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REGULATORY MATTERS, COMMITMENTS AND CONTINGENCIES | 9 Months Ended
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Sep. 30, 2018
Commitments And Contingencies Disclosure [Abstract] |
REGULATORY MATTERS, COMMITMENTS AND CONTINGENCIES | NOTE 27 – REGULATORY MATTERS, COMMITMENTS AND CONTINGENCIES The Corporation and FirstBank are each subject to various regulatory capital requirements imposed by the 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 a ccounting practices. The Corporation’s capital amounts and classification s are also subject to qualitative judgments and adjustment by the regulators with respect to minimum capital requirements, components, risk weightings, and other factors. On Oc tober 3, 2017, the New York FED terminated the Written Agreement entered into on June 3, 2010 between the Corporation and the New York FED. However, the Corporation has agreed with the New York FED to continue to obtain the approval of the New York FED bef ore paying dividends, receiving dividends from the Bank, making payments on subordinated debt or trust preferred securities, incurring or guaranteeing debt or purchasing or redeeming any corporate stock. Although the Corporation and FirstBank became sub ject to the U.S. Basel III capital rules (“Basel III rules”) beginning on January 1, 2015, certain requirements of the Basel III rules are being phased-in over several years and, in general, will be fully effective as of January 1, 2019. C ertain e lements of the new rules have been deferred by the federal banking agencies. The Corporation and FirstBank compute risk-weighted assets using the Standardized Approach required by the Basel III rules. The Basel III rules require the Corporation to maint ain an additional capital conservation buffer of 2.5% to avoid limitations on both (i) capital distributions (e.g., repurchases of capital instruments, dividends and interest payments on capital instruments), and (ii) discretionary bonus payments to execut ive officers and heads of major business lines. The phase-in of the capital conservation buffer began on January 1, 2016 with a first year requirement of 0.625% of additional Common Equity Tier 1 Capital (“CET1”), which is being progressively increased ove r a four-year period, increasing by that same percentage amount on each subsequent January 1 until it reaches the fully phased-in 2.5% CET1 requirement on January 1, 2019. Under the fully phased-in Basel III rules, in order to be considered adequately capitalized, the Corporation will be required to maintain: (i) a minimum CET1 capital to risk-weighted assets ratio of at least 4.5%, plus the 2.5% capital conservation buffer, resulting in a required minimum CET1 ratio of at least 7%, (ii) a minimum rat io of total Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer, resulting in a required minimum Tier 1 capital ratio of 8.5%, (iii) a minimum ratio of total Tier 1 plus Tier 2 capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer, resulting in a required minimum total capital ratio of 10.5%, and (iv) a required minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average on-balance sheet (non-risk adj usted) assets. In addition, as required under the Basel III rules, the Corporation’s trust preferred securities (“TRuPs”) were fully phased out from Tier 1 capital as of January 1, 2016. However, the Corporation’s TRuPs may continue to be included in Tier 2 capital until the instruments are redeemed or mature. On November 21, 2017, the Federal Reserve Board, the FDIC, and the Office of the Comptroller of the Currency finalized an extension of the phase-in of certain Basel III capital rules for b anks not using the Basel advanced approaches. The extension, which was effective January 1, 2018, pauses the full transition to the Basel III treatment of mortgage servicing assets, certain deferred tax assets, investments in the capital of unconsolidated financial institutions and minority interests, pending the banking agencies’ broader efforts, announced in September 2017, to simplify the regulatory capital rules that apply to banking organizations that are not subject to the advanced approaches capital rules. Because the advanced approaches capital rules apply to banking organizations with more than $250 billion in total consolidated assets or at least $10 billion in total on-balance sheet foreign exposure, the extension relief applies broadly to communi ty, midsize, and regional banks, includin g the Corporation and FirstBank. Please refer to the discussion in “Part I, – Item 1, – Business – Supervision and Regulation,” included in the 2017 Annual Report on Form 10-K for a more complete discussion of supervision and regulatory matters and activities that affect the Corporation and its subsidiaries.
The regulatory capital positions of the Corporation and FirstBank as of September 30, 2018 and December 31, 2017 were as follows:
|  |  | Regulatory Requirements
|  |  | Actual |  | For Capital Adequacy Purposes |  | To be Well-Capitalized-General Thresholds
|  |  | Amount |  | Ratio |  | Amount |  | Ratio |  | Amount |  | Ratio
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
As of September 30, 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total Capital (to |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk-Weighted Assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |
First BanCorp. | $ | 2,081,558 |  | 23.85% |  | $ | 698,271 |  | 8.0% |  |  | N/A |  | N/A
FirstBank | $ | 2,039,091 |  | 23.36% |  | $ | 698,276 |  | 8.0% |  | $ | 872,845 |  | 10.0%
Common Equity Tier 1 Capital |  |  |  |  |  |  |  |  |  |  |  |  |  |
(to Risk-Weighted Assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |
First BanCorp. | $ | 1,756,702 |  | 20.13% |  | $ | 392,778 |  | 4.5% |  |  | N/A |  | N/A
FirstBank | $ | 1,620,964 |  | 18.57% |  | $ | 392,780 |  | 4.5% |  | $ | 567,350 |  | 6.5%
Tier I Capital (to |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk-Weighted Assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |
First BanCorp. | $ | 1,792,806 |  | 20.54% |  | $ | 523,704 |  | 6.0% |  |  | N/A |  | N/A
FirstBank | $ | 1,928,964 |  | 22.10% |  | $ | 523,707 |  | 6.0% |  | $ | 698,276 |  | 8.0%
Leverage ratio |  |  |  |  |  |  |  |  |  |  |  |  |  |
First BanCorp. | $ | 1,792,806 |  | 14.85% |  | $ | 483,056 |  | 4.0% |  |  | N/A |  | N/A
FirstBank | $ | 1,928,964 |  | 15.99% |  | $ | 482,619 |  | 4.0% |  | $ | 603,274 |  | 5.0%
As of December 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total Capital (to |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk-Weighted Assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |
First BanCorp. | $ | 1,989,873 |  | 22.53% |  | $ | 706,432 |  | 8.0% |  |  | N/A |  | N/A
FirstBank | $ | 1,947,627 |  | 22.06% |  | $ | 706,218 |  | 8.0% |  | $ | 882,772 |  | 10.0%
Common Equity Tier 1 Capital |  |  |  |  |  |  |  |  |  |  |  |  |  |
(to Risk-Weighted Assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |
First BanCorp. | $ | 1,674,164 |  | 18.96% |  | $ | 397,368 |  | 4.5% |  |  | N/A |  | N/A
FirstBank | $ | 1,562,431 |  | 17.70% |  | $ | 397,248 |  | 4.5% |  | $ | 573,802 |  | 6.5%
Tier I Capital (to |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk-Weighted Assets) |  |  |  |  |  |  |  |  |  |  |  |  |  |
First BanCorp. | $ | 1,675,282 |  | 18.97% |  | $ | 529,824 |  | 6.0% |  |  | N/A |  | N/A
FirstBank | $ | 1,835,445 |  | 20.79% |  | $ | 529,663 |  | 6.0% |  | $ | 706,218 |  | 8.0%
Leverage ratio |  |  |  |  |  |  |  |  |  |  |  |  |  |
First BanCorp. | $ | 1,675,282 |  | 14.03% |  | $ | 477,643 |  | 4.0% |  |  | N/A |  | N/A
FirstBank | $ | 1,835,445 |  | 15.39% |  | $ | 477,056 |  | 4.0% |  | $ | 596,320 |  | 5.0%
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 commitments to sell mortgage loans at fair value. As of September 30, 201 8, commitments to extend credit amounted to approximately $1.3 b illion, of which $664.4 million relates to credit card loans. Commercial and Financial standby letters of credit amounted to approximately $72.5 million. 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 c ommitments 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 making 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, 2018, First BanCorp. and its subsidiaries were defen dants in various legal proceedings 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 cases, matters and proceedings, uti lizing the latest information available. For cases, matters and proceedings where it is both probable the Corporation will incur a loss and the amount can be reasonably estimated, the Corporation establishes an accrual for the loss. Once established, the a ccrual is adjusted as appropriate to reflect any relevant developments. For cases, matters or proceedings where a loss is not probable or the amount of the loss cannot be estimated, no accrual is established. Any estimate involves significant judgment, gi ven 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 un resolved 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 cases, matters, and proceedings is inherently uncertain, based on information currently available, Management believes that the final disposition of the Corporation’s legal cases, matters or proceedings, to the extent not previously provided for, will not have a material negative 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 additional material loss in excess of any accrual) will be incurred in connection with any legal actions, the Corporation discloses an estimate of the possible loss or range of loss, either individually or in the aggregate, as appropriate, if such an e stimate can be made, or discloses that an estimate cannot be made. Based on the Corporation’s assessment as of September 30, 2018, no such disclosures were necessary. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these cases, matters and proceedings, if unfavorable, may be material to the Corporation’s consolidated financial position on a particular period. Ramírez Torres, et al. v. Banco Popular de Puerto Rico, et al. FirstBank Puerto Rico has been named Defendant in this Class Action Complaint, filed of February 17, 2017 at the Court of First Instance in San Juan, Puerto Rico. The Complaint seeks damages and preliminary injunctive relief on behalf of the purported class against Banco Popular de Pue rto Rico and other financial institutions with insurance agency subsidiaries in Puerto Rico. Plaintiffs allege that Defendants have been unjustly enriched by failing to reimburse them for "good experience" commissions allegedly paid by Antilles Insurance Company and Puerto Rico Home Insurance Company. On March 30, 2017, FirstBank Puerto Rico filed a Motion to Dismiss and a Motion for Declaratory Judgment and Third Party Complaint against Antilles Insurance Company and the Insurance Commissioner's Office. A ll other Defendants filed Motions to Dismiss. Antilles Insurance Company filed a Motion against the Third Party Complaint filed by FirstBank Puerto Rico, which FirstBank Puerto Rico opposed. The Insurance Commissioner's Office filed a Motion for Summary J udgment. On July 28, 2017, the Court issued a Judgment granting the Motions to Dismiss filed by Defendants, dismissing the Complaint with prejudice, except the Third Party Complaint filed by FirstBank Puerto Rico which was dismissed without prejudice. On A ugust 30, 2017, Plaintiffs filed an Appeal before the Puerto Rico Court of Appeals and FirstBank Puerto Rico filed its Opposition to Plaintiffs Appeal. On March 20, 2018, the Court of Appeals entered a Judgment revoking the lower court judgment. Oriental B ank filed for Reconsideration, which was denied. All other Defendants filed writs of Certiorari before the Puerto Rico Supreme Court on May 29, 2018. On June 26, 2018, the Puerto Rico Supreme Court issued Resolution s denying all writs of Certiorari filed b y Defendants. Oriental Bank and Banco Popular were the only two banks that filed for reconsideration. Motions for Reconsideration were denied on October 10, 2018. Oriental Bank filed a Second Motion f or Reconsideration on October 12, 2018. Therefore, the case will not be remanded to the Court of First Instance for the continuation of proceedings until Puerto Rico Supreme Court issues resolution regarding Oriental Bank’s Second Motion f or Reconsideration.

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