and
 
finance leases.
 
We
 
identified the
 
assessment of
 
the model
 
design and
 
construction and
 
the assessment
 
of relevant
macroeconomic
 
variables
 
as a
 
critical audit
 
matter as
 
the impact
 
of these
 
judgments
 
represents a
 
significant
 
portion
 
of the
 
ACL for
loans
 
and
 
finance
 
leases
 
and
 
because
 
management’s
 
estimate
 
required
 
especially
 
subjective
 
auditor
 
judgment
 
and
 
significant
 
audit
effort, including the need for specialized skill.
 
The primary procedures we performed to address these critical audit matters included:
●
Testing
 
the
 
effectiveness
 
of
 
controls
 
over
 
the
 
evaluation
 
of
 
the
 
conceptual
 
design
 
and
 
construction
 
of
 
the
 
models
 
and
 
the
evaluation of the current and forward-looking macroeconomic variables,
 
including controls addressing:
o
Management’s review and
 
approval of the models and methodologies used to establish the ACL.
o
Management’s review and
 
approval of the macroeconomic variables.
o
Management’s review of the reasonableness
 
of the results of the macroeconomic variables used in the calculation.
o
Management’s review of
 
the results of the third-party model validations.
●
Substantively
 
testing
 
management’s
 
process,
 
including
 
evaluating
 
their
 
judgments
 
and
 
assumptions,
 
for
 
assessing
 
the
conceptual design and construction of the models and for developing the
 
macroeconomic variables, which included:
o
Evaluation,
 
with
 
the
 
assistance
 
of
 
professionals
 
with
 
specialized
 
skill
 
and
 
knowledge,
 
of
 
the
 
reasonableness
 
of
management’s judgments related
 
to the conceptual design and construction of the models.
 
o
Evaluation
 
of
 
the
 
completeness
 
and
 
accuracy
 
of
 
data
 
inputs
 
used
 
as
 
a
 
basis
 
for
 
the
 
adjustments
 
relating
 
to
macroeconomic variables.
o
Evaluation,
 
with
 
the
 
assistance
 
of
 
professionals with
 
specialized
 
skill
 
and
 
knowledge,
 
of
 
the
 
reasonableness of
management’s
 
judgments
 
related
 
to the macroeconomic
 
variables
 
used in the
 
determination
 
of the ACL
 
for loans.
 
Among
other procedures, our
 
evaluation considered, evidence from internal and
 
external sources, loan
 
portfolio performance
trends
 
and whether
 
such assumptions
 
were applied
 
consistently
 
period
 
to period.
o
Analytical evaluation of the variables period to period for directional consistency
 
and testing for reasonableness.
/s/
Crowe LLP
We have served
 
as the Company’s auditor since 2018.
Fort Lauderdale, Florida
March 1, 2022
Stamp No. E413192 of the Puerto Rico
Society of Certified Public Accountants
was affixed to the record copy of this report.
 
 
137
Management’s Report on Internal Control
 
over Financial Reporting
To the Stockholders
 
and Board of Directors of First BanCorp.:
First BanCorp.’s
 
(the “Corporation”)
 
internal control
 
over financial
 
reporting is
 
a process
 
designed
 
and effected
 
by those
 
charged
with
 
governance,
 
management,
 
and
 
other
 
personnel,
 
to
 
provide
 
reasonable
 
assurance
 
regarding
 
the
 
reliability
 
of
 
financial
 
reporting
and the preparation of reliable
 
financial statements in accordance
 
with accounting principles generally
 
accepted in the United States of
America
 
(“GAAP”).
 
The
 
Corporation’s
 
internal
 
control
 
over
 
financial
 
reporting
 
includes
 
those
 
policies
 
and
 
procedures
 
that:
(1) pertain to the
 
maintenance of records
 
that, in reasonable detail,
 
accurately and fairly reflect
 
the transactions and dispositions
 
of the
assets
 
of
 
the
 
Corporation;
 
(2) provide
 
reasonable
 
assurance
 
that
 
transactions
 
are
 
recorded
 
as
 
necessary
 
to
 
permit
 
the
 
preparation
 
of
financial
 
statements
 
in
 
accordance
 
with
 
GAAP,
 
and
 
that
 
receipts
 
and
 
expenditures
 
of
 
the
 
Corporation
 
are
 
being
 
made
 
only
 
in
accordance
 
with
 
authorizations
 
of
 
management
 
and
 
directors
 
of
 
the
 
Corporation;
 
and
 
(3) provide
 
reasonable
 
assurance
 
regarding
prevention,
 
or timely
 
detection and
 
correction
 
of unauthorized
 
acquisition,
 
use, or
 
disposition of
 
the Corporation’s
 
assets that
 
could
have a material effect on the financial statements.
Because of
 
its inherent
 
limitations, internal
 
control over
 
financial reporting
 
may not
 
prevent, or
 
detect and
 
correct misstatements.
Also,
 
projections
 
of
 
any
 
evaluation
 
of
 
effectiveness
 
to
 
future
 
periods
 
are
 
subject
 
to
 
the
 
risk
 
that
 
controls
 
may
 
become
 
inadequate
because of changes in conditions, or that the degree of compliance with the
 
policies and procedures may deteriorate.
Management
 
is
 
responsible
 
for
 
establishing
 
and
 
maintaining
 
effective
 
internal
 
control
 
over
 
financial
 
reporting.
 
Management
assessed
 
the
 
effectiveness
 
of
 
the
 
Corporation’s
 
internal
 
control
 
over
 
financial
 
reporting
 
as
 
of
 
December 31,
 
2021,
 
based
 
on
 
the
framework
 
set
 
forth
 
by
 
the
 
Committee
 
of
 
Sponsoring
 
Organizations
 
of
 
the
 
Treadway
 
Commission
 
(COSO)
 
in
 
Internal
 
Control-
Integrated
 
Framework
 
(2013).
 
Based
 
on
 
that
 
assessment,
 
management
 
concluded
 
that,
 
as
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation’s
internal control over financial reporting is effective based
 
on the criteria established in Internal Control-Integrated Framework (2013).
 
Management’s
 
assessment
 
of
 
the
 
effectiveness
 
of
 
internal
 
control
 
over
 
financial
 
reporting
 
as
 
of
 
December 31,
 
2021,
 
has
 
been
audited by CROWE LLP,
 
an independent public accounting firm, as stated in their
 
accompanying report dated March 1, 2022.
 
First BanCorp.
 
/s/
 
Aurelio Alemán
 
Aurelio Alemán
 
President and Chief Executive Officer
 
Date: March 1, 2022
 
/s/
 
Orlando Berges
 
 
Orlando Berges
 
Executive Vice President
 
and Chief Financial Officer
 
Date: March 1, 2022
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
138
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
 
2021
December 31, 2020
(In thousands, except for share information)
ASSETS
Cash and due from banks
$
2,540,376
$
1,433,261
Money market investments:
Time deposits with other financial institutions
300
300
Other short-term investments
2,382
60,272
Total money market investments
2,682
60,572
Investment securities available for sale, at fair value:
Securities pledged with creditors’ rights to repledge
321,180
341,789
Other investment securities available for sale
6,132,581
4,305,230
Total investment securities available for sale, at fair value (amortized cost 2021 - $
6,534,503
;
2020 - $
4,584,851
; allowance for credit losses of $
1,105
 
as of December 31, 2021 and $
1,310
 
as of
December 31, 2020)
6,453,761
4,647,019
Investment securities held to maturity, at amortized cost, net of allowance for credit losses
of $
8,571
 
as of December 31, 2021 and $
8,845
 
as of December 31, 2020 (fair value 2021 - $
167,147
;
2020 - $
173,806
)
169,562
180,643
Equity securities
32,169
37,588
Loans, net of allowance for credit losses of $
269,030
 
(2020 - $
385,887
)
10,791,628
11,391,402
Loans held for sale, at lower of cost or market
35,155
50,289
Total loans, net
10,826,783
11,441,691
Premises and equipment, net
146,417
158,209
Other real estate owned (“OREO”)
40,848
83,060
Accrued interest receivable on loans and investments
61,507
69,505
Deferred tax asset, net
208,482
329,261
Goodwill
38,611
38,632
Intangible assets
29,934
40,893
Other assets
234,143
272,737
Total assets
$
20,785,275
$
18,793,071
LIABILITIES
Non-interest-bearing deposits
$
7,027,513
$
4,546,123
Interest-bearing deposits
10,757,381
10,771,260
Total deposits
17,784,894
15,317,383
Securities sold under agreements to repurchase
300,000
300,000
Federal Home Loan Bank advances
200,000
440,000
Other borrowings
183,762
183,762
Accounts payable and other liabilities
214,852
276,747
 
Total liabilities
18,683,508
16,517,892
STOCKHOLDERS’ EQUITY
Preferred stock, authorized,
50,000,000
 
shares:
Non-cumulative Perpetual Monthly Income Preferred Stock:
22,004,000
;
1,444,146
 
shares outstanding as of December 31, 2020, aggregate liquidation value of $
36,104
as of December 31, 2020 (See Note 23)
-
36,104
Common stock, $
0.10
 
par value, authorized, 2,000,000,000 shares;
223,663,116
 
shares issued (2020 -
223,034,348
 
shares issued)
22,366
22,303
Less: Treasury stock (at par value)
(2,183)
(480)
Common stock outstanding,
201,826,505
 
shares outstanding
 
(2020 -
218,235,064
 
shares outstanding)
20,183
21,823
Additional paid-in capital
738,288
946,476
Retained earnings, includes legal surplus reserve of $
137,591
 
(2020 - $
109,338
)
1,427,295
1,215,321
Accumulated other comprehensive (loss) income, net of tax of $
9,786
 
as of December 31, 2021 (2020 -
$
7,590
)
(83,999)
55,455
Total stockholders’ equity
2,101,767
2,275,179
Total liabilities and stockholders’ equity
$
20,785,275
$
18,793,071
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
139
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF INCOME
 
Year Ended December 31,
2021
2020
2019
(In thousands, except per share information)
Interest and dividend income:
 
Loans
$
719,153
$
631,047
$
602,998
 
Investment securities
72,893
58,547
59,546
 
Money market investments and interest-bearing cash accounts
2,662
3,388
13,353
 
Total interest and dividend income
794,708
692,982
675,897
Interest expense:
 
Deposits
41,482
68,388
77,782
 
Loans payable
-
21
-
 
Securities sold under agreements to repurchase
9,963
6,645
6,647
 
Advances from FHLB
8,199
11,251
14,963
 
Other borrowings
5,135
6,355
9,424
 
Total interest expense
64,779
92,660
108,816
 
Net interest income
729,929
600,322
567,081
Provision for credit losses - (benefit) expense:
 
Loans and finance leases
(61,720)
168,717
40,225
 
Unfunded loan commitments
(3,568)
1,183
(412)
 
Debt securities
(410)
1,085
-
 
Provision for credit losses - (benefit) expense
(65,698)
170,985
39,813
 
Net interest income after provision for credit losses
795,627
429,337
527,268
Non-interest income:
 
Service charges and fees on deposit accounts
35,284
24,612
23,916
 
Mortgage banking activities
24,998
22,124
17,058
 
Net gain (loss) on investment securities
-
13,198
(497)
 
Gain on early extinguishment of debt
-
94
-
 
Insurance commission income
11,945
9,364
10,186
 
Other non-interest income
48,937
41,834
39,909
 
Total non-interest income
 
121,164
111,226
90,572
Non-interest expenses:
 
Employees' compensation and benefits
200,457
177,073
162,374
 
Occupancy and equipment
93,253
74,633
63,169
 
Business promotion
15,359
12,145
15,710
 
Professional fees
59,956
52,633
45,889
 
Taxes, other than income taxes
22,151
17,762
15,325
 
Federal Deposit Insurance Corporation ("FDIC") deposit insurance
6,544
6,488
6,319
 
Net (gain) loss on OREO and OREO expenses
(2,160)
3,598
14,644
 
Credit and debit card processing expenses
22,169
19,144
16,472
 
Communications
9,387
8,437
6,891
 
Merger and restructuring costs
26,435
26,509
11,442
 
Other non-interest expenses
35,423
25,818
20,233
 
Total non-interest expenses
488,974
424,240
378,468
Income before income taxes
427,817
116,323
239,372
Income tax expense
146,792
14,050
71,995
Net income
 
$
281,025
$
102,273
$
167,377
Net income attributable to common stockholders
 
$
277,338
$
99,597
$
164,701
Net income per common share:
 
Basic
$
1.32
$
0.46
$
0.76
 
Diluted
$
1.31
$
0.46
$
0.76
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
140
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Year Ended
 
December 31,
2021
2020
2019
(In thousands)
Net income
 
$
281,025
$
102,273
$
167,377
Other comprehensive (loss) income, net of tax:
Debt securities:
Unrealized gain on debt securities for which credit losses have been recognized
1,417
772
48
Reclassification adjustment for credit losses - (benefit) expense on debt securities included in net
income
(136)
1,641
497
Reclassification adjustment for net gains included in net income on sales of
available-for-sale debt securities with no credit losses previously recognized
-
(13,198)
-
All other unrealized holding (losses) gains on available-for-sale debt securities
(144,396)
59,746
46,634
Defined benefit plans adjustments:
Net actuarial gain (loss)
3,661
(270)
-
Other comprehensive (loss) income for the year, net of tax
(139,454)
48,691
47,179
Total comprehensive income
 
$
141,571
$
150,964
$
214,556
Year Ended
 
December 31,
2021
2020
2019
(In thousands)
Income tax effect of items included in other comprehensive (loss) income:
Debt securities:
Unrealized gain on debt securities for which credit losses have been recognized
$
-
$
-
$
-
Reclassification adjustment for credit losses - (benefit) expense on debt securities included in net
-
-
-
Reclassification adjustments for net gain included in net income on sales of
available-for-sale debt securities with no credit losses previously recognized
-
-
-
All other unrealized holding
 
(losses) gains on available-for-sale debt securities
-
-
-
Defined benefit plans adjustments:
Net actuarial gain (loss)
2,199
(162)
-
Total income tax effect of items included in other comprehensive (loss) income
$
2,199
$
(162)
$
-
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
141
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
 
2021
2020
2019
(In thousands)
Cash flows from operating activities:
 
Net income
 
$
281,025
$
102,273
$
167,377
Adjustments to reconcile net income to net cash provided by operating
 
activities:
 
Depreciation and amortization
24,965
20,068
17,592
 
Amortization of intangible assets
11,407
5,912
3,086
 
Provision for credit losses - (benefit) expense
(65,698)
170,985
39,813
 
Deferred income tax expense (benefit)
118,323
(4,371)
55,009
 
Stock-based compensation
5,460
5,117
3,949
 
Gain on early extinguishment of debt
-
(94)
-
 
(Gain) loss on sales of investment securities
-
(13,198)
497
 
Unrealized gain on derivative instruments
(4,227)
(5,635)
(2,934)
 
Net (gain) loss on disposals or sales of premises
 
and equipment and other assets
(32)
(215)
242
 
Net gain on sales of loans
(14,791)
(13,273)
(10,446)
 
Net amortization/accretion of discounts, premiums,
 
and deferred loan fees and costs
(25,294)
(8,602)
(8,117)
 
Originations and purchases of loans held for sale
(503,200)
(648,052)
(362,612)
 
Sales and repayments of loans held for sale
528,253
659,349
360,572
 
Amortization of broker placement fees
218
537
732
 
Net amortization/accretion of premiums and discounts on
 
investment securities
26,549
19,410
2,483
 
Decrease (increase) in accrued interest receivable
7,701
6,419
(1,971)
 
(Decrease) increase in accrued interest payable
(2,776)
(2,990)
1,081
 
Decrease (increase) in other assets
24,344
(5,018)
32,521
 
(Decrease) increase in other liabilities
(12,506)
9,116
(4,590)
 
Net cash provided by operating activities
399,721
297,738
294,284
Cash flows from investing activities:
 
Net repayments (disbursements) on loans held for investment
599,097
(335,152)
(341,870)
 
Proceeds from sales of loans held for investment
81,458
6,788
83,428
 
Proceeds from sales of repossessed assets
55,867
35,270
60,124
 
Proceeds from sales of available-for-sale securities
-
1,195,250
-
 
Purchases of available-for-sale securities
(3,447,921)
(3,820,148)
(765,432)
 
Proceeds from principal repayments and maturities of available-for-sale
 
securities
1,445,873
1,277,762
628,675
 
Proceeds from principal repayments and maturities of
 
held-to-maturity securities
12,677
6,431
6,138
 
Additions to premises and equipment
(13,349)
(16,070)
(22,478)
 
Proceeds from sales of premises and equipment and
 
other assets
832
497
1,568
 
Net redemptions of other investments securities
5,322
3,881
6,292
 
Proceeds from the settlement of insurance claims -
 
investing activities
550
-
587
 
Net (payments) cash acquired in acquisition
(3,381)
406,626
-
 
Net cash used in investing activities
(1,262,975)
(1,238,865)
(342,968)
Cash flows from financing activities:
 
Net increase in deposits
2,472,579
1,767,441
361,657
 
Net decrease in short-term borrowings
-
(35,000)
(15,086)
 
Repayments of long-term borrowings
(240,000)
(95,282)
(205,000)
 
Proceeds from long-term reverse repurchase agreements
-
200,000
-
 
Repurchase of outstanding common stock
(216,522)
(206)
(1,959)
 
Dividends paid on common stock
(65,021)
(43,416)
(30,356)
 
Dividends paid on preferred stock
(2,453)
(2,676)
(2,676)
 
Redemption of preferred stock-
 
Series A through E
(36,104)
-
-
 
Net cash provided by (used in) financing activities
1,912,479
1,790,861
106,580
Net increase (decrease) in cash and cash equivalents
1,049,225
849,734
57,896
Cash and cash equivalents at beginning of year
1,493,833
644,099
586,203
Cash and cash equivalents at end of year
$
2,543,058
$
1,493,833
$
644,099
Cash and cash equivalents include:
 
Cash and due from banks
$
2,540,376
$
1,433,261
$
546,391
 
Money market instruments
2,682
60,572
97,708
$
2,543,058
$
1,493,833
$
644,099
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
142
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
 
EQUITY
Year Ended December 31,
2021
2020
2019
(In thousands, except per share information)
Preferred Stock:
 
Balance at beginning of year
$
36,104
$
36,104
$
36,104
 
Redemption of Series A through E Preferred Stock
(36,104)
-
-
 
Balance at end of year
-
36,104
36,104
Common stock outstanding:
 
Balance at beginning of year
21,823
21,736
21,724
 
Common stock repurchases (See Note 23)
(1,695)
(5)
(18)
 
Restricted stock grants
33
90
31
 
Unrestricted stock grants
-
2
-
 
Vesting of performance shares unit
30
-
-
 
Restricted stock forfeited
(8)
-
(1)
 
Balance at end of year
20,183
21,823
21,736
Additional paid-in capital:
 
Balance at beginning of year
946,476
941,652
939,674
 
Common stock repurchases (See Note 23)
(214,827)
(201)
(1,941)
 
Stock-based compensation expense
5,460
5,117
3,949
 
Restricted stock grants
(33)
(90)
(31)
 
Unrestricted stock grants
-
(2)
-
 
Vesting of performance shares unit
(30)
-
-
 
Restricted stock forfeited
8
-
1
 
Issuance costs of Series A through E Preferred Stock redeemed
1,234
-
-
 
Balance at end of year
738,288
946,476
941,652
Retained earnings:
 
Balance at beginning of year
1,215,321
1,221,817
1,087,617
 
Impact of adoption of Accounting Standards Codification
 
("ASC" or "Codification")
 
 
Topic 326, "Financial Instruments - Credit Losses" ("ASC 326" or "CECL")
(62,322)
 
Balance at beginning of period (as adjusted for impact of adoption
 
of ASC 326)
1,159,495
 
Net income
 
281,025
102,273
167,377
 
Dividends on common stock (2021 - $
0.31
 
per share; 2020 - $
0.20
 
per share; 2019 - $
0.14
 
per share)
(65,364)
(43,771)
(30,501)
 
Dividends on preferred stock
 
(2,453)
(2,676)
(2,676)
 
Excess of redemption value over carrying value of Series
 
A through E Preferred
 
 
Stock redeemed
(1,234)
-
-
 
Balance at end of year
1,427,295
1,215,321
1,221,817
Accumulated other comprehensive (loss) income, net of tax:
 
Balance at beginning of year
55,455
6,764
(40,415)
 
Other comprehensive (loss) income, net of tax
(139,454)
48,691
47,179
 
Balance at end of year
(83,999)
55,455
6,764
 
Total stockholders’ equity
$
2,101,767
$
2,275,179
$
2,228,073
The accompanying notes are an integral part of these statements.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS
143
NOTE 1
 
–
 
NATURE OF BUSINESS
 
AND SUMMARY
 
OF SIGNIFICANT
 
ACCOUNTING
 
POLICIES
 
Nature of business
First
 
BanCorp.
 
(the
 
“Corporation”)
 
is
 
a
 
publicly
 
owned,
 
Puerto
 
Rico-chartered
 
financial
 
holding
 
company
 
that
 
is
 
subject
 
to
regulation,
 
supervision,
 
and
 
examination
 
by the
 
Board
 
of Governors
 
of the
 
Federal
 
Reserve
 
System
 
(the “Federal
 
Reserve
 
Board”).
 
The Corporation is a full service
 
provider of financial services and products
 
with operations in Puerto Rico, the
 
United States, the U.S.
Virgin Islands
 
(the “USVI”), and the British Virgin
 
Islands (the “BVI”).
The Corporation
 
provides a
 
wide range
 
of financial
 
services for
 
retail, commercial,
 
and institutional
 
clients.
 
The Corporation
 
has
two
 
wholly-owned
 
subsidiaries:
 
FirstBank
 
Puerto
 
Rico
 
(“FirstBank”
 
or
 
the
 
“Bank”),
 
and
 
FirstBank
 
Insurance
 
Agency,
 
Inc.
(“FirstBank Insurance Agency”).
 
FirstBank is a Puerto
 
Rico-chartered commercial bank,
 
and FirstBank Insurance
 
Agency is a Puerto
Rico-chartered
 
insurance
 
agency.
 
FirstBank
 
is
 
subject
 
to
 
the
 
supervision,
 
examination,
 
and
 
regulation
 
of
 
both
 
the
 
Office
 
of
 
the
Commissioner
 
of
 
Financial
 
Institutions
 
of
 
the
 
Commonwealth
 
of
 
Puerto
 
Rico
 
(the
 
“OCIF”)
 
and
 
the
 
Federal
 
Deposit
 
Insurance
Corporation
 
(“FDIC”).
 
Deposits
 
are
 
insured
 
through
 
the
 
FDIC
 
Deposit
 
Insurance
 
Fund.
 
FirstBank
 
also
 
operates
 
in
 
the
 
State
 
of
Florida,
 
subject to
 
regulation
 
and
 
examination
 
by the
 
Florida
 
Office
 
of Financial
 
Regulation
 
and
 
the FDIC,
 
in the
 
USVI, subject
 
to
regulation
 
and examination
 
by the
 
United
 
States Virgin
 
Islands Banking
 
Board, and
 
in the
 
BVI, subject
 
to regulation
 
by the
 
British
Virgin
 
Islands
 
Financial
 
Services
 
Commission.
 
The
 
Consumer
 
Financial
 
Protection
 
Bureau
 
(the
 
“CFPB”)
 
regulates
 
FirstBank’s
consumer financial products and services.
FirstBank Insurance Agency
 
is subject to the supervision,
 
examination, and regulation of
 
the Office of the
 
Insurance Commissioner
of the Commonwealth of Puerto Rico and the Division of Banking and Insurance
 
Financial Regulation in the USVI.
Effective
 
September 1,
 
2020, FirstBank
 
completed the
 
acquisition of Santander
 
Bancorp, a
 
wholly-owned subsidiary
 
of Santander
Holdings
 
USA, Inc.
 
and
 
the holding
 
company of
 
Banco Santander
 
Puerto Rico
 
(“BSPR”),
 
pursuant
 
to a
 
Stock Purchase
 
Agreement
dated
 
as
 
of
 
October
 
21,
 
2019,
 
by
 
and
 
among
 
FirstBank
 
and
 
Santander
 
Holdings,
 
USA,
 
Inc.
 
(the
 
“Stock
 
Purchase
 
Agreement”).
Immediately following the closing
 
of the transaction, Santander
 
Bancorp was merged with
 
and into FirstBank (the
 
“HoldCo Merger”),
with FirstBank surviving the HoldCo Merger.
 
Immediately following the effectiveness of the
 
HoldCo Merger, BSPR was
 
merged with
and into FirstBank,
 
with FirstBank as
 
the surviving entity
 
in the merger.
 
Refer to Note
 
2 – Business
 
Combination, to the
 
consolidated
financial statements for more information about this acquisition.
FirstBank conducts its
 
business through its
 
main office located
 
in San Juan, Puerto
 
Rico,
64
 
banking branches in
 
Puerto Rico,
eight
banking
 
branches
 
in
 
the
 
USVI
 
and
 
the
 
BVI,
 
and
11
 
banking
 
branches
 
in
 
the
 
state
 
of
 
Florida
 
(USA).
 
FirstBank
 
has
seven
 
wholly-
owned
 
subsidiaries
 
with
 
operations
 
in
 
Puerto
 
Rico:
 
First
 
Federal
 
Finance
 
Corp.
 
(d/b/a
 
Money
 
Express
 
La Financiera),
 
a
 
finance
company specializing in the origination
 
of small loans with
28
 
offices in Puerto Rico; First Management
 
of Puerto Rico, a Puerto Rico
corporation,
 
which
 
holds
 
tax-exempt
 
assets;
 
FirstBank
 
Overseas
 
Corporation,
 
an
 
international
 
banking
 
entity
 
(an
 
“IBE”)
 
organized
under
 
the International
 
Banking
 
Entity
 
Act of
 
Puerto
 
Rico;
 
and
 
one dormant
 
company formerly
 
engaged
 
in the
 
operation
 
of certain
OREO property.
 
General
 
The
 
accompanying
 
consolidated
 
audited
 
financial
 
statements
 
have
 
been
 
prepared
 
in
 
conformity
 
with
 
GAAP.
 
The
 
following
 
is
 
a
description of the Corporation’s most
 
significant accounting policies.
Principles of consolidation
The
 
consolidated
 
financial
 
statements
 
include
 
the
 
accounts
 
of
 
the
 
Corporation
 
and
 
its
 
subsidiaries.
 
All
 
significant
 
intercompany
balances
 
and
 
transactions
 
have
 
been
 
eliminated
 
in
 
consolidation.
 
The
 
results
 
of
 
operations
 
of
 
companies
 
or
 
assets
 
acquired
 
are
included
 
from
 
the
 
date
 
of
 
acquisition.
 
Statutory
 
business
 
trusts
 
that
 
are
 
wholly-owned
 
by
 
the
 
Corporation
 
and
 
are
 
issuers
 
of
 
trust-
preferred
 
securities
 
(“TRuPs”)
 
and
 
entities
 
in
 
which
 
the
 
Corporation
 
has
 
a
 
non-controlling
 
interest,
 
are
 
not
 
consolidated
 
in
 
the
Corporation’s
 
consolidated
 
financial
 
statements
 
in
 
accordance
 
with
 
authoritative
 
guidance
 
issued
 
by
 
the
 
FASB
 
for
 
consolidation
 
of
variable
 
interest
 
entities
 
(“VIE”).
 
See
 
“Variable
 
Interest
 
Entities”
 
below
 
for
 
further
 
details
 
regarding
 
the
 
Corporation’s
 
accounting
policy for these entities
.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
144
Use of estimates in the preparation of financial statements
The
 
preparation
 
of
 
financial
 
statements
 
in
 
conformity
 
with GAAP
 
requires
 
management
 
to
 
make
 
estimates
 
and
 
assumptions
 
that
affect
 
the reported
 
amounts of
 
assets, liabilities,
 
and contingent
 
liabilities as
 
of the
 
date of
 
the financial
 
statements, and
 
the reported
amounts of revenues and expenses during the reporting period. Actual results
 
could differ from those estimates.
Cash and cash equivalents
For purposes of
 
reporting cash
 
flows, cash and
 
cash equivalents include
 
cash on hand,
 
cash items in
 
transit, and
 
amounts due
 
from
the Federal Reserve Bank of New York
 
(the “Federal Reserve” or the “FED”) and other
 
depository institutions. The term also includes
money market funds and short-term investments with original maturities of
 
three months or less.
Investment securities
The Corporation classifies its investments in debt and equity securities into one
 
of four categories:
Held-to-maturity
 
— Debt
 
securities that
 
the entity
 
has the
 
intent and
 
ability to
 
hold to
 
maturity.
 
These securities
 
are carried
 
at
amortized
 
cost.
 
The
 
Corporation
 
may
 
not
 
sell
 
or
 
transfer
 
held-to-maturity
 
securities
 
without
 
calling
 
into
 
question
 
its
 
intent
 
to
hold other debt securities to
 
maturity, unless
 
a nonrecurring or unusual event
 
that could not have been reasonably
 
anticipated has
occurred.
Trading
 
—
 
Securities that are
 
bought and
 
held principally for
 
the purpose
 
of
 
selling them
 
in
 
the near
 
term. These
 
securities are
carried at fair value,
 
with unrealized
 
gains and losses reported
 
in earnings. As of December
 
31, 2021, and 2020, the Corporation
 
did
not hold
 
investment
 
securities
 
for trading
 
purposes.
Available-for-sale
 
— Securities
 
not classified
 
as held-to-maturity
 
or trading.
 
These securities
 
are carried
 
at fair
 
value, with
 
unrealized
holding
 
gains
 
and
 
losses, net
 
of
 
deferred taxes,
 
reported
 
in
 
other
 
comprehensive income
 
(“OCI”)
 
as
 
a
 
separate
 
component of
stockholders’
 
equity. The unrealized
 
holding gains
 
and losses do
 
not affect earnings
 
until they are
 
realized,
 
or an allowance
 
for credit
losses (“ACL”)
 
is recorded.
Equity
 
securities
 
—
 
Equity
 
securities
 
that
 
do
 
not
 
have
 
readily
 
available
 
fair
 
values
 
are
 
classified
 
as
 
equity
 
securities
 
in
 
the
consolidated statements
 
of financial condition. These securities are stated at
 
the lower of
 
cost or
 
realizable value. This category is
principally
 
composed of FHLB
 
stock that the Corporation
 
owns to comply with
 
FHLB regulatory
 
requirements.
 
The realizable
 
value
of
 
the
 
stock
 
equals
 
its
 
cost.
 
Also
 
included in
 
this
 
category are
 
marketable equity
 
securities held
 
at
 
fair
 
value
 
with
 
changes
 
in
unrealized
 
gains or
 
losses recorded
 
through
 
earnings.
Premiums
 
and
 
discounts
 
on
 
debt
 
securities
 
are
 
amortized
 
as an
 
adjustment
 
to
 
interest
 
income
 
on
 
investments
 
over
 
the life
 
of
 
the
related securities
 
under the
 
interest method
 
without anticipating
 
prepayments, except
 
for mortgage-backed
 
securities (“MBS”)
 
where
prepayments are anticipated. Premiums on
 
callable debt securities, if any,
 
are amortized to the earliest call date.
 
Purchases and sales of
securities are recognized on a trade-date basis. Gains and losses on sales are determined
 
using the specific identification method.
A debt
 
security
 
is placed
 
on nonaccrual
 
status at
 
the time
 
any
 
principal
 
or interest
 
payment
 
becomes 90 days
 
delinquent.
 
Interest
accrued
 
but not
 
received
 
for a
 
security
 
placed
 
on non-accrual
 
is reversed
 
against interest
 
income. As
 
of December
 
31,
 
2021,
 
a $
2.9
million
 
residential
 
pass-through
 
MBS
 
issued
 
by
 
the
 
Puerto
 
Rico
 
Housing
 
Finance
 
Authority
 
(“PRHFA”)
 
that
 
is
 
collateralized
 
by
certain second mortgages
 
origination under a
 
program launched by
 
the Puerto Rico
 
government in 2010,
 
is in nonaccrual
 
status based
on
 
the
 
delinquency
 
status
 
of
 
the
 
underlying
 
second
 
mortgage
 
loans
 
collateral.
No
 
debt
 
security
 
was
 
in
 
a
 
nonaccrual
 
status
 
as
 
of
December 31, 2020.
Allowance
 
for
 
Credit
 
Losses
 
–
 
Held-to-Maturity
 
Debt
 
Securities:
The
 
Corporation
 
measures
 
expected
 
credit
 
losses
 
on
 
held-to-
maturity securities by major
 
security type. As of December 31,
 
2021, the held-to-maturity securities portfolio
 
consisted of Puerto Rico
municipal
 
bonds
 
totaling
 
$
178.1
 
million.
 
Approximately
73
%
 
of
 
the
 
held-to-maturity
 
municipal
 
bonds
 
were
 
issued
 
by
 
four
 
of
 
the
largest
 
municipalities
 
in
 
Puerto
 
Rico.
 
The
 
vast
 
majority
 
of
 
revenue
 
for
 
these
 
four
 
municipalities
 
is
 
independent
 
of
 
the
 
Puerto
 
Rico
central government.
 
These obligations typically are not issued
 
in bearer form, nor are they registered
 
with the Securities and Exchange
Commission
 
(“SEC”),
 
and
 
are
 
not
 
rated
 
by
 
external
 
credit
 
agencies.
 
In
 
most
 
cases,
 
these
 
bonds
 
have
 
priority
 
over
 
the
 
payment
 
of
operating
 
costs
 
and
 
expenses
 
of
 
the
 
municipality,
 
which
 
are
 
required
 
by
 
law
 
to
 
levy
 
special
 
property
 
taxes
 
in
 
such
 
amounts
 
as
 
are
required for the payment of all of their respective general obligation bonds
 
and loans.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
145
The
 
ACL
 
for
 
the
 
held-to-maturity
 
Puerto
 
Rico
 
municipal
 
bonds
 
of
 
$
8.6
 
million
 
as
 
of
 
December
 
31,
 
2021
 
(2020
 
-
 
$
8.8
 
million)
considers
 
historical
 
credit
 
loss
 
information
 
that
 
is
 
adjusted
 
for
 
current
 
conditions
 
and
 
reasonable
 
and
 
supportable
 
forecasts.
 
These
financing arrangements
 
with Puerto
 
Rico municipalities
 
were issued
 
in bond
 
form and accounted
 
for as securities
 
but underwritten
 
as
loans with features that are
 
typically found in commercial
 
loans. Accordingly,
 
similar to commercial loans, an
 
internal risk rating (
i.e
.,
pass, special mention,
 
substandard, doubtful, or loss)
 
is assigned to each bond
 
at the time of issuance
 
or acquisition, and monitored
 
on
a continuous
 
basis with a
 
formal assessment completed,
 
at a minimum,
 
on a quarterly
 
basis. The Corporation
 
determines the ACL
 
for
held-to-maturity
 
Puerto
 
Rico
 
municipal
 
bonds
 
based
 
on
 
the
 
product
 
of
 
a
 
cumulative
 
probability
 
of
 
default
 
(“PD”)
 
and
 
loss
 
given
default (“LGD”),
 
and the amortized
 
cost basis of
 
each bond over
 
its remaining expected
 
life. PD estimates
 
represent the point
 
-in-time
as
 
of
 
which
 
the
 
PD
 
is
 
developed,
 
and
 
are
 
updated
 
quarterly
 
based
 
on,
 
among
 
other
 
things,
 
the
 
payment
 
performance
 
experience,
financial
 
performance
 
and
 
market
 
value
 
indicators,
 
and
 
current
 
and
 
forecasted
 
relevant
 
forward-looking
 
macroeconomic
 
variables
over the
 
expected life
 
of the
 
bonds,
 
to determine
 
a lifetime
 
term structure
 
PD curve.
 
LGD estimates are
 
determined based
 
on, among
other
 
things,
 
historical
 
charge-off
 
events
 
and
 
recovery
 
payments
 
(if
 
any),
 
government
 
sector
 
historical
 
loss
 
experience,
 
as
 
well
 
as
relevant current
 
and forecasted
 
macroeconomic expectations
 
of variables,
 
such as unemployment
 
rates, interest
 
rates, and
 
market risk
factors based on industry
 
performance, to determine a
 
lifetime term structure LGD
 
curve. Under this approach,
 
all future period losses
for each
 
instrument are
 
calculated using
 
the PD
 
and LGD
 
loss rates
 
derived
 
from the
 
term structure
 
curves applied
 
to the
 
amortized
cost
 
basis
 
of
 
each
 
bond.
 
For
 
the
 
relevant
 
macroeconomic
 
expectations
 
of
 
variables,
 
the
 
methodology
 
considers
 
an
 
initial
 
forecast
period
 
(a
 
“reasonable
 
and
 
supportable
 
period”)
 
of
two
 
years
 
and
 
a
 
reversion
 
period
 
of
 
up
 
to
three
 
years,
 
utilizing
 
a
 
straight-line
approach and
 
reverting back
 
to the
 
historical macroeconomic
 
mean. After
 
the reversion
 
period, the
 
Corporation uses
 
a historical
 
loss
forecast period covering the remaining contractual
 
life based on the changes in key historical
 
economic variables during representative
historical expansionary and recessionary periods. Furthermore, the
 
Corporation
 
periodically
 
considers
 
the need
 
for qualitative
 
adjustments
to the ACL. Qualitative adjustments
 
may be related to and include, but not be limited
 
to, factors such as: (i) management’s
 
assessment of
economic forecasts
 
used
 
in
 
the
 
model
 
and
 
how
 
those
 
forecasts align
 
with
 
management’s overall
 
evaluation of
 
current and
 
expected
economic conditions;
 
(ii) organization specific
 
risks such as credit concentrations,
 
collateral specific
 
risks, nature and size of the portfolio
and
 
external factors
 
that
 
may
 
ultimately impact
 
credit
 
quality,
 
and
 
(iii)
 
other
 
limitations associated
 
with
 
factors
 
such
 
as
 
changes
 
in
underwriting
 
and loan
 
resolution
 
strategies,
 
among others.
Prior to
 
the implementation
 
of ASU
 
2016-13, “Financial
 
Instruments
 
– Credit
 
Losses (Topic
 
326): Measurement
 
of Credit
 
Losses
on
 
Financial
 
Instruments,”
 
(“ASC 326”
 
or
 
“CECL”)
 
on
 
January
 
1,
 
2020,
 
the
 
Corporation
 
evaluated
 
its
 
held-to-maturity
 
investment
securities
 
portfolio
 
on
 
a
 
quarterly
 
basis
 
for
 
indicators
 
of
 
other-than-temporary
 
impairment
 
(“OTTI”).
 
The
 
Corporation
 
assessed
whether
 
OTTI
 
had
 
occurred,
 
the
 
credit
 
portion
 
of
 
the
 
OTTI
 
was
 
recognized
 
in
 
noninterest
 
income
 
while
 
the
 
noncredit
 
portion
 
was
recognized in OCI.
 
In determining the
 
credit portion, the
 
Corporation used a
 
discounted cash flow
 
analysis which included
 
evaluating
the timing and amount of the expected cash flow.
The
 
Corporation
 
has
 
elected
 
not
 
to
 
measure
 
an
 
allowance
 
for
 
credit
 
losses
 
on
 
accrued
 
interest
 
related
 
to
 
held-to-maturity
 
debt
securities, as uncollectible accrued
 
interest receivables are written off
 
on a timely manner.
 
Refer to Note
 
5 - Investment
 
Securities
 
to the
consolidated financial
 
statements for additional
 
information
 
about reserve balances
 
for held-to-maturity
 
debt securities,
 
activity during the
period, and information about changes in
 
circumstances that caused changes in
 
the ACL
 
for held-to-maturity debt securities during the
years
 
ended December
 
31, 2021
 
and 2020.
Allowance for Credit
 
Losses – Available
 
-for-Sale Debt
 
Securities:
For available-for-sale
 
debt securities
 
in an unrealized
 
loss position,
the Corporation first
 
assesses whether it
 
intends to
 
sell, or
 
it is
 
more likely
 
than not
 
that it
 
will be
 
required to
 
sell, the
 
security before
recovery of
 
its amortized
 
cost basis.
 
If either of
 
the criteria
 
regarding
 
intent or
 
requirement
 
to sell is
 
met, the security’s
 
amortized
 
cost basis
is
 
written
 
off
 
to
 
fair
 
value
 
through
 
earnings.
 
For
 
available-for-sale debt
 
securities that
 
do
 
not
 
meet
 
the
 
aforementioned criteria, the
Corporation evaluates
 
whether the
 
decline
 
in
 
fair
 
value
 
has
 
resulted from
 
credit
 
losses
 
or
 
other
 
factors. In
 
making
 
this
 
assessment,
management considers the cash position of the issuer and
 
its cash and
 
capital generation capacity, which could increase or diminish the
issuer’s ability
 
to repay its bond obligations,
 
the extent to which the fair
 
value is less than the amortized
 
cost basis, any adverse
 
change to
the credit
 
conditions
 
and liquidity
 
of the issuer,
 
taking into
 
consideration
 
the latest
 
information
 
available
 
about the
 
financial
 
condition
 
of the
issuer, credit ratings, the failure
 
of the issuer to make scheduled principal or interest
 
payments, recent legislation
 
and government actions
affecting
 
the
 
issuer’s
 
industry,
 
and
 
actions
 
taken
 
by
 
the
 
issuer
 
to
 
deal
 
with
 
the
 
economic
 
climate. The
 
Corporation also
 
takes
 
into
consideration changes in the near-term prospects of
 
the underlying collateral of a
 
security, if
 
any,
 
such as
 
changes in default rates, loss
severity given
 
default, and
 
significant changes in
 
prepayment assumptions and
 
the
 
level of
 
cash flows
 
generated from
 
the
 
underlying
collateral, if
 
any, supporting the principal
 
and interest payments
 
on the debt securities.
 
If this assessment
 
indicates that a credit
 
loss exists,
the present value of cash
 
flows expected to be collected from the
 
security is compared to the amortized cost basis of
 
the security. If
 
the
present value
 
of cash flows
 
expected to
 
be collected
 
is less than
 
the amortized
 
cost basis,
 
a credit loss
 
exists and
 
the Corporation
 
records an
ACL for the credit loss, limited
 
to the amount by which the fair
 
value is less than the amortized
 
cost basis. The Corporation
 
recognizes
 
in
OCI any impairment
 
that has
 
not been
 
recorded
 
through
 
an ACL.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
146
The Corporation records
 
changes in
 
the ACL
 
as a
 
provision for (or
 
reversal of)
 
credit loss
 
expense. Losses are
 
charged against the
allowance when
 
management believes the
 
uncollectibility of an
 
available-for-sale security is
 
confirmed or
 
when
 
either of
 
the
 
criteria
regarding intent or requirement to sell is met.
 
The Corporation
 
has elected
 
not
 
to measure
 
an allowance
 
for
 
credit losses
 
on
 
accrued
interest related to available-for-sale securities, as uncollectible accrued interest
 
receivables are written off on a timely manner.
Approximately 99%
 
of
 
the
 
Corporation’s available-for-sale investment securities
 
are
 
issued by
 
U.S.
 
government-sponsored entities
(“GSEs”).
 
These securities
 
are either
 
explicitly
 
or implicitly
 
guaranteed
 
by the U.S. government
 
and have a long
 
history of
 
no credit losses.
For
 
further information, including
 
the
 
methodology and
 
assumptions used
 
for
 
the
 
discounted cash
 
flow
 
analyses performed
 
on
 
other
available-for-sale
 
investment
 
securities
 
such as private
 
label MBS
 
and bonds
 
issued by
 
the PRHFA, refer
 
to Note 5
 
– Investment
 
Securities,
and Note
 
30 – Fair
 
Value, to the consolidated
 
financial
 
statements
Prior to the implementation
 
of CECL on January
 
1, 2020, the
 
Corporation
 
evaluated
 
its available-for-sale
 
investment
 
securities
 
portfolio
in accordance with the methodology specified above paragraph except that the credit portion of the OTTI was recognized in noninterest
income and
 
reduced the
 
amortized
 
cost basis
 
of the security.
 
Any subsequent
 
increase
 
in the expected
 
cash flows
 
would be
 
recognized
 
as an
adjustment
 
to interest
 
income.
Loans held for investment
Loans that the
 
Corporation has
 
the ability and
 
intent to hold
 
for the foreseeable
 
future are classified
 
as held
 
for investment
 
and are
reported
 
at amortized
 
cost, net
 
of its
 
ACL. The
 
substantial majority
 
of the
 
Corporation’s
 
loans are
 
classified as
 
held for
 
investment.
Amortized cost is the principal outstanding balance,
 
net of unearned interest, cumulative charge
 
-offs, unamortized deferred origination
fees
 
and
 
costs,
 
and
 
unamortized
 
premiums
 
and
 
discounts.
 
The
 
Corporation
 
reports
 
credit
 
card
 
loans
 
at
 
their
 
outstanding
 
unpaid
principal balance plus uncollected
 
billed interest and fees
 
net of such amounts
 
deemed uncollectible. Interest
 
income is accrued on
 
the
unpaid
 
principal
 
balance.
 
Fees
 
collected
 
and
 
costs
 
incurred
 
in
 
the
 
origination
 
of
 
new
 
loans
 
are
 
deferred
 
and
 
amortized
 
using
 
the
interest
 
method
 
or
 
a
 
method
 
that
 
approximates
 
the
 
interest
 
method
 
over
 
the
 
term
 
of
 
the
 
loan
 
as
 
an
 
adjustment
 
to
 
interest
 
yield.
Unearned
 
interest
 
on
 
certain
 
personal
 
loans,
 
auto
 
loans,
 
and
 
finance
 
leases
 
and
 
discounts
 
and
 
premiums
 
are
 
recognized
 
as
 
income
under a
 
method that
 
approximates the
 
interest method.
 
When a
 
loan is paid-off
 
or sold,
 
any remaining
 
unamortized net
 
deferred fees,
or costs, discounts and premiums are included in loan interest income in
 
the period of payoff.
Nonaccrual
 
and
 
Past-Due
 
Loans
 
-
 
Loans
 
on
 
which
 
the
 
recognition
 
of
 
interest
 
income
 
has
 
been
 
discontinued
 
are
 
designated
 
as
nonaccrual.
 
Loans
 
are
 
classified
 
as
 
nonaccrual
 
when
 
they
 
are
90
 
days
 
past
 
due
 
for
 
interest
 
and
 
principal,
 
except
 
for
 
residential
mortgage loans insured or guaranteed
 
by the Federal Housing Administration
 
(the “FHA”), the Veterans
 
Administration (the “VA”)
 
or
the
 
PRHFA,
 
and
 
credit
 
card
 
loans.
 
It
 
is
 
the
 
Corporation’s
 
policy
 
to
 
report
 
delinquent
 
mortgage
 
loans
 
insured
 
by
 
the
 
FHA,
 
or
guaranteed by
 
the VA
 
or the
 
PRHFA,
 
as loans
 
past due
90
 
days and
 
still accruing
 
as opposed
 
to nonaccrual
 
loans since
 
the principal
repayment is insured or guaranteed. However,
 
the Corporation discontinues the recognition of income
 
relating to FHA/VA
 
loans when
such
 
loans
 
are
 
over
15
 
months
 
delinquent,
 
taking
 
into
 
consideration
 
the
 
FHA
 
interest
 
curtailment
 
process,
 
and
 
relating
 
to
 
PRHFA
loans when
 
such loans are
 
over
90
 
days delinquent.
 
Credit card loans
 
continue to
 
accrue finance charges
 
and fees until
 
charged off
 
at
180
 
days. Loans
 
generally may
 
be placed
 
on nonaccrual
 
status prior
 
to when
 
required by
 
the policies
 
described above
 
when the
 
full
and
 
timely
 
collection
 
of
 
interest
 
or
 
principal
 
becomes
 
uncertain
 
(generally
 
based
 
on
 
an
 
assessment
 
of
 
the
 
borrower’s
 
financial
condition
 
and
 
the
 
adequacy
 
of
 
collateral,
 
if
 
any).
 
When
 
a
 
loan
 
is
 
placed
 
on
 
nonaccrual
 
status,
 
any
 
accrued
 
but
 
uncollected
 
interest
income is reversed and charged
 
against interest income and amortization of
 
any net deferred fees is suspended.
 
The amount of accrued
interest
 
reversed
 
against
 
interest
 
income
 
totaled
 
$
2.0
 
million
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021(2020
 
-
 
$
1.9
 
million).
 
Interest
income on nonaccrual loans is recognized only to the extent it is received in cash.
 
However, when there is doubt regarding the ultimate
collectability of loan
 
principal, all cash
 
thereafter received is
 
applied to reduce
 
the carrying value of
 
such loans (
i.e.
, the cost recovery
method). Under
 
the cost-recovery
 
method, interest
 
income is
 
not recognized
 
until the
 
loan balance
 
is reduced
 
to zero.
 
Generally,
 
the
Corporation
 
returns
 
a
 
loan
 
to
 
accrual
 
status
 
when
 
all delinquent
 
interest
 
and
 
principal
 
becomes
 
current
 
under
 
the
 
terms
 
of
 
the
 
loan
agreement,
 
or
 
after
 
a
 
sustained
 
period
 
of
 
repayment
 
performance
 
(
six months
)
 
and
 
the
 
loan
 
is
 
well
 
secured
 
and
 
in
 
the
 
process
 
of
collection, and full
 
repayment of the
 
remaining contractual principal
 
and interest is expected.
 
Loans that are
 
past due 30
 
days or more
as
 
to
 
principal
 
or
 
interest
 
are
 
considered
 
delinquent,
 
with
 
the
 
exception
 
of
 
residential
 
mortgage,
 
commercial
 
mortgage,
 
and
construction
 
loans,
 
which
 
are
 
considered
 
past
 
due
 
when
 
the
 
borrower
 
is
 
in
 
arrears
 
on
 
two
 
or
 
more
 
monthly
 
payments.
 
The
Corporation
 
has
 
elected
 
not
 
to
 
measure
 
an
 
allowance
 
for
 
credit
 
losses
 
on
 
accrued
 
interest
 
related
 
to
 
loans
 
held
 
for
 
investment,
 
as
uncollectible accrued interest receivables are written off
 
on a timely manner.
Loans Acquired
 
–
Loans acquired through a purchase
 
or a business combination
 
are recorded at their fair
 
value as of the acquisition
date.
 
The
 
Corporation
 
performs
 
an
 
assessment
 
of
 
acquired
 
loans
 
to
 
first
 
determine
 
if
 
such
 
loans
 
have
 
experienced
 
more
 
than
insignificant deterioration
 
in credit
 
quality since
 
their origination
 
and thus
 
should be
 
classified and
 
accounted for
 
as purchased
 
credit
deteriorated
 
(“PCD”)
 
loans.
 
For
 
loans
 
that
 
have
 
not
 
experienced
 
more
 
than
 
insignificant
 
deterioration
 
in
 
credit
 
quality
 
since
origination,
 
referred
 
to as
 
non-PCD loans,
 
the
 
Corporation
 
records
 
such loans
 
at fair
 
value,
 
with any
 
resulting
 
discount or
 
premium
accreted
 
or
 
amortized
 
into
 
interest
 
income
 
over
 
the
 
remaining
 
life
 
of
 
the
 
loan
 
using
 
the
 
interest
 
method.
 
Additionally,
 
upon
 
the
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
147
purchase or acquisition of non-PCD loans,
 
the Corporation measures and records
 
an ACL based on the Corporation’s
 
methodology for
determining
 
the
 
ACL.
 
The
 
ACL for
 
non-PCD
 
loans
 
is
 
recorded
 
through
 
a
 
charge
 
to
 
the
 
provision
 
for
 
credit
 
losses
 
in
 
the
 
period
 
in
which the loans are purchased or acquired.
Acquired
 
loans
 
that
 
are
 
classified
 
as
 
PCD
 
are
 
recognized
 
at
 
fair
 
value,
 
which
 
includes
 
any
 
resulting
 
premiums
 
or
 
discounts.
Premiums and non-credit loss related
 
discounts are amortized or accreted
 
into interest income over the remaining
 
life of the loan using
the interest
 
method. Unlike
 
non-PCD loans,
 
the initial
 
ACL for
 
PCD loans
 
is established
 
through an
 
adjustment to
 
the acquired
 
loan
balance and
 
not through
 
a charge
 
to the
 
provision for
 
credit losses in
 
the period
 
in which
 
the loans
 
were acquired.
 
At acquisition,
 
the
ACL for PCD loans, which
 
represents the fair value
 
credit discount, is determined
 
using a discounted cash
 
flow method that considers
the PDs and
 
LGDs used in
 
the Corporation’s
 
ACL methodology.
 
Characteristics of PCD
 
loans include:
 
delinquency,
 
payment history
since
 
origination,
 
credit
 
scores
 
migration
 
and/or
 
other
 
factors
 
the
 
Corporation
 
may
 
become
 
aware
 
of
 
through
 
its
 
initial
 
analysis
 
of
acquired
 
loans
 
that
 
may
 
indicate
 
there
 
has
 
been
 
more
 
than insignificant
 
deterioration
 
in
 
credit
 
quality
 
since
 
a
 
loan’s
 
origination.
 
In
connection
 
with
 
the
 
BSPR
 
acquisition
 
on
 
September
 
1,
 
2020,
 
the
 
Corporation
 
acquired
 
PCD
 
loans
 
with
 
an
 
aggregate
 
fair
 
value
 
at
acquisition
 
of
 
approximately
 
$
752.8
 
million,
 
and
 
recorded
 
an
 
initial
 
ACL
 
of
 
approximately
 
$
28.7
 
million,
 
which
 
was
 
added
 
to
 
the
amortized cost of the loans.
 
Subsequent
 
to
 
acquisition,
 
the
 
ACL
 
for
 
both
 
non-PCD
 
and
 
PCD
 
loans
 
is
 
determined
 
pursuant
 
to
 
the
 
Corporation’s
 
ACL
methodology in the same manner as all other loans.
For PCD loans
 
that prior to
 
the adoption of
 
ASC 326 were
 
classified as purchased
 
credit impaired (“PCI”)
 
loans and accounted
 
for
under
 
the
 
Financial
 
Accounting
 
Standards
 
Board
 
(“FASB”)
 
Accounting
 
Standards
 
Codification
 
(the
 
“Codification”
 
or
 
“ASC”)
Subtopic
 
310-30,
 
“Accounting
 
for
 
Purchased
 
Loans
 
Acquired
 
with
 
Deteriorated
 
Credit
 
Quality”
 
(ASC
 
Subtopic
 
310-30),
 
the
Corporation adopted ASC 326 using
 
the prospective transition approach.
 
As allowed by ASC 326,
 
the Corporation elected to maintain
pools of
 
loans accounted
 
for under ASC
 
Subtopic 310-30
 
as “units of
 
accounts,” conceptually
 
treating each
 
pool as a
 
single asset. As
of
 
December
 
31,
 
2021,
 
such
 
PCD
 
loans
 
consisted
 
of
 
$
115.1
 
million
 
of
 
residential
 
mortgage
 
loans
 
and
 
$
2.4
 
million
 
of
 
commercial
mortgage loans
 
acquired by
 
the Corporation
 
as part of
 
previously completed
 
asset acquisitions.
 
These previous
 
transactions include
 
a
transaction completed
 
on February
 
27, 2015,
 
in which
 
FirstBank acquired
 
ten Puerto
 
Rico branches
 
of Doral
 
Bank, acquired
 
certain
assets, including
 
PCD loans, and
 
assumed deposits, through
 
an alliance with
 
Banco Popular of
 
Puerto Rico, which
 
was the successful
lead bidder
 
with the
 
FDIC on
 
the failed
 
Doral
 
Bank, as
 
well as
 
other co-bidders,
 
and the acquisition
 
from Doral
 
Financial in
 
the first
quarter
 
of
 
2014
 
of
 
all
 
of
 
its
 
rights,
 
title
 
and
 
interest
 
in
 
first
 
and
 
second
 
residential
 
mortgage
 
loans
 
in
 
full
 
satisfaction
 
of
 
secured
borrowings owed
 
by such
 
entity to
 
FirstBank. As
 
the Corporation
 
elected to
 
maintain pools
 
of units
 
of account
 
for loans
 
previously
accounted for under
 
ASC Subtopic 310-30,
 
the Corporation is
 
not able to
 
remove loans from
 
the pools until
 
they are paid
 
off, written
off or
 
sold (consistent with
 
the Corporation’s
 
practice prior to
 
adoption of
 
ASC 326), but
 
is required
 
to follow ASC
 
326 for purposes
of the
 
ACL. Regarding
 
interest income
 
recognition
 
for PCD
 
loans that
 
existed at
 
the time
 
of adoption
 
of ASC
 
326,
 
the prospective
transition approach for PCD loans
 
required by ASC 326 was
 
applied at a pool level,
 
which froze the effective
 
interest rate of the pools
as
 
of
 
January
 
1,
 
2020.
 
According
 
to
 
regulatory
 
guidance,
 
the
 
determination
 
of
 
nonaccrual
 
or
 
accrual
 
status
 
for
 
PCD
 
loans
 
that
 
the
Corporation
 
has
 
elected
 
to
 
maintain
 
in
 
previously
 
existing
 
pools
 
pursuant
 
to
 
the
 
policy
 
election
 
right
 
upon
 
adoption
 
of
 
ASC
 
326
should be
 
made at
 
the pool
 
level, not
 
the individual
 
asset level.
 
In addition,
 
the guidance
 
provides that
 
the Corporation
 
can continue
accruing interest
 
and not
 
report the
 
PCD loans
 
as being
 
in nonaccrual
 
status if
 
the following
 
criteria are
 
met: (i)
 
the Corporation
 
can
reasonably estimate
 
the timing
 
and amounts
 
of cash
 
flows expected
 
to be
 
collected, and
 
(ii) the
 
Corporation did
 
not acquire
 
the asset
primarily
 
for
 
the
 
rewards
 
of
 
ownership
 
of
 
the
 
underlying
 
collateral,
 
such
 
as
 
use
 
of
 
the
 
collateral
 
in
 
operations
 
or
 
improving
 
the
collateral
 
for
 
resale.
 
Thus,
 
the
 
Corporation
 
continues
 
to
 
exclude
 
these
 
pools
 
of
 
PCD
 
loans
 
from
 
nonaccrual
 
loan
 
statistics.
 
In
accordance with
 
ASC 326,
 
the Corporation
 
did not
 
reassess whether
 
modifications to
 
individual acquired
 
loans accounted
 
for within
pools were TDR as of the date of adoption.
 
Charge-off
 
of Uncollectible
 
Loans -
 
Net charge
 
-offs consist
 
of the
 
unpaid principal
 
balances of
 
loans held
 
for investment
 
that the
Corporation
 
determines are
 
uncollectible,
 
net of
 
recovered amounts.
 
The Corporation
 
records charge
 
-offs as
 
a reduction
 
to the
 
ACL
and subsequent recoveries of previously charged-off
 
amounts are credited to the ACL.
 
Effective
 
April 1,
 
2021, the
 
Corporation
 
updated
 
its policies
 
regarding
 
the timing
 
of recognition
 
of auto
 
loans and
 
small personal
loans charge
 
-offs. The
 
update requires
 
the Corporation
 
to charge-off
 
auto loans,
 
finance leases,
 
and small
 
personal loans,
 
or portions
of
 
such
 
loans,
 
classified
 
as
 
“loss”
 
when
 
the
 
loan
 
becomes
120
 
days
 
or
 
more
 
past
 
due.
 
Under
 
the
 
previous
 
policy,
 
the
 
Corporation
reserved the portion
 
of auto loans
 
and finance leases
 
deemed “loss” once
 
they were
120
 
days delinquent and
 
charged-off an
 
auto loan
to their
 
net realizable
 
value when
 
the collateral
 
deficiency was deemed
 
uncollectible (i.e.,
 
when foreclosure/repossession
 
is probable)
or when
 
the loan
 
was
365
 
days past
 
due. For
 
small personal
 
loans, the
 
Corporation previously
 
reserved loans
 
that were
 
classified as
“loss”
 
when
 
they
 
were
120
 
days delinquent
 
and
 
charged-off
 
a
 
loan
 
when
 
the
 
loan
 
became
180
 
days
 
past
 
due.
 
The
 
policy
 
update
 
is
supported by the fact that the majority of consumer
 
loans that become
120
 
days or more delinquent will ultimately go to foreclosure
 
or
the
 
borrower
 
has
 
demonstrated
 
an
 
inability
 
or
 
lack
 
of
 
willingness
 
to
 
meet
 
their
 
obligation
 
of
 
making
 
timely
 
payments
 
to
 
cure
 
the
delinquency. At the
 
time the Corporation implemented
 
the update to the charge-off policy in the second
 
quarter of 2021, the amount of
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
148
loans determined
 
to be
 
classified as
 
“loss” amounted
 
to $
4.1
 
million, which
 
was charged-off
 
during the
 
quarter.
 
Approximately $
1.1
million of
 
such charge
 
-off exceeded
 
existing reserves
 
at the
 
time the
 
Corporation implemented
 
the policy
 
update. This
 
update to
 
the
policy
 
did
 
not
 
have
 
an
 
impact
 
on
 
the
 
approach
 
the
 
Corporation
 
uses
 
to
 
estimate
 
the
 
ACL
 
for
 
auto
 
loans,
 
finance
 
leases,
 
or
 
small
personal loans.
Collateral dependent loans in
 
the construction, commercial
 
mortgage, and commercial and
 
industrial loan portfolios are
 
charged off
to their net
 
realizable value (fair
 
value of collateral,
 
less estimated costs to
 
sell) when loans
 
are considered to
 
be uncollectible. Within
the
 
consumer
 
loan
 
portfolio,
closed-end
 
consumer
 
loans
 
are
 
charged
 
off
 
when
 
payments
 
are
120
 
days
 
in
 
arrears,
 
except
 
for
 
auto,
finance lease
 
and small
 
personal loans
 
as discussed
 
above.
 
Open-end
 
(revolving credit)
 
consumer loans,
 
including credit
 
card loans,
are
 
charged
 
off
 
when
 
payments
 
are
180
 
days
 
in
 
arrears.
 
Residential
 
mortgage
 
loans
 
that
 
are
180
 
days
 
delinquent
 
are
 
reviewed
 
and
charged-off, as needed,
 
to the fair value of the underlying
 
collateral less cost to sell. Generally,
 
all loans may be charged
 
off or written
down to the
 
fair value of
 
the collateral prior
 
to the application
 
of the policies described
 
above if a loss-confirming
 
event has occurred.
Loss-confirming events include, but
 
are not limited to, bankruptcy (unsecured),
 
continued delinquency,
 
or receipt of an asset valuation
indicating a collateral deficiency when the asset is the sole source of repayment.
 
Troubled
 
Debt
 
Restructurings
 
-
 
A
 
restructuring
 
of
 
a
 
loan
 
constitutes
 
a
 
troubled
 
debt
 
restructuring
 
(“TDR”)
 
if
 
the
 
creditor,
 
for
economic
 
or legal
 
reasons related
 
to the
 
debtor’s
 
financial difficulties,
 
grants
 
a concession
 
to the
 
debtor that
 
it would
 
not
 
otherwise
consider.
 
TDR loans
 
are classified
 
as either
 
accrual
 
or nonaccrual
 
loans. Loans
 
in accrual
 
status may
 
remain
 
in accrual
 
status when
their contractual terms have been
 
modified in a TDR if the loans
 
had demonstrated performance prior to the
 
restructuring and payment
in
 
full
 
under
 
the
 
restructured
 
terms
 
is
 
expected.
 
Otherwise,
 
loans
 
on
 
nonaccrual
 
status
 
and
 
restructured
 
as
 
TDRs
 
will
 
remain
 
on
nonaccrual
 
status until
 
the borrower
 
has proven
 
the ability
 
to perform
 
under the
 
modified structure,
 
generally
 
for a
 
minimum
 
of
six
months, and there is evidence that such payments can, and are likely to, continue
 
as agreed.
The Corporation
 
removes loans
 
from TDR
 
classification, consistent
 
with applicable
 
authoritative accounting
 
guidance, only
 
when
the following two circumstances are met:
●
The loan is in compliance with the terms of the restructuring agreement; and
●
The
 
loan
 
yields
 
a
 
market
 
interest
 
rate
 
at
 
the
 
time
 
of
 
the
 
restructuring.
 
In
 
other
 
words,
 
the
 
loan
 
was
 
restructured
 
with
 
an
interest rate
 
equal to
 
or greater
 
than what
 
the Corporation
 
would have
 
been willing
 
to accept
 
at the
 
time of
 
the restructuring
for a new loan with comparable risk.
If
 
both
 
conditions
 
are
 
met,
 
the
 
loan
 
can
 
be
 
removed
 
from
 
the
 
TDR
 
classification
 
in
 
calendar
 
years
 
after
 
the
 
year
 
in
 
which
 
the
restructuring
 
took
 
place.
 
A
 
loan
 
that
 
had
 
previously
 
been
 
modified
 
in
 
a
 
TDR
 
and
 
is
 
subsequently
 
refinanced
 
under
 
then-current
underwriting
 
standards
 
at
 
a market
 
rate
 
with
 
no
 
concessionary
 
terms
 
is
 
accounted
 
for
 
as
 
a
 
new
 
loan
 
and
 
is
 
no
 
longer
 
reported
 
as
 
a
TDR.
 
The
 
ACL on
 
a TDR
 
loan
 
is generally
 
measured
 
using
 
a
 
discounted
 
cash flow
 
method,
 
as further
 
explained
 
below,
 
where
 
the
expected
 
future
 
cash
 
flows
 
are
 
discounted
 
at
 
the
 
rate
 
of
 
the
 
loan
 
prior
 
to
 
the
 
restructuring.
 
For
 
credit
 
cards,
 
personal
 
loans,
 
and
nonaccrual auto loans
 
and finance leases modified
 
in a TDR, the
 
ACL is measured using
 
the same methodologies
 
as those used for
 
all
other loans in those portfolios.
Loans individually
 
evaluated for
 
credit
 
loss determination
 
– The
 
Corporation
 
may evaluate
 
loans individually
 
for purposes
 
of the
ACL
 
determination
 
when,
 
based
 
upon
 
current
 
information
 
and
 
events,
 
including
 
consideration
 
of
 
internal
 
credit
 
risk
 
ratings,
 
the
Corporation assesses
 
that it is
 
probable that
 
it will be
 
unable to
 
collect all amounts
 
due (including
 
principal and
 
interest) according
 
to
the contractual terms of the
 
loan agreement, primarily collateral dependent
 
commercial and construction loans, or
 
loans that have been
modified or are
 
reasonably expected to
 
be modified in
 
a TDR (except for
 
credit cards, personal
 
loans and nonaccrual
 
auto loans). The
Corporation
 
individually
 
evaluates
 
loans
 
having
 
balances
 
of
 
$
0.5
 
million
 
or
 
more
 
and
 
with
 
the
 
aforementioned
 
conditions
 
in
 
the
construction,
 
commercial
 
mortgage,
 
and
 
commercial
 
and
 
industrial
 
loan
 
portfolios.
 
The
 
Corporation
 
also
 
evaluates
 
individually
 
for
ACL
 
purposes
 
certain
 
residential
 
mortgage
 
loans
 
and
 
home
 
equity
 
lines
 
of
 
credit
 
with
 
high
 
delinquency
 
levels.
 
Interest
 
income
 
on
loans
 
individually
 
evaluated
 
for
 
ACL
 
determination
 
is
 
recognized
 
based
 
on
 
the
 
Corporation’s
 
policy
 
for
 
recognizing
 
interest
 
on
accrual and nonaccrual loans.
Collateral
 
dependent
 
loans
 
-
The
 
Corporation
 
elected the
 
practical
 
expedient
 
allowed by
 
ASC 326
 
for loans
 
for which
 
it expects
repayment
 
to
 
be
 
provided
 
substantially
 
through
 
the
 
operation
 
or
 
sale
 
of
 
the
 
collateral
 
when
 
the
 
borrower
 
is
 
experiencing
 
financial
difficulties
 
based
 
on
 
the
 
Corporation’s
 
assessment
 
as
 
of
 
the
 
reporting
 
date.
 
Accordingly,
 
when
 
the
 
Corporation
 
determines
 
that
foreclosure is probable, expected credit losses on collateral dependent
 
loans are based on the fair value of the collateral at the reporting
date, adjusted for undiscounted selling costs as appropriate.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
149
Allowance for credit losses for loans and finance leases
The ACL
 
for
 
loans and
 
finance leases
 
held
 
for
 
investment
 
is a
 
valuation
 
account
 
that is
 
deducted
 
from the
 
loans’
 
amortized
 
cost
basis
 
to
 
present
 
the
 
net
 
amount
 
expected
 
to
 
be
 
collected
 
on
 
loans.
 
Loans
 
are
 
charged-off
 
against
 
the
 
allowance
 
when
 
management
confirms the uncollectibility of a loan balance.
 
The Corporation
 
estimates the
 
allowance using
 
relevant available
 
information,
 
from internal
 
and external
 
sources, relating
 
to past
events,
 
current
 
conditions,
 
and
 
reasonable
 
and
 
supportable
 
forecasts.
 
Historical
 
credit
 
loss
 
experience
 
is
 
a
 
significant
 
input
 
for
 
the
estimation of expected
 
credit losses, as
 
well as adjustments
 
to historical loss
 
information made for
 
differences in
 
current loan-specific
risk
 
characteristics,
 
such
 
as
 
any
 
difference
 
in
 
underwriting
 
standards,
 
portfolio
 
mix,
 
delinquency
 
level,
 
or
 
term.
 
Additionally,
 
the
Corporation’s
 
assessment
 
involves
 
evaluating
 
key
 
factors,
 
which
 
include
 
credit
 
and
 
macroeconomic
 
indicators,
 
such
 
as
 
changes
 
in
unemployment rates, property values, and other relevant
 
factors, to account for current and forecasted market
 
conditions that are likely
to cause
 
estimated credit
 
losses over
 
the life
 
of the
 
loans to
 
differ
 
from historical
 
credit losses.
 
Expected
 
credit
 
losses are
 
estimated
over the contractual term
 
of the loans, adjusted by
 
prepayments when appropriate.
 
The contractual term excludes
 
expected extensions,
renewals, and
 
modifications unless
 
either of
 
the following
 
applies: the
 
Corporation has
 
a reasonable
 
expectation at
 
the reporting
 
date
that a
 
TDR will
 
be executed
 
with an
 
individual borrower
 
or the
 
extension or
 
renewal options
 
are included
 
in the original
 
or modified
contract at the reporting date and are not unconditionally cancellable by
 
the Corporation.
The Corporation estimates the ACL
 
primarily based on a PD/LGD modeled
 
approach, or individually for collateral dependent
 
loans
and certain TDR
 
loans. The Corporation
 
evaluates the need
 
for changes
 
to the ACL
 
by portfolio segments
 
and classes of
 
loans within
certain of those portfolio
 
segments. Factors such as the
 
credit risk inherent in
 
a portfolio and how the Corporation
 
monitors the related
quality, as well as the estimation
 
approach to estimate credit losses, are considered in the determination
 
of such portfolio segments and
classes. The Corporation has identified the following portfolio segments and
 
measures the ACL using the following methods:
Residential mortgage
– Residential mortgage
 
loans are loans secured by residential
 
real property together
 
with the right to receive the
payment of principal
 
and interest on the loan.
 
The majority of the Corporation’s
 
residential
 
loans are first lien closed-end
 
loans secured
by 1-4 single-family
 
residential
 
properties.
 
As of December
 
31, 2021, the Corporation’s
 
outstanding
 
balance of residential
 
mortgages in
the
 
Puerto
 
Rico
 
and
 
Virgin
 
Islands
 
regions
 
were
 
mainly
 
fixed-rate loans,
 
while
 
in
 
the
 
Florida
 
region
 
approximately
55
%
 
of
 
the
residential
 
mortgage
 
loan
 
portfolio
 
consisted
 
of
 
hybrid
 
adjustable
 
rate
 
mortgages.
 
For
 
purposes
 
of
 
the
 
ACL
 
determination,
 
the
Corporation stratifies
 
the portfolio by two main regions (
i.e.,
 
the Puerto Rico/Virgin Islands
 
region and the Florida region) and by the
following
 
two
 
classes:
 
(i)
 
government-guaranteed residential mortgage
 
loans,
 
and
 
(ii)
 
conventional mortgage
 
loans.
 
Government-
guaranteed
 
loans are
 
those originated
 
to qualified
 
borrowers
 
under the
 
FHA and the
 
VA standards. Originated
 
loans that
 
meet the FHA’s
standards qualify
 
for the FHA’s
 
insurance program
 
whereas loans that meet
 
the standards of the VA are guaranteed by such entity. No
credit losses are
 
determined for loans insured or
 
guaranteed by the
 
FHA or
 
the VA
 
due to
 
the explicit guarantee of
 
the U.S.
 
federal
government. Residential
 
mortgage loans that do not qualify under the FHA or VA
 
programs are referred to as conventional
 
residential
mortgage
 
loans.
For conventional
 
residential
 
mortgage
 
loans, the
 
Corporation
 
calculates
 
the ACL using
 
a PD/LGD
 
modeled approach,
 
or individually
 
for
collateral
 
dependent loans
 
with high delinquency
 
levels or loans
 
that have been
 
modified or are
 
reasonably
 
expected to
 
be modified in a
TDR. The ACL
 
for residential
 
mortgage
 
loans measured
 
using a PD/LGD
 
model is
 
calculated
 
based on
 
the product
 
of PD, LGD,
 
and the
amortized cost basis
 
determined for each
 
loan over
 
the remaining
 
expected life of
 
the loan,
 
considering prepayments. PD estimates
represent
 
the point-in-time
 
as of which
 
the PD is developed
 
for each residential
 
mortgage loan,
 
updated quarterly
 
based on,
 
among other
things,
 
historical
 
payment
 
performance
 
and
 
relevant
 
current
 
and
 
forward-looking
 
macroeconomic
 
variables,
 
such
 
as
 
regional
unemployment rates, over the expected life of the loans to
 
determine a lifetime term structure PD curve. The Corporation determines
LGD estimates based
 
on, among other things,
 
historical
 
charge-off events and
 
recovery payments,
 
loan-to-value
 
attributes,
 
and relevant
current and forecasted macroeconomic
 
variables, such as the regional housing
 
price index, to determine a lifetime term structure
 
LGD
curve. Under
 
this approach, the
 
Corporation calculates losses for
 
each loan
 
for
 
all future
 
periods using
 
the PD
 
and LGD
 
loss rates
derived from the term structure curves applied to
 
the amortized cost basis of
 
the loans, considering prepayments. For loans that have
been modified or
 
are reasonably expected to
 
be modified in
 
a
 
TDR and
 
loans previously written-down to their
 
respective realizable
values,
 
the
 
Corporation determines
 
the
 
ACL
 
based
 
on
 
a
 
risk-adjusted discounted
 
cash
 
flow
 
methodology using
 
PDs
 
and
 
LGDs
developed as explained
 
above. Under this approach,
 
all future cash flows (interest
 
and principal) for each loan
 
are adjusted by the PDs
and LGDs derived from the term structure
 
curves and prepayments
 
and then discounted at the effective
 
interest rate as of the reporting
date (or original rate
 
for TDRs) to arrive at the net present
 
value of future cash flows.
 
For these loans, the estimated
 
credit loss amount
recorded in a period represents the excess of the carrying
 
amount of the loan, net of any charge-off, over the net present value of cash
flows resulting
 
from the model.
 
Residential
 
mortgage loans
 
that are
180
 
days or more
 
past due are considered
 
collateral
 
dependent
 
loans
and are individually
 
reviewed
 
and charged-off,
 
as needed,
 
to the
 
fair value
 
of the collateral
 
less cost
 
to sell.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
150
Commercial mortgage
 
– Commercial mortgage loans are
 
loans secured primarily by
 
commercial real estate properties for
 
which the
primary source
 
of repayment
 
comes from rent
 
and lease payments
 
that are generated
 
by an income-producing
 
property. For purposes
 
of
the ACL determination,
 
the Corporation stratifies
 
the portfolio by two main regions
 
(i.e., the Puerto
 
Rico/Virgin Islands region
 
and the
Florida region).
 
An internal risk
 
rating (i.e.,
 
pass, special mention,
 
substandard,
 
doubtful, or loss)
 
is assigned to each loan
 
at the time of
origination
 
and monitored
 
on a continuous
 
basis with
 
a formal
 
assessment
 
completed
 
quarterly, at
 
a minimum.
 
For commercial
 
mortgage
loans, the
 
Corporation
 
calculates
 
the ACL using
 
a PD/LGD modeled
 
approach,
 
or individually
 
for those
 
loans that
 
meet the
 
definition
 
of
collateral dependent
 
loans
 
or
 
loans
 
that
 
have
 
been
 
modified or
 
are
 
reasonably expected
 
to
 
be
 
modified in
 
a
 
TDR.
 
The
 
ACL
 
for
commercial
 
mortgage loans
 
measured using
 
a PD/LGD model is
 
calculated
 
based on the product
 
of a cumulative
 
PD and LGD, and the
amortized cost basis
 
determined for each
 
loan over
 
the remaining
 
expected life of
 
the loan,
 
considering prepayments. PD estimates
represent the point-in-time as of
 
which the PD
 
is developed for each
 
commercial mortgage loan, updated quarterly based on, among
other things, the payment performance experience, industry historical loss experience, property
 
type, occupancy, and relevant
 
current
and forward-looking
 
macroeconomic
 
variables over the expected
 
life of the loans to determine a lifetime term structure
 
PD curve. The
Corporation
 
determines
 
LGD estimates
 
based on historical
 
charge-off events
 
and recovery
 
payments,
 
industry
 
historical
 
loss experience,
specific attributes
 
of the loans,
 
such as loan-to-value,
 
debt service coverage
 
ratios, and net operating
 
income, as well as relevant
 
current
and
 
forecasted macroeconomic
 
variables
 
expectations, such
 
as
 
commercial
 
real
 
estate
 
price
 
indexes,
 
the
 
gross
 
domestic
 
product
(“GDP”), interest
 
rates, and
 
unemployment
 
rates, among
 
others, to determine
 
a lifetime term
 
structure LGD
 
curve. Under
 
this approach,
the Corporation calculates
 
losses for each loan for all future periods using the PD and
 
LGD loss rates derived from the term structure
curves applied to
 
the amortized cost basis
 
of the
 
loans, considering prepayments. The ACL for
 
collateral dependent loans, including
loans modified or reasonably
 
expected to be modified in a TDR, is determined
 
based on the fair value of the collateral at the reporting
date, adjusted
 
for undiscounted
 
selling costs
 
as appropriate.
Commercial and Industrial
 
– Commercial
 
and Industrial
 
(“C&I”) loans
 
include both
 
unsecured and
 
secured loans
 
for which the
 
primary
source of
 
repayment
 
comes from
 
the ongoing
 
operations
 
and activities
 
conducted
 
by the borrower
 
and not from
 
rental income
 
or the sale
or refinancing of any underlying real estate collateral; thus, credit risk is largely dependent on the commercial borrower’s
 
current and
expected
 
financial
 
condition.
 
As of December
 
31, 2021,
 
the C&I
 
loan portfolio
 
consisted
 
of loans
 
granted
 
to large
 
corporate
 
customers
 
as
well as
 
middle-market customers across several industries, and
 
the government sector.
 
For purposes
 
of
 
the ACL
 
determination, the
Corporation
 
stratifies
 
the C&I loan
 
portfolio
 
by two main
 
regions (
i.e.,
 
the Puerto
 
Rico/Virgin Islands
 
region and
 
the Florida
 
region).
 
An
internal risk rating
 
(
i.e.,
 
pass, special mention, substandard, doubtful, or
 
loss) is
 
assigned to each
 
loan at
 
the time
 
of origination and
monitored
 
on a continuous
 
basis with
 
a formal
 
assessment
 
completed
 
quarterly, at
 
a minimum.
 
For C&I loans,
 
the Corporation
 
calculates
the ACL using a PD/LGD
 
modeled approach,
 
or, in some cases, based
 
on a risk-adjusted
 
discounted
 
cash flow method
 
or the fair value
of the collateral. The ACL for
 
C&I loans measured using
 
a PD/LGD model is calculated
 
based on the product of a cumulative
 
PD and
LGD, and the amortized
 
cost basis determined
 
for each loan over the remaining
 
expected life
 
of the loan, considering
 
prepayments.
 
PD
estimates represent
 
the point-in-time as
 
of which the PD is developed
 
for each C&I loan, updated
 
quarterly based
 
on industry historical
loss experience,
 
financial
 
performance
 
and market
 
value indicators,
 
and current
 
and forecasted
 
relevant
 
forward-looking
 
macroeconomic
variables
 
over the expected
 
life of the
 
loans to
 
determine
 
a lifetime
 
term structure
 
PD curve.
 
The Corporation
 
determines
 
LGD estimates
based on historical
 
charge-off events
 
and recovery payments,
 
industry historical
 
loss experience,
 
specific attributes
 
of the loans, such as
loan to value,
 
as well as
 
relevant
 
current and
 
forecasted
 
expectations
 
for macroeconomic
 
variables,
 
such as,
 
unemployment
 
rates, interest
rates, and market risk factors based on industry
 
performance and the equity market,
 
to determine a lifetime term structure
 
LGD curve.
Under this approach,
 
the Corporation
 
calculates
 
losses for
 
each loan for
 
all future
 
periods using
 
the PD and LGD
 
loss rates
 
derived from
the term
 
structure
 
curves applied
 
to the amortized
 
cost basis
 
of the loans,
 
considering
 
prepayments.
 
The Corporation
 
determines
 
the ACL
for those C&I loans that it
 
has determined, based upon current information
 
and events, that it is probable that the Corporation will be
unable to collect all
 
amounts due according
 
to the
 
contractual terms, and for any
 
non-collateral dependent C&I loans that have been
modified or are reasonably expected to be modified in a TDR, based on a
 
risk-adjusted
 
discounted cash flow methodology
 
using PDs
and LGDs developed as explained
 
above. Under this approach,
 
the Corporation
 
adjusts all future cash
 
flows (interest
 
and principal) for
each loan
 
by the PDs
 
and LGDs
 
derived from
 
the term
 
structure
 
curves and
 
prepayments
 
and then
 
discount
 
the adjusted
 
cash flows
 
at the
effective interest
 
rate as of the
 
reporting
 
date (original
 
rate for TDRs)
 
to arrive at
 
the net present
 
value of future
 
cash flows
 
and the ACL
is calculated as the
 
excess of the amortized
 
cost basis over
 
the net present
 
value of future cash
 
flows. The ACL for collateral
 
dependent
C&I
 
loans
 
is
 
determined based
 
on
 
the
 
fair
 
value
 
of
 
the
 
collateral at
 
the
 
reporting date,
 
adjusted for
 
undiscounted selling
 
costs
 
as
appropriate.
Construction
–
 
As of December 31, 2021, construction
 
loans consisted
 
generally of loans
 
secured by real estate
 
made to finance the
construction of
 
industrial, commercial, or
 
residential buildings
 
and
 
included
 
loans
 
to
 
finance
 
land
 
development in
 
preparation for
erecting new
 
structures. These
 
loans involve
 
an
 
inherently higher
 
level of
 
risk
 
and
 
sensitivity to
 
market conditions.
 
Demand from
prospective tenants or
 
purchasers may
 
erode after
 
construction begins because
 
of
 
a
 
general economic
 
slowdown or
 
otherwise. For
purposes of
 
the
 
ACL
 
determination, the
 
Corporation stratifies the
 
construction loan
 
portfolio by
 
two
 
main
 
regions (
i.e.,
 
the
 
Puerto
Rico/Virgin Island region and the Florida region). An internal risk rating (
i.e.,
 
pass, special mention, substandard,
 
doubtful, or loss) is
assigned to
 
each loan
 
at the time
 
of origination
 
and monitored
 
on a continuous
 
basis with
 
a formal assessment
 
completed,
 
at a minimum,
on a quarterly
 
basis. For construction
 
loans, the Corporation
 
calculates
 
the ACL using
 
a PD/LGD modeled
 
approach,
 
or individually
 
for
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
151
those loans that
 
meet the
 
definition of collateral dependent loans or
 
loans that have
 
been modified or
 
are reasonably expected to
 
be
modified
 
in
 
a
 
TDR.
 
The
 
ACL
 
for
 
construction loans
 
measured using
 
a
 
PD/LGD
 
model
 
is
 
calculated based
 
on
 
the
 
product
 
of
 
a
cumulative
 
PD and LGD,
 
and the amortized
 
cost basis
 
determined
 
for each
 
loan over
 
the remaining
 
expected
 
life of the
 
loan, considering
prepayments.
 
PD estimates represent the point-in-time as of which
 
the PD
 
is developed for each
 
construction loan, updated quarterly
based
 
on,
 
among
 
other
 
things,
 
historical payment
 
performance experience,
 
industry historical
 
loss
 
experience, underlying
 
type
 
of
collateral,
 
and relevant
 
current and
 
forward-looking
 
macroeconomic
 
variables
 
over the remaining
 
expected life
 
of the loans
 
to determine
a
 
lifetime term
 
structure PD
 
curve. The
 
Corporation determines LGD
 
estimates based
 
on
 
historical charge-off events
 
and
 
recovery
payments, industry historical loss experience, specific attributes of the loans, such
 
as loan-to-value, debt service coverage ratios, and
relevant current
 
and forecasted
 
macroeconomic
 
variables,
 
such as unemployment
 
rates, GDP, interest
 
rates, and
 
real estate
 
price indexes,
to determine a
 
lifetime term structure LGD curve. Under
 
this approach, the Corporation calculates losses for each
 
loan for all
 
future
periods using
 
the
 
PD
 
and
 
LGD
 
loss rates
 
derived from
 
the
 
term
 
structure curves
 
applied to
 
the
 
amortized cost
 
basis of
 
the
 
loans,
considering
 
prepayments.
 
The ACL for collateral
 
dependent loans,
 
including loans
 
modified or reasonably
 
expected to be modified
 
in a
TDR, is
 
determined
 
based on
 
the fair
 
value of
 
the collateral
 
at the reporting
 
date, adjusted
 
for undiscounted
 
selling
 
costs as
 
appropriate.
Consumer
 
–
As of December 31, 2021, consumer loans generally consisted of unsecured and secured loans extended to individuals
for household, family, and other personal expenditures,
 
including several classes
 
of products. For purposes of the ACL determination,
the Corporation
 
stratifies
 
the portfolio
 
by two main
 
regions (
i.e.,
 
the Puerto
 
Rico/Virgin Islands
 
region and
 
the Florida
 
region)
 
and by the
following five classes: (i) auto
 
loans; (ii) finance leases; (iii)
 
credit cards; (iv) personal loans; and
 
(v) other
 
consumer loans, such as
open-end home
 
equity revolving
 
lines of
 
credit and
 
other types
 
of
 
consumer credit
 
lines, among
 
others.
 
In
 
determining the
 
ACL,
management
 
considers consumer
 
loans
 
risk
 
characteristics including
 
but
 
not
 
limited
 
to
 
credit
 
quality
 
indicators such
 
as
 
payment
performance
 
period,
 
delinquency
 
and original
 
FICO scores.
 
For auto
 
loans and finance leases, the
 
Corporation calculates the ACL using a
 
PD/LGD modeled approach, or individually for loans
modified or reasonably expected to
 
be modified in
 
a TDR
 
and performing in accordance with
 
restructured terms. The ACL for
 
auto
loans and
 
finance leases
 
measured
 
using a PD/LGD
 
model is
 
calculated
 
based on
 
the product
 
of a PD,
 
LGD, and
 
the amortized
 
cost basis
determined
 
for each
 
loan over
 
the remaining
 
expected
 
life of the
 
loan, considering
 
prepayments.
 
PD estimates
 
represent
 
the point-in-time
as of which the PD is
 
developed
 
for each loan,
 
updated quarterly
 
based on, among
 
other things,
 
the historical
 
payment performance
 
and
relevant current
 
and forward-looking
 
macroeconomic
 
variables,
 
such as regional
 
unemployment
 
rates, over
 
the expected
 
life of the
 
loans
to determine a
 
lifetime term structure PD curve. The
 
Corporation determines
 
LGD estimates primarily based on historical charge-off
events and recovery
 
payments to determine
 
a lifetime term structure
 
LGD curve. Under
 
this approach,
 
the Corporation
 
calculates
 
losses
for each loan
 
for all future
 
periods using
 
the PD and LGD
 
loss rates
 
derived from
 
the term structure
 
curves applied
 
to the amortized
 
cost
basis of
 
the loans, considering prepayments. For loans modified or
 
reasonably expected to be
 
modified in a
 
TDR and
 
performing in
accordance with restructured terms, the Corporation
 
determines the ACL based on
 
a risk-adjusted discounted cash flow methodology
using PDs and LGDs
 
developed as
 
explained
 
above. Under
 
this approach,
 
all future cash
 
flows (interest
 
and principal)
 
for each loan are
adjusted by the
 
PDs and LGDs
 
derived from
 
the term structure
 
curves and prepayments
 
and then discounted
 
at the effective
 
interest rate
of the loan prior
 
to the restructuring
 
to arrive at the
 
net present
 
value of future
 
cash flows and
 
the ACL is calculated
 
as the excess
 
of the
amortized
 
cost basis
 
over the
 
net present
 
value of
 
future cash
 
flows for
 
each loan.
For the credit card
 
and personal
 
loan portfolios,
 
the Corporation
 
determines
 
the ACL on a pool basis,
 
based on products
 
PDs and LGDs
developed
 
considering
 
historical
 
losses for
 
each origination
 
vintage by
 
length of
 
loan terms,
 
by geography, payment
 
performance
 
and by
credit score. The
 
PD and LGD for each cohort
 
consider key macroeconomic
 
variables,
 
such as regional
 
GDP, unemployment rates,
 
and
retail sales, among
 
others. Under this
 
approach, all future period
 
losses for
 
each instrument are
 
calculated using the
 
PDs and
 
LGDs
applied to
 
the amortized
 
cost basis
 
of the loans,
 
considering
 
prepayments.
In
 
addition, home equity
 
lines of
 
credit that
 
are
180
 
days or
 
more past
 
due are
 
considered collateral dependent and are
 
individually
reviewed
 
and charged-off,
 
as needed,
 
to the
 
fair value
 
of the collateral.
For
 
the
 
ACL
 
determination
 
of
 
all
 
portfolios,
 
the
 
expectations
 
for
 
relevant
 
macroeconomic
 
variables
 
related
 
to
 
the
 
Puerto
Rico/Virgin
 
Islands
 
region
 
consider
 
an
 
initial
 
reasonable
 
and
 
supportable
 
period
 
of
two
 
years
 
and
 
a
 
reversion
 
period
 
of
 
up
to
three
 
years, utilizing
 
a straight-line
 
approach and
 
reverting back
 
to the
 
historical macroeconomic
 
mean. For the
 
Florida region,
 
the
methodology considers
 
a reasonable
 
and supportable
 
forecast period
 
and an
 
implicit reversion
 
towards the
 
historical trend
 
that varies
for
 
each
 
macroeconomic
 
variable,
 
achieving
 
the
 
steady
 
state
 
by
 
year
5
.
 
After
 
the
 
reversion
 
period,
 
a
 
historical
 
loss
 
forecast
 
period
covering the
 
remaining contractual
 
life, adjusted
 
for prepayments,
 
is used
 
based on
 
the changes
 
in key
 
historical economic
 
variables
during representative historical expansionary and recessionary periods.
Furthermore, the Corporation periodically
 
considers the need for qualitative adjustments to the ACL.
 
Qualitative adjustments
 
may be
related to
 
and include,
 
but not be limited
 
to factors
 
such as: (i)
 
management’s assessment
 
of economic
 
forecasts
 
used in the
 
model and how
those forecasts align with management’s overall evaluation of current and expected economic conditions; (ii) organization specific risks
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
152
such as credit
 
concentrations,
 
collateral
 
specific risks,
 
nature and
 
size of the portfolio
 
and external
 
factors that
 
may ultimately
 
impact credit
quality, and (iii)
 
other limitations
 
associated
 
with factors
 
such as
 
changes in
 
underwriting
 
and loan
 
resolution
 
strategies,
 
among others.
 
Prior to the implementation
 
of CECL on January 1,
 
2020, the ACL for loans
 
and finance lease was subject
 
to the guidance included
in ASC
 
310 and
 
ASC 450.
 
Under the
 
guidance, the
 
Corporation was
 
required to
 
use an
 
incurred loss
 
methodology to
 
estimate credit
losses that were estimated to be incurred in the loan portfolio and
 
that could ultimately materialize into confirmed losses in
 
the form of
charge-offs.
 
The
 
incurred
 
loss
 
methodology
 
was
 
a
 
backward-looking
 
approach
 
to
 
loss
 
recognition
 
and
 
based
 
on
 
the
 
concept
 
of
 
a
triggering
 
event
 
having
 
taken
 
place,
 
causing
 
a
 
loss
 
to
 
be
 
inherent
 
within
 
the
 
portfolio.
 
This
 
methodology
 
under
 
ASC
 
450
 
was
predicated
 
on
 
a
 
loss
 
emergence
 
period
 
that
 
was
 
applied
 
at
 
a
 
portfolio
 
level.
 
Consideration
 
of
 
forward
 
looking
 
macro-economic
expectations
 
was
 
not
 
permitted
 
under
 
this
 
allowance
 
methodology.
 
Additionally,
 
loans
 
that
 
were
 
identified
 
as
 
impaired
 
under
 
the
definition
 
of
 
ASC
 
310,
 
were
 
required
 
to
 
be
 
assessed
 
on
 
an
 
individual
 
basis.
 
The
 
ACL
 
and
 
resulting
 
provision
 
expense
 
levels
 
for
comparative periods prior to 2020 presented in this document were estimated in accordance
 
with these requirements.
Refer to
 
Note 9
 
– Allowance for
 
Credit Losses for Loans and
 
Finance Leases, to the
 
consolidated financial statements
 
for additional
information about reserve
 
balances for
 
each portfolio, activity
 
during the
 
period, and
 
information about changes in
 
circumstances that
caused changes
 
in the ACL
 
for loans
 
and finance
 
leases during
 
the year
 
ended December
 
31, 2021
 
and 2020.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures and
 
Other Assets
The Corporation estimates expected
 
credit losses over the contractual period
 
in which the Corporation is exposed
 
to credit risk via a
contractual
 
obligation
 
to
 
extend
 
credit
 
unless
 
the
 
obligation
 
is
 
unconditionally
 
cancellable
 
by
 
the
 
Corporation.
 
The
 
ACL
 
on
 
off-
balance sheet
 
credit exposures is
 
adjusted as a
 
provision for credit
 
loss expense. The
 
estimate includes consideration
 
of the likelihood
that funding
 
will occur and
 
an estimate of
 
expected credit
 
losses on commitments
 
expected to be
 
funded over its
 
estimated life.
 
As of
December 31,
 
2021, the
 
off-balance sheet
 
credit exposures
 
primarily consisted
 
of unfunded
 
loan commitments
 
and standby
 
letters of
credit
 
for
 
commercial
 
and
 
construction
 
loans.
 
The
 
Corporation
 
utilized
 
the
 
PDs
 
and
 
LGDs
 
derived
 
from
 
the
 
above-explained
methodologies
 
for
 
the
 
commercial
 
and
 
construction
 
loan
 
portfolios.
 
Under
 
this
 
approach,
 
all
 
future
 
period
 
losses
 
for
 
each
 
loan
 
are
calculated using
 
the PD
 
and LGD
 
loss rates
 
derived from
 
the term
 
structure curves
 
applied to
 
the usage
 
given default
 
exposure.
 
The
ACL on off-balance sheet
 
credit exposures is included as
 
part of accounts payable and
 
other liabilities in the consolidated
 
statement of
financial condition with adjustments included as part of the provision for credit loss expense
 
in the consolidated statements of income.
Refer to
 
Note 9
 
– Allowance for
 
Credit Losses for Loans and
 
Finance Leases, to the
 
consolidated financial
 
statements for additional
information
 
about
 
reserve
 
balances
 
for
 
unfunded
 
loan
 
commitments, activity
 
during
 
the
 
period,
 
and
 
information
 
about
 
changes
 
in
circumstances
 
that caused
 
changes
 
in the
 
ACL for
 
off-balance
 
sheet credit
 
exposures
 
during the
 
years
 
ended December
 
31, 2021
 
and 2020.
The
 
Corporation
 
also
 
estimates
 
expected
 
credit
 
losses
 
for
 
certain
 
accounts
 
receivable,
 
primarily
 
claims
 
from
 
government-
guaranteed
 
loans,
 
loan
 
servicing-related
 
receivables,
 
and
 
other
 
receivables.
 
The
 
ACL
 
on other
 
assets
 
measured
 
at
 
amortized
 
cost
 
is
included
 
as part
 
of other
 
assets in
 
the
 
consolidated
 
statement of
 
financial
 
condition
 
with adjustments
 
included
 
as part
 
of other
 
non-
interest expenses in the consolidated statements of income.
 
Loans held for sale
Loans
 
that the
 
Corporation
 
intends to
 
sell or
 
that
 
the Corporation
 
does not
 
have
 
the ability
 
and
 
intent to
 
hold
 
for the
 
foreseeable
future are classified as held-for-sale
 
loans. Loans held for
 
sale are recorded at the
 
lower of aggregate cost or
 
fair value.
 
Generally,
 
the
loans held-for-sale
 
portfolio consists of
 
conforming residential
 
mortgage loans
 
that the Corporation
 
intends to
 
sell to the
 
Government
National
 
Mortgage
 
Association
 
(“GNMA”)
 
and
 
GSEs,
 
such as
 
the
 
Federal
 
National
 
Mortgage
 
Association
 
(“FNMA”)
 
and
 
the U.S.
Federal
 
Home
 
Loan
 
Mortgage
 
Corporation
 
(“FHLMC”).
 
Generally,
 
residential
 
mortgage
 
loans
 
held
 
for
 
sale
 
are
 
valued
 
on
 
an
aggregate
 
portfolio
 
basis
 
and
 
the
 
value
 
is
 
primarily
 
derived
 
from
 
quotations
 
based
 
on
 
the
 
MBS
 
market.
 
The
 
amount by
 
which
 
cost
exceeds market
 
value in
 
the aggregate
 
portfolio of
 
loans held
 
for sale,
 
if any,
 
is accounted
 
for as
 
a valuation
 
allowance with
 
changes
therein included in
 
the determination of
 
net income and
 
reported as part
 
of mortgage banking
 
activities in the
 
consolidated statements
of
 
income.
 
Loan
 
costs
 
and
 
fees
 
are
 
deferred
 
at
 
origination
 
and
 
are
 
recognized
 
in
 
income
 
at
 
the
 
time
 
of
 
sale.
 
The
 
fair
 
value
 
of
commercial and construction
 
loans held for sale, if
 
any, is
 
primarily derived from
 
external appraisals, or broker
 
price opinions that
 
the
Corporation
 
considers,
 
with
 
changes
 
in
 
the
 
valuation
 
allowance
 
reported
 
as
 
part
 
of
 
other
 
non-interest
 
income
 
in
 
the
 
consolidated
statements of income.
In certain circumstances,
 
the Corporation transfers
 
loans from/to held
 
for sale or held
 
for investment based
 
on a change
 
in strategy.
If such a
 
change in holding
 
strategy is made, significant
 
adjustments to the loans’
 
carrying values may
 
be necessary.
 
Reclassifications
of loans held
 
for investment to held
 
for sale are made
 
at the amortized
 
cost on the date
 
of transfer and
 
establish a new cost
 
basis upon
transfer.
 
Write-downs of
 
loans transferred from
 
held for investment
 
to held for
 
sale are recorded
 
as charge-offs at
 
the time of
 
transfer.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
153
Subsequent
 
changes
 
in
 
value
 
below
 
amortized
 
cost
 
are
 
reflected
 
in
 
non-interest
 
income
 
in
 
the
 
consolidated
 
statements
 
of
 
income.
Reclassifications of loans held for sale to held for investment are made at the
 
amortized cost on the transfer date.
Transfers and servicing of financial assets and extinguishment
 
of liabilities
After a transfer of
 
financial assets in a
 
transaction that qualifies
 
for accounting as
 
a sale, the Corporation
 
derecognizes the financial
assets when it has surrendered control and derecognizes liabilities when they
 
are extinguished.
A transfer of financial
 
assets in which the
 
Corporation surrenders control
 
over the assets is
 
accounted for as
 
a sale to the extent
 
that
consideration other
 
than beneficial
 
interests is
 
received in
 
exchange.
 
The criteria
 
that must
 
be met
 
to determine
 
that the
 
control over
transferred assets
 
has been surrendered
 
include: (i) the
 
assets must be
 
isolated from
 
creditors of the
 
transferor; (ii) the
 
transferee must
obtain the
 
right (free
 
of conditions
 
that constrain
 
it from
 
taking advantage
 
of that
 
right) to
 
pledge or
 
exchange the
 
transferred assets;
and
 
(iii) the transferor
 
cannot maintain
 
effective
 
control over
 
the transferred
 
assets through
 
an agreement
 
to repurchase
 
them before
their maturity.
 
When the
 
Corporation transfers
 
financial assets
 
and the
 
transfer fails
 
any one
 
of the
 
above criteria,
 
the Corporation
 
is
prevented from derecognizing the transferred financial assets and
 
the transaction is accounted for as a secured borrowing.
Servicing assets
The Corporation recognizes
 
as separate assets the
 
rights to service
 
loans for others,
 
whether those servicing
 
assets are originated
 
or
purchased.
 
In the
 
ordinary course
 
of business,
 
the Corporation
 
sells residential
 
mortgage loans
 
(originated or
 
purchased)
 
to GNMA,
which generally
 
securitizes the
 
transferred loans
 
into MBS for
 
sale into
 
the secondary
 
market. Also,
 
certain conventional
 
conforming
loans are
 
sold to
 
FNMA or
 
FHLMC,
 
with servicing
 
retained.
 
When the
 
Corporation sells
 
mortgage loans,
 
it recognizes
 
any retained
servicing right, based on its fair value.
 
Mortgage
 
servicing
 
rights
 
(“servicing
 
assets”
 
or
 
“MSRs”)
 
retained
 
in
 
a
 
sale
 
or
 
securitization
 
arise
 
from
 
contractual
 
agreements
between the Corporation
 
and investors in mortgage
 
securities and mortgage
 
loans. The value of
 
MSRs is derived from
 
the net positive
cash
 
flows
 
associated
 
with
 
the
 
servicing
 
contracts.
 
Under
 
these
 
contracts,
 
the
 
Corporation
 
performs
 
loan-servicing
 
functions
 
in
exchange
 
for
 
fees
 
and
 
other
 
remuneration.
 
The
 
servicing
 
functions
 
typically
 
include:
 
collecting
 
and
 
remitting
 
loan
 
payments,
responding
 
to
 
borrower
 
inquiries,
 
accounting
 
for
 
principal
 
and
 
interest,
 
holding
 
custodial
 
funds
 
for
 
payment
 
of
 
property
 
taxes
 
and
insurance premiums,
 
supervising
 
foreclosures
 
and property
 
dispositions, and
 
generally
 
administering
 
the loans.
 
The MSRs,
 
included
as
 
part
 
of
 
other
 
assets
 
in
 
the
 
statements
 
of
 
financial
 
condition,
 
entitle
 
the
 
Corporation
 
to
 
servicing
 
fees
 
based
 
on
 
the
 
outstanding
principal
 
balance
 
of
 
the
 
mortgage
 
loans
 
and
 
the
 
contractual
 
servicing
 
rate.
 
The
 
servicing
 
fees
 
are
 
credited
 
to
 
income
 
on
 
a
 
monthly
basis when
 
collected
 
and
 
recorded
 
as part
 
of mortgage
 
banking
 
activities
 
in
 
the
 
consolidated
 
statements
 
of
 
income.
 
In addition,
 
the
Corporation
 
generally
 
receives
 
other
 
remuneration
 
consisting
 
of
 
mortgagor-contracted
 
fees
 
such
 
as
 
late
 
charges
 
and
 
prepayment
penalties, which are credited to income when collected.
 
Considerable
 
judgment
 
is
 
required
 
to
 
determine
 
the
 
fair
 
value
 
of
 
the
 
Corporation’s
 
MSRs.
 
Unlike
 
highly
 
liquid
 
investments,
 
the
market
 
value
 
of
 
MSRs
 
cannot
 
be
 
readily
 
determined
 
because
 
these
 
assets
 
are
 
not
 
actively
 
traded
 
in
 
securities
 
markets.
 
The
 
initial
carrying
 
value
 
of
 
an
 
MSR
 
is
 
generally
 
determined
 
based
 
on
 
its
 
fair
 
value.
 
The
 
Corporation
 
determines
 
the
 
fair
 
value
 
of
 
the
 
MSRs
based
 
on
 
a
 
combination
 
of
 
market
 
information
 
on
 
trading
 
activity
 
(MSR
 
trades
 
and
 
broker
 
valuations),
 
benchmarking
 
of
 
servicing
assets (valuation
 
surveys), and
 
cash flow
 
modeling. The
 
valuation of
 
the Corporation’s
 
MSRs incorporates
 
two sets
 
of assumptions:
(i) market-derived assumptions for discount
 
rates, servicing costs, escrow
 
earnings rates, floating
 
earnings rates, and the cost
 
of funds;
and
 
(ii) market
 
assumptions
 
calibrated
 
to
 
the
 
Corporation’s
 
loan
 
characteristics
 
and
 
portfolio
 
behavior
 
for
 
escrow
 
balances,
delinquencies and foreclosures, late fees, prepayments, and prepayment
 
penalties.
Once recorded,
 
the Corporation periodically
 
evaluates
 
MSRs for impairment.
 
Impairment occurs
 
when the current
 
fair value of
 
the
MSR is
 
less than
 
its carrying
 
value. If
 
an MSR
 
is impaired,
 
the impairment
 
is recognized
 
in current-period
 
earnings and
 
the carrying
value of
 
the MSR is
 
adjusted through
 
a valuation
 
allowance. If the
 
value of
 
the MSR subsequently
 
increases, the recovery
 
in value is
recognized in
 
current period
 
earnings and
 
the carrying
 
value of
 
the MSR
 
is adjusted
 
through a
 
reduction in
 
the valuation
 
allowance.
For
 
purposes
 
of
 
performing
 
the
 
MSR
 
impairment
 
evaluation,
 
the
 
servicing
 
portfolio
 
is
 
stratified
 
on
 
the
 
basis
 
of
 
certain
 
risk
characteristics,
 
such as region, terms, and coupons.
 
The Corporation conducts an OTTI
 
analysis to evaluate whether a loss in
 
the value
of the MSR in a particular
 
stratum, if any,
 
is other than temporary or not.
 
When the recovery of the value
 
is unlikely in the foreseeable
future,
 
a
 
write-down
 
of
 
the
 
MSR
 
in
 
the
 
stratum
 
to
 
its
 
estimated
 
recoverable
 
value
 
is
 
charged
 
to
 
the
 
valuation
 
allowance.
 
As
 
of
December 31, 2021, the aggregate carrying value of the MSRs amounted
 
to $
31.0
 
million (2020 - $
33.1
 
million).
The
 
MSRs
 
are
 
amortized
 
over
 
the
 
estimated
 
life
 
of
 
the
 
underlying
 
loans
 
based
 
on
 
an
 
income
 
forecast
 
method
 
as
 
a
 
reduction
 
of
servicing income.
 
The income forecast
 
method of amortization
 
is based on
 
projected cash flows.
 
A particular periodic
 
amortization is
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
154
calculated
 
by
 
applying
 
to
 
the
 
carrying
 
amount
 
of
 
the
 
MSRs
 
the
 
ratio
 
of
 
the
 
cash
 
flows
 
projected
 
for
 
the
 
current
 
period
 
to
 
total
remaining net MSR forecasted cash flow.
 
Premises and equipment
Premises
 
and
 
equipment
 
are
 
carried
 
at
 
cost,
 
net
 
of
 
accumulated
 
depreciation
 
and
 
amortization.
 
Depreciation
 
is
 
provided
 
on
 
the
straight-line method
 
over the
 
estimated useful
 
life of
 
each type
 
of asset.
 
Amortization of
 
leasehold improvements
 
is computed
 
over
the terms
 
of the
 
leases (
i.e.
, the
 
contractual term
 
plus lease
 
renewals that
 
are reasonably
 
assured) or
 
the estimated
 
useful lives
 
of the
improvements, whichever
 
is shorter.
 
Costs of
 
maintenance and
 
repairs that
 
do not
 
improve or
 
extend the
 
life of
 
the respective
 
assets
are expensed
 
as incurred.
 
Costs of
 
renewals and
 
betterments are
 
capitalized. When
 
the Corporation
 
sells or
 
disposes of
 
assets, their
cost and related
 
accumulated depreciation
 
are removed from
 
the accounts and
 
any gain or
 
loss is reflected
 
in earnings as
 
part of other
non-interest
 
income
 
in
 
the
 
consolidated
 
statements
 
of
 
income.
 
When
 
the
 
asset
 
is
 
no
 
longer
 
used
 
in
 
operations,
 
and
 
the Corporation
intends to
 
sell it,
 
the asset
 
is reclassified
 
to other
 
assets held
 
for sale
 
and is
 
reported at
 
the lower
 
of the
 
carrying amount
 
or fair
 
value
less cost to sell.
Leases
 
The Corporation
 
determines if
 
an arrangement
 
is a lease
 
or contains
 
a lease
 
at inception.
 
Operating and
 
finance lease
 
liabilities are
recognized
 
based
 
on
 
the
 
present
 
value
 
of
 
the
 
remaining
 
lease
 
payments,
 
discounted
 
using
 
the
 
discount
 
rate
 
for
 
the
 
lease
 
at
 
the
commencement
 
date,
 
or
 
at
 
acquisition
 
date
 
in
 
case
 
of
 
a
 
business
 
combination.
 
As
 
the
 
rates
 
implicit
 
in
 
the
 
Corporation’s
 
operating
leases are
 
not readily
 
determinable,
 
the Corporation
 
generally uses
 
an incremental
 
borrowing
 
rate based
 
on information
 
available
 
at
the commencement
 
date to
 
determine the
 
present value
 
of future
 
lease payments.
 
Operating right-of-use
 
(“ROU”) assets
 
and finance
lease assets
 
are generally
 
recognized
 
based on
 
the amount
 
of the
 
initial measurement
 
of the
 
lease liability.
 
The Corporation’s
 
leases
are primarily related
 
to operating leases for
 
the Bank’s
 
branches and automated
 
teller machines (“ATMs”).
 
Most of the Corporation’s
leases with
 
operating
 
ROU assets
 
have terms
 
of
two years
 
to
30 years
, some
 
of which
 
include options
 
to extend
 
the leases
 
for up
 
to
seven years
.
 
The Corporation does not recognize ROU assets and lease liabilities that arise from
 
short-term leases, primarily related to
certain
 
month-to-month
 
ATM
 
operating
 
leases.
 
As
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation
 
did
no
t have
 
a
 
lease
 
that
 
qualifies
 
as a
finance lease.
 
Lease expense is
 
recognized on
 
a straight-line basis over
 
the lease term.
 
The Corporation
 
includes the lease ROU
 
asset
and
 
lease
 
liability
 
as
 
part
 
of
 
other
 
assets
 
and
 
accounts
 
payable
 
and
 
other
 
liabilities,
 
respectively,
 
in
 
the
 
consolidated
 
statements
 
of
financial condition.
 
 
Other real estate owned
OREO, which
 
consists of
 
real estate
 
acquired in
 
settlement of
 
loans, is
 
recorded at
 
fair value
 
minus estimated
 
costs to
 
sell the
 
real
estate acquired.
 
Generally,
 
loans have
 
been
 
written down
 
to their
 
net realizable
 
value
 
prior
 
to
 
foreclosure.
 
Any further
 
reduction
 
to
their
 
net
 
realizable
 
value
 
is
 
recorded
 
with
 
a
 
charge
 
to
 
the
 
ACL
 
at
 
the
 
time
 
of
 
foreclosure
 
or
 
shortly
 
thereafter.
 
Thereafter,
 
gains
 
or
losses resulting from the
 
sale of these properties and
 
losses recognized on the
 
periodic reevaluations of these
 
properties are credited or
charged to
 
earnings and are
 
included as part
 
of net loss
 
on OREO and
 
OREO expenses in
 
the consolidated statements
 
of income. The
cost of
 
maintaining and
 
operating these
 
properties is
 
expensed as
 
incurred. The
 
Corporation estimates
 
fair values
 
primarily based
 
on
appraisals, when available, and periodically reviews and updates the
 
net realizable value.
Business Combinations
The
 
Corporation
 
accounts
 
for
 
acquisitions
 
in
 
accordance
 
with
 
the
 
ASC
 
Topic
 
No.
 
805,
 
“Business
 
Combination”
 
(“ASC
 
805”).
 
Under ASC 805,
 
a business combination
 
is defined as a
 
transaction or other event
 
in which an acquirer
 
obtains control of
 
one or more
businesses.
 
In
 
addition,
 
under
 
ASC
 
805,
 
a
 
business
 
is
 
considered
 
to
 
be
 
an
 
integrated
 
set
 
of
 
activities
 
and
 
assets
 
capable
 
of
 
being
conducted and managed for the purpose of providing a return
 
in the form of dividends, lower costs, or other economic benefits
 
directly
to investors
 
or other
 
owners, members,
 
or participants.
 
If the net
 
assets acquired
 
meet the
 
definition of
 
a business
 
and the
 
transaction
meets the
 
definition of
 
a business
 
combination in
 
ASC 805,
 
the transaction
 
is accounted
 
for using
 
the acquisition
 
method pursuant
 
to
ASC 805.
 
Under the acquisition method, the identifiable assets acquired, the
 
liabilities assumed, and any non-controlling interest in the acquiree
are recorded
 
at their
 
estimated fair
 
values as
 
of the
 
date of
 
acquisition.
 
The acquisition
 
date is
 
the date
 
the acquirer
 
obtains control.
Goodwill is recognized
 
as the excess
 
of the sum
 
of the consideration
 
transferred, plus
 
the fair value
 
of any non
 
-controlling interest
 
in
the
 
acquiree,
 
over
 
the fair
 
value
 
of the
 
net assets
 
acquired
 
and
 
liabilities
 
assumed
 
as of
 
the acquisition
 
date.
 
The Corporation
 
has
 
a
measurement
 
period,
 
in
 
which
 
it
 
may
 
retrospectively
 
adjust
 
the
 
initially
 
recorded
 
fair
 
values
 
to
 
reflect
 
new
 
information
 
obtained
during the
 
measurement period
 
that, if
 
known, would
 
have affected
 
the acquisition
 
date fair
 
value measurements.
 
This measurement
period cannot be more
 
than one year after the
 
acquisition date and ends
 
as soon as the acquirer
 
(i) receives the information
 
it had been
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
155
seeking about facts and
 
circumstances that existed as of
 
the acquisition date or
 
(ii) learns that it cannot
 
obtain further information. The
Corporation
 
determined
 
that
 
the
 
aforementioned
 
acquisition
 
of
 
BSPR,
 
completed
 
on
 
September
 
1,
 
2020,
 
constituted
 
a
 
business
combination
 
as defined
 
by
 
ASC 805.
 
Refer
 
to
 
Note
 
2
 
-
 
Business
 
Combination,
 
to
 
the
 
consolidated
 
financial
 
statements
 
for
 
further
discussion of the BSPR acquisition and its impact on the Corporation’s
 
financial statements.
 
Goodwill and other intangible assets
Goodwill
-
 
Goodwill
 
represents
 
the
 
cost
 
in
 
excess
 
of
 
the
 
fair
 
value
 
of
 
net
 
assets
 
acquired
 
(including
 
identifiable
 
intangibles)
 
in
transactions accounted
 
for as
 
business combinations.
 
The Corporation
 
allocates goodwill
 
to the
 
reporting unit(s)
 
that are
 
expected to
benefit from
 
the synergies
 
of the
 
business combination.
 
Once goodwill
 
has been
 
assigned to
 
a reporting
 
unit, it
 
no longer
 
retains its
association with
 
a particular
 
acquisition, and
 
all of
 
the activities within
 
a reporting
 
unit, whether
 
acquired or
 
internally generated,
 
are
available to
 
support the
 
value of
 
the goodwill.
 
The Corporation
 
tests goodwill
 
for impairment
 
at least
 
annually as
 
of October
 
1st of
each year
 
and more
 
frequently if
 
circumstances exist
 
that indicate
 
a possible
 
reduction in
 
the fair
 
value of
 
a reporting
 
unit below
 
its
carrying
 
value. If,
 
after assessing
 
all relevant
 
events or
 
circumstances,
 
the Corporation
 
concludes
 
that it
 
is more-likely-than-not
 
that
the fair
 
value
 
of a
 
reporting
 
unit is
 
below
 
its carrying
 
value, then
 
an impairment
 
test is
 
required.
 
Every other
 
year or
 
when
 
deemed
necessary by
 
any particular
 
economic or Corporation
 
specific circumstances,
 
the Corporation
 
bypasses the qualitative
 
assessment and
proceeds directly
 
to a
 
quantitative analysis.
 
In addition
 
to the
 
goodwill recorded
 
at the
 
Commercial and
 
Corporate, Consumer
 
Retail,
and
 
Mortgage
 
Banking
 
reporting
 
units
 
in
 
connection
 
with
 
the
 
acquisition
 
of
 
BSPR
 
in
 
2020,
 
the
 
Corporation’s
 
goodwill
 
is
 
mostly
related to the United States (Florida) reporting unit.
 
Management performed
 
a qualitative
 
analysis over
 
the carrying
 
amount of
 
each relevant
 
reporting units’
 
goodwill as
 
of December
31,
 
2021
 
and
 
concluded
 
that
 
it
 
is
 
more-likely-than-not
 
that
 
the
 
fair
 
value
 
of
 
the
 
reporting
 
units
 
exceeded
 
its
 
carrying
 
value.
 
With
respect to the
 
goodwill of the
 
Florida reporting unit
 
,
 
this assessment involved
 
identifying the inputs
 
and assumptions that
 
most affects
fair value,
 
evaluating the
 
significance of
 
all identified
 
relevant events
 
and circumstances
 
that affect
 
fair value
 
of the
 
reporting
 
entity
and
 
weighing
 
such
 
factors
 
to
 
determine
 
if
 
it
 
is
 
more
 
likely
 
than
 
not
 
that
 
the
 
fair
 
value
 
of
 
the
 
reporting
 
unit
 
was
 
greater
 
than
 
it’s
carrying amount.
In the qualitative assessment of the Florida reporting
 
unit,
 
the Corporation evaluated events and circumstances that could
 
impact the
fair value including the following:
●
Macroeconomic conditions, such as improvement or deterioration
 
in general economic conditions;
●
Industry and market considerations;
●
Interest rate fluctuations;
●
Overall financial performance of the entity;
●
Performance of industry peers over the last year; and
●
Recent market transactions.
Similarly,
 
evaluation
 
for
 
goodwill
 
associated
 
with
 
the
 
acquisition
 
of
 
BSPR
 
focused
 
on
 
a
 
qualitative
 
assessment
 
of
 
the
 
overall
performance
 
of
 
the
 
banking
 
reporting
 
unit
 
and
 
outlook
 
of
 
the
 
macroeconomic
 
conditions
 
for
 
the
 
reporting
 
unit.
 
Management
considered positive
 
and negative
 
evidence obtained
 
during the
 
evaluation of
 
significant events
 
and circumstances
 
and evaluated
 
such
information
 
to
 
conclude
 
that
 
it is
 
more
 
likely
 
than
 
not
 
that the
 
reporting
 
unit’s
 
fair value
 
is greater
 
than
 
it’s
 
carrying
 
amount;
 
thus,
quantitative tests were
 
not required.
 
Ultimately,
 
the Corporation determined
 
that goodwill was
no
t impaired
 
as of December
 
31, 2021
or 2020.
The
 
Corporation’s
 
other
 
intangible
 
assets
 
primarily
 
relate
 
to
 
core
 
deposits.
 
The
 
Corporation
 
amortizes
 
core
 
deposit
 
intangibles
based on
 
the projected
 
useful lives
 
of the
 
related deposits,
 
generally on
 
a straight-line
 
basis, and
 
reviews these
 
assets periodically
 
for
impairment
 
when event
 
or changes
 
in circumstances
 
indicate that
 
the carrying
 
amount may
 
not exceed
 
their fair
 
value. The
 
carrying
value of core deposit intangible assets amounted to $
28.6
 
million as of December 31, 2021 ($
35.8
 
million as of December 31, 2020).
Securities purchased and sold under agreements to repurchase
The
 
Corporation
 
accounts
 
for
 
securities
 
purchased
 
under
 
resale
 
agreements
 
and
 
securities
 
sold
 
under
 
repurchase
 
agreements
 
as
collateralized financing
 
transactions. Generally,
 
the Corporation
 
records these
 
agreements at
 
the amount
 
at which
 
the securities
 
were
purchased or
 
sold. The
 
Corporation monitors
 
the fair
 
value of
 
securities purchased
 
and sold,
 
and obtains
 
collateral from,
 
or returns
 
it
to,
 
the counterparties
 
when
 
appropriate.
 
These financing
 
transactions
 
do not
 
create material
 
credit risk
 
given
 
the collateral
 
involved
and the related monitoring process.
 
The Corporation sells and acquires
 
securities under agreements to repurchase or
 
resell the same or
similar
 
securities.
 
Generally,
 
similar
 
securities
 
are
 
securities
 
from
 
the
 
same
 
issuer,
 
with
 
identical
 
form
 
and
 
type,
 
similar
 
maturity,
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
156
identical
 
contractual
 
interest rates,
 
similar assets
 
as collateral,
 
and the
 
same aggregate
 
unpaid
 
principal amount.
 
The counterparty
 
to
certain agreements may have the right to repledge the collateral by
 
contract or custom. The Corporation presents such assets separately
in
 
the
 
consolidated
 
statements
 
of
 
financial
 
condition
 
as
 
securities
 
pledged
 
with
 
creditors’
 
rights
 
to
 
repledge.
 
Repurchase
 
and
 
resale
activities may be
 
transacted under
 
legally enforceable
 
master repurchase
 
agreements that give
 
the Corporation, in
 
the event of
 
default
by
 
the
 
counterparty,
 
the
 
right
 
to
 
liquidate
 
securities
 
held
 
and
 
to
 
offset
 
receivables
 
and
 
payables
 
with
 
the
 
same
 
counterparty.
 
The
Corporation offsets repurchase
 
and resale transactions with the same
 
counterparty in the consolidated statements
 
of financial condition
where it has such a legally enforceable right under a master netting agreement
 
and the transactions have the same maturity date.
From
 
time
 
to
 
time,
 
the
 
Corporation
 
modifies
 
repurchase
 
agreements
 
to
 
take
 
advantage
 
of
 
prevailing
 
interest
 
rates.
 
Following
applicable
 
GAAP guidance,
 
if
 
the
 
Corporation determines
 
that
 
the debt
 
under
 
the modified
 
terms
 
is substantially
 
different
 
from
 
the
original terms,
 
the modification
 
must be accounted
 
for as an
 
extinguishment of
 
debt. The
 
Corporation considers
 
modified terms
 
to be
substantially different
 
if the present
 
value of
 
the cash flows
 
under the
 
terms of the
 
new debt instrument
 
is at least
10
% different
 
from
the
 
present
 
value
 
of
 
the
 
remaining
 
cash
 
flows
 
under
 
the
 
terms
 
of
 
the
 
original
 
instrument.
 
The
 
new
 
debt
 
instrument
 
will be
 
initially
recorded
 
at fair
 
value, and
 
that amount
 
will be
 
used to
 
determine
 
the debt
 
extinguishment
 
gain or
 
loss to
 
be recognized
 
through
 
the
consolidated statements
 
of income
 
and the
 
effective rate
 
of the
 
new instrument.
 
If the
 
Corporation determines
 
that the
 
debt under
 
the
modified
 
terms is
 
not
substantially
 
different,
 
then
 
the
 
new effective
 
interest
 
rate
 
is determined
 
based on
 
the
 
carrying amount
 
of
 
the
original
 
debt
 
instrument.
 
The
 
Corporation
 
has
 
determined
 
that
 
none
 
of
 
the
 
repurchase
 
agreements
 
modified
 
in
 
the
 
past
 
were
substantially different from the original terms, and,
 
therefore, these modifications were not accounted for as extinguishments of debt.
Rewards liability
The
 
Corporation
 
offers
 
products,
 
primarily
 
credit
 
cards,
 
that
 
offer
 
various
 
rewards
 
to
 
reward
 
program
 
members,
 
such
 
as
 
airline
tickets, cash, or
 
merchandise, based
 
on account
 
activity.
 
The Corporation
 
generally recognizes the
 
cost of rewards
 
as part of
 
business
promotion
 
expenses when
 
the rewards
 
are earned
 
by the
 
customer and,
 
at that
 
time, records
 
the corresponding
 
reward liability.
 
The
Corporation
 
determines
 
the
 
reward
 
liability
 
based
 
on
 
points
 
earned
 
to
 
date
 
that
 
the
 
Corporation
 
expects
 
to
 
be
 
redeemed
 
and
 
the
average
 
cost
 
per
 
point
 
redemption.
 
The
 
reward
 
liability
 
is
 
reduced
 
as
 
points
 
are
 
redeemed.
 
In
 
estimating
 
the
 
reward
 
liability,
 
the
Corporation considers historical
 
reward redemption behavior,
 
the terms of the
 
current reward program,
 
and the card
 
purchase activity.
The reward liability
 
is sensitive to
 
changes in the
 
reward redemption
 
type and redemption
 
rate, which is
 
based on the
 
expectation that
the
 
vast
 
majority
 
of
 
all points
 
earned
 
will eventually
 
be
 
redeemed.
 
The reward
 
liability,
 
which
 
is included
 
in other
 
liabilities in
 
the
consolidated statements of financial condition, totaled $
8.8
 
million and $
7.5
 
million as of December 31, 2021 and 2020, respectively.
Income taxes
The Corporation
 
uses the
 
asset and
 
liability method
 
for the recognition
 
of deferred
 
tax assets and
 
liabilities for
 
the expected
 
future
tax consequences
 
of events
 
that have
 
been recognized
 
in the
 
Corporation’s
 
financial statements
 
or tax
 
returns.
 
Deferred income
 
tax
assets
 
and
 
liabilities
 
are
 
determined
 
for
 
differences
 
between
 
the
 
financial
 
statement
 
and
 
tax
 
bases
 
of
 
assets
 
and
 
liabilities
 
that
 
will
result in taxable
 
or deductible amounts
 
in the future.
 
The computation is
 
based on enacted
 
tax laws and
 
rates applicable to
 
periods in
which
 
the
 
temporary
 
differences
 
are
 
expected
 
to
 
be
 
recovered
 
or
 
settled.
 
Valuation
 
allowances
 
are
 
established,
 
when
 
necessary,
 
to
reduce deferred
 
tax assets
 
to the
 
amount that
 
is more
 
likely than
 
not to
 
be realized.
 
In making
 
such assessment,
 
significant weight
 
is
given
 
to
 
evidence
 
that
 
can
 
be
 
objectively
 
verified,
 
including
 
both
 
positive
 
and
 
negative
 
evidence.
 
The
 
authoritative
 
guidance
 
for
accounting
 
for
 
income
 
taxes
 
requires
 
the
 
consideration
 
of
 
all
 
sources
 
of
 
taxable
 
income
 
available
 
to
 
realize
 
the
 
deferred
 
tax
 
asset,
including
 
the
 
future
 
reversal
 
of
 
existing
 
temporary
 
differences,
 
tax
 
planning
 
strategies
 
and
 
future
 
taxable
 
income,
 
exclusive
 
of
 
the
impact of
 
the reversal
 
of temporary
 
differences
 
and carryforwards.
 
In estimating
 
taxes, management
 
assesses the
 
relative
 
merits and
risks
 
of
 
the
 
appropriate
 
tax
 
treatment
 
of
 
transactions
 
considering
 
statutory,
 
judicial,
 
and
 
regulatory
 
guidance.
 
Refer
 
to
 
Note
 
28
 
–
Income Taxes, to
 
the consolidated financial statements,
 
for additional information.
 
Under
 
the authoritative
 
accounting guidance,
 
income tax
 
benefits are
 
recognized and
 
measured based
 
on a
 
two-step analysis:
 
i) a
tax
 
position
 
must
 
be
 
more
 
likely than
 
not
 
to be
 
sustained
 
based solely
 
on
 
its technical
 
merits
 
in
 
order
 
to
 
be recognized;
 
and
 
ii)
 
the
benefit
 
is
 
measured
 
at
 
the
 
largest
 
dollar
 
amount
 
of
 
that
 
position
 
that
 
is
 
more
 
likely
 
than
 
not
 
to
 
be
 
sustained
 
upon
 
settlement.
 
The
difference between
 
a benefit not
 
recognized in
 
accordance with
 
this analysis
 
and the
 
tax benefit
 
claimed on
 
a tax return
 
is referred
 
to
as an Unrecognized
 
Tax Benefit
 
(“UTB”).
 
The Corporation classifies interest
 
and penalties, if
 
any, related
 
to UTBs as components
 
of
income
 
tax
 
expense.
 
As of
 
December
 
31,
 
2021,
 
the
 
Corporation
 
had
 
UTBs in
 
an
 
aggregate
 
amount
 
of $
1.3
 
million
 
that
 
it acquired
from BSPR, which, if recognized, would decrease the effective income
 
tax rate in future periods.
The Corporation
 
release income tax
 
effects from
 
OCI as investments
 
securities available for
 
sale are sold
 
or mature and
 
as pension
and post-retirement liabilities are extinguished.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
157
Treasury stock
The
 
Corporation
 
accounts
 
for
 
treasury
 
stock
 
at
 
par
 
value.
 
Under
 
this
 
method,
 
the
 
treasury
 
stock
 
account
 
is
 
increased
 
by
 
the
 
par
value of each share of
 
common stock reacquired.
 
Any excess amount paid per
 
share over the par value is
 
debited to additional paid-in
capital. Any remaining excess is charged to retained earnings.
Stock-based compensation
Compensation cost is
 
recognized in the financial
 
statements for all share-based
 
payment grants.
On May 24, 2016,
 
the Corporation’s
stockholders
 
approved the amendment
 
and restatement
 
of the First BanCorp. Omnibus
 
Incentive Plan,
 
as amended (the “Omnibus
 
Plan”),
to, among other things,
 
increase the number
 
of shares of common stock
 
reserved for issuance
 
under the Omnibus Plan,
 
extend the term of
the Omnibus
 
Plan to May
 
24, 2026 and
 
re-approve
 
the material
 
terms of the
 
performance
 
goals under
 
the Omnibus
 
Plan for
 
purposes
 
of the
then-effective
 
Section 162(m) of the U.S. Internal Revenue
 
Code of 1986, as amended. The Omnibus Plan provides
 
for equity-based and
non-equity-based compensation incentives
 
(the “awards”) through the
 
grant of
 
stock options, stock appreciation rights, restricted stock,
restricted
 
stock
 
units,
 
performance
 
shares,
 
other
 
stock-based
 
awards
 
and
 
cash-based
 
awards.
 
The
 
compensation cost
 
for
 
an
 
award,
determined
 
based on the estimate
 
of the fair value
 
at the grant
 
date (considering
 
forfeitures
 
and any post-vesting
 
restrictions),
 
is recognized
over the
 
period during
 
which an
 
employee
 
or director
 
is required
 
to provide
 
services
 
in exchange
 
for an award,
 
which is
 
the vesting
 
period.
Stock-based compensation accounting guidance
 
requires the
 
Corporation to
 
reverse compensation expense
 
for
 
any
 
awards that
 
are
forfeited due to employee or director turnover. Quarterly changes in the estimated forfeiture rate may have a
 
significant effect on share-
based compensation, as
 
the effect
 
of
 
adjusting the rate
 
for all
 
expense amortization is recognized in
 
the period
 
in which
 
the forfeiture
estimate changes.
 
If the actual forfeiture rate is higher than the estimated
 
forfeiture rate, an adjustment
 
is made to increase the estimated
forfeiture
 
rate, which
 
will result
 
in a decrease
 
in the expense
 
recognized
 
in the financial
 
statements.
 
If the actual
 
forfeiture
 
rate is lower
 
than
the estimated
 
forfeiture
 
rate, an adjustment
 
is made to decrease
 
the estimated
 
forfeiture
 
rate, which
 
will result in
 
an increase in
 
the expense
recognized in
 
the
 
financial statements. For
 
additional information regarding the
 
Corporation’s equity-based compensation and
 
awards
granted,
 
refer to
 
Note 22
 
– Stock-Based
 
Compensation,
 
to the
 
consolidated
 
financial
 
statements.
 
 
Comprehensive income
Comprehensive
 
income
 
for
 
First BanCorp.
 
includes
 
net
 
income,
 
as well
 
as
 
change
 
in
 
unrealized
 
gain
 
(loss)
 
on
 
available-for-sale
securities and change in unrecognized pension and post retirement costs, net
 
of estimated tax effects.
Pension and Postretirement Benefit Obligations
The Corporation
 
maintains two
 
frozen qualified
 
noncontributory defined
 
benefit pension
 
plans (the
 
“Pension Plans”)
 
(including a
complementary
 
post-retirements
 
benefits
 
plan
 
covering
 
medical
 
benefits
 
and
 
life
 
insurance
 
after
 
retirement)
 
that
 
it
 
assumed
 
in
 
the
BSPR acquisition.
 
 
Pension costs are computed
 
on the basis of
 
accepted actuarial methods
 
and are charged
 
to current operations.
 
Net pension costs are
based on
 
various actuarial
 
assumptions regarding
 
future experience
 
under the
 
plan, which
 
include costs
 
for services
 
rendered during
the
 
period,
 
interest
 
costs
 
and
 
return
 
on
 
plan
 
assets,
 
as
 
well
 
as
 
deferral
 
and
 
amortization
 
of
 
certain
 
items
 
such
 
as
 
actuarial
 
gains
 
or
losses.
 
The funding
 
policy is to
 
contribute to
 
the plan,
 
as necessary,
 
to provide
 
for services
 
to date and
 
for those expected
 
to be earned
 
in
the future. To
 
the extent that these
 
requirements are fully
 
covered by assets in
 
the plan, a contribution
 
may not be made
 
in a particular
year.
 
The
 
cost
 
of
 
postretirement
 
benefits,
 
which
 
is determined
 
based on
 
actuarial
 
assumptions
 
and
 
estimates
 
of
 
the
 
costs of
 
providing
these benefits in the future, is accrued during the years that the employee
 
renders the required service.
The
 
guidance
 
for
 
compensation
 
retirement
 
benefits
 
of
 
ASC
 
Topic
 
715,
 
“Retirement
 
Benefits,”
 
requires
 
the
 
recognition
 
of
 
the
funded status
 
of each
 
defined pension
 
benefit plan,
 
retiree health
 
care plan
 
and other
 
postretirement benefit
 
plans on
 
the statement
 
of
financial condition
.
Segment information
 
The Corporation reports financial and
 
descriptive information about its reportable
 
segments. Operating segments are
 
components of
an
 
enterprise
 
about
 
which
 
separate
 
financial
 
information
 
is available
 
that
 
is evaluated
 
regularly
 
by management
 
in
 
deciding
 
how
 
to
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
158
allocate resources
 
and in assessing
 
performance.
 
The Corporation’s
 
management determined
 
that the segregation
 
that best fulfills
 
the
segment definition described above
 
is by 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 December
 
31, 2021, the
 
Corporation had
 
the following
six
 
operating
segments
 
that
 
are
 
all
 
reportable
 
segments:
 
Commercial
 
and
 
Corporate
 
Banking;
 
Mortgage
 
Banking;
 
Consumer
 
(Retail)
 
Banking;
Treasury
 
and Investments;
 
United States
 
Operations; and
 
Virgin
 
Islands Operations.
 
Refer to
 
Note 36
 
– Segment
 
Information, to
 
the
consolidated financial statements, for additional information.
Valuation
 
of financial instruments
The measurement
 
of fair value
 
is fundamental
 
to the Corporation’s
 
presentation of
 
its financial condition
 
and results of
 
operations.
The Corporation
 
holds debt
 
and equity
 
securities, derivatives,
 
and other
 
financial instruments
 
at fair
 
value. The
 
Corporation holds
 
its
investments and liabilities
 
mainly to manage liquidity
 
needs and interest
 
rate risks. A meaningful
 
part of the Corporation’s
 
total assets
is reflected at fair value on the Corporation’s
 
financial statements.
The FASB’s
 
authoritative guidance
 
for fair
 
value measurement
 
defines fair
 
value as
 
the exchange
 
price that
 
would be
 
received for
an asset or paid to
 
transfer a liability (an
 
exit price) in the principal
 
or most advantageous market
 
for the asset or liability
 
in an orderly
transaction between market
 
participants on the measurement
 
date.
 
This guidance also establishes
 
a fair value hierarchy
 
for classifying
financial
 
instruments.
 
The
 
hierarchy
 
is
 
based
 
on
 
whether
 
the
 
inputs
 
to
 
the
 
valuation
 
techniques
 
used
 
to
 
measure
 
fair
 
value
 
are
observable or unobservable. Three levels of inputs may be used to measure
 
fair value:
Level 1
Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
 
that the reporting entity has the
ability to access at the measurement date.
Level 2
Inputs other than quoted prices included within Level 1 that are observable
 
for the asset or liability, either
 
directly or
indirectly, such
 
as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or
 
other inputs
that are observable or can be corroborated by observable market data for substantially
 
the full term of the assets or
liabilities.
Level 3
Valuations
 
are based on unobservable inputs that are supported by little or no market activity and
 
that are significant to the
fair value of the assets or liabilities.
Under the
 
fair value accounting
 
guidance, an
 
entity has the
 
irrevocable option
 
to elect, on
 
a contract-by-contract
 
basis, to measure
certain financial assets and
 
liabilities at fair value
 
at the inception of
 
the contract and, thereafter,
 
to reflect any changes
 
in fair value in
current earnings.
 
The Corporation
 
did not
 
make any
 
fair value
 
option election
 
as of
 
December 31,
 
2021 or
 
2020. See
 
Note 30
 
– Fair
Value,
 
to the consolidated financial statements, for additional information.
 
Revenue from contract with customers
 
Refer
 
to
 
Note
 
31
 
–
 
Revenue
 
from
 
contracts
 
with
 
customers,
 
for
 
a
 
detailed
 
description
 
of
 
the
 
Corporation’s
 
policies
 
on
 
the
recognition
 
and
 
presentation
 
of
 
revenues
 
from
 
contracts
 
with
 
customers,
 
including
 
the
 
income
 
recognition
 
for
 
the insurance
 
agency
commissions’ revenue.
 
Earnings per common share
Earnings per share-basic is calculated
 
by dividing net income attributable to common
 
stockholders by the weighted-average number
of
 
common
 
shares
 
issued
 
and outstanding.
 
Net
 
income
 
attributable
 
to
 
common
 
stockholders
 
represents
 
net
 
income
 
adjusted
 
for
 
any
preferred
 
stock
 
dividends,
 
including
 
any
 
preferred
 
stock
 
dividends
 
declared
 
but
 
not
 
yet
 
paid,
 
and
 
any
 
cumulative
 
preferred
 
stock
dividends
 
related
 
to
 
the
 
current
 
dividend
 
period
 
that
 
have
 
not
 
been
 
declared
 
as
 
of
 
the
 
end
 
of
 
the
 
period.
 
Basic
 
weighted-average
common
 
shares
 
outstanding
 
excludes
 
unvested
 
shares
 
of
 
restricted
 
stock
 
that
 
do
 
not
 
contain
 
non-forfeitable
 
dividend
 
rights.
 
The
computation of diluted earnings per share is similar to the computation
 
of basic earnings per share except that the number of weighted-
average
 
common
 
shares
 
is
 
increased
 
to
 
include
 
the
 
number
 
of
 
additional
 
common
 
shares
 
that
 
would
 
have
 
been
 
outstanding
 
if
 
the
dilutive common shares had been issued, referred to as potential common shares.
 
Potential dilutive
 
common shares
 
consist of
 
unvested shares
 
of restricted
 
stock that
 
do not
 
contain non-forfeitable
 
dividend rights,
warrants
 
outstanding
 
during
 
the
 
period,
 
and
 
common
 
stock
 
issued
 
under
 
the
 
assumed
 
exercise
 
of
 
stock
 
options,
 
if
 
any,
 
using
 
the
treasury stock
 
method.
 
This method
 
assumes that
 
the potential
 
dilutive common
 
shares are
 
issued and
 
outstanding and
 
the proceeds
from the exercise, in addition to the amount
 
of compensation cost attributable to future services, are used
 
to purchase common stock at
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
159
the
 
exercise
 
date.
 
The
 
difference
 
between
 
the
 
number
 
of
 
potential
 
dilutive
 
shares
 
issued
 
and
 
the
 
shares
 
purchased
 
is
 
added
 
as
incremental
 
shares
 
to
 
the
 
actual
 
number
 
of
 
shares
 
outstanding
 
to
 
compute
 
diluted
 
earnings
 
per
 
share.
 
Unvested
 
shares
 
of
 
restricted
stock,
 
stock
 
options,
 
and
 
warrants
 
outstanding
 
during
 
the
 
period
 
that
 
result
 
in
 
lower
 
potential
 
dilutive
 
shares
 
issued
 
than
 
shares
purchased
 
under
 
the
 
treasury
 
stock
 
method
 
are
 
not
 
included
 
in
 
the
 
computation
 
of
 
dilutive
 
earnings
 
per
 
share
 
since
 
their
 
inclusion
would have
 
an antidilutive
 
effect on
 
earnings per
 
share. Potential
 
dilutive common
 
shares also
 
include performance
 
units that
 
do not
contain non-forfeitable dividend rights if the performance condition
 
is met as of the end of the reporting period.
 
Accounting Standards Adopted in 2021
Income Tax Simplification
In December 2019, the
 
FASB issued
 
new guidance to simplify the
 
accounting for income taxes by removing certain exceptions to the
general principles and
 
the
 
accounting related to
 
areas such
 
as
 
franchise taxes,
 
step-up in
 
tax
 
basis, goodwill,
 
separate entity
 
financial
statements, and interim
 
recognition of enactment of
 
tax laws
 
or rate
 
changes. For
 
public business entities, the
 
standard took effect
 
for
annual reporting
 
periods beginning
 
after December
 
15, 2020, including
 
interim reporting
 
periods within
 
those fiscal
 
years. The adoption
 
of
this guidance
 
during the
 
first quarter
 
of 2021
 
did not
 
have an
 
effect
 
on the Corporation’s
 
consolidated
 
financial
 
statements.
Accounting
 
for Equity
 
Securities
 
and Certain
 
Derivatives
In January 2020,
 
the FASB
 
issued new guidance to
 
clarify the accounting for equity
 
securities under ASC Topic
 
321, “Investments –
Equity Securities” (“ASC 321”); investments accounted for
 
under the
 
equity method of
 
accounting in ASC
 
Topic
 
323, “Investments –
Equity Method and
 
Joint Ventures”
 
and the
 
accounting for certain forward
 
contracts and purchased options accounted for
 
under ASC
Topic
 
815, “Derivatives and Hedging”
 
(“ASC 815”). The
 
guidance clarifies that an
 
entity should consider observable transactions that
result in
 
either applying
 
or discontinuing
 
the equity
 
method of
 
accounting
 
for the
 
purpose of
 
applying
 
the measurement
 
alternative
 
provided
by ASC 321, which
 
allows certain equity
 
securities without
 
a readily determinable
 
fair value to be measured at cost,
 
less any impairment.
When an entity accounts
 
for an investment
 
in equity securities
 
under the measurement
 
alternative
 
and is required
 
to transition
 
to the equity
method of accounting because
 
of an observable transaction,
 
it should remeasure the investment
 
at fair value immediately
 
before applying
the equity
 
method of
 
accounting. Likewise, when an
 
entity accounts for
 
an investment in
 
equity securities under the
 
equity method of
accounting and is required
 
to transition to ASC 321 because
 
of an observable transaction,
 
it should remeasure
 
the investment at fair
 
value
immediately after discontinuing
 
the equity method of accounting. These amendments
 
align the accounting for equity securities
 
under the
measurement
 
alternative
 
with that of other
 
equity securities
 
accounted
 
for under ASC 321,
 
reducing diversity
 
in accounting
 
outcomes. The
guidance also clarifies
 
that, when determining
 
the accounting for nonderivative
 
forward contracts
 
and purchased options,
 
an entity should
not consider whether the
 
underlying securities would be accounted for under
 
the equity method or
 
fair value option upon
 
settlement or
exercise. These instruments
 
will not fail to meet the scope of ASC
 
815-10 solely because the securities
 
would be accounted for under
 
the
equity method upon settlement of the
 
contract or exercise of the
 
option. For public business entities, the standard took effect for annual
reporting periods beginning after December 15,
 
2020, including interim reporting periods within those fiscal years. The adoption of this
guidance
 
during the
 
first quarter
 
of 2021
 
did not
 
have an
 
effect on
 
the Corporation’s
 
consolidated
 
financial
 
statements.
Reference Rate
 
Reform
In March 2020,
 
the FASB issued new
 
accounting
 
guidance related
 
to the effects
 
of the reference
 
rate reform
 
on financial
 
reporting
 
(“ASC
Topic 848”). The
 
guidance
 
provides
 
optional
 
expedients
 
and exceptions
 
to applying
 
GAAP to contract
 
modifications
 
that replace
 
an interest
rate
 
impacted by
 
reference rate
 
reform (e.g., LIBOR) with
 
a
 
new
 
alternative reference rate.
 
The
 
guidance is
 
applicable to
 
investment
securities, receivables, loans,
 
debt,
 
leases, derivatives
 
and
 
hedge
 
accounting elections
 
and
 
other
 
contractual arrangements.
 
In
 
January
2021, the FASB
 
issued an
 
update which refines the
 
scope of
 
ASC Topic
 
848 and
 
clarifies some of
 
its guidance as
 
part of
 
the FASB’s
monitoring of global reference
 
rate reform activities.
 
The update permits entities
 
to elect certain optional
 
expedients and exceptions
 
when
accounting for derivative contracts and certain hedging
 
relationships affected by changes in
 
the interest rates
 
used for
 
discounting cash
flows, for computing variation margin settlements, and for
 
calculating price alignment interest in connection with reference rate reform
activities
 
under way
 
in global
 
financial
 
markets.
 
The guidance,
 
may be adopted
 
on any date
 
on or after
 
March 12,
 
2020. However,
 
the relief
is temporary
 
and generally
 
cannot be applied
 
to contract
 
modifications
 
that occur
 
after December
 
31, 2022 or
 
hedging relationships
 
entered
into or
 
evaluated after that
 
date. As
 
of
 
the date
 
hereof, the
 
Corporation has made
 
limited contract modification in connection with
 
the
reference
 
rate reform.
 
Other Accounting
 
Standard
 
Codification
 
Improvements
On
 
October 15,
 
2020, ASU
 
2020-08, “Codification Improvements to Subtopic 310-20,
 
Receivables –
 
Nonrefundable Fees and
 
Other
Costs,” to clarify that
 
for each reporting
 
period an entity should
 
reevaluate whether
 
a callable debt security’s
 
amortized cost
 
basis exceeds
the amount repayable
 
by the issuer at the next call date.
 
For public business
 
entities, the
 
guidance took effect
 
for fiscal years, and interim
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
160
periods
 
within
 
those
 
fiscal
 
years,
 
beginning after
 
December 15,
 
2020.
 
The
 
adoption of
 
this
 
guidance did
 
not
 
have
 
an
 
effect
 
on
 
the
Corporation’s
 
consolidated
 
financial
 
statements.
On October
 
29, 2020,
 
the FASB issued
 
ASU 2020-10,
 
“Codification
 
Improvements.”
 
The amendments
 
in this ASU
 
affect a wide
 
range of
codification
 
topics and are
 
separated
 
into two sections:
 
B and C. The Section
 
B amendments
 
improve codification
 
consistency
 
by ensuring
that all guidance
 
that requires
 
or provides
 
an option
 
for an entity
 
to provide
 
information
 
in the notes
 
to financial
 
statements
 
or on the
 
face of
the financial statements
 
appears in the applicable
 
disclosure section
 
as well as the other presentation
 
matters sections,
 
reducing the chance
that the
 
requirement would be
 
missed. These
 
amendments are not
 
expected to
 
change current practice.
 
The amendments in
 
Section C
clarify guidance
 
for
 
more
 
consistent application. Section
 
C
 
addresses retirement
 
benefits (Topic
 
715),
 
interim reporting
 
(Topic
 
270),
receivables
 
(Topic 310), guarantees
 
(Topic 460), income
 
taxes (Topic 470),
 
and imputation
 
of interest
 
(Topic 835), among
 
other topics.
 
For
public business
 
entities
 
the amendments
 
are effective
 
for annual
 
periods
 
beginning
 
after December
 
15, 2020.
 
The adoption
 
of this guidance
during the
 
fourth quarter
 
of 2021
 
did not
 
have an
 
effect on
 
the Corporation’s
 
consolidated
 
financial
 
statements.
Recently
 
Issued Accounting
 
Standards
 
Not Yet Effective
 
or Not Yet Adopted
On
 
May
 
3,
 
2021,
 
the
 
FASB
 
issued
 
ASU
 
2021-04,
 
“Earnings Per
 
Share
 
(Topic
 
260),
 
Debt
 
–
 
Modifications and
 
Extinguishments
(Subtopic 470-50), Compensation
 
– Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s
 
Own Equity
(Subtopic 815-40):
 
Issuer’s Accounting
 
for Certain Modifications
 
or Exchanges of Freestanding
 
Equity-Classified
 
Written Call Options
 
(a
Consensus of the
 
Emerging Issues Task
 
Force).” The ASU
 
was issued to
 
clarify and reduce diversity in
 
practices for modification and
exchanges
 
of freestanding
 
equity-classified
 
written
 
call options
 
(for example,
 
warrants)
 
that remain
 
equity classified
 
after the
 
exchange.
 
The
amendments do not
 
apply to modifications
 
or exchanges of financial
 
instruments
 
within another
 
topic (for example,
 
Topic 718). The ASU
provides guidance on how to measure the effect
 
of the modification or exchange and how that effect
 
should be recognized. The ASU is
effective for all entities for fiscal years beginning
 
after December 15, 2021, including
 
interim periods within those
 
fiscal years. An entity
should apply the amendments prospectively
 
to modifications or exchanges
 
occurring on or after the effective date. The Corporation does
not expect
 
that the
 
amendments
 
of this
 
update will
 
have a material
 
effect on
 
its consolidated
 
financial
 
statements.
In
 
July
 
2021,
 
the
 
FASB
 
updated the
 
Codification and
 
amended ASC
 
Topic
 
842,
 
“Leases,” to
 
require lessors
 
to
 
classify leases
 
as
operating leases if they have variable lease payments that do
 
not depend on
 
an index or
 
rate and would have
 
selling losses if they were
classified as sales-type
 
or direct financing
 
leases. When a lease is classified
 
as operating, the
 
lessor does not recognize
 
a net investment in
the lease,
 
does not derecognize
 
the underlying
 
asset, and,
 
therefore,
 
does not recognize
 
a selling
 
profit or
 
loss. The
 
leased asset
 
continues
 
to
be subject
 
to the measurement
 
and impairment
 
requirements
 
under other
 
applicable
 
GAAP before
 
and after
 
the lease
 
transaction.
 
For public
business entities, the
 
amendment will
 
be
 
effective for
 
annual reporting periods
 
beginning after
 
December 15,
 
2021, including
 
interim
periods within
 
those fiscal
 
years. Early
 
adoption
 
is permitted.
 
The Corporation
 
does not
 
expect that
 
the amendments
 
of this
 
update will
 
have
a material
 
effect on
 
its consolidated
 
financial
 
statements.
On
 
October 28,
 
2021,
 
the
 
FASB
 
issued ASU
 
2021-08, “Business
 
Combinations (Topic
 
805): Accounting
 
for
 
Contract Assets
 
and
Contract Liabilities
 
From Contracts With Customers,” to address diversity
 
in practice and inconsistency
 
related to how revenue contracts
with customers acquired
 
in a business combination
 
are accounted for. The amendments
 
require that the acquirer
 
recognizes and measures
contract assets
 
and contract
 
liabilities
 
acquired
 
in a business
 
combination
 
in accordance
 
with Topic 606.
 
At the acquisition
 
date, an acquirer
should account
 
for the related revenue
 
contracts in
 
accordance
 
with Topic 606 as if it had originated
 
the contracts.
 
The ASU also provides
certain practical expedients for acquirers when recognizing and measuring acquired contract assets and
 
contract liabilities from revenue
contracts in a business combination and applies to contract assets and contract liabilities from other contracts to which the provisions of
Topic 606 apply. For public business entities,
 
the amendments
 
are effective for fiscal
 
years beginning
 
after December 15, 2022,
 
including
interim periods
 
within those
 
fiscal years.
 
The Corporation
 
does not expect
 
that the
 
amendments
 
of this update
 
will have
 
a material
 
effect on
its consolidated
 
financial
 
statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
161
NOTE 2 – BUSINESS
 
COMBINATION
Effective
 
as
 
of
September 1, 2020
,
 
the
 
Corporation
 
completed
 
the
 
acquisition
 
of
BSPR
.
 
The
 
acquisition
 
of
 
BSPR
 
expands
 
the
Corporation’s
 
presence
 
in Puerto
 
Rico, increases
 
its operational
 
scale and
 
strengthens
 
its competitiveness
 
in consumer,
 
commercial,
business
 
banking,
 
and
 
residential
 
lending.
 
The acquisition
 
also
 
allowed
 
the
 
Corporation to
 
increase
 
its deposit
 
base
 
at a
 
lower
 
cost,
which enhances FirstBank’s funding
 
and risk profile.
The
 
Corporation
 
accounted
 
for
 
the
 
acquisition
 
as
 
a
 
business
 
combination
 
in
 
accordance
 
with
 
ASC
 
805.
 
Accordingly,
 
the
Corporation recorded the
 
assets and liabilities assumed,
 
as of the date of
 
the acquisition, at their
 
respective fair values and
 
allocated to
goodwill the
 
excess of
 
the purchase price
 
consideration over
 
the fair
 
value of
 
the net
 
assets acquired.
 
The determination
 
of fair
 
value
required
 
management
 
to
 
make
 
estimates
 
about
 
discount
 
rates,
 
future
 
expected
 
cash
 
flows,
 
market
 
conditions
 
at
 
the
 
time
 
of
 
the
acquisition,
 
and
 
other
 
future
 
events
 
that
 
are
 
highly
 
subjective
 
in
 
nature
 
and
 
subject
 
to
 
change.
 
Fair
 
value
 
estimates
 
related
 
to
 
the
acquired
 
assets
 
and
 
liabilities
 
were
 
subject
 
to
 
adjustment
 
for
 
up
 
to
 
one
 
year
 
after
 
the
 
closing
 
date
 
of
 
the
 
acquisition
 
as
 
additional
information
 
relative
 
to the
 
closing date
 
fair values
 
becomes available
 
and such
 
information
 
is considered
 
final, whichever
 
is earlier.
Since
 
the
 
acquisition,
 
the
 
Corporation
 
adjusted
 
the
 
original
 
fair
 
value
 
estimates
 
and
 
goodwill
 
by
 
approximately
 
$
4.2
 
million.
Substantially
 
all
 
of
 
the
 
$
4.2
 
million
 
were
 
recorded
 
in
 
the
 
fourth
 
quarter
 
of
 
2020.
 
The
 
adjustments
 
were
 
primarily
 
related
 
to
 
post-
closing
 
purchase price
 
adjustments to
 
account for
 
differences
 
between
 
BSPR’s
 
actual excess
 
capital at
 
closing date
 
compared to
 
the
BSPR’s excess capital
 
amount used for the preliminary
 
closing statement at the acquisition date.
 
During August 2021, the Corporation
finalized its fair value analysis of the acquired assets and assumed liabilities associated
 
with this acquisition.
The
 
following
 
table
 
summarizes
 
the
 
purchase
 
price
 
consideration
 
and
 
estimated
 
fair
 
values
 
of
 
assets
 
acquired
 
and
 
liabilities
assumed from BSPR as of September 1, 2020 under the acquisition method
 
of accounting:
 
Fair Value
 
as Originally
Measurement Period
Fair Value
 
as
(In thousands)
 
Recorded
Adjustments
Remeasured
Total purchase price
 
consideration
$
1,277,626
$
3,382
$
1,281,008
Fair value of assets acquired:
Cash and cash equivalents
$
1,684,252
$
-
$
1,684,252
Investment securities
1,167,225
-
1,167,225
 
Residential mortgage loans
807,637
540
808,177
 
Commercial mortgage loans
740,919
122
741,041
 
Commercial and Industrial ("C&I") loans
752,154
(390)
751,764
 
Consumer loans
214,206
(488)
213,718
 
Loans, net
2,514,916
(216)
2,514,700
Premises and equipment, net
12,499
-
12,499
Intangible assets
39,232
448
39,680
Other assets
144,008
(195)
143,813
Total assets and identifiable
 
intangible assets acquired
5,562,132
37
5,562,169
Fair value of liabilities assumed:
Deposits
$
4,194,940
$
-
$
4,194,940
Other liabilities
95,869
865
96,734
Total liabilities assumed
4,290,809
865
4,291,674
Fair value of net assets and identifiable
 
intangible assets acquired
1,271,323
(828)
1,270,495
Goodwill
$
6,303
$
4,210
$
10,513
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
162
The
 
application
 
of
 
the
 
acquisition
 
method
 
of
 
accounting
 
resulted
 
in
 
goodwill
 
of
 
$
10.5
 
million,
 
a
 
core
 
deposit
 
intangible
 
of
$
35.9
.
 
million,
 
and
 
purchased
 
credit
 
card
 
relationships
 
of
 
$
3.8
 
million,
 
which
 
are
 
included
 
in
 
the
 
Corporation’s
 
consolidated
statement of financial
 
condition.
 
Goodwill recognized in
 
this transaction is
 
not deductible for
 
income tax purposes.
 
Refer to Note
14 – Goodwill, to the consolidated financial statements
 
,
 
for additional information about goodwill and other
 
intangibles recognized
as part of the transaction.
Fair Value
 
of Identifiable Assets Acquired and Liabilities Assumed
The methods used to determine the fair values of the significant identifiable
 
assets and liabilities assumed are described below:
Cash and cash
 
equivalents
- Cash and cash
 
equivalents include cash
 
and due from
 
banks, and interest-earning
 
deposits with banks
and the Federal Reserve
 
System. The Corporation
 
determined that the fair
 
values
 
of financial instruments that
 
are short-term or re-
price frequently and that have little, or no risk approximate the carrying
 
values.
Investment
 
securities
 
available
 
for
 
sale
 
and
 
held
 
to
 
maturity
 
-
The
 
fair
 
values
 
of
 
securities
 
available
 
for
 
sale
 
were
 
based
 
on
observable inputs
 
obtained from
 
market transactions
 
in similar
 
securities.
 
The fair
 
value of
 
held to
 
maturity securities
 
acquired in
the BSPR acquisition,
 
consisting of Puerto
 
Rico municipal bonds,
 
was determined based
 
on the discounted
 
cash flow method
 
used
for the
 
valuation of
 
loans described
 
below.
 
These held
 
to maturity
 
securities were
 
identified as
 
PCD debt
 
securities at
 
acquisition
and
 
had
 
a
 
fair
 
value
 
of
 
$
55.5
 
million
 
and
 
a
 
contractual
 
balance
 
of
 
$
67.1
 
million
 
as
 
of
 
the
 
acquisition
 
date.
 
The
 
Corporation
established an
 
initial ACL
 
for PCD
 
debt securities
 
of $
1.3
 
million, which
 
represents the
 
discount embedded
 
in the
 
purchase price
that is attributable to credit losses, through an adjustment to the acquired debt
 
securities amortized cost and the ACL.
Loans –
The Corporation calculated the fair value of loans acquired in the BSPR acquisition
 
using an income approach.
 
Under this
approach, fair value is measured
 
by the present value of
 
the net economic benefits to
 
be received over the life
 
of the loan.
 
The fair
value
 
was
 
estimated
 
based
 
on
 
a
 
discounted
 
cash
 
flow
 
method
 
under
 
which
 
the
 
present
 
value
 
of
 
the
 
contractual
 
cash
 
flows
 
was
calculated
 
based
 
on
 
certain
 
valuation
 
assumptions
 
such
 
as default
 
rates,
 
loss
 
severity,
 
and
 
prepayment
 
rates,
 
consistent
 
with
 
the
Corporation’s
 
CECL methodology,
 
and discounted
 
using
 
a market
 
rate of
 
return
 
that accounts
 
for both
 
the time
 
value of
 
money
and
investment
 
risk
 
factors.
 
The
 
discount
 
rate
 
utilized
 
to
 
analyze
 
fair
 
value
 
considered
 
the
 
cost
 
of
 
funds
 
rate,
 
capital
 
charge,
servicing
 
costs,
 
and
 
liquidity
 
premium,
 
mostly
 
based
 
on
 
industry
 
standards.
 
The
 
Corporation
 
segmented
 
the
 
loan
 
portfolio
 
into
two groups:
 
non-PCD loans
 
and PCD
 
loans.
 
Then loans
 
within each
 
group were
 
pooled based
 
on similar
 
characteristics, such
 
as
loan
 
type
 
(
i.e.
,
 
residential
 
mortgage,
 
commercial
 
and
 
industrial,
 
and
 
consumer
 
loans),
 
credit
 
scores,
 
loan-to-value,
 
fixed
 
or
adjustable
 
interest rates,
 
and
 
credit risk
 
ratings.
 
The Corporation
 
valued
 
commercial
 
mortgage loans
 
at the
 
loan
 
level. Non-PCD
loans and
 
PCD loans
 
had a
 
fair value
 
of $
1.8
 
billion and
 
$
752.8
 
million, respectively,
 
as of
 
the acquisition
 
date and
 
a contractual
balance
 
of
 
$
1.8
 
billion
 
and
 
$
786.0
 
million,
 
respectively,
 
as
 
of
 
the
 
same
 
date.
 
In
 
accordance
 
with
 
U.S.
 
GAAP,
 
there
 
was
 
no
carryover of
 
the ACL
 
that had
 
been previously
 
recorded by
 
BSPR. The
 
Corporation recorded
 
an initial
 
ACL of
 
$
38.9
 
million for
non-PCD
 
loans
 
(including
 
unfunded
 
commitments)
 
through
 
an
 
increase
 
to
 
the
 
provision
 
for
 
credit
 
losses.
 
The
 
Corporation
established an initial ACL for PCD loans of $
28.7
 
million through an adjustment to the acquired loan balance and the ACL.
 
Core
 
deposit
 
intangible
 
(“CDI”)
 
-
 
The Corporation
 
determined
 
the
 
CDI on
 
non-maturing
 
deposits
 
by
 
evaluating
 
the underlying
characteristics of
 
the deposit
 
relationships, including
 
customer attrition,
 
deposit interest
 
rates and
 
maintenance costs,
 
and costs
 
of
alternative
 
funding
 
using
 
the
 
discounted
 
cash
 
flow
 
approach.
 
Under
 
this
 
method,
 
the
 
value
 
of
 
the
 
core
 
deposit
 
intangible
 
was
measured by
 
the present
 
value of
 
the difference,
 
or spread,
 
between the
 
ongoing cost
 
of the
 
acquired deposit
 
base and
 
the cost
 
of
the next best
 
alternative source of
 
funding, to be
 
amortized using a
 
straight-line method
 
over a weighted
 
average useful life
 
of
5.7
years.
 
Purchased
 
credit card
 
receivable
 
intangible (“PCCR”)
 
– PCCR
 
is the
 
value of
 
credit card
 
client relationships
 
that were
 
acquired
in the
 
business combination.
 
The Corporation
 
computed the
 
fair value
 
using a
 
multi-period cash
 
flow model,
 
which it
 
discounted
using an
 
appropriate risk-adjusted
 
discount rate.
 
This measure
 
of fair
 
value requires
 
considerable judgments
 
about future
 
events,
including customer retention and
 
attrition estimates. The fair value
 
is amortized using an accelerated
 
method over a useful life of
3
years.
Deposits
 
-
 
The
 
fair
 
values
 
used
 
for
 
non-maturity
 
deposits
 
such
 
as
 
demand
 
and
 
savings
 
deposits
 
are,
 
by
 
definition,
 
equal
 
to
 
the
amount
 
payable
 
on
 
demand
 
at
 
the
 
reporting
 
date.
 
In
 
determining
 
the
 
fair
 
value
 
of
 
certificates
 
of
 
deposit,
 
the
 
cash
 
flows
 
of
 
the
contractual
 
interest
 
payments
 
during
 
the
 
specific
 
period
 
of
 
the
 
certificates
 
of
 
deposit
 
and
 
scheduled
 
principal
 
payout
 
were
discounted
 
to present
 
value
 
at market-based
 
interest rates.
 
The fair
 
value is
 
amortized over
 
a weighted
 
average useful
 
life of
1.2
years based on the maturity buckets for the time deposits established in the
 
valuation determination.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
163
 
Merger and Restructuring Costs
Upon
 
completion
 
of
 
the
 
acquisition,
 
the
 
Corporation
 
began
 
to
 
integrate
 
BSPR’s
 
operations
 
into
 
FirstBank’s
 
operations.
 
As
 
of
December 31,
 
2021, the
 
Corporation has
 
completed all
 
systems integration
 
efforts and
 
finalized personnel
 
and functions
 
integrations.
Acquisition and
 
restructuring costs
 
are expensed
 
as incurred.
 
To
 
the extent
 
there are
 
additional costs
 
associated with
 
the integration,
the
 
costs
 
will
 
be
 
recognized
 
based
 
on
 
the
 
nature
 
and
 
timing
 
of
 
these
 
integration
 
actions.
 
The
 
Corporation
 
recognized
 
cumulative
acquisition
 
expenses
 
of
 
$
64.3
 
million
 
through
 
December
 
31,
 
2021,
 
of
 
which
 
$
26.4
 
million,
 
$
26.5
 
million,
 
and
 
$
11.4
 
million
 
were
incurred during the years
 
ended December 31, 2021,
 
2020 and 2019, respectively.
 
Acquisition, integration, and
 
restructuring expenses
were
 
included
 
in
 
merger
 
and
 
restructuring
 
costs
 
in
 
the
 
consolidated
 
statements
 
of
 
income,
 
and
 
consisted
 
primarily
 
of
 
legal
 
fees,
severance
 
and
 
personnel-related
 
costs,
 
service
 
contracts
 
cancellation
 
penalties,
 
valuation
 
services,
 
systems
 
conversion,
 
and
 
other
integration efforts, as well
 
as accelerated depreciation
 
charges related to planned
 
closures and consolidation of
 
branches in accordance
with the Corporation’s integration
 
and restructuring plan.
NOTE 3 – RESTRICTIONS
 
ON CASH AND
 
DUE FROM
 
BANKS
The Corporation’s
 
bank subsidiary,
 
FirstBank, is
 
required by
 
law to
 
maintain minimum
 
average weekly
 
reserve balances
 
to cover
demand deposits.
 
The amount
 
of those
 
minimum average
 
weekly reserve
 
balances for
 
the period
 
that ended
 
December 31, 2021
 
was
$
1.2
 
billion (2020 - $
883.8
 
million). As of December 31, 2021 and 2020, the Bank complied with the
 
requirement.
 
Cash and due from
banks as well as other highly liquid securities are used to cover the required average reserve
 
balances.
As of December
 
31, 2021, and
 
as required
 
by the Puerto
 
Rico International
 
Banking Law,
 
the Corporation
 
maintained $
300,000
 
in
time deposits,
 
which were
 
considered restricted
 
assets related
 
to FirstBank
 
Overseas Corporation,
 
an international
 
banking entity
 
that
is a subsidiary of FirstBank.
NOTE 4 – MONEY
 
MARKET INVESTMENTS
Money market investments are composed of time deposits,
 
overnight deposits with other financial institutions,
 
and other short-term
investments with original maturities of three months or less.
 
Money market investments as of December 31, 2021 and 2020 were as follows:
2021
2020
(Dollars in thousands)
Time deposits with other financial institutions
(1) (2)
$
300
$
300
Overnight deposits with other financial institutions
(3)
1,200
59,091
Other short-term investments
(4)
1,182
1,181
$
2,682
$
60,572
(1)
Consists of restricted time deposits required by the Puerto Rico International
 
Banking Law.
(2)
Weighted-average interest rate
 
of
0.05
% and
0.45
% as of December 31, 2021 and 2020, respectively.
(3)
Weighted-average interest rate
 
of
0.07
% and
0.15
% as of December 31, 2021 and 2020, respectively.
(4)
Weighted-average interest rate
 
of
0.15
% and
0.11
% as of December 31, 2021 and 2020, respectively.
As of December 31, 2021 and 2020, the Corporation had
no
 
money market investments pledged as collateral.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
164
NOTE 5 – INVESTMENT
 
SECURITIES
Investment Securities Available
 
for Sale
The amortized
 
cost, gross
 
unrealized gains
 
and losses
 
recorded in
 
OCI, ACL,
 
estimated fair
 
value, and
 
weighted-average yield
 
of
investment securities available for sale by contractual maturities as of December
 
31, 2021 were as follows:
December 31,
 
2021
Amortized cost
Gross
ACL
Fair value
Unrealized
Weighted-
Gains
Losses
average
yield%
(Dollars in thousands)
U.S. Treasury securities:
After 1 to 5 years
$
149,660
$
59
$
1,233
$
-
$
148,486
0.68
U.S. government-sponsored
agencies' obligations:
After 1 to 5 years
1,877,181
240
29,555
-
1,847,866
0.60
After 5 to 10 years
403,785
175
10,856
-
393,104
0.90
After 10 years
15,788
224
-
-
16,012
0.63
Puerto Rico government obligations:
 
After 10 years
(1)
3,574
-
416
308
2,850
-
United States and Puerto Rico
government obligations
2,449,988
698
42,060
308
2,408,318
0.67
MBS:
FHLMC certificates:
After 1 to 5 years
2,811
119
-
-
2,930
2.65
After 5 to 10 years
193,234
2,419
1,122
-
194,531
1.29
After 10 years
1,240,964
3,748
23,503
-
1,221,209
1.18
 
1,437,009
6,286
24,625
-
1,418,670
1.20
GNMA certificates:
 
Due within one year
2
-
-
-
2
1.32
After 1 to 5 years
16,714
572
-
-
17,286
2.90
After 5 to 10 years
27,271
80
139
-
27,212
0.51
 
After 10 years
338,927
7,091
2,174
-
343,844
1.45
382,914
7,743
2,313
-
388,344
1.45
FNMA certificates:
Due within one year
4,975
21
-
-
4,996
2.03
After 1 to 5 years
21,337
424
-
-
21,761
2.87
 
After 5 to 10 years
298,771
4,387
1,917
-
301,241
1.41
After 10 years
1,389,381
8,953
21,747
-
1,376,587
1.21
 
1,714,464
13,785
23,664
-
1,704,585
1.27
 
Collateralized mortgage obligations
issued or guaranteed by the FHLMC
FNMA and GNMA:
After 1 to 5 years
24,007
1
778
-
23,230
1.31
After 5 to 10 years
14,316
97
-
-
14,413
0.76
After 10 years
500,811
290
13,134
-
487,967
1.23
539,134
388
13,912
-
525,610
1.22
Private label:
 
After 10 years
9,994
-
1,963
797
7,234
2.21
Total MBS
4,083,515
28,202
66,477
797
4,044,443
1.26
Other
 
Due within one year
500
-
-
-
500
0.72
 
After 1 to 5 years
500
-
-
-
500
0.84
1,000
-
-
-
1,000
0.78
Total investment securities
available for sale
$
6,534,503
$
28,900
$
108,537
$
1,105
$
6,453,761
1.03
(1)
Consists of a residential pass-through
 
MBS issued by the
 
PRHFA that
 
is collateralized by certain
 
second mortgages originated
 
under a program launched
 
by the Puerto Rico
 
government
in
 
2010.
 
During the
 
second
 
quarter of
 
2021,
 
the
 
Corporation
 
placed
 
this
 
instrument
 
in
 
nonaccrual
 
status
 
based
 
on
 
this
 
delinquency
 
status
 
of the
 
underlying
 
second
 
mortgage
 
loans
collateral.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
165
The amortized
 
cost, gross
 
unrealized gains
 
and losses
 
recorded in
 
OCI, ACL,
 
estimated fair
 
value, and
 
weighted-average yield
 
of
investment securities available for sale by contractual maturities as of December
 
31, 2020 were as follows:
December 31, 2020
Amortized cost
Gross
ACL
Fair value
Unrealized
Weighted-
Gains
Losses
average
yield%
(Dollars in thousands)
U.S. Treasury securities:
Due within one year
$
7,498
$
9
$
-
$
-
$
7,507
1.65
U.S. government-sponsored
 
 
agencies' obligations:
 
Due within one year
24,413
273
-
-
24,686
1.95
 
After 1 to 5 years
691,668
911
290
-
692,289
0.57
 
After 5 to 10 years
441,454
821
347
-
441,928
0.83
 
After 10 years
21,413
-
149
-
21,264
0.65
Puerto Rico government obligations:
 
After 10 years
(1)
3,987
-
780
308
2,899
6.97
United States and Puerto Rico
 
government obligations
1,190,433
2,014
1,566
308
1,190,573
0.72
MBS:
 
FHLMC certificates:
After 1 to 5 years
75
8
-
-
83
4.86
After 5 to 10 years
60,773
2,850
-
-
63,623
2.15
After 10 years
1,070,984
15,340
159
-
1,086,165
1.38
1,131,832
18,198
159
-
1,149,871
1.42
 
GNMA certificates:
 
Due within one year
1
-
-
-
1
1.93
After 1 to 5 years
26,918
1,080
-
-
27,998
2.91
After 5 to 10 years
40,727
128
69
-
40,786
0.42
 
After 10 years
614,584
16,271
148
-
630,707
1.27
682,230
17,479
217
-
699,492
1.29
 
FNMA certificates:
After 1 to 5 years
24,812
891
-
-
25,703
2.81
 
After 5 to 10 years
110,832
5,783
-
-
116,615
2.13
After 10 years
1,154,707
23,459
203
-
1,177,963
1.53
 
1,290,351
30,133
203
-
1,320,281
1.61
Collateralized mortgage obligations
issued or guaranteed by the FHLMC,
FNMA and GNMA:
After 1 to 5 years
538
-
1
-
537
0.81
After 5 to 10 years
18,438
152
-
-
18,590
0.80
After 10 years
258,069
1,019
491
-
258,597
1.56
277,045
1,171
492
-
277,724
1.51
Private label:
 
After 10 years
12,310
-
2,880
1,002
8,428
2.25
Total MBS
3,393,768
66,981
3,951
1,002
3,455,796
1.47
Other
After 1 to 5 years
650
-
-
-
650
2.94
Total investment securities
available for sale
$
4,584,851
$
68,995
$
5,517
1,310
$
4,647,019
1.28
(1)
Consists of a residential pass-through
 
MBS issued by the
 
PRHFA that is
 
collateralized by certain second
 
mortgages originated under a
 
program launched by the Puerto
 
Rico government
in 2010.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
166
Maturities
 
of
 
MBS
 
are
 
based
 
on
 
the
 
period
 
of
 
final
 
contractual
 
maturity.
 
Expected
 
maturities
 
of
 
investments
 
might
 
differ
 
from
contractual
 
maturities
 
because
 
they
 
may
 
be
 
subject
 
to
 
prepayments
 
and/or
 
call
 
options.
 
The
 
weighted-average
 
yield
 
on
 
investment
securities available
 
for sale is
 
based on amortized
 
cost and, therefore,
 
does not give
 
effect to changes
 
in fair value.
 
The net unrealized
gain or loss on securities available for sale is presented as part of OCI.
 
 
The aggregate
 
amortized cost
 
and approximate
 
market value
 
of investment
 
securities available
 
for sale
 
as of
 
December 31,
 
2021
by contractual maturity are shown below:
Amortized Cost
Fair Value
(Dollars in thousands)
United States and Puerto Rico government obligations, and
 
 
other debt securities:
 
Within 1 year
$
500
$
500
 
After 1 to 5 years
2,027,341
1,996,852
 
After 5 to 10 years
403,785
393,104
 
After 10 years
19,362
18,862
2,450,988
2,409,318
MBS and collateralized mortgage obligations
(1)
4,083,515
4,044,443
 
Total investment securities available for sale
$
6,534,503
$
6,453,761
(1) The expected maturities of MBS and collateralized mortgage
 
obligations may differ from their contractual maturities
 
because they may be subject to prepayments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
167
The following
 
tables show
 
the fair
 
value and
 
gross unrealized
 
losses of
 
the Corporation’s
 
available-for-sale
 
investment securities,
aggregated by
 
investment category
 
and length of
 
time that individual
 
securities have
 
been in a
 
continuous unrealized
 
loss position, as
of December 31, 2021 and December 31, 2020. The tables also include debt
 
securities for which an ACL was recorded.
As of December 31, 2021
Less than 12 months
12 months or more
Total
Unrealized
Unrealized
Unrealized
Fair Value
 
Losses
Fair Value
 
Losses
Fair Value
 
Losses
(In thousands)
Debt securities:
 
Puerto Rico-government obligations
$
-
$
-
$
2,850
$
416
$
2,850
$
416
 
U.S. Treasury and U.S. government
 
 
agencies’ obligations
1,717,340
25,401
606,179
16,243
2,323,519
41,644
MBS:
 
FNMA
1,237,701
19,843
112,559
3,821
1,350,260
23,664
 
FHLMC
986,345
16,144
221,896
8,481
1,208,241
24,625
 
GNMA
194,271
1,329
41,233
984
235,504
2,313
 
Collateralized mortgage obligations
 
 
issued or guaranteed by the FHLMC,
 
FNMA and GNMA
466,004
13,552
16,656
360
482,660
13,912
 
Private label MBS
 
-
-
7,234
1,963
7,234
1,963
$
4,601,661
$
76,269
$
1,008,607
$
32,268
$
5,610,268
$
108,537
As of December 31, 2020
Less than 12 months
12 months or more
Total
Unrealized
Unrealized
Unrealized
Fair Value
 
Losses
Fair Value
 
Losses
Fair Value
 
Losses
(In thousands)
Debt securities:
 
Puerto Rico-government obligations
$
-
$
-
$
2,899
$
780
$
2,899
$
780
 
U.S. Treasury and U.S. government
 
 
agencies’ obligations
425,155
621
23,377
165
448,532
786
MBS:
 
FNMA
93,509
203
-
-
93,509
203
 
FHLMC
89,292
159
-
-
89,292
159
 
GNMA
70,504
217
-
-
70,504
217
 
Collateralized mortgage obligations
 
issued or guaranteed by the FHLMC,
 
FNMA and GNMA
104,500
410
9,761
82
114,261
492
 
Private label MBS
-
-
8,428
2,880
8,428
2,880
$
782,960
$
1,610
$
44,465
$
3,907
$
827,425
$
5,517
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
168
There were no sales
 
of securities available
 
for sale during the
 
year ended December
 
31, 2021. During the
 
year ended December 31,
2020, proceeds from
 
sales of available-for-sale
 
investment securities amounted
 
to $
1.2
 
billion, including gross
 
realized gains of
 
$
13.3
million and
 
gross realized
 
losses of
 
$
0.1
 
million. The
 
$
13.2
 
million net
 
gain was
 
realized on
 
tax-exempt securities
 
or was
 
realized at
the tax-exempt
 
international banking entity
 
subsidiary,
 
which had no
 
effect in
 
the income tax
 
expense recorded
 
during the year
 
ended
December 31, 2020.
 
Assessment for Credit Losses
Debt securities
 
issued by
 
U.S. government
 
agencies,
 
U.S. GSEs,
 
and
 
the U.S.
 
Treasury,
 
including
 
notes and
 
MBS, accounted
 
for
approximately
99
% of the
 
total available-for-sale
 
portfolio as of
 
December 31,
 
2021 and 2020,
 
and the Corporation
 
expects no
 
credit
losses on
 
these securities,
 
given the
 
explicit and
 
implicit guarantees
 
provided by
 
the U.S.
 
federal government.
 
Because the
 
decline in
fair value is attributable to
 
changes in interest rates, and
 
not credit quality,
 
and because the Corporation does
 
not have the intent to
 
sell
these
 
U.S.
 
government
 
and
 
agencies
 
debt
 
securities
 
and
 
it
 
is
 
likely
 
that
 
it
 
will
 
not
 
be
 
required
 
to
 
sell
 
the
 
securities
 
before
 
their
anticipated recovery,
 
the Corporation
 
does not
 
consider impairments
 
on these
 
securities to
 
be credit
 
related as
 
of December
 
31, 2021
and 2020.
 
The Corporation’s
 
credit loss
 
assessment was
 
concentrated mainly
 
on private
 
label MBS,
 
and on
 
Puerto Rico
 
government
debt securities, for which credit losses are evaluated on a quarterly basis.
The
 
Corporation’s
 
available-for-sale
 
MBS
 
portfolio
 
included
 
private
 
label
 
MBS
 
with
 
a
 
fair
 
value
 
of
 
$
7.2
 
million,
 
which
 
had
unrealized
 
losses of
 
approximately
 
$
2.8
 
million
 
as of
 
December 31,
 
2021
 
of which
 
$
0.8
 
million
 
is due
 
to credit
 
deterioration and
 
is
part of the ACL.
The interest rate on these private-label MBS is variable, tied to 3-month LIBOR, and limited to the weighted-average
coupon on the underlying collateral.
The underlying collateral are fixed-rate, single-family residential mortgage loans in the United
States with original FICO scores over 700 and moderate loan-to-value ratios (under 80%), as well as moderate delinquency levels.
 
As
of December
 
31, 2021, the
 
Corporation did not
 
have the intent
 
to sell these
 
securities and determined
 
that it was
 
likely that it
 
will not
be required
 
to sell
 
the securities
 
before anticipated
 
recovery.
 
The Corporation
 
determined the
 
ACL for
 
private label
 
MBS based
 
on a
risk-adjusted
 
discounted
 
cash flow
 
methodology
 
that
 
considers
 
the
 
structure
 
and
 
terms of
 
the
 
instruments.
 
The
 
Corporation
 
utilized
PDs and LGDs that considered,
 
among other things, historical payment
 
performance, loan-to-value attributes,
 
and relevant current and
forward-looking macroeconomic variables,
 
such as regional unemployment
 
rates and the housing price
 
index. Under this approach,
 
all
future cash
 
flows (interest
 
and principal)
 
from the underlying
 
collateral loans,
 
adjusted by prepayments
 
and the PDs
 
and LGDs,
 
were
discounted at the effective
 
interest rate as of the reporting date.
 
Significant assumptions in the valuation
 
of the private label MBS were
as follows:
As of
As of
December 31,
 
2021
December 31,
 
2020
Weighted
 
Range
Weighted
 
Range
Average
Minimum
Maximum
Average
Minimum
Maximum
Discount rate
12.9%
12.9%
12.9%
12.2%
12.2%
12.2%
Prepayment rate
15.2%
7.6%
24.9%
12.1%
1.2%
18.8%
Projected Cumulative Loss Rate
7.6%
0.2%
15.7%
10.2%
2.6%
22.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
169
The Corporation
 
evaluates if
 
a credit
 
loss exists,
 
primarily
 
by monitoring
 
adverse variances
 
in the
 
present value
 
of expected
 
cash
flows. As of December
 
31, 2021, the ACL for
 
these private label MBS
 
was $
0.8
 
million, relatively flat compared
 
to $
1.0
 
million as of
December 31, 2020.
 
 
As
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation’s
 
available-for-sale
 
investment
 
securities
 
portfolio
 
also
 
included
 
a
 
residential
 
pass-
through
 
MBS
 
issued
 
by
 
the
 
PRHFA,
 
collateralized
 
by
 
certain
 
second
 
mortgages,
 
with
 
a
 
fair
 
value
 
of
 
$
2.9
 
million,
 
which
 
had
 
an
unrealized loss of
 
approximately $
0.7
 
million. Approximately $
0.3
 
million of the unrealized
 
losses was due to
 
credit deterioration and
is part of
 
the ACL. The
 
underlying second
 
mortgage loans were
 
originated under
 
a program launched
 
by the Puerto
 
Rico government
in
 
2010.
 
This
 
residential
 
pass-through
 
MBS
 
was
 
structured
 
as
 
a
 
zero-coupon
 
bond
 
for
 
the
 
first
 
ten
 
years
 
(up
 
to
 
July
 
2019).
 
The
underlying
 
source
 
of
 
repayment
 
on
 
this
 
residential
 
pass-through
 
MBS
 
is
 
second
 
mortgage
 
loans
 
in
 
Puerto
 
Rico.
 
PRHFA,
 
not
 
the
Puerto
 
Rico
 
government,
 
provides
 
a
 
guarantee
 
in
 
the
 
event
 
of
 
default
 
and
 
subsequent
 
foreclosure
 
of
 
the
 
properties
 
underlying
 
the
second mortgage
 
loans. During
 
the second
 
quarter of
 
2021, the
 
Corporation placed
 
this instrument
 
in nonaccrual
 
status based
 
on the
delinquency status of
 
the underlying second
 
mortgage loans collateral.
 
The Corporation determined
 
the ACL on
 
this instrument based
on
 
a
 
risk-adjusted
 
discounted
 
cash
 
flow
 
methodology
 
that
 
considered
 
the
 
structure
 
and
 
terms
 
of
 
the
 
underlying
 
collateral.
 
The
Corporation utilized PDs and LGDs
 
that considered, among other
 
things, historical payment performance,
 
loan-to value attributes,
 
and
relevant
 
current
 
and
 
forward-looking
 
macroeconomic
 
variables,
 
such
 
as
 
regional
 
unemployment
 
rates,
 
the
 
housing
 
price
 
index,
 
and
expected recovery
 
from the PRHFA
 
guarantee. Under
 
this approach, all
 
future cash flows
 
(interest and principal)
 
from the underlying
collateral loans, adjusted by
 
prepayments and the PDs and
 
LGDs, were discounted at
 
the internal rate of return
 
as of the reporting date
and compared to
 
the amortized cost.
 
In the event
 
that the second
 
mortgage loans default
 
and the collateral
 
is insufficient to
 
satisfy the
outstanding
 
balance
 
of
 
this
 
residential
 
pass-through
 
MBS,
 
PRHFA’
 
s
 
ability
 
to
 
honor
 
its
 
insurance
 
will
 
depend
 
on,
 
among
 
other
factors,
 
the financial
 
condition of
 
PRHFA
 
at the
 
time
 
such obligation
 
becomes due
 
and payable.
 
Further deterioration
 
of the
 
Puerto
Rico
 
economy
 
or
 
fiscal
 
health
 
of
 
the
 
PRHFA
 
could
 
impact
 
the
 
value
 
of
 
these
 
securities,
 
resulting
 
in
 
additional
 
losses
 
to
 
the
Corporation. As
 
of December
 
31, 2021,
 
the Corporation
 
did not
 
have the
 
intent to
 
sell this
 
security and
 
determined that
 
it was
 
likely
that it will not be required to sell the security before its anticipated recovery
 
.
Accrued interest
 
receivable on
 
available-for-sale
 
debt securities
 
totaled $
10.1
 
million as
 
of December
 
31, 2021
 
($
8.5
 
million as
 
of
December 31, 2020) and is excluded from the estimate of credit losses.
 
The following table
 
presents a rollforward
 
by major security
 
type for the
 
years ended December
 
31, 2021 and
 
2020 of the ACL
 
on
debt securities available-for-sale:
Year
 
Ended December 31, 2021
Private label MBS
Puerto Rico
 
Government
Obligations
Total
(In thousands)
Beginning balance
$
1,002
$
308
$
1,310
Provision for credit losses - (benefit)
(136)
-
(136)
Net charge-offs
(69)
-
(69)
 
ACL on debt securities available-for-sale
$
797
$
308
$
1,105
Year
 
Ended December 31, 2020
Private label MBS
Puerto Rico
 
Government
Obligations
Total
(In thousands)
Beginning balance
$
-
$
-
$
-
Provision for credit losses
1,333
308
1,641
Net charge-offs
(331)
-
(331)
 
ACL on debt securities available-for-sale
$
1,002
$
308
$
1,310
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
170
 
During the year ended December 31, 2019, the Corporation recorded OTTI losses on
available-for-sale debt securities as follows:
2019
(In thousands)
Total OTTI losses
 
$
(557)
Portion of OTTI recognized in OCI
60
Net impairment losses recognized in earnings
(1)
$
(497)
(1)
Prior to the adoption of CECL on January 1, 2020, credit-related impairment recognized in earnings was reported as
part of
 
net gain
 
(loss) on
 
investment securities in
 
the consolidated statements
 
of income
 
rather than
 
as a
 
provision
for credit losses.
Investments Held to Maturity
The
 
amortized
 
cost,
 
gross
 
unrecognized
 
gains
 
and
 
losses,
 
estimated
 
fair
 
value,
 
ACL,
 
weighted-average
 
yield
 
and
 
contractual
maturities of investment securities held to maturity as of December 31,
 
2021 and December 31, 2020 were as follows
:
December 31, 2021
Amortized cost
Fair value
Gross Unrecognized
Weighted-
(Dollars in thousands)
Gains
Losses
ACL
average yield%
Puerto Rico municipal bonds:
 
Due within one year
$
2,995
$
5
$
-
$
3,000
$
70
5.39
 
After 1 to 5 years
14,785
526
156
15,155
347
2.35
 
After 5 to 10 years
90,584
1,555
3,139
89,000
3,258
4.25
 
After 10 years
69,769
-
9,777
59,992
4,896
4.06
Total investment
 
securities
held to maturity
$
178,133
$
2,086
$
13,072
$
167,147
$
8,571
4.04
December 31, 2020
Amortized cost
Fair value
Gross Unrecognized
Weighted-
(Dollars in thousands)
Gains
Losses
ACL
average yield%
Puerto Rico municipal bonds:
 
Due within one year
$
556
$
7
$
-
$
563
$
-
5.41
 
After 1 to 5 years
17,297
561
305
17,553
576
3.00
 
After 5 to 10 years
88,394
1,388
3,146
86,636
4,401
4.66
 
After 10 years
83,241
-
14,187
69,054
3,868
3.57
Total investment
 
securities
held to maturity
$
189,488
$
1,956
$
17,638
$
173,806
$
8,845
4.03
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
171
The following tables
 
show the Corporation’s
 
held-to-maturity investments’
 
fair value and gross
 
unrecognized losses, aggregated
 
by
investment category and
 
length of time that
 
individual securities had been
 
in a continuous unrecognized
 
loss position, as of
 
December
31, 2021 and December 31, 2020, including debt securities for which
 
an ACL was recorded:
As of December 31, 2021
Less than 12 months
12 months or more
Total
Unrecognized
Unrecognized
Unrecognized
Fair Value
 
Losses
Fair Value
 
Losses
Fair Value
 
Losses
(In thousands)
Debt securities:
 
Puerto Rico municipal bonds
$
-
$
-
$
140,732
$
13,072
$
140,732
$
13,072
As of December 31, 2020
Less than 12 months
12 months or more
Total
Unrecognized
Unrecognized
Unrecognized
Fair Value
 
Losses
Fair Value
 
Losses
Fair Value
 
Losses
(In thousands)
Debt securities:
 
Puerto Rico municipal bonds
$
28,252
$
1,611
$
116,216
$
16,027
$
144,468
$
17,638
The Corporation
 
determines the
 
ACL of
 
Puerto Rico
 
municipal bonds
 
based on
 
the product
 
of a
 
cumulative PD
 
and LGD, and
 
the
amortized
 
cost
 
basis of
 
the
 
bonds
 
over
 
their
 
remaining
 
expected
 
life
 
as described
 
in
 
Note
 
1
 
–
 
Nature
 
of
 
Business
 
and
 
Summary
 
of
Significant Accounting Policies, above.
The Corporation
 
performs periodic
 
credit quality
 
reviews on
 
these issuers.
 
All of
 
the Puerto
 
Rico municipal
 
bonds were
 
current as
to
 
scheduled
 
contractual
 
payments
 
as
 
of
 
December
 
31,
 
2021.
 
The
 
Puerto
 
Rico
 
municipal
 
bonds
 
had
 
an
 
ACL
 
of
 
$
8.6
 
million
 
as
 
of
December 31, 2021, down $
0.2
 
million from $
8.8
 
million as of December 31, 2020. The
 
decrease was mainly related to improvements
in forecasted
 
macroeconomic variables
 
and the repayment
 
of certain bonds
 
during the year
 
ended December 31,
 
2021, partially offset
by changes
 
in some issuers’
 
financial metrics
 
based on
 
their most recent
 
financial statements.
 
The ACL
 
recorded as
 
of December
 
31,
2020
 
included
 
the
 
initial
 
ACL
 
for
 
held-to-maturity
 
securities
 
of
 
$
8.1
 
million
 
upon
 
adoption
 
of
 
CECL
 
on
 
January
 
1,
 
2020,
 
a
 
$
1.3
million initial ACL established
 
for PCD debt securities with
 
a fair value of $
55.5
 
million acquired in the
 
BSPR acquisition, and a $
0.6
million
 
net
 
release
 
of
 
the
 
initial
 
reserves
 
recorded
 
during
 
2020.
 
In
 
accordance
 
with
 
the
 
Corporation’s
 
policy,
 
accrued
 
interest
receivable
 
on
 
held-to-maturity
 
debt
 
securities
 
that
 
totaled
 
$
3.4
 
million
 
as
 
of
 
December
 
31,
 
2021
 
($
3.6
 
million
 
as
 
of
 
December
 
31,
2020) and was excluded from the estimate of credit losses.
 
The following table
 
presents the activity
 
in the ACL
 
for debt securities
 
held to maturity
 
by major security
 
type for the
 
years ended
December 31, 2021 and 2020:
 
Puerto Rico Municipal Bonds
Year
 
Ended
December 31, 2021
December 31, 2020
(In thousands)
Beginning Balance
$
8,845
$
-
Impact of adopting ASC 326
-
8,134
Initial allowance on PCD debt securities
-
1,269
Provision for credit losses - (benefit)
(274)
(558)
$
8,571
$
8,845
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
172
 
During the
 
second quarter
 
of 2019,
 
the oversight
 
board established
 
by PROMESA
 
announced
 
the designation
 
of Puerto
 
Rico’s
 
78
municipalities
 
as
 
covered
 
instrumentalities
 
under
 
PROMESA.
 
Municipalities
 
may
 
be
 
affected
 
by
 
the
 
negative
 
economic
 
and
 
other
effects
 
resulting
 
from
 
expense,
 
revenue,
 
or
 
cash
 
management
 
measures
 
taken
 
by
 
the
 
Puerto
 
Rico
 
government
 
to
 
address
 
its
 
fiscal
situation,
 
or
 
measures
 
included
 
in
 
fiscal
 
plans
 
of
 
other
 
government
 
entities,
 
and,
 
more
 
recently,
 
by
 
the
 
effect
 
of
 
the
 
COVID-19
pandemic on the Puerto Rico and global
 
economy. Given
 
the inherent uncertainties about the fiscal
 
situation of the Puerto Rico central
government,
 
the
 
COVID-19
 
pandemic,
 
and
 
the
 
measures
 
taken,
 
or
 
to
 
be
 
taken,
 
by
 
other
 
government
 
entities
 
in
 
response
 
to
 
the
COVID-19 pandemic
 
on municipalities,
 
the Corporation
 
cannot be
 
certain whether
 
future charges
 
to the
 
ACL on these
 
securities will
be required.
 
 
From
 
time
 
to
 
time,
 
the
 
Corporation
 
has
 
securities
 
held
 
to
 
maturity
 
with
 
an
 
original
 
maturity
 
of
 
three
 
months
 
or
 
less
 
that
 
are
considered
 
cash
 
and
 
cash
 
equivalents
 
and
 
are
 
classified
 
as
 
money
 
market
 
investments
 
in
 
the
 
consolidated
 
statements
 
of
 
financial
condition. As of
 
December 31,
 
2021, and
 
2020, the
 
Corporation had
 
no outstanding
 
securities held
 
to maturity
 
that were classified
 
as
cash and cash equivalents.
 
Credit Quality Indicators:
The held-to-maturity
 
investment securities
 
portfolio consisted
 
of financing
 
arrangements with
 
Puerto Rico
 
municipalities issued
 
in
bond form,
 
which are
 
accounted for
 
as securities,
 
but are
 
underwritten
 
as loans
 
with features
 
that are
 
typically found
 
in commercial
loans. Accordingly,
 
the Corporation
 
monitors the
 
credit quality
 
of Puerto
 
Rico municipal
 
bonds
 
held-to-maturity
 
through the
 
use of
internal
 
credit-risk
 
ratings,
 
which
 
are
 
generally
 
updated
 
on
 
a
 
quarterly
 
basis.
 
The
 
Corporation
 
considers
 
a
 
debt
 
security
 
held-to-
maturity as a criticized asset
 
if its risk rating
 
is Special Mention, Substandard,
 
Doubtful,
 
or Loss. Puerto Rico municipal
 
bonds that do
not meet
 
the criteria
 
for classification
 
as criticized
 
assets are
 
considered
 
to be
 
pass-rated
 
securities. The
 
asset categories
 
are defined
below:
Pass –
 
Assets classified
 
as pass
 
have
 
a well-defined
 
primary source
 
of repayment,
 
with no
 
apparent risk,
 
strong financial
 
position,
minimal operating
 
risk, profitability,
 
liquidity and
 
strong capitalization
 
and include
 
assets categorized
 
as watch.
 
Assets classified
 
as
watch have
 
acceptable business
 
credit,
 
but borrowers
 
operations,
 
cash flow
 
or financial
 
condition evidence
 
more than
 
average
 
risk
and requires additional level of supervision and attention from Loan Officers.
Special Mention
 
– Special
 
Mention assets
 
have potential
 
weaknesses that
 
deserve management’s
 
close attention.
 
If left uncorrected,
these potential weaknesses
 
may result in deterioration
 
of the repayment prospects
 
for the asset or
 
in the Corporation’s
 
credit position
at
 
some
 
future
 
date.
 
Special
 
Mention
 
assets
 
are
 
not
 
adversely
 
classified
 
and
 
do
 
not
 
expose
 
the
 
Corporation
 
to
 
sufficient
 
risk
 
to
warrant adverse classification.
Substandard – Substandard
 
assets are inadequately
 
protected by the
 
current sound worth
 
and paying capacity
 
of the obligor
 
or of the
collateral pledged, if any.
 
Assets so classified must have a well-defined weakness or weaknesses that jeopardize
 
the liquidation of the
debt. They are characterized by the distinct possibility that the institution will sustain some
 
loss if the deficiencies are not corrected.
Doubtful
 
–
 
Doubtful
 
classifications
 
have
 
all
 
the
 
weaknesses
 
inherent
 
in
 
those
 
classified
 
Substandard
 
with
 
the
 
added
 
characteristic
that
 
the
 
weaknesses
 
make
 
collection
 
or
 
liquidation
 
in
 
full
 
highly
 
questionable
 
and
 
improbable,
 
based
 
on
 
currently
 
known
 
facts,
conditions and values.
 
A Doubtful classification
 
may be appropriate
 
in cases where significant
 
risk exposures are
 
perceived, but loss
cannot be determined because of specific reasonable pending factors,
 
which may strengthen the credit in the near term.
Loss
 
–
 
Assets
 
classified
 
Loss
 
are
 
considered
 
uncollectible
 
and
 
of
 
such
 
little value
 
that
 
their
 
continuance
 
as bankable
 
assets
 
is
 
not
warranted.
 
This
 
classification
 
does
 
not
 
mean
 
that
 
the
 
asset
 
has
 
absolutely
 
no
 
recovery
 
or
 
salvage
 
value,
 
but
 
rather
 
that
 
it
 
is
 
not
practical or desirable to defer writing
 
off this asset even though partial
 
recovery may occur in the future. There
 
is little or no prospect
for near term improvement and no realistic strengthening action of
 
significance pending.
The Corporation
 
periodically reviews its
 
assets to evaluate
 
if they are
 
properly classified, and
 
to determine impairment,
 
if any.
 
The
frequency
 
of
 
these
 
reviews
 
will
 
depend
 
on
 
the
 
amount
 
of
 
the
 
aggregate
 
outstanding
 
debt,
 
and
 
the
 
risk
 
rating
 
classification
 
of
 
the
obligor.
The
 
Corporation
 
has
 
a
 
Loan
 
Review
 
Group
 
that
 
reports
 
directly
 
to
 
the
 
Corporation’s
 
Risk
 
Management
 
Committee
 
and
administratively
 
to
 
the
 
Chief
 
Risk
 
Officer.
 
The
 
Loan
 
Review
 
Group
 
performs
 
annual
 
comprehensive
 
credit
 
process
 
reviews
 
of
 
the
Bank’s
 
commercial
 
loan
 
portfolios,
 
including
 
the
 
above-mentioned
 
Puerto
 
Rico
 
municipal
 
bonds
 
accounted
 
for
 
as
 
held-to-maturity
securities. The objective
 
of these loan
 
reviews is assess
 
accuracy
 
of the Bank’s
 
determination and maintenance
 
of loan risk
 
rating and
its adherence
 
to lending
 
policies, practices
 
and procedures.
 
The monitoring
 
performed by
 
this group
 
contributes to
 
the assessment
 
of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
173
compliance with
 
credit policies
 
and underwriting
 
standards, the
 
determination of
 
the current
 
level of
 
credit risk,
 
the evaluation
 
of the
effectiveness of
 
the credit
 
management process,
 
and the
 
identification of
 
any deficiency
 
that may
 
arise in
 
the credit-granting
 
process.
Based on
 
its findings,
 
the Loan
 
Review Group
 
recommends corrective
 
actions,
 
if necessary,
 
that
 
help
 
in maintaining
 
a sound
 
credit
process. The Loan Review Group reports the results of the credit process reviews to
 
the Risk Management Committee.
The
 
following
 
table
 
summarizes
 
the
 
amortized
 
cost
 
of
 
the
 
Puerto
 
Rico
 
Municipal
 
Bonds,
 
which
 
are
 
the
 
Corporation’s
 
only
 
debt
securities held-to-maturity,
 
as of December 31, 2021
 
and 2020, aggregated by credit quality indicator:
Held to Maturity
Puerto Rico Municipal Bonds
December 31,
December 31
(In thousands)
2021
2020
Risk Ratings:
 
Pass
$
178,133
$
189,488
 
Criticized:
 
Special Mention
-
-
 
Substandard
-
-
 
Doubtful
-
-
 
Loss
-
-
 
Total
$
178,133
$
189,488
No
 
held-to-maturity debt
 
securities were
 
on nonaccrual
 
status, 90
 
days past
 
due and
 
still accruing,
 
or past
 
due as
 
of December
 
31,
2021 and 2020. A security is considered to be past due once it is
30
 
days contractually past due under the terms of the agreement.
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
174
NOTE 6 – EQUITY SECURITIES
Institutions that
 
are members
 
of the FHLB
 
system are required
 
to maintain
 
a minimum
 
investment in FHLB
 
stock. Such
 
minimum
investment
 
is
 
calculated
 
as
 
a
 
percentage
 
of
 
aggregate
 
outstanding
 
mortgage
 
related
 
assets,
 
and
 
the
 
FHLB
 
requires
 
an
 
additional
investment that
 
is calculated
 
as a
 
percentage of
 
total FHLB
 
advances and
 
letters of
 
credit, if
 
any.
 
The FHLB
 
stock represents
 
capital
stock issued at $
100
 
par value, and both stock and cash dividends may be received.
As of
 
December 31,
 
2021 and
 
2020, the
 
Corporation had
 
investments in
 
FHLB stock
 
carried at
 
a cost
 
of $
21.5
 
million and
 
$
31.2
million, respectively.
 
Dividend income
 
from FHLB
 
stock for
 
the years
 
ended December
 
31, 2021,
 
2020, and
 
2019 amounted
 
to $
1.4
million, $
2.0
 
million, and $
2.7
 
million, respectively.
The FHLB of New York
 
issued the shares of FHLB stock
 
owned by the Corporation. The FHLB
 
of New York
 
is part of the Federal
Home
 
Loan
 
Bank
 
System,
 
a
 
national
 
wholesale
 
banking
 
network
 
of
 
eleven
 
regional,
 
stockholder-owned
 
congressionally
 
chartered
banks. The
 
FHLBs are
 
all privately
 
capitalized and
 
operated by
 
their member
 
stockholders. The
 
system is
 
supervised by
 
the Federal
Housing
 
Finance
 
Agency,
 
which
 
requires
 
that
 
the
 
FHLBs
 
operate
 
in
 
a
 
financially
 
safe
 
and
 
sound
 
manner,
 
remain
 
adequately
capitalized and able to raise funds in the capital markets, and carry out their housing
 
finance mission.
 
As
 
of
 
December
 
31,
 
2021
 
and
 
2020,
 
the
 
Corporation
 
owned
 
other
 
equity
 
securities
 
with
 
a
 
readily
 
determinable
 
fair
 
value
 
of
approximately
 
$
5.4
 
million and
 
$
1.5
 
million, respectively.
 
During
 
the year
 
ended December
 
31, 2021,
 
the Corporation
 
recognized a
marked-to-market loss of
 
$
0.1
 
million associated with
 
these securities, which
 
was recorded as
 
part of other
 
non-interest income in
 
the
consolidated statements of income,
 
compared to a $
38
 
thousand marked-to-market gain for
 
the year ended December 2020,
 
and a $
0.4
thousand
 
marked-to-market
 
gain for
 
the year
 
ended December
 
2019. In
 
addition,
 
the Corporation
 
has other
 
equity securities
 
that do
not have
 
a readily-determinable
 
fair value.
 
The carrying
 
value of such
 
securities as of
 
December 31,
 
2021 and
 
2020 was $
5.3
 
million
and $
4.9
 
million, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
175
NOTE 7 – INTEREST AND DIVIDEND INCOME ON INVESTMENT
 
SECURITIES, MONEY MARKET INVESTMENTS
AND INTEREST-BEARING CASH ACCOUNTS
The following
 
provides information
 
about interest
 
on investments,
 
interest-bearing
 
cash accounts,
 
and FHLB dividend
 
income:
 
Year Ended
 
December 31,
 
2021
2020
2019
(In thousands)
MBS:
 
Taxable
$
31,398
$
9,404
$
7,812
 
Exempt
(1)
18,667
30,877
29,232
50,065
40,281
37,044
Puerto Rico government obligations, U.S. Treasury securities, and U.S.
 
government agencies:
 
Taxable
5,513
1,032
165
 
Exempt
(1)
15,859
15,235
19,623
21,372
16,267
19,788
Other investment securities (including FHLB dividends)
 
 
Taxable
1,456
1,999
2,714
Total interest income on
 
investment securities
72,893
58,547
59,546
Interest on money market investments and interest-bearing cash accounts:
 
Taxable
2,661
3,386
13,205
 
Exempt
 
1
2
148
Total interest income on money market
 
investments and interest-bearing cash accounts
2,662
3,388
13,353
Total interest and
 
dividend income on investment securities, money market
 
investments, and interest-bearing cash accounts
$
75,555
$
61,935
$
72,899
(1)
Primarily MBS and government obligations held by International Banking
 
Entities (as defined in the International Baking Entity Act
 
of Puerto Rico), whose interest income and sales are
exempt from Puerto Rico income taxation under that act,
 
as well as tax-exempt Puerto Rico municipal bonds held as part
 
of the held-to-maturity investment securities portfolio.
The following table summarizes the components of interest and dividend
 
income on investments:
Year Ended
 
December 31,
2021
2020
2019
(In thousands)
Interest income on investment securities, money
 
market investments, and interest-bearing cash accounts
$
74,114
$
59,952
$
70,201
Dividends on FHLB stock
 
1,394
1,959
2,682
Dividends on other equity securities
47
24
16
Total interest income
 
and dividends on investments
$
75,555
$
61,935
$
72,899
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
176
NOTE 8 – LOANS HELD FOR INVESTMENT
 
 
The following
 
provides information
 
about the loan
 
portfolio held
 
for investment
 
as of the indicated
 
dates:
 
As of December 31,
 
As of December 31,
 
2021
2020
(In thousands)
Residential mortgage loans, mainly secured by first mortgages
$
2,978,895
$
3,521,954
Construction loans
138,999
212,500
Commercial mortgage loans
 
2,167,469
2,230,602
C&I loans
(1) (2)
2,887,251
3,202,590
Consumer loans
2,888,044
2,609,643
 
Loans held for investment
(3)
11,060,658
11,777,289
ACL on loans and finance leases
(269,030)
(385,887)
Loans held for investment, net
$
10,791,628
$
11,391,402
(1)
As of December 31, 2021 and 2020, includes $
145.0
 
million and $
406.0
 
million, respectively, of SBA PPP loans.
(2)
As of each December 31, 2021 and 2020, includes
 
$
1.0
 
billion of commercial loans that were secured by real
 
estate but were not dependent upon the real
estate for repayment.
(3)
Includes accretable fair value net purchase discounts of $
35.3
 
million and $
48.0
 
million as of December 31, 2021 and 2020, respectively.
As
 
of
 
December 31,
 
2021,
 
and
 
2020,
 
the
 
Corporation
 
had
 
net
 
deferred
 
origination
 
costs
 
on
 
its
 
loan
 
portfolio
 
amounting
 
to
 
$
4.3
million
 
and
 
$
4.6
 
million,
 
respectively.
 
The
 
total
 
loan
 
portfolio
 
is
 
net
 
of
 
unearned
 
income
 
of
 
$
79.0
 
million
 
and
 
$
65.8
 
million
 
as
 
of
December 31, 2021 and 2020, respectively.
As of
 
December 31,
 
2021,
 
the Corporation
 
was
 
servicing
 
residential
 
mortgage
 
loans owned
 
by others
 
in an
 
aggregate
 
amount
 
of
$
4.0
 
billion (2020 —
 
$
4.2
 
billion), and
 
commercial loan
 
participations owned
 
by others
 
in an
 
aggregate amount
 
of $
383.5
 
million as
of December 31, 2021 (2020 — $
422.0
 
million).
Various
 
loans, mainly secured by first mortgages,
 
were assigned as collateral for CDs, individual
 
retirement accounts, and advances
from
 
the
 
FHLB.
 
Total
 
loans
 
pledged
 
as
 
collateral
 
amounted
 
to
 
$
2.1
 
billion
 
and
 
$
2.5
 
billion
 
as
 
of
 
December 31,
 
2021
 
and
 
2020,
respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
177
 
The following
 
tables present
 
by portfolio
 
classes the
 
amortized cost
 
basis of
 
loans on
 
nonaccrual status
 
and loans
past
 
due
 
90
 
days
 
or
 
more
 
and
 
still
 
accruing
 
as
 
of
 
December
 
31,
 
2021
 
and
 
the
 
interest
 
income
 
recognized
 
on
nonaccrual loans for the years ended December 31, 2021 and 2020:
As of December 31, 2021
Year Ended
December 31,
2021
Year Ended
December 31,
2020
Puerto Rico and Virgin Islands region
Nonaccrual
Loans with No
ACL
Nonaccrual
Loans with
ACL
Total
Nonaccrual
Loans
(2)
Loans Past Due
90 days or
more and Still
Accruing
(2)(3)
Interest Income
Recognized on
Nonaccrual
Loans
Interest Income
Recognized on
Nonaccrual
Loans
(In thousands)
Residential mortgage loans, mainly secured
by first mortgages:
FHA/VA government
 
-guaranteed
$
-
$
-
$
-
$
65,394
$
-
-
Conventional residential mortgage loans
3,689
44,286
47,975
28,433
1,406
1,050
Construction loans
1,000
1,664
2,664
-
61
80
Commercial mortgage loans
 
8,289
17,048
25,337
9,919
201
194
C&I loans
10,925
5,259
16,184
7,766
113
86
Consumer Loans:
Auto loans
3,146
3,538
6,684
-
99
164
Finance leases
196
670
866
-
2
25
Personal loans
-
1,208
1,208
-
92
49
Credit cards
-
-
-
2,985
-
-
Other consumer loans
20
1,543
1,563
-
5
5
Total loans held for investment
(1)
$
27,265
$
75,216
$
102,481
$
114,497
$
1,979
$
1,653
(1)
Nonaccrual loans exclude $
357.7
 
million of TDR loans that were in compliance with modified terms
 
and in accrual status as of December 31, 2021.
(2)
Nonaccrual loans exclude PCD loans previously accounted
 
for under ASC Subtopic 310-30 for which the Corporation
 
made the accounting policy election of
maintaining pools of loans
 
accounted for under ASC
 
Subtopic 310-30 as “units
 
of account” both at the time
 
of adoption of CECL on
 
January 1, 2020 and
 
on
an ongoing basis for credit loss
 
measurement. These loans accrete interest
 
income based on the effective
 
interest rate of the loan pools determined
 
at the time
of adoption
 
of CECL
 
and will
 
continue to
 
be excluded
 
from nonaccrual
 
loan statistics
 
as long
 
as the
 
Corporation can
 
reasonably estimate
 
the timing
 
and
amount of cash flows expected
 
to be collected on the
 
loan pools. The amortized cost
 
of such loans as of
 
December 31, 2021 was $
117.5
 
million. The portion
of such loans
 
contractually past due
 
90 days or
 
more, amounting to
 
$
20.6
million as of
 
December 31, 2021
 
($
19.1
 
million conventional residential
 
mortgage
loans and $
1.5
million commercial mortgage loans), is presented in the
 
loans past due 90 days or more and still accruing category in the
 
table above.
(3)
These include rebooked
 
loans, which were
 
previously pooled into
 
GNMA securities amounting
 
to $
7.2
 
million as of December
 
31, 2021. Under
 
the GNMA
program,
 
the
 
Corporation
 
has
 
the
 
option
 
but
 
not
 
the
 
obligation
 
to
 
repurchase
 
loans
 
that
 
meet
 
GNMA’s
 
specified
 
delinquency
 
criteria.
 
For
 
accounting
purposes, the loans subject
 
to the repurchase option
 
are required to be
 
reflected on the financial
 
statements with an offsetting
 
liability. During
 
the year ended
December 31, 2021, the Corporation repurchased, pursuant
 
to the aforementioned repurchase option, $
1.1
 
million of loans previously sold to GNMA.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
178
As of December 31, 2021
Year Ended
December 31,
2021
Year Ended
December 31,
2020
Florida region
Nonaccrual
Loans with No
ACL
Nonaccrual
Loans with
ACL
Total
Nonaccrual
Loans
Loans Past Due
90 days or
more and Still
Accruing
Interest Income
Recognized on
Nonaccrual
Loans
Interest Income
Recognized on
Nonaccrual
Loans
(In thousands)
Residential mortgage loans, mainly secured
by first mortgages:
FHA/VA government
 
-guaranteed
$
-
$
-
$
-
$
121
$
-
$
-
Conventional residential mortgage loans
-
7,152
7,152
-
211
285
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
 
-
-
-
-
-
-
C&I loans
468
483
951
61
70
71
Consumer Loans:
Auto loans
-
-
-
-
-
12
Finance leases
-
-
-
-
-
-
Personal loans
-
-
-
-
-
-
Credit cards
-
-
-
-
-
-
Other consumer loans
-
133
133
-
10
8
Total loans held for investment
(1)
$
468
$
7,768
$
8,236
$
182
$
291
$
376
(1)
Nonaccrual loans exclude $
5.7
 
million of TDR loans that were in compliance with modified terms
 
and in accrual status as of December 31, 2021.
As of December 31, 2021
Year Ended
December 31,
2021
Year Ended
December 31,
2020
Total
Nonaccrual
Loans with No
ACL
Nonaccrual
Loans with
ACL
Total
Nonaccrual
Loans
 
(2)
Loans Past Due
90 days or
more and Still
Accruing
(2)(3)
Interest Income
Recognized on
Nonaccrual
Loans
Interest Income
Recognized on
Nonaccrual
Loans
(In thousands)
Residential mortgage loans, mainly secured
by first mortgages:
FHA/VA government
 
-guaranteed
$
-
$
-
$
-
$
65,515
$
-
$
-
Conventional residential mortgage loans
3,689
51,438
55,127
28,433
1,617
1,335
Construction loans
1,000
1,664
2,664
-
61
80
Commercial mortgage loans
 
8,289
17,048
25,337
9,919
201
194
C&I loans
11,393
5,742
17,135
7,827
183
157
Consumer Loans:
Auto loans
3,146
3,538
6,684
-
99
176
Finance leases
196
670
866
-
2
25
Personal loans
-
1,208
1,208
-
92
49
Credit cards
-
-
-
2,985
-
-
Other consumer loans
20
1,676
1,696
-
15
13
Total loans held for investment
(1)
$
27,733
$
82,984
$
110,717
$
114,679
$
2,270
$
2,029
(1)
Nonaccrual loans exclude $
363.4
 
million of TDR loans that were in compliance with modified terms
 
and in accrual status as of December 31, 2021.
(2)
Nonaccrual loans excludes PCD loans previously accounted
 
for under ASC Subtopic 310-30 for which
 
the Corporation made the accounting policy election
of maintaining pools of loans accounted for under
 
ASC Subtopic 310-30 as “units of account” both at
 
the time of adoption of CECL on January 1,
 
2020 and
on an ongoing basis for credit
 
loss measurement. These
 
loans accrete interest income based
 
on the effective interest rate
 
of the loan pools determined
 
at the
time of adoption
 
of CECL and
 
will continue
 
to be excluded
 
from nonaccrual
 
loan statistics
 
as long as
 
the Corporation can
 
reasonably estimate
 
the timing
and amount of
 
cash flows expected
 
to be collected
 
on the loan
 
pools. The amortized
 
cost of such
 
loans as of
 
December 31, 2021
 
was $
117.5
 
million. The
portion of such loans contractually
 
past due 90 days or more,
 
amounting to $"
20.6
million as of December 31,
 
2021 ($
19.1
" million conventional residential
mortgage loans
 
and $
1.5
 
million commercial
 
mortgage loans),
 
is presented
 
in the
 
loans past
 
due 90
 
days or
 
more and
 
still accruing
 
category in
 
the table
above.
(3)
These
 
include
 
rebooked
 
loans,
 
which
 
were
 
previously
 
pooled
 
into
 
GNMA
 
securities,
 
amounting
 
to
 
$
7.2
 
million
 
as
 
of
 
December
 
31,
 
2021.
 
Under
 
the
GNMA
 
program,
 
the
 
Corporation
 
has
 
the
 
option
 
but
 
not
 
the
 
obligation
 
to
 
repurchase
 
loans
 
that
 
meet
 
GNMA’s
 
specified
 
delinquency
 
criteria.
 
For
accounting purposes, these loans
 
subject to the repurchase option
 
are required to be
 
reflected on the financial
 
statements with an offsetting
 
liability. During
the year ended December 31, 2021, the Corporation
 
repurchased, pursuant to the aforementioned repurchase
 
option, $
1.1
 
million of loans previously sold to
GNMA.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
179
 
The following
 
tables present
 
by portfolio
 
classes the
 
amortized
 
cost basis
 
of loans
 
on nonaccrual
 
status and
 
loans past
 
due 90
days or more and still accruing as of December 31, 2020:
As of December 31, 2020
Puerto Rico and Virgin Islands region
Nonaccrual Loans with No
ACL
Nonaccrual Loans with ACL
Total Nonaccrual Loans
(2)
Loans Past Due 90 days or
more and Still Accruing
(2)(3)
(In thousands)
Residential mortgage loans, mainly secured
by first mortgages:
FHA/VA government
 
-guaranteed
$
-
$
-
$
-
$
98,993
Conventional residential mortgage loans
12,418
98,527
110,945
38,834
Construction loans
4,546
8,425
12,971
-
Commercial mortgage loans
 
11,777
17,834
29,611
3,252
C&I loans
14,824
5,496
20,320
2,246
Consumer Loans:
Auto loans
26
8,638
8,664
-
Finance leases
-
1,466
1,466
-
Personal loans
-
1,623
1,623
-
Credit cards
-
-
-
1,520
Other consumer loans
-
3,682
3,682
-
Total loans held for investment
(1)
$
43,591
$
145,691
$
189,282
$
144,845
(1)
Nonaccrual loans exclude $
386.7
 
million of TDR loans that were in compliance with modified terms
 
and in accrual status as of December 31, 2020.
(2)
Excludes PCD loans previously accounted
 
for under ASC Subtopic 310-30 for
 
which the Corporation made the accounting
 
policy election of maintaining pools
 
of loans accounted
for under ASC Subtopic
 
310-30 as “units
 
of account” both at
 
the time of adoption
 
of CECL on January
 
1, 2020 and on
 
an ongoing basis
 
for credit loss measurement.
 
These loans
accrete interest
 
income based
 
on the effective
 
interest rate
 
of the
 
loan pools
 
determined at
 
the time of
 
adoption of
 
CECL and
 
will continue
 
to be
 
excluded from
 
nonaccrual loan
statistics as long as the Corporation can
 
reasonably estimate the timing and amount
 
of cash flows expected to be collected
 
on the loan pools. The amortized cost
 
of such loans as of
December 31,
 
2020 was
 
$
130.9
 
million. The
 
portion of
 
such loans
 
contractually past
 
due 90
 
days or
 
more, amounting
 
to $
26.3
 
million as
 
of December
 
31, 2020
 
($
24.7
 
million
conventional residential
 
mortgage loans
 
and $
1.6
 
million commercial
 
mortgage loans),
 
is presented in
 
the loans past
 
due 90 days
 
or more and
 
still accruing
 
category in
 
the table
above.
(3)
These
 
include
 
loans
 
rebooked,
 
which
 
were
 
previously
 
pooled
 
into
 
GNMA
 
securities
 
amounting
 
to
 
$
10.7
 
million
 
as
 
of
 
December
 
31,
 
2020.
 
Under
 
the
 
GNMA
 
program,
 
the
Corporation
 
has
 
the
 
option
 
but
 
not
 
the
 
obligation to
 
repurchase
 
loans
 
that
 
meet
 
GNMA’s
 
specified
 
delinquency
 
criteria.
 
For
 
accounting
 
purposes,
 
these
 
loans
 
subject
 
to
 
the
repurchase option
 
are required
 
to be
 
reflected on
 
the financial
 
statements with
 
an offsetting
 
liability.
 
During the
 
year ended
 
December 31,
 
2020, the
 
Corporation repurchased,
pursuant to the aforementioned repurchase option, $
55.0
 
million of loans previously sold to GNMA.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
180
As of December 31, 2020
Florida region
Nonaccrual Loans with No
ACL
Nonaccrual Loans with ACL
Total Nonaccrual Loans
Loans Past Due 90 days or
more and Still Accruing
(In thousands)
Residential mortgage loans, mainly secured
by first mortgages:
FHA/VA government
 
-guaranteed
$
-
$
-
$
-
$
250
Conventional residential mortgage loans
2,584
11,838
14,422
-
Construction loans
-
-
-
-
Commercial mortgage loans
 
-
-
-
-
C&I loans
561
-
561
-
Consumer Loans:
Auto loans
-
223
223
-
Finance leases
-
-
-
-
Personal loans
-
-
-
-
Credit cards
-
-
-
-
Other consumer loans
-
601
601
-
Total loans held for investment
(1)
$
3,145
$
12,662
$
15,807
$
250
(1)
Nonaccrual loans exclude $
6.6
 
million of TDR loans that were in compliance with modified terms
 
and in accrual status as of December 31, 2020.
As of December 31, 2020
Total
Nonaccrual Loans with No
ACL
Nonaccrual Loans with ACL
Total Nonaccrual Loans
 
(2)
Loans Past Due 90 days or
more and Still Accruing
(2)(3)
(In thousands)
Residential mortgage loans, mainly secured
by first mortgages:
FHA/VA government
 
-guaranteed
$
-
$
-
$
-
$
99,243
Conventional residential mortgage loans
15,002
110,365
125,367
38,834
Construction loans
4,546
8,425
12,971
-
Commercial mortgage loans
 
11,777
17,834
29,611
3,252
C&I loans
15,385
5,496
20,881
2,246
Consumer Loans:
Auto loans
26
8,861
8,887
-
Finance leases
-
1,466
1,466
-
Personal loans
-
1,623
1,623
-
Credit cards
-
-
-
1,520
Other consumer loans
-
4,283
4,283
-
Total loans held for investment
(1)
$
46,736
$
158,353
$
205,089
$
145,095
(1)
Nonaccrual loans exclude $
393.3
 
million of TDR loans that were in compliance with modified terms
 
and in accrual status as of December 31, 2020.
(2)
Excludes PCD loans previously accounted
 
for under ASC Subtopic 310-30 for
 
which the Corporation made the accounting
 
policy election of maintaining pools
 
of loans accounted
for under ASC Subtopic
 
310-30 as “units
 
of account” both at
 
the time of adoption
 
of CECL on January
 
1, 2020 and on
 
an ongoing basis
 
for credit loss measurement.
 
These loans
accrete interest
 
income based
 
on the effective
 
interest rate
 
of the
 
loan pools
 
determined at
 
the time of
 
adoption of
 
CECL and
 
will continue
 
to be
 
excluded from
 
nonaccrual loan
statistics as long as the Corporation can
 
reasonably estimate the timing and amount
 
of cash flows expected to be collected
 
on the loan pools. The amortized cost
 
of such loans as of
December 31,
 
2020 was
 
$
130.9
 
million. The
 
portion of
 
such loans
 
contractually past
 
due 90
 
days or
 
more, amounting
 
to $
26.3
 
million as
 
of December
 
31, 2020
 
($
24.7
 
million
conventional residential
 
mortgage loans
 
and $
1.6
 
million commercial
 
mortgage loans),
 
is presented in
 
the loans past
 
due 90 days
 
or more and
 
still accruing
 
category in
 
the table
above.
(3)
These
 
include
 
rebooked
 
loans
 
,
 
which
 
were
 
previously
 
pooled
 
into
 
GNMA
 
securities
 
amounting
 
to
 
$
10.7
 
million
 
as
 
of December
 
31,
 
2020.
 
Under
 
the
 
GNMA program,
 
the
Corporation
 
has
 
the
 
option
 
but
 
not
 
the
 
obligation to
 
repurchase
 
loans
 
that
 
meet
 
GNMA’s
 
specified
 
delinquency
 
criteria.
 
For
 
accounting
 
purposes,
 
these
 
loans
 
subject
 
to
 
the
repurchase option
 
are required
 
to be
 
reflected on
 
the financial
 
statements with
 
an offsetting
 
liability.
 
During the
 
year ended
 
December 31,
 
2020, the
 
Corporation repurchased,
pursuant to the aforementioned repurchase option, $
55.0
 
million of loans previously sold to GNMA.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
181
When a
 
loan
 
is placed
 
on nonaccrual
 
status, any
 
accrued but
 
uncollected
 
interest income
 
is reversed
 
and
 
charged
 
against interest
income
 
and the
 
amortization of
 
any net
 
deferred fees
 
is suspended.
 
The amount
 
of accrued
 
interest reversed
 
against interest
 
income
totaled $
2.0
 
million and $
1.9
 
million for the year ended December 31, 2021 and 2020, respectively.
As of
 
December 31,
 
2021, the
 
recorded investment
 
on residential
 
mortgage loans
 
collateralized by
 
residential real
 
estate property
that were in
 
the process of
 
foreclosure amounted
 
to $
85.4
 
million, including $
43.4
 
million of loans
 
insured by the
 
FHA or guaranteed
by
 
the
 
VA,
 
and
 
$
13.9
 
million
 
of
 
PCD
 
loans
 
acquired
 
prior
 
to
 
the
 
adoption,
 
on
 
January
 
1,
 
2020,
 
of
 
CECL
 
and
 
for
 
which
 
the
Corporation made
 
the accounting
 
policy election
 
of maintaining
 
pools of
 
loans previously
 
accounted for
 
under ASC 310
 
-30 as
 
“units
of account.”
The Corporation
 
commences the
 
foreclosure process
 
on residential
 
real estate
 
loans when
 
a borrower
 
becomes
120
 
days
delinquent,
 
in accordance
 
with the
 
requirements
 
of the
 
CFPB. Foreclosure
 
procedures
 
and timelines
 
vary depending
 
on whether
 
the
property is located in a judicial or
 
non-judicial state. Judicial states
(i.e.,
 
Puerto Rico, Florida, and the USVI) require
 
the foreclosure to
be processed
 
through the
 
state’s
 
court while
 
foreclosure in
 
non-judicial
 
states (
i.e.,
 
the BVI)
 
is processed
 
without court
 
intervention.
Foreclosure timelines
 
vary according to
 
local jurisdiction
 
law and investor
 
guidelines. Occasionally,
 
foreclosures may
 
be delayed due
to, among other reasons, mandatory mediations, bankruptcy,
 
court delays, and title issues.
 
The Corporation’s aging of the loan portfolio
 
held for investment by portfolio classes as of December 31, 2021 is as follows:
As of December 31, 2021
Puerto Rico and Virgin Islands region
30-59 Days
Past Due
60-89 Days
Past Due
90 days or
more Past
Due
(1)(2)(3)
Total Past
Due
 
Current
Total loans
held for
investment
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
 
FHA/VA government-guaranteed loans
(2) (3) (4)
$
-
$
2,355
$
65,394
$
67,749
$
56,903
$
124,652
 
Conventional residential mortgage loans
(4)
-
29,724
76,408
106,132
2,318,789
2,424,921
Commercial loans:
 
Construction loans
18
-
2,664
2,682
40,451
43,133
 
Commercial mortgage loans
(4)
2,402
436
35,256
38,094
1,664,137
1,702,231
 
C&I loans
 
2,007
1,782
23,950
27,739
1,918,858
1,946,597
Consumer loans:
 
Auto loans
26,020
4,828
6,684
37,532
1,525,249
1,562,781
 
Finance leases
4,820
713
866
6,399
568,606
575,005
 
Personal loans
3,299
1,285
1,208
5,792
310,283
316,075
 
Credit cards
3,158
1,904
2,985
8,047
282,179
290,226
 
Other consumer loans
1,985
811
1,563
4,359
123,938
128,297
 
Total loans held for investment
$
43,709
$
43,838
$
216,978
$
304,525
$
8,809,393
$
9,113,918
 
(1)
Includes nonaccrual loans
 
and accruing loans
 
that were contractually
 
delinquent 90 days
 
or more (i.e.,
 
FHA/VA
 
guaranteed loans
 
and credit cards).
 
Credit card loans
 
continue to
accrue finance charges and fees until charged-off
 
at 180 days.
(2)
It is the Corporation's
 
policy to report delinquent
 
residential mortgage loans
 
insured by the FHA,
 
guaranteed by the VA,
 
and other government-insured
 
loans as past-due
 
loans 90
days and still
 
accruing as opposed
 
to nonaccrual loans
 
since the principal repayment
 
is insured. The
 
Corporation continues accruing
 
interest on these
 
loans until they
 
have passed
the 15 months delinquency mark, taking into
 
consideration the FHA interest curtailment process.
 
These balances include $
46.6
 
million of residential mortgage loans insured
 
by the
FHA that were over 15 months delinquent.
(3)
As of December
 
31, 2021, includes $
7.2
 
million of defaulted loans
 
collateralizing GNMA securities
 
for which the Corporation
 
has an unconditional option
 
(but not an obligation)
to repurchase the defaulted loans.
(4)
According to the
 
Corporation's delinquency policy
 
and consistent with
 
the instructions for
 
the preparation of the
 
Consolidated Financial
 
Statements for Bank
 
Holding Companies
(FR Y-9C)
 
required by the
 
Federal Reserve Board,
 
residential mortgage, commercial
 
mortgage, and construction
 
loans are considered
 
past due when
 
the borrower is in
 
arrears on
two or
 
more monthly
 
payments. FHA/VA
 
government-guaranteed loans,
 
conventional residential
 
mortgage loans,
 
and commercial
 
mortgage loans
 
past due
 
30-59 days,
 
but less
than two payments in arrears, as of December 31, 2021 amounted
 
to $
6.1
 
million, $
63.1
 
million, and $
0.7
 
million, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
182
As of December 31, 2021
Florida region
30-59 Days
Past Due
60-89 Days
Past Due
90 days or
more Past
Due
(1) (2)
Total Past
Due
 
Current
Total loans
held for
investment
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
 
FHA/VA government-guaranteed loans
(2)
$
-
$
-
$
121
$
121
$
619
$
740
 
Conventional residential mortgage loans
(3)
-
2,108
7,152
9,260
419,322
428,582
Commercial loans:
 
Construction loans
-
-
-
-
95,866
95,866
 
Commercial mortgage loans
-
-
-
-
465,238
465,238
 
C&I loans
 
40
63
1,012
1,115
939,539
940,654
Consumer loans:
 
Auto loans
442
121
-
563
8,196
8,759
 
Finance leases
-
-
-
-
-
-
 
Personal loans
-
-
-
-
107
107
 
Credit cards
-
-
-
-
-
-
 
Other consumer loans
11
-
133
144
6,650
6,794
 
Total loans held for investment
$
493
$
2,292
$
8,418
$
11,203
$
1,935,537
$
1,946,740
 
(1)
Includes nonaccrual loans and accruing loans that were contractually
 
delinquent 90 days or more (i.e., FHA/VA
 
guaranteed loans).
(2)
It is
 
the Corporation's
 
policy to
 
report delinquent
 
residential mortgage
 
loans insured
 
by the
 
FHA, guaranteed
 
by the
 
VA,
 
and other
 
government-insured loans
 
as past-due
loans 90 days
 
and still accruing
 
as opposed
 
to nonaccrual
 
loans since
 
the principal repayment
 
is insured.
 
The Corporation
 
continues accruing
 
interest on these
 
loans until
they have passed the 15 months
 
delinquency mark, taking into consideration
 
the FHA interest curtailment process.
No
 
residential mortgage loans insured by the
 
FHA in the
Florida region were over 15 months delinquent as of December
 
31, 2021.
 
(3)
According
 
to the
 
Corporation's
 
delinquency
 
policy and
 
consistent
 
with
 
the instructions
 
for the
 
preparation
 
of the
 
Consolidated
 
Financial
 
Statements
 
for Bank
 
Holding
Companies
 
(FR
 
Y-9C)
 
required
 
by
 
the
 
Federal
 
Reserve
 
Board,
 
residential
 
mortgage,
 
commercial
 
mortgage,
 
and
 
construction
 
loans
 
are
 
considered
 
past
 
due
 
when
 
the
borrower
 
is
 
in
 
arrears
 
on
 
two
 
or
 
more
 
monthly
 
payments.
 
Conventional
 
residential
 
mortgage
 
loans
 
past
 
due
 
30-59
 
days,
 
but
 
less
 
than
 
two
 
payments
 
in
 
arrears,
 
as
 
of
December 31, 2021 amounted to $
2.9
 
million.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
183
As of December 31, 2021
Total
30-59 Days
Past Due
60-89 Days
Past Due
90 days or
more Past
Due
(1)(2)(3)
Total Past
Due
 
Current
Total loans held
for investment
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
 
FHA/VA government-guaranteed loans
(2) (3) (4)
$
-
$
2,355
$
65,515
$
67,870
$
57,522
$
125,392
 
Conventional residential mortgage loans
(4)
-
31,832
83,560
115,392
2,738,111
2,853,503
Commercial loans:
 
Construction loans
 
18
-
2,664
2,682
136,317
138,999
 
Commercial mortgage loans
(4)
2,402
436
35,256
38,094
2,129,375
2,167,469
 
C&I loans
 
2,047
1,845
24,962
28,854
2,858,397
2,887,251
Consumer loans:
 
Auto loans
26,462
4,949
6,684
38,095
1,533,445
1,571,540
 
Finance leases
4,820
713
866
6,399
568,606
575,005
 
Personal loans
3,299
1,285
1,208
5,792
310,390
316,182
 
Credit cards
3,158
1,904
2,985
8,047
282,179
290,226
 
Other consumer loans
1,996
811
1,696
4,503
130,588
135,091
 
Total loans held for investment
$
44,202
$
46,130
$
225,396
$
315,728
$
10,744,930
$
11,060,658
 
(1)
Includes nonaccrual loans
 
and accruing loans
 
that were contractually
 
delinquent 90 days
 
or more (i.e.,
 
FHA/VA
 
guaranteed loans
 
and credit cards).
 
Credit card loans
 
continue to
accrue finance charges and fees until charged-off
 
at 180 days.
(2)
It is the Corporation's
 
policy to report
 
delinquent residential mortgage
 
loans insured by the
 
FHA, guaranteed by
 
the VA,
 
and other government-insured
 
loans as past-due
 
loans 90
days and still
 
accruing as opposed
 
to nonaccrual loans
 
since the principal
 
repayment is insured.
 
The Corporation continues
 
accruing interest on
 
these loans until
 
they have passed
the 15 months delinquency mark,
 
taking into consideration the FHA interest
 
curtailment process. These balances include
 
$
46.6
 
million of residential mortgage loans
 
insured by the
FHA that were over 15 months delinquent.
(3)
As of December
 
31, 2021, includes $
7.2
 
million of defaulted loans
 
collateralizing GNMA securities
 
for which the Corporation
 
has an unconditional
 
option (but not an
 
obligation)
to repurchase the defaulted loans.
(4)
According to the
 
Corporation's delinquency policy
 
and consistent with
 
the instructions for
 
the preparation of
 
the Consolidated
 
Financial Statements for
 
Bank Holding Companies
(FR Y-9C)
 
required by the
 
Federal Reserve Board,
 
residential mortgage, commercial
 
mortgage, and construction
 
loans are considered
 
past due when
 
the borrower is
 
in arrears on
two or
 
more monthly
 
payments. FHA/VA
 
government-guaranteed loans,
 
conventional residential
 
mortgage loans,
 
and commercial
 
mortgage loans
 
past due
 
30-59 days,
 
but less
than two payments in arrears, as of December 31, 2021 amounted
 
to $
6.1
 
million, $
66.0
 
million, and $
0.7
 
million, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
184
 
The Corporation’s aging of the loan portfolio
 
held for investment by portfolio classes as of December 31, 2020 is as
follows:
As of December 31, 2020
Puerto Rico and Virgin Islands region
30-59 Days
Past Due
60-89 Days
Past Due
90 days or
more Past
Due
(1)(2)(3)
Total Past
Due
 
Current
 
Total loans
held for
investment
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
 
FHA/VA government-guaranteed loans
(2) (3) (4)
$
-
$
2,223
$
98,993
$
101,216
$
48,348
$
149,564
 
Conventional residential mortgage loans
 
(4)
-
61,040
149,779
210,819
2,641,820
2,852,639
Commercial loans:
 
Construction loans
(4)
-
19
12,971
12,990
72,026
85,016
 
Commercial mortgage loans
(4)
5,071
6,588
32,863
44,522
1,808,702
1,853,224
 
C&I loans
 
3,283
10,692
22,566
36,541
2,228,190
2,264,731
Consumer loans:
 
Auto loans
24,025
5,992
8,664
38,681
1,239,445
1,278,126
 
Finance leases
5,059
1,086
1,466
7,611
465,378
472,989
 
Personal loans
4,034
1,981
1,623
7,638
364,373
372,011
 
Credit cards
3,528
5,842
1,518
10,888
308,936
319,824
 
Other consumer loans
2,143
993
3,684
6,820
133,162
139,982
 
Total loans held for investment
$
47,143
$
96,456
$
334,127
$
477,726
$
9,310,380
$
9,788,106
 
(1)
Includes
 
nonaccrual
 
loans
 
and
 
accruing loans
 
that
 
were contractually
 
delinquent
 
90
 
days
 
or more
 
(i.e., FHA/VA
 
guaranteed
 
loans
 
and credit
 
cards).
 
Credit
 
card loans
continue to accrue finance charges and fees until charged
 
-off at 180 days.
(2)
It is
 
the Corporation's
 
policy to
 
report delinquent
 
residential mortgage
 
loans insured
 
by the
 
FHA, guaranteed
 
by the
 
VA,
 
and other
 
government-insured loans
 
as past-due
loans 90 days
 
and still accruing
 
as opposed
 
to nonaccrual
 
loans since
 
the principal repayment
 
is insured.
 
The Corporation
 
continues accruing
 
interest on these
 
loans until
they have
 
passed the
 
15 months
 
delinquency mark,
 
taking into
 
consideration the
 
FHA interest
 
curtailment process.
 
These balances
 
include $
57.9
 
million of
 
residential
mortgage loans insured by the FHA that were over 15 months delinquent.
(3)
As of
 
December 31,
 
2020, includes
 
$
10.7
 
million of
 
defaulted loans
 
collateralizing GNMA
 
securities for
 
which the
 
Corporation has
 
an unconditional
 
option (but
 
not an
obligation) to repurchase the defaulted loans.
(4)
According
 
to the
 
Corporation's
 
delinquency
 
policy and
 
consistent
 
with
 
the instructions
 
for the
 
preparation
 
of the
 
Consolidated
 
Financial
 
Statements
 
for Bank
 
Holding
Companies
 
(FR
 
Y-9C)
 
required
 
by
 
the
 
Federal
 
Reserve
 
Board,
 
residential
 
mortgage,
 
commercial
 
mortgage,
 
and
 
construction
 
loans
 
are
 
considered
 
past
 
due
 
when
 
the
borrower is in arrears on two or more monthly payments. FHA/VA
 
government-guaranteed loans, conventional residential mortgage
 
loans, commercial mortgage loans, and
construction loans
 
past due 30-59
 
days, but less
 
than two payments
 
in arrears,
 
as of December
 
31, 2020 amounted
 
to $
5.9
 
million, $
105.2
 
million, $
5.0
 
million, and
 
$
0.1
million, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
185
As of December 31, 2020
Florida region
30-59 Days
Past Due
60-89 Days
Past Due
90 days or
more Past
Due
(1) (2)
Total Past
Due
 
Current
 
Total loans
held for
investment
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
 
FHA/VA government-guaranteed loans
(2) (3)
$
-
$
-
$
250
$
250
$
920
$
1,170
 
Conventional residential mortgage loans
(3)
-
3,237
14,422
17,659
500,922
518,581
Commercial loans:
 
Construction loans
-
-
-
-
127,484
127,484
 
Commercial mortgage loans
-
-
-
-
377,378
377,378
 
C&I loans
 
218
-
561
779
937,080
937,859
Consumer loans:
 
Auto loans
710
297
223
1,230
17,068
18,298
 
Finance leases
-
-
-
-
-
-
 
Personal loans
-
-
-
-
157
157
 
Credit cards
-
-
-
-
-
-
 
Other consumer loans
58
-
601
659
7,597
8,256
 
Total loans held for investment
$
986
$
3,534
$
16,057
$
20,577
$
1,968,606
$
1,989,183
 
(1)
Includes nonaccrual loans and accruing loans that were contractually
 
delinquent 90 days or more (
i.e
., FHA/VA
 
guaranteed loans).
 
(2)
It is
 
the Corporation's
 
policy to
 
report delinquent
 
residential mortgage
 
loans insured
 
by the
 
FHA, guaranteed
 
by the
 
VA,
 
and other
 
government-insured loans
 
as past-due
loans 90 days
 
and still accruing
 
as opposed
 
to nonaccrual
 
loans since
 
the principal repayment
 
is insured.
 
The Corporation
 
continues accruing
 
interest on these
 
loans until
they have passed the 15 months
 
delinquency mark, taking into consideration
 
the FHA interest curtailment process.
 
No residential mortgage loans insured by
 
the FHA in the
Florida region were over 15 months delinquent as of December
 
31, 2020.
(3)
According
 
to the
 
Corporation's
 
delinquency
 
policy and
 
consistent
 
with
 
the instructions
 
for the
 
preparation
 
of the
 
Consolidated
 
Financial
 
Statements
 
for Bank
 
Holding
Companies
 
(FR
 
Y-9C)
 
required
 
by
 
the
 
Federal
 
Reserve
 
Board,
 
residential
 
mortgage,
 
commercial
 
mortgage,
 
and
 
construction
 
loans
 
are
 
considered
 
past
 
due
 
when
 
the
borrower is in arrears on
 
two or more monthly payments.
 
FHA/VA
 
government-guaranteed loans and conventional
 
residential mortgage loans past
 
due 30-59 days, but less
than two payments in arrears, as of December 31, 2020 amounted
 
to $
0.2
 
million and $
6.6
 
million, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
186
As of December 31, 2020
Total
30-59 Days
Past Due
60-89 Days
Past Due
90 days or
more Past
Due
(1)(2)(3)
Total Past
Due
 
Current
 
Total loans held
for investment
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
 
FHA/VA government-guaranteed loans
 
(2) (3) (4)
$
-
$
2,223
$
99,243
$
101,466
$
49,268
$
150,734
 
Conventional residential mortgage loans
 
(4)
-
64,277
164,201
228,478
3,142,742
3,371,220
Commercial loans:
 
Construction loans
(4)
-
19
12,971
12,990
199,510
212,500
 
Commercial mortgage loans
(4)
5,071
6,588
32,863
44,522
2,186,080
2,230,602
 
C&I loans
 
3,501
10,692
23,127
37,320
3,165,270
3,202,590
Consumer loans:
 
Auto loans
24,735
6,289
8,887
39,911
1,256,513
1,296,424
 
Finance leases
5,059
1,086
1,466
7,611
465,378
472,989
 
Personal loans
4,034
1,981
1,623
7,638
364,530
372,168
 
Credit cards
3,528
5,842
1,518
10,888
308,936
319,824
 
Other consumer loans
2,201
993
4,285
7,479
140,759
148,238
 
Total loans held for investment
$
48,129
$
99,990
$
350,184
$
498,303
$
11,278,986
$
11,777,289
 
(1)
Includes nonaccrual loans
 
and accruing loans
 
that were contractually delinquent
 
90 days or more
 
(i.e., FHA/VA
 
guaranteed loans and
 
credit cards). Credit card
 
loans continue
to accrue finance charges and fees until charged
 
-off at 180 days.
(2)
It is the Corporation's
 
policy to report delinquent
 
residential mortgage loans
 
insured by the FHA,
 
guaranteed by the VA,
 
and other government-insured
 
loans as past-due loans
90 days and
 
still accruing as
 
opposed to nonaccrual
 
loans since the
 
principal repayment is
 
insured. The Corporation
 
continues accruing interest
 
on these loans
 
until they have
passed the
 
15 months
 
delinquency mark,
 
taking into
 
consideration the
 
FHA interest
 
curtailment process.
 
These balances
 
include $
57.9
 
million of
 
residential mortgage
 
loans
insured by the FHA that were over 15 months delinquent.
(3)
As
 
of December
 
31,
 
2020,
 
includes
 
$
10.7
 
million
 
of defaulted
 
loans
 
collateralizing
 
GNMA securities
 
for which
 
the
 
Corporation
 
has
 
an
 
unconditional
 
option
 
(but not
 
an
obligation) to repurchase the defaulted loans.
(4)
According
 
to
 
the
 
Corporation's
 
delinquency
 
policy
 
and
 
consistent
 
with
 
the
 
instructions
 
for
 
the
 
preparation
 
of
 
the
 
Consolidated
 
Financial
 
Statements
 
for
 
Bank
 
Holding
Companies (FR Y-9C)
 
required by the
 
Federal Reserve Board,
 
residential mortgage, commercial
 
mortgage, and construction
 
loans are considered
 
past due when
 
the borrower
is in arrears on two or more
 
monthly payments. FHA/VA
 
government-guaranteed loans, conventional
 
residential mortgage loans, commercial mortgage
 
loans, and construction
loans
 
past
 
due
 
30-59
 
days,
 
but
 
less
 
than
 
two
 
payments
 
in
 
arrears,
 
as
 
of
 
December
 
31,
 
2020
 
amounted
 
to
 
$
6.1
 
million,
 
$
111.8
 
million,
 
$
5.0
 
million,
 
and
 
$
0.1
 
million,
respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
187
Credit Quality Indicators:
The Corporation
 
categorizes
 
loans into
 
risk categories
 
based on
 
relevant information
 
about the
 
ability of
 
the borrowers
 
to service
their debt such
 
as: current financial
 
information, historical payment
 
experience, credit documentation,
 
public information,
 
and current
economic trends, among other
 
factors.
 
The Corporation analyzes non-homogeneous
 
loans, such as commercial mortgage,
 
commercial
and industrial,
 
and construction
 
loans individually
 
to classify the
 
loans’
 
credit risk. As
 
mentioned above,
 
the Corporation periodically
reviews its commercial
 
and construction loan classifications
 
to evaluate if they
 
are properly classified. The frequency
 
of these reviews
will depend
 
on the
 
amount of
 
the aggregate
 
outstanding debt,
 
and the
 
risk rating
 
classification of
 
the obligor.
 
In addition,
 
during the
renewal
 
and
 
annual
 
review
 
process
 
of
 
applicable
 
credit
 
facilities,
 
the
 
Corporation
 
evaluates
 
the
 
corresponding
 
loan
 
grades.
 
The
Corporation
 
uses
 
the
 
same
 
definition
 
for
 
risk
 
ratings
 
as
 
those
 
described
 
for
 
Puerto
 
Rico
 
municipal
 
bonds
 
accounted
 
for
 
as
 
held-to-
maturity securities,
 
as discussed in Note 5 – Investment Securities, above.
For residential mortgage and consumer loans, the Corporation also evaluates
 
credit quality based on its interest accrual status.
 
Based
 
on the
 
most
 
recent analysis
 
performed,
 
the
 
amortized
 
cost
 
of commercial
 
and construction
 
loans by
 
portfolio
 
classes and
 
by
origination
 
year
 
based
 
on
 
the
 
internal
 
credit-risk
 
category
 
as
 
of
 
December
 
31,
 
2021
 
and
 
the
 
amortized
 
cost
 
of
 
commercial
 
and
construction loans by portfolio classes based on the internal credit-risk
 
category as of December 31, 2020 was as follows:
As of December 31,
 
2021
Puerto Rico and Virgin Islands region
Term Loans
As of December 31, 2020
Amortized Cost Basis by Origination Year
(1)
(In thousands)
2021
2020
2019
2018
2017
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
CONSTRUCTION
 
Risk Ratings:
 
Pass
$
1,401
$
12,596
$
19,001
$
-
$
193
$
4,875
$
-
$
38,066
$
68,836
 
Criticized:
 
Special Mention
-
-
765
-
-
-
-
765
776
 
Substandard
-
-
-
841
-
3,461
-
4,302
15,404
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total construction loans
$
1,401
$
12,596
$
19,766
$
841
$
193
$
8,336
$
-
$
43,133
$
85,016
COMMERCIAL MORTGAGE
 
Risk Ratings:
 
Pass
$
159,093
$
364,911
$
216,942
$
223,817
$
73,668
$
356,908
$
230
$
1,395,569
$
1,511,827
 
Criticized:
 
Special Mention
-
10,621
89,409
19,167
118,122
21,944
-
259,263
292,736
 
Substandard
2,224
-
-
782
2,227
42,166
-
47,399
48,661
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total commercial mortgage loans
$
161,317
$
375,532
$
306,351
$
243,766
$
194,017
$
421,018
$
230
$
1,702,231
$
1,853,224
COMMERCIAL AND INDUSTRIAL
 
Risk Ratings:
 
Pass
$
307,431
$
206,560
$
346,746
$
180,601
$
160,389
$
201,785
$
449,040
$
1,852,552
$
2,155,226
 
Criticized:
 
Special Mention
9,549
1,372
836
-
-
11,641
9,252
32,650
59,421
 
Substandard
633
1,470
14,534
2,109
17,170
20,010
5,469
61,395
50,084
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total commercial and industrial loans
$
317,613
$
209,402
$
362,116
$
182,710
$
177,559
$
233,436
$
463,761
$
1,946,597
$
2,264,731
(1) Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
188
As of December 31,
 
2021
Term Loans
As of December 31, 2020
Florida region
Amortized Cost Basis by Origination Year
(1)
(In thousands)
2021
2020
2019
2018
2017
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
CONSTRUCTION
 
Risk Ratings:
 
Pass
$
31,802
$
26,209
$
83
$
37,772
$
-
$
-
$
-
$
95,866
$
127,484
 
Criticized:
 
Special Mention
-
-
-
-
-
-
-
-
-
 
Substandard
-
-
-
-
-
-
-
-
-
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total construction loans
$
31,802
$
26,209
$
83
$
37,772
$
-
$
-
$
-
$
95,866
$
127,484
COMMERCIAL MORTGAGE
 
Risk Ratings:
 
Pass
$
97,215
$
77,086
$
87,332
$
61,379
$
30,054
$
33,078
$
18,160
$
404,304
$
291,627
 
Criticized:
 
Special Mention
-
7,126
13,601
6,782
5,353
27,756
-
60,618
85,427
 
Substandard
-
-
-
-
-
316
-
316
324
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total commercial mortgage loans
$
97,215
$
84,212
$
100,933
$
68,161
$
35,407
$
61,150
$
18,160
$
465,238
$
377,378
COMMERCIAL AND INDUSTRIAL
 
Risk Ratings:
 
Pass
$
239,017
$
121,815
$
207,483
$
74,440
$
59,182
$
21,138
$
103,748
$
826,823
$
823,124
 
Criticized:
 
Special Mention
-
-
27,207
-
-
4,770
17,969
49,946
73,974
 
Substandard
-
24,444
34,476
-
-
4,630
335
63,885
40,761
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total commercial and industrial loans
$
239,017
$
146,259
$
269,166
$
74,440
$
59,182
$
30,538
$
122,052
$
940,654
$
937,859
(1) Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
189
As of December 31,
 
2021
Total
Term Loans
As of December 31, 2020
Amortized Cost Basis by Origination Year (1)
(In thousands)
2021
2020
2019
2018
2017
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
CONSTRUCTION
 
Risk Ratings:
 
Pass
$
33,203
$
38,805
$
19,084
$
37,772
$
193
$
4,875
$
-
$
133,932
$
196,320
 
Criticized:
 
Special Mention
-
-
765
-
-
-
-
765
776
 
Substandard
-
-
-
841
-
3,461
-
4,302
15,404
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total construction loans
$
33,203
$
38,805
$
19,849
$
38,613
$
193
$
8,336
$
-
$
138,999
$
212,500
COMMERCIAL MORTGAGE
 
Risk Ratings:
 
Pass
$
256,308
$
441,997
$
304,274
$
285,196
$
103,722
$
389,986
$
18,390
$
1,799,873
$
1,803,454
 
Criticized:
 
Special Mention
-
17,747
103,010
25,949
123,475
49,700
-
319,881
378,163
 
Substandard
2,224
-
-
782
2,227
42,482
-
47,715
48,985
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total commercial mortgage loans
$
258,532
$
459,744
$
407,284
$
311,927
$
229,424
$
482,168
$
18,390
$
2,167,469
$
2,230,602
COMMERCIAL AND INDUSTRIAL
 
Risk Ratings:
 
Pass
$
546,448
$
328,375
$
554,229
$
255,041
$
219,571
$
222,923
$
552,788
$
2,679,375
$
2,978,350
 
Criticized:
 
Special Mention
9,549
1,372
28,043
-
-
16,411
27,221
82,596
133,395
 
Substandard
633
25,914
49,010
2,109
17,170
24,640
5,804
125,280
90,845
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total commercial and industrial loans
$
556,630
$
355,661
$
631,282
$
257,150
$
236,741
$
263,974
$
585,813
$
2,887,251
$
3,202,590
(1) Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
190
 
The
 
following
 
table
 
presents
 
the
 
amortized
 
cost
 
of
 
residential
 
mortgage
 
loans
 
by
 
origination
 
year
 
based
 
on
 
accrual
 
status
 
as
 
of
December 31, 2021, and the amortized cost of residential mortgage loans by accrual
 
status of December 31, 2020:
As of December 31,
 
2021
As of
December 31,
2020
Term Loans
Amortized Cost Basis by Origination Year (1)
(In thousands)
2021
2020
2019
2018
2017
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
Puerto Rico and Virgin Islands Region:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
-
$
362
$
914
$
2,051
$
3,769
$
117,556
$
-
$
124,652
$
149,564
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
 
government-guaranteed loans
$
-
$
362
$
914
$
2,051
$
3,769
$
117,556
$
-
$
124,652
$
149,564
Conventional residential mortgage loans:
Accrual Status:
Performing
$
79,765
$
34,742
$
58,650
$
85,739
$
61,393
$
2,056,657
$
-
$
2,376,946
$
2,741,694
Non-Performing
-
-
114
279
142
47,440
-
47,975
110,945
Total conventional residential mortgage loans
$
79,765
$
34,742
$
58,764
$
86,018
$
61,535
$
2,104,097
$
-
$
2,424,921
$
2,852,639
Total:
Accrual Status:
Performing
$
79,765
$
35,104
$
59,564
$
87,790
$
65,162
$
2,174,213
$
-
$
2,501,598
$
2,891,258
Non-Performing
-
-
114
279
142
47,440
-
47,975
110,945
Total residential mortgage loans in Puerto Rico and
Virgin Islands Region
$
79,765
$
35,104
$
59,678
$
88,069
$
65,304
$
2,221,653
$
-
$
2,549,573
$
3,002,203
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
191
As of December 31,
 
2021
As of
December 31,
2020
Term Loans
Amortized Cost Basis by Origination Year (1)
(In thousands)
2021
2020
2019
2018
2017
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
Florida Region:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
740
$
-
$
740
$
1,170
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
 
government-guaranteed loans
$
-
$
-
$
-
$
-
$
-
$
740
$
-
$
740
$
1,170
Conventional residential mortgage loans:
Accrual Status:
Performing
$
53,394
$
37,600
$
40,557
$
51,870
$
58,066
$
179,943
$
-
$
421,430
$
504,159
Non-Performing
-
-
293
-
214
6,645
-
7,152
14,422
Total conventional residential mortgage loans
$
53,394
$
37,600
$
40,850
$
51,870
$
58,280
$
186,588
$
-
$
428,582
$
518,581
Total:
Accrual Status:
Performing
$
53,394
$
37,600
$
40,557
$
51,870
$
58,066
$
180,683
$
-
$
422,170
$
505,329
Non-Performing
-
-
293
-
214
6,645
-
7,152
14,422
Total residential mortgage loans in Florida region
$
53,394
$
37,600
$
40,850
$
51,870
$
58,280
$
187,328
$
-
$
429,322
$
519,751
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
192
As of December 31,
 
2021
As of
December 31,
2020
Term Loans
Amortized Cost Basis by Origination Year (1)
(In thousands)
2021
2020
2019
2018
2017
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
Total:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
-
$
362
$
914
$
2,051
$
3,769
$
118,296
$
-
$
125,392
$
150,734
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
 
government-guaranteed loans
$
-
$
362
$
914
$
2,051
$
3,769
$
118,296
$
-
$
125,392
$
150,734
Conventional residential mortgage loans:
Accrual Status:
Performing
$
133,159
$
72,342
$
99,207
$
137,609
$
119,459
$
2,236,600
$
-
$
2,798,376
$
3,245,853
Non-Performing
-
-
407
279
356
54,085
-
55,127
125,367
Total conventional residential mortgage loans
$
133,159
$
72,342
$
99,614
$
137,888
$
119,815
$
2,290,685
$
-
$
2,853,503
$
3,371,220
Total:
Accrual Status:
Performing
$
133,159
$
72,704
$
100,121
$
139,660
$
123,228
$
2,354,896
$
-
$
2,923,768
$
3,396,587
Non-Performing
-
-
407
279
356
54,085
-
55,127
125,367
Total residential mortgage loans
$
133,159
$
72,704
$
100,528
$
139,939
$
123,584
$
2,408,981
$
-
$
2,978,895
$
3,521,954
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
193
 
The following table
 
presents the amortized
 
cost of consumer
 
loans by origination
 
year based on
 
accrual status as of
 
December 31,
2021, and the amortized cost of consumer loans by accrual status of December 31,
 
2020:
As of December 31,
 
2021
As of
December 31,
2020
Term Loans
Amortized Cost Basis by Origination Year (1)
(In thousands)
2021
2020
2019
2018
2017
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
Puerto Rico and Virgin Islands Regions:
Auto loans:
Accrual Status:
Performing
$
648,111
$
350,581
$
302,460
$
159,021
$
65,836
$
30,088
$
-
$
1,556,097
$
1,269,462
Non-Performing
873
830
1,663
1,175
851
1,292
-
6,684
8,664
Total auto loans
$
648,984
$
351,411
$
304,123
$
160,196
$
66,687
$
31,380
$
-
$
1,562,781
$
1,278,126
Finance leases:
Accrual Status:
Performing
$
229,456
$
114,945
$
116,089
$
76,144
$
25,516
$
11,989
$
-
$
574,139
$
471,523
Non-Performing
-
84
243
269
63
207
-
866
1,466
Total finance leases
$
229,456
$
115,029
$
116,332
$
76,413
$
25,579
$
12,196
$
-
$
575,005
$
472,989
Personal loans:
Accrual Status:
Performing
$
85,614
$
53,074
$
96,890
$
44,969
$
20,767
$
13,553
$
-
$
314,867
$
370,388
Non-Performing
31
153
483
226
128
187
-
1,208
1,623
Total personal loans
$
85,645
$
53,227
$
97,373
$
45,195
$
20,895
$
13,740
$
-
$
316,075
$
372,011
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
290,226
$
290,226
$
319,824
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
290,226
$
290,226
$
319,824
Other consumer loans:
Accrual Status:
Performing
$
56,338
$
18,128
$
25,602
$
8,594
$
3,325
$
6,066
$
8,681
$
126,734
$
136,300
Non-Performing
192
111
220
49
29
761
201
1,563
3,682
Total other consumer loans
$
56,530
$
18,239
$
25,822
$
8,643
$
3,354
$
6,827
$
8,882
$
128,297
$
139,982
Total:
Performing
1,019,519
536,728
541,041
288,728
115,444
61,696
298,907
2,862,063
2,567,497
Non-Performing
1,096
1,178
2,609
1,719
1,071
2,447
201
10,321
15,435
Total consumer loans in Puerto Rico and Virgin
Islands region
$
1,020,615
$
537,906
$
543,650
$
290,447
$
116,515
$
64,143
$
299,108
$
2,872,384
$
2,582,932
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
194
As of December 31,
 
2021
As of
December 31,
2020
Term Loans
Amortized Cost Basis by Origination Year (1)
(In thousands)
2021
2020
2019
2018
2017
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
Florida Region:
Auto loans:
Accrual Status:
Performing
$
-
$
-
$
642
$
4,748
$
2,455
$
914
$
-
$
8,759
$
18,075
Non-Performing
-
-
-
-
-
-
-
-
223
Total auto loans
$
-
$
-
$
642
$
4,748
$
2,455
$
914
$
-
$
8,759
$
18,298
Finance leases:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total finance leases
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Personal loans:
Accrual Status:
Performing
$
70
$
24
$
13
$
-
$
-
$
-
$
-
$
107
$
157
Non-Performing
-
-
-
-
-
-
-
-
-
Total personal loans
$
70
$
24
$
13
$
-
$
-
$
-
$
-
$
107
$
157
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Other consumer loans:
Accrual Status:
Performing
$
239
$
482
$
-
$
40
$
71
$
3,096
$
2,733
$
6,661
$
7,655
Non-Performing
-
-
-
-
-
23
110
133
601
Total other consumer loans
$
239
$
482
$
-
$
40
$
71
$
3,119
$
2,843
$
6,794
$
8,256
Total:
Performing
309
506
655
4,788
2,526
4,010
2,733
15,527
25,887
Non-Performing
-
-
-
-
-
23
110
133
824
Total consumer loans in Florida region
$
309
$
506
$
655
$
4,788
$
2,526
$
4,033
$
2,843
$
15,660
$
26,711
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
195
As of December 31,
 
2021
As of
December 31,
2020
Term Loans
Amortized Cost Basis by Origination Year (1)
(In thousands)
2021
2020
2019
2018
2017
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
Total:
Auto loans:
Accrual Status:
Performing
$
648,111
$
350,581
$
303,102
$
163,769
$
68,291
$
31,002
$
-
$
1,564,856
$
1,287,537
Non-Performing
873
830
1,663
1,175
851
1,292
-
6,684
8,887
Total auto loans
$
648,984
$
351,411
$
304,765
$
164,944
$
69,142
$
32,294
$
-
$
1,571,540
$
1,296,424
Finance leases:
Accrual Status:
Performing
$
229,456
$
114,945
$
116,089
$
76,144
$
25,516
$
11,989
$
-
$
574,139
$
471,523
Non-Performing
-
84
243
269
63
207
-
866
1,466
Total finance leases
$
229,456
$
115,029
$
116,332
$
76,413
$
25,579
$
12,196
$
-
$
575,005
$
472,989
Personal loans:
Accrual Status:
Performing
$
85,684
$
53,098
$
96,903
$
44,969
$
20,767
$
13,553
$
-
$
314,974
$
370,545
Non-Performing
31
153
483
226
128
187
-
1,208
1,623
Total personal loans
$
85,715
$
53,251
$
97,386
$
45,195
$
20,895
$
13,740
$
-
$
316,182
$
372,168
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
290,226
$
290,226
$
319,824
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
290,226
$
290,226
$
319,824
Other consumer loans:
Accrual Status:
Performing
$
56,577
$
18,610
$
25,602
$
8,634
$
3,396
$
9,162
$
11,414
$
133,395
$
143,955
Non-Performing
192
111
220
49
29
784
311
1,696
4,283
Total other consumer loans
$
56,769
$
18,721
$
25,822
$
8,683
$
3,425
$
9,946
$
11,725
$
135,091
$
148,238
Total:
Performing
1,019,828
537,234
541,696
293,516
117,970
65,706
301,640
2,877,590
2,593,384
Non-Performing
1,096
1,178
2,609
1,719
1,071
2,470
311
10,454
16,259
Total consumer loans
$
1,020,924
$
538,412
$
544,305
$
295,235
$
119,041
$
68,176
$
301,951
$
2,888,044
$
2,609,643
(1)
Excludes accrued interest receivable.
Accrued interest
 
receivable on
 
loans totaled
 
$
48.1
 
million as of
 
December 31,
 
2021 ($
57.2
 
million as of
 
December 31,
 
2020), and
is
 
reported
 
as
 
part
 
of
 
accrued
 
interest
 
receivable
 
on
 
loans
 
and
 
investment
 
securities
 
in
 
the
 
consolidated
 
statements
 
of
 
financial
condition, and is excluded from the estimate of credit losses.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
196
 
The following tables present information about collateral dependent loans
 
that were individually evaluated for purposes of
determining the ACL as of QtrEndCYYear
 
and 2020:
As of December 31, 2021
Collateral Dependent Loans - With
Allowance
Collateral Dependent
Loans - With No
Related Allowance
Collateral Dependent Loans - Total
Puerto Rico and Virgin Islands region
Amortized Cost
 
Related Allowance
Amortized Cost
Amortized Cost
Related Allowance
(In thousands)
Residential mortgage loans:
FHA/VA government
 
-guaranteed loans
$
-
$
-
$
-
$
-
$
-
Conventional residential mortgage loans
48,398
3,731
781
49,179
3,731
Commercial loans:
Construction loans
-
-
1,797
1,797
-
Commercial mortgage loans
9,908
1,152
54,096
64,004
1,152
C&I loans
 
5,781
670
33,575
39,356
670
Consumer loans:
Auto loans
-
-
-
-
-
Finance leases
-
-
-
-
-
Personal loans
78
1
-
78
1
Credit cards
-
-
-
-
-
Other consumer loans
782
98
-
782
98
$
64,947
$
5,652
$
90,249
$
155,196
$
5,652
As of December 31, 2021
Collateral Dependent Loans - With
Allowance
Collateral Dependent
Loans - With No
Related Allowance
Collateral Dependent Loans - Total
Florida region
Amortized Cost
 
Related Allowance
Amortized Cost
 
Amortized Cost
Related Allowance
(In thousands)
Residential mortgage loans:
FHA/VA government
 
-guaranteed loans
$
-
$
-
$
-
$
-
$
-
Conventional residential mortgage loans
3,373
235
-
3,373
235
Commercial loans:
Construction loans
-
-
-
-
-
Commercial mortgage loans
-
-
2,265
2,265
-
C&I loans
 
-
-
468
468
-
Consumer loans:
Auto loans
-
-
-
-
-
Finance leases
-
-
-
-
-
Personal loans
-
-
-
-
-
Credit cards
-
-
-
-
-
Other consumer loans
-
-
-
-
-
$
3,373
$
235
$
2,733
$
6,106
$
235
As of December 31, 2021
Collateral Dependent Loans - With
Allowance
Collateral Dependent
Loans - With No
Related Allowance
Collateral Dependent Loans - Total
Total
Amortized Cost
 
Related Allowance
Amortized Cost
Amortized Cost
 
Related Allowance
(In thousands)
Residential mortgage loans:
FHA/VA government
 
-guaranteed loans
$
-
$
-
$
-
$
-
$
-
Conventional residential mortgage loans
51,771
3,966
781
52,552
3,966
Commercial loans:
Construction loans
-
-
1,797
1,797
-
Commercial mortgage loans
9,908
1,152
56,361
66,269
1,152
C&I loans
 
5,781
670
34,043
39,824
670
Consumer loans:
Auto loans
-
-
-
-
-
Finance leases
-
-
-
-
-
Personal loans
78
1
-
78
1
Credit cards
-
-
-
-
-
Other consumer loans
782
98
-
782
98
$
68,320
$
5,887
$
92,982
$
161,302
$
5,887
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
197
As of December 31, 2020
Collateral Dependent Loans - With
Allowance
Collateral Dependent
Loans - With No
Related Allowance
Collateral Dependent Loans - Total
Puerto Rico and Virgin Islands region
Amortized Cost
 
Related Allowance
Amortized Cost
 
Amortized Cost
 
Related Allowance
(In thousands)
Residential mortgage loans:
FHA/VA government
 
-guaranteed loans
$
-
$
-
$
-
$
-
$
-
Conventional residential mortgage loans
100,950
9,582
7,145
108,095
9,582
Commercial loans:
Construction loans
6,036
500
6,125
12,161
500
Commercial mortgage loans
17,882
1,923
49,241
67,123
1,923
C&I loans
 
21,933
880
24,728
46,661
880
Consumer loans:
Auto loans
-
-
-
-
-
Finance leases
-
-
-
-
-
Personal loans
146
2
-
146
2
Credit cards
-
-
-
-
-
Other consumer loans
857
113
-
857
113
$
147,804
$
13,000
$
87,239
$
235,043
$
13,000
As of December 31, 2020
Collateral Dependent Loans - With
Allowance
Collateral Dependent
Loans - With No
Related Allowance
Collateral Dependent Loans - Total
Florida region
Amortized Cost
 
Related Allowance
Amortized Cost
 
Amortized Cost
Related Allowance
(In thousands)
Residential mortgage loans:
FHA/VA government
 
-guaranteed loans
$
-
$
-
$
-
$
-
$
-
Conventional residential mortgage loans
6,224
988
2,400
8,624
988
Commercial loans:
Construction loans
-
-
-
-
-
Commercial mortgage loans
-
-
2,327
2,327
-
C&I loans
 
-
-
561
561
-
Consumer loans:
Auto loans
-
-
-
-
-
Finance leases
-
-
-
-
-
Personal loans
-
-
-
-
-
Credit cards
-
-
-
-
-
Other consumer loans
248
83
-
248
83
$
6,472
$
1,071
$
5,288
$
11,760
$
1,071
As of December 31, 2020
Collateral Dependent Loans - With
Allowance
Collateral Dependent
Loans - With No
Related Allowance
Collateral Dependent Loans - Total
Total
Amortized Cost
 
Related Allowance
Amortized Cost
 
Amortized Cost
 
Related Allowance
(In thousands)
Residential mortgage loans:
FHA/VA government
 
-guaranteed loans
$
-
$
-
$
-
$
-
$
-
Conventional residential mortgage loans
107,174
10,570
9,545
116,719
10,570
Commercial loans:
Construction loans
6,036
500
6,125
12,161
500
Commercial mortgage loans
17,882
1,923
51,568
69,450
1,923
C&I loans
 
21,933
880
25,289
47,222
880
Consumer loans:
Auto loans
-
-
-
-
-
Finance leases
-
-
-
-
-
Personal loans
146
2
-
146
2
Credit cards
-
-
-
-
-
Other consumer loans
1,105
196
-
1,105
196
$
154,276
$
14,071
$
92,527
$
246,803
$
14,071
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
198
The
 
underlying
 
collateral
 
for
 
residential
 
mortgage
 
and
 
consumer
 
collateral
 
dependent
 
loans consisted
 
of
 
single-family
 
residential
properties,
 
and for
 
commercial and
 
construction loans
 
consisted primarily
 
of office
 
buildings, multifamily
 
residential properties,
 
and
retail establishments.
 
The weighted-average
 
loan-to-value coverage
 
for collateral
 
dependent loans
 
as of December
 
31, 2021 was
78
%
compared
 
to
80
%
 
as
 
of
 
December
 
31,
 
2020.
 
There
 
were
 
no
 
significant
 
changes
 
in
 
the
 
extent
 
to
 
which
 
collateral
 
secures
 
the
Corporation’s collateral dependent
 
financial assets during the year ended December 31, 2021.
PCD and PCI Loans
Prior to
 
the adoption
 
of ASC
 
326, the
 
Corporation accounted
 
for PCI
 
loans and
 
income recognition
 
thereunder in
 
accordance with
ASC
 
Subtopic
 
310-30.
 
PCI
 
loans
 
are
 
loans
 
that
 
as
 
of
 
the
 
date
 
of
 
their
 
acquisition
 
have
 
experienced
 
deterioration
 
in
 
credit
 
quality
between origination and
 
acquisition and for which
 
it was probable at acquisition
 
that not all contractually
 
required payments would be
collected. Following the adoption of ASC 326 on January 1, 2020, the
 
Corporation analyzes acquired loans for more-than-insignificant
deterioration in credit
 
quality since their
 
origination in accordance
 
with ASC 326.
 
Such loans are
 
classified as PCD
 
loans. Please also
see
 
Note
 
1
 
–
 
Nature
 
of
 
Business
 
and
 
Summary
 
of
 
Significant
 
Accounting
 
Policies,
 
above,
 
for
 
more
 
information
 
concerning
 
the
Corporation’s accounting
 
for PCD loans.
Prior to
 
the adoption
 
of ASC 326,
 
the Corporation
 
identified the
 
amount by
 
which the undiscounted
 
expected future
 
cash flows
 
on
PCI loans exceeded the
 
estimated fair value of
 
the loan on the date
 
of acquisition as the “accretable
 
yield,” representing the
 
amount of
estimated
 
future
 
interest
 
income
 
on
 
the
 
loan.
 
The
 
amount
 
of
 
accretable
 
yield
 
was
 
re-measured
 
at
 
each
 
financial
 
reporting
 
date,
representing
 
the difference
 
between the
 
remaining undiscounted
 
expected cash
 
flows and
 
the
 
then-current
 
carrying value
 
of the
 
PCI
loan.
 
Following
 
the
 
adoption
 
of
 
ASC
 
326,
 
the
 
Corporation
 
accounts
 
for
 
interest
 
income
 
on
 
PCD
 
loans
 
using
 
the
 
interest
 
method,
whereby any purchase
 
non-credit discounts or
 
premiums are accreted
 
or amortized into
 
interest income as
 
an adjustment of
 
the loan’s
yield.
Upon the
 
adoption of
 
ASC 326,
 
acquired loans
 
classified as
 
PCD are
 
recorded at
 
an initial
 
amortized cost,
 
which is
 
comprised of
the purchase price of the loans (or initial fair value)
 
and the initial ACL determined for the loans, which
 
represents the fair value credit
discount, and any resulting premium or discount related to factors other
 
than credit.
Purchases and Sales of Loans
During the years
 
ended December 31,
 
2021, 2020, and
 
2019, the Corporation
 
purchased C&I loan
 
participations of $
174.7
 
million,
$
40.0
 
million,
 
and
 
$
20.0
 
million,
 
respectively.
 
In
 
addition,
 
during
 
the
 
year
 
ended
 
December
 
31,
 
2020,
 
the
 
Corporation
 
purchased
$
0.8
 
million of residential mortgage
 
loans as part of
 
a internal program to
 
purchase residential mortgage
 
loans from mortgage
 
bankers
in
 
Puerto
 
Rico,
 
compared
 
to
 
purchases
 
of
 
$
18.8
 
million
 
in
 
2019.
 
In
 
general,
 
the
 
loans
 
purchased
 
from
 
mortgage
 
bankers
 
were
conforming residential
 
mortgage loans.
 
Purchases of
 
conforming residential
 
mortgage loans
 
provide the
 
Corporation the
 
flexibility to
retain or
 
sell the loans,
 
including through
 
securitization transactions,
 
depending upon
 
the Corporation’s
 
interest rate risk
 
management
strategies. When the Corporation sells such loans, it generally keeps the right
 
to service the loans.
 
In the ordinary
 
course of business,
 
the Corporation
 
sells residential mortgage
 
loans (originated or
 
purchased) to GNMA
 
and GSEs,
such
 
as FNMA
 
and
 
FHLMC,
 
which
 
generally
 
securitize
 
the transferred
 
loans into
 
MBS for
 
sale into
 
the secondary
 
market.
 
During
2021, the Corporation sold
 
$
191.4
 
million of FHA/VA
 
mortgage loans to
 
GNMA, which packaged them
 
into MBS, compared to
 
sales
of $
221.5
 
million and
 
$
235.3
 
million in
 
2020 and
 
2019, respectively.
 
Also, during
 
2021, the
 
Corporation sold
 
approximately $
328.2
million of
 
performing residential
 
mortgage loans
 
to FNMA
 
and FHLMC,
 
compared to
 
sales of
 
$
254.7
 
million and
 
$
138.7
 
million in
the
 
years
 
ended
 
December
 
31,
 
2020
 
and
 
2019,
 
respectively.
 
The
 
Corporation’s
 
continuing
 
involvement
 
with
 
the
 
loans
 
that
 
it
 
sells
consists
 
primarily
 
of
 
servicing
 
the
 
loans.
 
In
 
addition,
 
the
 
Corporation
 
agrees
 
to
 
repurchase
 
loans
 
if
 
it
 
breaches
 
any
 
of
 
the
representations
 
and
 
warranties
 
included
 
in
 
the
 
sale
 
agreement.
 
These
 
representations
 
and
 
warranties
 
are
 
consistent
 
with
 
the
 
GSEs’
selling and servicing guidelines (
i.e.
, ensuring that the mortgage was properly underwritten according to established
 
guidelines).
 
For loans
 
sold to
 
GNMA, the
 
Corporation holds
 
an option
 
to repurchase
 
individual delinquent
 
loans issued
 
on or
 
after January
 
1,
2003 when
 
the borrower
 
fails to
 
make any
 
payment for
 
three consecutive
 
months. This
 
option gives
 
the Corporation
 
the ability,
 
but
not the obligation, to repurchase the delinquent loans at par without prior
 
authorization from GNMA.
 
Under ASC Topic
 
860, “Transfer
 
and Servicing,”
 
once the Corporation
 
has the unilateral
 
ability to repurchase
 
the delinquent
 
loan,
it is considered
 
to have
 
regained effective
 
control over
 
the loan
 
and is
 
required to
 
recognize the
 
loan and
 
a corresponding
 
repurchase
liability
 
on
 
the
 
balance
 
sheet
 
regardless
 
of
 
the
 
Corporation’s
 
intent
 
to
 
repurchase
 
the
 
loan.
 
As
 
of
 
December
 
31,
 
2021
 
and
 
2020,
rebooked
 
GNMA delinquent
 
loans that
 
were included
 
in the
 
residential mortgage
 
loan portfolio
 
amounted to
 
$
7.2
 
million and
 
$
10.7
million, respectively.
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
199
During
 
the
 
years
 
ended
 
December
 
31,
 
2021,
 
2020,
 
and
 
2019,
 
the
 
Corporation
 
repurchased,
 
pursuant
 
to
 
the
 
aforementioned
repurchase
 
option,
 
$
1.1
 
million,
 
$
55.0
 
million,
 
and
 
$
33.5
 
million,
 
respectively,
 
of
 
loans
 
previously
 
sold
 
to
 
GNMA.
 
The
 
principal
balance
 
of these
 
loans is
 
fully
 
guaranteed
 
and
 
the risk
 
of
 
loss related
 
to
 
the repurchased
 
loans
 
is generally
 
limited
 
to the
 
difference
between the
 
delinquent interest payment
 
advanced to GNMA,
 
which is computed
 
at the loan’s
 
interest rate,
 
and the interest
 
payments
reimbursed
 
by
 
FHA,
 
which
 
are
 
computed
 
at
 
a
 
pre-determined
 
debenture
 
rate.
 
Repurchases
 
of
 
GNMA
 
loans
 
allow
 
the
 
Corporation,
among other things, to
 
maintain acceptable delinquency
 
rates on outstanding GNMA
 
pools and remain as a
 
seller and servicer in
 
good
standing with GNMA.
 
On May 14, 2020,
 
in response to the
 
national emergency
 
declared by the
 
U.S. President related
 
to the COVID-
19 pandemic,
 
GNMA announced
 
a temporary
 
relief that
 
excludes any
 
new borrower
 
delinquencies, occurring
 
on or
 
after April
 
2020,
from
 
the
 
calculation
 
of
 
delinquency
 
and
 
default
 
ratios
 
established
 
in
 
the
 
GNMA
 
MBS
 
guide.
 
This
 
exclusion
 
was
 
extended
automatically
 
to
 
issuers
 
that
 
were
 
compliant
 
with
 
GNMA
 
delinquency
 
rate
 
thresholds
 
as
 
reflected
 
by
 
their
 
April
 
2020
 
investor
accounting report,
 
reflecting March
 
2020 servicing
 
data. The
 
exemptions and
 
delinquent loan
 
exclusions will
 
automatically expire
 
on
July
 
31,
 
2022,
 
unless
 
earlier
 
rescinded
 
or
 
extended
 
by
 
GNMA,
 
or
 
the
 
end
 
of
 
the
 
national
 
emergency,
 
whichever
 
comes
 
earlier.
Historically,
 
losses
 
for
 
violations
 
of
 
representations
 
and
 
warranties,
 
and
 
on
 
optional
 
repurchases
 
of
 
GNMA
 
delinquent
 
loans,
 
have
been immaterial and no provision has been made at the time of sale.
Loan
 
sales
 
to
 
FNMA
 
and
 
FHLMC
 
are
 
without
 
recourse
 
in
 
relation
 
to
 
the
 
future
 
performance
 
of
 
the
 
loans.
 
The
 
Corporation
repurchased at par
 
loans previously sold
 
to FNMA and
 
FHLMC in the
 
amount of $
0.3
 
million, $
42
 
thousand, and $
0.3
 
million during
the years
 
ended December
 
31, 2021,
 
2020, and
 
2019, respectively.
 
The Corporation’s
 
risk of
 
loss with
 
respect to
 
these loans
 
is also
minimal as these repurchased loans are generally performing loans with documentation
 
deficiencies.
The
 
Corporation
 
participates
 
in
 
the
 
Main
 
Street
 
Lending
 
program
 
established
 
by
 
the
 
FED
 
under
 
the
 
CARES
 
Act
 
of
 
2020,
 
as
amended,
 
to
 
support
 
lending
 
to
 
small
 
and
 
medium-sized
 
businesses
 
that
 
were
 
in
 
sound
 
financial
 
condition
 
before
 
the
 
onset
 
of
 
the
COVID-19 pandemic.
 
Under this
 
program, the
 
Corporation originates
 
loans to
 
borrowers meeting
 
the terms
 
and requirements
 
of the
program, including requirements as
 
to eligibility,
 
use of proceeds and
 
priority, and
 
sells a 95% participation interest
 
in these loans to a
special purpose
 
vehicle
 
(the “Main
 
Street SPV”)
 
organized
 
by the
 
FED to
 
purchase the
 
participation
 
interests from
 
eligible lenders,
including the
 
Corporation. During
 
the fourth
 
quarter of
 
2020, the
 
Corporation originated
23
 
loans under
 
this program
 
totaling $
184.4
million in principal amount and sold participation interests totaling $
175.1
 
million to the Main Street SPV.
 
During
 
the
 
year
 
ended
 
December
 
31,
 
2021,
 
four
 
criticized
 
commercial
 
loan
 
participations
 
in
 
the
 
Florida
 
region
 
totaling
 
$
43.1
million were sold. In addition, the Corporation sold a $
3.1
 
million construction loan in the Puerto Rico region.
 
In addition,
 
during the
 
third quarter
 
of 2021,
 
the Corporation
 
sold $
52.5
 
million of
 
non-performing residential
 
mortgage loans
 
and
related
 
servicing
 
advances
 
of
 
$
2.0
 
million.
 
The
 
Corporation
 
received
 
$
31.5
 
million,
 
or
58
%
 
of
 
book
 
value
 
before
 
reserves,
 
for
 
the
$
54.5
 
million of non-performing
 
loans and related
 
servicing advances.
 
Approximately $
20.9
 
million of reserves
 
had been allocated
 
to
the loans
 
sold. The
 
transaction resulted
 
in total
 
net charge-offs
 
of $
23.1
 
million and
 
an additional
 
loss of
 
approximately $
2.1
 
million
recorded as charge to the provision for credit losses in the third
 
quarter of 2021.
Loan Portfolio Concentration
The Corporation’s
 
primary
 
lending area
 
is Puerto
 
Rico. The
 
Corporation’s
 
banking subsidiary,
 
FirstBank, also
 
lends in
 
the USVI
and BVI markets
 
and in the
 
United States (principally
 
in the state of
 
Florida). Of the
 
total gross loans
 
held for investment
 
portfolio of
$
11.1
 
billion as
 
of December 31,
 
2021, credit
 
risk concentration
 
was approximately
79
% in
 
Puerto Rico,
18
% in
 
the U.S.,
 
and
3
% in
the USVI and BVI.
As of
 
December
 
31,
 
2021,
 
the Corporation
 
had
 
$
178.4
 
million
 
outstanding
 
in
 
loans
 
extended
 
to
 
the Puerto
 
Rico
 
government,
 
its
municipalities
 
and
 
public
 
corporations,
 
compared
 
to
 
$
201.3
 
million
 
as
 
of
 
December
 
31,
 
2020.
 
As
 
of
 
December
 
31,
 
2021,
approximately
 
$
100.3
 
million consisted
 
of loans
 
extended
 
to municipalities
 
in Puerto
 
Rico that
 
are general
 
obligations supported
 
by
assigned
 
property
 
tax
 
revenues,
 
and
 
$
32.2
 
million
 
of
 
municipal
 
special
 
obligation
 
bonds.
 
The
 
vast
 
majority
 
of
 
revenues
 
of
 
the
municipalities included in the
 
Corporation’s loan
 
portfolio are independent of
 
budgetary subsidies provided by
 
the Puerto Rico central
government.
 
These
 
municipalities
 
are
 
required
 
by
 
law
 
to
 
levy
 
special
 
property
 
taxes
 
in
 
such
 
amounts
 
as
 
are
 
required
 
to
 
satisfy
 
the
payment
 
of
 
all of
 
their respective
 
general
 
obligation
 
bonds and
 
notes. Late
 
in 2015,
 
the
 
Government
 
Development
 
Bank for
 
Puerto
Rico (“GDB”)
 
and the
 
Municipal Revenue
 
Collection Center
 
(“CRIM”) signed
 
and perfected
 
a deed
 
of trust.
 
Through this
 
deed, the
Puerto Rico Fiscal
 
Agency and
 
Financial Advisory
 
Authority,
 
as fiduciary,
 
is bound to
 
keep the CRIM
 
funds separate
 
from any other
deposits and
 
must distribute
 
the funds
 
pursuant
 
to applicable
 
law.
 
The CRIM
 
funds
 
are deposited
 
at another
 
commercial depository
financial
 
institution
 
in
 
Puerto
 
Rico.
 
In
 
addition
 
to
 
loans
 
extended
 
to
 
municipalities,
 
the
 
Corporation’s
 
exposure
 
to
 
the
 
Puerto
 
Rico
government as of December 31, 2021 included $
12.5
 
million in loans granted to an affiliate of PREPA
 
and $
33.4
 
million in loans to an
agency of the Puerto Rico central government.
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
200
In
 
addition,
 
as
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation
 
had
 
$
92.8
 
million
 
in
 
exposure
 
to
 
residential
 
mortgage
 
loans
 
that
 
are
guaranteed
 
by the
 
PRHFA,
 
a government
 
instrumentality that
 
has been
 
designated as
 
a covered
 
entity under
 
PROMESA (December
31,
 
2020
 
-
 
$
106.5
 
million).
 
Residential
 
mortgage
 
loans guaranteed
 
by the
 
PRHFA
 
are
 
secured by
 
the underlying
 
properties
 
and
 
the
guarantees serve
 
to cover shortfalls
 
in collateral in
 
the event of
 
a borrower default.
 
The Puerto Rico
 
government guarantees up
 
to $75
million
 
of
 
the
 
principal
 
for
 
all
 
loans
 
under
 
the
 
mortgage
 
loan
 
insurance
 
program.
 
According
 
to
 
the
 
most
 
recently-released
 
audited
financial
 
statements
 
of
 
the
 
PRHFA,
 
as
 
of
 
June
 
30,
 
2019,
 
the
 
PRHFA’s
 
mortgage
 
loans
 
insurance
 
program
 
covered
 
loans
 
in
 
an
aggregate
 
amount
 
of
 
approximately
 
$557
 
million.
 
The
 
regulations
 
adopted
 
by
 
the
 
PRHFA,
 
requires
 
the
 
establishment
 
of
 
adequate
reserves to
 
guarantee
 
the solvency
 
of the
 
mortgage loans
 
insurance program
 
.
 
As of
 
June 30,
 
2019, the
 
most recent
 
date as
 
of which
information is available, the
 
PRHFA had
 
an unrestricted deficit of
 
approximately $5.2 million with
 
respect to required reserves for
 
the
mortgage loan insurance program.
 
The
 
Corporation
 
cannot
 
predict
 
at
 
this
 
time
 
the
 
ultimate
 
effect
 
on
 
the
 
Puerto
 
Rico
 
economy,
 
the
 
Corporation’s
 
clients,
 
and
 
the
Corporation’s
 
financial
 
condition
 
and
 
results
 
of
 
operations
 
of
 
the
 
financial
 
situation
 
of
 
the
 
Commonwealth
 
of
 
Puerto
 
Rico,
 
the
uncertainty
 
about
 
the
 
ultimate
 
effect
 
of
 
the
 
Puerto
 
Rico’s
 
government
 
debt
 
adjustment
 
plan
 
recently
 
approved
 
by
 
the
 
U.S.
 
District
Court
 
for
 
the District
 
of
 
Puerto
 
Rico,
 
and
 
the various
 
legislative
 
and
 
other
 
measures
 
adopted
 
and
 
to
 
be adopted
 
by the
 
Puerto
 
Rico
government and the PROMESA oversight board in response to such fiscal situation.
The
 
Corporation
 
also
 
has
 
credit
 
exposure
 
to
 
USVI
 
government
 
entities.
 
As
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation
 
had
$
39.2
million in
 
loans to
 
USVI government
 
public corporations,
 
compared to
 
$
61.8
 
million as
 
of December
 
31, 2020.
 
As of
 
December 31,
2021,
 
all
 
loans
 
were
 
currently
 
performing
 
and
 
up
 
to
 
date
 
on
 
principal
 
and
 
interest
 
payments.
 
The
 
USVI
 
has
 
been
 
experiencing
 
a
number of fiscal
 
and economic challenges
 
that could adversely
 
affect the
 
ability of its
 
public corporations
 
to service their
 
outstanding
debt obligations.
Troubled Debt
 
Restructurings
The
 
Corporation
 
provides
 
homeownership
 
preservation
 
assistance
 
to
 
its
 
customers
 
through
 
a
 
loss
 
mitigation
 
program
 
in
 
Puerto
Rico.
 
Depending
 
upon
 
the nature
 
of
 
a
 
borrower’s
 
financial
 
condition,
 
restructurings
 
or
 
loan
 
modifications
 
through
 
this program,
 
as
well as other restructurings
 
of individual C&I, commercial mortgage,
 
construction, and residential mortgage
 
loans, fit the definition of
a
 
TDR.
 
A
 
restructuring
 
of
 
a
 
debt
 
constitutes
 
a
 
TDR
 
if
 
the
 
creditor,
 
for
 
economic
 
or
 
legal
 
reasons
 
related
 
to
 
the
 
debtor’s
 
financial
difficulties,
 
grants a
 
concession to
 
the debtor
 
that it
 
would not
 
otherwise consider.
 
Modifications involve
 
changes in
 
one or
 
more of
the
 
loan
 
terms
 
that
 
bring
 
a
 
defaulted
 
loan
 
current
 
and
 
provide
 
sustainable
 
affordability.
 
Changes
 
may
 
include,
 
among
 
others,
 
the
extension of the
 
maturity of the
 
loan and modifications
 
of the loan
 
rate. As of
 
December 31, 2021,
 
the Corporation’s
 
total TDR loans
held
 
for
 
investment
 
of
 
$
414.7
 
million
 
consisted
 
of $
258.6
 
million
 
of
 
residential
 
mortgage
 
loans,
 
$
70.4
 
million
 
of C&I
 
loans,
 
$
68.8
million of
 
commercial mortgage
 
loans, $
2.3
 
million of
 
construction loans,
 
and $
14.6
 
million of
 
consumer loans.
 
As of December
 
31,
2021 and 2020, the Corporation has committed to lend up to an additional
 
$
21
 
thousand and $
5.0
 
million, respectively,
 
on these loans.
The Corporation’s
 
loss mitigation
 
programs for
 
residential mortgage
 
and consumer
 
loans can
 
provide for
 
one or
 
a combination
 
of
the following:
 
movement of
 
interest past
 
due
 
to the
 
end of
 
the loan;
 
extension of
 
the loan
 
term; deferral
 
of principal
 
payments;
 
and
reduction
 
of
 
interest
 
rates
 
either
 
permanently
 
or
 
for
 
a
 
period
 
of
 
up
 
to
 
six
 
years
 
(increasing
 
back
 
in
 
step-up
 
rates).
 
Additionally,
 
in
certain cases, the restructuring
 
may provide for the
 
forgiveness of contractually
 
-due principal or interest.
 
Uncollected interest is added
to the
 
principal at
 
the end
 
of the
 
loan term
 
at the
 
time of
 
the restructuring
 
and not
 
recognized as
 
income until
 
collected or
 
when the
loan
 
is paid
 
off.
 
These programs
 
are available
 
only
 
to those
 
borrowers
 
who have
 
defaulted,
 
or are
 
likely to
 
default, permanently
 
on
their loans
 
and would
 
lose their
 
homes in
 
a foreclosure
 
action absent
 
some lender
 
concession. Nevertheless,
 
if the
 
Corporation is
 
not
reasonably assured that the borrower will comply with its contractual commitment,
 
the property is foreclosed.
 
Prior
 
to
 
permanently
 
modifying
 
a
 
loan,
 
the
 
Corporation
 
may
 
enter
 
into
 
trial
 
modifications
 
with
 
certain
 
borrowers.
 
Trial
modifications
 
generally
 
represent
 
a
 
six-month
 
period
 
during
 
which
 
the
 
borrower
 
makes
 
monthly
 
payments
 
under
 
the
 
anticipated
modified payment
 
terms prior
 
to a
 
formal modification.
 
Upon successful
 
completion of
 
a trial
 
modification,
 
the Corporation
 
and the
borrower
 
enter
 
into
 
a
 
permanent
 
modification.
 
TDR
 
loans
 
that
 
are
 
participating
 
in
 
or
 
that
 
have
 
been
 
offered
 
a
 
binding
 
trial
modification
 
are
 
classified
 
as
 
TDRs
 
when
 
the
 
trial
 
offer
 
is
 
made
 
and
 
continue
 
to
 
be
 
classified
 
as
 
TDRs
 
regardless
 
of
 
whether
 
the
borrower
 
enters
 
into
 
a
 
permanent
 
modification.
 
As
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation
 
included
 
as
 
TDRs
 
$
0.7
 
million
 
of
residential mortgage loans that were participating in or had been offered
 
a trial modification.
For
 
the
 
commercial
 
real
 
estate,
 
commercial
 
and
 
industrial,
 
and
 
construction
 
loan
 
portfolios,
 
at
 
the
 
time
 
of
 
a
 
restructuring,
 
the
Corporation
 
determines,
 
on
 
a
 
loan-by-loan
 
basis,
 
whether
 
a
 
concession
 
was
 
granted
 
for
 
economic
 
or
 
legal
 
reasons
 
related
 
to
 
the
borrower’s financial difficulty.
 
Concessions granted for loans in
 
these portfolios could include:
 
reductions in interest rates
 
to rates that
are considered
 
below market;
 
extension of
 
repayment schedules
 
and maturity
 
dates beyond
 
the original
 
contractual terms;
 
waivers of
borrower
 
covenants;
 
forgiveness
 
of
 
principal
 
or
 
interest;
 
or
 
other
 
contractual
 
changes
 
that
 
are
 
considered
 
to
 
be
 
concessions.
 
The
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
201
Corporation
 
mitigates loan
 
defaults for
 
these loan
 
portfolios through
 
its collection
 
function. The
 
function’s
 
objective
 
is to
 
minimize
both
 
early
 
stage
 
delinquencies
 
and
 
losses
 
upon
 
default
 
of
 
loans
 
in
 
these
 
portfolios.
 
In
 
the
 
case
 
of
 
the
 
commercial
 
and
 
industrial,
 
commercial mortgage,
 
and construction
 
loan portfolios,
 
the Corporation’s
 
Special Asset
 
Group (“SAG”)
 
focuses on
 
strategies for
 
the
accelerated reduction of non-performing assets through note sales, short
 
sales, loss mitigation programs, and sales of OREO.
 
In
 
addition,
 
the
 
Corporation
 
extends,
 
renews,
 
and
 
restructures
 
loans
 
with
 
satisfactory
 
credit
 
profiles.
 
Many
 
commercial
 
loan
facilities are structured
 
as lines of credit,
 
which generally have
 
one-year terms and,
 
therefore, require annual
 
renewals. Other facilities
may be
 
restructured or
 
extended from
 
time to
 
time based
 
upon changes
 
in the
 
borrower’s business
 
needs, use
 
of funds, and
 
timing of
completion
 
of
 
projects,
 
and
 
other
 
factors.
 
If
 
the
 
borrower
 
is
 
not
 
deemed
 
to
 
have
 
financial
 
difficulties,
 
extensions,
 
renewals,
 
and
restructurings are done in the normal course of business
 
and not considered to be concessions, and the loans
 
continue to be recorded as
performing.
Under the provisions
 
of the CARES
 
Act of 2020,
 
as amended by
 
the Consolidated Appropriations
 
Act, 2021 enacted
 
on December
27, 2020,
 
financial institutions
 
may permit
 
loan modifications
 
for borrowers
 
affected by
 
the COVID-19
 
pandemic through
 
January 1,
2022 without
 
categorizing the modifications
 
as TDRs, as
 
long as the
 
loan meets certain
 
conditions, including
 
the requirement that
 
the
loan
 
was
 
not
 
more
 
than
 
30
 
days
 
past
 
due
 
as
 
of
 
December
 
31,
 
2019.
 
As
 
of
 
December
 
31,
 
2021,
 
commercial
 
loans
 
totaling
 
$
342.4
million, or
3.10
% of
 
the balance
 
of the
 
total loan
 
portfolio held
 
for investment,
 
were modified
 
under the
 
aforementioned provisions.
These
 
modifications
 
on
 
commercial
 
loans
 
were
 
primarily
 
related
 
to
 
borrowers
 
in
 
industries
 
with
 
longer
 
expected
 
recovery
 
times,
mostly
 
hospitality,
 
retail
 
and
 
entertainment
 
industries,
 
and
 
consisted
 
of
 
providing
 
deferrals
 
of
 
principal
 
payments
 
and
 
interest
 
rate
adjustments
 
for
 
an
 
extended
 
period
 
of
 
time,
 
typically
 
12
 
months.
 
With
 
respect
 
to
 
temporary
 
deferred
 
repayment
 
arrangements
established in 2020
 
to assist borrowers
 
affected by
 
the COVID-19
 
pandemic, as of
 
December 31, 2021,
 
all loans previously
 
modified
under such programs have completed their deferral period.
 
 
Selected information on the Corporation’s
 
TDR loans held for investment based on the amortized cost by loan class and modification
type is summarized in the following tables as of the indicated dates:
As of December 31,
 
2021
Puerto Rico and Virgin Islands region
Interest rate
below market
Maturity or
term
extension
Combination
of reduction
in interest
rate and
extension of
maturity
Forgiveness
of principal
and/or
interest
Forbearance
Agreement
Other
(1)
Total
(In thousands)
TDRs:
Conventional residential mortgage loans
$
15,800
$
10,265
$
176,615
$
-
$
220
$
51,616
$
254,516
Construction loans
16
869
1,374
-
-
44
2,303
Commercial mortgage loans
1,421
718
41,480
-
16,041
6,908
66,568
C&I loans
218
2,401
17,319
-
16,765
33,302
70,005
Consumer loans:
Auto loans
-
186
2,561
-
-
4,503
7,250
Finance leases
-
2
258
-
-
715
975
Personal loans
43
6
329
-
-
596
974
Credit cards
-
-
2,574
9
-
-
2,583
Other consumer loans
892
816
282
122
-
274
2,386
Total TDRs in Puerto Rico and Virgin Islands region
$
18,390
$
15,263
$
242,792
$
131
$
33,026
$
97,958
$
407,560
(1)
Other concessions granted by the Corporation include deferral
 
of principal and/or interest payments for a period longer than
 
what would be considered insignificant, payment plans
 
under judicial
stipulation, or a combination of two or more of the concessions
 
listed in the table. Amounts included in Other that represent a
 
combination of concessions are excluded from the amounts
 
reported
in the column for such individual concessions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
202
As of December 31,
 
2021
Florida region
Interest rate
below market
Maturity or
term
extension
Combination
of reduction
in interest
rate and
extension of
maturity
Forgiveness
of principal
and/or
interest
Forbearance
Agreement
Other
(1)
Total
(In thousands)
TDRs:
Conventional residential mortgage loans
$
603
$
897
$
2,557
$
-
$
-
$
-
$
4,057
Construction loans
-
-
-
-
-
-
-
Commercial mortgage loans
-
812
1,453
-
-
-
2,265
C&I loans
-
282
-
-
-
133
415
Consumer loans:
Auto loans
-
31
3
-
-
-
34
Finance leases
-
-
-
-
-
-
-
Personal loans
-
-
-
-
-
-
-
Credit cards
-
-
-
-
-
-
-
Other consumer loans
-
-
75
-
-
332
407
 
Total TDRs in Florida region
$
603
$
2,022
$
4,088
$
-
$
-
$
465
$
7,178
(1)
Other concessions granted by the Corporation include deferral
 
of principal and/or interest payments for a period longer than what
 
would be considered insignificant, payment plans under judicial
stipulation, or a combination of two or more of the concessions
 
listed in the table. Amounts included in Other that represent a
 
combination of concessions are excluded from the amounts
 
reported
in the column for such individual concessions.
As of December 31,
 
2021
Total
Interest rate
below market
Maturity or
term
extension
Combination
of reduction
in interest
rate and
extension of
maturity
Forgiveness
of principal
and/or
interest
Forbearance
Agreement
Other
(1)
Total
(In thousands)
TDRs:
Conventional residential mortgage loans
$
16,403
$
11,162
$
179,172
$
-
$
220
$
51,616
$
258,573
Construction loans
16
869
1,374
-
-
44
2,303
Commercial mortgage loans
1,421
1,530
42,933
-
16,041
6,908
68,833
C&I loans
218
2,683
17,319
-
16,765
33,435
70,420
Consumer loans:
Auto loans
-
217
2,564
-
-
4,503
7,284
Finance leases
-
2
258
-
-
715
975
Personal loans
43
6
329
-
-
596
974
Credit cards
-
-
2,574
9
-
-
2,583
Other consumer loans
892
816
357
122
-
606
2,793
 
Total TDRs
$
18,993
$
17,285
$
246,880
$
131
$
33,026
$
98,423
$
414,738
(1)
Other concessions granted by the
 
Corporation include deferral of principal and/or
 
interest payments for a period
 
longer than what would be considered
 
insignificant, payment plans under
 
judicial
stipulation, or a combination of two or more
 
of the concessions listed in the table. Amounts included
 
in Other that represent a combination of
 
concessions are excluded from the amounts reported
in the column for such individual concessions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
203
As of December 31,
 
2020
Puerto Rico and Virgin Islands region
Interest rate
below market
Maturity or
term
extension
Combination
of reduction
in interest
rate and
extension of
maturity
Forgiveness
of principal
and/or
interest
Forbearance
Agreement
Other
(1)
Total
(In thousands)
TDRs:
Conventional residential mortgage loans
$
17,740
$
11,125
$
211,155
$
-
$
223
$
66,694
$
306,937
Construction loans
21
1,700
1,516
-
-
186
3,423
Commercial mortgage loans
1,491
1,380
35,714
-
16,473
6,765
61,823
C&I loans
238
12,267
14,119
-
17,890
35,744
80,258
Consumer loans:
Auto loans
-
474
4,863
-
-
6,112
11,449
Finance leases
-
15
588
-
-
541
1,144
Personal loans
58
9
571
-
-
286
924
Credit cards
-
-
2,342
16
-
-
2,358
Other consumer loans
1,602
991
572
193
-
343
3,701
Total TDRs in Puerto Rico and Virgin Islands region
$
21,150
$
27,961
$
271,440
$
209
$
34,586
$
116,671
$
472,017
(1)
Other concessions granted by the
 
Corporation include deferral of principal and/or
 
interest payments for a period
 
longer than what would be considered
 
insignificant, payment plans under
 
judicial
stipulation, or a combination of two or more
 
of the concessions listed in the table. Amounts included
 
in Other that represent a combination of
 
concessions are excluded from the amounts reported
in the column for such individual concessions.
As of December 31,
 
2020
Florida region
Interest rate
below market
Maturity or
term
extension
Combination
of reduction
in interest
rate and
extension of
maturity
Forgiveness
of principal
and/or
interest
Forbearance
Agreement
Other
(1)
Total
(In thousands)
TDRs:
Conventional residential mortgage loans
$
989
$
401
$
2,257
$
-
$
-
$
22
$
3,669
Construction loans
-
-
-
-
-
-
-
Commercial mortgage loans
-
834
1,781
-
-
-
2,615
C&I loans
-
-
-
-
-
224
224
Consumer loans:
Auto loans
-
55
15
-
-
-
70
Finance leases
-
-
-
-
-
-
-
Personal loans
-
-
-
-
-
-
-
Credit cards
-
-
-
-
-
-
-
Other consumer loans
37
-
172
-
-
392
601
 
Total TDRs in Florida region
$
1,026
$
1,290
$
4,225
$
-
$
-
$
638
$
7,179
(1)
Other concessions granted by the Corporation include deferral
 
of principal and/or interest payments for a period longer than what
 
would be considered insignificant, payment plans under judicial
stipulation, or a combination of two or more of the concessions
 
listed in the table. Amounts included in Other that represent a
 
combination of concessions are excluded from the amounts
 
reported
in the column for such individual concessions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
204
As of December 31,
 
2020
Total
Interest rate
below market
Maturity or
term
extension
Combination
of reduction
in interest
rate and
extension of
maturity
Forgiveness
of principal
and/or
interest
Forbearance
Agreement
Other
(1)
Total
(In thousands)
TDRs:
Conventional residential mortgage loans
$
18,729
$
11,526
$
213,412
$
-
$
223
$
66,716
$
310,606
Construction loans
21
1,700
1,516
-
-
186
3,423
Commercial mortgage loans
1,491
2,214
37,495
-
16,473
6,765
64,438
C&I loans
238
12,267
14,119
-
17,890
35,968
80,482
Consumer loans:
Auto loans
-
529
4,878
-
-
6,112
11,519
Finance leases
-
15
588
-
-
541
1,144
Personal loans
58
9
571
-
-
286
924
Credit cards
-
-
2,342
16
-
-
2,358
Other consumer loans
1,639
991
744
193
-
735
4,302
 
Total TDRs
$
22,176
$
29,251
$
275,665
$
209
$
34,586
$
117,309
$
479,196
(1)
Other concessions granted by the Corporation include deferral
 
of principal and/or interest payments for a period longer than what
 
would be considered insignificant, payment plans under judicial
stipulation, or a combination of two or more of the concessions
 
listed in the table. Amounts included in Other that represent a
 
combination of concessions are excluded from the amounts
 
reported
in the column for such individual concessions.
 
The following table presents the Corporation’s
 
TDR loans held for investment activity for the indicated periods:
Year
 
Ended
Year
 
Ended
Year
 
Ended
December 31,
 
2021
December 31,
 
2020
December 31, 2019
(In thousands)
Beginning balance of TDRs
$
479,196
$
487,997
$
582,647
New TDRs
34,216
36,319
63,433
Increases to existing TDRs
94
6,009
1,840
Charge-offs post-modification
(1)
(17,434)
(11,122)
(10,342)
Sales, net of charge-offs
(17,492)
-
-
Foreclosures
 
(3,117)
(2,015)
(12,872)
Removed from the TDR classification
(8,001)
-
-
Paid-off, partial payments and other
(2)
(52,724)
(37,992)
(136,709)
 
Ending balance of TDRs
$
414,738
$
479,196
$
487,997
(1)
For the year ended December
 
31, 2021, includes charge-offs
 
totaling $
12.5
 
million related to $
29.9
 
million of residential mortgage
 
TDR loans that were part
 
of the $
52.5
 
million bulk sale
of nonaccrual residential mortgage loans.
(2)
For the year ended December 31, 2019, includes the payoff
 
of a $
92.4
 
million commercial mortgage loan.
TDR
 
loans
 
are
 
classified
 
as
 
either
 
accrual
 
or
 
nonaccrual
 
loans.
 
Loans
 
in
 
accrual
 
status
 
may
 
remain
 
in
 
accrual
 
status
 
when
 
their
contractual terms
 
have been
 
modified in
 
a TDR
 
if the
 
loans had
 
demonstrated performance
 
prior to
 
the restructuring
 
and payment
 
in
full
 
under
 
the
 
restructured
 
terms
 
is
 
expected.
 
Otherwise,
 
a
 
loan
 
on
 
nonaccrual
 
status
 
and
 
restructured
 
as
 
a
 
TDR
 
will
 
remain
 
on
nonaccrual
 
status until
 
the borrower
 
has proven
 
the ability
 
to perform
 
under
 
the modified
 
structure, generally
 
for a
 
minimum
 
of
six
months
, and there
 
is evidence that
 
such payments can,
 
and are likely
 
to, continue as
 
agreed. Performance
 
prior to the
 
restructuring, or
significant events that coincide with the restructuring,
 
are included in assessing whether the borrower can
 
meet the new terms and may
result
 
in
 
the
 
loan
 
being
 
returned
 
to
 
accrual
 
status
 
at
 
the
 
time
 
of
 
the
 
restructuring
 
or
 
after
 
a
 
shorter
 
performance
 
period.
 
If
 
the
borrower’s
 
ability
 
to
 
meet
 
the
 
revised
 
payment
 
schedule
 
is
 
uncertain,
 
the
 
loan
 
remains
 
classified
 
as
 
a
 
nonaccrual
 
loan.
 
Loan
modifications
 
increase the
 
Corporation’s
 
interest income
 
by returning
 
a nonaccrual
 
loan to
 
performing
 
status, if
 
applicable,
 
increase
cash flows
 
by providing
 
for payments
 
to be
 
made by
 
the borrower,
 
and limit
 
increases in
 
foreclosure and
 
OREO costs.
 
A TDR
 
loan
that specifies an interest
 
rate that at the time
 
of the restructuring is
 
greater than or equal
 
to the rate the Corporation
 
is willing to accept
for a new loan with
 
comparable risk may not be
 
reported as a TDR loan in
 
the calendar years subsequent
 
to the restructuring, if
 
it is in
compliance with
 
its modified
 
terms. During
 
the year
 
ended December
 
31, 2021,
 
the Corporation
 
removed $
8.0
 
million in
 
loans from
the TDR classification as the borrower was no longer experiencing
 
financial difficulties, the outstanding loans are at market
 
terms, and
did not
 
contain any
 
concession to
 
the borrowers.
 
The Corporation
 
did not remove
 
any loans from
 
the TDR classification
 
during 2020
and 2019.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
205
 
The following tables provide a breakdown of the TDR loans held for investment portfolio
 
by those in accrual and nonaccrual status as
of the indicated dates:
December 31, 2021
Puerto Rico and
Virgin Islands region
Florida region
Total
Accrual
Nonaccrual
 
Total TDRs
Accrual
Nonaccrual
Total TDRs
Accrual
Nonaccrual
(1)
Total TDRs
(In thousands)
Conventional residential mortgage loans
$
234,597
$
19,919
$
254,516
$
3,030
$
1,027
$
4,057
$
237,627
$
20,946
$
258,573
Construction loans
1,845
458
2,303
-
-
-
1,845
458
2,303
Commercial mortgage loans
50,608
15,960
66,568
2,265
-
2,265
52,873
15,960
68,833
C&I loans
59,792
10,213
70,005
-
415
415
59,792
10,628
70,420
Consumer loans:
 
Auto loans
4,174
3,076
7,250
34
-
34
4,208
3,076
7,284
 
Finance leases
975
-
975
-
-
-
975
-
975
 
Personal loans
973
1
974
-
-
-
973
1
974
 
Credit Cards
2,583
-
2,583
-
-
-
2,583
-
2,583
 
Other consumer loans
2,111
275
2,386
407
-
407
2,518
275
2,793
 
Total TDRs
$
357,658
$
49,902
$
407,560
$
5,736
$
1,442
$
7,178
$
363,394
$
51,344
$
414,738
(1)
Included in nonaccrual loans
 
are $
13.5
 
million in loans that
 
are performing under the
 
terms of the restructuring
 
agreement but are reported
 
in nonaccrual status until
 
the restructured loans meet
the criteria of sustained payment performance under the revised
 
terms for reinstatement to accrual status and are deemed
 
fully collectible.
December 31, 2020
Puerto Rico and
Virgin Islands region
Florida region
Total
Accrual
Nonaccrual
Total TDRs
Accrual
Nonaccrual
Total TDRs
Accrual
Nonaccrual
(1)
Total TDRs
(In thousands)
Conventional residential mortgage loans
$
253,421
$
53,516
$
306,937
$
3,358
$
311
$
3,669
$
256,779
$
53,827
$
310,606
Construction loans
2,480
943
3,423
-
-
-
2,480
943
3,423
Commercial mortgage loans
43,012
18,811
61,823
2,615
-
2,615
45,627
18,811
64,438
C&I loans
73,649
6,609
80,258
-
224
224
73,649
6,833
80,482
Consumer loans:
 
Auto loans
6,481
4,968
11,449
70
-
70
6,551
4,968
11,519
 
Finance leases
1,125
19
1,144
-
-
-
1,125
19
1,144
 
Personal loans
920
4
924
-
-
-
920
4
924
 
Credit Cards
2,358
-
2,358
-
-
-
2,358
-
2,358
 
Other consumer loans
3,274
427
3,701
564
37
601
3,838
464
4,302
 
Total TDRs
$
386,720
$
85,297
$
472,017
$
6,607
$
572
$
7,179
$
393,327
$
85,869
$
479,196
(1)
Included in nonaccrual
 
loans are $
5.9
 
million in loans
 
that are performing
 
under the terms
 
of the restructuring
 
agreement but are
 
reported in nonaccrual
 
status until the
 
restructured loans meet
the criteria of sustained payment performance under the revised
 
terms for reinstatement to accrual status and are deemed
 
fully collectible.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
206
TDR
 
loans
 
exclude
 
restructured
 
residential
 
mortgage
 
loans
 
that
 
are
 
government-guaranteed
 
(
e.g.
,
 
FHA/VA
 
loans)
 
totaling
 
$
57.6
million
 
as
 
of
 
December
 
31,
 
2021
 
(compared
 
with
 
$
58.7
 
million
 
as
 
of
 
December
 
31,
 
2020).
 
The
 
Corporation
 
excludes
 
FHA/VA
guaranteed loans
 
from TDR loan
 
statistics given that,
 
in the event
 
that the borrower
 
defaults on the
 
loan, the principal
 
and interest
 
(at
the specified debenture rate) are guaranteed by the U.S. government.
 
Therefore, the risk of loss on these types of loans is very low.
 
Loan modifications that are considered TDR loans completed during 2021, 2020
 
and 2019 were as follows:
Year Ended December 31, 2021
Puerto Rico and Virgin Islands region
Florida region
Total
Number of
contracts
Pre-
modification
Amortized
Cost
Post-
modification
Amortized
Cost
Number of
contracts
Pre-
modification
Amortized
Cost
Post-
modification
Amortized
Cost
Number of
contracts
Pre-
modification
Amortized
Cost
Post-
modification
Amortized
Cost
(Dollars in thousands)
TDRs:
Conventional residential mortgage loans
61
$
6,221
$
6,128
5
$
1,466
$
1,466
66
$
7,687
$
7,594
Construction loans
-
-
-
-
-
-
-
-
-
Commercial mortgage loans
7
11,285
11,223
-
-
-
7
11,285
11,223
C&I loans
5
9,732
9,609
1
299
299
6
10,031
9,908
Consumer loans:
 
Auto loans
134
2,601
2,598
-
-
-
134
2,601
2,598
 
Finance leases
42
692
697
-
-
-
42
692
697
 
Personal loans
46
497
504
-
-
-
46
497
504
 
Credit Cards
246
1,426
1,426
-
-
-
246
1,426
1,426
 
Other consumer loans
65
266
266
-
-
-
65
266
266
 
Total TDRs
606
$
32,720
$
32,451
6
$
1,765
$
1,765
612
$
34,485
$
34,216
Year Ended December 31, 2020
Puerto Rico and Virgin Islands region
Florida region
Total
Number of
contracts
Pre-
modification
Amortized
Cost
Post-
modification
Amortized
Cost
Number of
contracts
Pre-
modification
Amortized
Cost
Post-
modification
Amortized
Cost
Number of
contracts
Pre-
modification
Amortized
Cost
Post-
modification
Amortized
Cost
(Dollars in thousands)
TDRs:
Conventional residential mortgage loans
103
$
9,027
$
8,307
-
$
-
$
-
103
$
9,027
$
8,307
Construction loans
-
-
-
-
-
-
-
-
-
Commercial mortgage loans
5
824
824
-
-
-
5
824
824
C&I loans
14
22,544
22,524
-
-
-
14
22,544
22,524
Consumer loans:
 
Auto loans
163
2,635
2,623
-
-
-
163
2,635
2,623
 
Finance leases
29
408
408
-
-
-
29
408
408
 
Personal loans
30
306
305
-
-
-
30
306
305
 
Credit Cards
159
783
783
-
-
-
159
783
783
 
Other consumer loans
144
590
522
1
23
23
145
613
545
 
Total TDRs
647
$
37,117
$
36,296
1
$
23
$
23
648
$
37,140
$
36,319
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
207
Year Ended December 31, 2019
Puerto Rico and Virgin Islands region
Florida region
Total
Number of
contracts
Pre-
modification
Amortized
Cost
Post-
modification
Amortized
Cost
Number of
contracts
Pre-
modification
Amortized
Cost
Post-
modification
Amortized
Cost
Number of
contracts
Pre-
modification
Amortized
Cost
Post-
modification
Amortized
Cost
(Dollars in thousands)
TDRs:
Conventional residential mortgage loans
118
$
14,606
$
14,084
-
$
-
$
-
118
$
14,606
$
14,084
Construction loans
4
118
117
-
-
-
4
118
117
Commercial mortgage loans
13
40,988
38,750
-
-
-
13
40,988
38,750
C&I loans
14
1,754
1,750
-
-
-
14
1,754
1,750
Consumer loans:
 
Auto loans
253
4,168
4,121
3
33
33
256
4,201
4,154
 
Finance leases
42
804
801
-
-
-
42
804
801
 
Personal loans
53
502
499
-
-
-
53
502
499
 
Credit Cards
153
800
800
-
-
-
153
800
800
 
Other consumer loans
656
2,411
2,478
-
-
-
656
2,411
2,478
 
Total TDRs
1,306
$
66,151
$
63,400
3
$
33
$
33
1,309
$
66,184
$
63,433
Recidivism,
 
or
 
the
 
borrower
 
defaulting
 
on
 
its
 
obligation
 
pursuant
 
to
 
a
 
modified
 
loan,
 
results
 
in
 
the
 
loan
 
once
 
again
 
becoming
 
a
nonaccrual loan. Recidivism
 
on a modified loan
 
occurs at a notably
 
higher rate than do
 
defaults on new origination
 
loans, so modified
loans present
 
a higher
 
risk of
 
loss than
 
do new
 
origination loans.
 
The Corporation
 
considers a
 
loan to
 
have defaulted
 
if the
 
borrower
has failed to make payments of either principal, interest, or both for a period of
90
 
days or more.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
208
 
Loan
 
modifications
 
considered
 
TDR
 
loans
 
that
 
defaulted
 
during
 
the
 
years
 
ended
 
December
 
31,
 
2021,
 
2020,
 
and
 
2019,
 
and
 
had
become TDR loans during the 12-months preceding the default date, were
 
as follows:
Year Ended December 31,
 
2021
2020
2019
Puerto Rico and Virgin Islands region
Number of
contracts
Amortized Cost
Number of
contracts
Amortized Cost
Number of
contracts
Amortized Cost
(Dollars in thousands)
Conventional residential mortgage loans
7
$
475
10
$
2,380
11
$
2,019
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
C&I loans
-
-
3
124
-
-
Consumer loans:
 
Auto loans
92
1,625
55
947
130
2,221
 
Finance leases
-
-
1
5
1
14
 
Personal loans
1
1
1
7
1
9
 
Credit cards
42
260
47
228
-
-
 
Other consumer loans
11
45
58
209
77
238
 
Total Puerto Rico and Virgin Islands region
153
$
2,406
175
$
3,900
220
$
4,501
Year Ended December 31,
 
2021
2020
2019
Florida region
Number of
contracts
Amortized Cost
Number of
contracts
Amortized Cost
Number of
contracts
Amortized Cost
(Dollars in thousands)
Conventional residential mortgage loans
-
$
-
-
$
-
-
$
-
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
C&I loans
-
-
-
-
-
-
Consumer loans:
 
Auto loans
-
-
-
-
-
-
 
Finance leases
-
-
-
-
-
-
 
Personal loans
-
-
-
-
-
-
 
Credit cards
-
-
-
-
-
-
 
Other consumer loans
-
-
-
-
-
-
 
Total in Florida region
-
$
-
-
$
-
-
$
-
Year Ended December 31,
 
2021
2020
2019
Total
Number of
contracts
Amortized Cost
Number of
contracts
Amortized Cost
Number of
contracts
Amortized Cost
(Dollars in thousands)
Conventional residential mortgage loans
7
$
475
10
$
2,380
11
$
2,019
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
C&I loans
-
-
3
124
-
-
Consumer loans:
 
Auto loans
92
1,625
55
947
130
2,221
 
Finance leases
-
-
1
5
1
14
 
Personal loans
1
1
1
7
1
9
 
Credit cards
42
260
47
228
-
-
 
Other consumer loans
11
45
58
209
77
238
 
Total
153
$
2,406
175
$
3,900
220
$
4,501
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
209
NOTE 9 – ALLOWANCE
 
FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES
 
The following table presents the activity in the ACL on loans and finance leases by
 
portfolio segment for the
indicated periods:
Residential
Mortgage
Loans
Construction
Loans
Commercial
Mortgage
Commercial &
Industrial
Loans
Consumer
Loans
Total
Year Ended December
 
31,
 
2021
(In thousands)
ACL:
Beginning balance
$
120,311
$
5,380
$
109,342
$
37,944
$
112,910
$
385,887
Provision for credit losses - (benefit) expense
(16,957)
(1,408)
(55,358)
(8,549)
20,552
(61,720)
Charge-offs
 
(33,294)
(87)
(1,494)
(1,887)
(43,948)
(80,710)
Recoveries
4,777
163
281
6,776
13,576
25,573
Ending balance
$
74,837
$
4,048
$
52,771
$
34,284
$
103,090
$
269,030
Residential
Mortgage
Loans
Construction
Loans
Commercial
Mortgage
Commercial &
Industrial
Loans
Consumer
Loans
Total
Year Ended December
 
31,
 
2020
(In thousands)
ACL:
Beginning balance, prior to adoption of CECL
$
44,806
$
2,370
$
39,194
$
15,198
$
53,571
$
155,139
Impact of adopting CECL
49,837
797
(19,306)
14,731
35,106
81,165
Allowance established for acquired PCD loans
12,739
-
9,723
1,830
4,452
28,744
Provision for credit losses
(1)
22,427
2,105
81,125
6,627
56,433
168,717
Charge-offs
 
(11,017)
(76)
(3,330)
(3,634)
(46,483)
(64,540)
Recoveries
1,519
184
1,936
3,192
9,831
16,662
 
Ending balance
$
120,311
$
5,380
$
109,342
$
37,944
$
112,910
$
385,887
Residential
Mortgage
Loans
Construction
Loans
Commercial
Mortgage
Commercial &
Industrial
Loans
Consumer
Loans
Total
Year Ended December
 
31, 2019
(In thousands)
ACL:
Beginning balance
$
50,794
$
3,592
$
55,581
$
32,546
$
53,849
$
196,362
Provision for credit losses - expense (benefit)
14,091
(1,496)
(1,697)
(13,696)
43,023
40,225
Charge-offs
(22,742)
(391)
(15,088)
(7,206)
(52,160)
(97,587)
Recoveries
2,663
665
398
3,554
8,859
16,139
 
Ending balance
$
44,806
$
2,370
$
39,194
$
15,198
$
53,571
$
155,139
(1)
Includes a $
37.5
 
million charge related to the establishment of the initial reserves for non-PCD
 
loans acquired in conjunction with the BSPR acquisition consisting of: (i)
 
a $
13.6
 
million charge related to
non-PCD residential mortgage loans; (ii) a $
9.2
 
million charge related to non-PCD commercial mortgage loans, (iii) a $
4.6
 
million charge related to non-PCD commercial and industrial loans,
and (iv) a $
10.2
 
million charge related to non-PCD consumer loans.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
210
The
 
Corporation
 
estimates
 
the
 
ACL
 
following
 
the
 
methodologies
 
described
 
in
 
Note
 
1,
 
–
 
Basis
 
of
 
Presentation
 
and
 
Significant
Accounting Policies,
 
above for each
 
portfolio segment.
 
As of each
 
of the years
 
ended December
 
31, 2021, and
 
2020, the Corporation
used the base-case
 
economic scenario
 
from Moody’s
 
Analytics to estimate
 
the ACL.
 
As of
 
December 31,
 
2021, the baseline
 
scenario
continues to
 
show a
 
more favorable
 
economic scenario
 
and modest
 
improvements in
 
projected unemployment
 
rates, and
 
commercial
real
 
estate
 
price
 
index
 
when
 
compared
 
to
 
forecast
 
of
 
December
 
31,
 
2020.
 
The
 
U.S.
 
mainland
 
average
 
forecasted
 
commercial
 
price
index included in
 
the 2021 forecast is
 
an appreciation of
 
5.68% for the next
 
two years, compared
 
to an average contraction
 
of 11.36%
in
 
the
 
forecast
 
of
 
December
 
31,
 
2020,
 
for
 
the
 
years
 
2021
 
and
 
2022.
 
The
 
current
 
average
 
forecasted
 
Puerto
 
Rico,
 
Florida
 
and
 
U.S.
mainland unemployment rate for the year 2022
 
is now 7.38%, 3.15% and 3.71%, respectively,
 
compared to 8.12%, 6.14%, and 6.20%,
respectively,
 
in
 
the
 
forecast
 
of
 
December
 
31,
 
2020,
 
showing
 
an
 
improvement
 
in
 
all
 
three
 
regions.
 
Expectations
 
for
 
2023,
 
for
 
these
macroeconomic variables also present a favorable outlook over the
 
forecasted period.
As
 
of
 
December
 
31,
 
2021,
 
the
 
ACL
 
for
 
loans
 
and
 
finance
 
leases
 
was
 
$
269.0
 
million,
 
down
 
$
116.9
 
million
 
from
 
December
 
31,
2020,
 
driven
 
by
 
positive
 
changes
 
in
 
the
 
outlook
 
of
 
macroeconomic
 
assumptions
 
to
 
which
 
the
 
reserve
 
is
 
correlated.
 
The
 
ACL
 
for
commercial
 
and
 
construction
 
loans
 
decreased
 
by
 
$
61.6
 
million
 
during
 
the
 
year
 
ended
 
December
 
31,
 
2021,
 
primarily
 
reflecting
continued
 
improvements
 
in
 
the
 
outlook
 
of
 
macroeconomic
 
variables,
 
including
 
improvements
 
in
 
the
 
commercial
 
real
 
estate
 
price
index
 
and unemployment
 
rate forecasts,
 
the overall
 
decline in
 
the size
 
of these
 
portfolios,
 
and
 
the effect
 
of a
 
$
5.2
 
million loan
 
loss
recovery
 
recorded
 
in
 
2021
 
in
 
connection
 
with
 
a
 
paydown
 
of
 
a
 
nonaccrual
 
commercial
 
and
 
industrial
 
loan.
 
In
 
addition,
 
there
 
was
 
a
$
45.5
 
million
 
decrease
 
in
 
the ACL
 
for
 
residential
 
mortgage
 
loans
 
and
 
a $
9.8
 
million
 
decrease in
 
the
 
ACL for
 
consumer
 
loans.
 
The
decrease
 
in the
 
ACL for
 
consumer
 
loans consisted
 
of net
 
charge-offs
 
of $
30.4
 
million,
 
primarily
 
taken
 
on personal
 
loans and
 
credit
card loans, partially offset
 
by charges to the
 
provision of $
20.6
 
million that, among other
 
things, account for the increase
 
in the size of
the portfolio of auto loans and
 
finance leases and increases in cumulative
 
historical charge-off
 
levels for personal loans and credit
 
card
loans. The
 
decrease in
 
the ACL
 
for residential
 
mortgage loans
 
consisted of
 
net charge-offs
 
of $
28.5
 
million, of
 
which $
23.1
 
million
are related
 
to charge-offs
 
recognized as
 
part of
 
the bulk
 
sale of
 
nonaccrual residential
 
mortgage loans
 
and related
 
servicing advances
during the
 
third quarter
 
of 2021, and
 
a benefit, or
 
provision recapture,
 
of $
17.0
 
million that was
 
primarily related
 
to improvements
 
in
the
 
outlook
 
of
 
macroeconomic
 
variables,
 
such
 
as
 
regional
 
unemployment
 
rate
 
and
 
Home
 
Price
 
Index,
 
and
 
the
 
overall
 
portfolio
decrease. For
 
those loans
 
where the
 
ACL was
 
determined based
 
on a
 
discounted cash
 
flow model,
 
the change
 
in the
 
ACL due
 
to the
passage of time is recorded as part of the provision for credit losses.
Total
 
net
 
charge-offs
 
increased
 
$
7.3
 
million,
 
or
15
%,
 
in
 
2021.
 
The
 
variance
 
consisted
 
of
 
a
 
$
19.0
 
million
 
increase
 
in
 
residential
mortgage
 
net
 
charge-offs,
 
driven
 
by
 
the
 
$
23.1
 
million
 
net
 
charge-offs
 
recorded
 
in
 
connection
 
with
 
the
 
bulk
 
sale
 
of
 
nonaccrual
residential mortgage
 
loans, partially
 
offset by
 
a $
6.3
 
million decrease
 
in consumer
 
loans net charge-offs
 
and the aforementioned
 
$
5.2
million loan loss recovery recorded in connection with the paydown of
 
a nonaccrual commercial and industrial loans.
As of
 
December 31,
 
2020, the
 
ACL for
 
loans and
 
finance leases
 
was $
385.9
 
million, up
 
$
230.8
 
million from
 
December 31,
 
2019,
driven
 
by
 
the
 
$
81.2
 
million
 
increase
 
as
 
a
 
result
 
of
 
adopting
 
CECL,
 
a
 
$
168.7
 
million
 
provision
 
for
 
credit
 
losses
 
on
 
loans,
 
and
 
the
establishment
 
of a
 
$
28.7
 
million
 
ACL for
 
PCD loans
 
acquired
 
in conjunction
 
with the
 
BSPR acquisition.
 
The Corporation
 
recorded
net charge-offs
 
of $
47.9
 
million for
 
the year
 
ended December
 
31, 2020,
 
compared to
 
$
81.4
 
million for
 
the year
 
ended December
 
31,
2019.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
211
 
The
 
tables
 
below
 
present
 
the
 
ACL
 
related
 
to
 
loans
 
and
 
finance
 
leases
 
and
 
the
 
carrying
 
values
 
of
 
loans
 
by
 
portfolio
 
segment
 
as
 
of
December 31, 2021 and December 31, 2020:
As of December 31,
 
2021
Residential
Mortgage Loans
Construction
Loans
Commercial
Mortgage
Consumer
Loans
Commercial and
Industrial Loans
(1)
(Dollars in thousands)
Total
Total loans held for investment:
 
Amortized cost of loans
$
2,978,895
$
138,999
$
2,167,469
$
2,887,251
$
2,888,044
$
11,060,658
 
Allowance for credit losses
74,837
4,048
52,771
34,284
103,090
269,030
 
Allowance for credit losses to
 
 
amortized cost
2.51
%
2.91
%
2.43
%
1.19
%
3.57
%
2.43
%
As of December 31, 2020
Residential
Mortgage Loans
Construction
Loans
Commercial
Mortgage Loans
Consumer
Loans
Commercial and
Industrial Loans
(1)
(Dollars in thousands)
Total
Total loans held for investment:
Amortized cost of loans
$
3,521,954
$
212,500
$
2,230,602
$
3,202,590
$
2,609,643
$
11,777,289
Allowance for credit losses
120,311
5,380
109,342
37,944
112,910
385,887
Allowance for credit losses to
amortized cost
3.42
%
2.53
%
4.90
%
1.18
%
4.33
%
3.28
%
____________
(1)
As of December 31,
 
2021 and December 31, 2020, includes $
145.0
 
million and $
406.0
 
million of SBA PPP loans, respectively, which require no ACL as these loans are 100% guaranteed by the SBA.
In
 
addition,
 
the
 
Corporation
 
estimates
 
expected
 
credit
 
losses
 
over
 
the
 
contractual
 
period
 
in
 
which
 
the
 
Corporation
 
is
 
exposed
 
to
credit
 
risk
 
via
 
a
 
contractual
 
obligation
 
to
 
extend
 
credit,
 
such
 
as
 
unfunded
 
loan
 
commitments
 
and
 
standby
 
letters
 
of
 
credit
 
for
commercial and construction loans,
 
unless the obligation is unconditionally
 
cancellable by the Corporation. The
 
Corporation estimates
the ACL for
 
these off-balance sheet
 
exposures following
 
the methodology described
 
in Note 1
 
- Basis of
 
Presentation and
 
Significant
Accounting Policies,
 
above. As
 
of December
 
31, 2021,
 
the ACL
 
for off-balance
 
sheet credit
 
exposures was
 
$
1.5
 
million, down
 
$
3.6
million
 
from
 
$
5.1
 
million
 
as
 
of
 
December
 
31,
 
2020.
 
The
 
decrease
 
was
 
mainly
 
in
 
connection
 
with
 
improvements
 
in
 
the
 
outlook
 
of
macroeconomic variables.
The
 
following
 
table
 
presents
 
the
 
activity
 
in
 
the
 
ACL
 
for
 
unfunded
 
loan
 
commitments
 
and
 
standby
 
letters
 
of
 
credit
 
for
 
the
 
years
ended December 31, 2021, 2020 and 2019:
Year
 
Ended
December 31,
2021
2020
2019
(In thousands)
Beginning Balance
$
5,105
$
-
$
412
Impact of adopting CECL
-
3,922
-
Provision for credit losses - (benefit)
(3,568)
1,183
(412)
 
Ending balance
$
1,537
$
5,105
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
212
NOTE 10 – LOANS HELD FOR SALE
The Corporation’s loans held-for-sale
 
portfolio as of the dates indicated was composed of:
December 31,
2021
2020
(In thousands)
Residential mortgage loans
$
35,155
$
50,289
NOTE 11
–
OTHER REAL ESTATE
 
OWNED
The following table presents the OREO inventory as of the dates indicated:
December 31,
 
(In thousands)
2021
2020
OREO
OREO balances, carrying value:
Residential
(1)
$
29,533
$
32,418
Commercial
7,331
44,356
Construction
3,984
6,286
Total
$
40,848
$
83,060
(1)
Excludes $
22.2
 
million and $
18.6
 
million as of December 31, 2021 and 2020, respectively,
 
of foreclosures that meet the conditions of ASC Subtopic 310-40
“Reclassification of Residential Real Estate Collateralized Consumer
 
Mortgage Loans upon Foreclosure,” and are presented
 
as a receivable as part of
other assets in the consolidated statements of financial condition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
213
NOTE 12 – RELATED
 
-PARTY
 
TRANSACTIONS
The Corporation granted loans to
 
its directors, executive officers,
 
and certain related individuals or
 
entities in the ordinary course
 
of
business. The movement and balance of these loans were as follows:
Amount
(In thousands)
Balance at December 31,
 
2019
$
1,032
New loans
 
425
Payments
(953)
Other changes
-
Balance at December 31,
 
2020
504
New loans
 
286
Payments
(108)
Other changes
261
Balance at December 31,
 
2021
$
943
These loans
 
were made
 
subject to
 
the provisions
 
of the
 
Federal Reserve’s
 
Regulation O
 
- “Loans
 
to Executive
 
Officers, Directors
and
 
Principal
 
Shareholders
 
of
 
Member
 
Banks,”
 
which
 
governs
 
the
 
permissible
 
lending
 
relationships
 
between
 
a
 
financial
 
institution
and its executive officers, directors, principal
 
shareholders, their families,
 
and related parties.
 
Amounts related to changes in the status
of those who are considered
 
related parties are reported as other
 
changes in the table above,
 
which, for 2021, was mainly related
 
to the
addition of three new executive officers and the departure
 
of one executive officer.
From
 
time
 
to
 
time,
 
the
 
Corporation,
 
in
 
the
 
ordinary
 
course
 
of
 
its
 
business,
 
obtains
 
services
 
from
 
related
 
parties
 
or
 
makes
contributions to non-profit organizations that have some association
 
with the Corporation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
214
NOTE 13 – PREMISES AND EQUIPMENT
Premises and equipment comprise:
Useful Life Range In Years
As of December 31,
Minimum
Maximum
2021
2020
(Dollars in thousands)
Buildings and improvements
10
35
$
138,524
$
138,686
Leasehold improvements
1
10
79,419
82,034
Furniture and equipment
2
10
148,171
224,623
366,114
445,343
Accumulated depreciation and amortization
(251,659)
(318,659)
114,455
126,684
Land
23,873
23,873
Projects in progress
8,089
7,652
 
Total premises and equipment,
 
net
$
146,417
$
158,209
Depreciation
 
and
 
amortization
 
expense
 
amounted
 
to
 
$
25.0
 
million,
 
$
20.1
 
million,
 
and
 
$
17.6
 
million
 
for
 
the
 
years
 
ended
December 31, 2021, 2020, and 2019, respectively.
During the year ended December 31, 2021 the
 
Corporation received insurance proceeds of $
0.6
 
million related to the settlement and
collection of an insurance claim associated with a damage property.
 
This amount is included as part of other non-interest income in the
consolidated statements of income.
During
 
2020,
 
the
 
Corporation
 
received
 
insurance
 
proceeds
 
of
 
$
5.0
 
million
 
resulting
 
from
 
the
 
final
 
settlement
 
of
 
the
 
business
interruption insurance claim
 
related to lost profits caused
 
by Hurricanes Irma and
 
Maria. This amount is included
 
as part of other non-
interest
 
income
 
in
 
the
 
consolidated
 
statements
 
of
 
income.
 
In addition,
 
during
 
2020,
 
the Corporation
 
received
 
insurance proceeds
 
of
$
1.2
 
million related to hurricane-related expenses claims recorded as a contra-account
 
of non-interest expenses, primarily consisting of
occupancy and equipment costs.
 
During 2019, the Corporation received
 
insurance proceeds of $
0.6
 
million related to casualty losses incurred
 
at some facilities. The
insurance proceeds were
 
recorded against impairment
 
losses. Insurance recoveries
 
in excess of
 
losses amounted $
0.1
 
million for 2019
and were
 
recorded as a
 
gain from insurance
 
proceeds and
 
reported as part
 
of other non-interest
 
income in
 
the consolidated
 
statements
of income.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
215
NOTE 14 – GOODWILL AND OTHER INTANGIBLES
 
 
Goodwill
 
as
 
of
 
each
 
December
 
31,
 
2021
 
and
 
December
 
31,
 
2020
 
amounted
 
to
 
$
38.6
 
million.
 
As
 
of
 
December
 
31,
 
2021,
 
the
Corporation’s
 
goodwill includes
 
$
26.7
 
million related
 
to the United
 
States (Florida)
 
reporting unit
 
and $
11.9
 
million recorded
 
mainly
in
 
connection
 
with
 
the
 
acquisition
 
of
 
BSPR
 
on
 
September
 
1,
 
2020.
 
The
 
Corporation’s
 
policy
 
is
 
to
 
assess
 
goodwill
 
and
 
other
intangibles for
 
impairment on
 
an annual
 
basis during
 
the fourth
 
quarter of
 
each year,
 
and more
 
frequently if
 
events or
 
circumstances
lead management
 
to believe
 
that the
 
values of
 
goodwill or
 
other
 
intangibles may
 
be impaired.
 
During the
 
fourth quarter
 
of 2021,
 
as
part
 
of
 
its
 
annual
 
evaluation,
 
the
 
Corporation
 
performed
 
a
 
qualitative
 
assessment
 
to
 
determine
 
if
 
a
 
goodwill
 
impairment
 
test
 
was
necessary.
 
This assessment involved
 
identifying the inputs
 
and assumptions that
 
most affects fair
 
value, evaluating the
 
significance of
all identified relevant
 
events and circumstances that
 
affect fair value
 
of the reporting entity
 
and evaluating such
 
factors to determine if
a
 
positive
 
assertion
 
can
 
be
 
made
 
that
 
it
 
is
 
more
 
likely
 
than
 
not
 
that
 
the
 
fair
 
value
 
of
 
the
 
reporting
 
unit
 
is
 
greater
 
than
 
its
 
carrying
amount. As
 
of December
 
31, 2021,
 
the Corporation
 
concluded that
 
it is more
 
-likely-than-not that
 
the fair
 
value of
 
the reporting
 
units
exceeded its carrying value. As a result,
no
 
impairment charges for goodwill were recorded during
 
the year ended December 31, 2021.
The
 
changes
 
in
 
the
 
carrying
 
amount
 
of
 
goodwill
 
attributable
 
to
 
operating
 
segments
 
are
 
reflected
 
in
 
the
 
following
 
table.
 
The
adjustments for
 
the years
 
ended December
 
31, 2020
 
and 2021
 
are measurement
 
period adjustments,
 
primarily related
 
to post
 
closing
purchase price
 
adjustments to
 
account for
 
differences between
 
BSPR’s
 
actual excess
 
capital at
 
closing date
 
compared to
 
the BSPR’s
excess capital amount
 
used for the
 
preliminary closing statement
 
at acquisition date.
 
During the third quarter
 
of 2021, the Corporation
finalized its fair values analysis of the acquired assets and assumed liabilities associated with
 
the BSPR acquisition.
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial
and Corporate
Banking
United States
Operations
Total
(In thousands)
Goodwill, January 1, 2020
$
-
$
1,406
$
-
$
26,692
$
28,098
Merger and acquisitions
574
794
4,935
-
6,303
Adjustments
385
533
3,313
-
4,231
Goodwill, December 31, 2020
$
959
$
2,733
$
8,248
$
26,692
$
38,632
Adjustments
53
74
(148)
-
(21)
Goodwill, December 31, 2021
$
1,012
$
2,807
$
8,100
$
26,692
$
38,611
The Corporation
 
had other
 
intangible assets
 
of $
29.9
 
million as
 
of December
 
31, 2021,
 
consisting of
 
$
28.6
 
million in
 
core deposit
intangibles,
 
$
1.2
 
million
 
in
 
purchased
 
credit
 
card
 
relationship
 
intangibles,
 
and
 
$
0.2
 
million
 
in
 
insurance
 
customer
 
relationship
intangibles.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
216
The
 
following
 
table
 
shows
 
the
 
gross
 
amount
 
and
 
accumulated
 
amortization
 
of the
 
Corporation’s
 
other
 
intangible
 
assets as
 
of
 
the
indicated dates:
Year Ended December 31, 2021
Core deposit intangible
Purchased credit card
relationship intangible
Insurance customer
relationship intangible
Total
(In thousands)
Gross amount of intangible assets:
 
Beginning balance
$
87,096
$
28,265
$
1,067
$
116,428
 
Measurement period adjustment
(1)
448
-
-
448
 
Ending balance
87,544
28,265
1,067
116,876
Accumulated amortization:
 
Beginning balance
(51,254)
(23,532)
(749)
(75,535)
 
Amortization
(7,719)
(3,535)
(153)
(11,407)
 
Ending balance
(58,973)
(27,067)
(902)
(86,942)
Net intangible assets
$
28,571
$
1,198
$
165
$
29,934
Remaining amortization period (in years)
8.0
1.7
1.1
(1)
Measurement adjustment relates to fair value estimate update performed within 1 year of the closing date of the BSPR acquisition, in accordance with ASC 805.
Year Ended December 31, 2020
Core deposit intangible
Purchased credit card
relationship intangible
Insurance customer
relationship intangible
Total
(In thousands)
Gross amount of intangible assets:
 
Beginning balance
$
51,664
$
24,465
$
1,067
$
77,196
 
Additions due to acquisitions
35,432
3,800
-
39,232
 
Ending balance
87,096
28,265
1,067
116,428
Accumulated amortization:
 
Beginning balance
(48,176)
(20,850)
(597)
(69,623)
 
Amortization
(3,078)
(2,682)
(152)
(5,912)
 
Ending balance
(51,254)
(23,532)
(749)
(75,535)
Net intangible assets
$
35,842
$
4,733
$
318
$
40,893
Remaining amortization period (in years)
9.0
2.7
2.1
Year Ended December 31, 2019
Core deposit intangible
Purchased credit card
relationship intangible
Insurance customer
relationship intangible
Total
(In thousands)
Gross amount of intangible assets:
 
Beginning balance
$
51,664
$
24,465
$
1,067
$
77,196
Accumulated amortization:
 
Beginning balance
(47,329)
(18,763)
(445)
(66,537)
 
Amortization
(847)
(2,087)
(152)
(3,086)
 
Ending balance
(48,176)
(20,850)
(597)
(69,623)
Net intangible assets
$
3,488
$
3,615
$
470
$
7,573
Remaining amortization period (in years)
5.1
1.9
3.0
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
217
 
The Corporation amortizes
 
core deposit intangibles
 
and customer relationship
 
intangibles based on
 
the projected useful lives
 
of the
related deposits in the
 
case of core deposit
 
intangibles, and over the
 
projected useful lives of
 
the related client relationships
 
in the case
of customer relationship intangibles. As
 
mentioned above, the Corporation analyzes
 
core deposit intangibles and customer
 
relationship
intangibles
 
annually
 
for
 
impairment,
 
or
 
sooner
 
if
 
events
 
and
 
circumstances
 
indicate
 
possible
 
impairment.
 
Factors
 
that
 
may
 
suggest
impairment include
 
customer attrition
 
and run-off.
 
Management is
 
unaware of
 
any events
 
and/or circumstances
 
that would
 
indicate a
possible impairment to the core deposit intangibles or customer relationship
 
intangibles as of December 31, 2021.
The estimated aggregate annual amortization expense related to the intangible
 
assets for future periods was as follows as of December
31, 2021:
Amount
(In thousands)
2022
$
8,816
2023
7,736
2024
6,416
2025
3,509
2026
872
2027 and after
2,585
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
218
NOTE 15 – NON-CONSOLIDATED
 
VARIABLE
 
INTEREST ENTITIES (“VIE”) AND SERVICING
 
ASSETS
The Corporation
 
transfers residential
 
mortgage loans
 
in sale
 
or securitization
 
transactions in
 
which it
 
has continuing
 
involvement,
including
 
servicing
 
responsibilities
 
and
 
guarantee
 
arrangements.
 
All
 
such
 
transfers
 
have
 
been
 
accounted
 
for
 
as
 
sales
 
as
 
required
 
by
applicable accounting guidance.
When
 
evaluating
 
the
 
need
 
to
 
consolidate
 
counterparties
 
to
 
which
 
the
 
Corporation
 
has
 
transferred
 
assets,
 
or
 
with
 
which
 
the
Corporation has
 
entered into
 
other transactions,
 
the Corporation
 
first determines
 
if the
 
counterparty is
 
an entity
 
for which
 
a variable
interest
 
exists.
 
If
 
no
 
scope
 
exception
 
is
 
applicable
 
and
 
a
 
variable
 
interest
 
exists,
 
the
 
Corporation
 
then
 
evaluates
 
whether
 
it
 
is
 
the
primary beneficiary of the VIE and whether the entity should be consolidated
 
or not.
Below is a summary of transactions with VIEs for which the Corporation has retained
 
some level of continuing involvement:
Trust-Preferred
 
Securities
In
 
2004,
 
FBP
 
Statutory
 
Trust
 
I,
 
a
 
financing
 
trust
 
that
 
is
 
wholly
 
owned
 
by
 
the
 
Corporation,
 
sold
 
to
 
institutional
 
investors
 
$
100
million of its
 
variable-rate trust-preferred
 
securities (“TRuPs”). FBP
 
Statutory Trust
 
I used the proceeds
 
of the issuance, together
 
with
the proceeds of
 
the purchase by the
 
Corporation of $
3.1
 
million of FBP Statutory
 
Trust I
 
variable-rate common securities,
 
to purchase
$
103.1
 
million
 
aggregate
 
principal
 
amount
 
of
 
the
 
Corporation’s
 
Junior
 
Subordinated
 
Deferrable
 
Debentures.
 
Also
 
in
 
2004,
 
FBP
Statutory Trust II, a financing trust
 
that is wholly owned by the Corporation, sold to institutional
 
investors $
125
 
million of its variable-
rate TRuPs. FBP Statutory Trust
 
II used the proceeds of the issuance,
 
together with the proceeds of the purchase
 
by the Corporation of
$
3.9
 
million of
 
FBP Statutory
 
Trust II
 
variable-rate common
 
securities, to
 
purchase $
128.9
 
million aggregate
 
principal amount
 
of the
Corporation’s
 
Junior
 
Subordinated
 
Deferrable
 
Debentures.
 
The
 
debentures,
 
net
 
of
 
related
 
issuance
 
costs,
 
are
 
presented
 
in
 
the
Corporation’s
 
consolidated
 
statements
 
of
 
financial
 
condition
 
as
 
other
 
borrowings.
 
The
 
variable-rate
 
TRuPs
 
are
 
fully
 
and
unconditionally
 
guaranteed
 
by
 
the
 
Corporation.
The Junior Subordinated Deferrable Debentures issued by the Corporation in April
2004 and September 2004 mature on June 17, 2034 and September 20, 2034, respectively; however, under certain circumstances, the
maturity of Junior Subordinated Deferrable Debentures may be shortened (such shortening would result in a mandatory redemption of
the variable-rate TRuPs).
 
 
During the third
 
quarter of 2020,
 
the Corporation completed
 
the repurchase of
 
$
0.4
 
million of TRuPs
 
of the FBP
 
Statutory Trust
 
I,
which resulted in
 
a commensurate reduction
 
in the related Floating
 
Rate Junior Subordinated
 
Debentures. The Corporation’s
 
purchase
price equated
 
to
75
% of
 
the $
0.4
 
million par
 
value. The
25
% discount
 
resulted in
 
a gain
 
of approximately
 
$
0.1
 
million. This
 
gain is
reflected in
 
the consolidated
 
statements of income
 
as gain on
 
early extinguishment
 
of debt. As
 
of each
 
December 31,
 
2021 and 2020,
the Corporation had subordinated debentures outstanding in the aggregate
 
amount of $
183.8
 
million.
The
 
Collins
 
Amendment
 
to
 
the
 
Dodd-Frank
 
Act
 
eliminated
 
certain
 
TRuPs
 
from
 
Tier
 
1
 
Capital;
 
however,
 
these
 
instruments
 
may
remain in Tier 2 capital until the instruments
 
are redeemed or mature. Under the indentures, the Corporation has
 
the right, from time to
time,
 
and
 
without
 
causing
 
an
 
event
 
of
 
default,
 
to
 
defer
 
payments
 
of
 
interest
 
on
 
the
 
Junior
 
Subordinated
 
Deferrable
 
Debentures
 
by
extending
 
the
 
interest
 
payment
 
period
 
at
 
any
 
time
 
and
 
from
 
time
 
to
 
time
 
during
 
the
 
term
 
of
 
the
 
subordinated
 
debentures
 
for
 
up
 
to
twenty
 
consecutive
 
quarterly
 
periods.
 
As
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation
 
was
 
current
 
on
 
all
 
interest
 
payments
 
due
 
on
 
its
subordinated debt.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
219
Private Label MBS
During
 
2004
 
and
 
2005,
 
an unaffiliated
 
party,
 
referred
 
to in
 
this subsection
 
as the
 
seller,
 
established
 
a
 
series of
 
statutory
 
trusts
 
to
effect
 
the
 
securitization
 
of
 
mortgage
 
loans
 
and
 
the
 
sale
 
of
 
trust
 
certificates
 
(“private
 
label
 
MBS”).
 
The
 
seller
 
initially
 
provided
 
the
servicing for
 
a fee, which
 
is senior to
 
the obligations to
 
pay private label
 
MBS holders. The
 
seller then entered
 
into a sales
 
agreement
through which
 
it sold
 
and issued
 
these private
 
label MBS
 
in favor
 
of the
 
Corporation’s
 
banking subsidiary,
 
FirstBank. Currently,
 
the
Bank is
 
the sole
 
owner of
 
these private
 
label MBS;
 
the servicing
 
of the
 
underlying
 
residential mortgages
 
that generate
 
the principal
and interest
 
cash flows is
 
performed by
 
another third
 
party,
 
which receives
 
a servicing
 
fee. These
 
private label
 
MBS are variable
 
-rate
securities indexed
 
to
90-day LIBOR
 
plus a
 
spread. The
 
principal payments
 
from the
 
underlying loans
 
are remitted
 
to a
 
paying agent
(servicer), who then remits
 
interest to the Bank. Interest
 
income is shared to a
 
certain extent with the FDIC,
 
which has an interest
 
only
strip (“IO”)
 
tied to
 
the cash
 
flows of
 
the underlying
 
loans and
 
is entitled
 
to receive
 
the excess
 
of the
 
interest income
 
less a
 
servicing
fee
 
over
 
the
 
variable
 
rate
 
income
 
that
 
the
 
Bank
 
earns
 
on
 
the
 
securities.
 
This
 
IO
 
is
 
limited
 
to
 
the
 
weighted-average
 
coupon
 
of
 
the
underlying mortgage
 
loans. The FDIC became
 
the owner of
 
the IO upon
 
its intervention of the
 
seller, a
 
failed financial institution.
 
No
recourse agreement
 
exists, and
 
the Bank,
 
as the
 
sole holder
 
of the
 
securities, absorbs
 
all risks
 
from losses
 
on non-accruing
 
loans and
repossessed
 
collateral.
 
As
 
of
 
December
 
31,
 
2021,
 
the
 
amortized
 
cost
 
and
 
fair
 
value
 
of
 
these
 
private
 
label
 
MBS
 
amounted
 
to
 
$
10.0
million
 
and
 
$
7.2
 
million,
 
respectively,
 
with
 
a
 
weighted
 
average
 
yield
 
of
2.21
%,
 
which
 
is
 
included
 
as
 
part
 
of
 
the
 
Corporation’s
available-for-sale
 
investment
 
securities
 
portfolio.
 
As
 
described
 
in
 
Note
 
5
 
–
 
Investment
 
Securities,
 
above,
 
the
 
ACL
 
on
 
these
 
private
label MBS amounted to $
0.8
 
million as of December 31, 2021.
Investment in unconsolidated entity
On
 
February
 
16,
 
2011,
 
FirstBank
 
sold
 
an
 
asset
 
portfolio
 
consisting
 
of
 
performing
 
and
 
nonaccrual
 
construction,
 
commercial
mortgage, and commercial
 
and industrial loans
 
with an aggregate
 
book value of
 
$
269.3
 
million to CPG/GS, an
 
entity organized
 
under
the
 
laws
 
of
 
the
 
Commonwealth
 
of
 
Puerto
 
Rico
 
and
 
majority
 
owned
 
by
 
PRLP
 
Ventures
 
LLC
 
(“PRLP”),
 
a
 
company
 
created
 
by
Goldman,
 
Sachs &
 
Co. and
 
Caribbean
 
Property Group.
 
In connection
 
with the
 
sale, the
 
Corporation
 
received $
88.5
 
million in
 
cash
and a
35
% interest in
 
CPG/GS and
 
made a loan
 
in the
 
amount of
 
$
136.1
 
million representing
 
seller financing
 
provided by
 
FirstBank.
The loan was
 
refinanced and consolidated
 
with other outstanding
 
loans of CPG/GS
 
in the second
 
quarter of 2018
 
and was paid
 
in full
in
 
October
 
2019.
 
FirstBank’s
 
equity
 
interest
 
in CPG/GS
 
is
 
accounted
 
for under
 
the equity
 
method.
 
FirstBank
 
recorded
 
a
 
loss on
 
its
interest in
 
CPG/GS in
 
2014 that
 
reduced
 
to zero
 
the carrying
 
amount of
 
the Bank’s
 
investment in
 
CPG/GS. No
 
negative investment
needs
 
to be
 
reported
 
as the
 
Bank
 
has no
 
legal
 
obligation
 
or commitment
 
to provide
 
further
 
financial
 
support
 
to this
 
entity; thus,
 
no
further losses have been or will be recorded on this investment.
CPG/GS
 
used
 
cash
 
proceeds
 
of
 
the
 
aforementioned
 
seller-financed
 
loan
 
to
 
cover
 
operating
 
expenses
 
and
 
debt
 
service
 
payments,
including those
 
related to
 
the loan
 
that was paid
 
off in
 
October 2019.
 
FirstBank will
 
not receive
 
any return
 
on its equity
 
interest until
PRLP receives
 
an aggregate
 
amount equivalent
 
to its
 
initial investment
 
and a
 
priority return
 
of at
 
least
12
%, which
 
has not
 
occurred,
resulting in FirstBank’s
 
interest in CPG/GS
 
being subordinate to
 
PRLP’s interest.
 
CPG/GS will then
 
begin to make
 
payments pro rata
to
 
PRLP
 
and
 
FirstBank,
35
%
 
and
65
%,
 
respectively,
 
until
 
FirstBank
 
has
 
achieved
 
a
12
%
 
return
 
on
 
its
 
invested
 
capital
 
and
 
the
aggregate amount of distributions is equal to FirstBank’s
 
capital contributions to CPG/GS.
 
The
 
Bank
 
has
 
determined
 
that
 
CPG/GS
 
is
 
a
 
VIE
 
in
 
which
 
the
 
Bank
 
is
 
not
 
the
 
primary
 
beneficiary.
 
In
 
determining
 
the
 
primary
beneficiary
 
of CPG/GS,
 
the Bank
 
considered
 
applicable guidance
 
that requires
 
the Bank
 
to qualitatively
 
assess the
 
determination
 
of
whether
 
it is
 
the primary
 
beneficiary (or
 
consolidator) of
 
CPG/GS based
 
on whether
 
it has
 
both
 
the power
 
to direct
 
the activities
 
of
CPG/GS that most
 
significantly affect the
 
entity’s economic
 
performance and the
 
obligation to absorb
 
losses of, or the right
 
to receive
benefits from, CPG/GS
 
that could potentially
 
be significant to
 
the VIE. The
 
Bank determined that
 
it does not
 
have the power to
 
direct
the activities that most significantly
 
impact the economic performance
 
of CPG/GS as it does not
 
have the right to
 
manage or influence
the loan portfolio, foreclosure proceedings,
 
or the construction and sale
 
of the property; therefore, the
 
Bank concluded that it is not
 
the
primary beneficiary of CPG/GS.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
220
Servicing Assets (MSRs)
The
 
Corporation
 
typically
 
transfers
 
first
 
lien
 
residential
 
mortgage
 
loans in
 
conjunction
 
with
 
GNMA
 
securitization
 
transactions
 
in
which the
 
loans are
 
exchanged for
 
cash or
 
securities that
 
are readily
 
redeemed for
 
cash proceeds
 
and servicing
 
rights. The
 
securities
issued
 
through
 
these
 
transactions
 
are
 
guaranteed
 
by
 
GNMA
 
and,
 
under
 
seller/servicer
 
agreements,
 
the
 
Corporation
 
is
 
required
 
to
service
 
the
 
loans
 
in
 
accordance
 
with
 
the
 
issuers’
 
servicing
 
guidelines
 
and
 
standards.
 
As
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation
serviced
 
loans securitized
 
through
 
GNMA with
 
a principal
 
balance
 
of $
2.1
 
billion.
 
Also, certain
 
conventional
 
conforming
 
loans are
sold to FNMA or FHLMC
 
with servicing retained. The
 
Corporation recognizes as separate
 
assets the rights to service
 
loans for others,
whether those servicing
 
assets are originated or
 
purchased. MSRs are included
 
as part of other
 
assets in the consolidated
 
statements of
financial condition.
 
The changes in MSRs are shown below for the indicated periods:
Year
 
Ended December 31,
 
2021
2020
2019
(In thousands)
Balance at beginning of year
$
33,071
$
26,762
$
27,428
Purchases of servicing assets
(1)
-
7,781
-
Capitalization of servicing assets
5,194
4,864
4,039
Amortization
(7,215)
(5,777)
(4,592)
Temporary impairment
 
recoveries (charges), net
124
(206)
(43)
Other
(2)
(188)
(353)
(70)
Balance at end of year
$
30,986
$
33,071
$
26,762
(1)
Represents MSRs acquired in the BSPR acquisition.
(2)
Amount represents adjustments related to the repurchase
 
of loans serviced for others, including MSRs related to loans
 
previously serviced for BSPR
and eliminated as part of the acquisition in the third quarter
 
of 2020.
Impairment
 
charges
 
are
 
recognized
 
through
 
a
 
valuation
 
allowance
 
for
 
each
 
individual
 
stratum
 
of
 
servicing
 
assets.
 
The
 
valuation
allowance
 
is adjusted
 
to reflect
 
the amount,
 
if any,
 
by which
 
the cost
 
basis of
 
the servicing
 
asset for
 
a given
 
stratum of
 
loans being
serviced exceeds its fair value. Any fair value in excess of the cost basis of the servicing
 
asset for a given stratum is not recognized.
 
 
Changes in the impairment allowance were as follows for the indicated
 
periods:
Year
 
Ended December 31,
2021
2020
2019
(In thousands)
Balance at beginning of year
$
202
$
73
$
30
Temporary impairment
 
charges
-
301
78
OTTI of servicing assets
-
(77)
-
Recoveries
(124)
(95)
(35)
 
Balance at end of year
$
78
$
202
$
73
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
221
The components of net servicing income, included as part of mortgage banking
 
activities in the consolidated
statements of income, are shown below for the indicated periods:
Year
 
Ended December 31,
2021
2020
2019
(In thousands)
Servicing fees
$
12,176
$
9,268
$
8,522
Late charges and prepayment penalties
697
570
610
Adjustment for loans repurchased
(188)
(353)
(70)
Other
 
(1)
-
(15)
 
Servicing income, gross
12,684
9,485
9,047
Amortization and impairment of servicing assets
(7,091)
(5,983)
(4,635)
 
Servicing income, net
$
5,593
$
3,502
$
4,412
 
The Corporation’s MSRs are subject
 
to prepayment and interest rate risks. Key economic assumptions used in
determining the fair value at the time of sale of the related mortgages for the
 
indicated periods ranged as follows:
Maximum
Minimum
Year
 
Ended December 31, 2021
Constant prepayment rate:
 
 
Government-guaranteed mortgage loans
6.4
%
6.3
%
 
Conventional conforming mortgage loans
6.8
%
6.6
%
 
Conventional non-conforming mortgage loans
8.6
%
8.2
%
Discount rate:
 
Government-guaranteed mortgage loans
12.0
%
12.0
%
 
Conventional conforming mortgage loans
10.0
%
10.0
%
 
Conventional non-conforming mortgage loans
13.7
%
13.5
%
Year
 
Ended December 31, 2020
Constant prepayment rate:
 
 
Government-guaranteed mortgage loans
6.5
%
6.2
%
 
Conventional conforming mortgage loans
7.2
%
6.9
%
 
Conventional non-conforming mortgage loans
9.2
%
8.6
%
Discount rate:
 
Government-guaranteed mortgage loans
12.0
%
12.0
%
 
Conventional conforming mortgage loans
10.0
%
10.0
%
 
Conventional non-conforming mortgage loans
14.3
%
13.7
%
Year
 
Ended December 31, 2019
Constant prepayment rate:
 
 
Government-guaranteed mortgage loans
6.4
%
6.2
%
 
Conventional conforming mortgage loans
6.9
%
6.7
%
 
Conventional non-conforming mortgage loans
9.3
%
8.9
%
Discount rate:
 
Government-guaranteed mortgage loans
12.0
%
12.0
%
 
Conventional conforming mortgage loans
10.0
%
10.0
%
 
Conventional non-conforming mortgage loans
14.3
%
14.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
222
The weighted-averages
 
of the key
 
economic assumptions
 
that the Corporation
 
used in its
 
valuation model
 
and the sensitivity
 
of the
current fair value
 
to immediate
10
% and
20
% adverse changes
 
in those assumptions
 
for mortgage loans
 
as of December
 
31, 2021 and
2020 were as follows:
December 31,
December 31,
2021
2020
(In thousands)
Carrying amount of servicing assets
$
30,986
$
33,071
Fair value
$
42,132
$
40,294
Weighted-average
 
expected life (in years)
7.96
7.86
Constant prepayment rate (weighted-average annual
 
rate)
6.55
%
6.73
%
 
Decrease in fair value due to 10% adverse change
$
1,027
$
1,006
 
Decrease in fair value due to 20% adverse change
$
2,011
$
1,970
Discount rate (weighted-average annual rate)
11.17
%
11.20
%
 
Decrease in fair value due to 10% adverse change
$
1,852
$
1,772
 
Decrease in fair value due to 20% adverse change
$
3,561
$
3,409
These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10%
variation in assumptions generally cannot be extrapolated because the relationship between the change in assumption and the change
in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the MSR is
calculated without changing any other assumption; in reality, changes in one factor may result in changes in another (for example,
increases in market interest rates may result in lower prepayments), which may magnify or counteract the sensitivities
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
223
NOTE 16 – DEPOSITS AND RELATED
 
INTEREST
 
 
The following table summarizes deposit balances as of the indicated dates:
December 31,
 
2021
2020
(In thousands)
Type of account and interest rate:
Non-interest-bearing deposit accounts
$
7,027,513
$
4,546,123
Interest-bearing savings accounts
4,729,387
4,088,969
Interest-bearing checking accounts
3,492,645
3,651,806
Certificates of deposit
2,434,932
2,814,313
Brokered CDs
100,417
216,172
$
17,784,894
$
15,317,383
The
 
weighted-average
 
interest
 
rate
 
on
 
total
 
interest-bearing
 
deposits
 
as
 
of
 
December 31,
 
2021
 
and
 
2020
 
was
0.31
%
 
and
0.55
%,
respectively.
 
As
 
of
 
December 31,
 
2021,
 
the
 
aggregate
 
amount
 
of
 
unplanned
 
overdrafts
 
of
 
demand
 
deposits
 
that
 
were
 
reclassified
 
as
 
loans
amounted to $
1.6
 
million (2020 -
 
$
0.8
 
million). Pre-arranged
 
overdrafts lines of
 
credit amounted to
 
$
24.2
 
million as of
 
December 31,
2021 (2020 - $
26.0
 
million).
 
The following table presents the contractual maturities of CDs, including brokered CDs, as of December 31, 2021:
Total
 
(In thousands)
Three months or less
$
635,461
Over three months to six months
444,276
Over six months to one year
669,486
Over one year to two years
 
427,993
Over two years to three years
 
201,934
Over three years to four years
 
63,193
Over four years to five years
 
78,653
Over five years
14,353
 
Total
$
2,535,349
Time
 
deposits with
 
balances of
 
more than
 
$250,000 amounted
 
to $
1.0
 
billion for
 
each of
 
the years
 
ended December
 
31, 2021
 
and
2020.
 
This
 
amount
 
does
 
not
 
include
 
CDs
 
issued
 
to
 
deposit
 
brokers
 
in
 
the
 
form
 
of
 
large
 
certificates
 
of
 
deposits
 
that
 
are
 
generally
participated out
 
by brokers
 
in shares
 
of less
 
than the
 
FDIC insurance
 
limit. As
 
of December 31,
 
2021, unamortized
 
broker placement
fees amounted to
 
$
0.2
 
million (2020 -
 
$
0.4
 
million), which are
 
amortized over the
 
contractual maturity of
 
the brokered CDs under
 
the
interest method.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
224
 
Brokered CDs mature as follows:
December 31,
 
2021
(In thousands)
Three months or less
$
14,668
Over three months to six months
11,687
Over six months to one year
37,228
Over one year to three years
30,137
Over three years to five years
 
6,697
 
Total
$
100,417
As of
 
December 31,
 
2021,
 
deposit
 
accounts
 
issued
 
to
 
government
 
agencies
 
amounted
 
to $
3.3
 
billion
 
(2020
 
-
 
$
2.1
 
billion).
 
These
deposits are
 
generally
 
insured by
 
the FDIC
 
up to
 
the applicable
 
limits. The
 
uninsured
 
portions
 
were collateralized
 
by securities
 
and
loans with
 
an amortized
 
cost of
 
$
3.4
 
billion (2020
 
- $
2.0
 
billion) and
 
an estimated
 
market value
 
of $
3.3
 
billion (2020
 
- $
2.1
 
billion).
As
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation
 
had
 
$
2.7
 
billion
 
of
 
government
 
deposits
 
in
 
Puerto
 
Rico
 
(2020
 
-
 
$
1.8
 
billion),
 
$
568.4
million in the Virgin
 
Islands (2020 - $
280.2
 
million) and $
9.6
 
million in Florida (2020 - $
9.7
 
million).
A table showing interest expense on deposits for the indicated periods follows:
Year Ended
 
December 31,
2021
2020
2019
(In thousands)
Interest-bearing checking accounts
$
5,776
$
5,933
$
6,071
Savings
6,586
11,116
16,017
CDs
26,138
43,350
44,658
Brokered CDs
2,982
7,989
11,036
 
Total
$
41,482
$
68,388
$
77,782
The
 
total
 
interest
 
expense
 
on deposits
 
included
 
the
 
amortization
 
of
 
broker
 
placement
 
fees
 
related
 
to
 
brokered
 
CDs
 
amounting
 
to
$
0.2
 
million, $
0.5
 
million, and
 
$
0.7
 
million for
 
2021, 2020
 
and 2019,
 
respectively.
 
Total
 
interest expense
 
also included
 
$
1.3
 
million
and
 
$
1.0
 
million
 
for
 
2021
 
and
 
2020,
 
respectively,
 
for
 
the
 
accretion
 
of
 
premiums
 
related
 
to
 
time
 
deposits
 
assumed
 
in
 
the
 
BSPR
acquisition. Refer to Note 2 – Business Combination, for additional
 
information.
 
NOTE 17 – LOANS PAYABLE
 
The
 
Corporation
 
participates
 
in
 
the Borrower-in-Custody
 
Program
 
(the
 
“BIC Program
 
”) of
 
the FED.
 
Through
 
the
 
BIC Program,
 
a
broad
 
range
 
of
 
loans
 
(including
 
commercial,
 
consumer,
 
and
 
residential
 
mortgages)
 
may
 
be
 
pledged
 
as
 
collateral
 
for
 
borrowings
through the FED Discount Window.
 
As of December 31, 2021, pledged collateral that is related
 
to this credit facility amounted to $
2.0
billion,
 
mainly
 
commercial,
 
consumer,
 
and
 
residential
 
mortgage
 
loans,
 
which
 
after
 
a
 
margin
 
“haircut”
 
to
 
discount
 
the
 
value
 
of
collateral pledged,
 
represents approximately
 
$
1.2
 
billion of
 
credit availability
 
under this
 
program. With
 
the impacts
 
of COVID-19
 
on
individuals,
 
communities,
 
and
 
organizations
 
continuing
 
to
 
evolve,
 
the
 
Federal
 
Reserve
 
has
 
taken
 
several
 
actions
 
to
 
support
 
the
economy and
 
financial stability
 
of market
 
participants including,
 
among other
 
things, lowering
 
the target
 
range for
 
the federal
 
funds
rate and
 
relaunching
 
large scale
 
asset purchases.
 
The FED
 
Discount Window
 
program provided
 
the opportunity
 
to access
 
a low-rate
short-term source of
 
funding in a high
 
volatility market environment.
 
There were
no
 
outstanding borrowings under
 
the Primary Credit
FED Discount Window Program as of
 
December 31, 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
225
NOTE 18 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
 
Securities sold under agreements to repurchase (repurchase agreements)
 
as of the dates indicated consisted of the following:
 
December 31,
2021
2020
(In thousands)
Long-term repurchase agreement
(1)
$
300,000
$
300,000
(1)
Weighted-average
 
interest rate
 
of
3.35
% and
1.77
% as of
 
December 31,
 
2021 and 2020,
 
respectively.
 
During the first
 
quarter of
 
2021, the interest
 
rate related to
 
securities
sold under agreement to
 
repurchase totaling $
200
 
million changed from
 
a variable rate
 
(3-month LIBOR plus
130
 
to
132
 
basis points) to a
 
fixed rate of
3.90
% after the end
of a prespecified lockout period. As of December 31, 2021,
 
all of the outstanding securities sold under agreements to repurchase
 
are tied to fixed interest rates.
Accrued interest
 
payable on repurchase
 
agreements amounted
 
to $
1.9
 
million and $
1.0
 
million as of
 
December 31, 2021
 
and 2020,
respectively.
 
Repurchase agreements mature as follows as of the indicated date:
December 31,
 
2021
(In thousands)
One month to three months
$
100,000
Three to five years
200,000
 
Total
$
300,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
226
The following securities were sold under agreements to repurchase:
As of December 31,
 
2021
Amortized
Approximate
Weighted
 
Cost of
 
Fair Value
Average
Underlying
Balance of
 
of Underlying
Interest Rate
 
Underlying Securities
 
Securities
Borrowing
 
Securities
of Security
(Dollars in thousands)
U.S. government-sponsored agencies
$
-
$
-
$
-
-
%
MBS
319,225
300,000
321,180
1.33
%
 
Total
 
$
319,225
$
300,000
$
321,180
Accrued interest receivable
$
599
As of December 31,
 
2020
Amortized
Approximate
Weighted
 
Cost
 
of
 
Fair Value
Average
Underlying
Balance of
 
of Underlying
Interest Rate
 
Underlying Securities
 
Securities
Borrowing
 
Securities
of Security
(Dollars in thousands)
U.S. government-sponsored agencies
$
12,219
$
11,013
$
12,351
1.94
%
MBS
320,640
288,987
329,438
1.65
%
 
Total
 
$
332,859
$
300,000
$
341,789
Accrued interest receivable
$
753
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
227
The maximum
 
aggregate balance
 
of repurchase
 
agreements outstanding
 
at any
 
month-end during
 
2021 was
 
$
300.0
 
million (2020
 
-
$
475.8
 
million).
 
The
 
average
 
balance
 
during
 
2021
 
was
 
$
300.5
 
million
 
(2020
 
-
 
$
291.5
 
million).
 
The
 
weighted-average
 
interest
 
rate
during
 
2021
 
and
 
2020
 
was
3.32
%
 
and
2.28
%,
 
respectively,
 
considering
 
negative
 
market
 
rates
 
on
 
reverse
 
repurchase
 
agreements
 
in
2020.
 
As
 
of
 
December
 
31,
 
2021
 
and
 
2020,
 
the
 
securities
 
underlying
 
such
 
agreements
 
were
 
delivered
 
to
 
the
 
dealers
 
with
 
which
 
the
repurchase agreements were transacted.
Repurchase agreements as of December 31, 2021, grouped by
 
counterparty, were as follows:
Weighted-Average
Counterparty
Amount
Maturity (In Months)
(Dollars in thousands)
JP Morgan Chase
$
100,000
1
Credit Suisse First Boston
200,000
37
Total
$
300,000
NOTE 19 – ADVANCES
 
FROM THE FEDERAL HOME LOAN BANK (FHLB)
 
The following is a summary of the advances from the FHLB as of the indicated dates:
December 31,
 
December 31,
2021
2020
(In thousands)
Long-term
Fixed
-rate advances from FHLB (1)
$
200,000
$
440,000
(1)
Weighted-average interest rate
 
of
2.16
% and
2.26
% as of December 31, 2021 and 2020, respectively.
 
Advances from FHLB mature as follows as of the indicated date:
December 31, 2021
(In thousands)
Over six months to one year
$
200,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
228
The Corporation receives
 
advances from the
 
FHLB under an Advances,
 
Collateral Pledge, and
 
Security Agreement (the
 
“Collateral
Agreement”).
 
The
 
Collateral
 
Agreement
 
requires
 
the
 
Corporation
 
to
 
maintain
 
a
 
minimum
 
amount
 
of
 
qualifying
 
mortgage
 
collateral
with a
 
market
 
value
 
of generally
120
% or
 
higher than
 
the outstanding
 
advances.
 
As of
 
December 31,
 
2021
 
and 2020,
 
the estimated
value
 
of
 
specific
 
mortgage
 
loans
 
pledged
 
as
 
collateral
 
amounted
 
to
 
$
1.4
 
billion
 
and
 
$
1.6
 
billion,
 
respectively,
 
as
 
computed
 
by
 
the
FHLB
 
for
 
collateral
 
purposes.
 
The
 
carrying
 
value
 
of
 
such
 
loans
 
as
 
of
 
December 31,
 
2021
 
amounted
 
to
 
$
1.8
 
billion
 
(2020
 
-
 
$
2.2
billion). As
 
of December
 
31, 2021,
 
the Corporation
 
had additional
 
capacity of
 
approximately $
1.2
 
billion on
 
this credit
 
facility based
on collateral pledged
 
at the FHLB, including
 
a haircut reflecting
 
the perceived risk
 
associated with the
 
collateral. Haircut refers
 
to the
percentage by which
 
an asset’s
 
market value is reduced
 
for the purpose of
 
collateral levels. Advances
 
may be repaid prior
 
to maturity,
in whole or in part, at the option of the borrower
 
upon payment of any applicable fee specified in the contract
 
governing such advance.
In calculating the fee,
 
due consideration is given
 
to (i) all relevant factors,
 
including,
 
but not limited to,
 
any and all applicable
 
costs of
repurchasing
 
and/or
 
prepaying
 
any
 
associated
 
liabilities
 
and/or
 
hedges
 
entered
 
into
 
with
 
respect
 
to
 
the
 
applicable
 
advance;
 
(ii)
 
the
financial characteristics,
 
in their entirety,
 
of the advance
 
being prepaid; and
 
(iii), in the
 
case of adjustable-rate
 
advances, the expected
future earnings of the replacement
 
borrowing as long as the replacement
 
borrowing is at least equal
 
to the original advance’s
 
par value
and the replacement borrowing’s
 
tenor is at least equal to the remaining maturity of the prepaid advance.
NOTE 20 – OTHER BORROWINGS
 
Other borrowings, as of the indicated dates, consisted of:
December 31,
 
December 31,
(In thousands)
2021
2020
Floating rate junior subordinated debentures (FBP Statutory Trust
 
I) (1)
$
65,205
$
65,205
Floating rate junior subordinated debentures (FBP Statutory Trust
 
II) (2)
118,557
118,557
$
183,762
$
183,762
(1)
Amount represents junior subordinated
 
interest-bearing debentures due
 
in 2034 with a floating
 
interest rate of
2.75
% over 3-month LIBOR
 
(
2.97
% as of December
 
31, 2021 and
2.98
% as of December 31, 2020).
(2)
Amount represents junior subordinated
 
interest-bearing debentures due
 
in 2034 with a floating
 
interest rate of
2.50
% over 3-month LIBOR
 
(
2.71
% as of December
 
31, 2021 and
2.74
% as of December 31, 2020).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
229
NOTE 21 –
 
EARNINGS
 
PER COMMON
 
SHARE
 
The calculations of earnings per common share for the years ended December 31,
 
2021, 2020, and 2019 are as follows:
Year
 
Ended December 31,
2021
2020
2019
(In thousands, except per share information)
Net income
 
$
281,025
$
102,273
$
167,377
Less: Preferred stock dividends
 
(2,453)
(2,676)
(2,676)
Less: Excess of redemption value over carrying value of Series A through E
 
 
Preferred Stock redeemed
(1,234)
-
-
Net income attributable to common stockholders
$
277,338
$
99,597
$
164,701
Weighted-Average
 
Shares:
 
Average common
 
shares outstanding
210,122
216,904
216,614
 
Average potential
 
dilutive common shares
 
1,178
764
520
 
Average common
 
shares outstanding - assuming dilution
211,300
217,668
217,134
Earnings per common share:
Basic
 
$
1.32
$
0.46
$
0.76
Diluted
 
$
1.31
$
0.46
$
0.76
Earnings
 
per
 
common
 
share
 
is
 
computed
 
by
 
dividing
 
net
 
income
 
attributable
 
to
 
common
 
stockholders
 
by
 
the
 
weighted-average
number of common shares issued and outstanding. Net income
 
attributable to common stockholders represents net income adjusted
 
for
any preferred
 
stock dividends,
 
including any
 
dividends declared
 
but not
 
yet paid,
 
and any cumulative
 
dividends related
 
to the
 
current
dividend period that have not been declared as of
 
the end of the period. For 2021, net income attributable
 
to common stockholders was
also adjusted due
 
to the one
 
-time effect
 
to retained
 
earnings of the
 
excess of the
 
redemption value
 
paid over the
 
carrying value of
 
the
Series A through E Preferred Stock redeemed
 
as discussed in Note 23 – Stockholders’ Equity
 
below. Basic weighted-average
 
common
shares outstanding exclude unvested shares of restricted stock that do not contain
 
non-forfeitable dividend rights.
Potential dilutive
 
common shares
 
consist of
 
unvested shares
 
of restricted
 
stock that
 
do not
 
contain non-forfeitable
 
dividend rights
using the
 
treasury stock
 
method. This
 
method assumes
 
that proceeds
 
equal to
 
the amount
 
of compensation
 
cost attributable
 
to future
services
 
is
 
used
 
to
 
repurchase
 
shares
 
on
 
the
 
open
 
market
 
at
 
the
 
average
 
market
 
price
 
for
 
the
 
period.
 
The
 
difference
 
between
 
the
number
 
of
 
potential
 
dilutive
 
shares
 
issued
 
and
 
the
 
shares
 
purchased
 
is
 
added
 
as
 
incremental
 
shares
 
to
 
the
 
actual
 
number
 
of
 
shares
outstanding
 
to
 
compute
 
diluted
 
earnings
 
per
 
share.
 
Unvested
 
shares
 
of
 
restricted
 
stock
 
outstanding
 
during
 
the
 
period
 
that
 
result
 
in
lower potentially
 
dilutive shares issued
 
than shares purchased
 
under the
 
treasury stock method
 
are not included
 
in the computation
 
of
dilutive
 
earnings
 
per
 
share
 
since
 
their
 
inclusion
 
would
 
have
 
an
 
antidilutive
 
effect
 
on
 
earnings
 
per
 
share.
 
Potential
 
dilutive
 
common
shares also include
 
performance units
 
that do not
 
contain non-forfeitable
 
dividend rights if
 
the performance
 
condition is met
 
as of the
end of the reporting period.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
230
NOTE 22 –
 
STOCK-BASED
 
COMPENSATION
 
On
 
May
 
24,
 
2016,
 
the
 
Corporation’s
 
stockholders
 
approved
 
the
 
amendment
 
and
 
restatement
 
of
 
the
 
First
 
BanCorp.
 
Omnibus
Incentive
 
Plan, as
 
amended (the
 
“Omnibus Plan”),
 
to, among
 
other things,
 
increase the
 
number of
 
shares of
 
common stock
 
reserved
for issuance under
 
the Omnibus Plan,
 
extend the term
 
of the Omnibus
 
Plan to May
 
24, 2026, and
 
re-approve the material
 
terms of the
performance
 
goals under
 
the Omnibus
 
Plan for
 
purposes of
 
the then-effective
 
Section 162(m)
 
of the
 
U.S. Internal
 
Revenue Code
 
of
1986,
 
as
 
amended.
 
The
 
Omnibus
 
Plan
 
provides
 
for
 
equity-based
 
and
 
non
 
equity-based
 
compensation
 
incentives
 
(the
 
“awards”)
through the
 
grant of
 
stock options,
 
stock appreciation
 
rights, restricted
 
stock, restricted
 
stock units,
 
performance shares,
 
other stock-
based awards,
 
and cash-based
 
awards. The
 
Omnibus Plan
 
authorizes the
 
issuance of up
 
to
14,169,807
 
shares of common
 
stock, subject
to adjustments
 
for stock
 
splits,
 
reorganizations
 
and other
 
similar
 
events.
 
As of December
 
31, 2021,
 
there were
4,308,921
 
authorized shares
of common stock available for issuance
 
under the Omnibus Plan. The Corporation’s
 
Board of Directors, based on the recommendation
of the Corporation’s
 
Compensation and Benefits Committee,
 
has the power and authority to
 
determine those eligible to receive
 
awards
and to
 
establish the
 
terms and conditions
 
of any
 
awards, subject
 
to various
 
limits and
 
vesting restrictions
 
that apply
 
to individual
 
and
aggregate awards.
Restricted Stock
Under the Omnibus Plan, the
 
Corporation may grant restricted stock to plan participants, subject to forfeiture upon the occurrence of
certain events
 
until the dates specified
 
in the participant’s award
 
agreement. While
 
the restricted
 
stock is subject to forfeiture
 
and does not
contain non-forfeitable
 
dividend rights,
 
participants
 
may exercise full voting
 
rights with respect
 
to the shares of restricted
 
stock granted to
them.
 
The restricted stock granted under the Omnibus Plan is typically subject to a vesting period. During the year ended December 31,
2021, the Corporation awarded
 
to its independent directors
29,291
 
shares of restricted stock that are subject to
one-year
 
vesting from the
dates of
 
grant. In
 
addition, during the
 
year
 
ended December
 
31,
 
2021, the
 
Corporation awarded
295,069
 
shares of
 
restricted stock
 
to
employees;
 
fifty percent
 
(
50
%) of those shares
 
vest on the
 
two-year
 
anniversary
 
of the grant
 
date and the
 
remaining
50
% vest on three-year
anniversary of
 
the
 
grant
 
date.
 
Included in
 
those
295,069
 
shares of
 
restricted stock
 
were
19,804
 
shares
 
granted to
 
retirement-eligible
employees.
 
The total expense
 
determined
 
for the restricted
 
stock awarded
 
to retirement-eligible
 
employees
 
was charged against
 
earnings
 
as
of
 
the
 
grant date.
 
During the
 
year
 
ended December
 
31,
 
2020,
 
the
 
Corporation awarded to
 
its
 
independent directors
59,797
 
shares of
restricted stock that are
 
subject to
one-year
 
vesting from the dates
 
of grant. In
 
addition, during 2020, the Corporation awarded
851,673
shares of
 
restricted stock to
 
employees; fifty percent (
50
%)
 
of those
 
shares vest on
 
the two-year anniversary of
 
the grant
 
date and
 
the
remaining
50
% vest on
 
three-year anniversary
 
of the grant date. Included in
 
those
851,673
 
shares of restricted stock were
47,194
 
shares
granted to retirement-eligible
 
employees.
 
The fair value
 
of the shares
 
of restricted
 
stock granted
 
in 2021 and 2020
 
was based on
 
the market
price of
 
the Corporation’s
 
outstanding
 
common stock
 
on the date
 
of the respective
 
grant.
 
 
The following table summarizes the restricted stock activity in the year ended
 
December 31, 2021 under the Omnibus Plan:
2021
Number of
Weighted-
shares of
Average
restricted
Grant Date
stock
 
Fair Value
Unvested shares outstanding at beginning of year
1,320,723
$
5.74
Granted
324,360
11.47
Forfeited
(82,486)
6.42
Vested
(413,822)
7.69
Unvested shares outstanding at end of year
1,148,775
$
6.61
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
231
For the
 
years ended
 
December 31,
 
2021, 2020
 
and 2019,
 
the Corporation
 
recognized $
3.5
 
million, $
3.2
 
million, and
 
$
2.8
 
million,
respectively,
 
of
 
stock-based
 
compensation
 
expense
 
related
 
to
 
restricted
 
stock
 
awards.
 
As
 
of
 
December
 
31,
 
2021,
 
there
 
was
 
$
3.3
million
 
of
 
total
 
unrecognized
 
compensation
 
cost
 
related
 
to
 
unvested
 
shares
 
of
 
restricted
 
stock.
 
The
 
weighted
 
average
 
period
 
over
which the Corporation expects to recognize such cost was
1.4
 
years as of December 31, 2021.
 
Stock-based compensation
 
accounting guidance
 
requires the
 
Corporation to
 
reverse compensation
 
expense for
 
any awards
 
that are
forfeited due
 
to employee
 
or director
 
turnover.
 
Changes in
 
the estimated
 
forfeiture rate
 
may have
 
a significant
 
effect on
 
stock-based
compensation,
 
as the
 
Corporation
 
recognizes
 
the
 
effect
 
of adjusting
 
the rate
 
for
 
all expense
 
amortization
 
in the
 
period
 
in
 
which
 
the
forfeiture estimate is changed. If the actual forfeiture
 
rate is higher than the estimated forfeiture rate, an
 
adjustment is made to increase
the
 
estimated
 
forfeiture
 
rate,
 
which
 
will
 
decrease
 
the
 
expense
 
recognized
 
in
 
the
 
financial
 
statements.
 
If
 
the
 
actual
 
forfeiture
 
rate
 
is
lower
 
than
 
the
 
estimated
 
forfeiture
 
rate,
 
an
 
adjustment
 
is
 
made
 
to
 
decrease
 
the
 
estimated
 
forfeiture
 
rate,
 
which
 
will
 
increase
 
the
expense recognized in the financial statements.
Performance Units
Under the
 
Omnibus Plan,
 
the Corporation
 
may award
 
performance
 
units to
 
Omnibus Plan
 
participants.
 
During the
 
year ended
 
December
31, 2021,
 
the Corporation granted
160,485
 
units to
 
executives, with each unit
 
representing the value of
 
one share
 
of the
 
Corporation’s
common stock. The performance
 
units granted in the year ended
 
December 31, 2021 are for the performance
 
period beginning
 
January 1,
2021 and ending on December
 
31, 2023.
These awards do not contain non-forfeitable rights to dividend equivalent amounts and can only
be settled in shares of the Corporation’s common stock. The performance units will vest on the third anniversary of the effective date of the
awards, subject to the achievement of a pre-established tangible book value per share target as of December 31, 2023. All the performance
units will vest if performance is at the pre-established performance target level or above. However, the participants may vest with respect
to 50% of the awards to the extent that performance is below the target but not less than 80% of the pre-established performance target level
(the “80% minimum threshold”), which is measured based upon the growth in the tangible book value during the performance cycle. If
performance is between the 80% minimum threshold and the pre-established performance target level, the participants will vest on a
proportional amount. No performance units will vest if performance is below the 80% minimum threshold.
During
 
the
 
years
 
ended
 
December
 
31,
 
2020
 
and
 
2019,
 
the
 
Corporation
 
awarded
502,307
 
and
200,053
 
performance
 
units
 
to
executives,
 
respectively.
 
The performance units will vest
 
on the third anniversary
 
of the effective date
 
of the awards and are
 
subject to
a pre-established performance target level as described
 
above.
The following table summarizes the performance units activity during
 
2021 under the Omnibus Plan:
Year
 
Ended
(Number of units)
December 31,
 
2021
Performance units at beginning of year
1,006,768
Additions
160,485
Vested
(304,408)
Forfeited
(47,946)
Performance units as of December 31, 2021
814,899
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
232
The fair values
 
of the performance
 
units awarded
 
were based
 
on the market
 
price of the
 
Corporation’s
 
outstanding
 
common stock
 
on the
respective date of
 
the grant.
 
For
 
the years
 
ended December 31,
 
2021, 2020,
 
and 2019,
 
the Corporation recognized $
2.0
 
million, $
1.8
million, and
 
$
1.1
 
million,
 
respectively,
 
of stock-based
 
compensation
 
expense related
 
to performance
 
units. As of
 
December
 
31, 2021, there
was $
2.2
 
million of total unrecognized
 
compensation
 
cost related to unvested
 
performance
 
units that the Corporation
 
expects to recognize
over the next three years. The total
 
amount of compensation
 
expense recognized
 
reflects management’s
 
assessment of the probability
 
that
the pre-established
 
performance
 
goal will
 
be achieved.
 
The Corporation
 
will recognize
 
a cumulative
 
adjustment
 
to compensation
 
expense
 
in
the then-current
 
period to
 
reflect
 
any changes
 
in the
 
probability
 
of achievement
 
of the performance
 
goals.
Other awards
Under the Omnibus Plan, the Corporation
 
may grant shares of unrestricted
 
stock to plan participants.
 
During the third quarter of 2020,
the Corporation
 
granted to its independent
 
directors
19,157
 
shares of unrestricted
 
stock that were fully
 
vested at the time of the grant
 
date.
For
 
the
 
year
 
ended
 
December
 
31,
 
2020,
 
the
 
Corporation recognized
 
$
0.1
 
million
 
of
 
stock-based compensation
 
expense
 
related
 
to
unrestricted
 
stock awards.
 
There were
no
 
grants
 
of unrestricted
 
stock in
 
2021 and
 
2019.
Shares withheld
During the
 
year ended
 
December 31,
 
2021, the
 
Corporation withheld
214,374
 
shares (2020
 
–
51,814
 
shares) of the
 
restricted stock
that vested
 
during
 
such period
 
to cover
 
the officers’
 
payroll and
 
income tax
 
withholding liabilities;
 
these shares
 
are held
 
as treasury
shares. The Corporation
 
paid in cash any fractional
 
share of salary stock
 
to which an officer
 
was entitled. In the
 
consolidated financial
statements, the Corporation presents shares withheld for tax purposes as common
 
stock repurchases.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
233
NOTE 23 –
 
STOCKHOLDERS’
 
EQUITY
Stock Repurchase Program
On April
 
26, 2021,
 
the Corporation
 
announced that
 
its Board
 
of Directors
 
approved a
 
stock repurchase
 
program, under
 
which the
Corporation may
 
repurchase up
 
to $
300
 
million of
 
its outstanding
 
stock, including
 
common and
 
preferred stock,
 
commencing in
 
the
second
 
quarter of
 
2021 through
 
June 30,
 
2022. During
 
the year
 
ended December
 
31, 2021,
 
the Corporation
 
repurchased
16,740,467
shares of its common stock for $
213.9
 
million and redeemed all of its outstanding
 
shares of non-convertible, non-cumulative
 
perpetual
monthly
 
income
 
Series
 
A
 
through
 
E
 
Preferred
 
Stock
 
for
 
its liquidation
 
value
 
of
 
$
36.1
 
million.
 
The
 
program
 
does
 
not
 
obligate
 
the
Corporation
 
to
 
acquire
 
any
 
specific
 
number
 
of
 
shares.
 
Repurchases
 
under
 
the
 
program
 
may
 
be
 
executed
 
through
 
open
 
market
purchases, accelerated share
 
repurchases and/or privately
 
negotiated transactions or
 
plans, including plans
 
complying with Rule
 
10b5-
1
 
under
 
the
 
Exchange
 
Act.
 
The
 
Corporation’s
 
stock
 
repurchase
 
program
 
is
 
subject
 
to
 
various
 
factors,
 
including
 
the
 
Corporation’s
capital
 
position,
 
liquidity,
 
financial
 
performance
 
and
 
alternative
 
uses
 
of
 
capital,
 
stock
 
trading
 
price,
 
and
 
general
 
market
 
conditions.
The repurchase program may be modified, extended, suspended, or terminated
 
at any time at the Corporation’s discretion.
The
 
shares
 
of
 
common
 
stock
 
repurchased
 
are
 
held
 
as
 
treasury
 
stock.
 
As
 
of
 
December
 
31,
 
2021,
 
the
 
Corporation
 
has
 
remaining
authorization to repurchase
 
approximately $
50
 
million of common
 
stock under the
 
stock repurchase program
 
which were repurchased
during the first quarter of 2022.
Common Stock
 
The following table shows the changes in shares of common stock outstanding
 
for 2021, 2020 and 2019:
2021
2020
2019
Common stock outstanding, beginning balances
218,235,064
217,359,337
217,235,140
Common stock repurchased
(1)
(16,740,467)
-
-
Common stock issued, net of shares withheld for employee taxes
414,394
878,813
138,197
Restricted stock forfeited
(82,486)
(3,086)
(14,000)
Common stock outstanding, ending balances
201,826,505
218,235,064
217,359,337
(1)
Includes
11,490,467
 
shares of common stock repurchased in the open market at
 
an average price of $
12.82
 
for a total purchase price of approximately $
147.3
 
million, and
5,250,000
 
shares of common stock repurchased through privately negotiated transactions
 
at an average price of $
12.68
 
for a total purchase price of approximately $
66.6
 
million.
For
 
the
 
years
 
ended
 
December
 
31,
 
2021,
 
2020
 
and
 
2019,
 
total
 
cash
 
dividends
 
declared
 
on
 
shares
 
of
 
common
 
stock
 
amounted
 
to
$
65.4
 
million,
 
$
43.8
 
million,
 
and
 
$
30.5
 
million,
 
respectively.
 
On
 
October
 
22,
 
2021
 
the
 
Corporation
 
announced
 
that
 
its
 
Board
 
of
Directors
 
had
 
declared
 
a
 
quarterly
 
cash
 
dividend
 
of
 
$
0.10
 
per
 
common
 
share,
 
which
 
represented
 
an
 
increase
 
of
43
%
 
or
 
$
0.03
 
per
common share
 
compared to
 
the dividend
 
paid in
 
September 2021.
 
The dividend
 
was paid
 
on December
 
10, 2021
 
to shareholders
 
of
record at the close business
 
on November 26, 2021. The
 
Corporation intends to continue
 
to pay quarterly dividends on
 
common stock.
However,
 
the Corporation’s
 
common stock
 
dividends, including
 
the declaration,
 
timing, and
 
amount, remain
 
subject to
 
consideration
and approval by the Corporation’s
 
Board Directors at the relevant times.
Preferred Stock
The
 
Corporation
 
has
50,000,000
 
authorized
 
shares
 
of
 
preferred
 
stock
 
with
 
a
 
par value
 
of $
1.00
,
 
redeemable
 
at
 
the
 
Corporation’s
option, subject to certain terms. This stock may be issued in series and
 
the shares of each series have such rights and preferences
 
as are
fixed by the Board of Directors when authorizing the issuance of that particular
 
series.
On November 30,
 
2021 the Corporation
 
redeemed all of its
1,444,146
 
outstanding shares of
 
Series A through E
 
Preferred Stock for
its liquidation
 
value of
 
$
25
 
per share
 
or $
36.1
 
million. The
 
difference
 
between the
 
liquidation value
 
and net
 
carrying value
 
was $
1.2
million, which was recorded
 
as a reduction to
 
retained earnings in 2021.
 
For the years ended
 
December 31, 2021,
 
2020 and 2019 total
cash dividends paid
 
on shares of preferred
 
stock amounted to $
2.5
 
million, $
2.7
 
million, and $
2.7
 
million, respectively.
 
The redeemed
preferred
 
stock shares
 
were not
 
listed on
 
any securities
 
exchange or
 
automated
 
quotation system.
No
 
shares of
 
preferred stock
 
were
outstanding as of December 31, 2021.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
234
Treasury stock
During
 
the
 
years
 
ended
 
December
 
31,
 
2021,
 
2020
 
and
 
2019,
 
the
 
Corporation
 
withheld
 
an
 
aggregate
 
of
214,374
 
shares,
51,814
shares
 
and
176,015
 
shares,
 
respectively,
 
of the
 
restricted
 
stock
 
and performance
 
units
 
that vested
 
during
 
those periods,
 
to
 
cover the
officers’
 
payroll
 
and
 
income
 
tax
 
withholding
 
liabilities;
 
these
 
shares
 
are
 
held
 
as
 
treasury
 
stock.
 
Also
 
held
 
as
 
treasury
 
stock
 
are
 
the
16,740,467
 
shares of
 
common stock
 
repurchased in
 
2021 as
 
part of
 
the $
300
 
million stock
 
repurchase program.
 
As of December
 
31,
2021 and 2020, the Corporation had
21,836,611
 
and
4,799,284
 
shares held as treasury stock, respectively.
FirstBank Statutory Reserve (Legal Surplus)
The Banking Law
 
of the Commonwealth of
 
Puerto Rico requires that
 
a minimum of
10
% of FirstBank’s
 
net income for the
 
year be
transferred
 
to a
 
legal surplus
 
reserve
 
until such
 
surplus
 
equals the
 
total of
 
paid-in-capital
 
on common
 
and preferred
 
stock. Amounts
transferred
 
to
 
the
 
legal
 
surplus
 
reserve
 
from
 
retained
 
earnings
 
are
 
not
 
available
 
for
 
distribution
 
to
 
the
 
Corporation,
 
including
 
for
payment
 
as dividends
 
to the
 
stockholders,
 
without
 
the prior
 
consent
 
of the
 
Puerto Rico
 
Commissioner
 
of Financial
 
Institutions.
The
Puerto Rico Banking Law provides that, when the expenditures of a Puerto Rico commercial bank are greater than receipts, the excess
of the expenditures over receipts must be charged against the undistributed profits of the bank, and the balance, if any, must be
charged against the legal surplus reserve, as a reduction thereof. If the legal surplus reserve is not sufficient to cover such balance in
whole or in part, the outstanding amount must be charged against the capital account and the Bank cannot pay dividends until it can
replenish the legal surplus reserve to an amount of at least 20% of the original capital contributed.
 
During years
 
ended December
 
31,
2021
 
and
 
2020,
 
the
 
Corporation
 
transferred
 
$
28.3
 
million
 
and
 
$
11.7
 
million,
 
respectively,
 
to
 
the
 
legal
 
surplus
 
reserve.
 
FirstBank’s
legal
 
surplus
 
reserve,
 
included
 
as
 
part
 
of
 
retained
 
earnings
 
in
 
the
 
Corporation’s
 
consolidated
 
statements
 
of
 
financial
 
condition,
amounted to $
137.6
 
million and $
109.3
 
million as of December 31, 2021 and 2020, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
235
NOTE 24 – OTHER COMPREHENSIVE (LOSS) INCOME
 
 
The following table presents changes in accumulated other comprehensive
 
(loss) income for the years ended December
31, 2021, 2020 and 2019:
Changes in Accumulated Other Comprehensive
 
(Loss) Income by Component
 
(1)
Year ended
December 31,
2021
2020
2019
(In thousands)
Unrealized net holding gains (losses) on debt
 
securities:
 
Beginning balance
$
55,725
$
6,764
$
(40,415)
 
Other comprehensive (loss) income
(143,115)
48,961
47,179
 
Ending balance
$
(87,390)
$
55,725
$
6,764
Adjustment of pension and postretirement
 
benefit plans:
 
Beginning balance
$
(270)
$
-
$
-
 
Other comprehensive gain (loss)
3,661
(270)
-
 
Ending balance
$
3,391
$
(270)
$
-
______________________
(1) All amounts presented are net of tax.
 
The following table presents the
 
amounts reclassified out of
 
each component of accumulated
 
other comprehensive (loss) income
 
for the
years ended December 31, 2021, 2020 and 2019:
Reclassifications Out of Accumulated Other Comprehensive (Loss)
 
Income
Affected Line Item in the
Consolidated Statements of
Income
Year ended
December 31,
2021
2020
2019
(In thousands)
Unrealized net holding gains (losses)
 
 
on debt securities:
Realized gain on sales
 
Net gain (loss) on
of debt securities
investments securities
$
-
$
(13,198)
$
-
Provision for credit losses -
Provision for credit losses
(benefit) expense
(benefit) expense
(136)
1,641
-
OTTI on debt securities
 
(1)
Net gain (loss) on
investment securities
-
-
497
Total before tax
$
(136)
$
(11,557)
$
497
Income tax expense
 
-
-
-
Total, net of tax
$
(136)
$
(11,557)
$
497
(1)
ASC 326, which became
 
effective on January 1,
 
2020, requires credit losses on
 
available-for-sale debt securities to be
 
presented as an allowance
 
rather than as a
 
write-
down. Thus,
 
credit losses on
 
debt securities recorded
 
prior to
 
January 1, 2020
 
are presented as
 
OTTI on debt
 
securities while credit
 
losses on
 
debt securities recorded
after January 1, 2020 are presented as part of provision for
 
credit losses.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
236
NOTE 25 – EMPLOYEE BENEFIT PLANS
Defined Benefit Retirement Plans
The Corporation
 
maintains two frozen
 
qualified noncontributory
 
defined benefit
 
pension plans (the
 
“Pension Plans”),
 
and a related
complementary post-retirement
 
benefit plan covering medical
 
benefits and life
 
insurance after retirement,
 
that it obtained in
 
the BSPR
acquisition on
 
September 1,
 
2020. One
 
plan covers
 
substantially all
 
of BSPR’s
 
former employees
 
who were
 
active before
 
January 1,
2007, while
 
the other
 
plan covers
 
personnel of
 
an institution
 
previously-acquired by
 
BSPR. Benefits
 
are based
 
on salary and
 
years of
service.
 
The accrual of benefits under the Pension Plans is frozen to all participants
 
.
 
The
 
Corporation
 
requires
 
recognition
 
of
 
a
 
plan’s
 
overfunded
 
and
 
underfunded
 
status
 
as
 
an
 
asset
 
or
 
liability
 
with
 
an
 
offsetting
adjustment
 
to
 
accumulated
 
other
 
comprehensive
 
(loss)
 
income
 
pursuant
 
to
 
the
 
ASC Topic
 
715,
 
Compensation-Retirement
 
Benefits.
Actuarial gains
 
or losses, prior-service
 
costs, and transition
 
assets or obligations
 
are recognized as
 
components of net
 
periodic benefit
costs.
 
December 31, 2021
December 31, 2020
(In thousands)
Changes in projected benefit obligation:
Projected benefit obligation at the beginning of period, defined benefit
pension (September 1 for the 2020 period)
$
108,253
$
107,571
Interest cost
2,473
900
Actuarial (gain) loss
(1)
(6,699)
1,321
Benefits paid
(6,160)
(1,539)
Projected benefit obligation at the end of period, pension plans
$
97,867
$
108,253
Projected benefit obligation, other postretirement benefit plan
195
245
Projected benefit obligation at the end of period
$
98,062
$
108,498
Changes in plan assets:
Fair value of plan assets at the beginning of period (September 1 for the
2020 period)
$
105,963
$
104,522
Actual return on plan assets
3,684
2,980
Benefits paid
(6,160)
(1,539)
Fair value of pension plan assets at the end of period
 
(2)
$
103,487
$
105,963
Net asset (benefit obligation), pension plans
5,620
(2,290)
Net benefit obligation, other-postretirement benefit
 
plan
(195)
(245)
Net asset (benefit obligation)
$
5,425
$
(2,535)
(1) Significant components of the Pension Plans’ actuarial gain (loss)
 
that changed the benefit obligation were mainly related to updates
 
in discount and mortality rates.
(2) Other post-retirement plan did not contain any assets
 
as of December 31, 2021 and 2020.
The following are the pre-tax amounts recognized in accumulated other
 
comprehensive (loss) income:
December 31, 2021
December 31, 2020
(In thousands)
Net actuarial (gain) loss
$
(5,862)
$
432
Amortization of net loss
2
-
Net amount recognized
$
(5,860)
$
432
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
237
The weighted
 
-average
 
assumed discount
 
rate to
 
determine
 
the projected
 
benefit obligations
 
for the
 
pension plans
 
as of
 
December
31, 2021 was
2.77
% compared to
2.36
% as of December 31, 2020.
Financial data relative to the Pension Plans and the Post Retirement Benefit Plan
 
is summarized in the following tables:
Affected Line Item
Period from
in the Consolidated
December 31,
 
September 1, 2020 to
 
Statements of Income
2021
December 31, 2020
(In thousands)
Net periodic benefit, pension plans:
Interest cost
Other expenses
$
2,473
$
900
Expected return on plan assets
Other expenses
(4,523)
(2,062)
Net periodic benefit, pension plans
(2,050)
(1,162)
Net periodic cost, other-post retirement plan
Other expenses
5
2
Net Periodic benefit
$
(2,045)
$
(1,160)
Pre-tax amounts record in accumulated OCI,
 
pension
 
 
plans:
Net actuarial (gain) loss
(5,861)
404
Accumulated other comprehensive income/(loss), end
 
 
of year,
 
pension plans
$
(5,861)
$
404
Accumulated other comprehensive income/(loss), end of
 
 
year, other-postretirement benefit plan
1
28
Accumulated other comprehensive income/(loss), end
 
 
of year
$
(5,860)
$
432
Total net periodic pension
 
(income) loss recognized
 
in total comprehensive income, pre-tax
$
(7,905)
$
(728)
Weighted average
 
assumptions used to determine
 
 
net periodic pension cost, pension plans:
(1)
Discount rate
2.77%
2.36%
Expected return on plan assets
4.43%
5.99%
(1)
 
Other post-retirement plan did not contain any assets as of December
 
31, 2021 and 2020 and discount rate as of December
 
31, 2021 and 2020, was
2.82
% and
 
2.44
%, respectively.
The discount rate is estimated as
 
the single equivalent rate such
 
that the present value of the plan’s
 
projected benefit obligation cash
flows using the
 
single rate equals
 
the present
 
value of
 
those cash flows
 
using the above
 
mean actuarial
 
yield curve.
 
In developing
 
the
expected
 
long-term
 
rate
 
of
 
return
 
assumption,
 
the
 
Corporation
 
evaluated
 
input
 
from
 
a
 
consultant
 
and
 
the
 
Corporation’s
 
long-term
inflation assumptions and interest rate scenarios. Projected returns are based
 
on the same asset categories as the plan using well-known
broad indexes.
 
Expected returns
 
are based
 
by historical
 
returns with
 
adjustments to
 
reflect a
 
more realistic
 
future return.
 
Adjustments
are
 
done
 
by
 
categories,
 
taking
 
into
 
consideration
 
current
 
and
 
future
 
market
 
conditions.
 
The
 
Corporation
 
also
 
considered
 
historical
returns on
 
its plan assets
 
to review
 
the expected
 
rate of return.
 
The Corporation
 
anticipated that
 
the Plan’s
 
portfolio would
 
generate a
long
 
term
 
rate
 
of
 
return
 
of
4.43
%
 
as
 
of
 
December
 
31,
 
2021.
 
The
 
investment
 
policy
 
statement
 
for
 
the
 
Pension
 
Plans
 
includes:
 
(i)
liability
 
hedging
 
assets
 
to
 
reduce
 
funded
 
status
 
risk,
 
(ii)
 
diversified
 
return
 
seeking
 
assets
 
to
 
reduce
 
equity
 
risk,
 
and
 
(iii)
 
establishes
different glidepaths specific for each plan to systematically
 
reduce risk as the funded status improves.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
238
 
The following table
 
presents the changes
 
in accumulated other
 
comprehensive (loss) income
 
of the Pension
 
Plans and
Postretirement Benefit Plan as of December 31, 2021 and 2020:
December 31, 2021
Period from September
1, 2020 to December 31,
2020
(In thousands)
Accumulated other comprehensive (income)/loss at beginning
 
 
of period, pension plans
$
404
$
-
Net (gain) loss
(5,861)
404
Accumulated other comprehensive (income)/loss end of year
 
pension plans
(5,457)
404
Accumulated other comprehensive (income)/loss, other-post
 
retirement plan
29
28
Accumulated other comprehensive (gain) loss at end of period
$
(5,428)
$
432
 
The
 
following
 
table
 
presents
 
information
 
for
 
the
 
plans
 
with
 
a
 
projected
 
benefit
 
obligation
 
and
 
accumulated
benefit obligation in excess of plan assets for the year ended December 31, 2021 and 2020:
December 31, 2021
December 31, 2020
(In thousands)
Projected benefit obligation
$
195
$
70,424
Accumulated benefit obligation
195
70,424
Fair value of plan assets
$
-
$
64,200
 
The Pension Plans asset allocations as of December 31, 2021 and 2020 by asset category
 
are as follows:
December 31, 2021
December 31, 2020
Asset category
Equity securities
0%
0%
Debt securities
0%
0%
Investment in funds
98%
98%
Other
2%
2%
100%
100%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
239
The Corporation does not expect to contribute to the Pension Plans during
 
2022.
 
The Corporation’s
 
investment policy
 
with respect
 
to the
 
Corporation’s
 
Pension
 
Plans is
 
to optimize,
 
without undue
 
risk, the
 
total
return
 
on investment
 
of the
 
Plan assets
 
after inflation,
 
within
 
a framework
 
of prudent
 
and reasonable
 
portfolio
 
risk. The
 
investment
portfolio
 
is
 
diversified
 
in
 
multiple
 
asset
 
classes
 
to
 
reduce
 
portfolio
 
risk,
 
and
 
assets
 
may
 
be
 
shifted
 
between
 
asset
 
classes
 
to
 
reduce
volatility when
 
warranted by projections
 
of the economic
 
and/or financial
 
market environment,
 
consistent with
 
Employee Retirement
Income
 
Security Act
 
of 1974,
 
as amended
 
(ERISA).
 
As circumstances
 
and
 
market conditions
 
change,
 
the Corporation’s
 
target
 
asset
allocations
 
may
 
be
 
amended
 
to reflect
 
the
 
most
 
appropriate
 
distribution
 
given
 
the new
 
environment,
 
consistent with
 
the
 
investment
objectives.
 
Expected future benefit payments for the plans are as follows:
Amount
(Dollars in thousands)
2022
$
6,659
2023
6,652
2024
6,608
2025
6,179
2026
6,122
2027 through 2031
28,056
$
60,276
As of
 
December
 
31,
 
2021
 
and 2020,
 
substantially
 
all of
 
the plan
 
assets of
 
$
103.5
 
million
 
and
 
$
106.0
 
million,
 
respectively,
 
were
invested in common collective
 
trusts, which primarily consist of
 
equity securities, mortgage-backed
 
securities, corporate bonds and
 
U.
S. Treasuries.
 
The portfolios
 
in both
 
plans have been
 
measured at fair
 
value using the
 
net asset value
 
per unit
 
as a practical
 
expedient
as permitted by ASC Topic
 
820, and accordingly,
 
have not been classified in the fair value hierarchy as of December 31, 2021.
 
Determination of Fair Value
The valuation process begins
 
with market quotations for
 
the individual security.
 
Since many fixed maturities do
 
not trade on a daily
basis,
 
each
 
asset
 
class
 
is
 
evaluated
 
on
 
its
 
own
 
based
 
on
 
relevant
 
market
 
information.
 
The
 
market
 
inputs
 
utilized
 
in
 
the
 
pricing
evaluation, listed in the approximate
 
order of priority,
 
include: benchmark yields, reported trades,
 
broker/dealer quotes, issuer spreads,
two-sided markets, benchmark
 
securities, bids, offers,
 
reference data, and industry
 
and economic events.
 
The extent of the
 
use of each
market input
 
depends on the
 
asset class and
 
the market conditions.
 
Additional inputs
 
may be necessary
 
for some securities.
 
Some fair
value estimates are determined
 
from quotes provided by
 
market makers or broker-dealers
 
that are considered to
 
be market participants
and are considered to be an estimate of fair value that is indicative of market
 
transactions.
 
The following is a description of the valuation inputs and techniques
 
used to measure the fair value of pension plan assets:
 
Investment in
 
Funds -
Investment in collectible
 
funds have
 
been measured
 
at fair value
 
using the net
 
assets value per
 
unit practical
expedient and, accordingly,
 
have not been classified in the fair value hierarchy.
 
Interest-Bearing
 
Deposits
 
-
Interest-bearing
 
deposits consist
 
of
 
money
 
market
 
accounts with
 
short-term
 
maturities and,
 
therefore,
the carrying value approximates fair value.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
240
Defined Contribution Plan
In
 
addition,
 
FirstBank
 
provides
 
contributory
 
retirement
 
plans
 
pursuant
 
to
 
Section 1081.01
 
of
 
the
 
Puerto
 
Rico
 
Internal
 
Revenue
Code
 
of 2011
 
for
 
Puerto
 
Rico
 
employees
 
and
 
Section 401(k)
 
of
 
the U.S.
 
Internal Revenue
 
Code for
 
USVI
 
and
 
U.S. employees
 
(the
“Plans”).
 
All employees
 
are eligible
 
to participate
 
in the
 
Plans after
 
three months
 
of service
 
for purposes
 
of making
 
elective deferral
contributions and
 
one year
 
of service
 
for purposes
 
of sharing
 
in the
 
Bank’s
 
matching, qualified
 
matching, and
 
qualified non-elective
contributions.
 
Under
 
the
 
provisions
 
of
 
the
 
Plans,
 
the
 
Bank
 
contributes
50
%
 
of
 
the
 
first
6
%
 
of
 
the
 
participant’s
 
compensation
contributed
 
to
 
the
 
Plans
 
on
 
a
 
pretax
 
basis,
 
up
 
to
 
an
 
annual
 
limit.
The matching contribution of fifty cents for every dollar of the
employee’s contribution is comprised of: (i) twenty-five cents for every dollar of the employee’s contribution up to 6% of the
employee’s eligible compensation to be paid to the Plan as of each bi-weekly payroll; and (ii) an additional twenty-five cents for every
dollar of the employee’s contribution up to 6% of the employee’s eligible compensation to be deposited as a lump sum subsequent to
the Plan Year.
 
Puerto
 
Rico
 
employees
 
were permitted
 
to contribute
 
up
 
to $
15,000
 
for
 
each of
 
the years
 
ended
 
December
 
31,
 
2021,
2020 and
 
2019 (USVI
 
and U.S.
 
employees -
 
$
19,500
 
for 2021,
 
$
19,500
 
for 2020
 
and $
19,000
 
for 2019).
 
Additional contributions
 
to
the
 
Plans
 
may
 
be
 
voluntarily
 
made
 
by
 
the
 
Bank
 
as
 
determined
 
by
 
its
 
Board
 
of
 
Directors.
No
 
additional
 
discretionary
 
contributions
were made for the years ended December 31, 2021, and 2020.
 
On
 
September
 
1,
 
2020,
 
the
 
Bank
 
completed
 
the
 
acquisition
 
of
 
Santander
 
Bancorp,
 
a
 
wholly-owned
 
subsidiary
 
of
 
Santander
Holdings USA,
 
Inc. and
 
the holding
 
company of
 
BSPR. Prior
 
to the
 
acquisition date,
 
BSPR was
 
the sponsor
 
of the
 
Banco Santander
de Puerto Rico Employees’
 
Savings Plan (“the Santander
 
Plan”). Effective on
 
September 1, 2020, the
 
Bank became the sponsor
 
of the
Santander Plan. Overall responsibility
 
for administrating the Santander Plan rests
 
with the Plan’s Administration
 
Committee. Effective
December 31, 2020,
 
the Santander Plan
 
was merged
 
with the Plan
 
(“the Plan Merger”).
 
The contributory savings
 
plan assumed in
 
the
BSPR
 
acquisition
 
also
 
provided
 
for
 
matching
 
contribution
 
up
 
to
6
%
 
of
 
the
 
employee’s
 
compensation.
 
The
 
Bank
 
had
 
total
 
plan
expenses of $
3.5
 
million, $
3.0
 
million and $
2.9
 
million for the years ended December 31, 2021, 2020 and 2019, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
241
NOTE 26 – OTHER NON-INTEREST EXPENSES
 
A detail of other non-interest expenses is as follows for the indicated periods:
Year
 
Ended December 31,
2021
2020
2019
(In thousands)
Supplies and printing
$
1,830
$
2,391
$
1,966
Amortization of intangible assets
11,407
5,912
3,086
Servicing and processing fees
5,121
4,696
4,781
Insurance and supervisory fees
9,098
6,324
3,596
Provision for operational losses
5,069
3,390
2,164
Other
 
2,898
3,105
4,640
 
Total
 
$
35,423
$
25,818
$
20,233
NOTE 27 – OTHER NON-INTEREST INCOME
 
 
A detail of other non-interest income is as follows for the indicated periods:
Year
 
Ended December 31,
2021
2020
2019
(In thousands)
Non-deferrable loan fees
$
2,990
$
3,750
$
2,789
Merchant-related income
8,464
5,844
5,635
ATM
 
and Point-of-Sale fees ("POS")
10,985
7,723
9,147
Credit and debit card interchange and other fees
17,079
12,042
11,759
Mail and cable transmission commissions
3,116
2,540
2,207
Gain on sales of commercial and
 
 
construction loans held for sale
7
-
2,316
Gain from insurance proceeds
550
5,000
660
Other
 
5,746
4,935
5,396
 
Total
 
$
48,937
$
41,834
$
39,909
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
242
NOTE 28 –
 
INCOME TAXES
 
Income
 
tax
 
expense
 
includes
 
Puerto
 
Rico
 
and
 
USVI
 
income
 
taxes,
 
as
 
well
 
as
 
applicable
 
U.S.
 
federal
 
and
 
state
 
taxes.
 
The
Corporation
 
is
 
subject
 
to
 
Puerto
 
Rico
 
income
 
tax
 
on
 
its
 
income
 
from
 
all
 
sources.
 
As
 
a
 
Puerto
 
Rico
 
corporation,
 
First
 
BanCorp.
 
is
treated
 
as
 
a
 
foreign
 
corporation
 
for
 
U.S.
 
and
 
USVI
 
income
 
tax
 
purposes
 
and,
 
accordingly,
 
is
 
generally
 
subject
 
to
 
U.S.
 
and
 
USVI
income tax only
 
on its income
 
from sources within
 
the U.S. and
 
USVI or income
 
effectively connected
 
with the conduct
 
of a trade
 
or
business in
 
those jurisdictions.
 
Any such
 
tax paid
 
in the
 
U.S. and
 
USVI is
 
also creditable
 
against the
 
Corporation’s
 
Puerto Rico
 
tax
liability, subject to certain
 
conditions and limitations.
Under the
 
Puerto Rico Internal
 
Revenue Code
 
of 2011,
 
as amended (the
 
“2011 PR
 
Code”), the
 
Corporation and
 
its subsidiaries are
treated
 
as
 
separate
 
taxable
 
entities
 
and
 
are
 
not
 
entitled
 
to
 
file
 
consolidated
 
tax
 
returns
 
and,
 
thus,
 
the
 
Corporation
 
is
 
generally
 
not
entitled to utilize
 
losses from one
 
subsidiary to offset
 
gains in another
 
subsidiary.
 
Accordingly,
 
in order to
 
obtain a tax
 
benefit from
 
a
net operating
 
loss (“NOL”),
 
a particular
 
subsidiary must
 
be able
 
to demonstrate
 
sufficient taxable
 
income within
 
the applicable
 
NOL
carry-forward
 
period.
 
Pursuant
 
to
 
the
 
2011
 
PR
 
Code,
 
the
 
carry-forward
 
period
 
for
 
NOLs
 
incurred
 
during
 
taxable
 
years
 
that
commenced
 
after
 
December
 
31,
 
2004
 
and
 
ended
 
before
 
January
 
1,
 
2013
 
is
 
12
 
years;
 
for
 
NOLs
 
incurred
 
during
 
taxable
 
years
commencing after December 31,
 
2012, the carryover period is
 
10 years. The 2011
 
PR Code provides a dividend
 
received deduction of
100
% on
 
dividends
 
received
 
from
 
“controlled”
 
subsidiaries
 
subject
 
to
 
taxation
 
in
 
Puerto
 
Rico
 
and
85
% on
 
dividends
 
received
 
from
other taxable domestic corporations.
The
 
Corporation
 
has
 
maintained
 
an
 
effective
 
tax
 
rate
 
lower
 
than
 
the
 
maximum
 
statutory
 
rate
 
of
 
37.5%
 
mainly
 
by
 
investing
 
in
government
 
obligations
 
and
 
MBS
 
exempt
 
from
 
U.S.
 
and
 
Puerto
 
Rico
 
income
 
taxes
 
and
 
by doing
 
business
 
through
 
an
 
International
Banking Entity
 
(“IBE”) unit
 
of the Bank,
 
and through
 
the Bank’s
 
subsidiary,
 
FirstBank Overseas Corporation,
 
whose interest income
and gains on sales is
 
exempt from Puerto
 
Rico income taxation. The
 
IBE unit and FirstBank Overseas
 
Corporation were created under
the
 
International
 
Banking
 
Entity
 
Act
 
of
 
Puerto
 
Rico,
 
which provides
 
for
 
total
 
Puerto
 
Rico
 
tax
 
exemption
 
on net
 
income derived
 
by
IBEs operating in Puerto Rico on the specific activities
 
identified in the IBE Act. An IBE that operates
 
as a unit of a bank pays income
taxes at the corporate standard rates to the extent that the IBE’s
 
net income
 
exceeds 20% of the bank’s total net taxable
 
income.
The CARES
 
Act of
 
2020 includes
 
several provisions
 
to stimulate
 
the U.S.
 
economy in
 
the midst
 
of the
 
COVID-19 pandemic.
 
The
CARES Act
 
of 2020
 
includes tax
 
provisions that
 
temporarily modified
 
the taxable
 
income limitations
 
for NOL
 
usage to
 
offset future
taxable income, NOL carryback provisions
 
and other related income, and non-income
 
based tax laws. Due to the fact
 
that the COVID-
19 pandemic
 
is still
 
ongoing,
 
the Federal
 
Government
 
extended some
 
of the
 
benefits and
 
continued
 
the economic
 
stimulus from
 
the
CARES Act of 2020. The Corporation has evaluated such provisions
 
and determined that the impact of the CARES Act of 2020
 
on the
income tax provision and deferred tax assets as of December 31,
 
2021 was not significant.
The components of income tax expense are summarized below for
 
the indicated periods:
Year
 
Ended December 31,
2021
2020
2019
(In thousands)
Current income tax expense
$
28,469
$
18,421
$
16,986
Deferred income tax expense (benefit):
 
Reversal of deferred tax asset valuation allowance
-
(8,000)
-
 
Other deferred income tax expense
118,323
3,629
55,009
Total income
 
tax expense
$
146,792
$
14,050
$
71,995
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
243
 
The differences between the income tax expense applicable to income
 
before the provision for income taxes and the
amount computed by applying the statutory tax rate in Puerto Rico were as follows
 
for the indicated periods:
Year Ended
 
December 31,
 
2021
2020
2019
Amount
% of Pretax
Income
Amount
% of Pretax
Income
Amount
% of Pretax
Income
(Dollars in thousands)
Computed income tax at statutory rate
$
160,431
37.5
%
$
43,621
37.5
%
$
89,764
37.5
%
Federal and state taxes
7,014
1.6
%
4,944
4.2
%
4,467
1.6
%
Benefit of net exempt income
(20,717)
(4.8)
%
(26,780)
(23.0)
%
(24,811)
(10.4)
%
Disallowed NOL carryforward resulting from
 
net exempt income
8,791
2.0
%
9,054
7.8
%
15,887
6.6
%
Deferred tax valuation allowance
(13,572)
(3.2)
%
(12,095)
(10.4)
%
(14,108)
(5.9)
%
Share-based compensation windfall
(1,044)
(0.2)
%
157
0.1
%
(1,165)
(0.5)
%
Other permanent differences
(1,185)
(0.3)
%
(387)
(0.3)
%
(1,712)
(0.7)
%
Tax return to provision adjustments
(406)
(0.1)
%
597
0.5
%
1,846
0.8
%
Other-net
7,480
1.7
%
(5,061)
(4.3)
%
1,827
1.1
%
 
Total income tax expense
 
$
146,792
34.2
%
$
14,050
12.1
%
$
71,995
30.1
%
 
Deferred income taxes reflect the net tax effects of temporary differences
 
between the carrying amounts of assets and
liabilities for financial reporting purposes and their tax bases. Significant
 
components of the Corporation's deferred tax
assets and liabilities as of December 31, 2021 and 2020 were as follows:
December 31,
 
2021
2020
(In thousands)
Deferred tax asset:
 
NOL and capital losses carryforward
 
$
137,860
$
220,496
 
Allowance for credit losses
105,917
151,586
 
Alternative Minimum Tax
 
credits available for carryforward
37,361
27,396
 
Unrealized loss on OREO valuation
7,703
13,426
 
Settlement payment-closing agreement
7,031
7,031
 
Legal and other reserves
4,576
4,120
 
Reserve for insurance premium cancellations
881
941
 
Differences between the assigned values and tax bases of assets
 
and liabilities recognized in purchase business combinations
8,926
11,956
 
Unrealized loss on available-for-sale securities, net
14,181
-
 
Other
4,420
8,647
 
Total gross deferred tax assets
$
328,856
$
445,599
Deferred tax liabilities:
 
Servicing assets
10,510
9,571
 
Pension Plan assets
2,035
-
 
Unrealized gain on available-for-sale securities, net
-
4,730
 
Other
506
53
 
Total gross deferred tax liabilities
13,051
14,354
Valuation
 
allowance
(107,323)
(101,984)
 
Net deferred tax asset
$
208,482
$
329,261
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
244
Accounting
 
for
 
income
 
taxes
 
requires
 
that
 
companies
 
assess
 
whether
 
a
 
valuation
 
allowance
 
should
 
be
 
recorded
 
against
 
their
deferred
 
tax
 
asset
 
based
 
on
 
an
 
assessment
 
of
 
the
 
amount
 
of
 
the
 
deferred
 
tax
 
asset
 
that
 
is
 
“more
 
likely
 
than
 
not”
 
to
 
be
 
realized.
Valua
 
tion allowances
 
are established,
 
when necessary,
 
to reduce
 
deferred tax
 
assets to
 
the amount
 
that is
 
more likely
 
than not
 
to be
realized. Management
 
assesses the valuation
 
allowance recorded
 
against deferred
 
tax assets at
 
each reporting
 
date. The determina
 
tion
of whether a
 
valuation allowance for
 
deferred tax assets
 
is appropriate
 
is subject to considerable
 
judgment and requires
 
the evaluation
of
 
positive
 
and
 
negative
 
evidence
 
that
 
can
 
be
 
objectively
 
verified.
 
Consideration
 
must
 
be
 
given
 
to
 
all
 
sources
 
of
 
taxable
 
income
available to realize
 
the deferred tax asset,
 
including, as applicable,
 
the future reversal
 
of existing temporary
 
differences, future
 
taxable
income forecasts exclusive of the reversal of temporary
 
differences and carryforwards, and tax planni
 
ng strategies. In estimating taxes,
management assesses
 
the relative
 
merits and
 
risks of
 
the appropriate
 
tax treatment
 
of transactions
 
considering statutory,
 
judicial, and
regulatory guidance.
Total
 
deferred
 
tax
 
assets
 
of
 
FirstBank,
 
the
 
banking
 
subsidiary,
 
amounted
 
to
 
$
208.4
 
million
 
as
 
of
 
December
 
31,
 
2021,
 
net
 
of
 
a
valuation
 
allowance
 
of
 
$
69.7
 
million,
 
compared
 
to
 
total deferred
 
tax asset
 
of
 
$
329.1
 
million,
 
net
 
of
 
a
 
valuation
 
allowance
 
of
 
$
59.9
million, as
 
of December
 
31, 2020.
 
The decrease
 
in deferred
 
tax assets
 
was mainly
 
driven by
 
the aforementioned
 
credit losses reserve
releases and
 
the usage
 
of NOLs.
 
The increase
 
in the
 
valuation
 
allowance was
 
primarily
 
related to
 
the change
 
in the
 
market value
 
of
available-for-sale
 
securities.
 
The
 
Corporation
 
maintains
 
a full
 
valuation
 
allowance
 
for
 
its deferred
 
tax assets
 
associated
 
with
 
capital
losses carry
 
forward. Therefore,
 
changes in
 
the unrealized
 
losses of available
 
-for-sale securities
 
result in
 
a change
 
in the
 
deferred tax
asset and an equal change in the valuation allowance without having
 
an effect on earnings.
After completion
 
of the deferred
 
tax asset
 
valuation allowance
 
analysis for
 
the fourth
 
quarter of
 
2021 management
 
concluded that,
as of December 31, 2021, it is more likely than not that
 
FirstBank will generate sufficient taxable income
 
to realize $
66.3
 
million of its
deferred tax assets related to NOLs within the applicable carry-forward
 
periods.
The
 
positive
 
evidence
 
considered
 
by
 
management
 
in
 
arriving
 
at
 
its
 
conclusion
 
includes
 
factors
 
such
 
as:
 
FirstBank’s
 
three-year
cumulative income
 
position; sustained
 
periods of
 
profitability; management’s
 
proven ability
 
to forecast
 
future income
 
accurately and
execute
 
tax
 
strategies;
 
forecasts
 
of
 
future
 
profitability,
 
under several
 
potential
 
scenarios
 
that
 
support
 
the
 
partial utilization
 
of
 
NOLs
prior
 
to
 
their
 
expiration
 
from
 
2022
 
through
 
2024;
 
and
 
the
 
utilization
 
of
 
NOLs
 
over
 
the
 
past
 
three-years.
 
The
 
negative
 
evidence
considered
 
by
 
management
 
includes:
 
uncertainties
 
around
 
the
 
state
 
of
 
the
 
Puerto
 
Rico
 
economy,
 
including
 
considerations
 
on
 
the
impact
 
of the
 
pandemic
 
recovery funds
 
together
 
with the
 
ultimate sustainability
 
of the
 
latest fiscal
 
plan
 
certified
 
by the
 
PROMESA
oversight board.
Management’s
 
estimate
 
of
 
future
 
taxable
 
income
 
is
 
based
 
on
 
internal
 
projections
 
that
 
consider
 
historical
 
performance,
 
multiple
internal scenarios and
 
assumptions, as well as
 
external data that
 
management believes is
 
reasonable. If events
 
are identified that affect
the Corporation’s
 
ability to utilize
 
its deferred tax
 
assets, the analysis
 
will be updated
 
to determine if
 
any adjustments to
 
the valuation
allowance
 
are
 
required.
 
If
 
actual
 
results
 
differ
 
significantly
 
from
 
the
 
current
 
estimates
 
of
 
future
 
taxable
 
income,
 
even
 
if
 
caused
 
by
adverse
 
macro-economic
 
conditions,
 
the
 
remaining
 
valuation
 
allowance
 
may
 
need
 
to
 
be
 
increased.
 
Such
 
an
 
increase
 
could
 
have
 
a
material
 
adverse
 
effect
 
on
 
the
 
Corporation’s
 
financial
 
condition
 
and
 
results
 
of
 
operations.
 
Conversely,
 
a
 
higher
 
than
 
projected
proportion
 
of
 
taxable
 
income to
 
exempt
 
income
 
could
 
lead to
 
a
 
higher
 
usage
 
of
 
available NOLs
 
and
 
a
 
lower
 
amount of
 
disallowed
NOLs from projected
 
levels of tax-exempt income,
 
per the 2011
 
PR code, which in
 
turn could result in
 
further releases to the
 
deferred
tax valuation
 
allowance; any
 
such decreases
 
could have
 
a material positive
 
effect on
 
the Corporation’s
 
financial condition
 
and results
of operations.
As of December
 
31, 2021, approximately
 
$
177.9
 
million of the
 
deferred tax
 
assets of the
 
Corporation are
 
attributable to temporary
differences
 
or
 
tax
 
credit
 
carryforwards
 
that
 
have
 
no
 
expiration
 
date,
 
compared
 
to
 
$
210.7
 
million
 
in
 
2020.
 
The
 
valuation
 
allowance
attributable to FirstBank’s
 
deferred tax assets
 
of $
69.7
 
million as of
 
December 31, 2021
 
is related to
 
the estimated NOL
 
disallowance
attributable
 
to
 
projected
 
levels
 
of
 
tax-exempt
 
income,
 
NOLs
 
attributable
 
to
 
the
 
Virgin
 
Islands
 
jurisdiction,
 
and
 
capital
 
losses.
 
The
remaining balance of $
37.6
 
million of the Corporation’s
 
deferred tax asset valuation
 
allowance non-attributable to FirstBank
 
is mainly
related
 
to
 
NOLs
 
and
 
capital
 
losses
 
at
 
the
 
holding
 
company
 
level.
 
The
 
Corporation
 
will
 
continue
 
to
 
provide
 
a
 
valuation
 
allowance
against its deferred
 
tax assets in
 
each applicable
 
tax jurisdiction until
 
the need for
 
a valuation allowance
 
is eliminated. The
 
need for a
valuation
 
allowance
 
is
 
eliminated
 
when
 
the
 
Corporation
 
determines
 
that
 
it
 
is
 
more
 
likely
 
than
 
not
 
the
 
deferred
 
tax
 
assets
 
will
 
be
realized.
 
The
 
ability
 
to
 
recognize
 
the
 
remaining
 
deferred
 
tax
 
assets
 
that
 
continue
 
to
 
be
 
subject
 
to
 
a
 
valuation
 
allowance
 
will
 
be
evaluated on
 
a quarterly basis
 
to determine
 
if there are
 
any significant events
 
that would affect
 
the ability to
 
utilize these deferred
 
tax
assets.
The Corporation
 
has U.S.
 
and USVI
 
sourced NOL
 
carryforwards. Section
 
382 of
 
the U.S.
 
Internal Revenue
 
Code (“Section
 
382”)
limits the ability to
 
utilize U.S. and USVI
 
NOLs for income tax
 
purposes in such jurisdictions
 
following an event that
 
is considered to
be an “ownership change”.
 
Generally, an
 
“ownership change” occurs when
 
certain shareholders increase their
 
aggregate ownership by
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
245
more
 
than
 
50
 
percentage
 
points
 
over
 
their
 
lowest
 
ownership
 
percentage
 
over
 
a
 
three-year
 
testing
 
period.
 
Upon
 
the
 
occurrence
 
of
 
a
Section 382
 
ownership change,
 
the use
 
of NOLs
 
attributable to
 
the period
 
prior to
 
the ownership
 
change is
 
subject to
 
limitations and
only a portion of the U.S. and USVI NOLs may be used by the Corporation
 
to offset its annual U.S. and USVI taxable income, if any.
In
 
2017,
 
the
 
Corporation
 
completed
 
a
 
formal
 
ownership
 
change
 
analysis
 
within
 
the
 
meaning
 
of
 
Section
 
382
 
covering
 
a
comprehensive
 
period
 
and
 
concluded
 
that
 
an
 
ownership
 
change
 
had
 
occurred
 
during
 
such
 
period.
 
The
 
Section
 
382
 
limitation
 
has
resulted
 
in higher
 
U.S. and
 
USVI income
 
tax liabilities
 
than the
 
Corporation
 
would have
 
incurred
 
in the
 
absence of
 
such limitation.
The Corporation
 
has mitigated
 
to an
 
extent the
 
adverse effects
 
associated with
 
the Section
 
382 limitation
 
as any
 
such tax
 
paid in
 
the
U.S.
 
or
 
USVI
 
is
 
creditable
 
against
 
Puerto
 
Rico
 
tax
 
liabilities
 
or
 
taken
 
as
 
a
 
deduction
 
against
 
taxable
 
income.
 
However,
 
the
Corporation’s ability to reduce its Puerto
 
Rico tax liability through such a credit or deduction depends on our
 
tax profile at each annual
taxable period,
 
which is
 
dependent on
 
various factors.
 
For 2021,
 
2020 and
 
2019, the
 
Corporation incurred
 
an income
 
tax expense
 
of
approximately $
6.8
 
million, $
4.9
 
million and
 
$
4.5
 
million, respectively,
 
related to
 
its U.S.
 
operations.
 
The limitation
 
did not
 
impact
the USVI operations in 2021, 2020 and 2019.
 
The Corporation
 
accounts for uncertain
 
tax positions under
 
the provisions
 
of ASC Topic
 
740. The Corporation’s
 
policy is to
 
report
interest and penalties
 
related to unrecognized
 
tax benefits in income
 
tax expense. As
 
of December 31,
 
2021, the Corporation
 
had $
0.2
million of
 
accrued interest
 
and penalties
 
related to
 
uncertain tax
 
positions in
 
the amount
 
of $
1.1
 
million that
 
it acquired
 
from BSPR,
which,
 
if recognized,
 
would decrease
 
the
 
effective
 
income tax
 
rate in
 
future
 
periods. The
 
amount
 
of
 
unrecognized
 
tax benefits
 
may
increase
 
or
 
decrease
 
in
 
the
 
future
 
for
 
various
 
reasons,
 
including
 
adding
 
amounts
 
for
 
current
 
tax
 
year
 
positions,
 
expiration
 
of
 
open
income
 
tax returns
 
due
 
to the
 
statute of
 
limitations,
 
changes
 
in management’s
 
judgment about
 
the level
 
of uncertainty,
 
the status
 
of
examinations,
 
litigation
 
and
 
legislative activity,
 
and
 
the addition
 
or elimination
 
of uncertain
 
tax positions.
 
The statute
 
of limitations
under the 2011
 
PR code is four years;
 
the statute of limitations for
 
U.S. and USVI income tax
 
purposes is three years after
 
a tax return
is due or filed, whichever
 
is later. The
 
completion of an audit by the
 
taxing authorities or the expiration
 
of the statute of limitations for
a
 
given
 
audit
 
period
 
could
 
result
 
in
 
an
 
adjustment
 
to
 
the
 
Corporation’s
 
liability
 
for
 
income
 
taxes.
 
Any
 
such
 
adjustment
 
could
 
be
material to the results of
 
operations for any given quarterly
 
or annual period based, in
 
part, upon the results of
 
operations for the given
period.
 
For U.S.
 
and USVI
 
income tax
 
purposes,
 
all tax
 
years subsequent
 
to 2017
 
remain open
 
to examination.
 
For Puerto
 
Rico tax
purposes, all tax years subsequent to 2016 remain open to examination.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
246
NOTE 29
–
LEASES
The Corporation
 
accounts for its
 
leases in accordance
 
with ASC 842
 
“Leases” (“ASC
 
Topic
 
842”), which
 
it adopted on
 
January 1,
2019. ASC
 
Topic
 
842 requires
 
the Corporation
 
to record
 
liabilities for
 
future lease
 
obligations as
 
well as
 
assets representing
 
the right
to
 
use
 
the underlying
 
lease
 
asset. The
 
Corporation’s
 
operating
 
leases are
 
primarily
 
related
 
to
 
the Corporation’s
 
branches and
 
leased
commercial
 
space
 
for
 
ATMs.
 
Our
 
leases
 
mainly
 
have
 
terms
 
ranging
 
from
two years
 
to
30 years
,
 
some
 
of
 
which
 
include
 
options
 
to
extend the leases for up to
seven years
. Liabilities to make future lease payments are
 
recorded in accounts payable and other liabilities,
while right-of-use
 
(“ROU”) assets are
 
recorded in
 
other assets in
 
the Corporation’s
 
consolidated statements
 
of financial condition.
 
As
of December 31, 2021 and 2020, the Corporation did
no
t have a lease that qualifies as a finance lease.
 
Operating lease cost for the
 
year ended December 31, 2021
 
amounted to $
18.2
 
million (2020 - $
13.8
 
million; 2019 - $
10.7
 
million),
recorded in occupancy and equipment in the consolidated statement of
 
income.
 
Supplemental balance sheet information related to leases as of the indicated dates was as follows:
As of
As of
December 31,
December 31,
2021
2020
(Dollars in thousands)
ROU asset
$
90,319
$
103,186
Operating lease liability
$
93,772
$
106,502
Operating lease weighted-average remaining lease term (in years)
8.0
8.5
Operating lease weighted-average discount rate
2.24%
2.25%
Generally,
 
the
 
Corporation
 
cannot
 
practically
 
determine
 
the interest
 
rate
 
implicit
 
in
 
the lease.
 
Therefore,
 
the Corporation
 
uses
 
its
incremental borrowing rate as the discount rate for the lease.
 
Supplemental cash flow information related to leases was as follows:
Year
 
Ended
Year
 
Ended
December 31,
December 31,
2021
2020
(In thousands)
Operating cash flow from operating leases
(1)
$
19,328
$
13,464
ROU assets obtained in exchange for operating lease liabilities
(2)
$
4,553
$
1,328
(1)
Represents cash paid for amounts included in the measurement of operating
 
lease liabilities.
(2)
Represents non-cash activity and, accordingly,
 
is not reflected in the consolidated statements
 
of cash flows. For the year ended December 31,
 
2020 excludes $
52.1
 
million ROU
assets and related liabilities assumed
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
247
 
Maturities under lease liabilities as of December 31, 2021, were as follows:
Amount
(Dollars in thousands)
2022
$
18,159
2023
16,369
2024
15,299
2025
14,296
2026
13,064
2027 and after
26,971
Total lease payments
104,158
Less: imputed interest
(10,386)
Total present value
 
of lease liability
$
93,772
NOTE 30 –
 
FAIR VALUE
Fair Value
 
Measurement
The FASB
 
authoritative
 
guidance
 
for fair
 
value measurement
 
defines fair
 
value as
 
the exchange
 
price that
 
would be
 
received for
 
an
asset or
 
paid to
 
transfer a
 
liability (an
 
exit price)
 
in the
 
principal or
 
most advantageous
 
market for
 
the asset
 
or liability
 
in an
 
orderly
transaction between
 
market participants on
 
the measurement date.
 
This guidance also
 
establishes a fair
 
value hierarchy for
 
classifying
financial
 
instruments.
 
The
 
hierarchy
 
is
 
based
 
on
 
whether
 
the
 
inputs
 
to
 
the
 
valuation
 
techniques
 
used
 
to
 
measure
 
fair
 
value
 
are
observable or unobservable. One of three levels of inputs may be used to measure fair
 
value:
Level 1
 
Valuations
 
of
 
Level
 
1
 
assets
 
and
 
liabilities
 
are
 
obtained
 
from
 
readily-available
 
pricing
 
sources
 
for
 
market
transactions involving
 
identical assets
 
or liabilities.
 
Level 1
 
assets and
 
liabilities include
 
equity securities
 
that trade
in an active exchange
 
market, as well as
 
certain U.S. Treasury
 
and other U.S. government
 
and agency securities
 
and
corporate debt securities that are traded by dealers or brokers in active markets.
Level 2
 
Valuations
 
of Level
 
2 assets and
 
liabilities are based
 
on observable
 
inputs other
 
than Level 1
 
prices, such
 
as quoted
prices for similar assets or liabilities, or other inputs that are
 
observable or can be corroborated by observable market
data for substantially
 
the full term of the
 
assets or liabilities. Level
 
2 assets and liabilities
 
include (i) MBS for
 
which
the fair value is estimated based
 
on the value of identical or comparable
 
assets, (ii) debt securities with quoted
 
prices
that
 
are
 
traded
 
less
 
frequently
 
than
 
exchange-traded
 
instruments,
 
and
 
(iii)
 
derivative
 
contracts
 
whose
 
value
 
is
determined using a pricing
 
model with inputs that are
 
observable in the market
 
or can be derived principally
 
from or
corroborated by observable market data.
Level 3
 
 
Valuations
 
of Level 3 assets and
 
liabilities are based on unobservable
 
inputs that are supported by
 
little or no market
activity and
 
are significant to
 
the fair value
 
of the assets
 
or liabilities. Level
 
3 assets and
 
liabilities include financial
instruments
 
whose value
 
is determined
 
by using
 
pricing models
 
for
 
which
 
the determination
 
of fair
 
value
 
requires
significant management judgment as to the estimation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
248
Financial Instruments Recorded at Fair Value
 
on a Recurring Basis
Investment securities available for sale and marketable equity securities held at fair value
 
The fair value of investment securities was the market value based on quoted market
 
prices (as is the case with U.S. Treasury
 
notes,
non-callable U.S. agencies debt securities, and equity securities with readily determinable
 
fair values), when available (Level 1), or,
market prices for identical or comparable assets (as is the case with MBS and callable U.S.
 
agency debt securities) that are based on
observable market parameters, including benchmark yields, reported
 
trades, quotes from brokers or dealers, issuer spreads, bids, offers
and reference data, including market research operations,
 
when available (Level 2). Observable prices in the market already consider
the risk of nonperformance. If listed prices or quotes are not available,
 
fair value is based upon discounted cash flow models that use
unobservable inputs due to the limited market activity of the instrument,
 
as is the case with certain private label MBS held by the
Corporation (Level 3).
Derivative instruments
 
The
 
fair
 
value
 
of
 
most
 
of
 
the
 
Corporation’s
 
derivative
 
instruments
 
is
 
based
 
on
 
observable
 
market
 
parameters
 
and
 
takes
 
into
consideration
 
the
 
credit
 
risk
 
component
 
of
 
paying
 
counterparties,
 
when
 
appropriate.
 
On interest
 
caps,
 
only
 
the
 
seller's
 
credit
 
risk
 
is
considered.
 
The Corporation
 
valued
 
the caps
 
using
 
a discounted
 
cash flow
 
approach
 
based on
 
the related
 
LIBOR and
 
swap rate
 
for
each cash flow The Corporation
 
valued the interest rate swaps
 
using a discounted cash flow
 
approach based on the
 
related LIBOR and
swap forward rate for each cash flow.
The
 
Corporation
 
considers
 
a
 
credit
 
spread
 
for
 
those
 
derivative
 
instruments
 
that
 
are
 
not
 
secured.
 
The
 
cumulative
 
mark-to-market
effect of credit risk in the valuation of derivative instruments
 
in 2021, 2020 and 2019 was immaterial.
Assets and liabilities measured at fair value on a recurring basis are summarized
 
below as of December 31, 2021 and 2020:
As of December 31, 2021
As of December 31, 2020
Fair Value Measurements Using
 
Fair Value Measurements Using
 
(In thousands)
Level 1
Level 2
Level 3
Assets/Liabilities
at Fair Value
Level 1
Level 2
Level 3
Assets/Liabilities
at Fair Value
Assets:
Securities available for sale:
U.S. Treasury securities
$
148,486
$
-
$
-
$
148,486
$
7,507
$
-
$
-
$
7,507
Noncallable U.S. agencies debt securities
-
285,028
-
285,028
-
173,371
-
173,371
Callable U.S. agencies debt securities and MBS
-
6,009,163
-
6,009,163
-
4,454,164
-
4,454,164
Puerto Rico government obligations
-
-
2,850
2,850
-
-
2,899
2,899
Private label MBS
-
-
7,234
7,234
-
-
8,428
8,428
Other investments
-
-
1,000
1,000
-
-
650
650
Equity securities
5,378
-
-
5,378
1,474
-
-
1,474
Derivatives, included in assets:
Interest rate swap agreements
-
1,098
-
1,098
-
1,622
-
1,622
Purchased interest rate cap agreements
-
8
-
8
-
1
-
1
Forward contracts
-
-
-
-
-
102
-
102
Interest rate lock commitments
-
379
-
379
-
737
-
737
Forward loan sales commitments
-
20
-
20
-
20
-
20
Liabilities:
Derivatives, included in liabilities:
Interest rate swap agreements
 
-
1,092
-
1,092
-
1,639
-
1,639
Written interest rate cap agreements
-
8
-
8
-
1
-
1
Forward contracts
-
78
-
78
-
280
-
280
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
249
The table below presents a
 
reconciliation of the beginning and
 
ending balances of all assets and
 
liabilities measured at fair
value on
 
a recurring
 
basis using
 
significant unobservable
 
inputs (Level
 
3) for
 
the years
 
ended December
 
31, 2021,
 
2020,
and 2019:
2021
2020
2019
Level 3 Instruments Only
 
 
Securities Available
for Sale
(1)
Securities Available
for Sale
(1)
Securities Available
for Sale
(1)
(In thousands)
Beginning balance
$
11,977
$
14,590
$
17,238
Total gain (losses) (realized/unrealized):
Included in other comprehensive income
1,281
2,403
714
Included in earnings
136
(1,641)
(497)
BSPR securities acquired
-
150
-
Purchases
1,000
-
-
Principal repayments and amortization
(3,310)
(3,525)
(2,865)
Ending balance
$
11,084
$
11,977
$
14,590
___________________
(1)
Amounts mostly related to private label MBS.
 
The tables below present qualitative information for significant assets measured
 
at fair value on a recurring basis using
significant unobservable inputs (Level 3) as of December 31, 2021 and 2020:
December 31, 2021
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
(Dollars in thousands)
Minimum
 
Maximum
Investment securities available-for-sale:
 
Private label MBS
$
7,234
Discounted cash flows
Discount rate
12.9%
12.9%
12.9%
Prepayment rate
7.6%
24.9%
15.2%
Projected Cumulative Loss Rate
0.2%
15.7%
7.6%
 
Puerto Rico government obligations
$
2,850
Discounted cash flows
Discount rate
7.9%
7.9%
7.9%
Projected Cumulative Loss Rate
8.6%
8.6%
8.6%
December 31, 2020
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
(Dollars in thousands)
Minimum
 
Maximum
Investment securities available-for-sale:
 
Private label MBS
$
8,428
 
Discounted cash flows
Discount rate
12.2%
12.2%
12.2%
Prepayment rate
1.2%
18.8%
12.1%
Projected Cumulative Loss Rate
2.6%
22.3%
10.2%
 
Puerto Rico government obligations
$
2,899
Discounted cash flows
Discount rate
7.9%
7.9%
7.9%
Projected Cumulative Loss Rate
12.4%
12.4%
12.4%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
250
Information about Sensitivity to Changes in Significant Unobservable Inputs
Private label
 
MBS: The
 
significant unobservable
 
inputs in
 
the valuation
 
include probability
 
of default,
 
the loss
 
severity
 
assumption,
and prepayment
 
rates. Shifts
 
in those
 
inputs would
 
result in different
 
fair value
 
measurements. Increases
 
in the probability
 
of default,
loss
 
severity
 
assumptions,
 
and
 
prepayment
 
rates
 
in
 
isolation
 
would
 
generally
 
result
 
in
 
an
 
adverse
 
effect
 
on
 
the
 
fair
 
value
 
of
 
the
instruments. The Corporation modeled meaningful and possible
 
shifts of each input to assess the effect on the fair value estimation.
Puerto Rico
 
Government Obligations:
 
The significant
 
unobservable input
 
used in
 
the fair value
 
measurement is
 
the assumed
 
loss rate
of the
 
underlying
 
residential
 
mortgage
 
loans that
 
collateralize
 
these obligations,
 
which
 
are guaranteed
 
by the
 
PRHFA.
 
A significant
increase (decrease) in
 
the assumed rate
 
would lead to
 
a (lower) higher
 
fair value estimate.
 
The fair value
 
of these bonds
 
was based on
a discounted
 
cash flow
 
methodology that
 
considers the
 
structure and
 
terms of
 
the underlying
 
collateral. The
 
Corporation utilizes
 
PDs
and
 
LGDs
 
that
 
consider,
 
among
 
other
 
things,
 
historical
 
payment
 
performance,
 
loan-to
 
value
 
attributes,
 
and
 
relevant
 
current
 
and
forward-looking
 
macroeconomic
 
variables, such
 
as regional
 
unemployment
 
rates, the
 
housing price
 
index, and
 
expected recovery
 
of
the PRHFA
 
guarantee. Under this approach,
 
all future cash flows (interest and
 
principal) from the underlying
 
collateral loans, adjusted
by prepayments and the
 
PDs and LGDs derived from
 
the above-described methodology,
 
are discounted at the internal
 
rate of return as
of the reporting date and compared to the amortized cost.
 
The table below summarizes changes in unrealized gains and losses recorded in
 
earnings for the years ended December 31, 2021,
2020 and 2019 for Level 3 assets and liabilities that were still held at the end of each
 
year:
Changes in Unrealized Losses
 
Year Ended
 
December 31,
2021
2020
2019
Level 3 Instruments Only
Securities Available
for Sale
 
Securities Available
for Sale
Securities Available
for Sale
(In thousands)
Changes in unrealized losses relating to assets
 
still held at reporting date:
OTTI on available-for-sale investment
securities (credit component)
(1)
$
-
$
-
$
(497)
Provision for credit losses - benefit (expense)
(2)
136
(1,641)
-
Total
$
136
$
(1,641)
$
(497)
(1)
For years 2021 and
 
2020, credit-related impairment
 
recognized in earnings
 
is classified as
 
provision for credit losses
 
due to the Corporation’s
 
adoption of CECL
 
on January 1,
 
2020. For
more information, see Note 1 – “Nature of Business and
 
Summary Significant of Accounting Policies,” above.
(2)
Prior to the Corporation’s
 
adoption of CECL on
 
January 1, 2020, the
 
provision for credit losses
 
from debt securities was
 
not applicable and therefore
 
no amount is presented
 
for the prior
period. For more information, see Note 1 – “Nature of Business
 
and Summary of Significant Accounting Policies,” above.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
251
Additionally,
 
fair value
 
is used
 
on a
 
nonrecurring
 
basis to
 
evaluate
 
certain
 
assets in
 
accordance
 
with
 
GAAP.
 
Adjustments
 
to
 
fair
value usually result from
 
the application of lower-of-cost
 
or market accounting (
e.g
., loans held for
 
sale carried at the lower-of-cost
 
or
fair value and repossessed assets) or write-downs of individual assets (
e.g
., goodwill and loans).
As of
 
December 31,
 
2021,
 
the Corporation
 
recorded losses
 
or valuation
 
adjustments for
 
assets recognized
 
at fair
 
value on
 
a non-
recurring basis as shown in the following table:
Carrying value as of December 31, 2021
Losses recorded for the Year
 
Ended
December 31, 2021
Level 1
Level 2
Level 3
(In thousands)
Loans receivable
(1)
$
-
$
-
$
161,302
$
(2,959)
OREO
 
(2)
-
-
40,848
(403)
(1)
Consists mainly of collateral dependent
 
commercial and construction loans.
 
The Corporation generally measured losses
 
on the fair value of the
 
collateral. The Corporation derived
 
the fair
values
 
from
 
external
 
appraisals
 
that
 
took
 
into
 
consideration
 
prices
 
in
 
observed
 
transactions
 
involving
 
similar
 
assets
 
in
 
similar
 
locations
 
but
 
adjusted
 
for
 
specific
 
characteristics
 
and
assumptions of the collateral (
e.g
., absorption rates), which are not market observable.
(2)
The Corporation
 
derived the
 
fair values
 
from appraisals
 
that took
 
into consideration
 
prices in
 
observed transactions
 
involving similar
 
assets in
 
similar locations
 
but adjusted
 
for specific
characteristics and assumptions of
 
the properties (
e.g
., absorption rates and net
 
operating income of income producing
 
properties), which are not
 
market observable.
 
Losses were related to
market valuation adjustments after the transfer of the loans to the
 
OREO portfolio.
 
As of December 31,
 
2020, the Corporation recorded losses or valuation adjustments for assets recognized
 
at fair value on a non-
recurring basis as shown in the following table:
Carrying value as of December 31, 2020
Losses recorded for the Year
 
Ended
December 31, 2020
Level 1
Level 2
Level 3
(In thousands)
Loans receivable
(1)
$
-
$
-
$
246,803
$
(5,675)
OREO
(2)
-
-
83,060
(1,970)
(1)
Consists mainly
 
of collateral
 
dependent commercial
 
and construction
 
loans.
 
The Corporation
 
generally measured
 
losses on
 
the fair value
 
of the
 
collateral. The
 
Corporation derived
 
the fair
values from external appraisals that took into consideration prices
 
in observed transactions involving similar assets in similar locations
 
but adjusted for specific characteristics and assumptions
of the collateral (
e.g
., absorption rates), which are not market observable.
(2)
The Corporation
 
derived
 
the fair
 
values from
 
appraisals
 
that took
 
into consideration
 
prices in
 
observed transactions
 
involving
 
similar assets
 
in similar
 
locations
 
but adjusted
 
for specific
characteristics and
 
assumptions of
 
the properties
 
(
e.g
., absorption rates
 
and net operating
 
income of income
 
producing properties),
 
which are not
 
market observable.
 
Losses were
 
related to
market valuation adjustments after the transfer of the loans to the
 
OREO portfolio.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
252
As of December 31, 2019, the Corporation recorded losses or valuation
 
adjustments for assets recognized at fair value on a
nonrecurring basis as shown in the following table:
Carrying value as of December 31, 2019
Losses recorded for the Year
 
Ended
December 31, 2019
Level 1
Level 2
Level 3
(In thousands)
Loans receivable
(1)
$
-
$
-
$
217,252
$
(18,013)
OREO
(2)
-
-
101,626
(6,572)
(1)
Consists mainly of collateral dependent
 
commercial and construction loans.
 
The Corporation generally measured losses
 
on the fair value of
 
the collateral. The Corporation
 
derived the fair
values
 
from
 
external
 
appraisals
 
that
 
took
 
into
 
consideration
 
prices
 
in
 
observed
 
transactions
 
involving
 
similar
 
assets
 
in
 
similar
 
locations
 
but
 
adjusted
 
for
 
specific
 
characteristics
 
and
assumptions of the collateral (
e.g
., absorption rates), which are not market observable.
(2)
The Corporation
 
derived the
 
fair values
 
from appraisals
 
that took
 
into consideration
 
prices in
 
observed transactions
 
involving similar
 
assets in
 
similar locations
 
but adjusted
 
for specific
characteristics and assumptions of
 
the properties (
e.g
., absorption rates and net
 
operating income of income
 
producing properties), which
 
are not market observable.
 
Losses were related to
market valuation adjustments after the transfer of the loans to the
 
OREO portfolio.
 
Qualitative information regarding the fair value measurements for Level 3 financial
 
instruments as of December 31, 2021 are as
follows:
December 31, 2021
Method
Inputs
Loans
Income, Market, Comparable
Sales, Discounted Cash Flows
External appraised values; probability weighting of broker price
opinions; management assumptions regarding market trends or other
relevant factors
OREO
Income, Market, Comparable
Sales, Discounted Cash Flows
External appraised values; probability weighting of broker price
opinions; management assumptions regarding market trends or other
relevant factors
 
The following tables present the carrying value, estimated fair value and estimated
 
fair value level of the hierarchy of
financial instruments as of December 31, 2021 and 2020:
Total Carrying
Amount in Statement
of Financial Condition
as of December 31,
2021
Fair Value Estimate
as of December 31,
2021
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money
 
 
market investments (amortized cost)
$
2,543,058
$
2,543,058
$
2,543,058
$
-
$
-
Investment securities available
 
 
for sale (fair value)
6,453,761
6,453,761
148,486
6,294,191
11,084
Investment securities held to maturity (amortized
 
cost)
178,133
-
-
-
-
Less: allowance for credit losses on
 
held to maturity securities
(8,571)
Investment securities held to maturity, net of allowance
$
169,562
167,147
-
-
167,147
Equity securities (fair value)
32,169
32,169
5,378
26,791
-
Loans held for sale (lower of cost or market)
35,155
36,147
-
36,147
-
Loans, held for investment (amortized cost)
11,060,658
Less: allowance for credit losses for loans
 
and finance leases
(269,030)
Loans held for investment, net of allowance
$
10,791,628
10,900,400
-
-
10,900,400
Derivatives, included in assets (fair value)
1,505
1,505
-
1,505
-
Liabilities:
Deposits
 
(amortized cost)
$
17,784,894
$
17,800,706
$
-
$
17,800,706
$
-
Securities sold under agreements to
 
 
repurchase (amortized cost)
300,000
322,105
-
322,105
-
Advances from FHLB (amortized cost)
200,000
202,044
-
202,044
-
Other borrowings (amortized cost)
183,762
177,689
-
-
177,689
Derivatives, included in liabilities (fair
 
value)
1,178
1,178
-
1,178
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
253
Total Carrying
Amount in
 
Statement of Financial
Condition
 
as of December 31,
2020
Fair Value
Estimate as of
December 31, 2020
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money
 
 
market investments (amortized cost)
$
1,493,833
$
1,493,833
$
1,493,833
$
-
$
-
Investment securities available
 
 
for sale (fair value)
4,647,019
4,647,019
7,507
4,627,535
11,977
Investment securities held to maturity (amortized
 
cost)
189,488
-
-
-
-
Less: allowance for credit losses on
 
held to maturity securities
(8,845)
Investment securities held to maturity, net of allowance
$
180,643
173,806
-
-
173,806
Equity securities (fair value)
37,588
37,588
1,474
36,114
-
Loans held for sale (lower of cost or market)
50,289
52,322
-
52,322
-
Loans, held for investment (amortized cost)
11,777,289
Less: allowance for credit losses for loans
 
and finance leases
(385,887)
Loans held for investment, net of allowance
$
11,391,402
11,564,635
-
-
11,564,635
Derivatives, included in assets (fair value)
2,842
2,842
-
2,482
-
Liabilities:
Deposits (amortized cost)
$
15,317,383
$
15,363,236
$
-
$
15,363,236
$
-
Securities sold under agreements to
 
 
repurchase (amortized cost)
300,000
329,493
-
329,493
-
Advances from FHLB (amortized cost)
440,000
446,703
-
446,703
-
Other borrowings (amortized cost)
183,762
151,645
-
-
151,645
Derivatives, included in liabilities (fair
 
value)
1,920
1,920
-
1,920
-
The short-term nature
 
of certain assets and
 
liabilities result in their
 
carrying value approximating
 
fair value. These include
 
cash and
cash
 
due
 
from
 
banks
 
and
 
other
 
short-term
 
assets,
 
such
 
as
 
FHLB
 
stock.
 
Certain
 
assets,
 
the
 
most
 
significant
 
being
 
premises
 
and
equipment,
 
mortgage
 
servicing
 
rights,
 
core
 
deposit,
 
and
 
other
 
customer
 
relationship
 
intangibles,
 
are
 
not
 
considered
 
financial
instruments
 
and
 
are
 
not
 
included
 
above.
 
Accordingly,
 
this
 
fair
 
value
 
information
 
is
 
not
 
intended
 
to,
 
and
 
does
 
not,
 
represent
 
the
Corporation’s
 
underlying
 
value.
 
Many
 
of
 
these
 
assets
 
and
 
liabilities
 
that
 
are
 
subject
 
to
 
the
 
disclosure
 
requirements
 
are
 
not
 
actively
traded, requiring
 
management to estimate
 
fair values.
 
These estimates necessarily
 
involve the
 
use of assumptions
 
and judgment about
a wide
 
variety
 
of factors,
 
including
 
but not
 
limited to,
 
relevancy
 
of market
 
prices of
 
comparable
 
instruments,
 
expected futures
 
cash
flows, and appropriate discount rates.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
254
NOTE 31 – REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue Recognition
 
In accordance with
 
ASC Topic
 
606, “Revenue from
 
Contracts with Customers” (“ASC
 
Topic
 
606”), revenues are
 
recognized when
control
 
of
 
promised
 
goods
 
or
 
services
 
is
 
transferred
 
to
 
customers
 
and
 
in
 
an
 
amount
 
that
 
reflects
 
the
 
consideration
 
to
 
which
 
the
Corporation expects to be
 
entitled in exchange for
 
those goods or services.
 
To determine
 
revenue recognition for arrangements
 
that an
entity
 
determines
 
are
 
within
 
the
 
scope
 
of
 
ASC
 
Topic
 
606,
 
the
 
Corporation
 
performs
 
the
 
following
 
five
 
steps:
 
(i)
 
identifies
 
the
contract(s)
 
with
 
a
 
customer;
 
(ii)
 
identifies
 
the
 
performance
 
obligations
 
in
 
the
 
contract;
 
(iii)
 
determines
 
the
 
transaction
 
price;
 
(iv)
allocates the transaction
 
price to the
 
performance obligations in
 
the contract; and
 
(v) recognizes revenue
 
when (or as)
 
the Corporation
satisfies a
 
performance
 
obligation.
 
The Corporation
 
only
 
applies the
 
five-step
 
model
 
to contracts
 
when
 
it is
 
probable
 
that the
 
entity
will
 
collect
 
the
 
consideration
 
to
 
which
 
it
 
is
 
entitled
 
in
 
exchange
 
for
 
the
 
goods
 
or
 
services
 
it
 
transfers
 
to
 
the
 
customer.
 
At
 
contract
inception,
 
once the
 
contract is
 
determined
 
to be
 
within the
 
scope of
 
ASC Topic
 
606, the
 
Corporation assesses
 
the goods
 
or services
that
 
are
 
promised
 
within
 
each
 
contract,
 
identifies
 
those
 
that
 
contain
 
performance
 
obligations,
 
and
 
assesses
 
whether
 
each
 
promised
good
 
or
 
service
 
is
 
distinct.
 
The
 
Corporation
 
then
 
recognizes
 
as
 
revenue
 
the
 
amount
 
of
 
the
 
transaction
 
price
 
that
 
is
 
allocated
 
to
 
the
respective performance obligation when (or as) the performance
 
obligation is satisfied.
Disaggregation of Revenue
 
The following
 
tables summarizes
 
the Corporation’s
 
revenue, which
 
includes net
 
interest income
 
on financial
 
instruments and
 
non-
interest income, disaggregated by type of service and business segment for
 
the years ended December 31, 2021, 2020 and 2019:
Year ended December
 
31, 2021:
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income
(1)
$
104,638
$
281,703
$
191,917
$
59,331
$
65,967
$
26,373
$
729,929
Service charges and fees on deposit accounts
-
20,083
11,807
-
555
2,839
35,284
Insurance commissions
-
11,166
-
-
114
665
11,945
Merchant-related income
-
6,279
1,079
-
51
1,055
8,464
Credit and debit card fees
-
26,360
83
-
19
1,602
28,064
Other service charges and fees
771
4,185
2,640
-
1,825
556
9,977
Not in scope of ASC Topic
 
606
 
(1)
23,507
1,701
423
227
1,399
173
27,430
 
Total non-interest income
24,278
69,774
16,032
227
3,963
6,890
121,164
Total Revenue
$
128,916
$
351,477
$
207,949
$
59,558
$
69,930
$
33,263
$
851,093
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
255
Year ended December
 
31, 2020:
 
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income
 
(1)
$
76,025
$
220,678
$
135,591
$
87,879
$
54,025
$
26,124
$
600,322
Service charges and fees on deposit accounts
-
13,286
8,026
-
553
2,747
24,612
Insurance commissions
-
8,754
-
-
52
558
9,364
Merchant-related income
-
4,516
478
-
41
809
5,844
Credit and debit card fees
-
18,218
62
-
16
1,469
19,765
Other service charges and fees
342
2,900
2,260
184
1,800
1,508
8,994
Not in scope of Topic 606
 
(1)(2)
21,727
3,288
1,780
13,524
2,168
160
42,647
 
Total non-interest income
22,069
50,962
12,606
13,708
4,630
7,251
111,226
Total Revenue
$
98,094
$
271,640
$
148,197
$
101,587
$
58,655
$
33,375
$
711,548
Year ended December
 
31, 2019:
 
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income
(1)
$
68,803
$
244,535
$
91,266
$
73,626
$
62,539
$
26,312
$
567,081
Service charges and fees on deposit accounts
-
14,534
5,811
-
631
2,940
23,916
Insurance commissions
-
9,621
-
-
67
498
10,186
Merchant-related income
-
4,120
466
-
-
1,049
5,635
Credit and debit card fees
-
19,014
104
-
43
1,744
20,905
Other service charges and fees
216
3,012
2,690
-
1,558
1,313
8,789
Not in scope of Topic 606 (1)
16,609
1,428
2,643
(225)
508
178
21,141
 
Total non-interest income
16,825
51,729
11,714
(225)
2,807
7,722
90,572
Total Revenue
$
85,628
$
296,264
$
102,980
$
73,401
$
65,346
$
34,034
$
657,653
(1)
Most of
 
the Corporation’s
 
revenue is
 
not within
 
the scope
 
of ASC
 
Topic
 
606. The
 
guidance explicitly
 
excludes net
 
interest income
 
from financial
 
assets and
liabilities, as well as other non-interest income from loans,
 
leases, investment securities and derivative financial instruments.
(2)
For the
 
year ended December
 
31, 2020, includes
 
a $
5.0
 
million benefit resulting
 
from the final
 
settlement of the
 
Corporation’s business
 
interruption insurance
claim
 
related to
 
lost
 
profits caused
 
by Hurricanes
 
Irma and
 
Maria in
 
2017.
 
This insurance
 
recovery is
 
presented as
 
part of
 
other
 
non-interest income
 
in the
consolidated statements of income.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
256
For
 
2021,
 
2020,
 
and
 
2019,
 
substantially
 
all
 
of
 
the
 
Corporation’s
 
revenue
 
within
 
the
 
scope
 
of
 
ASC
 
Topic
 
606
 
was
 
related
 
to
performance obligations satisfied at a point in time.
 
The following is a discussion of the revenues under the scope of ASC Topic
 
606.
 
 
Service Charges and Fees on Deposit Accounts
 
Service
 
charges
 
and fees
 
on deposit
 
accounts
 
relate to
 
fees generated
 
from a
 
variety of
 
deposit products
 
and
 
services rendered
 
to
customers. Charges
 
include, but
 
are not
 
limited to,
 
overdraft fees,
 
insufficient
 
fund fees,
 
dormant fees,
 
and monthly
 
service charges.
Such fees are recognized concurrently
 
with the event on a daily basis
 
or on a monthly basis depending
 
upon the customer’s cycle
 
date.
 
These
 
depository
 
arrangements are
 
considered
 
day-to-day
 
contracts that
 
do not
 
extend beyond
 
the services
 
performed,
 
as customers
have the right to terminate these contracts with no penalty or,
 
if any, nonsubstantive penalties.
Insurance Commissions
For
 
insurance
 
commissions,
 
which
 
include
 
regular
 
and
 
contingent
 
commissions
 
paid
 
to
 
the
 
Corporation’s
 
insurance
 
agency,
 
the
agreements
 
contain
 
a
 
performance
 
obligation
 
related
 
to
 
the
 
sale/issuance
 
of
 
the
 
policy
 
and
 
ancillary
 
administrative
 
post-issuance
support.
 
The performance
 
obligations
 
are
 
satisfied
 
when
 
the policies
 
are
 
issued, and
 
revenue
 
is recognized
 
at
 
that point
 
in
 
time.
 
In
addition,
 
contingent
 
commission
 
income
 
may
 
be
 
considered
 
to
 
be
 
constrained,
 
as
 
defined
 
under
 
ASC
 
Topic
 
606.
 
Contingent
commission income is included
 
in the transaction price
 
only to the extent that
 
it is probable that a
 
significant reversal in the
 
amount of
cumulative revenue
 
recognized will not
 
occur or
 
payments are received
 
.
 
For the years
 
ended December
 
31, 2021, 2020
 
and 2019,
 
the
Corporation recognized revenue
 
at the time that
 
payments were confirmed
 
and constraints were
 
released of $
3.3
 
million, $
3.3
 
million,
and $
3.0
 
million, respectively.
 
Merchant-related
 
Income
For
 
merchant-related
 
income,
 
the
 
determination
 
of
 
which
 
included
 
the
 
consideration
 
of
 
a
 
2015
 
sale
 
of
 
merchant
 
contracts
 
that
involved
 
sales
 
of
 
point
 
of
 
sale
 
(“POS”)
 
terminals
 
and
 
entry
 
into
 
a
 
marketing
 
alliance
 
under
 
a
 
revenue-sharing
 
agreement,
 
the
Corporation
 
concluded
 
that
 
control
 
of
 
the
 
POS
 
terminals
 
and
 
merchant
 
contracts
 
was
 
transferred
 
to
 
the
 
customer
 
at
 
the
 
contract’s
inception.
 
With
 
respect
 
to
 
the
 
related
 
revenue-sharing
 
agreement,
 
the
 
Corporation
 
satisfies
 
the
 
marketing
 
alliance
 
performance
obligation over
 
the life of
 
the contract,
 
and recognizes the
 
associated transaction price
 
as the entity
 
performs and any
 
constraints over
the variable consideration are resolved.
Credit and Debit Card
 
Fees
 
Credit
 
and
 
debit
 
card
 
fees
 
primarily
 
represent
 
revenues
 
earned
 
from
 
interchange
 
fees
 
and
 
ATM
 
fees.
 
Interchange
 
and
 
network
revenues are earned on credit and
 
debit card transactions conducted with
 
payment networks. ATM
 
fees are primarily earned as a
 
result
of surcharges
 
assessed to
 
non-FirstBank customers
 
who use
 
a FirstBank
 
ATM.
 
Such fees
 
are generally
 
recognized concurrently
 
with
the delivery of services on a daily basis.
Other Fees
 
Other fees primarily
 
include revenues generated
 
from wire transfers,
 
lockboxes, bank
 
issuances of checks
 
and trust fees
 
recognized
from
 
transfer
 
paying
 
agent,
 
retirement
 
plan,
 
and
 
other
 
trustee
 
activities.
 
Revenues
 
are
 
recognized
 
on
 
a
 
recurring
 
basis
 
when
 
the
services are rendered.
Contract Balances
 
A
 
contract
 
liability
 
is
 
an
 
entity’s
 
obligation
 
to
 
transfer
 
goods
 
or
 
services
 
to
 
a
 
customer
 
in
 
exchange
 
for
 
consideration
 
from
 
the
customer.
 
During
 
the
 
year
 
ended
 
December
 
31,
 
2019,
 
the Bank
 
entered
 
into
 
a
 
growth
 
agreement
 
with
 
an
 
international
 
card
 
service
association to
 
expand the
 
customer base
 
and enhance
 
product offerings.
 
The primary
 
performance obligation
 
of this contract
 
required
the
 
Bank
 
to
 
either
 
launch
 
a
 
new debit
 
card
 
product
 
by
 
2021,
 
or
 
maintain
 
a
 
ratio
 
of
 
over
50
% of
 
the
 
portfolio
 
with
 
the related
 
card
service association
 
by the
 
year ended
 
December 31,
 
2021. In
 
connection with
 
this agreement,
 
the Corporation
 
recognized a
 
contract
liability as the revenue is constrained until the fulfillment
 
of either of the above conditions.
 
During the year ended December 31, 2021,
the
 
Bank
 
successfully
 
launched
 
the
 
new
 
debit
 
card
 
product
 
required
 
and
 
recognized
 
revenues of
 
$
0.4
 
million
 
from
 
this contract.
 
In
addition,
 
as
 
discussed
 
above,
 
during
 
2015,
 
the
 
Bank
 
entered
 
into
 
a
 
long-term
 
strategic
 
marketing
 
alliance
 
under
 
a
 
revenue-sharing
agreement
 
with another
 
entity to
 
which the
 
Bank sold
 
its merchant
 
contracts portfolio
 
and related
 
POS terminals.
 
Merchant services
are marketed
 
through the
 
Bank’s
 
branches
 
and offices
 
in Puerto
 
Rico and
 
the Virgin
 
Islands.
 
Under the
 
revenue-sharing
 
agreement,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
257
FirstBank
 
shares
 
with
 
this
 
entity
 
revenues
 
generated
 
by
 
the
 
merchant
 
contracts
 
over
 
the
 
term
 
of
 
the
10
-year
 
agreement.
 
As
 
of
December 31, 2021
 
and 2020, the contract
 
liability amounted to approximately
 
$
1.1
 
million and $
1.4
 
million, respectively,
 
which will
be
 
recognized
 
over
 
the
 
remaining
 
term
 
of
 
the
 
contract.
 
For
 
the
 
years
 
ended
 
December
 
31,
 
2021,
 
2020,
 
and
 
2019,
 
the
 
Corporation
recognized
 
revenue and
 
its contract
 
liabilities decreased
 
by approximately
 
$
0.7
 
million, $
0.3
 
million, and
 
$
0.3
 
million, respectively,
due
 
to
 
the
 
completion
 
of
 
performance
 
over
 
time.
 
There
 
were
 
no
 
changes
 
in
 
contract
 
liabilities
 
due
 
to
 
changes
 
in
 
transaction
 
price
estimates.
 
The following table shows the activity of contract liabilities for the years ended
 
December 31, 2021, 2020 and 2019:
 
(In thousands)
2021
2020
2019
Beginning Balance
$
2,151
$
2,476
$
2,071
Plus:
Additions
-
-
730
Less:
Revenue recognized
(708)
(325)
(325)
Ending balance
$
1,443
$
2,151
$
2,476
A contract
 
asset is
 
the right
 
to consideration
 
for transferred
 
goods or
 
services when
 
the amount
 
is conditioned
 
on something
 
other
than
 
the
 
passage
 
of
 
time.
 
As of
 
December 31, 2021
 
and
 
2020,
 
there
 
were
 
no
 
receivables
 
from
 
contracts
 
with
 
customers
 
or
 
contract
assets recorded on the Corporation’s
 
consolidated financial statements.
Other
 
Except for the contract liabilities noted above, the Corporation did
 
not have any significant performance obligations as of December
31, 2021.
 
The
 
Corporation
 
also
 
did
 
not
 
have
 
any
 
material contract
 
acquisition
 
costs
 
and
 
did
 
not
 
make
 
any
 
significant
 
judgments
 
or
estimates in recognizing revenue for financial reporting purposes.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
258
NOTE 32 –
 
SUPPLEMENTAL STATEMENT OF
 
CASH FLOWS
 
INFORMATION
 
Supplemental
 
statement
 
of cash
 
flows information
 
is as follows
 
for the
 
indicated
 
periods:
Year
 
Ended December 31,
 
2021
2020
2019
(In thousands)
Cash paid for:
 
Interest on borrowings
$
68,668
$
94,872
$
107,010
 
Income tax
15,477
16,713
13,495
 
Operating cash flow from operating leases
19,328
13,464
10,219
Non-cash investing and financing activities:
 
Additions to OREO
19,348
7,249
40,398
 
Additions to auto and other repossessed assets
33,408
36,203
47,643
 
Capitalization of servicing assets
5,194
4,864
4,039
 
Loan securitizations
191,434
221,491
235,258
 
Loans held for investment transferred to held for sale
33,010
10,817
24,470
 
Payable related to unsettled purchases of available-for-sale
 
investment
-
24,033
-
 
ROU asset obtained in exchange for operating lease liabilities
4,553
1,328
10,762
Adoption of lease accounting standard:
 
ROU asset operating leases
-
-
57,178
 
Operating lease liabilities
-
-
59,818
Acquisition (see Note 2):
 
Consideration
584
1,280,424
-
 
Fair value of assets acquired
605
5,561,564
-
 
Liabilities assumed
$
-
$
4,291,674
$
-
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
259
NOTE 33 –
 
REGULATORY MATTERS, COMMITMENTS,
 
AND CONTINGENCIES
The
 
Corporation
 
and
 
FirstBank
 
are
 
each
 
subject
 
to
 
various
 
regulatory
 
capital
 
requirements
 
imposed
 
by
 
the
 
U.S.
 
federal
 
banking
agencies. Failure
 
to meet
 
minimum capital
 
requirements can
 
result in
 
certain mandatory
 
and possibly
 
additional discretionary
 
actions
by regulators
 
that, if
 
undertaken, could
 
have a
 
direct material
 
adverse effect
 
on the
 
Corporation’s
 
financial statements
 
and activities.
Under
 
capital
 
adequacy
 
guidelines
 
and
 
the
 
regulatory
 
framework
 
for
 
prompt
 
corrective
 
action,
 
the
 
Corporation
 
must
 
meet
 
specific
capital
 
guidelines
 
that
 
involve
 
quantitative
 
measures
 
of
 
the Corporation’s
 
and
 
FirstBank’s
 
assets,
 
liabilities,
 
and
 
certain
 
off-balance
sheet items
 
as calculated
 
under regulatory
 
accounting practices.
 
The Corporation’s
 
capital amounts
 
and classification
 
are also
 
subject
to qualitative judgments and
 
adjustment by the regulators with respect
 
to minimum capital requirements, components,
 
risk weightings,
and other factors. As of
 
December 31, 2021, and 2020,
 
the Corporation and FirstBank exceeded
 
the minimum regulatory capital
 
ratios
for
 
capital
 
adequacy
 
purposes
 
and
 
FirstBank
 
exceeded
 
the
 
minimum
 
regulatory
 
capital
 
ratios
 
to
 
be
 
considered
 
a
 
well
 
capitalized
institution under
 
the regulatory framework
 
for prompt corrective
 
action. As of
 
December 31, 2021,
 
management does not
 
believe that
any condition has changed or event has occurred that would have changed
 
the institution’s status.
The Corporation and FirstBank
 
compute risk-weighted assets
 
using the standardized approach
 
required by the U.S.
 
Basel III capital
rules (“Basel III rules”).
The
 
Basel III
 
rules
 
require
 
the
 
Corporation
 
to
 
maintain
 
an additional
 
capital
 
conservation
 
buffer
 
of
2.5
% to
 
avoid
 
limitations on
both (i)
 
capital distributions
 
(
e.g.
, repurchases
 
of capital
 
instruments,
 
dividends
 
and interest payments
 
on capital
 
instruments) and
 
(ii)
discretionary bonus payments to executive officers and
 
heads of major business lines.
Under
 
the
 
Basel
 
III
 
rules,
 
in
 
order
 
to
 
be
 
considered
 
adequately
 
capitalized
 
and
 
not
 
subject
 
to
 
the
 
above
 
noted
 
limitations,
 
the
Corporation
 
is required
 
to maintain:
 
(i) a
 
minimum Common
 
Equity Tier
 
1 (“CET1”)
 
capital to
 
risk-weighted assets
 
ratio of
 
at least
4.5
%, plus the
2.5
% “capital conservation
 
buffer,”
 
resulting in a
 
required minimum CET1
 
capital ratio of
 
at least
7
%; (ii) a
 
minimum
ratio of
 
total Tier
 
1 capital
 
to risk-weighted
 
assets of
 
at least
6.0
%, plus
 
the
2.5
% capital
 
conservation buffer,
 
resulting in
 
a required
minimum Tier
 
1 capital ratio
 
of
8.5
%; (iii) a minimum
 
ratio of total Tier
 
1 plus Tier
 
2 capital to
 
risk-weighted assets of
 
at least
8.0
%,
plus the
2.5
% capital
 
conservation buffer,
 
resulting in
 
a required
 
minimum total
 
capital ratio
 
of
10.5
%; and
 
(iv) a
 
required minimum
leverage ratio of
4
%, calculated as the ratio of Tier 1 capital to average on-balance
 
sheet (non-risk adjusted) assets.
 
As part
 
of its
 
response to
 
the impact
 
of COVID-19,
 
on March
 
31, 2020,
 
the federal
 
banking agencies
 
issued an
 
interim final
 
rule
that
 
provided
 
the
 
option
 
to
 
temporarily
 
delay
 
the
 
effects
 
of
 
CECL
 
on
 
regulatory
 
capital
 
for
 
two
 
years,
 
followed
 
by
 
a
 
three-year
transition period.
 
The interim final
 
rule provides
 
that, at the
 
election of
 
a qualified
 
banking organization,
 
the day 1
 
impact to retained
earnings plus
25
% of
 
the change
 
in the
 
ACL (excluding
 
PCD loans)
 
from January
 
1, 2020 to
 
December 31,
 
2021 will
 
be delayed
 
for
two years and phased-in at
25
% per year beginning on January
 
1, 2022 over a three-year period, resulting
 
in a total transition period of
five years. Accordingly,
 
as of December 31, 2021,
 
the capital measures of the Corporation
 
and the Bank excluded
 
$
64.8
 
million (to be
phased-in
 
during
 
the next
 
three years)
 
that
 
represents
 
the CECL
 
day
 
1
 
impact
 
to
 
retained
 
earnings
 
plus
 
25
% of
 
the increase
 
in
 
the
allowance
 
for
 
credit
 
losses (as
 
defined
 
in
 
the
 
interim
 
final rule)
 
from
 
January
 
1,
 
2020
 
to December
 
31,
 
2021.
 
The
 
federal financial
regulatory agencies may
 
take other measures
 
affecting regulatory capital
 
to address the COVID-19
 
pandemic, although the
 
nature and
impact of such measures cannot be predicted at this time.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
260
The regulatory
 
capital position of
 
the Corporation and
 
the Bank as
 
of December 31,
 
2021 and 2020,
 
which reflects the
 
delay in the
effect of CECL on regulatory capital, were as follows:
Regulatory Requirements
Actual
For Capital Adequacy Purposes
To be Well
 
-Capitalized
Thresholds
 
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
As of December 31, 2021
Total Capital (to
 
risk-weighted assets)
 
First BanCorp.
$
2,433,953
20.50%
$
949,637
8.0%
N/A
N/A
 
FirstBank
$
2,401,390
20.23%
$
949,556
8.0%
$
1,186,944
10.0%
CET1 Capital
 
(to risk-weighted assets)
 
First BanCorp.
$
2,112,630
17.80%
$
534,171
4.5%
N/A
N/A
 
FirstBank
$
2,150,317
18.12%
$
534,125
4.5%
$
771,514
6.5%
Tier I Capital (to
 
risk-weighted assets)
 
First BanCorp.
$
2,112,630
17.80%
$
712,228
6.0%
N/A
N/A
 
FirstBank
$
2,258,317
19.03%
$
712,167
6.0%
$
949,556
8.0%
Leverage ratio
 
First BanCorp.
$
2,112,630
10.14%
$
833,091
4.0%
N/A
N/A
 
FirstBank
$
2,258,317
10.85%
$
832,773
4.0%
$
1,040,967
5.0%
As of December 31, 2020
Total Capital (to
 
risk-weighted assets)
 
First BanCorp.
$
2,416,682
20.37%
$
948,890
8.0%
N/A
N/A
 
FirstBank
$
2,360,493
19.91%
$
948,624
8.0%
$
1,185,780
10.0%
CET1 Capital
 
(to risk-weighted assets)
 
First BanCorp.
$
2,053,045
17.31%
$
533,751
4.5%
N/A
N/A
 
FirstBank
$
1,903,251
16.05%
$
533,601
4.5%
$
770,757
6.5%
Tier I Capital (to
 
risk-weighted assets)
 
First BanCorp.
$
2,089,149
17.61%
$
711,667
6.0%
N/A
N/A
 
FirstBank
$
2,211,251
18.65%
$
711,468
6.0%
$
948,624
8.0%
Leverage ratio
 
First BanCorp.
$
2,089,149
11.26%
$
742,352
4.0%
N/A
N/A
 
FirstBank
$
2,211,251
11.92%
$
741,841
4.0%
$
927,301
5.0%
 
The following table summarizes commitments to extend credit and standby letters of
 
credit as of the indicated dates:
December 31,
 
2021
2020
(In thousands)
Financial instruments whose contract amounts represent credit risk:
 
Commitments to extend credit:
 
Construction undisbursed funds
$
197,917
$
119,900
 
Unused personal lines of credit
 
1,180,824
1,180,860
 
Commercial lines of credit
 
725,259
759,947
 
Commercial letters of credit
151,140
135,987
 
Standby letters of credit
4,342
4,964
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
261
The
 
Corporation’s
 
exposure
 
to
 
credit
 
loss
 
in
 
the
 
event
 
of
 
nonperformance
 
by
 
the
 
other
 
party
 
to
 
the
 
financial
 
instrument
 
on
commitments to extend credit
 
and standby letters of credit
 
is represented by the contractual amount
 
of those instruments. Management
uses the same
 
credit policies
 
and approval process
 
in entering into
 
commitments and
 
conditional obligations
 
as it does
 
for on-balance
sheet instruments.
Commitments to extend
 
credit are agreements
 
to lend to
 
a customer as long
 
as there is no
 
violation of any
 
conditions established in
the
 
contract.
 
Commitments
 
generally
 
have
 
fixed
 
expiration
 
dates
 
or
 
other
 
termination
 
clauses.
 
Since
 
certain
 
commitments
 
are
expected to
 
expire without
 
being drawn
 
upon, the
 
total commitment
 
amount does
 
not necessarily
 
represent future
 
cash requirements.
 
For
 
most
 
of
 
the
 
commercial
 
lines
 
of
 
credit,
 
the
 
Corporation
 
has
 
the
 
option
 
to
 
reevaluate
 
the
 
agreement
 
prior
 
to
 
additional
disbursements.
 
In the case of credit cards and personal lines of credit,
 
the Corporation can cancel the unused credit facility at any
 
time
and without cause.
 
In
 
general,
 
commercial
 
and
 
standby
 
letters
 
of
 
credit
 
are
 
issued
 
to
 
facilitate
 
foreign
 
and
 
domestic
 
trade
 
transactions.
 
Normally,
commercial and standby
 
letters of credit
 
are short-term commitments
 
used to finance
 
commercial contracts for
 
the shipment of goods.
The
 
collateral
 
for
 
these
 
letters
 
of
 
credit
 
includes
 
cash
 
or
 
available
 
commercial
 
lines
 
of
 
credit.
 
The
 
fair
 
value
 
of
 
commercial
 
and
standby letters
 
of credit
 
is based
 
on the
 
fees currently
 
charged for
 
such agreements,
 
which, as
 
of December 31,
 
2021 and
 
2020, were
not significant.
The
 
Corporation
 
obtained
 
from
 
GNMA
 
commitment
 
authority
 
to
 
issue
 
GNMA
 
MBS. Under
 
this
 
program,
 
for
 
2021,
 
the
Corporation sold approximately $
191.4
 
million (2020 - $
221.5
 
million) of FHA/VA
 
mortgage loan production into GNMA MBS.
As of
 
December 31,
 
2021, First
 
BanCorp. and
 
its subsidiaries
 
were defendants
 
in various
 
legal proceedings,
 
claims and
 
other loss
contingencies
 
arising
 
in
 
the
 
ordinary
 
course
 
of
 
business.
 
On
 
at
 
least
 
a
 
quarterly
 
basis,
 
the
 
Corporation
 
assesses
 
its
 
liabilities
 
and
contingencies in connection
 
with threatened and
 
outstanding legal proceedings,
 
claims and other
 
loss contingencies utilizing
 
the latest
information
 
available. For
 
legal proceedings,
 
claims and
 
other loss
 
contingencies where
 
it is
 
both probable
 
that the
 
Corporation
 
will
incur
 
a
 
loss
 
and
 
the
 
amount
 
can
 
be
 
reasonably
 
estimated,
 
the
 
Corporation
 
establishes
 
an
 
accrual
 
for
 
the
 
loss.
 
Once
 
established,
 
the
accrual
 
is
 
adjusted
 
as
 
appropriate
 
to
 
reflect
 
any
 
relevant
 
developments.
 
For
 
legal
 
proceedings,
 
claims
 
and
 
other
 
loss
 
contingencies
where a loss is not probable or the amount of the loss cannot be estimated, no
 
accrual is established.
Any estimate
 
involves significant
 
judgment, given
 
the varying
 
stages of
 
the proceedings
 
(including the
 
fact that
 
some of
 
them are
currently in
 
preliminary stages),
 
the existence
 
in some
 
of the
 
current proceedings
 
of multiple
 
defendants whose
 
share of
 
liability has
yet
 
to
 
be
 
determined,
 
the
 
numerous
 
unresolved
 
issues
 
in
 
the
 
proceedings,
 
and
 
the
 
inherent
 
uncertainty
 
of
 
the
 
various
 
potential
outcomes of such proceedings.
 
Accordingly,
 
the Corporation’s
 
estimate will change from
 
time-to-time, and actual
 
losses may be more
or less than the current estimate.
While
 
the
 
final
 
outcome
 
of
 
legal
 
proceedings,
 
claims,
 
and
 
other
 
loss
 
contingencies
 
is
 
inherently
 
uncertain,
 
based
 
on
 
information
currently
 
available,
 
management
 
believes
 
that
 
the
 
final
 
disposition
 
of
 
the
 
Corporation’s
 
legal
 
proceedings,
 
claims
 
and
 
other
 
loss
contingencies,
 
to
 
the
 
extent
 
not
 
previously
 
provided
 
for,
 
will
 
not
 
have
 
a
 
material
 
adverse
 
effect
 
on
 
the
 
Corporation’s
 
consolidated
financial position as a whole.
If management believes that, based on available information,
 
it is at least reasonably possible that a material loss (or material loss
 
in
excess
 
of
 
any
 
accrual)
 
will
 
be
 
incurred
 
in
 
connection
 
with
 
any
 
legal
 
contingencies,
 
the
 
Corporation
 
discloses
 
an
 
estimate
 
of
 
the
possible loss or
 
range of loss,
 
either individually or
 
in the aggregate,
 
as appropriate, if
 
such an estimate can
 
be made, or
 
discloses that
an estimate cannot be made. Based on the Corporation’s
 
assessment as of December 31, 2021, no such disclosures were necessary.
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
262
NOTE 34 – DERIVATIVE
 
INSTRUMENTS AND HEDGING ACTIVITIES
One of
 
the market
 
risks facing
 
the Corporation
 
is interest
 
rate risk,
 
which includes
 
the risk that
 
changes in
 
interest rates
 
will result
in changes in the value of
 
the Corporation’s assets or
 
liabilities and will adversely
 
affect the Corporation’s
 
net interest income from its
loan
 
and
 
investment
 
portfolios.
 
The
 
overall
 
objective
 
of
 
the
 
Corporation’s
 
interest
 
rate
 
risk
 
management
 
activities
 
is
 
to
 
reduce
 
the
variability of earnings caused by changes in interest rates.
The Corporation designates
 
a derivative as a
 
fair value hedge, cash
 
flow hedge or economic
 
undesignated hedge when
 
it enters into
the
 
derivative
 
contract.
 
As
 
of
 
December
 
31,
 
2021
 
and
 
2020,
 
all
 
derivatives
 
held
 
by
 
the
 
Corporation
 
were
 
considered
 
economic
undesignated
 
hedges.
 
The
 
Corporation
 
records
 
these
 
undesignated
 
hedges
 
at
 
fair value
 
with
 
the
 
resulting
 
gain
 
or loss
 
recognized
 
in
current earnings.
The following summarizes the principal derivative activities used by
 
the Corporation in managing interest rate risk:
Interest rate cap
 
agreements
 
– Interest rate cap agreements
 
provide the right to receive
 
cash if a reference interest rate
 
rises above a
contractual rate.
 
The value of
 
the interest
 
rate cap increases
 
as the
 
reference interest
 
rate rises. The
 
Corporation enters
 
into interest
rate cap agreements for protection from rising interest rates.
 
Forward
 
Contracts
 
–
 
Forward
 
contracts
 
are
 
primarily
 
sales
 
of
 
to-be-announced
 
(“TBA”)
 
MBS
 
that
 
will
 
settle
 
over
 
the
 
standard
delivery
 
date
 
and
 
do
 
not
 
qualify
 
as
 
“regular
 
way”
 
security
 
trades.
 
Regular-way
 
security
 
trades
 
are
 
contracts
 
that
 
have
 
no
 
net
settlement provision and no market
 
mechanism to facilitate net settlement
 
and that provide for delivery
 
of a security within the time
frame
 
generally
 
established
 
by
 
regulations
 
or
 
conventions
 
in
 
the
 
marketplace
 
or
 
exchange
 
in
 
which
 
the
 
transaction
 
is
 
being
executed.
 
The forward
 
sales are
 
considered
 
derivative
 
instruments
 
that need
 
to be
 
marked
 
to market.
 
The Corporation
 
uses these
securities
 
to
 
economically
 
hedge
 
the
 
FHA/VA
 
residential
 
mortgage
 
loan
 
securitizations
 
of
 
the mortgage
 
-banking
 
operations.
 
The
Corporation
 
also
 
reports
 
as forward
 
contracts
 
the mandatory
 
mortgage
 
loan
 
sales commitments
 
that
 
it enters
 
into with
 
GSEs that
require or
 
permit net settlement
 
via a pair-off
 
transaction or the
 
payment of
 
a pair-off
 
fee. Unrealized gains
 
(losses) are recogni
 
zed
as part of mortgage banking activities in the consolidated statements of
 
income.
Interest
 
Rate
 
Lock
 
Commitments
 
–
 
Interest
 
rate
 
lock
 
commitments
 
are
 
agreements
 
under
 
which
 
the
 
Corporation
 
agrees to
 
extend
credit to a borrower under
 
certain specified terms and conditions in
 
which the interest rate and the maxim
 
um amount of the loan are
set prior to funding.
 
Under the agreement,
 
the Corporation commits
 
to lend funds to
 
a potential borrower,
 
generally on a fixed
 
rate
basis, regardless of whether interest rates change in the market.
Interest rate swaps
 
– The Corporation acquired interest rate swaps as a result of the acquisition of
 
BSPR. An interest rate swap is an
agreement
 
between
 
two
 
entities
 
to
 
exchange
 
cash
 
flows
 
in
 
the
 
future.
 
The
 
agreements
 
acquired
 
from
 
BSPR
 
consist
 
of
 
the
Corporation offering
 
borrower-facing derivative
 
products using a
 
“back-to-back” structure
 
in which the
 
borrower-facing derivative
transaction is paired
 
with an identical, offsetting
 
transaction with an
 
approved dealer-counterparty.
 
By using a back-to-back
 
trading
structure, both
 
the commercial
 
borrower and
 
the Corporation
 
are largely
 
insulated from
 
market risk
 
and volatility.
 
The agreements
set the
 
dates on
 
which
 
the cash
 
flows will
 
be paid
 
and
 
the manner
 
in which
 
the cash
 
flows will
 
be calculated.
 
The fair
 
values of
these swaps
 
are recorded
 
as components
 
of other
 
assets or
 
accounts payable
 
and other
 
liabilities in
 
the Corporation’s
 
consolidated
statements of financial
 
condition. Changes in
 
the fair values of
 
interest rate swaps,
 
which occur due
 
to changes in interest
 
rates, are
recorded in the consolidated statements of income as a component of interest income
 
on loans.
To
 
satisfy
 
the
 
needs
 
of
 
its
 
customers,
 
the
 
Corporation
 
may
 
enter
 
into
 
non-hedging
 
transactions.
 
In
 
these
 
transactions,
 
the
Corporation generally participates as
 
a buyer in one
 
of the agreements and
 
as a seller in the
 
other agreement under
 
the same terms and
conditions.
In addition, the Corporation
 
enters into certain contracts
 
with embedded derivatives that
 
do not require separate accounting
 
as these
are clearly and closely
 
related to the economic
 
characteristics of the host
 
contract. When the embedded
 
derivative possesses economic
characteristics that are not clearly and closely related
 
to the economic characteristics of the host contract,
 
it is bifurcated, carried at fair
value, and designated as a trading or non-hedging derivative instrument.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
263
 
The following table summarizes the notional amounts of all derivative instruments as of the
 
indicated dates:
 
Notional Amounts
(1)
As of December 31,
 
2021
2020
(In thousands)
Undesignated economic hedges:
Interest rate contracts:
 
Interest rate swap agreements
 
$
12,588
$
15,864
 
Written interest rate cap agreements
14,500
14,500
 
Purchased interest rate cap agreements
14,500
14,500
 
Interest rate lock commitments
12,097
19,931
Forward Contracts:
 
Sale of TBA GNMA MBS pools
27,000
42,000
 
Forward loan sales commitments
12,668
19,998
$
93,353
$
126,793
(1) Notional amounts are presented on a gross basis with no netting of offsetting
 
exposure positions.
 
The following table summarizes for derivative instruments their fair values and
 
location in the consolidated statements of financial
condition as of the indicated dates:
Asset Derivatives
Liability Derivatives
Statements of
December 31,
 
December 31,
 
December 31,
 
December 31,
 
Financial Condition
2021
2020
Statements of
2021
2020
Location
Fair Value
Fair Value
Financial Condition Location
 
Fair Value
Fair Value
(In thousands)
Undesignated economic hedges:
Interest rate contracts:
 
Interest rate swap agreements
 
Other assets
$
1,098
$
1,622
Accounts payable and other liabilities
$
1,092
$
1,639
 
Written interest rate cap agreements
Other assets
-
-
Accounts payable and other liabilities
8
1
 
Purchased interest rate cap agreements
Other assets
8
1
Accounts payable and other liabilities
-
-
 
Interest rate lock commitments
Other assets
379
737
Accounts payable and other liabilities
-
-
Forward Contracts:
 
Sales of TBA GNMA MBS pools
Other assets
-
102
Accounts payable and other liabilities
78
280
 
Forward loan sales commitments
Other assets
20
20
Accounts payable and other liabilities
-
-
$
1,505
$
2,482
$
1,178
$
1,920
 
The following table summarizes the effect of derivative instruments
 
on the consolidated statements of income for the indicated
periods:
Gain (or Loss)
Location of Unrealized Gain (Loss)
Year ended
on Derivative Recognized in
December 31,
Statements of Income
2021
2020
2019
(In thousands)
Undesignated economic hedges:
 
Interest rate contracts:
 
Interest rate swap agreements
 
Interest income - Loans
$
23
$
27
$
-
 
Written and purchased interest rate cap agreements
Interest income - Loans
-
-
(6)
 
Interest rate lock commitments
Mortgage Banking Activities
(687)
576
224
 
Forward contracts:
 
Sales of TBA GNMA MBS pools
Mortgage Banking Activities
114
(54)
245
 
Forward loan sales commitments
Mortgage Banking Activities
-
(37)
8
 
Total (loss) gain on derivatives
$
(550)
$
512
$
471
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
264
Derivative
 
instruments
 
are
 
subject
 
to
 
market
 
risk.
 
As
 
is
 
the
 
case
 
with
 
investment
 
securities,
 
the
 
market
 
value
 
of
 
derivative
instruments
 
is largely
 
a
 
function
 
of
 
the financial
 
market’s
 
expectations
 
regarding
 
the future
 
direction
 
of interest
 
rates.
 
Accordingly,
current market
 
values are
 
not necessarily
 
indicative of
 
the future
 
impact of
 
derivative instruments
 
on earnings.
 
This will
 
depend, for
the most part, on the shape of the yield curve, and the level of interest rates, as well as the expectations
 
for rates in the future.
As of
 
December 31,
 
2021, the
 
Corporation had
 
not entered
 
into any
 
derivative instrument
 
containing credit-risk-related
 
contingent
features.
 
 
Credit and Market Risk of Derivatives
The
 
Corporation
 
uses
 
derivative
 
instruments
 
to
 
manage
 
interest
 
rate
 
risk.
 
By
 
using
 
derivative
 
instruments,
 
the
 
Corporation
 
is
exposed to
 
credit and market
 
risk. If the
 
counterparty fails to
 
perform, credit
 
risk is equal
 
to the extent
 
of the Corporation’s
 
fair value
gain on the derivative.
 
When the fair value of a derivative instrument contract is positive, this generally
 
indicates that the counterparty
owes
 
the
 
Corporation
 
which,
 
therefore,
 
creates
 
a
 
credit
 
risk
 
for
 
the
 
Corporation.
 
When
 
the
 
fair
 
value
 
of
 
a
 
derivative
 
instrument
contract is
 
negative, the
 
Corporation owes
 
the counterparty
 
and, therefore,
 
it has
 
no credit risk.
 
The Corporation
 
minimizes its credit
risk in
 
derivative instruments
 
by entering
 
into transactions
 
with reputable
 
broker dealers
 
(
i.e.,
financial institutions)
 
that are
 
reviewed
periodically by
 
the Management Investment
 
and Asset Liability
 
Committee of
 
the Corporation
 
(the “MIALCO”)
 
and by the
 
Board of
Directors.
 
The
 
Corporation
 
also
 
has
 
a
 
policy
 
of
 
requiring
 
that
 
all
 
derivative
 
instrument
 
contracts
 
be
 
governed
 
by
 
an
 
International
Swaps
 
and
 
Derivatives
 
Association
 
Master
 
Agreement,
 
which
 
includes
 
a
 
provision
 
for
 
netting.
 
The
 
Corporation
 
has
 
a
 
policy
 
of
diversifying derivatives counterparties to reduce the consequences of counterparty
 
default.
The
 
Corporation
 
had
 
credit
 
risk
 
of
 
$
1.5
 
million
 
as
 
of
 
December
 
31,
 
2021
 
(2020 - $
2.5
 
million)
 
related
 
to
 
derivative
 
instruments
with
 
positive
 
fair
 
values.
 
The
 
credit
 
risk
 
does
 
not
 
consider
 
the
 
value
 
of
 
any
 
collateral
 
and
 
the
 
effects
 
of
 
legally
 
enforceable
 
master
netting agreements. There were
no
 
credit losses associated with derivative instruments recognized in 2021,
 
2020, or 2019.
 
Market risk is
 
the adverse effect
 
that a change
 
in interest rates
 
or implied volatility
 
rates has on
 
the value of
 
a financial instrument.
The Corporation
 
manages the
 
market risk
 
associated with
 
interest rate
 
contracts by
 
establishing and
 
monitoring limits
 
as to
 
the types
and degree of risk that may be undertaken.
The
 
MIALCO
 
monitors
 
the
 
Corporation’s
 
derivative
 
activities
 
as
 
part
 
of
 
its
 
risk-management
 
oversight
 
of
 
the
 
Corporation’s
treasury functions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
265
NOTE 35 – OFFSETTING OF ASSETS AND LIABILITIES
 
The
 
Corporation
 
enters
 
into
 
master
 
agreements
 
with
 
counterparties,
 
primarily
 
related
 
to
 
derivatives
 
and
 
repurchase
 
agreements,
that may allow for netting
 
of exposures in the event
 
of default. In an event
 
of default, each party has
 
a right of set-off
 
against the other
party for amounts
 
owed under the
 
related agreement and
 
any other amount
 
or obligation owed
 
with respect
 
to any other
 
agreement or
transaction between them. The
 
following tables present information
 
about contracts subject to offsetting
 
provisions related to financial
assets and liabilities as well as derivative assets and liabilities, as of the indicated dates:
 
Offsetting of Financial Assets and Derivative Assets
As of December 31, 2021
Gross Amounts Not Offset
in the Statement of
Financial Condition
Net Amounts of
Assets Presented in
the Statement of
Financial
Condition
Gross
Amounts of
Recognized
Assets
Gross Amounts
Offset in the
Statement of
Financial
Condition
Financial
Instruments
Cash
Collateral
Net Amount
(In thousands)
Description
Derivatives
$
8
$
-
$
8
$
-
$
(8)
$
-
As of December 31, 2020
Gross Amounts Not Offset
in the Statement of
Financial Condition
Net Amounts of
Assets Presented in
the Statement of
Financial
Condition
Gross
Amounts of
Recognized
 
Assets
Gross Amounts
Offset in the
Statement of
Financial
Condition
Financial
Instruments
Cash
Collateral
Net Amount
(In thousands)
Description
Derivatives
$
89
$
-
$
89
$
-
$
(89)
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
266
Offsetting of Financial Liabilities and Derivative Liabilities
As of December 31, 2021
Gross Amounts Not Offset
in the Statement of Financial
Condition
Net Amounts of
Liabilities
Presented in the
Statement of
Financial
Condition
Gross Amounts
of Recognized
 
Liabilities
Gross
Amounts
Offset in the
Statement of
Financial
Condition
Financial
Instruments
Cash
Collateral
Net
Amount
(In thousands)
Description
Derivatives
$
1,170
$
-
$
1,170
$
(1,170)
$
-
$
-
Securities sold under agreements to repurchase
300,000
-
300,000
(300,000)
-
-
Total
$
301,170
$
-
$
301,170
$
(301,170)
$
-
$
-
As of December 31, 2020
Gross Amounts Not Offset
in the Statement of Financial
Condition
Net Amounts of
Liabilities
Presented in the
Statement of
Financial
Condition
Gross Amounts
of Recognized
 
Liabilities
Gross
Amounts
Offset in the
Statement of
Financial
Condition
Financial
Instruments
Cash
Collateral
Net
Amount
(In thousands)
Description
Derivatives
$
1,919
$
-
$
1,919
$
(1,919)
$
-
$
-
Securities sold under agreements to repurchase
300,000
-
300,000
(300,000)
-
-
Total
$
301,919
$
-
$
301,919
$
(301,919)
$
-
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
267
NOTE 36 –
 
SEGMENT
 
INFORMATION
Based upon
 
the Corporation’s
 
organizational
 
structure and
 
the information
 
provided to
 
the Chief
 
Executive
 
Officer,
 
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
 
December
 
31,
 
2021,
 
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
structure
 
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,
 
Consumer
 
(Retail)
 
Banking,
 
and
 
United
 
States
 
Operations
segments
 
to
 
finance
 
their
 
lending
 
activities
 
and
 
borrows
 
from
 
those
 
segments.
 
The
 
Consumer
 
(Retail)
 
Banking
 
segment
 
also
 
lends
funds to
 
other segments.
 
The interest
 
rates charged
 
or credited
 
by the
 
Treasury
 
and Investments
 
and the
 
Consumer (Retail)
 
Banking
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 consumer banking
 
services. The Virgin
 
Islands Operations segment consists of all
 
banking activities conducted by the
Corporation in the USVI and BVI, including commercial and consumer
 
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,” above.
The
 
Corporation
 
evaluates
 
the
 
performance
 
of
 
the
 
segments
 
based
 
on
 
net
 
interest
 
income,
 
the
 
provision
 
for
 
credit
 
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 ACL.
The following tables present information about the reportable segments for the indicated periods:
Mortgage
Banking
Consumer (Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
For the year ended December 31, 2021:
Interest income
$
144,203
$
271,127
$
201,684
$
67,841
$
82,194
$
27,659
$
794,708
Net (charge) credit for transfer of funds
(39,565)
38,859
(9,767)
14,687
(4,214)
-
-
Interest expense
-
(28,283)
-
(23,197)
(12,013)
(1,286)
(64,779)
Net interest income
 
104,638
281,703
191,917
59,331
65,967
26,373
729,929
Provision for credit losses - (benefit) expense
(16,030)
20,322
(67,544)
(136)
(975)
(1,335)
(65,698)
Non-interest income
24,278
69,774
16,032
227
3,963
6,890
121,164
Direct non-interest expenses
29,125
165,357
36,219
4,093
33,902
28,084
296,780
 
Segment income
$
115,821
$
165,798
$
239,274
$
55,601
$
37,003
$
6,514
$
620,011
Average earnings assets
$
2,506,365
$
2,551,278
$
3,793,945
$
7,827,326
$
2,126,528
$
430,499
$
19,235,941
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
268
Mortgage
Banking
Consumer (Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
For the year ended December 31, 2020:
Interest income
$
128,043
$
240,725
$
155,254
$
55,003
$
84,169
$
29,788
$
692,982
Net (charge) credit for transfer of funds
(52,018)
18,771
(19,663)
59,074
(6,164)
-
-
Interest expense
-
(38,818)
-
(26,198)
(23,980)
(3,664)
(92,660)
Net interest income
76,025
220,678
135,591
87,879
54,025
26,124
600,322
Provision for credit losses - expense
22,518
54,094
74,607
2,774
12,592
4,400
170,985
Non-interest income
22,069
50,962
12,606
13,708
4,630
7,251
111,226
Direct non-interest expenses
33,054
131,133
28,631
3,449
33,782
28,815
258,864
 
Segment income
$
42,522
$
86,413
$
44,959
$
95,364
$
12,281
$
160
$
281,699
Average earnings assets
$
2,241,753
$
2,202,595
$
3,039,786
$
4,232,144
$
2,026,619
$
458,608
$
14,201,505
Mortgage
Banking
Consumer (Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
For the year ended December 31, 2019:
Interest income
$
120,981
$
216,066
$
148,224
$
63,175
$
97,406
$
30,045
$
675,897
Net (charge) credit for transfer of funds
(52,178)
66,675
(56,958)
47,477
(5,016)
-
-
Interest expense
-
(38,206)
-
(37,026)
(29,851)
(3,733)
(108,816)
Net interest income
68,803
244,535
91,266
73,626
62,539
26,312
567,081
Provision for credit losses - expense (benefit)
13,499
41,043
(17,977)
-
7,296
(4,048)
39,813
Non-interest income (loss)
16,825
51,729
11,714
(225)
2,807
7,722
90,572
Direct non-interest expenses
34,825
116,854
35,130
2,729
34,070
28,995
252,603
 
Segment income
$
37,304
$
138,367
$
85,827
$
70,672
$
23,980
$
9,087
$
365,237
Average earnings assets
$
2,161,772
$
1,960,352
$
2,489,933
$
2,487,084
$
1,931,015
$
467,252
$
11,497,408
 
The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated
periods:
Year Ended
 
December 31,
2021
2020
2019
(In thousands)
Net income:
 
Total income for segments
 
$
620,011
$
281,699
$
365,237
Other operating expenses (1)
 
192,194
165,376
125,865
Income before income taxes
427,817
116,323
239,372
Income tax expense
146,792
14,050
71,995
 
Total consolidated net income
$
281,025
$
102,273
$
167,377
Average assets:
Total average earning assets for segments
 
$
19,235,941
$
14,201,505
$
11,497,408
Average non-earning assets
 
1,067,092
1,031,141
954,726
 
Total consolidated average assets
$
20,303,033
$
15,232,646
$
12,452,134
(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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
269
 
The following table presents revenues (interest income plus non-interest income) and selected balance sheet data by geography based on
the location in which the transaction was originated as of indicated dates:
2021
2020
2019
(In thousands)
Revenues:
 
Puerto Rico
$
795,166
$
678,370
$
628,489
 
United States
86,157
88,799
100,213
 
Virgin Islands
34,549
37,039
37,767
 
Total consolidated revenues
$
915,872
$
804,208
$
766,469
Selected Balance Sheet Information:
Total assets:
 
Puerto Rico
$
18,175,910
$
16,091,112
$
10,059,890
 
United States
2,189,440
2,117,966
2,048,260
 
Virgin Islands
419,925
583,993
503,116
Loans:
 
Puerto Rico
$
8,755,434
$
9,367,032
$
6,695,953
 
United States
1,948,716
1,993,797
1,879,346
 
Virgin Islands
391,663
466,749
466,383
Deposits:
 
Puerto Rico (1)
$
14,113,874
$
12,338,934
$
6,422,864
 
United States (2)
1,928,749
1,622,481
1,661,657
 
Virgin Islands
1,742,271
1,355,968
1,263,908
(1)
For 2021, 2020, and 2019, includes $
34.2
 
million, $
109.0
 
million, and $
243.4
 
million, respectively, of brokered
 
CDs allocated to Puerto Rico operations.
(2)
For 2021, 2020, and 2019 includes $
66.2
 
million, $
107.1
 
million, and $
191.7
 
million, respectively, of brokered CDs
 
allocated to the United States operations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
270
NOTE 37-
 
FIRST BANCORP.
 
(HOLDING
 
COMPANY ONLY) FINANCIAL
 
INFORMATION
The following
 
condensed financial information
 
presents the financial
 
position of
 
First BanCorp.
 
at the holding
 
company level only
as of December 31, 2021
 
and 2020, and the
 
results of its operations
 
and cash flows for
 
the years ended December
 
31, 2021, 2020, and
2019:
Statements of Financial Condition
As of December 31,
 
2021
2020
(In thousands)
Assets
Cash and due from banks
$
20,751
$
10,909
Money market investments
-
6,211
Other investment securities
285
285
Investment in First Bank Puerto Rico, at equity
2,247,289
2,396,963
Investment in First Bank Insurance Agency,
 
at equity
19,521
41,313
Investment in FBP Statutory Trust I
1,951
1,951
Investment in FBP Statutory Trust II
3,561
3,561
Other assets
366
2,023
 
Total assets
$
2,293,724
$
2,463,216
Liabilities and Stockholders' Equity
Liabilities:
Other borrowings
 
$
183,762
$
183,762
Accounts payable and other liabilities
8,195
4,275
 
Total liabilities
191,957
188,037
Stockholders' equity
2,101,767
2,275,179
 
Total liabilities and stockholders'
 
equity
$
2,293,724
$
2,463,216
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
271
Statements of Income
 
Year
 
Ended December 31,
2021
2020
2019
(In thousands)
Income
 
 
Interest income on money market investments
 
$
51
$
71
$
233
 
Dividend income from banking subsidiaries
98,060
52,707
42,243
 
Dividend income from non-banking subsidiaries
30,000
-
-
 
Other income
154
439
283
128,265
53,217
42,759
Expense
 
Other borrowings
5,135
6,355
9,424
 
Other operating expenses
1,929
2,097
2,131
7,064
8,452
11,555
Gain on early extinguishment of debt
-
94
-
Income before income taxes and equity
 
 
in undistributed earnings of subsidiaries
121,201
44,859
31,204
Income tax expense
2,854
2,429
2,752
Equity in undistributed earnings of subsidiaries
162,678
59,843
138,925
Net income
$
281,025
$
102,273
$
167,377
Other comprehensive (loss) income, net of tax
(139,454)
48,691
47,179
Comprehensive income
$
141,571
$
150,964
$
214,556
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
272
Statements of Cash Flows
Year Ended December 31,
 
2021
2020
2019
(In thousands)
Cash flows from operating activities:
Net income
$
281,025
$
102,273
$
167,377
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation
 
149
231
314
Equity in undistributed earnings of subsidiaries
(162,678)
(59,843)
(138,925)
Gain on early extinguishment of debt
-
(94)
-
Net decrease (increase) in other assets
1,657
(1,514)
11,710
Net increase (decrease) in other liabilities
3,578
(459)
526
Net cash provided by operating activities
123,731
40,594
41,002
Cash flows from investing activities:
Return of capital from wholly-owned subsidiaries
(1)
200,000
-
-
Net cash provided by investing activities
200,000
-
-
Cash flows from financing activities:
Repurchase of common stock
(216,522)
(206)
(1,959)
Repayment of junior subordinated debentures
-
(282)
-
Dividends paid on common stock
(65,021)
(43,416)
(30,356)
Dividends paid on preferred stock
(2,453)
(2,676)
(2,676)
Redemption of preferred stock - Series A through E
(36,104)
-
-
 
Net cash used in financing activities
(320,100)
(46,580)
(34,991)
Net increase (decrease) in cash and cash equivalents
3,631
(5,986)
6,011
Cash and cash equivalents at beginning of the year
17,120
23,106
17,095
Cash and cash equivalents at end of year
$
20,751
$
17,120
$
23,106
Cash and cash equivalents include:
Cash and due from banks
$
20,751
$
10,909
$
16,895
Money market instruments
-
6,211
6,211
$
20,751
$
17,120
$
23,106
(1)
During 2021 First Bank of Puerto Rico, a wholly-owned subsidiary of First BanCorp., redeemed $
200
 
million or
8
 
million shares of its preferred stock.
NOTE 38 –
 
SUBSEQUENT
 
EVENTS
 
The Corporation has performed an evaluation of all events occurring
subsequent to December 31, 2021; management has determined
that
 
there
 
were
 
no
 
events occurring
 
in
 
this
 
period that
 
require disclosure
 
in
 
or
 
adjustment to
 
the
 
accompanying financial statements.
 
273
Item 9. Changes in and Disagreements with Accountants on Accounting
 
and
Financial Disclosures
Nothing to report.
 
Item 9A. Controls and Procedures
 
Disclosure Controls and Procedures
First
 
BanCorp.’s
 
management,
 
including
 
its
 
Chief
 
Executive
 
Officer
 
and
 
Chief
 
Financial
 
Officer,
 
evaluated
 
the
 
effectiveness
 
of
First BanCorp.’s
 
disclosure
 
controls and
 
procedures
 
(as defined
 
in Rule
 
13a-15(e) and
 
15d-15(e) under
 
the Exchange
 
Act) as
 
of the
end of the
 
period covered by
 
this Annual Report
 
on Form 10-K.
 
Based on this evaluation
 
as of the period
 
covered by this Form
 
10-K,
our
 
CEO
 
and
 
CFO
 
concluded
 
that
 
the
 
Corporation’s
 
disclosure
 
controls
 
and
 
procedures
 
were
 
effective
 
and
 
provide
 
reasonable
assurance
 
that the
 
information
 
required to
 
be disclosed
 
by the
 
Corporation in
 
reports that
 
the Corporation
 
files or
 
submits under
 
the
Exchange
 
Act
 
is
 
recorded,
 
processed,
 
summarized
 
and
 
reported
 
within
 
the
 
time
 
periods
 
specified
 
in
 
SEC
 
rules
 
and
 
forms
 
and
 
is
accumulated
 
and
 
reported
 
to
 
the
 
Corporation’s
 
management,
 
including
 
the
 
CEO and
 
CFO, as
 
appropriate
 
to
 
allow
 
timely
 
decisions
regarding required disclosure.
 
Management’s Report on Internal Control
 
over Financial Reporting
 
Our management’s
 
report on Internal
 
Control over
 
Financial Reporting
 
is included
 
in Item 8
 
and incorporated
 
herein by
 
reference.
Management
 
has
 
conducted
 
an
 
assessment
 
of
 
the
 
Corporation’s
 
internal
 
control
 
over
 
financial
 
reporting
 
as
 
of
 
December
 
31,
 
2021
based
 
on
 
the
 
criteria
 
established
 
in
Internal
 
Control
 
–
 
Integrated
 
Framework
 
(2013
)
 
issued
 
by
 
the
 
Committee
 
of
 
Sponsoring
Organizations
 
of
 
the
 
Treadway
 
Commission
 
(COSO).
 
Based
 
upon
 
that
 
assessment,
 
management
 
concluded
 
that
 
the
 
Corporation’s
internal control over financial reporting was effective
 
as of December 31, 2021.
The effectiveness of the Corporation’s
 
internal control over financial reporting as of December
 
31, 2021 has been audited by Crowe
LLP,
 
an independent registered public accounting firm, as stated in their report
 
included in Item 8 of this Annual Report Form 10-K.
Changes in Internal Control over Financial Reporting
There
 
have
 
been
 
no
 
changes
 
to
 
the
 
Corporation’s
 
internal
 
control
 
over
 
financial
 
reporting
 
during
 
our
 
most
 
recent
 
quarter
 
ended
December 31,
 
2021 that
 
have materially
 
affected, or
 
are reasonably likely
 
to materially
 
affect, the
 
Corporation’s
 
internal control
 
over
financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
274
PART
 
III
Item 10. Directors, Executive Officers and Corporate Governance
Information
 
in response
 
to this
 
item is
 
incorporated
 
herein by
 
reference from
 
the sections
 
entitled “Information
 
with Respect
 
to
Nominees Standing
 
for Election as
 
Directors and
 
with respect to
 
Executive Officers
 
of the Corporation,”
 
“Corporate Governance
 
and
Related Matters,” “Delinquent
 
Section 16(A)
 
Reports” and “Audit
 
Committee Report”
 
contained in First
 
BanCorp.’s
 
definitive Proxy
Statement
 
for
 
use
 
in
 
connection
 
with
 
its
 
2022
 
Annual
 
Meeting
 
of
 
Stockholders
 
(the
 
“Proxy
 
Statement”)
 
to
 
be
 
filed
 
with
 
the
 
SEC
within 120 days of the close of First BanCorp.’s
 
2021
 
fiscal year.
Item 11. Executive Compensation.
 
Information
 
in
 
response
 
to
 
this
 
item
 
is
 
incorporated
 
herein
 
by
 
reference
 
from
 
the
 
sections
 
entitled
 
“Compensation
 
Committee
Interlocks
 
and
 
Insider
 
Participation,”
 
“Compensation
 
of
 
Directors,”
 
“Compensation
 
Discussion
 
and
 
Analysis,”
 
“Executive
Compensation
 
Disclosure”
 
and
 
“Compensation
 
Committee
 
Report”
 
in
 
First
 
BanCorp.’s
 
Proxy
 
Statement
 
to
 
be
 
filed
 
with
 
the
 
SEC
within 120 days of the close of First BanCorp.’s
 
2021 fiscal year.
 
Item 12.
 
Security Ownership of Certain Beneficial Owners and Management and Related
 
Stockholder Matters
 
Securities authorized for issuance under equity compensation plans
 
The following table sets forth information about First BanCorp. common stock
 
authorized for issuance under
 
First BanCorp.’s existing
equity compensation plans as of December 31, 2021:
(c)
(a)
(b)
Number of Securities
Remaining Available
 
for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
 
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
warrants and rights
Weighted Average
Exercise Price of
Outstanding Options,
warrants and rights
Plan category
Equity compensation plans, approved by stockholders
 
814,899
(1)
$
-
4,308,921
(2)
Equity compensation plans
 
not approved by stockholders
N/A
N/A
N/A
Total
814,899
$
-
4,308,921
(1)
Amount represents
 
unvested performance-based units
 
granted to
 
executives, with
 
each unit
 
representing one
 
share of
 
the Corporation's
 
common stock.
 
Performance
shares
 
will vest
 
on the
 
achievement of
 
a
 
pre-established performance
 
target
 
goal at
 
the
 
end of
 
a
 
three-year performance
 
period.
 
Refer to
 
Note 22
 
- "Stock-Based
Compensation" of the Notes to Consolidated Financial Statements
 
for more information on performance units.
(2)
 
Securities available for future issuance under the First BanCorp. 2008
 
Omnibus Incentive Plan (the "Omnibus Plan"), which was initially approved
 
by stockholders on
April 29, 2008. Most recently,
 
on May 24, 2016,
 
the Omnibus Plan was amended
 
to, among other things, increase
 
the number of shares of
 
common stock reserved for
issuance under
 
the Omnibus
 
Plan and
 
extend the
 
term of
 
the Omnibus
 
Plan to
 
May 24,
 
2026. The
 
Omnibus Plan
 
provides for
 
equity-based compensation incentives
through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, and other stock-based awards. As amended, this
plan provides
 
for the
 
issuance of
 
up to
 
14,169,807 shares
 
of
 
common stock,
 
subject to
 
adjustments for
 
stock splits,
 
reorganization and
 
other similar
 
events. As
 
of
December 31, 2021, 4,308,921 shares of Common Stock were
 
available for future issuance under the Omnibus Plan.
Additional information in response to this item is incorporated by reference
 
from the section entitled “Security Ownership of
Certain Beneficial Owners and Management” in First BanCorp.’s
 
Proxy Statement to be filed with the SEC within 120 days of the
close of First BanCorp.’s 2021
 
fiscal year.
Item 13. Certain Relationships and Related Transactions,
 
and Director Independence
 
Information in response to this item is incorporated herein by reference from
 
the sections entitled “Certain Relationships and Related
Person Transactions” and “Corporate
 
Governance and Related Matters” in First BanCorp.’s
 
Proxy Statement to be filed with the SEC
within 120 days of the close of First BanCorp.’s
 
2021 fiscal year.
 
 
275
Item 14. Principal Accountant Fees and Services.
Audit Fees
Information
 
in
 
response
 
to
 
this
 
item
 
is
 
incorporated
 
herein
 
by
 
reference
 
from
 
the
 
section
 
entitled
 
“Audit
 
Fees”
 
and
 
“Audit
Committee
 
Report”
 
in First
 
BanCorp.’s
 
Proxy Statement
 
to be
 
filed
 
with the
 
SEC within
 
120
 
days of
 
the close
 
of First
 
BanCorp.’s
2021 fiscal year.
PART
 
IV
Item 15. Exhibits and Financial Statement Schedules
 
(a) List of documents filed as part of this report.
 
 
(1)
Financial Statements.
 
 
The
 
following
 
consolidated
 
financial
 
statements
 
of
 
First
 
BanCorp.,
 
together
 
with
 
the
 
reports
 
thereon
 
of
 
First
 
BanCorp.’s
independent registered public
 
accounting firm, Crowe
 
LLP (PCAOB ID No.
 
173),
 
dated March 1, 202
 
2, are included
 
in Item 8 of
 
this
Annual Report on Form 10-K:
 
– Report of Crowe LLP,
 
Independent Registered Public Accounting Firm.
 
–
 
Attestation Report of Crowe LLP,
 
Independent Registered Public Accounting Firm on Internal Control over
 
Financial
Reporting.
–Consolidated Statements of Financial Condition as of December
 
31, 2021 and 2020.
–Consolidated Statements of Income for Each of the Three Years
 
in the Period Ended December 31, 2021.
– Consolidated Statements of Comprehensive Income for Each
 
of the Three Years
 
in the Period Ended December 31, 2021.
– Consolidated Statements of Cash Flows for Each of the Three Years
 
in the Period Ended December 31, 2021.
– Consolidated Statements of Changes in Stockholders’ Equity for
 
Each of the Three Years
 
in the Period Ended December 31,
2021.
– Notes to the Consolidated Financial Statements.
 
(2) Financial statement schedules.
All financial schedules have been omitted because they are not applicable or
 
the required information is shown in the financial
statements or notes thereto.
 
 
(b) Exhibits listed in the Exhibit Index below are filed herewith as part of this Annual Report
 
on Form 10-K and are incorporated
herein by reference.
Item 16. Form 10-K Summary
Not applicable.
 
 
 
 
 
 
276
 
EXHIBIT INDEX
 
Exhibit
 
No.
Description
2.1
(1)
2.2
3.1
3.2
4.1
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
Offer Letter between First BanCorp and Patricia M. Eaves incorporated
 
by reference from Exhibit 10.1 of the Form 8-K
filed on April 1, 2021.
14.1
21.1
23.1
31.1
31.2
32.1
32.2
101.INS
Inline XBRL Instance Document, filed herewith. The
 
instance document does not appear in the interactive data file
 
because
its XBRL tags are embedded within the inline XBRL
 
document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document, filed herewith
 
277
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document, filed herewith
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith
101.DEF
Inline XBRL Taxonomy Extension Definitions Linkbase Document, filed herewith
104
The cover page of First BanCorp. Annual Report on Form
 
10-K for the year ended December 31, 2021, formatted in
 
Inline
XBRL (included within the Exhibit 101 attachments)
_____________________________
(1) Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant will furnish a copy of any omitted schedule as a supplement to the SEC or its staff upon request.
*Management contract or compensatory plan or agreement.
 
 
 
 
 
 
 
 
 
 
 
 
 
278
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Corporation
 
has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
FIRST BANCORP.
 
 
By:
/s/ Aurelio Alemán
Date: 3/1/2022
Aurelio Alemán
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
 
signed by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
/s/ Aurelio Alemán
 
Date: 3/1/2022
Aurelio Alemán
President, Chief Executive Officer and Director
/s/ Orlando Berges
Date: 3/1/2022
Orlando Berges, CPA
 
Executive Vice President
 
and Chief Financial Officer
/s/ Roberto R. Herencia
Date: 3/1/2022
Roberto R. Herencia,
 
Director and Chairman of the Board
 
/s/ Patricia M. Eaves
Date: 3/1/2022
Patricia M. Eaves,
Director
 
/s/ Luz A. Crespo
 
Date: 3/1/2022
Luz A. Crespo,
 
Director
/s/ Juan Acosta-Reboyras
Date: 3/1/2022
Juan Acosta-Reboyras,
Director
/s/ John A. Heffern
Date: 3/1/2022
John A. Heffern,
Director
/s/ Daniel E. Frye
Date: 3/1/2022
Daniel E. Frye,
Director
/s/ Tracey Dedrick
Date: 3/1/2022
Tracey Dedrick,
Director
/s/ Felix Villamil
Date: 3/1/2022
Felix Villamil,
Director
/s/ Said Ortiz
Date: 3/1/2022
Said Ortiz, CPA
Senior Vice President and
 
Chief Accounting Officer