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

fbp20230930Q3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
 
20549
____________
FORM
10-Q
(Mark One)
[X]
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 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:
172,552,186
 
shares outstanding as of November 1, 2023.
2
FIRST BANCORP.
INDEX PAGE
PART
 
I. FINANCIAL INFORMATION
 
PAGE
Item 1.
Financial Statements:
Consolidated
 
Statements
 
of
 
Financial
 
Condition
 
(Unaudited)
 
as
 
of
 
September
 
30,
 
2023
 
and
December 31, 2022
 
Consolidated
 
Statements
 
of
 
Income
 
(Unaudited)
 
–
 
Quarters
 
and
 
Nine-Month
 
Periods
 
ended
September 30, 2023 and 2022
Consolidated
 
Statements
 
of
 
Comprehensive
 
Income
 
(Loss)
 
(Unaudited)
 
–
 
Quarters
 
and
 
Nine-
Month Periods ended September 30, 2023 and 2022
Consolidated
 
Statements
 
of
 
Cash
 
Flows
 
(Unaudited)
 
–
 
Nine-Month
 
Periods
 
ended
 
September
30, 2023 and 2022
 
Consolidated Statements
 
of Changes in
 
Stockholders’ Equity (Unaudited)
 
– Quarters and
 
Nine-
Month Periods ended September 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 1.
Controls and Procedures
PART
 
II. OTHER INFORMATION
Item 1.
Legal Proceedings
 
Item 1A.
Risk Factors
Item 2.
Item 5.
Unregistered Sales of Equity Securities and Use of Proceeds
Other Information
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
 
materially
 
from
 
those
 
expressed
 
in,
 
or
 
implied
 
by,
 
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
 
fiscal year
 
ended December
 
31, 2022,
 
as amended
 
on October
 
13, 2023
 
(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
June 30, 2023, and the following:
●
the
 
impacts
 
of
 
elevated
 
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,
 
which
 
could
 
result
 
in,
 
among
 
other
 
things,
 
bank
 
deposit
runoffs, liquidity constraints, and increased regulatory
 
requirements and costs;
●
the
 
effect
 
of
 
continued
 
changes
 
in
 
the
 
fiscal
 
and
 
monetary
 
policies
 
and
 
regulations
 
of
 
the
 
United
 
States
 
(“U.S.”)
 
federal
government,
 
the Puerto
 
Rico government
 
and other governments,
 
including those
 
determined by
 
the Board
 
of the Governors
of the Federal Reserve System (the
 
“Federal Reserve Board”),
 
the Federal Reserve Bank of New York
 
(the “New York
 
FED”
or
 
the
 
“FED”),
 
the
 
Federal
 
Deposit
 
Insurance
 
Corporation
 
(the
 
“FDIC”),
 
government-sponsored
 
housing
 
agencies
 
and
regulators in Puerto
 
Rico, the U.S., and
 
the U.S. Virgin
 
Islands (the “USVI)
 
and British Virgin
 
Islands (the “BVI”),
 
that may
affect the future results of the Corporation;
●
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;
4
●
general competitive
 
factors and other
 
market risks as
 
well as the
 
implementation of
 
strategic growth opportunities,
 
including
risks, uncertainties, and other factors or events related to any business acquisitions
 
or dispositions;
●
uncertainty as
 
to the
 
implementation of
 
the debt
 
restructuring plan
 
of Puerto
 
Rico (“Plan
 
of Adjustment”
 
or “PoA”)
 
and the
fiscal plan
 
for Puerto
 
Rico as
 
certified
 
on April
 
3, 2023
 
(the “2023
 
Fiscal Plan”)
 
by the
 
oversight
 
board established
 
by the
Puerto Rico
 
Oversight, Management,
 
and Economic
 
Stability Act
 
(“PROMESA”),
 
or any
 
revisions to
 
it, on
 
our clients
 
and
loan portfolios, and any potential impact from future economic or political
 
developments and tax regulations in Puerto Rico;
 
●
the
 
impact
 
of
 
changes
 
in
 
accounting
 
standards,
 
or
 
assumptions
 
in
 
applying
 
those
 
standards,
 
and
 
of
 
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, the emergence
 
or continuation of
 
widespread health emergencies,
 
geopolitical
conflicts
 
(including
 
the ongoing
 
conflict
 
in Ukraine,
 
the conflict
 
in Israel
 
and
 
surrounding
 
areas,
 
the possible
 
expansion
 
of
such
 
conflicts
 
and
 
potential
 
geopolitical
 
consequences),
 
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 downgrade of the United
 
States of America’s
Long-Term
 
Foreign-Currency Issuer
 
Default Rating
 
(“IDR”)
 
to ‘AA+’
 
from ‘AAA’
 
in August
 
2023, 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;
●
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)
September 30, 2023
December 31, 2022
(In thousands, except for share information)
ASSETS
Cash and due from banks
$
583,913
$
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
-
81,103
Other available-for-sale debt securities
5,175,803
5,518,417
Total available-for-sale debt securities, at fair value (amortized cost of $
6,021,072
 
as of September 30, 2023, and
$
6,398,197
 
as of December 31, 2022; ACL of $
465
 
as of September 30, 2023 and $
458
 
as of December 31, 2022)
5,175,803
5,599,520
Held-to-maturity debt securities, at amortized cost, net of ACL
 
of $
2,250
 
as of September 30, 2023 and $
8,286
as of December 31, 2022 (fair value of $
342,851
 
as of September 30, 2023 and $
427,115
 
as of December 31, 2022)
356,919
429,251
Equity securities
48,683
55,289
Total investment securities
5,581,405
6,084,060
Loans, net of ACL of $
263,615
 
as of September 30, 2023 and $
260,464
 
as of December 31, 2022
11,687,317
11,292,361
Mortgage loans held for sale, at lower of cost or market
8,961
12,306
Total loans, net
11,696,278
11,304,667
Accrued interest receivable on loans and investments
68,783
69,730
Premises and equipment, net
144,611
142,935
Other real estate owned (“OREO”)
28,563
31,641
Deferred tax asset, net
150,805
155,584
Goodwill
38,611
38,611
Other intangible assets
15,229
21,118
Other assets
285,410
305,633
Total assets
$
18,594,608
$
18,634,484
LIABILITIES
Non-interest-bearing deposits
$
5,440,247
$
6,112,884
Interest-bearing deposits
10,994,990
10,030,583
Total deposits
16,435,237
16,143,467
Short-term securities sold under agreements to repurchase
-
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
194,603
231,582
Total liabilities
17,291,540
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;
174,386,326
shares outstanding as of September 30, 2023 and
182,709,059
 
as of December 31, 2022
22,366
22,366
Additional paid-in capital
963,791
970,722
Retained earnings, includes legal surplus reserve of $
168,484
1,790,652
1,644,209
Treasury stock (at cost),
49,276,790
 
shares as of September 30, 2023 and
40,954,057
 
shares as of December 31, 2022
(622,378)
(506,979)
Accumulated other comprehensive loss, net of tax of $
8,468
 
as of each September 30, 2023 and December 31, 2022
(851,363)
(804,778)
Total stockholders’ equity
1,303,068
1,325,540
Total liabilities and stockholders’ equity
$
18,594,608
$
18,634,484
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Quarter Ended September 30,
 
Nine-Month Period Ended September 30,
 
2023
2022
2023
2022
(In thousands, except per share information)
Interest and dividend income:
 
Loans
$
227,930
$
191,740
$
656,632
$
544,788
 
Investment securities
24,519
26,289
77,887
76,027
 
Money market investments and interest-bearing cash accounts
10,956
4,654
23,486
8,347
 
Total interest and dividend income
263,405
222,683
758,005
629,162
Interest expense:
 
Deposits
54,298
9,978
125,787
25,324
 
Securities sold under agreements to repurchase:
 
Short-term
359
-
2,756
-
 
Long-term
-
1,993
-
6,147
 
Advances from the FHLB:
 
Short-term
-
-
4,776
-
 
Long-term
5,675
529
14,123
2,667
 
Other long-term borrowings
3,345
2,273
10,135
5,304
 
Total interest expense
63,677
14,773
157,577
39,442
 
Net interest income
199,728
207,910
600,428
589,720
Provision for credit losses - expense (benefit):
 
Loans and finance leases
10,643
14,352
47,669
10,028
 
Unfunded loan commitments
(128)
2,071
488
2,705
 
Debt securities
(6,119)
(640)
(6,029)
(749)
 
Provision for credit losses - expense
4,396
15,783
42,128
11,984
 
Net interest income after provision for credit losses
195,332
192,127
558,300
577,736
Non-interest income:
 
Service charges and fees on deposit accounts
9,552
9,820
28,380
28,649
 
Mortgage banking activities
2,821
3,400
8,493
12,688
 
Gain on early extinguishment of debt
-
-
1,605
-
 
Insurance commission income
2,790
2,624
10,384
10,845
 
Card and processing income
10,841
9,834
32,894
29,815
 
Other non-interest income
4,292
4,015
17,329
11,495
 
Total non-interest income
 
30,296
29,693
99,085
93,492
Non-interest expenses:
 
Employees’ compensation and benefits
56,535
52,939
167,271
153,797
 
Occupancy and equipment
21,781
22,543
64,064
66,434
 
Business promotion
4,759
5,136
12,901
12,641
 
Professional service fees
11,022
12,549
34,591
35,179
 
Taxes, other than income taxes
5,465
5,349
15,701
15,056
 
FDIC deposit insurance
2,143
1,466
6,419
4,605
 
Net gain on OREO operations
(2,153)
(1,064)
(6,133)
(3,269)
 
Credit and debit card processing expenses
6,779
6,410
18,637
16,374
 
Communications
2,219
2,272
6,427
6,401
 
Other non-interest expenses
8,088
7,589
24,945
22,956
 
Total non-interest expenses
116,638
115,189
344,823
330,174
Income before income taxes
108,990
106,631
312,562
341,054
Income tax expense
26,968
32,028
89,187
109,156
Net income
 
$
82,022
$
74,603
$
223,375
$
231,898
Net income attributable to common stockholders
 
$
82,022
$
74,603
$
223,375
$
231,898
Net income per common share:
 
Basic
$
0.47
$
0.40
$
1.25
$
1.20
 
Diluted
$
0.46
$
0.40
$
1.25
$
1.19
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
(LOSS)
(Unaudited)
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2023
2022
2023
2022
(In thousands)
Net income
 
$
82,022
$
74,603
$
223,375
$
231,898
Other comprehensive loss, net of tax:
Available-for-sale debt
 
securities:
Net unrealized holding losses on debt securities
 
(1)
(78,976)
(270,937)
(46,585)
(778,694)
Other comprehensive loss for the period
(78,976)
(270,937)
(46,585)
(778,694)
 
Total comprehensive income (loss)
$
3,046
$
(196,334)
$
176,790
$
(546,796)
(1)
Net unrealized holding losses 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)
Nine-Month Period Ended September 30,
2023
2022
(In thousands)
Cash flows from operating activities:
Net income
 
$
223,375
$
231,898
Adjustments to reconcile net income to net cash provided by operating
 
activities:
Depreciation and amortization
15,274
16,810
Amortization of intangible assets
5,889
6,689
Provision for credit losses
 
42,128
11,984
Deferred income tax expense
5,539
42,382
Stock-based compensation
5,898
3,994
Gain on early extinguishment of debt
(1,605)
-
Unrealized gain on derivative instruments
(464)
(1,502)
Net gain on disposals or sales, and impairments of premises
 
and equipment and other assets
(235)
(897)
Net gain on sales of loans and loans held-for-sale valuation adjustments
 
(1,422)
(4,827)
Net amortization of discounts, premiums, and deferred loan fees
 
and costs
839
(7,532)
Originations and purchases of loans held for sale
(125,886)
(184,544)
Sales and repayments of loans held for sale
126,800
204,182
Amortization of broker placement fees
216
89
Net amortization of premiums and discounts on investment securities
3,836
2,648
Decrease in accrued interest receivable
3,545
85
Increase (decrease) in accrued interest payable
13,729
(1,467)
Decrease in other assets
6,077
663
(Decrease) increase in other liabilities
(39,810)
14,097
 
Net cash provided by operating activities
283,723
334,752
Cash flows from investing activities:
Net disbursements on loans held for investment
(485,198)
(308,386)
Proceeds from sales of loans held for investment
6,663
39,069
Proceeds from sales of repossessed assets
40,384
31,638
Purchases of available-for-sale debt securities
(5,458)
(512,327)
Proceeds from principal repayments and maturities of available-for-sale
 
debt securities
393,958
515,602
Purchases of held-to-maturity debt securities
-
(289,784)
Proceeds from principal repayments and maturities of held-to-maturity
 
debt securities
79,889
23,320
Additions to premises and equipment
(19,938)
(15,442)
Proceeds from sales of premises and equipment and other assets
578
1,138
Net redemptions of other investments securities
6,520
6,988
Proceeds from the settlement of insurance claims - investing activities
133
-
 
Net cash provided by (used in) investing activities
17,531
(508,184)
Cash flows from financing activities:
Net increase (decrease) in deposits
275,825
(1,221,614)
Net repayments of short-term borrowings
(550,133)
-
Repayments of long-term borrowings
(19,795)
(300,000)
Proceeds from long-term borrowings
300,000
-
Repurchase of outstanding common stock
(126,918)
(227,256)
Dividends paid on common stock
(75,825)
(65,766)
 
Net cash used in financing activities
(196,846)
(1,814,636)
Net increase (decrease) in cash and cash equivalents
104,408
(1,988,068)
Cash and cash equivalents at beginning of year
480,505
2,543,058
Cash and cash equivalents at end of period
$
584,913
$
554,990
Cash and cash equivalents include:
Cash and due from banks
$
583,913
$
552,933
Money market investments
1,000
2,057
$
584,913
$
554,990
The accompanying notes are an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
 
EQUITY
(Unaudited)
Quarter Ended September 30,
Nine-Month Period Ended September 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
962,229
968,217
970,722
972,547
 
Stock-based compensation expense
1,901
1,414
5,898
3,994
 
Common stock reissued under stock-based compensation plan
(351)
(302)
(13,490)
(7,304)
 
Restricted stock forfeited
12
41
661
133
 
Balance at end of period
963,791
969,370
963,791
969,370
Retained Earnings:
 
Balance at beginning of period
1,733,497
1,541,334
1,644,209
1,427,295
 
Impact of adoption of Accounting Standards Update (“ASU”) 2022-02 (See
 
Note 1)
-
-
(1,357)
-
 
Net income
 
82,022
74,603
223,375
231,898
 
Dividends on common stock ($
0.14
 
per share and $
0.12
 
per share for the quarters ended
 
 
September 30, 2023 and 2022, respectively; $
0.42
 
per share and $
0.34
 
per share for the
 
for the nine-month periods ended September 30, 2023 and 2022, respectively)
(24,867)
(22,653)
(75,575)
(65,909)
 
Balance at end of period
1,790,652
1,593,284
1,790,652
1,593,284
Treasury Stock (at cost):
 
Balance at beginning of period
(547,706)
(382,245)
(506,979)
(236,442)
 
Common stock repurchases (See Note 14)
(75,011)
(75,010)
(128,228)
(227,723)
 
Common stock reissued under stock-based compensation plan
351
302
13,490
7,304
 
Restricted stock forfeited
(12)
(41)
(661)
(133)
 
Balance at end of period
(622,378)
(456,994)
(622,378)
(456,994)
Accumulated Other Comprehensive Loss, net
 
of tax:
 
Balance at beginning of period
(772,387)
(591,756)
(804,778)
(83,999)
 
Other comprehensive loss, net of tax
(78,976)
(270,937)
(46,585)
(778,694)
 
Balance at end of period
(851,363)
(862,693)
(851,363)
(862,693)
 
Total stockholders’ equity
$
1,303,068
$
1,265,333
$
1,303,068
$
1,265,333
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 nine-month
 
period ended
 
September 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 Corporation evaluates subsequent events through
 
the date of filing with the SEC.
 
The results of operations for the quarter and nine-month period ended September 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, modifications given to borrowers experiencing financial
difficulty
 
for which
 
a
 
concession
 
was
 
granted
 
were required
 
to be
 
disclosed as
 
a TDR,
 
whereas now
 
modifications given
 
to borrowers
experiencing financial difficulty for
 
which 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 need to
 
be disclosed. ASU 2022-02 did not amend the
 
definition of financial difficulty.
 
 
ASU 2022-02 also eliminated the requirement to
 
only 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. As such, the
 
ACL for modified loans
within
 
the
 
scope
 
of
 
ASU
 
2022-02
 
is
 
determined
 
in
 
a
 
manner
 
consistent
 
with
 
the
 
methodology
 
for
 
the
 
respective
 
class
 
and
 
risk
characteristics of
 
such loans.
 
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.
 
Modifications
 
that
 
do
 
not
 
impact
 
the
 
contractual
 
payment
 
terms,
 
such
 
as
 
covenant
 
waivers,
 
and
 
any
 
modifications
made to loans held-for-sale and leases are
 
not included in the disclosures.
 
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
The Corporation does not expect to be impacted by the following ASUs
 
issued during 2023 that are not yet effective
 
or have not yet been
adopted:
●
ASU
 
2023-06,
 
“Disclosure
 
Improvements:
 
Codification
 
Amendments
 
in
 
Response
 
to
 
the
 
SEC’s
 
Disclosure
 
Update
 
and
Simplification Initiative”
●
ASU 2023-05, “Business Combinations – Joint Venture
 
Formations (Subtopic 805-60): Recognition and Initial Measurement”
●
ASU
 
2023-02,
 
“Investments
 
–
 
Equity
 
Method
 
and
 
Joint
 
Ventures
 
(Topic
 
323):
 
Accounting
 
for
 
Investments
 
in
 
Tax
 
Credit
Structures Using the Proportional Amortization Method”
●
ASU 2023-01, “Leases (Topic
 
842): Common Control Arrangements”
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 September 30, 2023 were
 
as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
Amortized cost
(1)
Gross
ACL
Fair value
 
(2)
Unrealized
Weighted-
Gains
Losses
average yield%
(Dollars in thousands)
U.S. Treasury securities:
 
Due within one year
$
47,585
$
-
$
1,313
$
-
$
46,272
0.54
 
After 1 to 5 years
100,671
-
6,220
-
94,451
0.74
U.S. government-sponsored entities (“GSEs”) obligations:
 
Due within one year
271,134
-
7,334
-
263,800
0.73
 
After 1 to 5 years
2,225,242
55
201,084
-
2,024,213
0.84
 
After 5 to 10 years
10,097
-
1,158
-
8,939
2.95
 
After 10 years
10,621
18
1
-
10,638
5.65
Puerto Rico government obligations:
 
After 10 years
(3)
3,204
-
1,374
382
1,448
-
United States and Puerto Rico government obligations
2,668,554
73
218,484
382
2,449,761
0.84
Mortgage-backed securities (“MBS”):
 
Residential MBS:
 
Freddie Mac (“FHLMC”) certificates:
 
After 1 to 5 years
21,356
-
1,205
-
20,151
2.06
 
After 5 to 10 years
160,407
-
18,393
-
142,014
1.55
 
After 10 years
1,013,862
-
211,720
-
802,142
1.40
 
1,195,625
-
231,318
-
964,307
1.43
 
Ginnie Mae (“GNMA”) certificates:
 
 
After 1 to 5 years
19,559
-
1,207
-
18,352
1.27
 
After 5 to 10 years
28,587
-
3,127
-
25,460
1.59
 
 
After 10 years
212,835
-
33,476
-
179,359
2.58
260,981
-
37,810
-
223,171
2.38
 
Fannie Mae (“FNMA”) certificates:
 
After 1 to 5 years
35,343
-
1,992
-
33,351
2.11
 
 
After 5 to 10 years
307,379
-
35,138
-
272,241
1.70
 
After 10 years
1,072,667
-
207,428
-
865,239
1.36
 
1,415,389
-
244,558
-
1,170,831
1.45
 
Collateralized mortgage obligations (“CMOs”) issued
 
or guaranteed by the FHLMC, FNMA, and GNMA:
 
After 10 years
280,056
-
62,888
-
217,168
1.54
 
Private label:
 
After 10 years
7,311
-
2,310
83
4,918
7.73
Total Residential MBS
3,159,362
-
578,884
83
2,580,395
1.54
 
Commercial MBS:
 
After 1 to 5 years
44,111
-
8,631
-
35,480
2.18
 
After 5 to 10 years
25,522
-
4,067
-
21,455
2.13
 
After 10 years
123,523
-
34,811
-
88,712
1.36
Total Commercial MBS
193,156
-
47,509
-
145,647
1.65
Total MBS
3,352,518
-
626,393
83
2,726,042
1.55
Total available-for-sale debt securities
$
6,021,072
$
73
$
844,877
$
465
$
5,175,803
1.24
(1)
Excludes accrued interest receivable on available-for-sale debt securities that totaled $
10.8
 
million as of September 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)
Includes $
521.3
 
million (amortized cost - $
587.0
 
million) that was pledged at the FHLB as collateral for borrowings and letters of credit as well as $
2.8
 
billion (amortized cost - $
3.2
 
billion) pledged as collateral for the
uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.
(3)
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
 
(2)
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
(3)
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)
Includes $
250.6
 
million (amortized cost - $
286.5
 
million) that was pledged at the FHLB as collateral for borrowings and letters of credit as well as $
2.4
 
billion (amortized cost - $
2.8
 
billion) pledged as collateral for the
uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.
(3)
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 September 30, 2023 and December 31, 2022. The tables also include debt
 
securities for which an ACL was recorded.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 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
$
3,204
$
5
$
2,430,083
$
217,105
$
2,433,287
$
217,110
 
Puerto Rico government obligations
-
-
1,448
1,374
(1)
1,448
1,374
 
MBS:
 
Residential MBS:
 
FHLMC
12
1
964,295
231,317
964,307
231,318
 
GNMA
22,811
1,220
200,360
36,590
223,171
37,810
 
FNMA
9,195
191
1,161,636
244,367
1,170,831
244,558
 
CMOs issued or guaranteed by the FHLMC,
 
FNMA, and GNMA
-
-
217,168
62,888
217,168
62,888
 
Private label
-
-
4,918
2,310
(1)
4,918
2,310
 
Commercial MBS
11,509
202
134,138
47,307
145,647
47,509
$
46,731
$
1,619
$
5,114,046
$
843,258
$
5,160,777
$
844,877
(1)
Unrealized losses do not include the credit loss component recorded
 
as part of the ACL. As of September 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
 
September
 
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 September
 
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.
 
The interest
 
rate
 
on
 
these
 
private label
 
MBS is
variable, tied
 
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
 
U.S. 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 September 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 U.S. 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.
 
In
 
the
 
event
 
that
 
the
 
second
 
mortgage
 
loans
 
default
 
and
 
the
 
collateral
 
is
 
insufficient
 
to
 
satisfy
 
the
outstanding
 
balance
 
of
 
this
 
residential
 
pass-through
 
MBS,
 
PRHFA’s
 
ability
 
to
 
honor
 
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 nine
 
-month periods
 
ended September
 
30,
2023 and 2022 of the ACL on available-for-sale debt
 
securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended September 30,
 
2023
2022
Private label
MBS
Puerto Rico
 
Government
Obligations
Total
Private label
MBS
Puerto Rico
 
Government
Obligations
Total
(In thousands)
Beginning balance
$
83
$
350
$
433
$
290
$
386
$
676
Provision for credit losses - expense (benefit)
-
32
32
-
(12)
(12)
 
ACL on available-for-sale debt securities
$
83
$
382
$
465
$
290
$
374
$
664
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine-Month Period Ended September 30,
 
2023
2022
Private label
MBS
Puerto Rico
 
Government
Obligations
Total
Private label
MBS
Puerto Rico
 
Government
Obligations
Total
(In thousands)
Beginning balance
$
83
$
375
$
458
$
797
$
308
$
1,105
Provision for credit losses - expense (benefit)
 
-
7
7
(501)
66
(435)
Net charge-offs
-
-
-
(6)
-
(6)
 
ACL on available-for-sale debt securities
$
83
$
382
$
465
$
290
$
374
$
664
 
 
 
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 September 30, 2023
 
and December 31, 2022 were as follows
:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
Amortized cost
(1) (2)
Gross Unrecognized
Fair value
Weighted-
Gains
Losses
ACL
average yield%
(Dollars in thousands)
Puerto Rico municipal bonds:
Due within one year
$
3,159
$
15
$
23
$
3,151
$
46
9.30
After 1 to 5 years
51,133
1,052
1,111
51,074
1,320
7.71
After 5 to 10 years
35,831
3,540
271
39,100
605
7.05
After 10 years
16,595
212
-
16,807
279
8.75
Total Puerto Rico municipal bonds
106,718
4,819
1,405
110,132
2,250
7.70
MBS:
 
Residential MBS:
FHLMC certificates:
After 5 to 10 years
17,580
-
1,131
16,449
-
3.03
After 10 years
18,740
-
1,689
17,051
-
4.34
36,320
-
2,820
33,500
-
3.70
GNMA certificates:
After 10 years
16,786
-
1,414
15,372
-
3.35
FNMA certificates:
After 10 years
68,388
-
5,902
62,486
-
4.17
CMOs issued or guaranteed by
 
FHLMC, FNMA, and GNMA
After 10 years
29,156
-
1,898
27,258
-
3.49
Total Residential MBS
150,650
-
12,034
138,616
-
3.84
 
Commercial MBS:
After 1 to 5 years
9,489
-
516
8,973
-
3.48
After 10 years
92,312
-
7,182
85,130
-
3.15
Total Commercial MBS
101,801
-
7,698
94,103
-
3.18
Total MBS
252,451
-
19,732
232,719
-
3.57
Total held-to-maturity debt securities
$
359,169
$
4,819
$
21,137
$
342,851
$
2,250
4.80
(1)
Excludes accrued interest receivable on held-to-maturity debt securities that totaled $
2.8
 
million as of September 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)
Includes $
179.9
 
million (fair value - $
174.9
 
million) that serves as collateral for the uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
19
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2022
Amortized cost
(1) (2)
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.
(2)
Includes $
190.1
 
million (fair value - $
189.4
 
million) that serves as collateral for the uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
September 30, 2023 and December 31, 2022, including debt securities for
 
which an ACL was recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 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
$
-
$
-
$
34,244
$
1,405
$
34,244
$
1,405
 
MBS:
 
Residential MBS:
 
FHLMC certificates
-
-
33,500
2,820
33,500
2,820
 
GNMA certificates
-
-
15,372
1,414
15,372
1,414
 
FNMA certificates
-
-
62,486
5,902
62,486
5,902
 
CMOs issued or guaranteed by FHLMC,
 
FNMA, and GNMA
-
-
27,258
1,898
27,258
1,898
 
Commercial MBS
-
-
94,103
7,698
94,103
7,698
Total held-to-maturity debt securities
$
-
$
-
$
266,963
$
21,137
$
266,963
$
21,137
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
 
September 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 decreased to $
2.3
 
million as of September 30, 2023, from $
8.3
million as of December 31, 2022, mostly driven by the refinancing
 
of a
 
$
46.5
 
million municipal
 
bond into
 
a shorter-term
 
commercial
loan structure and, to a lesser extent,
 
a reduction in qualitative reserves
 
driven by updated financial information
 
of certain bond issuers
received during the third quarter of 2023.
 
The following tables present
 
the activity in the
 
ACL for held-to-maturity debt
 
securities by major security
 
type for the quarters
 
and
nine-month periods ended September 30, 2023 and 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Puerto Rico Municipal Bonds
Quarter Ended September 30,
 
2023
2022
(In thousands)
Beginning Balance
$
8,401
$
8,885
Provision for credit losses - benefit
(6,151)
(628)
ACL on held-to-maturity debt securities
$
2,250
$
8,257
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Puerto Rico Municipal Bonds
Nine-Month Period Ended September 30,
 
2023
2022
(In thousands)
Beginning Balance
$
8,286
$
8,571
Provision for credit losses - benefit
(6,036)
(314)
ACL on held-to-maturity debt securities
$
2,250
$
8,257
 
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 September 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,
 
which
 
are
 
asset
 
quality
 
categories
 
defined
 
by
 
regulatory
 
authorities.
 
These
 
assets
have an
 
elevated level
 
of risk
 
and may
 
have a
 
high probability
 
of default
 
or total
 
loss. Puerto
 
Rico municipal
 
bonds that
 
do not
 
meet
the criteria
 
for classification
 
as criticized
 
assets are
 
considered
 
to be
 
Pass-rated securities.
 
For additional
 
descriptions 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 September 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 September 30,
 
As of December 31,
2023
2022
(In thousands)
Puerto Rico and Virgin Islands region:
Residential mortgage loans, mainly secured by first mortgages
$
2,353,679
$
2,417,900
Construction loans
102,327
34,772
Commercial mortgage loans
 
1,780,008
1,834,204
Commercial and Industrial ("C&I") loans
2,088,274
1,860,109
Consumer loans
3,582,001
3,317,489
Loans held for investment
$
9,906,289
$
9,464,474
Florida region:
Residential mortgage loans, mainly secured by first mortgages
$
458,952
$
429,390
Construction loans
100,447
98,181
Commercial mortgage loans
 
536,105
524,647
C&I loans
942,680
1,026,154
Consumer loans
6,459
9,979
Loans held for investment
$
2,044,643
$
2,088,351
Total:
Residential mortgage loans, mainly secured by first mortgages
$
2,812,631
$
2,847,290
Construction loans
202,774
132,953
Commercial mortgage loans
 
2,316,113
2,358,851
C&I loans
(1)
3,030,954
2,886,263
Consumer loans
3,588,460
3,327,468
Loans held for investment
(2)
11,950,932
11,552,825
ACL on loans and finance leases
(263,615)
(260,464)
Loans held for investment, net
$
11,687,317
$
11,292,361
(1)
As of September 30, 2023 and December 31, 2022, includes
 
$
807.6
 
million and $
838.5
 
million, respectively, of commercial loans that were secured by real estate
and for which the primary source of repayment at origination was
 
not dependent upon such real estate.
(2)
Includes accretable fair value net purchase discounts of $
25.8
 
million and $
29.3
 
million as of September 30, 2023 and December 31, 2022, respectively.
Various
 
loans
 
were
 
assigned
 
as
 
collateral
 
for
 
borrowings,
 
government
 
deposits,
 
time
 
deposits
 
accounts,
 
and
 
related
 
unused
commitments.
 
The carrying
 
value of
 
loans pledged
 
as collateral
 
amounted
 
to $
4.4
 
billion and
 
$
4.3
 
billion as
 
of September
 
30, 2023
and December
 
31, 2022,
 
respectively.
 
As of
 
each of
 
September 30,
 
2023 and
 
December 31,
 
2022, loans
 
pledged as
 
collateral include
$
1.8
 
billion that were pledged
 
at the FHLB as
 
collateral for borrowings and
 
letters of credit; $
2.4
 
billion that were pledged
 
at the FED
Discount
 
Window
 
as
 
collateral
 
for
 
borrowings,
 
compared
 
to
 
$
2.2
 
billion
 
as
 
of
 
December
 
31,
 
2022;
 
and
 
$
68.2
 
million
 
serve
 
as
collateral for the uninsured portion of government deposits, compared to $
123.7
 
million as of December 31, 2022.
 
 
 
 
 
 
 
 
 
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 September 30, 2023 and December 31, 2022 are as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 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)
$
69,175
$
-
$
2,754
$
32,167
$
-
$
104,096
$
-
 
Conventional residential mortgage loans
(2) (6)
2,633,303
-
31,328
11,958
31,946
2,708,535
1,910
Commercial loans:
 
Construction loans
 
(6)
199,293
1,834
-
7
1,640
202,774
973
 
Commercial mortgage loans
(2) (6)
2,290,012
930
1,166
2,373
21,632
2,316,113
5,458
 
C&I loans
 
2,998,999
441
1,956
10,749
18,809
3,030,954
1,523
Consumer loans:
 
Auto loans
1,826,679
52,755
10,648
-
13,103
1,903,185
102
 
Finance leases
816,251
10,421
2,346
-
2,522
831,540
-
 
Personal loans
367,428
5,708
2,840
-
1,874
377,850
-
 
Credit cards
308,519
4,563
3,230
5,638
-
321,950
-
 
Other consumer loans
148,251
2,399
1,647
-
1,638
153,935
1
 
Total loans held for investment
$
11,657,910
$
79,051
$
57,915
$
62,892
$
93,164
$
11,950,932
$
9,967
 
(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 $
17.4
 
million of residential mortgage loans guaranteed by the FHA that were over 15 months delinquent as of September 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 $
8.9
 
million as of September 30,
 
2023 ($
8.0
 
million conventional residential mortgage loans and $
0.9
 
million commercial mortgage loans), is presented
in the loans past due 90 days or more and still accruing category in the table above.
(3)
Include rebooked loans, which were previously pooled into GNMA securities, amounting to $
8.5
 
million as of September 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 $
8.7
 
million as of September 30, 2023, primarily nonaccrual residential mortgage loans and C&I loans.
(5)
There were
no
 
nonaccrual loans with no ACL in the Florida region as of September 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 September 30, 2023 amounted to $
6.9
 
million, $
65.5
million, $
1.0
 
million, and $
0.1
 
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 $
0.9
 
million and $
2.0
 
million for the quarter
 
and nine-month period ended
 
September 30, 2023, respectively,
 
compared to $
0.5
million
 
and
 
$
1.2
 
million
 
for
 
the
 
quarter
 
and
 
nine-month
 
period
 
ended
 
September
 
30,
 
2022,
 
respectively.
 
For
 
the
 
quarter
 
and
 
nine-
month period
 
ended September
 
30, 2023,
 
the cash interest
 
income recognized on
 
nonaccrual loans amounted
 
to $
0.4
 
million and $
1.4
million,
 
respectively,
 
compared
 
to
 
$
0.3
 
million
 
and
 
$
1.0
 
million
 
for
 
the
 
quarter
 
and
 
nine-month
 
period
 
ended
 
September
 
30,
 
2022,
respectively.
As of
 
September 30,
 
2023, the
 
recorded investment
 
on residential
 
mortgage loans
 
collateralized by
 
residential real
 
estate property
that
 
were
 
in
 
the
 
process
 
of
 
foreclosure
 
amounted
 
to
 
$
43.8
 
million,
 
including
 
$
18.4
 
million
 
of
 
FHA/VA
 
government-guaranteed
mortgage
 
loans,
 
and
 
$
6.1
 
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.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
26
For residential mortgage and consumer loans, the Corporation also evaluates credit
 
quality based on its interest accrual status.
Based on
 
the most
 
recent analysis
 
performed, the
 
amortized cost
 
of commercial
 
and construction
 
loans by portfolio
 
classes and
 
by
origination year
 
based on
 
the internal
 
credit-risk category
 
as of
 
September 30,
 
2023, the
 
gross charge
 
-offs for
 
the nine-month
 
period
ended September
 
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 September 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
$
44,895
$
36,361
$
14,939
$
-
$
-
$
3,824
$
-
$
100,019
$
31,879
 
Criticized:
 
Special Mention
-
-
-
-
-
-
-
-
-
 
Substandard
-
-
-
-
-
2,308
-
2,308
2,893
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total construction loans
$
44,895
$
36,361
$
14,939
$
-
$
-
$
6,132
$
-
$
102,327
$
34,772
 
Charge-offs on construction loans
$
-
$
-
$
-
$
-
$
-
$
42
$
-
$
42
COMMERCIAL MORTGAGE
 
Risk Ratings:
 
Pass
$
118,701
$
382,403
$
138,404
$
318,372
$
278,814
$
355,823
$
1,153
$
1,593,670
$
1,655,728
 
Criticized:
 
Special Mention
-
4,438
-
33,670
-
112,829
-
150,937
145,415
 
Substandard
-
127
-
-
2,825
31,639
-
34,591
33,061
 
Doubtful
-
-
-
-
-
810
-
810
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total commercial mortgage loans
$
118,701
$
386,968
$
138,404
$
352,042
$
281,639
$
501,101
$
1,153
$
1,780,008
$
1,834,204
 
Charge-offs on commercial mortgage loans
$
-
$
-
$
-
$
-
$
-
$
107
$
-
$
107
C&I
 
Risk Ratings:
 
Pass
$
216,614
$
293,433
$
165,637
$
171,386
$
284,636
$
188,691
$
697,937
$
2,018,334
$
1,789,572
 
Criticized:
 
Special Mention
546
-
-
-
492
2,469
33,448
36,955
43,224
 
Substandard
1
-
385
617
13,439
18,178
365
32,985
27,313
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total C&I loans
$
217,161
$
293,433
$
166,022
$
172,003
$
298,567
$
209,338
$
731,750
$
2,088,274
$
1,860,109
 
Charge-offs on C&I loans
$
-
$
-
$
-
$
-
$
-
$
218
$
57
$
275
(1) Excludes accrued interest receivable.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
27
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 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
$
787
$
54,329
$
39,004
$
-
$
-
$
-
$
236
$
94,356
$
98,181
 
Criticized:
 
Special Mention
-
-
6,091
-
-
-
-
6,091
-
 
Substandard
-
-
-
-
-
-
-
-
-
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total construction loans
$
787
$
54,329
$
45,095
$
-
$
-
$
-
$
236
$
100,447
$
98,181
 
Charge-offs on construction loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
COMMERCIAL MORTGAGE
 
Risk Ratings:
 
Pass
$
22,043
$
185,268
$
63,924
$
40,330
$
50,661
$
119,451
$
29,008
$
510,685
$
503,184
 
Criticized:
 
Special Mention
-
-
-
-
13,080
11,172
-
24,252
20,295
 
Substandard
-
-
-
1,168
-
-
-
1,168
1,168
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total commercial mortgage loans
$
22,043
$
185,268
$
63,924
$
41,498
$
63,741
$
130,623
$
29,008
$
536,105
$
524,647
 
Charge-offs on commercial mortgage loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
C&I
 
Risk Ratings:
 
Pass
$
80,515
$
271,894
$
172,186
$
57,897
$
135,159
$
54,973
$
122,583
$
895,207
$
979,151
 
Criticized:
 
Special Mention
-
-
19,532
-
11,878
11,169
-
42,579
17,905
 
Substandard
-
-
-
632
191
3,185
-
4,008
29,098
 
Doubtful
-
-
-
-
-
886
-
886
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total C&I loans
$
80,515
$
271,894
$
191,718
$
58,529
$
147,228
$
70,213
$
122,583
$
942,680
$
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 September 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
$
45,682
$
90,690
$
53,943
$
-
$
-
$
3,824
$
236
$
194,375
$
130,060
 
Criticized:
 
Special Mention
-
-
6,091
-
-
-
-
6,091
-
 
Substandard
-
-
-
-
-
2,308
-
2,308
2,893
 
Doubtful
-
-
-
-
-
-
-
-
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total construction loans
$
45,682
$
90,690
$
60,034
$
-
$
-
$
6,132
$
236
$
202,774
$
132,953
 
Charge-offs on construction loans
$
-
$
-
$
-
$
-
$
-
$
42
$
-
$
42
COMMERCIAL MORTGAGE
 
Risk Ratings:
 
Pass
$
140,744
$
567,671
$
202,328
$
358,702
$
329,475
$
475,274
$
30,161
$
2,104,355
$
2,158,912
 
Criticized:
 
Special Mention
-
4,438
-
33,670
13,080
124,001
-
175,189
165,710
 
Substandard
-
127
-
1,168
2,825
31,639
-
35,759
34,229
 
Doubtful
-
-
-
-
-
810
-
810
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total commercial mortgage loans
$
140,744
$
572,236
$
202,328
$
393,540
$
345,380
$
631,724
$
30,161
$
2,316,113
$
2,358,851
 
Charge-offs on commercial mortgage loans
$
-
$
-
$
-
$
-
$
-
$
107
$
-
$
107
C&I
 
Risk Ratings:
 
Pass
$
297,129
$
565,327
$
337,823
$
229,283
$
419,795
$
243,664
$
820,520
$
2,913,541
$
2,768,723
 
Criticized:
 
Special Mention
546
-
19,532
-
12,370
13,638
33,448
79,534
61,129
 
Substandard
1
-
385
1,249
13,630
21,363
365
36,993
56,411
 
Doubtful
-
-
-
-
-
886
-
886
-
 
Loss
-
-
-
-
-
-
-
-
-
 
Total C&I loans
$
297,676
$
565,327
$
357,740
$
230,532
$
445,795
$
279,551
$
854,333
$
3,030,954
$
2,886,263
 
Charge-offs on C&I loans
$
-
$
-
$
-
$
-
$
-
$
6,420
$
57
$
6,477
(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
 
September
 
30,
 
2023,
 
the
 
gross charge
 
-offs
 
for
 
the
 
nine-month
 
period
 
ended
 
September
 
30,
 
2023 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 September 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
$
220
$
686
$
1,455
$
660
$
1,104
$
99,007
$
-
$
103,132
$
117,416
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
 
government-guaranteed loans
$
220
$
686
$
1,455
$
660
$
1,104
$
99,007
$
-
$
103,132
$
117,416
Conventional residential mortgage loans:
Accrual Status:
Performing
$
114,791
$
168,507
$
69,903
$
30,088
$
44,999
$
1,797,010
$
-
$
2,225,298
$
2,265,013
Non-Performing
-
-
35
-
174
25,040
-
25,249
35,471
Total conventional residential mortgage loans
$
114,791
$
168,507
$
69,938
$
30,088
$
45,173
$
1,822,050
$
-
$
2,250,547
$
2,300,484
Total:
Accrual Status:
Performing
$
115,011
$
169,193
$
71,358
$
30,748
$
46,103
$
1,896,017
$
-
$
2,328,430
$
2,382,429
Non-Performing
-
-
35
-
174
25,040
-
25,249
35,471
Total residential mortgage loans in Puerto Rico
and Virgin Islands Region
$
115,011
$
169,193
$
71,393
$
30,748
$
46,277
$
1,921,057
$
-
$
2,353,679
$
2,417,900
Charge-offs on residential mortgage loans
$
-
$
-
$
-
$
3
$
-
$
2,619
$
-
$
2,622
(1)
Excludes accrued interest receivable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 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
$
-
$
-
$
-
$
-
$
-
$
964
$
-
$
964
$
742
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
 
government-guaranteed loans
$
-
$
-
$
-
$
-
$
-
$
964
$
-
$
964
$
742
Conventional residential mortgage loans:
Accrual Status:
Performing
$
71,543
$
78,806
$
47,891
$
29,868
$
27,387
$
195,796
$
-
$
451,291
$
421,347
Non-Performing
-
16
-
-
257
6,424
-
6,697
7,301
Total conventional residential mortgage loans
$
71,543
$
78,822
$
47,891
$
29,868
$
27,644
$
202,220
$
-
$
457,988
$
428,648
Total:
Accrual Status:
Performing
$
71,543
$
78,806
$
47,891
$
29,868
$
27,387
$
196,760
$
-
$
452,255
$
422,089
Non-Performing
-
16
-
-
257
6,424
-
6,697
7,301
Total residential mortgage loans in Florida region
$
71,543
$
78,822
$
47,891
$
29,868
$
27,644
$
203,184
$
-
$
458,952
$
429,390
Charge-offs on residential mortgage loans
$
-
$
-
$
-
$
-
$
-
$
6
$
-
$
6
(1)
Excludes accrued interest receivable.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 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
$
220
$
686
$
1,455
$
660
$
1,104
$
99,971
$
-
$
104,096
$
118,158
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
 
government-guaranteed loans
$
220
$
686
$
1,455
$
660
$
1,104
$
99,971
$
-
$
104,096
$
118,158
Conventional residential mortgage loans:
Accrual Status:
Performing
$
186,334
$
247,313
$
117,794
$
59,956
$
72,386
$
1,992,806
$
-
$
2,676,589
$
2,686,360
Non-Performing
-
16
35
-
431
31,464
-
31,946
42,772
Total conventional residential mortgage loans
$
186,334
$
247,329
$
117,829
$
59,956
$
72,817
$
2,024,270
$
-
$
2,708,535
$
2,729,132
Total:
Accrual Status:
Performing
$
186,554
$
247,999
$
119,249
$
60,616
$
73,490
$
2,092,777
$
-
$
2,780,685
$
2,804,518
Non-Performing
-
16
35
-
431
31,464
-
31,946
42,772
Total residential mortgage loans
$
186,554
$
248,015
$
119,284
$
60,616
$
73,921
$
2,124,241
$
-
$
2,812,631
$
2,847,290
Charge-offs on residential mortgage loans
$
-
$
-
$
-
$
3
$
-
$
2,625
$
-
$
2,628
(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 September
 
30, 2023,
 
the gross
 
charge-offs
 
for the
 
nine-month period
 
ended September
 
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 September 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
$
483,036
$
567,954
$
414,852
$
195,698
$
149,360
$
77,639
$
-
$
1,888,539
$
1,783,782
Non-Performing
1,271
3,122
2,654
1,407
2,472
2,141
-
13,067
10,596
Total auto loans
$
484,307
$
571,076
$
417,506
$
197,105
$
151,832
$
79,780
$
-
$
1,901,606
$
1,794,378
Charge-offs on auto loans
$
630
$
5,420
$
3,412
$
1,391
$
1,811
$
1,237
$
-
$
13,901
Finance leases:
Accrual Status:
Performing
$
243,524
$
258,990
$
162,169
$
70,224
$
60,539
$
33,572
$
-
$
829,018
$
716,585
Non-Performing
7
741
466
434
305
569
-
2,522
1,645
Total finance leases
$
243,531
$
259,731
$
162,635
$
70,658
$
60,844
$
34,141
$
-
$
831,540
$
718,230
Charge-offs on finance leases
$
172
$
1,182
$
921
$
419
$
446
$
579
$
-
$
3,719
Personal loans:
Accrual Status:
Performing
$
133,568
$
133,763
$
37,159
$
19,132
$
33,558
$
18,492
$
-
$
375,672
$
351,664
Non-Performing
162
1,146
196
71
161
138
-
1,874
1,248
Total personal loans
$
133,730
$
134,909
$
37,355
$
19,203
$
33,719
$
18,630
$
-
$
377,546
$
352,912
Charge-offs on personal loans
$
242
$
5,765
$
2,137
$
892
$
1,812
$
1,077
$
-
$
11,925
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
321,950
$
321,950
$
311,731
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
321,950
$
321,950
$
311,731
Charge-offs on credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
13,294
$
13,294
Other consumer loans:
Accrual Status:
Performing
$
69,063
$
40,513
$
11,921
$
6,396
$
6,377
$
4,442
$
9,071
$
147,783
$
139,116
Non-Performing
323
671
184
52
91
160
95
1,576
1,122
Total other consumer loans
$
69,386
$
41,184
$
12,105
$
6,448
$
6,468
$
4,602
$
9,166
$
149,359
$
140,238
Charge-offs on other consumer loans
$
662
$
5,418
$
1,853
$
446
$
851
$
297
$
354
$
9,881
Total:
Performing
$
929,191
$
1,001,220
$
626,101
$
291,450
$
249,834
$
134,145
$
331,021
$
3,562,962
$
3,302,878
Non-Performing
1,763
5,680
3,500
1,964
3,029
3,008
95
19,039
14,611
Total consumer loans in Puerto Rico and Virgin
Islands region
$
930,954
$
1,006,900
$
629,601
$
293,414
$
252,863
$
137,153
$
331,116
$
3,582,001
$
3,317,489
Charge-offs on total consumer loans
$
1,706
$
17,785
$
8,323
$
3,148
$
4,920
$
3,190
$
13,648
$
52,720
(1)
Excludes accrued interest receivable.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
32
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 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
$
-
$
-
$
-
$
-
$
187
$
1,356
$
-
$
1,543
$
3,617
Non-Performing
-
-
-
-
-
36
-
36
76
Total auto loans
$
-
$
-
$
-
$
-
$
187
$
1,392
$
-
$
1,579
$
3,693
Charge-offs on auto loans
$
-
$
-
$
-
$
-
$
23
$
263
$
-
$
286
Finance leases:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total finance leases
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Charge-offs on finance leases
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Personal loans:
Accrual Status:
Performing
$
231
$
-
$
71
$
2
$
-
$
-
$
-
$
304
$
334
Non-Performing
-
-
-
-
-
-
-
-
-
Total personal loans
$
231
$
-
$
71
$
2
$
-
$
-
$
-
$
304
$
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
$
55
$
47
$
225
$
451
$
-
$
2,295
$
1,441
$
4,514
$
5,833
Non-Performing
-
-
-
-
-
20
42
62
119
Total other consumer loans
$
55
$
47
$
225
$
451
$
-
$
2,315
$
1,483
$
4,576
$
5,952
Charge-offs on other consumer loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total:
Performing
$
286
$
47
$
296
$
453
$
187
$
3,651
$
1,441
$
6,361
$
9,784
Non-Performing
-
-
-
-
-
56
42
98
195
Total consumer loans in Florida region
$
286
$
47
$
296
$
453
$
187
$
3,707
$
1,483
$
6,459
$
9,979
Charge-offs on total consumer loans
$
-
$
-
$
-
$
-
$
23
$
263
$
-
$
286
(1)
Excludes accrued interest receivable.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
33
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 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
$
483,036
$
567,954
$
414,852
$
195,698
$
149,547
$
78,995
$
-
$
1,890,082
$
1,787,399
Non-Performing
1,271
3,122
2,654
1,407
2,472
2,177
-
13,103
10,672
Total auto loans
$
484,307
$
571,076
$
417,506
$
197,105
$
152,019
$
81,172
$
-
$
1,903,185
$
1,798,071
Charge-offs on auto loans
$
630
$
5,420
$
3,412
$
1,391
$
1,834
$
1,500
$
-
$
14,187
Finance leases:
Accrual Status:
Performing
$
243,524
$
258,990
$
162,169
$
70,224
$
60,539
$
33,572
$
-
$
829,018
$
716,585
Non-Performing
7
741
466
434
305
569
-
2,522
1,645
Total finance leases
$
243,531
$
259,731
$
162,635
$
70,658
$
60,844
$
34,141
$
-
$
831,540
$
718,230
Charge-offs on finance leases
$
172
$
1,182
$
921
$
419
$
446
$
579
$
-
$
3,719
Personal loans:
Accrual Status:
Performing
$
133,799
$
133,763
$
37,230
$
19,134
$
33,558
$
18,492
$
-
$
375,976
$
351,998
Non-Performing
162
1,146
196
71
161
138
-
1,874
1,248
Total personal loans
$
133,961
$
134,909
$
37,426
$
19,205
$
33,719
$
18,630
$
-
$
377,850
$
353,246
Charge-offs on personal loans
$
242
$
5,765
$
2,137
$
892
$
1,812
$
1,077
$
-
$
11,925
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
321,950
$
321,950
$
311,731
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
321,950
$
321,950
$
311,731
Charge-offs on credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
13,294
$
13,294
Other consumer loans:
Accrual Status:
Performing
$
69,118
$
40,560
$
12,146
$
6,847
$
6,377
$
6,737
$
10,512
$
152,297
$
144,949
Non-Performing
323
671
184
52
91
180
137
1,638
1,241
Total other consumer loans
$
69,441
$
41,231
$
12,330
$
6,899
$
6,468
$
6,917
$
10,649
$
153,935
$
146,190
Charge-offs on other consumer loans
$
662
$
5,418
$
1,853
$
446
$
851
$
297
$
354
$
9,881
Total:
Performing
$
929,477
$
1,001,267
$
626,397
$
291,903
$
250,021
$
137,796
$
332,462
$
3,569,323
$
3,312,662
Non-Performing
1,763
5,680
3,500
1,964
3,029
3,064
137
19,137
14,806
Total consumer loans
$
931,240
$
1,006,947
$
629,897
$
293,867
$
253,050
$
140,860
$
332,599
$
3,588,460
$
3,327,468
Charge-offs on total consumer loans
$
1,706
$
17,785
$
8,323
$
3,148
$
4,943
$
3,453
$
13,648
$
53,006
(1)
Excludes accrued interest receivable.
As of September 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 $
55.2
 
million as of September
 
30, 2023 (as
 
compared to $
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 September 30, 2023 and December
 
31, 2022
:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 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
$
27,341
$
1,596
$
68
$
27,409
$
1,596
Commercial loans:
Construction loans
-
-
956
956
-
Commercial mortgage loans
12,525
1,651
44,722
57,247
1,651
C&I loans
 
12,062
2,105
6,649
18,711
2,105
Consumer loans:
Personal loans
28
-
-
28
-
Other consumer loans
162
17
-
162
17
$
52,118
$
5,369
$
52,395
$
104,513
$
5,369
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
September 30, 2023
 
was
72
%, 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
 
nine months of 2023,
 
loans pooled into GNMA MBS
 
amounted to approximately
$
102.9
 
million, compared
 
to $
115.7
 
million during the
 
first nine months
 
of 2022,
 
for which the
 
Corporation recognized
 
a net gain
 
on
sale
 
of
 
$
2.2
 
million
 
and
 
$
3.2
 
million,
 
respectively.
 
Also,
 
during
 
the
 
first
 
nine
 
months
 
of
 
2023,
 
the
 
Corporation
 
sold
 
approximately
$
28.6
 
million
 
of
 
performing
 
residential
 
mortgage
 
loans
 
to
 
FNMA
 
and
 
FHLMC,
 
compared
 
to
 
$
90.8
 
million
 
during
 
the
 
first
 
nine
months
 
of
 
2022,
 
for
 
which
 
the
 
Corporation
 
recognized
 
a
 
net
 
gain
 
on
 
sale
 
of
 
$
0.7
 
million
 
and
 
$
4.0
 
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 September
 
30, 2023 and
 
December 31, 2022,
 
rebooked GNMA delinquent
 
loans
that were included in the residential mortgage loan portfolio amounted
 
to $
8.5
 
million and $
10.4
 
million, respectively.
During
 
the
 
first
 
nine
 
months
 
of
 
2023
 
and
 
2022,
 
the
 
Corporation
 
repurchased,
 
pursuant
 
to
 
the
 
aforementioned
 
repurchase
 
option,
$
2.5
 
million and $
8.2
 
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
 
nine
 
months of
 
2023
 
and
 
2022,
 
the
 
Corporation
 
purchased
 
C&I
 
loan
 
participations
 
in
 
the Florida
 
region
 
totaling
$
61.3
 
million and $
135.4
 
million, respectively.
 
There were
no
 
significant sales of
 
commercial loan
 
participations during the
 
first nine
months of 2023. Meanwhile, during the first nine months
 
of 2022, the Corporation sold a $
35.2
 
million commercial and industrial loan
participation in the Puerto Rico region.
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
$
12.0
 
billion as of
 
September 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
 
September
 
30,
 
2023,
 
the Corporation
 
had $
185.0
 
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
 
September
 
30,
 
2023,
approximately
 
$
115.8
 
million consisted
 
of loans
 
extended
 
to municipalities
 
in Puerto
 
Rico that
 
are general
 
obligations supported
 
by
assigned
 
property
 
tax
 
revenues,
 
and
 
$
25.6
 
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
 
September 30,
 
2023 included
 
$
8.9
million in
 
loans granted to
 
an affiliate of
 
the Puerto Rico
 
Electric Power Authority
 
(“PREPA”)
 
and $
34.7
 
million in loans
 
to agencies
or public corporations of the Puerto Rico government.
In
 
addition,
 
as
 
of
 
September
 
30,
 
2023,
 
the
 
Corporation
 
had
 
$
79.3
 
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
 
September
 
30,
 
2023,
 
the
 
Corporation
 
had
$
87.5
million in
 
loans to
 
USVI government
 
public corporations,
 
compared to
 
$
38.0
 
million as
 
of December
 
31, 2022.
 
As of September
 
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 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.
 
Many
 
factors
 
are
 
considered
 
when
 
evaluating
 
whether
 
there
 
is
 
an
 
other-than-
insignificant
 
payment
 
delay,
 
such as
 
the significance
 
of the
 
restructured
 
payment
 
amount relative
 
to the
 
unpaid
 
principal balance
 
or
collateral value of the loan or the relative significance of the delay to
 
the original loan terms.
The
 
below
 
disclosures
 
relate
 
to
 
loan
 
modifications
 
granted
 
to
 
borrowers
 
experiencing
 
financial
 
difficulty
 
in
 
which
 
there
 
was
 
a
change
 
in
 
the
 
timing
 
and/or
 
amount
 
of
 
contractual
 
cash
 
flows
 
in
 
the
 
form
 
of
 
any
 
of
 
the
 
aforementioned
 
types
 
of
 
modifications,
including
 
restructurings
 
that
 
resulted
 
in
 
a
 
more-than-insignificant
 
payment
 
delay.
 
These
 
disclosures
 
exclude
 
$
0.9
 
million
 
and
 
$
3.2
million in restructured residential
 
mortgage loans that are
 
government-guaranteed (e.g.,
 
FHA/VA
 
loans) and were modified
 
during the
quarter and nine-month period ended September 30, 2023, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
38
The
 
following
 
tables
 
present
 
the
 
amortized
 
cost
 
basis
 
as
 
of
 
September
 
30,
 
2023
 
of
 
loans
 
modified
 
to
 
borrowers
 
experiencing
financial difficulty
 
during the quarter
 
and nine-month period
 
ended September 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 September 30,2023
Payment Delay Only
Forbearance
Payment Plan
Trial
Modification
Interest Rate
Reduction
Term
Extension
Combination
of Interest
Rate
Reduction
and Term
Extension
Other
Total
Percentage
of Total by
Portfolio
Classes
(In thousands)
Conventional residential mortgage loans
$
-
$
-
$
401
$
-
$
-
$
-
$
-
$
401
0.01%
Construction loans
-
-
-
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
2,225
-
-
2,225
0.10%
C&I loans
-
-
-
192
-
-
-
192
0.01%
Consumer loans:
Auto loans
-
-
-
-
74
59
608
(1)
741
0.04%
Personal loans
-
-
-
-
67
87
-
154
0.04%
Credit cards
-
-
-
368
(2)
-
-
-
368
0.11%
Other consumer loans
-
-
-
-
54
4
4
(1)
62
0.04%
 
Total modifications
$
-
$
-
$
401
$
560
$
2,420
$
150
$
612
$
4,143
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine-Month Period Ended September 30,2023
Payment Delay Only
Forbearance
Payment Plan
Trial
Modification
Interest Rate
Reduction
Term
Extension
Combination
of Interest
Rate
Reduction
and Term
Extension
Other
Total
Percentage
of Total by
Portfolio
Classes
(In thousands)
Conventional residential mortgage loans
$
-
$
-
$
610
$
-
$
687
$
239
$
-
$
1,536
0.05%
Construction loans
-
-
-
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
2,225
30,170
-
32,395
1.40%
C&I loans
-
-
-
192
185
-
-
377
0.01%
Consumer loans:
Auto loans
-
-
-
-
234
153
1,511
(1)
1,898
0.10%
Personal loans
-
-
-
-
132
165
-
297
0.08%
Credit cards
-
-
-
1,033
(2)
-
-
-
1,033
0.32%
Other consumer loans
-
-
-
-
311
90
28
(1)
429
0.28%
 
Total modifications
$
-
$
-
$
610
$
1,225
$
3,774
$
30,817
$
1,539
$
37,965
(1)
Modification consists of reduction to 0% interest rate for remaining loan term to borrowers in bankruptcy proceedings or consumer credit counseling programs 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
 
nine-month
 
period
 
ended
 
September
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 September 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)
(In thousands)
Conventional residential mortgage loans
-
%
-
-
%
-
Construction loans
-
%
-
-
%
-
Commercial mortgage loans
-
%
13
-
%
-
C&I loans
0.45
%
-
-
%
-
Consumer loans:
Auto loans
-
%
31
2.27
%
25
Personal loans
-
%
35
3.61
%
41
Credit cards
16.67
%
-
-
%
-
Other consumer loans
-
%
22
2.00
%
10
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine-Month Period Ended September 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)
(In thousands)
Conventional residential mortgage loans
-
%
105
2.95
%
105
Construction loans
-
%
-
-
%
-
Commercial mortgage loans
-
%
13
0.25
%
64
C&I loans
0.45
%
72
-
%
-
Consumer loans:
Auto loans
-
%
27
3.10
%
28
Personal loans
-
%
35
4.29
%
33
Credit cards
16.27
%
-
-
%
-
Other consumer loans
-
%
26
1.74
%
23
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table presents by portfolio classes the performance of loans modified
 
during the nine-month period ended
September 30, 2023 that were granted to borrowers experiencing financial
 
difficulty:
Nine-Month Period Ended September 30, 2023
30-59
60-89
90+
Total
Delinquency
Current
Total
(In thousands)
Conventional residential mortgage loans
$
71
$
-
$
-
$
71
$
1,465
$
1,536
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
32,395
32,395
C&I loans
-
-
-
-
377
377
Consumer loans:
Auto loans
22
-
-
22
1,876
1,898
Personal loans
15
-
-
15
282
297
Credit cards
149
35
-
184
849
1,033
Other consumer loans
34
17
15
(1)
66
363
429
 
Total modifications
$
291
$
52
$
15
$
358
$
37,607
$
37,965
(1)
Consists of loan modifications that defaulted (failure
 
by the borrower to make payments of
 
either principal, interest, or both for a
 
period of 90 days or more) during the
 
quarter and nine-month period ended September
30, 2023, and that had been modified after January 1, 2023.
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
40
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Troubled Debt
 
Restructuring ("TDR") Disclosures Prior to
 
Adoption of ASU 2022-02
 
The
 
following
 
provides
 
additional
 
disclosures
 
previously
 
required
 
by
 
ASC
 
Subtopic
 
310-40,
 
Receivables
 
-
 
Troubled
 
Debt
Restructurings
 
by
 
Creditors,
 
related
 
to
 
the quarter
 
and
 
nine-month
 
period
 
ended
 
September
 
30,
 
2022.
 
Prior
 
to the
 
adoption of
 
ASU
2022-02,
 
a restructuring
 
of a
 
loan constituted
 
a TDR
 
if the
 
creditor,
 
for economic
 
or legal
 
reasons related
 
to the
 
borrower's financial
difficulties, granted
 
a concession to
 
the borrower that
 
it would not
 
otherwise consider.
 
See Note 1
 
- Nature of
 
Business and Summary
of Significant
 
Accounting Policies
 
and Note
 
4 -
 
Loans Held
 
For Investment
 
to the
 
audited consolidated
 
financial statements
 
included
in
 
the
 
2022
 
Annual
 
Report
 
on
 
Form
 
10-K
 
for
 
additional
 
discussion
 
of
 
TDRs.
 
The
 
following
 
tables
 
present
 
TDR
 
loans
 
completed
during the quarter and nine-month period ended September 30,
 
2022:
Quarter Ended September 30,2022
Total
Interest rate
below market
Maturity or
term extension
Combination
of reduction in
interest rate
and extension
of maturity
Forgiveness of
principal
and/or interest
Other
(1)
Total
(In thousands)
TDRs:
Conventional residential mortgage loans
$
-
$
132
$
-
$
-
$
1,022
$
1,154
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
C&I loans
495
-
-
-
-
495
Consumer loans:
Auto loans
661
42
84
-
-
787
Finance leases
-
82
-
-
-
82
Personal loans
-
75
58
-
-
133
Credit cards
252
(2)
-
-
-
-
252
Other consumer loans
10
56
-
19
-
85
Total TDRs
 
$
1,418
$
387
$
142
$
19
$
1,022
$
2,988
(1)
Other concessions granted by the Corporation include payment
 
plans under judicial stipulation or loss mitigation programs, or
 
a combination of two or more of the concessions listed
 
in
the table. Amounts included in Other that represent a combination of
 
concessions are excluded from the amounts reported in the
 
column for such individual concessions.
(2)
Concession consists of reduction in interest rate and revocation
 
of revolving line privileges.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine-Month Period Ended September 30,2022
Total
Interest rate
below market
Maturity or
term extension
Combination
of reduction in
interest rate
and extension
of maturity
Forgiveness of
principal
and/or interest
Other
(1)
Total
(In thousands)
TDRs:
Conventional residential mortgage loans
$
215
$
1,484
$
190
$
-
$
3,709
$
5,598
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
245
5,178
-
467
5,890
C&I loans
895
-
-
825
1,083
2,803
Consumer loans:
Auto loans
2,120
126
264
-
-
2,510
Finance leases
-
451
-
-
18
469
Personal loans
99
135
84
-
-
318
Credit cards
647
(2)
-
-
-
-
647
Other consumer loans
93
188
-
37
-
318
Total TDRs
 
$
4,069
$
2,629
$
5,716
$
862
$
5,277
$
18,553
(1)
Other concessions granted by the Corporation include payment
 
plans under judicial stipulation or loss mitigation programs, or
 
a combination of two or more of the concessions listed
 
in
the table. Amounts included in Other that represent a combination of
 
concessions are excluded from the amounts reported in the
 
column for such individual concessions.
(2)
Concession consists of reduction in interest rate and revocation
 
of revolving line privileges.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
41
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended September 30,2022
Nine-Month Period Ended September 30,2022
Number of
contracts
Pre-modification
Amortized Cost
Post-modification
Amortized Cost
Number of
contracts
Pre-modification
Amortized Cost
Post-modification
Amortized Cost
(Dollars in thousands)
TDRs:
Conventional residential mortgage loans
12
$
1,220
$
1,154
49
$
5,668
$
5,598
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
3
5,897
5,890
C&I loans
3
495
495
15
3,031
2,803
Consumer loans:
 
Auto loans
35
790
787
123
2,512
2,510
 
Finance leases
5
82
82
26
469
469
 
Personal loans
7
116
133
19
301
318
 
Credit Cards
50
251
252
139
646
647
 
Other consumer loans
29
83
85
77
311
318
 
Total TDRs
141
$
3,037
$
2,988
451
$
18,835
$
18,553
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan modifications considered
 
TDR loans that defaulted
 
(failure by the
 
borrower to make
 
payments of either
 
principal, interest, or
both
 
for
 
a
 
period
 
of
 
90
 
days or
 
more)
 
during
 
the
 
quarter
 
and
 
nine-month
 
period
 
ended
 
September
 
30,
 
2022,
 
and
 
had
 
become
 
TDR
loans during the 12-months preceding the default date, were as follows:
Quarter Ended September 30,2022
Nine-Month Period Ended September 30,2022
Number of contracts
Amortized Cost
Number of contracts
Amortized Cost
(Dollars in thousands)
Conventional residential mortgage loans
1
$
50
5
$
534
Construction loans
-
-
-
-
Commercial mortgage loans
-
-
-
-
C&I loans
-
-
-
-
Consumer loans:
Auto loans
31
776
75
1,674
Finance leases
-
-
1
16
Personal loans
-
-
-
-
Credit cards
14
60
39
201
Other consumer loans
1
2
5
19
Total
47
$
888
125
$
2,444
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
42
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 September 30, 2023
(In thousands)
ACL:
Beginning balance
$
60,514
$
4,804
$
42,427
$
28,014
$
131,299
$
267,058
Provision for credit losses - (benefit) expense
(3,349)
(642)
(1,344)
1,931
14,047
10,643
Charge-offs
 
(499)
(4)
(1)
(9)
(19,746)
(20,259)
Recoveries
534
1,463
75
161
3,940
6,173
Ending balance
$
57,200
$
5,621
$
41,157
$
30,097
$
129,540
$
263,615
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
Commercial &
Industrial Loans
Consumer Loans
Total
Quarter Ended September 30,
 
2022
(In thousands)
ACL:
Beginning balance
$
65,231
$
2,020
$
32,619
$
36,203
$
116,079
$
252,152
Provision for credit losses - expense (benefit)
 
755
(179)
(2,383)
(1,228)
17,387
14,352
Charge-offs
 
(1,466)
(63)
(3)
(8)
(12,522)
(14,062)
Recoveries
559
43
57
494
4,264
5,417
Ending balance
$
65,079
$
1,821
$
30,290
$
35,461
$
125,208
$
257,859
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
Commercial &
Industrial Loans
Consumer Loans
Total
Nine-Month Period Ended September 30,
 
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
(6,776)
1,420
5,901
3,278
43,846
47,669
Charge-offs
 
(2,628)
(42)
(107)
(6,477)
(53,006)
(62,260)
Recoveries
1,788
1,935
299
383
11,221
15,626
Ending balance
$
57,200
$
5,621
$
41,157
$
30,097
$
129,540
$
263,615
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
Commercial &
Industrial Loans
Consumer Loans
Total
Nine-Month Period Ended September 30,
 
2022
(In thousands)
ACL:
Beginning balance
$
74,837
$
4,048
$
52,771
$
34,284
$
103,090
$
269,030
Provision for credit losses - (benefit) expense
(6,913)
(2,242)
(23,758)
(575)
43,516
10,028
Charge-offs
 
(6,073)
(123)
(42)
(366)
(32,765)
(39,369)
Recoveries
3,228
138
1,319
2,118
11,367
18,170
Ending balance
$
65,079
$
1,821
$
30,290
$
35,461
$
125,208
$
257,859
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
43
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,
as updated by the information contained in this report, for each portfolio
 
segment.
The Corporation
 
generally applies
 
probability weights
 
to the
 
baseline and
 
alternative downside
 
economic scenarios
 
to estimate
 
the
ACL with
 
the
 
baseline
 
scenario
 
carrying
 
the highest
 
weight.
 
The
 
scenarios
 
that are
 
chosen each
 
quarter
 
and
 
the
 
weighting
 
given
 
to
each
 
scenario
 
for
 
the
 
different
 
loan
 
portfolio
 
categories
 
depend
 
on
 
a
 
variety
 
of
 
factors
 
including
 
recent
 
economic
 
events,
 
leading
national and
 
regional economic
 
indicators, and
 
industry trends.
 
During the
 
third quarter
 
of 2023,
 
the Corporation
 
continued to
 
apply
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.
 
In
addition,
 
during the
 
third quarter
 
of 2023,
 
the Corporation
 
applied the
 
alternative downside
 
scenario for
 
the credit
 
cards portfolio
 
to
account
 
for
 
an
 
increased
 
uncertainty
 
in
 
charge-off
 
trends
 
and
 
projection
 
of
 
certain
 
macroeconomic
 
variables,
 
such
 
as
 
retail
 
sales.
Results for
 
the ACL
 
include updated
 
macroeconomic projections
 
which continue
 
to reflect
 
deterioration on
 
the long-term
 
outlook of
certain
 
macroeconomic
 
variables,
 
such
 
as unemployment
 
rate
 
and
 
retail
 
sales,
 
but
 
at
 
a
 
slower
 
pace,
 
mostly
 
driven
 
by
 
actual
 
results
outperforming previous forecasts.
As
 
of
 
September
 
30,
 
2023,
 
the
 
ACL
 
for
 
loans
 
and
 
finance
 
leases
 
was
 
$
263.6
 
million,
 
an
 
increase
 
of
 
$
3.1
 
million,
 
from
 
$
260.5
million
 
as
 
of
 
December
 
31,
 
2022.
 
The
 
ACL
 
for
 
commercial
 
and
 
construction
 
loans
 
increased
 
by
 
$
6.6
 
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,
and a
 
$
1.7
 
million incremental
 
reserve recorded
 
during the
 
third quarter
 
of 2023
 
associated with
 
the inflow
 
to nonaccrual
 
status of
 
a
$
9.5
 
million
 
commercial
 
and
 
industrial
 
loan
 
in
 
the
 
Puerto
 
Rico
 
region.
 
The
 
ACL
 
for
 
consumer
 
loans
 
increased
 
by
 
$
2.1
 
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.
 
The
 
ACL
 
for
 
residential
 
mortgage
 
loans
 
decreased
 
by
 
$
5.6
 
million,
 
mainly
 
driven
 
by
updated
 
macroeconomic
 
variables,
 
such
 
as the
 
Regional
 
Home
 
Price
 
Index
 
and
 
the
 
unemployment
 
rate,
 
partially
 
offset
 
by
 
the
 
$
2.1
million cumulative increase in the ACL due to the adoption of ASU 2022-02
 
on January 1, 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
44
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The tables below
 
present the ACL
 
related to loans
 
and finance leases
 
and the carrying
 
values of loans
 
by portfolio segment
 
as of
September 30,
 
2023 and December 31, 2022:
As of September 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
$
2,812,631
$
202,774
$
2,316,113
$
3,030,954
$
3,588,460
$
11,950,932
 
Allowance for credit losses
57,200
5,621
41,157
30,097
129,540
263,615
 
Allowance for credit losses to
 
amortized cost
2.03
%
2.77
%
1.78
%
0.99
%
3.61
%
2.21
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
September
 
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 September 30,
 
2023, the ACL for
 
off-balance sheet credit
 
exposures increased to $
4.8
 
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 nine-month periods ended September 30, 2023 and 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended
Nine-Month Period Ended
September 30,
 
September 30,
 
2023
2022
2023
2022
(In thousands)
Beginning Balance
$
4,889
$
2,171
$
4,273
$
1,537
Provision for credit losses - (benefit) expense
 
(128)
2,071
488
2,705
Ending balance
$
4,761
$
4,242
$
4,761
$
4,242
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
45
NOTE 5
–
OTHER REAL ESTATE
 
OWNED
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table presents the OREO inventory as of the indicated dates:
September 30, 2023
December 31, 2022
(In thousands)
OREO balances, carrying value:
Residential
(1)
$
20,740
$
24,025
Construction
1,861
1,764
Commercial
5,962
5,852
Total
$
28,563
$
31,641
(1)
Excludes $
19.6
 
million and $
23.5
 
million as of September 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
 
nine-month periods
ended September 30, 2023 and 2022.
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
46
NOTE 6 – GOODWILL AND OTHER INTANGIBLES
 
 
Goodwill
Goodwill
 
as
 
of
 
each
 
of
 
September
 
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 nine months of 2023.
There were
no
 
changes in
 
the carrying
 
amount of
 
goodwill during
 
the quarters
 
and nine-month
 
periods ended
 
September 30,
 
2023
and 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
September 30,
 
December 31,
2023
 
2022
 
(Dollars in thousands)
Core deposit intangible:
Gross amount
$
87,544
$
87,544
Accumulated amortization
(72,315)
(66,644)
Net carrying amount
$
15,229
$
20,900
Remaining amortization period (in years)
6.3
7.0
Purchased credit card relationship intangible:
Gross amount
$
-
$
3,800
Accumulated amortization
-
(3,595)
Net carrying amount
$
-
$
205
Remaining amortization period (in years)
-
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
 
nine-month
 
period
 
ended
 
September
 
30,
 
2023,
 
the
 
Corporation recognized
 
$
1.9
 
million
 
and $
5.9
 
million,
respectively,
 
in amortization
 
expense
 
on its
 
other intangibles
 
subject to
 
amortization,
 
compared to
 
$
2.2
 
million
 
and $
6.7
 
million for
the same periods in 2022, respectively.
The Corporation amortizes core deposit intangibles based on the projected useful lives of the related deposits. Core deposit
intangibles are analyzed 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 as of September 30, 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
47
 
 
The estimated
 
aggregate annual
 
amortization expense
 
related to the
 
intangible assets
 
subject to amortization
 
for future periods
 
was
as follows as of September 30, 2023
.
 
 
 
 
 
 
(In thousands)
Remaining 2023
$
1,847
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.
 
These TRuPs are variable-rate instruments
 
indexed to
3-
month CME Term SOFR
 
plus a
 
tenor spread
 
adjustment of
0.26161
% and the
 
original spread
 
of
2.75
% for the
 
FBP Statutory
 
Trust I
and
2.50
% for
 
the FBP
 
Statutory Trust
 
II.
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
 
September 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)
48
Under the
 
indentures, the
 
Corporation has
 
the right,
 
from time
 
to time,
 
and without
 
causing an
 
event of
 
default, to
 
defer payments
of interest
 
on the
 
Junior Subordinated
 
Deferrable Debentures
 
by extending
 
the interest
 
payment period
 
at any
 
time and
 
from time
 
to
time
 
during
 
the term
 
of the
 
subordinated
 
debentures
 
for
 
up to
 
twenty
 
consecutive
 
quarterly
 
periods.
 
As of
 
September
 
30,
 
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 that
 
receives
 
a
 
servicing
 
fee.
 
These
 
private
 
label
 
MBS are
 
variable-rate
securities indexed
 
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 September
 
30, 2023, the
 
amortized cost and
 
fair
value
 
of these
 
private
 
label MBS
 
amounted
 
to $
7.3
 
million and
 
$
4.9
 
million, respectively,
 
with a
 
weighted
 
average yield
 
of
7.73
%,
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 September 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
 
September
 
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 September 30,
 
Nine-Month Period Ended September 30,
 
2023
2022
2023
2022
(In thousands)
Balance at beginning of period
$
28,034
$
30,277
$
29,037
$
30,986
Capitalization of servicing assets
601
679
1,839
2,637
Amortization
(1,035)
(1,247)
(3,265)
(3,850)
Temporary impairment
 
recoveries
7
1
12
65
Other
(1)
(6)
(20)
(22)
(148)
Balance at end of period
$
27,601
$
29,690
$
27,601
$
29,690
(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)
49
Changes in the impairment allowance were as follows for the indicated periods:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended September 30,
 
Nine-Month Period Ended September 30,
 
2023
2022
2023
2022
(In thousands)
Balance at beginning of period
$
7
$
14
$
12
$
78
Temporary impairment
 
recoveries
(7)
(1)
(12)
(65)
 
Balance at end of period
$
-
$
13
$
-
$
13
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 September 30,
 
Nine-Month Period Ended September 30,
 
2023
2022
2023
2022
(In thousands)
Servicing fees
$
2,606
$
2,758
$
7,984
$
8,398
Late charges and prepayment penalties
137
201
547
614
Other
(1)
(6)
(20)
(22)
(148)
 
Servicing income, gross
2,737
2,939
8,509
8,864
Amortization and impairment of servicing assets
(1,028)
(1,246)
(3,253)
(3,785)
 
Servicing income, net
$
1,709
$
1,693
$
5,256
$
5,079
(1) Mainly represents adjustments related to the repurchase
 
of loans serviced for others.
The Corporation’s
 
MSRs are subject
 
to prepayment
 
and interest rate
 
risks. Key economic
 
assumptions used
 
in determining
 
the fair
value at the time of sale of the related mortgages for the indicated periods
 
ranged as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted Average
Maximum
Minimum
Nine-Month Period Ended September 30,
 
2023
Constant prepayment rate:
 
 
Government-guaranteed mortgage loans
6.6
%
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
13.0
%
14.0
%
11.5
%
Nine-Month Period Ended September 30,
 
2022
Constant prepayment rate:
 
 
Government-guaranteed mortgage loans
6.6
%
18.3
%
4.8
%
 
Conventional conforming mortgage loans
6.6
%
18.4
%
3.4
%
 
Conventional non-conforming mortgage loans
6.0
%
21.9
%
3.8
%
Discount rate:
 
Government-guaranteed mortgage loans
11.8
%
12.0
%
11.5
%
 
Conventional conforming mortgage loans
9.8
%
10.0
%
9.5
%
 
Conventional non-conforming mortgage loans
12.4
%
14.5
%
11.5
%
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
50
The weighted
 
averages of the
 
key economic
 
assumptions that the
 
Corporation used
 
in its valuation
 
model and the
 
sensitivity of the
current fair value
 
to immediate
10
% and
20
% adverse changes in
 
those assumptions for mortgage
 
loans as of September
 
30, 2023 and
December 31, 2022 were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
December 31,
2023
2022
(In thousands)
Carrying amount of servicing assets
$
27,601
$
29,037
Fair value
$
45,114
$
44,710
Weighted-average
 
expected life (in years)
7.75
7.80
Constant prepayment rate (weighted-average annual
 
rate)
6.31
%
6.40
%
 
Decrease in fair value due to 10% adverse change
$
1,036
$
1,048
 
Decrease in fair value due to 20% adverse change
$
2,027
$
2,054
Discount rate (weighted-average annual rate)
10.72
%
10.69
%
 
Decrease in fair value due to 10% adverse change
$
1,937
$
1,925
 
Decrease in fair value due to 20% adverse change
$
3,727
$
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)
51
NOTE 8 – DEPOSITS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table summarizes deposit balances as of the indicated dates:
September 30, 2023
December 31, 2022
(In thousands)
Type of account:
Non-interest-bearing deposit accounts
$
5,440,247
$
6,112,884
Interest-bearing saving accounts
3,687,203
3,902,888
Interest-bearing checking accounts
4,242,672
3,770,993
Certificates of deposit (“CDs”)
2,754,776
2,250,876
Brokered CDs
310,339
105,826
 
Total
$
16,435,237
$
16,143,467
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table presents the contractual maturities of CDs, including brokered
 
CDs, as of September 30,
 
2023:
Total
 
(In thousands)
Three months or less
$
786,211
Over three months to six months
496,333
Over six months to one year
785,367
Over one year to two years
 
716,417
Over two years to three years
 
113,932
Over three years to four years
 
49,303
Over four years to five years
 
110,325
Over five years
7,227
 
Total
$
3,065,115
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following were the components of interest expense on deposits for the
 
indicated periods:
Quarter Ended September 30,
 
Nine-Month Period Ended September 30,
 
2023
2022
2023
2022
(In thousands)
Interest expense on deposits
$
54,243
$
10,045
$
125,720
$
25,619
Accretion of premiums from acquisitions
(33)
(92)
(149)
(384)
Amortization of broker placement fees
88
25
216
89
 
Total
$
54,298
$
9,978
$
125,787
$
25,324
Total
 
Puerto
 
Rico
 
and
 
U.S.
 
time
 
deposits
 
with
 
balances
 
of
 
more
 
than
 
$250,000
 
amounted
 
to
 
$
1.4
 
billion
 
and
 
$
1.0
 
billion
 
as
 
of
September 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
 
each
 
of
 
September
 
30,
 
2023
 
and
 
December
 
31,
 
2022,
unamortized broker
 
placement fees amounted
 
to $
0.3
 
million, which
 
are amortized
 
over the contractual
 
maturity of the
 
brokered CDs
under the interest method.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
52
NOTE 9 – SECURITIES SOLD UNDER AGREEMENTS TO
 
REPURCHASE (REPURCHASE AGREEMENTS)
 
Repurchase agreements as of the indicated dates consisted of the following:
 
 
 
 
 
 
 
 
 
 
September 30, 2023
December 31, 2022
(In thousands)
Short-term Fixed-rate repurchase agreements
(1) (2)
$
-
$
75,133
(1)
Weighted-average interest rate
 
of
4.55
% as of December 31, 2022. As of September 30,
 
2023, the Corporation repaid and did not renew its short-term repurchase
 
agreements.
(2)
As of 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 December 31, 2022, repurchase agreements were
 
fully collateralized and not offset in the consolidated
statements of financial condition.
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:
September 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 September 30, 2023 and December 31, 2022, respectively.
 
 
 
 
 
 
 
 
Advances from the FHLB mature as follows as of the indicated date:
September 30, 2023
(In thousands)
Over one to five years
(1)
$
500,000
'(1) Average remaining term to maturity of
2.74
 
years.
During the nine-month period
 
ended September 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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
September 30, 2023
December 31, 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 CME Term SOFR
 
plus a
0.26161
% tenor spread
adjustment as of September 30, 2023 and
2.75
% over
3-month LIBOR
 
as of December 31, 2022 (
8.42
% as of September 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 CME Term SOFR
 
plus a
0.26161
% tenor spread
adjustment as of September 30, 2023 and
2.50
% over
3-month LIBOR
 
as of December 31, 2022 (
8.16
% as of September 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 these
 
debentures.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
53
NOTE 12 – EARNINGS PER COMMON
.
SHARE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The calculations of earnings per common share for the quarters and nine-month
 
periods ended September 30, 2023 and 2022 are as
follows:
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
2023
2022
2023
2022
(In thousands, except per share information)
Net income attributable to common stockholders
$
82,022
$
74,603
$
223,375
$
231,898
Weighted-Average
 
Shares:
 
Average common
 
shares outstanding
176,358
187,236
178,486
193,217
 
Average potential
 
dilutive common shares
 
604
1,083
658
1,151
 
Average common
 
shares outstanding -
 
assuming dilution
176,962
188,319
179,144
194,368
Earnings per common share:
Basic
 
$
0.47
$
0.40
$
1.25
$
1.20
Diluted
 
$
0.46
$
0.40
$
1.25
$
1.19
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 nine-month periods
 
ended September 30, 2023 and 2022.
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
54
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
 
September 30,
 
2023, there
were
3,151,949
 
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
519,794
 
shares
 
during
 
the
 
nine-month
 
period
 
ended
 
September
 
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 nine-month periods ended
September 30, 2023 and 2022:
Nine-Month Period Ended September 30,
2023
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)
519,794
12.06
323,364
13.18
Forfeited
(58,454)
11.31
(15,108)
8.79
Vested
(503,460)
6.27
(510,007)
6.05
Unvested shares outstanding at end of period
896,371
$
12.32
947,024
$
9.12
(1)
Includes, for the nine-month period ended September 30,2023,
25,786
 
shares of restricted stock awarded to independent directors
 
and
494,008
 
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 nine-month period ended September
30,2022,
24,972
 
shares of restricted stock awarded to independent directors and
298,392
 
shares of restricted stock awarded to employees, of which
6,084
 
shares were granted to
retirement-eligible employees and thus charged to earnings
 
as of the grant date.
For
 
the
 
quarter
 
and
 
nine
 
month-period
 
ended
 
September
 
30,
 
2023,
 
the
 
Corporation
 
recognized
 
$
1.3
 
million
 
and
 
$
4.3
 
million,
respectively,
 
of stock-based
 
compensation expense
 
related to
 
restricted stock
 
awards, compared
 
to $
0.9
 
million and
 
$
2.7
 
million for
the
 
same
 
periods
 
in
 
2022,
 
respectively.
 
As of
 
September
 
30,
 
2023,
 
there
 
was $
5.4
 
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
1.7
 
years.
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
55
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 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 individual achievement of each performance goal 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
 
nine-month
 
periods
 
ended
September 30, 2023 and 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine-Month Period Ended September 30,
2023
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 nine-month period ended September 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 nine-month period ended
 
September 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 nine-month period ended September 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 nine-month period ended September 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 nine-month periods ended September 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 September 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 nine-month period ended
September 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)
56
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 nine-month
 
period ended September 30, 2023:
 
 
 
 
 
 
 
 
Nine-Month Period Ended
September 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
 
Separate Trading of Registered Interest and
 
Principal of Securities 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
 
nine-month
 
periods
 
ended
 
September
 
30,
 
2023,
 
the
 
Corporation
 
recognized
 
$
0.6
 
million
 
and
 
$
1.6
 
million,
respectively,
 
of
 
stock-based
 
compensation
 
expense
 
related
 
to
 
performance
 
units,
 
compared
 
to
 
$
0.5
 
million
 
and
 
$
1.3
 
million
 
for
 
the
same periods in 2022,
 
respectively.
 
As of September 30, 2023,
 
there was $
3.6
 
million of total unrecognized
 
compensation cost related
to unvested performance units that the Corporation expects to recognize
 
over a weighted average period of
2.0
 
years.
 
Shares withheld
During the first nine
 
months of 2023, the
 
Corporation withheld
288,613
 
shares (as compared to
202,649
 
shares during the first
 
nine
months
 
of
 
2022)
 
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)
57
NOTE 14 –
 
STOCKHOLDERS’
 
EQUITY
Stock Repurchase Programs
During the third quarter of 2023, the Corporation repurchased
5,392,458
 
shares of common stock at an average price of $
13.91
 
for a
total cost of $
75
 
million which completed the
 
$
350
 
million stock repurchase program
 
approved by the Board of
 
Directors on April 27,
2022.
 
For
 
the
 
nine-month
 
period
 
ended
 
September
 
30,
 
2023,
 
the
 
Corporation
 
repurchased
8,969,998
 
shares
 
at
 
an
 
average
 
price
 
of
$
13.94
 
for a total cost of $
125
 
million under this stock repurchase program.
 
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. Repurchases
 
under the program may be
 
executed through open market purchases,
 
accelerated share repurchases,
and/or
 
privately
 
negotiated
 
transactions
 
or
 
plans,
 
including
 
under
 
plans
 
complying
 
with
 
Rule
 
10b5-1
 
under
 
the
 
Exchange
 
Act.
 
The
Corporation’s
 
stock repurchase
 
program is
 
subject to
 
various factors,
 
including the
 
Corporation’s
 
capital position,
 
liquidity,
 
financial
performance
 
and
 
alternative
 
uses of
 
capital,
 
stock
 
trading price,
 
and
 
general
 
market
 
conditions.
 
The
 
Corporation’s
 
stock
 
repurchase
program
 
does
 
not
 
obligate
 
it
 
to
 
acquire
 
any
 
specific
 
number
 
of
 
shares
 
and
 
does
 
not
 
have
 
an
 
expiration
 
date.
 
The
 
stock
 
repurchase
program
 
may
 
be
 
modified,
 
suspended,
 
or
 
terminated
 
at
 
any
 
time
 
at
 
the
 
Corporation’s
 
discretion.
 
The
 
Corporation
 
repurchased
no
shares
 
of
 
common
 
stock
 
under
 
the
 
current
 
repurchase
 
authorization
 
during
 
the
 
quarter
 
ended
 
September
 
30,
 
2023.
 
The
 
Parent
Company
 
has
 
no
 
operations
 
and
 
depends
 
on
 
dividends,
 
distributions
 
and
 
other
 
payments
 
from
 
its
 
subsidiaries
 
to
 
fund
 
dividend
payments, stock repurchases, and to fund all payments on its obligations, including
 
debt obligations.
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table shows the change in shares of common stock outstanding
 
for the quarters and nine-month periods ended
September 30, 2023 and 2022:
Total
 
Number of Shares
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
2023
2022
2023
2022
Common stock outstanding, beginning balance
179,756,622
191,626,336
182,709,059
201,826,505
Common stock repurchased
(1)
(5,393,236)
(5,385,857)
(9,258,611)
(16,066,747)
Common stock reissued under stock-based compensation plan
23,903
21,924
994,332
513,009
Restricted stock forfeited
(963)
(4,744)
(58,454)
(15,108)
Common stock outstanding, ending balances
174,386,326
186,257,659
174,386,326
186,257,659
(1)
For the quarter and nine-month period ended September 30, 2023 includes
778
 
and
288,613
 
shares, respectively, of common
 
stock surrendered to cover plan participants' payroll and
income taxes.
For
 
the
 
quarter
 
and
 
nine-month
 
period
 
ended
 
September
 
30,
 
2023,
 
total
 
cash
 
dividends
 
declared
 
on
 
shares
 
of
 
common
 
stock
amounted
 
to $
24.9
 
million
 
and $
75.6
 
million, respectively,
 
compared
 
to $
22.7
 
million
 
and $
65.9
 
million,
 
respectively,
 
for
 
the same
periods
 
in
 
2022.
 
On
October 31, 2023
,
 
the
 
Corporation
 
announced
 
that
 
its
 
Board
 
declared
 
a
 
quarterly
 
cash
 
dividend
 
of
 
$
0.14
 
per
common
 
share
 
payable
 
on
December 8, 2023
 
to
 
shareholders
 
of
 
record
 
at
 
the
 
close
 
of
 
business
 
on
November 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
September 30, 2023 and December 31, 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
58
Treasury Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table shows the change in shares of treasury stock for the quarters and nine-month
 
periods ended September 30,
2023 and 2022:
Total
 
Number of Shares
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
2023
2022
2023
2022
Treasury stock, beginning balance
43,906,494
32,036,780
40,954,057
21,836,611
Common stock repurchased
5,393,236
5,385,857
9,258,611
16,066,747
Common stock reissued under stock-based compensation plan
(23,903)
(21,924)
(994,332)
(513,009)
Restricted stock forfeited
963
4,744
58,454
15,108
Treasury stock, ending balances
49,276,790
37,405,457
49,276,790
37,405,457
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
September 30, 2023 and December 31, 2022. There were
no
 
transfers to the legal surplus reserve during the first nine months of 2023.
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
59
NOTE 15 – ACCUMULATED
 
OTHER COMPREHENSIVE LOSS
 
The following table presents the changes in accumulated other comprehensive
 
loss for the quarters and nine-month periods ended
September 30, 2023 and 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in Accumulated Other Comprehensive
 
Loss by Component
(1)
Quarter ended September 30,
 
Nine-Month Period Ended September
 
30,
 
2023
2022
2023
2022
(In thousands)
Unrealized net holding losses on available-for-sale
 
debt securities:
Beginning balance
$
(773,581)
$
(595,147)
$
(805,972)
$
(87,390)
 
Other comprehensive loss
(2)
(78,976)
(270,937)
(46,585)
(778,694)
Ending balance
$
(852,557)
$
(866,084)
$
(852,557)
$
(866,084)
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 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 September 30,
 
Nine-Month Period Ended September 30,
 
Statements of Income
2023
2022
2023
2022
(In thousands)
Net periodic cost (benefit), pension plans:
Interest cost
Other expenses
$
950
$
654
$
2,850
$
1,962
Expected return on plan assets
Other expenses
(886)
(1,040)
(2,657)
(3,119)
Net periodic cost (benefit), pension plans
64
(386)
193
(1,157)
Net periodic cost, postretirement plan
Other expenses
7
2
19
5
Net periodic cost (benefit)
$
71
$
(384)
$
212
$
(1,152)
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
60
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
 
(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
 
third quarter
 
of 2023,
 
the Corporation
 
recorded an
 
income tax
 
expense of
 
$
27.0
 
million compared
 
to $
32.0
 
million in
 
the
third quarter of 2022. For the first
 
nine months of 2023, the Corporation
 
recorded an income tax expense of
 
$
89.2
 
million compared to
$
109.2
 
million for the same period in 2022.
 
The decrease in income tax expense for
 
the third quarter of 2023, as compared
 
to the same
quarter
 
of
 
the
 
previous
 
year,
 
was
 
the
 
result
 
of
 
a
 
lower
 
effective
 
tax
 
rate
 
due
 
to
 
increased
 
business
 
activities
 
in
 
a
 
wholly-owned
subsidiary of FirstBank,
 
which is engaged in
 
lending and investing activities,
 
that provided additional tax
 
advantages under the
 
Puerto
Rico tax
 
code,
 
as well
 
as a
 
higher proportion
 
of exempt
 
income to
 
taxable income.
 
The decrease
 
in income
 
tax expense
 
for the
 
first
nine
 
months of
 
2023,
 
as compared
 
to the
 
same period
 
in 2022,
 
was mainly
 
related
 
to lower
 
pre-tax income
 
,
 
the aforementioned
 
tax
advantages
 
and
 
a
 
higher
 
proportion
 
of
 
exempt
 
to
 
taxable
 
income.
 
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
28.2
% for
 
the first
 
nine months
 
of
2023, compared to
31.8
% for the first nine months of 2022.
As
 
of
 
September
 
30,
 
2023,
 
the
 
Corporation
 
had
 
a
 
deferred
 
tax
 
asset
 
of
 
$
150.8
 
million,
 
net
 
of
 
a
 
valuation
 
allowance
 
of
 
$
195.1
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 $
150.8
million
 
as
 
of
 
September
 
30,
 
2023,
 
net
 
of
 
a
 
valuation
 
allowance
 
of
 
$
157.9
 
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)
61
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 nine-month period
 
ended September 30,
 
2023,
the Corporation
 
incurred current
 
income tax
 
expense of
 
approximately $
2.8
 
million and
 
$
6.8
 
million, respectively,
 
related to
 
its U.S.
operations, compared to
 
$
3.0
 
million and $
7.1
 
million, respectively,
 
for comparable periods in 2022.
 
The limitation did not impact
 
the
USVI operations in the quarters and nine-month periods ended
 
September 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
 
September
 
30,
 
2023,
 
the
 
Corporation
 
had
$
0.2
 
million
 
of
 
accrued
 
interest
 
and
 
penalties
 
related
 
to
 
uncertain
 
tax
 
positions
 
in
 
the
 
amount
 
of
 
$
0.8
 
million
 
that
 
it acquired
 
from
BSPR, which, if
 
recognized, would
 
decrease the
 
effective income
 
tax rate in
 
future periods.
 
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
2019 remain open to examination. For Puerto Rico tax purposes, all tax years
 
subsequent to 2018 remain open to examination.
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
62
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
 
September 30, 2023 and December 31,
2022:
As of September 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
$
140,723
$
-
$
-
$
140,723
$
138,875
$
-
$
-
$
138,875
Noncallable U.S. agencies debt securities
-
430,515
-
430,515
-
389,787
-
389,787
Callable U.S. agencies debt securities
-
1,877,075
-
1,877,075
-
1,963,566
-
1,963,566
MBS
-
2,721,124
4,918
(1)
2,726,042
-
3,098,797
5,794
(1)
3,104,591
Puerto Rico government obligations
-
-
1,448
1,448
-
-
2,201
2,201
Other investments
-
-
-
-
-
-
500
500
Equity securities
4,775
-
-
4,775
4,861
-
-
4,861
Derivative assets
-
360
-
360
-
633
-
633
Liabilities:
Derivative liabilities
-
170
-
170
-
476
-
476
(1) Related to private label MBS.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
63
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 nine-month periods ended September 30, 2023 and 2022:
Quarter Ended September 30,
Nine-Month Period Ended September 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
$
7,357
$
10,180
$
8,495
$
11,084
 
Total (losses)/gains:
 
Included in other comprehensive loss (unrealized)
(722)
(177)
(903)
(570)
 
Included in earnings (unrealized)
(2)
(32)
12
(7)
435
 
Principal repayments and amortization
(237)
(1,152)
(1,219)
(3)
(2,086)
Ending balance
$
6,366
$
8,863
$
6,366
$
8,863
___________________
(1)
Amounts mostly related to private label MBS.
(2)
Changes in unrealized (losses) 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 September 30, 2023 and December 31, 2022:
September 30, 2023
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
 
Maximum
(Dollars in thousands)
Available-for-sale
 
debt securities:
 
Private label MBS
$
4,918
Discounted cash flows
Discount rate
17.3%
17.3%
17.3%
Prepayment rate
1.2%
8.8%
5.3%
Projected cumulative loss rate
0.2%
13.7%
5.5%
 
Puerto Rico government obligations
$
1,448
Discounted cash flows
Discount rate
13.9%
13.9%
13.9%
Projected cumulative loss rate
24.5%
24.5%
24.5%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
64
Additionally, fair value
 
is used on a nonrecurring basis to evaluate certain assets in accordance with GAAP.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 30, 2023, the Corporation recorded losses or valuation adjustments
 
for assets recognized at fair value on a non-
recurring basis and still held at September 30, 2023, as shown in the following
 
table:
Carrying value as of September 30, 2023
Related to (losses) gains
recorded for the Quarter
Ended September 30,
2023
Related to losses
recorded for the Nine-
Month Period Ended
September 30, 2023
(Losses) gains recorded
for the Quarter Ended
 
September 30, 2023
Losses recorded for the
Nine-Month Period
Ended September 30,
2023
(In thousands)
Level 3:
Loans receivable
(1)
$
16,655
$
24,933
$
(2,495)
$
(9,234)
OREO
(2)
1,085
2,124
(169)
(205)
Level 2:
Loans held for sale
(3)
$
8,961
$
8,961
$
16
$
(57)
(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 published secondary market prices of MBS with similar characteristics.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 30, 2022, the Corporation recorded losses or valuation adjustments
 
for assets recognized at fair value on a non-
recurring basis and still held at September 30, 2022, as shown in the following
 
table:
Carrying value as of September 30, 2022
Related to losses
recorded for the Quarter
Ended September 30,
2022
Related to losses
recorded for the Nine-
Month Period Ended
September 30, 2022
Losses recorded for the
Quarter Ended
September 30, 2022
Losses recorded for the
Nine-Month Period
Ended September 30,
2022
(In thousands)
Level 3:
Loans receivable
(1)
$
4,207
$
27,531
$
(227)
$
(2,978)
OREO
(2)
1,234
2,913
(57)
(34)
Premises and equipment
(3)
-
1,242
-
(218)
Level 2:
Loans held for sale
(4)
$
12,169
$
12,169
$
(177)
$
(177)
(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.
 
(4)
The Corporation derived the fair value of these loans based
 
on published secondary market prices of MBS with similar characteristics.
 
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)
65
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following tables present the carrying value, estimated fair value and estimated
 
fair value level of the hierarchy of financial
instruments as of September 30, 2023 and December 31, 2022:
Total Carrying Amount
in Statement of
Financial Condition as
of September 30, 2023
Fair Value Estimate as
 
of
September 30, 2023
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money market investments (amortized
 
cost)
$
584,913
$
584,913
$
584,913
$
-
$
-
Available-for-sale debt
 
securities (fair value)
5,175,803
5,175,803
140,723
5,028,714
6,366
Held-to-maturity debt securities (amortized cost)
359,169
Less: ACL on held-to-maturity debt securities
(2,250)
Held-to-maturity debt securities, net of ACL
$
356,919
342,851
-
232,719
110,132
Equity securities (amortized cost)
43,908
43,908
-
43,908
(1)
-
Other equity securities (fair value)
4,775
4,775
4,775
-
-
Loans held for sale (lower of cost or market)
8,961
8,961
-
8,961
-
Loans held for investment (amortized cost)
11,950,932
Less: ACL for loans and finance leases
(263,615)
Loans held for investment, net of ACL
$
11,687,317
11,566,106
-
-
11,566,106
MSRs (amortized cost)
27,601
45,114
-
-
45,114
Derivative assets (fair value)
 
(2)
360
360
-
360
-
Liabilities:
Deposits (amortized cost)
$
16,435,237
$
16,447,189
$
-
$
16,447,189
$
-
Advances from the FHLB (amortized cost):
 
Long-term
500,000
491,505
-
491,505
-
Other long-term borrowings (amortized cost)
161,700
159,549
-
-
159,549
Derivative liabilities (fair value)
 
(2)
170
170
-
170
-
(1) Includes FHLB stock with a carrying value of $
34.6
 
million, which is 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)
66
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 is 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)
67
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 nine-month
 
periods ended
 
September 30,
2023 and 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter ended September 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)
$
18,279
$
147,066
$
13,212
$
(4,055)
$
19,749
$
5,477
$
199,728
Service charges and fees on deposit accounts
-
5,286
3,406
-
155
705
9,552
Insurance commissions
-
2,596
-
-
68
126
2,790
Merchant-related income
-
2,156
-
-
19
319
2,494
Credit and debit card fees
-
7,826
24
-
4
493
8,347
Other service charges and fees
50
1,262
853
-
615
163
2,943
Not in scope of ASC Topic
 
606
 
(1)
2,971
1,044
185
(3)
(14)
(13)
4,170
 
Total non-interest income
3,021
20,170
4,468
(3)
847
1,793
30,296
Total Revenue
$
21,300
$
167,236
$
17,680
$
(4,058)
$
20,596
$
7,270
$
230,024
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter ended September 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)
$
24,338
$
118,408
$
22,861
$
14,827
$
21,494
$
5,982
$
207,910
Service charges and fees on deposit accounts
-
5,744
3,169
-
151
756
9,820
Insurance commissions
-
2,485
-
-
16
123
2,624
Merchant-related income
-
1,458
347
-
32
330
2,167
Credit and debit card fees
-
7,209
21
-
(2)
439
7,667
Other service charges and fees
85
1,228
340
-
595
195
2,443
Not in scope of ASC Topic
 
606
(1)
3,648
997
399
33
(19)
(86)
4,972
Total non-interest
 
income
3,733
19,121
4,276
33
773
1,757
29,693
Total Revenue
$
28,071
$
137,529
$
27,137
$
14,860
$
22,267
$
7,739
$
237,603
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
68
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine-Month Period Ended September 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)
$
61,427
$
427,407
$
41,085
$
(7,502)
$
60,369
$
17,642
$
600,428
Service charges and fees on deposit accounts
-
15,859
9,886
-
492
2,143
28,380
Insurance commissions
-
9,700
-
-
175
509
10,384
Merchant-related income
-
6,454
-
-
87
1,172
7,713
Credit and debit card fees
-
23,581
74
-
16
1,510
25,181
Other service charges and fees
244
3,922
2,801
-
1,858
714
9,539
Not in scope of ASC Topic
 
606
 
(1)
8,913
2,909
4,027
1,837
221
(19)
17,888
 
Total non-interest income
9,157
62,425
16,788
1,837
2,849
6,029
99,085
Total Revenue
$
70,584
$
489,832
$
57,873
$
(5,665)
$
63,218
$
23,671
$
699,513
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine-Month Period Ended September 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)
$
76,452
$
310,351
$
94,655
$
33,702
$
56,664
$
17,896
$
589,720
Service charges and fees on deposit accounts
-
16,778
9,214
-
446
2,211
28,649
Insurance commissions
-
10,176
-
-
65
604
10,845
Merchant-related income
-
4,991
1,101
-
54
1,046
7,192
Credit and debit card fees
-
21,271
58
-
(6)
1,298
22,621
Other service charges and fees
287
4,404
2,329
-
1,579
509
9,108
Not in scope of ASC Topic
 
606
 
(1)
12,865
1,747
576
(130)
57
(38)
15,077
 
Total non-interest income
13,152
59,367
13,278
(130)
2,195
5,630
93,492
Total Revenue
$
89,604
$
369,718
$
107,933
$
33,572
$
58,859
$
23,526
$
683,212
(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)
69
For the
 
quarters and
 
nine-month periods
 
ended September
 
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 nine-month periods ended
 
September 30, 2023 and
2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2023
2022
2023
2022
(In thousands)
Beginning balance
$
608
$
1,049
$
841
$
1,443
 
Revenue recognized
(81)
(104)
(314)
(498)
Ending balance
$
527
$
945
$
527
$
945
As of September 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
 
September 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)
70
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
 
September
 
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)
71
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 September 30,2023:
Interest income
$
31,208
$
90,976
$
68,138
$
32,146
$
33,560
$
7,377
$
263,405
Net (charge) credit for transfer of funds
(12,929)
96,836
(54,926)
(27,817)
(1,164)
-
-
Interest expense
-
(40,746)
-
(8,384)
(12,647)
(1,900)
(63,677)
Net interest income (loss)
18,279
147,066
13,212
(4,055)
19,749
5,477
199,728
Provision for credit losses - (benefit) expense
(3,288)
13,707
(7,235)
32
873
307
4,396
Non-interest income (loss)
3,021
20,170
4,468
(3)
847
1,793
30,296
Direct non-interest expenses
5,201
43,431
9,658
958
8,535
6,647
74,430
 
Segment income (loss)
$
19,387
$
110,098
$
15,257
$
(5,048)
$
11,188
$
316
$
151,198
Average earnings assets
$
2,127,641
$
3,336,158
$
3,769,370
$
6,382,276
$
2,041,662
$
406,499
$
18,063,606
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage
Banking
Consumer
(Retail) Banking
Commercial and
Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Quarter ended September 30,2022:
Interest income
$
32,349
$
77,576
$
53,506
$
28,203
$
24,804
$
6,245
$
222,683
Net (charge) credit for transfer of funds
(8,011)
47,577
(30,645)
(8,447)
(474)
-
-
Interest expense
-
(6,745)
-
(4,929)
(2,836)
(263)
(14,773)
Net interest income
 
24,338
118,408
22,861
14,827
21,494
5,982
207,910
Provision for credit losses - expense (benefit)
 
2,092
16,705
(3,519)
(12)
(624)
1,141
15,783
Non-interest income
3,733
19,121
4,276
33
773
1,757
29,693
Direct non-interest expenses
6,489
42,080
9,295
942
8,479
7,097
74,382
 
Segment income (loss)
$
19,490
$
78,744
$
21,361
$
13,930
$
14,412
$
(499)
$
147,438
Average earnings assets
$
2,211,675
$
2,974,894
$
3,622,907
$
7,095,503
$
2,040,656
$
365,743
$
18,311,378
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage
Banking
Consumer (Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Nine-Month Period Ended September 30,2023
Interest income
$
94,720
$
261,139
$
195,837
$
89,140
$
96,772
$
20,397
$
758,005
Net (charge) credit for transfer of funds
(33,293)
260,715
(154,752)
(70,095)
(2,575)
-
-
Interest expense
-
(94,447)
-
(26,547)
(33,828)
(2,755)
(157,577)
Net interest income (loss)
61,427
427,407
41,085
(7,502)
60,369
17,642
600,428
Provision for credit losses - (benefit) expense
(7,623)
42,600
(2,096)
7
9,545
(305)
42,128
Non-interest income
9,157
62,425
16,788
1,837
2,849
6,029
99,085
Direct non-interest expenses
15,821
126,872
28,363
2,828
25,341
20,203
219,428
 
Segment income (loss)
$
62,386
$
320,360
$
31,606
$
(8,500)
$
28,332
$
3,773
$
437,957
Average earnings assets
$
2,147,521
$
3,251,286
$
3,751,359
$
6,321,540
$
2,049,281
$
381,655
$
17,902,642
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage
Banking
Consumer (Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Nine-Month Period Ended September 30,2022
Interest income
$
98,625
$
221,500
$
148,046
$
77,530
$
64,742
$
18,719
$
629,162
Net (charge) credit for transfer of funds
(22,173)
105,898
(53,391)
(29,101)
(1,233)
-
-
Interest expense
-
(17,047)
-
(14,727)
(6,845)
(823)
(39,442)
Net interest income
76,452
310,351
94,655
33,702
56,664
17,896
589,720
Provision for credit losses - (benefit) expense
(5,216)
42,904
(20,611)
(435)
(5,849)
1,191
11,984
Non-interest income (loss)
13,152
59,367
13,278
(130)
2,195
5,630
93,492
Direct non-interest expenses
19,076
121,897
27,202
2,732
25,195
20,835
216,937
 
Segment income
$
75,744
$
204,917
$
101,342
$
31,275
$
39,513
$
1,500
$
454,291
Average earnings assets
$
2,249,203
$
2,865,610
$
3,654,906
$
7,642,121
$
2,047,375
$
371,468
$
18,830,683
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
72
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2023
2022
2023
2022
(In thousands)
Net income:
 
Total income for segments
 
$
151,198
$
147,438
$
437,957
$
454,291
Other operating expenses
 
(1)
42,208
40,807
125,395
113,237
Income before income taxes
108,990
106,631
312,562
341,054
Income tax expense
26,968
32,028
89,187
109,156
 
Total consolidated net income
$
82,022
$
74,603
$
223,375
$
231,898
Average assets:
Total average earning assets for segments
 
$
18,063,606
$
18,311,378
$
17,902,642
$
18,830,683
Average non-earning assets
 
832,374
835,740
845,837
873,911
 
Total consolidated average assets
$
18,895,980
$
19,147,118
$
18,748,479
$
19,704,594
(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)
73
NOTE 21 – SUPPLEMENTAL
 
STATEMENT
 
OF CASH FLOWS INFORMATION
 
Supplemental statement of cash flows information is as follows for the
 
indicated periods:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine-Month Period Ended September 30,
2023
2022
(In thousands)
Cash paid for:
 
Interest
 
$
143,792
$
41,205
 
Income tax
 
88,258
22,943
 
Operating cash flow from operating leases
12,939
13,759
Non-cash investing and financing activities:
 
Additions to OREO
14,951
13,653
 
Additions to auto and other repossessed assets
48,245
33,119
 
Capitalization of servicing assets
1,839
2,637
 
Loan securitizations
100,735
113,757
 
Loans held for investment transferred to held for sale
3,255
3,893
 
Right-of-use assets obtained in exchange for operating lease liabilities
3,042
2,297
 
Payable related to unsettled common stock shares repurchases
1,310
467
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
74
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
 
September
 
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
 
September
 
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 September
 
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
 
phased-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
 
regional bank failures
 
in the U.S.
 
mainland during
 
the first half
of 2023, although the nature and impact of such actions cannot be predicted
 
at this time.
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
75
The
 
regulatory
 
capital
 
position
 
of
 
the
 
Corporation
 
and
 
the
 
FirstBank
 
as
 
of
 
September
 
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 September 30,2023
Total Capital (to Risk-Weighted
 
Assets)
 
First BanCorp.
$
2,385,079
18.84
%
$
1,012,868
8.0
%
N/A
N/A
%
 
FirstBank
$
2,335,546
18.45
%
$
1,012,710
8.0
%
$
1,265,888
10.0
%
CET1 Capital (to Risk-Weighted Assets)
 
First BanCorp.
$
2,069,675
16.35
%
$
569,738
4.5
%
N/A
N/A
%
 
FirstBank
$
2,077,017
16.41
%
$
569,649
4.5
%
$
822,827
6.5
%
Tier I Capital (to Risk-Weighted
 
Assets)
 
First BanCorp.
$
2,069,675
16.35
%
$
759,651
6.0
%
N/A
N/A
%
 
FirstBank
$
2,177,017
17.20
%
$
759,533
6.0
%
$
1,012,710
8.0
%
Leverage ratio
 
First BanCorp.
$
2,069,675
10.57
%
$
783,163
4.0
%
N/A
N/A
%
 
FirstBank
$
2,177,017
11.12
%
$
782,913
4.0
%
$
978,641
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)
76
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 September 30, 2023, commitments to extend credit amounted to
 
approximately $
2.0
 
billion, of which $
961.1
 
million relates to retail
credit card loans.
 
In addition, commercial
 
and financial standby
 
letters of credit
 
as of September
 
30, 2023 amounted
 
to approximately
$
72.1
 
million.
Contingencies
As of
 
September 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 September 30, 2023, no such disclosures were necessary.
Following the
 
failure of
 
several financial
 
institutions in
 
the first
 
half of
 
2023, the
 
FDIC issued
 
a notice
 
of proposed
 
rulemaking in
May 2023
 
that would
 
implement a
 
special assessment
 
to recover
 
the cost
 
associated with
 
protecting
 
uninsured
 
depositors as
 
part
 
of
those
 
financial
 
institutions’
 
failures.
 
The
 
Corporation
 
continues
 
to
 
monitor
 
the
 
status
 
of
 
the
 
proposed
 
special
 
assessment
 
and
 
the
impact to its future operating results.
 
The Corporation expects to record the impact when the final rule is enacted.
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
77
NOTE 23- FIRST BANCORP.
 
(HOLDING COMPANY
 
ONLY) FINANCIAL
 
INFORMATION
The following
 
condensed financial information
 
presents the financial
 
position of
 
First BanCorp.
 
at the holding
 
company level only
as
 
of
 
September
 
30,
 
2023
 
and
 
December
 
31,
 
2022,
 
and
 
the
 
results
 
of
 
its
 
operations
 
for
 
the
 
quarters
 
and
 
nine-month
 
periods
 
ended
September 30, 2023 and 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Statements of Financial Condition
As of September 30,
As of December 31,
2023
2022
(In thousands)
Assets
Cash and due from banks
$
34,804
$
19,279
Other investment securities
735
735
Investment in First Bank Puerto Rico, at equity
1,410,410
1,464,026
Investment in First Bank Insurance Agency,
 
at equity
23,596
28,770
Investment in FBP Statutory Trust I
1,289
1,951
Investment in FBP Statutory Trust II
3,561
3,561
Dividends receivable
715
624
Other assets
577
430
 
Total assets
$
1,475,687
$
1,519,376
Liabilities and Stockholders’ Equity
Liabilities:
Long-term borrowings
 
$
161,700
$
183,762
Accounts payable and other liabilities
10,919
10,074
 
Total liabilities
172,619
193,836
Stockholders’ equity
1,303,068
1,325,540
 
Total liabilities and stockholders’
 
equity
$
1,475,687
$
1,519,376
 
 
 
 
 
 
 
 
FIRST BANCORP.
NOTES TO CONSOLIDATED
 
FINANCIAL
 
STATEMENTS – (Continued)
78
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Statements of Income
 
Quarter Ended
 
Nine-Month Period Ended
September 30,
September 30,
2023
2022
2023
2022
(In thousands)
Income
 
 
Interest income on money market investments
 
$
77
$
19
$
187
$
33
 
Dividend income from banking subsidiaries
82,178
49,728
239,980
292,000
 
Dividend income from nonbanking subsidiaries
-
-
12,000
-
 
Gain on early extinguishment of debt
-
-
1,605
-
 
Other income
101
68
304
159
 
Total income
82,356
49,815
254,076
292,192
Expense
 
Interest expense on long-term borrowings
3,345
2,273
10,135
5,304
 
Other non-interest expenses
452
422
1,324
1,295
 
Total expense
3,797
2,695
11,459
6,599
Income before income taxes and equity in undistributed
 
earnings of subsidiaries
78,559
47,120
242,617
285,593
Income tax expense
745
735
2,606
2,634
Equity in undistributed earnings of subsidiaries
 
(distributions in excess of earnings)
4,208
28,218
(16,636)
(51,061)
Net income
$
82,022
$
74,603
$
223,375
$
231,898
Other comprehensive loss, net of tax
(78,976)
(270,937)
(46,585)
(778,694)
Comprehensive income (loss)
$
3,046
$
(196,334)
$
176,790
$
(546,796)
 
 
79
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 fiscal
 
year
 
ended
 
December 31,
 
2022,
 
as amended
 
on October
 
13,
 
2023
 
(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
The
 
Federal
 
Reserve
 
(“FED”)
 
continues
 
to
 
be
 
committed
 
to
 
bringing
 
inflation
 
down
 
to
 
its
 
2%
 
goal.
 
Projections
 
suggest
 
that
inflation will reach
 
the 2% target by
 
2026. In light of
 
the progress reached thus
 
far with respect to
 
the FED’s
 
tightening campaign, the
FED has decided
 
to leave the
 
federal funds rate
 
unchanged, at a
 
target range
 
of 5.25% to
 
5.50% after the
 
last interest rate
 
hike in July
2023. Notwithstanding, the FED is prepared to raise rates further if appropriate.
Recent indicators
 
suggest that
 
economic activity
 
continues expanding,
 
and so far
 
this year,
 
growth in
 
real GDP
 
has come
 
in above
expectations.
 
As
 
such,
 
in
 
July
 
2023,
 
the
 
Economic
 
Development
 
Bank
 
for
 
Puerto
 
Rico’s
 
Economic
 
Activity
 
Index
 
(“EDB-EAI”)
registered the highest
 
reading since June
 
2015. Labor markets
 
remain strong, although
 
they are cooling
 
as evidenced by the
 
slight rise
in the national unemployment rate to 3.9% in October 2023, from 3.6% in
 
June 2023.
The Corporation remains cautiously
 
optimistic on economic conditions in Puerto
 
Rico, its principal market. For
 
the third quarter we
earned $82.0
 
million in
 
net income
 
and delivered
 
a strong return
 
on average
 
assets of
 
1.72% driven
 
by a
 
combination of
 
loan growth
across all
 
our businesses,
 
disciplined expense
 
management, and
 
encouraging economic
 
trends in
 
our main
 
market. The
 
Corporation’s
loan
 
growth
 
strategy
 
has
 
been
 
supported
 
by
 
increased
 
business
 
activity
 
and
 
economic
 
tailwinds,
 
particularly
 
in
 
its
 
main
 
market,
coupled with
 
timely execution
 
across the
 
three regions.
 
Going forward,
 
the Corporation
 
expects loan
 
growth as
 
it redeploys a
 
portion
of investment
 
portfolio cash
 
flows into
 
higher yielding
 
assets and
 
the pace
 
of draws
 
on recently
 
extended construction
 
loan facilities
begins to accelerate.
On the
 
other hand,
 
the deposit
 
market share
 
continues to
 
reflect a
 
gradual erosion
 
of excess
 
liquidity in
 
the overall
 
market and
 
the
migration of
 
retail customers to
 
higher rate options
 
outside the traditional
 
banking sector,
 
such as credit
 
unions and the
 
U.S. Treasury
market,
 
partially
 
offset
 
by
 
a
 
stabilization
 
in
 
commercial
 
deposit
 
balances.
 
The
 
Corporation
 
remains
 
focused
 
on retaining
 
its
 
deposit
market
 
in
 
the
 
segments
 
it
 
serves
 
by
 
pricing
 
its
 
products
 
as
 
a
 
function
 
of
 
the
 
market
 
environment
 
and
 
by
 
accounting
 
for
 
the
 
future
economic value of new and existing relationships, which could potentially
 
lead to further increments in interest expense.
 
80
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 (“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
The
 
Corporation’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,
 
professional service
 
fees 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
 
nine-month
 
period
 
ended
 
September
 
30,
 
2023,
 
the
 
Corporation
 
had
 
net
 
income
 
of
 
$82.0
 
million
 
($0.46
 
per
diluted
 
common
 
share)
 
and
 
$223.4
 
million
 
($1.25
 
per
 
diluted
 
common
 
share),
 
respectively,
 
compared
 
to
 
$74.6
 
million
 
($0.40
 
per
diluted
 
common
 
share)
 
and
 
$231.9
 
million
 
($1.19
 
per
 
diluted
 
common
 
share),
 
for
 
the
 
comparable
 
periods
 
in
 
2022.
 
Other
 
relevant
selected financial indicators for the periods presented are included below:
Quarter Ended September 30,
 
Nine-Month Period Ended September
30,
2023
2022
2023
2022
Key Performance Indicator:
(1)
Return on Average
 
Assets
(2)
1.72
%
1.55
%
1.59
%
1.57
%
Return on Average
 
Common Equity
(3)
20.70
19.00
19.00
17.73
Efficiency Ratio
(4)
50.71
48.48
49.29
48.33
(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 common stockholders’ equity and is calculated
 
by dividing net income on an annualized basis by its
 
average total common
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
 
September
 
30,
 
2023,
 
compared
 
to
 
the
 
third
quarter of 2022, include the following:
●
Net interest
 
income for
 
the quarter
 
ended September
 
30, 2023
 
decreased to
 
$199.7 million,
 
compared to
 
$207.9 million
 
for
the
 
third
 
quarter
 
of
 
2022,
 
mainly
 
driven
 
by
 
an
 
increase
 
in
 
interest
 
expense
 
due
 
to
 
higher
 
rates
 
paid
 
on
 
interest-bearing
deposits
 
and
 
a
 
continued
 
migration
 
from
 
non-interest-bearing
 
and
 
other
 
low-cost
 
deposits
 
to
 
higher-cost
 
deposits,
 
partially
offset 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,
 
and the growth in the
 
consumer portfolio.
 
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
September 30, 2023
 
was $4.4 million,
 
compared to $15.8
 
million for the
 
third quarter of
 
2022. The decrease
 
in the provision
expense was primarily
 
related to updated
 
macroeconomic variables, which
 
are forecasted to
 
deteriorate at a
 
slower pace than
projected
 
in
 
third
 
quarter
 
of
 
2022,
 
and
 
a
 
higher
 
net
 
benefit
 
recorded
 
for
 
held-to-maturity
 
debt
 
securities
 
during
 
the
 
third
quarter of 2023.
Net charge-offs
 
totaled $14.1 million
 
for the quarter
 
ended September
 
30, 2023, or
 
0.48% of average
 
loans on an
 
annualized
basis,
 
compared
 
to $8.6
 
million,
 
or
 
0.31% of
 
average
 
loans,
 
for
 
the third
 
quarter of
 
2022,
 
mainly
 
driven by
 
a $7.5
 
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 $30.3 million for
 
the quarter ended September
 
30, 2023, compared to $29.7
million for the third quarter of 2022. See “Non-Interest Income” below for
 
additional information.
 
●
Non-interest expenses for
 
the quarter ended
 
September 30, 2023
 
increased by $1.4 million
 
to $116.6
 
million. The increase in
non-interest
 
expenses
 
mainly
 
reflects
 
a
 
$3.6
 
million
 
increase
 
in
 
employees’
 
compensation
 
and
 
benefits
 
expenses
 
driven
 
by
annual
 
salary
 
merit
 
increases
 
and
 
minimum
 
wage
 
adjustments,
 
partially
 
offset
 
by
 
a
 
$1.5
 
million
 
decrease
 
in
 
professional
service fees and a $1.1
 
million increase in net gains
 
on other real estate owned
 
(“OREO”) operations. The
 
efficiency ratio for
the
 
third
 
quarter
 
of
 
2023
 
was
 
50.71%,
 
as
 
compared
 
to
 
48.48%
 
for
 
the
 
same
 
period
 
in
 
2022.
 
See
 
“Non-Interest
 
Expenses”
below for additional information.
 
 
 
 
 
82
●
Income tax expense decreased to $27.0 million for the third quarter
 
of 2023, compared to $32.0 million for the same period in
2022
 
driven
 
by
 
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,
 
decreased
 
to
 
28.2%
 
for
 
the
 
first
 
nine
 
months
 
of
2023, compared
 
to 31.8%
 
for the first
 
nine months
 
of 2022. See
 
“Income Taxes”
 
below and
 
Note 17
 
– Income Taxes,
 
to the
unaudited consolidated financial statements herein for additional information.
 
●
As
 
of
 
September
 
30,
 
2023,
 
total
 
assets
 
were
 
approximately
 
$18.6
 
billion,
 
a
 
decrease
 
of
 
$39.9
 
million
 
from
 
December
 
31,
2022,
 
primarily
 
related to
 
a $46.6
 
million
 
decrease in
 
the fair
 
value of
 
available-for-sale
 
debt
 
securities recorded
 
as part
 
of
accumulated other
 
comprehensive loss
 
in the
 
consolidated statements
 
of financial
 
condition. Total
 
assets were
 
also impacted
by repayments of investment securities, partially offset by increases in total
 
loans and cash and cash equivalents.
●
As of
 
September 30,
 
2023, total
 
liabilities were
 
$17.3 billion,
 
a decrease
 
of $17.4
 
million from
 
December 31,
 
2022, mainly
driven
 
by
 
a
 
$272.2
 
million
 
decrease
 
in
 
borrowings
 
and
 
a
 
$37.0
 
million
 
decrease
 
in
 
accounts
 
payable
 
and
 
other
 
liabilities,
partially
 
offset
 
by a
 
$291.8 million
 
increase
 
in total
 
deposits, including
 
brokered
 
certificates of
 
deposit (“CDs”).
 
See “Risk
Management – Liquidity Risk” below for additional information about the Corporation’s
 
funding sources and strategy.
●
The Bank’s
 
primary sources of funding
 
are consumer and commercial
 
core deposits, which exclude
 
government deposits and
brokered
 
CDs.
 
As
 
of
 
September
 
30,
 
2023,
 
these
 
core
 
deposits,
 
amounting
 
to
 
$12.9
 
billion,
 
funded
 
69.17%
 
of
 
total
 
assets.
Excluding
 
fully collateralized
 
government
 
deposits, estimated
 
uninsured deposits
 
amounted
 
to $4.8
 
billion as
 
of September
30, 2023. In
 
addition to approximately
 
$2.7 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 September
 
30, 2023, the
 
Corporation had
 
approximately $1.4
billion
 
available
 
for
 
funding
 
under
 
the
 
FED’s
 
Discount
 
Window
 
and
 
$947.8
 
million
 
available
 
for
 
additional
 
borrowing
capacity
 
on
 
FHLB
 
lines
 
of
 
credit
 
based
 
on
 
collateral
 
pledged
 
at
 
these
 
entities.
 
On
 
a
 
combined
 
basis,
 
as
 
of
 
September
 
30,
2023,
 
the
 
Corporation
 
had
 
$5.1
 
billion,
 
or
 
107%
 
of
 
uninsured
 
deposits,
 
available
 
to
 
meet
 
liquidity
 
needs.
 
See
 
“Risk
Management – Liquidity Risk” below for additional information about the Corporation’s
 
funding sources and strategy.
●
As of
 
September
 
30,
 
2023,
 
the Corporation’s
 
total
 
stockholders’
 
equity
 
was $1.3
 
billion,
 
a
 
decrease
 
of
 
$22.5
 
million
 
from
December 31, 2022. The decrease was
 
mainly driven by the repurchase
 
of approximately 9.0 million shares
 
of common stock
for
 
a
 
total
 
purchase
 
price
 
of
 
approximately
 
$125.0
 
million,
 
$75.6
 
million
 
in
 
dividends
 
declared
 
to
 
common
 
stock
shareholders,
 
and
 
a
 
$46.6
 
million
 
decrease
 
in
 
the
 
fair
 
value
 
of
 
available-for-sale
 
debt
 
securities
 
recorded
 
as
 
part
 
of
accumulated other
 
comprehensive loss
 
in the
 
consolidated statements
 
of financial
 
condition as
 
a result
 
of changes
 
in market
interest rates. This decrease was
 
partially offset by the
 
earnings generated in the first
 
nine months of 2023. The
 
Corporation’s
CET1 capital, tier
 
1 capital, total
 
capital, and
 
leverage ratios were
 
16.35%, 16.35%, 18.84%,
 
and 10.57%, respectively,
 
as of
September 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,
 
increased
 
by
 
$124.9
 
million
 
to
 
$1.4
 
billion
 
for
 
the
 
quarter
 
ended
 
September
 
30,
 
2023
 
driven
 
by
 
a
 
higher
volume
 
of
 
commercial
 
loan
 
originations.
 
See
 
“Financial
 
Condition
 
and
 
Operating
 
Data
 
Analysis”
 
below
 
for
 
additional
information.
●
Total
 
non-performing assets
 
were $130.2
 
million as
 
of September
 
30, 2023,
 
an increase
 
of $1.0
 
million, from
 
December 31,
2022,
 
primarily related to a
 
net increase of $3.3
 
million in nonaccrual loans,
 
which include the inflow to
 
nonaccrual of a $9.5
million
 
commercial
 
and
 
industrial loan
 
in the
 
Puerto
 
Rico region
 
,
 
partially
 
offset
 
by a
 
$2.3 million
 
reduction
 
in other
 
non-
performing
 
assets.
 
See
 
“Risk
 
Management
 
–
 
Nonaccrual
 
Loans
 
and
 
Non-Performing
 
Assets”
 
below
 
for
 
additional
information.
●
Adversely
 
classified
 
commercial
 
and
 
construction
 
loans
 
decreased
 
by
 
$16.8
 
million
 
to
 
$76.8
 
million
 
as
 
of
 
September
 
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,
 
partially offset
 
by the
 
aforementioned inflow
 
of a
 
$9.5 million
 
commercial and
 
industrial loan
 
in
the Puerto Rico region.
 
 
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 quarters
 
ended September 30, 2023 and
 
2022 and for the nine-month period
 
ended September 30, 2022 did not
include
 
any
 
significant
 
Special
 
Items.
 
The
 
financial
 
results
 
for
 
the
 
nine-month
 
period
 
ended
 
September
 
30,
 
2023
 
included
 
the
following Special Items:
Nine-Month Period Ended September 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 recorded
 
in 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
84
The following
 
table shows
 
the net
 
income for
 
the third
 
quarter of
 
2023 and
 
reconciles for
 
the nine-month
 
period ended
 
September
30,
 
2023
 
the reported
 
net
 
income
 
to adjusted
 
net income,
 
a
 
non-GAAP
 
financial
 
measure
 
that excludes
 
the Special
 
Items identified
above:
Quarter Ended September 30,
 
Nine-Month Period Ended
 
September 30,
 
2023
2023
(In thousands)
Net income, as reported (GAAP)
$
82,022
$
223,375
Adjustments:
 
Gain recognized from a legal settlement
-
(3,600)
Gain on early extinguishment of debt
-
(1,605)
Income tax impact of adjustments
(1)
-
1,350
Adjusted net income (Non-GAAP)
$
82,022
$
219,520
(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
nine-month
 
period ended
 
September 30,
 
2023 was
 
$199.7 million
 
and $600.4
 
million, respectively,
 
compared to
 
$207.9 million
 
and
$589.7 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
 
nine-month
 
period
 
ended
 
September
 
30,
 
2023
 
was
 
$204.4
 
million
 
and
 
$617.0
million, respectively,
 
compared to $217.0 million and $615.4 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
Financial Measures and Reconciliations” above.
Part I
Average volume
Interest income
(1)
 
/ expense
Average rate
(1)
Quarter ended September 30,
2023
2022
2023
2022
2023
2022
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
$
807,883
$
882,759
$
10,956
$
4,654
5.38
%
2.09
%
Government obligations
(2)
2,817,646
2,912,130
9,415
10,325
1.33
%
1.41
%
MBS
3,650,737
4,113,870
15,677
22,028
1.70
%
2.12
%
FHLB stock
34,666
16,677
768
292
8.79
%
6.95
%
Other investments
14,294
13,094
61
45
1.69
%
1.36
%
Total investments
(3)
7,325,226
7,938,530
36,877
37,344
2.00
%
1.87
%
Residential mortgage loans
2,800,675
2,855,927
39,640
39,874
5.62
%
5.54
%
Construction loans
183,507
118,794
4,937
1,831
10.67
%
6.12
%
Commercial and industrial ("C&I") and commercial mortgage loans
5,261,849
5,085,257
93,711
73,518
7.07
%
5.74
%
Finance leases
808,480
647,586
15,802
11,751
7.75
%
7.20
%
Consumer loans
2,728,945
2,511,300
77,125
67,504
11.21
%
10.66
%
Total loans
(4)(5)
11,783,456
11,218,864
231,215
194,478
7.78
%
6.88
%
 
Total interest-earning assets
$
19,108,682
$
19,157,394
$
268,092
$
231,822
5.57
%
4.80
%
Interest-bearing liabilities:
Time deposits
$
2,708,297
$
2,109,521
$
19,852
$
3,788
2.91
%
0.71
%
Brokered certificates of deposit ("CDs")
318,831
63,524
3,830
333
4.77
%
2.08
%
Other interest-bearing deposits
7,956,856
8,372,342
30,616
5,857
1.53
%
0.28
%
Securities sold under agreements to repurchase
26,254
200,000
359
1,993
5.43
%
3.95
%
Advances from the FHLB
500,000
97,826
5,675
529
4.50
%
2.15
%
Other long-term borrowings
161,700
183,762
3,345
2,273
8.21
%
4.91
%
Total interest-bearing liabilities
$
11,671,938
$
11,026,975
$
63,677
$
14,773
2.16
%
0.53
%
Net interest income on a tax-equivalent basis and excluding
valuations - non-GAAP
$
204,415
$
217,049
Interest rate spread
3.41
%
4.27
%
Net interest margin
4.24
%
4.49
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
86
Part I
Average volume
Interest income
(1)
 
/ expense
Average rate
(1)
Nine-Month Period Ended September 30,
2023
2022
2023
2022
2023
2022
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
$
611,308
$
1,412,802
$
23,486
$
8,347
5.14
%
0.79
%
Government obligations
(2)
2,878,603
2,857,462
31,153
28,647
1.45
%
1.34
%
MBS
3,756,654
4,079,403
52,160
64,252
1.86
%
2.11
%
FHLB stock
37,234
19,788
1,969
830
7.07
%
5.61
%
Other investments
13,729
12,496
258
78
2.51
%
0.83
%
Total investments
(3)
7,297,528
8,381,951
109,026
102,154
2.00
%
1.63
%
Residential mortgage loans
2,814,667
2,902,542
119,298
121,134
5.67
%
5.58
%
Construction loans
159,914
119,214
10,516
5,123
8.79
%
5.75
%
C&I and commercial mortgage loans
5,207,216
5,081,049
268,886
200,022
6.90
%
5.26
%
Finance leases
771,366
617,946
44,325
34,073
7.68
%
7.37
%
Consumer loans
2,679,261
2,422,337
222,531
192,379
11.10
%
10.62
%
Total loans
(4)(5)
11,632,424
11,143,088
665,556
552,731
7.65
%
6.63
%
 
Total interest-earning assets
$
18,929,952
$
19,525,039
$
774,582
$
654,885
5.47
%
4.48
%
Interest-bearing liabilities:
Time deposits
$
2,522,061
$
2,224,002
$
46,301
$
12,047
2.45
%
0.72
%
Brokered CDs
273,586
77,239
9,178
1,214
4.49
%
2.10
%
Other interest-bearing deposits
7,674,759
8,403,860
70,308
12,063
1.22
%
0.19
%
Securities sold under agreements to repurchase
72,648
213,553
2,756
6,147
5.07
%
3.85
%
Advances from the FHLB
553,993
165,568
18,899
2,667
4.56
%
2.15
%
Other long-term borrowings
174,307
183,762
10,135
5,304
7.77
%
3.86
%
Total interest-bearing liabilities
$
11,271,354
$
11,267,984
$
157,577
$
39,442
1.87
%
0.47
%
Net interest income on a tax-equivalent basis and excluding
valuations - non-GAAP
$
617,005
$
615,443
Interest rate spread
3.60
%
4.01
%
Net interest margin
4.36
%
4.21
%
(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"
above.
(2)
Government obligations include debt issued by government-sponsored
 
agencies.
(3)
Unrealized gains and losses on available-for-sale debt securities
 
are excluded from the average volumes.
(4)
Average loan balances include
 
the average of nonaccrual loans.
(5)
Interest income on loans includes $2.9 million for each of the quarters
 
ended September 30, 2023 and 2022, and $8.9 million and $8.5
 
million for the nine-month periods ended September
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 September 30,
Nine-Month Period Ended September 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
$
(674)
$
6,976
$
6,302
$
(17,834)
$
32,973
$
15,139
Government obligations
(328)
(582)
(910)
213
2,293
2,506
MBS
(2,302)
(4,049)
(6,351)
(4,842)
(7,250)
(12,092)
FHLB stock
382
94
476
878
261
1,139
Other investments
4
12
16
8
172
180
Total investments
(2,918)
2,451
(467)
(21,577)
28,449
6,872
Residential mortgage loans
(771)
537
(234)
(3,705)
1,869
(1,836)
Construction loans
1,311
1,795
3,106
2,112
3,281
5,393
C&I and commercial mortgage loans
2,630
17,563
20,193
5,081
63,783
68,864
Finance leases
3,091
960
4,051
8,764
1,488
10,252
Consumer loans
6,039
3,582
9,621
21,058
9,094
30,152
Total loans
12,300
24,437
36,737
33,310
79,515
112,825
Total interest income
$
9,382
$
26,888
$
36,270
$
11,733
$
107,964
$
119,697
Interest expense on interest-bearing liabilities:
Time deposits
$
1,355
$
14,709
$
16,064
$
1,819
$
32,435
$
34,254
Brokered CDs
2,647
850
3,497
5,506
2,458
7,964
Other interest-bearing deposits
(658)
25,417
24,759
(2,527)
60,772
58,245
Securities sold under agreements to repurchase
(2,037)
403
(1,634)
(4,668)
1,277
(3,391)
Advances from the FHLB
4,061
1,085
5,146
10,991
5,241
16,232
Other borrowings
(352)
1,424
1,072
(380)
5,211
4,831
Total interest expense
5,016
43,888
48,904
10,741
107,394
118,135
Change in net interest income
$
4,366
$
(17,000)
$
(12,634)
$
992
$
570
$
1,562
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
Nine-Month Period Ended
September 30,
September 30,
2023
2022
2023
2022
(Dollars in thousands)
Interest income - GAAP
$
263,405
$
222,683
$
758,005
$
629,162
Unrealized gain on derivative instruments
(3)
(11)
-
(35)
Interest income excluding valuations - non-GAAP
263,402
222,672
758,005
629,127
Tax-equivalent adjustment
4,690
9,150
16,577
25,758
Interest income on a tax-equivalent basis
 
and excluding valuations - non-GAAP
$
268,092
$
231,822
$
774,582
$
654,885
Interest expense - GAAP
$
63,677
$
14,773
$
157,577
$
39,442
Net interest income - GAAP
$
199,728
$
207,910
$
600,428
$
589,720
Net interest income excluding valuations - non-GAAP
$
199,725
$
207,899
$
600,428
$
589,685
Net interest income on a tax-equivalent basis
 
and excluding valuations - non-GAAP
$
204,415
$
217,049
$
617,005
$
615,443
Average Balances
 
Loans and leases
$
11,783,456
$
11,218,864
$
11,632,424
$
11,143,088
Total securities, other short-term investments and interest-bearing
 
cash balances
7,325,226
7,938,530
7,297,528
8,381,951
Average Interest-Earning Assets
$
19,108,682
$
19,157,394
$
18,929,952
$
19,525,039
Average Interest-Bearing Liabilities
$
11,671,938
$
11,026,975
$
11,271,354
$
11,267,984
Average Yield/Rate
Average yield on interest-earning assets - GAAP
5.47%
4.61%
5.35%
4.31%
Average rate on interest-bearing liabilities - GAAP
2.16%
0.53%
1.87%
0.47%
Net interest spread - GAAP
3.31%
4.08%
3.48%
3.84%
Net interest margin - GAAP
4.15%
4.31%
4.24%
4.04%
Average yield on interest-earning assets excluding valuations
 
- non-GAAP
5.47%
4.61%
5.35%
4.31%
Average rate on interest-bearing liabilities
2.16%
0.53%
1.87%
0.47%
Net interest spread excluding valuations
 
- non-GAAP
3.31%
4.08%
3.48%
3.84%
Net interest margin excluding valuations - non-GAAP
4.15%
4.31%
4.24%
4.04%
Average yield on interest-earning assets on a tax-equivalent
 
basis and excluding
valuations - non-GAAP
5.57%
4.80%
5.47%
4.48%
Average rate on interest-bearing liabilities
2.16%
0.53%
1.87%
0.47%
Net interest spread on a tax-equivalent basis
 
and excluding valuations - non-GAAP
3.41%
4.27%
3.60%
4.01%
Net interest margin on a tax-equivalent basis and excluding
 
valuations - non-GAAP
4.24%
4.49%
4.36%
4.21%
 
89
Net
 
interest
 
income
 
amounted
 
to
 
$199.7
 
million
 
for
 
the
 
quarter
 
ended
 
September
 
30,
 
2023,
 
a
 
decrease
 
of
 
$8.2
 
million,
 
when
compared to $207.9 million for same period in 2022. The $8.2 million decrease
 
in net interest income was primarily due to:
●
A $44.3 million increase in interest expense on interest-bearing deposits, consisting
 
of:
-
A $24.8
 
million increase
 
in interest
 
expense on
 
interest-bearing checking
 
and saving
 
accounts, driven
 
by an
 
increase of
$25.4
 
million
 
associated
 
with
 
higher
 
interest
 
rates
 
paid
 
in
 
the
 
third
 
quarter
 
of
 
2023
 
as
 
a
 
result
 
of
 
the
 
overall
 
higher
interest
 
rate
 
environment,
 
partially
 
offset
 
by
 
a
 
decrease
 
of $0.7
 
million
 
resulting
 
from
 
a
 
$415.5
 
million
 
decline
 
in
 
the
average balance
 
of these
 
deposits. The
 
average cost
 
of interest-bearing
 
checking and
 
saving accounts
 
increased by
 
125
basis points
 
to 1.53%
 
in the
 
third
 
quarter of
 
2023 as
 
compared to
 
0.28%
 
in the
 
same period
 
in 2022,
 
mostly driven
 
by
public
 
sector
 
deposits in
 
the
 
Puerto
 
Rico
 
region.
 
Excluding
 
public
 
sector deposits,
 
the
 
average
 
cost
 
of
 
interest-bearing
checking
 
and
 
saving accounts
 
for
 
the third
 
quarter of
 
2023 was
 
0.74%,
 
compared to
 
0.33%
 
for
 
the same
 
period a
 
year
ago.
-
A
 
$16.1
 
million
 
increase
 
in
 
interest
 
expense
 
on
 
time
 
deposits,
 
excluding
 
brokered
 
CDs,
 
of
 
which
 
$14.7
 
million
 
was
related to
 
higher rates
 
paid on
 
new issuances
 
and renewals also
 
associated with
 
the higher
 
interest rate
 
environment and
$1.4 million was due
 
to the $598.9 million
 
increase in the average balance
 
.
 
The average cost of time
 
deposits in the third
quarter
 
of
 
2023,
 
excluding
 
brokered
 
CDs,
 
increased
 
220
 
basis
 
points
 
to
 
2.91%
 
when
 
compared
 
to
 
the
 
same
 
period
 
in
2022.
-
A
 
$3.4
 
million
 
increase
 
in
 
interest
 
expense
 
on
 
brokered
 
CDs,
 
mainly
 
driven
 
by
 
the
 
increase
 
of
 
$255.3
 
million
 
in
 
the
average balance.
●
A
$4.6 million net increase in interest expense on borrowings, consisting of:
-
A $5.2
 
million increase
 
in interest
 
expense on
 
advances from
 
the FHLB,
 
of which
 
$4.1 million
 
was associated
 
with an
increase of
 
$402.2 million
 
in the
 
average balance,
 
and $1.1
 
million was
 
associated with
 
new FHLB
 
advances at
 
higher
interest rates.
 
-
A
$1.1
 
million
 
increase
 
in
 
interest
 
expense
 
on
 
other
 
long-term
 
borrowings,
 
driven
 
by
 
the
 
upward
 
repricing
 
of
 
junior
subordinated debentures,
 
partially offset by a
 
$0.4 million decrease in interest
 
expense associated with a
 
decline of $22.1
million in the average balance.
Partially offset by:
-
A $1.7
 
million decrease
 
in interest
 
expense on
 
repurchase agreements,
 
mainly driven
 
by the
 
$173.7 million
 
decrease in
the average balance.
 
 
 
 
90
Partially offset by:
●
A $36.2 million increase in interest income on loans including:
-
A $22.5 million increase
 
in interest income on
 
commercial and construction loans,
 
of which $19.4
 
million was related to
the
 
effect
 
of
 
higher
 
market
 
interest
 
rates
 
on
 
the
 
upward
 
repricing
 
of
 
variable-rate
 
loans and
 
on
 
new
 
loan
 
originations,
$3.9
 
million
 
was
 
related
 
to
 
the
 
increase
 
of
 
$271.9
 
million
 
in
 
the
 
average
 
balance
 
(excluding
 
Small
 
Business
Administration Paycheck
 
Protection Program (“SBA
 
PPP”) loans), and
 
interest income of $1.2
 
million recognized in the
third quarter of 2023
 
due to the collection
 
of a previously
 
charged-off construction
 
loan in the Puerto
 
Rico region. These
variances were partially offset by a $2.0 million reduction
 
in interest income from SBA PPP loans.
As
 
of
 
September
 
30,
 
2023,
 
the
 
interest
 
rate
 
on
 
approximately
 
54%
 
of
 
the
 
Corporation’s
 
commercial
 
and
 
construction
loans was tied
 
to variable
 
rates, with 30%
 
based upon
 
SOFR of 3
 
months or
 
less, 13% based
 
upon the
 
Prime rate index,
and 11%
 
based on other indexes.
 
For the third quarter
 
of 2023, the average
 
one-month SOFR increased
 
287 basis points,
the
 
average
 
three-month
 
SOFR
 
increased
 
255
 
basis
 
points,
 
and
 
the
 
average
 
Prime
 
rate
 
increased
 
308
 
basis
 
points,
compared to the average rates for such indexes during the third quarter of 2022.
-
A
 
$13.7
 
million
 
increase
 
in
 
interest
 
income
 
on
 
consumer
 
loans
 
and
 
finance
 
leases,
 
driven
 
by
 
an
 
increase
 
of
 
$378.5
million in the average balance of this portfolio,
 
and, to a lesser extent, the upward repricing of the credit cards portfolio.
●
A $4.5 million increase in interest income from interest-bearing cash
 
balances and investment securities, consisting of:
-
A
 
$6.3
 
million
 
increase
 
in
 
interest
 
income
 
from
 
interest-bearing
 
cash
 
balances,
 
which
 
consisted
 
primarily
 
of
 
cash
balances
 
deposited
 
at
 
the
 
FED,
 
due
 
to
 
an
 
increase
 
of
 
$7.0
 
million
 
associated
 
with
 
the
 
effect
 
of
 
higher
 
market
 
interest
rates, partially offset by a $0.7 million decrease due to a decline
 
of $74.9 million in the average balance.
-
A $0.5 million increase in
 
dividends received from the
 
FHLB during the third quarter of
 
2023, mainly driven by a
 
higher
volume of FHLB stock due to the aforementioned increase in advances
 
for the third quarter of 2023.
Partially offset by:
-
A $2.3
 
million
 
decrease
 
in interest
 
income
 
on debt
 
securities, mainly
 
driven
 
by a
 
decrease of
 
$3.1
 
million
 
related
 
to a
decline
 
of
 
$557.6
 
million
 
in
 
the
 
average
 
balance,
 
and
 
a
 
higher
 
level
 
of
 
U.S.
 
agencies’
 
MBS
 
premium
 
amortization
expense associated
 
with changes in
 
anticipated prepayments,
 
partially offset
 
by higher yields
 
mainly associated
 
with the
upward repricing of variable-rate municipal bonds.
Net
 
interest
 
margin
 
for
 
the
 
third
 
quarter
 
of
 
2023
 
decreased
 
to
 
4.15%,
 
compared
 
to
 
4.31%
 
for
 
the
 
same
 
period
 
in
 
2022.
 
The
 
net
interest margin
 
decrease primarily reflects
 
an increase in
 
the average cost
 
of interest-bearing
 
liabilities, mainly reflecting
 
the effect
 
of
higher rates
 
paid on
 
deposits, primarily
 
in public
 
sector deposits
 
and a
 
continued migration
 
from non-interest-bearing
 
and other
 
low-
cost deposits to
 
higher-cost deposits.
 
These variances
 
were partially offset
 
by 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 third quarter of 2023.
 
91
Net interest income amounted
 
to $600.4 million for
 
the nine-month period
 
ended September 30, 2023,
 
an increase of $10.7 million,
when compared to $589.7 million for same period in 2022. The $10.7
 
million increase in net interest income was primarily due to:
●
A $111.9 million
 
increase in interest income on loans consisting of:
-
A $72.7
 
million increase in interest
 
income on commercial and
 
construction loans, of
 
which $69.1 million was
 
related to
the effect
 
of higher
 
market interest
 
rates in
 
the upward
 
repricing of
 
variable-rate loans
 
and in
 
new loan
 
originations and
$9.2
 
million
 
was
 
related
 
to
 
the
 
increase
 
of
 
$236.8
 
million
 
in
 
the
 
average
 
balance
 
(excluding
 
SBA
 
PPP
 
loans).
 
These
variances were partially offset by a $6.8 million
 
reduction in interest income from SBA PPP loans.
For
 
the
 
nine-month
 
period
 
ended
 
September
 
30,
 
2023,
 
the
 
average
 
one-month
 
SOFR
 
increased
 
381
 
basis
 
points,
 
the
average three-month
 
SOFR increased 360
 
basis points, and
 
the average Prime
 
rate increased 389
 
basis points, compared
to the average rates for such indexes during the same period of the prior year.
-
A
 
$40.4
 
million
 
increase
 
in
 
interest
 
income
 
on
 
consumer
 
loans
 
and
 
finance
 
leases,
 
driven
 
by
 
the
 
increase
 
of
 
$410.3
million in the average balance of this portfolio, and, to a lesser extent, the upward
 
repricing of the credit cards portfolio.
Partially offset by:
-
A
$1.2 million decrease in
 
interest income on residential
 
mortgage loans, driven by
 
a $3.4 million decrease related
 
to the
$87.9 million
 
decline in
 
the average
 
balance of
 
this portfolio,
 
partially offset
 
by a
 
$2.2 million
 
increase associated
 
with
the positive effect of new loan originations at higher current market
 
interest rates.
 
●
A
$17.0 million increase in interest income from interest-bearing cash balances
 
and investment securities, consisting of:
-
A $15.1
 
million
 
increase
 
in
 
interest income
 
from
 
interest-bearing
 
cash balances,
 
driven by
 
the
 
effect
 
of higher
 
market
interest rates, partially offset by the impact of a $801.5 million
 
decrease in the average balance of interest-bearing cash.
-
A $1.3 million
 
increase in dividend
 
income,
 
mainly driven by
 
the aforementioned
 
higher volume
 
of FHLB stock
 
for the
first nine months of 2023.
-
A
 
$0.5
 
million
 
net
 
increase
 
in
 
interest
 
income
 
on
 
debt
 
securities,
 
which
 
includes
 
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
 
$26.0
 
million
 
decline
 
in
 
the
 
average
 
balance.
 
This
 
favorable
 
variance
 
was
 
partially
 
offset
 
by
 
a
 
$2.2
million decrease
 
in interest income
 
on U.S. agencies
 
debentures and
 
MBS mainly driven
 
by the $275.6
 
million decrease
in the
 
average balance
 
of this
 
portfolio,
 
partially offset
 
by the
 
positive effects
 
from higher-yielding
 
U.S. agencies
 
MBS
purchased during 2022.
 
 
 
 
92
Partially offset by:
●
A $100.5 million increase in interest expense on interest-bearing deposits, consisting
 
of:
-
A
 
$58.2
 
million
 
increase
 
in
 
interest
 
expense
 
on
 
interest-bearing
 
checking
 
and
 
saving
 
accounts,
 
mainly
 
driven
 
by
 
an
increase
 
of
 
$60.7
 
million
 
associated
 
with
 
higher
 
interest
 
rates
 
paid
 
in
 
the
 
first
 
nine
 
months
 
of
 
2023
 
as
 
a
 
result
 
of
 
the
overall
 
higher
 
interest
 
rate
 
environment,
 
partially
 
offset
 
by
 
a
 
$2.5
 
million
 
decrease
 
resulting
 
from
 
a
 
decline
 
of
 
$729.1
million
 
in
 
the
 
average
 
balance
 
of
 
these
 
deposits.
 
The
 
average
 
cost
 
of
 
interest-bearing
 
checking
 
and
 
saving
 
accounts
increased
 
by
 
103
 
basis
 
points
 
to
 
1.22%
 
in
 
the
 
first
 
nine
 
months
 
of
 
2023
 
as
 
compared
 
to
 
0.19%
 
in
 
the
 
same
 
period
 
in
2022,
 
mostly driven
 
by public
 
sector deposits
 
in the
 
Puerto
 
Rico region.
 
Excluding
 
public sector
 
deposits,
 
the average
cost of interest-bearing
 
checking and savings
 
accounts for the
 
first nine months
 
of 2023 was
 
0.66%, compared
 
to 0.20%
for the same period a year ago.
-
A $34.3
 
million
 
increase
 
in
 
interest expense
 
on time
 
deposits, excluding
 
brokered
 
CDs, mainly
 
associated
 
with
 
higher
rates paid
 
in the
 
first nine
 
months of
 
2023 on
 
new issuances
 
and
 
renewals also
 
associated
 
with the
 
higher
 
interest rate
environment. The average
 
cost of time deposits
 
in the first
 
nine months of
 
2023, excluding brokered
 
CDs, increased 173
basis points to 2.45%
 
when compared to the same period in 2022.
-
An $8.0
 
million increase
 
in interest
 
expense
 
on brokered
 
CDs, driven
 
by the
 
increase of
 
$196.3 million
 
in the
 
average
balance.
●
A $17.7 million net increase in interest expense on borrowings, including:
-
A $16.3 million increase
 
in interest expense on
 
advances from the FHLB, of
 
which $11.0 million
 
was associated with an
increase of
 
$388.4 million
 
in the
 
average balance
 
,
 
and $5.2
 
million was
 
associated with
 
new FHLB
 
advances at
 
higher
interest rates.
 
-
A
 
$4.8
 
million
 
increase
 
in
 
interest
 
expense
 
on
 
other
 
long-term
 
borrowings,
 
mainly
 
driven
 
by
 
the
 
upward
 
repricing
 
of
junior subordinated debentures.
Partially offset by:
-
A $3.4
 
million decrease
 
in interest expense
 
on repurchase
 
agreements, driven
 
by a
 
$4.7 million
 
decrease associated
 
to a
decline
 
of $140.9
 
million
 
in the
 
average balance
 
,
 
partially offset
 
by a
 
$1.3 million
 
increase associated
 
with new
 
short-
term repurchase agreements entered into during 2023 at higher interest
 
rates.
Net interest margin
 
increased by 20 basis
 
points to 4.24% for
 
the first nine months
 
of 2023, compared to
 
4.04% for the same
 
period
of 2022.
 
The net
 
interest margin
 
increase primarily
 
reflects the
 
upward repricing
 
of variable-rate
 
commercial loans
 
and the
 
growth in
higher yielding
 
loans, primarily
 
in commercial
 
and consumer
 
loans. These
 
factors were
 
partially offset
 
by an
 
increase in
 
the average
cost of interest-bearing
 
liabilities, mainly reflecting
 
the effect of
 
higher rates paid
 
on deposits, primarily
 
in public sector
 
deposits, and
a continued migration from non-interest-bearing and other low-cost deposits to higher
 
-cost deposits.
 
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
 
$10.6
 
million
 
for
 
the
 
third
 
quarter
 
of
 
2023,
 
compared
 
to
 
$14.4
million for the third quarter of 2022.
 
The variances by major portfolio category were as follows:
●
Provision for credit
 
losses for the residential
 
mortgage loan portfolio
 
was a net benefit
 
of $3.3 million for
 
the third quarter of
2023, compared
 
to an
 
expense of
 
$0.8 million
 
for the
 
third quarter
 
of 2022.
 
The net
 
benefit recorded
 
for the
 
third quarter
 
of
2023
 
was
 
primarily
 
related
 
to
 
the
 
aforementioned
 
updated
 
macroeconomic
 
variables
 
and,
 
to
 
a
 
lesser
 
extent,
 
a
 
reduction
 
in
qualitative reserves driven by the sustained levels of collateral values.
●
Provision for
 
credit losses
 
for the
 
consumer loans
 
and finance
 
leases portfolio
 
was an
 
expense of
 
$14.0 million
 
for the
 
third
quarter of
 
2023, compared
 
to an
 
expense of
 
$17.4 million
 
for the
 
third quarter
 
of 2022.
 
The decrease
 
in the
 
provision in
 
the
third
 
quarter
 
of
 
2023
 
was
 
primarily
 
related
 
to
 
updated
 
macroeconomic
 
variables,
 
mainly
 
in
 
the
 
projection
 
of
 
the
unemployment rate and retail sales growth in the case of credit cards.
●
Provision for
 
credit losses
 
for the
 
commercial and
 
construction loan
 
portfolio was
 
a net
 
benefit of
 
$0.1 million
 
for the
 
third
quarter of
 
2023, compared
 
to a
 
net benefit
 
of $3.8
 
million for
 
the third
 
quarter of
 
2022. The
 
net benefit
 
for the
 
commercial
and
 
construction
 
loan
 
portfolio
 
for
 
the
 
third
 
quarter
 
of
 
2023
 
included
 
various
 
offsetting
 
factors
 
including
 
a
 
recovery
associated to the collection
 
of a fully charged-off
 
construction loan in the Puerto
 
Rico region, partially offset
 
by an additional
provision
 
recorded
 
on
 
the
 
aforementioned
 
$9.5
 
million
 
commercial
 
and
 
industrial
 
loan
 
in
 
the
 
Puerto
 
Rico
 
region
 
which
migrated to non-accrual.
 
The net benefit
 
for the commercial
 
and construction loan
 
portfolio for the
 
third quarter of
 
2022 was
related mostly to a reduction in reserves due to updated financial information received
 
during the third quarter of 2022.
The provision
 
for credit losses
 
for loans
 
and finance leases
 
was $47.7
 
million for the
 
first nine months
 
of 2023, compared
 
to $10.0
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
 
$10.6
 
million for
 
the first
nine months of 2023,
 
compared to a net
 
benefit of $26.6 million
 
for the same period
 
of 2022. The expense
 
recognized during
the first nine months
 
of 2023 was mainly
 
due to a deterioration
 
in the forecasted commercial
 
real estate (“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,
 
the aforementioned
 
$1.7 million reserve
 
associated with the
 
inflow to
 
nonaccrual status
 
of a
 
$9.5
million commercial and
 
industrial loan in the
 
Puerto Rico region and,
 
to a lesser extent,
 
portfolio growth. Meanwhile,
 
the net
benefit
 
recorded
 
during
 
the
 
first
 
nine
 
months
 
of
 
2022
 
mainly
 
reflects
 
reductions
 
in
 
qualitative
 
reserves
 
associated
 
with
reduced COVID-19 uncertainties and updated borrowers’ financial information.
●
Provision for
 
credit losses
 
for the
 
consumer loans
 
and finance
 
leases portfolio
 
was an
 
expense of
 
$43.9 million
 
for the
 
first
nine months
 
of 2023,
 
compared to
 
an expense
 
of $43.5
 
million for
 
the same
 
period of
 
2022. The
 
increase primarily
 
reflects
the increase in
 
the size of the consumer
 
loan portfolios and historical
 
charge-off levels
 
in all major portfolio
 
classes, partially
offset by the aforementioned updates in macroeconomic variables.
●
Provision
 
for
 
credit
 
losses
 
for
 
the
 
residential
 
mortgage
 
loan
 
portfolio
 
was
 
a
 
net
 
benefit
 
of
 
$6.8
 
million
 
for
 
the
 
first
 
nine
months
 
of
 
2023,
 
compared
 
to a
 
net
 
benefit
 
of
 
$6.9
 
million
 
for
 
the
 
same
 
period
 
of 2022.
 
The
 
net
 
benefit
 
recorded
 
for
 
both
periods was primarily related to updated macroeconomic variables.
 
 
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 a
 
net
benefit of $0.1 million
 
and an expense of $0.5 million
 
for the third quarter and
 
first nine months of 2023, respectively,
 
compared to an
expense
 
of
 
$2.0
 
million
 
and
 
$2.7
 
million,
 
respectively,
 
for
 
the
 
same
 
periods
 
in
 
2022.
 
The
 
expense
 
recorded
 
during
 
the
 
first
 
nine
months of
 
2022 was
 
mainly driven
 
by an
 
increase in
 
unfunded loan
 
commitments principally
 
due to
 
then newly
 
originated facilities
which remained undrawn as of September 30, 2022.
Provision for credit losses for
 
held-to-maturity and available-for-sale debt
 
securities
The provision
 
for credit
 
losses for
 
held-to-maturity debt
 
securities was
 
a net
 
benefit of
 
$6.2 million
 
and $6.0
 
million for
 
the third
quarter
 
and first
 
nine months
 
of 2023,
 
respectively,
 
compared to
 
a net
 
benefit of
 
$0.6 million
 
and $0.3
 
million, respectively,
 
for the
same
 
periods
 
of
 
2022.
 
The
 
net
 
benefit
 
recorded
 
during
 
the
 
third
 
quarter
 
and
 
first
 
nine
 
months
 
of
 
2023
 
was
 
mostly
 
driven
 
by
 
the
aforementioned refinancing
 
of a $46.5
 
million municipal
 
bond into
 
a shorter-term
 
commercial loan structure
 
and, to
 
a lesser extent,
 
a
reduction
 
in qualitative
 
reserves driven
 
by updated
 
financial information
 
of certain
 
bond issuers
 
received
 
during the
 
third quarter
 
of
2023.
The provision
 
for credit
 
losses for
 
available-for-sale
 
debt securities
 
was an
 
expense of
 
$32 thousand
 
and $7
 
thousand for
 
the third
quarter and
 
first nine
 
months of
 
2023, respectively,
 
compared to
 
a net
 
benefit of
 
$12 thousand
 
and $0.4
 
million, respectively,
 
for the
same periods in 2022.
 
 
95
Non-Interest Income
Non-interest
 
income
 
amounted
 
to
 
$30.3
 
million
 
for
 
the
 
third
 
quarter
 
of
 
2023,
 
compared
 
to
 
$29.7
 
million
 
for
 
the
 
same
 
period
 
in
2022.
 
The $0.6 million increase in non-interest income was primarily due to:
●
A
 
$1.0
 
million
 
increase
 
in
 
card
 
and
 
processing
 
income
 
mainly
 
in
 
interchange
 
income
 
related
 
to
 
higher
 
transactional
volumes.
●
A $0.3 million
 
increase in other
 
non-interest income,
 
mainly driven
 
by a $0.2
 
million increase related
 
to higher
 
benefit of
purchased income tax credits realized.
●
A $0.2 million increase in insurance commission income.
Partially offset by:
●
A $0.6 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 third quarters
 
of 2023 and 2022,
 
net realized gains
 
of $0.9 million
 
and $1.5 million, respectively,
 
were recognized as a
result
 
of
 
GNMA
 
securitization
 
transactions
 
and
 
whole
 
loan
 
sales
 
to
 
U.S.
 
GSEs
 
amounting
 
to
 
$42.3
 
million
 
and
 
$48.4
million, respectively.
●
A $0.3 million decrease in service in charges and fees on deposit accounts
 
.
Non-interest
 
income for
 
the nine-month
 
period ended
 
September 30,
 
2023 amounted
 
to $99.1
 
million, compared
 
to $93.5
 
million
for the same
 
period in 2022.
 
Non-interest income
 
for the nine-month
 
period ended September
 
30, 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 $0.4 million primarily
 
due to:
●
A
 
$3.1
 
million
 
increase
 
in
 
card
 
and
 
processing
 
income
 
mainly
 
in
 
interchange
 
income
 
related
 
to
 
higher
 
transactional
volumes.
●
A $2.2
 
million
 
net
 
increase
 
in
 
adjusted
 
other
 
non-interest
 
income
 
including:
 
(i)
 
a $1.2
 
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)
 
a
 
$0.4
 
million
 
decrease
 
in
 
unrealized
 
losses
 
on
 
marketable
 
equity
 
securities;
 
and
 
(iv)
 
$0.3
million
 
in
 
debit
 
card
 
incentives
 
collected
 
during
 
2023;
 
partially
 
offset
 
by
 
a
 
$0.7
 
million
 
decrease
 
in
 
net
 
gains
 
on
 
fixed
assets.
Partially offset by:
●
A $4.2 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
 
first
 
nine
 
months
 
of
 
2023
 
and
 
2022,
 
net
 
gains
 
of
 
$2.9
 
million
 
and
 
$7.2
 
million,
 
respectively,
 
were
 
recognized
 
as
 
a
result of
 
GNMA
 
securitization
 
transactions
 
and
 
whole
 
loan sales
 
to U.S.
 
GSEs amounting
 
to $131.5
 
million
 
and
 
$206.5
million, respectively.
●
A $0.5 million decrease in insurance commission income.
●
A $0.2 million decrease in service in charges and fees on deposit accounts.
 
96
Non-Interest Expenses
Non-interest
 
expenses for
 
the quarter
 
ended September
 
30, 2023
 
amounted to
 
$116.6
 
million, compared
 
to $115.2
 
million for
 
the
same period in 2022.
 
The efficiency ratio
 
for the third quarter of
 
2023 was 50.71%, compared
 
to 48.48% for the
 
third quarter of 2022.
The $1.4 million increase in non-interest expenses was primarily due
 
to:
●
A
$3.6 million
 
increase in
 
employees’ compensation
 
and benefits
 
expenses, driven
 
by increases
 
of $2.5
 
million in
 
salary
compensation
 
mainly
 
due
 
to annual
 
salary
 
merit
 
increases
 
and
 
minimum
 
wage
 
adjustments,
 
$0.5
 
million
 
in
 
stock-based
compensation expense, and $0.4 million in medical insurance premium
 
costs.
●
A
$0.7 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 $0.5
 
million
 
increase
 
in other
 
non-interest
 
expenses,
 
mainly
 
due
 
to an
 
increase
 
of $0.5
 
million
 
in net
 
periodic
 
cost of
pension plans
 
and a
 
$0.3 million
 
increase in
 
charges
 
for legal
 
and operational
 
reserves, partially
 
offset
 
by a
 
$0.3 million
decrease in amortization
 
of intangible
 
assets, mainly in
 
the purchased
 
credit card relationship
 
intangible assets
 
recognized
in connection with the Banco Santander Puerto Rico acquisition becoming
 
fully amortized in 2023.
 
●
A
$0.4 million
 
increase in
 
credit and
 
debit card
 
processing fees,
 
mainly driven
 
by higher
 
transactional volumes,
 
partially
offset by higher incentives collected.
Partially offset by:
●
A
 
$1.5
 
million
 
decrease
 
in
 
professional
 
service
 
fees,
 
mainly
 
due
 
to
 
reductions
 
of
 
$0.6
 
million
 
in
 
consulting
 
fees;
 
$0.3
million in outsourced technology service fees; and $0.3 million in collections,
 
appraisals, and other credit-related fees.
●
A
$1.1 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
$0.8
 
million
 
decrease
 
in
 
occupancy
 
and
 
equipment
 
expenses,
 
primarily
 
reflecting
 
reductions
 
in
 
rental
 
expenses
 
and
energy costs.
●
A $0.4
 
million decrease
 
in business promotion
 
expenses, mainly
 
due to
 
a decrease
 
in donations
 
and advertising
 
expenses,
and adjustments
 
recorded to
 
reduce the credit
 
card loyalty
 
reward program
 
liability consistent
 
with lower historical
 
trends
of
 
customer
 
redemptions,
 
partially
 
offset
 
by expenses
 
associated with
 
the commemoration
 
of the
 
75
th
 
anniversary
 
of the
Bank.
 
Non-interest
 
expenses
 
for
 
the
 
first
 
nine
 
months
 
of
 
2023
 
amounted
 
to
 
$344.8
 
million,
 
compared
 
to
 
$330.2
 
million
 
for
 
the
 
same
period in
 
2022. The
 
efficiency
 
ratio for
 
the first
 
nine months
 
of 2023
 
was 49.29%,
 
compared to
 
48.33% for
 
the first
 
nine months
 
of
2022.
 
On
 
a non-GAAP
 
basis,
 
excluding
 
the
 
aforementioned
 
Special
 
Items,
 
the
 
adjusted efficiency
 
ratio
 
for
 
the first
 
nine
 
months
 
of
2023 was 49.66%. The $14.6 million increase in non-interest expenses was primarily
 
due to:
●
A
$13.5
 
million
 
increase
 
in
 
employees’
 
compensation
 
and
 
benefits
 
expenses,
 
mainly
 
driven
 
by
 
annual
 
salary
 
merit
increases and minimum
 
wage adjustments and
 
increases in bonuses accruals
 
,
 
medical insurance premium
 
costs, and stock-
based compensation expense; partially offset by higher
 
deferral of loan origination costs.
●
A
$2.3
 
million
 
increase
 
in
 
credit
 
and
 
debit
 
card
 
processing
 
expenses,
 
mainly
 
driven
 
by
 
higher
 
transactional
 
volumes,
partially offset by higher incentives collected.
●
A $2.0
 
million
 
increase
 
in other
 
non-interest
 
expenses,
 
mainly
 
due
 
to an
 
increase
 
of $1.4
 
million
 
in net
 
periodic
 
cost of
pension plans
 
and a
 
$1.0 million
 
increase in
 
charges
 
for legal
 
and operational
 
reserves, partially
 
offset
 
by a
 
$0.8 million
decrease in amortization
 
of intangible
 
assets, mainly in
 
the purchased
 
credit card relationship
 
intangible assets recognized
in connection with the Banco Santander Puerto Rico acquisition becoming
 
fully amortized in 2023.
●
A
$1.8 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.
 
97
Partially offset by:
●
A
$2.9 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
$2.4
 
million
 
decrease
 
in
 
occupancy
 
and
 
equipment
 
expenses,
 
primarily
 
reflecting
 
reductions
 
in
 
rental
 
expenses,
depreciation charges, and energy costs; partially
 
offset by an increase in maintenance charges and
 
property taxes.
Income Taxes
For the
 
third quarter
 
of 2023, the
 
Corporation recorded
 
an income
 
tax expense of
 
$27.0 million,
 
compared to
 
$32.0 million
 
for the
same period in 2022. For the first nine months of
 
2023, the Corporation recorded an income tax expense
 
of $89.2 million, compared to
$109.2 million for the same period
 
in 2022. The decrease in income tax expense
 
for the third quarter of 2023, as
 
compared to the same
quarter of the
 
previous year,
 
was the result
 
of a lower
 
effective tax
 
rate due to
 
increased business activities
 
with tax advantages
 
under
the Puerto
 
Rico tax
 
code, which
 
resulted in
 
additional deductions
 
in the
 
banking subsidiary,
 
as well
 
as a
 
higher proportion
 
of exempt
income to
 
taxable income,
 
partially offset
 
by higher
 
pre-tax income.
 
The decrease
 
in income
 
tax expense
 
for the
 
first nine
 
months of
2023, as compared to the same period in 2022,
 
was mainly related to lower pre-tax income; and the aforementioned
 
increased business
activities during the
 
third quarter of
 
2023 and a
 
higher proportion of
 
exempt to taxable
 
income which resulted
 
in a lower
 
effective tax
rate.
The Corporation’s
 
estimated annual
 
effective tax
 
rate in
 
the first
 
nine months
 
of 2023,
 
excluding entities
 
from which
 
a tax
 
benefit
cannot
 
be
 
recognized
 
and
 
discrete
 
items,
 
was
 
28.2%,
 
compared
 
to
 
31.8%
 
for
 
the
 
first
 
nine
 
months
 
of
 
2022.
 
See
 
Note
 
17
 
-
 
Income
Taxes, to the
 
unaudited consolidated financial statements herein for additional informatio
 
n.
As
 
of
 
September
 
30,
 
2023,
 
the
 
Corporation
 
had
 
a
 
deferred
 
tax
 
asset
 
of
 
$150.8
 
million,
 
net
 
of
 
a
 
valuation
 
allowance
 
of
 
$195.1
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 nine-month
 
period ended September
 
30, 2023 amounted
 
to $ 88.3
 
million,
compared to
 
$22.9 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 $18.6
 
billion as
 
of September
 
30, 2023,
 
a decrease
 
of $39.9
 
million from
 
December 31,
 
2022,
primarily related to a $46.6 million decrease in the fair value of
 
available-for-sale debt securities recorded as part
 
of accumulated other
comprehensive loss in the consolidated statements of financial condition
 
.
 
Total assets were also impacted
 
by repayments of investment
securities, partially offset by increases in total loans and
 
cash and cash equivalents.
Loans Receivable, including Loans Held for Sale
As of
 
September 30,
 
2023, the
 
Corporation’s
 
total loan
 
portfolio before
 
the ACL
 
amounted to
 
$12.0 billion,
 
an increase
 
of $394.8
million compared to December 31, 2022. In
 
terms of geography,
 
the growth consisted of increases of $394.9 million
 
and $43.6 million
in
 
the
 
Puerto
 
Rico
 
and
 
Virgin
 
Islands
 
regions,
 
respectively,
 
partially
 
offset
 
by
 
a
 
$43.7
 
million
 
decrease
 
in
 
the
 
Florida
 
region.
 
On a
portfolio
 
basis,
 
the
 
growth
 
consisted
 
of
 
increases
 
of
 
$261.0
 
million
 
in
 
consumer
 
loans,
 
including
 
a
 
$218.4
 
million
 
increase
 
in
 
auto
loans and
 
leases, and
 
$171.8 million
 
in commercial
 
and construction
 
loans, partially
 
offset by
 
a $38.0
 
million decrease
 
in residential
mortgage loans.
As of
 
September
 
30,
 
2023,
 
the Corporation’s
 
loans
 
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
 
$12.0
 
billion
 
as
 
of
 
September
 
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 September 30, 2023
Puerto Rico
Virgin Islands
United States
Total
(In thousands)
Residential mortgage loans
$
2,182,882
$
170,797
$
458,952
$
2,812,631
Construction loans
98,565
3,762
100,447
202,774
Commercial mortgage loans
1,714,974
65,034
536,105
2,316,113
Commercial and Industrial loans
1,971,686
116,588
942,680
3,030,954
 
Total commercial loans
3,785,225
185,384
1,579,232
5,549,841
Consumer loans and finance leases
3,514,817
67,184
6,459
3,588,460
 
Total loans held for investment,
 
gross
$
9,482,924
$
423,365
$
2,044,643
$
11,950,932
Loans held for sale
8,961
-
-
8,961
 
Total loans, gross
$
9,491,885
$
423,365
$
2,044,643
$
11,959,893
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
Residential Real Estate Loans
As of
 
September 30,
 
2023, the
 
Corporation’s
 
total residential
 
mortgage loan
 
portfolio, including
 
loans held
 
for sale,
 
decreased by
$38.0
 
million,
 
as compared
 
to the
 
balance
 
as of
 
December 31,
 
2022.
 
The
 
decline
 
in
 
the residential
 
mortgage
 
loan
 
portfolio
 
reflects
decreases
 
of $58.4
 
million in
 
the Puerto
 
Rico region
 
and $9.2
 
million in
 
the Virgin
 
Islands region,
 
partially offset
 
by an
 
increase of
$29.6 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
 
September 30, 2023
 
consisted of fixed-rate
 
loans that traditionally
 
carry higher yields
 
than residential mortgage
 
loans in
 
 
 
 
 
99
the Florida region.
 
In the Florida region,
 
approximately 40% of
 
the residential mortgage
 
loan portfolio consisted
 
of hybrid adjustable-
rate
 
mortgages.
 
In
 
accordance
 
with
 
the
 
Corporation’s
 
underwriting
 
guidelines,
 
residential
 
mortgage
 
loans
 
are
 
primarily
 
fully
documented loans, and the Corporation does not originate negative amortization
 
loans.
Commercial and Construction Loans
As of September 30, 2023,
 
the Corporation’s commercial
 
and construction loan portfolio increased
 
by $171.8 million, as compared
to the balance as of December 31, 2022.
 
In
 
the
 
Puerto
 
Rico
 
region,
 
commercial
 
and
 
construction
 
loans
 
increased
 
by
 
$194.6
 
million,
 
as
 
compared
 
to
 
the
 
balance
 
as
 
of
December 31, 2022. This
 
increase was driven by
 
the origination of several
 
term loans, including six
 
commercial relationships, each
 
in
excess
 
of
 
$10
 
million,
 
which
 
increased
 
the
 
portfolio
 
amount
 
by
 
$86.1
 
million,
 
increased
 
lines
 
of
 
credit utilizations
 
including
 
$72.7
million
 
associated
 
three
 
lines
 
of
 
credit,
 
and
 
a
 
$62.3
 
million
 
increase
 
in
 
the
 
outstanding
 
balance
 
of
 
floor
 
plan
 
lines
 
of
 
credit.
 
The
variance also reflects
 
the aforementioned refinancing
 
of a $46.5
 
million municipal loan
 
into a commercial
 
loan. These variances
 
were
partially
 
offset
 
by
 
multiple
 
payoffs
 
and
 
paydowns,
 
including
 
two
 
commercial
 
and
 
industrial
 
relationships,
 
each
 
in
 
excess
 
of
 
$10
million, totaling $50.2 million.
In
 
the
 
Virgin
 
Islands
 
region,
 
commercial
 
and
 
construction
 
loans
 
increased
 
by
 
$47.0
 
million,
 
as
 
compared
 
to
 
the
 
balance
 
as
 
of
December 31, 2022. The increase was driven by the
 
utilization of $55.8 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
 
$69.8 million,
 
as compared
 
to the
 
balance as
 
of December
31, 2022. This decrease reflected
 
$106.4 million in payoffs and
 
paydowns of six commercial and industrial
 
relationships in the Florida
region,
 
each
 
in
 
excess
 
of
 
$10
 
million,
 
including
 
the
 
aforementioned
 
payoff
 
of
 
a
 
$24.3
 
million
 
adversely
 
classified
 
commercial
 
and
industrial
 
participated
 
loan, partially
 
offset
 
by the
 
originations
 
of three
 
commercial
 
and industrial
 
term loans,
 
each in
 
excess of
 
$10
million, which increased the portfolio amount by $54.1 million.
As of
 
September 30,
 
2023, the
 
Corporation had
 
$185.0 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
 
September
 
30,
 
2023,
 
the
 
Corporation
 
had
 
$87.5
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
 
$55.8 million
 
line of
 
credit utilization.
 
See “Exposure
 
to
USVI Government” below for additional information.
As of
 
September
 
30, 2023,
 
the Corporation’s
 
total commercial
 
mortgage
 
loan
 
exposure amounted
 
to $2.3
 
billion,
 
or 42%
 
of the
total
 
commercial
 
loan
 
portfolio.
 
The
 
commercial
 
mortgage
 
loan
 
portfolio
 
includes
 
an
 
exposure
 
to
 
office
 
real
 
estate
 
amounting
 
to
$417.7 million
 
($374.0 million and
 
$43.7 million in
 
the Puerto Rico
 
and Florida regions,
 
respectively), of which
 
approximately $77.2
million matures during the remainder of 2023 and 2024.
As
 
of
 
September
 
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
 
September
 
30,
 
2023
 
and
 
December
 
31,
 
2022.
 
As
 
of
 
September
 
30,
 
2023,
approximately $234.7 million of
 
the SNC exposure is related
 
to the portfolio in the
 
Puerto Rico region and $847.0
 
million is related to
the portfolio in the Florida region.
Consumer Loans and Finance Leases
As of September
 
30, 2023, the Corporation’s
 
consumer loan and finance
 
lease portfolio increased by
 
$261.0 million to $3.6
 
billion,
as compared to
 
the portfolio balance
 
of $3.3 billion
 
as of December
 
31, 2022. This increase
 
was mainly related
 
to increases of $113.3
million
 
and
 
$105.1
 
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 September 30,
Nine-Month Period Ended September 30,
2023
2022
2023
2022
(In thousands)
Residential mortgage
$
129,852
$
103,897
$
322,405
$
352,942
Construction
71,897
21,892
154,402
88,758
Commercial mortgage
65,171
96,894
196,247
430,599
Commercial and Industrial
640,848
562,828
1,747,304
1,675,838
Consumer
462,080
459,402
1,351,403
1,368,121
 
Total loan production
$
1,369,848
$
1,244,913
$
3,771,761
$
3,916,258
During the quarter and nine-month
 
period ended September 30, 2023,
 
total loan originations, including purchases, refinancings,
 
and
draws from existing revolving and
 
non-revolving commitments, amounted to
 
approximately $1.4 billion and $3.8
 
billion, respectively,
compared to $1.2 billion and $3.9 billion, respectively,
 
for the comparable periods in 2022.
Residential
 
mortgage
 
loan
 
originations
 
for
 
the
 
quarter
 
and
 
nine-month
 
period
 
ended
 
September
 
30,
 
2023
 
amounted
 
to
 
$129.9
million and
 
$322.4 million,
 
respectively,
 
compared to
 
$103.9 million
 
and $352.9
 
million, respectively,
 
for the
 
comparable periods
 
in
2022.
 
The
 
increase
 
of $26.0
 
million
 
in
 
the third
 
quarter of
 
2023,
 
as compared
 
to the
 
same
 
period
 
in 2022,
 
reflects
 
growth
 
of $13.4
million
 
in
 
the
 
Puerto
 
Rico
 
region,
 
$12.2
 
million
 
in
 
the
 
Florida
 
region,
 
and
 
$0.4
 
million
 
in
 
the
 
Virgin
 
Islands
 
region.
 
For
 
the
 
nine-
month
 
period
 
ended
 
September
 
30,
 
2023,
 
the
 
decrease
 
of
 
$30.5
 
million
 
consisted
 
of
 
declines
 
of
 
$38.0
 
million
 
in
 
the
 
Puerto
 
Rico
region and
 
$1.4 million
 
in the Virgin
 
Islands region,
 
partially offset
 
by an $8.9
 
million increase
 
in the
 
Florida region. Approximately
52%
 
of
 
the
 
$243.2
 
million
 
residential
 
mortgage
 
loan
 
originations
 
in
 
the
 
Puerto
 
Rico
 
region
 
during
 
the
 
first
 
nine
 
months
 
of
 
2023
consisted of
 
conforming loans,
 
compared to
 
58% of
 
$281.2 million
 
for the
 
first nine
 
months of
 
2022. During
 
2023, the
 
Corporation's
ratio
 
of
 
conforming
 
loan
 
originations
 
to
 
total
 
originations
 
has
 
been
 
decreasing
 
in
 
part
 
due
 
to
 
an
 
increase
 
in
 
non-conforming
 
loan
originations, particularly in the Florida region, and is expected to remain at current
 
levels.
Commercial
 
and
 
construction
 
loan
 
originations
 
(excluding
 
government
 
loans)
 
for
 
the
 
quarter
 
and
 
nine-month
 
period
 
ended
September
 
30,
 
2023
 
amounted
 
to
 
$692.8
 
million
 
and
 
$1.9
 
billion,
 
respectively,
 
compared
 
to
 
$679.7
 
million
 
and
 
$2.2
 
billion,
respectively,
 
for the comparable
 
periods in
 
2022. The
 
increase of
 
$13.1
 
million in the
 
third quarter
 
of 2023,
 
as compared
 
to the
 
same
period
 
in
 
2022,
 
reflects
 
growth
 
of
 
$18.0
 
million
 
in
 
the
 
Puerto
 
Rico
 
region,
 
partially
 
offset
 
by
 
decreases
 
of
 
$3.0
 
million
 
and
 
$1.9
million
 
in
 
the
 
Florida
 
and
 
Virgin
 
Islands
 
regions,
 
respectively.
 
For
 
the
 
first
 
nine
 
months
 
of
 
2023,
 
the
 
decrease
 
of
 
$229.3
 
million
consisted of
 
decreases of
 
$216.4 million
 
in the
 
Florida region
 
and $13.0
 
million in
 
the Puerto
 
Rico region,
 
partially offset
 
by a
 
$0.1
million increase in the Virgin
 
Islands region.
 
Government
 
loan
 
originations
 
for
 
the
 
quarter
 
and
 
nine-month
 
period
 
ended
 
September
 
30,
 
2023
 
amounted
 
to
 
$85.1
 
million
 
and
$168.7
 
million,
 
respectively,
 
compared
 
to
 
$1.8
 
million
 
and
 
$36.6
 
million,
 
respectively,
 
for
 
the
 
comparable
 
periods
 
in
 
2022.
Government loan
 
originations during
 
the first
 
nine months
 
of 2023
 
were mainly
 
related to
 
the aforementioned
 
refinancing of
 
a $46.5
million municipal
 
loan into
 
a commercial
 
loan, 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
 
nine
 
months
of 2022 were
 
mainly
 
related
 
to
 
the
 
renewal
 
of
 
a
 
public
 
corporation
 
line
 
of
 
credit
 
in
 
the
 
Virgin
 
Islands
 
region,
 
the
 
renewal
 
of
 
a
municipal loan in the Puerto Rico region, and the utilization of an arranged
 
overdraft line of credit of a government entity in the Virgin
Islands region.
 
101
Originations of auto
 
loans (including finance
 
leases) for the
 
quarter and nine-month
 
period ended September
 
30, 2023 amounted
 
to
$259.2
 
million
 
and
 
$754.6
 
million,
 
respectively,
 
compared
 
to
 
$244.9
 
million
 
and
 
$775.7
 
million,
 
respectively,
 
for
 
the
 
comparable
periods
 
in
 
2022.
 
The
 
increase
 
in
 
the
 
third
 
quarter
 
of
 
2023,
 
as
 
compared
 
to
 
the
 
same
 
quarter
 
of
 
2022,
 
consisted
 
of
 
a
 
$14.5
 
million
increase
 
in the
 
Puerto
 
Rico region,
 
partially
 
offset
 
by a
 
$0.2
 
million
 
decrease
 
in the
 
Virgin
 
Islands region
 
.
 
The decrease
 
in the
 
first
nine months
 
of 2023,
 
as compared
 
to the
 
same period
 
of the
 
previous year,
 
consisted of
 
a $24.3
 
million decrease
 
in the
 
Puerto Rico
region,
 
partially
 
offset
 
by
 
a
 
$3.2
 
million
 
increase
 
in
 
the
 
Virgin
 
Islands
 
region.
 
Other
 
consumer
 
loan
 
originations,
 
other
 
than
 
credit
cards, for
 
the quarter
 
and nine-month
 
period ended
 
September 30,
 
2023 amounted
 
to $79.5
 
million and
 
$229.0 million,
 
respectively,
compared
 
to
 
$90.2
 
million
 
and
 
$233.0
 
million,
 
respectively,
 
for
 
the
 
comparable
 
periods
 
in
 
2022.
 
The
 
utilization
 
activity
 
on
 
the
outstanding
 
credit card
 
portfolio
 
for
 
the
 
quarter
 
and
 
nine-month
 
period
 
ended
 
September
 
30,
 
2023
 
amounted
 
to $123.4
 
million
 
and
$367.8 million, respectively,
 
compared to $124.3 million and $359.3 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
 
September
 
30,
 
2023
 
amounted
 
to
 
$5.2
 
billion,
 
a
 
$423.7
million decrease
 
from December
 
31, 2022.
 
The decrease
 
was mainly
 
driven by
 
repayments of
 
approximately $302.
 
9
 
million of
 
U.S.
agencies
 
MBS
 
and
 
debentures;
 
repayments
 
of
 
$74.3
 
million
 
associated
 
to
 
matured
 
securities,
 
of
 
which
 
$73.8
 
million
 
were
 
FNMA
callable
 
debentures;
 
and
 
a $46.6
 
million
 
decrease
 
in fair
 
value
 
attributable
 
to changes
 
in market
 
interest rates.
 
As of
 
September
 
30,
2023,
 
the
 
Corporation
 
had
 
a
 
net
 
unrealized
 
loss
 
on
 
available-for-sale
 
debt
 
securities
 
of
 
$844.8
 
million.
 
This
 
net
 
unrealized
 
loss
 
is
attributable to
 
instruments on books
 
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
 
September
 
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 September
 
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 $3.2
million
 
(fair
 
value
 
-
 
$1.4
 
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 $1.8
 
million as
of September
 
30, 2023,
 
of which
 
$0.4 million
 
is due
 
to credit
 
deterioration.
 
During 2021,
 
the Corporation
 
placed this
 
instrument
 
in
nonaccrual status based on the delinquency status of the underlying
 
second mortgage loans collateral.
As
 
of
 
September
 
30,
 
2023,
 
the
 
Corporation’s
 
held-to-maturity
 
debt
 
securities
 
portfolio,
 
before
 
the
 
ACL,
 
decreased
 
to
 
$359.2
million, compared to
 
$437.5 million as
 
of December 31,
 
2022, mainly due
 
to the refinancing
 
of a $46.5 million
 
municipal bond into
 
a
shorter-term
 
commercial
 
loan
 
structure
 
and
 
$33.4
 
million
 
in
 
repayments.
 
Held-to-maturity
 
debt
 
securities
 
include
 
fixed-rate
 
GSEs’
MBS
 
with
 
a
 
carrying
 
value
 
of
 
$252.5
 
million
 
and
 
a
 
fair
 
value
 
of
 
$232.7
 
million
 
as
 
of September
 
30,
 
2023.
 
Held-to-maturity
 
debt
securities also
 
include 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
 
September
 
30,
 
2023,
 
approximately
 
54%
 
of
 
the
 
Corporation’s
 
municipal
 
bonds
 
consisted
 
of
obligations issued by three
 
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 September
 
30, 2023,
 
the ACL for
 
held-to-maturity debt
securities
 
was
 
$2.3
 
million,
 
compared
 
to
 
$8.3
 
million
 
as
 
of
 
December
 
31,
 
2022.
 
The
 
decrease
 
in
 
the
 
ACL
 
of held-to-maturity
 
debt
securities was mostly driven by the aforementioned refinancing
 
of a $46.5 million municipal bond into a shorter-term
 
commercial loan
structure
 
and,
 
to
 
a
 
lesser
 
extent,
 
a
 
reduction
 
in
 
qualitative
 
reserves
 
driven
 
by
 
updated
 
financial
 
information
 
of
 
certain
 
bond
 
issuers
received during the third quarter of 2023.
 
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:
September 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
2,448,313
2,492,228
Puerto Rico government obligations
1,448
2,201
MBS:
 
Residential
2,580,395
2,941,458
 
Commercial
145,647
163,133
Other
-
500
 
Total available-for-sale
 
debt securities, at fair value
5,175,803
5,599,520
Held-to-maturity debt securities, at amortized cost:
MBS:
 
Residential
150,650
166,739
 
Commercial
101,801
105,088
Puerto Rico municipal bonds
106,718
165,710
 
ACL for held-to-maturity Puerto Rico municipal bonds
(2,250)
(8,286)
 
Total held-to-maturity
 
debt securities
356,919
429,251
Equity securities, including $34.6 million and $42.9 million of FHLB stock
as of September 30,
 
2023 and December 31, 2022, respectively
48,683
55,289
Total money market
 
investments and investment securities
$
5,582,405
$
6,086,085
 
The carrying values of debt securities as of September 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
$
310,072
0.70
Due after one year through five years
2,118,664
0.83
Due after five years through ten years
8,939
2.95
Due after ten years
10,638
5.65
2,448,313
0.85
Puerto Rico government and municipalities obligations:
Due within one year
3,159
9.30
Due after one year through five years
51,133
7.71
Due after five years through ten years
35,831
7.05
Due after ten years
18,043
7.33
108,166
7.48
MBS
2,978,493
1.69
ACL on held-to-maturity debt securities
(2,250)
-
Total debt securities
$
5,532,722
1.44
 
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
 
September
 
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 61% 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 $584.9
 
million as
 
of September
 
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 $2.1
 
billion as
 
of September
 
30,
2023,
 
compared
 
to
 
$3.1
 
billion
 
as
 
of
 
December
 
31,
 
2022.
 
As
 
of
 
September
 
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
 
$2.7 billion,
 
or 14.58%
 
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
 
19.67% of total
assets as of September 30, 2023, compared to 22.48% of total assets as of December
 
31, 2022.
 
As
 
of
 
September
 
30,
 
2023,
 
in
 
addition
 
to
 
the
 
aforementioned
 
$2.7
 
billion
 
in
 
cash
 
and
 
free
 
high
 
quality
 
liquid
 
assets,
 
the
Corporation had $947.8 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
 
September 30,
 
2023 as
 
a contingent
 
source of
 
liquidity.
 
Total
 
loans
pledged
 
to the
 
FED Discount
 
Window
 
amounted
 
to $2.4
 
billion as
 
of September
 
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 September
 
30, 2023,
 
the Corporation
 
had $5.1
 
billion of
 
total available
 
liquidity,
 
or 107%
 
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
 
88.7%
 
of the
 
Bank’s
 
assets (or
 
87.0%
 
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 September
 
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:
September 30,
 
2023
December 31, 2022
(In thousands)
Financial instruments whose contract amounts represent credit risk:
 
Commitments to extend credit:
 
Construction undisbursed funds
$
245,641
$
170,639
 
Unused credit card lines
961,118
936,231
 
Unused personal lines of credit
 
39,569
41,988
 
Commercial lines of credit
763,349
761,634
 
Letters of credit:
 
Commercial letters of credit
64,148
68,647
 
Standby letters of credit
7,911
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
 
$3.8
 
billion
 
as
 
of
September 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
 
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 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
 
and
 
commercial
 
core
 
deposits
–
 
The
 
Corporation’s
 
deposit
 
products
 
include
 
regular
 
savings
 
accounts,
 
demand
 
deposit
accounts,
 
money
 
market
 
accounts,
 
and
 
retail
 
CDs.
 
As
 
of
 
September
 
30,
 
2023,
 
the
 
Corporation’s
 
core
 
deposits,
 
which
 
exclude
government deposits
 
and brokered
 
CDs, decreased
 
by $406.0
 
million to
 
$12.9 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 third quarter of 2023, the average balance per retail and commercial
 
core deposit account was $19 thousand.
Government deposits
 
– As of September
 
30, 2023, the
 
Corporation had $2.8
 
billion of Puerto Rico
 
public sector deposits
 
($2.6 billion
in transactional
 
accounts and
 
$137.0 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
 
are fully collateralized.
 
Approximately 22% of
 
the public sector
 
deposits as of September
30,
 
2023
 
were
 
from
 
municipalities
 
and
 
municipal
 
agencies
 
in
 
Puerto
 
Rico
 
and
 
78%
 
were
 
from
 
public
 
corporations,
 
the
 
central
government and its agencies, and U.S. federal government agencies in Puerto
 
Rico.
In addition,
 
as of
 
September 30,
 
2023, the
 
Corporation had
 
$480.6 million
 
of government
 
deposits in
 
the Virgin
 
Islands region
 
(as
compared
 
to $442.8
 
million
 
as of
 
December
 
31,
 
2022)
 
and $12.3
 
million
 
in
 
the Florida
 
region
 
(as
 
compared
 
to $11.6
 
million
 
as of
December 31, 2022).
The uninsured
 
portions
 
of government
 
deposits were
 
collateralized
 
by securities
 
and
 
loans with
 
an amortized
 
cost of
 
$3.5
 
billion
and
 
$3.1 billion
 
as of
 
September 30,
 
2023
 
and
 
December 31,
 
2022,
 
respectively,
 
and an
 
estimated market
 
value
 
of $3.0
 
billion
 
and
$2.7 billion,
 
respectively.
 
In addition to
 
securities and loans,
 
as of September
 
30, 2023 and
 
December 31, 2022,
 
the Corporation used
$175.0 million
 
and $200.0
 
million, respectively,
 
in letters
 
of credit
 
issued by
 
the FHLB as
 
pledges for
 
a portion
 
of public
 
deposits in
the Virgin
 
Islands.
Estimate of
 
Uninsured
 
Deposits –
As of
 
September 30,
 
2023 and
 
December 31,
 
2022, the
 
estimated amount
 
of uninsured
 
deposits
totaled $7.8
 
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 September
 
30, 2023 and December 31,
2022
 
include
 
the
 
uninsured
 
portion
 
of
 
fully
 
collateralized
 
government
 
deposits
 
which
 
amounted
 
to
 
$3.1
 
billion
 
and
 
$2.6
 
billion,
respectively.
 
The increase is mostly
 
related to government deposits,
 
which are fully collateralized
 
as previously mentioned.
 
Excluding
fully
 
collateralized
 
government
 
deposits,
 
uninsured
 
deposits
 
amounted
 
to
 
$4.8
 
billion,
 
which
 
represent
 
29.47%
 
of
 
total
 
deposits
(excluding brokered CDs), as of September 30, 2023, compared to $4.9 billion,
 
or 30.65%, as of December 31, 2022.
 
 
The
 
amount of
 
uninsured
 
deposits is
 
calculated
 
based on
 
the
 
same
 
methodologies
 
and assumptions
 
used for
 
our bank
 
regulatory
reporting requirements adjusted for cash held by wholly-owned subsidiaries
 
at the Bank.
 
 
The following table presents by contractual maturities the amount of U.S. time deposits in
 
excess of FDIC insurance limits (over
$250,000) and other time deposits that are otherwise uninsured as of September
 
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
$
285,002
$
144,955
$
215,056
$
334,396
$
979,409
Other uninsured time deposits
$
17,923
$
9,170
$
11,653
$
5,448
$
44,194
Brokered
 
CDs
 
–
 
Total
 
brokered
 
CDs increased
 
by $204.5
 
million
 
to $310.3
 
million
 
as of
 
September 30,
 
2023,
 
compared
 
to $105.8
million as of
 
December 31,
 
2022. The increase
 
reflects the effect
 
of new issuances
 
amounting to
 
$593.1 million
 
with an all-in
 
cost of
5.05%,
 
partially offset
 
by approximately
 
$388.6
 
million of
 
maturing
 
brokered
 
CDs, with
 
an all-in
 
cost of
 
4.90%, that
 
were paid
 
off
during the first nine months of 2023.
 
The average remaining term to maturity of the brokered CDs outstanding
 
as of September 30, 2023 was approximately 0.8 year.
 
The
 
increased use
 
of brokered
 
CDs was
 
primarily
 
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
 
The following table presents the contractual maturities of brokered CDs as of September
 
30,
 
2023:
Total
 
(In thousands)
Three months or less
$
156,398
Over three months to six months
67,987
Over six months to one year
29,438
Over one year to three years
 
29,554
Over three years to five years
 
26,962
 
Total
$
310,339
Refer to
 
“Net Interest
 
Income” above
 
for information
 
about average
 
balances of
 
interest-bearing deposits
 
and the
 
average interest
rate paid on deposits, for the quarters and nine-month periods ended September
 
30, 2023 and 2022.
Securities
 
sold
 
under
 
agreements
 
to
 
repurchase
 
-
As
 
of
 
September
 
30,
 
2023,
 
there
 
were
 
no
 
outstanding
 
repurchase
 
agreements
(December 31,
 
2022 –
 
$75.1 million).
 
As of
 
September 30,
 
2023, the
 
Corporation repaid
 
and did
 
not renew
 
its short-term
 
repurchase
agreements.
 
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.
 
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
 
September 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
 
nine-month
 
period
 
ended
 
September
 
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
 
September 30,
 
2023, $400.0
 
million were
 
pledged with
 
investment securities
 
and $100.0
 
million were
 
pledged
with mortgage
 
loans. As of
 
September 30,
 
2023, the
 
Corporation had
 
$947.8 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 $21.4 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
 
statements of income as “Gain on
 
early extinguishment of debt.” As
of
 
September
 
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
 
September 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-
 
109
liquid, in
 
large part
 
because of
 
the sale
 
of mortgages
 
through guarantee
 
programs of
 
the FHA,
 
VA,
 
U.S. Department
 
of Housing
 
and
Urban Development
 
(“HUD”), FNMA and
 
FHLMC. During
 
the first nine
 
months of
 
2023, loans pooled
 
into GNMA MBS
 
amounted
to
 
approximately
 
$102.9
 
million.
 
Also,
 
during
 
the
 
first
 
nine
 
months
 
of
 
2023,
 
the
 
Corporation
 
sold
 
approximately
 
$28.6
 
million
 
of
performing residential mortgage loans to FNMA and FHLMC.
The
 
FED
 
Discount
 
Window
 
is
 
a
 
cost-efficient
 
contingent
 
source
 
of
 
funding
 
for
 
the
 
Corporation
 
in
 
highly-volatile
 
market
conditions. As previously mentioned, although currently
 
not in use, as of September 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.
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 is the
 
one-year overnight index
 
swap rate plus 10
 
basis points and
 
is fixed for the
 
term of
the advance on the day the advance is made.
 
Effect of Credit Ratings on Access to Liquidity
The
 
Corporation’s
 
liquidity
 
is
 
contingent
 
upon
 
its
 
ability
 
to
 
obtain
 
deposits
 
and
 
other
 
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
 
$584.9
 
million
 
as
 
of
 
September
 
30,
 
2023,
 
an
 
increase
 
of
 
$104.4
 
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 nine 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
 
nine
 
months
 
of
 
2023
 
and
 
2022,
 
net
 
cash
 
provided
 
by
 
operating
 
activities
 
was
 
$283.7
 
million
 
and
 
$334.8
 
million,
respectively.
 
Net cash
 
generated from
 
operating activities
 
was higher
 
than reported
 
net income
 
largely as
 
a result
 
of adjustments
 
for
non-cash items such
 
as depreciation and
 
amortization, deferred income
 
tax expense and the
 
provision for credit
 
losses, as well as cash
generated from
 
sales and
 
repayments of
 
loans held
 
for sale.
 
Net cash
 
provided by
 
operating activities
 
includes an
 
increase in
 
income
tax
 
paid
 
as a
 
result
 
of
 
the
 
full utilization
 
during
 
2022 of
 
certain
 
deferred
 
tax
 
assets related
 
to
 
NOLs
 
that
 
were
 
available
 
for
 
regular
income tax.
Cash Flows from Investing Activities
The Corporation’s
 
investing activities primarily
 
relate to originating
 
loans to be
 
held for investment,
 
as well as
 
purchasing, selling,
and
 
repaying
 
available-for-sale
 
and
 
held-to-maturity debt
 
securities. For
 
the nine
 
-month period
 
ended September
 
30, 2023,
 
net cash
provided
 
by
 
investing
 
activities
 
was
 
$17.5
 
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
 
nine-month
 
period
 
ended
 
September
 
30,
 
2022,
 
net
 
cash
 
used
 
in
 
investing
 
activities
 
was
 
$508.2
 
million,
 
primarily
 
due
 
to
purchases
 
of
 
available-for-sale
 
and
 
held-to-maturity
 
debt
 
securities,
 
and
 
net
 
disbursements
 
on
 
loans
 
held
 
for
 
investment,
 
partially
offset
 
by
 
repayments
 
of
 
available-for-sale
 
and
 
held-to-maturity
 
debt
 
securities
 
and
 
proceeds
 
from
 
sales
 
of
 
commercial
 
loan
participations.
 
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
 
nine-month
 
period
 
ended
 
September
 
30,
 
2023,
 
net cash
 
used
 
in
 
financing
 
activities was
 
$196.8
 
million,
 
mainly
 
reflecting
 
a
$269.9 million
 
net decrease
 
in borrowings
 
and $200.8
 
million of
 
capital returned
 
to stockholders,
 
partially offset
 
by a
 
$275.8 million
net increase in deposits.
 
For the first nine months
 
of 2022, net cash used in
 
financing activities was $1.8 billion,
 
mainly reflecting a net decrease
 
in deposits,
a $300.0 million decrease in borrowings and $290.8 million of capital returned
 
to stockholders.
 
 
111
Capital
As of September
 
30, 2023, the Corporation’s
 
stockholders’ equity was
 
$1.3 billion, a decrease
 
of $22.5 million
 
from December 31,
2022.
 
The
 
decrease
 
was
 
driven
 
by
 
the
 
repurchase
 
of
 
approximately
 
9.0
 
million
 
shares
 
of
 
common
 
stock
 
for
 
a
 
total
 
cost
 
of
 
$125.0
million, common
 
stock dividends
 
declared in
 
the first
 
nine months
 
of 2023
 
totaling $75.6
 
million or
 
$0.42 per
 
common share,
 
and a
$46.6 million decrease
 
in the fair
 
value of available-for-sale
 
debt securities recorded
 
as part of
 
accumulated other comprehensive
 
loss
in the
 
consolidated statements
 
of financial
 
condition. These
 
variances were
 
partially offset
 
by the
 
earnings generated
 
in the
 
first nine
months of 2023.
On October 31, 2023, the Corporation’s
 
Board declared a quarterly cash dividend of
 
$0.14 per common share payable on December
8, 2023 to shareholders of
 
record at the close of business on
 
November 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.
During
 
the
 
third
 
quarter
 
of
 
2023,
 
the
 
Corporation
 
repurchased
 
5.4
 
million
 
shares
 
of
 
its
 
common
 
stock
 
for
 
a
 
total
 
cost
 
of
 
$75.0
million which
 
completed the
 
$350 million
 
stock repurchase program
 
approved by
 
the Board of
 
Directors on
 
April 27, 2022.
 
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.
 
Repurchases
 
under
 
the
 
program
 
may
 
be
 
executed
 
through
 
open
 
market
 
purchases,
 
accelerated
 
share
repurchases, and/or privately
 
negotiated transactions
 
or plans, including under
 
plans complying with
 
Rule 10b5-1 under
 
the Exchange
Act. The
 
Corporation’s
 
stock repurchase
 
program is
 
subject to
 
various factors,
 
including the
 
Corporation’s
 
capital position,
 
liquidity,
financial
 
performance
 
and
 
alternative
 
uses
 
of
 
capital,
 
stock
 
trading
 
price,
 
and
 
general
 
market
 
conditions.
 
The
 
Corporation’s
 
stock
repurchase
 
program
 
does
 
not
 
obligate
 
it
 
to
 
acquire
 
any
 
specific
 
number
 
of
 
shares
 
and
 
does
 
not
 
have
 
an
 
expiration
 
date.
 
The
 
stock
repurchase
 
program
 
may
 
be
 
modified,
 
suspended,
 
or
 
terminated
 
at
 
any
 
time
 
at
 
the
 
Corporation’s
 
discretion.
 
The
 
Corporation
repurchased
 
no
 
shares
 
of
 
common
 
stock
 
under
 
the
 
current
 
repurchase
 
authorization
 
during
 
the
 
quarter
 
ended
 
September
 
30,
 
2023.
 
However, as of November
 
1, 2023, the Corporation has repurchased
 
approximately 1.8 million shares of common
 
stock for a total cost
of $25.0 million
 
under the $225 million
 
stock repurchase program
 
approved in July 2023.
 
The Parent Company
 
has no operations
 
and
depends
 
on
 
dividends,
 
distributions
 
and
 
other
 
payments
 
from
 
its
 
subsidiaries
 
to
 
fund
 
dividend
 
payments,
 
stock
 
repurchases,
 
and
 
to
fund all payments on its obligations, including debt obligations.
The tangible common
 
equity ratio and
 
tangible book value
 
per common share
 
are non-GAAP financial
 
measures generally used
 
by
the
 
financial
 
community
 
to
 
evaluate
 
capital
 
adequacy.
 
Tangible
 
common
 
equity
 
is
 
total
 
common
 
equity
 
less
 
goodwill
 
and
 
other
intangible
 
assets.
 
Tangible
 
assets
 
are
 
total
 
assets
 
less
 
the
 
previously
 
mentioned
 
intangible
 
assets.
 
See
 
“Non-GAAP
 
Financial
Measures and Reconciliations” above for additional information.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 September 30,2023 and December 31, 2022, respectively:
September 30, 2023
December 31, 2022
(In thousands, except ratios and per share information)
Total equity
 
- GAAP
$
1,303,068
$
1,325,540
Goodwill
(38,611)
(38,611)
Purchased credit card relationship intangible
-
(205)
Core deposit intangible
(15,229)
(20,900)
Insurance customer relationship intangible
-
(13)
Tangible common
 
equity - non-GAAP
$
1,249,228
$
1,265,811
Total assets - GAAP
$
18,594,608
$
18,634,484
Goodwill
(38,611)
(38,611)
Purchased credit card relationship intangible
-
(205)
Core deposit intangible
(15,229)
(20,900)
Insurance customer relationship intangible
-
(13)
Tangible assets -
 
non-GAAP
$
18,540,768
$
18,574,755
Common shares outstanding
174,386
182,709
Tangible common
 
equity ratio - non-GAAP
6.74%
6.81%
Tangible book
 
value per common share - non-GAAP
$
7.16
$
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 September
 
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
September
 
30, 2023
 
and
 
December 31,
 
2022,
 
respectively.
 
There
 
were no
 
transfers to
 
the legal
 
surplus
 
reserve
 
during the
 
first nine
months 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
 
and
 
300
 
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
 
repricing 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
 
simulation
 
date.
 
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
 
September 30,
 
2023, the
 
Corporation forecasted
 
the 12-month
 
net interest
 
income assuming
 
September 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)
 
and immediate
 
(shock) parallel
 
upward shift
 
of the
 
yield curve
 
is assumed
 
during the
 
first twelve
 
months (the
 
“+300
ramp”, “+200
 
ramp” and
 
“+200 shock”
 
scenarios). Conversely,
 
for the
 
falling rate
 
scenario, a
 
gradual (ramp)
 
and immediate
 
(shock)
parallel downward shift
 
of the yield curve
 
is assumed during the
 
first twelve months (the
 
“-300 ramp”, “-200
 
ramp” and “-200
 
shock”
scenarios).
The SOFR curve for
 
September 30, 2023, as
 
compared to December 31,
 
2022, reflects an increase
 
of 70 bps on
 
average in the short-
term sector
 
of the
 
curve, or
 
between one
 
to twelve
 
months;
 
58 bps
 
in the
 
medium-term sector
 
of the
 
curve, or
 
between 2
 
to 5
 
years;
and 71
 
bps in
 
the long-term
 
sector of
 
the curve,
 
or over
 
5-year maturities.
 
An increase
 
in market
 
rates changes
 
was also
 
observed in
the Constant Maturity Treasury yield curve
 
with an increase of 102 bps in the short-term sector,
 
60 bps in the medium-term sector, and
75 bps in the long-term sector.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
114
 
The following table presents the results of the static simulations as of September 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)
September 30, 2023
December 31, 2022
Gradual Change in Interest Rates:
 
+ 300 bps ramp
0.00
%
1.42
%
 
- 300 bps ramp
-0.30
%
-2.78
%
 
+ 200 bps ramp
0.00
%
0.96
%
 
- 200 bps ramp
-0.13
%
-1.61
%
Immediate Change in Interest Rates:
 
+ 200 bps shock
1.26
%
2.35
%
 
- 200 bps shock
-2.22
%
-4.71
%
 
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 September
 
30, 2023, the net
 
interest income simulations
 
show the Corporation
 
has a relatively neutral
 
sensitivity position for
the next twelve months under a static balance sheet scenario,
 
as compared to an asset sensitive position as of December 31, 2022.
 
The reduction
 
in interest
 
rate sensitivity
 
reflects shifts
 
in funding
 
mix, including
 
an increased
 
migration from
 
non-interest-bearing
deposits and
 
other low-cost
 
deposits to
 
higher-cost deposits,
 
and updated
 
assumptions about
 
depositor behavior,
 
impacting both
 
beta
and decay assumptions, as a result of the higher interest rate environment
 
and options outside the traditional banking sector.
Under the
 
static simulation,
 
the Corporation
 
assumes that
 
maturing instruments
 
are replaced
 
with like
 
instruments at
 
the repricing
rate with
 
the proportional
 
remaining change
 
in interest
 
rate in
 
the period
 
that the
 
instrument matures.
 
The Corporation’s
 
results may
vary
 
significantly
 
from
 
the
 
ones
 
presented
 
above
 
under
 
alternative
 
balance
 
sheet
 
compositions,
 
such
 
as
 
a
 
growing
 
balance
 
sheet
scenario
 
which,
 
for
 
example,
 
would
 
assume
 
that
 
cash
 
flows
 
from
 
the
 
investment
 
securities
 
portfolio
 
and
 
loan
 
repayments
 
will
 
be
redeployed into higher yielding alternatives.
Credit Risk Management
First BanCorp.
 
is subject
 
to
 
credit
 
risk
 
mainly
 
with
 
respect to
 
its portfolio
 
of loans
 
receivable
 
and
 
off-balance-sheet
 
instruments,
principally
 
loan
 
commitments.
 
Loans
 
receivable
 
represents
 
loans
 
that
 
First
 
BanCorp.
 
holds
 
for
 
investment
 
and,
 
therefore,
 
First
BanCorp. is at risk for
 
the term of the loan.
 
Loan commitments represent commitments
 
to extend credit, subject
 
to specific conditions,
for specific amounts
 
and maturities. These commitments
 
may expose the Corporation
 
to credit risk and
 
are subject to the
 
same review
and
 
approval
 
process
 
as
 
for
 
loans
 
made
 
by
 
the
 
Bank.
 
See
 
“Liquidity
 
Risk”
 
above
 
for
 
further
 
details.
 
The
 
Corporation
 
manages
 
its
credit risk through its credit policy,
 
underwriting, monitoring of loan concentrations and
 
related credit quality,
 
counterparty credit risk,
economic and
 
market conditions, and
 
legislative or regulatory
 
mandates. The Corporation
 
also performs independent
 
loan review
 
and
quality
 
control
 
procedures,
 
statistical
 
analysis,
 
comprehensive
 
financial
 
analysis,
 
established
 
management
 
committees,
 
and
 
employs
proactive collection
 
and loss
 
mitigation efforts.
 
Furthermore, personnel
 
performing structured
 
loan workout
 
functions are
 
responsible
for
 
mitigating
 
defaults
 
and
 
minimizing
 
losses
 
upon
 
default
 
within
 
each
 
region
 
and
 
for
 
each
 
business
 
segment.
 
In
 
the
 
case
 
of
 
the
commercial
 
and
 
industrial,
 
commercial
 
mortgage
 
and
 
construction
 
loan
 
portfolios,
 
the
 
Special
 
Asset
 
Group
 
(“SAG”)
 
focuses
 
on
strategies for the
 
accelerated reduction of
 
non-performing assets through
 
note sales, short sales,
 
loss mitigation programs,
 
and sales of
OREO. In addition to
 
the management of the
 
resolution process for problem
 
loans, the SAG oversees collection
 
efforts for all
 
loans to
prevent migration to the nonaccrual and/or adversely classified
 
status. The SAG utilizes relationship officers,
 
collection specialists and
attorneys.
The
 
Corporation
 
may
 
also
 
have
 
risk
 
of
 
default
 
in
 
the
 
securities
 
portfolio.
 
The
 
securities
 
held
 
by
 
the
 
Corporation
 
are
 
principally
fixed-rate U.S. agencies
 
MBS and U.S. Treasury
 
and agencies securities. Thus,
 
a substantial portion
 
of these instruments is
 
backed by
mortgages, a guarantee of a U.S. GSE or the full faith and credit of the U.S. government.
Management, consisting of the
 
Corporation’s Commercial
 
Credit Risk Officer,
 
Retail Credit Risk Officer,
 
Chief Credit Officer,
 
and
other
 
senior
 
executives,
 
has
 
the
 
primary
 
responsibility
 
for
 
setting
 
strategies
 
to
 
achieve
 
the
 
Corporation’s
 
credit
 
risk
 
goals
 
and
objectives. Management has documented these goals and objectives in the Corporation’s
 
Credit Policy.
 
115
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
 
generally applies
 
probability weights
 
to the
 
baseline and
 
alternative downside
 
economic scenarios
 
to estimate
 
the
ACL with
 
the
 
baseline
 
scenario
 
carrying
 
the highest
 
weight.
 
The
 
scenarios
 
that are
 
chosen each
 
quarter
 
and
 
the
 
weighting
 
given
 
to
each
 
scenario
 
for
 
the
 
different
 
loan
 
portfolio
 
categories
 
depend
 
on
 
a
 
variety
 
of
 
factors
 
including
 
recent
 
economic
 
events,
 
leading
national and
 
regional economic
 
indicators, and
 
industry trends.
 
During the
 
third quarter
 
of 2023,
 
the Corporation
 
continued to
 
apply
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.
 
In
addition,
 
during the
 
third quarter
 
of 2023,
 
the Corporation
 
applied the
 
alternative downside
 
scenario for
 
the credit
 
cards portfolio
 
to
account for
 
an increased
 
uncertainty in
 
charge-off
 
trends and
 
projection of
 
certain macroeconomic
 
variables, such
 
as retail sales.
 
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
 
expected future interest
 
rate adjustments in
 
the FED funds rate.
As
 
of
 
September
 
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
 
4.19% for
 
the remainder
 
of 2023
 
and 6.49%
 
for
2024.
●
Regional
 
Home Price Index forecast in Puerto Rico (purchase only prices)
 
is projected to remain relatively flat throughout the
remainder of 2023 and 2024, while in the Florida region,
 
Home Price Index forecast is projected to contract by approximately
5.70%.
 
●
Average regional
 
unemployment in Puerto Rico is forecasted at 6.34% for the
 
remainder of 2023 and 7.22% for 2024. For the
Florida
 
region
 
and
 
the
 
U.S.
 
mainland,
 
average
 
unemployment
 
rate
 
is
 
forecasted
 
at
 
3.37%
 
and
 
4.03%,
 
respectively,
 
for
 
the
remainder of 2023, and 4.30% and 4.80%, respectively,
 
for 2024.
 
●
Annualized real
 
gross domestic
 
product (“GDP”)
 
in the
 
U.S. mainland
 
is projected
 
to grow
 
at a
 
slower pace
 
until the
 
fourth
quarter of 2024 where it is expected to grow at approximately 0.90%.
It is difficult to estimate how potential changes
 
in one factor or input might affect the overall ACL because
 
management considers a
wide variety of
 
factors and inputs in
 
estimating the ACL.
 
Changes in the
 
factors and inputs considered
 
may not occur
 
at the same rate
and may not be consistent
 
across all geographies or product
 
types, and changes in factors
 
and inputs may be directionally
 
inconsistent,
such that improvement
 
in one factor
 
or input may
 
offset deterioration
 
in others. However,
 
to demonstrate the
 
sensitivity of credit
 
loss
estimates to macroeconomic
 
forecasts as of
 
September 30, 2023
 
,
 
management compared the
 
modeled estimates under
 
the probability-
weighted economic
 
scenarios against a
 
more adverse scenario.
 
The more adverse
 
scenario incorporates an
 
additional adverse scenario
and decreases
 
the weight
 
applied to
 
the baseline
 
scenario. Under
 
this more
 
adverse scenario,
 
as an
 
example, average
 
unemployment
rate
 
for
 
the
 
Puerto
 
Rico
 
region
 
increases
 
to
 
6.63%
 
for
 
the
 
remainder
 
of
 
2023,
 
compared
 
to
 
6.34%
 
for
 
the
 
same
 
period
 
on
 
the
probability-weighted economic scenario projections.
 
 
 
 
116
To
 
demonstrate the sensitivity
 
to key economic
 
parameters used in
 
the calculation of
 
the ACL at September
 
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 $44 million
 
at September 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
 
September 30, 2023.
As
 
of
 
September
 
30,
 
2023,
 
the
 
ACL
 
for
 
loans
 
and
 
finance
 
leases
 
was
 
$263.6
 
million,
 
an
 
increase
 
of
 
$3.1
 
million,
 
from
 
$260.5
million
 
as
 
of
 
December
 
31,
 
2022.
 
The
 
ACL
 
for
 
commercial
 
and
 
construction
 
loans
 
increased
 
by
 
$6.6
 
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,
and a
 
$1.7 million
 
incremental reserve
 
recorded during
 
the third
 
quarter of
 
2023 associated
 
with the
 
inflow to
 
nonaccrual status
 
of a
$9.5
 
million
 
commercial
 
and
 
industrial
 
loan
 
in
 
the
 
Puerto
 
Rico
 
region.
 
The
 
ACL
 
for
 
consumer
 
loans
 
increased
 
by
 
$2.1
 
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. The unemployment rate
 
as well as retail sales are still
 
expected to deteriorate on
 
the long-
term
 
outlook
 
but
 
at
 
a
 
slower
 
pace,
 
mostly
 
driven
 
by
 
actual
 
results
 
outperforming
 
previous
 
projections.
 
The
 
ACL
 
for
 
residential
mortgage
 
loans
 
decreased
 
by
 
$5.6
 
million,
 
mainly
 
driven
 
by
 
updated
 
macroeconomic
 
variables,
 
such
 
as
 
the
 
Regional
 
Home
 
Price
Index and the unemployment rate,
 
partially offset by a $2.1 million
 
cumulative increase in the ACL
 
due to the adoption of
 
Accounting
Standards Update
 
(“ASU”) 2022-02,
 
“Financial Instruments
 
– Credit
 
Losses (Topic
 
326): Troubled
 
Debt Restructurings
 
and Vintage
Disclosures”,
 
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.
The ratio
 
of the ACL
 
for loans and
 
finance leases
 
to total
 
loans held
 
for investment
 
decreased to
 
2.21%
 
as of September
 
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
2.03% as of September
 
30, 2023, primarily
 
reflecting updated macroeconomic
 
variables, such as the
 
Regional Home Price
Index and the
 
unemployment rate, 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
 
2.77%
as of September 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
1.78% as of September 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
0.99% as of September 30, 2023, mainly due to
 
updated macroeconomic variables, such as the unemployment
 
rate, and the
aforementioned
 
repayment
 
of
 
a
 
$24.3
 
million
 
adversely
 
classified
 
commercial
 
and
 
industrial
 
participated
 
loan
 
in
 
the
Florida region, partially
 
offset by the
 
aforementioned $1.7 million
 
incremental reserve recorded
 
during the third
 
quarter of
2023 associated
 
with the
 
inflow to
 
nonaccrual
 
status of
 
a $9.5
 
million commercial
 
and industrial
 
loan in
 
the Puerto
 
Rico
region.
●
The ACL to
 
total loans ratio
 
for the consumer
 
loan portfolio decreased
 
from 3.83% as
 
of December
 
31, 2022
 
to 3.61% as
of September 30, 2023, mainly due to the aforementioned updates in macroeconomic
 
variables.
The ratio
 
of the
 
total ACL
 
for loans
 
and finance
 
leases to
 
nonaccrual loans
 
held for
 
investment was
 
282.96% as
 
of September
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
117
As shown
 
in the
 
following tables,
 
the ACL
 
for loans
 
and finance
 
leases amounted
 
to $263.6
 
million as
 
of September
 
30, 2023,
 
or
2.21% 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 September 30,
 
Nine-Month Period Ended September 30,
 
2023
2022
2023
2022
(Dollars in thousands)
ACL for loans and finance leases, beginning of year
$
267,058
$
252,152
$
260,464
$
269,030
Impact of adoption of ASU 2022-02
-
-
2,116
-
Provision for credit losses - (benefit) expense:
Residential mortgage
(3,349)
755
(6,776)
(6,913)
Construction
(642)
(179)
1,420
(2,242)
Commercial mortgage
(1,344)
(2,383)
5,901
(23,758)
Commercial and industrial
1,931
(1,228)
3,278
(575)
Consumer and finance leases
14,047
17,387
43,846
43,516
Total provision for credit losses
 
- expense
 
10,643
14,352
47,669
10,028
Charge-offs:
Residential mortgage
(499)
(1,466)
(2,628)
(6,073)
Construction
(4)
(63)
(42)
(123)
Commercial mortgage
(1)
(3)
(107)
(42)
Commercial and industrial
(9)
(8)
(6,477)
(366)
Consumer and finance leases
(19,746)
(12,522)
(53,006)
(32,765)
Total charge offs
(20,259)
(14,062)
(62,260)
(39,369)
Recoveries:
Residential mortgage
534
559
1,788
3,228
Construction
1,463
43
1,935
138
Commercial mortgage
75
57
299
1,319
Commercial and industrial
161
494
383
2,118
Consumer and finance leases
3,940
4,264
11,221
11,367
Total recoveries
6,173
5,417
15,626
18,170
Net charge-offs
(14,086)
(8,645)
(46,634)
(21,199)
ACL for loans and finance leases, end of period
$
263,615
$
257,859
$
263,615
$
257,859
ACL for loans and finance leases to period-end total loans
 
held for investment
2.21%
2.28%
2.21%
2.28%
Net charge-offs (annualized) to average loans
 
outstanding during the period
0.48%
0.31%
0.54%
0.25%
Provision for credit losses - expense for loans and finance
 
leases to net charge-offs during
the period
0.76x
1.66x
1.02x
0.47x
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
118
 
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 of such loans as of the indicated dates:
As of September 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
$
2,812,631
$
202,774
$
2,316,113
$
3,030,954
$
3,588,460
$
11,950,932
 
Percent of loans in each category to total loans
24
%
2
%
19
%
25
%
30
%
100
%
 
Allowance for credit losses
57,200
5,621
41,157
30,097
129,540
263,615
 
Allowance for credit losses to amortized cost
2.03
%
2.77
%
1.78
%
0.99
%
3.61
%
2.21
%
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
 
September
 
30,
 
2023,
 
the
 
ACL
 
for
 
off-balance
 
sheet
credit exposures
 
increased by
 
$0.5 million
 
to $4.8
 
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
 
September
 
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
 
September
 
30,
 
2023,
 
the
 
ACL
 
for
 
held-to-maturity
 
debt
securities was $2.3
 
million, compared to
 
$8.3 million as of
 
December 31, 2022.
 
The decrease was mostly
 
driven by the refinancing
 
of
a $46.5 million municipal bond
 
into a shorter-term commercial loan
 
structure and, to a lesser extent, a reduction
 
in qualitative reserves
driven by updated financial information of certain bond issuers received
 
during the third quarter of 2023.
Allowance for Credit Losses for Available
 
-for-Sale Debt Securities
 
The
 
ACL
 
for
 
available-for-sale
 
debt
 
securities,
 
which
 
is
 
associated
 
with
 
private
 
label
 
MBS
 
and
 
a
 
residential
 
pass-through
 
MBS
issued by the PRHFA, was $0.5
 
million as of each of September 30, 2023 and December 31, 2022.
 
 
 
 
119
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
120
Loans Past-Due 90 Days and Still Accruing
These are accruing loans
 
that are contractually delinquent
 
90 days or more. These
 
past-due loans are either
 
current as to interest but
delinquent as to the
 
payment of principal (i.e.,
 
well secured and in process
 
of collection) or are
 
insured or guaranteed under
 
applicable
FHA,
 
VA,
 
or
 
other
 
government-guaranteed
 
programs
 
for
 
residential
 
mortgage
 
loans.
 
Furthermore,
 
as
 
required
 
by
 
instructions
 
in
regulatory
 
reports,
 
loans
 
past
 
due
 
90
 
days
 
and
 
still
 
accruing
 
include
 
loans
 
previously
 
pooled
 
into
 
GNMA
 
securities
 
for
 
which
 
the
Corporation
 
has
 
the
 
option
 
but
 
not
 
the
 
obligation
 
to
 
repurchase
 
loans
 
that
 
meet
 
GNMA’s
 
specified
 
delinquency
 
criteria
 
(e.g.,
borrowers
 
fail
 
to
 
make
 
any
 
payment
 
for
 
three
 
consecutive
 
months).
 
For
 
accounting
 
purposes,
 
these
 
GNMA
 
loans
 
subject
 
to
 
the
repurchase option are required to be reflected 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:
September 30, 2023
December 31, 2022
(Dollars in thousands)
Nonaccrual loans held for investment:
Residential mortgage
$
31,946
$
42,772
Construction
1,640
2,208
Commercial mortgage
21,632
22,319
Commercial and Industrial
18,809
7,830
Consumer and finance leases
19,137
14,806
Total nonaccrual loans held for investment
93,164
89,935
OREO
28,563
31,641
Other repossessed property
7,063
5,380
Other assets
 
(1)
1,448
2,202
Total non-performing assets
$
130,238
$
129,158
Past due loans 90 days and still accruing
(2) (3) (4)
$
62,892
$
80,517
Non-performing assets to total assets
 
0.70
%
0.69
%
Nonaccrual loans held for investment to total loans held for investment
0.78
%
0.78
%
ACL for loans and finance leases
$
263,615
$
260,464
ACL for loans and finance leases to total nonaccrual loans held
 
for investment
282.96
%
289.61
%
ACL for loans and finance leases to total nonaccrual loans held
 
for investment, excluding residential real estate loans
430.62
%
552.26
%
(1)
Residential pass-through MBS issued by the PRHFA
 
held as part of the available-for-sale debt securities
 
portfolio.
(2)
Includes PCD loans previously accounted for under ASC Subtopic 310-30
 
for which the Corporation made the accounting policy
 
election of maintaining pools of loans as “units of
account” both at the time of adoption of CECL on January
 
1, 2020 and on an ongoing basis for credit loss measurement.
 
These loans will continue to be excluded from nonaccrual loan
statistics as long as the Corporation can reasonably estimate the
 
timing and amount of cash flows expected to be collected on
 
the loan pools. The portion of such loans contractually past due
90 days or more amounted to $8.9 million and $12.0 million as of
 
September 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 $17.4 million and $28.2 million
of FHA government guaranteed residential mortgage loans that were
 
over 15 months delinquent as of September 30,
 
2023 and December 31, 2022, respectively.
(4)
Includes rebooked loans, which were previously pooled into
 
GNMA securities, amounting to $8.5 million and $10.3 million as
 
of September 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
121
Total nonaccrual
 
loans were $93.2 million as of September
 
30, 2023. This represents an increase
 
of $3.3 million from $89.9 million
as of
 
December 31,
 
2022, primarily
 
related to
 
increases of
 
$9.8 million
 
and $4.4
 
million in
 
nonaccrual commercial
 
and construction
loans
 
and
 
nonaccrual
 
consumer
 
loans,
 
respectively,
 
partially
 
offset
 
by
 
a
 
$10.9
 
million
 
reduction
 
in
 
nonaccrual
 
residential
 
mortgage
loans.
The following table shows non-performing assets by geographic segment
 
as of the indicated dates:
September 30, 2023
December 31, 2022
(In thousands)
Puerto Rico:
Nonaccrual loans held for investment:
Residential mortgage
$
19,378
$
28,857
Construction
669
831
Commercial mortgage
13,220
14,341
Commercial and Industrial
15,779
5,859
Consumer and finance leases
18,564
14,142
Total nonaccrual loans held for investment
67,610
64,030
OREO
23,547
28,135
Other repossessed property
6,799
5,275
Other assets
1,448
2,202
Total non-performing assets
$
99,404
$
99,642
Past due loans 90 days and still accruing
$
57,834
$
76,417
Virgin Islands:
Nonaccrual loans held for investment:
Residential mortgage
$
5,871
$
6,614
Construction
971
1,377
Commercial mortgage
8,412
7,978
Commercial and Industrial
1,094
1,179
Consumer
475
469
Total nonaccrual loans held for investment
16,823
17,617
OREO
4,638
3,475
Other repossessed property
264
76
Total non-performing assets
$
21,725
$
21,168
Past due loans 90 days and still accruing
$
4,678
$
4,100
United States:
Nonaccrual loans held for investment:
Residential mortgage
$
6,697
$
7,301
Commercial and Industrial
1,936
792
Consumer
98
195
Total nonaccrual loans held for investment
8,731
8,288
OREO
378
31
Other repossessed property
-
29
Total non-performing assets
$
9,109
$
8,348
Past due loans 90 days and still accruing
$
380
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
122
Nonaccrual
 
commercial
 
and
 
industrial
 
loans
 
increased
 
by
 
$11.0
 
million
 
to
 
$18.8
 
million
 
as
 
of
 
September
 
30,
 
2023,
 
from
 
$7.8
million as of December 31, 2022.
 
For the nine-month period ended
 
September 30, 2023, inflows to
 
nonaccrual included a $9.5 million
commercial and industrial
 
loan in the Puerto
 
Rico region and a
 
$7.1 million commercial
 
and industrial participated
 
loan in the
 
Florida
region in the power generation industry,
 
in which a $6.2 million charge was recorded.
Nonaccrual
 
construction
 
loans
 
decreased
 
by
 
$0.6
 
million
 
to
 
$1.6
 
million
 
as
 
of
 
September
 
30,
 
2023,
 
from
 
$2.2
 
million
 
as
 
of
December 31, 2022.
 
Nonaccrual commercial mortgage loans decreased
 
by $0.6 million to $21.7 million as of September
 
30, 2023, from $22.3 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 September 30, 2023
Beginning balance
$
1,677
$
21,536
$
9,194
$
32,407
Plus:
Additions to nonaccrual
 
-
522
10,569
11,091
Less:
Loans returned to accrual status
-
-
(199)
(199)
Nonaccrual loans transferred to OREO
-
-
(547)
(547)
Nonaccrual loans charge-offs
-
(1)
(9)
(10)
Loan collections
(37)
(425)
(199)
(661)
Ending balance
 
$
1,640
$
21,632
$
18,809
$
42,081
Construction
Commercial
Mortgage
Commercial &
Industrial
Total
(In thousands)
Quarter Ended September 30, 2022
Beginning balance
$
2,375
$
24,753
$
17,079
$
44,207
Plus:
Additions to nonaccrual
2
-
179
181
Less:
Loans returned to accrual status
-
(189)
(75)
(264)
Nonaccrual loans transferred to OREO
(50)
-
-
(50)
Nonaccrual loans charge-offs
(58)
(2)
(8)
(68)
Loan collections
(32)
(821)
(1,460)
(2,313)
Ending balance
 
$
2,237
$
23,741
$
15,715
$
41,693
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
123
Construction
Commercial
Mortgage
Commercial &
Industrial
Total
(In thousands)
Nine-Month Period Ended September 30, 2023
Beginning balance
$
2,208
$
22,319
$
7,830
$
32,357
Plus:
Additions to nonaccrual
 
127
1,505
20,730
22,362
Less:
Loans returned to accrual status
-
(361)
(725)
(1,086)
Nonaccrual loans transferred to OREO
(332)
(223)
(730)
(1,285)
Nonaccrual loans charge-offs
-
(107)
(6,477)
(6,584)
Loan collections
(363)
(1,507)
(1,819)
(3,689)
Reclassification
-
6
-
6
Ending balance
 
$
1,640
$
21,632
$
18,809
$
42,081
Construction
Commercial
Mortgage
Commercial &
Industrial
Total
(In thousands)
Nine-Month Period Ended September 30, 2022
Beginning balance
$
2,664
$
25,337
$
17,135
$
45,136
Plus:
Additions to nonaccrual
20
2,934
2,337
5,291
Less:
Loans returned to accrual status
(48)
(547)
(539)
(1,134)
Nonaccrual loans transferred to OREO
(130)
(549)
(273)
(952)
Nonaccrual loans charge-offs
(114)
(41)
(335)
(490)
Loan collections
(155)
(2,991)
(3,012)
(6,158)
Reclassification
-
(402)
402
-
Ending balance
 
$
2,237
$
23,741
$
15,715
$
41,693
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
124
Nonaccrual
 
residential mortgage
 
loans decreased
 
by $10.9
 
million to
 
$31.9 million
 
as of
 
September 30,
 
2023, compared
 
to $42.8
million as of
 
December 31, 2022.
 
The decrease was
 
primarily related to
 
$10.4 million of
 
loans restored to
 
accrual status, $5.2
 
million
of loans transferred to OREO, and $4.0 million in collections, partially offset
 
by inflows of $9.6 million.
The following table presents the activity of residential nonaccrual loans held for investment
 
for the indicated periods:
Quarter Ended September 30,
 
Nine-Month Period Ended September 30,
 
2023
2022
2023
2022
(In thousands)
Beginning balance
 
$
33,252
$
44,588
$
42,772
$
55,127
 
Plus:
Additions to nonaccrual
4,510
4,782
9,600
14,513
 
Less:
Loans returned to accrual status
 
(3,788)
(3,630)
(10,439)
(12,411)
Nonaccrual loans transferred to OREO
(984)
(495)
(5,243)
(2,617)
Nonaccrual loans charge-offs
(83)
(356)
(704)
(1,306)
Loan collections
(961)
(1,853)
(4,034)
(10,270)
Reclassification
 
-
-
(6)
-
Ending balance
 
$
31,946
$
43,036
$
31,946
$
43,036
The amount of nonaccrual
 
consumer loans, including finance
 
leases, increased by $4.4
 
million to $19.2 million
 
as of September 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 September 30, 2023,
 
approximately $26.5 million of
 
the loans placed in nonaccrual status,
 
mainly commercial 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 nine-month period ended
 
September 30, 2023, interest income of
 
approximately $0.2 million related to
 
nonaccrual loans
with a
 
carrying value
 
of $34.9
 
million as
 
of September
 
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 $137.0
million as of
 
September 30, 2023,
 
an increase of
 
$32.1 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 $25.7 million to
 
$96.6 million, mainly in the auto loans portfolio.
●
Residential mortgage loans in early delinquency increased by $5.9
 
million to $34.1 million.
●
Commercial and construction loans in early delinquency increased
 
by $0.5 million to $6.3 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
125
The
 
OREO
 
portfolio,
 
which
 
is
 
part
 
of
 
non-performing
 
assets,
 
amounted
 
to
 
$28.6
 
million
 
as
 
of
 
September
 
30,
 
2023
 
and
 
$31.6
million as
 
of December
 
31, 2022.
 
The following
 
tables show
 
the composition
 
of the
 
OREO portfolio
 
as of
 
September 30,
 
2023 and
December 31,
 
2022, as well
 
as the activity
 
of the OREO
 
portfolio by geographic
 
area during the
 
nine-month period
 
ended September
30, 2023:
OREO Composition by Region
 
As of September 30, 2023
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Residential
 
$
18,971
$
1,769
$
-
$
20,740
Construction
1,802
59
-
1,861
Commercial
2,774
2,810
378
5,962
$
23,547
$
4,638
$
378
$
28,563
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
 
Nine-Month Period Ended September 30, 2023
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Beginning Balance
$
28,135
$
3,475
$
31
$
31,641
Additions
12,602
1,970
378
14,950
Sales
(15,930)
(776)
(31)
(16,737)
Write-downs and other adjustments
(1,260)
(31)
-
(1,291)
Ending Balance
$
23,547
$
4,638
$
378
$
28,563
 
 
 
126
Net Charge-offs and Total
 
Credit Losses
 
Net charge-offs
 
totaled $14.1
 
million for
 
the third
 
quarter of
 
2023,
 
or 0.48% of
 
average loans
 
on an annualized
 
basis, compared
 
to
$8.6
million, or
 
an annualized
 
0.31%
 
of average
 
loans, for
 
the third
 
quarter of
 
2022. For
 
the nine-month
 
period ended
 
September 30,
2023,
 
net
 
charge-offs
 
totaled
 
$46.6
 
million,
 
or
 
an
 
annualized
 
0.54%
 
of
 
average
 
loans,
 
compared
 
to $21.1
 
million,
 
or an
 
annualized
0.25% of average loans,
 
for the same period in 2022.
Consumer
 
loans
 
and
 
finance
 
leases
 
net
 
charge-offs
 
for
 
the
 
third
 
quarter
 
of
 
2023
 
were
 
$15.8
 
million,
 
or
 
an
 
annualized
 
1.79%
 
of
related average
 
loans, compared
 
to $8.3
 
million, or
 
an annualized
 
1.05% of
 
related average
 
loans, for
 
the third
 
quarter of
 
2022. Net
charge-offs
 
of consumer
 
loans and
 
finance leases
 
for the
 
nine-month period
 
ended September
 
30, 2023
 
were $41.8
 
million, or
 
1.61%
of related average loans, compared to $21.4 million, or an annualized
 
0.94% of related average loans, for the same period in 2022.
Commercial and
 
industrial loans
 
net recoveries
 
for the
 
third quarter
 
of 2023
 
were $0.2
 
million, or
 
an annualized
 
0.02% of
 
related
average loans,
 
compared to
 
$0.5 million,
 
or an
 
annualized 0.07%
 
of related
 
average loans,
 
for the
 
third quarter
 
of 2022.
 
Commercial
and
 
industrial
 
loans
 
net
 
charge-offs
 
for
 
the
 
nine-month
 
period
 
ended
 
September
 
30,
 
2023
 
were
 
$6.1
 
million,
 
or
 
0.28%
 
of
 
related
average
 
loans,
 
compared
 
to net
 
recoveries
 
of $1.8
 
million,
 
or
 
an
 
annualized
 
0.08%
 
of
 
related
 
average
 
loans, for
 
the same
 
period
 
in
2022. The net charge-offs
 
for the first nine 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.
Construction loans
 
net recoveries for
 
the third
 
quarter of
 
2023 were $1.4
 
million, or an
 
annualized 3.18%
 
of related
 
average loans,
compared
 
to
 
net
 
charge-offs
 
of
 
$20
 
thousand,
 
or
 
an
 
annualized
 
0.07%
 
of
 
related
 
average
 
loans,
 
for
 
the
 
same
 
period
 
in
 
2022.
Construction loans
 
net recoveries
 
for the nine
 
-month period
 
ended September
 
30, 2023
 
were $1.9
 
million, or
 
an annualized
 
1.58% of
related average
 
loans, compared
 
to $15
 
thousand, or
 
an annualized
 
0.02% of
 
related average
 
loans, for
 
the same
 
period in
 
2022. The
net recoveries
 
for the
 
third quarter
 
and first
 
nine months
 
of 2023
 
included a
 
$1.4 million
 
recovery recorded
 
on a
 
construction loan
 
in
the Puerto Rico region.
Residential
 
mortgage
 
loans
 
net
 
recoveries
 
for
 
the
 
third
 
quarter
 
of
 
2023
 
were
 
$35
 
thousand,
 
or
 
an
 
annualized
 
0.01%
 
of
 
related
average loans,
 
compared to
 
net-charge-offs
 
of $0.9
 
million, or
 
an annualized
 
0.13% of
 
related average
 
loans, for
 
the third
 
quarter of
2022.
 
Residential
 
mortgage
 
loans
 
net
 
charge-offs
 
for
 
the
 
nine-month
 
period
 
ended
 
September
 
30,
 
2023
 
were
 
$0.8
 
million,
 
or
 
an
annualized 0.04%
 
of related
 
average loans,
 
compared to
 
$2.8 million,
 
or an
 
annualized 0.13%
 
of related
 
average loans,
 
for the
 
same
period of
 
2022. Approximately
 
$0.1 million
 
of charge-offs
 
for the
 
third quarter
 
of 2023
 
and $0.6
 
million for
 
the first
 
nine months
 
of
2023 resulted
 
from valuations
 
of collateral
 
dependent
 
residential mortgage
 
loans, compared
 
to $0.3
 
million
 
and $1.2
 
million
 
for the
comparable
 
periods
 
in
 
2022,
 
respectively.
 
Charge-offs
 
on
 
residential
 
mortgage
 
loans
 
also
 
included
 
$0.3
 
million
 
and
 
$1.2
 
million
related
 
to
 
foreclosures
 
recorded
 
in
 
the
 
third
 
quarter
 
and
 
first nine
 
months
 
of
 
2023,
 
respectively,
 
compared
 
to
 
$0.6
 
million
 
and
 
$2.4
million, recorded for the comparable periods in 2022, respectively.
Commercial
 
mortgage
 
loans
 
net
 
recoveries
 
for
 
the
 
third
 
quarter
 
of
 
2023
 
were
 
$0.1
 
million,
 
or
 
an
 
annualized
 
0.01%
 
of
 
related
average
 
loans,
 
relatively
 
unchanged
 
compared
 
to the
 
third quarter
 
of 2022.
 
Commercial mortgage
 
loans net
 
recoveries for
 
the nine-
month
 
period
 
ended
 
September
 
30,
 
2023
 
were
 
$0.2
 
million,
 
or
 
an
 
annualized
 
0.01%
 
of
 
related
 
average
 
loans,
 
compared
 
to
 
$1.3
million, or
 
an annualized
 
0.08% of related
 
average loans,
 
for the same
 
period in
 
2022. Commercial
 
mortgage loans
 
net recoveries
 
for
the first nine months of 2022 included recoveries totaling $1.2 million
 
associated with two commercial mortgage relationships.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
127
 
The following table presents annualized net (recoveries) charge
 
-offs to average loans held-in-portfolio for the indicated periods:
Quarter Ended September 30,
 
Nine-Month Period Ended September 30,
 
2023
2022
2023
2022
Residential mortgage
(0.01)
%
0.13
%
0.04
%
0.13
%
Construction
 
(3.18)
%
0.07
%
(1.58)
%
(0.02)
%
Commercial mortgage
(0.01)
%
(0.01)
%
(0.01)
%
(0.08)
%
Commercial and industrial
(0.02)
%
(0.07)
%
0.28
%
(0.08)
%
Consumer and finance leases
1.79
%
1.05
%
1.61
%
0.94
%
Total loans
0.48
%
0.31
%
0.54
%
0.25
%
 
The following table presents annualized net (recoveries) charge
 
-offs to average loans held in various portfolios by geographic
segment for the indicated periods:
Quarter Ended September 30,
 
Nine-Month Period Ended September 30,
 
2023
2022
2023
2022
PUERTO RICO:
Residential mortgage
-
%
0.15
%
0.06
%
0.16
%
Construction
 
(7.30)
%
0.53
%
(4.32)
%
0.09
%
Commercial mortgage
(0.01)
%
-
%
-
%
(0.05)
%
Commercial and industrial
(0.03)
%
(0.11)
%
-
%
(0.13)
%
Consumer and finance leases
1.78
%
1.04
%
1.61
%
0.94
%
Total loans
0.59
%
0.38
%
0.58
%
0.32
%
VIRGIN ISLANDS:
Residential mortgage
(0.12)
%
0.30
%
-
%
0.19
%
Construction
 
0.42
%
-
%
-
%
-
%
Commercial mortgage
(0.21)
%
(0.22)
%
(0.02)
%
(0.22)
%
Consumer and finance leases
2.15
%
1.67
%
0.33
%
1.35
%
Total loans
0.26
%
0.36
%
0.05
%
0.24
%
FLORIDA:
Residential mortgage
(0.01)
%
(0.05)
%
(0.02)
%
(0.03)
%
Construction
 
(0.05)
%
(0.04)
%
(0.05)
%
(0.06)
%
Commercial mortgage
-
%
-
%
(0.03)
%
(0.14)
%
Commercial and industrial
(0.01)
%
-
%
0.88
%
-
%
Consumer and finance leases
(0.16)
%
0.47
%
(0.37)
%
(0.16)
%
Total loans
(0.01)
%
(0.01)
%
0.39
%
(0.05)
%
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 net of gains on
 
OREO operations for the first nine
 
months of 2023 amounted to $40.5 million,
 
or a loss rate of
0.46% on an annualized
 
basis of average loans
 
and repossessed assets, compared
 
to losses of $17.9
 
million, or a loss
 
rate of 0.21% on
an annualized basis, for the same period in 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
128
The following table presents information about the OREO inventory
 
and credit losses for the indicated periods:
Quarter ended September 30,
 
Nine-Month Period Ended September 30,
 
2023
2022
2023
2022
(Dollars in thousands)
OREO
OREO balances, carrying value:
Residential
$
20,740
$
30,036
$
20,740
$
30,036
Construction
1,861
2,613
1,861
2,613
Commercial
5,962
6,033
5,962
6,033
Total
$
28,563
$
38,682
$
28,563
$
38,682
OREO activity (number of properties):
Beginning property inventory
320
431
344
418
Properties acquired
36
30
139
139
Properties disposed
(75)
(49)
(202)
(145)
Ending property inventory
281
412
281
412
Average holding period (in days)
Residential
464
656
464
656
Construction
2,302
2,192
2,302
2,192
Commercial
2,598
2,420
2,598
2,420
Total average holding period (in days)
1,029
1,035
1,029
1,035
OREO operations gain (loss):
Market adjustments and gains (losses) on sale:
Residential
$
2,577
$
1,159
$
7,620
$
4,139
Construction
52
(7)
99
107
Commercial
41
408
(26)
329
Total net gain
2,670
1,560
7,693
4,575
Other OREO operations expenses
(517)
(496)
(1,560)
(1,306)
Net Gain on OREO operations
$
2,153
$
1,064
$
6,133
$
3,269
RECOVERIES (CHARGE-OFFS)
 
Residential recoveries (charge-offs), net
$
35
$
(907)
$
(840)
$
(2,845)
Construction recoveries (charge-offs), net
1,459
(20)
1,893
15
Commercial recoveries (charge-offs) , net
 
226
540
(5,902)
3,029
Consumer and finance leases charge-offs, net
(15,806)
(8,258)
(41,785)
(21,398)
Total charge-offs,
 
net
(14,086)
(8,645)
(46,634)
(21,199)
TOTAL CREDIT LOSSES
(1)
$
(11,933)
$
(7,581)
$
(40,501)
$
(17,930)
(GAIN) LOSS RATIO PER CATEGORY
(2)
Residential
(0.37)
%
(0.03)
%
(0.32)
%
(0.06)
%
Construction
(3.26)
%
0.09
%
(1.64)
%
(0.13)
%
Commercial
(0.02)
%
(0.07)
%
0.15
%
(0.09)
%
Consumer
1.78
%
1.04
%
1.61
%
0.94
%
TOTAL CREDIT LOSS RATIO
(3)
0.40
%
0.27
%
0.46
%
0.21
%
(1)
Equal to net gain on OREO operations plus charge-offs,
 
net.
(2)
Calculated as net recoveries (charge-offs) plus
 
market adjustments 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.
 
 
 
 
 
 
 
 
 
129
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
 
$12.0 billion as
 
of September 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.
 
130
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 underfunded 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
 
August
 
2023,
 
preliminary
 
estimates
 
showed
 
that
 
the
 
EDB-EAI
decreased 0.2%
 
on a
 
month-over-month
 
basis; however,
 
the EDB-EAI
 
increased 3.3%
 
when compared
 
to August
 
2022. Over
 
the 12-
month period ended August 31, 2023, the EDB-EAI averaged 125.8,
 
approximately 0.6% above the comparable figure a year earlier.
 
Labor
 
market
 
trends
 
remain
 
positive.
 
Data
 
published
 
by
 
the
 
Bureau
 
of
 
Labor
 
Statistics
 
showed
 
that
 
September
 
2023
 
payroll
employment in Puerto
 
Rico increased by
 
2.3% when compared
 
to September 2022,
 
supported by a year-over
 
-year increase of 9.4%
 
in
Leisure
 
and
 
Hospitality
payroll
 
employment
 
and
 
a
 
11.9%
 
year-over-year
 
increase
 
in
Construction
-related
 
payroll
 
employment
.
 
The
unemployment rate stood at 6.0% as of September 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 post-bankruptcy
 
environment, Volume
 
1 presents a
 
Transformation Plan
 
that highlights priority
 
areas
to cement fiscal responsibility,
 
accelerate economic growth in a sustainable manner,
 
and restore market access to Puerto Rico. Volume
2 provides additional details
 
on economic trends and
 
financial projections, and Volume
 
3 maps out the supplementary
 
implementation
details to
 
guide
 
the government’s
 
implementation
 
of the
 
requirements
 
of the
 
2023 Fiscal
 
Plan, as
 
well as
 
additional
 
initiatives
 
from
prior fiscal plans which remain mandatory and are still pending to be implemented.
The
 
2023
 
Fiscal
 
Plan
 
prioritizes
 
resource
 
allocation
 
across
 
three
 
major
 
pillars:
 
(i)
 
entrenching
 
a
 
legacy
 
of
 
strong
 
financial
management
 
through
 
the
 
implementation
 
of
 
a
 
comprehensive
 
financial
 
management
 
agenda,
 
(ii)
 
instilling
 
a
 
culture
 
of public
 
-sector
performance
 
and excellence
 
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.
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
 
131
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 years 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.
 
On August 25, 2023,
 
the PROMESA oversight board
 
announced that it filed
 
the third amended Plan
 
of Adjustment to reduce
 
more
than $10 billion
 
of total asserted
 
claims by various
 
creditors against PREPA
 
by approximately 80%
 
to $2.5 billion,
 
excluding pension
liabilities.
 
According
 
to
 
the
 
PROMESA
 
oversight
 
board,
 
bondholders
 
who
 
support
 
the
 
plan
 
would
 
recover
 
12.5%
 
of
 
their
 
original
asserted claim, while
 
bondholders who
 
do not agree
 
to the proposed
 
plan would recover
 
3.5% of
 
their asserted claim.
 
Combined with
other previous
 
agreements and
 
settlements that
 
remain in
 
place, approximately
 
43% of
 
PREPA’s
 
creditors support
 
the third
 
amended
plan.
 
In
 
addition
 
to
 
conforming
 
to
 
Judge
 
Taylor
 
Swain’s
 
ruling
 
made
 
in
 
June,
 
the
 
amended
 
plan
 
also
 
conforms
 
to
 
the
 
previously
disclosed
 
debt
 
sustainability
 
analysis
 
in
 
the
 
revised
 
PREPA
 
Fiscal
 
Plan
 
certified
 
in
 
June
 
2023
 
that
 
is
 
based
 
on
 
the
 
most
 
recent
projections of
 
PREPA’s
 
operating costs
 
and future
 
demand for
 
its services.
 
The PREPA
 
pension treatment
 
remains unchanged
 
under
the third
 
amended
 
plan. PREPA
 
retirees will
 
be paid
 
in full
 
for
 
all benefits
 
earned
 
through the
 
effective
 
date of
 
the plan.
 
After
 
that
date, no further benefits can be
 
earned under the defined benefit plan
 
by existing or new participants. The
 
disclosure statement hearing
for
 
the amended
 
plan
 
has
 
been
 
scheduled
 
for
 
November
 
14, 2023,
 
and
 
the
 
confirmation
 
hearing
 
is expected
 
to take
 
place
 
in
 
March
2024, according to a court order dated September 11,
 
2023.
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
 
eight months
of 2023,
 
over $2.6 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,
 
an
 
81%
 
increase
 
when
 
compared
 
to
 
the
same period in
 
2022.
 
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.
 
For
 
example,
 
approximately
 
86%
 
of
 
the
 
projects
 
that
 
FEMA
 
has
 
obligated
 
to
address damage
 
caused by
 
Hurricane Maria
 
have resources
 
to reinforce
 
their infrastructure,
 
among other
 
hazard mitigation
 
measures,
that will prepare these facilities for
 
future weather events. To
 
date, the agency has allocated over
 
$31 billion for nearly 10,800 projects
under
 
its
 
Public
 
Assistance
 
program
 
of
 
which
 
2,069
 
permanent
 
works
 
have
 
been
 
completed
 
while
 
over
 
2,800
 
are
 
currently
 
in
 
the
process of construction, according to the Central Office for Recovery,
 
Reconstruction and Resiliency (“COR3”).
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 is
 
on target
 
to release
 
its audited
 
financial
 
statements on
 
time and
 
in line
with regulatory expectations.
On
 
October
 
17,
 
2023,
 
the
 
Government
 
of
 
Puerto
 
Rico
 
announced
 
the
 
execution
 
of
 
a
 
$2.85
 
billion
 
concession
 
agreement
 
with
Puerto
 
Rico
 
Tollroads
 
LLC
 
(“PR
 
Tollroads”),
 
a
 
subsidiary
 
of
 
Abertis
 
Infraestructuras
 
SA,
 
to
 
operate,
 
maintain,
 
and
 
improve
 
the
Puerto Rico
 
toll roads
 
currently managed
 
by HTA.
 
Pursuant to
 
the agreement,
 
PR Tollroads
 
will pay
 
HTA
 
a concession
 
fee of
 
about
$2.85 billion which
 
will enable HTA
 
to pay off
 
approximately $1.6 billion
 
of its outstanding
 
debt. In addition,
 
the concession fee
 
will
provide an
 
estimated $1.1
 
billion in
 
new funding
 
to be
 
dedicated for
 
road-maintenance
 
purposes and
 
other long-term
 
investments of
transportation projects.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
132
Exposure to Puerto Rico Government
As of September
 
30, 2023, the Corporation
 
had $294.9 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
 
September
 
30,
 
2023,
 
approximately
 
$188.9
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 $59.2
 
million consisted of
 
loans and obligations
 
which are supported
 
by one or more
 
specific sources
of municipal
 
revenues. Approximately
 
73% 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
 
$8.9
 
million
 
in
 
loans
 
to an
affiliate
 
of PREPA,
 
$34.7
 
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
 
$3.2 million
 
as
part of its available-for-sale debt securities portfolio (fair
 
value of $1.4 million as of September 30, 2023).
The
 
following
 
table
 
details
 
the
 
Corporation’s
 
total
 
direct
 
exposure
 
to
 
Puerto
 
Rico
 
government
 
obligations
 
according
 
to
 
their
maturities:
As of September 30, 2023
Investment
Portfolio
(Amortized
cost)
Loans
Total
 
Exposure
(In thousands)
Puerto Rico Housing Finance Authority:
 
After 10 years
$
3,204
$
-
$
3,204
Total
 
Puerto Rico Housing Finance Authority
3,204
-
3,204
Agencies and public corporation of the Puerto Rico government:
 
After 1 to 5 years
-
9,330
9,330
 
After 5 to 10 years
-
25,376
25,376
Total agencies and public
 
corporation of the Puerto Rico government
-
34,706
34,706
 
Affiliate of the Puerto Rico Electric Power Authority:
 
Due within one year
-
-
-
 
After 1 to 5 years
-
8,938
8,938
Total Puerto Rico government
 
affiliate
-
8,938
8,938
Total
 
Puerto Rico public corporations and government affiliate
-
43,644
43,644
Municipalities:
 
Due within one year
3,159
7,179
10,338
 
After 1 to 5 years
51,133
52,323
103,456
 
After 5 to 10 years
35,831
81,858
117,689
 
After 10 years
16,595
-
16,595
Total
 
Municipalities
106,718
141,360
248,078
Total
 
Direct Government Exposure
$
109,922
$
185,004
$
294,926
 
 
 
 
 
 
 
133
In
 
addition,
 
as
 
of
 
September
 
30,
 
2023,
 
the
 
Corporation
 
had
 
$79.3
 
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,
 
2022,
 
the
 
PRHFA’s
 
mortgage
 
loans
 
insurance
 
program
 
covered
 
loans
 
in
 
an
aggregate
 
amount
 
of
 
approximately
 
$418
 
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,
 
2022, the
 
most recent
 
date as
 
of which
information is available, the PRHFA
 
had a liability of approximately $1 million as an estimate of
 
the losses inherent in the portfolio.
As of September
 
30, 2023, the Corporation
 
had $2.8 billion
 
of public sector
 
deposits in Puerto
 
Rico, compared to
 
$2.3 billion as
 
of
December
 
31,
 
2022.
 
Approximately
 
22%
 
of
 
the
 
public
 
sector
 
deposits
 
as
 
of
 
September
 
30,
 
2023
 
were
 
from
 
municipalities
 
and
municipal agencies in Puerto Rico and 78% 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
 
$4.9 billion in
 
disaster recovery
 
funds were disbursed
 
as of August
 
2023 and $5.8
 
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 September 2023, up 1.1% when compared to September
 
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 September 30, 2023, the Corporation had $87.5 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 by
 
the aforementioned $55.8
 
million line of
 
credit
utilization.
 
As of September 30, 2023, all loans were currently performing and up to date on principal
 
and interest payments.
 
 
 
 
 
134
ITEM 3. QUANTITATIVE
 
AND QUALITATIVE DISCLOSURES
 
ABOUT MARKET
 
RISK
For
 
information
 
regarding
 
market
 
risk
 
to
 
which
 
the
 
Corporation
 
is
 
exposed,
 
see
 
the
 
information
 
contained
 
in
 
Part
 
I,
 
Item
 
2.
“Management’s
 
Discussion
 
and
 
Analysis
 
of
 
Financial
 
Condition
 
and
 
Results of
 
Operations
 
— Risk
 
Management”
 
in
 
this Quarterly
Report on Form 10-Q.
ITEM 4.
 
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
First
 
BanCorp.’s
 
management,
 
including
 
its
 
Chief
 
Executive
 
Officer
 
and
 
Chief
 
Financial
 
Officer,
 
evaluated
 
the
 
effectiveness
 
of
First
 
BanCorp.’s
 
disclosure
 
controls
 
and
 
procedures
 
(as
 
defined
 
in
 
Rules
 
13a-15(e)
 
and
 
15d-15(e)
 
under
 
the
 
Exchange
 
Act)
 
as
 
of
September
 
30,
 
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 September
 
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 September
 
30, 2023
 
that have
 
materially
 
affected,
 
or are
 
reasonably
likely to materially affect, the Corporation’s
 
internal control over financial reporting.
 
 
 
135
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.
 
The
Corporation has not incurred any material expenses related to the incident and does
 
not expect any future impact.
 
 
 
 
136
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
137
ITEM 2.
 
UNREGISTERED
 
SALES OF
 
EQUITY SECURITIES
 
AND USE OF
 
PROCEEDS
The Corporation did not have any unregistered sales
 
of equity securities during the quarter ended September
 
30, 2023.
Issuer Purchases of Equity Securities
The
 
following
 
table
 
provides
 
information
 
in
 
relation
 
to
 
the
 
Corporation’s
 
purchases
 
of
 
its
 
common
 
stock
 
during
 
the
 
quarter
 
ended
September 30, 2023.
Period
Total Number of Shares
Purchased
 
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar Value
of Shares That May Yet
 
be
Purchased Under These
Plans or Programs (In
thousands)
(1)
July 1, 2023 - July 31, 2023
1,424,636
$
13.37
1,424,636
$
280,954
August 1, 2023 - August 31, 2023
2,142,034
14.45
2,142,034
250,000
September 1, 2023 - September 30, 2023
1,826,566
13.69
1,825,788
225,000
Total
5,393,236
(2) (3)
5,392,458
(1)
During the
 
third quarter
 
of 2023,
 
the Corporation
 
completed the
 
$350 million
 
stock repurchase
 
program approved
 
by the
 
Board of
 
Directors on
 
April 27,
 
2022. 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. The
 
stock repurchase
 
program does
 
not obligate
 
the Corporation
 
to acquire
 
any specific
 
number of
 
shares, does
 
not have
 
an expiration
 
date and
 
may be
 
modified, suspended,
 
or
terminated at
 
any time
 
at the
 
Corporation's
 
discretion. Under
 
the stock
 
repurchase program,
 
shares may
 
be repurchased
 
through open
 
market purchases,
 
accelerated share
 
repurchases
and/or privately negotiated transactions, including under plans
 
complying with Rule 10b5-1 under the Exchange Act.
(2)
Includes 5,392,458 shares of common stock repurchased in the open
 
market at an average price of $13.91 for a total purchase price
 
of approximately $75 million.
(3)
Includes 778 shares
 
of common stock
 
withheld by the
 
Corporation to cover
 
minimum tax
 
withholdings obligations in
 
connection with the
 
vesting of outstanding
 
restricted stock through
the withholding of shares.
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 September 30, 2023.
 
 
 
 
138
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 September 30, 2023, formatted in
Inline XBRL (included within the Exhibit 101 attachments)
 
 
 
139
SIGNATURES
Pursuant to
 
the requirements
 
of the
 
Securities Exchange
 
Act of
 
1934, the
 
Corporation has
 
duly caused
 
this report
 
to be
 
signed on
 
its
behalf by the undersigned hereunto duly authorized:
 
First BanCorp.
Registrant
Date:
 
November 8, 2023
By:
 
/s/ Aurelio Alemán
 
Aurelio Alemán
 
President and Chief Executive Officer
Date: November 8, 2023
By:
 
/s/ Orlando Berges
 
Orlando Berges
 
Executive Vice President and Chief Financial Officer