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REGULATORY MATTERS, COMMITMENTS AND CONTINGENCIES
 9 Months Ended
Sep. 30, 2021
Commitments And Contingencies Disclosure [Abstract]  
REGULATORY MATTERS, COMMITMENTS AND CONTINGENCIES [Text Block]

NOTE 29 – REGULATORY MATTERS, COMMITMENTS AND CONTINGENCIES

 

The Corporation and FirstBank are each subject to various regulatory capital requirements imposed by the U.S. Federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on the Corporation’s financial statements and activities. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation’s and FirstBank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Corporation’s capital amounts and classification are also subject to qualitative judgments and adjustment by the regulators with respect to minimum capital requirements, components, risk weightings, and other factors. As of September 30, 2021 and December 31, 2020, 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, 2021, 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% 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.

 

Under the Basel III rules, in order to be considered adequately capitalized and not subject to the above described limitations, the Corporation is required to maintain: (i) a minimum Common Equity Tier 1 (“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 capital ratio of at least 7%; (ii) a minimum ratio 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 adjusted) assets.

 

As part of its response to the impact of COVID-19, on March 31, 2020, the agencies issued an interim final rule that provided the option to temporarily delay the effects of CECL on regulatory capital for two years, followed by a three-year transition period. The interim final rule provides that, at the election of a qualified banking organization, the day 1 impact to retained earnings plus 25% of the change in the ACL (excluding PCD loans) 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, 2021, the capital measures of the Corporation and the Bank excluded $69.6 million that represents the day 1 impact to retained earnings plus 25% of the increase in the allowance for credit losses (as defined in the interim final rule) from January 1, 2020 to September 30, 2021. The federal financial regulatory agencies may take other measures affecting regulatory capital to address the COVID-19 pandemic, although the nature and impact of such measures cannot be predicted at this time.

The regulatory capital positions of the Corporation and FirstBank as of September 30, 2021 and December 31, 2020, which reflects the delay in the effect of CECL on regulatory capital, were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regulatory Requirements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actual

 

 

For Capital Adequacy Purposes

 

 

To be Well-Capitalized- Thresholds

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital (to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk-Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First BanCorp.

 

$

2,457,609

 

20.67

%

 

$

951,067

 

8.00

%

 

 

N/A

 

N/A

 

 

 

FirstBank

 

$

2,400,550

 

20.20

%

 

$

950,788

 

8.00

%

 

$

1,188,485

 

10.00

%

CET1 Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(to Risk-Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First BanCorp.

 

$

2,094,540

 

17.62

%

 

$

534,975

 

4.50

%

 

 

N/A

 

N/A

 

 

 

FirstBank

 

$

2,093,878

 

17.62

%

 

$

534,818

 

4.50

%

 

$

772,516

 

6.50

%

Tier I Capital (to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk-Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First BanCorp.

 

$

2,130,644

 

17.92

%

 

$

713,300

 

6.00

%

 

 

N/A

 

N/A

 

 

 

FirstBank

 

$

2,251,878

 

18.95

%

 

$

713,091

 

6.00

%

 

$

950,788

 

8.00

%

Leverage ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First BanCorp.

 

$

2,130,644

 

10.17

%

 

$

838,339

 

4.00

%

 

 

N/A

 

N/A

 

 

 

FirstBank

 

$

2,251,878

 

10.75

%

 

$

838,041

 

4.00

%

 

$

1,047,552

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital (to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk-Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First BanCorp.

 

$

2,416,682

 

20.37

%

 

$

948,890

 

8.00

%

 

 

N/A

 

N/A

 

 

 

FirstBank

 

$

2,360,493

 

19.91

%

 

$

948,624

 

8.00

%

 

$

1,185,780

 

10.00

%

CET1 Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(to Risk-Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First BanCorp.

 

$

2,053,045

 

17.31

%

 

$

533,751

 

4.50

%

 

 

N/A

 

N/A

 

 

 

FirstBank

 

$

1,903,251

 

16.05

%

 

$

533,601

 

4.50

%

 

$

770,757

 

6.50

%

Tier I Capital (to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk-Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First BanCorp.

 

$

2,089,149

 

17.61

%

 

$

711,667

 

6.00

%

 

 

N/A

 

N/A

 

 

 

FirstBank

 

$

2,211,251

 

18.65

%

 

$

711,468

 

6.00

%

 

$

948,624

 

8.00

%

Leverage ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First BanCorp.

 

$

2,089,149

 

11.26

%

 

$

742,352

 

4.00

%

 

 

N/A

 

N/A

 

 

 

FirstBank

 

$

2,211,251

 

11.92

%

 

$

741,841

 

4.00

%

 

$

927,301

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Corporation enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments may include commitments to extend credit and standby letters of credits. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Since certain commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. For most of the commercial lines of credit, the Corporation has the option to reevaluate the agreement prior to additional disbursements. In the case of credit cards and personal lines of credit, the Corporation can cancel the unused credit facility at any time and without cause. As of September 30, 2021, commitments to extend credit amounted to approximately $2.0 billion, of which $1.1 billion relates to credit card loans. Commercial and financial standby letters of credit amounted to approximately $129.9 million.

 

As of September 30, 2021, 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, 2021, no such disclosures were necessary.