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FIRST BANCORP /PR/ - Quarter Report: 2023 March (Form 10-Q)

fbp20230331Q1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
March 31, 2023
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:
179,788,698
 
shares outstanding as of May 1, 2023.
2
FIRST BANCORP.
INDEX PAGE
PART
 
I. FINANCIAL INFORMATION
 
PAGE
Item 1. Financial Statements:
Consolidated
 
Statements
 
of
 
Financial
 
Condition
 
(Unaudited)
 
as
 
of
 
March
 
31,
 
2023
 
and
 
December
 
31,
2022
 
Consolidated Statements of Income (Unaudited) – Quarters ended
 
March 31, 2023 and 2022
Consolidated Statements of
 
Comprehensive Income (Loss)
 
(Unaudited) – Quarters
 
ended March 31, 2023
and 2022
Consolidated Statements of Cash Flows (Unaudited) – Quarters ended
 
March 31, 2023 and 2022
 
Consolidated
 
Statements
 
of
 
Changes
 
in
 
Stockholders’
 
Equity
 
(Unaudited)
 
 
Quarters
 
ended
 
March
 
31,
2023 and 2022
 
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 Quarterly Report on Form 10-Q
 
(“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, 2022 (the “2022 Annual Report on Form 10-K”)
 
and the following:
the impacts of rising interest
 
rates and inflation on
 
the Corporation, including a
 
decrease in demand for new
 
loan originations
and refinancings,
 
increased competition
 
for borrowers,
 
attrition in deposits,
 
a reduction
 
in the fair
 
value of the
 
Corporation’s
debt
 
securities portfolio,
 
and an
 
increase
 
in non-interest
 
expenses which
 
would impact
 
the Corporation’s
 
earnings and
 
may
adversely impact origination volumes, liquidity,
 
and financial performance;
volatility in the
 
financial services industry,
 
including failures or
 
rumored failures of
 
other depository institutions,
 
and actions
taken
 
by
 
governmental
 
agencies
 
to
 
stabilize
 
the
 
financial
 
system,
 
which
 
could
 
result
 
in,
 
among
 
other
 
things,
 
bank
 
deposit
runoffs and liquidity constraints;
the
 
effect
 
of
 
continued
 
changes
 
in
 
the
 
fiscal
 
and
 
monetary
 
policies
 
and
 
regulations
 
of
 
the
 
United
 
States
 
(“U.S.”)
 
federal
government,
 
the Puerto
 
Rico government
 
and other governments,
 
including those
 
determined by
 
the Board
 
of the Governors
of the Federal Reserve System (the
 
“Federal Reserve Board”),
 
the Federal Reserve Bank of New York
 
(the “New York
 
FED”
or
 
the
 
“FED”),
 
the
 
Federal
 
Deposit
 
Insurance
 
Corporation
 
(the
 
“FDIC”),
 
government-sponsored
 
housing
 
agencies
 
and
regulators in Puerto Rico, the U.S., and the U.S. Virgin
 
Islands (the “USVI) and British Virgin
 
Islands (the “BVI”);
uncertainty as
 
to the
 
ability of
 
the Corporation’s
 
banking subsidiary,
 
FirstBank Puerto
 
Rico (“FirstBank”
 
or the
 
“Bank”), to
retain its core
 
deposits and
 
generate sufficient
 
cash flow through
 
its wholesale funding
 
sources, such as
 
securities sold
 
under
agreements
 
to
 
repurchase,
 
Federal
 
Home
 
Loan
 
Bank
 
(“FHLB”)
 
advances,
 
and
 
brokered
 
certificates
 
of
 
deposit
 
(“brokered
CDs”),
 
which
 
in
 
turn
 
affects
 
its
 
ability
 
to
 
make
 
dividend
 
payments
 
to
 
the
 
Corporation
 
and
 
could
 
result
 
in
 
selling
 
certain
investment securities portfolio at a loss;
 
adverse
 
changes
 
in general
 
economic
 
conditions
 
in Puerto
 
Rico, the
 
U.S., and
 
the USVI
 
and
 
BVI, including
 
in the
 
interest
rate
 
environment,
 
unemployment
 
rates,
 
market
 
liquidity,
 
housing
 
absorption
 
rates,
 
real
 
estate
 
markets,
 
and
 
U.S.
 
capital
markets,
 
which
 
may
 
affect
 
funding
 
sources,
 
loan
 
portfolio
 
performance
 
and
 
credit
 
quality,
 
market
 
prices
 
of
 
investment
securities,
 
and
 
demand
 
for
 
the Corporation’s
 
products
 
and services,
 
and which
 
may
 
reduce
 
the
 
Corporation’s
 
revenues and
earnings and the value of the Corporation’s
 
assets;
the impact
 
of government
 
financial assistance
 
for hurricane
 
recovery and
 
other disaster
 
relief on
 
economic activity
 
in Puerto
Rico, and the timing and pace of disbursements of funds earmarked for disaster
 
relief;
the
 
long-term
 
economic
 
and
 
other
 
effects
 
of
 
the
 
COVID-19
 
pandemic
 
and
 
their
 
impact
 
on
 
the
 
Corporation’s
 
business,
operations, and financial condition;
the ability
 
of the
 
Corporation,
 
FirstBank,
 
and
 
third-party
 
service providers
 
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 and
 
response to any,
 
such as a recent security
 
incident at one of our
 
third-party
vendors, which may
 
result in misuse
 
or misappropriation of
 
confidential or proprietary
 
information, disruption,
 
or damage to
our systems or those of third-party service providers, increased costs and
 
losses or an adverse effect to our reputation;
4
general competitive
 
factors and other
 
market risks as
 
well as the
 
implementation of
 
strategic growth opportunities,
 
including
risks, uncertainties, and other factors or events related to any business acquisitions
 
or dispositions;
uncertainty as
 
to the
 
implementation of
 
the debt
 
restructuring plan
 
of Puerto
 
Rico (“Plan
 
of Adjustment”
 
or “PoA”)
 
and the
fiscal plan
 
for Puerto
 
Rico as
 
certified
 
on April
 
3, 2023
 
(the “2023
 
Fiscal Plan”)
 
by the
 
oversight
 
board established
 
by the
Puerto Rico
 
Oversight, Management,
 
and Economic
 
Stability Act
 
(“PROMESA”),
 
or any
 
revisions to
 
it, on
 
our clients
 
and
loan portfolios, and any potential impact from future economic or political
 
developments and tax regulations in Puerto Rico;
 
the
 
impact
 
of
 
changes
 
in
 
accounting
 
standards,
 
or
 
assumptions
 
in
 
applying
 
those
 
standards,
 
on
 
forecasts
 
of
 
economic
variables considered for the determination of the allowance for credit
 
losses (“ACL”);
the ability of FirstBank to realize the benefits of its net deferred tax assets;
environmental, social, and governance matters, including our climate-related
 
initiatives and commitments;
the impacts
 
of natural
 
or man-made
 
disasters, widespread
 
health emergencies,
 
geopolitical conflicts
 
(including
 
the ongoing
conflict
 
in
 
Ukraine),
 
terrorist
 
attacks,
 
or
 
other
 
catastrophic
 
external
 
events,
 
including
 
impacts
 
of
 
such
 
events
 
on
 
general
economic conditions and on the Corporation’s
 
assumptions regarding forecasts of economic variables;
the effect
 
of changes
 
in the
 
interest rate
 
environment,
 
including uncertainty
 
about the
 
effect
 
of the
 
cessation of
 
the London
Interbank Offered Rate (“LIBOR”);
any adverse change
 
in the Corporation’s
 
ability to attract
 
and retain clients
 
and gain acceptance
 
from current and
 
prospective
customers for new products and services, including those related to the
 
offering of digital banking and financial services;
the
 
risk
 
that
 
additional
 
portions
 
of
 
the
 
unrealized
 
losses in
 
the
 
Corporation’s
 
debt
 
securities portfolio
 
are
 
determined
 
to
 
be
credit-related,
 
resulting
 
in
 
additional
 
charges
 
to
 
the
 
provision
 
for
 
credit
 
losses
 
on
 
the
 
Corporation’s
 
available-for-sale
 
debt
securities portfolio;
 
the impacts of applicable legislative, tax, or regulatory changes on
 
the Corporation’s financial condition
 
or performance;
the
 
risk
 
of
 
possible
 
failure
 
or
 
circumvention
 
of
 
the
 
Corporation’s
 
internal
 
controls
 
and
 
procedures
 
and
 
the
 
risk
 
that
 
the
Corporation’s risk management
 
policies may not be adequate;
the
 
risk
 
that
 
the
 
FDIC
 
may
 
further
 
increase
 
the
 
deposit
 
insurance
 
premium
 
and/or
 
require
 
special
 
assessments,
 
causing
 
an
additional increase in the Corporation’s
 
non-interest expenses;
any need to recognize impairments on the Corporation’s
 
financial instruments, goodwill, and other intangible assets;
the risk
 
that the
 
impact
 
of the
 
occurrence
 
of any
 
of these
 
uncertainties on
 
the Corporation’s
 
capital would
 
preclude
 
further
growth of FirstBank and preclude the Corporation’s
 
Board of Directors (the “Board”) from declaring dividends; and
uncertainty as
 
to whether
 
FirstBank will
 
be able
 
to continue
 
to satisfy
 
its regulators
 
regarding,
 
among other
 
things, its
 
asset
quality,
 
liquidity
 
plans,
 
maintenance
 
of
 
capital
 
levels,
 
and
 
compliance
 
with
 
applicable
 
laws,
 
regulations
 
and
 
related
requirements.
 
The Corporation does not undertake, and
 
specifically disclaims any obligation to update any
 
“forward-looking statements” to reflect
occurrences
 
or
 
unanticipated
 
events
 
or
 
circumstances
 
after
 
the
 
date
 
of
 
such
 
statements,
 
except
 
as
 
required
 
by
 
the
 
federal
 
securities
laws.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
 
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
March 31, 2023
December 31, 2022
(In thousands, except for share information)
ASSETS
Cash and due from banks
$
822,542
$
478,480
Money market investments:
Time deposits with other financial institutions
300
300
Other short-term investments
759
1,725
Total money market investments
1,059
2,025
Available-for-sale debt securities, at fair value:
Securities pledged with creditors’ rights to repledge
181,009
81,103
Other available-for-sale debt securities
5,408,247
5,518,417
Total available-for-sale debt securities, at fair value (amortized cost of $
6,300,696
 
as of March 31, 2023, and
$
6,398,197
 
as of December 31, 2022; ACL of $
449
 
as of March 31, 2023 and $
458
 
as of December 31, 2022)
5,589,256
5,599,520
Held-to-maturity debt securities, at amortized cost, net of ACL
 
of $
7,646
 
as of March 31, 2023 and $
8,286
as of December 31, 2022 (fair value of $
419,752
 
as of March 31, 2023 and $
427,115
 
as of December 31, 2022)
423,749
429,251
Equity securities
66,714
55,289
Total investment securities
6,079,719
6,084,060
Loans, net of ACL of $
265,567
 
as of March 31, 2023 and
 
$
260,464
 
as of December 31, 2022
11,312,418
11,292,361
Mortgage loans held for sale, at lower of cost or market
15,183
12,306
Total loans, net
11,327,601
11,304,667
Accrued interest receivable on loans and investments
63,841
69,730
Premises and equipment, net
137,580
142,935
Other real estate owned (“OREO”)
32,862
31,641
Deferred tax asset, net
154,780
155,584
Goodwill
38,611
38,611
Other intangible assets
19,073
21,118
Other assets
299,446
305,633
Total assets
$
18,977,114
$
18,634,484
LIABILITIES
Non-interest-bearing deposits
$
6,024,304
$
6,112,884
Interest-bearing deposits
10,027,661
10,030,583
Total deposits
16,051,965
16,143,467
Short-term securities sold under agreements to repurchase
172,982
75,133
Advances from the FHLB:
Short-term
425,000
475,000
Long-term
500,000
200,000
Total advances from the FHLB
925,000
675,000
Other long-term borrowings
183,762
183,762
Accounts payable and other liabilities
237,812
231,582
Total liabilities
17,571,521
17,308,944
Commitments and contingencies (See Note 22)
(nil)
(nil)
STOCKHOLDERS’ EQUITY
Common stock, $
0.10
 
par value,
2,000,000,000
 
shares authorized;
223,663,116
 
shares issued;
179,788,698
shares outstanding as of March 31, 2023
 
and
182,709,059
 
as of December 31, 2022
22,366
22,366
Additional paid-in capital
959,912
970,722
Retained earnings, includes legal surplus reserve of $
168,484
1,688,176
1,644,209
Treasury stock (at cost) of
43,874,418
 
shares as of March 31, 2023 and
40,954,057
 
shares as of December 31, 2022
(547,311)
(506,979)
Accumulated other comprehensive loss, net of tax of $
8,468
(717,550)
(804,778)
Total stockholders’ equity
1,405,593
1,325,540
Total liabilities and stockholders’ equity
$
18,977,114
$
18,634,484
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
 
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Quarter Ended March 31,
2023
2022
(In thousands, except per share information)
Interest and dividend income:
 
Loans
$
210,636
$
173,787
 
Investment securities
27,110
23,247
 
Money market investments and interest-bearing cash accounts
4,650
820
 
Total interest and dividend income
242,396
197,854
Interest expense:
 
Deposits
29,885
7,652
 
Securities sold under agreements to repurchase:
 
Short-term
1,069
-
 
Long-term
-
2,182
 
Advances from the FHLB:
 
Short-term
4,341
-
 
Long-term
2,835
1,063
 
Other long-term borrowings
3,381
1,333
 
Total interest expense
41,511
12,230
 
Net interest income
200,885
185,624
Provision for credit losses - expense (benefit):
 
Loans and finance leases
16,256
(16,989)
 
Unfunded loan commitments
(105)
(178)
 
Debt securities
(649)
3,365
 
Provision for credit losses - expense (benefit)
15,502
(13,802)
 
Net interest income after provision for credit losses
185,383
199,426
Non-interest income:
 
Service charges and fees on deposit accounts
9,541
9,363
 
Mortgage banking activities
2,812
5,206
 
Insurance commission income
4,847
5,275
 
Card and processing income
10,918
9,681
 
Other non-interest income
4,400
3,333
 
Total non-interest income
 
32,518
32,858
Non-interest expenses:
 
Employees’ compensation and benefits
56,422
49,554
 
Occupancy and equipment
21,186
22,386
 
Business promotion
3,975
3,463
 
Professional service fees
11,973
10,594
 
Taxes, other than
 
income taxes
5,112
5,018
 
FDIC deposit insurance
2,133
1,673
 
Net gain on OREO operations
(1,996)
(720)
 
Credit and debit card processing expenses
5,318
4,121
 
Communications
2,216
2,151
 
Other non-interest expenses
8,929
8,419
 
Total non-interest expenses
115,268
106,659
Income before income taxes
102,633
125,625
Income tax expense
31,935
43,025
Net income
 
$
70,698
$
82,600
Net income attributable to common stockholders
 
$
70,698
$
82,600
Net income per common share:
 
Basic
$
0.39
$
0.42
 
Diluted
$
0.39
$
0.41
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
 
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
(LOSS)
(Unaudited)
Quarter Ended March 31,
2023
2022
(In thousands)
Net income
 
$
70,698
$
82,600
Other comprehensive income (loss), net of tax:
Available-for-sale debt securities:
Net unrealized holding gains (losses) on debt securities
87,228
(331,834)
Other comprehensive income (loss) for the period, net of tax
87,228
(331,834)
 
Total comprehensive income (loss)
$
157,926
$
(249,234)
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
 
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Quarter Ended March 31,
 
2023
2022
(In thousands)
Cash flows from operating activities:
Net income
 
$
70,698
$
82,600
Adjustments to reconcile net income to net cash provided by operating
 
activities:
Depreciation and amortization
5,080
5,872
Amortization of intangible assets
2,045
2,286
Provision for credit losses - expense (benefit)
15,502
(13,802)
Deferred income tax expense
1,564
31,707
Stock-based compensation
2,075
1,182
Unrealized loss (gain) on derivative instruments
3
(618)
Net gain on disposals or sales, and impairments of premises and
 
equipment and other assets
(8)
(26)
Net gain on sales of loans and valuation adjustments
(766)
(2,461)
Net amortization of discounts, premiums, and deferred loan fees
 
and costs
283
(2,933)
Originations and purchases of loans held for sale
(38,500)
(86,802)
Sales and repayments of loans held for sale
34,836
93,739
Amortization of broker placement fees
44
35
Net amortization of premiums and discounts on investment securities
630
1,690
Decrease in accrued interest receivable
8,566
3,919
Increase (decrease) in accrued interest payable
3,752
(906)
(Increase) decrease in other assets
168
352
Increase (decrease) increase in other liabilities
9,443
(1,000)
 
Net cash provided by operating activities
115,415
114,834
Cash flows from investing activities:
Net disbursements on loans held for investment
(71,193)
(48,370)
Proceeds from sales of loans held for investment
2,552
1,306
Proceeds from sales of repossessed assets
12,347
9,361
Purchases of available-for-sale debt securities
-
(497,327)
Proceeds from principal repayments and maturities of available-for-sale
 
debt securities
113,218
208,397
Proceeds from principal repayments and maturities of held-to-maturity
 
debt securities
6,652
400
Additions to premises and equipment
(1,689)
(6,764)
Proceeds from sales of premises and equipment and other assets
8
26
Net purchases of other investments securities
(11,360)
(21)
 
Net cash provided by (used in) investing activities
50,535
(332,992)
Cash flows from financing activities:
Net decrease in deposits
(92,354)
(456,211)
Net proceeds from short-term borrowings
47,849
-
Repayments of long-term borrowings
-
(100,000)
Proceeds from long-term borrowings
300,000
-
Repurchase of outstanding common stock
(53,217)
(52,713)
Dividends paid on common stock
(25,132)
(19,727)
 
Net cash provided by (used in) financing activities
177,146
(628,651)
Net increase (decrease) in cash and cash equivalents
343,096
(846,809)
Cash and cash equivalents at beginning of year
480,505
2,543,058
Cash and cash equivalents at end of period
$
823,601
$
1,696,249
Cash and cash equivalents include:
Cash and due from banks
$
822,542
$
1,694,066
Money market investments
1,059
2,183
$
823,601
$
1,696,249
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9
 
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
 
EQUITY
(Unaudited)
Quarter Ended March 31,
2023
2022
(In thousands, except per share information)
Common Stock
$
22,366
$
22,366
Additional Paid-In Capital:
 
Balance at beginning of period
970,722
972,547
 
Stock-based compensation expense
2,075
1,182
 
Common stock reissued under stock-based compensation plan
(13,139)
(6,980)
 
Restricted stock forfeited
254
22
 
Balance at end of period
959,912
966,771
Retained Earnings:
 
Balance at beginning of period
1,644,209
1,427,295
 
Impact of adoption of Accounting Standards Update (“ASU”)
 
2022-02 (See Note 1)
(1,357)
-
 
Net income
 
70,698
82,600
 
Dividends on common stock (2023 - $
0.14
 
per share; 2022 - $
0.10
 
per share)
(25,374)
(19,900)
 
Balance at end of period
1,688,176
1,489,995
Treasury Stock (at cost)
(See Note 1)
:
 
Balance at beginning of period
(506,979)
(236,442)
 
Common stock repurchases (See Note 14)
(53,217)
(52,713)
 
Common stock reissued under stock-based compensation plan
13,139
6,980
 
Restricted stock forfeited
(254)
(22)
 
Balance at end of period
(547,311)
(282,197)
Accumulated Other Comprehensive Loss, net of tax:
 
Balance at beginning of period
(804,778)
(83,999)
 
Other comprehensive income (loss), net of tax
87,228
(331,834)
 
Balance at end of period
(717,550)
(415,833)
 
Total stockholders’ equity
$
1,405,593
$
1,781,102
The accompanying notes are an integral part of these statements.
10
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 (“VIEs”) and Servicing Assets
Note 8 –
Deposits
Note 9 –
Securities Sold Under Agreements to Repurchase (Repurchase Agreements)
Note 10 –
Advances from the Federal Home Loan Bank (“FHLB”)
Note 11 –
Other Long-Term Borrowings
Note 12 –
Earnings per Common Share
Note 13 –
Stock-Based Compensation
Note 14 –
Stockholders’ Equity
Note 15 –
Accumulated 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 –
Segment Information
Note 21 –
Supplemental Statement of Cash Flows Information
Note 22 –
Regulatory Matters, Commitments, and Contingencies
Note 23 –
First BanCorp. (Holding Company Only) Financial Information
11
NOTE 1 – BASIS
 
OF PRESENTATION AND
 
SIGNIFICANT
 
ACCOUNTING
 
POLICIES
 
The
 
Consolidated Financial
 
Statements (unaudited)
 
for
 
the
 
quarter
 
ended
 
March
 
31,
 
2023
 
(the
 
“unaudited consolidated
 
financial
statements”)
 
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, 2022 (the
 
“audited consolidated
 
financial
statements”)
 
included
 
in the 2022
 
Annual Report
 
on Form
 
10-K, as
 
updated
 
by the information
 
contained
 
in this
 
report.
 
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 2022 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.
The results of operations
 
for the quarter ended
 
March 31, 2023
 
are not necessarily
 
indicative
 
of the results to be expected
 
for the entire
year.
Adoption
 
of New Accounting
 
Requirements
Accounting Standards Update (“ASU”) 2022-02, “Financial Instruments
 
– Credit
 
Losses (Topic 326):
 
Troubled Debt
 
Restructurings
and Vintage Disclosures”
Effective
 
January
 
1,
 
2023,
 
the
 
Corporation
 
adopted
 
ASU
 
2022-02,
 
which
 
removed
 
the
 
existing
 
measurement
 
and
 
disclosure
requirements
 
for Troubled
 
Debt Restructured
 
(“TDR”) loans,
 
added additional
 
disclosure
 
requirements
 
related to
 
modifications
 
provided
 
to
borrowers experiencing
 
financial difficulty
 
regardless of whether
 
the refinancing
 
is accounted for as a new loan,
 
and amends the guidance
on vintage
 
disclosures
 
to require
 
disclosure
 
of gross
 
charge-offs by
 
year of
 
origination.
 
Prior to
 
adoption,
 
a change
 
in contractual
 
terms of
 
a
loan where a borrower
 
was experiencing
 
financial difficulty
 
and received
 
a concession
 
not available
 
through other
 
sources was required
 
to
be disclosed
 
as a TDR, whereas
 
now a borrower
 
that is experiencing
 
financial
 
difficulty
 
and there
 
has been a direct
 
change to the
 
timing or
amount of contractual
 
cash flows in the form of principal
 
forgiveness, interest
 
rate reduction,
 
an other-than-insignificant
 
payment delay, a
term extension,
 
or any combination
 
of these types of loan modifications
 
in the current period
 
needs to be disclosed. ASU
 
2022-02 did not
amend the
 
definition
 
of financial
 
difficulty.
 
Modifications
 
of receivables are within the scope of ASU 2022-02 if they are accounted for in accordance with Accounting
 
Standards
Codification (“ASC”)
 
310-20.
 
As
 
such,
 
finance
 
leases
 
are
 
not
 
within
 
the
 
scope
 
of
 
ASU
 
2022-02.
 
Such
 
modifications are
 
evaluated
following the requirements in
 
ASC 310-20
 
to determine whether
 
they should
 
be accounted
 
for as
 
a
 
new loan
 
or
 
a
 
continuation of the
existing
 
loan.
 
ASU 2022-02 also eliminated
 
the requirement
 
to use a discounted cash flow method
 
for TDRs for the determination
 
of the ACL, and
allows
 
the
 
option
 
of
 
a
 
non-discounted cash
 
flow
 
portfolio-based approach
 
for
 
modified
 
loans
 
to
 
borrowers
 
experiencing
 
financial
difficulties.
The
 
Corporation
 
elected
 
to
 
apply
 
a
 
non-discounted
 
cash
 
flow,
 
portfolio-based ACL
 
approach
 
for
 
modified
 
loans
 
to
 
borrowers
experiencing
 
financial
 
difficulties
 
for all
 
portfolios,
 
using a modified
 
retrospective
 
transition
 
method.
 
The adoption
 
resulted
 
in a net
 
increase
to
 
the ACL
 
of
 
approximately $
2.1
 
million and
 
a
 
decrease to
 
retained earnings of
 
approximately $
1.3
 
million, after tax,
 
predominantly
driven by residential
 
mortgage
 
loans. The
 
amount of
 
defined modifications
 
given to borrowers
 
experiencing
 
financial
 
difficulty
 
is disclosed
in Note
 
3 – Loans
 
Held for
 
Investment,
 
along with
 
the financial
 
impact of
 
those modifications.
The Corporation
 
was not
 
impacted
 
by the adoption
 
of the following
 
ASUs during
 
the first
 
quarter of
 
2023:
ASU 2022-01,
 
“Derivatives
 
and Hedging
 
(Topic 815): Fair
 
Value Hedging – Portfolio
 
Layer Method”
ASU 2021-08, “Business
 
Combinations
 
(Topic 805): Accounting for Contract
 
Assets and Contract Liabilities
 
From Contracts
With Customers”
 
 
12
Recently Issued Accounting Standards Not Yet
 
Effective or Not Yet
 
Adopted
Standard
Description
Effective Date
Effect on the financial statements
ASU 2023-02, "Investments -
Equity Method and Joint Ventures
(Topic 323): Accounting for
Investments in Tax Credit
Structures Using the Proportional
Amortization Method"
In March 2023, the FASB issued
ASU 2023-02 which, among other
things, allows tax equity
investments, regardless of the tax
credit program from which the
income tax credits are received, to
be accounted for using the
proportional amortization method if
certain conditions are met and
requires specific disclosures of
such investments. The election
needs to be made on a tax-credit-
program-by-tax-credit-program
basis.
January 1, 2024. Early adoption is
permitted in any interim period.
The Corporation does not expect to
be impacted by the amendments of
this ASU since it does not hold tax
equity investments.
ASU 2023-01, "Leases (Topic
842): Common Control
Arrangements"
In March 2023, the FASB issued
ASU 2023-01 which, among other
things, generally requires a lessee
in a common-control lease
arrangement to amortize leasehold
improvements over the useful life
regardless of the lease term, subject
to certain exceptions. In addition, a
lessee that no longer controls the
use of the underlying asset will
account for the transfer of the
underlying asset as an adjustment
to equity.
January 1, 2024. Early adoption is
permitted for both interim and
annual financial statements that
have not yet been made available
for issuance.
The Corporation is evaluating the
impact that this ASU will have on its
financial statements. The
Corporation does not expect to be
materially impacted by the adoption
of this ASU during the first quarter
of 2024.
For
 
other
 
issued
 
accounting
 
standards
 
not
 
yet
 
effective
 
or
 
not
 
yet
 
adopted,
 
see
 
Note
 
1
 
 
Nature
 
of
 
Business
 
and
 
Summary
 
of
Significant Accounting Policies, to the audited consolidated financial
 
statements included in the 2022 Annual Report on Form 10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13
NOTE 2 – DEBT SECURITIES
Available-for-Sale
 
Debt Securities
The amortized
 
cost, gross
 
unrealized gains
 
and losses,
 
ACL, estimated
 
fair value,
 
and weighted-average
 
yield of
 
available-for-sale
debt securities by contractual maturities as of March 31, 2023 were as follows:
March 31, 2023
Amortized cost
(1)
Gross
ACL
Fair value
Unrealized
Weighted-
Gains
Losses
average yield%
(Dollars in thousands)
U.S. Treasury securities:
 
Due within one year
$
27,744
$
-
$
890
$
-
$
26,854
0.61
 
After 1 to 5 years
120,916
-
7,348
-
113,568
0.69
U.S. government-sponsored entities (“GSEs”) obligations:
 
Due within one year
189,174
-
5,100
-
184,074
0.42
 
After 1 to 5 years
2,349,522
22
190,986
-
2,158,558
0.84
 
After 5 to 10 years
41,916
8
4,998
-
36,926
1.64
 
After 10 years
11,625
27
-
-
11,652
5.15
Puerto Rico government obligations:
 
After 10 years
(2)
3,302
-
733
366
2,203
-
United States and Puerto Rico government obligations
2,744,199
57
210,055
366
2,533,835
0.83
Mortgage-backed securities (“MBS”):
 
Residential MBS:
 
Freddie Mac (“FHLMC”) certificates:
 
After 1 to 5 years
10,023
-
454
-
9,569
1.98
 
After 5 to 10 years
187,007
-
15,912
-
171,095
1.56
 
After 10 years
1,068,680
-
170,021
-
898,659
1.41
 
1,265,710
-
186,387
-
1,079,323
1.44
 
Ginnie Mae (“GNMA”) certificates:
 
 
Due within one year
3
-
-
-
3
2.42
 
After 1 to 5 years
23,293
-
1,253
-
22,040
1.31
 
After 5 to 10 years
33,939
-
2,720
-
31,219
1.69
 
 
After 10 years
225,680
119
24,080
-
201,719
2.58
282,915
119
28,053
-
254,981
2.37
 
Fannie Mae (“FNMA”) certificates:
 
After 1 to 5 years
24,446
-
1,249
-
23,197
1.72
 
 
After 5 to 10 years
353,397
-
28,963
-
324,434
1.74
 
After 10 years
1,133,757
104
168,025
-
965,836
1.37
 
1,511,600
104
198,237
-
1,313,467
1.47
 
Collateralized mortgage obligations issued or
 
guaranteed by the FHLMC, FNMA and
 
GNMA (“CMOs”):
 
After 10 years
296,022
-
52,540
-
243,482
1.49
 
Private label:
 
After 10 years
7,695
-
2,210
83
5,402
7.25
Total Residential MBS
3,363,942
223
467,427
83
2,896,655
1.55
 
Commercial MBS:
 
After 1 to 5 years
27,584
7
4,551
-
23,040
2.27
 
After 5 to 10 years
44,584
-
4,929
-
39,655
1.90
 
After 10 years
120,387
-
24,316
-
96,071
1.23
Total Commercial MBS
192,555
7
33,796
-
158,766
1.53
Total MBS
3,556,497
230
501,223
83
3,055,421
1.54
Total available-for-sale debt securities
$
6,300,696
$
287
$
711,278
$
449
$
5,589,256
1.23
(1)
Excludes accrued interest receivable on available-for-sale debt securities that totaled $
10.7
 
million as of March 31, 2023 reported as part of accrued interest receivable on loans and investment securities in the
consolidated statements of financial condition, and excluded from the estimate of credit losses.
(2)
Consists of a residential pass-through MBS issued by the 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 and is in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14
The amortized
 
cost, gross
 
unrealized gains
 
and losses,
 
ACL, estimated
 
fair value,
 
and weighted-average
 
yield of
 
available-for-sale
debt securities by contractual maturities as of December 31, 2022
 
were as follows:
December 31, 2022
Amortized cost
 
(1)
Gross
ACL
Fair value
Unrealized
Weighted-
Gains
Losses
average yield%
(Dollars in thousands)
U.S. Treasury securities:
 
Due within one year
$
7,493
$
-
$
309
$
-
$
7,184
0.22
 
After 1 to 5 years
141,366
-
9,675
-
131,691
0.70
U.S. GSEs’ obligations:
 
Due within one year
129,018
-
4,036
-
124,982
0.32
 
After 1 to 5 years
2,395,273
22
227,724
-
2,167,571
0.83
 
After 5 to 10 years
56,251
13
7,670
-
48,594
1.54
 
After 10 years
12,170
36
-
-
12,206
4.62
Puerto Rico government obligations:
 
After 10 years
(2)
3,331
-
755
375
2,201
-
United States and Puerto Rico government obligations
2,744,902
71
250,169
375
2,494,429
0.83
MBS:
 
Residential MBS:
 
FHLMC certificates:
 
After 1 to 5 years
4,235
-
169
-
4,066
2.33
 
After 5 to 10 years
201,072
-
18,709
-
182,363
1.55
 
After 10 years
1,092,289
-
186,558
-
905,731
1.38
1,297,596
-
205,436
-
1,092,160
1.41
 
GNMA certificates:
 
 
Due within one year
5
-
-
-
5
1.73
 
After 1 to 5 years
15,508
-
622
-
14,886
2.00
 
After 5 to 10 years
45,322
1
3,809
-
41,514
1.31
 
 
After 10 years
232,632
51
27,169
-
205,514
2.47
293,467
52
31,600
-
261,919
2.27
 
FNMA certificates:
 
After 1 to 5 years
9,685
-
521
-
9,164
1.76
 
 
After 5 to 10 years
358,346
-
31,620
-
326,726
1.68
 
After 10 years
1,186,635
124
186,757
-
1,000,002
1.38
 
1,554,666
124
218,898
-
1,335,892
1.45
 
CMOs:
 
After 10 years
302,232
-
56,539
-
245,693
1.44
 
Private label:
 
After 10 years
7,903
-
2,026
83
5,794
6.83
Total Residential MBS
3,455,864
176
514,499
83
2,941,458
1.52
 
Commercial MBS:
 
After 1 to 5 years
30,578
-
4,463
-
26,115
2.43
 
 
After 5 to 10 years
44,889
-
5,603
-
39,286
1.89
 
After 10 years
121,464
-
23,732
-
97,732
1.23
Total Commercial MBS
196,931
-
33,798
-
163,133
1.56
Total MBS
3,652,795
176
548,297
83
3,104,591
1.52
Other
Due within one year
500
-
-
-
500
0.84
Total available-for-sale debt securities
$
6,398,197
$
247
$
798,466
458
$
5,599,520
1.22
(1)
Excludes accrued interest receivable on available-for-sale debt securities that totaled $
11.1
 
million as of December 31, 2022 reported as part of accrued interest receivable on loans and investment securities in the
consolidated statements of financial condition, and excluded from the estimate of credit losses.
(2)
Consists of a residential pass-through MBS issued by the PRHFA that is collateralized by certain second mortgages originated under a program launched by the Puerto Rico government in 2010 and is in nonaccrual
status based on the delinquency status of the underlying second mortgage loans collateral.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15
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
 
in
 
the
 
consolidated
statements of financial condition.
The
 
following
 
tables
 
present
 
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 March 31, 2023 and December 31, 2022. The tables also include debt securities for
 
which an ACL was recorded.
As of March 31, 2023
Less than 12 months
12 months or more
Total
Unrealized
Unrealized
Unrealized
Fair Value
 
Losses
Fair Value
 
Losses
Fair Value
 
Losses
(In thousands)
Debt securities:
U.S. Treasury and U.S. GSEs’
 
obligations
$
17,615
$
611
$
2,496,925
$
208,711
$
2,514,540
$
209,322
Puerto Rico government obligations
-
-
2,203
733
(1)
2,203
733
 
MBS:
 
Residential MBS:
 
FHLMC
21,354
710
1,057,950
185,677
1,079,304
186,387
 
GNMA
45,949
868
197,581
27,185
243,530
28,053
 
FNMA
41,186
1,741
1,262,700
196,496
1,303,886
198,237
 
CMOs
10,596
117
232,886
52,423
243,482
52,540
 
Private label
-
-
5,402
2,210
(1)
5,402
2,210
 
Commercial MBS
3,833
220
148,640
33,576
152,473
33,796
$
140,533
$
4,267
$
5,404,287
$
707,011
$
5,544,820
$
711,278
7923
(1)
Unrealized losses do not include the credit loss component recorded
 
as part of the ACL. As of March 31, 2023, the
 
PRHFA bond and private label MBS
 
had an ACL of $
0.4
 
million and
$
0.1
 
million, respectively.
As of December 31, 2022
Less than 12 months
12 months or more
Total
Unrealized
Unrealized
Unrealized
Fair Value
 
Losses
Fair Value
 
Losses
Fair Value
 
Losses
(In thousands)
Debt securities:
U.S. Treasury and U.S. GSEs’
 
obligations
$
298,313
$
18,057
$
2,174,724
$
231,357
$
2,473,037
$
249,414
Puerto Rico government obligations
-
-
2,201
755
(1)
2,201
755
 
MBS:
 
Residential MBS:
 
FHLMC
260,524
45,424
831,637
160,012
1,092,161
205,436
 
GNMA
74,829
3,433
179,854
28,167
254,683
31,600
 
FNMA
405,977
49,479
920,200
169,419
1,326,177
218,898
 
CMOs
45,370
6,735
200,323
49,804
245,693
56,539
 
Private label
-
-
5,794
2,026
(1)
5,794
2,026
 
Commercial MBS
30,179
2,215
132,953
31,583
163,132
33,798
$
1,115,192
$
125,343
$
4,447,686
$
673,123
$
5,562,878
$
798,466
(1)
Unrealized losses do not include the credit loss component recorded
 
as part of the ACL. As of December 31, 2022, the
 
PRHFA bond and private label MBS
 
had an ACL of $
0.4
 
million
and $
0.1
 
million, respectively.
 
 
 
 
 
 
 
 
 
 
16
Assessment for Credit Losses
Debt securities
 
issued by
 
U.S. government
 
agencies,
 
U.S. GSEs,
 
and
 
the U.S.
 
Treasury,
 
including
 
notes and
 
MBS, accounted
 
for
substantially
 
all of
 
the total
 
available-for-sale
 
portfolio
 
as of
 
March 31,
 
2023, 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
 
March
 
31,
 
2023.
 
The
Corporation’s
 
credit loss
 
assessment was
 
concentrated mainly
 
on private
 
label MBS
 
and on
 
Puerto Rico
 
government debt
 
securities,
for which credit losses are evaluated on a quarterly basis.
The
 
Corporation’s
 
available-for-sale
 
MBS
 
portfolio
 
included
 
private
 
label
 
MBS
 
with
 
a
 
fair
 
value
 
of
 
$
5.4
 
million,
 
which
 
had
unrealized losses
 
of approximately
 
$
2.3
 
million as
 
of March
 
31, 2023,
 
of which
 
$
0.1
 
million is
 
due to
 
credit deterioration
 
and is
 
part
of
 
the
 
ACL.
The interest rate on these private-label MBS is variable, tied to 3-month LIBOR, and limited to the weighted-average
coupon on the underlying collateral.
 
Following the
 
provisions of
 
the Adjustable
 
Interest Rate Act
 
(the “LIBOR
 
Act”) and
 
Regulation
ZZ,
 
the
 
LIBOR
 
reference
 
on
 
these
 
contracts
 
will
 
automatically
 
transition
 
by
 
operation
 
of
 
law
 
to
 
3-month
 
CME
 
Term
 
Secured
Overnight Financing
 
Rate (“SOFR”),
 
plus a
 
spread adjustment
 
of 0.26161%
 
on the
 
first reset
 
date after
 
U.S. dollar
 
(“USD”) LIBOR
ceases publication
 
in June
 
2023.
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
March
 
31,
 
2023,
 
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 approach,
 
expected cash flows (interest
 
and principal) were discounted
 
at the Treasury
 
yield curve
as of the reporting date. Significant assumptions in the valuation of
 
the private label MBS were as follows:
As of
As of
March 31, 2023
December 31, 2022
Weighted
 
Range
Weighted
 
Range
Average
Minimum
Maximum
Average
Minimum
Maximum
Discount rate
16.0%
16.0%
16.0%
16.2%
16.2%
16.2%
Prepayment rate
9.2%
1.6%
12.6%
11.8%
1.5%
15.2%
Projected cumulative loss rate
5.2%
0.2%
14.9%
5.6%
0.3%
15.6%
The Corporation
 
evaluates if
 
a credit
 
loss exists,
 
primarily
 
by monitoring
 
adverse variances
 
in the
 
present value
 
of expected
 
cash
flows. As of each of March 31, 2023 and December 31, 2022, the
 
ACL for these private label MBS was $
0.1
 
million.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
17
As of
 
March 31,
 
2023, the
 
Corporation’s
 
available-for-sale debt
 
securities portfolio
 
also included
 
a residential
 
pass-through
 
MBS
issued by
 
the PRHFA,
 
collateralized by
 
certain second
 
mortgages, with
 
a fair
 
value of
 
$
2.2
 
million, which
 
had an
 
unrealized loss
 
of
approximately
 
$
1.1
 
million.
 
Approximately
 
$
0.4
 
million
 
of
 
the
 
unrealized
 
losses
 
was
 
due
 
to
 
credit
 
deterioration
 
and
 
is
 
part
 
of
 
the
ACL. The underlying
 
second mortgage loans
 
were originated under
 
a program launched by
 
the Puerto Rico government
 
in 2010. This
residential pass-through
 
MBS was structured
 
as a zero-coupon
 
bond for the
 
first ten years
 
(until 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.
 
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
 
March
 
31,
 
2023,
 
the Corporation
 
did
 
not have
 
the
 
intent to
 
sell this
 
security
 
and
 
determined
 
that
 
it was
 
likely that
 
it will
 
not
 
be
required to sell the security before its anticipated recovery.
 
The following tables
 
present a roll-forward
 
by major security
 
type for the
 
quarters ended March
 
31, 2023 and
 
2022 of the
 
ACL on
available-for-sale debt securities:
Quarter Ended March 31, 2023
Private label MBS
Puerto Rico
 
Government
Obligations
Total
(In thousands)
Beginning balance
$
83
$
375
$
458
Provision for credit losses - benefit
-
(9)
(9)
 
ACL on available-for-sale debt securities
$
83
$
366
$
449
Quarter Ended March 31, 2022
Private label MBS
Puerto Rico
 
Government
Obligations
Total
(In thousands)
Beginning balance
$
797
$
308
$
1,105
Provision for credit losses - benefit
(388)
-
(388)
Net charge-offs
(6)
-
(6)
 
ACL on available-for-sale debt securities
$
403
$
308
$
711
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
18
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 March 31, 2023 and
 
December 31, 2022 were as follows
:
March 31, 2023
Amortized cost
(1)
Gross Unrecognized
Fair value
Weighted-
Gains
Losses
ACL
average yield%
(Dollars in thousands)
Puerto Rico municipal bonds:
 
Due within one year
$
1,204
$
-
$
10
$
1,194
$
24
5.70
 
After 1 to 5 years
42,633
679
1,001
42,311
659
6.74
 
After 5 to 10 years
55,940
1,482
603
56,819
2,918
7.10
 
After 10 years
66,023
-
1,804
64,219
4,045
8.12
Total Puerto Rico municipal bonds
165,800
2,161
3,418
164,543
7,646
7.40
MBS:
 
Residential MBS:
FHLMC certificates:
After 5 to 10 years
$
20,129
$
-
$
762
$
19,367
$
-
3.03
After 10 years
19,176
-
596
18,580
-
4.30
39,305
-
1,358
37,947
-
3.65
GNMA certificates:
`
After 10 years
18,502
-
795
17,707
-
3.31
FNMA certificates:
After 10 years
71,258
-
2,190
69,068
-
4.16
CMOs:
After 10 years
32,522
-
1,154
31,368
-
3.49
Total Residential MBS
161,587
-
5,497
156,090
-
3.81
 
Commercial MBS:
After 1 to 5 years
9,576
-
348
9,228
-
3.48
After 10 years
94,432
-
4,541
89,891
-
3.15
Total Commercial MBS
104,008
-
4,889
99,119
-
3.18
Total MBS
265,595
-
10,386
255,209
-
3.56
Total held-to-maturity debt securities
$
431,395
$
2,161
$
13,804
$
419,752
$
7,646
5.04
(1)
Excludes accrued interest receivable on held-to-maturity debt securities that totaled $
3.7
 
million as of March 31, 2023, 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19
December 31, 2022
Amortized cost
(1)
Gross Unrecognized
Fair value
Weighted-
Gains
Losses
ACL
average yield%
(Dollars in thousands)
Puerto Rico municipal bonds:
 
Due within one year
$
1,202
$
-
$
15
$
1,187
$
2
5.20
 
After 1 to 5 years
42,530
886
1,076
42,340
656
6.34
 
After 5 to 10 years
55,956
3,182
360
58,778
3,243
6.29
 
After 10 years
66,022
-
1,318
64,704
4,385
7.10
Total held-to-maturity debt securities
$
165,710
$
4,068
$
2,769
$
167,009
$
8,286
6.62
MBS:
 
Residential MBS:
FHLMC certificates:
After 5 to 10 years
$
21,443
$
-
$
746
$
20,697
$
-
3.03
After 10 years
19,362
-
888
18,474
-
4.21
40,805
-
1,634
39,171
-
3.59
GNMA certificates:
`
After 10 years
19,131
-
943
18,188
-
3.35
FNMA certificates:
After 10 years
72,347
-
3,155
69,192
-
4.14
CMOs:
After 10 years
34,456
-
1,424
33,032
-
3.49
Total Residential MBS
166,739
-
7,156
159,583
-
3.78
 
Commercial MBS:
After 1 to 5 years
9,621
-
396
9,225
-
3.48
After 10 years
95,467
-
4,169
91,298
-
3.15
Total Commercial MBS
105,088
-
4,565
100,523
-
3.18
Total MBS
271,827
-
11,721
260,106
-
3.55
Total held-to-maturity debt securities
$
437,537
$
4,068
$
14,490
$
427,115
$
8,286
4.71
(1)
Excludes accrued interest receivable on held-to-maturity debt securities that totaled $
5.5
 
million as of December 31, 2022, was reported as part of accrued interest receivable on loans and investment securities in the
consolidated statements of financial condition, and is excluded from the estimate of credit losses.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
20
The
 
following
 
tables
 
present
 
the
 
Corporation’s
 
held-to-maturity
 
debt
 
securities’
 
fair
 
value
 
and
 
gross
 
unrecognized
 
losses,
aggregated by
 
category and length
 
of time that
 
individual securities had
 
been in a
 
continuous unrecognized
 
loss position, as
 
of March
31, 2023 and December 31, 2022, including debt securities for which
 
an ACL was recorded:
As of March 31, 2023
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
$
-
$
-
$
108,266
$
3,418
$
108,266
$
3,418
 
MBS:
 
Residential MBS:
 
FHLMC certificates
37,947
1,358
-
-
37,947
1,358
 
GNMA certificates
17,707
795
-
-
17,707
795
 
FNMA certificates
69,068
2,190
-
-
69,068
2,190
 
CMOs
31,368
1,154
-
-
31,368
1,154
 
Commercial MBS
99,119
4,889
-
-
99,119
4,889
Total held-to-maturity debt securities
$
255,209
$
10,386
$
108,266
$
3,418
$
363,475
$
13,804
As of December 31, 2022
Less than 12 months
12 months or more
Total
Unrecognized
Unrecognized
Unrecognized
Fair Value
 
Losses
Fair Value
 
Losses
Fair Value
 
Losses
(In thousands)
Debt securities:
 
Puerto Rico municipal bonds
$
-
$
-
$
98,797
$
2,769
$
98,797
$
2,769
 
MBS:
 
Residential MBS:
 
FHLMC certificates
39,171
1,634
-
-
39,171
1,634
 
GNMA certificates
18,188
943
-
-
18,188
943
 
FNMA certificates
69,192
3,155
-
-
69,192
3,155
 
CMOs
33,032
1,424
-
-
33,032
1,424
 
Commercial MBS
100,523
4,565
-
-
100,523
4,565
Total held-to-maturity debt securities
$
260,106
$
11,721
$
98,797
$
2,769
$
358,903
$
14,490
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
21
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
 
March
 
31,
 
2023,
 
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,
 
to the
 
audited
 
consolidated
 
financial
statements included in the 2022 Annual Report on Form 10-K.
 
The Corporation
 
performs periodic
 
credit quality
 
reviews on
 
these issuers.
 
All of
 
the Puerto
 
Rico municipal
 
bonds were
 
current as
to scheduled
 
contractual payments
 
as of
 
March 31, 2023.
 
A security
 
is considered
 
to be past
 
due once
 
it is 30
 
days contractually
 
past
due under the
 
terms of the agreement.
 
The Puerto Rico
 
municipal bonds had
 
an ACL of $
7.6
 
million as of
 
March 31, 2023,
 
compared
to $
8.3
 
million as of
 
December 31, 2022,
 
mostly related to
 
a reduction in
 
qualitative reserves driven
 
by updated financial
 
information
of certain bond issuers received during the first quarter of 2023.
 
The
 
following
 
table
 
presents
 
the
 
activity
 
in
 
the
 
ACL
 
for
 
held-to-maturity
 
debt
 
securities
 
by
 
major
 
security
 
type
 
for
 
the
 
quarters
ended March 31, 2023 and 2022:
 
Puerto Rico Municipal Bonds
Quarter Ended
March 31, 2023
March 31, 2022
(In thousands)
Beginning Balance
$
8,286
$
8,571
Provision for credit losses - (benefit) expense
(640)
3,753
ACL on held-to-maturity debt securities
$
7,646
$
12,324
 
During the
 
second quarter
 
of 2019,
 
the oversight
 
board established
 
by PROMESA
 
announced
 
the designation
 
of Puerto
 
Rico’s
 
78
municipalities
 
as
 
covered
 
instrumentalities
 
under
 
PROMESA.
 
Municipalities
 
may
 
be
 
affected
 
by
 
the
 
negative
 
economic
 
and
 
other
effects
 
resulting
 
from
 
expense,
 
revenue,
 
or
 
cash
 
management
 
measures
 
taken
 
by
 
the
 
Puerto
 
Rico
 
government
 
to
 
address
 
its
 
fiscal
situation, or measures included
 
in its fiscal plan or
 
fiscal plans of other
 
government entities. Given the inherent
 
uncertainties about the
fiscal
 
situation
 
of
 
the
 
Puerto
 
Rico
 
central
 
government,
 
the
 
COVID-19
 
pandemic,
 
and
 
the
 
measures
 
taken,
 
or
 
to
 
be
 
taken,
 
by
 
other
government entities in
 
response to economic
 
and fiscal challenges on
 
municipalities, the Corporation
 
cannot be certain whether
 
future
charges to the ACL on these securities will be required.
 
From
 
time
 
to
 
time,
 
the
 
Corporation
 
has
 
securities
 
held
 
to
 
maturity
 
with
 
an
 
original
 
maturity
 
of
 
three
 
months
 
or
 
less
 
that
 
are
considered
 
cash
 
and
 
cash
 
equivalents
 
and
 
are
 
classified
 
as
 
money
 
market
 
investments
 
in
 
the
 
consolidated
 
statements
 
of
 
financial
condition. As
 
of
 
March
 
31,
 
2023
 
and
 
December
 
31,
 
2022,
 
the
 
Corporation
 
had
 
no
 
outstanding
 
securities
 
held
 
to maturity
 
that
 
were
classified as cash and cash equivalents.
22
Credit Quality Indicators:
The held-to-maturity debt securities
 
portfolio consisted of GSEs
MBS and financing arrangements
 
with Puerto Rico municipalities
issued in
 
bond form.
 
As previously
 
mentioned,
 
the Corporation
 
expects
 
no credit
 
losses on
 
GSEs MBS.
 
The Puerto
 
Rico municipal
bonds
 
are
 
accounted
 
for
 
as
 
securities
 
but
 
are
 
underwritten
 
as
 
loans
 
with
 
features
 
that
 
are
 
typically
 
found
 
in
 
commercial
 
loans.
Accordingly, the
 
Corporation monitors the credit quality of these municipal bonds through the
 
use of internal credit-risk ratings, which
are generally updated
 
on a quarterly basis.
 
The Corporation considers
 
a municipal bond
 
as a criticized asset
 
if its risk rating
 
is Special
Mention,
 
Substandard,
 
Doubtful,
 
or
 
Loss.
 
Puerto
 
Rico
 
municipal
 
bonds
 
that
 
do
 
not
 
meet
 
the
 
criteria
 
for
 
classification
 
as
 
criticized
assets are considered
 
to be Pass-rated
 
securities. For the
 
definitions of
 
the internal
 
credit-risk ratings, see
 
Note 3 –
 
Debt Securities, to
the audited consolidated financial statements included in the 2022 Annual
 
Report on Form 10-K.
 
The
 
Corporation
 
periodically
 
reviews
 
its Puerto
 
Rico
 
municipal
 
bonds
 
to
 
evaluate
 
if
 
they are
 
properly
 
classified,
 
and to
 
measure
credit losses on
 
these securities. The
 
frequency of these
 
reviews will depend
 
on the amount
 
of the aggregate
 
outstanding debt, and
 
the
risk rating classification of the obligor.
The
 
Corporation
 
has
 
a
 
Loan
 
Review
 
Group
 
that
 
reports
 
directly
 
to
 
the
 
Corporation’s
 
Risk
 
Management
 
Committee
 
and
administratively
 
to
 
the
 
Chief
 
Risk
 
Officer.
 
The
 
Loan
 
Review
 
Group
 
performs
 
annual
 
comprehensive
 
credit
 
process
 
reviews
 
of
 
the
Bank’s
 
commercial
 
loan
 
portfolios,
 
including
 
the
 
above-mentioned
 
Puerto
 
Rico
 
municipal
 
bonds
 
accounted
 
for
 
as
 
held-to-maturity
debt
 
securities.
 
The objective
 
of
 
these
 
loan
 
reviews is
 
to
 
assess accuracy
 
of the
 
Bank’s
 
determination
 
and
 
maintenance
 
of
 
loan
 
risk
rating
 
and
 
its
 
adherence
 
to
 
lending
 
policies,
 
practices
 
and
 
procedures.
 
The
 
monitoring
 
performed
 
by
 
this
 
group
 
contributes
 
to
 
the
assessment
 
of
 
compliance
 
with
 
credit
 
policies
 
and
 
underwriting
 
standards,
 
the
 
determination
 
of
 
the
 
current
 
level
 
of
 
credit
 
risk,
 
the
evaluation of
 
the effectiveness
 
of the credit
 
management process,
 
and the identification
 
of any deficiency
 
that may arise
 
in the credit-
granting process. Based
 
on its findings, the
 
Loan Review Group recommends
 
corrective actions, if
 
necessary,
 
that help in maintaining
a sound credit process. The Loan Review Group reports the results of the credit
 
process reviews to the Risk Management Committee.
As of
 
March 31,
 
2023 and
 
December 31,
 
2022,
 
all Puerto
 
Rico
 
municipal
 
bonds
 
classified
 
as held-to-maturity
 
were
 
classified as
Pass.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23
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 locations
 
as of the indicated
 
dates:
 
As of March 31,
 
As of December 31,
2023
2022
(In thousands)
Puerto Rico and Virgin Islands region:
Residential mortgage loans, mainly secured by first mortgages
$
2,381,782
$
2,417,900
Construction loans
48,195
34,772
Commercial mortgage loans
 
1,829,173
1,834,204
Commercial and Industrial ("C&I") loans
1,941,228
1,860,109
Consumer loans
3,398,245
3,317,489
Loans held for investment
$
9,598,623
$
9,464,474
Florida region:
Residential mortgage loans, mainly secured by first mortgages
$
429,746
$
429,390
Construction loans
95,469
98,181
Commercial mortgage loans
 
524,486
524,647
C&I loans
920,961
1,026,154
Consumer loans
8,700
9,979
Loans held for investment
$
1,979,362
$
2,088,351
Total:
Residential mortgage loans, mainly secured by first mortgages
$
2,811,528
$
2,847,290
Construction loans
143,664
132,953
Commercial mortgage loans
 
2,353,659
2,358,851
C&I loans
(1)
2,862,189
2,886,263
Consumer loans
3,406,945
3,327,468
Loans held for investment
(2)
11,577,985
11,552,825
ACL on loans and finance leases
(265,567)
(260,464)
Loans held for investment, net
$
11,312,418
$
11,292,361
(1)
As of March 31, 2023 and December 31, 2022, includes $
837.8
 
million and $
838.5
 
million, respectively, of commercial loans that were secured by real estate and
the primary source of repayment at origination was not dependent
 
upon the real estate.
(2)
Includes accretable fair value net purchase discounts of $
28.3
 
million and $
29.3
 
million as of March 31, 2023 and December 31, 2022, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24
The Corporation’s
 
aging of
 
the loan
 
portfolio held
 
for investment,
 
as well
 
as information
 
about nonaccrual
 
loans with
 
no ACL,
 
by
portfolio classes as of March 31, 2023 and December 31, 2022 are as follows:
As of March 31, 2023
Days Past Due and Accruing
Current
30-59
60-89
90+
(1) (2) (3)
Nonaccrual
(4)
Total loans held
for investment
Nonaccrual
Loans with no
ACL
(5)
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
 
FHA/VA government-guaranteed
 
loans
(1) (3) (6)
$
67,977
$
-
$
1,869
$
41,723
$
-
$
111,569
$
-
 
Conventional residential mortgage loans
(2) (6)
2,626,542
-
23,367
13,640
36,410
2,699,959
2,250
Commercial loans:
 
Construction loans
 
141,870
-
-
-
1,794
143,664
972
 
Commercial mortgage loans
(2) (6)
2,323,116
509
507
7,929
21,598
2,353,659
15,787
 
C&I loans
 
2,840,568
1,438
424
6,355
13,404
2,862,189
1,858
Consumer loans:
 
Auto loans
1,780,593
34,754
6,380
-
11,138
1,832,865
3,342
 
Finance leases
743,656
8,056
1,562
-
2,208
755,482
344
 
Personal loans
353,214
4,160
2,098
-
1,263
360,735
-
 
Credit cards
299,387
3,989
2,518
4,733
-
310,627
-
 
Other consumer loans
143,035
1,916
958
-
1,327
147,236
21
 
Total loans held for investment
$
11,319,958
$
54,822
$
39,683
$
74,380
$
89,142
$
11,577,985
$
24,574
 
(1)
It is the Corporation's policy to report delinquent Federal Housing Authority (“FHA”)/Veterans Affairs (“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 $
25.9
 
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 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 $
10.4
 
million as of March 31, 2023 ($
9.4
 
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 $
7.1
 
million as of March 31, 2023. 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 $
15.2
 
million as of March 31, 2023, primarily nonaccrual residential mortgage loans and C&I loans.
(5)
Includes $
0.3
 
million of nonaccrual C&I loans with no ACL in the Florida region as of March 31, 2023.
(6)
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 March 31, 2023 amounted to $
5.3
 
million, $
60.7
 
million, and $
1.1
 
million,
respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
25
As of December 31, 2022
Days Past Due and Accruing
Current
30-59
60-89
90+
(1)(2)(3)
Nonaccrual
(4)
Total loans held
for investment
Nonaccrual
Loans with no
ACL
(5)
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
 
FHA/VA government-guaranteed
 
loans
(1) (3) (6)
$
67,116
$
-
$
2,586
$
48,456
$
-
$
118,158
$
-
 
Conventional residential mortgage loans
(2) (6)
2,643,909
-
25,630
16,821
42,772
2,729,132
2,292
Commercial loans:
 
Construction loans
130,617
-
-
128
2,208
132,953
977
 
Commercial mortgage loans
(2) (6)
2,330,094
300
2,367
3,771
22,319
2,358,851
15,991
 
C&I loans
 
2,868,989
1,984
1,128
6,332
7,830
2,886,263
3,300
Consumer loans:
 
Auto loans
1,740,271
40,039
7,089
-
10,672
1,798,071
2,136
 
Finance leases
707,646
7,148
1,791
-
1,645
718,230
330
 
Personal loans
346,366
3,738
1,894
-
1,248
353,246
-
 
Credit cards
301,013
3,705
2,238
4,775
-
311,731
-
 
Other consumer loans
141,687
1,804
1,458
-
1,241
146,190
-
 
Total loans held for investment
$
11,277,708
$
58,718
$
46,181
$
80,283
$
89,935
$
11,552,825
$
25,026
 
(1)
It is the Corporation's policy to report delinquent FHA/VA government-guaranteed residential mortgage loans as past-due loans 90 days and still accruing as opposed to
 
nonaccrual loans. The Corporation continues
accruing interest on these loans until they have passed the 15 months delinquency mark, taking into consideration the FHA interest curtailment process. These balances include $
28.2
 
million of residential mortgage loans
guaranteed by the FHA that were over 15 months delinquent.
(2)
Includes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans as “units of account” both at the time of adoption
of CECL on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing
and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due 90 days or more, amounting to $
12.0
 
million as of December 31, 2022 ($
11.0
 
million conventional
residential mortgage loans and $
1.0
 
million commercial mortgage loans), is presented in the loans past due 90 days or more and still accruing category in the table above.
(3)
Include rebooked loans, which were previously pooled into GNMA securities, amounting to $
10.3
 
million as of December 31, 2022. Under the GNMA program, the Corporation has the option but not the obligation to
repurchase loans that meet GNMA’s
 
specified delinquency criteria. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting
liability.
(4)
Nonaccrual loans in the Florida region amounted to $
8.3
 
million as of December 31, 2022, primarily nonaccrual residential mortgage loans.
(5)
Includes $
0.3
 
million of nonaccrual C&I loans with no ACL in the Florida region as of December 31, 2022.
(6)
According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required
 
by the Federal
Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA
 
government-guaranteed loans,
conventional residential mortgage loans, and commercial mortgage loans past due 30-59 days, but less than two payments in arrears, as of December 31, 2022 amounted to $
6.1
 
million, $
65.2
 
million, and $
1.6
 
million,
respectively.
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 $
0.6
 
million and $
0.4
 
million for the
 
quarters ended March
 
31, 2023 and
 
2022, respectively.
 
For the quarters
 
ended March 31,
2023 and 2022, the cash interest income recognized on nonaccrual loans
 
amounted to $
0.5
 
million and $
0.4
 
million, respectively.
As of
 
March 31,
 
2023, the
 
recorded investment
 
on residential
 
mortgage loans
 
collateralized by
 
residential real
 
estate property
 
that
were in
 
the process
 
of foreclosure
 
amounted to
 
$
62.6
 
million, including
 
$
27.2
 
million of
 
FHA/VA
 
government-guaranteed
 
mortgage
loans, and
 
$
8.8
 
million of
 
PCD loans
 
acquired prior
 
to the
 
adoption, on
 
January 1,
 
2020, of
 
CECL.
The Corporation
 
commences the
foreclosure
 
process
 
on
 
residential
 
real
 
estate
 
loans
 
when
 
a
 
borrower
 
becomes
120
 
days
 
delinquent.
 
Foreclosure
 
procedures
 
and
timelines
 
vary
 
depending
 
on
 
whether
 
the
 
property
 
is
 
located
 
in
 
a
 
judicial
 
or
 
non-judicial
 
state.
 
Occasionally,
 
foreclosures
 
may
 
be
delayed due to, among other reasons, mandatory mediations, bankruptcy,
 
court delays, and title issues.
Credit Quality Indicators:
The Corporation
 
categorizes loans
 
into risk
 
categories based
 
on relevant
 
information
 
about the
 
ability of
 
the borrowers
 
to service
their debt
 
such as
 
current financial
 
information, historical
 
payment experience,
 
credit documentation,
 
public information,
 
and current
economic
 
trends,
 
among
 
other
 
factors.
 
The
 
Corporation
 
analyzes
 
non-homogeneous
 
loans,
 
such
 
as commercial
 
mortgage,
 
C&I,
 
and
construction
 
loans
 
individually
 
to
 
classify
 
the
 
loans’
 
credit
 
risk.
 
As
 
mentioned
 
above,
 
the
 
Corporation
 
periodically
 
reviews
 
its
commercial
 
and
 
construction
 
loans
 
to
 
evaluate
 
if
 
they
 
are
 
properly
 
classified.
 
The
 
frequency
 
of
 
these
 
reviews
 
will
 
depend
 
on
 
the
amount of
 
the aggregate
 
outstanding debt,
 
and the
 
risk rating
 
classification of
 
the obligor.
 
In addition,
 
during the
 
renewal and
 
annual
review process of
 
applicable credit facilities, the
 
Corporation evaluates the
 
corresponding loan grades.
 
The Corporation uses the
 
same
definition
 
for
 
risk
 
ratings
 
as
 
those
 
described
 
for
 
Puerto
 
Rico
 
municipal
 
bonds
 
accounted
 
for
 
as
 
held-to-maturity
 
debt
 
securities,
 
as
discussed in
 
Note 3
 
– Debt
 
Securities, to
 
the audited
 
consolidated financial
 
statements included
 
in the
 
2022 Annual
 
Report on
 
Form
10-K.
For residential mortgage and consumer loans, the Corporation also evaluates credit
 
quality based on its interest accrual status.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26
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 March
 
31, 2023, the gross charge
 
-offs for the quarter
 
ended March 31,
2023 by
 
portfolio
 
classes and
 
by origination
 
year,
 
and the
 
amortized
 
cost of
 
commercial and
 
construction loans
 
by portfolio
 
classes
based on the internal credit-risk category as of December 31, 2022, was as follows:
As of March 31,
 
2023
Puerto Rico and Virgin Islands region
Term Loans
As of December 31, 2022
Amortized Cost Basis by Origination Year
(1)
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
 
Risk Ratings:
 
Pass
$
6,479
$
16,509
$
18,842
$
-
$
-
$
3,885
$
-
$
45,715
$
31,879
 
Criticized:
 
Special Mention
-
-
-
-
-
-
-
-
-
 
Substandard
-
-
-
-
-
2,480
-
2,480
2,893
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total construction loans
$
6,479
$
16,509
$
18,842
$
-
$
-
$
6,365
$
-
$
48,195
$
34,772
 
Charge-offs on construction loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
COMMERCIAL MORTGAGE
 
Risk Ratings:
 
Pass
$
67,469
$
391,295
$
139,536
$
325,141
$
301,638
$
400,794
$
478
$
1,626,351
$
1,655,728
 
Criticized:
 
Special Mention
-
1,177
-
36,546
75
131,350
-
169,148
145,415
 
Substandard
-
132
-
-
2,797
30,745
-
33,674
33,061
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total commercial mortgage loans
$
67,469
$
392,604
$
139,536
$
361,687
$
304,510
$
562,889
$
478
$
1,829,173
$
1,834,204
 
Charge-offs on commercial mortgage loans
$
-
$
-
$
-
$
-
$
-
$
18
$
-
$
18
C&I
 
Risk Ratings:
 
Pass
$
70,739
$
303,603
$
188,155
$
181,284
$
308,225
$
254,283
$
565,758
$
1,872,047
$
1,789,572
 
Criticized:
 
Special Mention
-
132
839
-
1,029
12,885
32,322
47,207
43,224
 
Substandard
-
-
396
652
13,430
7,117
379
21,974
27,313
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total C&I loans
$
70,739
$
303,735
$
189,390
$
181,936
$
322,684
$
274,285
$
598,459
$
1,941,228
$
1,860,109
 
Charge-offs on C&I loans
$
-
$
-
$
-
$
-
$
-
$
63
$
55
$
118
(1) Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
27
As of March 31,
 
2023
Term Loans
As of December 31, 2022
Florida region
Amortized Cost Basis by Origination Year
(1)
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
 
Risk Ratings:
 
Pass
$
107
$
50,019
$
42,867
$
-
$
-
$
-
$
2,476
$
95,469
$
98,181
 
Criticized:
 
Special Mention
-
-
-
-
-
-
-
-
-
 
Substandard
-
-
-
-
-
-
-
-
-
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total construction loans
$
107
$
50,019
$
42,867
$
-
$
-
$
-
$
2,476
$
95,469
$
98,181
 
Charge-offs on construction loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
COMMERCIAL MORTGAGE
 
Risk Ratings:
 
Pass
$
3,529
$
177,392
$
70,147
$
41,024
$
51,320
$
140,177
$
19,551
$
503,140
$
503,184
 
Criticized:
 
Special Mention
-
-
-
6,947
13,231
-
-
20,178
20,295
 
Substandard
-
-
-
1,168
-
-
-
1,168
1,168
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total commercial mortgage loans
$
3,529
$
177,392
$
70,147
$
49,139
$
64,551
$
140,177
$
19,551
$
524,486
$
524,647
 
Charge-offs on commercial mortgage loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
C&I
 
Risk Ratings:
 
Pass
$
36,642
$
276,868
$
134,512
$
75,953
$
183,443
$
72,650
$
92,816
$
872,884
$
979,151
 
Criticized:
 
Special Mention
-
-
19,677
-
5,974
11,725
-
37,376
17,905
 
Substandard
-
-
-
264
195
2,854
300
3,613
29,098
 
Doubtful
-
-
-
-
-
7,088
-
7,088
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total C&I loans
$
36,642
$
276,868
$
154,189
$
76,217
$
189,612
$
94,317
$
93,116
$
920,961
$
1,026,154
 
Charge-offs on C&I loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
(1) Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
28
As of March 31,
 
2023
Total
Term Loans
As of December 31, 2022
Amortized Cost Basis by Origination Year (1)
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
 
Risk Ratings:
 
Pass
$
6,586
$
66,528
$
61,709
$
-
$
-
$
3,885
$
2,476
$
141,184
$
130,060
 
Criticized:
 
Special Mention
-
-
-
-
-
-
-
-
-
 
Substandard
-
-
-
-
-
2,480
-
2,480
2,893
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total construction loans
$
6,586
$
66,528
$
61,709
$
-
$
-
$
6,365
$
2,476
$
143,664
$
132,953
 
Charge-offs on construction loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
COMMERCIAL MORTGAGE
 
Risk Ratings:
 
Pass
$
70,998
$
568,687
$
209,683
$
366,165
$
352,958
$
540,971
$
20,029
$
2,129,491
$
2,158,912
 
Criticized:
 
Special Mention
-
1,177
-
43,493
13,306
131,350
-
189,326
165,710
 
Substandard
-
132
-
1,168
2,797
30,745
-
34,842
34,229
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total commercial mortgage loans
$
70,998
$
569,996
$
209,683
$
410,826
$
369,061
$
703,066
$
20,029
$
2,353,659
$
2,358,851
 
Charge-offs on commercial mortgage loans
$
-
$
-
$
-
$
-
$
-
$
18
$
-
$
18
C&I
 
Risk Ratings:
 
Pass
$
107,381
$
580,471
$
322,667
$
257,237
$
491,668
$
326,933
$
658,574
$
2,744,931
$
2,768,723
 
Criticized:
 
Special Mention
-
132
20,516
-
7,003
24,610
32,322
84,583
61,129
 
Substandard
-
-
396
916
13,625
9,971
679
25,587
56,411
 
Doubtful
-
-
-
-
-
7,088
-
7,088
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total C&I loans
$
107,381
$
580,603
$
343,579
$
258,153
$
512,296
$
368,602
$
691,575
$
2,862,189
$
2,886,263
 
Charge-offs on C&I loans
$
-
$
-
$
-
$
-
$
-
$
63
$
55
$
118
(1) Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
29
The following
 
tables present the
 
amortized cost of
 
residential mortgage
 
loans by portfolio
 
classes and by
 
origination year
 
based on
accrual status as of March 31, 2023,
 
the gross charge-offs for the quarter
 
ended March 31, 2023 by portfolio classes and by origination
year, and the amortized cost of residential mortgage
 
loans by portfolio classes based on accrual status as of December 31, 2022:
As of March 31,
 
2023
As of
December 31,
2022
Term Loans
Amortized Cost Basis by Origination Year
(1)
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Puerto Rico and Virgin Islands Region:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
-
$
696
$
448
$
765
$
1,557
$
107,368
$
-
$
110,834
$
117,416
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
 
government-guaranteed loans
$
-
$
696
$
448
$
765
$
1,557
$
107,368
$
-
$
110,834
$
117,416
Conventional residential mortgage loans:
Accrual Status:
Performing
$
24,859
$
171,599
$
74,692
$
31,497
$
47,705
$
1,891,603
$
-
$
2,241,955
$
2,265,013
Non-Performing
-
-
35
-
-
28,958
-
28,993
35,471
Total conventional residential mortgage loans
$
24,859
$
171,599
$
74,727
$
31,497
$
47,705
$
1,920,561
$
-
$
2,270,948
$
2,300,484
Total:
Accrual Status:
Performing
$
24,859
$
172,295
$
75,140
$
32,262
$
49,262
$
1,998,971
$
-
$
2,352,789
$
2,382,429
Non-Performing
-
-
35
-
-
28,958
-
28,993
35,471
Total residential mortgage loans in Puerto Rico
and Virgin Islands Region
$
24,859
$
172,295
$
75,175
$
32,262
$
49,262
$
2,027,929
$
-
$
2,381,782
$
2,417,900
Charge-offs on residential mortgage loans
$
-
$
-
$
-
$
3
$
-
$
980
$
-
$
983
(1)
Excludes accrued interest receivable.
As of March 31,
 
2023
As of
December 31,
2022
Term Loans
Amortized Cost Basis by Origination Year
(1)
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Florida Region:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
735
$
-
$
735
$
742
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
 
government-guaranteed loans
$
-
$
-
$
-
$
-
$
-
$
735
$
-
$
735
$
742
Conventional residential mortgage loans:
Accrual Status:
Performing
$
13,232
$
81,619
$
48,991
$
31,157
$
29,403
$
217,192
$
-
$
421,594
$
421,347
Non-Performing
-
-
-
-
265
7,152
-
7,417
7,301
Total conventional residential mortgage loans
$
13,232
$
81,619
$
48,991
$
31,157
$
29,668
$
224,344
$
-
$
429,011
$
428,648
Total:
Accrual Status:
Performing
$
13,232
$
81,619
$
48,991
$
31,157
$
29,403
$
217,927
$
-
$
422,329
$
422,089
Non-Performing
-
-
-
-
265
7,152
-
7,417
7,301
Total residential mortgage loans in Florida region
$
13,232
$
81,619
$
48,991
$
31,157
$
29,668
$
225,079
$
-
$
429,746
$
429,390
Charge-offs on residential mortgage loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30
As of March 31,
 
2023
As of
December 31,
2022
Term Loans
Amortized Cost Basis by Origination Year
(1)
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Total:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
-
$
696
$
448
$
765
$
1,557
$
108,103
$
-
$
111,569
$
118,158
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
 
government-guaranteed loans
$
-
$
696
$
448
$
765
$
1,557
$
108,103
$
-
$
111,569
$
118,158
Conventional residential mortgage loans:
Accrual Status:
Performing
$
38,091
$
253,218
$
123,683
$
62,654
$
77,108
$
2,108,795
$
-
$
2,663,549
$
2,686,360
Non-Performing
-
-
35
-
265
36,110
-
36,410
42,772
Total conventional residential mortgage loans
$
38,091
$
253,218
$
123,718
$
62,654
$
77,373
$
2,144,905
$
-
$
2,699,959
$
2,729,132
Total:
Accrual Status:
Performing
$
38,091
$
253,914
$
124,131
$
63,419
$
78,665
$
2,216,898
$
-
$
2,775,118
$
2,804,518
Non-Performing
-
-
35
-
265
36,110
-
36,410
42,772
Total residential mortgage loans
$
38,091
$
253,914
$
124,166
$
63,419
$
78,930
$
2,253,008
$
-
$
2,811,528
$
2,847,290
Charge-offs on residential mortgage loans
$
-
$
-
$
-
$
3
$
-
$
980
$
-
$
983
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31
The
 
following
 
tables present
 
the
 
amortized
 
cost
 
of
 
consumer
 
loans
 
by
 
portfolio
 
classes
 
and
 
by origination
 
year
 
based on
 
accrual
status as
 
of March
 
31, 2023,
 
the gross
 
charge-offs
 
for the
 
quarter ended
 
March 31,
 
2023 by
 
portfolio classes
 
and by
 
origination, and
the amortized cost of consumer loans by portfolio classes based on accrual status as of
 
December 31, 2022:
As of March 31,
 
2023
As of
December 31,
2022
Term Loans
Amortized Cost Basis by Origination Year
(1)
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Puerto Rico and Virgin Islands Regions:
Auto loans:
Accrual Status:
Performing
$
165,925
$
638,402
$
478,373
$
234,358
$
186,331
$
115,561
$
-
$
1,818,950
$
1,783,782
Non-Performing
-
2,419
2,243
1,347
2,708
2,399
-
11,116
10,596
Total auto loans
$
165,925
$
640,821
$
480,616
$
235,705
$
189,039
$
117,960
$
-
$
1,830,066
$
1,794,378
Charge-offs on auto loans
$
19
$
1,827
$
1,210
$
467
$
632
$
365
$
-
$
4,520
Finance leases:
Accrual Status:
Performing
$
78,870
$
282,486
$
183,061
$
82,206
$
74,421
$
52,230
$
-
$
753,274
$
716,585
Non-Performing
-
551
222
433
376
626
-
2,208
1,645
Total finance leases
$
78,870
$
283,037
$
183,283
$
82,639
$
74,797
$
52,856
$
-
$
755,482
$
718,230
Charge-offs on finance leases
$
-
$
227
$
270
$
97
$
185
$
200
$
-
$
979
Personal loans:
Accrual Status:
Performing
$
44,647
$
163,311
$
49,275
$
25,703
$
46,765
$
29,411
$
-
$
359,112
$
351,664
Non-Performing
-
490
188
117
229
239
-
1,263
1,248
Total personal loans
$
44,647
$
163,801
$
49,463
$
25,820
$
46,994
$
29,650
$
-
$
360,375
$
352,912
Charge-offs on personal loans
$
-
$
1,517
$
840
$
279
$
680
$
384
$
-
$
3,700
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
310,627
$
310,627
$
311,731
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
310,627
$
310,627
$
311,731
Charge-offs on credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
4,057
$
4,057
Other consumer loans:
Accrual Status:
Performing
$
23,413
$
66,230
$
17,612
$
8,219
$
9,851
$
6,468
$
8,700
$
140,493
$
139,116
Non-Performing
-
540
171
59
104
230
98
1,202
1,122
Total other consumer loans
$
23,413
$
66,770
$
17,783
$
8,278
$
9,955
$
6,698
$
8,798
$
141,695
$
140,238
Charge-offs on other consumer loans
$
14
$
1,842
$
762
$
174
$
326
$
178
$
91
$
3,387
Total:
Performing
$
312,855
$
1,150,429
$
728,321
$
350,486
$
317,368
$
203,670
$
319,327
$
3,382,456
$
3,302,878
Non-Performing
-
4,000
2,824
1,956
3,417
3,494
98
15,789
14,611
Total consumer loans in Puerto Rico and Virgin
Islands region
$
312,855
$
1,154,429
$
731,145
$
352,442
$
320,785
$
207,164
$
319,425
$
3,398,245
$
3,317,489
Charge-offs on total consumer loans
$
33
$
5,413
$
3,082
$
1,017
$
1,823
$
1,127
$
4,148
$
16,643
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
32
As of March 31,
 
2023
As of
December 31,
2022
Term Loans
Amortized Cost Basis by Origination Year
(1)
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Florida Region:
Auto loans:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
259
$
2,518
$
-
$
2,777
$
3,617
Non-Performing
-
-
-
-
-
22
-
22
76
Total auto loans
$
-
$
-
$
-
$
-
$
259
$
2,540
$
-
$
2,799
$
3,693
Charge-offs on auto loans
$
-
$
-
$
-
$
-
$
8
$
147
$
-
$
155
Finance leases:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total finance leases
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Charge-offs on finance leases
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Personal loans:
Accrual Status:
Performing
$
274
$
8
$
71
$
7
$
-
$
-
$
-
$
360
$
334
Non-Performing
-
-
-
-
-
-
-
-
-
Total personal loans
$
274
$
8
$
71
$
7
$
-
$
-
$
-
$
360
$
334
Charge-offs on personal loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Charge-offs on credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Other consumer loans:
Accrual Status:
Performing
$
-
$
49
$
229
$
460
$
-
$
2,455
$
2,223
$
5,416
$
5,833
Non-Performing
-
-
-
-
-
21
104
125
119
Total other consumer loans
$
-
$
49
$
229
$
460
$
-
$
2,476
$
2,327
$
5,541
$
5,952
Charge-offs on other consumer loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total:
Performing
$
274
$
57
$
300
$
467
$
259
$
4,973
$
2,223
$
8,553
$
9,784
Non-Performing
-
-
-
-
-
43
104
147
195
Total consumer loans in Florida region
$
274
$
57
$
300
$
467
$
259
$
5,016
$
2,327
$
8,700
$
9,979
Charge-offs on total consumer loans
$
-
$
-
$
-
$
-
$
8
$
147
$
-
$
155
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
33
As of March 31,
 
2023
As of
December 31,
2022
Term Loans
Amortized Cost Basis by Origination Year
(1)
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Total:
Auto loans:
Accrual Status:
Performing
$
165,925
$
638,402
$
478,373
$
234,358
$
186,590
$
118,079
$
-
$
1,821,727
$
1,787,399
Non-Performing
-
2,419
2,243
1,347
2,708
2,421
-
11,138
10,672
Total auto loans
$
165,925
$
640,821
$
480,616
$
235,705
$
189,298
$
120,500
$
-
$
1,832,865
$
1,798,071
Charge-offs on auto loans
$
19
$
1,827
$
1,210
$
467
$
640
$
512
$
-
$
4,675
Finance leases:
Accrual Status:
Performing
$
78,870
$
282,486
$
183,061
$
82,206
$
74,421
$
52,230
$
-
$
753,274
$
716,585
Non-Performing
-
551
222
433
376
626
-
2,208
1,645
Total finance leases
$
78,870
$
283,037
$
183,283
$
82,639
$
74,797
$
52,856
$
-
$
755,482
$
718,230
Charge-offs on finance leases
$
-
$
227
$
270
$
97
$
185
$
200
$
-
$
979
Personal loans:
Accrual Status:
Performing
$
44,921
$
163,319
$
49,346
$
25,710
$
46,765
$
29,411
$
-
$
359,472
$
351,998
Non-Performing
-
490
188
117
229
239
-
1,263
1,248
Total personal loans
$
44,921
$
163,809
$
49,534
$
25,827
$
46,994
$
29,650
$
-
$
360,735
$
353,246
Charge-offs on personal loans
$
-
$
1,517
$
840
$
279
$
680
$
384
$
-
$
3,700
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
310,627
$
310,627
$
311,731
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
310,627
$
310,627
$
311,731
Charge-offs on credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
4,057
$
4,057
Other consumer loans:
Accrual Status:
Performing
$
23,413
$
66,279
$
17,841
$
8,679
$
9,851
$
8,923
$
10,923
$
145,909
$
144,949
Non-Performing
-
540
171
59
104
251
202
1,327
1,241
Total other consumer loans
$
23,413
$
66,819
$
18,012
$
8,738
$
9,955
$
9,174
$
11,125
$
147,236
$
146,190
Charge-offs on other consumer loans
$
14
$
1,842
$
762
$
174
$
326
$
178
$
91
$
3,387
Total:
Performing
$
313,129
$
1,150,486
$
728,621
$
350,953
$
317,627
$
208,643
$
321,550
$
3,391,009
$
3,312,662
Non-Performing
-
4,000
2,824
1,956
3,417
3,537
202
15,936
14,806
Total consumer loans
$
313,129
$
1,154,486
$
731,445
$
352,909
$
321,044
$
212,180
$
321,752
$
3,406,945
$
3,327,468
Charge-offs on total consumer loans
$
33
$
5,413
$
3,082
$
1,017
$
1,831
$
1,274
$
4,148
$
16,798
(1)
Excludes accrued interest receivable.
Accrued
 
interest
 
receivable
 
on
 
loans
 
totaled
 
$
49.4
 
million
 
as
 
of
 
March
 
31,
 
2023
 
($
53.1
 
million
 
as
 
of
 
December
 
31,
 
2022),
 
was
reported as
 
part of accrued
 
interest receivable on
 
loans and investment
 
securities in the
 
consolidated statements
 
of financial condition
and is excluded from the estimate of credit losses.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
34
The
 
following
 
tables
 
present
 
information
 
about
 
collateral
 
dependent
 
loans
 
that
 
were
 
individually
 
evaluated
 
for
 
purposes
 
of
determining the ACL as of March 31, 2023 and December 31, 2022
:
As of March 31, 2023
Collateral Dependent Loans -
With Allowance
Collateral Dependent
Loans - With No
Related Allowance
Collateral Dependent Loans - Total
Amortized Cost
 
Related
Allowance
Amortized Cost
Amortized Cost
 
Related
Allowance
(In thousands)
Residential mortgage loans:
Conventional residential mortgage loans
$
34,257
$
2,410
$
152
$
34,409
$
2,410
Commercial loans:
Construction loans
-
-
956
956
-
Commercial mortgage loans
2,449
896
61,851
64,300
896
C&I loans
 
1,789
347
13,331
15,120
347
Consumer loans:
Personal loans
55
1
-
55
1
Other consumer loans
-
-
-
-
-
$
38,550
$
3,654
$
76,290
$
114,840
$
3,654
As of December 31, 2022
Collateral Dependent Loans -
With Allowance
Collateral Dependent
Loans - With No
Related Allowance
Collateral Dependent Loans - Total
Amortized Cost
 
Related
Allowance
Amortized Cost
 
Amortized Cost
 
Related
Allowance
(In thousands)
Residential mortgage loans:
Conventional residential mortgage loans
$
36,206
$
2,571
$
-
$
36,206
$
2,571
Commercial loans:
Construction loans
-
-
956
956
-
Commercial mortgage loans
2,466
897
62,453
64,919
897
C&I loans
 
1,513
322
17,590
19,103
322
Consumer loans:
Personal loans
56
1
64
120
1
Other consumer loans
207
29
-
207
29
$
40,448
$
3,820
$
81,063
$
121,511
$
3,820
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 March
 
31, 2023 was
69
%, compared to
70
% as of December
 
31, 2022, which
 
was
not considered a significant change in the extent to which collateral secured these
 
loans.
35
Purchases and Sales of Loans
In
 
the
 
ordinary
 
course
 
of
 
business,
 
the
 
Corporation
 
enters
 
into
 
securitization
 
transactions
 
and
 
whole
 
loan
 
sales
 
with
 
GNMA
 
and
GSEs, such as FNMA and FHLMC. During the quarters ended March
 
31, 2023 and 2022, loans pooled into GNMA MBS amounted
 
to
approximately $
29.4
 
million and
 
$
41.5
 
million, respectively,
 
for which
 
the Corporation
 
recognized a
 
net gain
 
on sale
 
of $
0.9
 
million
and
 
$
1.3
 
million,
 
respectively.
 
Also,
 
during
 
the
 
quarter
 
ended
 
March
 
31,
 
2023,
 
the
 
Corporation
 
sold
 
approximately
 
$
8.0
 
million
 
of
performing residential
 
mortgage loans
 
to FNMA, of
 
which the
 
Corporation recognized
 
a net gain
 
on sale of
 
$
0.2
 
million. In addition,
during the quarter ended March 31,
 
2022, the Corporation sold approximately
 
$
50.0
 
million and $
2.4
 
million of performing residential
mortgage loans to
 
FNMA and FHLMC,
 
respectively,
 
of which the
 
Corporation recognized
 
a net gain
 
on sale of
 
$
2.1
 
million and $
0.1
million, respectively.
 
The Corporation’s continuing
 
involvement with the loans that it
 
sells consists primarily of servicing
 
the loans. In
addition,
 
the
 
Corporation
 
agrees
 
to
 
repurchase
 
loans
 
if
 
it
 
breaches
 
any
 
of
 
the
 
representations
 
and
 
warranties
 
included
 
in
 
the
 
sale
agreement. These
 
representations and
 
warranties are consistent
 
with the GSEs’
 
selling and servicing
 
guidelines (i.e.,
 
ensuring that the
mortgage was properly underwritten according to established guidelines).
For loans
 
pooled into
 
GNMA MBS,
 
the Corporation,
 
as servicer,
 
holds an
 
option to
 
repurchase individual
 
delinquent loans
 
issued
on or
 
after January 1,
 
2003 when certain
 
delinquency criteria are
 
met. This option
 
gives the Corporation
 
the unilateral ability,
 
but not
the obligation, to
 
repurchase the delinquent
 
loans at par without
 
prior authorization from
 
GNMA. Since the
 
Corporation is considered
to
 
have
 
regained
 
effective
 
control
 
over
 
the
 
loans,
 
it
 
is
 
required
 
to
 
recognize
 
the
 
loans
 
and
 
a
 
corresponding
 
repurchase
 
liability
regardless of its
 
intent to repurchase
 
the loans. As
 
of March 31, 2023
 
and December 31, 2022,
 
rebooked GNMA delinquent
 
loans that
were included in the residential mortgage loan portfolio amounted
 
to $
7.1
 
million and $
10.4
 
million, respectively.
 
During
 
the
 
quarters
 
ended
 
March
 
31,
 
2023
 
and
 
2022,
 
the
 
Corporation
 
repurchased,
 
pursuant
 
to
 
the
 
aforementioned
 
repurchase
option, $
1.5
 
million and $
0.5
 
million, respectively,
 
of loans previously pooled
 
into GNMA MBS. The
 
principal balance of these
 
loans
is fully
 
guaranteed,
 
and the
 
risk of
 
loss related
 
to the
 
repurchased loans
 
is generally
 
limited to
 
the difference
 
between the
 
delinquent
interest payment
 
advanced
 
to GNMA,
 
which
 
is computed
 
at the
 
loan’s
 
interest
 
rate, and
 
the interest
 
payments
 
reimbursed
 
by FHA,
which are
 
computed at
 
a pre-determined
 
debenture
 
rate. Repurchases
 
of GNMA
 
loans allow
 
the Corporation,
 
among other
 
things, to
maintain acceptable delinquency
 
rates on outstanding GNMA
 
pools and remain as
 
a seller and servicer
 
in good standing with
 
GNMA.
Historically, losses
 
on these repurchases of
 
GNMA delinquent loans have
 
been immaterial and no provision has
 
been made at the time
of sale.
Loan sales to FNMA and FHLMC are without recourse in relation
 
to the future performance of the loans.
 
The Corporation’s risk of
loss
 
with
 
respect
 
to
 
these
 
loans
 
is
 
also
 
minimal
 
as
 
these
 
repurchased
 
loans
 
are
 
generally
 
performing
 
loans
 
with
 
documentation
deficiencies.
 
No
 
significant
 
purchases
 
of
 
loans
 
were
 
executed
 
during
 
the
 
first
 
quarter
 
of
 
2023.
 
During
 
the
 
quarter
 
ended
 
March
 
31,
 
2022,
 
the
Corporation purchased certain C&I loan participations in the Florida region
 
totaling $
46.4
 
million.
 
36
Loan Portfolio Concentration
The Corporation’s
 
primary
 
lending area
 
is Puerto
 
Rico. The
 
Corporation’s
 
banking subsidiary,
 
FirstBank, also
 
lends in
 
the USVI
and BVI markets
 
and in the
 
United States (principally
 
in the state of
 
Florida). Of the
 
total gross loans
 
held for investment
 
portfolio of
$
11.6
 
billion as
 
of March
 
31, 2023,
 
credit risk
 
concentration was
 
approximately
80
% in Puerto
 
Rico,
17
% in the
 
U.S., and
3
% in
 
the
USVI and BVI.
As
 
of
 
March
 
31,
 
2023,
 
the
 
Corporation
 
had
 
$
170.9
 
million
 
outstanding
 
in
 
loans
 
extended
 
to
 
the
 
Puerto
 
Rico
 
government,
 
its
municipalities and
 
public corporations,
 
compared to
 
$
169.8
 
million as
 
of December
 
31, 2022.
 
As of
 
March 31,
 
2023, approximately
$
102.7
 
million
 
consisted
 
of
 
loans
 
extended
 
to
 
municipalities
 
in
 
Puerto
 
Rico
 
that
 
are
 
general
 
obligations
 
supported
 
by
 
assigned
property
 
tax
 
revenues,
 
and $
28.0
 
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
 
loans
extended to municipalities,
 
the Corporation’s
 
exposure to the Puerto
 
Rico government as of
 
March 31, 2023 included
 
$
10.2
 
million in
loans granted
 
to an affiliate
 
of the
 
Puerto
Rico Electric
Power Authority
 
(“PREPA”)
 
and $
30.0
 
million in loans
 
to agencies or
 
public
corporations of the Puerto Rico government.
 
In addition,
 
as of March
 
31, 2023, the
 
Corporation had
 
$
82.9
 
million in exposure
 
to residential mortgage
 
loans that are
 
guaranteed
by
 
the
 
PRHFA,
 
a
 
government
 
instrumentality
 
that
 
has
 
been
 
designated
 
as
 
a
 
covered
 
entity
 
under
 
PROMESA,
 
compared
 
to
 
$
84.7
million as of
 
December 31, 2022.
 
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
 
March 31, 2023, the Corporation had
$
38.7
 
million in
loans to USVI
 
government public corporations,
 
compared to $
38.0
 
million as of
 
December 31, 2022.
 
As of March
 
31, 2023, all
 
loans
were currently performing and up to date on principal and interest payments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37
Loss Mitigation Program for Borrowers Experiencing
 
Financial Difficulty
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 are provided,
 
as well as
other restructurings of
 
individual C&I, commercial
 
mortgage, construction, and
 
residential mortgage
 
loans. The Corporation
 
may also
modify
 
contractual
 
terms
 
to
 
comply
 
with
 
regulations
 
regarding
 
the
 
treatment
 
of
 
certain
 
bankruptcy
 
filings
 
and
 
discharge
 
situations.
See Note 1 – Basis of Presentation and Significant
 
Accounting Policies, for additional information related to
 
the accounting policies of
loan modifications granted to borrowers experiencing financial difficulty.
The
 
loan
 
modifications
 
granted
 
to
 
borrowers
 
experiencing
 
financial
 
difficulty
 
that
 
are
 
associated
 
to
 
payment
 
delays
 
typically
include the following:
-
Forbearance plans –
 
Payments of either interest
 
and/or principal are
 
deferred for a pre-established
 
period of time, generally
 
not
exceeding
 
six
 
months
 
in
 
any
 
given
 
year.
 
The
 
deferred
 
interest
 
and/or
 
principal
 
is
 
repaid
 
as
 
either
 
a
 
lump
 
sum
 
payment
 
at
maturity date or by extending the loan’s
 
maturity date by the number of forbearance months granted.
 
-
Payment
 
plans
 
 
Borrowers
 
are
 
allowed
 
to
 
pay
 
the
 
regular
 
monthly
 
payment
 
plus
 
the
 
pre-established
 
delinquent
 
amounts
during a period generally not exceeding
 
six months.
 
At the end of the payment plan, the
 
borrower is required to resume making
its regularly scheduled loan payments.
-
Trial modifications
 
– These types of loan
 
modifications are granted for
 
residential mortgage loans. Borrower
 
s
 
continue making
reduced monthly payments during
 
the trial period, which
 
is generally of up to
 
six months. The reduced
 
payments that are made
by the
 
borrower during
 
the trial
 
period will
 
result in
 
a payment
 
delay with
 
respect to
 
the original
 
contractual terms
 
of the loan
since
 
the
 
loan
 
has
 
not
 
yet
 
been
 
contractually
 
modified.
 
After
 
successful
 
completion
 
of
 
the
 
trial
 
period,
 
the
 
mortgage
 
loan
 
is
contractually modified.
Modifications
 
in
 
the
 
form
 
of
 
a
 
reduction
 
in
 
interest
 
rate,
 
term
 
extension,
 
an
 
other-than-insignificant
 
payment
 
delay,
 
or
 
any
combination
 
of
 
these
 
types
 
of
 
loan
 
modifications
 
that
 
have
 
occurred
 
in
 
the
 
current
 
reporting
 
period
 
to
 
a
 
borrower
 
experiencing
financial difficulty are disclosed in the tables below.
The
 
below
 
disclosures
 
relate
 
to
 
loan
 
modifications
 
granted
 
to
 
borrowers
 
experiencing
 
financial
 
difficulty
 
in
 
which
 
there
 
was
 
a
change
 
in
 
the
 
timing
 
and/or
 
amount
 
of
 
contractual
 
cash
 
flows
 
in
 
the
 
form
 
of
 
any
 
of
 
the
 
aforementioned
 
types
 
of
 
modifications,
including
 
restructurings
 
that
 
resulted
 
in
 
a
 
more-than-insignificant
 
payment
 
delay.
 
These
 
disclosures
 
exclude
 
$
0.9
 
million
 
in
restructured
 
residential
 
mortgage
 
loans that
 
are government
 
-guaranteed
 
(e.g., FHA/VA
 
loans)
 
and
 
were modified
 
during
 
the quarter
ended March 31, 2023.
 
 
The following table presents the amortized cost basis as of March 31, 2023 of loans modified
 
to borrowers experiencing financial
difficulty during the quarter ended March 31, 2023, by portfolio
 
classes and type of modification granted, and the percentage of these
modified loans relative to the total period-end amortized cost basis of receivables
 
in the portfolio class:
Quarter Ended March 31,
 
2023
Payment Delay Only
Forbearance
Payment
Plan
Trial
Modification
Interest
Rate
Reduction
Term
Extension
Combination of
Interest Rate
Reduction and
Term Extension
Forgiveness
of principal
and/or
interest
Other
Total
Percentage of
Total by
Portfolio
Classes
(In thousands)
Conventional residential mortgage loans
$
-
$
-
$
332
$
-
$
433
$
115
$
-
$
-
$
880
0.03%
Construction loans
-
-
-
-
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
-
-
-
-
C&I loans
-
-
-
-
-
-
-
40
(1)
40
0.00%
Consumer loans:
Auto loans
-
-
-
-
89
38
-
584
(1)
711
0.04%
Personal loans
-
-
-
-
28
14
-
-
42
0.01%
Credit cards
-
-
-
289
(2)
-
-
-
-
289
0.09%
Other consumer loans
-
-
-
-
132
60
-
26
(1)
218
0.15%
 
Total modifications
$
-
$
-
$
332
$
289
$
682
$
227
$
-
$
650
$
2,180
(1)
Modification consists of court mandated reduction to 0% interest rate for remaining loan term to borrowers in bankruptcy proceedings unless dismissal occurs.
(2)
Modification consists of reduction in interest rate and revocation of revolving line privileges.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38
 
The following table presents the financial effects of the modifications
 
granted to borrowers experiencing financial difficulty
during the quarter ended March 31, 2023, by portfolio classes, other
 
than those associated to payment delay.
 
The qualitative financial
effects of the modifications associated to payment delay were discussed
 
above, and as such, were excluded from the table below:
Quarter Ended March 31, 2023
Combination of Interest Rate Reduction
and Term Extension
Weighted-Average
Interest Rate
Reduction (%)
Weighted-Average
Term Extension (in
months)
Weighted-Average
Interest Rate
Reduction (%)
Weighted-Average
Term Extension (in
months)
Weighted-Average
Forgiveness of
Principal and/or
Interest
(In thousands)
Conventional residential mortgage loans
-
98
2.11%
141
$
-
Construction loans
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
C&I loans
-
-
-
-
-
Consumer loans:
Auto loans
-
22
2.88%
28
-
Personal loans
-
30
3.36%
12
-
Credit cards
16.04%
-
-
-
-
Other consumer loans
-
27
1.96%
26
-
 
The following table presents the performance of loans modified during the quarter
 
ended March 31,
 
2023 that were granted to
borrowers experiencing financial difficulty,
 
by portfolio classes:
Quarter Ended March 31,
 
2023
30-59
60-89
90+
Total
Delinquency
Current
Total
(In thousands)
Conventional residential mortgage loans
$
-
$
-
$
-
$
-
$
880
$
880
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
C&I loans
-
-
-
-
40
40
Consumer loans:
Auto loans
44
138
-
182
529
711
Personal loans
-
-
-
-
42
42
Credit cards
103
89
-
192
97
289
Other consumer loans
-
-
-
-
218
218
 
Total modifications
$
147
$
227
$
-
$
374
$
1,806
$
2,180
There
 
were
 
no
 
loans
 
modified
 
to
 
borrowers
 
experiencing
 
financial
 
difficulty
 
on
 
or
 
after
 
January
 
1,
 
2023,
 
which
 
had
 
a
 
payment
default
 
(failure
 
by
 
the
 
borrower
 
to
 
make
 
payments
 
of
 
either principal,
 
interest,
 
or both
 
for
 
a
 
period
 
of
 
90 days
 
or more)
 
during
 
the
quarter ended March 31, 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
Troubled Debt
 
Restructuring (“TDR”) Disclosures Prior to Adoption
 
of ASU 2022-02
Prior
 
to
 
the
 
adoption
 
of
 
ASU
 
2022-02,
 
a
 
restructuring
 
of
 
a
 
loan
 
constituted
 
a
 
TDR
 
if
 
the
 
creditor,
 
for
 
economic
 
or
 
legal
 
reason
related
 
to the
 
borrower’s
 
financial difficulties,
 
grants a
 
concession to
 
the borrower
 
that it
 
would not
 
otherwise consider.
 
See Note
 
1
“Nature of
 
Business and
 
Summary of
 
Significant Accounting
 
Policies” and
 
Note 4
 
“Loans Held
 
for Investment”
 
to the
 
Consolidated
Financial Statements
 
in the 2022
 
Annual Report
 
on Form
 
10-K for
 
additional discussion
 
of TDRs. The
 
following tables
 
present TDR
loans completed during the quarter ended March 31, 2022:
Quarter Ended March 31,
 
2022
Interest rate
below market
Maturity or
term extension
Combination of
reduction in
interest rate and
extension of
maturity
Forgiveness of
principal and/or
interest
Other
(1)
Total
(In thousands)
Conventional residential mortgage loans
$
215
$
731
$
190
$
-
$
1,857
$
2,993
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
C&I loans
-
-
-
-
5
5
Consumer loans:
Auto loans
792
54
147
-
-
993
Finance leases
-
246
-
-
18
264
Personal loans
-
60
18
-
-
78
Credit cards
(2)
189
-
-
-
-
189
Other consumer loans
33
106
-
9
-
148
Total TDRs
$
1,229
$
1,197
$
355
$
9
$
1,880
$
4,670
(1)
Other concessions granted by the Corporation include payment
 
plans under judicial stipulation or loss mitigation programs, or
 
a combination of two or more of the concessions listed
 
in
the table. Amounts included in Other that represent a combination
 
of concessions are excluded from the amounts reported in
 
the column for such individual concessions.
(2)
Concession consists of reduction in interest rate and revocation
 
of revolving line privileges.
Quarter Ended March 31, 2022
Number of contracts
Pre-modification Amortized
Cost
Post-modification Amortized
Cost
(Dollars in thousands)
Conventional residential mortgage loans
23
$
2,996
$
2,993
Construction loans
-
-
-
Commercial mortgage loans
-
-
-
C&I loans
1
5
5
Consumer loans:
 
Auto loans
51
995
993
 
Finance leases
13
264
264
 
Personal loans
5
78
78
 
Credit Cards
44
189
189
 
Other consumer loans
27
146
148
 
Total TDRs
164
$
4,673
$
4,670
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
 
quarter
 
ended March
 
31, 2022,
 
and had
 
become
 
TDR loans
 
during
 
the 12-months
preceding the default date, were as follows:
Quarter Ended March 31, 2022
Number of contracts
Amortized Cost
(Dollars in thousands)
Conventional residential mortgage loans
3
$
389
Construction loans
-
-
Commercial mortgage loans
-
-
C&I loans
-
-
Consumer loans:
 
Auto loans
24
522
 
Finance leases
1
16
 
Personal loans
-
-
 
Credit cards
11
79
 
Other consumer loans
2
11
 
Total TDRs
41
$
1,017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
NOTE 4 – ALLOWANCE
 
FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES
 
The following tables present the activity in the ACL on loans and finance leases by portfolio
 
segment for the indicated periods:
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
Commercial &
Industrial Loans
Consumer Loans
Total
Quarter Ended March 31, 2023
(In thousands)
ACL:
Beginning balance
$
62,760
$
2,308
$
35,064
$
32,906
$
127,426
$
260,464
Impact of adoption of ASU 2022-02
2,056
-
-
7
53
2,116
Provision for credit losses - expense (benefit)
73
860
1,246
(1,650)
15,727
16,256
Charge-offs
 
(983)
-
(18)
(118)
(16,798)
(17,917)
Recoveries
497
63
168
90
3,830
4,648
Ending balance
$
64,403
$
3,231
$
36,460
$
31,235
$
130,238
$
265,567
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
Commercial &
Industrial Loans
Consumer Loans
Total
Quarter Ended March 31,
 
2022
(In thousands)
ACL:
Beginning balance
$
74,837
$
4,048
$
52,771
$
34,284
$
103,090
$
269,030
Provision for credit losses - (benefit) expense
(4,871)
(2,214)
(22,640)
1,755
10,981
(16,989)
Charge-offs
 
(2,528)
(44)
(37)
(290)
(9,816)
(12,715)
Recoveries
1,382
52
44
1,035
3,608
6,121
Ending balance
$
68,820
$
1,842
$
30,138
$
36,784
$
107,863
$
245,447
The
 
Corporation
 
estimates
 
the
 
ACL
 
following
 
the
 
methodologies
 
described
 
in
 
Note
 
1
 
 
Nature
 
of
 
Business
 
and
 
Summary
 
of
Significant Accounting
 
Policies, to
 
the audited
 
consolidated financial
 
statements included
 
in the
 
2022 Annual
 
Report on
 
Form 10-K,
for each portfolio segment.
The Corporation applie
 
s
 
probability weights to
 
the baseline and
 
alternative downside economic
 
scenarios
 
to estimate the ACL
 
with
the
 
baseline
 
scenario
 
carrying
 
the
 
highest
 
weight.
 
The
 
economic
 
scenarios
 
used
 
in
 
the
 
ACL
 
determination
 
contained
 
assumptions
related
 
to economic
 
uncertainties associated
 
with geopolitical
 
instability,
 
high
 
inflation levels,
 
and
 
the expected
 
path
 
of interest
 
rate
increases by the FED.
 
As of March 31, 2023, the ACL for loans and finance leases was $
265.6
 
million, an increase of $
5.1
 
million, from $
260.5
 
million as
of
 
December
 
31,
 
2022.
 
The
 
ACL
 
for
 
commercial
 
and
 
construction
 
loans
 
remained
 
relatively
 
flat
 
when
 
compared
 
to
 
the
 
previous
quarter as a result of
 
the following offsetting factors:
 
reserve increases of $
5.0
 
million for a new nonaccrual
 
commercial and industrial
loan in the Florida region in the power generation industry; and $
1.1
 
million due to a less favorable economic outlook in the projection
of certain forecasted
 
macroeconomic variables, such
 
as the commercial
 
real estate price index
 
(“CRE price index”);
 
partially offset by
reserve decreases
 
of $
6.1
 
million associated
 
with the receipt
 
of updated
 
financial information
 
of certain borrowers
 
and the repayment
of a $
24.3
 
million adversely classified
 
commercial and industrial
 
participated loan in
 
the Florida region.
 
The ACL for consumer
 
loans
increased by $
2.9
 
million, primarily reflecting
 
the effect of
 
the increase in
 
the size of the
 
consumer loan
 
portfolios and the
 
increase in
historical charge-off levels. The ACL for
 
residential mortgage loans increased by $
1.6
 
million, in part due to a $
2.1
 
million cumulative
increase in
 
the ACL,
 
due to
 
the adoption
 
of ASU
 
2022-02, for
 
which the
 
Corporation elected
 
to discontinue
 
the use
 
of a
 
discounted
cash
 
flow
 
methodology
 
for
 
restructured
 
accruing
 
loans.
 
This
 
adjustment
 
had
 
a
 
corresponding
 
decrease,
 
net
 
of
 
applicable
 
taxes,
 
in
beginning
 
retained
 
earnings
 
as
 
of
 
January
 
1,
 
2023.
 
See
 
Note
 
1
 
Basis
 
of
 
Presentation
 
and
 
Significant
 
Accounting
 
Policies
 
for
information related to the adoption of ASU 2022-02 during the first quarter
 
of 2023.
Total
 
net charge-offs
 
increased by $
6.7
 
million to $
13.3
 
million during the first
 
quarter of 2023, when
 
compared to the same
 
period
in 2022. The variance consisted of a $
6.8
 
million increase in net charge-offs on
 
consumer and finance leases, reflected across all major
portfolio classes, and
 
a $
0.6
 
million decrease in net
 
recoveries in the commercial
 
and construction loan portfolios,
 
partially offset by
 
a
$
0.7
 
million decrease in net charge-offs on residential mortgage
 
loans.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
41
 
The tables below
 
present the ACL
 
related to loans
 
and finance leases
 
and the carrying
 
values of loans
 
by portfolio segment
 
as of
March 31,
 
2023 and December 31, 2022:
As of March 31,
 
2023
Residential Mortgage
Loans
Construction
Loans
Commercial Mortgage
Loans
Commercial and
Industrial Loans
Consumer Loans
Total
(Dollars in thousands)
Total loans held for investment:
 
Amortized cost of loans
$
2,811,528
$
143,664
$
2,353,659
$
2,862,189
$
3,406,945
$
11,577,985
 
Allowance for credit losses
64,403
3,231
36,460
31,235
130,238
265,567
 
Allowance for credit losses to
 
amortized cost
2.29
%
2.25
%
1.55
%
1.09
%
3.82
%
2.29
%
As of December 31, 2022
Residential Mortgage
Loans
Construction
Loans
Commercial Mortgage
Loans
Commercial and
Industrial Loans
Consumer Loans
Total
(Dollars in thousands)
Total loans held for investment:
 
Amortized cost of loans
$
2,847,290
$
132,953
$
2,358,851
$
2,886,263
$
3,327,468
$
11,552,825
 
Allowance for credit losses
62,760
2,308
35,064
32,906
127,426
260,464
 
Allowance for credit losses to
 
amortized cost
2.20
%
1.74
%
1.49
%
1.14
%
3.83
%
2.25
%
In
 
addition,
 
the
 
Corporation
 
estimates
 
expected
 
credit
 
losses
 
over
 
the
 
contractual
 
period
 
in
 
which
 
the
 
Corporation
 
is
 
exposed
 
to
credit
 
risk
 
via
 
a
 
contractual
 
obligation
 
to
 
extend
 
credit,
 
such
 
as
 
unfunded
 
loan
 
commitments
 
and
 
standby
 
letters
 
of
 
credit
 
for
commercial and construction
 
loans, unless the
 
obligation is unconditionally
 
cancellable by the Corporation.
 
See Note 22 –
 
Regulatory
Matters,
 
Commitments,
 
and Contingencies
 
for
 
information
 
on off
 
-balance
 
sheet exposures
 
as of
 
March 31,
 
2023 and
 
December
 
31,
2022.
 
The
 
Corporation
 
estimates
 
the
 
ACL
 
for
 
these
 
off-balance
 
sheet
 
exposures
 
following
 
the
 
methodology
 
described
 
in
 
Note
 
1
 
Nature of Business and Summary of Accounting Policies,
 
to the audited consolidated financial statements included in the
 
2022 Annual
Report
 
on Form
 
10-K.
 
As of
 
March
 
31, 2023,
 
the ACL
 
for off-balance
 
sheet
 
credit exposures
 
decreased
 
to $
4.2
 
million,
 
from
 
$
4.3
million as of December 31, 2022.
The following
 
table presents
 
the activity
 
in the
 
ACL for
 
unfunded loan
 
commitments and
 
standby letters
 
of credit
 
for the
 
quarters
ended March 31, 2023 and 2022:
Quarter Ended March 31,
 
2023
2022
(In thousands)
Beginning Balance
$
4,273
$
1,537
Provision for credit losses - (benefit)
(105)
(178)
 
Ending balance
$
4,168
$
1,359
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
42
NOTE 5
OTHER REAL ESTATE
 
OWNED
 
The following table presents the OREO inventory as of the indicated dates:
March 31, 2023
December 31, 2022
(In thousands)
OREO balances, carrying value:
Residential
(1)
$
24,984
$
24,025
Commercial
6,114
5,852
Construction
1,764
1,764
Total
$
32,862
$
31,641
(1)
Excludes $
22.6
 
million and $
23.5
 
million as of March 31,
 
2023 and December 31,
 
2022, respectively,
 
of foreclosures that met
 
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.
See Note 18
 
- Fair Value
 
for information
 
on write-downs
 
recorded on OREO
 
properties during
 
the quarters ended
 
March 31, 2023
and 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
43
NOTE 6 – GOODWILL AND OTHER INTANGIBLES
 
 
Goodwill
Goodwill as
 
of each
 
of March
 
31, 2023
 
and December
 
31, 2022
 
amounted to
 
$
38.6
 
million.
The Corporation’s policy is to assess
goodwill and other intangibles for impairment on an annual basis during the fourth quarter of each year, and more frequently if events
or circumstances lead management to believe that the values of goodwill or other intangibles may be impaired. During the fourth
quarter of 2022, management performed a qualitative analysis over the carrying amount of each relevant reporting units’ goodwill and
concluded that it is more-likely-than-not that the fair value of the reporting units exceeded their carrying value. This assessment
involved identifying the inputs and assumptions that most affect fair value, including evaluating significant and relevant events
impacting each reporting entity, and evaluating such factors to determine if a positive assertion can be made that it is more-likely-
than-not that the fair value of the reporting units exceeded their carrying amount. As of December 31, 2022, 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 quarter ended March 31, 2023.
There were
no
 
changes in the carrying amount of goodwill during the quarter ended March
 
31, 2022.
Other Intangible Assets
The
 
following
 
table
 
presents
 
the
 
gross
 
amount
 
and
 
accumulated
 
amortization
 
of
 
the
 
Corporation’s
 
intangible
 
assets
 
subject
 
to
amortization as of the indicated dates:
As of
As of
March 31,
 
December 31,
2023
 
2022
 
(Dollars in thousands)
Core deposit intangible:
Gross amount
$
87,544
$
87,544
Accumulated amortization
(68,557)
(66,644)
Net carrying amount
$
18,987
$
20,900
Remaining amortization period (in years)
6.8
7.0
Purchased credit card relationship intangible:
Gross amount
$
3,800
$
3,800
Accumulated amortization
(3,714)
(3,595)
Net carrying amount
$
86
$
205
Remaining amortization period (in years)
0.4
0.7
Insurance customer relationship intangible:
Gross amount
$
-
$
1,067
Accumulated amortization
-
(1,054)
Net carrying amount
$
-
$
13
Remaining amortization period (in years)
-
0.1
During
 
the
 
quarters
 
ended
 
March
 
31,
 
2023
 
and
 
2022,
 
the
 
Corporation
 
recognized
 
$
2.0
 
million
 
and
 
$
2.3
 
million,
 
respectively,
 
in
amortization expense on its other intangibles subject to amortization.
 
 
 
 
 
 
 
44
The Corporation amortizes core deposit intangibles and customer relationship intangible 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 the customer relationship intangible. The Corporation analyzes core deposit intangibles and the customer relationship intangible
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 the customer relationship intangible as of March 31, 2023.
The estimated
 
aggregate annual
 
amortization expense
 
related to the
 
intangible assets
 
subject to amortization
 
for future periods
 
was
as follows as of March 31, 2023:
(In thousands)
2023
$
5,691
2024
6,416
2025
3,509
2026
872
2027
872
2028 and after
1,713
NOTE 7 – NON-CONSOLIDATED
 
VARIABLE
 
INTEREST ENTITIES (“VIEs”) 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 (“TRuPs”)
In April 2004,
 
FBP Statutory Trust
 
I, a financing
 
trust that is wholly
 
owned by the
 
Corporation, sold to
 
institutional investors $
100
million of its variable
 
-rate TRuPs. FBP Statutory
 
Trust I used
 
the proceeds of the
 
issuance, together with the
 
proceeds of the purchase
by
 
the
 
Corporation
 
of
 
$
3.1
 
million
 
of
 
FBP
 
Statutory
 
Trust
 
I
 
variable-rate
 
common
 
securities, to
 
purchase
 
$
103.1
 
million
 
aggregate
principal
 
amount
 
of
 
the
 
Corporation’s
 
Junior
 
Subordinated
 
Deferrable
 
Debentures.
 
In
 
September
 
2004,
 
FBP
 
Statutory
 
Trust
 
II,
 
a
financing
 
trust that
 
is wholly
 
owned by
 
the Corporation,
 
sold to
 
institutional investors
 
$
125
 
million of
 
its variable-rate
 
TRuPs. FBP
Statutory Trust
 
II used
 
the proceeds of
 
the issuance,
 
together with
 
the proceeds of
 
the purchase by
 
the Corporation
 
of $
3.9
 
million of
FBP Statutory
 
Trust
 
II variable-rate
 
common securities,
 
to purchase
 
$
128.9
 
million aggregate
 
principal amount
 
of the
 
Corporation’s
Junior
 
Subordinated
 
Deferrable
 
Debentures.
 
The
 
debentures,
 
net
 
of
 
related
 
issuance
 
costs,
 
are
 
presented
 
in
 
the
 
Corporation’s
consolidated
 
statements
 
of financial
 
condition as
 
other long-term
 
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
 
March 31,
 
2023 and
 
December
31, 2022, these Junior Subordinated Deferrable Debentures amounted
 
to $
183.8
 
million.
 
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
 
March
 
31,
 
2023,
 
the
Corporation was current on all interest payments due on its subordinated
 
debt.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
45
Private Label MBS
During
 
2004
 
and
 
2005,
 
an unaffiliated
 
party,
 
referred
 
to in
 
this subsection
 
as the
 
seller,
 
established
 
a
 
series of
 
statutory
 
trusts
 
to
effect
 
the
 
securitization
 
of
 
mortgage
 
loans
 
and
 
the
 
sale
 
of
 
trust
 
certificates
 
(“private
 
label
 
MBS”).
 
The
 
seller
 
initially
 
provided
 
the
servicing for
 
a fee, which
 
is senior to
 
the obligations to
 
pay private label
 
MBS holders. The
 
seller then entered
 
into a sales
 
agreement
through
 
which
 
it sold
 
and
 
issued
 
the
 
private
 
label
 
MBS in
 
favor
 
of
 
the
 
Corporation’s
 
banking
 
subsidiary,
 
FirstBank.
 
Currently,
 
the
Bank is
 
the sole
 
owner of
 
these private
 
label MBS;
 
the servicing
 
of the
 
underlying
 
residential mortgages
 
that generate
 
the principal
and interest
 
cash flows is
 
performed by
 
another third
 
party,
 
which receives
 
a servicing
 
fee. These private
 
label MBS are
 
variable-rate
securities indexed
 
to
3-month LIBOR
 
plus a spread.
 
As mentioned above
 
in Note 2,
 
Debt Securities, pursuant
 
to the provisions
 
of the
LIBOR Act and
 
Regulation ZZ, the
 
LIBOR reference of
 
these private label
 
MBS shall be
 
replaced by
 
the 3-month CME
 
Term
 
SOFR
rate
 
plus
 
a
 
spread
 
adjustment
 
of
 
0.26161%
 
on the
 
first
 
reset
 
date
 
after
 
USD LIBOR
 
ceases publication
 
in
 
June 2023.
 
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 March 31, 2023, the amortized
 
cost and fair value
of these private
 
label MBS amounted
 
to $
7.7
 
million and $
5.4
 
million, respectively,
 
with a weighted average
 
yield of
7.25
%, which is
included as part of
 
the Corporation’s
 
available-for-sale debt securities portfolio.
 
As described in Note 2
 
– Debt Securities, the ACL on
these private label MBS amounted to $
0.1
 
million as of March 31, 2023.
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
 
March 31,
 
2023, the
 
Corporation serviced
loans
 
securitized
 
through
 
GNMA
 
with
 
a
 
principal
 
balance
 
of
 
$
2.1
 
billion.
 
Also,
 
certain
 
conventional
 
conforming
 
loans
 
are
 
sold
 
to
FNMA
 
or
 
FHLMC
 
with
 
servicing
 
retained.
 
The
 
Corporation
 
recognizes
 
as
 
separate
 
assets
 
the
 
rights
 
to
 
service
 
loans
 
for
 
others,
whether those servicing
 
assets are originated or
 
purchased. MSRs are included
 
as part of other
 
assets in the consolidated
 
statements of
financial condition.
The changes in MSRs are shown below for the indicated periods:
Quarter Ended March 31,
 
2023
2022
(In thousands)
Balance at beginning of year
$
29,037
$
30,986
Capitalization of servicing assets
532
1,130
Amortization
(1,128)
(1,330)
Temporary impairment
 
recoveries
4
55
Other
(1)
(14)
(88)
Balance at end of period
$
28,431
$
30,753
(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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
46
Changes in the impairment allowance were as follows for the indicated periods:
 
Quarter Ended March 31,
2023
2022
(In thousands)
Balance at beginning of year
$
12
$
78
Recoveries
(4)
(55)
 
Balance at end of period
$
8
$
23
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 March 31,
2023
2022
(In thousands)
Servicing fees
$
2,718
$
2,819
Late charges and prepayment penalties
199
194
Adjustment for loans repurchased
(14)
(88)
 
Servicing income, gross
2,903
2,925
Amortization and impairment of servicing assets
(1,124)
(1,275)
 
Servicing income, net
$
1,779
$
1,650
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
Quarter Ended March 31, 2023
Constant prepayment rate:
 
 
Government-guaranteed mortgage loans
6.7
%
11.6
%
4.8
%
 
Conventional conforming mortgage loans
7.7
%
16.0
%
3.8
%
 
Conventional non-conforming mortgage loans
5.7
%
7.0
%
2.1
%
Discount rate:
 
Government-guaranteed mortgage loans
11.5
%
11.5
%
11.5
%
 
Conventional conforming mortgage loans
9.5
%
9.5
%
9.5
%
 
Conventional non-conforming mortgage loans
12.8
%
14.0
%
11.5
%
Quarter Ended March 31, 2022
Constant prepayment rate:
 
 
Government-guaranteed mortgage loans
6.7
%
18.3
%
4.8
%
 
Conventional conforming mortgage loans
6.6
%
18.4
%
3.4
%
 
Conventional non-conforming mortgage loans
6.6
%
21.9
%
4.9
%
Discount rate:
 
Government-guaranteed mortgage loans
12.0
%
12.0
%
12.0
%
 
Conventional conforming mortgage loans
10.0
%
10.0
%
10.0
%
 
Conventional non-conforming mortgage loans
12.3
%
14.5
%
12.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
47
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
 
March
 
31,
 
2023
 
and
December 31, 2022 were as follows:
March 31,
 
December 31,
2023
2022
(In thousands)
Carrying amount of servicing assets
$
28,431
$
29,037
Fair value
$
45,270
$
44,710
Weighted-average
 
expected life (in years)
7.80
7.80
Constant prepayment rate (weighted-average annual
 
rate)
6.34
%
6.40
%
 
Decrease in fair value due to 10% adverse change
$
1,040
$
1,048
 
Decrease in fair value due to 20% adverse change
$
2,036
$
2,054
Discount rate (weighted-average annual rate)
10.70
%
10.69
%
 
Decrease in fair value due to 10% adverse change
$
1,960
$
1,925
 
Decrease in fair value due to 20% adverse change
$
3,770
$
3,704
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
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
48
NOTE 8 – DEPOSITS
 
 
The following table summarizes deposit balances as of the indicated dates:
March 31, 2023
December 31, 2022
(In thousands)
Type of account and interest rate:
Non-interest-bearing deposit accounts
$
6,024,304
$
6,112,884
Interest-bearing saving accounts
3,808,182
3,902,888
Interest-bearing checking accounts
3,547,963
3,770,993
Certificates of deposit (“CDs”)
2,418,611
2,250,876
Brokered CDs
252,905
105,826
 
Total
$
16,051,965
$
16,143,467
 
The following table presents the contractual maturities of CDs, including brokered CDs, as of March 31,
 
2023:
Total
 
(In thousands)
Three months or less
$
499,307
Over three months to six months
361,274
Over six months to one year
732,933
Over one year to two years
 
751,913
Over two years to three years
 
155,590
Over three years to four years
 
46,748
Over four years to five years
 
117,009
Over five years
6,742
 
Total
$
2,671,516
 
The following were the components of interest expense on deposits for the
 
indicated periods:
Quarter Ended March 31,
2023
2022
(In thousands)
Interest expense on deposits
$
29,924
$
7,817
Accretion of premiums from acquisitions
(83)
(200)
Amortization of broker placement fees
44
35
 
Total
$
29,885
$
7,652
Total
 
U.S. time
 
deposits with
 
balances of
 
more than
 
$250,000 amounted
 
to $
1.1
 
billion and
 
$
1.0
 
billion as
 
of March
 
31, 2023
 
and
December 31,
 
2022, 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 March
 
31, 2023 and December
 
31, 2022, unamortized broker
 
placement fees amounted to
$
0.4
 
million and
 
$
0.3
 
million, respectively,
 
which are
 
amortized over
 
the contractual
 
maturity of
 
the brokered
 
CDs under
 
the interest
method.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
49
NOTE 9 – SECURITIES SOLD UNDER AGREEMENTS TO
 
REPURCHASE (REPURCHASE AGREEMENTS)
 
Repurchase agreements as of the indicated dates consisted of the following:
 
March 31, 2023
December 31, 2022
(In thousands)
Short-term Fixed-rate repurchase agreements
(1)
$
172,982
$
75,133
(1)
Weighted-average interest rate
 
of
5.08
% and
4.55
% as of March 31, 2023 and December 31, 2022.
The $
75.1
 
million in repurchase
 
agreements outstanding
 
as of December
 
31, 2022 matured
 
and were repaid
 
during the first
 
quarter
of
 
2023.
 
In
 
addition,
 
the
 
Corporation
 
added
 
$
173.0
 
million
 
in
 
short-term
 
repurchase
 
agreements
 
reflecting
 
precautionary
 
measures
taken by management in light of recent instability in the banking sector.
Repurchase agreements mature as follows as of the indicated date:
March 31,
 
2023
(In thousands)
Within one month
$
172,982
As of March
 
31, 2023 and
 
December 31, 2022,
 
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
 
March
 
31,
 
2023
 
and
 
December
 
31,
 
2022,
 
repurchase
agreements were fully collateralized and not offset in the consolidated
 
statements of financial condition.
Repurchase agreements as of March 31, 2023, grouped by counterparty,
 
were as follows:
Weighted-Average
Counterparty
Amount
Maturity (In Months)
(Dollars in thousands)
JP Morgan Chase
$
172,982
1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50
NOTE 10 – ADVANCES
 
FROM THE FEDERAL HOME LOAN BANK (“FHLB
”)
 
The following is a summary of the advances from the FHLB as of the indicated dates:
March 31,
 
December 31,
2023
2022
(In thousands)
Short-term
Fixed
-rate advances from the FHLB
(1)
$
425,000
$
475,000
Long-term
Fixed
-rate advances from the FHLB
(2)
500,000
200,000
$
925,000
$
675,000
(1)
Weighted-average interest rate of
5.04
% and
4.56
% as of March 31, 2023 and December 31, 2022, respectively.
(2)
Weighted-average interest rate of
4.45
% and
4.25
% as of March 31, 2023 and December 31, 2022, respectively.
 
Advances from the FHLB mature as follows as of the indicated date:
March 31, 2023
(In thousands)
Within one month
$
425,000
Over one to five years
500,000
 
Total
$
925,000
During the
 
first quarter
 
of 2023,
 
the Corporation
 
added $
425.0
 
million of
 
short-term FHLB
 
advances at
 
an average
 
cost of
5.04
%
and $
300.0
 
million of
 
long-term FHLB
 
advances at
 
an average cost
 
of
4.59
%, and repaid
 
upon maturity
 
$
475.0
 
million of
 
short-term
FHLB advances at an average cost of
4.56
%.
NOTE 11 – OTHER LONG-TERM
 
BORROWINGS
Junior Subordinated Debentures
Junior subordinated debentures, as of the indicated dates, consisted of:
March 31,
 
December 31,
(In thousands)
2023
2022
Floating rate junior subordinated debentures (FBP Statutory Trust
 
I)
(1)
(3)
(4)
$
65,205
$
65,205
Floating rate junior subordinated debentures (FBP Statutory Trust
 
II)
(2) (3)
(4)
118,557
118,557
$
183,762
$
183,762
(1)
Amount represents junior subordinated interest-bearing debentures
 
due in 2034 with a floating interest rate of
2.75
% over
3-month LIBOR
 
(
7.66
% as of March 31, 2023 and
7.49
% as of
December 31, 2022).
(2)
Amount represents junior subordinated interest-bearing debentures
 
due in 2034 with a floating interest rate of
2.50
% over
3-month LIBOR
 
(
7.46
% as of March 31, 2023 and
7.25
% as of
December 31, 2022).
(3)
Following the provisions of the LIBOR Act and Regulation
 
ZZ, the LIBOR reference on these contracts will automatically transition
 
by operation of law to three-month CME Term
SOFR, plus a spread adjustment of 0.26161% on the first reset
 
date after USD LIBOR ceases publication in June 2023.
(4)
See Note 7 - Non-Consolidated Variable
 
Interest Entities
 
("VIEs") and Servicing Assets, for additional information on the nature
 
and terms of these debentures.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
51
NOTE 12 – EARNINGS PER COMMON
.
SHARE
 
The calculations of earnings per common share for the quarters ended March 31, 2023
 
and 2022 are as follows:
Quarter Ended March 31,
2023
2022
(In thousands, except per share information)
Net income attributable to common stockholders
$
70,698
$
82,600
Weighted-Average
 
Shares:
 
Average common
 
shares outstanding
180,215
198,130
 
Average potential
 
dilutive common shares
 
1,021
1,407
 
Average common
 
shares outstanding - assuming dilution
181,236
199,537
Earnings per common share:
Basic
 
$
0.39
$
0.42
Diluted
 
$
0.39
$
0.41
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 and
 
performance
 
units (if
 
any
 
of the
 
performance
conditions
 
are
 
met
 
as of
 
the end
 
of
 
the reporting
 
period),
 
that
 
do
 
not contain
 
non-forfeitable
 
dividend
 
or dividend
 
equivalent
 
rights
using the
 
treasury stock
 
method. This
 
method assumes
 
that proceeds
 
equal to
 
the amount
 
of compensation
 
cost attributable
 
to future
services
 
is
 
used
 
to
 
repurchase
 
shares
 
on
 
the
 
open
 
market
 
at
 
the
 
average
 
market
 
price
 
for
 
the
 
period.
 
The
 
difference
 
between
 
the
number
 
of
 
potential
 
dilutive
 
shares
 
issued
 
and
 
the
 
shares
 
purchased
 
is
 
added
 
as
 
incremental
 
shares
 
to
 
the
 
actual
 
number
 
of
 
shares
outstanding
 
to
 
compute
 
diluted
 
earnings
 
per
 
share.
 
Unvested
 
shares
 
of
 
restricted
 
stock
 
outstanding
 
during
 
the
 
period
 
that
 
result
 
in
lower potentially
 
dilutive shares issued
 
than shares purchased
 
under the
 
treasury stock method
 
are not included
 
in the computation
 
of
dilutive
 
earnings
 
per
 
share
 
since
 
their
 
inclusion
 
would
 
have an
 
antidilutive
 
effect
 
on
 
earnings
 
per
 
share.
 
There
 
were
no
 
antidilutive
shares of common stock during the quarters ended March 31, 2023 and
 
2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
52
NOTE 13 – STOCK-BASED
.
COMPENSATION
 
The First Bancorp
 
Omnibus Incentive
 
Plan (the “Omnibus
 
Plan”), which is
 
effective until
 
May 24, 2026,
 
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
 
March 31,
 
2023, there
 
were
3,142,813
 
authorized
 
shares
 
of
 
common
 
stock
 
available
 
for
 
issuance
 
under
 
the
 
Omnibus
 
Plan.
 
The
 
Board,
 
based
 
on
 
the
recommendation of
 
the Compensation
 
and Benefits
 
Committee of
 
the Board,
 
has the
 
power and
 
authority to
 
determine those
 
eligible
to receive
 
awards and
 
to establish the
 
terms and conditions
 
of any
 
awards, subject to
 
various limits and
 
vesting restrictions
 
that apply
to individual and aggregate awards.
Restricted Stock
Under the
 
Omnibus Plan,
 
the Corporation
 
may grant
 
restricted stock
 
to plan
 
participants, subject
 
to forfeiture
 
upon the
 
occurrence
of certain
 
events until
 
the dates
 
specified in
 
the participant’s
 
award agreement.
 
While the
 
restricted stock
 
is subject
 
to forfeiture
 
and
does
 
not
 
contain
 
non-forfeitable
 
dividend
 
rights,
 
participants
 
may
 
exercise
 
full
 
voting
 
rights
 
with
 
respect
 
to
 
the
 
shares
 
of
 
restricted
stock
 
granted
 
to
 
them.
 
The
 
fair
 
value
 
of
 
the
 
shares
 
of
 
restricted
 
stock
 
granted
 
was
 
based
 
on
 
the
 
market
 
price
 
of
 
the
 
Corporation’s
common
 
stock on
 
the date
 
of the
 
respective grant.
 
The shares
 
of restricted
 
stocks granted
 
to employees
 
are subject
 
to the
 
following
vesting period:
 
fifty percent
 
(
50
%) of
 
those shares
 
vest on
 
the
two-year
 
anniversary of
 
the grant
 
date and
 
the remaining
50
% vest
 
on
the
three-year
 
anniversary of
 
the grant
 
date. The
 
shares of
 
restricted stock
 
granted to
 
directors are
 
generally subject
 
to vesting
 
on the
one-year
 
anniversary of the grant
 
date. The Corporation issued
495,891
 
shares during the quarter
 
ended March 31, 2023
 
in connection
with restricted stock awards, which were reissued from treasury shares.
 
 
The following table summarizes the restricted stock activity under the Omnibus
 
Plan during the quarters ended March 31, 2023
and 2022:
Quarter ended
Quarter ended
March 31,
 
2023
March 31,
 
2022
Number of
Weighted-
Number of
Weighted-
shares of
Average
shares of
Average
restricted
Grant Date
restricted
Grant Date
stock
 
Fair Value
stock
 
Fair Value
Unvested shares outstanding at beginning of year
938,491
$
9.14
1,148,775
$
6.61
Granted
(1)
495,891
11.99
299,440
13.15
Forfeited
(25,415)
9.98
(3,092)
6.69
Vested
(481,536)
5.93
(487,198)
5.72
Unvested shares outstanding at end of period
927,431
$
12.32
957,925
$
9.10
(1)
For the quarter ended March 31, 2023, includes
3,502
 
shares of restricted stock awarded to independent directors and
492,389
 
shares of restricted stock awarded to employees, of which
33,718
 
shares were granted to retirement-eligible employees and thus
 
charged to earnings as of the grant date. Includes
 
for the quarter ended March 31, 2022,
3,048
 
shares of restricted
stock awarded to independent directors and
296,392
 
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.
For the quarters
 
ended March 31,
 
2023 and 2022,
 
the Corporation recognized
 
$
1.6
 
million and $
0.9
 
million, respectively,
 
of stock-
based compensation
 
expense related
 
to restricted
 
stock awards.
 
As of
 
March 31,
 
2023,
 
there was
 
$
7.8
 
million
 
of total
 
unrecognized
compensation
 
cost
 
related
 
to unvested
 
shares
 
of
 
restricted
 
stock
 
that
 
the
 
Corporation
 
expects
 
to
 
recognize
 
over
 
a
 
weighted
 
average
period of
2.1
 
years.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
53
Performance Units
Under the Omnibus Plan, the Corporation may award
 
performance units to participants, with each unit representing
 
the value of one
share
 
of
 
the
 
Corporation’s
 
common
 
stock.
These awards, which are granted to executives, do not contain non-forfeitable rights to
dividend equivalent amounts and can only be settled in shares of the Corporation’s common stock.
 
On March 16, 2023, the Corporation granted 216,876 performance units to executives. Performance units granted on or after March
16, 2023 will vest on the third anniversary of the effective date of the award based on actual achievement of two performance metrics
weighted equally: relative total shareholder return (“Relative TSR”), compared to companies that comprise the KBW Nasdaq
Regional Banking Index, and the achievement of a tangible book value per share (“TBVPS”) goal, which is measured based upon the
growth in the tangible book value during the performance cycle, adjusted for certain allowable non-recurring transactions. The
participant may earn 50% of their target opportunity for threshold-level performance and up to 150% of their target opportunity for
maximum-level performance, based on the achievement of the performance goals during a three-year performance cycle. Amounts
between threshold, target and maximum performance will vest on a proportional amount. Performance units granted prior to March
16, 2023 vest subject only to achievement of a TBVPS goal. In addition, the participant may earn only up to 100% of their target
opportunity.
 
The following
 
table summarizes
 
the performance
 
units activity under
 
the Omnibus
 
Plan during
 
the quarters
 
ended March
 
31, 2023
and 2022:
Quarter ended
Quarter ended
March 31,
 
2023
March 31,
 
2022
Number
 
Weighted -
Number
 
Weighted -
of
Average
of
Average
Performance
Grant Date
Performance
Grant Date
Units
Fair Value
Units
Fair Value
Performance units at beginning of year
791,923
7.36
814,899
7.06
Additions
(1)
216,876
12.24
166,669
13.15
Vested
(2)
(474,538)
4.08
(189,645)
11.16
Performance units at end of period
534,261
12.25
791,923
7.36
(1)
Units granted during the quarter ended March 31, 2023
 
are based on the achievement of the Relative TSR and TBVPS
 
performance goals during a three-year performance cycle beginning
January 1, 2023 and ending on December 31, 2025. Units
 
granted during the quarter ended March 31, 2022 are based
 
on the TBVPS achievement of the performance goal during a three-
year performance cycle beginning January 1, 2022 and ending
 
on December 31, 2024.
(2)
Units vested during the quarter ended March 31, 2023 are
 
related to performance units granted in 2020 that met the pre-established
 
target and were settled with shares of common stock
reissued from treasury shares. Units vested during the quarter ended
 
March 31, 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.
The fair value of the performance units awarded during the quarter ended March 31, 2023 and 2022, that was based on the TBVPS
goal component, was calculated based on the market price of the Corporation’s common stock on the respective date of the grant and
assuming attainment of 100% of target opportunity. As of March 31, 2023, there have been no changes on management’s assessment
of the probability that the pre-established TBVPS goal will be achieved; as such, no cumulative adjustment to compensation expense
has been recognized. The fair value of the performance units awarded during the quarter ended March 31, 2023, that was based on the
Relative TSR component, was calculated using a Monte Carlo simulation. Since the Relative TSR component is considered a market
condition, the fair value of the portion of the award based on Relative TSR is not revised subsequent to grant date based on actual
performance.
 
For the quarters
 
ended March 31,
 
2023 and 2022,
 
the Corporation recognized
 
$
0.5
 
million and $
0.3
 
million, respectively,
 
of stock-
based
 
compensation
 
expense
 
related
 
to
 
performance
 
units.
 
As
 
of
 
March
 
31,
 
2023,
 
there
 
was
 
$
4.7
 
million
 
of
 
total
 
unrecognized
compensation cost
 
related to unvested
 
performance units
 
that the Corporation
 
expects to recognize
 
over a weighted
 
average period
 
of
2.4
 
years.
 
 
 
 
 
 
 
 
 
 
 
54
The following
 
table summarizes
 
the valuation
 
assumptions used
 
to calculate
 
the fair
 
value of
 
the Relative
 
TSR component
 
of the
performance units granted under the Omnibus Plan during the quarter
 
ended March 31, 2023:
Quarter Ended
March 31,
 
2023
Risk-free interest rate
(1)
3.98
%
Correlation coefficient
77.16
Expected dividend yield
(2)
-
Expected volatility
(3)
41.37
Expected life (in years)
2.79
(1)
Based on the yield on zero-coupon U.S. Treasury
 
STRIPS as of the grant date.
(2)
Assumes that dividends are reinvested at each ex-dividend date.
(3)
Calculated based on the historical volatility of each company's
 
stock price with a look-back period equal to the simulation term
 
using daily stock prices.
Shares withheld
During the
 
first quarter
 
of 2023,
 
the Corporation
 
withheld
287,835
 
shares (first
 
quarter of
 
2022 –
201,930
 
shares) of
 
the restricted
stock
 
that
 
vested
 
during
 
such
 
period
 
to
 
cover
 
the
 
officers’
 
payroll
 
and
 
income
 
tax
 
withholding
 
liabilities;
 
these
 
shares
 
are
 
held
 
as
treasury shares. The
 
Corporation paid
 
in cash any
 
fractional share of
 
salary stock to
 
which an officer
 
was entitled. In
 
the consolidated
financial statements, the Corporation presents shares withheld for
 
tax purposes as common stock repurchases.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
55
NOTE 14 –
 
STOCKHOLDERS’
 
EQUITY
Stock Repurchase Programs
On April
 
27, 2022,
 
the Corporation
 
announced that
 
its Board
 
approved a
 
stock repurchase
 
program,
 
under which
 
the Corporation
may repurchase
 
up to
 
$
350
 
million of
 
its outstanding
 
common stock,
 
which commenced
 
in the
 
second quarter
 
of 2022.
 
Repurchases
under
 
the
 
program
 
may
 
be
 
executed
 
through
 
open
 
market
 
purchases,
 
accelerated
 
share
 
repurchases
 
and/or
 
privately
 
negotiated
transactions
 
or
 
plans,
 
including
 
plans
 
complying
 
with
 
Rule
 
10b5-1
 
under
 
the
 
Exchange
 
Act.
 
The
 
Corporation’s
 
common
 
stock
repurchase
 
program
 
is
 
subject
 
to
 
various
 
factors,
 
including
 
the
 
Corporation’s
 
capital
 
position,
 
liquidity,
 
financial
 
performance
 
and
alternative uses
 
of capital,
 
stock trading
 
price, and
 
general market
 
conditions. The
 
repurchase program
 
may be
 
modified, suspended,
or
 
terminated
 
at
 
any
 
time
 
at
 
the
 
Corporation’s
 
discretion.
 
The
 
program
 
does
 
not
 
obligate
 
the
 
Corporation
 
to
 
acquire
 
any
 
specific
number of shares and does
 
not have an expiration
 
date. During the first quarter
 
of 2023, the Corporation
 
repurchased
3,577,540
 
shares
of common stock through
 
open market transactions at
 
an average purchase price
 
of $
13.98
 
per share for a total
 
price of approximately
$
50
 
million. As of
 
March 31, 2023,
 
the Corporation has
 
remaining authorization to
 
repurchase approximately $
75
 
million of common
stock.
 
Considering
 
the
 
industry-wide
 
uncertain
 
environment,
 
the
 
Corporation
 
decided
 
to
 
pause
 
share
 
buybacks
 
during
 
the
 
second
quarter of 2023 and it expects to resume shares repurchases during the third quarter
 
of 2023 subject to factors mentioned above.
 
 
During
 
the
 
first
 
quarter
 
of
 
2022,
 
the
 
Corporation
 
completed
 
a
 
previously
 
publicly-announced
 
$
300
 
million
 
stock
 
repurchase
program approved by the Board
 
on April 26, 2021 by purchasing through
 
open market transactions
3,409,697
 
shares of common stock
at an average price of $
14.66
 
for a total purchase price of approximately $
50
 
million.
Common Stock
 
The following table shows the change in shares of common stock outstanding for
 
the quarters ended March 31, 2023, and 2022:
Total
 
Number of Shares
Quarter Ended March 31,
 
2023
2022
Common stock outstanding, beginning balance
182,709,059
201,826,505
Common stock repurchased
(1)
(3,865,375)
(3,611,627)
Common stock reissued under stock-based compensation plan
970,429
489,085
Restricted stock forfeited
(25,415)
(3,092)
Common stock outstanding, ending balances
179,788,698
198,700,871
 
(1)
For the quarters ended March 31,
 
2023 and 2022
 
includes
287,835
 
and
201,930
 
shares, respectively, of common stock
 
surrendered to cover officers' payroll and income taxes.
For
 
the
 
quarters
 
ended
 
March
 
31,
 
2023
 
and
 
2022,
 
total
 
cash
 
dividends
 
declared
 
on
 
shares
 
of
 
common
 
stock
 
amounted
 
to
 
$
25.4
million
 
and
 
$
19.9
 
million,
 
respectively.
 
On
April 27, 2023
, the
 
Corporation
 
announced
 
that its
 
Board
 
had
 
declared
 
a quarterly
 
cash
dividend of $
0.14
 
per common share payable
 
on
June 9, 2023
 
to shareholders of record
 
at the close of
 
business on
May 24, 2023
. The
Corporation intends
 
to continue
 
to pay
 
quarterly dividends
 
on common
 
stock. However,
 
the Corporation’s
 
common stock
 
dividends,
including the
 
declaration, timing,
 
and amount,
 
remain subject
 
to consideration
 
and approval
 
by the
 
Corporation’s
 
Board Directors
 
at
the relevant times.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
56
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 when
 
authorizing the issuance
 
of that particular
 
series.
No
 
shares of preferred
 
stock were outstanding
 
as of March
31, 2023 and December 31, 2022.
Treasury Stock
The following table shows the change in shares of treasury stock for the quarters ended
 
March 31,
 
2023 and 2022.
Total
 
Number of Shares
Quarter Ended March 31,
 
2023
2022
Treasury stock, beginning balance
40,954,057
21,836,611
Common stock repurchased
(1)
3,865,375
3,611,627
Common stock reissued under stock-based compensation plan
(970,429)
(489,085)
Restricted stock forfeited
25,415
3,092
Treasury stock, ending balances
43,874,418
24,962,245
(1)
For the quarters ended March 31,
 
2023 and 2022 includes
287,835
 
and
201,930
 
shares, respectively, of common stock
 
surrendered to cover officers' payroll and income taxes.
FirstBank Statutory Reserve (Legal Surplus)
The
 
Puerto
 
Rico
 
Banking
 
Law
 
of
 
1933,
 
as
 
amended
 
(the
 
“Puerto
 
Rico
 
Banking
 
Law”),
 
requires
 
that
 
a
 
minimum
 
of
10
%
 
of
FirstBank’s
 
net income
 
for
 
the year
 
be transferred
 
to a
 
legal surplus
 
reserve
 
until such
 
surplus
 
equals the
 
total of
 
paid-in-capital
 
on
common and preferred
 
stock. Amounts transferred
 
to the legal surplus
 
reserve from retained
 
earnings are not available
 
for distribution
to the Corporation without the
 
prior consent of the Puerto
 
Rico Commissioner of Financial Institutions.
The Puerto Rico Banking Law
provides that, when the expenditures of a Puerto Rico commercial bank are greater than receipts, the excess of the expenditures over
receipts must be charged against the undistributed profits of the bank, and the balance, if any, must be charged against the legal
surplus reserve, as a reduction thereof. If the legal surplus reserve is not sufficient to cover such balance in whole or in part, the
outstanding amount must be charged against the capital account and the Bank cannot pay dividends until it can replenish the legal
surplus reserve to an amount of at least 20% of the original capital contributed.
 
FirstBank’s
 
legal surplus
 
reserve, included
 
as part
 
of
retained
 
earnings in
 
the Corporation’s
 
consolidated
 
statements of
 
financial
 
condition,
 
amounted
 
to $
168.5
 
million
 
as of
 
each March
31, 2023 and December 31, 2022.
 
There were
no
 
transfers to the legal surplus reserve during the quarter ended March 31, 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
57
NOTE 15 – ACCUMULATED
 
OTHER COMPREHENSIVE LOSS
 
The following table presents the changes in accumulated other comprehensive
 
loss for the quarters ended March 31, 2023 and
2022:
Changes in Accumulated Other Comprehensive
 
Loss by Component
(1)
Quarter ended March 31,
2023
2022
(In thousands)
Unrealized net holding losses on available-for-sale
 
debt securities:
Beginning balance
$
(805,972)
$
(87,390)
 
Other comprehensive income (loss)
87,228
(331,834)
Ending balance
$
(718,744)
$
(419,224)
Adjustment of pension and postretirement
 
benefit plans:
Beginning balance
$
1,194
$
3,391
 
Other comprehensive income (loss)
-
-
Ending balance
$
1,194
$
3,391
____________________
(1) All amounts presented are net of tax.
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
 
Banco
 
Santander
 
Puerto
 
Rico
 
(“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
 
the ASC Topic 715, “Compensation-Retirement
 
Benefits.”
The following table presents the components of net periodic cost (benefit) for
 
the indicated periods:
Affected Line Item
in the Consolidated
Quarter Ended
Statements of Income
March 31, 2023
March 31, 2022
(In thousands)
Net periodic cost (benefit), pension plans:
Interest cost
Other expenses
$
950
$
654
Expected return on plan assets
Other expenses
(886)
(1,039)
Net periodic cost (benefit), pension plans
64
(385)
Net periodic cost, postretirement plan
Other expenses
6
1
Net periodic cost (benefit)
$
70
$
(384)
58
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 PR (the
 
“2011 PR Code”),
 
the Corporation and its subsidiaries
 
are treated as
separate
 
taxable
 
entities
 
and
 
are
 
not
 
entitled
 
to
 
file
 
consolidated
 
tax
 
returns
 
and,
 
thus,
 
the
 
Corporation
 
is
 
generally
 
not
 
entitled
 
to
utilize
 
losses
 
from
 
one
 
subsidiary
 
to
 
offset
 
gains
 
in
 
another
 
subsidiary.
 
Accordingly,
 
in
 
order
 
to
 
obtain
 
a
 
tax
 
benefit
 
from
 
a
 
net
operating
 
loss
 
(“NOL”),
 
a
 
particular
 
subsidiary
 
must
 
be
 
able
 
to
 
demonstrate
 
sufficient
 
taxable
 
income
 
within
 
the
 
applicable
 
NOL
carry-forward
 
period.
 
Pursuant
 
to
 
the
 
2011
 
PR
 
Code,
 
the
 
carry-forward
 
period
 
for
 
NOLs
 
incurred
 
during
 
taxable
 
years
 
that
commenced
 
after
 
December
 
31,
 
2004
 
and
 
ended
 
before
 
January
 
1,
 
2013
 
is
 
12
 
years;
 
for
 
NOLs
 
incurred
 
during
 
taxable
 
years
commencing after December 31,
 
2012, the carryover period is
 
10 years. The 2011
 
PR Code provides a dividend
 
received deduction of
100
% on
 
dividends
 
received
 
from
 
“controlled”
 
subsidiaries
 
subject
 
to
 
taxation
 
in
 
Puerto
 
Rico
 
and
85
% on
 
dividends
 
received
 
from
other taxable domestic corporations.
The
 
Corporation
 
has
 
maintained
 
an
 
effective
 
tax
 
rate
 
lower
 
than
 
the
 
Puerto
 
Rico
 
maximum
 
statutory
 
rate
 
of
37.5
%
 
mainly
 
by
investing
 
in
 
government
 
obligations
 
and
 
MBS
 
exempt
 
from
 
U.S.
 
and
 
Puerto
 
Rico
 
income
 
taxes
 
and
 
by
 
doing
 
business
 
through
 
an
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
 
first quarter
 
of 2023,
 
the Corporation
 
recorded
 
an income
 
tax expense
 
of $
31.9
 
million
 
compared
 
to $
43.0
 
million in
 
the
first quarter of 2022.
 
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
 
2022.
 
The
 
Corporation’s
 
estimated
 
annual
effective tax
 
rate, excluding
 
entities with pre-tax
 
losses from which
 
a tax benefit
 
cannot be recognized
 
and discrete items,
 
was
31.2
%
for the first quarter of 2023, compared to
32.9
% for the first quarter of 2022.
The net
 
deferred tax
 
asset of
 
the Corporation’s
 
banking subsidiary,
 
FirstBank, amounted
 
to $
154.8
 
million as
 
of March
 
31, 2023,
net of a valuation
 
allowance of $
139.1
 
million, compared to
 
a net deferred
 
tax asset of $
155.6
 
million, net of
 
a valuation allowance
 
of
$
149.5
 
million, as
 
of December
 
31, 2022.
 
The Corporation
 
maintains a
 
full valuation
 
allowance for
 
its deferred
 
tax assets
 
associated
with capital
 
losses carry
 
forward and
 
unrealized losses
 
of available-for-sale
 
debt securities.
 
The reduction
 
in the
 
valuation allowance
was related to
 
the change in
 
the market value
 
of available-for-sale
 
debt securities,
 
which resulted in
 
a change in
 
the deferred tax
 
asset
and an equal change in the valuation allowance without impacting earnings.
59
In
 
2017,
 
the
 
Corporation
 
completed
 
a
 
formal
 
ownership
 
change
 
analysis
 
within
 
the
 
meaning
 
of
 
Section
 
382
 
of
 
the
 
U.S.
 
Internal
Revenue Code
 
(“Section 382”)
 
covering a
 
comprehensive period
 
and concluded
 
that an
 
ownership
 
change had
 
occurred during
 
such
period.
 
The
 
Section
 
382
 
limitation
 
has
 
resulted
 
in
 
higher
 
U.S.
 
and
 
USVI
 
income
 
tax
 
liabilities
 
that
 
we
 
would
 
have
 
incurred
 
in
 
the
absence of such limitation. The Corporation has mitigated
 
to an extent the adverse effects associated with the
 
Section 382 limitation as
any
 
such
 
tax
 
paid
 
in
 
the
 
U.S.
 
or
 
USVI
 
can
 
be
 
creditable
 
against
 
Puerto
 
Rico
 
tax
 
liabilities
 
or
 
taken
 
as
 
a
 
deduction
 
against
 
taxable
income. However,
 
our ability
 
to reduce
 
our Puerto
 
Rico tax
 
liability through
 
such a
 
credit or
 
deduction depends
 
on our
 
tax profile
 
at
each annual
 
taxable period,
 
which is
 
dependent on
 
various factors.
 
For the
 
first quarters
 
of 2023
 
and 2022,
 
the Corporation
 
incurred
current income tax expense
 
of approximately $
2.5
 
million and $
1.6
 
million, respectively,
 
related to its U.S. operations.
 
The limitation
did not impact the USVI operations in the first quarters of 2023 and 2022, respectively
 
.
 
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
 
March 31,
 
2023,
 
the Corporation
 
had $
0.2
million of
 
accrued interest
 
and penalties
 
related to
 
uncertain tax
 
positions in
 
the amount
 
of $
1.0
 
million that
 
it acquired
 
from BSPR,
which,
 
if recognized,
 
would decrease
 
the
 
effective
 
income tax
 
rate in
 
future
 
periods.
 
The amount
 
of unrecognized
 
tax benefits
 
may
increase
 
or
 
decrease
 
in
 
the
 
future
 
for
 
various
 
reasons,
 
including
 
adding
 
amounts
 
for
 
current
 
tax
 
year
 
positions,
 
expiration
 
of
 
open
income
 
tax returns
 
due
 
to the
 
statute of
 
limitations,
 
changes
 
in management’s
 
judgment about
 
the level
 
of uncertainty,
 
the status
 
of
examinations,
 
litigation
 
and
 
legislative activity,
 
and
 
the addition
 
or elimination
 
of uncertain
 
tax positions.
 
The statute
 
of
 
limitations
under the 2011
 
PR Code is four
 
years after a
 
tax return is
 
due or filed,
 
whichever is later;
 
the statute of
 
limitations for U.S.
 
and USVI
income
 
tax
 
purposes
 
is
 
three
 
years
 
after
 
a
 
tax
 
return
 
is
 
due
 
or
 
filed,
 
whichever
 
is
 
later.
 
The
 
completion
 
of
 
an
 
audit
 
by
 
the
 
taxing
authorities
 
or
 
the
 
expiration
 
of
 
the
 
statute
 
of
 
limitations
 
for
 
a
 
given
 
audit
 
period
 
could
 
result
 
in
 
an
 
adjustment
 
to
 
the Corporation’s
liability for
 
income taxes. Any
 
such adjustment could
 
be material to
 
the results of
 
operations for any
 
given quarterly
 
or annual period
based, in part, upon
 
the results of operations
 
for the given period.
 
For U.S. and USVI
 
income tax purposes, all
 
tax years subsequent
 
to
2018 remain open to examination. For Puerto Rico tax purposes, all tax years
 
subsequent to 2017 remain open to examination.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
60
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
 
Va
luations of
 
Level 2 assets
 
and liabilities
 
are based on
 
observable inputs
 
other than Level
 
1 prices, such
 
as quoted
prices for similar assets or liabilities, or other inputs that are
 
observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
Level 3
 
Va
luations of Level 3 assets and
 
liabilities are based on unobservable
 
inputs that are supported by
 
little or no market
activity and
 
are significant to
 
the fair value
 
of the assets
 
or liabilities. Level
 
3 assets and
 
liabilities include financial
instruments
 
whose value
 
is determined
 
by using
 
pricing models
 
for
 
which
 
the determination
 
of fair
 
value
 
requires
significant management judgment as to the estimation.
 
See Note 25
 
– Fair Value
 
,
 
to the audited
 
consolidated financial
 
statements included
 
in the 2022
 
Annual Report
 
on Form
 
10-K for
 
a
description of the valuation methodologies 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
 
March 31, 2023 and December 31,
2022:
As of March 31, 2023
As of December 31, 2022
Fair Value Measurements Using
 
Fair Value Measurements Using
 
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
(In thousands)
Assets:
Debt securities available for sale:
U.S. Treasury securities
$
140,422
$
-
$
-
$
140,422
$
138,875
$
-
$
-
$
138,875
Noncallable U.S. agencies debt securities
-
428,675
-
428,675
-
389,787
-
389,787
Callable U.S. agencies debt securities
-
1,962,535
-
1,962,535
-
1,963,566
-
1,963,566
MBS
-
3,050,019
5,402
(1)
3,055,421
-
3,098,797
5,794
(1)
3,104,591
Puerto Rico government obligations
-
-
2,203
2,203
-
-
2,201
2,201
Other investments
-
-
-
-
-
-
500
500
Equity securities
4,926
-
-
4,926
4,861
-
-
4,861
Derivative assets
-
628
-
628
-
633
-
633
Liabilities:
Derivative liabilities
-
645
-
645
-
476
-
476
(1) Related to private label MBS.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
61
 
The table
 
below presents
 
a reconciliation
 
of the
 
beginning and
 
ending balances
 
of all
 
assets measured
 
at fair
 
value on
 
a recurring
basis using significant unobservable inputs (Level 3) for the quarters
 
ended March 31, 2023 and 2022:
Quarter Ended March 31,
 
2023
2022
Level 3 Instruments Only
 
 
Securities Available for Sale
(1)
Securities Available for Sale
(1)
(In thousands)
Beginning balance
$
8,495
$
11,084
 
Total gains (losses):
 
Included in other comprehensive loss (unrealized)
(162)
(287)
 
Included in earnings (unrealized)
(2)
9
388
 
Principal repayments and amortization
(3)
(737)
(538)
Ending balance
$
7,605
$
10,647
___________________
(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.
(3)
Includes the $
0.5
 
million repayment of a matured debt security.
 
The tables below present quantitative information for significant assets measured at fair
 
value on a recurring basis using significant
unobservable inputs (Level 3) as of March 31, 2023 and December 31, 2022:
March 31, 2023
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
 
Maximum
(Dollars in thousands)
Available-for-sale
 
debt securities:
 
Private label MBS
$
5,402
Discounted cash flows
Discount rate
16.0%
16.0%
16.0%
Prepayment rate
1.6%
12.6%
9.2%
Projected cumulative loss rate
0.2%
14.9%
5.2%
 
Puerto Rico government obligations
$
2,203
Discounted cash flows
Discount rate
12.8%
12.8%
12.8%
Projected cumulative loss rate
19.0%
19.0%
19.0%
December 31, 2022
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
 
Maximum
(Dollars in thousands)
Available-for-sale
 
debt securities:
 
Private label MBS
$
5,794
Discounted cash flows
Discount rate
16.2%
16.2%
16.2%
Prepayment rate
1.5%
15.2%
11.8%
Projected cumulative loss rate
0.3%
15.6%
5.6%
 
Puerto Rico government obligations
$
2,201
Discounted cash flows
Discount rate
12.9%
12.9%
12.9%
Projected cumulative loss rate
19.3%
19.3%
19.3%
Information about Sensitivity to Changes in Significant Unobservable Inputs
Private label
 
MBS: The
 
significant unobservable
 
inputs in
 
the valuation
 
include probability
 
of default,
 
the loss
 
severity
 
assumption,
and prepayment
 
rates. Shifts
 
in those
 
inputs would
 
result in different
 
fair value
 
measurements. Increases
 
in the probability
 
of default,
loss
 
severity
 
assumptions,
 
and
 
prepayment
 
rates
 
in
 
isolation
 
would
 
generally
 
result
 
in
 
an
 
adverse
 
effect
 
on
 
the
 
fair
 
value
 
of
 
the
instruments. The Corporation modeled meaningful and possible
 
shifts of each input to assess the effect on the fair value estimation.
Puerto Rico
 
Government Obligations:
 
The significant
 
unobservable input
 
used in
 
the fair value
 
measurement is
 
the assumed
 
loss rate
of the
 
underlying
 
residential
 
mortgage
 
loans that
 
collateralize
 
these obligations,
 
which
 
are guaranteed
 
by the
 
PRHFA.
 
A significant
increase (decrease) in
 
the assumed rate
 
would lead to
 
a (lower) higher
 
fair value estimate.
 
The fair value
 
of these bonds
 
was based on
a
 
discounted
 
cash
 
flow
 
methodology
 
that
 
considers
 
the
 
structure
 
and
 
terms
 
of
 
the
 
debt
 
security.
 
The
 
Corporation
 
utilizes
 
PDs
 
and
LGDs that
 
consider,
 
among other
 
things, historical
 
payment performance,
 
loan-to value
 
attributes,
 
and relevant
 
current and
 
forward-
looking
 
macroeconomic
 
variables,
 
such
 
as
 
regional
 
unemployment
 
rates,
 
the
 
housing
 
price
 
index,
 
and
 
expected
 
recovery
 
of
 
the
PRHFA
 
guarantee. Under
 
this approach, expected
 
cash flows (interest and
 
principal) are discounted
 
at the Treasury
 
yield curve plus a
spread as of the reporting date and compared to the amortized cost.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
62
Additionally, fair value
 
is used on a nonrecurring basis to evaluate certain assets in accordance with GAAP.
 
As of March 31, 2023, the Corporation recorded losses or valuation adjustments
 
for assets recognized at fair value on a non-
recurring basis and still held at March 31, 2023, as shown in the following table:
Carrying value as of March 31,
 
Related to losses recorded for the Quarter Ended
March 31,
 
2023
2022
2023
2022
(In thousands)
Level 3:
Loans receivable
 
(1)
$
3,486
$
25,951
$
(60)
$
(3,539)
OREO
(2)
814
1,432
(33)
(73)
(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 25 – Fair Value,
 
to the audited consolidated financial
 
statements to the audited
 
consolidated financial statements included
 
in
the
 
2022
 
Annual
 
Report
 
on
 
Form
 
10-K
 
for
 
qualitative
 
information
 
regarding
 
the
 
fair
 
value
 
measurements
 
for
 
Level
 
3
 
financial
instruments measured at fair value on nonrecurring basis.
 
The following tables present the carrying value, estimated fair value and estimated
 
fair value level of the hierarchy of financial
instruments as of March 31, 2023 and December 31, 2022:
Total Carrying Amount
in Statement of
Financial Condition as
of March 31, 2023
Fair Value Estimate as
 
of
March 31, 2023
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money market investments
 
(amortized cost)
$
823,601
$
823,601
$
823,601
$
-
$
-
Available-for-sale debt
 
securities (fair value)
5,589,256
5,589,256
140,422
5,441,229
7,605
Held-to-maturity debt securities (amortized cost)
431,395
Less: ACL on held-to-maturity debt securities
(7,646)
Held-to-maturity debt securities, net of ACL
$
423,749
419,752
-
255,209
164,543
Equity securities (amortized cost)
61,788
61,788
-
61,788
(1)
-
Other equity securities (fair value)
4,926
4,926
4,926
-
-
Loans held for sale (lower of cost or market)
15,183
15,214
-
15,214
-
Loans held for investment (amortized cost)
11,577,985
Less: ACL for loans and finance leases
(265,567)
Loans held for investment, net of ACL
$
11,312,418
11,030,421
-
-
11,030,421
MSRs (amortized cost)
28,431
45,270
-
-
45,270
Derivative assets (fair value)
 
(2)
628
628
-
628
-
Liabilities:
Deposits (amortized cost)
$
16,051,965
$
16,039,550
$
-
$
16,039,550
$
-
Short-term securities sold under agreements to repurchase (amortized
 
cost)
172,982
173,936
-
173,936
-
Advances from the FHLB (amortized cost):
 
Short-term
425,000
426,665
-
426,665
-
 
Long-term
500,000
501,990
-
501,990
-
Other long-term borrowings (amortized cost)
183,762
187,183
-
-
187,183
Derivative liabilities (fair value)
 
(2)
645
645
-
645
-
(1) Includes FHLB stock with a carrying value of $
54.2
 
million, which are considered restricted.
(2) Includes interest rate swap agreements, interest rate caps, forward contracts, interest rate lock commitments, and forward loan sales commitments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
63
Total Carrying
Amount in Statement
of Financial Condition
as of December 31,
2022
Fair Value Estimate as
 
of
December 31, 2022
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money market investments (amortized
 
cost)
$
480,505
$
480,505
$
480,505
$
-
$
-
Available-for-sale debt
 
securities (fair value)
5,599,520
5,599,520
138,875
5,452,150
8,495
Held-to-maturity debt securities (amortized cost)
437,537
Less: ACL on held-to-maturity debt securities
(8,286)
Held-to-maturity debt securities, net of ACL
$
429,251
427,115
-
260,106
167,009
Equity securities (amortized cost)
50,428
50,428
-
50,428
(1)
-
Other equity securities (fair value)
4,861
4,861
4,861
-
-
Loans held for sale (lower of cost or market)
12,306
12,306
-
12,306
-
Loans held for investment (amortized cost)
11,552,825
Less: ACL for loans and finance leases
(260,464)
Loans held for investment, net of ACL
$
11,292,361
11,106,809
-
-
11,106,809
MSRs (amortized cost)
29,037
44,710
-
-
44,710
Derivative assets (fair value)
(2)
633
633
-
633
-
Liabilities:
Deposits (amortized cost)
$
16,143,467
$
16,139,937
$
-
$
16,139,937
$
-
Short-term securities sold under agreements to repurchase (amortized
 
cost)
75,133
75,230
-
75,230
-
Advances from the FHLB (amortized cost)
 
Short-term
475,000
474,731
-
474,731
-
 
Long-term
200,000
199,865
-
199,865
-
Other long-term borrowings (amortized cost)
183,762
187,246
-
-
187,246
Derivative liabilities (fair value)
(2)
476
476
-
476
-
(1) Includes FHLB stock with a carrying value of $
42.9
 
million, which are considered restricted.
(2) Includes interest rate swap agreements, interest rate caps, forward contracts, interest rate lock commitments, and forward loan sales commitments.
The short-term nature
 
of certain assets and
 
liabilities result in their
 
carrying value approximating
 
fair value. These include
 
cash and
cash
 
due
 
from
 
banks
 
and
 
other
 
short-term
 
assets,
 
such
 
as
 
FHLB
 
stock.
 
Certain
 
assets,
 
the
 
most
 
significant
 
being
 
premises
 
and
equipment,
 
goodwill
 
and
 
other
 
intangible
 
assets, are
 
not
 
considered
 
financial
 
instruments
 
and
 
are
 
not
 
included
 
above. Accordingly,
this fair
 
value
 
information
 
is not
 
intended
 
to, and
 
does not,
 
represent
 
the Corporation’s
 
underlying
 
value.
 
Many of
 
these assets
 
and
liabilities that
 
are subject
 
to the
 
disclosure requirements
 
are not
 
actively traded,
 
requiring management
 
to estimate
 
fair values.
 
These
estimates
 
necessarily
 
involve
 
the
 
use
 
of
 
assumptions
 
and
 
judgment
 
about
 
a
 
wide
 
variety
 
of
 
factors,
 
including
 
but
 
not
 
limited
 
to,
relevancy of market prices of comparable instruments, expected future cash flows,
 
and appropriate discount rates.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
64
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
 
tables summarize
 
the Corporation’s
 
revenue, which
 
includes net
 
interest income
 
on financial
 
instruments and
 
non-
interest income, disaggregated by type of service and business segment for
 
the quarters ended March 31, 2023 and 2022:
Quarter ended March 31, 2023
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial
and Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income
(1)
$
21,788
$
137,744
$
14,940
$
(658)
$
20,930
$
6,141
$
200,885
Service charges and fees on deposit accounts
-
5,486
3,154
-
165
736
9,541
Insurance commissions
-
4,640
-
-
28
179
4,847
Merchant-related income
-
2,263
-
-
29
468
2,760
Credit and debit card fees
-
7,638
22
-
2
496
8,158
Other service charges and fees
161
1,152
854
-
583
344
3,094
Not in scope of ASC Topic
 
606
 
(1)
2,913
855
145
160
40
5
4,118
 
Total non-interest income
3,074
22,034
4,175
160
847
2,228
32,518
Total Revenue
$
24,862
$
159,778
$
19,115
$
(498)
$
21,777
$
8,369
$
233,403
Quarter ended March 31, 2022
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial
and Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income
(1)
$
25,779
$
89,546
$
40,415
$
7,409
$
16,482
$
5,993
$
185,624
Service charges and fees on deposit accounts
-
5,539
2,976
-
138
710
9,363
Insurance commissions
-
4,967
-
-
29
279
5,275
Merchant-related income
-
1,822
373
-
5
389
2,589
Credit and debit card fees
-
6,671
16
-
(7)
410
7,090
Other service charges and fees
143
1,110
1,113
-
499
157
3,022
Not in scope of ASC Topic
 
606
(1)
5,109
354
76
(112)
80
12
5,519
Total non-interest
 
income
5,252
20,463
4,554
(112)
744
1,957
32,858
Total Revenue
$
31,031
$
110,009
$
44,969
$
7,297
$
17,226
$
7,950
$
218,482
(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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
65
For
 
the
 
quarters
 
ended
 
March
 
31,
 
2023
 
and
 
2022,
 
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
 
26
 
 
Revenue
 
from
 
Contracts
 
with
 
Customers,
 
to
 
the
 
audited
 
consolidated
 
financial
 
statements
 
included
 
in
 
the
 
2022
Annual Report on Form 10-K for a discussion of major revenue streams under
 
the scope of ASC Topic 606.
Contract Balances
A
contract
 
liability
 
is
 
an
 
entity’s
 
obligation
 
to
 
transfer
 
goods
 
or
 
services
 
to
 
a
 
customer
 
in
 
exchange
 
for
 
consideration
 
from
 
the
customer.
 
FirstBank
 
participates
 
in
 
a
 
merchant
 
revenue-sharing
 
agreement
 
with
 
another
 
entity
 
to
 
which
 
the
 
Bank
 
sold
 
its
 
merchant
contracts portfolio and related point-of-sale terminals,
 
and a growth agreement with an international
 
card service association to expand
the
 
customer
 
base
 
and
 
enhance
 
product
 
offerings.
 
FirstBank
 
recognizes
 
the
 
revenue
 
under
 
these
 
agreements
 
over
 
time, as
 
the
 
Bank
completes its performance obligations.
The following table shows the activity of contract liabilities for the quarters
 
ended March 31, 2023 and 2022:
 
Quarter Ended March 31,
 
2023
2022
(In thousands)
Beginning Balance
$
841
$
1,443
Less:
 
Revenue recognized
(81)
(289)
Ending balance
$
760
$
1,154
As of March 31, 2023 and 2022, there were no contract assets recorded on
 
the Corporation’s consolidated
 
financial statements.
Other
 
Except for the contract liabilities noted above, the Corporation did not have
 
any significant performance obligations as of March 31,
2023.
 
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.
 
66
NOTE 20 – 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
 
March 31,
 
2023, the
 
Corporation had
six
 
reportable
segments:
 
Mortgage
 
Banking;
 
Consumer
 
(Retail)
 
Banking;
 
Commercial
 
and
 
Corporate
 
Banking;
 
Treasury
 
and
 
Investments;
 
United
States
 
Operations;
 
and
 
Virgin
 
Islands
 
Operations.
 
Management
 
determined
 
the
 
reportable
 
segments
 
based
 
on
 
the
 
internal
 
structure
used to
 
evaluate performance
 
and to
 
assess where
 
to allocate
 
resources. Other
 
factors, such
 
as the
 
Corporation’s
 
organizational chart,
nature
 
of
 
the
 
products,
 
distribution
 
channels,
 
and
 
the
 
economic
 
characteristics
 
of
 
the
 
products,
 
were
 
also
 
considered
 
in
 
the
determination of the reportable segments.
The
 
Mortgage
 
Banking
 
segment
 
consists
 
of
 
the
 
origination,
 
sale,
 
and
 
servicing
 
of
 
a
 
variety
 
of
 
residential
 
mortgage
 
loans.
 
The
Mortgage Banking
 
segment also
 
acquires and
 
sells mortgages
 
in the
 
secondary markets.
 
In addition,
 
the Mortgage
 
Banking segment
includes mortgage loans purchased from
 
other local banks and mortgage bankers.
 
The Consumer (Retail) Banking segment
 
consists of
the Corporation’s
 
consumer lending
 
and deposit-taking
 
activities conducted
 
mainly through
 
its branch
 
network and
 
loan centers.
 
The
Commercial and
 
Corporate Banking
 
segment consists of
 
the Corporation’s
 
lending and other
 
services for
 
large customers
 
represented
by specialized
 
and middle-market
 
clients and
 
the public
 
sector.
 
The Commercial
 
and Corporate
 
Banking segment
 
offers commercial
loans,
 
including
 
commercial
 
real
 
estate
 
and
 
construction
 
loans,
 
and
 
floor
 
plan
 
financings,
 
as
 
well
 
as
 
other
 
products,
 
such
 
as
 
cash
management
 
and
 
business
 
management
 
services.
 
The
 
Treasury
 
and
 
Investments
 
segment
 
is
 
responsible
 
for
 
the
 
Corporation’s
investment
 
portfolio
 
and
 
treasury
 
functions
 
that
 
are
 
executed
 
to
 
manage
 
and
 
enhance
 
liquidity.
 
This
 
segment
 
lends
 
funds
 
to
 
the
Commercial
 
and
 
Corporate
 
Banking,
 
the
 
Mortgage
 
Banking,
 
the
 
Consumer
 
(Retail)
 
Banking,
 
and
 
the
 
United
 
States
 
Operations
segments
 
to
 
finance
 
their
 
lending
 
activities
 
and
 
borrows
 
from
 
those
 
segments.
 
The
 
Consumer
 
(Retail)
 
Banking
 
segment
 
also
 
lends
funds to
 
other segments.
 
The interest
 
rates charged
 
or credited
 
by the
 
Treasury
 
and Investments
 
and the
 
Consumer (Retail)
 
Banking
segments are
 
allocated based
 
on market
 
rates. The
 
difference between
 
the allocated
 
interest income
 
or expense
 
and the Corporation’s
actual
 
net
 
interest income
 
from
 
centralized
 
management
 
of funding
 
costs is
 
reported
 
in the
 
Treasury
 
and Investments
 
segment.
 
The
United States
 
Operations segment
 
consists of
 
all banking
 
activities conducted
 
by FirstBank
 
in the
 
United States
 
mainland,
 
including
commercial and consumer banking
 
services. The Virgin
 
Islands Operations segment consists of
 
all banking activities conducted by the
Corporation in the USVI and BVI, including commercial and consumer banking
 
services.
 
The
 
accounting
 
policies
 
of
 
the
 
segments
 
are
 
the
 
same
 
as
 
those
 
referred
 
to
 
in
 
Note
 
1
 
 
Nature
 
of
 
Business
 
and
 
Summary
 
of
Significant Accounting Policies, to the audited consolidated financial
 
statements included in the 2022 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
67
 
The following tables present information about the reportable segments for
 
the indicated periods:
Mortgage
Banking
Consumer
(Retail) Banking
Commercial and
Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
For the quarter ended March 31, 2023:
Interest income
$
31,907
$
83,174
$
62,343
$
27,466
$
31,114
$
6,392
$
242,396
Net (charge) credit for transfer of funds
(10,119)
77,735
(47,403)
(19,539)
(674)
-
-
Interest expense
-
(23,165)
-
(8,585)
(9,510)
(251)
(41,511)
Net interest income (loss)
21,788
137,744
14,940
(658)
20,930
6,141
200,885
Provision for credit losses - (benefit) expense
(506)
15,224
(2,536)
(9)
4,655
(1,326)
15,502
Non-interest income
3,074
22,034
4,175
160
847
2,228
32,518
Direct non-interest expenses
5,087
41,627
9,365
947
8,304
6,825
72,155
 
Segment income (loss)
$
20,281
$
102,927
$
12,286
$
(1,436)
$
8,818
$
2,870
$
145,746
Average earnings assets
$
2,171,061
$
3,174,150
$
3,713,633
$
6,216,498
$
2,067,848
$
366,338
$
17,709,528
Mortgage
Banking
Consumer
(Retail) Banking
Commercial and
Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
For the quarter ended March 31, 2022:
Interest income
$
33,071
$
70,437
$
47,027
$
22,184
$
18,857
$
6,278
$
197,854
Net (charge) credit for transfer of funds
(7,292)
24,282
(6,612)
(9,949)
(429)
-
-
Interest expense
-
(5,173)
-
(4,826)
(1,946)
(285)
(12,230)
Net interest income
 
25,779
89,546
40,415
7,409
16,482
5,993
185,624
Provision for credit losses - (benefit) expense
(3,703)
11,144
(16,622)
(388)
(3,547)
(686)
(13,802)
Non-interest income (loss)
5,252
20,463
4,554
(112)
744
1,957
32,858
Direct non-interest expenses
6,906
39,271
8,859
885
8,479
6,973
71,373
 
Segment income
$
27,828
$
59,594
$
52,732
$
6,800
$
12,294
$
1,663
$
160,911
Average earnings assets
$
2,293,648
$
2,759,482
$
3,664,104
$
8,145,949
$
2,065,638
$
378,169
$
19,306,990
 
The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods:
Quarter Ended March 31,
2023
2022
(In thousands)
Net income:
 
Total income for segments
 
$
145,746
$
160,911
Other operating expenses
 
(1)
43,113
35,286
Income before income taxes
102,633
125,625
Income tax expense
31,935
43,025
 
Total consolidated net income
$
70,698
$
82,600
Average assets:
Total average earning assets for segments
 
$
17,709,528
$
19,306,990
Average non-earning assets
 
847,628
947,011
 
Total consolidated average assets
$
18,557,156
$
20,254,001
(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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
68
NOTE 21 – SUPPLEMENTAL
 
STATEMENT
 
OF CASH FLOWS INFORMATION
 
Supplemental statement of cash flows information is as follows for the indicated
 
periods:
Quarter Ended March 31,
 
2023
2022
(In thousands)
Cash paid for:
 
Interest on borrowings
$
37,798
$
13,300
 
Income tax
 
10,926
2,598
 
Operating cash flow from operating leases
4,316
4,751
Non-cash investing and financing activities:
 
Additions to OREO
6,414
6,770
 
Additions to auto and other repossessed assets
15,356
10,772
 
Capitalization of servicing assets
532
1,130
 
Loan securitizations
28,736
40,823
 
Loans held for investment transferred to held for sale
2,345
1,176
 
Payable related to unsettled purchases of available-for-sale debt securities
-
15,000
 
ROU assets obtained in exchange for operating lease liabilities
1,630
2,791
69
NOTE 22 – REGULATORY
 
MATTERS, COMMITMENTS,
 
AND CONTINGENCIES
Regulatory Matters
The
 
Corporation
 
and
 
FirstBank
 
are
 
each
 
subject
 
to
 
various
 
regulatory
 
capital
 
requirements
 
imposed
 
by
 
the
 
U.S.
 
federal
 
banking
agencies. Failure
 
to meet
 
minimum capital
 
requirements can
 
result in
 
certain mandatory
 
and possibly
 
additional discretionary
 
actions
by regulators
 
that, if
 
undertaken, could
 
have a
 
direct material
 
adverse effect
 
on the
 
Corporation’s
 
financial statements
 
and activities.
Under
 
capital
 
adequacy
 
guidelines
 
and
 
the
 
regulatory
 
framework
 
for
 
prompt
 
corrective
 
action,
 
the
 
Corporation
 
must
 
meet
 
specific
capital
 
guidelines
 
that
 
involve
 
quantitative
 
measures
 
of
 
the Corporation’s
 
and
 
FirstBank’s
 
assets,
 
liabilities,
 
and
 
certain
 
off-balance
sheet items
 
as calculated
 
under regulatory
 
accounting practices.
 
The Corporation’s
 
capital amounts
 
and classification
 
are also
 
subject
to qualitative judgments and
 
adjustment by the regulators with respect
 
to minimum capital requirements, components,
 
risk weightings,
and
 
other factors.
 
As of
 
March 31,
 
2023 and
 
December 31,
 
2022,
 
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
 
March
 
31,
 
2023,
 
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
 
one
 
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
 
March
 
31,
 
2023,
 
the
 
capital
 
measures
 
of
 
the
 
Corporation
 
and
 
the
 
Bank
 
included
$
32.4
 
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
 
$
32.4
 
million
 
remains
 
excluded
 
to
 
be
 
phase-in
 
during
 
the
remainder of
 
the three-year
 
transition period.
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
70
The regulatory
 
capital position
 
of the
 
Corporation and
 
the FirstBank as
 
of March
 
31, 2023
 
and December
 
31, 2022,
 
which reflects
the delay in the full 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 March 31, 2023
Total Capital (to Risk-Weighted
 
Assets)
 
First BanCorp.
$
2,366,591
19.02
%
$
995,597
8.0
%
N/A
N/A
%
 
FirstBank
$
2,327,600
18.71
%
$
995,452
8.0
%
$
1,244,315
10.0
%
CET1 Capital (to Risk-Weighted Assets)
 
First BanCorp.
$
2,032,369
16.33
%
$
560,023
4.5
%
N/A
N/A
%
 
FirstBank
$
2,071,650
16.65
%
$
559,942
4.5
%
$
808,805
6.5
%
Tier I Capital (to Risk-Weighted
 
Assets)
 
First BanCorp.
$
2,032,369
16.33
%
$
746,697
6.0
%
N/A
N/A
%
 
FirstBank
$
2,171,650
17.45
%
$
746,589
6.0
%
$
995,452
8.0
%
Leverage ratio
 
First BanCorp.
$
2,032,369
10.57
%
$
769,399
4.0
%
N/A
N/A
%
 
FirstBank
$
2,171,650
11.29
%
$
769,102
4.0
%
$
961,378
5.0
%
As of December 31, 2022
Total Capital (to Risk-Weighted
 
Assets)
 
First BanCorp.
$
2,385,866
19.21
%
$
993,405
8.0
%
N/A
N/A
%
 
FirstBank
$
2,346,093
18.90
%
$
993,264
8.0
%
$
1,241,580
10.0
%
CET1 Capital (to Risk-Weighted Assets)
 
First BanCorp.
$
2,052,333
16.53
%
$
558,790
4.5
%
N/A
N/A
%
 
FirstBank
$
2,090,832
16.84
%
$
558,711
4.5
%
$
807,027
6.5
%
Tier I Capital (to Risk-Weighted
 
Assets)
 
First BanCorp.
$
2,052,333
16.53
%
$
745,054
6.0
%
N/A
N/A
%
 
FirstBank
$
2,190,832
17.65
%
$
744,948
6.0
%
$
993,264
8.0
%
Leverage ratio
 
First BanCorp.
$
2,052,333
10.70
%
$
767,075
4.0
%
N/A
N/A
%
 
FirstBank
$
2,190,832
11.43
%
$
766,714
4.0
%
$
958,392
5.0
%
71
Commitments
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
 
credit.
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 March 31, 2023,
 
commitments to extend
 
credit amounted to approximately
 
$
2.0
 
billion, of which $
0.9
 
billion relates to retail
 
credit
card
 
loans.
 
In
 
addition,
 
commercial
 
and
 
financial
 
standby
 
letters
 
of
 
credit
 
as
 
of
 
March
 
31,
 
2023
 
amounted
 
to
 
approximately
 
$
93.6
million.
Contingencies
As
 
of
 
March
 
31,
 
2023,
 
First
 
BanCorp.
 
and
 
its
 
subsidiaries
 
were
 
defendants
 
in
 
various
 
legal
 
proceedings,
 
claims
 
and
 
other
 
loss
contingencies
 
arising
 
in
 
the
 
ordinary
 
course
 
of
 
business.
 
On
 
at
 
least
 
a
 
quarterly
 
basis,
 
the
 
Corporation
 
assesses
 
its
 
liabilities
 
and
contingencies in connection
 
with threatened and
 
outstanding legal proceedings,
 
claims and other
 
loss contingencies utilizing
 
the latest
information
 
available. For
 
legal proceedings,
 
claims and
 
other loss
 
contingencies
 
where it
 
is both
 
probable that
 
the Corporation
 
will
incur
 
a
 
loss
 
and
 
the
 
amount
 
can
 
be
 
reasonably
 
estimated,
 
the
 
Corporation
 
establishes
 
an
 
accrual
 
for
 
the
 
loss.
 
Once
 
established,
 
the
accrual
 
is
 
adjusted
 
as
 
appropriate
 
to
 
reflect
 
any
 
relevant
 
developments.
 
For
 
legal
 
proceedings,
 
claims
 
and
 
other
 
loss
 
contingencies
where a loss is not probable or the amount of the loss cannot be estimated, no accrual
 
is established.
Any estimate
 
involves significant
 
judgment, given
 
the varying
 
stages of
 
the proceedings
 
(including the
 
fact that
 
some of
 
them are
currently in
 
preliminary stages),
 
the existence
 
in some
 
of the
 
current proceedings
 
of multiple
 
defendants whose
 
share of
 
liability has
yet
 
to
 
be
 
determined,
 
the
 
numerous
 
unresolved
 
issues
 
in
 
the
 
proceedings,
 
and
 
the
 
inherent
 
uncertainty
 
of
 
the
 
various
 
potential
outcomes of such
 
proceedings. Accordingly,
 
the Corporation’s
 
estimate will change
 
from time to time,
 
and actual losses
 
may be more
or less than the current estimate.
While
 
the
 
final
 
outcome
 
of
 
legal
 
proceedings,
 
claims,
 
and
 
other
 
loss
 
contingencies
 
is
 
inherently
 
uncertain,
 
based
 
on
 
information
currently
 
available,
 
management
 
believes
 
that
 
the
 
final
 
disposition
 
of
 
the
 
Corporation’s
 
legal
 
proceedings,
 
claims
 
and
 
other
 
loss
contingencies,
 
to
 
the
 
extent
 
not
 
previously
 
provided
 
for,
 
will
 
not
 
have
 
a
 
material
 
adverse
 
effect
 
on
 
the
 
Corporation’s
 
consolidated
financial position as a whole.
If management believes that, based on available information,
 
it is at least reasonably possible that a material loss (or material
 
loss in
excess
 
of
 
any
 
accrual)
 
will
 
be
 
incurred
 
in
 
connection
 
with
 
any
 
legal
 
contingencies,
 
the
 
Corporation
 
discloses
 
an
 
estimate
 
of
 
the
possible loss or
 
range of loss,
 
either individually or
 
in the aggregate,
 
as appropriate, if
 
such an estimate can
 
be made, or
 
discloses that
an estimate cannot be made. Based on the Corporation’s
 
assessment as of March 31, 2023, no such disclosures were necessary.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
72
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 March 31, 2023 and December 31, 2022, and the results of its operations
 
for the quarters ended March 31, 2023 and 2022:
Statements of Financial Condition
As of March 31,
 
As of December 31,
2023
2022
(In thousands)
Assets
Cash and due from banks
$
13,981
$
19,279
Other investment securities
735
735
Investment in First Bank Puerto Rico, at equity
1,544,874
1,464,026
Investment in First Bank Insurance Agency,
 
at equity
32,374
28,770
Investment in FBP Statutory Trust I
1,951
1,951
Investment in FBP Statutory Trust II
3,561
3,561
Dividends receivable
637
624
Other assets
426
430
 
Total assets
$
1,598,539
$
1,519,376
Liabilities and Stockholders’ Equity
Liabilities:
Long-term borrowings
 
$
183,762
$
183,762
Accounts payable and other liabilities
9,184
10,074
 
Total liabilities
192,946
193,836
Stockholders’ equity
1,405,593
1,325,540
 
Total liabilities and stockholders’
 
equity
$
1,598,539
$
1,519,376
Statements of Income
 
Quarter Ended March 31,
2023
2022
(In thousands)
Income
 
 
Interest income on money market investments
 
$
53
$
4
 
Dividend income from banking subsidiaries
78,870
63,593
 
Other income
102
40
 
Total income
79,025
63,637
Expense
 
Other borrowings
3,381
1,333
 
Other operating expenses
410
439
 
Total expense
3,791
1,772
Income before income taxes and equity in undistributed
 
earnings of subsidiaries
75,234
61,865
Income tax expense
1,078
1,106
Equity in undistributed earnings of subsidiaries (distribution in excess of
 
earnings)
(3,458)
21,841
Net income
$
70,698
$
82,600
Other comprehensive income (loss), net of tax
87,228
(331,834)
Comprehensive income (loss)
$
157,926
$
(249,234)
 
73
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, 2022 (the “2022
 
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
 
of
America
 
(“GAAP”).
 
See
 
“Non-GAAP
 
Financial
 
Measures
 
and
 
Reconciliations”
 
below
 
for
 
information
 
about
 
why
 
non-GAAP
financial
 
measures
 
are
 
presented
 
and
 
references
 
to
 
reconciliations
 
of
 
non-GAAP
 
financial
 
measures
 
to
 
the
 
most
 
comparable
 
GAAP
financial measures.
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,
 
credit cards, personal
 
loans, small loans,
 
auto loans and
 
leases, and
insurance agency activities.
Recent Developments
Economy and Market Volatility
Growth
 
in
 
economic
 
activity
 
and
 
demand
 
for
 
goods
 
and
 
services,
 
alongside
 
labor
 
shortages,
 
supply
 
chain
 
complications
 
and
geopolitical
 
matters,
 
have
 
contributed
 
to
 
rising
 
inflation.
 
In
 
response,
 
the
 
Federal
 
Reserve
 
has
 
raised
 
interest
 
rates
 
and
 
has
 
begun
reducing the
 
size of
 
its balance
 
sheet. In
 
March and
 
May 2023,
 
certain large
 
U.S. regional
 
banks with
 
assets over
 
$100 billion
 
were
closed
 
and
 
placed
 
into
 
receivership
 
with
 
the
 
FDIC.
 
The
 
closures
 
of
 
those
 
banks
 
and
 
adverse
 
developments
 
affecting
 
other
 
banks
resulted
 
in
 
heightened
 
levels
 
of
 
market
 
volatility
 
that
 
has
 
negatively
 
impacted
 
customer
 
confidence
 
in
 
the
 
safety
 
and
 
soundness
 
of
financial
 
institutions.
 
These developments
 
have resulted
 
in certain
 
regional banks
 
experiencing
 
higher than
 
normal deposit
 
outflows
and
 
an
 
elevated
 
level
 
of
 
competition
 
for
 
available
 
deposits
 
in
 
the
 
market.
 
The
 
impact
 
of
 
market
 
volatility
 
from
 
the
 
adverse
developments
 
in
 
the
 
banking
 
industry,
 
along
 
with
 
continued
 
high
 
inflation
 
and
 
rising
 
interest
 
rates
 
on
 
our
 
business
 
and
 
related
financial results, will depend on future developments, which are
 
highly uncertain and difficult to predict.
 
Our results
 
this quarter
 
reflect continued
 
discipline expense
 
management,
 
stable credit
 
quality metrics,
 
a sound
 
liquidity position,
and solid capital levels, despite
 
the market disruption.
 
With our disciplined
 
and proactive approach, the
 
Corporation is well positioned
to manage
 
through the
 
uncertain economic
 
outlook on
 
the horizon.
 
As of
 
March 31,
 
2023, the
 
Corporation had
 
approximately
 
$5.5
billion of
 
unused available
 
liquidity,
 
representing 114%
 
of total
 
estimated uninsured
 
deposits, excluding
 
fully collateralized
 
deposits,
of $4.8 billion, and a strong capital position with a common equity tier 1 (“CET1”)
 
ratio of 16.33%.
 
 
In the aftermath of the recent bank failures, the
 
banking agencies could propose certain actions that may
 
impact capital ratios or the
FDIC deposit insurance premium.
 
See “Risk Management – Liquidity Risk” below for additional information
 
about the Corporation’s funding
 
sources and strategy.
Return of Capital to Shareholders
In
 
the
 
first
 
quarter
 
of 2023,
 
the Corporation
 
returned
 
approximately
 
$75.1
 
million,
 
or
 
106%
 
of
 
first
 
quarter
 
2023
 
earnings, to
 
its
shareholders
 
through $50.0
 
million
 
in repurchases
 
of common
 
stock and
 
the payment
 
of $25.1
 
million
 
in
 
common
 
stock dividends,
which reflects an
 
increase in the
 
common stock dividend
 
by 17%,
 
from $0.12 for
 
the fourth quarter
 
of 2022 to
 
$0.14 per share
 
for the
first quarter of 2023.
As of March 31, 2023, the Corporation has remaining authorization to
 
repurchase approximately $75 million of common stock. Due
to recent
 
market events,
 
the Corporation
 
intends to
 
temporarily pause
 
common stock
 
repurchases
 
during the
 
second quarter
 
of 2023
and expects to
 
resume such repurchases
 
during the third quarter
 
of 2023 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.
 
74
London Interbank Offered Rate (“LIBOR”)
 
Transition
On January 1, 2022,
 
the publication of certain
 
U.S. Dollar (“USD”) LIBOR
 
settings ceased. The
 
publication of the most
 
commonly
used
 
overnight,
 
one-month,
 
three-month,
 
six-month
 
and
 
twelve-month
 
USD
 
LIBOR
 
will
 
cease
 
immediately
 
after
 
June
 
30,
 
2023,
except that
 
per the
 
UK Financial
 
Conduct Authority
 
(the “FCA”)
 
proposal, the
 
one-, three-,
 
and six-month
 
tenors will
 
continue to
 
be
published on a “non-representative,” synthetic basis until September
 
30, 2024.
 
The Adjustable
 
Interest Rate
 
Act (the
 
“LIBOR Act”),
 
that was
 
enacted in
 
March 2022,
 
provides
 
a statutory
 
framework to
 
replace
USD LIBOR
 
for
 
contracts
 
governed
 
by
 
U.S.
 
law
 
that
 
do
 
not have
 
clear
 
and
 
practicable
 
provisions
 
for
 
replacing
 
USD LIBOR
 
after
June
 
30,
 
2023
 
(“tough
 
legacy
 
contracts”).
 
On
 
December
 
16,
 
2022,
 
the
 
FED
 
adopted
 
Regulation
 
ZZ,
 
which
 
identifies
 
replacement
benchmark rates
 
based on
 
the Secured
 
Overnight Financing
 
Rate (“SOFR”)
 
to replace
 
the aforementioned
 
USD LIBOR
 
settings that
will cease
 
after June
 
30, 2023 in
 
contracts subject
 
to the
 
LIBOR Act. Under
 
Regulation ZZ,
 
tough legacy
 
contracts will
 
be converted
by operation of law
 
to various forms of SOFR,
 
along with a spread
 
adjustment, upon a LIBOR replacement
 
date (i.e., the first London
banking day
 
after June
 
30, 2023).
 
The spread
 
adjustment was
 
designed to
 
compensate for
 
USD LIBOR
 
being higher
 
than SOFR
 
in
two regards.
 
First, USD
 
LIBOR is
 
an unsecured
 
rate while
 
SOFR is
 
a secured
 
rate. Second,
 
USD LIBOR
 
includes
 
term premia.
 
In
addition, Regulation
 
ZZ codifies
 
safe harbor
 
protections for
 
selection or
 
use of
 
SOFR as
 
a replacement
 
benchmark and
 
clarifies who
would
 
be
 
considered
 
a
 
“determining
 
person”
 
able
 
to
 
elect
 
a
 
replacement
 
benchmark
 
when
 
USD
 
LIBOR
 
ceases
 
to
 
be
 
published
 
as
representative on June 30, 2023.
 
As of
 
March 31, 2023,
 
the Corporation’s
 
risk exposure to USD
 
LIBOR that mature
 
after June 30,
 
2023 consisted of
 
the following:
(i)
 
$1.2
 
billion
 
of
 
variable-rate
 
commercial
 
and
 
construction
 
loans
 
(including
 
unused
 
commitments),
 
(ii)
 
$40.7
 
million
 
of
 
U.S.
agencies
 
debt
 
securities
 
and
 
private
 
label
 
mortgage-backed
 
securities
 
(“MBS”)
 
held
 
as
 
part
 
of
 
the
 
available-for-sale
 
debt
 
securities
portfolio, (iii) $124.7 million of Puerto
 
Rico municipalities bonds held as part of
 
the held-to-maturity debt securities portfolio,
 
and (iv)
$183.8
 
million of
 
junior subordi
 
nated debentures
 
reported as
 
other
 
long-term borrowings
 
in the
 
consolidated
 
statements of
 
financial
condition.
 
Most of
 
these contracts contain
 
adequate features
 
to convert
 
to an alternative
 
interest rate;
 
however,
 
as of March
 
31, 2023,
contracts totaling approximately
 
$338.4 million do not contain
 
fallback language mainly consisting
 
of the aforementioned Puerto
 
Rico
municipalities
 
bonds held
 
as part
 
of the
 
held-to-maturity
 
debt securities
 
portfolio
 
and the
 
junior subordinated
 
debentures. Following
the provisions
 
of the
 
LIBOR Act
 
and Regulation
 
ZZ, the
 
LIBOR reference
 
on the
 
junior subordinated
 
debentures will
 
automatically
transition by
 
operation of
 
law to
 
3-month CME
 
Term
 
SOFR, plus
 
a spread
 
adjustment of
 
0.26161% on
 
the first
 
reset date
 
after USD
LIBOR ceases
 
publication in
 
June 2023.
 
In addition,
 
for the
 
transition of
 
any residual
 
exposure after
 
June 30,
 
2023, the
 
Corporation
expects to follow the provisions of the LIBOR Act and Regulation ZZ.
The
 
Corporation
 
continues
 
to
 
execute
 
its
 
LIBOR
 
transition
 
workplan.
 
Source
 
systems
 
have
 
been
 
updated
 
to
 
support
 
alternative
reference rates. At this time
 
alternative reference rates are predominantly
 
SOFR based. In addition, the
 
Corporation continues working
with
 
its
 
interest
 
rate
 
risk
 
monitoring
 
framework
 
and
 
a
 
strategy
 
for
 
managing
 
interest
 
rate
 
risk
 
during
 
the
 
transition
 
from
 
LIBOR
 
to
SOFR. We
 
continue to monitor market
 
developments and legislative and
 
regulatory updates, with additional
 
updates expected through
the remainder of 2023.
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.
 
Note
 
1
 
of
 
the Notes
 
to
 
Consolidated
 
Financial
 
Statements
 
included
 
in
 
our
 
2022
 
Annual
Report on
 
Form 10-K,
 
as supplemented
 
by this
 
report including
 
this MD&A,
 
describes the significant
 
accounting policies we
 
used in
our Consolidated Financial Statements.
Not all significant
 
accounting policies require
 
management to make
 
difficult, subjective
 
or complex judgments.
 
Critical accounting
estimates
 
are
 
those
 
estimates
 
made
 
in
 
accordance
 
with
 
GAAP
 
that
 
involve
 
a
 
significant
 
level
 
of
 
uncertainty
 
and
 
have
 
had
 
or
 
are
reasonably
 
likely
 
to
 
have
 
a
 
material
 
impact
 
on
 
the
 
Corporation’s
 
financial
 
condition
 
and
 
results
 
of
 
operations.
 
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;
 
and (iii) income taxes. For more
 
information regarding
valuation of financial
 
instruments and income taxes
 
policies, assumptions, and
 
judgments, see “Critical Accounting
 
Estimates” in Part
II,
 
Item
 
7,
 
“Management’s
 
Discussion
 
and
 
Analysis
 
of
 
Financial
 
Condition
 
and
 
Results
 
of
 
Operations
 
(“MD&A”),”
 
in
 
the
 
2022
Annual Report
 
on Form
 
10-K.
 
The “Risk
 
Management –
 
Credit Risk
 
Management” section
 
below details
 
the policies,
 
assumptions,
and
 
judgments
 
related
 
to
 
the
 
ACL.
 
Actual
 
results
 
could
 
differ
 
from
 
estimates
 
and
 
assumptions
 
if
 
different
 
outcomes
 
or
 
conditions
prevail.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
75
Overview of Results of Operations
First
 
BanCorp.'s
 
results
 
of
 
operations
 
depend
 
primarily
 
on
 
its
 
net
 
interest
 
income,
 
which
 
is
 
the
 
difference
 
between
 
the
 
interest
income
 
earned
 
on
 
its
 
interest-earning
 
assets,
 
including
 
investment
 
securities
 
and
 
loans,
 
and
 
the
 
interest
 
expense
 
incurred
 
on
 
its
interest-bearing
 
liabilities,
 
including
 
deposits
 
and
 
borrowings.
 
Net
 
interest
 
income
 
is
 
affected
 
by
 
various
 
factors,
 
including
 
the
following:
 
(i)
 
the
 
interest
 
rate
 
environment;
 
(ii)
 
the
 
volumes,
 
mix,
 
and
 
composition
 
of
 
interest-earning
 
assets,
 
and
 
interest-bearing
liabilities; and
 
(iii) the
 
repricing
 
characteristics of
 
these assets
 
and liabilities.
 
The Corporation
 
’s
 
results of
 
operations also
 
depend on
the provision
 
for credit
 
losses, non-interest
 
expenses (such
 
as personnel,
 
occupancy,
 
the FDIC
 
deposit insurance
 
premium
 
and other
costs), non-interest
 
income (mainly
 
service charges
 
and fees
 
on deposits,
 
cards and
 
processing income,
 
and insurance
 
income), gains
(losses) on sales of investments, gains (losses) on mortgage banking activities,
 
and income taxes.
The
 
Corporation
 
had
 
net
 
income
 
of
 
$70.7
 
million,
 
or
 
$0.39
 
per
 
diluted
 
common
 
share,
 
for
 
the
 
quarter
 
ended
 
March
 
31,
 
2023,
compared
 
to
 
$82.6
 
million,
 
or
 
$0.41
 
per
 
diluted
 
common
 
share,
 
for
 
the
 
quarter
 
ended
 
March
 
31,
 
2022.
 
Other
 
relevant
 
selected
financial indicators for the periods presented are included
 
below:
Quarter Ended March 31,
2023
2022
Key Performance Indicator:
(1)
Return on Average
 
Assets
(2)
1.55
%
1.65
%
Return on Average
 
Total Equity
(3)
21.00
16.64
Efficiency Ratio
(4)
49.39
48.82
(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.
The key drivers
 
of the Corporation’s
 
GAAP financial results
 
for the quarter
 
ended March 31, 2023,
 
compared to the
 
first quarter of
2022, include the following:
Net interest income for
 
the quarter ended March 31,
 
2023 increased to $200.9 million,
 
compared to $185.6 million for
 
the first
quarter
 
of
 
2022,
 
mainly
 
driven
 
by
 
the
 
effect
 
in
 
the
 
commercial
 
loan
 
portfolio
 
of
 
higher
 
market
 
interest
 
rates
 
in
 
the
 
upward
repricing of variable
 
-rate loans and
 
in new loan
 
originations, and the
 
growth in consumer
 
loans, partially offset
 
by an increase
in
 
interest
 
expense
 
due
 
to
 
the
 
increase
 
in
 
borrowings
 
and
 
a
 
110
 
basis
 
point
 
increase
 
in
 
the
 
average
 
cost
 
of
 
interest-bearing
liabilities. 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 quarter
 
ended
March
 
31,
 
2023
 
was
 
an
 
expense
 
of
 
$15.5
 
million,
 
compared
 
to
 
a
 
net
 
benefit
 
of
 
$13.8
 
million
 
for
 
the
 
first
 
quarter
 
of
 
2022,
mainly due
 
to the
 
$4.7 million
 
increase in
 
the provision
 
for the
 
consumer loan
 
portfolios and
 
the net
 
benefit of
 
$23.1 million
recorded in
 
the first
 
quarter of
 
2022 for
 
the commercial
 
and construction
 
loan portfolio
 
as a result
 
of reductions
 
in qualitative
reserves as a result of reduced uncertainty regarding COVID-19.
Net charge-offs totaled
 
$13.3 million for the quarter
 
ended March 31, 2023, or 0.46%
 
of average loans on an
 
annualized basis,
compared
 
to
 
net
 
charge-offs
 
of
 
$6.6
 
million,
 
or
 
0.24%
 
of
 
average
 
loans,
 
for
 
the
 
first
 
quarter
 
of
 
2022.
 
The
 
increase
 
in
 
net
charge-offs
 
was mainly
 
in consumer
 
loans. See
 
“Provision for
 
Credit Losses”
 
and “Risk
 
Management” below
 
for analyses
 
of
the ACL and non-performing assets and related ratios.
The
 
Corporation
 
recorded
 
non-interest
 
income
 
of
 
$32.5
 
million
 
for
 
the
 
quarter
 
ended
 
March
 
31,
 
2023,
 
compared
 
to
 
$32.9
million for the first quarter of 2022. See “Non-Interest Income” below
 
for additional information.
 
Non-interest expenses
 
for the
 
quarter ended
 
March 31,
 
2023 increased
 
by $8.6
 
million to
 
$115.3
 
million, mainly
 
driven by
 
a
$6.9 million
 
increase in
 
employees’ compensation
 
and benefits expenses
 
due to
 
annual salary
 
merit increases
 
and an
 
increase
in
 
bonuses,
 
stock-based
 
compensation
 
expense
 
of
 
retirement-eligible
 
employees,
 
payroll
 
taxes,
 
and
 
medical
 
insurance
premium costs.
 
The efficiency
 
ratio for
 
the first
 
quarter of
 
2023 was
 
49.39%, as
 
compared to
 
48.82% for
 
the same
 
period in
2022. See “Non-Interest Expenses” below for additional information.
 
 
76
Income tax expense
 
decreased to $31.9
 
million for the
 
first quarter of
 
2023, compared
 
to $43.0 million
 
for the same
 
period in
2022 driven
 
by a
 
lower pre-tax
 
income.
 
The Corporation’s
 
estimated effective
 
tax rate,
 
excluding entities
 
with pre-tax
 
losses
from which a tax
 
benefit cannot be recognized
 
and discrete items, decrease to
 
31.2% for the first
 
quarter of 2023, compared
 
to
32.9% for the first quarter of 2022, reflecting a higher proportion
 
of exempt to taxable income. See “Income Taxes”
 
below and
Note 17 – Income Taxes
 
,
 
to the unaudited consolidated financial statements herein for additional information.
As of
 
March 31,
 
2023, total
 
assets were approximately
 
$19.0 billion,
 
an increase
 
of $342.6
 
million from
 
December 31,
 
2022,
primarily
 
due
 
to
 
a
 
$343.1
 
million
 
increase
 
in
 
cash
 
and
 
cash
 
equivalents,
 
which
 
was
 
mainly
 
attributable
 
to
 
a
 
$347.8
 
million
addition to borrowings to increase
 
available cash as a precautionary
 
measure in
 
light of recent instability in the
 
banking sector
and
 
a
 
$28.0
 
million
 
increase
 
in
 
total
 
loans,
 
partially
 
offset
 
by
 
the
 
$4.3
 
million
 
decrease
 
in
 
total
 
investment
 
securities.
 
See
“Financial Condition and Operating Data Analysis” below for additional information.
As
 
of
 
March
 
31,
 
2023,
 
total
 
liabilities
 
were
 
$17.6
 
billion,
 
an
 
increase
 
of
 
$262.5
 
million
 
from
 
December
 
31,
 
2022,
 
mainly
driven
 
by
 
the
 
$347.8
 
million
 
increase
 
in
 
borrowings,
 
partially
 
offset
 
by
 
an
 
overall
 
decrease
 
in
 
total
 
deposits.
 
See
 
“Risk
Management – Liquidity Risk” below for additional information about the Corporation’s
 
funding sources and strategy.
The Bank’s
 
primary sources
 
of funding
 
are consumer
 
and commercial
 
core deposits,
 
which exclude
 
government deposits
 
and
brokered CDs. As of March 31, 2023, these core deposits amounting
 
to $13.1 billion funded 69.17% of total assets. In addition
to approximately
 
$3.2 billion
 
in cash
 
and free
 
high quality
 
liquid assets,
 
the Bank
 
maintains borrowing
 
capacity at
 
the FHLB
and the
 
FED Discount
 
Window.
 
As of
 
March 31,
 
2023, the
 
Corporation had
 
approximately $1.4
 
billion available
 
for funding
under
 
the FED’s
 
Discount
 
Window
 
and
 
$882.5
 
million
 
available for
 
additional
 
borrowing
 
capacity
 
on FHLB
 
lines of
 
credit
based
 
on
 
collateral
 
pledged
 
at
 
these
 
entities.
 
On
 
a
 
combined
 
basis,
 
as
 
of
 
March
 
31,
 
2023,
 
the
 
Corporation
 
had
 
$5.5
 
billion
available
 
to
 
meet
 
liquidity
 
needs.
 
See
 
“Risk
 
Management
 
 
Liquidity
 
Risk”
 
below
 
for
 
additional
 
information
 
about
 
the
Corporation’s funding
 
sources and strategy.
As
 
of
 
March
 
31,
 
2023,
 
the
 
Corporation’s
 
total
 
stockholders’
 
equity
 
was
 
$1.4
 
billion,
 
an
 
increase
 
of
 
$80.1
 
million
 
from
December 31, 2022. The
 
increase was driven by an
 
$87.2 million increase 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,
 
and
 
the
 
earnings
 
generated
 
during
 
the
 
first
 
quarter
 
of
 
2023.
 
These
 
increases
 
were
 
partially
offset
 
by
 
the
 
repurchase
 
of
 
approximately
 
3.6
 
million
 
shares
 
of
 
common
 
stock
 
for
 
a
 
total
 
purchase
 
price
 
of
 
approximately
$50.0
 
million
 
and
 
$25.4
 
million
 
in
 
dividends
 
declared
 
to
 
common
 
stock
 
shareholders
 
during
 
the
 
first
 
quarter
 
of
 
2023.
 
The
Corporation’s
 
CET1
 
capital,
 
tier
 
1
 
capital,
 
total
 
capital,
 
and
 
leverage
 
ratios
 
were
 
16.33%,
 
16.33%,
 
19.02%,
 
and
 
10.57%,
respectively,
 
as
 
of
 
March
 
31,
 
2023,
 
compared
 
to
 
CET1
 
capital,
 
tier
 
1
 
capital,
 
total
 
capital,
 
and
 
leverage
 
ratios
 
of
 
16.53%,
16.53%, 19.21%, and 10.70%, respectively,
 
as of December 31, 2022.
 
See “Risk Management – Capital” below
 
for additional
information.
Total
 
loan
 
production,
 
including
 
purchases,
 
refinancings,
 
renewals,
 
and
 
draws
 
from
 
existing
 
revolving
 
and
 
non-revolving
commitments,
 
increased by
 
$5.5 million
 
to $1.2
 
billion for
 
the quarter
 
ended March
 
31, 2023.
 
See “Financial
 
Condition and
Operating Data Analysis” below for additional information.
Total
 
non-performing assets
 
were $129.0
 
million as of
 
March 31, 2023,
 
a decrease of
 
$0.2 million,
 
from December
 
31, 2022.
The net decrease was driven by
 
a $6.3 million reduction in nonaccrual
 
residential mortgage loans, mostly
 
due to loans restored
to
 
accrual
 
status,
 
collections
 
and
 
foreclosures;
 
partially
 
offset
 
by
 
a
 
$4.4
 
million
 
increase
 
in
 
nonaccrual
 
commercial
 
and
construction
 
loans, mainly
 
related
 
to
 
the
 
inflow
 
of
 
a
 
$7.1 million
 
commercial
 
and
 
industrial
 
participated
 
loan
 
in
 
the Florida
region related
 
to a borrower
 
engaged in the
 
power generation industry
 
.
 
See “Risk Management
 
– Nonaccrual Loans
 
and Non-
Performing Assets” below for additional information.
Adversely
 
classified
 
commercial
 
and
 
construction
 
loans
 
decreased
 
by
 
$23.6
 
million
 
to
 
$70.0
 
million
 
as of
 
March
 
31, 2023,
compared to December 31, 2022, mainly driven by the payoff
 
of a $24.3 million commercial and industrial participated loan in
the Florida region in the leisure and hospitality industry.
 
77
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS
The Corporation
 
has included
 
in this
 
Quarterly Report
 
on Form
 
10-Q (“Form
 
10-Q”) the
 
following financial
 
measures that
 
are not
recognized under GAAP,
 
which are referred to as non-GAAP financial measures:
 
Net Interest Income,
 
Interest Rate Spread,
 
and Net Interest
 
Margin, Excluding Valuations
 
,
 
and on a Tax
 
-Equivalent Basis
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 “Result of Operations
 
– Net Interest Income”
 
below, for
 
the table that reconciles
 
net interest income
 
in accordance with GAAP
to
 
the
 
non-GAAP
 
financial
 
measure
 
of
 
net
 
interest
 
income,
 
excluding
 
valuations,
 
and
 
on
 
a
 
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 a tax-equivalent basis.
Tangible
 
Common Equity Ratio and Tangible
 
Book Value
 
Per Common Share
The tangible
 
common equity
 
ratio and
 
tangible book
 
value per
 
common share
 
are non-GAAP
 
financial measures
 
that management
believes are generally
 
used by the financial
 
community to evaluate
 
capital adequacy.
 
Tangible
 
common equity is total
 
common equity
less
 
goodwill
 
and
 
other
 
intangibles.
 
Similarly,
 
tangible
 
assets
 
are
 
total
 
assets
 
less
 
goodwill
 
and
 
other
 
intangibles.
 
Management
 
and
many
 
stock
 
analysts
 
use
 
the
 
tangible
 
common
 
equity
 
ratio
 
and
 
tangible
 
book
 
value
 
per
 
common
 
share
 
in
 
conjunction
 
with
 
more
traditional bank capital
 
ratios to compare
 
the capital adequacy
 
of banking organizations
 
with significant
 
amounts of goodwill
 
or other
intangible assets,
 
typically stemming
 
from the
 
use of
 
the purchase
 
method of
 
accounting for
 
mergers
 
and acquisitions.
 
Accordingly,
the Corporation
 
believes that
 
disclosures of
 
these financial
 
measures may
 
be useful to
 
investors. Neither
 
tangible common
 
equity nor
tangible assets, or the related measures,
 
should be considered in isolation or
 
as a substitute for stockholders’ equity,
 
total assets, or any
other measure
 
calculated in
 
accordance with
 
GAAP.
 
Moreover,
 
the manner
 
in which
 
the Corporation
 
calculates its
 
tangible common
equity, tangible assets, and
 
any other related measures may differ from that of other companies reporting
 
measures with similar names.
 
See “Risk
 
Management –
 
Capital” below
 
for the
 
table that
 
reconciles the
 
Corporation’s
 
total equity
 
and total
 
assets in
 
accordance
with GAAP to the tangible
 
common equity and tangible assets
 
figures used to calculate the
 
non-GAAP financial measures of
 
Tangible
Common Equity Ratio and Tangible
 
Book Value
 
per Common Share.
 
78
RESULTS
 
OF OPERATIONS
Net Interest Income
Net interest
 
income is
 
the excess of
 
interest earned
 
by First BanCorp.
 
on its interest-earning
 
assets over
 
the interest
 
incurred on its
interest-bearing
 
liabilities.
 
First
 
BanCorp.’s
 
net
 
interest
 
income
 
is
 
subject
 
to
 
interest
 
rate
 
risk
 
due
 
to
 
the
 
repricing
 
and
 
maturity
mismatch
 
of
 
the
 
Corporation’s
 
assets
 
and
 
liabilities.
 
In
 
addition,
 
variable
 
sources
 
of
 
interest
 
income,
 
such
 
as
 
loan
 
fees,
 
periodic
dividends, and collection of interest on nonaccrual loans, can fluctuate
 
from period to period. Net interest income for the quarter
 
ended
March 31, 2023 was $200.9 million,
 
compared to $185.6 million for the
 
first quarter of 2022.
 
On a tax-equivalent basis and excluding
the changes
 
in the
 
fair value
 
of derivative
 
instruments, net
 
interest income
 
for the
 
quarter ended
 
March 31,
 
2023 was
 
$207.2 million
compared to $192.8 million for the quarter ended March 31, 2022.
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 intere
 
st 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
 
“Non-GAAP
Measures and Reconciliations” above.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
79
Part I
Average volume
Interest income
(1)
 
/ expense
Average rate
(1)
Quarter ended March 31,
 
2023
2022
2023
2022
2023
2022
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
$
404,249
$
1,835,766
$
4,650
$
820
4.67
%
0.18
%
Government obligations
(2)
2,909,976
2,736,095
10,765
8,232
1.50
%
1.22
%
MBS
3,864,145
4,041,975
19,396
19,420
2.04
%
1.95
%
FHLB stock
40,838
21,465
421
287
4.18
%
5.42
%
Other investments
13,139
11,786
139
21
4.29
%
0.72
%
Total investments
(3)
7,232,347
8,647,087
35,371
28,780
1.98
%
1.35
%
Residential mortgage loans
2,835,240
2,961,456
39,794
40,687
5.69
%
5.57
%
Construction loans
146,041
114,732
2,676
1,524
7.43
%
5.39
%
Commercial and industrial ("C&I") and commercial mortgage loans
5,167,727
5,103,870
85,885
62,004
6.74
%
4.93
%
Finance leases
735,500
588,200
13,809
10,912
7.61
%
7.52
%
Consumer loans
2,634,891
2,338,597
71,214
61,151
10.96
%
10.60
%
Total loans
(4)(5)
11,519,399
11,106,855
213,378
176,278
7.51
%
6.44
%
 
Total interest-earning assets
$
18,751,746
$
19,753,942
$
248,749
$
205,058
5.38
%
4.21
%
Interest-bearing liabilities:
Time deposits
$
2,342,360
$
2,363,045
$
10,782
$
4,421
1.87
%
0.76
%
Brokered certificates of deposit ("CDs")
166,698
91,713
1,587
477
3.86
%
2.11
%
Other interest-bearing deposits
7,544,901
8,132,149
17,516
2,754
0.94
%
0.14
%
Securities sold under agreements to repurchase
91,004
241,111
1,069
2,182
4.76
%
3.67
%
Advances from the FHLB
629,167
200,000
7,176
1,063
4.63
%
2.16
%
Other long-term borrowings
183,762
183,762
3,381
1,333
7.46
%
2.94
%
Total interest-bearing liabilities
$
10,957,892
$
11,211,780
$
41,511
$
12,230
1.54
%
0.44
%
Net interest income on a tax-equivalent basis and excluding
valuations
$
207,238
$
192,828
Interest rate spread
3.84
%
3.77
%
Net interest margin
4.48
%
3.96
%
(1)
On an adjusted tax-equivalent basis. The Corporation estimated the
 
adjusted tax-equivalent yield by dividing the interest rate
 
spread on exempt assets by 1 less the Puerto Rico statutory tax
rate of 37.5% and adding to it the cost of interest-bearing liabilities.
 
The tax-equivalent adjustment recognizes the income tax savings
 
when comparing taxable and tax-exempt assets.
Management believes that it is a standard practice in the banking industry
 
to present net interest income, interest rate spread and net
 
interest margin on a fully tax-equivalent basis.
Therefore, management believes these measures provide useful information
 
to investors by allowing them to make peer comparisons.
 
The Corporation excludes changes in the fair value of
derivatives from interest income and interest expense
 
because the changes in valuation do not affect interest received
 
or paid. See “Non-GAAP Measures and Reconciliations”
 
above.
(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 $3.1 million and $2.6 million for
 
the quarters ended March 31, 2023 and 2022, respectively,
 
of income from prepayment penalties and late fees related to
the Corporation’s loan portfolio.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
80
Part II
Quarter ended March 31,
2023 compared to 2022
Variance due to:
Volume
Rate
Total
(In thousands)
Interest income on interest-earning assets:
Money market and other short-term investments
$
(8,698)
$
12,528
$
3,830
Government obligations
549
1,984
2,533
MBS
(885)
861
(24)
FHLB stock
232
(98)
134
Other investments
3
115
118
Total investments
(8,799)
15,390
6,591
Residential mortgage loans
(1,771)
878
(893)
Construction loans
482
670
1,152
C&l and commercial mortgage loans
785
23,096
23,881
Finance leases
2,764
133
2,897
Consumer loans
7,953
2,110
10,063
Total loans
10,213
26,887
37,100
Total interest income
$
1,414
$
42,277
$
43,691
Interest expense on interest-bearing liabilities:
Time deposits
$
(67)
$
6,428
$
6,361
Brokered CDs
551
559
1,110
Other interest-bearing deposits
(573)
15,335
14,762
Securities sold under agreements to repurchase
(1,561)
448
(1,113)
Advances from the FHLB
3,985
2,128
6,113
Other borrowings
-
2,048
2,048
Total interest expense
2,335
26,946
29,281
Change in net interest income
$
(921)
$
15,331
$
14,410
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,
 
to
 
the
 
unaudited
 
consolidated
 
financial
 
statements
 
herein
 
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,
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
81
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 March 31,
2023
2022
(Dollars in thousands)
Interest income - GAAP
$
242,396
$
197,854
Unrealized loss (gain) on derivative instruments
6
(15)
Interest income excluding valuations
242,402
197,839
Tax-equivalent adjustment
6,347
7,219
Interest income on a tax-equivalent basis
 
and excluding valuations
$
248,749
$
205,058
Interest expense - GAAP
$
41,511
$
12,230
Net interest income - GAAP
$
200,885
$
185,624
Net interest income excluding valuations
$
200,891
$
185,609
Net interest income on a tax-equivalent basis
 
and excluding valuations
$
207,238
$
192,828
Average Balances
 
Loans and leases
$
11,519,399
$
11,106,855
Total securities, other short-term investments and interest-bearing
 
cash balances
7,232,347
8,647,087
Average Interest-Earning Assets
$
18,751,746
$
19,753,942
Average Interest-Bearing Liabilities
$
10,957,892
$
11,211,780
Average Yield/Rate
Average yield on interest-earning assets - GAAP
5.24%
4.06%
Average rate on interest-bearing liabilities - GAAP
1.54%
0.44%
Net interest spread - GAAP
3.70%
3.62%
Net interest margin - GAAP
4.34%
3.81%
Average yield on interest-earning assets excluding valuations
5.24%
4.06%
Average rate on interest-bearing liabilities
1.54%
0.44%
Net interest spread excluding valuations
3.70%
3.62%
Net interest margin excluding valuations
4.34%
3.81%
Average yield on interest-earning assets on a tax-equivalent
 
basis and excluding valuations
5.38%
4.21%
Average rate on interest-bearing liabilities
1.54%
0.44%
Net interest spread on a tax-equivalent basis
 
and excluding valuations
3.84%
3.77%
Net interest margin on a tax-equivalent basis and excluding
 
valuations
4.48%
3.96%
 
82
Net
 
interest
 
income
 
amounted
 
to
 
$200.9
 
million
 
for
 
the
 
quarter
 
ended
 
March
 
31,
 
2023,
 
an
 
increase
 
of
 
$15.3
 
million,
 
when
compared to $185.6 million for same period in 2022. The $15.3 million
 
increase in net interest income was primarily due to:
A $36.9 million increase in interest income on loans including:
-
A $24.6 million increase in
 
interest income on commercial and
 
construction loans, of which approximately
 
$25.1 million
was related
 
to
 
the effect
 
of higher
 
market
 
interest
 
rates
 
in the
 
upward repricing
 
of variable-rate
 
loans
 
and
 
in new
 
loan
originations,
 
and
 
approximately
 
$2.5
 
million
 
was
 
related
 
to
 
the
 
$210.9
 
million
 
increase
 
in
 
the
 
average
 
balance
 
of
 
this
portfolio (excluding
 
Small Business Administration
 
Paycheck Protection
 
Program (“SBA PPP”)
 
loans). These
 
variances
were partially
 
offset by
 
a reduction
 
in interest
 
income from
 
SBA PPP
 
loans. The
 
interest income
 
recognized from
 
SBA
PPP loans for the quarters ended March 31, 2023 and 2022 amounted to $0.2
 
million and $3.2 million, respectively.
The interest rate on approximately 55% of the Corporation’s
 
commercial and construction loans is variable, 42% is based
upon
 
LIBOR, SOFR
 
and
 
other
 
indexes
 
and
 
13% is
 
based upon
 
the Prime
 
rate index.
 
For the
 
first quarter
 
of 2023,
 
the
average one-month
 
LIBOR increased
 
439 basis
 
points, the
 
average three-month
 
LIBOR increased
 
440 basis
 
points, the
average Prime rate
 
increased 440 basis
 
points, and
 
the average three-month
 
SOFR increased 444
 
basis points, compared
to the average rates for such indexes during the first quarter of 2022.
-
A $13.0 million increase in interest
 
income on consumer loans and finance
 
leases, primarily driven by the $443.6
 
million
increase
 
in the
 
average
 
balance of
 
this portfolio,
 
which
 
increased interest
 
income
 
by approximately
 
$10.5
 
million,
 
and
approximately $2.5
 
million increase in interest income associated to the positive
 
effects
 
of higher market interest rates on
the consumer portfolio yields,
 
primarily in the credit cards portfolio.
-
A
 
$0.7
 
million
 
decrease
 
in
 
the
 
residential
 
mortgage
 
loans
 
portfolio
 
interest
 
income,
 
primarily
 
related
 
to
 
the
 
$126.2
million reduction
 
in the
 
average balance
 
of this
 
portfolio, which
 
resulted in
 
an approximate
 
decrease of
 
$1.7 million
 
in
interest income, partially offset by the positive effect
 
of new loan originations at higher current market interest rates.
A $3.8
 
million
 
increase
 
in interest
 
income
 
from
 
interest-bearing
 
cash balances,
 
which
 
consisted primarily
 
of
 
cash balances
deposited at the Federal Reserve Bank (“FED”), mainly due to the
 
effect of higher market interest rates, partially offset
 
by the
$1.4 billion decrease in the average balance of interest-bearing cash.
A $3.8 million increase in interest income on investment securities, mainly driven
 
by:
-
A $1.3
 
million
 
increase
 
in
 
interest income
 
on
 
U.S. government
 
and
 
agencies
 
debt
 
securities,
 
mainly
 
driven
 
by
 
higher-
yielding securities purchased in the first quarter of 2022.
-
A
 
$1.3
 
million
 
increase
 
in
 
interest
 
income
 
on
 
Puerto
 
Rico
 
municipal
 
bonds,
 
mainly
 
due
 
to
 
the
 
upward
 
repricing
 
of
variable-rate bonds.
-
A
 
$1.0
 
million
 
increase
 
in
 
interest
 
income
 
on
 
U.S.
 
agencies
 
MBS,
 
mainly
 
driven
 
by
 
a
 
decrease
 
in
 
the
 
premium
amortization
 
expense
 
associated
 
with
 
lower
 
prepayments
 
and
 
the
 
positive
 
effects
 
from
 
higher-yielding
 
U.S.
 
agencies
MBS purchased
 
in the second
 
quarter of
 
2022. These variances
 
were partially
 
offset by
 
a $177.8
 
million decrease
 
in the
average balance of this portfolio, which resulted in an approximate reduction
 
of $0.9 million in interest income.
 
 
83
Partially offset by:
 
A $22.2 million increase in interest expense on interest-bearing deposits, including
 
:
-
A $14.7
 
million increase
 
in interest
 
expense on
 
interest-bearing checking
 
and saving
 
accounts, driven
 
by an
 
increase of
$15.3
 
million in average
 
rates paid in
 
the first quarter
 
of 2023 as
 
a result of
 
the overall
 
higher interest rate
 
environment,
partially offset
 
by a reduction
 
of $587.2 million
 
in the average
 
balance of these
 
deposits, which resulted
 
in a decrease
 
of
approximately $0.6 million in interest expense.
-
A
 
$6.4
 
million
 
increase
 
in
 
interest
 
expense
 
on
 
time
 
deposits,
 
excluding
 
brokered
 
CDs,
 
mainly
 
associated
 
with
 
higher
rates being
 
paid in
 
the first
 
quarter of
 
2023 on
 
new issuances
 
and renewals
 
also associated
 
with the
 
higher interest
 
rate
environment.
 
The average cost of time
 
deposits in the first quarter
 
of 2023, excluding brokered
 
CDs, increased 111
 
basis
points to 1.87% when compared to the same period in 2022.
-
A $1.1
 
million increase
 
in interest
 
expense on
 
brokered CDs,
 
driven by
 
new issuances
 
at current
 
higher market
 
interest
rates that resulted
 
in an increase
 
of $75.0 million
 
in the average balance,
 
which resulted in
 
additional interest expense
 
of
approximately $0.5 million.
A
$7.0 million net increase in interest expense on borrowings,
 
including:
-
A
 
$6.1
 
million
 
increase
 
in
 
interest
 
expense
 
on
 
advances
 
from
 
the
 
FHLB
 
mainly
 
associated
 
with
 
an
 
increase
 
in
 
the
average
 
balance
 
of
 
$429.2
 
million
 
to
 
increase
 
available
 
cash,
 
which
 
resulted
 
in
 
additional
 
interest
 
expense
 
of
approximately $4.0
 
million, and
 
the effect
 
of approximately
 
$2.1 million
 
associated with
 
new FHLB
 
advances at
 
higher
interest rates.
 
-
A
$2.0
 
million
 
increase
 
in
 
interest
 
expense
 
on
 
other
 
long-term
 
borrowings,
 
driven
 
by
 
the
 
upward
 
repricing
 
of
 
junior
subordinated debentures tied to the increase in the three-month LIBOR index.
-
 
A
 
$1.1
 
million
 
decrease
 
in
 
interest
 
expense
 
on
 
repurchase
 
agreements,
 
mainly
 
driven
 
by
 
a
 
reduction
 
in
 
the
 
average
balance of $150.1 million.
Net
 
interest
 
margin
 
for
 
the
 
first
 
quarter
 
of
 
2023
 
increased
 
to
 
4.34%,
 
compared
 
to
 
3.81%
 
for
 
the
 
same
 
period
 
in
 
2022,
 
reflecting,
among other
 
things, the
 
upward repricing
 
of variable-rate
 
commercial loans,
 
the growth
 
in higher
 
yielding loans,
 
primarily consumer
loans, and
 
the change
 
in asset mix,
 
reflecting an
 
increase of higher
 
-yielding assets. These
 
factors were
 
partially offset
 
by the increase
in borrowings in the first quarter of 2023 and a 11
 
0
 
basis points increase in the average cost of interest-bearing liabilities.
 
84
Provision for Credit Losses
The provision
 
for credit
 
losses consists of
 
provisions for
 
credit losses on
 
loans and
 
finance leases,
 
unfunded loan
 
commitments, as
well as the debt securities portfolio. The principal changes in the provision for
 
credit losses by main categories follow:
Provision for credit losses for
 
loans and finance leases
The provision for
 
credit losses for
 
loans and finance
 
leases was an expense
 
of $16.3 million
 
for the first
 
quarter of 2023,
 
compared
to a net benefit of $17.0 million for the first quarter of 2022. The variances
 
by major portfolio category were as follows:
Provision for credit
 
losses for the commercial
 
and construction loan
 
portfolio was an expense
 
of $0.5 million
 
the first quarter
of
 
2023,
 
compared
 
to
 
a
 
net
 
benefit
 
of
 
$23.1
 
million
 
for
 
the
 
first
 
quarter
 
of
 
2022.
 
The
 
expense
 
recognized
 
during
 
the
 
first
quarter of
 
2023 was
 
impacted by
 
the following
 
factors: reserve
 
increases of
 
$5.0 million
 
for a
 
new nonacccrual
 
commercial
and industrial participated loan in the Florida region in the power generation
 
industry, and $1.1 million due
 
to a less favorable
economic outlook
 
in the
 
projection of
 
certain forecasted
 
macroeconomic
 
variables, such
 
as the
 
commercial real
 
estate price
index
 
(“CRE
 
price
 
index”);
 
partially
 
offset
 
by
 
reserve
 
decreases
 
of
 
$6.1
 
million
 
associated
 
with
 
the
 
receipt
 
of
 
updated
financial
 
information
 
of
 
certain
 
borrowers.
 
Meanwhile,
 
the net
 
benefit
 
recorded
 
in the
 
first quarter
 
of
 
2022
 
mainly
 
reflects
reductions
 
in
 
qualitative
 
reserves
 
mostly
 
associated
 
with
 
a
 
continued
 
positive
 
long-term
 
outlook
 
of
 
forecasted
macroeconomic variables, primarily
 
in the commercial real estate price
 
index, as a result of the reduced
 
uncertainty regarding
COVID-19,
 
particularly
 
on
 
loans
 
in
 
the
 
hotel,
 
transportation
 
and
 
entertainment
 
industries
 
and,
 
to
 
a
 
lesser
 
extent,
improvements in updated financial information received from borrowers
 
during the first quarter of 2022.
Provision for
 
credit losses
 
for the
 
residential mortgage
 
loan portfolio
 
was an
 
expense of
 
$0.1 million
 
for the
 
first quarter
 
of
2023,
 
compared to
 
a net benefit
 
of $4.9
 
million for
 
the first
 
quarter of
 
2022. The
 
net benefit
 
recorded for
 
the first
 
quarter of
2022
 
was
 
primarily
 
related
 
to
 
the
 
overall
 
decrease
 
in
 
the
 
size
 
of
 
the
 
residential
 
mortgage
 
loan
 
portfolio
 
and
 
continued
improvements in the long-term outlook of forecasted macroeconomic
 
variables, such as the housing price index.
Provision for credit
 
losses for the consumer
 
loans and finance leases
 
portfolio was $15.7
 
million for the first
 
quarter of 2023,
compared
 
to
 
$11.0
 
million
 
for
 
the
 
first
 
quarter
 
of
 
2022.
 
The
 
increase
 
primarily
 
reflects
 
the
 
increase
 
in
 
the
 
size
 
of
 
the
consumer loan portfolios and the increase in historical charge-off
 
levels in all major portfolio classes.
Provision for credit losses for
 
unfunded loan commitments
The provision for
 
credit losses for
 
unfunded commercial and
 
construction loan commitments
 
and standby letters
 
of credit was a
 
net
benefit of $0.1 million for each of the first quarters of 2023 and 2022.
Provision for credit
 
losses for held-to-maturity and available-for-sale
 
debt securities
The
 
provision
 
for
 
credit
 
losses
 
for
 
held-to-maturity
 
securities
 
was
 
a
 
net
 
benefit
 
of
 
$0.6
 
million
 
for
 
the
 
first
 
quarter
 
of
 
2023,
compared
 
to an
 
expense
 
of
 
$3.7
 
million
 
for
 
the
 
first
 
quarter
 
of
 
2022.
 
The net
 
benefit
 
recorded
 
during
 
the
 
first
 
quarter
 
of
 
2023
 
was
mostly related to a reduction in qualitative reserves driven by updated financial information
 
of certain bond issuers.
 
 
85
Non-Interest Income
Non-interest income amounted to $32.5 million for the
 
first quarter of 2023, compared to $32.9 million for
 
the same period in 2022.
The $0.4 million decrease in non-interest income
 
was primarily due to:
A $2.4 million
 
decrease in revenues
 
from mortgage banking
 
activities, mainly driven
 
by a decrease in
 
net realized gain
 
on
sales of residential mortgage loans in the secondary market mainly
 
due to a lower volume of sales. During the first quarters
of
 
2023
 
and
 
2022,
 
net
 
gains
 
of
 
$1.1
 
million
 
and
 
$3.5
 
million,
 
respectively,
 
were
 
recognized
 
as
 
a
 
result
 
of
 
GNMA
securitization transactions and whole loan sales to U.S. GSEs amounting
 
to $37.4 million and $93.9 million, respectively.
A $0.4 million decrease in insurance commission income,
 
mainly in contingent commissions.
Partially offset by:
A $1.2
 
million increase
 
in card
 
and processing
 
income mainly
 
related to
 
higher interchange
 
income and
 
merchant-related
referral fees received during the first quarter of 2023.
A
 
$1.1
 
million
 
increase
 
in
 
other
 
sources
 
of
 
non-interest
 
income
 
including:
 
(i)
 
a
 
$0.3
 
million
 
increase
 
related
 
to
 
higher
unused commitment
 
fees; (ii)
 
a $0.2
 
million increase
 
related to
 
higher benefit
 
recognized in
 
relation to
 
purchased income
tax credits realized; (iii) a
 
$0.2 million increase in
 
unrealized gains on marketable
 
equity securities; and (iii) a
 
$0.2
 
million
increase in fees and commissions from insurance referrals.
Non-Interest Expenses
Non-interest expenses
 
for the quarter
 
ended March 31,
 
2023 amounted to
 
$115.3 million,
 
compared to
 
$106.7 million for
 
the same
period in
 
2022. The
 
efficiency ratio
 
for the
 
first quarter
 
of 2023
 
was 49.39%,
 
compared to
 
48.82% for
 
the first
 
quarter of
 
2022. The
$8.6 million increase in non-interest expenses was primarily due
 
to:
A
$6.9 million increase in employees’
 
compensation and benefits expenses, mainly driven
 
by annual salary merit increases
and
 
an
 
increase
 
in
 
bonuses,
 
stock-based
 
compensation
 
expense
 
of
 
retirement-eligible
 
employees,
 
payroll
 
taxes,
 
and
medical insurance premium costs.
A
$1.4 million
 
increase in
 
professional service
 
fees, driven
 
by a
 
$1.2 million
 
increase in
 
outsourcing
 
technology
 
service
fees.
A
$1.2 million increase in credit and debit card processing fees.
A
$0.5
 
million
 
increase
 
in
 
business promotion
 
expenses,
 
mainly
 
related
 
to
 
a
 
$0.7
 
million
 
increase
 
in
 
credit
 
card
 
loyalty
rewards expense,
 
partially offset by a $0.3 million decrease in sponsorship
 
activities.
A
$0.5 million
 
increase in FDI
 
C
 
deposit insurance
 
cost, driven
 
by the two
 
basis points increase
 
on the initial
 
base deposit
insurance assessment rate that came into effect during the first quarter
 
of 2023.
Partially offset by:
A
$1.3 million increase in net gains
 
on OREO operations, mainly driven
 
by a $1.4 million increase in
 
net realized gains on
sales of OREO properties, primarily residential properties in the Puerto
 
Rico region.
A
$1.2
 
million
 
decrease
 
in
 
occupancy
 
and
 
equipment
 
expenses,
 
primarily
 
related
 
to
 
a
 
reduction
 
in
 
rental
 
expenses
 
and
equipment-related depreciation charges.
 
86
Income Taxes
For the
 
first quarter
 
of 2023,
 
the Corporation
 
recorded an
 
income tax
 
expense of
 
$31.9 million
 
compared to
 
$43.0 million
 
for the
same
 
period
 
in
 
2022.
 
The
 
decrease
 
in
 
income
 
tax
 
expense
 
was
 
mainly
 
related
 
to
 
lower
 
pre-tax
 
income
 
and
 
a
 
higher
 
proportion
 
of
exempt to taxable income resulting in a lower effective tax rate.
The Corporation’s
 
estimated annual effective tax
 
rate in the first quarter of
 
2023, excluding entities from
 
which a tax benefit cannot
be recognized
 
and discrete
 
items, was
 
31.2%,
 
compared
 
to 32.9%
 
for the
 
first quarter
 
of 2022.
 
See Note
 
17 -
 
Income Taxes,
 
to the
unaudited consolidated financial statements herein for additional
 
information.
FINANCIAL CONDITION AND OPERATING
 
ANALYSIS
Assets
 
The Corporation’s total assets
 
were $19.0 billion as of March 31, 2023, an increase
 
of $342.6 million from December 31, 2022. The
increase
 
was
 
primarily
 
related
 
to
 
a
 
$343.1
 
million
 
increase
 
in
 
cash
 
and
 
cash
 
equivalents
 
mainly
 
attributable
 
to
 
the
 
$347.8
 
million
increase
 
in
 
borrowings
 
to
 
enhance
 
available
 
cash
 
as
 
a
 
precautionary
 
measure
 
in
 
light
 
of
 
recent
 
instability
 
in
 
the
 
banking
 
sector.
 
In
addition,
 
as further
 
discussed
 
below,
 
total
 
loans
 
increased
 
by
 
$28.0
 
million.
 
These
 
variances
 
were
 
partially
 
offset
 
by a
 
$4.3
 
million
decrease in total investment securities.
Loans Receivable, including Loans Held for Sale
As of March 31, 2023, the Corporation’s
 
total loan portfolio before the ACL amounted to $11.6
 
billion, an increase of $28.0 million
compared
 
to
 
December
 
31,
 
2022.
 
The
 
increase
 
consisted
 
of
 
a
 
$141.5
 
million
 
growth
 
in
 
the
 
Puerto
 
Rico
 
region,
 
partially
 
offset
 
by
decreases
 
of
 
$108.6
 
million
 
in
 
the
 
Florida
 
region
 
and
 
$4.9
 
million
 
in
 
the
 
Virgin
 
Islands
 
region.
 
On
 
a
 
portfolio
 
basis,
 
the
 
increase
consisted
 
of
 
a
 
$79.5
 
million
 
growth
 
in
 
consumer
 
loans,
 
including
 
a
 
$72.0
 
million
 
increase
 
in
 
auto
 
and
 
leases,
 
partially
 
offset
 
by
decreases
 
of $32.9 million in residential mortgage loans and $18.6 million
 
in commercial and construction loans.
As of
 
March
 
31,
 
2023,
 
the
 
loans held
 
for
 
the
 
Corporation’s
 
investment
 
portfolio
 
was comprised
 
of
 
commercial
 
and
 
construction
loans
 
(46%),
 
residential
 
real
 
estate
 
loans
 
(24%),
 
and
 
consumer
 
and
 
finance
 
leases
 
(30%).
 
Of
 
the
 
total
 
gross
 
loan
 
portfolio
 
held
 
for
investment of
 
$11.6
 
billion as
 
of March
 
31, 2023,
 
the Corporation
 
had credit
 
risk concentration
 
of approximately
 
80% in
 
the Puerto
Rico region,
 
17% in
 
the United
 
States region
 
(mainly
 
in the
 
state of
 
Florida),
 
and
 
3% in
 
the Virgin
 
Islands region,
 
as shown
 
in the
following table:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
87
As of March 31, 2023
Puerto Rico
Virgin Islands
United States
Total
(In thousands)
Residential mortgage loans
$
2,205,659
$
176,123
$
429,746
$
2,811,528
Construction loans
44,297
3,898
95,469
143,664
Commercial mortgage loans
1,766,479
62,694
524,486
2,353,659
Commercial and Industrial loans
1,872,215
69,013
920,961
2,862,189
Total commercial
 
loans
3,682,991
135,605
1,540,916
5,359,512
Consumer loans and finance leases
3,335,014
63,231
8,700
3,406,945
Total loans held
 
for investment, gross
$
9,223,664
$
374,959
$
1,979,362
$
11,577,985
Loans held for sale
14,830
-
353
15,183
Total loans, gross
$
9,238,494
$
374,959
$
1,979,715
$
11,593,168
As of December 31, 2022
Puerto Rico
Virgin Islands
United States
Total
(In thousands)
Residential mortgage loans
$
2,237,983
$
179,917
$
429,390
$
2,847,290
Construction loans
30,529
4,243
98,181
132,953
Commercial mortgage loans
1,768,890
65,314
524,647
2,358,851
Commercial and Industrial loans
1,791,235
68,874
1,026,154
2,886,263
Total commercial
 
loans
3,590,654
138,431
1,648,982
5,378,067
Consumer loans and finance leases
3,256,070
61,419
9,979
3,327,468
Total loans held
 
for investment, gross
$
9,084,707
$
379,767
$
2,088,351
$
11,552,825
Loans held for sale
12,306
-
-
12,306
Total loans, gross
$
9,097,013
$
379,767
$
2,088,351
$
11,565,131
 
88
Residential Real Estate Loans
As of March 31,
 
2023, the Corporation’s
 
total residential mortgage loan
 
portfolio, including loans
 
held for sale, decreased
 
by $32.9
million, as compared
 
to the balance as
 
of December 31, 2022.
 
The decline in the
 
residential mortgage loan portfolio
 
reflects decreases
of $29.8 million
 
in the Puerto Rico
 
region and $3.8
 
million in the Virgin
 
Islands region, partially
 
offset by an
 
increase of $0.7 million
in the Florida region.
 
The decline 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 as of
 
March 31,
 
2023 consisted of
 
fixed-rate loans
 
that traditionally
 
carry higher yields
 
than residential
 
mortgage loans
 
in the
Florida region. In
 
the Florida region,
 
approximately 44% 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
 
March 31,
 
2023, the
 
Corporation’s
 
commercial and
 
construction loan
 
portfolio decreased
 
by $18.6
 
million, as
 
compared to
the balance as of December 31, 2022.
 
In the Florida
 
region, commercial and
 
construction loans decreased
 
by $108.1 million,
 
as compared to
 
the balance as
 
of December
31, 2022. This decrease
 
reflected $93.3 million in
 
payoffs and paydowns of
 
five commercial and industrial
 
relationships in the Florida
region, each in excess of $10 million,
 
including the payoff of a $24.3
 
million commercial and industrial participated
 
loan in the leisure
and hospitality industry.
In
 
the
 
Virgin
 
Islands
 
region,
 
commercial
 
and
 
construction
 
loans
 
decreased
 
by
 
$2.8
 
million,
 
as
 
compared
 
to
 
the
 
balance
 
as
 
of
December 31, 2022.
In
 
the
 
Puerto
 
Rico
 
region,
 
commercial
 
and
 
construction
 
loans
 
increased
 
by
 
$92.3
 
million,
 
as
 
compared
 
to
 
the
 
balance
 
as
 
of
December
 
31,
 
2022.
 
This
 
increase
 
was
 
driven
 
by
 
the
 
origination
 
of
 
several
 
loans,
 
including
 
four
 
commercial
 
relationships,
 
each
 
in
excess of $10 million, that increased the portfolio amount by $54.2 million.
As
 
of
 
March
 
31,
 
2023,
 
the
 
Corporation
 
had
 
$170.9
 
million
 
outstanding
 
in
 
loans
 
extended
 
to
 
the
 
Puerto
 
Rico
 
government,
 
its
municipalities,
 
and
 
public
 
corporations,
 
compared
 
to
 
$169.8
 
million
 
as
 
of
 
December
 
31,
 
2022.
 
See
 
“Exposure
 
to
 
Puerto
 
Rico
Government” below for additional information.
 
The Corporation
 
also has
 
credit exposure
 
to USVI
 
government entities.
 
As of
 
March 31,
 
2023, the
 
Corporation had
 
$38.7 million
in
 
loans
 
to
 
USVI
 
government
 
public
 
corporations,
 
compared
 
to
 
$38.0
 
million
 
as
 
of
 
December
 
31,
 
2022.
 
See
 
“Exposure
 
to
 
USVI
Government”
 
below for additional information.
As of
 
March 31,
 
2023, the
 
Corporation’s
 
total commercial
 
mortgage loan
 
exposure amounted
 
to $2.4
 
billion, or
 
44% of
 
the total
commercial
 
loan portfolio.
 
Of this
 
total, $379
 
million and
 
$38 million
 
is in
 
office real
 
estate in
 
the Puerto
 
Rico and
 
Florida regions,
respectively.
 
Total office
 
real estate maturing during the remainder of 2023 and 2024 amounted
 
to $107 million.
As of
 
March 31,
 
2023, the
 
Corporation’s
 
total exposure
 
to shared
 
national credit
 
(“SNC”) loans
 
(including unused
 
commitments)
amounted to $1.1
 
billion as of
 
each of March
 
31, 2023 and
 
December 31, 2022.
 
As of March
 
31, 2023, approximately
 
$207.6 million
of the SNC exposure is related to the portfolio in Puerto Rico and $858.3 million
 
is related to the portfolio in the Florida region.
Consumer Loans and Finance Leases
As of
 
March 31,
 
2023, the
 
Corporation’s
 
consumer loan
 
and finance
 
lease portfolio
 
increased by
 
$79.5 million
 
to $3.4
 
billion, as
compared
 
to
 
the
 
portfolio
 
balance
 
of
 
$3.3
 
billion
 
as
 
of
 
December
 
31,
 
2022.
 
This
 
increase
 
was
 
mainly
 
related
 
to
 
increases
 
of
 
$34.8
million
 
and
 
$37.2
 
million
 
in
 
the
 
auto
 
loans
 
and
 
finance
 
leases
 
portfolios,
 
respectively.
 
The
 
growth
 
in
 
consumer
 
loans
 
is
 
mainly
reflected in the Puerto Rico region across all portfolio classes.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
89
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.
 
Auto
 
loans
 
and
 
finance
 
leases
 
originations
 
rely
primarily on relationships with auto dealers and dedicated sales professionals who
 
serve selected locations to facilitate originations.
 
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 March 31,
 
2023
2022
(In thousands)
Residential mortgage
$
77,302
$
122,513
Construction
35,499
19,986
Commercial mortgage
88,692
127,985
Commercial and Industrial
555,882
490,296
Consumer
435,318
426,467
 
Total loan production
$
1,192,693
$
1,187,247
During
 
the
 
quarter
 
ended
 
March
 
31,
 
2023,
 
total
 
loan
 
originations,
 
including
 
purchases,
 
refinancings,
 
and
 
draws
 
from
 
existing
revolving and non-revolving
 
commitments, amounted
 
to approximately $1.2
 
billion, an increase
 
of $5.5 million,
 
compared to the
 
first
quarter of 2022.
Residential
 
mortgage
 
loan
 
originations
 
for
 
the
 
quarter
 
ended
 
March
 
31,
 
2023
 
amounted
 
to
 
$77.3
 
million,
 
compared
 
to
 
$122.5
million for the first quarter of 2022. The decrease of $45.2 million
 
in the first quarter of 2023, as compared to the same period
 
in 2022,
reflects
 
declines of
 
$42.2 million
 
in the
 
Puerto Rico
 
region,
 
$2.5 million
 
in the
 
Florida region,
 
and $0.5
 
million in
 
the Virgin
 
Islands
region.
 
Approximately
 
60%
 
of
 
the
 
$61.5
 
million
 
residential
 
mortgage
 
loan
 
originations
 
in
 
the
 
Puerto
 
Rico
 
region
 
during
 
the
 
first
quarter of
 
2023 were
 
of conforming
 
loans, compared
 
to 67%
 
of $103.7
 
million for
 
the first
 
quarter of
 
2022. The
 
decrease during
 
the
first quarter of 2023
 
is related to a
 
lower volume of conforming
 
loan originations and refinancings,
 
in part due to a
 
higher interest rate
environment.
Commercial
 
and
 
construction
 
loan
 
originations
 
(excluding government
 
loans)
 
for the
 
quarter ended
 
March 31,
 
2023 amounted
 
to
$672.8
 
million,
 
compared
 
to $633.8
 
million
 
for
 
the
 
first
 
quarter
 
of
 
2022.
 
The
 
increase
 
of
 
$39.0
 
million
 
in
 
the
 
first
 
quarter
 
of
 
2023
consisted of increases of $93.7
 
million and $0.5 million in
 
the Puerto Rico and the Virgin
 
Islands regions, respectively,
 
partially offset
by a decrease of $55.2 million in the Florida region.
 
Government
 
loan
 
originations
 
for
 
the
 
quarter
 
ended
 
March
 
31,
 
2023
 
amounted
 
to
 
$7.2
 
million,
 
an
 
increase
 
of
 
$2.8
 
million,
compared
 
to
 
$4.4
 
million
 
for
 
the
 
first
 
quarter
 
of
 
2022.
 
Government
 
loan
 
originations
 
during
 
the
 
first
 
quarter
 
of
 
2023
 
were
 
mainly
related to the origination
 
of a loan to an
 
agency of the Puerto Rico
 
government for a low-income
 
housing project and the utilization
 
of
an arranged
 
overdraft line of
 
credit of
 
a government entity
 
in the Virgin
 
Islands region. Government
 
loan originations during
 
the first
quarter
 
of
 
2022
 
were
 
related
 
to
 
the
 
utilization
 
of
 
an
 
arranged
 
overdraft
 
line
 
of
 
credit
 
of
 
a
 
government
 
entity
 
in
 
the
 
Virgin
 
Islands
region.
Originations of
 
auto loans
 
(including finance
 
leases) for
 
the quarter
 
ended March
 
31, 2023
 
amounted to
 
$245.1 million,
 
compared
to
 
$261.3
 
million
 
for
 
the first
 
quarter
 
of
 
2022.
 
The
 
decrease
 
in
 
the
 
first
 
quarter
 
of
 
2023,
 
as compared
 
to
 
the
 
same
 
quarter
 
of
 
2022,
consisted of a $17.5
 
million decrease in the
 
Puerto Rico region, partially
 
offset by a
 
$1.3 million increase in
 
the Virgin
 
Islands region.
Other consumer loan
 
originations, other than credit
 
cards, for the quarter
 
ended March 31, 2023
 
amounted to $71.9
 
million, compared
to $55.7
 
million for the
 
first quarter of
 
2022. Most of
 
the increase in
 
other consumer
 
loan originations for
 
the first quarter
 
of 2023, as
compared with the same
 
period in 2022, was in
 
the Puerto Rico region.
 
The utilization activity on
 
the outstanding credit card portfolio
for the quarter ended March 31, 2023 amounted to $118.4
 
million, compared to $109.5 million for the same period in 2022.
 
90
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 March
 
31, 2023
 
amounted to
 
$5.6 billion,
 
a $10.3
 
million
decrease from
 
December 31,
 
2022.
 
The decrease
 
was mainly
 
driven by
 
repayments of
 
approximately $95.9
 
million of
 
U.S. agencies
and MBS,
 
partially offset
 
by an
 
$87.2 million
 
increase in
 
fair value
 
attributable to
 
changes in
 
market interest
 
rates. As
 
of March
 
31,
2023,
 
the
 
Corporation
 
had
 
a
 
net
 
unrealized
 
loss
 
on
 
available-for-sale
 
debt
 
securities
 
of
 
$711.0
 
million.
 
This
 
unrealized
 
loss
 
is
attributable to
 
instruments on book
 
s
 
carrying a lower
 
interest rate than
 
market rates. The
 
Corporation expects
 
that this unrealized
 
loss
will reverse
 
over
 
time.
 
The Corporation
 
expects
 
the
 
portfolio
 
to
 
continue
 
to
 
decrease
 
as repayments
 
are received
 
over
 
the
 
next
 
two
years
 
and
 
further
 
expects
 
that the
 
accumulated
 
other
 
comprehensive
 
loss will
 
decrease
 
accordingly,
 
excluding
 
the impact
 
of
 
market
interest rates.
As
 
of
 
March
 
31,
 
2023,
 
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
 
March
 
31,
 
2023,
 
the
 
Corporation
 
held
 
a
 
bond
issued
 
by
 
the
 
PRHFA,
 
classified
 
as available
 
for
 
sale,
 
specifically
 
a
 
residential
 
pass-through
 
MBS in
 
the
 
aggregate
 
amount
 
of $3.3
million
 
(fair
 
value
 
-
 
$2.2
 
million).
 
This
 
residential
 
pass-through
 
MBS
 
issued
 
by
 
the
 
PRHFA
 
is
 
collateralized
 
by
 
certain
 
second
mortgages originated
 
under a program
 
launched by the
 
Puerto Rico government
 
in 2010 and
 
had an unrealized
 
loss of $1.1
 
million as
of
 
March
 
31,
 
2023,
 
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
 
March 31,
 
2023,
 
the Corporation’s
 
held-to-maturity
 
debt
 
securities portfolio,
 
before the
 
ACL, decreased
 
to $431.4
 
million,
compared
 
to
 
$437.5
 
million
 
as
 
of
 
December
 
31,
 
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.
 
As
 
of
 
March
 
31,
 
2023,
 
approximately
 
74%
 
of
 
the
 
Corporation’s
 
municipality
 
bonds
consisted
 
of
 
obligations
 
issued
 
by
 
four
 
of
 
the
 
largest
 
municipalities
 
in
 
Puerto
 
Rico.
 
The
 
municipalities
 
are
 
required
 
by
 
law
 
to
 
levy
special property
 
taxes in
 
such amounts
 
as are
 
required for
 
the payment
 
of all
 
of their
 
respective general
 
obligation bonds
 
and loans.
Given the uncertainties as to
 
the effects that the fiscal
 
position of the Puerto Rico central government,
 
and the measures taken, or
 
to be
taken, by other
 
government entities may
 
have on municipalities,
 
the Corporation
 
cannot be certain
 
whether future charges
 
to the ACL
on these securities will be required.
 
As of March 31, 2023, the ACL
 
for held-to-maturity debt securities was
 
$7.6 million, compared to
$8.3 million as of December 31, 2022.
See
 
“Risk
 
Management
 
 
Exposure
 
to Puerto
 
Rico
 
Government”
 
below
 
for
 
information
 
and
 
details
 
about
 
the Corporation’s
 
total
direct
 
exposure
 
to
 
the
 
Puerto
 
Rico
 
government,
 
including
 
municipalities
 
and
 
“Credit
 
Risk
 
Management”
 
below
 
for
 
the
 
ACL
 
of
 
the
exposure to Puerto Rico municipal bonds.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
91
 
The following table presents the carrying values of investments as of the indicated dates:
March 31, 2023
December 31, 2022
(In thousands)
Money market investments
$
1,059
$
2,025
Available-for-sale
 
debt securities, at fair value:
U.S. government and agencies obligations
2,531,632
2,492,228
Puerto Rico government obligations
2,203
2,201
MBS:
 
Residential
2,896,655
2,941,458
 
Commercial
158,766
163,133
 
Other
-
500
Total available-for-sale
 
debt securities, at fair value
5,589,256
5,599,520
Held-to-maturity debt securities, at amortized cost:
MBS:
 
Residential
161,587
166,739
 
Commercial
104,008
105,088
Puerto Rico municipal bonds
165,800
165,710
 
ACL for held-to-maturity Puerto Rico municipal bonds
(7,646)
(8,286)
Total held-to-maturity
 
debt securities
423,749
429,251
Equity securities, including $54.2 million and $42.9 million of FHLB stock
as of March 31,
 
2023 and December 31, 2022, respectively
66,714
55,289
Total money market
 
investments and investment securities
$
6,080,778
$
6,086,085
 
The carrying values of debt securities as of March 31, 2023 by contractual maturity
 
(excluding MBS), are shown below:
Carrying Amount
Weighted-Average
 
Yield %
(Dollars in thousands)
U.S. government and agencies obligations:
Due within one year
$
210,928
0.44
Due after one year through five years
2,272,126
0.83
Due after five years through ten years
36,926
1.64
Due after ten years
11,652
5.15
2,531,632
0.83
Puerto Rico government and municipalities obligations:
Due within one year
1,204
5.70
Due after one year through five years
42,633
6.74
Due after five years through ten years
55,940
7.10
Due after ten years
68,226
7.73
168,003
7.26
MBS
3,321,016
1.68
ACL on held-to-maturity debt securities
(7,646)
-
Total debt securities
$
6,013,005
1.48
 
92
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.
 
Net
interest income
 
in future periods
 
might also be
 
affected by
 
the Corporation’s
 
investment in
 
callable securities. As
 
of March
 
31, 2023,
the
 
Corporation
 
had
 
approximately
 
$2.0
 
billion
 
in
 
callable
 
debt
 
securities
 
(U.S.
 
agencies
 
debt
 
securities)
 
with
 
an
 
average
 
yield
 
of
0.84%, of
 
which approximately
 
59% were
 
purchased at
 
a discount
 
and 5%
 
at a
 
premium.
 
See “Risk
 
Management” below
 
for further
analysis
 
of
 
the
 
effects
 
of
 
changing
 
interest
 
rates
 
on
 
the
 
Corporation’s
 
net
 
interest
 
income
 
and
 
the
 
Corporation’s
 
interest
 
rate
 
risk
management strategies. Also,
 
refer to Note 2
 
– Debt Securities to
 
the unaudited consolidated
 
financial statements herein for
 
additional
information regarding the Corporation’s
 
debt securities portfolio.
RISK MANAGEMENT
General
Risks
 
are
 
inherent
 
in
 
virtually
 
all
 
aspects
 
of
 
the
 
Corporation’s
 
business
 
activities
 
and
 
operations.
 
Consequently,
 
effective
 
risk
management
 
is
 
fundamental
 
to
 
the
 
success
 
of
 
the
 
Corporation.
 
The
 
primary
 
goals
 
of
 
risk
 
management
 
are
 
to
 
ensure
 
that
 
the
Corporation’s risk-taking
 
activities are consistent with
 
the Corporation’s
 
objectives and risk
 
tolerance, and that
 
there is an appropriate
balance between risks and rewards in order to maximize stockholder value.
The
 
Corporation
 
has
 
in
 
place
 
a
 
risk
 
management
 
framework
 
to
 
monitor,
 
evaluate
 
and
 
manage
 
the
 
principal
 
risks
 
assumed
 
in
conducting its activities. First BanCorp.’s
 
business is subject to eleven
 
broad categories of risks: (i) liquidity
 
risk; (ii) interest rate risk;
(iii) market risk; (iv)
 
credit risk; (v) operational
 
risk; (vi) legal and
 
regulatory risk; (vii)
 
reputational risk; (viii) model
 
risk; (ix) capital
risk; (x)
 
strategic risk;
 
and (xi)
 
information technology
 
risk. First
 
BanCorp. has
 
adopted policies
 
and procedures
 
designed to
 
identify
and manage the risks to which the Corporation is exposed.
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 2022 Annual
 
Report on Form 10-K.
Liquidity Risk
 
Liquidity
 
risk
 
involves
 
the
 
ongoing
 
ability
 
to
 
accommodate
 
liability
 
maturities
 
and
 
deposit
 
withdrawals,
 
fund
 
asset growth
 
and
business operations,
 
and meet
 
contractual obligations
 
through unconstrained
 
access to funding
 
at reasonable
 
market rates. Liquidity
management
 
involves
 
forecasting
 
funding
 
requirements
 
and
 
maintaining
 
sufficient
 
capacity
 
to
 
meet
 
liquidity
 
needs
 
and
accommodate
 
fluctuations
 
in
 
asset
 
and
 
liability
 
levels
 
due
 
to
 
changes
 
in
 
the
 
Corporation’s
 
business
 
operations
 
or
 
unanticipated
events.
 
 
The Corporation
 
manages liquidity
 
at two
 
levels. The
 
first is
 
the liquidity
 
of the
 
parent company,
 
or First
 
Bancorp., which
 
is the
holding
 
company
 
that
 
owns
 
the
 
banking
 
and
 
non-banking
 
subsidiaries.
 
The
 
second
 
is
 
the
 
liquidity
 
of
 
the
 
banking
 
subsidiary,
 
or
FirstBank.
 
The Asset
 
and Liability
 
Committee of
 
the Board
 
is responsible
 
for overseeing
 
management’s
 
establishment of
 
the Corporation’s
liquidity
 
policy,
 
as
 
well
 
as
 
approving
 
operating
 
and
 
contingency
 
procedures
 
and
 
monitoring
 
liquidity
 
on
 
an
 
ongoing
 
basis.
 
The
Management’s
 
Investment
 
and
 
Asset
 
Liability
 
Committee
 
(“MIALCO”),
 
which
 
reports
 
to
 
the
 
Board’s
 
Asset
 
and
 
Liability
Committee,
 
uses
 
measures
 
of
 
liquidity
 
developed
 
by
 
management
 
that
 
involve
 
the
 
use
 
of
 
several
 
assumptions
 
to
 
review
 
the
Corporation’s
 
liquidity
 
position
 
on
 
a
 
monthly
 
basis.
 
The
 
MIALCO
 
oversees
 
liquidity
 
management,
 
interest
 
rate
 
risk,
 
market
 
risk,
and other related matters.
 
The MIALCO is composed of
 
senior management officers, including
 
the Chief Executive Officer,
 
the Chief Financial Officer,
 
the
Chief Risk
 
Officer,
 
the Corporate
 
Strategic and
 
Business Development
 
Director,
 
the Treasury
 
and
 
Investments
 
Risk Manager,
 
the
Financial
 
Planning
 
and
 
Asset
 
and
 
Liability
 
Management
 
(“ALM”)
 
Director,
 
and
 
the
 
Treasurer.
 
The
 
Treasury
 
and
 
Investments
Division is responsible for planning
 
and executing the Corporation’s
 
funding activities and strategy,
 
monitoring liquidity availability
on a daily basis, and reviewing
 
liquidity measures on a weekly basis.
 
The Treasury and Investments
 
Accounting and Operations area
of
 
the
 
Corporate
 
Controller’s
 
Department
 
is
 
responsible
 
for
 
calculating
 
the
 
liquidity
 
measurements
 
used
 
by
 
the
 
Treasury
 
and
Investment Division to
 
review the Corporation’s
 
liquidity position on
 
a monthly basis. The
 
Financial Planning and
 
ALM Division is
responsible to estimate the liquidity gap for longer periods.
 
93
To
 
ensure
 
adequate liquidity
 
through the
 
full range
 
of potential
 
operating
 
environments and
 
market conditions,
 
the Corporation
conducts
 
its
 
liquidity
 
management
 
and
 
business
 
activities
 
in
 
a
 
manner
 
that
 
is
 
intended
 
to
 
preserve
 
and
 
enhance
 
funding
 
stability,
flexibility,
 
and
 
diversity.
 
Key
 
components
 
of
 
this
 
operating
 
strategy
 
include
 
a
 
strong
 
focus
 
on
 
the
 
continued
 
development
 
of
customer-based
 
funding, the
 
maintenance
 
of direct
 
relationships with
 
wholesale
 
market funding
 
providers, and
 
the maintenance
 
of
the ability to liquidate certain assets when, and if, requirements warrant.
 
The
 
Corporation
 
develops
 
and
 
maintains
 
contingency
 
funding
 
plans.
 
These
 
plans
 
evaluate
 
the
 
Corporation’s
 
liquidity
 
position
under various
 
operating circumstances
 
and are
 
designed to
 
help ensure
 
that the
 
Corporation will
 
be able
 
to operate
 
through periods
of stress when
 
access to normal
 
sources of funds
 
is constrained. The
 
plans project funding
 
requirements during
 
a potential period
 
of
stress, specify and quantify sources of liquidity,
 
outline actions and procedures for effectively managing liquidity
 
through a period of
stress, and
 
define roles
 
and responsibilities
 
for the
 
Corporation’s
 
employees. Under
 
the contingency
 
funding plans,
 
the Corporation
stresses the
 
balance sheet
 
and the liquidity
 
position to
 
critical levels
 
that mimic
 
difficulties in
 
generating funds
 
or even
 
maintaining
the current
 
funding position
 
of the
 
Corporation and
 
the Bank
 
and are
 
designed to
 
help ensure
 
the ability
 
of the
 
Corporation and
 
the
Bank to honor
 
their respective commitments.
 
The Corporation has
 
established liquidity
 
triggers that the
 
MIALCO monitors
 
in order
to
 
maintain
 
the
 
ordinary
 
funding
 
of
 
the
 
banking
 
business.
 
The
 
MIALCO
 
developed
 
contingency
 
funding
 
plans
 
for
 
the
 
following
three
 
scenarios:
 
a
 
credit rating
 
downgrade,
 
an
 
economic
 
cycle downturn
 
event,
 
and
 
a
 
concentration
 
event.
 
The
 
Board’s
 
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
 
its liquidity
 
position, including
 
core liquidity,
 
basic liquidity,
 
and time-based
 
reserve measures.
 
Cash
and cash equivalents
 
amounted to $823.6
 
million as of
 
March 31, 2023,
 
compared to $480.5
 
million as of
 
December 31, 2022.
 
Free
high-quality
 
liquid
 
securities
 
that
 
could
 
be
 
liquidated
 
or
 
pledged
 
within
 
one
 
day
 
amounted
 
to
 
$2.4
 
billion
 
as
 
of
 
March
 
31,
 
2023,
compared to $3.1
 
billion as of
 
December 31, 2022.
 
As of March
 
31, 2023, 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
 
or
 
pledged
 
within
 
one
day) was
 
$3.2 billion,
 
or 16.77%
 
of total
 
assets, compared
 
to $3.5
 
billion, or
 
19.02% of
 
total assets
 
as of
 
December 31,
 
2022. The
basic liquidity ratio (which adds available secured lines of credit to the
 
core liquidity) was approximately 21.42% of total assets as of
March 31, 2023, compared to 22.48% of total assets as of December 31,
 
2022.
 
As of
 
March 31,
 
2023,
 
in addition
 
to the
 
aforementioned $3.2
 
billion in
 
cash and
 
free high
 
quality liquid
 
assets, the
 
Corporation
had $882.5 million available for
 
credit with the
 
FHLB based on the value of collateral
 
pledged with the FHLB. The Corporation
 
also
maintains borrowing
 
capacity at
 
the FED
 
Discount Window.
 
The Corporation
 
does not
 
consider borrowing
 
capacity from
 
the FED
Discount
 
Window
 
as a
 
primary
 
source
 
of liquidity
 
but had
 
approximately
 
$1.4
 
billion
 
available
 
for
 
funding under
 
the FED’s
 
BIC
Program
 
as of
 
March
 
31,
 
2023 as
 
an
 
additional
 
contingent
 
source
 
of liquidity.
 
Total
 
loans pledged
 
to
 
the
 
FED
 
Discount
 
Window
amounted to $2.3 billion as of March 31, 2023. 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.
 
On a
 
combined basis,
 
as of
 
March 31,
2023, the Corporation had $5.5 billion available to meet liquidity needs
 
,
 
while maintaining a strong capital position.
The Bank had $252.9 million in brokered
 
CDs as of March 31, 2023, of which
 
approximately $180.9 million mature over
 
the next
twelve months.
 
Liquidity at
 
the Bank level
 
is highly dependent
 
on bank deposits,
 
which fund
 
84.9% of the
 
Bank’s assets
 
(or 83.5%
excluding brokered
 
CDs). Historically,
 
the use
 
of brokered
 
CDs has
 
been an
 
additional source
 
of funding
 
for the
 
Corporation as
 
it
provides
 
an additional
 
efficient channel
 
for funding
 
diversification and
 
can be
 
obtained faster
 
than regular
 
retail deposits.
 
Funding
through brokered CDs may continue to increase the overall cost of funding for the
 
Corporation and impact the net interest margin.
In addition, as further discussed
 
below, the
 
Corporation maintain a large,
 
stable core deposit base and a
 
diversified base of readily
available wholesale
 
funding sources,
 
including advances
 
from the FHLB
 
through pledged
 
borrowing capacity,
 
securities sold
 
under
agreements
 
to
 
repurchase,
 
and
 
access
 
to
 
certificates
 
of
 
deposit
 
issued
 
through
 
brokers.
 
Funding
 
through
 
wholesale
 
funding
 
may
continue to increase the overall cost of funding for the Corporation and impact the net
 
interest margin.
Over the
 
last year,
 
the FED’s
 
policies to
 
control the
 
inflationary economic
 
environment, including
 
repeated market
 
interest rate
increases,
 
have
 
resulted
 
in
 
excess
 
liquidity
 
gradually
 
tapering
 
off
 
and
 
impacting
 
the
 
Corporation’s
 
core
 
deposit
 
balances
 
as
customers
 
have
 
allocated
 
cash
 
into
 
higher
 
yielding
 
options.
 
During
 
the
 
first
 
quarter
 
of
 
2023,
 
the
 
banking
 
industry
 
in
 
the
 
U.S.
mainland experienced
 
deposit runoff
 
that led to
 
the collapse of
 
certain financial
 
institutions. As a
 
precautionary measure,
 
during the
first quarter of
 
2023, the Corporation
 
increased the use of
 
advances from the FHLB,
 
repurchase agreements, and
 
other sources, such
as wholesale funding brokers,
 
to increase cash and cash
 
equivalents. Increased use of long-term
 
FHLB advances has been part
 
of the
Corporation’s
 
interest rate risk
 
management strategy
 
to mitigate
 
the impact of
 
market interest rate
 
increases. The
 
additional use
 
and
future levels of these sources of
 
funding are dependent on factors such
 
as the loan portfolio future pipeline
 
and customers continuing
to
 
allocate
 
more
 
cash
 
into
 
higher
 
yielding
 
alternatives,
 
among
 
other
 
factors.
 
The
 
Corporation
 
believes
 
that
 
as
 
uncertainty
 
in
 
the
banking industry eases certain short-term borrowings will be repaid and
 
not renewed.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
94
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
 
March
 
31,
 
2023,
 
the
 
Corporation’s
 
commitments
 
to
 
extend
 
credit
 
amounted
 
to
 
approximately
 
$2.0
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.
 
The following table summarizes commitments to extend credit and standby letters of
 
credit as of the indicated dates:
March 31,
 
2023
December 31, 2022
(In thousands)
Financial instruments whose contract amounts represent credit risk:
 
Commitments to extend credit:
 
Construction undisbursed funds
$
200,105
$
170,639
 
Unused credit card lines
949,701
936,231
 
Unused personal lines of credit
 
41,639
41,988
 
Commercial lines of credit
772,240
761,634
 
Letters of credit:
 
Commercial letters of credit
84,724
68,647
 
Standby letters of credit
8,886
9,160
The
 
Corporation
 
engages
 
in
 
the ordinary
 
course
 
of business
 
in
 
other
 
financial
 
transactions
 
that
 
are not
 
recorded
 
on the
 
balance
sheet,
 
or
 
may
 
be
 
recorded
 
on
 
the
 
balance
 
sheet
 
in
 
amounts
 
that
 
are
 
different
 
from
 
the
 
full
 
contract
 
or
 
notional
 
amount
 
of
 
the
transaction
 
and, thus,
 
affect
 
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 $4.0
 
billion as of March 31,
2023.
 
Our
 
material
 
cash
 
requirements
 
comprise
 
primarily
 
of
 
contractual
 
obligations
 
to
 
make
 
future
 
payments
 
related
 
to
 
time
deposits,
 
short-term
 
borrowings,
 
long-term
 
debt,
 
and
 
operating
 
lease
 
obligations.
 
We
 
also
 
have
 
other
 
contractual
 
cash
 
obligations
related
 
to
 
certain
 
binding
 
agreements
 
we
 
have
 
entered
 
into
 
for
 
services
 
including
 
outsourcing
 
of
 
technology
 
services,
 
security,
advertising and
 
other services
 
which are
 
not material
 
to our
 
liquidity needs.
 
We
 
currently anticipate
 
that our
 
available funds,
 
credit
facilities, and cash flows from operations will be sufficient to
 
meet our operational cash needs for the foreseeable future.
Off-balance sheet
 
transactions are continuously
 
monitored to consider
 
their potential impact
 
to our liquidity
 
position and changes
are applied to the balance between sources and uses of funds, as deemed appropriate,
 
to maintain a sound liquidity position.
Sources of Funding
The
 
Corporation
 
utilizes
 
different
 
sources
 
of
 
funding
 
to
 
help
 
ensure
 
that
 
adequate
 
levels
 
of
 
liquidity
 
are
 
available
 
when
 
needed.
Diversification of
 
funding sources is
 
of great importance
 
to protect the
 
Corporation’s
 
liquidity from market
 
disruptions. The
 
principal
sources of
 
short-term
 
funds are
 
deposits, including
 
brokered CDs.
 
Additional funding
 
is provided
 
by short-
 
and long-term
 
securities
sold under agreements
 
to repurchase and
 
lines of credit with
 
the FHLB. Consistent with
 
its strategy,
 
the Corporation has been
 
seeking
to add core deposits.
 
The
 
Asset and
 
Liability
 
Committee
 
reviews
 
credit availability
 
on a
 
regular basis.
 
The
 
Corporation
 
also
 
sells mortgage
 
loans
 
as a
supplementary source of
 
funding and has obtained
 
long-term funding in the past
 
through the issuance of
 
notes and long-term brokered
CDs. In
 
addition, the
 
Corporation also
 
maintains as
 
additional contingent
 
sources borrowing
 
capacity at
 
the FED’s
 
BIC Program
 
and
recently enrolled in the FED’s Bank
 
Term Funding
 
Program (“BTFP”).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
95
While
 
liquidity
 
is
 
an
 
ongoing
 
challenge
 
for
 
all
 
financial
 
institutions,
 
management
 
believes
 
that
 
the
 
Corporation’s
 
available
borrowing capacity and
 
efforts to grow
 
core 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 discussed below:
Retail core
 
deposits
– The
 
Corporation’s
 
deposit products
 
include regular
 
savings accounts,
 
demand deposit
 
accounts, money
 
market
accounts,
 
and retail
 
CDs. As
 
of March
 
31, 2023,
 
the Corporation’s
 
core deposits,
 
which exclude
 
government
 
deposits and
 
brokered
CDs, decreased by
 
$142.7 million to
 
$13.1 billion from
 
$13.3 billion as
 
of December 31,
 
2022. The decrease
 
was primarily related
 
to
saving and
 
checking accounts
 
in the
 
Florida region
 
used for
 
loan repayments,
 
as well
 
as customers
 
continuing to
 
reallocate cash
 
into
higher-yielding alternatives.
 
Notwithstanding, these
 
reductions were
 
partially offset
 
by an
 
increase in
 
time deposits,
 
including
 
a shift
from
 
non-interest
 
bearing
 
or
 
low-interest
 
bearing
 
products
 
to
 
time
 
deposits,
 
driven
 
by
 
higher
 
rates
 
offered,
 
as
 
well
 
as
 
certain
 
large
commercial deposit inflows in the Puerto Rico region. The average balance per retail
 
core deposit account is $26 thousand.
Government deposits
 
– As
 
of March
 
31, 2023,
 
the Corporation
 
had $2.2
 
billion of
 
Puerto Rico
 
public sector
 
deposits ($2.0
 
billion in
transactional
 
accounts
 
and
 
$161.9
 
million
 
in
 
time
 
deposits),
 
compared
 
to
 
$2.3
 
billion
 
as
 
of
 
December
 
31,
 
2022.
 
The
 
decrease
 
was
primarily related
 
to reductions in
 
the balance
 
of operational accounts
 
of a public
 
corporation. These
 
deposits are insured
 
by the FDIC
up to
 
the applicable
 
limits and
 
the uninsured
 
portions is
 
fully
 
collateralized.
 
Approximately
 
25% of
 
the public
 
sector deposits
 
as of
March 31,
 
2023 were
 
from municipalities
 
and municipal
 
agencies in
 
Puerto Rico
 
and 75% were
 
from public
 
corporations, the
 
central
government and agencies, and U.S. federal government agencies in Puerto Rico.
In
 
addition,
 
as
 
of
 
March
 
31,
 
2023,
 
the
 
Corporation
 
had
 
$462.0
 
million
 
of
 
government
 
deposits
 
in
 
the
 
Virgin
 
Islands
 
region
(December 31, 2022 - $442.8 million) and $11.3
 
million in the Florida region (December 31, 2022 - $11.6
 
million).
The uninsured portions
 
of government deposits
 
were collateralized by
 
securities and loans with
 
an amortized cost
 
of $3.1 billion
 
as
of each
 
of March
 
31, 2023
 
and December
 
31, 2022,
 
and an
 
estimated market
 
value of
 
$2.8 billion
 
and $2.7
 
billion, respectively.
 
In
addition to
 
securities and loans,
 
as of each
 
of March
 
31, 2023 and
 
December 31, 2022,
 
the Corporation
 
used $200.0 million
 
in letters
of credit issued by the FHLB as pledges for public deposits in the Virgin
 
Islands.
Estimate
 
of
 
Uninsured
 
Deposits
 
As
 
of
 
March
 
31,
 
2023
 
and
 
December
 
31,
 
2022,
 
the
 
estimated
 
amount
 
of
 
uninsured
 
deposits
totaled
 
$7.2
 
billion
 
and
 
$7.6 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 March
 
31, 2023
and December 31, 2022, include the uninsured
 
portion of government deposits, which are fully collateralized
 
as previously mentioned.
Excluding
 
fully
 
collateralized
 
deposits,
 
$4.8
 
billion
 
of
 
these
 
deposits
 
are
 
uninsured,
 
which
 
represent
 
30.13%
 
of
 
total
 
deposits,
excluding brokered
 
CDs, as of
 
March 31,
 
2023, compared
 
to $4.9 billion,
 
or 30.65% of
 
total deposits,
 
excluding brokered
 
CDs, as of
December 31,
 
2022. 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 March
 
31, 2023:
(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
$
125,162
$
84,861
$
217,846
$
341,507
$
769,376
Other uninsured time deposits
$
18,814
$
10,058
$
9,864
$
5,647
$
44,383
Brokered
 
CDs
 
– Total
 
brokered CDs increased by
 
$147.1 million to $252.9
 
million as of March 31,
 
2023, compared to $105.8
 
million
as of December
 
31, 2022.
 
The increase reflects
 
the effect
 
of new issuances
 
amounting to
 
$189.7 million
 
with an all-in
 
cost of 4.70%,
partially offset
 
by approximately
 
$42.6 million
 
of maturing
 
brokered CDs,
 
with an
 
all-in cost
 
of 4.06%,
 
that were
 
paid off
 
during the
first quarter of 2023.
 
The average remaining term to maturity of the brokered CDs outstanding
 
as of March 31, 2023 was approximately 1.1 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 ended March 31, 2023 and 2022.
 
96
Securities
 
sold
 
under
 
agreements
 
to
 
repurchase
 
-
The
 
Corporation’s
 
investment
 
portfolio
 
is
 
funded
 
in
 
part
 
with
 
repurchase
agreements. The
 
Corporation’s
 
outstanding short-term
 
securities sold
 
under repurchase
 
agreements amounted
 
to $173.0
 
million as
 
of
March 31, 2023,
 
compared to $75.1
 
million as of
 
December 31, 2022.
 
During the first
 
quarter of 2023,
 
the Corporation added
 
$173.0
million of
 
short-term repurchase
 
agreements at
 
an average
 
cost of
 
5.08% reflecting
 
precautionary measures
 
taken by
 
management in
light
 
of
 
recent
 
instability
 
in
 
the
 
banking
 
sector,
 
and
 
repaid
 
upon
 
maturity
 
$75.1
 
million
 
of
 
short-term
 
repurchase
 
agreements
 
at
 
an
average cost of 4.55%.
 
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
 
(Repurchase
Agreements) to
 
the unaudited consolidated
 
financial statements
 
herein 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
 
March 31,
 
2023,
 
the outstanding
 
balance of
 
fixed-rate FHLB
 
advances
 
was $925.0
 
million, compared
 
to $675.0
 
million as
 
of
December
 
31,
 
2022.
 
During
 
the
 
first
 
quarter
 
of
 
2023,
 
the
 
Corporation
 
added
 
$425.0
 
million
 
of
 
short-term
 
FHLB
 
advances
 
at
 
an
average cost of 5.04%
 
and $300.0 million of
 
long-term FHLB advances
 
at an average cost of
 
4.59%, and repaid upon
 
maturity $475.0
million of
 
short-term
 
FHLB advances
 
at an
 
average cost
 
of 4.56%.
 
Of the
 
$925.0 million
 
in FHLB
 
advances
 
as of
 
March 31,
 
2023,
$700.0 million were
 
pledged with investment
 
securities and $225.0
 
million were pledged with
 
mortgage loans. As of
 
March 31, 2023,
the Corporation had
 
$882.5 million available
 
for additional credit
 
on FHLB lines of
 
credit based on
 
collateral pledged at the
 
FHLB of
New York.
Trust Preferred
 
Securities –
In 2004, FBP
 
Statutory Trusts
 
I and II,
 
statutory trusts that
 
are wholly-owned by
 
the Corporation and
 
not
consolidated
 
in
 
the
 
Corporation’s
 
financial
 
statements,
 
sold
 
to
 
institutional
 
investors
 
variable-rate
 
TRuPs
 
and
 
used
 
the
 
proceeds
 
of
these issuances, together
 
with the proceeds
 
of the purchases by
 
the Corporation of
 
variable rate common
 
securities, to purchase
 
junior
subordinated
 
deferrable
 
debentures.
 
The
 
subordinated
 
debentures
 
are
 
presented
 
in
 
the
 
Corporation’s
 
consolidated
 
statements
 
of
financial
 
condition
 
as
 
other
 
long-term
 
borrowings.
 
As
 
of
 
each
 
of
 
March
 
31,
 
2023
 
and
 
December
 
31,
 
2022,
 
the
 
Corporation
 
had
subordinated
 
debentures
 
outstanding
 
in
 
the
 
aggregate
 
amount
 
of
 
$183.8
 
million
 
with
 
maturity
 
dates
 
from
 
June
 
17,
 
2034
 
through
September 20, 2034. Under the indentures, the Corporation has the right,
 
from time to time, and without causing an event of default, to
defer payments of interest on
 
the Junior Subordinated Deferrable
 
Debentures by extending the interest
 
payment period at any time
 
and
from
 
time
 
to
 
time
 
during
 
the term
 
of
 
the
 
subordinated
 
debentures
 
for
 
up
 
to
 
twenty
 
consecutive
 
quarterly
 
periods.
 
As of
 
March
 
31,
2023,
 
the Corporation was
 
current on all
 
interest payments due
 
on its subordinated
 
debt. See Note
 
11 –
 
Other Long-Term
 
Borrowings
and
 
Note
 
7
 
 
Non-Consolidated
 
Var
 
iable
 
Interest
 
Entities
 
(“VIEs”)
 
and
 
Servicing
 
Assets
 
to
 
unaudited
 
consolidated
 
financial
statements herein for additional information.
Other Sources
 
of Funds
 
and Liquidity
 
- The
 
Corporation’s
 
principal uses
 
of funds
 
are for
 
the origination
 
of loans,
 
the repayment
 
of
maturing deposits
 
and borrowings,
 
and deposits
 
withdrawals. In
 
connection with
 
its mortgage
 
banking activities,
 
the Corporation
 
has
invested in technology and personnel to enhance the Corporation’s
 
secondary mortgage market capabilities.
 
The enhanced
 
capabilities improve
 
the Corporation’s
 
liquidity profile
 
as they
 
allow the
 
Corporation to
 
derive liquidity,
 
if needed,
from the sale
 
of mortgage loans
 
in the secondary
 
market. The U.S. (including
 
Puerto Rico) secondary
 
mortgage market is
 
still highly-
liquid, in
 
large part
 
because of
 
the sale
 
of mortgages
 
through guarantee
 
programs of
 
the FHA,
 
VA,
 
U.S. Department
 
of Housing
 
and
Urban
 
Development
 
(“HUD”),
 
FNMA
 
and
 
FHLMC.
 
During
 
the
 
first
 
quarter
 
of
 
2023,
 
loans pooled
 
into GNMA
 
MBS amounted
 
to
approximately
 
$29.4
 
million.
 
Also,
 
during
 
the
 
first
 
quarter of
 
2023,
 
the
 
Corporation
 
sold approx
 
imately
 
$8.0 million
 
of
 
performing
residential mortgage loans to FNMA.
The
 
FED
 
Discount
 
Window
 
is
 
a
 
cost-efficient
 
contingent
 
source
 
of
 
funding
 
for
 
the
 
Corporation
 
in
 
highly-volatile
 
market
conditions.
 
As previously
 
mentioned,
 
although
 
currently
 
not in
 
use,
 
as of
 
March
 
31,
 
2023,
 
the
 
Corporation
 
had
 
approximately
 
$1.4
billion available for funding under the FED’s
 
Discount Window based on collateral pledged at the
 
FED.
The FED’s
 
BTFP was
 
established
 
by the
 
Federal Reserve
 
Board in
 
March 2023
 
as an
 
additional source
 
of funding
 
for depository
institutions
 
to
 
borrow
 
up
 
to
 
the
 
par
 
value
 
of
 
eligible
 
collateral
 
for
 
terms
 
of
 
up
 
to
 
one
 
year.
 
The
 
BTFP
 
eliminates
 
the
 
need
 
for
depository
 
institutions
 
to
 
sell their
 
debt
 
securities
 
in
 
times
 
of
 
stress. Eligible
 
collateral
 
includes
 
high-quality
 
securities such
 
as U.S.
Treasuries,
 
U.S.
 
agency
 
securities,
 
and
 
U.S.
 
agency
 
MBS.
 
Borrowers
 
that
 
are
 
eligible
 
for
 
primary
 
credit
 
under
 
the
 
Borrower-in-
Custody Program
 
(“BIC”) are
 
eligible to
 
borrow under
 
the BTFP.
 
In addition,
 
any eligible
 
collateral pledged
 
to the
 
discount window
can be
 
used under
 
the BTFP.
 
The rate
 
for term
 
advances will
 
be the
 
one-year overnight
 
index swap
 
rate plus
 
10 basis points
 
and will
 
97
be fixed
 
for the term
 
of the advance
 
on the day
 
the advance is
 
made. As previously
 
mentioned, the
 
Corporation enrolled
 
in the BTF
P
during the first quarter of 2023 to further diversify its contingency funding
 
sources.
Effect of Credit Ratings on Access to Liquidity
The
 
Corporation’s
 
liquidity
 
is
 
contingent
 
upon
 
its
 
ability
 
to
 
obtain
 
external
 
sources
 
of
 
funding
 
to
 
finance
 
its
 
operations.
 
The
Corporation’s
 
current credit
 
ratings and any
 
downgrade in credit
 
ratings can hinder
 
the Corporation’s
 
access to new
 
forms of external
funding
 
and/or
 
cause
 
external
 
funding
 
to
 
be
 
more
 
expensive,
 
which
 
could,
 
in
 
turn,
 
adversely
 
affect
 
its
 
results
 
of
 
operations.
 
Also,
changes in
 
credit ratings
 
may further
 
affect the
 
fair value
 
of unsecured
 
derivatives whose
 
value takes
 
into account
 
the Corporation’s
own credit risk.
 
The Corporation
 
does not
 
have any
 
outstanding debt
 
or derivative
 
agreements that
 
would be
 
affected by
 
credit rating
 
downgrades.
Furthermore, given the Corporation’s
 
non-reliance on corporate debt or
 
other instruments directly linked in
 
terms of pricing or volume
to credit
 
ratings, the
 
liquidity of
 
the Corporation
 
has not been
 
affected in
 
any material
 
way by downgrades.
 
The Corporation’s
 
ability
to access new non-deposit sources of funding, however,
 
could be adversely affected by credit downgrades.
As of
 
the date
 
hereof, the
 
Corporation’s
 
credit as
 
a long-term
 
issuer is
 
rated BB+
 
by S&P
 
and BB
 
by Fitch.
 
As of
 
the date
 
hereof,
FirstBank’s
 
credit
 
ratings
 
as
 
a
 
long-term
 
issuer
 
are
 
BB+
 
by
 
S&P,
 
one
 
notch
 
below
 
S&P’s
 
minimum
 
BBB-
 
level
 
required
 
to
 
be
considered investment
 
grade; and BB by
 
Fitch, two notches
 
below Fitch’s
 
minimum BBB- level
 
required to be
 
considered investment
grade.
 
The
 
Corporation’s
 
credit
 
ratings
 
are
 
dependent
 
on
 
a
 
number
 
of
 
factors,
 
both
 
quantitative
 
and
 
qualitative,
 
and
 
are
 
subject
 
to
change
 
at any
 
time. The
 
disclosure of
 
credit ratings
 
is not
 
a recommendation
 
to buy,
 
sell or
 
hold
 
the Corporation’s
 
securities. Each
rating should be evaluated independently of any other rating.
 
98
Cash Flows
Cash and
 
cash equivalents
 
were $823.6
 
million as
 
of March
 
31, 2023,
 
an increase
 
of $343.1
 
million when
 
compared to
 
December
31, 2022.
 
The following
 
discussion highlights
 
the major
 
activities and
 
transactions that
 
affected
 
the Corporation’s
 
cash flows
 
during
the first quarters
 
of 2023 and 2022:
 
Cash Flows from Operating Activities
First BanCorp.’s
 
operating assets and
 
liabilities vary significantly
 
in the normal course
 
of business due to
 
the amount and timing
 
of
cash flows.
 
Management believes
 
that cash
 
flows from
 
operations, available
 
cash balances,
 
and the
 
Corporation’s
 
ability to
 
generate
cash through
 
short and long-term
 
borrowings will be
 
sufficient to
 
fund the Corporation’s
 
operating liquidity
 
needs for the
 
foreseeable
future.
For
 
the
 
first
 
quarters
 
of
 
2023
 
and
 
2022,
 
net
 
cash
 
provided
 
by
 
operating
 
activities
 
was
 
$115.4
 
million
 
and
 
$114.8
 
million,
respectively.
 
Net cash
 
generated from
 
operating activities
 
was higher
 
than reported
 
net income
 
largely as
 
a result
 
of adjustments
 
for
non-cash items such
 
as depreciation and
 
amortization, deferred income
 
tax expense and the
 
provision for credit
 
losses, as well as cash
generated from sales of loans held for sale.
Cash Flows from Investing Activities
The Corporation’s
 
investing activities primarily
 
relate to originating
 
loans to be
 
held for investment,
 
as well as
 
purchasing, selling,
and
 
repaying
 
available-for-sale
 
and
 
held-to-maturity
 
debt
 
securities.
 
For
 
the
 
first
 
quarter
 
of
 
2023,
 
net
 
cash
 
provided
 
by
 
investing
activities was
 
$50.5
 
million, primarily
 
due to
 
repayments of
 
U.S. agencies
 
MBS, partially
 
offset
 
by net
 
disbursements on
 
loans held
for investment.
 
For the
 
first quarter
 
of 2022,
 
net cash
 
used in
 
investing activities
 
was $333.0
 
million, primarily
 
due to
 
purchases of
 
U.S. agencies
and MBS, and net disbursements on loans held for investment, partially offset
 
by repayments of U.S. agencies and MBS.
 
 
Cash Flows from Financing Activities
The Corporation’s
 
financing activities
 
primarily
 
include the
 
receipt of
 
deposits and
 
the issuance
 
of brokered
 
CDs, the
 
issuance of
and payments
 
on long-term
 
debt, the
 
issuance of
 
equity instruments,
 
return of
 
capital, and
 
activities related
 
to its
 
short-term funding.
For the quarter
 
ended March 31, 2023,
 
net cash provided by
 
financing activities was
 
$177.1 million, mainly
 
reflecting net proceeds
 
of
$347.8 million from borrowings,
 
partially offset by a decrease in total deposits and capital returned
 
to stockholders.
 
For the
 
first quarter
 
of 2022,
 
net cash
 
used in
 
financing activities
 
was $628.7
 
million, mainly
 
reflecting a
 
decrease in
 
government
deposits, the repayment at maturity of a $100 million repurchase agreement
 
and capital returned to stockholders.
 
99
Capital
As of
 
March
 
31,
 
2023,
 
the Corporation’s
 
stockholders’
 
equity was
 
$1.4
 
billion,
 
an
 
increase of
 
$80.1
 
million
 
from
 
December
 
31,
2022.
 
The growth
 
was driven
 
by the
 
$87.2
 
million
 
increase 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, and the
 
earnings generated in
 
the first quarter
 
of 2023, partially
 
offset by
 
the repurchase of
 
3.6 million shares
 
of common
 
stock
for a total
 
purchase price of
 
approximately $50.0 million,
 
common stock dividends
 
declared in the
 
first quarter of
 
2023 totaling $25.4
million or
 
$0.14 per
 
common share,
 
and the $1.3
 
million impact
 
to retained
 
earnings related
 
to the adoption
 
of Accounting
 
Standards
Update
 
(“ASU”)
 
2022-02,
 
“Financial
 
Instruments
 
 
Credit
 
Losses
 
(Topic
 
326):
 
Troubled
 
Debt
 
Restructurings
 
and
 
Vintage
Disclosures.” See
 
Note 1
 
– Basis
 
of Presentation
 
and Significant
 
Accounting Policies
 
and Note
 
4 –
 
Allowance for
 
Credit Losses
 
for
Loans and Finance Leases, for additional information related to the
 
adoption of ASU 2022-02.
 
On April 27, 2023, the
 
Corporation’s Board
 
declared a quarterly cash dividend
 
of $0.14 per common share
 
payable on June 9, 2023
to shareholders of
 
record at the close
 
of business on May
 
24, 2023. The Corporation
 
intends to continue to
 
pay quarterly dividends
 
on
common
 
stock.
 
The
 
Corporation’s
 
common
 
stock
 
dividends,
 
including
 
the
 
declaration,
 
timing
 
and
 
amount,
 
remain
 
subject
 
to
 
the
consideration and approval by the Corporation’s
 
Board at the relevant times.
On April
 
27, 2022,
 
the Corporation
 
announced that
 
its Board
 
approved a
 
stock repurchase
 
program, under
 
which the
 
Corporation
may
 
repurchase
 
up
 
to
 
$350
 
million
 
of
 
its
 
outstanding
 
common
 
stock,
 
which
 
commenced
 
in
 
the
 
second
 
quarter
 
of
 
2022.
 
The
Corporation’s
 
stock repurchase program
 
does not obligate
 
it to acquire
 
any specific number
 
of shares and
 
does not have
 
an expiration
date. As of
 
March 31, 2023,
 
the Corporation has
 
repurchased approximately
 
19.6 million shares of
 
common stock for
 
a total purchase
price
 
of
 
$275
 
million
 
under
 
this stock
 
repurchase
 
program.
 
Considering
 
the
 
industry-wide
 
uncertain
 
environment,
 
the Corporation
decided
 
to
 
pause
 
share
 
buybacks
 
during
 
the
 
second
 
quarter
 
of
 
2023
 
and
 
it
 
expects
 
to
 
resume
 
shares
 
repurchases
 
during
 
the
 
third
quarter
 
of
 
2023.
 
The
 
Parent
 
Company
 
has
 
no
 
operations
 
and
 
depends
 
on
 
dividends,
 
distributions
 
and
 
other
 
payments
 
from
 
its
subsidiaries to fund dividend payments, stock repurchases, and to
 
fund all payments on its obligations, including debt obligations.
The tangible common
 
equity ratio and
 
tangible book value
 
per common share
 
are non-GAAP financial
 
measures generally used
 
by
the
 
financial
 
community
 
to
 
evaluate
 
capital
 
adequacy.
 
Tangible
 
common
 
equity
 
is
 
total
 
common
 
equity
 
less
 
goodwill
 
and
 
other
intangible
 
assets.
 
Tangible
 
assets
 
are
 
total
 
assets
 
less
 
the
 
previously
 
mentioned
 
intangible
 
assets.
 
See
 
“Non-GAAP
 
Financial
Measures and Reconciliations”
 
above for additional information.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100
 
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 March 31, 2023 and December 31, 2022, respectively:
March 31,
 
2023
December 31, 2022
(In thousands, except ratios and per share information)
Total equity
 
- GAAP
$
1,405,593
$
1,325,540
Goodwill
(38,611)
(38,611)
Purchased credit card relationship intangible
(86)
(205)
Core deposit intangible
(18,987)
(20,900)
Insurance customer relationship intangible
-
(13)
Tangible common
 
equity
$
1,347,909
$
1,265,811
Total assets - GAAP
$
18,977,114
$
18,634,484
Goodwill
(38,611)
(38,611)
Purchased credit card relationship intangible
(86)
(205)
Core deposit intangible
(18,987)
(20,900)
Insurance customer relationship intangible
-
(13)
Tangible assets
$
18,919,430
$
18,574,755
Common shares outstanding
179,789
182,709
Tangible common
 
equity ratio
7.12%
6.81%
Tangible book
 
value per common share
$
7.50
$
6.93
See Note
 
22 -
 
Regulatory Matters,
 
Commitments and
 
Contingencies, to
 
the unaudited
 
consolidated financial
 
statements herein
 
for
the regulatory capital positions of the Corporation and FirstBank as of March
 
31, 2023 and December 31, 2022, respectively.
The Banking Law
 
of the Commonwealth
 
of Puerto Rico requires
 
that a minimum of
 
10% of FirstBank’s
 
net income for the
 
year be
transferred
 
to a
 
legal surplus
 
reserve
 
until such
 
surplus
 
equals the
 
total of
 
paid-in-capital
 
on common
 
and preferred
 
stock. Amounts
transferred
 
to the
 
legal surplus
 
reserve
 
from
 
retained
 
earnings are
 
not available
 
for distribution
 
to
 
the Corporation
 
without
 
the prior
consent
 
of
 
the
 
Puerto
 
Rico
 
Commissioner
 
of
 
Financial
 
Institutions.
 
The
 
Puerto
 
Rico
 
Banking
 
Law
 
provides
 
that,
 
when
 
the
expenditures of a
 
Puerto Rico commercial
 
bank are greater than
 
receipts, the excess of
 
the expenditures over
 
receipts must be
 
charged
against the undistributed
 
profits of the
 
bank, and
 
the balance, if
 
any,
 
must be charged
 
against the legal
 
surplus reserve,
 
as a reduction
thereof. If the legal
 
surplus reserve is not sufficient
 
to cover such balance
 
in whole or in part,
 
the outstanding amount must
 
be charged
against the
 
capital account
 
and the
 
Bank cannot
 
pay dividends
 
until it
 
can replenish
 
the legal
 
surplus reserve
 
to an
 
amount of
 
at least
20% of
 
the original
 
capital contributed.
 
FirstBank’s
 
legal
 
surplus
 
reserve,
 
included
 
as part
 
of retained
 
earnings in
 
the Corporation’s
consolidated
 
statements
 
of
 
financial
 
condition,
 
amounted
 
to
 
$168.5
 
million
 
as of
 
each
 
of
 
March
 
31,
 
2023
 
and
 
December
 
31,
 
2022,
respectively. There were
 
no transfers to the legal surplus reserve during the first quarter of 2023.
 
101
 
Interest Rate Risk Management
First
 
BanCorp
 
manages
 
its
 
asset/liability
 
position
 
to
 
limit
 
the
 
effects
 
of
 
changes
 
in
 
interest
 
rates
 
on
 
net
 
interest
 
income
 
and
 
to
maintain stability
 
of profitability
 
under varying
 
interest rate
 
scenarios. The
 
MIALCO oversees
 
interest rate
 
risk and
 
monitors, among
other things, current
 
and expected conditions
 
in global financial
 
markets, competition
 
and prevailing rates
 
in the local
 
deposit market,
liquidity,
 
loan
 
originations
 
pipeline,
 
securities
 
market
 
values,
 
recent
 
or
 
proposed
 
changes
 
to
 
the
 
investment
 
portfolio,
 
alternative
funding sources
 
and related costs,
 
hedging and the
 
possible purchase of
 
derivatives such as
 
swaps and caps,
 
and any tax
 
or regulatory
issues which may be
 
pertinent to these areas.
 
The MIALCO approves funding
 
decisions in light of
 
the Corporation’s
 
overall strategies
and objectives.
On at least a quarterly basis, the Corporation performs a
 
consolidated net interest income simulation analysis to estimate the
 
potential
change
 
in
 
future
 
earnings
 
from
 
projected
 
changes
 
in
 
interest
 
rates.
 
These
 
simulations
 
are
 
carried
 
out
 
over
 
a
 
one-to-five-year
 
time
horizon,
 
assuming upward and downward
 
yield curve shifts. The rate
 
scenarios considered in these
 
simulations reflect gradual
 
upward
and
 
downward
 
interest
 
rate
 
movements
 
of
 
200
 
basis
 
points
 
(“bps”)
 
during
 
a
 
twelve-month
 
period.
 
The
 
Corporation
 
carries
 
out
 
the
simulations in two ways:
(1) Using a static balance sheet, as the Corporation had on the simulation date, and
(2) Using a dynamic balance sheet based on recent patterns and current strategies.
The balance
 
sheet is
 
divided into
 
groups of
 
assets and
 
liabilities by
 
maturity or
 
re-pricing structure
 
and their
 
corresponding interest
yields and
 
costs. As interest
 
rates rise or
 
fall, these
 
simulations incorporate
 
expected future
 
lending rates,
 
current and
 
expected future
funding sources
 
and costs,
 
the possible
 
exercise of
 
options, changes
 
in prepayment
 
rates, deposit
 
decay and
 
other factors,
 
which may
be important in projecting net interest income.
 
The Corporation uses
 
a simulation model
 
to project future movements
 
in the Corporation’s
 
balance sheet and
 
income statement. The
starting point of the projections
 
corresponds to the actual
 
values on the balance sheet
 
on the date of the simulations.
 
These simulations
are
 
highly
 
complex
 
and
 
are
 
based
 
on
 
many
 
assumptions
 
that
 
are
 
intended
 
to
 
reflect
 
the
 
general
 
behavior
 
of
 
the
 
balance
 
sheet
components over
 
the modeled
 
periods. It
 
is unlikely
 
that actual
 
events will
 
match these
 
assumptions in
 
all cases.
 
For this
 
reason, the
results
 
of
 
these
 
forward-looking
 
computations
 
are
 
only
 
approximations
 
of
 
the
 
true
 
sensitivity
 
of
 
net
 
interest
 
income
 
to
 
changes
 
in
market interest rates. Several benchmark
 
and market rate curves were used
 
in the modeling process, primarily the
 
LIBOR/Swap curve,
SOFR curve, Prime
 
Rate, U.S. Treasury
 
yield curve,
 
FHLB rates, brokered
 
CDs rates, repurchase
 
agreements rates,
 
and the mortgage
commitment rate of 30 years.
As of
 
March 31,
 
2023, the
 
Corporation forecasted
 
the 12-month
 
net interest
 
income assuming
 
March 31,
 
2023 interest
 
rate curves
remain
 
constant.
 
Then,
 
net
 
interest
 
income
 
was
 
estimated
 
under
 
rising
 
and
 
falling
 
rates
 
scenarios.
 
For
 
the
 
rising
 
rate
 
scenario,
 
a
gradual
 
(ramp)
 
parallel
 
upward
 
shift
 
of
 
the
 
yield
 
curve
 
is
 
assumed
 
during
 
the
 
first
 
twelve
 
months
 
(the
 
“+200
 
ramp”
 
scenario).
Conversely,
 
for the falling rate scenario,
 
a gradual (ramp) parallel downward shift
 
of the yield curve is assumed
 
during the first twelve
months (the “-200 ramp” scenario).
The LIBOR/Swap
 
rates for
 
March 31,
 
2023, as
 
compared to
 
the January
 
31, 2023,
 
rates used
 
for the
 
December 31,
 
2022 sensitivity
analysis, reflected
 
an increase
 
in the
 
short-term
 
sector of
 
the curve,
 
or between
 
one to
 
twelve months,
 
of 18
 
basis points
 
(“bps”) on
average; while market rates decreased in the medium-term
 
sector of the curve, or between 2 to 5 years, by 37 bps,
 
and in the long-term
sector of the curve, or
 
over 5-year maturities, by 36
 
bps. A similar increase in market
 
rates changes were observed in
 
the Treasury and
the SOFR curve of 29
 
and 13 bps in the short
 
-term sector, respectively;
 
while market rates decreased
 
in the medium-term sector
 
by 38
and 40 bps, respectively,
 
and by 36 and 37 bps in the long-term sector, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
102
 
The following table presents the results of the simulations as of March 31,
 
2023 and December 31, 2022.
 
Consistent with prior
years, these exclude non-cash changes in the fair value of derivatives:
March 31, 2023
December 31, 2022
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
$
9.4
1.15
%
$
9.7
1.14
%
$
7.8
0.96
%
$
11.5
1.37
%
- 200 bps ramp
$
(12.6)
(1.54)
%
$
(12.7)
(1.49)
%
$
(13.1)
(1.61)
%
$
(17.0)
(2.03)
%
 
The Corporation
 
continues to
 
manage its
 
balance sheet
 
structure to
 
control and
 
limit the
 
overall interest
 
rate risk
 
by managing
 
its
asset composition
 
while maintaining
 
a sound
 
liquidity position.
 
See “Risk
 
Management
 
– Liquidity
 
Risk” above
 
for liquidity
 
ratios.
As
 
of
 
March
 
31,
 
2023
 
and
 
December
 
31,
 
2022,
 
the
 
simulations
 
showed
 
that
 
the
 
Corporation
 
continues
 
to
 
have
 
an
 
asset-sensitive
position.
 
 
As of March
 
31, 2023, the
 
net interest income
 
for the next
 
twelve months under
 
a non-static balance
 
sheet scenario is
 
estimated to
increase by
 
$9.7 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,
 
2022,
 
is
 
primarily
 
driven
 
by
 
the
 
changes
 
in
 
the
 
overall
funding
 
mix,
 
including
 
decreases
 
in
 
average
 
non-interest
 
deposits
 
to
 
total
 
deposits
 
and
 
customers
 
reallocating
 
to
 
higher
 
yielding
alternatives, partially offset
 
by decreases in lower yielding
 
assets, such as the investment
 
portfolio being repaid, and being
 
replaced by
higher yielding assets due to the growth on the loan portfolio.
 
 
As of March
 
31, 2023, under a
 
falling rate, non-static
 
balance sheet scenario,
 
the net interest
 
income is estimated
 
to decrease by
$12.7
 
million,
 
when
 
compared
 
against
 
the
 
base
 
simulation.
 
The
 
change
 
in
 
net
 
interest
 
income
 
sensitivity
 
for
 
the
 
-200
 
bps
 
ramp
scenario, when
 
compared to
 
December 31,
 
2022, was
 
driven by
 
a higher
 
deposit beta
 
assumed in
 
the March
 
31, 2023
 
simulation for
non-maturity deposits, which under the falling rate scenario would
 
reprice and consequently impact net interest income at
 
a faster pace
than the previous simulation.
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”
 
above
 
for
 
further
 
details.
 
The
 
Corporation
 
manages
 
its
credit risk through its credit policy,
 
underwriting, monitoring of loan concentrations and
 
related credit quality,
 
counterparty credit risk,
economic and
 
market conditions, and
 
legislative or regulatory
 
mandates. The Corporation
 
also performs independent
 
loan review
 
and
quality
 
control
 
procedures,
 
statistical
 
analysis,
 
comprehensive
 
financial
 
analysis,
 
established
 
management
 
committees,
 
and
 
employs
proactive collection
 
and loss
 
mitigation efforts.
 
Furthermore, personnel
 
performing structured
 
loan workout
 
functions are
 
responsible
for
 
mitigating
 
defaults
 
and
 
minimizing
 
losses
 
upon
 
default
 
within
 
each
 
region
 
and
 
for
 
each
 
business
 
segment.
 
In
 
the
 
case
 
of
 
the
commercial
 
and
 
industrial,
 
commercial
 
mortgage
 
and
 
construction
 
loan
 
portfolios,
 
the
 
Special
 
Asset
 
Group
 
(“SAG”)
 
focuses
 
on
strategies for the
 
accelerated reduction of
 
non-performing assets through
 
note sales, short sales,
 
loss mitigation programs,
 
and sales of
OREO. In addition to
 
the management of the
 
resolution process for problem
 
loans, the SAG oversees collection
 
efforts for all
 
loans to
prevent migration to the nonaccrual and/or adversely classified
 
status. The SAG utilizes relationship officers,
 
collection specialists and
attorneys.
The
 
Corporation
 
may
 
also
 
have
 
risk
 
of
 
default
 
in
 
the
 
securities
 
portfolio.
 
The
 
securities
 
held
 
by
 
the
 
Corporation
 
are
 
principally
fixed-rate U.S. agencies
 
MBS and U.S. Treasury
 
and agencies securities. Thus,
 
a substantial portion
 
of these instruments is
 
backed by
mortgages, a guarantee of a U.S. GSE or the full faith and credit of the U.S. government.
Management, consisting of the
 
Corporation’s Commercial
 
Credit Risk Officer,
 
Retail Credit Risk Officer,
 
Chief Credit Officer,
 
and
other
 
senior
 
executives,
 
has
 
the
 
primary
 
responsibility
 
for
 
setting
 
strategies
 
to
 
achieve
 
the
 
Corporation’s
 
credit
 
risk
 
goals
 
and
objectives. Management has documented these goals and objectives in the Corporation’s
 
Credit Policy.
 
103
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.
The Corporation applie
 
s
 
probability weights to
 
the baseline and
 
alternative downside economic
 
scenarios to estimate
 
the ACL with
the
 
baseline
 
scenario
 
carrying
 
the
 
highest
 
weight.
 
The
 
economic
 
scenarios
 
used
 
in
 
the
 
ACL
 
determination
 
contained
 
assumptions
related
 
to economic
 
uncertainties associated
 
with geopolitical
 
instability,
 
high
 
inflation levels,
 
and
 
the expected
 
path
 
of interest
 
rate
increases by
 
the FED.
 
As of
 
March 31,
 
2023, the
 
Corporation’s
 
ACL model
 
considered the
 
following assumptions
 
for key
 
economic
variables in the probability-weighted economic scenarios:
Average
 
Commercial
 
Real
 
Estate
 
(“CRE”)
 
Price
 
Index
 
at
 
the
 
national
 
level
 
is
 
forecasted
 
to
 
contract
 
by
 
2.55%
 
for
 
the
remainder of 2023 and grow by 0.74% for 2024.
Average
 
Regional
 
Home
 
Price
 
Index
 
forecasts
 
in
 
Puerto
 
Rico
 
and
 
Florida
 
(purchase
 
only
 
prices)
 
are
 
expected
 
to
 
remain
relatively flat for the remainder of 2023 and 2024.
Average
 
regional
 
unemployment
 
in
 
Puerto
 
Rico
 
of
 
7.53%
 
for
 
the
 
remainder
 
of
 
2023
 
and
 
8.57%
 
for
 
2024.
 
For
 
the
 
Florida
region and the
 
U.S. mainland, average
 
unemployment rate of
 
3.59% and 4.19%,
 
respectively,
 
for the remainder
 
of 2023, and
4.23% and 4.62%, respectively,
 
for 2024.
 
Average
 
annualized change in real
 
gross domestic product (“GDP”)
 
in the U.S. mainland
 
of 0.89% for the
 
remainder of 2023
and 1.52% for 2024.
 
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
 
March
 
31,
 
2023,
 
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 8.04%
 
for the
 
remainder of
 
2023, compared
 
to 7.53%
 
for the same
 
period
on the probability-weighted economic scenario projections.
 
104
To
 
demonstrate
 
the
 
sensitivity
 
to
 
key
 
economic
 
parameters
 
used
 
in
 
the
 
calculation
 
of
 
the
 
ACL
 
at
 
March
 
31,
 
2023,
 
management
calculated
 
the
 
difference
 
between
 
the
 
quantitative
 
ACL
 
and
 
this
 
more
 
adverse
 
scenario.
 
Excluding
 
consideration
 
of
 
qualitative
adjustments,
 
this sensitivity
 
analysis
 
would
 
result in
 
a hypothetic
 
al increase
 
in the
 
ACL of
 
approximately
 
$34
 
million at
 
March
 
31,
2023.
 
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
 
recent economic
 
conditions and
 
challenges, which
 
continue to
 
evolve, management
 
believes that
 
its process
 
to
consider the
 
available information
 
and associated
 
risks and
 
uncertainties is
 
appropriately governed
 
and that
 
its estimates
 
of expected
credit losses were reasonable and appropriate for the quarter ended
 
March 31, 2023.
As of March 31, 2023,
 
the ACL for loans and finance
 
leases was $265.6 million, an
 
increase of $5.1 million from
 
$260.5 million as
of
 
December
 
31,
 
2022.
 
The
 
ACL
 
for
 
commercial
 
and
 
construction
 
loans
 
remained
 
relatively
 
flat
 
when
 
compared
 
to
 
the
 
previous
quarter as a result of
 
the following offsetting factors:
 
reserve increases of $5.0 million
 
for a new nonaccrual commercial
 
and industrial
loan in the Florida region in the power generation industry; and $1.1
 
million due to a less favorable economic outlook in the projection
of
 
certain
 
forecasted
 
macroeconomic
 
variables,
 
such
 
as
 
the
 
CRE
 
price
 
index;
 
partially
 
offset
 
by
 
reserve
 
decreases
 
of
 
$6.1
 
million
associated
 
with
 
the
 
receipt
 
of
 
updated
 
financial
 
information
 
of
 
certain
 
borrowers
 
and
 
the
 
repayment
 
of
 
a
 
$24.3
 
million
 
adversely
classified commercial
 
and industrial
 
participated
 
loan in
 
the Florida
 
region. The
 
ACL for
 
consumer loans
 
increased by
 
$2.9 million,
primarily reflecting the effect of the increase in
 
the size of the consumer loan portfolios and the increase
 
in historical charge-off levels.
The ACL for residential
 
mortgage loans increased
 
by $1.6 million, in
 
part to a $2.1 million
 
cumulative increase in the
 
ACL due to the
adoption
 
of
 
ASU
 
2022-02,
 
for
 
which
 
the
 
Corporation
 
elected
 
to
 
discontinue
 
the
 
use
 
of
 
a
 
discounted
 
cash
 
flow
 
methodology
 
for
restructured accruing
 
loans. This
 
adjustment had
 
a corresponding
 
decrease, net
 
of applicable
 
taxes, in
 
beginning retained
 
earnings as
of January
 
1, 2023.
 
See Note
 
1
– Basis
 
of Presentation
 
and Significant
 
Accounting
 
Policies, to
 
the unaudited
 
consolidated
 
financial
statements herein for information related to the adoption of ASU 2022
 
-02 during the first quarter of 2023.
The
 
ratio
 
of
 
the
 
ACL
 
for
 
loans
 
and
 
finance
 
leases
 
to
 
total
 
loans
 
held
 
for
 
investment
 
increased
 
to
 
2.29%
 
as
 
of
 
March
 
31,
 
2023,
compared to 2.25% as of December 31, 2022. An explanation for the change
 
for each portfolio follows:
The
 
ACL
 
to
 
total
 
loans
 
ratio
 
for
 
the
 
residential
 
mortgage
 
portfolio
 
increased
 
from
 
2.20%
 
as
 
of
 
December
 
31,
 
2022
 
to
2.29% as of
 
March 31, 2023,
 
primarily due
 
to the aforementioned
 
$2.1 million cumulative
 
increase in the
 
ACL due to
 
the
adoption of ASU 2022-02 during the first quarter of 2023.
The ACL
 
to total
 
loans ratio
 
for the
 
construction loan
 
portfolio increased
 
from 1.74%
 
as of
 
December 31,
 
2022 to
 
2.25%
as of March
 
31, 2023 as a
 
result of new
 
loan originations which
 
have a longer duration
 
and ultimately result in
 
higher loss
rates.
The
 
ACL
 
to
 
total
 
loans
 
ratio for
 
the
 
commercial
 
mortgage
 
portfolio
 
increased
 
from
 
1.49%
 
as
 
of
 
December
 
31,
 
2022
 
to
1.55% as of
 
March 31, 2023,
 
primarily reflecting
 
a less favorable
 
economic outlook in
 
the projection of
 
certain forecasted
macroeconomic variables,
 
such as the
 
CRE price index,
 
partially offset
 
by reserve decreases
 
associated with the
 
receipt of
updated financial information of certain borrowers.
 
The ACL to total loans ratio
 
for the commercial and industrial portfolio
 
decreased from 1.14% as of December
 
31, 2022 to
1.09% as of
 
March 31, 2023,
 
mainly due
 
to reserve decreases
 
associated with
 
the receipt of
 
updated financial
 
information
of certain borrowers
 
and the repayment
 
of a $24.3 million
 
adversely classified commercial
 
and industrial participated
 
loan
in
 
the
 
Florida
 
region,
 
partially
 
offset
 
by
 
the
 
aforementioned
 
reserve
 
increase
 
of
 
$5.0
 
million
 
for
 
a
 
new
 
nonaccrual
commercial and industrial participated loan in the Florida region
 
in the power generation industry.
 
The ACL
 
to total
 
loans ratio
 
for the
 
consumer loan
 
portfolio was
 
3.82% as
 
of March
 
31, 2023,
 
compared to
 
3.83% as
 
of
December 31, 2022.
 
The ratio of the
 
total ACL for loans
 
and finance leases to
 
nonaccrual loans held
 
for investment was
 
297.91% as of March
 
31, 2023,
compared to 289.61% as of December 31, 2022.
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
105
As shown in the following tables,
 
the ACL for loans and finance leases
 
amounted to $265.6 million as of
 
March 31, 2023, or 2.29%
of total loans, compared with $260.5 million, or 2.25%
 
of total loans, as of December 31, 2022. See “Results of Operations
 
- Provision
for Credit Losses” above for additional information.
Quarter Ended March 31,
 
2023
2022
(Dollars in thousands)
ACL for loans and finance leases, beginning of year
$
260,464
$
269,030
Impact of adoption of ASU 2022-02
2,116
-
Provision for credit losses - expense (benefit):
Residential mortgage
73
(4,871)
Construction
860
(2,214)
Commercial mortgage
1,246
(22,640)
Commercial and industrial
(1,650)
1,755
Consumer and finance leases
15,727
10,981
Total provision for credit losses
 
- expense (benefit)
16,256
(16,989)
Charge-offs:
Residential mortgage
(983)
(2,528)
Construction
-
(44)
Commercial mortgage
(18)
(37)
Commercial and industrial
(118)
(290)
Consumer and finance leases
(16,798)
(9,816)
Total charge offs
(17,917)
(12,715)
Recoveries:
Residential mortgage
497
1,382
Construction
63
52
Commercial mortgage
168
44
Commercial and industrial
90
1,035
Consumer and finance leases
3,830
3,608
Total recoveries
4,648
6,121
Net charge-offs
(13,269)
(6,594)
ACL for loans and finance leases, end of period
$
265,567
$
245,447
ACL for loans and finance leases to period-end total loans
 
held for investment
2.29%
2.21%
Net charge-offs (annualized) to average loans
 
outstanding during the period
0.46%
0.24%
Provision for credit losses - expense (benefit) for loans and finance
 
leases to net charge-offs during the period
1.23x
-2.58x
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
106
 
The following tables set forth information concerning the composition of the
 
Corporation's loan portfolio and related ACL by
loan category, and the percentage
 
of loan balances in each category to the total as such loans as of the indicated dates:
As of March 31,
 
2023
Residential
Mortgage
Loans
Commercial
Mortgage
Loans
C&I Loans
Consumer and
Finance
Leases
Construction
Loans
(Dollars in thousands)
Total
Total loans held for investment:
 
Amortized cost of loans
$
2,811,528
$
143,664
$
2,353,659
$
2,862,189
$
3,406,945
$
11,577,985
 
Percent of loans in each category to total loans
24
%
1
%
20
%
25
%
30
%
100
%
 
Allowance for credit losses
64,403
3,231
36,460
31,235
130,238
265,567
 
Allowance for credit losses to amortized cost
2.29
%
2.25
%
1.55
%
1.09
%
3.82
%
2.29
%
As of December 31, 2022
Residential
Mortgage
Loans
Commercial
Mortgage
Loans
C&I Loans
Consumer and
Finance Leases
Construction
Loans
(Dollars in thousands)
Total
Total loans held for investment:
 
Amortized cost of loans
$
2,847,290
$
132,953
$
2,358,851
$
2,886,263
%
$
3,327,468
$
11,552,825
 
Percent of loans in each category to total loans
25
%
1
%
20
%
25
%
29
%
100
%
 
Allowance for credit losses
62,760
2,308
35,064
32,906
127,426
260,464
 
Allowance for credit losses to amortized cost
2.20
%
1.74
%
1.49
%
1.14
%
3.83
%
2.25
%
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
 
March 31,
 
2023, the
 
ACL for
 
off-balance
 
sheet credit
exposures decreased by $0.1 million to $4.2 million, when compared
 
to December 31, 2022.
 
Allowance for Credit Losses for Held-to-Maturity
 
Debt Securities
As of March
 
31, 2023, the
 
ACL for held-to-maturity
 
securities portfolio was
 
entirely related to
 
financing arrangements with
 
Puerto
Rico municipalities
 
issued in bond
 
form, which
 
the Corporation accounts
 
for as securities,
 
but which
 
were underwritten as
 
loans with
features
 
that are
 
typically found
 
in commercial
 
loans.
 
As of
 
March 31,
 
2023, the
 
ACL for
 
held-to-maturity debt
 
securities was
 
$7.6
million, compared to $8.3
 
million as of December 31, 2022.
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 $0.4
 
million as of March 31, 2023, compared to $0.5 million as of December 31, 2022.
 
107
Nonaccrual Loans and Non-performing Assets
Total
 
non-performing
 
assets
 
consist
 
of
 
nonaccrual
 
loans
 
(generally
 
loans
 
held
 
for
 
investment
 
or
 
loans
 
held
 
for
 
sale
 
in
 
which
 
the
recognition of
 
interest income
 
was discontinued
 
when the
 
loan became
 
90 days
 
past due
 
or earlier
 
if the
 
full and
 
timely collection
 
of
interest or principal
 
is uncertain), foreclosed
 
real estate and
 
other repossessed
 
properties, and non-performing
 
investment securities, if
any.
 
When a
 
loan is placed
 
in nonaccrual
 
status, any
 
interest previously
 
recognized and
 
not collected
 
is reversed
 
and charged
 
against
interest
 
income.
 
Cash
 
payments
 
received
 
are
 
recognized
 
when
 
collected
 
in
 
accordance
 
with
 
the
 
contractual
 
terms
 
of
 
the
 
loans.
 
The
principal
 
portion
 
of the
 
payment is
 
used to
 
reduce
 
the principal
 
balance
 
of the
 
loan,
 
whereas the
 
interest portion
 
is recognized
 
on a
cash basis
 
(when collected).
 
However,
 
when management
 
believes that
 
the ultimate
 
collectability of
 
principal is
 
in doubt,
 
the interest
portion
 
is
 
applied
 
to
 
the
 
outstanding
 
principal.
 
The
 
risk
 
exposure
 
of
 
this
 
portfolio
 
is
 
diversified
 
as
 
to
 
individual
 
borrowers
 
and
industries, among other factors. In addition, a large portion
 
is secured with real estate collateral.
Nonaccrual Loans Policy
Residential Real Estate Loans
 
— The Corporation generally classifies real estate loans in nonaccrual
 
status when it has not received
interest and principal for a period of 90 days or more.
Commercial
 
and
 
Construction
 
Loans
 
 
The
 
Corporation
 
classifies
 
commercial
 
loans
 
(including
 
commercial
 
real
 
estate
 
and
construction loans) in nonaccrual
 
status when it has not
 
received interest and principal
 
for a period of 90
 
days or more or when
 
it does
not expect to collect all of the principal or interest due to deterioration in the financial
 
condition of the borrower.
Finance Leases
 
— The Corporation
 
classifies finance leases
 
in nonaccrual status
 
when it has not
 
received interest and
 
principal for
a period of 90 days or more.
Consumer Loans
 
— The Corporation
 
classifies consumer
 
loans in nonaccrual
 
status when it
 
has not received
 
interest and
 
principal
for a period of 90 days or more. Credit card loans continue to accrue finance
 
charges and fees until charged-off at 180
 
days delinquent.
Purchased
 
Credit Deteriorated
 
Loans (“PCD”)
— For
 
PCD loans,
 
the nonaccrual
 
status is
 
determined in
 
the same
 
manner as
 
for
other loans,
 
except for
 
PCD loans
 
that prior
 
to the
 
adoption of
 
CECL were
 
classified as
 
purchased credit
 
impaired (“PCI”)
 
loans and
accounted
 
for
 
under
 
ASC
 
Subtopic
 
310-30,
 
“Receivables
 
 
Loans
 
and
 
Debt
 
Securities
 
Acquired
 
with
 
Deteriorated
 
Credit
 
Quality”
(ASC Subtopic 310
 
-30). As allowed
 
by CECL, the
 
Corporation elected
 
to maintain pools
 
of loans accounted
 
for under ASC
 
Subtopic
310-30 as “units of accounts,” conceptually treating
 
each pool as a single asset. Regarding interest income
 
recognition, the prospective
transition approach for PCD loans was applied at a pool level, which
 
froze the effective interest rate of the pools as of January
 
1, 2020.
According
 
to
 
regulatory
 
guidance,
 
the
 
determination
 
of
 
nonaccrual
 
or
 
accrual
 
status
 
for
 
PCD
 
loans
 
with
 
respect
 
to
 
which
 
the
Corporation
 
has
 
made
 
a
 
policy
 
election
 
to
 
maintain
 
previously
 
existing
 
pools
 
upon
 
adoption
 
of
 
CECL
 
should
 
be
 
made
 
at
 
the
 
pool
level,
 
not
 
the
 
individual
 
asset
 
level.
 
In
 
addition,
 
the
 
guidance
 
provides
 
that
 
the
 
Corporation
 
can
 
continue
 
accruing
 
interest
 
and
 
not
report
 
the PCD
 
loans as
 
being
 
in nonaccrual
 
status if
 
the following
 
criteria are
 
met: (i)
 
the Corporation
 
can reasonably
 
estimate
 
the
timing and amounts of
 
cash flows expected to
 
be collected; and (ii)
 
the Corporation did not
 
acquire the asset primarily
 
for the rewards
of ownership
 
of the
 
underlying collateral,
 
such as
 
the use
 
in operations
 
or improving
 
the collateral
 
for resale.
 
Thus, the
 
Corporation
continues to exclude these pools of PCD loans from nonaccrual loan statistics.
Other Real Estate Owned
OREO
 
acquired
 
in
 
settlement
 
of
 
loans
 
is
 
carried
 
at
 
fair
 
value
 
less
 
estimated
 
costs
 
to
 
sell
 
the
 
real
 
estate
 
acquired.
 
Appraisals
 
are
obtained periodically,
 
generally on an annual basis.
Other Repossessed Property
The
 
other
 
repossessed
 
property
 
category
 
generally
 
includes
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
108
Loans Past-Due 90 Days and Still Accruing
These are accruing loans
 
that are contractually delinquent
 
90 days or more. These
 
past-due loans are either
 
current as to interest but
delinquent as to the
 
payment of principal (i.e.,
 
well secured and in process
 
of collection) or are
 
insured or guaranteed under
 
applicable
FHA,
 
VA,
 
or
 
other
 
government-guaranteed
 
programs
 
for
 
residential
 
mortgage
 
loans.
 
Furthermore,
 
as
 
required
 
by
 
instructions
 
in
regulatory
 
reports,
 
loans
 
past
 
due
 
90
 
days
 
and
 
still
 
accruing
 
include
 
loans
 
previously
 
pooled
 
into
 
GNMA
 
securities
 
for
 
which
 
the
Corporation
 
has
 
the
 
option
 
but
 
not
 
the
 
obligation
 
to
 
repurchase
 
loans
 
that
 
meet
 
GNMA’s
 
specified
 
delinquency
 
criteria
 
(e.g.,
borrowers
 
fail
 
to
 
make
 
any
 
payment
 
for
 
three
 
consecutive
 
months).
 
For
 
accounting
 
purposes,
 
these
 
GNMA
 
loans
 
subject
 
to
 
the
repurchase
 
option
 
are required
 
to
 
be
 
reflected
 
on
 
the
 
financial statements
 
with
 
an
 
offsetting
 
liability.
 
In
 
addition,
 
loans past
 
due
 
90
days
 
and
 
still accruing
 
include
 
PCD loans,
 
as mentioned
 
above, and
 
credit cards
 
that continue
 
accruing
 
interest until
 
charged-off
 
at
180 days.
The following table presents non-performing assets as of the indicated dates:
March 31, 2023
December 31, 2022
(Dollars in thousands)
Nonaccrual loans held for investment:
Residential mortgage
$
36,410
$
42,772
Construction
1,794
2,208
Commercial mortgage
21,598
22,319
Commercial and Industrial
13,404
7,830
Consumer and finance leases
15,936
14,806
Total nonaccrual loans held for investment
89,142
89,935
OREO
32,862
31,641
Other repossessed property
4,743
5,380
Other assets
 
(1)
2,203
2,202
Total non-performing assets
$
128,950
$
129,158
Past due loans 90 days and still accruing
(2) (3) (4)
$
74,380
$
80,517
Non-performing assets to total assets
 
0.68
%
0.69
%
Nonaccrual loans held for investment to total loans held for investment
0.77
%
0.78
%
ACL for loans and finance leases
$
265,567
$
260,464
ACL for loans and finance leases to total nonaccrual loans held
 
for investment
297.91
%
289.61
%
ACL for loans and finance leases to total nonaccrual loans held
 
for investment, excluding residential real estate loans
503.62
%
552.26
%
(1)
Residential pass-through MBS issued by the PRHFA
 
held as part of the available-for-sale debt securities
 
portfolio.
(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 amounted to $10.4 million and $12.0 million as
 
of March 31, 2023 and December 31, 2022, respectively.
(3)
Includes FHA/VA
 
government-guaranteed residential mortgage as
 
loans past-due 90 days and still accruing as opposed
 
to nonaccrual loans. The Corporation continues accruing interest on
these loans until they have passed the 15 months delinquency mark,
 
taking into consideration the FHA interest curtailment process.
 
These balances include $25.9 million and $28.2 million
of FHA government guaranteed residential mortgage loans that were
 
over 15 months delinquent as of March 31, 2023 and December
 
31, 2022, respectively.
(4)
Includes rebooked loans, which were previously pooled into
 
GNMA securities, amounting to $7.1 million and $10.3 million as
 
of March 31, 2023 and December 31, 2022, 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
109
Total
 
nonaccrual loans were
 
$89.1 million as
 
of March 31,
 
2023.
 
This represents a
 
net decrease of
 
$0.8 million from
 
$89.9 million
as of December
 
31, 2022. The net
 
decrease was primarily
 
related to a $6.3
 
million reduction in nonaccrual
 
residential mortgage loans,
partially
 
offset
 
by
 
increases
 
of
 
$4.4
 
million
 
and
 
$1.1
 
million
 
in
 
nonaccrual
 
commercial
 
and
 
construction
 
loans
 
and
 
nonaccrual
consumer loans, respectively.
The following table shows non-performing assets by geographic segment
 
as of the indicated dates:
March 31, 2023
December 31, 2022
(In thousands)
Puerto Rico:
Nonaccrual loans held for investment:
Residential mortgage
$
22,924
$
28,857
Construction
737
831
Commercial mortgage
13,677
14,341
Commercial and Industrial
4,589
5,859
Consumer and finance leases
15,483
14,142
Total nonaccrual loans held for investment
57,410
64,030
OREO
28,323
28,135
Other repossessed property
4,620
5,275
Other assets
2,203
2,202
Total non-performing assets
$
92,556
$
99,642
Past due loans 90 days and still accruing
$
72,000
$
76,417
Virgin Islands:
Nonaccrual loans held for investment:
Residential mortgage
$
6,069
$
6,614
Construction
1,057
1,377
Commercial mortgage
7,921
7,978
Commercial and Industrial
1,163
1,179
Consumer
306
469
Total nonaccrual loans held for investment
16,516
17,617
OREO
4,539
3,475
Other repossessed property
112
76
Total non-performing assets
$
21,167
$
21,168
Past due loans 90 days and still accruing
$
2,380
$
4,100
United States:
Nonaccrual loans held for investment:
Residential mortgage
$
7,417
$
7,301
Commercial and Industrial
7,652
792
Consumer
147
195
Total nonaccrual loans held for investment
15,216
8,288
OREO
-
31
Other repossessed property
11
29
Total non-performing assets
$
15,227
$
8,348
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
110
Nonaccrual commercial
 
and industrial loans
 
increased by $5.6
 
million to $13.4
 
million as of
 
March 31, 2023,
 
from $7.8 million
 
as
of
 
December
 
31,
 
2022.
 
The
 
increase
 
was
 
primarily
 
driven
 
by
 
the
 
migration
 
to
 
nonaccrual
 
status
 
of
 
a
 
$7.1
 
million
 
commercial
 
and
industrial
 
participated
 
loan
 
in the
 
Florida
 
region
 
related
 
to a
 
borrower
 
engaged
 
in
 
the power
 
generation
 
industry,
 
partially
 
offset
 
by
collections,
 
including
 
the
 
payoff
 
of
 
an
 
individual
 
commercial
 
and
 
industrial
 
loan
 
of
 
approximately
 
$1.0
 
million
 
in
 
the
 
Puerto
 
Rico
region.
 
Nonaccrual commercial
 
mortgage loans decreased
 
by $0.8 million
 
to $21.5 million
 
as of March
 
31, 2023, from
 
$22.3 million as
 
of
December 31, 2022.
 
Nonaccrual construction
 
loans decreased
 
by $0.4
 
million to
 
$1.8 million
 
as of
 
March 31,
 
2023, from
 
$2.2 million
 
as of
 
December
31, 2022.
 
 
The following tables present the activity of commercial and construction
 
nonaccrual loans held for investment for the indicated
periods:
Construction
Commercial
Mortgage
Commercial &
Industrial
Total
(In thousands)
Quarter Ended March 31, 2023
Beginning balance
$
2,208
$
22,319
$
7,830
$
32,357
Plus:
Additions to nonaccrual
 
127
544
7,470
8,141
Less:
Loans returned to accrual status
-
(361)
(152)
(513)
Nonaccrual loans transferred to OREO
(332)
(162)
(183)
(677)
Nonaccrual loans charge-offs
-
(18)
(118)
(136)
Loan collections
(209)
(730)
(1,443)
(2,382)
Reclassification
-
6
-
6
Ending balance
 
$
1,794
$
21,598
$
13,404
$
36,796
Construction
Commercial
Mortgage
Commercial &
Industrial
Total
(In thousands)
Quarter Ended March 31, 2022
Beginning balance
$
2,664
$
25,337
$
17,135
$
45,136
Plus:
Additions to nonaccrual
-
2,881
1,579
4,460
Less:
Loans returned to accrual status
-
(201)
(209)
(410)
Nonaccrual loans transferred to OREO
(13)
(461)
-
(474)
Nonaccrual loans charge-offs
(40)
(37)
(290)
(367)
Loan collections
(68)
(541)
(488)
(1,097)
Reclassification
-
(402)
402
-
Ending balance
 
$
2,543
$
26,576
$
18,129
$
47,248
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
111
Nonaccrual residential mortgage
 
loans decreased by $6.3
 
million to $36.5 million
 
as of March 31,
 
2023, compared to
 
$42.8 million
as of
 
December
 
31,
 
2022.
 
The decrease
 
was primarily
 
related
 
to
 
$3.9 million
 
loans restored
 
to accrual
 
status,
 
$2.7
 
million
 
of
 
loans
transferred to OREO, and $1.6 million in collections, partially offset
 
by inflows of $2.1 million.
The following table presents the activity of residential nonaccrual loans held for investment
 
for the indicated periods:
Quarter Ended March 31,
2023
2022
(In thousands)
Beginning balance
 
$
42,772
$
55,127
 
Plus:
Additions to nonaccrual
2,081
5,328
 
Less:
Loans returned to accrual status
 
(3,937)
(3,449)
Nonaccrual loans transferred to OREO
(2,710)
(937)
Nonaccrual loans charge-offs
(220)
(435)
Loan collections
(1,570)
(6,816)
Reclassification
 
(6)
-
Ending balance
 
$
36,410
$
48,818
The
 
amount
 
of
 
nonaccrual
 
consumer
 
loans,
 
including
 
finance leases,
 
increased
 
by
 
$1.1
 
million
 
to
 
$15.9
 
million
 
as of
 
March
 
31,
2023,
 
compared
 
to
 
$14.8
 
million
 
as of
 
December
 
31,
 
2022.
 
The
 
increase
 
was mainly
 
reflected
 
in
 
the
 
auto
 
loans
 
and
 
finance
 
leases
portfolio.
As
 
of
 
March
 
31,
 
2023,
 
approximately
 
$22.7
 
million
 
of
 
the
 
loans
 
placed
 
in
 
nonaccrual
 
status,
 
mainly
 
commercial
 
loans,
 
and
residential
 
loans,
 
were
 
current,
 
or
 
had
 
delinquencies
 
of
 
less
 
than
 
90
 
days
 
in
 
their
 
interest
 
payments.
 
Collections
 
on
 
these
 
loans
 
are
being recorded on a cash basis through earnings, or on a cost-recovery basis, as conditions
 
warrant.
 
During the quarter ended March 31, 2023,
 
interest income of approximately $0.1 million related to
 
nonaccrual loans with a carrying
value of
 
$29.5 million
 
as of
 
March 31,
 
2023, mainly
 
nonaccrual commercial
 
and construction
 
loans, was
 
applied against
 
the related
principal balances under the cost-recovery method.
Total
 
loans in early
 
delinquency (
i.e.
, 30-89 days past
 
due loans, as
 
defined in regulatory
 
reporting instructions) amounted
 
to $94.5
million as
 
of March
 
31, 2023,
 
a decrease
 
of $10.4
 
million, compared
 
to $104.9
 
million as
 
of December
 
31, 2022.
 
The variances
 
by
major portfolio categories are as follows:
 
Consumer loans in early delinquency decreased by $4.5 million to
 
$66.4 million, mainly in the auto loans portfolio.
Residential mortgage loans in early delinquency decreased by $3.0
 
million to $25.2 million.
Commercial and
 
construction loans
 
in early
 
delinquency decreased
 
by $2.9
 
million, mainly
 
due to
 
the migration
 
to past
 
due
90 days
 
and still
 
accruing of
 
a $2.3
 
million commercial
 
mortgage loan
 
that matured
 
and is
 
in the
 
process of
 
renewal but
 
for
which the Corporation continues to receive interest and principal 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
 
a
 
borrower’s
 
financial
 
condition,
 
restructurings
 
or
 
loan
 
modifications
 
through
 
this
 
program
 
are
provided,
 
as well
 
as other
 
restructurings
 
of individual
 
C&I, commercial
 
mortgage, construction,
 
and residential
 
mortgage loans.
 
See
Note
 
1
 
 
Basis
 
of
 
Presentation
 
and
 
Significant
 
Accounting
 
Policies,
 
to
 
the
 
unaudited
 
consolidated
 
financial
 
statements
 
herein
 
for
additional information
 
related to
 
the accounting
 
policies of
 
loan modifications
 
granted to
 
borrowers experiencing
 
financial difficulty.
In
 
addition,
 
see
 
Note
 
3
 
-
 
Loans
 
Held
 
for
 
Investment,
 
to
 
the
 
unaudited
 
consolidated
 
financial
 
statements
 
herein
 
for
 
additional
information and statistics about the Corporation’s
 
modified loans.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
112
The OREO
 
portfolio, which
 
is part of
 
non-performing assets,
 
increased to
 
$32.9 million
 
as of
 
March 31,
 
2023, compared
 
to $31.6
million
 
as
 
of
 
December
 
31,
 
2022.
 
The
 
following
 
tables
 
show
 
the
 
composition
 
of
 
the
 
OREO
 
portfolio
 
as
 
of
 
March
 
31,
 
2023
 
and
December 31, 2022, as well as the activity of the OREO portfolio by geographic
 
area during the quarter ended March 31, 2023:
OREO Composition by Region
 
As of March 31, 2023
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Residential
 
$
23,314
$
1,670
$
-
$
24,984
Construction
1,705
59
-
1,764
Commercial
3,304
2,810
-
6,114
$
28,323
$
4,539
$
-
$
32,862
As of December 31, 2022
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Residential
 
$
23,388
$
606
$
31
$
24,025
Construction
1,705
59
-
1,764
Commercial
3,042
2,810
-
5,852
$
28,135
$
3,475
$
31
$
31,641
OREO Activity by Region
 
Quarter Ended March 31, 2023
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Beginning Balance
$
28,135
$
3,475
$
31
$
31,641
Additions
5,351
1,064
-
6,415
Sales
(4,409)
-
(31)
(4,440)
Write-downs and other adjustments
(754)
-
-
(754)
Ending Balance
$
28,323
$
4,539
$
-
$
32,862
 
 
 
 
 
 
 
 
 
 
 
 
 
 
113
Net Charge-offs and Total
 
Credit Losses
 
Net charge-offs
 
totaled $13.3
 
million for
 
the first quarter
 
of 2023,
 
or 0.46%
 
of average
 
loans on an
 
annualized basis,
 
compared to
$6.6 million, or an annualized 0.24%
 
of average loans for the first quarter of 2022.
 
 
Residential
 
mortgage
 
loans
 
net
 
charge-offs
 
for
 
the
 
first
 
quarter
 
of
 
2023
 
were
 
$0.5
 
million,
 
or
 
an
 
annualized
 
0.07%
 
of
 
related
average loans, compared to
 
$1.2 million, or an annualized
 
0.15% of related average loans,
 
for the first quarter of
 
2022. Approximately
$0.2
 
million
 
in
 
charge-offs
 
recorded
 
during
 
the
 
first
 
quarter
 
of
 
2023
 
resulted
 
from
 
valuations
 
of
 
collateral
 
dependent
 
residential
mortgage loans,
 
compared to
 
$0.4 million
 
in for
 
the same
 
period in
 
2022. Net
 
charge-offs
 
on residential
 
mortgage loans
 
for the
 
first
quarter of
 
2023 also
 
included $0.5
 
million related
 
to foreclosures
 
recorded during
 
the first
 
quarter of
 
2023, compared
 
to $1.3
 
million
recorded for the same period in 2022.
 
Construction loans
 
net recoveries
 
for the
 
first quarter
 
of 2023
 
were $0.1
 
million, or
 
an annualized
 
0.17% of
 
related average
 
loans,
compared to $8 thousand, or an annualized 0.03% of related average
 
loans, for the same period in 2022.
Commercial
 
mortgage
 
loans
 
net
 
recoveries
 
for
 
the
 
first
 
quarter
 
of
 
2023
 
were
 
$0.1
 
million,
 
or
 
an
 
annualized
 
0.03%
 
of
 
average
commercial mortgage loans, compared to $7 thousand for the first quarter
 
of 2022.
Commercial and industrial loans
 
net charge-offs
 
for the first quarter of 2023
 
were $28 thousand, compared
 
to net recoveries of $0.8
million,
 
or
 
an
 
annualized
 
0.10%
 
of
 
related
 
average
 
loans
 
for
 
the
 
first
 
quarter
 
of
 
2022.
 
For
 
the
 
first
 
quarter
 
of
 
2022,
 
a
 
$0.9
 
million
recovery was recorded in the Puerto Rico region in connection with a nonaccrual commercial
 
loan that was paid off during the quarter.
Net charge-offs
 
of consumer
 
loans and
 
finance leases
 
for the
 
first quarter
 
of 2023
 
were $13.0
 
million, or
 
1.54% of
 
related average
loans,
 
compared to $6.1 million, or 0.85% of related average
 
loans, for the first quarter of 2022.
 
 
The following table presents annualized net charge-offs
 
(recoveries) to average loans held-in-portfolio for the indicated periods:
Quarter Ended March 31,
2023
2022
Residential mortgage
0.07
%
0.15
%
Construction
 
(0.17)
%
(0.03)
%
Commercial mortgage
 
(0.03)
%
-
%
Commercial and industrial
-
%
(0.10)
%
Consumer loans and finance leases
 
1.54
%
0.85
%
Total loans
0.46
%
0.24
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
114
 
The following table presents net charge-offs (recoveries)
 
to average loans held in various portfolios by geographic segment for the
indicated periods:
Quarter Ended March 31,
2023
2022
PUERTO RICO:
Residential mortgage
0.10
%
0.19
%
Construction
 
(0.47)
%
0.08
%
Commercial mortgage
-
%
0.01
%
Commercial and industrial
0.01
%
(0.16)
%
Consumer and finance leases
1.53
%
0.83
%
Total loans
0.58
%
0.29
%
VIRGIN ISLANDS:
Residential mortgage
(0.08)
%
0.10
%
Commercial mortgage
(0.21)
%
(0.22)
%
Commercial and industrial
(0.01)
%
(0.01)
%
Consumer and finance leases
2.19
%
1.78
%
Total loans
0.29
%
0.25
%
FLORIDA:
Construction
 
(0.05)
%
(0.09)
%
Commercial mortgage
(0.09)
%
-
%
Consumer and finance leases
0.17
%
1.31
%
Total loans
(0.03)
%
0.01
%
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 gains on OREO operations for the first quarter
 
of 2023 amounted to $11.3 million,
 
or a loss rate of 0.37%
on
 
an
 
annualized
 
basis
 
of
 
average
 
loans
 
and
 
repossessed
 
assets,
 
compared
 
to
 
losses
 
of
 
$5.9
 
million,
 
or
 
a
 
loss
 
rate
 
of
 
0.21%
 
on
 
an
annualized basis, for the first quarter of 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
115
The following table presents information about the OREO inventory
 
and credit losses for the indicated periods:
Quarter ended March 31,
 
2023
2022
(Dollars in thousands)
OREO
OREO balances, carrying value:
Residential
$
24,984
$
32,208
Construction
1,764
3,458
Commercial
6,114
7,228
Total
$
32,862
$
42,894
OREO activity (number of properties):
Beginning property inventory
344
418
Properties acquired
59
68
Properties disposed
(59)
(44)
Ending property inventory
344
442
Average holding
 
period (in days)
Residential
533
656
Construction
2,266
1,979
Commercial
2,468
2,011
Total average holding
 
period (in days)
986
991
OREO operations gain (loss):
Market adjustments and gains (losses) on sale:
Residential
$
2,490
$
992
Construction
40
103
Commercial
(67)
(17)
Total net gain
2,463
1,078
Other OREO operations expenses
(467)
(358)
Net Gain on OREO operations
$
1,996
$
720
(CHARGE-OFFS) RECOVERIES
Residential charge-offs, net
$
(486)
$
(1,146)
Construction recoveries, net
63
8
Commercial recoveries, net
 
122
752
Consumer and finance leases charge-offs, net
(12,968)
(6,208)
Total charge
 
-offs, net
(13,269)
(6,594)
TOTAL CREDIT
 
LOSSES
(1)
$
(11,273)
$
(5,874)
LOSS RATIO PER CATEGORY
(2)
Residential
(0.28)
%
0.02
%
Construction
(0.28)
%
(0.37)
%
Commercial
-
%
(0.06)
%
Consumer
1.54
%
0.85
%
TOTAL CREDIT
 
LOSS RATIO
(3)
0.37
%
0.21
%
(1)
Equal to net gain on OREO operations plus charge-offs,
 
net.
(2)
Calculated as net charge-offs plus market adjustment
 
and gains (losses) on sale of OREO divided by average loans and
 
repossessed assets.
(3)
Calculated as net charge-offs plus net gain on OREO
 
operations divided by average loans and repossessed
 
assets.
 
116
Operational Risk
The
 
Corporation
 
faces
 
ongoing
 
and
 
emerging
 
risk
 
and
 
regulatory
 
pressure
 
related
 
to
 
the
 
activities
 
that
 
surround
 
the
 
delivery
 
of
banking
 
and
 
financial
 
products.
 
Coupled
 
with
 
external
 
influences,
 
such
 
as
 
market
 
conditions,
 
security
 
risks,
 
and
 
legal
 
risks,
 
the
potential for
 
operational and
 
reputational loss
 
has increased.
 
To
 
mitigate and
 
control operational
 
risk, the
 
Corporation has
 
developed,
and continues
 
to enhance, specific
 
internal controls,
 
policies and procedures
 
that are designed
 
to identify and
 
manage operational
 
risk
at
 
appropriate
 
levels
 
throughout
 
the
 
organization.
 
The
 
purpose
 
of
 
these
 
mechanisms
 
is
 
to
 
provide
 
reasonable
 
assurance
 
that
 
the
Corporation’s business operations
 
are functioning within the policies and limits established by management.
The
 
Corporation
 
classifies operational
 
risk
 
into
 
two
 
major
 
categories:
 
business-specific
 
and
 
corporate-wide
 
affecting
 
all business
lines.
 
For
 
business
 
specific
 
risks,
 
a
 
risk
 
assessment
 
group
 
works
 
with
 
the
 
various
 
business
 
units
 
to
 
ensure
 
consistency
 
in
 
policies,
processes
 
and
 
assessments.
 
With
 
respect
 
to
 
corporate-wide
 
risks,
 
such
 
as
 
information
 
security,
 
business
 
recovery,
 
and
 
legal
 
and
compliance, the
 
Corporation has specialized
 
groups, such
 
as the Legal
 
Department, Information
 
Security,
 
Corporate Compliance,
 
and
Operations. These groups
 
assist the lines of
 
business in the
 
development and implementation
 
of risk management
 
practices specific to
the needs of the business groups.
Legal and Compliance Risk
Legal and compliance risk includes
 
the risk of noncompliance with applicable
 
legal and regulatory requirements,
 
the risk of adverse
legal
 
judgments
 
against
 
the
 
Corporation,
 
and
 
the
 
risk
 
that
 
a
 
counterparty’s
 
performance
 
obligations
 
will
 
be
 
unenforceable.
 
The
Corporation
 
is
 
subject
 
to
 
extensive
 
regulation
 
in
 
the
 
different
 
jurisdictions
 
in
 
which
 
it
 
conducts
 
its
 
business,
 
and
 
this
 
regulatory
scrutiny has
 
been significantly
 
increasing over
 
the years.
 
The Corporation
 
has established,
 
and continues
 
to enhance,
 
procedures that
are designed
 
to ensure
 
compliance with
 
all applicable
 
statutory,
 
regulatory
 
and any
 
other legal
 
requirements.
 
The Corporation
 
has a
Compliance
 
Director
 
who
 
reports
 
to
 
the
 
Chief
 
Risk
 
Officer
 
and
 
is
 
responsible
 
for
 
the
 
oversight
 
of
 
regulatory
 
compliance
 
and
implementation
 
of an
 
enterprise-wide compliance
 
risk assessment
 
process.
 
The Compliance
 
division
 
has officer
 
roles in
 
each major
business area with direct reporting responsibilities to the Corporate Compliance
 
Group.
Concentration Risk
The Corporation conducts
 
its operations in
 
a geographically concentrated
 
area, as its main
 
market is Puerto
 
Rico. Of the total
 
gross
loan portfolio
 
held for investment
 
of $11.6
 
billion as of
 
March 31, 2023,
 
the Corporation had
 
credit risk of
 
approximately 80% in
 
the
Puerto Rico region, 17% in the United States region, and 3% in the Virgin
 
Islands region.
 
117
Update on the Puerto Rico Fiscal and Economic Situation
A significant
 
portion of
 
the Corporation’s
 
business activities
 
and credit
 
exposure is
 
concentrated in
 
the Commonwealth
 
of Puerto
Rico, which
 
has experienced
 
economic and
 
fiscal distress
 
over the
 
last decade.
 
Since declaring
 
bankruptcy and
 
benefitting from
 
the
enactment of the federal Puerto
 
Rico Oversight, Management and
 
Economic Stability Act (“PROMESA”) in
 
2016, the Government of
Puerto
 
Rico
 
has
 
made
 
progress
 
on
 
fiscal
 
matters
 
primarily
 
by
 
restructuring
 
a
 
large
 
portion
 
of
 
its
 
outstanding
 
public
 
debt
 
and
identifying funding sources for its unfunded pension system.
Economic Indicators
On
 
November
 
10,
 
2022,
 
the
 
Puerto
 
Rico
 
Planning
 
Board
 
(“PRPB”)
 
presented
 
the
 
Economic
 
Report
 
to
 
the
 
Governor,
 
which
provides
 
an
 
analysis
 
of
 
Puerto
 
Rico’s
 
economy
 
during
 
fiscal
 
year
 
2021
 
and
 
a
 
short-term
 
forecast
 
for
 
fiscal
 
years
 
2022
 
and
 
2023.
According to the
 
PRPB, Puerto Rico’s
 
real gross national
 
product (“GNP”) expanded
 
by 1.0% in fiscal
 
year 2021, significantly
 
above
the PRPB’s
 
original
 
baseline projection
 
of a
 
2.0%
 
contraction. According
 
to the
 
report, real
 
GNP growth
 
was primarily
 
driven by
 
a
sharp increase
 
in personal
 
consumption expenditures
 
reflecting the
 
relaxation of
 
COVID-related restrictions,
 
as well
 
as the
 
impact of
the
 
substantial
 
disaster
 
relief funding
 
deployed
 
over
 
the period.
 
To
 
a
 
lesser extent,
 
growth
 
in
 
fiscal
 
year
 
2021
 
was also
 
driven
 
by a
higher level of
 
investments in machinery,
 
equipment, and construction.
 
These favorable variances
 
were partially
 
offset by
 
an increase
in imports,
 
a reduction in
 
exports, and a
 
negative change
 
in the level
 
of inventories.
 
Although no official
 
GNP data has
 
been released
to date for fiscal year 2022, the 2023 Fiscal Plan model estimates that Puerto Rico’s
 
real GNP expanded by 2.0% in fiscal year 2022.
There
 
are
 
other
 
indicators
 
that
 
gauge
 
economic
 
activity
 
and
 
are
 
published
 
with
 
greater
 
frequency,
 
for
 
example,
 
the
 
Economic
Development
 
Bank
 
for
 
Puerto
 
Rico’s
 
Economic
 
Activity
 
Index
 
(“EDB-EAI”).
 
Although
 
not
 
a
 
direct
 
measure
 
of
 
Puerto
 
Rico’s
 
real
GNP,
 
the
 
EDB-EAI
 
is
 
correlated
 
to
 
Puerto
 
Rico’s
 
real
 
GNP.
 
For
 
February
 
2023,
 
preliminary
 
estimates
 
showed
 
that
 
the
 
EDB-EAI
increased
 
0.3%
 
on
 
a
 
month-over-month;
 
however,
 
it
 
stood
 
0.2%
 
lower
 
on
 
a
 
year-over-year
 
basis.
 
Over
 
the
 
12-month
 
period
 
ended
February 28, 2023, the EDB-EAI averaged 124.5, approximately 0.9%
 
above the comparable figure a year earlier.
 
Fiscal Plan
 
On April
 
3, 2023,
 
the PROMESA
 
oversight board
 
certified the
 
2023 Fiscal
 
Plan for
 
Puerto Rico
 
(the “2023
 
Fiscal Plan”).
 
Unlike
previous versions
 
of the
 
fiscal plan,
 
the PROMESA
 
oversight board
 
segregated the
 
2023 Fiscal Plan
 
into three
 
different volumes.
 
As
the first fiscal plan
 
certified in a post-bankruptcy
 
environment, Volume
 
1 presents a
 
Transformation Plan
 
that highlights priority
 
areas
to cement fiscal responsibility,
 
accelerate economic growth in a sustainable manner,
 
and restore market access to Puerto Rico. Volume
2 provides additional details
 
on economic trends and
 
financial projections, and Volume
 
3 maps out the supplementary
 
implementation
details to
 
guide
 
the government’s
 
implementation
 
of the
 
requirements
 
of the
 
2023 Fiscal
 
Plan, as
 
well as
 
additional
 
initiatives
 
from
prior fiscal plans which remain mandatory and are still pending to be implemented.
The
 
2023
 
Fiscal
 
Plan
 
prioritizes
 
resource
 
allocation
 
across
 
three
 
major
 
pillars:
 
(i)
 
entrenching
 
a
 
legacy
 
of
 
strong
 
financial
management
 
through
 
the
 
implementation
 
of
 
a
 
comprehensive
 
financial
 
management
 
agenda,
 
(ii)
 
instilling
 
a
 
culture
 
of public
 
-sector
performance
 
and
 
excellence
 
in
 
order
 
to
 
properly
 
deliver
 
quality
 
public
 
services,
 
and
 
(iii)
 
investing
 
for
 
economic
 
growth
 
to
 
ensure
sufficient
 
revenues are
 
generated to
 
support the
 
delivery of
 
services. According
 
to the
 
Transformation
 
Plan, the
 
fiscal and
 
economic
turnaround
 
of
 
Puerto
 
Rico
 
cannot
 
be
 
accomplished
 
without
 
the
 
implementation
 
of
 
structural
 
economic
 
reforms
 
that
 
promote
sustainable
 
economic
 
development.
 
These
 
reforms
 
include
 
the
 
power/energy
 
sector
 
reform
 
to
 
improve
 
availability,
 
reliability
 
and
affordability of energy,
 
the K-12 and higher
 
education reform to expand
 
opportunity and prepare
 
the workforce to
 
compete for jobs of
the future,
 
and an
 
infrastructure reform
 
aimed at
 
improving the
 
efficiency of
 
the economy
 
and facilitate
 
investment. The
 
2023 Fiscal
Plan projects that
 
these reforms, if implemented
 
successfully, will
 
contribute 0.75% in
 
GNP growth by
 
fiscal year 2026.
 
Additionally,
the
 
2023
 
Fiscal
 
Plan
 
provides
 
a
 
roadmap
 
for
 
a
 
tax
 
reform
 
directed
 
towards
 
establishing
 
a
 
tax
 
regime
 
that
 
is
 
more
 
competitive
 
for
investors and more equitable for individuals.
The
 
2023
 
Fiscal
 
Plan
 
notes
 
that
 
Puerto
 
Rico
 
has
 
had
 
a
 
strong
 
recovery
 
in
 
the
 
aftermath
 
of
 
the
 
pandemic
 
crisis
 
with
 
labor
participation
 
trending
 
positively
 
and
 
unemployment
 
at
 
historically
 
low
 
levels.
 
However,
 
it
 
recognizes
 
that
 
such
 
recovery
 
has
 
been
primarily
 
fueled
 
by
 
the
 
unprecedented
 
influx
 
of
 
federal
 
funds,
 
which
 
have
 
an
 
outsized
 
and
 
temporary
 
impact
 
that
 
may
 
mask
underlying structural
 
weaknesses in
 
the economy.
 
As such,
 
the 2023
 
Fiscal Plan
 
projects a
 
0.7% decline
 
in real
 
GNP for
 
the current
fiscal
 
year
 
2023,
 
followed
 
by a
 
period
 
of near-zero
 
real
 
growth in
 
the coming
 
fiscal years
 
2024
 
through 2026.
 
Also,
 
the fiscal
 
plan
projects that
 
Puerto Rico’s
 
population will
 
continue the
 
long-term trend
 
of steady
 
decline. Notwithstanding,
 
the Transformation
 
Plan
depicts
 
that,
 
if
 
managed
 
properly,
 
these
 
non-recurring
 
federal
 
funds
 
can
 
be
 
leveraged
 
into
 
sustainable
 
longer-term
 
growth
 
and
opportunity.
 
118
The 2023
 
Fiscal Plan projects
 
that approximately
 
$81 billion in
 
total disaster relief
 
funding, from
 
federal and
 
private sources,
 
will
be disbursed
 
as part
 
of the
 
reconstruction
 
efforts over
 
a span
 
of 18
 
years (fiscal
 
years 2018
 
through 2035).
 
These funds
 
will benefit
individuals,
 
the public
 
(e.g., reconstruction
 
of major
 
infrastructure,
 
roads,
 
and schools),
 
and
 
will cover
 
part of
 
the Commonwealth’s
share of
 
the cost
 
of disaster
 
relief funding.
 
Also, the
 
2023 Fiscal
 
Plan projects
 
accelerated
 
deployment
 
of the
 
remaining
 
COVID-19
relief
 
funds
 
in
 
fiscal
 
year
 
2023
 
through
 
2025,
 
with
 
approximately
 
$9.3
 
billion
 
expected
 
to
 
be
 
disbursed,
 
compared
 
to
 
$4.5
 
billion
projected in the previous
 
fiscal plan. Additionally,
 
the 2023 Fiscal Plan continues
 
to account for $2.3
 
billion in federal funds
 
to Puerto
Rico
 
from
 
the
 
Bipartisan
 
Infrastructure
 
Law
 
directed
 
towards
 
improving
 
the
 
Island’s
 
infrastructure
 
over
 
fiscal
 
years
 
2022
 
through
2026.
Debt Restructuring
Over
 
80%
 
of
 
Puerto
 
Rico’s
 
outstanding
 
debt
 
has
 
been
 
restructured
 
to
 
date.
 
On
 
March
 
15,
 
2022,
 
the
 
Plan
 
of
 
Adjustment
 
of
 
the
central
 
government’s
 
debt
 
became
 
effective
 
through
 
the
 
exchange
 
of more
 
than
 
$33
 
billion
 
of
 
existing
 
bonds
 
and
 
other
 
claims
 
into
approximately
 
$7
 
billion
 
of
 
new
 
bonds,
 
saving
 
Puerto
 
Rico
 
more
 
than
 
$50
 
billion
 
in
 
debt
 
payments
 
to
 
creditors.
 
Also,
 
the
restructurings
 
of
 
the
 
Puerto
 
Rico
 
Sales
 
Tax
 
Financing
 
Corporation
 
(“COFINA”),
 
the
 
Highways
 
and
 
Transportation
 
Authority
(“HTA”),
 
and
 
the
 
Puerto
 
Rico
 
Aqueducts
 
and
 
Sewers
 
Authority
 
(“PRASA”)
 
are
 
expected
 
to
 
yield
 
savings
 
of
 
approximately
 
$17.5
billion, $3.0
 
billion, and
 
$400 million,
 
respectively,
 
in future
 
debt service
 
payments. The
 
main restructurings
 
pending include
 
that of
the Puerto Rico Electric Power Authority (“PREPA”)
 
and the Puerto Rico Industrial Company (“PRIDCO”).
According
 
to
 
the
 
PROMESA
 
oversight
 
board,
 
the
 
filed
 
PREPA
 
Plan
 
of
 
Adjustment
 
(“PREPA-POA”)
 
reduces
 
PREPA’s
 
legacy
financial and
 
general unsecured
 
debt by
 
approximately 40%
 
as it
 
contemplates the
 
issuance of
 
$5.7 billion
 
in new
 
bonds that
 
will be
exchanged for the discharge
 
of approximately $10.0 billion
 
in outstanding debt. The
 
new bonds are expected to
 
be paid from revenues
generated
 
by
 
a
 
“Legacy
 
Charge”,
 
which
 
consists
 
of
 
a
 
fixed
 
and
 
volumetric
 
charge
 
on
 
customers’
 
bills
 
that
 
will
 
vary
 
based
 
on
 
the
category of customer and
 
level of usage. This Legacy
 
Charge is expected to
 
generate sufficient revenue
 
to pay down the new
 
bonds in
35 years based
 
on the projections
 
presented in PREPA’s
 
2022 certified fiscal
 
plan. For pensions,
 
the PREPA
 
-POA provides PREPA’s
pension
 
system with
 
treatment substantially
 
similar to
 
the treatment
 
of the
 
Commonwealth’s
 
pensions.
 
The PREPA
 
-POA closes
 
the
pension system to new
 
entrants, preserves the benefits
 
of current retirees, eliminates
 
any future cost of living
 
adjustments, and ensures
all benefits accrued to date by active participants are protected.
On
 
March
 
23,
 
2022,
 
the
 
Title
 
III
 
Court
 
issued
 
a
 
ruling
 
that
 
upholds
 
the
 
PROMESA
 
oversight
 
board’s
 
position
 
that
 
PREPA
bondholders’
 
collateral
 
security
 
is
 
limited
 
to
 
the
 
money
 
PREPA
 
deposits
 
in
 
accounts
 
established
 
pursuant
 
to
 
the
 
trust
 
agreement
governing the issuance
 
of the bonds.
 
The court also
 
rejected the bondholders’
 
contention that they
 
have a general
 
unsecured claim for
the full amount of their principal
 
and interest. As such, the court
 
limited their unsecured claim to
 
future net revenues for the
 
remainder
of the
 
terms of
 
the bonds.
 
According
 
to the
 
PROMESA oversight
 
board,
 
this decision
 
of the
 
court
 
was a
 
significant
 
win
 
for
 
Puerto
Rico and its path to reliable electricity and economic growth.
Although PREPA’s
 
overall mediation process has been
 
slower than expected, PREPA’s
 
Title III confirmation process
 
is underway,
a confirmation
 
hearing has
 
been set
 
for mid-July
 
2023 and, according
 
to the
 
2023 Fiscal
 
Plan, the
 
plan is
 
expected to
 
go effective
 
by
the second quarter of 2024.
Other Developments
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
 
December
 
31,
 
2022,
 
there were
 
a
 
total
 
of 6,286
 
active
 
permanent
 
work
projects reported, more than twice the comparable amount reported
 
as of December 31, 2021, of 2,650 projects.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
119
Exposure to Puerto Rico Government
As of March 31,
 
2023, the Corporation
 
had $340.0 million of
 
direct exposure to the
 
Puerto Rico government,
 
its municipalities and
public corporations, compared to $338.9 million
 
as of December 31, 2022. As of March 31, 2023,
 
approximately $183.4 million of the
exposure consisted
 
of loans and
 
obligations of municipalities
 
in Puerto Rico
 
that are supported
 
by assigned property
 
tax revenues
 
and
for which,
 
in most
 
cases, the
 
good faith,
 
credit and
 
unlimited taxing
 
power of
 
the applicable
 
municipality have
 
been pledged
 
to their
repayment, and
 
$113.1
 
million of
 
loans and
 
obligations which
 
are supported
 
by one
 
or more
 
specific sources
 
of municipal
 
revenues.
Approximately
 
72%
 
of
 
the
 
Corporation’s
 
exposure
 
to
 
Puerto
 
Rico
 
municipalities
 
consisted
 
primarily
 
of
 
senior
 
priority
 
loans
 
and
obligations
 
concentrated
 
in four
 
of
 
the largest
 
municipalities
 
in
 
Puerto
 
Rico.
 
The
 
municipalities
 
are
 
required
 
by law
 
to
 
levy
 
special
property
 
taxes
 
in
 
such
 
amounts
 
as
 
are
 
required
 
for
 
the
 
payment
 
of
 
all
 
of
 
their
 
respective
 
general
 
obligation
 
bonds
 
and
 
notes.
Furthermore,
 
municipalities
 
are
 
also
 
likely
 
to
 
be
 
affected
 
by
 
the
 
negative
 
economic
 
and
 
other
 
effects
 
resulting
 
from
 
as
 
expense,
revenue, or cash management measures taken to address
 
the Puerto Rico government’s
 
fiscal problems and measures included in fiscal
plans of
 
other government
 
entities. In
 
addition to
 
municipalities, the
 
total direct
 
exposure also
 
included $10.2
 
million in
 
loans to
 
an
affiliate
 
of PREPA,
 
$30.0
 
million in
 
loans to
 
agencies or
 
public corporations
 
of the
 
Puerto Rico
 
government,
 
and obligations
 
of the
Puerto Rico
 
government,
 
specifically a
 
residential pass-through
 
MBS issued
 
by the
 
PRHFA,
 
at an
 
amortized
 
cost of
 
$3.3 million
 
as
part of its available-for-sale debt securities portfolio (fair
 
value of $2.2 million as of March 31, 2023).
The
 
following
 
table
 
details
 
the
 
Corporation’s
 
total
 
direct
 
exposure
 
to
 
Puerto
 
Rico
 
government
 
obligations
 
according
 
to
 
their
maturities:
As of March 31, 2023
Investment
 
Portfolio
Total
(Amortized
cost)
Loans
Exposure
(In thousands)
Puerto Rico Housing Finance Authority:
 
After 10 years
$
3,302
$
-
$
3,302
Total
 
Puerto Rico Housing Finance Authority
3,302
-
3,302
Agencies and public corporation of the Puerto Rico government:
 
After 1 to 5 years
-
3,313
3,313
 
After 5 to 10 years
-
26,671
26,671
Total agencies and public
 
corporation of the Puerto Rico government
-
29,984
29,984
 
Affiliate of the Puerto Rico Electric Power Authority:
 
Due within one year
-
10,184
10,184
Total Puerto Rico government
 
affiliate
-
10,184
10,184
Total
 
Puerto Rico public corporations and government affiliate
-
40,168
40,168
Municipalities:
 
Due within one year
1,204
18,148
19,352
 
After 1 to 5 years
42,633
55,905
98,538
 
After 5 to 10 years
55,940
56,652
112,592
 
After 10 years
66,023
-
66,023
Total
 
Municipalities
165,800
130,705
296,505
Total
 
Direct Government Exposure
$
169,102
$
170,873
$
339,975
 
120
In addition,
 
as of March
 
31, 2023, the
 
Corporation had
 
$82.9 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, 2022 –
$84.7
 
million).
 
Residential
 
mortgage
 
loans
 
guaranteed
 
by
 
the
 
PRHFA
 
are
 
secured
 
by
 
the
 
underlying
 
properties
 
and
 
the
 
guarantees
serve to
 
cover shortfalls
 
in collateral in
 
the event
 
of a borrower
 
default. The
 
Puerto Rico government
 
guarantees up
 
to $75 million
 
of
the
 
principal
 
for
 
all
 
loans
 
under
 
the
 
mortgage
 
loan
 
insurance
 
program.
 
According
 
to
 
the
 
most
 
recently
 
released
 
audited
 
financial
statements of the PRHFA,
 
as of June 30, 2021, the PRHFA’s
 
mortgage loans insurance program covered
 
loans in an aggregate amount
of approximately $473 million. The regulations adopted by
 
the PRHFA require the establishment
 
of adequate reserves to guarantee the
solvency of the mortgage
 
loans insurance program. As
 
of June 30, 2021,
 
the most recent date
 
as of which information
 
is available, the
PRHFA had a liability
 
of approximately $5 million as an estimate of the losses inherent in the portfolio.
As of
 
March
 
31,
 
2023,
 
the
 
Corporation
 
had
 
$2.2
 
billion
 
of public
 
sector
 
deposits
 
in
 
Puerto
 
Rico,
 
compared
 
to
 
$2.3
 
billion
 
as
 
of
December 31,
 
2022. Approximately
 
25% of
 
the public
 
sector deposits
 
as of
 
March 31,
 
2023 were
 
from municipalities
 
and municipal
agencies in
 
Puerto Rico
 
and 75%
 
were from
 
public corporations,
 
the Puerto
 
Rico central
 
government and
 
agencies, and
 
U.S. federal
government agencies in Puerto Rico.
Exposure to USVI Government
The Corporation has operations in the USVI and has credit exposure
 
to USVI government entities.
For
 
many
 
years,
 
the
 
USVI
 
has
 
been
 
experiencing
 
a
 
number
 
of
 
fiscal
 
and
 
economic
 
challenges
 
that
 
have
 
deteriorated
 
the
 
overall
financial
 
and
 
economic
 
conditions
 
in
 
the
 
area.
 
On
 
March
 
4,
 
2022,
 
the
 
United
 
States
 
Bureau
 
of
 
Economic
 
Analysis
 
(the
 
“BEA”)
released
 
its
 
estimates
 
of
 
GDP
 
for
 
2020.
 
According
 
to
 
the
 
BEA,
 
the
 
USVI’s
 
real
 
GDP
 
decreased
 
2.2%.
 
Also,
 
the
 
BEA
 
revised
 
its
previously published real
 
GDP growth estimate for
 
2019 from 2.2% to
 
2.8%. According to the
 
BEA, the decline in
 
real GDP for 2020
reflected
 
decreases
 
in
 
exports
 
of
 
services,
 
private
 
fixed
 
investment,
 
personal
 
consumption
 
expenditures,
 
and
 
government
 
spending
primarily
 
as
 
a
 
result
 
of
 
the
 
effects
 
of
 
the
 
COVID-19
 
pandemic.
 
These
 
decreases
 
were
 
partially
 
offset
 
by
 
an
 
increase
 
in
 
private
inventory investment,
 
reflecting an
 
increase in crude
 
oil and other
 
petroleum products
 
imported and
 
stored in the
 
islands. In addition,
there
 
were
 
reductions
 
in
 
imports
 
of
 
goods
 
including
 
consumer
 
goods
 
and
 
equipment,
 
and
 
in
 
imports
 
of
 
services.
 
According
 
to
 
the
BEA, expenditures
 
funded by
 
the various
 
federal grants
 
and transfer
 
payments are
 
reflected in
 
the GDP
 
estimates; however,
 
the full
effects of the
 
pandemic cannot be quantified
 
in the GDP statistics for
 
the USVI because the
 
impacts are generally embedded
 
in source
data and cannot be separately identified.
 
Nonetheless,
 
over
 
the
 
past
 
two
 
years,
 
the
 
USVI
 
has
 
been
 
recovering
 
from
 
the
 
adverse
 
impact
 
caused
 
by
 
COVID-19
 
and
 
has
continued to make progress
 
on its rebuilding efforts
 
related to Hurricanes Irma
 
and Maria in 2017.
 
According to data published
 
by the
government,
 
over
 
$1.4
 
billion
 
in
 
disaster
 
recovery
 
funds
 
were
 
disbursed
 
during
 
2021
 
and
 
2022,
 
up 22%
 
from
 
the
 
preceding
 
2-year
period. On the fiscal front, revenues have trended positively
 
and the USVI Government successfully completed
 
the restructuring of the
government employee
 
retirement system. Although
 
no official
 
GDP data has
 
been released
 
for 2021
 
and/or 2022, the
 
aforementioned
developments,
 
as
 
well
 
as
 
the
 
positive
 
trend
 
reflected
 
by
 
key
 
economic
 
indicators
 
such
 
as
 
visitor
 
arrivals,
 
non-farm
 
payrolls
 
and
unemployment rate potentially indicate that the territory has experienced
 
an overall economic recovery since 2020.
 
 
PROMESA
 
does
 
not
 
apply
 
to the
 
USVI
 
and,
 
as such,
 
there
 
is currently
 
no federal
 
legislation
 
permitting
 
the restructuring
 
of
 
the
debts of
 
the USVI
 
and
 
its public
 
corporations
 
and instrumentalities.
 
To
 
the extent
 
that the
 
fiscal condition
 
of the
 
USVI government
continues to
 
deteriorate, the
 
U.S. Congress
 
or the government
 
of the
 
USVI may enact
 
legislation allowing
 
for the restructuring
 
of the
financial
 
obligations
 
of
 
the
 
USVI
 
government
 
entities
 
or
 
imposing
 
a
 
stay
 
on
 
creditor
 
remedies,
 
including
 
by
 
making
 
PROMESA
applicable to the USVI.
 
As of
 
March 31,
 
2023, the
 
Corporation had
 
$38.7
 
million in
 
loans to
 
USVI public
 
corporations,
 
compared to
 
$38.0 million
 
as of
December 31, 2022. As of March 31, 2023, all loans were currently performing
 
and up to date on principal and interest payments.
 
121
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
March
 
31,
 
2023.
 
Based
 
on
 
this
 
evaluation
 
as
 
of
 
the
 
end
 
of
 
the
 
period
 
covered
 
by
 
this
 
Quarterly
 
Report
 
on
 
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 were
 
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
 
March 31, 2023
 
that have materially
 
affected, or
 
are reasonably
 
likely
to materially affect, the Corporation’s
 
internal control over financial reporting.
 
122
PART II - OTHER INFORMATION
In accordance
 
with the instructions
 
to Part II, the
 
other specified
 
items in this part
 
have been omitted
 
because they
 
are not applicable,
 
or the
information
 
has been
 
previously
 
reported.
ITEM 1.
 
LEGAL PROCEEDINGS
For
 
a
 
discussion of
 
legal proceedings, see
 
Note 22
 
 
Regulatory Matters, Commitments and
 
Contingencies, to unaudited
 
consolidated
financial
 
statements
 
herein, 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. A detailed discussion
 
of certain risk factors that could
 
affect the Corporation’s future
 
operations, financial
 
condition or results for
future periods
 
is set forth
 
in Part
 
I, Item
 
1A., “Risk
 
Factors,”
 
in the
 
2022 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
 
2022 Annual
 
Report
 
on Form
 
10-K.
Other than
 
as described
 
below, there
 
have been
 
no material
 
changes
 
from those
 
risk factors
 
previously
 
disclosed
 
in Part
 
I, Item 1A.
 
“Risk
Factors,”
 
in the
 
2022 Annual
 
Report
 
on Form
 
10-K.
Cyber-attacks,
 
system risks
 
and data
 
protection breaches
 
to our
 
computer systems
 
and networks
 
or those
 
of third-party
 
service
providers could
 
adversely affect
 
our ability to
 
conduct business, manage
 
our exposure to
 
risk or expand
 
our business, result
 
in the
disclosure
 
or
 
misuse
 
of
 
confidential
 
or
 
proprietary
 
information,
 
increase
 
our
 
costs
 
to
 
maintain
 
and
 
update
 
our
 
operational
 
and
security systems and infrastructure, and present significant reputational, legal
 
and regulatory costs
.
Our
 
business
 
is
 
highly
 
dependent
 
on
 
the
 
security,
 
controls
 
and
 
efficacy
 
of
 
our
 
infrastructure,
 
computer
 
and
 
data
 
management
systems,
 
as
 
well
 
as
 
those
 
of
 
our
 
customers,
 
suppliers,
 
and
 
other
 
third
 
parties.
 
To
 
access
 
our
 
network,
 
products
 
and
 
services,
 
our
employees,
 
customers, suppliers,
 
and other
 
third parties,
 
including downstream
 
service providers,
 
the financial
 
services industry
 
and
financial
 
data
 
aggregators,
 
with
 
whom
 
we
 
interact,
 
on
 
whom
 
we
 
rely
 
or
 
who
 
have
 
access
 
to
 
our
 
customers
personal
 
or
 
account
information, increasingly
 
use personal mobile
 
devices or computing
 
devices that are
 
outside of our
 
network and control
 
environments
and
 
are
 
subject
 
to
 
their
 
own
 
cybersecurity
 
risks.
 
Our
 
business
 
relies
 
on
 
effective
 
access
 
management
 
and
 
the
 
secure
 
collection,
processing,
 
transmission,
 
storage and
 
retrieval
 
of confidential,
 
proprietary,
 
personal
 
and other
 
information
 
in our
 
computer
 
and data
management systems and networks, and in the computer and data management
 
systems and networks of third parties.
 
Information
 
security
 
risks
 
for
 
financial
 
institutions
 
have
 
significantly
 
increased
 
in
 
recent
 
years,
 
especially
 
given
 
the
 
increasing
sophistication and activities
 
of organized
 
computer criminals, hackers,
 
and terrorists and
 
our expansion of
 
online and digital
 
customer
services to
 
better meet
 
our
 
customer’s
 
needs.
 
These threats
 
may
 
derive
 
from fraud
 
or malice
 
on the
 
part of
 
our employees
 
or third-
party
 
providers
 
or
 
may
 
result
 
from
 
human
 
error
 
or
 
accidental
 
technological
 
failure.
 
These
 
threats
 
include
 
cyber-attacks,
 
such
 
as
computer viruses,
 
malicious or
 
destructive code,
 
phishing attacks,
 
denial of
 
service attacks,
 
or other
 
security breach
 
tactics that
 
could
result
 
in
 
the
 
unauthorized
 
release,
 
gathering,
 
monitoring,
 
misuse,
 
loss,
 
destruction,
 
or
 
theft
 
of
 
confidential,
 
proprietary,
 
and
 
other
information, including
 
intellectual property,
 
of ours, our
 
employees, our
 
customers, or third
 
parties, damages to
 
systems, or otherwise
material
 
disruption
 
to
 
our
 
or
 
our
 
customers’
 
or
 
other
 
third
 
parties’
 
network
 
access
 
or
 
business
 
operations,
 
both
 
domestically
 
and
internationally.
While
 
we
 
maintain
 
an
 
Information
 
Security
 
Program
 
that
 
continuously
 
monitors
 
cyber-related
 
risks
 
and
 
ultimately
 
ensures
protection
 
for
 
the
 
processing,
 
transmission,
 
and
 
storage
 
of confidential,
 
proprietary,
 
and other
 
information
 
in our
 
computer
 
systems
and networks, as
 
well as a vendor
 
management program to
 
oversee third party
 
and vendor risks, there
 
is no guarantee
 
that we will not
be exposed to
 
or be affected
 
by a cybersecurity
 
incident. For example,
 
we recently learned
 
that one of our
 
third-party vendors was
 
the
victim
 
of
 
a
 
security
 
incident
 
in
 
April
 
2023
 
involving
 
a
 
set
 
of
 
data
 
that
 
included
 
some
 
information
 
on
 
FirstBank’s
 
mortgage
 
loan
business. In
 
response to learning
 
of the incident,
 
we promptly launched
 
our own internal
 
investigation, which
 
confirmed that our
 
own
systems were
 
not
 
compromised,
 
and
 
any operational
 
and
 
financial impact
 
was minimal.
 
We
 
are working
 
with cybersecurity
 
experts
and legal counsel
 
to fully assess
 
the impact of
 
the security incident
 
reported by our
 
third-party vendor and
 
any required disclosures
 
to
the applicable regulatory authorities
 
and impacted customers. Our
 
vendor has indicated (and
 
we have no evidence
 
to the contrary) that
to date
 
there is
 
no evidence
 
that there
 
has been
 
any actual
 
or attempted
 
misuse of
 
information. We
 
may incur
 
expenses related
 
to the
 
123
incident, including
 
expenses to
 
remediate and
 
investigate this
 
matter.
 
Additionally,
 
we remain
 
subject to
 
risks and
 
uncertainties as
 
a
result of the incident, including legal, reputational and financial risks.
Cyber threats are rapidly
 
changing, and future attacks or
 
breaches could lead to
 
other security breaches of
 
the networks, systems, or
devices that
 
our customers
 
use to
 
access our
 
integrated products
 
and services,
 
which, in
 
turn, could
 
result in
 
unauthorized disclosure,
release, gathering,
 
monitoring, misuse,
 
loss or
 
destruction of
 
confidential, proprietary,
 
and other
 
information (including
 
account data
information) or
 
data security
 
compromises. As
 
cyber threats
 
continue to
 
evolve, we
 
may be
 
required to
 
expend significant
 
additional
resources
 
to
 
modify
 
or
 
enhance
 
our
 
protective
 
measures,
 
investigate,
 
and
 
remediate
 
any
 
information
 
security
 
vulnerabilities
 
or
incidents
 
and
 
develop
 
our
 
capabilities
 
to
 
respond
 
and
 
recover.
 
The
 
full
 
extent
 
of
 
a
 
particular
 
cyberattack,
 
and
 
the
 
steps
 
that
 
the
Corporation may
 
need to take
 
to investigate
 
such attack, may
 
not be immediately
 
clear, and
 
it could take
 
considerable additional time
for
 
us
 
to
 
determine
 
the complete
 
scope
 
of information
 
compromised,
 
at which
 
time
 
the impact
 
on the
 
Corporation
 
and
 
measures
 
to
recover and restore to
 
a business-as-usual state may
 
be difficult to assess.
 
These factors may also
 
inhibit our ability to provide
 
full and
reliable information about the cyberattack to our customers, third-party
 
vendors, regulators, and the public.
 
A successful penetration or circumvention of our system security,
 
or the systems of our customers, suppliers, and other third parties,
could cause us serious negative consequences, including significant
 
operational, reputational, legal, and regulatory costs and concerns.
 
Any of these
 
adverse consequences could
 
adversely impact our
 
results of operations,
 
liquidity,
 
and financial condition.
 
In addition,
our
 
insurance
 
policies
 
may
 
not
 
be
 
adequate
 
to
 
compensate
 
us
 
for
 
the
 
potential
 
costs
 
and
 
other
 
losses
 
arising
 
from
 
cyber-attacks,
failures of
 
information technology
 
systems, or
 
security breaches,
 
and such
 
insurance policies
 
may not
 
be available
 
to us in
 
the future
on
 
economically
 
reasonable
 
terms, or
 
at
 
all.
 
Insurers
 
may
 
also
 
deny
 
us
 
coverage
 
as to
 
any
 
future
 
claim.
 
Any of
 
these
 
results
 
could
harm our growth prospects, financial condition, business, and reputation.
The
 
volatility
 
in
 
the
 
financial
 
services
 
industry,
 
including
 
failures
 
or
 
rumored
 
failures
 
of
 
other
 
depository
 
institutions,
 
and
actions taken by
 
governmental agencies to
 
stabilize the financial
 
system, could result
 
in, among other
 
things, bank deposit
 
runoffs
and liquidity constraints.
The closure and placement
 
into receivership
 
with the FDIC of certain large U.S.
 
regional banks with
 
assets over $100 billion
 
in March
and May 2023, and adverse developments affecting
 
other banks, resulted in heightened
 
levels of market volatility and consequently
 
have
negatively
 
impacted customer
 
confidence
 
in the safety
 
and soundness
 
of financial
 
institutions.
 
These developments
 
have resulted
 
in certain
regional banks
 
experiencing
 
higher than normal
 
deposit outflows
 
and an elevated
 
level of competition
 
for available
 
deposits in the market.
Although we have not been materially impacted by these recent bank failures, the resulting speed at which news, including
 
social media
outlets, led depositors to withdraw funds from these and
 
other financial institutions,
 
as well as
 
the volatile impact to stock
 
prices, could
have a material effect on
 
operations. The impact of market volatility from the adverse developments
 
in the banking industry, along with
continued high inflation
 
and rising interest rates on our business and related financial
 
results, will depend on future developments,
 
which
are highly
 
uncertain
 
and difficult
 
to predict.
 
In the aftermath of these recent bank failures, the banking agencies could propose
 
certain actions that may impact capital ratios
 
or the
FDIC deposit
 
insurance
 
premium.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
124
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 March
 
31, 2023.
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 March 31, 2023:
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)
January 1, 2023 - January 31, 2023
306,106
$
13.25
306,106
$
120,944
February 1, 2023 - February 28, 2023
2,282,608
14.24
2,282,608
88,429
March 1, 2023 - March 31, 2023
1,276,661
13.04
988,826
75,000
Total
3,865,375
(2)(3)
3,577,540
(1)
As of March 31, 2023,
 
the Corporation was authorized
 
to purchase up to
 
$350 million of its
 
common stock under the
 
stock repurchase program, that
 
was publicly announced
 
on April 27,
2022, of which $275.0 million had
 
been utilized. The remaining $75.0 million
 
in the table represents the remaining amount
 
authorized under the stock repurchase
 
program as of March 31,
2023. The
 
stock repurchase
 
program does
 
not obligate
 
the Corporation
 
to acquire
 
any specific
 
number of
 
shares, does
 
not have
 
an expiration
 
date and
 
may be
 
modified, suspended,
 
or
terminated at
 
any time
 
at the
 
Corporation's
 
discretion. Under
 
the stock
 
repurchase program,
 
shares may
 
be repurchased
 
through open
 
market purchases,
 
accelerated share
 
repurchases
and/or privately negotiated transactions, including under plans
 
complying with Rule 10b5-1 under the Exchange Act.
(2)
Includes 3,577,540
 
shares of common stock repurchased in the open market at an average
 
price of $13.98 for a total purchase price of approximately $50.0
 
million.
(3)
Includes 287,835
 
shares of
 
common stock
 
withheld by
 
the Corporation
 
to cover
 
minimum tax
 
withholding obligations
 
upon the
 
vesting of
 
restricted stock
 
and performance
 
units. The
Corporation
 
intends
 
to
 
continue
 
to
 
satisfy
 
statutory
 
tax
 
withholding
 
obligations
 
in
 
connection
 
with
 
the
 
vesting
 
of
 
outstanding
 
restricted
 
stock
 
and
 
performance
 
units
 
through
 
the
withholding of shares.
 
 
 
125
ITEM 6.
 
EXHIBITS
 
 
See the
 
Exhibit Index
 
below, which
 
is incorporated
 
by reference
 
herein:
 
EXHIBIT INDEX
 
Exhibit No.
Description
10.1*
31.1
31.2
32.1
32.2
101.INS
Inline XBRL Instance Document, filed herewith. The
 
instance document does not appear in the interactive data file
 
because
its XBRL tags are embedded within the inline XBRL
 
document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document, filed herewith
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document, filed herewith
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith
101.DEF
Inline XBRL Taxonomy Extension Definitions Linkbase Document, filed herewith
104
The cover page of First BanCorp. Quarterly Report on Form 10-Q
 
for the quarter ended March 31, 2023, formatted in
Inline XBRL (included within the Exhibit 101 attachments)
*Management contract or compensatory plan or agreement.
 
 
 
126
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:
 
May 10,
 
2023
By:
 
/s/ Aurelio
 
Alemán
 
Aurelio Alemán
 
President
 
and Chief
 
Executive
 
Officer
Date: May
 
10,
 
2023
By:
 
/s/ Orlando
 
Berges
 
Orlando
 
Berges
 
Executive
 
Vice President
 
and Chief
 
Financial
 
Officer