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DEBT SECURITIES | 9 Months Ended
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Sep. 30, 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 September 30, 2023 were as follows: September 30, 2023 Amortized cost (1) Gross ACL Fair value (2) Unrealized Weighted- Gains Losses average yield% (Dollars in thousands) U.S. Treasury securities: Due within one year $ 47,585 $ - $ 1,313 $ - $ 46,272 0.54 After 1 to 5 years 100,671 - 6,220 - 94,451 0.74 U.S. government-sponsored entities (“GSEs”) obligations: Due within one year 271,134 - 7,334 - 263,800 0.73 After 1 to 5 years 2,225,242 55 201,084 - 2,024,213 0.84 After 5 to 10 years 10,097 - 1,158 - 8,939 2.95 After 10 years 10,621 18 1 - 10,638 5.65 Puerto Rico government obligations: After 10 years (3) 3,204 - 1,374 382 1,448 - United States and Puerto Rico government obligations 2,668,554 73 218,484 382 2,449,761 0.84 Mortgage-backed securities (“MBS”): Residential MBS: Freddie Mac (“FHLMC”) certificates: After 1 to 5 years 21,356 - 1,205 - 20,151 2.06 After 5 to 10 years 160,407 - 18,393 - 142,014 1.55 After 10 years 1,013,862 - 211,720 - 802,142 1.40 1,195,625 - 231,318 - 964,307 1.43 Ginnie Mae (“GNMA”) certificates: After 1 to 5 years 19,559 - 1,207 - 18,352 1.27 After 5 to 10 years 28,587 - 3,127 - 25,460 1.59 After 10 years 212,835 - 33,476 - 179,359 2.58 260,981 - 37,810 - 223,171 2.38 Fannie Mae (“FNMA”) certificates: After 1 to 5 years 35,343 - 1,992 - 33,351 2.11 After 5 to 10 years 307,379 - 35,138 - 272,241 1.70 After 10 years 1,072,667 - 207,428 - 865,239 1.36 1,415,389 - 244,558 - 1,170,831 1.45 Collateralized mortgage obligations (“CMOs”) issued or guaranteed by the FHLMC, FNMA, and GNMA: After 10 years 280,056 - 62,888 - 217,168 1.54 Private label: After 10 years 7,311 - 2,310 83 4,918 7.73 Total Residential MBS 3,159,362 - 578,884 83 2,580,395 1.54 Commercial MBS: After 1 to 5 years 44,111 - 8,631 - 35,480 2.18 After 5 to 10 years 25,522 - 4,067 - 21,455 2.13 After 10 years 123,523 - 34,811 - 88,712 1.36 Total Commercial MBS 193,156 - 47,509 - 145,647 1.65 Total MBS 3,352,518 - 626,393 83 2,726,042 1.55 Total available-for-sale debt securities $ 6,021,072 $ 73 $ 844,877 $ 465 $ 5,175,803 1.24 (1) Excludes accrued interest receivable on available-for-sale debt securities that totaled $ 10.8 million as of September 30, 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) Includes $ 521.3 million (amortized cost - $ 587.0 million) that was pledged at the FHLB as collateral for borrowings and letters of credit as well as $ 2.8 billion (amortized cost - $ 3.2 billion) pledged as collateral for the uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral. (3) 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 (2) 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 (3) 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 issued or guaranteed by the FHLMC, FNMA, and GNMA: 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) Includes $ 250.6 million (amortized cost - $ 286.5 million) that was pledged at the FHLB as collateral for borrowings and letters of credit as well as $ 2.4 billion (amortized cost - $ 2.8 billion) pledged as collateral for the uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral. (3) 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 accumulated 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 September 30, 2023 and December 31, 2022. The tables also include debt securities for which an ACL was recorded. As of September 30, 2023 Less than 12 months 12 months or more Total Unrealized Unrealized Unrealized Fair Value Losses Fair Value Losses Fair Value Losses (In thousands) U.S. Treasury and U.S. GSEs’ obligations $ 3,204 $ 5 $ 2,430,083 $ 217,105 $ 2,433,287 $ 217,110 Puerto Rico government obligations - - 1,448 1,374 (1) 1,448 1,374 MBS: Residential MBS: FHLMC 12 1 964,295 231,317 964,307 231,318 GNMA 22,811 1,220 200,360 36,590 223,171 37,810 FNMA 9,195 191 1,161,636 244,367 1,170,831 244,558 CMOs issued or guaranteed by the FHLMC, FNMA, and GNMA - - 217,168 62,888 217,168 62,888 Private label - - 4,918 2,310 (1) 4,918 2,310 Commercial MBS 11,509 202 134,138 47,307 145,647 47,509 $ 46,731 $ 1,619 $ 5,114,046 $ 843,258 $ 5,160,777 $ 844,877 (1) Unrealized losses do not include the credit loss component recorded as part of the ACL. As of September 30, 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) 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 issued or guaranteed by the FHLMC, FNMA, and GNMA 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 September 30, 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, as of September 30, 2023, the Corporation did not have the intent to sell these U.S. government and agencies debt securities and determined that it was likely that it will not be required to sell these securities before their anticipated recovery, the Corporation does not consider impairments on these securities to be credit related. 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. Private label MBS held as part of the Corporation’s available for sale portfolio consist of trust certificates issued by an unaffiliated party backed by fixed-rate, single-family residential mortgage loans in the U.S. mainland with original FICO scores over 700 and moderate loan-to-value ratios (under 80 %), as well as moderate delinquency levels. The interest rate on these private label MBS is variable, tied to 3-month CME Term Secured Overnight Financing Rate (“SOFR”) plus a tenor spread adjustment of 0.26161 % and the original spread limited to the weighted-average coupon of the underlying collateral. 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 U.S. Treasury yield curve as of the reporting date. See Note 18 – Fair Value for the significant assumptions used in the valuation of the private label MBS as of September 30, 2023 and December 31, 2022. For the residential pass-through MBS issued by the PRHFA held as part of the Corporation’s available-for-sale portfolio backed by second mortgage residential loans in Puerto Rico, the ACL was determined based on a discounted cash flow methodology that considered the structure and terms of the debt security. The expected cash flows were discounted at the U.S. Treasury yield curve plus a spread as of the reporting date and compared to the amortized cost. 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. 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. 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 such guarantee will depend on, among other factors, its financial condition 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 this security, resulting in additional losses to the Corporation. The following tables present a roll-forward by major security type for the quarters and nine -month periods ended September 30, 2023 and 2022 of the ACL on available-for-sale debt securities: Quarter Ended September 30, 2023 2022 Private label MBS Puerto Rico Government Obligations Total Private label MBS Puerto Rico Government Obligations Total (In thousands) Beginning balance $ 83 $ 350 $ 433 $ 290 $ 386 $ 676 Provision for credit losses - expense (benefit) - 32 32 - (12) (12) ACL on available-for-sale debt securities $ 83 $ 382 $ 465 $ 290 $ 374 $ 664 Nine-Month Period Ended September 30, 2023 2022 Private label MBS Puerto Rico Government Obligations Total Private label MBS Puerto Rico Government Obligations Total (In thousands) Beginning balance $ 83 $ 375 $ 458 $ 797 $ 308 $ 1,105 Provision for credit losses - expense (benefit) - 7 7 (501) 66 (435) Net charge-offs - - - (6) - (6) ACL on available-for-sale debt securities $ 83 $ 382 $ 465 $ 290 $ 374 $ 664 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 September 30, 2023 and December 31, 2022 were as follows : September 30, 2023 Amortized cost (1) (2) Gross Unrecognized Fair value Weighted- Gains Losses ACL average yield% (Dollars in thousands) Puerto Rico municipal bonds: Due within one year $ 3,159 $ 15 $ 23 $ 3,151 $ 46 9.30 After 1 to 5 years 51,133 1,052 1,111 51,074 1,320 7.71 After 5 to 10 years 35,831 3,540 271 39,100 605 7.05 After 10 years 16,595 212 - 16,807 279 8.75 Total Puerto Rico municipal bonds 106,718 4,819 1,405 110,132 2,250 7.70 MBS: Residential MBS: FHLMC certificates: After 5 to 10 years 17,580 - 1,131 16,449 - 3.03 After 10 years 18,740 - 1,689 17,051 - 4.34 36,320 - 2,820 33,500 - 3.70 GNMA certificates: After 10 years 16,786 - 1,414 15,372 - 3.35 FNMA certificates: After 10 years 68,388 - 5,902 62,486 - 4.17 CMOs issued or guaranteed by FHLMC, FNMA, and GNMA After 10 years 29,156 - 1,898 27,258 - 3.49 Total Residential MBS 150,650 - 12,034 138,616 - 3.84 Commercial MBS: After 1 to 5 years 9,489 - 516 8,973 - 3.48 After 10 years 92,312 - 7,182 85,130 - 3.15 Total Commercial MBS 101,801 - 7,698 94,103 - 3.18 Total MBS 252,451 - 19,732 232,719 - 3.57 Total held-to-maturity debt securities $ 359,169 $ 4,819 $ 21,137 $ 342,851 $ 2,250 4.80 (1) Excludes accrued interest receivable on held-to-maturity debt securities that totaled $ 2.8 million as of September 30, 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) Includes $ 179.9 million (fair value - $ 174.9 million) that serves as collateral for the uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral. December 31, 2022 Amortized cost (1) (2) 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 issued or guaranteed by FHLMC, FNMA, and GNMA 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 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) Includes $ 190.1 million (fair value - $ 189.4 million) that serves as collateral for the uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral. 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 September 30, 2023 and December 31, 2022, including debt securities for which an ACL was recorded: As of September 30, 2023 Less than 12 months 12 months or more Total Unrecognized Unrecognized Unrecognized Fair Value Losses Fair Value Losses Fair Value Losses (In thousands) Puerto Rico municipal bonds $ - $ - $ 34,244 $ 1,405 $ 34,244 $ 1,405 MBS: Residential MBS: FHLMC certificates - - 33,500 2,820 33,500 2,820 GNMA certificates - - 15,372 1,414 15,372 1,414 FNMA certificates - - 62,486 5,902 62,486 5,902 CMOs issued or guaranteed by FHLMC, FNMA, and GNMA - - 27,258 1,898 27,258 1,898 Commercial MBS - - 94,103 7,698 94,103 7,698 Total held-to-maturity debt securities $ - $ - $ 266,963 $ 21,137 $ 266,963 $ 21,137 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) 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 issued or guaranteed by FHLMC, FNMA, and GNMA 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. The Corporation does not recognize an ACL for MBS issued by GSEs 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 September 30, 2023. A security is considered to be past due once it is 30 days contractually past due under the terms of the agreement. The ACL of Puerto Rico municipal bonds decreased to $ 2.3 million as of September 30, 2023, from $ 8.3 million as of December 31, 2022, mostly driven by the refinancing of a $ 46.5 million municipal bond into a shorter-term commercial loan structure and, to a lesser extent, a reduction in qualitative reserves driven by updated financial information of certain bond issuers received during the third quarter of 2023. The following tables present the activity in the ACL for held-to-maturity debt securities by major security type for the quarters and nine-month periods ended September 30, 2023 and 2022: Puerto Rico Municipal Bonds Quarter Ended September 30, 2023 2022 (In thousands) Beginning Balance $ 8,401 $ 8,885 Provision for credit losses - benefit (6,151) (628) ACL on held-to-maturity debt securities $ 2,250 $ 8,257 Puerto Rico Municipal Bonds Nine-Month Period Ended September 30, 2023 2022 (In thousands) Beginning Balance $ 8,286 $ 8,571 Provision for credit losses - benefit (6,036) (314) ACL on held-to-maturity debt securities $ 2,250 $ 8,257 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 and the measures taken, or to be taken, by other government entities in response to economic and fiscal challenges, the Corporation cannot be certain whether future charges to the ACL on these securities will be required. From time to time, the Corporation has held-to-maturity securities 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 September 30, 2023 and December 31, 2022, the Corporation had no outstanding held-to-maturity securities that were classified as cash and cash equivalents. Credit Quality Indicators: The held-to-maturity debt securities portfolio consisted of MBS issued by GSEs 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, which are asset quality categories defined by regulatory authorities. These assets have an elevated level of risk and may have a high probability of default or total loss. Puerto Rico municipal bonds that do not meet the criteria for classification as criticized assets are considered to be Pass-rated securities. For additional descriptions 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 September 30, 2023 and December 31, 2022, all Puerto Rico municipal bonds classified as held-to-maturity were classified as Pass.

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