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FIRST BANCORP /PR/ - Annual Report: 2022 (Form 10-K)

fbp1231202210k
 
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, 2022
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
San Juan
,
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.
 
 
If securities are registered pursuant to Section 12(b) of the Act,
 
indicate by check mark whether the financial statements of the
 
registrant included in the filing reflect the correction of an
 
error
to previously issued financial statements.
Indicate by check mark whether any of those error corrections are
 
restatements that required a recovery analysis of incentive-based
 
compensation received by any of the registrant’s
 
executive
officers during the relevant recovery period pursuant
 
to §240.10D-1(b).
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,
 
2022 (the last trading day of the registrant’s
 
most recently completed second
fiscal quarter) was $
2,373,329,883
 
based on the closing price of $12.91 per share of the registrant’s
 
common stock on the New York
 
Stock Exchange on June 30, 2022. The registrant had no
nonvoting common equity outstanding as of June 30, 2022.
 
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, 2022. 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:
180,585,944
 
shares as of February 21, 2023.
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 18, 2023 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, or the
 
negatives of these terms
 
or variations of
them,
 
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:
the impacts of rising interest
 
rates and inflation on
 
the Corporation, including a
 
decrease in demand for new
 
loan originations
and
 
refinancings,
 
increased
 
competition
 
for
 
borrowers,
 
attrition
 
in
 
deposits
 
and
 
an
 
increase
 
in
 
non-interest
 
expenses
 
which
would
 
impact
 
the
 
Corporation’s
 
earnings
 
and
 
may
 
adversely
 
impact
 
origination
 
volumes,
 
liquidity,
 
and
 
financial
performance;
adverse changes
 
in general
 
economic conditions
 
in Puerto
 
Rico, the
 
United States
 
(“U.S.”), and
 
the U.S.
 
Virgin
 
Islands (the
“USVI”)
 
and
 
British
 
Virgin
 
Islands
 
(the
 
“BVI”),
 
including
 
in
 
the
 
interest
 
rate
 
environment,
 
unemployment
 
rates,
 
market
liquidity,
 
housing
 
absorption
 
rates,
 
real
 
estate
 
markets
 
and
 
U.S.
 
capital
 
markets,
 
which
 
may
 
affect
 
funding
 
sources,
 
loan
portfolio
 
performance
 
and credit
 
quality,
 
market prices
 
of investment
 
securities and
 
demand for
 
the Corporation’s
 
products
and services, and which may reduce the Corporation’s
 
revenues and earnings and the value of the Corporation’s
 
assets;
the impact
 
of government
 
financial assistance
 
for hurricane
 
recovery and
 
other disaster
 
relief on
 
economic activity
 
in Puerto
Rico, and the timing and pace of disbursements of funds earmarked for disaster
 
relief;
the
 
long-term
 
economic
 
and
 
other
 
effects
 
of
 
the
 
COVID-19
 
pandemic
 
and
 
their
 
impact
 
on
 
the
 
Corporation’s
 
business,
operations and
 
financial condition,
 
including the
 
impact of any
 
residual risks related
 
to the Corporation’s
 
participation in
 
the
Small Business Administration Paycheck Protection Program (“SBA PPP”);
the
 
Corporation’s
 
ability
 
to
 
identify
 
and
 
prevent
 
cyber-security
 
incidents,
 
such
 
as
 
data
 
security
 
breaches,
 
ransomware,
malware,
 
“denial
 
of service”
 
attacks,
 
“hacking,”
 
identity
 
theft and
 
state-sponsored
 
cyberthreats,
 
and
 
the occurrence
 
of any,
which
 
may
 
result
 
in
 
misuse
 
or
 
misappropriation
 
of
 
confidential
 
or
 
proprietary
 
information,
 
disruption
 
or
 
damage
 
to
 
our
systems, increased costs and losses or an adverse effect to our
 
reputation;
general competitive
 
factors and other
 
market risks as
 
well as the
 
implementation of
 
strategic growth opportunities,
 
including
risks, uncertainties and other factors or events related to any business acquisitions or
 
dispositions;
uncertainty as
 
to the
 
implementation of
 
the debt
 
restructuring plan
 
of Puerto
 
Rico (“Plan
 
of Adjustment”
 
or “PoA”)
 
and the
fiscal plan for Puerto Rico
 
as certified on January 27, 2022 (the
 
“2022 Fiscal Plan”) by the oversight
 
board established by the
Puerto Rico
 
Oversight, Management,
 
and Economic
 
Stability Act
 
(“PROMESA”),
 
or any
 
revisions to
 
it, on
 
our clients
 
and
loan portfolios, and any potential impact from future economic or political
 
developments in Puerto Rico;
 
uncertainty
 
as
 
to
 
the
 
continued
 
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 impact of changes in accounting
 
standards or assumptions in applying
 
those standards, on forecasts of economic
 
variables
considered for the determination of the allowance for credit losses (“ACL”);
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;
4
environmental, social, and governance matters, including our climate-related
 
initiatives and commitments;
the impacts
 
of natural
 
or man-made
 
disasters, widespread
 
health emergencies,
 
geopolitical conflicts
 
(including
 
the ongoing
conflict
 
in
 
Ukraine),
 
terrorist
 
attacks
 
or
 
other
 
catastrophic
 
external
 
events,
 
including
 
impacts
 
of
 
such
 
events
 
on
 
general
economic conditions and on the Corporation’s
 
assumptions regarding forecasts of economic variables;
the effect
 
of changes
 
in the
 
interest rate
 
environment,
 
including uncertainty
 
about the
 
effect
 
of the
 
cessation of
 
the London
Interbank Offered Rate (“LIBOR”);
any adverse change
 
in the Corporation’s
 
ability to attract
 
and retain clients
 
and gain acceptance
 
from current and
 
prospective
customers for new products and services, including those related to the
 
offering of digital banking and financial services;
the
 
risk
 
that
 
additional
 
portions
 
of
 
the
 
unrealized
 
losses in
 
the
 
Corporation’s
 
debt
 
securities portfolio
 
are
 
determined
 
to
 
be
credit-related,
 
resulting
 
in
 
additional
 
charges
 
to
 
the
 
provision
 
for
 
credit
 
losses
 
on
 
the
 
Corporation’s
 
available-for-sale
 
debt
securities portfolio;
 
the impacts of applicable legislative, tax or regulatory changes on the
 
Corporation’s financial condition or
 
performance;
the effect
 
of 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” or the “FED”), 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
 
risk
 
that
 
the
 
FDIC
 
may
 
further
 
increase
 
the
 
deposit
 
insurance
 
premium
 
and/or
 
require
 
special
 
assessments,
 
causing
 
an
additional increase in the Corporation’s
 
non-interest expenses;
any need to recognize impairments on the Corporation’s
 
financial instruments, goodwill and other intangible assets;
the risk
 
that the
 
impact
 
of the
 
occurrence
 
of any
 
of these
 
uncertainties on
 
the Corporation’s
 
capital would
 
preclude
 
further
growth of FirstBank and preclude the Corporation’s
 
Board of Directors from declaring dividends; and
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.
 
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.
 
5
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 in 1948 to serve as the
bank holding company
 
for FirstBank. Through
 
its subsidiaries, including
 
FirstBank, the Corporation
 
provides full-service commercial
and consumer banking
 
services, mortgage banking
 
services, automobile financing,
 
trust services, insurance
 
agency services, and
 
other
financial products
 
and services
 
in Puerto
 
Rico, the
 
U.S., the
 
USVI and
 
the BVI.
 
As of
 
December 31,
 
2022, the
 
Corporation had
 
total
assets of $18.6 billion, including loans of $11.6
 
billion, total deposits of $16.1 billion, and total stockholders’ equity of $1.3
 
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 USVI Division
 
of Banking Insurance,
and Financial
 
Regulation;
 
its BVI
 
operations are
 
subject to
 
regulation by
 
the BVI
 
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,
 
59 banking branches
 
in Puerto Rico, eight
banking
 
branches
 
in
 
the
 
USVI
 
and
 
the
 
BVI,
 
and
 
nine
 
banking
 
branches
 
in
 
the
 
state
 
of
 
Florida.
 
FirstBank
 
has
 
six
 
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
 
27
 
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;
 
two
 
companies
 
engaged
 
in
 
the
 
operation
 
of
 
certain
 
real
 
estate
 
owned
(“OREO”) property
 
and one private equity fund.
For a
 
discussion of
 
certain significant
 
events that
 
have occurred
 
in the
 
year ended
 
December 31,
 
2022, 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 27 - “Segment Information,” to the consolidated
 
financial statements for the year ended December 31, 2022 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.
 
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 segment consists 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.
 
Originated
6
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 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 (“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. 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,
 
the
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 Investments
 
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 nine
 
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.
 
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
 
(“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.
7
ENVIRONMENTAL
 
,
 
SOCIAL AND GOVERNANCE (“ESG”) PROGRAM
 
OVERVIEW
 
The
 
Corporation
 
is committed
 
to
 
supporting
 
our
 
clients,
 
employees,
 
shareholders
 
and
 
communities
 
in
 
which
 
we
 
serve.
 
Our
 
ESG
program builds on the Corporation’s
 
core values, including being a socially
 
responsible company.
 
The Corporation sees effective
 
ESG
management as a critical step towards a sustainable, inclusive and successful future.
 
During
 
2021,
 
the
 
Corporation
 
adopted
 
an
 
ESG
 
framework
 
through
 
which
 
it
 
establishes
 
and
 
communicates
 
its
 
ESG
 
strategy
 
and
overarching governance
 
policy.
 
In 2022,
 
the Corporation
 
continued evolving
 
its ESG
 
program,
 
including the
 
publication of
 
its initial
First
 
BanCorp.
 
Environmental,
 
Social
 
and
 
Governance
 
Report
 
for
 
2021
 
(the
 
“2021
 
ESG
 
Report”).
 
The
 
2021
 
ESG
 
Report
 
discloses
information
 
on
 
a
 
wide
 
range
 
of
 
ESG
 
topics,
 
including
 
governance
 
and
 
leadership;
 
responsible
 
business
 
practices;
 
employees
 
and
culture;
 
diversity,
 
equity
 
and
 
inclusion;
 
community
 
engagement;
 
and
 
environmental
 
stewardship.
 
The
 
ESG
 
Report
 
for
 
2022
 
is
expected
 
to
 
be
 
published
 
during
 
the
 
second
 
quarter
 
of
 
2023.
 
Also
 
in
 
2022,
 
the
 
Corporation’s
 
Board
 
of
 
Directors
 
(the
 
“Board
 
of
Directors”
 
or
 
the
 
“Board”)
 
approved
 
First
 
BanCorp.’s
 
Sustainability
 
Policy
 
(the
 
“Sustainability
 
Policy”),
 
which
 
establishes
 
the
Corporation’s framework
 
to address ESG matters.
 
ESG Governance
The Corporation’s
 
Board of Directors and
 
executive leadership team
 
share responsibilities relating
 
to oversight of our
 
ESG policies
and practices. In
 
February 2022, the
 
Corporate Governance and
 
Nominating Committee of
 
the Board of
 
Directors amended its charter
to
 
include
 
oversight
 
responsibility
 
of
 
ESG
 
matters,
 
and
 
it
 
has
 
primary
 
oversight
 
of
 
ESG
 
policies,
 
practices
 
and
 
disclosures.
Nonetheless, other committees
 
of the Corporation’s
 
Board of Directors
 
also play a role
 
in ESG oversight in
 
matters related to
 
risk and
cybersecurity management, human capital management, investment management
 
and credit risk management.
 
 
As part of
 
the ESG governance
 
structure set forth
 
in the Sustainability
 
Policy,
 
the responsibility of
 
day-to-day management
 
of our
ESG framework
 
and strategy
 
has been
 
delegated to
 
a management-level
 
ESG Committee,
 
comprised of
 
leaders from
 
different areas,
such
 
as
 
Human
 
Resources,
 
Enterprise
 
Risk
 
Management,
 
Strategic
 
Planning
 
and
 
Investor
 
Relations,
 
Legal
 
and
 
Corporate
 
Affairs,
Marketing, Compliance,
 
Finance, and
 
Corporate Internal
 
Audit. The
 
ESG Committee
 
is tasked
 
with aligning
 
priorities and
 
initiatives
for the
 
year,
 
setting and
 
monitoring
 
long-term objectives
 
and goals,
 
and leading
 
the annual
 
reporting process
 
on ESG
 
related topics.
The ESG Committee reports to the Corporate Governance and Nominating
 
Committee of the Board of Directors.
 
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
 
is achieved
 
and sustained
 
by adding
 
value
 
to our
employees’
 
lives
 
and
 
providing
 
satisfying
 
and
 
evolving
 
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.
Employees
As
 
of
 
December
 
31,
 
2022,
 
the
 
Corporation
 
and
 
its
 
subsidiaries
 
had
 
3,133
 
regular
 
employees,
 
nearly
 
all
 
of
 
whom
 
are
 
full-time,
representing a
 
2% increase
 
in overall
 
headcount from
 
December 31,
 
2021. The
 
Corporation had
 
2,773 employees
 
in the
 
Puerto Rico
region,
 
200
 
employees
 
in
 
the
 
Florida
 
region,
 
and
 
160
 
employees
 
in
 
the
 
Virgin
 
Islands
 
region.
 
As
 
of
 
December
 
31,
 
2022,
approximately 67% of the total employee population and 57% of
 
top and middle management, were women.
 
Oversight
The Human Resources Division manages all elements of the Corporation’s
 
human capital programs and strategies, including talent
recruiting and engagement, training and development, and compensation
 
and benefits, and directly reports to the Corporation’s
 
Chief
Risk Officer.
The
 
Human
 
Resources
 
Division
 
efforts
 
are also
 
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
 
its
 
Compensation
 
and
 
Benefits
 
Committee
 
monitor
 
and
 
are
 
regularly
 
updated
 
on
 
the
 
Corporation’s
 
human
capital management strategies.
 
8
Talent Acquisition
 
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,
 
and
promoting internal mobility.
 
The attraction and selection process includes:
Promoting and posting our vacant positions
 
internally and externally.
Building our employer brand by participating in professional events and
 
job fairs and maintaining a relationship with
universities through internship programs and career forums.
A collaboration 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 assignment of a
“FirstPal” from day one to help with the organizational culture transition
 
and learning process.
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 and best 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
 
its
 
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
 
as
of December
 
31, 2022. In
 
2022, employee voluntary
 
turnover rates remained
 
significantly higher
 
than pre-pandemic
 
levels, reflecting
workforce challenges
 
affecting most
 
industries. Our
 
employee voluntary
 
turnover rate
 
for 2022
 
was 13.3%,
 
mostly related
 
to hourly
employees in call centers and branches. For high performers
 
,
 
employees’ turnover was relatively low at 5.5%.
Talent Development
 
and Engagement
We
 
believe
 
that a
 
culture of
 
learning and
 
development
 
maximizes the
 
talent of
 
human
 
capital and
 
is the
 
foundation for
 
sustained
business success and our commitment to employee engagement continues
 
throughout employees’ time with the Corporation.
 
Our
 
training
 
program
 
strives
 
to
 
reflect
 
both
 
employees’
 
and
 
the
 
organization’s
 
needs.
 
The
 
Corporation
 
offers
 
more
 
than
 
8,000
training opportunities
 
through online
 
courses and
 
in-person or
 
virtual classes,
 
as well
 
as development
 
activities, special
 
projects, and
partial tuition reimbursement to complete a bachelor’s
 
or master's degree to eligible employees. Training
 
is offered on various subjects
within five main areas: fundamentals,
 
compliance and corporate governance,
 
specialized technical subjects, professional
 
development,
and leadership development.
In 2022
 
we provided
 
over 80 training
 
topics through
 
virtual and
 
in-person modalities
 
allowing our
 
employees to
 
continue learning
and complete development plans.
 
In 2022, we delivered more than 108,000 hours
 
of training and each employee completed an average
of 30.6 training hours.
Every year around 100 new and
 
existing supervisors and managers receive
 
training. In 2022, we delivered more than
 
6,200 hours of
supervision
 
and
 
management-related
 
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. In
 
addition, our
 
program for
 
active supervisors
and
 
managers
 
encourages
 
leaders
 
to
 
review
 
their
 
leadership
 
skills
 
with
 
feedback
 
received
 
from
 
instructors
 
and
 
coworkers.
 
The
program has been delivered to 63% of our current leaders since launched,
 
accounting for over 21,000 training hours.
 
In addition to these training opportunities, we have processes
 
to promote professional development and career
 
growth, including the
promotion of internal
 
career opportunities, performance
 
management processes, annual
 
talent review,
 
and robust succession
 
planning.
We
 
also
 
encourage
 
employees
 
to
 
participate
 
in
 
our
 
commitment
 
to
 
our
 
communities
 
through
 
our
 
volunteer
 
and
 
community
reinvestment programs.
 
In 2022, our
 
employees supported 36
 
organizations with
 
more than 1,800
 
hours of volunteer
 
work. The Bank
9
also
 
encourages
 
its
 
employees
 
to
 
serve
 
on
 
non-profit
 
organizations’
 
boards
 
of
 
directors.
 
In
 
2022,
 
First
 
BanCorp
 
employees
 
were
members
 
of
 
the
 
board
 
of
 
directors
 
for
 
24
 
non-profit
 
organizations
 
across
 
the
 
Puerto
 
Rico,
 
Florida,
 
and
 
Virgin
 
Islands
 
regions
 
and
offered approximately 1,500 hours of service.
Health & Wellness
 
Health
 
and
 
well-being
 
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
 
occupational,
 
physical,
 
emotional,
 
and
 
financial
 
health.
 
Our
 
comprehensive
 
wellness
 
package
 
includes
 
health,
 
dental
 
and
vision insurance
 
offered
 
through different
 
insurance company
 
options that
 
enable employees
 
to choose
 
those that
 
best accommodate
their
 
and
 
their
 
families’
 
needs.
 
We
 
also
 
offer
 
life
 
insurance
 
and
 
disability
 
plans,
 
as
 
well
 
as
 
a
 
defined
 
contribution
 
retirement
 
plan
option where both employee and employer contribute.
To
 
promote
 
work-life
 
balance,
 
we
 
grant
 
a
 
variety
 
of paid
 
time off
 
for
 
vacation,
 
sick,
 
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,
 
nursing
 
services,
 
among
 
others.
 
The
 
Corporation
 
subsidizes
 
a
substantial portion of the cost of these benefits.
Initiatives
 
for
 
the safety
 
and security
 
of employees
 
have
 
always been
 
an important
 
priority.
 
In 2022,
 
in response
 
to the
 
ongoing
impacts of the COVID-19 pandemic, certain business units in the Florida
 
and Puerto Rico regions
 
incorporated
 
hybrid work schedules.
Additional activities implemented by the Corporation to support employees
 
included:
COVID-19 monitoring and contact tracing processes.
Free laboratory testing for all employees.
Paid leave for employees affected by the virus and special leave of
 
absence without pay for unique needs.
Training activities related to COVID-19, safety
 
measures, stress management, and remote work.
Reinforce COVID-19 vaccination to protect our workforce.
Offered multiple onsite vaccination clinics, including
 
updated bivalent COVID-19 vaccine clinics.
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,
 
2022,
 
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 on 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
 
fintech
 
companies
 
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.
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
 
the Bank Holding Company Act
 
of 1956, as amended (the
 
“Bank Holding Company Act”),
 
and
is subject to
 
ongoing supervision,
 
regulation and examination
 
by the Federal
 
Reserve Board.
 
The Corporation
 
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
 
broader
 
range
 
of
 
financial
 
activities.
 
The
 
Corporation
 
has
 
elected
 
to
 
be
 
a
 
financial
 
holding
 
company
 
under
 
the
 
Bank
 
Holding
10
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 underwriti
 
ng 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. The Corporation
 
and FirstBank must
 
be “well-capitalized”
 
and “well-managed”
 
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 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,
 
2022,
 
and
 
the
 
date
 
hereof,
 
FirstBank
 
was
 
and
 
is
 
the
 
only
 
banking
subsidiary of the Corporation.
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
 
oversight establishes
 
a comprehensive
 
framework
of
 
permissible
 
activities,
 
and
 
the
 
supervision
 
by
 
the
 
FDIC
 
is
 
also
 
intended
 
for
 
the
 
protection
 
of
 
the
 
FDIC’s
 
insurance
 
fund
 
and
depositors.
 
These
 
regulatory
 
authorities
 
have
 
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.
 
Their 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.
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 international capital accord 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, 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
 
affect
 
the
 
regulation
 
and
 
supervision
 
of
 
U.S.
 
banking
 
organizations,
 
including
 
the
Corporation
 
and
 
FirstBank.
 
Both
 
the
 
Basel
 
Committee
 
and
 
the
 
Financial
 
Stability
 
Board
 
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
 
 
 
 
 
 
 
 
11
January
 
1,
 
2016;
 
however,
 
these
 
instruments
 
may
 
remain
 
in
 
Tier
 
2
 
capital
 
until
 
the
 
instruments
 
are
 
redeemed
 
or
 
mature.
 
As
 
of
December 31,
 
2022, 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.
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 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.
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.
 
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
 
expands
 
the
 
risk-weighting
 
categories
 
from
 
the
 
four
 
major
 
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).
 
Set forth below are the Corporation's and FirstBank's capital ratios as of December 31,
 
2022 based on Federal Reserve and FDIC
guidelines:
Banking Subsidiary
First BanCorp.
FirstBank
Well-Capitalized
Minimum
As of December 31, 2022
Total capital (Total
 
capital to risk-weighted assets)
19.21%
18.90%
10.00%
CET1 Capital (CET1 capital to risk-weighted assets)
16.53%
16.84%
6.50%
Tier 1 capital ratio (Tier
 
1 capital to risk-weighted assets)
16.53%
17.65%
8.00%
Leverage ratio
(1)
10.70%
11.43%
5.00%
_______________
(1) Tier 1 capital to average assets.
12
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 assets
 
of less
 
than $100
 
billion will
 
continue
 
to be
reviewed through the regular
 
supervisory process. Notwithstanding,
 
the Corporation monitors its
 
capital consistent with the
 
safety and
soundness expectations
 
of the
 
federal regulators
 
and continues
 
to perform
 
internal stress
 
testing as
 
part of
 
its annual
 
capital planning
process.
 
Dividend Restrictions
 
The Federal
 
Reserve Board
 
has a
 
policy
 
that, as
 
a matter
 
of prudent
 
banking,
 
a bank
 
holding
 
company should
 
generally not
 
pay
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. 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. 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
 
Corporation is also 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).
The principal
 
source of
 
funds for
 
the Corporation,
 
as a
 
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
 
of
1933,
 
as
 
amended
 
(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,
regulations
 
of
 
the
 
FDIA
 
and
 
the
 
FDIC
 
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.
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 common stock.
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.
The
 
CFPB’s
 
primary
 
functions
 
include
 
the
 
supervision
 
of
 
“covered
 
persons”
 
(broadly
 
defined
 
to
 
include
 
any
 
person
 
offering
 
or
providing a consumer
 
financial product or
 
service and any
 
affiliated service
 
provider) for compliance
 
with federal
 
consumer financial
laws.
 
It
 
implements
 
amendments
 
to
 
and
 
has
 
primary
 
authority
 
to
 
enforce
 
the
 
federal
 
consumer
 
financial
 
laws,
 
including
 
the
 
Equal
Credit Opportunity Act, the Truth
 
in Lending Act (“TILA”) and the
 
Real Estate Settlement Procedures Act (“RESPA”),
 
among others.
The
 
CFPB
 
also
 
has
 
broad
 
powers
 
to
 
prescribe
 
rules
 
applicable
 
to
 
a
 
covered
 
person
 
or
 
service
 
provider
 
in
 
connection
 
with
 
any
transaction with a consumer for a consumer financial product or service,
 
or the offering of a consumer financial product or service.
13
Among other
 
actions, the
 
CFPB has
 
issued regulations
 
setting forth
 
mortgage servicing
 
rules that
 
apply to
 
the Bank,
 
which affect
consumer notices
 
regarding delinquency,
 
foreclosure alternatives,
 
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.
The Volcker
 
Rule
 
Section 13 of the Bank Holding
 
Company Act (commonly known as
 
the Volcker
 
Rule), 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.
 
The Corporation and
 
the Bank are not engaged
 
in “proprietary trading” as
 
defined in the Volcker
 
Rule. In addition, the
 
Corporation
has reviewed its investments and concluded that they 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 they offer
 
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,
 
such as
 
an application
 
for approval
 
of a
 
merger
 
or the
 
establishment of
 
a branch.
 
A
rating of
 
less than “satisfactory”
 
could result
 
in the denial
 
of such applications.
 
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.
In
 
June
 
2022,
 
the
 
U.S.
 
federal
 
banking
 
regulatory
 
agencies
 
issued
 
a
 
joint
 
proposal
 
to
 
amend
 
their
 
regulations
 
implementing
 
the
CRA.
 
The
 
proposed
 
rules
 
would
 
materially
 
revise
 
the
 
current
 
CRA
 
framework,
 
including
 
new
 
assessment
 
area
 
requirements,
 
new
methods of calculating
 
credit for lending, investment,
 
and service activities, and
 
additional data collection and
 
reporting requirements.
The proposed rule
 
included analysis indicating
 
a significant increase in
 
the thresholds for large
 
banks to receive “Outstanding”
 
ratings
in the future.
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,
 
all financial institutions
 
are required to
 
identify their customers,
 
adopt formal and
 
comprehensive anti-money
laundering programs,
 
scrutinize or
 
prohibit 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
 
AML
 
Act
 
includes
 
a
 
variety
 
of
 
provisions
 
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.
 
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.
 
14
Financial Privacy and Cybersecurity
The Gramm-Leach-Bliley
 
Act limits the ability
 
of 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.
 
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
 
a
 
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,
 
including the
 
bank’s
 
parent holding
 
company and
any companies that are controlled by such holding company.
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”
 
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 financial regulators 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.
 
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
 
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
15
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.
On October 26,
 
2022, the SEC also
 
finalized a rule
 
that directs stock exchanges
 
to require listed companies
 
to implement clawback
policies
 
to
 
recover
 
incentive-based
 
compensation
 
from
 
current
 
or
 
former
 
executive
 
officers
 
in
 
the
 
event
 
of
 
certain
 
financial
restatements,
 
and requires
 
companies to
 
disclose their
 
clawback policies
 
and their
 
actions under
 
those policies.
 
The stock
 
exchanges
will be required to file their proposed listing standards with the SEC for
 
approval no later than 90 days following the publication of
 
the
final rules in
 
the Federal Register,
 
which must be
 
effective no
 
later than one
 
year following
 
such publication.
 
The rules are
 
therefore
not expected to take effect until mid-2023 at the earliest.
Prompt Corrective Action
 
The
 
“prompt
 
corrective
 
action”
 
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
 
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 such bank.
Deposit Insurance
FirstBank
 
is
 
subject
 
to
 
FDIC
 
deposit
 
insurance
 
assessments,
 
which
 
increased
 
for
 
all
 
banks,
 
including
 
FirstBank,
 
following
 
the
increase
 
in
 
deposit
 
insurance
 
coverage
 
to
 
up
 
to
 
$250,000
 
per
 
customer
 
and
 
the
 
FDIC’s
 
expanded
 
authority
 
to
 
increase
 
insurance
premiums implemented
 
by the
 
Dodd-Frank Act.
 
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
 
was required
 
to 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
 
nine 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.
 
On October 18, 2022,
 
the FDIC adopted
 
a final rule, applicable
 
to all insured depository
 
institutions, to increase
 
initial base deposit
insurance assessment rate schedules
 
uniformly by 2 basis points,
 
beginning in the first quarterly
 
assessment period of 2023.
 
The FDIC
also
 
concurrently
 
maintained
 
the
 
designated
 
reserve
 
ratio
 
for
 
the
 
DIF
 
at
 
2%
 
for
 
2023.
 
The
 
increase
 
in
 
assessment
 
rate
 
schedules
 
is
intended to increase
 
the likelihood that
 
the reserve ratio
 
of the DIF
 
reaches the statutory
 
minimum of
 
1.35% by the
 
statutory deadline
of September 30, 2028. The new assessment rate schedules
 
will remain in effect unless and until the reserve
 
ratio meets or exceeds 2%
in order
 
to support growth
 
in the DIF
 
and progress
 
toward the FDIC’s
 
long-term goal
 
of a 2%
 
designated reserve
 
ratio. Progressively
lower assessment
 
rate schedules
 
will take
 
effect when
 
the reserve
 
ratio reaches
 
2% and
 
again when
 
it reaches
 
2.5%. The
 
Corporation
estimates an increase
 
of approximately 56%
 
in deposit insurance
 
expense for 2023
 
compared to the
 
FDIC insurance
 
expense levels in
2022.
FDIC Insolvency Authority
Under
 
Puerto
 
Rico banking
 
laws, the
 
OCIF may
 
appoint
 
the FDIC
 
as conservator
 
or receiver
 
of a
 
failed or
 
failing
 
FDIC-insured
Puerto Rican 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.
 
The
 
FDIA
 
provides
 
that, in
 
the
 
event
 
of
 
the
 
liquidation
 
or
 
other
resolution of
 
an insured
 
depository institution,
 
including the
 
Bank, the
 
claims of
 
depositors of
 
the institution
 
(including the
 
claims of
the
 
FDIC
 
as
 
subrogee
 
of
 
insured
 
depositors)
 
and
 
certain
 
claims
 
for
 
administrative
 
expenses
 
of
 
the
 
FDIC
 
as
 
a
 
receiver
 
would
 
have
priority over
 
other general
 
unsecured claims
 
against the
 
institution. If
 
the Bank
 
were to
 
fail, insured
 
and uninsured
 
depositors, along
16
with the
 
FDIC, would
 
have priority
 
in payment
 
ahead of
 
unsecured, non-deposit
 
creditors, including
 
the Corporation,
 
with respect
 
to
any extensions of credit they have made to such insured depository institution.
Activities and Investments
The
 
principal
 
activities
 
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
made
 
by
 
the
 
FHLB
 
to
 
FirstBank
 
are
 
secured
 
by
 
a
 
portion
 
of
 
FirstBank’s
 
mortgage
 
loan
 
or
 
securities
 
portfolios,
 
certain
 
other
investments and the capital stock of the FHLB held by FirstBank.
The board of
 
directors of each
 
FHLB can increase
 
the minimum investment
 
requirements if it
 
has concluded that
 
additional capital
is required to meet its own regulatory capital requirements. Any
 
increase in the minimum investment requirements outside of
 
specified
ranges requires
 
the approval of
 
the Federal Housing
 
Finance Agency.
 
Because the extent
 
of any obligation
 
to increase our
 
investment
in any of
 
the FHLBs depends
 
entirely upon
 
the occurrence of
 
a future
 
event, the
 
amount of any
 
future investment
 
in the capital
 
stock
of the FHLBs is not determinable.
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,
 
including
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
 
broad
 
and
 
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
 
other
 
federal
 
bank
 
regulatory
 
agencies
 
to
 
prescribe
 
standards
 
of
 
safety
 
and
 
soundness.
 
Bank
regulators
 
have
 
various
 
remedies
 
available
 
if
 
they
 
determine
 
that
 
the
 
financial
 
condition,
 
capital
 
resources,
 
asset
 
quality,
 
earnings
prospects, management,
 
liquidity,
 
or other
 
aspects of
 
a banking
 
organization’s
 
operations are
 
unsatisfactory.
 
The regulators
 
may also
take action
 
if they
 
determine that
 
the banking
 
organization or
 
its management
 
is violating
 
or has
 
violated any
 
law or
 
regulation. The
regulators
 
have
 
the
 
power
 
to,
 
among
 
other
 
things,
 
prohibit
 
unsafe
 
or
 
unsound
 
practices,
 
require
 
affirmative
 
actions
 
to
 
correct
 
any
violation
 
or
 
practice,
 
issue
 
administrative
 
orders
 
that
 
can
 
be
 
judicially
 
enforced,
 
direct
 
increases
 
in
 
capital,
 
direct
 
the
 
sale
 
of
subsidiaries
 
or
 
other
 
assets,
 
limit
 
dividends
 
and
 
distributions,
 
restrict
 
growth,
 
assess
 
civil
 
monetary
 
penalties,
 
remove
 
officers
 
and
directors, and terminate deposit insurance.
Engaging in
 
unsafe or
 
unsound practices
 
or failing
 
to comply
 
with applicable
 
laws, regulations,
 
and supervisory
 
agreements could
subject
 
the
 
Corporation,
 
its
 
subsidiaries,
 
and
 
their
 
respective
 
officers,
 
directors,
 
and
 
institution-affiliated
 
parties
 
to
 
the
 
remedies
described above,
 
and other
 
sanctions. In
 
addition, the
 
FDIC may
 
terminate a
 
bank’s
 
deposit insurance
 
upon a
 
finding that
 
the bank’s
17
financial condition is unsafe or unsound
 
or that the bank has engaged in unsafe
 
or unsound practices or has violated
 
an applicable rule,
regulation, order, or condition enacted
 
or imposed by the bank’s regulatory
 
agency.
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
 
to January 1,
 
2022. For brokered
 
deposits, the final
rule established
 
a new framework
 
for analyzing
 
certain parts of
 
the “deposit
 
broker” definition,
 
including a
 
new interpretation
 
for the
“primary purpose” exception and the
 
business relationships that meet the exception.
 
Pursuant to this revision, during the fourth
 
quarter
of 2021, certain non-maturity deposits previously reported as brokered
 
deposits were recharacterized as non-brokered deposits.
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 aggr
 
egate 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
18
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.
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 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. 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.
 
19
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.
 
 
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.
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 generally
 
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,
VA,
 
FNMA,
 
FHLMC,
 
GNMA
 
and
 
HUD
 
at
 
all
 
times
 
to
 
assure
 
compliance
 
with
 
applicable
 
regulations,
 
policies
 
and
 
procedures.
20
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.
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 Sections 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
 
its
 
Corporate
 
Governance
 
Guidelines
 
and
 
Principles,
 
the
 
charters
 
of
 
the
 
Audit,
Asset/Liability,
 
Compensation
 
and
 
Benefits,
 
Credit,
 
Risk,
 
Trust,
 
and
 
Corporate
 
Governance
 
and
 
Nominating
 
Committees
 
and
 
the
documents listed below,
 
free of charge on or through its internet website at www.fbpinvestor.com
 
(under Corporate Governance):
 
Code of Ethics for CEO and Senior Financial Officers
 
Code of Ethical Conduct applicable to all employees
 
Independence Principles for Directors
 
2021 ESG Report
 
Sustainability Policy
The Corporate
 
Governance Guidelines and
 
Principles and the
 
aforementioned charters
 
and documents 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
 
as textual references and for
 
convenience only,
 
and
the content on
 
the referenced websites does
 
not constitute a
 
part of this Annual
 
Report on Form 10-K
 
or any other report
 
or document
that the Corporation files with or furnishes to the SEC.
 
21
Item 1A.
Risk Factors
Below
 
is 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
 
materially
 
adversely
 
affect
 
the Corporation
 
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 BUSINESS ENVIRONMENT AND OUR INDUSTRY
 
The impacts
 
of rising
 
interest rates
 
and inflation
 
may reduce
 
demand for
 
new loan
 
originations and
 
refinancings and
 
increase
competition for borrowers, thus reducing 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.
 
Interest
 
rates
 
are
 
highly
 
sensitive
 
to
 
many
factors that
 
are beyond
 
our control,
 
including general
 
economic conditions,
 
inflationary trends,
 
changes in
 
government spending
 
and
debt issuances and
 
policies of various
 
governmental and
 
regulatory agencies,
 
in particular,
 
the Federal Reserve.
 
Throughout 2022
 
the
Federal Reserve raised
 
the target range
 
for the federal
 
funds rate on seven
 
separate occasions and
 
has indicated that
 
ongoing increases
may be appropriate.
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.
 
Further,
 
rising interest
 
rates reduce
 
the value
 
of our
 
fixed-rate securities.
 
Any unrealized
 
loss from
 
these portfolios
 
impacts other
comprehensive
 
income, stockholders’
 
equity,
 
and the
 
tangible common
 
equity ratio.
 
Any realized
 
loss from
 
these portfolios
 
impacts
regulatory capital ratios.
 
Changes in prepayments may adversely affect net interest income.
Net
 
interest
 
income
 
could
 
also
 
be
 
affected
 
by
 
prepayments
 
of
 
MBS.
 
Generally,
 
when
 
rates
 
rise,
 
prepayments
 
of
 
principal
 
and
interest
 
will
 
decrease,
 
and
 
the
 
duration
 
of
 
MBS
 
securities
 
will
 
increase.
 
Conversely,
 
when
 
rates
 
fall,
 
prepayments
 
of
 
principal
 
and
interest
 
will
 
increase,
 
and
 
the
 
duration
 
of
 
mortgage-backed
 
securities
 
will
 
decrease.
 
Such
 
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. 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 transition
 
from LIBOR
 
to alternative
 
rates and
 
other potential
 
interest rate
 
reforms may
 
affect the
 
interest rates
 
we pay
 
or
receive.
 
 
A transition away
 
from the widespread
 
use of LIBOR to
 
alternative rates is
 
underway and will
 
continue until full
 
cessation of this
reference
 
rate.
 
These
 
changes
 
may
 
cause
 
such
 
rates
 
to
 
perform
 
differently
 
than
 
in
 
the
 
past,
 
or
 
to
 
disappear
 
entirely,
 
or
 
have
 
other
consequences which cannot be predicted.
A group
 
of market
 
participants convened
 
by the
 
Federal
 
Reserve,
 
the
 
Alternative
 
Reference
 
Rate Committee
 
(the
 
“ARRC”),
 
has
selected
 
the
 
Secured
 
Overnight
 
Financing
 
Rate
 
(“SOFR”)
 
as
 
its
 
recommended
 
alternative
 
to
 
LIBOR.
 
The
 
Federal
 
Reserve
 
Bank
 
of
New
 
York
 
started
 
to
 
publish
 
SOFR
 
in
 
April
 
2018. SOFR
 
is
 
a
 
broad
 
measure
 
of
 
the
 
cost
 
of
 
overnight
 
borrowings
 
collateralized
 
by
Treasury
 
securities
 
that
 
was
 
selected
 
by
 
the
 
ARRC
 
due
 
to
 
the
 
depth
 
and
 
robustness
 
of
 
the
 
U.S.
 
Treasury
 
repurchase
 
market.
 
The
passage
 
of
 
the
 
Adjustable
 
Interest
 
Rate
 
Act
 
(the
 
“LIBOR
 
Act”)
 
by
 
U.S.
 
Congress,
 
and
 
the
 
Federal
 
Reserve’s
 
implementing
 
rule,
should decrease
 
the risk
 
of contracts
 
that are
 
not remediated
 
prior to
 
the cessation
 
deadline by
 
providing the
 
terms for
 
a transition
 
to
SOFR.
22
The
 
market
 
transition
 
away
 
from
 
LIBOR
 
to
 
an
 
alternative
 
reference
 
rate,
 
such
 
as
 
SOFR,
 
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,
 
2022, the
 
most significant
 
of the Corporation’s
 
LIBOR-based assets
and liabilities consisted of
 
$1.4 billion of variable-rate
 
commercial and construction
 
loans (including unused commitments),
$124.4
 
million
 
of
 
Puerto
 
Rico
 
municipalities
 
bonds
 
held
 
as
 
part
 
of
 
the
 
Corporation’s
 
held-to-maturity
 
debt
 
securities
portfolio, $44.6
 
million of
 
U.S. agencies
 
debt securities
 
and private
 
label MBS
 
held as
 
part of
 
the Corporation’s
 
available-
for-sale debt 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
 
has
 
required
 
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
 
LIBOR Transition
 
Working
 
Group (“LTWG”),
 
which is
composed
 
by
 
officers
 
of
 
the
 
major
 
areas
 
affected
 
such
 
as
 
Treasury,
 
Legal,
 
Corporate
 
Loans,
 
Credit,
 
Operations,
 
Systems,
 
Asset-
Liability Management, Risk, Accounting,
 
Financial Reporting, Public Relations, and
 
Strategic Planning, are in charge
 
of executing the
LIBOR transition workplan.
 
The LTWG
 
is overseen by the Corporation’s
 
Management Investments &
 
Asset-Liability Committee and
the Board
 
of Directors
 
Asset-Liability
 
Committee.
 
Effective
 
December
 
31, 2021,
 
the Corporation
 
discontinued
 
originations that
 
use
U.S.
 
Dollar
 
LIBOR
 
as
 
a
 
reference
 
rate.
 
In
 
addition,
 
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.
 
Difficult market
 
and general
 
economic conditions
 
have affected
 
the financial
 
industry and
 
may continue
 
to 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
 
accurately estimated
 
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 strategic
 
growth opportunities
 
in connection
 
with current
market conditions.
 
23
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 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.
 
Unfavorable or
 
uncertain economic
 
and market
 
conditions
have
 
been
 
and
 
could
 
cause
 
declines
 
in
 
economic
 
growth,
 
business
 
activity
 
or
 
investor
 
or
 
business
 
confidence;
 
limitations
 
on
 
the
availability or
 
increases in
 
the cost
 
of credit
 
and capital;
 
increases in inflation
 
or interest rates;
 
high unemployment;
 
natural disasters;
epidemics and pandemics (such as the COVID-19 pandemic); or a combination
 
of these or other factors.
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, including the
 
series of interest rate
 
increases that occurred
 
in 2022, the refinancing
 
of many mortgage
 
products
tends to decrease as the economic incentives for borrowers to refinance their
 
existing mortgage loans are reduced.
 
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.
The currently
 
evolving situation
 
related to
 
the ongoing
 
COVID-19 pandemic
 
may impact
 
the Corporation’s
 
business, financial
condition and results of operations.
The ongoing COVID-19
 
pandemic created a global
 
public health crisis that has
 
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.
 
Further,
 
the uncertainty
surrounding
 
future
 
economic
 
conditions
 
has
 
challenged
 
management's
 
ability
 
to
 
estimate
 
the
 
pandemic's
 
impact
 
on
 
credit
 
quality,
revenues, and assets values.
The Corporation
 
may also
 
face residual
 
risk related
 
to its
 
participation in
 
the SBA PPP
 
program established
 
by the
 
CARES Act
 
of
2020.
 
The Corporation’s
 
participation
 
in
 
the
 
SBA PPP
 
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
 
occurrence
 
of
 
any
 
of
 
the
 
foregoing
 
could
 
have
 
a
 
material
 
adverse
 
effect
 
on
 
the
 
Corporation’s
 
results
 
of
 
operations
 
or
financial condition.
 
The
 
full
 
extent
 
to which
 
the COVID-19
 
pandemic
 
further
 
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 duration of
 
the COVID-19
 
pandemic and its
 
impact on
 
the global economy,
 
as well as
 
any future
 
resumption
of responsive
 
actions taken by
 
governmental authorities
 
and other third
 
parties. Even after
 
the COVID-19
 
pandemic has subsided,
 
we
may continue
 
to experience materially
 
adverse impacts to
 
our business and
 
our results of
 
operations as
 
a result of
 
its global economic
impact.
We operate in a highly
 
competitive industry and market area.
 
We
 
face
 
substantial
 
competition
 
in
 
all
 
areas
 
of
 
our
 
operations
 
from
 
a
 
variety
 
of
 
different
 
competitors,
 
including
 
other
 
banks,
insurance
 
companies,
 
mortgage
 
banking
 
companies,
 
small
 
loan
 
companies,
 
automobile
 
financing
 
companies,
 
leasing
 
companies,
brokerage
 
firms
 
with
 
retail
 
operations,
 
credit
 
unions,
 
certain
 
retailers,
 
fintech
 
companies
 
and
 
digital
 
platforms.
 
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.
 
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 increase
 
its deposit
 
base, originate
 
loans in
 
the manner
 
or on
 
the terms
 
on
which it has done so in the past, or otherwise compete effectively.
 
 
24
The Corporation’s
 
credit quality and
 
the value of the
 
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.
On
 
November
 
10,
 
2022,
 
the
 
Puerto
 
Rico
 
Planning
 
Board
 
(“PRPB”)
 
presented
 
the
 
Economic
 
Report
 
to
 
the
 
Governor,
 
which
provides
 
an
 
analysis
 
of
 
Puerto
 
Rico’s
 
economy
 
during
 
fiscal
 
year
 
2021
 
and
 
a
 
short-term
 
forecast
 
for
 
fiscal
 
years
 
2022
 
and
 
2023.
According to the
 
PRPB, Puerto Rico’s
 
real gross national
 
product (“GNP”) expanded
 
by 1.0% in fiscal
 
year 2021, significantly
 
above
the PRPB’s
 
original
 
baseline projection
 
of a
 
2.0%
 
contraction. According
 
to the
 
report, real
 
GNP growth
 
was primarily
 
driven by
 
a
sharp increase
 
in personal
 
consumption expenditures
 
reflecting the
 
relaxation of
 
COVID-related restrictions,
 
as well
 
as the
 
impact of
the
 
substantial
 
disaster
 
relief funding
 
deployed
 
over
 
the period.
 
To
 
a
 
lesser extent,
 
growth
 
in
 
fiscal
 
year
 
2021
 
was also
 
driven
 
by a
higher level of
 
investments in machinery,
 
equipment, and construction.
 
These favorable variances
 
were partially offset
 
by an increase
in imports,
 
a reduction
 
in exports,
 
and a
 
negative change
 
in the
 
level of
 
inventories. For
 
fiscal years
 
2022 and
 
2023, the
 
Puerto Rico
economy is forecasted to grow 4.0% and 0.7% in real
 
terms, according to the PRPB’s baseline
 
projection. Among the key assumptions
included in
 
this forecast
 
is the
 
positive impact
 
expected from
 
the ongoing
 
disbursements of
 
disaster recovery
 
funds ($2.8
 
billion and
$4.0 billion
 
in fiscal
 
years 2022
 
and 2023,
 
respectively),
 
as well
 
as the
 
stimulus from
 
remaining pandemic
 
relief funds
 
($1.1 billion
and $632
 
million in
 
fiscal years
 
2022 and
 
2023, respectively),
 
and the inclusion
 
of Puerto
 
Rico in
 
the Earned
 
Income Tax
 
Credit and
the Child Tax Credit
 
since 2021.
 
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
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 2022
Fiscal Plan
 
estimates that
 
Puerto Rico’s
 
GNP will
 
grow by
 
5.2% in
 
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
 
benefited from
 
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).
 
As of December
 
31, 2022, the
 
Corporation had $338.9
 
million of direct
 
exposure to the
 
Puerto Rico government,
 
its municipalities
and public corporations. As of December 31, 2022, approximately
 
$183.4 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
 
$114.0
 
million
 
of
 
loans
 
and
obligations which are supported by
 
one or more specific sources of municipal
 
revenues. 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
 
to
 
municipalities,
 
the
 
total
 
direct
 
exposure
 
also
 
included
 
$10.8
 
million
 
in
 
loans
 
to
 
an
 
affiliate
 
of
 
PREPA,
 
$27.4
 
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
 
PR
 
Housing
 
Finance
 
Authority
 
(“PRHFA”),
 
at
 
an
 
amortized
 
cost
 
of
 
$3.3
 
million
 
as
 
part
 
of
 
its
available-for-sale debt securities portfolio (fair value of $2.2 million as of
 
December 31, 2022).
In
 
addition,
 
as
 
of
 
December
 
31,
 
2022,
 
the
 
Corporation
 
had
 
$84.7
 
million
 
in
 
exposure
 
to
 
residential
 
mortgage
 
loans
 
that
 
are
guaranteed
 
by the
 
PRHFA.
 
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 regulations adopted by
 
the PRHFA
 
require the
establishment of
 
adequate reserves
 
to guarantee
 
the solvency
 
of its
 
mortgage loans
 
insurance program
 
As of
 
June 30,
 
2021, the
 
most
recent date
 
as of
 
which information
 
is available,
 
the PRHFA
 
had a
 
liability of
 
approximately $5
 
million as
 
an estimate
 
of the
 
losses
inherent in the portfolio.
As
 
of
 
December
 
31,
 
2022,
 
the
 
Corporation
 
had
 
$2.3
 
billion
 
of public
 
sector
 
deposits
 
in
 
Puerto
 
Rico.
 
Approximately
 
24%
 
of
 
the
public sector deposits as of
 
December 31, 2022 was from municipalities
 
and municipal agencies in Puerto
 
Rico and 76% was from
 
the
public corporation, the Puerto Rico central government and agencies, and
 
U.S. federal government agencies in Puerto Rico.
Instability in economic conditions,
 
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
 
challenges,
 
could
materially adversely affect our business, financial condition, liquidity,
 
results of operations and capital position.
 
25
A
 
deterioration
 
in
 
economic
 
conditions
 
in
 
the
 
U.S.
 
Virgin
 
Islands
 
and
 
British
 
Virgin
 
Islands
 
could
 
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.
 
On
 
March
 
4,
 
2022,
 
the
 
United
 
States
 
Bureau
 
of
 
Economic
 
Analysis
 
(the
 
“BEA”)
released
 
its
 
estimates
 
of
 
gross
 
domestic
 
product
 
(“GDP”)
 
for
 
2020.
 
According
 
to
 
the
 
BEA,
 
the
 
USVI’s
 
real
 
GDP
 
decreased
 
2.2%.
Also, the
 
BEA revised
 
its previously
 
published
 
real GDP
 
growth
 
estimate for
 
2019 from
 
2.2%
 
to 2.8%.
 
According
 
to the
 
BEA, the
decline in real
 
GDP for 2020
 
reflected decreases
 
in exports
 
of services, private
 
fixed investment,
 
personal consumption
 
expenditures,
and
 
government
 
spending
 
primarily
 
as a
 
result
 
of the
 
effects
 
of
 
the COVID-19
 
pandemic.
 
These decreases
 
were partly
 
offset
 
by an
increase in
 
private inventory
 
investment, reflecting
 
an increase
 
in crude
 
oil and
 
other petroleum
 
products imported
 
and stored
 
in the
islands. In
 
addition, there
 
were reductions
 
in imports
 
of goods
 
including consumer
 
goods and
 
equipment, and
 
in imports
 
of services.
According
 
to the
 
BEA, expenditures
 
funded by
 
the various
 
federal grants
 
and transfer
 
payments are
 
reflected in
 
the GDP
 
estimates;
however,
 
the full
 
effects
 
of the
 
pandemic
 
cannot be
 
quantified in
 
the GDP
 
statistics for
 
the USVI
 
because the
 
impacts are
 
generally
embedded in source data and cannot be separately identified.
 
Nonetheless,
 
over
 
the
 
past
 
two
 
years,
 
the
 
USVI
 
has
 
been
 
recovering
 
from
 
the
 
adverse
 
impact
 
caused
 
by
 
COVID-19
 
and
 
has
continued to make progress
 
on its rebuilding efforts
 
related to Hurricanes Irma
 
and Maria in 2017.
 
According to data published
 
by the
government,
 
over
 
$1.4
 
billion
 
in
 
disaster
 
recovery
 
funds
 
were
 
disbursed
 
during
 
2021
 
and
 
2022,
 
up 22%
 
from
 
the
 
preceding
 
2-year
period. On the fiscal front, revenues have trended positively
 
and the USVI Government successfully completed the
 
restructuring of the
government employee
 
retirement system. Although
 
no official
 
GDP data has
 
been released
 
for 2021
 
and/or 2022, the
 
aforementioned
developments,
 
as
 
well
 
as
 
the
 
positive
 
trend
 
reflected
 
by
 
key
 
economic
 
indicators
 
such
 
as
 
visitor
 
arrivals,
 
non-farm
 
payrolls
 
and
unemployment rate potentially indicate that the territory has experienced
 
an overall economic recovery since 2020.
 
 
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,
 
2022, the
 
Corporation had
 
$38.0 million
 
in loans
 
to USVI
 
government and
 
public corporations,
 
compared to
$39.2 million as of December 31,
 
2021. As of December 31, 2022,
 
all loans were currently performing
 
and up to date on principal
 
and
interest payments.
 
A
 
deterioration
 
in
 
economic
 
conditions
 
in
 
USVI
 
and
 
the
 
BVI
 
region
 
could
 
adversely
 
affect
 
our
 
business,
 
financial
 
condition,
liquidity, results of operations
 
and capital position.
We are subject to 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,
 
regulatory
 
authorities,
 
shareholders,
 
customers
 
and
 
other
 
stakeholders
 
are
 
considering
 
how
 
corporations
 
are
 
addressing
ESG
 
issues.
 
Regulations
 
already
 
adopted
 
or
 
being
 
considered
 
may
 
expand
 
mandatory
 
and
 
voluntary
 
reporting,
 
diligence
 
and
disclosure on specific ESG topics, such as greenhouse gas
 
emissions and other climate matters. These requirements
 
would likely result
in
 
increased ESG related
 
compliance
 
costs,
 
which
 
could
 
result
 
in
 
increases
 
to
 
our
 
overall
 
operational
 
costs.
 
Failure
 
to
 
adapt
 
to
 
or
26
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.
 
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
 
ongoing
 
conflict
 
between
 
Russia
 
and
 
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.
 
Certain areas
 
in which
 
our business
 
is concentrated,
 
including
 
Puerto
 
Rico and
 
the USVI,
 
are particularly
 
susceptible
 
to
earthquakes, hurricanes,
 
and major
 
storms. 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
other
 
decisions,
 
including
 
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.
Deterioration in collateral values may result in additional losses.
 
Our business is affected by the value of the assets securing our loans or underlying
 
our investments.
 
We
 
had a
 
commercial and
 
construction loan
 
portfolio held
 
for investment
 
in the
 
amount of
 
$5.4 billion
 
as of
 
December 31,
 
2022.
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.
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, 2022,
 
approximately
 
20%
and 25% 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.
 
As
 
of
 
December
 
31,
 
2022,
 
our
 
commercial
 
mortgage
 
and
 
construction
 
real
 
estate
 
loans
 
held
 
for
investment in
 
the Puerto
 
Rico and
 
Virgin
 
Islands regions
 
and Florida
 
region amounted
 
to $1.9
 
billion and
 
$0.6 billion,
 
respectively,
which constituted 22% 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.
 
 
27
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, the
 
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,
 
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.
RISKS RELATING TO
 
THE CORPORATION’S
 
BUSINESS
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,
 
2022, we had $105.8
 
million in brokered
CDs outstanding,
 
representing approximately
 
1% of our
 
total deposits. Approximately
 
$55.7 million, or
 
53% in brokered
 
CDs mature
over the twelve months
 
ending December 31, 2023, and
 
the average remaining term to
 
maturity of the brokered CDs outstanding
 
as of
December 31, 2022 was approximately 1.6
 
years. None of these brokered CDs are callable at the Corporation’s
 
option. In addition, the
Corporation had
 
$675 million
 
of FHLB
 
advances outstanding
 
as of
 
December 31,
 
2022, of
 
which $475.0
 
million are
 
short-term and
are scheduled
 
to mature
 
within the
 
next three
 
months and
 
$200 million
 
are long-term
 
and are
 
scheduled to
 
mature over
 
three to
 
five
years.
 
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.
 
The
recent rising interest
 
rate environment has
 
and may continue
 
to increase the
 
borrowing costs associated
 
with any additional
 
financing.
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.
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.
 
28
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
 
operations and financial condition.
 
Our level of non-performing assets may adversely affect our future results of
 
operations.
 
Non-performing
 
assets decreased
 
by $28.9
 
million to
 
$129.2 million
 
as of
 
December 31,
 
2022, or
 
18%, from
 
$158.1 million
 
as of
December 31,
 
2021. As of
 
December 31, 2022,
 
we continued to
 
have a relevant
 
amount of nonaccrual
 
loans, even though
 
nonaccrual
loans decreased
 
by $20.8
 
million to
 
$89.9 million
 
as of
 
December 31,
 
2022, or
 
19%, from
 
$110.7
 
million as
 
of December
 
31, 2021.
Our
 
nonaccrual
 
loans represent
 
approximately
 
1% of
 
our $11.6
 
billion
 
loan
 
portfolio
 
as of
 
December 31,
 
2022.
 
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.
Our allowance for credit losses (“ACL”) may not be adequate to cover actual losses, and
 
we may be required to materially
increase our ACL, 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
 
credit 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
 
increases
 
in
 
nonaccrual
 
loans
 
beyond
what
 
was
 
forecasted,
 
foreclosure
 
actions
 
and
 
loan
 
modifications,
 
changes
 
in
 
current
 
and
 
expected
 
economic
 
and
 
other
 
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
 
ACL reflects
 
management’s
 
estimates based
 
upon various
 
assumptions and
 
judgments as
 
to specific
 
credit risks;
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 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.
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,
 
the
 
following:
 
(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.
29
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
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 failure to attract and retain a qualified workforce could harm our overall business
 
and results of operations.
 
The Corporation’s
 
success depends,
 
in large
 
part, on its
 
ability to attract
 
and retain
 
skilled, experienced personnel.
 
Competition for
qualified
 
candidates
 
in
 
the
 
activities
 
and
 
markets
 
that
 
the
 
Corporation
 
and
 
FirstBank
 
serves
 
is
 
intense,
 
and
 
while
 
the
 
Corporation
invests significantly
 
in the training
 
and development of
 
its employees,
 
it may not
 
be able to
 
hire people or
 
to retain them.
 
In addition,
high inflation
 
has impacted
 
both cost
 
structure and
 
employee demand
 
for wage
 
growth, which
 
may lead
 
to sustained
 
higher turnover
rates.
 
If
 
the
 
Corporation
 
is
 
unable
 
to
 
retain
 
its
 
most
 
qualified
 
employees,
 
its
 
performance
 
and
 
competitive
 
positioning
 
could
 
be
materially adversely affected.
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 judgments 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, including
FirstBank as our banking
 
subsidiary, 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
30
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
 
events
 
or
 
changes
 
in
circumstances
 
indicate
 
that
 
the
 
fair
 
value
 
may
 
not
 
exceed
 
their
 
carrying
 
amount.
 
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 its
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 exceeds
 
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
 
pace of
 
economic recovery
 
from the
 
ongoing impacts
 
of the
 
COVID-19 pandemic.
 
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
 
2022,
 
management
 
performed
 
a
qualitative
 
analysis
 
of
 
the
 
carrying
 
amount
 
of
 
goodwill,
 
and
 
concluded
 
that
 
it
 
is
 
more-likely-than-not
 
that
 
the
 
fair
 
value
 
of
 
the
reporting units exceeded their carrying value. Therefore, no quantitative
 
analysis was required.
 
As of
 
December 31,
 
2022, 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 FirstBank’s
 
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,
 
2022,
 
the
 
Corporation
 
had
 
a
 
deferred
 
tax
 
asset
 
of
 
$155.6
 
million
 
(net
 
of
 
a
 
valuation
 
allowance
 
of
 
$185.5
million, including
 
a valuation
 
allowance of
 
$149.5 million
 
against the
 
deferred tax
 
assets of
 
FirstBank). Under
 
the 2011
 
PR Code,
 
as
amended, the
 
Corporation and
 
its subsidiaries,
 
including FirstBank,
 
are treated
 
as separate
 
taxable entities
 
and are
 
not entitled
 
to file
consolidated tax
 
returns. 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.
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
 
31
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 effective
 
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 NOL carryforwards may be limited.
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,
 
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
 
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 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.
32
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.
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 entirely 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 and digital
 
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.
 
33
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
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
 
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,
 
or impossible, to achieve, and we could be subject to fines and penalties in the event
 
of non-compliance.
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 OCIF.
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
34
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 further
 
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 has and may continue to change
 
in the future.
Our
 
compensation
 
practices
 
are subject
 
to
 
oversight
 
by
 
the Federal
 
Reserve
 
Board
 
and
 
the FDIC.
 
As discussed
 
in
 
Item
 
1
 
of
 
this
Annual Report
 
on Form 10-K,
 
the Corporation
 
currently is subject
 
to the interagency
 
guidance governing
 
the incentive compensation
activities of regulated
 
banks and bank
 
holding companies,
 
and other financial
 
regulators have also
 
implemented regulations
 
regarding
compensation
 
practices.
 
Our
 
failure
 
to
 
satisfy
 
these
 
restrictions
 
and
 
guidelines
 
could
 
expose
 
us
 
to
 
adverse
 
regulatory
 
criticism,
lowered supervisory ratings, and restrictions on our operations and acquisition activities.
 
The scope and
 
content of the U.S.
 
financial 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,
 
2022, 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,
 
which during 2022
 
included, but were not
 
limited to, multiple
increases in
 
the federal
 
funds rate
 
to reduce
 
inflation, have
 
had a
 
significant effect
 
on the
 
operating results
 
of commercial
 
banks 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 have been and may continue to 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.
35
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 Administration.
 
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.
36
Item 1B. Unresolved Staff Comments
 
 
None.
 
Item 2. Properties
 
As of December 31, 2022, First BanCorp. has ownership in the following
 
three main buildings located in Puerto Rico:
-
Headquarters –
 
Located at
 
First Federal
 
Building, 1519
 
Ponce de
 
León Avenue,
 
San Juan,
 
Puerto Rico.
 
Approximately 51%
of this 16-story office building is owned by the Corporation.
-
Service Center – Located at
 
1130 Muñoz Rivera
 
Avenue,
 
Hato Rey, Puerto
 
Rico. This facility,
 
which is fully occupied by the
Corporation,
 
houses
 
over
 
1,000
 
employees
 
from
 
operations
 
and
 
accommodates
 
branch
 
operations,
 
mortgage
 
operations,
Collections and Loss Mitigation, data processing and administrative and certain
 
other offices.
-
Consumer Lending
 
Center –
 
Located at
 
876 Muñoz
 
Rivera Avenue,
 
Hato Rey,
 
Puerto Rico.
 
This three-story
 
facility is
 
fully
occupied
 
by
 
the
 
Corporation
 
and
 
accommodates
 
a
 
retail
 
branch,
 
Money
 
Express,
 
Auto
 
Financing
 
and
 
Leasing
 
and
 
a
FirstBank Insurance Agency office, among others.
The
 
Corporation
 
owns
 
16 retail
 
branches
 
and 6
 
office
 
centers,
 
other
 
facilities,
 
and/or
 
parking
 
lots. It
 
leases 89
 
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 of
 
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
 
29,
 
“Regulatory
 
Matters,
 
Commitments
 
and
 
Contingencies,”
 
to
 
the
 
audited
 
consolidated
 
financial
statements included in Item 8 of this Annual Report on Form 10-K, which is incorporated
 
herein by reference.
Item 4. Mine Safety Disclosure.
 
Not applicable.
 
37
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
 
21,
2023, there
 
were 320 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,
 
2022 and
 
December 31,
 
2021, the
 
Corporation had
 
40,954,057
 
and 21,836,611
 
shares held
 
as treasury
 
stock,
respectively.
 
Refer to
 
“Stock Repurchases”
 
section for
 
more information
 
on common
 
stock repurchases
 
during the
 
fourth quarter
 
of
2022
 
held as treasury stock.
DIVIDENDS
Since November
 
2018, the
 
Corporation has
 
made quarterly
 
cash dividend
 
payments on
 
its shares
 
of common
 
stock. On
 
April 27,
2022, the Corporation announced that
 
it had increased the quarterly cash
 
dividend payment on common stock,
 
from $0.10 to $0.12 per
share,
 
commencing
 
in
 
the
 
second
 
quarter
 
of
 
2022.
 
In
 
addition,
 
on
 
February
 
9,
 
2023
 
the
 
Corporation
 
announced
 
that
 
its
 
Board
 
of
Directors
 
had
 
declared
 
a
 
quarterly
 
cash
 
dividend
 
of
 
$0.14
 
per
 
common
 
share,
 
which
 
represents
 
an
 
increase
 
of
 
17%
 
or
 
$0.02
 
per
common
 
share
 
compared
 
to
 
its
 
most
 
recent
 
dividend
 
paid
 
in
 
December
 
2022.
 
The
 
dividend
 
is
 
payable
 
on
 
March
 
10,
 
2023
 
to
shareholders of
 
record at
 
the close
 
of business
 
on February
 
24, 2023.
 
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.
 
Information
 
regarding
 
restrictions
 
on
dividends, is set forth in Item 1, “Business -Supervision and Regulation
 
 
Dividend Restrictions” and incorporated herein by reference.
 
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 under section 1062.08
 
of the 2011 PR Code.
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38
STOCK REPURCHASES
Since
 
April
 
2021,
 
the
 
Corporation’s
 
Board
 
of
 
Directors
 
has
 
announced
 
two
 
repurchase
 
program
 
authorizations
 
for
 
repurchases
totaling
 
up
 
to
 
$650
 
million
 
of
 
the
 
Corporation’s
 
outstanding
 
stock.
 
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 2022,
 
the Corporation
 
repurchased 3,409,697
 
shares of
 
its common
 
stock for
 
the
$50 million
 
remaining under
 
an authorization
 
to repurchase
 
covering up
 
to $300
 
million in
 
shares of
 
outstanding
 
stock approved
 
by
the Board of
 
Directors and publicly
 
announced by
 
the Corporation
 
on April 26,
 
2021, and 16,003,674
 
shares of its
 
common stock
 
for
$225.0 million under
 
the most recent authorized
 
$350 million stock repurchase
 
program publicly announced
 
on April 27, 2022.
 
As of
December
 
31,
 
2022,
 
the
 
Corporation
 
has
 
remaining
 
authorization
 
to
 
repurchase
 
approximately
 
$125
 
million
 
of
 
common
 
stock.
 
The
amount
 
and
 
timing
 
of
 
stock
 
repurchases
 
will
 
be
 
based
 
on
 
various
 
factors,
 
including
 
our
 
capital
 
requirements,
 
market
 
conditions
(including the trading price of our stock), and regulatory and legal considerations.
The following table provides information relating to the
 
Corporation’s purchases of
 
shares of its common stock in the fourth quarter
of 2022.
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, 2022 to October 31, 2022
 
1,649,963
$
15.18
1,646,805
150,000
November 1, 2022 to November 30, 2022
-
-
-
150,000
December 1, 2022 to December 31, 2022
1,902,468
13.14
1,902,468
125,000
Total
3,552,431
(2)(3)
3,549,273
(1)
As
 
of
 
December 31,
 
2022,
 
the
 
Corporation
 
was
 
authorized to
 
purchase up
 
to
 
$350
 
million of
 
the
 
Corporation’s
 
common
 
stock under
 
the
 
program,
 
that
 
was
publicly
 
announced on
 
April
 
27,
 
2022,
 
of
 
which $225
 
million had
 
been
 
utilized.
 
The
 
remaining $125
 
million
 
in
 
the
 
table
 
represents the
 
remaining
 
amount
authorized under
 
the
 
stock repurchase
 
program as
 
of
 
December 31,
 
2022.
 
The program
 
does not
 
obligate the
 
Corporation to
 
acquire any
 
specific number
 
of
shares, does not
 
have an expiration
 
date and may
 
be modified, suspended, or
 
terminated at any
 
time at the
 
Corporation's discretion.
 
Under the stock
 
repurchase
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 3,549,273 shares of common stock repurchased in
 
the open market at an average price of $14.09 for a
 
total purchase price of approximately $50 million.
(3)
Includes 3,158 shares of common stock acquired by
 
the Corporation to cover minimum tax withholding obligations upon the
 
vesting of equity-based awards. 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.
fbp1231202210kp39i0
39
STOCK PERFORMANCE GRAPH
The
 
following
 
graph
 
shall
 
not
 
be
 
deemed
 
incorporated
 
by
 
reference
 
into
 
any
 
filing
 
under
 
the
 
Securities
 
Act
 
or
 
the
 
Exchange
 
Act,
except
 
to
 
the
 
extent
 
that First
 
BanCorp.
 
specifically
 
incorporates
 
this information
 
by
 
reference,
 
and
 
shall not
 
otherwise
 
be
 
deemed
filed with the SEC.
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, 2017
 
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,
 
2017 plus (ii)
 
the change in
 
the per share
 
price since the
 
measurement date,
by the share price at the measurement date.
40
Item 6.
 
[Reserved]
41
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
 
of
America
 
(“GAAP”).
 
See
 
“Special
 
Items”
 
and
 
“Basis
 
of
 
Presentation”
 
below
 
for
 
information
 
about
 
why
 
non-GAAP
 
financial
measures are presented
 
and the reconciliation
 
of 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
 
2022 results compared to 2021.
 
For a discussion of 2021 results compared
to
 
2020,
 
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,
 
2021,
 
filed
 
with
 
the
 
Securities
 
and
 
Exchange
Commission (“SEC”) on March 1, 2022.
In
 
this
 
discussion
 
and
 
analysis
 
of
 
our
 
financial
 
condition
 
and
 
results
 
of
 
operations,
 
we
 
have
 
included
 
information
 
that
 
may
constitute
 
“forward-looking
 
statements”
 
within
 
the
 
meaning
 
of
 
the
 
safe
 
harbor
 
provisions
 
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”).
Forward-looking statements are not historical
 
facts or statements of current conditions,
 
but instead represent only our beliefs regar
 
ding
future events, many of
 
which, by their nature, are inherently
 
uncertain and outside our control.
 
By identifying these statements
 
for you
in this manner,
 
we are alerting you to
 
the possibility that our actual
 
results, financial condition, liquidity
 
and capital actions may
 
differ
materially from the anticipated results,
 
financial condition, liquidity and capital
 
actions in these forward-looking statements.
 
Important
factors that
 
could cause
 
our results,
 
financial condition,
 
liquidity and
 
capital actions
 
to differ
 
from those
 
in these
 
statements include,
among others, those described in “Risk Factors” in Part I, Item 1A of this Form 10-K.
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
 
(“FirstBank”
 
or the
 
“Bank”)
 
and
 
FirstBank
 
Insurance
 
Agency.
 
Through
 
its wholly
 
-owned
 
subsidiaries,
 
the Corporation
operates
 
in
 
Puerto
 
Rico,
 
the
 
United
 
States
 
Virgin
 
Islands
 
(“USVI”),
 
the
 
British
 
Virgin
 
Islands
 
(“BVI”),
 
and
 
the
 
state
 
of
 
Florida,
concentrating on
 
commercial banking,
 
residential mortgage loans,
 
credit cards, personal
 
loans, small loans,
 
auto loans and
 
leases, and
insurance agency activities.
SIGNIFICANT EVENTS
Economy
The Corporation
 
remains cautiously optimistic
 
on economic conditions
 
in Puerto Rico,
 
its principal market.
 
Total
 
non-farm payroll
employment
 
rose
 
to
 
a
 
decade
 
high
 
of
 
927,100
 
in
 
December
 
2022,
 
or
 
a
 
4%
 
year-over-year
 
increase.
 
Moreover,
 
the
 
most
 
recent
Economic Development
 
Bank for
 
Puerto Rico’s
 
Economic Activity
 
Index (“EDB-EAI”),
 
which is
 
highly correlated
 
to Puerto
 
Rico’s
real gross
 
national product
 
(“GNP”) in
 
both level
 
and annual
 
growth rates,
 
showed a
 
2.6% growth
 
for the
 
first nine
 
months of
 
2022.
Although
 
global
 
expectations
 
point
 
to
 
an
 
economic
 
slowdown
 
in
 
the
 
United
 
States,
 
the
 
Corporation
 
expects
 
growth
 
in
 
the
 
local
economy
 
to
 
be
 
sustained
 
by
 
the
 
large
 
amount
 
of
 
federal
 
disaster
 
relief
 
funds
 
that
 
are
 
pending
 
to
 
be
 
disbursed.
 
Over
 
$45
 
billion
remaining
 
obligated
 
disaster
 
recovery
 
funding
 
has
 
been
 
earmarked
 
to
 
support
 
broad
 
based
 
economic
 
development
 
and
 
rebuilding
initiatives.
 
Growth
 
in
 
economic
 
activity,
 
the
 
robustness
 
of
 
the
 
labor
 
market,
 
supply
 
chain
 
complications
 
and
 
geopolitical
 
matters,
 
have
contributed to rising
 
inflation. In response,
 
the Federal Reserve (the
 
“FED”) has raised interest
 
rates and has
 
been reducing the
 
size of
its balance
 
sheet. Furthermore,
 
the FED
 
signaled that
 
it would
 
continue to
 
implement these
 
policy actions
 
in order
 
to bring
 
inflation
down. The
 
timing and
 
impact of
 
inflation and
 
rising interest
 
rates on
 
our business
 
and related
 
financial results
 
will depend
 
on future
developments, which are highly uncertain and difficult
 
to predict.
 
We
 
delivered positive
 
results in
 
2022, driven
 
by continued
 
execution of
 
strategic initiatives
 
including loan
 
and lease
 
growth,
 
and
expanded
 
fee
 
income
 
while
 
maintaining
 
disciplined
 
expense
 
management.
 
Credit
 
continues
 
to
 
perform
 
well,
 
reflecting
 
lower
nonaccrual and adversely
 
classified loan balances,
 
as well as charge
 
-off rates that
 
are still lower
 
than pre-pandemic
 
levels. We
 
remain
vigilant to
 
changing global
 
economic conditions
 
and the
 
effect that
 
restrictive monetary
 
policies may
 
continue to
 
have on
 
the overall
inflationary
 
environment.
 
We
 
believe
 
that
 
the Corporation
 
is well
 
equipped
 
to manage
 
rising market
 
challenges
 
going into
 
the
 
next
cycle.
 
We
 
are
 
highly
 
encouraged
 
by
 
the
 
growth
 
prospects
 
in
 
our
 
main
 
market,
 
which
 
should
 
continue
 
to
 
benefit
 
from
 
rebuilding
activity over the next few years.
42
See
 
“Update
 
on
 
the
 
Puerto
 
Rico
 
Fiscal
 
Situation”
 
below
 
for
 
additional
 
information
 
on
 
the
 
economic
 
and
 
fiscal
 
crisis
 
that
 
Puerto
Rico has experienced for more than a decade.
Return of Capital to Shareholders
In 2022, the
 
Corporation returned
 
approximately $363
 
million, or 119%
 
of 2022 earnings,
 
to its shareholders
 
through $275
 
million
in repurchases of common stock and the payment of $88 million in common
 
stock dividends.
 
For the year ended December
 
31, 2022, the Corporation repurchased
 
approximately 19.4 million shares of
 
common stock for a total
purchase
 
price
 
of
 
$275.0
 
million
 
under
 
previously
 
publicly-announced
 
stock
 
repurchase
 
programs.
 
Of
 
this
 
total,
 
$225.0
 
million
 
of
common
 
stock,
 
representing
 
16.0
 
million
 
common
 
shares
 
at
 
a
 
weighted-average
 
price
 
of
 
$14.06,
 
were
 
repurchased
 
under
 
the
 
$350
million
 
stock
 
repurchase
 
program
 
announced
 
on
 
April
 
27,
 
2022
 
(the
 
“2022
 
Repurchase
 
Plan”).
 
As
 
of
 
February
 
21,
 
2023,
 
the
Corporation
 
has
 
repurchased
 
approximately
 
18.1
 
million
 
shares
 
of
 
common
 
stock
 
totaling
 
$254.9
 
million
 
through
 
open
 
market
purchases
 
under
 
the
 
2022
 
Repurchase
 
Plan.
 
With
 
the
 
additional
 
purchases,
 
the
 
Corporation
 
has
 
$95.1
 
million
 
remaining
 
for
 
share
repurchases under the 2022 Repurchase Plan.
On February
 
9, 2023,
 
the Corporation’s
 
Board of
 
Directors declared
 
a quarterly
 
cash dividend
 
of $0.14
 
per common
 
share, which
represents an
 
increase of
 
$0.02 per
 
common share,
 
or a
 
17% increase,
 
compared to
 
its most
 
recent dividend
 
paid in
 
December 2022.
The dividend
 
is payable
 
on March
 
10,
 
2023 to
 
shareholders of
 
record
 
at the
 
close of
 
business on
 
February
 
24, 2023.
 
The increased
quarterly dividend level equates to an annualized dividend of $0.56 per common
 
share.
LIBOR Transition
On January 1, 2022,
 
the publication of certain
 
U.S. Dollar (“USD”) LIBOR
 
settings ceased. The
 
publication of the most
 
commonly
used
 
overnight,
 
one-month,
 
three-month,
 
six-month
 
and
 
twelve-month
 
USD
 
LIBOR
 
will
 
cease
 
immediately
 
after
 
June
 
30,
 
2023,
except that
 
per the
 
UK Financial
 
Conduct Authority
 
(the “FCA”)
 
proposal, the
 
one-, three-,
 
and six-month
 
tenors will
 
continue to
 
be
published on a “non-representative,” synthetic basis until September
 
30, 2024.
 
The Adjustable
 
Interest Rate
 
Act (the
 
“LIBOR Act”),
 
that was
 
enacted in
 
March 2022,
 
provides
 
a statutory
 
framework to
 
replace
USD LIBOR
 
for
 
contracts
 
governed
 
by
 
U.S.
 
law
 
that
 
do
 
not have
 
clear
 
and
 
practicable
 
provisions
 
for
 
replacing
 
USD LIBOR
 
after
June
 
30,
 
2023
 
(“tough
 
legacy
 
contracts”).
 
On
 
December
 
16,
 
2022,
 
the
 
FED
 
adopted
 
final
 
rule
 
12
 
C.F.R.
 
Part
 
253,
 
“Regulation
Implementing
 
the LIBOR
 
Act (Regulation
 
ZZ)” (the
 
“Final Rule”).
 
The Final
 
Rule identifies
 
replacement benchmark
 
rates based
 
on
the
 
Secured
 
Overnight
 
Financing
 
Rate (“SOFR”)
 
to
 
replace
 
the
 
aforementioned
 
USD LIBOR
 
settings
 
that
 
will
 
cease
 
after
 
June
 
30,
2023
 
in
 
contracts
 
subject
 
to
 
the
 
LIBOR
 
Act.
 
Under
 
the
 
final
 
rule,
 
tough
 
legacy
 
contracts
 
will
 
be
 
converted
 
by
 
operation
 
of
 
law
 
to
various forms of SOFR, along with a spread
 
adjustment, upon a LIBOR replacement date (i.e.,
 
the first London banking day after June
30, 2023).
 
The spread
 
adjustment was
 
designed to
 
compensate for
 
USD LIBOR
 
being higher
 
than SOFR in
 
two regards.
 
First, USD
LIBOR
 
is
 
an
 
unsecured
 
rate
 
while
 
SOFR
 
is
 
a
 
secured
 
rate.
 
Second,
 
USD
 
LIBOR
 
includes
 
term
 
premia.
 
In
 
addition,
 
the
 
final
 
rule
codifies
 
safe harbor
 
protections
 
for
 
selection or
 
use of
 
SOFR as
 
a replacement
 
benchmark
 
and
 
clarifies who
 
would be
 
considered
 
a
“determining person”
 
able to
 
elect a
 
replacement benchmark
 
when USD
 
LIBOR ceases
 
to be
 
published as
 
representative on
 
June 30,
2023.
 
As of
 
December 31,
 
2022, the
 
Corporation’s
 
risk exposure
 
to USD
 
LIBOR consisted
 
of the
 
following: (i)
 
$1.4 billion
 
of variable-
rate
 
commercial
 
and
 
construction
 
loans
 
(including
 
unused
 
commitments),
 
(ii)
 
$44.6
 
million
 
of
 
U.S.
 
agencies
 
debt
 
securities
 
and
private label mortgage-backed securities
 
(“MBS”) held as part
 
of the available-for-sale
 
debt securities portfolio, (iii)
 
$124.4 million of
Puerto
 
Rico
 
municipalities
 
bonds
 
held
 
as
 
part
 
of
 
the
 
held-to-maturity
 
debt
 
securities
 
portfolio,
 
and
 
(iv)
 
$183.8
 
million
 
of
 
junior
subordinated
 
debentures
 
reported
 
as
 
other
 
borrowings
 
in
 
the
 
accompanying
 
audited
 
consolidated
 
statements
 
of
 
financial
 
condition
included
 
in
 
Item
 
8
 
of
 
this
 
Form
 
10-K.
 
Most
 
of
 
these
 
contracts
 
contain
 
adequate
 
features
 
to
 
convert
 
to
 
an
 
alternative
 
interest
 
rate;
however,
 
as
 
of
 
December
 
31,
 
2022,
 
contracts
 
totaling
 
approximately
 
$338.6
 
million
 
do
 
not
 
contain
 
fallback
 
language
 
mainly
consisting of the aforementioned
 
Puerto Rico municipalities bonds held
 
as part of the held-to-maturity debt
 
securities portfolio and the
junior
 
subordinated
 
debentures.
 
The
 
Corporation
 
expects
 
to
 
follow
 
the
 
provisions
 
of
 
the
 
LIBOR
 
Act
 
and
 
Regulation
 
ZZ
 
for
 
the
transition of any residual exposure after June 30, 2023.
 
The Corporation
 
continues to
 
execute its
 
LIBOR transition
 
workplan. Effective
 
December 31,
 
2021, the
 
Corporation discontinued
originations
 
that
 
use
 
USD
 
LIBOR
 
as
 
a
 
reference
 
rate.
 
In
 
addition,
 
the
 
Corporation
 
continues
 
working
 
with
 
the
 
update
 
of
 
systems,
processes, documentation, and models, with additional updates expected
 
through 2023.
Legislative and Regulatory
A comprehensive discussion
 
of legislative and
 
regulatory matters affecting
 
us can be
 
found in Item
 
1: Business –
 
“Supervision and
Regulation” section of this Form 10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
43
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
 
the
following:
 
(i)
 
the
 
interest
 
rate
 
environment;
 
(ii)
 
the
 
volumes,
 
mix,
 
and
 
composition
 
of
 
interest-earning
 
assets,
 
and
 
interest-bearing
liabilities; and
 
(iii) the
 
repricing 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, cards
 
and processing income,
 
and insurance income),
 
gains (losses)
on sales of investments, gains (losses) on mortgage banking activities, and
 
income taxes.
The
 
Corporation
 
had
 
net
 
income
 
of
 
$305.1
 
million,
 
or
 
$1.59
 
per
 
diluted
 
common
 
share,
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2022,
compared
 
to
 
$281.0
 
million,
 
or
 
$1.31
 
per
 
diluted
 
common
 
share,
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021.
 
Other
 
relevant
 
selected
financial indicators for the periods presented is included below:
Year
 
Ended December 31,
2022
2021
2020
Key Performance Indicator:
(1)
Return on Average
 
Assets
(2)
1.57
%
1.38
%
0.67
%
Return on Average
 
Total Equity
(3)
18.66
12.56
4.59
Efficiency Ratio
(4)
48.25
57.45
59.62
(1)
These financial ratios are used by Management to monitor the Corporation’s
 
financial performance and whether it is using its assets
 
efficiently.
(2)
Indicates how profitable the Corporation is in relation to its total assets
 
and is calculated by dividing net income by its average total
 
assets.
(3)
Measures the Corporation’s performance
 
based on its average stockholders’ equity and is calculated
 
by dividing net income by its average total stockholders’ equity.
(4)
Measures how much the Corporation incurred to generate a
 
dollar of revenue and is calculated by dividing non-interest expenses
 
by total revenue.
44
The key
 
drivers of
 
the Corporation’s
 
GAAP financial
 
results for
 
the year
 
ended December
 
31, 2022,
 
compared to
 
the year
 
ended
December 31, 2021, include the following:
Net interest income for
 
the year ended December
 
31, 2022 was $795.3
 
million, compared to $729.9
 
million for the year ended
December 31,
 
2021. The
 
increase in
 
interest income
 
primarily reflects
 
a 39
 
basis points
 
increase in
 
the net
 
interest margin
 
to
4.12%. The
 
increase in
 
the net interest
 
margin was
 
mainly driven
 
by a
 
higher interest
 
rate environment
 
driving an
 
increase in
yields on
 
variable-rate commercial
 
loans,
 
interest-bearing cash
 
balances maintained
 
at the
 
FED, and
 
MBS, partially
 
offset by
higher cost of funds.
 
See “Net Interest Income” below for additional information.
The
 
provision
 
for
 
credit
 
losses
 
on
 
loans,
 
finance
 
leases,
 
unfunded
 
loan
 
commitments
 
and
 
debt
 
securities
 
for
 
the
 
year
 
ended
December 31, 2022
 
was an expense
 
of $27.7 million,
 
compared to a
 
net benefit of
 
$65.7 million for
 
2021. The increase
 
in the
overall
 
provision
 
reflects
 
the
 
growth
 
in
 
the
 
loan
 
portfolio,
 
primarily
 
consumer
 
loans,
 
and
 
the
 
uncertainty
 
in
 
the
 
near-term
macroeconomic
 
outlook.
 
The benefit
 
reported
 
in 2021
 
reflected improvement
 
related
 
to reduced
 
uncertainties relating
 
to the
economic impacts of the COVID-19 pandemic, primarily reflected in
 
the commercial and residential mortgage loan portfolios.
Net
 
charge-offs
 
totaled
 
$34.2
 
million
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2022,
 
or
 
0.31%
 
of
 
average
 
loans,
 
compared
 
to
 
net
charge-offs
 
of $55.1
 
million, or
 
0.48% of
 
average loans,
 
for the
 
year ended
 
December 31,
 
2021. 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
 
on a
 
non-GAAP basis
 
were $32.0
 
million,
 
or 0.28%
 
of average
 
loans.
 
The increase
 
in adjusted
 
net charge
 
-offs
 
was
primarily
 
reflected in
 
consumer
 
loans, as
 
well as
 
lower commercial
 
loans loss
 
recoveries. 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
 
$123.1 million
 
for the
 
year ended
 
December 31,
 
2022, compared
 
to $121.2
million for
 
2021. The
 
$1.9 million
 
increase was
 
primarily driven
 
by higher
 
transactional fee
 
income from
 
card and
 
merchant
transactions,
 
a
 
higher
 
realization
 
of
 
purchased
 
income
 
tax
 
credits,
 
and
 
an
 
increase
 
in
 
service
 
charges
 
and
 
fees
 
on
 
deposit
accounts,
 
partially offset
 
by a
 
decrease in
 
revenues from
 
mortgage banking
 
activities, primarily
 
related to
 
a lower
 
volume of
sales. See “Non-Interest Income” below for additional information.
 
 
Non-interest expenses
 
for the year
 
ended December 31,
 
2022 were
 
$443.1 million, compared
 
to $489.0 million
 
in 2021. Non-
interest
 
expenses
 
for
 
2021
 
included
 
$26.4
 
million
 
of
 
merger
 
and
 
restructuring
 
costs
 
associated
 
with
 
the
 
acquisition
 
and
integration
 
of Banco
 
Santander
 
Puerto
 
Rico (“BSPR”)
 
and
 
$3.0
 
million of
 
COVID-19 pandemic
 
-related
 
expenses, primarily
related
 
to
 
additional
 
cleaning,
 
safety
 
materials,
 
and
 
security
 
measures.
 
Adjusted
 
for
 
the
 
above-mentioned
 
merger
 
and
restructuring
 
costs and
 
COVID-19
 
expenses,
 
on
 
a
 
non-GAAP basis,
 
total
 
non-interest
 
expenses
 
in
 
2022
 
decreased
 
by $16.5
million,
 
when
 
compared
 
to
 
adjusted
 
total
 
non-interest
 
expenses
 
in
 
2021,
 
mainly
 
driven
 
by
 
a
 
decrease
 
in
 
outsourcing
technology service fees, higher
 
gains on other real
 
estate owned (“OREO”) activities,
 
as well as reductions
 
in the amortization
of intangible
 
assets and
 
charges to
 
legal and
 
operational reserves.
 
The efficiency
 
ratio for
 
the year
 
ended December
 
31, 2022
was
 
48.25%,
 
as
 
compared
 
to
 
57.45%
 
for
 
2021.
 
See
 
“Non-Interest
 
Expenses”
 
and
 
“Special
 
Items”
 
below
 
for
 
additional
information.
 
For
 
the
 
year
 
ended
 
December
 
31,
 
2022,
 
the
 
Corporation
 
recorded
 
an
 
income
 
tax
 
expense
 
of
 
$142.5
 
million,
 
compared
 
to
$146.8 million
 
for 2021.
 
The variance
 
was primarily
 
related to
 
a lower
 
effective tax
 
rate as
 
a result
 
of a
 
higher proportion
 
of
exempt to
 
taxable income
 
when compared
 
to 2021,
 
partially offset
 
by higher
 
pre-tax income.
 
As of
 
December 31,
 
2022, the
Corporation’s
 
net deferred
 
tax asset
 
amounted to
 
$155.6 million
 
(net of
 
a valuation
 
allowance of
 
$185.5 million,
 
including a
valuation
 
allowance
 
of
 
$149.5
 
million
 
of
 
the
 
Corporation’s
 
banking
 
subsidiary,
 
FirstBank),
 
compared
 
to
 
a
 
net
 
deferred
 
tax
asset
 
of
 
$208.4
 
million
 
as
 
of
 
December
 
31,
 
2021.
 
See
 
“Income
 
Taxes”
 
below
 
and
 
Note
 
22
 
 
Income
 
Taxes,
 
to
 
the
 
audited
consolidated financial statements included in Item 8 of this Form 10-K
 
for additional information.
 
As
 
of
 
December
 
31,
 
2022,
 
total
 
assets
 
were
 
approximately
 
$18.6
 
billion,
 
down
 
$2.2
 
billion
 
from
 
December
 
31,
 
2021.
 
The
decrease includes
 
a $2.1 billion
 
decline in cash
 
and cash equivalents
 
mainly in
 
connection with customer
 
deposit withdrawals
and maturities,
 
as well
 
as capital
 
return to
 
stockholders. In
 
addition, there
 
was a $571.4
 
million decrease
 
in total
 
investments,
driven
 
by
 
net
 
unrealized
 
losses
 
of
 
available-for-sale
 
debt
 
securities
 
of
 
$718.6
 
million
 
recorded
 
during
 
the
 
year
 
attributed
 
to
changes
 
in
 
market
 
interest
 
rates.
 
These
 
variances
 
were
 
partially
 
offset
 
by
 
growth
 
of
 
$469.3
 
million
 
in
 
total
 
loans.
 
See
“Financial Condition and Operating Data Analysis” below for additional information.
 
As of
 
December
 
31,
 
2022,
 
total liabilities
 
were
 
$17.3
 
billion,
 
down
 
$1.4
 
billion
 
from
 
December
 
31,
 
2021.
 
The decline
 
was
mainly
 
driven
 
by
 
a
 
$1.6
 
billion
 
decrease
 
in
 
total
 
deposits,
 
partially
 
offset
 
by
 
a
 
$250.1
 
million
 
net
 
increase
 
in
 
borrowings,
primarily short-term
 
advances from
 
the FHLB and
 
repurchase agreements.
 
The decline
 
in total deposits
 
reflected the
 
effect of
customers’
 
allocation
 
of
 
cash
 
into
 
higher
 
yielding
 
alternatives
 
and
 
elevated
 
customer
 
spending,
 
as
 
well
 
as
 
the
 
reduction
 
in
transactional account balances of government deposits. See
 
“Risk Management – Liquidity Risk and Capital Adequacy” below
for additional information about the Corporation’s
 
funding sources and strategy.
45
The
 
Bank’s
 
primary
 
sources
 
of
 
funding
 
are
 
consumer
 
and
 
commercial
 
core
 
deposits.
 
As
 
of
 
December
 
31,
 
2022,
 
these
 
core
deposits
 
funded
 
71%
 
of
 
total
 
assets.
 
Other
 
sources
 
of
 
liquidity
 
include
 
non-core
 
deposits,
 
such
 
as
 
brokered
 
CDs
 
and
government
 
deposits as
 
well
 
as repurchase
 
agreements
 
and
 
FHLB
 
advances.
 
The
 
Bank
 
maintains
 
borrowing
 
capacity
 
at
 
the
FHLB
 
and
 
the
 
FED
 
Discount
 
Window.
 
Although
 
currently
 
not
 
in
 
use,
 
as
 
of
 
December
 
31,
 
2022,
 
the
 
Corporation
 
had
approximately
 
$1.3
 
billion
 
available
 
for
 
funding
 
under
 
the
 
FED’s
 
Discount
 
Window
 
and
 
$644.2
 
million
 
available
 
for
additional borrowing capacity on FHLB lines of credit based on collateral
 
pledged at these entities.
As
 
of
 
December
 
31,
 
2022,
 
the
 
Corporation’s
 
stockholders’
 
equity
 
was
 
$1.3
 
billion,
 
a
 
decrease
 
of
 
$776.2
 
million
 
from
December 31, 2021.
 
The decline was driven
 
by a $718.6
 
million decrease in
 
the fair value
 
of available-for-sale
 
debt securities
recorded as
 
part of
 
accumulated other
 
comprehensive loss
 
in the
 
consolidated statements
 
of financial
 
condition, as
 
a result
 
of
changes
 
in
 
market
 
interest
 
rates. The
 
decrease
 
in
 
total stockholders’
 
equity
 
also reflects
 
the
 
purchase
 
of
 
approximately
 
19.4
million
 
shares
 
of
 
common
 
stock
 
for
 
a
 
total
 
purchase
 
price
 
of
 
approximately
 
$275.0
 
million
 
and
 
$88.2
 
million
 
in
 
dividends
declared to common
 
stock shareholders during
 
2022. These variances
 
were partially offset
 
by earnings generated during
 
2022.
The
 
Corporation’s
 
common
 
equity
 
tier
 
1
 
(“CET1”)
 
capital,
 
tier
 
1
 
capital,
 
total
 
capital,
 
and
 
leverage
 
ratios
 
were
 
16.53%,
16.53%, 19.21%,
 
and 10.70%,
 
respectively,
 
as of
 
December 31,
 
2022, compared
 
to CET1
 
capital, tier
 
1 capital,
 
total capital,
and leverage ratios
 
of 17.80%, 17.80%,
 
20.50%, and 10.14%, respectively,
 
as of December 31,
 
2021.
 
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,
 
increased by
 
$42.9 million
 
to $4.9
 
billion for
the
 
year
 
ended
 
December 31,
 
2022,
 
compared
 
to $4.8
 
billion
 
for 2021.
 
The Corporation
 
originated
 
$283.6
 
million
 
of Small
Business
 
Administration
 
Paycheck
 
Protection
 
Program
 
(“SBA
 
PPP”)
 
loans
 
during
 
the
 
year
 
ended
 
December
 
31,
 
2021.
Excluding
 
SBA
 
PPP
 
loan
 
originations,
 
total
 
loan
 
originations
 
increased
 
by
 
$326.5
 
million
 
consisting
 
of
 
a
 
$231.5
 
million
increase
 
in
 
consumer
 
loan
 
originations
 
and
 
a
 
$249.7
 
million
 
increase
 
in
 
commercial
 
and
 
construction
 
loan
 
originations,
partially offset by a $154.7 million decrease in residential mortgage
 
loan originations.
 
Total
 
non-performing assets
 
were $129.2
 
million as
 
of December
 
31, 2022,
 
a decrease
 
of $28.9
 
million, from
 
December 31,
2021.
 
The
 
decrease
 
was
 
driven
 
by:
 
(i)
 
a
 
$12.8
 
million
 
decrease
 
in
 
nonaccrual
 
commercial
 
and
 
construction
 
loans,
 
mainly
related
 
to
 
$8.5
 
million
 
in
 
loans
 
restored
 
to
 
accrual
 
status
 
and
 
collections;
 
(ii)
 
a
 
$12.3
 
million
 
reduction
 
in
 
nonaccrual
residential mortgage loans,
 
mostly driven by collections
 
and foreclosures; and
 
(iii) a $8.1 million
 
decrease in OREO and
 
other
assets, mainly
 
associated with
 
sales of
 
OREO residential
 
properties in
 
the Puerto
 
Rico region.
 
These variances
 
were partially
offset
 
by
 
an
 
increase
 
of
 
$4.3
 
million
 
in
 
nonaccrual
 
consumer
 
loans.
 
See
 
“Risk
 
Management
 
 
Nonaccrual
 
Loans
 
and
 
Non-
Performing Assets” below for additional information.
Adversely classified commercial and
 
construction loans decreased by
 
$83.7 million to $93.6 million
 
as of December 31, 2022,
compared to
 
December 31,
 
2021. The
 
decrease was
 
mostly driven
 
by $31.8
 
million in
 
payoffs and
 
paydowns associated
 
with
six commercial and construction loans,
 
each in excess of $1 million,
 
the sale of a $23.9 million commercial
 
and industrial loan
participation
 
in the
 
Florida region,
 
and the
 
upgrades in
 
the credit
 
risk classification
 
of three
 
commercial
 
and industrial
 
loans
totaling
 
$12.3
 
million.
 
The
 
Corporation
 
monitors
 
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.
 
 
46
SPECIAL ITEMS
The financial
 
results for
 
the year
 
ended December
 
31, 2022
 
did not
 
include any
 
significant special
 
item that
 
management believes
 
is
not reflective
 
of core
 
operating performance,
 
is not
 
expected to
 
reoccur with
 
any regularity
 
or may
 
reoccur at
 
uncertain times
 
and in
uncertain
 
amounts
 
(the
 
“Special
 
Items”).
 
The
 
Corporation’s
 
financial
 
results
 
for
 
the
 
years
 
ended
 
December
 
31,
 
2021
 
and
 
2020
included the following 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 included
 
approximately $6.5
 
million related
 
to a
Voluntary
 
Employee
 
Separation
 
Program
 
(the “VSP”)
 
as well
 
as involuntary
 
separation actions
 
implemented
 
in
 
the Puerto
Rico region. In addition, merger and restructuring
 
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,
 
primarily 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
 
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
 
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
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
47
The
 
following
 
table
 
shows
 
the
 
net
 
income
 
reported
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2022
 
and
 
reconciles
 
for
 
the
 
years
 
ended
December
 
31,
 
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,
2022
2021
2020
(In thousands)
Net income, as reported (GAAP)
$
305,072
$
281,025
$
102,273
Adjustments:
 
 
Merger and restructuring costs
-
26,435
26,509
 
COVID-19 pandemic-related expenses
-
2,958
5,411
Gain on sales of investment securities
-
-
(13,198)
Partial reversal of deferred tax asset valuation allowance
-
-
(8,000)
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)
$
305,072
$
299,395
$
97,085
(1)
See "Special Items" above for the individual tax impact related
 
to the above adjustments, which were based on the Puerto Rico
 
statutory tax rate of 37.5%, as applicable.
Adjusted non-interest
 
expenses –
 
The following
 
tables reconcile
 
for the years
 
ended December
 
31, 2021
 
and 2020
 
the non-interest
expenses to adjusted non-interest expenses, which is a non-GAAP financial
 
measure that excludes the relevant Special Items identified
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 operations
(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 operations
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
48
CRITICAL ACCOUNTING ESTIMATES
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.
 
Accounting
 
estimates
 
require
 
assumptions
 
and
 
judgments
 
about
 
uncertain
 
matters
 
that
could
 
have
 
a
 
material
 
effect
 
on
 
the
 
consolidated
 
financial
 
statements.
 
The
 
Corporation’s
 
critical
 
accounting
 
estimates
 
that
 
are
particularly
 
susceptible
 
to
 
significant
 
changes
 
include
 
the
 
following:
 
(i)
 
the
 
ACL;
 
(ii)
 
valuation
 
of
 
financial
 
instruments;
 
and
 
(iii)
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
 
held-to-maturity
 
or
 
available-for-sale
 
debt
 
securities,
 
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.
 
For
 
purposes
 
of
 
the
 
ACL
 
for
 
lending
 
commitments,
 
such
 
allowance
 
is
 
determined
 
using
 
the
 
same
 
methodology
 
as
 
the
ACL
 
for
 
loans,
 
while
 
also
 
taking
 
into
 
consideration
 
the
 
probability
 
of
 
drawdowns
 
or
 
funding,
 
and
 
whether
 
such
 
commitments
 
are
cancellable by us. 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, database managers and operational engineers with a history
 
of producing monthly economic forecasts for over 25 years.
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. 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.
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 the
 
following: (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
 
applied
 
at
 
December
 
31,
 
2022,
 
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.
49
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 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.
Our process
 
for determining
 
the ACL is
 
further discussed
 
in Note
 
1 –
 
Nature of
 
Business and
 
Summary of
 
Significant Accounting
Policies,
 
included
 
in
 
Item
 
8
 
of
 
this
 
Form
 
10-K.
 
Also,
 
see
 
“Allowance
 
for
 
Credit
 
Losses
 
for
 
Loans
 
and
 
Finance
 
Leases”
 
below
 
for
additional information on
 
the weighting of economic
 
scenarios to estimate the
 
ACL, changes in key
 
economic variables, and
 
the ACL
sensitivity analysis performed as of December 31, 2022.
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’s
significant assets
 
reflected at
 
fair value
 
on a
 
recurring basis
 
on the
 
Corporation’s
 
financial statements
 
consisted
 
of available-for-sale
debt
 
securities
 
amounting
 
to
 
$5.6
 
billion
 
as
 
of
 
December
 
31,
 
2022.
 
In
 
addition,
 
fair
 
value
 
is
 
also
 
used
 
for
 
measuring
 
other
 
non-
recurring fair value assets such as collateral dependent loans, OREO, and loans
 
held for sale.
Assets
 
and
 
liabilities
 
carried
 
at
 
fair
 
value
 
inherently
 
include
 
subjectivity
 
and
 
may
 
require
 
the
 
use
 
of
 
significant
 
assumptions,
adjustments and
 
judgment including,
 
among others,
 
discount rates,
 
cash flows,
 
default rates,
 
and loss
 
rates.
 
A significant
 
change
 
in
assumptions
 
may
 
result
 
in
 
a
 
significant
 
change
 
in
 
fair
 
value,
 
which
 
in
 
turn,
 
may
 
result
 
in
 
a
 
higher
 
degree
 
of
 
financial
 
statement
volatility
 
and
 
could
 
result
 
in
 
significant
 
impact
 
on
 
our
 
results
 
of
 
operations,
 
financial
 
condition
 
or
 
disclosures
 
of
 
fair
 
value
information.
 
The
 
fair value
 
of a
 
financial
 
instrument
 
is the
 
amount
 
that would
 
be received
 
to
 
sell an
 
asset or
 
paid
 
to transfer
 
a
 
liability
 
in
 
an
orderly transaction
 
between market
 
participants at
 
the measurement
 
date. 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.
 
The fair value
 
of available-for-sale debt
 
securities was based
 
on unadjusted quoted
 
market prices (as
 
is the case with
 
U.S. Treasury
securities
 
and
 
equity
 
securities
 
with
 
readily
 
determinable
 
fair
 
values),
 
when
 
available
 
(Level
 
1).
 
If
 
quoted
 
market
 
prices
 
are
unavailable, the
 
fair value
 
is based on
 
market prices
 
for comparable
 
assets (as is
 
the case
 
with MBS
 
and 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 private
 
label
MBS held
 
by the
 
Corporation (Level
 
3). Assets
 
are classified
 
in their
 
entirety based
 
on the
 
lowest level
 
of input
 
that is
 
significant to
their fair value measurement.
Private label MBS
 
are collateralized
 
by fixed-rate
 
mortgages on single-family
 
residential properties
 
in the U.S.
 
with original
 
FICO
scores
 
over
 
700
 
and
 
moderate
 
loan-to-value
 
ratios
 
(under
 
80%),
 
as
 
well
 
as
 
moderate
 
delinquency
 
levels.
 
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.
Declines in fair
 
value that are
 
credit-related are
 
recorded on the
 
balance sheet
 
through an
 
ACL with a
 
corresponding adjustment
 
to
provision for credit losses and declines that are non-credit-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 written
 
down to fair
value
 
through
 
earnings.
 
As
 
of December
 
31,
 
2022,
 
the
 
Corporation
 
did
 
not
 
intend
 
to
 
sell
 
any
 
debt
 
securities
 
in
 
an
 
unrealized
 
loss
50
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
 
non-credit-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 non-credit-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,
 
2022,
 
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
 
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,
 
expected
 
cash
flows (interest and principal) were discounted at the Treasury
 
yield curve as of the reporting date.
 
See
 
Note
 
25
 
 
Fair
 
Value,
 
to
 
the
 
audited
 
consolidated
 
financial
 
statements
 
included
 
in
 
Item
 
8
 
of
 
this
 
Form
 
10-K,
 
for
 
additional
information.
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
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 emerging
 
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.
As of December 31,
 
2022, we had $155.6
 
million of deferred tax
 
assets, net of a related
 
valuation allowance of $185.5
 
million. The
determination
 
of
 
deferred
 
tax
 
expense
 
or
 
benefit
 
is
 
based
 
on
 
changes
 
in
 
the
 
carrying
 
amounts
 
of
 
assets
 
and
 
liabilities
 
that
 
generate
temporary differences
 
and recognizes
 
enacted changes
 
in tax
 
rates and
 
laws in
 
the period
 
in which
 
they occur.
 
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. Valuation
 
allowances are
 
established, when
 
necessary,
 
to reduce
 
deferred tax
 
assets to
 
the amount
 
that is
more likely than not to 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, 2022
 
and 2021. 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
 
the
 
following:
 
FirstBank’s
 
three-year
 
cumulative
 
income
 
position;
 
sustained
 
periods
 
of
profitability; management’s
 
proven ability to
 
forecast future income
 
accurately and execute
 
tax strategies; and
 
the utilization of NOLs
over the past three years. The negative evidence
 
considered by management included the following: 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
 
Puerto
 
Rico
 
Oversight,
Management, and Economic Stability Act (“PROMESA”) oversight board.
51
See
 
Note
 
22
 
-
 
Income
 
Taxes,
 
to
 
the
 
audited
 
consolidated
 
financial
 
statements
 
included
 
in
 
Item
 
8
 
on
 
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, the
 
use of
 
estimates and
 
assumptions is
 
also important
 
in determining
 
the accounting
 
for 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).
Goodwill is
 
assessed for
 
impairment at
 
least annually
 
and more
 
frequently if
 
circumstances exist
 
that indicate
 
a possible
 
reduction
in the
 
fair value
 
of a
 
reporting unit
 
below its
 
carrying value.
 
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. Estimating
 
the
fair
 
value
 
of
 
our
 
reporting
 
units
 
requires
 
judgment.
 
Critical
 
inputs
 
to
 
the
 
fair
 
value
 
estimates
 
may
 
include
 
projected
 
earnings,
macroeconomic conditions,
 
interest rate
 
levels, and
 
peers performance.
 
See Note 1
 
– Nature of
 
Business and
 
Summary of
 
Significant
Accounting Policies and
 
Note 9 –
 
Goodwill and Other
 
Intangibles, to the
 
audited consolidated
 
financial statements included
 
in Item 8
of
 
this Form
 
10-K,
 
for
 
further
 
information
 
about
 
goodwill and
 
identifiable
 
intangible
 
assets, including
 
intangible
 
assets recorded
 
in
connection
 
with the acquisition of BSPR.
 
 
Identifiable
 
intangible
 
assets
 
are
 
tested
 
for
 
impairment
 
when
 
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.
 
An
 
impairment
 
is recognized
 
if
 
the
 
estimated
 
undiscounted
cash flows
 
relating to
 
the asset
 
or asset
 
group is
 
less than
 
the corresponding
 
carrying value.
 
The amortization
 
of identified
 
intangible
assets
 
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 intangibles assets.
As part of the BSPR acquisition,
 
the Corporation maintains two frozen
 
qualified noncontributory defined benefit
 
pension plans, and
a related complementary
 
postretirement 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.
 
The
 
discount
 
rate
 
assumption
 
used
 
to
 
measure
 
the
postretirement
 
benefit obligation
 
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 curves.
See
 
Note
 
19
 
 
Employee
 
Benefit
 
Plans,
 
to
 
the
 
audited
 
consolidated
 
financial
 
statements
 
included
 
in
 
Item
 
8
 
of
 
this
 
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
 
with respect
 
to 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, our experience and the experience of
 
others in similar cases, proceedings or investigations, and
 
the opinions and views of
legal counsel.
 
The outcomes
 
of legal
 
actions are
 
unpredictable and
 
subject to
 
significant uncertainties,
 
and it
 
is inherently
 
difficult to
determine whether any loss is probable or even
 
possible. It is also inherently difficult to estimate
 
the amount of any loss and there may
be matters for which
 
a loss is probable or
 
reasonably possible but not currently
 
estimable. Accordingly,
 
actual losses may be in
 
excess
of
 
the
 
established
 
accrual
 
or
 
the
 
range
 
of
 
reasonably
 
possible
 
loss.
 
See
 
Note
 
29
 
 
Regulatory
 
Matters,
 
Commitments,
 
and
Contingencies to the audited consolidated financial statements included
 
in Item 8 of this Form 10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
52
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.
 
In
 
addition,
 
variable
 
sources
 
of
 
interest
 
income,
 
such
 
as
 
loan
 
fees,
 
periodic
dividends, and
 
collection of
 
interest on
 
nonaccrual loans,
 
can fluctuate
 
from period
 
to period.
 
Net interest
 
income for
 
the year
 
ended
December 31, 2022 was $795.3
 
million, compared to $729.9 million
 
for 2021.
 
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,
 
2022 was
 
$828.4 million
 
compared
 
to
$753.7
 
million
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021.
 
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.
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.
Part I
Average volume
Interest income
(1)
 
/ expense
Average rate
(1)
Year Ended December
 
31,
2022
2021
2020
2022
2021
2020
2022
2021
2020
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
$
1,156,127
$
2,012,617
$
1,258,683
$
11,791
$
2,662
$
3,388
1.02
%
0.13
%
0.27
%
Government obligations
(2)
2,870,889
2,065,522
878,537
39,033
27,058
21,222
1.36
%
1.31
%
2.42
%
MBS
4,052,660
4,064,343
2,236,262
85,090
57,159
48,683
2.10
%
1.41
%
2.18
%
FHLB stock
20,419
28,208
32,160
1,114
1,394
1,959
5.46
%
4.94
%
6.09
%
Other investments
12,747
10,254
6,238
126
61
41
0.99
%
0.59
%
0.66
%
Total investments
(3)
8,112,842
8,180,944
4,411,880
137,154
88,334
75,293
1.69
%
1.08
%
1.71
%
Residential mortgage loans
2,886,594
3,277,087
3,119,400
160,359
177,747
166,019
5.56
%
5.42
%
5.32
%
Construction loans
121,642
181,470
168,967
7,350
12,766
9,094
6.04
%
7.03
%
5.38
%
Commercial and Industrial ("C&I") and Commercial
Mortgage loans
5,092,638
5,228,150
4,387,419
281,486
261,333
214,830
5.53
%
5.00
%
4.90
%
Finance leases
636,507
518,757
440,796
46,842
38,532
32,515
7.36
%
7.43
%
7.38
%
Consumer loans
2,461,632
2,207,685
1,952,120
262,542
239,725
216,263
10.67
%
10.86
%
11.08
%
Total loans
(4)(5)
11,199,013
11,413,149
10,068,702
758,579
730,103
638,721
6.77
%
6.40
%
6.34
%
 
Total interest-earning assets
$
19,311,855
$
19,594,093
$
14,480,582
$
895,733
$
818,437
$
714,014
4.64
%
4.18
%
4.93
%
Interest-bearing liabilities:
Interest-bearing checking accounts
$
3,942,419
$
3,667,523
$
2,197,980
$
15,568
$
5,776
$
5,933
0.39
%
0.16
%
0.27
%
Savings accounts
4,336,901
4,494,757
3,190,743
11,191
6,586
11,116
0.26
%
0.15
%
0.35
%
Retail certificates of deposit ("CDs")
2,213,145
2,636,303
2,741,388
18,102
26,138
43,350
0.82
%
0.99
%
1.58
%
Brokered CDs
69,694
141,959
357,965
1,500
2,982
7,989
2.15
%
2.10
%
2.23
%
Interest-bearing deposits
10,562,159
10,940,542
8,488,076
46,361
41,482
68,388
0.44
%
0.38
%
0.81
%
FHLB advances
179,452
354,055
505,478
5,136
8,199
11,251
2.86
%
2.32
%
2.23
%
Other borrowed funds
379,121
484,244
483,907
15,824
15,098
13,021
4.17
%
3.12
%
2.69
%
Total interest-bearing liabilities
$
11,120,732
$
11,778,841
$
9,477,461
$
67,321
$
64,779
$
92,660
0.61
%
0.55
%
0.98
%
Net interest income on a tax-equivalent basis and
excluding valuations
$
828,412
$
753,658
$
621,354
Interest rate spread
4.03
%
3.63
%
3.95
%
Net interest margin
4.29
%
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. See "Basis of Presentation" below.
(2)
Government obligations include debt issued by government-sponsored
 
agencies.
(3)
Unrealized gains and losses on available-for-sale debt securities
 
are excluded from the average volumes.
(4)
Average loan balances include
 
the average of nonaccrual loans.
(5)
Interest income on loans includes $11.2 million,
 
$10.5 million, and $7.3 million for the years ended December
 
31, 2022, 2021, and 2020, respectively,
 
of income from prepayment
penalties and late fees related to the Corporation’s
 
loan portfolio.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
53
Part II
2022 Compared to 2021
2021 Compared to 2020
Increase (decrease)
Increase (decrease)
Due to:
Due to:
Volume
Rate
Total
Volume
Rate
Total
(In thousands)
Interest income on interest-earning assets:
Money market and other short-term
investments
$
(4,934)
$
14,063
$
9,129
$
1,513
$
(2,239)
$
(726)
Government obligations
10,914
1,061
11,975
22,111
(16,275)
5,836
MBS
(205)
28,136
27,931
32,753
(24,277)
8,476
FHLB stock
(405)
125
(280)
(223)
(342)
(565)
Other investments
17
48
65
25
(5)
20
Total investments
5,387
43,433
48,820
56,179
(43,138)
13,041
Residential mortgage loans
(21,437)
4,049
(17,388)
8,509
3,219
11,728
Construction loans
(3,793)
(1,623)
(5,416)
713
2,959
3,672
C&l and Commercial Mortgage loans
(7,132)
27,285
20,153
41,940
4,563
46,503
Finance leases
8,706
(396)
8,310
5,789
228
6,017
Consumer loans
27,330
(4,513)
22,817
28,032
(4,570)
23,462
Total loans
3,674
24,802
28,476
84,983
6,399
91,382
Total interest income
$
9,061
$
68,235
$
77,296
$
141,162
$
(36,739)
$
104,423
Interest expense on interest-bearing liabilities:
Brokered CDs
$
(1,537)
$
55
$
(1,482)
$
(4,563)
$
(444)
$
(5,007)
Non-brokered interest-bearing deposits
(1,200)
7,561
6,361
14,669
(36,568)
(21,899)
FHLB advances
(4,520)
1,457
(3,063)
(3,438)
386
(3,052)
Other borrowed funds
(3,833)
4,559
726
222
1,855
2,077
Total interest expense
(11,090)
13,632
2,542
6,890
(34,771)
(27,881)
Change in net interest income
$
20,151
$
54,603
$
74,754
$
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.
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
 
Note
 
22
 
-
 
Income
Taxes
 
to
 
the
 
audited
 
consolidated
 
financial
 
statements
 
included
 
in
 
Item
 
8
 
of
 
this
 
Form
 
10-K).
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
54
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,
2022
2021
2020
(Dollars in thousands)
Interest income - GAAP
$
862,614
$
794,708
$
692,982
Unrealized gain on derivative instruments
(30)
(24)
(27)
Interest income excluding valuations
862,584
794,684
692,955
Tax-equivalent adjustment
33,149
23,753
21,059
Interest income on a tax-equivalent basis
 
and excluding valuations
$
895,733
$
818,437
$
714,014
Interest expense - GAAP
$
67,321
$
64,779
$
92,660
Net interest income - GAAP
$
795,293
$
729,929
$
600,322
Net interest income excluding valuations
$
795,263
$
729,905
$
600,295
Net interest income on a tax-equivalent basis
 
and excluding
valuations
$
828,412
$
753,658
$
621,354
Average Balances
 
Loans and leases
$
11,199,013
$
11,413,149
$
10,068,702
Total securities, other short-term investments and interest-bearing
cash balances
8,112,842
8,180,944
4,411,880
Average Interest-Earning Assets
$
19,311,855
$
19,594,093
$
14,480,582
Average Interest-Bearing Liabilities
$
11,120,732
$
11,778,841
$
9,477,461
Average Yield/Rate
Average yield on interest-earning assets - GAAP
4.47%
4.06%
4.79%
Average rate on interest-bearing liabilities - GAAP
0.61%
0.55%
0.98%
Net interest spread - GAAP
3.86%
3.51%
3.81%
Net interest margin - GAAP
4.12%
3.73%
4.15%
Average yield on interest-earning assets excluding valuations
4.47%
4.06%
4.79%
Average rate on interest-bearing liabilities
0.61%
0.55%
0.98%
Net interest spread excluding valuations
3.86%
3.51%
3.81%
Net interest margin excluding valuations
4.12%
3.73%
4.15%
Average yield on interest-earning assets on a tax-equivalent
 
basis and
excluding valuations
4.64%
4.18%
4.93%
Average rate on interest-bearing liabilities
0.61%
0.55%
0.98%
Net interest spread on a tax-equivalent basis
 
and excluding valuations
4.03%
3.63%
3.95%
Net interest margin on a tax-equivalent basis and excluding
valuations
4.29%
3.85%
4.29%
55
Net
 
interest
 
income
 
amounted
 
to
 
$795.3
 
million
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2022,
 
an
 
increase
 
of
 
$65.4
 
million,
 
when
compared to
 
$729.9 million
 
for the
 
year ended
 
December 31,
 
2021.
 
The $65.4
 
million increase
 
in net
 
interest income
 
was primarily
due to:
A $31.1 million
 
increase in interest income
 
on consumer loans and
 
finance leases, mainly due
 
to a $371.7 million
 
increase in
the average balance of this portfolio, mostly related to growth in the auto loans
 
and finance leases portfolios.
 
A $30.0 million increase in interest income on investment
 
securities, driven by a decrease in the U.S. agencies MBS premium
amortization expense
 
associated to lower
 
prepayments as market
 
interest rates increased
 
during 2022.
 
In addition, there
 
was
an increase of
 
approximately $8.6 million
 
in interest income attributable
 
to an $805.4 million
 
increase in the average
 
balance
of
 
government
 
obligations
 
driven
 
by
 
the
 
redeployment
 
of
 
some
 
cash
 
balances
 
into
 
higher-yielding
 
liquid
 
investment
securities.
 
A $15.1
 
million increase
 
in interest
 
income on
 
commercial and
 
construction
 
loans, primarily
 
reflecting higher
 
interest rates
and higher
 
loan balances
 
(excluding SBA
 
PPP loans).
 
The effect
 
associated with
 
higher market
 
interest rates,
 
that included
the upward repricing
 
of variable-rate commercial
 
and construction
 
loans and new
 
loans originated at
 
higher interest,
 
resulted
in an
 
increase of
 
approximately $34.7
 
million in
 
interest income.
 
In addition,
 
there was
 
an increase
 
of approximately
 
$57.1
million in
 
the average
 
balance of
 
this portfolio
 
(excluding SBA
 
PPP loans),
 
which resulted
 
in an
 
increase of
 
approximately
$2.0
 
million
 
in
 
interest
 
income.
 
These
 
favorable
 
variances
 
were
 
partially
 
offset
 
by
 
a
 
$12.9
 
million
 
reduction
 
in
 
interest
income
 
from
 
SBA
 
PPP
 
loans,
 
from
 
$20.9
 
million
 
in
 
2021
 
to
 
$8.0
 
million
 
in
 
2022,
 
a
 
decrease
 
of
 
$6.7
 
million
 
in
 
interest
income attributed to
 
a lower discount accretion
 
for the acquired BSPR commercial
 
and construction loans, and
 
a reduction of
approximately
 
$2.9
 
million
 
related
 
to
 
the
 
benefit
 
of
 
interest
 
income
 
realized
 
from
 
deferred
 
interest
 
recognized
 
on
 
a
construction loan paid off in 2021.
The
 
interest
 
rate
 
on
 
approximately
 
56%
 
of
 
the
 
Corporation’s
 
commercial
 
and
 
construction
 
loans
 
is
 
variable,
 
42%
 
is based
upon
 
LIBOR,
 
SOFR and
 
other
 
indexes
 
and 14%
 
is based
 
upon
 
the
 
Prime rate
 
index.
 
During 2022,
 
the average
 
one-month
LIBOR
 
increased
 
182
 
basis
 
points,
 
the
 
average
 
three-month
 
LIBOR
 
increased
 
224
 
basis
 
points,
 
the
 
average
 
Prime
 
rate
increased 161
 
basis points, and
 
the average
 
three-month SOFR increased
 
215 basis points,
 
compared to
 
the average rates
 
for
such indexes in 2021.
A $9.1
 
million increase
 
in interest
 
income from
 
interest-bearing cash
 
balances, primarily
 
consisting of
 
cash balances
 
held at
the
 
FED,
 
mainly
 
due
 
to
 
the
 
effects
 
higher
 
market
 
interest
 
rates,
 
partially
 
offset
 
by
 
the
 
effects
 
associated
 
with
 
an
 
$856.5
million reduction in the average balance.
Partially offset by:
 
A $17.5
 
million decrease
 
in interest income
 
on residential
 
mortgage loans,
 
primarily related
 
to a $390.5
 
million reduction
 
in
the average balance of this portfolio, partially offset by higher
 
yields.
A $2.5 million increase in total interest expense, including:
o
a
 
$4.9
 
million
 
increase
 
in
 
interest
 
expense
 
on
 
interest-bearing
 
deposits,
 
primarily
 
associated
 
with
 
the
 
effects
 
of
higher
 
interest
 
rate
 
environment
 
on
 
average
 
rates
 
paid
 
in
 
2022,
 
partially
 
offset
 
by
 
the
 
effects
 
of
 
a
 
$378.4
 
million
reduction
 
in the
 
average balance
 
of interest-bearing
 
deposits reflecting
 
the effect
 
of customer
 
allocating more
 
cash
into higher yielding liquid alternative, as well as higher consumer spending;
 
o
a
 
$0.7
 
million
 
increase
 
in
 
interest
 
expense
 
on
 
other
 
borrowings,
 
consisting
 
of
 
a
 
$3.1
 
million
 
increase
 
in
 
interest
expense
 
on
 
variable-rate
 
junior
 
subordinated
 
debentures
 
that
 
are
 
tied
 
to
 
LIBOR,
 
partially
 
offset
 
by
 
a
 
$2.4
 
million
decrease in interest
 
expense on repurchase
 
agreements primarily related
 
to a $105.5 million
 
reduction in the
 
average
balance; and
 
o
a $3.1
 
million decrease
 
in interest
 
expense on
 
FHLB advances,
 
primarily
 
related to
 
the effects
 
of a
 
$174.6 million
decrease in the average balance
 
of FHLB advances, partially offset
 
by the effects of higher
 
market interest rates paid
on FHLB advances taken in 2022.
The net
 
interest margin
 
increased by
 
39 basis
 
points to
 
4.12% for
 
2022,
 
compared to
 
3.73% for
 
2021.
 
The improved
 
margin
 
was
primarily
 
attributable
 
to
 
higher
 
market
 
interest
 
rates
 
driving
 
an
 
increase
 
in
 
loans,
 
investment
 
securities,
 
and
 
interest-earning
 
cash
balance
 
yields,
 
partially
 
offset
 
by
 
higher
 
cost
 
of
 
funds,
 
the
 
impact
 
of
 
lower
 
accelerated
 
SBA
 
PPP
 
loan
 
fees
 
recognized
 
upon
forgiveness payments in 2002, and lower purchase discount
 
accretion as mentioned above.
56
Provision for Credit Losses
The provision
 
for credit
 
losses consists of
 
provisions for
 
credit losses on
 
loans and
 
finance leases,
 
unfunded loan
 
commitments, as
well as the debt securities portfolio. 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 was
 
an expense of $25.7
 
million for the year
 
ended December 31, 2022,
compared to
 
a net benefit
 
of $61.7
 
million for the
 
year ended December
 
31, 2021.
 
The variances by
 
major portfolio
 
category were
 
as
follows:
Provision for
 
credit losses
 
for the
 
commercial and
 
construction loan
 
portfolio was
 
a net benefit
 
of $23.1
 
million for
 
the year
ended December 31, 2022,
 
compared to a net benefit
 
of $65.3 million for
 
the year ended December
 
31, 2021. The net benefit
recorded
 
during
 
2022
 
mainly
 
reflects
 
reductions
 
in
 
qualitative
 
reserves
 
associated
 
with
 
reduced
 
uncertainty
 
around
 
the
economic impact
 
of the
 
COVID-19 pandemic,
 
particularly on
 
loans in
 
the hotel,
 
transportation and
 
entertainment industries,
partially offset
 
by loan
 
growth and
 
a less favorable
 
economic outlook
 
in the
 
projection of
 
certain forecasted
 
macroeconomic
variables,
 
such
 
as the
 
commercial
 
real
 
estate (“CRE”)
 
index.
 
Meanwhile,
 
the
 
net
 
benefit
 
recorded
 
in 2021
 
reflects
 
both
 
an
improved
 
broad
 
macroeconomic
 
environment
 
following
 
the
 
initial
 
impact
 
of
 
the
 
COVID-19
 
pandemic
 
and
 
an
 
overall
decrease in the size of this portfolio in the Puerto Rico region.
Provision for
 
credit losses
 
for the
 
consumer loans
 
and finance
 
leases portfolio
 
was an
 
expense of
 
$57.5 million
 
for the
 
year
ended December
 
31, 2022, compared
 
to $20.6 million
 
for the year
 
ended December 31,
 
2021. The
 
increase in charges
 
to the
provision
 
during
 
2022
 
was
 
driven
 
by
 
the
 
portfolio
 
growth,
 
uncertainties
 
in
 
the
 
macroeconomic
 
outlook
 
reflected
 
in
 
the
deterioration in forecasted variables such as the regional unemployment
 
rate, and higher net charge-offs.
Provision
 
for
 
credit
 
losses
 
for
 
the
 
residential
 
mortgage
 
loan
 
portfolio
 
was
 
a
 
net
 
benefit
 
of
 
$8.7
 
million
 
for
 
the
 
year
 
ended
December
 
31,
 
2022,
 
compared
 
to
 
$17.0
 
million
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021.
 
The
 
net
 
benefit
 
in
 
both
 
periods
reflects the
 
effect of
 
a continued
 
decrease in
 
the size
 
of the residential
 
mortgage loan
 
portfolio,
 
as well
 
as releases
 
related to
qualitative adjustments
 
associated with
 
reduced uncertainty
 
around the
 
economic impact
 
of the
 
COVID-19 pandemic,
 
while
also recognizing the uncertainty in the near-term macroeconomic
 
outlook.
During 2022,
 
the Corporation
 
applied probability
 
weights to
 
the baseline
 
and alternative
 
downside economic
 
scenarios
 
to estimate
the ACL
 
with the
 
baseline scenario
 
carrying the
 
highest weight.
 
For periods
 
prior to
 
2022, the
 
Corporation calculated
 
the ACL
 
using
the baseline
 
scenario. See
 
Note 1
 
– Nature
 
of Business
 
and Summary
 
of Significant
 
Accounting Policies
 
in the
 
audited consolidated
financial
 
statements
 
included
 
in
 
Item
 
8
 
of
 
this
 
Form
 
10-K
 
for
 
additional
 
information
 
on
 
the
 
ACL
 
estimation
 
methodology
 
and
“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,
 
as well as analyses of the ACL, non-performing assets, and related information.
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 an
expense of $2.7 million for
 
the year ended December 31,
 
2022, compared to a net benefit of
 
$3.6 million for the year ended
 
December
31, 2021.
 
The expense
 
recorded during
 
2022 was
 
mainly driven
 
by an increase
 
in balance
 
of unfunded
 
loan commitments
 
principally
due to
 
newly originated
 
facilities which
 
remained undrawn
 
as of
 
December 31,
 
2022. On
 
the other
 
hand, the
 
net benefit
 
recorded in
2021
 
was
 
mainly
 
related
 
to
 
improvements
 
in
 
forecasted
 
macroeconomic
 
variables
 
following
 
the
 
initial
 
impact
 
of
 
the
 
COVID-19
pandemic.
Provision for credit losses for
 
held-to-maturity and available-for-sale debt
 
securities
The
 
provision
 
for
 
credit
 
losses
 
for
 
held-to-maturity
 
securities
 
was
 
a
 
net
 
benefit
 
of
 
$0.3
 
million
 
for
 
each
 
of
 
the
 
years
 
ended
December
 
31,
 
2022
 
and
 
2021.
 
The
 
net
 
benefit
 
recorded
 
during
 
2022
 
was
 
mainly
 
due
 
to
 
the
 
Corporation’s
 
reduction
 
in
 
qualitative
reserves driven
 
by improvements in
 
the underlying
 
financial information
 
of certain bond
 
issuers. Meanwhile,
 
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
 
provision for
 
credit losses
 
for
 
available-for-sale
 
debt
 
securities was
 
a net
 
benefit of
 
$0.4 million
 
recorded for
 
the year
 
ended
December 31, 2022, compared to $0.1 million for the year ended December 31,
 
2021.
57
Non-Interest Income
Non-interest income
 
amounted to
 
$123.1 million
 
for the
 
year ended
 
December 31,
 
2022, compared
 
to $121.2
 
million for
 
the same
period in 2021. The $1.9 million increase in non-interest income was primarily
 
due to:
A
 
$3.9
 
million
 
increase
 
in
 
credit
 
and
 
debit
 
cards,
 
point
 
of
 
sale
 
(“POS”)
 
and
 
merchant
 
fee
 
income
 
reflecting
 
increased
purchase and transaction volumes.
A
 
$3.4
 
million
 
increase
 
in
 
other
 
sources
 
of
 
non-interest
 
income
 
including:
 
(i)
 
a
 
$2.0
 
million
 
increase
 
related
 
to
 
higher
benefit recognized
 
in relation
 
to purchased
 
income tax
 
credits realized
 
during the
 
year; (ii)
 
a $1.5
 
million increase
 
in fees
and commissions from
 
insurance referrals; and
 
(iii) a $0.9 million
 
increase in gains
 
related to the
 
sale of long-lived
 
assets.
These variances were partially offset by a $0.4 million
 
increase in unrealized losses on marketable equity securities and the
effect
 
in
 
2021
 
of
 
a
 
$0.6
 
million
 
gain
 
recorded
 
in
 
connection
 
with
 
the
 
settlement
 
and
 
collection
 
of
 
an
 
insurance
 
claim
associated with a damaged property.
A $2.5
 
million increase
 
in service
 
charges and
 
fees on
 
deposit accounts,
 
mainly due
 
to 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
 
which was
 
effective in
 
the third
 
quarter of
 
2021, partially
 
offset by
 
a $0.7
 
million adjustment
 
during the
fourth
 
quarter
 
of
 
2022
 
to
 
reverse
 
previously
 
recognized
 
fees
 
on
 
non-sufficient
 
funds
 
as
 
part
 
of
 
changes
 
in
 
the
 
fees
structure.
A $1.8 million increase in insurance commission income.
Partially offset by:
A $9.7
 
million decrease
 
in revenues
 
from mortgage
 
banking activities,
 
mainly driven
 
by an
 
$11.8
 
million decrease
 
in net
realized gain
 
on sales
 
of residential
 
mortgage loans
 
in the
 
secondary market
 
mainly due
 
to a
 
lower volume
 
of sales
 
and a
$1.1 million
 
decrease
 
in servicing
 
fees. These
 
variances
 
were partially
 
offset
 
by a
 
$2.2 million
 
decrease in
 
the mortgage
servicing rights
 
amortization expense,
 
net of recoveries,
 
resulting from
 
reduced prepayment
 
rates. During
 
2022 and
 
2021,
net gains of
 
$8.4 million and
 
$20.2 million, respectively,
 
were recognized as a
 
result of GNMA
 
securitization transactions
and whole loan sales to U.S. GSEs amounting to $238.3 million and $518.9
 
million, respectively.
58
Non-Interest Expenses
Non-interest expenses for
 
the year ended
 
December 31, 2022 were
 
$443.1 million, compared
 
to $489.0 million
 
for the same period
in 2021. On a non-GAAP basis, excluding $26.4 million in merger
 
and restructuring costs associated with the acquisition of BSPR and
costs of
 
$3.0 million
 
related to
 
the COVID-19
 
pandemic response
 
efforts which
 
were recognized
 
during 2021,
 
non-interest expenses
decreased
 
by
 
$16.5
 
million
 
when
 
compared
 
with
 
adjusted
 
non-interest
 
expenses
 
in
 
2021.
 
See
 
“Special
 
Items”
 
above
 
for
 
additional
information. Some of the most significant variances in adjusted non
 
-interest expenses were as follows:
 
A
$12.1
 
million
 
decrease
 
in
 
adjusted
 
professional
 
service
 
fees,
 
driven
 
by
 
an
 
$11.2
 
million
 
decrease
 
in
 
outsourcing
technology
 
service
 
fees,
 
mainly
 
associated
 
with
 
the
 
effect
 
in
 
2021
 
of
 
both
 
approximately
 
$7.0
 
million
 
of
 
temporary
processing
 
costs
 
incurred
 
in
 
connection
 
with
 
the
 
acquired
 
BSPR
 
operations
 
prior
 
to
 
system
 
conversions
 
and
 
costs
 
of
approximately $1.5
 
million incurred
 
in connection
 
with the
 
platform used
 
for SBA
 
PPP loan
 
originations and
 
forgiveness
funding.
A
$4.8
 
million
 
decrease
 
in adjusted
 
other
 
non-interest expenses
 
including:
 
(i) a
 
$2.6
 
million
 
decrease
 
in amortization
 
of
intangible
 
assets mainly
 
associated
 
with
 
the
 
purchased
 
credit card
 
relationship
 
intangible asset
 
recognized
 
in connection
with the
 
acquisition of
 
a FirstBank-branded
 
credit card
 
loan portfolio
 
in 2012
 
which became fully
 
amortized at
 
the end of
2021;
 
and (ii)
 
a $2.6
 
million
 
decrease
 
in charges
 
for
 
legal and
 
operational
 
reserves,
 
in part
 
due
 
to the
 
reversal
 
of a
 
$1.0
million reserve upon resolution of an operational loss during the second quarter
 
of 2022.
 
A $3.6
 
million increase
 
in net
 
gains on
 
OREO operation
 
s, primarily
 
reflecting: (i)
 
a $2.3
 
million increase
 
in net
 
realized
gains on
 
sales of
 
OREO properties,
 
primarily residential
 
properties in
 
the Puerto
 
Rico region;
 
(ii) a
 
$1.9 million
 
decrease
in
 
OREO-related
 
operating
 
expenses,
 
primarily
 
taxes,
 
repairs
 
and
 
insurance;
 
and
 
(iii)
 
a
 
$1.6
 
million
 
decrease
 
in
 
write-
downs
 
to
 
the
 
value
 
of
 
OREO
 
properties.
 
These
 
variances
 
were
 
partially
 
offset
 
by
 
a
 
$2.2
 
million
 
decrease
 
in
 
income
recognized
 
from
 
rental
 
payments
 
mainly
 
associated
 
to
 
the
 
disposition
 
in
 
2021
 
of
 
a
 
large
 
OREO
 
income-producing
property.
A
 
$2.4
 
million
 
decrease
 
in
 
adjusted
 
occupancy
 
and
 
equipment
 
expenses,
 
primarily
 
related
 
to
 
a
 
reduction
 
in
 
equipment-
related depreciation charges and rental expenses, partially
 
offset by higher energy costs.
A
 
$1.6
 
million
 
decrease
 
in
 
adjusted
 
taxes,
 
other
 
than
 
income
 
taxes,
 
primarily
 
related
 
to
 
lower
 
sales
 
and
 
use
 
taxes,
municipal license taxes, and property taxes.
Partially offset by:
A
 
$5.6
 
million
 
increase
 
in
 
adjusted
 
employees’
 
compensation
 
and
 
benefits
 
expenses,
 
primarily
 
reflecting
 
a
 
$3.0
 
million
decrease in
 
deferred loan
 
origination costs
 
mainly driven
 
by the
 
effect of
 
SBA PPP
 
loan originations
 
closed during
 
2021,
as well as the effect of annual salary merit increases and higher medical
 
insurance premium costs.
A
$2.9 million
 
increase in adjusted
 
business promotion
 
expenses, mainly
 
related to
 
a $0.8 million
 
increase in
 
sponsorship
and public relations activities and
 
a $0.6 million increase
 
in donations expense, of which $0.3
 
million were granted to non-
profit organizations in the municipalities most affected
 
by Hurricane Fiona.
Income Taxes
For
 
the
 
year
 
ended
 
December
 
31,
 
2022,
 
the
 
Corporation
 
recorded
 
an
 
income
 
tax
 
expense
 
of
 
$142.5
 
million
 
compared
 
to
 
$146.8
million in
 
2021. The
 
decrease in
 
income tax
 
expense for
 
2022, as
 
compared to
 
2021, was
 
related to
 
a higher
 
proportion of
 
exempt to
taxable income resulting in a lower effective tax rate,
 
partially offset by higher pre-tax income.
The Corporation’s
 
effective
 
tax rate
 
in the
 
year ended
 
December 31,
 
2022, excluding
 
entities from
 
which a
 
tax benefit
 
cannot be
recognized
 
and
 
discrete
 
items,
 
was
 
31.2%,
 
compared
 
to
 
33.9%
 
for
 
2021.
 
See
 
Note
 
22
 
-
 
Income
 
Taxes,
 
to
 
the
 
audited
 
consolidated
financial statements included in Item 8 of this Form 10-K, for additional
 
information.
59
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,
 
2022,
 
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 27
 
- Segment
 
Information, to
 
the audited
 
consolidated financial
 
statements included
 
in Item
 
8 of
 
this
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 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, 2022 and
 
2021, other operating
 
expenses not
 
allocated to a
 
particular segment
 
amounted to $155.3
 
million
and $192.2 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
 
.
60
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.
 
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,
 
2022 and
2021 include the following:
Segment
 
income before
 
taxes for
 
the year
 
ended December
 
31, 2022
 
decreased to
 
$111.1
 
million, compared
 
to $239.3
million for 2021, for the reasons discussed below.
Net
 
interest
 
income
 
for
 
the year
 
ended
 
December
 
31,
 
2022
 
was $109.8
 
million,
 
compared
 
to $191.9
 
million
 
for 2021.
 
The decrease
 
in net
 
interest income
 
was primarily
 
attributable
 
to an
 
increase
 
in the
 
cost of
 
funds borrowed
 
from other
segments, resulting from higher
 
market interest rates, partially
 
offset by an increased
 
average balance of commercial
 
and
constructions loans and the upward repricing of variable-rate commercial
 
and construction loans during 2022.
 
For 2022, the provision for credit losses was a net benefit
 
of $20.2 million, compared to a net benefit of
 
$67.5 million for
2021.
 
The
 
net
 
benefit
 
recorded
 
during
 
2022
 
mainly
 
reflects
 
reductions
 
in
 
qualitative
 
reserves
 
associated
 
with
 
reduced
uncertainty
 
around
 
the
 
economic
 
impact
 
of
 
the
 
COVID-19
 
pandemic,
 
particularly
 
on
 
loans in
 
the hotel,
 
transportation
and entertainment
 
industries, partially
 
offset by
 
loan growth
 
and a
 
less favorable
 
economic outlook
 
in the
 
projection of
certain
 
forecasted
 
macroeconomic
 
variables,
 
such
 
as
 
the
 
commercial
 
real
 
estate
 
index.
 
Meanwhile,
 
the
 
net
 
benefit
recorded
 
in
 
2021
 
reflects
 
both
 
an
 
improved
 
broad
 
macroeconomic
 
environment
 
following
 
the
 
initial
 
impact
 
of
 
the
COVID-19 pandemic and an overall decrease in the size of this portfolio in the Puerto Rico
 
region.
 
Total
 
non-interest income
 
for the
 
year ended
 
December 31,
 
2022 amounted
 
to $18.2
 
million compared
 
to $16.0
 
million
for
 
2021.
 
The increase
 
in non-interest
 
income
 
was mainly
 
related
 
to a
 
combination of
 
the following;
 
i) a
 
$0.7 million
increase in service charges
 
on deposits, primarily related
 
to cash management fee income
 
from corporate customers; ii)
 
a
$0.5
 
million
 
increase
 
in
 
foreign
 
currency
 
exchange
 
commission
 
income;
 
iii)
 
a
 
$0.4
 
million
 
increase
 
from
 
merchant-
related income and iv) a benefit of approximately $0.3 million related
 
income tax credits purchased and realized in 2022.
 
Direct non-interest
 
expenses for
 
the year
 
ended December
 
31, 2022
 
were $37.1
 
million, compared
 
to $36.2
 
million for
2021.
 
The increase
 
is mainly
 
driven by
 
an increase
 
of $2.6
 
million in
 
employees’ compensation
 
and benefits
 
expenses,
primarily reflecting
 
the effects
 
of salary
 
annual merit
 
increases and
 
a decrease
 
in deferred
 
loan origination
 
costs mainly
driven
 
by
 
the
 
impact
 
of
 
the
 
SBA
 
PPP
 
loans
 
that
 
were
 
originated
 
in
 
2021.
 
Partially
 
offsetting
 
this
 
increase
 
is
 
a
 
$2.0
million
 
reduction
 
in
 
professional
 
service
 
fees,
 
primarily
 
associated
 
with
 
the
 
effects
 
in
 
2021
 
of
 
expenses
 
incurred
 
in
connection with the platform used for SBA PPP loan originations and
 
forgiveness funding.
 
61
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
 
and leases
 
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 insurance activities in the Puerto
 
Rico region.
The
 
highlights
 
of
 
the
 
Consumer
 
(Retail)
 
Banking
 
segment’s
 
financial
 
results
 
for
 
the
 
years
 
ended
 
December
 
31,
 
2022
 
and
 
2021
include the following:
Segment
 
income before
 
taxes for
 
the year
 
ended December
 
31, 2022
 
increased
 
to $301.3
 
million,
 
compared
 
to $165.8
million for 2021, for the reasons discussed below.
Net
 
interest
 
income
 
for
 
the year
 
ended
 
December
 
31,
 
2022
 
was $442.6
 
million,
 
compared
 
to $281.7
 
million
 
for 2021.
 
The
 
increase
 
was
 
mainly
 
due
 
to
 
higher
 
income
 
from
 
funds
 
loaned
 
to
 
other
 
business
 
segments
 
resulting
 
from
 
higher
market interest
 
rates. In
 
addition, the
 
average volume
 
of consumer
 
loans in
 
the Puerto
 
Rico region
 
increased by
 
$375.8
million,
 
mainly
 
in the
 
auto
 
loans and
 
finance
 
leases portfolios.
 
These
 
variances
 
were
 
partially offset
 
by
 
an increase
 
in
average rates paid to consumer customer deposits.
The
 
provision
 
for
 
credit
 
losses
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2022
 
increased
 
by
 
$36.8
 
million
 
to
 
$57.1
 
million,
compared to $20.3
 
million for the
 
year ended December
 
31, 2021.
 
The increase in the
 
provision during
 
2022 was driven
by the portfolio
 
growth, uncertainties in the
 
macroeconomic outlook
 
reflected in the
 
deterioration in forecasted
 
variables
such as the regional unemployment rate, and higher net charge-offs.
 
Non-interest income for the
 
year ended December 31,
 
2022 was $78.5 million,
 
compared to $69.8 million
 
for 2021.
 
The
increase
 
was
 
primarily
 
related
 
to
 
a
 
$3.0
 
million
 
increase
 
in
 
credit
 
and
 
debit
 
cards,
 
POS
 
and
 
merchant
 
fee
 
income
reflecting increased
 
purchase and transaction
 
volumes, as well
 
as an increase
 
of $1.8 million
 
in service charges
 
and fees
on deposits primarily
 
related to an
 
increase in the
 
monthly service fee
 
charged on
 
certain checking and
 
savings products
which was effective
 
in the third quarter
 
of 2021.
 
Also reflected in
 
this variance are
 
a $1.6 million
 
increase on insurance
commission
 
income
 
and
 
a
 
benefit
 
of
 
$1.2
 
million
 
allocated
 
to
 
the
 
Consumer
 
(Retail)
 
Banking
 
segment
 
in
 
relation
 
to
income tax credits purchased and realized in 2022.
 
Direct non-interest expenses for
 
the year ended December
 
31, 2022 were $162.7 million,
 
compared to $165.4 million
 
for
2021.
 
The decrease
 
was primarily
 
related to
 
a $3.8
 
million reduction
 
in occupancy
 
and equipment
 
expenses driven
 
by
cost savings
 
achieved subsequent
 
to the
 
closure and
 
consolidation of
 
branches in
 
accordance with
 
the BSPR
 
acquisition
integration and
 
restructuring plan,
 
in particular rental
 
and depreciation
 
expense. In
 
addition, contributing
 
to the decrease
is
 
a
 
$2.0
 
million
 
reduction
 
in
 
professional
 
service
 
fees,
 
mainly
 
associated
 
with
 
the
 
effects
 
in
 
2021
 
of
 
temporary
processing
 
costs
 
incurred
 
in
 
connection
 
with
 
the
 
acquired
 
BSPR
 
operations
 
prior
 
to
 
systems
 
conversion,
 
and
 
a
 
$2.5
million reduction in the amortization expense of the purchased credit card
 
relationship intangible recognized in the BSPR
acquisition.
 
These variances were partially offset
 
by an increase of $4.5 million in
 
employees’ compensation and benefit
expenses, primarily reflecting the effects of salary
 
annual merit increases.
62
Mortgage Banking
The Mortgage Banking
 
segment conducts its operations
 
mainly through FirstBank.
 
The Mortgage Banking
 
segment consists 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 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 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,
 
2022 and
 
2021 include
 
the
following:
Segment
 
income
 
before
 
taxes
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2022
 
decreased
 
to
 
$99.5
 
million,
 
compared
 
to
 
$115.8
million for 2021, for the reasons discussed below.
Net interest income for
 
the year ended December
 
31, 2022 was $98.9
 
million, compared to
 
$104.6 million for 2021.
 
The
decrease in
 
net interest
 
income was
 
mainly due
 
the decrease
 
in the
 
average balance
 
of residential
 
mortgage loans
 
in the
Puerto Rico region.
The provision
 
for credit losses
 
for 2022 was
 
a net benefit
 
of $7.6 million,
 
compared to a
 
net benefit of
 
$16.0 million for
2021.
 
The net
 
benefit in
 
both periods
 
reflects the
 
effect
 
of a
 
continued
 
decrease in
 
the size
 
of the
 
residential
 
mortgage
loan
 
portfolio
 
as
 
well
 
as
 
releases
 
related
 
to
 
qualitative
 
adjustments
 
associated
 
with
 
reduced
 
uncertainty
 
around
 
the
economic impact of the COVID-19 pandemic.
Non-interest income for the
 
year ended December 31,
 
2022 was $16.0 million,
 
compared to $24.3 million
 
for 2021.
 
The
decrease was mainly
 
driven by a
 
$10.2 million decrease
 
in net realized gain
 
on sales of residential
 
mortgage loans in
 
the
secondary market
 
mainly due
 
to a
 
lower volume
 
of sales,
 
and a
 
$0.6 million
 
decrease in
 
servicing fee
 
income, partially
offset by
 
a $2.2 million
 
decrease in mortgage
 
servicing rights amortization
 
expense resulting
 
from reduced
 
prepayments
rates.
Direct non-interest
 
expenses for
 
the year
 
ended December
 
31, 2022
 
were $23.0
 
million, compared
 
to $29.1
 
million for
2021.
 
The decrease
 
was mainly
 
related to
 
a $4.1
 
million increase
 
in gains
 
on OREO
 
operations, primarily
 
higher gains
realized on the sale of residential OREO properties.
63
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.
The
 
highlights
 
of
 
the
 
Treasury
 
and
 
Investments
 
segment’s
 
financial
 
results
 
for
 
the
 
years
 
ended
 
December
 
31,
 
2022
 
and
 
2021
include the following:
Segment
 
income
 
before
 
taxes
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2022
 
decreased
 
to
 
$36.3
 
million,
 
compared
 
to
 
$55.6
million for 2021, for the reasons discussed below.
Net interest
 
income for
 
the year ended
 
December 31,
 
2022 was $39.6
 
million, compared
 
to net
 
interest income
 
of $59.3
million for
 
2021.
 
The decrease
 
was mainly
 
related to
 
a net
 
transfer pricing
 
charge of
 
$43.8 million
 
recognized in
 
2022
associated
 
to
 
the
 
cost
 
of
 
funds
 
borrowed
 
from
 
the
 
Consumer
 
(Retail)
 
Banking
 
segment,
 
as
 
compared
 
to
 
a
 
net
 
transfer
pricing credit of $14.7 million
 
recognized in 2021 from funds
 
loaned to other business segments.
 
This variance is mainly
driven by the
 
effects of a
 
higher volume of
 
investments securities funded
 
by demand deposits gathered
 
by the Consumer
(Retail) Banking operating segment as well as higher market interest rates.
 
Non-interest
 
loss
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2022
 
was
 
$0.1
 
million,
 
compared
 
to
 
non-interest
 
income
 
of
 
$0.2
million
 
for
 
2021.
 
The
 
variance primarily
 
reflects
 
the
 
effect
 
of
 
a
 
$0.4
 
million
 
decrease
 
in the
 
fair
 
value
 
of
 
marketable
equity securities recorded through earnings.
 
Direct non-interest expenses for
 
2022 were $3.7 million, compared
 
to $4.1 million for 2021.
 
The decrease was primarily
reflected in employees’ compensation expense and professional service
 
fees.
64
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 nine
 
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.
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 (“ACH”)
 
transactions.
 
Loan products include the traditional
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, 2022
 
and 2021, include
the following:
Segment
 
income
 
before
 
taxes
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2022
 
increased
 
to
 
$53.1
 
million,
 
compared
 
to
 
$37.0
million for 2021, for the reasons discussed below.
Net interest income
 
for the year
 
ended December 31,
 
2022 was $80.5
 
million, compared to
 
$66.0 million for
 
2021.
 
The
increase was
 
mainly related
 
to higher
 
interest rates,
 
that include
 
the effect
 
of both
 
the upward
 
repricing of
 
variable-rate
commercial
 
and
 
construction
 
loans
 
and
 
new
 
loans
 
originated
 
at
 
higher
 
rates,
 
as
 
well
 
as
 
higher
 
average
 
loan
 
balances
(excluding SBA PPP loans).
For 2022,
 
the provision
 
for credit
 
losses was
 
a net
 
benefit of
 
$3.1 million,
 
compared to
 
a net benefit
 
of $1.0
 
million for
2021.
 
The
 
higher
 
benefit
 
recorded
 
in
 
2022
 
mainly
 
reflects
 
reductions
 
in
 
qualitative
 
reserves
 
associated
 
with
 
reduced
uncertainty around the economic impact of the COVID-19 pandemic,
 
partially offset by loan growth.
Total non
 
-interest income for the year
 
ended December 31, 2022
 
amounted to $2.9 million,
 
compared to $4.0 million
 
for
2021.
 
The decrease was primarily
 
related to a
 
$1.3 million decline in
 
revenues from mortgage
 
banking activities mainly
due
 
to
 
lower volume
 
of
 
sales and
 
lower servicing
 
fee
 
income, partially
 
offset
 
by a
 
$0.3 million
 
increase
 
in other
 
non-
deferrable loan fees.
 
Direct non-interest
 
expenses for
 
the year
 
ended December
 
31, 2022
 
were $33.4
 
million, compared
 
to $33.9
 
million for
2021.
 
The
 
decrease
 
was
 
mainly
 
due
 
to
 
reductions
 
in
 
professional
 
service
 
fees,
 
employee
 
compensation
 
expenses,
 
and
taxes other than income taxes, partially offset by increased business promotion
 
expenses.
 
65
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,
 
2022
 
and
 
2021
 
include
 
the
following:
Segment income before taxes
 
for the year ended December
 
31, 2022 decreased to $1.7
 
million, compared to $6.5 million
for 2021, for the reasons discussed below.
Net interest income
 
for the year
 
ended December 31,
 
2022 was $23.8
 
million, compared to
 
$26.4 million for
 
2021.
 
The
decrease in net
 
interest income was mainly
 
related to a
 
$44.0 million decrease
 
in the average
 
balance of commercial
 
and
construction loans
 
(excluding SBA
 
PPP loans),
 
a $20.0
 
million decrease
 
in the
 
average balance
 
of residential
 
mortgage
loans and a reduction of $1.0 million in interest income from SBA PPP loans.
 
The
 
Corporation
 
recognized
 
a
 
provision
 
for
 
credit
 
losses
 
of
 
$2.0
 
million
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2022,
compared
 
to
 
a
 
net
 
benefit
 
of
 
$1.3
 
million
 
for
 
2021.
 
The
 
provision
 
recorded
 
during
 
2022
 
was
 
primarily
 
related
 
to
consumer
 
loans
 
reflecting
 
the
 
effects
 
of
 
loan
 
growth,
 
higher
 
delinquency
 
and
 
charge-off
 
levels,
 
and
 
a
 
less
 
favorable
outlook of certain macroeconomic variables.
 
Non-interest
 
income for
 
the year
 
ended December
 
31, 2022
 
was $7.7
 
million, compared
 
to $6.9
 
million for
 
2021.
 
The
increase
 
was
 
primarily
 
related
 
to
 
a
 
$0.4
 
million
 
increase
 
in
 
fee-based
 
income
 
from
 
credit
 
and
 
debit
 
cards,
 
POS
 
and
merchant transactions, and a $0.3 million increase in income from insurance
 
commissions.
 
Direct non
 
-interest expens
 
es for
 
the year
 
ended December
 
31,
 
2022 were
 
$27.9
 
million compared
 
to $28.1
 
million
 
for
2021.
 
The decrease mainly reflects
 
the effect of
 
accelerated depreciation charges
 
in 2021 related to
 
the closing of certain
branches in the Virgin
 
Islands region, partially offset by an increase in employees’
 
compensation expenses.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
66
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,
2022
2021
2020
(In thousands)
ASSETS
Interest-earning assets:
 
Money market and other short-term investments
$
1,156,127
$
2,012,617
$
1,258,683
 
U.S. and Puerto Rico government obligations
2,870,889
2,065,522
878,537
 
MBS
4,052,660
4,064,343
2,236,262
 
FHLB stock
20,419
28,208
32,160
 
Other investments
12,747
10,254
6,238
 
Total investments
8,112,842
8,180,944
4,411,880
 
Residential mortgage loans
2,886,594
3,277,087
3,119,400
 
Construction loans
121,642
181,470
168,967
 
Commercial loans
5,092,638
5,228,150
4,387,419
 
Finance leases
636,507
518,757
440,796
 
Consumer loans
2,461,632
2,207,685
1,952,120
 
Total loans
11,199,013
11,413,149
10,068,702
 
Total interest-earning
 
assets
19,311,855
19,594,093
14,480,582
Total non-interest-earning
 
assets
(1)
66,794
708,940
752,064
 
Total assets
$
19,378,649
$
20,303,033
$
15,232,646
LIABILITIES
Interest-bearing liabilities:
 
Interest-bearing checking accounts
$
3,942,419
$
3,667,523
$
2,197,980
 
Savings accounts
4,336,901
4,494,757
3,190,743
 
Retail CDs
2,213,145
2,636,303
2,741,388
 
Brokered CDs
69,694
141,959
357,965
 
Interest-bearing deposits
10,562,159
10,940,542
8,488,076
 
Loans payable
-
-
8,415
 
FHLB advances
179,452
354,055
475,492
 
Other borrowed funds
379,121
484,244
505,478
 
Total interest-bearing
 
liabilities
11,120,732
11,778,841
9,477,461
Total non-interest-bearing
 
liabilities
(2)
6,622,638
6,285,942
3,525,101
 
Total liabilities
17,743,370
18,064,783
13,002,562
STOCKHOLDERS' EQUITY
Stockholders' equity:
 
Preferred stock
-
32,938
36,104
 
Common stockholders' equity
1,635,279
2,205,312
2,193,980
 
Stockholders' equity
1,635,279
2,238,250
2,230,084
Total liabilities and stockholders'
 
equity
$
19,378,649
$
20,303,033
$
15,232,646
_________
(1) Includes, among other things, the ACL on loans and finance
 
leases and debt securities, as well as unrealized gains and losses
 
on available-for-sale debt securities.
(2) Includes, among other things, non-interest-bearing deposits.
67
The Corporation’s
 
total average assets
 
were $19.4
 
billion for the
 
year ended December
 
31, 2022, compared
 
to $20.3 billion
 
for the
year
 
ended
 
December
 
31,
 
2021,
 
a
 
net
 
decrease
 
of
 
$924.4
 
million.
 
The
 
variance
 
primarily
 
reflects
 
the
 
following:
 
(i)
 
a
 
decrease
 
of
$856.5
 
million
 
in
 
the
 
average
 
of
 
interest-bearing
 
cash
 
balances,
 
which
 
consisted
 
primarily
 
of
 
deposits
 
maintained
 
at
 
the
 
Federal
Reserve Bank; (ii)
 
a decrease of
 
$642.1 million
 
in non-interest-earning
 
assets mainly related
 
to unrealized losses
 
on available-for-sale
debt securities attributable
 
to changes in market
 
interest rates; and (iii)
 
a $214.1 million decrease
 
in the average balance
 
of total loans,
primarily
 
reflecting
 
the
 
overall
 
decrease
 
in
 
the
 
residential
 
mortgage
 
loan
 
portfolio
 
as
 
paydowns
 
exceeded
 
originations,
 
and
 
the
decrease
 
of
 
the
 
SBA
 
PPP
 
loan
 
portfolio,
 
partially
 
offset
 
by
 
an
 
increase
 
in
 
the
 
average
 
balance
 
of
 
auto
 
loans
 
and
 
finance
 
leases
portfolios.
 
These
 
variances
 
were
 
partially
 
offset
 
by
 
an
 
increase
 
of
 
$805.4
 
million
 
in
 
the
 
average
 
balance
 
of
 
U.S.
 
and
 
Puerto
 
Rico
government obligations mainly driven by the deployment of certain
 
cash balances into U.S. agencies debt securities.
The Corporation’s
 
total average
 
liabilities were
 
$17.7 billion
 
as of December
 
31, 2022,
 
a net decrease
 
of $321.4
 
million compared
to December
 
31,
 
2021.
 
The net
 
decrease
 
was mainly
 
related
 
to a
 
$378.4
 
million
 
decrease in
 
the average
 
balance
 
of interest-bearing
deposits reflecting
 
the effect
 
of customers
 
allocating more
 
cash into
 
higher yielding
 
liquid alternatives
 
as well
 
as elevated
 
consumer
spending,
 
and
 
a
 
$279.7
 
million
 
decrease
 
in
 
the
 
average
 
balance
 
of
 
borrowings
 
mainly
 
driven
 
by
 
the
 
repayment
 
of
 
long-term
 
debt
during
 
2022.
 
These
 
variances
 
were
 
partially
 
offset
 
by
 
a
 
$336.7
 
million
 
increase
 
in
 
the
 
average
 
balance
 
of
 
non-interest-bearing
liabilities, primarily non-interest-bearing deposits.
Assets
 
The Corporation’s
 
total assets were $18.6 billion as of
 
December 31, 2022, a decrease of $2.2
 
billion from December 31, 2021.
 
The
decrease
 
was primarily
 
related
 
to
 
a $2.1
 
billion
 
decrease
 
in cash
 
and
 
cash
 
equivalents mainly
 
attributable
 
to
 
the overall
 
decrease
 
in
total deposits,
 
the repurchase
 
of approximately
 
19.4 million
 
shares of
 
common stock
 
for a total
 
purchase price
 
of $275.0
 
million, and
the funding
 
of new loan
 
originations.
 
This decrease
 
in cash
 
and cash equivalents
 
was partially
 
offset by
 
a $250.1
 
million net increase
in borrowings.
 
In addition,
 
total investment
 
securities decreased
 
by $571.4
 
million, mainly
 
related to
 
the decrease
 
in the fair
 
value of
available-for-sale debt securities and
 
repayments, partially offset by
 
purchases of U.S. agencies and
 
MBS. As further discussed below,
these variances were partially offset by a $469.3 million
 
increase in total loans.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
68
Loans Receivable, including Loans Held for Sale
As of
 
December 31,
 
2022, the
 
Corporation’s
 
total loan
 
portfolio before
 
the ACL
 
amounted to
 
$11.6
 
billion, an
 
increase of
 
$469.3
million compared to December
 
31, 2021. The growth reflects increases
 
of $341.6 million in the Puerto
 
Rico region and $139.6 million
in
 
the
 
Florida
 
region,
 
partially
 
offset
 
by
 
a
 
decrease
 
of $11.9
 
million
 
in
 
the
 
Virgin
 
Islands region.
 
On
 
a
 
portfolio
 
basis,
 
the
 
increase
consisted of a $439.5
 
million increase in consumer
 
loans, including a $369.7
 
million increase in auto loans
 
and leases, and an increase
of $184.3
 
million in
 
commercial and
 
construction loans
 
(net of
 
a $138.2
 
million decrease
 
in the
 
carrying value
 
of the
 
SBA PPP
 
loan
portfolio), partially offset
 
by a reduction of
 
$154.5 million in residential
 
mortgage loans. Excluding the
 
$138.2 million decrease
 
in the
carrying
 
value
 
of
 
SBA PPP
 
loans,
 
commercial
 
and
 
construction
 
loans
 
increased
 
by $322.5
 
million
 
mainly
 
reflecting
 
the origination
and purchases of loans
 
related to multiple commercial
 
relationships, each in excess
 
of $10 million, that
 
increased the portfolio
 
amount
by $637.1
 
million, partially
 
offset
 
by payoffs
 
and paydowns
 
of large
 
commercial
 
relationships totaling
 
$219.9 million,
 
the sale
 
of a
$35.2
 
million
 
commercial
 
and
 
industrial
 
loan
 
participation
 
in
 
the
 
Puerto
 
Rico
 
region,
 
and
 
the
 
sale
 
of
 
a
 
$23.9
 
million
 
adversely
classified commercial and
 
industrial loan participation in the Florida region.
As of December 31,
 
2022,
 
the loans held for
 
the Corporation’s
 
investment portfolio was comprised
 
of commercial and construction
loans
 
(46%),
 
residential
 
real
 
estate
 
loans
 
(25%),
 
and
 
consumer
 
and
 
finance
 
leases
 
(29%).
 
Of
 
the
 
total
 
gross
 
loan
 
portfolio
 
held
 
for
investment
 
of
 
$11.6
 
billion
 
as
 
of
 
December
 
31,
 
2022,
 
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, 2022
Puerto Rico
Virgin Islands
United States
Total
(In thousands)
Residential mortgage loans
$
2,237,983
$
179,917
$
429,390
$
2,847,290
Construction loans
30,529
4,243
98,181
132,953
Commercial mortgage loans
1,768,890
65,314
524,647
2,358,851
Commercial and Industrial loans
(1)
1,791,235
68,874
1,026,154
2,886,263
Total commercial
 
loans
3,590,654
138,431
1,648,982
5,378,067
Consumer loans and finance leases
3,256,070
61,419
9,979
3,327,468
Total loans held
 
for investment, gross
$
9,084,707
$
379,767
$
2,088,351
$
11,552,825
Loans held for sale
12,306
-
-
12,306
Total loans, gross
$
9,097,013
$
379,767
$
2,088,351
$
11,565,131
(1) As of December 31, 2022, includes $6.8 million of SBA PPP loans
 
consisting of $4.8 million in the Puerto Rico region, $0.2
 
million in the Virgin Islands region,
 
and $1.8 million in the
United States region.
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
Construction loans
38,789
4,344
95,866
138,999
Commercial mortgage loans
1,635,137
67,094
465,238
2,167,469
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.
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. Auto loans
 
and finance
 
leases originations rely
 
primarily
on relationships with auto dealers and dedicated sales professionals who serve
 
selected locations in order facilitate originations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
69
 
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 indicated dates:
For the Year
 
Ended December 31,
2022
2021
2020
(Dollars in thousands)
Beginning balance as of January 1
$
10,826,783
$
11,441,691
$
8,886,543
Residential real estate loans originated and purchased
468,599
623,290
560,012
Construction loans originated
112,640
102,538
126,499
C&I and commercial mortgage loans originated and purchased
2,950,904
2,994,893
2,751,058
Finance leases originated
308,811
240,419
152,254
Consumer loans originated
1,516,316
1,287,487
915,107
Total loans originated
 
and purchased
5,357,270
5,248,627
4,504,930
Loans acquired from BSPR
-
-
2,514,700
Sales of loans
(293,213)
(620,227)
(657,498)
Repayments and prepayments
(4,694,352)
(5,495,131)
(3,661,289)
Other increases (decreases)
(1)
108,179
251,823
(145,695)
Net increase (decrease)
477,884
(614,908)
2,555,148
Ending balance as of December 31
$
11,304,667
$
10,826,783
$
11,441,691
Percentage increase (decrease)
4.41%
(5.37)%
28.75%
_____________
(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,
 
2022, the
 
Corporation’s
 
total residential
 
mortgage
 
loan portfolio,
 
including
 
loans held
 
for sale,
 
decreased by
$154.5
 
million,
 
as compared
 
to
 
the
 
balance
 
as of
 
December 31,
 
2021.
 
The
 
residential
 
mortgage
 
loan
 
portfolio
 
decreased
 
by
 
$144.0
million in
 
the Puerto
 
Rico region,
 
$8.6 million
 
in the
 
Virgin
 
Islands region,
 
and $1.9
 
million in
 
the Florida
 
region. The
 
decline in
 
all
regions was driven
 
by repayments, foreclosures,
 
and charge-offs,
 
which more than
 
offset the volume
 
of new loan
 
originations kept on
the balance sheet.
 
 
The
 
majority
 
of
 
the
 
Corporation’s
 
outstanding
 
balance
 
of
 
residential
 
mortgage
 
loans
 
in
 
the
 
Puerto
 
Rico
 
and
 
the
 
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
 
45%
 
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,
 
2022
 
amounted
 
to
 
$468.6
 
million,
 
compared
 
to
 
$623.3
million for 2021.
 
The decrease in residential
 
mortgage loan originations
 
of $154.7 million
 
consisted of declines
 
of $136.8 million
 
and
$21.8 million
 
in the Puerto
 
Rico and Florida
 
regions, respectively,
 
partially offset
 
by an increase
 
of $3.9 million
 
in the Virgin
 
Islands
region. The
 
decrease in
 
2022 reflects
 
lower levels
 
of refinancings
 
driven by
 
the effect
 
of higher
 
market interest
 
rates. Approximately
54% of the
 
$363.0 million residential
 
mortgage loan originations
 
in the Puerto
 
Rico region during
 
the year ended
 
December 31, 2022
were of conforming loans, compared to 88% of $499.7 million for the year ended
 
December 31, 2021.
70
Commercial and Construction Loans
As
 
of
 
December
 
31,
 
2022,
 
the
 
Corporation’s
 
commercial
 
and
 
construction
 
loan
 
portfolio
 
increased
 
by
 
$184.3
 
million
 
(net
 
of
 
a
$138.2 million decrease in the SBA PPP loan portfolio), as compared to the balance
 
as of December 31, 2021.
 
In the
 
Puerto
 
Rico region,
 
commercial
 
and
 
construction
 
loans increased
 
by $49.6
 
million (net
 
of a
 
$98.0
 
million decrease
 
in the
SBA PPP loan portfolio),
 
as compared to the
 
balance as of December
 
31, 2021. Excluding the
 
$98.0 million decrease
 
in the SBA PPP
loan portfolio, commercial and
 
construction loans in the
 
Puerto Rico region increased by $147.6
 
million, driven by the origination
 
and
purchases
 
of loans
 
related to
 
eleven
 
commercial relationships,
 
each in
 
excess of
 
$10 million,
 
that increased
 
the portfolio
 
amount by
$315.3
 
million,
 
partially
 
offset
 
by
 
payoffs
 
and
 
paydowns,
 
including
 
the
 
payoff
 
of
 
three
 
commercial
 
and
 
construction
 
loans
 
totaling
$58.7 million each in excess of $10 million, and the sale of a $35.2 million commercial
 
and industrial loan participation.
In the
 
Florida region,
 
commercial and
 
construction loans
 
increased by
 
$147.2 million
 
(net of
 
a $32.2 million
 
decrease in
 
the SBA
PPP loan portfolio),
 
as compared to
 
the balance as
 
of December 31,
 
2021. Excluding the
 
$32.2 million decrease
 
in the SBA PPP
 
loan
portfolio,
 
commercial
 
and
 
construction
 
loans
 
in
 
the
 
Florida
 
region
 
increased
 
by
 
$179.4
 
million,
 
driven
 
by
 
the
 
origination
 
and
purchases of
 
loans related
 
to multiple commercial
 
relationships, each
 
in excess of
 
$10 million,
 
that increased
 
the portfolio amount
 
by
$321.8 million, partially
 
offset by the payoffs
 
and paydowns of eight
 
commercial relationships totaling
 
$161.2 million, and
 
the sale of
a $23.9 million adversely classified commercial and industrial loan
 
participation in the Florida region.
In the Virgin
 
Islands region,
 
commercial and construction
 
loans decreased
 
by $12.5 million,
 
driven by an
 
$8.0 million decrease
 
in
the SBA PPP loan portfolio, as compared to the balance as of December 31, 2021.
As of
 
December 31,
 
2022,
 
the Corporation
 
had $169.8
 
million outstanding
 
in loans
 
extended
 
to the
 
Puerto Rico
 
government,
 
its
municipalities,
 
and
 
public
 
corporations,
 
compared
 
to
 
$178.4
 
million
 
as
 
of
 
December
 
31,
 
2021.
 
See
 
“Exposure
 
to
 
Puerto
 
Rico
Government” below for additional information.
 
The
 
Corporation
 
also
 
has
 
credit
 
exposure
 
to
 
USVI
 
government
 
entities.
 
As
 
of
 
December
 
31,
 
2022,
 
the
 
Corporation
 
had
 
$38.0
million
 
in
 
loans
 
to
 
USVI
 
government
 
public
 
corporations,
 
compared
 
to
 
$39.2
 
million
 
as
 
of
 
December
 
31,
 
2021.
 
See
 
“Exposure
 
to
USVI Government” below for additional information.
As
 
of
 
December
 
31,
 
2022,
 
the
 
Corporation’s
 
total
 
exposure
 
to
 
shared
 
national
 
credit
 
(“SNC”)
 
loans
 
(including
 
unused
commitments)
 
amounted
 
to
 
$1.1
 
billion,
 
compared
 
to
 
$918.6
 
million
 
as
 
of
 
December
 
31,
 
2021.
 
As
 
of
 
December
 
31,
 
2022,
approximately
 
$189.3
 
million
 
of
 
the
 
SNC
 
exposure
 
is
 
related
 
to
 
the
 
portfolio
 
in
 
Puerto
 
Rico
 
and
 
$872.0
 
million
 
is
 
related
 
to
 
the
portfolio in the Florida region.
Commercial and construction loan originations (excluding government
 
loans) decreased by $22.3 million to $3.0 billion for the year
ended December
 
31, 2022,
 
when compared
 
to the
 
same period
 
of 2021.
 
Total
 
commercial and
 
construction loan
 
originations in
 
2021
includes
 
SBA
 
PPP
 
loan
 
originations
 
of
 
$283.7
 
million.
 
Excluding
 
SBA
 
PPP
 
loan
 
originations,
 
commercial
 
and
 
construction
 
loan
originations increased
 
by $261.4
 
million in
 
2022, compared
 
to 2021.
 
The increase
 
consisted of
 
increases of $201.4
 
million and
 
$93.0
million in the Puerto Rico and Florida regions, respectively,
 
partially offset by a decrease of $33.0 million in the Virgin
 
Islands region.
Government
 
loan
 
originations
 
for
 
2022
 
amounted
 
to
 
$51.1
 
million,
 
compared
 
to
 
$62.8
 
million
 
for
 
2021.
 
Government
 
loan
originations in both years primarily consisted of the renewal
 
of certain facilities in both the Virgin
 
Islands and the Puerto Rico regions,
and the utilization of an arranged overdraft line of credit of a government entity in the
 
Virgin Islands region.
Consumer Loans and Finance Leases
As of December
 
31, 2022, the
 
Corporation’s
 
consumer loan and
 
finance lease portfolio
 
increased by $439.5
 
million to $3.3
 
billion,
as
 
compared
 
to
 
the
 
portfolio
 
balance
 
of
 
$2.9
 
billion
 
as
 
of
 
December
 
31,
 
2021.
 
The
 
increase
 
was
 
reflected
 
in
 
all
 
classes
 
within
 
the
consumer
 
loan
 
portfolio
 
segment,
 
including
 
increases
 
of
 
$226.5
 
million
 
and
 
$143.2
 
million
 
in
 
the
 
auto
 
loans
 
and
 
finance
 
leases
portfolios, respectively
 
.
 
The growth
 
in consumer
 
loans is
 
mainly reflected
 
in the
 
Puerto Rico
 
region and
 
was driven
 
by an
 
increased
level of loan originations during 2022.
Originations of
 
auto loans
 
(including finance
 
leases) in
 
2022 amounted
 
to $1.0
 
billion, compared
 
to $932.7
 
million for
 
2021. The
increase
 
consisted
 
of increases
 
of $94.6
 
million and
 
$5.1 million,
 
respectively,
 
in the
 
Puerto Rico
 
and Virgin
 
Islands regions.
 
Other
consumer loan
 
originations, excluding
 
credit cards,
 
for 2022
 
amounted to
 
$304.5 million,
 
compared to
 
$172.7 million
 
in 2021.
 
Most
of the
 
increase in
 
other consumer
 
loan originations
 
in 2022,
 
when compared
 
to 2021,
 
was in
 
the Puerto
 
Rico region.
 
The utilization
activity on the outstanding credit card portfolio for 2022 amounted
 
to $488.3 million, compared to $422.5 million for 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
71
Maturities of Loans Receivable
 
The following tables
 
present the loans
 
held for investment
 
portfolio as of
 
December 31, 2022
 
by remaining contractual
 
maturities and
interest rate type:
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
$
68,547
$
434,908
$
1,252,701
$
1,091,134
$
2,847,290
Construction loans
90,824
39,337
1,989
803
132,953
Commercial mortgage loans
962,336
1,191,268
199,833
5,414
2,358,851
C&I loans
1,213,757
1,341,101
326,474
4,931
2,886,263
Consumer loans
997,191
2,064,383
264,594
1,300
3,327,468
Total loans
(1)
$
3,332,655
$
5,070,997
$
2,045,591
$
1,103,582
$
11,552,825
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
$
63,574
$
4,973
$
2,577,163
$
201,580
$
2,847,290
Construction loans
6,323
84,500
4,227
37,903
132,953
Commercial mortgage loans
725,300
237,036
921,832
474,683
2,358,851
C&I loans
270,125
943,632
422,871
1,249,635
2,886,263
Consumer loans
761,929
235,262
2,321,662
8,615
3,327,468
Total loans
(1)
$
1,827,251
$
1,505,403
$
6,247,755
$
1,972,416
$
11,552,825
(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.
72
Investment Activities
As part of
 
its liquidity,
 
revenue diversification,
 
and interest rate
 
risk strategies, First
 
BanCorp. maintains
 
a debt securities
 
portfolio
classified as available for sale or held to maturity.
 
The
 
Corporation’s
 
total
 
available-for-sale
 
debt
 
securities
 
portfolio
 
as
 
of
 
December
 
31,
 
2022
 
amounted
 
to
 
$5.6
 
billion,
 
an
 
$854.2
million decrease
 
from December
 
31, 2021.
 
The decrease
 
was mainly
 
driven by
 
a $718.6
 
million decrease
 
in fair
 
value attributable
 
to
changes
 
in market
 
interest rates
 
and
 
the repayments
 
of approximately
 
$642.9 million
 
of U.S.
 
agencies
 
and
 
MBS, partially
 
offset
 
by
purchases
 
of U.S. agencies debentures and MBS totaling $512.3 million during 2022.
 
As
 
of
 
December
 
31,
 
2022,
 
substantially
 
all
 
of
 
the
 
Corporation’s
 
available-for-sale
 
debt
 
securities
 
portfolio
 
was
 
invested
 
in
 
U.S.
government and
 
agencies debentures
 
and fixed-rate
 
GSEs’ MBS.
 
In addition,
 
as of
 
December 31,
 
2022, 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 $3.3
million
 
(fair
 
value
 
-
 
$2.2
 
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 $1.1
 
million as
of
 
December
 
31,
 
2022,
 
of which
 
$0.4
 
million
 
is due
 
to credit
 
deterioration.
 
During 2021,
 
the
 
Corporation
 
placed
 
this instrument
 
in
nonaccrual status based on the delinquency status of the underlying
 
second mortgage loans collateral.
As of December 31, 2022, the Corporation’s
 
held-to-maturity debt securities portfolio, before the ACL, increased to
 
$437.5 million,
compared
 
to
 
$178.1
 
million
 
as
 
of
 
December
 
31,
 
2021,
 
mainly
 
driven
 
by
 
purchases
 
of
 
GSEs’
 
MBS
 
totaling
 
$289.8
 
million
 
during
2022. Held-to-maturity debt securities consisted of fixed-rate GSEs’ MBS and 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. Puerto
 
Rico municipal
 
bonds typically
 
are not
 
issued in
 
bearer form,
 
are not
 
registered with
 
the
Securities
 
and
 
Exchange
 
Commission,
 
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
74% 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, 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. As of December
 
31, 2022, the ACL for
 
held-
to-maturity debt securities was $8.3 million, compared to $8.6 million
 
as of December 31, 2021.
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
 
and
 
“Credit
 
Risk
 
Management”
 
below
 
for
 
the
 
ACL
 
of
 
the
exposure to Puerto Rico municipal bonds.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
73
 
The following table presents the carrying values of investments as of the indicated dates:
December 31, 2022
December 31, 2021
(In thousands)
Money market investments
$
2,025
$
2,682
Available-for-sale
 
debt securities, at fair value:
U.S. government and agencies obligations
2,492,228
2,405,468
Puerto Rico government obligations
2,201
2,850
MBS:
 
Residential
2,941,458
3,803,933
 
Commercial
163,133
240,510
Other
500
1,000
Total available-for-sale
 
debt securities, at fair value
5,599,520
6,453,761
Held-to-maturity debt securities, at amortized cost:
MBS:
 
Residential
166,739
-
 
Commercial
105,088
-
Puerto Rico municipal bonds
165,710
178,133
ACL for held-to-maturity Puerto Rico municipal bonds
(8,286)
(8,571)
Total held-to-maturity
 
debt securities
429,251
169,562
Equity securities, including $42.9 million and $21.5 million of FHLB stock
as of December 31, 2022 and 2021, respectively
55,289
32,169
Total money market
 
investments and investment securities
$
6,086,085
$
6,658,174
 
The carrying values of debt securities as of December 31,
 
2022 by contractual maturity (excluding MBS), are shown below:
Carrying Amount
Weighted-Average
 
Yield %
(Dollars in thousands)
U.S. government and agencies obligations:
Due within one year
$
132,166
0.32
Due after one year through five years
2,299,262
0.82
Due after five years through ten years
48,594
1.54
Due after ten years
12,206
4.62
2,492,228
0.83
Puerto Rico government and municipalities obligations:
Due within one year
1,202
5.20
Due after one year through five years
42,530
6.34
Due after five years through ten years
55,956
6.29
Due after ten years
68,223
6.76
167,911
6.49
Other debt securities
Due within one year
500
0.84
Total
2,660,639
1.16
MBS
3,376,418
1.66
ACL on held-to-maturity debt securities
(8,286)
-
Total debt securities
$
6,028,771
1.45
 
 
 
 
 
74
Net
 
interest
 
income
 
in
 
future
 
periods
 
could
 
be
 
affected
 
by
 
prepayments
 
of
 
MBS.
 
Any
 
acceleration
 
in
 
the
 
prepayments
 
of
 
MBS
purchased
 
at
 
a
 
premium
would
 
lower
 
yields
 
on
 
these
 
securities,
 
since
 
the
 
amortization
 
of
 
premiums
 
paid
 
upon
 
acquisition
 
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,
2022, the
 
Corporation had
 
approximately $2.0
 
billion in
 
callable debt
 
securities (U.S.
 
agencies debt
 
securities) with
 
an average
 
yield
of 0.83%, of which approximately 58% were
 
purchased at a discount and 7%
 
at a premium.
 
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 3
 
– Debt Securities,
 
to the audited
 
financial statements included
 
in Item 8 of this
 
Form 10-
K, for additional information regarding the Corporation’s
 
debt securities portfolio.
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 risks and rewards 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 eleven
 
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
 
of
 
loss
 
in
 
the
 
value
 
of
 
assets
 
or
 
liabilities
 
due
 
to
 
changes
 
in
 
market
 
conditions,
 
including
 
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.
 
 
 
 
 
 
 
 
 
75
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
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
 
has
 
appointed
 
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;
 
 
 
76
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,
information
 
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 stress testing and model risk;
Review and discuss with management risk assessments for new products
 
and services; and
Review periodically the scope and effectiveness
 
of the Corporation’s regulatory compliance
 
policies and programs.
Asset and Liability Committee
The Board
 
of Directors
 
has appoint
 
ed 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,
 
market
 
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 has appointed
 
the Credit Committee to
 
assist the Board in
 
its oversight of the
 
Corporation’s policies
 
related
to the Corporation’s lending
 
function, or 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 through the review of
 
such processes, reports and other
information as
 
it deems appropriate,
 
including the
 
loan-quality grading
 
and examination
 
process, internal and
 
external audits
and examinations
 
of the
 
Corporation’s
 
credit processes,
 
the incidence
 
of new
 
problem assets,
 
the frequency
 
and reasons
 
for
credit policy exceptions, the loan review functions and the asset classification
 
process;
 
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 has appointed
 
the Audit Committee to assist the
 
Board 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;
 
 
 
 
 
77
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;
 
The application of the Corporation’s
 
code of business conduct and ethics as established by management and
 
the Board;
 
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
The Corporation’s legal and
 
ethical compliance.
Corporate Governance and Nominating Committee
The
 
Board
 
of
 
Directors
 
has
 
appointed
 
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, annually
 
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
 
sustainability and environmental, social, and governance (“ESG”) policies.
Compensation and Benefits Committee
The Board
 
of Directors
 
has appoint
 
ed 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.
 
Trust Committee
The Board
 
of Directors
 
of the
 
Bank has
 
appointed the
 
Trust Committee
 
to assist
 
such 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 has jurisdiction over all aspects of the Trust
 
Department and may act on behalf of the Board of Directors of the Bank.
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 in the committee as an observer.
 
78
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.
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,
 
including
 
sensitivity
 
of
 
the
 
Corporation’s
 
earnings
 
under
 
various
 
interest
 
rate
scenarios. This committee
 
makes recommendations as
 
to any adjustments to
 
asset liability management and
 
financial resource
allocation
 
in
 
light
 
of
 
current
 
events,
 
risks,
 
exposures,
 
and
 
regulatory
 
requirements
 
and
 
approves
 
related
 
policies.
 
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 credit exceptions,
 
past-due loans, portfolio
 
concentrations, foreclosures,
 
collection, loan mitigation
 
programs, risk appetite,
leveraged loans, business production and 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
 
aligning ESG
 
priorities and
 
initiatives for
 
the year,
 
setting and
 
monitoring long-
term objectives
 
and goals,
 
and leading
 
the annual
 
reporting process
 
on ESG
 
related topics.
 
The Committee
 
also oversees
 
the
sustainability policy
 
and integrates
 
climate change
 
risk factors
 
into the
 
corporate governance,
 
strategy and
 
risk management.
The ESG Committee regularly reports to the Corporate Governance
 
and Nominating Committee of the Board of Directors.
 
The Community
 
Reinvestment Act
 
Executive Committee
 
– oversees,
 
monitors,
 
and reports
 
on the
 
Corporation’s
 
compliance
with Community Reinvestment Act regulatory requirements.
 
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.
 
 
79
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
 
technology
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.
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
 
Committee –
 
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
 
an 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,
 
manage the
 
Corporation’s
 
interest rate
 
and market
 
and liquidity
 
risk programs
 
and, jointly
 
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 assist the
 
CFO in
the review of the Corporation’s internal
 
control over financial reporting and disclosure controls and procedures.
80
The
 
Chief
 
Accounting
 
Officer
 
and
 
the
 
Corporate
 
Controller
 
are
 
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 Corporate Strategic
 
and Business Development
 
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
 
groups
 
involved
 
with
 
the
strategic and business planning process.
The
 
Corporate
 
Strategy
 
and
 
Investor
 
Relations
 
Officer
 
is
 
responsible
 
for
 
managing
 
communications
 
with
 
the
 
investor
community
 
and
 
sell-side
 
research
 
analysts
 
and
 
for
 
coordinating
 
and
 
collaborating
 
with the
 
executive
 
team
 
and
 
all corporate
groups involved with the adequate execution of the strategic and business planning
 
process.
 
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 Financi
 
al 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
 
of
 
the
 
Corporation’s
 
business.
 
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
the following:
 
(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.
 
 
81
Liquidity Risk and Capital Adequacy,
 
Interest Rate Risk Management, Credit Risk
 
Management, Operational Risk, Legal
and Compliance Risk and Concentration Risk
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.
 
The Asset
 
and Liability
 
Committee of
 
the Board
 
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, market
 
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 Corporate
 
Strategic and
 
Business Development
 
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
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
 
Corporate
 
Controller’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
 
estimate
 
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 period of
stress, 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
 
and
 
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,
 
2022,
 
the
 
estimated
 
core
 
liquidity
 
reserve
 
(which
 
includes
 
cash
 
and
 
free
 
high
 
quality
 
liquid
 
assets
 
such
 
as
 
U.S.
government
 
and GSEs
 
obligations that
 
could be
 
liquidated within
 
one day)
 
was $3.5
 
billion, or
 
19.0% of
 
total assets,
 
compared to
$5.6 billion, or 27.0%
 
of total assets as of
 
December 31, 2021. The
 
basic liquidity ratio (which
 
adds available secured lines
 
of credit
to
 
the
 
core
 
liquidity)
 
was
 
approximately
 
22.5%
 
of
 
total
 
assets
 
as
 
of
 
December
 
31,
 
2022,
 
compared
 
to
 
32.7%
 
of
 
total assets
 
as
 
of
December
 
31, 2021.
 
The decrease
 
in the
 
core
 
liquidity
 
reserves is
 
in part
 
due
 
to customer
 
deposits withdrawals
 
and
 
maturities, as
well as the funding of loan growth.
As
 
of
 
December
 
31,
 
2022,
 
the
 
Corporation
 
had
 
$644.2
 
million
 
available
 
for
 
credit
 
from
 
the
 
FHLB.
 
The
 
Corporation
 
also
maintains borrowing
 
capacity at
 
the FED
 
Discount Window.
 
The Corporation
 
does not
 
consider borrowing
 
capacity from
 
the FED
82
Discount
 
Window
 
as a
 
primary
 
source
 
of liquidity
 
but had
 
approximately
 
$1.3 billion
 
available
 
for
 
funding under
 
the FED’s
 
BIC
Program as
 
of December
 
31, 2022
 
as an
 
additional contingent
 
source. Total
 
loans pledged
 
to the
 
FED Discount
 
Window
 
amounted
to $2.2 billion as of
 
December 31, 2022. The Corporation
 
also 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, 2022, the holding
 
company had $19.3 million
 
of cash and cash
 
equivalents. Cash and
 
cash equivalents at
 
the
Bank level
 
as of
 
December
 
31, 2022
 
were approximately
 
$479.8
 
million,
 
primarily
 
balances deposited
 
at the
 
FED. The
 
Bank had
$105.8
 
million
 
in
 
brokered
 
CDs
 
as
 
of
 
December
 
31,
 
2022,
 
of
 
which
 
approximately
 
$55.7
 
million
 
mature
 
over
 
the
 
next
 
twelve
months.
 
Liquidity
 
at
 
the
 
Bank
 
level
 
is
 
highly
 
dependent
 
on
 
bank
 
deposits,
 
which
 
fund
 
86.9%
 
of
 
the
 
Bank’s
 
assets
 
(or
 
86.3%
excluding brokered
 
CDs). Historically,
 
the use
 
of brokered
 
CDs has
 
been an
 
additional source
 
of funding
 
for the
 
Corporation as
 
it
provides an
 
additional efficient
 
channel for
 
funding diversification
 
and can
 
be obtained
 
faster than
 
regular retail
 
deposits. Brokered
CDs have been maintained at low levels due to the excess liquidity and availability
 
of core deposits.
 
Over the
 
last twelve
 
months, the
 
FED’s
 
policy to
 
control the
 
inflationary economic
 
environment,
 
including the
 
rising of
 
market
interest
 
rates,
 
have
 
resulted
 
in
 
excess
 
liquidity
 
gradually
 
tapering
 
off
 
and
 
impacting
 
the
 
Corporation’s
 
core
 
deposit
 
balances
 
as
customers have
 
allocated cash
 
into higher
 
yielding options.
 
During the
 
fourth quarter
 
of 2022,
 
the Corporation
 
increased the
 
use of
short-term advances
 
from the
 
FHLB, repurchase
 
agreements, and
 
other sources,
 
such as
 
wholesale funding
 
brokers. The
 
additional
use
 
and
 
future
 
levels
 
of
 
these
 
sources
 
of
 
funding
 
are
 
dependent
 
on
 
factors
 
such
 
as
 
the
 
loan
 
portfolio
 
future
 
pipeline,
 
customers
continuing
 
to
 
allocate
 
more
 
cash
 
into
 
higher
 
yielding
 
alternatives,
 
among
 
other
 
factors.
 
Funding
 
through
 
these
 
sources
 
could
potentially increase the overall cost of funding for the Corporation and impact
 
the net interest margin.
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, 2022,
 
the Corporation’s
 
commitments to
 
extend credit
 
amounted to
 
approximately $1.9
billion.
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
83
 
The following table summarizes commitments to extend credit and standby letters of
 
credit as of the indicated dates:
December 31,
 
2022
2021
(In thousands)
Financial instruments whose contract amounts represent credit risk:
 
Commitments to extend credit:
 
Construction undisbursed funds
$
170,639
$
197,917
 
Unused personal lines of credit
 
978,219
1,180,824
 
Commercial lines of credit
 
761,634
725,259
 
Letters of credit:
 
Commercial letters of credit
68,647
151,140
 
Standby letters of credit
9,160
4,342
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 $3.4
 
billion as of December
31,
 
2022.
 
Our
 
material
 
cash
 
requirements
 
comprise
 
primarily
 
of
 
contractual
 
obligations
 
to
 
make
 
future
 
payments
 
related
 
to
 
time
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 flows 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 CDs.
 
Additional funding
 
is provided
 
by short-
 
and long-term
 
securities
sold under agreements
 
to repurchase and
 
lines of credit with
 
the FHLB. Consistent with
 
its strategy,
 
the Corporation has been
 
seeking
to add core deposits.
 
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
 
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.
 
The
 
Corporation
 
continues
 
to
 
have
 
access
 
to
 
financing
 
through
 
counterparties
 
to
 
repurchase
 
agreements,
 
the
 
FHLB,
 
and
 
other
agents, such
 
as wholesale fundi
 
ng 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
84
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:
As of December 31,
2022
2021
(Dollars in thousands)
Interest-bearing savings accounts
$
3,902,888
$
4,729,387
Interest-bearing checking accounts
3,770,993
3,492,645
CDs
2,356,702
2,535,349
Interest-bearing deposits
(1)
10,030,583
10,757,381
Non-interest-bearing deposits
6,112,884
7,027,513
Total
$
16,143,467
$
17,784,894
Interest-bearing deposits:
Average balance
 
outstanding
$
10,562,159
$
10,940,542
Non-interest-bearing deposits:
Average balance
 
outstanding
$
6,391,171
$
6,063,715
Weighted average
 
rate during the period on interest-bearing deposits
0.44%
0.38%
(1)
The weighted-average interest rate on total interest-bearing deposits
 
as of December 31, 2022 and 2021 was 1.03% and 0.31%,
 
respectively.
 
Retail
 
deposits
 
The
 
Corporation’s
 
deposit
 
products
 
include
 
regular
 
savings
 
accounts,
 
demand
 
deposit
 
accounts,
 
money
 
market
accounts,
 
and
 
retail
 
CDs. As
 
of
 
December
 
31,
 
2022,
 
the
 
Corporation’s
 
deposits,
 
excluding
 
government
 
deposits
 
and
 
brokered
 
CDs,
decreased by $1.1 billion
 
to $13.3 billion from
 
$14.4 billion as of December
 
31, 2021. The $1.1
 
billion decrease was primarily
 
related
to
 
lower
 
balances
 
in
 
commercial
 
savings
 
accounts,
 
retail
 
CDs,
 
and
 
retail
 
demand
 
deposits
 
accounts
 
primarily
 
in
 
the
 
Puerto
 
Rico
region, reflecting,
 
among other
 
things, the
 
effect of
 
customers’ allocation
 
of cash
 
balances into
 
higher-yielding
 
options and
 
elevated
customer spending.
Government deposits
 
– As of
 
December 31,
 
2022, the Corporation
 
had $2.3 billion
 
of Puerto Rico
 
public sector deposits
 
($2.2 billion
in transactional
 
accounts and
 
$162.6 million
 
in time
 
deposits), compared
 
to $2.7
 
billion as
 
of December
 
31, 2021,
 
which are
 
insured
by
 
the
 
FDIC
 
up
 
to
 
the
 
applicable
 
limits
 
and
 
the
 
uninsured
 
portion
 
is
 
fully
 
collateralized.
 
Approximately
 
24%
 
of
 
the
 
public
 
sector
deposits
 
as
 
of
 
December
 
31,
 
2022
 
were
 
from
 
municipalities
 
and
 
municipal
 
agencies
 
in
 
Puerto
 
Rico
 
and
 
76%
 
were
 
from
 
public
corporations, the
 
central government
 
and agencies, and
 
U.S. federal
 
government agencies
 
in Puerto Rico.
 
The decrease was
 
primarily
related to decreases in transactional
 
account balances of government
 
public corporations that reflect,
 
among other things, utilization of
federal funding allocated to Puerto Rico.
In
 
addition,
 
as
 
of
 
December
 
31,
 
2022,
 
the
 
Corporation
 
had
 
$442.8
 
million
 
of
 
government
 
deposits
 
in
 
the
 
Virgin
 
Islands
 
region
(December 31, 2021 - $568.4 million) and $11.6
 
million in the Florida region (December 31, 2021 - $9.6 million).
Estimate of Uninsured
 
Deposits –
As of December 31,
 
2022 and 2021, the estimated
 
amount of uninsured deposits
 
totaled $7.6 billion
and $8.9
 
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
 
balances presented
 
as of December
 
31, 2022
 
and 2021
 
include
the
 
uninsured
 
portion
 
of
 
government
 
deposits,
 
which
 
are
 
fully
 
collateralized
 
as
 
previously
 
mentioned.
 
The
 
amount
 
of
 
uninsured
deposits is calculated based
 
on the same methodologies
 
and assumptions used for
 
our bank regulatory reporting
 
requirements adjusted
for cash held by wholly-owned subsidiaries at the Bank.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
85
 
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, 2022:
(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
$
289,172
$
56,286
$
148,966
$
197,107
$
691,531
Other uninsured time deposits
$
21,874
$
7,027
$
17,281
$
4,855
$
51,037
Brokered
 
CDs
 
– Total
 
brokered CDs
 
increased during
 
2022 by $5.4
 
million to $105.8
 
million as of
 
December 31,
 
2022, compared
 
to
$100.4 million as of December 31, 2021.
 
The average remaining term to maturity of the brokered CDs outstanding
 
as of December 31, 2022 was approximately 1.6 years.
 
The use of
 
brokered CDs provides
 
an 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.
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, 2022, 2021, and 2020.
Borrowings
 
As of December 31, 2022, total borrowings amounted to $933.9 million, compared
 
to $683.8 million as of December 31, 2021.
 
The following table presents the composition of total borrowings as of the indicated
 
dates:
Weighted Average
 
Rate as of
 
As of December 31,
December 31, 2022
2022
2021
(Dollars in thousands)
Short-term securities sold under agreements to repurchase
4.55%
$
75,133
$
-
Long-term securities sold under agreements to repurchase
-
-
300,000
Short-term advances from FHLB
4.56%
475,000
-
Long-term advances from FHLB
4.25%
200,000
200,000
Other borrowings
7.33%
183,762
183,762
Total
5.04%
$
933,895
$
683,762
Securities
 
sold
 
under
 
agreements
 
to
 
repurchase
 
-
The
 
Corporation’s
 
investment
 
portfolio
 
is
 
funded
 
in
 
part
 
with
 
repurchase
agreements.
 
The Corporation’s
 
outstanding
 
short-term
 
securities sold
 
under repurchase
 
agreements
 
amounted
 
to $75.1
 
million
 
as of
December
 
31,
 
2022
 
and
 
are
 
scheduled
 
to
 
mature
 
during
 
the
 
first
 
quarter
 
of
 
2023.
 
The
 
$300.0
 
million
 
of
 
long-term
 
repurchase
agreements
 
that were
 
outstanding
 
as of
 
December 31,
 
2021 matured
 
or were
 
called close
 
to its
 
maturity during
 
2022. 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 12
 
– Securities
 
Sold Under
 
Agreements to
 
Repurchase, to
 
the 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, 2022, the outstanding balance
 
of fixed-rate FHLB advances was $675.0 million, compared
 
to $200.0 million as of
December 31,
 
2021. The $200.0
 
million in long-term
 
FHLB advances outstanding
 
as of December
 
31, 2021 matured
 
and were repaid
during
 
the third
 
quarter of
 
2022.
 
In addition,
 
during
 
the fourth
 
quarter of
 
2022,
 
the Corporation
 
added $475.0
 
million of
 
short-term
FHLB advances that are scheduled
 
to mature during the
 
first quarter of 2023 and
 
$200.0 million of long-term
 
FHLB advances that are
scheduled
 
to
 
mature
 
in
 
November
 
2027.
 
Of
 
the
 
$675.0
 
million
 
in
 
FHLB
 
advances,
 
$225.0
 
million
 
were
 
pledged
 
with
 
investment
86
securities
 
and
 
$450.0
 
million
 
were
 
pledged
 
with
 
mortgage
 
loans.
 
As
 
of
 
December
 
31,
 
2022,
 
the
 
Corporation
 
had
 
$644.2
 
million
available for additional credit on FHLB lines of credit based on collateral
 
pledged at the FHLB of New York
 
.
Trust Preferred
 
Securities –
In 2004, FBP
 
Statutory Trusts
 
I and II,
 
statutory trusts that
 
are wholly-owned by
 
the Corporation and
 
not
consolidated
 
in
 
the
 
Corporation’s
 
financial
 
statements,
 
sold
 
to
 
institutional
 
investors
 
variable-rate
 
TRuPs
 
and
 
used
 
the
 
proceeds
 
of
these issuances, together
 
with the proceeds
 
of the purchases by
 
the Corporation of
 
variable rate common
 
securities, to purchase
 
junior
subordinated
 
deferrable
 
debentures.
 
The
 
subordinated
 
debentures
 
are
 
presented
 
in
 
the
 
Corporation’s
 
consolidated
 
statements
 
of
financial
 
condition
 
as
 
other
 
borrowings.
 
As
 
of
 
each
 
of
 
December
 
31,
 
2022
 
and
 
2021,
 
the
 
Corporation
 
had
 
subordinated
 
debentures
outstanding in the aggregate amount
 
of $183.8 million with maturity dates from
 
June 17, 2034 through September 20, 2034.
 
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,
 
2022,
 
the Corporation
 
was
current
 
on
 
all
 
interest
 
payments
 
due
 
on
 
its
 
subordinated
 
debt.
 
See
 
Note
 
14
 
 
Other
 
Borrowings
 
and
 
Note
 
10
 
 
Non-Consolidated
Variable
 
Interest
 
Entities
 
(“VIE”)
 
and
 
Servicing
 
Assets,
 
to
 
the
 
audited
 
consolidated
 
financial
 
statements
 
included
 
in
 
Item
 
8
 
of
 
this
Form 10-K for additional information.
Other Sources
 
of Funds
 
and Liquidity
 
- The
 
Corporation’s
 
principal uses
 
of funds
 
are for
 
the origination
 
of loans,
 
the repayment
 
of
maturing deposits
 
and borrowings,
 
and deposits
 
withdrawals. 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 2022,
 
loans pooled into GNMA MBS amounted
 
to approximately $144.5
million. Also, during
 
2022, the Corporation
 
sold approximately $93.8
 
million of performing
 
residential mortgage
 
loans to FNMA and
FHLMC.
The
 
FED
 
Discount
 
Window
 
is
 
a
 
cost-efficient
 
contingent
 
source
 
of
 
funding
 
for
 
the
 
Corporation
 
in
 
highly-volatile
 
market
conditions. As previously mentioned,
 
although currently not in use,
 
as of December 31, 2022,
 
the Corporation had approximately $1.3
billion available for funding under the FED’s
 
Discount Window based on collateral pledged at the
 
FED.
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 BB+
 
by S&P
 
and BB
 
by Fitch.
 
As of
 
the date
 
hereof,
FirstBank’s
 
credit
 
ratings
 
as
 
a
 
long-term
 
issuer
 
are
 
BB+
 
by
 
S&P,
 
one
 
notch
 
below
 
S&P’s
 
minimum
 
BBB-
 
level
 
required
 
to
 
be
considered investment
 
grade; and BB by
 
Fitch, two notches
 
below Fitch’s
 
minimum BBB- level
 
required to be
 
considered 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.
87
Cash Flows
Cash and
 
cash equivalents
 
were $480.5
 
million as
 
of December
 
31, 2022,
 
a decrease
 
of $2.1
 
billion when
 
compared to
 
December
31, 2021.
 
The following
 
discussion highlights
 
the major
 
activities and
 
transactions that
 
affected
 
the Corporation’s
 
cash flows
 
during
2022 and 2021:
 
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, 2022 and 2021, net
 
cash provided by operating activities
 
was $440.5 million and
 
$399.7 million,
respectively.
 
Net cash
 
generated from
 
operating activities
 
was higher
 
than reported
 
net income
 
largely as
 
a result
 
of adjustments
 
for
non-cash items such
 
as depreciation and
 
amortization, deferred income
 
tax expense and the
 
provision for credit
 
losses, as well as cash
generated from sales of loans held for sale.
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 debt securities.
 
For the year ended December
 
31, 2022, net cash used in
 
investing
activities was
 
$681.5 million,
 
primarily due
 
to purchases
 
of U.S.
 
agencies debentures
 
and MBS
 
and net
 
disbursements on
 
loans held
for investment, partially offset by repayments of U.S. agencies MBS and
 
proceeds from sales of commercial loan participations
.
 
For the
 
year ended
 
December 31,
 
2021, net
 
cash used
 
in investing
 
activities was
 
$1.3
 
billion, primarily
 
due to
 
a higher
 
volume of
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
 
repayments, 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.
 
 
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,
 
2022,
 
net cash
 
used by
 
financing
 
activities
 
was $1.8
 
billion,
 
mainly
 
reflecting
 
a decrease
 
in
 
total
deposits, the repayment of long-term debt, and capital
 
returned to stockholders. These variances were partially offset
 
by proceeds from
short-term borrowings.
 
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 capital
 
returned to
 
stockholders,
 
and repayment
 
of matured
 
long-term FHLB
 
advances and
brokered CDs.
88
Capital
As of December 31, 2022, the Corporation’s
 
stockholders’ equity was $1.3 billion,
 
a decrease of $776.2 million from
 
December 31,
2021.
 
The decrease
 
was driven
 
by a
 
$718.6 million
 
decline in
 
the fair
 
value
 
of available-for
 
-sale debt
 
securities recorded
 
as part
 
of
accumulated other
 
comprehensive loss
 
in the
 
consolidated statements
 
of financial
 
condition, as
 
a result
 
of changes
 
in market
 
interest
rates. The
 
decrease
 
also reflects
 
the repurchase
 
of
 
19.4
 
million shares
 
of common
 
stock for
 
a total
 
purchase
 
price
 
of approximately
$275.0 million,
 
and common
 
stock dividends
 
declared in
 
2022 totaling
 
$88.2 million
 
or $0.46
 
per common
 
share, partially
 
offset by
earnings generated during 2022.
 
On February
 
9, 2023,
 
the Corporation’s
 
Board of
 
Directors declared
 
a quarterly
 
cash dividend
 
of $0.14
 
per common
 
share, which
represents an
 
increase of
 
$0.02 per
 
common share,
 
or a
 
17% increase,
 
compared to
 
its most
 
recent dividend
 
paid in
 
December 2022.
The dividend
 
is payable on
 
March 10, 2023
 
to shareholders of
 
record at the
 
close of business
 
on February
 
24, 2023.
 
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.
During the first
 
quarter of 2022,
 
the Corporation completed
 
its prior $300
 
million stock repurchase
 
program announced in
 
2021 by
purchasing through open market
 
transactions 3.4 million shares
 
of its common stock
 
for the $50 million remaining
 
in the program. On
April
 
27,
 
2022,
 
the
 
Corporation
 
announced
 
that
 
its
 
Board
 
of
 
Directors
 
approved
 
a
 
new
 
stock
 
repurchase
 
program,
 
under
 
which
 
the
Corporation
 
may repurchase
 
up to
 
$350 million
 
of its
 
outstanding
 
common
 
stock, which
 
commenced
 
in the
 
second quarter
 
of 2022
and
 
at the
 
time was
 
expected to
 
be executed
 
over four
 
quarters. The
 
Corporation’s
 
share repurchase
 
program does
 
not obligate
 
it to
acquire any specific number of shares. As of February
 
21, 2023, the Corporation has repurchased approximately
 
18.1 million shares of
common stock
 
for a total
 
purchase price
 
of $254.9
 
million under
 
the $350 million
 
stock repurchase
 
program approved
 
in April
 
2022.
 
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.
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
 
common
 
equity
 
less
 
goodwill,
 
and
 
other
intangible assets.
 
Tangible
 
assets are
 
total assets
 
less the
 
previously mentioned
 
intangible assets.
 
See “Basis
 
of Presentation”
 
below
for additional information.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
89
 
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, 2022 and 2021, respectively:
December 31,
 
December 31,
2022
2021
(In thousands, except ratios and per share information)
Total equity
 
- GAAP
$
1,325,540
$
2,101,767
Goodwill
(38,611)
(38,611)
Purchased credit card relationship intangible
(205)
(1,198)
Core deposit intangible
(20,900)
(28,571)
Insurance customer relationship intangible
(13)
(165)
Tangible common
 
equity
$
1,265,811
$
2,033,222
Total assets - GAAP
$
18,634,484
$
20,785,275
Goodwill
(38,611)
(38,611)
Purchased credit card relationship intangible
(205)
(1,198)
Core deposit intangible
(20,900)
(28,571)
Insurance customer relationship intangible
(13)
(165)
Tangible assets
$
18,574,755
$
20,716,730
Common shares outstanding
182,709
201,827
Tangible common
 
equity ratio
6.81%
9.81%
Tangible book
 
value per common share
$
6.93
$
10.07
The Corporation’s
 
tangible common equity
 
ratio decreased to 6.81%
 
as of December 31, 2022,
 
compared to 9.81% as
 
of December
31, 2021. The decrease
 
in tangible common
 
equity includes the effect
 
of the $718.6 million
 
decrease in the fair
 
value of available-for-
sale debt securities due to changes in market interest rates recognized
 
as part of other accumulated other comprehensive loss.
See
 
Note
 
29
 
-
 
Regulatory
 
Matters,
 
Commitments
 
and
 
Contingencies
 
for
 
the
 
regulatory
 
capital
 
positions
 
of
 
the
 
Corporation
 
and
FirstBank as of December 31, 2022 and 2021, respectively.
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
 
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,
 
2022
 
and
 
2021,
 
the
 
Corporation
 
transferred
 
$30.9
million
 
and
 
$28.3
 
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 $168.5
 
and $137.6
 
million as
 
of December
31, 2022 and 2021, respectively.
Capital risk is
 
the risk that
 
our capital is
 
insufficient to
 
support our business
 
activities under normal
 
and stressed market
 
conditions
or we
 
face capital
 
reductions
 
or risk-weighted
 
assets increases,
 
including
 
from
 
new or
 
revised rules
 
or changes
 
in interpretations
 
of
existing
 
rules,
 
and
 
are
 
therefore
 
unable
 
to
 
meet
 
our
 
internal
 
capital
 
targets
 
or
 
external
 
regulatory
 
capital
 
requirements.
 
Capital
adequacy
 
is of
 
critical importance
 
to us.
 
Accordingly,
 
we have
 
in place
 
a comprehensive
 
capital management
 
policy that
 
provides a
framework, defines objectives
 
and establishes guidelines
 
to maintain an
 
appropriate level and
 
composition of capital
 
in both business-
as-usual
 
and
 
stressed
 
conditions.
 
Our
 
capital
 
management
 
framework
 
is
 
designed
 
to
 
provide
 
us
 
with
 
the
 
information
 
needed
 
to
comprehensively manage risk and
 
develop and apply projected
 
stress scenarios that capture
 
idiosyncratic vulnerabilities with
 
a goal of
holding
 
sufficient
 
capital
 
to
 
remain
 
adequately
 
capitalized
 
even
 
after
 
experiencing
 
a
 
severe
 
stress
 
event.
 
We
 
have
 
established
 
a
comprehensive governance
 
structure to
 
manage and
 
oversee our
 
capital management
 
activities and
 
compliance with
 
capital rules
 
and
related
 
policies.
 
Capital
 
planning
 
activities
 
are
 
overseen
 
by
 
the
 
Capital
 
Planning
 
Committee
 
which
 
is
 
chaired
 
by
 
the
 
CEO
 
and
 
is
comprised
 
of
 
the
 
following
 
members:
 
the
 
CFO,
 
CRO,
 
and
 
the
 
Corporate
 
Strategy
 
and
 
Investor
 
Relations
 
Officer.
 
In
 
addition,
committees
 
and
 
members
 
of
 
senior
 
management
 
are
 
responsible
 
for
 
the
 
ongoing
 
monitoring
 
of
 
our
 
capital
 
adequacy
 
and
 
evaluate
current and
 
future regulatory
 
capital requirements,
 
review the
 
results of
 
our capital
 
planning and
 
stress tests
 
processes and
 
the results
of
 
our
 
capital models,
 
and
 
review
 
our
 
contingency
 
funding and
 
capital
 
plan
 
and
 
key
 
capital adequacy
 
metrics,
 
including
 
regulatory
capital ratios.
 
90
 
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 stability
 
of profitability
 
under varying
 
interest rate
 
scenarios. The
 
MIALCO oversees
 
interest rate
 
risk and
 
monitors, among
other things, current
 
and expected conditions
 
in global financial
 
markets, competition
 
and prevailing rates
 
in the local
 
deposit market,
liquidity,
 
loan
 
originations
 
pipeline,
 
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 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,
assuming
 
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
 
(“bps”)
 
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 modeled
 
periods. It
 
is unlikely
 
that actual
 
events will
 
match these
 
assumptions in
 
all 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.
 
Several
 
benchmark
 
and
 
market
 
rate
 
curves
 
were
 
used
 
in
 
the
 
modeling
 
process,
 
primarily
 
the
 
LIBOR/SWAP
curve,
 
SOFR
 
curve,
 
Prime
 
Rate,
 
U.S.
 
Treasury
 
yield
 
curve,
 
FHLB
 
rates,
 
brokered
 
CDs
 
rates,
 
repurchase
 
agreements
 
rates,
 
and
 
the
mortgage commitment rate of 30 years.
As of
 
December 31,
 
2022, the
 
Corporation forecasted
 
the 12-month
 
net interest
 
income assuming
 
December 31,
 
2022 interest
 
rate
curves remain
 
constant. Then,
 
net interest
 
income was
 
estimated under
 
rising and
 
falling rates
 
scenarios. For
 
rising rates
 
scenarios, a
gradual
 
(ramp)
 
parallel
 
upward
 
shift
 
of
 
the
 
yield
 
curve
 
is
 
assumed
 
during
 
the
 
first
 
twelve
 
months
 
(the
 
“+200
 
ramp”
 
scenario).
Conversely,
 
for
 
the
 
falling
 
rates
 
scenario,
 
a
 
gradual
 
(ramp)
 
parallel
 
downward
 
shift
 
of
 
the
 
yield
 
curve
 
is
 
assumed
 
during
 
the
 
first
twelve months (the “-200 ramp” scenario).
The
 
LIBOR/Swap
 
rates
 
for
 
December
 
31,
 
2022,
 
as
 
compared
 
to
 
the
 
January
 
31,
 
2022
 
rates
 
used
 
for
 
the
 
December
 
31,
 
2021
sensitivity
 
analysis,
 
reflected
 
an
 
increase
 
in
 
the
 
short-term
 
sector
 
of
 
the
 
curve,
 
that
 
is
 
between
 
one
 
to
 
twelve
 
months,
 
of
 
449
 
basis
points (“bps”)
 
on average;
 
while market
 
rates increased
 
in the
 
medium-term sector
 
of the
 
curve, that
 
is between
 
2 to
 
5 years,
 
by 274
bps. In the long-term sector,
 
that is over 5-year maturities, market
 
rates increased 196 bps as compared
 
to January 31, 2022.
 
A similar
pattern
 
in
 
market
 
rates
 
changes
 
were
 
observed
 
in
 
the
 
Treasury
 
and
 
the
 
SOFR
 
curve
 
of
 
416
 
and
 
410
 
bps
 
in
 
the
 
short-term
 
sector,
respectively, 282 and 247
 
in the medium-term sector, respectively,
 
and 200 and 167 bps in the long-term sector, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
91
 
The following table presents the results of the simulations as of December 31, 2022
 
and 2021.
 
Consistent with prior years,
these exclude non-cash changes in the fair value of derivatives:
December 31, 2022
December 31, 2021
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
$
7.8
0.96
%
$
11.5
1.37
%
$
34.5
4.81
%
$
39.1
5.17
%
- 200 bps ramp
$
(13.1)
(1.61)
%
$
(17.0)
(2.03)
%
$
(12.2)
(1.70)
%
$
(13.5)
(1.78)
%
 
The Corporation
 
continues to
 
manage its
 
balance sheet
 
structure to
 
control and
 
limit the
 
overall interest
 
rate risk
 
by managing
 
its
asset composition
 
while maintaining
 
a sound
 
liquidity position.
 
As of
 
December 31,
 
2022 and
 
2021, the
 
simulations showed
 
that the
Corporation continues to have an asset-sensitive position.
 
 
As of December 31, 2022, the
 
net interest income for the
 
next twelve months under
 
a non-static balance sheet scenario
 
is estimated
to
 
increase
 
by
 
$11.5
 
million
 
in
 
the
 
rising
 
rate
 
scenario,
 
when
 
compared
 
against
 
the
 
base
 
simulation.
 
The
 
decrease
 
in
 
net
 
interest
income sensitivity
 
for the +200
 
bps ramp scenario,
 
as compared to
 
December 31, 2021,
 
is primarily driven
 
by the size
 
and mix of
 
the
balance
 
sheet
 
coupled
 
with
 
changes
 
in
 
market
 
interest
 
rates and
 
its impact
 
on deposit
 
betas. As
 
of
 
December
 
31,
 
2022,
 
the
 
starting
point
 
of
 
the
 
simulation
 
reflects
 
lower
 
balances
 
in
 
more
 
sensitive
 
assets
 
such
 
as
 
cash
 
and
 
cash
 
equivalents
 
as
 
a
 
result
 
of
 
the
 
overall
decline in
 
total deposits.
 
In addition,
 
the repricing
 
of the
 
more sensitive
 
interest-bearing deposits,
 
such as
 
government deposits,
 
have
resulted in increases in deposit betas which ultimately impact net interest income.
 
 
As of December 31, 2022,
 
under a falling rate,
 
non-static balance sheet scenario,
 
the net interest income
 
is estimated to decrease
by $17.0
 
million, when
 
compared against
 
the base
 
simulation.
 
The
 
increase in
 
net interest
 
income
 
sensitivity for
 
the -200
 
bps ramp
scenario,
 
when compared to December
 
31, 2021, was driven
 
by higher sensitivity
 
in the asset side as
 
a result of rate
 
decompression as
market rates move
 
away from historically
 
low interest rate
 
levels, allowing for
 
greater downward interest
 
rate shifts, which
 
more than
offset the aforementioned repricing of the more sensitive interest-bearing
 
deposits described above.
 
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.
 
As
 
of
 
December
 
31,
 
2022
 
and
 
2021,
 
the
 
Corporation
 
considered
 
all
 
of
 
its
 
derivative
 
instruments
 
to
 
be
 
undesignated
 
economic
hedges.
 
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
 
24 - Derivative Instruments
 
and Hedging Activities,
 
to the audited
 
consolidated financial
statements included in Item 8 of this Form 10-K.
92
Credit Risk Management
First BanCorp.
 
is subject
 
to
 
credit
 
risk
 
mainly
 
with
 
respect to
 
its portfolio
 
of loans
 
receivable
 
and
 
off-balance-sheet
 
instruments,
principally
 
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,
 
monitoring
 
of
 
loan
 
concentrations
 
and
 
related
 
credit
quality,
 
counterparty
 
credit
 
risk,
 
economic
 
and
 
market
 
conditions,
 
and
 
legislative
 
or
 
regulatory
 
mandates.
 
The
 
Corporation
 
also
performs
 
independent
 
loan
 
review
 
and
 
quality
 
control
 
procedures,
 
statistical
 
analysis,
 
comprehensive
 
financial
 
analysis,
 
established
management committees,
 
and 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.
 
Further,
 
the
Corporation periodically considers the need for qualitative
 
reserves to the ACL. Qualitative adjustments may be related
 
to and include,
but are
 
not limited
 
to, factors
 
such as
 
the following:
 
(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 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.
During 2022,
 
the Corporation
 
applied probability
 
weights to
 
the baseline
 
and alternative
 
downside economic
 
scenarios
 
to estimate
the ACL with the baseline
 
scenario carrying the highest
 
weight. In weighting these
 
macroeconomic scenarios, the
 
Corporation applied
judgment based on a
 
variety of factors such
 
as economic uncertainties including
 
continued conflict in Ukraine,
 
the overall inflationary
environment, and
 
a potential
 
slowdown in
 
economic activity
 
as a
 
result of
 
the FED’s
 
policy actions
 
to control
 
inflationary economic
conditions. For
 
periods prior
 
to 2022,
 
the Corporation
 
calculated the
 
ACL using
 
the baseline
 
scenario. As
 
of December
 
31, 2022,
 
the
Corporation’s
 
ACL
 
model
 
considered
 
the
 
following
 
assumptions
 
for
 
key
 
economic
 
variables
 
in
 
the
 
probability-weighted
 
economic
scenarios:
Average
 
Commercial
 
Real Estate
 
Price
 
Index forecast
 
for
 
the year
 
2023 is
 
expected to
 
contract by
 
2.96%,
 
compared
 
to an
average projected appreciation for 2023 of 8.68% as of December 31,
 
2021.
93
Average
 
Regional
 
Home
 
Price Index
 
forecast
 
for year
 
2023 in
 
Puerto
 
Rico (purchase
 
only prices)
 
shows a
 
deterioration of
6.88%, when compared to the forecast for 2023 as of December 31, 2021.
An increase in levels of regional
 
unemployment in Puerto Rico to 8.55%
 
for the year 2023, compared to the
 
forecast for 2023
of 7.60% as of December 31, 2021.
 
For the Florida region and the U.S.
 
mainland, an increase in unemployment rate
 
to 4.23%
and 4.83%, respectively,
 
for the year 2023, compared to 2.88% and 3.49%, respectively,
 
for 2023 as of December 31, 2021.
 
A decrease
 
in real
 
GDP in
 
the U.S.
 
mainland to
 
0.26%
 
for the
 
year 2023,
 
compared to
 
the forecast
 
for 2023
 
of 2.84%
 
as of
December 31, 2021.
It is difficult to estimate how potential changes
 
in 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,
 
2022, management
 
compared the modeled
 
estimates under
 
the probability-
weighted
 
economic
 
scenarios
 
against
 
a
 
more
 
adverse
 
scenario.
 
Under
 
this
 
more
 
adverse
 
scenario,
 
as
 
an
 
example,
 
average
unemployment
 
rate for
 
the Puerto
 
Rico region
 
increases to
 
9.16% for
 
the year
 
2023, compared
 
to 8.55%
 
for the
 
same period
 
on the
probability-weighted economic scenario projections.
To
 
demonstrate the sensitivity
 
to key economic
 
parameters used in
 
the calculation of
 
our ACL at December
 
31, 2022, management
calculated
 
the
 
difference
 
between
 
our
 
quantitative
 
ACL
 
and
 
this
 
more
 
adverse
 
scenario.
 
Excluding
 
consideration
 
of
 
qualitative
adjustments, this sensitivity analysis would result in a hypothetical
 
increase in our ACL of approximately $41
 
million at December 31,
2022.
 
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
 
estimates
based
 
on
 
current
 
circumstances
 
and
 
conditions.
 
Recognizing
 
that
 
forecasts
 
of
 
macroeconomic
 
conditions
 
are
 
inherently
 
uncertain,
particularly in light
 
of the recent economic
 
conditions and challenges,
 
which continue to
 
evolve, 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, 2022.
As
 
of
 
December
 
31,
 
2022,
 
the
 
ACL
 
for
 
loans
 
and
 
finance
 
leases
 
was
 
$260.5
 
million,
 
down
 
approximately
 
$8.5
 
million
 
from
December 31,
 
2021. The
 
ACL reduction
 
for commercial
 
and construction
 
loans was
 
$20.8
 
million during
 
2022, primarily
 
reflecting
reduced
 
uncertainties
 
related
 
to
 
the
 
COVID-19
 
pandemic,
 
particularly
 
on
 
loans
 
in
 
the
 
hotel,
 
transportation
 
and
 
entertainment
industries;
 
and,
 
to a
 
lesser extent,
 
the effect
 
during
 
the second
 
half of
 
2022 of
 
reserve releases
 
totaling
 
$4.8 million
 
associated with
two
 
adversely
 
classified
 
loans
 
that
 
were
 
paid
 
off
 
or
 
sold,
 
partially
 
offset
 
by
 
an
 
increase
 
in
 
the
 
size
 
of
 
the
 
loan
 
portfolio
 
and
 
a
 
less
favorable economic outlook in the
 
projection of certain forecasted macroeconomic
 
variables, such as the CRE price
 
index. In addition,
there was an ACL reduction of
 
$12.0 million for residential mortgage loans,
 
partially offset by a $24.3 million
 
increase in the ACL for
consumer loans.
 
The net reduction
 
in the
 
ACL for residential
 
mortgage loans
 
was primarily
 
driven by
 
the overall
 
decrease in
 
the size
of this portfolio
 
and, to a lesser extent,
 
a decrease in qualitative
 
adjustments due to improvements
 
in underlying portfolio metrics.
 
The
ACL increase
 
for consumer
 
loans was
 
mainly driven
 
by a
 
less favorable
 
long-term outlook
 
of certain
 
macroeconomic variables,
 
such
as the regional unemployment rate, and an increasing trend in delinquency
 
and charge-off levels in the consumer loan portfolios.
 
The ratio
 
of the
 
ACL for
 
loans and
 
finance leases
 
to total
 
loans held
 
for investment
 
decreased to
 
2.25%
 
as of
 
December 31,
 
2022,
compared to 2.43% as of December 31, 2021. An explanation for the change
 
for each portfolio follows:
The
 
ACL
 
to
 
total
 
loans
 
ratio
 
for
 
the
 
residential
 
mortgage
 
portfolio
 
decreased
 
from
 
2.51%
 
as
 
of
 
December
 
31,
 
2021
 
to
2.20% as of December
 
31, 2022, primarily due
 
to a decrease in qualitative
 
adjustments due to improvements
 
in underlying
portfolio metrics.
The
 
ACL to
 
total
 
loans
 
ratio
 
for
 
the
 
commercial
 
mortgage
 
portfolio
 
decreased
 
from
 
2.43% as
 
of
 
December
 
31,
 
2021
 
to
1.49%
 
as
 
of
 
December
 
31,
 
2022,
 
primarily
 
reflecting
 
reduced
 
uncertainties
 
related
 
to
 
the
 
COVID-19
 
pandemic,
 
as
previously discussed.
 
The ACL
 
to total
 
loans ratio
 
for
 
the commercial
 
and industrial
 
portfolio
 
was 1.14%
 
as of
 
December
 
31, 2022,
 
relatively
flat when compared to 1.19% as of December 31, 2021
.
The ACL
 
to total
 
loans ratio for
 
the construction
 
loan portfolio
 
decreased from
 
2.91% as
 
of December
 
31, 2021
 
to 1.74%
as of December
 
31, 2022, primarily
 
reflecting reductions
 
in qualitative reserves
 
mostly associated
 
to previously-identified
specific risks for a construction project in Florida that were resolved during the first quarter
 
of 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
94
The ACL
 
to total
 
loans ratio
 
for the
 
consumer loan
 
portfolio increased
 
from 3.57%
 
as of December
 
31, 2021
 
to 3.83% as
of December
 
31, 2022, primarily
 
associated to a
 
less favorable long
 
-term outlook of
 
certain macroeconomic variables
 
and
an increasing trend in delinquency and charge-off
 
levels in the consumer loan portfolios.
The ratio
 
of the
 
total ACL
 
for loans
 
and finance
 
leases to
 
nonaccrual
 
loans held
 
for investment
 
was 289.61%
 
as of
 
December 31,
2022,
 
compared to 242.99%
 
as of December 31, 2021.
 
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 tables,
 
the ACL
 
for loans
 
and finance
 
leases amounted
 
to $260.5
 
million as
 
of December
 
31, 2022,
 
or
2.25% of
 
total loans,
 
compared with
 
$269.0 million,
 
or 2.43%
 
of total
 
loans, as
 
of December
 
31, 2021.
 
See “Results
 
of Operations
 
-
Provision for Credit Losses” above for additional information.
Year Ended December
 
31,
2022
2021
2020
(Dollars in thousands)
ACL for loans and finance leases, beginning of year
$
269,030
$
385,887
$
155,139
Impact of adopting CECL
-
-
81,165
Initial allowance on purchased credit deteriorated ("PCD") loans
-
-
28,744
Provision for credit losses - expense (benefit):
Residential mortgage
(8,734)
(16,957)
22,427
(1)
Commercial mortgage
(18,994)
(55,358)
81,125
(1)
Commercial and Industrial
(1,770)
(8,549)
6,627
(1)
Construction
(2,342)
(1,408)
2,105
Consumer and finance leases
57,519
20,552
56,433
(1)
Total provision for credit losses
 
- expense (benefit)
25,679
(61,720)
168,717
(1)
Charge-offs:
Residential mortgage
(6,890)
(33,294)
(2)
(11,017)
Commercial mortgage
(85)
(1,494)
(3,330)
Commercial and Industrial
(2,067)
(1,887)
(3,634)
Construction
(123)
(87)
(76)
Consumer and finance leases
(48,165)
(43,948)
(46,483)
Total charge offs
(57,330)
(80,710)
(64,540)
Recoveries:
Residential mortgage
3,547
4,777
1,519
Commercial mortgage
1,372
281
1,936
Commercial and Industrial
2,459
6,776
3,192
Construction
725
163
184
Consumer and finance leases
14,982
13,576
9,831
Total recoveries
23,085
25,573
16,662
Net charge-offs
(34,245)
(55,137)
(3)
(47,878)
ACL for loans and finance leases, end of year
$
260,464
$
269,030
$
385,887
ACL for loans and finance leases to year-end total loans
 
held for investment
2.25%
2.43%
3.28%
Net charge-offs to average loans outstanding
 
during the year
0.31%
0.48%
0.48%
Provision for credit losses - expense (benefit) for loans and finance
 
leases to net charge-offs
 
during the year
0.75x
-1.12x
3.52x
(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 $10.1 million charge related to non-PCD consumer loans.
(2)
Includes net charge-offs totaling $23.1 million associated with a bulk sale of residential
 
nonaccrual loans and related servicing advance receivables.
(3)
Excluding net charge-offs associated with the bulk sale, total net charge
 
-offs to related average loans for the year ended 2023 was 0.28%.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
95
 
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 indicated dates:
As of December 31,
2022
2021
Amount
Percent of loans in
each category to total
loans
Amount
Percent of loans in
each category to total
loans
(Dollars in thousands)
Residential mortgage loans
$
62,760
25%
$
74,837
27%
Commercial mortgage loans
35,064
20%
52,771
20%
Commercial and industrial loans
32,906
25%
34,284
26%
Construction loans
2,308
1%
4,048
1%
Consumer loans and finance leases
127,426
29%
103,090
26%
$
260,464
100%
$
269,030
100%
 
The following table sets forth information concerning the composition of the
 
Corporation's loan portfolio and related ACL by
loan category as of the indicated dates:
As of December 31, 2022
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
$
2,847,290
$
2,358,851
$
2,886,263
$
132,953
$
3,327,468
$
11,552,825
 
Allowance for credit losses
62,760
35,064
32,906
2,308
127,426
260,464
 
Allowance for credit losses to amortized cost
2.20
%
1.49
%
1.14
%
1.74
%
3.83
%
2.25
%
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
%
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,
 
2022,
 
the
 
ACL
 
for
 
off-balance
 
sheet
credit
 
exposures
 
increased
 
by $2.7
 
million
 
to $4.3
 
million,
 
when
 
compared
 
to
 
December 31,
 
2021,
 
mainly driven
 
by an
 
increase
 
in
balance
 
of
 
unfunded
 
loan
 
commitments
 
principally
 
due
 
to
 
newly
 
originated
 
facilities
 
which
 
remained
 
undrawn
 
as
 
of December
 
31,
2022.
 
Allowance for Credit Losses for Held-to-Maturity
 
Debt Securities
As
 
of
 
December
 
31,
 
2022,
 
the
 
ACL
 
for
 
held-to-maturity
 
securities
 
portfolio
 
was
 
entirely
 
related
 
to
 
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.
 
As
 
of
 
December
 
31,
 
2022,
 
the
 
ACL
 
for
 
held-to-maturity
 
debt
securities was $8.3 million, compared to $8.6 million as of December 31,
 
2021.
Allowance for Credit Losses for Available
 
-for-Sale Debt Securities
 
The
 
ACL
 
for
 
available-for-sale
 
debt
 
securities,
 
which
 
is
 
associated
 
with
 
private
 
label
 
MBS
 
and
 
a
 
residential
 
pass-through
 
MBS
issued by the PRHFA, was $0.5
 
million as of December 31, 2022, compared to $1.1 million as of December 31, 2021.
96
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. See 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,
for additional information.
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.
Other Real Estate Owned
OREO
 
acquired
 
in
 
settlement
 
of
 
loans
 
is
 
carried
 
at
 
fair
 
value
 
less
 
estimated
 
costs
 
to
 
sell
 
the
 
real
 
estate
 
acquired.
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
97
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 (i.e.,
 
well secured and in process
 
of collection) 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
 
fail
 
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.
 
In
 
addition,
 
loans past
 
due
 
90
days
 
and
 
still accruing
 
include
 
PCD loans,
 
as mentioned
 
above, and
 
credit cards
 
that continue
 
accruing
 
interest until
 
charged-off
 
at
180 days.
 
Troubled
 
debt
 
restructurings
 
(“TDRs”)
 
are
 
classified
 
as
 
either
 
accrual
 
or
 
nonaccrual
 
loans.
 
A
 
loan
 
in
 
nonaccrual
 
status
 
and
restructured
 
as
 
a
 
TDR
 
will
 
remain
 
in
 
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.
The following table presents non-performing assets as of the indicated dates:
December 31,
December 31,
2022
2021
(Dollars in thousands)
Nonaccrual loans held for investment:
Residential mortgage
$
42,772
$
55,127
Commercial mortgage
22,319
25,337
Commercial and Industrial
7,830
17,135
Construction
2,208
2,664
Consumer and finance leases
14,806
10,454
Total nonaccrual loans held for investment
(1)
89,935
110,717
OREO
31,641
40,848
Other repossessed property
5,380
3,687
Other assets
 
(2)
2,202
2,850
Total non-performing assets
(1)
$
129,158
$
158,102
Past due loans 90 days and still accruing
(3) (4) (5)
$
80,517
$
115,448
Non-performing assets to total assets
 
0.69
%
0.76
%
Nonaccrual loans held for investment to total loans held for investment
0.78
%
1.00
%
ACL for loans and finance leases
$
260,464
$
269,030
ACL for loans and finance leases to total nonaccrual loans held
 
for investment
289.61
%
242.99
%
ACL for loans and finance leases to total nonaccrual loans held
 
for investment, excluding residential real estate loans
552.26
%
483.95
%
(1)
Nonaccrual loans
 
exclude $328.1
 
million and
 
$363.4 million
 
of TDR
 
loans that
 
were
 
in compliance
 
with the
 
modified terms
 
and in
 
accrual status
 
as of
 
December 31,
 
2022 and
 
2021,
respectively.
(2)
Residential pass-through MBS issued by the PRHFA
 
held as part of the available-for-sale debt securities
 
portfolio.
(3)
Includes
 
PCD
 
loans
 
previously
 
accounted
 
for under
 
ASC
 
Subtopic
 
310-30
 
for which
 
the
 
Corporation
 
made
 
the
 
accounting
 
policy
 
election
 
of
 
maintaining
 
pools
 
of loans
 
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
 
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 portion of such loans
 
contractually past due
90 days or more amounted to $12.0 million and $20.6 million as
 
of December 31, 2022 and 2021, respectively.
(4)
Includes FHA/VA
 
government-guaranteed residential mortgage as
 
loans past-due 90 days
 
and still accruing as opposed
 
to nonaccrual loans. 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 $28.2 million
 
and $46.6 million
of FHA government guaranteed residential mortgage loans that
 
were over 15 months delinquent as of December 31, 2022 and
 
2021, respectively.
(5)
Includes rebooked
 
loans, which
 
were previously
 
pooled into
 
GNMA securities,
 
amounting to
 
$10.3 million
 
and $7.2
 
million as
 
of December
 
31, 2022
 
and 2021,
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
98
Total
 
nonaccrual loans
 
were $89.9
 
million as
 
of December
 
31, 2022.
 
This represents
 
a net
 
decrease of
 
$20.8 million
 
from $110.7
million as
 
of December
 
31, 2021.
 
The net
 
decrease was
 
primarily related
 
to a
 
$12.8 million
 
reduction in
 
nonaccrual commercial
 
and
construction loans,
 
mostly driven by
 
$8.5 million in
 
loans returned to
 
accrual status and
 
$8.5 million in
 
collections, partially offset
 
by
inflows of $5.7
 
million. In addition,
 
nonaccrual residential mortgage
 
loans decreased
 
by $12.3 million
 
mainly related to
 
$15.4 million
of loans
 
restored to
 
accrual status,
 
$11.8
 
million in
 
collections, and
 
$3.9 million
 
in loans
 
transferred to
 
OREO during
 
2022, partially
offset
 
by
 
inflows
 
of
 
$20.3
 
million.
 
These
 
variances
 
were
 
partially
 
offset
 
by
 
a
 
$4.3
 
million
 
increase
 
in
 
nonaccrual
 
consumer
 
loans,
mostly related to the continued trend of growth in the auto loan and finance
 
leases portfolios.
The following table shows non-performing assets by geographic segment
 
as of the indicated dates:
December 31,
December 31,
2022
2021
(In thousands)
Puerto Rico:
Nonaccrual loans held for investment:
Residential mortgage
$
28,857
$
39,256
Commercial mortgage
14,341
15,503
Commercial and Industrial
5,859
14,708
Construction
831
1,198
Consumer and finance leases
14,142
10,177
Total nonaccrual loans held for investment
64,030
80,842
OREO
28,135
36,750
Other repossessed property
5,275
3,456
Other assets
2,202
2,850
Total non-performing assets
$
99,642
$
123,898
Past due loans 90 days and still accruing
$
76,417
$
114,001
Virgin Islands:
Nonaccrual loans held for investment:
Residential mortgage
$
6,614
$
8,719
Commercial mortgage
7,978
9,834
Commercial and Industrial
1,179
1,476
Construction
1,377
1,466
Consumer
469
144
Total nonaccrual loans held for investment
17,617
21,639
OREO
3,475
3,450
Other repossessed property
76
187
Total non-performing assets
$
21,168
$
25,276
Past due loans 90 days and still accruing
$
4,100
$
1,265
United States:
Nonaccrual loans held for investment:
Residential mortgage
$
7,301
$
7,152
Commercial and Industrial
792
951
Consumer
195
133
Total nonaccrual loans held for investment
8,288
8,236
OREO
31
648
Other repossessed property
29
44
Total non-performing assets
$
8,348
$
8,928
Past due loans 90 days and still accruing
$
-
$
182
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
99
Nonaccrual commercial mortgage loans
 
decreased by $3.0 million to
 
$22.3 million as of December
 
31, 2022, from $25.3 million
 
as
of December 31,
 
2021. The decrease was
 
primarily associated to
 
collections and loans
 
restored to accrual status
 
during 2022, partially
offset
 
by
 
the
 
migration
 
to
 
nonaccrual
 
status
 
of
 
a
 
$2.9
 
million
 
commercial
 
mortgage
 
loan
 
related
 
to
 
the
 
health
 
care
 
industry
 
in
 
the
Puerto Rico region.
Nonaccrual commercial and industrial
 
loans decreased by $9.3 million to
 
$7.8 million as of December 31, 2022,
 
from $17.1 million
as of
 
December 31,
 
2021. The
 
decrease was
 
primarily
 
associated with
 
loans restored
 
to accrual
 
status during
 
2022, including
 
a $5.2
million
 
commercial
 
and
 
industrial
 
loan
 
in
 
the
 
Puerto
 
Rico
 
region,
 
and
 
collections,
 
including
 
the
 
repayment
 
of
 
a
 
$1.2
 
million
commercial and industrial
 
loan in the
 
Puerto Rico region.
 
This variance was
 
partially offset
 
by inflows, including
 
the inflow of
 
a $1.1
million commercial and industrial loan related to the entertainment industry
 
in the Puerto Rico region.
Nonaccrual
 
construction
 
loans
 
decreased
 
by
 
$0.5
 
million
 
to
 
$2.2
 
million
 
as
 
of
 
December
 
31,
 
2022,
 
from
 
$2.7
 
million
 
as
 
of
December 31, 2021.
 
 
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, 2022
Beginning balance
$
25,337
$
17,135
$
2,664
$
45,136
Plus:
Additions to nonaccrual
 
2,934
2,749
20
5,703
Less:
Loans returned to accrual status
(1,585)
(6,864)
(48)
(8,497)
Nonaccrual loans transferred to OREO
(549)
(273)
(130)
(952)
Nonaccrual loans charge-offs
(83)
(385)
(114)
(582)
Loan collections
(3,333)
(4,934)
(184)
(8,451)
Reclassification
(402)
402
-
-
Ending balance
 
$
22,319
$
7,830
$
2,208
$
32,357
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
(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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100
Nonaccrual
 
residential
 
mortgage loans
 
decreased by
 
$12.3 million
 
to $42.8
 
million as
 
of December
 
31, 2022,
 
compared to
 
$55.1
million as of December 31,
 
2021. The decrease was primarily related
 
to loans restored to accrual status
 
of $15.4 million, $11.8
 
million
in collections,
 
including the
 
payoff of
 
an individual
 
loan of
 
approximately $1.3
 
million, foreclosures
 
of $3.9
 
million, and
 
charge-offs
of $1.6 million
 
during the year
 
ended in 2022,
 
partially offset
 
by inflows, including
 
the inflow of
 
an individual loan
 
of approximately
$1.4 million.
 
The following table presents the activity of residential nonaccrual loans held for investment
 
for the indicated periods:
Year
 
ended December 31,
2022
2021
(In thousands)
Beginning balance
 
$
55,127
$
125,367
 
Plus:
Additions to nonaccrual
20,320
33,543
 
Less:
Loans returned to accrual status
 
(15,362)
(15,918)
Nonaccrual loans transferred to OREO
(3,895)
(8,058)
Nonaccrual loans charge-offs
(1)
(1,594)
(26,735)
Loan collections
(11,824)
(20,595)
Reclassification
 
-
(962)
Nonaccrual loans sold
-
(31,515)
Ending balance
 
$
42,772
$
55,127
(1)
For the year ended December 31, 2021, includes net charge
 
-offs totaling $23.1 million associated with the
 
bulk sale of residential mortgage nonaccrual loans and related servicing advance
receivables.
 
The amount of
 
nonaccrual consumer loans,
 
including finance leases, increased
 
by $4.3 million to
 
$14.8 million as of
 
December 31,
2022,
 
compared
 
to
 
$10.5
 
million
 
as of
 
December
 
31,
 
2021.
 
The
 
increase
 
was
 
mainly
 
reflected
 
in
 
the
 
auto
 
loans
 
and
 
finance
 
leases
portfolio.
As of
 
December
 
31,
 
2022,
 
approximately
 
$15.3
 
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 $7.8 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,
 
2022,
 
interest
 
income
 
of
 
approximately
 
$0.9
 
million
 
related
 
to
 
nonaccrual
 
loans
 
with
 
a
carrying value
 
of $24.1
 
million as
 
of December
 
31, 2022, mainly
 
nonaccrual commercial
 
and construction
 
loans, was applied
 
against
the related principal balances under the cost-recovery method.
101
Total loans in early
 
delinquency (
i.e.
, 30-89 days past due loans, as defined in regulatory reporting
 
instructions) amounted to $104.9
million as of December 31, 2022,
 
an increase of $14.6 million, compared
 
to $90.3 million as of December 31,
 
2021.
 
The variances by
major portfolio categories were as follows:
 
Consumer loans
 
in early delinquency
 
increased by $21.5
 
million to $70.9
 
million as of
 
December 31,
 
2022, mainly reflected
in auto loans.
Residential mortgage loans in early delinquency decreased by $6.0
 
million to $28.2 million as of December 31, 2022.
Commercial and construction loans in early delinquency decreased
 
by $0.9 million to $5.8 million as of December 31, 2022.
In addition,
 
the Corporation
 
provides
 
homeownership
 
preservation
 
assistance to
 
its customers
 
through
 
a loss
 
mitigation
 
program.
Depending
 
upon
 
the
 
nature
 
of
 
borrowers’
 
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. As of
 
December 31, 2022,
 
the Corporation’s
 
total TDR loans
held
 
for
 
investment
 
amounted
 
to
 
$366.7
 
million,
 
a
 
decrease
 
of
 
$48.0
 
million
 
from
 
$414.7
 
million
 
as
 
of
 
December
 
31,
 
2021.
 
The
decrease was mainly related to payoffs and paydowns of
 
residential mortgage and commercial and industrial loans.
See Note 4
 
- Loans Held
 
for Investment,
 
to the audited
 
consolidated financial
 
statements included
 
in Item 8
 
of this Form
 
10-K, for
additional information and statistics about the Corporation’s
 
TDR loans.
To
 
assist
 
borrowers
 
affected
 
by
 
the
 
passing
 
of
 
Hurricane
 
Fiona
 
through
 
Puerto
 
Rico
 
on
 
September
 
17,
 
2022,
 
the
 
Corporation
established
 
a
 
Natural
 
Disaster
 
Deferral
 
or
 
Extension
 
Program,
 
with
 
a
 
term
 
that
 
did
 
not
 
extend
 
beyond
 
December
 
31,
 
2022,
 
for
residents of Puerto
 
Rico that were
 
directly impacted
 
by the passing
 
of the hurricane.
 
This program provided
 
payment deferral
 
or term
extension
 
on a
 
one payment
 
basis, that
 
did not
 
exceed three
 
payments,
 
to retail
 
borrowers (
i.e.
, borrowers
 
with personal
 
loans, auto
loans, finance
 
leases, credit
 
cards and
 
residential mortgage
 
loans) that
 
contacted the
 
Corporation by
 
October 31,
 
2022, to
 
request the
payment extension.
 
Loans continued
 
to accrue
 
interest during
 
the deferral
 
or extension
 
period. For
 
credit cards,
 
borrowers who
 
were
30 days or
 
less past due
 
as of September
 
16, 2022 were
 
eligible for this
 
program. For residential
 
mortgage loans and
 
consumer loans,
borrowers
 
who
 
were
 
60
 
days
 
or
 
less
 
past
 
due
 
as
 
of
 
September
 
16,
 
2022
 
were
 
eligible
 
for
 
this
 
program.
 
For
 
both
 
consumer
 
and
residential mortgage
 
loans subject
 
to the
 
deferral programs,
 
each borrower
 
was required
 
to opt
 
in on
 
a monthly
 
basis to
 
the program
and
 
had
 
to
 
resume
 
making
 
their regularly
 
scheduled
 
loan
 
payments
 
at
 
the
 
end
 
of
 
the
 
deferral
 
period.
 
For
 
consumer
 
loans,
 
deferred
amounts extended the
 
maturity date by
 
the number of
 
deferred periods. For
 
residential mortgage loans,
 
deferred amounts were
 
moved
to
 
the
 
end
 
of
 
the
 
loan
 
term.
 
Borrowers
 
that
 
made
 
a
 
payment
 
during
 
any
 
given
 
month
 
were
 
not
 
eligible
 
for
 
the
 
program
 
during
 
that
month.
 
Furthermore,
 
for
 
customers
 
that
 
opted
 
into
 
the
 
program,
 
the
 
delinquency
 
status of
 
loans
 
subject
 
to
 
the
 
deferral
 
or
 
extension
program was frozen to the status that existed in the month prior to the relief granted.
 
Loans
 
subject
 
to
 
the
 
above-described
 
program
 
were
 
not
 
considered
 
TDRs
 
since
 
the
 
deferral
 
or
 
extension
 
was
 
considered
insignificant.
 
Borrowers
 
were
 
eligible
 
for
 
payment
 
deferral
 
or
 
extension
 
of
 
three
 
payments
 
only
 
if
 
cumulative
 
payment
 
extensions
granted
 
during
 
the
 
last
 
12
 
months
 
did
 
not
 
exceed
 
six
 
payments,
 
including
 
the
 
extensions
 
granted
 
through
 
this
 
program.
 
As
 
of
December
 
31,
 
2022,
 
the
 
Corporation
 
entered
 
into
 
deferral
 
or
 
extension
 
payment
 
agreements
 
on
 
consumer
 
and
 
residential
 
mortgage
loans totaling
 
$73.1 million
 
pursuant to
 
this program.
 
Customers who
 
were unable
 
to resume
 
making their
 
contractual loan
 
payments
upon
 
exiting
 
from
 
these
 
deferral
 
programs
 
may
 
require
 
further
 
assistance
 
and
 
may
 
receive
 
or
 
be
 
eligible
 
to
 
receive
 
modifications,
which could be considered TDRs.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
102
The OREO portfolio,
 
which is part
 
of non-performing
 
assets, decreased by
 
$9.2 million to
 
$31.6 million
 
as of December
 
31, 2022,
compared
 
to
 
$40.8
 
million
 
as
 
of
 
December
 
31,
 
2021.
 
The
 
following
 
tables
 
show
 
the
 
composition
 
of
 
the
 
OREO
 
portfolio
 
as
 
of
December 31,
 
2022 and
 
2021, as
 
well as
 
the activity
 
of the
 
OREO portfolio
 
by geographic
 
area during
 
the year
 
ended December
 
31,
2022:
OREO Composition by Region
 
As of December 31,
 
2022
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Residential
 
$
23,388
$
606
$
31
$
24,025
Commercial
3,042
2,810
-
5,852
Construction
1,705
59
-
1,764
$
28,135
$
3,475
$
31
$
31,641
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
OREO Activity by Region
 
For the year ended December 31, 2022
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Beginning Balance
$
36,750
$
3,450
$
648
$
40,848
Additions
14,719
601
31
15,351
Sales
(20,727)
(590)
(648)
(21,965)
Write-downs and other adjustments
(2,607)
14
-
(2,593)
Ending Balance
$
28,135
$
3,475
$
31
$
31,641
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
103
Net Charge-offs and Total
 
Credit Losses
 
Net charge
 
-offs
 
totaled
 
$34.2 million
 
for
 
the year
 
ended December
 
31, 2022,
 
or 0.31%
 
of average
 
loans on
 
an annualized
 
basis,
compared to $55.1
 
million, or annualized
 
0.48% of average
 
loans for the
 
year ended December
 
31, 2021. The
 
bulk sale of nonaccrual
residential mortgage
 
loans added
 
$23.1
 
million in
 
net charge-off
 
s
 
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,
 
2022 were
 
$3.3 million,
 
or an
 
annualized 0.12%
 
of
average residential loans, compared to $28.5 million,
 
or an annualized 0.87% of average residential mortgage
 
loans, for the year ended
December 31, 2021.
 
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
 
$1.4
 
million
 
in
charge-offs
 
recorded
 
during
 
2022
 
resulted
 
from
 
valuations
 
of
 
collateral
 
dependent
 
residential
 
mortgage
 
loans,
 
compared
 
to
 
$5.7
million in
 
2021. Net
 
charge-offs
 
on residential
 
mortgage loans
 
also included
 
$2.6 million
 
during the
 
year ended
 
December 31,
 
2022
related to foreclosures recorded in 2022, compared to $2.8 million recorded
 
for the same period in 2021.
 
Commercial
 
mortgage
 
loans net
 
recoveries
 
for
 
the year
 
ended
 
December
 
31,
 
2022 were
 
$1.3
 
million,
 
or
 
an annualized
 
0.06%
 
of
average commercial mortgage
 
loans, compared to
 
net charge-offs
 
of $1.2 million, or
 
an annualized 0.06%
 
of related average
 
loans for
the
 
year
 
ended
 
December
 
31,
 
2021.
 
Commercial
 
mortgage
 
loans
 
net
 
recoveries
 
for
 
2022
 
included
 
recoveries
 
totaling
 
$1.2
 
million
associated with two commercial mortgage relationships.
Commercial and industrial loans net recoveries
 
for the year ended December 31, 2022 were $0.4
 
million, or an annualized 0.01% of
average commercial and industrial loans, compared to $4.9 million,
 
or an annualized 0.16% of related average loans for the year ended
December 31,
 
2021. The
 
lower net
 
recoveries for
 
2022
 
reflects both
 
the effect
 
of a
 
$1.7 million
 
charge-off
 
recognized in
 
connection
with
 
the
 
sale of
 
an
 
adversely classified
 
commercial
 
and
 
industrial
 
loan
 
participation
 
in
 
the
 
Florida
 
region
 
in
 
2022
 
and
 
the
 
effect
 
in
2021 of
 
a $5.2 million
 
loan loss recovery
 
recognized 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,
 
2022
 
were
 
$0.6
 
million,
 
or
 
an
 
annualized
 
0.49%
 
of
 
average
construction loans,
 
compared to
 
$0.1 million,
 
or an
 
annualized 0.04%
 
of related
 
average loans,
 
for the
 
same period
 
in 2021.
 
The net
recoveries for 2022 included a $0.5 million loan loss recovery
 
of a construction loan in the Puerto Rico region.
 
Net
 
charge-offs
 
of
 
consumer
 
loans
 
and
 
finance
 
leases
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2022
 
were
 
$33.2
 
million,
 
or
 
1.07%
 
of
related
 
average
 
loans,
 
compared
 
to
 
$30.4
 
million,
 
or
 
1.11%
 
of
 
related
 
average
 
loans,
 
for 2021
 
.
 
The
 
increase
 
in
 
2022 was
 
primarily
reflected in the personal
 
loan portfolio, when compared
 
to the same period
 
in 2021. Notwithstanding,
 
the net charge-off
 
ratio for 2022
decreased due to a higher average balance of loans held-in-portfolio
 
that more than offset the increase in net charge-offs.
 
 
The following table presents net charge-offs (recoveries)
 
to average loans held-in-portfolio for the indicated periods:
Year Ended
 
December 31,
2022
2021
2020
Residential mortgage
(1)
0.12
%
0.87
%
0.30
%
Commercial mortgage
 
(0.06)
%
0.06
%
0.08
%
Commercial and Industrial
(0.01)
%
(0.16)
%
0.02
%
Construction
 
(0.49)
%
(0.04)
%
(0.06)
%
Consumer loans and finance leases
 
1.07
%
1.11
%
1.53
%
Total loans
(1)
0.31
%
0.48
%
0.48
%
(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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
104
 
The following table presents net charge-offs (recoveries)
 
to average loans held in various portfolios by geographic segment for the
indicated periods:
Year Ended December
 
31,
2022
2021
2020
PUERTO RICO:
Residential mortgage
(1)
0.14
%
1.09
%
0.39
%
Commercial mortgage
(0.04)
%
0.08
%
0.26
%
Commercial and Industrial
(0.11)
%
(0.30)
%
-
%
Construction
 
(1.68)
%
(0.05)
%
(0.11)
%
Consumer and finance leases
1.07
%
1.10
%
1.51
%
Total loans
(1)
0.37
%
0.59
%
0.62
%
VIRGIN ISLANDS:
Residential mortgage
0.18
%
0.06
%
0.17
%
Commercial mortgage
(0.22)
%
(0.23)
%
(0.18)
%
Construction
 
-
%
-
%
(0.04)
%
Consumer and finance leases
1.23
%
1.16
%
0.65
%
Total loans
0.23
%
0.13
%
0.13
%
FLORIDA:
Residential mortgage
(0.03)
%
(0.01)
%
-
%
Commercial mortgage
(0.10)
%
(0.01)
%
(0.48)
%
Commercial and Industrial
0.17
%
0.10
%
0.04
%
Construction
 
(0.06)
%
(0.04)
%
(0.05)
%
Consumer and finance leases
0.30
%
2.15
%
4.35
%
Total loans
0.05
%
0.07
%
-
%
(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 in
 
the Puerto
 
Rico region
 
for the
 
year ended
2021 was 0.21% and 0.34%, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
105
The above ratios are not necessarily indicative of the results expected in
 
subsequent periods.
 
Total
 
net charge
 
-offs plus
 
gains on
 
OREO operations
 
for the
 
year ended
 
December 31,
 
2022
 
amounted to
 
$28.4 million,
 
or a
 
loss
rate of
 
0.25% of
 
average loans
 
and repossessed
 
assets, compared
 
to losses
 
of $53.0
 
million, or
 
a loss
 
rate of
 
0.46% on
 
an annualized
basis, for the year ended December 31, 2021.
The following table presents information about the OREO inventory
 
and credit losses for the indicated periods:
Year Ended December 31,
2022
2021
2020
(Dollars in thousands)
OREO
OREO balances, carrying value:
Residential
$
24,025
$
29,533
$
32,418
Commercial
5,852
7,331
44,356
Construction
1,764
3,984
6,286
Total
$
31,641
$
40,848
$
83,060
OREO activity (number of properties):
Beginning property inventory
418
513
697
Properties acquired
156
167
120
Properties disposed
(230)
(262)
(304)
Ending property inventory
344
418
513
Average holding period (in days)
Residential
606
700
626
Commercial
2,570
2,018
2,170
Construction
2,185
2,115
2,151
Total average holding period (in days)
1,057
1,075
1,566
OREO operations gain (loss):
Market adjustments and gains (losses) on sale:
Residential
$
7,742
$
4,166
$
(29)
Commercial
420
(1,182)
(886)
Construction
(418)
820
(484)
Total net gain (loss)
7,744
3,804
(1,399)
Other OREO operations expenses
(1,918)
(1,644)
(2,199)
Net Gain (Loss) on OREO operations
$
5,826
$
2,160
$
(3,598)
(CHARGE-OFFS) RECOVERIES
Residential charge-offs, net
(1)
$
(3,343)
$
(28,517)
$
(9,498)
Commercial recoveries (charge-offs), net
 
1,679
3,676
(1,836)
Construction recoveries, net
602
76
108
Consumer and finance leases charge-offs, net
(33,183)
(30,372)
(36,652)
Total charge-offs, net
(34,245)
(55,137)
(47,878)
TOTAL CREDIT LOSSES
(2)
$
(28,419)
$
(52,977)
$
(51,476)
LOSS RATIO PER CATEGORY
(3)
Residential
(0.15)
%
0.74
%
0.30
%
Commercial
(0.04)
(0.05)
0.06
Construction
(0.15)
(0.48)
0.21
Consumer
1.07
1.11
1.53
TOTAL CREDIT LOSS RATIO
(4)
0.25
%
0.46
%
0.51
%
(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.
(2)
Equal to net gain (loss) on OREO operations plus charge
 
-offs, net.
(3)
Calculated as net charge-offs plus market adjustment
 
and gains (losses) on sale of OREO divided by average loans and
 
repossessed assets.
(4)
Calculated as net charge-offs plus net gain (loss)
 
on OREO operations divided by average loans and repossessed
 
assets.
106
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 $11.6
 
billion as of
 
December 31, 2022,
 
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 and Economic Situation
A significant
 
portion of
 
the Corporation’s
 
business activities
 
and credit
 
exposure is
 
concentrated in
 
the Commonwealth
 
of Puerto
Rico, which
 
has experienced
 
economic and
 
fiscal distress
 
over the
 
last decade.
 
Since declaring
 
bankruptcy and
 
benefitting from
 
the
enactment of the federal Puerto
 
Rico Oversight, Management and
 
Economic Stability Act (“PROMESA”) in
 
2016, the Government of
Puerto
 
Rico
 
has
 
made
 
progress
 
on
 
fiscal
 
matters
 
primarily
 
by
 
restructuring
 
a
 
large
 
portion
 
of
 
its
 
outstanding
 
public
 
debt
 
and
identifying funding sources for its unfunded pension system.
Economic Indicators
On
 
November
 
10,
 
2022,
 
the
 
Puerto
 
Rico
 
Planning
 
Board
 
(“PRPB”)
 
presented
 
the
 
Economic
 
Report
 
to
 
the
 
Governor,
 
which
provides
 
an
 
analysis
 
of
 
Puerto
 
Rico’s
 
economy
 
during
 
fiscal
 
year
 
2021
 
and
 
a
 
short-term
 
forecast
 
for
 
fiscal
 
years
 
2022
 
and
 
2023.
According to the
 
PRPB, Puerto Rico’s
 
real gross national
 
product (“GNP”) expanded
 
by 1.0% in fiscal
 
year 2021, significantly
 
above
the PRPB’s
 
original
 
baseline projection
 
of a
 
2.0%
 
contraction. According
 
to the
 
report, real
 
GNP growth
 
was primarily
 
driven by
 
a
sharp increase
 
in personal
 
consumption expenditures
 
reflecting the
 
relaxation of
 
COVID-related restrictions,
 
as well
 
as the
 
impact of
the
 
substantial
 
disaster
 
relief funding
 
deployed
 
over
 
the period.
 
To
 
a
 
lesser extent,
 
growth
 
in
 
fiscal
 
year
 
2021
 
was also
 
driven
 
by a
higher level of
 
investments in machinery,
 
equipment, and construction.
 
These favorable variances
 
were partially offset
 
by an increase
in imports,
 
a reduction
 
in exports, and
 
a negative
 
change in the
 
level of
 
inventories. According
 
to the PRPB’s
 
baseline projection
 
the
Puerto Rico
 
economy is
 
forecasted to
 
continue growing
 
for fiscal
 
years 2022
 
and 2023.
 
Among the
 
key assumptions
 
included in
 
this
forecast
 
is the
 
positive
 
impact
 
expected
 
from
 
the ongoing
 
disbursements
 
of disaster
 
recovery
 
funds
 
($2.8
 
billion
 
and $4.0
 
billion
 
in
fiscal years 2022 and
 
2023, respectively),
 
as well as the
 
stimulus from remaining pandemic
 
relief funds ($1.1 billion
 
and $632 million
in
 
fiscal
 
years
 
2022
 
and
 
2023,
 
respectively),
 
and
 
the
 
inclusion
 
of
 
Puerto
 
Rico
 
in
 
the
 
Earned
 
Income
 
Tax
 
Credit
 
and
 
the
 
Child
 
Tax
Credit.
 
There
 
are
 
other
 
indicators
 
that
 
gauge
 
economic
 
activity
 
and
 
are
 
published
 
with
 
greater
 
frequency,
 
for
 
example,
 
the
 
Economic
Development
 
Bank
 
for
 
Puerto
 
Rico’s
 
Economic
 
Activity
 
Index
 
(“EDB-EAI”).
 
Although
 
not
 
a
 
direct
 
measure
 
of
 
Puerto
 
Rico’s
 
real
GNP,
 
the
 
EDB-EAI
 
is correlated
 
to
 
Puerto
 
Rico’s
 
real
 
GNP.
 
For
 
December
 
2022,
 
preliminary
 
estimates
 
showed
 
that the
 
EDB-EAI
increased
 
1.6%
 
and
 
0.6%
 
on
 
a
 
month-over-month
 
and
 
year-over-year
 
basis,
 
respectively.
 
Similarly,
 
for
 
calendar
 
year
 
2022,
 
the
107
preliminary data
 
reflects that
 
the index
 
averaged 124.4
 
during the
 
year,
 
which would
 
represent a
 
1.8% increase
 
from the
 
comparable
figure in 2021.
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 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.
 
Accordingly,
 
the 2022
 
Fiscal Plan
 
projects
 
unrestricted
 
surplus
 
after debt
 
service to
 
average $1
 
billion
annually
 
between
 
fiscal
 
years
 
2022
 
and
 
2031.
 
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
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 2022
Fiscal Plan
 
estimates that
 
Puerto Rico’s
 
GNP will
 
grow by
 
5.2% in
 
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
 
benefited from
 
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, 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 advantage
 
of this unique opportunity,
 
create an environment of
 
fiscal stability,
 
and develop the
conditions for long-term growth and economic development
 
,
 
while continuing 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 Plan
 
of Adjustment
 
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. The
Plan of Adjustment became effective
 
on March 15, 2022, as the Government
 
of Puerto Rico completed the exchange
 
of more than $33
billion
 
of
 
existing
 
bonds
 
and
 
other
 
claims
 
into
 
approximately
 
$7
 
billion
 
of
 
new
 
bonds.
 
As
 
a
 
result,
 
annual
 
debt
 
service
 
for
 
the
Commonwealth
 
is
 
anticipated
 
to
 
decrease
 
from
 
a
 
maximum
 
of
 
$3.9
 
billion
 
prior
 
to
 
the
 
restructuring
 
to
 
$1.15
 
billion
 
each
 
year.
 
In
addition,
 
the
 
Commonwealth
 
made
 
more
 
than
 
$10
 
billion
 
in
 
cash
 
payments
 
to
 
various
 
creditor
 
groups,
 
as
 
well
 
as
 
implemented
 
the
Pension Reserve
 
Trust
 
provisions created
 
in the
 
Plan of
 
Adjustment. The
 
Pension Reserve
 
Trust
 
is projected
 
to be
 
funded with
 
more
than
 
$10
 
billion
 
in
 
contributions
 
over
 
the
 
next
 
10
 
years,
 
including
 
$1.4
 
billion
 
that
 
were
 
contributed
 
on
 
September
 
30,
 
2022.
Confirmation
 
and
 
implementation
 
of
 
the
 
Plan
 
of
 
Adjustment
 
marks
 
a
 
major
 
milestone
 
in
 
the
 
overall
 
debt
 
restructuring
 
process
 
and
creates a foundation for Puerto Rico’s
 
recovery and economic growth.
On October 12, 2022,
 
the Court issued an order to
 
confirm the Puerto Rico Highway
 
and Transportation Authority’s
 
(“HTA”)
 
Plan
of
 
Adjustment
 
to
 
restructure
 
approximately
 
$6.4
 
billion
 
in
 
claims.
 
On
 
December
 
6,
 
2022,
 
the
 
HTA
 
Plan
 
of
 
Adjustment
 
became
effective. The
 
transactions therein
 
significantly lessen
 
HTA’s
 
debt burden
 
by reducing
 
HTA’s
 
funded debt
 
by 75%,
 
from $6.4 billion
to $1.245
 
billion senior
 
and $359
 
million subordinate
 
HTA
 
toll road-supported
 
debt. The
 
substantial consummation
 
of the
 
HTA
 
Plan
of Adjustment
 
represents a
 
significant
 
achievement
 
in advancing
 
Puerto Rico’s
 
public
 
policy objective
 
to attain
 
fiscal responsibility
and to
 
access the
 
capital markets
 
and is
 
expected to
 
enable HTA
 
to make
 
the necessary
 
investments to
 
improve and
 
maintain Puerto
Rico’s roads and other transportation
 
infrastructure.
On February 9,
 
2023, the PROMESA
 
oversight board
 
filed an amended
 
proposed Plan of
 
Adjustment and Disclosure
 
Statement to
restructure the
 
debt of
 
the Puerto
 
Rico Electric
 
Power Authority
 
(“PREPA-POA”).
 
The PREPA
 
-POA proposes
 
to cut
 
PREPA’s
 
more
than $10 billion of debt and other
 
claims by almost half, to approximately
 
$5.68 billion. According to the PROMESA
 
oversight board,
108
the
 
restructured
 
debt
 
would
 
be paid
 
by
 
a hybrid
 
charge
 
(the “Legacy
 
Charge”)
 
consisting
 
of
 
a
 
flat
 
connection
 
fee
 
and
 
a
 
volumetric
charge based
 
on the amount
 
of PREPA
 
customers’ electricity
 
usage that would
 
be added to
 
the electricity bills.
 
The proposed
 
Legacy
Charge is
 
subject to
 
approval by
 
the Puerto
 
Rico Energy
 
Bureau, the
 
independent energy
 
regulator.
 
The Court
 
will hold
 
a hearing
 
to
consider approval of the Disclosure Statement on February 28, 2023.
Other Developments
On September
 
17, 2022,
 
Hurricane Fiona
 
made landfall
 
on the
 
southwestern part
 
of Puerto
 
Rico with
 
winds exceeding
 
100 miles
per
 
hour in
 
some
 
areas and
 
leaving historic
 
amounts
 
of rain,
 
causing
 
a complete
 
power outage
 
in Puerto
 
Rico,
 
which in
 
turn led
 
to
water service
 
interruptions for
 
over 778,000
 
residents in
 
the Island.
 
Following the
 
passage of
 
the hurricane,
 
President Biden
 
granted
the Governor’s
 
request for
 
a declaration of
 
a major disaster
 
for all 78
 
municipalities in
 
Puerto Rico, and
 
as a result,
 
all municipalities
have
 
access
 
to
 
FEMA’s
 
Public
 
Assistance
 
Programs
 
for
 
response
 
and
 
reconstruction
 
projects.
 
In
 
addition,
 
the
 
local government,
 
in
collaboration
 
with
 
the
 
PROMESA
 
oversight
 
board,
 
has
 
enacted
 
numerous
 
emergency
 
response
 
measures
 
to
 
provide
 
immediate
funding
 
and assistance
 
to municipalities
 
and
 
governmental
 
agencies.
 
As of
 
October
 
14, 2022,
 
99% of
 
both
 
Puerto Rico’s
 
water and
electric services had been restored.
Notable
 
progress
 
continues
 
to
 
be
 
made
 
as
 
part
 
of
 
the
 
ongoing
 
efforts
 
of
 
prioritizing
 
the
 
restoration,
 
improvement,
 
and
modernization
 
of
 
Puerto
 
Rico’s
 
infrastructure.
 
According
 
to
 
the
 
Central
 
Office
 
for
 
Recovery,
 
Reconstruction,
 
and
 
Resiliency
(“COR3”),
 
progress
 
is
 
evidenced
 
by
 
the
 
significant
 
increase
 
in
 
permanent
 
work
 
projects
 
that
 
have
 
already
 
started
 
executing
 
the
reconstruction
 
efforts
 
with FEMA
 
obligated
 
funding.
 
As of
 
September
 
30, 2022,
 
there were
 
a total
 
of 5,63
 
7
 
active permanent
 
work
projects
 
reported,
 
more
 
than
 
twice
 
the
 
comparable
 
amount
 
reported
 
as
 
of
 
December
 
31,
 
2021,
 
of
 
2,650
 
projects.
 
Furthermore,
 
on
October
 
5,
 
2022,
 
COR3
 
announced
 
that
 
during
 
the
 
first
 
nine
 
months
 
of
 
2022,
 
the
 
Government
 
had
 
already
 
reached
 
its goal
 
for
 
the
entire
 
year
 
of
 
disbursing
 
approximately
 
$1
 
billion
 
in
 
advances
 
and
 
reimbursements
 
for
 
projects
 
led
 
by
 
municipalities,
 
government
dependencies and non-profit
 
organizations, through FEMA’s
 
Public Assistance program.
 
Such progress has been mainly
 
driven by the
implementation
 
of
 
the
 
Working
 
Capital
 
Advance
 
(“WCA”)
 
program
 
during
 
June
 
2022.
 
The
 
WCA
 
program,
 
which
 
was
 
originally
made available to municipalities and more recently extended
 
to PREPA,
 
PRASA and other government agencies, advances 25% of
 
the
total
 
cost
 
of
 
obligated
 
projects
 
that
 
have
 
not
 
commenced
 
due
 
to
 
lack
 
of
 
funding.
 
According
 
to
 
COR3,
 
the
 
extension
 
of
 
the
 
WCA
program to these additional entities is expected to accelerate the pace of disbursements
 
going forward.
On
 
January
 
25,
 
2023,
 
the
 
Government
 
of
 
Puerto
 
Rico
 
announced
 
that
 
the
 
Puerto
 
Rico
 
Public-Private
 
Partnerships
 
Authority
(“P3A”) selected
 
Genera PR
 
LLC (“Genera”)
 
to operate
 
and maintain PREPA’s
 
legacy power
 
plants pursuant
 
to a 10-year
 
Operation
and Maintenance
 
Agreement. Genera
 
was selected
 
by the
 
P3A after
 
a competitive
 
process that
 
began in
 
2020. Under
 
the agreement,
Genera will
 
operate, maintain,
 
decommission, and
 
modernize the
 
PREPA-owned
 
thermal power
 
generation system
 
of approximately
3,600 MW
 
after a
 
mobilization period.
 
In this
 
role, Genera
 
will manage
 
the operating
 
budget, fuel
 
contracts and
 
federal funds
 
for the
generation fleet
 
on behalf
 
of PREPA.
 
Key features
 
of Genera’s
 
proposal selected
 
by the
 
P3A include
 
(i) significant
 
cost-savings for
the benefit
 
of Puerto
 
Rico’s
 
ratepayers through
 
fuel management
 
and streamlined
 
operations, (ii)
 
improved reliability
 
and efficiency
across
 
the
 
generation
 
system
 
with
 
a
 
focus
 
on
 
distributed
 
power
 
and
 
microgrids,
 
(iii)
 
retirement
 
of
 
antiquated
 
power
 
plants
 
while
ensuring there is reliable,
 
low-cost and cleaner generation
 
in load centers to support
 
the transition to renewables,
 
and (iv) commitment
to local
 
hiring
 
and
 
plans to
 
recruit, train
 
and
 
incentivize
 
employees.
 
Headquartered
 
in San
 
Juan,
 
PR, Genera
 
is a
 
power
 
and
 
energy
service provider, and an independently
 
managed subsidiary of New Fortress Energy (NASDAQ: NFE).
On January 26, 2023, FEMA announced that it had recently approved
 
approximately $422 million to restore and renovate 37 multi-
family
 
residential
 
properties
 
belonging
 
to
 
the
 
Public
 
Housing
 
Administration
 
due
 
to
 
damaged
 
caused
 
by
 
Hurricane
 
María.
 
These
works
 
will
 
benefit
 
over
 
5,400
 
families
 
throughout
 
the
 
island.
 
According
 
to
 
FEMA,
 
the
 
funds
 
include
 
nearly
 
$165.3
 
million
 
for
measures that seek to strengthen the facilities, thus mitigating future damage from
 
other disasters.
The PROMESA
 
oversight board,
 
in collaboration
 
with the
 
Government of
 
Puerto Rico,
 
is currently
 
in the
 
process of
 
developing,
submitting, and
 
certifying the 2023
 
Fiscal Plan for
 
the Commonwealth of
 
Puerto Rico (the
 
“2023 Fiscal Plan”).
 
On January 25,
 
2023,
the PROMESA
 
oversight board
 
sent a
 
letter to
 
the Governor
 
of Puerto
 
Rico outlining
 
a revised
 
schedule in
 
order to
 
allow additional
time
 
for
 
the
 
integration
 
of
 
more
 
recent
 
information
 
regarding
 
Puerto
 
Rico’s
 
macroeconomic
 
environment,
 
federal
 
funding,
 
and
Government revenues and expenditures
 
that will underpin the Fiscal Year
 
2024 development process
 
in the spring of 2023.
 
According
to the
 
letter,
 
the PROMESA
 
oversight board
 
expects to
 
certify the
 
2023 Fiscal
 
Plan on
 
or before
 
March 16,
 
2023. In
 
a separate
 
letter
sent to the Governor on February 16,
 
2023, the PROMESA oversight board mentioned
 
that the fact that this will be the first
 
fiscal plan
to be certified in a
 
fully post-restructuring environment presents
 
a unique opportunity to focus
 
the 2023 Fiscal Plan on
 
three pillars: (i)
entrenching
 
a
 
legacy
 
of
 
strong
 
fiscal
 
management
 
to
 
prevent
 
a
 
recurrence
 
of
 
past
 
challenges
 
and
 
secure
 
a
 
stable
 
base
 
for
 
future
prosperity,
 
(ii) establishing
 
conditions for
 
economic prosperity
 
to improve
 
the livelihood
 
of Puerto
 
Rico’s
 
citizens and
 
bolster public
finances to facilitate
 
key government programs,
 
(ii) instilling a culture
 
of public-sector excellence
 
through targeted actions
 
focused on
enhancing the foundation for high performance in the public sector.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
109
Exposure to Puerto Rico Government
As of December
 
31, 2022, the
 
Corporation had $338.9
 
million of direct
 
exposure to the
 
Puerto Rico government,
 
its municipalities
and
 
public
 
corporations,
 
compared
 
to
 
$360.1
 
million
 
as
 
of
 
December
 
31,
 
2021.
 
As
 
of
 
December
 
31,
 
2022,
 
approximately
 
$183.4
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
 
$114.0
 
million
 
of
 
loans
 
and
 
obligations
 
which
 
are
 
supported
 
by
 
one
 
or
 
more
 
specific
 
sources
 
of
municipal
 
revenues.
 
Approximately
 
72%
 
of
 
the
 
Corporation’s
 
exposure
 
to
 
Puerto
 
Rico
 
municipalities
 
consisted
 
primarily
 
of
 
senior
priority loans
 
and 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
 
$10.8
 
million
 
in
 
loans
 
to
 
an
 
affiliate
 
of
 
PREPA,
 
$27.4
 
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 $3.3
 
million as
 
part of
 
its available-for-sale
 
debt securities
 
portfolio (fair
 
value of
 
$2.2 million
 
as of
 
December 31,
2022).
The
 
following
 
table
 
details
 
the
 
Corporation’s
 
total
 
direct
 
exposure
 
to
 
Puerto
 
Rico
 
government
 
obligations
 
according
 
to
 
their
maturities:
As of December 31,
 
2022
Investment
 
Portfolio
Total
(Amortized cost)
Loans
Exposure
(In thousands)
Puerto Rico Housing Finance Authority:
 
After 10 years
$
3,331
$
-
$
3,331
Total
 
Puerto Rico Housing Finance Authority
3,331
-
3,331
Puerto Rico public corporation:
 
After 5 to 10 years
-
27,354
27,354
Total Puerto Rico public
 
corporation
-
27,354
27,354
 
Affiliate of the Puerto Rico Electric Power Authority:
 
Due within one year
-
10,849
10,849
Total Puerto Rico government
 
affiliate
-
10,849
10,849
Total
 
Puerto Rico public corporation and government affiliate
-
38,203
38,203
Municipalities:
 
Due within one year
1,202
19,093
20,295
 
After 1 to 5 years
42,530
55,901
98,431
 
After 5 to 10 years
55,956
56,652
112,608
 
After 10 years
66,022
-
66,022
Total
 
Municipalities
165,710
131,646
297,356
Total
 
Direct Government Exposure
$
169,041
$
169,849
$
338,890
110
In
 
addition,
 
as
 
of
 
December
 
31,
 
2022,
 
the
 
Corporation
 
had
 
$84.7
 
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,
 
2021
 
 
$92.8
 
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,
 
2021,
 
the
 
PRHFA’s
 
mortgage
 
loans
 
insurance
 
program
 
covered
 
loans
 
in
 
an
aggregate
 
amount
 
of
 
approximately
 
$473
 
million.
 
The
 
regulations
 
adopted
 
by
 
the
 
PRHFA
 
require
 
the
 
establishment
 
of
 
adequate
reserves to
 
guarantee
 
the solvency
 
of the
 
mortgage loans
 
insurance program.
 
As of
 
June 30,
 
2021, the
 
most recent
 
date as
 
of which
information is available, the PRHFA
 
had a liability of approximately $5 million as an estimate of the
 
losses inherent in the portfolio.
As of December
 
31, 2022, the
 
Corporation had
 
$2.3 billion of
 
public sector deposits
 
in Puerto Rico,
 
compared to $2.7
 
billion as of
December
 
31,
 
2021.
 
Approximately
 
24%
 
of
 
the
 
public
 
sector
 
deposits
 
as
 
of
 
December
 
31,
 
2022
 
was
 
from
 
municipalities
 
and
municipal agencies
 
in Puerto
 
Rico and
 
76% was
 
from the
 
public corporation,
 
the Puerto
 
Rico central
 
government
 
and agencies,
 
and
U.S. federal government agencies in Puerto Rico.
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.
 
On
 
March
 
4,
 
2022,
 
the
 
United
 
States
 
Bureau
 
of
 
Economic
 
Analysis
 
(the
 
“BEA”)
released
 
its
 
estimates
 
of
 
gross
 
domestic
 
product
 
(“GDP”)
 
for
 
2020.
 
According
 
to
 
the
 
BEA,
 
the
 
USVI’s
 
real
 
GDP
 
decreased
 
2.2%.
Also, the
 
BEA revised
 
its previously
 
published
 
real GDP
 
growth estimate
 
for
 
2019 from
 
2.2%
 
to 2.8%.
 
According
 
to the
 
BEA, the
decline in real
 
GDP for 2020
 
reflected decreases
 
in exports
 
of services, private
 
fixed investment,
 
personal consumption
 
expenditures,
and
 
government
 
spending
 
primarily
 
as a
 
result
 
of the
 
effects
 
of
 
the COVID-19
 
pandemic.
 
These decreases
 
were partly
 
offset
 
by an
increase
 
in
 
private
 
inventory investment,
 
reflecting
 
an increase
 
in
 
crude
 
oil
 
and
 
other
 
petroleum
 
products
 
imported
 
and
 
store
 
in
 
the
islands. In
 
addition, there
 
were reductions
 
in imports
 
of goods
 
including
 
consumer goods
 
and
 
equipment, and
 
in import
 
of services.
According
 
to the
 
BEA, expenditures
 
funded by
 
the various
 
federal grants
 
and transfer
 
payments are
 
reflected in
 
the GDP
 
estimates;
however,
 
the full
 
effects
 
of the
 
pandemic
 
cannot be
 
quantified in
 
the GDP
 
statistics for
 
the USVI
 
because the
 
impacts are
 
generally
embedded in source data and cannot be separately identified.
 
Nonetheless,
 
over
 
the
 
past
 
two
 
years,
 
the
 
USVI
 
has
 
been
 
recovering
 
from
 
the
 
adverse
 
impact
 
caused
 
by
 
COVID-19
 
and
 
has
continued to make progress
 
on its rebuilding efforts
 
related to Hurricanes Irma
 
and Maria in 2017.
 
According to data published
 
by the
government,
 
over
 
$1.4
 
billion
 
in
 
disaster
 
recovery
 
funds
 
were
 
disbursed
 
during
 
2021
 
and
 
2022,
 
up 22%
 
from
 
the
 
preceding
 
2-year
period. On the fiscal front, revenues have trended positively
 
and the USVI Government successfully completed the
 
restructuring
 
of the
government employee
 
retirement system. Although
 
no official
 
GDP data has
 
been released
 
for 2021
 
and/or 2022, the
 
aforementioned
developments,
 
as
 
well
 
as
 
the
 
positive
 
trend
 
reflected
 
by
 
key
 
economic
 
indicators
 
such
 
as
 
visitor
 
arrivals,
 
non-farm
 
payrolls
 
and
unemployment rate potentially indicate that the territory has experienced
 
an overall economic recovery since 2020.
 
 
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, 2022,
 
the Corporation had $38.0 million
 
in loans to USVI public corporations,
 
compared to $39.2 million as of
December 31, 2021. As of December 31, 2022, all loans were currently performing
 
and up to date on principal and interest payments.
111
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 notably
 
tax-exempt securities and tax-exempt
 
loans, on a common basis that
 
facilitates comparison of
results to
 
the results
 
of peers.
 
See “Results
 
of Operati
 
ons -
 
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
 
on
 
a
 
tax-equivalent
 
basis
 
and
 
excluding
 
valuations.”
 
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
on a tax-equivalent basis and excluding valuations.”
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
 
common equity
 
less goodwill
 
and other
 
intangibles. Similarly,
 
tangible assets
 
are total
 
assets less
 
goodwill and
 
other
intangibles. 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.
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.
 
See “Special Items”
 
above for non-GAAP
 
financial measures
 
for the years
 
ended December
31, 2021 and 2020 that reflect the described items that were excluded
 
for one of those reasons.
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 2022, 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
 
Annual
Report on Form 10-K.
112
Item 8. Financial Statements and Supplementary Data
 
FIRST BANCORP.
INDEX TO CONSOLIDATED
 
FINANCIAL STATEMENTS
 
 
(PCAOB No.
173
)….…………………………..
113
 
…………………………………………
115
 
……………………………………………………………...
116
 
 
……...…………………………………………………………………...
117
 
 
……...………………………………………..…
118
 
………………………………………………………………………
119
 
………………………………………………..
120
 
…………………………………………………………………..
122
113
 
REPORT OF INDEPENDENT REGISTERED
 
PUBLIC ACCOUNTING FIRM
Stockholders and the Board of Directors
 
of First BanCorp.
San Juan, Puerto Rico
Opinions on the Financial Statements and Internal Control
 
over Financial Reporting
We
 
have
 
audited
 
the
 
accompanying
 
consolidated
 
statements
 
of
 
financial
 
condition
 
of
 
First
 
BanCorp.
 
(the
 
"Company")
 
as
 
of
December 31, 2022 and 2021, the related consolidated
 
statements of income, comprehensive (loss) income, cash flows, and changes
 
in
stockholders’
 
equity
 
for
 
each
 
of
 
the
 
years
 
in
 
the
 
three-year
 
period
 
ended
 
December
 
31,
 
2022,
 
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,
 
2022,
 
based
 
on
 
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,
 
2022 and
 
2021, and
 
the results
 
of its
 
operations and
 
its cash
 
flows for
 
each of
 
the years
 
in the
 
three-year period
ended December
 
31, 2022
 
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, 2022,
based on criteria established in Internal Control – Integrated Framework:
 
(2013) issued by COSO.
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.
 
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.
 
114
Critical Audit Matter
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
 
5 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. The
 
estimate of the
 
probability of default and
 
loss given default
 
assumptions uses economic
 
forecasts and 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 selection
 
of economic forecasts
 
and
macroeconomic variables. Changes to these assumptions could have
 
a material effect on the Company’s
 
financial results.
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 selection
 
of economic
 
forecasts and
 
the current
 
and forward-
looking macroeconomic variables, including controls addressing:
o
Management’s review and
 
approval of the economic forecasts and macroeconomic variables.
o
Management’s
 
review
 
of
 
the
 
reasonableness
 
of
 
the
 
results
 
of
 
the
 
selection
 
of
 
economic
 
forecasts
 
and
macroeconomic variables used in the calculation.
Substantively
 
testing
 
management’s
 
process,
 
including
 
evaluating
 
their
 
judgments
 
and
 
assumptions,
 
for
 
economic
 
forecast
selection and macroeconomic variables, which included:
o
Evaluation of reasonableness of economic forecasts selection.
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
 
economic forecast
 
and 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
February 28, 2023
Stamp No. E511055 of the Puerto Rico
Society of Certified Public Accountants
was affixed to the record copy of this report.
 
 
115
 
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,
 
2022,
 
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,
 
2022,
 
the
 
Corporation’s
internal control over financial reporting is effective
 
based on the criteria established in Internal Control-Integrated Framework (2013).
 
The effectiveness
 
of FirstBancorp.’s
 
internal control over
 
financial reporting as
 
of December 31, 2022,
 
has been audited
 
by Crowe
LLP,
 
an independent public accounting firm, as stated in their accompanying
 
report dated February 28, 2023.
 
First BanCorp.
 
/s/
 
Aurelio Alemán
 
Aurelio Alemán
 
President and Chief Executive Officer
 
Date: February 28, 2023
 
/s/
 
Orlando Berges
 
 
Orlando Berges
 
Executive Vice President
 
and Chief Financial Officer
 
Date: February 28, 2023
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
116
 
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
 
2022
December 31, 2021
(In thousands, except for share information)
ASSETS
Cash and due from banks
$
478,480
$
2,540,376
Money market investments:
Time deposits with other financial institutions
300
300
Other short-term investments
1,725
2,382
Total money market investments
2,025
2,682
Available-for-sale debt securities, at fair value:
Securities pledged with creditors’ rights to repledge
81,103
321,180
Other available-for-sale debt securities
5,518,417
6,132,581
Total available-for-sale debt securities, at fair value (amortized cost 2022 - $
6,398,197
;
2021 - $
6,534,503
; allowance for credit losses (“ACL”) of $
458
 
as of December 31, 2022
and $
1,105
 
as of December 31, 2021)
5,599,520
6,453,761
Held-to-maturity debt securities, at amortized cost, net of ACL
 
of $
8,286
 
as of December 31, 2022 and $
8,571
as of December 31, 2021 (fair value 2022 - $
427,115
; 2021 - $
167,147
)
429,251
169,562
Equity securities
55,289
32,169
Total investment securities
6,084,060
6,655,492
Loans, net of ACL of $
260,464
 
(2021 - $
269,030
)
11,292,361
10,791,628
Mortgage loans held for sale, at lower of cost or market
12,306
35,155
Total loans, net
11,304,667
10,826,783
Accrued interest receivable on loans and investments
69,730
61,507
Premises and equipment, net
142,935
146,417
Other real estate owned (“OREO”)
31,641
40,848
Deferred tax asset, net
155,584
208,482
Goodwill
38,611
38,611
Other intangible assets
21,118
29,934
Other assets
305,633
234,143
Total assets
$
18,634,484
$
20,785,275
LIABILITIES
Non-interest-bearing deposits
$
6,112,884
$
7,027,513
Interest-bearing deposits
10,030,583
10,757,381
Total deposits
16,143,467
17,784,894
Securities sold under agreements to repurchase
75,133
300,000
Advances from the Federal Home Loan Bank ("FHLB")
675,000
200,000
Other borrowings
183,762
183,762
Accounts payable and other liabilities
231,582
214,852
Total liabilities
17,308,944
18,683,508
Commitments and contingencies (See Note 29)
(nil)
(nil)
STOCKHOLDERS’ EQUITY
Common stock, $
0.10
 
par value, authorized,
2,000,000,000
 
shares;
223,663,116
 
shares issued;
182,709,059
shares outstanding (2021 -
201,826,505
 
shares outstanding)
22,366
22,366
Additional paid-in capital (See Note 1)
970,722
972,547
Retained earnings, includes legal surplus reserve of $
168,484
 
(2021 - $
137,591
)
1,644,209
1,427,295
Treasury stock, at cost
40,954,057
 
shares (2021 -
21,836,611
 
shares) (See Note 1)
(506,979)
(236,442)
Accumulated other comprehensive loss, net of tax of $
8,468
 
as of December 31, 2022 (2021 - $
9,786
)
(804,778)
(83,999)
Total stockholders’ equity
1,325,540
2,101,767
Total liabilities and stockholders’ equity
$
18,634,484
$
20,785,275
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
117
 
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF INCOME
 
Year
 
Ended December 31,
2022
2021
2020
(In thousands, except per share information)
Interest and dividend income:
 
Loans
$
747,901
$
719,153
$
631,047
 
Investment securities
102,922
72,893
58,547
 
Money market investments and interest-bearing cash accounts
11,791
2,662
3,388
 
Total interest and dividend income
862,614
794,708
692,982
Interest expense:
 
Deposits
46,361
41,482
68,388
 
Securities sold under agreements to repurchase
7,555
9,963
6,645
 
Advances from FHLB
5,136
8,199
11,251
 
Other borrowings
8,269
5,135
6,376
 
Total interest expense
67,321
64,779
92,660
 
Net interest income
795,293
729,929
600,322
Provision for credit losses - expense (benefit):
 
Loans and finance leases
25,679
(61,720)
168,717
 
Unfunded loan commitments
2,736
(3,568)
1,183
 
Debt securities
(719)
(410)
1,085
 
Provision for credit losses - expense (benefit)
27,696
(65,698)
170,985
 
Net interest income after provision for credit losses
767,597
795,627
429,337
Non-interest income:
 
Service charges and fees on deposit accounts
37,823
35,284
24,612
 
Mortgage banking activities
15,260
24,998
22,124
 
Net gain on investment securities
-
-
13,198
 
Gain on early extinguishment of debt
-
-
94
 
Insurance commission income
13,743
11,945
9,364
 
Card and processing income
40,416
36,508
25,609
 
Other non-interest income
15,850
12,429
16,225
 
Total non-interest income
 
123,092
121,164
111,226
Non-interest expenses:
 
Employees' compensation and benefits
206,038
200,457
177,073
 
Occupancy and equipment
88,277
93,253
74,633
 
Business promotion
18,231
15,359
12,145
 
Professional service fees
47,848
59,956
52,633
 
Taxes, other than
 
income taxes
20,267
22,151
17,762
 
Federal Deposit Insurance Corporation ("FDIC") deposit insurance
6,149
6,544
6,488
 
Net (gain) loss on OREO operations
(5,826)
(2,160)
3,598
 
Credit and debit card processing expenses
22,736
22,169
19,144
 
Communications
8,723
9,387
8,437
 
Merger and restructuring costs
-
26,435
26,509
 
Other non-interest expenses
30,662
35,423
25,818
 
Total non-interest expenses
443,105
488,974
424,240
Income before income taxes
447,584
427,817
116,323
Income tax expense
142,512
146,792
14,050
Net income
 
$
305,072
$
281,025
$
102,273
Net income attributable to common stockholders
 
$
305,072
$
277,338
$
99,597
Net income per common share:
 
Basic
$
1.60
$
1.32
$
0.46
 
Diluted
$
1.59
$
1.31
$
0.46
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
118
 
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
 
INCOME
 
Year Ended
 
December 31,
2022
2021
2020
(In thousands)
Net income
 
$
305,072
$
281,025
$
102,273
Other comprehensive (loss) income, net of tax:
Available-for-sale debt securities:
Net unrealized holding (losses) gains on debt securities
(718,582)
(143,115)
61,791
Reclassification adjustment for provision for credit loss expense
-
-
368
Reclassification adjustment for net gains included in net income on sales
-
-
(13,198)
Defined benefit plans adjustments:
Net actuarial (loss) gain
(2,199)
3,660
(270)
Reclassification adjustment for amortization of net actuarial loss
2
1
-
Other comprehensive (loss) income for the year, net of tax
(720,779)
(139,454)
48,691
 
Total comprehensive (loss) income
$
(415,707)
$
141,571
$
150,964
Year Ended
 
December 31,
2022
2021
2020
(In thousands)
Income tax effect of items included in other comprehensive (loss) income:
Defined benefit plans adjustments:
Net actuarial (loss) gain
$
1,319
$
(2,199)
$
162
Reclassification adjustment for amortization of net actuarial loss
(1)
-
-
Total income tax effect of items included in other comprehensive (loss) income
$
1,318
$
(2,199)
$
162
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
119
 
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
 
2022
2021
2020
(In thousands)
Cash flows from operating activities:
 
Net income
 
$
305,072
$
281,025
$
102,273
Adjustments to reconcile net income to net cash provided by operating
 
activities:
 
Depreciation and amortization
22,289
24,965
20,068
 
Amortization of intangible assets
8,816
11,407
5,912
 
Provision for credit losses - expense (benefit)
27,696
(65,698)
170,985
 
Deferred income tax expense (benefit)
54,216
118,323
(4,371)
 
Stock-based compensation
5,407
5,460
5,117
 
Gain on early extinguishment of debt
-
-
(94)
 
Gain on sales of investment securities
-
-
(13,198)
 
Unrealized gain on derivative instruments
(1,098)
(4,227)
(5,635)
 
Net gain on disposals or sales, and impairments of
 
premises and equipment and other assets
(706)
(32)
(215)
 
Net gain on sales of loans and valuation adjustments
(5,498)
(14,791)
(13,273)
 
Net amortization of discounts, premiums, and deferred
 
loan fees and costs
(7,853)
(25,294)
(8,602)
 
Originations and purchases of loans held for sale
(214,962)
(503,200)
(648,052)
 
Sales and repayments of loans held for sale
235,199
528,253
659,349
 
Amortization of broker placement fees
106
218
537
 
Net amortization of premiums and discounts on investment
 
securities
3,435
26,549
19,410
 
(Increase) decrease in accrued interest receivable
(11,340)
7,701
6,419
 
Increase (decrease) in accrued interest payable
1,706
(2,776)
(2,990)
 
(Increase) decrease in other assets
(2,437)
24,344
(5,018)
 
Increase (decrease) increase in other liabilities
20,437
(12,506)
9,116
 
Net cash provided by operating activities
440,485
399,721
297,738
Cash flows from investing activities:
 
Net (disbursements) repayments on loans held for investment
(603,853)
599,097
(335,152)
 
Proceeds from sales of loans held for investment
62,168
81,458
6,788
 
Proceeds from sales of repossessed assets
46,281
55,867
35,270
 
Proceeds from sales of available-for-sale debt securities
-
-
1,195,250
 
Purchases of available-for-sale debt securities
(512,327)
(3,447,921)
(3,820,148)
 
Proceeds from principal repayments and maturities of available-for-sale
 
debt securities
626,802
1,445,873
1,277,762
 
Purchases of held-to-maturity debt securities
(289,784)
-
-
 
Proceeds from principal repayments and maturities of
 
held-to-maturity debt securities
32,153
12,677
6,431
 
Additions to premises and equipment
(20,459)
(13,349)
(16,070)
 
Proceeds from sales of premises and equipment and
 
other assets
1,196
832
497
 
Net (purchases) redemptions of other investments securities
(23,637)
5,322
3,881
 
Proceeds from the settlement of insurance claims -
 
investing activities
-
550
-
 
Net (payments) cash acquired in acquisition
-
(3,381)
406,626
 
Net cash used in investing activities
(681,460)
(1,262,975)
(1,238,865)
Cash flows from financing activities:
 
Net (decrease) increase in deposits
(1,706,118)
2,472,579
1,767,441
 
Net proceeds (repayments) of short-term borrowings
550,133
-
(35,000)
 
Repayments of long-term borrowings
(500,000)
(240,000)
(95,282)
 
Proceeds from long-term borrowings
200,000
-
-
 
Proceeds from long-term reverse repurchase agreements
-
-
200,000
 
Repurchase of outstanding common stock
(277,769)
(216,522)
(206)
 
Dividends paid on common stock
(87,824)
(65,021)
(43,416)
 
Dividends paid on preferred stock
-
(2,453)
(2,676)
 
Redemption of preferred stock-
 
Series A through E
-
(36,104)
-
 
Net cash (used in) provided by financing activities
(1,821,578)
1,912,479
1,790,861
Net (decrease) increase in cash and cash equivalents
(2,062,553)
1,049,225
849,734
Cash and cash equivalents at beginning of year
2,543,058
1,493,833
644,099
Cash and cash equivalents at end of year
$
480,505
$
2,543,058
$
1,493,833
Cash and cash equivalents include:
 
Cash and due from banks
$
478,480
$
2,540,376
$
1,433,261
 
Money market instruments
2,025
2,682
60,572
$
480,505
$
2,543,058
$
1,493,833
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
120
 
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
 
EQUITY
Year Ended December 31,
2022
2021
2020
(In thousands, except per share information)
Preferred Stock:
 
Balance at beginning of year
$
-
$
36,104
$
36,104
 
Redemption of Series A through E Preferred Stock
-
(36,104)
-
 
Balance at end of year
-
-
36,104
Common Stock:
 
Balance at beginning of year
22,366
22,303
22,210
 
Common stock issued under stock-based compensation
 
plan
-
63
93
 
Balance at end of year
22,366
22,366
22,303
Additional Paid-In Capital
(See Note 1)
:
 
Balance at beginning of year
972,547
965,385
960,342
 
Stock-based compensation expense
5,407
5,460
5,117
 
Common stock reissued/issued under stock-based compensation
 
plan
(7,365)
(63)
(93)
 
Restricted stock forfeited
133
531
19
 
Issuance costs of Series A through E Preferred Stock redeemed
-
1,234
-
 
Balance at end of year
970,722
972,547
965,385
Retained Earnings:
 
Balance at beginning of year
1,427,295
1,215,321
1,221,817
 
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
 
305,072
281,025
102,273
 
Dividends on common stock (2022 - $
0.46
 
per share; 2021 - $
0.31
 
per share; 2020 - $
0.20
 
per share)
(88,158)
(65,364)
(43,771)
 
Dividends on preferred stock
 
-
(2,453)
(2,676)
 
Excess of redemption value over carrying value of Series
 
A through E Preferred Stock redeemed
-
(1,234)
-
 
Balance at end of year
1,644,209
1,427,295
1,215,321
Treasury Stock (at cost)
(See Note 1)
:
 
Balance at beginning of year
(236,442)
(19,389)
(19,170)
 
Common stock repurchases (See Note 17)
(277,769)
(216,522)
(200)
 
Common stock reissued under stock-based compensation plan
7,365
-
-
 
Restricted stock forfeited
(133)
(531)
(19)
 
Balance at end of year
(506,979)
(236,442)
(19,389)
Accumulated Other Comprehensive (Loss) Income, net of tax:
 
Balance at beginning of year
(83,999)
55,455
6,764
 
Other comprehensive (loss) income, net of tax
(720,779)
(139,454)
48,691
 
Balance at end of year
(804,778)
(83,999)
55,455
 
Total stockholders’ equity
$
1,325,540
$
2,101,767
$
2,275,179
The accompanying notes are an integral part of these statements.
121
FIRST BANCORP.
INDEX TO NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
PAGE
Note 1 –
Nature of Business and Summary of Significant Accounting Policies
Note 2 –
Money Market Investments
Note 3 –
Debt Securities
Note 4 –
Loans Held for Investment
Note 5
Allowance for Credit Losses for Loans and Finance Leases
Note 6
Premises and Equipment
Note 7 –
Other Real Estate Owned
Note 8 –
Related-Party Transactions
Note 9
Goodwill and Other Intangibles
Note 10 –
Non-Consolidated Variable
 
Interest Entities (“VIE”) and Servicing Assets
Note 11 –
Deposits and Related Interest
Note 12 –
Securities Sold Under Agreements to Repurchase
Note 13 –
Advances from the Federal Home Loan Bank (“FHLB”)
Note 14 –
Other Borrowings
Note 15 –
Earnings per Common Share
Note 16 –
Stock-Based Compensation
Note 17 –
Stockholders’ Equity
Note 18 –
Other Comprehensive (Loss) Income
Note 19 –
Employee Benefit Plans
Note 20 –
Other Non-Interest Income
Note 21 –
Other Non-Interest Expenses
Note 22 –
Income Taxes
Note 23 –
Operating Leases
Note 24 –
Derivative Instruments and Hedging Activities
Note 25
Fair Value
Note 26
Revenue from Contracts with Customers
Note 27 –
Segment Information
Note 28 –
Supplemental Statement of Cash Flows Information
Note 29 –
Regulatory Matters, Commitments, and Contingencies
Note 30 –
First BanCorp. (Holding Company Only) Financial Information
122
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 organized under
 
the laws
of the Commonwealth
 
of Puerto Rico in
 
1948. The Corporation
 
is subject to regulation,
 
supervision, and examination
 
by the Board
 
of
Governors of
 
the Federal
 
Reserve System
 
(the “Federal
 
Reserve Board”).
 
Through its
 
subsidiaries, including
 
its banking
 
subsidiary,
FirstBank Puerto Rico (“FirstBank”
 
or the “Bank”), the Corporation
 
provides full-service commercial
 
and consumer banking services,
mortgage banking
 
services, automobile
 
financing, trust
 
services, insurance
 
agency services,
 
and other
 
financial products
 
and services
with operations in Puerto Rico, the United States, the U.S. Virgin
 
Islands (the “USVI”), and the British Virgin
 
Islands (the “BVI”).
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 USVI Division
 
of Banking, Insurance,
 
and Financial Regulation;
 
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.
FirstBank conducts its
 
business through its
 
main office located
 
in San Juan, Puerto
 
Rico,
59
 
banking branches in
 
Puerto Rico,
eight
banking branches in the
 
USVI and the BVI, and
nine
 
banking branches in the
 
state of Florida (USA).
 
FirstBank has six 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
27
 
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; two
 
companies engaged
 
in the
 
operation of
 
certain real
 
estate properties;
and
 
a wholly-owned
 
subsidiary of
 
FirstBank organized
 
in 2022
 
under the
 
laws of
 
the Commonwealth
 
of Puerto
 
Rico and
 
Act 60
 
of
2019, which will commence operations in 2023 and will engage in investing
 
and lending transactions.
 
General
 
The accompanying
 
consolidated audited financial
 
statements have
 
been prepared
 
in conformity
 
with generally accepted
 
accounting
principles (“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
 
Financial
 
Accounting
Standards Board
 
(“FASB”)
 
for consolidation
 
of variable
 
interest entities
 
(“VIEs”). 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)
123
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.
 
Management
 
makes
 
significant
 
estimates
 
in
 
determining
 
the
 
allowance
 
for
 
credit
 
losses
 
(“ACL”),
 
income
 
taxes,
 
as
 
well
 
as
 
fair
value
 
measurements
 
of
 
investment
 
securities,
 
goodwill,
 
other
 
intangible
 
assets,
 
pension
 
assets
 
and
 
liabilities,
 
mortgage
 
servicing
rights, and loans held for sale.
 
Actual results could differ from those estimates.
Change in accounting method
Effective
 
on September
 
30, 2022,
 
the Corporation
 
changed the
 
accounting method
 
for accounting
 
for its
 
treasury stock
 
from a
 
par
value to a
 
cost method. The
 
Corporation believes the
 
cost method is
 
preferable as it
 
more accurately reflects
 
in treasury stock
 
the cost
of stocks repurchased and
 
it enhances comparability of
 
financial results with other
 
financial institutions. The Corporation
 
reflected the
application of
 
this new accounting
 
method retrospectively
 
by adjusting
 
prior period
 
amounts for
 
treasury stock
 
and additional
 
paid-in
capital.
 
The
 
retrospective
 
adjustment,
 
which
 
was
 
reflected
 
in
 
the
 
consolidated
 
statements
 
of
 
financial
 
condition
 
and
 
statements
 
of
changes
 
in
 
stockholders’
 
equity,
 
was
 
limited
 
to
 
an
 
increase
 
in
 
the
 
beginning
 
balance
 
of
 
treasury
 
stock
 
at
 
January
 
1,
 
2020
 
of
 
$
19
million and an increase in
 
additional paid-in capital for
 
the same amount, which was
 
considered immaterial. These adjustments
 
had no
impact
 
on
 
previously
 
issued
 
statements
 
of
 
income,
 
comprehensive
 
income,
 
cash
 
flows,
 
and
 
executive
 
compensation
 
and
 
regulatory
capital measures.
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
 
— Debt 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,
 
2022,
 
and
 
2021,
 
the
Corporation did not hold debt securities for trading purposes.
Available-for-sale
 
— Debt
 
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
 
loss
 
(“OCL”)
 
as
 
a
 
separate
component of
 
stockholders’ equity.
 
The unrealized
 
holding gains
 
and losses
 
do not
 
affect earnings
 
until they
 
are realized,
 
or an
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
 
cost
 
less
 
impairment,
 
if
 
any.
 
This
 
category
 
is
principally
 
composed of
 
FHLB stock
 
that the
 
Corporation owns
 
to comply
 
with FHLB
 
regulatory requirements.
 
The realizable
value of
 
the FHLB
 
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 in other
 
non-interest income.
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
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
124
securities are
 
recognized on
 
a trade-date
 
basis, the
 
date the
 
order to
 
buy or
 
sell is executed
 
.
 
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
 
nonaccrual
 
is
 
reversed
 
against
 
interest
 
income.
 
See
 
Note
 
3
 
 
Debt
 
Securities
 
for
additional information on nonaccrual debt securities.
Allowance
 
for
 
Credit
 
Losses
 
 
Held-to-Maturity
 
Debt
 
Securities:
As
 
of
 
December
 
31,
 
2022,
 
the
 
held-to-maturity
 
debt
 
securities
portfolio consisted of U.S. government-sponsored entities (“GSEs”)
 
MBS and Puerto Rico municipal bonds.
The ACL
 
on held-to-maturity
 
debt securities
 
is based
 
on an
 
expected loss
 
methodology referred
 
to as
 
current expected
 
credit loss
(“CECL”)
 
methodology
 
by
 
major
 
security
 
type.
 
Any
 
expected
 
credit
 
loss
 
is
 
provided
 
through
 
the
 
ACL
 
on
 
held-to-maturity
 
debt
securities
 
and
 
is
 
deducted
 
from
 
the
 
amortized
 
cost
 
basis
 
of
 
the
 
security
 
so
 
that
 
the
 
statement
 
of
 
financial
 
condition
 
reflects
 
the
 
net
amount the Corporation expects to collect.
The Corporation
 
does not
 
recognize an
 
ACL for
 
GSEs’ MBS
 
since they
 
are either
 
explicitly or
 
implicitly guaranteed
 
by the
 
U.S.
government,
 
are highly
 
rated by
 
major rating
 
agencies, and
 
have a
 
long history
 
of no
 
credit losses.
 
For the
 
ACL of
 
held-to-maturity
Puerto
 
Rico municipal
 
bonds,
 
the Corporation
 
considers historical
 
credit loss
 
information
 
that is
 
adjusted for
 
current conditions
 
and
reasonable
 
and
 
supportable
 
forecasts.
 
These
 
Puerto
 
Rico
 
municipal
 
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.
 
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 resolution strategies,
 
among others.
The Corporation
 
has elected not
 
to measure
 
an ACL on
 
accrued interest related
 
to held-to-maturity
 
debt securities,
 
as uncollectible
accrued
 
interest receivables
 
are written
 
off
 
on a
 
timely manner.
 
See Note
 
3 –
 
Debt Securities
 
for additional
 
information
 
about ACL
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, 2022, 2021, and 2020.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
125
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 down
 
to fair
 
value. Any
 
previously recognized
 
ACL should
 
first be
 
written off
 
and
 
the write-down
 
in
excess of such ACL would be recorded through
 
a charge to the provision for credit losses. 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 OCL
 
any impairment that
 
has not
been recorded through an ACL. Non-credit-related impairments result from
 
other factors, including changes in interest rates.
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
 
uncollectability
 
of
 
an
 
available-for-sale
 
debt
 
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
 
ACL on accrued
 
interest related
to available-for-sale debt securities, as uncollectible accrued interest
 
receivables are written off on a timely manner.
Substantially all
 
of the
 
Corporation’s
 
available-for-sale debt
 
securities are
 
issued by
 
GSEs. These
 
securities are
 
either explicitly
 
or
implicitly guaranteed
 
by the
 
U.S. government,
 
are highly
 
rated by
 
major rating
 
agencies, and
 
have a
 
long history
 
of no
 
credit losses.
Accordingly,
 
there
 
is
 
a
 
zero-credit
 
loss
 
expectation
 
on
 
these
 
securities.
 
For
 
further
 
information,
 
including
 
the
 
methodology
 
and
assumptions
 
used
 
for
 
the
 
discounted
 
cash
 
flow
 
analyses
 
performed
 
on
 
other
 
available-for-sale
 
debt
 
securities
 
such
 
as
 
private
 
label
MBS and
 
bonds issued
 
by the Puerto
 
Rico Housing
 
Finance Authority
 
(“PRHFA”),
 
see Note
 
3 –
 
Debt Securities,
 
and Note
 
25 –
 
Fair
Value.
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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
126
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.
 
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 has
 
been collected in full, including
the charged-off
 
portion. 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
 
ACL
 
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
 
a
 
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
 
a
 
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 are purchased or acquired.
Acquired loans that are classified
 
as PCD are recognized at fair
 
value, which includes any premiums
 
or discounts resulting from
 
the
difference between
 
the initial amortized
 
cost basis and
 
the par value.
 
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 are 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
 
the
 
following:
 
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
 
a
more than
 
insignificant deterioration
 
in credit
 
quality since
 
a loan’s
 
origination. In
 
connection with
 
the Banco
 
Santander Puerto
 
Rico
(“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
 
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,
 
2022, such
 
PCD loans consisted
of $
101.7
 
million of residential mortgage
 
loans and $
1.9
 
million of commercial
 
mortgage loans acquired by
 
the Corporation as part
 
of
acquisitions
 
completed
 
prior
 
to
 
2020.
 
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
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
127
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
 
troubled
 
debt
restructurings (“TDRs”) 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.
 
The Corporation
 
designates as
 
collateral dependent
 
certain commercial,
 
residential and
 
consumer loans
 
secured by
 
collateral when
foreclosure is probable or when repayment
 
is expected to be provided substantially through
 
the operation or sale of the collateral
 
when
the borrower is experiencing
 
financial difficulties based
 
on its assessment as
 
of the reporting
 
date. Commercial and
 
construction loans
are considered collateral
 
dependent when they exhibit
 
specific risk characteristics such
 
as repayment capacity under
 
certain thresholds
or credit deterioration. Residential mortgage loans are
 
considered collateral dependent when
180
 
days or more past due and secured by
residential real estate.
 
Moreover, since
 
the ACL of auto
 
loans and finance
 
leases is calculated
 
using either a
 
PD/LGD model or
 
a risk-
adjusted
 
discounted
 
cash
 
flow
 
method
 
for
 
loans
 
modified
 
or
 
reasonably
 
expected
 
to
 
be
 
modified
 
in
 
a
 
TDR
 
and
 
performing
 
in
accordance
 
with
 
restructured
 
terms,
 
these
 
loans
 
are
 
not
 
considered
 
collateral
 
dependent.
 
The
 
ACL
 
of
 
collateral
 
dependent
 
loans
 
is
based on the fair value of the collateral at the reporting date, adjusted for undiscounted
 
estimated costs to sell.
Collateral
 
dependent
 
loans
 
in
 
the
 
construction,
 
commercial
 
mortgage,
 
and
 
commercial
 
and
 
industrial
 
(“C&I”)
 
loan
 
portfolios
 
are
written
 
down
 
to
 
their
 
net
 
realizable
 
value
 
(fair
 
value
 
of
 
collateral,
 
less
 
estimated
 
costs
 
to
 
sell)
 
when
 
loans
 
are
 
considered
 
to
 
be
uncollectible and
 
have balances
 
of $
0.5
 
million or
 
more. Within
 
the consumer
 
loan portfolio,
closed-end consumer
 
loans are
 
charged
off when
 
payments are
120
 
days in
 
arrears. 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 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.
 
However,
 
not
 
all
 
loan
modifications
 
are TDRs.
 
Modifications
 
resulting
 
in TDRs
 
may
 
include
 
changes to
 
one
 
or more
 
terms of
 
the loan,
 
including
 
but not
limited to,
 
a change
 
in interest
 
rate, an
 
extension of
 
the repayment
 
period, a
 
reduction in
 
payment amount,
 
and partial
 
forgiveness
 
or
deferment of principal
 
or accrued interest.
 
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.
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.
Refer
 
to
 
Accounting
 
Standards
 
Updates
 
(“ASU”)
 
2022-02,
 
“Financial
 
Instruments
 
 
Credit
 
Losses
 
(Topic
 
326):
 
Troubled
 
Debt
Restructurings and
 
Vintage
 
Disclosures” below for
 
information on the
 
amendments to the
 
TDR guidance that
 
are effective
 
on or after
January 1, 2023
.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
128
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 loan balance is uncollectable.
 
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
 
primarily
 
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:
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
 
fixed-rate
first lien closed-end loans secured by 1-4 single-family residential properties.
 
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.
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.
 
The
 
C&I
 
loan
 
portfolio
 
consists
 
of
 
loans
 
granted
 
to
 
large
 
corporate
 
customers
 
as
well as middle-market customers across several industries, and the government
 
sector.
Construction
 
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.
Consumer
 
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
 
portfolio
 
segments
 
by
 
two
 
main
 
regions
 
(
i.e.,
 
the
 
Puerto
Rico/Virgin
 
Islands
 
region
 
and
 
the
 
Florida
 
region).
 
The
 
ACL
 
is
 
measured
 
using
 
a
 
PD/LGD
 
model
 
that
 
is
 
calculated
 
based
 
on
 
the
product of a
 
cumulative PD and
 
LGD. PD and
 
LGD estimates are
 
updated quarterly
 
for each loan
 
over the remaining
 
expected life
 
to
determine
 
lifetime
 
term
 
structure
 
curves.
 
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
 
residential
 
mortgage
 
loans,
 
the
 
Corporation
 
stratifies
 
the
 
portfolio
 
segment
 
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. On the other
 
hand, an
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
129
ACL is
 
calculated for
 
conventional
 
residential mortgage
 
loans, which
 
are loans
 
that do
 
not qualify
 
under the
 
FHA or
 
VA
 
programs.
PD
 
estimates
 
are
 
based
 
on,
 
among
 
other
 
things,
 
historical
 
payment
 
performance
 
and
 
relevant
 
current
 
and
 
forward-looking
macroeconomic variables,
 
such as regional
 
unemployment rates. On
 
the other hand,
 
LGD estimates are 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.
For commercial
 
mortgage loans,
 
PD estimates
 
are based on,
 
among other
 
things, industry historical
 
loss experience,
 
property type,
occupancy,
 
and
 
relevant
 
current
 
and
 
forward-looking
 
macroeconomic
 
variables.
 
On
 
the
 
other
 
hand,
 
LGD
 
estimates
 
are
 
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.
For C&I
 
loans, PD
 
estimates are
 
based on
 
industry historical
 
loss experience,
 
financial performance
 
and market
 
value indicators,
and
 
current
 
and
 
forecasted
 
relevant
 
forward-looking
 
macroeconomic
 
variables.
 
On
 
the
 
other
 
hand,
 
LGD
 
estimates
 
are
 
based
 
on
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.
For
 
construction
 
loans,
 
PD
 
estimates
 
are
 
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. On
 
the
other
 
hand,
 
LGD
 
estimates
 
are
 
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.
For consumer loans,
 
the Corporation stratifies
 
the portfolio segment 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, PD estimates are based on,
 
among other things, the historical
 
payment performance and relevant
 
current
and forward-looking macroeconomic
 
variables, such as regional
 
unemployment rates. On the
 
other hand, LGD estimates
 
are primarily
based
 
on
 
historical
 
charge-off
 
events
 
and
 
recovery
 
payments.
 
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.
For the
 
ACL determination
 
of all
 
portfolios, the
 
expectations for
 
relevant macroeconomic
 
variables related
 
to the
 
Puerto Rico
 
and
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.
 
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,
 
including, but
 
not
limited to, expectations
 
about interest rate,
 
inflation, and
 
real estate price
 
levels, as well
 
as labor
 
challenges; (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.
In addition
 
to loans previously
 
written down
 
to their respective
 
realizable values,
 
the ACL on
 
loans that have
 
been modified or
 
are
reasonably
 
expected
 
to
 
be
 
modified
 
in
 
a
 
TDR
 
and
 
that
 
have
 
balances
 
of
 
$
0.5
 
million
 
or
 
more
 
in
 
the
 
case
 
of
 
commercial
 
and
construction
 
loans
 
(other
 
than
 
commercial
 
mortgage
 
and
 
construction
 
loans,
 
in
 
which
 
the
 
ACL
 
is
 
based
 
on
 
the
 
fair
 
value
 
of
 
the
collateral
 
at
 
the
 
reporting
 
date,
 
adjusted
 
for
 
undiscounted
 
estimated
 
costs
 
to
 
sell)
 
is
 
generally
 
measured
 
using
 
a
 
risk-adjusted
discounted cash flow
 
method. 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 rate of the
 
loan prior to the restructuring
(or at the
 
effective interest
 
rate as of the
 
reporting date for
 
non-TDRs previously written
 
down to their
 
respective realizable values)
 
to
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
130
arrive
 
at
 
the
 
net
 
present
 
value
 
of
 
future
 
cash
 
flows.
 
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.
See Note 5 –
 
Allowance for Credit Losses
 
for Loans and Finance
 
Leases for additional
 
information about reserve
 
balances for each
portfolio
 
segment,
 
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, 2022,
 
2021, and 2020.
Refer
 
to
 
ASU
 
2022-02
 
discussion
 
below
 
for
 
information
 
on
 
the
 
amendments
 
to
 
the
 
TDR
 
guidance
 
that
 
are
 
effective
 
on
 
or
 
after
January 1, 2023.
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,
 
2022, 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 losses in the consolidated statements of income.
See
 
Note
 
5
 
 
Allowance
 
for
 
Credit
 
Losses
 
for
 
Loans
 
and
 
Finance
 
Leases
 
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, 2022, 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.
 
As of December
 
31, 2022 and
 
2021, the
 
ACL on other
 
assets measured at
amortized cost was immaterial.
 
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
 
cost
 
or
 
fair
 
value
 
less
 
costs
 
to
 
sell.
 
Generally,
 
the
 
loans
 
held-for-sale
 
portfolio
 
consists
 
of
 
conforming
 
residential
 
mortgage
 
loans
 
that
 
will
 
be
 
pooled
 
into
 
Government
National Mortgage Association (“GNMA”)
 
MBS, which are then sold to
 
investors, and conforming residential mortgage
 
loans that the
Corporation intends
 
to sell to
 
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 residential
 
mortgage 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
 
and
 
are
 
included
 
in
 
the
amortized cost basis when
 
evaluating the need for
 
a valuation allowance. 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.
Any
 
previously
 
recorded
 
ACL
 
is
 
reversed
 
in
 
earnings
 
after
 
applying
 
the
 
write-down
 
policy.
 
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 and any previously
 
recorded valuation allowance
 
is reversed in
earnings. Upon transfer to held for investment, the Corporation calculates
 
an ACL using the CECL impairment model.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
131
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
 
the following:
 
(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, loans are
 
pooled into GNMA MBS for sale in the secondary
 
market or sold to FNMA or
FHLMC, with servicing retained.
 
When the Corporation sells mortgage loans, it recognizes any retained servicing right.
 
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. Under
 
these
 
contracts,
 
the
 
Corporation
 
performs
loan-servicing functions
 
in exchange
 
for fees and
 
other remuneration.
 
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 fair
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
 
determined
 
based
 
on
 
its fair
 
value.
 
The Corporation
 
determines
 
the
 
fair
 
value
 
of
 
the
 
MSRs using
 
a
 
discounted
static cash
 
flow analysis,
 
which incorporates
 
current market
 
assumptions commonly
 
used by
 
buyers of
 
these MSRs
 
and was
 
derived
from
 
prevailing
 
conditions
 
in
 
the
 
secondary
 
servicing
 
market.
 
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.
 
Impairments
 
are
 
recognized
 
through
 
a
 
valuation
allowance for
 
each individual
 
stratum of
 
servicing assets.
 
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
other-than-temporary
 
impairment 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.
 
Impairment
 
charges
 
are
 
recorded
 
as
 
part
 
of
 
revenues
 
from
mortgage banking activities in the consolidated statements of income
 
.
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
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
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
132
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. Premises
 
and equipment
 
are evaluated
 
for impairment
 
whenever events
 
or changes
 
in circumstances
 
indicate that
 
the
carrying amount
 
of the
 
asset may
 
not be
 
recoverable. Impairments
 
on premises
 
and equipment
 
are included
 
as part of
 
occupancy and
equipment expenses in the consolidated statements of income.
 
Operating leases
 
The Corporation,
 
as lessee,
 
determines
 
if an
 
arrangement
 
is a
 
lease or
 
contains a
 
lease at
 
inception.
 
Operating 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.
 
The incremental
 
borrowing rate
 
is calculated
 
based
on fully
 
amortizing secured
 
borrowings. Operating
 
right-of-use (“ROU”)
 
assets are
 
generally recognized
 
based on
 
the amount
 
of the
initial measurement of the
 
lease liability. Non-lease
 
components, such as common
 
area maintenance charges,
 
are not considered a
 
part
of the
 
gross-up of
 
the ROU
 
asset and
 
lease liability
 
and are
 
recognized as
 
incurred. The
 
Corporation’s
 
leases are
 
primarily related
 
to
operating leases
 
for the
 
Bank’s
 
branches. 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
ten years
.
 
The Corporation
 
does not
 
recognize ROU
 
assets and
lease
 
liabilities
 
that
 
arise
 
from
 
short-term
 
leases
 
(less
 
than
 
12
 
months).
 
Operating
 
lease
 
expense,
 
which
 
is
 
included
 
as
 
part
 
of
occupancy and equipment expenses
 
in the consolidated statements
 
of income,
 
is recognized on a straight-line
 
basis over the lease term
that is based
 
on the
 
Corporation’s
 
assessment of
 
whether the
 
renewal options
 
are reasonably
 
certain to be
 
exercised. The
 
Corporation
includes
 
the
 
ROU
 
assets
 
and
 
lease
 
liabilities
 
as
 
part
 
of
 
other
 
assets
 
and
 
accounts
 
payable
 
and
 
other
 
liabilities,
 
respectively,
 
in
 
the
consolidated statements
 
of financial condition.
 
As of December 31, 2022, the Corporation, as lessee, did
no
t have any leases that qualified as finance leases.
 
Other real estate owned (“OREO”)
OREO,
 
which
 
consists
 
of
 
real estate
 
acquired
 
in
 
settlement of
 
loans,
 
is recorded
 
at fair
 
value
 
less 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 within
 
six months.
 
Thereafter,
 
costs of
maintaining
 
and
 
operating
 
these
 
properties,
 
losses
 
recognized
 
on
 
the
 
periodic
 
reevaluations
 
of
 
these
 
properties,
 
and
 
gains
 
or
 
losses
resulting
 
from
 
the
 
sale of
 
these
 
properties
 
are
 
charged
 
or
 
credited
 
to
 
earnings
 
and
 
are
 
included
 
as part
 
of
 
net
 
gain
 
(loss) on
 
OREO
operations in the consolidated statements of income. Appraisals are obtained
 
periodically, generally
 
on an annual basis
.
Claims arising from FHA/VA
 
government-guaranteed residential mortgage loans
Upon
 
the
 
foreclosure
 
on
 
property
 
collateralizing
 
an
 
FHA/VA
 
government-guaranteed
 
residential
 
mortgage
 
loan,
 
the
 
Corporation
derecognizes
 
the
 
government-guaranteed
 
mortgage
 
loan
 
and
 
recognizes
 
a
 
receivable
 
as
 
part
 
of
 
other
 
assets
 
in
 
the
 
consolidated
statements
 
of
 
condition
 
if
 
the
 
conditions
 
in
 
ASC
 
Subtopic
 
310-40,
 
“Reclassification
 
of
 
Residential
 
Real
 
Estate
 
Collateralized
Consumer
 
Mortgage
 
Loans
 
upon
 
Foreclosure,”
 
(ASC
 
Subtopic
 
310-40)
 
are
 
met.
 
See
 
Note
 
7–
 
Other
 
Real
 
Estate
 
Owned
 
for
information on foreclosures associated to
 
FHA/VA
 
government-guaranteed residential mortgage loans
 
reclassified to other assets as of
December 31, 2022 and 2021.
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 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.
 
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.
 
See
 
Note
 
9–
 
Goodwill
 
and
 
Other
 
Intangible
 
Assets
 
for
information on the qualitative assessment performed by the Corporation
 
during the fourth quarter of 2022.
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
133
Other
 
Intangible
 
Assets
 
 
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 for impairment whenever events
 
or changes in circumstances indicate that the carrying amount may not
 
exceed their fair value.
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,
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,
 
the intention of setoff
 
is existent, the transactions
 
have
the same maturity date, and the amounts are determinable.
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
.
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. The effect
 
on deferred tax assets and
 
liabilities of a change
 
in
tax rates
 
is recognized
 
in income
 
at the
 
time of
 
enactment of
 
such change
 
in tax
 
rates. Any
 
interest or
 
penalties due
 
for payment
 
of
income taxes are included
 
in the provision for income
 
taxes. 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.
 
See
 
Note
 
22
 
 
Income
 
Taxes
 
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 Ta
 
x
 
Benefit.
 
The Corporation releases income tax effects from OCL as pension
 
and postretirement liabilities are extinguished.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
134
Stock repurchases
Treasury
 
shares
 
are
 
recorded
 
at
 
their
 
reacquisition
 
cost,
 
as
 
a
 
reduction
 
of
 
stockholders’
 
equity
 
in
 
the
 
consolidated
 
statements
 
of
financial condition. When
 
reissuing treasury shares
 
for the granting
 
of stock-based compensation
 
awards, treasury stock
 
is reduced by
the
 
cost
 
allocated
 
to
 
such
 
stock
 
and
 
additional
 
paid-in
 
capital
 
is
 
credited
 
for
 
gains
 
and
 
debited
 
for
 
losses
 
when
 
treasury
 
stock
 
is
reissued at prices that differ from the reacquisition cost.
Stock-based compensation
Compensation
 
cost
 
is
 
recognized
 
in
 
the
 
financial
 
statements
 
for
 
all
 
share-based
 
payment
 
grants.
The
 
First
 
BanCorp.
 
Omnibus
Incentive
 
Plan,
 
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,
 
taking
 
into account
 
the
retirement eligibility of the award.
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. For additional information regarding
 
the Corporation’s
 
equity-based compensation and
awards granted, see Note 16 – Stock-Based Compensation.
 
 
Comprehensive (loss) income
Comprehensive (loss)
 
income for
 
First BanCorp. includes
 
net income,
 
as well as
 
changes
 
in unrealized
 
gains (losses) on
 
available-
for-sale debt securities and change in unrecognized pension
 
and post-retirement costs, net of estimated tax effects.
Pension and other postretirement benefits
The Corporation
 
maintains two
 
frozen qualified
 
noncontributory defined
 
benefit pension
 
plans (the
 
“Pension Plans”)
 
(including a
complementary postretirement
 
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.
In addition,
 
the Corporation
 
maintains contributory
 
retirement plans
 
covering substantially
 
all employees.
 
Employer contributions
to the plan are charged
 
to current earnings as part of
 
employees’ compensation and benefits expenses
 
in the consolidated statements of
income.
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
135
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
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, 2022, 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. See Note 27 – Segment Information 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.
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,
 
2022 or
 
2021. See
 
Note 25
 
– Fair
Value
 
for additional information.
 
Revenue from contract with customers
See Note
 
26 –
 
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
Basic earnings per share
 
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
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, if any,
 
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.
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
136
Accounting Standards Adopted in 2022
ASU
 
2022-06,
 
“Reference
 
Rate
 
Reform
 
(Topic
 
848):
 
Deferral
 
of
 
the
 
Sunset
 
Date
 
of
 
Topic
 
848”,
 
which
 
was
 
effective
 
upon
 
the
issuance
 
of
 
this
 
ASU
 
in
 
December
 
2022,
 
extends
 
the
 
sunset
 
(or
 
expiration
 
date)
 
of
 
ASC
 
Topic
 
848
 
from
 
December
 
31,
 
2022
 
to
December
 
31,
 
2024.
 
Notwithstanding,
 
the
 
Corporation
 
expects
 
to
 
follow
 
the
 
provisions
 
of
 
the
 
LIBOR
 
Act
 
for
 
the
 
transition
 
of
 
any
residual exposure after June 30, 2023.
The Corporation was not impacted by the adoption of the following ASUs during 2022:
ASU 2021-05, “Leases (Topic
 
842): Lessors – Certain Leases with Variable
 
Lease Payments”
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)”
ASU 2020-06, “Debt
 
– Debt with Conversion
 
and other Options (Subtopic
 
470-20) and Derivatives
 
and Hedging – Contracts
in
 
an
 
Entity’s
 
Own
 
Equity
 
(Subtopic
 
815-40):
 
Accounting
 
for
 
Convertible
 
Instruments
 
and
 
Contracts
 
in
 
an
 
Entity’s
 
Own
Equity”
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
137
Recently Issued Accounting Standards Not Yet
 
Effective or Not Yet
 
Adopted
Standard
Description
Effective Date
Effect on the financial statements
ASU 2022-03, “Fair Value
Measurement (Topic 820): Fair
Value Measurement of
 
Equity
Securities Subject to Contractual
Sale Restrictions”
In June 2022, the FASB issued
ASU 2022-03 which, among other
things, clarifies that a contractual
restriction on the sale of an equity
security is not considered part of
the unit of account and, therefore,
is not considered in measuring fair
value; and introduces new
disclosure requirements for equity
securities subject to contractual sale
restrictions.
January 1, 2024. Early adoption is
permitted for both interim and
annual financial statements that
have not yet been issued or made
available for issuance.
The Corporation is evaluating the
impact that this ASU will have on its
financial statements and disclosures.
The Corporation does not expect to
be materially impacted by the
adoption of this ASU during the first
quarter of 2024.
ASU 2022-02, “Financial
Instruments – Credit Losses (Topic
326): Troubled Debt Restructurings
and Vintage Disclosures”
In March 2022, the FASB issued
ASU 2022-02 which eliminates the
TDRs recognition and
measurement guidance. As such,
the requirement to use a discounted
cash flow method for TDRs that
involve a concession that can only
be captured by means of this
method is no longer required and
the consideration of reasonably
expected TDRs is eliminated from
ASC Topic 326. In addition, the
ASU enhances disclosure
requirements for loan restructurings
by creditors made to borrowers
experiencing financial difficulty for
which the terms of the receivables
have been modified, regardless of
whether the refinancing is
accounted for as a new loan, and
amends the guidance on vintage
disclosures to require disclosure of
gross write-offs by year of
origination.
 
January 1, 2023, unless early
adopted in which case the
amendments should be applied as
of the beginning of the fiscal year
that includes the interim period
The Corporation adopted the
amendments of this update during
the first quarter of 2023 using a
modified retrospective transition
method with respect to the portion of
the standard that relates to the
recognition and measurement of
TDRs (i.e. adjustments to the ACL
that had been calculated using a
discounted cash flow methodology
for loans modified as a TDR prior to
the adoption of these amendments).
As of January 1, 2023, the
Corporation recorded a cumulative
effect adjustment of
 
$
1
 
million,
after-tax, as a reduction to retained
earnings. In addition, the Corporation
performed the necessary data updates
to comply with the enhanced
disclosure requirements.
ASU 2022-01, “Derivatives and
Hedging (Topic 815): Fair Value
Hedging – Portfolio Layer Method”
In March 2022, the FASB issued
ASU 2022-01 which, among
others, expands the current last-of-
layer method to allow multiple
hedged layers and the scope of the
portfolio layer method to non-
prepayable financial assets.
 
January 1, 2023, unless early
adopted in which case the
amendments should be applied as
of the beginning of the fiscal year
that includes the interim period
The Corporation does not expect to
be impacted by the amendments of
this update since it does not apply
fair value hedge accounting to any of
its derivatives.
 
ASU 2021-08, “Business
Combinations (Topic 805):
Accounting for Contract Assets and
Contract Liabilities From Contracts
With Customers”
In October 2021, the FASB issued
ASU 2021-08 which, among
others, requires that the acquirer
recognize and measure contract
assets and contract liabilities
acquired in a business combination
in accordance with Topic 606 and
provides certain practical
expedients.
 
January 1, 2023, unless early
adopted in which case the
amendments should be applied as
of the beginning of the fiscal year
that includes the interim period
The Corporation will consider these
amendments on business
combinations completed on or after
the adoption date.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
138
NOTE 2 – 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, 2022 and 2021 were as follows:
 
2022
2021
(Dollars in thousands)
Time deposits with other financial institutions
(1) (2)
$
300
$
300
Overnight deposits with other financial institutions
(3)
541
1,200
Other short-term investments
(4)
1,184
1,182
$
2,025
$
2,682
(1)
Consists of time deposits segregated for compliance with the Puerto
 
Rico International Banking Law.
(2)
Interest rate of
0.40
% and
0.05
% as of December 31, 2022 and 2021, respectively.
(3)
Weighted-average interest rate
 
of
4.33
% and
0.07
% as of December 31, 2022 and 2021, respectively.
(4)
Weighted-average interest rate
 
of
0.14
% and
0.15
% as of December 31, 2022 and 2021, respectively.
As
 
of
 
December
 
31,
 
2022,
 
the
 
Corporation
 
had
 
$
0.5
 
million
 
(2021
 
-
 
$
1.2
 
million)
 
in
 
money
 
market
 
investments
 
pledged
 
as
collateral as part of margin calls associated to derivative contracts.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
139
NOTE 3 – DEBT SECURITIES
Available-for-Sale
 
Debt Securities
The amortized
 
cost, gross
 
unrealized gains
 
and losses
 
recorded in
 
OCL, ACL,
 
estimated fair
 
value,
 
and weighted-average
 
yield of
available-for-sale debt securities by contractual maturities as of
 
December 31, 2022 were as follows:
December 31, 2022
Amortized cost
(1)
Gross
ACL
Fair value
Unrealized
Weighted-
Gains
Losses
average yield%
(Dollars in thousands)
U.S. Treasury securities:
Due within one year
$
7,493
$
-
$
309
$
-
$
7,184
0.22
After 1 to 5 years
141,366
-
9,675
-
131,691
0.70
U.S. GSEs' obligations:
Due within one year
129,018
-
4,036
-
124,982
0.32
After 1 to 5 years
2,395,273
22
227,724
-
2,167,571
0.83
After 5 to 10 years
56,251
13
7,670
-
48,594
1.54
After 10 years
12,170
36
-
-
12,206
4.62
Puerto Rico government obligations:
 
After 10 years
(2)
3,331
-
755
375
2,201
-
United States and Puerto Rico government obligations
2,744,902
71
250,169
375
2,494,429
0.83
MBS:
FHLMC certificates:
After 1 to 5 years
4,235
-
169
-
4,066
2.33
After 5 to 10 years
204,085
-
19,061
-
185,024
1.55
After 10 years
1,092,289
-
186,558
-
905,731
1.38
 
1,300,609
-
205,788
-
1,094,821
1.41
GNMA certificates:
 
Due within one year
5
-
-
-
5
1.73
After 1 to 5 years
15,508
-
622
-
14,886
2.00
After 5 to 10 years
45,322
1
3,809
-
41,514
1.31
 
After 10 years
232,632
51
27,169
-
205,514
2.47
293,467
52
31,600
-
261,919
2.27
FNMA certificates:
After 1 to 5 years
9,685
-
521
-
9,164
1.76
 
After 5 to 10 years
400,223
-
36,871
-
363,352
1.70
After 10 years
1,186,635
124
186,757
-
1,000,002
1.38
 
1,596,543
124
224,149
-
1,372,518
1.46
 
Collateralized mortgage obligations issued or guaranteed
by the FHLMC, FNMA and GNMA ("CMOs"):
After 1 to 5 years
30,578
-
4,463
-
26,115
2.43
After 10 years
423,695
-
80,271
-
343,424
1.38
454,273
-
84,734
-
369,539
1.45
Private label:
 
After 10 years
7,903
-
2,026
83
5,794
6.83
Total MBS
3,652,795
176
548,297
83
3,104,591
1.52
Other
 
Due within one year
500
-
-
-
500
0.84
Total available-for-sale debt securities
$
6,398,197
$
247
$
798,466
$
458
$
5,599,520
1.22
(1)
Excludes accrued interest receivable on available-for-sale debt securities that totaled $
11.1
 
million as of December 31, 2022 reported as part of accrued interest receivable on loans and investment securities in the
consolidated statements of financial condition, and excluded from the estimate of credit losses.
(2)
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 2021, the
Corporation placed this instrument in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
140
The amortized
 
cost, gross
 
unrealized gains
 
and losses
 
recorded in
 
OCL, ACL,
 
estimated fair
 
value, and
 
weighted-average yield
 
of
available-for-sale debt securities by contractual maturities as of
 
December 31, 2021 were as follows:
December 31, 2021
Amortized cost
 
(1)
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. GSEs' 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
(2)
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
CMOs:
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 available-for-sale debt securities
$
6,534,503
$
28,900
$
108,537
1,105
$
6,453,761
1.03
(1)
Excludes accrued interest receivable on available-for-sale debt securities that totaled $
10.1
 
million as of December 31, 2021 reported as part of accrued interest receivable on loans and investment securities in the
consolidated statements of financial condition, and excluded from the estimate of credit losses.
(2)
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 2021, the
Corporation placed this instrument in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
141
Maturities
 
of
 
available-for-sale
 
debt
 
securities
 
are
 
based
 
on
 
the
 
period
 
of
 
final
 
contractual
 
maturity.
 
Expected
 
maturities
 
might
differ
 
from
 
contractual
 
maturities
 
because
 
they
 
may
 
be
 
subject
 
to
 
prepayments
 
and/or
 
call
 
options.
 
The
 
weighted-average
 
yield
 
on
available-for-sale
 
debt
 
securities
 
is
 
based
 
on
 
amortized
 
cost
 
and,
 
therefore,
 
does
 
not
 
give
 
effect
 
to
 
changes
 
in
 
fair
 
value.
 
The
 
net
unrealized gain or loss on available-for-sale debt securities is
 
presented as part of other comprehensive (loss) income.
 
The
 
following
 
tables
 
show
 
the
 
fair
 
value
 
and
 
gross
 
unrealized
 
losses
 
of
 
the
 
Corporation’s
 
available-for-sale
 
debt
 
securities,
aggregated by
 
investment category
 
and length of
 
time that individual
 
securities have
 
been in a
 
continuous unrealized
 
loss position, as
of December 31, 2022 and 2021. The tables also include debt securities for
 
which an ACL was recorded.
As of December 31, 2022
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:
U.S. Treasury and U.S. GSEs'
 
obligations
$
298,313
$
18,057
$
2,174,724
$
231,357
$
2,473,037
$
249,414
Puerto Rico government obligations
-
-
2,201
755
(1)
2,201
755
MBS:
FHLMC
263,184
45,776
831,637
160,012
1,094,821
205,788
GNMA
74,829
3,433
179,854
28,167
254,683
31,600
FNMA
424,178
51,289
938,625
172,860
1,362,803
224,149
CMOs
54,688
6,788
314,851
77,946
369,539
84,734
Private label
-
-
5,794
2,026
(1)
5,794
2,026
$
1,115,192
$
125,343
$
4,447,686
$
673,123
$
5,562,878
$
798,466
(1)
Unrealized losses do not include the credit loss component recorded
 
as part of the ACL. As of December 31, 2022, PRHFA
 
bond and private label MBS had an ACL of $
0.4
 
million and
$
0.1
 
million, respectively.
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:
U.S. Treasury and U.S. GSEs'
 
 
obligations
$
1,717,340
$
25,401
$
606,179
$
16,243
$
2,323,519
$
41,644
Puerto Rico government obligations
-
-
2,850
416
(1)
2,850
416
MBS:
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
FNMA
1,237,701
19,843
112,559
3,821
1,350,260
23,664
CMOs
466,004
13,552
16,656
360
482,660
13,912
Private label
-
-
7,234
1,963
(1)
7,234
1,963
$
4,601,661
$
76,269
$
1,008,607
$
32,268
$
5,610,268
$
108,537
(1)
Unrealized losses do not include the credit loss component recorded
 
as part of the ACL. As of December 31, 2021, PRHFA
 
bond and private label MBS had an ACL of $
0.3
 
million and
$
0.8
 
million, respectively.
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
142
There
 
were
 
no
 
sales
 
of
 
available-for-sale
 
debt
 
securities
 
during
 
the
 
years
 
ended
 
December
 
31,
 
2022
 
and
 
2021.
 
During
 
the
 
year
ended December
 
31, 2020, proceeds
 
from sales of
 
available-for-sale debt
 
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
substantially all of the total available-for
 
-sale portfolio as of December 31, 2022, 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,
 
2022.
 
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
 
$
5.8
 
million,
 
which
 
had
unrealized
 
losses of
 
approximately $
2.1
 
million as
 
of December
 
31, 2022,
 
of which
 
$
0.1
 
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 is 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,
 
2022, the Corporation
 
did not have the
 
intent to sell these
 
securities and determined
 
that it is 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,
expected
 
cash
 
flows
 
(interest
 
and
 
principal)
 
were
 
discounted
 
at
 
the
 
Treasury
 
yield
 
curve
 
as
 
of
 
the
 
reporting
 
date.
 
Significant
assumptions in the valuation of the private label MBS were as follows:
As of
As of
December 31, 2022
December 31, 2021
Weighted
 
Range
Weighted
 
Range
Average
Minimum
Maximum
Average
Minimum
Maximum
Discount rate
16.2%
16.2%
16.2%
12.9%
12.9%
12.9%
Prepayment rate
11.8%
1.5%
15.2%
15.2%
7.6%
24.9%
Projected Cumulative Loss Rate
5.6%
0.3%
15.6%
7.6%
0.2%
15.7%
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, 2022, the ACL for these
 
private label MBS was $
0.1
 
million, compared to $
0.8
 
million as of December 31,
2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
143
As
 
of
 
December
 
31,
 
2022,
 
the
 
Corporation’s
 
available-for-sale
 
debt
 
securities
 
portfolio
 
also
 
included
 
a
 
residential
 
pass-through
MBS issued by the PRHFA,
 
collateralized by certain second mortgages,
 
with a fair value of $
2.2
 
million, which had an unrealized loss
of approximately
 
$
1.1
 
million. Approximately
 
$
0.4
 
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 are 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
 
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
 
discounted cash flow methodology
 
that
considered the
 
structure and
 
terms of
 
the debt
 
security.
 
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,
expected
 
cash
 
flows
 
(interest
 
and
 
principal)
 
were
 
discounted
 
at
 
the
 
Treasury
 
yield
 
curve
 
plus
 
a
 
spread
 
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, 2022,
 
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.
 
The following
 
tables present
 
a roll-forward
 
by major
 
security type
 
for the
 
years ended
 
December 31,
 
2022, 2021,
 
and 2020
 
of the
ACL on available-for-sale debt securities:
Year
 
Ended December 31, 2022
Private label MBS
Puerto Rico
 
Government
Obligations
Total
(In thousands)
Beginning balance
$
797
$
308
$
1,105
Provision for credit losses - (benefit) expense
(501)
67
(434)
Net charge-offs
(213)
-
(213)
 
ACL on available-for-sale debt securities
$
83
$
375
$
458
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 available-for-sale debt securities
$
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 - expense
1,333
308
1,641
Net charge-offs
(331)
-
(331)
 
ACL on available-for-sale debt securities
$
1,002
$
308
$
1,310
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
144
During
 
2022,
 
the
 
Corporation
 
recognized
 
$
86.1
 
million
 
of
 
interest
 
income
 
on
 
available-for-sale
 
debt
 
securities
 
(2021
 
-
 
$
62.7
million; 2020 - $
49.0
 
million), of which $
40.7
 
million was exempt (2021 - $
25.7
 
million; 2020 - $
38.5
 
million). The exempt securities
primarily relate to MBS and
 
government obligations held by
 
IBEs (as defined in the
 
International Banking Entity
 
Act of Puerto Rico),
whose interest income and sales are exempt from Puerto Rico income
 
taxation under that act.
Held-to-Maturity Debt Securities
The
 
amortized
 
cost,
 
gross
 
unrecognized
 
gains
 
and
 
losses,
 
estimated
 
fair
 
value,
 
ACL,
 
weighted-average
 
yield
 
and
 
contractual
maturities of held-to-maturity debt securities as of December 31, 2022 and
 
2021 were as follows
:
December 31, 2022
Amortized cost
(1)
Gross Unrecognized
Fair value
Weighted-
Gains
Losses
ACL
average yield%
(Dollars in thousands)
Puerto Rico municipal bonds:
 
Due within one year
$
1,202
$
-
$
15
$
1,187
$
2
5.20
 
After 1 to 5 years
42,530
886
1,076
42,340
656
6.34
 
After 5 to 10 years
55,956
3,182
360
58,778
3,243
6.29
 
After 10 years
66,022
-
1,318
64,704
4,385
7.10
Total Puerto Rico municipal bonds
165,710
4,068
2,769
167,009
8,286
6.62
MBS:
 
FHLMC certificates:
After 5 to 10 years
$
21,443
$
-
$
746
$
20,697
$
-
3.03
After 10 years
19,362
-
888
18,474
-
4.21
40,805
-
1,634
39,171
-
3.59
 
GNMA certificates:
`
After 10 years
19,131
-
943
18,188
-
3.35
 
FNMA certificates:
After 1 to 5 years
9,621
-
396
9,225
-
3.48
After 10 years
72,347
-
3,155
69,192
-
4.14
81,968
-
-
3,551
78,417
-
4.06
 
CMOs
After 10 years
129,923
-
5,593
124,330
-
3.24
Total MBS
271,827
-
11,721
260,106
-
3.55
Total held-to-maturity debt securities
$
437,537
$
4,068
$
14,490
$
427,115
$
8,286
4.71
(1)
Excludes accrued interest receivable on held-to-maturity debt securities that totaled $
5.5
 
million as of December 31, 2022, was 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.
December 31, 2021
Amortized cost
(1)
Gross Unrecognized
Fair value
Weighted-
Gains
Losses
ACL
average yield%
(Dollars in thousands)
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 held-to-maturity debt securities
$
178,133
$
2,086
$
13,072
$
167,147
$
8,571
4.04
(1)
Excludes accrued interest receivable on held-to-maturity debt securities that totaled $
3.4
 
million as of December 31, 2021, was 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)
145
During 2022,
 
the Corporation
 
purchased
 
approximately
 
$
289.9
 
million of
 
GSEs’ MBS,
 
which
 
were classified
 
as held-to-maturity
debt securities.
The following
 
tables show the
 
Corporation’s
 
held-to-maturity debt securities
 
 
fair value
 
and gross unrecognized
 
losses, aggregated
by category and length of time that individual securities had been
 
in a continuous unrecognized loss position, as of December 31,
 
2022
and 2021, including debt securities for which an ACL was recorded:
As of December 31, 2022
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
$
-
$
-
$
98,797
$
2,769
$
98,797
$
2,769
 
MBS:
FHLMC certificates
39,171
1,634
-
-
39,171
1,634
GNMA certificates
18,188
943
-
-
18,188
943
FNMA certificates
78,417
3,551
-
-
78,417
3,551
CMOs
124,330
5,593
-
-
124,330
5,593
Total held-to-maturity debt securities
$
260,106
$
11,721
$
98,797
$
2,769
$
358,903
$
14,490
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
146
The
 
Corporation
 
classifies
 
the
 
held-to-maturity
 
debt
 
securities
 
portfolio
 
into
 
the
 
following
 
major
 
security
 
types:
 
MBS
 
issued
 
by
GSEs and
 
Puerto
 
Rico
 
municipal
 
bonds.
 
As of
 
December
 
31,
 
2022,
 
all of
 
the
 
MBS included
 
in
 
the held-to-maturity
 
debt
 
securities
portfolio were
 
issued by
 
GSEs. The
 
Corporation does
 
not recognize
 
an ACL
 
for these
 
securities since
 
they are
 
highly rated
 
by major
rating agencies and have a
 
long history of no credit losses. In
 
the case of Puerto Rico
 
municipal bonds, the Corporation determines
 
the
ACL 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.
 
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,
 
2022.
 
The
 
Puerto
 
Rico
 
municipal
 
bonds
 
had
 
an
 
ACL
 
of
 
$
8.3
 
million
 
as
 
of
December
 
31,
 
2022,
 
down
 
$
0.3
 
million
 
from
 
$
8.6
 
million
 
as
 
of
 
December
 
31,
 
2021,
 
mostly
 
related
 
to
 
a
 
reduction
 
in
 
qualitative
reserves driven by improvements in the underlying financial information
 
of certain issuers during 2022.
 
The following table
 
presents the activity
 
in the ACL for
 
held-to-maturity debt
 
securities by major
 
security type for
 
the years ended
December 31, 2022, 2021 and 2020:
 
Puerto Rico Municipal Bonds
Year
 
Ended
December 31, 2022
December 31, 2021
December 31, 2020
(In thousands)
Beginning Balance
$
8,571
$
8,845
$
-
Impact of adopting ASC 326
-
-
8,134
Initial allowance on PCD debt securities
-
-
1,269
Provision for credit losses - (benefit)
(285)
(274)
(558)
ACL on held-to-maturity debt securities
$
8,286
$
8,571
$
8,845
 
During the second quarter of 2019, the oversight board established
 
by Puerto Rico Oversight, Management,
 
and Economic Stability
Act
 
(“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
 
economic
 
and
 
fiscal
 
challenges
 
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,
 
2022 and
 
2021, the
 
Corporation had
no
 
outstanding securities
 
held to
 
maturity that
 
were classified
 
as
cash and cash equivalents.
During 2022,
 
the Corporation recognized
 
$
15.5
 
million of interest
 
income on
 
held-to-maturity debt
 
securities (2021
 
- $
8.8
 
million;
2020 -
 
$
7.6
 
million), of
 
which $
15.4
 
million was
 
exempt (2021
 
- $
8.8
 
million; 2020
 
- $
7.6
 
million). The
 
exempt securities
 
primarily
relate to
 
MBS held
 
by IBEs
 
(as defined
 
in the
 
International Banking
 
Entity Act
 
of Puerto
 
Rico), whose
 
interest income
 
and sales
 
are
exempt from Puerto Rico income taxation under that act; and tax-exempt Puerto
 
Rico municipal bonds.
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
147
Credit Quality Indicators:
The held-to-maturity debt securities
 
portfolio consisted of GSEs
MBS and financing arrangements
 
with Puerto Rico municipalities
issued in
 
bond form.
 
As previously
 
mentioned,
 
the Corporation
 
expects
 
no credit
 
losses on
 
GSEs MBS.
 
The Puerto
 
Rico municipal
bonds
 
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 these municipal bonds through the use of
 
internal credit-risk ratings, which
are generally updated
 
on a quarterly basis.
 
The Corporation considers
 
a municipal bond
 
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
 
as 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 Puerto
 
Rico
 
municipal
 
bonds
 
to
 
evaluate
 
if
 
they are
 
properly
 
classified,
 
and to
 
measure
credit losses on
 
these securities. 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
debt
 
securities.
 
The objective
 
of
 
these
 
loan
 
reviews is
 
to
 
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
 
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.
As of December 31, 2022 and 2021,
 
all Puerto Rico municipal bonds classified as held-to-maturity were classified
 
as Pass.
No
 
held-to-maturity debt
 
securities were
 
on nonaccrual
 
status, 90
 
days past
 
due and
 
still accruing,
 
or past
 
due as
 
of December
 
31,
2022 and 2021. 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)
148
NOTE 4 – LOANS HELD FOR INVESTMENT
 
 
The
 
following
 
table
 
provides
 
information
 
about
 
the
 
loan
 
portfolio
 
held
 
for
 
investment
 
by
 
portfolio
 
segment
 
and
 
disaggregated
 
by
geographic locations
 
as of the indicated
 
dates:
 
As of December 31,
 
As of December 31,
 
2022
2021
(In thousands)
Puerto Rico and Virgin Islands region:
Residential mortgage loans, mainly secured by first mortgages
$
2,417,900
$
2,549,573
Construction loans
34,772
43,133
Commercial mortgage loans
 
1,834,204
1,702,231
C&I loans
1,860,109
1,946,597
Consumer loans
3,317,489
2,872,384
Loans held for investment
$
9,464,474
$
9,113,918
Florida region:
Residential mortgage loans, mainly secured by first mortgages
$
429,390
$
429,322
Construction loans
98,181
95,866
Commercial mortgage loans
 
524,647
465,238
C&I loans
1,026,154
940,654
Consumer loans
9,979
15,660
Loans held for investment
$
2,088,351
$
1,946,740
Total:
Residential mortgage loans, mainly secured by first mortgages
$
2,847,290
$
2,978,895
Construction loans
132,953
138,999
Commercial mortgage loans
 
2,358,851
2,167,469
C&I loans
(1)
2,886,263
2,887,251
Consumer loans
3,327,468
2,888,044
Loans held for investment
(2)
11,552,825
11,060,658
ACL on loans and finance leases
(260,464)
(269,030)
Loans held for investment, net
$
11,292,361
$
10,791,628
(1)
As of December 31, 2022 and 2021, includes $
838.5
 
million and $
952.1
 
million, respectively, of commercial loans that were secured by real estate and the
 
primary
source of repayment at origination was not dependent upon the
 
real estate.
(2)
Includes accretable fair value net purchase discounts of $
29.3
 
million and $
35.3
 
million as of December 31, 2022 and 2021, respectively.
As of
 
December 31,
 
2022,
 
and
 
2021,
 
the
 
Corporation
 
had net
 
deferred
 
origination
 
costs on
 
its loan
 
portfolio
 
amounting
 
to $
11.2
million
 
and
 
$
4.3
 
million,
 
respectively.
 
The total
 
loan
 
portfolio
 
is net
 
of unearned
 
income
 
of $
103.4
 
million
 
and
 
$
79.0
 
million
 
as of
December 31, 2022 and
 
2021, respectively,
 
of which $
99.2
 
million and $
75.8
 
million are related
 
to finance leases
 
as of December
 
31,
2022 and 2021, respectively.
As of
 
December 31,
 
2022,
 
the Corporation
 
was servicing
 
residential
 
mortgage
 
loans owned
 
by others
 
in
 
an
 
aggregate
 
amount
 
of
$
3.9
 
billion (2021
 
— $
4.0
 
billion), and
 
commercial loan
 
participations owned
 
by others
 
in an
 
aggregate amount
 
of $
305.1
 
million as
of December 31, 2022 (2021 — $
383.5
 
million).
Various
 
loans, mainly secured
 
by first mortgages,
 
were assigned
 
as collateral for
 
time deposits accounts,
 
public funds, borrowings,
and
 
related
 
unused
 
commitments.
 
Total
 
loans
 
carrying
 
value
 
pledged
 
as
 
collateral
 
amounted
 
to
 
$
4.3
 
billion
 
and
 
$
4.1
 
billion
 
as
 
of
December 31,
 
2022
 
and
 
2021,
 
respectively.
 
As
 
of
 
December
 
31,
 
2022,
 
loans
 
pledged
 
as
 
collateral
 
include
 
$
2.2
 
billion
 
of
 
pledged
collateral related
 
to the
 
Borrower-in-Custody
 
Program (the
 
“BIC Program”)
 
of the
 
FED which
 
remained undrawn
 
and $
1.8
 
billion of
loans pledged to the FHLB, compared to $
2.1
 
billion and $
1.8
 
billion, respectively, as of
 
December 31, 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
149
The Corporation’s
 
aging of
 
the loan
 
portfolio held
 
for investment,
 
as well
 
as information
 
about nonaccrual
 
loans with
 
no ACL
 
by
portfolio classes as of December 31, 2022 and 2021 are as follows:
As of December 31, 2022
Days Past Due and Accruing
Current
30-59
60-89
90+
(1) (2) (3)
Nonaccrual
(4) (5)
Total loans held
for investment
Nonaccrual
Loans with no
ACL
(6)
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
 
FHA/VA government-guaranteed
 
loans
(1) (3) (7)
$
67,116
$
-
$
2,586
$
48,456
$
-
$
118,158
$
-
 
Conventional residential mortgage loans
(2) (7)
2,643,909
-
25,630
16,821
42,772
2,729,132
2,292
Commercial loans:
 
Construction loans
 
130,617
-
-
128
2,208
132,953
977
 
Commercial mortgage loans
(2) (7)
2,330,094
300
2,367
3,771
22,319
2,358,851
15,991
 
C&I loans
 
2,868,989
1,984
1,128
6,332
7,830
2,886,263
3,300
Consumer loans:
 
Auto loans
1,740,271
40,039
7,089
-
10,672
1,798,071
2,136
 
Finance leases
707,646
7,148
1,791
-
1,645
718,230
330
 
Personal loans
346,366
3,738
1,894
-
1,248
353,246
-
 
Credit cards
301,013
3,705
2,238
4,775
-
311,731
-
 
Other consumer loans
141,687
1,804
1,458
-
1,241
146,190
-
 
Total loans held for investment
$
11,277,708
$
58,718
$
46,181
$
80,283
$
89,935
$
11,552,825
$
25,026
 
(1)
It is the Corporation's policy to report delinquent FHA/VA government-guaranteed residential mortgage loans as past-due loans 90 days and still accruing as opposed to
 
nonaccrual loans. 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 $
28.2
 
million of residential mortgage
loans guaranteed by the FHA that were over 15 months delinquent.
(2)
Includes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans 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 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 portion of such loans contractually past due 90 days or more, amounting to $
12.0
 
million as of December 31, 2022 ($
11.0
 
million conventional
residential mortgage loans and $
1.0
 
million commercial mortgage loans), is presented in the loans past due 90 days or more and still accruing category in the table above.
(3)
Include rebooked loans, which were previously pooled into GNMA securities, amounting to $
10.3
 
million as of December 31, 2022. 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.
(4)
Nonaccrual loans in the Florida region amounted to $
8.3
 
million as of December 31, 2022, primarily nonaccrual residential mortgage loans.
(5)
Nonaccrual loans exclude $
328.1
 
million of TDR loans that were in compliance with modified terms and in accrual status as of December 31, 2022.
(6)
Includes $
0.3
 
million of nonaccrual C&I loans with no ACL in the Florida region as of December 31, 2022.
(7)
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, 2022 amounted to $
6.1
 
million, $
65.2
 
million, and $
1.6
 
million,
respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
150
As of December 31, 2021
Days Past Due and Accruing
Current
30-59
60-89
90+
(1)(2)(3)
Nonaccrual
(4) (5)
Total loans held
for investment
Nonaccrual
Loans with no
ACL
(6)
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
 
FHA/VA government-guaranteed
 
loans
(1) (3) (7)
$
57,522
$
-
$
2,355
$
65,515
$
-
$
125,392
$
-
 
Conventional residential mortgage loans
(2) (7)
2,738,111
-
31,832
28,433
55,127
2,853,503
3,689
Commercial loans:
 
Construction loans
136,317
18
-
-
2,664
138,999
1,000
 
Commercial mortgage loans
(2) (7)
2,129,375
2,402
436
9,919
25,337
2,167,469
8,289
 
C&I loans
 
2,858,397
2,047
1,845
7,827
17,135
2,887,251
11,393
Consumer loans:
 
Auto loans
1,533,445
26,462
4,949
-
6,684
1,571,540
3,146
 
Finance leases
568,606
4,820
713
-
866
575,005
196
 
Personal loans
310,390
3,299
1,285
-
1,208
316,182
-
 
Credit cards
282,179
3,158
1,904
2,985
-
290,226
-
 
Other consumer loans
130,588
1,996
811
-
1,696
135,091
20
 
Total loans held for investment
$
10,744,930
$
44,202
$
46,130
$
114,679
$
110,717
$
11,060,658
$
27,733
 
(1)
It is the Corporation's policy to report delinquent FHA/VA government-guaranteed residential mortgage loans as past-due loans 90 days and still accruing as opposed to
 
nonaccrual loans. 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
guaranteed by the FHA that were over 15 months delinquent.
(2)
Includes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans 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 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 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)
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.
(4)
Nonaccrual loans in the Florida region amounted to $
8.2
 
million as of December 31, 2021, primarily nonaccrual residential mortgage loans.
(5)
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.
(6)
Includes $
0.5
 
million of nonaccrual C&I loans with no ACL in the Florida region as of December 31, 2021.
(7)
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.
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 $
1.7
 
million, $
2.0
 
million and $
1.9
 
million for the years ended December
 
31, 2022, 2021, and 2020, respectively.
 
For the years
ended December
 
31, 2022,
 
2021, and
 
2020, the
 
cash interest
 
income recognized
 
on nonaccrual
 
loans amounted
 
to $
1.5
 
million, $
2.3
million, and $
2.0
 
million, respectively.
As of
 
December 31,
 
2022, the
 
recorded investment
 
on residential
 
mortgage loans
 
collateralized by
 
residential real
 
estate property
that
 
were
 
in
 
the
 
process
 
of
 
foreclosure
 
amounted
 
to
 
$
72.4
 
million,
 
including
 
$
29.4
 
million
 
of
 
FHA/VA
 
government-guaranteed
mortgage
 
loans,
 
and
 
$
10.0
 
million
 
of
 
PCD
 
loans
 
acquired
 
prior
 
to
 
the
 
adoption,
 
on
 
January
 
1,
 
2020,
 
of
 
CECL.
The
 
Corporation
commences
 
the
 
foreclosure
 
process
 
on
 
residential
 
real
 
estate
 
loans
 
when
 
a
 
borrower
 
becomes
120
 
days
 
delinquent.
 
Foreclosure
procedures
 
and
 
timelines
 
vary
 
depending
 
on
 
whether
 
the
 
property
 
is
 
located
 
in
 
a
 
judicial
 
or
 
non-judicial
 
state.
 
Occasionally,
foreclosures may be delayed due to, among other reasons, mandatory
 
mediations, bankruptcy,
 
court delays, and title issues.
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,
 
C&I,
 
and
construction
 
loans
 
individually
 
to
 
classify
 
the
 
loans’
 
credit
 
risk.
 
As
 
mentioned
 
above,
 
the
 
Corporation
 
periodically
 
reviews
 
its
commercial
 
and
 
construction
 
loans
 
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
 
debt
 
securities,
 
as
discussed in Note 3 – Debt Securities.
For residential mortgage and consumer loans, the Corporation also evaluates credit
 
quality based on its interest accrual status.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
151
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,
 
2022
 
and
 
the
 
amortized
 
cost
 
of
 
commercial
 
and
construction loans by portfolio classes based on the internal credit-risk
 
category as of December 31, 2021 was as follows:
As of December 31,
 
2022
Puerto Rico and Virgin Islands region
Term Loans
As of December 31, 2021
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
 
Risk Ratings:
 
Pass
$
9,463
$
18,385
$
-
$
-
$
-
$
4,031
$
-
$
31,879
$
38,066
 
Criticized:
 
Special Mention
-
-
-
-
-
-
-
-
765
 
Substandard
-
-
-
-
-
2,893
-
2,893
4,302
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total construction loans
$
9,463
$
18,385
$
-
$
-
$
-
$
6,924
$
-
$
34,772
$
43,133
COMMERCIAL MORTGAGE
 
Risk Ratings:
 
Pass
$
391,589
$
141,456
$
363,115
$
296,954
$
193,795
$
267,793
$
1,026
$
1,655,728
$
1,395,569
 
Criticized:
 
Special Mention
1,198
-
3,583
6,919
12,042
121,673
-
145,415
259,263
 
Substandard
135
-
-
2,819
-
30,107
-
33,061
47,399
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total commercial mortgage loans
$
392,922
$
141,456
$
366,698
$
306,692
$
205,837
$
419,573
$
1,026
$
1,834,204
$
1,702,231
C&I
 
Risk Ratings:
 
Pass
$
297,932
$
195,460
$
184,856
$
315,987
$
88,484
$
179,201
$
527,652
$
1,789,572
$
1,852,552
 
Criticized:
 
Special Mention
138
912
-
500
9,867
2,631
29,176
43,224
32,650
 
Substandard
203
351
1,324
14,119
725
10,238
353
27,313
61,395
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total C&I loans
$
298,273
$
196,723
$
186,180
$
330,606
$
99,076
$
192,070
$
557,181
$
1,860,109
$
1,946,597
(1) Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
152
As of December 31,
 
2022
Term Loans
As of December 31, 2021
Florida region
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
 
Risk Ratings:
 
Pass
$
48,536
$
42,841
$
-
$
14
$
-
$
-
$
6,790
$
98,181
$
95,866
 
Criticized:
 
Special Mention
-
-
-
-
-
-
-
-
-
 
Substandard
-
-
-
-
-
-
-
-
-
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total construction loans
$
48,536
$
42,841
$
-
$
14
$
-
$
-
$
6,790
$
98,181
$
95,866
COMMERCIAL MORTGAGE
 
Risk Ratings:
 
Pass
$
176,131
$
70,525
$
41,413
$
54,839
$
71,404
$
70,316
$
18,556
$
503,184
$
404,304
 
Criticized:
 
Special Mention
-
-
6,986
13,309
-
-
-
20,295
60,618
 
Substandard
-
-
1,168
-
-
-
-
1,168
316
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total commercial mortgage loans
$
176,131
$
70,525
$
49,567
$
68,148
$
71,404
$
70,316
$
18,556
$
524,647
$
465,238
C&I
 
Risk Ratings:
 
Pass
$
277,637
$
163,210
$
77,027
$
223,504
$
66,484
$
35,028
$
136,261
$
979,151
$
826,823
 
Criticized:
 
Special Mention
-
-
-
5,974
-
11,931
-
17,905
49,946
 
Substandard
-
-
267
24,852
-
3,678
301
29,098
63,885
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total C&I loans
$
277,637
$
163,210
$
77,294
$
254,330
$
66,484
$
50,637
$
136,562
$
1,026,154
$
940,654
(1) Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
153
As of December 31,
 
2022
Total
Term Loans
As of December 31, 2021
Amortized Cost Basis by Origination Year (1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
 
Risk Ratings:
 
Pass
$
57,999
$
61,226
$
-
$
14
$
-
$
4,031
$
6,790
$
130,060
$
133,932
 
Criticized:
 
Special Mention
-
-
-
-
-
-
-
-
765
 
Substandard
-
-
-
-
-
2,893
-
2,893
4,302
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total construction loans
$
57,999
$
61,226
$
-
$
14
$
-
$
6,924
$
6,790
$
132,953
$
138,999
COMMERCIAL MORTGAGE
 
Risk Ratings:
 
Pass
$
567,720
$
211,981
$
404,528
$
351,793
$
265,199
$
338,109
$
19,582
$
2,158,912
$
1,799,873
 
Criticized:
 
Special Mention
1,198
-
10,569
20,228
12,042
121,673
-
165,710
319,881
 
Substandard
135
-
1,168
2,819
-
30,107
-
34,229
47,715
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total commercial mortgage loans
$
569,053
$
211,981
$
416,265
$
374,840
$
277,241
$
489,889
$
19,582
$
2,358,851
$
2,167,469
C&I
 
Risk Ratings:
 
Pass
$
575,569
$
358,670
$
261,883
$
539,491
$
154,968
$
214,229
$
663,913
$
2,768,723
$
2,679,375
 
Criticized:
 
Special Mention
138
912
-
6,474
9,867
14,562
29,176
61,129
82,596
 
Substandard
203
351
1,591
38,971
725
13,916
654
56,411
125,280
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total C&I loans
$
575,910
$
359,933
$
263,474
$
584,936
$
165,560
$
242,707
$
693,743
$
2,886,263
$
2,887,251
(1) Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
154
The following
 
tables present the
 
amortized cost of
 
residential mortgage
 
loans by portfolio
 
classes and by
 
origination year
 
based on
accrual
 
status as
 
of
 
December
 
31,
 
2022,
 
and
 
the
 
amortized cost
 
of
 
residential
 
mortgage
 
loans
 
by
 
portfolio
 
classes based
 
on
 
accrual
status as of December 31, 2021:
As of December 31,
 
2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Puerto Rico and Virgin Islands Region:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
700
$
693
$
802
$
1,407
$
3,784
$
110,030
$
-
$
117,416
$
124,652
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
 
government-guaranteed loans
$
700
$
693
$
802
$
1,407
$
3,784
$
110,030
$
-
$
117,416
$
124,652
Conventional residential mortgage loans:
Accrual Status:
Performing
$
172,628
$
75,397
$
31,885
$
47,911
$
72,285
$
1,864,907
$
-
$
2,265,013
$
2,376,946
Non-Performing
-
35
-
219
279
34,938
-
35,471
47,975
Total conventional residential mortgage loans
$
172,628
$
75,432
$
31,885
$
48,130
$
72,564
$
1,899,845
$
-
$
2,300,484
$
2,424,921
Total:
Accrual Status:
Performing
$
173,328
$
76,090
$
32,687
$
49,318
$
76,069
$
1,974,937
$
-
$
2,382,429
$
2,501,598
Non-Performing
-
35
-
219
279
34,938
-
35,471
47,975
Total residential mortgage loans in Puerto Rico
and Virgin Islands Region
$
173,328
$
76,125
$
32,687
$
49,537
$
76,348
$
2,009,875
$
-
$
2,417,900
$
2,549,573
(1)
Excludes accrued interest receivable.
As of December 31,
 
2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Florida Region:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
742
$
-
$
742
$
740
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
 
government-guaranteed loans
$
-
$
-
$
-
$
-
$
-
$
742
$
-
$
742
$
740
Conventional residential mortgage loans:
Accrual Status:
Performing
$
82,968
$
49,479
$
31,405
$
31,144
$
37,268
$
189,083
$
-
$
421,347
$
421,430
Non-Performing
-
-
-
272
477
6,552
-
7,301
7,152
Total conventional residential mortgage loans
$
82,968
$
49,479
$
31,405
$
31,416
$
37,745
$
195,635
$
-
$
428,648
$
428,582
Total:
Accrual Status:
Performing
$
82,968
$
49,479
$
31,405
$
31,144
$
37,268
$
189,825
$
-
$
422,089
$
422,170
Non-Performing
-
-
-
272
477
6,552
-
7,301
7,152
Total residential mortgage loans in Florida region
$
82,968
$
49,479
$
31,405
$
31,416
$
37,745
$
196,377
$
-
$
429,390
$
429,322
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
155
As of December 31,
 
2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Total:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
700
$
693
$
802
$
1,407
$
3,784
$
110,772
$
-
$
118,158
$
125,392
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
 
government-guaranteed loans
$
700
$
693
$
802
$
1,407
$
3,784
$
110,772
$
-
$
118,158
$
125,392
Conventional residential mortgage loans:
Accrual Status:
Performing
$
255,596
$
124,876
$
63,290
$
79,055
$
109,553
$
2,053,990
$
-
$
2,686,360
$
2,798,376
Non-Performing
-
35
-
491
756
41,490
-
42,772
55,127
Total conventional residential mortgage loans
$
255,596
$
124,911
$
63,290
$
79,546
$
110,309
$
2,095,480
$
-
$
2,729,132
$
2,853,503
Total:
Accrual Status:
Performing
$
256,296
$
125,569
$
64,092
$
80,462
$
113,337
$
2,164,762
$
-
$
2,804,518
$
2,923,768
Non-Performing
-
35
-
491
756
41,490
-
42,772
55,127
Total residential mortgage loans
$
256,296
$
125,604
$
64,092
$
80,953
$
114,093
$
2,206,252
$
-
$
2,847,290
$
2,978,895
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
156
The
 
following
 
tables present
 
the
 
amortized
 
cost
 
of
 
consumer
 
loans
 
by
 
portfolio
 
classes
 
and
 
by origination
 
year
 
based on
 
accrual
status as of December
 
31, 2022, and the amortized
 
cost of consumer loans
 
by portfolio classes based on
 
accrual status as of December
31, 2021:
As of December 31,
 
2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Puerto Rico and Virgin Islands Regions:
Auto loans:
Accrual Status:
Performing
$
674,145
$
510,950
$
254,196
$
206,345
$
99,008
$
39,138
$
-
$
1,783,782
$
1,556,097
Non-Performing
1,666
2,140
1,596
2,508
1,385
1,301
-
10,596
6,684
Total auto loans
$
675,811
$
513,090
$
255,792
$
208,853
$
100,393
$
40,439
$
-
$
1,794,378
$
1,562,781
Finance leases:
Accrual Status:
Performing
$
292,995
$
192,435
$
88,196
$
81,186
$
48,332
$
13,441
$
-
$
716,585
$
574,139
Non-Performing
176
253
305
219
384
308
-
1,645
866
Total finance leases
$
293,171
$
192,688
$
88,501
$
81,405
$
48,716
$
13,749
$
-
$
718,230
$
575,005
Personal loans:
Accrual Status:
Performing
$
175,875
$
55,993
$
29,320
$
53,911
$
22,838
$
13,727
$
-
$
351,664
$
314,867
Non-Performing
348
249
135
289
112
115
-
1,248
1,208
Total personal loans
$
176,223
$
56,242
$
29,455
$
54,200
$
22,950
$
13,842
$
-
$
352,912
$
316,075
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
311,731
$
311,731
$
290,226
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
311,731
$
311,731
$
290,226
Other consumer loans:
Accrual Status:
Performing
$
79,630
$
21,488
$
9,345
$
11,941
$
4,030
$
3,761
$
8,921
$
139,116
$
126,734
Non-Performing
409
201
61
119
20
241
71
1,122
1,563
Total other consumer loans
$
80,039
$
21,689
$
9,406
$
12,060
$
4,050
$
4,002
$
8,992
$
140,238
$
128,297
Total:
Performing
$
1,222,645
$
780,866
$
381,057
$
353,383
$
174,208
$
70,067
$
320,652
$
3,302,878
$
2,862,063
Non-Performing
2,599
2,843
2,097
3,135
1,901
1,965
71
14,611
10,321
Total consumer loans in Puerto Rico and Virgin
Islands region
$
1,225,244
$
783,709
$
383,154
$
356,518
$
176,109
$
72,032
$
320,723
$
3,317,489
$
2,872,384
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
157
As of December 31,
 
2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Florida Region:
Auto loans:
Accrual Status:
Performing
$
-
$
-
$
-
$
305
$
2,333
$
979
$
-
$
3,617
$
8,759
Non-Performing
-
-
-
-
36
40
-
76
-
Total auto loans
$
-
$
-
$
-
$
305
$
2,369
$
1,019
$
-
$
3,693
$
8,759
Finance leases:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total finance leases
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Personal loans:
Accrual Status:
Performing
$
254
$
71
$
9
$
-
$
-
$
-
$
-
$
334
$
107
Non-Performing
-
-
-
-
-
-
-
-
-
Total personal loans
$
254
$
71
$
9
$
-
$
-
$
-
$
-
$
334
$
107
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Other consumer loans:
Accrual Status:
Performing
$
49
$
231
$
464
$
-
$
39
$
2,588
$
2,462
$
5,833
$
6,661
Non-Performing
-
-
-
-
-
21
98
119
133
Total other consumer loans
$
49
$
231
$
464
$
-
$
39
$
2,609
$
2,560
$
5,952
$
6,794
Total:
Performing
$
303
$
302
$
473
$
305
$
2,372
$
3,567
$
2,462
$
9,784
$
15,527
Non-Performing
-
-
-
-
36
61
98
195
133
Total consumer loans in Florida region
$
303
$
302
$
473
$
305
$
2,408
$
3,628
$
2,560
$
9,979
$
15,660
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
158
As of December 31,
 
2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Total:
Auto loans:
Accrual Status:
Performing
$
674,145
$
510,950
$
254,196
$
206,650
$
101,341
$
40,117
$
-
$
1,787,399
$
1,564,856
Non-Performing
1,666
2,140
1,596
2,508
1,421
1,341
-
10,672
6,684
Total auto loans
$
675,811
$
513,090
$
255,792
$
209,158
$
102,762
$
41,458
$
-
$
1,798,071
$
1,571,540
Finance leases:
Accrual Status:
Performing
$
292,995
$
192,435
$
88,196
$
81,186
$
48,332
$
13,441
$
-
$
716,585
$
574,139
Non-Performing
176
253
305
219
384
308
-
1,645
866
Total finance leases
$
293,171
$
192,688
$
88,501
$
81,405
$
48,716
$
13,749
$
-
$
718,230
$
575,005
Personal loans:
Accrual Status:
Performing
$
176,129
$
56,064
$
29,329
$
53,911
$
22,838
$
13,727
$
-
$
351,998
$
314,974
Non-Performing
348
249
135
289
112
115
-
1,248
1,208
Total personal loans
$
176,477
$
56,313
$
29,464
$
54,200
$
22,950
$
13,842
$
-
$
353,246
$
316,182
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
311,731
$
311,731
$
290,226
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
311,731
$
311,731
$
290,226
Other consumer loans:
Accrual Status:
Performing
$
79,679
$
21,719
$
9,809
$
11,941
$
4,069
$
6,349
$
11,383
$
144,949
$
133,395
Non-Performing
409
201
61
119
20
262
169
1,241
1,696
Total other consumer loans
$
80,088
$
21,920
$
9,870
$
12,060
$
4,089
$
6,611
$
11,552
$
146,190
$
135,091
Total:
Performing
$
1,222,948
$
781,168
$
381,530
$
353,688
$
176,580
$
73,634
$
323,114
$
3,312,662
$
2,877,590
Non-Performing
2,599
2,843
2,097
3,135
1,937
2,026
169
14,806
10,454
Total consumer loans
$
1,225,547
$
784,011
$
383,627
$
356,823
$
178,517
$
75,660
$
323,283
$
3,327,468
$
2,888,044
(1)
Excludes accrued interest receivable.
Accrued interest receivable
 
on loans totaled
 
$
53.1
 
million as of
 
December 31, 2022
 
($
48.1
 
million as of
 
December 31, 2021),
 
was
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)
159
The
 
following
 
tables
 
present
 
information
 
about
 
collateral
 
dependent
 
loans
 
that
 
were
 
individually
 
evaluated
 
for
 
purposes
 
of
determining the ACL as of December 31, 2022 and 2021
:
As of December 31, 2022
Collateral Dependent Loans -
With Allowance
Collateral Dependent
Loans - With No
Related Allowance
Collateral Dependent Loans - Total
Amortized Cost
 
Related
Allowance
Amortized Cost
Amortized Cost
 
Related
Allowance
(In thousands)
Residential mortgage loans:
Conventional residential mortgage loans
$
36,206
$
2,571
$
-
$
36,206
$
2,571
Commercial loans:
Construction loans
-
-
956
956
-
Commercial mortgage loans
2,466
897
62,453
64,919
897
C&I loans
 
1,513
322
17,590
19,103
322
Consumer loans:
Personal loans
56
1
64
120
1
Other consumer loans
207
29
-
207
29
$
40,448
$
3,820
$
81,063
$
121,511
$
3,820
As of December 31, 2021
Collateral Dependent Loans -
With Allowance
Collateral Dependent
Loans - With No
Related Allowance
Collateral Dependent Loans - Total
Amortized Cost
 
Related
Allowance
Amortized Cost
 
Amortized Cost
 
Related
Allowance
(In thousands)
Residential mortgage 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:
Personal loans
78
1
-
78
1
Other consumer loans
782
98
-
782
98
$
68,320
$
5,887
$
92,982
$
161,302
$
5,887
The allowance related
 
to collateral dependent loans
 
reported in the tables
 
above includes qualitative
 
adjustments applied to
 
the loan
portfolio
 
that
 
consider
 
possible
 
changes
 
in
 
circumstances
 
that
 
could
 
ultimately
 
impact
 
credit
 
losses
 
and
 
might
 
not
 
be
 
reflected
 
in
historical
 
data
 
or
 
forecasted
 
data
 
incorporated
 
in
 
the
 
quantitative
 
models.
 
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 2022
 
decreased to
70
%, compared
 
to
78
% as
 
of December
 
31, 2021,
mainly driven by the payoff of a $
16.2
 
million C&I loan in the Puerto Rico region that had a loan-to-value ratio of
116
%.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
160
Purchases and Sales of Loans
In
 
the
 
ordinary
 
course
 
of
 
business,
 
the
 
Corporation
 
enters
 
into
 
securitization
 
transactions
 
and
 
whole
 
loan
 
sales
 
with
 
GNMA
 
and
GSEs,
 
such
 
as
 
FNMA
 
and
 
FHLMC.
 
During
 
the
 
years
 
ended
 
December
 
31,
 
2022,
 
2021,
 
and
 
2020,
 
loans
 
pooled
 
into GNMA
 
MBS
amounted
 
to approximately
 
$
144.5
 
million,
 
$
190.8
 
million and
 
$
219.6
 
million, respectively,
 
of which
 
the Corporation
 
recognized
 
a
net gain on
 
sale of $
4.2
 
million, $
8.8
 
million, and $
9.9
 
million for the
 
years ended
 
December 31, 2022,
 
2021, and 2020,
 
respectively.
Also, during
 
the years ended
 
December 31,
 
2022, 2021,
 
and 2020, the
 
Corporation sold approximately
 
$
93.8
 
million, $
328.2
 
million,
and
 
$
255.0
 
million,
 
respectively,
 
of
 
performing
 
residential
 
mortgage
 
loans
 
to
 
FNMA
 
and
 
FHLMC,
 
of
 
which
 
the
 
Corporation
recognized a net gain on
 
sale of $
4.2
 
million, $
11.4
 
million, and $
8.3
 
million for the years ended
 
December 31, 2022, 2021, and
 
2020,
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
 
pooled into
 
GNMA MBS,
 
the Corporation,
 
as servicer,
 
holds an
 
option to
 
repurchase individual
 
delinquent loans
 
issued
on or
 
after January 1,
 
2003 when certain
 
delinquency criteria are
 
met. This option
 
gives the Corporation
 
the unilateral ability,
 
but not
the obligation, to
 
repurchase the delinquent
 
loans at par without
 
prior authorization from
 
GNMA. Since the
 
Corporation is considered
to
 
have
 
regained
 
effective
 
control
 
over
 
the
 
loans,
 
it
 
is
 
required
 
to
 
recognize
 
the
 
loans
 
and
 
a
 
corresponding
 
repurchase
 
liability
regardless
 
of
 
its
 
intent
 
to
 
repurchase
 
the
 
loans.
 
As
 
of
 
December
 
31,
 
2022
 
and
 
2021,
 
rebooked
 
GNMA
 
delinquent
 
loans
 
that
 
were
included in the residential mortgage loan portfolio amounted to $
10.4
 
million and $
7.2
 
million, respectively.
 
During
 
the
 
years
 
ended
 
December
 
31,
 
2022,
 
2021,
 
and
 
2020,
 
the
 
Corporation
 
repurchased,
 
pursuant
 
to
 
the
 
aforementioned
repurchase
 
option,
 
$
8.2
 
million,
 
$
1.1
 
million,
 
and
 
$
55.0
 
million,
 
respectively,
 
of
 
loans
 
previously
 
pooled
 
into
 
GNMA
 
MBS.
 
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.
 
Historically, losses
 
on these 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 $
0.4
 
million, $
0.3
 
million, and $
42
 
thousand during
the years
 
ended December
 
31, 2022,
 
2021, and
 
2020, 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.
During the
 
year ended
 
December 31,
 
2022, the
 
Corporation sold
 
a $
35.2
 
million C&I
 
loan participation
 
in the
 
Puerto Rico
 
region
and
 
a $
23.9
 
million
 
criticized
 
C&I loan
 
participation
 
in the
 
Florida
 
region.
 
Also, during
 
the year
 
ended
 
December 31,
 
2021,
 
a $
3.1
million
 
construction
 
loan
 
in
 
the Puerto
 
Rico
 
region
 
and
 
four criticized
 
commercial
 
loan participations
 
in the
 
Florida region
 
totaling
$
43.1
 
million
 
were sold.
 
Further,
 
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.
Finally, the
 
Corporation participated 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 originated
 
loans to
 
borrowers meeting
 
the terms
 
and requirements
 
of the
program, including requirements
 
as to eligibility,
 
use of proceeds and
 
priority,
 
and sold 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
 
years
 
ended
 
December
 
31,
 
2022,
 
2021,
 
and
 
2020,
 
the
 
Corporation
 
purchased
 
C&I
 
loan
 
participations
 
in
 
the
 
Florida
region totaling $
135.4
 
million, $
174.7
 
million, and $
40.0
 
million, respectively.
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
161
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
$
11.6
 
billion as
 
of December
 
31, 2022,
 
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,
 
2022,
 
the Corporation
 
had
 
$
169.8
 
million
 
outstanding
 
in
 
loans
 
extended
 
to
 
the Puerto
 
Rico
 
government,
 
its
municipalities
 
and
 
public
 
corporations,
 
compared
 
to
 
$
178.4
 
million
 
as
 
of
 
December
 
31,
 
2021.
 
As
 
of
 
December
 
31,
 
2022,
approximately
 
$
102.7
 
million consisted
 
of loans
 
extended
 
to municipalities
 
in Puerto
 
Rico that
 
are general
 
obligations supported
 
by
assigned
 
property
 
tax
 
revenues,
 
and
 
$
28.9
 
million
 
of
 
loans
 
which
 
are
 
supported
 
by
 
one
 
or
 
more
 
specific
 
sources
 
of
 
municipal
revenues.
 
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.
 
In addition
to
 
loans
 
extended
 
to
 
municipalities,
 
the
 
Corporation’s
 
exposure
 
to
 
the
 
Puerto
 
Rico
 
government
 
as
 
of
 
December
 
31,
 
2022
 
included
$
10.8
 
million in loans
 
granted to an affiliate
 
of the Puerto
Rico Electric
Power Authority (“PREPA”)
 
and $
27.4
 
million in loans to
 
an
agency of the Puerto Rico central government.
 
In
 
addition,
 
as
 
of
 
December
 
31,
 
2022,
 
the
 
Corporation
 
had
 
$
84.7
 
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, compared
 
to
$
92.8
 
million
 
as
 
of
 
December
 
31,
 
2021.
 
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
 
Corporation
 
also
 
has
 
credit
 
exposure
 
to
 
USVI
 
government
 
entities.
 
As
 
of
 
December
 
31,
 
2022,
 
the
 
Corporation
 
had
$
38.0
million in
 
loans to
 
USVI government
 
public corporations,
 
compared to
 
$
39.2
 
million as
 
of December
 
31, 2021.
 
As of
 
December 31,
2022,
 
all loans were currently performing and up to date on principal and interest
 
payments.
Troubled Debt
 
Restructurings
The
 
Corporation
 
provides
 
homeownership
 
preservation
 
assistance to
 
its customers
 
through
 
a loss
 
mitigation
 
program.
 
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. As
of December
 
31, 2022,
 
the Corporation’s
 
total TDR
 
loans held
 
for investment
 
amounted to
 
$
366.7
 
million, of
 
which $
328.1
 
million
were in
 
accruing status.
 
See Note
 
1 –
 
Nature of
 
Business and
 
Summary Significant
 
of Accounting
 
Policies, for
 
information on
 
when
the
 
Corporation
 
classifies
 
TDR
 
loans
 
as
 
either
 
accrual
 
or
 
nonaccrual
 
loans.
 
The
 
total
 
TDR
 
loans
 
held
 
for
 
investment
 
consisted
 
of
$
240.6
 
million of residential mortgage loans, $
49.6
 
million of C&I loans, $
63.3
 
million of commercial mortgage loans, $
1.2
 
million of
construction loans, and $
12.0
 
million of consumer loans.
 
As of December 31, 2022,
 
the Corporation included as TDRs
 
$
0.7
 
million of
residential mortgage
 
loans that
 
were participating
 
in or
 
had been
 
offered a
 
trial modification,
 
which generally
 
represents a
 
six-month
period
 
during
 
which
 
the
 
borrower
 
makes
 
monthly
 
payments
 
under
 
the
 
anticipated
 
modified
 
payment
 
terms
 
prior
 
to
 
a
 
formal
modification.
 
TDR
 
loans
 
exclude
 
restructured
 
residential
 
mortgage
 
loans
 
that
 
are
 
government-guaranteed
 
(e.g.,
 
FHA/VA
 
loans)
totaling $
53.9
 
million as of December 31, 2022, compared with $
57.6
 
million as of December 31, 2021. As of December 31,
 
2022, the
Corporation has committed to lend up to an additional $
4
 
thousand on TDR consumer loans.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
162
The following tables present TDR loans completed during 2022,
 
2021 and 2020:
 
Year Ended December 31,
 
2022
Interest rate
below market
Maturity or
term extension
Combination of
reduction in
interest rate and
extension of
maturity
Forgiveness of
principal and/or
interest
Other
(1)
Total
(In thousands)
Conventional residential mortgage loans
$
433
$
1,551
$
242
$
-
$
4,874
$
7,100
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
245
5,178
-
467
5,890
C&I loans
2,402
-
618
825
1,083
4,928
Consumer loans:
Auto loans
2,877
232
345
-
-
3,454
Finance leases
-
573
-
-
18
591
Personal loans
99
171
105
-
19
394
Credit cards
(2)
-
-
-
-
816
816
Other consumer loans
112
272
16
43
-
443
Total TDRs
$
5,923
$
3,044
$
6,504
$
868
$
7,277
$
23,616
(1)
Other concessions granted by the Corporation include payment
 
plans under judicial stipulation or loss mitigation programs, 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.
(2)
Concession consists of reduction in interest rate and revocation
 
of revolving line privileges.
Year Ended December 31,
 
2021
Interest rate
below market
Maturity or term
extension
Combination of
reduction in
interest rate and
extension of
maturity
Forgiveness of
principal and/or
interest
Other
(1)
Total
(In thousands)
Conventional residential mortgage loans
$
365
$
859
$
2,647
$
-
$
3,723
$
7,594
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
10,586
-
637
11,223
C&I loans
-
300
9,100
-
508
9,908
Consumer loans:
Auto loans
1,888
433
277
-
-
2,598
Finance leases
-
645
26
-
26
697
Personal loans
13
60
387
-
44
504
Credit cards
(2)
-
-
-
-
1,426
1,426
Other consumer loans
110
79
-
77
-
266
 
Total TDRs
$
2,376
$
2,376
$
23,023
$
77
$
6,364
$
34,216
(1)
Other concessions granted by the Corporation include payment
 
plans under judicial stipulation or loss mitigation programs, 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.
(2)
Concession consists of reduction in interest rate and revocation
 
of revolving line privileges.
Year Ended December 31,
 
2020
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)
Conventional residential mortgage
loans
$
18
$
545
$
2,044
$
-
$
-
$
5,700
$
8,307
Construction loans
-
-
-
-
-
-
-
Commercial mortgage loans
-
-
271
-
-
553
824
C&I loans
31
-
4,107
-
18,386
-
22,524
Consumer loans:
Auto loans
1,902
413
275
-
-
33
2,623
Finance leases
-
408
-
-
-
-
408
Personal loans
38
74
145
-
-
48
305
Credit cards
(2)
-
-
-
-
-
783
783
Other consumer loans
219
83
24
219
-
-
545
 
Total TDRs
$
2,208
$
1,523
$
6,866
$
219
$
18,386
$
7,117
$
36,319
(1)
Other concessions granted by the Corporation include payment
 
plans under judicial stipulation or loss mitigation
 
programs, 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.
(2)
Concession consists of reduction in interest rate and revocation
 
of revolving line privileges.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
163
Year Ended December 31,
2022
2021
2020
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)
Conventional residential mortgage loans
68
$
7,165
$
7,100
66
$
7,687
$
7,594
103
$
9,027
$
8,307
Construction loans
-
-
-
-
-
-
-
-
-
Commercial mortgage loans
3
5,897
5,890
7
11,285
11,223
5
824
824
C&I loans
17
5,156
4,928
6
10,031
9,908
14
22,544
22,524
Consumer loans:
 
Auto loans
168
3,404
3,454
134
2,601
2,598
163
2,635
2,623
 
Finance leases
33
592
591
42
692
697
29
408
408
 
Personal loans
26
366
394
46
497
504
30
306
305
 
Credit Cards
170
815
816
246
1,426
1,426
159
783
783
 
Other consumer loans
115
434
443
65
266
266
145
613
545
 
Total TDRs
600
$
23,829
$
23,616
612
$
34,485
$
34,216
648
$
37,140
$
36,319
Loan modifications
 
considered TDR loans
 
that defaulted (failure
 
by the borrower
 
to make payments
 
of either principal,
 
interest, or
both for
 
a period
 
of 90
 
days or
 
more) during
 
2022, 2021
 
and 2020,
 
and had
 
become TDR
 
loans during
 
the 12-months
 
preceding the
default date, were as follows:
Year Ended December 31,
 
2022
2021
2020
Number of
contracts
Amortized Cost
Number of
contracts
Amortized Cost
Number of
contracts
Amortized Cost
(Dollars in thousands)
Conventional residential mortgage loans
2
$
124
-
$
-
4
$
465
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
C&I loans
-
-
-
-
3
124
Consumer loans:
 
Auto loans
96
2,049
92
1,625
55
947
 
Finance leases
1
16
-
-
1
5
 
Personal loans
-
-
1
1
1
7
 
Credit cards
28
156
24
126
23
93
 
Other consumer loans
8
30
11
45
58
209
 
Total
135
$
2,375
128
$
1,797
145
$
1,850
For
 
certain
 
TDR
 
loans,
 
the
 
Corporation
 
splits
 
the
 
loans
 
into
 
two
 
new
 
notes
 
(the
 
“Note
 
A”
 
and
 
the
 
“Note
 
B”).
 
The
 
A
 
Note
 
is
restructured to comply
 
with the Corporation’s
 
lending standards at
 
current market rates
 
and is tailored to
 
suit the customer’s
 
ability to
make
 
timely
 
interest
 
and
 
principal
 
payments.
 
The
 
B
 
Note
 
includes
 
the
 
granting
 
of
 
the
 
concession
 
to
 
the
 
borrower
 
and
 
varies
 
by
situation. The
 
B Note is
 
fully charged-off,
 
unless it is
 
collateral-dependent and
 
the source of
 
repayment is
 
independent of
 
the A Note
in which
 
case a
 
partial charge
 
-off may
 
be recorded.
 
At the
 
time of
 
the restructuring,
 
the A Note
 
is identified
 
and classified
 
as a
 
TDR
loan. During 2022, 2021, and 2020, there were no new Note A and B restructurings.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
164
NOTE 5 – ALLOWANCE
 
FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES
 
The following tables present 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,
 
2022
(In thousands)
ACL:
Beginning balance
$
74,837
$
4,048
$
52,771
$
34,284
$
103,090
$
269,030
Provision for credit losses - (benefit) expense
(8,734)
(2,342)
(18,994)
(1,770)
57,519
25,679
Charge-offs
 
(6,890)
(123)
(85)
(2,067)
(48,165)
(57,330)
Recoveries
3,547
725
1,372
2,459
14,982
23,085
Ending balance
$
62,760
$
2,308
$
35,064
$
32,906
$
127,426
$
260,464
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 - expense
(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
(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 $
13.5
 
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 C&I loans,
and (iv) a $
10.2
 
million charge related to non-PCD consumer loans.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
165
The
 
Corporation
 
estimates
 
the
 
ACL
 
following
 
the
 
methodologies
 
described
 
in
 
Note
 
1
 
 
Nature
 
of
 
Business
 
and
 
Summary
 
of
Significant Accounting Policies, above,
 
for each portfolio segment.
 
During 2022,
 
the Corporation
 
applied probability
 
weights to
 
the baseline
 
and alternative
 
downside economic
 
scenarios
 
to estimate
the ACL with the baseline
 
scenario carrying the highest
 
weight. In weighting these
 
macroeconomic scenarios, the
 
Corporation applied
judgment
 
based
 
on
 
a
 
variety
 
of
 
factors
 
such
 
as
 
economic
 
uncertainties
 
associated
 
to
 
the
 
continued
 
conflict
 
in
 
Ukraine,
 
the
 
overall
inflationary environment
 
and a potential
 
slowdown in economic
 
activity as a
 
result of the
 
FED’s policy
 
actions to control
 
inflationary
economic conditions. For periods prior to 2022, the Corporation calculated
 
the ACL using the baseline scenario.
As
 
of
 
December
 
31,
 
2022,
 
the
 
ACL
 
for
 
loans
 
and
 
finance
 
leases
 
was
 
$
260.5
 
million,
 
down
 
approximately
 
$
8.5
 
million
 
from
December 31,
 
2021. The
 
ACL reduction
 
for commercial
 
and construction
 
loans was
 
$
20.8
 
million during
 
2022, primarily
 
reflecting
reduced COVID-19 uncertainties, particularly
 
on loans in the hotel,
 
transportation and entertainment industries;
 
and, to a lesser extent,
the effect
 
during the
 
second half
 
of 2022
 
of reserve
 
releases totaling
 
$
4.8
 
million associated
 
with two
 
adversely classified
 
loans that
were paid off
 
or sold, partially offset
 
by an increase in
 
the size of the
 
loan portfolio. In addition,
 
there was an ACL
 
reduction of $
12.0
million for residential mortgage loans,
 
partially offset by a $
24.3
 
million increase in the ACL for
 
consumer loans. The net reduction
 
in
the ACL for residential mortgage
 
loans was primarily driven
 
by the overall decrease
 
in the size of this portfolio
 
and, to a lesser extent,
a
 
decrease
 
in
 
qualitative
 
adjustments
 
due
 
to
 
improvements
 
in
 
underlying
 
portfolio
 
metrics.
 
The
 
ACL
 
increase
 
for
 
consumer
 
loans
consisted
 
of
 
charges
 
to
 
the
 
provision
 
of
 
$
57.5
 
million
 
recorded
 
in
 
2022
 
mainly
 
due
 
to
 
a
 
deterioration
 
in
 
the
 
outlook
 
of
 
certain
macroeconomic variables, such as
 
the regional unemployment rate,
 
and an increasing trend in delinquency
 
and charge-off levels in
 
the
consumer loan
 
portfolios.
 
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
 
decreased
 
by
 
$
20.9
 
million
 
to
 
$
34.2
 
million,
 
when
 
compared
 
to
 
2021.
 
The
 
variance
 
consisted
 
of
 
a
 
$
25.2
million decrease in net
 
charge-offs on residential
 
mortgage loans, of which
 
$
23.1
 
million was 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;
 
partially
offset
 
by
 
a $
2.8
 
million increase
 
in net
 
charge-offs
 
on consumer
 
and
 
finance leases,
 
primarily
 
in the
 
personal loans
 
portfolio,
 
and
 
a
$
1.5
 
million decrease in net recoveries in the commercial and construction loan portfolios.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
166
 
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, 2022 and 2021:
As of December 31,
 
2022
Residential Mortgage
Loans
Construction
Loans
Commercial Mortgage
Loans
Commercial and
Industrial Loans
(1)
Consumer Loans
Total
(Dollars in thousands)
Total loans held for investment:
 
Amortized cost of loans
$
2,847,290
$
132,953
$
2,358,851
$
2,886,263
$
3,327,468
$
11,552,825
 
Allowance for credit losses
62,760
2,308
35,064
32,906
127,426
260,464
 
Allowance for credit losses to
 
amortized cost
2.20
%
1.74
%
1.49
%
1.14
%
3.83
%
2.25
%
As of December 31,
 
2021
Residential Mortgage
Loans
Construction
Loans
Commercial Mortgage
Loans
Commercial and
Industrial Loans
(1)
Consumer Loans
Total
(Dollars in thousands)
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
%
(1)
As of December 31, 2022 and 2021, includes $
6.8
 
million and $
145.0
 
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.
 
See Note 29 –
 
Regulatory
Matters,
 
Commitments,
 
and
 
Contingencies
 
for
 
information
 
on off
 
-balance
 
sheet
 
exposures
 
as of
 
December 31,
 
2022
 
and
 
2021.
 
The
Corporation
 
estimates
 
the
 
ACL
 
for
 
these
 
off-balance
 
sheet
 
exposures
 
following
 
the
 
methodology
 
described
 
in
 
Note
 
1
 
 
Nature
 
of
Business and Summary of Accounting Policies. As of
 
December 31, 2022, the ACL for off-balance
 
sheet credit exposures increased to
$
4.3
 
million, from $
1.5
 
million as of
 
December 31, 2021,
 
mainly driven by
 
an increase in the
 
balance of unfunded
 
loan commitments
principally due to newly originated facilities which remained undrawn
 
as of December 31, 2022.
The
 
following
 
table
 
presents
 
the
 
activity
 
in
 
the
 
ACL
 
for
 
unfunded
 
loan
 
commitments
 
and
 
standby
 
letters
 
of
 
credit
 
for
 
the
 
years
ended December 31, 2022, 2021 and 2020:
Year
 
Ended December 31,
2022
2021
2020
(In thousands)
Beginning Balance
$
1,537
$
5,105
$
-
Impact of adopting CECL
-
-
3,922
Provision for credit losses - expense (benefit)
2,736
(3,568)
1,183
 
Ending balance
$
4,273
$
1,537
$
5,105
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
167
NOTE 6 – PREMISES AND EQUIPMENT
Premises and equipment comprise:
Useful Life Range In Years
As of December 31,
Minimum
Maximum
2022
2021
(Dollars in thousands)
Buildings and improvements
10
35
$
135,802
$
138,524
Leasehold improvements
1
10
76,390
79,419
Furniture, equipment and software
2
10
155,567
148,171
367,759
366,114
Accumulated depreciation and amortization
(264,233)
(251,659)
103,526
114,455
Land
24,485
23,873
Projects in progress
14,924
8,089
 
Total premises and equipment,
 
net
$
142,935
$
146,417
Depreciation and
 
amortization expense
 
amounted to
 
$
22.3
 
million, $
25.0
 
million, and
 
$
20.1
 
million for
 
the years ended
 
December
31, 2022, 2021, and 2020, 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
 
damaged property.
 
This amount is included as
 
part of other non-interest
 
income
in the consolidated statements of income.
 
During
 
the year
 
ended December
 
31,
 
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.
 
See Note 25 - Fair Value
 
for information on write-downs recorded on long-lived assets held for
 
sale as of December 31, 2022. Also,
see Note
 
20 –
 
Other
 
Non-Interest
 
Income
 
for
 
gains on
 
sales of
 
fixed
 
assets recognized
 
during
 
the years
 
ended December
 
31,
 
2022,
2021, and 2020.
 
NOTE 7
OTHER REAL ESTATE
 
OWNED
 
The following table presents the OREO inventory as of the indicated dates:
December 31,
 
2022
2021
(In thousands)
OREO
OREO balances, carrying value:
Residential
(1)
$
24,025
$
29,533
Commercial
5,852
7,331
Construction
1,764
3,984
Total
$
31,641
$
40,848
(1)
Excludes $
23.5
 
million and
 
$
22.2
 
million
 
as of
 
December 31,
 
2022 and
 
2021,
 
respectively,
 
of foreclosures
 
that meet
 
the conditions
 
of ASC
 
Subtopic 310-40
 
and are
 
presented as
 
a
receivable as part of other assets in the consolidated statements
 
of financial condition.
See Note 25 - Fair Value
 
for information on write-downs recorded on
 
OREO properties during the years ended
 
December 31, 2022,
2021, and 2020.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
168
NOTE 8 – RELATED-PARTY
 
TRANSACTIONS
The
 
Corporation
 
has
 
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,
 
2020
(1)
$
504
New loans
 
286
Payments
(108)
Other changes
261
Balance at December 31,
 
2021
(1)
943
New loans
 
89
Payments
(149)
Balance at December 31,
 
2022
(1)
$
883
(1) Includes loans granted to related parties which were then
 
sold in the secondary market.
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.
 
There
 
were
 
no
 
changes
 
in
 
the
 
status of
 
related
parties during 2022.
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)
169
NOTE 9 – GOODWILL AND OTHER INTANGIBLES
 
 
Goodwill
Goodwill
 
as
 
of
 
each
 
of
 
December
 
31,
 
2022
 
and
 
December
 
31,
 
2021
 
amounted
 
to
 
$
38.6
 
million.
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 2022, management performed a qualitative analysis over the carrying amount of each relevant reporting units’
goodwill and concluded that it is more-likely-than-not that the fair value of the reporting units exceeded their carrying value. This
assessment involved identifying the inputs and assumptions that most affect fair value, including evaluating significant and relevant
events impacting each 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 units exceeded their carrying amount.
In the qualitative assessment performed for each 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.
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 their carrying
amount; thus, quantitative tests were not required.
 
As
 
a
 
result,
no
 
impairment
 
charges
 
for
 
goodwill
 
were
 
recorded
 
during
 
the
 
year
ended December 31, 2022.
There were
no
 
changes in the
 
carrying amount
 
of goodwill during
 
the year ended
 
December 31, 2022.
 
The changes in
 
the carrying
amount of goodwill attributable to operating segments are reflected in the
 
following table:
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
(1)
574
794
4,935
-
6,303
Measurement period adjustment
(1) (2)
385
533
3,313
-
4,231
Goodwill, December 31, 2020
$
959
$
2,733
$
8,248
$
26,692
$
38,632
Measurement period adjustment
(1) (2)
53
74
(148)
-
(21)
Goodwill, December 31, 2021
$
1,012
$
2,807
$
8,100
$
26,692
$
38,611
(1)
Recognized in connection with the BSPR acquisition on September
 
1, 2020.
 
(2)
Relates to the fair value estimate update performed within one year
 
of the closing of the BSPR acquisition, in accordance with
 
ASC Topic 805, "Business
 
Combinations"("ASC 805").
Merger and Restructuring Costs – BSPR Acquisition
In connection
 
with the
 
BSPR acquisition
 
on September
 
1, 2020,
 
the Corporation
 
recognized acquisition
 
expenses of
 
$
26.4
 
million
and $
26.5
 
million during the years ended
 
December 31, 2021 and
 
2020, respectively.
No
 
acquisition expenses were recognized
 
during
the
 
year
 
ended
 
December
 
31,
 
2022.
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
170
Other Intangible Assets
The
 
following
 
table
 
shows
 
the
 
gross
 
amount
 
and
 
accumulated
 
amortization
 
of
 
the
 
Corporation’s
 
intangible
 
assets
 
subject
 
to
amortization as of the indicated dates:
As of
As of
December 31,
 
December 31,
2022
 
2021
 
(Dollars in thousands)
Core deposit intangible:
Gross amount
$
87,544
$
87,544
Accumulated amortization
(66,644)
(58,973)
Net carrying amount
$
20,900
$
28,571
Remaining amortization period (in years)
7.0
8.0
Purchased credit card relationship intangible:
Gross amount
$
3,800
$
3,800
Accumulated amortization
(3,595)
(2,602)
Net carrying amount
$
205
$
1,198
Remaining amortization period (in years)
0.7
1.7
Insurance customer relationship intangible:
Gross amount
$
1,067
$
1,067
Accumulated amortization
(1,054)
(902)
Net carrying amount
$
13
$
165
Remaining amortization period (in years)
0.1
1.1
During
 
the
 
years
 
ended
 
December
 
31,
 
2022,
 
2021,
 
and
 
2020,
 
the
 
Corporation
 
recognized
 
$
8.8
 
million,
 
$
11.4
 
million,
 
and
 
$
5.9
million, respectively,
 
in amortization expense on its other intangibles subject to amortization.
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. 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, 2022.
The estimated
 
aggregate annual
 
amortization expense
 
related to the
 
intangible assets
 
subject to amortization
 
for future periods
 
was
as follows as of December 31, 2022:
(In thousands)
2023
$
7,736
2024
6,416
2025
3,509
2026
872
2027
872
2028 and after
1,713
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
171
NOTE 10 – 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 April 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 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.
 
In
 
September
 
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 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).
 
As
 
of
 
each
 
of
 
December
 
31,
 
2022
 
and
 
2021,
 
these
 
Junior
Subordinated Deferrable Debentures amounted to $
183.8
 
million.
 
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.
 
The Collins Amendment
 
to the Dodd
 
-Frank Wall
 
Street Reform
 
and Consumer
 
Protection 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, 2022,
 
the Corporation was
 
current on all
interest payments due on its subordinated debt.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
172
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
 
the
 
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
3-month 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
 
on
 
the
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,
 
2022,
 
the
 
amortized
 
cost
 
and
 
fair
 
value
 
of
 
these
 
private
 
label
 
MBS
 
amounted
 
to
 
$
7.9
million
 
and
 
$
5.8
 
million,
 
respectively,
 
with
 
a
 
weighted
 
average
 
yield
 
of
6.83
%,
 
which
 
is
 
included
 
as
 
part
 
of
 
the
 
Corporation’s
available-for-sale debt securities portfolio.
 
As described in Note 3 – Debt Securities,
 
the ACL on these private label MBS amounted
 
to
$
0.1
 
million as of December 31, 2022.
Investment in Unconsolidated Entity
On
 
February
 
16,
 
2011,
 
FirstBank
 
sold
 
an
 
asset
 
portfolio
 
consisting
 
of
 
performing
 
and
 
nonaccrual
 
construction,
 
commercial
mortgage,
 
and
 
C&I
 
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)
173
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,
 
2022,
 
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 show below for the indicated dates:
Year
 
Ended December 31,
 
2022
2021
2020
(In thousands)
Balance at beginning of year
$
30,986
$
33,071
$
26,762
Purchases of servicing assets
 
(1)
-
-
7,781
Capitalization of servicing assets
3,122
5,194
4,864
Amortization
(4,978)
(7,215)
(5,777)
Temporary
 
impairment recoveries (charges), net
66
124
(206)
Other
(2)
(159)
(188)
(353)
Balance at end of year
$
29,037
$
30,986
$
33,071
(1)
Represents MSRs acquired in the BSPR acquisition.
(2)
Mainly 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,
2022
2021
2020
(In thousands)
Balance at beginning of year
$
78
$
202
$
73
Temporary impairment
 
charges
-
-
301
OTTI of servicing assets
-
-
(77)
Recoveries
(66)
(124)
(95)
 
Balance at end of year
$
12
$
78
$
202
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
174
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,
2022
2021
2020
(In thousands)
Servicing fees
$
11,096
$
12,176
$
9,268
Late charges and prepayment penalties
823
697
570
Adjustment for loans repurchased
(159)
(188)
(353)
Other
 
-
(1)
-
 
Servicing income, gross
11,760
12,684
9,485
Amortization and impairment of servicing assets
(4,912)
(7,091)
(5,983)
 
Servicing income, net
$
6,848
$
5,593
$
3,502
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:
Weighted Average
Maximum
Minimum
Year Ended
 
December 31, 2022
Constant prepayment rate:
 
 
Government-guaranteed mortgage loans
6.7
%
18.3
%
4.8
%
 
Conventional conforming mortgage loans
7.4
%
18.4
%
3.4
%
 
Conventional non-conforming mortgage loans
6.0
%
21.9
%
3.6
%
Discount rate:
 
Government-guaranteed mortgage loans
11.7
%
12.0
%
11.5
%
 
Conventional conforming mortgage loans
9.7
%
10.0
%
9.5
%
 
Conventional non-conforming mortgage loans
12.5
%
14.5
%
11.5
%
Year Ended
 
December 31, 2021
Constant prepayment rate:
 
 
Government-guaranteed mortgage loans
6.2
%
17.1
%
3.7
%
 
Conventional conforming mortgage loans
6.2
%
18.2
%
2.8
%
 
Conventional non-conforming mortgage loans
6.4
%
14.5
%
4.4
%
Discount rate:
 
Government-guaranteed mortgage loans
12.0
%
12.0
%
12.0
%
 
Conventional conforming mortgage loans
10.0
%
10.0
%
10.0
%
 
Conventional non-conforming mortgage loans
12.8
%
14.5
%
12.0
%
Year Ended
 
December 31, 2020
Constant prepayment rate:
 
 
Government-guaranteed mortgage loans
6.1
%
16.0
%
3.9
%
 
Conventional conforming mortgage loans
6.3
%
19.0
%
3.0
%
 
Conventional non-conforming mortgage loans
6.3
%
18.0
%
4.3
%
Discount rate:
 
Government-guaranteed mortgage loans
12.0
%
12.0
%
12.0
%
 
Conventional conforming mortgage loans
10.0
%
10.0
%
10.0
%
 
Conventional non-conforming mortgage loans
12.3
%
14.5
%
12.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
175
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, 2022 and
2021 were as follows:
December 31,
December 31,
2022
2021
(In thousands)
Carrying amount of servicing assets
$
29,037
$
30,986
Fair value
$
44,710
$
42,132
Weighted-average
 
expected life (in years)
7.80
7.96
Constant prepayment rate (weighted-average annual
 
rate)
6.40
%
6.55
%
 
Decrease in fair value due to 10% adverse change
$
1,048
$
1,027
 
Decrease in fair value due to 20% adverse change
$
2,054
$
2,011
Discount rate (weighted-average annual rate)
10.69
%
11.17
%
 
Decrease in fair value due to 10% adverse change
$
1,925
$
1,852
 
Decrease in fair value due to 20% adverse change
$
3,704
$
3,561
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)
176
NOTE 11 – DEPOSITS AND RELATED
 
INTEREST
 
 
The following table summarizes deposit balances as of the indicated dates:
December 31,
 
2022
2021
(In thousands)
Type of account and interest rate:
Non-interest-bearing deposit accounts
$
6,112,884
$
7,027,513
Interest-bearing saving accounts
3,902,888
4,729,387
Interest-bearing checking accounts
3,770,993
3,492,645
Certificates of deposit ("CDs")
2,250,876
2,434,932
Brokered CDs
105,826
100,417
 
Total
$
16,143,467
$
17,784,894
The
 
weighted-average
 
interest
 
rate
 
on
 
total
 
interest-bearing
 
deposits
 
as
 
of
 
December 31,
 
2022
 
and
 
2021
 
was
1.03
%
 
and
0.31
%,
respectively.
 
As
 
of
 
December 31,
 
2022,
 
the
 
aggregate
 
amount
 
of
 
unplanned
 
overdrafts
 
of
 
demand
 
deposits
 
that
 
were
 
reclassified
 
as
 
loans
amounted
 
to
 
$
1.7
 
million
 
(2021
 
-
 
$
1.6
 
million).
 
Pre-arranged
 
overdrafts
 
lines
 
of
 
credit,
 
also
 
reported
 
as
 
loans,
 
amounted
 
to
 
$
24.5
million as of December 31, 2022 (2021 - $
24.2
 
million).
 
The following table presents the contractual maturities of CDs, including brokered
 
CDs, as of December 31, 2022:
Total
 
(In thousands)
Three months or less
$
640,532
Over three months to six months
288,407
Over six months to one year
593,915
Over one year to two years
 
517,970
Over two years to three years
 
178,158
Over three years to four years
 
38,952
Over four years to five years
 
92,103
Over five years
6,665
 
Total
$
2,356,702
Total
 
U.S. time
 
deposits with
 
balances of
 
more than
 
$250,000 amounted
 
to $
1.0
 
billion for
 
each of
 
the years
 
ended December
 
31,
2022
 
and 2021.
 
This amount
 
does not
 
include brokered
 
CDs that
 
are generally
 
participated out
 
by brokers
 
in shares
 
of less
 
than the
FDIC insurance
 
limit. As
 
of December 31,
 
2022, unamortized
 
broker placement
 
fees amounted
 
to $
0.3
 
million (2021
 
- $
0.2
 
million),
which are amortized over the contractual maturity of the brokered CDs under
 
the interest method.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
177
 
Brokered CDs mature as follows:
December 31,
 
2022
(In thousands)
Three months or less
$
42,681
Over six months to one year
12,986
Over one year to three years
35,440
Over three years to five years
 
14,719
 
Total
$
105,826
As of
 
December 31,
 
2022,
 
deposit
 
accounts
 
issued
 
to
 
government
 
agencies
 
amounted
 
to $
2.8
 
billion
 
(2021
 
-
 
$
3.3
 
billion).
 
These
deposits are insured by the FDIC up to the applicable limits. The uninsured
 
portions were collateralized by securities and loans with an
amortized cost
 
of $
3.1
 
billion (2021
 
- $
3.4
 
billion) and
 
an estimated
 
market value
 
of $
2.7
 
billion (2021
 
- $
3.3
 
billion). In
 
addition to
securities and loans,
 
as of December
 
31, 2022, the
 
Corporation used $
200.0
 
million in letters of
 
credit issued by
 
the FHLB as pledges
for public deposits
 
in the Virgin
 
Islands. As of December
 
31, 2022, the Corporation
 
had $
2.3
 
billion of government
 
deposits in Puerto
Rico
 
(2021
 
-
 
$
2.7
 
billion),
 
$
442.8
 
million
 
in
 
the
 
Virgin
 
Islands
 
(2021
 
-
 
$
568.4
 
million)
 
and
 
$
11.6
 
million
 
in
 
Florida
 
(2021
 
-
 
$
9.6
million).
A table showing interest expense on deposits for the indicated periods
 
follows:
Year Ended
 
December 31,
2022
2021
2020
(In thousands)
Interest-bearing checking accounts
$
15,568
$
5,776
$
5,933
Savings
11,191
6,586
11,116
CDs
18,102
26,138
43,350
Brokered CDs
1,500
2,982
7,989
 
Total
$
46,361
$
41,482
$
68,388
The
 
total
 
interest
 
expense
 
on deposits
 
included
 
the
 
amortization
 
of
 
broker
 
placement
 
fees
 
related
 
to
 
brokered
 
CDs
 
amounting
 
to
$
0.1
 
million, $
0.2
 
million, and
 
$
0.5
 
million for
 
2022, 2021
 
and 2020,
 
respectively.
 
Total
 
interest expense
 
also included
 
$
0.5
 
million,
$
1.3
 
million and
 
$
1.0
 
million for
 
2022, 2021,
 
and 2020,
 
respectively,
 
for the
 
accretion of premiums
 
related to
 
time deposits assumed
in the BSPR acquisition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
178
NOTE 12 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
 
Securities sold under agreements to repurchase (repurchase agreements)
 
as of the indicated dates consisted of the following:
 
December 31,
2022
2021
(In thousands)
Short-term Fixed-rate repurchase agreements
(1)
$
75,133
$
-
Long-term Fixed-rate repurchase agreements
(2)
-
300,000
$
75,133
$
300,000
(1)
Weighted-average interest rate
 
of
4.55
% as of December 31, 2022.
(2)
Weighted-average interest rate
 
of
3.35
% as of December 31, 2021. 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 pre-specified lockout period.
Of the $
300.0
 
million in long-term
 
repurchase agreements
 
outstanding as of
 
December 31, 2021,
 
$
100.0
 
million matured and
 
were
repaid
 
in
 
the
 
first
 
quarter
 
of
 
2022
 
and
 
the
 
remaining
 
$
200.0
 
million
 
were
 
repaid
 
prior
 
to
 
maturity
 
upon
 
the
 
exercise
 
of
 
the
counterparty’s
 
call
 
option
 
in
 
the
 
fourth
 
quarter
 
of
 
2022.
 
In
 
addition,
 
the
 
Corporation
 
added
 
$
75.1
 
million
 
in
 
short-term
 
repurchase
agreements reflecting actions taken as part of management’s
 
liquidity and funding needs.
Repurchase agreements mature as follows as of the indicated date:
December 31,
 
2022
(In thousands)
Within one month
$
25,133
Over one month to three months
50,000
 
Total
$
75,133
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
179
 
The following securities were sold under agreements to repurchase:
As of December 31,
 
2022
Underlying Securities
Amortized Cost
of Underlying
Securities
Balance of
Borrowing
Approximate
Fair Value of
Underlying
Securities
Weighted Average
Interest Rate of
Security
(Dollars in thousands)
U.S. government-sponsored agencies
$
60,081
$
50,134
$
54,093
0.62
%
MBS
29,959
24,999
27,010
2.08
%
 
Total
 
$
90,040
$
75,133
$
81,103
Accrued interest receivable
$
137
As of December 31,
 
2021
Underlying Securities
Amortized Cost
of Underlying
Securities
Balance of
Borrowing
Approximate
Fair Value of
Underlying
Securities
Weighted Average
Interest Rate 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,
 
2022
 
and
 
2021,
 
the
 
securities
 
underlying
 
such
 
agreements
 
were
 
delivered
 
to
 
the
 
dealers
 
with
 
which
 
the
repurchase agreements were transacted. In accordance with
 
the master agreements, in the event of default, repurchase agreements have
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. As
 
of December
 
31, 2022
 
and 2021,
 
repurchase agreements
 
were fully
collateralized and
 
not offset
 
in the consolidated
 
statements of financial
 
condition. See Note
 
24
 
Derivative Instruments and
 
Hedging
Activities for information on rights of set-off associated
 
to economic undesignated hedges.
The maximum aggregate
 
balance of repurchase
 
agreements outstanding
 
at any month-end
 
during each of
 
the year ended
 
December
31, 2022 and 2021 was $
300.0
 
million. The average balance during 2022 was $
194.9
 
million (2021 - $
300.5
 
million).
Repurchase agreements as of December 31, 2022, grouped by
 
counterparty, were as follows:
Weighted-Average
Counterparty
Amount
Maturity (In Months)
(Dollars in thousands)
JP Morgan Chase
$
75,133
1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
180
NOTE 13 – 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,
2022
2021
(In thousands)
Short-term
Fixed
-rate advances from FHLB
(1)
$
475,000
$
-
Long-term
Fixed
-rate advances from FHLB
(2)
200,000
200,000
$
675,000
$
200,000
(1)
Weighted-average interest rate of
4.56
% as of December 31, 2022.
(2)
Weighted-average interest rate of
4.25
% and
2.16
% as of December 31, 2022 and 2021, respectively.
 
Advances from FHLB mature as follows as of the indicated date:
December 31, 2022
(In thousands)
Within one month
$
350,000
Over one to three months
125,000
Over three to five years
200,000
 
Total
$
675,000
The $
200.0
 
million in
 
FHLB advances
 
outstanding as
 
of December
 
31, 2021
 
matured and
 
were repaid
 
during the
 
third quarter
 
of
2022. In
 
addition, during
 
the fourth
 
quarter of
 
2022, the
 
Corporation added
 
$
475.0
 
million of
 
short-term FHLB
 
advances and
 
$
200.0
million of long-term FHLB advances.
The maximum
 
aggregate balance
 
of advances
 
from the FHLB
 
outstanding at
 
any month-end
 
during the
 
years ended
 
December 31,
2022 and
 
2021 was
 
$
675.0
 
million and
 
$
440.0
 
million, respectively.
 
The total
 
average balance
 
of FHLB
 
advances during
 
2022 was
$
179.5
 
million (2021 - $
354.1
 
million).
The Corporation
 
receives advances
 
and applies
 
for the
 
issuance of
 
letters of
 
credit from
 
the FHLB
 
under an
 
Advances, Collateral
Pledge, and
 
Security Agreement
 
(the “Collateral
 
Agreement”), which
 
requires the
 
Corporation to
 
maintain a
 
minimum of
 
qualifying
mortgage
 
collateral
 
or
 
Treasury
 
or
 
U.S.
 
agencies
 
MBS
 
collateral,
 
as
 
applicable.
 
The
 
amount
 
of
 
collateral
 
required
 
for
 
an
 
advance
incorporates a
 
collateral discount
 
or “haircut,”
 
which is incorporated
 
into the member’s
 
pledge and determined
 
by the FHLB.
 
Haircut
refers to the percentage
 
by which an asset’s
 
market value is reduced
 
for the purpose of collateral
 
levels. As of December
 
31, 2022 and
2021, the
 
estimated value
 
of specific
 
mortgage loans
 
pledged as
 
collateral amounted
 
to $
1.3
 
billion and
 
$
1.4
 
billion, respectively,
 
as
computed
 
by
 
the
 
FHLB
 
for
 
collateral
 
purposes,
 
which
 
represents
 
a
 
haircut
 
of
14
%
 
and
17
%
 
as
 
of
 
December
 
31,
 
2022
 
and
 
2021,
respectively.
 
The
 
carrying
 
value
 
of
 
such
 
loans
 
as
 
of
 
December
 
31,
 
2022
amounted
 
to
 
$
1.8
 
billion
 
(2021
-
 
$
1.8
 
billion).
 
As
 
of
December
 
31,
 
2022,
 
the
 
estimated
 
value
 
of
 
U.S.
 
government-sponsored
 
agencies’
 
obligations
 
and
 
U.S.
 
agencies
 
MBS
 
pledged
 
as
collateral
 
amounted
 
to $
238.1
 
million.
 
As of
 
December
 
31,
 
2022,
 
the Corporation
 
had
 
additional
 
capacity
 
of approximately
 
$
644.2
million on
 
this credit
 
facility based
 
on collateral
 
pledged
 
at the
 
FHLB, adjusted
 
by a
 
haircut reflecting
 
the perceived
 
risk associated
with the collateral.
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
181
NOTE 14 – OTHER BORROWINGS
Junior Subordinated Debentures
Junior subordinated debentures, as of the indicated dates, consisted of:
December 31,
 
December 31,
(In thousands)
2022
2021
Floating rate junior subordinated debentures (FBP Statutory Trust
 
I)
(1) (3)
$
65,205
$
65,205
Floating rate junior subordinated debentures (FBP Statutory Trust
 
II)
(2)(3)
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
 
(
7.49
% as of December 31, 2022 and
2.97
%
as of December 31, 2021).
(2)
Amount represents junior subordinated interest-bearing debentures
 
due in 2034 with a floating interest rate of
2.50
% over
3-month LIBOR
 
(
7.25
% as of December 31, 2022 and
2.71
%
as of December 31, 2021).
(3)
See Note 10 - Non-Consolidated Variable
 
Interest Entities and Servicing Assets for additional information on
 
the nature and terms of these debentures.
Loans Payable
 
The
 
Corporation
 
participates
 
in
 
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,
 
2022,
 
pledged
 
collateral
 
that
 
is
 
related
 
to
 
this
 
credit
 
facility
 
amounted
 
to
 
$
2.2
 
billion,
 
mainly
 
commercial,
consumer,
 
and
 
residential
 
mortgage
 
loans,
 
which
 
after
 
a
 
margin
 
“haircut”
 
to
 
discount
 
the
 
value
 
of
 
collateral
 
pledged,
 
represents
approximately $
1.3
 
billion of credit
 
availability under
 
this program.
 
The FED Discount
 
Window program
 
provides 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 FED Discount Window as of December
 
31, 2022 and 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
182
NOTE 15 – EARNINGS PER COMMON
.
SHARE
 
The calculations of earnings per common share for the years ended December 31,
 
2022, 2021, and 2020 are as follows:
Year
 
Ended December 31,
2022
2021
2020
(In thousands, except per share information)
Net income
 
$
305,072
$
281,025
$
102,273
Less: Preferred stock dividends
 
-
(2,453)
(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
$
305,072
$
277,338
$
99,597
Weighted-Average
 
Shares:
 
Average common
 
shares outstanding
190,805
210,122
216,904
 
Average potential
 
dilutive common shares
 
1,163
1,178
764
 
Average common
 
shares outstanding - assuming dilution
191,968
211,300
217,668
Earnings per common share:
Basic
 
$
1.60
$
1.32
$
0.46
Diluted
 
$
1.59
$
1.31
$
0.46
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 17 – Stockholders’ Equity.
 
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.
 
There
 
were
no
 
antidilutive
shares of
 
common stock
 
during the
 
years ended
 
December 31,
 
2022, 2021
 
and 2020.
 
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)
183
NOTE 16 – STOCK-BASED
.
COMPENSATION
 
On
 
April
 
29,
 
2008,
 
the
 
Corporation’s
 
stockholders
 
approved
 
the
 
Omnibus
 
Plan.
 
An
 
amended
 
and
 
restated
 
Omnibus
 
Plan
 
was
subsequently approved
 
by the
 
Corporation’s
 
stockholders on
 
May 24,
 
2016 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”).
 
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,
 
2022,
 
there
 
were
3,830,165
 
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
 
fair
 
value
 
of
 
the
 
shares
 
of
 
restricted
 
stock
 
granted
 
was
 
based
 
on
 
the
 
market
 
price
 
of
 
the
 
Corporation’s
common stock
 
on the
 
date of
 
the respective
 
grant.
 
The shares
 
of restricted
 
stocks granted
 
to employees
 
are subject
 
to the
 
following
vesting period:
 
fifty percent
 
(
50
%) of
 
those shares
 
vest on
 
the
two-year
 
anniversary of
 
the grant
 
date and
 
the remaining
50
% vest
 
on
the
three-year
 
anniversary of
 
the grant
 
date. The
 
shares of
 
restricted stock
 
granted to
 
directors are
 
generally subject
 
to vesting
 
on the
one-year
 
anniversary of the grant date.
 
Common shares issued during the year
 
ended December 31, 2022 in connection with
 
restricted
stock awards were reissued from treasury shares.
 
 
The following table summarizes the restricted stock activity under the Omnibus
 
Plan during the years ended December 31, 2022
and 2021:
2022
2021
Number of
Weighted-
Number of
Weighted-
shares of
Average
shares of
Average
restricted
Grant Date
restricted
Grant Date
stock
 
Fair Value
stock
 
Fair Value
Unvested shares outstanding at beginning of year
1,148,775
$
6.61
1,320,723
$
5.74
Granted
(1)
327,195
13.21
324,360
11.47
Forfeited
(15,108)
8.79
(82,486)
6.42
Vested
(522,371)
6.13
(413,822)
7.69
Unvested shares outstanding at end of year
938,491
$
9.14
1,148,775
$
6.61
(1)
For the year ended December 31, 2022, includes
27,529
 
shares of restricted stock awarded to independent directors and
299,666
 
shares of restricted stock awarded to employees, of
which
6,084
 
shares were granted to retirement-eligible employees and thus
 
charged to earnings as of the grant date. Includes for the
 
year ended December 31, 2021,
29,291
 
shares of
restricted stock awarded to independent directors and
295,069
 
shares of restricted stock awarded to employees, of which
19,804
 
shares were granted to retirement-eligible employees
and thus charged to earnings as of the grant date.
For the
 
years ended
 
December 31,
 
2022, 2021,
 
and 2020,
 
the Corporation
 
recognized $
3.7
 
million, $
3.5
 
million, and
 
$
3.2
 
million,
respectively,
 
of
 
stock-based
 
compensation
 
expense
 
related
 
to
 
restricted
 
stock
 
awards.
 
As
 
of
 
December
 
31,
 
2022,
 
there
 
was
 
$
3.8
million of total unrecognized compensation cost related to
 
unvested shares of restricted stock that the Corporation expects to recognize
over a weighted average period of
1.5
 
years.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
184
Performance Units
Under the Omnibus Plan, the Corporation may award
 
performance units to participants,
 
with each unit representing the value of one
share
 
of
 
the
 
Corporation’s
 
common
 
stock.
 
These awards, which are granted to executives, 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, adjusted for certain allowable non-recurring transactions. All the performance units will vest if performance is at the pre-
established performance target level or above at the end of a three-year performance period. 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.
The performance
 
units granted
 
during the
 
year ended
 
December 31,
 
2022 are
 
for the
 
performance period
 
beginning January
 
1, 2022
and ending on December 31, 2024.
The following table
 
summarizes the performance
 
units activity under
 
the Omnibus Plan
 
during the years
 
ended December 31, 2022
and 2021:
Year
 
Ended
Year
 
Ended
(Number of units)
December 31,
 
2022
December 31,
 
2021
Performance units at beginning of year
814,899
1,006,768
Additions
166,669
160,485
Vested
(1)
(189,645)
(304,408)
Forfeited
-
(47,946)
Performance units as of December 31, 2022
791,923
814,899
(1)
Units vested during 2022 are related to performance units granted
 
in 2019 that met the pre-established target and
 
were settled with shares of common stock reissued from treasury
 
shares.
Units vested during 2021 are related to performance units granted in
 
2018 that met the pre-established target and were
 
settled with new shares of common stock.
The
 
fair
 
values
 
of
 
the
 
performance
 
units
 
awarded
 
were
 
based
 
on
 
the
 
market
 
price
 
of
 
the
 
Corporation’s
 
common
 
stock
 
on
 
the
respective date
 
of the grant.
 
For the
 
years ended
 
December 31,
 
2022, 2021,
 
and 2020,
 
the Corporation
 
recognized $
1.7
 
million, $
2.0
million, and $
1.8
 
million, respectively,
 
of stock-based compensation
 
expense related
 
to performance units.
 
As of December
 
31, 2022,
there was
 
$
2.5
 
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 2022 and 2021.
Shares withheld
During the year ended
 
December 31, 2022, the
 
Corporation withheld
205,807
 
shares (2021 –
214,374
 
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)
185
NOTE 17 –
 
STOCKHOLDERS’
 
EQUITY
Stock Repurchase Programs
During the
 
first quarter
 
of 2022
 
the Corporation
 
completed the
 
$
300
 
million stock
 
repurchase program
 
approved by
 
the Board
 
of
Directors on
 
April 26, 2021
 
by purchasing though
 
open market transactions
3,409,697
 
shares of common
 
stock at an
 
average price of
$
14.66
 
for a total purchase price of approximately $
50
 
million.
On April
 
27, 2022,
 
the Corporation
 
announced that
 
its Board
 
of Directors
 
approved a
 
stock repurchase
 
program, under
 
which the
Corporation
 
may repurchase
 
up to
 
$
350
 
million of
 
its outstanding
 
common stock,
 
which commenced
 
in the
 
second quarter
 
of 2022.
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
 
common
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,
suspended, or
 
terminated at
 
any time
 
at the
 
Corporation’s
 
discretion.
 
The program
 
does not
 
obligate the
 
Corporation to
 
acquire any
specific number
 
of shares
 
and does
 
not have
 
an expiration
 
date.
 
Under this
 
stock repurchase
 
program,
 
the Corporation
 
repurchased
during
 
the
 
year
 
ended
 
December
 
31,
 
2022,
16,003,674
 
shares
 
of
 
common
 
stock
 
through
 
open
 
market
 
transactions
 
at
 
an
 
average
purchase
 
price of
 
$
14.06
 
per share
 
for
 
a total
 
price
 
of approximately
 
$
225
 
million.
 
As of
 
December
 
31, 2022,
 
the Corporation
 
has
remaining authorization to repurchase approximately $
125
 
million of common stock.
 
 
During
 
the
 
year
 
ended
 
December
 
31,
 
2022,
 
First
 
BanCorp.
 
repurchased
19,413,371
 
shares
 
for
 
a
 
total
 
purchase
 
price
 
of
approximately $
275
 
million under all stock repurchase programs.
 
The shares received are held as treasury stock.
Common Stock
 
The following table shows the change in shares of common stock outstanding for
 
the years ended December 31, 2022, 2021 and 2020:
Total
 
Number of Shares
2022
2021
2020
Common stock outstanding, beginning balance
201,826,505
218,235,064
217,359,337
Common stock repurchased
(1)
(19,619,178)
(16,954,841)
(51,814)
Common stock reissued/issued under stock-based compensation
 
plan
516,840
628,768
930,627
Restricted stock forfeited
(15,108)
(82,486)
(3,086)
Common stock outstanding, ending balances
182,709,059
201,826,505
218,235,064
 
(1)
For 2022, 2021 and 2020 includes
205,807
,
214,374
 
and
51,814
 
shares, respectively, of common stock
 
surrender to cover officers' payroll and income taxes.
For
 
the
 
years
 
ended
 
December
 
31,
 
2022,
 
2021
 
and
 
2020,
 
total
 
cash
 
dividends
 
declared
 
on
 
shares
 
of
 
common
 
stock
 
amounted
 
to
$
88.2
 
million,
 
$
65.4
 
million,
 
and
 
$
43.8
 
million,
 
respectively.
 
On
February 9, 2023
 
the
 
Corporation
 
announced
 
that
 
its
 
Board
 
of
Directors
 
had
 
declared
 
a
 
quarterly
 
cash
 
dividend
 
of
 
$
0.14
 
per
 
common
 
share,
 
which
 
represents
 
an
 
increase
 
of
17
%
 
or
 
$
0.02
 
per
common
 
share
 
compared
 
to
 
its
 
most
 
recent
 
dividend
 
paid
 
in
 
December
 
2022.
 
The
 
dividend
 
is
 
payable
 
on
March 10, 2023
 
to
shareholders of
 
record at
 
the close
 
of business
 
on
February 24, 2023
. 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
186
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
 
then
 
outstanding
 
shares
 
of
 
Series
 
A
 
through
 
E
 
Preferred
Stock for
 
its liquidation
 
value of
 
$
25
 
per share
 
totaling $
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. The redeemed preferred
 
stock shares were not
listed on any
 
securities exchange
 
or automated quotation
 
system.
No
 
shares of preferred
 
stock have been
 
subsequently issued or
 
were
outstanding during the year ended
 
December 31, 2022. For the years
 
ended December 31, 2021 and 2020,
 
total cash dividends paid on
shares of preferred stock amounted to $
2.5
 
million and $
2.7
 
million, respectively.
Treasury Stock
The following table shows the change in shares of treasury stock for the years ended December
 
31,
 
2022, 2021 and 2020.
Total
 
Number of Shares
2022
2021
2020
Treasury stock, beginning balance
21,836,611
4,799,284
4,744,384
Common stock repurchased
(1)
19,619,178
16,954,841
51,814
Common stock reissued under stock-based compensation plan
(516,840)
-
-
Restricted stock forfeited
15,108
82,486
3,086
Treasury stock, ending balances
40,954,057
21,836,611
4,799,284
(1)
For 2022, 2021 and 2020 includes
205,807
,
214,374
 
and
51,814
 
shares, respectively, of common stock
 
surrender to cover officers' payroll and income taxes.
FirstBank Statutory Reserve (Legal Surplus)
The
 
Puerto
 
Rico
 
Banking
 
Law
 
of
 
1933,
 
as
 
amended
 
(the
 
“Puerto
 
Rico
 
Banking
 
Law”),
 
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 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, 2022
 
and 2021,
$
30.9
 
million and
 
$
28.3
 
million, respectively,
 
was transferred
 
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
 
$
168.5
 
million
 
and
$
137.6
 
million as of December 31, 2022 and 2021, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
187
NOTE 18 – OTHER COMPREHENSIVE (LOSS) INCOME
 
The following table presents change in accumulated other comprehensive (loss)
 
income for the years ended December 31, 2022,
2021, and 2020:
Changes in Accumulated Other Comprehensive
 
(Loss) Income by Component
(1)
Year ended December 31,
2022
2021
2020
(In thousands)
Unrealized net holding (losses) gains on available-for-sale
 
debt securities:
Beginning balance
$
(87,390)
$
55,725
$
6,764
 
Other comprehensive (loss) income
(718,582)
(143,115)
48,961
Ending balance
$
(805,972)
$
(87,390)
$
55,725
Adjustment of pension and postretirement
 
benefit plans:
Beginning balance
$
3,391
$
(270)
$
-
 
Other comprehensive (loss) income
(2,197)
3,661
(270)
Ending balance
$
1,194
$
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, 2022, 2021, and 2020:
Reclassifications Out of Accumulated Other
Comprehensive (Loss) Income
Affected Line Item in the Consolidated
Statements of Income
Year ended
December 31,
2022
2021
2020
(In thousands)
Unrealized net holding (losses) gains on
 
available-for-sale debt securities:
Realized gain on sales
Net gain on investment securities
$
-
$
-
$
(13,198)
Adjustment of pension and postretirement
 
benefit plans:
Amortization of net loss
Other expenses
3
1
-
Total before tax
$
3
$
1
$
(13,198)
Income tax expense
 
(1)
-
-
Total, net of tax
$
2
$
1
$
(13,198)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
188
NOTE 19 – EMPLOYEE BENEFIT PLANS
The Corporation
 
maintains two frozen
 
qualified noncontributory
 
defined benefit pension
 
plans (the “Pension
 
Plans”), and
 
a related
complementary
 
post-retirement
 
benefit
 
plan
 
(the
 
“Postretirement
 
Benefit
 
Plan”)
 
covering
 
medical
 
benefits
 
and
 
life
 
insurance
 
after
retirement that it
 
obtained in the BSPR
 
acquisition on September
 
1, 2020. One
 
defined benefit pension
 
plan covers substantially
 
all of
BSPR’s
 
former employees
 
who were
 
active before
 
January 1,
 
2007, while
 
the other
 
defined benefit
 
pension 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.
The following
 
table presents
 
the changes
 
in projected
 
benefit obligation
 
and changes
 
in plan
 
assets for
 
the years
 
ended December
31, 2022 and 2021:
December 31, 2022
December 31, 2021
(In thousands)
Changes in projected benefit obligation:
Projected benefit obligation at the beginning of period, defined benefit
 
pension
plans
$
97,867
$
108,253
Interest cost
2,614
2,473
Actuarial gain
(1)
(21,265)
(6,699)
Benefits paid
(5,708)
(6,160)
Projected benefit obligation at the end of period, pension plans
$
73,508
$
97,867
Projected benefit obligation, other postretirement benefit plan
182
195
Projected benefit obligation at the end of period
$
73,690
$
98,062
Changes in plan assets:
Fair value of plan assets at the beginning of period
$
103,487
$
105,963
Actual return on plan assets - (loss) gain
(20,590)
3,684
Benefits paid
(5,708)
(6,160)
Fair value of pension plan assets at the end of period
(2)
$
77,189
$
103,487
Net asset, pension plans
3,681
5,620
Net benefit obligation, other postretirement benefit plan
(182)
(195)
Net asset
$
3,499
$
5,425
(1)
Significant components of the Pension Plans’ actuarial gain that
 
changed the benefit obligation were mainly related to updates
 
in discount rates.
(2)
Other postretirement plan did not contain any assets as of
 
December 31, 2022 and 2021.
The weighted-average
 
discount rate
 
used to
 
determine
 
the benefit
 
obligation
 
as of
 
December
 
31, 2022
 
and
 
2021, was
5.43
% and
2.77
%,
 
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
 
on historical
 
returns with adjustments
 
to reflect a
 
more realistic
future return. The Corporation anticipated
 
that the Plan’s portfolio
 
would generate a long-term rate of
 
return of
4.80
% and
4.43
% as of
December 31, 2022 and 2021. 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
 
investment policy statement
for
 
the
 
Pension
 
Plans
 
includes
 
the
 
following:
 
(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)
189
 
The following
 
table presents
 
information
 
for
 
the plans
 
with a
 
projected
 
benefit obligation
 
and accumulated
 
benefit obligation
 
in
excess of plan assets for the years ended December 31, 2022 and 2021:
December 31, 2022
December 31, 2021
(In thousands)
Projected benefit obligation
$
48,501
$
195
Accumulated benefit obligation
48,501
195
Fair value of plan assets
$
46,398
$
-
The following
 
table presents
 
the components
 
of net
 
periodic benefit
 
for the
 
years ended
 
December 31,
 
2022 and
 
2021, and
 
for the
period from September 1, 2020 to December 31, 2020:
Affected Line Item
Period from
 
in the Consolidated
September 1, 2020 to
Statements of Income
December 31, 2022
December 31, 2021
December 31, 2020
(In thousands)
Net periodic benefit, pension plans:
Interest cost
Other expenses
$
2,614
$
2,473
$
900
Expected return on plan assets
Other expenses
(4,158)
(4,523)
(2,062)
Net periodic benefit, pension plans
(1,544)
(2,050)
(1,162)
Net periodic cost, postretirement plan
Other expenses
8
6
2
Net periodic benefit
$
(1,536)
$
(2,044)
$
(1,160)
The following table
 
presents the weighted-average
 
assumptions used to determine
 
the net periodic benefit
 
for the pension and
 
other
postretirement
 
benefit
 
plans
 
for
 
the
 
years
 
ended
 
December
 
31,
 
2022
 
and
 
2021,
 
and
 
for
 
the
 
period
 
from
 
September
 
1,
 
2020
 
to
December 31, 2020:
Period from
 
September 1, 2020 to
December 31, 2022
December 31, 2021
December 31, 2020
Discount rate
2.77%
2.36%
2.53%
Expected return on plan assets
4.43%
5.99%
5.98%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
190
 
The following table presents the changes in pre-tax accumulated other comprehensive
 
income (loss) of the Pension Plans and
Postretirement Benefit Plan as of December 31, 2022, 2021, and 2020:
December 31, 2022
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
$
5,457
$
(404)
$
-
Net (loss) gain
(3,483)
5,861
(404)
Accumulated other comprehensive income (loss) at end of period, pension
 
plans
1,974
5,457
(404)
Accumulated other comprehensive loss at end of period,
 
postretirement plan
(61)
(29)
(28)
Accumulated other comprehensive income (loss) at end of period
$
1,913
$
5,428
$
(432)
The following are the pre-tax amounts recognized
 
in accumulated other comprehensive (loss) income for
 
the years ended December
31, 2022 and 2021, and for the period from September 1, 2020 to December 31,
 
2020:
December
 
31, 2022
December 31, 2021
Period from
September 1, 2020
to December 31,
2020
(In thousands)
Net actuarial (loss) gain, pension plans
$
(3,483)
$
5,861
$
(404)
Net actuarial loss, other postretirement benefit plan
(35)
(2)
(28)
Amortization of net loss
3
1
-
Net amount recognized
$
(3,515)
$
5,860
$
(432)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
191
 
The Pension Plans asset allocations as of December 31, 2022 and 2021 by asset category
 
are as follows:
December 31, 2022
December 31, 2021
Asset category
Investment in funds
97%
98%
Other
3%
2%
100%
100%
As
 
of
 
December
 
31,
 
2022
 
and
 
2021,
 
substantially
 
all
 
of
 
the
 
plan
 
assets
 
of
 
$
77.2
 
million
 
and
 
$
103.5
 
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,
2022.
 
Determination of Fair Value
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
 
common collective
 
trusts 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.
 
Fair value is based on the calculated
 
net asset
value of shares held by the Plan as reported by the sponsor of the funds.
 
Interest-Bearing
 
Deposits
 
-
Interest-bearing
 
deposits consist
 
of
 
money
 
market
 
accounts with
 
short-term
 
maturities and,
 
therefore,
the carrying value approximates fair value.
The Corporation does
no
t expect to contribute to the Pension Plans during 2023.
 
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)
2023
$
6,436
2024
6,292
2025
5,985
2026
5,999
2027
5,860
2028 through 2031
27,411
$
57,983
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
192
Defined Contribution Plan
In
 
addition,
 
FirstBank
 
provides
 
contributory
 
retirement
 
plans
 
pursuant
 
to
 
Section 1081.01
 
of
 
the
 
Puerto
 
Rico
 
Internal
 
Revenue
Code of
 
2011
 
(the “2011
 
PR Code”)
 
for Puerto
 
Rico employees
 
and Section 401(k)
 
of the U.S.
 
Internal Revenue
 
Code for
 
USVI and
U.S. employees (the “Plans”).
 
All of the Corporation’s
 
full-time employees are
 
eligible to participate
 
in the Plans after
 
completion of
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. The
 
Bank contributes
 
a matching
 
contribution of
fifty
cents for
 
every dollar
 
up to
 
the first
6
% of
 
the participants’
 
eligible compensation
 
that a
 
participant contributes
 
to the
 
Plan on
 
a pre-
tax basis.
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,
 
2022, 2021
 
and 2020 (USVI
 
and U.S. employees
 
- $
20,500
 
for
2022,
 
$
19,500
 
for
 
2021
 
and
 
$
19,500
 
for
 
2020).
 
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,
 
2022,
2021, and 2020.
 
The Bank had total
 
plan expenses of
 
$
3.5
 
million for the
 
year ended December
 
31, 2022 (2021
 
- $
3.5
 
million; 2020 -
$
3.0
 
million).
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
 
Plans. The
 
contributory savings
 
plan assumed
 
in the
 
BSPR acquisition
also provided for matching contribution up to
6
% of the employee’s compensation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
193
NOTE 20 – OTHER NON-INTEREST INCOME
 
 
A detail of other non-interest income is as follows for the indicated periods:
Year
 
Ended December 31,
2022
2021
2020
(In thousands)
Non-deferrable loan fees
$
3,167
$
2,990
$
3,750
Mail and cable transmission commissions
3,100
3,116
2,540
Gain from insurance proceeds
-
550
5,000
Net (loss) gain on equity securities
(522)
(102)
38
Gain from sales of fixed assets
924
32
215
Other
 
9,181
5,843
4,682
 
Total
 
$
15,850
$
12,429
$
16,225
NOTE 21 – OTHER NON-INTEREST EXPENSES
 
 
A detail of other non-interest expenses is as follows for the indicated periods:
Year
 
Ended December 31,
2022
2021
2020
(In thousands)
Supplies and printing
$
1,505
$
1,830
$
2,391
Amortization of intangible assets
8,816
11,407
5,912
Servicing and processing fees
5,343
5,121
4,696
Insurance and supervisory fees
9,354
9,098
6,324
Provision for operational losses
2,518
5,069
3,390
Other
 
3,126
2,898
3,105
 
Total
 
$
30,662
$
35,423
$
25,818
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
194
NOTE 22 –
 
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, FirstBank 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
 
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
 
Puerto
 
Rico
 
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 IBE
unit of
 
the Bank,
 
and through
 
the Bank’s
 
subsidiary,
 
FirstBank
 
Overseas Corporation,
 
whose interest
 
income and
 
gains on
 
sales are
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 components of income tax expense are summarized below for
 
the indicated periods:
Year
 
Ended December 31,
2022
2021
2020
(In thousands)
Current income tax expense
$
88,296
$
28,469
$
18,421
Deferred income tax expense:
 
Reversal of deferred tax asset valuation allowance
-
-
(8,000)
 
Other deferred income tax expense
54,216
118,323
3,629
Total income
 
tax expense
$
142,512
$
146,792
$
14,050
 
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,
 
2022
2021
2020
Amount
% of Pretax
Income
Amount
% of Pretax
Income
Amount
% of Pretax
Income
(Dollars in thousands)
Computed income tax at statutory rate
$
167,844
37.5
%
$
160,431
37.5
%
$
43,621
37.5
%
Federal and state taxes
10,268
2.2
%
7,014
1.6
%
4,944
4.2
%
Benefit of net exempt income
(31,266)
(7.0)
%
(20,717)
(4.8)
%
(26,780)
(23.0)
%
Disallowed NOL carryforward resulting from net exempt
 
income
14,221
3.2
%
8,791
2.0
%
9,054
7.8
%
Deferred tax valuation allowance
(8,410)
(1.9)
%
(13,572)
(3.2)
%
(12,095)
(10.4)
%
Share-based compensation windfall
(1,492)
(0.3)
%
(1,044)
(0.2)
%
157
0.1
%
Other permanent differences
(7,647)
(1.7)
%
(1,185)
(0.3)
%
(387)
(0.3)
%
Tax return to provision adjustments
(519)
(0.1)
%
(406)
(0.1)
%
597
0.5
%
Other-net
(487)
(0.1)
%
7,480
1.7
%
(5,061)
(4.3)
%
 
Total income tax expense
 
$
142,512
31.8
%
$
146,792
34.2
%
$
14,050
12.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
195
 
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, 2022 and 2021 were as follows:
December 31,
 
2022
2021
(In thousands)
Deferred tax asset:
 
NOL and capital losses carryforward
 
$
72,485
$
137,860
 
Allowance for credit losses
104,014
105,917
 
Alternative Minimum Tax
 
credits available for carryforward
40,823
37,361
 
Unrealized loss on OREO valuation
6,462
7,703
 
Settlement payment-closing agreement
7,031
7,031
 
Legal and other reserves
6,345
4,576
 
Reserve for insurance premium cancellations
781
881
 
Differences between the assigned values and tax bases of assets
 
and liabilities recognized in purchase business combinations
5,665
8,926
 
Unrealized loss on available-for-sale debt securities, net
100,776
14,181
 
Other
7,722
4,420
 
Total gross deferred tax assets
$
352,104
$
328,856
Deferred tax liabilities:
 
Servicing assets
9,786
10,510
 
Pension Plan assets
719
2,035
 
Other
509
506
 
Total gross deferred tax liabilities
11,014
13,051
Valuation
 
allowance
(185,506)
(107,323)
 
Net deferred tax asset
$
155,584
$
208,482
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 determ
 
ination
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 planning
 
strategies. In estimating taxes,
management assesses
 
the relative
 
merits and
 
risks of
 
the appropriate
 
tax treatment
 
of transactions
 
considering statutory,
 
judicial, and
regulatory guidance.
The
 
net
 
deferred
 
tax
 
asset
 
of
 
the
 
Corporation’s
 
banking
 
subsidiary,
 
FirstBank,
 
amounted
 
to
 
$
155.6
 
million
 
as
 
of
 
December
 
31,
2022,
 
net
 
of
 
a
 
valuation
 
allowance
 
of
 
$
149.5
 
million,
 
compared
 
to
 
a
 
net
 
deferred
 
tax
 
asset
 
of
 
$
208.4
 
million,
 
net
 
of
 
a
 
valuation
allowance
 
of
 
$
69.7
 
million,
 
as
 
of
 
December
 
31,
 
2021.
 
The
 
decrease
 
in
 
the
 
deferred
 
tax
 
assets
 
was
 
mainly
 
driven
 
by
 
the
 
usage
 
of
NOLs. The
 
increase in
 
the valuation
 
allowance during
 
2022 was
 
primarily related
 
to the
 
change in
 
the market
 
value of
 
available-for-
sale debt securities. The Corporation maintains a full valuation
 
allowance for its deferred tax assets associated with capital
 
losses carry
forward
 
and
 
unrealized
 
losses
 
of
 
available-for-sale
 
debt
 
securities.
 
Thus,
 
the
 
change
 
in
 
the
 
market
 
value
 
of
 
available-for-sale
 
debt
securities resulted in a change in the deferred tax asset and an equal change
 
in the valuation allowance without impacting earnings.
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.
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
196
As of December
 
31, 2022, approximately
 
$
279.9
 
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
 
$
177.9
 
million
 
in
 
2021.
 
The
 
valuation
 
allowance
attributable to
 
FirstBank’s
 
deferred tax
 
assets of $
149.5
 
million as
 
of December
 
31, 2022 is
 
related to
 
the change in
 
the market
 
value
of available-for-sale
 
debt securities,
 
NOLs attributable
 
to the Virgin
 
Islands jurisdiction,
 
and capital
 
losses. The remaining
 
balance of
$
36.0
 
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.
 
As of
 
December
 
31,
2022,
 
of
 
the
 
$
72.5
 
million
 
of
 
NOL
 
and
 
capital
 
losses
 
carryforward,
 
$
61.2
 
million,
 
which
 
are
 
fully
 
valued,
 
have
 
expiration
 
dates
ranging from year
 
2023 through year
 
2037. From this
 
amount, approximately
 
$
30.5
 
million expires in
 
year 2023 and
 
are not expected
to be realized.
In
 
2017,
 
the
 
Corporation
 
completed
 
a
 
formal
 
ownership
 
change
 
analysis
 
within
 
the
 
meaning
 
of
 
Section
 
382
 
of
 
the
 
U.S.
 
Internal
Revenue Code
 
(“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
 
that
 
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
 
can
 
be
 
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 2022, 2021
 
and 2020, the Corporation
 
incurred current income
tax expense
 
of approximately $
10.3
 
million, $
6.8
 
million and $
4.9
 
million, respectively,
 
related to its
 
U.S. operations.
 
The limitation
did not impact the USVI operations in 2022, 2021 and 2020.
 
On August
 
16, 2022,
 
the Inflation
 
Reduction Act
 
of 2022
 
(the “IRA”)
 
was signed
 
into law
 
in the
 
United States.
 
The IRA
 
includes
various tax
 
provisions, including
 
a 1%
 
excise tax
 
on stock
 
repurchases, and
 
a 15%
 
corporate alternative
 
minimum tax
 
that generally
applies
 
to
 
U.S.
 
corporations
 
with
 
average
 
adjusted
 
financial
 
statement
 
income
 
over
 
a
 
three-year
 
period
 
in
 
excess
 
of
 
$1
 
billion.
 
The
legislation did
 
not have
 
an effect
 
on the Corporation’s
 
effective tax
 
rate in
 
2022 and
 
is not expected
 
to have
 
a material
 
impact on our
2023 financial results, including on our annual estimated effective
 
tax rate or on our liquidity.
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 positions in income tax expense. As
 
of December 31, 2022, 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.
 
During
 
2022,
 
a
 
$
0.4
 
million
 
benefit
 
was
recognized as a
 
result of the
 
expiration of uncertain
 
tax positions acquired
 
from BSPR. 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 after
 
a tax return
 
is due or
 
filed, whichever
 
is later; 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
2018 remain open to examination. For Puerto Rico tax purposes, all tax years
 
subsequent to 2017 remain open to examination.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
197
NOTE 23
OPERATING
 
LEASES
The
 
Corporation
 
accounts
 
for
 
its
 
leases
 
in
 
accordance
 
with
 
ASC
 
842
 
“Leases”
 
(“ASC
 
Topic
 
842).
 
The
 
Corporation’s
 
operating
leases are primarily
 
related to the
 
Corporation’s
 
branches. Our
 
leases mainly have
 
terms ranging
 
from
two years
 
to
30 years
, some of
which
 
include
 
options
 
to
 
extend
 
the
 
leases
 
for
 
up
 
to
ten 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,
 
2022 and
 
2021, the
 
Corporation did
 
not classify
 
any of
 
its leases
 
as a
 
finance
lease.
 
Operating lease cost for the
 
year ended December 31, 2022
 
amounted to $
18.4
 
million (2021 - $
18.2
 
million; 2020 - $
13.8
 
million),
and is recorded in occupancy and equipment in the consolidated
 
statements
 
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,
2022
2021
(Dollars in thousands)
ROU asset
$
78,855
$
90,319
Operating lease liability
$
81,954
$
93,772
Operating lease weighted-average remaining lease term (in years)
7.5
8.0
Operating lease weighted-average discount rate
2.37%
2.24%
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. See Note 1 – Nature of Business and Summary of
 
Significant Accounting
Policies for information on how the Corporation determines its incremental
 
borrowing rate.
 
Supplemental cash flow information related to leases was as follows:
Year Ended
Year Ended
Year Ended
December 31,
December 31,
December 31,
2022
2021
2020
(In thousands)
Operating cash flow from operating leases
(1)
$
18,202
$
19,328
$
13,464
ROU assets obtained in exchange for operating lease liabilities
 
(2) (3)
$
5,744
$
5,833
$
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 in the BSPR acquisition.
(3)
For the year ended December 31, 2022 and 2021 excludes $
3.0
 
million and $
1.3
 
million, respectively, of lease
 
terminations. For the year ended December 31, 2020, there were
no
 
lease
terminations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
198
 
Maturities under operating lease liabilities as of December 31, 2022,
 
were as follows:
Amount
(In thousands)
2023
$
16,763
2024
16,008
2025
15,096
2026
14,025
2027
5,929
2028 and after
23,025
Total lease payments
90,846
Less: imputed interest
(8,892)
Total present value
 
of lease liability
$
81,954
Leases Not Yet
 
Commenced
As of
 
December 31,
 
2022, the
 
Corporation
 
has additional
 
operating
 
leases that
 
were signed
 
but have
 
not yet
 
commenced with
 
an
undiscounted contract amount of $
1.1
 
million, which will have lease terms ranging from
five
 
to
ten years
.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
199
NOTE 24 – 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.
As of
 
December 31,
 
2022 and
 
2021, 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 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 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)
200
 
The following table summarizes for derivative instruments their notional
 
amounts, fair values and location in the consolidated
statements of financial condition as of the indicated dates:
Asset Derivatives
Liability Derivatives
Notional Amounts
(1)
Statements of Financial
Condition Location
Fair Value
Statements of Financial Condition
Location
Fair Value
December 31,
December 31,
December 31,
2022
2021
2022
2021
2022
2021
(In thousands)
Undesignated economic hedges:
Interest rate contracts:
 
Interest rate swap agreements
 
$
9,290
$
12,588
Other assets
$
313
$
1,098
Accounts payable and other liabilities
$
278
$
1,092
 
Written interest rate cap agreements
14,500
14,500
Other assets
-
-
Accounts payable and other liabilities
197
8
 
Purchased interest rate cap agreements
14,500
14,500
Other assets
199
8
Accounts payable and other liabilities
-
-
 
Interest rate lock commitments
3,225
12,097
Other assets
63
379
Accounts payable and other liabilities
-
-
Forward Contracts:
 
Sales of TBA GNMA MBS pools
11,000
27,000
Other assets
58
-
Accounts payable and other liabilities
1
78
 
Forward loan sales commitments
-
12,668
Other assets
-
20
Accounts payable and other liabilities
-
-
$
52,515
$
93,353
$
633
$
1,505
$
476
$
1,178
(1) Notional amounts are presented on a gross basis with no netting of offsetting exposure positions.
 
The following table summarizes the effect of derivative instruments on
 
the consolidated statements of income for the indicated
periods:
Gain (or Loss)
Location of Gain (Loss)
Year ended
on Derivative Recognized in
December 31,
Statements of Income
2022
2021
2020
(In thousands)
Undesignated economic hedges:
 
Interest rate contracts:
 
Interest rate swap agreements
 
Interest income - loans
$
28
$
24
$
27
 
Written and purchased interest rate cap agreements
Interest income - loans
2
-
-
 
Interest rate lock commitments
Mortgage banking activities
(322)
(687)
576
 
Forward contracts:
 
Sales of TBA GNMA MBS pools
Mortgage banking activities
135
114
(54)
 
Forward loan sales commitments
Mortgage banking activities
(20)
-
(37)
 
Total (loss) gain on derivatives
$
(177)
$
(549)
$
512
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,
 
2022 and
 
2021, the
 
Corporation had
 
not entered
 
into any
 
derivative instrument
 
containing credit
 
-risk-related
contingent features.
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
201
 
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.
 
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 cumulative mark
 
-to-market effect
 
of credit risk
 
in the valuation
 
of derivative
 
instruments in 2022,
 
2021 and
2020 was immaterial.
 
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.
 
In
 
accordance
 
with
 
the
 
master
 
agreements,
 
in
 
the
 
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.
 
As
 
of
 
December
 
31,
 
2022
 
and
 
2021,
 
derivatives
 
were
 
overcollateralized.
 
See
 
Note
 
12
 
Securities
 
Sold
Under Agreements to Repurchase for information on rights of set-off
 
associated to assets sold under agreements to repurchase.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
202
NOTE 25 –
 
FAIR VALUE
Fair Value
 
Measurement
ASC Topic
 
820, “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 assets
 
and
liabilities, which 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 in active markets.
Level 2
 
Va
luations 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 3
 
Va
luations 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.
Financial Instruments Recorded at Fair Value
 
on a Recurring Basis
Debt securities available for sale and marketable equity securities held at fair value
 
The fair
 
value of
 
investment securities
 
was based
 
on unadjusted
 
quoted market
 
prices (as
 
is the
 
case with
 
U.S. Treasury
 
securities
and equity securities with
 
readily determinable fair values),
 
when available (Level 1),
 
or market prices for comparable
 
assets (as is the
case with
 
U.S. agencies
 
MBS and
 
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
 
interest
 
rate
 
swaps
 
and
 
caps
 
using
 
a
 
discounted
 
cash
 
flow
 
approach
 
based
 
on
 
the
 
related
LIBOR and swap forward rate for each cash flow.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
203
 
Assets and liabilities measured at fair value on a recurring basis are summarized below as of
 
December 31, 2022 and 2021:
As of December 31,
 
2022
As of December 31, 2021
Fair Value Measurements Using
 
Fair Value Measurements Using
 
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
(In thousands)
Assets:
Debt securities available for sale:
U.S. Treasury securities
$
138,875
$
-
$
-
$
138,875
$
148,486
$
-
$
-
$
148,486
Noncallable U.S. agencies debt securities
-
389,787
-
389,787
-
285,028
-
285,028
Callable U.S. agencies debt securities
-
1,963,566
-
1,963,566
-
1,971,954
-
1,971,954
MBS
-
3,098,797
5,794
(1)
3,104,591
-
4,037,209
7,234
(1)
4,044,443
Puerto Rico government obligations
-
-
2,201
2,201
-
-
2,850
2,850
Other investments
-
-
500
500
-
-
1,000
1,000
Equity securities
4,861
-
-
4,861
5,378
-
-
5,378
Derivative assets
-
633
-
633
-
1,505
-
1,505
Liabilities:
Derivative liabilities
-
476
-
476
-
1,178
-
1,178
(1) Related to private label MBS.
 
The table
 
below presents
 
a reconciliation
 
of the
 
beginning and
 
ending balances
 
of all
 
assets measured
 
at fair
 
value on
 
a recurring
basis using significant unobservable inputs (Level 3) for the years ended
 
December 31, 2022, 2021, and 2020:
2022
2021
2020
Level 3 Instruments Only
 
 
Securities Available for
Sale
(1)
Securities Available for
Sale
(1)
Securities Available for
Sale
(1)
(In thousands)
Beginning balance
$
11,084
$
11,977
$
14,590
 
Total gains (losses):
 
Included in other comprehensive income (unrealized)
(401)
1,281
2,403
 
Included in earnings (unrealized)
(2)
434
136
(1,641)
 
BSPR securities acquired
-
-
150
 
Purchases
-
1,000
-
 
Principal repayments and amortization
(2,622)
(3,310)
(3,525)
Ending balance
$
8,495
$
11,084
$
11,977
___________________
(1)
 
Amounts mostly related to private label MBS.
(2)
 
Changes in unrealized gains included in earnings were recognized within
 
provision for credit losses - expense (benefit) and relate
 
to assets still held as of the reporting date.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
204
 
The tables below present quantitative information for significant assets measured at
 
fair value on a recurring basis using significant
unobservable inputs (Level 3) as of December 31, 2022 and 2021:
December 31,
 
2022
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
 
Maximum
(Dollars in thousands)
Available-for-sale
 
debt securities:
 
Private label MBS
$
5,794
Discounted cash flows
Discount rate
16.2%
16.2%
16.2%
Prepayment rate
1.5%
15.2%
11.8%
Projected cumulative loss rate
0.3%
15.6%
5.6%
 
Puerto Rico government obligations
$
2,201
Discounted cash flows
Discount rate
12.9%
12.9%
12.9%
Projected cumulative loss rate
19.3%
19.3%
19.3%
December 31,
 
2021
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
 
Maximum
(Dollars in thousands)
Available-for-sale
 
debt securities:
 
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
6.6%
8.4%
7.9%
Projected cumulative loss rate
8.6%
8.6%
8.6%
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
 
debt
 
security.
 
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, expected
 
cash flows (interest and
 
principal) are discounted
 
at the Treasury
 
yield curve plus a
spread as of the reporting date and compared to the amortized cost.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
205
Additionally, fair value
 
is used on a nonrecurring basis to evaluate certain assets in accordance with GAAP.
 
As of December 31, 2022, the Corporation recorded losses or valuation adjustments
 
for assets recognized at fair value on a non-
recurring basis and still held at December 31, 2022, as shown in the following
 
table:
Carrying value as of December 31,
 
Related to losses recorded for the Year Ended
December 31,
 
2022
2021
2020
2022
2021
2020
(In thousands)
Level 3:
Loans receivable
 
(1)
$
11,437
$
31,534
$
74,197
$
(736)
$
(5,466)
$
(13,737)
OREO
(2)
5,461
9,126
50,248
(917)
(48)
(1,837)
Premises and equipment
(3)
1,242
-
-
(218)
-
-
Level 2:
Loans held for sale
$
12,306
$
-
$
-
$
(106)
$
-
$
-
(1)
Consists mainly
 
of collateral
 
dependent commercial
 
and construction
 
loans. The
 
Corporation generally
 
measured losses
 
based 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.
(3)
Relates to a banking facility reclassified to held-for-sale and
 
measured at the fair value of the collateral.
 
 
Qualitative information regarding the fair value measurements for Level 3
 
financial instruments as of December 31, 2022 are as
follows:
December 31, 2022
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
Premises and equipment
Market
External appraised value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
206
 
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, 2022 and 2021:
Total Carrying Amount
in Statement of
Financial Condition as
of December 31, 2022
Fair Value Estimate as of
December 31, 2022
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money market
 
investments (amortized cost)
$
480,505
$
480,505
$
480,505
$
-
$
-
Available-for-sale debt securities (fair value)
5,599,520
5,599,520
138,875
5,452,150
8,495
Held-to-maturity debt securities (amortized
 
cost)
437,537
Less: ACL on held-to-maturity debt securities
(8,286)
Held-to-maturity debt securities, net of
 
ACL
$
429,251
427,115
-
260,106
167,009
Equity securities (amortized cost)
50,428
50,428
-
50,428
(1)
-
Other equity securities (fair value)
4,861
4,861
4,861
-
-
Loans held for sale (lower of cost or market)
12,306
12,306
-
12,306
-
Loans held for investment (amortized cost)
11,552,825
Less: ACL for loans and finance leases
(260,464)
Loans held for investment, net of ACL
$
11,292,361
11,106,809
-
-
11,106,809
MSRs (amortized cost)
29,037
44,710
-
-
44,710
Derivative assets (fair value)
(2)
633
633
-
633
-
Liabilities:
Deposits
 
(amortized cost)
$
16,143,467
$
16,139,937
$
-
$
16,139,937
$
-
Securities sold under agreements to repurchase
 
(amortized cost)
75,133
75,230
-
75,230
-
Advances from FHLB (amortized cost)
675,000
674,596
-
674,596
-
Other borrowings (amortized cost)
183,762
187,246
-
-
187,246
Derivative liabilities (fair value)
(2)
476
476
-
476
-
(1) Includes FHLB stock with a carrying value of $
42.9
 
million, which are considered restricted.
(2) Includes interest rate swap agreements, interest rate caps,
 
forward contracts, interest rate lock commitments, and forward loan
 
sales commitments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
207
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
$
-
$
-
Available-for-sale debt securities (fair value)
6,453,761
6,453,761
148,486
6,294,191
11,084
Held-to-maturity debt securities (amortized
 
cost)
178,133
Less: ACL on held-to-maturity debt securities
(8,571)
Held-to-maturity debt securities, net of
 
ACL
$
169,562
167,147
-
-
167,147
Equity securities (amortized cost)
26,791
26,791
-
26,791
(1)
-
Other equity securities (fair value)
5,378
5,378
5,378
-
-
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: ACL for loans and finance leases
(269,030)
Loans held for investment, net of ACL
$
10,791,628
10,900,400
-
-
10,900,400
MSRs (amortized cost)
30,986
42,132
-
-
42,132
Derivative assets (fair value)
(2)
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
Derivative liabilities (fair value)
(2)
1,178
1,178
-
1,178
-
'(1) Includes FHLB stock with a carrying value of $
21.5
 
million, which are considered restricted.
(2) Includes interest rate swap agreements, interest rate caps,
 
forward contracts, interest rate lock commitments, and forward loan
 
sales commitments.
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,
 
goodwill
 
and
 
other
 
intangible
 
assets, 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 future cash flows,
 
and appropriate discount rates.
NOTE 26 – 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. 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
the
 
respective
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
208
Disaggregation of Revenue
 
The following
 
tables summarize
 
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, 2022, 2021 and 2020:
Year ended December
 
31, 2022:
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income
(1)
$
98,920
$
442,624
$
109,822
$
39,600
$
80,485
$
23,842
$
795,293
Service charges and fees on deposit accounts
-
21,906
12,412
-
607
2,898
37,823
Insurance commissions
-
12,733
-
-
15
995
13,743
Merchant-related income
-
6,622
1,483
-
74
1,335
9,514
Credit and debit card fees
-
29,061
85
-
(7)
1,763
30,902
Other service charges and fees
341
4,558
3,397
-
2,113
684
11,093
Not in scope of ASC Topic
 
606
 
(1)
15,609
3,577
812
(74)
58
35
20,017
 
Total non-interest income
15,950
78,457
18,189
(74)
2,860
7,710
123,092
Total Revenue
$
114,870
$
521,081
$
128,011
$
39,526
$
83,345
$
31,552
$
918,385
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
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 ASC 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
(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)
209
For
 
2022,
 
2021,
 
and
 
2020,
 
most
 
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
 
primarily 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 at
 
the time of
 
occurrence or on
 
a monthly basis,
 
in the case
 
of monthly
service
 
charges.
 
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,
 
thus, is
 
recorded in
 
subsequent periods.
 
For the
 
years ended
December
 
31,
 
2022,
 
2021
 
and
 
2020,
 
the
 
Corporation
 
recognized
 
contingent
 
commission
 
income
 
at
 
the
 
time
 
that
 
payments
 
were
confirmed and constraints
 
were released of
 
$
3.2
 
million, $
3.3
 
million, and $
3.3
 
million, respectively,
 
which was related to
 
the volume
of insurance policies sold in the prior year.
 
Card and processing
 
income
Card and processing income includes merchant-related income, and
 
credit and debit card fees.
 
For
 
merchant-related
 
income,
 
the
 
determination
 
of
 
income
 
recognition
 
included
 
the
 
consideration
 
of
 
a
 
2015
 
sale
 
of
 
merchant
contracts
 
that
 
involved
 
sales
 
of
 
point
 
of
 
sale
 
(“POS”)
 
terminals
 
and
 
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
 
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.
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 $
9.2
 
million and $
8.8
 
million as of December 31, 2022 and 2021, respectively.
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 and are included as part of other non-interest income
 
in the consolidated statements of income.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
210
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.
 
FirstBank
 
participates
 
in
 
a
 
merchant
 
revenue-sharing
 
agreement
 
with
 
another
 
entity
 
to
 
which
 
the
 
Bank
 
sold
 
its
 
merchant
contracts
 
portfolio
 
and
 
related
 
POS
 
terminals
 
and
 
a
 
growth
 
agreement
 
with
 
an
 
international
 
card
 
service
 
association
 
to
 
expand
 
the
customer
 
base
 
and
 
enhance
 
product
 
offerings.
 
FirstBank
 
recognizes
 
the
 
revenue
 
under
 
these
 
agreements
 
over
 
time,
 
as
 
the
 
Bank
completes its performance obligations.
 
The following table
 
shows the balances
 
of contract liabilities
 
recognized in relation
 
to these agreements
 
and the amount
 
of revenue
recognized for the years ended December 31, 2022, 2021 and 2020:
 
2022
2021
2020
(In thousands)
Beginning Balance
$
1,443
$
2,151
$
2,476
Less:
 
Revenue recognized
(602)
(708)
(325)
Ending balance
$
841
$
1,443
$
2,151
 
As of December 31, 2022 and 2021 there were
no
 
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, 2022.
 
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)
211
NOTE 27 – 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,
 
2022,
 
the
 
Corporation
 
had
six
reportable segments: Mortgage Banking;
 
Consumer (Retail) Banking; Commercial
 
and Corporate 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
 
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
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
 
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,
 
the
 
Mortgage
 
Banking,
 
the
 
Consumer
 
(Retail)
 
Banking,
 
and
 
the
 
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.
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, 2022:
Interest income
$
130,185
$
302,631
$
205,888
$
104,215
$
94,782
$
24,913
$
862,614
Net (charge) credit for transfer of funds
(31,265)
173,917
(96,066)
(43,838)
(2,748)
-
-
Interest expense
-
(33,924)
-
(20,777)
(11,549)
(1,071)
(67,321)
Net interest income
 
98,920
442,624
109,822
39,600
80,485
23,842
795,293
Provision for credit losses - (benefit) expense
(7,643)
57,123
(20,241)
(434)
(3,073)
1,964
27,696
Non-interest income (loss)
15,950
78,457
18,189
(74)
2,860
7,710
123,092
Direct non-interest expenses
23,049
162,663
37,131
3,702
33,365
27,911
287,821
 
Segment income
$
99,464
$
301,295
$
111,121
$
36,258
$
53,053
$
1,677
$
602,868
Average earnings assets
$
2,233,245
$
2,918,800
$
3,626,107
$
7,300,208
$
2,069,030
$
369,504
$
18,516,894
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
212
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
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
 
The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods:
Year Ended
 
December 31,
2022
2021
2020
(In thousands)
Net income:
 
Total income for segments
 
$
602,868
$
620,011
$
281,699
Other operating expenses
 
(1)
155,284
192,194
165,376
Income before income taxes
447,584
427,817
116,323
Income tax expense
142,512
146,792
14,050
 
Total consolidated net income
$
305,072
$
281,025
$
102,273
Average assets:
Total average earning assets for segments
 
$
18,516,894
$
19,235,941
$
14,201,505
Average non-earning assets
 
861,755
1,067,092
1,031,141
 
Total consolidated average assets
$
19,378,649
$
20,303,033
$
15,232,646
(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)
213
 
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:
2022
2021
2020
(In thousands)
Revenues:
 
Puerto Rico
$
855,441
$
795,166
$
678,370
 
United States
97,642
86,157
88,799
 
Virgin Islands
32,623
34,549
37,039
 
Total consolidated revenues
$
985,706
$
915,872
$
804,208
Selected Balance Sheet Information:
Total assets:
 
Puerto Rico
$
16,020,987
$
18,175,910
$
16,091,112
 
United States
2,213,333
2,189,440
2,117,966
 
Virgin Islands
400,164
419,925
583,993
Loans:
 
Puerto Rico
$
9,097,013
$
8,755,434
$
9,367,032
 
United States
2,088,351
1,948,716
1,993,797
 
Virgin Islands
379,767
391,663
466,749
Deposits:
 
Puerto Rico
(1)
$
12,933,570
$
14,113,874
$
12,338,934
 
United States
(2)
1,623,725
1,928,749
1,622,481
 
Virgin Islands
1,586,172
1,742,271
1,355,968
(1)
For 2022, 2021, and 2020, includes $
1.4
 
million, $
34.2
 
million, and $
109.0
 
million, respectively, of brokered CDs allocated
 
to Puerto Rico operations.
(2)
For 2022, 2021, and 2020 includes $
104.4
 
million, $
66.2
 
million, and $
107.1
 
million, respectively, of brokered CDs
 
allocated to United States operations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
214
NOTE 28 – SUPPLEMENTAL
 
STATEMENT
 
OF CASH FLOWS INFORMATION
 
Supplemental statement of cash flows information is as follows for the indicated
 
periods:
Year Ended
 
December 31,
 
2022
2021
2020
(In thousands)
Cash paid for:
 
Interest on borrowings
$
65,986
$
68,668
$
94,872
 
Income tax
 
51,798
15,477
16,713
 
Operating cash flow from operating leases
18,202
19,328
13,464
Non-cash investing and financing activities:
 
Additions to OREO
15,350
19,348
7,249
 
Additions to auto and other repossessed assets
45,607
33,408
36,203
 
Capitalization of servicing assets
3,122
5,194
4,864
 
Loan securitizations
141,909
191,434
221,491
 
Loans held for investment transferred to held for sale
4,632
33,010
10,817
 
Payable related to unsettled purchases of available-for-sale investment securities
-
-
24,033
 
ROU asset obtained in exchange for operating lease liabilities
2,733
4,553
1,328
Acquisition
(1)
:
 
Consideration
$
-
$
584
$
1,280,424
 
Fair value of assets acquired
-
605
5,561,564
 
Liabilities assumed
-
-
4,291,674
(1)
Recognized in connection with the BSPR acquisition on September
 
1, 2020.
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
215
NOTE 29 – REGULATORY
 
MATTERS, COMMITMENTS,
 
AND CONTINGENCIES
Regulatory Matters
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, 2022 and 2021,
 
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, 2022,
 
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
%
 
on
 
certain
 
regulatory
capital
 
ratios
 
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.
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 (as
 
defined in the final
 
rule) 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,
 
2022,
 
the
 
capital
 
measures
 
of
 
the
 
Corporation
 
and
 
the
 
Bank
 
included
$
16.2
 
million associated
 
with the
 
CECL day
 
one 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,
 
and $
48.6
 
million remains excluded to be phase-in
 
during the next two
years.
 
The
 
federal
 
financial
 
regulatory
 
agencies
 
may
 
take
 
other
 
measures
 
affecting
 
regulatory
 
capital
 
to
 
address
 
the
 
COVID-19
pandemic and related macroeconomic conditions, although the nature
 
and impact of such actions cannot be predicted at this time.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
216
The regulatory capital position of
 
the Corporation and the Bank as
 
of December 31, 2022,
 
and 2021, 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, 2022
Total Capital (to Risk-Weighted
 
Assets)
 
First BanCorp.
$
2,385,866
19.21
%
$
993,405
8.0
%
N/A
N/A
%
 
FirstBank
$
2,346,093
18.90
%
$
993,264
8.0
%
$
1,241,580
10.0
%
CET1 Capital (to Risk-Weighted Assets)
 
First BanCorp.
$
2,052,333
16.53
%
$
558,790
4.5
%
N/A
N/A
%
 
FirstBank
$
2,090,832
16.84
%
$
558,711
4.5
%
$
807,027
6.5
%
Tier I Capital (to Risk-Weighted
 
Assets)
 
First BanCorp.
$
2,052,333
16.53
%
$
745,054
6.0
%
N/A
N/A
%
 
FirstBank
$
2,190,832
17.65
%
$
744,948
6.0
%
$
993,264
8.0
%
Leverage ratio
 
First BanCorp.
$
2,052,333
10.70
%
$
767,075
4.0
%
N/A
N/A
%
 
FirstBank
$
2,190,832
11.43
%
$
766,714
4.0
%
$
958,392
5.0
%
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
%
Cash Restrictions
The Corporation’s
 
bank subsidiary,
 
FirstBank, is
 
required by
 
the Puerto
 
Rico Banking
 
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,
 
2022
 
was
 
$
1.1
 
billion
 
(2021
 
-
 
$
1.2
 
billion).
 
As
 
of
 
December 31,
 
2022
 
and
 
2021,
 
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, 2022, and
 
as required by
 
the Puerto Rico
 
International Banking
 
Law,
 
the Corporation maintained
 
$
0.3
 
million
in time deposits, related to FirstBank Overseas Corporation, an international
 
banking entity that is a subsidiary of FirstBank.
Commitments
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
217
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,
 
2022 and
 
2021, were
not significant.
 
The following table summarizes commitments to extend credit and standby letters of
 
credit as of the indicated dates:
December 31,
 
2022
2021
(In thousands)
Financial instruments whose contract amounts represent credit risk:
 
Commitments to extend credit:
 
Construction undisbursed funds
$
170,639
$
197,917
 
Unused personal lines of credit
 
978,219
1,180,824
 
Commercial lines of credit
 
761,634
725,259
 
Letters of credit:
 
Commercial letters of credit
68,647
151,140
 
Standby letters of credit
9,160
4,342
Contingencies
As of
 
December 31,
 
2022, 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, 2022, no such disclosures were necessary.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
218
NOTE 30- 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, 2022
 
and 2021, and the
 
results of its operations
 
and cash flows for
 
the years ended December
 
31, 2022, 2021, and
2020:
Statements of Financial Condition
As of December 31,
 
2022
2021
(In thousands)
Assets
Cash and due from banks
$
19,279
$
20,751
Other investment securities
735
285
Investment in First Bank Puerto Rico, at equity
1,464,026
2,247,289
Investment in First Bank Insurance Agency,
 
at equity
28,770
19,521
Investment in FBP Statutory Trust I
1,951
1,951
Investment in FBP Statutory Trust II
3,561
3,561
Dividends receivable
624
295
Other assets
430
71
 
Total assets
$
1,519,376
$
2,293,724
Liabilities and Stockholders' Equity
Liabilities:
Other borrowings
 
$
183,762
$
183,762
Accounts payable and other liabilities
10,074
8,195
 
Total liabilities
193,836
191,957
Stockholders' equity
1,325,540
2,101,767
 
Total liabilities and stockholders'
 
equity
$
1,519,376
$
2,293,724
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
219
Statements of Income
 
Year
 
Ended December 31,
2022
2021
2020
(In thousands)
Income
 
 
Interest income on money market investments
 
$
79
$
51
$
71
 
Dividend income from banking subsidiaries
368,670
98,060
52,707
 
Dividend income from non-banking subsidiaries
-
30,000
-
 
Other income
248
154
439
 
Total income
368,997
128,265
53,217
Expense
 
Other borrowings
8,253
5,135
6,355
 
Other operating expenses
1,730
1,929
2,097
 
Total expense
9,983
7,064
8,452
Gain on early extinguishment of debt
-
-
94
Income before income taxes and equity
 
 
in undistributed earnings of subsidiaries
359,014
121,201
44,859
Income tax expense
3,448
2,854
2,429
Equity in undistributed earnings of subsidiaries (distribution in excess of
 
earnings)
(50,494)
162,678
59,843
Net income
$
305,072
$
281,025
$
102,273
Other comprehensive (loss) income, net of tax
(720,779)
(139,454)
48,691
Comprehensive (loss) income
$
(415,707)
$
141,571
$
150,964
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
220
Statements of Cash Flows
Year Ended December 31,
 
2022
2021
2020
(In thousands)
Cash flows from operating activities:
Net income
$
305,072
$
281,025
$
102,273
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation
 
148
149
231
Equity in undistributed earnings of subsidiaries
50,494
(162,678)
(59,843)
Gain on early extinguishment of debt
-
-
(94)
Net decrease (increase) in other assets
(688)
1,657
(1,514)
Net increase (decrease) in other liabilities
1,545
3,578
(459)
Net cash provided by operating activities
356,571
123,731
40,594
Cash flows from investing activities:
Purchase of equity securities
(450)
-
-
Return of capital from wholly-owned subsidiaries
(1)
8,000
200,000
-
Net cash provided by investing activities
7,550
200,000
-
Cash flows from financing activities:
Repurchase of common stock
(277,769)
(216,522)
(206)
Repayment of junior subordinated debentures
-
-
(282)
Dividends paid on common stock
(87,824)
(65,021)
(43,416)
Dividends paid on preferred stock
-
(2,453)
(2,676)
Redemption of preferred stock - Series A through E
-
(36,104)
-
 
Net cash used in financing activities
(365,593)
(320,100)
(46,580)
Net (decrease) increase in cash and cash equivalents
(1,472)
3,631
(5,986)
Cash and cash equivalents at beginning of the year
20,751
17,120
23,106
Cash and cash equivalents at end of year
$
19,279
$
20,751
$
17,120
Cash and cash equivalents include:
Cash and due from banks
$
19,279
$
20,751
$
10,909
Money market instruments
-
-
6,211
$
19,279
$
20,751
$
17,120
(1)
During 2022, FirstBank of Puerto Rico, a wholly-owned subsidiary of First BanCorp., redeemed
0.3
 
million shares of its preferred stock for a total price of
approximately $
8.0
 
million.
 
During 2021, FirstBank of Puerto Rico, a wholly-owned subsidiary of First BanCorp., redeemed
8
 
million shares of its
preferred stock for a total price of approximately $
200
 
million.
221
Item 9. Changes in and Disagreements with Accountants on Accounting
 
and
Financial Disclosures
 
None.
 
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
 
 
Management’s
 
Report on Internal Control over Financial
 
Reporting is included in Item 8 of
 
this Form 10-K and incorporated herein
by reference.
 
 
The effectiveness of the Corporation’s
 
internal control over financial reporting as of December
 
31, 2022 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 on Form
 
10-
K.
Changes in Internal Control over Financial Reporting
There have
 
been no
 
changes to
 
the Corporation’s
 
internal control
 
over financial
 
reporting (as
 
defined in
 
Rules 13a-15(f)
 
and 15d-
15(f)
 
under
 
the
 
Exchange
 
Act)
 
during
 
our
 
most
 
recent
 
quarter
 
ended
 
December
 
31,
 
2022
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
222
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
 
2023 Annual Meeting
 
of Stockholders (the “2023
 
Proxy Statement”) to
 
be filed with the
 
SEC
within 120 days of December 31, 2022.
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,”
 
“Non-Management
 
Chairman
 
and
 
Specialized
 
Expertise,”
“Executive Compensation Disclosure –
 
Compensation Discussion and Analysis,” “Executive
 
Compensation Tables
 
and Compensation
Information” and “Compensation Committee Report” in the 2023 Proxy Statement.
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 plan as of December 31, 2022:
Plan category
(a)
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights
(b)
Weighted Average Exercise
Price of Outstanding
Options, Warrants and
Rights
(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
 
Equity compensation plans, approved by stockholders
 
791,923
(1)
$
-
3,830,165
(2)
Equity compensation plans not approved by stockholders
N/A
N/A
N/A
Total
791,923
$
-
3,830,165
(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 16
 
- "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, the Omnibus
 
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.
Additional
 
information
 
in
 
response
 
to
 
this
 
item
 
is
 
incorporated
 
by
 
reference
 
from
 
the
 
section
 
entitled
 
“Security
 
Ownership
 
of
Certain Beneficial Owners and Management” in the 2023 Proxy
 
Statement.
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 the 2023 Proxy Statement.
 
223
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 the 2023 Proxy Statement.
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 February 28,
 
2023, 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, 2022 and 2021.
–Consolidated Statements of Income for Each of the Three Years
 
in the Period Ended December 31, 2022.
– Consolidated Statements of Comprehensive (Loss) Income for
 
Each of the Three Years
 
in the Period Ended December 31,
2022.
– Consolidated Statements of Cash Flows for Each of the Three Years
 
in the Period Ended December 31, 2022.
– Consolidated Statements of Changes in Stockholders’ Equity for
 
Each of the Three Years
 
in the Period Ended December 31,
2022.
– 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.
 
 
 
 
224
 
EXHIBIT INDEX
 
Exhibit No.
Description
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*
 
Non-Management and Non-
 
Directors of the Board of Directors Compensation Structure,
 
incorporated
by reference from Exhibit 10.1 of the Form 10-Q for the quarter
 
ended September 30, 2022, filed on November 8,
 
2022.
18.1
21.1
23.1
31.1
 
Certification pursuant to Section 302 of the Sarbanes-Oxley
 
Act of 2002
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
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, 2022, formatted in
 
Inline
XBRL (included within the Exhibit 101 attachments)
_____________________________
*Management contract or compensatory plan or agreement.
 
 
 
 
 
 
 
 
 
 
 
 
225
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: 2/28/2023
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: 2/28/2023
Aurelio Alemán
President, Chief Executive Officer and Director
/s/ Orlando Berges
Date: 2/28/2023
Orlando Berges, CPA
Executive Vice President and Chief Financial Officer
/s/ Roberto R. Herencia
Date: 2/28/2023
Roberto R. Herencia,
Director and Chairman of the Board
/s/ Patricia M. Eaves
Date: 2/28/2023
Patricia M. Eaves,
Director
/s/ Luz A. Crespo
Date: 2/28/2023
Luz A. Crespo,
Director
/s/ Juan Acosta-Reboyras
Date: 2/28/2023
Juan Acosta-Reboyras,
Director
/s/ John A. Heffern
Date: 2/28/2023
John A. Heffern,
Director
/s/ Daniel E. Frye
Date: 2/28/2023
Daniel E. Frye,
Director
/s/ Tracey Dedrick
Date: 2/28/2023
Tracey Dedrick,
Director
/s/ Felix Villamil
Date: 2/28/2023
Felix Villamil,
Director
/s/ Said Ortiz
Date: 2/28/2023
Said Ortiz, CPA
Senior Vice President and Chief Accounting Officer