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NON-CONSOLIDATED VARIABLE INTEREST ENTITIES AND SERVICING ASSETS
 12 Months Ended
Dec. 31, 2022
NON-CONSOLIDATED VARIABLE INTEREST ENTITIES AND SERVICING ASSETS [Abstract]  
NON-CONSOLIDATED VARIABLE INTEREST ENTITIES AND SERVICING ASSETS [Text Block]
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.
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.
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
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
%
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
.