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DEBT SECURITIES | 3 Months Ended
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Mar. 31, 2023
DEBT SECURITIES [Abstract] |
DEBT SECURITIES | NOTE 2 – DEBT SECURITIES Available-for-Sale Debt Securities The amortized cost, gross unrealized gains and losses, ACL, estimated fair value, and weighted-average yield of available-for-sale debt securities by contractual maturities as of March 31, 2023 were as follows: March 31, 2023 Amortized cost (1) Gross ACL Fair value Unrealized Weighted- Gains Losses average yield% (Dollars in thousands) U.S. Treasury securities: Due within one year $ 27,744 $ - $ 890 $ - $ 26,854 0.61 After 1 to 5 years 120,916 - 7,348 - 113,568 0.69 U.S. government-sponsored entities (“GSEs”) obligations: Due within one year 189,174 - 5,100 - 184,074 0.42 After 1 to 5 years 2,349,522 22 190,986 - 2,158,558 0.84 After 5 to 10 years 41,916 8 4,998 - 36,926 1.64 After 10 years 11,625 27 - - 11,652 5.15 Puerto Rico government obligations: After 10 years (2) 3,302 - 733 366 2,203 - United States and Puerto Rico government obligations 2,744,199 57 210,055 366 2,533,835 0.83 Mortgage-backed securities (“MBS”): Residential MBS: Freddie Mac (“FHLMC”) certificates: After 1 to 5 years 10,023 - 454 - 9,569 1.98 After 5 to 10 years 187,007 - 15,912 - 171,095 1.56 After 10 years 1,068,680 - 170,021 - 898,659 1.41 1,265,710 - 186,387 - 1,079,323 1.44 Ginnie Mae (“GNMA”) certificates: Due within one year 3 - - - 3 2.42 After 1 to 5 years 23,293 - 1,253 - 22,040 1.31 After 5 to 10 years 33,939 - 2,720 - 31,219 1.69 After 10 years 225,680 119 24,080 - 201,719 2.58 282,915 119 28,053 - 254,981 2.37 Fannie Mae (“FNMA”) certificates: After 1 to 5 years 24,446 - 1,249 - 23,197 1.72 After 5 to 10 years 353,397 - 28,963 - 324,434 1.74 After 10 years 1,133,757 104 168,025 - 965,836 1.37 1,511,600 104 198,237 - 1,313,467 1.47 Collateralized mortgage obligations issued or guaranteed by the FHLMC, FNMA and GNMA (“CMOs”): After 10 years 296,022 - 52,540 - 243,482 1.49 Private label: After 10 years 7,695 - 2,210 83 5,402 7.25 Total Residential MBS 3,363,942 223 467,427 83 2,896,655 1.55 Commercial MBS: After 1 to 5 years 27,584 7 4,551 - 23,040 2.27 After 5 to 10 years 44,584 - 4,929 - 39,655 1.90 After 10 years 120,387 - 24,316 - 96,071 1.23 Total Commercial MBS 192,555 7 33,796 - 158,766 1.53 Total MBS 3,556,497 230 501,223 83 3,055,421 1.54 Total available-for-sale debt securities $ 6,300,696 $ 287 $ 711,278 $ 449 $ 5,589,256 1.23 (1) Excludes accrued interest receivable on available-for-sale debt securities that totaled $ 10.7 million as of March 31, 2023 reported as part of accrued interest receivable on loans and investment securities in the consolidated statements of financial condition, and excluded from the estimate of credit losses. (2) Consists of a residential pass-through MBS issued by the Puerto Rico Housing Finance Authority (“PRHFA”) that is collateralized by certain second mortgages originated under a program launched by the Puerto Rico government in 2010 and is in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral. The amortized cost, gross unrealized gains and losses, ACL, estimated fair value, and weighted-average yield of available-for-sale debt securities by contractual maturities as of December 31, 2022 were as follows: December 31, 2022 Amortized cost (1) Gross ACL Fair value 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: Residential MBS: FHLMC certificates: After 1 to 5 years 4,235 - 169 - 4,066 2.33 After 5 to 10 years 201,072 - 18,709 - 182,363 1.55 After 10 years 1,092,289 - 186,558 - 905,731 1.38 1,297,596 - 205,436 - 1,092,160 1.41 GNMA certificates: Due within one year 5 - - - 5 1.73 After 1 to 5 years 15,508 - 622 - 14,886 2.00 After 5 to 10 years 45,322 1 3,809 - 41,514 1.31 After 10 years 232,632 51 27,169 - 205,514 2.47 293,467 52 31,600 - 261,919 2.27 FNMA certificates: After 1 to 5 years 9,685 - 521 - 9,164 1.76 After 5 to 10 years 358,346 - 31,620 - 326,726 1.68 After 10 years 1,186,635 124 186,757 - 1,000,002 1.38 1,554,666 124 218,898 - 1,335,892 1.45 CMOs: After 10 years 302,232 - 56,539 - 245,693 1.44 Private label: After 10 years 7,903 - 2,026 83 5,794 6.83 Total Residential MBS 3,455,864 176 514,499 83 2,941,458 1.52 Commercial MBS: After 1 to 5 years 30,578 - 4,463 - 26,115 2.43 After 5 to 10 years 44,889 - 5,603 - 39,286 1.89 After 10 years 121,464 - 23,732 - 97,732 1.23 Total Commercial MBS 196,931 - 33,798 - 163,133 1.56 Total MBS 3,652,795 176 548,297 83 3,104,591 1.52 Other Due within one year 500 - - - 500 0.84 Total available-for-sale debt securities $ 6,398,197 $ 247 $ 798,466 458 $ 5,599,520 1.22 (1) Excludes accrued interest receivable on available-for-sale debt securities that totaled $ 11.1 million as of December 31, 2022 reported as part of accrued interest receivable on loans and investment securities in the consolidated statements of financial condition, and excluded from the estimate of credit losses. (2) Consists of a residential pass-through MBS issued by the PRHFA that is collateralized by certain second mortgages originated under a program launched by the Puerto Rico government in 2010 and is in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral. 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 The following tables present the fair value and gross unrealized losses of the Corporation’s available-for-sale debt securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of March 31, 2023 and December 31, 2022. The tables also include debt securities for which an ACL was recorded. As of March 31, 2023 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 $ 17,615 $ 611 $ 2,496,925 $ 208,711 $ 2,514,540 $ 209,322 Puerto Rico government obligations - - 2,203 733 (1) 2,203 733 MBS: Residential MBS: FHLMC 21,354 710 1,057,950 185,677 1,079,304 186,387 GNMA 45,949 868 197,581 27,185 243,530 28,053 FNMA 41,186 1,741 1,262,700 196,496 1,303,886 198,237 CMOs 10,596 117 232,886 52,423 243,482 52,540 Private label - - 5,402 2,210 (1) 5,402 2,210 Commercial MBS 3,833 220 148,640 33,576 152,473 33,796 $ 140,533 $ 4,267 $ 5,404,287 $ 707,011 $ 5,544,820 $ 711,278 7923 (1) Unrealized losses do not include the credit loss component recorded as part of the ACL. As of March 31, 2023, the PRHFA bond and private label MBS had an ACL of $ 0.4 million and $ 0.1 million, respectively. As of December 31, 2022 Less than 12 months 12 months or more Total Unrealized Unrealized Unrealized Fair Value Losses Fair Value Losses Fair Value Losses (In thousands) 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: Residential MBS: FHLMC 260,524 45,424 831,637 160,012 1,092,161 205,436 GNMA 74,829 3,433 179,854 28,167 254,683 31,600 FNMA 405,977 49,479 920,200 169,419 1,326,177 218,898 CMOs 45,370 6,735 200,323 49,804 245,693 56,539 Private label - - 5,794 2,026 (1) 5,794 2,026 Commercial MBS 30,179 2,215 132,953 31,583 163,132 33,798 $ 1,115,192 $ 125,343 $ 4,447,686 $ 673,123 $ 5,562,878 $ 798,466 (1) Unrealized losses do not include the credit loss component recorded as part of the ACL. As of December 31, 2022, the PRHFA bond and private label MBS had an ACL of $ 0.4 million and $ 0.1 million, respectively. 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 March 31, 2023, and the Corporation expects no credit losses on these securities, given the explicit and implicit guarantees provided by the U.S. federal government. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because 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 March 31, 2023. 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 $ 5.4 million, which had unrealized losses of approximately $ 2.3 million as of March 31, 2023, 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. Following the provisions of the Adjustable Interest Rate Act (the “LIBOR Act”) and Regulation ZZ, the LIBOR reference on these contracts will automatically transition by operation of law to 3-month CME Term Secured Overnight Financing Rate (“SOFR”), plus a spread adjustment of 0.26161% on the first reset date after U.S. dollar (“USD”) LIBOR ceases publication in June 2023. 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 March 31, 2023, 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 probability of default (“PDs”) and loss given default (“LGDs”) that considered, among other things, historical payment performance, loan-to-value attributes, and relevant current and forward-looking macroeconomic variables, such as regional unemployment rates and the housing price index. Under this approach, expected cash flows (interest and principal) were discounted at the 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 March 31, 2023 December 31, 2022 Weighted Range Weighted Range Average Minimum Maximum Average Minimum Maximum Discount rate 16.0% 16.0% 16.0% 16.2% 16.2% 16.2% Prepayment rate 9.2% 1.6% 12.6% 11.8% 1.5% 15.2% Projected cumulative loss rate 5.2% 0.2% 14.9% 5.6% 0.3% 15.6% The Corporation evaluates if a credit loss exists, primarily by monitoring adverse variances in the present value of expected cash flows. As of each of March 31, 2023 and December 31, 2022, the ACL for these private label MBS was $ 0.1 million. As of March 31, 2023, 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 (until 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. 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 March 31, 2023, 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 quarters ended March 31, 2023 and 2022 of the ACL on available-for-sale debt securities: Quarter Ended March 31, 2023 Private label MBS Puerto Rico Government Obligations Total (In thousands) Beginning balance $ 83 $ 375 $ 458 Provision for credit losses - benefit - (9) (9) ACL on available-for-sale debt securities $ 83 $ 366 $ 449 Quarter Ended March 31, 2022 Private label MBS Puerto Rico Government Obligations Total (In thousands) Beginning balance $ 797 $ 308 $ 1,105 Provision for credit losses - benefit (388) - (388) Net charge-offs (6) - (6) ACL on available-for-sale debt securities $ 403 $ 308 $ 711 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 March 31, 2023 and December 31, 2022 were as follows : March 31, 2023 Amortized cost (1) Gross Unrecognized Fair value Weighted- Gains Losses ACL average yield% (Dollars in thousands) Puerto Rico municipal bonds: Due within one year $ 1,204 $ - $ 10 $ 1,194 $ 24 5.70 After 1 to 5 years 42,633 679 1,001 42,311 659 6.74 After 5 to 10 years 55,940 1,482 603 56,819 2,918 7.10 After 10 years 66,023 - 1,804 64,219 4,045 8.12 Total Puerto Rico municipal bonds 165,800 2,161 3,418 164,543 7,646 7.40 MBS: Residential MBS: FHLMC certificates: After 5 to 10 years $ 20,129 $ - $ 762 $ 19,367 $ - 3.03 After 10 years 19,176 - 596 18,580 - 4.30 39,305 - 1,358 37,947 - 3.65 GNMA certificates: ` After 10 years 18,502 - 795 17,707 - 3.31 FNMA certificates: After 10 years 71,258 - 2,190 69,068 - 4.16 CMOs: After 10 years 32,522 - 1,154 31,368 - 3.49 Total Residential MBS 161,587 - 5,497 156,090 - 3.81 Commercial MBS: After 1 to 5 years 9,576 - 348 9,228 - 3.48 After 10 years 94,432 - 4,541 89,891 - 3.15 Total Commercial MBS 104,008 - 4,889 99,119 - 3.18 Total MBS 265,595 - 10,386 255,209 - 3.56 Total held-to-maturity debt securities $ 431,395 $ 2,161 $ 13,804 $ 419,752 $ 7,646 5.04 (1) Excludes accrued interest receivable on held-to-maturity debt securities that totaled $ 3.7 million as of March 31, 2023, 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, 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 held-to-maturity debt securities $ 165,710 $ 4,068 $ 2,769 $ 167,009 $ 8,286 6.62 MBS: Residential MBS: FHLMC certificates: After 5 to 10 years $ 21,443 $ - $ 746 $ 20,697 $ - 3.03 After 10 years 19,362 - 888 18,474 - 4.21 40,805 - 1,634 39,171 - 3.59 GNMA certificates: ` After 10 years 19,131 - 943 18,188 - 3.35 FNMA certificates: After 10 years 72,347 - 3,155 69,192 - 4.14 CMOs: After 10 years 34,456 - 1,424 33,032 - 3.49 Total Residential MBS 166,739 - 7,156 159,583 - 3.78 Commercial MBS: After 1 to 5 years 9,621 - 396 9,225 - 3.48 After 10 years 95,467 - 4,169 91,298 - 3.15 Total Commercial MBS 105,088 - 4,565 100,523 - 3.18 Total MBS 271,827 - 11,721 260,106 - 3.55 Total held-to-maturity debt securities $ 437,537 $ 4,068 $ 14,490 $ 427,115 $ 8,286 4.71 (1) Excludes accrued interest receivable on held-to-maturity debt securities that totaled $ 5.5 million as of December 31, 2022, 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. The following tables present the Corporation’s held-to-maturity debt securities’ fair value and gross unrecognized losses, aggregated by category and length of time that individual securities had been in a continuous unrecognized loss position, as of March 31, 2023 and December 31, 2022, including debt securities for which an ACL was recorded: As of March 31, 2023 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 $ - $ - $ 108,266 $ 3,418 $ 108,266 $ 3,418 MBS: Residential MBS: FHLMC certificates 37,947 1,358 - - 37,947 1,358 GNMA certificates 17,707 795 - - 17,707 795 FNMA certificates 69,068 2,190 - - 69,068 2,190 CMOs 31,368 1,154 - - 31,368 1,154 Commercial MBS 99,119 4,889 - - 99,119 4,889 Total held-to-maturity debt securities $ 255,209 $ 10,386 $ 108,266 $ 3,418 $ 363,475 $ 13,804 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: Residential MBS: FHLMC certificates 39,171 1,634 - - 39,171 1,634 GNMA certificates 18,188 943 - - 18,188 943 FNMA certificates 69,192 3,155 - - 69,192 3,155 CMOs 33,032 1,424 - - 33,032 1,424 Commercial MBS 100,523 4,565 - - 100,523 4,565 Total held-to-maturity debt securities $ 260,106 $ 11,721 $ 98,797 $ 2,769 $ 358,903 $ 14,490 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 March 31, 2023, 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, to the audited consolidated financial statements included in the 2022 Annual Report on Form 10-K. The Corporation performs periodic credit quality reviews on these issuers. All of the Puerto Rico municipal bonds were current as to scheduled contractual payments as of March 31, 2023. A security is considered to be past due once it is 30 days contractually past due under the terms of the agreement. The Puerto Rico municipal bonds had an ACL of $ 7.6 million as of March 31, 2023, compared to $ 8.3 million as of December 31, 2022, mostly related to a reduction in qualitative reserves driven by updated financial information of certain bond issuers received during the first quarter of 2023. The following table presents the activity in the ACL for held-to-maturity debt securities by major security type for the quarters ended March 31, 2023 and 2022: Puerto Rico Municipal Bonds Quarter Ended March 31, 2023 March 31, 2022 (In thousands) Beginning Balance $ 8,286 $ 8,571 Provision for credit losses - (benefit) expense (640) 3,753 ACL on held-to-maturity debt securities $ 7,646 $ 12,324 During the second quarter of 2019, the oversight board established by PROMESA announced the designation of Puerto Rico’s 78 municipalities as covered instrumentalities under PROMESA. Municipalities may be affected by the negative economic and other effects resulting from expense, revenue, or cash management measures taken by the Puerto Rico government to address its fiscal situation, or measures included in its fiscal plan or fiscal plans of other government entities. Given the inherent uncertainties about the fiscal situation of the Puerto Rico central government, 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 March 31, 2023 and December 31, 2022, the Corporation had no outstanding securities held to maturity that were classified as cash and cash equivalents. 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. For the definitions of the internal credit-risk ratings, see Note 3 – Debt Securities, to the audited consolidated financial statements included in the 2022 Annual Report on Form 10-K. The Corporation periodically reviews its Puerto Rico municipal bonds to evaluate if they are properly classified, and to measure credit losses on these securities. The frequency of these reviews will depend on the amount of the aggregate outstanding debt, and the risk rating classification of the obligor. The Corporation has a Loan Review Group that reports directly to the Corporation’s Risk Management Committee and administratively to the Chief Risk Officer. The Loan Review Group performs annual comprehensive credit process reviews of the Bank’s commercial loan portfolios, including the above-mentioned Puerto Rico municipal bonds accounted for as held-to-maturity debt securities. The objective of these loan reviews is to assess accuracy of the Bank’s determination and maintenance of loan risk rating and its adherence to lending policies, practices and procedures. The monitoring performed by this group contributes to the assessment of compliance with credit policies and underwriting standards, the determination of the current level of credit risk, the evaluation of the effectiveness of the credit management process, and the identification of any deficiency that may arise in the credit- granting process. Based on its findings, the Loan Review Group recommends corrective actions, if necessary, that help in maintaining a sound credit process. The Loan Review Group reports the results of the credit process reviews to the Risk Management Committee. As of March 31, 2023 and December 31, 2022, all Puerto Rico municipal bonds classified as held-to-maturity were classified as Pass.

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