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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K/A
Amendment No. 1
(Mark one)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT
OF 1934
For the Fiscal Year Ended
December 31, 2022
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
00908
San Juan
,
Puerto Rico
(Zip Code)
(Address of principal executive office)
Registrant’s telephone number, including area code:
(
787
)
729-8200
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)
FBP
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Act.
Yes
☑
No
☐
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act. Yes
☐
No
☑
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 has filed a
report on and attestation to its management’s
assessment of the effectiveness of its internal control over
financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its
audit report.
☑
If securities are registered pursuant to Section 12(b) of the Act,
indicate by check mark whether the financial statements of
the registrant included in the filing reflect the correction
of an error
to previously issued financial statements.
☐
Indicate by check mark whether any of those error corrections are
restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s
executive
officers during the relevant recovery period pursuant
to §240.10D-1(b).
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
No
☑
The aggregate market value of the voting common equity held
by non-affiliates of the registrant as of June 30,
2022 (the last trading day of the registrant’s
most recently completed second
fiscal quarter) was $
2,373,329,883
based on the closing price of $12.91 per share of the registrant’s
common stock on the New York
Stock Exchange on June 30, 2022. The registrant had no
nonvoting common equity outstanding as of June 30, 2022.
For the purposes of the foregoing calculation only,
the registrant has defined affiliates to include (a) the executive
officers named in
Part III of this Annual Report on Form 10-K; (b) all directors
of the registrant; and (c) each shareholder,
including the registrant’s employee benefit
plans but excluding shareholders that file on
Schedule 13G, known to the registrant to be the beneficial owner
of 5% or more of the outstanding shares of common stock of
the registrant as of June 30, 2022. The registrant’s
response to
this item is not intended to be an admission that any person
is an affiliate of the registrant for any purposes other than this
response.
Indicate the number of shares outstanding of each of the
registrant’s classes of common stock,
as of the latest practicable date:
180,585,944
shares as of February 21, 2023.
Documents incorporated by reference:
Portions of the definitive proxy statement relating to
the registrant’s annual meeting of stockholders
scheduled to be held on May 18, 2023 are
incorporated by reference in response to Items 10, 11,
12, 13 and 14 of Part III of this Form 10-K.
2
Explanatory Note
First BanCorp. (the “Corporation”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) solely to correct clerical
errors in the EDGARized version of the report titled “Report of the Independent Registered Public Accounting Firm” (the “Audit
Report”) provided by Crowe LLP (“Crowe”) in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December
31, 2022, as filed on February 28, 2023 (the “Original Annual Report”). The Audit Report in this Amendment is revised as follows:
the addressee is changed from stockholders to shareholders, the subtitle of the section titled “Critical Audit Matter” is changed from
“Allowance for Credit Losses – Model and Macroeconomic Variables” to “Allowance for Credit Losses – Economic Forecasts and
Macroeconomic Variables”, and the description of the critical audit matter assessment performed is updated to remove the reference to
the model design and construction related to ACL. These revisions were inadvertently omitted in the EDGARized Audit Report
included in the Original Annual Report and do not impact the opinion rendered on the financial statements as of December 31, 2022.
Pursuant to Rule 12b-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), this
Amendment includes: Item 8 of Part II, “Financial Statements and Supplementary Data” in its entirety and without change from the
Original Annual Report other than the corrections of the clerical errors in the Audit Report discussed above; and Item 15 of Part IV,
including new certifications by our principal executive officer and principal financial officer.
This Amendment does not change any previously reported financial results or otherwise amend the Original Annual Report as
previously filed, except as discussed above. Furthermore, this Amendment does not update or otherwise amend the Original Annual
Report as originally filed for changes in events, estimates or other developments subsequent to the date of the filing of the Original
Annual Report on February 28, 2023. This Amendment should be read in conjunction with the Original Annual Report and our other
filings with the Securities and Exchange Commission.
3
Item 8. Financial Statements and Supplementary Data
FIRST BANCORP.
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
(PCAOB No.
173
)….…………………………..
4
Management’s Report on Internal Control over Financial Reporting
…………………………………………
6
Consolidated Statements of Financial Condition
……………………………………………………………...
7
Consolidated Statements of Income
……...…………………………………………………………………...
8
Consolidated Statements of Comprehensive (Loss) Income
……...………………………………………..…
9
Consolidated Statements of Cash Flows
………………………………………………………………………
10
Consolidated Statements of Changes in Stockholders’ Equity
………………………………………………..
11
Notes to Consolidated Financial Statements
…………………………………………………………………..
13
4
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors
of First BanCorp.
San Juan, Puerto Rico
Opinions on the Financial Statements and Internal Control
over Financial Reporting
We
have
audited
the
accompanying
consolidated
statements
of
financial
condition
of
First
BanCorp.
(the
"Company")
as
of
December 31, 2022 and 2021, the related consolidated
statements of income, comprehensive (loss) income, cash flows, and
changes in
stockholders’
equity
for
each
of
the
years
in
the
three-year
period
ended
December
31,
2022,
and
the
related
notes
(collectively
referred
to
as
the
"financial
statements").
We
also
have
audited
the
Company’s
internal
control
over
financial
reporting
as
of
December
31,
2022,
based
on
criteria
established
in
Internal
Control
–
Integrated
Framework:
(2013)
issued
by
the
Committee
of
Sponsoring Organizations of the Treadway
Commission (COSO).
In our opinion,
the financial statements
referred to above
present fairly,
in all material respects,
the financial position
of the Company
as of
December 31,
2022 and
2021, and
the results
of its
operations and
its cash
flows for
each of
the years
in the
three-year period
ended December
31, 2022
in conformity
with accounting
principles generally
accepted in
the United
States of
America.
Also in
our
opinion, the Company maintained,
in all material respects, effective
internal control over financial
reporting as of December
31, 2022,
based on criteria established in Internal Control – Integrated Framework:
(2013) issued by COSO.
Basis for Opinions
The
Company’s
management
is
responsible
for
these
financial
statements,
for
maintaining
effective
internal
control
over
financial
reporting,
and
for
its
assessment
of
the
effectiveness
of
internal
control
over
financial
reporting,
included
in
the
accompanying
Management’s
Report
on Internal
Control
over
Financial
Reporting.
Our responsibility
is to
express an
opinion
on the
Company’s
financial statements
and an
opinion on
the Company’s
internal control
over financial
reporting based
on our
audits.
We
are a
public
accounting firm
registered with
the Public
Company Accounting
Oversight Board
(United States)
("PCAOB") and
are required
to be
independent with
respect to
the Company
in accordance
with the
U.S. federal
securities laws and
the applicable
rules and
regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted
our audits in accordance with the
standards of the PCAOB. Those standards require
that we plan and perform the audits
to obtain reasonable
assurance about whether
the financial statements are
free of material misstatement,
whether due to error
or fraud,
and whether effective internal control over financial reporting
was maintained in all material respects.
Our
audits
of
the
financial
statements
included
performing
procedures
to
assess
the
risks
of
material
misstatement
of
the
financial
statements, whether due to error or fraud,
and performing procedures that respond to
those risks. Such procedures included examining,
on
a
test basis,
evidence
regarding
the
amounts
and
disclosures
in
the
financial
statements.
Our
audits
also
included
evaluating
the
accounting
principles
used
and
significant
estimates
made
by
management,
as
well
as
evaluating
the
overall
presentation
of
the
financial statements. Our audit
of internal control over
financial reporting included obtaining
an understanding of internal
control over
financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design
and operating effectiveness
of internal control
based on the
assessed risk.
Our audits also
included performing
such other procedures
as we considered
necessary
in the circumstances.
We believe that our audits
provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s
internal control over financial reporting is a
process designed to provide reasonable assurance
regarding the reliability of
financial reporting and
the preparation of
financial statements for
external purposes in
accordance with generally
accepted accounting
principles.
A
company’s
internal
control
over
financial
reporting
includes
those
policies
and
procedures
that
(1)
pertain
to
the
maintenance
of
records
that,
in
reasonable
detail,
accurately
and
fairly
reflect
the
transactions
and
dispositions
of
the
assets
of
the
company; (2) provide
reasonable assurance that
transactions are recorded
as necessary to permit
preparation of financial
statements in
accordance with
generally accepted
accounting principles,
and that
receipts and
expenditures of
the company
are being
made only
in
accordance
with
authorizations
of
management
and
directors
of
the
company;
and
(3)
provide
reasonable
assurance
regarding
prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s
assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections
of any evaluation
of effectiveness to
future periods are
subject to the
risk that controls
may become inadequate
because of changes
in
conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
5
Critical Audit Matter
The
critical
audit
matter
communicated
below
is a
matter
arising
from
the
current
period
audit
of
the
financial
statements
that
was
communicated or required
to be communicated
to the audit
committee and that:
(1) relates to accounts
or disclosures that
are material
to the financial
statements and (2)
involved our especially
challenging, subjective,
or complex judgments.
The communication
of the
critical
audit
matter
does
not
alter
in
any
way
our
opinion
on
the
financial
statements,
taken
as
a
whole,
and
we
are
not,
by
communicating
the
critical
audit
matter
below,
providing
a
separate
opinion
on
the
critical
audit
matter
or
on
the
accounts
or
disclosures to which it relates.
Allowance for Credit Losses – Economic Forecasts and Macroeconomic Variables
As described
in Notes
1 and
5 to
the financial
statements, the
allowance for
credit losses
(“ACL”) for
loans and
finance leases
is an
accounting
estimate
of
expected
credit
losses
over
the
contractual
life
of
financial
assets
carried
at
amortized
cost
and
off-balance-
sheet credit exposures.
The calculation
of the
ACL for
loans and
finance leases,
is primarily
measured based
on a
probability of
default /
loss given
default
modeled approach. The
estimate of the
probability of default and
loss given default
assumptions uses economic
forecasts and relevant
current
and
forward-looking
macroeconomic
variables,
such
as:
unemployment
rate;
housing
and
real
estate
price
indices;
interest
rates; market
risk factors;
and gross
domestic
product, and
considers
conditions
throughout Puerto
Rico, the
Virgin
Islands,
and the
State of Florida.
A significant amount
of judgment is
required to
assess the reasonableness
of the selection
of economic forecasts
and
macroeconomic variables. Changes to these assumptions could have a
material effect on the Company’s
financial results.
The economic
forecasts and
current and
forward-looking macroeconomic
variables used
contribute significantly
to the
determination
of the ACL for loans
and finance leases. We
identified the assessment of
economic forecasts and relevant
macroeconomic variables as
a critical
audit matter
as the
impact of
these judgments
represents a
significant portion
of the
ACL for
loans and
finance leases
and
because
management’s
estimate
required
especially
subjective
auditor
judgment
and
significant
audit
effort,
including
the
need
for
specialized skill.
The primary procedures we performed to address these critical audit matters included:
●
Testing
the effectiveness
of controls
over the
evaluation of
the selection
of economic
forecasts and
the current
and forward-
looking macroeconomic variables, including controls addressing:
o
Management’s review and
approval of the economic forecasts and macroeconomic variables.
o
Management’s
review
of
the
reasonableness
of
the
results
of
the
selection
of
economic
forecasts
and
macroeconomic variables used in the calculation.
●
Substantively
testing
management’s
process,
including
evaluating
their
judgments
and
assumptions,
for
economic
forecast
selection and macroeconomic variables, which included:
o
Evaluation of reasonableness of economic forecasts selection.
o
Evaluation
of
the
completeness
and
accuracy
of
data
inputs
used
as
a
basis
for
the
adjustments
relating
to
macroeconomic variables.
o
Evaluation,
with
the
assistance
of
professionals
with
specialized
skill
and
knowledge,
of
the
reasonableness
of
management’s
judgments related
to the
economic forecast
and macroeconomic
variables used
in the
determination
of
the
ACL
for
loans.
Among
other
procedures,
our
evaluation
considered,
evidence
from
internal
and
external
sources, loan portfolio performance trends and whether such assumptions were
applied consistently period to period.
o
Analytical evaluation of the variables period to period for directional consistency
and testing for reasonableness.
/s/
Crowe LLP
We have served
as the Company’s auditor since 2018.
Fort Lauderdale, Florida
February 28, 2023
Stamp No. E511055 of the Puerto Rico
Society of Certified Public Accountants
was affixed to the record copy of this report.
6
Management’s Report on Internal Control
over Financial Reporting
To the Stockholders
and Board of Directors of First BanCorp.:
First BanCorp.’s
(the “Corporation”)
internal control
over financial
reporting is
a process
designed
and effected
by those
charged
with
governance,
management,
and
other
personnel,
to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and the preparation of reliable
financial statements in accordance
with accounting principles generally
accepted in the United States of
America
(“GAAP”).
The
Corporation’s
internal
control
over
financial
reporting
includes
those
policies
and
procedures
that:
(1) pertain to the
maintenance of records
that, in reasonable detail,
accurately and fairly reflect
the transactions and dispositions
of the
assets
of
the
Corporation;
(2) provide
reasonable
assurance
that
transactions
are
recorded
as
necessary
to
permit
the
preparation
of
financial
statements
in
accordance
with
GAAP,
and
that
receipts
and
expenditures
of
the
Corporation
are
being
made
only
in
accordance
with
authorizations
of
management
and
directors
of
the
Corporation;
and
(3) provide
reasonable
assurance
regarding
prevention,
or timely
detection and
correction
of unauthorized
acquisition,
use, or
disposition of
the Corporation’s
assets that
could
have a material effect on the financial statements.
Because of
its inherent
limitations, internal
control over
financial reporting
may not
prevent, or
detect and
correct misstatements.
Also,
projections
of
any
evaluation
of
effectiveness
to
future
periods
are
subject
to
the
risk
that
controls
may
become
inadequate
because of changes in conditions, or that the degree of compliance with the policies
and procedures may deteriorate.
Management
is
responsible
for
establishing
and
maintaining
effective
internal
control
over
financial
reporting.
Management
assessed
the
effectiveness
of
the
Corporation’s
internal
control
over
financial
reporting
as
of
December 31,
2022,
based
on
the
framework
set
forth
by
the
Committee
of
Sponsoring
Organizations
of
the
Treadway
Commission
(COSO)
in
Internal
Control-
Integrated
Framework
(2013).
Based
on
that
assessment,
management
concluded
that,
as
of
December
31,
2022,
the
Corporation’s
internal control over financial reporting is effective based
on the criteria established in Internal Control-Integrated Framework (2013).
The effectiveness
of FirstBancorp.’s
internal control over
financial reporting as
of December 31, 2022,
has been audited
by Crowe
LLP,
an independent public accounting firm, as stated in their accompanying
report dated February 28, 2023.
First BanCorp.
/s/
Aurelio Alemán
Aurelio Alemán
President and Chief Executive Officer
Date: February 28, 2023
/s/
Orlando Berges
Orlando Berges
Executive Vice President
and Chief Financial Officer
Date: February 28, 2023
7
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
2022
December 31, 2021
(In thousands, except for share information)
ASSETS
Cash and due from banks
$
478,480
$
2,540,376
Money market investments:
Time deposits with other financial institutions
300
300
Other short-term investments
1,725
2,382
Total money market investments
2,025
2,682
Available-for-sale debt securities, at fair value:
Securities pledged with creditors’ rights to repledge
81,103
321,180
Other available-for-sale debt securities
5,518,417
6,132,581
Total available-for-sale debt securities, at fair value (amortized cost 2022 - $
6,398,197
;
2021 - $
6,534,503
; allowance for credit losses (“ACL”) of $
458
as of December 31, 2022
and $
1,105
as of December 31, 2021)
5,599,520
6,453,761
Held-to-maturity debt securities, at amortized cost, net of ACL
of $
8,286
as of December 31, 2022 and $
8,571
as of December 31, 2021 (fair value 2022 - $
427,115
; 2021 - $
167,147
)
429,251
169,562
Equity securities
55,289
32,169
Total investment securities
6,084,060
6,655,492
Loans, net of ACL of $
260,464
(2021 - $
269,030
)
11,292,361
10,791,628
Mortgage loans held for sale, at lower of cost or market
12,306
35,155
Total loans, net
11,304,667
10,826,783
Accrued interest receivable on loans and investments
69,730
61,507
Premises and equipment, net
142,935
146,417
Other real estate owned (“OREO”)
31,641
40,848
Deferred tax asset, net
155,584
208,482
Goodwill
38,611
38,611
Other intangible assets
21,118
29,934
Other assets
305,633
234,143
Total assets
$
18,634,484
$
20,785,275
LIABILITIES
Non-interest-bearing deposits
$
6,112,884
$
7,027,513
Interest-bearing deposits
10,030,583
10,757,381
Total deposits
16,143,467
17,784,894
Securities sold under agreements to repurchase
75,133
300,000
Advances from the Federal Home Loan Bank ("FHLB")
675,000
200,000
Other borrowings
183,762
183,762
Accounts payable and other liabilities
231,582
214,852
Total liabilities
17,308,944
18,683,508
Commitments and contingencies (See Note 29)
(nil)
(nil)
STOCKHOLDERS’ EQUITY
Common stock, $
0.10
par value, authorized,
2,000,000,000
shares;
223,663,116
shares issued;
182,709,059
shares outstanding (2021 -
201,826,505
shares outstanding)
22,366
22,366
Additional paid-in capital (See Note 1)
970,722
972,547
Retained earnings, includes legal surplus reserve of $
168,484
(2021 - $
137,591
)
1,644,209
1,427,295
Treasury stock, at cost
40,954,057
shares (2021 -
21,836,611
shares) (See Note 1)
(506,979)
(236,442)
Accumulated other comprehensive loss, net of tax of $
8,468
as of December 31, 2022 (2021 - $
9,786
)
(804,778)
(83,999)
Total stockholders’ equity
1,325,540
2,101,767
Total liabilities and stockholders’ equity
$
18,634,484
$
20,785,275
The accompanying notes are an integral part of these statements.
8
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF INCOME
Year
Ended December 31,
2022
2021
2020
(In thousands, except per share information)
Interest and dividend income:
Loans
$
747,901
$
719,153
$
631,047
Investment securities
102,922
72,893
58,547
Money market investments and interest-bearing cash accounts
11,791
2,662
3,388
Total interest and dividend income
862,614
794,708
692,982
Interest expense:
Deposits
46,361
41,482
68,388
Securities sold under agreements to repurchase
7,555
9,963
6,645
Advances from FHLB
5,136
8,199
11,251
Other borrowings
8,269
5,135
6,376
Total interest expense
67,321
64,779
92,660
Net interest income
795,293
729,929
600,322
Provision for credit losses - expense (benefit):
Loans and finance leases
25,679
(61,720)
168,717
Unfunded loan commitments
2,736
(3,568)
1,183
Debt securities
(719)
(410)
1,085
Provision for credit losses - expense (benefit)
27,696
(65,698)
170,985
Net interest income after provision for credit losses
767,597
795,627
429,337
Non-interest income:
Service charges and fees on deposit accounts
37,823
35,284
24,612
Mortgage banking activities
15,260
24,998
22,124
Net gain on investment securities
-
-
13,198
Gain on early extinguishment of debt
-
-
94
Insurance commission income
13,743
11,945
9,364
Card and processing income
40,416
36,508
25,609
Other non-interest income
15,850
12,429
16,225
Total non-interest income
123,092
121,164
111,226
Non-interest expenses:
Employees' compensation and benefits
206,038
200,457
177,073
Occupancy and equipment
88,277
93,253
74,633
Business promotion
18,231
15,359
12,145
Professional service fees
47,848
59,956
52,633
Taxes, other than
income taxes
20,267
22,151
17,762
Federal Deposit Insurance Corporation ("FDIC") deposit insurance
6,149
6,544
6,488
Net (gain) loss on OREO operations
(5,826)
(2,160)
3,598
Credit and debit card processing expenses
22,736
22,169
19,144
Communications
8,723
9,387
8,437
Merger and restructuring costs
-
26,435
26,509
Other non-interest expenses
30,662
35,423
25,818
Total non-interest expenses
443,105
488,974
424,240
Income before income taxes
447,584
427,817
116,323
Income tax expense
142,512
146,792
14,050
Net income
$
305,072
$
281,025
$
102,273
Net income attributable to common stockholders
$
305,072
$
277,338
$
99,597
Net income per common share:
Basic
$
1.60
$
1.32
$
0.46
Diluted
$
1.59
$
1.31
$
0.46
The accompanying notes are an integral part of these statements.
9
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
INCOME
Year Ended
December 31,
2022
2021
2020
(In thousands)
Net income
$
305,072
$
281,025
$
102,273
Other comprehensive (loss) income, net of tax:
Available-for-sale debt securities:
Net unrealized holding (losses) gains on debt securities
(718,582)
(143,115)
61,791
Reclassification adjustment for provision for credit loss expense
-
-
368
Reclassification adjustment for net gains included in net income on sales
-
-
(13,198)
Defined benefit plans adjustments:
Net actuarial (loss) gain
(2,199)
3,660
(270)
Reclassification adjustment for amortization of net actuarial loss
2
1
-
Other comprehensive (loss) income for the year, net of tax
(720,779)
(139,454)
48,691
Total comprehensive (loss) income
$
(415,707)
$
141,571
$
150,964
Year Ended
December 31,
2022
2021
2020
(In thousands)
Income tax effect of items included in other comprehensive (loss) income:
Defined benefit plans adjustments:
Net actuarial (loss) gain
$
1,319
$
(2,199)
$
162
Reclassification adjustment for amortization of net actuarial loss
(1)
-
-
Total income tax effect of items included in other comprehensive (loss) income
$
1,318
$
(2,199)
$
162
The accompanying notes are an integral part of these statements.
10
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2022
2021
2020
(In thousands)
Cash flows from operating activities:
Net income
$
305,072
$
281,025
$
102,273
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
22,289
24,965
20,068
Amortization of intangible assets
8,816
11,407
5,912
Provision for credit losses - expense (benefit)
27,696
(65,698)
170,985
Deferred income tax expense (benefit)
54,216
118,323
(4,371)
Stock-based compensation
5,407
5,460
5,117
Gain on early extinguishment of debt
-
-
(94)
Gain on sales of investment securities
-
-
(13,198)
Unrealized gain on derivative instruments
(1,098)
(4,227)
(5,635)
Net gain on disposals or sales, and impairments of
premises and equipment and other assets
(706)
(32)
(215)
Net gain on sales of loans and valuation adjustments
(5,498)
(14,791)
(13,273)
Net amortization of discounts, premiums, and deferred
loan fees and costs
(7,853)
(25,294)
(8,602)
Originations and purchases of loans held for sale
(214,962)
(503,200)
(648,052)
Sales and repayments of loans held for sale
235,199
528,253
659,349
Amortization of broker placement fees
106
218
537
Net amortization of premiums and discounts on investment
securities
3,435
26,549
19,410
(Increase) decrease in accrued interest receivable
(11,340)
7,701
6,419
Increase (decrease) in accrued interest payable
1,706
(2,776)
(2,990)
(Increase) decrease in other assets
(2,437)
24,344
(5,018)
Increase (decrease) increase in other liabilities
20,437
(12,506)
9,116
Net cash provided by operating activities
440,485
399,721
297,738
Cash flows from investing activities:
Net (disbursements) repayments on loans held for investment
(603,853)
599,097
(335,152)
Proceeds from sales of loans held for investment
62,168
81,458
6,788
Proceeds from sales of repossessed assets
46,281
55,867
35,270
Proceeds from sales of available-for-sale debt securities
-
-
1,195,250
Purchases of available-for-sale debt securities
(512,327)
(3,447,921)
(3,820,148)
Proceeds from principal repayments and maturities of available-for-sale
debt securities
626,802
1,445,873
1,277,762
Purchases of held-to-maturity debt securities
(289,784)
-
-
Proceeds from principal repayments and maturities of
held-to-maturity debt securities
32,153
12,677
6,431
Additions to premises and equipment
(20,459)
(13,349)
(16,070)
Proceeds from sales of premises and equipment and
other assets
1,196
832
497
Net (purchases) redemptions of other investments securities
(23,637)
5,322
3,881
Proceeds from the settlement of insurance claims -
investing activities
-
550
-
Net (payments) cash acquired in acquisition
-
(3,381)
406,626
Net cash used in investing activities
(681,460)
(1,262,975)
(1,238,865)
Cash flows from financing activities:
Net (decrease) increase in deposits
(1,706,118)
2,472,579
1,767,441
Net proceeds (repayments) of short-term borrowings
550,133
-
(35,000)
Repayments of long-term borrowings
(500,000)
(240,000)
(95,282)
Proceeds from long-term borrowings
200,000
-
-
Proceeds from long-term reverse repurchase agreements
-
-
200,000
Repurchase of outstanding common stock
(277,769)
(216,522)
(206)
Dividends paid on common stock
(87,824)
(65,021)
(43,416)
Dividends paid on preferred stock
-
(2,453)
(2,676)
Redemption of preferred stock-
Series A through E
-
(36,104)
-
Net cash (used in) provided by financing activities
(1,821,578)
1,912,479
1,790,861
Net (decrease) increase in cash and cash equivalents
(2,062,553)
1,049,225
849,734
Cash and cash equivalents at beginning of year
2,543,058
1,493,833
644,099
Cash and cash equivalents at end of year
$
480,505
$
2,543,058
$
1,493,833
Cash and cash equivalents include:
Cash and due from banks
$
478,480
$
2,540,376
$
1,433,261
Money market instruments
2,025
2,682
60,572
$
480,505
$
2,543,058
$
1,493,833
The accompanying notes are an integral part of these statements.
11
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY
Year Ended December 31,
2022
2021
2020
(In thousands, except per share information)
Preferred Stock:
Balance at beginning of year
$
-
$
36,104
$
36,104
Redemption of Series A through E Preferred Stock
-
(36,104)
-
Balance at end of year
-
-
36,104
Common Stock:
Balance at beginning of year
22,366
22,303
22,210
Common stock issued under stock-based compensation
plan
-
63
93
Balance at end of year
22,366
22,366
22,303
Additional Paid-In Capital
(See Note 1)
:
Balance at beginning of year
972,547
965,385
960,342
Stock-based compensation expense
5,407
5,460
5,117
Common stock reissued/issued under stock-based compensation
plan
(7,365)
(63)
(93)
Restricted stock forfeited
133
531
19
Issuance costs of Series A through E Preferred Stock redeemed
-
1,234
-
Balance at end of year
970,722
972,547
965,385
Retained Earnings:
Balance at beginning of year
1,427,295
1,215,321
1,221,817
Impact of adoption of Accounting Standards Codification
("ASC" or "Codification")
Topic 326, "Financial Instruments - Credit Losses" ("ASC 326" or "CECL")
(62,322)
Balance at beginning of period (as adjusted for impact of adoption
of ASC 326)
1,159,495
Net income
305,072
281,025
102,273
Dividends on common stock (2022 - $
0.46
per share; 2021 - $
0.31
per share; 2020 - $
0.20
per share)
(88,158)
(65,364)
(43,771)
Dividends on preferred stock
-
(2,453)
(2,676)
Excess of redemption value over carrying value of Series
A through E Preferred Stock redeemed
-
(1,234)
-
Balance at end of year
1,644,209
1,427,295
1,215,321
Treasury Stock (at cost)
(See Note 1)
:
Balance at beginning of year
(236,442)
(19,389)
(19,170)
Common stock repurchases (See Note 17)
(277,769)
(216,522)
(200)
Common stock reissued under stock-based compensation plan
7,365
-
-
Restricted stock forfeited
(133)
(531)
(19)
Balance at end of year
(506,979)
(236,442)
(19,389)
Accumulated Other Comprehensive (Loss) Income, net of tax:
Balance at beginning of year
(83,999)
55,455
6,764
Other comprehensive (loss) income, net of tax
(720,779)
(139,454)
48,691
Balance at end of year
(804,778)
(83,999)
55,455
Total stockholders’ equity
$
1,325,540
$
2,101,767
$
2,275,179
The accompanying notes are an integral part of these statements.
12
FIRST BANCORP.
INDEX TO NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
PAGE
Note 1 –
Nature of Business and Summary of Significant Accounting Policies
13
Note 2 –
Money Market Investments
29
Note 3 –
Debt Securities
30
Note 4 –
Loans Held for Investment
39
Note 5
–
Allowance for Credit Losses for Loans and Finance Leases
55
Note 6
–
Premises and Equipment
58
Note 7 –
Other Real Estate Owned
58
Note 8 –
Related-Party Transactions
59
Note 9
–
Goodwill and Other Intangibles
60
Note 10 –
Non-Consolidated Variable
Interest Entities (“VIE”) and Servicing Assets
62
Note 11 –
Deposits and Related Interest
67
Note 12 –
Securities Sold Under Agreements to Repurchase
69
Note 13 –
Advances from the Federal Home Loan Bank (“FHLB”)
71
Note 14 –
Other Borrowings
72
Note 15 –
Earnings per Common Share
73
Note 16 –
Stock-Based Compensation
74
Note 17 –
Stockholders’ Equity
76
Note 18 –
Other Comprehensive (Loss) Income
78
Note 19 –
Employee Benefit Plans
79
Note 20 –
Other Non-Interest Income
84
Note 21 –
Other Non-Interest Expenses
84
Note 22 –
Income Taxes
85
Note 23 –
Operating Leases
88
Note 24 –
Derivative Instruments and Hedging Activities
90
Note 25
–
Fair Value
93
Note 26
–
Revenue from Contracts with Customers
98
Note 27 –
Segment Information
102
Note 28 –
Supplemental Statement of Cash Flows Information
105
Note 29 –
Regulatory Matters, Commitments, and Contingencies
106
Note 30 –
First BanCorp. (Holding Company Only) Financial Information
109
13
NOTE 1
–
NATURE OF BUSINESS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
First BanCorp. (the “Corporation”)
is a publicly owned, Puerto
Rico-chartered financial holding
company organized under
the laws
of the Commonwealth
of Puerto Rico in
1948. The Corporation
is subject to regulation,
supervision, and examination
by the Board
of
Governors of
the Federal
Reserve System
(the “Federal
Reserve Board”).
Through its
subsidiaries, including
its banking
subsidiary,
FirstBank Puerto Rico (“FirstBank”
or the “Bank”), the Corporation
provides full-service commercial
and consumer banking services,
mortgage banking
services, automobile
financing, trust
services, insurance
agency services,
and other
financial products
and services
with operations in Puerto Rico, the United States, the U.S. Virgin
Islands (the “USVI”), and the British Virgin
Islands (the “BVI”).
The Corporation
has two
wholly-owned subsidiaries:
FirstBank Puerto
Rico (“FirstBank”
or the
“Bank”), and
FirstBank Insurance
Agency,
Inc.
(“FirstBank
Insurance
Agency”).
FirstBank
is
a
Puerto
Rico-chartered
commercial
bank,
and
FirstBank
Insurance
Agency is
a Puerto
Rico-chartered insurance
agency.
FirstBank is
subject to
the supervision,
examination, and
regulation of
both the
Office
of
the
Commissioner
of
Financial
Institutions
of
the
Commonwealth
of
Puerto
Rico
(the
“OCIF”)
and
the
Federal
Deposit
Insurance
Corporation
(“FDIC”).
Deposits
are
insured
through
the
FDIC
Deposit
Insurance
Fund.
FirstBank
also
operates
in
the
State
of
Florida,
subject
to
regulation
and
examination
by
the
Florida
Office
of
Financial
Regulation
and
the
FDIC;
in
the
USVI,
subject to regulation
and examination by
the USVI Division
of Banking, Insurance,
and Financial Regulation;
and in the
BVI, subject
to regulation
by the
British Virgin
Islands Financial
Services Commission.
The Consumer
Financial Protection
Bureau (the
“CFPB”)
regulates FirstBank’s consumer
financial products and services.
FirstBank Insurance Agency
is subject to the supervision,
examination, and regulation of
the Office of the
Insurance Commissioner
of
the
Commonwealth
of
Puerto
Rico
and
the
Division
of
Banking
and
Insurance
Financial
Regulation
in
the
USVI.
FirstBank conducts its
business through its
main office located
in San Juan, Puerto
Rico,
59
banking branches in
Puerto Rico,
eight
banking branches in the
USVI and the BVI, and
nine
banking branches in the
state of Florida (USA).
FirstBank has six wholly-owned
subsidiaries
with
operations
in
Puerto
Rico:
First
Federal
Finance
Corp.
(d/b/a
Money
Express
La Financiera),
a
finance
company
specializing
in
the
origination
of
small
loans
with
27
offices
in
Puerto
Rico;
First
Management
of
Puerto
Rico,
a
Puerto
Rico
corporation,
which
holds
tax-exempt
assets;
FirstBank
Overseas
Corporation,
an
international
banking
entity
(an
“IBE”)
organized
under the
International Banking
Entity Act
of Puerto
Rico; two
companies engaged
in the
operation of
certain real
estate properties;
and
a wholly-owned
subsidiary of
FirstBank organized
in 2022
under the
laws of
the Commonwealth
of Puerto
Rico and
Act 60
of
2019, which will commence operations in 2023 and will engage in investing
and lending transactions.
General
The accompanying
consolidated audited financial
statements have
been prepared
in conformity
with generally accepted
accounting
principles (“GAAP”). The following is a description of the Corporation’s
most significant accounting policies.
Principles of consolidation
The
consolidated
financial
statements
include
the
accounts
of
the
Corporation
and
its
subsidiaries.
All
significant
intercompany
balances
and
transactions
have
been
eliminated
in
consolidation.
The
results
of
operations
of
companies
or
assets
acquired
are
included
from
the
date
of
acquisition.
Statutory
business
trusts
that
are
wholly-owned
by
the
Corporation
and
are
issuers
of
trust-
preferred
securities
(“TRuPs”)
and
entities
in
which
the
Corporation
has
a
non-controlling
interest,
are
not
consolidated
in
the
Corporation’s
consolidated
financial
statements
in
accordance
with
authoritative
guidance
issued
by
the
Financial
Accounting
Standards Board
(“FASB”)
for consolidation
of variable
interest entities
(“VIEs”). See
“Variable
Interest Entities”
below for
further
details regarding the Corporation’s
accounting policy for these entities
.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
14
Use of estimates in the preparation of financial statements
The
preparation
of
financial
statements
in
conformity
with GAAP
requires
management
to
make
estimates
and
assumptions
that
affect
the reported
amounts of
assets, liabilities,
and contingent
liabilities as
of the
date of
the financial
statements, and
the reported
amounts of revenues and expenses during the reporting period.
Management
makes
significant
estimates
in
determining
the
allowance
for
credit
losses
(“ACL”),
income
taxes,
as
well
as
fair
value
measurements
of
investment
securities,
goodwill,
other
intangible
assets,
pension
assets
and
liabilities,
mortgage
servicing
rights, and loans held for sale.
Actual results could differ from those estimates.
Change in accounting method
Effective
on September
30, 2022,
the Corporation
changed the
accounting method
for accounting
for its
treasury stock
from a
par
value to a
cost method. The
Corporation believes the
cost method is
preferable as it
more accurately reflects
in treasury stock
the cost
of stocks repurchased and
it enhances comparability of
financial results with other
financial institutions. The Corporation
reflected the
application of
this new accounting
method retrospectively
by adjusting
prior period
amounts for
treasury stock
and additional
paid-in
capital.
The
retrospective
adjustment,
which
was
reflected
in
the
consolidated
statements
of
financial
condition
and
statements
of
changes
in
stockholders’
equity,
was
limited
to
an
increase
in
the
beginning
balance
of
treasury
stock
at
January
1,
2020
of
$
19
million and an increase in
additional paid-in capital for
the same amount, which was
considered immaterial. These adjustments
had no
impact
on
previously
issued
statements
of
income,
comprehensive
income,
cash
flows,
and
executive
compensation
and
regulatory
capital measures.
Cash and cash equivalents
For purposes of
reporting cash
flows, cash and
cash equivalents include
cash on hand,
cash items in
transit, and
amounts due
from
the Federal Reserve Bank of New York
(the “Federal Reserve” or the “FED”) and other
depository institutions. The term also includes
money market funds and short-term investments with original maturities of
three months or less.
Investment securities
The Corporation classifies its investments in debt and equity securities into one
of four categories:
Held-to-maturity
— Debt
securities that
the entity
has the
intent and
ability to
hold to
maturity.
These securities
are carried
at
amortized
cost.
The
Corporation
may
not
sell
or
transfer
held-to-maturity
securities
without
calling
into
question
its
intent
to
hold other debt securities to
maturity, unless
a nonrecurring or unusual event
that could not have been reasonably
anticipated has
occurred.
Trading
— Debt securities that
are bought and
held principally for
the purpose of
selling them in
the near term.
These securities
are
carried
at
fair
value,
with
unrealized
gains
and
losses
reported
in
earnings.
As
of
December
31,
2022,
and
2021,
the
Corporation did not hold debt securities for trading purposes.
Available-for-sale
— Debt
securities not
classified as
held-to-maturity or
trading. These
securities are
carried at
fair value,
with
unrealized
holding
gains
and
losses,
net
of
deferred
taxes,
reported
in
other
comprehensive
loss
(“OCL”)
as
a
separate
component of
stockholders’ equity.
The unrealized
holding gains
and losses
do not
affect earnings
until they
are realized,
or an
ACL is recorded.
Equity
securities
—
Equity
securities
that
do
not
have
readily
available
fair
values
are
classified
as
equity
securities
in
the
consolidated
statements
of
financial
condition.
These
securities
are
stated
at
cost
less
impairment,
if
any.
This
category
is
principally
composed of
FHLB stock
that the
Corporation owns
to comply
with FHLB
regulatory requirements.
The realizable
value of
the FHLB
stock equals
its cost.
Also included
in this
category
are marketable
equity securities
held at
fair value
with
changes in unrealized gains or losses recorded through earnings in other
non-interest income.
Premiums
and
discounts
on
debt
securities
are
amortized
as an
adjustment
to
interest
income
on
investments
over
the life
of
the
related securities
under the
interest method
without anticipating
prepayments, except
for mortgage-backed
securities (“MBS”)
where
prepayments are anticipated. Premiums on
callable debt securities, if any,
are amortized to the earliest call date.
Purchases and sales of
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
15
securities are
recognized on
a trade-date
basis, the
date the
order to
buy or
sell is executed.
Gains and
losses on
sales are
determined
using the specific identification method.
A debt
security
is placed
on nonaccrual
status at
the time
any
principal
or interest
payment
becomes 90 days
delinquent.
Interest
accrued
but
not
received
for
a
security
placed
on
nonaccrual
is
reversed
against
interest
income.
See
Note
3
–
Debt
Securities
for
additional information on nonaccrual debt securities.
Allowance
for
Credit
Losses
–
Held-to-Maturity
Debt
Securities:
As
of
December
31,
2022,
the
held-to-maturity
debt
securities
portfolio consisted of U.S. government-sponsored entities (“GSEs”)
MBS and Puerto Rico municipal bonds.
The ACL
on held-to-maturity
debt securities
is based
on an
expected loss
methodology referred
to as
current expected
credit loss
(“CECL”)
methodology
by
major
security
type.
Any
expected
credit
loss
is
provided
through
the
ACL
on
held-to-maturity
debt
securities
and
is
deducted
from
the
amortized
cost
basis
of
the
security
so
that
the
statement
of
financial
condition
reflects
the
net
amount the Corporation expects to collect.
The Corporation
does not
recognize an
ACL for
GSEs’ MBS
since they
are either
explicitly or
implicitly guaranteed
by the
U.S.
government,
are highly
rated by
major rating
agencies, and
have a
long history
of no
credit losses.
For the
ACL of
held-to-maturity
Puerto
Rico municipal
bonds,
the Corporation
considers historical
credit loss
information
that is
adjusted for
current conditions
and
reasonable
and
supportable
forecasts.
These
Puerto
Rico
municipal
obligations
typically
are
not
issued
in
bearer
form, nor
are they
registered
with
the
Securities
and
Exchange
Commission
(“SEC”)
and
are
not
rated
by
external
credit
agencies.
These
financing
arrangements with Puerto
Rico municipalities were
issued in bond form
and accounted for as
securities but underwritten as
loans with
features
that
are
typically
found
in
commercial
loans.
Accordingly,
similar
to
commercial
loans,
an
internal
risk
rating
(
i.e
.,
pass,
special
mention,
substandard,
doubtful,
or
loss)
is
assigned
to
each
bond
at
the
time
of
issuance
or
acquisition
and
monitored
on
a
continuous basis
with a
formal assessment
completed,
at a
minimum, on
a quarterly
basis. The
Corporation determines
the ACL
for
held-to-maturity
Puerto
Rico
municipal
bonds
based
on
the
product
of
a
cumulative
probability
of
default
(“PD”)
and
loss
given
default (“LGD”),
and the amortized
cost basis of
each bond over
its remaining expected
life. PD estimates
represent the point
-in-time
as
of
which
the
PD
is
developed,
and
are
updated
quarterly
based
on,
among
other
things,
the
payment
performance
experience,
financial
performance
and
market
value
indicators,
and
current
and
forecasted
relevant
forward-looking
macroeconomic
variables
over the
expected life
of the
bonds,
to determine
a lifetime
term structure
PD curve.
LGD estimates are
determined based
on, among
other
things,
historical
charge-off
events
and
recovery
payments
(if
any),
government
sector
historical
loss
experience,
as
well
as
relevant current
and forecasted
macroeconomic expectations
of variables,
such as unemployment
rates, interest
rates, and
market risk
factors based on industry
performance, to determine a
lifetime term structure LGD
curve. Under this approach,
all future period losses
for each
instrument are
calculated using
the PD
and LGD
loss rates
derived
from the
term structure
curves applied
to the
amortized
cost
basis
of
each
bond.
For
the
relevant
macroeconomic
expectations
of
variables,
the
methodology
considers
an
initial
forecast
period
(a
“reasonable
and
supportable
period”)
of
two
years
and
a
reversion
period
of
up
to
three
years,
utilizing
a
straight-line
approach and
reverting back
to the
historical macroeconomic
mean. After
the reversion
period, the
Corporation uses
a historical
loss
forecast period covering the remaining contractual
life based on the changes in key historical
economic variables during representative
historical
expansionary
and
recessionary
periods.
Furthermore,
the
Corporation
periodically
considers
the
need
for
qualitative
adjustments
to
the
ACL.
Qualitative
adjustments
may
be
related
to
and
include,
but
not
be
limited
to,
factors
such
as:
(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 resolution strategies,
among others.
The Corporation
has elected not
to measure
an ACL on
accrued interest related
to held-to-maturity
debt securities,
as uncollectible
accrued
interest receivables
are written
off
on a
timely manner.
See Note
3 –
Debt Securities
for additional
information
about ACL
balances for
held-to-maturity debt
securities, activity
during the
period, and
information about
changes in
circumstances that
caused
changes in the ACL for held-to-maturity debt securities during the years ended December
31, 2022, 2021, and 2020.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
16
Allowance
for
Credit
Losses
–
Available-for-Sale
Debt
Securities:
For
available-for-sale
debt
securities
in
an
unrealized
loss
position, the Corporation first assesses whether
it intends to sell, or it is more
likely than not that it will be required
to sell, the security
before
recovery
of
its
amortized
cost
basis.
If
either
of
the
criteria
regarding
intent
or
requirement
to
sell
is
met,
the
security’s
amortized cost
basis is
written down
to fair
value. Any
previously recognized
ACL should
first be
written off
and
the write-down
in
excess of such ACL would be recorded through
a charge to the provision for credit losses. For available
-for-sale debt securities that do
not
meet
the
aforementioned
criteria,
the
Corporation
evaluates
whether
the
decline
in
fair
value
has
resulted
from
credit
losses
or
other
factors.
In
making
this
assessment,
management
considers
the
cash
position
of
the
issuer
and
its
cash
and
capital
generation
capacity,
which could
increase or
diminish the
issuer’s ability
to repay
its bond
obligations, the
extent to
which the
fair value
is less
than
the
amortized
cost
basis,
any
adverse
change
to
the
credit
conditions
and
liquidity
of
the
issuer,
taking
into
consideration
the
latest
information
available
about
the
financial
condition
of
the
issuer,
credit
ratings,
the
failure
of
the
issuer
to
make
scheduled
principal or interest payments, recent legislation and
government actions affecting the issuer’s
industry, and
actions taken by the issuer
to deal with
the economic climate.
The Corporation also
takes into consideration
changes in the near-term
prospects of the underlying
collateral
of
a
security,
if
any,
such
as
changes
in
default
rates,
loss
severity
given
default,
and
significant
changes
in
prepayment
assumptions
and
the
level
of
cash
flows
generated
from
the
underlying
collateral,
if
any,
supporting
the
principal
and
interest
payments
on the
debt
securities. If
this assessment
indicates that
a credit
loss exists,
the
present
value
of cash
flows expected
to be
collected from
the security
is compared
to the
amortized cost
basis of
the security.
If the
present value
of cash
flows expected
to be
collected is less than the amortized
cost basis, a credit loss exists and
the Corporation records an ACL for
the credit loss, limited to the
amount by which
the fair value
is less than
the amortized cost
basis. The Corporation
recognizes in OCL
any impairment that
has not
been recorded through an ACL. Non-credit-related impairments result from
other factors, including changes in interest rates.
The Corporation
records changes
in the
ACL as
a provision
for (or
reversal of)
credit loss
expense. Losses
are charged
against the
allowance
when
management
believes
the
uncollectability
of
an
available-for-sale
debt
security
is
confirmed
or
when
either
of
the
criteria regarding
intent or requirement
to sell is met.
The Corporation
has elected not
to measure an
ACL on accrued
interest related
to available-for-sale debt securities, as uncollectible accrued interest
receivables are written off on a timely manner.
Substantially all
of the
Corporation’s
available-for-sale debt
securities are
issued by
GSEs. These
securities are
either explicitly
or
implicitly guaranteed
by the
U.S. government,
are highly
rated by
major rating
agencies, and
have a
long history
of no
credit losses.
Accordingly,
there
is
a
zero-credit
loss
expectation
on
these
securities.
For
further
information,
including
the
methodology
and
assumptions
used
for
the
discounted
cash
flow
analyses
performed
on
other
available-for-sale
debt
securities
such
as
private
label
MBS and
bonds issued
by the Puerto
Rico Housing
Finance Authority
(“PRHFA”),
see Note
3 –
Debt Securities,
and Note
25 –
Fair
Value.
Loans held for investment
Loans that the
Corporation has
the ability and
intent to hold
for the foreseeable
future are classified
as held
for investment
and are
reported
at amortized
cost, net
of its
ACL. The
substantial majority
of the
Corporation’s
loans are
classified as
held for
investment.
Amortized cost is the principal outstanding balance,
net of unearned interest, cumulative charge
-offs, unamortized deferred origination
fees
and
costs,
and
unamortized
premiums
and
discounts.
The
Corporation
reports
credit
card
loans
at
their
outstanding
unpaid
principal balance plus uncollected
billed interest and fees
net of such amounts
deemed uncollectible. Interest
income is accrued on
the
unpaid
principal
balance.
Fees
collected
and
costs
incurred
in
the
origination
of
new
loans
are
deferred
and
amortized
using
the
interest
method
or
a
method
that
approximates
the
interest
method
over
the
term
of
the
loan
as
an
adjustment
to
interest
yield.
Unearned
interest
on
certain
personal
loans,
auto
loans,
and
finance
leases
and
discounts
and
premiums
are
recognized
as
income
under a
method that
approximates the
interest method.
When a
loan is paid-off
or sold,
any remaining
unamortized net
deferred fees,
or costs, discounts and premiums are included in loan interest income
in the period of payoff.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
17
Nonaccrual
and
Past-Due
Loans
-
Loans
on
which
the
recognition
of
interest
income
has
been
discontinued
are
designated
as
nonaccrual.
Loans
are
classified
as
nonaccrual
when
they
are
90
days
past
due
for
interest
and
principal,
except
for
residential
mortgage loans insured or guaranteed
by the Federal Housing Administration
(the “FHA”), the Veterans
Administration (the “VA”)
or
the
PRHFA,
and
credit
card
loans.
It
is
the
Corporation’s
policy
to
report
delinquent
mortgage
loans
insured
by
the
FHA,
or
guaranteed by
the VA
or the
PRHFA,
as loans
past due
90
days and
still accruing
as opposed
to nonaccrual
loans since
the principal
repayment is insured or guaranteed. However,
the Corporation discontinues the recognition of income
relating to FHA/VA
loans when
such
loans
are
over
15
months
delinquent,
taking
into
consideration
the
FHA
interest
curtailment
process,
and
relating
to
PRHFA
loans when
such loans are
over
90
days delinquent.
Credit card loans
continue to
accrue finance charges
and fees until
charged off
at
180
days. Loans
generally may
be placed
on nonaccrual
status prior
to when
required by
the policies
described above
when the
full
and
timely
collection
of
interest
or
principal
becomes
uncertain
(generally
based
on
an
assessment
of
the
borrower’s
financial
condition
and
the
adequacy
of
collateral,
if
any).
When
a
loan
is
placed
on
nonaccrual
status,
any
accrued
but
uncollected
interest
income
is
reversed
and
charged
against
interest
income
and
amortization
of
any
net
deferred
fees
is
suspended.
Interest
income
on
nonaccrual
loans
is
recognized
only
to
the
extent
it
is
received
in
cash.
However,
when
there
is
doubt
regarding
the
ultimate
collectability of loan
principal, all cash
thereafter received is
applied to reduce
the carrying value of
such loans (
i.e.
, the cost recovery
method). Under the cost-recovery
method, interest income is not
recognized until the loan balance has
been collected in full, including
the charged-off
portion. Generally,
the Corporation returns
a loan to
accrual status when
all delinquent interest
and principal becomes
current under
the terms of
the loan agreement,
or after a
sustained period of
repayment performance
(
six months
) and the
loan is well
secured and in
the process of collection,
and full repayment
of the remaining
contractual principal and
interest is expected.
Loans that
are
past
due
30
days
or
more
as
to
principal
or
interest
are
considered
delinquent,
with
the
exception
of
residential
mortgage,
commercial mortgage,
and construction loans,
which are considered
past due when
the borrower is
in arrears on
two or more
monthly
payments.
The
Corporation
has
elected
not
to
measure
an
ACL
on
accrued
interest
related
to
loans
held
for
investment,
as
uncollectible accrued interest receivables are written off
on a timely manner.
Loans Acquired
–
Loans acquired through a purchase
or a business combination
are recorded at their fair
value as of the acquisition
date.
The
Corporation
performs
an
assessment
of
acquired
loans
to
first
determine
if
such
loans
have
experienced
a
more
than
insignificant deterioration
in credit
quality since
their origination
and thus
should be
classified and
accounted for
as purchased
credit
deteriorated
(“PCD”)
loans.
For
loans
that
have
not
experienced
a
more
than
insignificant
deterioration
in
credit
quality
since
origination,
referred
to as
non-PCD loans,
the
Corporation
records
such loans
at fair
value,
with any
resulting
discount or
premium
accreted
or
amortized
into
interest
income
over
the
remaining
life
of
the
loan
using
the
interest
method.
Additionally,
upon
the
purchase or acquisition of non-PCD loans,
the Corporation measures and records
an ACL based on the Corporation’s
methodology for
determining
the
ACL.
The
ACL for
non-PCD
loans
is
recorded
through
a
charge
to
the
provision
for
credit
losses
in
the
period
in
which the loans are purchased or acquired.
Acquired loans that are classified
as PCD are recognized at fair
value, which includes any premiums
or discounts resulting from
the
difference between
the initial amortized
cost basis and
the par value.
Premiums and non-credit
loss related discounts
are amortized or
accreted
into interest income
over the remaining
life of the
loan using the
interest method. Unlike
non-PCD loans,
the initial ACL
for
PCD loans is established through an adjustment
to the acquired loan balance and not through a charge
to the provision for credit losses
in the period in which the loans are acquired. At acquisition, the ACL for
PCD loans, which represents the fair value credit discount, is
determined
using
a
discounted
cash
flow
method
that
considers
the
PDs
and
LGDs
used
in
the
Corporation’s
ACL
methodology.
Characteristics
of
PCD
loans
include
the
following:
delinquency,
payment
history
since
origination,
credit
scores
migration
and/or
other
factors
the Corporation
may
become
aware of
through
its initial
analysis
of acquired
loans that
may
indicate
there has
been
a
more than
insignificant deterioration
in credit
quality since
a loan’s
origination. In
connection with
the Banco
Santander Puerto
Rico
(“BSPR”)
acquisition
on
September
1,
2020,
the
Corporation
acquired
PCD
loans
with
an
aggregate
fair
value
at
acquisition
of
approximately $
752.8
million, and recorded
an initial ACL
of approximately $
28.7
million, which was added
to the amortized
cost of
the loans.
Subsequent
to
acquisition,
the
ACL
for
both
non-PCD
and
PCD
loans
is
determined
pursuant
to
the
Corporation’s
ACL
methodology in the same manner as all other loans.
For PCD loans
that prior to
the adoption of
ASC 326 were
classified as purchased
credit impaired (“PCI”)
loans and accounted
for
under
the
FASB
Accounting
Standards
Codification
(the
“Codification”
or
“ASC”)
Subtopic
310-30,
“Accounting
for
Purchased
Loans Acquired
with Deteriorated
Credit Quality”
(ASC Subtopic
310-30), the
Corporation adopted
ASC 326
using the
prospective
transition approach.
As allowed
by ASC
326, 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. As of
December 31,
2022, such
PCD loans consisted
of $
101.7
million of residential mortgage
loans and $
1.9
million of commercial
mortgage loans acquired by
the Corporation as part
of
acquisitions
completed
prior
to
2020.
These
previous
transactions
include
a
transaction
completed
on
February
27,
2015,
in
which
FirstBank
acquired
ten
Puerto
Rico
branches
of
Doral
Bank,
acquired
certain
assets,
including
PCD
loans,
and
assumed
deposits,
through an alliance with
Banco Popular of Puerto
Rico, which was the successful
lead bidder with the
FDIC on the failed Doral
Bank,
as well as other
co-bidders, and the
acquisition from Doral
Financial in the first
quarter of 2014
of all of its
rights, title and
interest in
first
and
second
residential
mortgage
loans
in
full
satisfaction
of
secured
borrowings
owed
by
such
entity
to
FirstBank.
As
the
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
18
Corporation
elected
to
maintain
pools
of
units
of
account
for
loans
previously
accounted
for
under
ASC
Subtopic
310-30,
the
Corporation is
not able
to remove
loans from
the pools
until they
are paid
off, written
off or
sold (consistent
with the
Corporation’s
practice
prior
to
adoption
of
ASC
326),
but
is
required
to
follow
ASC
326
for
purposes
of
the
ACL.
Regarding
interest
income
recognition for PCD loans that
existed at the time of adoption
of ASC 326, the prospective transition
approach for PCD loans required
by
ASC
326
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
that the
Corporation has
elected to
maintain in
previously
existing
pools
pursuant
to the
policy
election
right upon
adoption of
ASC 326
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
use
of
the
collateral
in
operations
or
improving
the
collateral
for
resale.
Thus,
the
Corporation
continues
to
exclude
these
pools
of
PCD
loans
from
nonaccrual
loan
statistics.
In
accordance
with
ASC
326,
the
Corporation
did
not
reassess
whether
modifications
to
individual
acquired
loans
accounted
for
within
pools
were
troubled
debt
restructurings (“TDRs”) as of the date of adoption.
Charge-off
of Uncollectible
Loans -
Net charge
-offs consist
of the
unpaid principal
balances of
loans held
for investment
that the
Corporation
determines are
uncollectible,
net of
recovered amounts.
The Corporation
records charge
-offs as
a reduction
to the
ACL
and subsequent recoveries of previously charged-off
amounts are credited to the ACL.
The Corporation
designates as
collateral dependent
certain commercial,
residential and
consumer loans
secured by
collateral when
foreclosure is probable or when repayment
is expected to be provided substantially through
the operation or sale of the collateral when
the borrower is experiencing
financial difficulties based
on its assessment as
of the reporting
date. Commercial and
construction loans
are considered collateral
dependent when they exhibit
specific risk characteristics such
as repayment capacity under
certain thresholds
or credit deterioration. Residential mortgage loans are
considered collateral dependent when
180
days or more past due and secured by
residential real estate.
Moreover, since
the ACL of auto
loans and finance
leases is calculated
using either a
PD/LGD model or
a risk-
adjusted
discounted
cash
flow
method
for
loans
modified
or
reasonably
expected
to
be
modified
in
a
TDR
and
performing
in
accordance
with
restructured
terms,
these
loans
are
not
considered
collateral
dependent.
The
ACL
of
collateral
dependent
loans
is
based on the fair value of the collateral at the reporting date, adjusted for undiscounted
estimated costs to sell.
Collateral
dependent
loans
in
the
construction,
commercial
mortgage,
and
commercial
and
industrial
(“C&I”)
loan
portfolios
are
written
down
to
their
net
realizable
value
(fair
value
of
collateral,
less
estimated
costs
to
sell)
when
loans
are
considered
to
be
uncollectible and
have balances
of $
0.5
million or
more. Within
the consumer
loan portfolio,
closed-end consumer
loans are
charged
off when
payments are
120
days in
arrears. Open-end
(revolving credit)
consumer loans,
including credit
card loans,
are charged
off
when
payments
are
180
days
in
arrears.
Residential
mortgage
loans
that
are
180
days
delinquent
are
reviewed
and
charged-off,
as
needed, to
the fair
value of
the underlying
collateral less
cost to
sell. Generally,
all loans
may be
charged off
or written
down to
the
fair
value
of
the
collateral
prior
to
the
application
of
the
policies
described
above
if
a
loss-confirming
event
has
occurred.
Loss-
confirming
events
include,
but
are
not
limited
to,
bankruptcy
(unsecured),
continued
delinquency,
or
receipt
of
an
asset
valuation
indicating a collateral deficiency when the asset is the sole source of repayment.
Troubled
Debt Restructurings
- A restructuring
of a loan
constitutes a TDR
if the creditor,
for economic
or legal reasons
related to
the
debtor’s
financial
difficulties,
grants
a
concession
to
the
debtor
that
it
would
not
otherwise
consider.
However,
not
all
loan
modifications
are TDRs.
Modifications
resulting
in TDRs
may
include
changes to
one
or more
terms of
the loan,
including
but not
limited to,
a change
in interest
rate, an
extension of
the repayment
period, a
reduction in
payment amount,
and partial
forgiveness
or
deferment of principal
or accrued interest.
TDR loans are
classified as either
accrual or nonaccrual
loans. Loans in
accrual status may
remain in accrual status when
their contractual terms have been
modified in a TDR if the
loans had demonstrated performance
prior to
the restructuring
and payment in
full under the
restructured terms
is expected.
Otherwise, loans
on nonaccrual
status and
restructured
as TDRs will remain
on nonaccrual
status until the borrower
has proven the
ability to perform
under the modified
structure, generally
for a minimum of six months, and there is evidence that such payments can, and
are likely to, continue as agreed.
A loan
that had
previously been
modified in
a TDR
and is
subsequently refinanced
under then-current
underwriting standards
at a
market rate with no concessionary terms is accounted for as a new loan and is no
longer reported as a TDR.
Refer
to
Accounting
Standards
Updates
(“ASU”)
2022-02,
“Financial
Instruments
–
Credit
Losses
(Topic
326):
Troubled
Debt
Restructurings and
Vintage
Disclosures” below for
information on the
amendments to the
TDR guidance that
are effective
on or after
January 1, 2023
.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
19
Allowance for credit losses for loans and finance leases
The ACL
for
loans and
finance leases
held
for
investment
is a
valuation
account
that is
deducted
from the
loans’
amortized
cost
basis
to
present
the
net
amount
expected
to
be
collected
on
loans.
Loans
are
charged-off
against
the
allowance
when
management
confirms the loan balance is uncollectable.
The Corporation
estimates the
allowance 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
any
difference
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.
Expected
credit losses
are estimated
over the contractual term
of the loans, adjusted by
prepayments when appropriate.
The contractual term excludes
expected extensions,
renewals, and
modifications unless
either of
the following
applies: the
Corporation has
a reasonable
expectation at
the reporting
date
that a
TDR will
be executed
with an
individual borrower
or the
extension or
renewal options
are included
in the original
or modified
contract at the reporting date and are not unconditionally cancellable by
the Corporation.
The
Corporation
estimates
the
ACL
primarily
based
on
a
PD/LGD
modeled
approach,
or
individually
primarily
for
collateral
dependent loans and certain TDR
loans. The Corporation evaluates
the need for changes to the
ACL by portfolio segments and
classes
of
loans
within
certain
of
those
portfolio
segments.
Factors
such
as
the
credit
risk
inherent
in
a
portfolio
and
how
the Corporation
monitors the
related quality,
as well
as the
estimation approach
to estimate
credit losses,
are considered
in the
determination of
such
portfolio segments and classes. The Corporation has identified the following
portfolio segments:
●
Residential
mortgage
– Residential
mortgage
loans
are
loans
secured
by
residential
real
property
together
with
the
right
to
receive
the payment
of principal
and interest
on the
loan. The
majority of
the Corporation’s
residential
loans are
fixed-rate
first lien closed-end loans secured by 1-4 single-family residential properties.
●
Commercial
mortgage
– Commercial
mortgage
loans
are
loans
secured
primarily
by
commercial
real
estate
properties
for
which
the
primary
source
of
repayment
comes
from
rent
and
lease
payments
that
are
generated
by
an
income-producing
property.
●
Commercial and Industrial
– C&I loans include both unsecured and secured
loans for which the primary source of repayment
comes
from
the
ongoing
operations
and
activities
conducted
by
the
borrower
and
not
from
rental
income
or
the
sale
or
refinancing
of
any
underlying
real
estate
collateral;
thus,
credit
risk
is
largely
dependent
on
the
commercial
borrower’s
current
and
expected
financial condition.
The
C&I
loan
portfolio
consists
of
loans
granted
to
large
corporate
customers
as
well as middle-market customers across several industries, and the government
sector.
●
Construction
–
Construction
loans
consisted
generally
of
loans
secured
by
real
estate
made
to
finance
the
construction
of
industrial,
commercial,
or
residential
buildings
and
included
loans
to
finance
land
development
in
preparation
for
erecting
new
structures.
These
loans
involve
an
inherently
higher
level
of
risk
and
sensitivity
to
market
conditions.
Demand
from
prospective tenants or purchasers may erode after construction begins because
of a general economic slowdown or otherwise.
●
Consumer
–
Consumer
loans
generally
consisted
of
unsecured
and
secured
loans
extended
to
individuals
for
household,
family, and other personal
expenditures, including several classes of products.
For
purposes
of
the
ACL
determination,
the
Corporation
stratifies
portfolio
segments
by
two
main
regions
(
i.e.,
the
Puerto
Rico/Virgin
Islands
region
and
the
Florida
region).
The
ACL
is
measured
using
a
PD/LGD
model
that
is
calculated
based
on
the
product of a
cumulative PD and
LGD. PD and
LGD estimates are
updated quarterly
for each loan
over the remaining
expected life to
determine
lifetime
term
structure
curves.
Under
this approach,
the
Corporation
calculates losses
for
each
loan
for
all future
periods
using the
PD and
LGD loss
rates derived
from the
term structure
curves applied
to the
amortized cost
basis of
the loans,
considering
prepayments.
For
residential
mortgage
loans,
the
Corporation
stratifies
the
portfolio
segment
by
the
following
two
classes:
(i)
government-
guaranteed
residential
mortgage
loans,
and
(ii)
conventional
mortgage
loans.
Government-guaranteed
loans
are
those
originated
to
qualified
borrowers
under
the
FHA
and
the
VA
standards.
Originated
loans
that
meet
the
FHA’s
standards
qualify
for
the
FHA’s
insurance program whereas
loans that meet the
standards of the VA
are guaranteed by
such entity.
No credit losses are
determined for
loans insured or guaranteed
by the FHA or the VA
due to the explicit
guarantee of the U.S. federal
government. On the other
hand, an
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
20
ACL is
calculated for
conventional
residential mortgage
loans, which
are loans
that do
not qualify
under the
FHA or
VA
programs.
PD
estimates
are
based
on,
among
other
things,
historical
payment
performance
and
relevant
current
and
forward-looking
macroeconomic variables,
such as regional
unemployment rates. On
the other hand,
LGD estimates are based
on, among other
things,
historical
charge-off
events
and
recovery
payments,
loan-to-value
attributes,
and
relevant
current
and
forecasted
macroeconomic
variables, such as the regional housing price index.
For commercial
mortgage loans,
PD estimates
are based on,
among other
things, industry historical
loss experience,
property type,
occupancy,
and
relevant
current
and
forward-looking
macroeconomic
variables.
On
the
other
hand,
LGD
estimates
are
based
on
historical charge-off events and recovery
payments, industry historical loss experience, specific attributes of
the loans, such as loan-to-
value,
debt
service
coverage
ratios,
and
net
operating
income,
as
well
as
relevant
current
and
forecasted
macroeconomic
variables
expectations,
such
as
commercial
real
estate
price
indexes,
the
gross
domestic
product
(“GDP”),
interest
rates,
and
unemployment
rates, among others.
For C&I
loans, PD
estimates are
based on
industry historical
loss experience,
financial performance
and market
value indicators,
and
current
and
forecasted
relevant
forward-looking
macroeconomic
variables.
On
the
other
hand,
LGD
estimates
are
based
on
industry
historical
loss
experience,
specific
attributes
of
the loans,
such
as loan
to
value,
as
well
as relevant
current
and
forecasted
expectations
for
macroeconomic
variables,
such
as
unemployment
rates,
interest
rates,
and
market
risk
factors
based
on
industry
performance and the equity market.
For
construction
loans,
PD
estimates
are
based
on,
among
other
things,
historical
payment
performance
experience,
industry
historical
loss experience,
underlying
type
of collateral,
and
relevant
current and
forward-looking
macroeconomic
variables. On
the
other
hand,
LGD
estimates
are
based
on
historical
charge-off
events
and
recovery
payments,
industry
historical
loss
experience,
specific attributes of the
loans, such as loan-to-value, debt service coverage
ratios, and relevant current and
forecasted macroeconomic
variables, such as unemployment rates, GDP,
interest rates, and real estate price indexes.
For consumer loans,
the Corporation stratifies
the portfolio segment by
the following five classes: (i)
auto loans; (ii) finance
leases;
(iii) credit
cards; (iv)
personal loans;
and (v)
other consumer
loans, such
as open-end
home equity
revolving lines
of credit
and other
types
of
consumer
credit
lines,
among
others.
In
determining
the
ACL,
management
considers
consumer
loans
risk
characteristics
including, but not limited to,
credit quality indicators such as
payment performance period, delinquency
and original FICO scores. For
auto loans and finance
leases, PD estimates are based on,
among other things, the historical
payment performance and relevant
current
and forward-looking macroeconomic
variables, such as regional
unemployment rates. On the
other hand, LGD estimates
are primarily
based
on
historical
charge-off
events
and
recovery
payments.
For
the
credit
card
and
personal
loan
portfolios,
the
Corporation
determines
the ACL
on a
pool basis,
based on
products
PDs and
LGDs developed
considering
historical
losses for
each origination
vintage by
length of
loan terms,
by geography,
payment performance
and by
credit score.
The PD
and LGD
for each cohort
consider
key macroeconomic variables, such as regional GDP,
unemployment rates, and retail sales, among others.
For the
ACL determination
of all
portfolios, the
expectations for
relevant macroeconomic
variables related
to the
Puerto Rico
and
Virgin
Islands
region consider
an initial
reasonable
and
supportable
period of
two years
and
a
reversion
period
of up
to
three years
,
utilizing a
straight-line approach
and reverting
back to
the historical
macroeconomic
mean. For
the Florida
region, the
methodology
considers
a
reasonable
and
supportable
forecast
period
and
an
implicit
reversion
towards
the
historical
trend
that
varies
for
each
macroeconomic variable.
After the reversion
period, a
historical loss
forecast period
covering the
remaining contractual
life, adjusted
for prepayments,
is used
based on
the changes
in key
historical economic
variables during
representative historical
expansionary and
recessionary periods.
Furthermore, the
Corporation periodically
considers the
need for
qualitative adjustments
to the
ACL. Qualitative
adjustments may
be related
to and include,
but not be
limited to factors
such as: (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,
including, but
not
limited to, expectations
about interest rate,
inflation, and
real estate price
levels, as well
as labor
challenges; (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.
In addition
to loans previously
written down
to their respective
realizable values,
the ACL on
loans that have
been modified
or are
reasonably
expected
to
be
modified
in
a
TDR
and
that
have
balances
of
$
0.5
million
or
more
in
the
case
of
commercial
and
construction
loans
(other
than
commercial
mortgage
and
construction
loans,
in
which
the
ACL
is
based
on
the
fair
value
of
the
collateral
at
the
reporting
date,
adjusted
for
undiscounted
estimated
costs
to
sell)
is
generally
measured
using
a
risk-adjusted
discounted cash flow
method. Under this
approach, all future
cash flows (interest
and principal) for
each loan are
adjusted by the
PDs
and LGDs derived from the term
structure curves and prepayments and
then discounted at the rate of the
loan prior to the restructuring
(or at the
effective interest
rate as of the
reporting date for
non-TDRs previously written
down to their
respective realizable values)
to
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
21
arrive
at
the
net
present
value
of
future
cash
flows.
For
credit
cards,
personal
loans,
and
nonaccrual
auto
loans
and
finance
leases
modified in a TDR, the ACL is measured using the same methodologies as those
used for all other loans in those portfolios.
See Note 5 –
Allowance for Credit Losses
for Loans and
Finance Leases for
additional information about
reserve balances for
each
portfolio
segment,
activity
during
the
period,
and
information
about
changes
in
circumstances
that
caused
changes
in
the
ACL
for
loans and finance leases during the year ended December 31, 2022,
2021, and 2020.
Refer
to
ASU
2022-02
discussion
below
for
information
on
the
amendments
to
the
TDR
guidance
that
are
effective
on
or
after
January 1, 2023.
Allowance for credit losses on off-balance sheet credit exposures and
other assets
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
unless
the
obligation
is
unconditionally
cancellable
by
the
Corporation.
The
ACL
on
off-
balance sheet
credit exposures is
adjusted as a
provision for credit
loss expense. The
estimate includes consideration
of the likelihood
that funding
will occur and
an estimate of
expected credit
losses on commitments
expected to be
funded over its
estimated life.
As of
December 31,
2022, the
off-balance sheet
credit exposures
primarily consisted
of unfunded
loan commitments
and standby
letters of
credit
for
commercial
and
construction
loans.
The
Corporation
utilized
the
PDs
and
LGDs
derived
from
the
above-explained
methodologies
for
the
commercial
and
construction
loan
portfolios.
Under
this
approach,
all
future
period
losses
for
each
loan
are
calculated using
the PD
and LGD
loss rates
derived from
the term
structure curves
applied to
the usage
given default
exposure. The
ACL on off-balance sheet
credit exposures is included as
part of accounts payable and
other liabilities in the consolidated
statement of
financial condition with adjustments included as part of the provision
for credit losses in the consolidated statements of income.
See
Note
5
–
Allowance
for
Credit
Losses
for
Loans
and
Finance
Leases
for
additional
information
about
reserve
balances
for
unfunded
loan commitments,
activity during
the period,
and information
about changes
in circumstances
that caused
changes in
the
ACL for off-balance sheet credit exposures
during the years ended December 31, 2022, 2021 and 2020.
The
Corporation
also
estimates
expected
credit
losses
for
certain
accounts
receivable,
primarily
claims
from
government-
guaranteed
loans,
loan
servicing-related
receivables,
and
other
receivables.
The
ACL
on other
assets
measured
at
amortized
cost
is
included
as part
of other
assets in
the
consolidated
statement of
financial
condition
with adjustments
included
as part
of other
non-
interest expenses
in the consolidated
statements of income.
As of December
31, 2022 and
2021, the
ACL on other
assets measured at
amortized cost was immaterial.
Loans held for sale
Loans
that the
Corporation
intends to
sell or
that
the Corporation
does not
have
the ability
and
intent to
hold
for the
foreseeable
future
are
classified
as
held-for-sale
loans.
Loans
held
for
sale
are
recorded
at
the
lower
of
cost
or
fair
value
less
costs
to
sell.
Generally,
the
loans
held-for-sale
portfolio
consists
of
conforming
residential
mortgage
loans
that
will
be
pooled
into
Government
National Mortgage Association (“GNMA”)
MBS, which are then sold to
investors, and conforming residential mortgage
loans that the
Corporation intends
to sell to
GSEs, such as
the Federal National
Mortgage Association
(“FNMA”) and the
U.S. Federal Home
Loan
Mortgage Corporation (“FHLMC”).
Generally,
residential mortgage
loans held for sale
are valued on
an aggregate portfolio
basis and
the
value
is
primarily
derived
from
quotations
based
on
the
MBS
market.
The
amount
by
which
cost
exceeds
market
value
in
the
aggregate portfolio
of residential
mortgage loans
held for
sale, if
any,
is accounted
for as
a valuation
allowance with
changes therein
included
in
the
determination
of
net
income
and
reported
as
part
of
mortgage
banking
activities
in
the
consolidated
statements
of
income.
Loan
costs
and
fees
are
deferred
at
origination
and
are
recognized
in
income
at
the
time
of
sale
and
are
included
in
the
amortized cost basis when
evaluating the need for
a valuation allowance. The fair
value of commercial and construction
loans held for
sale, if any,
is primarily derived
from external appraisals,
or broker price
opinions that the
Corporation considers,
with changes in
the
valuation allowance reported as part of other non-interest income
in the consolidated statements of income.
In certain circumstances,
the Corporation transfers
loans from/to held
for sale or held
for investment based
on a change in
strategy.
If such a
change in holding
strategy is made, significant
adjustments to the loans’
carrying values may
be necessary.
Reclassifications
of loans held
for investment to
held for sale are
made at the amortized
cost on the date
of transfer and
establish a new
cost basis upon
transfer.
Write-downs of
loans transferred from
held for investment
to held for
sale are recorded
as charge-offs at
the time of
transfer.
Any
previously
recorded
ACL
is
reversed
in
earnings
after
applying
the
write-down
policy.
Subsequent
changes
in
value
below
amortized cost are reflected in
non-interest income in the consolidated
statements of income. Reclassifications of
loans held for sale to
held for investment are
made at the amortized
cost on the transfer
date and any previously
recorded valuation allowance is
reversed in
earnings. Upon transfer to held for investment, the Corporation calculates
an ACL using the CECL impairment model.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
22
Transfers and servicing of financial assets and extinguishment
of liabilities
After a transfer
of financial assets in
a transaction that
qualifies for accounting
as a sale, the
Corporation derecognizes the
financial
assets when it has surrendered control and derecognizes liabilities when they
are extinguished.
A transfer of financial
assets in which the
Corporation surrenders control
over the assets is
accounted for as
a sale to the extent
that
consideration other
than beneficial
interests is
received in
exchange.
The criteria
that must
be met
to determine
that the
control over
transferred
assets has
been surrendered
include
the following:
(i) the assets
must be
isolated from
creditors of
the transferor;
(ii) the
transferee
must
obtain
the
right
(free
of
conditions
that
constrain
it
from
taking
advantage
of
that
right)
to
pledge
or
exchange
the
transferred
assets;
and
(iii) the
transferor
cannot
maintain
effective
control
over
the
transferred
assets
through
an
agreement
to
repurchase
them
before
their maturity.
When
the
Corporation
transfers
financial
assets
and
the
transfer
fails
any
one
of
the
above
criteria,
the
Corporation
is
prevented
from
derecognizing
the
transferred
financial
assets
and
the
transaction
is
accounted
for
as
a
secured borrowing.
Servicing assets
The Corporation recognizes
as separate assets
the rights to
service loans for
others, whether those
servicing assets are
originated or
purchased. In the ordinary course of business, loans are
pooled into GNMA MBS for sale in the secondary
market or sold to FNMA or
FHLMC, with servicing retained.
When the Corporation sells mortgage loans, it recognizes any retained servicing right.
Mortgage
servicing
rights
(“servicing
assets”
or
“MSRs”)
retained
in
a
sale
or
securitization
arise
from
contractual
agreements
between
the
Corporation
and
investors
in
mortgage
securities and
mortgage
loans. Under
these
contracts,
the
Corporation
performs
loan-servicing functions
in exchange
for fees and
other remuneration.
The MSRs, included
as part of
other assets in
the statements of
financial condition,
entitle the Corporation
to servicing fees
based on
the outstanding
principal balance of
the mortgage
loans and
the
contractual
servicing
rate.
The
servicing
fees
are
credited
to
income
on
a
monthly
basis
when
collected
and
recorded
as
part
of
mortgage
banking
activities
in
the
consolidated
statements
of
income.
In
addition,
the
Corporation
generally
receives
other
remuneration
consisting
of
mortgagor-contracted
fees
such
as
late
charges
and
prepayment
penalties,
which
are
credited
to
income
when collected.
Considerable judgment is required
to determine the fair value of
the Corporation’s
MSRs. Unlike highly liquid investments,
the fair
value
of
MSRs
cannot
be
readily
determined
because
these
assets
are
not
actively
traded
in
securities
markets.
The
initial
carrying
value
of
an
MSR is
determined
based
on
its fair
value.
The Corporation
determines
the
fair
value
of
the
MSRs using
a
discounted
static cash
flow analysis,
which incorporates
current market
assumptions commonly
used by
buyers of
these MSRs
and was
derived
from
prevailing
conditions
in
the
secondary
servicing
market.
The
valuation
of
the
Corporation’s
MSRs
incorporates
two
sets
of
assumptions: (i) market-derived
assumptions for discount
rates, servicing costs,
escrow earnings rates,
floating earnings rates,
and the
cost
of
funds;
and
(ii) market
assumptions
calibrated
to
the
Corporation’s
loan
characteristics
and
portfolio
behavior
for
escrow
balances, delinquencies and foreclosures, late fees, prepayments, and prepayment
penalties.
Once
recorded,
the
Corporation
periodically
evaluates
MSRs
for
impairment.
Impairments
are
recognized
through
a
valuation
allowance for
each individual
stratum of
servicing assets.
For purposes
of performing
the MSR
impairment evaluation,
the servicing
portfolio
is
stratified
on
the
basis
of
certain
risk
characteristics,
such
as
region,
terms,
and
coupons.
The
Corporation
conducts
an
other-than-temporary
impairment analysis
to evaluate
whether a
loss in
the value
of the
MSR in
a particular
stratum, if
any,
is other
than temporary or not.
When the recovery of the
value is unlikely in the
foreseeable future, a write-down
of the MSR in the
stratum to
its
estimated
recoverable
value
is
charged
to
the
valuation
allowance.
Impairment
charges
are
recorded
as
part
of
revenues
from
mortgage banking activities in the consolidated statements of income
.
The
MSRs
are
amortized
over
the
estimated
life
of
the
underlying
loans
based
on
an
income
forecast
method
as
a
reduction
of
servicing income.
The income forecast
method of amortization
is based on
projected cash flows.
A particular periodic
amortization is
calculated
by
applying
to
the
carrying
amount
of
the
MSRs
the
ratio
of
the
cash
flows
projected
for
the
current
period
to
total
remaining net MSR forecasted cash flow.
Premises and equipment
Premises
and
equipment
are
carried
at
cost,
net
of
accumulated
depreciation
and
amortization.
Depreciation
is
provided
on
the
straight-line method
over the
estimated useful
life of
each type
of asset.
Amortization of
leasehold improvements
is computed
over
the terms
of the
leases (
i.e.
, the
contractual term
plus lease
renewals that
are reasonably
assured) or
the estimated
useful lives
of the
improvements, whichever
is shorter.
Costs of
maintenance and
repairs that
do not
improve or
extend the
life of
the respective
assets
are expensed
as incurred.
Costs of
renewals and
betterments are
capitalized. When
the Corporation
sells or
disposes of
assets, their
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
23
cost and related
accumulated depreciation
are removed from
the accounts and
any gain or
loss is reflected
in earnings as
part of other
non-interest
income
in
the
consolidated
statements
of
income.
When
the
asset
is
no
longer
used
in
operations,
and
the Corporation
intends to
sell it,
the asset
is reclassified
to other
assets held
for sale
and is
reported at
the lower
of the
carrying amount
or fair
value
less cost to
sell. Premises
and equipment
are evaluated
for impairment
whenever events
or changes
in circumstances
indicate that
the
carrying amount
of the
asset may
not be
recoverable. Impairments
on premises
and equipment
are included
as part of
occupancy and
equipment expenses in the consolidated statements of income.
Operating leases
The Corporation,
as lessee,
determines
if an
arrangement
is a
lease or
contains a
lease at
inception.
Operating lease
liabilities are
recognized
based
on
the
present
value
of
the
remaining
lease
payments,
discounted
using
the
discount
rate
for
the
lease
at
the
commencement
date,
or
at
acquisition
date
in
case
of
a
business
combination.
As
the
rates
implicit
in
the
Corporation’s
operating
leases are
not readily
determinable,
the Corporation
generally uses
an incremental
borrowing
rate based
on information
available
at
the commencement
date to
determine the
present value
of future
lease payments.
The incremental
borrowing rate
is calculated
based
on fully
amortizing secured
borrowings. Operating
right-of-use (“ROU”)
assets are
generally recognized
based on
the amount
of the
initial measurement of the
lease liability. Non-lease
components, such as common
area maintenance charges,
are not considered a part
of the
gross-up of
the ROU
asset and
lease liability
and are
recognized as
incurred. The
Corporation’s
leases are
primarily related
to
operating leases
for the
Bank’s
branches. Most
of the
Corporation’s
leases with
operating ROU
assets have
terms of
two years
to
30
years
, some
of which
include options
to extend
the leases
for up
to
ten years
.
The Corporation
does not
recognize ROU
assets and
lease
liabilities
that
arise
from
short-term
leases
(less
than
12
months).
Operating
lease
expense,
which
is
included
as
part
of
occupancy and equipment expenses
in the consolidated statements
of income,
is recognized on a straight-line
basis over the lease term
that is based
on the
Corporation’s
assessment of
whether the
renewal options
are reasonably
certain to be
exercised. The
Corporation
includes
the
ROU
assets
and
lease
liabilities
as
part
of
other
assets
and
accounts
payable
and
other
liabilities,
respectively,
in
the
consolidated statements
of financial condition.
As of December 31, 2022, the Corporation, as lessee, did
no
t have any leases that qualified as finance leases.
Other real estate owned (“OREO”)
OREO,
which
consists
of
real estate
acquired
in
settlement of
loans,
is recorded
at fair
value
less estimated
costs to
sell the
real
estate acquired.
Generally,
loans have
been
written down
to their
net realizable
value
prior
to
foreclosure.
Any further
reduction
to
their net
realizable
value
is recorded
with a
charge
to the
ACL at
the
time of
foreclosure
or within
six months.
Thereafter,
costs of
maintaining
and
operating
these
properties,
losses
recognized
on
the
periodic
reevaluations
of
these
properties,
and
gains
or
losses
resulting
from
the
sale of
these
properties
are
charged
or
credited
to
earnings
and
are
included
as part
of
net
gain
(loss) on
OREO
operations in the consolidated statements of income. Appraisals are obtained
periodically, generally
on an annual basis
.
Claims arising from FHA/VA
government-guaranteed residential mortgage loans
Upon
the
foreclosure
on
property
collateralizing
an
FHA/VA
government-guaranteed
residential
mortgage
loan,
the
Corporation
derecognizes
the
government-guaranteed
mortgage
loan
and
recognizes
a
receivable
as
part
of
other
assets
in
the
consolidated
statements
of
condition
if
the
conditions
in
ASC
Subtopic
310-40,
“Reclassification
of
Residential
Real
Estate
Collateralized
Consumer
Mortgage
Loans
upon
Foreclosure,”
(ASC
Subtopic
310-40)
are
met.
See
Note
7–
Other
Real
Estate
Owned
for
information on foreclosures associated to
FHA/VA
government-guaranteed residential mortgage
loans reclassified to other assets as of
December 31, 2022 and 2021.
Goodwill and other intangible assets
Goodwill
–
Goodwill
represents
the
cost
in
excess
of
the
fair
value
of
net
assets
acquired
(including
identifiable
intangibles)
in
transactions accounted
for as
business combinations.
The Corporation
allocates goodwill
to the
reporting unit(s)
that are
expected to
benefit from
the synergies
of the
business combination.
Once goodwill
has been
assigned to
a reporting
unit, it
no longer
retains its
association with
a particular
acquisition, and
all of
the activities within
a reporting
unit, whether
acquired or
internally generated,
are
available to support
the value of the goodwill.
The Corporation tests goodwill
for impairment at
least annually and more
frequently if
circumstances exist that indicate a possible reduction
in the fair value of a reporting unit below its carrying
value. If, after assessing all
relevant
events
or
circumstances,
the
Corporation
concludes
that
it
is
more-likely-than-not
that
the
fair
value
of
a
reporting
unit
is
below its
carrying value,
then an
impairment test
is required.
In addition
to the
goodwill recorded
at the
Commercial and
Corporate,
Consumer
Retail,
and
Mortgage
Banking
reporting
units
in
connection
with
the
acquisition
of
BSPR
in
2020,
the
Corporation’s
goodwill
is
mostly
related
to
the
United
States
(Florida)
reporting
unit.
See
Note
9–
Goodwill
and
Other
Intangible
Assets
for
information on the qualitative assessment performed by the Corporation
during the fourth quarter of 2022.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
24
Other
Intangible
Assets
–
The
Corporation’s
other
intangible
assets
primarily
relate
to
core
deposits.
The
Corporation
amortizes
core deposit intangibles based
on the projected useful
lives of the related deposits,
generally on a straight-line
basis, and reviews these
assets for impairment whenever events
or changes in circumstances indicate that the carrying amount may not
exceed their fair value.
Securities purchased and sold under agreements to repurchase
The
Corporation
accounts
for
securities
purchased
under
resale
agreements
and
securities
sold
under
repurchase
agreements
as
collateralized financing
transactions. Generally,
the Corporation
records these
agreements at
the amount
at which
the securities
were
purchased or
sold. The
Corporation monitors
the fair
value of
securities purchased
and sold,
and obtains
collateral from,
or returns
it
to,
the counterparties
when
appropriate.
These financing
transactions
do not
create material
credit risk
given
the collateral
involved
and the related monitoring process.
The Corporation sells and acquires
securities under agreements to repurchase or
resell the same or
similar
securities.
Generally,
similar
securities
are
securities
from
the
same
issuer,
with
identical
form
and
type,
similar
maturity,
identical
contractual
interest rates,
similar assets
as collateral,
and the
same aggregate
unpaid
principal amount.
The counterparty
to
certain agreements may have the right to repledge the collateral by
contract or custom. The Corporation presents such assets separately
in
the
consolidated
statements
of
financial
condition
as
securities
pledged
with
creditors’
rights
to
repledge.
Repurchase
and
resale
activities may be
transacted under
legally enforceable
master repurchase
agreements that give
the Corporation, in
the event of
default
by
the
counterparty,
the
right
to
liquidate
securities
held
and
to
offset
receivables
and
payables
with
the
same
counterparty.
The
Corporation offsets repurchase
and resale transactions with the same
counterparty in the consolidated statements
of financial condition
where it has such
a legally enforceable
right under a master
netting agreement,
the intention of setoff
is existent, the transactions
have
the same maturity date, and the amounts are determinable.
From
time
to
time,
the
Corporation
modifies
repurchase
agreements
to
take
advantage
of
prevailing
interest
rates.
Following
applicable
GAAP guidance,
if
the
Corporation determines
that
the debt
under
the modified
terms
is substantially
different
from
the
original terms,
the modification
must be accounted
for as an
extinguishment of
debt. The
Corporation considers
modified terms
to be
substantially different
if the present
value of
the cash flows
under the
terms of the
new debt instrument
is at least
10
% different
from
the
present
value
of
the
remaining
cash
flows
under
the
terms
of
the
original
instrument.
The
new
debt
instrument
will be
initially
recorded
at fair
value, and
that amount
will be
used to
determine
the debt
extinguishment
gain or
loss to
be recognized
through the
consolidated statements
of income
and the
effective rate
of the
new instrument.
If the
Corporation determines
that the
debt under
the
modified
terms is
not
substantially
different,
then
the
new effective
interest
rate
is determined
based on
the
carrying amount
of
the
original
debt
instrument.
The
Corporation
has
determined
that
none
of
the
repurchase
agreements
modified
in
the
past
were
substantially different from the original terms, and,
therefore, these modifications were not accounted for as extinguishments of debt
.
Income taxes
The Corporation
uses the
asset and
liability method
for the
recognition of
deferred tax
assets and liabilities
for the
expected future
tax consequences
of events
that have
been recognized
in the
Corporation’s
financial statements
or tax
returns.
Deferred income
tax
assets
and
liabilities
are
determined
for
differences
between
the
financial
statement
and
tax
bases
of
assets
and
liabilities
that
will
result in taxable
or deductible amounts
in the future.
The computation is
based on enacted
tax laws and
rates applicable to
periods in
which the temporary
differences are expected
to be recovered or
settled. The effect
on deferred tax assets and
liabilities of a change
in
tax rates
is recognized
in income
at the
time of
enactment of
such change
in tax
rates. Any
interest or
penalties due
for payment
of
income taxes are included
in the provision for income
taxes. Valuation
allowances are established, when
necessary, to
reduce deferred
tax assets to the
amount that is more
likely than not to
be realized. In making
such assessment, significant
weight is given to
evidence
that can
be objectively
verified, including
both positive
and negative
evidence. The
authoritative guidance
for accounting
for income
taxes requires the consideration of all sources of taxable income
available to realize the deferred tax asset, including the future
reversal
of
existing
temporary
differences,
tax
planning
strategies
and
future
taxable
income,
exclusive
of
the
impact
of
the
reversal
of
temporary differences and
carryforwards. In estimating
taxes, management assesses the
relative merits and risks
of the appropriate tax
treatment
of
transactions
considering
statutory,
judicial,
and
regulatory
guidance.
See
Note
22
–
Income
Taxes
for
additional
information.
Under
the authoritative
accounting guidance,
income tax
benefits are
recognized and
measured based
on a
two-step analysis:
i) a
tax
position
must
be
more
likely than
not
to be
sustained
based solely
on
its technical
merits
in
order
to
be recognized;
and
ii)
the
benefit
is
measured
at
the
largest
dollar
amount
of
that
position
that
is
more
likely
than
not
to
be
sustained
upon
settlement.
The
difference between
a benefit not
recognized in
accordance with
this analysis
and the
tax benefit
claimed on
a tax return
is referred
to
as an Unrecognized Tax
Benefit.
The Corporation releases income tax effects from OCL as pension
and postretirement liabilities are extinguished.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
25
Stock repurchases
Treasury
shares
are
recorded
at
their
reacquisition
cost,
as
a
reduction
of
stockholders’
equity
in
the
consolidated
statements
of
financial condition. When
reissuing treasury shares
for the granting
of stock-based compensation
awards, treasury stock
is reduced by
the
cost
allocated
to
such
stock
and
additional
paid-in
capital
is
credited
for
gains
and
debited
for
losses
when
treasury
stock
is
reissued at prices that differ from the reacquisition cost.
Stock-based compensation
Compensation
cost
is
recognized
in
the
financial
statements
for
all
share-based
payment
grants.
The
First
BanCorp.
Omnibus
Incentive
Plan,
as
amended
(the
“Omnibus
Plan”)
provides
for
equity-based
and
non-equity-based
compensation
incentives
(the
“awards”)
through
the
grant
of
stock
options,
stock
appreciation
rights,
restricted
stock,
restricted
stock
units,
performance
shares,
other stock-based
awards and
cash-based awards.
The compensation
cost for
an award,
determined
based on
the estimate
of the
fair
value
at
the
grant
date
(considering
forfeitures
and
any
post-vesting
restrictions),
is
recognized
over
the
period
during
which
an
employee
or director
is required
to
provide
services
in
exchange
for
an
award,
which
is the
vesting
period,
taking
into account
the
retirement eligibility of the award.
Stock-based compensation
accounting guidance
requires the
Corporation to
reverse compensation
expense for
any awards
that are
forfeited due
to employee
or director
turnover.
Changes in
the estimated
forfeiture rate
may have
a significant
effect on
stock-based
compensation
as
the
Corporation
recognizes
the
effect
of
adjusting
the
rate
for
all
expense
amortization
in
the
period
in
which
the
forfeiture estimate is changed. If the actual forfeiture
rate is higher than the estimated forfeiture rate, an adjustment
is made to increase
the
estimated
forfeiture
rate,
which
will
decrease
the
expense
recognized
in
the
financial
statements.
If
the
actual
forfeiture
rate
is
lower
than
the
estimated
forfeiture
rate,
an
adjustment
is
made
to
decrease
the
estimated
forfeiture
rate,
which
will
increase
the
expense recognized in the financial
statements. For additional information regarding
the Corporation’s
equity-based compensation and
awards granted, see Note 16 – Stock-Based Compensation.
Comprehensive (loss) income
Comprehensive (loss)
income for
First BanCorp. includes
net income,
as well as
changes
in unrealized
gains (losses) on
available-
for-sale debt securities and change in unrecognized
pension and post-retirement costs, net of estimated tax effects.
Pension and other postretirement benefits
The Corporation
maintains two
frozen qualified
noncontributory defined
benefit pension
plans (the
“Pension Plans”)
(including a
complementary postretirement
benefits plan covering medical benefits
and life insurance after retirement)
that it assumed in the BSPR
acquisition.
Pension costs are computed
on the basis of
accepted actuarial methods
and are charged
to current operations.
Net pension costs are
based on
various actuarial
assumptions regarding
future experience
under the
plan, which
include costs
for services
rendered during
the
period,
interest
costs
and
return
on
plan
assets,
as
well
as
deferral
and
amortization
of
certain
items
such
as
actuarial
gains
or
losses.
The funding
policy is to
contribute to
the plan,
as necessary,
to provide
for services
to date and
for those expected
to be earned
in
the future. To
the extent that these
requirements are fully
covered by assets in
the plan, a contribution
may not be made
in a particular
year.
The
cost
of
postretirement
benefits,
which
is determined
based on
actuarial
assumptions
and
estimates
of
the
costs of
providing
these benefits in the future, is accrued during the years that the employee renders
the required service.
The
guidance
for
compensation
retirement
benefits
of
ASC
Topic
715,
“Retirement
Benefits,”
requires
the
recognition
of
the
funded status
of each
defined pension
benefit plan,
retiree health
care plan
and other
postretirement benefit
plans on
the statement
of
financial condition.
In addition,
the Corporation
maintains contributory
retirement plans
covering substantially
all employees.
Employer contributions
to the plan are charged
to current earnings as part of
employees’ compensation and benefits expenses
in the consolidated statements of
income.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
26
Segment information
The Corporation reports financial and
descriptive information about its reportable
segments. Operating segments are components
of
an
enterprise
about
which
separate
financial
information
is available
that
is evaluated
regularly
by management
in
deciding
how
to
allocate resources
and in assessing
performance.
The Corporation’s
management determined
that the segregation
that best fulfills
the
segment definition described above
is by 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 December
31, 2022, the
Corporation had
the following
six
operating
segments
that
are
all
reportable
segments:
Commercial
and
Corporate
Banking;
Mortgage
Banking;
Consumer
(Retail)
Banking;
Treasury and Investments; United States Operations;
and Virgin
Islands Operations. See Note 27 – Segment Information for additional
information.
Valuation
of financial instruments
The measurement
of fair value
is fundamental
to the Corporation’s
presentation of
its financial condition
and results of
operations.
The Corporation
holds debt
and equity
securities, derivatives,
and other
financial instruments
at fair
value. The
Corporation holds
its
investments and liabilities
mainly to manage liquidity
needs and interest
rate risks. A meaningful
part of the Corporation’s
total assets
is reflected at fair value on the Corporation’s
financial statements.
The FASB’s
authoritative guidance
for 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
financial
instruments.
The
hierarchy
is
based
on
whether
the
inputs
to
the
valuation
techniques
used
to
measure
fair
value
are
observable or unobservable.
Under the
fair value
accounting guidance,
an entity
has the
irrevocable option
to elect,
on a
contract-by-contract
basis, to measure
certain financial assets and
liabilities at fair value
at the inception of
the contract and, thereafter,
to reflect any changes
in fair value in
current earnings.
The Corporation
did not
make any
fair value
option election
as of
December 31,
2022 or
2021. See
Note 25
– Fair
Value
for additional information.
Revenue from contract with customers
See Note
26 –
Revenue from
Contracts with
Customers, for
a detailed
description of
the Corporation’s
policies on
the recognition
and presentation
of revenues from
contracts with customers,
including the
income recognition for
the insurance agency
commissions’
revenue.
Earnings per common share
Basic earnings per share
is calculated 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
preferred
stock
dividends
declared
but
not
yet
paid,
and
any
cumulative
preferred
stock
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
excludes
unvested
shares
of
restricted
stock
that
do
not
contain
non-forfeitable
dividend
rights.
The
computation of diluted earnings per share is similar to the computation
of basic earnings per share except that the number of weighted-
average
common
shares
is
increased
to
include
the
number
of
additional
common
shares
that
would
have
been
outstanding
if
the
dilutive common shares had been issued, referred to as potential common shares.
Potential dilutive
common shares
consist of
unvested shares
of restricted
stock that
do not
contain non-forfeitable
dividend rights,
warrants
outstanding
during
the
period,
and
common
stock
issued
under
the
assumed
exercise
of
stock
options,
if
any,
using
the
treasury stock
method.
This method
assumes that
the potential
dilutive common
shares are
issued and
outstanding and
the proceeds
from the exercise, in addition to the amount
of compensation cost attributable to future services, are used
to purchase common stock at
the
exercise
date.
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, stock options, and
warrants outstanding during the
period, if any,
that result in lower potential
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. Potential
dilutive common
shares also
include performance
units that
do not
contain non-forfeitable dividend rights if the performance condition
is met as of the end of the reporting period.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
27
Accounting Standards Adopted in 2022
ASU
2022-06,
“Reference
Rate
Reform
(Topic
848):
Deferral
of
the
Sunset
Date
of
Topic
848”,
which
was
effective
upon
the
issuance
of
this
ASU
in
December
2022,
extends
the
sunset
(or
expiration
date)
of
ASC
Topic
848
from
December
31,
2022
to
December
31,
2024.
Notwithstanding,
the
Corporation
expects
to
follow
the
provisions
of
the
LIBOR
Act
for
the
transition
of
any
residual exposure after June 30, 2023.
The Corporation was not impacted by the adoption of the following ASUs during 2022:
●
ASU 2021-05, “Leases (Topic
842): Lessors – Certain Leases with Variable
Lease Payments”
●
ASU
2021-04,
“Earnings
Per
Share
(Topic
260),
Debt
–
Modifications
and
Extinguishments
(Subtopic
470-50),
Compensation
–
Stock
Compensation
(Topic
718),
and
Derivatives
and
Hedging
–
Contracts
in
Entity’s
Own
Equity
(Subtopic
815-40):
Issuer’s
Accounting
for
Certain
Modifications
or
Exchanges
of
Freestanding
Equity-Classified
Written
Call Options (a Consensus of the Emerging Issues Task
Force)”
●
ASU 2020-06, “Debt
– Debt with Conversion
and other Options (Subtopic
470-20) and Derivatives
and Hedging – Contracts
in
an
Entity’s
Own
Equity
(Subtopic
815-40):
Accounting
for
Convertible
Instruments
and
Contracts
in
an
Entity’s
Own
Equity”
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
28
Recently Issued Accounting Standards Not Yet
Effective or Not Yet
Adopted
Standard
Description
Effective Date
Effect on the financial statements
ASU 2022-03, “Fair Value
Measurement (Topic 820): Fair
Value Measurement of
Equity
Securities Subject to Contractual
Sale Restrictions”
In June 2022, the FASB issued
ASU 2022-03 which, among other
things, clarifies that a contractual
restriction on the sale of an equity
security is not considered part of
the unit of account and, therefore,
is not considered in measuring fair
value; and introduces new
disclosure requirements for equity
securities subject to contractual sale
restrictions.
January 1, 2024. Early adoption is
permitted for both interim and
annual financial statements that
have not yet been issued or made
available for issuance.
The Corporation is evaluating the
impact that this ASU will have on its
financial statements and disclosures.
The Corporation does not expect to
be materially impacted by the
adoption of this ASU during the first
quarter of 2024.
ASU 2022-02, “Financial
Instruments – Credit Losses (Topic
326): Troubled Debt Restructurings
and Vintage Disclosures”
In March 2022, the FASB issued
ASU 2022-02 which eliminates the
TDRs recognition and
measurement guidance. As such,
the requirement to use a discounted
cash flow method for TDRs that
involve a concession that can only
be captured by means of this
method is no longer required and
the consideration of reasonably
expected TDRs is eliminated from
ASC Topic 326. In addition, the
ASU enhances disclosure
requirements for loan restructurings
by creditors made to borrowers
experiencing financial difficulty for
which the terms of the receivables
have been modified, regardless of
whether the refinancing is
accounted for as a new loan, and
amends the guidance on vintage
disclosures to require disclosure of
gross write-offs by year of
origination.
January 1, 2023, unless early
adopted in which case the
amendments should be applied as
of the beginning of the fiscal year
that includes the interim period
The Corporation adopted the
amendments of this update during
the first quarter of 2023 using a
modified retrospective transition
method with respect to the portion of
the standard that relates to the
recognition and measurement of
TDRs (i.e. adjustments to the ACL
that had been calculated using a
discounted cash flow methodology
for loans modified as a TDR prior to
the adoption of these amendments).
As of January 1, 2023, the
Corporation recorded a cumulative
effect adjustment of
$
1
million,
after-tax, as a reduction to retained
earnings. In addition, the Corporation
performed the necessary data updates
to comply with the enhanced
disclosure requirements.
ASU 2022-01, “Derivatives and
Hedging (Topic 815): Fair Value
Hedging – Portfolio Layer Method”
In March 2022, the FASB issued
ASU 2022-01 which, among
others, expands the current last-of-
layer method to allow multiple
hedged layers and the scope of the
portfolio layer method to non-
prepayable financial assets.
January 1, 2023, unless early
adopted in which case the
amendments should be applied as
of the beginning of the fiscal year
that includes the interim period
The Corporation does not expect to
be impacted by the amendments of
this update since it does not apply
fair value hedge accounting to any of
its derivatives.
ASU 2021-08, “Business
Combinations (Topic 805):
Accounting for Contract Assets and
Contract Liabilities From Contracts
With Customers”
In October 2021, the FASB issued
ASU 2021-08 which, among
others, requires that the acquirer
recognize and measure contract
assets and contract liabilities
acquired in a business combination
in accordance with Topic 606 and
provides certain practical
expedients.
January 1, 2023, unless early
adopted in which case the
amendments should be applied as
of the beginning of the fiscal year
that includes the interim period
The Corporation will consider these
amendments on business
combinations completed on or after
the adoption date.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
29
NOTE 2 – MONEY MARKET
.
INVESTMENTS
Money market investments are composed of time deposits,
overnight deposits with other financial institutions,
and other short-term
investments with original maturities of three months or less.
Money market investments as of December 31, 2022 and 2021 were as follows:
2022
2021
(Dollars in thousands)
Time deposits with other financial institutions
(1) (2)
$
300
$
300
Overnight deposits with other financial institutions
(3)
541
1,200
Other short-term investments
(4)
1,184
1,182
$
2,025
$
2,682
(1)
Consists of time deposits segregated for compliance with the Puerto
Rico International Banking Law.
(2)
Interest rate of
0.40
% and
0.05
% as of December 31, 2022 and 2021, respectively.
(3)
Weighted-average interest rate
of
4.33
% and
0.07
% as of December 31, 2022 and 2021, respectively.
(4)
Weighted-average interest rate
of
0.14
% and
0.15
% as of December 31, 2022 and 2021, respectively.
As
of
December
31,
2022,
the
Corporation
had
$
0.5
million
(2021
-
$
1.2
million)
in
money
market
investments
pledged
as
collateral as part of margin calls associated to derivative contracts.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
30
NOTE 3 – DEBT SECURITIES
Available-for-Sale
Debt Securities
The amortized
cost, gross
unrealized gains
and losses
recorded in
OCL, ACL,
estimated fair
value,
and weighted-average
yield of
available-for-sale debt securities by contractual maturities as of
December 31, 2022 were as follows:
December 31, 2022
Amortized cost
(1)
Gross
ACL
Fair value
Unrealized
Weighted-
Gains
Losses
average yield%
(Dollars in thousands)
U.S. Treasury securities:
Due within one year
$
7,493
$
-
$
309
$
-
$
7,184
0.22
After 1 to 5 years
141,366
-
9,675
-
131,691
0.70
U.S. GSEs' obligations:
Due within one year
129,018
-
4,036
-
124,982
0.32
After 1 to 5 years
2,395,273
22
227,724
-
2,167,571
0.83
After 5 to 10 years
56,251
13
7,670
-
48,594
1.54
After 10 years
12,170
36
-
-
12,206
4.62
Puerto Rico government obligations:
After 10 years
(2)
3,331
-
755
375
2,201
-
United States and Puerto Rico government obligations
2,744,902
71
250,169
375
2,494,429
0.83
MBS:
FHLMC certificates:
After 1 to 5 years
4,235
-
169
-
4,066
2.33
After 5 to 10 years
204,085
-
19,061
-
185,024
1.55
After 10 years
1,092,289
-
186,558
-
905,731
1.38
1,300,609
-
205,788
-
1,094,821
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
400,223
-
36,871
-
363,352
1.70
After 10 years
1,186,635
124
186,757
-
1,000,002
1.38
1,596,543
124
224,149
-
1,372,518
1.46
Collateralized mortgage obligations issued or guaranteed
by the FHLMC, FNMA and GNMA ("CMOs"):
After 1 to 5 years
30,578
-
4,463
-
26,115
2.43
After 10 years
423,695
-
80,271
-
343,424
1.38
454,273
-
84,734
-
369,539
1.45
Private label:
After 10 years
7,903
-
2,026
83
5,794
6.83
Total MBS
3,652,795
176
548,297
83
3,104,591
1.52
Other
Due within one year
500
-
-
-
500
0.84
Total available-for-sale debt securities
$
6,398,197
$
247
$
798,466
$
458
$
5,599,520
1.22
(1)
Excludes accrued interest receivable on available-for-sale debt securities that totaled $
11.1
million as of December 31, 2022 reported as part of accrued interest receivable on loans and investment securities in the
consolidated statements of financial condition, and excluded from the estimate of credit losses.
(2)
Consists of a residential pass-through MBS issued by the PRHFA that is collateralized by certain second mortgages originated under a program launched by the Puerto Rico government in 2010. During 2021, the
Corporation placed this instrument in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
31
The amortized
cost, gross
unrealized gains
and losses
recorded in
OCL, ACL,
estimated fair
value, and
weighted-average yield
of
available-for-sale debt securities by contractual maturities as of
December 31, 2021 were as follows:
December 31, 2021
Amortized cost
(1)
Gross
ACL
Fair value
Unrealized
Weighted-
Gains
Losses
average yield%
(Dollars in thousands)
U.S. Treasury securities:
After 1 to 5 years
$
149,660
$
59
$
1,233
$
-
$
148,486
0.68
U.S. GSEs' obligations:
After 1 to 5 years
1,877,181
240
29,555
-
1,847,866
0.60
After 5 to 10 years
403,785
175
10,856
-
393,104
0.90
After 10 years
15,788
224
-
-
16,012
0.63
Puerto Rico government obligations:
After 10 years
(2)
3,574
-
416
308
2,850
-
United States and Puerto Rico government obligations
2,449,988
698
42,060
308
2,408,318
0.67
MBS:
FHLMC certificates:
After 1 to 5 years
2,811
119
-
-
2,930
2.65
After 5 to 10 years
193,234
2,419
1,122
-
194,531
1.29
After 10 years
1,240,964
3,748
23,503
-
1,221,209
1.18
1,437,009
6,286
24,625
-
1,418,670
1.20
GNMA certificates:
Due within one year
2
-
-
-
2
1.32
After 1 to 5 years
16,714
572
-
-
17,286
2.90
After 5 to 10 years
27,271
80
139
-
27,212
0.51
After 10 years
338,927
7,091
2,174
-
343,844
1.45
382,914
7,743
2,313
-
388,344
1.45
FNMA certificates:
Due within one year
4,975
21
-
-
4,996
2.03
After 1 to 5 years
21,337
424
-
-
21,761
2.87
After 5 to 10 years
298,771
4,387
1,917
-
301,241
1.41
After 10 years
1,389,381
8,953
21,747
-
1,376,587
1.21
1,714,464
13,785
23,664
-
1,704,585
1.27
CMOs:
After 1 to 5 years
24,007
1
778
-
23,230
1.31
After 5 to 10 years
14,316
97
-
-
14,413
0.76
After 10 years
500,811
290
13,134
-
487,967
1.23
539,134
388
13,912
-
525,610
1.22
Private label:
After 10 years
9,994
-
1,963
797
7,234
2.21
Total MBS
4,083,515
28,202
66,477
797
4,044,443
1.26
Other
Due within one year
500
-
-
-
500
0.72
After 1 to 5 years
500
-
-
-
500
0.84
1,000
-
-
-
1,000
0.78
Total available-for-sale debt securities
$
6,534,503
$
28,900
$
108,537
1,105
$
6,453,761
1.03
(1)
Excludes accrued interest receivable on available-for-sale debt securities that totaled $
10.1
million as of December 31, 2021 reported as part of accrued interest receivable on loans and investment securities in the
consolidated statements of financial condition, and excluded from the estimate of credit losses.
(2)
Consists of a residential pass-through MBS issued by the PRHFA that is collateralized by certain second mortgages originated under a program launched by the Puerto Rico government in 2010. During 2021, the
Corporation placed this instrument in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
32
Maturities
of
available-for-sale
debt
securities
are
based
on
the
period
of
final
contractual
maturity.
Expected
maturities
might
differ
from
contractual
maturities
because
they
may
be
subject
to
prepayments
and/or
call
options.
The
weighted-average
yield
on
available-for-sale
debt
securities
is
based
on
amortized
cost
and,
therefore,
does
not
give
effect
to
changes
in
fair
value.
The
net
unrealized gain or loss on available-for-sale debt securities is
presented as part of other comprehensive (loss) income.
The
following
tables
show
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 December 31, 2022 and 2021. The tables also include debt securities for
which an ACL was recorded.
As of December 31, 2022
Less than 12 months
12 months or more
Total
Unrealized
Unrealized
Unrealized
Fair Value
Losses
Fair Value
Losses
Fair Value
Losses
(In thousands)
Debt securities:
U.S. Treasury and U.S. GSEs'
obligations
$
298,313
$
18,057
$
2,174,724
$
231,357
$
2,473,037
$
249,414
Puerto Rico government obligations
-
-
2,201
755
(1)
2,201
755
MBS:
FHLMC
263,184
45,776
831,637
160,012
1,094,821
205,788
GNMA
74,829
3,433
179,854
28,167
254,683
31,600
FNMA
424,178
51,289
938,625
172,860
1,362,803
224,149
CMOs
54,688
6,788
314,851
77,946
369,539
84,734
Private label
-
-
5,794
2,026
(1)
5,794
2,026
$
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, PRHFA
bond and private label MBS had an ACL of $
0.4
million and
$
0.1
million, respectively.
As of December 31, 2021
Less than 12 months
12 months or more
Total
Unrealized
Unrealized
Unrealized
Fair Value
Losses
Fair Value
Losses
Fair Value
Losses
(In thousands)
Debt securities:
U.S. Treasury and U.S. GSEs'
obligations
$
1,717,340
$
25,401
$
606,179
$
16,243
$
2,323,519
$
41,644
Puerto Rico government obligations
-
-
2,850
416
(1)
2,850
416
MBS:
FHLMC
986,345
16,144
221,896
8,481
1,208,241
24,625
GNMA
194,271
1,329
41,233
984
235,504
2,313
FNMA
1,237,701
19,843
112,559
3,821
1,350,260
23,664
CMOs
466,004
13,552
16,656
360
482,660
13,912
Private label
-
-
7,234
1,963
(1)
7,234
1,963
$
4,601,661
$
76,269
$
1,008,607
$
32,268
$
5,610,268
$
108,537
(1)
Unrealized losses do not include the credit loss component recorded
as part of the ACL. As of December 31, 2021, PRHFA
bond and private label MBS had an ACL of $
0.3
million and
$
0.8
million, respectively.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
33
There
were
no
sales
of
available-for-sale
debt
securities
during
the
years
ended
December
31,
2022
and
2021.
During
the
year
ended December
31, 2020, proceeds
from sales of
available-for-sale debt
securities amounted
to $
1.2
billion, including
gross realized
gains of
$
13.3
million and
gross realized
losses of
$
0.1
million. The
$
13.2
million net
gain was
realized on
tax-exempt
securities or
was realized at the
tax-exempt international
banking entity subsidiary,
which had no
effect in the
income tax expense
recorded during
the year ended December 31, 2020.
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 December 31, 2022, and
the Corporation expects no credit losses on
these
securities,
given
the
explicit
and
implicit
guarantees
provided
by
the
U.S.
federal
government.
Because
the
decline
in
fair
value
is
attributable to
changes in
interest rates, and
not credit
quality,
and because
the Corporation
does not have
the intent to
sell these U.S.
government
and
agencies
debt
securities
and
it
is
likely
that
it
will
not
be
required
to
sell
the
securities
before
their
anticipated
recovery,
the
Corporation
does
not
consider
impairments
on
these
securities
to
be
credit
related
as
of
December
31,
2022.
The
Corporation’s
credit loss
assessment was
concentrated mainly
on private
label MBS
and on
Puerto Rico
government debt
securities,
for which credit losses are evaluated on a quarterly basis.
The
Corporation’s
available-for-sale
MBS
portfolio
included
private
label
MBS
with
a
fair
value
of
$
5.8
million,
which
had
unrealized
losses of
approximately $
2.1
million as
of December
31, 2022,
of which
$
0.1
million is
due to
credit deterioration
and is
part of the ACL.
The interest rate on these private-label MBS is variable, tied to 3-month LIBOR, and limited to the weighted-average
coupon on the underlying collateral.
The underlying collateral is fixed-rate, single-family residential mortgage loans in the United
States with original FICO scores over 700 and moderate loan-to-value ratios (under 80%), as well as moderate delinquency levels.
As
of December 31,
2022, the Corporation
did not have the
intent to sell these
securities and determined
that it is likely
that it will not
be
required to sell the securities before
anticipated recovery.
The Corporation determined the ACL
for private label MBS based on
a risk-
adjusted
discounted
cash flow
methodology
that considers
the structure
and
terms of
the instruments.
The Corporation
utilized 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
and
the housing
price
index.
Under
this approach,
expected
cash
flows
(interest
and
principal)
were
discounted
at
the
Treasury
yield
curve
as
of
the
reporting
date.
Significant
assumptions in the valuation of the private label MBS were as follows:
As of
As of
December 31, 2022
December 31, 2021
Weighted
Range
Weighted
Range
Average
Minimum
Maximum
Average
Minimum
Maximum
Discount rate
16.2%
16.2%
16.2%
12.9%
12.9%
12.9%
Prepayment rate
11.8%
1.5%
15.2%
15.2%
7.6%
24.9%
Projected Cumulative Loss Rate
5.6%
0.3%
15.6%
7.6%
0.2%
15.7%
The Corporation
evaluates if
a credit
loss exists,
primarily
by monitoring
adverse variances
in the
present value
of expected
cash
flows. As of December 31, 2022, the ACL for these
private label MBS was $
0.1
million, compared to $
0.8
million as of December 31,
2021.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
34
As
of
December
31,
2022,
the
Corporation’s
available-for-sale
debt
securities
portfolio
also
included
a
residential
pass-through
MBS issued by the PRHFA,
collateralized by certain second mortgages,
with a fair value of $
2.2
million, which had an unrealized loss
of approximately
$
1.1
million. Approximately
$
0.4
million of
the unrealized
losses was
due to
credit deterioration
and is
part of
the
ACL. The underlying
second mortgage loans
were originated under
a program launched by
the Puerto Rico government
in 2010. This
residential pass-through MBS
was structured as
a zero-coupon bond
for the first ten
years (up to July 2019).
The underlying source
of
repayment on this
residential pass-through
MBS are second mortgage
loans in Puerto Rico.
PRHFA, not
the Puerto Rico
government,
provides
a
guarantee
in
the
event
of
default
and
subsequent
foreclosure
of
the
properties
underlying
the
second
mortgage
loans.
During
2021,
the Corporation
placed
this instrument
in
nonaccrual
status based
on
the delinquency
status of
the
underlying
second
mortgage loans collateral.
The Corporation determined
the ACL on this
instrument based on a
discounted cash flow methodology
that
considered the
structure and
terms of
the debt
security.
The Corporation
utilized PDs and
LGDs that
considered, among
other things,
historical payment
performance, loan-to-value
attributes,
and relevant
current and
forward-looking macroeconomic
variables, such
as
regional
unemployment
rates,
the
housing
price
index,
and
expected
recovery
from
the
PRHFA
guarantee.
Under
this
approach,
expected
cash
flows
(interest
and
principal)
were
discounted
at
the
Treasury
yield
curve
plus
a
spread
as
of
the
reporting
date
and
compared
to
the
amortized
cost.
In
the
event
that
the
second
mortgage
loans
default
and
the
collateral
is
insufficient
to
satisfy
the
outstanding
balance
of
this
residential
pass-through
MBS,
PRHFA’s
ability
to
honor
its
insurance
will
depend
on,
among
other
factors,
the financial
condition of
PRHFA
at the
time
such obligation
becomes due
and payable.
Further deterioration
of the
Puerto
Rico
economy
or
fiscal
health
of
the
PRHFA
could
impact
the
value
of
these
securities,
resulting
in
additional
losses
to
the
Corporation. As
of December
31, 2022,
the Corporation
did not
have the
intent to
sell this
security and
determined that
it was
likely
that it will not be required to sell the security before its anticipated recovery.
The following
tables present
a roll-forward
by major
security type
for the
years ended
December 31,
2022, 2021,
and 2020
of the
ACL on available-for-sale debt securities:
Year
Ended December 31, 2022
Private label MBS
Puerto Rico
Government
Obligations
Total
(In thousands)
Beginning balance
$
797
$
308
$
1,105
Provision for credit losses - (benefit) expense
(501)
67
(434)
Net charge-offs
(213)
-
(213)
ACL on available-for-sale debt securities
$
83
$
375
$
458
Year
Ended December 31, 2021
Private label MBS
Puerto Rico
Government
Obligations
Total
(In thousands)
Beginning balance
$
1,002
$
308
$
1,310
Provision for credit losses - (benefit)
(136)
-
(136)
Net charge-offs
(69)
-
(69)
ACL on available-for-sale debt securities
$
797
$
308
$
1,105
Year
Ended December 31, 2020
Private label MBS
Puerto Rico
Government
Obligations
Total
(In thousands)
Beginning balance
$
-
$
-
$
-
Provision for credit losses - expense
1,333
308
1,641
Net charge-offs
(331)
-
(331)
ACL on available-for-sale debt securities
$
1,002
$
308
$
1,310
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
35
During
2022,
the
Corporation
recognized
$
86.1
million
of
interest
income
on
available-for-sale
debt
securities
(2021
-
$
62.7
million; 2020 - $
49.0
million), of which $
40.7
million was exempt (2021 - $
25.7
million; 2020 - $
38.5
million). The exempt securities
primarily relate to MBS and
government obligations held by
IBEs (as defined in the
International Banking Entity
Act of Puerto Rico),
whose interest income and sales are exempt from Puerto Rico income
taxation under that act.
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 December 31, 2022 and
2021 were as follows
:
December 31, 2022
Amortized cost
(1)
Gross Unrecognized
Fair value
Weighted-
Gains
Losses
ACL
average yield%
(Dollars in thousands)
Puerto Rico municipal bonds:
Due within one year
$
1,202
$
-
$
15
$
1,187
$
2
5.20
After 1 to 5 years
42,530
886
1,076
42,340
656
6.34
After 5 to 10 years
55,956
3,182
360
58,778
3,243
6.29
After 10 years
66,022
-
1,318
64,704
4,385
7.10
Total Puerto Rico municipal bonds
165,710
4,068
2,769
167,009
8,286
6.62
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 1 to 5 years
9,621
-
396
9,225
-
3.48
After 10 years
72,347
-
3,155
69,192
-
4.14
81,968
-
-
3,551
78,417
-
4.06
CMOs
After 10 years
129,923
-
5,593
124,330
-
3.24
Total MBS
271,827
-
11,721
260,106
-
3.55
Total held-to-maturity debt securities
$
437,537
$
4,068
$
14,490
$
427,115
$
8,286
4.71
(1)
Excludes accrued interest receivable on held-to-maturity debt securities that totaled $
5.5
million as of December 31, 2022, was reported as part of accrued interest receivable on loans and investment securities in the
consolidated statements of financial condition, and is excluded from the estimate of credit losses.
December 31, 2021
Amortized cost
(1)
Gross Unrecognized
Fair value
Weighted-
Gains
Losses
ACL
average yield%
(Dollars in thousands)
Puerto Rico municipal bonds:
Due within one year
$
2,995
$
5
$
-
$
3,000
$
70
5.39
After 1 to 5 years
14,785
526
156
15,155
347
2.35
After 5 to 10 years
90,584
1,555
3,139
89,000
3,258
4.25
After 10 years
69,769
-
9,777
59,992
4,896
4.06
Total held-to-maturity debt securities
$
178,133
$
2,086
$
13,072
$
167,147
$
8,571
4.04
(1)
Excludes accrued interest receivable on held-to-maturity debt securities that totaled $
3.4
million as of December 31, 2021, 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)
36
During 2022,
the Corporation
purchased
approximately
$
289.9
million of
GSEs’ MBS,
which
were classified
as held-to-maturity
debt securities.
The following
tables show 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 December 31,
2022
and 2021, including debt securities for which an ACL was recorded:
As of December 31, 2022
Less than 12 months
12 months or more
Total
Unrecognized
Unrecognized
Unrecognized
Fair Value
Losses
Fair Value
Losses
Fair Value
Losses
(In thousands)
Debt securities:
Puerto Rico municipal bonds
$
-
$
-
$
98,797
$
2,769
$
98,797
$
2,769
MBS:
FHLMC certificates
39,171
1,634
-
-
39,171
1,634
GNMA certificates
18,188
943
-
-
18,188
943
FNMA certificates
78,417
3,551
-
-
78,417
3,551
CMOs
124,330
5,593
-
-
124,330
5,593
Total held-to-maturity debt securities
$
260,106
$
11,721
$
98,797
$
2,769
$
358,903
$
14,490
As of December 31, 2021
Less than 12 months
12 months or more
Total
Unrecognized
Unrecognized
Unrecognized
Fair Value
Losses
Fair Value
Losses
Fair Value
Losses
(In thousands)
Debt securities:
Puerto Rico municipal bonds
$
-
$
-
$
140,732
$
13,072
$
140,732
$
13,072
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
37
The
Corporation
classifies
the
held-to-maturity
debt
securities
portfolio
into
the
following
major
security
types:
MBS
issued
by
GSEs and
Puerto
Rico
municipal
bonds.
As of
December
31,
2022,
all of
the
MBS included
in
the held-to-maturity
debt
securities
portfolio were
issued by
GSEs. The
Corporation does
not recognize
an ACL
for these
securities since
they are
highly rated
by major
rating agencies and have a
long history of no credit losses. In
the case of Puerto Rico
municipal bonds, the Corporation determines
the
ACL based on
the product of
a cumulative PD
and LGD, and
the amortized cost
basis of the
bonds over their
remaining expected life
as described in Note 1 – Nature of Business and Summary of Significant Accounting
Policies.
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
December
31,
2022.
The
Puerto
Rico
municipal
bonds
had
an
ACL
of
$
8.3
million
as
of
December
31,
2022,
down
$
0.3
million
from
$
8.6
million
as
of
December
31,
2021,
mostly
related
to
a
reduction
in
qualitative
reserves driven by improvements in the underlying financial information
of certain issuers during 2022.
The following table
presents the activity
in the ACL for
held-to-maturity debt
securities by major
security type for
the years ended
December 31, 2022, 2021 and 2020:
Puerto Rico Municipal Bonds
Year
Ended
December 31, 2022
December 31, 2021
December 31, 2020
(In thousands)
Beginning Balance
$
8,571
$
8,845
$
-
Impact of adopting ASC 326
-
-
8,134
Initial allowance on PCD debt securities
-
-
1,269
Provision for credit losses - (benefit)
(285)
(274)
(558)
ACL on held-to-maturity debt securities
$
8,286
$
8,571
$
8,845
During the second quarter of 2019, the oversight board established
by Puerto Rico Oversight, Management,
and Economic Stability
Act
(“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 fiscal plans
of other government
entities,
and,
more
recently,
by
the
effect
of
the
COVID-19
pandemic
on
the
Puerto
Rico
and
global
economy.
Given
the
inherent
uncertainties about the
fiscal situation of
the Puerto Rico
central government, the
COVID-19 pandemic, and
the measures taken,
or to
be
taken,
by
other
government
entities
in
response
to
economic
and
fiscal
challenges
on
municipalities,
the
Corporation
cannot
be
certain whether future charges to the ACL on these securities will be required.
From
time
to
time,
the
Corporation
has
securities
held
to
maturity
with
an
original
maturity
of
three
months
or
less
that
are
considered
cash
and
cash
equivalents
and
are
classified
as
money
market
investments
in
the
consolidated
statements
of
financial
condition. As of
December 31,
2022 and
2021, the
Corporation had
no
outstanding securities
held to
maturity that
were classified
as
cash and cash equivalents.
During 2022,
the Corporation recognized
$
15.5
million of interest
income on
held-to-maturity debt
securities (2021
- $
8.8
million;
2020 -
$
7.6
million), of
which $
15.4
million was
exempt (2021
- $
8.8
million; 2020
- $
7.6
million). The
exempt securities
primarily
relate to
MBS held
by IBEs
(as defined
in the
International Banking
Entity Act
of Puerto
Rico), whose
interest income
and sales
are
exempt from Puerto Rico income taxation under that act; and tax-exempt Puerto
Rico municipal bonds.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
38
Credit Quality Indicators:
The held-to-maturity debt securities
portfolio consisted of GSEs
’
MBS and financing arrangements
with Puerto Rico municipalities
issued in
bond form.
As previously
mentioned,
the Corporation
expects
no credit
losses on
GSEs MBS.
The Puerto
Rico municipal
bonds
are
accounted
for
as
securities
but
are
underwritten
as
loans
with
features
that
are
typically
found
in
commercial
loans.
Accordingly, the
Corporation monitors the credit quality of these municipal bonds through the
use of internal credit-risk ratings, which
are generally updated
on a quarterly basis.
The Corporation considers
a municipal bond
as a criticized asset
if its risk rating
is Special
Mention,
Substandard,
Doubtful,
or
Loss.
Puerto
Rico
municipal
bonds
that
do
not
meet
the
criteria
for
classification
as
criticized
assets are considered to be pass-rated securities. The asset categories are defined
below:
Pass –
Assets classified
as pass
have
a well-defined
primary source
of repayment,
with no
apparent risk,
strong financial
position,
minimal operating
risk, profitability,
liquidity and
strong capitalization
and include
assets categorized
as watch.
Assets classified
as
watch have
acceptable business
credit, but
borrowers
’
operations, cash
flow or
financial condition
evidence more
than average
risk
and requires additional level of supervision and attention from loan officers.
Special Mention
– Special
Mention assets
have potential
weaknesses that
deserve management’s
close attention.
If left uncorrected,
these potential weaknesses
may result in deterioration
of the repayment prospects
for the asset or
in the Corporation’s
credit position
at
some
future
date.
Special
Mention
assets
are
not
adversely
classified
and
do
not
expose
the
Corporation
to
sufficient
risk
to
warrant adverse classification.
Substandard – Substandard
assets are inadequately
protected by the
current sound worth
and paying capacity
of the obligor
or of the
collateral pledged, if any.
Assets so classified must have a well-defined weakness or weaknesses that jeopardize
the liquidation of the
debt. They are characterized by the distinct possibility that the institution will sustain some
loss if the deficiencies are not corrected.
Doubtful
–
Doubtful
classifications
have
all
the
weaknesses
inherent
in
those
classified
Substandard
with
the
added
characteristic
that
the
weaknesses
make
collection
or
liquidation
in
full
highly
questionable
and
improbable,
based
on
currently
known
facts,
conditions and values.
A Doubtful classification
may be appropriate
in cases where significant
risk exposures are
perceived, but loss
cannot be determined because of specific reasonable pending factors,
which may strengthen the credit in the near term.
Loss –
Assets classified
as Loss
are considered
uncollectible and
of such
little value
that their continuance
as bankable
assets is not
warranted.
This
classification
does
not
mean
that
the
asset
has
absolutely
no
recovery
or
salvage
value,
but
rather
that
it
is
not
practical or desirable to defer writing
off this asset even though partial
recovery may occur in the future. There
is little or no prospect
for near term improvement and no realistic strengthening action of
significance pending.
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 December 31, 2022 and 2021,
all Puerto Rico municipal bonds classified as held-to-maturity were classified
as Pass.
No
held-to-maturity debt
securities were
on nonaccrual
status, 90
days past
due and
still accruing,
or past
due as
of December
31,
2022 and 2021. A security is considered to be past due once it is 30 days contractually
past due under the terms of the agreement.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
39
NOTE 4 – 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 December 31,
As of December 31,
2022
2021
(In thousands)
Puerto Rico and Virgin Islands region:
Residential mortgage loans, mainly secured by first mortgages
$
2,417,900
$
2,549,573
Construction loans
34,772
43,133
Commercial mortgage loans
1,834,204
1,702,231
C&I loans
1,860,109
1,946,597
Consumer loans
3,317,489
2,872,384
Loans held for investment
$
9,464,474
$
9,113,918
Florida region:
Residential mortgage loans, mainly secured by first mortgages
$
429,390
$
429,322
Construction loans
98,181
95,866
Commercial mortgage loans
524,647
465,238
C&I loans
1,026,154
940,654
Consumer loans
9,979
15,660
Loans held for investment
$
2,088,351
$
1,946,740
Total:
Residential mortgage loans, mainly secured by first mortgages
$
2,847,290
$
2,978,895
Construction loans
132,953
138,999
Commercial mortgage loans
2,358,851
2,167,469
C&I loans
(1)
2,886,263
2,887,251
Consumer loans
3,327,468
2,888,044
Loans held for investment
(2)
11,552,825
11,060,658
ACL on loans and finance leases
(260,464)
(269,030)
Loans held for investment, net
$
11,292,361
$
10,791,628
(1)
As of December 31, 2022 and 2021, includes $
838.5
million and $
952.1
million, respectively, of commercial loans that were secured by real estate and the
primary
source of repayment at origination was not dependent upon the
real estate.
(2)
Includes accretable fair value net purchase discounts of $
29.3
million and $
35.3
million as of December 31, 2022 and 2021, respectively.
As of
December 31,
2022,
and
2021,
the
Corporation
had net
deferred
origination
costs on
its loan
portfolio
amounting
to $
11.2
million
and
$
4.3
million,
respectively.
The total
loan
portfolio
is net
of unearned
income
of $
103.4
million
and
$
79.0
million
as of
December 31, 2022 and
2021, respectively,
of which $
99.2
million and $
75.8
million are related
to finance leases
as of December
31,
2022 and 2021, respectively.
As of
December 31,
2022,
the Corporation
was servicing
residential
mortgage
loans owned
by others
in an
aggregate
amount
of
$
3.9
billion (2021
— $
4.0
billion), and
commercial loan
participations owned
by others
in an
aggregate amount
of $
305.1
million as
of December 31, 2022 (2021 — $
383.5
million).
Various
loans, mainly secured
by first mortgages,
were assigned
as collateral for
time deposits accounts,
public funds, borrowings,
and
related
unused
commitments.
Total
loans
carrying
value
pledged
as
collateral
amounted
to
$
4.3
billion
and
$
4.1
billion
as
of
December 31,
2022
and
2021,
respectively.
As
of
December
31,
2022,
loans
pledged
as
collateral
include
$
2.2
billion
of
pledged
collateral related
to the
Borrower-in-Custody
Program (the
“BIC Program”)
of the
FED which
remained undrawn
and $
1.8
billion of
loans pledged to the FHLB, compared to $
2.1
billion and $
1.8
billion, respectively, as of
December 31, 2021.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
40
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 December 31, 2022 and 2021 are as follows:
As of December 31, 2022
Days Past Due and Accruing
Current
30-59
60-89
90+
(1) (2) (3)
Nonaccrual
(4) (5)
Total loans held
for investment
Nonaccrual
Loans with no
ACL
(6)
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
FHA/VA government-guaranteed
loans
(1) (3) (7)
$
67,116
$
-
$
2,586
$
48,456
$
-
$
118,158
$
-
Conventional residential mortgage loans
(2) (7)
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) (7)
2,330,094
300
2,367
3,771
22,319
2,358,851
15,991
C&I loans
2,868,989
1,984
1,128
6,332
7,830
2,886,263
3,300
Consumer loans:
Auto loans
1,740,271
40,039
7,089
-
10,672
1,798,071
2,136
Finance leases
707,646
7,148
1,791
-
1,645
718,230
330
Personal loans
346,366
3,738
1,894
-
1,248
353,246
-
Credit cards
301,013
3,705
2,238
4,775
-
311,731
-
Other consumer loans
141,687
1,804
1,458
-
1,241
146,190
-
Total loans held for investment
$
11,277,708
$
58,718
$
46,181
$
80,283
$
89,935
$
11,552,825
$
25,026
(1)
It is the Corporation's policy to report delinquent FHA/VA government-guaranteed residential mortgage loans as past-due loans 90 days and still accruing as opposed to
nonaccrual loans. The Corporation continues
accruing interest on these loans until they have passed the 15 months delinquency mark, taking into consideration the FHA interest curtailment process. These balances include $
28.2
million of residential mortgage
loans guaranteed by the FHA that were over 15 months delinquent.
(2)
Includes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans as “units of account” both at the time of adoption
of CECL on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing
and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due 90 days or more, amounting to $
12.0
million as of December 31, 2022 ($
11.0
million conventional
residential mortgage loans and $
1.0
million commercial mortgage loans), is presented in the loans past due 90 days or more and still accruing category in the table above.
(3)
Include rebooked loans, which were previously pooled into GNMA securities, amounting to $
10.3
million as of December 31, 2022. Under the GNMA program, the Corporation has the option but not the obligation to
repurchase loans that meet GNMA’s
specified delinquency criteria. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting
liability.
(4)
Nonaccrual loans in the Florida region amounted to $
8.3
million as of December 31, 2022, primarily nonaccrual residential mortgage loans.
(5)
Nonaccrual loans exclude $
328.1
million of TDR loans that were in compliance with modified terms and in accrual status as of December 31, 2022.
(6)
Includes $
0.3
million of nonaccrual C&I loans with no ACL in the Florida region as of December 31, 2022.
(7)
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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
41
As of December 31, 2021
Days Past Due and Accruing
Current
30-59
60-89
90+
(1)(2)(3)
Nonaccrual
(4) (5)
Total loans held
for investment
Nonaccrual
Loans with no
ACL
(6)
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
FHA/VA government-guaranteed
loans
(1) (3) (7)
$
57,522
$
-
$
2,355
$
65,515
$
-
$
125,392
$
-
Conventional residential mortgage loans
(2) (7)
2,738,111
-
31,832
28,433
55,127
2,853,503
3,689
Commercial loans:
Construction loans
136,317
18
-
-
2,664
138,999
1,000
Commercial mortgage loans
(2) (7)
2,129,375
2,402
436
9,919
25,337
2,167,469
8,289
C&I loans
2,858,397
2,047
1,845
7,827
17,135
2,887,251
11,393
Consumer loans:
Auto loans
1,533,445
26,462
4,949
-
6,684
1,571,540
3,146
Finance leases
568,606
4,820
713
-
866
575,005
196
Personal loans
310,390
3,299
1,285
-
1,208
316,182
-
Credit cards
282,179
3,158
1,904
2,985
-
290,226
-
Other consumer loans
130,588
1,996
811
-
1,696
135,091
20
Total loans held for investment
$
10,744,930
$
44,202
$
46,130
$
114,679
$
110,717
$
11,060,658
$
27,733
(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 $
46.6
million of residential mortgage loans
guaranteed by the FHA that were over 15 months delinquent.
(2)
Includes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans as “units of account” both at the time of adoption
of CECL on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing
and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due 90 days or more, amounting to $
20.6
million as of December 31, 2021 ($
19.1
million conventional
residential mortgage loans and $
1.5
million commercial mortgage loans), is presented in the loans past due 90 days or more and still accruing category in the table above.
(3)
Include rebooked loans, which were previously pooled into GNMA securities, amounting to $
7.2
million as of December 31, 2021. 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 $
8.2
million as of December 31, 2021, primarily nonaccrual residential mortgage loans.
(5)
Nonaccrual loans exclude $
363.4
million of TDR loans that were in compliance with modified terms and in accrual status as of December 31, 2021.
(6)
Includes $
0.5
million of nonaccrual C&I loans with no ACL in the Florida region as of December 31, 2021.
(7)
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, 2021 amounted to $
6.1
million, $
66.0
million, and $
0.7
million,
respectively.
When a
loan
is placed
on nonaccrual
status, any
accrued but
uncollected
interest income
is reversed
and
charged
against interest
income
and the
amortization of
any net
deferred fees
is suspended.
The amount
of accrued
interest reversed
against interest
income
totaled $
1.7
million, $
2.0
million and $
1.9
million for the years ended December
31, 2022, 2021, and 2020, respectively.
For the years
ended December
31, 2022,
2021, and
2020, the
cash interest
income recognized
on nonaccrual
loans amounted
to $
1.5
million, $
2.3
million, and $
2.0
million, respectively.
As of
December 31,
2022, the
recorded investment
on residential
mortgage loans
collateralized by
residential real
estate property
that
were
in
the
process
of
foreclosure
amounted
to
$
72.4
million,
including
$
29.4
million
of
FHA/VA
government-guaranteed
mortgage
loans,
and
$
10.0
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.
For residential mortgage and consumer loans, the Corporation also evaluates credit
quality based on its interest accrual status.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
42
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
December
31,
2022
and
the
amortized
cost
of
commercial
and
construction loans by portfolio classes based on the internal credit-risk
category as of December 31, 2021 was as follows:
As of December 31,
2022
Puerto Rico and Virgin Islands region
Term Loans
As of December 31, 2021
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
Risk Ratings:
Pass
$
9,463
$
18,385
$
-
$
-
$
-
$
4,031
$
-
$
31,879
$
38,066
Criticized:
Special Mention
-
-
-
-
-
-
-
-
765
Substandard
-
-
-
-
-
2,893
-
2,893
4,302
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total construction loans
$
9,463
$
18,385
$
-
$
-
$
-
$
6,924
$
-
$
34,772
$
43,133
COMMERCIAL MORTGAGE
Risk Ratings:
Pass
$
391,589
$
141,456
$
363,115
$
296,954
$
193,795
$
267,793
$
1,026
$
1,655,728
$
1,395,569
Criticized:
Special Mention
1,198
-
3,583
6,919
12,042
121,673
-
145,415
259,263
Substandard
135
-
-
2,819
-
30,107
-
33,061
47,399
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total commercial mortgage loans
$
392,922
$
141,456
$
366,698
$
306,692
$
205,837
$
419,573
$
1,026
$
1,834,204
$
1,702,231
C&I
Risk Ratings:
Pass
$
297,932
$
195,460
$
184,856
$
315,987
$
88,484
$
179,201
$
527,652
$
1,789,572
$
1,852,552
Criticized:
Special Mention
138
912
-
500
9,867
2,631
29,176
43,224
32,650
Substandard
203
351
1,324
14,119
725
10,238
353
27,313
61,395
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total C&I loans
$
298,273
$
196,723
$
186,180
$
330,606
$
99,076
$
192,070
$
557,181
$
1,860,109
$
1,946,597
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
43
As of December 31,
2022
Term Loans
As of December 31, 2021
Florida region
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
Risk Ratings:
Pass
$
48,536
$
42,841
$
-
$
14
$
-
$
-
$
6,790
$
98,181
$
95,866
Criticized:
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total construction loans
$
48,536
$
42,841
$
-
$
14
$
-
$
-
$
6,790
$
98,181
$
95,866
COMMERCIAL MORTGAGE
Risk Ratings:
Pass
$
176,131
$
70,525
$
41,413
$
54,839
$
71,404
$
70,316
$
18,556
$
503,184
$
404,304
Criticized:
Special Mention
-
-
6,986
13,309
-
-
-
20,295
60,618
Substandard
-
-
1,168
-
-
-
-
1,168
316
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total commercial mortgage loans
$
176,131
$
70,525
$
49,567
$
68,148
$
71,404
$
70,316
$
18,556
$
524,647
$
465,238
C&I
Risk Ratings:
Pass
$
277,637
$
163,210
$
77,027
$
223,504
$
66,484
$
35,028
$
136,261
$
979,151
$
826,823
Criticized:
Special Mention
-
-
-
5,974
-
11,931
-
17,905
49,946
Substandard
-
-
267
24,852
-
3,678
301
29,098
63,885
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total C&I loans
$
277,637
$
163,210
$
77,294
$
254,330
$
66,484
$
50,637
$
136,562
$
1,026,154
$
940,654
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
44
As of December 31,
2022
Total
Term Loans
As of December 31, 2021
Amortized Cost Basis by Origination Year (1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
Risk Ratings:
Pass
$
57,999
$
61,226
$
-
$
14
$
-
$
4,031
$
6,790
$
130,060
$
133,932
Criticized:
Special Mention
-
-
-
-
-
-
-
-
765
Substandard
-
-
-
-
-
2,893
-
2,893
4,302
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total construction loans
$
57,999
$
61,226
$
-
$
14
$
-
$
6,924
$
6,790
$
132,953
$
138,999
COMMERCIAL MORTGAGE
Risk Ratings:
Pass
$
567,720
$
211,981
$
404,528
$
351,793
$
265,199
$
338,109
$
19,582
$
2,158,912
$
1,799,873
Criticized:
Special Mention
1,198
-
10,569
20,228
12,042
121,673
-
165,710
319,881
Substandard
135
-
1,168
2,819
-
30,107
-
34,229
47,715
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total commercial mortgage loans
$
569,053
$
211,981
$
416,265
$
374,840
$
277,241
$
489,889
$
19,582
$
2,358,851
$
2,167,469
C&I
Risk Ratings:
Pass
$
575,569
$
358,670
$
261,883
$
539,491
$
154,968
$
214,229
$
663,913
$
2,768,723
$
2,679,375
Criticized:
Special Mention
138
912
-
6,474
9,867
14,562
29,176
61,129
82,596
Substandard
203
351
1,591
38,971
725
13,916
654
56,411
125,280
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total C&I loans
$
575,910
$
359,933
$
263,474
$
584,936
$
165,560
$
242,707
$
693,743
$
2,886,263
$
2,887,251
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
45
The following
tables present the
amortized cost of
residential mortgage
loans by portfolio
classes and by
origination year
based on
accrual
status as
of
December
31,
2022,
and
the
amortized cost
of
residential
mortgage
loans
by
portfolio
classes based
on
accrual
status as of December 31, 2021:
As of December 31,
2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Puerto Rico and Virgin Islands Region:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
700
$
693
$
802
$
1,407
$
3,784
$
110,030
$
-
$
117,416
$
124,652
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
government-guaranteed loans
$
700
$
693
$
802
$
1,407
$
3,784
$
110,030
$
-
$
117,416
$
124,652
Conventional residential mortgage loans:
Accrual Status:
Performing
$
172,628
$
75,397
$
31,885
$
47,911
$
72,285
$
1,864,907
$
-
$
2,265,013
$
2,376,946
Non-Performing
-
35
-
219
279
34,938
-
35,471
47,975
Total conventional residential mortgage loans
$
172,628
$
75,432
$
31,885
$
48,130
$
72,564
$
1,899,845
$
-
$
2,300,484
$
2,424,921
Total:
Accrual Status:
Performing
$
173,328
$
76,090
$
32,687
$
49,318
$
76,069
$
1,974,937
$
-
$
2,382,429
$
2,501,598
Non-Performing
-
35
-
219
279
34,938
-
35,471
47,975
Total residential mortgage loans in Puerto Rico
and Virgin Islands Region
$
173,328
$
76,125
$
32,687
$
49,537
$
76,348
$
2,009,875
$
-
$
2,417,900
$
2,549,573
(1)
Excludes accrued interest receivable.
As of December 31,
2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Florida Region:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
742
$
-
$
742
$
740
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
government-guaranteed loans
$
-
$
-
$
-
$
-
$
-
$
742
$
-
$
742
$
740
Conventional residential mortgage loans:
Accrual Status:
Performing
$
82,968
$
49,479
$
31,405
$
31,144
$
37,268
$
189,083
$
-
$
421,347
$
421,430
Non-Performing
-
-
-
272
477
6,552
-
7,301
7,152
Total conventional residential mortgage loans
$
82,968
$
49,479
$
31,405
$
31,416
$
37,745
$
195,635
$
-
$
428,648
$
428,582
Total:
Accrual Status:
Performing
$
82,968
$
49,479
$
31,405
$
31,144
$
37,268
$
189,825
$
-
$
422,089
$
422,170
Non-Performing
-
-
-
272
477
6,552
-
7,301
7,152
Total residential mortgage loans in Florida region
$
82,968
$
49,479
$
31,405
$
31,416
$
37,745
$
196,377
$
-
$
429,390
$
429,322
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
46
As of December 31,
2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Total:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
700
$
693
$
802
$
1,407
$
3,784
$
110,772
$
-
$
118,158
$
125,392
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
government-guaranteed loans
$
700
$
693
$
802
$
1,407
$
3,784
$
110,772
$
-
$
118,158
$
125,392
Conventional residential mortgage loans:
Accrual Status:
Performing
$
255,596
$
124,876
$
63,290
$
79,055
$
109,553
$
2,053,990
$
-
$
2,686,360
$
2,798,376
Non-Performing
-
35
-
491
756
41,490
-
42,772
55,127
Total conventional residential mortgage loans
$
255,596
$
124,911
$
63,290
$
79,546
$
110,309
$
2,095,480
$
-
$
2,729,132
$
2,853,503
Total:
Accrual Status:
Performing
$
256,296
$
125,569
$
64,092
$
80,462
$
113,337
$
2,164,762
$
-
$
2,804,518
$
2,923,768
Non-Performing
-
35
-
491
756
41,490
-
42,772
55,127
Total residential mortgage loans
$
256,296
$
125,604
$
64,092
$
80,953
$
114,093
$
2,206,252
$
-
$
2,847,290
$
2,978,895
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
47
The
following
tables present
the
amortized
cost
of
consumer
loans
by
portfolio
classes
and
by origination
year
based on
accrual
status as of December
31, 2022, and the amortized
cost of consumer loans
by portfolio classes based on
accrual status as of December
31, 2021:
As of December 31,
2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Puerto Rico and Virgin Islands Regions:
Auto loans:
Accrual Status:
Performing
$
674,145
$
510,950
$
254,196
$
206,345
$
99,008
$
39,138
$
-
$
1,783,782
$
1,556,097
Non-Performing
1,666
2,140
1,596
2,508
1,385
1,301
-
10,596
6,684
Total auto loans
$
675,811
$
513,090
$
255,792
$
208,853
$
100,393
$
40,439
$
-
$
1,794,378
$
1,562,781
Finance leases:
Accrual Status:
Performing
$
292,995
$
192,435
$
88,196
$
81,186
$
48,332
$
13,441
$
-
$
716,585
$
574,139
Non-Performing
176
253
305
219
384
308
-
1,645
866
Total finance leases
$
293,171
$
192,688
$
88,501
$
81,405
$
48,716
$
13,749
$
-
$
718,230
$
575,005
Personal loans:
Accrual Status:
Performing
$
175,875
$
55,993
$
29,320
$
53,911
$
22,838
$
13,727
$
-
$
351,664
$
314,867
Non-Performing
348
249
135
289
112
115
-
1,248
1,208
Total personal loans
$
176,223
$
56,242
$
29,455
$
54,200
$
22,950
$
13,842
$
-
$
352,912
$
316,075
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
311,731
$
311,731
$
290,226
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
311,731
$
311,731
$
290,226
Other consumer loans:
Accrual Status:
Performing
$
79,630
$
21,488
$
9,345
$
11,941
$
4,030
$
3,761
$
8,921
$
139,116
$
126,734
Non-Performing
409
201
61
119
20
241
71
1,122
1,563
Total other consumer loans
$
80,039
$
21,689
$
9,406
$
12,060
$
4,050
$
4,002
$
8,992
$
140,238
$
128,297
Total:
Performing
$
1,222,645
$
780,866
$
381,057
$
353,383
$
174,208
$
70,067
$
320,652
$
3,302,878
$
2,862,063
Non-Performing
2,599
2,843
2,097
3,135
1,901
1,965
71
14,611
10,321
Total consumer loans in Puerto Rico and Virgin
Islands region
$
1,225,244
$
783,709
$
383,154
$
356,518
$
176,109
$
72,032
$
320,723
$
3,317,489
$
2,872,384
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
48
As of December 31,
2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Florida Region:
Auto loans:
Accrual Status:
Performing
$
-
$
-
$
-
$
305
$
2,333
$
979
$
-
$
3,617
$
8,759
Non-Performing
-
-
-
-
36
40
-
76
-
Total auto loans
$
-
$
-
$
-
$
305
$
2,369
$
1,019
$
-
$
3,693
$
8,759
Finance leases:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total finance leases
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Personal loans:
Accrual Status:
Performing
$
254
$
71
$
9
$
-
$
-
$
-
$
-
$
334
$
107
Non-Performing
-
-
-
-
-
-
-
-
-
Total personal loans
$
254
$
71
$
9
$
-
$
-
$
-
$
-
$
334
$
107
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Other consumer loans:
Accrual Status:
Performing
$
49
$
231
$
464
$
-
$
39
$
2,588
$
2,462
$
5,833
$
6,661
Non-Performing
-
-
-
-
-
21
98
119
133
Total other consumer loans
$
49
$
231
$
464
$
-
$
39
$
2,609
$
2,560
$
5,952
$
6,794
Total:
Performing
$
303
$
302
$
473
$
305
$
2,372
$
3,567
$
2,462
$
9,784
$
15,527
Non-Performing
-
-
-
-
36
61
98
195
133
Total consumer loans in Florida region
$
303
$
302
$
473
$
305
$
2,408
$
3,628
$
2,560
$
9,979
$
15,660
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
49
As of December 31,
2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Total:
Auto loans:
Accrual Status:
Performing
$
674,145
$
510,950
$
254,196
$
206,650
$
101,341
$
40,117
$
-
$
1,787,399
$
1,564,856
Non-Performing
1,666
2,140
1,596
2,508
1,421
1,341
-
10,672
6,684
Total auto loans
$
675,811
$
513,090
$
255,792
$
209,158
$
102,762
$
41,458
$
-
$
1,798,071
$
1,571,540
Finance leases:
Accrual Status:
Performing
$
292,995
$
192,435
$
88,196
$
81,186
$
48,332
$
13,441
$
-
$
716,585
$
574,139
Non-Performing
176
253
305
219
384
308
-
1,645
866
Total finance leases
$
293,171
$
192,688
$
88,501
$
81,405
$
48,716
$
13,749
$
-
$
718,230
$
575,005
Personal loans:
Accrual Status:
Performing
$
176,129
$
56,064
$
29,329
$
53,911
$
22,838
$
13,727
$
-
$
351,998
$
314,974
Non-Performing
348
249
135
289
112
115
-
1,248
1,208
Total personal loans
$
176,477
$
56,313
$
29,464
$
54,200
$
22,950
$
13,842
$
-
$
353,246
$
316,182
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
311,731
$
311,731
$
290,226
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
311,731
$
311,731
$
290,226
Other consumer loans:
Accrual Status:
Performing
$
79,679
$
21,719
$
9,809
$
11,941
$
4,069
$
6,349
$
11,383
$
144,949
$
133,395
Non-Performing
409
201
61
119
20
262
169
1,241
1,696
Total other consumer loans
$
80,088
$
21,920
$
9,870
$
12,060
$
4,089
$
6,611
$
11,552
$
146,190
$
135,091
Total:
Performing
$
1,222,948
$
781,168
$
381,530
$
353,688
$
176,580
$
73,634
$
323,114
$
3,312,662
$
2,877,590
Non-Performing
2,599
2,843
2,097
3,135
1,937
2,026
169
14,806
10,454
Total consumer loans
$
1,225,547
$
784,011
$
383,627
$
356,823
$
178,517
$
75,660
$
323,283
$
3,327,468
$
2,888,044
(1)
Excludes accrued interest receivable.
Accrued interest receivable
on loans totaled
$
53.1
million as of
December 31, 2022
($
48.1
million as of
December 31, 2021),
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)
50
The
following
tables
present
information
about
collateral
dependent
loans
that
were
individually
evaluated
for
purposes
of
determining the ACL as of December 31, 2022 and 2021
:
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
As of December 31, 2021
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
$
51,771
$
3,966
$
781
$
52,552
$
3,966
Commercial loans:
Construction loans
-
-
1,797
1,797
-
Commercial mortgage loans
9,908
1,152
56,361
66,269
1,152
C&I loans
5,781
670
34,043
39,824
670
Consumer loans:
Personal loans
78
1
-
78
1
Other consumer loans
782
98
-
782
98
$
68,320
$
5,887
$
92,982
$
161,302
$
5,887
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
December 2022
decreased to
70
%, compared
to
78
% as
of December
31, 2021,
mainly driven by the payoff of a $
16.2
million C&I loan in the Puerto Rico region that had a loan-to-value ratio of
116
%.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
51
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
years
ended
December
31,
2022,
2021,
and
2020,
loans
pooled
into GNMA
MBS
amounted
to approximately
$
144.5
million,
$
190.8
million and
$
219.6
million, respectively,
of which
the Corporation
recognized
a
net gain on
sale of $
4.2
million, $
8.8
million, and $
9.9
million for the
years ended
December 31, 2022,
2021, and 2020,
respectively.
Also, during
the years ended
December 31,
2022, 2021,
and 2020, the
Corporation sold approximately
$
93.8
million, $
328.2
million,
and
$
255.0
million,
respectively,
of
performing
residential
mortgage
loans
to
FNMA
and
FHLMC,
of
which
the
Corporation
recognized a net gain on
sale of $
4.2
million, $
11.4
million, and $
8.3
million for the years ended
December 31, 2022, 2021, and
2020,
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
December
31,
2022
and
2021,
rebooked
GNMA
delinquent
loans
that
were
included in the residential mortgage loan portfolio amounted to $
10.4
million and $
7.2
million, respectively.
During
the
years
ended
December
31,
2022,
2021,
and
2020,
the
Corporation
repurchased,
pursuant
to
the
aforementioned
repurchase
option,
$
8.2
million,
$
1.1
million,
and
$
55.0
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
repurchased at par
loans previously sold
to FNMA and
FHLMC in the
amount of $
0.4
million, $
0.3
million, and $
42
thousand during
the years
ended December
31, 2022,
2021, and
2020, respectively.
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
year ended
December 31,
2022, the
Corporation sold
a $
35.2
million C&I
loan participation
in the
Puerto Rico
region
and
a $
23.9
million
criticized
C&I loan
participation
in the
Florida
region.
Also, during
the year
ended
December 31,
2021,
a $
3.1
million
construction
loan
in
the Puerto
Rico
region
and
four criticized
commercial
loan participations
in the
Florida region
totaling
$
43.1
million
were sold.
Further,
during the
third quarter
of 2021,
the Corporation
sold $
52.5
million of
non-performing
residential
mortgage loans
and related
servicing advances
of $
2.0
million. The
Corporation received
$
31.5
million, or
58
% of book
value before
reserves, for
the $
54.5
million of
non-performing loans
and related
servicing advances.
Approximately $
20.9
million of
reserves had
been
allocated
to
the
loans
sold.
The
transaction
resulted
in
total
net
charge-offs
of
$
23.1
million
and
an
additional
loss
of
approximately $
2.1
million recorded as charge to the provision for credit losses in the third quarter of
2021.
Finally, the
Corporation participated in the
Main Street Lending program
established by the FED under
the CARES Act of 2020,
as
amended,
to
support
lending
to
small
and
medium-sized
businesses
that
were
in
sound
financial
condition
before
the
onset
of
the
COVID-19 pandemic.
Under this
program, the
Corporation originated
loans to
borrowers meeting
the terms
and requirements
of the
program, including requirements
as to eligibility,
use of proceeds and
priority,
and sold a 95% participation
interest in these loans
to a
special purpose
vehicle
(the “Main
Street SPV”)
organized
by the
FED to
purchase the
participation
interests from
eligible lenders,
including the
Corporation. During
the fourth
quarter of
2020, the
Corporation originated
23
loans under
this program
totaling $
184.4
million in principal amount and sold participation interests totaling $
175.1
million to the Main Street SPV.
During
the
years
ended
December
31,
2022,
2021,
and
2020,
the
Corporation
purchased
C&I
loan
participations
in
the
Florida
region totaling $
135.4
million, $
174.7
million, and $
40.0
million, respectively.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
52
Loan Portfolio Concentration
The Corporation’s
primary
lending area
is Puerto
Rico. The
Corporation’s
banking subsidiary,
FirstBank, also
lends in
the USVI
and BVI markets
and in the
United States (principally
in the state of
Florida). Of the
total gross loans
held for investment
portfolio of
$
11.6
billion as
of December 31,
2022, credit
risk concentration
was approximately
79
% in
Puerto Rico,
18
% in
the U.S.,
and
3
% in
the USVI and BVI.
As of
December
31,
2022,
the Corporation
had
$
169.8
million
outstanding
in
loans
extended
to
the Puerto
Rico
government,
its
municipalities
and
public
corporations,
compared
to
$
178.4
million
as
of
December
31,
2021.
As
of
December
31,
2022,
approximately
$
102.7
million consisted
of loans
extended
to municipalities
in Puerto
Rico that
are general
obligations supported
by
assigned
property
tax
revenues,
and
$
28.9
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
December
31,
2022
included
$
10.8
million in loans
granted to an affiliate
of the Puerto
Rico Electric
Power Authority (“PREPA”)
and $
27.4
million in loans to
an
agency of the Puerto Rico central government.
In
addition,
as
of
December
31,
2022,
the
Corporation
had
$
84.7
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
$
92.8
million
as
of
December
31,
2021.
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
December
31,
2022,
the
Corporation
had
$
38.0
million in
loans to
USVI government
public corporations,
compared to
$
39.2
million as
of December
31, 2021.
As of
December 31,
2022, all loans were currently performing and up to date on principal
and interest payments.
Troubled Debt
Restructurings
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,
as
well
as
other
restructurings of
individual C&I,
commercial mortgage,
construction, and
residential mortgage
loans, fit
the definition
of a
TDR. As
of December
31, 2022,
the Corporation’s
total TDR
loans held
for investment
amounted to
$
366.7
million, of
which $
328.1
million
were in
accruing status.
See Note
1 –
Nature of
Business and
Summary Significant
of Accounting
Policies, for
information on
when
the
Corporation
classifies
TDR
loans
as
either
accrual
or
nonaccrual
loans.
The
total
TDR
loans
held
for
investment
consisted
of
$
240.6
million of residential mortgage loans, $
49.6
million of C&I loans, $
63.3
million of commercial mortgage loans, $
1.2
million of
construction loans, and $
12.0
million of consumer loans.
As of December 31, 2022,
the Corporation included as TDRs
$
0.7
million of
residential mortgage
loans that
were participating
in or
had been
offered
a trial
modification, which
generally represents
a six-month
period
during
which
the
borrower
makes
monthly
payments
under
the
anticipated
modified
payment
terms
prior
to
a
formal
modification.
TDR
loans
exclude
restructured
residential
mortgage
loans
that
are
government-guaranteed
(e.g.,
FHA/VA
loans)
totaling $
53.9
million as of December 31, 2022, compared with $
57.6
million as of December 31, 2021. As of December
31, 2022, the
Corporation has committed to lend up to an additional $
4
thousand on TDR consumer loans.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
53
The following tables present TDR loans completed during 2022,
2021 and 2020:
Year Ended December 31,
2022
Interest rate
below market
Maturity or
term extension
Combination of
reduction in
interest rate and
extension of
maturity
Forgiveness of
principal and/or
interest
Other
(1)
Total
(In thousands)
Conventional residential mortgage loans
$
433
$
1,551
$
242
$
-
$
4,874
$
7,100
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
245
5,178
-
467
5,890
C&I loans
2,402
-
618
825
1,083
4,928
Consumer loans:
Auto loans
2,877
232
345
-
-
3,454
Finance leases
-
573
-
-
18
591
Personal loans
99
171
105
-
19
394
Credit cards
(2)
-
-
-
-
816
816
Other consumer loans
112
272
16
43
-
443
Total TDRs
$
5,923
$
3,044
$
6,504
$
868
$
7,277
$
23,616
(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.
Year Ended December 31,
2021
Interest rate
below market
Maturity or term
extension
Combination of
reduction in
interest rate and
extension of
maturity
Forgiveness of
principal and/or
interest
Other
(1)
Total
(In thousands)
Conventional residential mortgage loans
$
365
$
859
$
2,647
$
-
$
3,723
$
7,594
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
10,586
-
637
11,223
C&I loans
-
300
9,100
-
508
9,908
Consumer loans:
Auto loans
1,888
433
277
-
-
2,598
Finance leases
-
645
26
-
26
697
Personal loans
13
60
387
-
44
504
Credit cards
(2)
-
-
-
-
1,426
1,426
Other consumer loans
110
79
-
77
-
266
Total TDRs
$
2,376
$
2,376
$
23,023
$
77
$
6,364
$
34,216
(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.
Year Ended December 31,
2020
Interest rate
below market
Maturity or
term extension
Combination of
reduction in
interest rate
and extension
of maturity
Forgiveness of
principal
and/or interest
Forbearance
Agreement
Other
(1)
Total
(In thousands)
Conventional residential mortgage
loans
$
18
$
545
$
2,044
$
-
$
-
$
5,700
$
8,307
Construction loans
-
-
-
-
-
-
-
Commercial mortgage loans
-
-
271
-
-
553
824
C&I loans
31
-
4,107
-
18,386
-
22,524
Consumer loans:
Auto loans
1,902
413
275
-
-
33
2,623
Finance leases
-
408
-
-
-
-
408
Personal loans
38
74
145
-
-
48
305
Credit cards
(2)
-
-
-
-
-
783
783
Other consumer loans
219
83
24
219
-
-
545
Total TDRs
$
2,208
$
1,523
$
6,866
$
219
$
18,386
$
7,117
$
36,319
(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)
54
Year Ended December 31,
2022
2021
2020
Number of
contracts
Pre-modification
Amortized Cost
Post-modification
Amortized Cost
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)
Conventional residential mortgage loans
68
$
7,165
$
7,100
66
$
7,687
$
7,594
103
$
9,027
$
8,307
Construction loans
-
-
-
-
-
-
-
-
-
Commercial mortgage loans
3
5,897
5,890
7
11,285
11,223
5
824
824
C&I loans
17
5,156
4,928
6
10,031
9,908
14
22,544
22,524
Consumer loans:
Auto loans
168
3,404
3,454
134
2,601
2,598
163
2,635
2,623
Finance leases
33
592
591
42
692
697
29
408
408
Personal loans
26
366
394
46
497
504
30
306
305
Credit Cards
170
815
816
246
1,426
1,426
159
783
783
Other consumer loans
115
434
443
65
266
266
145
613
545
Total TDRs
600
$
23,829
$
23,616
612
$
34,485
$
34,216
648
$
37,140
$
36,319
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
2022, 2021
and 2020,
and had
become TDR
loans during
the 12-months
preceding the
default date, were as follows:
Year Ended December 31,
2022
2021
2020
Number of
contracts
Amortized Cost
Number of
contracts
Amortized Cost
Number of
contracts
Amortized Cost
(Dollars in thousands)
Conventional residential mortgage loans
2
$
124
-
$
-
4
$
465
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
C&I loans
-
-
-
-
3
124
Consumer loans:
Auto loans
96
2,049
92
1,625
55
947
Finance leases
1
16
-
-
1
5
Personal loans
-
-
1
1
1
7
Credit cards
28
156
24
126
23
93
Other consumer loans
8
30
11
45
58
209
Total
135
$
2,375
128
$
1,797
145
$
1,850
For
certain
TDR
loans,
the
Corporation
splits
the
loans
into
two
new
notes
(the
“Note
A”
and
the
“Note
B”).
The
A
Note
is
restructured to comply
with the Corporation’s
lending standards at
current market rates
and is tailored to
suit the customer’s
ability to
make
timely
interest
and
principal
payments.
The
B
Note
includes
the
granting
of
the
concession
to
the
borrower
and
varies
by
situation. The
B Note is
fully charged-off,
unless it is
collateral-dependent and
the source of
repayment is
independent of
the A Note
in which
case a
partial charge
-off may
be recorded.
At the
time of
the restructuring,
the A Note
is identified
and classified
as a
TDR
loan. During 2022, 2021, and 2020, there were no new Note A and B restructurings.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
55
NOTE 5 – 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
Year Ended December
31,
2022
(In thousands)
ACL:
Beginning balance
$
74,837
$
4,048
$
52,771
$
34,284
$
103,090
$
269,030
Provision for credit losses - (benefit) expense
(8,734)
(2,342)
(18,994)
(1,770)
57,519
25,679
Charge-offs
(6,890)
(123)
(85)
(2,067)
(48,165)
(57,330)
Recoveries
3,547
725
1,372
2,459
14,982
23,085
Ending balance
$
62,760
$
2,308
$
35,064
$
32,906
$
127,426
$
260,464
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
Commercial &
Industrial Loans
Consumer Loans
Total
Year Ended December
31,
2021
(In thousands)
ACL:
Beginning balance
$
120,311
$
5,380
$
109,342
$
37,944
$
112,910
$
385,887
Provision for credit losses - (benefit) expense
(16,957)
(1,408)
(55,358)
(8,549)
20,552
(61,720)
Charge-offs
(33,294)
(87)
(1,494)
(1,887)
(43,948)
(80,710)
Recoveries
4,777
163
281
6,776
13,576
25,573
Ending balance
$
74,837
$
4,048
$
52,771
$
34,284
$
103,090
$
269,030
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
Commercial &
Industrial Loans
Consumer Loans
Total
Year Ended December
31, 2020
(In thousands)
ACL:
Beginning balance, prior to adoption of CECL
$
44,806
$
2,370
$
39,194
$
15,198
$
53,571
$
155,139
Impact of adopting CECL
49,837
797
(19,306)
14,731
35,106
81,165
Allowance established for acquired PCD loans
12,739
-
9,723
1,830
4,452
28,744
Provision for credit losses - expense
(1)
22,427
2,105
81,125
6,627
56,433
168,717
Charge-offs
(11,017)
(76)
(3,330)
(3,634)
(46,483)
(64,540)
Recoveries
1,519
184
1,936
3,192
9,831
16,662
Ending balance
$
120,311
$
5,380
$
109,342
$
37,944
$
112,910
$
385,887
(1)
Includes a $
37.5
million charge related to the establishment of the initial reserves
for non-PCD loans acquired in conjunction with the
BSPR acquisition consisting of: (i) a $
13.5
million
charge related to non-PCD residential mortgage loans;
(ii) a $
9.2
million charge related to non-PCD commercial mortgage loans,
(iii) a $
4.6
million charge related to non-PCD C&I loans,
and (iv) a $
10.2
million charge related to non-PCD consumer loans.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
56
The
Corporation
estimates
the
ACL
following
the
methodologies
described
in
Note
1
–
Nature
of
Business
and
Summary
of
Significant Accounting Policies, above,
for each portfolio segment.
During 2022,
the Corporation
applied probability
weights to
the baseline
and alternative
downside economic
scenarios
to estimate
the ACL with the baseline
scenario carrying the highest
weight. In weighting these
macroeconomic scenarios, the
Corporation applied
judgment
based
on
a
variety
of
factors
such
as
economic
uncertainties
associated
to
the
continued
conflict
in
Ukraine,
the
overall
inflationary environment
and a potential
slowdown in economic
activity as a
result of the
FED’s policy
actions to control
inflationary
economic conditions. For periods prior to 2022, the Corporation calculated
the ACL using the baseline scenario.
As
of
December
31,
2022,
the
ACL
for
loans
and
finance
leases
was
$
260.5
million,
down
approximately
$
8.5
million
from
December 31,
2021. The
ACL reduction
for commercial
and construction
loans was
$
20.8
million during
2022, primarily
reflecting
reduced COVID-19 uncertainties, particularly
on loans in the hotel,
transportation and entertainment industries;
and, to a lesser extent,
the effect
during the
second half
of 2022
of reserve
releases totaling
$
4.8
million associated
with two
adversely classified
loans that
were paid off
or sold, partially offset
by an increase in
the size of the
loan portfolio. In addition,
there was an ACL
reduction of $
12.0
million for residential mortgage loans,
partially offset by a $
24.3
million increase in the ACL for
consumer loans. The net reduction
in
the ACL for residential mortgage
loans was primarily driven
by the overall decrease
in the size of this portfolio
and, to a lesser extent,
a
decrease
in
qualitative
adjustments
due
to
improvements
in
underlying
portfolio
metrics.
The
ACL
increase
for
consumer
loans
consisted
of
charges
to
the
provision
of
$
57.5
million
recorded
in
2022
mainly
due
to
a
deterioration
in
the
outlook
of
certain
macroeconomic variables, such as
the regional unemployment rate,
and an increasing trend in delinquency
and charge-off levels in
the
consumer loan
portfolios.
For those
loans where
the ACL
was determined
based on
a discounted
cash flow
model, the
change in
the
ACL due to the passage of time is recorded as part of the provision for credit losses.
Total
net
charge-offs
decreased
by
$
20.9
million
to
$
34.2
million,
when
compared
to
2021.
The
variance
consisted
of
a
$
25.2
million decrease in net
charge-offs on residential
mortgage loans, of which
$
23.1
million was related to charge-offs
recognized as part
of
the
bulk
sale
of
nonaccrual
residential
mortgage
loans
and
related
servicing
advances
during
the
third
quarter
of
2021;
partially
offset
by
a $
2.8
million increase
in net
charge-offs
on consumer
and
finance leases,
primarily
in the
personal loans
portfolio,
and
a
$
1.5
million decrease in net recoveries in the commercial and construction loan portfolios.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
57
The tables below
present the ACL
related to loans
and finance leases
and the carrying
values of loans
by portfolio segment
as of
December 31, 2022 and 2021:
As of December 31,
2022
Residential Mortgage
Loans
Construction
Loans
Commercial Mortgage
Loans
Commercial and
Industrial Loans
(1)
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
%
As of December 31,
2021
Residential Mortgage
Loans
Construction
Loans
Commercial Mortgage
Loans
Commercial and
Industrial Loans
(1)
Consumer Loans
Total
(Dollars in thousands)
Total loans held for investment:
Amortized cost of loans
$
2,978,895
$
138,999
$
2,167,469
$
2,887,251
$
2,888,044
$
11,060,658
Allowance for credit losses
74,837
4,048
52,771
34,284
103,090
269,030
Allowance for credit losses to
amortized cost
2.51
%
2.91
%
2.43
%
1.19
%
3.57
%
2.43
%
(1)
As of December 31, 2022 and 2021, includes $
6.8
million and $
145.0
million of SBA PPP loans, respectively, which require no ACL as these loans are 100% guaranteed by the SBA.
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 29 –
Regulatory
Matters,
Commitments,
and
Contingencies
for
information
on off
-balance
sheet
exposures
as of
December 31,
2022
and
2021.
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. As of
December 31, 2022, the ACL for off-balance
sheet credit exposures increased to
$
4.3
million, from $
1.5
million as of
December 31, 2021,
mainly driven by
an increase in the
balance of unfunded
loan commitments
principally due to newly originated facilities which remained undrawn
as of December 31, 2022.
The
following
table
presents
the
activity
in
the
ACL
for
unfunded
loan
commitments
and
standby
letters
of
credit
for
the
years
ended December 31, 2022, 2021 and 2020:
Year
Ended December 31,
2022
2021
2020
(In thousands)
Beginning Balance
$
1,537
$
5,105
$
-
Impact of adopting CECL
-
-
3,922
Provision for credit losses - expense (benefit)
2,736
(3,568)
1,183
Ending balance
$
4,273
$
1,537
$
5,105
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
58
NOTE 6 – PREMISES AND EQUIPMENT
Premises and equipment comprise:
Useful Life Range In Years
As of December 31,
Minimum
Maximum
2022
2021
(Dollars in thousands)
Buildings and improvements
10
35
$
135,802
$
138,524
Leasehold improvements
1
10
76,390
79,419
Furniture, equipment and software
2
10
155,567
148,171
367,759
366,114
Accumulated depreciation and amortization
(264,233)
(251,659)
103,526
114,455
Land
24,485
23,873
Projects in progress
14,924
8,089
Total premises and equipment,
net
$
142,935
$
146,417
Depreciation and
amortization expense
amounted to
$
22.3
million, $
25.0
million, and
$
20.1
million for
the years ended
December
31, 2022, 2021, and 2020, respectively.
During
the year
ended December
31, 2021,
the Corporation
received insurance
proceeds of
$
0.6
million related
to the
settlement
and collection of an
insurance claim associated with a
damaged property.
This amount is included as
part of other non-interest
income
in the consolidated statements of income.
During
the year
ended December
31,
2020, the
Corporation
received
insurance proceeds
of $
5.0
million
resulting
from
the final
settlement
of
the
business
interruption
insurance
claim related
to
lost profits
caused
by Hurricanes
Irma
and
Maria. This
amount
is
included
as
part
of
other
non-interest
income
in
the
consolidated
statements
of
income.
In
addition,
during
2020,
the
Corporation
received insurance
proceeds of
$
1.2
million related
to hurricane-related
expenses claims
recorded as
a contra-account
of non-interest
expenses, primarily consisting of occupancy and equipment costs.
See Note 25 - Fair Value
for information on write-downs recorded on long-lived assets held for
sale as of December 31, 2022. Also,
see Note
20 –
Other
Non-Interest
Income
for
gains on
sales of
fixed
assets recognized
during
the years
ended December
31,
2022,
2021, and 2020.
NOTE 7
–
OTHER REAL ESTATE
OWNED
The following table presents the OREO inventory as of the indicated dates:
December 31,
2022
2021
(In thousands)
OREO
OREO balances, carrying value:
Residential
(1)
$
24,025
$
29,533
Commercial
5,852
7,331
Construction
1,764
3,984
Total
$
31,641
$
40,848
(1)
Excludes $
23.5
million and
$
22.2
million
as of
December 31,
2022 and
2021, respectively,
of foreclosures
that meet
the conditions
of ASC
Subtopic 310-40
and are
presented as
a
receivable as part of other assets in the consolidated statements
of financial condition.
See Note 25 - Fair Value
for information on write-downs recorded on
OREO properties during the years ended
December 31, 2022,
2021, and 2020.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
59
NOTE 8 – RELATED-PARTY
TRANSACTIONS
The
Corporation
has
granted
loans
to
its
directors,
executive
officers,
and
certain
related
individuals
or
entities
in
the
ordinary
course of business. The movement and balance of these loans were as follows:
Amount
(In thousands)
Balance at December 31,
2020
(1)
$
504
New loans
286
Payments
(108)
Other changes
261
Balance at December 31,
2021
(1)
943
New loans
89
Payments
(149)
Balance at December 31,
2022
(1)
$
883
(1) Includes loans granted to related parties which were then
sold in the secondary market.
These loans
were made
subject to
the provisions
of the
Federal Reserve’s
Regulation O
- “Loans
to Executive
Officers, Directors
and
Principal
Shareholders
of
Member
Banks,”
which
governs
the
permissible
lending
relationships
between
a
financial
institution
and its executive officers, directors, principal
shareholders, their families,
and related parties.
Amounts related to changes in the status
of those who are considered
related parties are reported as other
changes in the table above,
which, for 2021, was mainly related
to the
addition
of
three
new
executive
officers
and
the
departure
of
one
executive
officer.
There
were
no
changes
in
the
status of
related
parties during 2022.
From
time
to
time,
the
Corporation,
in
the
ordinary
course
of
its
business,
obtains
services
from
related
parties
or
makes
contributions to non-profit organizations that have some association
with the Corporation.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
60
NOTE 9 – GOODWILL AND OTHER INTANGIBLES
Goodwill
Goodwill
as
of
each
of
December
31,
2022
and
December
31,
2021
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.
In the qualitative assessment performed for each reporting unit, the Corporation evaluated events and circumstances that could
impact the fair value including the following:
● Macroeconomic conditions, such as improvement or deterioration in general economic conditions;
● Industry and market considerations;
● Interest rate fluctuations;
● Overall financial performance of the entity;
● Performance of industry peers over the last year; and
● Recent market transactions.
Management considered positive and negative evidence obtained during the evaluation of significant events and circumstances and
evaluated such information to conclude that it is more likely than not that the reporting unit’s fair value is greater than their carrying
amount; thus, quantitative tests were not required.
As
a
result,
no
impairment
charges
for
goodwill
were
recorded
during
the
year
ended December 31, 2022.
There were
no
changes in the
carrying amount
of goodwill during
the year ended
December 31, 2022.
The changes in
the carrying
amount of goodwill attributable to operating segments are reflected in the
following table:
Mortgage Banking
Consumer (Retail)
Banking
Commercial and
Corporate Banking
United States
Operations
Total
(In thousands)
Goodwill, January 1, 2020
$
-
$
1,406
$
-
$
26,692
$
28,098
Merger and acquisitions
(1)
574
794
4,935
-
6,303
Measurement period adjustment
(1) (2)
385
533
3,313
-
4,231
Goodwill, December 31, 2020
$
959
$
2,733
$
8,248
$
26,692
$
38,632
Measurement period adjustment
(1) (2)
53
74
(148)
-
(21)
Goodwill, December 31, 2021
$
1,012
$
2,807
$
8,100
$
26,692
$
38,611
(1)
Recognized in connection with the BSPR acquisition on September
1, 2020.
(2)
Relates to the fair value estimate update performed within one year
of the closing of the BSPR acquisition, in accordance with
ASC Topic 805, "Business
Combinations"("ASC 805").
Merger and Restructuring Costs – BSPR Acquisition
In connection
with the
BSPR acquisition
on September
1, 2020,
the Corporation
recognized acquisition
expenses of
$
26.4
million
and $
26.5
million during the years ended
December 31, 2021 and
2020, respectively.
No
acquisition expenses were recognized
during
the
year
ended
December
31,
2022.
Acquisition,
integration,
and
restructuring
expenses
were
included
in
merger
and
restructuring
costs in
the consolidated
statements
of income,
and
consisted
primarily
of legal
fees, severance
and
personnel-related costs,
service
contracts
cancellation
penalties,
valuation
services,
systems
conversion,
and
other
integration
efforts,
as
well
as
accelerated
depreciation
charges related
to planned
closures and
consolidation of
branches in
accordance with
the Corporation’s
integration
and
restructuring plan.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
61
Other Intangible Assets
The
following
table
shows
the
gross
amount
and
accumulated
amortization
of
the
Corporation’s
intangible
assets
subject
to
amortization as of the indicated dates:
As of
As of
December 31,
December 31,
2022
2021
(Dollars in thousands)
Core deposit intangible:
Gross amount
$
87,544
$
87,544
Accumulated amortization
(66,644)
(58,973)
Net carrying amount
$
20,900
$
28,571
Remaining amortization period (in years)
7.0
8.0
Purchased credit card relationship intangible:
Gross amount
$
3,800
$
3,800
Accumulated amortization
(3,595)
(2,602)
Net carrying amount
$
205
$
1,198
Remaining amortization period (in years)
0.7
1.7
Insurance customer relationship intangible:
Gross amount
$
1,067
$
1,067
Accumulated amortization
(1,054)
(902)
Net carrying amount
$
13
$
165
Remaining amortization period (in years)
0.1
1.1
During
the
years
ended
December
31,
2022,
2021,
and
2020,
the
Corporation
recognized
$
8.8
million,
$
11.4
million,
and
$
5.9
million, respectively,
in amortization expense on its other intangibles subject to amortization.
The Corporation amortizes core deposit intangibles and customer relationship intangibles based on the projected useful lives of the
related deposits in the case of core deposit intangibles, and over the projected useful lives of the related client relationships in the case
of customer relationship intangibles. The Corporation analyzes core deposit intangibles and customer relationship intangibles annually
for impairment, or sooner if events and circumstances indicate possible impairment. Factors that may suggest impairment include
customer attrition and run-off. Management is unaware of any events and/or circumstances that would indicate a possible impairment
to the core deposit intangibles or customer relationship intangibles as of December 31, 2022.
The estimated
aggregate annual
amortization expense
related to the
intangible assets
subject to amortization
for future periods
was
as follows as of December 31, 2022:
(In thousands)
2023
$
7,736
2024
6,416
2025
3,509
2026
872
2027
872
2028 and after
1,713
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
62
NOTE 10 – NON-CONSOLIDATED
VARIABLE
INTEREST ENTITIES (“VIE”) 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
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 borrowings.
The variable-rate
TRuPs are fully
and unconditionally
guaranteed
by the
Corporation.
The Junior Subordinated Deferrable Debentures mature on June 17, 2034, and September 20, 2034, respectively;
however, under certain circumstances, the maturity of Junior Subordinated Deferrable Debentures may be shortened (such shortening
would result in a mandatory redemption of the variable-rate TRuPs).
As
of
each
of
December
31,
2022
and
2021,
these
Junior
Subordinated Deferrable Debentures amounted to $
183.8
million.
During the third
quarter of 2020,
the Corporation completed
the repurchase of
$
0.4
million of TRuPs
of the FBP
Statutory Trust
I,
which resulted in
a commensurate reduction
in the related
Floating Rate Junior
Subordinated Debentures. The
Corporation’s purchase
price equated
to
75
% of
the $
0.4
million par
value. The
25
% discount
resulted in
a gain
of approximately
$
0.1
million. This
gain is
reflected in the consolidated statements of income as gain on early extinguishment
of debt.
The Collins Amendment
to the Dodd
-Frank Wall
Street Reform
and Consumer
Protection Act eliminated
certain TRuPs
from Tier
1 capital; however,
these instruments may remain in Tier
2 capital until the instruments are redeemed
or mature. 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
December 31, 2022,
the Corporation was
current on all
interest payments due on its subordinated debt.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
63
Private Label MBS
During
2004
and
2005,
an unaffiliated
party,
referred
to in
this subsection
as the
seller,
established
a
series of
statutory
trusts
to
effect
the
securitization
of
mortgage
loans
and
the
sale
of
trust
certificates
(“private
label
MBS”).
The
seller
initially
provided
the
servicing for
a fee, which
is senior to
the obligations to
pay private label
MBS holders. The
seller then entered
into a sales
agreement
through
which
it sold
and
issued
the
private
label
MBS in
favor
of
the
Corporation’s
banking
subsidiary,
FirstBank.
Currently,
the
Bank is
the sole
owner of
these private
label MBS;
the servicing
of the
underlying
residential mortgages
that generate
the principal
and interest
cash flows is
performed by
another third
party,
which receives
a servicing
fee. These private
label MBS are
variable-rate
securities indexed
to
3-month LIBOR
plus a spread.
The principal payments
from the underlying
loans are remitted
to a paying
agent
(servicer), who then remits
interest to the Bank. Interest
income is shared to a
certain extent with the FDIC,
which has an interest
only
strip (“IO”)
tied to
the cash
flows of
the underlying
loans and
is entitled
to receive
the excess
of the
interest income
less a
servicing
fee
over
the
variable
rate
income
that
the
Bank
earns
on
the
securities.
This
IO
is
limited
to
the
weighted-average
coupon
on
the
mortgage
loans. The
FDIC became
the owner
of the
IO upon
its intervention
of the
seller,
a failed
financial institution.
No recourse
agreement
exists,
and
the
Bank,
as
the
sole
holder
of
the
securities,
absorbs
all
risks
from
losses
on
non-accruing
loans
and
repossessed
collateral.
As
of
December
31,
2022,
the
amortized
cost
and
fair
value
of
these
private
label
MBS
amounted
to
$
7.9
million
and
$
5.8
million,
respectively,
with
a
weighted
average
yield
of
6.83
%,
which
is
included
as
part
of
the
Corporation’s
available-for-sale debt securities portfolio.
As described in Note 3 – Debt Securities,
the ACL on these private label MBS amounted
to
$
0.1
million as of December 31, 2022.
Investment in Unconsolidated Entity
On
February
16,
2011,
FirstBank
sold
an
asset
portfolio
consisting
of
performing
and
nonaccrual
construction,
commercial
mortgage,
and
C&I
loans
with
an
aggregate
book
value
of
$
269.3
million
to
CPG/GS,
an
entity
organized
under
the
laws
of
the
Commonwealth of Puerto
Rico and majority
owned by PRLP Ventures
LLC (“PRLP”), a company
created by Goldman,
Sachs & Co.
and
Caribbean
Property
Group.
In
connection
with
the
sale,
the
Corporation
received
$
88.5
million
in
cash
and
a
35
%
interest
in
CPG/GS,
and
made
a
loan
in
the
amount
of
$
136.1
million
representing
seller
financing
provided
by
FirstBank.
The
loan
was
refinanced
and
consolidated with
other
outstanding
loans of
CPG/GS in
the second
quarter of
2018 and
was paid
in full
in October
2019.
FirstBank’s
equity
interest
in
CPG/GS
is
accounted
for
under
the
equity
method.
FirstBank
recorded
a
loss
on
its
interest
in
CPG/GS in
2014 that
reduced to
zero the
carrying amount
of the
Bank’s
investment in
CPG/GS. No
negative investment
needs to
be
reported as
the Bank
has no
legal obligation
or commitment
to provide
further financial
support to
this entity;
thus, no
further losses
have been or will be recorded on this investment.
CPG/GS
used
cash
proceeds
of
the
aforementioned
seller-financed
loan
to
cover
operating
expenses
and
debt
service
payments,
including those
related to
the loan
that was paid
off in
October 2019.
FirstBank will
not receive
any return
on its equity
interest until
PRLP receives
an aggregate
amount equivalent
to its
initial investment
and a
priority return
of at
least
12
%, which
has not
occurred,
resulting in FirstBank’s
interest in CPG/GS being
subordinate to PRLP’s
interest. CPG/GS will
then begin to
make payments pro
rata
to
PRLP
and
FirstBank,
35
%
and
65
%,
respectively,
until
FirstBank
has
achieved
a
12
%
return
on
its
invested
capital
and
the
aggregate amount of distributions is equal to FirstBank’s
capital contributions to CPG/GS.
The
Bank
has
determined
that
CPG/GS
is
a
VIE
in
which
the
Bank
is
not
the
primary
beneficiary.
In
determining
the
primary
beneficiary
of CPG/GS,
the Bank
considered
applicable guidance
that requires
the Bank
to qualitatively
assess the
determination
of
whether
it is
the primary
beneficiary (or
consolidator)
of CPG/GS
based on
whether it
has both
the power
to direct
the activities
of
CPG/GS that most significantly
affect the entity’s
economic performance and the
obligation to absorb losses
of, or the right
to receive
benefits from, CPG/GS
that could potentially
be significant to
the VIE. The
Bank determined that
it does not
have the power to
direct
the activities that most significantly
impact the economic performance
of CPG/GS as it does not
have the right to
manage or influence
the loan portfolio, foreclosure proceedings,
or the construction and sale
of the property; therefore, the
Bank concluded that it is not
the
primary beneficiary of CPG/GS.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
64
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
December
31,
2022,
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 show below for the indicated dates:
Year
Ended December 31,
2022
2021
2020
(In thousands)
Balance at beginning of year
$
30,986
$
33,071
$
26,762
Purchases of servicing assets
(1)
-
-
7,781
Capitalization of servicing assets
3,122
5,194
4,864
Amortization
(4,978)
(7,215)
(5,777)
Temporary
impairment recoveries (charges), net
66
124
(206)
Other
(2)
(159)
(188)
(353)
Balance at end of year
$
29,037
$
30,986
$
33,071
(1)
Represents MSRs acquired in the BSPR acquisition.
(2)
Mainly represents adjustments related to the repurchase
of loans serviced for others, including MSRs related to
loans previously serviced for BSPR and eliminated
as part of the acquisition in the third quarter of 2020.
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.
Changes in the impairment allowance were as follows for the indicated periods:
Year
Ended December 31,
2022
2021
2020
(In thousands)
Balance at beginning of year
$
78
$
202
$
73
Temporary impairment
charges
-
-
301
OTTI of servicing assets
-
-
(77)
Recoveries
(66)
(124)
(95)
Balance at end of year
$
12
$
78
$
202
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
65
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:
Year
Ended December 31,
2022
2021
2020
(In thousands)
Servicing fees
$
11,096
$
12,176
$
9,268
Late charges and prepayment penalties
823
697
570
Adjustment for loans repurchased
(159)
(188)
(353)
Other
-
(1)
-
Servicing income, gross
11,760
12,684
9,485
Amortization and impairment of servicing assets
(4,912)
(7,091)
(5,983)
Servicing income, net
$
6,848
$
5,593
$
3,502
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
Year Ended
December 31, 2022
Constant prepayment rate:
Government-guaranteed mortgage loans
6.7
%
18.3
%
4.8
%
Conventional conforming mortgage loans
7.4
%
18.4
%
3.4
%
Conventional non-conforming mortgage loans
6.0
%
21.9
%
3.6
%
Discount rate:
Government-guaranteed mortgage loans
11.7
%
12.0
%
11.5
%
Conventional conforming mortgage loans
9.7
%
10.0
%
9.5
%
Conventional non-conforming mortgage loans
12.5
%
14.5
%
11.5
%
Year Ended
December 31, 2021
Constant prepayment rate:
Government-guaranteed mortgage loans
6.2
%
17.1
%
3.7
%
Conventional conforming mortgage loans
6.2
%
18.2
%
2.8
%
Conventional non-conforming mortgage loans
6.4
%
14.5
%
4.4
%
Discount rate:
Government-guaranteed mortgage loans
12.0
%
12.0
%
12.0
%
Conventional conforming mortgage loans
10.0
%
10.0
%
10.0
%
Conventional non-conforming mortgage loans
12.8
%
14.5
%
12.0
%
Year Ended
December 31, 2020
Constant prepayment rate:
Government-guaranteed mortgage loans
6.1
%
16.0
%
3.9
%
Conventional conforming mortgage loans
6.3
%
19.0
%
3.0
%
Conventional non-conforming mortgage loans
6.3
%
18.0
%
4.3
%
Discount rate:
Government-guaranteed mortgage loans
12.0
%
12.0
%
12.0
%
Conventional conforming mortgage loans
10.0
%
10.0
%
10.0
%
Conventional non-conforming mortgage loans
12.3
%
14.5
%
12.0
%
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
66
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 December
31, 2022 and
2021 were as follows:
December 31,
December 31,
2022
2021
(In thousands)
Carrying amount of servicing assets
$
29,037
$
30,986
Fair value
$
44,710
$
42,132
Weighted-average
expected life (in years)
7.80
7.96
Constant prepayment rate (weighted-average annual
rate)
6.40
%
6.55
%
Decrease in fair value due to 10% adverse change
$
1,048
$
1,027
Decrease in fair value due to 20% adverse change
$
2,054
$
2,011
Discount rate (weighted-average annual rate)
10.69
%
11.17
%
Decrease in fair value due to 10% adverse change
$
1,925
$
1,852
Decrease in fair value due to 20% adverse change
$
3,704
$
3,561
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)
67
NOTE 11 – DEPOSITS AND RELATED
INTEREST
The following table summarizes deposit balances as of the indicated dates:
December 31,
2022
2021
(In thousands)
Type of account and interest rate:
Non-interest-bearing deposit accounts
$
6,112,884
$
7,027,513
Interest-bearing saving accounts
3,902,888
4,729,387
Interest-bearing checking accounts
3,770,993
3,492,645
Certificates of deposit ("CDs")
2,250,876
2,434,932
Brokered CDs
105,826
100,417
Total
$
16,143,467
$
17,784,894
The
weighted-average
interest
rate
on
total
interest-bearing
deposits
as
of
December 31,
2022
and
2021
was
1.03
%
and
0.31
%,
respectively.
As
of
December 31,
2022,
the
aggregate
amount
of
unplanned
overdrafts
of
demand
deposits
that
were
reclassified
as
loans
amounted
to
$
1.7
million
(2021
-
$
1.6
million).
Pre-arranged
overdrafts
lines
of
credit,
also
reported
as
loans,
amounted
to
$
24.5
million as of December 31, 2022 (2021 - $
24.2
million).
The following table presents the contractual maturities of CDs, including brokered
CDs, as of December 31, 2022:
Total
(In thousands)
Three months or less
$
640,532
Over three months to six months
288,407
Over six months to one year
593,915
Over one year to two years
517,970
Over two years to three years
178,158
Over three years to four years
38,952
Over four years to five years
92,103
Over five years
6,665
Total
$
2,356,702
Total
U.S. time
deposits with
balances of
more than
$250,000 amounted
to $
1.0
billion for
each of
the years
ended December
31,
2022
and 2021.
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 December 31,
2022, unamortized
broker placement
fees amounted
to $
0.3
million (2021
- $
0.2
million),
which are amortized over the contractual maturity of the brokered CDs under
the interest method.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
68
Brokered CDs mature as follows:
December 31,
2022
(In thousands)
Three months or less
$
42,681
Over six months to one year
12,986
Over one year to three years
35,440
Over three years to five years
14,719
Total
$
105,826
As of
December 31,
2022,
deposit
accounts
issued
to
government
agencies
amounted
to $
2.8
billion
(2021
-
$
3.3
billion).
These
deposits are insured by the FDIC up to the applicable limits. The uninsured
portions were collateralized by securities and loans with an
amortized cost
of $
3.1
billion (2021
- $
3.4
billion) and
an estimated
market value
of $
2.7
billion (2021
- $
3.3
billion). In
addition to
securities and loans,
as of December
31, 2022, the
Corporation used $
200.0
million in letters of
credit issued by
the FHLB as pledges
for public deposits
in the Virgin
Islands. As of December
31, 2022, the Corporation
had $
2.3
billion of government
deposits in Puerto
Rico
(2021
-
$
2.7
billion),
$
442.8
million
in
the
Virgin
Islands
(2021
-
$
568.4
million)
and
$
11.6
million
in
Florida
(2021
-
$
9.6
million).
A table showing interest expense on deposits for the indicated periods
follows:
Year Ended
December 31,
2022
2021
2020
(In thousands)
Interest-bearing checking accounts
$
15,568
$
5,776
$
5,933
Savings
11,191
6,586
11,116
CDs
18,102
26,138
43,350
Brokered CDs
1,500
2,982
7,989
Total
$
46,361
$
41,482
$
68,388
The
total
interest
expense
on deposits
included
the
amortization
of
broker
placement
fees
related
to
brokered
CDs
amounting
to
$
0.1
million, $
0.2
million, and
$
0.5
million for
2022, 2021
and 2020,
respectively.
Total
interest expense
also included
$
0.5
million,
$
1.3
million and
$
1.0
million for
2022, 2021,
and 2020,
respectively,
for the
accretion of premiums
related to
time deposits assumed
in the BSPR acquisition.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
69
NOTE 12 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase (repurchase agreements)
as of the indicated dates consisted of the following:
December 31,
2022
2021
(In thousands)
Short-term Fixed-rate repurchase agreements
(1)
$
75,133
$
-
Long-term Fixed-rate repurchase agreements
(2)
-
300,000
$
75,133
$
300,000
(1)
Weighted-average interest rate
of
4.55
% as of December 31, 2022.
(2)
Weighted-average interest rate
of
3.35
% as of December 31, 2021. During the first quarter of 2021, the
interest rate related to securities sold under agreement to repurchase
totaling $
200
million changed from a variable rate (3-month LIBOR plus
130
to
132
basis points) to a fixed rate of
3.90
% after the end of a pre-specified lockout period.
Of the $
300.0
million in long-term
repurchase agreements
outstanding as of
December 31, 2021,
$
100.0
million matured and
were
repaid
in
the
first
quarter
of
2022
and
the
remaining
$
200.0
million
were
repaid
prior
to
maturity
upon
the
exercise
of
the
counterparty’s
call
option
in
the
fourth
quarter
of
2022.
In
addition,
the
Corporation
added
$
75.1
million
in
short-term
repurchase
agreements reflecting actions taken as part of management’s
liquidity and funding needs.
Repurchase agreements mature as follows as of the indicated date:
December 31,
2022
(In thousands)
Within one month
$
25,133
Over one month to three months
50,000
Total
$
75,133
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
70
The following securities were sold under agreements to repurchase:
As of December 31,
2022
Underlying Securities
Amortized Cost
of Underlying
Securities
Balance of
Borrowing
Approximate
Fair Value of
Underlying
Securities
Weighted Average
Interest Rate of
Security
(Dollars in thousands)
U.S. government-sponsored agencies
$
60,081
$
50,134
$
54,093
0.62
%
MBS
29,959
24,999
27,010
2.08
%
Total
$
90,040
$
75,133
$
81,103
Accrued interest receivable
$
137
As of December 31,
2021
Underlying Securities
Amortized Cost
of Underlying
Securities
Balance of
Borrowing
Approximate
Fair Value of
Underlying
Securities
Weighted Average
Interest Rate of
Security
(Dollars in thousands)
U.S. government-sponsored agencies
$
-
$
-
$
-
-
%
MBS
319,225
300,000
321,180
1.33
%
Total
$
319,225
$
300,000
$
321,180
Accrued interest receivable
$
599
As
of
December
31,
2022
and
2021,
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
and 2021,
repurchase agreements
were fully
collateralized and
not offset
in the consolidated
statements of financial
condition. See Note
24
–
Derivative Instruments and
Hedging
Activities for information on rights of set-off associated
to economic undesignated hedges.
The maximum aggregate
balance of repurchase
agreements outstanding
at any month-end
during each of
the year ended
December
31, 2022 and 2021 was $
300.0
million. The average balance during 2022 was $
194.9
million (2021 - $
300.5
million).
Repurchase agreements as of December 31, 2022, grouped by
counterparty, were as follows:
Weighted-Average
Counterparty
Amount
Maturity (In Months)
(Dollars in thousands)
JP Morgan Chase
$
75,133
1
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
71
NOTE 13 – ADVANCES
FROM THE FEDERAL HOME LOAN BANK (“FHLB
”)
The following is a summary of the advances from the FHLB as of the indicated dates:
December 31,
December 31,
2022
2021
(In thousands)
Short-term
Fixed
-rate advances from FHLB
(1)
$
475,000
$
-
Long-term
Fixed
-rate advances from FHLB
(2)
200,000
200,000
$
675,000
$
200,000
(1)
Weighted-average interest rate of
4.56
% as of December 31, 2022.
(2)
Weighted-average interest rate of
4.25
% and
2.16
% as of December 31, 2022 and 2021, respectively.
Advances from FHLB mature as follows as of the indicated date:
December 31, 2022
(In thousands)
Within one month
$
350,000
Over one to three months
125,000
Over three to five years
200,000
Total
$
675,000
The $
200.0
million in
FHLB advances
outstanding as
of December
31, 2021
matured and
were repaid
during the
third quarter
of
2022. In
addition, during
the fourth
quarter of
2022, the
Corporation added
$
475.0
million of
short-term FHLB
advances and
$
200.0
million of long-term FHLB advances.
The maximum
aggregate balance
of advances
from the FHLB
outstanding at
any month-end
during the
years ended
December 31,
2022 and
2021 was
$
675.0
million and
$
440.0
million, respectively.
The total
average balance
of FHLB
advances during
2022 was
$
179.5
million (2021 - $
354.1
million).
The Corporation
receives advances
and applies
for the
issuance of
letters of
credit from
the FHLB
under an
Advances, Collateral
Pledge, and
Security Agreement
(the “Collateral
Agreement”), which
requires the
Corporation to
maintain a
minimum of
qualifying
mortgage
collateral
or
Treasury
or
U.S.
agencies
MBS
collateral,
as
applicable.
The
amount
of
collateral
required
for
an
advance
incorporates a
collateral discount
or “haircut,”
which is incorporated
into the member’s
pledge and determined
by the FHLB.
Haircut
refers to the percentage
by which an asset’s
market value is reduced
for the purpose of collateral
levels. As of December
31, 2022 and
2021, the
estimated value
of specific
mortgage loans
pledged as
collateral amounted
to $
1.3
billion and
$
1.4
billion, respectively,
as
computed
by
the
FHLB
for
collateral
purposes,
which
represents
a
haircut
of
14
%
and
17
%
as
of
December
31,
2022
and
2021,
respectively.
The
carrying
value
of
such
loans
as
of
December
31,
2022
amounted
to
$
1.8
billion
(2021
-
$
1.8
billion).
As
of
December
31,
2022,
the
estimated
value
of
U.S.
government-sponsored
agencies’
obligations
and
U.S.
agencies
MBS
pledged
as
collateral
amounted
to $
238.1
million.
As of
December
31,
2022,
the Corporation
had
additional
capacity
of approximately
$
644.2
million on
this credit
facility based
on collateral
pledged
at the
FHLB, adjusted
by a
haircut reflecting
the perceived
risk associated
with the collateral.
Advances may
be repaid
prior to maturity,
in whole or
in part, at
the option of
the borrower
upon payment
of any
applicable
fee specified
in the
contract
governing
such advance.
In
calculating
the fee,
due
consideration
is given
to (i)
all
relevant
factors,
including,
but
not limited
to,
any
and
all applicable
costs of
repurchasing
and/or prepaying
any
associated
liabilities and/or
hedges
entered
into
with
respect
to
the
applicable
advance;
(ii)
the
financial
characteristics,
in
their
entirety,
of
the
advance
being
prepaid;
and (iii),
in the
case of
adjustable-rate
advances,
the expected
future earnings
of the
replacement
borrowing
as long
as the
replacement borrowing
is at least
equal to
the original
advance’s
par value
and the
replacement borrowing’s
tenor is
at least
equal to
the remaining maturity of the prepaid advance.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
72
NOTE 14 – OTHER BORROWINGS
Junior Subordinated Debentures
Junior subordinated debentures, as of the indicated dates, consisted of:
December 31,
December 31,
(In thousands)
2022
2021
Floating rate junior subordinated debentures (FBP Statutory Trust
I)
(1) (3)
$
65,205
$
65,205
Floating rate junior subordinated debentures (FBP Statutory Trust
II)
(2)(3)
118,557
118,557
$
183,762
$
183,762
(1)
Amount represents junior subordinated interest-bearing debentures
due in 2034 with a floating interest rate of
2.75
% over
3-month LIBOR
(
7.49
% as of December 31, 2022 and
2.97
%
as of December 31, 2021).
(2)
Amount represents junior subordinated interest-bearing debentures
due in 2034 with a floating interest rate of
2.50
% over
3-month LIBOR
(
7.25
% as of December 31, 2022 and
2.71
%
as of December 31, 2021).
(3)
See Note 10 - Non-Consolidated Variable
Interest Entities and Servicing Assets for additional information on
the nature and terms of these debentures.
Loans Payable
The
Corporation
participates
in
the
BIC
Program
of
the
FED.
Through
the
BIC
Program,
a
broad
range
of
loans
(including
commercial,
consumer,
and residential
mortgages)
may be
pledged as
collateral for
borrowings through
the FED
Discount Window.
As
of
December
31,
2022,
pledged
collateral
that
is
related
to
this
credit
facility
amounted
to
$
2.2
billion,
mainly
commercial,
consumer,
and
residential
mortgage
loans,
which
after
a
margin
“haircut”
to
discount
the
value
of
collateral
pledged,
represents
approximately $
1.3
billion of credit
availability under
this program.
The FED Discount
Window program
provides the opportunity
to
access a
low-rate short-term
source of
funding in
a high
volatility market
environment. There
were
no
outstanding borrowings
under
the FED Discount Window as of December 31,
2022 and 2021.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
73
NOTE 15 – EARNINGS PER COMMON
.
SHARE
The calculations of earnings per common share for the years ended December 31,
2022, 2021, and 2020 are as follows:
Year
Ended December 31,
2022
2021
2020
(In thousands, except per share information)
Net income
$
305,072
$
281,025
$
102,273
Less: Preferred stock dividends
-
(2,453)
(2,676)
Less: Excess of redemption value over carrying value of Series A through E
Preferred Stock redeemed
-
(1,234)
-
Net income attributable to common stockholders
$
305,072
$
277,338
$
99,597
Weighted-Average
Shares:
Average common
shares outstanding
190,805
210,122
216,904
Average potential
dilutive common shares
1,163
1,178
764
Average common
shares outstanding - assuming dilution
191,968
211,300
217,668
Earnings per common share:
Basic
$
1.60
$
1.32
$
0.46
Diluted
$
1.59
$
1.31
$
0.46
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. For 2021, net income attributable
to common stockholders was
also adjusted due
to the one
-time effect
to retained
earnings of the
excess of the
redemption value
paid over the
carrying value
of the
Series A through E Preferred Stock redeemed as discussed in
Note 17 – Stockholders’ Equity.
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 that
do not
contain non-forfeitable
dividend 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
years ended
December 31,
2022, 2021
and 2020.
Potential dilutive
common shares
also include
performance units that do
not contain non-forfeitable
dividend rights if the
performance condition is
met as of the end
of the reporting
period.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
74
NOTE 16 – STOCK-BASED
.
COMPENSATION
On
April
29,
2008,
the
Corporation’s
stockholders
approved
the
Omnibus
Plan.
An
amended
and
restated
Omnibus
Plan
was
subsequently approved
by the
Corporation’s
stockholders on
May 24,
2016 to,
among other
things, increase
the number
of shares
of
common stock
reserved for
issuance under
the Omnibus
Plan, extend
the term
of the
Omnibus Plan
to May
24, 2026
and re-approve
the
material
terms
of
the
performance
goals under
the
Omnibus
Plan
for
purposes
of
the
then-effective
Section
162(m)
of
the
U.S.
Internal
Revenue
Code
of
1986,
as
amended.
The
Omnibus
Plan
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
December
31,
2022,
there
were
3,830,165
authorized
shares
of
common
stock
available
for
issuance
under
the
Omnibus
Plan.
The
Corporation’s
Board
of
Directors,
based
on
the
recommendation of
the Corporation’s
Compensation and Benefits
Committee, 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.
Common shares issued during the year
ended December 31, 2022 in connection with
restricted
stock awards were reissued from treasury shares.
The following table summarizes the restricted stock activity under the Omnibus
Plan during the years ended December 31, 2022
and 2021:
2022
2021
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
1,148,775
$
6.61
1,320,723
$
5.74
Granted
(1)
327,195
13.21
324,360
11.47
Forfeited
(15,108)
8.79
(82,486)
6.42
Vested
(522,371)
6.13
(413,822)
7.69
Unvested shares outstanding at end of year
938,491
$
9.14
1,148,775
$
6.61
(1)
For the year ended December 31, 2022, includes
27,529
shares of restricted stock awarded to independent directors and
299,666
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. Includes for the
year ended December 31, 2021,
29,291
shares of
restricted stock awarded to independent directors and
295,069
shares of restricted stock awarded to employees, of which
19,804
shares were granted to retirement-eligible employees
and thus charged to earnings as of the grant date.
For the
years ended
December 31,
2022, 2021,
and 2020,
the Corporation
recognized $
3.7
million, $
3.5
million, and
$
3.2
million,
respectively,
of
stock-based
compensation
expense
related
to
restricted
stock
awards.
As
of
December
31,
2022,
there
was
$
3.8
million of total unrecognized compensation cost related to
unvested shares of restricted stock that the Corporation expects to recognize
over a weighted average period of
1.5
years.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
75
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. The performance units will vest on
the third anniversary of the effective date of the awards, subject to the achievement of a pre-established tangible book value per share
target, adjusted for certain allowable non-recurring transactions. All the performance units will vest if performance is at the pre-
established performance target level or above at the end of a three-year performance period. However, the participants may vest with
respect to 50% of the awards to the extent that performance is below the target but not less than 80% of the pre-established
performance target level (the “80% minimum threshold”), which is measured based upon the growth in the tangible book value during
the performance cycle. If performance is between the 80% minimum threshold and the pre-established performance target level, the
participants will vest on a proportional amount. No performance units will vest if performance is below the 80% minimum threshold.
The performance
units granted
during the
year ended
December 31,
2022 are
for the
performance period
beginning January
1, 2022
and ending on December 31, 2024.
The following table
summarizes the performance
units activity under
the Omnibus Plan
during the years
ended December 31, 2022
and 2021:
Year
Ended
Year
Ended
(Number of units)
December 31,
2022
December 31,
2021
Performance units at beginning of year
814,899
1,006,768
Additions
166,669
160,485
Vested
(1)
(189,645)
(304,408)
Forfeited
-
(47,946)
Performance units as of December 31, 2022
791,923
814,899
(1)
Units vested during 2022 are related to performance units granted in
2019 that met the pre-established target and were
settled with shares of common stock reissued from treasury shares.
Units vested during 2021 are related to performance units granted in
2018 that met the pre-established target and were
settled with new shares of common stock.
The
fair
values
of
the
performance
units
awarded
were
based
on
the
market
price
of
the
Corporation’s
common
stock
on
the
respective date
of the grant.
For the
years ended
December 31,
2022, 2021,
and 2020,
the Corporation
recognized $
1.7
million, $
2.0
million, and $
1.8
million, respectively,
of stock-based compensation
expense related
to performance units.
As of December
31, 2022,
there was
$
2.5
million of
total unrecognized
compensation cost
related to
unvested performance
units that
the Corporation
expects to
recognize over
the next
three years.
The total
amount of
compensation expense
recognized reflects
management’s
assessment of
the
probability
that
the
pre-established
performance
goal
will
be
achieved.
The
Corporation
will
recognize
a
cumulative
adjustment
to
compensation expense in the then-current period to reflect any changes in the probability
of achievement of the performance goals.
Other awards
Under
the Omnibus
Plan,
the Corporation
may
grant
shares of
unrestricted
stock to
plan
participants.
During the
third
quarter
of
2020, the
Corporation granted
to its independent
directors
19,157
shares of unrestricted
stock that were
fully vested
at the time
of the
grant
date.
For
the
year
ended
December
31,
2020,
the
Corporation
recognized
$
0.1
million
of
stock-based
compensation
expense
related to unrestricted stock awards. There were
no
grants of unrestricted stock in 2022 and 2021.
Shares withheld
During the year ended
December 31, 2022, the
Corporation withheld
205,807
shares (2021 –
214,374
shares) of the restricted
stock
that vested
during
such period
to cover
the officers’
payroll and
income tax
withholding liabilities;
these shares
are held
as treasury
shares. The Corporation
paid in cash any fractional
share of salary stock
to which an officer
was entitled. In the
consolidated financial
statements, the Corporation presents shares withheld for tax purposes as common
stock repurchases.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
76
NOTE 17 –
STOCKHOLDERS’
EQUITY
Stock Repurchase Programs
During the
first quarter
of 2022
the Corporation
completed the
$
300
million stock
repurchase program
approved by
the Board
of
Directors on
April 26, 2021
by purchasing though
open market transactions
3,409,697
shares of common
stock at an
average price of
$
14.66
for a total purchase price of approximately $
50
million.
On April
27, 2022,
the Corporation
announced that
its Board
of Directors
approved a
stock repurchase
program, under
which the
Corporation
may repurchase
up to
$
350
million of
its outstanding
common stock,
which commenced
in the
second quarter
of 2022.
Repurchases
under
the
program
may
be
executed
through
open
market
purchases,
accelerated
share
repurchases
and/or
privately
negotiated
transactions
or plans,
including
plans
complying
with
Rule 10b5-1
under the
Exchange
Act.
The Corporation’s
common
stock repurchase
program
is subject
to various
factors,
including
the Corporation’s
capital
position,
liquidity,
financial performance
and
alternative
uses
of
capital,
stock
trading
price,
and
general
market
conditions.
The
repurchase
program
may
be
modified,
suspended, or
terminated at
any time
at the
Corporation’s
discretion.
The program
does not
obligate the
Corporation to
acquire any
specific number
of shares
and does
not have
an expiration
date.
Under this
stock repurchase
program,
the Corporation
repurchased
during
the
year
ended
December
31,
2022,
16,003,674
shares
of
common
stock
through
open
market
transactions
at
an
average
purchase
price of
$
14.06
per share
for
a total
price
of approximately
$
225
million.
As of
December
31, 2022,
the Corporation
has
remaining authorization to repurchase approximately $
125
million of common stock.
During
the
year
ended
December
31,
2022,
First
BanCorp.
repurchased
19,413,371
shares
for
a
total
purchase
price
of
approximately $
275
million under all stock repurchase programs.
The shares received are held as treasury stock.
Common Stock
The following table shows the change in shares of common stock outstanding for
the years ended December 31, 2022, 2021 and 2020:
Total
Number of Shares
2022
2021
2020
Common stock outstanding, beginning balance
201,826,505
218,235,064
217,359,337
Common stock repurchased
(1)
(19,619,178)
(16,954,841)
(51,814)
Common stock reissued/issued under stock-based compensation
plan
516,840
628,768
930,627
Restricted stock forfeited
(15,108)
(82,486)
(3,086)
Common stock outstanding, ending balances
182,709,059
201,826,505
218,235,064
(1)
For 2022, 2021 and 2020 includes
205,807
,
214,374
and
51,814
shares, respectively, of common stock
surrender to cover officers' payroll and income taxes.
For
the
years
ended
December
31,
2022,
2021
and
2020,
total
cash
dividends
declared
on
shares
of
common
stock
amounted
to
$
88.2
million,
$
65.4
million,
and
$
43.8
million,
respectively.
On
February 9, 2023
the
Corporation
announced
that
its
Board
of
Directors
had
declared
a
quarterly
cash
dividend
of
$
0.14
per
common
share,
which
represents
an
increase
of
17
%
or
$
0.02
per
common
share
compared
to
its
most
recent
dividend
paid
in
December
2022.
The
dividend
is
payable
on
March 10, 2023
to
shareholders of
record at
the close
of business
on
February 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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
77
Preferred Stock
The
Corporation
has
50,000,000
authorized
shares
of
preferred
stock
with
a
par value
of $
1.00
,
redeemable
at
the
Corporation’s
option, subject to certain terms. This stock may be issued in series and
the shares of each series have such rights and preferences
as are
fixed by the Board of Directors when authorizing the issuance of that particular series.
On
November
30,
2021,
the
Corporation
redeemed
all
of
its
1,444,146
then
outstanding
shares
of
Series
A
through
E
Preferred
Stock for
its liquidation
value of
$
25
per share
totaling $
36.1
million. The
difference
between the
liquidation value
and net
carrying
value was $
1.2
million, which was recorded as
a reduction to retained earnings
in 2021. The redeemed preferred
stock shares were not
listed on any
securities exchange
or automated quotation
system.
No
shares of preferred
stock have been
subsequently issued or
were
outstanding during the year ended
December 31, 2022. For the years
ended December 31, 2021 and 2020,
total cash dividends paid on
shares of preferred stock amounted to $
2.5
million and $
2.7
million, respectively.
Treasury Stock
The following table shows the change in shares of treasury stock for the years ended December
31,
2022, 2021 and 2020.
Total
Number of Shares
2022
2021
2020
Treasury stock, beginning balance
21,836,611
4,799,284
4,744,384
Common stock repurchased
(1)
19,619,178
16,954,841
51,814
Common stock reissued under stock-based compensation plan
(516,840)
-
-
Restricted stock forfeited
15,108
82,486
3,086
Treasury stock, ending balances
40,954,057
21,836,611
4,799,284
(1)
For 2022, 2021 and 2020 includes
205,807
,
214,374
and
51,814
shares, respectively, of common stock
surrender to cover officers' payroll and income taxes.
FirstBank Statutory Reserve (Legal Surplus)
The
Puerto
Rico
Banking
Law
of
1933,
as
amended
(the
“Puerto
Rico
Banking
Law”),
requires
that
a
minimum
of
10
%
of
FirstBank’s
net income
for
the year
be transferred
to a
legal surplus
reserve
until such
surplus
equals the
total of
paid-in-capital
on
common and preferred
stock. Amounts transferred
to the legal surplus
reserve from retained
earnings are not available
for distribution
to the Corporation without the
prior consent of the Puerto
Rico Commissioner of Financial Institutions.
The Puerto Rico Banking Law
provides that, when the expenditures of a Puerto Rico commercial bank are greater than receipts, the excess of the expenditures over
receipts must be charged against the undistributed profits of the bank, and the balance, if any, must be charged against the legal
surplus reserve, as a reduction thereof. If the legal surplus reserve is not sufficient to cover such balance in whole or in part, the
outstanding amount must be charged against the capital account and the Bank cannot pay dividends until it can replenish the legal
surplus reserve to an amount of at least 20% of the original capital contributed.
During the years ended
December 31, 2022
and 2021,
$
30.9
million and
$
28.3
million, respectively,
was transferred
to the
legal surplus
reserve. 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
and
$
137.6
million as of December 31, 2022 and 2021, respectively.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
78
NOTE 18 – OTHER COMPREHENSIVE (LOSS) INCOME
The following table presents change in accumulated other comprehensive (loss)
income for the years ended December 31, 2022,
2021, and 2020:
Changes in Accumulated Other Comprehensive
(Loss) Income by Component
(1)
Year ended December 31,
2022
2021
2020
(In thousands)
Unrealized net holding (losses) gains on available-for-sale
debt securities:
Beginning balance
$
(87,390)
$
55,725
$
6,764
Other comprehensive (loss) income
(718,582)
(143,115)
48,961
Ending balance
$
(805,972)
$
(87,390)
$
55,725
Adjustment of pension and postretirement
benefit plans:
Beginning balance
$
3,391
$
(270)
$
-
Other comprehensive (loss) income
(2,197)
3,661
(270)
Ending balance
$
1,194
$
3,391
$
(270)
____________________
(1) All amounts presented are net of tax.
The following table presents the amounts reclassified out of each component
of accumulated other comprehensive (loss) income for
the years ended December 31, 2022, 2021, and 2020:
Reclassifications Out of Accumulated Other
Comprehensive (Loss) Income
Affected Line Item in the Consolidated
Statements of Income
Year ended
December 31,
2022
2021
2020
(In thousands)
Unrealized net holding (losses) gains on
available-for-sale debt securities:
Realized gain on sales
Net gain on investment securities
$
-
$
-
$
(13,198)
Adjustment of pension and postretirement
benefit plans:
Amortization of net loss
Other expenses
3
1
-
Total before tax
$
3
$
1
$
(13,198)
Income tax expense
(1)
-
-
Total, net of tax
$
2
$
1
$
(13,198)
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
79
NOTE 19 – 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 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 (income) pursuant
to the ASC Topic 715,
Compensation-Retirement Benefits.
The following
table presents
the changes
in projected
benefit obligation
and changes
in plan
assets for
the years
ended December
31, 2022 and 2021:
December 31, 2022
December 31, 2021
(In thousands)
Changes in projected benefit obligation:
Projected benefit obligation at the beginning of period, defined benefit
pension
plans
$
97,867
$
108,253
Interest cost
2,614
2,473
Actuarial gain
(1)
(21,265)
(6,699)
Benefits paid
(5,708)
(6,160)
Projected benefit obligation at the end of period, pension plans
$
73,508
$
97,867
Projected benefit obligation, other postretirement benefit plan
182
195
Projected benefit obligation at the end of period
$
73,690
$
98,062
Changes in plan assets:
Fair value of plan assets at the beginning of period
$
103,487
$
105,963
Actual return on plan assets - (loss) gain
(20,590)
3,684
Benefits paid
(5,708)
(6,160)
Fair value of pension plan assets at the end of period
(2)
$
77,189
$
103,487
Net asset, pension plans
3,681
5,620
Net benefit obligation, other postretirement benefit plan
(182)
(195)
Net asset
$
3,499
$
5,425
(1)
Significant components of the Pension Plans’ actuarial gain that
changed the benefit obligation were mainly related to updates
in discount rates.
(2)
Other postretirement plan did not contain any assets as of
December 31, 2022 and 2021.
The weighted-average
discount rate
used to
determine
the benefit
obligation
as of
December
31, 2022
and
2021, was
5.43
% and
2.77
%,
respectively.
The
discount
rate
is
estimated
as
the
single
equivalent
rate
such
that
the
present
value
of
the
plan’s
projected
benefit obligation
cash flows
using the
single rate
equals the
present value
of those
cash flows
using the
above mean
actuarial yield
curve.
In
developing
the
expected
long-term
rate
of
return
assumption,
the
Corporation
evaluated
input
from
a
consultant
and
the
Corporation’s
long-term inflation
assumptions and
interest rate
scenarios. Projected
returns are
based on
the same
asset categories
as
the plan using
well-known broad
indexes. Expected
returns are based
on historical
returns with adjustments
to reflect a
more realistic
future return. The Corporation anticipated
that the Plan’s portfolio
would generate a long-term rate of
return of
4.80
% and
4.43
% as of
December 31, 2022 and 2021. Adjustments are done
by categories, taking into consideration current and future
market conditions. The
Corporation also considered
historical returns on
its plan assets to
review the expected
rate of return. The
investment policy statement
for
the
Pension
Plans
includes
the
following:
(i)
liability
hedging
assets
to
reduce
funded
status
risk,
(ii)
diversified
return
seeking
assets to reduce
equity risk,
and (iii) establishes
different glidepaths
specific for
each plan
to systematically reduce
risk as
the funded
status improves.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
80
The following
table presents
information
for
the plans
with a
projected
benefit obligation
and accumulated
benefit obligation
in
excess of plan assets for the years ended December 31, 2022 and 2021:
December 31, 2022
December 31, 2021
(In thousands)
Projected benefit obligation
$
48,501
$
195
Accumulated benefit obligation
48,501
195
Fair value of plan assets
$
46,398
$
-
The following
table presents
the components
of net
periodic benefit
for the
years ended
December 31,
2022 and
2021, and
for the
period from September 1, 2020 to December 31, 2020:
Affected Line Item
Period from
in the Consolidated
September 1, 2020 to
Statements of Income
December 31, 2022
December 31, 2021
December 31, 2020
(In thousands)
Net periodic benefit, pension plans:
Interest cost
Other expenses
$
2,614
$
2,473
$
900
Expected return on plan assets
Other expenses
(4,158)
(4,523)
(2,062)
Net periodic benefit, pension plans
(1,544)
(2,050)
(1,162)
Net periodic cost, postretirement plan
Other expenses
8
6
2
Net periodic benefit
$
(1,536)
$
(2,044)
$
(1,160)
The following table
presents the weighted-average
assumptions used to determine
the net periodic benefit
for the pension and
other
postretirement
benefit
plans
for
the
years
ended
December
31,
2022
and
2021,
and
for
the
period
from
September
1,
2020
to
December 31, 2020:
Period from
September 1, 2020 to
December 31, 2022
December 31, 2021
December 31, 2020
Discount rate
2.77%
2.36%
2.53%
Expected return on plan assets
4.43%
5.99%
5.98%
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
81
The following table presents the changes in pre-tax accumulated other comprehensive
income (loss) of the Pension Plans and
Postretirement Benefit Plan as of December 31, 2022, 2021, and 2020:
December 31, 2022
December 31, 2021
Period from
September 1, 2020
to
December 31, 2020
(In thousands)
Accumulated other comprehensive income (loss) at beginning of period,
pension plans
$
5,457
$
(404)
$
-
Net (loss) gain
(3,483)
5,861
(404)
Accumulated other comprehensive income (loss) at end of period, pension
plans
1,974
5,457
(404)
Accumulated other comprehensive loss at end of period,
postretirement plan
(61)
(29)
(28)
Accumulated other comprehensive income (loss) at end of period
$
1,913
$
5,428
$
(432)
The following are the pre-tax amounts recognized
in accumulated other comprehensive (loss) income for
the years ended December
31, 2022 and 2021, and for the period from September 1, 2020 to December 31,
2020:
December 31, 2022
December 31, 2021
Period from
September 1, 2020
to December 31,
2020
(In thousands)
Net actuarial (loss) gain, pension plans
$
(3,483)
$
5,861
$
(404)
Net actuarial loss, other postretirement benefit plan
(35)
(2)
(28)
Amortization of net loss
3
1
-
Net amount recognized
$
(3,515)
$
5,860
$
(432)
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
82
The Pension Plans asset allocations as of December 31, 2022 and 2021 by asset category
are as follows:
December 31, 2022
December 31, 2021
Asset category
Investment in funds
97%
98%
Other
3%
2%
100%
100%
As
of
December
31,
2022
and
2021,
substantially
all
of
the
plan
assets
of
$
77.2
million
and
$
103.5
million,
respectively,
were
invested
in
common
collective
trusts,
which
primarily
consist of
equity
securities,
mortgage-backed
securities,
corporate
bonds
and
U.S.
Treasuries.
The
portfolios
in
both
plans
have
been
measured
at
fair
value
using
the
net
asset
value
per
unit
as
a
practical
expedient
as permitted
by ASC
Topic
820 and,
accordingly,
have not
been classified
in the
fair value
hierarchy as
of December
31,
2022.
Determination of Fair Value
The following is a description of the valuation inputs and techniques
used to measure the fair value of pension plan assets:
Investment in
Funds -
Investment in
common collective
trusts have
been measured
at fair
value using
the net
assets value
per unit
practical expedient and, accordingly,
have not been classified in the
fair value hierarchy.
Fair value is based on the calculated
net asset
value of shares held by the Plan as reported by the sponsor of the funds.
Interest-Bearing
Deposits
-
Interest-bearing
deposits consist
of
money
market
accounts with
short-term
maturities and,
therefore,
the carrying value approximates fair value.
The Corporation does
no
t expect to contribute to the Pension Plans during 2023.
The Corporation’s
investment policy
with respect
to the
Corporation’s
Pension
Plans is
to optimize,
without undue
risk, the
total
return
on investment
of the
Plan assets
after inflation,
within
a framework
of prudent
and reasonable
portfolio
risk. The
investment
portfolio
is
diversified
in
multiple
asset
classes
to
reduce
portfolio
risk,
and
assets
may
be
shifted
between
asset
classes
to
reduce
volatility when
warranted by projections
of the economic
and/or financial
market environment,
consistent with
Employee Retirement
Income
Security Act
of 1974,
as amended
(ERISA).
As circumstances
and
market conditions
change,
the Corporation’s
target
asset
allocations
may
be
amended
to reflect
the
most
appropriate
distribution
given
the new
environment,
consistent with
the
investment
objectives.
Expected future benefit payments for the plans are as follows:
Amount
(Dollars in thousands)
2023
$
6,436
2024
6,292
2025
5,985
2026
5,999
2027
5,860
2028 through 2031
27,411
$
57,983
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
83
Defined Contribution Plan
In
addition,
FirstBank
provides
contributory
retirement
plans
pursuant
to
Section 1081.01
of
the
Puerto
Rico
Internal
Revenue
Code of
2011
(the “2011
PR Code”)
for Puerto
Rico employees
and Section 401(k)
of the U.S.
Internal Revenue
Code for
USVI and
U.S. employees (the “Plans”).
All of the
Corporation’s
full-time employees are
eligible to participate
in the Plans after
completion of
three months
of service
for purposes
of making
elective deferral
contributions and
one year
of service
for purposes
of sharing
in the
Bank’s
matching, qualified
matching, and
qualified non-elective
contributions. The
Bank contributes
a matching
contribution of
fifty
cents for
every dollar
up to
the first
6
% of
the participants’
eligible compensation
that a
participant contributes
to the
Plan on
a pre-
tax basis.
The matching contribution of fifty cents for every dollar of the employee’s contribution is comprised of: (i) twenty-five
cents for every dollar of the employee’s contribution up to 6% of the employee’s eligible compensation to be paid to the Plan as of
each bi-weekly payroll; and (ii) an additional twenty-five cents for every dollar of the employee’s contribution up to 6% of the
employee’s eligible compensation to be deposited as a lump sum subsequent to the Plan Year.
Puerto Rico employees
were permitted
to contribute
up to $
15,000
for each of
the years ended
December 31,
2022, 2021
and 2020 (USVI
and U.S. employees
- $
20,500
for
2022,
$
19,500
for
2021
and
$
19,500
for
2020).
Additional
contributions
to
the
Plans
may
be
voluntarily
made
by
the
Bank
as
determined
by its
Board of
Directors.
No
additional discretionary
contributions were
made for
the years
ended December
31,
2022,
2021, and 2020.
The Bank had total
plan expenses of
$
3.5
million for the
year ended December
31, 2022 (2021
- $
3.5
million; 2020 -
$
3.0
million).
On
September
1,
2020,
the
Bank
completed
the
acquisition
of
Santander
Bancorp,
a
wholly-owned
subsidiary
of
Santander
Holdings USA,
Inc. and
the holding
company of
BSPR. Prior
to the
acquisition date,
BSPR was
the sponsor
of the
Banco Santander
de Puerto Rico Employees’
Savings Plan (“the Santander
Plan”). Effective on
September 1, 2020, the
Bank became the sponsor
of the
Santander Plan. Overall responsibility for
administrating the Santander Plan rests with
the Plan’s Administration
Committee. Effective
December 31,
2020, the
Santander Plan
was merged
with the
Plans. The
contributory savings
plan assumed
in the
BSPR acquisition
also provided for matching contribution up to
6
% of the employee’s compensation.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
84
NOTE 20 – OTHER NON-INTEREST INCOME
A detail of other non-interest income is as follows for the indicated periods:
Year
Ended December 31,
2022
2021
2020
(In thousands)
Non-deferrable loan fees
$
3,167
$
2,990
$
3,750
Mail and cable transmission commissions
3,100
3,116
2,540
Gain from insurance proceeds
-
550
5,000
Net (loss) gain on equity securities
(522)
(102)
38
Gain from sales of fixed assets
924
32
215
Other
9,181
5,843
4,682
Total
$
15,850
$
12,429
$
16,225
NOTE 21 – OTHER NON-INTEREST EXPENSES
A detail of other non-interest expenses is as follows for the indicated periods:
Year
Ended December 31,
2022
2021
2020
(In thousands)
Supplies and printing
$
1,505
$
1,830
$
2,391
Amortization of intangible assets
8,816
11,407
5,912
Servicing and processing fees
5,343
5,121
4,696
Insurance and supervisory fees
9,354
9,098
6,324
Provision for operational losses
2,518
5,069
3,390
Other
3,126
2,898
3,105
Total
$
30,662
$
35,423
$
25,818
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
85
NOTE 22 –
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
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 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.
The components of income tax expense are summarized below for
the indicated periods:
Year
Ended December 31,
2022
2021
2020
(In thousands)
Current income tax expense
$
88,296
$
28,469
$
18,421
Deferred income tax expense:
Reversal of deferred tax asset valuation allowance
-
-
(8,000)
Other deferred income tax expense
54,216
118,323
3,629
Total income
tax expense
$
142,512
$
146,792
$
14,050
The differences between the income tax expense applicable to income
before the provision for income taxes and the amount
computed by applying the statutory tax rate in Puerto Rico were as follows for
the indicated periods:
Year Ended December
31,
2022
2021
2020
Amount
% of Pretax
Income
Amount
% of Pretax
Income
Amount
% of Pretax
Income
(Dollars in thousands)
Computed income tax at statutory rate
$
167,844
37.5
%
$
160,431
37.5
%
$
43,621
37.5
%
Federal and state taxes
10,268
2.2
%
7,014
1.6
%
4,944
4.2
%
Benefit of net exempt income
(31,266)
(7.0)
%
(20,717)
(4.8)
%
(26,780)
(23.0)
%
Disallowed NOL carryforward resulting from net exempt
income
14,221
3.2
%
8,791
2.0
%
9,054
7.8
%
Deferred tax valuation allowance
(8,410)
(1.9)
%
(13,572)
(3.2)
%
(12,095)
(10.4)
%
Share-based compensation windfall
(1,492)
(0.3)
%
(1,044)
(0.2)
%
157
0.1
%
Other permanent differences
(7,647)
(1.7)
%
(1,185)
(0.3)
%
(387)
(0.3)
%
Tax return to provision adjustments
(519)
(0.1)
%
(406)
(0.1)
%
597
0.5
%
Other-net
(487)
(0.1)
%
7,480
1.7
%
(5,061)
(4.3)
%
Total income tax expense
$
142,512
31.8
%
$
146,792
34.2
%
$
14,050
12.1
%
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
86
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and their tax bases. Significant components
of the Corporation's deferred tax assets and liabilities as of
December 31, 2022 and 2021 were as follows:
December 31,
2022
2021
(In thousands)
Deferred tax asset:
NOL and capital losses carryforward
$
72,485
$
137,860
Allowance for credit losses
104,014
105,917
Alternative Minimum Tax
credits available for carryforward
40,823
37,361
Unrealized loss on OREO valuation
6,462
7,703
Settlement payment-closing agreement
7,031
7,031
Legal and other reserves
6,345
4,576
Reserve for insurance premium cancellations
781
881
Differences between the assigned values and tax bases of assets
and liabilities recognized in purchase business combinations
5,665
8,926
Unrealized loss on available-for-sale debt securities, net
100,776
14,181
Other
7,722
4,420
Total gross deferred tax assets
$
352,104
$
328,856
Deferred tax liabilities:
Servicing assets
9,786
10,510
Pension Plan assets
719
2,035
Other
509
506
Total gross deferred tax liabilities
11,014
13,051
Valuation
allowance
(185,506)
(107,323)
Net deferred tax asset
$
155,584
$
208,482
Accounting
for
income
taxes
requires
that
companies
assess
whether
a
valuation
allowance
should
be
recorded
against
their
deferred
tax
asset
based
on
an
assessment
of
the
amount
of
the
deferred
tax
asset
that
is
“more
likely
than
not”
to
be
realized.
Valua
tion allowances
are established,
when necessary,
to reduce
deferred tax
assets to
the amount
that is
more likely
than not
to be
realized. Management
assesses the valuation
allowance recorded
against deferred
tax assets at
each reporting
date. The determ
ination
of whether a
valuation allowance for
deferred tax assets is
appropriate is subject
to considerable judgment
and requires the
evaluation
of
positive
and
negative
evidence
that
can
be
objectively
verified.
Consideration
must
be
given
to
all
sources
of
taxable
income
available to realize
the deferred tax asset,
including, as applicable,
the future reversal
of existing temporary
differences, future
taxable
income forecasts exclusive of the reversal of temporary
differences and carryforwards, and tax planning
strategies. In estimating taxes,
management assesses
the relative
merits and
risks of
the appropriate
tax treatment
of transactions
considering statutory,
judicial, and
regulatory guidance.
The
net
deferred
tax
asset
of
the
Corporation’s
banking
subsidiary,
FirstBank,
amounted
to
$
155.6
million
as
of
December
31,
2022,
net
of
a
valuation
allowance
of
$
149.5
million,
compared
to
a
net
deferred
tax
asset
of
$
208.4
million,
net
of
a
valuation
allowance
of
$
69.7
million,
as
of
December
31,
2021.
The
decrease
in
the
deferred
tax
assets
was
mainly
driven
by
the
usage
of
NOLs. The
increase in
the valuation
allowance during
2022 was
primarily related
to the
change in
the market
value of
available-for-
sale debt securities. 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.
Thus,
the
change
in
the
market
value
of
available-for-sale
debt
securities resulted in a change in the deferred tax asset and an equal change
in the valuation allowance without impacting earnings.
Management’s
estimate
of
future
taxable
income
is
based
on
internal
projections
that
consider
historical
performance,
multiple
internal scenarios and
assumptions, as well as
external data that
management believes is
reasonable. If events
are identified that
affect
the Corporation’s
ability to utilize
its deferred tax
assets, the analysis
will be updated
to determine if
any adjustments to
the valuation
allowance
are
required.
If
actual
results
differ
significantly
from
the
current
estimates
of
future
taxable
income,
even
if
caused
by
adverse
macro-economic
conditions,
the
remaining
valuation
allowance
may
need
to
be
increased.
Such
an
increase
could
have
a
material adverse effect on the Corporation’s
financial condition and results of operations.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
87
As of December
31, 2022, approximately
$
279.9
million of the
deferred tax
assets of the
Corporation are
attributable to temporary
differences
or
tax
credit
carryforwards
that
have
no
expiration
date,
compared
to
$
177.9
million
in
2021.
The
valuation
allowance
attributable to
FirstBank’s
deferred tax
assets of $
149.5
million as
of December
31, 2022
is related
to the
change in
the market
value
of available-for-sale
debt securities,
NOLs attributable
to the Virgin
Islands jurisdiction,
and capital
losses. The remaining
balance of
$
36.0
million of the
Corporation’s
deferred tax asset
valuation allowance non-attributable
to FirstBank is
mainly related to
NOLs and
capital losses
at the
holding
company level.
The Corporation
will continue
to provide
a valuation
allowance against
its deferred
tax
assets in each
applicable tax
jurisdiction until
the need
for a valuation
allowance is
eliminated. The
need for
a valuation
allowance is
eliminated
when
the
Corporation
determines
that
it
is
more
likely
than
not
the
deferred
tax
assets
will
be
realized.
The
ability
to
recognize the
remaining deferred
tax assets that
continue to
be subject to
a valuation
allowance will be
evaluated on
a quarterly
basis
to determine
if there
are any
significant
events that
would affect
the ability
to utilize
these deferred
tax assets.
As of
December
31,
2022,
of
the
$
72.5
million
of
NOL
and
capital
losses
carryforward,
$
61.2
million,
which
are
fully
valued,
have
expiration
dates
ranging from year
2023 through year
2037. From this
amount, approximately
$
30.5
million expires in
year 2023 and
are not expected
to be realized.
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 2022, 2021
and 2020, the Corporation
incurred current income
tax expense
of approximately $
10.3
million, $
6.8
million and $
4.9
million, respectively,
related to its
U.S. operations.
The limitation
did not impact the USVI operations in 2022, 2021 and 2020.
On August
16, 2022,
the Inflation
Reduction Act
of 2022
(the “IRA”)
was signed
into law
in the
United States.
The IRA
includes
various tax
provisions, including
a 1%
excise tax
on stock
repurchases, and
a 15%
corporate alternative
minimum tax
that generally
applies
to
U.S.
corporations
with
average
adjusted
financial
statement
income
over
a
three-year
period
in
excess
of
$1
billion.
The
legislation did
not have
an effect
on the Corporation’s
effective tax
rate in
2022 and
is not expected
to have
a material
impact on our
2023 financial results, including on our annual estimated effective
tax rate or on our liquidity.
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 December 31, 2022, the Corporation
had $
0.2
million of
accrued interest
and penalties
related to
uncertain tax
positions in
the amount
of $
1.0
million that
it acquired
from BSPR,
which,
if
recognized,
would
decrease
the
effective
income
tax
rate
in
future
periods.
During
2022,
a
$
0.4
million
benefit
was
recognized as a
result of the
expiration of uncertain
tax positions acquired
from BSPR. The
amount of unrecognized
tax benefits may
increase
or
decrease
in
the
future
for
various
reasons,
including
adding
amounts
for
current
tax
year
positions,
expiration
of
open
income
tax returns
due
to the
statute of
limitations,
changes
in management’s
judgment about
the level
of uncertainty,
the status
of
examinations,
litigation
and
legislative activity,
and
the addition
or elimination
of uncertain
tax positions.
The statute
of limitations
under the 2011
PR code is
four years after
a tax return
is due or
filed, whichever
is later; the
statute of limitations
for U.S. and
USVI
income
tax
purposes
is
three
years
after
a
tax
return
is
due
or
filed,
whichever
is
later.
The
completion
of
an
audit
by
the
taxing
authorities
or
the
expiration
of
the
statute
of
limitations
for
a
given
audit
period
could
result
in
an
adjustment
to
the Corporation’s
liability for
income taxes. Any
such adjustment could
be material to
the results of
operations for
any given quarterly
or annual period
based, in part, upon
the results of operations
for the given period.
For U.S. and USVI
income tax purposes, all
tax years subsequent
to
2018 remain open to examination. For Puerto Rico tax purposes, all tax years
subsequent to 2017 remain open to examination.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
88
NOTE 23
–
OPERATING
LEASES
The
Corporation
accounts
for
its
leases
in
accordance
with
ASC
842
“Leases”
(“ASC
Topic
842).
The
Corporation’s
operating
leases are primarily
related to the
Corporation’s
branches. Our
leases mainly have
terms ranging
from
two years
to
30 years
, some of
which
include
options
to
extend
the
leases
for
up
to
ten years
.
Liabilities
to
make
future
lease
payments
are
recorded
in
accounts
payable
and
other
liabilities,
while
right-of-use
(“ROU”)
assets
are
recorded
in
other
assets
in
the
Corporation’s
consolidated
statements of
financial condition.
As of
December 31,
2022 and
2021, the
Corporation did
not classify
any of
its leases
as a
finance
lease.
Operating lease cost for the
year ended December 31, 2022
amounted to $
18.4
million (2021 - $
18.2
million; 2020 - $
13.8
million),
and is recorded in occupancy and equipment in the consolidated
statements
of income.
Supplemental balance sheet information related to leases as of the indicated
dates was as follows:
As of
As of
December 31,
December 31,
2022
2021
(Dollars in thousands)
ROU asset
$
78,855
$
90,319
Operating lease liability
$
81,954
$
93,772
Operating lease weighted-average remaining lease term (in years)
7.5
8.0
Operating lease weighted-average discount rate
2.37%
2.24%
Generally,
the
Corporation
cannot
practically
determine
the interest
rate
implicit
in
the lease.
Therefore,
the Corporation
uses
its
incremental borrowing rate as the discount rate for
the lease. See Note 1 – Nature of Business and Summary of
Significant Accounting
Policies for information on how the Corporation determines its incremental
borrowing rate.
Supplemental cash flow information related to leases was as follows:
Year Ended
Year Ended
Year Ended
December 31,
December 31,
December 31,
2022
2021
2020
(In thousands)
Operating cash flow from operating leases
(1)
$
18,202
$
19,328
$
13,464
ROU assets obtained in exchange for operating lease liabilities
(2) (3)
$
5,744
$
5,833
$
1,328
(1)
Represents cash paid for amounts included in the measurement of operating
lease liabilities.
(2)
Represents non-cash activity and, accordingly,
is not reflected in the consolidated statements of cash flows.
For the year ended December 31, 2020 excludes $
52.1
million ROU assets and
related liabilities assumed in the BSPR acquisition.
(3)
For the year ended December 31, 2022 and 2021 excludes $
3.0
million and $
1.3
million, respectively, of lease
terminations. For the year ended December 31, 2020, there were
no
lease
terminations.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
89
Maturities under operating lease liabilities as of December 31, 2022,
were as follows:
Amount
(In thousands)
2023
$
16,763
2024
16,008
2025
15,096
2026
14,025
2027
5,929
2028 and after
23,025
Total lease payments
90,846
Less: imputed interest
(8,892)
Total present value
of lease liability
$
81,954
Leases Not Yet
Commenced
As of
December 31,
2022, the
Corporation
has additional
operating
leases that
were signed
but have
not yet
commenced with
an
undiscounted contract amount of $
1.1
million, which will have lease terms ranging from
five
to
ten years
.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
90
NOTE 24 – DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES
One of
the market
risks facing
the Corporation
is interest
rate risk,
which includes
the risk that
changes in
interest rates
will result
in changes in the value of
the Corporation’s assets or
liabilities and will adversely
affect the Corporation’s
net interest income from its
loan
and
investment
portfolios.
The
overall
objective
of
the
Corporation’s
interest
rate
risk
management
activities
is
to
reduce
the
variability of earnings caused by changes in interest rates.
As of
December 31,
2022 and
2021, all
derivatives held
by the
Corporation were
considered economic
undesignated hedges.
The
Corporation records these undesignated hedges at fair value with the
resulting gain or loss recognized in current earnings.
The following summarizes the principal derivative activities used by
the Corporation in managing interest rate risk:
Interest Rate
Cap Agreements
– Interest rate cap
agreements provide the right
to receive cash if
a reference interest rate rises
above
a contractual rate. The value of
the interest rate cap increases as the
reference interest rate rises. The Corporation
enters into interest
rate cap agreements for protection from rising interest rates.
Forward
Contracts
–
Forward
contracts
are
primarily
sales
of
to-be-announced
(“TBA”)
MBS
that
will
settle
over
the
standard
delivery
date
and
do
not
qualify
as
“regular
way”
security
trades.
Regular-way
security
trades
are
contracts
that
have
no
net
settlement provision and no market
mechanism to facilitate net settlement
and that provide for delivery
of a security within the
time
frame
generally
established
by
regulations
or
conventions
in
the
marketplace
or
exchange
in
which
the
transaction
is
being
executed.
The forward
sales are
considered
derivative
instruments
that need
to be
marked
to market.
The Corporation
uses these
securities
to
economically
hedge
the
FHA/VA
residential
mortgage
loan
securitizations
of
the mortgage
banking
operations.
The
Corporation
also
reports
as forward
contracts
the mandatory
mortgage
loan
sales commitments
that
it enters
into with
GSEs that
require or
permit net settlement
via a pair-off
transaction or the
payment of
a pair-off
fee. Unrealized gains
(losses) are recognized
as part of mortgage banking activities in the consolidated statements of income
.
Interest
Rate
Lock
Commitments
–
Interest
rate
lock
commitments
are
agreements
under
which
the
Corporation
agrees to
extend
credit to a borrower under
certain specified terms and conditions in
which the interest rate and the maximum
amount of the loan are
set prior to funding.
Under the agreement,
the Corporation commits
to lend funds to
a potential borrower,
generally on a fixed
rate
basis, regardless of whether interest rates change in the market.
Interest Rate
Swaps
– The Corporation
acquired interest
rate swaps
as a result
of the acquisition
of BSPR. An
interest rate
swap is
an
agreement
between
two
entities
to
exchange
cash
flows
in
the
future.
The
agreements
acquired
from
BSPR
consist
of
the
Corporation offering
borrower-facing derivative
products using a
“back-to-back” structure
in which the
borrower-facing derivative
transaction is paired
with an identical, offsetting
transaction with an
approved dealer-counterparty.
By using a back-to-back
trading
structure, both
the commercial
borrower and
the Corporation
are largely
insulated from
market risk
and volatility.
The agreements
set the
dates on
which
the cash
flows will
be paid
and
the manner
in which
the cash
flows will
be calculated.
The fair
values
of
these swaps
are recorded
as components
of other
assets or
accounts payable
and other
liabilities in
the Corporation’s
consolidated
statements of financial
condition. Changes in
the fair values of
interest rate swaps,
which occur due
to changes in interest
rates, are
recorded in the consolidated statements of income as a component of interest income
on loans.
To
satisfy
the
needs
of
its
customers,
the
Corporation
may
enter
into
non-hedging
transactions.
In
these
transactions,
the
Corporation generally participates as
a buyer in one
of the agreements and
as a seller in the
other agreement under
the same terms and
conditions.
In addition, the Corporation
enters into certain contracts
with embedded derivatives that
do not require separate accounting
as these
are clearly and closely
related to the economic
characteristics of the host
contract. When the embedded
derivative possesses economic
characteristics that are not clearly and closely related
to the economic characteristics of the host contract,
it is bifurcated, carried at fair
value, and designated as a trading or non-hedging derivative instrument.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
91
The following table summarizes for derivative instruments their notional
amounts, fair values and location in the consolidated
statements of financial condition as of the indicated dates:
Asset Derivatives
Liability Derivatives
Notional Amounts
(1)
Statements of Financial
Condition Location
Fair Value
Statements of Financial Condition
Location
Fair Value
December 31,
December 31,
December 31,
2022
2021
2022
2021
2022
2021
(In thousands)
Undesignated economic hedges:
Interest rate contracts:
Interest rate swap agreements
$
9,290
$
12,588
Other assets
$
313
$
1,098
Accounts payable and other liabilities
$
278
$
1,092
Written interest rate cap agreements
14,500
14,500
Other assets
-
-
Accounts payable and other liabilities
197
8
Purchased interest rate cap agreements
14,500
14,500
Other assets
199
8
Accounts payable and other liabilities
-
-
Interest rate lock commitments
3,225
12,097
Other assets
63
379
Accounts payable and other liabilities
-
-
Forward Contracts:
Sales of TBA GNMA MBS pools
11,000
27,000
Other assets
58
-
Accounts payable and other liabilities
1
78
Forward loan sales commitments
-
12,668
Other assets
-
20
Accounts payable and other liabilities
-
-
$
52,515
$
93,353
$
633
$
1,505
$
476
$
1,178
(1) Notional amounts are presented on a gross basis with no netting of offsetting exposure positions.
The following table summarizes the effect of derivative instruments on
the consolidated statements of income for the indicated
periods:
Gain (or Loss)
Location of Gain (Loss)
Year ended
on Derivative Recognized in
December 31,
Statements of Income
2022
2021
2020
(In thousands)
Undesignated economic hedges:
Interest rate contracts:
Interest rate swap agreements
Interest income - loans
$
28
$
24
$
27
Written and purchased interest rate cap agreements
Interest income - loans
2
-
-
Interest rate lock commitments
Mortgage banking activities
(322)
(687)
576
Forward contracts:
Sales of TBA GNMA MBS pools
Mortgage banking activities
135
114
(54)
Forward loan sales commitments
Mortgage banking activities
(20)
-
(37)
Total (loss) gain on derivatives
$
(177)
$
(549)
$
512
Derivative
instruments
are
subject
to
market
risk.
As
is
the
case
with
investment
securities,
the
market
value
of
derivative
instruments
is largely
a
function
of
the financial
market’s
expectations
regarding
the future
direction
of interest
rates.
Accordingly,
current market
values are
not necessarily
indicative of
the future
impact of
derivative instruments
on earnings.
This will
depend, for
the most part, on the shape of the yield curve, and the level of interest rates, as well as the expectations
for rates in the future.
As of
December 31,
2022 and
2021, the
Corporation had
not entered
into any
derivative instrument
containing credit
-risk-related
contingent features.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
92
Credit and Market Risk of Derivatives
The
Corporation
uses
derivative
instruments
to
manage
interest
rate
risk.
By
using
derivative
instruments,
the
Corporation
is
exposed to credit and market risk.
If the
counterparty
fails to
perform, credit
risk is
equal to
the extent
of the
Corporation’s
fair value
gain on
the derivative.
When
the fair value of
a derivative instrument contract
is positive, this generally
indicates that the counterparty
owes the Corporation which,
therefore, creates a credit
risk for the Corporation.
When the fair value
of a derivative instrument
contract is negative, the
Corporation
owes the counterparty.
The Corporation minimizes
its credit risk in
derivative instruments by
entering into transactions with
reputable
broker
dealers
(
i.e.,
financial
institutions)
that
are
reviewed
periodically
by
the
Management
Investment
and
Asset
Liability
Committee of the
Corporation (the “MIALCO”)
and by the Board
of Directors. The
Corporation also has
a policy of requiring
that all
derivative instrument contracts be governed by an International Swaps and
Derivatives Association Master Agreement, which includes
a
provision
for
netting.
The
Corporation
has
a
policy
of
diversifying
derivatives
counterparties
to
reduce
the
consequences
of
counterparty default.
The cumulative mark
-to-market effect
of credit risk
in the valuation
of derivative
instruments in 2022,
2021 and
2020 was immaterial.
Market risk is
the adverse effect
that a change
in interest rates
or implied volatility
rates has on
the value of
a financial instrument.
The Corporation
manages the
market risk
associated with
interest rate
contracts by
establishing and
monitoring limits
as to
the types
and degree of risk that may be undertaken.
In
accordance
with
the
master
agreements,
in
the
event
of
default,
each
party
has
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
and
2021,
derivatives
were
overcollateralized.
See
Note
12
–
Securities
Sold
Under Agreements to Repurchase for information on rights of set-off
associated to assets sold under agreements to repurchase.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
93
NOTE 25 –
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.
Financial Instruments Recorded at Fair Value
on a Recurring Basis
Debt securities available for sale and marketable equity securities held at fair value
The fair
value of
investment securities
was based
on unadjusted
quoted market
prices (as
is the
case with
U.S. Treasury
securities
and equity securities with
readily determinable fair values),
when available (Level 1),
or market prices for comparable
assets (as is the
case with
U.S. agencies
MBS and
U.S. agency
debt securities)
that are
based on
observable market
parameters, including
benchmark
yields,
reported
trades,
quotes
from
brokers
or
dealers,
issuer
spreads,
bids,
offers
and
reference
data,
including
market
research
operations,
when available
(Level 2).
Observable prices
in the
market already
consider the
risk of
nonperformance. If
listed prices
or
quotes are
not available, fair
value is based
upon discounted
cash flow models
that use unobservable
inputs due to
the limited market
activity of the instrument, as is the case with certain private label MBS held by the
Corporation (Level 3).
Derivative instruments
The
fair
value
of
most
of
the
Corporation’s
derivative
instruments
is
based
on
observable
market
parameters
and
takes
into
consideration
the
credit
risk
component
of
paying
counterparties,
when
appropriate.
On interest
caps,
only
the
seller's
credit
risk
is
considered.
The
Corporation
valued
the
interest
rate
swaps
and
caps
using
a
discounted
cash
flow
approach
based
on
the
related
LIBOR and swap forward rate for each cash flow.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
94
Assets and liabilities measured at fair value on a recurring basis are summarized below as of
December 31, 2022 and 2021:
As of December 31,
2022
As of December 31, 2021
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
$
138,875
$
-
$
-
$
138,875
$
148,486
$
-
$
-
$
148,486
Noncallable U.S. agencies debt securities
-
389,787
-
389,787
-
285,028
-
285,028
Callable U.S. agencies debt securities
-
1,963,566
-
1,963,566
-
1,971,954
-
1,971,954
MBS
-
3,098,797
5,794
(1)
3,104,591
-
4,037,209
7,234
(1)
4,044,443
Puerto Rico government obligations
-
-
2,201
2,201
-
-
2,850
2,850
Other investments
-
-
500
500
-
-
1,000
1,000
Equity securities
4,861
-
-
4,861
5,378
-
-
5,378
Derivative assets
-
633
-
633
-
1,505
-
1,505
Liabilities:
Derivative liabilities
-
476
-
476
-
1,178
-
1,178
(1) Related to private label MBS.
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 years ended
December 31, 2022, 2021, and 2020:
2022
2021
2020
Level 3 Instruments Only
Securities Available for
Sale
(1)
Securities Available for
Sale
(1)
Securities Available for
Sale
(1)
(In thousands)
Beginning balance
$
11,084
$
11,977
$
14,590
Total gains (losses):
Included in other comprehensive income (unrealized)
(401)
1,281
2,403
Included in earnings (unrealized)
(2)
434
136
(1,641)
BSPR securities acquired
-
-
150
Purchases
-
1,000
-
Principal repayments and amortization
(2,622)
(3,310)
(3,525)
Ending balance
$
8,495
$
11,084
$
11,977
___________________
(1)
Amounts mostly related to private label MBS.
(2)
Changes in unrealized gains included in earnings were recognized within
provision for credit losses - expense (benefit) and relate
to assets still held as of the reporting date.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
95
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 December 31, 2022 and 2021:
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%
December 31,
2021
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
Maximum
(Dollars in thousands)
Available-for-sale
debt securities:
Private label MBS
$
7,234
Discounted cash flows
Discount rate
12.9%
12.9%
12.9%
Prepayment rate
7.6%
24.9%
15.2%
Projected cumulative loss rate
0.2%
15.7%
7.6%
Puerto Rico government obligations
$
2,850
Discounted cash flows
Discount rate
6.6%
8.4%
7.9%
Projected cumulative loss rate
8.6%
8.6%
8.6%
Information about Sensitivity to Changes in Significant Unobservable Inputs
Private label
MBS: The
significant unobservable
inputs in
the valuation
include probability
of default,
the loss
severity
assumption,
and prepayment
rates. Shifts
in those
inputs would
result in different
fair value
measurements. Increases
in the probability
of default,
loss
severity
assumptions,
and
prepayment
rates
in
isolation
would
generally
result
in
an
adverse
effect
on
the
fair
value
of
the
instruments. The Corporation modeled meaningful and possible
shifts of each input to assess the effect on the fair value estimation.
Puerto Rico
Government Obligations:
The significant
unobservable input
used in
the fair value
measurement is
the assumed
loss rate
of the
underlying
residential
mortgage
loans that
collateralize
these obligations,
which
are guaranteed
by the
PRHFA.
A significant
increase (decrease) in
the assumed rate
would lead to
a (lower) higher
fair value estimate.
The fair value
of these bonds
was based on
a
discounted
cash
flow
methodology
that
considers
the
structure
and
terms
of
the
debt
security.
The
Corporation
utilizes
PDs
and
LGDs that
consider,
among other
things, historical
payment performance,
loan-to value
attributes,
and relevant
current and
forward-
looking
macroeconomic
variables,
such
as
regional
unemployment
rates,
the
housing
price
index,
and
expected
recovery
of
the
PRHFA
guarantee. Under
this approach, expected
cash flows (interest and
principal) are discounted
at the Treasury
yield curve plus a
spread as of the reporting date and compared to the amortized cost.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
96
Additionally, fair value
is used on a nonrecurring basis to evaluate certain assets in accordance with GAAP.
As of December 31, 2022, the Corporation recorded losses or valuation adjustments
for assets recognized at fair value on a non-
recurring basis and still held at December 31, 2022, as shown in the following
table:
Carrying value as of December 31,
Related to losses recorded for the Year Ended
December 31,
2022
2021
2020
2022
2021
2020
(In thousands)
Level 3:
Loans receivable
(1)
$
11,437
$
31,534
$
74,197
$
(736)
$
(5,466)
$
(13,737)
OREO
(2)
5,461
9,126
50,248
(917)
(48)
(1,837)
Premises and equipment
(3)
1,242
-
-
(218)
-
-
Level 2:
Loans held for sale
$
12,306
$
-
$
-
$
(106)
$
-
$
-
(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.
Qualitative information regarding the fair value measurements for Level 3
financial instruments as of December 31, 2022 are as
follows:
December 31, 2022
Method
Inputs
Loans
Income, Market, Comparable
Sales, Discounted Cash Flows
External appraised values; probability weighting of broker price
opinions; management assumptions regarding market trends or other
relevant factors
OREO
Income, Market, Comparable
Sales, Discounted Cash Flows
External appraised values; probability weighting of broker price
opinions; management assumptions regarding market trends or other
relevant factors
Premises and equipment
Market
External appraised value
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
97
The following tables present the carrying value, estimated fair value and estimated
fair value level of the hierarchy of financial
instruments as of December 31, 2022 and 2021:
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
$
-
Securities sold under agreements to repurchase
(amortized cost)
75,133
75,230
-
75,230
-
Advances from FHLB (amortized cost)
675,000
674,596
-
674,596
-
Other borrowings (amortized cost)
183,762
187,246
-
-
187,246
Derivative liabilities (fair value)
(2)
476
476
-
476
-
(1) Includes FHLB stock with a carrying value of $
42.9
million, which are considered restricted.
(2) Includes interest rate swap agreements, interest rate caps,
forward contracts, interest rate lock commitments, and forward loan
sales commitments.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
98
Total Carrying
Amount in Statement
of Financial Condition
as of December 31,
2021
Fair Value Estimate as
of December 31, 2021
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money market
investments (amortized cost)
$
2,543,058
$
2,543,058
$
2,543,058
$
-
$
-
Available-for-sale debt securities (fair value)
6,453,761
6,453,761
148,486
6,294,191
11,084
Held-to-maturity debt securities (amortized
cost)
178,133
Less: ACL on held-to-maturity debt securities
(8,571)
Held-to-maturity debt securities, net of
ACL
$
169,562
167,147
-
-
167,147
Equity securities (amortized cost)
26,791
26,791
-
26,791
(1)
-
Other equity securities (fair value)
5,378
5,378
5,378
-
-
Loans held for sale (lower of cost or market)
35,155
36,147
-
36,147
-
Loans held for investment (amortized cost)
11,060,658
Less: ACL for loans and finance leases
(269,030)
Loans held for investment, net of ACL
$
10,791,628
10,900,400
-
-
10,900,400
MSRs (amortized cost)
30,986
42,132
-
-
42,132
Derivative assets (fair value)
(2)
1,505
1,505
-
1,505
-
Liabilities:
Deposits (amortized cost)
$
17,784,894
$
17,800,706
$
-
$
17,800,706
$
-
Securities sold under agreements to repurchase
(amortized cost)
300,000
322,105
-
322,105
-
Advances from FHLB (amortized cost)
200,000
202,044
-
202,044
-
Other borrowings (amortized cost)
183,762
177,689
-
-
177,689
Derivative liabilities (fair value)
(2)
1,178
1,178
-
1,178
-
'(1) Includes FHLB stock with a carrying value of $
21.5
million, which are considered restricted.
(2) Includes interest rate swap agreements, interest rate caps,
forward contracts, interest rate lock commitments, and forward loan
sales commitments.
The short-term nature
of certain assets and
liabilities result in their
carrying value approximating
fair value. These include
cash and
cash
due
from
banks
and
other
short-term
assets,
such
as
FHLB
stock.
Certain
assets,
the
most
significant
being
premises
and
equipment,
goodwill
and
other
intangible
assets, are
not
considered
financial
instruments
and
are
not
included
above. Accordingly,
this fair
value
information
is not
intended
to, and
does not,
represent
the Corporation’s
underlying
value.
Many of
these assets
and
liabilities that
are subject
to the
disclosure requirements
are not
actively traded,
requiring management
to estimate
fair values.
These
estimates
necessarily
involve
the
use
of
assumptions
and
judgment
about
a
wide
variety
of
factors,
including
but
not
limited
to,
relevancy of market prices of comparable instruments, expected future cash flows,
and appropriate discount rates.
NOTE 26 – 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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
99
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 years ended December 31, 2022, 2021 and 2020:
Year ended December
31, 2022:
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income
(1)
$
98,920
$
442,624
$
109,822
$
39,600
$
80,485
$
23,842
$
795,293
Service charges and fees on deposit accounts
-
21,906
12,412
-
607
2,898
37,823
Insurance commissions
-
12,733
-
-
15
995
13,743
Merchant-related income
-
6,622
1,483
-
74
1,335
9,514
Credit and debit card fees
-
29,061
85
-
(7)
1,763
30,902
Other service charges and fees
341
4,558
3,397
-
2,113
684
11,093
Not in scope of ASC Topic
606
(1)
15,609
3,577
812
(74)
58
35
20,017
Total non-interest income
15,950
78,457
18,189
(74)
2,860
7,710
123,092
Total Revenue
$
114,870
$
521,081
$
128,011
$
39,526
$
83,345
$
31,552
$
918,385
Year ended December
31, 2021:
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income
(1)
$
104,638
$
281,703
$
191,917
$
59,331
$
65,967
$
26,373
$
729,929
Service charges and fees on deposit accounts
-
20,083
11,807
-
555
2,839
35,284
Insurance commissions
-
11,166
-
-
114
665
11,945
Merchant-related income
-
6,279
1,079
-
51
1,055
8,464
Credit and debit card fees
-
26,360
83
-
19
1,602
28,064
Other service charges and fees
771
4,185
2,640
-
1,825
556
9,977
Not in scope of ASC Topic
606
(1)
23,507
1,701
423
227
1,399
173
27,430
Total non-interest income
24,278
69,774
16,032
227
3,963
6,890
121,164
Total Revenue
$
128,916
$
351,477
$
207,949
$
59,558
$
69,930
$
33,263
$
851,093
Year ended December
31, 2020:
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income
(1)
$
76,025
$
220,678
$
135,591
$
87,879
$
54,025
$
26,124
$
600,322
Service charges and fees on deposit accounts
-
13,286
8,026
-
553
2,747
24,612
Insurance commissions
-
8,754
-
-
52
558
9,364
Merchant-related income
-
4,516
478
-
41
809
5,844
Credit and debit card fees
-
18,218
62
-
16
1,469
19,765
Other service charges and fees
342
2,900
2,260
184
1,800
1,508
8,994
Not in scope of ASC Topic
606 (1) (2)
21,727
3,288
1,780
13,524
2,168
160
42,647
Total non-interest income
22,069
50,962
12,606
13,708
4,630
7,251
111,226
Total Revenue
$
98,094
$
271,640
$
148,197
$
101,587
$
58,655
$
33,375
$
711,548
(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.
(2)
For the
year ended December
31, 2020, includes
a $
5.0
million benefit resulting
from the final
settlement of the
Corporation’s business
interruption insurance
claim
related to
lost
profits caused
by Hurricanes
Irma and
Maria in
2017.
This insurance
recovery is
presented as
part of
other
non-interest income
in the
consolidated statements of income.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
100
For
2022,
2021,
and
2020,
most
of
the
Corporation’s
revenue
within
the
scope
of
ASC
Topic
606
was
related
to
performance
obligations satisfied at a point in time.
The following is a discussion of the revenues under the scope of ASC Topic
606.
Service Charges and Fees on Deposit Accounts
Service
charges
and fees
on deposit
accounts
relate to
fees generated
from a
variety of
deposit products
and
services rendered
to
customers. Charges
primarily include,
but are not
limited to, overdraft
fees, insufficient
fund fees,
dormant fees,
and monthly
service
charges. Such
fees are recognized
concurrently with
the event at
the time of
occurrence or on
a monthly basis,
in the case
of monthly
service
charges.
These
depository
arrangements
are
considered
day-to-day
contracts
that
do
not
extend
beyond
the
services
performed, as customers have the right to terminate these contracts with no
penalty or, if any,
nonsubstantive penalties.
Insurance Commissions
For
insurance
commissions,
which
include
regular
and
contingent
commissions
paid
to
the
Corporation’s
insurance
agency,
the
agreements
contain
a
performance
obligation
related
to
the
sale/issuance
of
the
policy
and
ancillary
administrative
post-issuance
support.
The performance
obligations
are
satisfied
when
the policies
are
issued, and
revenue
is recognized
at
that point
in
time.
In
addition,
contingent
commission
income
may
be
considered
to
be
constrained,
as
defined
under
ASC
Topic
606.
Contingent
commission income is included
in the transaction price
only to the extent that
it is probable that a
significant reversal in the
amount of
cumulative revenue
recognized will
not occur
or payments
are received,
thus, is
recorded in
subsequent periods.
For the
years ended
December
31,
2022,
2021
and
2020,
the
Corporation
recognized
contingent
commission
income
at
the
time
that
payments
were
confirmed and constraints
were released of
$
3.2
million, $
3.3
million, and $
3.3
million, respectively,
which was related to
the volume
of insurance policies sold in the prior year.
Card and processing
income
Card and processing income includes merchant-related income, and
credit and debit card fees.
For
merchant-related
income,
the
determination
of
income
recognition
included
the
consideration
of
a
2015
sale
of
merchant
contracts
that
involved
sales
of
point
of
sale
(“POS”)
terminals
and
a
marketing
alliance
under
a
revenue-sharing
agreement.
The
Corporation
concluded
that
control
of
the
POS
terminals
and
merchant
contracts
was
transferred
to
the
customer
at
the
contract’s
inception.
With
respect
to
the
related
revenue-sharing
agreement,
the
Corporation
satisfies
the
marketing
alliance
performance
obligation over
the life of
the contract,
and recognizes the
associated transaction price
as the entity
performs and any
constraints over
the variable consideration are resolved.
Credit
and
debit
card
fees
primarily
represent
revenues
earned
from
interchange
fees
and
ATM
fees.
Interchange
and
network
revenues are earned on credit and
debit card transactions conducted with
payment networks. ATM
fees are primarily earned as a
result
of surcharges
assessed to
non-FirstBank customers
who use
a FirstBank
ATM.
Such fees
are generally
recognized concurrently
with
the delivery of services on a daily basis.
The
Corporation
offers
products,
primarily
credit
cards,
that
offer
various
rewards
to
reward
program
members,
such
as
airline
tickets, cash, or
merchandise, based
on account
activity.
The Corporation
generally recognizes the
cost of rewards
as part of
business
promotion
expenses when
the rewards
are earned
by the
customer and,
at that
time, records
the corresponding
reward liability.
The
Corporation
determines
the
reward
liability
based
on
points
earned
to
date
that
the
Corporation
expects
to
be
redeemed
and
the
average
cost
per
point
redemption.
The
reward
liability
is
reduced
as
points
are
redeemed.
In
estimating
the
reward
liability,
the
Corporation considers historical
reward redemption behavior,
the terms of the
current reward program,
and the card purchase
activity.
The reward liability
is sensitive to
changes in the
reward redemption
type and redemption
rate, which is
based on the
expectation that
the
vast
majority
of
all points
earned
will eventually
be
redeemed.
The reward
liability,
which
is included
in other
liabilities in
the
consolidated statements of financial condition, totaled $
9.2
million and $
8.8
million as of December 31, 2022 and 2021, respectively.
Other Fees
Other fees primarily
include revenues generated
from wire transfers,
lockboxes, bank
issuances of checks
and trust fees
recognized
from
transfer
paying
agent,
retirement
plan,
and
other
trustee
activities.
Revenues
are
recognized
on
a
recurring
basis
when
the
services are rendered and are included as part of other non-interest income
in the consolidated statements of income.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
101
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
POS
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 balances
of contract liabilities
recognized in relation
to these agreements
and the amount
of revenue
recognized for the years ended December 31, 2022, 2021 and 2020:
2022
2021
2020
(In thousands)
Beginning Balance
$
1,443
$
2,151
$
2,476
Less:
Revenue recognized
(602)
(708)
(325)
Ending balance
$
841
$
1,443
$
2,151
As of December 31, 2022 and 2021 there were
no
contract assets recorded on the Corporation’s
consolidated financial statements.
Other
Except for the contract liabilities noted above, the Corporation did not have
any significant performance obligations as of December
31, 2022.
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)
102
NOTE 27 – 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
December
31,
2022,
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.
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.
The following tables present information about the reportable segments for the indicated periods:
Mortgage
Banking
Consumer (Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
For the year ended December 31, 2022:
Interest income
$
130,185
$
302,631
$
205,888
$
104,215
$
94,782
$
24,913
$
862,614
Net (charge) credit for transfer of funds
(31,265)
173,917
(96,066)
(43,838)
(2,748)
-
-
Interest expense
-
(33,924)
-
(20,777)
(11,549)
(1,071)
(67,321)
Net interest income
98,920
442,624
109,822
39,600
80,485
23,842
795,293
Provision for credit losses - (benefit) expense
(7,643)
57,123
(20,241)
(434)
(3,073)
1,964
27,696
Non-interest income (loss)
15,950
78,457
18,189
(74)
2,860
7,710
123,092
Direct non-interest expenses
23,049
162,663
37,131
3,702
33,365
27,911
287,821
Segment income
$
99,464
$
301,295
$
111,121
$
36,258
$
53,053
$
1,677
$
602,868
Average earnings assets
$
2,233,245
$
2,918,800
$
3,626,107
$
7,300,208
$
2,069,030
$
369,504
$
18,516,894
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
103
Mortgage
Banking
Consumer (Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
For the year ended December 31, 2021:
Interest income
$
144,203
$
271,127
$
201,684
$
67,841
$
82,194
$
27,659
$
794,708
Net (charge) credit for transfer of funds
(39,565)
38,859
(9,767)
14,687
(4,214)
-
-
Interest expense
-
(28,283)
-
(23,197)
(12,013)
(1,286)
(64,779)
Net interest income
104,638
281,703
191,917
59,331
65,967
26,373
729,929
Provision for credit losses - (benefit) expense
(16,030)
20,322
(67,544)
(136)
(975)
(1,335)
(65,698)
Non-interest income
24,278
69,774
16,032
227
3,963
6,890
121,164
Direct non-interest expenses
29,125
165,357
36,219
4,093
33,902
28,084
296,780
Segment income
$
115,821
$
165,798
$
239,274
$
55,601
$
37,003
$
6,514
$
620,011
Average earnings assets
$
2,506,365
$
2,551,278
$
3,793,945
$
7,827,326
$
2,126,528
$
430,499
$
19,235,941
Mortgage
Banking
Consumer (Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
For the year ended December 31, 2020:
Interest income
$
128,043
$
240,725
$
155,254
$
55,003
$
84,169
$
29,788
$
692,982
Net (charge) credit for transfer of funds
(52,018)
18,771
(19,663)
59,074
(6,164)
-
-
Interest expense
-
(38,818)
-
(26,198)
(23,980)
(3,664)
(92,660)
Net interest income
76,025
220,678
135,591
87,879
54,025
26,124
600,322
Provision for credit losses - expense
22,518
54,094
74,607
2,774
12,592
4,400
170,985
Non-interest income
22,069
50,962
12,606
13,708
4,630
7,251
111,226
Direct non-interest expenses
33,054
131,133
28,631
3,449
33,782
28,815
258,864
Segment income
$
42,522
$
86,413
$
44,959
$
95,364
$
12,281
$
160
$
281,699
Average earnings assets
$
2,241,753
$
2,202,595
$
3,039,786
$
4,232,144
$
2,026,619
$
458,608
$
14,201,505
The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods:
Year Ended
December 31,
2022
2021
2020
(In thousands)
Net income:
Total income for segments
$
602,868
$
620,011
$
281,699
Other operating expenses
(1)
155,284
192,194
165,376
Income before income taxes
447,584
427,817
116,323
Income tax expense
142,512
146,792
14,050
Total consolidated net income
$
305,072
$
281,025
$
102,273
Average assets:
Total average earning assets for segments
$
18,516,894
$
19,235,941
$
14,201,505
Average non-earning assets
861,755
1,067,092
1,031,141
Total consolidated average assets
$
19,378,649
$
20,303,033
$
15,232,646
(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)
104
The following table presents revenues (interest income plus non-interest income) and selected balance sheet data by geography based on the
location in which the transaction was originated as of indicated dates:
2022
2021
2020
(In thousands)
Revenues:
Puerto Rico
$
855,441
$
795,166
$
678,370
United States
97,642
86,157
88,799
Virgin Islands
32,623
34,549
37,039
Total consolidated revenues
$
985,706
$
915,872
$
804,208
Selected Balance Sheet Information:
Total assets:
Puerto Rico
$
16,020,987
$
18,175,910
$
16,091,112
United States
2,213,333
2,189,440
2,117,966
Virgin Islands
400,164
419,925
583,993
Loans:
Puerto Rico
$
9,097,013
$
8,755,434
$
9,367,032
United States
2,088,351
1,948,716
1,993,797
Virgin Islands
379,767
391,663
466,749
Deposits:
Puerto Rico
(1)
$
12,933,570
$
14,113,874
$
12,338,934
United States
(2)
1,623,725
1,928,749
1,622,481
Virgin Islands
1,586,172
1,742,271
1,355,968
(1)
For 2022, 2021, and 2020, includes $
1.4
million, $
34.2
million, and $
109.0
million, respectively, of brokered CDs allocated
to Puerto Rico operations.
(2)
For 2022, 2021, and 2020 includes $
104.4
million, $
66.2
million, and $
107.1
million, respectively, of brokered CDs
allocated to United States operations.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
105
NOTE 28 – SUPPLEMENTAL
STATEMENT
OF CASH FLOWS INFORMATION
Supplemental statement of cash flows information is as follows for the indicated
periods:
Year Ended
December 31,
2022
2021
2020
(In thousands)
Cash paid for:
Interest on borrowings
$
65,986
$
68,668
$
94,872
Income tax
51,798
15,477
16,713
Operating cash flow from operating leases
18,202
19,328
13,464
Non-cash investing and financing activities:
Additions to OREO
15,350
19,348
7,249
Additions to auto and other repossessed assets
45,607
33,408
36,203
Capitalization of servicing assets
3,122
5,194
4,864
Loan securitizations
141,909
191,434
221,491
Loans held for investment transferred to held for sale
4,632
33,010
10,817
Payable related to unsettled purchases of available-for-sale investment securities
-
-
24,033
ROU asset obtained in exchange for operating lease liabilities
2,733
4,553
1,328
Acquisition
(1)
:
Consideration
$
-
$
584
$
1,280,424
Fair value of assets acquired
-
605
5,561,564
Liabilities assumed
-
-
4,291,674
(1)
Recognized in connection with the BSPR acquisition on September
1, 2020.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
106
NOTE 29 – 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 December
31, 2022 and 2021,
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
December 31, 2022,
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 1
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
December
31,
2022,
the
capital
measures
of
the
Corporation
and
the
Bank
included
$
16.2
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 $
48.6
million remains excluded to be phase-in
during the next two
years.
The
federal
financial
regulatory
agencies
may
take
other
measures
affecting
regulatory
capital
to
address
the
COVID-19
pandemic and related macroeconomic conditions, although the nature
and impact of such actions cannot be predicted at this time.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
107
The regulatory capital position of
the Corporation and the Bank as
of December 31, 2022,
and 2021, 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 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
%
As of December 31, 2021
Total Capital (to Risk-Weighted
Assets)
First BanCorp.
$
2,433,953
20.50
%
$
949,637
8.0
%
N/A
N/A
%
FirstBank
$
2,401,390
20.23
%
$
949,556
8.0
%
$
1,186,944
10.0
%
CET1 Capital (to Risk-Weighted Assets)
First BanCorp.
$
2,112,630
17.80
%
$
534,171
4.5
%
N/A
N/A
%
FirstBank
$
2,150,317
18.12
%
$
534,125
4.5
%
$
771,514
6.5
%
Tier I Capital (to Risk-Weighted
Assets)
First BanCorp.
$
2,112,630
17.80
%
$
712,228
6.0
%
N/A
N/A
%
FirstBank
$
2,258,317
19.03
%
$
712,167
6.0
%
$
949,556
8.0
%
Leverage ratio
First BanCorp.
$
2,112,630
10.14
%
$
833,091
4.0
%
N/A
N/A
%
FirstBank
$
2,258,317
10.85
%
$
832,773
4.0
%
$
1,040,967
5.0
%
Cash Restrictions
The Corporation’s
bank subsidiary,
FirstBank, is
required by
the Puerto
Rico Banking
Law to
maintain minimum
average weekly
reserve balances to
cover demand deposits.
The amount of those
minimum average weekly
reserve balances for
the period that
ended
December 31,
2022
was
$
1.1
billion
(2021
-
$
1.2
billion).
As
of
December 31,
2022
and
2021,
the
Bank
complied
with
the
requirement.
Cash
and
due
from
banks
as
well
as
other
highly
liquid
securities
are
used
to
cover
the
required
average
reserve
balances.
As of December
31, 2022, and
as required by
the Puerto Rico
International Banking
Law,
the Corporation maintained
$
0.3
million
in time deposits, related to FirstBank Overseas Corporation, an international
banking entity that is a subsidiary of FirstBank.
Commitments
The
Corporation’s
exposure
to
credit
loss
in
the
event
of
nonperformance
by
the
other
party
to
the
financial
instrument
on
commitments to extend credit
and standby letters of credit
is represented by the contractual amount
of those instruments. Management
uses the same
credit policies
and approval process
in entering into
commitments and
conditional obligations
as it does
for on-balance
sheet instruments.
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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
108
In
general,
commercial
and
standby
letters
of
credit
are
issued
to
facilitate
foreign
and
domestic
trade
transactions.
Normally,
commercial and standby
letters of credit
are short-term commitments
used to finance
commercial contracts for
the shipment of goods.
The
collateral
for
these
letters
of
credit
includes
cash
or
available
commercial
lines
of
credit.
The
fair
value
of
commercial
and
standby letters
of credit
is based
on the
fees currently
charged for
such agreements,
which, as
of December 31,
2022 and
2021, were
not significant.
The following table summarizes commitments to extend credit and standby letters of
credit as of the indicated dates:
December 31,
2022
2021
(In thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit:
Construction undisbursed funds
$
170,639
$
197,917
Unused personal lines of credit
978,219
1,180,824
Commercial lines of credit
761,634
725,259
Letters of credit:
Commercial letters of credit
68,647
151,140
Standby letters of credit
9,160
4,342
Contingencies
As of
December 31,
2022, 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 December 31, 2022, no such disclosures were necessary.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
109
NOTE 30- 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 December 31, 2022
and 2021, and the
results of its operations
and cash flows for
the years ended December
31, 2022, 2021, and
2020:
Statements of Financial Condition
As of December 31,
2022
2021
(In thousands)
Assets
Cash and due from banks
$
19,279
$
20,751
Other investment securities
735
285
Investment in First Bank Puerto Rico, at equity
1,464,026
2,247,289
Investment in First Bank Insurance Agency,
at equity
28,770
19,521
Investment in FBP Statutory Trust I
1,951
1,951
Investment in FBP Statutory Trust II
3,561
3,561
Dividends receivable
624
295
Other assets
430
71
Total assets
$
1,519,376
$
2,293,724
Liabilities and Stockholders' Equity
Liabilities:
Other borrowings
$
183,762
$
183,762
Accounts payable and other liabilities
10,074
8,195
Total liabilities
193,836
191,957
Stockholders' equity
1,325,540
2,101,767
Total liabilities and stockholders'
equity
$
1,519,376
$
2,293,724
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
110
Statements of Income
Year
Ended December 31,
2022
2021
2020
(In thousands)
Income
Interest income on money market investments
$
79
$
51
$
71
Dividend income from banking subsidiaries
368,670
98,060
52,707
Dividend income from non-banking subsidiaries
-
30,000
-
Other income
248
154
439
Total income
368,997
128,265
53,217
Expense
Other borrowings
8,253
5,135
6,355
Other operating expenses
1,730
1,929
2,097
Total expense
9,983
7,064
8,452
Gain on early extinguishment of debt
-
-
94
Income before income taxes and equity
in undistributed earnings of subsidiaries
359,014
121,201
44,859
Income tax expense
3,448
2,854
2,429
Equity in undistributed earnings of subsidiaries (distribution in excess of
earnings)
(50,494)
162,678
59,843
Net income
$
305,072
$
281,025
$
102,273
Other comprehensive (loss) income, net of tax
(720,779)
(139,454)
48,691
Comprehensive (loss) income
$
(415,707)
$
141,571
$
150,964
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
111
Statements of Cash Flows
Year Ended December 31,
2022
2021
2020
(In thousands)
Cash flows from operating activities:
Net income
$
305,072
$
281,025
$
102,273
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation
148
149
231
Equity in undistributed earnings of subsidiaries
50,494
(162,678)
(59,843)
Gain on early extinguishment of debt
-
-
(94)
Net decrease (increase) in other assets
(688)
1,657
(1,514)
Net increase (decrease) in other liabilities
1,545
3,578
(459)
Net cash provided by operating activities
356,571
123,731
40,594
Cash flows from investing activities:
Purchase of equity securities
(450)
-
-
Return of capital from wholly-owned subsidiaries
(1)
8,000
200,000
-
Net cash provided by investing activities
7,550
200,000
-
Cash flows from financing activities:
Repurchase of common stock
(277,769)
(216,522)
(206)
Repayment of junior subordinated debentures
-
-
(282)
Dividends paid on common stock
(87,824)
(65,021)
(43,416)
Dividends paid on preferred stock
-
(2,453)
(2,676)
Redemption of preferred stock - Series A through E
-
(36,104)
-
Net cash used in financing activities
(365,593)
(320,100)
(46,580)
Net (decrease) increase in cash and cash equivalents
(1,472)
3,631
(5,986)
Cash and cash equivalents at beginning of the year
20,751
17,120
23,106
Cash and cash equivalents at end of year
$
19,279
$
20,751
$
17,120
Cash and cash equivalents include:
Cash and due from banks
$
19,279
$
20,751
$
10,909
Money market instruments
-
-
6,211
$
19,279
$
20,751
$
17,120
(1)
During 2022, FirstBank of Puerto Rico, a wholly-owned subsidiary of First BanCorp., redeemed
0.3
million shares of its preferred stock for a total price of
approximately $
8.0
million.
During 2021, FirstBank of Puerto Rico, a wholly-owned subsidiary of First BanCorp., redeemed
8
million shares of its
preferred stock for a total price of approximately $
200
million.
PART
IV
Item 15. Exhibits and Financial Statement Schedules
(a) List of documents filed as part of this report.
(1)
Financial Statements.
The
following
consolidated
financial
statements
of
First
BanCorp.,
together
with
the
reports
thereon
of
First
BanCorp.’s
independent registered
public accounting
firm, Crowe LLP
(PCAOB ID No.
173),
dated February 28,
2023, are included
in Item 8
of
this Annual Report on Form 10-K/A:
– Report of Crowe LLP,
Independent Registered Public Accounting Firm.
–
Attestation Report of Crowe LLP,
Independent Registered Public Accounting Firm on Internal Control
over Financial
Reporting.
–Consolidated Statements of Financial Condition as of December 31,
2022 and 2021.
–Consolidated Statements of Income for Each of the Three Years
in the Period Ended December 31, 2022.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
112
– Consolidated Statements of Comprehensive (Loss) Income for
Each of the Three Years
in the Period Ended December 31,
2022.
– Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended December 31, 2022.
– Consolidated Statements of Changes in Stockholders’ Equity for
Each of the Three Years
in the Period Ended December 31,
2022.
– Notes to the Consolidated Financial Statements.
(2) Financial statement schedules.
All financial schedules have been omitted because they are not applicable
or the required information is shown in the financial
statements or notes thereto.
(b) Exhibits listed in the Exhibit Index below are filed herewith as part of this Annual
Report on Form 10-K/A and are meant to
supplement the Exhibits listed and/or filed with the Original Report.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
113
EXHIBIT INDEX
Exhibit No.
Description
3.1
Restated Articles of Incorporation, incorporated by reference from Exhibit 3.1 of the Registration Statement on Form S-1/A, filed on October
20, 2011.
3.2
Amended and Restated By-Laws, incorporated by reference from Exhibit 3.2 of the Form 8-K, filed on March 31, 2020.
4.1
Description of First BanCorp. capital stock, incorporated by reference from Exhibit 4.1 of the Form 10-K for the year ended December 31,
2022, filed on February 28, 2023.
10.1*
First BanCorp Omnibus Incentive Plan, as amended, incorporated by reference from Exhibit 99.1 of the Form S-8, filed on June 21, 2016.
10.2*
10.3*
10.4*
Form of Restricted Stock Award Agreement, incorporated by reference from Exhibit 10.2 of the Form 10-K for the year ended December 31,
2022, filed on February 28, 2023.
Form of First BanCorp Long-Term Incentive Award Agreement, incorporated by reference from Exhibit 10.1 of the Form 10-Q for the
quarter ended March 31, 2018, filed on May 10, 2018.
Employment Agreement between First BanCorp and Aurelio Alemán, incorporated by reference from Exhibit 10.6- of the Form 10-K for the
year ended December 31, 1998, filed on March 26, 1999.
10.5*
Amendment No. 1 to Employment Agreement between First BanCorp and Aurelio Alemán, incorporated by reference from Exhibit 10.2 of
the Form 10-Q for the quarter ended March 31, 2009, filed on May 11, 2009.
10.6*
Amendment No. 2 to Employment Agreement between First BanCorp and Aurelio Alemán, incorporated by reference from Exhibit 10.6 of
the Form 10-K for the year ended December 31, 2009, filed on March 2, 2010.
10.7*
Employment Agreement between First BanCorp and Orlando Berges, incorporated by reference from Exhibit 10.1 of the Form 10-Q for the
quarter ended June 30, 2009, filed on August 11, 2009.
10.8*
Letter Agreement between First BanCorp. and Roberto R. Herencia, incorporated by reference from Exhibit 10.1 of the Form 8-K/A, filed on
November 2, 2011.
10.9*
Offer Letter between First BanCorp and Juan Acosta Reboyras, incorporated by reference from Exhibit 10.1 of the Form 8-K, filed on
September 3, 2014.
10.10*
Offer Letter between First BanCorp and Luz A. Crespo, incorporated by reference from Exhibit 10.1 of the Form 8-K, filed on February 9,
2015.
10.11*
Offer Letter between First BanCorp and John A. Heffern, incorporated by reference from Exhibit 10.1 of the Form 8-K, filed on November
1, 2017.
10.12*
Offer Letter between First BanCorp and Daniel E. Frye, incorporated by reference from Exhibit 10.1 of the Form 8-K, filed on August 31,
2018.
10.13*
Offer Letter between First BanCorp and Félix M. Villamil, incorporated by reference from Exhibit 10.1 of the Form 8-K, filed on November
5, 2020.
10.14*
Offer Letter between First BanCorp and Patricia M. Eaves, incorporated by reference from Exhibit 10.1 of the Form 8-K, filed on April 1,
2021.
10.15*
Form of Executive Employment Agreement executed by each executive officer, incorporated by reference from Exhibit 10.1 of the Form 10-
Q for the quarter ended June 30, 2018, filed on August 9, 2018.
10.16*
Revised
Non-Management and Non-
Employee
Directors of the Board of Directors Compensation Structure, incorporated
by reference from
Exhibit 10.1 of the Form 10-Q for the quarter ended September 30,
2022, filed on November 8, 2022.
18.1
Preferability letter from Crowe, LLP regarding a change in accounting method dated November 8, 2022, incorporated by reference form
Exhibit 18 of the Form 10-Q for the quarter ended September 30, 2022, filed on November 8, 2022.
21.1
List of First BanCorp’s subsidiaries, incorporated by reference from Exhibit 21.1 of the Form 10-K for the year ended December 31, 2022,
filed on February 28, 2023.
23.1
Consent of Crowe LLP, incorporated by reference from Exhibit 23.1 of the Form 10-K for the year ended December 31, 2022, filed on
February 28, 2023.
31.1
CEO
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002**
31.2
CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
*
32.1
CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
*
32.2
CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
*
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. Annual Report on Form 10-K for
the year ended December 31, 2022, formatted in Inline XBRL (included
within the Exhibit 101 attachments)
_____________________________
*Management contract or compensatory plan or agreement.
**Filed herewith.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS-(Continued)
114
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.
By:
/s/ Orlando Berges
Date: 10/13/2023
Orlando Berges, CPA
Executive Vice President and Chief Financial Officer