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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
____________
FORM
10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2024
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
San Juan
,
Puerto Rico
(Address of principal executive offices)
00908
(Zip Code)
(
787
)
729-8200
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
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 per share)
FBP
New York Stock Exchange
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 is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
No
☑
Indicate the number of shares outstanding of each of the
issuer’s classes of common stock, as of the latest practicable date.
Common stock:
166,427,105
shares outstanding as of May 2, 2024.
2
FIRST BANCORP.
INDEX PAGE
PART
I. FINANCIAL INFORMATION
PAGE
Item 1.
Financial Statements:
Consolidated
Statements
of
Financial
Condition
(Unaudited)
as
of
March
31,
2024
and
December 31, 2023
5
Consolidated Statements of Income (Unaudited) – Quarters ended
March 31, 2024 and 2023
6
Consolidated
Statements
of
Comprehensive
Income
(Loss)
(Unaudited)
–
Quarters
ended
March 31, 2024 and 2023
7
Consolidated
Statements
of
Cash
Flows
(Unaudited)
–
Quarters
ended
March
31,
2024
and
2023
8
Consolidated
Statements
of
Changes
in
Stockholders’
Equity
(Unaudited)
–
Quarters
ended
March 31, 2024 and 2023
9
Notes to Consolidated Financial Statements (Unaudited)
10
Item 2.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
74
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
124
Item 4.
Controls and Procedures
124
PART
II. OTHER INFORMATION
Item 1.
Legal Proceedings
125
Item 1A.
Risk Factors
125
Item 2.
Item 5.
Unregistered Sales of Equity Securities and Use of Proceeds
Other Information
127
127
Item 6.
Exhibits
128
SIGNATURES
3
Forward-Looking Statements
This Quarterly
Report on
Form 10-Q
(this “Form
10-Q”) contains
forward-looking statements
within the
meaning of
Section 27A
of the Securities Act of 1933, as
amended (the “Securities Act”), and
Section 21E of the Securities Exchange
Act of 1934, as amended
(the “Exchange Act”),
which are subject to
the safe harbor created
by such sections. When
used in this Form
10-Q or future
filings by
First
BanCorp.
(the
“Corporation,”
“we,”
“us,”
or
“our”)
with
the
U.S.
Securities
and
Exchange
Commission
(the
“SEC”),
in
the
Corporation’s press
releases or in other public or
stockholder communications made by
the Corporation, or in oral statements
made on
behalf
of
the
Corporation
by,
or
with
the
approval
of,
an
authorized
executive
officer
of
the
Corporation,
the
words
or
phrases
“would,”
“intends,”
“will,”
“expect,”
“should,”
“plans,”
“forecast,”
“anticipate,”
“look
forward,”
“believes,”
and
other
terms
of
similar meaning or import, or the
negatives of these terms or variations
of them, in connection with any discussion
of future operating,
financial or other performance are meant to identify “forward-looking
statements.”
The Corporation cautions readers
not to place undue reliance on
any such “forward-looking statements,” which
speak only as of the
date made
or,
with respect
to such
forward-looking statements
contained in
this Form
10-Q, the
date hereof,
and advises readers
that
any such
forward-looking statements
are not
guarantees of
future performance
and involve
certain risks,
uncertainties, estimates,
and
assumptions
by us
that are
difficult
to predict
.
Various
factors, some
of which
are beyond
our
control,
could cause
actual results
to
differ materially from those expressed in, or implied by,
such forward-looking statements.
Factors
that
could
cause
results
to
differ
materially
from
those
expressed
in,
or
implied
by,
the
Corporation’s
forward-looking
statements include, but are not
limited to, risks described or
referenced in Part I, Item 1A,
“Risk Factors,” in the Corporation’s
Annual
Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Annual
Report on Form 10-K”), and the following:
●
the effect
of the
current interest
rate environment
and inflation
levels or
changes in
interest rates
on
the level,
composition
and
performance
of
the
Corporation’s
assets
and
liabilities,
and
corresponding
effects
on
the
Corporation’s
net
interest
income, net interest margin, loan originations, deposit attrition,
overall results of operations, and liquidity position;
●
the effects
of changes in the interest rate environment, including any adverse
change in the Corporation’s ability
to attract and
retain
clients
and
gain
acceptance
from
current
and
prospective
customers
for
new
products
and
services,
including
those
related to the offering of digital banking and financial services;
●
volatility in the
financial services industry,
including failures or
rumored failures of
other depository institutions,
and actions
taken
by
governmental
agencies
to
stabilize
the
financial
system,
which
could
result
in,
among
other
things,
bank
deposit
runoffs, liquidity constraints, and increased regulatory
requirements and costs;
●
the
effect
of
continued
changes
in
the
fiscal
and
monetary
policies
and
regulations
of
the
United
States
(“U.S.”)
federal
government,
the Puerto
Rico government
and other governments,
including those
determined by
the Board
of the Governors
of
the
Federal
Reserve
System
(the
“Federal
Reserve
Board”),
the
Federal
Reserve
Bank
of
New
York
(the
“FED”),
the
Federal Deposit Insurance
Corporation (the “FDIC”),
government-sponsored housing agencies
and regulators in
Puerto Rico,
the U.S.,
and the
U.S. Virgin
Islands (the
“USVI”) and
British Virgin
Islands (the
“BVI”), that
may affect
the future
results
of the Corporation;
●
uncertainty as
to the
ability of
the Corporation’s
banking subsidiary,
FirstBank Puerto
Rico (“FirstBank”
or the
“Bank”), to
retain its core
deposits and
generate sufficient
cash flow through
its wholesale funding
sources, such as
securities sold under
agreements
to
repurchase,
Federal
Home
Loan
Bank
(“FHLB”)
advances,
and
brokered
certificates
of
deposit
(“brokered
CDs”), which may require us to sell investment securities at a loss;
●
adverse changes in general
economic conditions in Puerto Rico,
the U.S., and the USVI and
the BVI, including in the
interest
rate
environment,
unemployment
rates,
market
liquidity,
housing
absorption
rates,
real
estate
markets,
and
U.S.
capital
markets,
which
may
affect
funding
sources,
loan
portfolio
performance
and
credit
quality,
market
prices
of
investment
securities,
and
demand
for
the Corporation’s
products
and services,
and which
may
reduce
the
Corporation’s
revenues and
earnings and the value of the Corporation’s
assets;
●
the impact
of government
financial assistance
for hurricane
recovery and
other disaster
relief on
economic activity
in Puerto
Rico, and the timing and pace of disbursements of funds earmarked for disaster
relief;
●
the ability
of the
Corporation,
FirstBank,
and
third-party
service providers
to identify
and prevent
cyber-security
incidents,
such
as
data
security
breaches,
ransomware,
malware,
“denial
of
service”
attacks,
“hacking,”
identity
theft,
and
state-
sponsored
cyberthreats,
and
the
occurrence
of
and
response
to
any
incidents
that
occur,
which
may
result
in
misuse
or
misappropriation
of
confidential
or
proprietary
information,
disruption,
or
damage
to
our
systems
or
those
of
third-party
service providers on which we rely,
increased costs and losses and/or adverse effects
to our reputation;
4
●
general
competitive
factors
and
other
market
risks
as
well
as
the
implementation
of
existent
or
planned
strategic
growth
opportunities,
including
risks,
uncertainties,
and
other
factors
or
events
related
to
any
business
acquisitions,
dispositions,
strategic
partnerships,
strategic
operational
investments,
including
systems
conversions,
and
any
anticipated
efficiencies
or
other expected results related thereto;
●
uncertainty as
to the
implementation of
the debt
restructuring plan
of Puerto
Rico (“Plan
of Adjustment”
or “PoA”)
and the
fiscal plan
for Puerto
Rico as
certified
on April
3, 2023
(the “2023
Fiscal Plan”)
by the
oversight
board established
by the
Puerto Rico
Oversight, Management,
and Economic
Stability Act
(“PROMESA”),
or any
revisions to
it, on
our clients
and
loan portfolios, and any potential impact from future economic or political
developments and tax regulations in Puerto Rico;
●
the
impact
of
changes
in
accounting
standards,
or
assumptions
in
applying
those
standards,
and
of
forecasts
of
economic
variables considered for the determination of the allowance for credit
losses (“ACL”);
●
the ability of FirstBank to realize the benefits of its net deferred tax assets;
●
the ability of FirstBank to generate sufficient cash flow to pay dividends
to the Corporation;
●
environmental, social and governance (“ESG”) matters, including
our climate-related initiatives and commitments;
●
the impacts
of natural
or man-made
disasters, the
emergence or
continuation of
widespread health
emergencies, geopolitical
conflicts (including
sanctions, war or
armed conflict, such
as the ongoing
conflict in Ukraine,
the conflict between
Israel and
Hamas, and
the possible
expansion of
such conflicts
in surrounding
areas and
potential geopolitical
consequences),
terrorist
attacks,
or
other
catastrophic external
events,
including
impacts of
such
events on
general economic
conditions
and
on the
Corporation’s assumptions regarding
forecasts of economic variables;
●
the
risk
that
additional
portions
of
the
unrealized
losses in
the
Corporation’s
debt
securities portfolio
are
determined
to
be
credit-related, resulting
in additional
charges to
the provision
for credit
losses on
the Corporation’s
debt securities
portfolio,
and
the
potential
for
additional
credit
losses
that
could
emerge
from
the
downgrade
of
the
U.S.’s
Long-Term
Foreign-
Currency Issuer Default Rating to ‘AA+’ from ‘AAA’
in August 2023 and subsequent negative ratings outlooks;
●
the impacts of applicable
legislative, tax, or regulatory
changes, as well as of
the 2024 U.S. and
Puerto Rico general election,
on the Corporation’s financial condition
or performance;
●
the
risk
of
possible
failure
or
circumvention
of
the
Corporation’s
internal
controls
and
procedures
and
the
risk
that
the
Corporation’s risk management
policies may not be adequate;
●
the risk that the FDIC may
further increase the deposit insurance
premium and/or require further special assessments,
causing
an additional increase in the Corporation’s
non-interest expenses;
●
any need to recognize impairments on the Corporation’s
financial instruments, goodwill, and other intangible assets;
●
the risk
that the
impact
of the
occurrence
of any
of these
uncertainties on
the Corporation’s
capital would
preclude
further
growth of FirstBank and preclude the Corporation’s
Board of Directors (the “Board”) from declaring dividends; and
●
uncertainty as
to whether
FirstBank will
be able
to continue
to satisfy
its regulators
regarding,
among other
things, its
asset
quality,
liquidity
plans,
maintenance
of
capital
levels,
and
compliance
with
applicable
laws,
regulations
and
related
requirements.
The
Corporation
does
not
undertake
to,
and
specifically
disclaims
any
obligation
to
update
any
“forward-looking
statements”
to
reflect
occurrences
or
unanticipated
events
or
circumstances
after
the
date
of
such
statements,
except
as
required
by
the
federal
securities laws.
5
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
March 31,2024
December 31, 2023
(In thousands, except for share information)
ASSETS
Cash and due from banks
$
680,734
$
661,925
Money market investments:
Time deposits with other financial institutions
300
300
Other short-term investments
3,485
939
Total money market investments
3,785
1,239
Available-for-sale debt securities, at fair value (amortized cost of $
5,695,485
as of March 31, 2024 and
$
5,863,294
as of December 31, 2023; ACL of $
442
as of March 31, 2024 and $
511
as of December 31, 2023)
5,047,179
5,229,984
Held-to-maturity debt securities, at amortized cost, net of ACL
of $
1,235
as of March 31, 2024 and $
2,197
as of December 31, 2023 (fair value of $
338,120
as of March 31, 2024 and $
346,132
as of December 31, 2023)
348,095
351,981
Equity securities
51,390
49,675
Total investment securities
5,446,664
5,631,640
Loans, net of ACL of $
263,592
as of March 31, 2024 and $
261,843
as of December 31, 2023
12,047,856
11,923,640
Mortgage loans held for sale, at lower of cost or market
12,080
7,368
Total loans, net
12,059,936
11,931,008
Accrued interest receivable on loans and investments
73,154
77,716
Premises and equipment, net
141,471
142,016
Other real estate owned (“OREO”)
28,864
32,669
Deferred tax asset, net
147,743
150,127
Goodwill
38,611
38,611
Other intangible assets
11,542
13,383
Other assets
258,457
229,215
Total assets
$
18,890,961
$
18,909,549
LIABILITIES
Non-interest-bearing deposits
$
5,346,326
$
5,404,121
Interest-bearing deposits
11,199,185
11,151,864
Total deposits
16,545,511
16,555,985
Long-term advances from the FHLB
500,000
500,000
Other long-term borrowings
161,700
161,700
Accounts payable and other liabilities
204,033
194,255
Total liabilities
17,411,244
17,411,940
Commitments and contingencies (See Note 21)
(nil)
(nil)
STOCKHOLDERS’ EQUITY
Common stock, $
0.10
par value,
2,000,000,000
shares authorized;
223,663,116
shares issued;
166,707,047
shares outstanding as of March 31, 2024 and
169,302,812
as of December 31, 2023
22,366
22,366
Additional paid-in capital
959,319
965,707
Retained earnings, includes legal surplus reserve of
$
199,576
as of each of March 31, 2024 and December 31, 2023
1,892,714
1,846,112
Treasury stock (at cost),
56,956,069
shares as of March 31, 2024 and
54,360,304
shares as of December 31, 2023
(740,447)
(697,406)
Accumulated other comprehensive loss, net of tax of
$
8,581
as of each of March 31, 2024 and December 31, 2023
(654,235)
(639,170)
Total stockholders’ equity
1,479,717
1,497,609
Total liabilities and stockholders’ equity
$
18,890,961
$
18,909,549
The accompanying notes are an integral part
of these statements.
6
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Quarter Ended March 31,
2024
2023
(In thousands, except per share information)
Interest and dividend income:
Loans
$
237,129
$
210,636
Investment securities
24,122
27,110
Money market investments and interest-bearing cash accounts
7,254
4,650
Total interest and dividend income
268,505
242,396
Interest expense:
Deposits
63,025
29,885
Short-term securities sold under agreements to repurchase
-
1,069
Advances from the FHLB:
Short-term
-
4,341
Long-term
5,610
2,835
Other long-term borrowings
3,350
3,381
Total interest expense
71,985
41,511
Net interest income
196,520
200,885
Provision for credit losses - expense (benefit):
Loans and finance leases
12,917
16,256
Unfunded loan commitments
281
(105)
Debt securities
(1,031)
(649)
Provision for credit losses - expense
12,167
15,502
Net interest income after provision for credit losses
184,353
185,383
Non-interest income:
Service charges and fees on deposit accounts
9,662
9,541
Mortgage banking activities
2,882
2,812
Insurance commission income
5,507
4,847
Card and processing income
11,312
10,918
Other non-interest income
4,620
4,400
Total non-interest income
33,983
32,518
Non-interest expenses:
Employees’ compensation and benefits
59,506
56,422
Occupancy and equipment
21,381
21,186
Business promotion
3,842
3,975
Professional service fees
12,676
11,973
Taxes, other than income taxes
5,129
5,112
FDIC deposit insurance
3,102
2,133
Net gain on OREO operations
(1,452)
(1,996)
Credit and debit card processing expenses
5,751
5,318
Communications
2,097
2,216
Other non-interest expenses
8,891
8,929
Total non-interest expenses
120,923
115,268
Income before income taxes
97,413
102,633
Income tax expense
23,955
31,935
Net income
$
73,458
$
70,698
Net income attributable to common stockholders
$
73,458
$
70,698
Net income per common share:
Basic
$
0.44
$
0.39
Diluted
$
0.44
$
0.39
The accompanying notes are an integral part
of these statements.
7
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Quarter Ended March 31,
2024
2023
(In thousands)
Net income
$
73,458
$
70,698
Other comprehensive (loss) income, net of tax:
Available-for-sale debt securities:
Net unrealized holding (losses) gains on debt securities
(1)
(15,065)
87,228
Other comprehensive (loss) income for the period, net of tax
(15,065)
87,228
Total comprehensive income
$
58,393
$
157,926
(1)
Net unrealized holding (losses) gains on available-for-sale
debt securities have no tax effect because securities
are either tax-exempt, held by an International
Banking Entity
("IBE"), or have a full deferred tax asset
valuation allowance.
The accompanying notes are an integral part
of these statements.
8
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter ended March 31,
2024
2023
(In thousands)
Cash flows from operating activities:
Net income
$
73,458
$
70,698
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
4,680
5,080
Amortization of intangible assets
1,841
2,045
Provision for credit losses
12,167
15,502
Deferred income tax expense
2,384
1,564
Stock-based compensation
2,925
2,075
Unrealized (gain) loss on derivative instruments
(108)
3
Net gain on disposals or sales, and impairments of premises
and equipment and other assets
(33)
(8)
Net gain on sales of loans and loans held-for-sale valuation adjustments
(759)
(766)
Net amortization of discounts, premiums, and deferred loan fees
and costs
33
283
Originations and purchases of loans held for sale
(35,577)
(38,500)
Sales and repayments of loans held for sale
31,588
34,836
Amortization of broker placement fees
130
44
Net amortization of premiums and discounts on investment securities
874
630
Decrease in accrued interest receivable
4,503
8,566
Increase in accrued interest payable
4,567
3,752
(Increase) decrease in other assets
(909)
168
Increase in other liabilities
16,482
9,443
Net cash provided by operating activities
118,246
115,415
Cash flows from investing activities:
Net disbursements on loans held for investment
(156,118)
(71,193)
Proceeds from sales of loans held for investment
10,162
2,552
Proceeds from sales of repossessed assets
17,784
12,347
Proceeds from principal repayments and maturities of available-for-sale
debt securities
166,440
113,218
Proceeds from principal repayments and maturities of held-to-maturity
debt securities
5,339
6,652
Additions to premises and equipment
(4,140)
(1,689)
Proceeds from sales of premises and equipment and other assets
1,280
8
Net purchases of other investments securities
(1,737)
(11,360)
Proceeds from the settlement of insurance claims - investing activities
667
-
Net cash provided by investing activities
39,677
50,535
Cash flows from financing activities:
Net decrease in deposits
(57,585)
(92,354)
Net proceeds of short-term borrowings
-
47,849
Proceeds from long-term borrowings
-
300,000
Repurchase of outstanding common stock
(52,354)
(53,217)
Dividends paid on common stock
(26,629)
(25,132)
Net cash (used in) provided by financing activities
(136,568)
177,146
Net increase in cash and cash equivalents
21,355
343,096
Cash and cash equivalents at beginning of year
663,164
480,505
Cash and cash equivalents at end of period
$
684,519
$
823,601
Cash and cash equivalents include:
Cash and due from banks
$
680,734
$
822,542
Money market investments
3,785
1,059
$
684,519
$
823,601
The accompanying notes are an integral part of these statements.
9
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
Quarter Ended March 31,
2024
2023
(In thousands, except per share information)
Common Stock
$
22,366
$
22,366
Additional Paid-In Capital:
Balance at beginning of period
965,707
970,722
Stock-based compensation expense
2,925
2,075
Common stock reissued under stock-based compensation plan
(9,336)
(13,139)
Restricted stock forfeited
23
254
Balance at end of period
959,319
959,912
Retained Earnings:
Balance at beginning of period
1,846,112
1,644,209
Impact of adoption of Accounting Standards Update (“ASU”)
2022-02
-
(1,357)
Net income
73,458
70,698
Dividends on common stock ($
0.16
per share and $
0.14
per share for the quarters ended
March 31, 2024 and 2023, respectively)
(26,856)
(25,374)
Balance at end of period
1,892,714
1,688,176
Treasury Stock (at cost):
Balance at beginning of period
(697,406)
(506,979)
Common stock repurchases (See Note 13)
(52,354)
(53,217)
Common stock reissued under stock-based compensation plan
9,336
13,139
Restricted stock forfeited
(23)
(254)
Balance at end of period
(740,447)
(547,311)
Accumulated Other Comprehensive Loss, net of tax:
Balance at beginning of period
(639,170)
(804,778)
Other comprehensive (loss) income, net of tax
(15,065)
87,228
Balance at end of period
(654,235)
(717,550)
Total stockholders’ equity
$
1,479,717
$
1,405,593
The accompanying notes are an integral part of these statements.
10
FIRST BANCORP.
INDEX TO NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
PAGE
Note 1 –
Basis of Presentation and Significant Accounting Policies
11
Note 2 –
Debt Securities
12
Note 3 –
Loans Held for Investment
21
Note 4
–
Allowance for Credit Losses for Loans and Finance Leases
40
Note 5 –
Other Real Estate Owned
43
Note 6 –
Goodwill and Other Intangibles
44
Note 7 –
Non-Consolidated Variable Interest Entities (“VIEs”) and Servicing Assets
45
Note 8 –
Deposits
49
Note 9 –
Advances from the Federal Home Loan Bank (“FHLB”)
50
Note 10 –
Other Long-Term Borrowings
50
Note 11 –
Earnings per Common Share
51
Note 12 –
Stock-Based Compensation
52
Note 13 –
Stockholders’ Equity
55
Note 14 –
Accumulated Other Comprehensive Loss
57
Note 15 –
Employee Benefit Plans
57
Note 16 –
Income Taxes
58
Note 17
–
Fair Value
60
Note 18
–
Revenue from Contracts with Customers
64
Note 19 –
Segment Information
66
Note 20 –
Supplemental Statement of Cash Flows Information
68
Note 21 –
Regulatory Matters, Commitments, and Contingencies
69
Note 22 –
First BanCorp. (Holding Company Only) Financial Information
73
11
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS
(Unaudited)
NOTE 1 – BASIS
OF PRESENTATION AND
SIGNIFICANT
ACCOUNTING
POLICIES
The
Consolidated
Financial
Statements
(unaudited)
for
the
quarter
ended
March
31,
2024
(the
“unaudited
consolidated
financial
statements”)
of
First
BanCorp.
(the
“Corporation”)
have
been
prepared
in
conformity
with
the
accounting
policies
stated
in
the
Corporation’s Audited Consolidated Financial Statements for the fiscal year ended December
31, 2023 (the “audited consolidated financial
statements”) included in the 2023 Annual Report on Form 10-K, as updated by the information contained in this report. Certain information
and note disclosures normally included in
the financial statements prepared in
accordance with generally accepted accounting
principles in
the United States of America (“GAAP”) have been
condensed or omitted from these statements pursuant to the
rules and regulations of the
SEC and,
accordingly, these
financial statements
should be
read in
conjunction with
the audited
consolidated financial
statements, which
are included
in the 2023
Annual Report on
Form 10-K. All
adjustments (consisting
only of normal
recurring adjustments) that
are, in the
opinion of management, necessary for
a fair presentation of the
statement of financial position, results of
operations and cash flows for
the
interim periods
have
been reflected.
All
significant
intercompany
accounts
and
transactions
have
been
eliminated
in consolidation.
The
Corporation evaluates subsequent events through the date of
filing with the SEC.
The results of operations for the
quarter ended March 31,
2024 are not necessarily
indicative of the results to
be expected for the entire
year.
Adoption of New Accounting Requirements
The Corporation was not impacted by the adoption
of the following ASU during 2024:
●
ASU
2023-02,
“Investments
-
Equity
Method
and
Joint
Ventures
(Topic
323):
Accounting
for
Investments
in
Tax
Credit
Structures Using the Proportional Amortization Method”
●
ASU 2023-01, “Leases (Topic 842):
Common Control Arrangements”
●
ASU 2022-03,
“Fair Value
Measurements (Topic
820): Fair
Value Measurement
of Equity
Securities Subject
to Contractual
Sale Restrictions”
Recently Issued Accounting Standards Not Yet
Effective or Not Yet
Adopted
The Corporation does not expect to be impacted by the following ASUs
issued during 2024 that are not yet effective
or have not yet been
adopted:
●
ASU 2024-02, “Codification Improvements – Amendments to
Remove References to the Concepts Statements”
●
ASU 2024-01, “Compensation – Stock Compensation (Topic 718):
Stock Application of Profits Interest and Similar Awards”
For
other
issued
accounting
standards
not
yet
effective
or
not
yet
adopted,
see
Note
1
–
“Nature
of
Business
and
Summary
of
Significant Accounting Policies”, to the audited consolidated financial
statements included in the 2023 Annual Report on Form 10-K.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
12
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, 2024 and
December 31, 2023 were as follows:
March 31, 2024
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
$
100,519
$
-
$
3,144
$
-
$
97,375
0.70
After 1 to 5 years
19,881
-
1,188
-
18,693
0.65
U.S. government-sponsored entities' (“GSEs”) obligations:
Due within one year
683,768
-
17,920
-
665,848
0.90
After 1 to 5 years
1,698,700
59
128,048
-
1,570,711
0.82
After 5 to 10 years
8,850
-
754
-
8,096
2.64
After 10 years
8,762
3
4
-
8,761
5.51
Puerto Rico government obligation:
After 10 years
(3)
3,112
-
1,235
326
1,551
-
United States and Puerto Rico government obligations
2,523,592
62
152,293
326
2,371,035
0.86
Mortgage-backed securities (“MBS”):
Residential MBS:
FHLMC certificates:
Due within one year
7
-
-
-
7
4.50
After 1 to 5 years
17,827
-
856
-
16,971
2.06
After 5 to 10 years
146,335
-
13,488
-
132,847
1.55
After 10 years
970,917
8
169,069
-
801,856
1.41
1,135,086
8
183,413
-
951,681
1.44
GNMA certificates:
Due within one year
281
-
3
-
278
3.25
After 1 to 5 years
14,493
-
789
-
13,704
1.11
After 5 to 10 years
26,563
4
2,387
-
24,180
1.65
After 10 years
201,129
165
25,748
-
175,546
2.60
242,466
169
28,927
-
213,708
2.41
FNMA certificates:
After 1 to 5 years
29,694
-
1,411
-
28,283
2.11
After 5 to 10 years
284,547
-
24,926
-
259,621
1.73
After 10 years
1,016,944
32
161,363
-
855,613
1.36
1,331,185
32
187,700
-
1,143,517
1.46
Collateralized mortgage obligations (“CMOs”) issued
or guaranteed by the FHLMC, FNMA, and GNMA:
After 10 years
267,401
-
53,977
-
213,424
1.54
Private label:
After 5 to 10 years
400
-
93
2
305
8.44
After 10 years
6,496
-
1,963
114
4,419
7.58
6,896
-
2,056
116
4,724
7.63
Total Residential MBS
2,983,034
209
456,073
116
2,527,054
1.55
Commercial MBS:
After 1 to 5 years
44,443
2
7,044
-
37,401
2.18
After 5 to 10 years
22,252
-
2,785
-
19,467
2.16
After 10 years
122,164
-
29,942
-
92,222
1.36
Total Commercial MBS
188,859
2
39,771
-
149,090
1.64
Total MBS
3,171,893
211
495,844
116
2,676,144
1.55
Total available-for-sale debt securities
$
5,695,485
$
273
$
648,137
$
442
$
5,047,179
1.25
(1)
Excludes accrued interest receivable on available-for-sale debt securities that totaled $
10.2
million as of March 31, 2024 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 $
473
.0 million (amortized cost - $
552.3
million) that was pledged at the FHLB as collateral for borrowings and letters of credit as well as $
2.8
billion (amortized cost - $
3.1
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 (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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
13
December 31, 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
$
80,314
$
-
$
2,144
$
-
$
78,170
0.66
After 1 to 5 years
60,239
-
3,016
-
57,223
0.75
U.S. GSEs’ obligations:
Due within one year
542,847
-
15,832
-
527,015
0.77
After 1 to 5 years
1,899,620
49
135,347
-
1,764,322
0.86
After 5 to 10 years
8,850
-
687
-
8,163
2.64
After 10 years
8,891
8
2
-
8,897
5.49
Puerto Rico government obligation:
After 10 years
(3)
3,156
-
1,346
395
1,415
-
United States and Puerto Rico government obligations
2,603,917
57
158,374
395
2,445,205
0.85
MBS:
Residential MBS:
FHLMC certificates:
After 1 to 5 years
19,561
-
868
-
18,693
2.06
After 5 to 10 years
153,308
-
12,721
-
140,587
1.55
After 10 years
991,060
15
161,197
-
829,878
1.41
1,163,929
15
174,786
-
989,158
1.44
GNMA certificates:
Due within one year
254
-
3
-
251
3.27
After 1 to 5 years
16,882
-
872
-
16,010
1.19
After 5 to 10 years
27,916
8
2,247
-
25,677
1.62
After 10 years
206,254
87
22,786
-
183,555
2.57
251,306
95
25,908
-
225,493
2.38
FNMA certificates:
After 1 to 5 years
32,489
-
1,423
-
31,066
2.11
After 5 to 10 years
293,492
-
23,146
-
270,346
1.70
After 10 years
1,047,298
83
156,344
-
891,037
1.37
1,373,279
83
180,913
-
1,192,449
1.46
CMOs issued or guaranteed by the FHLMC, FNMA,
and GNMA:
After 10 years
273,539
-
52,263
-
221,276
1.54
Private label:
After 10 years
7,086
-
2,185
116
4,785
7.66
Total Residential MBS
3,069,139
193
436,055
116
2,633,161
1.55
Commercial MBS:
After 1 to 5 years
45,022
-
6,898
-
38,124
2.17
After 5 to 10 years
22,386
-
2,685
-
19,701
2.16
After 10 years
122,830
-
29,037
-
93,793
1.36
Total Commercial MBS
190,238
-
38,620
-
151,618
1.64
Total MBS
3,259,377
193
474,675
116
2,784,779
1.55
Total available-for-sale debt securities
$
5,863,294
$
250
$
633,049
$
511
$
5,229,984
1.24
(1)
Excludes accrued interest receivable on available-for-sale debt securities that totaled $
10.6
million as of December 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)
Includes $
477.9
million (amortized cost - $
527.2
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 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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
14
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 loss
on available-for-sale
debt securities
is presented
as part
of accumulated
other comprehensive
loss in
the consolidated
statements of financial condition.
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, 2024 and December 31, 2023. The tables also include debt securities for
which an ACL was recorded.
As of March 31,2024
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
$
4,238
$
5
$
2,354,777
$
151,053
$
2,359,015
$
151,058
Puerto Rico government obligation
-
-
1,551
1,235
(1)
1,551
1,235
MBS:
Residential MBS:
FHLMC
7
-
950,687
183,413
950,694
183,413
GNMA
3,452
20
195,424
28,907
198,876
28,927
FNMA
3,963
11
1,134,624
187,689
1,138,587
187,700
CMOs issued or guaranteed by the FHLMC,
FNMA, and GNMA
-
-
211,178
53,977
211,178
53,977
Private label
-
-
4,724
2,056
(1)
4,724
2,056
Commercial MBS
5,346
65
137,794
39,706
143,140
39,771
$
17,006
$
101
$
4,990,759
$
648,036
$
5,007,765
$
648,137
(1)
Unrealized losses do not include the credit loss component recorded
as part of the ACL. As of March 31,2024, the PRHFA
bond and private label MBS had an ACL of $
0.3
million and
$
0.1
million, respectively.
As of December 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)
U.S. Treasury and U.S. GSEs’
obligations
$
2,544
$
2
$
2,428,784
$
157,026
$
2,431,328
$
157,028
Puerto Rico government obligation
-
-
1,415
1,346
(1)
1,415
1,346
MBS:
Residential MBS:
FHLMC
9
-
988,092
174,786
988,101
174,786
GNMA
12,257
100
202,390
25,808
214,647
25,908
FNMA
-
-
1,183,275
180,913
1,183,275
180,913
CMOs issued or guaranteed by the FHLMC,
FNMA, and GNMA
-
-
221,276
52,263
221,276
52,263
Private label
-
-
4,785
2,185
(1)
4,785
2,185
Commercial MBS
11,370
18
140,248
38,602
151,618
38,620
$
26,180
$
120
$
5,170,265
$
632,929
$
5,196,445
$
633,049
(1)
Unrealized losses do not include the credit loss component recorded
as part of the ACL. As of December 31, 2023, the
PRHFA bond and private label MBS
had an ACL of $
0.4
million
and $
0.1
million, respectively.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
15
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,
2024, 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
March 31,
2024, 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 17 –
“Fair Value
”
for the significant
assumptions
used in the valuation of the private label MBS as of March 31, 2024 and December
31 2023.
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
of the ACL
on available-for-sale
debt securities by
major security
type for
the quarters
ended March 31, 2024 and 2023:
Quarter Ended March 31,
2024
2023
Private label
MBS
Puerto Rico
Government
Obligation
Total
Private label
MBS
Puerto Rico
Government
Obligation
Total
(In thousands)
Beginning balance
$
116
$
395
$
511
$
83
$
375
$
458
Provision for credit losses – benefit
-
(69)
(69)
-
(9)
(9)
ACL on available-for-sale debt securities
$
116
$
326
$
442
$
83
$
366
$
449
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
16
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, 2024 and
December 31, 2023 were as follows:
March 31,2024
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
$
3,172
$
4
$
16
$
3,160
$
36
9.30
After 1 to 5 years
51,327
713
831
51,209
460
7.74
After 5 to 10 years
36,034
3,135
257
38,912
450
7.06
After 10 years
16,595
23
16
16,602
289
8.81
Total Puerto Rico municipal bonds
107,128
3,875
1,120
109,883
1,235
7.72
MBS:
Residential MBS:
FHLMC certificates:
After 5 to 10 years
15,337
-
626
14,711
-
3.03
After 10 years
18,165
-
1,025
17,140
-
4.33
33,502
-
1,651
31,851
-
3.74
GNMA certificates:
After 10 years
15,649
-
910
14,739
-
3.30
FNMA certificates:
After 10 years
66,109
-
3,504
62,605
-
4.18
CMOs issued or guaranteed by
FHLMC, FNMA, and GNMA:
After 10 years
27,417
-
1,584
25,833
-
3.49
Total Residential MBS
142,677
-
7,649
135,028
-
3.85
Commercial MBS:
After 1 to 5 years
9,397
-
334
9,063
-
3.48
After 10 years
90,128
-
5,982
84,146
-
3.15
Total Commercial MBS
99,525
-
6,316
93,209
-
3.18
Total MBS
242,202
-
13,965
228,237
-
3.57
Total held-to-maturity debt securities
$
349,330
$
3,875
$
15,085
$
338,120
$
1,235
4.85
(1)
Excludes accrued interest receivable on held-to-maturity debt securities that totaled $
2.8
million as of March 31,2024 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 $
126.2
million (fair value - $
125.5
million) that serves as collateral for the uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
17
December 31, 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
$
3,165
$
8
$
38
$
3,135
$
50
9.30
After 1 to 5 years
51,230
994
710
51,514
1,266
7.78
After 5 to 10 years
36,050
3,540
210
39,380
604
7.13
After 10 years
16,595
269
-
16,864
277
8.87
Total Puerto Rico municipal bonds
107,040
4,811
958
110,893
2,197
7.78
MBS:
Residential MBS:
FHLMC certificates:
After 5 to 10 years
16,469
-
556
15,913
-
3.03
After 10 years
18,324
-
714
17,610
-
4.32
34,793
-
1,270
33,523
-
3.71
GNMA certificates:
After 10 years
16,265
-
789
15,476
-
3.32
FNMA certificates:
After 10 years
67,271
-
2,486
64,785
-
4.18
CMOs issued or guaranteed by
FHLMC, FNMA, and GNMA:
After 10 years
28,139
-
1,274
26,865
-
3.49
Total Residential MBS
146,468
-
5,819
140,649
-
3.84
Commercial MBS:
After 1 to 5 years
9,444
-
297
9,147
-
3.48
After 10 years
91,226
-
5,783
85,443
-
3.15
Total Commercial MBS
100,670
-
6,080
94,590
-
3.18
Total MBS
247,138
-
11,899
235,239
-
3.57
Total held-to-maturity debt securities
$
354,178
$
4,811
$
12,857
$
346,132
$
2,197
4.84
(1)
Excludes accrued interest receivable on held-to-maturity debt securities that totaled $
4.8
million as of December 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)
Includes $
126.6
million (fair value - $
125.9
million) that serves as collateral for the uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
18
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, 2024 and December 31, 2023, including debt securities for which
an ACL was recorded:
As of March 31,2024
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
$
-
$
-
$
31,125
$
1,120
$
31,125
$
1,120
MBS:
Residential MBS:
FHLMC certificates
-
-
31,851
1,651
31,851
1,651
GNMA certificates
-
-
14,739
910
14,739
910
FNMA certificates
-
-
62,605
3,504
62,605
3,504
CMOs issued or guaranteed by FHLMC,
FNMA, and GNMA
-
-
25,833
1,584
25,833
1,584
Commercial MBS
-
-
93,209
6,316
93,209
6,316
Total held-to-maturity debt securities
$
-
$
-
$
259,362
$
15,085
$
259,362
$
15,085
As of December 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)
Puerto Rico municipal bonds
$
-
$
-
$
34,682
$
958
$
34,682
$
958
MBS:
Residential MBS:
FHLMC certificates
-
-
33,523
1,270
33,523
1,270
GNMA certificates
-
-
15,476
789
15,476
789
FNMA certificates
-
-
64,785
2,486
64,785
2,486
CMOs issued or guaranteed by FHLMC,
FNMA, and GNMA
-
-
26,865
1,274
26,865
1,274
Commercial MBS
-
-
94,590
6,080
94,590
6,080
Total held-to-maturity debt securities
$
-
$
-
$
269,921
$
12,857
$
269,921
$
12,857
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
19
The
Corporation
classifies
the
held-to-maturity
debt
securities
portfolio
into
the
following
major
security
types:
MBS
by
GSEs
and
underlying collateral
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
financial statements included in the 2023 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, 2024. The ACL of Puerto Rico municipal bonds decreased to $
1.2
million as of March 31,
2024, from $
2.2
million as of December 31, 2023, mostly related to updated financial information
of a bond issuer received during the first
quarter
of 2024.
The
following
tables
present
the
activity
in
the
ACL
for
held-to-maturity
debt
securities
by
major
security
type
for
the
quarters
ended March 31, 2024 and 2023:
Puerto Rico Municipal Bonds
Quarter Ended March 31,
2024
2023
(In thousands)
Beginning balance
$
2,197
$
8,286
Provision for credit losses – benefit
(962)
(640)
ACL on held-to-maturity debt securities
$
1,235
$
7,646
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
March
31,
2024
and
December
31,
2023,
the
Corporation
had
no
outstanding
held-to-maturity
securities that
were
classified as cash and cash equivalents.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
20
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 ratings, see Note 3
– “Debt Securities,” to the
audited consolidated financial statements included in the 2023 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,
2024 and
December 31,
2023,
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 March 31, 2024
and
December
31,
2023.
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)
21
NOTE 3 – 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 March 31,
As of December 31,
2024
2023
(In thousands)
Puerto Rico and Virgin Islands region:
Residential mortgage loans, mainly secured by first mortgages
$
2,327,240
$
2,356,006
Construction loans
147,624
115,401
Commercial mortgage loans
1,769,247
1,790,637
Commercial and Industrial (“C&I loans”)
2,289,999
2,249,408
Consumer loans
3,674,220
3,651,770
Loans held for investment
$
10,208,330
$
10,163,222
Florida region:
Residential mortgage loans, mainly secured by first mortgages
$
474,347
$
465,720
Construction loans
89,664
99,376
Commercial mortgage loans
592,484
526,446
C&I loans
940,996
924,824
Consumer loans
5,627
5,895
Loans held for investment
$
2,103,118
$
2,022,261
Total:
Residential mortgage loans, mainly secured by first mortgages
$
2,801,587
$
2,821,726
Construction loans
237,288
214,777
Commercial mortgage loans
2,361,731
2,317,083
C&I loans
(1)
3,230,995
3,174,232
Consumer loans
3,679,847
3,657,665
Loans held for investment
(2)
12,311,448
12,185,483
ACL on loans and finance leases
(263,592)
(261,843)
Loans held for investment, net
$
12,047,856
$
11,923,640
(1)
As of March 31,2024 and December 31, 2023, includes $
774.0
million and $
787.5
million, respectively, of commercial loans that were secured by real estate and
for which the primary source of repayment at origination was
not dependent upon such real estate.
(2)
Includes accretable fair value net purchase discounts of $
23.7
million and $
24.7
million as of March 31,2024 and December 31, 2023, respectively.
Various
loans
were
assigned
as
collateral
for
borrowings,
government
deposits,
time
deposits
accounts,
and
related
unused
commitments.
The carrying
value of
loans pledged
as collateral
amounted to
$
4.8
billion and
$
4.6
billion as
of March
31, 2024
and
December
31,
2023,
respectively.
As
of
each
of
March
31,
2024
and
December
31,
2023,
loans
pledged
as
collateral
include
$
1.8
billion
that
were
pledged
at
the
FHLB
as
collateral
for
borrowings
and
letters
of
credit;
$
2.7
billion
that
were
pledged
at
the
FED
Discount
Window
as
collateral
for
borrowings,
compared
to
$
2.5
billion
as
of
December
31,
2023;
and
$
166.2
million
serve
as
collateral for the uninsured portion of government deposits, compared to $
166.9
million as of December 31, 2023
.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
22
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 March 31, 2024 and December 31, 2023 are as follows:
As of March 31,2024
Days Past Due and Accruing
Current
30-59
60-89
90+
(1) (2) (3)
Nonaccrual
(4)
Total loans held
for investment
Nonaccrual
Loans with no
ACL
(5)
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
FHA/VA government-guaranteed
loans
(1) (3) (6)
$
69,170
$
-
$
2,220
$
28,265
$
-
$
99,655
$
-
Conventional residential mortgage loans
(2) (6)
2,628,748
-
30,195
10,304
32,685
2,701,932
1,700
Commercial loans:
Construction loans
233,506
-
-
2,284
1,498
237,288
971
Commercial mortgage loans
(2) (6)
2,347,395
708
713
939
11,976
2,361,731
6,865
C&I loans
3,194,816
3,134
149
7,829
25,067
3,230,995
1,644
Consumer loans:
Auto loans
1,880,077
49,811
9,056
-
15,132
1,954,076
388
Finance leases
852,320
14,312
2,551
-
2,744
871,927
87
Personal loans
368,984
5,624
2,887
-
2,030
379,525
-
Credit cards
306,767
4,760
3,641
7,894
-
323,062
-
Other consumer loans
145,519
2,361
1,544
-
1,833
151,257
7
Total loans held for investment
$
12,027,302
$
80,710
$
52,956
$
57,515
$
92,965
$
12,311,448
$
11,662
(1)
It is the Corporation’s policy to report delinquent Federal Housing Authority (“FHA”)/U.S. Department of Veterans
Affairs (“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 $
13.7
million of residential mortgage loans guaranteed by the FHA that were over 15 months delinquent as of March 31,2024.
(2)
Includes purchased credit deteriorated (“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 $
8.6
million as of
March 31, 2024 ($
7.7
million conventional residential mortgage loans and $
0.9
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 Government National Mortgage Association ("GNMA") securities, amounting to $
8.8
million as of March 31,2024. 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 $
19.0
million as of March 31,2024, primarily nonaccrual C&I and residential mortgage loans.
(5)
There were
no
nonaccrual loans with no ACL in the Florida region as of March 31,2024.
(6)
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 March 31, 2024 amounted to $
7.4
million, $
72.7
million and $
1.9
million,
respectively.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
23
As of December 31, 2023
Days Past Due and Accruing
Current
30-59
60-89
90+
(1)(2)(3)
Nonaccrual
(4)
Total loans held
for investment
Nonaccrual
Loans with no
ACL
(5)
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
FHA/VA government-guaranteed
loans
(1) (3) (6)
$
68,332
$
-
$
2,592
$
29,312
$
-
$
100,236
$
-
Conventional residential mortgage loans
(2) (6)
2,644,344
-
33,878
11,029
32,239
2,721,490
1,742
Commercial loans:
Construction loans
210,911
-
-
2,297
1,569
214,777
972
Commercial mortgage loans
(2) (6)
2,303,753
17
-
1,108
12,205
2,317,083
2,536
C&I loans
3,148,254
1,130
1,143
8,455
15,250
3,174,232
1,687
Consumer loans:
Auto loans
1,846,652
60,283
13,753
-
15,568
1,936,256
4
Finance leases
837,881
13,786
1,861
-
3,287
856,815
12
Personal loans
370,746
5,873
2,815
-
1,841
381,275
-
Credit cards
313,360
5,012
3,589
7,251
-
329,212
-
Other consumer loans
147,278
3,084
1,997
-
1,748
154,107
-
Total loans held for investment
$
11,891,511
$
89,185
$
61,628
$
59,452
$
83,707
$
12,185,483
$
6,953
(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 $
15.4
million of residential mortgage loans
guaranteed by the FHA that were over 15 months delinquent as of December 31, 2023.
(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 $
8.3
million as of December 31, 2023 ($
7.4
million conventional
residential mortgage loans and $
0.9
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 $
7.9
million as of December 31, 2023. 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 $
8.0
million as of December 31, 2023, primarily nonaccrual residential mortgage loans and C&I loans.
(5)
There were
no
nonaccrual
loans with no ACL in the Florida region as of December 31, 2023.
(6)
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, 2023 amounted to $
8.2
million, $
69.9
million, and $
1.1
million,
respectively.
When
a
loan
is placed
in
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 $
0.8
million and $
0.6
million for the
quarters ended March
31, 2024 and
2023, respectively.
For the quarters
ended March 31,
2024 and 2023, the cash interest income recognized on nonaccrual loans amounted
to $
0.6
million and $
0.5
million, respectively.
As of
March 31,
2024, the
recorded investment
on residential
mortgage loans
collateralized by
residential real
estate property
that
were in
the process
of foreclosure
amounted to
$
37.7
million, including
$
14.8
million of
FHA/VA
government-guaranteed
mortgage
loans, and
$
5.3
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,”
to the audited
consolidated financial statements
included in the 2023
Annual Report on Form
10-K.
For residential mortgage and consumer loans, the Corporation evaluates credit
quality based on its interest accrual status.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
24
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 March
31, 2024, the gross charge
-offs for the quarter
ended March 31,
2024 by
portfolio
classes and
by origination
year,
and the
amortized
cost of
commercial and
construction loans
by portfolio
classes
based on the internal credit-risk category as of December 31, 2023, were
as follows:
As of March 31,2024
Puerto Rico and Virgin Islands Regions
Term Loans
As of
December 31,
2023
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
Risk Ratings:
Pass
$
9,399
$
72,010
$
40,926
$
16,381
$
-
$
3,463
$
-
$
142,179
$
113,170
Criticized:
Special Mention
-
-
3,300
-
-
-
-
3,300
-
Substandard
-
-
-
-
-
2,145
-
2,145
2,231
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total construction loans
$
9,399
$
72,010
$
44,226
$
16,381
$
-
$
5,608
$
-
$
147,624
$
115,401
Charge-offs on construction loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
COMMERCIAL MORTGAGE
Risk Ratings:
Pass
$
17,540
$
175,084
$
378,258
$
133,512
$
316,526
$
573,570
$
3,746
$
1,598,236
$
1,618,404
Criticized:
Special Mention
-
-
4,344
-
30,169
111,231
-
145,744
146,626
Substandard
-
-
121
-
-
25,146
-
25,267
25,607
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total commercial mortgage loans
$
17,540
$
175,084
$
382,723
$
133,512
$
346,695
$
709,947
$
3,746
$
1,769,247
$
1,790,637
Charge-offs on commercial mortgage loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
C&I
Risk Ratings:
Pass
$
64,966
$
417,434
$
293,367
$
145,486
$
153,380
$
373,156
$
742,557
$
2,190,346
$
2,173,939
Criticized:
Special Mention
-
538
-
10,981
-
664
52,736
64,919
40,376
Substandard
403
1
-
3,784
580
28,693
1,273
34,734
35,093
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total C&I loans
$
65,369
$
417,973
$
293,367
$
160,251
$
153,960
$
402,513
$
796,566
$
2,289,999
$
2,249,408
Charge-offs on C&I loans
$
-
$
-
$
-
$
-
$
-
$
-
$
152
$
152
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
25
As of March 31,2024
Term Loans
As of
December 31,
2023
Florida Region
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized Cost
Basis
Total
Total
(In thousands)
CONSTRUCTION
Risk Ratings:
Pass
$
-
$
1,592
$
37,231
$
39,360
$
-
$
-
$
11,481
$
89,664
$
99,376
Criticized:
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total construction loans
$
-
$
1,592
$
37,231
$
39,360
$
-
$
-
$
11,481
$
89,664
$
99,376
Charge-offs on construction loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
COMMERCIAL MORTGAGE
Risk Ratings:
Pass
$
39,429
$
28,979
$
189,840
$
63,181
$
39,557
$
187,173
$
24,621
$
572,780
$
525,453
Criticized:
Special Mention
-
-
12,355
-
-
6,356
-
18,711
-
Substandard
-
-
-
-
993
-
-
993
993
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total commercial mortgage loans
$
39,429
$
28,979
$
202,195
$
63,181
$
40,550
$
193,529
$
24,621
$
592,484
$
526,446
Charge-offs on commercial mortgage loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
C&I
Risk Ratings:
Pass
$
31,037
$
143,301
$
227,770
$
184,808
$
54,357
$
125,159
$
149,521
$
915,953
$
879,195
Criticized:
Special Mention
-
-
-
-
-
11,657
-
11,657
42,046
Substandard
-
-
-
-
-
11,808
-
11,808
3,583
Doubtful
-
-
-
-
-
1,578
-
1,578
-
Loss
-
-
-
-
-
-
-
-
-
Total C&I loans
$
31,037
$
143,301
$
227,770
$
184,808
$
54,357
$
150,202
$
149,521
$
940,996
$
924,824
Charge-offs on C&I loans
$
-
$
-
$
-
$
-
$
-
$
48
$
259
$
307
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
26
As of March 31,2024
Term Loans
As of
December 31,
2023
Total
Amortized Cost Basis by Origination Year (1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
Risk Ratings:
Pass
$
9,399
$
73,602
$
78,157
$
55,741
$
-
$
3,463
$
11,481
$
231,843
$
212,546
Criticized:
Special Mention
-
-
3,300
-
-
-
-
3,300
-
Substandard
-
-
-
-
-
2,145
-
2,145
2,231
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total construction loans
$
9,399
$
73,602
$
81,457
$
55,741
$
-
$
5,608
$
11,481
$
237,288
$
214,777
Charge-offs on construction loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
COMMERCIAL MORTGAGE
Risk Ratings:
Pass
$
56,969
$
204,063
$
568,098
$
196,693
$
356,083
$
760,743
$
28,367
$
2,171,016
$
2,143,857
Criticized:
Special Mention
-
-
16,699
-
30,169
117,587
-
164,455
146,626
Substandard
-
-
121
-
993
25,146
-
26,260
26,600
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total commercial mortgage loans
$
56,969
$
204,063
$
584,918
$
196,693
$
387,245
$
903,476
$
28,367
$
2,361,731
$
2,317,083
Charge-offs on commercial mortgage loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
C&I
Risk Ratings:
Pass
$
96,003
$
560,735
$
521,137
$
330,294
$
207,737
$
498,315
$
892,078
$
3,106,299
$
3,053,134
Criticized:
Special Mention
-
538
-
10,981
-
12,321
52,736
76,576
82,422
Substandard
403
1
-
3,784
580
40,501
1,273
46,542
38,676
Doubtful
-
-
-
-
-
1,578
-
1,578
-
Loss
-
-
-
-
-
-
-
-
-
Total C&I loans
$
96,406
$
561,274
$
521,137
$
345,059
$
208,317
$
552,715
$
946,087
$
3,230,995
$
3,174,232
Charge-offs on C&I loans
$
-
$
-
$
-
$
-
$
-
$
48
$
411
$
459
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
27
The following
tables present the
amortized cost of
residential mortgage
loans by portfolio
classes and by
origination year
based on
accrual status as of March 31, 2024
,
the gross charge-offs for
the quarter ended March 31, 2024 by
origination year, and the
amortized
cost of residential mortgage loans by portfolio classes based on accrual
status as of December 31, 2023:
As of March 31,2024
As of
December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Puerto Rico and Virgin Islands Regions:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
-
$
615
$
676
$
1,368
$
638
$
95,657
$
-
$
98,954
$
99,293
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
government-guaranteed loans
$
-
$
615
$
676
$
1,368
$
638
$
95,657
$
-
$
98,954
$
99,293
Conventional residential mortgage loans
Accrual Status:
Performing
$
30,350
$
170,121
$
161,045
$
66,738
$
28,955
$
1,746,863
$
-
$
2,204,072
$
2,231,701
Non-Performing
-
-
68
-
-
24,146
-
24,214
25,012
Total conventional residential mortgage loans
$
30,350
$
170,121
$
161,113
$
66,738
$
28,955
$
1,771,009
$
-
$
2,228,286
$
2,256,713
Total
Accrual Status:
Performing
$
30,350
$
170,736
$
161,721
$
68,106
$
29,593
$
1,842,520
$
-
$
2,303,026
$
2,330,994
Non-Performing
-
-
68
-
-
24,146
-
24,214
25,012
Total residential mortgage loans
$
30,350
$
170,736
$
161,789
$
68,106
$
29,593
$
1,866,666
$
-
$
2,327,240
$
2,356,006
Charge-offs on residential mortgage loans
$
-
$
-
$
-
$
-
$
-
$
516
$
-
$
516
(1)
Excludes accrued interest receivable.
As of March 31,2024
As of
December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Florida Region:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
701
$
-
$
701
$
943
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
government-guaranteed loans
$
-
$
-
$
-
$
-
$
-
$
701
$
-
$
701
$
943
Conventional residential mortgage loans
Accrual Status:
Performing
$
18,525
$
88,674
$
76,967
$
44,602
$
28,939
$
207,468
$
-
$
465,175
$
457,550
Non-Performing
-
-
248
-
-
8,223
-
8,471
7,227
Total conventional residential mortgage loans
$
18,525
$
88,674
$
77,215
$
44,602
$
28,939
$
215,691
$
-
$
473,646
$
464,777
Total
Accrual Status:
Performing
$
18,525
$
88,674
$
76,967
$
44,602
$
28,939
$
208,169
$
-
$
465,876
$
458,493
Non-Performing
-
-
248
-
-
8,223
-
8,471
7,227
Total residential mortgage loans
$
18,525
$
88,674
$
77,215
$
44,602
$
28,939
$
216,392
$
-
$
474,347
$
465,720
Charge-offs on residential mortgage loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
28
As of March 31,2024
As of
December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Total:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
-
$
615
$
676
$
1,368
$
638
$
96,358
$
-
$
99,655
$
100,236
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
government-guaranteed loans
$
-
$
615
$
676
$
1,368
$
638
$
96,358
$
-
$
99,655
$
100,236
Conventional residential mortgage loans
Accrual Status:
Performing
$
48,875
$
258,795
$
238,012
$
111,340
$
57,894
$
1,954,331
$
-
$
2,669,247
$
2,689,251
Non-Performing
-
-
316
-
-
32,369
-
32,685
32,239
Total conventional residential mortgage loans
$
48,875
$
258,795
$
238,328
$
111,340
$
57,894
$
1,986,700
$
-
$
2,701,932
$
2,721,490
Total
Accrual Status:
Performing
$
48,875
$
259,410
$
238,688
$
112,708
$
58,532
$
2,050,689
$
-
$
2,768,902
$
2,789,487
Non-Performing
-
-
316
-
-
32,369
-
32,685
32,239
Total residential mortgage loans
$
48,875
$
259,410
$
239,004
$
112,708
$
58,532
$
2,083,058
$
-
$
2,801,587
$
2,821,726
Charge-offs on residential mortgage loans
$
-
$
-
$
-
$
-
$
-
$
516
$
-
$
516
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
29
The
following
tables present
the
amortized
cost
of
consumer
loans
by
portfolio
classes
and
by origination
year
based on
accrual
status as of
March 31,
2024, the
gross charge-offs
for the quarter
ended March
31, 2024 by
portfolio classes
and by
origination year,
and the amortized cost of consumer loans by portfolio classes based on accrual status as of
December 31,2023:
As of March 31, 2024
As of
December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Puerto Rico and Virgin Islands Regions:
Auto loans
Accrual Status:
Performing
$
161,277
$
598,793
$
498,696
$
354,754
$
161,557
$
163,146
$
-
$
1,938,223
$
1,919,583
Non-Performing
-
3,437
3,664
2,810
1,374
3,842
-
15,127
15,556
Total auto loans
$
161,277
$
602,230
$
502,360
$
357,564
$
162,931
$
166,988
$
-
$
1,953,350
$
1,935,139
Charge-offs on auto loans
$
-
$
2,724
$
3,060
$
1,802
$
559
$
1,211
$
-
$
9,356
Finance leases
Accrual Status:
Performing
$
67,120
$
301,479
$
234,744
$
142,589
$
59,904
$
63,347
$
-
$
869,183
$
853,528
Non-Performing
-
391
766
410
280
897
-
2,744
3,287
Total finance leases
$
67,120
$
301,870
$
235,510
$
142,999
$
60,184
$
64,244
$
-
$
871,927
$
856,815
Charge-offs on finance leases
$
-
$
617
$
1,000
$
403
$
182
$
394
$
-
$
2,596
Personal loans
Accrual Status:
Performing
$
37,408
$
157,655
$
106,185
$
27,959
$
13,945
$
34,032
$
-
$
377,184
$
379,161
Non-Performing
-
558
855
236
93
288
-
2,030
1,841
Total personal loans
$
37,408
$
158,213
$
107,040
$
28,195
$
14,038
$
34,320
$
-
$
379,214
$
381,002
Charge-offs on personal loans
$
-
$
1,342
$
2,778
$
533
$
232
$
573
$
-
$
5,458
Credit cards
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
323,062
$
323,062
$
329,212
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
323,062
$
323,062
$
329,212
Charge-offs on credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
5,995
$
5,995
Other consumer loans
Accrual Status:
Performing
$
18,852
$
69,221
$
27,159
$
8,387
$
5,003
$
7,534
$
8,706
$
144,862
$
147,913
Non-Performing
-
881
448
122
48
173
133
1,805
1,689
Total other consumer loans
$
18,852
$
70,102
$
27,607
$
8,509
$
5,051
$
7,707
$
8,839
$
146,667
$
149,602
Charge-offs on other consumer loans
$
2
$
2,400
$
1,672
$
403
$
99
$
149
$
175
$
4,900
Total
Accrual Status:
Performing
$
284,657
$
1,127,148
$
866,784
$
533,689
$
240,409
$
268,059
$
331,768
$
3,652,514
$
3,629,397
Non-Performing
-
5,267
5,733
3,578
1,795
5,200
133
21,706
22,373
Total consumer loans
$
284,657
$
1,132,415
$
872,517
$
537,267
$
242,204
$
273,259
$
331,901
$
3,674,220
$
3,651,770
Charge-offs on total consumer loans
$
2
$
7,083
$
8,510
$
3,141
$
1,072
$
2,327
$
6,170
$
28,305
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
30
As of March 31, 2024
As of
December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Florida Region:
Auto loans
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
721
$
-
$
721
$
1,105
Non-Performing
-
-
-
-
-
5
-
5
12
Total auto loans
$
-
$
-
$
-
$
-
$
-
$
726
$
-
$
726
$
1,117
Charge-offs on auto loans
$
-
$
-
$
-
$
-
$
-
$
59
$
-
$
59
Finance leases
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total finance leases
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Charge-offs on finance leases
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Personal loans
Accrual Status:
Performing
$
190
$
50
$
-
$
71
$
-
$
-
$
-
$
311
$
273
Non-Performing
-
-
-
-
-
-
-
-
-
Total personal loans
$
190
$
50
$
-
$
71
$
-
$
-
$
-
$
311
$
273
Charge-offs on personal loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Credit cards
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Charge-offs on credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Other consumer loans
Accrual Status:
Performing
$
55
$
54
$
46
$
221
$
324
$
2,155
$
1,707
$
4,562
$
4,446
Non-Performing
-
-
-
-
-
18
10
28
59
Total other consumer loans
$
55
$
54
$
46
$
221
$
324
$
2,173
$
1,717
$
4,590
$
4,505
Charge-offs on other consumer loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total
Accrual Status:
Performing
$
245
$
104
$
46
$
292
$
324
$
2,876
$
1,707
$
5,594
$
5,824
Non-Performing
-
-
-
-
-
23
10
33
71
Total consumer loans
$
245
$
104
$
46
$
292
$
324
$
2,899
$
1,717
$
5,627
$
5,895
Charge-offs on total consumer loans
$
-
$
-
$
-
$
-
$
-
$
59
$
-
$
59
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
31
As of March 31, 2024
As of
December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Total:
Auto loans
Accrual Status:
Performing
$
161,277
$
598,793
$
498,696
$
354,754
$
161,557
$
163,867
$
-
$
1,938,944
$
1,920,688
Non-Performing
-
3,437
3,664
2,810
1,374
3,847
-
15,132
15,568
Total auto loans
$
161,277
$
602,230
$
502,360
$
357,564
$
162,931
$
167,714
$
-
$
1,954,076
$
1,936,256
Charge-offs on auto loans
$
-
$
2,724
$
3,060
$
1,802
$
559
$
1,270
$
-
$
9,415
Finance leases
Accrual Status:
Performing
$
67,120
$
301,479
$
234,744
$
142,589
$
59,904
$
63,347
$
-
$
869,183
$
853,528
Non-Performing
-
391
766
410
280
897
-
2,744
3,287
Total finance leases
$
67,120
$
301,870
$
235,510
$
142,999
$
60,184
$
64,244
$
-
$
871,927
$
856,815
Charge-offs on finance leases
$
-
$
617
$
1,000
$
403
$
182
$
394
$
-
$
2,596
Personal loans
Accrual Status:
Performing
$
37,598
$
157,705
$
106,185
$
28,030
$
13,945
$
34,032
$
-
$
377,495
$
379,434
Non-Performing
-
558
855
236
93
288
-
2,030
1,841
Total personal loans
$
37,598
$
158,263
$
107,040
$
28,266
$
14,038
$
34,320
$
-
$
379,525
$
381,275
Charge-offs on personal loans
$
-
$
1,342
$
2,778
$
533
$
232
$
573
$
-
$
5,458
Credit cards
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
323,062
$
323,062
$
329,212
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
323,062
$
323,062
$
329,212
Charge-offs on credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
5,995
$
5,995
Other consumer loans
Accrual Status:
Performing
$
18,907
$
69,275
$
27,205
$
8,608
$
5,327
$
9,689
$
10,413
$
149,424
$
152,359
Non-Performing
-
881
448
122
48
191
143
1,833
1,748
Total other consumer loans
$
18,907
$
70,156
$
27,653
$
8,730
$
5,375
$
9,880
$
10,556
$
151,257
$
154,107
Charge-offs on other consumer loans
$
2
$
2,400
$
1,672
$
403
$
99
$
149
$
175
$
4,900
Total
Accrual Status:
Performing
$
284,902
$
1,127,252
$
866,830
$
533,981
$
240,733
$
270,935
$
333,475
$
3,658,108
$
3,635,221
Non-Performing
-
5,267
5,733
3,578
1,795
5,223
143
21,739
22,444
Total consumer loans
$
284,902
$
1,132,519
$
872,563
$
537,559
$
242,528
$
276,158
$
333,618
$
3,679,847
$
3,657,665
Charge-offs on total consumer loans
$
2
$
7,083
$
8,510
$
3,141
$
1,072
$
2,386
$
6,170
$
28,364
(1)
Excludes accrued interest receivable.
As of March 31, 2024 and December 31, 2023, the balance of revolving loans converted
to term loans was
no
t material.
Accrued
interest
receivable
on
loans
totaled
$
60.2
million
as
of
March
31,
2024
($
62.3
million
as
of
December
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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
32
The
following
tables
present
information
about
collateral
dependent
loans
that
were
individually
evaluated
for
purposes
of
determining the ACL as of March 31, 2024 and December 31, 2023
:
As of March 31,2024
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
$
25,622
$
1,888
$
77
$
25,699
$
1,888
Commercial loans:
Construction loans
-
-
956
956
-
Commercial mortgage loans
-
-
44,751
44,751
-
C&I loans
9,390
1,598
6,702
16,092
1,598
Consumer loans:
Personal loans
28
1
-
28
1
Other consumer loans
123
18
-
123
18
$
35,163
$
3,505
$
52,486
$
87,649
$
3,505
As of December 31, 2023
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
$
25,355
$
1,732
$
-
$
25,355
$
1,732
Commercial loans:
Construction loans
-
-
956
956
-
Commercial mortgage loans
4,454
135
40,683
45,137
135
C&I loans
9,390
1,563
6,780
16,170
1,563
Consumer loans:
Personal loans
28
1
-
28
1
Other consumer loans
123
12
-
123
12
$
39,350
$
3,443
$
48,419
$
87,769
$
3,443
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
March
31,
2024
was
67
%,
compared to
65
% as of December 31, 2023 which was
not considered a significant change in
the extent to which collateral secured
the
loans
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
33
Purchases and Sales of Loans
In the ordinary course of business,
the Corporation enters into securitization
transactions and whole loan sales
with the Government
National
Mortgage
Association
(“GNMA”)
and
GSEs,
such
as
the
Federal
National
Mortgage
Association
(“FNMA”)
and
Federal
Home
Loan
Mortgage
Corp.
(“FHLMC”).
During
the
quarters
ended
March
31,
2024,
and
2023,
loans
pooled
into
GNMA
MBS
amounted to
approximately $
24.7
million and
$
29.4
million, respectively,
for which
the Corporation
recognized a
net gain
on sale
of
$
0.9
million
during
each
of
these
quarters.
Also,
during
the
quarters
ended
March
31,
2024
and
2023,
the
Corporation
sold
approximately
$
6.8
million
and
$
8.0
million,
respectively,
of
performing
residential
mortgage
loans
to
FNMA
for
which
the
Corporation
recognized
a net
gain
on sale
of
$
0.2
million during
each of
these
quarters.
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 March 31, 2024
and December 31, 2023,
rebooked GNMA delinquent
loans that
were included in the residential mortgage loan portfolio amounted
to $
8.8
million and $
7.9
million, respectively.
During
the
quarters
ended
March
31,
2024
and
2023,
the
Corporation
repurchased,
pursuant
to
the
aforementioned
repurchase
option, $
0.2
million and $
1.5
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’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
quarter ended
March 31,
2024, the
Corporation purchased
commercial loan
participations in
the Florida
region totaling
$
23.2
million,
which
consisted
of
approximately
$
13.7
million
in
the
commercial
mortgage
portfolio
and
$
9.5
million
in
the
C&I
portfolio.
No
significant purchases of loans were executed during the first quarter of 2023.
During the first
quarter of 2024,
the Corporation recognized
a $
9.5
million recovery
associated with the
bulk sale of
fully charged-
off loans, net
of a $
0.5
million repurchase liability.
There were
no
significant sales of
loans during the
quarter ended March
31, 2023,
other than those sales of conforming residential mortgage loans mentioned
above.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
34
Loan Portfolio Concentration
The Corporation’s
primary
lending area
is Puerto
Rico. The
Corporation’s
banking subsidiary,
FirstBank, also
lends in
the USVI
and the BVI markets and
in the United States (principally
in the state of Florida).
Of the total gross loans held
for investment portfolio
of $
12.3
billion as
of March
31, 2024,
credit risk
concentration was
approximately
80
% in
Puerto Rico,
17
% in
the U.S.,
and
3
% in
the USVI and the BVI.
As
of
March
31,
2024,
the
Corporation
had
$
203.5
million
outstanding
in
loans
extended
to
the
Puerto
Rico
government,
its
municipalities and
public corporations,
compared to
$
187.7
million as
of December
31, 2023.
As of
March 31,
2024, approximately
$
129.4
million
consisted
of
loans
extended
to
municipalities
in
Puerto
Rico
that
are
general
obligations
supported
by
assigned
property
tax
revenues,
and $
25.6
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 March
31, 2024
included $
8.9
million in
loans granted
to an
affiliate of
the Puerto
Rico Electric
Power Authority
(“PREPA”)
and $
39.6
million in
loans to
agencies or
public
corporations of the Puerto Rico government.
In addition,
as of March
31, 2024, the
Corporation had
$
76.5
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
$
77.7
million as of
December 31, 2023.
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
March 31, 2024, the Corporation had
$
97.4
million in
loans to USVI
government public corporations,
compared to $
90.5
million as of
December 31, 2023.
As of March
31, 2024, all
loans
were currently performing and up to date on principal and interest payments.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
35
Loss Mitigation Program for Borrowers Experiencing
Financial Difficulty
The Corporation provides 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
are
provided,
as
well
as
other
restructurings
of
individual
C&I,
commercial
mortgage,
construction,
and
residential
mortgage
loans.
The
Corporation
may
also
modify
contractual
terms to comply with regulations regarding the treatment of certain bankruptcy
filings and discharge situations.
The
loan
modifications
granted
to
borrowers
experiencing
financial
difficulty
that
are
associated
with
payment
delays
typically
include the following:
-
Forbearance plans –
Payments of either interest
and/or principal are
deferred for a pre-established
period of time, generally
not
exceeding
six
months
in
any
given
year.
The
deferred
interest
and/or
principal
is
repaid
as
either
a
lump
sum
payment
at
maturity date or by extending the loan’s
maturity date by the number of forbearance months granted.
-
Payment
plans
–
Borrowers
are
allowed
to
pay
the
regular
monthly
payment
plus
the
pre-established
delinquent
amounts
during a period generally not exceeding
six months.
At the end of the payment plan, the
borrower is required to resume making
its regularly scheduled loan payments.
-
Trial modifications
– These types of loan
modifications are granted for
residential mortgage loans. Borrower
s
continue making
reduced monthly payments during
the trial period, which is
generally of up to six
months. The reduced payments
that are made
by the
borrower during
the trial
period will
result in
a payment
delay with
respect to
the original
contractual terms
of the
loan
since
the
loan
has
not
yet
been
contractually
modified.
After
successful
completion
of
the
trial
period,
the
mortgage
loan
is
contractually modified.
Modifications
in
the
form
of
a
reduction
in
interest
rate,
term
extension,
an
other-than-insignificant
payment
delay,
or
any
combination
of
these
types
of
loan
modifications
that
have
occurred
in
the
current
reporting
period
for
a
borrower
experiencing
financial
difficulty
are
disclosed
in
the
tables
below.
Many
factors
are
considered
when
evaluating
whether
there
is
an
other-than-
insignificant
payment
delay,
such as
the significance
of the
restructured
payment
amount relative
to the
unpaid
principal balance
or
collateral value of the loan or the relative significance of the delay to
the original loan terms.
The
below
disclosures
relate
to
loan
modifications
granted
to
borrowers
experiencing
financial
difficulty
in
which
there
was
a
change
in
the
timing
and/or
amount
of
contractual
cash
flows
in
the
form
of
any
of
the
aforementioned
types
of
modifications,
including
restructurings
that
resulted
in
a
more-than-insignificant
payment
delay.
These
disclosures
exclude
$
1.1
million
and
$
0.9
million,
respectively,
in
restructured
residential
mortgage
loans
that
are
government-guaranteed
(e.g.,
FHA/VA
loans)
and
were
modified during the quarters ended March 31, 2024 and 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
36
The following
tables present
the amortized
cost basis
as of March
31, 2024
and 2023
of loans
modified to
borrowers experiencing
financial difficulty
during the quarters
ended March 31,
2024 and 2023,
by portfolio classes and
type of modification
granted, and the
percentage of these modified loans relative to the total period-end
amortized cost basis of receivables in the portfolio class:
Quarter Ended March 31,2024
Payment Delay Only
Forbearance
Payment Plan
Trial
Modification
Interest Rate
Reduction
Term
Extension
Combination
of Interest
Rate
Reduction and
Term
Extension
Other
Total
Percentage of
Total by
Portfolio
Classes
(In thousands)
Conventional residential mortgage loans
$
-
$
-
$
464
$
-
$
-
$
-
$
-
$
464
0.02%
Construction loans
-
-
-
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
-
-
-
C&I loans
-
-
-
13
-
-
-
13
0.00%
Consumer loans:
Auto loans
-
-
-
-
174
125
1,036
(1)
1,335
0.07%
Personal loans
-
-
-
9
14
5
-
28
0.01%
Credit cards
-
-
-
548
(2)
-
-
-
548
0.17%
Other consumer loans
-
-
-
-
140
7
24
(1)
171
0.11%
Total modifications
$
-
$
-
$
464
$
570
$
328
$
137
$
1,060
$
2,559
Quarter Ended March 31, 2023
Payment Delay Only
Forbearance
Payment Plan
Trial
Modification
Interest Rate
Reduction
Term
Extension
Combination
of Interest
Rate
Reduction and
Term
Extension
Other
Total
Percentage of
Total by
Portfolio
Classes
(In thousands)
Conventional residential mortgage loans
$
-
$
-
$
332
$
-
$
433
$
115
$
-
$
880
0.03%
Construction loans
-
-
-
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
-
-
-
C&I loans
-
-
-
-
-
-
40
(1)
40
0.00%
Consumer loans:
Auto loans
-
-
-
-
89
38
584
(1)
711
0.04%
Personal loans
-
-
-
-
28
14
-
42
0.01%
Credit cards
-
-
-
289
(2)
-
-
-
289
0.09%
Other consumer loans
-
-
-
-
132
60
26
(1)
218
0.15%
Total modifications
$
-
$
-
$
332
$
289
$
682
$
227
$
650
$
2,180
(1)
Modification consists of court mandated reduction to 0% interest rate for remaining loan term to borrowers in bankruptcy proceedings unless dismissal occurs.
(2)
Modification consists of reduction in interest rate and revocation of revolving line privileges.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
37
The
following
tables
present
by
portfolio
classes
the
financial
effects
of
the
modifications
granted
to
borrowers
experiencing
financial difficulty,
other than those
associated to payment
delay,
during the quarters
ended March
31, 2024 and
2023. The financial
effects of the modifications associated to payment delay were discussed
above and, as such, were excluded from the tables below:
Quarter Ended March 31, 2024
Combination of Interest Rate Reduction and Term
Extension
Weighted-Average
Interest Rate Reduction
(%)
Weighted-Average Term
Extension (in months)
Weighted-Average
Interest Rate Reduction
(%)
Weighted-Average Term
Extension (in months)
(In thousands)
Conventional residential mortgage loans
-
%
-
-
%
-
Construction loans
-
%
-
-
%
-
Commercial mortgage loans
-
%
-
-
%
-
C&I loans
13.00
%
-
-
%
-
Consumer loans:
Auto loans
-
%
30
2.68
%
25
Personal loans
8.49
%
25
1.79
%
14
Credit cards
16.55
%
-
-
%
-
Other consumer loans
-
%
23
2.81
%
19
Quarter Ended March 31, 2023
Combination of Interest Rate Reduction and Term
Extension
Weighted-Average
Interest Rate Reduction
(%)
Weighted-Average Term
Extension (in months)
Weighted-Average
Interest Rate Reduction
(%)
Weighted-Average Term
Extension (in months)
(In thousands)
Conventional residential mortgage loans
-
%
98
2.11
%
141
Construction loans
-
%
-
-
%
-
Commercial mortgage loans
-
%
-
-
%
-
C&I loans
-
%
-
-
%
-
Consumer loans:
Auto loans
-
%
22
2.88
%
28
Personal loans
-
%
30
3.36
%
12
Credit cards
16.04
%
-
-
%
-
Other consumer loans
-
%
27
1.96
%
26
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
38
The following tables present by portfolio classes the performance of loans modified
during the last twelve months ended March
31, 2024 and during the quarter ended March 31, 2023 that were granted
to borrowers experiencing financial difficulty:
Last Twelve Months Ended March 31, 2024
30-59
60-89
90+
Total
Delinquency
Current
Total
(In thousands)
Conventional residential mortgage loans
$
37
$
-
$
-
$
37
$
1,642
$
1,679
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
32,384
32,384
C&I loans
13
-
-
13
362
375
Consumer loans:
Auto loans
19
3
65
87
3,184
3,271
Personal loans
11
-
-
11
329
340
Credit cards
217
92
147
456
1,097
1,553
Other consumer loans
31
14
31
76
457
533
Total modifications
$
328
$
109
$
243
$
680
$
39,455
$
40,135
Quarter Ended March 31, 2023
30-59
60-89
90+
Total
Delinquency
Current
Total
(In thousands)
Conventional residential mortgage loans
$
-
$
-
$
-
$
-
$
880
$
880
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
C&I loans
-
-
-
-
40
40
Consumer loans:
Auto loans
44
138
-
182
529
711
Personal loans
-
-
-
-
42
42
Credit cards
103
89
-
192
97
289
Other consumer loans
-
-
-
-
218
218
Total modifications
$
147
$
227
$
-
$
374
$
1,806
$
2,180
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
39
The following table presents the amortized cost basis of classes of financing receivables
that had a payment default (failure by the
borrower to make payments of either principal, interest, or both for a period
of 90 days or more) and were modified to borrowers
experiencing financial difficulty during the last twelve months
ended March 31, 2024:
Last Twelve Months Ended March 31, 2024
Interest Rate
Reduction
Term
Extension
Combination
of Interest
Rate
Reduction
and Term
Extension
Forgiveness of
Principal
and/or
Interest
Other
Total
(In thousands)
Conventional residential mortgage
loans
$
-
$
-
$
-
$
-
$
-
$
-
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
C&I loans
-
-
-
-
-
-
Consumer loans:
Auto loans
-
9
-
-
56
(1)
65
Personal loans
-
-
-
-
-
-
Credit cards
147
-
-
-
-
147
Other consumer loans
-
31
-
-
-
31
Total modifications
$
147
$
40
$
-
$
-
$
56
$
243
(1)
Modification consists of court mandated reduction to 0% interest rate for remaining loan term to borrowers in bankruptcy proceedings unless dismissal occurs.
There were
no
loans modified to borrowers experiencing financial difficulty
on or after January 1, 2023, which had
a payment default (failure by
the borrower to make payments of either principal, interest, or both for a period of 90 days or more) during the quarter ended March 31, 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
40
NOTE 4 – 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
C&I
Loans
Consumer Loans
Total
Quarter Ended March 31,2024
(In thousands)
ACL:
Beginning balance
$
57,397
$
5,605
$
32,631
$
33,190
$
133,020
$
261,843
Provision for credit losses - (benefit) expense
(464)
571
(10)
(3,360)
16,180
12,917
Charge-offs
(516)
-
-
(459)
(28,364)
(29,339)
Recoveries
272
10
40
5,119
12,730
(1)
18,171
Ending balance
$
56,689
$
6,186
$
32,661
$
34,490
$
133,566
$
263,592
(1)
Includes recoveries totaling $
9.5
million associated with the bulk sale of fully charged-off
consumer loans.
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
C&I
Loans
Consumer Loans
Total
Quarter Ended March 31, 2023
(In thousands)
ACL:
Beginning balance
$
62,760
$
2,308
$
35,064
$
32,906
$
127,426
$
260,464
Impact of adoption of ASU 2022-02
(1)
2,056
-
-
7
53
2,116
Provision for credit losses - expense (benefit)
73
860
1,246
(1,650)
15,727
16,256
Charge-offs
(983)
-
(18)
(118)
(16,798)
(17,917)
Recoveries
497
63
168
90
3,830
4,648
Ending balance
$
64,403
$
3,231
$
36,460
$
31,235
$
130,238
$
265,567
(1)
Recognized as a result of the adoption of ASU 2022-02,
for which the Corporation elected to discontinue the use of a
discounted cash flow methodology for restructured accruing loans,
which had a corresponding decrease, net of applicable taxes,
in beginning retained earnings as of January 1, 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
41
The
Corporation
estimates
the
ACL
following
the
methodologies
described
in
Note
1
–
“Nature
of
Business
and
Summary
of
Significant Accounting
Policies” to
the audited
consolidated financial
statements included
in the
2023 Annual
Report on
Form 10-K,
as updated by the information contained in this report, for each portfolio segment
.
The Corporation
generally applies
probability weights
to the
baseline and
alternative downside
economic scenarios
to estimate
the
ACL with
the
baseline
scenario
carrying
the highest
weight.
The
scenarios
that are
chosen each
quarter
and
the
weighting
given
to
each
scenario
for
the
different
loan
portfolio
categories
depend
on
a
variety
of
factors
including
recent
economic
events,
leading
national
and
regional
economic
indicators,
and
industry
trends.
As
of
March
31,
2024
and
December
31,
2023,
the
Corporation
applied the
baseline scenario
for the
commercial mortgage
and construction
loan portfolios
as deterioration,
particularly in
variables
associated to the
commercial real
estate property
performance in
these portfolios
was expected
at a lower
extent than
projected in
the
alternative downside scenario, particularly in the Puerto Rico region.
As of March 31, 2024, the ACL for loans and finance leases was $
263.6
million, an increase of $
1.8
million, from $
261.8
million as
of December
31, 2023.
The ACL
for commercial
and construction
loans increased
by $
1.9
million, mainly
due to
increased volume,
particularly
in
the
commercial
and
industrial
loan
portfolio,
coupled
with
a
deterioration
on
the
economic
outlook
of
certain
macroeconomic variables.
The
ACL
for
consumer
loans
increased
by
$
0.6
million
mainly
due
to
increases
in
historical
charge-off
levels,
mainly
in
credit
cards, and
increases in
portfolio volumes
in the
auto loan
and finance
leases portfolios.
This increase
was partially
offset by
updated
macroeconomic variables, mainly in the projection of unemployment rates
across all regions.
Meanwhile,
the ACL
for residential
mortgage loans
decreased by
$
0.7
million,
mostly due
to updated
macroeconomic
variables,
mainly in the projection of unemployment rates, partially offset by
newly originated loans that have a longer life.
Net charge-offs
were $
11.2
million for
the first
quarter of
2024, compared
to $
13.3
million for
the same
period in
2023. The
$
2.1
million
decrease
in net
charge-offs
was mainly
driven by
the $
9.5
million recovery
associated with
the aforementioned
bulk sale
of
fully
charged-off
consumer
loans
during
the
first
quarter
of
2024
and
a
$
5.0
million
recovery
associated
with
a
commercial
and
industrial
loan
in
the
Puerto
Rico
region,
partially
offset
by
an
increase
in
consumer
loans
and
finance
leases
charge-offs,
mainly
reflected in the auto and personal loan portfolios, primarily associated with
a higher delinquency during the quarter.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
42
The tables below
present the ACL
related to loans
and finance leases
and the carrying
values of loans
by portfolio segment
as of
March 31,2024 and December 31, 2023:
As of March 31, 2024
Residential Mortgage
Loans
Construction
Loans
Commercial Mortgage
Loans
C&I
Loans
Consumer Loans
Total
(Dollars in thousands)
Total loans held for investment:
Amortized cost of loans
$
2,801,587
$
237,288
$
2,361,731
$
3,230,995
$
3,679,847
$
12,311,448
Allowance for credit losses
56,689
6,186
32,661
34,490
133,566
263,592
Allowance for credit losses to
amortized cost
2.02
%
2.61
%
1.38
%
1.07
%
3.63
%
2.14
%
As of December 31, 2023
Residential Mortgage
Loans
Construction
Loans
Commercial Mortgage
Loans
C&I
Loans
Consumer Loans
Total
(Dollars in thousands)
Total loans held for investment:
Amortized cost of loans
$
2,821,726
$
214,777
$
2,317,083
$
3,174,232
$
3,657,665
$
12,185,483
Allowance for credit losses
57,397
5,605
32,631
33,190
133,020
261,843
Allowance for credit losses to
amortized cost
2.03
%
2.61
%
1.41
%
1.05
%
3.64
%
2.15
%
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
21
–
“Regulatory
Matters,
Commitments
and
Contingencies”
for
information
on
off-balance
sheet
exposures
as
of
March
31,
2024
and
December 31,
2023. The
Corporation estimates
the ACL
for these
off-balance
sheet exposures
following the
methodology described
in
Note
1 –
“Nature
of Business
and
Summary
of Significant
Accounting
Policies”
to
the audited
consolidated
financial statements
included in the 2023 Annual Report on Form 10-K.
As of March 31, 2024, the ACL for off-balance sheet credit
exposures increased to
$
4.9
million, from $
4.6
million as of December 31, 2023.
The following
table presents
the activity
in the
ACL for
unfunded loan
commitments and
standby letters
of credit
for the
quarters
ended March 31, 2024 and 2023:
Quarter Ended March 31,
2024
2023
(In thousands)
Beginning balance
$
4,638
$
4,273
Provision for credit losses - expense (benefit)
281
(105)
Ending balance
$
4,919
$
4,168
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
43
NOTE 5
–
OTHER REAL ESTATE
OWNED
The following table presents the OREO inventory as of the indicated dates:
March 31,2024
December 31, 2023
(In thousands)
OREO balances, carrying value:
Residential
(1)
$
16,706
$
20,261
Construction
1,681
1,601
Commercial
10,477
10,807
Total
$
28,864
$
32,669
(1)
Excludes $
13.4
million and $
16.6
million as of
March 31,2024 and
December 31, 2023,
respectively, of
foreclosures that met
the conditions of ASC
Subtopic 310-40 “Reclassification
of
Residential Real
Estate Collateralized
Consumer Mortgage
Loans upon
Foreclosure,” and
are presented
as a
receivable as
part of
other assets
in the
consolidated statements
of financial
condition.
See Note 17 – “Fair
Value”
for information on subsequent measurement
adjustments recorded on OREO properties
reported as part
of “Net gain on OREO operations” in the consolidated statements of income
during the quarters ended March 31, 2024 and 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
44
NOTE 6 – GOODWILL AND OTHER INTANGIBLES
Goodwill
Goodwill as
of each
of March
31, 2024
and December
31, 2023
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 2023, management performed a qualitative analysis of 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. As of December 31, 2023, the Corporation
concluded that it is more-likely-than-not that the fair value of the reporting units exceeded their carrying value. The Corporation
determined that there have been no significant events since the last annual assessment that could indicate potential goodwill
impairment on reporting units for which the goodwill is allocated. As a result, no impairment charges for goodwill were recorded
during the first quarter of 2024.
There were
no
changes in the carrying amount of goodwill during the quarters ended March 31,
2024 and 2023.
Other Intangible Assets
The
following
table
presents
the
gross
amount
and
accumulated
amortization
of
the
Corporation’s
intangible
assets
subject
to
amortization as of the indicated dates:
As of
As of
March 31,
December 31,
2024
2023
(Dollars in thousands)
Core deposit intangible:
Gross amount
$
87,544
$
87,544
Accumulated amortization
(76,002)
(74,161)
Net carrying amount
$
11,542
$
13,383
Remaining amortization period (in years)
5.8
6.0
During
the
quarters
ended
March
31,
2024
and
2023,
the
Corporation
recognized
$
1.8
million
and
$
2.0
million,
respectively,
in
amortization expense on its other intangibles subject to amortization.
The
Corporation
amortizes
core
deposit
intangibles
based
on
the
projected
useful
lives
of
the
related
deposits.
Core
deposit
intangibles
are
analyzed
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 as of March
31, 2024.
The estimated
aggregate annual
amortization expense
related to the
intangible assets
subject to amortization
for future periods
was
as follows as of March 31, 2024:
(In thousands)
2024
$
4,575
2025
3,509
2026
872
2027
872
2028
872
2029 and after
842
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
45
NOTE 7 – NON-CONSOLIDATED
VARIABLE
INTEREST ENTITIES (“VIEs”) 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 (“TRuPs”)
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 long-term borrowings.
These TRuPs are variable-rate
instruments indexed to
3-
month CME Term SOFR
plus a
tenor spread
adjustment of
0.26161
% and the
original spread
of
2.75
% for the
FBP Statutory
Trust I
and
2.50
% for
the FBP
Statutory Trust
II.
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).
Under the indentures of these instruments,
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 March 31,
2024, the Corporation was current on all interest payments due on its subordinated
debt.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
46
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 CME Term SOFR
plus a
tenor
spread
adjustment
of
0.26161
% and
the original
spread
limited to
the
weighted-average
coupon
of
the
underlying
collateral.
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.
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 March 31, 2024, the
amortized cost and fair value
of these private
label MBS amounted
to $
6.9
million and $
4.7
million, respectively,
with a weighted average
yield of
7.63
%, which is
included as part
of the Corporation’s
available-for-sale debt
securities portfolio.
As described
in Note 2
– “Debt Securities,”
the ACL
on these private label MBS amounted to $
0.1
million as of March 31, 2024.
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
March 31,
2024, 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 shown below for the indicated periods:
Quarter Ended March 31,
2024
2023
(In thousands)
Balance at beginning of year
$
26,941
$
29,037
Capitalization of servicing assets
460
532
Amortization
(1,037)
(1,128)
Temporary impairment
recoveries
-
4
Other
(1)
(9)
(14)
Balance at end of period
$
26,355
$
28,431
(1)
Mainly represents adjustments related to the repurchase
of loans serviced for others.
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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
47
Changes in the impairment allowance were as follows for the indicated periods:
Quarter Ended March 31,
2024
2023
(In thousands)
Balance at beginning of year
$
-
$
12
Temporary impairment
recoveries
-
(4)
Balance at end of period
$
-
$
8
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:
Quarter Ended March 31,
2024
2023
(In thousands)
Servicing fees
$
2,573
$
2,718
Late charges and prepayment penalties
189
199
Other
(1)
(9)
(14)
Servicing income, gross
2,753
2,903
Amortization and impairment of servicing assets
(1,037)
(1,124)
Servicing income, net
$
1,716
$
1,779
(1)
Mainly represents adjustments related to the repurchase of loans serviced
for others.
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
Quarter Ended March 31, 2024
Constant prepayment rate:
Government-guaranteed mortgage loans
6.9
%
12.6
%
3.2
%
Conventional conforming mortgage loans
6.8
%
15.1
%
2.9
%
Conventional non-conforming mortgage loans
6.0
%
7.6
%
4.4
%
Discount rate:
Government-guaranteed mortgage loans
11.5
%
11.5
%
11.5
%
Conventional conforming mortgage loans
9.5
%
9.5
%
9.5
%
Conventional non-conforming mortgage loans
11.5
%
12.5
%
11.0
%
Quarter Ended March 31, 2023
Constant prepayment rate:
Government-guaranteed mortgage loans
6.7
%
11.6
%
4.8
%
Conventional conforming mortgage loans
7.7
%
16.0
%
3.8
%
Conventional non-conforming mortgage loans
5.7
%
7.0
%
2.1
%
Discount rate:
Government-guaranteed mortgage loans
11.5
%
11.5
%
11.5
%
Conventional conforming mortgage loans
9.5
%
9.5
%
9.5
%
Conventional non-conforming mortgage loans
12.8
%
14.0
%
11.5
%
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
48
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
were
as
follows
as
of
the
indicated dates:
March 31,
December 31,
2024
2023
(In thousands)
Carrying amount of servicing assets
$
26,355
$
26,941
Fair value
$
44,764
$
45,244
Weighted-average
expected life (in years)
7.74
7.79
Constant prepayment rate (weighted-average annual
rate)
6.27
%
6.27
%
Decrease in fair value due to 10% adverse change
$
883
$
886
Decrease in fair value due to 20% adverse change
$
1,724
$
1,731
Discount rate (weighted-average annual rate)
10.69
%
10.68
%
Decrease in fair value due to 10% adverse change
$
1,904
$
1,927
Decrease in fair value due to 20% adverse change
$
3,668
$
3,712
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)
49
NOTE 8 – DEPOSITS
The following table summarizes deposit balances as of the indicated dates:
March 31,2024
December 31, 2023
(In thousands)
Type of account:
Non-interest-bearing deposit accounts
$
5,346,326
$
5,404,121
Interest-bearing checking accounts
3,934,508
3,937,945
Interest-bearing saving accounts
3,577,465
3,596,855
Time deposits
2,961,526
2,833,730
Brokered certificates of deposits ("CDs")
725,686
783,334
Total
$
16,545,511
$
16,555,985
The following table presents the contractual maturities of time deposits, including
brokered CDs, as of March 31,2024:
Total
(In thousands)
Three months or less
$
902,766
Over three months to six months
692,302
Over six months to one year
1,360,319
Over one year to two years
446,607
Over two years to three years
68,684
Over three years to four years
118,387
Over four years to five years
76,502
Over five years
21,645
Total
$
3,687,212
The following were the components of interest expense on deposits for the
indicated periods:
Quarter Ended March 31,
2024
2023
(In thousands)
Interest expense on deposits
$
62,929
$
29,924
Accretion of premiums from acquisitions
(34)
(83)
Amortization of broker placement fees
130
44
Total
$
63,025
$
29,885
Total
Puerto
Rico
and
U.S.
time
deposits
with
balances
of
more
than
$250,000
amounted
to
$
1.5
billion
and
$
1.4
billion
as
of
March 31, 2024
and December 31,
2023, respectively.
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
March
31,
2024
and
December
31,
2023,
unamortized
broker
placement
fees
amounted
to
$
1.2
million
and
$
1.0
million,
respectively,
which
are
amortized
over
the
contractual
maturity
of
the
brokered CDs under the interest method.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
50
NOTE 9 – ADVANCES
FROM THE FEDERAL HOME LOAN BANK (“FHLB
”)
The following is a summary of the advances from the FHLB as of the indicated dates:
March 31,2024
December 31, 2023
(In thousands)
Long-term
Fixed
-rate advances from the FHLB
(1)
$
500,000
$
500,000
(1)
Weighted-average
interest rate of
4.45
%
as of each of March 31,2024 and December 31, 2023, respectively.
Advances from the FHLB mature as follows as of the indicated date:
March 31,2024
(In thousands)
Over six months to one year
$
180,000
Over one to five years
(1)
320,000
Total
$
500,000
(1) Average remaining term to maturity of
2.24
years.
NOTE 10 – OTHER LONG-TERM BORROWINGS
Junior Subordinated Debentures
Junior subordinated debentures, as of the indicated dates, consisted of:
(In thousands)
March 31, 2024
December 31, 2023
Long-term floating rate junior subordinated debentures (FBP Statutory Trust I) (1) (3)
$
43,143
$
43,143
Long-term floating rate junior subordinated debentures (FBP Statutory Trust II) (2) (3)
118,557
118,557
$
161,700
$
161,700
(1)
Amount represents junior subordinated interest-bearing debentures
due in 2034 with a floating interest rate of
2.75
% over
3-month CME Term SOFR
plus a
0.26161
% tenor spread
adjustment as of March 31, 2024 and December 31, 2023 (
8.34
% as of March 31,2024 and
8.39
% as of December 31, 2023).
(2)
Amount represents junior subordinated interest-bearing debentures
due in 2034 with a floating interest rate of
2.50
% over
3-month CME Term SOFR
plus a
0.26161
% tenor spread
adjustment as of March 31, 2024 and December 31, 2023 (
8.09
% as of March 31, 2024 and
8.13
% as of December 31, 2023).
(3)
See Note 7 - "Non-Consolidated Variable
Interest Entities
(“VIEs”) and Servicing Assets," for additional information on these debentures.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
51
NOTE 11 – EARNINGS PER COMMON
.
SHARE
The calculations of earnings per common share for the quarters ended March 31, 2024
and 2023 are as follows:
Quarter Ended March 31,
2024
2023
(In thousands, except per share information)
Net income attributable to common stockholders
$
73,458
$
70,698
Weighted-Average
Shares:
Average common
shares outstanding
167,142
180,215
Average potential
dilutive common shares
656
1,021
Average common
shares outstanding - assuming dilution
167,798
181,236
Earnings per common share:
Basic
$
0.44
$
0.39
Diluted
$
0.44
$
0.39
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.
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
and
performance
units (if
any
of the
performance
conditions
are
met
as
of
the
end
of
the
reporting
period)
that
do
not
contain
non-forfeitable
dividend
or
dividend
equivalent
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 quarters ended March 31, 2024 and
2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
52
NOTE 12 – STOCK-BASED
.
COMPENSATION
The First Bancorp
Omnibus Incentive
Plan (the “Omnibus
Plan”), which is
effective until
May 24, 2026,
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
March 31,
2024, there
were
2,592,026
authorized shares
of common
stock available
for issuance
under the
Omnibus Plan.
The Corporation’s
Board of
Directors,
based on
the recommendation
of the
Compensation
and Benefits
Committee of
the Board,
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. The
Corporation issued
398,013
shares during the quarter
ended March 31, 2024
in connection
with restricted stock awards, which were reissued from treasury shares.
The following table summarizes the restricted stock activity under the Omnibus
Plan during the quarters ended March 31, 2024
and 2023:
Quarter ended
Quarter ended
March 31, 2024
March 31, 2023
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
889,642
$
12.30
938,491
$
9.14
Granted
(1)
398,013
17.35
495,891
11.99
Forfeited
(1,905)
12.14
(25,415)
9.98
Vested
(252,504)
12.26
(481,536)
5.93
Unvested shares outstanding at end of period
1,033,246
$
14.26
927,431
$
12.32
(1)
For the quarter ended March 31,2024, includes
2,280
shares of restricted stock awarded to independent directors and
395,733
shares of restricted stock awarded to employees, of which
84,122
shares were granted to retirement-eligible employees and thus
charged to earnings as of the grant date. Includes
for the quarter ended March 31,2023,
3,502
shares of restricted
stock awarded to independent directors and
492,389
shares of restricted stock awarded to employees, of which
33,718
shares were granted to retirement-eligible employees and thus
charged to earnings as of the grant date.
For the quarters
ended March 31,
2024 and 2023,
the Corporation recognized
$
2.4
million and $
1.6
million, respectively,
of stock-
based compensation
expense related
to restricted
stock awards.
As of
March 31,
2024,
there was
$
8.2
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
2.0
years.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
53
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.
Performance units granted during the quarters ended March 31, 2024 and 2023 vest on the third anniversary of the effective date of
the award based on actual achievement of two performance metrics weighted equally: relative total shareholder return (“Relative
TSR”), compared to companies that comprise the KBW Nasdaq Regional Banking Index, and the achievement of a tangible book
value per share (“TBVPS”) goal, which is measured based upon the growth in the tangible book value during the performance cycle,
adjusted for certain allowable non-recurring transactions. The participant may earn 50% of their target opportunity for threshold level
performance and up to 150% of their target opportunity for maximum level performance, based on the individual achievement of each
performance goal during a three-year performance cycle. Amounts between threshold, target and maximum performance will vest in a
proportional amount.
The following
table summarizes
the performance
units activity under
the Omnibus
Plan during
the quarters
ended March
31, 2024
and 2023:
Quarter ended
Quarter ended
March 31, 2024
March 31, 2023
Number
Weighted -
Number
Weighted -
of
Average
of
Average
Performance
Grant Date
Performance
Grant Date
Units
Fair Value
Units
Fair Value
Performance units at beginning of year
534,261
12.25
791,923
7.36
Additions
(1)
165,487
18.39
216,876
12.24
Vested
(2)
(150,716)
11.26
(474,538)
4.08
Performance units at end of period
549,032
14.37
534,261
12.25
(1)
Units granted during the quarters ended March 31, 2024 and 2023
are based on the achievement of the Relative TSR and TBVPS
performance goals during a three-year performance cycle
beginning January 1, 2024 and January 1, 2023, respectively,
and ending on December 31, 2026 and December 31, 2025,
respectively.
(2)
Units vested during the quarters ended March 31, 2024 and
2023 are related to performance units granted in 2021 and 2020, respectively,
that met the pre-established target and were
settled with shares of common stock reissued from treasury shares.
The fair value of the performance units awarded during the quarters ended March 31, 2024 and 2023, that was based on the TBVPS
goal component, was calculated based on the market price of the Corporation’s common stock on the respective date of the grant and
assuming attainment of 100% of target opportunity. As of March 31, 2024, there have been no changes in management’s assessment
of the probability that the pre-established TBVPS goal will be achieved; as such, no cumulative adjustment to compensation expense
has been recognized. The fair value of the performance units awarded, that was based on the Relative TSR component, was calculated
using a Monte Carlo simulation. Since the Relative TSR component is considered a market condition, the fair value of the portion of
the award based on Relative TSR is not revised subsequent to grant date based on actual performance.
The following
table summarizes
the valuation
assumptions used
to calculate
the fair
value of
the Relative
TSR component
of the
performance units granted under the Omnibus Plan during the quarters
ended March 31, 2024 and 2023:
Quarter Ended March 31,
2024
2023
Risk-free interest rate
(1)
4.41
%
3.98
%
Correlation coefficient
73.80
77.16
Expected dividend yield
(2)
-
-
Expected volatility
(3)
34.65
41.37
Expected life (in years)
2.78
2.79
(1)
Based on the yield on zero-coupon U.S. Treasury
Separate Trading of Registered Interest and
Principal of Securities as of the grant date for a period equal to the simulation
term.
(2)
Assumes that dividends are reinvested at each ex-dividend date.
(3)
Calculated based on the historical volatility of the Corporation's
stock price with a look-back period equal to the simulation term
using daily stock prices.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
54
For
each
of
the
quarters
ended
March
31,
2024
and
2023,
the
Corporation
recognized
$
0.5
million
of
stock-based
compensation
expense related to performance units.
As of March 31, 2024, there was $
5.6
million of total unrecognized compensation cost
related to
unvested performance units that the Corporation expects to recognize
over a weighted average period of
2.4
years.
Shares withheld
During the
first quarter
of 2024,
the Corporation
withheld
136,038
shares (first
quarter of
2023 –
287,835
shares) of
the restricted
stock and
performance
units that
vested during
such period
to cover
the participants’
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)
55
NOTE 13 –
STOCKHOLDERS’
EQUITY
Stock Repurchase Programs
On July
24, 2023,
the Corporation
announced that
its Board
of Directors
approved a
new stock
repurchase program,
under which
the Corporation may repurchase up to $
225
million of its outstanding common stock. Repurchases under the program
may be executed
through open market purchases,
accelerated share repurchases, and/or
privately negotiated transactions or
plans, including under plans
complying
with
Rule
10b5-1
under
the
Exchange
Act.
The
Corporation’s
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
Corporation’s
stock repurchase
program does
not obligate
it to
acquire any
specific number
of shares
and
does
not have
an
expiration
date.
The
stock repurchase
program
may
be
modified,
suspended,
or
terminated
at
any
time
at
the
Corporation’s
discretion.
During
the
first
quarter
of
2024,
the
Corporation
repurchased
3,006,551
shares
of
common
stock
through
open
market
transactions
at
an
average
price
of
$
16.63
for
a
total
cost
of
approximately
$
50.0
million
under
this
stock
repurchase
program. As of
March 31, 2024,
the Corporation has
remaining authorization to
repurchase approximately
$
100.0
million of common
stock, which it
expects to execute
through the end
of the third
quarter of 2024.
The Corporation’s
holding company has
no operations
and depends on dividends, distributions
and other payments from its
subsidiaries to fund dividend payments,
stock repurchases, and to
fund all payments on its obligations, including debt obligations.
Common Stock
The following table shows the changes in shares of common stock outstanding for
the quarters ended March 31, 2024 and 2023:
Total
Number of Shares
Quarter Ended March 31,
2024
2023
Common stock outstanding, beginning of year
169,302,812
182,709,059
Common stock repurchased
(1)
(3,142,589)
(3,865,375)
Common stock reissued under stock-based compensation plan
548,729
970,429
Restricted stock forfeited
(1,905)
(25,415)
Common stock outstanding, end of period
166,707,047
179,788,698
(1)
For the quarters ended March 31, 2024 and 2023 includes
136,038
and
287,835
shares, respectively, of common stock
surrendered to cover officers' payroll and
income taxes.
For
the
quarters
ended
March
31,
2024
and
2023,
total
cash
dividends
declared
on
shares
of
common
stock
amounted
to
$
26.9
million ($
0.16
per share)
and $
25.4
million ($
0.14
per share),
respectively.
On
April 25, 2024
, the
Corporation’s
Board of
Directors
declared a quarterly
cash dividend of
$
0.16
per common share.
The dividend is
payable on
June 14, 2024
to shareholders of
record at
the close
of business
on
May 30, 2024
. 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.
Preferred Stock
The Corporation
has
50,000,000
authorized shares of
preferred stock with
a par value
of $
1.00
, 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
Corporation’s
Board
of
Directors
when
authorizing
the
issuance
of
that
particular
series
and
are
redeemable
at
the
Corporation’s
option.
No
shares
of
preferred stock were outstanding as of March 31, 2024 and December
31, 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
56
Treasury Stock
The following table shows the changes in shares of treasury stock for the quarters
ended March 31, 2024 and 2023.
Total
Number of Shares
Quarter Ended March 31,
2024
2023
Treasury stock, beginning of year
54,360,304
40,954,057
Common stock repurchased
3,142,589
3,865,375
Common stock reissued under stock-based compensation plan
(548,729)
(970,429)
Restricted stock forfeited
1,905
25,415
Treasury stock, end of period
56,956,069
43,874,418
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.
FirstBank’s
legal surplus
reserve, included
as part
of
retained earnings in
the Corporation’s
consolidated statements of
financial condition, amounted
to $
199.6
million as of each
of March
31, 2024 and December 31, 2023. There were
no
transfers to the legal surplus reserve during the quarter ended March 31, 2024.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
57
NOTE 14 – ACCUMULATED
OTHER COMPREHENSIVE LOSS
The
following
table
presents
the
changes
in
accumulated
other
comprehensive
loss
for
the
quarters
ended
March
31,
2024
and
2023:
Changes in Accumulated Other Comprehensive
Loss by Component
(1)
Quarter ended March 31,
2024
2023
(In thousands)
Unrealized net holding losses on available-for-sale
debt securities:
Beginning balance
$
(640,552)
$
(805,972)
Other comprehensive (loss) income
(2)
(15,065)
87,228
Ending balance
$
(655,617)
$
(718,744)
Adjustment of pension and postretirement
benefit plans:
Beginning balance
$
1,382
$
1,194
Other comprehensive income
-
-
Ending balance
$
1,382
$
1,194
(1)
All amounts presented are net of tax.
(2)
Net unrealized holding (losses) gains on available-for-sale
debt securities have no tax effect because securities
are either tax-exempt, held by an IBE,
or have a full deferred tax
asset valuation allowance.
NOTE 15 – 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
Banco
Santander
Puerto
Rico
(“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 pursuant to
the ASC Topic 715, “Compensation-Retirement
Benefits.”
The following table presents the components of net periodic (benefit) cost for
the indicated periods:
Affected Line Item
in the Consolidated
Quarter Ended
Statements of Income
March 31, 2024
March 31, 2023
(In thousands)
Net periodic (benefit) cost, pension plans:
Interest cost
Other expenses
$
901
$
950
Expected return on plan assets
Other expenses
(1,018)
(886)
Net periodic (benefit) cost, pension plans
(117)
64
Net periodic cost, postretirement plan
Other expenses
16
6
Net periodic (benefit) cost
$
(101)
$
70
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
58
NOTE 16 –
INCOME TAXES
The Corporation is subject to Puerto Rico income tax on
its income from all sources. Under the Puerto Rico Internal
Revenue Code,
as amended (the “PR Tax
Code”), the Corporation and its subsidiaries are treated as
separate taxable entities and are not entitled to file
consolidated tax returns. However,
certain subsidiaries that are
organized as limited liability
companies with a partnership
election are
treated
as
pass-through
entities
for
Puerto
Rico
tax
purposes.
The
Corporation
conducts
business
through
certain
entities
that
have
special tax treatments, including doing business through
an IBE unit of the Bank and through FirstBank Overseas
Corporation, each of
which are generally exempt
from Puerto Rico income taxation
under the International Banking Entity
Act of Puerto Rico (“IBE Act”),
and through a
wholly-owned subsidiary
that engages in
certain Puerto Rico
qualified investing and
lending activities that
have certain
tax advantages under Act 60 of 2019.
Under
the
PR Tax
Code,
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
PR
Tax
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 PR
Tax
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.
In
addition,
the
IBE
unit
of
the
Bank
and
FirstBank
Overseas
Corporation,
which
were
created
under
the
IBE
Act,
have
an
exemption
on
net
income
derived
from
specific
activities identified in such 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.
Income
tax
expense
also
includes
USVI
income
taxes,
as
well
as
applicable
U.S.
federal
and
state
taxes.
As
a
Puerto
Rico
corporation, FirstBank
is treated as
a foreign corporation
for U.S. and
USVI income tax
purposes and 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.
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.
For the
first quarter
of 2024,
the Corporation
recorded
an income
tax expense
of $23.9
million
compared
to $
31.9
million in
the
first quarter
of 2023.
The decrease
in income
tax expense
was mainly
driven by
a lower
effective
tax rate
during the
first quarter
of
2024 and,
to a lesser
extent, by
lower pre-tax
income. During
the fourth quarter
of 2023, the
Corporation engaged
in certain business
activities with
preferential
tax treatment
under the
PR Tax
Code which
resulted
in a
lower effective
tax rate
for
the year
2023.
The
Corporation
has
maintained
an
effective
tax
rate
lower
than
the
Puerto
Rico
maximum
statutory
rate
of
37.5
%.
The
Corporation’s
estimated annual
effective tax
rate, excluding
entities with
pre-tax losses
from which
a tax
benefit cannot
be recognized
and discrete
items, was
24.3
% for the first quarter of 2024, compared to
31.2
% for the first quarter of 2023.
As of
March 31,
2024, the
Corporation had
a deferred
tax asset
of $
147.7
million, net
of a
valuation allowance
of $
140.1
million
against the deferred tax
asset, compared to a
deferred tax asset of $
150.1
million, net of a valuation
allowance of $
139.2
million, as of
December 31,
2023. The
net deferred
tax asset of
the Corporation’s
banking subsidiary,
FirstBank, amounted
to $
147.7
million as
of
March
31,
2024,
net
of
a
valuation
allowance
of
$
112.7
million,
compared
to
a
net
deferred
tax
asset
of
$
150.1
million,
net
of
a
valuation allowance of $
111.4
million, as of December 31, 2023.
The Corporation maintains a full valuation
allowance for its deferred
tax assets associated with capital loss carryforwards, NOL carryforwards
and unrealized losses of available-for-sale debt securities.
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
than
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
the first quarters
of 2024 and
2023, FirstBank incurred
current
income tax expense
of approximately $
2.2
million and $
2.5
million, respectively,
related to its U.S.
operations. The limitation
did not
impact the USVI operations in the first quarters of 2024 and 2023, respectively.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
59
The
Corporation
accounts
for
uncertain
tax
positions
under
the
provisions
of
ASC
Topic
740,
Income
Taxes.
The
Corporation’s
policy
is
to
report
interest
and
penalties
related
to
unrecognized
tax
positions
in
income
tax
expense.
As
of
March
31,
2024,
the
Corporation had
$
0.2
million of
accrued interest
and penalties
related to
uncertain tax
positions in
the amount
of $
0.8
million that
it
acquired
from
BSPR,
which,
if
recognized,
would
decrease
the
effective
income
tax
rate
in
future
periods.
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
PR
Tax
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 2019
remain open
to examination.
For Puerto
Rico tax
purposes, all
tax years
subsequent to
2018 remain
open to examination.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
60
NOTE 17 –
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.
See Note 25 – “Fair Value,”
to the audited consolidated financial
statements included in the 2023
Annual Report on Form 10-K
for
a description of the valuation methodologies used to measure financial instruments
at fair value on a recurring basis.
There
were
no
transfers
of
assets
and
liabilities
measured
at
fair
value
between
Level
1
and
Level
2
measurements
during
the
quarters ended March 31, 2024 and 2023.
Assets and liabilities measured at fair value on a recurring basis are summarized below as of
March 31,2024 and December 31, 2023:
As of March 31, 2024
As of December 31, 2023
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
$
116,068
$
-
$
-
$
116,068
$
135,393
$
-
$
-
$
135,393
Noncallable U.S. agencies debt securities
-
467,940
-
467,940
-
433,437
-
433,437
Callable U.S. agencies debt securities
-
1,785,476
-
1,785,476
-
1,874,960
-
1,874,960
MBS
-
2,671,420
4,724
(1)
2,676,144
-
2,779,994
4,785
(1)
2,784,779
Puerto Rico government obligation
-
-
1,551
1,551
-
-
1,415
1,415
Equity securities
4,871
-
-
4,871
4,893
-
-
4,893
Derivative assets
-
239
-
239
-
341
-
341
Liabilities:
Derivative liabilities
-
242
-
242
-
317
-
317
(1) Related to private label MBS.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
61
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 quarters
ended March 31, 2024 and 2023:
Quarter Ended March 31,
2024
2023
Level 3 Instruments Only
Securities Available
for Sale
(1)
Securities Available
for Sale
(1)
(In thousands)
Beginning balance
$
6,200
$
8,495
Total gains (losses):
Included in other comprehensive income (loss) (unrealized)
239
(162)
Included in earnings (unrealized)
(2)
69
9
Principal repayments and amortization
(3)
(233)
(737)
Ending balance
$
6,275
$
7,605
(1)
Amounts related to private label MBS and a Puerto Rico government
obligation.
(2)
Changes in unrealized gains included in earnings were recognized within
provision for credit losses - expense and
relate to assets still held as of the reporting date.
(3)
For the quarter ended March 31, 2023 includes a $
0.5
million repayment related to a matured debt security.
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 March 31,2024 and December
31, 2023:
March 31, 2024
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
Maximum
(Dollars in thousands)
Available-for-sale
debt securities:
Private label MBS
$
4,724
Discounted cash flows
Discount rate
16.4%
16.4%
16.4%
Prepayment rate
0.0%
6.9%
3.7%
Projected cumulative loss rate
0.2%
10.5%
3.8%
Puerto Rico government obligation
$
1,551
Discounted cash flows
Discount rate
13.0%
13.0%
13.0%
Projected cumulative loss rate
21.3%
21.3%
21.3%
December 31, 2023
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
Maximum
(Dollars in thousands)
Available-for-sale
debt securities:
Private label MBS
$
4,785
Discounted cash flows
Discount rate
16.1%
16.1%
16.1%
Prepayment rate
0.0%
6.9%
3.7%
Projected cumulative loss rate
0.1%
10.9%
4.2%
Puerto Rico government obligation
$
1,415
Discounted cash flows
Discount rate
14.1%
14.1%
14.1%
Projected cumulative loss rate
25.8%
25.8%
25.8%
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 Obligation:
The significant unobservable input used in the
fair value measurement is the assumed loss rate of
the
underlying
residential
mortgage
loans
that
collateralize
a
pass-through
MBS
guaranteed
by
the
PRHFA.
A
significant
increase
(decrease) in
the assumed
rate would
lead to
a (lower)
higher fair
value estimate.
See Note
2 –
“Debt Securities”
for information
on
the methodology used to calculate the fair value of these debt securities.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
62
Additionally, fair value
is used on a nonrecurring basis to evaluate certain assets in accordance with GAAP.
For the quarters ended March 31, 2024 and 2023, the Corporation recorded
losses or valuation adjustments for assets recognized at
fair value on a non-recurring basis and still held at March 31, 2024 and 2023, as shown
in the following table:
Carrying value as of March 31,
Related to losses recorded for the Quarter Ended
March 31,
2024
2023
2024
2023
(In thousands)
Level 3:
Loans receivable
(1)
$
9,654
$
3,486
$
(41)
$
(60)
OREO
(2)
859
814
(163)
(33)
(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.
There were no
significant haircuts applied
on appraisals for the
quarters ended March
31, 2024 and
2023.
(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.
The haircuts
applied ranged
from
2
% to
21
% for the
quarter ended
March 31,
2024 and from
10
% to
28
% for the quarter ended March 31, 2023.
See Note 25 –
“Fair Value,”
to the audited
consolidated financial statements
included in the
2023 Annual Report
on Form 10-K
for
qualitative information regarding the
fair value measurements for Level 3 financial
instruments measured at fair value on nonrecurring
basis.
The following tables present the carrying value, estimated fair value and estimated
fair value level of the hierarchy of financial
instruments as of March 31,2024 and December 31, 2023:
Total Carrying Amount
in Statement of
Financial Condition as
of March 31, 2024
Fair Value Estimate as
of
March 31, 2024
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money market investments
(amortized cost)
$
684,519
$
684,519
$
684,519
$
-
$
-
Available-for-sale debt
securities (fair value)
5,047,179
5,047,179
116,068
4,924,836
6,275
Held-to-maturity debt securities:
Held-to-maturity debt securities (amortized cost)
349,330
Less: ACL on held-to-maturity debt securities
(1,235)
Held-to-maturity debt securities, net of ACL
$
348,095
338,120
-
228,237
109,883
Equity securities (amortized cost)
46,519
46,519
-
46,519
(1)
-
Other equity securities (fair value)
4,871
4,871
4,871
-
-
Loans held for sale (lower of cost or market)
12,080
12,173
-
12,173
-
Loans held for investment:
Loans held for investment (amortized cost)
12,311,448
Less: ACL for loans and finance leases
(263,592)
Loans held for investment, net of ACL
$
12,047,856
11,953,468
-
-
11,953,468
MSRs (amortized cost)
26,355
44,764
-
-
44,764
Derivative assets (fair value)
(2)
239
239
-
239
-
Liabilities:
Deposits (amortized cost)
$
16,545,511
$
16,546,891
$
-
$
16,546,891
$
-
Advances from the FHLB (amortized cost):
Long-term
500,000
496,672
-
496,672
-
Other long-term borrowings (amortized cost)
161,700
160,199
-
-
160,199
Derivative liabilities (fair value)
(2)
242
242
-
242
-
(1) Includes FHLB stock with a carrying value of $
34.6
million, which is 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)
63
Total Carrying
Amount in Statement
of Financial Condition
as of December 31,
2023
Fair Value Estimate as
of
December 31, 2023
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money market investments (amortized
cost)
$
663,164
$
663,164
$
663,164
$
-
$
-
Available-for-sale debt
securities (fair value)
5,229,984
5,229,984
135,393
5,088,391
6,200
Held-to-maturity debt securities:
Held-to-maturity debt securities (amortized cost)
354,178
Less: ACL on held-to-maturity debt securities
(2,197)
Held-to-maturity debt securities, net of ACL
$
351,981
346,132
-
235,239
110,893
Equity securities (amortized cost)
44,782
44,782
-
44,782
(1)
-
Other equity securities (fair value)
4,893
4,893
4,893
-
-
Loans held for sale (lower of cost or market)
7,368
7,476
-
7,476
-
Loans held for investment:
Loans held for investment (amortized cost)
12,185,483
Less: ACL for loans and finance leases
(261,843)
Loans held for investment, net of ACL
$
11,923,640
11,762,855
-
-
11,762,855
MSRs (amortized cost)
26,941
45,244
-
-
45,244
Derivative assets (fair value)
(2)
341
341
-
341
-
Liabilities:
Deposits (amortized cost)
$
16,555,985
$
16,565,435
$
-
$
16,565,435
$
-
Advances from the FHLB (amortized cost)
Long-term
500,000
500,522
-
500,522
-
Other long-term borrowings (amortized cost)
161,700
159,999
-
-
159,999
Derivative liabilities (fair value)
(2)
317
317
-
317
-
(1) Includes FHLB stock with a carrying value of $
34.6
million, which is considered restricted.
(2) Includes interest rate swap agreements, interest rate caps, forward contracts and interest rate lock 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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
64
NOTE 18 – 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.
Disaggregation of Revenue
The
following
tables
summarize
the
Corporation’s
revenue,
which
includes
net
interest
income
on
financial
instruments
that
is
outside
of
ASC
Topic
606
and
non-interest
income,
disaggregated
by
type
of
service
and
business
segment
for
the
quarters
ended
March 31, 2024 and 2023:
Quarter ended March 31,2024
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial
and Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income (loss)
(1)
$
15,823
$
148,947
$
14,928
$
(6,532)
$
18,248
$
5,106
$
196,520
Service charges and fees on deposit accounts
-
5,281
3,492
-
148
741
9,662
Insurance commissions
-
5,234
-
-
56
217
5,507
Card and processing income
-
10,238
24
-
78
972
11,312
Other service charges and fees
58
1,043
876
-
621
141
2,739
Not in scope of ASC Topic
606
(1)
2,961
1,610
109
83
(2)
2
4,763
Total non-interest income
3,019
23,406
4,501
83
901
2,073
33,983
Total Revenue (Loss)
$
18,842
$
172,353
$
19,429
$
(6,449)
$
19,149
$
7,179
$
230,503
Quarter ended March 31,2023
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial
and Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income (loss)
(1)
$
21,788
$
137,744
$
14,940
$
(658)
$
20,930
$
6,141
$
200,885
Service charges and fees on deposit accounts
-
5,486
3,154
-
165
736
9,541
Insurance commissions
-
4,640
-
-
28
179
4,847
Card and processing income
-
9,901
22
-
31
964
10,918
Other service charges and fees
161
1,152
854
-
583
344
3,094
Not in scope of ASC Topic
606
(1)
2,913
855
145
160
40
5
4,118
Total non-interest
income
3,074
22,034
4,175
160
847
2,228
32,518
Total Revenue (Loss)
$
24,862
$
159,778
$
19,115
$
(498)
$
21,777
$
8,369
$
233,403
(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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
65
For
the
quarters
ended
March
31,
2024
and
2023,
most
of
the
Corporation’s
revenue
within
the
scope
of
ASC
Topic
606
was
related to performance obligations satisfied at a point in time.
See
Note
26
–
“Revenue
from
Contracts
with
Customers,”
to
the
audited
consolidated
financial
statements
included
in
the
2023
Annual Report on Form 10-K for a discussion of major revenue streams under
the scope of ASC Topic 606.
Contract Balances
As of
March 31,
2024 and
December 31,
2023, there
were
no
contract assets
recorded on
the Corporation’s
consolidated financial
statements. Moreover, the balances of contract
liabilities as of such dates were not significant.
Other
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)
66
NOTE 19 – SEGMENT INFORMATION
Based
upon
the
Corporation’s
organizational
structure
and
the
information
provided
to
the
Chief
Executive
Officer
and
management, 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
March
31,
2024,
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.
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 the 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,” to the audited consolidated financial
statements included in the 2023 Annual Report on Form 10-K.
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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
67
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)
Quarter ended March 31,2024:
Interest income
$
31,443
$
94,795
$
72,112
$
28,058
$
34,765
$
7,332
$
268,505
Net (charge) credit for transfer of funds
(15,620)
96,251
(57,184)
(21,472)
(1,975)
-
-
Interest expense
-
(42,099)
-
(13,118)
(14,542)
(2,226)
(71,985)
Net interest income (loss)
15,823
148,947
14,928
(6,532)
18,248
5,106
196,520
Provision for credit losses - (benefit) expense
(260)
15,418
(2,439)
(69)
82
(565)
12,167
Non-interest income
3,019
23,406
4,501
83
901
2,073
33,983
Direct non-interest expenses
6,705
42,645
10,339
1,071
9,110
6,591
76,461
Segment income (loss)
$
12,397
$
114,290
$
11,529
$
(7,451)
$
9,957
$
1,153
$
141,875
Average earning assets
$
2,126,465
$
3,472,998
$
4,022,173
$
5,900,314
$
2,087,816
$
413,219
$
18,022,985
Mortgage
Banking
Consumer
(Retail) Banking
Commercial and
Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Quarter ended March 31,2023:
Interest income
$
31,907
$
83,174
$
62,343
$
27,466
$
31,114
$
6,392
$
242,396
Net (charge) credit for transfer of funds
(10,119)
77,735
(47,403)
(19,539)
(674)
-
-
Interest expense
-
(23,165)
-
(8,585)
(9,510)
(251)
(41,511)
Net interest income (loss)
21,788
137,744
14,940
(658)
20,930
6,141
200,885
Provision for credit losses - (benefit) expense
(506)
15,224
(2,536)
(9)
4,655
(1,326)
15,502
Non-interest income
3,074
22,034
4,175
160
847
2,228
32,518
Direct non-interest expenses
5,087
41,627
9,365
947
8,304
6,825
72,155
Segment income (loss)
$
20,281
$
102,927
$
12,286
$
(1,436)
$
8,818
$
2,870
$
145,746
Average earning assets
$
2,171,061
$
3,174,150
$
3,713,633
$
6,216,498
$
2,067,848
$
366,338
$
17,709,528
The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods:
Quarter Ended March 31,
2024
2023
(In thousands)
Net income:
Total income for segments
$
141,875
$
145,746
Other non-interest expenses
(1)
44,462
43,113
Income before income taxes
97,413
102,633
Income tax expense
23,955
31,935
Total consolidated net income
$
73,458
$
70,698
Average assets:
Total average earning assets for segments
$
18,022,985
$
17,709,528
Average non-earning assets
835,314
847,628
Total consolidated average assets
$
18,858,299
$
18,557,156
(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)
68
NOTE 20 – SUPPLEMENTAL
STATEMENT
OF CASH FLOWS INFORMATION
Supplemental statement of cash flows information is as follows for the indicated
periods:
Quarter Ended March 31,
2024
2023
(In thousands)
Cash paid for:
Interest
$
67,322
$
37,798
Income tax
-
10,926
Operating cash flow from operating leases
4,362
4,316
Non-cash investing and financing activities:
Additions to OREO
1,213
6,414
Additions to auto and other repossessed assets
15,710
15,356
Capitalization of servicing assets
460
532
Loan securitizations
24,266
28,736
Loans held for investment transferred to held for sale
118
2,345
Loans held for sale transferred to held for investment
-
1,008
Right-of-use assets obtained in exchange for operating lease liabilities,
net of lease terminations
3,926
1,630
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
69
NOTE 21 – 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
March 31,
2024 and
December 31,
2023,
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
March
31,
2024,
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
one
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
March
31,
2024,
the
capital
measures
of
the
Corporation
and
the
Bank
included
$
48.6
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
$
16.2
million
remains
excluded
to
be
phased-in
on
January
1,
2025.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
70
The regulatory
capital position
of the
Corporation and
FirstBank as
of March
31, 2024
and December
31, 2023,
which reflects
the
delay in the full 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 March 31,2024
Total Capital (to Risk-Weighted
Assets)
First BanCorp.
$
2,388,964
18.36
%
$
1,040,707
8.0
%
N/A
N/A
FirstBank
$
2,360,406
18.15
%
$
1,040,576
8.0
%
$
1,300,720
10.0
%
CET1 Capital (to Risk-Weighted Assets)
First BanCorp.
$
2,068,978
15.90
%
$
585,398
4.5
%
N/A
N/A
FirstBank
$
2,097,291
16.12
%
$
585,324
4.5
%
$
845,468
6.5
%
Tier I Capital (to Risk-Weighted
Assets)
First BanCorp.
$
2,068,978
15.90
%
$
780,531
6.0
%
N/A
N/A
FirstBank
$
2,197,291
16.89
%
$
780,432
6.0
%
$
1,040,576
8.0
%
Leverage ratio
First BanCorp.
$
2,068,978
10.65
%
$
777,406
4.0
%
N/A
N/A
FirstBank
$
2,197,291
11.31
%
$
777,103
4.0
%
$
971,379
5.0
%
As of December 31, 2023
Total Capital (to Risk-Weighted
Assets)
First BanCorp.
$
2,403,319
18.57
%
$
1,035,589
8.0
%
N/A
N/A
FirstBank
$
2,376,003
18.36
%
$
1,035,406
8.0
%
$
1,294,257
10.0
%
CET1 Capital (to Risk-Weighted Assets)
First BanCorp.
$
2,084,432
16.10
%
$
528,519
4.5
%
N/A
N/A
%
FirstBank
$
2,113,995
16.33
%
$
582,416
4.5
%
$
841,267
6.5
%
Tier I Capital (to Risk-Weighted
Assets)
First BanCorp.
$
2,084,432
16.10
%
$
776,692
6.0
%
N/A
N/A
FirstBank
$
2,213,995
17.11
%
$
776,554
6.0
%
$
1,035,406
8.0
%
Leverage ratio
First BanCorp.
$
2,084,432
10.78
%
$
773,615
4.0
%
N/A
N/A
FirstBank
$
2,213,995
11.45
%
$
773,345
4.0
%
$
966,682
5.0
%
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
71
Commitments
The Corporation enters
into financial instruments
with off-balance sheet
risk in the normal
course of business to
meet the financing
needs
of
its
customers.
These
financial
instruments
may
include
commitments
to
extend
credit
and
standby
letters
of
credit.
Commitments to extend credit are agreements
to lend to a customer as long
as there is no violation of any conditions
established in the
contract. Commitments
generally have fixed
expiration dates or
other termination clauses.
Since certain commitments
are expected
to
expire without
being drawn
upon, the
total commitment
amount does
not necessarily
represent future
cash requirements.
For most
of
the
commercial
lines
of
credit,
the
Corporation
has
the
option
to
reevaluate
the
agreement
prior
to
additional
disbursements.
In
the
case of credit cards and personal lines of credit, the Corporation can
cancel the unused credit facility at any time and without cause.
As
of March 31, 2024,
commitments to extend
credit amounted to approximately
$
2.0
billion, of which $
0.9
billion relates to retail
credit
card
loans.
In
addition,
commercial
and
financial
standby
letters
of
credit
as
of
March
31,
2024
amounted
to
approximately
$
74.0
million.
Contingencies
As
of
March
31,
2024,
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 March 31, 2024, no such disclosures were necessary.
On
November
16,
2023,
the
FDIC
approved
a
final
rule
to
implement
a
special
assessment
to
recover
the
loss
to
the
Deposit
Insurance
Fund
associated
with
protecting
uninsured
depositors
following
the
closure
of
Silicon
Valley
Bank
and
Signature
Bank
during the
first half
of 2023.
Under the
final rule,
the FDIC
will collect
the special
assessment at
quarterly rate
of 3.36
basis points,
beginning with the
first quarterly assessment
period of 2024
(i.e, January 1
through March 31,
2024) with an
invoice payment date
of
June 28, 2024,
and will continue to
collect special assessments
for an anticipated
total of eight quarterly
assessment periods. The
base
for the
special assessment
is equal
to the
estimated uninsured
deposits reported
for the
December 31,
2022 reporting
period, adjusted
to exclude
the first $5
billion of such
amount. In
association with this
final rule
and as required
by ASC Topic
450, “Contingencies,”
as of December 31, 2023, the Corporation recorded an initial special
assessment of $
6.3
million.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
72
On
February
23,
2024,
the
FDIC
informed
that
the
estimated
loss
attributable
to
the
protection
of
uninsured
depositors
of
the
aforementioned
failed
institutions
is
$20.4
billion,
an
increase
of
approximately
$4.1
billion
from
the
estimate
of
$16.3
billion
described
in
the
final
rule.
The
estimated
loss
may
be
partially
offset
by
any
potential
future
recoveries
from
the
residual
interests
retained in
each of
the trusts.
In connection
with this
notice, during
the first
quarter of
2024, the
Corporation recorded
a $0.9
million
additional
expense in
the consolidated
statements of
income as
part of
“FDIC deposit
insurance”
expenses to
increase the
estimated
FDIC special assessment to $7.3 million.
The
FDIC
retains
the
ability
to
cease
collection
early,
extend
the
special
assessment
collection
period
beyond
the
eight-quarter
collection
period,
or
impose an
additional
shortfall
special assessment
on
a
one-time
basis after
the
receiverships
for the
two
failed
institutions
are
terminated.
The
collection
period
may
change
due
to
updates
to
the
estimated
loss
pursuant
to
the
systemic
risk
determination or
if assessments
collected change
due to
corrective amendments
to the
amount of
uninsured deposits
reported for
the
December 31,
2022 reporting
period.
The FDIC
will provide
any updates
on the
estimated loss
and collection
period for
the special
assessment with the first quarter 2024 special assessment invoice, to be released
in June 2024.
The federal
financial regulatory
agencies
may
take other
measures to
address macroeconomic
conditions,
as well
as the
effect
of
regional
bank
failures
in
the
U.S.
mainland
during
the
first
half
of
2023,
although
the
nature
and
impact
of
such
actions cannot
be
predicted at this time.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
73
NOTE 22 – 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 March 31, 2024 and December 31, 2023, and the results of its operations
for the quarters ended March 31, 2024 and 2023:
Statements of Financial Condition
As of March 31,
As of December 31,
2024
2023
(In thousands)
Assets
Cash and due from banks
$
11,420
$
11,452
Other investment securities
975
825
Investment in First Bank Puerto Rico, at equity
1,608,030
1,627,172
Investment in First Bank Insurance Agency,
at equity
21,509
18,376
Investment in FBP Statutory Trust I
1,289
1,289
Investment in FBP Statutory Trust II
3,561
3,561
Dividends receivable
709
713
Other assets
679
476
Total assets
$
1,648,172
$
1,663,864
Liabilities and Stockholders’ Equity
Liabilities:
Long-term borrowings
$
161,700
$
161,700
Accounts payable and other liabilities
6,755
4,555
Total liabilities
168,455
166,255
Stockholders’ equity
1,479,717
1,497,609
Total liabilities and stockholders’
equity
$
1,648,172
$
1,663,864
Statements of Income
Quarter Ended March 31,
2024
2023
(In thousands)
Income
Interest income on money market investments
$
63
$
53
Dividend income from banking subsidiaries
80,917
78,870
Other income
101
102
Total income
81,081
79,025
Expense
Interest expense on long-term borrowings
3,350
3,381
Other non-interest expenses
439
410
Total expense
3,789
3,791
Income before income taxes and equity in undistributed
earnings of subsidiaries
77,292
75,234
Income tax expense
1
1
Equity in undistributed earnings of subsidiaries (distribution in excess of
earnings)
(3,833)
(4,535)
Net income
$
73,458
$
70,698
Other comprehensive (loss) income, net of tax
(15,065)
87,228
Comprehensive income
$
58,393
$
157,926
74
ITEM
2.
MANAGEMENT’S
DISCUSSION
AND
ANALYSIS
OF
FINANCIAL
CONDITION
AND
RESULTS
OF
OPERATIONS (“MD&A”)
The
following
MD&A
relates
to
the
accompanying
unaudited
consolidated
financial
statements
of
First
BanCorp.
(the
“Corporation,” “we,” “us,”
“our,” or “First
BanCorp.”) and should be
read in conjunction with
such financial statements and
the notes
thereto,
and our
Annual Report
on Form
10-K for
the fiscal
year ended
December 31,
2023 (the
“2023 Annual
Report on
Form 10-
K”). This section
also presents certain
financial measures that
are not based
on generally accepted
accounting principles in
the United
States
of
America
(“GAAP”).
See
“Non-GAAP
Financial
Measures
and
Reconciliations”
below
for
information
about
why
non-
GAAP
financial
measures
are
presented,
reconciliations
of
non-GAAP
financial
measures
to
the
most
comparable
GAAP
financial
measures, and references to non-GAAP financial measures reconciliations
presented in other sections.
EXECUTIVE SUMMARY
First BanCorp.
is a diversified
financial holding
company headquartered
in San Juan,
Puerto Rico offering
a full range
of financial
products to
consumers and
commercial customers
through various
subsidiaries. First
BanCorp.
is the
holding company
of FirstBank
Puerto
Rico
(“FirstBank”
or the
“Bank”)
and
FirstBank
Insurance
Agency.
Through
its wholly
-owned
subsidiaries,
the Corporation
operates
in
Puerto
Rico,
the
United
States
Virgin
Islands
(“USVI”),
the
British
Virgin
Islands
(“BVI”),
and
the
state
of
Florida,
concentrating on
commercial banking,
residential mortgage loans,
credit cards, personal
loans, small loans,
auto loans and
leases, and
insurance agency activities.
Recent Developments
Economy and Market Volatility
The
Corporation
continued
to
successfully
navigate
the
challenging
interest
rate
cycle
by
delivering
another
quarter
of
strong
operating
results.
Consistent
with
its
guidance,
the
loan
portfolio
grew
for
the
ninth
consecutive
quarter,
expenses
were
prudently
managed, profitability
was sustained,
and over
100% of
earnings was
returned to
shareholders during
the first
quarter of
2024 in
the
form
of
buybacks
and
dividends.
Core
deposits,
other
than
government
and
brokered,
stabilized
during
the
quarter
although
some
migration
of
customers
seeking
higher
yields
in
time
deposits
continued
as
expected.
Early
delinquency
metrics
improved
and
the
Corporation
took
advantage
of
market
opportunities
to
sell
a
portfolio
of
previously
charged-off
consumer
loans
which
positively
impacted the provision expense for the first quarter of 2024.
Furthermore,
the
Corporation
remains
vigilant
of
the
interest
rate
market
environment.
Following
its
May
1,
2024
meeting,
the
Federal Reserve announced
its decision to
leave the federal
funds rate unchanged,
at a target
rate of 5.25%
to 5.50%, and
commented
that
it
is
prepared
to
maintain
the
current
target
range
for
the
federal
funds
rate
for
longer.
The
Federal
Reserve
advised
that
it’s
unlikely that the next move will be a rate hike even after indications that inflation
continues to be more resilient than expected.
Under a
higher-for-longer
interest rate
environment, the
Corporation expects
to be margin
accretive for
the year
and remains well-
positioned to redeploy cash
inflows from repayments of
the investment securities portfolio
,
which are expected at
approximately $900
million for
the remainder
of the
year,
into higher-yielding
assets. Moreover,
although the
Corporation expects
some further
increases
in time
deposits, it
expects other
deposits to
remain stable.
Also, the
Corporation expects
to register
mid-single-digit loan
growth for
its core business since
it remains encouraged
by commercial and
auto loan activity
and loan origination
opportunities available within
both Puerto Rico and the Florida region.
Return of Capital to Shareholders
In the
first quarter
of 2024,
the Corporation
returned approximately
$76.6 million,
or over
100% of
first quarter
2024 earnings,
to
its shareholders through
$50.0 million in
repurchases of common
stock and the payment
of $26.6 million
in common stock
dividends,
which reflects an increase in
the common stock dividend of 14%,
from $0.14 per share in the
fourth quarter of 2023 to
$0.16 per share
in
the
first
quarter
of
2024.
As
of
May
2,
2024,
the
Corporation
has
remaining
authorization
to
repurchase
approximately
$95.1
million of common
stock, which it expects
to execute through
the end of
the third quarter of
2024. The Corporation
expects to update
its capital plan during the second quarter of 2024.
75
Strategic Partnership with nCino
In
the
first
quarter
of
2024,
the
Corporation
partnered
with
nCino,
a
financial
technology
company
that
provides
cloud
banking
solutions for the global
financial services industry,
to offer a more
modern commercial banking
experience for its customers
as part of
its digital
transformation
initiatives. These
innovations,
which represent
an estimated
investment of
approximately
$15 million,
will
enhance the customer
experience by providing
simplicity in online
commercial operations and
shortening loan cycle
times, while also
improving the lending and portfolio management capabilities for
FirstBank Puerto Rico’s employees
by simplifying the loan cycle and
enhancing credit response times.
CRITICAL ACCOUNTING POLICIES AND PRACTICES
The
accounting
principles
of
the
Corporation
and
the
methods
of
applying
these
principles
conform
to
GAAP.
In
preparing
the
consolidated
financial
statements,
management
is
required
to
make
estimates,
assumptions,
and
judgments
that
affect
the
amounts
recorded for assets,
liabilities and contingent
liabilities as of
the date of
the financial statements
and the reported
amounts of revenues
and
expenses
during
the
reporting
periods.
Note
1
of
the Notes
to
Consolidated
Financial
Statements
included
in
our
2023
Annual
Report
on
Form
10-K,
as
supplemented
by
this
Quarterly
Report
on
Form
10-Q,
including
this
MD&A,
describes
the
significant
accounting policies we used in our consolidated financial statements.
Not all significant
accounting policies require
management to make
difficult, subjective
or complex judgments.
Critical accounting
estimates
are
those
estimates
made
in
accordance
with
GAAP
that
involve
a
significant
level
of
uncertainty
and
have
had
or
are
reasonably
likely
to
have
a
material
impact
on
the
Corporation’s
financial
condition
and
results
of
operations.
The
Corporation’s
critical accounting
estimates that
are particularly
susceptible
to significant
changes include,
but are
not limited
to, the
following:
(i)
the allowance for credit losses (“ACL”);
(ii) valuation of financial instruments;
and (iii) income taxes. For more
information regarding
valuation of financial
instruments and income taxes
policies, assumptions, and
judgments, see “Critical Accounting
Estimates” in Part
II,
Item
7,
“Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations
(“MD&A”),”
in
the
2023
Annual
Report
on
Form
10-K.
The
“Risk
Management
–
Credit
Risk
Management”
section
of
this
MD&A
details
the
policies,
assumptions, and
judgments related
to the
ACL. Actual
results could
differ
from estimates
and assumptions
if different
outcomes or
conditions prevail.
76
Overview of Results of Operations
The
Corporation’s
results
of operations
depend
primarily
on
its
net
interest
income,
which
is
the
difference
between
the
interest
income
earned
on
its
interest-earning
assets,
including
investment
securities
and
loans,
and
the
interest
expense
incurred
on
its
interest-bearing
liabilities,
including
deposits
and
borrowings.
Net
interest
income
is
affected
by
various
factors,
including
the
following:
(i)
the
interest
rate
environment;
(ii)
the
volumes,
mix,
and
composition
of
interest-earning
assets,
and
interest-bearing
liabilities; and
(iii) the
repricing
characteristics of
these assets
and liabilities.
The Corporation
’s
results of
operations also
depend on
the
provision
for
credit
losses,
non-interest
expenses
(such
as
personnel,
occupancy,
professional
service
fees,
the
FDIC
insurance
premium,
and
other
costs),
non-interest
income
(mainly
service
charges
and
fees
on
deposits,
cards
and
processing
income,
and
insurance income), gains (losses) on mortgage banking activities, and income
taxes.
The
Corporation
had
net
income
of
$73.5
million,
or
$0.44
per
diluted
common
share,
for
the
quarter
ended
March
31,
2024,
compared
to
$70.7
million,
or
$0.39
per
diluted
common
share,
for
the
quarter
ended
March
31,
2023.
Other
relevant
selected
financial indicators for the periods presented are included below:
Quarter Ended March 31,
2024
2023
Key Performance Indicator:
(1)
Return on Average
Assets
(2)
1.56
%
1.55
%
Return on Average
Common Equity
(3)
19.56
21.00
Efficiency Ratio
(4)
52.46
49.39
(1)
These financial ratios are used by management to monitor the Corporation’s
financial performance and whether it is using its assets
efficiently.
(2)
Indicates how profitable the Corporation is in relation to its total assets
and is calculated by dividing net income on an annualized basis
by its average total assets.
(3)
Measures the Corporation’s performance
based on its average common stockholders’ equity and is calculated
by dividing net income on an annualized basis by its
average total common
stockholders’ equity.
(4)
Measures how much the Corporation incurred to generate a
dollar of revenue and is calculated by dividing non-interest expenses
by total revenue.
77
The key drivers
of the Corporation’s
GAAP financial results
for the quarter
ended March 31, 2024,
compared to the
first quarter of
2023, include the following:
●
Net interest
income for
the quarter
ended March
31, 2024
decreased
to $196.5
million, compared
to $200.9
million for
the
first quarter
of 2023,
mainly driven
by an
increase
in interest
expense
due
to higher
rates paid
on interest-bearing
deposits
given the higher
interest rate environment
and a change in
deposit mix, partially
offset by the
effect of higher
market interest
rates on
the upward
repricing of
variable-rate commercial
loans as well
as the
effect of
higher average
loan balances
funded
with cash
flows from
the lower-yielding
investment
securities portfolio
.
See “Results
of Operations
– Net
Interest
Income”
below for additional information.
●
The provision for credit
losses on loans, finance
leases, unfunded loan commitments
and debt securities for the
quarter ended
March
31,
2024
was
$12.2
million,
compared
to
$15.5
million
for
the
first
quarter
of
2023.
The
decrease
in
the provision
expense was
primarily related
to the
effect during
the first
quarter of
2024 of
a $9.5
million recovery
associated with
a bulk
sale
of
fully
charged-off
consumer
loans
and
a
$5.0
million
recovery
of
a
commercial
and
industrial
(“C&I”)
loan
in
the
Puerto Rico region, partially offset by increases in charge
-off levels in the consumer loans and finance leases portfolio.
Net
charge-offs
totaled
$11.2
million
for
the
quarter
ended
March
31,
2024,
or
0.37%
of
average
loans
on
an
annualized
basis,
compared
to
$13.3
million,
or
an
annualized
0.46%
of
average
loans,
for
the
first
quarter
of
2023.
The
recovery
associated with the
aforementioned bulk sale
of fully charged-off
consumer loans reduced the
ratio of total net
charge-offs to
average loans
for the
first quarter
of 2024
by approximately
31 basis
points (“bps”).
See “Results
of Operations
– Provision
for Credit Losses” and “Risk Management” below for analyses of the ACL and
non-performing assets and related ratios.
●
The
Corporation
recorded
non-interest
income
of
$34.0
million
for
the
quarter
ended
March
31,
2024,
compared
to
$32.5
million for the first quarter of 2023. See “Results of Operations – Non-Interest
Income”
below for additional information.
●
Non-interest
expenses
for
the
quarter
ended
March
31,
2024
increased
by
$5.6
million
to
$120.9
million,
of
which
$3.1
million
was related
to an
increase in
employees’ compensation
and benefits
expenses mainly
driven by
annual salary
merit
increases. The efficiency ratio for the first quarter of 2024
was 52.46%,
compared to 49.39% for the same period in 2023. See
“Results of Operations – Non-Interest Expenses” below for additional
information.
●
Income tax expense decreased
to $23.9 million for
the first quarter of 2024,
compared to $31.9 million for
the same period in
2023,
driven
by
a
lower
estimated
effective
tax
rate
and,
to
a
lesser
extent,
by
lower
pre-tax
income.
The
Corporation’s
estimated effective
tax rate, excluding entities
with pre-tax losses from
which a tax benefit
cannot be recognized
and discrete
items, decreased
to 24.3%
for the first quarter
of 2024, compared
to 31.2% for
the first quarter
of 2023. See
“Income Taxes”
below and Note 16 – “Income Taxes
,” to the unaudited consolidated financial statements herein for additional
information.
●
As of
March 31,
2024,
total assets
were approximately
$18.9 billion,
a decrease
of $18.6
million from
December 31,
2023,
primarily
related
to
a
$15.1
million
decrease
in
the
fair
value
of
available-for-sale
debt
securities.
Total
assets
were
also
impacted by repayments of investment securities, partially offset
by an increase in total loans.
●
As of March 31, 2024,
total liabilities were $17.4 billion, a decrease of $0.7
million from December 31, 2023, which includes
a $10.4
million decrease
in total
deposits. See
“Risk Management
– Liquidity
Risk” below
for additional
information about
the Corporation’s funding
sources and strategy.
●
The Bank’s
primary sources of funding
are consumer and commercial
core deposits, which exclude
government deposits and
brokered
CDs.
As
of
March
31,
2024,
these
core
deposits,
amounting
to
$12.6
billion,
funded
66.57%
of
total
assets.
Excluding
fully
collateralized government
deposits, estimated
uninsured
deposits amounted
to $4.4
billion
as of
March 31,
2024.
In
addition
to
approximately
$2.0
billion
in
cash
and
free
high-quality
liquid
assets,
the
Bank
maintains
borrowing
capacity
at
the
FHLB
and
the
FED’s
Discount
Window.
As
of
March
31,
2024,
the
Corporation
had
approximately
$1.6
billion
available
for
funding
under
the
FED’s
Discount
Window
and
$972.5
million
available
for
additional
borrowing
capacity on FHLB lines of credit based on collateral pledged at
these entities. On a combined basis, as of March 31,
2024, the
Corporation
had
$5.4
billion,
or
121%
of
estimated
uninsured
deposits,
available
to
meet
liquidity
needs.
See
“Risk
Management – Liquidity Risk” below for additional information about the Corporation’s
funding sources and strategy.
78
●
As
of
March
31,
2024,
the
Corporation’s
total
stockholders’
equity
was
$1.5
billion,
a
decrease
of
$17.9
million
from
December 31,
2023. The
decrease was
driven by
the repurchase
of approximately
3.0 million
shares of
common stock
for a
total cost
of $50.0
million, common
stock dividends
declared in
the first
quarter of
2024 totaling
$26.9 million
or $0.16
per
common
share,
and
a
$15.1
million
decrease
in
the
fair
value
of
available-for-sale
debt
securities
recorded
as
part
of
accumulated
other comprehensive
loss in
the consolidated
statements of
financial
condition. These
variances were
partially
offset
by the
net income
generated in
the first
quarter of
2024. The
Corporation’s
CET1 capital,
tier 1
capital, total
capital,
and
leverage
ratios
were
15.90%,
15.90%,
18.36%,
and
10.65%,
respectively,
as
of
March
31,
2024,
compared
to
CET1
capital, tier 1 capital, total capital, and leverage ratios of 16.10%, 16.
10%, 18.57%, and 10.78%, respectively,
as of December
31, 2023.
See “Risk Management – Capital” below for additional information.
●
Total
loan
production,
including
purchases,
refinancings,
renewals,
and
draws
from
existing
revolving
and
non-revolving
commitments, increased by $8.6 million
to $1.2 billion for the quarter
ended March 31, 2024, as
compared to the first quarter
of
2023,
driven
by
a
higher
volume
of
C&I
loan
originations.
See
“Results
of
Operations
–
Loan
Production”
below
for
additional information.
●
Total non-performing
assets were $129.6 million as of March 31, 2024, an increase of $3.7 million,
from December 31, 2023,
mainly driven
by the
inflow to
nonaccrual status
of a
$10.5 million
C&I loan
in the
Florida region
in the
power generation
industry during
the first quarter
of 2024,
partially offset
by a $3.8
million decrease
in the other
real estate owned
(“OREO”)
portfolio balance and
a $1.9 million
decrease in other
repossessed property.
See “Risk Management
– Nonaccrual Loans
and
Non-Performing Assets” below for additional information.
●
Adversely
classified
commercial
and
construction
loans
increased
by
$9.0
million
to
$76.5
million
as
of
March
31,
2024,
compared to
December 31, 2023,
also driven by
the aforementioned
inflow to nonaccrual
status of a
$10.5 million
C&I loan
in the Florida region.
79
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS
The Corporation has included in this Quarterly Report on Form 10-Q
the following financial measures that are not recognized under
GAAP,
which are referred to as non-GAAP financial measures:
Net Interest Income,
Interest Rate Spread,
and Net Interest Margin, Excluding
Valuations
,
and on a Tax
-Equivalent Basis
Net interest
income, interest
rate spread,
and net
interest margin,
excluding the
changes in
the fair
value of
derivative instruments
and on
a tax-equivalent
basis, are
reported in
order to
provide to
investors additional
information about
the Corporation’s
net interest
income
that management
uses and
believes should
facilitate comparability and
analysis of
the periods
presented.
The changes
in the
fair value
of derivative
instruments have
no effect
on interest
due or
interest earned
on interest-bearing
liabilities or
interest-earning
assets, respectively.
The tax-equivalent
adjustment to
net interest
income recognizes
the income
tax savings
when comparing
taxable
and
tax-exempt
assets
and
assumes
a
marginal
income
tax
rate.
Income
from
tax-exempt
earning
assets
is
increased
by
an
amount
equivalent to
the taxes
that would
have been
paid if
this income
had been
taxable at
statutory rates.
Management believes
that it
is a
standard
practice
in
the banking
industry
to
present
net
interest
income,
interest
rate
spread,
and
net
interest
margin
on
a
fully
tax-
equivalent basis. This adjustment
puts all earning assets, most notably
tax-exempt securities and tax-exempt
loans, on a common basis
that facilitates comparison of results to the results of peers.
See “Results of Operations – Net Interest Income” below,
for the table that reconciles net interest income in accordance with GAAP
to
the
non-GAAP
financial
measure
of
net
interest
income,
excluding
valuations,
and
on
a
tax-equivalent
basis
for
the
indicated
periods. The table also reconciles
net interest spread and
net interest margin on
a GAAP basis to these items
excluding valuations, and
on a tax-equivalent basis.
Tangible
Common Equity Ratio and Tangible
Book Value
Per Common Share
The tangible
common equity
ratio and
tangible book
value per
common share
are non-GAAP
financial measures
that management
believes are generally
used by the financial
community to evaluate
capital adequacy.
Tangible
common equity is total
common equity
less goodwill
and
other
intangibles. Similarly,
tangible
assets are
total assets
less goodwill
and
other
intangibles.
Tangible
common
equity ratio is tangible common
equity divided by tangible assets. Tangible
book value per common share is
tangible assets divided by
the number
of common
shares outstanding.
Management and
many stock
analysts use
the tangible
common equity
ratio and
tangible
book
value
per
common
share
in
conjunction
with
more
traditional
bank
capital
ratios
to
compare
the
capital
adequacy
of
banking
organizations with significant
amounts of goodwill or
other intangible assets, typically
stemming from the use
of the purchase method
of accounting for
mergers and acquisitions.
Accordingly,
the Corporation believes
that disclosures of these
financial measures may
be
useful to
investors. Neither
tangible common
equity nor
tangible assets,
or the
related measures,
should be
considered in
isolation or
as a substitute for stockholders’
equity,
total assets, or any other
measure calculated in accordance
with GAAP.
Moreover, the
manner
in which
the Corporation
calculates its
tangible common
equity,
tangible assets,
and any
other related
measures may
differ from
that
of other companies reporting measures with similar names.
See “Risk
Management –
Capital” below
for the
table that
reconciles the
Corporation’s
total equity
and total
assets in
accordance
with GAAP to
the tangible common
equity and tangible
assets figures used
to calculate the
non-GAAP financial measures
of tangible
common equity ratio and tangible book value per common share.
80
Adjusted Net Income and Adjusted Non-Interest Expenses
To
supplement the
Corporation’s
financial statements
presented in
accordance with
GAAP,
the Corporation
uses, and believes
that
investors benefit from disclosure of, non
-GAAP financial measures that reflect
adjustments to net income and non-interest
expenses to
exclude items
that management
believes are
not reflective
of core
operating performance
(“Special Items”).
The financial
results for
the quarter ended
March 31, 2023
did not include
any significant Special
Items.
The financial results
for the quarter
ended March 31,
2024 included the following Special Item:
FDIC Special Assessment Expense
-
On November
16, 2023, the
FDIC approved a
final rule to
implement a special
assessment to recover
the loss to
the Deposit
Insurance
Fund associated
with protecting
uninsured
deposits following
certain
financial institution
failures
during
the first
half of 2023.
Under the final rule,
the FDIC will collect
the special assessment at
a quarterly rate
of 3.36 bps to
be applied to
the
special
assessment
base
during
an
eight-quarter
collection
period.
The
base
for
the
special
assessment
is
equal
to
the
estimated uninsured
deposits reported
for the
December 31, 2022
reporting period,
adjusted to
exclude the first
$5 billion
of
such
amount.
During
the
first
quarter
of
2024,
the
FDIC
informed
that
the
estimated
loss
attributable
to
the
protection
of
uninsured
depositors
of
the
financial
institution
failures
increased,
when
compared
with
the
estimate
described
in
the
final
rule.
As such,
the Corporation
recorded
a $0.9
million
($0.6
million
after-tax,
calculated
based
on the
statutory
tax rate
of
37.5%) additional expense to increase the estimated FDIC special assessment
to $7.3 million. The FDIC special assessment is
reflected in the consolidated statements of income as part of “FDIC deposit insurance”
expenses.
Adjusted Net Income
– The following
table reconciles
for the quarter
ended March 31,
2024, net
income to adjusted
net income, a
non-GAAP financial
measure that
excludes the
Special Item identified
above, and
shows net
income for
the quarter ended
March 31,
2023.
Quarter Ended March 31,
2024
2023
(In thousands)
Net income, as reported (GAAP)
$
73,458
$
70,698
Adjustments:
FDIC special assessment expense
947
-
Income tax impact of adjustment
(355)
-
Adjusted net income (Non-GAAP)
$
74,050
$
70,698
81
RESULTS
OF OPERATIONS
Net Interest Income
Net interest
income is
the excess of
interest earned
by First BanCorp.
on its interest-earning
assets over
the interest
incurred on its
interest-bearing
liabilities.
First
BanCorp.’s
net
interest
income
is
subject
to
interest
rate
risk
due
to
the
repricing
and
maturity
mismatch
of
the
Corporation’s
assets
and
liabilities.
In
addition,
variable
sources
of
interest
income,
such
as
loan
fees,
periodic
dividends, and collection of
interest in nonaccrual loans, can
fluctuate from period to
period. Net interest income
for the quarter ended
March
31,
2024 was
$196.5 million,
compared
to
$200.9 million
for
the
comparable
period
in 2023.
On
a
tax-equivalent basis
and
excluding the changes in the
fair value of derivative instruments, net
interest income for the quarter ended
March 31, 2024 was $201.3
million, compared to $207.2 million for the comparable period
in 2023.
The
following
tables
include a
detailed
analysis
of net
interest income
for
the indicated
periods.
Part I
presents
average volumes
(based
on
the
average
daily
balance)
and
rates
on
an
adjusted
tax-equivalent
basis
and
Part
II
presents,
also
on
an
adjusted
tax-
equivalent basis,
the extent
to which
changes in
interest rates
and changes
in the
volume of
interest-related assets
and liabilities
have
affected
the Corporation’s
net interest
income. For
each category
of interest-earning
assets and
interest-bearing
liabilities, the
tables
provide
information
on
changes
in
(i)
volume
(changes
in
volume
multiplied
by
prior
period
rates),
and
(ii)
rate
(changes
in
rate
multiplied by
prior period
volumes). The
Corporation has
allocated rate-volume
variances (changes
in rate
multiplied by
changes in
volume) to either the changes in volume or the changes in rate based upon the
effect of each factor on the combined totals.
Net interest
income on
an adjusted
tax-equivalent
basis and
excluding
the changes
in the
fair value
of derivative
instruments is
a
non-GAAP
financial
measure.
For
the
definition
of
this
non-GAAP
financial
measure,
refer
to
the
discussion
in
“Non-GAAP
Financial Measures and Reconciliations” above.
Part I
Average volume
Interest income
(1)
/ expense
Average rate
(1)
Quarter ended March 31,
2024
2023
2024
2023
2024
2023
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
$
533,747
$
404,249
$
7,254
$
4,650
5.45
%
4.67
%
Government obligations
(2)
2,684,169
2,909,976
9,053
10,765
1.35
%
1.50
%
MBS
3,451,293
3,864,145
15,238
19,396
1.77
%
2.04
%
FHLB stock
34,635
40,838
854
421
9.89
%
4.18
%
Other investments
16,551
13,139
66
139
1.60
%
4.29
%
Total investments
(3)
6,720,395
7,232,347
32,465
35,371
1.94
%
1.98
%
Residential mortgage loans
2,810,304
2,835,240
40,473
39,794
5.78
%
5.69
%
Construction loans
218,854
146,041
4,537
2,676
8.32
%
7.43
%
C&I and commercial mortgage loans
5,504,782
5,167,727
99,074
85,885
7.22
%
6.74
%
Finance leases
863,685
735,500
17,127
13,809
7.95
%
7.61
%
Consumer loans
2,810,215
2,634,891
79,640
71,214
11.37
%
10.96
%
Total loans
(4)(5)
12,207,840
11,519,399
240,851
213,378
7.91
%
7.51
%
Total interest-earning assets
$
18,928,235
$
18,751,746
$
273,316
$
248,749
5.79
%
5.38
%
Interest-bearing liabilities:
Time deposits
$
2,892,355
$
2,342,360
$
24,410
$
10,782
3.39
%
1.87
%
Brokered certificates of deposit (“CDs”)
749,760
166,698
9,680
1,587
5.18
%
3.86
%
Other interest-bearing deposits
7,534,344
7,544,901
28,935
17,516
1.54
%
0.94
%
Securities sold under agreements to repurchase
-
91,004
-
1,069
-
%
4.76
%
Advances from the FHLB
500,000
629,167
5,610
7,176
4.50
%
4.63
%
Other borrowings
161,700
183,762
3,350
3,381
8.31
%
7.46
%
Total interest-bearing liabilities
$
11,838,159
$
10,957,892
$
71,985
$
41,511
2.44
%
1.54
%
Net interest income on a tax-equivalent basis and excluding
valuations - non-GAAP
$
201,331
$
207,238
Interest rate spread
3.35
%
3.84
%
Net interest margin
4.27
%
4.48
%
(1)
On an adjusted tax-equivalent basis. The Corporation estimated the
adjusted tax-equivalent yield by dividing the interest rate
spread on exempt assets by 1 less the Puerto Rico statutory
tax
rate of 37.5% and adding to it the cost of interest-bearing liabilities.
The tax-equivalent adjustment recognizes the income tax savings
when comparing taxable and tax-exempt assets.
Management believes that it is a standard practice in the banking industry
to present net interest income, interest rate spread and net
interest margin on a fully tax-equivalent basis.
Therefore, management believes these measures provide useful information
to investors by allowing them to make peer comparisons.
The Corporation excludes changes in the fair value of
derivatives from interest income because the changes
in valuation do not affect interest received. See “Non-GAAP
Financial Measures and Reconciliations” above.
(2)
Government obligations include debt issued by government-sponsored
agencies.
(3)
Unrealized gains and losses on available-for-sale debt securities
are excluded from the average volumes.
(4)
Average loan balances include
the average of nonaccrual loans.
(5)
Interest income on loans includes $3.2 million and $3.1 million for
the quarters ended March 31, 2024 and 2023, respectively,
of income from prepayment penalties and late fees related
to
the Corporation’s loan portfolio.
82
Part II
Quarter Ended March 31,
2024 Compared to 2023
Variance due to:
Volume
Rate
Total
(In thousands)
Interest income on interest-earning assets:
Money market and other short-term investments
$
1,660
$
944
$
2,604
Government obligations
(804)
(908)
(1,712)
MBS
(1,963)
(2,195)
(4,158)
FHLB stock
(108)
541
433
Other investments
25
(98)
(73)
Total investments
(1,190)
(1,716)
(2,906)
Residential mortgage loans
(355)
1,034
679
Construction loans
1,465
396
1,861
C&I and commercial mortgage loans
5,860
7,329
13,189
Finance leases
2,498
820
3,318
Consumer loans
4,870
3,556
8,426
Total loans
14,338
13,135
27,473
Total interest income
$
13,148
$
11,419
$
24,567
Interest expense on interest-bearing liabilities:
Time deposits
$
3,020
$
10,608
$
13,628
Brokered CDs
7,284
809
8,093
Other interest-bearing deposits
(32)
11,451
11,419
Securities sold under agreements to repurchase
(1,069)
-
(1,069)
Advances from the FHLB
(1,440)
(126)
(1,566)
Other borrowings
(431)
400
(31)
Total interest expense
7,332
23,142
30,474
Change in net interest income
$
5,816
$
(11,723)
$
(5,907)
Portions of the Corporation’s
interest-earning assets, mostly investments
in obligations of some U.S.
government agencies and U.S.
government-sponsored
entities (“GSEs”),
generate interest
that is
exempt from
income tax,
principally in
Puerto Rico.
Also, interest
and gains
on sales of
investments held by
the Corporation’s
international banking
entities (“IBEs”) are
tax-exempt under
Puerto Rico
tax
law
(see
Note
16
–
“Income
Taxes”
to
the
unaudited
consolidated
financial
statements
herein
for
additional
information).
Management
believes
that
the
presentation
of
interest
income
on
an
adjusted
tax-equivalent
basis
facilitates
the
comparison
of
all
interest data
related to
these assets. The
Corporation estimated
the tax
equivalent yield
by dividing
the interest
rate spread
on exempt
assets
by
1
less
the
Puerto
Rico
statutory
tax
rate
(37.5%)
and
adding
to
it
the
average
cost
of
interest-bearing
liabilities.
The
computation considers the interest expense disallowance required
by Puerto Rico tax law.
Management
believes
that
the
presentation
of
net
interest
income,
excluding
the
effects
of
the
changes
in
the
fair
value
of
the
derivative
instruments
(“valuations”),
provides
additional
information
about
the
Corporation’s
net
interest
income
and
facilitates
comparability and analysis from
period to period. The changes
in the fair value of
the derivative instruments have
no effect on interest
earned on interest-earning assets.
83
The following
table reconciles
net interest
income in
accordance with
GAAP to
net interest
income, excluding
valuations, and
net
interest
income
on
an
adjusted
tax-equivalent
basis
for
the
indicated
periods.
The
table
also
reconciles
net
interest
spread
and
net
interest margin on a GAAP basis to these items excluding valuations, and
on an adjusted tax-equivalent basis:
Quarter Ended
March 31,
2024
2023
(Dollars in thousands)
Interest income - GAAP
$
268,505
$
242,396
Unrealized (gain) loss on derivative instruments
(2)
6
Interest income excluding valuations - non-GAAP
268,503
242,402
Tax-equivalent adjustment
4,813
6,347
Interest income on a tax-equivalent basis
and excluding valuations - non-GAAP
$
273,316
$
248,749
Interest expense - GAAP
$
71,985
$
41,511
Net interest income - GAAP
$
196,520
$
200,885
Net interest income excluding valuations - non-GAAP
$
196,518
$
200,891
Net interest income on a tax-equivalent basis
and excluding valuations - non-GAAP
$
201,331
$
207,238
Average Balances
Loans and leases
$
12,207,840
$
11,519,399
Total securities, other short-term investments and interest-bearing
cash balances
6,720,395
7,232,347
Average Interest-Earning Assets
$
18,928,235
$
18,751,746
Average Interest-Bearing Liabilities
$
11,838,159
$
10,957,892
Average Assets
(1)
$
18,858,299
$
18,557,156
Average Non-Interest-Bearing Deposits
$
5,308,531
$
5,999,066
Average Yield/Rate
Average yield on interest-earning assets - GAAP
5.69%
5.24%
Average rate on interest-bearing liabilities - GAAP
2.44%
1.54%
Net interest spread - GAAP
3.25%
3.70%
Net interest margin - GAAP
4.16%
4.34%
Average yield on interest-earning assets excluding valuations
- non-GAAP
5.69%
5.24%
Average rate on interest-bearing liabilities
2.44%
1.54%
Net interest spread excluding valuations - non-GAAP
3.25%
3.70%
Net interest margin excluding valuations - non-GAAP
4.16%
4.34%
Average yield on interest-earning assets on a tax-equivalent
basis and excluding valuations - non-GAAP
5.79%
5.38%
Average rate on interest-bearing liabilities
2.44%
1.54%
Net interest spread on a tax-equivalent basis
and excluding valuations - non-GAAP
3.35%
3.84%
Net interest margin on a tax-equivalent basis and excluding
valuations - non-GAAP
4.27%
4.48%
(1) Includes, among other things, the ACL on loans and finance leases
and debt securities, as well as unrealized gains and losses on available-for-sale
debt securities.
84
Net interest income
amounted to
$196.5 million
for the quarter
ended March
31, 2024, a
decrease of
$4.4 million,
when compared
to $200.9 million for same period in 2023. The $4.4 million decrease in
net interest income was primarily due to:
●
A $33.1 million increase in interest expense on interest-bearing deposits, consisting
of:
-
A
$13.6
million
increase
in
interest
expense
on
time
deposits,
excluding
brokered
CDs,
of
which
$10.6
million
was
related
to
higher
rates
paid
on
new
issuances
and
renewals
given
the
overall
higher
interest
rate
environment.
The
average
cost
of
time
deposits
in
the
first
quarter
of
2024,
excluding
brokered
CDs,
increased
152
bps
to
3.39%
when
compared
to
the
same
period
in
2023.
Excluding
public
sector
deposits,
the
average
cost
of
time
deposits
in
the
first
quarter of 2024, excluding brokered CDs, increased 140 bps to 3.29%
when compared to the same period in 2023.
-
An $11.4
million increase in interest
expense on interest-bearing
checking and saving accounts,
driven by higher interest
rates paid in the first
quarter of 2024
also associated with the
higher interest rate environment,
primarily on public sector
deposits.
The
average
cost
of
interest-bearing
checking
and
saving
accounts
increased
by
60
bps
to
1.54%
in
the
first
quarter of
2024 as
compared to
0.94% in
the same
period in 2023.
Excluding public
sector deposits,
the average
cost of
interest-bearing checking
and saving
accounts for
the first
quarter of
2024 was
0.75%, compared
to 0.60%
for the
same
period a year ago.
-
An $8.1 million increase
in interest expense on
brokered CDs, mainly
driven by a $583.1
million increase in
the average
balance.
●
A $0.4 million decrease in interest income from interest-bearing cash
balances and investment securities, consisting of:
-
A
$3.4
million
decrease
in
interest
income
from
debt
securities,
mainly
driven
by
a
$638.7
million
decrease
in
the
average balance.
Partially offset by:
-
A
$2.6
million
increase
in
interest
income
from
interest-bearing
cash
balances,
which
consisted
primarily
of
cash
balances deposited at the FED, of which $1.7 million was driven by a $129.5
million increase in the average balance.
-
A $0.4
million increase in dividend income on equity securities, associated with income from FHLB stock.
85
Partially offset by:
●
A $26.4 million increase in interest income on loans including:
-
A $14.0
million
increase
in
interest income
on
commercial
and
construction
loans,
driven
by
an $8.0
million
increase
associated
with
a
$409.9
million
increase
in
the
average
balance,
and
a
$6.0
million
increase
related
to
the
effect
of
higher market interest rates on the upward repricing of variable-rate
loans and on new loan originations.
As of
March 31,
2024, the
interest rate
on approximately
55% of
the Corporation’s
commercial and
construction loans
was tied
to variable
rates, with
33% based
upon SOFR
of 3
months or
less, 13%
based upon
the Prime
rate index,
and
9%
based
on
other
indexes.
For
the
first
quarter
of 2024,
the average
one-month
SOFR
increased
71 bps,
the
average
three-month SOFR increased 57 bps,
and the average Prime rate increased 81 bps, compared to the average rates for
such
indexes during the first quarter of 2023.
-
An
$11.7
million
increase
in
interest
income
on
consumer
loans
and
finance
leases
associated
with
a
$303.5
million
increase in
the average
balance of
this portfolio,
primarily in
the auto
loan and
finance leases
portfolios,
under a
higher
interest rate environment.
-
A $0.7 million increase in interest income on residential
mortgage loans, mainly related to the positive effect
of new loan
originations at higher current market interest rates.
●
A $2.7 million decrease in interest expense on borrowings, consisting of:
-
A $1.6
million decrease
in interest expense
on advances
from the
FHLB, mainly
driven by
a $129.2
million decrease
in
the average balance.
-
A
$1.1
million
decrease
in
interest
expense
on
short-term
repurchase
agreements,
as
the
Corporation
did
not
use
repurchase agreements as a funding source in the first quarter of 2024.
Net interest margin
for the first
quarter of
2024 decreased
to 4.16%, compared
to 4.34% for
the same period
in 2023. The
decrease
in the net
interest margin
was driven by
the higher cost
of funds associated
with the higher
interest rate environment
combined with a
change in
deposit mix
reflecting a
continued migration
from non-interest-bearing
and other
low-cost deposits
to higher-cost
deposits.
These variances
were partially offset
by the upward repricing
of variable-rate commercial
loans as well as the
effect of higher
average
loan balances funded with cash flows from the lower-yielding
investment securities portfolio.
86
Provision for Credit Losses
The provision
for credit
losses consists of
provisions for
credit losses on
loans and
finance leases,
unfunded loan
commitments, as
well as the debt securities portfolio. The principal changes in the provision for
credit losses by main categories follow:
Provision for credit losses for
loans and finance leases
The
provision
for
credit
losses
for
loans
and
finance
leases
was
$12.9
million
for
the
first
quarter
of
2024,
compared
to
$16.3
million for the first quarter of 2023.
The variances by major portfolio category were as follows:
●
Provision for
credit losses
for the
consumer loans
and finance
leases portfolio
was an
expense of
$16.2 million
for the
first
quarter of 2024, compared
to an expense of $15.7
million for the first quarter
of 2023. The increase in
provision expense was
mainly
due to
increases in
charge-off
levels, mainly
in credit
cards,
and increases
in portfolio
volume, partially
offset
by a
$9.5 million recovery
associated with the
aforementioned bulk sale
of fully charged-off
loans during the
first quarter of 2024
and updated macroeconomic variables, mainly in the projection of unemployment
rates across all regions.
●
Provision for
credit losses
for the
commercial
and construction
loan portfolio
was a
net benefit
of $2.8
million for
the first
quarter of 2024, compared to an
expense of $0.5 million for the
first quarter of 2023. The net benefit
recorded during the first
quarter of
2024 was
driven by
a $5.0
million recovery
of a
C&I loan
in the
Puerto Rico
region, partially
offset by
increased
volume. Meanwhile,
the expense recorded
during the first
quarter of 2023
was impacted by
reserve increases of
$5.0 million
related to
the inflow
to nonacccrual
status of
a C&I
participated loan
in the
Florida region
in the
power generation
industry,
and $1.1
million due
to a
less favorable
economic outlook
in the
projection of
certain forecasted
macroeconomic variables,
such
as
the
commercial
real
estate
price
index
(“CRE
price
index”),
partially
offset
by
reserve
releases
of
$6.1
million
associated with improvements in the underlying updated financial information
of certain borrowers.
●
Provision for
credit losses for
the residential
mortgage loan portfolio
was a net
benefit of $0.5
million for the
first quarter
of
2024, compared to an expense
of $0.1 million for the first
quarter of 2023. The net benefit
recorded during the first quarter
of
2024 was mainly due to updated macroeconomic variables, partially offset
by newly originated loans that have a longer life.
Provision for credit losses for
unfunded loan commitments
The provision
for credit
losses for
unfunded
commercial
and construction
loan commitments
and standby
letters of
credit
was an
expense of $0.3 million for the first quarter of 2024, compared to a net benefit
of $0.1 million for the first quarter of 2023.
Provision for credit losses for
held-to-maturity and available-for-sale debt
securities
The
provision
for
credit losses
for
held-to-maturity debt
securities was
a
net benefit
of $1.0
million
for
the first
quarter of
2024,
compared to a net
benefit of $0.6 million
for the first quarter
of 2023. The net
benefit recorded during both
periods was mostly
driven
by improvements in the underlying updated financial information
of certain Puerto Rico municipal bond issuers.
The provision
for credit
losses for
available-for-sale debt
securities was
a net
benefit of
$69 thousand
for the
first quarter
of 2024,
compared to a net benefit of $9 thousand for the first quarter of 2023.
87
Non-Interest Income
Non-interest income amounted to $34.0 million for the
first quarter of 2024, compared to $32.5 million for
the same period in 2023.
The $1.5 million increase in non-interest income was primarily due to:
●
A $0.7 million increase in insurance commission income, mainly in seasonal contingent
commissions.
●
A $0.4 million increase
in card and processing
income mainly due to
higher transactional volumes,
partially offset by
$0.3
million in merchant-related referral fees received during the first quarter
of 2023.
●
A $0.2 million increase
in other non-interest income,
mainly driven by $0.7 million
in insurance proceeds collected
during
the
first
quarter
of
2024
associated
with
property
damage
caused
by
Hurricane
Fiona,
partially
offset
by
a
$0.4
million
decrease in unused loan commitment fees.
Non-Interest Expenses
Non-interest expenses
for the quarter
ended March 31,
2024 amounted to
$120.9 million, compared
to $115.3
million for the
same
period in
2023. The
efficiency ratio
for the first
quarter of
2024 was
52.46%, compared
to 49.39% for
the first quarter
of 2023.
Non-
interest expenses
for the
first quarter
of 2024
include the
$0.9 million
additional FDIC
special assessment
expense. See
“Non-GAAP
Financial Measures and
Reconciliations” above for
additional information. On
a non-GAAP basis, excluding
the effect of
this Special
Item, adjusted non-interest expenses increased by $4.7 million
primarily due to:
●
A
$3.1 million increase in employees’
compensation and benefits expenses, mainly driven
by annual salary merit increases
and
increases
in
stock-based
compensation
expense
of
retirement-eligible
employees
and
medical
insurance
premium
costs.
●
A $0.7
million increase
in professional
service fees,
due to
increases of
$0.9 million
in consulting
fees mainly
driven by
information
technology
infrastructure
enhancements
and
$0.5
million
in
collections,
appraisals,
and
other
credit-related
fees, partially offset by a decrease of $0.7 million in outsourced technology
service fees.
●
A
$0.5 million
decrease
in net
gains on
OREO operations,
mainly
driven by
a decrease
in net
realized gains
on sales
of
OREO properties, primarily residential properties in the Puerto Rico region.
●
A
$0.4 million increase in credit and debit card processing fees, mainly driven
by higher transactional volumes.
Income Taxes
For the
first quarter
of 2024,
the Corporation
recorded an
income tax
expense of
$23.9 million,
compared to
$31.9 million
for the
same period
in 2023.
The decrease
in income
tax expense
was mainly
driven by
a lower
estimated effective
tax rate
during the
first
quarter of 2024 and,
to a lesser extent, by
lower pre-tax income. During
the fourth quarter of 2023,
the Corporation engaged in
certain
business activities with preferential tax treatment under the PR Tax
Code which resulted in a lower effective tax rate for the year
2023.
The
Corporation’s
annual
estimated
effective
tax rate
for
the
quarter
ended March
31, 2024,
excluding
entities
from which
a
tax
benefit
cannot
be
recognized
and
discrete
items,
was
24.3%,
compared
to
31.2%
for
the
first
quarter
of
2023.
Based
on
current
strategies, the Corporation
expects that the
effective tax
rate for 2024
will be around
the same levels
of 2023.
The estimated effective
tax
rate
of
the
Corporation
is
impacted
by,
among
other
things,
the
composition
and
source
of
its
taxable
income.
See
Note
16
–
“Income Taxes,”
to the unaudited consolidated financial statements herein
for additional information.
As of
March 31,
2024, the
Corporation had
a deferred
tax asset
of $147.7
million, net
of a
valuation allowance
of $140.1
million
against the deferred tax
asset, compared to a
deferred tax asset of $150.1
million, net of a valuation
allowance of $139.2 million,
as of
December 31, 2023.
88
Assets
The
Corporation’s
total
assets
were
$18.9
billion
as
of
March
31,
2024,
a
decrease
of
$18.6
million
from
December
31,
2023,
primarily related
to a $15.1
million decrease
in the
fair value
of available-for-sale
debt securities.
Total
assets were
also impacted
by
repayments of investment
securities, partially offset
by a $130.7
million increase in
the total loan
portfolio before the
ACL, as further
discussed below.
Loans Receivable, including Loans Held for Sale
As
of
March
31,
2024,
the
Corporation’s
total
loan
portfolio
before
the
ACL
amounted
to
$12.3
billion,
an
increase
of
$130.7
million
compared
to
December
31,
2023.
In
terms
of
geography,
the
growth
consisted
of
increases
of
$80.9
million
in
the
Florida
region
and $50.1
million
in the
Puerto
Rico region,
partially
offset
by a
decrease of
$0.3 million
in the
Virgin
Islands region.
On a
portfolio
basis,
the
growth
consisted
of
increases
of
$123.9
million
in
commercial
and
construction
loans
and
$22.2
million
in
consumer loans, primarily auto loans and finance leases, partially offset
by a $15.4 million decrease in residential mortgage loans.
As of
March 31,
2024, the
Corporation’s
loans held-for-investment
portfolio was
comprised of
commercial and
construction loans
(47%),
consumer
and
finance
leases
(30%),
and
residential
real
estate
loans
(23%).
Of
the
total
gross
loan
portfolio
held
for
investment of
$12.3 billion
as of
March 31,
2024, the
Corporation had
credit risk
concentration of
approximately 80%
in the
Puerto
Rico region,
17% in
the United
States region
(mainly
in the
state of
Florida),
and
3% in
the Virgin
Islands region,
as shown
in the
following table:
As of March 31,2024
Puerto Rico
Virgin Islands
United States
Total
(In thousands)
Residential mortgage loans
$
2,164,347
$
162,893
$
474,347
$
2,801,587
Construction loans
144,094
3,530
89,664
237,288
Commercial mortgage loans
1,705,745
63,502
592,484
2,361,731
C&I loans
2,163,439
126,560
940,996
3,230,995
Total commercial loans
4,013,278
193,592
1,623,144
5,830,014
Consumer loans and finance leases
3,606,274
67,946
5,627
3,679,847
Total loans held for investment,
gross
$
9,783,899
$
424,431
$
2,103,118
$
12,311,448
Loans held for sale
12,080
-
-
12,080
Total loans, gross
$
9,795,979
$
424,431
$
2,103,118
$
12,323,528
As of December 31, 2023
Puerto Rico
Virgin Islands
United States
Total
(In thousands)
Residential mortgage loans
$
2,187,875
$
168,131
$
465,720
$
2,821,726
Construction loans
111,664
3,737
99,376
214,777
Commercial mortgage loans
1,725,325
65,312
526,446
2,317,083
C&I loans
2,130,368
119,040
924,824
3,174,232
Total commercial loans
3,967,357
188,089
1,550,646
5,706,092
Consumer loans and finance leases
3,583,272
68,498
5,895
3,657,665
Total loans held for investment,
gross
$
9,738,504
$
424,718
$
2,022,261
$
12,185,483
Loans held for sale
7,368
-
-
7,368
Total loans, gross
$
9,745,872
$
424,718
$
2,022,261
$
12,192,851
89
Residential Real Estate Loans
As of March 31,
2024, the Corporation’s
total residential mortgage loan
portfolio, including loans
held for sale, decreased
by $15.4
million, as compared
to the balance as
of December 31, 2023.
The decline in the
residential mortgage loan portfolio
reflects decreases
of $18.8 million
in the Puerto Rico
region and $5.2
million in the Virgin
Islands region, partially
offset by an
increase of $8.6
million
in the Florida
region. The decline
was driven by
repayments, which more
than offset the
volume of new
loan originations kept
on the
balance sheet.
As of
March 31,
2024, the
majority of
the Corporation’s
outstanding balance
of residential
mortgage loans
in the
Puerto Rico
and
the
Virgin
Islands
regions
consisted
of
fixed-rate
loans
that
traditionally
carry
higher
yields
than
residential
mortgage
loans
in
the
Florida region. In
the Florida region,
approximately 38% of the
residential mortgage loan
portfolio consisted of
hybrid adjustable-rate
mortgages. In
accordance with
the Corporation’s
underwriting guidelines,
residential mortgage
loans are
primarily fully
documented
loans, and the Corporation does not originate negative amortization loans.
Commercial and Construction Loans
As of
March 31, 2024,
the Corporation’s
commercial and
construction loan
portfolio increased
by $123.9
million, as
compared to
the balance as of December 31, 2023.
In the
Florida region,
commercial and
construction loans
increased by
$72.5 million,
as compared
to the
balance as
of December
31, 2023.
The increase
reflects, among
other things,
the effect
of the
origination of
three commercial
mortgage relationships,
each in
excess of $10 million, with an aggregate balance of $52.3 million and
higher utilization of C&I lines of credit.
In
the
Puerto
Rico
region,
commercial
and
construction
loans
increased
by
$45.9
million,
as
compared
to
the
balance
as
of
December
31,
2023.
This
increase
was
driven
the
effect
of
higher
utilization
of
C&I
lines
of
credit,
a
$32.4
million
increase
in
construction
loans,
and
the
origination
of
a
$13.6
million
C&I
loan
to
a
municipality
in
Puerto
Rico
that
is
supported
by
assigned
property tax revenues.
These variances were partially offset by multiple payoffs
and paydowns.
In
the
Virgin
Islands
region,
commercial
and
construction
loans
increased
by
$5.5
million,
as
compared
to
the
balance
as
of
December 31, 2023, mainly associated with loans to government entities.
See “Risk Management –
Exposure to Puerto Rico Government”
and “Risk Management –
Exposure to USVI Government”
below
for information on the Corporation’s
credit exposure to PR and USVI government entities.
As of
March 31,
2024, the
Corporation’s
total commercial
mortgage loan
exposure amounted
to $2.4
billion, or
19% of
the total
loan portfolio.
In terms
of geography,
$1.7 billion
of the
exposure was
in the
Puerto Rico
region, $0.6
billion of
the exposure
was in
the
Florida
region,
and
$0.1
billion
of
the
exposure
was
in
the
Virgin
Islands
region.
The
$1.7
billion
exposure
in the
Puerto
Rico
region was
comprised mainly
of 42%
in the
retail industry,
25% in
office real
estate, and
19% in
the hotel
industry.
The $0.6
billion
exposure in
the Florida
region was
comprised mainly
of 27%
in the
hotel industry,
19% in
the retail
industry,
and 11%
in office
real
estate.
Of
the
Corporation’s
total
commercial
mortgage
loan
exposure
of
$2.4
billion,
$533.0
million
matures
within
the
next
12
months and has a weighted-average
interest rate of approximately 5.62%.
Commercial mortgage loan exposure
in the office real estate
industry,
which
matures
within
the
next
12
months,
amounted
to
$97.1
million
and
has
a
weighted-average
interest
rate
of
approximately 6.51%.
As of
each of
March 31,
2024 and
December 31,
2023, the
Corporation’s
total exposure
to shared
national credit
(“SNC”) loans
(including unused commitments)
amounted to $1.2 billion.
As of March 31,
2024, approximately $388.4
million of the SNC exposure
is related to the portfolio in the Puerto Rico region and $841.9 million is related
to the portfolio in the Florida region.
Consumer Loans and Finance Leases
As
of
March
31,
2024,
the
Corporation’s
consumer
loan
and
finance
lease
portfolio
increased
by
$22.2
million
to
$3.7
billion,
reflecting growth of
$17.8 million and
$15.1 million in
the auto loans and
finance leases portfolios,
respectively,
mainly in the Puerto
Rico region.
90
Loan Production
First BanCorp.
relies primarily
on its
retail network
of branches
to originate
residential and
consumer loans.
The Corporation
may
supplement
its residential
mortgage originations
with wholesale
servicing released
mortgage loan
purchases from
mortgage bankers.
The
Corporation
manages
its
construction
and
commercial
loan
originations
through
centralized
units
and
most
of
its
originations
come
from
existing
customers,
as
well
as
through
referrals
and
direct
solicitations.
Auto
loans
and
finance
leases
originations
rely
primarily on relationships with auto dealers and dedicated sales professionals who
serve selected locations to facilitate originations.
The
following
table
provides
a
breakdown
of
First
BanCorp.’s
loan
production,
including
purchases,
refinancings,
renewals
and
draws from existing revolving and non-revolving commitments, for
the indicated periods:
Quarter Ended March 31,
2024
2023
(In thousands)
Residential mortgage
$
88,170
$
77,302
Construction
43,844
35,499
Commercial mortgage
75,656
88,692
C&I
591,348
555,882
Consumer
402,259
435,318
Total loan production
$
1,201,277
$
1,192,693
During
the
quarter
ended
March
31,
2024,
total
loan
originations,
including
purchases,
refinancings,
and
draws
from
existing
revolving and non-revolving
commitments, amounted
to approximately $1.2
billion, an increase
of $8.6 million,
compared to the
first
quarter of 2023.
Residential mortgage loan originations
for the quarter ended March 31,
2024 amounted to $88.2
million, compared to $77.3 million
for the first quarter of 2023. The
increase of $10.9 million in the first
quarter of 2024, as compared to the
same period in 2023, reflects
growth
of
$6.2
million
in
the Puerto
Rico
region,
$4.2
million
in
the
Florida
region,
and
$0.5
million
in
the
Virgin
Islands region.
Approximately
56% of
the $67.6
million residential
mortgage loan
originations
in the
Puerto Rico
region during
the first
quarter of
2024 consisted of conforming loans, compared to 60% of $61.5 million
for the first quarter of 2023.
Commercial
and
construction
loan
originations
(excluding government
loans)
for the
quarter ended
March 31,
2024 amounted
to
$685.1
million,
compared
to $672.8
million
for
the
first
quarter
of
2023.
The
increase
of
$12.3
million
in
the
first
quarter
of
2024
consisted of an increase of $110.7
million in the Florida region, partially offset by
decreases of $95.0 million in the Puerto Rico region
and $3.4 million in the
Virgin Islands
region. The growth in the Florida
region includes the effect
of the aforementioned origination of
three
commercial
mortgage
relationships,
each
in
excess
of
$10
million,
with
an
aggregate
balance
of
$52.3
million,
and
increased
utilization of C&I lines of credit.
Meanwhile, the decline in the Puerto
Rico region was mainly driven by decreases
of $57.6 million in
the C&I loan portfolio,
mainly in lines of credit, and $50.1 million in the commercial mortgage loan portfolio.
Government
loan
originations
for
the
quarter
ended
March
31,
2024
amounted
to
$25.7
million,
an
increase
of
$18.5
million,
compared
to
$7.2
million
for
the
first
quarter
of
2023.
Government
loan
originations
during
the
first
quarter
of
2024
were
mainly
related
to
the
aforementioned
origination
of
a
$13.6
million
loan
to
a
municipality
in
Puerto
Rico
that
is
supported
by
assigned
property
tax
revenues
and
the
utilization
of
a
line
of
credit
of
a
government
entity
in
the
Virgin
Islands
region.
Government
loan
originations
during
the
first
quarter
of
2023
were
mainly
related
to
the
origination
of
a
loan
to
an
agency
of
the
Puerto
Rico
government for
a low-income
housing project
and the
utilization of
an arranged
overdraft line
of credit
of a
government entity
in the
Virgin Islands
region.
Originations of
auto loans
(including finance
leases) for
the quarter
ended March
31, 2024
amounted to
$228.0 million,
compared
to
$245.1
million
for
the
first
quarter
of
2023.
The
decline
in
the
first
quarter
of
2024,
as
compared
to
the
same
quarter
of
2023,
consisted of
decreases of
$15.7 million
in the
Puerto Rico
region and
$1.4 million
in the
Virgin
Islands region.
Other consumer
loan
originations,
other than
credit cards,
for the
quarter ended
March 31,
2024 amounted
to $59.9
million, compared
to $71.9
million for
the first
quarter of
2023. Most of
the decrease
in other
consumer loan
originations for
the first quarter
of 2024,
as compared
with the
same
period
in 2023,
was in
the
Puerto
Rico
region.
The utilization
activity
on
the outstanding
credit
card
portfolio
for
the
quarter
ended March 31, 2024 amounted to $114.3
million, compared to $118.4 million for the same period
in 2023.
91
Investment Activities
As
part
of
its
liquidity,
revenue
diversification,
and
interest
rate
risk
management
strategies,
First
BanCorp.
maintains
a
debt
securities portfolio classified as available for sale or held to maturity.
The Corporation’s
total available-for-sale debt
securities portfolio as
of March 31,
2024 amounted to
$5.0 billion, a
$182.8 million
decrease from
December 31,
2023.
The decrease
was mainly
driven by
repayments of
approximately $86.3
million of
U.S. agencies
mortgage-backed
securities
(“MBS”)
and
debentures,
repayments
of
$80.1
million
associated
to
matured
securities,
and
a
$15.1
million
decrease
in
fair
value
attributable
to
changes
in
market
interest
rates.
As
of
March
31,
2024,
the
Corporation
had
a
net
unrealized loss
on available-for-sale
debt securities
of $647.9
million. This
net unrealized
loss is attributable
to instruments
on books
carrying a lower interest
rate than market rates.
The Corporation expects that
this unrealized loss will reverse
over time and it
is likely
that it will not be required to sell the securities before their anticipated recovery.
The Corporation expects the portfolio will continue to
decrease and the accumulated other comprehensive loss will decrease accordingly,
excluding the impact of market interest rates.
As
of
March
31,
2024,
substantially
all
of
the
Corporation’s
available-for-sale
debt
securities
portfolio
was
invested
in
U.S.
government
and
agencies
debentures
and
fixed-rate
GSEs’
MBS.
In
addition,
as
of
March
31,
2024,
the
Corporation
held
a
bond
issued
by
the
Puerto
Rico
Housing
Finance
Authority
(“PRHFA”),
classified
as
available
for
sale,
specifically
a
residential
pass-
through
MBS in
the
aggregate
amount
of
$3.1
million
(fair
value
-
$1.6
million).
This
residential
pass-through
MBS
issued
by
the
PRHFA
is collateralized
by certain
second
mortgages originated
under a
program
launched by
the Puerto
Rico government
in 2010
and had an unrealized
loss of $1.6 million
as of March 31,
2024, of which $0.3
million is due to
credit deterioration. During 2021,
the
Corporation
placed
this
instrument
in
nonaccrual
status
based
on
the
delinquency
status
of
the
underlying
second
mortgage
loans
collateral.
As of
March 31,
2024,
the Corporation’s
held-to-maturity
debt
securities portfolio,
before the
ACL, decreased
to $349.3
million,
compared to
$354.2 million
as of
December 31,
2023, mainly
driven by
repayments of
approximately
$5.1 million
of U.S.
agencies
MBS.
Held-to-maturity
debt
securities
include
fixed-rate
GSEs’ MBS
with
a
carrying
value
of $242.2
million
(fair
value
of $228.2
million)
as of
March
31,
2024,
compared
to
$247.1
million
as of
December 31,
2023.
Held-to-maturity
debt
securities also
include
financing
arrangements
with
Puerto
Rico
municipalities
issued
in
bond
form,
which
the
Corporation
accounts
for
as securities,
but
which were
underwritten as
loans with
features that
are typically
found in
commercial loans.
Puerto Rico
municipal bonds
typically
are
not
issued
in
bearer
form,
are
not
registered
with
the
SEC,
and
are
not
rated
by
external
credit
agencies.
These
bonds
have
seniority to the payment of operating costs and expenses of the
municipality and, in most cases, are supported by assigned
property tax
revenues. As of
March 31, 2024, approximately
54% of the Corporation’s
municipal bonds consisted
of obligations issued
by three of
the largest
municipalities in Puerto
Rico. The municipalities
are required by
law to levy
special property taxes
in such amounts
as are
required for the
payment of all of
their respective general
obligation bonds and
loans. Given the
uncertainties as to the
effects that the
fiscal position
of the
Puerto Rico
central government,
and the measures
taken, or
to be
taken, by other
government entities
may have
on municipalities,
and the
higher interest
rate environment,
the Corporation
cannot be
certain whether
future charges
to the
ACL on
these securities
will be
required. As
of March
31, 2024,
the ACL
for held-to-maturity
debt securities
was $1.2
million, compared
to
$2.2
million
as
of
December
31,
2023.
The
decrease
in
the
ACL
of
held-to-maturity
debt
securities
was
mostly
driven
by
improvements in the underlying
updated financial information of
a Puerto Rico municipal bond
issuer received during the
first quarter
of 2024.
See
“Risk Management
–
Exposure
to Puerto
Rico
Government”
below
for
information
and
details
about
the Corporation’s
total
direct exposure
to the
Puerto Rico
government, including
municipalities,
and “Risk
Management
– Credit
Risk Management”
below
for the ACL of the exposure to Puerto Rico municipal bonds.
92
The following table presents the carrying values of investments as of the indicated dates:
March 31, 2024
December 31, 2023
(In thousands)
Money market investments
$
3,785
$
1,239
Available-for-sale
debt securities, at fair value:
U.S. government and agencies obligations
2,369,484
2,443,790
Puerto Rico government obligations
1,551
1,415
MBS:
Residential
2,527,054
2,633,161
Commercial
149,090
151,618
Total available-for-sale
debt securities, at fair value
5,047,179
5,229,984
Held-to-maturity debt securities, at amortized cost:
MBS:
Residential
142,677
146,468
Commercial
99,525
100,670
Puerto Rico municipal bonds
107,128
107,040
ACL for held-to-maturity Puerto Rico municipal bonds
(1,235)
(2,197)
Total held-to-maturity
debt securities
348,095
351,981
Equity securities, including $34.6 million of FHLB stock
as of March 31, 2024 and December 31, 2023
51,390
49,675
Total money market
investments and investment securities
$
5,450,449
$
5,632,879
The carrying values of debt securities as of March 31,2024 by contractual maturity
(excluding MBS), are shown below:
Carrying Amount
Weighted-Average
Yield %
(Dollars in thousands)
U.S. government and agencies obligations:
Due within one year
$
763,223
0.87
Due after one year through five years
1,589,404
0.82
Due after five years through ten years
8,096
2.64
Due after ten years
8,761
5.51
2,369,484
0.86
Puerto Rico government and municipalities obligations:
Due within one year
3,172
9.30
Due after one year through five years
51,327
7.74
Due after five years through ten years
36,034
7.06
Due after ten years
18,146
7.42
108,679
7.51
MBS
2,918,346
1.70
ACL on held-to-maturity debt securities
(1,235)
-
Total debt securities
$
5,395,274
1.45
93
Net
interest
income
in
future
periods
could
be
affected
by
prepayments
of
MBS.
Any
acceleration
in
the
prepayments
of
MBS
purchased
at
a
premium
would
lower
yields
on
these
securities,
since
the
amortization
of
premiums
paid
upon
acquisition
would
accelerate. Conversely,
acceleration of the
prepayments of MBS would
increase yields on
securities purchased at
a discount, since
the
amortization
of
the
discount
would
accelerate.
These
risks
are
directly
linked
to
future
period
market
interest
rate
fluctuations.
Net
interest income
in future periods
might also be
affected by
the Corporation’s
investment in
callable securities. As
of March
31, 2024,
the
Corporation
had
approximately
$1.8
billion
in
callable
debt
securities
(U.S.
agencies
debt
securities)
with
an
average
yield
of
0.79% of
which approximately
64% were
purchased at
a discount
and 2%
at a
premium. See
“Risk Management”
below for
further
analysis
of
the
effects
of
changing
interest
rates
on
the
Corporation’s
net
interest
income
and
the
Corporation’s
interest
rate
risk
management
strategies.
Also,
refer
to
Note
2
–
“Debt
Securities”
to
the
unaudited
consolidated
financial
statements
herein
for
additional information regarding the Corporation’s
debt securities portfolio.
RISK MANAGEMENT
General
Risks
are
inherent
in
virtually
all
aspects
of
the
Corporation’s
business
activities
and
operations.
Consequently,
effective
risk
management
is
fundamental
to
the
success
of
the
Corporation.
The
primary
goals
of
risk
management
are
to
ensure
that
the
Corporation’s
risk-taking activities are
consistent with the
Corporation’s
objectives and risk
tolerance, and that
there is an appropriate
balance between risks and rewards to maximize stockholder value.
The
Corporation
has
in
place
a
risk
management
framework
to
monitor,
evaluate
and
manage
the
principal
risks
assumed
in
conducting its activities. First BanCorp.’s
business is subject to eleven
broad categories of risks: (i) liquidity
risk; (ii) interest rate risk;
(iii) market risk; (iv)
credit risk; (v) operational
risk; (vi) legal and
regulatory risk; (vii)
reputational risk; (viii) model
risk; (ix) capital
risk; (x)
strategic risk;
and (xi)
information technology
risk. First
BanCorp. has
adopted policies
and procedures
designed to
identify
and manage the risks to which the Corporation is exposed.
The
Corporation’s
risk
management
policies
are
described
below,
as
well
as
in
Part
II,
Item
7,
“Management’s
Discussion
and
Analysis of Financial Condition and Results of Operations,” in the 2023 Annual
Report on Form 10-K.
Liquidity Risk
Liquidity
risk
involves
the
ongoing
ability
to
accommodate
liability
maturities
and
deposit
withdrawals,
fund
asset growth
and
business operations,
and meet
contractual obligations
through unconstrained
access to funding
at reasonable
market rates. Liquidity
management
involves
forecasting
funding
requirements
and
maintaining
sufficient
capacity
to
meet
liquidity
needs
and
accommodate
fluctuations
in
asset
and
liability
levels
due
to
changes
in
the
Corporation’s
business
operations
or
unanticipated
events.
The Corporation
manages liquidity
at two
levels. The
first is
the liquidity
of the
parent company,
or First
Bancorp., which
is the
holding
company
that
owns
the
banking
and
non-banking
subsidiaries.
The
second
is
the
liquidity
of
the
banking
subsidiary,
FirstBank.
The
Asset
and
Liability
Committee
of
the
Corporation’s
Board
of
Directors
is
responsible
for
overseeing
management’s
establishment
of
the
Corporation’s
liquidity
policy,
as
well
as
approving
operating
and
contingency
procedures
and
monitoring
liquidity
on
an
ongoing
basis.
The
Management’s
Investment
and
Asset
Liability
Committee
(“MIALCO”),
which
reports
to
the
Board’s
Asset
and
Liability
Committee,
uses
measures
of
liquidity
developed
by
management
that
involve
the
use
of
several
assumptions
to
review
the
Corporation’s
liquidity
position
on
a
monthly
basis.
The
MIALCO
oversees
liquidity
management,
interest rate risk, market risk, and other related matters.
The MIALCO is composed of
senior management officers, including
the Chief Executive Officer,
the Chief Financial Officer,
the
Chief
Risk
Officer,
the
Corporate
Strategic
and
Business
Development
Director,
the
Business
Group
Director,
the
Treasury
and
Investments Risk
Manager,
the Financial
Planning and
Asset and
Liability Management
(“ALM”) Director,
and the
Treasurer.
The
Treasury
and
Investments
Division
is
responsible
for
planning
and
executing
the
Corporation’s
funding
activities
and
strategy,
monitoring
liquidity availability
on a
daily basis,
and reviewing
liquidity measures
on a
weekly basis.
The Financial
Planning and
ALM Division is responsible for estimating the liquidity gap.
94
To
ensure
adequate liquidity
through the
full range
of potential
operating
environments and
market conditions,
the Corporation
conducts
its
liquidity
management
and
business
activities
in
a
manner
that
is
intended
to
preserve
and
enhance
funding
stability,
flexibility,
and
diversity.
Key
components
of
this
operating
strategy
include
a
strong
focus
on
the
continued
development
of
customer-based
funding, the
maintenance
of direct
relationships with
wholesale
market funding
providers, and
the maintenance
of
the ability to liquidate certain assets when, and if, requirements warrant.
The
Corporation
develops
and
maintains
contingency
funding
plans.
These
plans
evaluate
the
Corporation’s
liquidity
position
under various
operating circumstances
and are
designed to
help ensure
that the
Corporation will
be able
to operate
through periods
of stress when
access to normal
sources of funds
is constrained. The
plans project funding
requirements during
a potential period
of
stress, specify and quantify sources of liquidity,
outline actions and procedures for effectively managing liquidity
through a period of
stress, and
define roles
and responsibilities
for the
Corporation’s
employees. Under
the contingency
funding plans,
the Corporation
stresses the
balance sheet
and the liquidity
position to
critical levels
that mimic
difficulties in
generating funds
or even
maintaining
the current
funding position
of the
Corporation and
the Bank
and are
designed to
help ensure
the ability
of the
Corporation and
the
Bank to honor
their respective commitments.
The Corporation has
established liquidity
triggers that the
MIALCO monitors in
order
to maintain the
ordinary funding of
the banking business.
The MIALCO has
developed contingency funding
plans for the
following
three
scenarios:
a
credit rating
downgrade,
an
economic
cycle downturn
event,
and
a
concentration
event.
The
Board’s
Asset and
Liability Committee reviews and approves these plans on an annual basis.
Liquidity Risk Management
The Corporation manages
its liquidity in
a proactive manner and
in an effort
to maintain a sound
liquidity position. It uses
multiple
measures
to monitor
its liquidity
position,
including
core
liquidity,
basic
liquidity,
and time-based
reserve
measures. Cash
and
cash
equivalents
amounted to
$684.5 million
as of
March 31,
2024, compared
to $663.2
million
as of
December 31,
2023. When
adding
$2.0
billion of free high-quality liquid securities that could be liquidated
or pledged within one day (which includes assets such as U.S.
government and
GSEs obligations),
the total
core liquidity
amounted to
$2.7 billion
as of
March 31,
2024, or
14.45% of
total assets,
compared to $2.8 billion, or 14.93% of total assets as of December 31, 2023.
In
addition
to
the
aforementioned
$2.0
billion
in
cash
and
free
high
quality
liquid
assets,
the
Corporation
had
$972.5
million
available
for
credit
with
the FHLB
based
on
the
value
of
loan
collateral
pledged
with
the
FHLB.
As
such,
the
basic
liquidity
ratio
(which
adds available
secured
lines
of credit
to the
core
liquidity) was
approximately
19.60%
of total
assets as
of
March
31,
2024,
compared to 19.82% of total assets as of December 31, 2023.
Further,
the
Corporation
also
maintains
borrowing
capacity
at
the
FED
Discount
Window
and
had
approximately
$1.6
billion
available
for
funding
under
the
FED’s
Borrower-in-Custody
(“BIC”)
Program
as
of
March
31,
2024
as
an
additional
source
of
liquidity.
Total
loans pledged to the
FED BIC Program
amounted to $2.7
billion as of March
31, 2024. The Corporation
also does not
rely
on
uncommitted
inter-bank
lines
of
credit
(federal
funds
lines)
to
fund
its
operations
and
does
not
include
them
in
the
basic
liquidity
measure.
On
a
combined
basis,
as
of
March
31,
2024,
the
Corporation
had
$5.4
billion,
or
121%
of
uninsured
estimated
deposits,
excluding fully collateralized government deposits, available
to meet liquidity needs.
Liquidity
at
the Bank
level
is highly
dependent
on
bank deposits,
which
fund
87.8%
of the
Bank’s
assets (or
84.0%
excluding
brokered CDs).
In addition,
as further
discussed below,
the Corporation
maintains a
diversified base
of readily
available wholesale
funding
sources,
including
advances
from
the
FHLB
through
pledged
borrowing
capacity,
securities
sold
under
agreements
to
repurchase, and access to brokered CDs. Funding
through wholesale funding may continue to increase
the overall cost of funding for
the Corporation and adversely affect the net interest margin.
95
Commitments to extend credit and standby letters of credit
As
a
provider
of
financial
services,
the
Corporation
routinely
enters
into
commitments
with
off-balance
sheet
risk
to
meet
the
financial
needs
of
its
customers.
These
financial
instruments
may
include
loan
commitments
and
standby
letters
of
credit.
These
commitments
are
subject
to
the
same
credit
policies
and
approval
processes
used
for
on-balance
sheet
instruments.
These
instruments involve, to varying degrees,
elements of credit and interest rate risk
in excess of the amount recognized in the
statements
of
financial
condition.
As
of
March
31,
2024,
the
Corporation’s
commitments
to
extend
credit
amounted
to
approximately
$2.0
billion.
Commitments
to
extend
credit
are
agreements
to
lend
to
a
customer
as
long
as
there
is
no
violation
of
any
condition
established
in
the
contract.
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.
There
have
been
no
significant
or
unexpected
draws
on
existing commitments. 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.
The following table summarizes commitments to extend credit and standby letters of
credit as of the indicated dates:
March 31, 2024
December 31, 2023
(In thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit:
Construction undisbursed funds
$
228,748
$
234,974
Unused credit card lines
887,725
882,486
Unused personal lines of credit
38,736
38,956
Commercial lines of credit
844,210
862,963
Letters of credit:
Commercial letters of credit
60,636
69,543
Standby letters of credit
13,321
8,313
The
Corporation
engages
in
the ordinary
course
of business
in
other
financial
transactions
that
are not
recorded
on the
balance
sheet
or
may
be
recorded
on
the
balance
sheet
in
amounts
that
are
different
from
the
full
contract
or
notional
amount
of
the
transaction
and, thus,
affect
the Corporation’s
liquidity position.
These transactions
are designed
to (i)
meet the
financial needs
of
customers, (ii) manage the
Corporation’s credit,
market and liquidity risks, (iii)
diversify the Corporation’s
funding sources, and (iv)
optimize capital.
In addition to the
aforementioned off-balance
sheet debt obligations
and unfunded commitments
to extend credit, the
Corporation
has obligations and commitments to make future payments
under contracts, amounting to approximately
$4.4 billion as of March 31,
2024.
Our
material
cash
requirements
comprise
primarily
of
contractual
obligations
to
make
future
payments
related
to
time
deposits,
long-term
borrowings,
and operating
lease obligations.
We
also have
other contractual
cash obligations
related
to certain
binding agreements
we have
entered into
for services
including outsourcing
of technology
services, security,
advertising and
other
services
which
are
not
material
to
our
liquidity
needs.
We
currently
anticipate
that
our
available
funds,
credit
facilities,
and
cash
flows from
operations will
be sufficient
to meet
our operational
cash needs
and support
loan growth
and capital
plan execution
for
the foreseeable future.
Off-balance sheet
transactions are continuously
monitored to consider
their potential impact
to our liquidity
position and changes
are applied to the balance between sources and uses of funds, as deemed appropriate,
to maintain a sound liquidity position.
96
Sources of Funding
The Corporation
utilizes different
sources of
funding to
help ensure
that adequate
levels of
liquidity are
available when
needed.
Diversification
of
funding
sources
is
of
great
importance
to
protect
the
Corporation’s
liquidity
from
market
disruptions.
The
principal
sources
of
short-term
funding
are
deposits,
including
brokered
CDs.
Additional
funding
is
provided
by
securities
sold
under agreements
to repurchase and
lines of credit
with the FHLB.
In addition,
the Corporation also
maintains as additional
sources
borrowing capacity at the FED’s BIC Program
,
as discussed above.
The Asset and Liability Committee reviews credit availability
on a regular basis. The Corporation may
also sell mortgage loans as
a supplementary source of funding and obtain long-term funding
through the issuance of notes and long-term brokered CDs.
While
liquidity
is
an
ongoing
challenge
for
all
financial
institutions,
management
believes
that
the
Corporation’s
available
borrowing capacity and
efforts to grow
core deposits will be
adequate to provide
the necessary funding
for the Corporation’s
business
plans in the next 12 months and beyond.
Retail
and
commercial
core
deposits
–
The
Corporation’s
deposit
products
include
regular
saving
accounts,
demand
deposit
accounts,
money
market
accounts,
and
retail
CDs.
As
of
each
of
March
31,
2024
and
December
31,
2023,
the
Corporation’s
core
deposits,
which
exclude
government
deposits and
brokered
CDs,
totaled
$12.6
billion.
The $25.8
million
decrease
in
such
deposits
was
primarily
related
to
a
decline
of
$28.3
million
in
the Florida
region,
partially
offset
by
increases
of
$1.3
million
in
the
Virgin
Islands region and $1.2 million in the Puerto Rico region. This decrease is net of
a $93.9 million increase in time deposits.
Government deposits
(fully collateralized)
– As
of March
31, 2024,
the Corporation
had $2.8
billion of
Puerto Rico
public sector
deposits
($2.6
billion
in
transactional
accounts
and
$150.9
million
in
time
deposits),
compared
to
$2.7
billion
as
of
December
31,
2023.
Government
deposits
are
insured
by
the
FDIC
up
to
the
applicable
limits
and
the
uninsured
portions
are
fully
collateralized.
Approximately
20% of
the public
sector
deposits as
of
March
31,
2024
were
from municipalities
and
municipal
agencies
in
Puerto
Rico and 80% were from public corporations, the central
government and its agencies, and U.S. federal government agencies in Puerto
Rico.
In
addition,
as
of
March
31,
2024,
the
Corporation
had
$463.6
million
of
government
deposits
in
the
Virgin
Islands
region,
as
compared
to
$449.4
million
as of
December
31,
2023,
and
$12.2
million
in
the
Florida
region
as
compared
to
$10.2
million
as
of
December 31, 2023.
The uninsured
portions
of government
deposits were
collateralized
by securities
and
loans with
an amortized
cost of
$3.4
billion
and $3.5
billion as of
March 31, 2024
and December
31, 2023, respectively,
and an estimated
market value
of $3.1 billion
as of each
of such periods.
In addition to securities and loans,
as of each of March
31, 2024 and December 31,2023,
the Corporation used $175.0
million in letters of credit issued by the FHLB as pledges for a portion of public deposits
in the Virgin Islands.
Estimate
of
Uninsured
Deposits
–
As
of
March
31,
2024
and
December
31,
2023,
the
estimated
amounts
of
uninsured
deposits
totaled $7.5
billion and
$7.4
billion, respectively,
generally representing
the portion
of deposits
that exceed
the FDIC
insurance limit
of
$250,000
and
amounts
in
any
other
uninsured
deposit
account.
As
of
each
of
March
31,
2024
and
December
31,
2023,
the
uninsured
portion
of
fully
collateralized
government
deposits
amounted
to
$3.0
billion.
Excluding
fully
collateralized
government
deposits,
the estimated
amounts of
uninsured deposits
amounted to
$4.4 billion,
which represent
27.93% of
total deposits
(excluding
brokered CDs), as of March 31, 2024, compared to $4.4 billion, or 28.13%,
as of December 31, 2023.
The
amount of
uninsured
deposits is
calculated
based on
the
same
methodologies
and assumptions
used for
our bank
regulatory
reporting requirements adjusted for cash held by wholly-owned subsidiaries
at the Bank.
97
The following table presents by contractual maturities the amount of U.S. time deposits in
excess of FDIC insurance limits (over
$250,000) and other time deposits that are otherwise uninsured as of March
31,2024:
(In thousands)
3 months or
less
3 months to
6 months
6 months to
1 year
Over 1 year
Total
U.S. time deposits in excess of FDIC insurance limits
$
321,274
$
163,085
$
461,011
$
131,218
$
1,076,588
Other uninsured time deposits
$
14,390
$
9,486
$
20,745
$
2,741
$
47,362
Brokered
CDs
–
Total
brokered
CDs
decreased
by
$57.6
million
to
$725.7
million
as
of
March
31,
2024,
compared
to
$783.3
million as
of December
31, 2023.
The decline
reflects maturing
short-term brokered
CDs amounting
to $195.4
million with
an all-in
cost
of
5.42%
that
were
paid
off
during
the
first
quarter
of
2024,
partially
offset
by
$138.0
million
of
new
issuances
with
original
average maturities of approximately 2 years and an all-in cost of 4.79
%.
The average remaining term to maturity of the brokered CDs outstanding
as of March 31, 2024 was approximately 1.1 years.
The future use
of brokered
CDs will depend
on multiple factors
including excess
liquidity at each
of the regions,
future cash needs
and any
tax implications. Brokered
CDs are insured
by the FDIC
up to regulatory
limits and can
be obtained faster
than regular
retail
deposits.
The following table presents the contractual maturities of brokered CDs as of March
31, 2024:
Total
(In thousands)
Three months or less
$
174,639
Over three months to six months
170,215
Over six months to one year
209,581
Over one year to three years
98,233
Over three years to five years
57,582
Over five years
15,436
Total
$
725,686
Refer to
“Net Interest
Income” above
for information
about average
balances of
interest-bearing deposits
and the
average interest
rate paid on such deposits for the quarters ended March 31, 2024 and 2023.
From time to time, the Corporation enters into repurchase agreements as an
additional source of funding.
Securities
sold
under
agreements
to
repurchase
–
As
of
March
31,
2024
and
December
31,
2023,
there
were
no
outstanding
repurchase agreements.
Under the Corporation’s
repurchase agreements, as
is the case with
derivative contracts, the
Corporation is required
to pledge cash
or qualifying securities to meet margin requirements.
To the extent that the value of
securities previously pledged as collateral declines
due to changes in interest
rates, a liquidity crisis or
any other factor, the
Corporation is required to deposit
additional cash or securities
to meet
its margin
requirements, thereby
adversely affecting
its liquidity.
Given the
quality of
the collateral
pledged, the
Corporation
has not experienced margin calls from counterparties
arising from credit-quality-related write-downs in valuations.
Advances
from
the
FHLB
–
The
Bank
is
a
member
of
the
FHLB
system
and
obtains
advances
to
fund
its
operations
under
a
collateral
agreement
with
the
FHLB
that
requires
the
Bank
to
maintain
qualifying
mortgages
and/or
investments
as
collateral
for
advances
taken.
As
of
each
of
March
31,
2024
and
December
31,
2023,
the
outstanding
balance
of
long-term
fixed-rate
FHLB
advances
was
$500.0
million.
Of
the
$500.0
million
in
FHLB
advances
as
of
March
31,
2024,
$400.0
million
were
pledged
with
investment
securities
and
$100.0
million
were
pledged
with
mortgage
loans.
As
of
March
31,
2024,
the
Corporation
had
$972.5
million available for additional credit on FHLB lines of credit based on collateral pledged
at the FHLB of New York.
Trust
Preferred
Securities –
In 2004,
FBP Statutory
Trusts I
and II,
statutory trusts
that are
wholly-owned by
the Corporation
and
not consolidated in
the Corporation’s
financial statements, sold
to institutional investors
variable-rate TRuPs and
used the proceeds of
these issuances, together
with the proceeds
of the purchases by
the Corporation of
variable rate common
securities, to purchase
junior
subordinated
deferrable
debentures.
The
subordinated
debentures
are
presented
in
the
Corporation’s
consolidated
statements
of
financial condition as
other long-term borrowings.
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.
98
As
of
each
of
March
31,
2024
and
December
31,
2023,
the
Corporation
had
junior
subordinated
debentures
outstanding
in
the
aggregate
amount of
$161.7 million,
with maturity
dates ranging
from June
17, 2034
through September
20, 2034.
As of
March 31,
2024,
the
Corporation
was
current
on
all
interest
payments
due
on
its
subordinated
debt.
See
Note
10
–
“Other
Long-Term
Borrowings”
and Note 7 – “Non-Consolidated
Variable
Interest Entities (“VIEs”) and Servicing
Assets” to the unaudited
consolidated
financial statements herein for additional information.
Other Sources
of Funds and
Liquidity
- The Corporation’s
principal uses of
funds are for
the origination of
loans, the repayment
of
maturing deposits
and borrowings,
and deposits
withdrawals. Over
the years,
in connection
with its
mortgage banking
activities, the
Corporation has invested in technology and personnel to enhance the Corporation’s
secondary mortgage market capabilities.
These enhanced capabilities
improve the Corporation’s
liquidity profile as they
allow the Corporation to
derive liquidity,
if needed,
from the
sale of mortgage
loans in
the secondary
market. The
U.S. (including
Puerto Rico)
secondary mortgage
market is
still highly
liquid,
in
large
part because
of
the
sale of
mortgages
through
guarantee
programs
of
the Federal
Housing
Authority
(“FHA”),
U.S.
Department of
Veterans
Affairs (“VA”),
U.S. Department
of Housing
and Urban
Development (“HUD”),
Federal National
Mortgage
Association
(“FNMA”)
and
Federal
Home
Loan
Mortgage
Corp.
(“FHLMC”).
During
the
first
quarter
of
2024,
loans
pooled
into
Government National Mortgage
Association (“GNMA”) MBS amounted
to approximately $24.7 million.
Also, during the first quarter
of 2024, the Corporation sold approximately $6.8 million of performing
residential mortgage loans to FNMA.
The
FED
Discount
Window
is
a
cost-efficient
source
of
short-term
funding
for
the
Corporation
in
highly-volatile
market
conditions. As previously mentioned, as of March
31, 2024, the Corporation had approximately $1.6
billion fully available for funding
under the FED’s Discount Window.
Effect of Credit Ratings on Access to Liquidity
The
Corporation’s
liquidity
is
contingent
upon
its
ability
to
obtain
deposits
and
other
external
sources
of
funding
to
finance
its
operations.
The Corporation’s
current credit
ratings and
any downgrade
in credit
ratings can
hinder the
Corporation’s
access to
new
forms
of
external
funding
and/or
cause
external
funding
to
be
more
expensive,
which
could,
in
turn,
adversely
affect
its
results
of
operations. Also, changes in credit ratings may further affect the
fair value of unsecured derivatives whose value takes into account
the
Corporation’s own credit risk.
The Corporation
does not
have any
outstanding debt
or derivative
agreements that
would be
affected by
credit rating
downgrades.
Furthermore, given the Corporation’s
non-reliance on corporate debt or
other instruments directly linked in
terms of pricing or volume
to credit
ratings, the
liquidity of
the Corporation
has not been
affected in
any material
way by downgrades.
The Corporation’s
ability
to access new non-deposit sources of funding, however,
could be adversely affected by credit downgrades.
As of
the date
hereof, the
Corporation’s
credit as
a long-term
issuer is
rated BB+
by S&P
and BB
by Fitch.
As of
the date
hereof,
FirstBank’s
credit
ratings
as
a
long-term
issuer
are
BB+
by
S&P,
one
notch
below
S&P’s
minimum
BBB-
level
required
to
be
considered investment
grade; and BB by
Fitch, two notches
below Fitch’s
minimum BBB- level
required to be
considered investment
grade.
The
Corporation’s
credit
ratings
are
dependent
on
a
number
of
factors,
both
quantitative
and
qualitative,
and
are
subject
to
change
at any
time. The
disclosure of
credit ratings
is not
a recommendation
to buy,
sell or
hold
the Corporation’s
securities.
Each
rating should be evaluated independently of any other rating.
99
Cash Flows
Cash and cash equivalents were $684.5 million
as of March 31, 2024, an increase of $21.4 million when
compared to December 31,
2023.
The following
discussion highlights
the major
activities and
transactions that
affected the
Corporation’s
cash flows
during
the
first quarters of 2024 and 2023:
Cash Flows from Operating Activities
First BanCorp.’s
operating assets and
liabilities vary significantly
in the normal course
of business due to
the amount and timing
of
cash flows.
Management believes
that cash
flows from
operations, available
cash balances,
and the
Corporation’s
ability to
generate
cash through
short and long-term
borrowings will be
sufficient to
fund the Corporation’s
operating liquidity
needs for the
foreseeable
future.
For the quarters
ended March 31,
2024 and 2023,
net cash provided
by operating activities
was $118.2
million and $115.4
million,
respectively.
Net cash
generated from
operating activities
was higher
than reported
net income
largely as
a result
of adjustments
for
non-cash items such
as depreciation and
amortization, deferred income
tax expense and the
provision for credit
losses, as well as cash
generated from sales and repayments of loans held for sale.
Cash Flows from Investing Activities
The Corporation’s
investing activities primarily
relate to originating
loans to be
held for investment,
as well as
purchasing, selling,
and
repaying
available-for-sale
and
held-to-maturity
debt
securities.
For
the
quarter
ended
March
31,
2024,
net
cash
provided
by
investing
activities
was
$39.7
million,
primarily
due
to
repayments
of
U.S.
agencies
MBS
and
debentures;
proceeds
from
sales
of
loans, mainly driven
by the bulk
sale of fully
charged-off consumer
loans during the
first quarter of
2024; and proceeds
from sales of
repossessed assets; partially offset by net disbursements
on loans held for investment.
For the quarter
ended March 31,
2023, net
cash provided by
investing activities
was $50.5
million, primarily
due to repayments
of
U.S. agencies MBS, partially offset by net disbursements
on loans held for investment.
Cash Flows from Financing Activities
The Corporation’s
financing activities
primarily
include the
receipt of
deposits and
the issuance
of brokered
CDs, the
issuance of
and payments
on long-term
debt, the
issuance of
equity instruments,
return of
capital, and
activities related
to its
short-term funding.
For the
quarter ended
March 31,
2024, net
cash used
in financing
activities was
$136.6 million,
mainly reflecting
capital returned
to
stockholders and a decrease in total deposits.
For the quarter
ended March 31,
2023, net cash provided
by financing activities
was $177.1 million,
mainly reflecting net
proceeds
of $347.8 million from borrowings
reflecting precautionary measures taken
by management in light of instability
in the banking sector
during such period, partially offset by a decrease in total deposits and
capital returned to stockholders.
100
Capital
As
of
March
31,
2024,
the
Corporation’s
stockholders’
equity
was
$1.5
billion,
a
decrease
of
$17.9
million
from
December
31,
2023.
The
decrease
was
driven
by
the
repurchase
of
approximately
3.0
million
shares
of
common
stock
for
a
total
cost
of
$50.0
million, common
stock dividends
declared in
the first
quarter of
2024 totaling
$26.9 million or
$0.16 per
common share,
and a $15.1
million decrease
in the fair
value of available-for
-sale debt securities
recorded as part
of accumulated other
comprehensive loss in
the
consolidated statements of
financial condition. These
variances were partially
offset by the net
income generated in the
first quarter of
2024.
On April 25, 2024, the Corporation’s
Board declared a quarterly cash dividend of $0.1
6
per common share. The dividend is payable
on
June
14,
2024
to
shareholders
of
record
at
the
close
of
business
on
May
30,
2024.
The
Corporation
intends
to
continue
to
pay
quarterly
dividends
on
common
stock.
The
Corporation’s
common
stock
dividends,
including
the
declaration,
timing
and
amount,
remain subject to the consideration and approval by the Corporation’s
Board at the relevant times.
On
July
24, 2023,
the Corporation
announced
that its
Board
of Directors
approved
a stock
repurchase
program,
under
which
the
Corporation may
repurchase up
to $225
million of
its outstanding
common stock,
which it
expects to
execute through
the end
of the
third quarter of 2024. Repurchases
under the program may
be executed through open market
purchases, accelerated share repurchases,
and/or
privately
negotiated
transactions
or
plans,
including
under
plans
complying
with
Rule
10b5-1
under
the
Exchange
Act.
The
Corporation’s
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
Corporation’s
stock
repurchase
program
does
not
obligate
it
to
acquire
any
specific
number
of
shares
and
does
not
have
an
expiration
date.
The
stock
repurchase
program may
be modified,
suspended, or
terminated at
any time
at the
Corporation’s
discretion. As
of May
2, 2024,
the Corporation
has
repurchased
approximately
8.4
million
shares
of
common
stock
for
a
total
cost
of
$129.9
million
under
such
stock
repurchase
program.
The Corporation’s
holding company
has no operations
and depends
on dividends, distributions
and other
payments from
its
subsidiaries to fund
dividend payments, stock repurchases,
and to fund all
payments on its obligations,
including debt obligations.
For
more information, see Part II, Item 2, “Unregistered
Sales of Equity Securities and Use of Proceeds,”
of this Quarterly Report on Form
10-Q.
The tangible common
equity ratio and
tangible book value
per common share
are non-GAAP financial
measures generally used
by
the
financial
community
to
evaluate
capital
adequacy.
Tangible
common
equity
is
total
common
equity
less
goodwill
and
other
intangible assets. Tangible
assets are total assets less
the previously mentioned
intangible assets. See “Non-GAAP
Financial Measures
and Reconciliations” above for additional information.
101
The
following
table
is
a
reconciliation
of
the
Corporation’s
tangible
common
equity
and
tangible
assets,
non-GAAP
financial
measures, to total equity and total assets, respectively,
as of March 31, 2024 and December 31, 2023, respectively:
March 31, 2024
December 31, 2023
(In thousands, except ratios and per share information)
Total common equity
- GAAP
$
1,479,717
$
1,497,609
Goodwill
(38,611)
(38,611)
Other intangible assets
(11,542)
(13,383)
Tangible common
equity - non-GAAP
$
1,429,564
$
1,445,615
Total assets - GAAP
$
18,890,961
$
18,909,549
Goodwill
(38,611)
(38,611)
Other intangible assets
(11,542)
(13,383)
Tangible assets -
non-GAAP
$
18,840,808
$
18,857,555
Common shares outstanding
166,707
169,303
Tangible common
equity ratio - non-GAAP
7.59%
7.67%
Tangible book
value per common share - non-GAAP
$
8.58
$
8.54
See Note 21 – “Regulatory
Matters, Commitments and Contingencies”
to the unaudited consolidated
financial statements herein for
the regulatory capital positions of the Corporation and FirstBank as of March
31, 2024 and December 31, 2023, respectively.
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.
FirstBank’s
legal surplus
reserve, included
as part
of
retained earnings in
the Corporation’s
consolidated statements of
financial condition, amounted
to $199.6 million
as of each of
March
31, 2024 and December 31, 2023, respectively.
There were no transfers to the legal surplus reserve during the quarter ended
March 31,
2024.
102
Interest Rate Risk Management
First
BanCorp
manages
its
asset/liability
position
to
limit
the
effects
of
changes
in
interest
rates
on
net
interest
income
and
to
maintain stability
of profitability
under varying
interest rate
scenarios. The
MIALCO oversees
interest rate
risk and
monitors, among
other things, current
and expected conditions
in global financial
markets, competition
and prevailing rates
in the local
deposit market,
liquidity,
loan
originations
pipeline,
securities
market
values,
recent
or
proposed
changes
to
the
investment
portfolio,
alternative
funding sources
and related costs,
hedging and the
possible purchase of
derivatives such as
swaps and caps,
and any tax
or regulatory
issues which may be
pertinent to these areas.
The MIALCO approves funding
decisions in light of
the Corporation’s
overall strategies
and objectives.
On at least a quarterly basis, the Corporation performs a
consolidated net interest income simulation analysis to estimate the
potential
change
in
future
earnings
from
projected
changes
in
interest
rates.
These
simulations
are
carried
out
over
a
one-to-five-year
time
horizon. The
rate scenarios
considered in
these simulations
reflect gradual
upward or
downward interest
rate movements
in the
yield
curve, for gradual
(ramp) parallel shifts
in the yield
curve of 200
and 300 bps
during a twelve-month
period, or immediate
upward or
downward
changes
in
interest
rate
movements
of
200
bps,
for
interest
rate
shock
scenarios.
The
Corporation
carries
out
the
simulations in two ways:
(1)
Using a static balance sheet, as the Corporation had on the simulation
date, and
(2)
Using a dynamic balance sheet based on recent patterns and current strategies.
The balance
sheet is
divided into
groups of
assets and
liabilities by
maturity or
repricing structure
and their
corresponding
interest
yields and
costs. As interest
rates rise or
fall, these
simulations incorporate
expected future
lending rates,
current and
expected future
funding sources
and costs,
the possible
exercise of
options, changes
in prepayment
rates, deposit
decay and
other factors,
which may
be important in projecting net interest income.
The Corporation uses
a simulation model
to project future movements
in the Corporation’s
balance sheet and
income statement. The
starting point
of the
projections corresponds
to the
actual values
on the
balance
sheet on
the
simulation
date.
These simulations
are
highly complex
and are based
on many assumptions
that are intended
to reflect the
general behavior of
the balance sheet
components
over the modeled periods. It is unlikely that actual events
will match these assumptions in all cases. For this reason, the results
of these
forward-looking
computations
are
only
approximations
of
the
sensitivity
of
net
interest
income
to
changes
in
market
interest
rates.
Several
benchmark
and
market
rate
curves
were
used
in
the
modeling
process,
primarily,
SOFR
curve,
Prime
Rate,
U.S.
Treasury
yield curve, FHLB rates, brokered CDs rates, repurchase agreements rates, and
the mortgage commitment rate of 30 years.
As of
March 31,
2024, the
Corporation forecasted
the 12-month
net interest
income assuming
March 31,
2024 interest
rate curves
remain
constant.
Then,
net
interest
income
was
estimated
under
rising
and
falling
rates
scenarios.
For
the
rising
rate
scenario,
a
gradual (ramp)
and immediate
(shock) parallel
upward shift
of the
yield curve
is assumed
during the
first twelve
months (the
“+300
ramp”, “+200
ramp” and
“+200 shock”
scenarios). Conversely,
for the
falling rate
scenario, a
gradual (ramp)
and immediate
(shock)
parallel downward shift
of the yield curve
is assumed during the
first twelve months (the
“-300 ramp”, “-200
ramp” and “-200
shock”
scenarios).
The SOFR
curve for
March 31,
2024, as
compared with
December 31,
2023, reflects
an increase
of 12
bps on
average in
the short-
term sector of the curve, or
between one to twelve months;
an increase of 57 bps
in the medium-term sector of the
curve, or between 2
to 5 years; and
an increase of 47 bps
in the long-term sector
of the curve, or
over 5-year maturities. A
similar behavior in market
rates
changes was observed
in the Constant
Maturity Treasury
yield curve with
an increase of
8 bps in
the short-term sector,
an increase of
50 bps in the medium-term sector, and an
increase of 42 bps in the long-term sector.
103
The following table presents the results of the static simulations as of March 31,2024 and
December 31, 2023. Consistent with prior
years, these exclude non-cash changes in the fair value of derivatives:
Net Interest Income Risk
(% Change Projected for the next 12 months)
March 31, 2024
December 31, 2023
Gradual Change in Interest Rates:
+ 300 bps ramp
1.56
%
1.08
%
+ 200 bps ramp
1.05
%
0.73
%
- 300 bps ramp
-3.39
%
-3.09
%
- 200 bps ramp
-2.19
%
-2.02
%
Immediate Change in Interest Rates:
+ 200 bps shock
2.37
%
2.45
%
- 200 bps shock
-5.62
%
-5.67
%
The Corporation
continues to
manage its
balance sheet
structure to
control and
limit the
overall interest
rate risk
by managing
its
asset
composition
while
maintaining
a
sound
liquidity
position.
See
“Risk
Management
–
Liquidity
Risk
Management”
above
for
liquidity ratios.
As of March
31, 2024, and
December 31, 2023,
the net interest income
simulations show that the
Corporation continues to
have an
asset sensitive position for the next twelve months under a static balance sheet simulation.
Under
gradual
rising
scenarios,
the
net
interest
income
simulation
shows
a
slight
increase
in
interest
rate
sensitivity,
when
compared with December
31, 2023, due to
lower sensitivity in the
liabilities side. The decrease
in sensitivity in
the liabilities side was
mainly
driven by
an increase
in repricing
lag, mainly
in public
sector non
-maturity
deposits, partially
offset
by
higher sensitivity
in
time deposits
as a
result of
higher balances.
On the
assets side,
the sensitivity
increased slightly
in the
investment securities
portfolio
due to an
increase in the
prepayment rate assumptions
of MBS and
the level of
scheduled maturities of
U.S. agencies debentures
over
the next twelve months.
Gradual
falling
rates
scenarios
also
show
an
increase
in
interest
rate
sensitivity,
when
compared
with
December
31,
2023,
as
decreases in
interest rates
are estimated
to occur
at a slower
pace on
the liabilities side
as pricing
pressures, deposits
competition and
retention
strategies
will
impact
the
pace
of
repricing,
mainly
in
the
public
sector
non-maturity
deposits,
partially
offset
by
higher
sensitivity on the assets side, as explained above.
Under
the
static
simulation,
the
Corporation
assumes
that
maturing
instruments
are
replaced
with
similar
instruments
at
the
repricing rate upon maturity.
The Corporation’s results may vary
significantly from the ones presented above under alternative balance
sheet compositions,
such as a
dynamic balance
sheet scenario which,
for example, would
assume that cash
flows from the
investment
securities portfolio and loan repayments will be redeployed into higher yielding
alternatives.
104
Credit Risk Management
First BanCorp.
is subject
to
credit
risk
mainly
with
respect to
its portfolio
of loans
receivable
and
off-balance-sheet
instruments,
principally
loan
commitments.
Loans
receivable
represents
loans
that
First
BanCorp.
holds
for
investment
and,
therefore,
First
BanCorp. is at risk for
the term of the loan.
Loan commitments represent commitments
to extend credit, subject
to specific conditions,
for specific amounts
and maturities. These commitments
may expose the Corporation
to credit risk and
are subject to the
same review
and
approval
process as
for
loans
made
by
the
Bank.
See “Risk
Management
–
Liquidity
Risk” and
“Risk Management
–
Capital”
above
for
further
details.
The
Corporation
manages
its
credit
risk
through
its
credit
policy,
underwriting,
monitoring
of
loan
concentrations
and
related
credit
quality,
counterparty
credit
risk,
economic
and
market
conditions,
and
legislative
or
regulatory
mandates. The
Corporation also performs
independent loan review
and quality
control procedures,
statistical analysis, comprehensive
financial
analysis,
established
management
committees,
and
employs
proactive
collection
and
loss
mitigation
efforts.
Furthermore,
personnel
performing
structured
loan
workout
functions
are
responsible
for
mitigating
defaults
and
minimizing
losses
upon
default
within each
region and
for each business
segment. In
the case of
the C&I,
commercial mortgage
and construction
loan portfolios,
the
Special Asset
Group
(“SAG”)
focuses on
strategies for
the accelerated
reduction
of non-performing
assets through
note sales,
short
sales, loss
mitigation
programs, and
sales of
OREO. In
addition to
the management
of the
resolution process
for problem
loans, the
SAG
oversees
collection
efforts
for
all
loans
to
prevent
migration
to
the
nonaccrual
and/or
adversely
classified
status.
The
SAG
utilizes relationship officers, collection specialists and attorneys.
The
Corporation
may
also
have
risk
of
default
in
the
securities
portfolio.
The
securities
held
by
the
Corporation
are
principally
fixed-rate U.S. agencies
MBS and U.S. Treasury
and agencies securities. Thus,
a substantial portion
of these instruments is
backed by
mortgages, a guarantee of a U.S. GSE or the full faith and credit of the U.S. government.
Management, consisting of the Corporation’s
Chief Risk Officer,
Commercial Credit Risk Officer,
Retail Credit Risk Officer,
Chief
Credit Officer,
and other senior executives,
has the primary responsibility
for setting strategies to achieve
the Corporation’s
credit risk
goals and objectives. Management has documented these goals and objectives
in the Corporation’s Credit Policy.
105
Allowance for Credit Losses and Non-Performing Assets
Allowance for Credit Losses for Loans and
Finance Leases
The ACL
for loans
and finance
leases represents
the estimate
of the
level of
reserves appropriate
to absorb
expected credit
losses
over the estimated life of the
loans. The amount of the allowance
is determined 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 differences
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.
Such
factors are
subject to
regular review
and may
change to
reflect updated
performance trends
and expectations,
particularly in
times of
severe
stress.
The
process
includes
judgments
and
quantitative
elements
that
may
be
subject
to
significant
change.
Further,
the
Corporation periodically considers the need for qualitative
reserves to the ACL. Qualitative adjustments may be related
to and include,
but are
not limited
to, factors
such as
the following:
(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 loan resolution
strategies,
among others.
The ACL
for loans
and finance
leases is
reviewed at
least on
a quarterly
basis as
part of
the Corporation’s
continued
evaluation of its asset quality.
The Corporation
generally applies
probability weights
to the
baseline and
alternative downside
economic scenarios
to estimate
the
ACL with
the
baseline
scenario
carrying
the highest
weight.
The
scenarios
that are
chosen each
quarter
and
the
weighting
given
to
each
scenario
for
the
different
loan
portfolio
categories
depend
on
a
variety
of
factors
including
recent
economic
events,
leading
national and
regional economic
indicators, and
industry trends.
As of
March 31,
2024, the
Corporation applied
the baseline
scenario
for the commercial
mortgage and construction
loan portfolios as deterioration
in the CRE price
index in these portfolios
was expected
at
a
lower
extent
than
projected
in
the
alternative
downside
scenario.
The
economic
scenarios
used
in
the
ACL
determination
contained assumptions
related to
economic uncertainties
associated with
geopolitical instability,
the CRE
price index,
unemployment
rate, inflation
levels, and
expected future
interest rate
adjustments in
the Federal
Reserve Board’s
funds rate.
As of
March 31,
2024,
the Corporation’s
ACL model considered the
following assumptions for key economic
variables in the probability-weighted economic
scenarios:
●
CRE
price
index
at
the
national
level
with
an
average
projected
contraction
of
6.25%
for
the
remainder
of
2024
and
an
average
projected
appreciation of
1.98% for
the year
2025, compared
to an
average projected
contraction
of 6.81%
for the
remainder of 2024 and an average projected appreciation of 2.01% for the year
2025 as of December 31, 2023.
●
Regional
Home
Price
Index
forecast
in
Puerto
Rico
(purchase
only
prices)
is
projected
to
remain
relatively
flat
for
the
remainder of 2024,
while for the
year 2025 shows
a deterioration of
1.22%, when compared
to the same
period projection as
of
December
31,
2023.
For
the
Florida
region,
the
Home
Price
Index
forecast
shows
an
improvement
of
0.72%
for
the
remainder of
2024 and
an improvement
of 0.91%
for the
year 2025,
when compared
to the
same period
as of December
31,
2023.
●
Average
regional unemployment
rate in
Puerto Rico
is forecasted
at 7.03%
for the
remainder of
2024 and
8.16%
for 2025,
compared to 7.35%
for the remainder of
2024 and 8.08%
for the year 2025
as of December 31,
2023. For the Florida
and the
U.S. mainland,
average unemployment
rate is
forecasted at
4.07% and
4.53%, respectively,
for the
remainder
of 2024,
and
4.34%
and 4.73%,
respectively,
for the
year 2025,
compared to
4.27% and
4.74%, respectively,
for the
remainder of
2024,
and 4.12% and 4.52%, respectively,
for the year 2025 as of December 31, 2023.
●
Annualized change
in gross domestic
product (“GDP”)
in the
U.S. mainland
of 1.61%
for the
remainder of
2024 and
1.33%
for the year 2025, compared to 0.82% for the remainder of 2024 and 1.64%
for the year 2025 as of December 31, 2023.
106
It is difficult to estimate how potential changes
in one factor or input might affect the overall ACL because
management considers a
wide variety of
factors and inputs in
estimating the ACL.
Changes in the
factors and inputs considered
may not occur
at the same rate
and may not be consistent
across all geographies or product
types, and changes in factors
and inputs may be directionally
inconsistent,
such that improvement
in one factor
or input may
offset deterioration
in others. However,
to demonstrate the
sensitivity of credit
loss
estimates
to
macroeconomic
forecasts
as
of
March
31,
2024,
management
compared
the
modeled
estimates
under
the
probability-
weighted economic
scenarios against a
more adverse scenario.
The more adverse
scenario incorporates an
additional adverse scenario
and decreases
the weight
applied to
the baseline
scenario. Under
this more
adverse scenario,
as an
example, average
unemployment
rate
for
the
Puerto
Rico
region
increases
to
7.45%
for
the
remainder
of
2024,
compared
to
7.03%
for
the
same
period
on
the
probability-weighted economic scenario projections.
To
demonstrate
the
sensitivity
to
key
economic
parameters
used
in
the
calculation
of
the
ACL
at
March
31,
2024,
management
calculated
the
difference
between
the
quantitative
ACL
and
this
more
adverse
scenario.
Excluding
consideration
of
qualitative
adjustments,
this sensitivity
analysis
would
result in
a hypothetical
increase
in the
ACL of
approximately
$47
million at
March
31,
2024.
This analysis
relates only
to the
modeled credit
loss estimates
and is
not intended
to estimate
changes in
the overall
ACL as
it
does
not
reflect
any
potential
changes
in
other
adjustments
to
the
qualitative
calculation,
which
would
also
be
influenced
by
the
judgment
management
applies
to
the
modeled
lifetime
loss
estimates
to
reflect
the
uncertainty
and
imprecision
of
these
estimates
based
on
current
circumstances
and
conditions.
Recognizing
that
forecasts
of
macroeconomic
conditions
are
inherently
uncertain,
particularly in
light of
recent economic
conditions and
challenges, which
continue to
evolve, management
believes that
its process
to
consider the
available information
and associated
risks and
uncertainties is
appropriately governed
and that
its estimates
of expected
credit losses were reasonable and appropriate for the period ended
March 31, 2024.
The
ratio
of
the
ACL
for
loans
and
finance
leases
to
total
loans
held
for
investment
decreased
to
2.14%
as
of
March
31,
2024,
compared to 2.15% as of December 31, 2023. An explanation for
the change for each portfolio follows:
●
The ACL to total
loans ratio for the
residential mortgage loan
portfolio decreased from
2.03% as of December
31, 2023 to
2.02%
as
of
March
31,
2024,
primarily
reflecting
a
more
favorable
economic
outlook,
particularly
in
the
projection
of
unemployment rates.
●
The ACL to total loans ratio for the construction
loan portfolio was 2.61% as of each of March 31, 2024
and December 31,
2023.
●
The ACL
to total
loans ratio
for the
commercial mortgage
loan portfolio
decreased from
1.41% as
of December
31, 2023
to
1.38%
as
of
March
31,
2024,
mainly
driven
by
improvements
in
the
financial
information
of
certain
borrowers
and
delinquency improvements, partially offset by deterioration
on the economic outlook of certain macroeconomic variables.
●
The
ACL to
total loans
ratio for
the C&I
loan portfolio
increased
from
1.05%
as of
December
31,
2023
to 1.07%
as of
March 31, 2024, mainly due to newly originated loans which have a longer life.
●
The ACL to
total loans ratio
for the consumer
loan portfolio decreased
from 3.64% as
of December
31, 2023
to 3.63% as
of March
31, 2024,
mainly driven
by updated
macroeconomic variables,
partially offset
by increases
in historical
charge-
off levels, mainly in credit cards.
The ratio of the
total ACL for loans
and finance leases to
nonaccrual loans held
for investment was 283.54%
as of March 31,
2024,
compared to 312.81% as of December 31, 2023.
107
Substantially all of
the Corporation’s
loan portfolio is
located within the
boundaries of the
U.S. economy.
Whether the collateral
is
located in
Puerto Rico,
the U.S.
and British
Virgin
Islands, or
the U.S.
mainland (mainly
in the
state of
Florida), the
performance of
the Corporation’s
loan portfolio and
the value of
the collateral supporting
the transactions are
dependent upon the
performance of and
conditions
within each
specific area’s
real estate
market. The
Corporation believes
it sets
adequate loan-to-value
ratios following
its
regulatory and credit policy standards.
As shown in the following tables,
the ACL for loans and finance leases
amounted to $263.6 million as of
March 31, 2024, or 2.14%
of total loans, compared with $261.8 million, or 2.15%
of total loans, as of December 31, 2023. See “Results of Operations
- Provision
for Credit Losses” and Note 4 – “Allowance for Credit Losses for Loans and Finance
Leases” above for additional information.
Quarter Ended March 31,
2024
2023
(Dollars in thousands)
ACL for loans and finance leases, beginning of year
$
261,843
$
260,464
Impact of adoption of ASU 2022-02
-
2,116
Provision for credit losses - (benefit) expense:
Residential mortgage
(464)
73
Construction
571
860
Commercial mortgage
(10)
1,246
C&I
(3,360)
(1,650)
Consumer and finance leases
16,180
15,727
Total provision for credit losses
- expense
12,917
16,256
Charge-offs:
Residential mortgage
(516)
(983)
Commercial mortgage
-
(18)
C&I
(459)
(118)
Consumer and finance leases
(28,364)
(16,798)
Total charge offs
(29,339)
(17,917)
Recoveries:
Residential mortgage
272
497
Construction
10
63
Commercial mortgage
40
168
C&I
5,119
90
Consumer and finance leases
12,730
(1)
3,830
Total recoveries
18,171
(1)
4,648
Net charge-offs
(11,168)
(13,269)
ACL for loans and finance leases, end of period
$
263,592
$
265,567
ACL for loans and finance leases to period-end total loans
held for investment
2.14%
2.29%
Net charge-offs (annualized) to average loans
outstanding during the period
0.37%
(2)
0.46%
Provision for credit losses - expense for loans and finance
leases to net charge-offs during the period
1.16x
1.23x
(1)
For the quarter ended March 31, 2024 includes a recovery totaling $9.5 million associated with the bulk sale of fully charged -off consumer loans.
(2)
The recovery associated with the aforementioned bulk sale reduced the ratio of total net charge-offs to related average loans by 31 basis points in the first quarter of 2024.
108
The following tables set forth information concerning the composition of the
Corporation's loan portfolio and related ACL by loan
category, and the percentage
of loan balances in each category to the total of such loans as of the indicated dates:
As of March 31, 2024
Residential
Mortgage
Loans
Commercial
Mortgage
Loans
C&I Loans
Consumer and
Finance
Leases
Construction
Loans
(Dollars in thousands)
Total
Total loans held for investment:
Amortized cost of loans
$
2,801,587
$
237,288
$
2,361,731
$
3,230,995
$
3,679,847
$
12,311,448
Percent of loans in each category to total loans
23
%
2
%
19
%
26
%
30
%
100
%
Allowance for credit losses
$
56,689
$
6,186
$
32,661
$
34,490
$
133,566
$
263,592
Allowance for credit losses to amortized cost
2.02
%
2.61
%
1.38
%
1.07
%
3.63
%
2.14
%
As of December 31, 2023
Residential
Mortgage
Loans
Commercial
Mortgage
Loans
C&I Loans
Consumer and
Finance Leases
Construction
Loans
(Dollars in thousands)
Total
Total loans held for investment:
Amortized cost of loans
$
2,821,726
$
214,777
$
2,317,083
$
3,174,232
$
3,657,665
$
12,185,483
Percent of loans in each category to total loans
23
%
2
%
19
%
26
%
30
%
100
%
Allowance for credit losses
$
57,397
$
5,605
$
32,631
$
33,190
$
133,020
$
261,843
Allowance for credit losses to amortized cost
2.03
%
2.61
%
1.41
%
1.05
%
3.64
%
2.15
%
Allowance for Credit Losses for Unfunded Loan
Commitments
The Corporation estimates
expected credit losses
over the contractual
period in which
the Corporation is
exposed to credit
risk as a
result
of
a
contractual
obligation
to
extend
credit,
such as
pursuant
to unfunded
loan
commitments
and
standby
letters of
credit
for
commercial and
construction loans,
unless the
obligation is
unconditionally cancellable
by the
Corporation. The
ACL for
off-balance
sheet credit
exposures is
adjusted as
a provision
for credit
loss expense.
As of
March 31,
2024, the
ACL for
off-balance
sheet credit
exposures increased by $0.3 million to $4.9 million, when compared
to December 31, 2023.
Allowance for Credit Losses for Held-to-Maturity
Debt Securities
As of March
31, 2024, the
ACL for held-to-maturity
securities portfolio was
entirely related to
financing arrangements with
Puerto
Rico municipalities
issued in bond
form, which
the Corporation accounts
for as securities,
but which
were underwritten as
loans with
features
that are
typically found
in commercial
loans.
As of
March 31,
2024, the
ACL for
held-to-maturity debt
securities was
$1.2
million,
compared
to
$2.2
million
as
of
December
31,
2023.
The
decrease
was
mostly
driven
by
improvements
in
the
underlying
updated financial information of a Puerto Rico municipal bond issuer received
during the first quarter of 2024.
Allowance for Credit Losses for Available
-for-Sale Debt Securities
The
ACL
for
available-for-sale
debt
securities,
which
is
associated
with
private
label
MBS
and
a
residential
pass-through
MBS
issued by the PRHFA, was $0.4
million as of March 31, 2024, compared to $0.5 million as of December 31, 2023.
109
Nonaccrual Loans and Non-Performing Assets
Total
non-performing
assets consist
of nonaccrual
loans (generally
loans held
for
investment or
loans held
for
sale for
which
the
recognition of
interest income
was discontinued
when the
loan became
90 days
past due
or earlier
if the
full and
timely collection
of
interest or principal
is uncertain), foreclosed
real estate and
other repossessed properties,
and non-performing
investment securities, if
any.
When a
loan is placed
in nonaccrual
status, any
interest previously
recognized and
not collected
is reversed
and charged
against
interest
income.
Cash
payments
received
are
recognized
when
collected
in
accordance
with
the
contractual
terms
of
the
loans.
The
principal
portion
of the
payment is
used to
reduce
the principal
balance
of the
loan,
whereas the
interest portion
is recognized
on a
cash basis
(when collected).
However,
when management
believes that
the ultimate
collectability of
principal is
in doubt,
the interest
portion
is
applied
to
the
outstanding
principal.
The
risk
exposure
of
this
portfolio
is
diversified
as
to
individual
borrowers
and
industries, among other factors. In addition, a large portion
is secured with real estate collateral.
Nonaccrual Loans Policy
Residential Real Estate Loans
— The Corporation generally classifies real estate loans in
nonaccrual status when it has not received
interest and principal for a period of 90 days or more.
Commercial
and
Construction
Loans
—
The
Corporation
classifies
commercial
loans
(including
commercial
real
estate
and
construction loans) in nonaccrual
status when it has not
received interest and principal
for a period of 90
days or more or when
it does
not expect to collect all of the principal or interest due to deterioration in the financial condition
of the borrower.
Finance Leases
— The Corporation
classifies finance leases
in nonaccrual status
when it has not
received interest and
principal for
a period of 90 days or more.
Consumer Loans
— The Corporation
classifies consumer
loans in nonaccrual
status when it
has not received
interest and
principal
for a period of 90 days or more. Credit card loans continue to accrue finance
charges and fees until charged-off at 180
days delinquent.
Purchased
Credit Deteriorated
Loans (“PCD”)
— For
PCD loans,
the nonaccrual
status is
determined in
the same
manner as
for
other loans,
except for
PCD loans
that prior
to the
adoption of
CECL were
classified as
purchased credit
impaired (“PCI”)
loans and
accounted
for
under
ASC
Subtopic
310-30,
“Receivables
–
Loans
and
Debt
Securities
Acquired
with
Deteriorated
Credit
Quality”
(“ASC
Subtopic
310-30”).
As
allowed
by
CECL,
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.
Regarding interest
income recognition,
the
prospective
transition
approach
for
PCD loans
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
with respect
to
which the Corporation has made
a policy election to maintain previously
existing pools upon adoption of CECL
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
the use
in operations
or improving
the collateral
for resale.
Thus, the
Corporation
continues to exclude these pools of PCD loans from nonaccrual loan statistics.
Other Real Estate Owned
OREO
acquired
in
settlement
of
loans
is
carried
at
fair
value
less
estimated
costs
to
sell
the
real
estate
acquired.
Appraisals
are
obtained periodically,
generally on an annual basis.
Other Repossessed Property
The
other
repossessed
property
category
generally
includes
repossessed
boats
and
autos
acquired
in
settlement
of
loans.
Repossessed boats and autos are recorded at the lower of cost or estimated fair value.
Other Non-Performing Assets
This
category
consists
of a
residential
pass-through
MBS
issued
by
the
PRHFA placed
in
non-performing
status
in
the
second
quarter of 2021 based on the delinquency status of the underlying second
mortgage loans.
110
Loans Past-Due 90 Days and Still Accruing
These are accruing loans
that are contractually delinquent
90 days or more. These
past-due loans are either
current as to interest but
delinquent as to the
payment of principal (
i.e.
, well secured and in
process of collection) or
are insured or guaranteed
under applicable
FHA,
VA,
or
other
government-guaranteed
programs
for
residential
mortgage
loans.
Furthermore,
as
required
by
instructions
in
regulatory
reports,
loans
past
due
90
days
and
still
accruing
include
loans
previously
pooled
into
GNMA
securities
for
which
the
Corporation
has
the
option
but
not
the
obligation
to
repurchase
loans
that
meet
GNMA’s
specified
delinquency
criteria
(
e.g.
,
borrowers
fail
to
make
any
payment
for
three
consecutive
months).
For
accounting
purposes,
these
GNMA
loans
subject
to
the
repurchase option are required to be reflected in
the financial statements with an offsetting liability.
In addition, loans past due 90 days
and
still
accruing
include
PCD
loans,
as
mentioned
above,
and
credit
cards
that
continue
accruing
interest
until
charged-off
at
180
days.
The following table presents non-performing assets as of the indicated dates:
March 31,2024
December 31, 2023
(Dollars in thousands)
Nonaccrual loans held for investment:
Residential mortgage
$
32,685
$
32,239
Construction
1,498
1,569
Commercial mortgage
11,976
12,205
C&I
25,067
15,250
Consumer and finance leases
21,739
22,444
Total nonaccrual loans held for investment
92,965
83,707
OREO
28,864
32,669
Other repossessed property
6,226
8,115
Other assets
(1)
1,551
1,415
Total non-performing assets
$
129,606
$
125,906
Past due loans 90 days and still accruing
(2) (3) (4)
$
57,515
$
59,452
Non-performing assets to total assets
0.69
%
0.67
%
Nonaccrual loans held for investment to total loans held for investment
0.76
%
0.69
%
ACL for loans and finance leases
$
263,592
$
261,843
ACL for loans and finance leases to total nonaccrual loans held
for investment
283.54
%
312.81
%
ACL for loans and finance leases to total nonaccrual loans held
for investment, excluding residential real estate loans
437.28
%
508.75
%
(1)
Residential pass-through MBS issued by the PRHFA
held as part of the available-for-sale debt securities
portfolio.
(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 amounted to $8.6 million and $8.3 million as of
March 31,2024
and December 31, 2023, respectively.
(3)
Includes FHA/VA
government-guaranteed residential mortgage as
loans past-due 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 $13.7 million and $15.4 million
of FHA government guaranteed residential mortgage loans that were
over 15 months delinquent as of
March 31, 2024 and December 31,
2023,
respectively.
(4)
These includes rebooked loans, which were previously pooled into
GNMA securities, amounting to $8.8 million and $7.9 million as
of March 31, 2024 and December 31, 2023,
respectively. 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, the loans subject to the repurchase option are required to
be reflected on the financial statements with an offsetting
liability.
111
Total
non-performing
assets increased
by $3.7
million to
$129.6 million
as of
March 31,
2024, compared
to $125.9
million as
of
December
31,
2023.
The increase
in
non-performing
loans was
driven
by a
$9.3
million
increase
in
total
nonaccrual
loans held
for
investment, partially offset
by a $3.8 million
decrease in the OREO
portfolio balance and a
$1.9 million decrease
in other repossessed
property.
Total
nonaccrual loans
were $93.0
million as of
March 31, 2024
.
This represents a
net increase
of $9.3
million from
$83.7 million
as of
December 31,
2023,
consisting of
increases of
$9.5 million
and $0.5
million in
nonaccrual commercial
and construction
loans
and nonaccrual
residential mortgage
loans, respectively,
partially offset
by a
decrease of
$0.7 million
in nonaccrual
consumer loans.
The
increase
in
nonaccrual
commercial
and
construction
loans
was
primarily
driven
by
the
inflow
to
nonaccrual
status
of
a
$10.5
million C&I loan in the Florida region in the power generation industry.
The following table shows non-performing assets by geographic segment
as of the indicated dates:
March 31,2024
December 31, 2023
(In thousands)
Puerto Rico:
Nonaccrual loans held for investment:
Residential mortgage
$
17,521
$
18,324
Construction
531
595
Commercial mortgage
3,037
3,106
C&I
13,431
13,414
Consumer and finance leases
21,503
21,954
Total nonaccrual loans held for investment
56,023
57,393
OREO
24,577
28,382
Other repossessed property
5,916
7,857
Other assets
1,551
1,415
Total non-performing assets
$
88,067
$
95,047
Past due loans 90 days and still accruing
$
51,614
$
53,308
Virgin Islands:
Nonaccrual loans held for investment:
Residential mortgage
$
6,693
$
6,688
Construction
967
974
Commercial mortgage
8,939
9,099
C&I
1,119
1,169
Consumer
203
419
Total nonaccrual loans held for investment
17,921
18,349
OREO
4,287
4,287
Other repossessed property
287
252
Total non-performing assets
$
22,495
$
22,888
Past due loans 90 days and still accruing
$
5,762
$
6,005
United States:
Nonaccrual loans held for investment:
Residential mortgage
$
8,471
$
7,227
C&I
10,517
667
Consumer
33
71
Total nonaccrual loans held for investment
19,021
7,965
Other repossessed property
23
6
Total non-performing assets
$
19,044
$
7,971
Past due loans 90 days and still accruing
$
139
$
139
112
The following tables present the activity of commercial and construction
nonaccrual loans held for investment for the indicated
periods:
Construction
Commercial
Mortgage
C&I
Total
(In thousands)
Quarter Ended March 31,2024
Beginning balance
$
1,569
$
12,205
$
15,250
$
29,024
Plus:
Additions to nonaccrual
-
-
11,041
11,041
Less:
Loans returned to accrual status
-
-
-
-
Nonaccrual loans transferred to OREO
(48)
-
-
(48)
Nonaccrual loans charge-offs
-
-
(459)
(459)
Loan collections
(23)
(229)
(765)
(1,017)
Ending balance
$
1,498
$
11,976
$
25,067
$
38,541
Construction
Commercial
Mortgage
C&I
Total
(In thousands)
Quarter Ended March 31,2023
Beginning balance
$
2,208
$
22,319
$
7,830
$
32,357
Plus:
Additions to nonaccrual
127
544
7,470
8,141
Less:
Loans returned to accrual status
-
(361)
(152)
(513)
Nonaccrual loans transferred to OREO
(332)
(162)
(183)
(677)
Nonaccrual loans charge-offs
-
(18)
(118)
(136)
Loan collections
(209)
(730)
(1,443)
(2,382)
Reclassification
-
6
-
6
Ending balance
$
1,794
$
21,598
$
13,404
$
36,796
113
The following table presents the activity of residential nonaccrual loans held for investment
for the indicated periods:
Quarter Ended March 31,
2024
2023
(In thousands)
Beginning balance
$
32,239
$
42,772
Plus:
Additions to nonaccrual
4,596
2,081
Less:
Loans returned to accrual status
(2,833)
(3,937)
Nonaccrual loans transferred to OREO
(404)
(2,710)
Nonaccrual loans charge-offs
(125)
(220)
Loan collections
(788)
(1,570)
Reclassification
-
(6)
Ending balance
$
32,685
$
36,410
The
amount of
nonaccrual
consumer
loans, including
finance
leases,
decreased
by $0.7
million
to $21.7
million
as of
March
31,
2024,
compared
to
$22.4
million
as
of
December
31,
2023.
The
decrease
was
mainly
reflected
in
the
finance
lease
and
auto
loan
portfolios.
As
of
March
31,
2024,
approximately
$23.8
million
of
the
loans
placed
in
nonaccrual
status,
mainly
commercial
and
residential
mortgage loans,
were current, or had delinquencies of
less than 90 days in their interest payments.
Collections on these loans are being
recorded on a cash basis through earnings, or on a cost-recovery basis, as conditions
warrant.
During the quarter ended March 31, 2024,
interest income of approximately $0.1 million related to
nonaccrual loans with a carrying
value of
$33.4 million
as of
March 31,
2024, mainly
nonaccrual commercial
and construction
loans, was
applied against
the related
principal balances under the cost-recovery method.
Total loans in early
delinquency (
i.e.
, 30-89 days past due loans, as defined in regulatory reporting
instructions) amounted to $133.7
million as
of March
31, 2024,
a decrease
of $17.1
million, compared
to $150.8
million as
of December
31, 2023.
The variances
by
major portfolio categories are as follows:
●
Consumer loans in early delinquency decreased by $15.5 million to $96.5 million,
mainly reflected in the auto loan portfolio.
●
Residential mortgage loans in early delinquency decreased by $4.0
million to $32.5 million.
●
Commercial
and
construction
loans
in
early
delinquency
increased
by
$2.4
million
to
$4.7
million,
mainly
due
to
certain
commercial loans
that matured
and are
in the
process of
renewal but
for which
the Corporation
continues to
receive interest
and principal payments from the borrower.
In addition,
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
are
provided,
as well
as other
modifications
of individual
C&I, commercial
mortgage, construction,
and residential
mortgage loans.
See
Note
1
–
“Basis
of
Presentation
and
Significant
Accounting
Policies”
to
the
unaudited
consolidated
financial
statements
herein
for
additional information
related to
the accounting
policies of
loan modifications
granted to
borrowers experiencing
financial difficulty.
In
addition,
see
Note
3
–
“Loans
Held
for
Investment”
to
the
unaudited
consolidated
financial
statements
herein
for
additional
information and statistics about the Corporation’s
modified loans.
114
The OREO portfolio,
which is part of non
-performing assets, amounted
to $28.9 million as of
March 31, 2024 and
$32.7 million as
of December
31, 2023.
The following
tables show
the composition
of the
OREO portfolio
as of
March 31,
2024 and
December 31,
2023,
as well as the activity of the OREO portfolio by geographic area during the
quarter ended March 31, 2024:
OREO Composition by Region
As of March 31,2024
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Residential
$
15,254
$
1,452
$
-
$
16,706
Construction
1,656
25
-
1,681
Commercial
7,667
2,810
-
10,477
$
24,577
$
4,287
$
-
$
28,864
As of December 31, 2023
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Residential
$
18,809
$
1,452
$
-
$
20,261
Construction
1,576
25
-
1,601
Commercial
7,997
2,810
-
10,807
$
28,382
$
4,287
$
-
$
32,669
OREO Activity by Region
Quarter Ended March 31, 2024
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Beginning Balance
$
28,382
$
4,287
$
-
$
32,669
Additions
1,213
-
-
1,213
Sales
(4,451)
-
-
(4,451)
Subsequent measurement adjustments
(152)
-
-
(152)
Other adjustments
(415)
-
-
(415)
Ending Balance
$
24,577
$
4,287
$
-
$
28,864
115
Net Charge-offs and Total
Credit Losses
Net charge
-offs totaled
$11.2
million for
the first
quarter of
2024, or
0.37% of
average loans
on an
annualized basis,
compared to
$13.3
million,
or
an
annualized
0.46%
of
average
loans,
for
the
first
quarter
of
2023.
Net
charge-offs
for
the
first
quarter
of
2024
include a
$9.5 million
recovery associated
with the
bulk sale
of fully
charged-off
consumer loans,
which reduced
by 31
basis points
the ratio of total net charge-offs to average loans for the
first quarter of 2024.
C&I loans net recoveries
for the first quarter of
2024 were $4.7 million,
or an annualized 0.59% of
related average loans, compared
to net
charge-offs of
$28 thousand for
the first quarter
of 2023.
The net
recoveries for
the first quarter
of 2024
include a $5.0
million
recovery associated with a C&I loan in the Puerto Rico region.
Consumer
loans
and
finance
leases
net
charge-offs
for
the
first
quarter
of
2024
were
$15.6
million,
or
an
annualized
1.70%
of
related
average
loans,
compared
to
net
charge-offs
of
$13.0
million,
or
an
annualized
1.54%
of
related
average
loans,
for
the
first
quarter
of
2023.
The
increase,
which
was
primarily
reflected
in
the
auto
and
personal
loan
portfolios,
was
partially
offset
by
the
recovery
associated
with
the
aforementioned
bulk
sale,
which
reduced
by
104
basis
points
the
ratio
of
consumer
loans
and
finance
leases net charge-offs to related average loans for the
first quarter of 2024.
The following table presents annualized net charge-offs
(recoveries) to average loans held-in-portfolio for the indicated periods:
Quarter Ended March 31,
2024
2023
Residential mortgage
0.03
%
0.07
%
Construction
(0.02)
%
(0.17)
%
Commercial mortgage
(0.01)
%
(0.03)
%
C&I
(0.59)
%
-
%
Consumer and finance leases
1.70
%
(1)
1.54
%
Total loans
0.37
%
(1)
0.46
%
(1)
The $9.5 million recovery associated with the bulk sale
of fully charged-off consumer loans during the first quarter
of 2024 reduced the ratios of consumer loans and finance
leases and
total net charge-offs to related average loans
by 104 basis points and 31 basis points, respectively.
116
The following table presents annualized net charge-offs
(recoveries) to average loans held in various portfolios by geographic
segment for the indicated periods:
Quarter Ended March 31,
2024
2023
PUERTO RICO:
Residential mortgage
0.05
%
0.10
%
Construction
-
%
(0.47)
%
C&I
(0.93)
%
0.01
%
Consumer and finance leases
1.67
%
(1)
1.53
%
Total loans
0.42
%
(1)
0.58
%
VIRGIN ISLANDS:
Residential mortgage
-
%
(0.08)
%
Commercial mortgage
(0.22)
%
(0.21)
%
C&I
-
%
(0.01)
%
Consumer and finance leases
3.73
%
2.19
%
Total loans
0.57
%
0.29
%
FLORIDA:
Construction
(0.05)
%
(0.05)
%
Commercial mortgage
-
%
(0.09)
%
C&I
0.11
%
-
%
Consumer and finance leases
0.55
%
0.17
%
Total loans
0.05
%
(0.03)
%
(1)
The recovery associated
with the aforementioned
bulk sale reduced
the ratios of
consumer loans and
finance leases and
total net charge-offs
to related average loans
for the quarter
ended March 31,
2024 by 106
basis
points and 40 basis points, respectively.
117
The following table presents information about the OREO inventory
and related gains and losses for the indicated periods:
Quarter ended March 31,
2024
2023
(Dollars in thousands)
OREO
OREO balances, carrying value:
Residential
$
16,706
$
24,984
Construction
1,681
1,764
Commercial
10,477
6,114
Total
$
28,864
$
32,862
OREO activity (number of properties):
Beginning property inventory
277
344
Properties acquired
16
59
Properties disposed
(46)
(59)
Ending property inventory
247
344
Average holding period (in days)
Residential
526
533
Construction
2,399
2,266
Commercial
1,579
2,468
Total average holding period (in days)
1,017
986
OREO operations (gain) loss:
Market adjustments and (gains) losses on sale:
Residential
$
(1,826)
$
(2,490)
Construction
(9)
(40)
Commercial
19
67
Total net gain
(1,816)
(2,463)
Other OREO operations expenses
364
467
Net Gain on OREO operations
$
(1,452)
$
(1,996)
118
Operational Risk
The
Corporation
faces
ongoing
and
emerging
risk
and
regulatory
pressure
related
to
the
activities
that
surround
the
delivery
of
banking
and
financial
products.
Coupled
with
external
influences,
such
as
market
conditions,
security
risks,
and
legal
risks,
the
potential for
operational and
reputational loss
has increased.
To
mitigate and
control operational
risk, the
Corporation has
developed,
and continues
to enhance, specific
internal controls,
policies and procedures
that are designed
to identify and
manage operational
risk
at
appropriate
levels
throughout
the
organization.
The
purpose
of
these
mechanisms
is
to
provide
reasonable
assurance
that
the
Corporation’s business operations
are functioning within the policies and limits established by management.
The
Corporation
classifies operational
risk
into
two
major
categories:
business-specific
and
corporate-wide
affecting
all business
lines. For business specific risks,
Enterprise Risk Management works
with the various business units to
ensure consistency in
policies,
processes
and
assessments.
With
respect
to
corporate-wide
risks,
such
as
information
security,
business
recovery,
and
legal
and
compliance,
the
Corporation
has
specialized
groups,
such
as
the
Legal
Department,
Information
Security,
Corporate
Compliance,
Operations and Enterprise
Risk Management. These
groups assist the lines
of business in
the development and
implementation of risk
management practices specific to the needs of the business groups.
Legal and Compliance Risk
Legal and compliance risk includes
the risk of noncompliance with applicable
legal and regulatory requirements, the
risk of adverse
legal
judgments
against
the
Corporation,
and
the
risk
that
a
counterparty’s
performance
obligations
will
be
unenforceable.
The
Corporation
is
subject
to
extensive
regulation
in
the
different
jurisdictions
in
which
it
conducts
its
business,
and
this
regulatory
scrutiny has
been significantly
increasing over
the years.
The Corporation
has established,
and continues
to enhance,
procedures that
are designed
to ensure
compliance with
all applicable
statutory,
regulatory
and any
other legal
requirements.
The Corporation
has a
Compliance
Director
who
reports
to
the
Chief
Risk
Officer
and
is
responsible
for
the
oversight
of
regulatory
compliance
and
implementation
of an
enterprise-wide compliance
risk assessment
process.
The Compliance
division
has officer
roles in
each major
business area with direct reporting responsibilities to the Corporate Compliance
Group.
Concentration Risk
The Corporation conducts
its operations in
a geographically concentrated
area, as its main
market is Puerto
Rico. Of the total
gross
loan portfolio
held for investment
of $12.3 billion
as of March
31, 2024, the
Corporation had
credit risk of
approximately 80% in
the
Puerto Rico region, 17% in the United States region, and 3% in the Virgin
Islands region.
119
Update on the Puerto Rico Fiscal and Economic Situation
A significant
portion
of the
Corporation’s
business activities
and credit
exposure
is concentrated
in the
Commonwealth of
Puerto
Rico, which
has experienced
economic
and fiscal
distress over
the last
decade. See
“Risk Management
— Exposure
to Puerto
Rico
Government”
below.
Since
declaring
bankruptcy
and
benefitting
from
the
enactment
of
the
federal
Puerto
Rico
Oversight,
Management and Economic Stability Act (“PROMESA”)
in 2016, the Government of Puerto Rico has made
progress on fiscal matters
primarily
by restructuring
a large
portion of
its outstanding
public debt
and identifying
funding
sources for
its underfunded
pension
system.
Economic Indicators
On March
18, 2024,
the Puerto
Rico Planning
Board (“PRPB”)
published
an analysis
of the
Puerto Rico’s
economy during
fiscal
year 2023, as well as a
short-term forecast for fiscal years
2024 and 2025. According to
the preliminary estimates issued by the
PRPB,
Puerto Rico’s
real gross
national product
(“GNP”) grew
by 0.7%
in fiscal
year 2023,
the third
consecutive year
with a positive
year-
over-year
variance.
The
main
drivers
behind
growth
in
fiscal
year
2023
were
personal
consumption
expenditures
and
fixed
investments
in
both
construction,
and
machinery
and
equipment.
The
PRPB
also
revised
previously
published
real
GNP
growth
estimates for fiscal years 2022 and 2021 from 3.7% to 3.8% and from 0.9%
to 1.4%, respectively.
There
are
other
indicators
that
gauge
economic
activity
and
are
published
with
greater
frequency,
for
example,
the
Economic
Development
Bank
for
Puerto
Rico’s
Economic
Activity
Index
(“EDB-EAI”).
Although
not
a
direct
measure
of
Puerto
Rico’s
real
GNP,
the EDB-EAI is correlated
to Puerto Rico’s
real GNP.
For December 2023,
estimates showed that
the EDB-EAI stood
at 127.4,
up 3.5%
on a
year-over-year
basis. Over
the 12-month
period ended
December 31,
2023, the
EDB-EAI
averaged 127.5,
the highest
level since September 2014 and approximately 3.3% above the comparable
figure a year earlier.
Labor
market
trends
remain
positive.
Data
published
by
the
Bureau
of
Labor
Statistics
showed
that
March
2024
payroll
employment
in
Puerto
Rico
increased
by
2.2%
when
compared
to
March
2023,
supported
by
a
year-over-year
increase
of
6.2%
in
Leisure
and
Hospitality
payroll
employment
and
an
4.4%
year-over-year
increase
in
construction-related
payroll
employment.
The
unemployment rate remained relatively at a near-record-low
of 5.8%.
Fiscal Plan
On April
3, 2023,
the PROMESA
oversight board
certified the
2023 Fiscal
Plan for
Puerto Rico
(the “2023
Fiscal Plan”).
Unlike
previous versions
of the
fiscal plan,
the PROMESA
oversight board
segregated the
2023 Fiscal Plan
into three
different volumes.
As
the first fiscal plan
certified in a post-bankruptcy
environment, Volume
1 presents a
Transformation Plan
that highlights priority
areas
to cement fiscal responsibility,
accelerate economic growth in a sustainable manner,
and restore market access to Puerto Rico. Volume
2 provides additional details
on economic trends and
financial projections, and Volume
3 maps out the supplementary
implementation
details to
guide
the government’s
implementation
of the
requirements
of the
2023 Fiscal
Plan, as
well as
additional
initiatives
from
prior fiscal plans which remain mandatory and are still pending to be implemented.
The
2023
Fiscal
Plan
prioritizes
resource
allocation
across
three
major
pillars:
(i)
entrenching
a
legacy
of
strong
financial
management
through
the
implementation
of
a
comprehensive
financial
management
agenda,
(ii)
instilling
a
culture
of public
-sector
performance
and excellence
to properly
delivery quality
public services,
and (iii)
investing for
economic growth
to ensure
sufficient
revenues are
generated to
support the delivery
of services. According
to the Transformation
Plan, the fiscal
and economic turnaround
of Puerto Rico cannot
be accomplished without the implementation
of structural economic reforms
that promote sustainable economic
development.
These
reforms
include
power/energy
sector
reform
to
improve
availability,
reliability
and
affordability
of
energy,
education
reform
to
expand
opportunity
and
prepare
the
workforce
to
compete
for
jobs
of
the
future,
and
an
infrastructure
reform
aimed
at
improving
the
efficiency
of
the
economy
and
facilitating
investment.
The
2023
Fiscal
Plan
projects
that
these
reforms,
if
implemented
successfully,
will contribute
0.75% in
GNP growth
by fiscal
year
2026.
Additionally,
the 2023
Fiscal Plan
provides
a
roadmap
for
a
tax
reform
directed
towards
establishing
a
tax
regime
that
is
more
competitive
for
investors
and
more
equitable
for
individuals.
120
The 2023 Fiscal Plan notes that Puerto
Rico has had a strong recovery in
the aftermath of the COVID-19 pandemic
crisis with labor
participation
trending
positively
and
unemployment
at
historically
low
levels.
However,
it
recognizes
that
such
recovery
has
been
primarily fueled by the unprecedented
influx of federal funds which have
an outsized and temporary impact
that may mask underlying
structural weaknesses
in the
economy.
As such,
the 2023
Fiscal Plan
projects a
0.7% decline
in real
GNP for
the current
fiscal year
2023, followed by a period of near-zero
real growth in fiscal years 2024 through
2026. Also, the fiscal plan projects
that Puerto Rico’s
population
will
continue
the
long-term
trend
of
steady
decline.
Notwithstanding,
the
Transformation
Plan
depicts
that,
if
managed
properly, these non-recurring
federal funds can be leveraged into sustainable longer-term growth and opportunity.
The 2023
Fiscal Plan
projects that
approximately $81
billion in
total disaster
relief funding,
from federal
and private
sources, will
be disbursed
as part
of the
reconstruction
efforts over
a span
of 18
years (fiscal
years 2018
through 2035).
These funds
will benefit
individuals, the
public (e.g.,
reconstruction of
major infrastructure,
roads, and
schools), and
will cover
part of
Puerto Rico’s
share of
the
cost
of
disaster
relief
funding.
Also,
the
2023
Fiscal
Plan
projects
the
$9.3
billion
in
remaining
COVID-19
relief
funds
to
be
deployed
in
fiscal
years
2023
through
2025,
compared
to
$4.5
billion
projected
in
the
previous
fiscal
plan.
Additionally,
the
2023
Fiscal
Plan
continues
to
account
for
$2.3
billion
in
federal
funds
to
Puerto
Rico
from
the
Bipartisan
Infrastructure
Law
directed
towards improving Puerto Rico’s
infrastructure over fiscal years 2022 through 2026.
On
April
25,
2024,
the
PROMESA
oversight
board
sent
a
letter
to
the
Governor
of
Puerto
Rico
extending
the
deadline
for
certification of the 2024 Fiscal
Plan for Puerto Rico
(the “2024 Fiscal Plan”) on
or before May 3, 2024; however,
as of the date of this
filing, the 2024 Fiscal Plan had not been published or certified by the PROMESA oversight
board.
Debt Restructuring
Over
80%
of
Puerto
Rico’s
outstanding
debt
has
been
restructured
to
date.
On
March
15,
2022,
the
Plan
of
Adjustment
of
the
central
government’s
debt
became
effective
through
the
exchange
of more
than
$33
billion
of
existing
bonds
and
other
claims
into
approximately
$7
billion
of
new
bonds,
saving
Puerto
Rico
more
than
$50
billion
in
debt
payments
to
creditors.
Also,
the
restructurings
of
the
Puerto
Rico
Sales
Tax
Financing
Corporation
(“COFINA”),
the
Highways
and
Transportation
Authority
(“HTA”),
and
the
Puerto
Rico
Aqueducts
and
Sewers
Authority
(“PRASA”)
are
expected
to
yield
savings
of
approximately
$17.5
billion, $3.0
billion, and
$400 million,
respectively,
in future
debt service
payments. The
main restructurings
pending include
that of
the Puerto Rico Electric Power Authority (“PREPA”)
and the Puerto Rico Industrial Company (“PRIDCO”).
On
June
23,
2023,
the
Fiscal
Oversight
and
Management
Board
for
Puerto
Rico
certified
a
new
fiscal
plan
for
PREPA
which
included
the most
recent projections
of energy
consumption in
Puerto Rico
and consequently
reflected a
significant reduction
in the
projected
revenues
for
PREPA
over
the
next
years.
As
such,
PREPA
concluded
that
its
ability
to
repay
its
outstanding
debt
was
significantly less
than what
was previously
stated. On
June 26,
2023, Judge
Laura Taylor
Swain resolved
that PREPA’s
bondholders
have an unsecured claim of $2.4 billion against PREPA
and not the approximately $9.0 billion that bondholders were claiming.
On
February
23,
2024,
the
PROMESA
oversight
board
filed
the
fourth
amended
Plan
of
Adjustment
to
reduce
more
than
$10
billion of total asserted claims by various creditors against PREPA
by approximately 80% to $2.5 billion, excluding pension
liabilities.
According to the PROMESA oversight
board, bondholders who support the
plan would recover 12.5% of their original
asserted claim,
while bondholders
who do
not agree
to the proposed
plan would
recover 3.5%
of their
asserted claim.
Combined with
other previous
agreements and settlements that remain in place, approximately 43% of
PREPA’s
creditors support the third amended plan. In addition
to
conforming
to
Judge
Taylor
Swain’s
ruling
made
in
June,
the
amended
plan
also
conforms
to
the
previously
disclosed
debt
sustainability
analysis
in
the
revised
PREPA
Fiscal
Plan
certified
in
June
2023
that
is
based
on
the
most
recent
projections
of
PREPA’s
operating
costs
and
future
demand
for
its
services.
The
PREPA
pension
treatment
remains
unchanged
under
the
third
amended
plan.
PREPA
retirees
will be
paid
in
full for
all benefits
earned
through
the
effective
date of
the plan.
After that
date, no
further benefits can
be earned under
the defined benefit plan
by existing or
new participants. From
March 4, 2024,
through March 18,
2024, the
court held
multiple hearings
concerning the
request of
the PROMESA
oversight board
for approval
of the PREPA
plan. At
the end
of the
confirmation
hearings, Judge
Taylor
Swain reserved
judgement.
On April
2, 2024,
Judge Taylor
Swain approved
the
PROMESA oversight board’s request
of extending the appointment of the lead mediator through September 30, 2024.
121
Other Developments
Notable
progress
continues
to
be
made
as
part
of
the
ongoing
efforts
of
prioritizing
the
restoration,
improvement,
and
modernization of
Puerto Rico’s
infrastructure,
particularly in
the aftermath
of Hurricane
Maria in
2017. During
the 12-month
period
ended February
29, 2024,
over $3.36
billion in
disaster relief
funds were
disbursed through
FEMA’s
Public Assistance
program and
the
Department
of
Housing
and
Urban
Development’s
Community
Development
Block
Grant
(“CDBG”)
program,
a
46%
increase
when
compared
to
the
same
period
in
2023.
These
funds
will
continue
to
play
a
key
role
in
supporting
Puerto
Rico’s
economic
stability and are expected to have
a positive impact on the Island’s
infrastructure. For example, approximately
86% of the projects that
FEMA
has
obligated
to
address
damage
caused
by
Hurricane
Maria
have
resources
to
reinforce
their
infrastructure,
among
other
hazard mitigation
measures, that
will prepare
these facilities
for future
weather events.
As of
April 29,
2024, over
2,750 projects
had
already been
completed under
FEMA’s
Public Assistance
programs while
over 21,000
projects were
active across
different stages
of
execution
for
a total
cost of
$10.6 billion,
equivalent
to approximately
31% of
the agency’s
$33 billion
obligation,
according
to the
Central Office for Recovery,
Reconstruction and Resiliency (“COR3”).
122
Exposure to Puerto Rico Government
As of March 31,
2024, the Corporation
had $313.7 million of
direct exposure to the
Puerto Rico government,
its municipalities and
public
corporations,
compared
to
$297.9
million
as
of
December
31,
2023.
The
$15.8
million
increase
was
mainly
due
to
the
origination of
a $13.6 million
loan to a
municipality in
Puerto Rico that
is supported
by assigned property
tax revenues. As
of March
31,
2024,
approximately
$202.9 million
of the
exposure
consisted of
loans and
obligations
of municipalities
in Puerto
Rico that
are
supported
by assigned
property
tax revenues
and for
which,
in most
cases,
the good
faith,
credit and
unlimited
taxing power
of
the
applicable
municipality
have
been
pledged
to
their
repayment,
and
$59.2
million
consisted
of
loans
and
obligations
which
are
supported by
one or
more specific
sources of
municipal revenues.
Approximately 69%
of the
Corporation’s
exposure to
Puerto Rico
municipalities consisted
primarily of
senior priority
loans and
obligations concentrated
in four
of the
largest municipalities
in Puerto
Rico. The
municipalities are
required by
law to
levy special
property taxes
in such
amounts as
are required
for the
payment of
all of
their
respective
general
obligation
bonds
and
notes.
Furthermore,
municipalities
are
also
likely
to
be
affected
by
the
negative
economic
and
other
effects
resulting
from
expense,
revenue,
or
cash
management
measures
taken
to
address
the
Puerto
Rico
government’s
fiscal
problems
and
measures
included
in
fiscal
plans
of
other
government
entities.
In
addition
to
municipalities,
the
total
direct
exposure
also
included
$8.9
million
in
a
loan
extended
to
an
affiliate
of
the
Puerto
Rico
Electric
Power
Authority
(“PREPA”),
$39.6
million
in loans
to agencies
or public
corporations
of the
Puerto Rico
government,
and obligations
of the
Puerto
Rico government, specifically a
residential pass-through MBS issued
by the PRHFA,
at an amortized cost of
$3.1 million as part of
its
available-for-sale debt securities portfolio (fair value of $1.6 million as of
March 31, 2024).
The
following
table
details
the
Corporation’s
total
direct
exposure
to
Puerto
Rico
government
obligations
according
to
their
maturities:
As of March 31,2024
Investment
Portfolio
(Amortized
cost)
Loans
Total
Exposure
(In thousands)
Puerto Rico Housing Finance Authority:
After 10 years
$
3,112
$
-
$
3,112
Total
Puerto Rico Housing Finance Authority
3,112
-
3,112
Agencies and public corporation of the Puerto Rico government:
After 1 to 5 years
-
15,732
15,732
After 5 to 10 years
-
23,841
23,841
Total agencies and public
corporation of the Puerto Rico government
-
39,573
39,573
Affiliate of the Puerto Rico Electric Power Authority:
After 1 to 5 years
-
8,878
8,878
Total Puerto Rico government
affiliate
-
8,878
8,878
Total
Puerto Rico public corporations and government affiliate
-
48,451
48,451
Municipalities:
Due within one year
3,172
7,173
10,345
After 1 to 5 years
51,327
52,336
103,663
After 5 to 10 years
36,034
95,505
131,539
After 10 years
16,595
-
16,595
Total
Municipalities
107,128
155,014
262,142
Total
Direct Government Exposure
$
110,240
$
203,465
$
313,705
123
In addition,
as of March
31, 2024, the
Corporation had
$76.5 million
in exposure
to residential mortgage
loans that are
guaranteed
by the PRHFA,
a governmental instrumentality
that has been
designated as a
covered entity under
PROMESA (December
31, 2023 –
$77.7
million).
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
Puerto Rico government
guarantees up
to $75 million
of
the
principal
for
all
loans
under
the
mortgage
loan
insurance
program.
According
to
the
most
recently
released
audited
financial
statements of the PRHFA,
as of June 30, 2022, the PRHFA’s
mortgage loans insurance program covered
loans in an aggregate amount
of approximately $418 million. The regulations adopted by
the PRHFA require the establishment
of adequate reserves to guarantee the
solvency of the mortgage
loans insurance program. As
of June 30, 2022,
the most recent date
as of which information
is available, the
PRHFA had a
liability of approximately $1 million as an estimate of the losses inherent in the portfolio.
As of
March
31,
2024,
the
Corporation
had
$2.8
billion
of public
sector
deposits
in
Puerto
Rico,
compared
to
$2.7
billion
as of
December 31,
2023. Approximately
20% of
the public
sector deposits
as of
March 31,
2024 were
from municipalities
and municipal
agencies in
Puerto Rico
and 80%
were from
public corporations,
the Puerto
Rico central
government and
agencies, and
U.S. federal
government agencies in Puerto Rico.
Exposure to USVI Government
The Corporation has operations in the USVI and has credit exposure
to USVI government entities.
For many years, the
USVI has been experiencing
several fiscal and economic
challenges that have deteriorated
the overall financial
and
economic
conditions
in
the
area.
However,
on
May
22,
2023,
the
United
States
Bureau
of
Economic
Analysis
(the
“BEA”)
released its estimates of
GDP for 2021. According
to the BEA, the
USVI’s real
GDP increased 2.8%
in 2021 after decreasing
1.9% in
2020.
The
increase
in
real
GDP reflected
increases
in
exports
and
personal
consumption
expenditures.
These
increases
were
partly
offset by decreases in
private inventory investment, private
fixed investment, and government
spending. Imports, a subtraction
item in
the calculation of GDP,
also decreased.
Over the past
three years, the
USVI has been
recovering from the
adverse impact caused
by COVID-19 and
has continued to
make
progress on
its rebuilding
efforts related
to Hurricanes
Irma and
Maria, which
occurred in
2017. According
to data
published by
the
government, over
$5.1 billion
in disaster
recovery funds
had been
disbursed through
February 2024
and $8.6
billion were
remaining
obligated funds
waiting to be
disbursed. Moreover,
labor market trends
remain stable
with payroll employment
for the first
quarter of
2024 up 0.1% when compared to the fourth quarter of 2023.
On December 14, 2023,
Fitch Ratings announced that it
withdrew the ratings of the
U.S. Virgin
Islands Water
and Power Authority
(“WAPA”)
primarily
due
to
limited
availability
of
the
authority’s
operating
and
financial
information
from
public
sources
or
from
WAPA’s
management.
Finally, PROMESA
does not apply to
the USVI and, as such,
there is currently no federal
legislation permitting the restructuring
of
the debts of the USVI and
its public corporations and instrumentalities.
To the
extent that the fiscal condition of the
USVI government
deteriorates
again,
the
U.S.
Congress
or
the
government
of
the
USVI
may
enact
legislation
allowing
for
the
restructuring
of
the
financial
obligations
of
the
USVI
government
entities
or
imposing
a
stay
on
creditor
remedies,
including
by
making
PROMESA
applicable to the USVI.
As of
March 31,
2024, the
Corporation had
$97.4
million in
loans to
USVI public
corporations,
compared to
$90.5 million
as of
December 31, 2023. As of March 31, 2024, all loans were currently performing
and up to date on principal and interest payments.
124
ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES
ABOUT MARKET
RISK
For
information
regarding
market
risk
to
which
the
Corporation
is
exposed,
see
the
information
contained
in
Part
I,
Item
2,
“Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results of
Operations
— Risk
Management”
in
this Quarterly
Report on Form 10-Q.
ITEM 4.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
First
BanCorp.’s
management,
including
its
Chief
Executive
Officer
and
Chief
Financial
Officer,
evaluated
the
effectiveness
of
First
BanCorp.’s
disclosure
controls
and
procedures
(as
defined
in
Rules
13a-15(e)
and
15d-15(e)
under
the
Exchange
Act)
as
of
March 31,
2024 the
end of
the period
covered by
this Quarterly
Report on
Form 10-Q.
Based on
this evaluation,
the Chief
Executive
Officer
and Chief
Financial Officer
concluded that
the Corporation’s
disclosure
controls and
procedures were
effective
as of
March
31,
2024
and
provide
reasonable
assurance
that
the
information
required
to
be
disclosed
by
the
Corporation
in
reports
that
the
Corporation
files
or
submits
under
the
Exchange
Act
is
recorded,
processed,
summarized
and
reported
within
the
time
periods
specified
in SEC
rules and
forms and
is accumulated
and reported
to the
Corporation’s
management,
including
the Chief
Executive
Office and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosures.
Internal Control over Financial Reporting
There were
no changes
to the
Corporation’s
internal control
over financial
reporting (as
defined
in Rules
13a-15(f) and
15d-15(f)
under the
Exchange Act) during
our most recent
quarter ended
March 31, 2024
that have materially
affected, or
are reasonably
likely
to materially affect, the Corporation’s
internal control over financial reporting.
125
PART II - OTHER INFORMATION
In accordance with the instructions to Part II
of Form 10-Q, the other specified items in
this part have been omitted because they are not
applicable, or the information has been previously reported.
ITEM 1.
LEGAL PROCEEDINGS
For
a
discussion
of
legal
proceedings,
see
Note
21
–
“Regulatory
Matters,
Commitments
and
Contingencies,”
to
the
unaudited
consolidated financial statements herein, which is incorporated by reference
in this Part II, Item 1.
ITEM 1A.
RISK FACTORS
The Corporation’s business, operating results and/or the market price of our common stock may be significantly affected by a number of
factors. A detailed
discussion of certain
risk factors that
could affect
the Corporation’s future
operations, financial
condition or results
for
future periods is set forth in Part I, Item 1A, “Risk Factors,” in the 2023 Annual Report on Form 10-K. These risk factors, and others, could
cause actual
results to
differ materially
from historical
results or
the results
contemplated by
the forward-looking
statements contained
in
this report. Also,
refer to the
discussion in
“Forward-Looking Statements” and
Part I, Item
2, “Management’s
Discussion and
Analysis of
Financial Condition and Results
of Operations,” in this Quarterly
Report on Form 10-Q
for additional information that may
supplement or
update the discussion of risk factors in the
2023 Annual Report on Form 10-K.
Other than as described below, there have been
no material changes from those risk factors previously
disclosed in Part I, Item 1A, “Risk
Factors,” in the 2023 Annual Report on Form
10-K.
The
volatility
in
the
financial
services
industry,
including
failures
or
rumored
failures
of
other
depository
institutions,
and
actions taken by governmental
agencies to stabilize the financial
system, could result in,
among other things, bank deposit
runoffs,
liquidity constraints,
and increased regulatory requirements and costs.
The closure and
placement into receivership
with the FDIC
of certain large
U.S. regional banks with
assets over $100 billion
in March
and
May
2023,
and
adverse
developments
affecting
other
banks,
resulted
in
heightened
levels
of
market
volatility
and
consequently
negatively
impacted
customer
confidence
in
the
safety
and
soundness
of
financial
institutions.
These
developments
resulted
in
certain
regional banks experiencing higher than normal
deposit outflows and an elevated
level of competition for available
deposits in the market.
The impact of market
volatility from the adverse
developments in the banking industry,
along with continued elevated
interest rates on our
business and related financial results, will
depend on future developments, which are highly uncertain
and difficult to predict.
In the
aftermath of
these recent
bank failures,
the banking
agencies have
increased regulatory
requirements and
costs that
may impact
capital ratios or the FDIC deposit insurance premium. For
example, on November 16, 2023, the FDIC approved a
final rule to implement a
special assessment to recover the loss
to the Deposit Insurance
Fund associated with protecting uninsured
depositors following the closure
of Silicon Valley Bank
and Signature Bank during
the first half of
2023. Under the final
rule, the FDIC will
collect the special assessment
at quarterly rate of 3.36 basis
points, beginning with the first
quarterly assessment period of 2024 (i.e.,
January 1 through March 31, 2024)
with an
invoice payment date
of June 28,
2024, and
will continue to
collect special
assessments for an
anticipated total of
eight quarterly
assessment periods.
The base
for the
special assessment
is equal
to the
estimated uninsured
deposits reported
for the
December 31,
2022
reporting period,
adjusted to
exclude the
first $5
billion of
such amount.
In association
with this
final rule,
as of
December 31,
2023, the
Corporation recorded an initial special assessment
of $6.3 million.
On
February
23,
2024,
the
FDIC
informed
that
the
estimated
loss
attributable
to
the
protection
of
uninsured
depositors
of
the
aforementioned failed institutions is $20.4
billion, an increase of approximately $4.1
billion from the estimate of
$16.3 billion described in
the final rule. The estimated loss may be partially offset by any potential future recoveries from the residual interests retained in each of the
trusts. In
connection with
this notice,
during the
first quarter
of 2024,
the Corporation
recorded a
$0.9 million
additional expense
in the
consolidated statements of income as part of “FDIC deposit insurance” expenses
to increase the estimated FDIC special assessment to $7.3
million.
126
The FDIC retains the ability to cease collection early, extend the special assessment collection period beyond the eight-quarter collection
period, or
impose an
additional shortfall
special assessment
on a
one-time basis
after the
receiverships for
the two
failed institutions
are
terminated.
The
collection
period
may
change
due
to
updates
to
the
estimated
loss
pursuant
to
the
systemic
risk
determination
or
if
assessments
collected
change
due
to
corrective
amendments
to
the
amount
of
uninsured
deposits
reported
for
the
December
31,
2022
reporting period.
The FDIC
will provide
any updates
on the
estimated loss
and collection
period for
the special
assessment with
the first
quarter 2024 special assessment invoice, to be released in
June 2024.
The federal financial regulatory agencies may take other
measures to address macroeconomic conditions, as well as the
effect of regional
bank failures in
the U.S. mainland
during the first half
of 2023, although the
nature and impact
of such actions
cannot be predicted at
this
time.
127
ITEM 2.
UNREGISTERED
SALES OF
EQUITY SECURITIES
AND USE OF
PROCEEDS
The Corporation did not have any unregistered sales
of equity securities during the quarter ended March
31, 2024.
Issuer Purchases of Equity Securities
The following table provides information in relation to the Corporation’s purchases of its common stock during the quarter ended March
31, 2024.
Period
Total Number of Shares
Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
(1)
Approximate Dollar Value
of Shares that May Yet
be
Purchased Under the Plans
or Programs (in thousands)
(1)
January 1, 2024 - January 31, 2024
120,499
$
16.96
120,499
$
147,957
February 1, 2024 - February 29, 2024
2,501,861
16.57
2,501,861
106,499
March 1, 2024 - March 31, 2024
520,229
17.02
384,191
100,000
Total
3,142,589
(2) (3)
3,006,551
(1)
As of
March 31,
2024, the
Corporation was
authorized to
purchase up
to $225
million of
the Corporation’s
common stock
under the
program that
was publicly
announced on
July 24,
2023, of which
$125 million had
been utilized. The
remaining $100 million
in the table
represents the remaining
amount authorized
under the stock
repurchase program as
of March 31,
2024. The program does not obligate the Corporation to acquire
any specific number of shares, does not have an
expiration date and may be modified, suspended, or terminated
at any time
at the Corporation's discretion.
Under the stock repurchase program,
shares may be repurchased through
open market purchases, accelerated
share repurchases and/or privately
negotiated
transactions, including under plans complying with Rule 10b5-1 under
the Exchange Act.
(2)
Includes 3,006,551 shares of common stock repurchased in the open
market at an average price of $16.63 for a total purchase price
of approximately $50 million.
(3)
Includes 136,038 shares of common stock
acquired by the Corporation to cover minimum
tax withholding obligations upon the
vesting of equity-based awards. The Corporation
intends to
continue to satisfy statutory tax withholding obligations in connection
with the vesting of outstanding restricted stock and performance
units through the withholding of shares.
ITEM 5.
OTHER INFORMATION
During
the
quarter
ended
March
31,
2024,
none
of
the
Corporation’s
directors
or
officers
(as
defined
in
Rule
16a-1(f)
of
the
Exchange Act)
adopted
or
terminated
a “Rule 10b5-1 trading
arrangement” or
“non-Rule
10b5-1
trading arrangement,” as those
terms
are defined in Item 408 of Regulation S-K.
128
ITEM 6.
EXHIBITS
See the Exhibit Index below, which is incorporated by
reference herein:
EXHIBIT INDEX
Exhibit No.
Description
10.1*#
First BanCorp Executive Short-Term Incentive Program, as amended on March 16, 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. Quarterly Report on Form 10-Q
for the quarter ended March 31, 2024, formatted in
Inline XBRL (included within the Exhibit 101 attachments)
* Indicates management contract or compensatory plan or arrangement.
# The exhibits to this agreement have been omitted pursuant
to Item 601 (a)(5) of Regulation S-K. A copy of
any omitted exhibit will be furnished to the SEC upon
request.
129
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.
Registrant
Date:
May 9, 2024
By:
/s/ Aurelio Alemán
Aurelio Alemán
President and Chief Executive Officer
Date: May 9, 2024
By:
/s/ Orlando Berges
Orlando Berges
Executive Vice President and Chief Financial Officer