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

fbp20230630Q2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
June 30, 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:
178,298,443
 
shares outstanding as of August 1, 2023.
2
FIRST BANCORP.
INDEX PAGE
PART
 
I. FINANCIAL INFORMATION
 
PAGE
Item 1. Financial Statements:
Consolidated Statements of Financial Condition (Unaudited) as of June
 
30, 2023 and December 31, 2022
 
Consolidated Statements
 
of Income
 
(Unaudited) –
 
Quarters and
 
Six-Month Periods
 
ended June
 
30, 2023
and 2022
Consolidated Statements of Comprehensive Income (Loss)
 
(Unaudited) – Quarters and Six-Month Periods
ended June 30, 2023 and 2022
Consolidated Statements of Cash Flows (Unaudited) – Six-Month Periods
 
ended June 30, 2023 and 2022
 
Consolidated
 
Statements
 
of
 
Changes
 
in
 
Stockholders’
 
Equity
 
(Unaudited)
 
 
Quarters
 
and
 
Six-Month
Periods ended June 30, 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
Item 5. Other Information
 
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
 
hereof,
 
and
 
advises
 
readers
 
that
 
any
 
such
 
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”),
 
Part
 
II,
 
Item
 
1A,
 
“Risk
 
Factors”
 
in
 
the
 
Corporation’s
Quarterly Report on Form 10-Q for the quarterly period ended March
 
31, 2023, 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 adverse effects on the Corporation’s
 
results of operations and its liquidity position;
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, including
 
Federal Deposit Insurance
 
Corporation (“FDIC”)
special assessments, 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
 
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 may require us to sell investment securities 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 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
 
incidents
 
that
 
occur,
 
such
 
as
 
an
 
April
 
2023
 
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;
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;
4
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
 
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,
 
or
 
the
 
need
 
of additional
 
credit
 
losses that
 
could
 
emerge
 
from
 
the
 
recent
 
downgrade
 
of
 
the
 
United
 
States of
America’s
 
Long-Term
 
Foreign-Currency
 
Issuer
 
Default
 
Rating
 
(“IDR”)
 
to
 
‘AA+’
 
from
 
‘AAA’,
 
resulting
 
in
 
additional
charges to the provision for credit losses on the Corporation’s
 
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 further 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;
residual impacts of the transition away from the London Interbank Offered
 
Rate (“LIBOR”);
 
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)
June 30, 2023
December 31, 2022
(In thousands, except for share information)
ASSETS
Cash and due from banks
$
1,046,534
$
478,480
Money market investments:
Time deposits with other financial institutions
300
300
Other short-term investments
700
1,725
Total money market investments
1,000
2,025
Available-for-sale debt securities, at fair value:
Securities pledged with creditors’ rights to repledge
79,909
81,103
Other available-for-sale debt securities
5,353,460
5,518,417
Total available-for-sale debt securities, at fair value (amortized cost of $
6,199,630
 
as of June 30, 2023, and
$
6,398,197
 
as of December 31, 2022; ACL of $
433
 
as of June 30, 2023 and $
458
 
as of December 31, 2022)
5,433,369
5,599,520
Held-to-maturity debt securities, at amortized cost, net of ACL
 
of $
8,401
 
as of June 30, 2023 and $
8,286
as of December 31, 2022 (fair value of $
410,181
 
as of June 30, 2023 and $
427,115
 
as of December 31, 2022)
416,325
429,251
Equity securities
48,101
55,289
Total investment securities
5,897,795
6,084,060
Loans, net of ACL of $
267,058
 
as of June 30, 2023 and $
260,464
 
as of December 31, 2022
11,452,257
11,292,361
Mortgage loans held for sale, at lower of cost or market
14,295
12,306
Total loans, net
11,466,552
11,304,667
Accrued interest receivable on loans and investments
70,368
69,730
Premises and equipment, net
146,640
142,935
Other real estate owned (“OREO”)
31,571
31,641
Deferred tax asset, net
153,925
155,584
Goodwill
38,611
38,611
Other intangible assets
17,092
21,118
Other assets
282,367
305,633
Total assets
$
19,152,455
$
18,634,484
LIABILITIES
Non-interest-bearing deposits
$
5,874,261
$
6,112,884
Interest-bearing deposits
10,945,431
10,030,583
Total deposits
16,819,692
16,143,467
Short-term securities sold under agreements to repurchase
73,934
75,133
Advances from the FHLB:
Short-term
-
475,000
Long-term
500,000
200,000
Total advances from the FHLB
500,000
675,000
Other long-term borrowings
161,700
183,762
Accounts payable and other liabilities
199,130
231,582
Total liabilities
17,754,456
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;
179,756,622
shares outstanding as of June 30, 2023 and
182,709,059
 
as of December 31, 2022
22,366
22,366
Additional paid-in capital
962,229
970,722
Retained earnings, includes legal surplus reserve of $
168,484
1,733,497
1,644,209
Treasury stock (at cost),
43,906,494
 
shares as of June 30, 2023 and
40,954,057
 
shares as of December 31, 2022
(547,706)
(506,979)
Accumulated other comprehensive loss, net of tax of $
8,468
(772,387)
(804,778)
Total stockholders’ equity
1,397,999
1,325,540
Total liabilities and stockholders’ equity
$
19,152,455
$
18,634,484
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Quarter Ended June 30,
 
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
(In thousands, except per share information)
Interest and dividend income:
 
Loans
$
218,066
$
179,261
$
428,702
$
353,048
 
Investment securities
26,258
26,491
53,368
49,738
 
Money market investments and interest-bearing cash accounts
7,880
2,873
12,530
3,693
 
Total interest and dividend income
252,204
208,625
494,600
406,479
Interest expense:
 
Deposits
41,604
7,694
71,489
15,346
 
Securities sold under agreements to repurchase:
 
Short-term
1,328
-
2,397
-
 
Long-term
-
1,972
-
4,154
 
Advances from the FHLB:
 
Short-term
435
-
4,776
-
 
Long-term
5,613
1,075
8,448
2,138
 
Other long-term borrowings
3,409
1,698
6,790
3,031
 
Total interest expense
52,389
12,439
93,900
24,669
 
Net interest income
199,815
196,186
400,700
381,810
Provision for credit losses - expense (benefit):
 
Loans and finance leases
20,770
12,665
37,026
(4,324)
 
Unfunded loan commitments
721
812
616
634
 
Debt securities
739
(3,474)
90
(109)
 
Provision for credit losses - expense (benefit)
22,230
10,003
37,732
(3,799)
 
Net interest income after provision for credit losses
177,585
186,183
362,968
385,609
Non-interest income:
 
Service charges and fees on deposit accounts
9,287
9,466
18,828
18,829
 
Mortgage banking activities
2,860
4,082
5,672
9,288
 
Gain on early extinguishment of debt
1,605
-
1,605
-
 
Insurance commission income
2,747
2,946
7,594
8,221
 
Card and processing income
11,135
10,300
22,053
19,981
 
Other non-interest income
8,637
4,147
13,037
7,480
 
Total non-interest income
 
36,271
30,941
68,789
63,799
Non-interest expenses:
 
Employees’ compensation and benefits
54,314
51,304
110,736
100,858
 
Occupancy and equipment
21,097
21,505
42,283
43,891
 
Business promotion
4,167
4,042
8,142
7,505
 
Professional service fees
11,596
12,036
23,569
22,630
 
Taxes, other than income taxes
5,124
4,689
10,236
9,707
 
FDIC deposit insurance
2,143
1,466
4,276
3,139
 
Net gain on OREO operations
(1,984)
(1,485)
(3,980)
(2,205)
 
Credit and debit card processing expenses
6,540
5,843
11,858
9,964
 
Communications
1,992
1,978
4,208
4,129
 
Other non-interest expenses
7,928
6,948
16,857
15,367
 
Total non-interest expenses
112,917
108,326
228,185
214,985
Income before income taxes
100,939
108,798
203,572
234,423
Income tax expense
30,284
34,103
62,219
77,128
Net income
 
$
70,655
$
74,695
$
141,353
$
157,295
Net income attributable to common stockholders
 
$
70,655
$
74,695
$
141,353
$
157,295
Net income per common share:
 
Basic
$
0.39
$
0.38
$
0.79
$
0.80
 
Diluted
$
0.39
$
0.38
$
0.78
$
0.80
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
(LOSS)
(Unaudited)
Quarter Ended June 30,
 
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
(In thousands)
Net income
 
$
70,655
$
74,695
$
141,353
$
157,295
Other comprehensive (loss) income, net of tax:
Available-for-sale debt securities:
Net unrealized holding (losses) gains on debt securities
 
(1)
(54,837)
(175,923)
32,391
(507,757)
Other comprehensive (loss) income for the period, net of tax
(54,837)
(175,923)
32,391
(507,757)
 
Total comprehensive income (loss)
$
15,818
$
(101,228)
$
173,744
$
(350,462)
(1)
Net unrealized holding (losses) gains on available-for-sale
 
debt securities have no tax effect because securities
 
are either tax-exempt, held by an International Banking Entity (“IBE”),
 
or
have a full deferred tax asset valuation allowance.
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six-Month Period Ended June 30,
 
2023
2022
(In thousands)
Cash flows from operating activities:
Net income
 
$
141,353
$
157,295
Adjustments to reconcile net income to net cash provided by operating
 
activities:
Depreciation and amortization
10,071
11,291
Amortization of intangible assets
4,026
4,510
Provision for credit losses - expense (benefit)
37,732
(3,799)
Deferred income tax expense
2,419
41,483
Stock-based compensation
3,997
2,580
Gain on early extinguishment of debt
(1,605)
-
Unrealized gain on derivative instruments
(291)
(864)
Net gain on disposals or sales, and impairments of premises
 
and equipment and other assets
(235)
(900)
Net gain on sales of loans and loans held-for-sale valuation adjustments
 
(989)
(3,965)
Net amortization of discounts, premiums, and deferred loan fees
 
and costs
686
(5,486)
Originations and purchases of loans held for sale
(88,696)
(143,692)
Sales and repayments of loans held for sale
85,398
157,098
Amortization of broker placement fees
128
64
Net amortization of premiums and discounts on investment securities
2,117
1,389
Decrease (increase) in accrued interest receivable
1,849
(3,555)
Increase (decrease) in accrued interest payable
9,369
(1,252)
Increase in other assets
(5,566)
(4,235)
(Decrease) increase in other liabilities
(35,307)
11,646
 
Net cash provided by operating activities
166,456
219,608
Cash flows from investing activities:
Net disbursements on loans held for investment
(226,714)
(186,902)
Proceeds from sales of loans held for investment
3,183
37,565
Proceeds from sales of repossessed assets
26,360
19,941
Purchases of available-for-sale debt securities
(961)
(512,327)
Proceeds from principal repayments and maturities of available-for-sale
 
debt securities
217,745
354,853
Purchases of held-to-maturity debt securities
-
(260,082)
Proceeds from principal repayments and maturities of held-to-maturity
 
debt securities
13,832
934
Additions to premises and equipment
(16,211)
(11,841)
Proceeds from sales of premises and equipment and other assets
578
1,138
Net redemptions (purchases) of other investments securities
7,219
(971)
 
Net cash provided by (used in) investing activities
25,031
(557,692)
Cash flows from financing activities:
Net increase (decrease) in deposits
675,911
(645,417)
Net repayments of short-term borrowings
(476,199)
-
Repayments of long-term borrowings
(19,795)
(100,000)
Proceeds from long-term borrowings
300,000
-
Repurchase of outstanding common stock
(53,217)
(152,713)
Dividends paid on common stock
(51,158)
(43,321)
 
Net cash provided by (used in) financing activities
375,542
(941,451)
Net increase (decrease) in cash and cash equivalents
567,029
(1,279,535)
Cash and cash equivalents at beginning of year
480,505
2,543,058
Cash and cash equivalents at end of period
$
1,047,534
$
1,263,523
Cash and cash equivalents include:
Cash and due from banks
$
1,046,534
$
1,261,590
Money market investments
1,000
1,933
$
1,047,534
$
1,263,523
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
 
EQUITY
(Unaudited)
Quarter Ended June 30,
 
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
(In thousands, except per share information)
Common Stock
$
22,366
$
22,366
$
22,366
$
22,366
Additional Paid-In Capital:
 
Balance at beginning of period
959,912
966,771
970,722
972,547
 
Stock-based compensation expense
1,922
1,398
3,997
2,580
 
Common stock reissued under stock-based compensation plan
-
(23)
(13,139)
(7,003)
 
Restricted stock forfeited
395
71
649
93
 
Balance at end of period
962,229
968,217
962,229
968,217
Retained Earnings:
 
Balance at beginning of period
1,688,176
1,489,995
1,644,209
1,427,295
 
Impact of adoption of Accounting Standards Update (“ASU”) 2022-02 (See
 
Note 1)
-
-
(1,357)
-
 
Net income
 
70,655
74,695
141,353
157,295
 
Dividends on common stock ($
0.14
 
per share and $
0.12
 
per share for the quarters ended
 
 
June 30,
 
2023 and 2022, respectively; $
0.28
 
per share and $
0.22
 
for the
 
for the six-month periods ended June 30,
 
2023 and 2022, respectively)
(25,334)
(23,356)
(50,708)
(43,256)
 
Balance at end of period
1,733,497
1,541,334
1,733,497
1,541,334
Treasury Stock (at cost):
 
Balance at beginning of period
(547,311)
(282,197)
(506,979)
(236,442)
 
Common stock repurchases (See Note 14)
-
(100,000)
(53,217)
(152,713)
 
Common stock reissued under stock-based compensation plan
-
23
13,139
7,003
 
Restricted stock forfeited
(395)
(71)
(649)
(93)
 
Balance at end of period
(547,706)
(382,245)
(547,706)
(382,245)
Accumulated Other Comprehensive Loss, net
 
of tax:
 
Balance at beginning of period
(717,550)
(415,833)
(804,778)
(83,999)
 
Other comprehensive (loss) income, net of tax
(54,837)
(175,923)
32,391
(507,757)
 
Balance at end of period
(772,387)
(591,756)
(772,387)
(591,756)
 
Total stockholders’ equity
$
1,397,999
$
1,557,916
$
1,397,999
$
1,557,916
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
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS
(Unaudited)
 
NOTE 1 – BASIS
 
OF PRESENTATION AND
 
SIGNIFICANT
 
ACCOUNTING
 
POLICIES
 
The
 
Consolidated
 
Financial
 
Statements
 
(unaudited)
 
for
 
the
 
quarter
 
and
 
six-month
 
period
 
ended
 
June
 
30,
 
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 and
 
six-month period
 
ended June
 
30, 2023
 
are not
 
necessarily indicative
 
of the
 
results to
 
be
expected
 
for the
 
entire year.
Adoption of New Accounting Requirements
ASU 2022-02,
 
“Financial
 
Instruments
 
– Credit Losses
 
(Topic 326): Troubled
 
Debt Restructurings
 
(“TDR”) and
 
Vintage Disclosures”
Effective
 
January
 
1,
 
2023,
 
the
 
Corporation
 
adopted
 
ASU
 
2022-02,
 
which
 
removed
 
the
 
existing
 
measurement
 
and
 
disclosure
requirements
 
for
 
TDR
 
loans,
 
added
 
additional
 
disclosure
 
requirements
 
related
 
to
 
modifications
 
provided
 
to
 
borrowers
 
experiencing
financial difficulty regardless of
 
whether the modification
 
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 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 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.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
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 June 30, 2023 were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 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
$
27,671
$
-
$
705
$
-
$
26,966
0.61
 
After 1 to 5 years
120,787
-
8,084
-
112,703
0.69
U.S. government-sponsored entities (“GSEs”) obligations:
 
Due within one year
224,161
-
5,089
-
219,072
0.42
 
After 1 to 5 years
2,344,874
56
209,839
-
2,135,091
0.85
 
After 5 to 10 years
11,267
4
871
-
10,400
3.16
 
After 10 years
10,844
22
1
-
10,865
5.38
Puerto Rico government obligations:
 
After 10 years
(2)
3,254
-
794
349
2,111
-
United States and Puerto Rico government obligations
2,742,858
82
225,383
349
2,517,208
0.83
Mortgage-backed securities (“MBS”):
 
Residential MBS:
 
Freddie Mac (“FHLMC”) certificates:
 
After 1 to 5 years
20,047
-
1,191
-
18,856
1.97
 
After 5 to 10 years
171,682
-
17,242
-
154,440
1.58
 
After 10 years
1,038,513
-
180,505
-
858,008
1.41
 
1,230,242
-
198,938
-
1,031,304
1.44
 
Ginnie Mae (“GNMA”) certificates:
 
 
Due within one year
1
-
-
-
1
2.53
 
After 1 to 5 years
20,426
-
1,257
-
19,169
1.25
 
After 5 to 10 years
32,172
-
2,952
-
29,220
1.70
 
 
After 10 years
219,768
7
26,660
-
193,115
2.63
272,367
7
30,869
-
241,505
2.42
 
Fannie Mae (“FNMA”) certificates:
 
After 1 to 5 years
22,434
-
1,399
-
21,035
1.72
 
 
After 5 to 10 years
338,605
-
31,862
-
306,743
1.75
 
After 10 years
1,102,263
38
178,364
-
923,937
1.37
 
1,463,302
38
211,625
-
1,251,715
1.46
 
Collateralized mortgage obligations (“CMOs”) issued
 
or guaranteed by the FHLMC, FNMA, and GNMA:
 
After 10 years
288,194
-
58,267
-
229,927
1.48
 
Private label:
 
After 10 years
7,498
-
2,168
84
5,246
7.61
Total Residential MBS
3,261,603
45
501,867
84
2,759,697
1.55
 
Commercial MBS:
 
After 1 to 5 years
44,311
-
7,308
-
37,003
2.15
 
After 5 to 10 years
25,656
-
3,430
-
22,226
2.13
 
After 10 years
125,202
-
27,967
-
97,235
1.40
Total Commercial MBS
195,169
-
38,705
-
156,464
1.67
Total MBS
3,456,772
45
540,572
84
2,916,161
1.56
Total available-for-sale debt securities
$
6,199,630
$
127
$
765,955
$
433
$
5,433,369
1.23
(1)
Excludes accrued interest receivable on available-for-sale debt securities that totaled $
10.7
 
million as of June 30, 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.
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
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 issued or guaranteed by the FHLMC, FNMA,
 
 
and GNMA:
 
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.
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
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
 
accumulated
 
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 June 30, 2023 and December 31, 2022. The tables also include debt securities for
 
which an ACL was recorded.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30, 2023
Less than 12 months
12 months or more
Total
Unrealized
Unrealized
Unrealized
Fair Value
 
Losses
Fair Value
 
Losses
Fair Value
 
Losses
(In thousands)
 
U.S. Treasury and U.S. GSEs’
 
obligations
$
2,887
$
4
$
2,496,214
$
224,585
$
2,499,101
$
224,589
 
Puerto Rico government obligations
-
-
2,111
794
(1)
2,111
794
 
MBS:
 
Residential MBS:
 
FHLMC
19,638
959
1,011,666
197,979
1,031,304
198,938
 
GNMA
50,543
1,335
189,454
29,534
239,997
30,869
 
FNMA
42,650
2,361
1,204,127
209,264
1,246,777
211,625
 
CMOs issued or guaranteed by the FHLMC,
 
FNMA, and GNMA
378
10
229,549
58,257
229,927
58,267
 
Private label
-
-
5,246
2,168
(1)
5,246
2,168
 
Commercial MBS
15,403
370
141,061
38,335
156,464
38,705
$
131,499
$
5,039
$
5,279,428
$
760,916
$
5,410,927
$
765,955
(1)
Unrealized losses do not include the credit loss component recorded
 
as part of the ACL. As of June 30, 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)
 
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 issued or guaranteed by the FHLMC,
 
FNMA, and GNMA
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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
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
 
June
 
30,
 
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,
 
as
 
of
 
June
 
30,
 
2023,
 
the
 
Corporation
 
did
 
not
 
have
 
the
intent to
 
sell these
 
U.S. government
 
and agencies
 
debt securities
 
and determined
 
that it
 
was likely
 
that it
 
will not
 
be required
 
to sell
these
 
securities
 
before
 
their
 
anticipated
 
recovery,
 
the
 
Corporation
 
does
 
not
 
consider
 
impairments
 
on
 
these
 
securities
 
to
 
be
 
credit
related. 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.
 
Private label MBS
 
held as part
 
of the Corporation’s
 
available for sale
 
portfolio consist of
 
trust certificates issued
 
by an unaffiliated
party
 
backed
 
by
 
fixed-rate,
 
single-family
 
residential
 
mortgage
 
loans
 
in
 
the
 
U.S.
 
mainland
 
with
 
original
 
FICO
 
scores
 
over
 
700
 
and
moderate loan-to-value
 
ratios (under
80
%), as well as
 
moderate delinquency levels.
 
Upon the discontinuance
 
of LIBOR after
 
June 30,
2023,
 
and
 
following
 
the
 
provisions
 
of
 
the
 
Adjustable
 
Interest
 
Rate
 
Act
 
(the
 
“LIBOR
 
Act”)
 
and
 
Regulation
 
ZZ,
 
the
 
interest
 
rate
 
on
these private
 
label MBS
 
will transition
 
during
 
the third
 
quarter of
 
2023 from
3-month LIBOR
 
plus a
 
spread to
 
3-month CME
 
Term
Secured
 
Overnight
 
Financing
 
Rate
 
(“SOFR”)
 
plus
 
a
 
tenor
 
spread
 
adjustment
 
of
0.26161
%
 
and
 
the
 
original
 
spread
 
limited
 
to
 
the
weighted-average
 
coupon of
 
the underlying
 
collateral. 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. See Note
 
18 – Fair
 
Value
 
for the significant
 
assumptions used in
 
the valuation of
 
the private label
 
MBS as of
June 30, 2023 and December 31, 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
17
For the residential
 
pass-through MBS issued by
 
the PRHFA
 
held as part of
 
the Corporation’s
 
available-for-sale portfolio
 
backed by
second
 
mortgage
 
residential
 
loans
 
in
 
Puerto
 
Rico,
 
the
 
ACL
 
was
 
determined
 
based
 
on
 
a
 
discounted
 
cash
 
flow
 
methodology
 
that
considered
 
the structure
 
and terms
 
of the
 
debt security.
 
The expected
 
cash flows
 
were discounted
 
at the
 
Treasury
 
yield curve
 
plus a
spread as
 
of the
 
reporting date
 
and compared
 
to the
 
amortized cost.
 
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. 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
 
and its
 
ability to
 
honor such
 
guarantee will
 
depend on,
 
among other
 
factors, its
 
financial condition
 
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 this security,
 
resulting in additional losses to the Corporation.
 
The following tables
 
present a roll-forward
 
by major security
 
type for the
 
quarters and six-month
 
periods ended June
 
30, 2023 and
2022 of the ACL on available-for-sale debt
 
securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended
 
June 30,
 
2023
Six-Month Period Ended June 30,
 
2023
Private label
MBS
Puerto Rico
 
Government
Obligations
Total
Private label
MBS
Puerto Rico
 
Government
Obligations
Total
(In thousands)
Beginning balance
$
83
$
366
$
449
$
83
$
375
$
458
Provision for credit losses - benefit
-
(16)
(16)
-
(25)
(25)
 
ACL on available-for-sale debt securities
$
83
$
350
$
433
$
83
$
350
$
433
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended June 30,
 
2022
Six-Month Period Ended June 30,
 
2022
Private label
MBS
Puerto Rico
 
Government
Obligations
Total
Private label
MBS
Puerto Rico
 
Government
Obligations
Total
(In thousands)
Beginning balance
$
403
$
308
$
711
$
797
$
308
$
1,105
Provision for credit losses - (benefit) expense
(113)
78
(35)
(501)
78
(423)
Net charge-offs
-
-
-
(6)
-
(6)
 
ACL on available-for-sale debt securities
$
290
$
386
$
676
$
290
$
386
$
676
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
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 June 30, 2023
 
and December 31, 2022 were as follows
:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 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
$
1,205
$
-
$
29
$
1,176
$
26
5.90
After 1 to 5 years
42,736
661
1,360
42,037
689
6.93
After 5 to 10 years
56,160
2,733
446
58,447
3,209
7.44
After 10 years
66,023
-
2,023
64,000
4,477
8.54
Total Puerto Rico municipal bonds
166,124
3,394
3,858
165,660
8,401
7.74
MBS:
 
Residential MBS:
FHLMC certificates:
After 5 to 10 years
18,836
-
1,203
17,633
-
3.03
After 10 years
18,936
-
906
18,030
-
4.33
37,772
-
2,109
35,663
-
3.68
GNMA certificates:
After 10 years
17,765
-
1,046
16,719
-
3.35
FNMA certificates:
After 10 years
69,956
-
3,161
66,795
-
4.17
CMOs issued or guaranteed by
 
FHLMC, FNMA, and GNMA
After 10 years
30,197
-
1,658
28,539
-
3.49
Total Residential MBS
155,690
-
7,974
147,716
-
3.83
 
Commercial MBS:
After 1 to 5 years
9,533
-
479
9,054
-
3.48
After 10 years
93,379
-
5,628
87,751
-
3.15
Total Commercial MBS
102,912
-
6,107
96,805
-
3.18
Total MBS
258,602
-
14,081
244,521
-
3.57
Total held-to-maturity debt securities
$
424,726
$
3,394
$
17,939
$
410,181
$
8,401
5.20
(1)
Excludes accrued interest receivable on held-to-maturity debt securities that totaled $
6.8
 
million as of June 30, 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.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
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 issued or guaranteed by
 
FHLMC, FNMA, and GNMA
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 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
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
 
June
30, 2023 and December 31, 2022, including debt securities for which
 
an ACL was recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30, 2023
Less than 12 months
12 months or more
Total
Unrecognized
Unrecognized
Unrecognized
Fair Value
 
Losses
Fair Value
 
Losses
Fair Value
 
Losses
(In thousands)
 
Puerto Rico municipal bonds
$
-
$
-
$
107,673
$
3,858
$
107,673
$
3,858
 
MBS:
 
Residential MBS:
 
FHLMC certificates
35,663
2,109
-
-
35,663
2,109
 
GNMA certificates
16,719
1,046
-
-
16,719
1,046
 
FNMA certificates
66,795
3,161
-
-
66,795
3,161
 
CMOs issued or guaranteed by FHLMC,
 
FNMA, and GNMA
28,539
1,658
-
-
28,539
1,658
 
Commercial MBS
9,054
479
87,751
5,628
96,805
6,107
Total held-to-maturity debt securities
$
156,770
$
8,453
$
195,424
$
9,486
$
352,194
$
17,939
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)
 
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 issued or guaranteed by FHLMC,
 
FNMA, and GNMA
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
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
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.
 
The Corporation
 
does not
 
recognize an
 
ACL for MBS
 
issued by
 
GSEs 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 June 30, 2023.
 
A security is considered to be past due once it is 30 days contractually
 
past due
under the
 
terms of the
 
agreement. The
 
ACL of Puerto
 
Rico municipal
 
bonds increased
 
to $
8.4
 
million as of
 
June 30, 2023,
 
from $
8.3
million as of December 31, 2022, mostly driven by updated financial information
 
of certain bond issuers received during 2023.
 
The following tables present
 
the activity in the
 
ACL for held-to-maturity debt
 
securities by major security
 
type for the quarters
 
and
six-month periods ended June 30, 2023 and 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Puerto Rico Municipal Bonds
Quarter Ended
Six-Month Period Ended
June 30,
 
2023
June 30,
 
2023
(In thousands)
Beginning Balance
$
7,646
$
8,286
Provision for credit losses - expense
755
115
ACL on held-to-maturity debt securities
$
8,401
$
8,401
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Puerto Rico Municipal Bonds
Quarter Ended
Six-Month Period Ended
June 30,
 
2022
June 30,
 
2022
(In thousands)
Beginning Balance
$
12,324
$
8,571
Provision for credit losses - (benefit) expense
(3,439)
314
ACL on held-to-maturity debt securities
$
8,885
$
8,885
 
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 and
 
the measures taken, or to
 
be taken, by other government
 
entities in response
to
 
economic
 
and
 
fiscal
 
challenges,
 
the
 
Corporation
 
cannot be
 
certain
 
whether
 
future charges
 
to
 
the ACL
 
on
 
these
 
securities will
 
be
required.
 
From
 
time
 
to
 
time,
 
the
 
Corporation
 
has
 
held-to-maturity
 
securities
 
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
 
June
 
30,
 
2023
 
and
 
December
 
31,
 
2022,
 
the
 
Corporation
 
had
 
no
 
outstanding
 
held-to-maturity
 
securities
 
that
 
were
classified as cash and cash equivalents.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
22
 
Credit Quality Indicators:
The
 
held-to-maturity
 
debt
 
securities
 
portfolio
 
consisted
 
of
 
MBS
 
issued
 
by
 
GSEs
 
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 June 30, 2023 and December 31, 2022, all Puerto Rico municipal bonds
 
classified as held-to-maturity were classified as Pass.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
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 June 30,
 
As of December 31,
2023
2022
(In thousands)
Puerto Rico and Virgin Islands region:
Residential mortgage loans, mainly secured by first mortgages
$
2,352,310
$
2,417,900
Construction loans
69,219
34,772
Commercial mortgage loans
 
1,800,289
1,834,204
Commercial and Industrial ("C&I") loans
2,011,774
1,860,109
Consumer loans
3,487,454
3,317,489
Loans held for investment
$
9,721,046
$
9,464,474
Florida region:
Residential mortgage loans, mainly secured by first mortgages
$
441,480
$
429,390
Construction loans
94,779
98,181
Commercial mortgage loans
 
519,780
524,647
C&I loans
934,427
1,026,154
Consumer loans
7,803
9,979
Loans held for investment
$
1,998,269
$
2,088,351
Total:
Residential mortgage loans, mainly secured by first mortgages
$
2,793,790
$
2,847,290
Construction loans
163,998
132,953
Commercial mortgage loans
 
2,320,069
2,358,851
C&I loans
(1)
2,946,201
2,886,263
Consumer loans
3,495,257
3,327,468
Loans held for investment
(2)
11,719,315
11,552,825
ACL on loans and finance leases
(267,058)
(260,464)
Loans held for investment, net
$
11,452,257
$
11,292,361
(1)
As of June 30, 2023 and December 31, 2022, includes
 
$
821.4
 
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 $
27.1
 
million and $
29.3
 
million as of June 30, 2023 and December 31, 2022, respectively.
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
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 June 30, 2023 and December 31, 2022 are as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30, 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)
$
69,242
$
-
$
1,605
$
34,038
$
-
$
104,885
$
-
 
Conventional residential mortgage loans
(2) (6)
2,613,464
-
29,274
12,915
33,252
2,688,905
1,861
Commercial loans:
 
Construction loans
 
(6)
161,248
1,062
11
-
1,677
163,998
973
 
Commercial mortgage loans
(2) (6)
2,287,864
4,551
565
5,553
21,536
2,320,069
11,834
 
C&I loans
 
2,928,957
1,827
1,186
5,037
9,194
2,946,201
1,816
Consumer loans:
 
Auto loans
1,803,442
44,425
8,281
-
11,311
1,867,459
3,464
 
Finance leases
778,649
8,015
1,564
-
2,483
790,711
496
 
Personal loans
359,898
4,363
1,985
-
1,353
367,599
-
 
Credit cards
305,434
3,734
2,620
5,668
-
317,456
-
 
Other consumer loans
147,419
2,191
1,207
-
1,215
152,032
35
 
Total loans held for investment
$
11,455,617
$
70,168
$
48,298
$
63,211
$
82,021
$
11,719,315
$
20,479
 
(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 $
19.9
 
million of residential mortgage loans guaranteed by the FHA that were over 15 months delinquent as of June 30, 2023.
(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 $
9.5
 
million as of June 30, 2023 ($
8.5
 
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 $
6.5
 
million as of June 30, 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 $
9.8
 
million as of June 30, 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 June 30, 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, commercial mortgage loans, and construction loans past due 30-59 days, but less than two payments in arrears, as of June 30, 2023 amounted to $
6.6
 
million, $
62.9
 
million, $
1.9
million, and $
0.2
 
million, respectively.
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
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 as of December 31, 2022.
(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
 
in
 
nonaccrual
 
status,
 
any
 
accrued
 
but uncollected
 
interest
 
income
 
is reversed
 
and
 
charged
 
against interest
income
 
and the
 
amortization of
 
any net
 
deferred fees
 
is suspended.
 
The amount
 
of accrued
 
interest reversed
 
against interest
 
income
totaled
 
$
0.5
 
million
 
and
 
$
1.1
 
million
 
for
 
the
 
quarter
 
and
 
six-month
 
period
 
ended
 
June
 
30,
 
2023,
 
respectively,
 
compared
 
with
 
$
0.3
million and $
0.7
 
million for the quarter
 
and six-month period ended
 
June 30, 2022, respectively.
 
For the quarter and
 
six-month period
ended
 
June
 
30,
 
2023,
 
the
 
cash
 
interest
 
income
 
recognized
 
on
 
nonaccrual
 
loans
 
amounted
 
to
 
$
0.5
 
million
 
and
 
$
1.0
 
million,
respectively, compared
 
to $
0.3
 
million and $
0.7
 
million for the quarter and six-month period ended June 30, 2022, respectively.
As of
 
June
 
30,
 
2023,
 
the recorded
 
investment
 
on
 
residential
 
mortgage
 
loans collateralized
 
by
 
residential
 
real
 
estate property
 
that
were in
 
the process
 
of foreclosure
 
amounted to
 
$
50.9
 
million, including
 
$
21.5
 
million of
 
FHA/VA
 
government-guaranteed
 
mortgage
loans, and
 
$
7.2
 
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.
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
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
 
June 30,
 
2023, the
 
gross charge
 
-offs for
 
the six-month
 
period ended
June 30,
 
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, were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30,
 
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
$
29,645
$
22,238
$
11,093
$
-
$
-
$
3,887
$
-
$
66,863
$
31,879
 
Criticized:
 
Special Mention
-
-
-
-
-
-
-
-
-
 
Substandard
-
7
-
-
-
2,349
-
2,356
2,893
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total construction loans
$
29,645
$
22,245
$
11,093
$
-
$
-
$
6,236
$
-
$
69,219
$
34,772
 
Charge-offs on construction loans
$
-
$
-
$
-
$
-
$
-
$
38
$
-
$
38
COMMERCIAL MORTGAGE
 
Risk Ratings:
 
Pass
$
94,161
$
385,980
$
139,699
$
322,212
$
283,938
$
381,556
$
427
$
1,607,973
$
1,655,728
 
Criticized:
 
Special Mention
-
4,487
-
33,698
-
118,636
-
156,821
145,415
 
Substandard
-
129
-
-
2,847
32,519
-
35,495
33,061
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total commercial mortgage loans
$
94,161
$
390,596
$
139,699
$
355,910
$
286,785
$
532,711
$
427
$
1,800,289
$
1,834,204
 
Charge-offs on commercial mortgage loans
$
-
$
-
$
-
$
-
$
-
$
106
$
-
$
106
C&I
 
Risk Ratings:
 
Pass
$
113,567
$
297,329
$
193,851
$
178,144
$
299,435
$
222,553
$
649,354
$
1,954,233
$
1,789,572
 
Criticized:
 
Special Mention
-
-
-
-
508
12,709
22,537
35,754
43,224
 
Substandard
-
-
389
634
13,797
6,682
285
21,787
27,313
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total C&I loans
$
113,567
$
297,329
$
194,240
$
178,778
$
313,740
$
241,944
$
672,176
$
2,011,774
$
1,860,109
 
Charge-offs on C&I loans
$
-
$
-
$
-
$
-
$
-
$
211
$
55
$
266
(1) Excludes accrued interest receivable.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
27
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30,
 
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
$
32
$
47,557
$
47,190
$
-
$
-
$
-
$
-
$
94,779
$
98,181
 
Criticized:
 
Special Mention
-
-
-
-
-
-
-
-
-
 
Substandard
-
-
-
-
-
-
-
-
-
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total construction loans
$
32
$
47,557
$
47,190
$
-
$
-
$
-
$
-
$
94,779
$
98,181
 
Charge-offs on construction loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
COMMERCIAL MORTGAGE
 
Risk Ratings:
 
Pass
$
6,258
$
184,611
$
69,659
$
40,608
$
51,005
$
122,449
$
19,642
$
494,232
$
503,184
 
Criticized:
 
Special Mention
-
-
-
-
13,156
11,224
-
24,380
20,295
 
Substandard
-
-
-
1,168
-
-
-
1,168
1,168
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total commercial mortgage loans
$
6,258
$
184,611
$
69,659
$
41,776
$
64,161
$
133,673
$
19,642
$
519,780
$
524,647
 
Charge-offs on commercial mortgage loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
C&I
 
Risk Ratings:
 
Pass
$
45,172
$
272,282
$
153,401
$
74,535
$
173,170
$
56,918
$
117,134
$
892,612
$
979,151
 
Criticized:
 
Special Mention
-
-
19,580
-
5,976
11,403
-
36,959
17,905
 
Substandard
-
-
-
652
193
2,825
300
3,970
29,098
 
Doubtful
-
-
-
-
-
886
-
886
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total C&I loans
$
45,172
$
272,282
$
172,981
$
75,187
$
179,339
$
72,032
$
117,434
$
934,427
$
1,026,154
 
Charge-offs on C&I loans
$
-
$
-
$
-
$
-
$
-
$
6,202
$
-
$
6,202
(1) Excludes accrued interest receivable.
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
28
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30,
 
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
$
29,677
$
69,795
$
58,283
$
-
$
-
$
3,887
$
-
$
161,642
$
130,060
 
Criticized:
 
Special Mention
-
-
-
-
-
-
-
-
-
 
Substandard
-
7
-
-
-
2,349
-
2,356
2,893
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total construction loans
$
29,677
$
69,802
$
58,283
$
-
$
-
$
6,236
$
-
$
163,998
$
132,953
 
Charge-offs on construction loans
$
-
$
-
$
-
$
-
$
-
$
38
$
-
$
38
COMMERCIAL MORTGAGE
 
Risk Ratings:
 
Pass
$
100,419
$
570,591
$
209,358
$
362,820
$
334,943
$
504,005
$
20,069
$
2,102,205
$
2,158,912
 
Criticized:
 
Special Mention
-
4,487
-
33,698
13,156
129,860
-
181,201
165,710
 
Substandard
-
129
-
1,168
2,847
32,519
-
36,663
34,229
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total commercial mortgage loans
$
100,419
$
575,207
$
209,358
$
397,686
$
350,946
$
666,384
$
20,069
$
2,320,069
$
2,358,851
 
Charge-offs on commercial mortgage loans
$
-
$
-
$
-
$
-
$
-
$
106
$
-
$
106
C&I
 
Risk Ratings:
 
Pass
$
158,739
$
569,611
$
347,252
$
252,679
$
472,605
$
279,471
$
766,488
$
2,846,845
$
2,768,723
 
Criticized:
 
Special Mention
-
-
19,580
-
6,484
24,112
22,537
72,713
61,129
 
Substandard
-
-
389
1,286
13,990
9,507
585
25,757
56,411
 
Doubtful
-
-
-
-
-
886
-
886
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total C&I loans
$
158,739
$
569,611
$
367,221
$
253,965
$
493,079
$
313,976
$
789,610
$
2,946,201
$
2,886,263
 
Charge-offs on C&I loans
$
-
$
-
$
-
$
-
$
-
$
6,413
$
55
$
6,468
(1) Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
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
 
June
 
30,
 
2023,
 
the
 
gross
 
charge-offs
 
for
 
the
 
six-month
 
period
 
ended
 
June
 
30,
 
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 June 30,
 
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
$
118
$
691
$
689
$
782
$
1,117
$
100,760
$
-
$
104,157
$
117,416
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
 
government-guaranteed loans
$
118
$
691
$
689
$
782
$
1,117
$
100,760
$
-
$
104,157
$
117,416
Conventional residential mortgage loans:
Accrual Status:
Performing
$
61,153
$
170,239
$
73,033
$
30,819
$
45,799
$
1,841,296
$
-
$
2,222,339
$
2,265,013
Non-Performing
-
-
35
-
171
25,608
-
25,814
35,471
Total conventional residential mortgage loans
$
61,153
$
170,239
$
73,068
$
30,819
$
45,970
$
1,866,904
$
-
$
2,248,153
$
2,300,484
Total:
Accrual Status:
Performing
$
61,271
$
170,930
$
73,722
$
31,601
$
46,916
$
1,942,056
$
-
$
2,326,496
$
2,382,429
Non-Performing
-
-
35
-
171
25,608
-
25,814
35,471
Total residential mortgage loans in Puerto Rico
and Virgin Islands Region
$
61,271
$
170,930
$
73,757
$
31,601
$
47,087
$
1,967,664
$
-
$
2,352,310
$
2,417,900
Charge-offs on residential mortgage loans
$
-
$
-
$
-
$
3
$
-
$
2,126
$
-
$
2,129
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30,
 
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
$
-
$
-
$
-
$
-
$
-
$
728
$
-
$
728
$
742
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
 
government-guaranteed loans
$
-
$
-
$
-
$
-
$
-
$
728
$
-
$
728
$
742
Conventional residential mortgage loans:
Accrual Status:
Performing
$
37,150
$
80,115
$
48,955
$
30,517
$
28,459
$
208,118
$
-
$
433,314
$
421,347
Non-Performing
-
-
-
-
259
7,179
-
7,438
7,301
Total conventional residential mortgage loans
$
37,150
$
80,115
$
48,955
$
30,517
$
28,718
$
215,297
$
-
$
440,752
$
428,648
Total:
Accrual Status:
Performing
$
37,150
$
80,115
$
48,955
$
30,517
$
28,459
$
208,846
$
-
$
434,042
$
422,089
Non-Performing
-
-
-
-
259
7,179
-
7,438
7,301
Total residential mortgage loans in Florida region
$
37,150
$
80,115
$
48,955
$
30,517
$
28,718
$
216,025
$
-
$
441,480
$
429,390
Charge-offs on residential mortgage loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
(1)
Excludes accrued interest receivable.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30,
 
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
$
118
$
691
$
689
$
782
$
1,117
$
101,488
$
-
$
104,885
$
118,158
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
 
government-guaranteed loans
$
118
$
691
$
689
$
782
$
1,117
$
101,488
$
-
$
104,885
$
118,158
Conventional residential mortgage loans:
Accrual Status:
Performing
$
98,303
$
250,354
$
121,988
$
61,336
$
74,258
$
2,049,414
$
-
$
2,655,653
$
2,686,360
Non-Performing
-
-
35
-
430
32,787
-
33,252
42,772
Total conventional residential mortgage loans
$
98,303
$
250,354
$
122,023
$
61,336
$
74,688
$
2,082,201
$
-
$
2,688,905
$
2,729,132
Total:
Accrual Status:
Performing
$
98,421
$
251,045
$
122,677
$
62,118
$
75,375
$
2,150,902
$
-
$
2,760,538
$
2,804,518
Non-Performing
-
-
35
-
430
32,787
-
33,252
42,772
Total residential mortgage loans
$
98,421
$
251,045
$
122,712
$
62,118
$
75,805
$
2,183,689
$
-
$
2,793,790
$
2,847,290
Charge-offs on residential mortgage loans
$
-
$
-
$
-
$
3
$
-
$
2,126
$
-
$
2,129
(1)
Excludes accrued interest receivable.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
31
The
 
following
 
tables present
 
the
 
amortized
 
cost
 
of
 
consumer
 
loans
 
by
 
portfolio
 
classes
 
and
 
by origination
 
year
 
based on
 
accrual
status as of
 
June 30, 2023,
 
the gross charge
 
-offs for
 
the six-month period
 
ended June 30,
 
2023 by portfolio
 
classes and by
 
origination
year, and the amortized cost of consumer
 
loans by portfolio classes based on accrual status as of December 31, 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30,
 
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:
Auto loans:
Accrual Status:
Performing
$
326,746
$
604,040
$
445,754
$
214,692
$
167,480
$
95,343
$
-
$
1,854,055
$
1,783,782
Non-Performing
199
2,234
2,530
1,341
2,702
2,255
-
11,261
10,596
Total auto loans
$
326,945
$
606,274
$
448,284
$
216,033
$
170,182
$
97,598
$
-
$
1,865,316
$
1,794,378
Charge-offs on auto loans
$
174
$
3,355
$
2,287
$
886
$
1,205
$
745
$
-
$
8,652
Finance leases:
Accrual Status:
Performing
$
159,308
$
270,541
$
172,697
$
76,249
$
66,859
$
42,574
$
-
$
788,228
$
716,585
Non-Performing
-
619
490
525
380
469
-
2,483
1,645
Total finance leases
$
159,308
$
271,160
$
173,187
$
76,774
$
67,239
$
43,043
$
-
$
790,711
$
718,230
Charge-offs on finance leases
$
11
$
656
$
485
$
228
$
341
$
428
$
-
$
2,149
Personal loans:
Accrual Status:
Performing
$
88,877
$
148,554
$
43,113
$
22,164
$
39,809
$
23,410
$
-
$
365,927
$
351,664
Non-Performing
8
713
222
68
220
122
-
1,353
1,248
Total personal loans
$
88,885
$
149,267
$
43,335
$
22,232
$
40,029
$
23,532
$
-
$
367,280
$
352,912
Charge-offs on personal loans
$
24
$
3,414
$
1,435
$
662
$
1,180
$
834
$
-
$
7,549
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
317,456
$
317,456
$
311,731
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
317,456
$
317,456
$
311,731
Charge-offs on credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
8,447
$
8,447
Other consumer loans:
Accrual Status:
Performing
$
49,470
$
52,078
$
14,386
$
7,261
$
8,060
$
5,348
$
8,932
$
145,535
$
139,116
Non-Performing
40
527
192
50
65
201
81
1,156
1,122
Total other consumer loans
$
49,510
$
52,605
$
14,578
$
7,311
$
8,125
$
5,549
$
9,013
$
146,691
$
140,238
Charge-offs on other consumer loans
$
89
$
3,530
$
1,262
$
305
$
600
$
235
$
221
$
6,242
Total:
Performing
$
624,401
$
1,075,213
$
675,950
$
320,366
$
282,208
$
166,675
$
326,388
$
3,471,201
$
3,302,878
Non-Performing
247
4,093
3,434
1,984
3,367
3,047
81
16,253
14,611
Total consumer loans in Puerto Rico and Virgin
Islands region
$
624,648
$
1,079,306
$
679,384
$
322,350
$
285,575
$
169,722
$
326,469
$
3,487,454
$
3,317,489
Charge-offs on total consumer loans
$
298
$
10,955
$
5,469
$
2,081
$
3,326
$
2,242
$
8,668
$
33,039
(1)
Excludes accrued interest receivable.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
32
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30,
 
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
$
-
$
-
$
-
$
-
$
220
$
1,873
$
-
$
2,093
$
3,617
Non-Performing
-
-
-
-
-
50
-
50
76
Total auto loans
$
-
$
-
$
-
$
-
$
220
$
1,923
$
-
$
2,143
$
3,693
Charge-offs on auto loans
$
-
$
-
$
-
$
-
$
23
$
198
$
-
$
221
Finance leases:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total finance leases
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Charge-offs on finance leases
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Personal loans:
Accrual Status:
Performing
$
244
$
-
$
71
$
4
$
-
$
-
$
-
$
319
$
334
Non-Performing
-
-
-
-
-
-
-
-
-
Total personal loans
$
244
$
-
$
71
$
4
$
-
$
-
$
-
$
319
$
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
$
-
$
48
$
227
$
455
$
-
$
2,389
$
2,163
$
5,282
$
5,833
Non-Performing
-
-
-
-
-
21
38
59
119
Total other consumer loans
$
-
$
48
$
227
$
455
$
-
$
2,410
$
2,201
$
5,341
$
5,952
Charge-offs on other consumer loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total:
Performing
$
244
$
48
$
298
$
459
$
220
$
4,262
$
2,163
$
7,694
$
9,784
Non-Performing
-
-
-
-
-
71
38
109
195
Total consumer loans in Florida region
$
244
$
48
$
298
$
459
$
220
$
4,333
$
2,201
$
7,803
$
9,979
Charge-offs on total consumer loans
$
-
$
-
$
-
$
-
$
23
$
198
$
-
$
221
(1)
Excludes accrued interest receivable.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
33
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30,
 
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
$
326,746
$
604,040
$
445,754
$
214,692
$
167,700
$
97,216
$
-
$
1,856,148
$
1,787,399
Non-Performing
199
2,234
2,530
1,341
2,702
2,305
-
11,311
10,672
Total auto loans
$
326,945
$
606,274
$
448,284
$
216,033
$
170,402
$
99,521
$
-
$
1,867,459
$
1,798,071
Charge-offs on auto loans
$
174
$
3,355
$
2,287
$
886
$
1,228
$
943
$
-
$
8,873
Finance leases:
Accrual Status:
Performing
$
159,308
$
270,541
$
172,697
$
76,249
$
66,859
$
42,574
$
-
$
788,228
$
716,585
Non-Performing
-
619
490
525
380
469
-
2,483
1,645
Total finance leases
$
159,308
$
271,160
$
173,187
$
76,774
$
67,239
$
43,043
$
-
$
790,711
$
718,230
Charge-offs on finance leases
$
11
$
656
$
485
$
228
$
341
$
428
$
-
$
2,149
Personal loans:
Accrual Status:
Performing
$
89,121
$
148,554
$
43,184
$
22,168
$
39,809
$
23,410
$
-
$
366,246
$
351,998
Non-Performing
8
713
222
68
220
122
-
1,353
1,248
Total personal loans
$
89,129
$
149,267
$
43,406
$
22,236
$
40,029
$
23,532
$
-
$
367,599
$
353,246
Charge-offs on personal loans
$
24
$
3,414
$
1,435
$
662
$
1,180
$
834
$
-
$
7,549
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
317,456
$
317,456
$
311,731
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
317,456
$
317,456
$
311,731
Charge-offs on credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
8,447
$
8,447
Other consumer loans:
Accrual Status:
Performing
$
49,470
$
52,126
$
14,613
$
7,716
$
8,060
$
7,737
$
11,095
$
150,817
$
144,949
Non-Performing
40
527
192
50
65
222
119
1,215
1,241
Total other consumer loans
$
49,510
$
52,653
$
14,805
$
7,766
$
8,125
$
7,959
$
11,214
$
152,032
$
146,190
Charge-offs on other consumer loans
$
89
$
3,530
$
1,262
$
305
$
600
$
235
$
221
$
6,242
Total:
Performing
$
624,645
$
1,075,261
$
676,248
$
320,825
$
282,428
$
170,937
$
328,551
$
3,478,895
$
3,312,662
Non-Performing
247
4,093
3,434
1,984
3,367
3,118
119
16,362
14,806
Total consumer loans
$
624,892
$
1,079,354
$
679,682
$
322,809
$
285,795
$
174,055
$
328,670
$
3,495,257
$
3,327,468
Charge-offs on total consumer loans
$
298
$
10,955
$
5,469
$
2,081
$
3,349
$
2,440
$
8,668
$
33,260
(1)
Excludes accrued interest receivable.
As of June 30, 2023 and December 31, 2022, the balance of revolving loans
 
converted to term loans was
no
t material.
Accrued
 
interest
 
receivable
 
on
 
loans
 
totaled
 
$
52.8
 
million
 
as
 
of
 
June
 
30,
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
34
The
 
following
 
tables
 
present
 
information
 
about
 
collateral
 
dependent
 
loans
 
that
 
were
 
individually
 
evaluated
 
for
 
purposes
 
of
determining the ACL as of June 30, 2023 and December 31, 2022
:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30, 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
$
31,199
$
2,026
$
-
$
31,199
$
2,026
Commercial loans:
Construction loans
-
-
956
956
-
Commercial mortgage loans
6,590
1,016
52,447
59,037
1,016
C&I loans
 
2,563
418
10,601
13,164
418
Consumer loans:
Personal loans
-
-
-
-
-
Other consumer loans
173
17
-
173
17
$
40,525
$
3,477
$
64,004
$
104,529
$
3,477
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
June 30,
 
2023 was
68
%, compared
 
to
70
% as
 
of December
 
31, 2022,
 
which was
not considered a significant change in the extent to which collateral secured these loans.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
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
 
first six
 
months of
 
2023, loans
 
pooled into
 
GNMA MBS
 
amounted to
 
approximately
$
66.4
 
million, compared to
 
$
79.7
 
million during the
 
first six months
 
of 2022, for
 
which the Corporation
 
recognized a net
 
gain on sale
of
 
$
1.4
 
million
 
and
 
$
2.3
 
million,
 
respectively.
 
Also, during
 
the
 
first
 
six
 
months
 
of 2023,
 
the
 
Corporation
 
sold
 
approximately
 
$
22.8
million of performing residential mortgage loans to FNMA, for
 
which the Corporation recognized a net gain on sale of $
0.6
 
million. In
addition,
 
during
 
the
 
first
 
six
 
months
 
of
 
2022,
 
the
 
Corporation
 
sold
 
approximately
 
$
75.2
 
million
 
and
 
$
3.2
 
million
 
of
 
performing
residential
 
mortgage
 
loans
 
to
 
FNMA
 
and
 
FHLMC,
 
respectively,
 
for
 
which
 
the
 
Corporation
 
recognized
 
a
 
net
 
gain
 
on
 
sale
 
of
 
$
3.3
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
 
June 30,
 
2023 and
 
December 31,
 
2022, rebooked
 
GNMA delinquent
 
loans that
were included in the residential mortgage loan portfolio amounted to $
6.5
 
million and $
10.4
 
million, respectively.
 
During the first
 
six months of 2023
 
and 2022, the Corporation
 
repurchased, pursuant to
 
the aforementioned repurchase
 
option, $
1.9
million
 
and
 
$
6.2
 
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.
 
During
 
the
 
first
 
six
 
months
 
of
 
2023
 
and
 
2022,
 
the
 
Corporation
 
purchased
 
C&I
 
loan
 
participations
 
in
 
the
 
Florida
 
region
 
totaling
$
28.0
 
million and $
76.4
 
million, respectively.
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
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
$
11.7
 
billion as
 
of June
 
30, 2023,
 
credit risk
 
concentration
 
was approximately
79
% in
 
Puerto Rico,
17
% in
 
the U.S.,
 
and
4
% in
 
the
USVI and BVI.
As
 
of
 
June
 
30,
 
2023,
 
the
 
Corporation
 
had
 
$
174.9
 
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
 
June
 
30,
 
2023,
 
approximately
$
105.2
 
million
 
consisted
 
of
 
loans
 
extended
 
to
 
municipalities
 
in
 
Puerto
 
Rico
 
that
 
are
 
general
 
obligations
 
supported
 
by
 
assigned
property
 
tax
 
revenues,
 
and $
28.1
 
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
 
June 30,
 
2023 included
 
$
9.5
 
million
 
in
loans granted
 
to an affiliate
 
of the
 
Puerto
Rico Electric
Power Authority
 
(“PREPA”)
 
and $
32.1
 
million in loans
 
to agencies or
 
public
corporations of the Puerto Rico government.
 
In addition, as of
 
June 30, 2023, the Corporation
 
had $
81.1
 
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 June
 
30, 2023,
 
the Corporation
 
had
$
78.9
 
million in
loans to
 
USVI government
 
public corporations,
 
compared to
 
$
38.0
 
million as
 
of December
 
31, 2022.
 
As of
 
June 30,
 
2023, all
 
loans
were currently performing and up to date on principal and interest payments.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
37
Loss Mitigation Program for Borrowers Experiencing
 
Financial Difficulty
Effective January 1, 2023, the Corporation
 
adopted ASU 2022-02. For additional information on the adoption,
 
see Note 1 – Basis of
Presentation and Significant Accounting Policies.
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.
The
 
loan
 
modifications
 
granted
 
to
 
borrowers
 
experiencing
 
financial
 
difficulty
 
that
 
are
 
associated
 
with
 
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
 
for
 
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
 
$
1.6
 
million
 
and
 
$
2.5
million in restructured residential
 
mortgage loans that are
 
government-guaranteed (e.g.,
 
FHA/VA
 
loans) and were modified
 
during the
quarter and six-month period ended June 30, 2023, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
38
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following tables present the amortized cost basis as of June 30,
 
2023 of loans modified to borrowers experiencing financial
difficulty during the quarter and six-month period ended
 
June 30,
 
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 June 30,
 
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
$
-
$
-
$
210
$
-
$
73
$
-
$
-
$
-
$
283
0.01%
Construction loans
-
-
-
-
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
30,170
-
-
30,170
1.30%
C&I loans
-
-
-
-
187
-
-
-
187
0.01%
Consumer loans:
Auto loans
-
-
-
-
82
69
-
678
(1)
829
0.04%
Personal loans
-
-
-
-
41
71
-
-
112
0.03%
Credit cards
-
-
-
486
(2)
-
-
-
-
486
0.15%
Other consumer loans
-
-
-
-
146
40
-
10
(1)
196
0.13%
 
Total modifications
$
-
$
-
$
210
$
486
$
529
$
30,350
$
-
$
688
$
32,263
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six-Month Period Ended June 30,
 
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
$
-
$
-
$
542
$
-
$
503
$
94
$
-
$
-
$
1,139
0.04%
Construction loans
-
-
-
-
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
30,170
-
-
30,170
1.30%
C&I loans
-
-
-
-
187
-
-
-
187
0.01%
Consumer loans:
Auto loans
-
-
-
-
167
103
-
1,155
(1)
1,425
0.08%
Personal loans
-
-
-
-
68
83
-
-
151
0.04%
Credit cards
-
-
-
732
(2)
-
-
-
-
732
0.23%
Other consumer loans
-
-
-
-
273
99
-
32
(1)
404
0.27%
 
Total modifications
$
-
$
-
$
542
$
732
$
1,198
$
30,549
$
-
$
1,187
$
34,208
(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.
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
39
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The
 
following
 
tables
 
present
 
by
 
portfolio
 
classes
 
the
 
financial
 
effects
 
of
 
the
 
modifications
 
granted
 
to
 
borrowers
 
experiencing
financial difficulty,
 
other than those
 
associated to payment
 
delay,
 
during the
 
quarter and six-month
 
period ended June
 
30, 2023.
 
The
financial effects
 
of the modifications
 
associated to
 
payment delay
 
were discussed
 
above, and
 
as such,
 
were excluded
 
from the
 
tables
below:
Quarter Ended June 30,
 
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)
Forgiveness of
Principal and/or
Interest Amount
(In thousands)
Conventional residential mortgage loans
-
%
239
-
%
-
$
-
Construction loans
-
%
-
-
%
-
-
Commercial mortgage loans
-
%
-
0.25
%
64
-
C&I loans
-
%
72
-
%
-
-
Consumer loans:
Auto loans
-
%
27
3.96
%
30
-
Personal loans
-
%
37
5.41
%
26
-
Credit cards
16.26
%
-
-
%
-
-
Other consumer loans
-
%
28
1.87
%
22
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six-Month Period Ended June 30,
 
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)
Forgiveness of
Principal and/or
Interest Amount
(In thousands)
Conventional residential mortgage loans
-
%
118
2.40
%
157
$
-
Construction loans
-
%
-
-
%
-
-
Commercial mortgage loans
-
%
-
0.25
%
64
-
C&I loans
-
%
72
-
%
-
-
Consumer loans:
Auto loans
-
%
25
3.64
%
30
-
Personal loans
-
%
34
5.11
%
24
-
Credit cards
16.15
%
-
-
%
-
-
Other consumer loans
-
%
27
1.92
%
24
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table presents by portfolio classes the performance of loans modified
 
during the six-month period ended June 30,
 
2023 that were granted to borrowers experiencing financial difficulty:
Six-Month Period Ended June 30,
 
2023
30-59
60-89
90+
Total
Delinquency
Current
Total
(In thousands)
Conventional residential mortgage loans
$
-
$
-
$
-
$
-
$
1,139
$
1,139
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
30,170
30,170
C&I loans
-
-
-
-
187
187
Consumer loans:
Auto loans
10
-
-
10
1,415
1,425
Personal loans
-
-
-
-
151
151
Credit cards
40
40
-
80
652
732
Other consumer loans
22
-
-
22
382
404
 
Total modifications
$
72
$
40
$
-
$
112
$
34,096
$
34,208
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 six-
month period ended June 30, 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
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 June 30, 2023
(In thousands)
ACL:
Beginning balance
$
64,403
$
3,231
$
36,460
$
31,235
$
130,238
$
265,567
Provision for credit losses - (benefit) expense
(3,500)
1,202
5,999
2,997
14,072
20,770
Charge-offs
 
(1,146)
(38)
(88)
(6,350)
(16,462)
(24,084)
Recoveries
757
409
56
132
3,451
4,805
Ending balance
$
60,514
$
4,804
$
42,427
$
28,014
$
131,299
$
267,058
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
Commercial &
Industrial Loans
Consumer Loans
Total
Six-Month Period Ended June 30,
 
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 - (benefit) expense
(3,427)
2,062
7,245
1,347
29,799
37,026
Charge-offs
 
(2,129)
(38)
(106)
(6,468)
(33,260)
(42,001)
Recoveries
1,254
472
224
222
7,281
9,453
Ending balance
$
60,514
$
4,804
$
42,427
$
28,014
$
131,299
$
267,058
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
Commercial &
Industrial Loans
Consumer Loans
Total
Quarter Ended June 30,
 
2022
(In thousands)
ACL:
Beginning balance
$
68,820
$
1,842
$
30,138
$
36,784
$
107,863
$
245,447
Provision for credit losses - (benefit) expense
(2,797)
151
1,265
(1,102)
15,148
12,665
Charge-offs
 
(2,079)
(16)
(2)
(68)
(10,427)
(12,592)
Recoveries
1,287
43
1,218
589
3,495
6,632
Ending balance
$
65,231
$
2,020
$
32,619
$
36,203
$
116,079
$
252,152
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
Commercial &
Industrial Loans
Consumer Loans
Total
Six-Month Period Ended June 30,
 
2022
(In thousands)
ACL:
Beginning balance
$
74,837
$
4,048
$
52,771
$
34,284
$
103,090
$
269,030
Provision for credit losses - (benefit) expense
(7,668)
(2,063)
(21,375)
653
26,129
(4,324)
Charge-offs
 
(4,607)
(60)
(39)
(358)
(20,243)
(25,307)
Recoveries
2,669
95
1,262
1,624
7,103
12,753
Ending balance
$
65,231
$
2,020
$
32,619
$
36,203
$
116,079
$
252,152
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
41
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 applies
 
probability weights to
 
the baseline and
 
alternative downside economic
 
scenarios to estimate
 
the ACL with
the baseline scenario carrying
 
the highest weight. During
 
the second quarter of 2023,
 
the Corporation applied the
 
baseline scenario for
the commercial
 
mortgage and
 
construction loan
 
portfolios as
 
deterioration in
 
the CRE
 
price index
 
in these
 
portfolios is
 
expected at
 
a
lower extent
 
than projected
 
in the
 
alternative downside
 
scenario, particularly
 
in the Puerto
 
Rico region.
 
The economic
 
scenarios used
in
 
the
 
ACL
 
determination
 
contained
 
assumptions
 
related
 
to
 
economic
 
uncertainties
 
associated
 
with
 
geopolitical
 
instability,
 
the
commercial
 
real estate
 
price index
 
(“CRE price
 
index”), high
 
inflation levels,
 
and the
 
expected path
 
of interest
 
rate increases
 
by the
FED.
 
As of June
 
30, 2023, the
 
ACL for loans
 
and finance
 
leases was $
267.1
 
million, an increase
 
of $
6.6
 
million, from $
260.5
 
million as
of December 31, 2022. The ACL for
 
commercial and construction loans increased
 
by $
5.0
 
million, mainly due to a deterioration
 
in the
forecasted CRE price
 
index to account for
 
an increased uncertainty
 
in the CRE market
 
at a national level
 
that could potentially impact
the
 
markets
 
served
 
by
 
the
 
Corporation
 
coupled
 
with
 
the
 
growth
 
in
 
the
 
commercial
 
and
 
construction
 
loan
 
portfolios.
 
The
 
ACL
 
for
consumer loans increased by $
3.9
 
million, primarily reflecting the effect
 
of the increase in the size of
 
the consumer loan portfolios and
historical
 
charge-off
 
levels,
partially
 
offset
 
by
 
updated
 
macroeconomic
 
variables,
 
such
 
as
 
the
 
unemployment
 
rate,
 
which
 
are
 
now
forecasted to deteriorate at a slower pace than previously
 
expected. The ACL for residential mortgage loans
 
decreased by $
2.3
 
million,
mainly
 
driven
 
by
 
a
 
more
 
favorable
 
economic
 
outlook
 
in
 
the
 
projection
 
of
 
certain
 
forecasted
 
macroeconomic
 
variables,
 
such
 
as
 
the
Regional Home
 
Price Index,
 
partially offset
 
by 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. See
Note 1
– Basis of Presentation
 
and Significant Accounting
 
Policies for additional
 
information related to
 
the adoption of ASU
 
2022-02
during 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
42
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The tables below
 
present the ACL
 
related to loans
 
and finance leases
 
and the carrying
 
values of loans
 
by portfolio segment
 
as of
June 30,
 
2023 and December 31, 2022:
As of June 30,
 
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
$
2,793,790
$
163,998
$
2,320,069
$
2,946,201
$
3,495,257
$
11,719,315
 
Allowance for credit losses
60,514
4,804
42,427
28,014
131,299
267,058
 
Allowance for credit losses to
 
amortized cost
2.17
%
2.93
%
1.83
%
0.95
%
3.76
%
2.28
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
June
 
30,
 
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
 
June
 
30,
 
2023,
 
the
 
ACL
 
for
 
off-balance
 
sheet
 
credit
 
exposures
 
increased
 
to
 
$
4.9
 
million,
 
from
 
$
4.3
million as of December 31,
 
2022, driven by the deterioration
 
in the forecasted CRE price
 
index and its effect
 
in construction unfunded
loan commitments.
The following
 
table presents
 
the activity
 
in the
 
ACL for
 
unfunded loan
 
commitments and
 
standby letters
 
of credit
 
for the
 
quarters
and six-month periods ended June 30, 2023 and 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended
Six-Month Period Ended
June 30,
 
June 30,
 
2023
2022
2023
2022
(In thousands)
Beginning Balance
$
4,168
$
1,359
$
4,273
$
1,537
Provision for credit losses - expense
 
721
812
616
634
Ending balance
$
4,889
$
2,171
$
4,889
$
2,171
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
43
NOTE 5
OTHER REAL ESTATE
 
OWNED
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table presents the OREO inventory as of the indicated dates:
June 30, 2023
December 31, 2022
(In thousands)
OREO balances, carrying value:
Residential
(1)
$
23,621
$
24,025
Construction
1,892
1,764
Commercial
6,058
5,852
Total
$
31,571
$
31,641
(1)
Excludes $
20.9
 
million and $
23.5
 
million as
 
of June 30,
 
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 and
 
six-month periods
ended June 30, 2023 and 2022.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
44
NOTE 6 – GOODWILL AND OTHER INTANGIBLES
 
 
Goodwill
Goodwill
 
as of
 
each
 
of
 
June 30,
 
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 first six months of 2023.
There were
no
 
changes in the carrying amount of goodwill during the quarter and six-month
 
period ended June 30, 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
June 30,
 
December 31,
2023
 
2022
 
(Dollars in thousands)
Core deposit intangible:
Gross amount
$
87,544
$
87,544
Accumulated amortization
(70,469)
(66,644)
Net carrying amount
$
17,075
$
20,900
Remaining amortization period (in years)
6.5
7.0
Purchased credit card relationship intangible:
Gross amount
$
3,800
$
3,800
Accumulated amortization
(3,783)
(3,595)
Net carrying amount
$
17
$
205
Remaining amortization period (in years)
0.2
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
 
quarter
 
and
 
six-month
 
period
 
ended
 
June
 
30,
 
2023,
 
the
 
Corporation
 
recognized
 
$
2.0
 
million
 
and
 
$
4.0
 
million,
respectively,
 
in amortization
 
expense
 
on its
 
other intangibles
 
subject to
 
amortization,
 
compared to
 
$
2.2
 
million
 
and $
4.5
 
million for
the same periods in 2022, respectively.
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
45
 
 
 
 
 
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. As mentioned above, 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 June 30, 2023.
The estimated
 
aggregate annual
 
amortization expense
 
related to the
 
intangible assets
 
subject to amortization
 
for future periods
 
was
as follows as of June 30, 2023:
 
 
 
 
 
 
(In thousands)
Remaining 2023
$
3,710
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.
 
Upon the discontinuance of
 
LIBOR after June 30, 2023,
and
 
following
 
the
 
provisions
 
of
 
the
 
LIBOR
 
Act
 
and
 
Regulation
 
ZZ,
 
the
 
interest
 
rate
 
on
 
the
 
TRuPs
 
will
 
transition
 
during
 
the
 
third
quarter of
 
2023 from
3-month LIBOR
 
plus a
 
spread to
 
3-month CME
 
Term
 
SOFR plus
 
a tenor
 
spread adjustment
 
of
0.26161
%.
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).
 
During the second quarter of 2023, the Corporation
 
completed the repurchase of $
21.4
 
million of TRuPs of FBP Statutory Trust I as
part
 
of
 
a
 
privately-negotiated
 
transaction
 
with
 
investors,
 
resulting
 
in
 
a
 
commensurate
 
reduction
 
in
 
the
 
related
 
floating
 
rate
 
junior
subordinated
 
debentures.
 
The
 
purchase
 
price
 
paid
 
by
 
the
 
Corporation
 
equated
 
to
92.5
%
 
of
 
the
 
$
21.4
 
million
 
par
 
value.
 
The
7.5
%
discount resulted
 
in a
 
gain of
 
approximately
 
$
1.6
 
million, which
 
is reflected
 
in the
 
consolidated statements
 
of income
 
as a
 
“Gain on
early
 
extinguishment
 
of
 
debt.”
 
As
 
of
 
June
 
30,
 
2023
 
and
 
December
 
31,
 
2022,
 
these
 
Junior
 
Subordinated
 
Deferrable
 
Debentures
amounted to $
161.7
 
million and $
183.8
 
million, respectively.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
46
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
 
June
 
30,
 
2023,
 
the
Corporation was current on all interest payments due on its subordinated
 
debt.
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.
 
As
 
mentioned
 
above,
 
upon
 
the
discontinuance of LIBOR
 
after June 30,
 
2023, and following
 
the provisions of
 
the LIBOR Act and
 
Regulation ZZ, the
 
interest rate on
these private
 
label MBS
 
will transition
 
during
 
the third
 
quarter of
 
2023 from
 
3-month LIBOR
 
plus a
 
spread to
 
3-month CME
 
Term
SOFR plus
 
a tenor
 
spread adjustment
 
of
0.26161
% and
 
the original
 
spread limited
 
to the
 
weighted-average coupon
 
of the
 
underlying
collateral. 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. 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 June
 
30, 2023, the amortized cost and fair
 
value of these private label MBS
 
amounted to $
7.5
 
million and
$
5.2
 
million,
 
respectively,
 
with
 
a
 
weighted
 
average
 
yield
 
of
7.6
%,
 
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
June 30, 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
 
June
 
30,
 
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 June 30,
 
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
(In thousands)
Balance at beginning of period
$
28,431
$
30,753
$
29,037
$
30,986
Capitalization of servicing assets
706
828
1,238
1,958
Amortization
(1,102)
(1,273)
(2,230)
(2,603)
Recoveries
1
9
5
64
Other
(1)
(2)
(40)
(16)
(128)
Balance at end of period
$
28,034
$
30,277
$
28,034
$
30,277
(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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
47
Changes in the impairment allowance were as follows for the indicated periods:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended June 30,
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
(In thousands)
Balance at beginning of period
$
8
$
23
$
12
$
78
Recoveries
(1)
(9)
(5)
(64)
 
Balance at end of period
$
7
$
14
$
7
$
14
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 June 30,
 
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
(In thousands)
Servicing fees
$
2,660
$
2,821
$
5,378
$
5,640
Late charges and prepayment penalties
211
219
410
413
Adjustment for loans repurchased
(2)
(40)
(16)
(128)
 
Servicing income, gross
2,869
3,000
5,772
5,925
Amortization and impairment of servicing assets
(1,101)
(1,264)
(2,225)
(2,539)
 
Servicing income, net
$
1,768
$
1,736
$
3,547
$
3,386
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
Six-Month Period Ended June 30,
 
2023
Constant prepayment rate:
 
 
Government-guaranteed mortgage loans
6.7
%
11.6
%
4.8
%
 
Conventional conforming mortgage loans
7.4
%
16.0
%
3.8
%
 
Conventional non-conforming mortgage loans
5.9
%
9.0
%
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
12.9
%
14.0
%
11.5
%
Six-Month Period Ended June 30,
 
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
6.3
%
21.9
%
4.5
%
Discount rate:
 
Government-guaranteed mortgage loans
11.9
%
12.0
%
11.5
%
 
Conventional conforming mortgage loans
9.9
%
10.0
%
9.5
%
 
Conventional non-conforming mortgage loans
12.4
%
14.5
%
11.5
%
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
48
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
 
June
 
30,
 
2023
 
and
December 31, 2022 were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30,
 
December 31,
2023
2022
(In thousands)
Carrying amount of servicing assets
$
28,034
$
29,037
Fair value
$
44,420
$
44,710
Weighted-average
 
expected life (in years)
7.79
7.80
Constant prepayment rate (weighted-average annual
 
rate)
6.28
%
6.40
%
 
Decrease in fair value due to 10% adverse change
$
1,025
$
1,048
 
Decrease in fair value due to 20% adverse change
$
2,008
$
2,054
Discount rate (weighted-average annual rate)
10.71
%
10.69
%
 
Decrease in fair value due to 10% adverse change
$
1,902
$
1,925
 
Decrease in fair value due to 20% adverse change
$
3,660
$
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
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
49
NOTE 8 – DEPOSITS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table summarizes deposit balances as of the indicated dates:
June 30, 2023
December 31, 2022
(In thousands)
Type of account and interest rate:
Non-interest-bearing deposit accounts
$
5,874,261
$
6,112,884
Interest-bearing saving accounts
3,642,728
3,902,888
Interest-bearing checking accounts
4,258,871
3,770,993
Certificates of deposit (“CDs”)
2,680,250
2,250,876
Brokered CDs
363,582
105,826
 
Total
$
16,819,692
$
16,143,467
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table presents the contractual maturities of CDs, including brokered CDs, as of June 30,
 
2023:
Total
 
(In thousands)
Three months or less
$
685,606
Over three months to six months
511,428
Over six months to one year
752,768
Over one year to two years
 
783,288
Over two years to three years
 
139,807
Over three years to four years
 
41,543
Over four years to five years
 
122,471
Over five years
6,921
 
Total
$
3,043,832
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following were the components of interest expense on deposits for the
 
indicated periods:
Quarter Ended June 30,
 
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
(In thousands)
Interest expense on deposits
$
41,553
$
7,757
$
71,477
$
15,574
Accretion of premiums from
acquisitions
(33)
(92)
(116)
(292)
Amortization of broker placement fees
84
29
128
64
 
Total
$
41,604
$
7,694
$
71,489
$
15,346
Total
 
U.S. time
 
deposits with
 
balances
 
of more
 
than $250,000
 
amounted
 
to $
1.3
 
billion and
 
$
1.0
 
billion
 
as of
 
June 30,
 
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 June
 
30, 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.
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
50
NOTE 9 – SECURITIES SOLD UNDER AGREEMENTS TO
 
REPURCHASE (REPURCHASE AGREEMENTS)
 
Repurchase agreements as of the indicated dates consisted of the following:
 
 
 
 
 
 
 
 
 
 
June 30, 2023
December 31, 2022
(In thousands)
Short-term Fixed-rate repurchase agreements
(1)
$
73,934
$
75,133
(1)
Weighted-average interest rate
 
of
5.35
% and
4.55
% as of June 30, 2023 and December 31, 2022, respectively.
Repurchase agreements mature as follows as of the indicated date:
 
 
 
 
 
June 30,
 
2023
(In thousands)
Within one month
$
23,934
Over one month to three months
$
50,000
 
Total
$
73,934
As of
 
June 30,
 
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 June 30, 2023 and December
 
31, 2022, repurchase agreements
were fully collateralized and not offset in the consolidated
 
statements of financial condition.
Repurchase agreements as of June 30, 2023, grouped by counterparty,
 
were as follows:
 
 
 
 
 
 
 
Weighted-Average
Counterparty
Amount
Maturity (In Months)
(Dollars in thousands)
JP Morgan Chase
$
73,934
1
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
51
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:
June 30, 2023
December 31, 2022
(In thousands)
Short-term
Fixed
-rate advances from the FHLB
(1)
$
-
$
475,000
Long-term
Fixed
-rate advances from the FHLB
(2)
500,000
200,000
$
500,000
$
675,000
(1)
Weighted-average interest rate of
4.56
% as of December 31, 2022.
(2)
Weighted-average interest rate of
4.45
% and
4.25
% as of June 30,
 
2023 and December 31, 2022, respectively.
 
 
 
 
 
 
 
Advances from the FHLB mature as follows as of the indicated date:
June 30, 2023
(In thousands)
Over one to five years
$
500,000
During
 
the
 
six-month
 
period
 
ended
 
June
 
30,
 
2023,
 
the
 
Corporation
 
added
 
$
300.0
 
million
 
of
 
long-term
 
FHLB
 
advances
 
at
 
an
average cost of
4.59
%, and repaid its short-term FHLB advances.
NOTE 11 – OTHER LONG-TERM
 
BORROWINGS
Junior Subordinated Debentures
Junior subordinated debentures, as of the indicated dates, consisted of:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30,
 
December 31,
(In thousands)
2023
2022
Floating rate junior subordinated debentures (FBP Statutory Trust
 
I)
(1)
(3)
$
43,143
$
65,205
Floating rate junior subordinated debentures (FBP Statutory Trust
 
II)
(2) (3)
118,557
118,557
$
161,700
$
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
 
(
8.26
% as of June 30, 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
 
(
8.01
% as of June 30,
 
2023 and
7.25
% as of
December 31, 2022).
(3)
See Note 7 - Non-Consolidated Variable
 
Interest Entities
 
(“VIEs”) and Servicing Assets, for additional information on the nature
 
and terms of these debentures, the LIBOR transition of
these contracts, and the Corporation’s repurchase
 
in the second quarter of 2023 of $
21.4
 
million in TRuPs associated with FBP Statutory Trust
 
I.
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
52
NOTE 12 – EARNINGS PER COMMON
.
SHARE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The calculations of earnings per common share for the quarters and six-month periods
 
ended June 30,
 
2023 and 2022 are as follows:
Quarter Ended June 30,
 
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
(In thousands, except per share information)
Net income attributable to common stockholders
$
70,655
$
74,695
$
141,353
$
157,295
Weighted-Average
 
Shares:
 
Average common
 
shares outstanding
178,926
194,405
179,567
196,257
 
Average potential
 
dilutive common shares
 
351
961
686
1,184
 
Average common
 
shares outstanding - assuming dilution
179,277
195,366
180,253
197,441
Earnings per common share:
Basic
 
$
0.39
$
0.38
$
0.79
$
0.80
Diluted
 
$
0.39
$
0.38
$
0.78
$
0.80
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 and six-month periods
 
ended June 30, 2023 and 2022.
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
53
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
 
June 30,
 
2023,
 
there
 
were
3,174,889
 
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 six-month
 
period ended
 
June 30,
 
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 six-month periods ended June 30,
 
2023 and 2022:
Six-Month Period Ended
Six-Month Period Ended
June 30,
 
2023
June 30,
 
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
301,440
13.15
Forfeited
(57,491)
11.29
(10,364)
8.82
Vested
(481,536)
5.93
(487,198)
5.72
Unvested shares outstanding at end of period
895,355
$
12.31
952,653
$
9.11
(1)
Includes for the six-month period ended June 30, 2023,
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 six-month period ended June 30, 2022,
3,048
 
shares
of restricted stock awarded to independent directors and
298,392
 
shares of restricted stock awarded to employees, of which
6,084
 
shares were granted to retirement-eligible employees
and thus charged to earnings as of the grant date.
For the quarter and
 
six month-periods ended June
 
30, 2023, the Corporation
 
recognized $
1.4
 
million and $
3.0
 
million, respectively,
of
 
stock-based
 
compensation
 
expense
 
related
 
to
 
restricted
 
stock
 
awards,
 
compared
 
to
 
$
0.9
 
million
 
and
 
$
1.8
 
million
 
for
 
the
 
same
periods in 2022, respectively.
 
As of June 30, 2023,
 
there was $
6.4
 
million of total unrecognized
 
compensation cost related to
 
unvested
shares of restricted stock that the Corporation expects to recognize over a weighted
 
average period of
1.9
 
years.
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
54
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 in a proportional amount. Performance units granted prior to March 16,
2023 vest subject only to achievement of a TBVPS goal and 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 six-month
 
periods ended
 
June
30, 2023 and 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six-Month Period Ended
Six-Month Period Ended
June 30,
 
2023
June 30,
 
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 six-month periods ended June
 
30,
 
2023 are subject to 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 six-month period ended June 30,
 
2022 are subject to the achievement of the TBVPS performance
goal during a three-year performance cycle beginning January 1,
 
2022 and ending on December 31, 2024.
(2)
Units vested during the six-month period ended June 30,
 
2023 are related to performance units granted in 2020 that met certain pre-established
 
targets and were settled with shares of
common stock reissued from treasury shares. Units
 
vested during the six-month period ended June 30,
 
2022 are related to performance units granted in 2019 that met certain
 
pre-
established targets and were settled with shares
 
of common stock reissued from treasury shares.
The fair value of the performance units awarded during the six-month periods ended June 30, 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 June 30, 2023, there have been no changes in 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 six-month period ended June
30, 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.
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
55
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 six-month
 
period ended June 30, 2023:
 
 
 
 
 
 
 
 
 
Six-Month Period Ended
June 30,
 
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 the Corporation's
 
stock price with a look-back period equal to the simulation
 
term using daily stock prices.
For the
 
quarter
 
and
 
six-month
 
periods
 
ended
 
June 30,
 
2023 and
 
2022,
 
the Corporation
 
recognized
 
$
0.5
 
million
 
and
 
$
1.0
 
million,
respectively,
 
of
 
stock-based
 
compensation
 
expense
 
related
 
to
 
performance
 
units,
 
compared
 
to
 
$
0.5
 
million
 
and
 
$
0.8
 
million
 
for
 
the
same periods
 
in 2022,
 
respectively.
 
As of
 
June 30,
 
2023,
 
there was
 
$
4.1
 
million
 
of total
 
unrecognized
 
compensation cost
 
related
 
to
unvested performance units that the Corporation expects to recognize
 
over a weighted average period of
2.2
 
years.
 
Shares withheld
During
 
the first
 
six
 
months
 
of 2023,
 
the Corporation
 
withheld
287,835
 
shares (first
 
six
 
months
 
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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
56
NOTE 14 –
 
STOCKHOLDERS’
 
EQUITY
Stock Repurchase Programs
On April
 
27, 2022,
 
the Corporation
 
announced that
 
its Board
 
approved a
 
stock repurchase
 
program
 
that provides
 
authorization
 
to
repurchase
 
up
 
to
 
$
350
 
million
 
of
 
its
 
outstanding
 
common
 
stock,
 
which
 
commenced
 
in
 
the
 
second
 
quarter
 
of
 
2022.
 
As
 
of
 
June
 
30,
2023, the
 
Corporation had
 
remaining authorization
 
to repurchase
 
approximately $
75
 
million of
 
common stock.
 
Furthermore, on
 
July
24,
 
2023,
 
the
 
Corporation
 
announced
 
that
 
its
 
Board
 
of
 
Directors
 
approved
 
a
 
new
 
stock
 
repurchase
 
program,
 
under
 
which
 
the
Corporation may
 
repurchase up
 
to $
225
 
million of
 
its outstanding
 
common stock,
 
which it
 
expects to
 
execute through
 
the end
 
of the
third quarter
 
of 2024.
 
The Corporation
 
expects to
 
repurchase approximately
 
$
150
 
million in
 
common stock
 
during the
 
second half
 
of
2023,
 
of which
 
$
75
 
million
 
relates to
 
the remaining
 
amount of
 
the aforementioned
 
$
350
 
million
 
stock repurchase
 
program
 
that was
resumed in July 2023.
Repurchases under
 
the programs
 
may be
 
executed through
 
open market
 
purchases, accelerated
 
share repurchases,
 
and/or privately
negotiated transactions or
 
plans, including under plans
 
complying with Rule 10b5-1
 
under the Exchange Act.
 
The Corporation’s
 
stock
repurchase program
 
s
 
are 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
 
Corporation’s
 
stock
 
repurchase
 
programs
 
do
 
not
obligate
 
it
 
to
 
acquire
 
any
 
specific
 
number
 
of
 
shares
 
and
 
do
 
not
 
have
 
an
 
expiration
 
date.
 
The
 
stock
 
repurchase
 
programs
 
may
 
be
modified, suspended, or terminated at any time at the Corporation’s
 
discretion. 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.
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table shows the change in shares of common stock outstanding for
 
the six-month periods ended June 30,
 
2023 and
2022:
Total
 
Number of Shares
Six-Month Period Ended June 30,
 
2023
2022
Common stock outstanding, beginning balance
182,709,059
201,826,505
Common stock repurchased
(1)(2)
(3,865,375)
(10,680,890)
Common stock reissued under stock-based compensation plan
970,429
491,085
Restricted stock forfeited
(57,491)
(10,364)
Common stock outstanding, ending balances
179,756,622
191,626,336
 
(1)
For the six-month periods
 
ended June 30,
 
2023 includes
3,577,540
 
shares of common stock
 
repurchased in the
 
open market during the
 
first quarter of 2023
 
at an average
 
price of $
13.98
for a
 
total
 
purchase
 
price
 
of $
50
 
million
 
under
 
the
 
$
350
 
million
 
stock
 
repurchase
 
program
 
announced
 
on
 
April
 
27,
 
2022.
 
For the
 
six-month
 
period
 
ended
 
June
 
30,
 
2022
 
included
7,069,263
 
shares of common stock repurchased
 
in the open market at an
 
average price of $
14.15
 
per share for a total purchase
 
price of approximately $
100
 
million under the $
350
 
million
stock repurchase
 
program and
3,409,697
 
shares of
 
common stock
 
repurchased in
 
the open
 
market at
 
an average
 
price of
 
$
14.66
 
for a
 
total purchase
 
price of
 
approximately $
50
 
million
under a prior publicly-announced $
300
 
million stock repurchase program which was completed during
 
the first quarter of 2022.
 
 
(2)
For the six-month periods ended June 30,
 
2023 and 2022 also includes
287,835
 
and
201,930
 
shares, respectively, of common
 
stock surrendered to cover officers’ payroll and
 
income
taxes.
For the
 
quarter and
 
six-month period
 
ended June
 
30, 2023,
 
total cash
 
dividends declared
 
on shares
 
of common
 
stock amounted
 
to
$
25.3
 
million
 
and
 
$
50.7
 
million,
 
respectively,
 
compared
 
to
 
$
23.4
 
million
 
and
 
$
43.3
 
million,
 
respectively,
 
for
 
the
 
same
 
periods
 
of
2022. On
July 24, 2023
, the Corporation
 
announced that its
 
Board had declared
 
a quarterly cash
 
dividend of $
0.14
 
per common share
payable
 
on
September 8, 2023
 
to
 
shareholders
 
of
 
record
 
at
 
the
 
close
 
of
 
business
 
on
August 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.
Preferred Stock
The Corporation
 
has
50,000,000
 
authorized shares of
 
preferred stock with
 
a par value
 
of $
1.00
, 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 and
 
are redeemable
 
at the Corporation’s
 
option.
No
 
shares of preferred
 
stock were
 
outstanding as
 
of
June 30, 2023 and December 31, 2022.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
57
Treasury Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table shows the change in shares of treasury stock for the six-month
 
periods ended June 30,
 
2023 and 2022.
Total
 
Number of Shares
Six-Month Period Ended June 30,
 
2023
2022
Treasury stock, beginning balance
40,954,057
21,836,611
Common stock repurchased
3,865,375
10,680,890
Common stock reissued under stock-based compensation plan
(970,429)
(491,085)
Restricted stock forfeited
57,491
10,364
Treasury stock, ending balances
43,906,494
32,036,780
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
 
June 30,
2023 and December 31, 2022. There were
no
 
transfers to the legal surplus reserve during the first half of 2023.
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
58
NOTE 15 – ACCUMULATED
 
OTHER COMPREHENSIVE LOSS
 
The following table presents the changes in accumulated other comprehensive
 
loss for the quarters and six-month periods ended
June 30, 2023 and 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in Accumulated Other Comprehensive
 
Loss by Component
(1)
Quarter ended June 30,
 
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
(In thousands)
Unrealized net holding losses on available-for-sale
 
debt securities:
Beginning balance
$
(718,744)
$
(419,224)
$
(805,972)
$
(87,390)
 
Other comprehensive (loss) income
(2)
(54,837)
(175,923)
32,391
(507,757)
Ending balance
$
(773,581)
$
(595,147)
$
(773,581)
$
(595,147)
Adjustment of pension and postretirement
 
benefit plans:
Beginning balance
$
1,194
$
3,391
$
1,194
$
3,391
 
Other comprehensive (loss) income
-
-
-
-
Ending balance
$
1,194
$
3,391
$
1,194
$
3,391
____________________
(1)
All amounts presented are net of tax.
(2)
Net unrealized holding (losses) gains on available-for-sale debt securities have no tax effect because securities are either tax-exempt, held by an IBE, or have a full deferred tax asset valuation allowance.
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 June 30,
 
Six-Month Period Ended June
30,
 
Statements of Income
2023
2022
2023
2022
(In thousands)
Net periodic cost (benefit), pension
plans:
Interest cost
Other expenses
$
950
$
654
$
1,900
$
1,308
Expected return on plan assets
Other expenses
(885)
(1,040)
(1,771)
(2,079)
Net periodic cost (benefit), pension plans
65
(386)
129
(771)
Net periodic cost, postretirement plan
Other expenses
6
2
12
3
Net periodic cost (benefit)
$
71
$
(384)
$
141
$
(768)
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
59
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 second
 
quarter of 2023,
 
the Corporation recorded
 
an income tax
 
expense of $
30.3
 
million compared to
 
$
34.1
 
million in the
second quarter
 
of 2022.
 
For the first
 
six months of
 
2023, the
 
Corporation recorded
 
an income tax
 
expense of
 
$
62.2
 
million compared
to
 
$
77.1
 
million
 
for
 
the
 
same
 
period
 
in
 
2022.
 
The
 
decrease
 
in
 
income
 
tax
 
expense
 
for
 
the
 
quarter
 
and
 
first
 
six
 
months
 
of
 
2023,
 
as
compared
 
to the
 
same period
 
a year
 
ago,
 
was 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,
 
excluding
 
entities
 
with
 
pre-tax
 
losses
from which a
 
tax benefit cannot
 
be recognized and
 
discrete items, was
30.1
% for the
 
first six months
 
of 2023, compared
 
to
31.7
% for
the first six months of 2022.
As of
 
June
 
30,
 
2023,
 
the
 
Corporation
 
had
 
a
 
deferred
 
tax
 
asset of
 
$
153.9
 
million,
 
net
 
of a
 
valuation
 
allowance
 
of
 
$
184.2
 
million
against the deferred tax
 
asset, compared to a
 
deferred tax asset of $
155.6
 
million, net of a valuation
 
allowance of $
185.5
 
million, as of
December 31,
 
2022. The
 
net deferred
 
tax asset of
 
the Corporation’s
 
banking subsidiary,
 
FirstBank, amounted
 
to $
153.9
 
million as
 
of
June
 
30,
 
2023,
 
net
 
of
 
a
 
valuation
 
allowance
 
of
 
$
147.0
 
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.
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
60
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
 
quarter
 
and
 
six-month
 
period
 
ended
 
June
 
30,
 
2023,
 
the
Corporation
 
incurred
 
current
 
income
 
tax
 
expense
 
of
 
approximately
 
$
1.5
 
million
 
and
 
$
4.0
 
million,
 
respectively,
 
related
 
to
 
its
 
U.S.
operations, compared to
 
$
2.5
 
million and $
4.1
 
million, respectively,
 
for comparable periods in 2022.
 
The limitation did not impact
 
the
USVI operations in the quarters and six-month periods ended June
 
30, 2023 and 2022.
 
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
 
June
 
30,
 
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.
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
61
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
 
June 30, 2023 and December 31, 2022:
As of June 30,
 
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
$
139,669
$
-
$
-
$
139,669
$
138,875
$
-
$
-
$
138,875
Noncallable U.S. agencies debt securities
-
475,295
-
475,295
-
389,787
-
389,787
Callable U.S. agencies debt securities
-
1,900,133
-
1,900,133
-
1,963,566
-
1,963,566
MBS
-
2,910,915
5,246
(1)
2,916,161
-
3,098,797
5,794
(1)
3,104,591
Puerto Rico government obligations
-
-
2,111
2,111
-
-
2,201
2,201
Other investments
-
-
-
-
-
-
500
500
Equity securities
4,891
-
-
4,891
4,861
-
-
4,861
Derivative assets
-
494
-
494
-
633
-
633
Liabilities:
Derivative liabilities
-
357
-
357
-
476
-
476
(1) Related to private label MBS.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
62
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
and six-month periods ended June 30, 2023 and 2022:
Quarter Ended June 30,
 
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
Level 3 Instruments Only
 
 
Securities Available for
Sale
(1)
Securities Available for
Sale
(1)
Securities Available for
Sale
(1)
Securities Available for
Sale
(1)
(In thousands)
Beginning balance
$
7,605
$
10,647
$
8,495
$
11,084
 
Total (losses)/gains:
 
Included in other comprehensive loss (unrealized)
(19)
(106)
(181)
(393)
 
Included in earnings (unrealized)
(2)
16
35
25
423
 
Principal repayments and amortization
(245)
(396)
(982)
(3)
(934)
Ending balance
$
7,357
$
10,180
$
7,357
$
10,180
___________________
(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 a $
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 June 30,
 
2023 and December 31, 2022:
June 30,
 
2023
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
 
Maximum
(Dollars in thousands)
Available-for-sale
 
debt securities:
 
Private label MBS
$
5,246
Discounted cash flows
Discount rate
16.7%
16.7%
16.7%
Prepayment rate
1.2%
12.0%
8.9%
Projected cumulative loss rate
0.2%
15.5%
5.6%
 
Puerto Rico government obligations
$
2,111
Discounted cash flows
Discount rate
13.4%
13.4%
13.4%
Projected cumulative loss rate
18.5%
18.5%
18.5%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.
 
See
 
Note
 
2
 
 
Debt
 
Securities
 
for
information
 
on the methodology used to calculate the fair value of these debt securities.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
63
Additionally, fair value
 
is used on a nonrecurring basis to evaluate certain assets in accordance with GAAP.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30, 2023, the Corporation recorded losses or valuation adjustments
 
for assets recognized at fair value on a non-recurring
basis and still held at June 30, 2023, as shown in the following table:
Carrying value as of June 30, 2023
Related to (losses) gains
recorded for the Quarter
Ended June 30, 2023
Related to (losses) gains
recorded for the Six-
Month Period Ended
June 30, 2023
(Losses) gains recorded
for the Quarter Ended
 
June 30, 2023
(Losses) gains recorded
for the Six-Month Period
Ended June 30, 2023
(In thousands)
Level 3:
Loans receivable
(1)
$
8,011
$
8,920
$
(6,515)
$
(6,744)
OREO
(2)
1,471
2,038
45
12
Level 2:
Loans held for sale
(3)
$
14,295
$
14,295
$
(73)
$
(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.
(3)
The Corporation derived the fair value of these loans based
 
on secondary market prices of instruments with similar characteristics.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30,
 
2022, the Corporation recorded losses or valuation adjustments for assets recognized
 
at fair value on a non-recurring
basis and still held at June 30, 2022, as shown in the following table:
Carrying value as of June 30, 2022
Related to (losses) gains
recorded for the Quarter
Ended June 30, 2022
Related to losses
recorded for the Six-
Month Period Ended
June 30, 2022
(Losses) gains recorded
for the Quarter Ended
June 30, 2022
Losses recorded for the
Six-Month Period Ended
June 30, 2022
(In thousands)
Level 3:
Loans receivable
(1)
$
5,422
$
29,967
$
(817)
$
(3,848)
OREO
(2)
2,140
2,741
35
(38)
Premises and equipment
(3)
-
1,242
-
(218)
(1)
Consists mainly of
 
collateral dependent
 
commercial and construction
 
loans. The
 
Corporation generally
 
measured losses
 
based on the
 
fair value of
 
the collateral.
 
The Corporation derived
the fair values from
 
external appraisals that
 
took into consideration
 
prices in observed
 
transactions involving similar
 
assets in similar locations
 
but adjusted for
 
specific characteristics
 
and
assumptions of the collateral (e.g., absorption rates), which are
 
not market observable.
(2)
The Corporation
 
derived the
 
fair values
 
from appraisals
 
that took
 
into consideration
 
prices in
 
observed transactions
 
involving similar
 
assets in
 
similar locations
 
but adjusted
 
for specific
characteristics and assumptions of
 
the properties (e.g., absorption
 
rates and net operating
 
income of income producing
 
properties), which are not
 
market observable. Losses
 
were related to
market valuation adjustments after the transfer of the loans to the
 
OREO portfolio.
(3)
Relates to a banking facility reclassified to held-for-sale
 
and measured at the fair value of the collateral.
 
 
See Note
 
25 –
 
Fair Value,
 
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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
64
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following tables present the carrying value, estimated fair value and estimated
 
fair value level of the hierarchy of financial
instruments as of June 30, 2023 and December 31, 2022:
Total Carrying Amount
in Statement of
Financial Condition as
of June 30, 2023
Fair Value Estimate as
 
of
June 30, 2023
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money market investments (amortized
 
cost)
$
1,047,534
$
1,047,534
$
1,047,534
$
-
$
-
Available-for-sale debt
 
securities (fair value)
5,433,369
5,433,369
139,669
5,286,343
7,357
Held-to-maturity debt securities (amortized cost)
424,726
Less: ACL on held-to-maturity debt securities
(8,401)
Held-to-maturity debt securities, net of ACL
$
416,325
410,181
-
244,521
165,660
Equity securities (amortized cost)
43,210
43,210
-
43,210
(1)
-
Other equity securities (fair value)
4,891
4,891
4,891
-
-
Loans held for sale (lower of cost or market)
14,295
14,295
-
14,295
-
Loans held for investment (amortized cost)
11,719,315
Less: ACL for loans and finance leases
(267,058)
Loans held for investment, net of ACL
$
11,452,257
11,256,830
-
-
11,256,830
MSRs (amortized cost)
28,034
44,420
-
-
44,420
Derivative assets (fair value)
 
(2)
494
494
-
494
-
Liabilities:
Deposits (amortized cost)
$
16,819,692
$
16,820,272
$
-
$
16,820,272
$
-
Short-term securities sold under agreements to repurchase (amortized
 
cost)
73,934
74,030
-
74,030
-
Advances from the FHLB (amortized cost):
 
Long-term
500,000
495,589
-
495,589
-
Other long-term borrowings (amortized cost)
161,700
162,983
-
-
162,983
Derivative liabilities (fair value)
 
(2)
357
357
-
357
-
(1) Includes FHLB stock with a carrying value of $
34.7
 
million, which are considered restricted.
(2) Includes interest rate swap agreements, interest rate caps, forward contracts, interest rate lock commitments, and forward loan sales commitments.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
65
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
66
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 and
 
six-month periods
 
ended June
 
30, 2023
and 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter ended June 30, 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)
$
21,360
$
142,597
$
12,933
$
(2,789)
$
19,690
$
6,024
$
199,815
Service charges and fees on deposit accounts
-
5,087
3,326
-
172
702
9,287
Insurance commissions
-
2,464
-
-
79
204
2,747
Merchant-related income
-
2,035
-
-
39
385
2,459
Credit and debit card fees
-
8,117
28
-
10
521
8,676
Other service charges and fees
33
1,508
1,094
-
660
207
3,502
Not in scope of ASC Topic
 
606
 
(1)
3,029
1,010
3,697
1,680
195
(11)
9,600
 
Total non-interest income
3,062
20,221
8,145
1,680
1,155
2,008
36,271
Total Revenue
$
24,422
$
162,818
$
21,078
$
(1,109)
$
20,845
$
8,032
$
236,086
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter ended June 30, 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)
$
26,335
$
102,397
$
31,379
$
11,466
$
18,688
$
5,921
$
196,186
Service charges and fees on deposit accounts
-
5,495
3,069
-
157
745
9,466
Insurance commissions
-
2,724
-
-
20
202
2,946
Merchant-related income
-
1,711
381
-
17
327
2,436
Credit and debit card fees
-
7,391
21
-
3
449
7,864
Other service charges and fees
59
2,066
876
-
485
157
3,643
Not in scope of ASC Topic
 
606
(1)
4,108
396
101
(51)
(4)
36
4,586
Total non-interest
 
income
4,167
19,783
4,448
(51)
678
1,916
30,941
Total Revenue
$
30,502
$
122,180
$
35,827
$
11,415
$
19,366
$
7,837
$
227,127
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
67
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six-Month Period Ended June 30, 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)
$
43,148
$
280,341
$
27,873
$
(3,447)
$
40,620
$
12,165
$
400,700
Service charges and fees on deposit accounts
-
10,573
6,480
-
337
1,438
18,828
Insurance commissions
-
7,104
-
-
107
383
7,594
Merchant-related income
-
4,298
-
-
68
853
5,219
Credit and debit card fees
-
15,755
50
-
12
1,017
16,834
Other service charges and fees
194
2,660
1,948
-
1,243
551
6,596
Not in scope of ASC Topic
 
606
 
(1)
5,942
1,865
3,842
1,840
235
(6)
13,718
 
Total non-interest income
6,136
42,255
12,320
1,840
2,002
4,236
68,789
Total Revenue
$
49,284
$
322,596
$
40,193
$
(1,607)
$
42,622
$
16,401
$
469,489
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six-Month Period Ended June 30, 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)
$
52,114
$
191,943
$
71,794
$
18,875
$
35,170
$
11,914
$
381,810
Service charges and fees on deposit accounts
-
11,034
6,045
-
295
1,455
18,829
Insurance commissions
-
7,691
-
-
49
481
8,221
Merchant-related income
-
3,533
754
-
22
716
5,025
Credit and debit card fees
-
14,062
37
-
(4)
859
14,954
Other service charges and fees
202
3,176
1,989
-
984
314
6,665
Not in scope of ASC Topic
 
606
 
(1)
9,217
750
177
(163)
76
48
10,105
 
Total non-interest income
9,419
40,246
9,002
(163)
1,422
3,873
63,799
Total Revenue
$
61,533
$
232,189
$
80,796
$
18,712
$
36,592
$
15,787
$
445,609
(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.
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
68
For the quarters
 
and six-month periods
 
ended June 30,
 
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
 
and six-month periods ended June 30, 2023 and 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended June 30,
 
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
(In thousands)
Beginning balance
$
760
$
1,154
$
841
$
1,443
 
Revenue recognized
(152)
(105)
(233)
(394)
Ending balance
$
608
$
1,049
$
608
$
1,049
As of June 30, 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 other performance
 
obligations as of
 
June 30, 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.
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
69
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
 
June 30,
 
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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
70
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
Quarter ended June 30, 2023:
Interest income
$
31,605
$
86,989
$
65,356
$
29,528
$
32,098
$
6,628
$
252,204
Net (charge) credit for transfer
 
of funds
(10,245)
86,144
(52,423)
(22,739)
(737)
-
-
Interest expense
-
(30,536)
-
(9,578)
(11,671)
(604)
(52,389)
Net interest income (loss)
21,360
142,597
12,933
(2,789)
19,690
6,024
199,815
Provision for credit losses - (benefit) expense
(3,829)
13,669
7,675
(16)
4,017
714
22,230
Non-interest income
3,062
20,221
8,145
1,680
1,155
2,008
36,271
Direct non-interest expenses
5,533
41,814
9,340
923
8,502
6,731
72,843
 
Segment income (loss)
$
22,718
$
107,335
$
4,063
$
(2,016)
$
8,326
$
587
$
141,013
Average earnings assets
$
2,144,340
$
3,241,768
$
3,770,463
$
6,364,024
$
2,038,621
$
371,685
$
17,930,901
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage
Banking
Consumer
(Retail) Banking
Commercial and
Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Quarter ended June 30, 2022:
Interest income
$
33,205
$
73,487
$
47,513
$
27,143
$
21,081
$
6,196
$
208,625
Net (charge) credit for transfer of funds
(6,870)
34,039
(16,134)
(10,705)
(330)
-
-
Interest expense
-
(5,129)
-
(4,972)
(2,063)
(275)
(12,439)
Net interest income
 
26,335
102,397
31,379
11,466
18,688
5,921
196,186
Provision for credit losses - (benefit) expense
(3,605)
15,055
(470)
(35)
(1,678)
736
10,003
Non-interest income (loss)
4,167
19,783
4,448
(51)
678
1,916
30,941
Direct non-interest expenses
5,681
40,546
9,048
905
8,237
6,765
71,182
 
Segment income
$
28,426
$
66,579
$
27,249
$
10,545
$
12,807
$
336
$
145,942
Average earnings assets
$
2,243,188
$
2,860,086
$
3,624,176
$
7,769,754
$
2,036,108
$
370,590
$
18,903,902
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage
Banking
Consumer (Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Six-Month Period Ended June 30, 2023
Interest income
$
63,512
$
170,163
$
127,699
$
56,994
$
63,212
$
13,020
$
494,600
Net (charge) credit for transfer of funds
(20,364)
163,879
(99,826)
(42,278)
(1,411)
-
-
Interest expense
-
(53,701)
-
(18,163)
(21,181)
(855)
(93,900)
Net interest income
 
43,148
280,341
27,873
(3,447)
40,620
12,165
400,700
Provision for credit losses - (benefit) expense
(4,335)
28,893
5,139
(25)
8,672
(612)
37,732
Non-interest income
6,136
42,255
12,320
1,840
2,002
4,236
68,789
Direct non-interest expenses
10,620
83,441
18,705
1,870
16,806
13,556
144,998
 
Segment income
$
42,999
$
210,262
$
16,349
$
(3,452)
$
17,144
$
3,457
$
286,759
Average earnings assets
$
2,157,626
$
3,208,146
$
3,742,205
$
6,290,669
$
2,053,154
$
369,026
$
17,820,826
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage
Banking
Consumer (Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Six-Month Period Ended June 30, 2022
Interest income
$
66,276
$
143,924
$
94,540
$
49,327
$
39,938
$
12,474
$
406,479
Net (charge) credit for transfer of funds
(14,162)
58,321
(22,746)
(20,654)
(759)
-
-
Interest expense
-
(10,302)
-
(9,798)
(4,009)
(560)
(24,669)
Net interest income
52,114
191,943
71,794
18,875
35,170
11,914
381,810
Provision for credit losses - (benefit) expense
(7,308)
26,199
(17,092)
(423)
(5,225)
50
(3,799)
Non-interest income (loss)
9,419
40,246
9,002
(163)
1,422
3,873
63,799
Direct non-interest expenses
12,587
79,817
17,907
1,790
16,716
13,738
142,555
 
Segment income
$
56,254
$
126,173
$
79,981
$
17,345
$
25,101
$
1,999
$
306,853
Average earnings assets
$
2,268,279
$
2,810,062
$
3,662,720
$
7,931,699
$
2,050,791
$
374,358
$
19,097,909
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
71
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods:
Quarter Ended June 30,
 
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
(In thousands)
Net income:
 
Total income for segments
 
$
141,013
$
145,942
$
286,759
$
306,853
Other operating expenses
 
(1)
40,074
37,144
83,187
72,430
Income before income taxes
100,939
108,798
203,572
234,423
Income tax expense
30,284
34,103
62,219
77,128
 
Total consolidated net income
$
70,655
$
74,695
$
141,353
$
157,295
Average assets:
Total average earning assets for segments
 
$
17,930,901
$
18,903,902
$
17,820,826
$
19,097,909
Average non-earning assets
 
857,677
820,924
852,680
890,043
 
Total consolidated average assets
$
18,788,578
$
19,724,826
$
18,673,506
$
19,987,952
(1)
Expenses pertaining to corporate administrative functions that support
 
the operating segment, but are not specifically attributable to
 
or managed by any segment, are not included in the
reported financial results of the operating segments. The
 
unallocated corporate expenses include certain general and administrative
 
expenses and related depreciation and amortization
expenses.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
72
NOTE 21 – SUPPLEMENTAL
 
STATEMENT
 
OF CASH FLOWS INFORMATION
 
Supplemental statement of cash flows information is as follows for the
 
indicated periods:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six-Month Period Ended June 30,
 
2023
2022
(In thousands)
Cash paid for:
 
Interest on borrowings
$
84,530
$
26,148
 
Income tax
 
82,215
15,295
 
Operating cash flow from operating leases
8,630
9,156
Non-cash investing and financing activities:
 
Additions to OREO
10,738
10,698
 
Additions to auto and other repossessed assets
29,720
20,575
 
Capitalization of servicing assets
1,238
1,958
 
Loan securitizations
65,092
78,397
 
Loans held for investment transferred to held for sale
2,962
2,443
 
Payable related to unsettled purchases of investment securities
4,502
20,202
 
ROU assets obtained in exchange for operating lease liabilities
2,263
1,158
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
73
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
 
June
 
30,
 
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
 
June
 
30,
 
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
 
June
 
30,
 
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 macroeconomic
 
conditions, as
 
well as
 
the effect
 
of recent
 
regional bank
 
failures in
 
the U.S.
 
mainland, although
 
the
nature and impact of such actions cannot be predicted at this time.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
74
The regulatory capital position of
 
the Corporation and the FirstBank
 
as of June 30, 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 June 30, 2023
Total Capital (to Risk-Weighted
 
Assets)
 
First BanCorp.
$
2,396,564
19.15
%
$
1,001,189
8.0
%
N/A
N/A
%
 
FirstBank
$
2,326,581
18.59
%
$
1,001,046
8.0
%
$
1,251,307
10.0
%
CET1 Capital (to Risk-Weighted Assets)
 
First BanCorp.
$
2,082,843
16.64
%
$
563,169
4.5
%
N/A
N/A
%
 
FirstBank
$
2,069,732
16.54
%
$
563,088
4.5
%
$
813,350
6.5
%
Tier I Capital (to Risk-Weighted
 
Assets)
 
First BanCorp.
$
2,082,843
16.64
%
$
750,892
6.0
%
N/A
N/A
%
 
FirstBank
$
2,169,732
17.34
%
$
750,784
6.0
%
$
1,001,046
8.0
%
Leverage ratio
 
First BanCorp.
$
2,082,843
10.73
%
$
776,742
4.0
%
N/A
N/A
%
 
FirstBank
$
2,169,732
11.18
%
$
776,431
4.0
%
$
970,539
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
%
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
75
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 June
 
30, 2023,
 
commitments to
 
extend credit
 
amounted to
 
approximately $
2.0
 
billion, of
 
which $
1.0
 
billion relates
 
to retail
 
credit
card
 
loans.
 
In
 
addition,
 
commercial
 
and
 
financial
 
standby
 
letters
 
of
 
credit
 
as
 
of
 
June
 
30,
 
2023
 
amounted
 
to
 
approximately
 
$
66.0
million.
Contingencies
As
 
of
 
June
 
30,
 
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 June 30, 2023, no such disclosures were necessary.
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
76
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
 
June 30,
 
2023 and
 
December 31,
 
2022, and
 
the results
 
of its
 
operations
 
for the
 
quarters and
 
six-month periods
 
ended June
 
30,
2023 and 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Statements of Financial Condition
As of June 30,
 
As of December 31,
2023
2022
(In thousands)
Assets
Cash and due from banks
$
54,625
$
19,279
Other investment securities
735
735
Investment in First Bank Puerto Rico, at equity
1,484,887
1,464,026
Investment in First Bank Insurance Agency,
 
at equity
22,024
28,770
Investment in FBP Statutory Trust I
1,289
1,951
Investment in FBP Statutory Trust II
3,561
3,561
Dividends receivable
700
624
Other assets
542
430
 
Total assets
$
1,568,363
$
1,519,376
Liabilities and Stockholders’ Equity
Liabilities:
Long-term borrowings
 
$
161,700
$
183,762
Accounts payable and other liabilities
8,664
10,074
 
Total liabilities
170,364
193,836
Stockholders’ equity
1,397,999
1,325,540
 
Total liabilities and stockholders’
 
equity
$
1,568,363
$
1,519,376
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS-(Continued)
77
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Statements of Income
 
Quarter Ended
 
Six-Month Period Ended
June 30,
 
June 30,
 
2023
2022
2023
2022
(In thousands)
Income
 
 
Interest income on money market investments
 
$
57
$
10
$
110
$
14
 
Dividend income from banking subsidiaries
78,932
178,679
157,802
242,272
 
Dividend income from nonbanking subsidiaries
12,000
-
12,000
-
 
Gain on early extinguishment of debt
1,605
-
1,605
-
 
Other income
101
51
203
91
 
Total income
92,695
178,740
171,720
242,377
Expense
 
Other long-term borrowings
3,409
1,698
6,790
3,031
 
Other non-interest expenses
462
434
872
873
 
Total expense
3,871
2,132
7,662
3,904
Income before income taxes and equity in undistributed
 
earnings of subsidiaries
88,824
176,608
164,058
238,473
Income tax expense
783
793
1,861
1,899
Distribution in excess of earnings of subsidiaries
(17,386)
(101,120)
(20,844)
(79,279)
Net income
$
70,655
$
74,695
$
141,353
$
157,295
Other comprehensive (loss) income, net of tax
(54,837)
(175,923)
32,391
(507,757)
Comprehensive income (loss)
$
15,818
$
(101,228)
$
173,744
$
(350,462)
 
 
78
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, reconciliations
 
of non-GAAP financial
 
measures to the
 
most comparable GAAP
 
financial measures,
and references to non-GAAP financial measures reconciliations presented
 
in other sections.
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
During
 
the
 
second
 
quarter
 
of
 
2023,
 
inflation
 
has
 
continued
 
to
 
trend
 
lower
 
but
 
remaining
 
at
 
elevated
 
levels
 
above
 
the
 
Federal
Reserve
 
(“FED”)
 
target.
 
In
 
July
 
2023,
 
the
 
FED
 
raised
 
interest
 
rates
 
by
 
an
 
additional
 
25 basis
 
points,
 
thereby
 
increasing
 
the
 
federal
funds rate
 
to a
 
target range
 
of 5.25%
 
to 5.50%,
 
bringing borrowing
 
costs to
 
the highest
 
level since
 
January 2001.
 
This represents
 
the
eleventh
 
time
 
in
 
17
 
months
 
that
 
the
 
FED
 
has
 
raised
 
rates
 
in
 
an
 
effort
 
to
 
significantly
 
reduce
 
liquidity
 
in
 
the
 
financial
 
markets
 
and
continue
 
to reduce
 
inflation. The
 
FED resumed
 
the tightening
 
campaign after
 
a pause
 
in June,
 
while noticing
 
the economy
 
has been
expanding
 
at
 
a
 
moderate
 
pace,
 
job
 
gains
 
have
 
been
 
robust
 
in
 
recent
 
months,
 
and
 
the
 
unemployment
 
rate
 
has
 
remained
 
low
 
while
inflation remains elevated.
The Corporation remains vigilant as to the potential impacts
 
that monetary policy or a potential slowdown in the U.S. economy
 
may
have on
 
credit and
 
loan demand.
 
Notwithstanding, it
 
is encouraged
 
by the
 
ongoing business
 
activity and
 
economic growth
 
in Puerto
Rico over the
 
short and medium
 
term. For example,
 
strong auto and
 
retail sales reported
 
during the first
 
half of 2023
 
suggest growing
consumer confidence in Puerto Rico. The economic
 
backdrop in Puerto Rico continues to be supported
 
by strong labor markets, which
have led to unemployment remaining stable, and a consistent flow of
 
federal disaster funds and foreign investment.
Our
 
quarterly
 
results
 
reflected
 
continued
 
execution
 
of
 
our
 
strategy
 
and
 
strength
 
of
 
our
 
balance
 
sheet,
 
reflected
 
through
 
deposit
growth and increased
 
capital levels driven
 
by earnings and
 
capital optimization. Although
 
total net interest
 
income remains stable,
 
the
overall higher
 
interest rate environment
 
resulted in a
 
lower interest margin
 
for the second
 
quarter of
 
2023. The
 
overall higher
 
interest
rate environment
 
should continue
 
to benefit
 
our interest
 
income as
 
variable loans
 
and cash
 
held at
 
the FED
 
will reprice
 
accordingly
and
 
projected
 
loan
 
growth
 
will occur
 
at
 
higher
 
yields.
 
Interest
 
expense,
 
on
 
the
 
other
 
hand,
 
is also
 
expected
 
to
 
increase
 
as maturing
deposits and
 
government deposits
 
will reprice
 
at higher
 
rates and
 
non-interest-bearing
 
and other
 
low-cost deposits
 
could continue
 
to
shift to higher
 
cost deposits, resulting
 
in margin
 
pressures. Credit continues
 
to perform well
 
and our liquidity
 
position remains strong.
With
 
our
 
disciplined
 
and
 
proactive
 
approach,
 
we
 
believe
 
the
 
Corporation
 
is
 
positioned
 
to
 
continue
 
growing
 
the
 
franchise
 
and
supporting our people and the communities we serve while enhancing shareholder
 
value.
 
 
 
79
Stock Repurchase Programs
On July
 
24, 2023,
 
the Corporation
 
announced that
 
its Board
 
of Directors
 
approved a
 
new stock
 
repurchase program,
 
under which
the Corporation
 
may repurchase
 
up to
 
$225 million
 
of its
 
outstanding common
 
stock, which
 
it expects
 
to execute
 
through the
 
end of
the third quarter of 2024.
The Corporation
 
expects to repurchase
 
approximately $150 million
 
in common stock
 
during the second
 
half of 2023,
 
of which $75
million relates to
 
the remaining amount
 
of the $350
 
million stock repurchase
 
program announced on
 
April 27, 2022
 
that was resumed
in July 2023.
 
The Corporation expects
 
to fully utilize this
 
remaining authorization during
 
the third quarter of
 
2023. From July 1,
 
2023
through August
 
1, 2023, the
 
Corporation repurchased
 
approximately 1.5
 
million shares
 
of common
 
stock for a
 
total purchase price
 
of
$19.5 million.
Repurchases under
 
the stock repurchase
 
programs may be
 
executed through
 
open market purchases,
 
accelerated share
 
repurchases,
and/or
 
privately
 
negotiated
 
transactions
 
or
 
plans,
 
including
 
under
 
plans
 
complying
 
with
 
Rule
 
10b5-1
 
under
 
the
 
Exchange
 
Act.
 
The
Corporation’s
 
stock
 
repurchase
 
programs
 
are
 
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
 
Corporation’s
 
stock
repurchase
 
programs
 
do
 
not
 
obligate
 
it
 
to
 
acquire
 
any
 
specific
 
number
 
of
 
shares
 
and
 
do
 
not
 
have
 
an
 
expiration
 
date.
 
The
 
stock
repurchase programs may be modified, suspended, or terminated
 
at any time at the Corporation’s discretion.
Repurchase of Trust
 
-
 
Preferred Securities (“TRuPs”)
During the second quarter
 
of 2023, the Corporation completed
 
the repurchase of $21.4 million
 
of TRuPs of the FBP Statutory
 
Trust
I as
 
part of
 
a privately
 
-negotiated
 
transaction,
 
resulting
 
in a
 
commensurate
 
reduction
 
in the
 
related
 
floating
 
rate junior
 
subordinated
debentures. The purchase
 
price equated to 92.5%
 
of the $21.4 million
 
par value of the
 
TRuPs. The 7.5% discount
 
resulted in a gain
 
of
approximately $1.6 million, which is reflected in the consolidated statement
 
s
 
of income as “Gain on early extinguishment of debt.”
Release of Corporate Sustainability Report
On June 26, 2023,
 
the Corporation announced
 
the release of its Corporate
 
Sustainability Report for
 
2022, which is its second
 
report
on Environmental,
 
Social and
 
Governance
 
(“ESG”)
 
and sustainability
 
matters. This
 
report
 
highlights
 
the Corporation’s
 
strategy
 
and
development relating to ESG matters and covers the progress of the Corporation’s
 
ESG program during 2022.
London Interbank Offered Rate (“LIBOR”)
 
Transition
On June
 
30, 2023,
 
the US
 
dollar (“USD”) LIBOR
 
panel ended,
 
and USD
 
LIBOR rates
 
are no
 
longer considered
 
representative of
 
the
market.
 
For
 
the
 
transition
 
of
 
residual
 
exposures
 
tied
 
to
 
USD
 
LIBOR
 
as
 
of
 
June
 
30,
 
2023,
 
the
 
Corporation
 
will
 
continue
 
to
 
follow
 
the
provisions
 
of
 
the
 
Adjustable
 
Interest
 
Rate
 
Act
 
(the
 
“LIBOR
 
Act”)
 
and
 
Regulation
 
ZZ.
 
As
 
of
 
June
 
30,
 
2023,
 
the
 
Corporation’s
 
risk
exposure
 
to
 
USD
 
LIBOR
 
that
 
mature
 
after
 
June
 
30,
 
2023
 
consisted
 
of
 
the
 
following:
 
(i)
 
$0.8
 
billion
 
of
 
variable-rate
 
commercial
 
and
construction loans
 
(including unused commitments),
 
(ii) $39.4
 
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) $122.3
 
million of
 
Puerto Rico
 
municipalities bonds
held as
 
part of
 
the held-to-maturity
 
debt securities
 
portfolio, and
 
(iv) $161.7
 
million of
 
junior subordinated
 
debentures reported
 
as other
long-term borrowings in the consolidated statements
 
of financial condition.
Source systems have been updated to
 
support alternative reference rates. As
 
such, we have developed a SOFR-enabled
 
interest rate risk
monitoring framework and a strategy for managing interest
 
rate risk during the transition from LIBOR to SOFR.
 
 
80
Other Recent Developments
Following the recent failure of two
 
U.S. regional banks and resulting
 
losses to the FDIC’s
 
Deposit Insurance Fund (“DIF”), on
 
May 11,
2023, the
 
FDIC approved
 
a notice of
 
proposed rulemaking
 
that would
 
implement a special
 
assessment at an
 
annual rate of
 
approximately
12.5 basis
 
points over
 
eight quarterly
 
periods, commencing
 
with the
 
first quarter
 
of 2024,
 
to recover
 
the cost
 
associated with
 
protecting
uninsured depositors
 
as part
 
of those
 
financial institution
 
failures. The
 
assessment base
 
for the
 
special assessment
 
would be
 
equal to
 
an
insured depository
 
institution’s estimated
 
uninsured deposits
 
reported as
 
of December
 
31, 2022,
 
adjusted to
 
exclude the
 
first $5
 
billion in
estimated
 
uninsured
 
deposits.
 
Notwithstanding,
 
the
 
special
 
assessment
 
could
 
be
 
subject
 
to
 
change
 
depending
 
on
 
whether
 
there
 
are
 
any
shortfalls on
 
amounts collected.
 
If the
 
final rule
 
is issued
 
as proposed,
 
the estimated
 
impact of
 
the special
 
assessment on
 
the Corporation
would be an increase in non-interest expense
 
by approximately $6 million that would need to be
 
accrued once the proposed rule is finalized.
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
 
Quarterly
 
Report
 
on
 
Form
 
10-Q,
 
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
 
of
 
this
 
MD&A
 
details
 
the
 
policies,
assumptions, and
 
judgments related
 
to the
 
ACL. Actual
 
results could
 
differ
 
from estimates
 
and assumptions
 
if different
 
outcomes or
conditions prevail.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
81
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.
For
 
the
 
quarter
 
and
 
six-month
 
period
 
ended
 
June
 
30,
 
2023,
 
the
 
Corporation
 
had
 
net
 
income
 
of
 
$70.7
 
million
 
($0.39
 
per
 
diluted
common
 
share)
 
and
 
$141.4
 
million
 
($0.78
 
per
 
diluted
 
common
 
share),
 
respectively,
 
compared
 
to
 
$74.7
 
million
 
($0.38
 
per
 
diluted
common
 
share)
 
and
 
$157.3
 
million
 
($0.80
 
per
 
diluted
 
common
 
share),
 
for
 
the
 
comparable
 
periods
 
in
 
2022.
 
Other
 
relevant
 
selected
financial indicators for the periods presented are included below:
Quarter Ended June 30,
Six-Month Period Ended June 30,
2023
2022
2023
2022
Key Performance Indicator:
(1)
Return on Average
 
Assets
(2)
1.51
%
1.52
%
1.53
%
1.59
%
Return on Average
 
Common Equity
(3)
19.66
17.82
20.31
17.18
Efficiency Ratio
(4)
47.83
47.69
48.60
48.25
(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
 
June 30, 2023, compared to the second
 
quarter of
2022, include the following:
Net
 
interest
 
income
 
for
 
the
 
quarter
 
ended
 
June
 
30,
 
2023
 
increased
 
to
 
$199.8
 
million,
 
compared
 
to
 
$196.2
 
million
 
for
 
the
second
 
quarter of
 
2022, mainly
 
driven by
 
the effect
 
in the
 
commercial
 
loan
 
portfolio of
 
higher
 
market interest
 
rates on
 
the
upward repricing of variable-rate
 
loans and on new
 
loan originations, the growth
 
in consumer loans, and
 
the impact of higher
market interest rates on
 
interest-bearing cash balances, partially
 
offset by an increase
 
in interest expense mainly
 
due to higher
rates paid on interest-bearing deposits.
 
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
June
 
30,
 
2023 was
 
$22.2
 
million,
 
compared
 
to $10.0
 
million
 
for
 
the second
 
quarter of
 
2022.
 
The increase
 
in the
 
provision
expense reflects
 
a $9.9
 
million increase
 
in the
 
provision for
 
the commercial
 
and construction
 
loan portfolio
 
resulting from
 
a
deterioration in the forecasted commercial real estate price index (“CRE price
 
index”).
Net charge-offs
 
totaled $19.3 million
 
for the quarter
 
ended June 30,
 
2023, or 0.67%
 
of average loans
 
on an annualized
 
basis,
compared to $6.0 million,
 
or 0.21% of average
 
loans,
 
for the second quarter
 
of 2022, mainly driven
 
by a $6.2 million charge-
off
 
recorded
 
on
 
a commercial
 
and
 
industrial
 
participated
 
loan
 
in
 
the
 
Florida
 
region
 
in
 
the power
 
generation
 
industry
 
and a
$6.1 million
 
increase in
 
consumer
 
loans net
 
charge-offs.
 
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
 
$36.3
 
million
 
for
 
the
 
quarter
 
ended
 
June
 
30,
 
2023,
 
compared
 
to
 
$30.9
million
 
for
 
the
 
second
 
quarter
 
of
 
2022.
 
Non-interest
 
income
 
for
 
the
 
second
 
quarter
 
of
 
2023
 
includes
 
a
 
$3.6
 
million
 
gain
recognized
 
from
 
a
 
legal
 
settlement
 
and
 
the
 
$1.6
 
million
 
gain
 
on
 
the
 
repurchase
 
of
 
$21.4
 
million
 
in
 
junior
 
subordinated
debentures.
 
On
 
a
 
non-GAAP
 
basis,
 
excluding
 
the
 
effect
 
of
 
these
 
Special
 
Items
 
(as
 
defined
 
below),
 
adjusted
 
non-interest
income
 
increased
 
by
 
$0.2
 
million.
 
See
 
“Non-Interest
 
Income”
 
and
 
“Non-GAAP
 
Financial
 
Measures
 
and
 
Reconciliations”
below for additional information.
 
Non-interest expenses
 
for the quarter
 
ended June
 
30, 2023
 
increased by $4.6
 
million to $112.9
 
million. The
 
increase in non-
interest
 
expenses
 
mainly
 
reflects
 
a
 
$3.0
 
million
 
increase
 
in
 
employees’
 
compensation
 
and
 
benefits
 
expenses
 
due
 
to
 
annual
salary
 
merit
 
increases
 
as
 
well
 
as
 
higher
 
stock-based
 
compensation
 
expense
 
and
 
medical
 
insurance
 
premium
 
costs.
 
The
efficiency ratio
 
for the
 
second quarter
 
of 2023
 
was 47.83%,
 
as compared
 
to 47.69%
 
for the
 
same period
 
in 2022.
 
On a
 
non-
 
82
GAAP basis,
 
excluding
 
the
 
aforementioned
 
Special Items
 
,
 
the adjusted
 
efficiency
 
ratio for
 
the second
 
quarter of
 
2023 was
48.91%.
 
See
 
“Non-Interest
 
Expenses”
 
and
 
“Non-GAAP
 
Financial
 
Measures
 
and
 
Reconciliations”
 
below
 
for
 
additional
information.
 
Income tax expense decreased to
 
$30.3 million for the second quarter of
 
2023, compared to $34.1 million for
 
the same period
in 2022 driven
 
by a lower
 
pre-tax income
 
and a higher
 
proportion of exempt
 
to taxable income
 
resulting in
 
a lower effective
tax rate. 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
 
d
 
to 30.1
 
%
 
for
 
the first
 
six months
 
of 2023,
 
compared
 
to 31.7%
 
for
 
the first
 
six
months of 2022.
 
See “Income Taxes”
 
below and Note
 
17 – Income
 
Taxes,
 
to the unaudited
 
consolidated financial statements
herein for additional information.
 
As of
 
June 30,
 
2023, total
 
assets were
 
approximately
 
$19.2 billion,
 
an increase
 
of $518.0
 
million from
 
December 31,
 
2022,
primarily
 
due
 
to
 
a
 
$567.0
 
million
 
increase
 
in
 
cash
 
and
 
cash
 
equivalents
 
mainly
 
attributable
 
to
 
the
 
overall
 
increase
 
in
 
total
deposits,
 
and
 
a
 
$168.5
 
million
 
increase
 
in
 
total
 
loans,
 
partially
 
offset
 
by
 
a
 
$186.3
 
million
 
decrease
 
in
 
total
 
investment
securities. See “Financial Condition and Operating Data Analysis” below for
 
additional information.
As
 
of
 
June
 
30,
 
2023,
 
total
 
liabilities
 
were
 
$17.8
 
billion,
 
an
 
increase
 
of
 
$445.5
 
million
 
from
 
December
 
31,
 
2022,
 
mainly
driven
 
by
 
the
 
overall
 
increase
 
in
 
total
 
deposits,
 
including
 
brokered
 
CDs,
 
partially
 
offset
 
by
 
a
 
$198.3
 
million
 
decrease
 
in
borrowings.
 
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 certificates of deposit (“CDs”). As of June 30, 2023,
 
these core deposits, amounting to $13.0 billion, funded 67.99%
of total
 
assets. Approximately
 
$4.7 billion,
 
or 28.79%
 
of such deposits,
 
are uninsured
 
deposits. 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’s
Discount
 
Window.
 
As
 
of
 
June
 
30,
 
2023,
 
the
 
Corporation
 
had
 
approximately
 
$1.4
 
billion
 
available
 
for
 
funding
 
under
 
the
FED’s
 
Discount
 
Window
 
and $980.9
 
million available
 
for additional
 
borrowing
 
capacity on
 
FHLB lines
 
of credit
 
based on
collateral pledged
 
at these
 
entities. On
 
a combined
 
basis, as
 
of June
 
30, 2023,
 
the Corporation
 
had $5.6
 
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
 
June
 
30,
 
2023,
 
the
 
Corporation’s
 
total
 
stockholders’
 
equity
 
was
 
$1.4
 
billion,
 
an
 
increase
 
of
 
$72.5
 
million
 
from
December 31,
 
2022. The
 
increase was driven
 
by the earnings
 
generated in
 
the first half
 
of 2023 and
 
a $32.4 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. This increase was partially offset
by $50.7 million
 
in dividends declared
 
to common stock
 
shareholders during
 
the first six
 
months of 2023
 
and the repurchase
of
 
approximately
 
3.6
 
million
 
shares
 
of
 
common
 
stock
 
for
 
a
 
total
 
purchase
 
price
 
of
 
approximately
 
$50.0
 
million.
 
The
Corporation’s
 
CET1
 
capital,
 
tier
 
1
 
capital,
 
total
 
capital,
 
and
 
leverage
 
ratios
 
were
 
16.64%,
 
16.64%,
 
19.15%,
 
and
 
10.73%,
respectively,
 
as
 
of
 
June
 
30,
 
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, decreased
 
by $274.9 million
 
to $1.2 billion
 
for the quarter
 
ended June 30,
 
2023. See “Financial
 
Condition and
Operating Data Analysis” below for additional information.
Total
 
non-performing assets
 
were $121.1
 
million as
 
of June
 
30, 2023,
 
a decrease
 
of $8.1
 
million, from
 
December 31,
 
2022.
The
 
net
 
decrease
 
was
 
driven
 
by
 
a
 
$9.5
 
million
 
reduction
 
in
 
nonaccrual
 
residential
 
mortgage
 
loans
 
mainly
 
due
 
to
 
loans
restored to
 
accrual status, partially
 
offset by
 
a $1.5 million
 
increase in nonaccrual
 
consumer loans.
 
See “Risk Management
 
Nonaccrual Loans and Non-Performing Assets” below for additional information.
Adversely
 
classified
 
commercial
 
and
 
construction
 
loans
 
decreased
 
by
 
$27.9
 
million
 
to
 
$65.7
 
million
 
as
 
of
 
June
 
30,
 
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.
 
 
83
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.
Adjusted Net Income,
 
Adjusted Non-Interest Income, and Adjusted Efficiency
 
Ratio
To
 
supplement the
 
Corporation’s
 
financial statements
 
presented in
 
accordance with
 
GAAP,
 
the Corporation
 
uses, and believes
 
that
investors
 
benefit from
 
disclosure
 
of, non-GAAP
 
financial measures
 
that reflect
 
adjustments to
 
net income,
 
non-interest income,
 
and
the efficiency ratio
 
to exclude items that management
 
believes are not reflective
 
of core operating performance
 
(“Special Items”). The
financial results for
 
the quarter and
 
six-month period ended
 
June 30, 2022
 
did not include any
 
significant Special Items.
 
The financial
results for the quarter and six-month period ended June 30, 2023
 
included the following Special Items:
Quarter and Six-Month Period Ended June 30, 2023
-
A
 
$3.6
 
million
 
($2.3
 
million
 
after-tax)
 
gain
 
recognized
 
from
 
a
 
legal
 
settlement
 
reflected
 
in
 
the
 
consolidated
 
statements
 
of
income as part of other non-interest income.
 
-
A
 
$1.6
 
million
 
gain
 
on
 
the
 
repurchase
 
of
 
$21.4
 
million
 
in
 
junior
 
subordinated
 
debentures
 
reflected
 
in
 
the
 
consolidated
statements
 
of
 
income
 
as
 
“Gain
 
on
 
early
 
extinguishment
 
of
 
debt.”
 
The
 
junior
 
subordinated
 
debentures
 
are
 
reflected
 
in
 
the
consolidated statements
 
of financial condition
 
as “Other long-term
 
borrowings.” The
 
purchase price
 
equated to
 
92.5% of the
$21.4
 
million
 
par
 
value
 
of
 
the
 
TRuPs.
 
The
 
7.5%
 
discount
 
resulted
 
in
 
the
 
gain
 
of
 
$1.6
 
million.
 
The
 
gain,
 
realized
 
at
 
the
holding company level, had no effect on the income tax expense in 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
84
The following
 
table reconciles
 
for
 
the quarter
 
and six-month
 
period ended
 
June 30,
 
2023 the
 
reported
 
net income
 
to adjusted
 
net
income, a non-GAAP financial measure that excludes the Special Items identified
 
above:
Quarter Ended June 30,
 
Six-Month Period Ended June 30,
 
2023
2023
(In thousands)
Net income, as reported (GAAP)
$
70,655
$
141,353
Adjustments:
 
Gain recognized from a legal settlement
(3,600)
(3,600)
Gain on early extinguishment of debt
(1,605)
(1,605)
Income tax impact of adjustments
(1)
1,350
1,350
Adjusted net income (Non-GAAP)
$
66,800
$
137,498
(1)
See "Adjusted Net Income, Adjusted Non-Interest Income, and
 
Adjusted Efficiency Ratio" above for the individual tax
 
impact related to the above adjustments, which were
 
based on the
Puerto Rico statutory tax rate of 37.5%, as applicable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
85
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 in
 
nonaccrual loans,
 
can fluctuate
 
from period
 
to period.
 
Net interest
 
income for
 
the quarter
 
and
six-month period
 
ended June
 
30, 2023
 
was $199.8
 
million and
 
$400.7 million,
 
respectively,
 
compared to
 
$196.2 million
 
and $381.8
million
 
for
 
the
 
comparable
 
periods
 
in
 
2022.
 
On
 
a
 
tax-equivalent
 
basis
 
and
 
excluding
 
the
 
changes
 
in
 
the
 
fair
 
value
 
of
 
derivative
instruments,
 
net
 
interest
 
income
 
for
 
the
 
quarter
 
and
 
six-month
 
period
 
ended
 
June
 
30,
 
2023
 
was
 
$205.4
 
million
 
and
 
$412.6
 
million,
respectively, compared
 
to $205.6 million and $398.4 million for the comparable periods in 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 interest
 
income. For
 
each category
 
of interest-earning
 
assets and
 
interest-bearing
 
liabilities, the
 
tables
provide
 
information
 
on
 
changes
 
in
 
(i)
 
volume
 
(changes
 
in
 
volume
 
multiplied
 
by
 
prior
 
period
 
rates),
 
and
 
(ii)
 
rate
 
(changes
 
in
 
rate
multiplied by
 
prior period
 
volumes). The
 
Corporation has
 
allocated rate-volume
 
variances (changes
 
in rate
 
multiplied by
 
changes in
volume) to either the changes in volume or the changes in rate based upon the
 
effect of each factor on the combined totals.
Net
 
interest
 
income
 
on
 
an
 
adjusted
 
tax
 
equivalent
 
basis and
 
excluding
 
the
 
change
 
in
 
the fair
 
value
 
of derivative
 
instruments
 
is a
non-GAAP
 
financial
 
measure.
 
For
 
the
 
definition
 
of
 
this
 
non-GAAP
 
financial
 
measure,
 
refer
 
to
 
the
 
discussion
 
in
 
“Non-GAAP
Measures and Reconciliations” above.
Part I
Average volume
Interest income
(1)
 
/ expense
Average rate
(1)
Quarter ended June 30,
 
2023
2022
2023
2022
2023
2022
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
$
617,356
$
1,530,353
$
7,880
$
2,873
5.12
%
0.75
%
Government obligations
(2)
2,909,204
2,922,226
10,973
10,090
1.51
%
1.38
%
MBS
3,757,425
4,081,573
17,087
22,804
1.82
%
2.24
%
FHLB stock
36,265
21,275
780
251
8.63
%
4.73
%
Other investments
13,739
12,595
58
12
1.69
%
0.38
%
Total investments
(3)
7,333,989
8,568,022
36,778
36,030
2.01
%
1.69
%
Residential mortgage loans
2,808,465
2,891,403
39,864
40,573
5.69
%
5.63
%
Construction loans
149,783
124,070
2,903
1,768
7.77
%
5.72
%
Commercial and industrial ("C&I") and commercial mortgage loans
5,191,040
5,054,223
89,290
64,500
6.90
%
5.12
%
Finance leases
769,316
617,399
14,714
11,410
7.67
%
7.41
%
Consumer loans
2,672,912
2,415,215
74,192
63,724
11.13
%
10.58
%
Total loans
(4)(5)
11,591,516
11,102,310
220,963
181,975
7.65
%
6.57
%
 
Total interest-earning assets
$
18,925,505
$
19,670,332
$
257,741
$
218,005
5.46
%
4.45
%
Interest-bearing liabilities:
Time deposits
$
2,511,504
$
2,202,228
$
15,667
$
3,838
2.50
%
0.70
%
Brokered certificates of deposit ("CDs")
333,557
76,790
3,761
404
4.52
%
2.11
%
Other interest-bearing deposits
7,517,995
8,704,448
22,176
3,452
1.18
%
0.16
%
Securities sold under agreements to repurchase
101,397
200,000
1,328
1,972
5.25
%
3.95
%
Advances from the FHLB
534,231
200,000
6,048
1,075
4.54
%
2.16
%
Other long-term borrowings
177,701
183,762
3,409
1,698
7.69
%
3.71
%
Total interest-bearing liabilities
$
11,176,385
$
11,567,228
$
52,389
$
12,439
1.88
%
0.43
%
Net interest income on a tax-equivalent basis and excluding
valuations - non-GAAP
$
205,352
$
205,566
Interest rate spread
3.58
%
4.01
%
Net interest margin
4.35
%
4.19
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
86
Part I
Average volume
Interest income
(1)
 
/ expense
Average rate
(1)
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
2023
2022
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
$
511,392
$
1,682,216
$
12,530
$
3,693
4.94
%
0.44
%
Government obligations
(2)
2,909,587
2,829,675
21,738
18,322
1.51
%
1.31
%
MBS
3,810,491
4,061,883
36,483
42,224
1.93
%
2.10
%
FHLB stock
38,539
21,370
1,201
538
6.28
%
5.08
%
Other investments
13,441
12,193
197
33
2.96
%
0.55
%
Total investments
(3)
7,283,450
8,607,337
72,149
64,810
2.00
%
1.52
%
Residential mortgage loans
2,821,779
2,926,236
79,658
81,260
5.69
%
5.60
%
Construction loans
147,923
119,427
5,579
3,292
7.61
%
5.56
%
C&I and commercial mortgage loans
5,179,448
5,078,910
175,175
126,504
6.82
%
5.02
%
Finance leases
752,501
602,880
28,523
22,322
7.64
%
7.47
%
Consumer loans
2,654,008
2,377,118
145,406
124,875
11.05
%
10.59
%
Total loans
(4)(5)
11,555,659
11,104,571
434,341
358,253
7.58
%
6.51
%
 
Total interest-earning assets
$
18,839,109
$
19,711,908
$
506,490
$
423,063
5.42
%
4.33
%
Interest-bearing liabilities:
Time deposits
$
2,427,399
$
2,282,192
$
26,449
$
8,259
2.20
%
0.73
%
Brokered CDs
250,588
84,210
5,348
881
4.30
%
2.11
%
Other interest-bearing deposits
7,531,374
8,419,880
39,692
6,206
1.06
%
0.15
%
Securities sold under agreements to repurchase
96,229
220,442
2,397
4,154
5.02
%
3.80
%
Advances from the FHLB
581,436
200,000
13,224
2,138
4.59
%
2.16
%
Other long-term borrowings
180,715
183,762
6,790
3,031
7.58
%
3.33
%
Total interest-bearing liabilities
$
11,067,741
$
11,390,486
$
93,900
$
24,669
1.71
%
0.44
%
Net interest income on a tax-equivalent basis and excluding
valuations - non-GAAP
$
412,590
$
398,394
Interest rate spread
3.71
%
3.89
%
Net interest margin
4.42
%
4.08
%
(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 Financial Measures and
 
Reconciliations"
below.
(2)
Government obligations include debt issued by government-sponsored
 
agencies.
(3)
Unrealized gains and losses on available-for-sale debt securities
 
are excluded from the average volumes.
(4)
Average loan balances include
 
the average of nonaccrual loans.
(5)
Interest income on loans includes $2.9 million and $3.0 million for
 
the quarters ended June 30, 2023 and 2022, respectively,
 
and $6.0 million and $5.6 million for the six-month periods
ended June 30, 2023 and 2022, respectively,
 
of income from prepayment penalties and late fees related to the Corporation’s
 
loan portfolio.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
87
Part II
Quarter Ended June 30,
 
Six-Month Period Ended June 30,
 
2023 Compared to 2022
2023 Compared to 2022
Variance due to:
Variance due to:
Volume
Rate
Total
Volume
Rate
Total
(In thousands)
Interest income on interest-earning assets:
Money market and other short-term investments
$
(6,709)
$
11,716
$
5,007
$
(15,795)
$
24,632
$
8,837
Government obligations
(48)
931
883
530
2,886
3,416
MBS
(1,710)
(4,007)
(5,717)
(2,523)
(3,218)
(5,741)
FHLB stock
244
285
529
511
152
663
Other investments
1
45
46
4
160
164
Total investments
(8,222)
8,970
748
(17,273)
24,612
7,339
Residential mortgage loans
(1,173)
464
(709)
(2,943)
1,341
(1,602)
Construction loans
415
720
1,135
899
1,388
2,287
C&I and commercial mortgage loans
1,790
23,000
24,790
2,551
46,120
48,671
Finance leases
2,893
411
3,304
5,660
541
6,201
Consumer loans
7,037
3,431
10,468
15,003
5,528
20,531
Total loans
10,962
28,026
38,988
21,170
54,918
76,088
Total interest income
$
2,740
$
36,996
$
39,736
$
3,897
$
79,530
$
83,427
Interest expense on interest-bearing liabilities:
Time deposits
$
1,234
$
10,595
$
11,829
$
558
$
17,632
$
18,190
Brokered CDs
2,502
855
3,357
2,927
1,540
4,467
Other interest-bearing deposits
(953)
19,677
18,724
(2,830)
36,316
33,486
Securities sold under agreements to repurchase
(1,132)
488
(644)
(2,733)
976
(1,757)
Advances from the FHLB
2,992
1,981
4,973
6,967
4,119
11,086
Other borrowings
(86)
1,797
1,711
(99)
3,858
3,759
Total interest expense
4,557
35,393
39,950
4,790
64,441
69,231
Change in net interest income
$
(1,817)
$
1,603
$
(214)
$
(893)
$
15,089
$
14,196
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
88
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 June 30,
 
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
(Dollars in thousands)
Interest income - GAAP
$
252,204
$
208,625
$
494,600
$
406,479
Unrealized (gain) loss on derivative instruments
(3)
(9)
3
(24)
Interest income excluding valuations - non-GAAP
252,201
208,616
494,603
406,455
Tax-equivalent adjustment
5,540
9,389
11,887
16,608
Interest income on a tax-equivalent basis
 
and excluding valuations - non-GAAP
$
257,741
$
218,005
$
506,490
$
423,063
Interest expense - GAAP
$
52,389
$
12,439
$
93,900
$
24,669
Net interest income - GAAP
$
199,815
$
196,186
$
400,700
$
381,810
Net interest income excluding valuations - non-GAAP
$
199,812
$
196,177
$
400,703
$
381,786
Net interest income on a tax-equivalent basis
 
and excluding valuations - non-GAAP
$
205,352
$
205,566
$
412,590
$
398,394
Average Balances
 
Loans and leases
$
11,591,516
$
11,102,310
$
11,555,659
$
11,104,571
Total securities, other short-term investments and interest-bearing
 
cash balances
7,333,989
8,568,022
7,283,450
8,607,337
Average Interest-Earning Assets
$
18,925,505
$
19,670,332
$
18,839,109
$
19,711,908
Average Interest-Bearing Liabilities
$
11,176,385
$
11,567,228
$
11,067,741
$
11,390,486
Average Yield/Rate
Average yield on interest-earning assets - GAAP
5.35%
4.25%
5.29%
4.16%
Average rate on interest-bearing liabilities - GAAP
1.88%
0.43%
1.71%
0.44%
Net interest spread - GAAP
3.47%
3.82%
3.58%
3.72%
Net interest margin - GAAP
4.23%
4.00%
4.29%
3.91%
Average yield on interest-earning assets excluding valuations
 
- non-GAAP
5.35%
4.25%
5.29%
4.16%
Average rate on interest-bearing liabilities
1.88%
0.43%
1.71%
0.44%
Net interest spread excluding valuations
 
- non-GAAP
3.47%
3.82%
3.58%
3.72%
Net interest margin excluding valuations - non-GAAP
4.23%
4.00%
4.29%
3.91%
Average yield on interest-earning assets on a tax-equivalent
 
basis and excluding
valuations - non-GAAP
5.46%
4.45%
5.42%
4.33%
Average rate on interest-bearing liabilities
1.88%
0.43%
1.71%
0.44%
Net interest spread on a tax-equivalent basis
 
and excluding valuations - non-GAAP
3.58%
4.01%
3.71%
3.89%
Net interest margin on a tax-equivalent basis and excluding
 
valuations - non-GAAP
4.35%
4.19%
4.42%
4.08%
 
89
Net interest income amounted to
 
$199.8 million for the quarter
 
ended June 30, 2023, an increase
 
of $3.6 million, when compared
 
to
$196.2 million for same period in 2022. The $3.6 million increase in net
 
interest income was primarily due to:
A $38.8 million increase in interest income on loans including:
-
A $25.5 million increase in interest
 
income on commercial and construction
 
loans, of which approximately $24.
 
4
 
million
was related
 
to the
 
effect of
 
higher market
 
interest rates
 
on the
 
upward repricing
 
of variable-rate
 
loans and
 
on new
 
loan
originations,
 
and
 
approximately
 
$2.9
 
million
 
was
 
related
 
to
 
the
 
$229.9
 
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 June 30, 2023 and 2022, amounted to $0.1
 
million and $2.0 million, respectively.
As of June 30, 2023, the
 
interest rate on approximately 54% of
 
the Corporation’s
 
commercial and construction loans was
tied to variable
 
rates, with 29%
 
based upon LIBOR
 
or SOFR of
 
3 months or
 
less, 13% based
 
upon the Prime
 
rate index,
and
 
12%
 
based
 
on
 
other
 
indexes.
 
For
 
the
 
second
 
quarter
 
of
 
2023,
 
the
 
average
 
one-month
 
LIBOR
 
increased
 
410
 
basis
points,
 
the
 
average
 
three-month
 
LIBOR increased
 
388
 
basis points,
 
the
 
average
 
Prime
 
rate increased
 
422
 
basis points,
and the average three-month SOFR increased
 
382 basis points, compared to the
 
average rates for such indexes during
 
the
second quarter of 2022.
-
A $13.8 million increase in interest
 
income on consumer loans and finance
 
leases, primarily driven by the $409.6
 
million
increase in the average balance
 
of this portfolio, which
 
increased interest income by approximately
 
$10.1 million, and an
approximately $3.7 million
 
increase in interest income
 
associated with the positive
 
effects of higher market
 
interest rates
on new consumer loan originations and the repricing of the credit cards portfolio.
Partially offset by:
-
A $0.5 million
 
decrease in interest
 
income on residential
 
mortgage loans, primarily
 
related to an
 
$82.9 million reduction
in
 
the
 
average
 
balance
 
of this
 
portfolio,
 
which
 
resulted
 
in an
 
approximate
 
decrease
 
of
 
$1.1
 
million
 
in
 
interest income,
partially offset by the positive effect of new loan
 
originations at higher current market interest rates.
A
$4.8 million increase in interest income from interest-bearing cash
 
balances and investment securities, including:
-
A
 
$5.0
 
million
 
increase
 
in
 
interest
 
income
 
from
 
interest-bearing
 
cash
 
balances,
 
which
 
consisted
 
primarily
 
of
 
cash
balances deposited at
 
the FED, mainly due
 
to the effect
 
of higher market interest
 
rates, partially offset
 
by the impact of a
$913.0 million decrease in the average volume of interest-bearing
 
cash balances.
-
A
 
$1.3
 
million
 
increase
 
in
 
interest
 
income
 
on
 
Puerto
 
Rico
 
municipal
 
bonds,
 
mainly
 
due
 
to
 
the
 
upward
 
repricing
 
of
variable-rate bonds.
-
A $0.3
 
million
 
increase
 
in
 
interest income
 
on
 
U.S. government
 
and
 
agencies
 
debt
 
securities, mainly
 
driven
 
by
 
higher-
yielding securities purchased late in the second quarter of 2022.
-
A $0.5 million increase in dividends received from the FHLB during the second quarter
 
of 2023.
 
Partially offset by:
-
A $2.4
 
million decrease
 
in interest
 
income on
 
U.S. agencies
 
MBS, of
 
which $1.5
 
million was
 
associated with
 
a $324.1
million decrease
 
in the
 
average balance
 
of this
 
portfolio, and
 
the remaining
 
variance to
 
a higher
 
level of
 
U.S. agencies’
MBS premium amortization expense associated with changes in anticipated
 
prepayments.
 
90
Partially offset by:
 
A $33.9 million increase
 
in interest expense on interest-bearing deposits, including:
-
An $18.7 million
 
increase in interest expense
 
on interest-bearing checking
 
and saving accounts,
 
driven by an
 
increase of
approximately
 
$20.5
 
million
 
associated
 
with
 
higher
 
interest
 
rates
 
paid
 
in
 
the
 
second
 
quarter
 
of
 
2023
 
as
 
a
 
result
 
of
 
the
overall
 
higher
 
interest
 
rate
 
environment,
 
partially
 
offset
 
by
 
a
 
decrease
 
of
 
approximately
 
$1.8
 
million
 
resulting
 
from
 
a
$1.2
 
billion decline
 
in the
 
average balance
 
of these
 
deposits. The
 
average
 
cost of
 
interest-bearing
 
checking
 
and
 
saving
accounts increased by
 
102 basis points to
 
1.18% in the
 
second quarter of
 
2023 as compared
 
to 0.16% in
 
the same period
in
 
2022.
 
Excluding
 
public
 
sector
 
deposits,
 
the
 
average
 
cost
 
of
 
interest-bearing
 
checking
 
and
 
saving
 
accounts
 
for
 
the
second quarter of 2023 was 0.67%, compared to 0.17% for the same period
 
a year ago.
-
An $11.8
 
million increase
 
in interest
 
expense on
 
time deposits,
 
excluding brokered
 
CDs, mainly
 
associated with
 
higher
rates
 
paid
 
in
 
the
 
second
 
quarter
 
of
 
2023
 
on
 
new
 
issuances
 
and
 
renewals
 
also
 
associated
 
with
 
the
 
higher
 
interest
 
rate
environment.
 
The average
 
cost of
 
time deposits
 
in the
 
second quarter
 
of 2023,
 
excluding brokered
 
CDs, increased
 
180
basis points to 2.50% when compared to the same period in 2022
 
.
-
A $3.4
 
million increase
 
in interest
 
expense on
 
brokered CDs,
 
of which
 
$2.5 million
 
was associated
 
with the
 
increase of
$256.8 million in the average balance.
A
$6.0 million net increase in interest expense on borrowings, including:
-
A $5.0
 
million increase
 
in interest
 
expense on
 
advances from
 
the FHLB,
 
of which
 
$3.0 million
 
was associated
 
with an
increase
 
of
 
$334.2
 
million
 
in
 
the
 
average
 
balance
 
to
 
increase
 
available
 
cash
 
as
 
a
 
precautionary
 
measure
 
in
 
the
 
first
quarter of 2023, and $2.0 million was associated with new FHLB advances
 
at higher interest rates.
 
-
A
$1.7
 
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
 
$0.7
 
million
 
decrease
 
in
 
interest
 
expense
 
on
 
repurchase
 
agreements,
 
mainly
 
driven
 
by
 
a
 
reduction
 
in
 
the
 
average
balance of $98.6 million, partially offset by a higher average cost of
 
funds in the second quarter of 2023.
 
91
Net interest
 
income amounted
 
to $400.7
 
million for
 
the six-month
 
period ended
 
June 30, 2023,
 
an increase
 
of $18.9
 
million, when
compared to $381.8 million for same period in 2022. The $18.9 million
 
increase in net interest income was primarily due to:
A $75.7 million increase in interest income on loans including:
-
A $50.1 million increase in
 
interest income on commercial and
 
construction loans, of which approximately
 
$49.5 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
 
$5.4
 
million
 
was
 
related
 
to
 
the
 
$220.6
 
million
 
increase
 
in
 
the
 
average
 
balance
 
of
 
this
portfolio (excluding
 
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
 
six-month
 
periods
 
ended
 
June
 
30,
 
2023
 
and
2022, amounted to $0.3 million and $5.1 million, respectively.
As of June 30, 2023, the
 
interest rate on approximately 54% of
 
the Corporation’s
 
commercial and construction loans was
tied to variable
 
rates, with 29%
 
based upon LIBOR
 
or SOFR of
 
3 months or
 
less, 13% based
 
upon the Prime
 
rate index,
and
 
12%
 
based
 
on
 
other
 
indexes.
 
For
 
the
 
six-month
 
period
 
ended
 
June
 
30,
 
2023,
 
the
 
average
 
one-month
 
LIBOR
increased 424
 
basis points,
 
the average
 
three-month LIBOR
 
increased 414
 
basis points,
 
the average
 
three-month SOFR
increased 413 basis points,
 
and the average Prime
 
rate increased 431 basis points,
 
compared to the average
 
rates for such
indexes during the same period of the prior year.
-
A $26.8 million increase in interest
 
income on consumer loans and finance
 
leases, primarily driven by the $426.5
 
million
increase
 
in the
 
average
 
balance of
 
this portfolio,
 
which
 
increased interest
 
income
 
by approximately
 
$20.6
 
million,
 
and
the approximately
 
$6.1 million
 
increase in
 
interest income
 
associated with
 
the positive
 
effects of
 
higher market
 
interest
rates on new consumer loan originations and the repricing of the credit cards portfolio
 
.
Partially offset by:
-
A
$1.2
 
million
 
decrease
 
in
 
interest
 
income
 
on
 
residential
 
mortgage
 
loans,
 
primarily
 
related
 
to
 
the
 
$104.5
 
million
reduction in
 
the average
 
balance of
 
this portfolio,
 
which resulted
 
in an
 
approximate
 
decrease of
 
$2.7 million
 
in interest
income,
 
partially
 
offset
 
by
 
the
 
positive
 
effect
 
of
 
new
 
loan
 
originations
 
at
 
higher
 
current
 
market
 
interest
 
rates,
 
which
resulted in an approximate increase of $1.6 million in the first six months of
 
2023.
A $8.8
 
million
 
increase
 
in interest
 
income
 
from
 
interest-bearing
 
cash balances,
 
which
 
consisted primarily
 
of
 
cash balances
deposited at
 
the FED,
 
mainly due
 
to the
 
effect of
 
higher market
 
interest rates,
 
partially offset
 
by the
 
impact of
 
a $1.2
 
billion
decrease in the average balance of interest-bearing cash.
A
$3.6 million increase in interest income on investment securities, mainly driven
 
by:
-
A
 
$2.7
 
million
 
increase
 
in
 
interest
 
income
 
on
 
Puerto
 
Rico
 
municipal
 
bonds,
 
mainly
 
due
 
to
 
the
 
upward
 
repricing
 
of
variable-rate bonds, partially offset by the impact of
 
a $12.3 million reduction in the average balance.
-
A $1.5
 
million
 
increase
 
in
 
interest income
 
on
 
U.S. government
 
and
 
agencies
 
debt
 
securities, mainly
 
driven
 
by
 
higher-
yielding securities purchased late in the second quarter of 2022.
-
A $0.8
 
million increase
 
in dividend
 
income from
 
FHLB stock,
 
mainly driven
 
by a
 
higher average
 
balance tied
 
with the
increase in FHLB advances taken as a precautionary measure in the
 
first quarter of 2023.
Partially offset by:
-
A $1.4
 
million decrease
 
in interest
 
income on
 
U.S. agencies
 
MBS, of
 
which $2.4
 
million was
 
associated with
 
a $251.4
million
 
decrease
 
in
 
the
 
average
 
balance
 
of
 
this
 
portfolio,
 
partially
 
offset
 
by
 
a
 
$1.0
 
million
 
increase
 
associated
 
with
 
a
lower
 
level
 
of premium
 
amortization
 
expense
 
due
 
to changes
 
in
 
anticipated
 
prepayments
 
and
 
the positive
 
effects
 
from
higher-yielding U.S. agencies MBS purchased in the second quarter of
 
2022.
 
 
 
 
92
Partially offset by:
A $56.1 million increase in interest expense on interest-bearing deposits, including:
-
A $33.5
 
million increase
 
in interest
 
expense on
 
interest-bearing checking
 
and saving
 
accounts, driven
 
by an
 
increase of
approximately
 
$35.7 million
 
associated with
 
higher interest
 
rates paid
 
in the
 
first half
 
of 2023
 
as a
 
result of
 
the overall
higher interest
 
rate environment,
 
partially offset
 
by a decrease
 
of approximately
 
$2.2 million
 
resulting from
 
a decline of
approximately $888.5 million in the average balance of these deposits.
-
An $18.1
 
million increase
 
in interest
 
expense on
 
time deposits,
 
excluding brokered
 
CDs, mainly
 
associated with
 
higher
rates
 
paid
 
in
 
the
 
first
 
half
 
of
 
2023
 
on
 
new
 
issuances
 
and
 
renewals
 
also
 
associated
 
with
 
the
 
higher
 
interest
 
rate
environment.
 
The average
 
cost of
 
time deposits
 
in the
 
first
 
half of
 
2023,
 
excluding
 
brokered CDs,
 
increased
 
147
 
basis
points to 2.20% when compared to the same period in 2022.
-
A $4.5
 
million increase
 
in interest
 
expense on
 
brokered CDs,
 
of which
 
$2.9 million
 
was associated
 
with the
 
increase of
$166.4 million in the average balance and $1.6 million was associated to the overall
 
higher interest rate environment.
A $13.1 million net increase in interest expense on borrowings, including:
-
An $11.1
 
million increase in interest
 
expense on advances from
 
the FHLB, of which $7.0
 
million was associated with
 
an
increase
 
of
 
$381.4
 
million
 
in
 
the
 
average
 
balance
 
to
 
increase
 
available
 
cash
 
as
 
a
 
precautionary
 
measure
 
in
 
the
 
first
quarter of 2023, and $4.1 million was associated with new FHLB advances
 
at higher interest rates.
 
-
A
 
$3.8
 
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.
Partially offset by:
-
A
 
$1.8
 
million
 
decrease
 
in
 
interest
 
expense
 
on
 
repurchase
 
agreements,
 
mainly
 
driven
 
by
 
a
 
reduction
 
in
 
the
 
average
balance of $124.2 million,
 
which resulted in an approximate
 
reduction of $2.7 million in
 
interest expense, partially offset
by a $0.9
 
million increase in
 
interest expense associated
 
with new short
 
-term repurchase agreements
 
entered into during
2023 at higher interest rates.
Net interest
 
margin for
 
the second
 
quarter of
 
2023 increased
 
to 4.23%,
 
compared to
 
4.00% for
 
the same
 
period in
 
2022, and
 
by 38
basis
 
points
 
to
 
4.29%
 
for
 
the
 
first
 
six
 
months
 
of
 
2023,
 
compared
 
to
 
3.91%
 
for
 
the
 
same
 
period
 
of
 
2022.
 
The
 
net
 
interest
 
margin
increase
 
primarily
 
reflects
 
the
 
upward
 
repricing
 
of
 
variable-rate
 
commercial
 
loans,
 
the
 
growth
 
in
 
higher
 
yielding
 
loans,
 
primarily
consumer loans, and the change in asset mix, reflecting a higher
 
proportion of higher-yielding assets in the 2023
 
periods. These factors
were partially offset by an increase in the average cost of interest-bearing
 
liabilities.
 
93
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 $20.8
 
million for
 
the second
 
quarter of
 
2023, compared
 
to $12.7
million for the second quarter of 2022. The variances by major portfolio
 
category were as follows:
Provision
 
for
 
credit
 
losses
 
for
 
the
 
commercial
 
and
 
construction
 
loan
 
portfolio
 
was
 
$10.2
 
million
 
for
 
the
 
second
 
quarter
 
of
2023,
 
compared to
 
$0.3 million
 
for the
 
second quarter
 
of 2022.
 
The expense
 
recognized during
 
the second
 
quarter of
 
2023
was mainly due to a deterioration in the forecasted CRE price index and the
 
increase in size of this portfolio.
Provision
 
for
 
credit
 
losses for
 
the
 
consumer
 
loans
 
and finance
 
leases portfolio
 
was
 
$14.1
 
million
 
for
 
the second
 
quarter
 
of
2023,
 
compared
 
to
 
$15.2
 
million
 
for
 
the
 
second
 
quarter
 
of
 
2022.
 
The
 
decrease
 
was
 
primarily
 
related
 
to
 
updates
 
in
macroeconomic variables, such as the unemployment rate.
Provision for
 
credit losses for
 
the residential
 
mortgage loan portfolio
 
was a net
 
benefit of $3.5
 
million for the
 
second quarter
of
 
2023,
 
compared
 
to
 
a net
 
benefit
 
of
 
$2.8
 
million
 
for
 
the second
 
quarter
 
of 2022.
 
The higher
 
net
 
benefit
 
recorded
 
for the
second quarter of 2023
 
was primarily related to updates in the projection
 
of certain forecasted macroeconomic variables, such
as the Regional Home Price Index.
The provision for credit losses
 
for loans and finance leases was an
 
expense of $37.0 million for
 
the first half of 2023, compared to
 
a
net benefit of $4.3 million for the same period in 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
 
$10.7
 
million for
 
the first
half of 2023, compared
 
to a net benefit
 
of $22.8 million for
 
the same period of
 
2022. The expense
 
recognized during the first
half
 
of
 
2023
 
was mainly
 
due
 
to
 
a
 
deterioration
 
in the
 
forecasted
 
CRE price
 
index,
 
a
 
$6.2
 
million
 
charge
 
associated
 
with
 
a
nonaccrual commercial
 
and industrial participated
 
loan in the Florida
 
region in the
 
power generation industry
 
and, to a
 
lesser
extent, portfolio growth.
 
Meanwhile, the net benefit recorded during the
 
first six months of 2022 mainly reflects reductions
 
in
qualitative
 
reserves
 
associated
 
with
 
reduced
 
COVID-19
 
uncertainties,
 
partially
 
offset
 
by
 
reserve
 
builds
 
related
 
to
uncertainties regarding the macroeconomic outlook.
Provision
 
for
 
credit losses
 
for
 
the
 
residential
 
mortgage
 
loan portfolio
 
was a
 
net
 
benefit
 
of $3.4
 
million
 
for
 
the
 
first half
 
of
2023,
 
compared to
 
a net
 
benefit of
 
$7.7 million
 
for the
 
same period
 
of 2022.
 
The net
 
benefit recorded
 
for both
 
periods was
primarily related to
 
a continued favorable
 
economic outlook in
 
the projection of
 
certain forecasted macroeconomic
 
variables,
such as the Regional Home Price Index.
Provision
 
for
 
credit losses
 
for
 
the consumer
 
loans and
 
finance leases
 
portfolio
 
was $29.7
 
million
 
for
 
the first
 
half of
 
2023,
compared
 
to
 
$26.2
 
million
 
for
 
the
 
same
 
period
 
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,
 
partially
 
offset
 
by
updates in macroeconomic variables, such as the unemployment rate.
 
 
94
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 $0.7
million
 
and
 
$0.6
 
million
 
for
 
the second
 
quarter
 
and
 
the
 
first half
 
of
 
2023,
 
respectively,
 
compared
 
to $0.8
 
million
 
and
 
$0.7
 
million,
respectively, for the
 
same periods in 2022.
Provision for credit losses for
 
held-to-maturity and available-for-sale debt
 
securities
The provision for credit losses
 
for held-to-maturity debt securities was
 
$0.8 million and $0.1 million
 
for the second quarter and first
half of 2023, respectively,
 
compared to a net benefit
 
of $3.4 million and an
 
expense of $0.3 million,
 
respectively, for
 
the same periods
of
 
2022.
 
The
 
increase
 
in
 
the
 
provision
 
recorded
 
during
 
the
 
second
 
quarter
 
and
 
the
 
first
 
half
 
of
 
2023
 
was
 
mostly
 
driven
 
by
 
higher
exposure risk associated with the rising interest rate environment.
The
 
provision
 
for
 
credit
 
losses
 
for
 
available-for-sale
 
debt
 
securities
 
was
 
a
 
net
 
benefit
 
of
 
$16
 
thousand
 
and
 
$25
 
thousand
 
for
 
the
second quarter
 
and first
 
half of
 
2023, respectively,
 
compared to
 
a net
 
benefit of
 
$35 thousand
 
and $0.4
 
million, respectively,
 
for the
same periods in 2022.
 
 
95
Non-Interest Income
Non-interest
 
income amounted
 
to $36.3
 
million for
 
the second
 
quarter of
 
2023, compared
 
to $30.9
 
million for
 
the same
 
period in
2022.
 
Non-interest income
 
for the second
 
quarter of
 
2023 includes the
 
$3.6 million
 
gain recognized
 
from a legal
 
settlement,
 
included
as part
 
of other
 
non-interest income
 
,
 
and the
 
$1.6 million
 
gain on
 
the repurchase
 
of $21.4
 
million in
 
junior subordinated
 
debentures,
included as part of gain on early extinguishment of debt.
 
See “Non-GAAP Financial Measures and Reconciliations” in this MD&A for
further information. On a non-GAAP basis, excluding the effect
 
of these Special Items, adjusted non-interest income increased by
 
$0.2
million primarily due to:
A $1.0
 
million
 
net increase
 
in adjusted
 
other non
 
-interest income
 
including:
 
(i) a
 
$0.8 million
 
benefit
 
recognized
 
during
the second
 
quarter of
 
2023
 
in relation
 
to purchased
 
income tax
 
credits realized;
 
(ii) $0.3
 
million
 
in debit
 
card incentives
collected during
 
the second
 
quarter of
 
2023; (iii)
 
a $0.3
 
million increase
 
related to
 
higher unused
 
loan commitment
 
fees;
and (v) a $0.6 million decrease in net gains on fixed assets.
A $0.8
 
million
 
increase
 
in card
 
and
 
processing
 
income
 
mainly
 
related
 
to higher
 
interchange
 
income
 
received
 
during
 
the
second quarter of 2023.
Partially offset by:
A $1.2 million decrease
 
in revenues from mortgage
 
banking activities, mainly driven
 
by a decrease in
 
the net realized gain
on sales
 
of residential
 
mortgage loans
 
in the
 
secondary market
 
due to
 
a lower
 
volume of
 
sales and
 
lower margins.
 
During
the second quarters of
 
2023 and 2022, net realized
 
gains of $0.9 million
 
and $2.2 million, respectively,
 
were recognized as
a
 
result
 
of
 
GNMA
 
securitization
 
transactions
 
and
 
whole
 
loan
 
sales to
 
U.S.
 
GSEs
 
amounting
 
to
 
$51.8
 
million
 
and
 
$64.2
million, respectively.
A $0.2 million decrease in insurance commission income.
A$0.2 million decrease in service in charges and fees on deposits accounts
 
.
Non-interest
 
income for
 
the six-month
 
period ended
 
June 30,
 
2023 amounted
 
to $68.8
 
million, compared
 
to $63.8
 
million for
 
the
same period
 
in 2022.
 
On a
 
non-GAAP basis,
 
excluding the
 
effect of
 
the aforementioned
 
Special Items,
 
adjusted non-interest
 
income
decreased by $0.2 million primarily due to:
A $3.6 million decrease
 
in revenues from mortgage
 
banking activities, mainly driven
 
by a decrease in
 
the net realized gain
on sales
 
of residential
 
mortgage loans
 
in the
 
secondary market
 
due to
 
a lower
 
volume of
 
sales and
 
lower margins.
 
During
the first six months
 
of 2023 and
 
2022, net gains
 
of $2.0 million
 
and $5.7 million,
 
respectively,
 
were recognized as
 
a result
of GNMA
 
securitization transactions
 
and whole
 
loan sales
 
to U.S.
 
GSEs amounting
 
to $89.2
 
million and
 
$158.1 million,
respectively.
A
 
$0.6
 
million
 
decrease
 
in
 
insurance
 
commission
 
income,
 
mainly
 
due
 
to
 
lower
 
contingent
 
commissions
 
recognized
 
in
2023.
Partially offset by:
A
 
$2.1
 
million
 
increase
 
in
 
card
 
and
 
processing
 
income
 
mainly
 
related
 
to
 
higher
 
interchange
 
income
 
during
 
the
 
first
 
six
months of 2023.
A $1.9
 
million
 
net
 
increase
 
in
 
adjusted
 
other
 
non-interest
 
income
 
including:
 
(i)
 
a $1.0
 
million
 
increase
 
related
 
to higher
benefit recognized in relation to
 
purchased income tax credits realized
 
;
 
(ii) a $0.6
 
million increase related to higher
 
unused
loan commitment
 
fees; (iii)
 
$0.3 million
 
in debit
 
card incentives
 
collected during
 
the second
 
quarter of
 
2023; (iv)
 
a $0.3
million
 
increase
 
in
 
unrealized
 
gains
 
on
 
marketable
 
equity
 
securities;
 
and
 
(v)
 
a
 
$0.2
 
million
 
increase
 
in
 
fees
 
and
commissions from insurance referrals;
 
partially offset by a $0.7 million decrease in net gains on fixed
 
assets.
 
96
Non-Interest Expenses
Non-interest
 
expenses for
 
the quarter
 
ended June
 
30, 2023
 
amounted
 
to $112.9
 
million, compared
 
to $108.3
 
million for
 
the same
period in
 
2022. The
 
efficiency ratio
 
for the
 
second quarter of
 
2023 was
 
47.83%, compared
 
to 47.69% for
 
the second
 
quarter of
 
2022.
On a
 
non-GAAP basis,
 
excluding the
 
aforementioned Special
 
Items,
 
the adjusted
 
efficiency ratio
 
for the
 
second quarter
 
of 2023
 
was
48.91%. The $4.6 million increase in non-interest expenses was primarily due
 
to:
A
$3.0
 
million
 
increase
 
in
 
employees’
 
compensation
 
and
 
benefits
 
expenses,
 
mainly
 
driven
 
by
 
annual
 
salary
 
merit
increases,
 
higher stock-based compensation expense, and higher medical insurance
 
premium costs.
A
 
$1.0
 
million
 
increase
 
in
 
other
 
non-interest
 
expenses,
 
in
 
part
 
due
 
to
 
an
 
increase
 
in
 
charges
 
for
 
legal
 
and
 
operational
reserves and an increase of $0.5 million in net periodic cost of pension plans.
 
A
$0.7 million increase in credit and debit card processing fees, mainly
 
due to higher credit card assessment fees.
A
$0.6 million
 
increase in
 
the FDIC deposit
 
insurance expense,
 
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.
A $0.4 million increase in taxes, other than income taxes, primarily related
 
to higher license fees.
 
Partially offset by:
A
$0.5 million
 
increase in
 
net gains
 
on OREO
 
operations,
 
mainly driven
 
by an
 
increase in
 
net realized
 
gains on
 
sales of
OREO properties, primarily residential properties in the Puerto Rico region
 
.
A
$0.4
 
million
 
decrease
 
in
 
occupancy
 
and
 
equipment
 
expenses,
 
primarily
 
reflecting
 
reductions
 
in
 
depreciation
 
charges,
energy costs, and maintenance charges.
A $0.4 million decrease in professional service fees, mainly due
 
to a decrease in outsourced technology service fees.
Non-interest expenses for
 
the first six months
 
of 2023 amounted
 
to $228.2 million, compared
 
to $215.0 million for
 
the same period
in 2022.
 
The efficiency ratio
 
for the first
 
six months of
 
2023 was 48.60%,
 
compared to 48.25%
 
for the first
 
six months of
 
2022. On a
non-GAAP
 
basis,
 
excluding
 
the
 
aforementioned
 
Special
 
Items,
 
the
 
adjusted
 
efficiency
 
ratio
 
for
 
the
 
first
 
six
 
months
 
of
 
2023
 
was
49.15%. The $13.2 million increase in non-interest expenses was primarily
 
due to:
A
$9.9 million increase in employees’
 
compensation and benefits expenses, mainly driven
 
by annual salary merit increases
and
 
an
 
increase
 
in
 
bonuses,
 
medical
 
insurance
 
premium
 
costs,
 
stock-based
 
compensation
 
expense,
 
and
 
payroll
 
taxes,
partially offset by higher deferral of loan origination costs.
A
$1.9 million increase in credit and debit card processing expenses.
A
 
$1.5
 
million
 
increase
 
in
 
other
 
non-interest
 
expenses,
 
in
 
part
 
due
 
to
 
an
 
increase
 
in
 
charges
 
for
 
legal
 
and
 
operational
reserves and an increase of $0.9 million in net periodic cost of pension plans
 
.
 
A
$1.2 million
 
increase in
 
the FDIC deposit
 
insurance expense,
 
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.
A
$0.9 million increase in professional service fees, driven by an increase
 
in outsourced technology service fees.
A
$0.6 million increase
 
in business promotion
 
expenses, mainly resulting
 
from higher advertising
 
and marketing expenses
associated with the commemoration of the 75th anniversary of the
 
Bank.
A $0.5 million
 
increase in taxes,
 
other than income
 
taxes, primarily
 
related to higher
 
license fees, sales
 
and use taxes,
 
and
property taxes.
 
97
Partially offset by:
A
$1.8 million
 
increase in
 
net gains
 
on OREO
 
operations,
 
mainly driven
 
by an
 
increase in
 
net realized
 
gains on
 
sales of
OREO properties,
 
primarily residential properties in the Puerto Rico region.
A
$1.6
 
million
 
decrease
 
in
 
occupancy
 
and
 
equipment
 
expenses,
 
primarily
 
reflecting
 
reductions
 
in
 
depreciation
 
charges,
rental expenses, and energy costs.
Income Taxes
For the second quarter of 2023, the Corporation recorded an income
 
tax expense of $30.3 million, compared to $34.1 million for the
same period in
 
2022. For the
 
first six months of
 
2023, the Corporation
 
recorded an income
 
tax expense of
 
$62.2 million, compared
 
to
$77.1
 
million
 
for
 
the
 
same
 
period
 
in
 
2022.
 
The
 
decrease
 
in
 
income
 
tax
 
expense
 
for
 
the
 
quarter
 
and
 
first
 
six
 
months
 
of
 
2023,
 
as
compared
 
to the
 
same periods
 
a year
 
ago, 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 six
 
months of
 
2023,
 
excluding entities
 
from
 
which a
 
tax benefit
cannot be recognized and discrete items, was 30.1%, compared
 
to 31.7% for the first six months of 2022. See Note 17 - Income
 
Taxes,
to the unaudited consolidated financial statements herein
 
for additional information.
As of
 
June
 
30,
 
2023,
 
the
 
Corporation
 
had
 
a
 
deferred
 
tax
 
asset of
 
$153.9
 
million,
 
net
 
of a
 
valuation
 
allowance
 
of
 
$184.2
 
million
against the deferred tax
 
asset, compared to a
 
deferred tax asset of $155.6
 
million, net of a valuation
 
allowance of $185.5 million,
 
as of
December
 
31,
 
2022.
 
Income
 
tax
 
paid
 
for
 
the
 
six-month
 
period
 
ended
 
June
 
30,
 
2023
 
amounted
 
to
 
$82.2
 
million
 
compared
 
to
 
$15.3
million for
 
the same
 
period in
 
2022. The
 
increase is related
 
to the
 
full utilization
 
during 2022
 
of certain
 
deferred tax
 
assets related
 
to
NOLs that were available for regular income tax which decreased the amount due
 
for income taxes.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
98
FINANCIAL CONDITION AND OPERATING
 
ANALYSIS
Assets
 
The Corporation’s
 
total assets
 
were $19.2
 
billion as of
 
June 30, 2023,
 
an increase of
 
$518.0 million
 
from December
 
31, 2022. The
increase was primarily related to a $567.0 million
 
increase in cash and cash equivalents,
 
primarily interest-bearing deposits maintained
at
 
the
 
FED
 
aligned
 
with
 
the
 
overall
 
increase
 
in
 
government
 
and
 
time
 
deposits.
 
In
 
addition,
 
as
 
further
 
discussed
 
below,
 
total
 
loans
increased by $168.5 million. These variances were partially offset
 
by a $186.3 million decrease in total investment securities.
Loans Receivable, including Loans Held for Sale
As of June 30, 2023,
 
the Corporation’s
 
total loan portfolio before
 
the ACL amounted to $11.7
 
billion, an increase of
 
$168.5 million
compared to
 
December 31, 2022.
 
In terms of
 
geography,
 
the growth consisted
 
of increases of
 
$220.7 million and
 
$37.9 million in
 
the
Puerto Rico
 
and Virgin
 
Islands regions,
 
respectively,
 
partially offset
 
by a $90.1
 
million decrease
 
in the
 
Florida region. On
 
a portfolio
basis, the
 
growth consi
 
sted of
 
increases of
 
$167.8 million
 
in consumer
 
loans, including
 
a $141.9
 
million increase
 
in auto
 
loans and
leases,
 
and
 
$52.2
 
million
 
in commercial
 
and
 
construction
 
loans,
 
partially
 
offset
 
by
 
a $51.5
 
million
 
decrease
 
in residential
 
mortgage
loans.
As of
 
June 30,
 
2023, the
 
loans in
 
the Corpo
 
ration’s
 
held-for-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 $11.7 billion as of June 30,
 
2023, the Corporation had credit risk concentration of approximately 79% in
 
the Puerto Rico
region, 17% in the United States region (mainly in
 
the state of Florida), and 4% in the Virgin
 
Islands region, as shown in the following
table:
 
As of June 30, 2023
Puerto Rico
Virgin Islands
United States
Total
(In thousands)
Residential mortgage loans
$
2,179,539
$
172,771
$
441,480
$
2,793,790
Construction loans
65,427
3,792
94,779
163,998
Commercial mortgage loans
1,734,514
65,775
519,780
2,320,069
Commercial and Industrial loans
1,902,803
108,971
934,427
2,946,201
 
Total commercial loans
3,702,744
178,538
1,548,986
5,430,268
Consumer loans and finance leases
3,421,376
66,078
7,803
3,495,257
 
Total loans held for investment,
 
gross
$
9,303,659
$
417,387
$
1,998,269
$
11,719,315
Loans held for sale
14,094
201
-
14,295
 
Total loans, gross
$
9,317,753
$
417,588
$
1,998,269
$
11,733,610
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
 
 
 
 
 
 
99
Residential Real Estate Loans
As of
 
June 30,
 
2023, the
 
Corporation’s
 
total residential
 
mortgage loan
 
portfolio, including
 
loans held
 
for sale,
 
decreased by
 
$51.5
million, as compared
 
to the balance as
 
of December 31, 2022.
 
The decline in the
 
residential mortgage loan portfolio
 
reflects decreases
of $56.7 million in the Puerto Rico region and
 
$6.9 million in the Virgin
 
Islands region, partially offset by an increase of
 
$12.1 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
 
June 30,
 
2023 consisted
 
of fixed-rate
 
loans that
 
traditionally
 
carry higher
 
yields than
 
residential mortgage
 
loans in
 
the
Florida region. In
 
the Florida region,
 
approximately 42% 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 June
 
30, 2023, the
 
Corporation’s
 
commercial and construction
 
loan portfolio increased
 
by $52.2 million,
 
as compared to
 
the
balance as of December 31, 2022.
 
In
 
the
 
Puerto
 
Rico
 
region,
 
commercial
 
and
 
construction
 
loans
 
increased
 
by
 
$112.1
 
million,
 
as
 
compared
 
to
 
the
 
balance
 
as
 
of
December
 
31,
 
2022.
 
This
 
increase
 
was
 
driven
 
by
 
the
 
origination
 
of
 
several
 
loans,
 
including
 
five
 
commercial
 
relationships,
 
each
 
in
excess of $10
 
million, that increased
 
the portfolio amount
 
by $66.0 million
 
and a $60.3
 
million increase in
 
the outstanding balance
 
of
floor plan lines of credit.
In
 
the
 
Virgin
 
Islands
 
region,
 
commercial
 
and
 
construction
 
loans
 
increased
 
by
 
$40.1
 
million,
 
as
 
compared
 
to
 
the
 
balance
 
as
 
of
December 31, 2022. The increase was driven by the
 
utilization of $47.0 million of a new $100.0 million line
 
of credit facility extended
to a government public corporation.
In the Florida
 
region, commercial and
 
construction loans decreased
 
by $100.0 million,
 
as compared to
 
the balance as
 
of December
31, 2022. This decrease
 
reflected $90.4 million in
 
payoffs and paydowns of
 
five commercial and industrial
 
relationships in the Florida
region, each
 
in excess
 
of $10
 
million, including
 
the aforementioned
 
payoff of
 
a $24.3
 
million commercial
 
and industrial
 
participated
loan in the leisure and hospitality industry.
As
 
of
 
June
 
30,
 
2023,
 
the
 
Corporation
 
had
 
$174.9
 
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 June
 
30, 2023, the
 
Corporation had $78.9
 
million in
loans to
 
USVI government
 
public corporations,
 
compared to
 
$38.0 million
 
as of
 
December 31,
 
2022. The
 
increase in
 
loans to
 
USVI
government
 
public
 
corporations
 
was
 
driven
 
by
 
the
 
aforementioned
 
$47.0
 
million
 
line
 
of
 
credit
 
utilization.
 
See
 
“Exposure
 
to
 
USVI
Government” below for additional information.
As
 
of
 
June
 
30,
 
2023,
 
the
 
Corporation’s
 
total
 
commercial
 
mortgage
 
loan
 
exposure
 
amounted
 
to
 
$2.3
 
billion,
 
or
 
43%
 
of
 
the
 
total
commercial
 
loan
 
portfolio.
 
The commercial
 
mortgage
 
loan
 
portfolio
 
includes
 
an
 
exposure
 
to
 
office
 
real
 
estate amount
 
ing
 
to
 
$428.3
million ($384.3 million
 
and $44.0 million
 
in the Puerto Rico
 
and Florida regions,
 
respectively), of which
 
approximately $76.1 million
matures during the remainder of 2023 and 2024.
As
 
of
 
June
 
30,
 
2023,
 
the
 
Corporation’s
 
total
 
exposure
 
to
 
shared
 
national
 
credit
 
(“SNC”)
 
loans
 
(including
 
unused
 
commitments)
amounted to
 
$1.1 billion
 
as of each
 
of June
 
30, 2023
 
and December
 
31, 2022.
 
As of
 
June 30,
 
2023, approximately
 
$206.2 million
 
of
the
 
SNC
 
exposure
 
is
 
related
 
to
 
the
 
portfolio
 
in
 
the
 
Puerto
 
Rico
 
region
 
and
 
$847.4
 
million
 
is
 
related
 
to
 
the
 
portfolio
 
in
 
the
 
Florida
region.
Consumer Loans and Finance Leases
As of
 
June 30,
 
2023,
 
the Corporation’s
 
consumer
 
loan
 
and finance
 
lease portfolio
 
increased by
 
$167.8
 
million
 
to $3.5
 
billion,
 
as
compared
 
to
 
the
 
portfolio
 
balance
 
of
 
$3.3
 
billion
 
as
 
of
 
December
 
31,
 
2022.
 
This
 
increase
 
was
 
mainly
 
related
 
to
 
increases
 
of
 
$72.5
million
 
and
 
$69.4
 
million
 
in
 
the
 
finance
 
leases
 
and
 
auto
 
loans
 
portfolios,
 
respectively.
 
The
 
growth
 
in
 
consumer
 
loans
 
was
 
mainly
reflected in the Puerto Rico region across all portfolio classes.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100
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 June 30,
 
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
(In thousands)
Residential mortgage
$
115,251
$
126,532
$
192,553
$
249,045
Construction
47,006
46,880
82,505
66,866
Commercial mortgage
42,384
205,720
131,076
333,705
Commercial and Industrial
550,574
622,714
1,106,456
1,113,010
Consumer
454,005
482,252
889,323
908,719
 
Total loan production
$
1,209,220
$
1,484,098
$
2,401,913
$
2,671,345
During the quarter
 
and six-month period
 
ended June 30,
 
2023, total loan
 
originations, including
 
purchases, refinancings, and
 
draws
from
 
existing
 
revolving
 
and
 
non-revolving
 
commitments,
 
amounted
 
to
 
approximately
 
$1.2
 
billion
 
and
 
$2.4
 
billion,
 
respectively,
compared to $1.5 billion and $2.7 billion, respectively,
 
for the comparable periods in 2022.
Residential mortgage
 
loan originations
 
for the
 
quarter and
 
six-month period
 
ended June
 
30, 2023
 
amounted to
 
$115.3 million
 
and
$192.6
 
million, respectively
 
,
 
compared
 
to $126.5
 
million
 
and $249.0
 
million, respectively,
 
for the
 
comparable periods
 
in 2022.
 
The
decrease of
 
$11.2
 
million in
 
the second
 
quarter of
 
2023, as
 
compared to
 
the same
 
period in
 
2022, reflects
 
declines of
 
$9.1 million
 
in
the
 
Puerto
 
Rico
 
region,
 
$1.3
 
million
 
in
 
the
 
Virgin
 
Islands
 
region,
 
and
 
$0.8
 
million
 
in
 
the
 
Florida
 
region.
 
For
 
the
 
six-month
 
period
ended June 30, 2023, the decrease
 
of $56.4 million consisted of declines
 
of $51.4 million in the Puerto Rico
 
region, $3.3 million in the
Florida
 
region,
 
and
 
$1.7
 
million
 
in
 
the
 
Virgin
 
Islands
 
region.
 
Approximately
 
58%
 
of
 
the
 
$150.0
 
million
 
residential
 
mortgage
 
loan
originations in the
 
Puerto Rico region during
 
the first half of
 
2023 consisted of
 
conforming loans, compared
 
to 59% of $201.4
 
million
for the
 
first half
 
of 2022.
 
The decrease
 
during the
 
first half
 
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 and
 
six-month period
 
ended June
 
30,
2023
 
amounted
 
to
 
$563.6
 
million
 
and
 
$1.2
 
billion,
 
respectively,
 
compared
 
to
 
$860.9
 
million
 
and
 
$1.5
 
billion,
 
respectively,
 
for
 
the
comparable periods
 
in 2022.
 
The decrease
 
of $297.3
 
million in
 
the second
 
quarter of
 
2023, as
 
compared to
 
the same
 
period in
 
2022,
reflects
 
declines
 
of
 
$158.2
 
million
 
in
 
the
 
Florida
 
region,
 
$124.8
 
million
 
in
 
the
 
Puerto
 
Rico
 
region,
 
and
 
$14.3
 
million
 
in
 
the
 
Virgin
Islands
 
region.
 
Commercial
 
loan
 
originations
 
for
 
the
 
second
 
quarter
 
of
 
2022
 
include
 
three
 
commercial
 
mortgage
 
loans
 
over
 
$10
million originated
 
in the Puerto Rico
 
region totaling $53.8
 
million and two
 
commercial mortgage loans
 
over $10 million
 
originated in
the Florida
 
region
 
totaling
 
$37.3 million.
 
For the
 
first six
 
months
 
of 2023,
 
the decrease
 
of $258.2
 
million
 
consisted
 
of decreases
 
of
$213.3 million in the Florida region, $31.1 million in the Puerto Rico region, and
 
$13.8 million in the Virgin
 
Islands region.
 
Government
 
loan
 
originations
 
for
 
the
 
quarter
 
and
 
six-month
 
period
 
ended
 
June
 
30,
 
2023
 
amounted
 
to
 
$76.3
 
million
 
and
 
$83.6
million, respectively,
 
compared to $14.4 million and $18.9 million, respectively,
 
for the comparable periods in 2022. Government loan
originations
 
during
 
the
 
first
 
half
 
of
 
2023
 
were
 
mainly
 
related
 
to
 
the
 
aforementioned
 
line
 
of
 
credit
 
utilization
 
in
 
the
 
Virgin
 
Islands
region,
 
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. On the other hand, government loan
 
originations during the
first half
 
of 2022 were mainly
 
related to
 
the renewal
 
of a
 
municipal loan
 
in the
 
Puerto Rico
 
region and
 
the utilization
 
of the
 
arranged
overdraft line of credit of a government entity in the Virgin
 
Islands region.
 
101
Originations of auto
 
loans (including finance
 
leases) for the quarter
 
and six-month period
 
ended June 30,
 
2023 amounted to
 
$250.3
million and
 
$495.4 million,
 
respectively,
 
compared to
 
$269.5 million
 
and $530.8
 
million, respectively,
 
for the
 
comparable periods
 
in
2022. The
 
decrease in
 
the second
 
quarter of
 
2023, as
 
compared to
 
the same
 
quarter of
 
2022, consisted
 
of a
 
$21.2 million
 
decrease in
the Puerto
 
Rico region,
 
partially offset
 
by a $2.0
 
million increase in
 
the Virgin
 
Islands region.
 
The decrease
 
in the first
 
six months
 
of
2023, as
 
compared to
 
the same
 
period of
 
the previous
 
year, consisted
 
of a
 
$38.7 million
 
decrease in
 
the Puerto
 
Rico region,
 
partially
offset by a $3.3
 
million increase in the Virgin
 
Islands region. Other consumer
 
loan originations,
 
other than credit cards,
 
for the quarter
and six-month period ended June
 
30, 2023 amounted to $77.7 million
 
and $149.6 million, respectively,
 
compared to $87.2 million and
$142.8 million,
 
respectively,
 
for the
 
comparable periods
 
in 2022.
 
The utilization
 
activity on
 
the outstanding
 
credit card
 
portfolio
 
for
the
 
quarter
 
and
 
six-month
 
period
 
ended
 
June
 
30,
 
2023
 
amounted
 
to
 
$125.9
 
million
 
and
 
$244.3
 
million,
 
respectively,
 
compared
 
to
$125.6 million and $235.0 million, respectively,
 
for the comparable periods in 2022.
 
102
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
 
June 30,
 
2023 amounted
 
to $5.4
 
billion, a
 
$166.2 million
decrease from
 
December 31, 2022
 
.
 
The decrease was
 
mainly driven
 
by repayments of
 
approximately $200.4
 
million of U.S.
 
agencies
MBS and
 
debentures,
 
partially
 
offset
 
by a
 
$32.4
 
million increase
 
in fair
 
value attributable
 
to changes
 
in market
 
interest rates.
 
As of
June 30, 2023, the
 
Corporation had a net
 
unrealized loss on available-for-sale
 
debt securities of $765.8
 
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 and it is likely that it will not be required
 
to sell the securities before their anticipated recovery.
 
The Corporation
expects the portfolio will
 
continue to decrease and
 
the accumulated other comprehensive
 
loss will decrease accordingly,
 
excluding the
impact of market interest rates.
As
 
of
 
June
 
30,
 
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
 
June 30, 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
 
-
 
$2.1
 
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 June 30,
2023,
 
of which
 
$0.3
 
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
 
June
 
30,
 
2023,
 
the
 
Corporation’s
 
held-to-maturity
 
debt
 
securities
 
portfolio,
 
before
 
the
 
ACL,
 
decreased
 
to
 
$424.7
 
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
 
SEC,
 
and
 
are
 
not
 
rated
 
by
 
external
 
credit
 
agencies.
 
These
 
bonds
 
have
seniority to the payment of operating costs and expenses of the
 
municipality and, in most cases, are supported by assigned
 
property tax
revenues. As of June 30, 2023, approximately
 
74% of the Corporation’s
 
municipal 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,
 
and the
 
higher interest
 
rate environment,
 
the Corporation
 
cannot be
 
certain whether
 
future charges
 
to the
 
ACL on
these securities will be required.
 
As of June 30, 2023, the ACL
 
for held-to-maturity debt securities was
 
$8.4 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
103
 
The following table presents the carrying values of investments as of the indicated dates:
June 30, 2023
December 31, 2022
(In thousands)
Money market investments
$
1,000
$
2,025
Available-for-sale
 
debt securities, at fair value:
U.S. government and agencies obligations
2,515,097
2,492,228
Puerto Rico government obligations
2,111
2,201
MBS:
 
Residential
2,759,697
2,941,458
 
Commercial
156,464
163,133
Other
-
500
Total available-for-sale
 
debt securities, at fair value
5,433,369
5,599,520
Held-to-maturity debt securities, at amortized cost:
MBS:
 
Residential
155,690
166,739
 
Commercial
102,912
105,088
Puerto Rico municipal bonds
166,124
165,710
 
ACL for held-to-maturity Puerto Rico municipal bonds
(8,401)
(8,286)
Total held-to-maturity
 
debt securities
416,325
429,251
Equity securities, including $34.7 million and $42.9 million of FHLB stock
as of June 30,
 
2023 and December 31, 2022, respectively
48,101
55,289
Total money market
 
investments and investment securities
$
5,898,795
$
6,086,085
 
The carrying values of debt securities as of June 30, 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
$
246,038
0.44
Due after one year through five years
2,247,794
0.84
Due after five years through ten years
10,400
3.16
Due after ten years
10,865
5.38
2,515,097
0.83
Puerto Rico government and municipalities obligations:
Due within one year
1,205
5.90
Due after one year through five years
42,736
6.93
Due after five years through ten years
56,160
7.44
Due after ten years
68,134
8.14
168,235
7.59
MBS
3,174,763
1.70
ACL on held-to-maturity debt securities
(8,401)
-
Total debt securities
$
5,849,694
1.48
 
104
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 June 30, 2023, the
Corporation had
 
approximately $1.9
 
billion in
 
callable debt securities
 
(U.S. agencies
 
debt securities)
 
with an
 
average yield
 
of 0.78%,
of which
 
approximately 60%
 
were purchased
 
at a discount
 
and 3% 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,
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
 
Business
 
Group
 
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
 
weekly
 
basis.
 
The
 
Financial
Planning and ALM Division is responsible for estimating the liquidity
 
gap for longer periods.
 
105
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 has
 
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 $1.0 billion
 
as of June 30, 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
 
$2.2 billion
 
as of
 
June 30,
 
2023, compared
to $3.1 billion as of December 31, 2022.
 
As of June 30, 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
 
16.70% 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
 
21.82%
 
of
 
total
 
assets
 
as
 
of
 
June
 
30,
2023,
 
compared to 22.48% of total assets as of December 31, 2022.
 
As of June 30, 2023, in
 
addition to the aforementioned $3.2
 
billion in cash and free high
 
quality liquid assets, the Corporation
 
had
$980.9
 
million
 
available
 
for credit
 
with the
 
FHLB based
 
on
 
the value
 
of loan
 
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
Borrower-in-Custody (“BIC”) Program as of June 30, 2023
 
as an additional contingent source of liquidity.
 
Total loans pledged
 
to the
FED Discount Window
 
amounted to $2.4 billion as of
 
June 30, 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
 
June
 
30,
 
2023,
 
the
 
Corporation
 
had
 
$5.6
 
billion
 
of
 
total
 
available
 
liquidity,
 
or
 
1.17x
 
of
 
uninsured
 
deposits
 
excluding
government deposits, to meet liquidity needs,
 
while maintaining a strong capital position.
Liquidity
 
at
 
the Bank
 
level
 
is highly
 
dependent
 
on
 
bank deposits,
 
which
 
fund
 
88.2%
 
of the
 
Bank’s
 
assets (or
 
86.3%
 
excluding
brokered CDs).
 
In addition,
 
as further
 
discussed below,
 
the Corporation
 
maintains 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
 
CDs
 
through
 
brokers.
 
Funding
 
through
 
wholesale
 
funding
 
may
 
continue
 
to
 
increase
 
the
 
overall
 
cost
 
of
funding for the Corporation and impact the net interest margin.
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 June 30, 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
106
 
The following table summarizes commitments to extend credit and standby letters of
 
credit as of the indicated dates:
June 30,
 
2023
December 31, 2022
(In thousands)
Financial instruments whose contract amounts represent credit risk:
 
Commitments to extend credit:
 
Construction undisbursed funds
$
189,458
$
170,639
 
Unused credit card lines
955,292
936,231
 
Unused personal lines of credit
 
40,346
41,988
 
Commercial lines of credit
795,820
761,634
 
Letters of credit:
 
Commercial letters of credit
57,732
68,647
 
Standby letters of credit
8,267
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 $3.9
 
billion as
 
of June
 
30,
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
 
funding 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
is enrolled in the FED’s Bank Term
 
Funding Program (“BTFP”).
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
107
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
 
June
 
30,
 
2023,
 
the
 
Corporation’s
 
core
 
deposits,
 
which
 
exclude
 
government
 
deposits
 
and
brokered CDs, decreased by $247.0
 
million to $13.0 billion from $13.3 billion
 
as of December 31, 2022. The decrease was
 
primarily
related
 
to saving
 
and
 
checking
 
accounts
 
primarily
 
in the
 
Puerto
 
Rico and
 
Florida
 
regions. 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.
 
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
 
continued
 
to
 
reallocate
 
cash
 
into
 
higher
 
yielding
 
alternatives.
 
Further
 
shift
 
may
continue
 
to
 
increase
 
the
 
overall
 
cost
 
of
 
funding
 
for
 
the
 
Corporation
 
and
 
impact
 
the net
 
interest
 
margin.
 
For
 
the
 
second
 
quarter
 
of
2023, the average balance per retail core deposit account was $26 thousand.
Government
 
deposits
 
 
As of
 
June 30,
 
2023,
 
the
 
Corporation had
 
$2.9
 
billion
 
of Puerto
 
Rico
 
public
 
sector deposits
 
($2.8
 
billion
 
in
transactional
 
accounts
 
and
 
$140.1
 
million
 
in
 
time
 
deposits),
 
compared
 
to
 
$2.3
 
billion
 
as
 
of
 
December
 
31,
 
2022.
 
The
 
increase
 
was
related
 
to
 
higher
 
balances
 
of
 
interest-bearing
 
transactional
 
accounts.
 
Government
 
deposits
 
are
 
insured
 
by
 
the
 
FDIC
 
up
 
to
 
the
applicable
 
limits and
 
the
 
uninsured
 
portions
 
is fully
 
collateralized.
 
Approximately
 
21%
 
of
 
the
 
public
 
sector
 
deposits
 
as of
 
June
 
30,
2023 were from municipalities and
 
municipal agencies in Puerto Rico
 
and 79% were from public corporations,
 
the central government
and agencies, and U.S. federal government agencies in Puerto Rico.
In addition, as of June 30, 2023, the Corporation
 
had $524.5 million of government deposits in the Virgin
 
Islands region (December
31, 2022 - $442.8 million) and $12.1 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
 
$3.7
 
billion
and
 
$3.1
 
billion
 
as
 
of
 
June
 
30,
 
2023
 
and
 
December
 
31,
 
2022,
 
respectively,
 
and
 
an
 
estimated
 
market
 
value
 
of
 
$3.3
 
billion
 
and
 
$2.7
billion,
 
respectively.
 
In
 
addition
 
to
 
securities
 
and
 
loans,
 
as of
 
June
 
30,
 
2023
 
and
 
December
 
31,
 
2022,
 
the
 
Corporation
 
used
 
$225.0
million and $200.0 million, respectively,
 
in letters of credit issued by the FHLB as pledges for public deposits in the Virgin
 
Islands.
Estimate of Uninsured
 
Deposits –
As of June
 
30, 2023 and December
 
31, 2022, the
 
estimated amount of
 
uninsured deposits totaled
$8.0
 
billion
 
and
 
$7.6
 
billion,
 
respectively,
 
generally
 
representing
 
the
 
portion
 
of
 
deposits
 
that
 
exceed
 
the
 
FDIC
 
insurance
 
limit
 
of
$250,000
 
and amounts
 
in any
 
other uninsured
 
deposit account.
 
The balances
 
presented as
 
of June
 
30, 2023
 
and December
 
31, 2022
include
 
the
 
uninsured
 
portion
 
of
 
fully
 
collateralized
 
government
 
deposits
 
which
 
amounted
 
to
 
$3.3
 
billion
 
and
 
$2.6
 
billion,
respectively.
 
Excluding
 
fully
 
collateralized
 
deposits,
 
$4.7
 
billion
 
of
 
these
 
deposits
 
are
 
uninsured,
 
which
 
represent
 
28.79%
 
of
 
total
deposits,
 
excluding brokered CDs, as of June 30, 2023, compared
 
to $4.9 billion, or 30.65% of total deposits,
 
excluding brokered CDs,
as
 
of
 
December
 
31,
 
2022.
 
The
 
increase
 
is
 
mostly
 
related
 
to
 
government
 
deposits,
 
which
 
are
 
fully
 
collateralized
 
as
 
previously
mentioned.
 
The
 
amount of
 
uninsured
 
deposits is
 
calculated
 
based on
 
the
 
same
 
methodologies
 
and assumptions
 
used for
 
our bank
 
regulatory
reporting requirements adjusted for cash held by wholly-owned subsidiaries
 
at the Bank.
 
 
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 June 30, 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
$
254,158
$
108,835
$
225,068
$
357,972
$
946,033
Other uninsured time deposits
$
16,675
$
10,763
$
10,277
$
6,546
$
44,261
Brokered CDs
 
– Total brokered
 
CDs increased by $257.8 million to $363.6 million as of June
 
30, 2023, compared to $105.8 million as
of
 
December
 
31,
 
2022.
 
The increase
 
reflects
 
the
 
effect
 
of new
 
issuances
 
amounting
 
to $475.6
 
million
 
with
 
an all-in
 
cost
 
of
 
4.97%,
partially offset by
 
approximately $217.8 million
 
of maturing brokered
 
CDs, with an all-in
 
cost of 4.92%, that
 
were paid off during
 
the
first six months of 2023.
 
The average remaining term to maturity of the brokered CDs outstanding
 
as of June 30, 2023 was approximately 1 year.
 
The increased
 
use of
 
brokered CDs
 
was primar
 
ily related
 
to short-term
 
funding in
 
our Florida
 
region, The
 
future use
 
of brokered
CDs
 
will
 
depend
 
on
 
multiple
 
factors
 
including
 
excess
 
liquidity
 
at
 
each
 
of
 
the
 
regions,
 
future
 
cash
 
needs
 
and
 
any
 
tax
 
implications.
Brokered CDs are insured by the FDIC up to regulatory limits and can be obtained
 
faster than regular retail deposits.
 
108
Refer to
 
“Net Interest
 
Income” above
 
for information
 
about average
 
balances of
 
interest-bearing deposits
 
and the
 
average interest
rate paid on deposits, for the quarters and six-month periods ended
 
June 30, 2023 and 2022.
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 $73.9
 
million
 
as of
June 30,
 
2023, compared
 
to $75.1
 
million as
 
of December
 
31, 2022.
 
In addition
 
to these
 
repurchase agreements,
 
the Corporation
 
has
been
 
able to
 
maintain
 
access to
 
credit by
 
using
 
cost-effective
 
sources such
 
as FHLB
 
advances.
 
See
 
Note 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
 
June 30,
 
2023, the
 
outstanding balance
 
of fixed-rate
 
FHLB advances
 
was $500.0
 
million, compared
 
to $675.0
million as
 
of December
 
31, 2022.
 
During the
 
six-month period
 
ended June
 
30, 2023,
 
the Corporation
 
added $300.0
 
million of
 
long-
term FHLB advances at an
 
average cost of 4.59%, and
 
repaid its short-term FHLB advances. Of
 
the $500.0 million in FHLB advances
as of June 30, 2023, $400.0 million were pledged
 
with investment securities and $100.0 million were pledged
 
with mortgage loans. As
of
 
June
 
30,
 
2023,
 
the
 
Corporation
 
had
 
$980.9
 
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.
 
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.
During the second quarter
 
of 2023, the Corporation completed
 
the repurchase of $21.4 million
 
of TRuPs of the FBP Statutory
 
Trust
I as
 
part of
 
a privately
 
-negotiated
 
transaction,
 
resulting
 
in a
 
commensurate
 
reduction
 
in the
 
related
 
floating
 
rate junior
 
subordinated
debentures. The purchase
 
price equated to 92.5%
 
of the $21.5 million
 
par value of the
 
TRuPs. The 7.5% discount
 
resulted in a gain
 
of
approximately $1.6 million, which
 
is reflected in the consolidated
 
statements of income as “Gain on
 
early extinguishment of debt.” As
of June 30,
 
2023 and December
 
31, 2022, the
 
Corporation had junior
 
subordinated debentures outstanding
 
in the aggregate amount
 
of
$161.7 million
 
and $183.8
 
million, respectively,
 
with maturity
 
dates ranging
 
from June
 
17, 2034
 
through September
 
20, 2034.
 
As of
June
 
30, 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
 
Variable
 
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
 
six months of 2023, loans
 
pooled into GNMA MBS amounted
 
to
approximately
 
$66.4
 
million.
 
Also,
 
during
 
the
 
first
 
six
 
months
 
of
 
2023,
 
the
 
Corporation
 
sold
 
approximately
 
$22.8
 
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
 
June
 
30,
 
2023,
 
the
 
Corporation
 
had
 
approximately
 
$1.4
billion available for funding under the FED’s
 
Discount Window based on collateral pledged at the FED.
 
109
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
 
BIC Program, such
as FirstBank,
 
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 be
 
fixed for
the term
 
of the
 
advance on
 
the day
 
the advance
 
is made.
 
As previously
 
mentioned, the
 
Corporation enrolled
 
in the
 
BTFP during
 
the
first quarter
 
of 2023
 
to further
 
diversify its
 
contingency funding
 
sources and
 
has approximately
 
$2.2 million
 
available for
 
funding as
of June 30, 2023.
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.
 
 
 
 
 
 
 
 
 
110
Cash Flows
Cash and
 
cash equivalents
 
were $1.0
 
billion as
 
of June
 
30, 2023,
 
an increase
 
of $567.0
 
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 six months 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
 
six
 
months
 
of
 
2023
 
and
 
2022,
 
net
 
cash
 
provided
 
by
 
operating
 
activities
 
was
 
$166.5
 
million
 
and
 
$219.6
 
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 and repayments 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 six-month period
 
ended June 30,
 
2023, net cash
 
provided
by
 
investing
 
activities
 
was
 
$25.0 million,
 
primarily
 
due
 
to repayments
 
of available
 
-for-sale
 
and
 
held-to-maturity debt
 
securities
 
and
proceeds from sales of repossessed assets, partially offset
 
by net disbursements on loans held for investment.
 
For the six-month
 
period ended June
 
30, 2022, net
 
cash used in
 
investing activities
 
was $557.7
 
million, primarily
 
due to purchases
of U.S.
 
agencies
 
debentures
 
and
 
MBS,
 
and
 
net
 
disbursements
 
on
 
loans
 
held
 
for
 
investment,
 
partially
 
offset
 
by
 
repayments
 
of
 
U.S.
agencies MBS.
 
 
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
 
six-month
 
period
 
ended
 
June
 
30,
 
2023,
 
net
 
cash
 
provided
 
by
 
financing
 
activities
 
was
 
$375.5
 
million,
 
mainly
 
reflecting
 
a
$675.9 million
 
net increase
 
in deposits,
 
partially offset
 
by a
 
$196.0 million
 
net decrease
 
in borrowings
 
and $104.4
 
million of
 
capital
returned to stockholders.
 
For
 
the
 
first
 
six
 
months
 
of
 
2022,
 
net
 
cash
 
used
 
in
 
financing
 
activities
 
was
 
$941.5
 
million,
 
mainly
 
reflecting
 
a
 
net
 
decrease
 
in
deposits, the repayment at maturity of a $100 million repurchase agreement,
 
and $196.0 million of capital returned to stockholders.
 
111
Capital
As of June 30, 2023, the Corporation’s
 
stockholders’ equity was $1.4 billion, an increase of $72.5
 
million from December 31, 2022.
The growth was
 
driven by the earnings
 
generated in the first
 
half of 2023
 
and the $32.4
 
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, partially
 
offset by
 
common stock
 
dividends
 
declared in
 
the first
 
half of
 
2023 totaling
$50.7
 
million
 
or
 
$0.28
 
per
 
common
 
share,
 
the
 
repurchase
 
of
 
3.6
 
million
 
shares
 
of
 
common
 
stock
 
for
 
a
 
total
 
purchase
 
price
 
of
approximately $50.0 million,
 
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”
during
 
the
 
first
 
quarter
 
of
 
2023.
 
See
 
Note
 
1
 
 
Basis
 
of
 
Presentation
 
and
 
Significant
 
Accounting
 
Policies
 
for
 
additional
 
information
related to the adoption of ASU 2022-02.
On July 24,
 
2023, the Corporation’s
 
Board declared a
 
quarterly cash dividend
 
of $0.14 per common
 
share payable on
 
September 8,
2023
 
to
 
shareholders
 
of
 
record
 
at
 
the
 
close
 
of
 
business
 
on
 
August
 
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 July
 
24, 2023,
 
the Corporation
 
announced that
 
its Board
 
of Directors
 
approved a
 
new stock
 
repurchase program,
 
under which
the Corporation
 
may repurchase
 
up to
 
$225 million
 
of its
 
outstanding common
 
stock, which
 
it expects
 
to execute
 
through the
 
end of
the third quarter of 2024.
 
The Corporation
 
expects to repurchase
 
approximately $150 million
 
in common stock
 
during the second
 
half of 2023,
 
of which $75
million relates to
 
the remaining amount
 
of the $350
 
million stock repurchase
 
program announced
 
on April 27,
 
2022 that was resumed
in July 2023.
 
The Corporation expects
 
to fully utilize this
 
remaining authorization during
 
the third quarter of
 
2023. From July
 
1, 2023
through August
 
1, 2023, the
 
Corporation repurchased
 
approximately 1.5
 
million shares of
 
common stock
 
for a total
 
purchase price
 
of
$19.5 million.
 
Repurchases under
 
the programs
 
may be
 
executed through
 
open market
 
purchases, accelerated
 
share repurchases,
 
and/or privately
negotiated transactions or
 
plans, including under plans
 
complying with Rule 10b5-1
 
under the Exchange Act.
 
The Corporation’s
 
stock
repurchase program
 
s
 
are 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
 
Corporation’s
 
stock
 
repurchase
 
programs
 
do
 
not
obligate
 
it
 
to
 
acquire
 
any
 
specific
 
number
 
of
 
shares
 
and
 
do
 
not
 
have
 
an
 
expiration
 
date.
 
The
 
stock
 
repurchase
 
programs
 
may
 
be
modified,
 
suspended, or terminated at any time at the Corporation’s
 
discretion. 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
112
 
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 June 30, 2023 and December 31, 2022, respectively:
June 30,
 
2023
December 31, 2022
(In thousands, except ratios and per share information)
Total equity
 
- GAAP
$
1,397,999
$
1,325,540
Goodwill
(38,611)
(38,611)
Purchased credit card relationship intangible
(17)
(205)
Core deposit intangible
(17,075)
(20,900)
Insurance customer relationship intangible
-
(13)
Tangible common
 
equity - non-GAAP
$
1,342,296
$
1,265,811
Total assets - GAAP
$
19,152,455
$
18,634,484
Goodwill
(38,611)
(38,611)
Purchased credit card relationship intangible
(17)
(205)
Core deposit intangible
(17,075)
(20,900)
Insurance customer relationship intangible
-
(13)
Tangible assets -
 
non-GAAP
$
19,096,752
$
18,574,755
Common shares outstanding
179,757
182,709
Tangible common
 
equity ratio - non-GAAP
7.03%
6.81%
Tangible book
 
value per common share - non-GAAP
$
7.47
$
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 June
 
30, 2023 and December 31, 2022, respectively.
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
 
of June
30, 2023 and December 31, 2022, respectively.
 
There were no transfers to the legal surplus reserve during the first half of 2023.
 
113
 
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. The
 
rate scenarios
 
considered in
 
these simulations
 
reflect gradual
 
upward or
 
downward interest
 
rate movements
 
in the
 
yield
curve,
 
for
 
gradual
 
(ramp)
 
parallel
 
shifts
 
in
 
the
 
yield
 
curve
 
of
 
200
 
basis
 
points
 
(“bps”)
 
during
 
a
 
twelve-month
 
period,
 
or
 
immediate
upward or downward
 
changes in interest
 
rate movements of 200
 
bps, for interest
 
rate shock scenarios.
 
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
 
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 June 30, 2023, the Corporation forecasted the 12-month
 
net interest income assuming June 30, 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 SOFR
 
curve for
 
June 30,
 
2023, as
 
compared to
 
December 31,
 
2022, reflects
 
an increase
 
of 60
 
bps on
 
average in
 
the short-term
sector of
 
the curve,
 
or between
 
one to
 
twelve months;
 
37 bps in
 
the medium-term
 
sector of
 
the curve,
 
or between
 
2 to
 
5 years;
 
and 5
bps
 
in
 
the
 
long-term
 
sector
 
of the
 
curve,
 
or
 
over
 
5-year
 
maturities.
 
A
 
similar
 
increase
 
in
 
market
 
rates
 
changes
 
was observed
 
in
 
the
Treasury
 
(CMT) yield
 
curve with
 
an increase
 
of 88
 
bps in
 
the short-term
 
sector,
 
29 bps
 
in the
 
medium-term sector,
 
and 6
 
bps in
 
the
long-term sector.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
114
 
The following table presents the results of the simulations as of June 30,
 
2023 and December 31, 2022. Consistent with prior years,
these exclude non-cash changes in the fair value of derivatives:
Net Interest Income Risk
(% Change Projected for the next 12 months)
Static Simulation
Growing Balance Sheet
June 30,
 
2023
December 31, 2022
June 30,
 
2023
December 31, 2022
Gradual Change in Interest Rates:
 
+ 200 bps ramp
0.94
%
0.96
%
1.01
%
1.37
%
 
- 200 bps ramp
-1.38
%
-1.61
%
-1.42
%
-2.03
%
Immediate Change in Interest Rates:
 
+ 200 bps shock
3.76
%
2.35
%
3.18
%
2.56
%
 
- 200 bps shock
-5.43
%
-4.71
%
-4.77
%
-5.02
%
 
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
 
June 30,
 
2023 and
 
December 31,
 
2022, the
 
simulations showed
 
that the
 
Corporation
 
continues to
 
have a
 
slight asset-sensitive
position.
 
 
As of
 
June 30,
 
2023, the
 
net interest
 
income for
 
the next
 
twelve months
 
under a
 
non-static balance
 
sheet scenario
 
is estimated
 
to
increase by
 
1.01% in
 
the rising rate
 
scenario, when
 
compared against
 
the base
 
simulation. When
 
compared with
 
December 31,
 
2022,
the net interest income
 
sensitivity for the +200
 
bps ramp scenario decreased
 
by 36 bps. The
 
reduction in sensitivity was
 
mainly driven
by
 
the
 
migration
 
from
 
non-interest-bearing
 
and
 
other
 
low-cost
 
deposits
 
to
 
higher
 
cost
 
deposits,
 
such
 
as
 
time
 
deposits,
 
as
 
well
 
as
increases in
 
government
 
deposits which
 
have
 
a higher
 
beta, partially
 
offsetting
 
the growth
 
in the
 
loan portfolio
 
at higher
 
yields,
 
the
repricing of variable rate loans and overall higher yields in other interest
 
earning assets such as cash balances held at the FED.
 
 
Under a falling rate scenario,
 
as of June 30, 2023,
 
the net interest income on
 
the non-static balance sheet scenario
 
is estimated to
decrease
 
by
 
1.42%,
 
when
 
compared
 
against
 
the
 
base
 
simulation.
 
When
 
compared
 
to
 
December
 
31,
 
2022.
 
the
 
net
 
interest
 
income
sensitivity decreases for the -200-bps ramp scenario by approximately
 
61 bps in the non-static balance sheet driven by a higher
 
deposit
beta assumed in the June 30, 2023 simulation for non-maturity deposits,
 
and the aforementioned migration to higher cost deposits.
 
As discussed
 
above, the
 
Corporation evaluates
 
other scenarios
 
such as
 
immediate upward
 
or downward
 
changes in
 
interest rate
movements of 200 bps, for
 
interest rate shock scenarios. As
 
of June 30, 2023
 
and December 31, 2022,
 
the simulations showed that the
Corporation continues to have an asset-sensitive position.
 
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.
 
115
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.
 
116
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 applies
 
probability weights to
 
the baseline and
 
alternative downside economic
 
scenarios to estimate
 
the ACL with
the baseline scenario carrying
 
the highest weight. During
 
the second quarter of 2023,
 
the Corporation applied the
 
baseline scenario for
the commercial
 
mortgage and
 
construction loan
 
portfolios as
 
deterioration in
 
the CRE
 
price index
 
in these
 
portfolios is
 
expected at
 
a
lower extent
 
than projected
 
in the
 
alternative downside
 
scenario, particularly
 
in the Puerto
 
Rico region.
 
The economic
 
scenarios used
in the
 
ACL determination
 
contained
 
assumptions
 
related
 
to economic
 
uncertainties associated
 
with geopolitical
 
instability,
 
the CRE
price index,
 
high inflation
 
levels, and
 
the expected
 
path of
 
interest rate
 
increases by
 
the FED.
 
As of
 
June 30, 2023,
 
the Corporation’s
ACL model considered the following assumptions for key economic variables
 
in the probability-weighted economic scenarios:
Average
 
CRE price
 
index at
 
the national
 
level is
 
forecasted to
 
contract by
 
4.08% for
 
the remainder
 
of 2023
 
and 6.24%
 
for
2024.
Average Regiona
 
l
 
Home Price Index forecasts
 
in Puerto Rico (purchase only prices) shows a growth of 8.58%
 
and 6.36%, for
the
 
remainder
 
of
 
2023
 
and
 
2024,
 
respectively,
 
when
 
compared
 
to
 
the
 
previous
 
quarter
 
forecast.
 
For
 
the
 
Florida
 
region,
average Home
 
Price Index
 
forecasts shows
 
a growth
 
of 3.74%
 
and 2.24%
 
for the
 
remainder of
 
2023 and
 
2024, respectively,
when compared to the previous quarter forecast.
Average
 
regional
 
unemployment
 
in
 
Puerto
 
Rico
 
of
 
6.84%
 
for
 
the
 
remainder
 
of
 
2023
 
and
 
8.12%
 
for
 
2024.
 
For
 
the
 
Florida
region and the
 
U.S. mainland, average
 
unemployment rate of
 
3.60% and 4.13%,
 
respectively,
 
for the remainder
 
of 2023, and
4.37% and 4.79%, respectively,
 
for 2024.
 
Average
 
annualized change in real
 
gross domestic product (“GDP”)
 
in the U.S. mainland
 
of 1.07% for the
 
remainder of 2023
and 1.18% 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
 
June
 
30,
 
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 7.64%
 
for the
 
remainder of
 
2023, compared
 
to 6.84%
 
for the same
 
period
on the probability-weighted economic scenario projections.
 
 
 
 
117
To
 
demonstrate
 
the
 
sensitivity
 
to
 
key
 
economic
 
parameters
 
used
 
in
 
the
 
calculation
 
of
 
the
 
ACL
 
at
 
June
 
30,
 
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
 
hypothetical
 
increase
 
in
 
the
 
ACL
 
of
 
approximately
 
$53
 
million
 
at
 
June
 
30,
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 period ended
 
June 30, 2023.
As of June
 
30, 2023, the
 
ACL for loans
 
and finance
 
leases was $267.1
 
million, an increase
 
of $6.6 million,
 
from $260.5 million
 
as
of December 31, 2022. The ACL for
 
commercial and construction loans increased
 
by $5.0 million, mainly due to a
 
deterioration in the
forecasted CRE price
 
index to account for
 
an increased uncertainty
 
in the CRE market
 
at a national level
 
that could potentially
 
impact
the
 
markets
 
served
 
by
 
the
 
Corporation
 
coupled
 
with
 
the
 
growth
 
in
 
the
 
commercial
 
and
 
construction
 
loan
 
portfolios.
 
The
 
ACL
 
for
consumer loans increased by $3.9
 
million, primarily reflecting the effect
 
of the increase in the size of
 
the consumer loan portfolios and
historical
 
charge-off
 
levels,
partially
 
offset
 
by
 
updated
 
macroeconomic
 
variables,
 
such
 
as
 
the
 
unemployment
 
rate,
 
which
 
are
 
now
forecasted to deteriorate at a slower pace than
 
previously expected. The ACL for residential mortgage
 
loans decreased by $2.3 million,
mainly
 
driven
 
by
 
a
 
more
 
favorable
 
economic
 
outlook
 
in
 
the
 
projection
 
of
 
certain
 
forecasted
 
macroeconomic
 
variables,
 
such
 
as
 
the
Regional Home
 
Price Index,
 
partially offset
 
by 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. See
Note
 
1
 
Basis
 
of
 
Presentation
 
and
 
Significant
 
Accounting
 
Policies
 
to
 
the
 
unaudited
 
consolidated
 
financial
 
statements
 
herein
 
for
additional information related to the adoption of ASU 2022-02 during
 
2023.
The
 
ratio
 
of
 
the
 
ACL
 
for
 
loans
 
and
 
finance
 
leases
 
to
 
total
 
loans
 
held
 
for
 
investment
 
increased
 
to
 
2.28%
 
as
 
of
 
June
 
30,
 
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
 
decreased
 
from
 
2.20%
 
as
 
of
 
December
 
31,
 
2022
 
to
2.17% as of
 
June 30,
 
2023, primarily
 
reflecting a
 
more favorable
 
economic outlook
 
in the projection
 
of certain
 
forecasted
macroeconomic
 
variables,
 
such
 
as
 
the
 
Regional
 
Home
 
Price
 
Index,
 
partially
 
offset
 
by
 
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
 
2.93%
as of June 30, 2023 mainly due to the aforementioned deterioration
 
in the forecasted CRE price index.
The
 
ACL
 
to
 
total
 
loans
 
ratio for
 
the
 
commercial
 
mortgage
 
portfolio
 
increased
 
from
 
1.49%
 
as
 
of
 
December
 
31,
 
2022
 
to
1.83% as of June 30, 2023 mainly due to the aforementioned deterioration
 
in the forecasted CRE price index.
The ACL to total loans ratio
 
for the commercial and industrial portfolio
 
decreased from 1.14% as of December
 
31, 2022 to
0.95% as of June
 
30, 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 higher exposure
 
risk associated with the rising interest rate environment.
The ACL to
 
total loans ratio
 
for the consumer
 
loan portfolio decreased
 
from 3.83% as
 
of December
 
31, 2022
 
to 3.76% as
of June 30, 2023 mainly due to updates in macroeconomic variables, such as the
 
unemployment rate.
The ratio
 
of the
 
total ACL
 
for loans
 
and finance
 
leases to
 
nonaccrual loans
 
held for
 
investment was
 
325.60% as
 
of June
 
30, 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
118
As shown in
 
the following
 
tables, the ACL
 
for loans
 
and finance
 
leases amounted
 
to $267.1
 
million as of
 
June 30,
 
2023, or 2.28%
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 June 30,
 
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
(Dollars in thousands)
ACL for loans and finance leases, beginning of year
$
265,567
$
245,447
$
260,464
$
269,030
Impact of adoption of ASU 2022-02
-
-
2,116
-
Provision for credit losses - (benefit) expense:
Residential mortgage
(3,500)
(2,797)
(3,427)
(7,668)
Construction
1,202
151
2,062
(2,063)
Commercial mortgage
5,999
1,265
7,245
(21,375)
Commercial and industrial
2,997
(1,102)
1,347
653
Consumer and finance leases
14,072
15,148
29,799
26,129
Total provision for credit losses
 
- expense (benefit)
20,770
12,665
37,026
(4,324)
Charge-offs:
Residential mortgage
(1,146)
(2,079)
(2,129)
(4,607)
Construction
(38)
(16)
(38)
(60)
Commercial mortgage
(88)
(2)
(106)
(39)
Commercial and industrial
(6,350)
(68)
(6,468)
(358)
Consumer and finance leases
(16,462)
(10,427)
(33,260)
(20,243)
Total charge offs
(24,084)
(12,592)
(42,001)
(25,307)
Recoveries:
Residential mortgage
757
1,287
1,254
2,669
Construction
409
43
472
95
Commercial mortgage
56
1,218
224
1,262
Commercial and industrial
132
589
222
1,624
Consumer and finance leases
3,451
3,495
7,281
7,103
Total recoveries
4,805
6,632
9,453
12,753
Net charge-offs
(19,279)
(5,960)
(32,548)
(12,554)
ACL for loans and finance leases, end of period
$
267,058
$
252,152
$
267,058
$
252,152
ACL for loans and finance leases to period-end total loans
 
held for investment
2.28%
2.25%
2.28%
2.25%
Net charge-offs (annualized) to average loans
 
outstanding during the period
0.67%
0.21%
0.56%
0.23%
Provision for credit losses - expense (benefit) for loans and finance
 
leases to net charge-
offs during the period
1.08x
2.13x
1.14x
-0.34x
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
119
 
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 June 30,
 
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
$
2,793,790
$
163,998
$
2,320,069
$
2,946,201
$
3,495,257
$
11,719,315
 
Percent of loans in each category to total loans
24
%
1
%
20
%
25
%
30
%
100
%
 
Allowance for credit losses
60,514
4,804
42,427
28,014
131,299
267,058
 
Allowance for credit losses to amortized cost
2.17
%
2.93
%
1.83
%
0.95
%
3.76
%
2.28
%
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
 
June 30,
 
2023,
 
the
 
ACL for
 
off-balance
 
sheet
 
credit
exposures
 
increased
 
by
 
$0.6
 
million
 
to
 
$4.9
 
million,
 
when
 
compared
 
to
 
December
 
31,
 
2022,
 
driven
 
by
 
the
 
deterioration
 
in
 
the
forecasted CRE price index and its effect in construction unfunded
 
loan commitments.
Allowance for Credit Losses for Held-to-Maturity
 
Debt Securities
As of
 
June 30,
 
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
 
June
 
30,
 
2023,
 
the
 
ACL
 
for
 
held-to-maturity
 
debt
 
securities
 
was
 
$8.4
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 June 30, 2023, compared to $0.5 million as of December 31, 2022.
 
 
 
 
120
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
 
consists
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
121
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 proc
 
ess 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 in
 
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:
June 30, 2023
December 31, 2022
(Dollars in thousands)
Nonaccrual loans held for investment:
Residential mortgage
$
33,252
$
42,772
Construction
1,677
2,208
Commercial mortgage
21,536
22,319
Commercial and Industrial
9,194
7,830
Consumer and finance leases
16,362
14,806
Total nonaccrual loans held for investment
82,021
89,935
OREO
31,571
31,641
Other repossessed property
5,404
5,380
Other assets
 
(1)
2,111
2,202
Total non-performing assets
$
121,107
$
129,158
Past due loans 90 days and still accruing
(2) (3) (4)
$
63,211
$
80,517
Non-performing assets to total assets
 
0.63
%
0.69
%
Nonaccrual loans held for investment to total loans held for investment
0.70
%
0.78
%
ACL for loans and finance leases
$
267,058
$
260,464
ACL for loans and finance leases to total nonaccrual loans held
 
for investment
325.60
%
289.61
%
ACL for loans and finance leases to total nonaccrual loans held
 
for investment, excluding residential real estate loans
547.60
%
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 $9.5 million and $12.0 million as of
 
June 30, 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 $19.9 million and $28.2 million
of FHA government guaranteed residential mortgage loans that were
 
over 15 months delinquent as of June 30, 2023 and December
 
31, 2022, respectively.
(4)
Includes rebooked loans, which were previously pooled into
 
GNMA securities, amounting to $6.5 million and $10.3 million as
 
of June 30, 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
122
Total
 
nonaccrual loans were $82.0
 
million as of June
 
30, 2023. This represents
 
a net decrease of $7.9
 
million from $89.9 million
 
as
of December
 
31, 2022.
 
The net
 
decrease
 
was primarily
 
related to
 
a $9.5
 
million reduction
 
in nonaccrua
 
l
 
residential mortgage
 
loans,
partially
 
offset
 
by
 
increases
 
of
 
$1.5
 
million
 
and
 
$0.1
 
million
 
in
 
nonaccrual
 
consumer
 
loans
 
and
 
nonaccrual
 
commercial
 
and
construction loans, respectively.
The following
 
table shows non-performing assets by geographic segment as of the indicated dates:
June 30, 2023
December 31, 2022
(In thousands)
Puerto Rico:
Nonaccrual loans held for investment:
Residential mortgage
$
20,047
$
28,857
Construction
703
831
Commercial mortgage
13,337
14,341
Commercial and Industrial
5,808
5,859
Consumer and finance leases
15,874
14,142
Total nonaccrual loans held for investment
55,769
64,030
OREO
27,107
28,135
Other repossessed property
5,226
5,275
Other assets
2,111
2,202
Total non-performing assets
$
90,213
$
99,642
Past due loans 90 days and still accruing
$
60,964
$
76,417
Virgin Islands:
Nonaccrual loans held for investment:
Residential mortgage
$
5,767
$
6,614
Construction
974
1,377
Commercial mortgage
8,199
7,978
Commercial and Industrial
1,119
1,179
Consumer
379
469
Total nonaccrual loans held for investment
16,438
17,617
OREO
4,464
3,475
Other repossessed property
168
76
Total non-performing assets
$
21,070
$
21,168
Past due loans 90 days and still accruing
$
2,108
$
4,100
United States:
Nonaccrual loans held for investment:
Residential mortgage
$
7,438
$
7,301
Commercial and Industrial
2,267
792
Consumer
109
195
Total nonaccrual loans held for investment
9,814
8,288
OREO
-
31
Other repossessed property
10
29
Total non-performing assets
$
9,824
$
8,348
Past due loans 90 days and still accruing
$
139
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
123
Nonaccrual commercial
 
and industrial
 
loans increased
 
by $1.4
 
million to $9.2
 
million as of
 
June 30,
 
2023, from
 
$7.8 million
 
as of
December 31, 2022.
Nonaccrual
 
commercial mortgage
 
loans decreased
 
by $0.8
 
million to
 
$21.5 million
 
as of
 
June 30,
 
2023, from
 
$22.3 million
 
as of
December 31, 2022.
 
Nonaccrual construction loans
 
decreased by $0.5 million
 
to $1.7 million as of
 
June 30, 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 June 30, 2023
Beginning balance
$
1,794
$
21,598
$
13,404
$
36,796
Plus:
Additions to nonaccrual
 
-
439
2,691
3,130
Less:
Loans returned to accrual status
-
-
(374)
(374)
Nonaccrual loans transferred to OREO
-
(61)
-
(61)
Nonaccrual loans charge-offs
-
(88)
(6,350)
(6,438)
Loan collections
(117)
(352)
(177)
(646)
Ending balance
 
$
1,677
$
21,536
$
9,194
$
32,407
Construction
Commercial
Mortgage
Commercial &
Industrial
Total
(In thousands)
Six-Month Period Ended June 30, 2023
Beginning balance
$
2,208
$
22,319
$
7,830
$
32,357
Plus:
Additions to nonaccrual
 
127
983
10,161
11,271
Less:
Loans returned to accrual status
-
(361)
(526)
(887)
Nonaccrual loans transferred to OREO
(332)
(223)
(183)
(738)
Nonaccrual loans charge-offs
-
(106)
(6,468)
(6,574)
Loan collections
(326)
(1,082)
(1,620)
(3,028)
Reclassification
-
6
-
6
Ending balance
 
$
1,677
$
21,536
$
9,194
$
32,407
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
124
Construction
Commercial
Mortgage
Commercial &
Industrial
Total
(In thousands)
Quarter Ended June 30, 2022
Beginning balance
$
2,543
$
26,576
$
18,129
$
47,248
Plus:
Additions to nonaccrual
18
53
579
650
Less:
Loans returned to accrual status
(48)
(157)
(255)
(460)
Nonaccrual loans transferred to OREO
(67)
(88)
(273)
(428)
Nonaccrual loans charge-offs
(16)
(2)
(37)
(55)
Loan collections
(55)
(1,629)
(1,064)
(2,748)
Ending balance
 
$
2,375
$
24,753
$
17,079
$
44,207
Construction
Commercial
Mortgage
Commercial &
Industrial
Total
(In thousands)
Six-Month Period Ended June 30, 2022
Beginning balance
$
2,664
$
25,337
$
17,135
$
45,136
Plus:
Additions to nonaccrual
18
2,934
2,158
5,110
Less:
Loans returned to accrual status
(48)
(358)
(464)
(870)
Nonaccrual loans transferred to OREO
(80)
(549)
(273)
(902)
Nonaccrual loans charge-offs
(56)
(39)
(327)
(422)
Loan collections
(123)
(2,170)
(1,552)
(3,845)
Reclassification
-
(402)
402
-
Ending balance
 
$
2,375
$
24,753
$
17,079
$
44,207
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
125
Nonaccrual residential mortgage loans decreased by $9.5
 
million to $33.3 million as of June 30, 2023, compared
 
to $42.8 million as
of December
 
31, 2022.
 
The decrease
 
was primarily
 
related
 
to $
 
6.6 million
 
of loans
 
restored to
 
accrual status,
 
$4.3 million
 
of loans
transferred to OREO, and $3.1 million in collections, partially offset
 
by inflows of $5.1 million.
The following table presents the activity of residential nonaccrual loans held for investment
 
for the indicated periods:
Quarter Ended June 30,
 
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
(In thousands)
Beginning balance
 
$
36,410
$
48,818
$
42,772
$
55,127
 
Plus:
Additions to nonaccrual
3,009
4,403
5,090
9,731
 
Less:
Loans returned to accrual status
 
(2,714)
(5,332)
(6,651)
(8,781)
Nonaccrual loans transferred to OREO
(1,549)
(1,185)
(4,259)
(2,122)
Nonaccrual loans charge-offs
(401)
(515)
(621)
(950)
Loan collections
(1,503)
(1,601)
(3,073)
(8,417)
Reclassification
 
-
-
(6)
-
Ending balance
 
$
33,252
$
44,588
$
33,252
$
44,588
The amount of nonaccrual consumer
 
loans, including finance leases, increased
 
by $1.5 million to $16.3 million
 
as of June 30, 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 June 30, 2023, approximately $18.5 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 six-month
 
period ended June
 
30, 2023, interest income
 
of approximately $0.2 million
 
related to nonaccrual
 
loans with a
carrying
 
value of
 
$24.1 million
 
as of
 
June 30,
 
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 $118.5
million
 
as of
 
June 30,
 
2023, an
 
increase
 
of $13.6
 
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 increased by $7.5 million to $78.4 million,
 
mainly in the auto loans portfolio.
Commercial
 
and
 
construction
 
loans
 
in
 
early
 
delinquency
 
increased
 
by
 
$3.4
 
million
 
to
 
$9.2
 
million,
 
mainly
 
due
 
to
 
a
 
$4.5
million commercial
 
mortgage loan
 
in the
 
Puerto Rico
 
region that
 
matured and
 
is in
 
the process of
 
renewal but
 
for which
 
the
Corporation continues to receive interest and principal payments from
 
the borrower.
Residential mortgage loans in early delinquency increased by $2.7
 
million to $30.9 million.
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
126
The OREO portfolio,
 
which is part of
 
non-performing assets, amounted
 
to $31.6 million as
 
of each of June
 
30, 2023 and December
31, 2022.
 
The following
 
tables show
 
the composition
 
of the
 
OREO portfolio
 
as of
 
June 30,
 
2023 and
 
December 31,
 
2022, as
 
well as
the activity of the OREO portfolio by geographic area during the six-month
 
period ended June 30, 2023:
OREO Composition by Region
 
As of June 30, 2023
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Residential
 
$
22,026
$
1,595
$
-
$
23,621
Construction
1,833
59
-
1,892
Commercial
3,248
2,810
-
6,058
$
27,107
$
4,464
$
-
$
31,571
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
 
Six-Month Period Ended June 30, 2023
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Beginning Balance
$
28,135
$
3,475
$
31
$
31,641
Additions
9,442
1,295
-
10,737
Sales
(9,820)
(306)
(31)
(10,157)
Write-downs and other adjustments
(650)
-
-
(650)
Ending Balance
$
27,107
$
4,464
$
-
$
31,571
 
 
 
 
 
 
 
 
127
Net Charge-offs and Total
 
Credit Losses
 
Net charge-offs
 
totaled $19.3
 
million for
 
the second
 
quarter of
 
2023, or
 
0.67% of
 
average loans
 
on an
 
annualized basis,
 
compared
to
 
$6.0
million,
 
or an
 
annualized
 
0.21%
 
of
 
average
 
loans,
 
for
 
the
 
second
 
quarter
 
of 2022.
 
For
 
the
 
six-month
 
period
 
ended
 
June 30,
2023,
 
net
 
charge-offs
 
totaled
 
$32.5
 
million,
 
or
 
an
 
annualized
 
0.56%
 
of
 
average
 
loans,
 
compared
 
to $12.6
 
million,
 
or an
 
annualized
0.23% of average loans,
 
for the same period in 2022.
Consumer loans
 
and finance
 
leases net
 
charge-offs
 
for the
 
second quarter
 
of 2023
 
were $13.0
 
million, or
 
an annualized
 
1.51% of
related average
 
loans, compared to
 
$6.9 million, or
 
an annualized 0.91%
 
of related average
 
loans, for the
 
second quarter of
 
2022. Net
charge-offs
 
of
 
consumer
 
loans
 
and
 
finance
 
leases
 
for
 
the
 
six-month
 
period
 
ended
 
June
 
30,
 
2023
 
were
 
$26.0
 
million,
 
or
 
1.53%
 
of
related average loans, compared to $13.2 million, or an annualized
 
0.88% of related average loans, for the same period in 2022.
Commercial
 
and
 
industrial
 
loans
 
net
 
charge-offs
 
for
 
the
 
second
 
quarter
 
of
 
2023
 
were
 
$6.2
 
million,
 
or
 
an
 
annualized
 
0.87%
 
of
related
 
average
 
loans,
 
compared
 
to
 
net
 
recoveries
 
of
 
$0.5
 
million,
 
or
 
an
 
annualized
 
0.07%
 
of
 
related
 
average
 
loans,
 
for
 
the
 
second
quarter of
 
2022. Commercial
 
and industrial
 
loans net
 
charge-offs for
 
the six-month
 
period
 
ended June
 
30, 2023
 
were $6.2
 
million, or
0.44% of
 
related average
 
loans,
 
compared to
 
net recoveries
 
of $1.3
 
million, or
 
an annualized
 
0.09% of
 
related average
 
loans, for
 
the
same
 
period
 
in
 
2022.
 
The
 
net
 
charge-offs
 
for
 
the
 
second
 
quarter
 
and
 
first
 
six
 
months
 
of
 
2023
 
included
 
a
 
$6.2
 
million
 
charge-off
recorded on a commercial and industrial participated loan in the Florida
 
region in the power generation industry.
 
Residential
 
mortgage
 
loans
 
net
 
charge-offs
 
for
 
the
 
second
 
quarter
 
of
 
2023
 
were
 
$0.5
 
million,
 
or
 
an
 
annualized
 
0.06%
 
of
 
related
average loans,
 
compared to $0.8
 
million, or an
 
annualized 0.11%
 
of related average
 
loans, for the
 
second quarter of
 
2022. Residential
mortgage
 
loans net
 
charge-offs
 
for
 
the six-month
 
period ended
 
June 30,
 
2023 were
 
$0.8 million,
 
or an
 
annualized
 
0.06% of
 
related
average loans, compared to $1.9 million, or an annualized
 
0.13% of related average loans, for the same period of
 
2022. Approximately
$0.3
 
million of charge-offs
 
for the second quarter of
 
2023 and $0.5 million for
 
the first six months of
 
2023 resulted from valuations
 
of
collateral
 
dependent
 
residential
 
mortgage
 
loans,
 
compared
 
to
 
$0.5
 
million
 
and
 
$0.9
 
million
 
for
 
the
 
comparable
 
periods
 
in
 
2022.
Charge-offs
 
on residential
 
mortgage loans
 
also included
 
$0.3
 
million and
 
$0.8 million
 
related to
 
foreclosures recorded
 
in the
 
second
quarter and
 
first six
 
months of 2023,
 
respectively,
 
compared to
 
$0.5 million
 
and $1.8
 
million, recorded
 
for the
 
comparable periods
 
in
2022,
 
respectively.
Commercial mortgage
 
loans net
 
charge-offs
 
for the
 
second quarter
 
of 2023
 
were $32
 
thousand, or
 
an annualized
 
0.01% of
 
related
average loans,
 
compared to
 
net recoveries
 
of $1.2
 
million, or
 
an annualized
 
0.22% of
 
related average
 
loans, for
 
the second
 
quarter
 
of
2022.
 
Commercial mortgage
 
loans net
 
recoveries for
 
the six-month
 
period ended
 
June 30,
 
2023 were
 
$0.1 million,
 
or an
 
annualized
0.01%
 
of related
 
average
 
loans, compared
 
to
 
$1.2
 
million,
 
or
 
an
 
annualized
 
0.11%
 
or related
 
average
 
loans,
 
for
 
the same
 
period
 
in
2022.
Construction
 
loans
 
net
 
recoveries
 
for
 
the
 
second
 
quarter
 
of
 
2023
 
were
 
$0.4
 
million,
 
or
 
an
 
annualized
 
0.99%
 
of
 
related
 
average
loans, compared to $27 thousand, or an annualized 0.09%
 
of related average loans, for the same period in 2022. Construction
 
loans net
recoveries
 
for
 
the
 
six-month
 
period
 
ended
 
June
 
30,
 
2023
 
were
 
$0.4
 
million,
 
or
 
an
 
annualized
 
0.59%
 
of
 
related
 
average
 
loans,
compared to $35 thousand, or an annualized 0.06% of related
 
average loans, for the same period in 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
128
 
The following table presents annualized net charge-offs
 
(recoveries) to average loans held-in-portfolio for the indicated periods:
Quarter Ended June 30,
 
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
Residential mortgage
0.06
%
0.11
%
0.06
%
0.13
%
Construction
 
(0.99)
%
(0.09)
%
(0.59)
%
(0.06)
%
Commercial mortgage
0.01
%
(0.22)
%
(0.01)
%
(0.11)
%
Commercial and industrial
0.87
%
(0.07)
%
0.44
%
(0.09)
%
Consumer and finance leases
1.51
%
0.91
%
1.53
%
0.88
%
Total loans
0.67
%
0.21
%
0.56
%
0.23
%
 
The following table presents annualized net charge-offs
 
(recoveries) to average loans held in various portfolios by geographic
segment for the indicated periods:
Quarter Ended June 30,
 
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
PUERTO RICO:
Residential mortgage
0.08
%
0.13
%
0.09
%
0.16
%
Construction
 
(3.04)
%
(0.14)
%
(1.86)
%
(0.03)
%
Commercial mortgage
0.02
%
(0.16)
%
0.01
%
(0.08)
%
Commercial and industrial
0.01
%
(0.12)
%
0.01
%
(0.14)
%
Consumer and finance leases
1.51
%
0.93
%
1.47
%
0.88
%
Total loans
0.56
%
0.30
%
0.57
%
0.29
%
VIRGIN ISLANDS:
Residential mortgage
(0.02)
%
0.16
%
(0.05)
%
0.13
%
Construction
 
3.93
%
-
%
1.93
%
-
%
Commercial mortgage
(0.23)
%
(0.22)
%
(0.22)
%
(0.22)
%
Commercial and industrial
-
%
-
%
(0.01)
%
(0.01)
%
Consumer and finance leases
2.02
%
0.59
%
2.10
%
1.18
%
Total loans
0.34
%
0.12
%
0.31
%
0.19
%
FLORIDA:
Residential mortgage
(0.04)
%
(0.05)
%
(0.02)
%
(0.03)
%
Construction
 
(0.06)
%
(0.06)
%
(0.05)
%
(0.08)
%
Commercial mortgage
-
%
(0.40)
%
(0.04)
%
(0.21)
%
Commercial and industrial
2.67
%
-
%
1.31
%
-
%
Consumer and finance leases
(1.16)
%
(2.32)
%
(0.45)
%
(0.43)
%
Total loans
1.23
%
(0.13)
%
0.60
%
(0.06)
%
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 half of 2023 amounted to $28.6 million, or
 
a loss rate of 0.25% on
an
 
annualized
 
basis
 
of
 
average
 
loans
 
and
 
repossessed
 
assets,
 
compared
 
to
 
losses
 
of
 
$10.3
 
million,
 
or
 
a
 
loss
 
rate
 
of
 
0.19%
 
on
 
an
annualized basis, for the first half of 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
129
The following table presents information about the OREO inventory
 
and credit losses for the indicated periods:
Quarter ended June 30,
 
Six-Month Period Ended June 30,
 
2023
2022
2023
2022
(Dollars in thousands)
OREO
OREO balances, carrying value:
Residential
$
23,621
$
31,780
$
23,621
$
31,780
Construction
1,892
2,657
1,892
2,657
Commercial
6,058
7,269
6,058
7,269
Total
$
31,571
$
41,706
$
31,571
$
41,706
OREO activity (number of properties):
Beginning property inventory
344
442
344
418
Properties acquired
44
41
103
109
Properties disposed
(68)
(52)
(127)
(96)
Ending property inventory
320
431
320
431
Average holding period (in days)
Residential
524
658
524
658
Construction
2,178
2,162
2,178
2,162
Commercial
2,580
2,041
2,580
2,041
Total average holding period (in days)
1,018
995
1,018
995
OREO operations gain (loss):
Market adjustments and gains (losses) on sale:
Residential
$
2,553
$
1,988
$
5,043
$
2,980
Construction
7
11
47
114
Commercial
-
(62)
(67)
(79)
Total net gain
2,560
1,937
5,023
3,015
Other OREO operations expenses
(576)
(452)
(1,043)
(810)
Net Gain on OREO operations
$
1,984
$
1,485
$
3,980
$
2,205
(CHARGE-OFFS) RECOVERIES
Residential charge-offs, net
$
(389)
$
(792)
$
(875)
$
(1,938)
Construction recoveries, net
371
27
434
35
Commercial (charge-offs) recoveries, net
 
(6,250)
1,737
(6,128)
2,489
Consumer and finance leases charge-offs, net
(13,011)
(6,932)
(25,979)
(13,140)
Total charge-offs,
 
net
(19,279)
(5,960)
(32,548)
(12,554)
TOTAL CREDIT LOSSES
(1)
$
(17,295)
$
(4,475)
$
(28,568)
$
(10,349)
(GAIN) LOSS RATIO PER CATEGORY
(2)
Residential
(0.31)
%
(0.16)
%
(0.15)
%
(0.07)
%
Construction
(1.00)
%
(0.12)
%
(0.32)
%
(0.24)
%
Commercial
0.48
%
(0.13)
%
0.12
%
(0.09)
%
Consumer
1.51
%
0.91
%
0.76
%
0.88
%
TOTAL CREDIT LOSS RATIO
(3)
0.60
%
0.16
%
0.25
%
0.19
%
(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.
 
 
 
 
 
 
 
 
 
130
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
 
$11.7
 
billion as
 
of June
 
30, 2023,
 
the Corporation
 
had credit
 
risk of
 
approximately 79%
 
in the
Puerto Rico region,
 
17% in the United States region, and 4% in the Virgin
 
Islands region.
 
131
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
 
June
 
15,
 
2023,
 
the
 
Puerto
 
Rico
 
Planning
 
Board
 
(“PRPB”)
 
presented
 
the
 
updated
 
Economic
 
Report
 
to
 
the
 
Governor,
 
which
provides
 
an
 
analysis
 
of
 
Puerto
 
Rico’s
 
economy
 
during
 
fiscal
 
year
 
2022
 
and
 
a
 
short-term
 
forecast
 
for
 
fiscal
 
years
 
2023
 
and
 
2024.
According
 
to
 
the
 
PRPB,
 
Puerto
 
Rico’s
 
real
 
gross
 
national
 
product
 
(“GNP”)
 
expanded
 
by
 
3.7%
 
in
 
fiscal
 
year
 
2022,
 
which
 
was
 
the
highest annual real GNP
 
growth registered in Puerto
 
Rico since fiscal year 1999.
 
The growth was primarily driven
 
by a sharp increase
in personal consumption expenditures reflecting an increase of
 
approximately 8.5% when compared to fiscal year 2021, increase
 
in net
exports of 4.8%, and growth in fixed capital investments of 12.6%.
 
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
 
May
 
2023,
 
preliminary
 
estimates
 
showed
 
that
 
the
 
EDB-EAI
increased
 
0.8% on
 
a month-over-month
 
basis and
 
1.8% higher
 
than May
 
2022.
 
Over the
 
12-month
 
period ended
 
May 31,
 
2023,
 
the
EDB-EAI averaged 124.8, approximately 0.2% above the comparable
 
figure a year earlier.
 
Labor
 
market
 
trends
 
remain
 
positive.
 
Data
 
published
 
by
 
the
 
Bureau
 
of
 
Labor
 
Statistics
 
show
 
June
 
2023
 
payroll
 
employment
 
in
Puerto
 
Rico
 
increased
 
by
 
2.4%
 
when
 
compared
 
to
 
June
 
2022,
 
supported
 
by
 
a
 
year-over-year
 
increase
 
of
 
8.6%
 
in
Leisure
 
and
Hospitality
payroll employment and a 12.0%
 
year-over-year increase
 
in
Construction
-related payroll employment
.
 
The unemployment
rate stood at 6.1% as of June 2023.
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 pos
 
t-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
 
to properly
 
delivery 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
 
power/energy
 
sector
 
reform
 
to
 
improve
 
availability,
 
reliability
 
and
 
affordability
 
of
 
energy,
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
 
facilitating
 
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
 
COVID-19
 
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 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.
 
132
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
 
Puerto Rico’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
 
Puerto Rico’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”).
On June 23, 2023,
 
the Fiscal Oversight and
 
Management Board for
 
Puerto Rico certified a new
 
fiscal plan for PREPA
 
which included
the most
 
recent projections
 
of energy
 
consumption in
 
Puerto Rico
 
and consequently
 
reflected a
 
significant reduction
 
in the
 
projected
revenues for
 
PREPA
 
over the
 
next years.
 
As such,
 
PREPA
 
concluded
 
that its
 
ability to
 
repay its
 
outstanding debt
 
was significantly
less
 
than
 
what
 
was
 
previously
 
stated.
 
On
 
June
 
26,
 
2023,
 
Judge
 
Laura
 
Taylor
 
Swain
 
resolved
 
that
 
PREPA’s
 
bondholders
 
have
 
an
unsecured claim
 
of $2.4 billion
 
against PREPA
 
and not
 
the approximately
 
$9.0 billion
 
that bondholders
 
were claiming. This
 
decision
could
 
result
 
in a
 
75% haircut
 
on
 
PREPA’s
 
outstanding
 
debt
 
and
 
may
 
reduce
 
the ability
 
of
 
bondholders
 
to impose
 
higher
 
electricity
rates to consumers to pay for debt service.
 
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, particularly in the aftermath of
 
Hurricane Maria in 2017. During the first five months
 
of
2023, over
 
$1.8 billion
 
in disaster relief
 
funds have
 
been disbursed
 
through FEMA
 
Public Assistance
 
program and
 
the Department
 
of
Housing and
 
Urban Development’s
 
“Community Development
 
Block Grant”
 
program, a
 
117%
 
increase when
 
compared to
 
the same
period
 
in
 
2022,
 
and
 
the
 
Fiscal
 
Oversight
 
and
 
Management
 
Board
 
for
 
Puerto
 
Rico
 
is
 
currently
 
projecting
 
over
 
$5
 
billion
 
in
 
total
disbursements to
 
take place during
 
2023.
 
These funds will
 
continue to play
 
a key role
 
in supporting Puerto
 
Rico’s economic
 
stability
and are expected to have a positive impact on the Island’s
 
infrastructure.
On June
 
21, 2023,
 
Fitch Ratings
 
issued a
 
credit rating
 
research note
 
highlighting the
 
government’s
 
commitment
 
to improving
 
its
continuing
 
disclosure
 
practices and
 
the release
 
of
 
the 2021
 
audited
 
financial
 
statements.
 
The
 
government
 
has
 
made
 
great strides
 
in
recent years
 
with regards
 
to its
 
financial transparency
 
and its
 
on target
 
to release
 
its audited
 
financial statements
 
on time
 
and in
 
line
with regulatory expectations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
133
Exposure to Puerto Rico Government
As of
 
June 30,
 
2023, the
 
Corporation had
 
$344.3 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 June
 
30, 2023,
 
approximately $186.2
 
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
 
$113.2
 
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 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 $9.5
 
million in
 
loans to
 
an affiliate
 
of
PREPA,
 
$32.1 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 $2.1 million as of
 
June 30, 2023).
The
 
following
 
table
 
details
 
the
 
Corporation’s
 
total
 
direct
 
exposure
 
to
 
Puerto
 
Rico
 
government
 
obligations
 
according
 
to
 
their
maturities:
As of June 30, 2023
Investment
Portfolio
(Amortized
cost)
Loans
Total
 
Exposure
(In thousands)
Puerto Rico Housing Finance Authority:
 
After 10 years
$
3,254
$
-
$
3,254
Total
 
Puerto Rico Housing Finance Authority
3,254
-
3,254
Agencies and public corporation of the Puerto Rico government:
 
After 1 to 5 years
-
6,160
6,160
 
After 5 to 10 years
-
25,979
25,979
Total agencies and public
 
corporation of the Puerto Rico government
-
32,139
32,139
 
Affiliate of the Puerto Rico Electric Power Authority:
 
Due within one year
-
9,519
9,519
Total Puerto Rico government
 
affiliate
-
9,519
9,519
Total
 
Puerto Rico public corporations and government affiliate
-
41,658
41,658
Municipalities:
 
Due within one year
1,205
10,600
11,805
 
After 1 to 5 years
42,736
55,909
98,645
 
After 5 to 10 years
56,160
66,717
122,877
 
After 10 years
66,023
-
66,023
Total
 
Municipalities
166,124
133,226
299,350
Total
 
Direct Government Exposure
$
169,378
$
174,884
$
344,262
 
 
 
 
 
 
 
134
In addition, as of
 
June 30, 2023, the Corporation
 
had $81.1 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
 
June
 
30,
 
2023,
 
the
 
Corporation
 
had
 
$2.9
 
billion
 
of
 
public
 
sector
 
deposits
 
in
 
Puerto
 
Rico,
 
compared
 
to
 
$2.3
 
billion
 
as
 
of
December
 
31,
 
2022.
 
Approximately
 
21%
 
of the
 
public
 
sector deposits
 
as of
 
June 30,
 
2023
 
were from
 
municipalities
 
and
 
municipal
agencies in
 
Puerto Rico
 
and 79%
 
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
 
several fiscal and economic
 
challenges that have deteriorated
 
the overall financial
and
 
economic
 
conditions
 
in
 
the
 
area.
 
However,
 
on
 
May
 
22,
 
2023,
 
the
 
United
 
States
 
Bureau
 
of
 
Economic
 
Analysis
 
(the
 
“BEA”)
released its
 
estimates of
 
real gross domestic
 
product (“GDP”)
 
for 2021.
 
According to
 
the BEA,
 
the USVI’s
 
real GDP
 
increased 2.8%
in
 
2021
 
after
 
decreasing
 
1.9%
 
in
 
2020.
 
The
 
increase
 
in
 
real
 
GDP
 
reflected
 
increases
 
in
 
exports
 
and
 
personal
 
consumption
expenditures.
 
These
 
increases
 
were
 
partly
 
offset
 
by
 
decreases
 
in
 
private
 
inventory
 
investment,
 
private
 
fixed
 
investment,
 
and
government spending. Imports, a subtraction item in the calculation of
 
GDP,
 
also decreased.
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, which
 
occurred in
 
2017. According
 
to data
 
published by
 
the
government, over
 
$4.7 billion
 
in disaster
 
recovery funds
 
were disbursed
 
as of
 
2023 and
 
$3.4 billion
 
were remaining
 
obligated funds
waiting to
 
be disbursed.
 
On the
 
fiscal front,
 
revenues have
 
trended
 
positively and
 
the USVI
 
government
 
successfully completed
 
the
restructuring
 
of the
 
government employee
 
retirement system.
 
Moreover,
 
labor market
 
trends are
 
stable with
 
payroll employment
 
for
the month of June 2023, up 3.2% when compared to June 2022.
Finally, 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
deteriorates
 
again,
 
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
 
June
 
30,
 
2023,
 
the
 
Corporation
 
had
 
$78.9
 
million
 
in
 
loans
 
to
 
USVI
 
public
 
corporations,
 
compared
 
to
 
$38.0
 
million
 
as
 
of
December
 
31,
 
2022.
 
The
 
increase
 
in
 
loans
 
to
 
USVI
 
public
 
corporations
 
was
 
driven
 
the aforementioned
 
$47.0
 
million
 
line
 
of
 
credit
utilization.
 
As of June 30, 2023, all loans were currently performing and up to date on principal
 
and interest payments.
 
 
 
 
 
 
135
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 June
30, 2023 the
 
end of the
 
period covered by
 
this Quarterly Report
 
on Form 10-Q.
 
Based on this
 
evaluation, the
 
Chief Executive Officer
and
 
Chief Financial
 
Officer
 
concluded that
 
the Corporation’s
 
disclosure
 
controls
 
and
 
procedures were
 
effective
 
as of
 
June 30,
 
2023
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 June 30,
 
2023 that have materially
 
affected, or are
 
reasonably likely to
materially affect, the Corporation’s
 
internal control over financial reporting.
ITEM 5.
 
OTHER INFORMATION
No director
 
or officer
 
(as defined
 
in Rule
 
16a-1(f) of
 
the Exchange
 
Act) of
 
the Corporation
adopted
, modified,
 
or
terminated
 
any
Rule 10b5-1 trading arrangement or
 
any
non-Rule
10b5-1
 
trading arrangement (as such terms are defined
 
in Item 408 of Regulation S-
K under the Exchange Act) during the quarter ended June 30, 2023.
 
 
 
 
136
PART II - OTHER INFORMATION
In accordance
 
with the
 
instructions to
 
Part II
 
of Form
 
10-Q, 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
 
the unaudited
 
consolidated
financial
 
statements
 
herein, which is incorporated by reference in this Part II, 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,
 
as previously disclosed,
 
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.
 
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.
 
As of
June 30, 2023, the Corporation has not incurred any material expenses related
 
to the incident and does not expect any future impact.
 
 
 
 
137
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,
liquidity constraints,
 
and new capital requirements.
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.
 
For example,
 
on May
 
11, 2023,
 
the FDIC
 
issued a
 
proposed rule
 
to recover
 
the losses
 
to the
 
Deposit
Insurance Fund
 
(“DIF”) associated with
 
protecting uninsured depositors
 
as part of
 
the aforementioned
 
financial institution failures.
 
Under
the proposed
 
rule, the
 
FDIC would
 
collect a
 
special assessment
 
at an
 
annual rate
 
of approximately
 
12.5 basis
 
points over
 
eight quarterly
periods,
 
commencing with the first quarter of 2024. The assessment
 
base for the special assessment would be equal to an
 
insured depository
institution’s estimated uninsured deposits reported as
 
of December 31, 2022, adjusted
 
to exclude the first $5
 
billion in estimated uninsured
deposits.
 
Notwithstanding, the
 
special assessment
 
could be
 
subject to
 
change depending
 
on whether
 
there are
 
any shortfalls
 
on amounts
collected.
 
If the final rule
 
is issued as proposed, the
 
estimated impact of the special
 
assessment on the Corporation would
 
be an increase in
non-interest expense by approximately $6
 
million that would need to be accrued once the
 
proposed rule is finalized.
 
 
 
138
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 June
 
30, 2023.
Issuer Purchases of Equity Securities
There were
 
no
 
repurchases of
 
common stock
 
during the
 
quarter ended
 
June
 
30,
 
2023.
 
As
 
of
 
June
 
30,
 
2023,
 
the
 
Corporation
 
has
remaining authorization to repurchase $75 million under the $350 million
 
stock repurchase program announced on April 27, 2022.
 
 
 
139
ITEM 6.
 
EXHIBITS
 
See the Exhibit Index below, which is incorporated by
 
reference herein:
 
EXHIBIT INDEX
 
Exhibit No.
Description
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 June 30, 2023, formatted in Inline
XBRL (included within the Exhibit 101 attachments)
 
 
 
140
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:
 
August 8, 2023
By:
 
/s/ Aurelio Alemán
 
Aurelio Alemán
 
President and Chief Executive Officer
Date: August 8, 2023
By:
 
/s/ Orlando Berges
 
Orlando Berges
 
Executive Vice President and Chief Financial Officer