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FIRST BANCORP /PR/ - Quarter Report: 2022 September (Form 10-Q)

fbp-20220930
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
 
20549
____________
FORM
10-Q
(Mark One)
[X]
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 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
San Juan
,
Puerto Rico
 
(Address of principal executive offices)
00908
(Zip Code)
(
787
)
729-8200
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
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 per share)
FBP
New York Stock Exchange
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 is a shell company
 
(as defined in Rule 12b-2 of the Exchange Act).
 
Yes
☐
 
No
☑
 
Indicate the number of shares outstanding of each of the
 
issuer’s classes of common stock, as of the latest practicable date.
Common stock:
184,611,527
 
shares outstanding as of October 31, 2022.
2
FIRST BANCORP.
INDEX PAGE
PART
 
I. FINANCIAL INFORMATION
 
PAGE
Item 1. Financial Statements:
Consolidated Statements of
 
Financial Condition
 
(Unaudited) as of
 
September 30, 2022
 
and December 31,
2021
 
Consolidated Statements of Income (Unaudited) – Quarters ended
 
September 30, 2022 and 2021 and nine-
month periods ended September 30, 2022 and 2021
Consolidated
 
Statements of
 
Comprehensive (Loss)
 
Income (Unaudited)
 
– Quarters
 
ended September
 
30,
2022 and 2021 and nine-month periods ended September 30, 2022 and 2021
Consolidated Statements of Cash Flows (Unaudited) – Nine-month
 
periods ended September 30, 2022 and
2021
 
Consolidated Statements of Changes in Stockholders’ Equity
 
(Unaudited) – Quarters ended September 30,
2022 and 2021 and nine-month periods ended September 30, 2022 and 2021
 
 
Notes to Consolidated Financial Statements (Unaudited)
 
Item 2. Management’s Discussion
 
and Analysis of Financial Condition and Results of Operations
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
Item 4. Controls and Procedures
 
PART
 
II. OTHER INFORMATION
Item 1.
 
Legal Proceedings
 
Item 1A. Risk Factors
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
 
Exhibits
 
SIGNATURES
 
3
Forward-Looking Statements
This Form 10-Q 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-Q 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,” in the
 
Corporation’s
 
Annual Report on
 
Form 10-K for the
year ended December 31, 2021 (the “2021 Annual Report on Form 10-K”)
 
and the following:
●
the
 
impact
 
that
 
Hurricane
 
Fiona
 
will
 
have
 
on
 
the
 
economy
 
in
 
the
 
regions
 
impacted,
 
both
 
positive
 
and
 
negative,
 
for
 
the
Corporation’s
 
commercial and
 
retail customers,
 
which will
 
depend on
 
the extent to
 
which rebuilding
 
efforts and
 
disaster relief
money stimulate economic activity and the ultimate effect
 
on loan collection;
●
the impact
 
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
 
have
 
an
 
impact
 
on
 
the
 
Corporation’s
 
margins
 
and
 
may
 
have
 
an
 
adverse
 
impact
 
on
 
origination
 
volumes
 
and
 
financial
performance;
●
uncertainties
 
relating
 
to
 
the
 
duration
 
of
 
the
 
COVID-19
 
pandemic
 
and
 
its
 
impact
 
on
 
the
 
Corporation’s
 
business,
 
operations,
employees, credit quality,
 
financial condition and net income;
●
risks related to
 
the Corporation’s
 
participation in
 
government responses
 
or programs
 
related to the
 
COVID-19 pandemic,
 
such
as the
 
Small Business
 
Administration Paycheck
 
Protection Program
 
(“SBA PPP”)
 
established by
 
the Coronavirus
 
Aid, Relief,
and
 
Economic
 
Security
 
Act
 
of 2020,
 
as amended
 
(the
 
“CARES Act”),
 
including
 
any
 
judgments,
 
claims,
 
damages,
 
penalties,
fines
 
or
 
reputational
 
damage
 
resulting
 
from
 
claims
 
or
 
challenges
 
against
 
the
 
Corporation
 
by
 
governments,
 
regulators,
customers or otherwise, relating to the Corporation’s
 
participation in any such responses or programs;
●
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
 
of which may
result in
 
misuse or
 
misappropriation of
 
confidential or
 
proprietary information
 
and could
 
result in
 
the disruption
 
or damage
 
to
our systems, increased costs and losses or an adverse effect
 
to our reputation;
●
general
 
competitive
 
factors,
 
industry
 
consolidation
 
and
 
other
 
market
 
risks
 
as
 
well
 
as
 
the
 
implementation
 
of
 
strategic
 
growth
opportunities, including risks, uncertainties and other factors or events to
 
any business acquisitions or dispositions;
 
4
●
uncertainty as to the
 
ultimate outcome of
 
the debt restructuring plan
 
of Puerto Rico (“Plan
 
of Adjustment” or “PoA”)
 
and 2022
Fiscal Plan
 
for Puerto
 
Rico as
 
certified by
 
the Financial
 
Oversight and
 
Management Board
 
for Puerto
 
Rico (“the
 
2022 Fiscal
Plan”),
 
or
 
any
 
revisions
 
to
 
it,
 
on
 
our
 
clients
 
and
 
loan
 
portfolios
 
and
 
any
 
potential
 
impact
 
from
 
future
 
economic
 
or
 
political
developments in Puerto Rico;
●
the
 
impact
 
that
 
a
 
slowdown
 
in
 
the
 
economy
 
and
 
an
 
increase
 
in
 
unemployment
 
or
 
underemployment
 
may
 
have
 
on
 
the
performance of our loan and lease portfolio,
 
the market price of our investment
 
securities, the availability of sources
 
of funding
and the demand for our products;
●
uncertainty
 
as
 
to
 
the
 
availability
 
of
 
wholesale
 
funding
 
sources,
 
such
 
as
 
securities
 
sold
 
under
 
agreements
 
to
 
repurchase,
advances from the Federal Home Loan Bank (“FHLB”), and brokered certificates
 
of deposit (“brokered CDs”);
●
the effect
 
of deteriorating
 
economic
 
conditions in
 
the real
 
estate markets
 
and the
 
consumer
 
and commercial
 
sectors and
 
their
impact on
 
the credit
 
quality of
 
the Corporation’s
 
loans and
 
other assets,
 
which may
 
contribute to,
 
among other
 
things, higher
than targeted
 
levels of
 
non-performing assets,
 
charge-offs
 
and provisions
 
for credit
 
losses, and
 
may subject
 
the Corporation
 
to
further risk from loan defaults and foreclosures;
●
the impact
 
of changes
 
in accounting
 
standards or
 
assumptions in
 
applying those
 
standards, including
 
the continuing
 
impact of
the COVID-19 pandemic,
 
or geopolitical concerns, such
 
as the ongoing conflict
 
in Ukraine, on forecasts
 
of economic variables
considered
 
for
 
the
 
determination
 
of
 
the
 
allowance
 
for
 
credit
 
losses
 
(“ACL”)
 
required
 
by
 
the
 
current
 
expected
 
credit
 
losses
(“CECL”) accounting standard;
●
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;
●
adverse
 
changes
 
in
 
general
 
economic
 
conditions
 
in
 
Puerto
 
Rico,
 
the
 
United
 
States
 
(“U.S.”),
 
the
 
U.S.
 
Virgin
 
Islands
 
(the
“USVI”),
 
and
 
the
 
British
 
Virgin
 
Islands
 
(the
 
“BVI”),
 
including
 
the
 
interest
 
rate
 
environment,
 
market
 
liquidity,
 
housing
absorption rates, real estate prices, and disruptions in
 
the U.S. capital markets, including as a result of past
 
or future widespread
health
 
emergencies,
 
natural
 
disasters
 
or
 
geopolitical
 
concerns,
 
such
 
as
 
the
 
ongoing
 
conflict
 
in
 
Ukraine,
 
which
 
may
 
reduce
interest
 
margins,
 
affect
 
funding
 
sources
 
and
 
demand
 
for
 
all
 
of
 
the
 
Corporation’s
 
products
 
and
 
services,
 
and
 
reduce
 
the
Corporation’s revenues and
 
earnings and the value of the Corporation’s assets;
●
the
 
effect
 
of
 
changes
 
in
 
the
 
interest
 
rate
 
environment,
 
including
 
uncertainty
 
about
 
the
 
effect
 
of
 
the
 
cessation
 
of
 
the
 
London
Interbank
 
Offered
 
Rate
 
(“LIBOR”),
 
which
 
could
 
adversely
 
affect
 
the
 
Corporation’s
 
results
 
of
 
operations,
 
cash
 
flows,
 
and
liquidity;
●
an adverse change in
 
the Corporation’s
 
ability to attract new clients,
 
retain existing ones, 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;
●
uncertainty
 
about legislative,
 
tax or
 
regulatory changes
 
that affect
 
financial services
 
companies in
 
Puerto
 
Rico, the
 
U.S., and
the USVI and BVI,
 
which could affect
 
the Corporation’s
 
financial condition or
 
performance and could cause
 
the Corporation’s
actual results for future periods to differ materially from prior
 
results and anticipated or projected results;
 
5
●
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, particularly
 
in response
 
to rising
 
inflation, 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 “Federal
 
Reserve”), the
 
Federal Deposit
 
Insurance Corporation
 
(the “FDIC”), governmen
 
t-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
 
to replenish
 
its
insurance fund, causing an additional increase in the Corporation’s
 
non-interest expenses;
●
a
 
need
 
to
 
recognize
 
impairments
 
on
 
the
 
Corporation’s
 
financial
 
instruments,
 
goodwill
 
and
 
other
 
intangible
 
assets
 
relating
 
to
business acquisitions;
●
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;
●
uncertainty
 
as to
 
whether
 
FirstBank
 
will
 
be
 
able
 
to
 
continue
 
to
 
satisfy
 
its
 
regulators
 
regarding,
 
among
 
other
 
things,
 
its asset
quality,
 
liquidity
 
plans,
 
maintenance
 
of
 
capital
 
levels
 
and
 
compliance
 
with
 
applicable
 
laws,
 
regulations,
 
and
 
related
requirements; and
●
general competitive factors and industry consolidation.
The
 
Corporation
 
does
 
not
 
undertake,
 
and
 
specifically
 
disclaims
 
any
 
obligation,
 
to
 
update
 
any
 
“forward-looking
 
statements”
 
to
reflect
 
occurrences
 
or
 
unanticipated
 
events
 
or
 
circumstances
 
after
 
the
 
date
 
of
 
such
 
statements,
 
except
 
as
 
required
 
by
 
the
 
federal
securities laws.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
September 30, 2022
December 31, 2021
(In thousands, except for share information)
ASSETS
Cash and due from banks
$
552,933
$
2,540,376
Money market investments:
Time deposits with other financial institutions
300
300
Other short-term investments
1,757
2,382
Total money market investments
2,057
2,682
Available-for-sale debt securities, at fair value:
Securities pledged with creditors’ rights to repledge
205,635
321,180
Other available-for-sale debt securities
5,463,054
6,132,581
Total available-for-sale debt securities, at fair value (amortized cost 2022 - $
6,527,684
;
2021 - $
6,534,503
; ACL of $
664
 
as of September 30, 2022 and $
1,105
 
as of December 31, 2021)
5,668,689
6,453,761
Held-to-maturity debt securities, at amortized cost, net of ACL
 
of $
8,257
 
as of September 30, 2022 and $
8,571
as of December 31, 2021 (fair value 2022 - $
429,530
; 2021 - $
167,147
)
437,605
169,562
Equity securities
24,727
32,169
Loans, net of ACL of $
257,859
 
(2021 - $
269,030
)
11,040,759
10,791,628
Mortgage loans held for sale, at lower of cost or market
12,169
35,155
Total loans, net
11,052,928
10,826,783
Premises and equipment, net
143,429
146,417
Other real estate owned (“OREO”)
38,682
40,848
Accrued interest receivable on loans and investments
61,108
61,507
Deferred tax asset, net
166,100
208,482
Goodwill
38,611
38,611
Intangible assets
23,245
29,934
Other assets
231,920
234,143
Total assets
$
18,442,034
$
20,785,275
LIABILITIES
Non-interest-bearing deposits
$
6,235,782
$
7,027,513
Interest-bearing deposits
10,333,799
10,757,381
Total deposits
16,569,581
17,784,894
Securities sold under agreements to repurchase
200,000
300,000
FHLB advances
-
200,000
Other borrowings
183,762
183,762
Accounts payable and other liabilities
223,358
214,852
Total liabilities
17,176,701
18,683,508
STOCKHOLDERSʼ EQUITY
Common stock, $$
0.10
 
par value, authorized,
2,000,000,000
 
shares;
223,663,116
 
shares issued;
186,257,659
 
shares
outstanding (2021 -
201,826,505
 
shares outstanding)
22,366
22,366
Additional paid-in capital (See Note 1)
969,370
972,547
Retained earnings, includes legal surplus reserve of $
137,591
1,593,284
1,427,295
Treasury stock at cost (See Note 1)
(456,994)
(236,442)
Accumulated other comprehensive loss, net of tax of $
9,786
(862,693)
(83,999)
Total stockholdersʼ equity
1,265,333
2,101,767
 
Total liabilities and stockholders' equity
$
18,442,034
$
20,785,275
The accompanying notes are an integral part of these financial
 
statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
2022
2021
2022
2021
(In thousands, except per share information)
Interest and dividend income:
Loans
$
191,740
$
178,956
$
544,788
$
541,763
Investment securities
26,289
20,248
76,027
52,760
Money market investments and interest-bearing cash accounts
4,654
968
8,347
1,750
Total interest and dividend income
222,683
200,172
629,162
596,273
Interest expense:
Deposits
9,978
9,682
25,324
32,806
Securities sold under agreements to repurchase
1,993
2,571
6,147
7,392
Advances from FHLB
529
1,899
2,667
6,428
Other borrowings
2,273
1,277
5,304
3,856
Total interest expense
14,773
15,429
39,442
50,482
Net interest income
207,910
184,743
589,720
545,791
Provision for credit losses - expense (benefit):
Loans and finance leases
14,352
(8,734)
10,028
(49,479)
Unfunded loan commitments
2,071
(971)
2,705
(3,346)
Debt securities
(640)
(2,377)
(749)
(664)
Provision for credit losses - expense (benefit)
15,783
(12,082)
11,984
(53,489)
Net interest income after provision for credit losses
192,127
196,825
577,736
599,280
Non-interest income:
Service charges and fees on deposit accounts
9,820
8,690
28,649
25,782
Mortgage banking activities
3,400
6,098
12,688
19,775
Insurance commission income
2,624
2,318
10,845
9,774
Other non-interest income
13,849
12,840
41,310
35,455
Total non-interest income
 
29,693
29,946
93,492
90,786
Non-interest expenses:
Employees’ compensation and benefits
52,939
50,220
153,797
150,776
Occupancy and equipment
22,543
23,306
66,434
71,664
Business promotion
5,136
3,370
12,641
9,565
Professional service fees
12,549
13,554
35,179
48,019
Taxes, other than income taxes
5,349
5,238
15,056
17,013
FDIC deposit insurance
1,466
1,381
4,605
5,291
Net gain on OREO operations
(1,064)
(2,288)
(3,269)
(529)
Credit and debit card processing expenses
6,410
5,573
16,374
16,646
Communications
2,272
2,250
6,401
7,119
Merger and restructuring costs
-
2,268
-
24,582
Other non-interest expenses
7,589
9,164
22,956
27,363
Total non-interest expenses
115,189
114,036
330,174
377,509
Income before income taxes
106,631
112,735
341,054
312,557
Income tax expense
32,028
37,057
109,156
105,171
Net income
$
74,603
$
75,678
$
231,898
$
207,386
Net income attributable to common stockholders
$
74,603
$
75,009
$
231,898
$
205,379
Net income per common share:
Basic
$
0.40
$
0.36
$
1.20
$
0.97
Diluted
$
0.40
$
0.36
$
1.19
$
0.96
The accompanying notes are an integral part of these financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
FIRST BANCORP.
CONSOLIDATED
 
STATEMENTS OF COMPREHENSIVE (LOSS)
 
INCOME
(Unaudited)
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
2022
2021
2022
2021
(In thousands)
Net income
$
74,603
$
75,678
$
231,898
$
207,386
Other comprehensive loss, net of tax:
Available-for-sale debt securities:
Net unrealized holding losses on debt securities
(270,937)
(18,740)
(778,694)
(89,173)
Other comprehensive loss for the period, net of tax
(270,937)
(18,740)
(778,694)
(89,173)
Total comprehensive (loss) income
$
(196,334)
$
56,938
$
(546,796)
$
118,213
The accompanying notes are an integral part of these financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine-Month Period Ended
September 30,
September 30,
2022
2021
(In thousands)
Cash flows from operating activities:
Net income
 
$
231,898
$
207,386
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
16,810
18,936
Amortization of intangible assets
6,689
8,652
Provision for credit losses - expense (benefit)
11,984
(53,489)
Deferred income tax expense
42,382
85,969
Stock-based compensation
 
3,994
4,100
Unrealized gain on derivative instruments
(1,502)
(3,516)
Net gain on disposals or sales of premises and equipment and other
 
assets
(897)
(23)
Net gain on sales of loans
(4,827)
(11,743)
Net amortization of premiums, discounts, and deferred loan fees
 
and costs
(7,532)
(19,538)
Originations and purchases of loans held for sale
(184,544)
(386,102)
Sales and repayments of loans held for sale
204,182
413,521
Amortization of broker placement fees
89
177
Net amortization of premiums and discounts on investment securities
2,648
21,798
Decrease in accrued interest receivable
85
10,849
Decrease in accrued interest payable
(1,467)
(2,217)
Decrease in other assets
663
21,563
Increase (decrease) in other liabilities
14,097
(12,768)
Net cash provided by operating activities
334,752
303,555
Cash flows from investing activities:
Net (disbursements) repayments on loans held for investment
(308,386)
552,426
Proceeds from sales of loans held for investment
39,069
63,509
Proceeds from sales of repossessed assets
31,638
42,711
Purchases of available-for-sale debt securities
(512,327)
(3,290,077)
Proceeds from principal repayments and maturities of available-for-sale
 
debt securities
515,602
1,149,394
Purchases of held-to-maturity debt securities
(289,784)
-
Proceeds from principal repayments and maturities of held-to-maturity
 
debt securities
23,320
12,678
Additions to premises and equipment
(15,442)
(10,783)
Proceeds from sales of premises and equipment and other assets
1,138
807
Net redemptions of other investment securities
6,988
122
Payment related to previous acquisition
-
(3,382)
Net cash used in investing activities
(508,184)
(1,482,595)
Cash flows from financing activities:
Net (decrease) increase in deposits
(1,221,614)
2,662,219
Repayments of long-term borrowings
(300,000)
(120,000)
Repurchase of outstanding common stock
(227,256)
(152,100)
Dividends paid on common stock
(65,766)
(44,732)
Dividends paid on preferred stock
-
(2,007)
Net cash (used in) provided by financing activities
(1,814,636)
2,343,380
Net (decrease) increase in cash and cash equivalents
(1,988,068)
1,164,340
Cash and cash equivalents at beginning of period
2,543,058
1,493,833
Cash and cash equivalents at end of period
$
554,990
$
2,658,173
Cash and cash equivalents include:
Cash and due from banks
$
552,933
$
2,655,491
Money market instruments
2,057
2,682
$
554,990
$
2,658,173
The accompanying notes are an integral part of these financial
 
statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
 
EQUITY
(Unaudited)
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
September 30,
September 30,
2022
2021
2022
2021
(In thousands)
Preferred Stock
$
-
$
36,104
$
-
$
36,104
Common Stock:
Balance at beginning of period
22,366
22,363
22,366
22,303
Common stock issued under stock-based compensation plan
-
2
-
62
Balance at end of period
22,366
22,365
22,366
22,365
Additional Paid-In-Capital
(See Note 1)
:
Balance at beginning of period
968,217
968,144
972,547
965,385
Stock-based compensation expense
1,414
1,346
3,994
4,100
Common stock reissued/issued under stock-based compensation
 
plan
(302)
(2)
(7,304)
(62)
Restricted stock forfeited
41
93
133
158
Balance at end of period
969,370
969,581
969,370
969,581
Retained Earnings:
Balance at beginning of period
1,541,334
1,315,352
1,427,295
1,215,321
Net income
 
74,603
75,678
231,898
207,386
Dividends on common stock ($
0.12
 
per share and $
0.07
 
per share for the quarters ended
September 30, 2022 and 2021, respectively; $
0.34
 
per share and $
0.21
 
per share for the
nine-month periods ended September 30, 2022 and 2021, respectively)
(22,653)
(14,564)
(65,909)
(44,903)
Dividends on preferred stock
-
(669)
-
(2,007)
Balance at end of period
1,593,284
1,375,797
1,593,284
1,375,797
Treasury stock (at cost)
(See Note 1)
:
Balance at beginning of period
(382,245)
(122,030)
(236,442)
(19,389)
Common stock repurchases (See Note 14)
(75,010)
(50,041)
(227,723)
(152,618)
Common stock reissued under stock-based compensation
 
plan
302
-
7,304
-
Restricted stock forfeited
(41)
(93)
(133)
(157)
Balance at end of period
(456,994)
(172,164)
(456,994)
(172,164)
Accumulated Other Comprehensive (Loss) Income, net of tax:
Balance at beginning of period
(591,756)
(14,978)
(83,999)
55,455
Other comprehensive loss, net of tax
(270,937)
(18,740)
(778,694)
(89,173)
Balance at end of period
(862,693)
(33,718)
(862,693)
(33,718)
Total stockholdersʼ equity
$
1,265,333
$
2,197,965
$
1,265,333
$
2,197,965
The accompanying notes are an integral part of these financial
 
statements.
11
FIRST BANCORP.
INDEX TO NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
PAGE
Note 1 –
Basis of Presentation and Significant Accounting Policies
Note 2 –
Debt Securities
Note 3 –
Loans Held for Investment
Note 4
–
Allowance for Credit Losses for Loans and Finance Leases
Note 5 –
Other Real Estate Owned
Note 6
–
Goodwill and Other Intangibles
Note 7 –
Non-Consolidated Variable
 
Interest Entities (“VIE”) and Servicing Assets
Note 8 –
Deposits
Note 9 –
Securities Sold Under Agreements to Repurchase
Note 10 –
Advances from Federal Home Loan Bank
Note 11 –
Other Borrowings
Note 12 –
Earnings per Common Share
Note 13 –
Stock-Based Compensation
Note 14 –
Stockholders’ Equity
Note 15 –
Other Comprehensive Loss
Note 16 –
Employee Benefit Plans
Note 17 –
Income Taxes
Note 18
–
Fair Value
Note 19
–
Revenue from Contracts with Customers
Note 20 –
Supplemental Statement of Cash Flows Information
Note 21 –
Segment Information
Note 22 –
Regulatory Matters, Commitments, and Contingencies
Note 23 –
First BanCorp. (Holding Company Only) Financial Information
12
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS
(Unaudited)
NOTE 1 – BASIS
 
OF PRESENTATION AND
 
SIGNIFICANT
 
ACCOUNTING
 
POLICIES
 
The Consolidated Financial Statements (unaudited)
 
of First BanCorp. (the
 
“Corporation”)
 
have been prepared in
 
conformity with the
accounting
 
policies
 
stated
 
in the
 
Corporation’s
 
Audited
 
Consolidated
 
Financial
 
Statements
 
for the
 
fiscal
 
year ended
 
December
 
31, 2021
 
(the
“audited consolidated financial statements”) included
 
in
 
the
 
2021 Annual
 
Report on
 
Form 10-K,
 
except for
 
the
 
change in
 
accounting
method for accounting for its treasury
 
stock discussed below. Certain information
 
and note disclosures normally
 
included in the financial
statements prepared in accordance with generally accepted accounting principles in the
 
United States of
 
America (“GAAP”) have been
condensed or omitted from these statements
 
pursuant to the rules and regulations of the SEC and, accordingly, these financial statements
should be read in conjunction with the audited
 
consolidated
 
financial statements,
 
which are included in the 2021 Annual Report on Form
10-K. All
 
adjustments (consisting only
 
of
 
normal recurring adjustments) that
 
are, in
 
the
 
opinion of
 
management, necessary for
 
a
 
fair
presentation of the
 
statement of financial position, results of
 
operations and cash flows
 
for the
 
interim periods have been
 
reflected. All
significant
 
intercompany
 
accounts
 
and transactions
 
have been
 
eliminated
 
in consolidation.
Effective September 30, 2022, the Corporation
 
changed the
 
accounting
 
method for accounting
 
for its treasury
 
stock from a par
 
value to
a cost method.
 
We believe the
 
cost method
 
is preferable
 
as it more
 
accurately
 
reflects
 
in treasury
 
stock the
 
cost of stocks
 
repurchased
 
and it
enhances
 
our comparability
 
of financial
 
results with
 
other financial
 
institutions.
 
We reflected the
 
application
 
of this new
 
accounting
 
method
retrospectively
 
by adjusting
 
prior period
 
amounts
 
for treasury
 
stock and
 
additional
 
paid-in
 
capital.
 
The results of operations
 
for the quarter and nine-month period ended September
 
30, 2022 are not necessarily indicative
 
of the results
to be expected
 
for the
 
entire
 
year.
 
Adoption
 
of New Accounting
 
Requirements
The Corporation
 
was not
 
impacted
 
by the adoption
 
of the following
 
Accounting
 
Standards
 
Updates
 
(“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”
 
 
13
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 Financial
Accounting Standards Board
(“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 troubled debt
restructurings (“TDRs”)
recognition and measurement
guidance, enhances disclosure
requirements for loan
restructurings by creditors made
to borrowers experiencing
financial difficulty for which
the terms of the receivables
have been modified, 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 is evaluating the
impact that this ASU will have
on its financial statements and
disclosures. The Corporation
expects to adopt the amendments
of this update during the first
quarter of 2023 using a modified
retrospective transition method to
account for any 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
September 30, 2022, the
Corporation expects that the
adoption of this ASU will result
in a cumulative effect adjustment
to retained earnings, at the
adoption date, in a range of $
1
million to $
2
 
million, after-tax.
 
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.
 
For other recently
 
issued Accounting
 
Standards
 
not yet effective
 
or not yet adopted,
 
see Note 1 – Nature
 
of Business and
 
Summary of
Significant Accounting Policies included in
 
the 2021
 
Annual Report
 
on Form
 
10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14
NOTE 2 – DEBT
 
SECURITIES
Available-for-Sale
 
Debt Securities
 
 
The
 
amortized
 
cost,
 
gross
 
unrealized
 
gains
 
and
 
losses
 
recorded
 
in
 
other
 
comprehensive
 
loss,
 
ACL,
 
estimated
 
fair
 
value,
 
and
weighted-average yield of available-for-sale
 
debt securities by contractual maturities as of September 30, 2022 were as follows:
September 30, 2022
Amortized cost
(1)
Gross Unrealized
ACL
Fair value
Weighted-
Gains
Losses
average yield%
(Dollars in thousands)
U.S. Treasury securities:
After 1 to 5 years
$
149,061
$
-
$
10,803
$
-
$
138,258
0.67
 
U.S. government-sponsored agencies' obligations:
Due within one year
73,817
-
2,629
-
71,188
0.28
After 1 to 5 years
2,306,065
22
224,427
-
2,081,660
0.81
After 5 to 10 years
200,606
21
30,433
-
170,194
1.01
After 10 years
12,919
58
-
-
12,977
3.46
Puerto Rico government obligations:
After 10 years
(2)
3,365
-
798
374
2,193
-
United States and Puerto Rico government obligations
2,745,833
101
269,090
374
2,476,470
0.82
Mortgage-backed securities ("MBS"):
 
Freddie Mac (“FHLMC”) certificates:
After 1 to 5 years
4,655
-
184
-
4,471
2.34
After 5 to 10 years
200,216
-
19,255
-
180,961
1.48
After 10 years
1,133,339
-
203,768
-
929,571
1.37
1,338,210
-
223,207
-
1,115,003
1.39
Ginnie Mae (“GNMA”) certificates:
 
Due within one year
6
-
-
-
6
1.84
After 1 to 5 years
17,672
1
731
-
16,942
2.02
After 5 to 10 years
43,643
-
4,100
-
39,543
1.21
After 10 years
245,557
25
30,668
-
214,914
2.28
306,878
26
35,499
-
271,405
2.11
 
Fannie Mae (“FNMA”) certificates:
Due within one year
14,565
110
-
-
14,675
3.01
After 1 to 5 years
10,514
-
531
-
9,983
1.76
After 5 to 10 years
406,597
-
40,958
-
365,639
1.64
After 10 years
1,230,573
161
204,452
-
1,026,282
1.37
 
1,662,249
271
245,941
-
1,416,579
1.45
Collateralized mortgage obligations issued or guaranteed
by the FHLMC, FNMA and GNMA ("CMOs"):
`
After 1 to 5 years
32,101
-
4,225
-
27,876
2.09
After 10 years
433,302
-
78,616
-
354,686
1.36
465,403
-
82,841
-
382,562
1.41
Private label:
After 10 years
8,611
-
2,151
290
6,170
5.93
Total MBS
3,781,351
297
589,639
290
3,191,719
1.49
Other
Due within one year
500
-
-
-
500
0.84
Total available-for-sale debt securities
$
6,527,684
$
398
$
858,729
$
664
$
5,668,689
1.21
(1)
Excludes accrued interest receivable on available-for-sale debt securities that totaled $
10.9
 
million as of September 30, 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.
(2)
Consists of a residential
 
pass-through MBS issued by the
 
Puerto Rico Housing Finance Authority
 
(“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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15
The
 
amortized
 
cost,
 
gross
 
unrealized
 
gains
 
and
 
losses
 
recorded
 
in
 
other
 
comprehensive
 
loss,
 
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 Unrealized
ACL
Fair value
Weighted-
Gains
Losses
average yield%
(Dollars in thousands)
U.S. Treasury securities:
After 1 to 5 years
$
149,660
$
59
$
1,233
$
-
$
148,486
0.68
U.S. government-sponsored agencies' obligations:
After 1 to 5 years
1,877,181
240
29,555
-
1,847,866
0.60
After 5 to 10 years
403,785
175
10,856
-
393,104
0.90
After 10 years
15,788
224
-
-
16,012
0.63
Puerto Rico government obligations:
After 10 years
(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, 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.
(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 this delinquency status of the underlying second mortgage loans collateral.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
16
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 September 30, 2022 and December 31, 2021. The tables also include debt
 
securities for which an ACL was recorded.
As of September 30, 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. government agenciesʼ
obligations
$
379,287
$
25,696
$
2,072,728
$
242,596
$
2,452,015
$
268,292
Puerto Rico-government obligations
-
-
2,193
798
(1)
2,193
798
MBS:
FHLMC
342,188
61,298
772,815
161,909
1,115,003
223,207
GNMA
177,448
15,418
91,617
20,081
269,065
35,499
FNMA
484,050
65,795
907,828
180,146
1,391,878
245,941
CMOs
71,518
9,260
311,044
73,581
382,562
82,841
Private label
-
-
6,170
2,151
(1)
6,170
2,151
$
1,454,491
$
177,467
$
4,164,395
$
681,262
$
5,618,886
$
858,729
(1)
Unrealized losses do not include the credit loss component recorded
 
as part of the ACL. As of September 30, 2022, PRHFA
 
bond and private label MBS had an ACL of $
0.4
 
million and
$
0.3
 
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. government agenciesʼ
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.
 
 
 
 
 
 
 
 
 
 
 
 
17
Assessment for Credit Losses
Debt
 
securities
 
issued
 
by
 
U.S.
 
government
 
agencies,
 
U.S.
 
government-sponsored
 
entities
 
(“GSEs”),
 
and
 
the
 
U.S.
 
Treasury,
including
 
notes
 
and
 
MBS, accounted
 
for
 
substantially
 
all of
 
the
 
total
 
available-for-sale
 
portfolio
 
as of
 
September
 
30, 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 September 30,
 
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
 
$
6.2
 
million,
 
which
 
had
unrealized losses
 
of approximately
 
$
2.4
 
million as
 
of September
 
30, 2022,
 
of which
 
$
0.3
 
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 September 30, 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
probability of
 
default (“PDs”)
 
and loss
 
given default
 
(“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 approac
 
h, 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
September 30, 2022
December 31, 2021
Weighted
 
Range
Weighted
 
Range
Average
Minimum
Maximum
Average
Minimum
Maximum
Discount rate
16.4%
16.4%
16.4%
12.9%
12.9%
12.9%
Prepayment rate
12.6%
1.9%
17.4%
15.2%
7.6%
24.9%
Projected Cumulative Loss Rate
6.9%
0.2%
17.3%
7.6%
0.2%
15.7%
18
The Corporation
 
evaluates if
 
a credit
 
loss exists,
 
primarily
 
by monitoring
 
adverse variances
 
in the
 
present value
 
of expected
 
cash
flows. As
 
of September
 
30, 2022,
 
the ACL
 
for these
 
private label
 
MBS was
 
$
0.3
 
million, compared
 
to $
0.8
 
million as
 
of December
31, 2021.
 
As
 
of
 
September
 
30,
 
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
 
$
1.2
 
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 September
 
30, 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19
The
 
following
 
tables
 
present a
 
roll-forward
 
by major
 
security type
 
for
 
the quarters
 
and nine
 
-month
 
periods
 
ended September
 
30,
2022 and 2021 of the ACL on available-for-sale debt
 
securities:
Quarter Ended September 30, 2022
Private label MBS
Puerto Rico
 
Government Obligations
Total
(In thousands)
Beginning Balance
$
290
$
386
$
676
Provision for credit losses - (benefit)
-
(12)
(12)
ACL on available-for-sale debt securities
$
290
$
374
$
664
Quarter Ended September 30, 2021
Private label MBS
Puerto Rico Government
Obligations
Total
(In thousands)
Beginning Balance
$
858
$
308
$
1,166
Provision for credit losses - (benefit)
(9)
-
(9)
ACL on available-for-sale debt securities
$
849
$
308
$
1,157
Nine-Month Period Ended September 30, 2022
Private label MBS
Puerto Rico
 
Government Obligations
Total
(In thousands)
Beginning Balance
$
797
$
308
$
1,105
Provision for credit losses - (benefit) expense
(501)
66
(435)
Net charge-offs
(6)
-
(6)
ACL on available-for-sale debt securities
$
290
$
374
$
664
Nine-Month Period Ended September 30, 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
(17)
-
(17)
ACL on available-for-sale debt securities
$
849
$
308
$
1,157
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
20
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 September 30, 2022
 
and December 31, 2021 were as follows:
 
September 30, 2022
Amortized cost
(1)
Gross Unrecognized
Fair value
ACL
Weighted-
average yield%
Gains
Losses
(Dollars in thousands)
Puerto Rico municipal bonds:
 
Due within one year
$
1,200
$
-
$
24
$
1,176
$
4
4.49
 
After 1 to 5 years
42,426
694
2,457
40,663
704
5.51
 
After 5 to 10 years
55,737
2,451
1,599
56,589
3,295
4.82
 
After 10 years
66,023
-
3,473
62,550
4,254
5.63
Total Puerto Rico municipal bonds
165,386
3,145
7,553
160,978
8,257
5.32
MBS:
FHLMC certificates:
 
After 5 to 10 years
$
22,850
$
-
$
1,071
$
21,779
$
-
3.03
 
After 10 years
19,662
-
1,060
18,602
-
4.14
42,512
-
2,131
40,381
-
3.55
GNMA certificates:
 
After 10 years
19,978
-
1,157
18,821
-
3.31
FNMA certificates:
 
After 1 to 5 years
9,664
-
390
9,274
-
3.48
 
After 10 years
73,764
-
3,883
69,881
-
4.12
83,428
-
4,273
79,155
-
4.04
CMOs
 
After 10 years
134,558
-
4,363
130,195
-
3.25
Total MBS
280,476
-
11,924
268,552
-
3.53
Total held-to-maturity debt securities
$
445,862
$
3,145
$
19,477
$
429,530
$
8,257
4.20
(1)
Excludes accrued interest receivable on held-to-maturity debt securities that totaled $
2.8
 
million as of September 30, 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
ACL
Weighted-
average yield%
Gains
Losses
(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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
21
During the nine-month period
 
ended September 30, 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 unre
 
cognized losses, aggregated
by
 
category
 
and
 
length
 
of
 
time
 
that
 
individual
 
securities
 
had
 
been
 
in
 
a
 
continuous
 
unrecognized
 
loss
 
position,
 
as
 
of
 
September
 
30,
2022 and December 31, 2021, including debt securities for which an ACL was recorded:
As of September 30, 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
$
-
$
-
$
121,440
$
7,553
$
121,440
$
7,553
 
MBS:
 
FHLMC certificates
40,381
2,131
-
-
40,381
2,131
 
GNMA certificates
18,821
1,157
-
-
18,821
1,157
 
FNMA certificates
79,155
4,273
-
-
79,155
4,273
 
CMOs
130,195
4,363
-
-
130,195
4,363
Total held-to-maturity
 
debt securities
$
268,552
$
11,924
$
121,440
$
7,553
$
389,992
$
19,477
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
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
 
September 30,
 
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
 
in
 
the
 
audited
 
consolidated
 
financial
statements included in the 2021
 
Annual Report on Form 10-K.
The
 
Corporation
 
performs
 
periodic
 
credit
 
quality
 
reviews
 
on
 
these
 
issuers.
 
All
 
Puerto
 
Rico
 
municipal
 
bonds
 
were
 
current
 
as
 
to
scheduled
 
contractual
 
payments
 
as
 
of
 
September
 
30,
 
2022.
 
The
 
Puerto
 
Rico
 
municipal
 
bonds
 
had
 
an
 
ACL
 
of
 
$
8.3
 
million
 
as
 
of
September 30,
 
2022, a
 
$
0.3
 
million decrease
 
from $
8.6
 
million as
 
of December
 
31, 2021,
 
mostly related
 
to a
 
reduction in
 
qualitative
reserves driven by updated financial information received during the
 
third quarter of 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22
The following tables
 
present the activity
 
in the ACL for
 
held-to-maturity debt
 
securities by major
 
security type for
 
the quarters and
nine-month periods ended September 30, 2022 and 2021:
 
Puerto Rico Municipal Bonds
Quarter Ended September 30,
2022
Quarter Ended September 30,
2021
(In thousands)
Beginning Balance
$
8,885
$
10,685
Provision for credit losses - (benefit)
(628)
(2,368)
ACL on held-to-maturity debt securities
$
8,257
$
8,317
Puerto Rico Municipal Bonds
Nine-Month Period Ended
Nine-Month Period Ended
September 30, 2022
September 30, 2021
(In thousands)
Beginning Balance
$
8,571
$
8,845
Provision for credit losses - (benefit)
(314)
(528)
ACL on held-to-maturity debt securities
$
8,257
$
8,317
During
 
the
 
second
 
quarter
 
of
 
2019,
 
the
 
oversight
 
board
 
established
 
by
 
the
 
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
 
the
 
COVID-19
 
pandemic
 
on
 
municipalities,
 
the
Corporation cannot be certain whether future charges
 
to the ACL on these securities will be required.
 
From
 
time
 
to
 
time,
 
the
 
Corporation
 
has
 
securities
 
held
 
to
 
maturity
 
with
 
an
 
original
 
maturity
 
of
 
three
 
months
 
or
 
less
 
that
 
are
considered
 
cash
 
and
 
cash
 
equivalents
 
and
 
are
 
classified
 
as
 
money
 
market
 
investments
 
in
 
the
 
consolidated
 
statements
 
of
 
financial
condition.
 
As
 
of
 
September
 
30,
 
2022
 
and
 
December
 
31,
 
2021,
 
the
 
Corporation
 
had
 
no outstanding
 
securities
 
held
 
to
 
maturity
 
that
were classified as cash and cash equivalents.
 
23
Credit Quality Indicators:
 
The held-to-maturity debt securities
 
portfolio consisted of GSE’s
 
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.
 
For
 
the
 
definitions
 
of
 
the
 
internal
 
credit-risk
 
ratings,
 
refer
 
to
 
Note
 
5
 
–
 
Investment
Securities included in the 2021 Annual Report on Form 10-K.
The Corporation
 
periodically reviews
 
its Puerto
 
Rico municipal
 
bonds to
 
evaluate if
 
they are
 
properly classified,
 
and to
 
determine
impairment, if
 
any.
 
The frequency
 
of these
 
reviews will
 
depend on
 
the amount
 
of the
 
aggregate outstanding
 
debt, and
 
the risk
 
rating
classification of the obligor.
The
 
Corporation
 
has
 
a
 
Loan
 
Review
 
Group
 
that
 
reports
 
directly
 
to
 
the
 
Corporation’s
 
Risk
 
Management
 
Committee
 
and
administratively
 
to
 
the
 
Chief
 
Risk
 
Officer.
 
The
 
Loan
 
Review
 
Group
 
performs
 
annual
 
comprehensive
 
credit
 
process
 
reviews
 
of
 
the
Bank’s
 
commercial
 
loan
 
portfolios,
 
including
 
the
 
above-mentioned
 
Puerto
 
Rico
 
municipal
 
bonds
 
accounted
 
for
 
as
 
held-to-maturity
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 September 30, 2022 and December 31, 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 September
 
30,
2022 and
 
December 31,
 
2021. A security
 
is considered
 
to be past
 
due once
 
it is
30
 
days contractually
 
past due under
 
the terms of
 
the
agreement.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24
NOTE 3 – LOANS HELD FOR INVESTMENT
 
The
 
following table
 
provides information
 
about the
 
loan
 
portfolio held
 
for
 
investment by
 
portfolio segment
 
and
 
disaggregated by
geographic location
 
as of the indicated
 
dates:
 
As of September 30, 2022
As of December 31, 2021
(In thousands)
Puerto Rico and Virgin Island region:
Residential mortgage loans, mainly secured by first mortgages
$
2,415,232
$
2,549,573
Construction loans
27,716
43,133
Commercial mortgage loans
 
1,754,447
1,702,231
Commercial and Industrial ("C&I") loans
1,842,166
1,946,597
Consumer loans
3,208,437
2,872,384
Loans held for investment
9,247,998
9,113,918
Florida region:
Residential mortgage loans, mainly secured by first mortgages
$
415,742
$
429,322
Construction loans
96,278
95,866
Commercial mortgage loans
 
511,167
465,238
C&I loans
1,016,120
940,654
Consumer loans
11,313
15,660
Loans held for investment
2,050,620
1,946,740
Total:
Residential mortgage loans, mainly secured by first mortgages
$
2,830,974
$
2,978,895
Construction loans
123,994
138,999
Commercial mortgage loans
 
2,265,614
2,167,469
C&I loans
(1)
2,858,286
2,887,251
Consumer loans
3,219,750
2,888,044
Loans held for investment
(2)
$
11,298,618
$
11,060,658
(1)
As of September 30, 2022 and December 31, 2021, includes
 
$
870.3
 
million and $
952.1
 
million, respectively, of commercial loans that were secured by real estate
but were not dependent upon the real estate for repayment.
(2)
Includes accretable fair value net purchase discounts of $
30.7
 
million and $
35.3
 
million as of September 30, 2022 and December 31, 2021,
 
respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
25
The
 
Corporation’s
 
aging
 
of
 
the
 
loan
 
portfolio
 
held
 
for
 
investment
 
by
 
portfolio
 
classes
 
and
 
nonaccrual
 
loans
 
with
 
no
 
ACL
 
as
 
of
September 30, 2022 and December 31, 2021 are as follows:
As of September 30, 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)
$
67,095
$
-
$
2,824
$
49,044
$
-
$
118,963
$
-
Conventional residential mortgage loans
(2) (7)
2,621,897
-
29,012
18,066
43,036
2,712,011
3,412
Commercial loans:
Construction loans
121,757
-
-
-
2,237
123,994
976
Commercial mortgage loans
(2) (7)
2,238,580
1,415
417
1,461
23,741
2,265,614
15,699
 
C&I loans
2,827,076
4,463
1,943
9,089
15,715
2,858,286
10,854
Consumer loans:
Auto loans
1,695,594
41,935
8,068
-
8,703
1,754,300
2,054
Finance leases
659,097
7,033
1,554
-
1,430
669,114
216
Personal loans
341,220
3,852
1,884
-
1,146
348,102
-
Credit cards
293,555
4,212
2,320
3,985
-
304,072
-
Other consumer loans
139,621
1,779
1,254
-
1,508
144,162
-
Total loans held for investment
$
11,005,492
$
64,689
$
49,276
$
81,645
$
97,516
$
11,298,618
$
33,211
(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 $
31.0
 
million of residential mortgage loans guaranteed by the FHA that were
 
over 15 months delinquent.
(2)
Includes purchased credit deteriorated ("PCD") loans previously accounted
 
for under Accounting Standard Codification ("ASC") Subtopic
 
310-30, "Loans and Debt Securities Acquired
with Deteriorated Credit Quality" ("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 $
12.8
 
million as of September 30, 2022 ($
11.8
 
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 $
8.0
 
million as of September 30, 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 $
6.5
 
million as of September 30, 2022, primarily nonaccrual residential
 
mortgage loans.
(5)
Nonaccrual loans exclude $
340.1
 
million of TDR loans that were in compliance with modified terms
 
and in accrual status as of September 30, 2022.
(6)
Includes $
0.6
 
million of nonaccrual C&I loans with no ACL in the Florida region
 
as of September 30, 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 September 30, 2022 amounted to $
6.0
 
million, $
71.7
 
million, and $
1.9
 
million, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26
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 $
0.5
 
million and $
1.2
 
million for the
 
quarter and nine-month
 
period ended September
 
30, 2022, respectively
 
($
0.4
 
million and
$
1.7
 
million for
 
the quarter
 
and nine-month
 
period ended
 
September 30,
 
2021, respectively).
 
For the
 
quarter and
 
nine-month
 
period
ended September
 
30, 2022, the
 
cash interest recognized
 
on nonaccrual
 
loans amounted
 
to $
0.3
 
million and
 
$
1.0
 
million, respectively,
compared with $
0.4
 
million and $
1.7
 
million for the quarter and nine-month period ended September 30, 2021, respectively.
As of
 
September 30,
 
2022, the
 
recorded investment
 
on residential
 
mortgage loans
 
collateralized by
 
residential real
 
estate property
that
 
were
 
in
 
the
 
process
 
of
 
foreclosure
 
amounted
 
to
 
$
76.1
 
million,
 
including
 
$
32.6
 
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, in accordance
 
with
the
 
requirements
 
of
 
the
 
Consumer
 
Financial
 
Protection
 
Bureau
 
(“CFPB”).
 
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,
 
commercial
and industrial,
 
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 5 – Investment Securities, in the 2021
 
Annual Report on Form 10-K.
For residential mortgage and consumer loans, the Corporation also evaluates credit
 
quality based on its interest accrual status.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
27
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
 
September
 
30,
 
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 September 30, 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
$
8,853
$
11,978
$
-
$
-
$
-
$
3,958
$
-
$
24,789
$
38,066
Criticized:
Special Mention
-
-
-
-
-
-
-
-
765
Substandard
-
-
-
-
-
2,927
-
2,927
4,302
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total construction loans
$
8,853
$
11,978
$
-
$
-
$
-
$
6,885
$
-
$
27,716
$
43,133
COMMERCIAL MORTGAGE
Risk Ratings:
Pass
$
241,870
$
150,940
$
365,144
$
222,211
$
179,280
$
308,966
$
232
$
1,468,643
$
1,395,569
Criticized:
Special Mention
1,218
-
3,611
83,664
30,832
130,324
-
249,649
259,263
Substandard
138
-
-
2,927
761
32,329
-
36,155
47,399
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total commercial mortgage loans
$
243,226
$
150,940
$
368,755
$
308,802
$
210,873
$
471,619
$
232
$
1,754,447
$
1,702,231
COMMERCIAL AND INDUSTRIAL
Risk Ratings:
Pass
$
116,025
$
200,628
$
189,639
$
324,443
$
126,946
$
258,087
$
541,962
$
1,757,730
$
1,852,552
Criticized:
Special Mention
145
-
-
-
236
2,652
24,830
27,863
32,650
Substandard
65
4,093
1,360
14,113
1,958
33,310
1,674
56,573
61,395
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total commercial and industrial loans
$
116,235
$
204,721
$
190,999
$
338,556
$
129,140
$
294,049
$
568,466
$
1,842,166
$
1,946,597
(1) Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
28
As of September 30, 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
$
46,944
$
45,284
$
-
$
14
$
-
$
-
$
4,036
$
96,278
$
95,866
Criticized:
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total construction loans
$
46,944
$
45,284
$
-
$
14
$
-
$
-
$
4,036
$
96,278
$
95,866
COMMERCIAL MORTGAGE
Risk Ratings:
Pass
$
157,109
$
70,922
$
42,997
$
55,184
$
72,273
$
71,565
$
19,232
$
489,282
$
404,304
Criticized:
Special Mention
-
-
7,024
13,384
-
-
-
20,408
60,618
Substandard
-
-
1,168
-
-
309
-
1,477
316
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total commercial mortgage loans
$
157,109
$
70,922
$
51,189
$
68,568
$
72,273
$
71,874
$
19,232
$
511,167
$
465,238
COMMERCIAL AND INDUSTRIAL
Risk Ratings:
Pass
$
255,508
$
169,329
$
82,074
$
224,772
$
67,508
$
45,828
$
96,639
$
941,658
$
826,823
Criticized:
Special Mention
-
-
-
5,972
-
12,185
-
18,157
49,946
Substandard
-
-
24,193
27,456
-
4,356
300
56,305
63,885
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total commercial and industrial loans
$
255,508
$
169,329
$
106,267
$
258,200
$
67,508
$
62,369
$
96,939
$
1,016,120
$
940,654
(1) Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
29
As of September 30, 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
$
55,797
$
57,262
$
-
$
14
$
-
$
3,958
$
4,036
$
121,067
$
133,932
Criticized:
Special Mention
-
-
-
-
-
-
-
-
765
Substandard
-
-
-
-
-
2,927
-
2,927
4,302
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total construction loans
$
55,797
$
57,262
$
-
$
14
$
-
$
6,885
$
4,036
$
123,994
$
138,999
COMMERCIAL MORTGAGE
Risk Ratings:
Pass
$
398,979
$
221,862
$
408,141
$
277,395
$
251,553
$
380,531
$
19,464
$
1,957,925
$
1,799,873
Criticized:
Special Mention
1,218
-
10,635
97,048
30,832
130,324
-
270,057
319,881
Substandard
138
-
1,168
2,927
761
32,638
-
37,632
47,715
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total commercial mortgage loans
$
400,335
$
221,862
$
419,944
$
377,370
$
283,146
$
543,493
$
19,464
$
2,265,614
$
2,167,469
COMMERCIAL AND INDUSTRIAL
Risk Ratings:
Pass
$
371,533
$
369,957
$
271,713
$
549,215
$
194,454
$
303,915
$
638,601
$
2,699,388
$
2,679,375
Criticized:
Special Mention
145
-
-
5,972
236
14,837
24,830
46,020
82,596
Substandard
65
4,093
25,553
41,569
1,958
37,666
1,974
112,878
125,280
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total commercial and industrial loans
$
371,743
$
374,050
$
297,266
$
596,756
$
196,648
$
356,418
$
665,405
$
2,858,286
$
2,887,251
(1) Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30
 
The
 
following
 
tables
 
present
 
the
 
amortized
 
cost
 
of
 
residential
 
mortgage
 
loans
 
by
 
origination
 
year
 
based
 
on
 
accrual
 
status
 
as
 
of
September 30, 2022, and the amortized cost of residential mortgage loans by
 
accrual status as of December 31, 2021:
As of September 30, 2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
(In thousands)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
Puerto Rico and Virgin Islands Region:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
705
$
323
$
828
$
1,291
$
3,871
$
111,199
$
-
$
118,217
$
124,652
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
 
government-guaranteed loans
$
705
$
323
$
828
$
1,291
$
3,871
$
111,199
$
-
$
118,217
$
124,652
Conventional residential mortgage loans:
Accrual Status:
Performing
$
113,963
$
77,357
$
32,059
$
49,797
$
73,631
$
1,912,690
$
-
$
2,259,497
$
2,376,946
Non-Performing
-
35
-
113
279
37,091
-
37,518
47,975
Total conventional residential mortgage loans
$
113,963
$
77,392
$
32,059
$
49,910
$
73,910
$
1,949,781
$
-
$
2,297,015
$
2,424,921
Total:
Accrual Status:
Performing
$
114,668
$
77,680
$
32,887
$
51,088
$
77,502
$
2,023,889
$
-
$
2,377,714
$
2,501,598
Non-Performing
-
35
-
113
279
37,091
-
37,518
47,975
Total residential mortgage loans in Puerto Rico
and Virgin Islands Region
$
114,668
$
77,715
$
32,887
$
51,201
$
77,781
$
2,060,980
$
-
$
2,415,232
$
2,549,573
(1)
Excludes accrued interest receivable.
As of September 30, 2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
(In thousands)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
Florida Region:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
746
$
-
$
746
$
740
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
 
government-guaranteed loans
$
-
$
-
$
-
$
-
$
-
$
746
$
-
$
746
$
740
Conventional residential mortgage loans:
Accrual Status:
Performing
$
58,261
$
50,307
$
32,160
$
33,150
$
38,744
$
196,856
$
-
$
409,478
$
421,430
Non-Performing
-
-
-
274
-
5,244
-
5,518
7,152
Total conventional residential mortgage loans
$
58,261
$
50,307
$
32,160
$
33,424
$
38,744
$
202,100
$
-
$
414,996
$
428,582
Total:
Accrual Status:
Performing
$
58,261
$
50,307
$
32,160
$
33,150
$
38,744
$
197,602
$
-
$
410,224
$
422,170
Non-Performing
-
-
-
274
-
5,244
-
5,518
7,152
Total residential mortgage loans in Florida region
$
58,261
$
50,307
$
32,160
$
33,424
$
38,744
$
202,846
$
-
$
415,742
$
429,322
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31
As of September 30, 2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
(In thousands)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
Total:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
705
$
323
$
828
$
1,291
$
3,871
$
111,945
$
-
$
118,963
$
125,392
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
 
government-guaranteed loans
$
705
$
323
$
828
$
1,291
$
3,871
$
111,945
$
-
$
118,963
$
125,392
Conventional residential mortgage loans:
Accrual Status:
Performing
$
172,224
$
127,664
$
64,219
$
82,947
$
112,375
$
2,109,546
$
-
$
2,668,975
$
2,798,376
Non-Performing
-
35
-
387
279
42,335
-
43,036
55,127
Total conventional residential mortgage loans
$
172,224
$
127,699
$
64,219
$
83,334
$
112,654
$
2,151,881
$
-
$
2,712,011
$
2,853,503
Total:
Accrual Status:
Performing
$
172,929
$
127,987
$
65,047
$
84,238
$
116,246
$
2,221,491
$
-
$
2,787,938
$
2,923,768
Non-Performing
-
35
-
387
279
42,335
-
43,036
55,127
Total residential mortgage loans
$
172,929
$
128,022
$
65,047
$
84,625
$
116,525
$
2,263,826
$
-
$
2,830,974
$
2,978,895
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
32
 
The following tables
 
present the amortized
 
cost of consumer
 
loans by origination
 
year based on
 
accrual status as
 
of September 30,
2022 and the amortized cost of consumer loans by accrual status as of December 31,
 
2021:
As of September 30, 2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
(In thousands)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
Puerto Rico and Virgin Islands Region:
Auto loans:
Accrual Status:
Performing
$
530,902
$
544,149
$
275,432
$
227,501
$
112,215
$
50,723
$
-
$
1,740,922
$
1,556,097
Non-Performing
552
1,656
1,353
2,408
1,414
1,308
-
8,691
6,684
Total auto loans
$
531,454
$
545,805
$
276,785
$
229,909
$
113,629
$
52,031
$
-
$
1,749,613
$
1,562,781
Finance leases:
Accrual Status:
Performing
$
212,139
$
200,819
$
94,148
$
88,244
$
54,392
$
17,942
$
-
$
667,684
$
574,139
Non-Performing
39
298
321
248
204
320
-
1,430
866
Total finance leases
$
212,178
$
201,117
$
94,469
$
88,492
$
54,596
$
18,262
$
-
$
669,114
$
575,005
Personal loans:
Accrual Status:
Performing
$
141,759
$
63,308
$
33,960
$
62,696
$
27,401
$
17,474
$
-
$
346,598
$
314,867
Non-Performing
87
281
192
381
81
124
-
1,146
1,208
Total personal loans
$
141,846
$
63,589
$
34,152
$
63,077
$
27,482
$
17,598
$
-
$
347,744
$
316,075
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
304,072
$
304,072
$
290,226
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
304,072
$
304,072
$
290,226
Other consumer loans:
Accrual Status:
Performing
$
65,494
$
27,107
$
10,670
$
14,597
$
4,983
$
4,672
$
8,985
$
136,508
$
126,734
Non-Performing
218
364
88
184
61
335
136
1,386
1,563
Total other consumer loans
$
65,712
$
27,471
$
10,758
$
14,781
$
5,044
$
5,007
$
9,121
$
137,894
$
128,297
Total:
Performing
$
950,294
$
835,383
$
414,210
$
393,038
$
198,991
$
90,811
$
313,057
$
3,195,784
$
2,862,063
Non-Performing
896
2,599
1,954
3,221
1,760
2,087
136
12,653
10,321
Total consumer loans in Puerto Rico and Virgin
Islands region
$
951,190
$
837,982
$
416,164
$
396,259
$
200,751
$
92,898
$
313,193
$
3,208,437
$
2,872,384
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
33
As of September 30, 2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
(In thousands)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
Florida Region:
Auto loans:
Accrual Status:
Performing
$
-
$
-
$
-
$
377
$
2,830
$
1,468
$
-
$
4,675
$
8,759
Non-Performing
-
-
-
-
-
12
-
12
-
Total auto loans
$
-
$
-
$
-
$
377
$
2,830
$
1,480
$
-
$
4,687
$
8,759
Finance leases:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total finance leases
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Personal loans:
Accrual Status:
Performing
$
274
$
71
$
13
$
-
$
-
$
-
$
-
$
358
$
107
Non-Performing
-
-
-
-
-
-
-
-
-
Total personal loans
$
274
$
71
$
13
$
-
$
-
$
-
$
-
$
358
$
107
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Other consumer loans:
Accrual Status:
Performing
$
50
$
233
$
469
$
-
$
39
$
2,929
$
2,426
$
6,146
$
6,661
Non-Performing
-
-
-
-
-
22
100
122
133
Total other consumer loans
$
50
$
233
$
469
$
-
$
39
$
2,951
$
2,526
$
6,268
$
6,794
Total:
Performing
$
324
$
304
$
482
$
377
$
2,869
$
4,397
$
2,426
$
11,179
$
15,527
Non-Performing
-
-
-
-
-
34
100
134
133
Total consumer loans in Florida region
$
324
$
304
$
482
$
377
$
2,869
$
4,431
$
2,526
$
11,313
$
15,660
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
34
As of September 30, 2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
(In thousands)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
Total:
Auto loans:
Accrual Status:
Performing
$
530,902
$
544,149
$
275,432
$
227,878
$
115,045
$
52,191
$
-
$
1,745,597
$
1,564,856
Non-Performing
552
1,656
1,353
2,408
1,414
1,320
-
8,703
6,684
Total auto loans
$
531,454
$
545,805
$
276,785
$
230,286
$
116,459
$
53,511
$
-
$
1,754,300
$
1,571,540
Finance leases:
Accrual Status:
Performing
$
212,139
$
200,819
$
94,148
$
88,244
$
54,392
$
17,942
$
-
$
667,684
$
574,139
Non-Performing
39
298
321
248
204
320
-
1,430
866
Total finance leases
$
212,178
$
201,117
$
94,469
$
88,492
$
54,596
$
18,262
$
-
$
669,114
$
575,005
Personal loans:
Accrual Status:
Performing
$
142,033
$
63,379
$
33,973
$
62,696
$
27,401
$
17,474
$
-
$
346,956
$
314,974
Non-Performing
87
281
192
381
81
124
-
1,146
1,208
Total personal loans
$
142,120
$
63,660
$
34,165
$
63,077
$
27,482
$
17,598
$
-
$
348,102
$
316,182
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
304,072
$
304,072
$
290,226
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
304,072
$
304,072
$
290,226
Other consumer loans:
Accrual Status:
Performing
$
65,544
$
27,340
$
11,139
$
14,597
$
5,022
$
7,601
$
11,411
$
142,654
$
133,395
Non-Performing
218
364
88
184
61
357
236
1,508
1,696
Total other consumer loans
$
65,762
$
27,704
$
11,227
$
14,781
$
5,083
$
7,958
$
11,647
$
144,162
$
135,091
Total:
Performing
$
950,618
$
835,687
$
414,692
$
393,415
$
201,860
$
95,208
$
315,483
$
3,206,963
$
2,877,590
Non-Performing
896
2,599
1,954
3,221
1,760
2,121
236
12,787
10,454
Total consumer loans
$
951,514
$
838,286
$
416,646
$
396,636
$
203,620
$
97,329
$
315,719
$
3,219,750
$
2,888,044
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35
Accrued interest
 
receivable on
 
loans totaled
 
$
47.4
 
million as of
 
September 30,
 
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.
The
 
following
 
tables
 
present
 
information
 
about
 
collateral
 
dependent
 
loans
 
that
 
were
 
individually
 
evaluated
 
for
 
purposes
 
of
determining the ACL as of September 30, 2022 and December 31, 2021:
 
September 30, 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:
FHA/VA government
 
-guaranteed loans
$
-
$
-
$
-
$
-
$
-
Conventional residential mortgage loans
38,898
2,706
592
39,490
2,706
Commercial loans:
Construction loans
-
-
956
956
-
Commercial mortgage loans
3,070
933
62,366
65,436
933
C&I loans
17,695
2,788
19,940
37,635
2,788
Consumer loans:
Auto loans
-
-
-
-
-
Finance leases
-
-
-
-
-
Personal loans
57
1
-
57
1
Credit cards
-
-
-
-
-
Other consumer loans
280
34
-
280
34
$
60,000
$
6,462
$
83,854
$
143,854
$
6,462
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:
FHA/VA government
 
-guaranteed loans
$
-
$
-
$
-
$
-
$
-
Conventional residential mortgage loans
51,771
3,966
781
52,552
3,966
Commercial loans:
Construction loans
-
-
1,797
1,797
-
Commercial mortgage loans
9,908
1,152
56,361
66,269
1,152
C&I loans
5,781
670
34,043
39,824
670
Consumer loans:
Auto loans
-
-
-
-
-
Finance leases
-
-
-
-
-
Personal loans
78
1
-
78
1
Credit cards
-
-
-
-
-
Other consumer loans
782
98
-
782
98
$
68,320
$
5,887
$
92,982
$
161,302
$
5,887
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
 
September 30, 2022
 
was
76
%, compared to
78
% as of
 
December 31, 2021,
 
which
was not considered a significant change in the extent to which collateral secured
 
these loans.
36
Purchases and Sales of Loans
During
 
the
 
first
 
nine
 
months
 
of
 
2022,
 
loans
 
pooled
 
into
 
GNMA
 
MBS
 
amounted
 
to
 
approximately
 
$
115.7
 
million,
 
compared
 
to
$
147.4
 
million
 
for
 
the
 
same
 
period
 
in
 
2021.
 
Also,
 
during
 
the
 
first
 
nine
 
months
 
of
 
2022,
 
the
 
Corporation
 
sold
 
approximately
 
$
90.8
million
 
of
 
performing
 
residential
 
mortgage
 
loans
 
to
 
FNMA
 
and
 
FHLMC,
 
compared
 
to
 
sales of
 
$
259.6
 
million
 
during
 
the
 
first
 
nine
months
 
of
 
2021.
 
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 September
 
30, 2022 and
 
December 31, 2021,
 
rebooked GNMA delinquent
 
loans
that were included in the residential mortgage loan portfolio amounted
 
to $
8.1
 
million and $
7.2
 
million, respectively.
 
In addition,
 
on
 
September 29,
 
2022,
 
GNMA expanded
 
the criteria
 
to permit
 
issuers to
 
repurchase
 
loans of
 
borrowers
 
affected
 
by
Hurricane Fiona
 
that meet
 
the following
 
eligibility requirements:
 
(i) the
 
property securing
 
the loans
 
has been
 
damaged and
 
is located
within
 
a
 
designated
 
disaster
 
area;
 
and
 
(ii)
 
the
 
borrower
 
is
 
experiencing
 
economic
 
hardship
 
related
 
to
 
the
 
designated
 
disaster,
 
as
established by the
 
underlying insuring or
 
guaranteeing agency.
 
Issuers must request
 
and obtain prior
 
written approval from
 
GNMA to
repurchase eligible loans.
During
 
the
 
first
 
nine
 
months
 
of
 
2022
 
and
 
2021,
 
the
 
Corporation
 
repurchased,
 
pursuant
 
to
 
the
 
aforementioned
 
repurchase
 
option,
$
8.2
 
million and $
0.4
 
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.
Loan
 
sales
 
to
 
FNMA
 
and
 
FHLMC
 
are
 
without
 
recourse
 
in
 
relation
 
to
 
the
 
future
 
performance
 
of
 
the
 
loans.
 
The
 
Corporation
repurchased at par loans previously sold to FNMA and FHLMC in the amount
 
of $
0.3
 
million during the first nine months of 2022 and
2021. 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
 
first
 
nine
 
months
 
of
 
2022,
 
the
 
Corporations
 
sold
 
a
 
$
35.2
 
million
 
commercial
 
and
 
industrial
 
loan
 
participation
 
in
 
the
Puerto
 
Rico region.
 
Also, during
 
the first
 
nine
 
months of
 
2021,
 
three criticized
 
commercial loan
 
participations
 
in the
 
Florida
 
region
totaling $
28.0
 
million were
 
sold. In
 
addition, during
 
the first
 
nine months
 
of 2022
 
and 2021,
 
the Corporation
 
purchased commercial
and industrial loans participations in the Florida region totaling $
135.4
 
million and $
78.1
 
million, respectively.
During
 
the
 
third
 
quarter
 
of
 
2021,
 
the
 
Corporation
 
sold
 
$
52.5
 
million
 
of non-performing
 
residential
 
mortgage
 
loans
 
and
 
related
servicing
 
advances
 
of
 
$
2.0
 
million.
 
The
 
Corporation
 
received
 
$
31.5
 
million,
 
or
58
%
 
of
 
book
 
value
 
before
 
reserves,
 
for
 
the
$
54.5
 
million of non-performing
 
loans and related
 
servicing advances.
 
Approximately $
20.9
 
million of reserves
 
had been allocated
 
to
the loans
 
sold. The
 
transaction resulted
 
in total
 
net charge-offs
 
of $
23.1
 
million and
 
an additional
 
loss of
 
approximately $
2.1
 
million
recorded as a charge to the provision for credit losses in the third
 
quarter of 2021.
Loan Portfolio Concentration
The Corporation’s
 
primary lending
 
area is
 
Puerto Rico.
 
The Corporation’s
 
banking subsidiary,
 
FirstBank, also
 
lends in
 
the USVI
and BVI markets
 
and in the
 
United States (principally
 
in the state of
 
Florida). Of
 
the total gross
 
loans held for
 
investment portfolio
 
of
$
11.3
 
billion as
 
of September
 
30, 2022,
 
credit risk
 
concentration
 
was approximately
79
% in
 
Puerto Rico,
18
% in
 
the United
 
States,
and
3
% in the USVI and BVI.
As of
 
September
 
30,
 
2022,
 
the Corporation
 
had $
158.4
 
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
 
September
 
30,
 
2022,
approximately
 
$
89.9
 
million
 
consisted
 
of
 
loans
 
extended
 
to
 
municipalities
 
in
 
Puerto
 
Rico
 
that
 
are
 
general
 
obligations
 
supported
 
by
assigned
 
property
 
tax
 
revenues,
 
and
 
$
29.0
 
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
37
loans extended to
 
municipalities, the Corporation’s
 
exposure to the
 
Puerto Rico government
 
as of September
 
30, 2022 included
 
$
11.5
million in loans granted to an affiliate of
 
the Puerto Rico Electric Power Authority (“PREPA”)
 
and $
28.0
 
million in loans to an agency
of the Puerto Rico central government.
In
 
addition,
 
as
 
of
 
September
 
30,
 
2022,
 
the
 
Corporation
 
had
 
$
86.7
 
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, 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
 
September
 
30,
 
2022,
 
the
 
Corporation
 
had
 
$
37.6
million in loans
 
to USVI government
 
public corporations,
 
compared to $
39.2
 
million as of
 
December 31,
 
2021.
 
As of September
 
30,
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 September
 
30, 2022,
 
the Corporation’s
 
total TDR
 
loans held
 
for investment
 
amounted to
 
$
387.7
 
million, of
 
which $
340.1
 
million
were in accruing
 
status. See Note 8
 
– Loans Held for
 
Investment to the
 
consolidated financial statements
 
included in the
 
2021 Annual
Report on
 
Form 10-K,
 
for information
 
on when
 
the Corporation
 
classifies TDR
 
loans as
 
either accrual
 
or nonaccrual
 
loans. The
 
total
TDR loans held for investment
 
consisted of $
242.4
 
million of residential mortgage
 
loans, $
67.2
 
million of C&I loans, $
64.2
 
million of
commercial mortgage
 
loans, $
1.3
 
million of
 
construction loans,
 
and $
12.6
 
million of
 
consumer loans.
 
As of
 
September 30,
 
2022, the
Corporation
 
included
 
as
 
TDRs
 
$
1.6
 
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
 
$
54.8
 
million
 
as
 
of
 
September
 
30,
 
2022,
 
compared
 
with
 
$
57.6
 
million
 
as
 
of
December
 
31,
 
2021.
 
As
 
of
 
September
 
30,
 
2022,
 
the
 
Corporation
 
has
 
committed
 
to
 
lend
 
up
 
to
 
additional
 
$
16
 
thousand
 
on
 
TDR
consumer 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 not
 
to extend
 
beyond December
 
31, 2022,
 
for residents
 
of
Puerto Rico that were
 
directly impacted by
 
the passing of the hurricane.
 
This program provides payment
 
deferral or term extension
 
on
a one payment
 
basis, not to
 
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 and
opted-in based
 
on conditions
 
below.
 
Loans will
 
continue
 
to accrue
 
interest during
 
the deferral
 
or extension
 
period.
 
For credit
 
cards,
borrowers who
 
were 30
 
days past
 
due or
 
less as
 
of September
 
16, 2022
 
are eligible
 
for this
 
program. For
 
residential mortgage
 
loans
and consumer
 
loans, borrowers
 
who were
 
60 days
 
past due
 
or less
 
as of
 
September 16,
 
2022 are
 
eligible for
 
this program.
 
For both
consumer and residential mortgage loans subject to the deferral programs,
 
each borrower is required to opt in on a monthly basis to the
program
 
and
 
must
 
resume
 
making
 
their
 
regularly
 
scheduled
 
loan
 
payments
 
at
 
the
 
end
 
of
 
the
 
deferral
 
period.
 
For
 
consumer
 
loans,
deferred amounts
 
will extend
 
the maturity
 
date by
 
the number
 
of deferred
 
periods. For
 
residential mortgage
 
loans, deferred
 
amounts
will be
 
moved to
 
the end
 
of the
 
loan term.
 
Borrowers that
 
make a
 
payment during
 
any given
 
month are
 
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 will be frozen to the status that existed in the month previous
 
to the month in which the relief is granted.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38
Loans subject
 
to the above-described
 
program are not
 
considered TDRs since
 
the deferral or
 
extension is not
 
considered more than
insignificant.
 
Borrowers
 
were
 
eligible
 
to
 
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 October
31, 2022, the Corporation has entered into deferral or extension
 
payment agreements on
3,366
 
retail loans totaling $
63.6
 
million.
The
 
following
 
tables
 
present
 
TDR
 
loans
 
completed
 
during
 
the
 
quarters
 
and
 
nine-month
 
periods
 
ended
 
September
 
30,
 
2022
 
and
2021:
 
Quarter Ended September 30, 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)
TDRs:
Conventional residential mortgage loans
$
-
$
132
$
-
$
-
$
1,022
$
1,154
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
C&I loans
495
-
-
-
-
495
Consumer loans:
Auto loans
661
42
84
-
-
787
Finance leases
-
82
-
-
-
82
Personal loans
-
75
58
-
-
133
Credit cards
-
-
-
-
252
252
Other consumer loans
10
56
-
19
-
85
Total TDRs
$
1,166
$
387
$
142
$
19
$
1,274
$
2,988
(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.
Nine-Month Period Ended September 30, 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)
TDRs:
Conventional residential mortgage loans
$
215
$
1,484
$
190
$
-
$
3,709
$
5,598
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
245
5,178
-
467
5,890
C&I loans
895
-
-
825
1,083
2,803
Consumer loans:
Auto loans
2,120
126
264
-
-
2,510
Finance leases
-
451
-
-
18
469
Personal loans
99
135
84
-
-
318
Credit cards
-
-
-
-
647
647
Other consumer loans
93
188
-
37
-
318
Total TDRs
 
$
3,422
$
2,629
$
5,716
$
862
$
5,924
$
18,553
(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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
Quarter Ended September 30, 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)
TDRs:
Conventional residential mortgage loans
$
345
$
759
$
92
$
-
$
1,454
$
2,650
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
10,331
-
-
10,331
C&I loans
-
-
9,100
-
-
9,100
Consumer loans:
Auto loans
364
14
58
-
-
436
Finance leases
-
165
26
-
-
191
Personal loans
13
23
67
-
-
103
Credit cards
-
-
-
-
207
207
Other consumer loans
17
28
-
15
-
60
Total TDRs
$
739
$
989
$
19,674
$
15
$
1,661
$
23,078
(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.
Nine-Month Period Ended September 30, 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)
TDRs:
Conventional residential mortgage loans
$
365
$
759
$
1,605
$
-
$
2,718
$
5,447
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
10,586
-
442
11,028
C&I loans
-
300
9,100
-
171
9,571
Consumer loans:
Auto loans
1,372
309
196
-
-
1,877
Finance leases
-
526
26
-
-
552
Personal loans
13
52
263
-
8
336
Credit cards
-
-
-
-
1,171
1,171
Other consumer loans
105
68
-
61
-
234
Total TDRs
 
$
1,855
$
2,014
$
21,776
$
61
$
4,510
$
30,216
(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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
Quarter Ended September 30, 2022
Quarter Ended September 30, 2021
Number of
contracts
Pre-modification
Amortized Cost
Post-modification
Amortized Cost
Number of
contracts
Pre-modification
Amortized Cost
Post-modification
Amortized Cost
(Dollars in thousands)
TDRs:
Conventional residential mortgage loans
12
$
1,220
$
1,154
23
$
2,654
$
2,650
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
2
10,433
10,331
C&I loans
3
495
495
3
9,100
9,100
Consumer loans:
Auto loans
35
790
787
22
435
436
Finance leases
5
82
82
10
190
191
Personal loans
7
116
133
9
103
103
Credit Cards
50
251
252
40
207
207
Other consumer loans
29
83
85
14
59
60
Total TDRs
141
$
3,037
$
2,988
123
$
23,181
$
23,078
Nine-Month Period Ended September 30, 2022
Nine-Month Period Ended September 30, 2021
Number of
contracts
Pre-modification
Amortized Cost
Post-modification
Amortized Cost
Number of
contracts
Pre-modification
Amortized Cost
Post-modification
Amortized Cost
(Dollars in thousands)
TDRs:
Conventional residential mortgage loans
49
$
5,668
$
5,598
48
$
5,552
$
5,447
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
3
5,897
5,890
6
11,091
11,028
C&I loans
15
3,031
2,803
5
9,694
9,571
Consumer loans:
Auto loans
123
2,512
2,510
101
1,875
1,877
Finance leases
26
469
469
33
550
552
Personal loans
19
301
318
32
330
336
Credit Cards
139
646
647
203
1,171
1,171
Other consumer loans
77
311
318
55
233
234
Total TDRs
451
$
18,835
$
18,553
483
$
30,496
$
30,216
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
41
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
 
the
 
quarters
 
and
 
nine-month
 
periods
 
ended
 
September
 
30,
 
2022
 
and
 
2021,
 
and
 
had
become TDR loans during the 12-months preceding the default date, were
 
as follows:
Quarter Ended September 30, 2022
Quarter Ended September 30, 2021
Number of
contracts
Amortized Cost
Number of
contracts
Amortized Cost
(Dollars in thousands)
Conventional residential mortgage loans
1
$
50
2
$
126
Construction loans
-
-
-
-
Commercial mortgage loans
-
-
-
-
C&I loans
-
-
-
-
Consumer loans:
Auto loans
31
776
23
433
Finance leases
-
-
-
-
Personal loans
-
-
1
1
Credit cards
14
60
13
68
Other consumer loans
1
2
-
-
Total
47
$
888
39
$
628
Nine-Month Period Ended September
30, 2022
Nine-Month Period Ended September
30, 2021
Number of
contracts
Amortized Cost
Number of
contracts
Amortized Cost
(Dollars in thousands)
Conventional residential mortgage loans
5
$
534
4
$
304
Construction loans
-
-
-
-
Commercial mortgage loans
-
-
-
-
C&I loans
-
-
-
-
Consumer loans:
Auto loans
75
1,674
69
1,164
Finance leases
1
16
-
-
Personal loans
-
-
1
1
Credit cards
39
201
25
161
Other consumer loans
5
19
9
36
Total
125
$
2,444
108
$
1,666
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 the nine months ended September 30, 2022 and 2021, there were
 
no new Note A and B restructurings.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
42
NOTE 4 – ALLOWANCE
 
FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES
 
The following tables present the activity in the ACL for loans and finance leases by portfolio
 
segment for the indicated periods:
Residential
Mortgage Loans
Construction Loans
Commercial
Mortgage
Commercial &
Industrial Loans
Consumer Loans
Total
Quarter Ended September 30, 2022
(In thousands)
ACL:
Beginning balance
$
65,231
$
2,020
$
32,619
$
36,203
$
116,079
$
252,152
Provision for credit losses - expense (benefit)
755
(179)
(2,383)
(1,228)
17,387
14,352
Charge-offs
 
(1,466)
(63)
(3)
(8)
(12,522)
(14,062)
Recoveries
559
43
57
494
4,264
5,417
Ending balance
$
65,079
$
1,821
$
30,290
$
35,461
$
125,208
$
257,859
Residential
Mortgage Loans
Construction Loans
Commercial
Mortgage
Commercial &
Industrial Loans
Consumer Loans
Total
Nine-Month Period Ended September 30, 2022
(In thousands)
ACL:
Beginning balance
$
74,837
$
4,048
$
52,771
$
34,284
$
103,090
$
269,030
Provision for credit losses - (benefit) expense
(6,913)
(2,242)
(23,758)
(575)
43,516
10,028
Charge-offs
 
(6,073)
(123)
(42)
(366)
(32,765)
(39,369)
Recoveries
3,228
138
1,319
2,118
11,367
18,170
Ending balance
$
65,079
$
1,821
$
30,290
$
35,461
$
125,208
$
257,859
Residential
Mortgage Loans
Construction Loans
Commercial
Mortgage Loans
Commercial &
Industrial Loans
Consumer Loans
Total
Quarter Ended September 30, 2021
(In thousands)
ACL:
Beginning balance
$
112,882
$
4,757
$
72,452
$
37,470
$
97,397
$
324,958
Provision for credit losses - (benefit) expense
(6,206)
527
(4,660)
(4,449)
6,054
(8,734)
Charge-offs
(25,418)
(7)
(429)
(167)
(8,345)
(34,366)
Recoveries
1,968
42
43
494
3,955
6,502
Ending balance
$
83,226
$
5,319
$
67,406
$
33,348
$
99,061
$
288,360
Residential
Mortgage Loans
Construction Loans
Commercial
Mortgage Loans
Commercial &
Industrial Loans
Consumer Loans
Total
Nine-Month Period Ended September 30, 2021
(In thousands)
ACL:
Beginning balance
$
120,311
$
5,380
$
109,342
$
37,944
$
112,910
$
385,887
Provision for credit losses - (benefit) expense
 
(9,556)
(125)
(40,779)
(10,187)
11,168
(49,479)
Charge-offs
(31,170)
(52)
(1,304)
(1,036)
(34,904)
(68,466)
Recoveries
3,641
116
147
6,627
9,887
20,418
Ending balance
$
83,226
$
5,319
$
67,406
$
33,348
$
99,061
$
288,360
43
The
 
Corporation
 
estimates
 
the
 
ACL
 
following
 
the
 
methodologies
 
described
 
in
 
Note
 
1
 
–
 
Nature
 
of
 
Business
 
and
 
Summary
 
of
Significant Accounting
 
Policies, in
 
the audited
 
consolidated financial
 
statements included
 
in the
 
2021 Annual
 
Report on
 
Form 10-K,
for each portfolio segment.
 
During
 
the
 
first
 
nine
 
months
 
of
 
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
 
a
 
continued
conflict in Ukraine, the overall inflationary
 
environment and a potential slowdown
 
in economic activity as a result of
 
the FED’s policy
to control inflationary economic conditions. For periods prior to 2022,
 
the Corporation calculated the ACL using the baseline scenario.
As
 
of
 
September
 
30,
 
2022,
 
the
 
ACL
 
for
 
loans
 
and
 
finance
 
leases
 
was
 
$
257.9
 
million,
 
down
 
approximately
 
$
11.1
 
million
 
from
December
 
31,
 
2021.
 
The
 
ACL
 
reduction
 
for
 
commercial
 
and
 
construction
 
loans
 
was
 
$
23.5
 
million
 
during
 
the
 
first
 
nine
 
months
 
of
2022,
 
primarily reflecting
 
reduced COVID-19
 
uncertainties and,
 
to a
 
lesser extent,
 
a reduction
 
in qualitative
 
reserves due
 
to updated
borrowers’ financial information received during
 
the third quarter of 2022. In addition, there was an ACL reduction
 
of $
9.7
 
million for
residential
 
mortgage
 
loans,
 
partially
 
offset
 
by
 
a
 
$
22.1
 
million
 
increase
 
in
 
the
 
ACL
 
for
 
consumer
 
loans.
 
The
 
net
 
reduction
 
for
residential mortgage
 
loans was
 
primarily driven
 
by the
 
overall decrease
 
in the
 
size of
 
this portfolio.
 
The ACL
 
increase for
 
consumer
loans consisted of charges
 
to the provision of $
43.5
 
million recorded in the first
 
nine months of 2022
 
to account for the increase
 
in the
size
 
of
 
the
 
portfolio
 
of
 
auto
 
loans
 
and
 
finance
 
leases;
 
a
 
deterioration
 
in
 
the
 
long-term
 
outlook
 
of
 
certain
 
macroeconomic
 
variables,
such as the regional
 
unemployment rate; and an
 
increase in charge-off
 
levels mostly related
 
to the auto and
 
credit card loan portfolios,
partially offset
 
by net
 
charge-offs
 
of $
21.4
 
million. 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.
On September 17, 2022, Hurricane Fiona made landfall
 
in the southwestern part of Puerto Rico as a Category 1 storm.
 
As part of its
ACL calculation,
 
the Corporation
 
considers
 
the need
 
for qualitative
 
adjustments
 
that include
 
factors such
 
as natural
 
disasters. As
 
of
September 30,
 
2022, management
 
determined that
 
no separate qualitative
 
reserves for
 
this natural disaster
 
were required
 
on the ACL.
Notwithstanding, estimates of the storm’s
 
effect on loan losses may
 
change over time as additional
 
information becomes available and
any related revisions in the ACL calculation will be reflected in the provision
 
for credit losses as they occur.
Total
 
net
 
charge-offs
 
decreased
 
by
 
$
19.3
 
million
 
to
 
$
8.6
 
million,
 
when
 
compared
 
to
 
the
 
third
 
quarter
 
of
 
2021.
 
The
 
variance
consisted of
 
a $
22.6
 
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; and
 
a $
0.5
 
million increase in
 
net recoveries in
 
the commercial
 
and construction
 
loans portfolio;
 
partially offset
 
by a
$
3.8
 
million
 
increase
 
in
 
net
 
charge-offs
 
on
 
consumer
 
and
 
finance
 
leases,
 
primarily
 
reflected
 
in
 
the
 
auto
 
loans
 
portfolios.
 
Total
 
net
charge-offs
 
decreased
 
by $
26.8
 
million
 
to $
21.1
 
million,
 
when
 
compared
 
to
 
the nine-month
 
period
 
ended
 
September 30,
 
2021.
 
The
variance
 
consisted of
 
a $
3.5
 
million
 
decrease
 
in net
 
charge-offs
 
on consumer
 
and finance
 
leases, primarily
 
reflected in
 
the auto
 
and
credit
 
card
 
loan
 
portfolios;
 
and
 
a
 
$
24.7
 
million
 
decrease
 
in
 
net
 
charge-offs
 
on
 
residential
 
mortgage
 
loans
 
mainly
 
due
 
to
 
the
aforementioned
 
bulk sale
 
completed
 
during the
 
third quarter
 
of 2021;
 
partially offset
 
by lower
 
net recoveries
 
in the
 
commercial
 
and
construction loans portfolio by $
1.4
 
million.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
44
 
The tables below present the ACL related to loans and finance leases and the carrying
 
value of loans by portfolio segment as of
September 30, 2022 and December 31, 2021:
Residential
Mortgage Loans
Construction Loans
Commercial
Mortgage Loans
Commercial and
Industrial Loans
(1)
Consumer Loans
Total
As of September 30, 2022
(Dollars in thousands)
Total loans held for investment:
Amortized cost of loans
$
2,830,974
$
123,994
$
2,265,614
$
2,858,286
$
3,219,750
$
11,298,618
Allowance for credit losses
65,079
1,821
30,290
35,461
125,208
257,859
Allowance for credit losses to
 
amortized cost
2.30
%
1.47
%
1.34
%
1.24
%
3.89
%
2.28
%
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 September 30, 2022 and December 31, 2021, includes $
17.9
 
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. The
 
Corporation estimates
the ACL for
 
these off-balance
 
sheet exposures
 
following the methodology
 
described in
 
Note 1 –
 
Nature of Business
 
and Summary
 
of
Significant
 
Accounting
 
Policies,
 
in
 
the audited
 
consolidated
 
financial
 
statements,
 
which are
 
included
 
in
 
the 2021
 
Annual Report
 
on
Form 10-K.
 
As of
 
September 30,
 
2022, the
 
ACL for
 
off-balance
 
sheet credit
 
exposures was
 
$
4.2
 
million, up
 
$
2.7
 
million from
 
$
1.5
million
 
as of
 
December
 
31,
 
2021,
 
mainly
 
driven
 
by an
 
increase
 
in
 
unfunded
 
loan
 
commitments
 
principally
 
due
 
to
 
newly
 
originated
facilities which remained undrawn as of September 30, 2022.
The following
 
table presents
 
the activity
 
in the
 
ACL for
 
unfunded loan
 
commitments and
 
standby letters
 
of credit
 
for the
 
quarters
and nine-month periods ended September 30, 2022 and 2021:
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
2022
2021
2022
2021
(In thousands)
Beginning Balance
$
2,171
$
2,730
$
1,537
$
5,105
Provision for credit losses - expense (benefit)
2,071
(971)
2,705
(3,346)
Ending balance
$
4,242
$
1,759
$
4,242
$
1,759
NOTE 5
–
OTHER REAL ESTATE
 
OWNED
 
The following table presents the OREO inventory as of the indicated dates:
September 30,
December 31,
2022
2021
(In thousands)
OREO
 
OREO balances, carrying value:
Residential
(1)
$
30,036
$
29,533
Commercial
6,033
7,331
Construction
2,613
3,984
 
Total
$
38,682
$
40,848
(1)
Excludes $
24.3
 
million and $
22.2
 
million as of September 30, 2022 and December 31, 2021, respectively, of foreclosures
 
that meet the conditions of ASC Subtopic
310-40 "Reclassification of Residential Real Estate Collateralized
 
Consumer Mortgage Loans upon Foreclosure," and are
 
presented as a receivable as part of other
assets in the consolidated statements of financial condition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
45
NOTE 6 – GOODWILL AND OTHER INTANGIBLES
 
 
Goodwill
 
as
 
of
 
each
 
of
 
September
 
30,
 
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 2021, as
 
part of its
 
annual evaluation,
 
the Corporation performed
 
a qualitative assessment
 
to determine if
 
a goodwill
impairment
 
test was necessary.
 
This assessment involved
 
identifying the inputs
 
and assumptions that
 
most 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
 
each reporting unit is
 
greater than its carrying
 
amount. As of
December 31,
 
2021, the
 
Corporation concluded
 
that it
 
is more-likely-than-not
 
that the
 
fair value
 
of the
 
reporting units
 
exceeded their
carrying
 
value.
 
The
 
Corporation
 
determined
 
that
 
there
 
have
 
been
 
no
 
significant
 
events
 
since
 
the
 
last
 
annual
 
assessment
 
that
 
could
indicate potential
 
goodwill impairment
 
on reporting
 
units for
 
which the
 
goodwill is
 
allocated. As a
 
result,
no
 
impairment charges
 
for
goodwill were recorded during the first nine months of 2022.
There
 
were
no
 
changes in
 
the carrying
 
amount of
 
goodwill during
 
the quarter
 
and
 
nine-month
 
period ended
 
September 30,
 
2022.
The
 
changes
 
in
 
the
 
carrying
 
amount
 
of
 
goodwill
 
attributable
 
to
 
operating
 
segments
 
during
 
2020
 
and
 
the
 
nine-month
 
period
 
ended
September 30, 2021 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)
385
533
3,313
-
4,231
Goodwill, December 31, 2020
$
959
$
2,733
$
8,248
$
26,692
$
38,632
Measurement period adjustment
(2)
53
74
(148)
-
(21)
Goodwill, September 30, 2021
$
1,012
$
2,807
$
8,100
$
26,692
$
38,611
(1) Recognized in connection with the BSPR acquisition on September
 
1, 2020. Refer to Note 2 - Business Combination included
 
in the 2021 Annual Report on Form 10-K for additional
information.
(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").
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
46
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
September 30,
December 31,
2022
 
2021
 
(Dollars in thousands)
Core deposit intangible:
Gross amount
$
87,544
$
87,544
Accumulated amortization
(64,726)
(58,973)
Net carrying amount
$
22,818
$
28,571
Remaining amortization period (in years)
7.3
8.0
Purchased credit card relationship intangible:
Gross amount
$
3,800
$
3,800
Accumulated amortization
(3,424)
(2,602)
Net carrying amount
$
376
$
1,198
Remaining amortization period (in years)
0.9
1.7
Insurance customer relationship intangible:
Gross amount
$
1,067
$
1,067
Accumulated amortization
(1,016)
(902)
Net carrying amount
$
51
$
165
Remaining amortization period (in years)
0.3
1.1
During
 
the quarter
 
and
 
nine-month
 
period
 
ended
 
September
 
30,
 
2022,
 
the
 
Corporation recognized
 
$
2.2
 
million
 
and $
6.7
 
million,
respectively,
 
in amortization
 
expense
 
on its
 
other intangibles
 
subject to
 
amortization,
 
compared to
 
$
2.8
 
million
 
and $
8.7
 
million for
the same periods
 
in 2021, respectively.
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
 
September 30, 2022.
The estimated
 
aggregate annual
 
amortization expense
 
related to the
 
intangible assets
 
subject to amortization
 
for future periods
 
was
as follows as of September 30, 2022:
Amount
(In thousands)
2022
$
2,126
2023
7,736
2024
6,416
2025
3,509
2026
872
2027 and after
2,586
47
NOTE 7 – 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 trust-preferred
 
securities (“TRuPs”). FBP
 
Statutory Trust
 
I used the proceeds
 
of the issuance, together
 
with
the proceeds of
 
the purchase by the
 
Corporation of $
3.1
 
million of FBP Statutory
 
Trust I
 
variable-rate common securities,
 
to purchase
$
103.1
 
million aggregate principal
 
amount of the
 
Corporation’s
 
Junior Subordinated
 
Deferrable Debentures.
 
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 September 30,
2022 and December 31, 2021, these Junior Subordinated Deferrable Debentures amounted to $183.8 million.
 
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 September 30,
 
2022, the Corporation
 
was current on all
interest payments due on its subordinated debt.
 
48
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 the 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
 
September
 
30,
 
2022,
 
the
 
amortized
 
cost
 
and
 
fair
 
value
 
of
 
these
 
private
 
label
 
MBS
 
amounted
 
to
 
$
8.6
million
 
and
 
$
6.2
 
million,
 
respectively,
 
with
 
a
 
weighted
 
average
 
yield
 
of
5.93
%,
 
which
 
is
 
included
 
as
 
part
 
of
 
the
 
Corporation’s
available-for-sale
 
debt
 
securities
 
portfolio.
 
As
 
described
 
in
 
Note
 
2
 
–
 
Debt
 
Securities,
 
above,
 
the
 
ACL
 
on
 
these
 
private
 
label
 
MBS
amounted to $
0.3
 
million as of September 30, 2022.
Investment in Unconsolidated Entity
On
 
February
 
16,
 
2011,
 
FirstBank
 
sold
 
an
 
asset
 
portfolio
 
consisting
 
of
 
performing
 
and
 
nonaccrual
 
construction,
 
commercial
mortgage and
 
commercial and industrial
 
loans with an
 
aggregate book
 
value of $
269.3
 
million to CPG/GS,
 
an entity organized
 
under
the
 
laws
 
of
 
the
 
Commonwealth
 
of
 
Puerto
 
Rico
 
and
 
majority
 
owned
 
by
 
PRLP
 
Ventures
 
LLC
 
(“PRLP”),
 
a
 
company
 
created
 
by
Goldman,
 
Sachs &
 
Co. and
 
Caribbean
 
Property Group.
 
In connection
 
with the
 
sale, the
 
Corporation
 
received $
88.5
 
million in
 
cash
and a
35
% interest in
 
CPG/GS, and made
 
a loan in
 
the amount of
 
$
136.1
 
million representing
 
seller financing provided
 
by FirstBank.
The loan was
 
refinanced and consolidated
 
with other outstanding
 
loans of CPG/GS
 
in the second
 
quarter of 2018
 
and was paid
 
in full
in
 
October
 
2019.
 
FirstBank’s
 
equity
 
interest
 
in CPG/GS
 
is
 
accounted
 
for under
 
the equity
 
method.
 
FirstBank
 
recorded
 
a
 
loss on
 
its
interest in
 
CPG/GS in
 
2014 that
 
reduced
 
to zero
 
the carrying
 
amount of
 
the Bank’s
 
investment in
 
CPG/GS. No
 
negative investment
needs
 
to be
 
reported
 
as the
 
Bank
 
has no
 
legal
 
obligation
 
or commitment
 
to provide
 
further
 
financial
 
support
 
to this
 
entity; thus,
 
no
further losses have been or will be recorded on this investment.
CPG/GS
 
used
 
cash
 
proceeds
 
of
 
the
 
aforementioned
 
seller-financed
 
loan
 
to
 
cover
 
operating
 
expenses
 
and
 
debt
 
service
 
payments,
including those
 
related to
 
the loan
 
that was paid
 
off in
 
October 2019.
 
FirstBank will
 
not receive
 
any return
 
on its equity
 
interest until
PRLP receives
 
an aggregate
 
amount equivalent
 
to its
 
initial investment
 
and a
 
priority return
 
of at
 
least
12
%, which
 
has not
 
occurred,
resulting in FirstBank’s
 
interest in CPG/GS being
 
subordinate to PRLP’s
 
interest. CPG/GS will
 
then begin to
 
make payments pro
 
rata
to
 
PRLP
 
and
 
FirstBank,
35
%
 
and
65
%,
 
respectively,
 
until
 
FirstBank
 
has
 
achieved
 
a
12
%
 
return
 
on
 
its
 
invested
 
capital
 
and
 
the
aggregate amount of distributions is equal to FirstBank’s
 
capital contributions to CPG/GS.
 
 
The
 
Bank
 
has
 
determined
 
that
 
CPG/GS
 
is
 
a
 
VIE
 
in
 
which
 
the
 
Bank
 
is
 
not
 
the
 
primary
 
beneficiary.
 
In
 
determining
 
the
 
primary
beneficiary
 
of CPG/GS,
 
the Bank
 
considered
 
applicable
 
guidance
 
that requires
 
the Bank
 
to qualitatively
 
assess the
 
determination
 
of
whether
 
it is
 
the primary
 
beneficiary (or
 
consolidator) of
 
CPG/GS based
 
on whether
 
it has
 
both
 
the power
 
to direct
 
the activities
 
of
CPG/GS that most significantly
 
affect the entity’s
 
economic performance and the
 
obligation to absorb losses
 
of, or the right
 
to receive
benefits from, CPG/GS
 
that could potentially
 
be significant to
 
the VIE. The
 
Bank determined that
 
it does not
 
have the power to
 
direct
the activities that most significantly
 
impact the economic performance
 
of CPG/GS as it does not
 
have the right to
 
manage or influence
the loan portfolio, foreclosure proceedings,
 
or the construction and sale
 
of the property; therefore, the
 
Bank concluded that it is not
 
the
primary beneficiary of CPG/GS.
 
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
 
September
 
30,
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
49
 
The changes in MSRs are shown below for the indicated periods:
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
(In thousands)
2022
2021
2022
2021
Balance at beginning of period
$
30,277
$
32,335
$
30,986
$
33,071
Capitalization of servicing assets
679
1,146
2,637
4,046
Amortization
(1,247)
(1,817)
(3,850)
(5,374)
Temporary impairment
 
recoveries, net
1
12
65
49
Other
(1)
(20)
9
(148)
(107)
Balance at end of period
$
29,690
$
31,685
$
29,690
$
31,685
(1)
 
Mainly represents adjustments related to the repurchase
 
of loans serviced for others.
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:
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
2022
2021
2022
2021
(In thousands)
Balance at beginning of period
$
14
$
165
$
78
$
202
Recoveries
(1)
(12)
(65)
(49)
Balance at end of period
$
13
$
153
$
13
$
153
 
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:
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
2022
2021
2022
2021
(In thousands)
Servicing fees
$
2,758
$
3,213
$
8,398
$
9,146
Late charges and prepayment penalties
201
87
614
543
Adjustment for loans repurchased
(20)
(32)
(148)
(148)
Servicing income, gross
2,939
3,268
8,864
9,541
Amortization and impairment of servicing assets
(1,246)
(1,764)
(3,785)
(5,284)
Servicing income, net
$
1,693
$
1,504
$
5,079
$
4,257
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50
 
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
Nine-Month Period Ended September 30, 2022:
Constant prepayment rate:
 
 
Government-guaranteed mortgage loans
6.6
%
18.3
%
4.8
%
 
Conventional conforming mortgage loans
6.6
%
18.4
%
3.4
%
 
Conventional non-conforming mortgage loans
6.0
%
21.9
%
3.8
%
Discount rate:
 
Government-guaranteed mortgage loans
11.8
%
12.0
%
11.5
%
 
Conventional conforming mortgage loans
9.8
%
10.0
%
9.5
%
 
Conventional non-conforming mortgage loans
12.4
%
14.5
%
11.5
%
Nine-Month Period Ended September 30, 2021:
Constant prepayment rate:
 
 
Government-guaranteed mortgage loans
6.1
%
17.4
%
3.7
%
 
Conventional conforming mortgage loans
6.2
%
17.4
%
2.8
%
 
Conventional non-conforming mortgage loans
-
%
-
%
-
%
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
-
%
-
%
-
%
 
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 September
 
30, 2022 and
December 31, 2021 were as follows:
September 30,
December 31,
(Dollars in thousands)
2022
2021
Carrying amount of servicing assets
$
29,690
$
30,986
Fair value
$
44,621
$
42,132
Weighted-average
 
expected life (in years)
7.86
7.96
Constant prepayment rate (weighted-average annual
 
rate)
6.45
%
6.55
%
 
Decrease in fair value due to 10% adverse change
$
1,048
$
1,027
 
Decrease in fair value due to 20% adverse change
$
2,052
$
2,011
Discount rate (weighted-average annual rate)
10.68
%
11.17
%
 
Decrease in fair value due to 10% adverse change
$
1,923
$
1,852
 
Decrease in fair value due to 20% adverse change
$
3,700
$
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
51
NOTE 8 – DEPOSITS
 
The following table summarizes deposit balances as of the indicated dates:
September 30, 2022
December 31, 2021
(In thousands)
Type of account:
Non-interest-bearing deposit accounts
$
6,235,782
$
7,027,513
Interest-bearing saving accounts
4,089,664
4,729,387
Interest-bearing checking accounts
4,076,258
3,492,645
Certificates of deposit ("CDs")
2,122,713
2,434,932
Brokered CDs
45,164
100,417
Total
$
16,569,581
$
17,784,894
 
The following table presents the contractual maturities of CDs, including brokered
 
CDs, as of September 30, 2022:
Total
 
(In thousands)
Three months or less
$
572,661
Over three months to six months
374,963
Over six months to one year
555,086
Over one year to two years
 
369,054
Over two years to three years
 
174,360
Over three years to four years
 
47,133
Over four years to five years
 
67,846
Over five years
6,774
 
Total
$
2,167,877
 
The following were the components of interest expense on deposits for the
 
indicated periods:
Quarter Ended September 30,
Nine-Month Period Ended
September 30,
2022
2021
2022
2021
(In thousands)
Interest expense on deposits
$
10,045
$
9,876
$
25,619
$
33,718
Accretion of premiums from acquisitions
(92)
(243)
(384)
(1,089)
Amortization of broker placement fees
25
49
89
177
Total interest expense on deposits
 
$
9,978
$
9,682
$
25,324
$
32,806
Total
 
U.S. time deposits
 
with balances
 
of more
 
than $250,000
 
amounted to
 
$
911.6
 
million and
 
$
990.2
 
million as of
 
September 30,
2022 and December
 
31, 2021, respectively.
 
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 September 30, 2022
 
and December 31, 2021 unamortized
 
broker placement fees
amounted to $
0.1
 
million and $
0.2
 
million, respectively,
 
which are amortized over
 
the contractual maturity of
 
the brokered CDs under
the interest method.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
52
NOTE 9 – SECURITIES SOLD UNDER AGREEMENTS TO
 
REPURCHASE
 
Securities sold under agreements to repurchase (repurchase agreements)
 
as of the indicated dates consisted of the following:
September 30, 2022
December 31, 2021
(In thousands)
Long-term fixed-rate repurchase agreements
(1)
$
200,000
$
300,000
(1)
Weighted-average interest rate of
3.90
% and
3.35
% as of September 30, 2022 and December 31, 2021, respectively.
 
The repurchase agreements mature as follows as of the indicated date:
September 30, 2022
(In thousands)
Over one year to three years
$
200,000
As of
 
September
 
30,
 
2022 and
 
December
 
31, 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 September
 
30, 2022 and December
 
31, 2021,
repurchase agreements were overcollateralized.
 
The repurchase agreements as of September 30, 2022, grouped by counterparty,
 
were as follows:
 
Weighted-Average
Counterparty
Amount
Maturity (In months)
(Dollars in thousands)
Credit Suisse First Boston
$
200,000
28
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
53
NOTE 10 – ADVANCES
 
FROM THE FEDERAL HOME LOAN BANK
 
The following is a summary of the advances from the FHLB as of the indicated
 
dates:
September 30,
December 31,
2022
2021
(In thousands)
Long-term rate advances from FHLB
(1)
$
-
$
200,000
(1)
Weighted-average interest rate
 
of
2.16
% as of December 31, 2021. The $
200
 
million in FHLB advances outstanding as of December 31, 2021
 
matured and were repaid in August 2022.
NOTE 11 – OTHER BORROWINGS
 
Other borrowings, as of the indicated dates, consisted of:
September 30,
December 31,
2022
2021
(In thousands)
Floating rate junior subordinated debentures (FBP Statutory Trust I)
(1)
$
65,205
$
65,205
Floating rate junior subordinated debentures (FBP Statutory Trust II)
(2)
118,557
118,557
$
183,762
$
183,762
(1)
Amount represents junior subordinated interest-bearing
 
debentures due in 2034 with a floating
 
interest rate of
2.75
% over
3-month LIBOR
 
(
6.28
% as of September 30, 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
 
(
6.03
% as of September 30, 2022
 
and
2.71
% as
of December 31, 2021).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
54
NOTE 12 – EARNINGS PER COMMON SHARE
 
The calculations of earnings per common share for the quarters and nine-month periods
 
ended September 30, 2022 and 2021 are as
follows:
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
2022
2021
2022
2021
(In thousands, except per share information)
Net income
$
74,603
$
75,678
$
231,898
$
207,386
Less: Preferred stock dividends
-
(669)
-
(2,007)
 
Net income attributable to common stockholders
$
74,603
$
75,009
$
231,898
$
205,379
Weighted-Average
 
Shares:
Average common
 
shares outstanding
187,236
206,725
193,217
212,406
Average potential
 
dilutive common shares
1,083
1,071
1,151
1,117
Average common
 
shares outstanding - assuming dilution
188,319
207,796
194,368
213,523
Earnings per common share:
Basic
$
0.40
$
0.36
$
1.20
$
0.97
Diluted
$
0.40
$
0.36
$
1.19
$
0.96
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.
 
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
 
in
 
the
 
quarters
 
and
 
nine-month
 
periods
 
ended
 
September
 
30,
 
2022
 
and
 
2021.
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
55
NOTE 13 – STOCK-BASED COMPENSATION
On
 
April
 
29,
 
2008,
 
the
 
Corporation’s
 
stockholders
 
approved
 
the
 
First
 
Bancorp.
 
2008
 
Omnibus
 
Incentive
 
Plan
 
(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
 
September 30,
 
2022,
there were
3,833,996
 
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
 
outstanding
 
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
 
stocks granted
 
to directors
 
are generally
 
subject
 
to vesting
 
on the
one-year
 
anniversary
 
of the grant
date. Common shares issued during the first nine months of 2022 in connection with restricted
 
stock awards were reissued from treasury
shares.
 
 
The following table summarizes the restricted stock activity in the first nine months of 2022
 
and 2021 under the Omnibus Plan:
Nine-Month Period Ended
Nine-Month Period Ended
September 30, 2022
September 30, 2021
 
Number of shares
 
Weighted-Average
 
Number of shares
 
Weighted-Average
of restricted
Grant Date
of restricted
Grant Date
stock
 
Fair Value
stock
 
Fair Value
Unvested shares outstanding at beginning of period
1,148,775
$
6.61
1,320,723
$
5.74
Granted
(1)
323,364
13.18
316,430
11.40
Forfeited
(15,108)
8.79
(24,792)
6.32
Vested
(510,007)
6.05
(407,659)
7.70
Unvested shares outstanding at end of period
947,024
$
9.12
1,204,702
$
6.55
(1)
Includes for the nine-month period ended
 
September 30, 2022,
24,972
 
shares of restricted stock awarded to independent
 
directors and
298,392
 
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 nine-month
 
period ended September 30,
 
2021,
26,361
 
shares of restricted
stock awarded to independent directors and
290,069
 
shares of restricted stock awarded to
 
employees, of which
19,271
 
shares were granted to retirement-eligible employees
 
and thus charged to earnings
as of the grant date.
For
 
the
 
quarter
 
and
 
nine-month
 
period
 
ended
 
September
 
30,
 
2022,
 
the
 
Corporation
 
recognized
 
$
0.9
 
million
 
and
 
$
2.7
 
million,
respectively, of stock-based compensation expense related to restricted stock awards, compared to $
0.8
 
million and $
2.6
 
million for the
same periods in 2021, respectively.
 
As of September
 
30, 2022, there was $
4.6
 
million of total unrecognized
 
compensation
 
cost related to
unvested shares
 
of restricted stock.
 
The weighted average
 
period over which the Corporation
 
expects to recognize
 
such cost was
1.6
 
years
as of September 30, 2022.
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
56
Performance
 
Units
Under the Omnibus Plan, the Corporation may award performance
 
units to Omnibus Plan 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. 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 in the first nine months of 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 in the first nine months of 2022 and 2021:
Nine-Month Period Ended
Nine-Month Period Ended
(Number of units)
September 30, 2022
September 30, 2021
Performance units at beginning of year
814,899
1,006,768
Additions
166,669
160,485
Vested
 
(1)
(189,645)
(304,408)
Performance units at end of period
791,923
862,845
(1)
Units vested during the nine-month period ended September 30,
 
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 the nine-month period ended September
 
30, 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
 
outstanding
 
common stock
 
on the
respective date of the grant.
 
For the quarter and nine-month period ended September 30, 2022,
 
the Corporation recognized
 
$
0.5
 
million
and
 
$
1.3
 
million, respectively, of
 
stock-based compensation expense related to
 
performance units, compared
 
to
 
$
0.5
 
million and
 
$
1.5
million for the same periods
 
in 2021, respectively.
 
As of September 30,
 
2022, there was $
3.0
 
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.
Shares withheld
During the
 
first nine
 
months of
 
2022, the
 
Corporation withheld
202,649
 
shares (first
 
nine months
 
of 2021
 
–
213,757
 
shares) of
 
the
restricted
 
stock
 
and
 
performance
 
units
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
57
NOTE 14 – STOCKHOLDERS’ EQUITY
Stock Repurchase Programs
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,
 
expected
 
to
 
be
 
executed
 
through
 
four
 
quarters,
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,
 
extended,
 
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.
 
During
 
the
 
third
 
quarter
 
of
 
2022,
 
the
 
Corporation
repurchased
5,385,138
 
shares of common stock
 
through open market transactions
 
at an average purchase
 
price of $
13.93
 
per share for
a total price of
 
approximately $
75
 
million, under this stock
 
repurchase program. The
 
shares received are held
 
as treasury stock.
 
As of
September 30, 2022, the Corporation
 
has remaining authorization to
 
repurchase approximately $
175
 
million of common stock. For
 
the
nine-month period
 
ended September
 
30, 2022,
 
First BanCorp. has
 
repurchased approximately
15.9
 
million shares for
 
a total purchase
price of $
225.0
 
million under all stock repurchase programs.
Common Stock
The following table shows the change in shares of common stock outstanding in
 
the first nine months of 2022:
Total
 
Number of Shares
Common stock outstanding, beginning balance
201,826,505
Common stock repurchased
(1)
(16,066,747)
Common stock reissued from treasury stock
513,009
Restricted stock forfeited
(15,108)
Common stock outstanding, ending balance
186,257,659
(1)
Consisted
 
of
12,454,401
 
shares
 
of
 
common
 
stock
 
repurchased
 
in
 
the
 
open
 
market
 
at
 
an
 
average
 
price
 
of
 
$
14.05
 
per
 
share
 
for
 
a
 
total
 
purchase
 
price
 
of
approximately $
175
 
million under
 
the $
350
 
million stock
 
repurchase program
 
announced in
 
April 2022;
3,409,697
 
shares of
 
common stock
 
repurchased in
 
the
open market at
 
an average price
 
of $
14.66
 
for a total
 
purchase price of
 
approximately $
50
 
million under the prior
 
$
300
 
million stock repurchase
 
program which
was completed during the first quarter of 2022 and;
202,649
 
shares of common stock surrendered to cover officers' payroll and
 
income taxes.
For
 
the
 
quarter
 
and
 
nine-month
 
period
 
ended
 
September
 
30,
 
2022,
 
total
 
cash
 
dividends
 
declared
 
on
 
shares
 
of
 
common
 
stock
amounted to $
22.7
 
million and $
65.9
 
million, respectively,
 
compared to $
14.6
 
million and $
44.9
 
million for the same
 
periods in 2021.
On
October 27, 2022
 
the
 
Corporation’s
 
Board
 
of
 
Directors
 
declared
 
a
 
quarterly
 
cash
 
dividend
 
of
 
$
0.12
 
per
 
common
 
share
 
payable
on
December 9, 2022
 
to shareholders of record at the
 
close of business on
November 25, 2022
. The Corporation intends to continue
 
to
pay
 
quarterly
 
dividends
 
on common
 
stock.
 
However,
 
the
 
Corporation’s
 
common
 
stock dividends,
 
including
 
the declaration,
 
timing,
and amount, remain subject to consideration and approval by the Corporation’s
 
Board Directors at the relevant times.
 
58
Preferred Stock
The
 
Corporation
 
has
50,000,000
 
authorized
 
shares
 
of preferred
 
stock
 
with
 
a
 
par value
 
of $
1.00
,
 
redeemable
 
at
 
the
 
Corporation’s
option, subject to certain terms. This stock may be issued in series and
 
the shares of each series have such rights and preferences
 
as are
fixed by the Board of Directors when authorizing the issuance of that particular series.
 
On November
 
30, 2021,
 
the Corporation
 
redeemed
 
all of
 
its
1,444,146
 
outstanding
 
shares of
 
Series A
 
through
 
Series 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 as of September 30, 2022. For the quarter
 
and nine-month period ended September 30, 2021, total cash dividends
 
declared
on shares of preferred stock amounted to $
0.7
 
million and $
2.0
 
million, respectively.
Treasury stock
During the first
 
nine months of
 
2022 and 2021,
 
the Corporation withheld
 
and recognized in
 
treasury stock an
 
aggregate of
202,649
shares and
213,757
 
shares, respectively,
 
of the restricted
 
stock and performance
 
units that vested
 
during those periods,
 
for income tax
withholding purposes.
 
Also recorded
 
as treasury
 
stock for
 
the first
 
nine months
 
of 2022
 
are the
15,864,098
 
shares of
 
common stock
repurchased as
 
part of
 
the stock
 
repurchase programs
 
described above
 
and
15,108
 
restricted shares
 
of common
 
stock awarded
 
under
the
 
Omnibus
 
Plan
 
that
 
were
 
forfeited
 
prior
 
to
 
vesting.
 
As
 
of
 
September
 
30,
 
2022
 
and
 
December
 
31,
 
2021,
 
the
 
Corporation
 
had
37,405,457
 
and
21,836,611
 
shares held as treasury
 
stock, respectively.
 
See Note 1 –
 
Basis of Presentation
 
and Significant Accounting
Policies
 
above
 
for
 
information
 
on
 
the
 
change
 
in
 
accounting
 
method
 
for
 
accounting
 
for
 
the
 
Corporation’s
 
treasury
 
stock
 
from
 
a
 
par
value to a cost method.
FirstBank Statutory Reserve (Legal Surplus)
 
The Banking Law
 
of the Commonwealth
 
of Puerto Rico requires
 
that a minimum of
10
% of FirstBank’s
 
net income for the
 
year be
transferred
 
to a
 
legal surplus
 
reserve
 
until such
 
surplus
 
equals the
 
total of
 
paid-in-capital
 
on common
 
and preferred
 
stock. Amounts
transferred
 
to
 
the
 
legal
 
surplus
 
reserve
 
from
 
retained
 
earnings
 
are
 
not
 
available
 
for
 
distribution
 
to
 
the
 
Corporation,
 
including
 
for
payment
 
as dividends
 
to the
 
stockholders,
 
without
 
the prior
 
consent
 
of the
 
Puerto Rico
 
Commissioner
 
of Financial
 
Institutions.
The
Puerto Rico Banking Law provides that, when the expenditures of a Puerto Rico commercial bank are greater than receipts, the excess
of the expenditures over receipts must be charged against the undistributed profits of the bank, and the balance, if any, must be
charged against the legal surplus reserve, as a reduction thereof. If the legal surplus reserve is not sufficient to cover such balance in
whole or in part, the outstanding amount must be charged against the capital account and the Bank cannot pay dividends until it can
replenish the legal surplus reserve to an amount of at least 20% of the original capital contributed.
 
FirstBank’s
 
legal surplus
 
reserve,
included as
 
part of
 
retained earnings
 
in the
 
Corporation’s
 
consolidated statements
 
of financial
 
condition, amounted
 
to $
137.6
 
million
as of
 
each of
 
September 30,
 
2022 and
 
December 31,
 
2021. There
 
were
no
 
transfers to
 
the legal
 
surplus reserve
 
during the
 
first nine
months of 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
59
NOTE 15 – OTHER COMPREHENSIVE LOSS
Changes in Accumulated Other Comprehensive
 
Loss by Component
(1)
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
September 30,
September 30,
2022
2021
2022
2021
(in thousands)
Unrealized net holding losses on available-for-sale
 
debt securities:
Beginning balance
$
(595,147)
$
(14,708)
$
(87,390)
$
55,725
Other comprehensive loss
(270,937)
(18,740)
(778,694)
(89,173)
Ending balance
$
(866,084)
$
(33,448)
$
(866,084)
$
(33,448)
Adjustment of pension and postretirement
 
benefit plans:
Beginning balance
$
3,391
$
(270)
$
3,391
$
(270)
Other comprehensive loss
-
-
-
-
Ending balance
$
3,391
$
(270)
$
3,391
$
(270)
(1)
All amounts presented are net of tax.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
60
NOTE 16 – 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 pursuant to ASC Topic
 
715, “Compensation-Retirement Benefits.”
The following
 
table presents
 
the components
 
of net
 
periodic benefit
 
income for
 
the Pension
 
Plans and
 
Postretirement Benefit
 
Plan
for the indicated periods:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
Location
2022
2021
2022
2021
(In thousands)
Net periodic benefit income:
Interest cost
Other expenses
$
656
$
619
$
1,967
$
1,858
Estimated return on plan assets
Other expenses
(1,040)
(1,130)
(3,119)
(3,392)
Net periodic benefit income
$
(384)
$
(511)
$
(1,152)
$
(1,534)
The Corporation does not expect to contribute to the Pension Plans during 2022.
61
 
NOTE 17 - 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
 
Puerto Rico Internal
 
Revenue Code
 
of 2011,
 
as amended (the
 
“2011 PR
 
Code”), the
 
Corporation and
 
its subsidiaries are
treated
 
as
 
separate
 
taxable
 
entities
 
and
 
are
 
not
 
entitled
 
to
 
file
 
consolidated
 
tax
 
returns
 
and,
 
thus,
 
the
 
Corporation
 
is
 
generally
 
not
entitled to utilize
 
losses from one
 
subsidiary to offset
 
gains in another
 
subsidiary.
 
Accordingly,
 
in order to
 
obtain a tax
 
benefit from
 
a
net operating
 
loss (“NOL”),
 
a particular
 
subsidiary must
 
be able
 
to demonstrate
 
sufficient taxable
 
income within
 
the applicable
 
NOL
carry-forward
 
period.
 
Pursuant
 
to
 
the
 
2011
 
PR
 
Code,
 
the
 
carry-forward
 
period
 
for
 
NOLs
 
incurred
 
during
 
taxable
 
years
 
that
commenced
 
after
 
December
 
31,
 
2004
 
and
 
ended
 
before
 
January
 
1,
 
2013
 
is
 
12
 
years;
 
for
 
NOLs
 
incurred
 
during
 
taxable
 
years
commencing after December 31,
 
2012, the carryover period is
 
10 years.
 
The 2011
 
PR Code provides a dividend
 
received deduction of
100
% on
 
dividends
 
received
 
from
 
“controlled”
 
subsidiaries
 
subject
 
to
 
taxation
 
in
 
Puerto
 
Rico
 
and
85
% on
 
dividends
 
received
 
from
other taxable domestic corporations.
 
The
 
Corporation
 
has
 
maintained
 
an
 
effective
 
tax
 
rate
 
lower
 
than
 
the
 
maximum
 
statutory
 
rate
 
of
37.5
%
 
mainly
 
by
 
investing
 
in
government
 
obligations
 
and
 
MBS
 
exempt
 
from
 
U.S.
 
and
 
Puerto
 
Rico
 
income
 
taxes
 
and
 
by
 
doing
 
business
 
through
 
an
 
international
banking
 
entity
 
(“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.
For the
 
third quarter
 
of 2022,
 
the Corporation
 
recorded an
 
income tax
 
expense of
 
$
32.0
 
million compared
 
to $
37.1
 
million in
 
the
third quarter of 2021. The variance was primarily related
 
to lower pre-tax income and a lower estimated
 
effective tax rate as a result of
a higher
 
proportion of
 
exempt to
 
taxable income
 
when compared
 
to the
 
same period
 
in 2021.
 
For the
 
first nine
 
months of
 
2022, the
Corporation recorded
 
an income tax
 
expense of $
109.2
 
million compared
 
to $
105.2
 
million for the
 
same period in
 
2021. The increase
in income tax expense for the nine-month period ended
 
September 30, 2022, as compared to the same period a year
 
ago, was related to
higher pre-tax
 
income, partially offset
 
by a higher
 
proportion of exempt
 
to taxable income
 
resulting in a
 
lower estimated effective
 
tax
rate.
 
 
62
For
 
the
 
quarter
 
and
 
nine-month
 
period
 
ended
 
September
 
30,
 
2022,
 
the
 
Corporation
 
calculated
 
the
 
provision
 
for
 
income
 
taxes
 
by
applying
 
the
 
estimated
 
annual
 
effective
 
tax
 
rate
 
for
 
the
 
full
 
fiscal
 
year
 
to
 
ordinary
 
income
 
or
 
loss.
 
In
 
the
 
computation
 
of
 
the
consolidated
 
worldwide
 
annual
 
estimated
 
effective
 
tax
 
rate,
 
ASC
 
Topic
 
740-270,
 
“Income
 
Taxes”
 
(“ASC
 
740-270”),
 
requires
 
the
exclusion
 
of
 
legal
 
entities
 
with
 
pre-tax
 
losses
 
from
 
which
 
a
 
tax
 
benefit
 
cannot
 
be
 
recognized.
 
The
 
Corporation’s
 
estimated
 
annual
effective tax rate in
 
the first nine months of
 
2022, excluding entities from which
 
a tax benefit cannot be recognized
 
and discrete items,
was
31.8
%, compared
 
to
33.2
% for
 
the first
 
nine months
 
of 2021.
 
The estimated
 
annual effective
 
tax rate,
 
including all
 
entities, for
2022
 
was
32.0
% (
32.4
% excluding
 
discrete items),
 
compared
 
to
33.6
% for
 
the first
 
nine months
 
of 2021
 
(
33.8
% excluding
 
discrete
items).
 
The
 
Corporation’s
 
net
 
deferred
 
tax
 
asset
 
amounted
 
to
 
$
166.1
 
million
 
as
 
of
 
September
 
30,
 
2022,
 
net
 
of
 
a
 
valuation
 
allowance
 
of
$
195.8
 
million, and
 
management concluded,
 
based upon
 
the assessment
 
of all
 
positive and
 
negative evidence,
 
that it was
 
more likely
than not
 
that the Corporation
 
will generate suff
 
icient taxable income
 
within the applicable
 
NOL carry-forward
 
periods to realize
 
such
amount.
 
The net
 
deferred tax
 
asset of
 
the Corporation’s
 
banking subsidiary,
 
FirstBank, amounted
 
to $
166.0
 
million as
 
of September
30,
 
2022, net
 
of a
 
valuation
 
allowance of
 
$
158.7
 
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
as well as the
 
credit losses reserve
 
release. The increase
 
in the valuation allowance
 
during the first nine
 
months of 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,
 
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 having
 
an effect
 
on
earnings.
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
 
than
 
we
 
would
 
have
 
incurred
 
in
 
the
absence of such limitation. The Corporation has mitigated
 
to an extent the adverse effects associated with the
 
Section 382 limitation as
any
 
such
 
tax
 
paid
 
in
 
the
 
U.S.
 
or
 
USVI
 
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 the
 
third quarter
 
and nine-month
 
period ended
 
September 30,
2022, the Corporation
 
incurred current income
 
tax expense of
 
approximately $
3.0
 
million and $
7.1
 
million, respectively,
 
related to its
U.S. operations,
 
compared to
 
$
2.1
 
million and
 
$
4.5
 
million, respectively,
 
for the
 
comparable periods
 
in 2021.
 
The limitation
 
did not
impact the USVI operations in the third quarter and nine-month periods ended September
 
30, 2022 and 2021.
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
 
an excise tax on stock
 
repurchases, and a 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.
 
We
 
do
 
not
currently expect
 
the IRA to
 
have a material
 
impact on
 
our 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
 
September
 
30,
 
2022,
 
the
 
Corporation
 
had
$
0.2
 
million
 
of
 
accrued
 
interest
 
and
 
penalties
 
related
 
to
 
uncertain
 
tax
 
positions
 
in
 
the
 
amount
 
of
 
$
0.8
 
million
 
that
 
it acquired
 
from
BSPR, which,
 
if recognized,
 
would decrease
 
the effective
 
income tax
 
rate in
 
future periods.
 
During the
 
quarter ended
 
September 30,
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; 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
63
NOTE 18 – 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
Valuations
 
of Level
 
2 assets
 
and liabilities
 
are based
 
on observable
 
inputs other
 
than Level
 
1 prices,
 
such as
 
quoted
prices for similar assets or
 
liabilities, or other inputs
 
that are observable or
 
can be corroborated by
 
observable market
data for substantially the full term of the assets or liabilities.
Level 3
Valuations
 
of Level 3 assets
 
and liabilities are
 
based on unobservable
 
inputs that are supported
 
by little or no
 
market
activity and
 
are significant
 
to the
 
fair value
 
of the
 
assets or liabilities.
 
Level 3
 
assets and
 
liabilities include
 
financial
instruments
 
whose
 
value
 
is determined
 
by using
 
pricing
 
models
 
for
 
which
 
the
 
determination
 
of
 
fair
 
value
 
requires
significant management judgment as to the estimation.
 
See Note
 
30 -
 
Fair Value
 
included in
 
the 2021
 
Annual Report
 
on Form
 
10-K for
 
information regarding
 
valuation techniques
 
and
inputs used to measure financial instruments at fair value on a recurring
 
basis.
 
Assets and liabilities measured at fair value on a recurring basis are summarized below as of
 
September 30, 2022 and December 31,
2021:
As of September 30, 2022
As of December 31, 2021
Fair Value Measurements Using
 
Fair Value Measurements Using
 
(In thousands)
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets:
Debt securities available for sale:
U.S. Treasury securities
$
138,258
$
-
$
-
$
138,258
$
148,486
$
-
$
-
$
148,486
Noncallable U.S. agencies debt securities
-
249,798
-
249,798
-
285,028
-
285,028
Callable U.S. agencies debt securities
-
2,086,221
-
2,086,221
-
1,971,954
-
1,971,954
MBS
-
3,185,549
6,170
(1)
3,191,719
-
4,037,209
7,234
(1)
4,044,443
Puerto Rico government obligations
-
-
2,193
2,193
-
-
2,850
2,850
Other investments
 
-
-
500
500
-
-
1,000
1,000
Equity securities
4,924
-
-
4,924
5,378
-
-
5,378
Derivative assets
-
1,212
-
1,212
-
1,505
-
1,505
Liabilities:
Derivative liabilities
-
452
-
452
-
1,178
-
1,178
(1)
Related to private label MBS.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
64
The table below presents
 
a reconciliation of the
 
beginning and ending balances
 
of all assets and
 
liabilities measured at fair
 
value on
a recurring
 
basis using
 
significant unobservable
 
inputs (Level
 
3) for
 
the quarters
 
and nine-month
 
periods ended
 
September 30,
 
2022
and 2021:
 
Quarter Ended September 30,
2022
2021
Level 3 Instruments Only
Debt Securities
 
Debt Securities
 
(In thousands)
Available For Sale
(1)
Available For Sale
(1)
Beginning balance
$
10,180
$
11,481
Total (losses) gains:
Included in other comprehensive income (unrealized)
(177)
191
Included in earnings (unrealized) (2)
12
9
Purchases
-
1,000
Principal repayments and amortization
(1,152)
(1,213)
Ending balance
$
8,863
$
11,468
(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.
Nine-Month Period Ended September 30,
2022
2021
Level 3 Instruments Only
Debt Securities
 
Debt Securities
 
(In thousands)
Available For Sale
(1)
Available For Sale
(1)
Beginning balance
$
11,084
$
11,977
Total (losses) gains:
Included in other comprehensive income (unrealized)
(570)
896
Included in earnings (unrealized) (2)
435
136
Purchases
-
1,000
Principal repayments and amortization
(2,086)
(2,541)
Ending balance
$
8,863
$
11,468
(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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
65
 
The tables below present quantitative information for significant assets and liabilities measured
 
at fair value on a recurring basis
using significant unobservable inputs (Level 3) as of September 30, 2022 and December
 
31, 2021:
September 30, 2022
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
(Dollars in thousands)
Minimum
 
Maximum
Available-for-sale debt securities:
Private label MBS
$
6,170
Discounted cash flows
Discount rate
16.4%
16.4%
16.4%
Prepayment rate
1.9%
17.4%
12.6%
Projected cumulative loss rate
0.2%
17.3%
6.9%
 
Puerto Rico government obligations
2,193
Discounted cash flows
Discount rate
13.0%
13.0%
13.0%
Projected cumulative loss rate
19.0%
19.0%
19.0%
December 31, 2021
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
(Dollars in thousands)
Minimum
 
Maximum
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
 
the
 
expected
 
recovery
 
of
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
66
Additionally,
 
fair value
 
is used
 
on a
 
nonrecurring basis
 
to evaluate
 
certain assets
 
in accordance
 
with GAAP.
 
As of
 
September 30,
2022,
 
the Corporation
 
recorded
 
losses or
 
valuation
 
adjustments
 
for
 
assets recognized
 
at fair
 
value
 
on a
 
non-recurring
 
basis and
 
still
held at September 30, 2022, and categorized as Level 3, as shown in
 
the following table:
Carrying value as of September 30, 2022
Related to losses recorded
for the Quarter Ended
September 30, 2022
Related to losses recorded
for the Nine-Month Period
Ended September 30, 2022
Losses recorded for the
Quarter Ended September
30, 2022
Losses recorded for the
Nine-Month Period Ended
September 30, 2022
(In thousands)
Loans receivable
(1)
$
4,207
$
27,531
$
(227)
$
(2,978)
OREO
 
(2)
1,234
2,913
(57)
(34)
Loans held for sale
12,169
12,169
(177)
(177)
Premises and equipment (3)
-
1,242
-
(218)
(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.
 
 
As of September 30, 2021, the Corporation recorded losses or valuation adjustments
 
for assets recognized at fair value on a non-
recurring basis and still held as of September 30, 2021 as shown in the following
 
table:
Carrying value as of September 30, 2021
Related to losses recorded
for the Quarter Ended
September 30, 2021
Related to losses recorded
for the Nine-Month Period
Ended September 30, 2021
Losses recorded for the
Quarter Ended September
30, 2021
Losses recorded for the
Nine-Month Period Ended
September 30, 2021
(In thousands)
Loans receivable
(1)
$
25,240
$
37,154
$
(1,612)
$
(5,285)
OREO
(2)
5,631
8,370
(53)
(210)
(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.
See Note
 
30 -
 
Fair Value
 
included
 
in the
 
2021 Annual
 
Report on
 
Form 10-K
 
for qualitative
 
information
 
regarding the
 
fair value
measurements for Level 3 financial instruments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
67
Fair Value
 
of Financial Instruments
The
 
following
 
tables
 
present
 
the
 
carrying
 
value,
 
estimated
 
fair
 
value
 
and
 
estimated
 
fair value
 
level
 
of
 
the
 
hierarchy
 
of
 
financial
instruments as of September 30, 2022 and December 31, 2021:
Total Carrying
Amount in
Statement of
Financial
Condition as of
September 30,
2022
Fair Value
Estimate as of
September 30,
2022
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money
 
market investments (amortized cost)
$
554,990
$
554,990
$
554,990
$
-
$
-
Debt securities available
 
for sale (fair value)
5,668,689
5,668,689
138,258
5,521,568
8,863
Debt securities held to maturity (amortized
 
cost)
445,862
Less: allowance for credit losses on
held-to-maturity debt securities
(8,257)
Debt securities held to maturity, net of allowance
$
437,605
429,530
-
268,552
160,978
Equity securities (amortized cost)
19,803
19,803
-
19,803
(1)
-
Other equity securities (fair value)
4,924
4,924
4,924
-
-
Loans held for sale (lower of cost or market)
12,169
12,169
-
12,169
-
Loans held for investment (amortized cost)
11,298,618
Less: allowance for credit losses for loans
 
and finance leases
(257,859)
Loans held for investment, net of allowance
$
11,040,759
10,986,720
-
-
10,986,720
MSRs (amortized cost)
29,690
44,621
-
-
44,621
Derivative assets (fair value)
(2)
1,212
1,212
-
1,212
-
Liabilities:
Deposits
 
(amortized cost)
$
16,569,581
$
16,553,140
$
-
$
16,553,140
$
-
Securities sold under agreements
 
to repurchase (amortized cost)
200,000
202,510
-
202,510
-
Other borrowings (amortized cost)
183,762
181,761
-
-
181,761
Derivative liabilities (fair value)
(2)
452
452
-
452
-
(1)
Includes FHLB stock with a carrying value of $
12.3
 
million.
(2)
Includes interest rate swap agreements, interest rate caps, forward contracts, interest rate lock commitments, and forward loan sales commitments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
68
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
$
-
$
-
Debt securities available
 
for sale (fair value)
6,453,761
6,453,761
148,486
6,294,191
11,084
Debt securities held to maturity (amortized
 
cost)
178,133
Less: allowance for credit losses on
held-to-maturity debt securities
(8,571)
Debt securities held to maturity, net of allowance
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: allowance for credit losses for loans
 
and finance leases
(269,030)
Loans held for investment, net of allowance
$
10,791,628
10,900,400
-
-
10,900,400
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.
(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 futures
 
cash flows, and appropriate discount rates.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
69
NOTE 19 – 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.
Disaggregation of Revenue
 
The following
 
table summarizes
 
the Corporation’s
 
revenue, which
 
includes net
 
interest income
 
on financial
 
instruments and
 
non-
interest income,
 
disaggregated by
 
type of
 
service and
 
business segment
 
for the quarters
 
and nine-month
 
periods ended
 
September 30,
2022 and 2021:
(In thousands)
Mortgage
Banking
Consumer
(Retail) Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
Quarter Ended September 30, 2022:
Net interest income
(1)
$
24,338
$
118,408
$
22,861
$
14,827
$
21,494
$
5,982
$
207,910
Service charges and fees on deposit accounts
-
5,744
3,169
-
151
756
9,820
Insurance commissions
(2)
-
2,485
-
-
16
123
2,624
Merchant-related income
-
1,458
347
-
32
330
2,167
Credit and debit card fees
-
7,209
21
-
(2)
439
7,667
Other service charges and fees
85
1,228
340
-
595
195
2,443
Not in scope of ASC Topic 606
(1)
3,648
997
399
33
(19)
(86)
4,972
Total non-interest income
3,733
19,121
4,276
33
773
1,757
29,693
Total Revenue
$
28,071
$
137,529
$
27,137
$
14,860
$
22,267
$
7,739
$
237,603
(In thousands)
Mortgage
Banking
Consumer
(Retail) Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
Quarter Ended September 30, 2021:
Net interest income
(1)
$
26,535
$
75,343
$
46,358
$
12,756
$
17,255
$
6,496
$
184,743
Service charges and fees on deposit accounts
-
5,076
2,855
-
128
631
8,690
Insurance commissions
(2)
-
2,183
-
-
25
109
2,317
Merchant-related income
-
1,878
263
-
14
266
2,421
Credit and debit card fees
-
6,897
22
-
-
394
7,313
Other service charges and fees
211
1,018
715
-
462
150
2,556
Not in scope of ASC Topic 606
(1)
5,710
492
39
61
336
11
6,649
Total non-interest income
5,921
17,544
3,894
61
965
1,561
29,946
Total Revenue
$
32,456
$
92,887
$
50,252
$
12,817
$
18,220
$
8,057
$
214,689
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
70
(In thousands)
Mortgage
Banking
Consumer
(Retail) Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
Nine-Month Period Ended September 30, 2022:
Net interest income
(1)
$
76,452
$
310,351
$
94,655
$
33,702
$
56,664
$
17,896
$
589,720
Service charges and fees on deposit accounts
-
16,778
9,214
-
446
2,211
28,649
Insurance commissions
(2)
-
10,176
-
-
65
604
10,845
Merchant-related income
-
4,991
1,101
-
54
1,046
7,192
Credit and debit card fees
-
21,271
58
-
(6)
1,298
22,621
Other service charges and fees
287
4,404
2,329
-
1,579
509
9,108
Not in scope of ASC Topic 606
(1)
12,865
1,747
576
(130)
57
(38)
15,077
Total non-interest income
13,152
59,367
13,278
(130)
2,195
5,630
93,492
Total Revenue
$
89,604
$
369,718
$
107,933
$
33,572
$
58,859
$
23,526
$
683,212
(In thousands)
Mortgage
Banking
Consumer
(Retail) Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
Nine-Month Period Ended September 30, 2021:
Net interest income
(1)
$
78,106
$
198,577
$
146,837
$
53,378
$
48,684
$
20,209
$
545,791
Service charges and fees on deposit accounts
-
14,518
8,813
-
412
2,039
25,782
Insurance commissions
(2)
-
9,137
-
-
82
555
9,774
Merchant-related income
-
4,710
776
-
39
752
6,277
Credit and debit card fees
-
19,163
62
-
14
1,168
20,407
Other service charges and fees
561
2,729
1,927
-
1,351
438
7,006
Not in scope of ASC Topic 606
(1)
18,613
1,256
352
202
1,110
7
21,540
 
Total non-interest income
19,174
51,513
11,930
202
3,008
4,959
90,786
Total Revenue
$
97,280
$
250,090
$
158,767
$
53,580
$
51,692
$
25,168
$
636,577
(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)
Contingent commission income is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or payments are
received. For the nine-month period ended September 30, 2022, the Corporation recognized revenue at the time that payments were confirmed and constraints were released of $
3.2
 
million, compared to $
3.3
 
million
for the nine-month period ended September 30, 2021.
No
 
revenue was recognized during the quarters ended September 30, 2022 and 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
71
For the nine-month periods
 
ended September 30, 2022 and
 
2021, most of the Corporation’s
 
revenue within the scope
 
of ASC Topic
606 was related to performance obligations satisfied at a point in time.
 
See
 
Note
 
31
 
–
 
Revenue
 
from
 
Contracts
 
with
 
Customers
 
included
 
in
 
the
 
2021
 
Annual
 
Report
 
on
 
Form
 
10-K
 
for
 
a
 
discussion
 
of
major revenue streams under the scope of ASC Topic
 
606.
Contract Balances
 
As of September
 
30, 2022 and 2021,
 
there were
no
 
contract assets from
 
contracts with customers
 
or contract assets
 
recorded on the
Corporation’s consolidated
 
financial statements.
 
The following table shows
 
the activity of contract
 
liabilities for the quarters
 
and nine-month periods
 
ended
 
September 30, 2022 and
2021:
 
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
(In thousands)
2022
2021
2022
2021
Beginning Balance
$
1,049
$
1,989
$
1,443
$
2,151
Less:
Revenue recognized
(104)
(433)
(498)
(595)
Ending balance
$
945
$
1,556
$
945
$
1,556
Other
Except
 
for
 
the
 
contract
 
liabilities
 
noted
 
above,
 
the
 
Corporation
 
did
 
not
 
have
 
any
 
significant
 
performance
 
obligations
 
as
 
of
September
 
30,
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
72
NOTE 20 –
 
SUPPLEMENTAL STATEMENT OF
 
CASH FLOWS
 
INFORMATION
 
Supplemental
 
cash flow
 
information
 
is as follows
 
for the
 
indicated
 
periods:
Nine-Month Period Ended September 30,
2022
2021
(In thousands)
Cash paid for:
Interest on borrowings
$
41,205
$
53,659
Income tax
22,943
13,448
Operating cash flow from operating leases
13,759
14,655
Non-cash investing and financing activities:
Additions to OREO
13,653
14,748
Additions to auto and other repossessed assets
33,119
25,647
Capitalization of servicing assets
2,637
4,046
Loan securitizations
113,757
148,223
Loans held for investment transferred to held for sale
3,893
32,858
Right-of-use ("ROU") assets obtained in exchange for operating lease
 
liabilities
2,297
5,518
Unsettled purchases of investment securities
-
46,720
Unsettled common stock shares repurchases
467
517
73
NOTE 21 –
 
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
 
September
 
30,
 
2022,
 
the
 
Corporation
 
had
six
reportable segments: Commercial and
 
Corporate Banking; Mortgage Banking;
 
Consumer (Retail) Banking; Treasury
 
and Investments;
United
 
States
 
Operations;
 
and
 
Virgin
 
Islands
 
Operations.
 
Management
 
determined
 
the
 
reportable
 
segments
 
based
 
on
 
the
 
internal
structure
 
used
 
to
 
evaluate
 
performance
 
and
 
to
 
assess
 
where
 
to
 
allocate
 
resources.
 
Other
 
factors,
 
such
 
as
 
the
 
Corporation’s
organizational
 
chart,
 
nature
 
of
 
the
 
products,
 
distribution
 
channels,
 
and
 
the
 
economic
 
characteristics
 
of
 
the
 
products,
 
were
 
also
considered in the determination of the reportable segments.
The
 
Commercial
 
and
 
Corporate
 
Banking
 
segment
 
consists
 
of
 
the
 
Corporation’s
 
lending
 
and
 
other
 
services
 
for
 
large
 
customers
represented
 
by specialized
 
and middle-market
 
clients and
 
the public
 
sector.
 
The Commercial
 
and Corporate
 
Banking segment
 
offers
commercial loans,
 
including commercial
 
real estate
 
and construction
 
loans, and
 
floor plan financings,
 
as well
 
as other
 
products, such
as
 
cash
 
management
 
and
 
business
 
management
 
services.
 
The
 
Mortgage
 
Banking
 
segment
 
consists
 
of
 
the
 
origination,
 
sale,
 
and
servicing
 
of
 
a
 
variety
 
of
 
residential
 
mortgage
 
loans.
 
The
 
Mortgage
 
Banking
 
segment
 
also
 
acquires
 
and
 
sells
 
mortgages
 
in
 
the
secondary
 
markets.
 
In
 
addition,
 
the
 
Mortgage
 
Banking
 
segment
 
includes
 
mortgage
 
loans
 
purchased
 
from
 
other
 
local
 
banks
 
and
mortgage
 
bankers.
 
The
 
Consumer
 
(Retail)
 
Banking
 
segment
 
consists
 
of
 
the
 
Corporation’s
 
consumer
 
lending
 
and
 
deposit-taking
activities conducted mainly
 
through its branch network
 
and loan centers. The
 
Treasury and Investments
 
segment is responsible
 
for the
Corporation’s
 
investment
 
portfolio
 
and
 
treasury
 
functions
 
that
 
are
 
executed
 
to
 
manage
 
and
 
enhance
 
liquidity.
 
This
 
segment
 
lends
funds
 
to
 
the
 
Commercial
 
and
 
Corporate
 
Banking,
 
Mortgage
 
Banking,
 
Consumer
 
(Retail)
 
Banking
 
and
 
United
 
States
 
Operations
segments
 
to
 
finance
 
their
 
lending
 
activities
 
and
 
borrows
 
from
 
those
 
segments.
 
The
 
Consumer
 
(Retail)
 
Banking
 
segment
 
also
 
lends
funds to
 
other segments.
 
The interest
 
rates charged
 
or credited
 
by the
 
Treasury
 
and Investments
 
and the
 
Consumer (Retail)
 
Banking
segments are
 
allocated based
 
on market
 
rates. The
 
difference between
 
the allocated
 
interest income
 
or expense
 
and the Corporation’s
actual
 
net
 
interest income
 
from
 
centralized
 
management
 
of funding
 
costs is
 
reported
 
in the
 
Treasury
 
and Investments
 
segment.
 
The
United States
 
Operations segment
 
consists of
 
all banking
 
activities conducted
 
by FirstBank
 
in the
 
United States
 
mainland,
 
including
commercial and consumer banking
 
services. The Virgin
 
Islands Operations segment consists of all
 
banking activities conducted by the
Corporation in the USVI and BVI, including commercial and consumer
 
banking services.
The
 
accounting
 
policies
 
of
 
the
 
segments
 
are
 
the
 
same
 
as
 
those
 
referred
 
to
 
in
 
Note
 
1
 
–
 
Nature
 
of
 
Business
 
and
 
Summary
 
of
Significant
 
Accounting
 
Policies,
 
in
 
the audited
 
consolidated
 
financial
 
statements,
 
which are
 
included
 
in
 
the 2021
 
Annual Report
 
on
Form 10-K.
The
 
Corporation
 
evaluates
 
the
 
performance
 
of
 
the
 
segments
 
based
 
on
 
net
 
interest
 
income,
 
the
 
provision
 
for
 
credit
 
losses,
 
non-
interest
 
income
 
and
 
direct
 
non-interest
 
expenses.
 
The
 
segments
 
are
 
also
 
evaluated
 
based
 
on
 
the
 
average
 
volume
 
of
 
their
 
interest-
earning assets less the ACL.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
74
The following tables present information about the reportable segments for
 
the indicated periods:
(In thousands)
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
For the Quarter Ended September 30, 2022:
Interest income
$
32,349
$
77,576
$
53,506
$
28,203
$
24,804
$
6,245
$
222,683
Net (charge) credit for transfer of funds
(8,011)
47,577
(30,645)
(8,447)
(474)
-
-
Interest expense
-
(6,745)
-
(4,929)
(2,836)
(263)
(14,773)
Net interest income
 
24,338
118,408
22,861
14,827
21,494
5,982
207,910
Provision for credit losses - expense (benefit)
 
2,092
16,705
(3,519)
(12)
(624)
1,141
15,783
Non-interest income (loss)
3,733
19,121
4,276
33
773
1,757
29,693
Direct non-interest expenses
6,489
42,080
9,295
942
8,479
7,097
74,382
Segment income (loss)
$
19,490
$
78,744
$
21,361
$
13,930
$
14,412
$
(499)
$
147,438
Average earnings assets
$
2,211,675
$
2,974,894
$
3,622,907
$
7,095,503
$
2,040,656
$
365,743
$
18,311,378
(In thousands)
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
For the Quarter Ended September 30, 2021:
Interest income
$
35,722
$
68,883
$
48,558
$
19,342
$
20,847
$
6,820
$
200,172
Net (charge) credit for transfer of funds
(9,187)
13,094
(2,200)
(909)
(798)
-
-
Interest expense
-
(6,634)
-
(5,677)
(2,794)
(324)
(15,429)
Net interest income
 
26,535
75,343
46,358
12,756
17,255
6,496
184,743
Provision for credit losses expense - (benefit) expense
(10,210)
6,532
(8,332)
(9)
(1,158)
1,095
(12,082)
Non-interest income
5,921
17,544
3,894
61
965
1,561
29,946
Direct non-interest expenses
6,792
40,130
7,916
803
8,343
7,120
71,104
Segment income (loss)
$
35,874
$
46,225
$
50,668
$
12,023
$
11,035
$
(158)
$
155,667
Average earnings assets
$
2,446,111
$
2,590,938
$
3,655,172
$
8,751,623
$
2,177,681
$
425,872
$
20,047,397
(In thousands)
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
Nine-Month Period Ended September 30, 2022
Interest income
$
98,625
$
221,500
$
148,046
$
77,530
$
64,742
$
18,719
$
629,162
Net (charge) credit for transfer of funds
(22,173)
105,898
(53,391)
(29,101)
(1,233)
-
-
Interest expense
-
(17,047)
-
(14,727)
(6,845)
(823)
(39,442)
Net interest income
 
76,452
310,351
94,655
33,702
56,664
17,896
589,720
Provision for credit losses - (benefit) expense
(5,216)
42,904
(20,611)
(435)
(5,849)
1,191
11,984
Non-interest income (loss)
13,152
59,367
13,278
(130)
2,195
5,630
93,492
Direct non-interest expenses
19,076
121,897
27,202
2,732
25,195
20,835
216,937
Segment income
$
75,744
$
204,917
$
101,342
$
31,275
$
39,513
$
1,500
$
454,291
Average earnings assets
$
2,249,203
$
2,865,610
$
3,654,906
$
7,642,121
$
2,047,375
$
371,468
$
18,830,683
(In thousands)
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
Nine-Month Period Ended September 30, 2021
Interest income
$
109,727
$
200,853
$
153,849
$
48,812
$
61,830
$
21,202
$
596,273
Net (charge) credit for transfer of funds
(31,621)
20,050
(7,012)
22,216
(3,633)
-
-
Interest expense
-
(22,326)
-
(17,650)
(9,513)
(993)
(50,482)
Net interest income
 
78,106
198,577
146,837
53,378
48,684
20,209
545,791
Provision for credit losses - (benefit) expense
(9,966)
11,285
(53,263)
(136)
(535)
(874)
(53,489)
Non-interest income
19,174
51,513
11,930
202
3,008
4,959
90,786
Direct non-interest expenses
22,314
124,476
27,752
3,164
25,740
21,826
225,272
Segment income
$
84,932
$
114,329
$
184,278
$
50,552
$
26,487
$
4,216
$
464,794
Average earnings assets
$
2,555,476
$
2,508,777
$
3,855,854
$
7,535,752
$
2,120,144
$
438,024
$
19,014,027
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
75
The
 
following
 
table
 
presents
 
a
 
reconciliation
 
of
 
the
 
reportable
 
segment
 
financial
 
information
 
to
 
the
 
consolidated
 
totals
 
for
 
the
indicated periods:
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
2022
2021
2022
2021
(In thousands)
Net income:
 
Total income
 
for segments
$
147,438
$
155,667
$
454,291
$
464,794
Other operating expenses (1)
40,807
42,932
113,237
152,237
Income before income taxes
106,631
112,735
 
341,054
312,557
Income tax expense
32,028
37,057
109,156
105,171
Total consolidated
 
net income
$
74,603
$
75,678
$
231,898
$
207,386
Average assets:
Total average
 
earning assets for segments
 
$
18,311,378
$
20,047,397
$
18,830,683
$
19,014,027
Average non-earning
 
assets
 
835,740
1,024,385
873,911
1,105,223
Total consolidated
 
average assets
$
19,147,118
$
21,071,782
$
19,704,594
$
20,119,250
(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.
76
NOTE 22 –
 
REGULATORY MATTERS, COMMITMENTS
 
AND CONTINGENCIES
The
 
Corporation
 
and
 
FirstBank
 
are
 
each
 
subject
 
to
 
various
 
regulatory
 
capital
 
requirements
 
imposed
 
by
 
the
 
U.S.
 
federal
 
banking
agencies. Failure
 
to meet
 
minimum capital
 
requirements can
 
result in
 
certain mandatory
 
and possibly
 
additional discretionary
 
actions
by regulators
 
that, if
 
undertaken, could
 
have a
 
direct material
 
adverse effect
 
on the
 
Corporation’s
 
financial statements
 
and activities.
Under
 
capital
 
adequacy
 
guidelines
 
and
 
the
 
regulatory
 
framework
 
for
 
prompt
 
corrective
 
action,
 
the
 
Corporation
 
must
 
meet
 
specific
capital
 
guidelines
 
that
 
involve
 
quantitative
 
measures
 
of
 
the Corporation’s
 
and
 
FirstBank’s
 
assets,
 
liabilities,
 
and
 
certain
 
off-balance
sheet items
 
as calculated
 
under regulatory
 
accounting practices.
 
The Corporation’s
 
capital amounts
 
and classification
 
are also
 
subject
to qualitative judgments and
 
adjustment by the regulators with respect
 
to minimum capital requirements, components,
 
risk weightings,
and
 
other
 
factors.
 
As
 
of
 
September
 
30,
 
2022
 
and
 
December
 
31,
 
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
 
September
 
30,
 
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
 
September
 
30,
 
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 phased-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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
77
The regulatory
 
capital positions of
 
the Corporation
 
and FirstBank as
 
of September
 
30, 2022 and
 
December 31, 2021,
 
which reflect
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 September 30, 2022
Total Capital (to Risk-Weighted
 
Assets)
First BanCorp.
$
2,364,266
19.38
%
$
976,183
8.0
%
N/A
N/A
FirstBank
$
2,326,477
19.07
%
$
975,810
8.0
%
$
1,219,762
10.0
%
CET1 Capital (to Risk-Weighted Assets)
First BanCorp.
$
2,033,421
16.66
%
$
549,103
4.5
%
N/A
N/A
FirstBank
$
2,073,940
17.00
%
$
548,893
4.5
%
$
792,845
6.5
%
Tier I Capital (to Risk-Weighted Assets)
First BanCorp.
$
2,033,421
16.66
%
$
732,137
6.0
%
N/A
N/A
FirstBank
$
2,173,940
17.82
%
$
731,857
6.0
%
$
975,810
8.0
%
Leverage ratio
First BanCorp.
$
2,033,421
10.36
%
$
785,379
4.0
%
N/A
N/A
FirstBank
$
2,173,940
11.08
%
$
785,053
4.0
%
$
981,316
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
%
78
The Corporation enters
 
into financial instruments
 
with off-balance sheet
 
risk in the normal
 
course of business to
 
meet the financing
needs
 
of
 
its
 
customers.
 
These
 
financial
 
instruments
 
may
 
include
 
commitments
 
to
 
extend
 
credit
 
and
 
standby
 
letters
 
of
 
credits.
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. As
of September
 
30, 2022,
 
commitments to
 
extend credit
 
amounted to
 
approximately $
1.9
 
billion, of
 
which $
1.0
 
billion relates
 
to credit
card loans. Commercial and financial standby letters of credit amounted
 
to approximately $
94.0
 
million.
 
As of September
 
30, 2022, First
 
BanCorp. and
 
its subsidiaries were
 
defendants in
 
various legal proceed
 
ings, 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 September 30, 2022, no such disclosures were necessary.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
79
NOTE 23 –
 
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
September
 
30, 2022 and
 
December 31,
 
2021, and the
 
results of
 
its operations
 
for the quarters
 
and nine-month
 
periods ended
 
September
 
30,
2022 and
 
2021:
Statements of Financial Condition
(Unaudited)
As of September 30,
As of December 31,
2022
2021
(In thousands)
Assets
Cash and due from banks
$
18,298
$
20,751
Other investment securities
735
285
Investment in First Bank Puerto Rico, at equity
1,408,435
2,247,289
Investment in First Bank Insurance Agency,
 
at equity
24,501
19,521
Investment in FBP Statutory Trust I
1,951
1,951
Investment in FBP Statutory Trust II
3,561
3,561
Dividend receivable
523
295
Other assets
155
71
Total assets
$
1,458,159
$
2,293,724
Liabilities and Stockholdersʼ Equity
Liabilities:
Other borrowings
 
$
183,762
$
183,762
Accounts payable and other liabilities
9,064
8,195
Total liabilities
192,826
191,957
Stockholdersʼ equity
1,265,333
2,101,767
Total liabilities and stockholdersʼ
 
equity
$
1,458,159
$
2,293,724
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
80
Statements of Income
(Unaudited)
Quarter Ended September
30,
Nine-Month Period Ended
September 30,
2022
2021
2022
2021
(In thousands)
Income:
Interest income on money market investments
$
19
$
13
$
33
$
37
Dividend income from banking subsidiaries
49,728
15,555
292,000
50,684
Dividend income from non-banking subsidiaries
-
30,000
-
30,000
Other income
68
39
159
116
Total income
49,815
45,607
292,192
80,837
Expense:
Other borrowings
2,273
1,277
5,304
3,856
Other operating expenses
422
358
1,295
1,494
Total expenses
2,695
1,635
6,599
5,350
Income before income taxes and equity in undistributed
 
earnings of subsidiaries
47,120
43,972
285,593
75,487
Income tax expense
735
556
2,634
2,344
Equity in undistributed earnings of subsidiaries
(distributions in excess of earnings)
28,218
32,262
(51,061)
134,243
Net income
$
74,603
$
75,678
$
231,898
$
207,386
Other comprehensive loss, net of tax
(270,937)
(18,740)
(778,694)
(89,173)
Comprehensive (loss) income
$
(196,334)
$
56,938
$
(546,796)
$
118,213
81
ITEM 2. MANAGEMENT’S
 
DISCUSSION
 
AND ANALYSIS OF
 
FINANCIAL
 
CONDITION
 
AND RESULTS OF
OPERATIONS (“MD&A”)
The
 
following
 
MD&A
 
relates
 
to
 
the
 
accompanying
 
unaudited
 
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 and our
 
Annual Report on
 
Form 10-K for the
 
year ended December
 
31, 2021 (the “2021
 
Annual Report on
 
Form 10-K”). This
section
 
also
 
presents
 
certain
 
financial
 
measures
 
that
 
are
 
not
 
based
 
on
 
generally
 
accepted
 
accounting
 
principles
 
in
 
the United
 
States
(“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.
EXECUTIVE SUMMARY
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, finance
 
leases, credit cards,
 
personal loans, small
 
loans, auto loans,
and insurance agency activities.
 
Recent Developments
Natural Disaster Affecting First BanCorp. In the Third
 
Quarter Of 2022
On
 
September
 
17,
 
2022,
 
Hurricane
 
Fiona
 
made
 
landfall
 
in
 
the
 
southwestern
 
part
 
of
 
Puerto
 
Rico
 
as
 
a
 
Category
 
1
 
storm.
 
The
hurricane principally caused major flooding, property damage, power
 
outages and water service interruptions.
 
Disaster Response Plan
The Bank was able to
 
resume operations the day
 
after Hurricane Fiona made
 
landfall in Puerto Rico,
 
and two days after the
 
passing
of the
 
hurricane, the
 
Bank had
 
already reopened
 
approximately 75%
 
of its
 
branches while
 
headquarters and
 
main buildings
 
remained
fully operational
 
throughout the events.
 
By September 28,
 
2022, 98% of
 
its branches had
 
resumed operations.
 
Only one branch
 
in the
southern part of Puerto Rico, which was a leased premise, suffered
 
major damages and is expected to reopen in 2023.
 
In response
 
to this
 
event, the
 
Corporation established
 
a Natural
 
Disaster Deferral
 
or Extension
 
Program, with
 
a term
 
not to
 
extend
beyond
 
December
 
31,
 
2022,
 
for
 
residents
 
of
 
Puerto
 
Rico
 
that
 
were
 
directly
 
impacted
 
by
 
the
 
passing
 
of
 
the
 
hurricane
 
and
 
whose
accounts were no
 
more than 60 days
 
past due. This
 
program provides payment
 
deferral or term
 
extension on a
 
one payment basis,
 
not
to
 
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
 
(for
 
additional
information about
 
this program, refer
 
to “Financial Condition
 
and Operating Data
 
Analysis – Early
 
Delinquency”). As of
 
October 31,
2022,
 
the
 
Corporation
 
has
 
entered
 
into
 
deferral
 
or
 
extension
 
payment
 
agreements
 
on
 
3,366
 
retail
 
loans
 
totaling
 
$63.6
 
million. In
addition,
 
the
 
Corporation
 
waived
 
any
 
late charges
 
assessed
 
as a
 
result
 
of the
 
delinquency
 
caused
 
by the
 
hurricane
 
for
 
all borrowers
affected
 
by
 
Hurricane
 
Fiona
 
from
 
September
 
16th
 
to
 
September
 
30th.
 
It
 
also
 
waived
 
withdrawal
 
fees
 
assessed
 
to
 
its
 
customers
 
at
automatic teller
 
machines (“ATMs
 
”) outside
 
its network
 
and ATM
 
withdrawal fees
 
for customers
 
of other
 
banking institutions
 
from
September 22
nd
 
to September 30th.
In
 
addition,
 
the
 
Corporation
 
established
 
the
 
following
 
disaster
 
relief
 
efforts
 
to
 
provide
 
assistance
 
to
 
the
 
communities
 
and
 
clients
affected by Hurricane Fiona:
●
Donations of $0.3 million to non-profit organizations
 
in the municipalities most affected by the Hurricane
●
Collection of essential supplies and monetary donations
 
FDIC Final Rule to Increase Deposit Insurance
 
Assessment Rate
On October
 
18, 2022,
 
the Federal
 
Deposit Insurance
 
Corporation (“FDIC”)
 
adopted a
 
final rule
 
to increase
 
the initial
 
base deposit
insurance
 
assessment
 
rate
 
schedules
 
uniformly
 
by
 
2
 
basis
 
points
 
beginning
 
in
 
the
 
first
 
quarterly
 
assessment
 
period
 
of
 
2023.
 
The
Corporation is awaiting final regulatory instructions to finalize the estimate.
 
 
 
82
Stock Repurchase Program
 
 
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,
 
expected to
 
be executed
 
over four
 
quarters, 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
 
under
 
plans
 
complying
 
with
 
Rule
 
10b5-1
under the Exchange Act.
 
The Corporation’s
 
stock repurchase program is
 
subject to various factors,
 
including the Corporation’s
 
capital
position, liquidity,
 
financial performance
 
and alternative uses
 
of capital, stock
 
trading price, and
 
general market conditions.
 
The stock
repurchase program
 
may be modified,
 
extended, suspended,
 
or terminated
 
at any time
 
at the Corporation’s
 
discretion.
 
As of
 
October
31,
 
2022,
 
the
 
Corporation
 
has
 
repurchased
 
approximately
 
14.1
 
million
 
shares
 
of
 
common
 
stock
 
for
 
a
 
total
 
purchase
 
price
 
of
 
$200
million under
 
the $350 million
 
stock repurchased
 
program. For the
 
nine-month period
 
ended September 30,
 
2022, First BanCorp.
 
has
repurchased approximately 15.9 million shares for a total purchase price
 
of $225.0 million under all stock repurchase programs.
LIBOR Transition
In March
 
2021, the
 
United Kingdom’s
 
Financial
 
Conduct Authority
 
(the “FCA”)
 
confirmed that
 
publication
 
of the
 
overnight and
one-month,
 
three-month, six-month
 
and twelve-month
 
U.S. Dollar
 
LIBOR settings
 
will cease
 
or become
 
no longer
 
representative of
the
 
market
 
the
 
rates
 
seek
 
to
 
measure
 
(i.e.,
 
non-representative)
 
immediately
 
after
 
June
 
30,
 
2023,
 
and
 
all
 
other
 
U.S.
 
Dollar
 
LIBOR
settings, including the one week and two-month U.S.
 
Dollar LIBOR settings, became non-representative after December 31,
 
2021. See
“Executive
 
Summary
 
—
 
Recent
 
Developments
 
—
 
LIBOR
 
Transition”
 
in
 
the
 
MD&A
 
of
 
the
 
Corporation’s
 
2021
 
Annual
 
Report
 
on
Form 10-K for additional information.
On March 15, 2022, President Biden
 
signed the Adjustable Interest Rate Act (the
 
“LIBOR Act”) into law.
 
The LIBOR Act provides
a nationwide framework
 
for transitioning legacy
 
contracts that either lack
 
or contain insufficient
 
contractual provisions
 
addressing the
permanent cessation
 
of LIBOR to
 
a benchmark interest
 
rate. Under the
 
LIBOR Act, references
 
to the most
 
common tenors of
 
LIBOR
(overnight,
 
one-month,
 
three-month,
 
six-month,
 
and
 
twelve-month
 
tenors)
 
in
 
these
 
contracts
 
will
 
be
 
replaced
 
as
 
a
 
matter
 
of
 
law,
without
 
the
 
need
 
to be
 
amended,
 
to
 
a
 
replacement
 
benchmark
 
interest
 
rate.
 
Any
 
Federal
 
Reserve-identified
 
replacement
 
benchmark
interest rate will be based
 
on the SOFR and will
 
include an appropriate “tenor
 
spread adjustment” to reflect historical
 
spreads between
LIBOR
 
and
 
SOFR.
 
The
 
statute
 
also
 
provides
 
a
 
“safe
 
harbor,”
 
under
 
which
 
a
 
party
 
that
 
has
 
discretion
 
to
 
select
 
a
 
replacement
 
for
LIBOR may choose
 
to adopt
 
the replacement
 
benchmark identified
 
by the Federal
 
Reserve. The
 
LIBOR Act preempts
 
state and
 
local
laws
 
(including
 
any
 
territory
 
or
 
possession)
 
that
 
limit
 
the
 
manner
 
interest
 
is
 
calculated
 
with
 
respect
 
to
 
the
 
replacement
 
benchmark
interest rate.
 
As
 
of
 
September
 
30,
 
2022,
 
the
 
Corporation’s
 
LIBOR
 
exposure
 
consisted
 
of
 
the
 
following:
 
(i)
 
$1.7
 
billion
 
of
 
variable
 
rate
commercial
 
and
 
construction
 
loans
 
(including
 
unused
 
commitments),
 
(ii)
 
$46.6
 
million
 
of
 
U.S.
 
agencies
 
debt
 
securities
 
and
 
private
label MBS held as
 
part of the
 
available-for-sale debt securities
 
portfolio, (iii) $124.1
 
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 (other
 
borrowings).
Of
 
the
 
Corporation’s
 
total
 
LIBOR
 
exposure
 
as
 
of
 
September
 
30,
 
2022,
 
approximately
 
$359.4
 
million
 
does
 
not
 
contain
 
fallback
language
 
and
 
is
 
mostly
 
comprised
 
of
 
$124.1
 
million
 
of
 
Puerto
 
Rico
 
municipalities
 
bonds
 
held
 
as
 
part
 
of
 
the
 
held-to-maturity
 
debt
securities portfolio
 
and $183.8
 
million of
 
other borrowings.
 
The Corporation
 
expects to
 
follow the
 
provisions of
 
the LIBOR
 
Act 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
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
83
CRITICAL ACCOUNTING POLICIES AND PRACTICES
The
 
accounting
 
principles
 
of
 
the
 
Corporation
 
and
 
the
 
methods
 
of
 
applying
 
these
 
principles
 
conform
 
to
 
GAAP.
 
In
 
preparing
 
the
consolidated
 
financial
 
statements,
 
management
 
is
 
required
 
to
 
make
 
estimates,
 
assumptions,
 
and
 
judgments
 
that
 
affect
 
the
 
amounts
recorded for assets,
 
liabilities and contingent
 
liabilities as of
 
the date of
 
the financial statements
 
and the reported
 
amounts of revenues
and
 
expenses during
 
the reporting
 
periods.
 
Except
 
for the
 
change
 
in accounting
 
method for
 
accounting of
 
treasury stock
 
from a
 
par
value
 
to
 
a
 
cost
 
method
 
as
 
described
 
in
 
Note
 
1-
 
Basis
 
of
 
Presentation
 
and
 
Significant
 
Accounting
 
Policies
 
of
 
the
 
accompanying
financial statements, the
 
Corporation’s
 
significant accounting
 
policies are
 
described in
 
Note 1
 
– Nature
 
of Business
 
and Summary
 
of
Significant Accounting Policies to the consolidated financial statements included
 
in the 2021 Annual Report on Form 10-K.
 
Not all significant
 
accounting policies require
 
management to make
 
difficult, subjective
 
or complex judgments.
 
The Corporation’s
critical accounting
 
estimates that
 
are particularly
 
susceptible
 
to significant
 
changes include,
 
but are
 
not limited
 
to, the
 
following:
 
(i)
the allowance
 
for credit
 
losses (“ACL”);
 
(ii) valuation
 
of financial
 
instruments; (iii)
 
acquired loans;
 
and (iv)
 
income taxes.
 
For more
information,
 
see
 
“Critical
 
Accounting
 
Policies
 
and
 
Practices”
 
in
 
the
 
MD&A
 
of
 
the
 
2021
 
Annual
 
Report
 
on
 
Form
 
10-K
 
and
 
“Risk
Management - Credit Risk
 
Management” below for
 
information on the ACL estimation
 
methodology.
 
Actual results could differ
 
from
estimates and assumptions if different outcomes or conditions prevail.
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:
 
the interest
 
rate environment;
 
the volumes,
 
mix and
 
composition of
 
interest-earning
 
assets and
 
interest-bearing
 
liabilities;
and the re-pricing characteristics of these assets and liabilities. The
 
Corporation's results of operations also depend on the provision
 
for
credit
 
losses,
 
non-interest
 
expenses
 
(such
 
as
 
personnel,
 
occupancy,
 
the
 
deposit
 
insurance
 
premium
 
and
 
other
 
costs),
 
non-interest
income (mainly
 
service charges
 
and fees on
 
deposits, and
 
insurance income),
 
gains (losses) on
 
sales of investments,
 
gains (losses)
 
on
mortgage banking activities, and income taxes.
The Corporation
 
had net
 
income of
 
$74.6 million,
 
or $0.40
 
per diluted
 
common share,
 
for the
 
quarter ended
 
September 30,
 
2022,
compared
 
to
 
$75.7
 
million,
 
or
 
$0.36
 
per
 
diluted
 
common
 
share,
 
for
 
the
 
same
 
period
 
in
 
2021.
 
Other
 
relevant
 
selected
 
financial
indicators for the periods presented is included below:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2022
2021
2022
2021
Key Performance Indicators:
(1)
Return on Average
 
Assets
 
(2)
1.55
%
1.42
%
1.57
%
1.38
%
Return on Average
 
Total Equity
(3)
19.00
13.43
17.73
12.28
Efficiency Ratio
(4)
48.48
53.12
48.33
59.30
(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 on an annualized basis
 
by its average total assets.
(3)
Measures the Corporation’s performance
 
based on its average stockholders’ equity and is calculated
 
by dividing net income on an annualized basis 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.
84
The
 
key
 
drivers
 
of
 
the
 
Corporation’s
 
GAAP
 
financial
 
results
 
for
 
the
 
quarter
 
ended
 
September
 
30,
 
2022,
 
compared
 
to
 
the
 
same
period in 2021, include the following:
●
Net
 
interest income for
 
the quarter
 
ended September 30,
 
2022 was
 
$207.9 million,
 
compared to
 
$184.7 million
 
for
 
the
 
third
quarter of
 
2021. The
 
increase
 
was mainly
 
driven by
 
the positive
 
impact of
 
upward repricing
 
of variable-rate
 
commercial
 
loans and
interest-bearing
 
cash balances
 
maintained
 
at the FED, growth
 
in the consumer
 
loans and finance
 
leases portfolio
 
and a lower U.S.
agencies MBS premium amortization
 
expense, partially
 
offset by lower interest and realized deferred fees from SBA PPP loans
and higher
 
cost of
 
funds.
 
The net
 
interest margin
 
increased by
 
71 basis
 
points to
 
4.31%
 
for the
 
third quarter
 
of 2022,
 
compared
 
to 3.60%
 
for the third
quarter
 
of
 
2021.
 
The
 
increase
 
was
 
primarily
 
attributable
 
to
 
the
 
aforementioned
 
higher
 
interest
 
rate
 
environment
 
driving
 
an
increase
 
in
 
loans
 
and
 
investment
 
securities
 
yields,
 
as well
 
as a
 
decrease
 
in
 
long-term
 
debt
 
and
 
changes
 
in the
 
overall
 
asset
mix. 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 third
 
quarter of
2022 was an
 
expense of
 
$15.8 million,
 
compared
 
to a net
 
benefit of
 
$12.1 million
 
for the third
 
quarter of
 
2021. The
 
increase
 
in the
overall provision was driven in part by the increase in
 
the provision for the consumer loans
 
and finance leases portfolio for the
third quarter of 2022 which reflects
 
an overall increase in the size of this portfolio,
 
an increase in charge-off levels associated
 
to
the overall
 
portfolio
 
growth,
 
and a deterioration
 
in the long-term
 
outlook
 
of certain
 
macroeconomic
 
variables.
Net
 
charge-offs
 
totaled
 
$8.6
 
million
 
for
 
the
 
third
 
quarter
 
of
 
2022,
 
or
 
0.31%
 
of
 
average
 
loans
 
on
 
an
 
annualized
 
basis,
compared to $27.9
 
million, or 0.99%
 
of average loans
 
for the same period
 
in 2021. Total
 
net charge-offs
 
for the third quarter
of 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 the
 
third quarter
of 2021 were $4.9
 
million, or an annualized
 
0.17% of average loans. Excluding
 
the aforementioned bulk sale,
 
net charge-offs
increased by
 
$3.7 million
 
mainly in
 
consumer loans
 
driven by
 
loan portfolio
 
growth. See
 
“Provision for
 
Credit Losses”
 
and
“Risk
 
Management”
 
below
 
for
 
analyses
 
of
 
the
 
allowance
 
for
 
credit
 
losses
 
(“ACL”)
 
and
 
non-performing
 
assets
 
and
 
related
ratios.
●
Non-interest income
 
amounted to
 
$29.7 million
 
for the third
 
quarter of
 
2022, compared
 
to $29.9 million
 
for the same
 
period
in 2021.
 
The $0.2
 
million decrease
 
was primarily
 
driven by:
 
(i) a
 
$2.7 million
 
decrease in
 
revenues from
 
mortgage banking
activities, primarily
 
related to a
 
lower volume
 
of sales; partially
 
offset by
 
(ii) a $1.1
 
million increase
 
in services
 
charges and
fees on deposit accounts and
 
(iii) a $1.1 million increase
 
in revenues from other non
 
-interest income, mainly driven
 
by a $0.8
million
 
benefit
 
related
 
to
 
income
 
tax
 
credits
 
purchased
 
in
 
the
 
third
 
quarter
 
of
 
2022.
 
See
 
“Non-Interest
 
Income”
 
below
 
for
additional information.
●
Non-interest expenses
 
for the
 
third quarter
 
of 2022
 
were $115.2
 
million, compared
 
to $114.0
 
million for
 
the same
 
period in
2021.
 
Non-interest expenses
 
for the
 
third quarter
 
of 2021
 
included $2.3
 
million of
 
merger and
 
restructuring costs
 
associated
with
 
the
 
acquisition
 
and
 
integration
 
of
 
Banco
 
Santander
 
Puerto
 
Rico
 
(“BSPR”)
 
and
 
$0.6
 
million
 
of
 
COVID-19
 
pandemic-
related
 
expenses,
 
primarily
 
related
 
to
 
cleaning
 
and
 
security
 
protocols.
 
Adjusted
 
for
 
the
 
above-mentioned
 
costs,
 
total
 
non-
interest
 
expenses
 
for
 
the
 
third quarter
 
of
 
2022
 
increased
 
by $4.1
 
million,
 
compared
 
to
 
the same
 
period
 
in 2021,
 
reflecting,
among
 
other
 
things,
 
increases
 
in
 
employees’
 
compensation
 
and
 
benefits
 
expenses,
 
business
 
promotion
 
expenses,
 
and
 
a
decrease in net gains on OREO operations.
 
The results for the third quarter of
 
2022 included $0.4 million in
 
hurricane-related
expenses. The efficiency
 
ratio for the third quarter of
 
2022 was 48.48%, as compared
 
to 53.12% for the third quarter
 
of 2021.
See “Non-Interest Expenses” and “Special Items”
 
below for additional information.
 
●
For the
 
third quarter
 
of 2022,
 
the Corporation
 
recorded an
 
income tax
 
expense of
 
$32.0 million,
 
compared to
 
$37.1 million
for the
 
same period
 
in 2021. The
 
variance was
 
primarily related
 
to lower
 
pre-tax income
 
and a
 
lower estimated
 
effective tax
rate
 
as
 
a
 
result
 
of
 
a
 
higher
 
proportion
 
of
 
exempt
 
to
 
taxable
 
income
 
when
 
compared
 
to
 
the
 
same
 
period
 
in
 
2021.
 
As
 
of
September
 
30,
 
2022,
 
the
 
Corporation’s
 
net
 
deferred
 
tax
 
asset amounted
 
to
 
$166.1
 
million
 
(net
 
of
 
a
 
valuation
 
allowance
 
of
$195.8
 
million,
 
including
 
a
 
valuation
 
allowance
 
of
 
$158.7
 
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 17
 
-
Income Taxes above
 
for additional information.
 
 
85
●
As
 
of
 
September
 
30,
 
2022,
 
total
 
assets
 
were
 
$18.4
 
billion,
 
down
 
$2.3
 
billion
 
from
 
December
 
31,
 
2021.
 
The
 
decrease
 
was
primarily
 
related
 
to a
 
$2.0
 
billion
 
decrease
 
in
 
cash and
 
cash
 
equivalents
 
mainly
 
attributable
 
to
 
the overall
 
decrease
 
in total
deposits, the
 
repurchase of
 
approximately 15.9
 
million shares
 
of common
 
stock for
 
a total purchase
 
price of
 
$225.0 million,
the repayment at maturity of $200 million in FHLB advances and a $100
 
million repurchase agreement. These variances were
partially offset
 
by a $215.0
 
million increase in
 
total loans. See
 
“Financial Condition and
 
Operating Data Analysis”
 
below for
additional information.
●
As of September
 
30, 2022, total
 
liabilities were $17.2
 
billion, down $1.5
 
billion from December
 
31, 2021. The
 
decrease was
mainly driven by
 
a $1.2 billion
 
decrease in total
 
deposits, the repayment
 
at maturity of
 
both $200 million
 
in FHLB advances
and a $100
 
million repurchase agreement
 
during the
 
first nine months
 
of 2022. See
 
“Risk Management
 
– Liquidity Risk
 
and
Capital Adequacy” below for additional information about the Corporation’s
 
funding sources.
●
The Bank’s
 
primary
 
sources of
 
funding are
 
consumer and
 
commercial
 
core deposits.
 
As of
 
September
 
30, 2022,
 
these core
deposits funded
 
90% of
 
total assets.
 
Other sources
 
of liquidity
 
include non-core
 
deposits, such
 
as brokered
 
CDs, 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
 
September 30,
 
2022, the
 
Corporation had
 
approximately $1.2
 
billion available
for funding under
 
the FED’s
 
Borrower-in-Custody (“BIC”) Program
 
and $1.3 billion fully
 
available for additional
 
borrowing
capacity on FHLB lines of credit.
●
As
 
of
 
September
 
30,
 
2022,
 
the
 
Corporation’s
 
stockholders’
 
equity
 
was
 
$1.3
 
billion,
 
a
 
decrease
 
of
 
$836.4
 
million
 
from
December 31, 2021. The decline was driven by a $778.7
 
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
 
repurchase of approximately
 
15.9
million
 
shares of
 
common
 
stock for
 
a total
 
purchase
 
price of
 
approximately
 
$225.0
 
million
 
and $65.9
 
million
 
in dividends
declared
 
to common
 
stock shareholders
 
in the
 
first nine
 
months
 
of 2022.
 
These variances
 
were partially
 
offset
 
by earnings
generated
 
in the
 
first nine
 
months of
 
2022. The
 
Corporation’s
 
common
 
equity tier
 
1 capital,
 
tier 1
 
capital, total
 
capital and
leverage ratios under
 
the Basel III rules
 
were 16.66%, 16.66%, 19.38%,
 
and 10.36%, respectively,
 
as of September 30,
 
2022,
compared
 
to common
 
equity tier
 
1 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
 
$30.3
 
million
 
to
 
$1.1
 
billion
when compared to
 
the same period
 
in 2021. The
 
increase consisted of
 
a $40.7 million
 
increase in consumer
 
loan originations
and a
 
$32.9 million
 
increase in commercial
 
and construction
 
loan originations,
 
partially offset by a
 
$43.3 million decrease in
residential mortgage loan originations.
●
Total
 
non-performing assets
 
were $143.3
 
million as
 
of September
 
30, 2022,
 
a decrease
 
of $14.8
 
million from
 
December 31,
2021.
 
The decrease
 
was driven
 
by (i)
 
a $12.1
 
million reduction
 
in nonaccrual
 
residential mortgage
 
loans,
 
mostly driven
 
by
loans restored to accrual
 
status, collections, foreclosures,
 
and charge-offs recorded
 
during the first nine months
 
of 2022; (ii) a
$3.4 million
 
decrease in nonaccrual
 
commercial and
 
construction loans;
 
and (iii) a
 
$1.6 million decrease
 
in OREO and
 
other
assets.
 
These
 
variances
 
were
 
partially
 
offset
 
by
 
an
 
increase
 
of
 
$2.3
 
million
 
in
 
nonaccrual
 
consumer
 
loans.
 
See
 
“Risk
Management – Non-Accruing and Non-Performing
 
Assets” below for additional
 
information.
●
Adversely
 
classified
 
commercial
 
and
 
construction
 
loans
 
decreased
 
by
 
$23.9
 
million
 
to $153.4
 
million
 
as of
 
September
 
30,
2022, compared to
 
December 31, 2021.
 
The decrease was mostly
 
driven by $11.4
 
million in payoffs
 
of loans associated
 
with
three commercial
 
and industrial
 
relationships in
 
the Puerto
 
Rico region,
 
each in
 
excess of
 
$1 million,
 
and the upgrade
 
in the
credit
 
risk
 
classification
 
of
 
loans
 
totaling
 
$6.0
 
million
 
related
 
to
 
a
 
commercial
 
and
 
industrial
 
relationship
 
in
 
the
 
Florida
region. 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 the
 
markets where
 
the Corporation
operates.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
86
Special Items
The financial
 
results for
 
the third
 
quarter and
 
first nine
 
months of
 
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
 
third quarter and first
 
nine months of
2021 included the following Special Items:
 
Quarter and Nine-Month Period Ended September 30, 2021
●
Merger and restructuring
 
costs of $2.3 million ($1.4 million
 
after-tax) and $24.6 million
 
($15.4 million after-tax) for
 
the third
quarter
 
of
 
2021
 
and
 
nine-month
 
period
 
ended
 
September
 
30,
 
2021,
 
respectively,
 
in
 
connection
 
with
 
the
 
BSPR
 
acquisition
integration
 
process
 
and
 
related
 
restructuring
 
initiatives.
 
Merger
 
and
 
restructuring
 
costs
 
in
 
the
 
third
 
quarter
 
of
 
2021
 
were
primarily
 
related
 
to systems
 
conversions
 
completed
 
early in
 
the third
 
quarter
 
and other
 
integration
 
related
 
efforts.
 
The first
nine months
 
of 2021
 
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
in the
 
first nine
 
months
 
of 2021
 
included
 
accelerated
 
depreciation
 
charges
 
related
 
to planned
 
closures and
 
consolidation
 
of
branches in accordance with the Corporation’s
 
integration and restructuring plan.
●
Costs of
 
$0.6
 
million
 
($0.4
 
million after-tax)
 
and $3.0
 
million
 
($1.8
 
million
 
after-tax)
 
for the
 
third
 
quarter
 
and nine
 
-month
period
 
ended
 
September
 
30, 2021,
 
respectively,
 
related
 
to COVID-19
 
pandemic
 
response
 
efforts,
 
primarily
 
costs related
 
to
additional cleaning, safety materials, and security measures.
The following table shows
 
the net income reported
 
for the quarter and
 
nine-month period ended
 
September 30, 2022 and
 
reconciles
for
 
the
 
quarter
 
and
 
nine-month
 
period
 
ended
 
September
 
30,
 
2021
 
the
 
reported
 
net
 
income
 
to
 
adjusted
 
net
 
income,
 
a
 
non-GAAP
financial measure that excludes the Special Items identified above:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2022
2021
2022
2021
(In thousands)
Net income, as reported (GAAP)
$
74,603
$
75,678
$
231,898
$
207,386
Adjustments:
 
Merger and restructuring costs
-
2,268
-
24,582
COVID-19 pandemic-related expenses
-
640
-
2,954
Income tax impact of adjustments
(1)
-
(1,091)
-
(10,327)
Adjusted net income (Non-GAAP)
$
74,603
$
77,495
$
231,898
$
224,595
(1)
See "Special Items" above for the tax impact related to the
 
above adjustments that was based on the Puerto Rico statutory
 
tax rate of 37.5%.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
87
Adjusted non-interest
 
expenses – The
 
following table reconciles
 
for the third
 
quarter and first
 
nine months of
 
2021 the non-interest
expenses to adjusted non-interest expenses, which is a non-GAAP financial
 
measure that excludes the relevant Special Items identified
above:
(In thousands)
Quarter Ended September 30, 2021
Non-Interest
Expenses (GAAP)
Merger and
Restructuring
Costs
COVID 19
Pandemic-Related
Expenses
Adjusted (Non-
GAAP)
Non-interest expenses
$
114,036
$
2,268
$
640
$
111,128
Employees' compensation and benefits
50,220
-
10
50,210
Occupancy and equipment
 
23,306
-
576
22,730
Business promotion
3,370
-
-
3,370
Professional service fees
13,554
-
-
13,554
Taxes, other than income taxes
5,238
-
49
5,189
FDIC deposit insurance
1,381
-
-
1,381
Net gain on OREO and OREO expenses
(2,288)
-
-
(2,288)
Credit and debit card processing expenses
5,573
-
-
5,573
Communications
2,250
-
-
2,250
Merger and restructuring costs
2,268
2,268
-
-
Other non-interest expenses
9,164
-
5
9,159
(In thousands)
Nine-Month Period Ended September 30, 2021
Non-Interest
Expenses (GAAP)
Merger and
Restructuring
Costs
COVID 19
Pandemic-Related
Expenses
Adjusted (Non-
GAAP)
Non-interest expenses
$
377,509
$
24,582
$
2,954
$
349,973
Employees' compensation and benefits
150,776
-
47
150,729
Occupancy and equipment
 
71,664
-
2,607
69,057
Business promotion
9,565
-
22
9,543
Professional service fees
48,019
-
-
48,019
Taxes, other than income taxes
17,013
-
271
16,742
FDIC deposit insurance
5,291
-
-
5,291
Net gain on OREO and OREO expenses
(529)
-
-
(529)
Credit and debit card processing expenses
16,646
-
-
16,646
Communications
7,119
-
-
7,119
Merger and restructuring costs
24,582
24,582
-
-
Other non-interest expenses
27,363
-
7
27,356
Management believes
 
that
 
the
 
presentation of
 
adjusted net
 
income,
 
adjusted non-interest
 
expenses and
 
adjustments to
 
the
 
various
components of non-interest expenses enhances the
 
ability of analysts and
 
investors to analyze trends
 
in the
 
Corporation’s business and
understand the
 
performance
 
of the Corporation.
 
In addition,
 
the Corporation
 
may utilize these
 
non-GAAP financial
 
measures as a guide
 
in
its budgeting
 
and long-term
 
planning
 
process.
 
Any analysis
 
of these
 
non-GAAP
 
financial
 
measures
 
should be
 
used only
 
in conjunction
 
with
results
 
presented
 
in accordance
 
with GAAP.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
88
RESULTS OF OPERATIONS
Net Interest
 
Income
 
Net
 
interest income is
 
the excess
 
of
 
interest earned by
 
First BanCorp. on
 
its interest-earning assets over
 
the interest
 
incurred on
 
its
interest-bearing
 
liabilities.
 
First BanCorp.’s
 
net interest
 
income is subject
 
to interest
 
rate risk due
 
to the repricing
 
and maturity
 
mismatch of
the Corporation’s assets and liabilities.
 
Net
 
interest income for the quarter and nine-month
 
period ended September 30, 2022 was $207.9
million and $589.7 million, respectively, compared to $184.7 million and $545.8 million for
 
the comparable periods in 2021.
 
On a
 
tax-
equivalent basis and excluding
 
the changes in the fair value of derivative instruments,
 
net interest income for the quarter and nine-month
period ended September 30, 2022 was $217.0
 
million and $615.4 million, respectively, compared to $191.6 million and $563.3 million,
respectively,
 
for the
 
comparable
 
periods
 
in 2021.
 
The
 
following
 
tables
 
include a
 
detailed
 
analysis
 
of net
 
interest income
 
for
 
the
 
indicated periods.
 
Part I
 
presents
 
average
 
volumes
(based
 
on
 
the
 
average
 
daily
 
balance)
 
and
 
rates
 
on
 
an
 
adjusted
 
tax-equivalent
 
basis
 
and
 
Part II
 
presents,
 
also
 
on
 
an
 
adjusted
 
tax-
equivalent basis,
 
the extent
 
to which
 
changes in
 
interest rates
 
and changes
 
in the
 
volume of
 
interest-related assets
 
and liabilities
 
have
affected
 
the Corporation’s
 
net interest
 
income. For
 
each category
 
of interest-earning
 
assets and
 
interest-bearing
 
liabilities, the
 
tables
provide
 
information
 
on
 
changes
 
in
 
(i)
 
volume
 
(changes
 
in
 
volume
 
multiplied
 
by
 
prior
 
period
 
rates),
 
and
 
(ii) rate
 
(changes
 
in
 
rate
multiplied by
 
prior period
 
volumes). The
 
Corporation has
 
allocated rate-volume
 
variances (changes
 
in rate
 
multiplied by
 
changes in
volume) to either the changes in volume or the changes in rate based upon the
 
effect of each factor on the combined totals.
Net interest
 
income on
 
an adjusted
 
tax-equivalent
 
basis and
 
excluding the
 
change in
 
the fair
 
value of
 
derivative
 
instruments is
 
a
non-GAAP
 
financial
 
measure.
 
For
 
the
 
definition
 
of
 
this
 
non-GAAP
 
financial
 
measure,
 
refer
 
to
 
the
 
discussion
 
in
 
“Basis
 
of
Presentation” below.
Part I
Average Volume
Interest income
(1)
 
/ expense
Average Rate
(1)
Quarter ended September 30,
2022
2021
2022
2021
2022
2021
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
$
882,759
$
2,514,882
$
4,654
$
968
2.09
%
0.15
%
Government obligations
(2)
2,912,130
2,325,835
10,325
7,044
1.41
%
1.20
%
MBS
4,113,870
4,255,171
22,028
17,091
2.12
%
1.59
%
FHLB stock
16,677
27,080
292
327
6.95
%
4.79
%
Other investments
 
13,094
11,153
45
30
1.36
%
1.07
%
Total investments
(3)
7,938,530
9,134,121
37,344
25,460
1.87
%
1.11
%
Residential mortgage loans
2,855,927
3,193,918
39,874
43,901
5.54
%
5.45
%
Construction loans
118,794
171,088
1,831
2,178
6.12
%
5.05
%
Commercial and Industrial ("C&I")
and Commercial mortgage loans
5,085,257
5,104,362
73,518
64,835
5.74
%
5.04
%
Finance leases
647,586
528,893
11,751
9,945
7.20
%
7.46
%
Consumer loans
2,511,300
2,225,665
67,504
60,713
10.66
%
10.82
%
Total loans
(4) (5)
11,218,864
11,223,926
194,478
181,572
6.88
%
6.42
%
Total interest-earning assets
$
19,157,394
$
20,358,047
$
231,822
$
207,032
4.80
%
4.03
%
Interest-bearing liabilities:
Brokered certificates of deposit (“CDs”)
$
63,524
$
126,775
$
333
$
664
2.08
%
2.08
%
Other interest-bearing deposits
10,481,863
10,788,020
9,645
9,018
0.37
%
0.33
%
Other borrowed funds
383,762
483,762
4,266
3,848
4.41
%
3.16
%
FHLB advances
97,826
320,000
529
1,899
2.15
%
2.35
%
Total interest-bearing liabilities
 
$
11,026,975
$
11,718,557
$
14,773
$
15,429
0.53
%
0.52
%
Net interest income on a tax equivalent
 
basis and excluding valuations
$
217,049
$
191,603
Interest rate spread
4.27
%
3.51
%
Net interest margin
4.49
%
3.73
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
89
Average Volume
Interest income
(1)
 
/ expense
Average Rate
(1)
Nine-Month Period Ended September
 
30,
2022
2021
2022
2021
2022
2021
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
$
1,412,802
$
1,898,678
$
8,347
$
1,750
0.79
%
0.12
%
Government obligations
(2)
2,857,462
1,890,437
28,647
19,627
1.34
%
1.39
%
MBS
4,079,403
4,029,794
64,252
41,173
2.11
%
1.36
%
FHLB stock
19,788
28,917
830
1,094
5.61
%
5.06
%
Other investments
12,496
9,813
78
45
0.83
%
0.61
%
Total investments
(3)
8,381,951
7,857,639
102,154
63,689
1.63
%
1.08
%
Residential mortgage loans
2,902,542
3,347,186
121,134
135,114
5.58
%
5.40
%
Construction loans
119,214
186,998
5,123
10,530
5.75
%
7.53
%
C&I and Commercial mortgage loans
5,081,049
5,295,346
200,022
198,131
5.26
%
5.00
%
Finance leases
617,946
504,379
34,073
28,137
7.37
%
7.46
%
Consumer loans
2,422,337
2,181,738
192,379
178,195
10.62
%
10.92
%
Total loans
(4)(5)
11,143,088
11,515,647
552,731
550,107
6.63
%
6.39
%
Total interest-earning assets
$
19,525,039
$
19,373,286
$
654,885
$
613,796
4.48
%
4.24
%
Interest-bearing liabilities:
Brokered CDs
$
77,239
$
153,984
$
1,214
$
2,421
2.10
%
2.10
%
Other interest-bearing deposits
10,627,862
10,874,337
24,110
30,385
0.30
%
0.37
%
Other borrowed funds
397,315
483,762
11,451
11,248
3.85
%
3.11
%
FHLB advances
165,568
371,685
2,667
6,428
2.15
%
2.31
%
Total interest-bearing liabilities
 
$
11,267,984
$
11,883,768
$
39,442
$
50,482
0.47
%
0.57
%
Net interest income on a tax equivalent
basis and excluding valuations
$
615,443
$
563,314
Interest rate spread
4.01
%
3.67
%
Net interest margin
4.21
%
3.89
%
(1)
On an adjusted tax-equivalent basis. The Corporation estimated the
 
adjusted tax-equivalent yield by dividing the interest rate
 
spread on exempt assets by 1 less the Puerto Rico statutory tax
rate of 37.5% and adding to it the cost of interest-bearing liabilities.
 
The tax-equivalent adjustment recognizes the income tax savings
 
when comparing taxable and tax-exempt assets.
Management believes that it is a standard practice in the banking industry
 
to present net interest income, interest rate spread and net
 
interest margin on a fully tax-equivalent basis.
Therefore, management believes these measures provide useful information
 
to investors by allowing them to make peer comparisons.
 
The Corporation excludes changes in the fair value of
derivatives from interest income and interest expense
 
because the changes in valuation do not affect interest received
 
or paid.
(2)
Government obligations include debt issued by government-sponsored
 
agencies.
(3)
Unrealized gains and losses on available-for-sale debt securities
 
are excluded from the average volumes.
(4)
Average loan balances include
 
the average of nonaccrual loans.
(5)
Interest income on loans includes $2.9 million and $2.7 million for
 
the quarters ended September 30, 2022 and 2021, respectively,
 
and $8.5 million and $7.8 million for the nine-month
periods ended September 30, 2022 and 2021, respectively,
 
of income from prepayment penalties and late fees related to
 
the Corporation’s loan portfolio.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
90
Part II
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2022 compared to 2021
2022 compared to 2021
Increase (decrease)
Increase (decrease)
Due to:
Due to:
(In thousands)
Volume
Rate
Total
Volume
Rate
Total
Interest income on interest-earning assets:
Money market and other short-term investments
$
(4,564)
$
8,250
$
3,686
$
(1,673)
$
8,270
$
6,597
Government obligations
1,956
1,325
3,281
9,882
(862)
9,020
MBS
(637)
5,574
4,937
513
22,566
23,079
FHLB stock
(153)
118
(35)
(365)
101
(264)
Other investments
6
9
15
14
19
33
Total investments
(3,392)
15,276
11,884
8,371
30,094
38,465
Residential mortgage loans
(4,661)
634
(4,027)
(18,284)
4,304
(13,980)
Construction loans
(731)
384
(347)
(3,270)
(2,137)
(5,407)
C&I and Commercial mortgage loans
(222)
8,905
8,683
(17,445)
19,336
1,891
Finance leases
2,232
(426)
1,806
6,308
(372)
5,936
Consumer loans
7,699
(908)
6,791
19,413
(5,229)
14,184
Total loans
4,317
8,589
12,906
(13,278)
15,902
2,624
Total interest income
925
23,865
24,790
(4,907)
45,996
41,089
Interest expense on interest-bearing liabilities:
Brokered CDs
(330)
(1)
(331)
(1,206)
(1)
(1,207)
Non-brokered interest-bearing deposits
(259)
886
627
(675)
(5,600)
(6,275)
Other borrowed funds
(944)
1,362
418
(2,257)
2,460
203
FHLB advances
(1,215)
(155)
(1,370)
(3,347)
(414)
(3,761)
Total interest expense
(2,748)
2,092
(656)
(7,485)
(3,555)
(11,040)
Change in net interest income
$
3,673
$
21,773
$
25,446
$
2,578
$
49,551
$
52,129
Portions
 
of
 
the
 
Corporation’s
 
interest-earning
 
assets,
 
mostly
 
investments
 
in
 
obligations
 
of
 
some
 
U.S.
 
government
 
agencies
 
and
U.S.
 
government-sponsored
 
entities
 
(“GSEs”),
 
generate
 
interest
 
that
 
is
 
exempt
 
from
 
income
 
tax,
 
principally
 
in
 
Puerto
 
Rico.
 
Also,
interest
 
and
 
gains
 
on
 
sales
 
of
 
investments
 
held
 
by
 
the
 
Corporation’s
 
international
 
banking
 
entities
 
(“IBEs”)
 
are
 
tax-exempt
 
under
Puerto Rico
 
tax law
 
(see Note
 
17 –
 
Income
 
Taxes,
 
in the
 
Corporation’s
 
unaudited
 
consolidated financial
 
statements for
 
the quarter
ended September
 
30, 2022
 
for additional
 
information). Management
 
believes that
 
the presentation
 
of interest
 
income on
 
an adjusted
tax-equivalent basis facilitates the
 
comparison of all interest data related
 
to these assets. The Corporation
 
estimated the tax equivalent
yield by
 
dividing the
 
interest rate
 
spread on
 
exempt assets
 
by 1
 
less the
 
Puerto Rico
 
statutory
 
tax rate
 
(37.5%) and
 
adding to
 
it the
average cost
 
of interest-bearing
 
liabilities. The
 
computation considers
 
the interest
 
expense disallowance
 
required by
 
Puerto Rico
 
tax
law.
 
Management
 
believes
 
that
 
the
 
presentation
 
of
 
net
 
interest
 
income
 
excluding
 
the
 
effects
 
of
 
the
 
changes
 
in
 
the
 
fair
 
value
 
of
 
the
derivative
 
instruments
 
(“valuations”)
 
provides
 
additional
 
information
 
about
 
the
 
Corporation’s
 
net
 
interest
 
income
 
and
 
facilitates
comparability
 
and
 
analysis
 
from
 
period
 
to
 
period.
 
The
 
changes
 
in
 
the
 
fair
 
value
 
of
 
the
 
derivative
 
instruments
 
have
 
no
 
effect
 
on
interest due on interest-bearing liabilities or interest earned on interest-earning
 
assets.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
91
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:
Quarter Ended
Nine-Month Period Ended
(Dollars in thousands)
September 30, 2022
September 30, 2021
September 30, 2022
September 30, 2021
Interest Income - GAAP
$
222,683
$
200,172
$
629,162
$
596,273
Unrealized gain on derivative instruments
 
(11)
(4)
(35)
(22)
Interest income excluding valuations
222,672
200,168
629,127
596,251
Tax-equivalent adjustment
9,150
6,864
25,758
17,545
Interest income on a tax-equivalent basis and excluding valuations
$
231,822
$
207,032
$
654,885
$
613,796
Interest Expense - GAAP
$
14,773
$
15,429
$
39,442
$
50,482
Net interest income - GAAP
$
207,910
$
184,743
$
589,720
$
545,791
Net interest income excluding valuations
$
207,899
$
184,739
$
589,685
$
545,769
Net interest income on a tax-equivalent basis and excluding
 
valuations
$
217,049
$
191,603
$
615,443
$
563,314
Average Balances
Loans and leases
$
11,218,864
$
11,223,926
$
11,143,088
$
11,515,647
Total securities, other short-term investments and interest-bearing
cash balances
7,938,530
9,134,121
8,381,951
7,857,639
Average Interest-Earning Assets
$
19,157,394
$
20,358,047
$
19,525,039
$
19,373,286
Average Interest-Bearing Liabilities
$
11,026,975
$
11,718,557
$
11,267,984
$
11,883,768
Average Yield/Rate
Average yield on interest-earning assets - GAAP
4.61
%
3.90
%
4.31
%
4.12
%
Average rate on interest-bearing liabilities - GAAP
0.53
%
0.52
%
0.47
%
0.57
%
Net interest spread - GAAP
4.08
%
3.38
%
3.84
%
3.55
%
Net interest margin - GAAP
4.31
%
3.60
%
4.04
%
3.77
%
Average yield on interest-earning assets excluding valuations
4.61
%
3.90
%
4.31
%
4.11
%
Average rate on interest-bearing liabilities
0.53
%
0.52
%
0.47
%
0.57
%
Net interest spread excluding valuations
4.08
%
3.38
%
3.84
%
3.54
%
Net interest margin excluding valuations
4.31
%
3.60
%
4.04
%
3.77
%
Average yield on interest-earning assets on a tax-equivalent basis
and excluding valuations
4.80
%
4.03
%
4.48
%
4.24
%
Average rate on interest-bearing liabilities
0.53
%
0.52
%
0.47
%
0.57
%
Net interest spread on a tax-equivalent basis and excluding
 
valuations
4.27
%
3.51
%
4.01
%
3.67
%
Net interest margin on a tax-equivalent basis and excluding valuations
4.49
%
3.73
%
4.21
%
3.89
%
On
 
a
 
GAAP
 
basis,
 
for
 
the
 
quarter
 
ended
 
September
 
30,
 
2022,
 
net
 
interest
 
income
 
amounted
 
to
 
$207.9
 
million,
 
a
 
$23.2
 
million
increase
 
compared
 
to
 
net
 
interest
 
income
 
of
 
$184.7
 
million
 
for
 
the
 
same
 
period
 
in
 
2021.
 
The
 
increase
 
in
 
net
 
interest
 
income
 
was
primarily due to:
●
An $8.6 million
 
increase in interest income
 
on consumer loans and
 
finance leases, mainly due
 
to a $404.3 million
 
increase in
the average balance of this portfolio, mostly related to growth in the auto loans
 
and finance leases portfolios.
 
●
An
 
$8.3
 
million
 
increase
 
in
 
interest
 
income
 
on
 
commercial
 
and
 
construction
 
loans,
 
mainly
 
due
 
to:
 
(i)
 
the
 
effect
 
of
 
higher
market interest
 
rates in the
 
repricing of variable-rate
 
commercial and construction
 
loans, (ii) an
 
increase of $160.0
 
million in
the
 
average
 
balance
 
of
 
this
 
portfolio,
 
excluding
 
SBA
 
PPP
 
loans,
 
which
 
resulted
 
in
 
an
 
increase
 
in
 
interest
 
income
 
of
approximately
 
$1.8 million,
 
(iii) partially
 
offset
 
by a
 
$4.4 million
 
decrease
 
in interest
 
and realized
 
deferred fees
 
from SBA
PPP loans.
As of September
 
30, 2022, the interest
 
rate on approximately
 
42% of the Corporation’s
 
commercial and construction
 
loans is
based upon LIBOR, SOFR
 
and other short
 
-term indexes and
 
16% is based upon
 
the Prime rate index.
 
For the third quarter
 
of
2022, the average
 
one-month LIBOR increased
 
239 basis points, the
 
average three-month LIBOR increased
 
288 basis points,
the average
 
Prime rate
 
increased 211
 
basis points,
 
and the
 
average three-month
 
SOFR increased
 
278 basis
 
points, compared
to the average rates for such indexes during the third quarter of 2021.
●
A
 
$6.0
 
million
 
increase
 
in
 
interest
 
income
 
on
 
investment
 
securities,
 
mainly
 
related
 
to
 
a
 
$3.7
 
million
 
increase
 
in
 
interest
income
 
recognized
 
on
 
U.S.
 
agencies
 
MBS
 
mainly
 
due
 
to a
 
decrease
 
in
 
premium
 
amortization
 
expense
 
associated
 
to
 
lower
92
prepayments,
 
and an
 
increase of
 
approximately $2.4
 
million in
 
interest income
 
related to
 
the $577.8
 
million increase
 
in the
average balance of other
 
investment securities, primarily U.S.
 
agencies debentures, and to
 
a lesser extent the effects
 
of higher
reinvestment
 
yields,
 
and
 
the
 
upward
 
repricing
 
of
 
Puerto
 
Rico
 
municipal
 
bonds
 
held
 
as
 
part
 
of
 
the
 
held-to-maturity
 
debt
securities portfolio.
●
A
 
$3.7
 
million
 
increase
 
in
 
interest
 
income
 
from
 
interest-bearing
 
cash
 
balances,
 
which
 
consisted
 
primarily
 
of
 
deposits
maintained at the
 
Federal Reserve Bank,
 
with an average yield
 
of 2.09% during
 
the third quarter
 
of 2022 compared
 
to 0.15%
in the
 
third quarter
 
of 2021,
 
mainly attributable
 
to increases
 
in the
 
federal funds
 
target rate,
 
partially offset
 
by the
 
effects of
the $1.6 billion decrease in the average balance.
●
A $0.7 million decrease in total interest expense, including:
-
A
 
$1.4
 
million
 
decrease
 
in
 
interest
 
expense
 
on
 
FHLB
 
advances,
 
associated
 
with
 
the
 
$320
 
million
 
repayment
 
of
FHLB advances that matured over the last 12 months,
 
and
 
-
A $0.3
 
million
 
decrease
 
in
 
interest expense
 
on brokered
 
CDs, primarily
 
related
 
to a
 
$63.3
 
million
 
decrease
 
in
 
the
average balance.
 
Partially offset by:
-
A
$0.6
 
million
 
net
 
increase
 
in
 
interest
 
expense
 
on
 
non-brokered
 
interest-bearing
 
deposits,
 
mainly
 
associated
 
with
higher average rates
 
paid, partially offset
 
by the effects
 
of a $306.2
 
million reduction in
 
the average balance
 
of such
deposits;
 
and
 
-
A
 
$0.4
 
million
 
increase
 
in
 
interest
 
expense
 
on
 
other
 
borrowed
 
funds,
 
driven
 
by
 
the
 
upward
 
repricing
 
of
 
junior
subordinated
 
debentures
 
tied
 
to
 
the
 
increase
 
in
 
the
 
three-month
 
LIBOR
 
index,
 
partially
 
offset
 
by
 
the
 
effects
associated with the repayment of a $100 million repurchase agreement
 
that matured in the first quarter of 2022.
The aforementioned benefits in net interest income were partially offset
 
by:
●
A $4.1
 
million decrease
 
in interest
 
income on
 
residential mortgage
 
loans, primarily
 
related to
 
a $338.0
 
million reduction
 
in
the average balance of this portfolio.
 
93
For
 
the nine-month
 
period ended
 
September
 
30,
 
2022,
 
net interest
 
income increased $43.9
 
million to
 
$589.7 million, compared
 
to
$545.8 million
 
for the same
 
period in
 
2021.
 
The increase
 
in net
 
interest
 
income was
 
primarily
 
due to:
●
A $23.3
 
million
 
increase
 
in
 
interest
 
income
 
on
 
investment
 
securities,
 
mainly
 
related
 
to
 
a
 
$16.7
 
million
 
increase
 
in
 
interest
income
 
recognized
 
on
 
U.S.
 
agencies
 
MBS
 
mainly
 
due
 
to a
 
decrease
 
in
 
premium
 
amortization
 
expense
 
associated
 
to
 
lower
prepayments,
 
and an
 
increase of
 
approximately $6.6
 
million in
 
interest income
 
related to
 
the $960.6
 
million increase
 
in the
average balance of other investment securities, primarily U.S. agencies
 
debentures.
●
A $20.1 million
 
increase in interest income
 
on consumer loans and
 
finance leases, mainly
 
due to a $354.2
 
million increase in
the average
 
balance of
 
this portfolio,
 
mostly related
 
to growth
 
in the
 
auto loans
 
and finance
 
leases portfolios,
 
partially offset
by lower average yields.
 
●
An
 
$11.0
 
million
 
decrease
 
in
 
total
 
interest
 
expense,
 
primarily
 
due
 
to:
 
(i)
 
a
 
$6.3
 
million
 
decrease
 
in
 
interest
 
expense
 
on
interest-bearing
 
deposits,
 
excluding
 
brokered
 
CDs,
 
primarily
 
reflecting
 
the
 
effect
 
of
 
time
 
deposits
 
that
 
matured
 
and
 
were
renewed at lower rates and, to some extent, lower rates paid on
 
savings and interest bearing checking accounts during the first
half
 
of
 
2022;
 
(ii)
 
a
 
$3.8
 
million
 
decrease
 
in
 
interest
 
expense
 
on
 
FHLB
 
advances,
 
primarily
 
related
 
to
 
a
 
$206.1
 
million
decrease
 
in the
 
average balance
 
of FHLB
 
advances;
 
and (iii)
 
a $1.2
 
million
 
decrease
 
in
 
interest expense
 
on brokered
 
CDs,
primarily related to a $76.7 million decrease in the average balance.
●
A
 
$6.6
 
million
 
increase
 
in
 
interest
 
income
 
from
 
interest-bearing
 
cash
 
balances,
 
which
 
consisted
 
primarily
 
of
 
deposits
maintained
 
at the
 
Federal Reserve
 
Bank, with
 
an average
 
yield of
 
0.79% during
 
the first
 
nine months
 
of 2022
 
compared to
0.12%
 
for
 
the
 
same
 
period
 
of
 
2021,
 
mainly
 
attributable
 
to increases
 
in
 
the
 
federal
 
funds
 
target
 
rate,
 
partially
 
offset
 
by
 
the
effects associated with the $485.9 million decrease in the
 
average balance of interest-bearing cash balances.
Partially offset by:
●
A $14.2
 
million decrease
 
in interest income
 
on residential
 
mortgage loans,
 
primarily related
 
to a $444.6
 
million reduction
 
in
the average balance of this portfolio, partially offset by
 
higher yields.
●
A $2.9
 
million decrease
 
in interest
 
income on
 
commercial and
 
construction loans,
 
mainly due
 
to an
 
$8.7 million
 
decrease in
interest
 
income
 
from
 
SBA
 
PPP
 
loans,
 
associated
 
with
 
the
 
overall
 
decrease
 
in
 
the
 
size of
 
this
 
portfolio,
 
and
 
a
 
$5.4
 
million
decrease
 
in
 
interest
 
income
 
recognized
 
on
 
construction
 
loans,
 
mainly
 
associated
 
to
 
the
 
benefit
 
of
 
$2.9
 
million
 
of
 
interest
income realized from deferred interest recognized on a construction loan
 
paid-off during the first nine months of 2021 and the
effects associated with a $67.8 million reduction
 
in the average balance of this portfolio. These variances were
 
partially offset
by the effect of higher market interest rates in the repricing
 
of variable-rate commercial and construction loans.
As of September
 
30, 2022, the interest
 
rate on approximately
 
42% of the Corporation’s
 
commercial and construction
 
loans is
based upon LIBOR,
 
SOFR and other
 
indexes and 16% is
 
based upon the
 
Prime rate index. For
 
the first nine months
 
of 2022,
the average
 
one-month
 
LIBOR increased
 
115
 
basis points,
 
the average
 
three-month
 
LIBOR increased
 
154
 
basis points,
 
the
average Prime rate
 
increased 96 basis points,
 
and the average three
 
-month SOFR increased
 
147 basis points, compared
 
to the
average rates for such indexes during the same period of 2021.
The net
 
interest margin
 
increased by
 
71 basis
 
points to
 
4.31% for
 
the third
 
quarter of
 
2022, compared
 
to the
 
same period
 
of 2021,
and by
 
27 basis
 
points to
 
4.04% for
 
the first
 
nine months
 
of 2022,
 
compared to
 
the same
 
period of
 
2021. The
 
improved margin
 
was
primarily attributable
 
to a
 
combination of
 
the following:
 
(i) higher
 
market interest
 
rates and
 
its effect
 
in the
 
repricing of
 
variable-rate
commercial
 
loans
 
and
 
interest-bearing
 
cash
 
balances
 
maintained
 
at
 
the
 
Federal
 
Reserve;
 
(ii)
 
lower
 
U.S.
 
agencies
 
MBS
 
premium
amortization expense;
 
(iii) a
 
lower cost
 
of funding
 
driven by
 
lower rates
 
paid on
 
interest-bearing deposits
 
(excluding brokered
 
CDs);
and (iv) a decrease in long-term debt.
94
Provision
 
for Credit
 
Losses
The provision for
 
credit losses consists of
 
provisions for credit
 
losses on loans and
 
finance leases and
 
unfunded loan commitments,
as
 
well
 
as
 
held-to-maturity
 
and
 
available-for-sale
 
debt
 
securities.
 
The
 
principal
 
changes
 
in
 
the
 
provision
 
for
 
credit
 
losses
 
by
 
main
categories follow:
Provision for credit losses for
 
loans and finance leases
The provision for credit
 
losses for loans and
 
finance leases was an expense
 
of $14.4 million for
 
the third quarter of 202
 
2, compared
to a net benefit of $8.7 million for the third quarter of 2021. The variances
 
by major portfolio category were as follows:
●
Provision for credit losses for the
 
consumer loans and finance leases portfolio
 
was $17.4 million for the third
 
quarter of 2022,
compared
 
to $6.1
 
million
 
in
 
the third
 
quarter
 
of
 
2021.
 
The increase
 
in
 
the
 
provision
 
in
 
the
 
third
 
quarter
 
of
 
2022
 
primarily
reflect the effect
 
of the increase
 
in the size
 
of the consumer
 
loan portfolios,
 
an increase in
 
charge-off
 
levels associated to
 
the
overall
 
portfolio
 
growth,
 
and
 
a
 
deterioration
 
in
 
the
 
long-term
 
outlook
 
of
 
certain
 
macroeconomic
 
variables,
 
such
 
as
 
the
regional unemployment rate.
 
●
Provision for
 
credit losses
 
for the
 
residential mortgage
 
loan portfolio
 
was an
 
expense of
 
$0.8 million
 
for the
 
third quarter
 
of
2022,
 
compared to a net
 
benefit of $6.2 million
 
in the third quarter
 
of 2021. The expense
 
recorded during the
 
third quarter of
2022
 
was primarily
 
related
 
to a
 
deterioration
 
in the
 
long-term outlook
 
of forecasted
 
macroeconomic
 
variables,
 
primarily in
the housing
 
price index,
 
partially offset
 
by the
 
overall decrease
 
in the
 
size of
 
the residential
 
mortgage portfolio.
 
Meanwhile,
the net benefit
 
recorded in the
 
third quarter of
 
2021 was primarily
 
related to improvements
 
in the outlook
 
of macroeconomic
variables
 
and
 
the overall
 
decrease in
 
the size
 
of the
 
portfolio, partially
 
offset
 
by an
 
incremental
 
charge
 
to the
 
provision
 
for
credit
 
losses
 
of
 
$2.1
 
million
 
related
 
to
 
the
 
bulk
 
sale
 
of
 
$52.5
 
million
 
of
 
residential
 
mortgage
 
nonaccrual
 
loans
 
and
 
related
servicing advances.
●
Provision for
 
credit losses
 
for the
 
commercial and
 
construction loan
 
portfolio was
 
a net
 
benefit of
 
$3.8 million
 
for the
 
third
quarter of 2022, compared to a
 
net benefit of $8.6 million in the
 
third quarter of 2021. The net
 
benefit for the commercial and
construction loan portfolio
 
for the third quarter of
 
2022 was related mostly to
 
a reduction in reserves
 
due to updated financial
information
 
received
 
during
 
the
 
third
 
quarter
 
of
 
2022.
 
The
 
net
 
benefit
 
recorded
 
in
 
the
 
third
 
quarter
 
of
 
2021
 
reflected
improvements
 
in
 
forecasted
 
macroeconomic
 
variables,
 
primarily
 
in
 
the
 
commercial
 
real
 
estate
 
price
 
index,
 
and
 
the
 
overall
decrease in the size of this portfolio.
95
The
 
provision
 
for
 
credit
 
losses
 
for
 
loans
 
and
 
finance
 
leases
 
was
 
an
 
expense
 
of
 
$10.0
 
million
 
for
 
the
 
first
 
nine
 
months
 
of
 
2022,
compared to a net benefit of $49.5 million for the first nine months of 2021.
●
Provision for
 
credit losses for
 
the consumer
 
loans and
 
finance leases
 
portfolio was
 
$43.5 million
 
for the first
 
nine months of
2022,
 
compared to
 
$11.2
 
million for
 
the first
 
nine months
 
of 2021.
 
The increase
 
in charges
 
to the
 
provision in
 
the first
 
nine
months of
 
2022 primarily
 
reflect the
 
effect of
 
the increase
 
in the size
 
of the
 
consumer loan
 
portfolios,
 
an increase in
 
charge-
off levels, and a deterioration in macroeconomic variables,
 
such as the regional unemployment rate.
●
Provision for
 
credit losses
 
for the
 
commercial and
 
construction loan
 
portfolio was
 
a net
 
benefit of
 
$26.6 million
 
for the first
nine months
 
of 2022,
 
compared to
 
a net
 
benefit of
 
$51.1
 
million for
 
the first
 
nine months
 
of 2021.
 
The net
 
benefit recorded
during
 
the
 
first
 
nine
 
months
 
of
 
2022
 
mainly
 
reflects
 
reductions
 
in
 
qualitative
 
reserves
 
associated
 
with
 
reduced
 
COVID-19
uncertainties
 
and
 
updated
 
borrowers’
 
financial
 
information,
 
partially
 
offset
 
by
 
a
 
deterioration
 
in
 
the
 
long-term
 
outlook
 
of
forecasted
 
macroeconomic
 
variables.
 
The
 
net
 
benefit
 
recorded
 
in
 
the
 
first
 
nine
 
months
 
of
 
2021
 
reflects
 
improvements
 
in
forecasted macroeconomic
 
variables, primarily
 
in the commercial
 
real estate price
 
index and
 
unemployment rate
 
variables at
that time, and the overall decrease in the size of this portfolio in the Puerto Rico region.
●
Provision
 
for
 
credit
 
losses
 
for
 
the
 
residential
 
mortgage
 
loan
 
portfolio
 
was
 
a
 
net
 
benefit
 
of
 
$6.9
 
million
 
for
 
the
 
first
 
nine
months of
 
2022, compared
 
to a net
 
benefit of
 
$9.6 million
 
for the
 
first nine
 
months of
 
2021. The
 
net benefit
 
in both
 
periods
reflects the effect of a continued decrease in the size of the residential
 
mortgage loan portfolio.
 
During
 
the
 
first
 
nine
 
months
 
of
 
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 “Risk Management
 
– Credit Risk Management”
 
below for additional
information on the
 
ACL estimation methodology
 
and for an analysis
 
of the ACL,
 
non-performing assets,
 
and related information,
 
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.
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 $2.0 million
 
and $2.7 million for
 
the third quarter and
 
first nine months of
 
2022, respectively,
 
compared to a net
 
benefit of
$1.0 million
 
and $3.4
 
million, for
 
the third
 
quarter and
 
first nine
 
months of
 
2021, respectively.
 
The expense
 
recorded during
 
the first
nine months
 
of 2022
 
was mainly
 
driven by
 
an increase
 
in unfunded
 
loan commitments
 
principally due
 
to newly
 
originated facilities
which remained undrawn as of September 30, 2022.
Provision for credit losses for
 
held-to-maturity and available-for-sale debt
 
securities
The provision
 
for credit
 
losses for
 
held-to-maturity debt
 
securities was
 
a net
 
benefit of
 
$0.6 million
 
and $0.3
 
million for
 
the third
quarter and first nine months of
 
2022, respectively,
 
compared to a net benefit of
 
$2.4 million and $0.5 million for
 
the third quarter and
first
 
nine
 
months
 
of
 
2021,
 
respectively.
 
The
 
net
 
benefit
 
recorded
 
during
 
the
 
first
 
nine
 
months
 
of
 
2022
 
was
 
mainly
 
due
 
to
 
the
Corporation’s
 
reduction
 
in
 
qualitative
 
reserves
 
driven
 
by
 
improvements
 
in
 
updated
 
financial
 
information
 
of
 
certain
 
bond
 
issuers
received
 
during
 
the
 
second
 
quarter
 
of
 
2022.
 
Meanwhile,
 
the
 
net
 
benefit
 
recorded
 
during
 
the
 
first
 
nine
 
months
 
of
 
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
 
first
 
nine
months of 2022, compared to a net benefit of $0.1 million recorded
 
for the first nine months of 2021.
96
Non-Interest
 
Income
 
Non-interest
 
income
 
for
 
the
 
third
 
quarter
 
of
 
2022
 
amounted
 
to
 
$29.7
 
million,
 
compared
 
to
 
$29.9
 
million
 
for
 
the
 
same
 
period
 
in
2021.
 
The $0.2 million decrease in non-interest income was primarily related to:
●
A
 
$2.7
 
million
 
decrease
 
in
 
revenues
 
from
 
mortgage
 
banking
 
activities,
 
mainly
 
driven
 
by
 
a
 
$3.0
 
million
 
decrease
 
in
 
net
realized
 
gain
 
on sales
 
of residential
 
mortgage
 
loans in
 
the secondary
 
market due
 
to a
 
lower volume
 
of sales.
 
During the
third
 
quarters
 
of 2022
 
and
 
2021, net
 
gains
 
of $1.5
 
million and
 
$4.5
 
million,
 
respectively,
 
were recognized
 
as a
 
result of
GNMA
 
securitization
 
transactions
 
and
 
whole
 
loan
 
sales
 
to
 
U.S.
 
GSEs
 
amounting
 
to
 
$48.4
 
million
 
and
 
$109.6
 
million,
respectively.
Partially offset by:
●
A $1.1
 
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.
 
The
 
variance
 
included
 
approximately
 
$0.1
 
million
 
of
 
waived
 
fees
associated with the passing of Hurricane Fiona through Puerto Rico.
●
A $1.1
 
million increase
 
in other
 
non-interest income
 
mainly driven
 
by a $0.8
 
million benefit
 
related to
 
income tax
 
credits
purchased
 
in
 
the
 
third
 
quarter
 
of
 
2022
 
and
 
a
 
$0.4
 
million
 
increase
 
in
 
fees
 
and
 
commissions
 
from
 
insurance
 
referrals.
During
 
the
 
third
 
quarter
 
of
 
2022
 
the
 
Corporation
 
was
 
impacted
 
by
 
the
 
passing
 
of
 
Hurricane
 
Fiona,
 
which
 
resulted
 
in
 
a
decrease
 
in
 
transactional
 
fee
 
income
 
from
 
point-of-sale
 
terminals
 
(“POS”)
 
and
 
merchant
 
transactions
 
of
 
approximately
$0.5 million.
 
●
A $0.3 million increase in insurance commission income.
 
Non-interest income
 
for the nine-month
 
period ended
 
September 30, 2022
 
amounted to $93.5
 
million, compared to
 
$90.8 million
for the same period in 2021. The $2.7 million increase in non-interest income
 
was primarily due to:
●
A $5.9 million
 
increase in other
 
non-interest income driven
 
by (i) a
 
$3.1 million increase
 
in transactional fee
 
income from
credit and
 
debit cards,
 
POS and
 
merchant
 
transactions;
 
(ii) a
 
$1.3 million
 
increase related
 
to higher
 
benefit of
 
purchased
income tax credits;
 
(iii) a $1.2 million
 
increase in fees
 
and commissions from
 
insurance referrals; and
 
(iv) the effect
 
in the
second
 
quarter
 
of 2022
 
of
 
a
 
$0.9
 
million
 
gain
 
recorded
 
on the
 
sale of
 
a
 
banking
 
facility
 
related
 
to
 
branch
 
consolidation
efforts.
●
A $2.8
 
million increase
 
in service
 
charges and
 
fees on
 
deposit accounts,
 
in part
 
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.
●
A $1.1 million increase in insurance commission income.
Partially offset by:
●
A $7.1
 
million decrease
 
in revenues
 
from mortgage
 
banking activities,
 
mainly
 
driven by
 
an
 
$8.8 million
 
decrease in
 
net
realized
 
gain
 
on
 
sales
 
of
 
residential
 
mortgage
 
loans
 
in
 
the
 
secondary
 
market
 
due
 
to
 
a
 
lower
 
volume
 
of
 
sales
 
and
 
a $0.7
million decrease
 
in service
 
fee income,
 
partially offset
 
by $1.5
 
million in
 
lower amortization
 
expense related
 
to mortgage
servicing rights
 
and a
 
$0.6 million
 
net increase
 
in mark-to-market
 
gains from
 
To-Be-Announced
 
(“TBA”) MBS
 
forward
contracts. During
 
the first
 
nine months
 
of 2022
 
and 2021,
 
net gains
 
of $7.2
 
million and
 
$16.0 million,
 
respectively,
 
were
recognized
 
as
 
a
 
result
 
of
 
GNMA
 
securitization
 
transactions
 
and
 
whole
 
loan
 
sales
 
to
 
U.S.
 
GSEs
 
amounting
 
to
 
$206.5
million and $406.9 million, respectively.
97
Non-Interest
 
Expenses
Non-interest
 
expenses increased
 
by $1.2
 
million to
 
$115.2
 
million for
 
the quarter
 
ended September
 
30, 2022,
 
compared to
 
$114.0
million for
 
the third
 
quarter of 2021.
 
On a non-GAAP
 
basis, excluding
 
$2.3 million
 
in merger
 
and restructuring
 
costs associated with
the acquisition
 
of BSPR and
 
costs of
 
$0.6 million
 
related to the
 
COVID-19 pandemic
 
response efforts
 
which were
 
recognized during
the third quarter
 
of 2021, non-interest
 
expenses increased
 
by $4.1 million
 
when compared with
 
the same quarter
 
of the previous
 
year.
See “Special
 
Items”
 
above for
 
additional information.
 
Some of
 
the most
 
significant variances
 
in adjusted
 
non-interest expenses
 
were
as follows:
●
A
 
$2.7
 
million
 
increase
 
in
 
adjusted
 
employees’
 
compensation
 
and
 
benefits
 
expenses,
 
primarily
 
reflecting
 
a
 
$1.7
 
million
increase
 
in
 
compensation
 
expense due
 
to annual
 
salary
 
merit increa
 
ses and
 
a $0.7
 
million
 
increase
 
in medical
 
insurance
premiums.
●
A $1.8
 
million increase
 
in adjusted
 
business promotion
 
expenses, mainly
 
related to
 
a $0.9
 
million increase
 
in advertising,
marketing and
 
sponsorship activities;
 
and $0.3
 
million in
 
donations to
 
non-profit organizations
 
in the
 
municipalities most
affected by Hurricane Fiona.
●
A
 
$1.2
 
million
 
decrease
 
in
 
net
 
gains
 
on
 
OREO
 
operations,
 
mainly
 
due
 
to
 
lower
 
net
 
realized
 
gains
 
on
 
sales
 
of
 
OREO
properties, primarily residential properties in the Puerto Rico region.
 
●
A $0.8 million increase in credit and debit card processing expenses,
 
in part due to higher credit card association fees when
compared to the same period of
 
the previous year.
 
The third quarter of 2021 includes
 
the effect of $1.4 million in
 
incentive
payments and cost reimbursements recorded in connection with a debit
 
card processing contract.
Partially offset by:
●
A $1.6
 
million decrease
 
in adjusted
 
other non
 
-interest expenses,
 
mainly driven
 
by a
 
$1.5 million
 
decrease in
 
charges
 
for
legal and
 
operational reserves
 
and a
 
$0.6 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.
●
A
$1.0 million
 
decrease in
 
adjusted professional
 
service fees,
 
primarily
 
related to
 
a $1.3
 
million decrease
 
in outsourcing
technology service fees
 
primarily related to
 
incremental temporary
 
technology costs recognized
 
during the third
 
quarter of
2021 associated with the
 
BSPR acquired operations, partially
 
offset by a $0.5
 
million increase in consulting
 
fees driven by
various technology projects.
98
Non-interest
 
expenses
 
for
 
the first
 
nine
 
months
 
of
 
2022
 
were $330.2
 
million,
 
compared
 
to
 
$377.5
 
million
 
for
 
the same
 
period
 
in
2021. On
 
a non-GAAP
 
basis, excluding
 
$24.6 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
 
$19.7
 
million
 
when
 
compared
 
with
 
the
 
same
 
period
 
of
 
the
 
previous
 
year.
 
See
 
“Special
 
Items”
 
above
 
for
 
additional
information. Some of the most significant variances in adjusted non
 
-interest expenses were as follows:
●
A
 
$12.8
 
million
 
decrease
 
in
 
adjusted
 
professional
 
service
 
fees,
 
driven
 
by
 
a
 
$11.1
 
million
 
decrease
 
in
 
outsourcing
technology service
 
fees, mainly
 
associated with
 
the effect
 
in 2021
 
of 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 $4.4 million decrease in adjusted other non-interest
 
expenses mainly due to (i) a $2.0 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;
 
(ii) a $2.8 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;
 
and
 
(iii)
 
a
 
$0.6
 
million
 
decrease
 
in
supplies and printing expenses.
 
●
A $2.8
 
million increase
 
in net
 
gains on
 
OREO operations,
 
primarily reflecting:
 
(i) a $2.4
 
million decrease
 
in write-downs
to the value
 
of OREO properties,
 
in part related
 
to a write-down
 
to the value
 
of a commercial
 
property in
 
the Puerto
 
Rico
region
 
recorded
 
during
 
the
 
first
 
quarter
 
of
 
2021;
 
and
 
(ii)
 
a
 
$2.2
 
million
 
decrease
 
in
 
OREO-related
 
operating
 
expenses,
primarily
 
taxes,
 
repairs
 
and
 
insurance.
 
These
 
variances
 
were
 
partially
 
offset
 
by
 
a
 
$2.1
 
million
 
decrease
 
in
 
income
recognized
 
from rental
 
payments
 
mainly
 
associated to
 
a sale
 
of an
 
OREO income
 
-producing
 
property
 
during
 
the second
half of 2021.
●
A $2.6 million
 
decrease in adjusted occupancy
 
and equipment expenses,
 
primarily related to a
 
reduction in rental
 
expense,
equipment related depreciation charges,
 
and maintenance charges associated
 
with branch consolidation efforts
 
during 2021
and 2022.
●
A $1.7 million decrease in adjusted taxes, other than
 
income taxes, primarily related to lower municipal license taxes, sales
and use taxes, and property taxes.
Partially offset by:
●
A
 
$3.1
 
million
 
increase
 
in
 
adjusted
 
employees’
 
compensation
 
and
 
benefits
 
expenses,
 
primarily
 
reflecting
 
a
 
$3.0
 
million
decrease in deferred loan origination costs driven by the effect of SBA PPP loan
 
originations closed during 2021.
●
A $3.1
 
million increase
 
in adjusted
 
business promotion
 
expenses, mainly
 
related to
 
a $1.8
 
million increase
 
in advertising,
marketing and sponsorship
 
activities; and a
 
$0.6 million increase
 
in donations, of
 
which $0.3 million
 
were granted to non-
profit organizations in the municipalities most affected
 
by Hurricane Fiona.
99
Income Taxes
For the
 
third quarter
 
of 2022,
 
the Corporation
 
recorded an
 
income tax
 
expense of
 
$32.0 million
 
compared to
 
$37.1 million
 
in the
third quarter of 2021. The variance was primarily related
 
to lower pre-tax income and a lower estimated
 
effective tax rate as a result of
a higher
 
proportion of
 
exempt to
 
taxable income
 
when compared
 
to the
 
same period
 
in 2021.
 
For the
 
first nine
 
months of
 
2022, the
Corporation recorded
 
an income tax
 
expense of $109.2
 
million compared
 
to $105.2 million
 
for the same
 
period in 2021.
 
The increase
in income
 
tax expense
 
for the
 
nine-month
 
period ended
 
September 30,
 
2022, as
 
compared
 
to the
 
same period
 
in the
 
prior year,
 
was
related
 
to
 
higher pre
 
-tax income,
 
partially
 
offset
 
by a
 
higher
 
proportion
 
of exempt
 
to taxable
 
income
 
resulting
 
in
 
a
 
lower estimated
effective tax rate.
The Corporation’s
 
estimated annual
 
effective tax
 
rate in
 
the first
 
nine months
 
of 2022,
 
excluding entities
 
from which
 
a tax
 
benefit
cannot
 
be
 
recognized
 
and
 
discrete
 
items,
 
was
 
31.8%,
 
compared
 
to
 
33.2%
 
for
 
the
 
first
 
nine
 
months
 
of
 
2021.
 
The
 
estimated
 
annual
effective
 
tax rate,
 
including all
 
entities, for
 
2022 was
 
32.0% (32.4%
 
excluding discrete
 
items), compared
 
to 33.6%
 
for the
 
first nine
months of 2021
 
(33.8% excluding discrete
 
items). See Note
 
17 - Income
 
Taxes,
 
in the Corporation’s
 
unaudited consolidated
 
financial
statements
 
for
 
the
 
quarter
 
ended
 
September
 
30,
 
2022
 
for
 
additional
 
information
 
on
 
the
 
Corporation’s
 
net
 
deferred
 
tax
 
asset
 
as
 
of
September 30, 2022 and December 31, 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100
FINANCIAL
 
CONDITION
 
AND OPERATING DATA ANALYSIS
Assets
The Corporation’s total assets
 
were $18.4 billion as of September 30, 2022, a decrease of $2.3
 
billion from December 31, 2021. The
decrease
 
was primarily
 
related
 
to
 
a $2.0
 
billion
 
decrease
 
in cash
 
and
 
cash
 
equivalents mainly
 
attributable
 
to
 
the overall
 
decrease
 
in
total deposits,
 
the repurchase
 
of approximately
 
15.9 million
 
shares of
 
common stock
 
for a
 
total purchase
 
price of
 
$225.0 million,
 
the
repayment
 
at
 
maturity
 
of
 
$200
 
million
 
in
 
FHLB
 
advances
 
and
 
a
 
$100
 
million
 
repurchase
 
agreement.
 
In
 
addition,
 
total
 
investment
securities
 
decreased
 
by
 
$524.5
 
million,
 
mainly
 
related
 
to
 
the
 
decrease
 
in
 
the
 
fair
 
value
 
of
 
available-for-sale
 
debt
 
securities
 
and
prepayments,
 
partially
 
offset
 
by
 
purchases
 
of
 
U.S.
 
agencies
 
and
 
MBS.
 
As
 
further
 
discussed
 
below,
 
these
 
variances
 
were
 
partially
offset by a $215.0 million increase in total loans.
The following
 
table presents
 
the composition
 
of the
 
Corporation’s
 
loan portfolio,
 
including loans
 
held for
 
sale, as
 
of the
 
indicated
dates:
September 30,
December 31,
2022
2021
(In thousands)
Residential mortgage loans
$
2,830,974
$
2,978,895
Commercial loans:
Commercial mortgage loans
2,265,614
2,167,469
Construction loans
123,994
138,999
Commercial and Industrial loans
(1)
2,858,286
2,887,251
Total commercial
 
loans
5,247,894
5,193,719
Consumer loans and finance leases
3,219,750
2,888,044
Total loans held
 
for investment
11,298,618
11,060,658
Less:
Allowance for credit losses for loans and finance leases
(257,859)
(269,030)
Total loans held
 
for investment, net
$
11,040,759
$
10,791,628
Loans held for sale
12,169
35,155
Total loans, net
$
11,052,928
$
10,826,783
(1)
As of September 30, 2022 and December 31, 2021, includes
 
$17.9 million and $145.0 million, respectively, of SBA PPP loans.
As of
 
September 30,
 
2022, the
 
Corporation’s
 
total loan
 
portfolio before
 
the ACL
 
amounted to
 
$11.3
 
billion, an
 
increase of
 
$215.0
million compared to December
 
31, 2021. The growth reflects increases
 
of $131.1 million in the Puerto
 
Rico region and $101.9 million
in
 
the
 
Florida
 
region,
 
partially
 
offset
 
by
 
a
 
decrease
 
of $18.0
 
million
 
in
 
the
 
Virgin
 
Islands region.
 
On
 
a
 
portfolio
 
basis,
 
the
 
increase
consisted of a $331.7
 
million increase in consumer
 
loans, including a $276.9
 
million increase in auto loans
 
and leases, and an increase
of $54.2
 
million in
 
commercial and
 
construction
 
loans (net
 
of a
 
$127.1 million
 
decrease in
 
the carrying
 
value of
 
the SBA
 
PPP loan
portfolio),
 
partially offset by
 
a reduction of $170.9
 
million in residential
 
mortgage loans. Excluding the
 
$127.1 million decrease in
 
the
carrying value of
 
SBA PPP loans,
 
commercial and construction
 
loans increased by
 
$181.3 million mainly
 
reflecting the origination
 
of
loans
 
related
 
to
 
multiple
 
commercial
 
relationships,
 
each
 
in
 
excess
 
of
 
$10
 
million,
 
that
 
increased
 
the
 
portfolio
 
amount
 
by
 
$418.7
million, partially offset
 
by payoffs and
 
paydowns of large
 
commercial and constructions
 
relationships totaling $199.2
 
million, and the
sale of a $35.2 million commercial and industrial loan participation in
 
the Puerto Rico region, as further explained below.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
101
As of September
 
30, 2022,
 
loans held for
 
investment were
 
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 $11.3 billion
 
as of
September
 
30,
 
2022,
 
the
 
Corporation
 
had
 
a
 
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 September 30, 2022
Puerto Rico
Virgin Islands
United States
Total
(In thousands)
Residential mortgage loans
$
2,240,466
$
174,766
$
415,742
$
2,830,974
Commercial mortgage loans
1,688,345
66,102
511,167
2,265,614
Construction loans
23,595
4,121
96,278
123,994
Commercial and Industrial loans
(1)
1,772,418
69,748
1,016,120
2,858,286
Total commercial
 
loans
3,484,358
139,971
1,623,565
5,247,894
Consumer loans and finance leases
3,149,526
58,911
11,313
3,219,750
Total loans held
 
for investment, gross
$
8,874,350
$
373,648
$
2,050,620
$
11,298,618
Loans held for sale
12,169
-
-
12,169
Total loans, gross
$
8,886,519
$
373,648
$
2,050,620
$
11,310,787
(1)
As of September 30, 2022, includes $17.9 million of SBA PPP
 
loans consisting of $13.7 million in the Puerto Rico region,
 
$0.4 million in the Virgin Islands region,
and $3.8 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
Commercial mortgage loans
1,635,137
67,094
465,238
2,167,469
Construction loans
38,789
4,344
95,866
138,999
Commercial and Industrial loans
(1)
1,867,082
79,515
940,654
2,887,251
Total commercial
 
loans
3,541,008
150,953
1,501,758
5,193,719
Consumer loans and finance leases
2,820,102
52,282
15,660
2,888,044
Total loans held
 
for investment, gross
$
8,722,432
$
391,486
$
1,946,740
$
11,060,658
Loans held for sale
33,002
177
1,976
35,155
Total loans, gross
$
8,755,434
$
391,663
$
1,948,716
$
11,095,813
(1)
As of December 31, 2021, includes $145.0 million of SBA PPP
 
loans consisting of $102.8 million in the Puerto Rico region,
 
$8.2 million in the Virgin Islands
region, and $34.0 million in the United States region.
102
Residential Real Estate Loans
As
 
of
 
September
 
30,
 
2022,
 
the
 
Corporation’s total
 
residential mortgage loan
 
portfolio, including loans
 
held
 
for
 
sale, decreased
 
by
$170.9 million,
 
as compared to the balance
 
as of December 31,
 
2021. The residential
 
mortgage loan
 
portfolio decreased
 
by $141.7 million
in the Puerto
 
Rico region,
 
$15.6 million
 
in the Florida
 
region, and
 
$13.6 million
 
in the Virgin Islands
 
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
 
49%
 
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.
Commercial and Construction Loans
As
 
of
 
September
 
30,
 
2022,
 
the
 
Corporation’s
 
commercial
 
and
 
construction
 
loan
 
portfolio
 
increased
 
by
 
$54.2
 
million
 
(net
 
of
 
a
$127.1 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 decreased by $56.7 million (including
 
a $89.1 million decrease in the
SBA PPP loan portfolio)
 
,
 
as compared to the
 
balance as of December
 
31, 2021. Excluding the
 
$89.1 million decrease
 
in the SBA PPP
loan portfolio
 
,
 
commercial and
 
construction loans
 
in the
 
Puerto Rico
 
region increased
 
by $32.4
 
million, driven
 
by the
 
origination of
loans
 
related
 
to
 
six
 
commercial
 
relationships,
 
each
 
in
 
excess of
 
$10
 
million,
 
that
 
increased
 
the
 
portfolio
 
amount by
 
$133.8
 
million,
partially
 
offset
 
by
 
the
 
early
 
payoff
 
of
 
two
 
commercial
 
and
 
construction
 
loans
 
totaling
 
$41.9
 
million,
 
the
 
sale
 
of
 
a
 
$35.2
 
million
commercial and industrial loan participation, and the repayment of a $20.6
 
million commercial and industrial loan.
 
In the
 
Florida region,
 
commercial and
 
construction loans
 
increased by
 
$121.8 million
 
(net of
 
a $30.2 million
 
decrease in
 
the SBA
PPP loan portfolio)
 
,
 
as compared to
 
the balance as
 
of December 31,
 
2021. Excluding the
 
$30.2 million decrease
 
in the SBA PPP
 
loan
portfolio,
 
commercial
 
and
 
construction
 
loans
 
in
 
the
 
Florida
 
region
 
increased
 
by
 
$152.0
 
million,
 
driven
 
by
 
the
 
origination
 
of
 
loans
related
 
to
 
fifteen
 
commercial
 
relationships,
 
each
 
in
 
excess
 
of
 
$10
 
million,
 
that
 
increased
 
the
 
portfolio
 
amount
 
by
 
$284.9
 
million,
partially offset by the
 
payoff of three commercial
 
and construction loans totaling $87.3
 
million and the repayments of
 
two commercial
and industrial loans totaling $49.4 million.
In the
 
Virgin
 
Islands region,
 
commercial and
 
construction loans
 
decreased by
 
$10.9 million,
 
driven by
 
a $7.8
 
million decrease
 
in
the SBA PPP loan portfolio, as compared to the balance as of December 31, 2021.
As of
 
September
 
30,
 
2022,
 
the Corporation
 
had $158.4
 
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
 
September
 
30,
 
2022,
 
the
 
Corporation
 
had
 
$37.6
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
 
September
 
30,
 
2022,
 
the
 
Corporation’s
 
total
 
exposure
 
to
 
shared
 
national
 
credit
 
(“SNC”)
 
loans
 
(including
 
unused
commitments)
 
amounted
 
to
 
$1.0
 
billion,
 
compared
 
to
 
$918.6
 
million
 
as
 
of
 
December
 
31,
 
2021.
 
As
 
of
 
September
 
30,
 
2022,
approximately
 
$144.4
 
million
 
of
 
the
 
SNC
 
exposure
 
is
 
related
 
to
 
the
 
portfolio
 
in
 
Puerto
 
Rico
 
and
 
$884.4
 
million
 
is
 
related
 
to
 
the
portfolio in the Florida region.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
103
Consumer Loans and Finance Leases
As of September
 
30, 2022, the Corporation’s
 
consumer loan and finance
 
lease portfolio increased by
 
$331.7 million to $3.2
 
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
 
$182.8
 
million
 
and
 
$94.1
 
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 the first nine months of 2022.
 
Loan Production
First BanCorp.
 
relies primarily on
 
its retail
 
network of
 
branches to
 
originate residential and
 
consumer loans.
 
The Corporation
 
may
supplement its residential
 
mortgage originations
 
with wholesale servicing
 
released mortgage loan purchases
 
from mortgage bankers. 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.
 
The following table provides
 
a breakdown of First BanCorp.’s loan production,
 
including purchases,
 
refinancings,
 
renewals and draws
from existing
 
revolving
 
and non-revolving
 
commitments,
 
for the indicated
 
periods:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2022
2021
2022
2021
(In thousands)
Residential mortgage
$
103,897
$
147,212
$
352,942
$
468,306
Commercial mortgage
96,894
113,789
430,599
246,223
Commercial and Industrial
(1)
562,828
510,551
1,675,838
1,911,230
Construction
21,892
24,367
88,758
71,009
Consumer
459,402
405,305
1,368,121
1,121,386
 
Total loan production
$
1,244,913
$
1,201,224
$
3,916,258
$
3,818,154
(1) For the nine-month period ended September 30, 2021,
 
includes $283.7 million
 
in originations of SBA PPP loans.
104
During the quarter and nine-month
 
period ended September 30, 2022,
 
total loan originations, including purchases, refinancings,
 
and
draws from existing revolving and
 
non-revolving commitments, amounted to
 
approximately $1.2 billion and $3.9
 
billion, respectively,
compared
 
to
 
$1.2
 
billion
 
and
 
$3.8
 
billion,
 
respectively,
 
for
 
the
 
comparable
 
periods
 
in
 
2021.
 
Total
 
loans
 
originations
 
increased
 
by
$43.7 million for
 
the third quarter
 
of 2022, compared
 
to the same period
 
of 2021. During
 
the nine-month period
 
ended September 30,
2021,
 
the Corporation originated SBA PPP loans totaling $283.7 million.
 
Excluding SBA PPP loans originated in the first nine months
of 2021, total loan originations increased by $381.8 million for
 
the first nine months of 2022, compared to the same period of 2021.
Residential
 
mortgage
 
loan
 
originations
 
for
 
the
 
quarter
 
and
 
nine-month
 
period
 
ended
 
September
 
30,
 
2022
 
amounted
 
to
 
$103.9
million and
 
$352.9 million,
 
respectively,
 
compared to
 
$147.2 million
 
and $468.3
 
million, respectively,
 
for the
 
comparable periods
 
in
2021.
 
The decrease
 
of $43.3
 
million in
 
the third
 
quarter of
 
2022,
 
as compared
 
to the
 
same period
 
in 2021,
 
reflects
 
declines of
 
$35.6
million, $7.3 million, and
 
$0.4 million in the Puerto
 
Rico, Florida,
 
and Virgin
 
Islands regions, respectively.
 
For the nine-month period
ended September 30,
 
2022, the decrease
 
of $115.4
 
million consisted of
 
declines of $92.5
 
million and $22.8
 
million in the Puerto
 
Rico
and Florida regions,
 
respectively.
 
The decrease in
 
the 2022 periods
 
reflects
 
lower levels of
 
refinancings driven by
 
the effect of
 
higher
market
 
interest
 
rates.
 
Approximately
 
58%
 
of
 
the
 
$281.2
 
million
 
residential
 
mortgage
 
loan
 
originations
 
in
 
the
 
Puerto
 
Rico
 
region
during the
 
first nine
 
months of
 
2022 were
 
of conforming
 
loans, compared
 
to 89%
 
of $373.8
 
million for
 
the nine-month
 
period ended
September 30, 2021. The
 
decrease during 2022 is related
 
to lower volume of conforming
 
loan originations and refinancings,
 
driven by
the effect of lower mortgage loan interest rates and increased
 
home purchase activity during 2021.
Commercial
 
and
 
construction
 
loan
 
originations
 
(excluding
 
government
 
loans)
 
for
 
the
 
quarter
 
and
 
nine-month
 
period
 
ended
September
 
30,
 
2022
 
amounted
 
to
 
$679.7
 
million
 
and
 
$2.2
 
billion,
 
respectively,
 
compared
 
to
 
$607.4
 
million
 
and
 
$2.2
 
billion,
respectively,
 
for the
 
comparable periods
 
in 2021.
 
Commercial and
 
construction
 
loan originations
 
increased by
 
$72.3 million,
 
for the
third quarter
 
of 2022,
 
compared to
 
the same
 
period in
 
2021. The
 
increase in
 
the third
 
quarter of
 
2022 consisted
 
of increases
 
of $45.2
million
 
and
 
$32.8
 
million
 
in the
 
Puerto
 
Rico
 
and
 
Florida
 
regions,
 
respectively,
 
partially
 
offset
 
by
 
a
 
decrease
 
of
 
$5.7
 
million
 
in
 
the
Virgin
 
Island
 
region.
 
Total
 
commercial
 
and
 
construction
 
loan
 
originations
 
in
 
the
 
nine-month
 
period
 
ended
 
September
 
30,
 
2021
includes
 
SBA
 
PPP
 
loan
 
originations
 
of
 
$283.7
 
million.
 
Excluding
 
SBA
 
PPP
 
loan
 
originations,
 
commercial
 
and
 
construction
 
loan
originations increased by $274.2 million in the first nine
 
months of 2022, compared to the same period in 2021.
 
The increase consisted
of increases of $144.7
 
million and $136.1 million
 
in the Puerto Rico and Florida
 
regions, respectively,
 
partially offset by a decrease
 
of
$6.6 million in the Virgin
 
Island region.
Government loan originations for the quarter
 
and nine-month period ended September
 
30, 2022 amounted to $1.8 million
 
and $36.6
million,
 
respectively,
 
compared
 
to
 
$41.2
 
million
 
and
 
$60.4
 
million,
 
respectively,
 
for
 
the
 
comparable
 
periods
 
in
 
2021.
 
Government
loan
 
originations
 
during
 
the first
 
nine
 
months of
 
2022 are
 
mainly
 
related
 
to the
 
renewal of
 
a public
 
corporation
 
line of
 
credit in
 
the
Virgin
 
Islands regions,
 
the renewal
 
of a
 
municipal loan
 
in the
 
Puerto Rico
 
region,
 
and the
 
utilization of
 
an arranged
 
overdraft line
 
of
credit
 
of
 
a
 
government
 
entity
 
in
 
the
 
Virgin
 
Islands
 
region.
 
On
 
the
 
other
 
hand,
 
government
 
loan
 
originations
 
during
 
the
 
first
 
nine
months of
 
2021 were driven
 
by the refinancing
 
of several loans
 
of a government
 
unit in the
 
Virgin
 
Islands, as well
 
as the
 
refinancing
of several loans to municipalities in the Puerto Rico region.
Originations of auto
 
loans (including finance
 
leases) for the
 
quarter and nine-month
 
period ended September
 
30, 2022 amounted
 
to
$244.9
 
million
 
and
 
$775.7
 
million,
 
respectively,
 
compared
 
to
 
$248.4
 
million
 
and
 
$691.9
 
million,
 
respectively,
 
for
 
the
 
comparable
periods in
 
2021. The
 
decrease in
 
the third
 
quarter of
 
2022, as
 
compared to
 
the same
 
quarter of
 
2021, consisted
 
of a
 
decrease of
 
$5.6
million in the Puerto
 
Rico region, partially offset
 
by an increase of $2.1
 
million in the Virgin
 
Islands regions.
 
The increase in the first
nine months
 
of 2022,
 
as compared
 
to the
 
same period of
 
2021, consisted
 
of increases
 
of $80.5
 
million and
 
$3.3 million,
 
respectively,
in the Puerto Rico
 
and Virgin
 
Island regions. Personal
 
loan originations,
 
other than credit cards,
 
for the quarter and
 
nine-month period
ended September 30, 2022 amounted
 
to $90.2 million and $233.0 million,
 
respectively,
 
compared to $45.9 million and $123.9 million,
respectively,
 
for
 
the
 
comparable
 
periods
 
in 2021.
 
Most
 
of the
 
increase
 
in
 
personal
 
loan
 
originations
 
for
 
the quarter
 
and
 
nine-month
period ended
 
September 30, 2022,
 
as compared with
 
the same period
 
s
 
in 2021, was
 
in the Puerto
 
Rico region. The
 
utilization activity
on the outstanding
 
credit card portfolio
 
for the quarter
 
and nine-month
 
period ended
 
September 30,
 
2022 amounted
 
to $124.3 million
and $359.3 million, respectively,
 
compared to $110.9 million and $305.5
 
million, respectively, for the comparable
 
periods in 2021.
105
Investment Activities
As
 
part
 
of
 
its
 
liquidity,
 
revenue
 
diversification
 
and
 
interest
 
rate
 
risk
 
management
 
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
 
September
 
30,
 
2022
 
amounted
 
to
 
$5.7
 
billion,
 
a
 
$785.0
million decrease
 
from December
 
31, 2021.
 
The decrease
 
was mainly
 
driven by
 
a $778.7
 
million decrease
 
in fair
 
value attributable
 
to
changes
 
in
 
market
 
interest
 
rates
 
and
 
the
 
prepayments
 
of
 
approximately
 
$513.9
 
million
 
of
 
U.S.
 
agencies
 
MBS,
 
partially
 
offset
 
by
purchases of U.S. agencies debentures and MBS totaling $521.9 million
 
during the first nine months of 2022.
As
 
of
 
September
 
30,
 
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 September
 
30, 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 $3.4
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 $1.2
 
million as
of September
 
30, 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
 
September
 
30,
 
2022,
 
the
 
Corporation’s
 
held-to-maturity
 
debt
 
securities
 
portfolio,
 
before
 
the
 
ACL,
 
increased
 
to
 
$445.9
million,
 
compared
 
to
 
$178.1
 
million
 
as
 
of
 
December
 
31,
 
2021,
 
mainly
 
driven
 
by
 
purchases
 
of
 
GSEs’
 
MBS
 
totaling
 
$289.8
 
million
during the first
 
nine months of
 
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, the COVID-19 pandemic,
 
and the measures taken, or to be taken, by other government
entities may
 
have on
 
municipalities, the
 
Corporation cannot
 
be certain
 
whether future
 
charges to
 
the ACL
 
on these
 
securities will
 
be
required.
 
As of
 
September
 
30, 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 these
direct exposures.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
106
 
The following table presents the carrying value of investments as of the indicated dates:
September 30,
December 31,
2022
2021
(In thousands)
Money market investments
$
2,057
$
2,682
Debt securities available for sale, at fair value:
U.S. government and agencies obligations
2,474,277
2,405,468
Puerto Rico government obligations
2,193
2,850
MBS:
 
Residential
3,007,069
3,803,933
 
Commercial
184,650
240,510
Other
500
1,000
Total debt securities available
 
for sale, at fair value
5,668,689
6,453,761
Debt securities held-to-maturity,
 
at amortized cost:
MBS:
 
Residential
174,241
-
 
Commercial
106,235
-
Puerto Rico municipal bonds
165,386
178,133
ACL for Puerto Rico municipal bonds held to maturity
(8,257)
(8,571)
437,605
169,562
Equity securities, including $12.3 million and $21.5 million of FHLB stock,
as of September 30, 2022 and December 31, 2021, respectively
24,727
32,169
Total money market
 
investments and investment securities
$
6,133,078
$
6,658,174
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
107
 
The carrying values of debt securities as of September 30, 2022, by contractual maturity
 
(excluding MBS), are shown below:
Carrying
Weighted
(Dollars in thousands)
Amount
Average Yield
 
%
U.S. government and agencies obligations:
Due within one year
71,188
0.28
Due after one year through five years
$
2,219,918
0.81
Due after five years through ten years
170,194
1.01
Due after ten years
12,977
3.46
2,474,277
0.82
Puerto Rico government and municipalities obligations:
Due within one year
1,200
4.49
Due after one year through five years
42,426
5.51
Due after five years through ten years
55,737
4.82
Due after ten years
68,216
5.36
167,579
5.21
Other debt securities:
Due within one year
500
0.84
Total
2,642,356
1.08
MBS
3,472,195
1.63
ACL on held-to-maturity debt securities
(8,257)
-
Total debt securities
 
$
6,106,294
1.40
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
 
debt securities. As of September 30,
2022,
 
the Corporation had approximately
 
$2.1 billion in callable debt
 
securities (U.S. agencies government
 
securities) with an average
yield of
 
0.83%, of which
 
approximately 56%
 
were purchased
 
at a discount
 
and 6%
 
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
 
see Note
 
2 –
 
Debt Securities,
 
in the
 
Corporation’s
 
unaudited
 
consolidated
 
financial statements
 
for
the quarter ended September 30, 2022 for additional information regarding
 
the Corporation’s debt securities portfolio.
RISK MANAGEMENT
Risks
 
are
 
inherent
 
in
 
virtually
 
all
 
aspects
 
of
 
the
 
Corporation’s
 
business
 
activities
 
and
 
operations.
 
Consequently,
 
effective
 
risk
management
 
is
 
fundamental
 
to
 
the
 
success
 
of
 
the
 
Corporation.
 
The
 
primary
 
goals
 
of
 
risk
 
management
 
are
 
to
 
ensure
 
that
 
the
Corporation’s
 
risk-taking activities are
 
consistent with the
 
Corporation’s
 
objectives and risk
 
tolerance, and that
 
there is an appropriate
balance between risk and reward in order to maximize stockholder value.
The
 
Corporation
 
has
 
in
 
place
 
a
 
risk
 
management
 
framework
 
to
 
monitor,
 
evaluate
 
and
 
manage
 
the
 
principal
 
risks
 
assumed
 
in
conducting its activities. First BanCorp.’s
 
business is subject to 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.
The Corporation’s
 
risk management
 
policies are
 
described
 
below, as well as in Part II,
 
Item 7, “Management’s
 
Discussion
 
and Analysis
of Financial
 
Condition
 
and Results
 
of Operations,”
 
in the
 
2021 Annual
 
Report
 
on Form
 
10-K.
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.
108
The Corporation manages liquidity at two levels. The
 
first is the
 
liquidity of the parent company,
 
which is the
 
holding company that
owns the
 
banking
 
and non-banking
 
subsidiaries.
 
The second
 
is the liquidity
 
of the banking
 
subsidiary. During
 
the first
 
nine months
 
of 2022,
the Corporation continued to pay quarterly interest payments
 
on the subordinated debentures associated
 
with its trust preferred securities
(“TRuPs”) and
 
quarterly dividends on
 
its
 
common
 
stock.
For
 
the
 
nine-month period
 
ended September
 
30,
 
2022,
 
First BanCorp.
 
has
repurchased
 
approximately
 
15.9 million
 
shares
 
for a total
 
purchase
 
price of
 
$225.0 million.
The
 
Asset
 
and
 
Liability
 
Committee
 
of
 
the
 
Corporation’s
 
Board
 
of
 
Directors
 
is
 
responsible
 
for
 
overseeing
 
management’s
establishment
 
of
 
the
 
Corporation’s
 
liquidity
 
policy,
 
as
 
well
 
as
 
approving
 
operating
 
and
 
contingency
 
procedures
 
and
 
monitoring
liquidity
 
on
 
an
 
ongoing
 
basis.
 
The
 
Management’s
 
Investment
 
and
 
Asset
 
Liability
 
Committee
 
(“MIALCO”),
 
which
 
reports
 
to
 
the
Board
 
of
 
Directors’
 
Asset
 
and
 
Liability
 
Committee,
 
uses
 
measures
 
of
 
liquidity
 
developed
 
by
 
management
 
that
 
involve
 
the
 
use
 
of
several assumptions
 
to review the
 
Corporation’s
 
liquidity position
 
on a monthly
 
basis. The MIALCO
 
oversees liquidity
 
management,
interest rate risk and other related matters.
The MIALCO
 
is composed
 
of senior
 
management officers,
 
including the
 
Chief Executive
 
Officer,
 
the Chief
 
Financial Officer,
 
the
Chief Risk Officer,
 
the Business Group Director,
 
the Strategy Management
 
Director, the
 
Treasury and
 
Investments Risk Manager,
 
the
Financial
 
Planning
 
and
 
ALM
 
Director,
 
and
 
the
 
Treasurer.
 
The
 
Treasury
 
and
 
Investments
 
Division
 
is
 
responsible
 
for
 
planning
 
and
executing the
 
Corporation’s
 
funding activities
 
and strategy,
 
monitoring liquidity
 
availability on
 
a daily
 
basis, and
 
reviewing liquidity
measures
 
on
 
a
 
weekly
 
basis.
 
The
 
Treasury
 
and
 
Investments
 
Accounting
 
and
 
Operations
 
area
 
of
 
the
 
Comptroller’s
 
Department
 
is
responsible
 
for
 
calculating
 
the
 
liquidity
 
measurements
 
used
 
by
 
the
 
Treasury
 
and
 
Investment
 
Division
 
to
 
review
 
the
 
Corporation’s
liquidity
 
position
 
on
 
a
 
monthly
 
basis.
 
The
 
Financial
 
Planning
 
and
 
ALM
 
Division
 
is responsible
 
for
 
estimating
 
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
 
could
 
be
 
constrained.
 
The
 
plans
 
project
 
funding
 
requirements
 
during
 
a
 
potential
 
period
 
of
stress, specify
 
and quantify
 
sources of
 
liquidity,
 
outline actions
 
and procedures
 
for effectively
 
managing liquidity
 
through a
 
difficult
period,
 
and define
 
roles and
 
responsibilities for
 
the Corporation’s
 
employees.
 
Under the
 
contingency
 
funding plans,
 
the Corporation
stresses the balance sheet and the liquidity
 
position to critical levels that mimic difficulties
 
in generating funds or even maintaining
 
the
current funding
 
position of
 
the Corporation
 
and the Bank
 
and are designed
 
to help ensure
 
the ability of
 
the Corporation
 
and the Bank
to
 
honor
 
their
 
respective
 
commitments.
 
The
 
Corporation
 
has
 
established
 
liquidity
 
triggers
 
that
 
the
 
MIALCO
 
monitors
 
in
 
order
 
to
maintain
 
the
 
ordinary
 
funding of
 
the banking
 
business. The
 
MIALCO
 
developed
 
contingency
 
funding
 
plans
 
for
 
the following
 
three
scenarios: a
 
credit rating
 
downgrade, an
 
economic cycle
 
downturn event,
 
and a funding
 
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 September 30,
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 $3.4 billion,
 
or 18.57%
 
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
 
25.86%
 
of total assets
 
as of September 30, 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 the reduction of bank deposits
 
during the first nine months
 
of 2022 associated to the overall
interest
 
rate increase
 
environment
 
and the FED’s
 
economic
 
tightening
 
monetary
 
policy.
As
 
of
 
September
 
30,
 
2022,
 
the
 
Corporation
 
had
 
$1.3
 
billion
 
fully
 
available
 
for
 
credit
 
from
 
the
 
FHLB.
 
The
 
Corporation
 
also
maintains
 
borrowing
 
capacity
 
at
 
the
 
Federal
 
Discount
 
Window.
 
The
 
Corporation
 
does
 
not
 
consider
 
borrowing
 
capacity
 
from
 
the
Federal Reserve Discount
 
Window as
 
a primary source
 
of liquidity but
 
had approximately $1.2
 
billion available for
 
funding under the
FED’s BIC Program as of September 30, 2022 as an additional contingent
 
source.
 
Total loans pledged
 
to the Federal Reserve Discount
Window
 
amounted to
 
$2.1 billion
 
as of
 
September 30,
 
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
 
September 30,
 
2022, the
 
holding company
 
had $18.3
 
million in
 
cash and
 
cash equivalents.
 
Cash and
 
cash equivalents
 
at the
Bank
 
level
 
as
 
of
 
September
 
30,
 
2022
 
were
 
approximately
 
$554.3
 
million.
 
The
 
Bank
 
had
 
$45.2
 
million
 
in
 
brokered
 
CDs
 
as
 
of
September 30,
 
2022, of which
 
approximately $17.8
 
million mature over
 
the next twelve
 
months. Liquidity
 
at the Bank
 
level is highly
dependent
 
on
 
bank
 
deposits,
 
which
 
fund
 
90.1%
 
of
 
the
 
Bank’s
 
assets
 
(or
 
89.9%
 
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
109
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.
 
Funding through brokered
 
CDs 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 September
 
30, 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
110
 
The following table summarizes commitments to extend credit and standby letters
 
of credit as of the indicated dates:
September 30,
December 31
2022
2021
(In thousands)
Financial instruments whose contract amounts represent credit risk:
 
Commitments to extend credit:
 
Construction undisbursed funds
$
194,104
$
197,917
 
Unused personal lines of credit
 
975,949
1,180,824
 
Commercial lines of credit
 
709,140
725,259
 
Commercial letters of credit
84,724
151,140
 
Standby letters of credit
9,238
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,
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
 
$2.6
 
billion
 
as
 
of
September 30,
 
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, high-quality unpledged government
 
and agency securities, credit facilities,
 
and cash flow from
 
operations will be sufficient
 
to
meet our operational cash needs for the foreseeable future.
Off-balance sheet
 
transactions are continuously
 
monitored to consider
 
their potential impact
 
to our liquidity
 
position and changes
are applied to the balance between sources and uses of funds as deemed appropriate
 
to maintain a sound liquidity position.
Sources of Funding
The
 
Corporation
 
utilizes
 
different
 
sources
 
of
 
funding
 
to
 
help
 
ensure
 
that
 
adequate
 
levels
 
of
 
liquidity
 
are
 
available
 
when
 
needed.
Diversification of
 
funding sources is
 
of great importance
 
to protect the
 
Corporation’s
 
liquidity from market
 
disruptions. The
 
principal
sources of
 
short-term funds
 
are deposits,
 
including brokered
 
CDs, 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 funding
 
brokers. While liquidity
 
is an ongoing
 
challenge for all
 
financial institutions,
 
management believes
that
 
the
 
Corporation’s
 
available
 
borrowing
 
capacity
 
and
 
efforts
 
to
 
grow
 
retail
 
deposits
 
will
 
be
 
adequate
 
to
 
provide
 
the
 
necessary
funding for the Corporation’s business
 
plans in the foreseeable future.
The Corporation’s principal
 
sources of funding are:
Retail
 
deposits
 
–
The
 
Corporation’s
 
deposit
 
products
 
include
 
regular
 
savings
 
accounts,
 
demand
 
deposit
 
accounts,
 
money
 
market
accounts
 
and
 
retail
 
CDs. As
 
of
 
September
 
30,
 
2022,
 
the
 
Corporation’s
 
deposits,
 
excluding
 
government
 
deposits
 
and
 
brokered
 
CDs,
decreased
 
by
 
$835.4
 
million
 
to
 
$13.6
 
billion,
 
compared
 
to
 
$14.4
 
billion
 
as
 
of
 
December
 
31,
 
2021.
 
Certain
 
non-maturity
 
deposits
previously
 
reported
 
as
 
brokered
 
deposits,
 
which
 
amounted
 
to
 
$144.3
 
million
 
and
 
$247.5
 
million,
 
as
 
of
 
September
 
30,
 
2022
 
and
December 31,
 
2021, respectively,
 
were recharacterized
 
as non-brokered
 
deposits for
 
both periods
 
presented based
 
on exclusions
 
and
clarifications of
 
the deposit
 
broker definition
 
included in
 
the FDIC
 
Brokered
 
Deposits Final
 
Rule. The
 
above-mentioned
 
decrease of
$835.4
 
million
 
was
 
primarily
 
related
 
to
 
lower
 
balances
 
in
 
commercial
 
savings
 
accounts,
 
retail
 
CDs,
 
and
 
retail
 
demand
 
deposits
accounts
 
primarily
 
in
 
the
 
Puerto
 
Rico
 
region,
 
in
 
part due
 
to the
 
overall
 
interest
 
rate
 
increase
 
environment
 
and
 
the
 
FED’s
 
economic
tightening policy.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
111
Government deposits –
As of September
 
30, 2022, the
 
Corporation had $2.5
 
billion of Puerto Rico
 
public sector deposits
 
($2.3 billion
in
 
transactional
 
accounts
 
and
 
$170.4
 
million
 
in
 
time
 
deposits),
 
compared
 
to
 
$2.7
 
billion
 
as
 
of
 
December
 
31,
 
2021,
 
which
 
are
 
fully
collateralized.
 
Approximately
 
25%
 
of
 
the
 
public
 
sector
 
deposits
 
as
 
of
 
September
 
30,
 
2022
 
was
 
from
 
municipalities
 
and
 
municipal
agencies
 
in Puerto
 
Rico
 
and 75%
 
was 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
 
September
 
30,
 
2022,
 
the
 
Corporation
 
had
 
$458.8
 
million
 
of
 
government
 
deposits
 
in
 
the
 
Virgin
 
Islands
 
region
(December 31, 2021 - $568.4 million) and $10.1 million in the Florida
 
region (December 31, 2021 - $9.6 million).
 
Estimate
 
of
 
Uninsured
 
Deposits
 
–
As of
 
September
 
30,
 
2022
 
and
 
December
 
31,
 
2021,
 
the estimated
 
amount
 
of uninsured
 
deposits,
excluding brokered
 
CDs, totaled
 
$7.9 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
 
September
 
30,
 
2022
 
and
 
December
 
31,
 
2021
 
include
 
government
 
deposits,
 
which
 
are
 
uninsured
 
but
 
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.
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
 
September 30, 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
$
256,295
$
109,465
$
134,216
$
142,877
$
642,853
Other uninsured time deposits
$
21,721
$
9,519
$
10,702
$
9,305
$
51,247
Brokered
 
CDs
–
 
Total
 
brokered
 
CDs
 
decreased
 
by
 
$55.2
 
million
 
to
 
$45.2
 
million
 
as
 
of
 
September
 
30,
 
2022,
 
compared
 
to
 
$100.4
million as of December 31, 2021.
 
The average remaining term to maturity of the brokered CDs outstanding
 
as of September 30, 2022 was approximately 1.4 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 quarters and nine-month periods ended September
 
30, 2022 and 2021.
Securities
 
sold
 
under
 
agreements
 
to
 
repurchase
 
-
The
 
Corporation’s
 
investment
 
portfolio
 
is
 
funded
 
in
 
part
 
with
 
repurchase
agreements. The Corporation’s outstanding
 
securities sold under repurchase agreements amounted to $200 million as of September
 
30,
2022 and
 
mature on
 
January 19,
 
2025
 
(December 31,
 
2021 -
 
$300 million).
 
One of
 
the Corporation’s
 
strategies has
 
been the
 
use of
structured
 
repurchase agreements
 
and long-term
 
repurchase agreements
 
to reduce
 
liquidity risk
 
and manage
 
exposure to
 
interest rate
risk
 
by
 
lengthening
 
the
 
final
 
maturities
 
of
 
its
 
liabilities
 
while
 
keeping
 
funding
 
costs
 
at
 
reasonable
 
levels.
 
In
 
addition
 
to
 
these
repurchase
 
agreements,
 
the
 
Corporation
 
has
 
been
 
able
 
to
 
maintain
 
access
 
to
 
credit
 
by
 
using
 
cost-effective
 
sources
 
such
 
as
 
FHLB
advances.
 
See
 
Note
 
9
 
–
 
Securities
 
Sold
 
Under
 
Agreements
 
to
 
Repurchase,
 
in
 
the
 
Corporation’s
 
unaudited
 
consolidated
 
financial
statements for the
 
quarter ended September
 
30, 2022, for further
 
details about repurchase agreements
 
outstanding by counterparty
 
and
maturities.
Under the
 
Corporation’s
 
repurchase agreements,
 
as is the
 
case with derivative
 
contracts, the Corporation
 
is required to
 
pledge cash
or qualifying securities to meet margin requirements.
 
To the extent that the value of
 
securities previously pledged as collateral declines
due to changes in interest
 
rates, a liquidity crisis or
 
any other factor, the
 
Corporation is required to deposit
 
additional cash or securities
to meet
 
its margin
 
requirements, thereby
 
adversely affecting
 
its liquidity.
 
Given the
 
quality of
 
the collateral
 
pledged, the
 
Corporation
has not experienced margin calls from counterparties
 
arising from credit-quality-related write-downs in valuations.
Advances from
 
the FHLB –
The Bank is
 
a member of
 
the FHLB system
 
and obtains advances
 
to fund its
 
operations under a
 
collateral
agreement with the FHLB that requires the Bank to maintain qualifying
 
mortgages and/or investments as collateral for advances taken.
As of December
 
31, 2021, the outstanding
 
balance of long-term
 
fixed rate FHLB adva
 
nces was $200 million.
 
During the third
 
quarter
of 2022,
 
the $200
 
million in
 
FHLB advances
 
outstanding as
 
of December
 
31, 2021
 
matured and
 
were fully
 
repaid. As
 
of September
30, 2022, the Corporation had $1.3 billion fully available for additional
 
borrowing capacity on FHLB lines of credit.
 
112
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 September
 
30, 2022 and December
 
31, 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. See Note 11
 
– Other Borrowings and
 
Note 7 – Non-Consolidated Variable
 
Interest Entities (“VIE”) and Servicing
 
Assets, in the
Corporation’s unaudited
 
consolidated financial statements for the quarter ended September 30, 2022
 
for additional information.
Other Sources of
 
Funds and Liquidity
 
- The Corporation’s
 
principal uses of funds are for
 
the origination of loans and the repayment
 
of
maturing deposits and
 
borrowings. In connection
 
with its mortgage banking
 
activities, the Corporation
 
has invested in
 
technology and
personnel to enhance the Corporation’s
 
secondary mortgage market capabilities.
 
The enhanced
 
capabilities improve
 
the Corporation’s
 
liquidity profile
 
as they
 
allow the
 
Corporation to
 
derive liquidity,
 
if needed,
from the sale
 
of mortgage loans
 
in the secondary
 
market. The U.S. (including
 
Puerto Rico) secondary
 
mortgage market is
 
still highly-
liquid, in
 
large part
 
because of
 
the sale
 
of mortgages
 
through guarantee
 
programs of
 
the FHA,
 
VA,
 
U.S. Department
 
of Housing
 
and
Urban Development
 
(“HUD”), FNMA and
 
FHLMC. During
 
the first nine
 
months of
 
2022, loans pooled
 
into GNMA MBS
 
amounted
to
 
approximately
 
$115.7
 
million.
 
Also,
 
during
 
the
 
first
 
nine
 
months
 
of
 
2022,
 
the
 
Corporation
 
sold
 
approximately
 
$90.8
 
million
 
of
performing residential mortgage loans to FNMA and FHLMC.
The Primary
 
Credit FED Discount
 
Window Program
 
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
 
September
 
30,
 
2022,
 
the
 
Corporation
 
had
approximately $1.2 billion available for funding under the FED’s
 
BIC Program.
Effect of Credit Ratings on Access to Liquidity
The
 
Corporation’s
 
liquidity
 
is
 
contingent
 
upon
 
its
 
ability
 
to
 
obtain
 
external
 
sources
 
of
 
funding
 
to
 
finance
 
its
 
operations.
 
The
Corporation’s
 
current credit
 
ratings and any
 
downgrade in credit
 
ratings can hinder
 
the Corporation’s
 
access to new
 
forms of external
funding
 
and/or
 
cause
 
external
 
funding
 
to
 
be
 
more
 
expensive,
 
which
 
could,
 
in
 
turn,
 
adversely
 
affect
 
its
 
results
 
of
 
operations.
 
Also,
changes in
 
credit ratings
 
may further
 
affect the
 
fair value
 
of unsecured
 
derivatives whose
 
value takes
 
into account
 
the Corporation’s
own credit risk.
The Corporation
 
does not
 
have any
 
outstanding debt
 
or derivative
 
agreements that
 
would be
 
affected by
 
credit rating
 
downgrades.
Furthermore, given the Corporation’s
 
non-reliance on corporate debt or
 
other instruments directly linked in
 
terms of pricing or volume
to credit
 
ratings, the
 
liquidity of
 
the Corporation
 
has not been
 
affected in
 
any material
 
way by downgrades.
 
The Corporation’s
 
ability
to access new non-deposit sources of funding, however,
 
could be adversely affected by credit downgrades.
As of
 
the date
 
hereof, the
 
Corporation’s
 
credit as
 
a long-term
 
issuer is
 
rated BB+
 
by S&P
 
and BB
 
by Fitch.
 
As of
 
the date
 
hereof,
FirstBank’s credit
 
ratings as a
 
long-term issuer are
 
Ba2 by Moody’s,
 
two notches below Moody’s
 
minimum Baa3 level required
 
to be
considered investment grade; 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.
Cash Flows
Cash and cash
 
equivalents were $555.0
 
million as of
 
September 30, 2022,
 
a decrease of $2.0
 
billion when compared
 
to the balance
as
 
of
 
December
 
31,
 
2021.
 
The
 
following
 
discussion
 
highlights
 
the
 
major
 
activities
 
and
 
transactions
 
that
 
affected
 
the
 
Corporation’s
cash flows during the first nine months of 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.
113
For
 
the
 
first
 
nine
 
months
 
of
 
2022
 
and
 
2021,
 
net
 
cash
 
provided
 
by
 
operating
 
activities
 
was
 
$334.8
 
million
 
and
 
$303.6
 
million,
respectively.
 
Net cash
 
generated from
 
operating activities
 
was higher
 
than reported
 
net income
 
largely as
 
a result
 
of adjustments
 
for
items such as depreciation and amortization, 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 nine
 
-month period
 
ended September
 
30, 2022
 
,
 
net cash
used
 
in
 
investing
 
activities
 
was
 
$508.2
 
million,
 
primarily
 
due
 
to
 
purchases
 
of
 
U.S.
 
agencies
 
debentures
 
and
 
MBS
 
and
 
net
disbursements
 
on
 
loans
 
held
 
for
 
investment,
 
partially
 
offset
 
by
 
prepayments
 
of
 
U.S.
 
agencies
 
MBS
 
and
 
proceeds
 
from
 
sales
 
of
commercial loan participations.
For
 
the
 
nine-month
 
period
 
ended
 
September
 
30,
 
2021,
 
net
 
cash
 
used
 
in
 
investing
 
activities
 
was
 
$1.5
 
billion,
 
primarily
 
due
 
to
purchases
 
of
 
U.S.
 
agencies
 
investment
 
securities
 
and
 
liquidity
 
used
 
to
 
fund
 
commercial
 
and
 
consumer
 
loan
 
originations,
 
partially
offset by principal
 
collected on loans and
 
U.S. agencies MBS prepayments,
 
as well as proceeds
 
from U.S. agencies
 
bonds called prior
to maturity and the bulk sale of residential mortgage nonaccrual loans.
Cash Flows from Financing Activities
The Corporation’s
 
financing activities primarily
 
include the receipt
 
and withdrawals
 
of deposits and
 
the issuance of
 
brokered CDs,
the issuance of and
 
payments on long-term debt,
 
the issuance of equity
 
instruments and activities related
 
to its short-term funding.
 
For
the first
 
nine months of
 
2022, net
 
cash used
 
in financing
 
activities was $1.8
 
billion, mainly
 
reflecting a
 
decrease in
 
total deposits,
 
the
repayment
 
at maturity
 
of a
 
$100 million
 
repurchase agreement
 
and
 
$200 million
 
of FHLB
 
advances,
 
the repurchase
 
of 15.9
 
million
shares of common
 
stock for a
 
total purchase
 
price of
 
approximately $225.0
 
million, and the
 
payment of
 
$65.8 million
 
in dividends to
common stock shareholders.
For the
 
first nine
 
months of
 
2021, net
 
cash provided
 
by financing
 
activities was
 
$2.3 billion,
 
mainly reflecting
 
an increase
 
in non-
brokered deposits,
 
partially offset
 
by dividends
 
paid on
 
common and
 
preferred stock,
 
repurchases of
 
outstanding common
 
stock, and
repayment of matured brokered CDs and FHLB advances.
114
Capital
As of
 
September 30,
 
2022, the
 
Corporation’s
 
stockholders’ equity
 
was $1.3
 
billion, a
 
decrease of
 
$836.4 million
 
from December
31, 2021. The decrease
 
was driven by a $778.7
 
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 approximately
 
15.9
 
million
 
shares of
 
common
 
stock for
 
a total
 
purchase price
 
of
$225 million, and common
 
stock dividends declared during the
 
first nine months of 2022 totaling
 
$65.9 million (or $0.34 per common
share), partially offset by earnings generated in the
 
first nine months of 2022.
On October 27,
 
2022 the
 
Corporation’s
 
Board of
 
Directors declared
 
a quarterly
 
cash dividend
 
of $0.12 per
 
common share
 
payable
on December 9, 2022 to shareholders
 
of record at the close of business
 
on November 25, 2022. 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,
 
expected to
 
be executed
 
over four
 
quarters, 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
 
under
 
plans
 
complying
 
with
 
Rule
 
10b5-1
under the Exchange Act.
 
The Corporation’s
 
stock repurchase program is
 
subject to various factors,
 
including the Corporation’s
 
capital
position,
 
liquidity,
 
financial
 
performance
 
and
 
alternative
 
uses
 
of
 
capital,
 
stock
 
trading
 
price,
 
and
 
general
 
market
 
conditions.
 
The
repurchase
 
program
 
may
 
be
 
modified,
 
extended,
 
suspended,
 
or
 
terminated
 
at
 
any
 
time
 
at
 
the
 
Corporation’s
 
discretion.
 
The
Corporation’s
 
share
 
repurchase
 
program
 
does not
 
obligate
 
it to
 
acquire
 
any
 
specific
 
number
 
of
 
shares.
 
As of
 
October
 
31,
 
2022,
 
the
Corporation has
 
repurchased approximately
 
14.1 million
 
shares of common
 
stock for
 
a total purchase
 
price of $200
 
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
 
equity
 
less
 
preferred
 
equity,
 
goodwill,
 
and
other
 
intangible
 
assets.
 
Tangible
 
assets
 
are
 
total
 
assets
 
less
 
the
 
previously
 
mentioned
 
intangible
 
assets.
 
See
 
“Basis
 
of
 
Presentation”
below for additional information.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
115
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 September 30, 2022 and December 31, 2021, respectively:
September 30, 2022
December 31, 2021
(In thousands, except ratios and per share information)
Total equity
 
- GAAP
$
1,265,333
$
2,101,767
Goodwill
(38,611)
(38,611)
Purchased credit card relationship intangible
(376)
(1,198)
Core deposit intangible
(22,818)
(28,571)
Insurance customer relationship intangible
(51)
(165)
Tangible common
 
equity
$
1,203,477
$
2,033,222
Total assets - GAAP
$
18,442,034
$
20,785,275
Goodwill
(38,611)
(38,611)
Purchased credit card relationship intangible
(376)
(1,198)
Core deposit intangible
(22,818)
(28,571)
Insurance customer relationship intangible
(51)
(165)
Tangible assets
$
18,380,178
$
20,716,730
Common shares outstanding
186,258
201,827
Tangible common
 
equity ratio
6.55%
9.81%
Tangible book
 
value per common share
$
6.46
$
10.07
See
 
Note
 
22
 
–
 
Regulatory Matters,
 
Commitments and
 
Contingencies for
 
the
 
regulatory capital
 
positions of
 
the
 
Corporation and
FirstBank
 
as of September 30, 2022 and
 
December
 
31, 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,
 
including
 
for
payment
 
as dividends
 
to the
 
stockholders,
 
without
 
the prior
 
consent
 
of the
 
Puerto Rico
 
Commissioner
 
of Financial
 
Institutions.
 
The
Puerto Rico Banking Law
 
provides that, when the
 
expenditures of a Puerto
 
Rico commercial bank are
 
greater than receipts, the excess
of
 
the
 
expenditures
 
over
 
receipts
 
must
 
be
 
charged
 
against
 
the
 
undistributed
 
profits
 
of
 
the
 
bank,
 
and
 
the
 
balance,
 
if
 
any,
 
must
 
be
charged against
 
the legal
 
surplus reserve,
 
as a
 
reduction thereof.
 
If the
 
legal surplus
 
reserve is
 
not sufficient
 
to cover
 
such balance
 
in
whole or
 
in part,
 
the outstanding
 
amount must
 
be charged
 
against the
 
capital account
 
and the
 
Bank cannot
 
pay dividends
 
until it
 
can
replenish the
 
legal surplus
 
reserve to
 
an amount
 
of at
 
least 20%
 
of the
 
original capital
 
contributed. FirstBank’s
 
legal surplus
 
reserve,
included as
 
part of
 
retained earnings
 
in the
 
Corporation’s
 
consolidated statements
 
of financial
 
condition, amounted
 
to $137.6
 
million
as of
 
each of
 
September 30,
 
2022 and
 
December 31,
 
2021. There
 
were no
 
transfers to
 
the legal
 
surplus reserve
 
during the
 
first nine
months of 2022.
116
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
 
MIALCO
meetings focus on, among other things, current and expected conditions
 
in world 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
 
considering
 
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 disclosures
 
reflect gradual upward
and downward
 
interest rate
 
movements of
 
200 basis points
 
(“bps”) during
 
a twelve-month
 
period. Simulations
 
are carried
 
out 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
rate
 
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
 
CD
 
rates,
 
repurchase
 
agreement
 
rates,
 
and
 
the
mortgage commitment rate of 30 years.
As of September 30,
 
2022, the Corporation forecasted
 
the 12-month net interest
 
income assuming September
 
30, 2022 interest rate
curves remain
 
constant. Net interest
 
income was then
 
estimated under rising
 
and falling rate
 
scenarios. For
 
the rising rates
 
scenario, a
gradual
 
(ramp)
 
parallel
 
upward
 
shift
 
of
 
the
 
yield
 
curve
 
is assumed
 
during
 
the
 
first
 
twelve
 
months
 
(the
 
“+200
 
bps
 
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 bps ramp” scenario).
 
The
 
LIBOR/Swap
 
rates
 
for
 
September
 
30,
 
2022,
 
as
 
compared
 
to
 
the
 
January
 
31,
 
2022
 
rates
 
used
 
for
 
the
 
December
 
31,
 
2021
sensitivity,
 
reflected an
 
increase in
 
the short-term
 
sector of
 
the curve,
 
that is
 
between one
 
to twelve
 
months, of
 
355 bps
 
on average;
while market rates
 
increased in the
 
medium-term sector of
 
the curve, that is
 
between 2 to 5
 
years, by 276
 
bps. In the long-term
 
sector,
that
 
is
 
over
 
5-year
 
maturities,
 
market
 
rates
 
increased
 
198
 
bps
 
as
 
compared
 
to
 
January
 
31,
 
2022.
 
A
 
similar
 
pattern
 
on
 
market
 
rates
changes were
 
observed in the
 
Treasury curve
 
for both the
 
short and long-term
 
maturities as mentioned
 
above with a
 
317 bps increase
in the short-term
 
sector and a 190
 
bps increase in the
 
long-term sector.
 
This results in a
 
projected increase in
 
the base simulation
 
used
for the sensitivity.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
117
 
The following table presents the results of the simulations as of September 30,
 
2022 and December 31, 2021.
 
Consistent with prior
years, these exclude non-cash changes in the fair value of derivatives:
September 30, 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
$
19.1
2.28
%
$
22.9
2.67
%
$
34.5
4.81
%
$
39.1
5.17
%
- 200 bps ramp
$
(24.8)
(2.96)
%
$
(26.9)
(3.14)
%
$
(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
 
and
 
improving
 
the
 
funding
 
mix,
 
mainly
 
by
 
pursuing
 
stable
 
core
 
deposits,
 
and
 
reducing
 
wholesale
 
funds,
 
while
maintaining
 
a
 
sound
 
liquidity
 
position.
 
As
 
of
 
September
 
30,
 
2022
 
and
 
December
 
31,
 
2021,
 
the
 
simulations
 
showed
 
that
 
the
Corporation continues to have an asset-sensitive position.
 
As of September 30,
 
2022, the net interest income
 
for the next twelve months
 
under a non-static
 
balance sheet scenario
 
is estimated to
increase
 
by $22.9
 
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 and the changes in market
 
interest rates. As of September 30, 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,
 
the
 
deployment
 
of
 
liquidity
 
to
 
fund
 
the
 
investment
 
securities
 
portfolio,
 
the
 
loan
 
portfolio
 
growth,
 
the
 
repayment
 
of
wholesale funding, and the repurchase of shares of common stock.
 
Under the falling rate,
 
non-static scenario the net interest income is
 
estimated to decrease $26.9 million. As
 
market
 
rates
 
shift
 
away
from
 
historically
 
low,
 
near
 
zero
 
interest
 
rate
 
levels,
 
it
 
allows
 
for
 
full
 
downward
 
interest
 
rate
 
shifts
 
under
 
the
 
-200
 
bps
 
scenario
resulting in the increase in net interest income sensitivity for the -200
 
bps ramp.
Derivatives
 
First
 
BanCorp.
 
uses derivative
 
instruments
 
and
 
other
 
strategies
 
to
 
manage
 
its exposure
 
to
 
interest
 
rate
 
risk
 
caused
 
by
 
changes
 
in
interest
 
rates
 
beyond
 
management’s
 
control.
 
The
 
use
 
of
 
derivatives
 
involves
 
market
 
and
 
credit
 
risk.
 
The
 
market
 
risk
 
of
 
derivatives
stems principally
 
from the potential
 
for changes
 
in the value
 
of derivative
 
contracts based on
 
changes in interest
 
rates. The credit
 
risk
of
 
derivatives
 
arises
 
from
 
the
 
potential
 
for
 
default
 
of
 
the
 
counterparty.
 
To
 
manage
 
this
 
credit
 
risk,
 
the
 
Corporation
 
deals
 
with
counterparties
 
that
 
it
 
considers
 
to
 
be
 
of
 
good
 
credit
 
standing,
 
enters
 
into
 
master
 
netting
 
agreements
 
whenever
 
possible
 
and,
 
when
appropriate, obtains collateral.
 
As
 
of
 
September
 
30,
 
2022
 
and
 
December
 
31,
 
2021,
 
the
 
Corporation
 
considered
 
all
 
of
 
its derivative
 
instruments
 
as
 
undesignated
economic hedges. As
 
of September 30, 2022,
 
the aggregate balance
 
of derivative assets was
 
$1.2 million, compared
 
to $1.5 million as
of December
 
31, 2021.
 
As of
 
September 30,
 
2022, the
 
aggregate balance
 
of derivative
 
liabilities was
 
$0.5 million,
 
compared to
 
$1.2
million as
 
of December
 
31, 2021.
 
Derivative instruments
 
include interest
 
rate swap
 
agreements, interest
 
rate caps,
 
forward contracts,
interest
 
rate
 
lock
 
commitments,
 
and
 
forward
 
loan
 
sales
 
commitments.
 
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 as of December 31,
 
2021 and the amount of
 
gains and losses reported in
 
the consolidated statements of income
 
during 2021,
see Note 34 – Derivative Instruments and Hedging Activities included in
 
the 2021 Annual Report on Form 10-K.
118
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,
 
independent
 
loan
 
review
 
and
 
quality
 
control
 
procedures,
 
statistical
 
analysis,
comprehensive financial analysis,
 
and established management committees. The Corporation also employs proactive collection and loss
mitigation
 
efforts.
 
Furthermore, personnel
 
performing
 
structured
 
loan
 
workout
 
functions
 
are
 
responsible for
 
mitigating defaults
 
and
minimizing
 
losses upon
 
default
 
within each
 
region and
 
for each business
 
segment.
 
In the case
 
of the commercial
 
and industrial,
 
commercial
mortgage and construction loan portfolios, the Special Asset Group (“SAG”) focuses on
 
strategies for the accelerated reduction
 
of non-
performing assets through note sales,
 
short sales, loss
 
mitigation programs, and sales of
 
OREO.
 
In addition to
 
the management of
 
the
resolution process
 
for
 
problem loans,
 
the
 
SAG
 
oversees collection efforts
 
for
 
all
 
loans to
 
prevent migration
 
to
 
the
 
nonaccrual and/or
adversely
 
classified
 
status.
 
The SAG
 
utilizes
 
relationship
 
officers,
 
collection
 
specialists
 
and attorneys.
 
The Corporation
 
may also
 
have risk
 
of default
 
in the securities
 
portfolio.
 
The securities
 
held by the
 
Corporation
 
are principally
 
fixed-rate
U.S. agency 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.
119
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.
 
As
 
previously
 
mentioned,
 
on
 
September
 
17,
 
2022,
 
Hurricane
 
Fiona
 
made
 
landfall
 
in
 
the
 
southwestern
 
part
 
of
 
Puerto
 
Rico
 
as
 
a
Category 1
 
storm. As
 
part of
 
its ACL
 
calculation, the
 
Corporation
 
considers the
 
need for
 
qualitative adjustments
 
that include
 
factors
such as
 
natural disasters.
 
As of
 
September 30,
 
2022, management
 
determined
 
that no
 
separate
 
qualitative reserves
 
of the
 
ACL were
required.
 
Notwithstanding,
 
estimates
 
of
 
the
 
storm’s
 
effect
 
on
 
loan
 
losses
 
may
 
change
 
over
 
time
 
as
 
additional
 
information
 
becomes
available and any related revisions in the ACL calculation will be reflected in the provision
 
for credit losses as they occur.
During
 
the
 
first
 
nine
 
months
 
of
 
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
 
to
control inflationary
 
economic conditions.
 
For periods
 
prior to
 
2022, the
 
Corporation calculated
 
the ACL
 
using the
 
baseline scenario.
As
 
of
 
September
 
30,
 
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
 
remainder of
 
2022 and
 
year 2023
 
stands at
 
2.93%, compared
 
to
5.16% in the previous forecast.
●
A deterioration of approximately
 
10.61% in the forecast of
 
average housing price index
 
in Puerto Rico (purchase only prices)
for the remainder of 2022 and year 2023, when compared to the previous
 
forecast.
 
●
Slight
 
increase
 
in
 
levels
 
of
 
regional
 
unemployment
 
in
 
Puerto
 
Rico
 
to
 
8.15%
 
for
 
the
 
remainder
 
of
 
2022
 
and
 
year
 
2023,
compared to
 
the previous
 
forecast of
 
7.99%. For
 
the Florida
 
region and
 
the U.S.
 
mainland, slight
 
increase in
 
unemployment
rate to 3.90% and 4.60%, respectively,
 
for the remainder of 2022 and year 2023,
 
compared to 3.57% and 4.30%, respectively,
in the previous forecast.
●
A slight decrease
 
in real gross
 
domestic product
 
(“GDP”) in the
 
U.S. mainland
 
to 0.59%
 
for the remainder
 
of 2022
 
and year
2023,
 
compared to the previous forecast of 1.83%.
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
 
September 30, 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
 
8.74%
 
for
 
the
 
remainder
 
of
 
2022
 
and
 
year
 
2023,
 
compared
 
to
 
8.15%,
respectively, for the
 
same periods on the probability-weighted economic scenario projections.
120
To
 
demonstrate the sensitivity to
 
key economic parameters used
 
in the calculation of
 
our ACL at September
 
30, 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
 
$33 million
 
at September
30, 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, 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 September 30, 2022.
As of September 30,
 
2022, the ACL for loans
 
and finance leases was $257.9
 
million, down $11.1
 
million from December 31,
 
2021.
The
 
reduction
 
of
 
the
 
ACL
 
for
 
commercial
 
and
 
construction
 
loans
 
was
 
$23.5
 
million,
 
primarily
 
reflecting
 
reduced
 
COVID-19
uncertainties and, to a lesser extent, a reduction in qualitative reserves due
 
to updated borrowers’ financial information received during
the third
 
quarter of
 
2022. In
 
addition, the
 
ACL for
 
residential mortgage
 
loans decreased
 
by $9.7
 
million, primarily
 
due to
 
the overall
reduction in the
 
size of this
 
portfolio. The aforementioned
 
ACL reductions
 
were partially offset
 
by an increase
 
of $22.1 million
 
in the
ACL for consumer loans, mainly reflecting the effect
 
of the increase in the size of the consumer loan portfolios,
 
the increase in charge-
off levels
 
associated to the
 
overall portfolio
 
growth and
 
a less positive
 
long-term outlook
 
of certain
 
macroeconomic variables
 
such as
the regional
 
unemployment rate,
 
as a
 
result of
 
the aforementioned
 
economic uncertainties.
 
Refer to
 
Note 1
 
- Nature
 
of Business
 
and
Summary of Significant Accounting Policies, in the 2021
 
Annual Report on Form 10-K for a description of
 
the methodologies used by
the Corporation to determine the ACL.
The ratio
 
of the ACL
 
for loans and
 
finance leases
 
to total
 
loans held
 
for investment
 
decreased to
 
2.28% as
 
of September
 
30, 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 loan
 
portfolio decreased from
 
2.51% as of December
 
31, 2021 to
2.30%
 
as of
 
September 30,
 
2022, primarily
 
due to
 
improvements in
 
the long-term
 
outlook of
 
forecasted macroeconomic
variables, such
 
as the
 
housing price
 
index, during
 
the first
 
six months
 
of 2022,
 
partially offset
 
by a
 
slight deterioration
 
of
these variables during the third quarter of 2022.
 
●
The ACL
 
to total
 
loans ratio
 
for the
 
commercial mortgage
 
loan portfolio
 
decreased from
 
2.43% as
 
of December
 
31, 2021
to
 
1.34%
 
as
 
of
 
September
 
30,
 
2022,
 
primarily
 
reflecting
 
reduced
 
COVID-19
 
uncertainties
 
and,
 
to
 
a
 
lesser
 
extent,
 
a
reduction in qualitative reserves due to updated borrowers’ financial information
 
received during the third quarter of 2022.
●
The ACL
 
to total
 
loans ratio
 
for the
 
commercial and
 
industrial portfolio
 
was 1.24%
 
as of
 
September 30,
 
2022, remained
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 1.47%
as of September
 
30, 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.
●
The ACL
 
to total
 
loans ratio
 
for the
 
consumer loan
 
portfolio increased
 
from 3.57%
 
as of December
 
31, 2021
 
to 3.89% as
of September
 
30, 2022, primarily
 
associated to
 
a less positive
 
long-term outlook
 
on certain
 
macroeconomic variables
 
as a
result of economic uncertainties previously discussed.
The ratio
 
of the
 
total ACL
 
to nonaccrual
 
loans held
 
for investment
 
was 264.43%
 
as of
 
September 30,
 
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 $257.9
 
million as
 
of September
 
30, 2022,
 
or
2.28% of
 
total loans,
 
compared with
 
$288.4 million,
 
or 2.59% of
 
total loans,
 
as of
 
September 30,
 
2021 and
 
$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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
121
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
(Dollars in thousands)
2022
2021
2022
2021
ACL for loans and finance leases, beginning of period
$
252,152
$
324,958
$
269,030
$
385,887
Provision for credit losses - expense (benefit):
Residential mortgage
755
(6,206)
(6,913)
(9,556)
Commercial mortgage
(2,383)
(4,660)
(23,758)
(40,779)
Commercial and Industrial
 
(1,228)
(4,449)
(575)
(10,187)
Construction
(179)
527
(2,242)
(125)
Consumer and finance leases
 
17,387
6,054
43,516
11,168
Total provision for credit losses - expense (benefit)
$
14,352
$
(8,734)
$
10,028
$
(49,479)
Charge-offs:
Residential mortgage
(1,466)
(25,418)
(1)
(6,073)
(31,170)
(1)
Commercial mortgage
(3)
(429)
(42)
(1,304)
Commercial and Industrial
 
(8)
(167)
(366)
(1,036)
Construction
(63)
(7)
(123)
(52)
Consumer and finance leases
 
(12,522)
(8,345)
(32,765)
(34,904)
Total charge-offs
$
(14,062)
$
(34,366)
$
(39,369)
$
(68,466)
Recoveries:
Residential mortgage
559
1,968
3,228
3,641
Commercial mortgage
57
43
1,319
147
Commercial and Industrial
 
494
494
2,118
6,627
Construction
43
42
138
116
Consumer and finance leases
 
4,264
3,955
11,367
9,887
Total recoveries
$
5,417
$
6,502
$
18,170
$
20,418
Net charge-offs
$
(8,645)
$
(27,864)
$
(21,199)
$
(48,048)
ACL for loans and finance leases, end of period
$
257,859
$
288,360
$
257,859
$
288,360
ACL for loans and finance leases to period-end total loans
 
held for investment
2.28
%
2.59
%
2.28
%
2.59
%
Net charge-offs (annualized) to average loans outstanding during the period
0.31
%
0.99
%
(2)
0.25
%
0.56
%
(2)
Provision for credit losses - expense (benefit) for loans and finance
 
leases to net
charge-offs during the period
1.66x
-0.31x
0.47x
-1.03x
(1)
Includes net charge-offs totaling $23.1 million associated with the bulk sale of residential mortgage nonaccrual loans and related servicing advance receivables.
(2)
Excluding net charge-offs associated with the bulk sale, total net charge-offs for the third quarter and first nine months of 2021 was 0.17% and 0.29%, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
122
 
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
As of
September 30, 2022
December 31, 2021
(Dollars in thousands)
Amount
Percent of loans in
each category to
total loans
Amount
Percent of loans in
each category to
total loans
Residential mortgage loans
$
65,079
25
%
$
74,837
27
%
Commercial mortgage loans
30,290
20
%
52,771
20
%
Commercial and Industrial loans
35,461
25
%
34,284
26
%
Construction loans
1,821
1
%
4,048
1
%
Consumer loans and finance leases
125,208
29
%
103,090
26
%
$
257,859
100
%
$
269,030
100
%
 
The following tables set forth information concerning the composition of the
 
Corporation's loan portfolio and related ACL as of
September 30, 2022 and December 31, 2021 by loan category:
As of September 30, 2022
Residential
Mortgage Loans
Commercial
Mortgage Loans
Consumer and
Finance Leases
Construction
Loans
(Dollars in thousands)
C&I Loans
Total
Total loans held for investment:
Amortized cost of loans
$
2,830,974
$
2,265,614
$
2,858,286
$
123,994
$
3,219,750
$
11,298,618
Allowance for credit losses
65,079
30,290
35,461
1,821
125,208
257,859
Allowance for credit losses to amortized
 
cost
2.30
%
1.34
%
1.24
%
1.47
%
3.89
%
2.28
%
As of December 31, 2021
Residential
Mortgage Loans
Commercial
Mortgage Loans
Consumer and
Finance Leases
Construction
Loans
(Dollars in thousands)
C&I Loans
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
%
123
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
 
September
 
30,
 
2022,
 
the
 
ACL
 
for
 
off-balance
 
sheet
credit
 
exposures
 
was
 
$4.2
 
million,
 
up
 
$2.7
 
million
 
from
 
$1.5
 
million
 
as
 
of
 
December
 
31,
 
2021,
 
mainly
 
driven
 
by
 
an
 
increase
 
in
unfunded loan commitments principally due to newly originated facilities which
 
remained undrawn as of September 30, 2022.
Allowance for Credit Losses for Held-to-Maturity
 
Debt Securities
As
 
of
 
September
 
30,
 
2022,
 
the
 
ACL
 
for
 
held-to-maturity
 
debt
 
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
 
September
 
30,
 
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 $0.7
 
million as of September 30, 2022, compared to $1.1 million as of December 31,
 
2021. The decrease in
the ACL is mostly related to a continued positive long-term outlook
 
of forecasted macroeconomic variables.
124
Nonaccrual Loans and Non-performing Assets
Total
 
non-performing
 
assets consist
 
of
 
nonaccrual
 
loans (generally
 
loans held
 
for
 
investment
 
or loans
 
held
 
for
 
sale on
 
which
 
the
recognition of
 
interest income
 
was discontinued
 
when the
 
loan became
 
90 days
 
past due
 
or earlier
 
if the
 
full and
 
timely collection
 
of
interest or principal
 
is uncertain), foreclosed
 
real estate and
 
other repossessed properties,
 
and non-performing
 
investment securities,
 
if
any.
 
When a
 
loan is placed
 
in nonaccrual
 
status, any
 
interest previously
 
recognized and
 
not collected
 
is reversed
 
and charged
 
against
interest
 
income.
 
Cash
 
payments
 
received
 
are
 
recognized
 
when
 
collected
 
in
 
accordance
 
with
 
the
 
contractual
 
terms
 
of
 
the
 
loans.
 
The
principal
 
portion
 
of the
 
payment is
 
used to
 
reduce
 
the principal
 
balance
 
of the
 
loan,
 
whereas the
 
interest portion
 
is recognized
 
on a
cash basis
 
(when collected).
 
However,
 
when management
 
believes that
 
the ultimate
 
collectability of
 
principal is
 
in doubt,
 
the interest
portion
 
is
 
applied
 
to
 
the
 
outstanding
 
principal.
 
The
 
risk
 
exposure
 
of
 
this
 
portfolio
 
is
 
diversified
 
as
 
to
 
individual
 
borrowers
 
and
industries, among other factors. In addition, a large portion
 
is secured with real estate collateral.
Nonaccrual Loans Policy
Residential Real Estate Loans
 
— The Corporation generally classifies real estate loans in nonaccrual
 
status when it has not received
interest and principal for a period of 90 days or more.
Commercial
 
and
 
Construction
 
Loans
 
—
 
The
 
Corporation
 
classifies
 
commercial
 
loans
 
(including
 
commercial
 
real
 
estate
 
and
construction loans) in nonaccrual
 
status when it has not
 
received interest and principal
 
for a period of 90
 
days or more or when
 
it does
not expect to collect all of the principal or interest due to deterioration in the financial condition
 
of the borrower.
Finance Leases
 
— The Corporation
 
classifies finance leases
 
in nonaccrual status
 
when it has not
 
received interest and
 
principal for
a period of 90 days or more.
Consumer Loans
 
— The Corporation
 
classifies consumer
 
loans in nonaccrual
 
status when it
 
has not received
 
interest and
 
principal
for a period of 90 days or more. Credit card loans continue to accrue
 
finance charges and fees until charged-off
 
at 180 days delinquent.
Purchased
 
Credit Deteriorated
 
(“PCD”) 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
 
the
 
lower
 
of
 
cost
 
or
 
fair
 
value
 
less
 
estimated
 
costs
 
to
 
sell
 
off
 
the
 
real
 
estate.
Appraisals are obtained periodically,
 
generally on an annual basis.
 
125
Other Repossessed Property
The
 
other
 
repossessed
 
property
 
category
 
generally
 
included
 
repossessed
 
boats
 
and
 
autos
 
acquired
 
in
 
settlement
 
of
 
loans.
Repossessed boats and autos are recorded at the lower of cost or estimated fair value.
Other Non-Performing Assets
This
 
category
 
consisted
 
of a
 
residential
 
pass-through
 
MBS
 
issued
 
by
 
the
 
PRHFA placed
 
in
 
non-performing
 
status
 
in
 
the
 
second
quarter of 2021 based on the delinquency status of the underlying second
 
mortgage loans.
 
Loans Past-Due 90 Days and Still Accruing
These are accruing loans
 
that are contractually delinquent
 
90 days or more. These
 
past-due loans are either
 
current as to interest but
delinquent
 
as to
 
the payment
 
of
 
principal
 
or are
 
insured
 
or guaranteed
 
under
 
applicable FHA,
 
VA,
 
or
 
other
 
government-guaranteed
programs for residential mortgage loans. Furthermore,
 
as required by instructions in regulatory reports, loans past due
 
90 days and still
accruing
 
include
 
loans
 
previously
 
pooled
 
into
 
GNMA
 
securities
 
for
 
which
 
the
 
Corporation
 
has
 
the
 
option
 
but
 
not
 
the
 
obligation
 
to
repurchase loans
 
that meet
 
GNMA’s
 
specified delinquency
 
criteria (
e.g.
, borrowers
 
fails to
 
make any
 
payment for
 
three consecutive
months).
 
For accounting
 
purposes,
 
these
 
GNMA
 
loans
 
subject to
 
the repurchase
 
option are
 
required
 
to be
 
reflected
 
on the
 
financial
statements with
 
an offsetting
 
liability.
 
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.
 
 
TDRs are
 
classified
 
as either
 
accrual
 
or nonaccrual
 
loans. A
 
loan
 
on nonaccrual
 
status and
 
restructured
 
as a
 
TDR will
 
remain
 
on
nonaccrual
 
status until
 
the borrower
 
has proven
 
the ability
 
to perform
 
under the
 
modified structure,
 
generally
 
for a
 
minimum
 
of six
months,
 
and there
 
is evidence
 
that
 
such payments
 
can and
 
are
 
likely to
 
continue
 
as agreed.
 
The Corporation
 
considers performance
prior to the restructuring, or significant events that coincide with the restructuring,
 
in assessing whether the borrower can meet the new
terms,
 
which
 
may
 
result
 
in
 
the
 
loan
 
being
 
returned
 
to
 
accrual
 
status
 
at
 
the
 
time
 
of
 
the
 
restructuring
 
or
 
after
 
a
 
shorter
 
performance
period. If the borrower’s ability to meet the revised payment schedule
 
is uncertain, the loan remains classified as a nonaccrual loan.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
126
The following table presents non-performing assets as of the indicated dates:
September 30,
December 31,
(Dollars in thousands)
2022
2021
Nonaccrual loans held for investment:
Residential mortgage
$
43,036
$
55,127
Commercial mortgage
23,741
25,337
Commercial and Industrial
15,715
17,135
Construction
2,237
2,664
Consumer and finance leases
12,787
10,454
Total nonaccrual loans held for investment
$
97,516
$
110,717
OREO
38,682
40,848
Other repossessed property
4,936
3,687
Other assets
(1)
2,193
2,850
Total non-performing assets
(2) (3)
$
143,327
$
158,102
Past due loans 90 days and still accruing
(2) (4) (5)
$
81,790
$
115,448
Non-performing assets to total assets
0.78
%
0.76
%
Nonaccrual loans held for investment to total loans held for investment
0.86
%
1.00
%
ACL for loans and finance leases
$
257,859
$
269,030
ACL for loans and finance leases to total nonaccrual loans held for investment
264.43
%
242.99
%
ACL for loans and finance leases to total nonaccrual loans held for investment,
excluding residential real estate loans
473.31
%
483.95
%
(1)
Residential pass-through MBS issued by the PRHFA held as part of the available-for-sale debt securities
 
portfolio.
(2)
Excludes PCD loans previously accounted for under ASC Subtopic
 
310-30 for which the Corporation made the accounting
 
policy election of maintaining pools of
loans
 
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 $12.8
 
million and $20.6 million as of September 30,
2022 and December 31, 2021, respectively.
(3)
Nonaccrual loans exclude $340.1 million and $363.4 million
 
of TDR loans that were in compliance with the modified
 
terms and in accrual status as of September
30, 2022 and December 31, 2021, respectively.
(4)
Includes FHA/VA government-guaranteed residential mortgage loans 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 $31.0 million and $46.6 million of FHA
 
government-guaranteed residential mortgage loans that were
 
over 15 months delinquent as of
September 30, 2022 and December 31, 2021, respectively.
(5)
Includes rebooked loans, which were previously pooled into GNMA
 
securities, amounting to $8.0 million and $7.2 million
 
as of September 30, 2022 and
December 31, 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
127
Total
 
nonaccrual loans
 
were $97.5
 
million as
 
of September
 
30, 2022.
 
This represents
 
a net
 
decrease of
 
$13.2 million
 
from $110.7
million
 
as
 
of
 
December
 
31,
 
2021.
 
The
 
net
 
decrease
 
was
 
primarily
 
related
 
to
 
a
 
$12.1
 
million
 
decrease
 
in
 
nonaccrual
 
residential
mortgage
 
loans,
 
mostly
 
driven
 
by
 
loans
 
restored
 
to
 
accrual
 
status
 
and
 
collections,
 
including
 
the
 
payoff
 
of
 
an
 
individual
 
loan
 
of
approximately $1.3 million
 
during the first nine months
 
of 2022. In addition, nonaccrual
 
commercial and construction loans decreased
by $3.4
 
million. These
 
variances were
 
partially offset
 
by a
 
$2.3 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:
September 30,
December 31,
(In thousands)
2022
2021
Puerto Rico:
Nonaccrual loans held for investment:
Residential mortgage
$
30,988
$
39,256
Commercial mortgage
15,269
15,503
Commercial and Industrial
13,564
14,708
Construction
854
1,198
Consumer and finance leases
12,510
10,177
Total nonaccrual loans held for investment
73,185
80,842
OREO
34,626
36,750
Other repossessed property
4,789
3,456
Other assets
2,193
2,850
Total non-performing assets
$
114,793
$
123,898
Past due loans 90 days and still accruing
$
80,249
$
114,001
Virgin Islands:
Nonaccrual loans held for investment:
Residential mortgage
$
6,530
$
8,719
Commercial mortgage
8,472
9,834
Commercial and Industrial
1,313
1,476
Construction
1,383
1,466
Consumer
143
144
Total nonaccrual loans held for investment
17,841
21,639
OREO
4,025
3,450
Other repossessed property
98
187
Total non-performing assets
$
21,964
$
25,276
Past due loans 90 days and still accruing
$
1,541
$
1,265
United States:
Nonaccrual loans held for investment:
Residential mortgage
$
5,518
$
7,152
Commercial and Industrial
838
951
Consumer
134
133
 
Total nonaccrual loans held for investment
6,490
8,236
OREO
31
648
Other repossessed property
49
44
Total non-performing assets
$
6,570
$
8,928
Past due loans 90 days and still accruing
$
-
$
182
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
128
Nonaccrual commercial mortgage loans decreased by
 
$1.5 million to $23.8 million as of September 30, 2022,
 
from $25.3 million as
of December 31,
 
2021. The decrease was
 
primarily associated to
 
collections, loans transferred
 
to OREO, and loans
 
restored to accrual
status
 
during
 
the
 
first
 
nine
 
months
 
of
 
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
 
$1.4
 
million
 
to
 
$15.7
 
million
 
as
 
of
 
September
 
30,
 
2022,
 
from
 
$17.1
million as
 
of December
 
31, 2021.
 
The decrease
 
was primarily
 
associated with
 
collections and
 
loans restored
 
to accrual
 
status during
the
 
first
 
nine
 
months
 
of
 
2022,
 
partially
 
offset
 
by
 
inflows,
 
including
 
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
 
September
 
30,
 
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)
Quarter Ended September 30, 2022
Beginning balance
 
$
24,753
$
17,079
$
2,375
$
44,207
Plus:
Additions to nonaccrual
-
179
2
181
Less:
Loans returned to accrual status
 
(189)
(75)
-
(264)
Nonaccrual loans transferred to OREO
-
-
(50)
(50)
Nonaccrual loans charge-offs
(2)
(8)
(58)
(68)
Loan collections
(821)
(1,460)
(32)
(2,313)
Ending balance
 
$
23,741
$
15,715
$
2,237
$
41,693
Commercial
Mortgage
Commercial &
Industrial
Construction
Total
(In thousands)
Nine-month period ended September 30, 2022
Beginning balance
 
$
25,337
$
17,135
$
2,664
$
45,136
Plus:
Additions to nonaccrual
2,934
2,337
20
5,291
Less:
Loans returned to accrual status
(547)
(539)
(48)
(1,134)
Nonaccrual loans transferred to OREO
(549)
(273)
(130)
(952)
Nonaccrual loans charge-offs
(41)
(335)
(114)
(490)
Loan collections
(2,991)
(3,012)
(155)
(6,158)
Reclassification
(402)
402
-
-
Ending balance
 
$
23,741
$
15,715
$
2,237
$
41,693
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
129
Commercial
Mortgage
Commercial &
Industrial
Construction
Total
(In thousands)
Quarter Ended September 30, 2021
Beginning balance
 
$
27,242
$
18,835
$
6,175
$
52,252
Plus:
Additions to nonaccrual
347
1,228
22
1,597
Less:
Loans returned to accrual status
(187)
(4)
-
(191)
Nonaccrual loans transferred to OREO
-
(125)
-
(125)
Nonaccrual loans charge-offs
(375)
(136)
(7)
(518)
Loan collections and others
(264)
(1,721)
(89)
(2,074)
Reclassification
49
913
-
962
Nonaccrual loans sold
-
-
(8)
(8)
Ending balance
 
$
26,812
$
18,990
$
6,093
$
51,895
Commercial
Mortgage
Commercial &
Industrial
Construction
Total
(In thousands)
Nine-month period ended September 30, 2021
Beginning balance
 
$
29,611
$
20,881
$
12,971
$
63,463
Plus:
Additions to nonaccrual
4,401
3,603
23
8,027
Less:
Loans returned to accrual status
(2,090)
(282)
(173)
(2,545)
Nonaccrual loans transferred to OREO
(1,011)
(1,127)
(135)
(2,273)
Nonaccrual loans charge-offs
(1,249)
(280)
(52)
(1,581)
Loan collections
(2,483)
(5,134)
(6,533)
(14,150)
Reclassification
(367)
1,329
-
962
Nonaccrual
 
loans sold
-
-
(8)
(8)
Ending balance
 
$
26,812
$
18,990
$
6,093
$
51,895
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
130
Nonaccrual
 
residential mortgage
 
loans decreased
 
by $12.1
 
million to
 
$43.0 million
 
as of
 
September 30,
 
2022, compared
 
to $55.1
million as of December 31, 2021.
 
The decrease was primarily related to
 
loans restored to accrual status of $12.4
 
million, collections of
$10.3 million,
 
including the
 
payoff of
 
an individual
 
loan of approximately
 
$1.3 million,
 
foreclosures of
 
$2.6 million,
 
and charge-offs
of $1.3 million during the first nine months of 2022, partially offset
 
by inflows.
The following table presents the activity of residential nonaccrual loans held for
 
investment for the indicated periods:
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
(In thousands)
2022
2021
2022
2021
Beginning balance
 
$
44,588
$
121,695
$
55,127
$
125,367
Plus:
Additions to nonaccrual
4,782
6,303
14,513
29,987
Less:
Loans returned to accrual status
(3,630)
(2,620)
(12,411)
(14,127)
Nonaccrual loans transferred to OREO
(495)
(1,827)
(2,617)
(6,282)
Nonaccrual loans charge-offs
(356)
(21,449)
(1)
(1,306)
(25,786)
(1)
Loan collections
(1,853)
(9,036)
(10,270)
(16,093)
Reclassification
-
(962)
-
(962)
Nonaccrual loans sold
-
(31,515)
-
(31,515)
Ending balance
 
$
43,036
$
60,589
$
43,036
$
60,589
(1)
For the quarter and nine-month period ended September 30, 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 $2.3
 
million to $12.8 million
 
as of September 30,
2022,
 
compared to
 
$10.5 million
 
as of
 
December 31,
 
2021. The
 
increase was
 
associated with
 
the overall
 
portfolio growth,
 
especially
in the auto loans and finance leases portfolio.
As of
 
September
 
30, 2022,
 
approximately
 
$24.2 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
 
$15.1
 
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
 
nine-month
 
period
 
ended
 
September
 
30,
 
2022,
 
interest
 
income
 
of
 
approximately
 
$1.0
 
million
 
related
 
to
 
nonaccrual
loans
 
with
 
a
 
carrying
 
value
 
of $32.6
 
million
 
as of
 
September
 
30,
 
2022,
 
mainly
 
nonaccrual
 
construction
 
and
 
commercial
 
loans,
 
was
applied against the related principal balances under the cost-recovery
 
method.
131
Total loans in early
 
delinquency (
i.e.
, 30-89 days past due loans, as defined in regulatory reporting
 
instructions) amounted to $113.9
million as of September 30, 2022, an increase of $23.6 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 $24.5
 
million to $73.9 million as
 
of September 30, 2022,
 
mainly due to an
increase in
 
auto loans
 
in early
 
delinquency,
 
in part
 
reflecting disruptions
 
in regular
 
payments streams
 
due to
 
the passing
 
of
Hurricane Fiona through Puerto Rico,
 
●
Residential mortgage loans in early delinquency decreased by $2.4
 
million to $31.8 million as of September 30, 2022.
●
Commercial and construction
 
loans in early
 
delinquency increased by
 
$1.5 million to
 
$8.2 million as of
 
September 30, 2022,
in part due to a
 
$1.4 million matured
 
loan that is in the
 
process of renewal but
 
for which the Corporation
 
continues to receive
principal and interest payments from the borrower.
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 September 30,
 
2022, the Corporation’s
 
total TDR loans
held
 
for
 
investment
 
amounted
 
to
 
$387.7
 
million,
 
a
 
decrease
 
of
 
$27.0
 
million
 
from
 
$414.7
 
million
 
as
 
of
 
December
 
31,
 
2021.
 
The
decrease
 
was
 
mainly
 
related
 
to
 
payoffs
 
and
 
paydowns,
 
partially
 
offset
 
by
 
inflows
 
of
 
$18.6
 
million
 
mainly
 
concentrated
 
in
 
the
commercial mortgage and residential mortgage loan portfolios during the first
 
nine months of 2022.
See
 
Note
 
3
 
-
 
Loans
 
Held
 
for
 
Investment
 
to
 
the
 
Corporation’s
 
unaudited
 
consolidated
 
financial
 
statements
 
for
 
the
 
quarter
 
ended
September 30, 2022 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 not
 
to extend
 
beyond December
 
31, 2022,
 
for residents
 
of
Puerto Rico that were
 
directly impacted by the
 
passing of the hurricane.
 
This program provides payment
 
deferral or term extension
 
on
a one payment
 
basis, not to
 
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 will
 
continue to
 
accrue interest
 
during the
 
deferral or
 
extension period.
 
For credit cards,
 
borrowers who
 
were 30 days
 
past due
or
 
less
 
as
 
of
 
September
 
16,
 
2022
 
are
 
eligible
 
for
 
this
 
program.
 
For
 
residential
 
mortgage
 
loans
 
and
 
consumer
 
loans,
 
borrowers
 
who
were
 
60
 
days
 
past
 
due
 
or
 
less
 
as of
 
September
 
16,
 
2022
 
are eligible
 
for
 
this program.
 
For
 
both
 
consumer
 
and
 
residential
 
mortgage
loans subject to the deferral
 
programs, each borrower
 
is required to opt in
 
on a monthly basis to
 
the program and must
 
resume making
their
 
regularly
 
scheduled
 
loan
 
payments
 
at
 
the
 
end
 
of
 
the
 
deferral
 
period.
 
For
 
consumer
 
loans,
 
deferred
 
amounts
 
will
 
extend
 
the
maturity
 
date by
 
the number
 
of
 
deferred
 
periods.
 
For residential
 
mortgage
 
loans, deferred
 
amounts
 
will be
 
moved
 
to the
 
end
 
of the
loan term.
 
Borrowers that
 
make a
 
payment during
 
any given
 
month are
 
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
 
will be
 
frozen
in the status that existed in the month prior to the relief granted.
 
Loans subject
 
to the above-described
 
program are not
 
considered TDRs since
 
the deferral or
 
extension is not
 
considered more than
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 October
31, 2022, the Corporation has entered into deferral or extension payment
 
agreements on 3,366 retail loans totaling $63.6 million.
The OREO portfolio,
 
which is part
 
of non-performing assets,
 
decreased by $2.1
 
million to $38.7
 
million as of
 
September 30, 2022,
compared
 
to
 
$40.8
 
million
 
as
 
of
 
December
 
31,
 
2021.
 
The
 
following
 
tables
 
show
 
the
 
composition
 
of
 
the
 
OREO
 
portfolio
 
as
 
of
September 30,
 
2022 and December
 
31, 2021, as
 
well as the
 
activity of
 
the OREO portfolio
 
by geographic
 
area during the
 
nine-month
period ended September 30, 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
132
OREO Composition by Region
 
(In thousands)
As of September 30, 2022
Puerto Rico
Virgin Islands
Florida
Consolidated
Residential
 
$
28,971
$
1,034
$
31
$
30,036
Commercial
3,223
2,810
-
6,033
Construction
2,432
181
-
2,613
$
34,626
$
4,025
$
31
$
38,682
(In thousands)
As of December 31, 2021
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
(In thousands)
Nine-Month Period Ended September 30, 2022
Puerto Rico
Virgin Islands
Florida
Consolidated
Beginning Balance
$
36,750
$
3,450
$
648
$
40,848
Additions
12,842
780
31
13,653
Sales
(13,520)
(311)
(648)
(14,479)
Write-downs and other adjustments
(1,446)
106
-
(1,340)
Ending Balance
$
34,626
$
4,025
$
31
$
38,682
133
Net Charge-offs and Total
 
Credit Losses
Net charge
 
-offs totaled
 
$8.6 million
 
for the
 
third quarter
 
of 2022,
 
or 0.31%
 
of average
 
loans on
 
an annualized
 
basis, compared
 
to
$27.9 million, or
 
an annualized 0.99%
 
of average loans
 
for the third
 
quarter of 2021.
 
For the nine-month
 
period ended September
 
30,
2022,
 
net
 
charge-offs
 
totaled
 
$21.1
 
million,
 
or
 
0.25%
 
of
 
average
 
loans
 
on
 
an
 
annualized
 
basis,
 
compared
 
to
 
$48.0
 
million,
 
or
 
an
annualized 0.56%
 
of average
 
loans for
 
the same
 
period in
 
2021. The
 
bulk sale
 
of nonaccrual
 
residential mortgage
 
loans added
 
$23.1
million in
 
net charge-offs
 
in the
 
2021 periods.
 
Excluding the
 
effect of
 
net charge-offs
 
related to
 
the bulk
 
sale, total
 
net charge-offs
 
in
the third quarter
 
of 2021 were
 
$4.8 million, or
 
an annualized 0.17%
 
of average loans,
 
and in the first
 
nine months of
 
2021 were $25.0
million, or an annualized 0.29% of average loans.
Residential
 
mortgage
 
loans
 
net
 
charge-offs
 
in
 
the
 
third
 
quarter
 
of
 
2022
 
were
 
$0.9
 
million,
 
or
 
an
 
annualized
 
0.13%
 
of
 
average
residential
 
loans,
 
compared
 
to $23.5
 
million,
 
or an
 
annualized
 
2.94%
 
of average
 
residential
 
mortgage
 
loans, for
 
the third
 
quarter of
2021.
 
Residential
 
mortgage
 
loans
 
net
 
charge-offs
 
in
 
the
 
first
 
nine
 
months
 
of
 
2022
 
were
 
$2.8
 
million,
 
or
 
an
 
annualized
 
0.13%
 
of
average
 
residential
 
mortgage
 
loans,
 
compared
 
to
 
$27.5
 
million,
 
or
 
an
 
annualized
 
1.10%
 
of
 
related
 
average
 
loans,
 
for
 
the
 
first
 
nine
months of
 
2021. Excluding
 
the effect
 
of net
 
charge-offs
 
related to
 
the bulk
 
sale of
 
nonaccrual residential
 
mortgage loans,
 
residential
mortgage loans net
 
charge-offs in the
 
third quarter of 2021 were
 
$0.4 million, or an
 
annualized 0.05% of average
 
residential mortgage
loans,
 
and
 
in
 
the
 
first
 
nine
 
months
 
of
 
2021
 
were
 
$4.5
 
million,
 
or
 
an
 
annualized
 
0.18%
 
of
 
average
 
residential
 
mortgage
 
loans.
Approximately $0.3 million
 
in net charge-offs
 
for the third quarter
 
of 2022 and $1.2
 
million for the
 
first nine months
 
of 2022 resulted
from valuations
 
of collateral
 
dependent residential
 
mortgage loans
 
given high
 
delinquency levels,
 
compared to
 
$0.4 million
 
and $4.8
million for the comparable
 
periods in 2021,
 
respectively. Net
 
charge-offs on
 
residential mortgage loans
 
also included $0.6 million
 
and
$2.4 million related
 
to foreclosures recorded
 
in the third quarter
 
and first nine
 
months of 2022,
 
respectively,
 
compared to $1.2
 
million
and $2.0 million recorded for the comparable periods in 2021, respectively.
 
 
Commercial
 
mortgage
 
loans
 
net
 
recoveries
 
in
 
the
 
third
 
quarter
 
of
 
2022
 
were
 
$0.1
 
million,
 
or
 
an
 
annualized
 
0.01%
 
of
 
average
commercial
 
mortgage
 
loans,
 
compared
 
to
 
net
 
charge-offs
 
of
 
$0.4
 
million,
 
or
 
an
 
annualized
 
0.07%
 
of
 
related
 
average
 
loans,
 
for
 
the
third
 
quarter
 
of
 
2021.
 
For
 
the
 
nine-month
 
period
 
ended
 
September
 
30,
 
2022,
 
commercial
 
mortgage
 
loans
 
net
 
recoveries
 
were
 
$1.3
million, or an annualized
 
0.08% of average commercial
 
mortgage loans, compared to
 
net charge-offs of
 
$1.2 million, or an annualized
0.07% of
 
related average
 
loans, for
 
the same
 
period in
 
2021. Commercial
 
mortgage loans
 
net recoveries
 
for the
 
first nine
 
months of
2022
 
included recoveries totaling $1.2 million associated with two commercial
 
mortgage relationships.
Commercial and
 
industrial loans
 
net recoveries
 
in the
 
third quarter
 
of 2022
 
were $0.5
 
million, or
 
an annualized
 
0.07%
 
of average
commercial
 
and industrial
 
loans, compared
 
to $0.3
 
million, or
 
an annualized
 
0.04% of
 
related average
 
loans, for
 
the same
 
period in
2021.
 
Commercial and
 
industrial loans
 
net recoveries
 
in the
 
first nine
 
months of
 
2022 were
 
$1.8 million,
 
or an
 
annualized 0.08%
 
of
average commercial and
 
industrial loans, compared
 
to $5.6
 
million, or an
 
annualized 0.24% of
 
related average loans
 
,
 
for the first nine
months of 2021.
 
The net recoveries in
 
the first nine
 
months of 2021
 
included a $5.2
 
million recovery in
 
connection with the
 
paydown
of a nonaccrual commercial and industrial loan participation in
 
the Puerto Rico region.
 
Construction loans
 
net charge-offs
 
in the third
 
quarter of
 
2022 were $20
 
thousand, or an
 
annualized 0.07%
 
of average construction
loans,
 
compared
 
to
 
net
 
recoveries
 
of
 
$35
 
thousand,
 
or
 
an
 
annualized
 
0.08%
 
of
 
related
 
average
 
loans,
 
for
 
the
 
same
 
period
 
in
 
2021.
 
Construction loans net
 
recoveries in the first
 
nine months of 2022
 
were $15 thousand, or
 
an annualized 0.02% of
 
average construction
loans, compared to $64 thousand, or an annualized 0.05% of related average
 
loans, for the first nine months of 2021.
 
Net
 
charge-offs
 
of
 
consumer
 
loans
 
and
 
finance
 
leases in
 
the
 
third
 
quarter
 
of 2022
 
were $8.3
 
million,
 
or
 
an annualized
 
1.05%
 
of
related
 
average loans,
 
compared to
 
$4.4 million,
 
or an
 
annualized 0.64%
 
of related
 
average loans,
 
in the
 
third quarter
 
of 2021.
 
Net
charge-offs
 
of
 
consumer
 
loans
 
and
 
finance
 
leases
 
in
 
the
 
first
 
nine
 
months
 
of
 
2022
 
were
 
$21.4
 
million,
 
or
 
an
 
annualized
 
0.94%
 
of
related average
 
loans, compared
 
to $25.0
 
million, or
 
an annualized
 
1.24% of
 
related average
 
loans, in
 
the first
 
nine months
 
of 2021.
The increas
 
e
 
for
 
the third
 
quarter of
 
2022
 
was primarily
 
reflected in
 
the auto
 
loans portfolio,
 
when
 
compared to
 
the same
 
period
 
in
2021, and
 
the decrease
 
for the nine
 
-month period
 
ended September
 
30, 2022
 
was reflected in
 
the auto and
 
credit card
 
loan portfolios,
when compared to the same period in 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
134
 
The following table presents annualized net charge-offs
 
(or recoveries) to average loans held-in-portfolio for the indicated
periods:
Quarter Ended
 
Nine-Month Period Ended
September 30, 2022
September 30, 2021
September 30, 2022
September 30, 2021
Residential mortgage
(1)
0.13
%
2.94
%
(1)
0.13
%
1.10
%
(1)
Commercial mortgage
(0.01)
%
0.07
%
(0.08)
%
0.07
%
Commercial and industrial
(0.07)
%
(0.04)
%
(0.08)
%
(0.24)
%
Construction
0.07
%
(0.08)
%
(0.02)
%
(0.05)
%
Consumer and finance leases
1.05
%
0.64
%
0.94
%
1.24
%
Total loans
(1)
0.31
%
0.99
%
(1)
0.25
%
0.56
%
(1)
(1)
For the quarter and nine-month period ended
 
September 30, 2021, includes net charge-offs totaling
 
$23.1 million associated with the bulk sale
 
of residential mortgage
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 third quarter
 
of 2021 was 0.05% and 0.17%, respectively, and for the first
 
nine months of 2021 was 0.18% and 0.29%,
 
respectively.
 
The following table presents the ratio of annualized net charge-offs
 
(or recoveries) to average loans held in various portfolios
by geographic segment for the indicated periods:
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
September 30,
September 30,
2022
2021
2022
2021
PUERTO RICO:
Residential mortgage
(1)
0.15
%
3.71
%
(1)
0.16
%
1.39
%
(1)
Commercial mortgage
-
%
0.10
%
(0.05)
%
0.10
%
Commercial and Industrial
 
(0.11)
%
(0.07)
%
(0.13)
%
(0.40)
%
Construction
 
0.53
%
(0.20)
%
0.09
%
(0.06)
%
Consumer and finance leases
 
1.04
%
0.64
%
0.94
%
1.23
%
 
T
ot
al
lo
an
s
Total loans
(1)
0.38
%
1.27
%
(1)
0.32
%
0.69
%
(1)
VIRGIN ISLANDS:
Residential mortgage
 
0.30
%
-
%
0.19
%
(0.16)
%
Commercial mortgage
 
(0.22)
%
(0.22)
%
(0.22)
%
(0.24)
%
Commercial and Industrial
-
%
-
%
-
%
-
%
Construction
-
%
-
%
-
%
-
%
Consumer and finance leases
1.67
%
0.70
%
1.35
%
1.38
%
 
T
ot
al
lo
an
s
(5)
Total loans
 
0.36
%
0.05
%
0.24
%
0.06
%
FLORIDA:
Residential mortgage
(0.05)
%
(0.08)
%
(0.03)
%
0.01
%
Commercial mortgage
-
%
-
%
(0.14)
%
(0.01)
%
Commercial and Industrial
-
%
-
%
-
%
0.06
%
Construction
 
(0.04)
%
(0.03)
%
(0.06)
%
(0.04)
%
Consumer and finance leases
 
0.47
%
(0.15)
%
(0.16)
%
2.76
%
Total loans
 
(0.01)
%
(0.02)
%
(0.05)
%
0.06
%
(1)
For the quarter and nine-month period ended
 
September 30, 2021, includes net charge-offs totaling
 
$23.1 million associated with the bulk sale
 
of residential mortgage
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 third quarter
 
of 2021 was 0.08% and 0.22%, respectively, and for the first
 
nine months of 2021 was 0.23% and 0.35%,
 
respectively.
The above ratios are
 
based on annualized charge
 
-offs and are not
 
necessarily indicative of the
 
results expected for the
 
entire year or
in subsequent periods.
 
Total
 
net charge-offs
 
plus losses on OREO
 
operations for the
 
first nine months
 
of 2022 amounted
 
to $17.9 million, or
 
a loss rate of
0.21% on an
 
annualized basis to average
 
loans and repossessed assets,
 
compared to losses
 
of $47.5 million,
 
or a loss rate
 
of 0.55% on
an annualized basis, for the same period in 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
135
 
The following table presents information about the OREO inventory and credit
 
losses for the indicated periods:
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
2022
2021
2022
2021
(Dollars in thousands)
OREO
OREO balances, carrying value:
Residential
$
30,036
$
29,707
$
30,036
$
29,707
Commercial
6,033
9,695
6,033
9,695
Construction
2,613
4,396
2,613
4,396
Total
$
38,682
$
43,798
$
38,682
$
43,798
OREO activity (number of properties):
Beginning property inventory
 
431
471
418
513
Properties acquired
30
56
139
130
Properties disposed
(49)
(80)
(145)
(196)
Ending property inventory
412
447
412
447
Average holding period (in days)
Residential
656
600
656
600
Commercial
2,420
2,035
2,420
2,035
Construction
2,192
1,874
2,192
1,874
Total average holding period (in days)
1,035
1,046
1,035
1,046
OREO operations gain (loss):
Market adjustments and gains (losses) on sales:
Residential
$
1,159
$
1,741
$
4,139
$
2,552
Commercial
408
1,078
329
(1,068)
Construction
(7)
157
107
422
Total gains on sales
1,560
2,976
4,575
1,906
Other OREO operations expenses
(496)
(688)
(1,306)
(1,377)
Net Gain on OREO operations
$
1,064
$
2,288
$
3,269
$
529
(CHARGE-OFFS) RECOVERIES
Residential charge-offs, net
(1)
(907)
(23,450)
(2,845)
(27,529)
Commercial recoveries (charge-offs), net
540
(59)
3,029
4,434
Construction (charge-offs) recoveries, net
(20)
35
15
64
Consumer and finance leases charge-offs, net
(8,258)
(4,390)
(21,398)
(25,017)
Total charge-offs,
 
net
(8,645)
(27,864)
(21,199)
(48,048)
TOTAL CREDIT LOSSES
(2)
$
(7,581)
$
(25,576)
$
(17,930)
$
(47,519)
LOSS RATIO PER CATEGORY
(3)
:
Residential
(0.03)
%
2.69
%
(0.06)
%
0.99
%
Commercial
(0.07)
%
(0.08)
%
(0.09)
%
(0.08)
%
Construction
0.09
%
(0.43)
%
(0.13)
%
(0.34)
%
Consumer
1.04
%
0.64
%
0.94
%
1.24
%
TOTAL CREDIT LOSS RATIO
(4)
0.27
%
0.91
%
0.21
%
0.55
%
(1)
 
For the quarter and nine-month period ended September 30,
 
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 on OREO operations plus charge-offs, net.
(3)
Calculated as net charge-offs plus market adjustments, and gains (losses) on sales
 
of OREO divided by average loans and repossessed assets.
(4)
Calculated as net charge-offs plus net gain on OREO operations divided by
 
average loans and repossessed assets.
136
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
 
$11.3 billion
 
as of September
 
30, 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.
137
Update on the Puerto Rico Fiscal Situation
A significant
 
portion of
 
the Corporation’s
 
business activities
 
and credit
 
exposure is
 
concentrated in
 
the Commonwealth
 
of Puerto
Rico, which has experienced an economic and fiscal crisis for more than a decade.
Economic Indicators
During September
 
2022, the
 
Puerto Rico
 
Planning Board
 
(“PRPB”) published
 
the tables
 
for the
 
2021 Statistical
 
Appendix
 
of the
Economic Report
 
to the
 
Governor,
 
which include
 
a preliminary
 
estimate of
 
Puerto Rico’s
 
Gross National
 
Product (“GNP”)
 
for fiscal
year 2021,
 
as well
 
as revised
 
estimates for
 
prior fiscal
 
years. According
 
to the
 
PRPB, Puerto
 
Rico’s
 
real 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
 
data, 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 relief funding
 
deployed over the
 
period. To
 
a lesser extent, growth
 
in FY2021 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 prior
 
fiscal years,
 
the
PRPB revised
 
its previously
 
published
 
estimates as
 
follows: from
 
-4.4% to
 
-4.2% for
 
FY2018, from
 
1.8% to
 
2.1% for
 
FY2019,
 
and
essentially unchanged for FY2020.
 
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 a coincident
 
index for economic
 
activity that is
 
highly correlated
 
to Puerto Rico’s
 
real GNP.
 
For August 2022,
the
 
EDB-EAI
 
registered
 
a
 
1.5%
 
improvement
 
when
 
compared
 
to
 
August
 
2021,
 
marking
 
the
 
eighteenth
 
consecutive
 
month
 
of
 
year-
over-year
 
increases.
 
Similarly,
 
over
 
the
 
twelve-month
 
period
 
ended
 
August
 
31,
 
2022,
 
the
 
average
 
reading
 
for
 
the
 
index
 
was
 
3.7%
higher than the comparable figure a year earlier.
Fiscal Plan
 
On
 
January
 
27,
 
2022,
 
the
 
PROMESA
 
oversight
 
board
 
certified
 
the
 
2022
 
Fiscal
 
Plan
 
for
 
Puerto
 
Rico.
 
Similar
 
to
 
previous
 
fiscal
plans,
 
the
 
2022
 
Fiscal
 
Plan
 
incorporates
 
updated
 
information
 
related
 
to
 
the
 
macroeconomic
 
environment,
 
as
 
well
 
as
 
government
revenues,
 
expenditures,
 
structural
 
reform
 
efforts,
 
and
 
recent
 
increases
 
in
 
federal
 
funding.
 
More
 
importantly,
 
the
 
2022
 
Fiscal
 
Plan
reflects the Commonwealth
 
Plan of Adjustment
 
recently confirmed by
 
the U.S. District Court
 
for the District
 
of Puerto Rico.
 
Relative
to the
 
previous
 
fiscal plan,
 
the 2022
 
Fiscal Plan
 
incorporates a
 
new set
 
of expenditure
 
projections that
 
factor in
 
the now-established
debt
 
service
 
requirements
 
pursuant
 
to
 
the
 
Plan of
 
Adjustment,
 
as well
 
as additional
 
investments
 
enabled
 
by the
 
increased resources
available
 
to the
 
government.
 
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
revised 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 received
 
an infusion
 
of historical
 
levels of federal
 
support, creating
 
new opportunities
 
to
address
 
high-priority
 
needs.
 
The
 
2022
 
Fiscal
 
Plan
 
projects
 
that
 
approximately
 
$84
 
billion
 
of
 
disaster
 
relief
 
funding
 
in
 
total,
 
from
federal and private
 
sources, will be
 
disbursed in
 
the reconstruction
 
process over a
 
period of 18
 
years (2018 to
 
2035). Moreover,
 
since
the previous
 
fiscal plan
 
was certified
 
in 2021,
 
the Commonwealth’s
 
available resources
 
have significantly
 
increased principally
 
as a
result
 
of
 
two
 
major
 
developments:
 
(i)
 
incremental
 
federal
 
funding
 
for
 
health
 
care
 
as
 
a
 
result
 
of
 
the
 
recent
 
guidance
 
issued
 
by
 
the
Centers for
 
Medicare and
 
Medicaid Services
 
(“CMS”), which
 
increases the
 
federal funding
 
cap by
 
over $2
 
billion per
 
year,
 
and (ii)
improved local
 
revenue collections
 
as a
 
result of
 
a better-than-expected
 
recovery,
 
increased local
 
consumption and
 
economic activity
enabled by
 
enhanced income
 
support programs
 
(e.g., incremental
 
funding of
 
approximately $460
 
million for
 
the Nutrition
 
Assistance
Program). The 2022
 
Fiscal Plan provides a
 
roadmap to take maximum
 
advantage of this unique
 
opportunity,
 
create an environment
 
of
fiscal stability,
 
and develop the
 
conditions
 
for long-term growth
 
and economic development.
 
Nonetheless, the fiscal
 
plan continues to
underline the need to implement structural reforms to maximize the positive
 
impact of federal recovery funds.
 
138
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, and up
 
to $1.4 billion this year alone.
 
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.
 
According
 
to
 
the
 
PROMESA
 
oversight
 
board,
 
the
 
plan
 
reduces
HTA’s
 
$6.4 billion in claims by
 
more than 80% and saves Puerto
 
Rico more than $3 billion in debt
 
service payments. Confirmation of
the
 
HTA’s
 
plan
 
of
 
adjustment marks
 
another
 
significant
 
milestone
 
for
 
Puerto
 
Rico
 
to end
 
its bankruptcy
 
process under
 
PROMESA
and
 
enables
 
HTA
 
to
 
make
 
the
 
necessary
 
investments
 
to
 
improve
 
and
 
maintain
 
Puerto
 
Rico’s
 
roads
 
and
 
other
 
transportation
infrastructure.
On September 29, 2022, Judge Laura Taylor
 
Swain issued an order establishing the schedule to
 
continue negotiations and litigation
related to PREPA’s
 
Title III
 
case. Pursuant to
 
such order,
 
Judge Taylor
 
Swain directed
 
the PROMESA oversight
 
board to designate
 
a
lead
 
negotiator
 
to
 
facilitate
 
the
 
mediation
 
team
 
and
 
other
 
parties’
 
interaction
 
with
 
the
 
PROMESA
 
oversight
 
board.
 
Also,
 
the
 
order
directed
 
the
 
PROMESA
 
oversight
 
board
 
to
 
file,
 
by
 
December
 
1,
 
2022,
 
a
 
proposed
 
plan
 
of
 
adjustment
 
that
 
it
 
believes
 
could
 
be
confirmable,
 
considering
 
the
 
litigation
 
risk
 
and
 
economic
 
issues
 
that
 
are
 
in
 
dispute.
 
The
 
plan
 
may,
 
but
 
is
 
not
 
required
 
to,
 
include
alternative provisions addressing proposed
 
resolutions contingent on different outcomes
 
of the disputed issues. According to
 
the order,
the plan must be
 
accompanied by a disclosure
 
statement and proposed
 
confirmation schedule contemplating
 
a June 2023 confirmation
hearing.
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
 
June
 
30,
 
2022,
 
there
 
were
 
a
 
total
 
of
 
5,613
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
139
Exposure to Puerto Rico Government
As of September
 
30, 2022, the Corporation
 
had $327.2 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
 
September
 
30,
 
2022,
 
approximately
 
$170.4
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
 
$113.9
 
million
 
of
 
loans
 
and
 
obligations
 
which
 
are
 
supported
 
by
 
one
 
or
 
more
 
specific
 
sources
 
of
municipal
 
revenues.
 
Approximately
 
71%
 
of
 
the
 
Corporation’s
 
exposure
 
to
 
Puerto
 
Rico
 
municipalities
 
consisted
 
primarily
 
of
 
senior
priority
 
obligations
 
concentrated
 
in four
 
of the
 
largest
 
municipalities in
 
Puerto
 
Rico. The
 
municipalities
 
are required
 
by law
 
to levy
special property
 
taxes in
 
such amounts
 
as are
 
required for
 
the payment
 
of all
 
of their
 
respective general
 
obligation bonds
 
and notes.
Furthermore,
 
municipalities
 
are
 
also
 
likely
 
to be
 
affected
 
by the
 
negative
 
economic
 
and other
 
effects
 
resulting
 
from
 
the COVID-19
pandemic, as well
 
as expense, revenue,
 
or cash management
 
measures taken to
 
address the Puerto
 
Rico government’s
 
fiscal problems
and measures included in fiscal plans of other government
 
entities. In addition to municipalities, the total direct exposure also included
$11.5
 
million
 
in
 
loans
 
to
 
an
 
affiliate
 
of
 
PREPA,
 
$28.0
 
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
$3.4 million as part of its available-for-sale debt securities portfolio (fair value of
 
$2.2 million as of September 30, 2022).
The
 
following
 
table
 
details
 
the
 
Corporation’s
 
total
 
direct
 
exposure
 
to
 
Puerto
 
Rico
 
government
 
obligations
 
according
 
to
 
their
maturities:
As of September 30, 2022
Investment
 
Portfolio
Total
(Amortized cost)
Loans
Exposure
(In thousands)
Puerto Rico Housing Finance Authority:
After 10 years
$
3,365
$
-
$
3,365
Total
 
Puerto Rico Housing Finance Authority
3,365
-
3,365
Puerto Rico public corporation:
After 5 to 10 years
-
28,027
28,027
Total Puerto Rico public
 
corporation
-
28,027
28,027
 
Affiliate of the Puerto Rico Electric Power Authority:
Due within one year
-
11,516
11,516
Total Puerto Rico government
 
affiliate
-
11,516
11,516
Total
 
Puerto Rico public corporations and government affiliate
-
39,543
39,543
Municipalities:
Due within one year
1,200
19,151
20,351
After 1 to 5 years
42,426
55,897
98,323
After 5 to 10 years
55,737
43,810
99,547
After 10 years
66,023
-
66,023
Total
 
Municipalities
165,386
118,858
284,244
Total
 
Direct Government Exposure
$
168,751
$
158,401
$
327,152
140
In
 
addition,
 
as
 
of
 
September
 
30,
 
2022,
 
the
 
Corporation
 
had
 
$86.7
 
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,
 
2020,
 
the
 
PRHFA’s
 
mortgage
 
loans
 
insurance
 
program
 
covered
 
loans
 
in
 
an
aggregate
 
amount
 
of
 
approximately
 
$553
 
million.
 
The
 
regulations
 
adopted
 
by
 
the
 
PRHFA,
 
requires
 
the
 
establishment
 
of
 
adequate
reserves to
 
guarantee
 
the solvency
 
of the
 
mortgage loans
 
insurance program.
 
As of
 
June 30,
 
2020, the
 
most recent
 
date as
 
of which
information is available, the PRHFA
 
had a liability of approximately $6.1 million as an estimate of the
 
losses inherent in the portfolio.
As of September
 
30, 2022, the Corporation
 
had $2.5 billion
 
of public sector
 
deposits in Puerto
 
Rico, compared to
 
$2.7 billion as
 
of
December
 
31,
 
2021.
 
Approximately
 
25%
 
of
 
the
 
public
 
sector
 
deposits
 
as
 
of
 
September
 
30,
 
2022
 
was
 
from
 
municipalities
 
and
municipal agencies
 
in Puerto
 
Rico and
 
75% 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.
 
Between 2008 and
 
2017, the USVI real
 
GDP contracted at a
 
compound annual rate
 
of -
4.2%.
 
On
 
March
 
4,
 
2022,
 
the
 
United
 
States
 
Bureau
 
of
 
Economic
 
Analysis
 
(the
 
“BEA”)
 
released
 
its
 
estimates
 
of
 
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. Exports
 
of services, which
 
consists primarily
 
of spending
 
by visitors, decreased
 
43.5%, while
 
private fixed
investment decreased
 
27.7%. 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,
 
imports
 
declined
 
by
 
10.6%
 
as
 
a
 
result
 
of
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.
 
 
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 September 30, 2022, the Corporation had $37.6
 
million in loans to USVI public corporations, compared to $39.2 million
 
as of
December 31, 2021. As of September 30, 2022, all loans were currently performing
 
and up to date on principal and interest payments.
Impact of Inflation and Changing Prices
The
 
financial
 
statements
 
and
 
related
 
data
 
presented
 
herein
 
have
 
been
 
prepared
 
in
 
conformity
 
with
 
GAAP,
 
which
 
requires
 
the
measurement
 
of the
 
financial position
 
and operating
 
results in
 
terms of
 
historical dollars
 
without considering
 
changes in
 
the relative
purchasing power of money over time due to inflation.
Regulatory Developments in Response to Climate Change
Federal
 
and
 
state governments
 
and
 
government
 
agencies have
 
demonstrated
 
increased attention
 
to the
 
impacts and
 
potential risks
associated
 
with
 
climate
 
change.
 
For
 
example,
 
federal
 
banking
 
regulators
 
are
 
reviewing
 
the
 
implications
 
of
 
climate
 
change
 
on
 
the
financial
 
stability
 
of
 
the
 
United
 
States
 
and
 
the
 
identification
 
and
 
management
 
by
 
large
 
banks
 
of
 
climate-related
 
financial
 
risks.
 
In
addition,
 
the SEC
 
has proposed
 
rules that
 
would
 
require public
 
companies
 
to disclose
 
certain
 
climate-related
 
information,
 
including
greenhouse
 
gas
 
emissions,
 
climate-related
 
targets
 
and
 
goals,
 
and
 
governance
 
of
 
climate-related
 
risks
 
and
 
relevant
 
risk
 
management
processes.
 
The
 
approaches
 
taken
 
by
 
various
 
governments
 
and
 
government
 
agencies
 
can
 
vary
 
significantly,
 
evolve
 
over
 
time,
 
and
sometimes conflict. Any current
 
or future rules, regulations, and
 
guidance related to climate change
 
and its impacts could require
 
us to
change certain of our business
 
practices, reduce our revenue and
 
earnings, impose additional costs on
 
us, or otherwise adversely
 
affect
our business operations and/or competitive position.
141
BASIS OF
 
PRESENTATION
The Corporation
 
has included in
 
this Form 10-Q 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 Operations
 
- Net
 
Interest
 
Income”
 
above for
 
the table
 
that reconciles
 
the net
interest
 
income
 
calculated
 
and
 
presented
 
in
 
accordance
 
with
 
GAAP
 
with
 
the
 
non-GAAP
 
financial
 
measure
 
“net
 
interest
income
 
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
 
equity
 
less preferred
 
equity,
 
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 quarter and
 
nine-month
period ended September 30, 2021 that reflect the described items that were excluded
 
for one of those reasons.
142
ITEM 3. QUANTITATIVE
 
AND QUALITATIVE DISCLOSURES
 
ABOUT MARKET
 
RISK
 
For
 
information
 
regarding
 
market
 
risk
 
to
 
which
 
the
 
Corporation
 
is
 
exposed,
 
see
 
the
 
information
 
contained
 
in
 
Part
 
I,
 
Item
 
2.
“Management’s
 
Discussion
 
and
 
Analysis
 
of
 
Financial
 
Condition
 
and
 
Results of
 
Operations
 
— Risk
 
Management”
 
in
 
this Quarterly
Report on Form 10-Q.
ITEM 4.
 
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
 
Rules
 
13a-15(e)
 
and
 
15d-15(e)
 
under
 
the
 
Exchange
 
Act)
 
as
 
of
September 30, 2022.
 
Based on this evaluation
 
as of the end
 
of the period
 
covered by this Form
 
10-Q, the Chief
 
Executive Officer
 
and
Chief
 
Financial
 
Officer
 
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
 
Chief
 
Executive
 
Office
 
and
 
Chief
 
Financial
 
Officer,
 
as
appropriate, to allow timely decisions regarding required disclosures.
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
 
September
 
30,
 
2022
 
that
 
have
 
materially
 
affected,
 
or
 
are
reasonably likely to materially affect, the Corporation’s
 
internal control over financial reporting.
143
PART II - OTHER INFORMATION
ITEM 1.
 
LEGAL PROCEEDINGS
For a discussion of legal proceedings,
 
see Note 22 – Regulatory Matters,
 
Commitments
 
and Contingencies,
 
to the Corporation’s unaudited
consolidated
 
financial
 
statements
 
for the
 
quarter
 
ended September 30, 2022, which is incorporated by reference in this Item 1.
ITEM 1A.
 
RISK FACTORS
 
The Corporation’s
 
business,
 
operating
 
results
 
and/or the
 
market price
 
of our common
 
stock may
 
be significantly
 
affected by
 
a number of
factors. For a detailed discussion
 
of certain risk factors that could affect the Corporation’s
 
future operations,
 
financial condition
 
or results
for future
 
periods are
 
set forth in
 
Part I, Item
 
1A., “Risk
 
Factors,”
 
in the 2021
 
Annual Report
 
on Form 10-K.
 
These risk
 
factors,
 
and others,
could
 
cause
 
actual
 
results
 
to
 
differ
 
materially from
 
historical results
 
or
 
the
 
results
 
contemplated by
 
the
 
forward-looking statements
contained in
 
this report.
 
Also, refer
 
to the discussion
 
in “Forward
 
Looking Statements”
 
and Part I, Item
 
2., “Management’s
 
Discussion and
Analysis of Financial Condition and Results of Operations,” in this Quarterly Report on Form 10-Q
 
for additional information that may
supplement
 
or update
 
the discussion
 
of risk
 
factors in
 
the 2021
 
Annual Report
 
on Form
 
10-K.
There have
 
been no
 
material changes
 
from those
 
risk factors
 
previously disclosed
 
in Part
 
I, Item
 
1A., “Risk
 
Factors,” in
 
the 2021
Annual
 
Report
 
on
 
Form
 
10-K.
 
Additional
 
risks
 
and
 
uncertainties
 
that
 
are
 
not
 
currently
 
known
 
to
 
the
 
Corporation
 
or
 
are
 
currently
deemed
 
by the
 
Corporation
 
to be
 
immaterial
 
also may
 
materially
 
adversely
 
affect
 
the Corporation’s
 
business, financial
 
condition
 
or
results of operations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
144
ITEM 2.
 
UNREGISTERED
 
SALES OF
 
EQUITY SECURITIES
 
AND USE OF
 
PROCEEDS
 
The Corporation
 
did not
 
have any
 
unregistered
 
sales of
 
equity
 
securities
 
during the
 
quarter
 
ended September
 
30, 2022.
Issuer Purchases
 
of Equity
 
Securities
The following table provides information in relation to
 
the Corporation’s purchases of shares of
 
its common stock during the
 
quarter
ended September 30, 2022:
Period
Total Number of Shares
Purchased
 
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar Value
of Shares That May Yet
 
be
Purchased Under These
Plans or Programs (In
thousands)
(1)
July 1, 2022 - July 31, 2022
3,636,269
$
13.75
3,636,269
$
200,000
August 1, 2022 - August 31, 2022
290,000
14.68
290,000
195,743
September 1, 2022 - September 30, 2022
1,459,588
14.22
1,458,869
175,000
Total
5,385,857
(2)(3)
5,385,138
(1)
As of
 
September 30,
 
2022, the
 
Corporation was
 
authorized to
 
purchase up
 
to $350
 
million of
 
the Corporation’s
 
common stock
 
under the
 
stock repurchase
 
program, that
 
was publicly
announced
 
on
 
April
 
27,
 
2022,
 
of
 
which
 
$175.0
 
million
 
had
 
been
 
utilized.
 
The
 
remaining
 
$175.0
 
million
 
in
 
the
 
table
 
represents
 
the
 
remaining
 
amount
 
authorized
 
under
 
the
 
stock
repurchase program as of September 30, 2022.
 
The stock repurchase program does not obligate the
 
Corporation to acquire any specific number of
 
shares 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 5,385,138
 
shares of common stock repurchased in the open market at an
 
average price of $13.93 for a total purchase price of approximately
 
$75.0 million.
(3)
Includes 719 shares of common
 
stock withheld by the Corporation to
 
cover minimum tax withholding obligations
 
upon the vesting of restricted stock.
 
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.
145
ITEM 6.
 
EXHIBITS
 
 
See the
 
Exhibit Index
 
below, which
 
is incorporated
 
by reference
 
herein:
Exhibit Index
10.1
18
31.1
31.2
32.1
32.2
101.INS
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
XBRL Taxonomy Extension Schema Document,
 
filed herewith
101.CAL
XBRL Taxonomy Extension Calculation
 
Linkbase Document, filed herewith
101.DEF
XBRL Taxonomy Extension Definitions
 
Linkbase Document, filed herewith
101.LAB
XBRL Taxonomy Extension Label Linkbase
 
Document, filed herewith
101.PRE
XBRL Taxonomy Extension Presentation
 
Linkbase Document, filed herewith
104
The cover
 
page of
 
First BanCorp.
 
Quarterly Report
 
on Form 10-Q
 
for the
 
quarter ended
 
September 30,
 
2022, formatted
 
in Inline
XBRL (included within the Exhibit 101 attachments)
 
 
146
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.
Registrant
Date:
 
November
 
8, 2022
By:
 
/s/ Aurelio
 
Alemán
 
Aurelio Alemán
 
President
 
and Chief
 
Executive
 
Officer
Date: November
 
8, 2022
By:
 
/s/ Orlando
 
Berges
 
Orlando
 
Berges
 
Executive
 
Vice President
 
and Chief
 
Financial
 
Officer