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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
June 30, 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:
163,865,756
shares outstanding as of August 2, 2024.
2
FIRST BANCORP.
INDEX PAGE
PART
I. FINANCIAL INFORMATION
PAGE
Item 1.
Financial Statements:
Consolidated Statements of Financial
Condition (Unaudited) as of
June 30, 2024 and December
31, 2023
5
Consolidated Statements
of Income
(Unaudited) –
Quarters and
Six-Month Periods
ended June
30, 2024 and 2023
6
Consolidated
Statements
of
Comprehensive
Income
(Unaudited)
–
Quarters
and
Six-Month
Periods ended June 30, 2024 and 2023
7
Consolidated
Statements of
Cash Flows
(Unaudited)
– Quarters
and
Six-Month Periods
ended
June 30, 2024 and 2023
8
Consolidated
Statements of
Changes
in Stockholders’
Equity (Unaudited)
– Quarters
and Six-
Month Periods ended June 30, 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
76
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
132
Item 4.
Controls and Procedures
132
PART
II. OTHER INFORMATION
Item 1.
Legal Proceedings
133
Item 1A.
Risk Factors
133
Item 2.
Item 5.
Unregistered Sales of Equity Securities and Use of Proceeds
Other Information
134
134
Item 6.
Exhibits
135
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”), Part II, Item 1A., “Risk
Factors,” in the Corporation’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2024, and the following:
●
the
effect
of
the
current
global
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 political
and 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
June 5,
2024
(the “2024
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
determinations
and
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 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
or
changes
in
legislative,
tax,
or
regulatory
priorities,
potential
government
shutdowns, and
political impasses,
including
uncertainties regarding
the U.S.
debt ceiling
and federal
budget,
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)
June 30, 2024
December 31, 2023
(In thousands, except for share information)
ASSETS
Cash and due from banks
$
581,843
$
661,925
Money market investments:
Time deposits with other financial institutions
500
300
Other short-term investments
3,939
939
Total money market investments
4,439
1,239
Available-for-sale debt securities, at fair value (amortized cost of $
5,595,164
as of June 30, 2024 and
$
5,863,294
as of December 31, 2023; ACL of $
549
as of June 30, 2024 and $
511
as of December 31, 2023)
4,957,311
5,229,984
Held-to-maturity debt securities, at amortized cost, net of ACL
of $
1,267
as of June 30, 2024 and $
2,197
as of December 31, 2023 (fair value of $
333,690
as of June 30, 2024 and $
346,132
as of December 31, 2023)
343,168
351,981
Equity securities
51,037
49,675
Total investment securities
5,351,516
5,631,640
Loans, net of ACL of $
254,532
as of June 30, 2024 and $
261,843
as of December 31, 2023
12,130,976
11,923,640
Mortgage loans held for sale, at lower of cost or market
10,392
7,368
Total loans, net
12,141,368
11,931,008
Accrued interest receivable on loans and investments
77,895
77,716
Premises and equipment, net
138,554
142,016
Other real estate owned (“OREO”)
21,682
32,669
Deferred tax asset, net
142,725
150,127
Goodwill
38,611
38,611
Other intangible assets
9,700
13,383
Other assets
373,041
229,215
Total assets
$
18,881,374
$
18,909,549
LIABILITIES
Non-interest-bearing deposits
$
5,406,054
$
5,404,121
Interest-bearing deposits
11,122,902
11,151,864
Total deposits
16,528,956
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
199,258
194,255
Total liabilities
17,389,914
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;
163,865,453
shares outstanding as of June 30, 2024 and
169,302,812
as of December 31, 2023
22,366
22,366
Additional paid-in capital
961,254
965,707
Retained earnings, includes legal surplus reserve of
$
199,576
as of each of June 30, 2024 and December 31, 2023
1,941,980
1,846,112
Treasury stock (at cost),
59,797,663
shares as of June 30, 2024 and
54,360,304
shares as of December 31, 2023
(790,465)
(697,406)
Accumulated other comprehensive loss, net of tax of
$
8,581
as of each of June 30, 2024 and December 31, 2023
(643,675)
(639,170)
Total stockholders’ equity
1,491,460
1,497,609
Total liabilities and stockholders’ equity
$
18,881,374
$
18,909,549
The accompanying notes are an integral part of these statements.
6
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Quarter Ended June 30,
Six-Month Period Ended June 30,
2024
2023
2024
2023
(In thousands, except per share information)
Interest and dividend income:
Loans
$
239,927
$
218,066
$
477,056
$
428,702
Investment securities
23,258
26,258
47,380
53,368
Money market investments and interest-bearing cash accounts
9,060
7,880
16,314
12,530
Total interest and dividend income
272,245
252,204
540,750
494,600
Interest expense:
Deposits
63,671
41,604
126,696
71,489
Short-term securities sold under agreements to repurchase
-
1,328
-
2,397
Advances from the FHLB:
Short-term
-
435
-
4,776
Long-term
5,610
5,613
11,220
8,448
Other long-term borrowings
3,336
3,409
6,686
6,790
Total interest expense
72,617
52,389
144,602
93,900
Net interest income
199,628
199,815
396,148
400,700
Provision for credit losses - expense (benefit):
Loans and finance leases
11,930
20,770
24,847
37,026
Unfunded loan commitments
(417)
721
(136)
616
Debt securities
92
739
(939)
90
Provision for credit losses - expense
11,605
22,230
23,772
37,732
Net interest income after provision for credit losses
188,023
177,585
372,376
362,968
Non-interest income:
Service charges and fees on deposit accounts
9,725
9,287
19,387
18,828
Mortgage banking activities
3,419
2,860
6,301
5,672
Gain on early extinguishment of debt
-
1,605
-
1,605
Insurance commission income
2,786
2,747
8,293
7,594
Card and processing income
11,523
11,135
22,835
22,053
Other non-interest income
4,585
8,637
9,205
13,037
Total non-interest income
32,038
36,271
66,021
68,789
Non-interest expenses:
Employees’ compensation and benefits
57,456
54,314
116,962
110,736
Occupancy and equipment
21,851
21,097
43,232
42,283
Business promotion
4,359
4,167
8,201
8,142
Professional service fees
12,431
11,596
25,107
23,569
Taxes, other than income taxes
5,408
5,124
10,537
10,236
FDIC deposit insurance
2,316
2,143
5,418
4,276
Net gain on OREO operations
(3,609)
(1,984)
(5,061)
(3,980)
Credit and debit card processing expenses
7,607
6,540
13,358
11,858
Communications
2,261
1,992
4,358
4,208
Other non-interest expenses
8,602
7,928
17,493
16,857
Total non-interest expenses
118,682
112,917
239,605
228,185
Income before income taxes
101,379
100,939
198,792
203,572
Income tax expense
25,541
30,284
49,496
62,219
Net income
$
75,838
$
70,655
$
149,296
$
141,353
Net income attributable to common stockholders
$
75,838
$
70,655
$
149,296
$
141,353
Net income per common share:
Basic
$
0.46
$
0.39
$
0.90
$
0.79
Diluted
$
0.46
$
0.39
$
0.90
$
0.78
The accompanying notes are an integral part of these statements.
7
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Quarter Ended June 30,
Six-Month Period Ended June 30,
2024
2023
2024
2023
(In thousands)
Net income
$
75,838
$
70,655
$
149,296
$
141,353
Other comprehensive income (loss), net of tax:
Available-for-sale debt securities:
Net unrealized holding gains (losses) on debt securities
(1)
10,560
(54,837)
(4,505)
32,391
Other comprehensive income (loss) for the period
10,560
(54,837)
(4,505)
32,391
Total comprehensive income
$
86,398
$
15,818
$
144,791
$
173,744
(1)
Net unrealized holding gains (losses) 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
(Unaudited)
Six-Month Period Ended June 30,
2024
2023
(In thousands)
Cash flows from operating activities:
Net income
$
149,296
$
141,353
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
9,313
10,071
Amortization of intangible assets
3,683
4,026
Provision for credit losses
23,772
37,732
Deferred income tax expense
7,402
2,419
Stock-based compensation
4,847
3,997
Gain on early extinguishment of debt
-
(1,605)
Unrealized gain on derivative instruments
(353)
(291)
Net gain on disposals or sales, and impairments of premises
and equipment and other assets
(69)
(235)
Net gain on sales of loans and loans held-for-sale valuation adjustments
(1,599)
(989)
Net amortization of discounts, premiums, and deferred loan fees
and costs
323
686
Originations and purchases of loans held for sale
(76,592)
(88,696)
Sales and repayments of loans held for sale
74,222
85,398
Amortization of broker placement fees
299
128
Net amortization of premiums and discounts on investment securities
2,181
2,117
(Increase) decrease in accrued interest receivable
(142)
1,849
Increase in accrued interest payable
9,351
9,369
Increase in other assets
(2,889)
(5,566)
Decrease in other liabilities
(13,656)
(35,307)
Net cash provided by operating activities
189,389
166,456
Cash flows from investing activities:
Net disbursements on loans held for investment
(307,677)
(226,714)
Proceeds from sales of loans held for investment
10,162
3,183
Proceeds from sales of repossessed assets
37,499
26,360
Purchases of available-for-sale debt securities
(28,037)
(961)
Proceeds from principal repayments and maturities of available-for-sale
debt securities
293,931
217,745
Proceeds from principal repayments of held-to-maturity debt securities
10,726
13,832
Additions to premises and equipment
(5,857)
(16,211)
Proceeds from sales of premises and equipment and other assets
1,317
578
Net (purchases) redemptions of other investment securities
(1,388)
7,219
Proceeds from the settlement of insurance claims - investing activities
670
-
Net cash provided by investing activities
11,346
25,031
Cash flows from financing activities:
Net (decrease) increase in deposits
(122,546)
675,911
Net repayments of short-term borrowings
-
(476,199)
Repayments of long-term borrowings
-
(19,795)
Proceeds from long-term borrowings
-
300,000
Repurchase of outstanding common stock
(101,599)
(53,217)
Dividends paid on common stock
(53,472)
(51,158)
Net cash (used in) provided by financing activities
(277,617)
375,542
Net (decrease) increase in cash and cash equivalents
(76,882)
567,029
Cash and cash equivalents at beginning of year
663,164
480,505
Cash and cash equivalents at end of period
$
586,282
$
1,047,534
Cash and cash equivalents include:
Cash and due from banks
$
581,843
$
1,046,534
Money market investments
4,439
1,000
$
586,282
$
1,047,534
The accompanying notes are an integral part of these statements.
9
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
(Unaudited)
Quarter Ended June 30,
Six-Month Period Ended June 30,
2024
2023
2024
2023
(In thousands, except per share information)
Common Stock
$
22,366
$
22,366
$
22,366
$
22,366
Additional Paid-In Capital:
Balance at beginning of period
959,319
959,912
965,707
970,722
Stock-based compensation expense
1,922
1,922
4,847
3,997
Common stock reissued under stock-based compensation plan
(11)
-
(9,347)
(13,139)
Restricted stock forfeited
24
395
47
649
Balance at end of period
961,254
962,229
961,254
962,229
Retained Earnings:
Balance at beginning of period
1,892,714
1,688,176
1,846,112
1,644,209
Impact of adoption of Accounting Standards Update (“ASU”) 2022-02
-
-
-
(1,357)
Net income
75,838
70,655
149,296
141,353
Dividends on common stock ($
0.16
per share and $
0.14
per share for the quarters ended
June 30, 2024 and 2023, respectively; $
0.32
per share and $
0.28
per share for the
six-month periods ended June 30, 2024 and 2023, respectively)
(26,572)
(25,334)
(53,428)
(50,708)
Balance at end of period
1,941,980
1,733,497
1,941,980
1,733,497
Treasury Stock (at cost):
Balance at beginning of period
(740,447)
(547,311)
(697,406)
(506,979)
Common stock repurchases (See Note 13)
(50,005)
-
(102,359)
(53,217)
Common stock reissued under stock-based compensation plan
11
-
9,347
13,139
Restricted stock forfeited
(24)
(395)
(47)
(649)
Balance at end of period
(790,465)
(547,706)
(790,465)
(547,706)
Accumulated Other Comprehensive Loss, net
of tax:
Balance at beginning of period
(654,235)
(717,550)
(639,170)
(804,778)
Other comprehensive income (loss), net of tax
10,560
(54,837)
(4,505)
32,391
Balance at end of period
(643,675)
(772,387)
(643,675)
(772,387)
Total stockholders’ equity
$
1,491,460
$
1,397,999
$
1,491,460
$
1,397,999
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
22
Note 4
–
Allowance for Credit Losses for Loans and Finance Leases
42
Note 5 –
Other Real Estate Owned (“OREO”)
45
Note 6 –
Goodwill and Other Intangibles
46
Note 7 –
Non-Consolidated Variable Interest Entities (“VIEs”) and Servicing Assets
47
Note 8 –
Deposits
51
Note 9 –
Advances from the Federal Home Loan Bank (“FHLB”)
52
Note 10 –
Other Long-Term Borrowings
52
Note 11 –
Earnings per Common Share
53
Note 12 –
Stock-Based Compensation
54
Note 13 –
Stockholders’ Equity
57
Note 14 –
Accumulated Other Comprehensive Loss
59
Note 15 –
Employee Benefit Plans
59
Note 16 –
Income Taxes
60
Note 17
–
Fair Value
61
Note 18
–
Revenue from Contracts with Customers
66
Note 19 –
Segment Information
68
Note 20 –
Supplemental Statement of Cash Flows Information
70
Note 21 –
Regulatory Matters, Commitments, and Contingencies
71
Note 22 –
First BanCorp. (Holding Company Only) Financial Information
74
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
and
six-month
period
ended
June
30,
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 and
six-month period
ended June
30, 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 June 30, 2024 and December
31, 2023 were as follows:
June 30, 2024
Amortized cost
(1)
Gross Unrealized
ACL
Fair Value
(2)
Weighted-
Gains
Losses
average yield%
(Dollars in thousands)
U.S. Treasury securities:
Due within one year
$
100,370
$
-
$
2,156
$
-
$
98,214
0.70
After 1 to 5 years
19,901
-
1,042
-
18,859
0.65
U.S. government-sponsored entities' (“GSEs”) obligations:
Due within one year
782,777
-
16,859
-
765,918
0.91
After 1 to 5 years
1,564,870
51
111,755
-
1,453,166
0.82
After 5 to 10 years
8,850
-
750
-
8,100
2.64
After 10 years
8,228
15
-
-
8,243
5.69
Puerto Rico government obligation:
After 10 years
(3)
3,084
-
1,166
386
1,532
-
United States and Puerto Rico government obligations
2,488,080
66
133,728
386
2,354,032
0.86
Mortgage-backed securities (“MBS”):
Residential MBS:
Freddie Mac (“FHLMC”) certificates:
Due within one year
4
-
-
-
4
4.31
After 1 to 5 years
16,204
-
754
-
15,450
2.06
After 5 to 10 years
138,723
-
12,739
-
125,984
1.55
After 10 years
948,539
6
172,740
-
775,805
1.41
1,103,470
6
186,233
-
917,243
1.44
Ginnie Mae (“GNMA”) certificates:
Due within one year
841
-
8
-
833
3.29
After 1 to 5 years
11,837
-
648
-
11,189
0.93
After 5 to 10 years
31,168
2
2,783
-
28,387
1.77
After 10 years
191,483
101
25,966
-
165,618
2.65
235,329
103
29,405
-
206,027
2.45
Fannie Mae (“FNMA”) certificates:
After 1 to 5 years
26,921
-
1,236
-
25,685
2.11
After 5 to 10 years
272,851
-
23,789
-
249,062
1.74
After 10 years
988,450
2
165,091
-
823,361
1.36
1,288,222
2
190,116
-
1,098,108
1.45
Collateralized mortgage obligations (“CMOs”) issued
or guaranteed by the FHLMC, FNMA, and GNMA:
After 10 years
259,830
-
54,810
-
205,020
1.52
Private label:
After 5 to 10 years
1,322
-
317
5
1,000
8.93
After 10 years
5,359
-
1,634
158
3,567
7.34
6,681
-
1,951
163
4,567
7.65
Total Residential MBS
2,893,532
111
462,515
163
2,430,965
1.55
Commercial MBS:
After 1 to 5 years
44,240
9
7,121
-
37,128
2.18
After 5 to 10 years
22,121
-
2,795
-
19,326
2.16
After 10 years
146,191
-
31,331
-
114,860
1.98
Total Commercial MBS
212,552
9
41,247
-
171,314
2.04
Total MBS
3,106,084
120
503,762
163
2,602,279
1.58
Other:
Due within one year
500
-
-
-
500
2.35
After 1 to 5 years
500
-
-
-
500
2.35
1,000
-
-
-
1,000
2.35
Total available-for-sale debt securities
$
5,595,164
$
186
$
637,490
$
549
$
4,957,311
1.26
(1)
Excludes accrued interest receivable on available-for-sale debt securities that totaled $
10.0
million as of June 30, 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 $
465.5
million (amortized cost - $
538.5
million) that was pledged at the FHLB as collateral for borrowings and letters of credit as well as $
2.7
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 Unrealized
ACL
Fair value
(2)
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
During
the
second
quarter
of
2024,
the
Corporation
purchased
approximately
$
28.0
million
of
Community
Reinvestment
Act
qualified investments, which were classified as available-for-sale debt securities.
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 June 30, 2024 and December 31, 2023. The tables also include debt securities for
which an ACL was recorded.
As of June 30, 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
$
875
$
-
$
2,338,381
$
132,562
$
2,339,256
$
132,562
Puerto Rico government obligation
-
-
1,532
1,166
(1)
1,532
1,166
MBS:
Residential MBS:
FHLMC
1,191
15
915,156
186,218
916,347
186,233
GNMA
11,188
123
188,231
29,282
199,419
29,405
FNMA
8,135
99
1,088,394
190,017
1,096,529
190,116
CMOs issued or guaranteed by the FHLMC,
FNMA, and GNMA
-
-
202,963
54,810
202,963
54,810
Private label
-
-
4,567
1,951
(1)
4,567
1,951
Commercial MBS
28,715
428
136,652
40,819
165,367
41,247
$
50,104
$
665
$
4,875,876
$
636,825
$
4,925,980
$
637,490
(1)
Unrealized losses do not include the credit loss component recorded
as part of the ACL. As of June 30, 2024, the PRHFA
bond and private label MBS had an ACL of $
0.4
million and
$
0.2
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
June
30,
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
June
30,
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 June 30, 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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
16
The following
tables present
a roll-forward
of the ACL
on available-for-sale
debt securities by
major security
type for
the quarters
and six-month periods ended June 30, 2024 and 2023:
Quarter Ended June 30,
2024
2023
Private label
MBS
Puerto Rico
Government
Obligation
Total
Private label
MBS
Puerto Rico
Government
Obligation
Total
(In thousands)
Beginning balance
$
116
$
326
$
442
$
83
$
366
$
449
Provision for credit losses – expense (benefit)
-
60
60
-
(16)
(16)
Net recoveries
47
-
47
-
-
-
ACL on available-for-sale debt securities
$
163
$
386
$
549
$
83
$
350
$
433
Six-Month Period Ended June 30,
2024
2023
Private label
MBS
Puerto Rico
Government
Obligations
Total
Private label
MBS
Puerto Rico
Government
Obligations
Total
(In thousands)
Beginning balance
$
116
$
395
$
511
$
83
$
375
$
458
Provision for credit losses - benefit
-
(9)
(9)
-
(25)
(25)
Net recoveries
47
-
47
-
-
-
ACL on available-for-sale debt securities
$
163
$
386
$
549
$
83
$
350
$
433
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
17
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 June 30, 2024
and December 31, 2023 were as follows:
June 30, 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
$
3,178
$
-
$
18
$
3,160
$
37
9.30
After 1 to 5 years
51,424
972
620
51,776
468
7.72
After 5 to 10 years
36,253
3,393
201
39,445
451
7.03
After 10 years
16,595
350
-
16,945
311
8.78
Total Puerto Rico municipal bonds
107,450
4,715
839
111,326
1,267
7.70
MBS:
Residential MBS:
FHLMC certificates:
After 5 to 10 years
14,243
-
578
13,665
-
3.03
After 10 years
17,879
-
1,146
16,733
-
4.35
32,122
-
1,724
30,398
-
3.76
GNMA certificates:
After 10 years
15,047
-
951
14,096
-
3.30
FNMA certificates:
After 10 years
64,591
-
3,927
60,664
-
4.19
CMOs issued or guaranteed by
FHLMC, FNMA, and GNMA:
After 10 years
26,855
-
1,640
25,215
-
3.49
Total Residential MBS
138,615
-
8,242
130,373
-
3.86
Commercial MBS:
After 1 to 5 years
9,352
-
301
9,051
-
3.48
After 10 years
89,018
-
6,078
82,940
-
3.15
Total Commercial MBS
98,370
-
6,379
91,991
-
3.18
Total MBS
236,985
-
14,621
222,364
-
3.58
Total held-to-maturity debt securities
$
344,435
$
4,715
$
15,460
$
333,690
$
1,267
4.86
(1)
Excludes accrued interest receivable on held-to-maturity debt securities that totaled $
4.8
million as of June 30, 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 $
189.7
million (fair value - $
184.4
million) that serves as collateral for the uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
18
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)
19
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
June
30, 2024 and December 31, 2023, including debt securities for which
an ACL was recorded:
As of June 30, 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
$
-
$
-
$
26,147
$
839
$
26,147
$
839
MBS:
Residential MBS:
FHLMC certificates
-
-
30,398
1,724
30,398
1,724
GNMA certificates
-
-
14,096
951
14,096
951
FNMA certificates
-
-
60,664
3,927
60,664
3,927
CMOs issued or guaranteed by FHLMC,
FNMA, and GNMA
-
-
25,215
1,640
25,215
1,640
Commercial MBS
-
-
91,991
6,379
91,991
6,379
Total held-to-maturity debt securities
$
-
$
-
$
248,511
$
15,460
$
248,511
$
15,460
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)
20
The
Corporation
classifies
the
held-to-maturity
debt
securities
portfolio
into
the
following
major
security
types:
MBS
issued
or
guaranteed by
GSEs and
underlying collateral
and Puerto
Rico municipal
bonds. The
Corporation does
not recognize
an ACL
for MBS
issued or guaranteed 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 June
30, 2024.
The ACL
of Puerto
Rico municipal
bonds decreased
to $
1.3
million as
of June
30,
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 and
six-month periods ended June 30, 2024 and 2023:
Puerto Rico Municipal Bonds
Quarter Ended June 30,
2024
2023
(In thousands)
Beginning balance
$
1,235
$
7,646
Provision for credit losses – expense
32
755
ACL on held-to-maturity debt securities
$
1,267
$
8,401
Puerto Rico Municipal Bonds
Six-Month Period Ended June 30,
2024
2023
(In thousands)
Beginning Balance
$
2,197
$
8,286
Provision for credit losses - (benefit) expense
(930)
115
ACL on held-to-maturity debt securities
$
1,267
$
8,401
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
June
30,
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)
21
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 June 30, 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 June
30, 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)
22
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 June 30,
As of December 31,
2024
2023
(In thousands)
Puerto Rico and Virgin Islands region:
Residential mortgage loans, mainly secured by first mortgages
$
2,324,302
$
2,356,006
Construction loans
163,774
115,401
Commercial mortgage loans
1,760,760
1,790,637
Commercial and Industrial (“C&I”) loans
2,311,945
2,249,408
Consumer loans
3,703,929
3,651,770
Loans held for investment
$
10,264,710
$
10,163,222
Florida region:
Residential mortgage loans, mainly secured by first mortgages
$
485,364
$
465,720
Construction loans
22,183
99,376
Commercial mortgage loans
662,549
526,446
C&I loans
942,632
924,824
Consumer loans
8,070
5,895
Loans held for investment
$
2,120,798
$
2,022,261
Total:
Residential mortgage loans, mainly secured by first mortgages
$
2,809,666
$
2,821,726
Construction loans
185,957
214,777
Commercial mortgage loans
2,423,309
2,317,083
C&I loans
(1)
3,254,577
3,174,232
Consumer loans
3,711,999
3,657,665
Loans held for investment
(2)
12,385,508
12,185,483
ACL on loans and finance leases
(254,532)
(261,843)
Loans held for investment, net
$
12,130,976
$
11,923,640
(1)
As of June 30, 2024 and December 31, 2023, includes $
785.5
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 $
22.9
million and $
24.7
million as of June 30, 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
$
5.4
billion
and
$
4.6
billion
as
of
June
30,
2024
and
December
31, 2023,
respectively.
As of
June 30,
2024 and
December
31, 2023,
loans pledged
as collateral
include $
1.9
billion
and
$
1.8
billion,
respectively,
that
were
pledged
at
the
FHLB
as
collateral
for
borrowings
and
letters
of
credit;
$
3.2
billion
pledged
as
collateral to secure
borrowing capacity
at the FED
Discount Window,
compared to
$
2.5
billion as of
December 31,
2023; and $
165.4
million pledged
to secure
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)
23
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 June 30, 2024 and December 31, 2023 are as follows:
As of June 30,2024
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)
$
70,479
$
-
$
2,753
$
22,911
$
-
$
96,143
$
-
Conventional residential mortgage loans
(2) (6)
2,644,019
-
29,506
8,602
31,396
2,713,523
1,453
Commercial loans:
Construction loans
181,215
-
-
-
4,742
185,957
971
Commercial mortgage loans
(2) (6)
2,409,272
1,047
65
1,189
11,736
2,423,309
6,795
C&I loans
3,217,351
1,157
1,112
7,296
27,661
3,254,577
1,580
Consumer loans:
Auto loans
1,895,003
60,591
11,760
-
14,669
1,982,023
368
Finance leases
861,235
14,271
2,229
-
2,577
880,312
137
Personal loans
367,140
6,183
2,643
-
1,999
377,965
-
Credit cards
304,688
5,275
3,181
7,175
-
320,319
-
Other consumer loans
144,352
3,840
1,795
-
1,393
151,380
-
Total loans held for investment
$
12,094,754
$
92,364
$
55,044
$
47,173
$
96,173
$
12,385,508
$
11,304
(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-month delinquency mark, taking into consideration the FHA interest curtailment
process. These balances include $
11.0
million of residential mortgage loans guaranteed by the FHA that were over 15 months delinquent as of June 30,2024.
(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 the current expected credit loss (“CECL”) methodology 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 $
7.4
million as of June 30, 2024 ($
6.5
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 $
6.8
million as of June 30,2024. 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 $
8.1
million as of June 30,2024, primarily residential mortgage loans.
(5)
There were
no
nonaccrual loans with no ACL in the Florida region as of June 30,2024.
(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 June 30, 2024 amounted to $
7.8
million, $
67.7
million, and $
1.2
million,
respectively.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
24
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-month 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 $
0.7
million and
$
1.5
million for
the quarter
and six-month
period ended
June 30,
2024, respectively,
compared $
0.5
million
and
$
1.1
million
for
the
same
periods
in
2023,
respectively.
For
the
quarter
and
six-month
period
ended
June
30,
2024,
the
cash
interest income recognized on nonaccrual
loans amounted to $
0.3
million and $
0.9
million, respectively,
compared to $
0.5
million and
$
1.0
million for the same periods in 2023, respectively.
As of
June
30,
2024,
the recorded
investment
on
residential
mortgage
loans collateralized
by
residential
real
estate property
that
were in
the process
of foreclosure
amounted to
$
35.1
million, including
$
12.8
million of
FHA/VA
government-guaranteed
mortgage
loans, and
$
5.2
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)
25
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
June 30,
2024, the
gross charge
-offs for
the six-month
period ended
June 30,
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 June 30,2024
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
$
12,154
$
88,978
$
41,129
$
9,748
$
-
$
3,655
$
-
$
155,664
$
113,170
Criticized:
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
2,881
3,300
-
-
1,929
-
8,110
2,231
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total construction loans
$
12,154
$
91,859
$
44,429
$
9,748
$
-
$
5,584
$
-
$
163,774
$
115,401
Charge-offs on construction loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
COMMERCIAL MORTGAGE
Risk Ratings:
Pass
$
99,566
$
172,589
$
375,881
$
140,689
$
313,516
$
473,812
$
5,640
$
1,581,693
$
1,618,404
Criticized:
Special Mention
-
3,758
4,284
-
30,168
110,922
-
149,132
146,626
Substandard
-
-
118
-
-
29,817
-
29,935
25,607
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total commercial mortgage loans
$
99,566
$
176,347
$
380,283
$
140,689
$
343,684
$
614,551
$
5,640
$
1,760,760
$
1,790,637
Charge-offs on commercial mortgage loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
C&I
Risk Ratings:
Pass
$
87,957
$
417,655
$
288,105
$
141,237
$
150,596
$
336,955
$
804,023
$
2,226,528
$
2,173,939
Criticized:
Special Mention
-
2,466
-
538
-
643
33,981
37,628
40,376
Substandard
196
1
-
13,984
562
28,662
4,384
47,789
35,093
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total C&I loans
$
88,153
$
420,122
$
288,105
$
155,759
$
151,158
$
366,260
$
842,388
$
2,311,945
$
2,249,408
Charge-offs on C&I loans
$
-
$
-
$
304
$
-
$
-
$
-
$
180
$
484
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
26
As of June 30,2024
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
$
813
$
2,978
$
-
$
766
$
-
$
-
$
17,626
$
22,183
$
99,376
Criticized:
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total construction loans
$
813
$
2,978
$
-
$
766
$
-
$
-
$
17,626
$
22,183
$
99,376
Charge-offs on construction loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
COMMERCIAL MORTGAGE
Risk Ratings:
Pass
$
47,220
$
28,888
$
227,461
$
105,696
$
39,272
$
178,650
$
22,070
$
649,257
$
525,453
Criticized:
Special Mention
-
-
12,299
-
-
-
-
12,299
-
Substandard
-
-
-
-
993
-
-
993
993
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total commercial mortgage loans
$
47,220
$
28,888
$
239,760
$
105,696
$
40,265
$
178,650
$
22,070
$
662,549
$
526,446
Charge-offs on commercial mortgage loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
C&I
Risk Ratings:
Pass
$
124,032
$
147,761
$
226,861
$
159,672
$
39,165
$
79,980
$
153,687
$
931,158
$
879,195
Criticized:
Special Mention
-
-
-
-
-
11,474
-
11,474
42,046
Substandard
-
-
-
-
-
-
-
-
3,583
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total C&I loans
$
124,032
$
147,761
$
226,861
$
159,672
$
39,165
$
91,454
$
153,687
$
942,632
$
924,824
Charge-offs on C&I loans
$
-
$
-
$
-
$
-
$
-
$
48
$
259
$
307
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
27
As of June 30,2024
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
$
12,967
$
91,956
$
41,129
$
10,514
$
-
$
3,655
$
17,626
$
177,847
$
212,546
Criticized:
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
2,881
3,300
-
-
1,929
-
8,110
2,231
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total construction loans
$
12,967
$
94,837
$
44,429
$
10,514
$
-
$
5,584
$
17,626
$
185,957
$
214,777
Charge-offs on construction loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
COMMERCIAL MORTGAGE
Risk Ratings:
Pass
$
146,786
$
201,477
$
603,342
$
246,385
$
352,788
$
652,462
$
27,710
$
2,230,950
$
2,143,857
Criticized:
Special Mention
-
3,758
16,583
-
30,168
110,922
-
161,431
146,626
Substandard
-
-
118
-
993
29,817
-
30,928
26,600
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total commercial mortgage loans
$
146,786
$
205,235
$
620,043
$
246,385
$
383,949
$
793,201
$
27,710
$
2,423,309
$
2,317,083
Charge-offs on commercial mortgage loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
C&I
Risk Ratings:
Pass
$
211,989
$
565,416
$
514,966
$
300,909
$
189,761
$
416,935
$
957,710
$
3,157,686
$
3,053,134
Criticized:
Special Mention
-
2,466
-
538
-
12,117
33,981
49,102
82,422
Substandard
196
1
-
13,984
562
28,662
4,384
47,789
38,676
Doubtful
-
-
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
-
-
Total C&I loans
$
212,185
$
567,883
$
514,966
$
315,431
$
190,323
$
457,714
$
996,075
$
3,254,577
$
3,174,232
Charge-offs on C&I loans
$
-
$
-
$
304
$
-
$
-
$
48
$
439
$
791
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
28
The following
tables present the
amortized cost of
residential mortgage
loans by portfolio
classes and by
origination year
based on
accrual
status as
of June
30,
2024,
the gross
charge-offs
for the
six-month
period ended
June 30,
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 June 30,2024
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
$
-
$
472
$
892
$
1,165
$
515
$
92,407
$
-
$
95,451
$
99,293
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
government-guaranteed loans
$
-
$
472
$
892
$
1,165
$
515
$
92,407
$
-
$
95,451
$
99,293
Conventional residential mortgage loans
Accrual Status:
Performing
$
79,507
$
169,119
$
158,182
$
65,952
$
28,397
$
1,704,353
$
-
$
2,205,510
$
2,231,701
Non-Performing
-
-
68
-
-
23,273
-
23,341
25,012
Total conventional residential mortgage loans
$
79,507
$
169,119
$
158,250
$
65,952
$
28,397
$
1,727,626
$
-
$
2,228,851
$
2,256,713
Total
Accrual Status:
Performing
$
79,507
$
169,591
$
159,074
$
67,117
$
28,912
$
1,796,760
$
-
$
2,300,961
$
2,330,994
Non-Performing
-
-
68
-
-
23,273
-
23,341
25,012
Total residential mortgage loans
$
79,507
$
169,591
$
159,142
$
67,117
$
28,912
$
1,820,033
$
-
$
2,324,302
$
2,356,006
Charge-offs on residential mortgage loans
$
-
$
-
$
-
$
-
$
9
$
998
$
-
$
1,007
(1)
Excludes accrued interest receivable.
As of June 30,2024
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
$
-
$
-
$
-
$
-
$
-
$
692
$
-
$
692
$
943
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
government-guaranteed loans
$
-
$
-
$
-
$
-
$
-
$
692
$
-
$
692
$
943
Conventional residential mortgage loans
Accrual Status:
Performing
$
45,841
$
88,172
$
75,703
$
43,001
$
28,195
$
195,705
$
-
$
476,617
$
457,550
Non-Performing
-
-
248
-
-
7,807
-
8,055
7,227
Total conventional residential mortgage loans
$
45,841
$
88,172
$
75,951
$
43,001
$
28,195
$
203,512
$
-
$
484,672
$
464,777
Total
Accrual Status:
Performing
$
45,841
$
88,172
$
75,703
$
43,001
$
28,195
$
196,397
$
-
$
477,309
$
458,493
Non-Performing
-
-
248
-
-
7,807
-
8,055
7,227
Total residential mortgage loans
$
45,841
$
88,172
$
75,951
$
43,001
$
28,195
$
204,204
$
-
$
485,364
$
465,720
Charge-offs on residential mortgage loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
29
As of June 30,2024
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
$
-
$
472
$
892
$
1,165
$
515
$
93,099
$
-
$
96,143
$
100,236
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA
government-guaranteed loans
$
-
$
472
$
892
$
1,165
$
515
$
93,099
$
-
$
96,143
$
100,236
Conventional residential mortgage loans
Accrual Status:
Performing
$
125,348
$
257,291
$
233,885
$
108,953
$
56,592
$
1,900,058
$
-
$
2,682,127
$
2,689,251
Non-Performing
-
-
316
-
-
31,080
-
31,396
32,239
Total conventional residential mortgage loans
$
125,348
$
257,291
$
234,201
$
108,953
$
56,592
$
1,931,138
$
-
$
2,713,523
$
2,721,490
Total
Accrual Status:
Performing
$
125,348
$
257,763
$
234,777
$
110,118
$
57,107
$
1,993,157
$
-
$
2,778,270
$
2,789,487
Non-Performing
-
-
316
-
-
31,080
-
31,396
32,239
Total residential mortgage loans
$
125,348
$
257,763
$
235,093
$
110,118
$
57,107
$
2,024,237
$
-
$
2,809,666
$
2,821,726
Charge-offs on residential mortgage loans
$
-
$
-
$
-
$
-
$
9
$
998
$
-
$
1,007
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
30
The
following
tables present
the
amortized
cost
of
consumer
loans
by
portfolio
classes
and
by origination
year
based on
accrual
status as of
June 30, 2024,
the gross charge
-offs for
the six-month period
ended June 30,
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 June 30, 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
$
324,653
$
568,467
$
465,596
$
326,080
$
145,856
$
136,207
$
-
$
1,966,859
$
1,919,583
Non-Performing
272
3,506
3,353
2,835
1,280
3,419
-
14,665
15,556
Total auto loans
$
324,925
$
571,973
$
468,949
$
328,915
$
147,136
$
139,626
$
-
$
1,981,524
$
1,935,139
Charge-offs on auto loans
$
105
$
4,897
$
5,248
$
2,891
$
922
$
1,964
$
-
$
16,027
Finance leases
Accrual Status:
Performing
$
130,114
$
290,290
$
221,226
$
132,985
$
54,545
$
48,575
$
-
$
877,735
$
853,528
Non-Performing
-
500
713
441
168
755
-
2,577
3,287
Total finance leases
$
130,114
$
290,790
$
221,939
$
133,426
$
54,713
$
49,330
$
-
$
880,312
$
856,815
Charge-offs on finance leases
$
1
$
1,053
$
1,841
$
742
$
217
$
672
$
-
$
4,526
Personal loans
Accrual Status:
Performing
$
73,338
$
143,064
$
94,185
$
23,833
$
11,961
$
27,005
$
-
$
373,386
$
379,161
Non-Performing
41
681
798
219
41
219
-
1,999
1,841
Total personal loans
$
73,379
$
143,745
$
94,983
$
24,052
$
12,002
$
27,224
$
-
$
375,385
$
381,002
Charge-offs on personal loans
$
31
$
3,668
$
5,253
$
1,099
$
388
$
1,078
$
-
$
11,517
Credit cards
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
320,319
$
320,319
$
329,212
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
320,319
$
320,319
$
329,212
Charge-offs on credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
12,426
$
12,426
Other consumer loans
Accrual Status:
Performing
$
39,101
$
55,374
$
23,186
$
7,070
$
4,479
$
5,821
$
9,997
$
145,028
$
147,913
Non-Performing
51
558
312
93
37
170
140
1,361
1,689
Total other consumer loans
$
39,152
$
55,932
$
23,498
$
7,163
$
4,516
$
5,991
$
10,137
$
146,389
$
149,602
Charge-offs on other consumer loans
$
98
$
5,039
$
2,820
$
683
$
170
$
258
$
325
$
9,393
Total
Accrual Status:
Performing
$
567,206
$
1,057,195
$
804,193
$
489,968
$
216,841
$
217,608
$
330,316
$
3,683,327
$
3,629,397
Non-Performing
364
5,245
5,176
3,588
1,526
4,563
140
20,602
22,373
Total consumer loans
$
567,570
$
1,062,440
$
809,369
$
493,556
$
218,367
$
222,171
$
330,456
$
3,703,929
$
3,651,770
Charge-offs on total consumer loans
$
235
$
14,657
$
15,162
$
5,415
$
1,697
$
3,972
$
12,751
$
53,889
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
31
As of June 30, 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
$
-
$
-
$
-
$
-
$
-
$
495
$
-
$
495
$
1,105
Non-Performing
-
-
-
-
-
4
-
4
12
Total auto loans
$
-
$
-
$
-
$
-
$
-
$
499
$
-
$
499
$
1,117
Charge-offs on auto loans
$
-
$
-
$
-
$
-
$
-
$
66
$
-
$
66
Finance leases
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total finance leases
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Charge-offs on finance leases
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Personal loans
Accrual Status:
Performing
$
2,460
$
49
$
-
$
71
$
-
$
-
$
-
$
2,580
$
273
Non-Performing
-
-
-
-
-
-
-
-
-
Total personal loans
$
2,460
$
49
$
-
$
71
$
-
$
-
$
-
$
2,580
$
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
$
547
$
53
$
46
$
219
$
321
$
2,067
$
1,706
$
4,959
$
4,446
Non-Performing
-
-
-
-
-
17
15
32
59
Total other consumer loans
$
547
$
53
$
46
$
219
$
321
$
2,084
$
1,721
$
4,991
$
4,505
Charge-offs on other consumer loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total
Accrual Status:
Performing
$
3,007
$
102
$
46
$
290
$
321
$
2,562
$
1,706
$
8,034
$
5,824
Non-Performing
-
-
-
-
-
21
15
36
71
Total consumer loans
$
3,007
$
102
$
46
$
290
$
321
$
2,583
$
1,721
$
8,070
$
5,895
Charge-offs on total consumer loans
$
-
$
-
$
-
$
-
$
-
$
66
$
-
$
66
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
32
As of June 30, 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
$
324,653
$
568,467
$
465,596
$
326,080
$
145,856
$
136,702
$
-
$
1,967,354
$
1,920,688
Non-Performing
272
3,506
3,353
2,835
1,280
3,423
-
14,669
15,568
Total auto loans
$
324,925
$
571,973
$
468,949
$
328,915
$
147,136
$
140,125
$
-
$
1,982,023
$
1,936,256
Charge-offs on auto loans
$
105
$
4,897
$
5,248
$
2,891
$
922
$
2,030
$
-
$
16,093
Finance leases
Accrual Status:
Performing
$
130,114
$
290,290
$
221,226
$
132,985
$
54,545
$
48,575
$
-
$
877,735
$
853,528
Non-Performing
-
500
713
441
168
755
-
2,577
3,287
Total finance leases
$
130,114
$
290,790
$
221,939
$
133,426
$
54,713
$
49,330
$
-
$
880,312
$
856,815
Charge-offs on finance leases
$
1
$
1,053
$
1,841
$
742
$
217
$
672
$
-
$
4,526
Personal loans
Accrual Status:
Performing
$
75,798
$
143,113
$
94,185
$
23,904
$
11,961
$
27,005
$
-
$
375,966
$
379,434
Non-Performing
41
681
798
219
41
219
-
1,999
1,841
Total personal loans
$
75,839
$
143,794
$
94,983
$
24,123
$
12,002
$
27,224
$
-
$
377,965
$
381,275
Charge-offs on personal loans
$
31
$
3,668
$
5,253
$
1,099
$
388
$
1,078
$
-
$
11,517
Credit cards
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
320,319
$
320,319
$
329,212
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
320,319
$
320,319
$
329,212
Charge-offs on credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
12,426
$
12,426
Other consumer loans
Accrual Status:
Performing
$
39,648
$
55,427
$
23,232
$
7,289
$
4,800
$
7,888
$
11,703
$
149,987
$
152,359
Non-Performing
51
558
312
93
37
187
155
1,393
1,748
Total other consumer loans
$
39,699
$
55,985
$
23,544
$
7,382
$
4,837
$
8,075
$
11,858
$
151,380
$
154,107
Charge-offs on other consumer loans
$
98
$
5,039
$
2,820
$
683
$
170
$
258
$
325
$
9,393
Total
Accrual Status:
Performing
$
570,213
$
1,057,297
$
804,239
$
490,258
$
217,162
$
220,170
$
332,022
$
3,691,361
$
3,635,221
Non-Performing
364
5,245
5,176
3,588
1,526
4,584
155
20,638
22,444
Total consumer loans
$
570,577
$
1,062,542
$
809,415
$
493,846
$
218,688
$
224,754
$
332,177
$
3,711,999
$
3,657,665
Charge-offs on total consumer loans
$
235
$
14,657
$
15,162
$
5,415
$
1,697
$
4,038
$
12,751
$
53,955
(1)
Excludes accrued interest receivable.
As of June 30, 2024 and December 31, 2023, the balance of revolving loans
converted to term loans was
no
t material.
Accrued
interest
receivable
on
loans
totaled
$
63.1
million
as
of
June
30,
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)
33
The
following
tables
present
information
about
collateral
dependent
loans
that
were
individually
evaluated
for
purposes
of
determining the ACL as of June 30, 2024 and December 31, 2023
:
As of June 30, 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
$
24,449
$
1,103
$
-
$
24,449
$
1,103
Commercial loans:
Construction loans
3,300
259
956
4,256
259
Commercial mortgage loans
-
-
43,708
43,708
-
C&I loans
22,549
2,642
6,618
29,167
2,642
Consumer loans:
Personal loans
28
1
-
28
1
Other consumer loans
123
10
-
123
10
$
50,449
$
4,015
$
51,282
$
101,731
$
4,015
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
June
30,
2024
was
74
%,
compared to
65
% as of
December 31,
2023, mainly
related to
a $
16.5
million nonaccrual
commercial relationship
in the Puerto
Rico
region in the food retail industry,
with a loan-to-value over
100
%, classified as collateral dependent.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
34
Purchases and Sales of Loans
In
the
ordinary
course
of
business,
the
Corporation
enters
into
securitization
transactions
and
whole
loan
sales
with
GNMA
and
GSEs, such
as FNMA
and FHLMC.
During the
first six
months of
2024, loans
pooled into
GNMA MBS
amounted to
approximately
$
59.9
million, compared to
$
66.4
million, for the
first six months
of 2023, for
which the Corporation
recognized a net
gain on sale
of
$
2.3
million and
$
1.4
million, respectively.
Also, during
the first
six months
of 2024
and 2023,
the Corporation
sold approximately
$
15.1
million
and
$
22.8
million,
respectively,
of
performing
residential
mortgage
loans
to
FNMA,
for
which
the
Corporation
recognized a net
gain on sale of
$
0.3
million and $
0.6
million, respectively.
The Corporation’s
continuing involvement with
the loans
that it
sells consists
primarily of
servicing the
loans. In
addition, the
Corporation agrees
to repurchase
loans if
it breaches
any of
the
representations
and
warranties
included
in
the
sale
agreement.
These
representations
and
warranties
are
consistent
with
the
GSEs’
selling and servicing guidelines (
i.e.
, ensuring that the mortgage was properly underwritten according to established
guidelines).
For loans
pooled into
GNMA MBS,
the Corporation,
as servicer,
holds an
option to
repurchase individual
delinquent loans
issued
on or after
January 1, 2003,
when certain delinquency
criteria are met. This
option gives the
Corporation the unilateral
ability,
but not
the obligation, to
repurchase the delinquent
loans at par without
prior authorization from
GNMA. Since the
Corporation is considered
to
have
regained
effective
control
over
the
loans,
it
is
required
to
recognize
the
loans
and
a
corresponding
repurchase
liability
regardless of
its intent
to repurchase
the loans.
As of
June 30,
2024 and
December 31,
2023, rebooked
GNMA delinquent
loans that
were included in the residential mortgage loan portfolio amounted
to $
6.8
million and $
7.9
million, respectively.
During the first
six months of 2024
and 2023, the Corporation
repurchased, pursuant to
the aforementioned repurchase
option, $
0.9
million
and
$
1.9
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
first six
months of 2024,
the Corporation
purchased commercial
loan participations
in the
Florida region
totaling $
79.1
million, which consisted
of approximately $
13.7
million in the commercial
mortgage portfolio and $
65.4
million in the C&I portfolio.
In addition, during the first six
months of 2023, the Corporation
purchased C&I loan participations in
the Florida region totaling $
28.0
million.
During
the
first
six
months
of
2024,
the
Corporation
recognized
a
$
9.5
million
recovery
associated
with
the
bulk
sale
of
fully
charged-off
consumer
loans,
net
of
a
$
0.5
million
repurchase
liability.
There
were
no
significant
sales
of
loans
during
the
first
six
months of 2023, other than those sales of conforming residential mortgage
loans mentioned above.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
35
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 $
12.4
billion as of
June 30, 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
June
30,
2024,
the
Corporation
had
$
206.2
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
June
30,
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 $
25.7
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
June 30,
2024 included
$
8.8
million
in
loans granted
to an
affiliate of
the Puerto
Rico Electric
Power Authority
(“PREPA”)
and $
42.3
million in
loans to
agencies or
public
corporations of the Puerto Rico government.
In addition, as of
June 30, 2024, the Corporation
had $
74.9
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 June 30,
2024, the Corporation
had
$
105.0
million in
loans to
USVI government
public corporations,
compared to
$
90.5
million as
of December
31, 2023.
As of
June 30,
2024, all
loans
were currently performing and up to date on principal and interest payments.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
36
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
$
2.3
million
and
$
3.8
million in restructured residential
mortgage loans that are
government-guaranteed (e.g.,
FHA/VA
loans) and were modified
during the
quarter
and
six-month
period
ended
June
30,
2024,
respectively,
compared
to
$
1.6
million
and
$
2.5
million,
respectively,
for
the
comparable periods in 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
37
The following
tables present
the amortized
cost basis
as of
June 30,
2024 and
2023 of
loans modified
to borrowers
experiencing
financial
difficulty
during
the
quarters
and
six-month
periods
ended
June
30,
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 June 30, 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
$
-
$
-
$
407
$
-
$
25
$
3
$
-
$
435
0.02%
Construction loans
-
-
-
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
115,981
-
-
115,981
4.79%
C&I loans
-
-
-
-
-
-
-
-
-
Consumer loans:
Auto loans
-
-
-
-
134
81
933
(1)
1,148
0.06%
Personal loans
-
-
-
-
-
89
-
89
0.02%
Credit cards
-
-
-
890
(2)
-
-
-
890
0.28%
Other consumer loans
-
-
-
-
165
132
20
(1)
317
0.21%
Total modifications
$
-
$
-
$
407
$
890
$
116,305
$
305
$
953
$
118,860
Quarter Ended June 30, 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
$
-
$
-
$
210
$
-
$
73
$
-
$
-
$
283
0.01%
Construction loans
-
-
-
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
30,170
-
30,170
1.30%
C&I loans
-
-
-
-
187
-
-
187
0.01%
Consumer loans:
Auto loans
-
-
-
-
82
69
678
(1)
829
0.04%
Personal loans
-
-
-
-
41
71
-
112
0.03%
Credit cards
-
-
-
486
(2)
-
-
-
486
0.15%
Other consumer loans
-
-
-
-
146
40
10
(1)
196
0.13%
Total modifications
$
-
$
-
$
210
$
486
$
529
$
30,350
$
688
$
32,263
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
38
Six-Month Period Ended June 30, 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
$
-
$
-
$
869
$
-
$
25
$
80
$
-
$
974
0.03%
Construction loans
-
-
-
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
115,981
-
-
115,981
4.79%
C&I loans
-
-
-
12
-
-
-
12
0.00%
Consumer loans:
Auto loans
-
-
-
-
300
171
1,926
(1)
2,397
0.12%
Personal loans
-
-
-
-
13
102
-
115
0.03%
Credit cards
-
-
-
1,406
(2)
-
-
-
1,406
0.44%
Other consumer loans
-
-
-
-
303
139
38
(1)
480
0.32%
Total modifications
$
-
$
-
$
869
$
1,418
$
116,622
$
492
$
1,964
$
121,365
Six-Month Period Ended June 30, 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
$
-
$
-
$
542
$
-
$
503
$
94
$
-
$
1,139
0.04%
Construction loans
-
-
-
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
30,170
-
30,170
1.30%
C&I loans
-
-
-
-
187
-
-
187
0.01%
Consumer loans:
Auto loans
-
-
-
-
167
103
1,155
(1)
1,425
0.08%
Personal loans
-
-
-
-
68
83
-
151
0.04%
Credit cards
-
-
-
732
(2)
-
-
-
732
0.23%
Other consumer loans
-
-
-
-
273
99
32
(1)
404
0.27%
Total modifications
$
-
$
-
$
542
$
732
$
1,198
$
30,549
$
1,187
$
34,208
(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)
39
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 and
six-month periods ended
June 30, 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 June 30, 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
-
%
236
0.50
%
256
Construction loans
-
%
-
-
%
-
Commercial mortgage loans
-
%
96
-
%
-
C&I loans
-
%
-
-
%
-
Consumer loans:
Auto loans
-
%
21
3.29
%
28
Personal loans
-
%
-
2.99
%
19
Credit cards
17.55
%
-
-
%
-
Other consumer loans
-
%
26
3.34
%
17
Quarter Ended June 30, 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
-
%
239
-
%
-
Construction loans
-
%
-
-
%
-
Commercial mortgage loans
-
%
-
0.25
%
64
C&I loans
-
%
72
-
%
-
Consumer loans:
Auto loans
-
%
27
3.96
%
30
Personal loans
-
%
37
5.41
%
26
Credit cards
16.26
%
-
-
%
-
Other consumer loans
-
%
28
1.87
%
22
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
40
Six-Month Period Ended June 30, 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
-
%
236
3.50
%
36
Construction loans
-
%
-
-
%
-
Commercial mortgage loans
-
%
96
-
%
-
C&I loans
13.00
%
-
-
%
-
Consumer loans:
Auto loans
-
%
26
2.57
%
28
Personal loans
-
%
25
3.44
%
17
Credit cards
17.11
%
-
-
%
-
Other consumer loans
-
%
24
3.31
%
17
Six-Month Period Ended June 30, 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
-
%
118
2.40
%
157
Construction loans
-
%
-
-
%
-
Commercial mortgage loans
-
%
-
0.25
%
64
C&I loans
-
%
72
-
%
-
Consumer loans:
Auto loans
-
%
25
3.64
%
30
Personal loans
-
%
34
5.11
%
24
Credit cards
16.15
%
-
-
%
-
Other consumer loans
-
%
27
1.92
%
24
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
41
The following tables present by portfolio classes the performance of loans modified
during the last twelve months ended June 30,
2024 and during the six-month period ended June 30, 2023 that were granted
to borrowers experiencing financial difficulty:
Last Twelve Months Ended June 30, 2024
30-59
60-89
90+
Total
Delinquency
Current
Total
(In thousands)
Conventional residential mortgage loans
$
-
$
-
$
-
$
-
$
1,424
$
1,424
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
118,190
118,190
C&I loans
-
-
-
-
186
186
Consumer loans:
Auto loans
50
28
145
223
3,323
3,546
Personal loans
19
9
-
28
256
284
Credit cards
163
77
19
259
1,749
2,008
Other consumer loans
66
35
2
103
567
670
Total modifications
$
298
$
149
$
166
$
613
$
125,695
$
126,308
Six-Month Period Ended June 30, 2023
30-59
60-89
90+
Total
Delinquency
Current
Total
(In thousands)
Conventional residential mortgage loans
$
-
$
-
$
-
$
-
$
1,139
$
1,139
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
30,170
30,170
C&I loans
-
-
-
-
187
187
Consumer loans:
Auto loans
10
-
-
10
1,415
1,425
Personal loans
-
-
-
-
151
151
Credit cards
40
40
-
80
652
732
Other consumer loans
22
-
-
22
382
404
Total modifications
$
72
$
40
$
-
$
112
$
34,096
$
34,208
There were
$
0.2
million and
$
0.3
million of
loans modified
to borrowers
experiencing financial
difficulty which
had a
payment default
during
the quarter
and six-month
period ended
June 30,
2024, respectively,
and had
been modified
within the
last twelve
months preceding
the payment
default.
No
loans modified to borrowers experiencing financial difficulty
had a payment default during the quarter
and six-month period ended June
30, 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
42
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 June 30, 2024
(In thousands)
ACL:
Beginning balance
$
56,689
$
6,186
$
32,661
$
34,490
$
133,566
$
263,592
Provision for credit losses - (benefit) expense
(10,593)
(554)
(2,976)
(668)
26,721
11,930
Charge-offs
(491)
-
-
(332)
(25,591)
(26,414)
Recoveries
446
14
393
958
3,613
5,424
Ending balance
$
46,051
$
5,646
$
30,078
$
34,448
$
138,309
$
254,532
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
C&I
Loans
Consumer Loans
Total
Quarter Ended June 30, 2023
(In thousands)
ACL:
Beginning balance
$
64,403
$
3,231
$
36,460
$
31,235
$
130,238
$
265,567
Provision for credit losses - (benefit) expense
(3,500)
1,202
5,999
2,997
14,072
20,770
Charge-offs
(1,146)
(38)
(88)
(6,350)
(16,462)
(24,084)
Recoveries
757
409
56
132
3,451
4,805
Ending balance
$
60,514
$
4,804
$
42,427
$
28,014
$
131,299
$
267,058
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
C&I
Loans
Consumer Loans
Total
Six-Month Period Ended June 30, 2024
(In thousands)
ACL:
Beginning balance
$
57,397
$
5,605
$
32,631
$
33,190
$
133,020
$
261,843
Provision for credit losses - (benefit) expense
(11,057)
17
(2,986)
(4,028)
42,901
24,847
Charge-offs
(1,007)
-
-
(791)
(53,955)
(55,753)
Recoveries
718
24
433
6,077
16,343
(1)
23,595
Ending balance
$
46,051
$
5,646
$
30,078
$
34,448
$
138,309
$
254,532
(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
Six-Month Period Ended June 30, 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 - (benefit) expense
(3,427)
2,062
7,245
1,347
29,799
37,026
Charge-offs
(2,129)
(38)
(106)
(6,468)
(33,260)
(42,001)
Recoveries
1,254
472
224
222
7,281
9,453
Ending balance
$
60,514
$
4,804
$
42,427
$
28,014
$
131,299
$
267,058
(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)
43
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
June 30,
2024 and December
31, 2023, the
Corporation applied
the
baseline
scenario
for
the
commercial
mortgage
and
construction
loan
portfolios
since
it
expects
a
more
favorable
economic
outlook
of certain
macroeconomic
variables
associated
with
commercial
real
estate property
performance,
particularly
in
the Puerto
Rico region.
At least every other
year, the
Corporation reviews the
credit models used
in determining the
ACL. Such exercise
consists primarily
in
updating
the
model
with
recent
historical
losses
and
determining
if
other
changes
are
required
for
purposes
of
estimating
credit
losses.
During
the
second
quarter
of 2024,
the
Corporation
completed
the
aforementioned
review
for
the residential
mortgage,
auto
loan,
and finance
lease
portfolios,
primarily
for
the Puerto
Rico
region.
The residential
mortgage
loan
portfolio,
which
has
recently
experienced a
historically low level
of credit
losses, as a
result of
high collateral
values in the
Puerto Rico region,
resulted in a
lower
required reserve
level. For the
auto loan
and finance
lease portfolios historical
loss trends were
updated and
resulted in an
increase in
the required reserve levels as the loss experience in such portfolios have been
trending higher towards historical loss experience.
As of June 30, 2024, the ACL for loans and finance
leases was $
254.5
million, a decrease of $
7.3
million, from $
261.8
million as of
December
31,
2023.
The
ACL
for
residential
mortgage
loans
decreased
by
$
11.3
million,
mainly
driven
by
updated
historical
loss
experience
used for
determining the
ACL estimate
resulting
in a
downward
revision
of estimated
loss severities
and
lower
required
reserve
levels,
partially
offset
by
newly
originated
loans
that
have
a
longer
life.
The
ACL
for
commercial
and
construction
loans
decreased by $
1.3
million, mainly due to an improvement on the economic outlook of
certain macroeconomic variables, particularly in
variables associated with commercial real estate property performance,
partially offset by increased
volume.
Meanwhile,
the
ACL
for
consumer
loans
increased
by
$
5.3
million
mainly
driven
by
increases
in
delinquency
levels,
mainly
in
credit cards;
increases in
portfolio volumes
in the
auto loan
portfolio;
and, to
a lesser
extent, updated
historical loss
experience used
for determining the
ACL estimate resulting
in an upward revision
of estimated loss
severities and higher
required reserve levels
in the
auto loan and finance lease portfolios.
Net charge-offs were
$
21.0
million and $
32.2
million for the second quarter
and first six months of 2024,
respectively, compared
to
$
19.3
million and $
32.5
million, respectively,
for the same periods in 2023. The $
1.7
million increase in net charge-offs for
the second
quarter of
2024 was mainly
driven by
an increase in
consumer loans
and finance
leases charge-offs
across all major
portfolio classes,
partially offset by
a $
6.2
million charge-off
recorded on a C&I participated
loan in the Florida region
in the power generation industry
during the second
quarter of 2023.
The $
0.3
million decrease in
net charge-offs
for the first
six months of
2024 was mainly
driven by
the
$
9.5
million
recovery
associated
with
the
bulk
sale of
fully
charged-off
consumer
loans and
a
$
5.0
million
recovery
associated
with a
C&I loan
in the
Puerto Rico
region recorded
during the
first six
months of
2024, and
the aforementioned
$
6.2
million charge-
off recorded
on a
C&I participated
loan in
the Florida
region during
the second
quarter of
2023. This
increase was
partially offset
by
the aforementioned increase in consumer loans and finance leases charge-offs.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
44
The tables below
present the ACL
related to loans
and finance leases
and the carrying
values of loans
by portfolio segment
as of
June 30, 2024 and December 31, 2023:
As of June 30, 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
$
2,809,666
$
185,957
$
2,423,309
$
3,254,577
$
3,711,999
$
12,385,508
Allowance for credit losses
46,051
5,646
30,078
34,448
138,309
254,532
Allowance for credit losses to
amortized cost
1.64
%
3.04
%
1.24
%
1.06
%
3.73
%
2.06
%
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
June
30,
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 June 30,
2024, the ACL
for off-balance
sheet credit exposures
amounted to
$
4.5
million, compared to $
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
and six-month periods ended June 30, 2024 and 2023:
Quarter Ended
Six-Month Period Ended
June 30,
June 30,
2024
2023
2024
2023
(In thousands)
Beginning Balance
$
4,919
$
4,168
$
4,638
$
4,273
Provision for credit losses - (benefit) expense
(417)
721
(136)
616
Ending balance
$
4,502
$
4,889
$
4,502
$
4,889
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
45
NOTE 5
–
OTHER REAL ESTATE
OWNED (“OREO”)
The following table presents the OREO inventory as of the indicated dates:
June 30, 2024
December 31, 2023
(In thousands)
OREO balances, carrying value:
Residential
(1)
$
15,468
$
20,261
Construction
1,658
1,601
Commercial
(2)
4,556
10,807
Total
$
21,682
$
32,669
(1)
Excludes $
11.3
million and $
16.6
million as of June
30, 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.
(2)
Decrease was mainly associated with the sale of a $
5.3
million commercial real estate OREO property in Puerto Rico during the
second quarter of 2024 at a gain of $
2.3
million.
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 and six-month
periods ended June 30,
2024 and 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
46
NOTE 6 – GOODWILL AND OTHER INTANGIBLES
Goodwill
Goodwill
as of
each
of
June 30,
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 six months of 2024.
There
were
no
changes
in
the
carrying
amount
of
goodwill
during
the
quarters
and
six-month
periods
ended
June
30,
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
June 30, 2024
December 31, 2023
(Dollars in thousands)
Core deposit intangible:
Gross amount
$
87,544
$
87,544
Accumulated amortization
(77,844)
(74,161)
Net carrying amount
$
9,700
$
13,383
Remaining amortization period (in years)
5.5
6.0
During
the
quarter
and
six-month
period
ended
June
30,
2024,
the
Corporation
recognized
$
1.9
million
and
$
3.7
million,
respectively,
in amortization
expense
on its
other intangibles
subject to
amortization,
compared to
$
2.0
million
and $
4.0
million for
the same periods in 2023, respectively
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 June 30, 2024.
The estimated
aggregate annual
amortization expense
related to the
intangible assets
subject to amortization
for future periods
was
as follows as of June 30, 2024
:
(In thousands)
2024
$
2,733
2025
3,509
2026
872
2027
872
2028
872
2029 and after
842
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
47
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).
As
of
each
of
June
30,
2024
and
December 31, 2023, these Junior Subordinated Deferrable Debentures amounted
to $
161.7
million.
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 June
30,
2024,
the Corporation was current on all interest payments due on its subordinated debt.
On
July
22,
2024,
the
Corporation
announced
as
part
of
its
capital
actions
the
approval
of
a
new
repurchase
program
of
$
250
million
that could
include the
repurchase
of junior
subordinated
debentures.
See Note
13 –
“Stockholders’
Equity” to
the unaudited
consolidated financial statements herein for additional details of capital actions.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
48
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 June
30, 2024,
the amortized cost
and fair
value
of these private
label MBS amounted to
$
6.7
million and $
4.6
million, respectively,
with a weighted-average yield
of
7.65
%, 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 $
0.2
million as of June 30, 2024.
Servicing Assets, or Mortgage Servicing Rights (“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
June
30,
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 June 30,
Six-Month Period Ended June 30,
2024
2023
2024
2023
(In thousands)
Balance at beginning of period
$
26,355
$
28,431
$
26,941
$
29,037
Capitalization of servicing assets
647
706
1,107
1,238
Amortization
(1,038)
(1,102)
(2,075)
(2,230)
Temporary impairment
recoveries
-
1
-
5
Other
(1)
(12)
(2)
(21)
(16)
Balance at end of period
$
25,952
$
28,034
$
25,952
$
28,034
(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)
49
Changes in the impairment allowance were as follows for the indicated periods:
Quarter Ended June 30,
Six-Month Period Ended June 30,
2024
2023
2024
2023
(In thousands)
Balance at beginning of period
$
-
$
8
$
-
$
12
Temporary impairment
recoveries
-
(1)
-
(5)
Balance at end of period
$
-
$
7
$
-
$
7
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 June 30,
Six-Month Period Ended June 30,
2024
2023
2024
2023
(In thousands)
Servicing fees
$
2,605
$
2,660
$
5,178
$
5,378
Late charges and prepayment penalties
181
211
370
410
Other
(1
)
(12)
(2)
(21)
(16)
Servicing income, gross
2,774
2,869
5,527
5,772
Amortization and impairment of servicing assets
(1,038)
(1,101)
(2,075)
(2,225)
Servicing income, net
$
1,736
$
1,768
$
3,452
$
3,547
(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
Six-Month Period Ended June 30, 2024
Constant prepayment rate:
Government-guaranteed mortgage loans
6.8
%
17.1
%
3.2
%
Conventional conforming mortgage loans
6.8
%
15.9
%
2.9
%
Conventional non-conforming mortgage loans
6.2
%
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
%
Six-Month Period Ended June 30, 2023
Constant prepayment rate:
Government-guaranteed mortgage loans
6.7
%
11.6
%
4.8
%
Conventional conforming mortgage loans
7.4
%
16.0
%
3.8
%
Conventional non-conforming mortgage loans
5.9
%
9.0
%
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
12.9
%
14.0
%
11.5
%
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
50
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:
June 30, 2024
December 31, 2023
(In thousands)
Carrying amount of servicing assets
$
25,952
$
26,941
Fair value
$
44,590
$
45,244
Weighted-average
expected life (in years)
7.69
7.79
Constant prepayment rate (weighted-average annual
rate)
6.30
%
6.27
%
Decrease in fair value due to 10% adverse change
$
881
$
886
Decrease in fair value due to 20% adverse change
$
1,720
$
1,731
Discount rate (weighted-average annual rate)
10.70
%
10.68
%
Decrease in fair value due to 10% adverse change
$
1,890
$
1,927
Decrease in fair value due to 20% adverse change
$
3,641
$
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)
51
NOTE 8 – DEPOSITS
The following table summarizes deposit balances as of the indicated dates:
June 30, 2024
December 31, 2023
(In thousands)
Type of account:
Non-interest-bearing deposit accounts
$
5,406,054
$
5,404,121
Interest-bearing checking accounts
3,831,677
3,937,945
Interest-bearing saving accounts
3,629,326
3,596,855
Time deposits
3,037,120
2,833,730
Brokered certificates of deposits ("CDs")
624,779
783,334
Total
$
16,528,956
$
16,555,985
The following table presents the remaining contractual maturities of time deposits,
including brokered CDs, as of June 30, 2024:
Total
(In thousands)
Three months or less
$
966,977
Over three months to six months
829,519
Over six months to one year
1,102,165
Over one year to two years
474,119
Over two years to three years
70,269
Over three years to four years
126,118
Over four years to five years
70,897
Over five years
21,835
Total
$
3,661,899
Total
Puerto Rico and
U.S. time deposits
with balances of
more than $250,000
amounted to $
1.6
billion and $
1.4
billion as of
June
30,
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
June 30,
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)
52
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:
June 30, 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 June 30, 2024 and December 31, 2023, respectively.
Advances from the FHLB mature as follows as of the indicated date:
June 30, 2024
(In thousands)
Over six months to one year
$
180,000
Over one to five years
320,000
Total
(1)
$
500,000
(1) Average remaining term to maturity of
1.99
years.
NOTE 10 – OTHER LONG-TERM BORROWINGS
Junior Subordinated Debentures
Junior subordinated debentures, as of the indicated dates, consisted of:
(In thousands)
June 30, 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 June 30, 2024 and December 31, 2023 (
8.35
% as of June 30,2024 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 June 30, 2024 and December 31, 2023 (
8.11
% as of June 30, 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.
See
Note
13
–
“Stockholders’
Equity”
to
the
unaudited
consolidated
financial
statements
herein
for
additional
details
of
capital
actions
that
include
the
approval
of
a
new
repurchase
program
of
$
250
million
that
could
include
repurchase
of
common
stock
or
junior subordinated debentures.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
53
NOTE 11 – EARNINGS PER COMMON
.
SHARE
The
calculations
of
earnings
per
common
share
for
the
quarters
and
six-month
periods
ended
June
30,
2024
and
2023
are
as
follows:
Quarter Ended
Six-Month Period Ended
June 30,
June 30,
2024
2023
2024
2023
(In thousands, except per share information)
Net income attributable to common stockholders
$
75,838
$
70,655
$
149,296
$
141,353
Weighted-Average
Shares:
Average common
shares outstanding
164,945
178,926
166,043
179,567
Average potential
dilutive common shares
598
351
627
686
Average common
shares outstanding - assuming dilution
165,543
179,277
166,670
180,253
Earnings per common share:
Basic
$
0.46
$
0.39
$
0.90
$
0.79
Diluted
$
0.46
$
0.39
$
0.90
$
0.78
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 and six-month periods ended
June 30, 2024 and 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
54
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
June 30,
2024,
there
were
2,593,029
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
398,569
shares during
the six-month
period ended
June 30,
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 six-month
periods ended June 30,
2024 and 2023:
Six-Month Period Ended June 30,
2024
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)
398,569
17.35
495,891
11.99
Forfeited
(3,464)
13.30
(57,491)
11.29
Vested
(253,504)
12.26
(481,536)
5.93
Unvested shares outstanding at end of period
1,031,243
$
14.26
895,355
$
12.31
(1)
For the six-month period ended June 30, 2024,
includes
2,280
shares of restricted stock awarded to independent
directors and
396,289
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.
For the six-month period ended June 30, 2023,
includes
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 quarter
and six-month period
ended June 30,
2024, the Corporation
recognized $
1.3
million and $
3.7
million, respectively,
of stock-based compensation expense related to restricted
stock awards, compared to $
1.4
million and $
3.0
million for the same period
in 2023.
As of June
30, 2024, there
was $
7.0
million of
total unrecognized
compensation cost
related to
unvested shares
of restricted
stock that the Corporation expects to recognize over a weighted-average period
of
1.8
years.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
55
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 six-month periods ended June 30, 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 six-month
periods ended
June
30, 2024 and 2023:
Six-Month Period Ended June 30,
2024
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 six-month periods ended June 30, 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 six-month periods ended June 30, 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 six-month periods ended June 30, 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 June 30, 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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
56
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 six-month
periods ended June 30, 2024 and 2023:
Six-Month Period Ended June 30,
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.
For the quarter
and six-month period
ended June 30,
2024, the Corporation
recognized $
0.6
million and $
1.1
million, respectively,
of stock-based
compensation expense related
to performance units,
compared to $
0.5
million and $
1.0
million for the
same periods in
2023. As of
June 30, 2024,
there was $
4.9
million of total
unrecognized compensation
cost related to unvested
performance units that
the Corporation expects to recognize over a weighted-average period of
2.1
years.
Shares withheld
During
the first
six
months
of 2024,
the Corporation
withheld
136,308
shares (first
six
months
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)
57
NOTE 13 –
STOCKHOLDERS’
EQUITY
Stock Repurchase Programs
On
July
24,
2023,
the
Corporation
announced
that
its Board
approved
a stock
repurchase
program,
under
which
the Corporation
may repurchase up
to $
225
million of its outstanding
common stock, which commenced
in the fourth quarter
of 2023. During the
first
half of 2024,
the Corporation repurchased
5,846,872
shares of common
stock through open
market transactions at
an average price
of
$
17.10
for a
total cost
of approximately
$
100.0
million under
this stock
repurchase program,
of which
2,840,321
shares of
common
stock
at
an
average
price
of
$
17.60
for
a
total
cost
of
approximately
$
50.0
million
were
repurchased
during
the
second
quarter
of
2024. As
of June 30,
2024, the
Corporation has
remaining authorization
to repurchase
approximately $
50.0
million of common
stock
under this program.
Furthermore, on July
22, 2024, the
Corporation announced that
its Board of
Directors approved a new
repurchase
program,
under which
the Corporation
may
repurchase
up to
an
additional
$
250
million
that
could
include
repurchases
of
common
stock or junior subordinated debentures,
which it expects to execute through the end of the fourth quarter of 2025.
Repurchases
under
these
programs
may
be
executed
through
open
market
purchases,
accelerated
share
repurchases,
privately
negotiated
transactions
or plans,
including
plans complying
with Rule
10b5-1
under
the Exchange
Act, and/or
redemption of
junior
subordinated
debentures, and
will be
conducted
in accordance
with applicable
legal and
regulatory requirements
.
The Corporation’s
repurchase program
s
are 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
repurchase programs
do not obligate
it to acquire any
specific number of shares
and do not have
an expiration date. The
repurchase programs
may be modified, suspended,
or
terminated
at
any
time
at
the
Corporation’s
discretion.
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 change
in shares
of common
stock outstanding
for the
quarters and
six-month periods
ended June
30, 2024 and 2023:
Total
Number of Shares
Quarter Ended
Six-Month Period Ended
June 30,
June 30,
2024
2023
2024
2023
Common stock outstanding, beginning balance
166,707,047
179,788,698
169,302,812
182,709,059
Common stock repurchased
(1)
(2,840,591)
-
(5,983,180)
(3,865,375)
Common stock reissued under stock-based compensation plan
556
-
549,285
970,429
Restricted stock forfeited
(1,559)
(32,076)
(3,464)
(57,491)
Common stock outstanding, ending balance
163,865,453
179,756,622
163,865,453
179,756,622
(1)
For the quarter and six-month period ended June
30, 2024 includes
270
and
136,308
shares, respectively of common stock surrendered to cover plan participants'
payroll and income taxes.
For the six-month period ended June 30, 2023 includes
287,835
shares of common stock surrendered to cover plan participants' payroll
and income taxes.
For the
quarter and
six-month period
ended June
30, 2024,
total cash
dividends declared
on shares
of common
stock amounted
to
$
26.6
million
($
0.16
per
share)
and
$
53.4
million
($
0.32
per
share),
respectively,
compared
to
$
25.3
million
($
0.14
per
share)
and
$
50.7
million ($
0.28
per share),
respectively,
for the
same periods
of 2023.
On
July 22, 2024
, the
Corporation’s
Board of
Directors
declared
a
quarterly
cash
dividend
of
$
0.16
per
common
share.
The
dividend
is payable
on
September 13, 2024
to
shareholders
of
record at the
close of business on
August 29, 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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
58
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 June 30, 2024 and December 31, 2023.
Treasury Stock
The following table shows the change in shares of treasury stock for the quarters and six-month
periods ended June 30, 2024 and
2023:
Total
Number of Shares
Quarter Ended
Six-Month Period Ended
June 30,
June 30,
2024
2023
2024
2023
Treasury stock, beginning balance
56,956,069
43,874,418
54,360,304
40,954,057
Common stock repurchased
2,840,591
-
5,983,180
3,865,375
Common stock reissued under stock-based compensation plan
(556)
-
(549,285)
(970,429)
Restricted stock forfeited
1,559
32,076
3,464
57,491
Treasury stock, ending balance
59,797,663
43,906,494
59,797,663
43,906,494
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 June
30, 2024 and December 31, 2023. There were
no
transfers to the legal surplus reserve during the first half of 2024.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
59
NOTE 14 – ACCUMULATED
OTHER COMPREHENSIVE LOSS
The
following
table
presents the
changes
in
accumulated
other
comprehensive
loss for
the quarters
and
six-month
periods
ended
June 30, 2024 and 2023:
Changes in Accumulated Other Comprehensive
Loss by Component
(1)
Quarter ended June 30,
Six-Month Period Ended June 30,
2024
2023
2024
2023
(In thousands)
Unrealized net holding losses on available-for-sale
debt securities:
Beginning balance
$
(655,617)
$
(718,744)
$
(640,552)
$
(805,972)
Other comprehensive income (loss)
(2)
10,560
(54,837)
(4,505)
32,391
Ending balance
$
(645,057)
$
(773,581)
$
(645,057)
$
(773,581)
Adjustment of pension and postretirement
benefit plans:
Beginning balance
$
1,382
$
1,194
$
1,382
$
1,194
Other comprehensive income (loss)
-
-
-
-
Ending balance
$
1,382
$
1,194
$
1,382
$
1,194
(1)
All amounts presented are net of tax.
(2)
Net unrealized holding gains (losses) 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 following table presents the components of net periodic (benefit) cost for
the indicated periods:
Affected Line Item
in the Consolidated
Quarter Ended June 30,
Six-Month Period Ended June 30,
Statements of Income
2024
2023
2024
2023
(In thousands)
Net periodic (benefit) cost, pension plans:
Interest cost
Other expenses
$
901
$
950
$
1,802
$
1,900
Expected return on plan assets
Other expenses
(1,018)
(885)
(2,036)
(1,771)
Net periodic (benefit) cost, pension plans
(117)
65
(234)
129
Net periodic cost, postretirement plan
Other expenses
16
6
32
12
Net periodic (benefit) cost
$
(101)
$
71
$
(202)
$
141
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
60
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. Furthermore,
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.
For the second quarter
of 2024, the Corporation
recorded an income tax
expense of $
25.5
million, compared to $
30.3
million in the
second quarter of
2023. For the first
six months of
2024, the Corporation
recorded an income
tax expense of
$
49.5
million, compared
to $
62.2
million for the
same period in
2023. The decrease
in income
tax expense for
the second quarter
and first six
months of
2024
was mainly
driven by
a lower
effective tax
rate as
a result of
the Corporation
engaging in
certain business
activities with
preferential
tax treatment under
the PR Tax
Code during the
fourth quarter of
2023 which resulted
in a lower effective
tax rate for
the second half
of 2023
and for
the year
2024. 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
24.1
% for the first six months of 2024, compared to
30.1
% for the same period in 2023.
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
quarter and
six-month period
ended June
30, 2024,
FirstBank incurred
current income
tax expense
of approximately
$
2.9
million and
$
5.1
million, respectively,
related to
its U.S.
operations, compared
to
$
1.5
million and $
4.0
million, respectively,
for the comparable periods in 2023.
As of June
30, 2024, the
Corporation had
a net deferred
tax asset of
$
142.7
million, net of
a valuation allowance
of $
141.1
million
against the deferred tax asset, compared to a net 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 $
142.7
million as
of
June
30,
2024,
net
of
a
valuation
allowance
of
$
113.2
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 decrease
in the
net deferred
tax asset was
mainly related
to the
usage of alternative minimum tax
credits and the decrease in
the ACL. Meanwhile, the increase
in the valuation allowance was
related
primarily to changes
in the market
value of available-for-sale
debt securities which
resulted in an
equal change in
the net deferred
tax
asset
without
impacting
earnings.
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.
See Note 22
– “Income Taxes,”
to the audited
consolidated financial statements
included in the
2023 Annual Report
on Form 10-K
for information
on the
tax treatment
of net
operating loss
(“NOL”) carryforwards
and dividend
received deduction
under the
PR Tax
Code and the limitation under Section 382 of the U.S. Internal Revenue
Code.
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
June
30,
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)
61
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 and six-month periods ended June 30, 2024 and 2023.
Assets and liabilities measured at fair value on a recurring basis are summarized below as of
June 30,2024 and December 31, 2023:
As of June 30, 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
$
117,073
$
-
$
-
$
117,073
$
135,393
$
-
$
-
$
135,393
Noncallable U.S. agencies debt securities
-
495,689
-
495,689
-
433,437
-
433,437
Callable U.S. agencies debt securities
-
1,739,738
-
1,739,738
-
1,874,960
-
1,874,960
MBS
-
2,597,712
4,567
(1)
2,602,279
-
2,779,994
4,785
(1)
2,784,779
Puerto Rico government obligation
-
-
1,532
1,532
-
-
1,415
1,415
Other investments
-
-
1,000
1,000
-
-
-
-
Equity securities
4,867
-
-
4,867
4,893
-
-
4,893
Derivative assets
-
316
-
316
-
341
-
341
Liabilities:
Derivative liabilities
-
152
-
152
-
317
-
317
(1) Related to private label MBS.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
62
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
and six-month periods ended June 30, 2024 and 2023:
Quarter Ended June 30,
Six-Month Period Ended June 30,
2024
2023
2024
2023
Level 3 Instruments Only
Securities Available
for Sale
(1)
Securities Available
for Sale
(1)
Securities Available
for Sale
(1)
Securities Available
for Sale
(1)
(In thousands)
Beginning balance
$
6,275
$
7,605
$
6,200
$
8,495
Total gains (losses):
Included in other comprehensive income (loss) (unrealized)
175
(19)
414
(181)
Included in earnings (unrealized)
(2)
(60)
16
9
25
Purchases
1,000
-
1,000
-
Principal repayments and amortization
(3)
(291)
(245)
(524)
(982)
Ending balance
$
7,099
$
7,357
$
7,099
$
7,357
___________________
(1)
Amounts mostly related to private label MBS.
(2)
Changes in unrealized (losses) 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 six-month period ended June 30, 2023 includes a
$
0.5
million repayment of 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 June 30,2024 and December
31, 2023:
June 30, 2024
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
Maximum
(Dollars in thousands)
Available-for-sale
debt securities:
Private label MBS
$
4,567
Discounted cash flows
Discount rate
16.8%
16.8%
16.8%
Prepayment rate
0.0%
5.6%
3.4%
Projected cumulative loss rate
0.2%
9.4%
4.1%
Puerto Rico government obligation
$
1,532
Discounted cash flows
Discount rate
12.9%
12.9%
12.9%
Projected cumulative loss rate
25.9%
25.9%
25.9%
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)
63
Additionally, fair value
is used on a non-recurring basis to evaluate certain assets in accordance with GAAP.
For
the
quarter
and
six-month
period
ended
June
30,
2024,
the
Corporation
recorded
losses
or
valuation
adjustments
for
assets
recognized at fair value on a non-recurring basis and still held at June 30, 2024, as shown
in the following table:
Carrying value as of June 30, 2024
Related to losses
recorded for the Quarter
Ended June 30, 2024
Related to losses
recorded for the Six-
Month Period Ended
June 30, 2024
Losses recorded for the
Quarter Ended June 30,
2024
Losses recorded for the
Six-Month Period Ended
June 30, 2024
(In thousands)
Level 3:
Loans receivable
(1)
$
25,930
$
26,117
$
(107)
$
(144)
OREO
(2)
1,044
1,292
(55)
(171)
(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.
The haircuts applied
on appraisals were
of
4
% for the quarter
and six-month period
ended June 30,
2024.
(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
18
% for the quarter and six-month period ended June 30,
2024.
For
the
quarter
and
six-month
period
ended
June
30,
2023,
the
Corporation
recorded
losses
or
valuation
adjustments
for
assets
recognized at fair value on a non-recurring basis and still held at June 30, 2023, as shown
in the following table:
Carrying value as of June 30, 2023
Related to (losses) gains
recorded for the Quarter
Ended June 30, 2023
Related to (losses) gains
recorded for the Six-
Month Period Ended
June 30, 2023
(Losses) gains recorded
for the Quarter Ended
June 30, 2023
(Losses) gains recorded
for the Six-Month Period
Ended June 30, 2023
(In thousands)
Level 3:
Loans receivable
(1)
$
8,011
$
8,920
$
(6,515)
$
(6,744)
OREO
(2)
1,471
2,038
45
12
Level 2:
Loans held for sale
(3)
$
14,295
$
14,295
$
(73)
$
(73)
(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.
The haircuts
applied on
appraisals ranged
from
1
% to
22
% for
the quarter
and six-month
period
ended June 30, 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
7
% to
34
% for the quarter ended June 30, 2023, and
6
% to
34
% for the
six-month period ended June 30, 2023.
(3)
The Corporation derived the fair value of these loans based
on published secondary market prices of MBS with similar characteristics.
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
a
nonrecurring basis.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
64
The
following
tables
present
the
carrying
value,
estimated
fair
value
and
estimated
fair
value
level
of
the
hierarchy
of
financial
instruments as of June 30,2024 and December 31, 2023:
Total Carrying Amount
in Statement of
Financial Condition as
of June 30, 2024
Fair Value Estimate as
of
June 30, 2024
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money market investments (amortized
cost)
$
586,282
$
586,282
$
586,282
$
-
$
-
Available-for-sale debt
securities (fair value)
4,957,311
4,957,311
117,073
4,833,139
7,099
Held-to-maturity debt securities:
Held-to-maturity debt securities (amortized cost)
344,435
Less: ACL on held-to-maturity debt securities
(1,267)
Held-to-maturity debt securities, net of ACL
$
343,168
333,690
-
222,364
111,326
Equity securities (amortized cost)
46,170
46,170
-
46,170
(1)
-
Other equity securities (fair value)
4,867
4,867
4,867
-
-
Loans held for sale (lower of cost or market)
10,392
10,450
-
10,450
-
Loans held for investment:
Loans held for investment (amortized cost)
12,385,508
Less: ACL for loans and finance leases
(254,532)
Loans held for investment, net of ACL
$
12,130,976
12,058,472
-
-
12,058,472
MSRs (amortized cost)
25,952
44,590
-
-
44,590
Derivative assets (fair value)
(2)
316
316
-
316
-
Liabilities:
Deposits (amortized cost)
$
16,528,956
$
16,521,923
$
-
$
16,521,923
$
-
Advances from the FHLB (amortized cost):
Long-term
500,000
495,838
-
495,838
-
Other long-term borrowings (amortized cost)
161,700
159,696
-
-
159,696
Derivative liabilities (fair value)
(2)
152
152
-
152
-
(1) Includes FHLB stock with a carrying value of $
34.0
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)
65
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)
66
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 and
six-
month periods ended June 30, 2024 and 2023:
Quarter ended June 30, 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)
$
14,332
$
151,269
$
14,927
$
(4,851)
$
18,884
$
5,067
$
199,628
Service charges and fees on deposit accounts
-
5,254
3,536
-
155
780
9,725
Insurance commission income
-
2,563
-
-
30
193
2,786
Card and processing income
-
10,472
18
-
31
1,002
11,523
Other service charges and fees
41
973
1,018
-
613
153
2,798
Not in scope of ASC Topic
606
(1)
3,620
1,201
244
98
5
38
5,206
Total non-interest income
3,661
20,463
4,816
98
834
2,166
32,038
Total Revenue (Loss)
$
17,993
$
171,732
$
19,743
$
(4,753)
$
19,718
$
7,233
$
231,666
Quarter ended June 30, 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)
$
21,360
$
142,597
$
12,933
$
(2,789)
$
19,690
$
6,024
$
199,815
Service charges and fees on deposit accounts
-
5,087
3,326
-
172
702
9,287
Insurance commission income
-
2,464
-
-
79
204
2,747
Card and processing income
-
10,152
28
-
49
906
11,135
Other service charges and fees
33
1,508
1,094
-
660
207
3,502
Not in scope of ASC Topic
606
(1)
3,029
1,010
3,697
1,680
195
(11)
9,600
Total non-interest
income
3,062
20,221
8,145
1,680
1,155
2,008
36,271
Total Revenue (Loss)
$
24,422
$
162,818
$
21,078
$
(1,109)
$
20,845
$
8,032
$
236,086
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
67
Six-Month Period Ended June 30, 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)
$
30,155
$
300,216
$
29,855
$
(11,383)
$
37,132
$
10,173
$
396,148
Service charges and fees on deposit accounts
-
10,535
7,028
-
303
1,521
19,387
Insurance commission income
-
7,797
-
-
86
410
8,293
Card and processing income
-
20,710
42
-
109
1,974
22,835
Other service charges and fees
99
2,016
1,894
-
1,234
294
5,537
Not in scope of ASC Topic
606
(1)
6,581
2,811
353
181
3
40
9,969
Total non-interest income
6,680
43,869
9,317
181
1,735
4,239
66,021
Total Revenue (Loss)
$
36,835
$
344,085
$
39,172
$
(11,202)
$
38,867
$
14,412
$
462,169
Six-Month Period Ended June 30, 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)
$
43,148
$
280,341
$
27,873
$
(3,447)
$
40,620
$
12,165
$
400,700
Service charges and fees on deposit accounts
-
10,573
6,480
-
337
1,438
18,828
Insurance commission income
-
7,104
-
-
107
383
7,594
Card and processing income
-
20,053
50
-
80
1,870
22,053
Other service charges and fees
194
2,660
1,948
-
1,243
551
6,596
Not in scope of ASC Topic
606
(1)
5,942
1,865
3,842
1,840
235
(6)
13,718
Total non-interest income
6,136
42,255
12,320
1,840
2,002
4,236
68,789
Total Revenue (Loss)
$
49,284
$
322,596
$
40,193
$
(1,607)
$
42,622
$
16,401
$
469,489
(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.
For the quarters
and six-month periods
ended June 30,
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
June 30,
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)
68
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
June
30,
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)
69
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 June 30, 2024:
Interest income
$
31,446
$
95,139
$
72,914
$
28,912
$
36,413
$
7,421
$
272,245
Net (charge) credit for transfer of funds
(17,114)
99,472
(57,987)
(21,820)
(2,551)
-
-
Interest expense
-
(43,342)
-
(11,943)
(14,978)
(2,354)
(72,617)
Net interest income (loss)
14,332
151,269
14,927
(4,851)
18,884
5,067
199,628
Provision for credit losses - (benefit) expense
(9,794)
26,076
(1,647)
60
(3,524)
434
11,605
Non-interest income
3,661
20,463
4,816
98
834
2,166
32,038
Direct non-interest expenses
6,300
44,688
8,355
984
9,092
7,022
76,441
Segment income (loss)
$
21,487
$
100,968
$
13,035
$
(5,797)
$
14,150
$
(223)
$
143,620
Average earning assets
$
2,116,306
$
3,487,340
$
4,045,222
$
5,842,575
$
2,119,230
$
419,052
$
18,029,725
Mortgage
Banking
Consumer
(Retail) Banking
Commercial and
Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Quarter ended June 30, 2023:
Interest income
$
31,605
$
86,989
$
65,356
$
29,528
$
32,098
$
6,628
$
252,204
Net (charge) credit for transfer of funds
(10,245)
86,144
(52,423)
(22,739)
(737)
-
-
Interest expense
-
(30,536)
-
(9,578)
(11,671)
(604)
(52,389)
Net interest income (loss)
21,360
142,597
12,933
(2,789)
19,690
6,024
199,815
Provision for credit losses - (benefit) expense
(3,829)
13,669
7,675
(16)
4,017
714
22,230
Non-interest income
3,062
20,221
8,145
1,680
1,155
2,008
36,271
Direct non-interest expenses
5,533
41,814
9,340
923
8,502
6,731
72,843
Segment income (loss)
$
22,718
$
107,335
$
4,063
$
(2,016)
$
8,326
$
587
$
141,013
Average earning assets
$
2,144,340
$
3,241,768
$
3,770,463
$
6,364,024
$
2,038,621
$
371,685
$
17,930,901
Mortgage
Banking
Consumer (Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Six-Month Period Ended June 30, 2024
Interest income
$
62,889
$
189,934
$
145,026
$
56,970
$
71,178
$
14,753
$
540,750
Net (charge) credit for transfer of funds
(32,734)
195,723
(115,171)
(43,292)
(4,526)
-
-
Interest expense
-
(85,441)
-
(25,061)
(29,520)
(4,580)
(144,602)
Net interest income (loss)
30,155
300,216
29,855
(11,383)
37,132
10,173
396,148
Provision for credit losses - (benefit) expense
(10,054)
41,494
(4,086)
(9)
(3,442)
(131)
23,772
Non-interest income
6,680
43,869
9,317
181
1,735
4,239
66,021
Direct non-interest expenses
13,005
87,333
18,694
2,055
18,202
13,613
152,902
Segment income (loss)
$
33,884
$
215,258
$
24,564
$
(13,248)
$
24,107
$
930
$
285,495
Average earnings assets
$
2,121,386
$
3,480,169
$
4,033,698
$
5,871,444
$
2,103,523
$
416,135
$
18,026,355
Mortgage
Banking
Consumer (Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Six-Month Period Ended June 30, 2023
Interest income
$
63,512
$
170,163
$
127,699
$
56,994
$
63,212
$
13,020
$
494,600
Net (charge) credit for transfer of funds
(20,364)
163,879
(99,826)
(42,278)
(1,411)
-
-
Interest expense
-
(53,701)
-
(18,163)
(21,181)
(855)
(93,900)
Net interest income (loss)
43,148
280,341
27,873
(3,447)
40,620
12,165
400,700
Provision for credit losses - (benefit) expense
(4,335)
28,893
5,139
(25)
8,672
(612)
37,732
Non-interest income
6,136
42,255
12,320
1,840
2,002
4,236
68,789
Direct non-interest expenses
10,620
83,441
18,705
1,870
16,806
13,556
144,998
Segment income (loss)
$
42,999
$
210,262
$
16,349
$
(3,452)
$
17,144
$
3,457
$
286,759
Average earnings assets
$
2,157,626
$
3,208,146
$
3,742,205
$
6,290,669
$
2,053,154
$
369,026
$
17,820,826
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
70
The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods:
Quarter Ended June 30,
Six-Month Period Ended June 30,
2024
2023
2024
2023
(In thousands)
Net income:
Total income for segments
$
143,620
$
141,013
$
285,495
$
286,759
Other operating expenses
(1)
42,241
40,074
86,703
83,187
Income before income taxes
101,379
100,939
198,792
203,572
Income tax expense
25,541
30,284
49,496
62,219
Total consolidated net income
$
75,838
$
70,655
$
149,296
$
141,353
Average assets:
Total average earning assets for segments
$
18,029,725
$
17,930,901
$
18,026,355
$
17,820,826
Average non-earning assets
854,706
857,677
845,010
852,680
Total consolidated average assets
$
18,884,431
$
18,788,578
$
18,871,365
$
18,673,506
(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.
NOTE 20 – SUPPLEMENTAL
STATEMENT
OF CASH FLOWS INFORMATION
Supplemental statement of cash flows information is as follows for the
indicated periods:
Six-Month Period Ended June 30,
2024
2023
(In thousands)
Cash paid for:
Interest
$
134,995
$
84,530
Income tax
49,236
82,215
Operating cash flow from operating leases
8,693
8,630
Non-cash investing and financing activities:
Additions to OREO
4,599
10,738
Additions to auto and other repossessed assets
29,590
29,720
Capitalization of servicing assets
1,107
1,238
Loan securitizations
58,911
65,092
Loans held for investment transferred to held for sale
118
2,962
Loans held for sale transferred to held for investment
-
1,714
Payable related to unsettled purchases of investment securities
-
4,502
Right-of-use assets obtained in exchange for operating lease liabilities,
net of lease terminations
5,112
2,263
Payable related to unsettled common stock repurchases
760
-
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
71
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
June
30,
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
June
30,
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
June
30,
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)
72
The regulatory
capital position
of the
Corporation
and FirstBank
as of
June 30,
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 June 30, 2024
Total Capital (to Risk-Weighted
Assets)
First BanCorp.
$
2,394,971
18.21
%
$
1,052,081
8.0
%
N/A
N/A
FirstBank
$
2,364,456
17.98
%
$
1,051,871
8.0
%
$
1,314,838
10.0
%
CET1 Capital (to Risk-Weighted Assets)
First BanCorp.
$
2,073,346
15.77
%
$
591,795
4.5
%
N/A
N/A
FirstBank
$
2,099,713
15.97
%
$
591,677
4.5
%
$
854,645
6.5
%
Tier I Capital (to Risk-Weighted
Assets)
First BanCorp.
$
2,073,346
15.77
%
$
789,061
6.0
%
N/A
N/A
FirstBank
$
2,199,713
16.73
%
$
788,903
6.0
%
$
1,051,871
8.0
%
Leverage ratio
First BanCorp.
$
2,073,346
10.63
%
$
779,944
4.0
%
N/A
N/A
FirstBank
$
2,199,713
11.29
%
$
779,653
4.0
%
$
974,566
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
%
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 June
30, 2024,
commitments to
extend credit
amounted to
approximately $
2.1
billion, of
which $
0.9
billion relates
to retail
credit
card
loans.
In
addition,
commercial
and
financial
standby
letters
of
credit
as
of
June
30,
2024
amounted
to
approximately
$
80.5
million.
Contingencies
As
of
June
30,
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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
73
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 June 30, 2024, no such disclosures were necessary.
In 2023,
the FDIC
issued a
final rule
to impose
a special
assessment to
recover
certain estimated
losses to
the Deposit
Insurance
Fund (“DIF”)
arising from
the closures
of Silicon
Valley
Bank and
Signature Bank.
The estimated
losses will
be recovered
through
quarterly
special assessments
collected from
certain insured
depository
institutions, including
the Bank,
and collection
began
during
the
quarter
ended
June
30,
2024.
In
connection
with
updates
made
by
the
FDIC
to
the
initial
estimated
losses
to
the
DIF,
the
Corporation
recorded
charges
of
$
0.2
million
and
$
1.1
million
during
the
quarter
and
six-month
period
ended
June
30,
2024,
respectively,
in the
consolidated statements
of income
as part
of “FDIC
deposit
insurance”
expenses,
which increased
the estimated
FDIC special
assessment
to
$
7.4
million.
The Corporation
continues
to monitor
the
FDIC’s
estimated
loss to
the
DIF,
which
could
affect the amount of its accrued liability.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
74
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
June 30,
2024 and
December 31,
2023, and
the results
of its
operations
for the
quarters and
six-month periods
ended June
30,
2024 and 2023:
Statements of Financial Condition
As of June 30,
As of December 31,
2024
2023
(In thousands)
Assets
Cash and due from banks
$
10,516
$
11,452
Other investment securities
1,275
825
Investment in First Bank Puerto Rico, at equity
1,617,826
1,627,172
Investment in First Bank Insurance Agency,
at equity
22,378
18,376
Investment in FBP Statutory Trust I
1,289
1,289
Investment in FBP Statutory Trust II
3,561
3,561
Dividends receivable
1,405
713
Other assets
590
476
Total assets
$
1,658,840
$
1,663,864
Liabilities and Stockholders’ Equity
Liabilities:
Long-term borrowings
$
161,700
$
161,700
Accounts payable and other liabilities
5,680
4,555
Total liabilities
167,380
166,255
Stockholders’ equity
1,491,460
1,497,609
Total liabilities and stockholders’
equity
$
1,658,840
$
1,663,864
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
75
Statements of Income
Quarter Ended
Six-Month Period Ended
June 30,
June 30,
2024
2023
2024
2023
(In thousands)
Income
Interest income on money market investments
$
87
$
57
$
150
$
110
Dividend income from banking subsidiaries
81,232
78,932
162,149
157,802
Dividend income from nonbanking subsidiaries
-
12,000
-
12,000
Gain on early extinguishment of debt
-
1,605
-
1,605
Other income
100
101
201
203
Total income
81,419
92,695
162,500
171,720
Expense
Interest expense on long-term borrowings
3,336
3,409
6,686
6,790
Other non-interest expenses
463
462
902
872
Total expense
3,799
3,871
7,588
7,662
Income before income taxes and equity in undistributed
earnings of subsidiaries
77,620
88,824
154,912
164,058
Income tax expense
-
-
1
1
Equity in undistributed earnings of subsidiaries
(distributions in excess of earnings)
(1,782)
(18,169)
(5,615)
(22,704)
Net income
$
75,838
$
70,655
$
149,296
$
141,353
Other comprehensive income (loss), net of tax
10,560
(54,837)
(4,505)
32,391
Comprehensive income
$
86,398
$
15,818
$
144,791
$
173,744
76
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 Update
The U.S. economy
grew faster than
expected for
the second quarter
of 2024
with a growth
in Gross Domestic
Product (“GDP”)
of
2.8% driven
by solid
gains in
consumer spending
and business
investment. Inflation
continues to
show progress
towards the
Federal
Reserve
(the
“FED”) inflation
target
of 2%.
The Commerce
Department’s
Bureau
of Economic
Analysis
reported
on July
26,
2024
that the
Personal Consumption
Expenditure (“PCE”)
price index
for the
month of
June 2024,
edged up
just 0.1%
from the
previous
month,
putting
the
year-over-year
increase
at
2.5%,
after
a
rise
of
2.6%
in
May.
The
FED
voted
to
leave
the
federal
funds
rate
unchanged
in its
July 2024
meeting, but
market expectations
are for
the FED
to start
cutting rates
in the
second half
of 2024
as the
inflation rate seems to be moving steadily towards the FED’s
2% target.
As it
relates to
Puerto Rico,
our main
operating market,
the economy
continues to
benefit from
a high
level of
federal support
for
reconstruction
activities.
The
labor
market
remains
strong
with
unemployment
reaching
5.8%
for
the
month
of
May
2024
and
passenger activity through June 2024 up 10% year-to-date
when compared to 2023.
The Corporation
closed the first
half of
the year with
another quarter
of solid
operating performance
across most
franchise metrics
and remain
s
highly encouraged
by its
loan growth
prospects throughout
the rest
of the
year.
Assuming current
interest rates,
the net
interest margin
reached its inflection
point in the
first quarter of
2024 and, as
such, the Corporation
expects the net
interest margin
to
continue
to
increase
for
the
remainder
of
the
year.
The
Corporation
believes
it
should
continue
to
benefit
from
sizable
repricing
opportunities,
such
as the
ability to
redeploy
cash
inflows from
repayments
into loans
or into
higher
yielding
securities, which
will
fully materialize in the first quarter of 2025, coupled with the expected
gradual easing in deposit costs.
Moreover, loans
continued to grow in
the second quarter of 2024
driven by growth across
all business segments.
Even though asset
quality
remained
stable,
the
Corporation
continues
to
see
early
delinquency
and
charge-off
trends
within
the
consumer
loans
and
finance leases portfolio returning to historical levels.
Return of Capital to Shareholders
In
the
second
quarter
of
2024,
the
Corporation
returned
approximately
$76.3
million,
or
over
100%
of
second
quarter
2024
earnings,
to
its
shareholders
through
$50.0
million
in
repurchases
of
common
stock
and
the
payment
of
$26.3
million
in
common
stock
dividends.
As
of
June
30,
2024,
the
Corporation
has
remaining
authorization
to
repurchase
approximately
$50.0
million
of
common stock.
77
Furthermore, on
July 22,
2024, the
Corporation announced
that its
Board of
Directors approved
a new
repurchase program,
under
which
the
Corporation
may
repurchase
up
to
an
additional
$250
million
that
could
include
repurchases
of
common
stock
or
junior
subordinated
debentures,
which
it
expects
to
execute
through
the
end
of
the
fourth
quarter
of
2025.
The
repayment
of
its
junior
subordinated
debentures
will represent
an immediate
earnings per
share accretion
opportunity
and
will result
in
a simplified
capital
structure.
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 tax
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.
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.
For
the
quarter
and
six-month
period
ended
June
30,
2024,
the
Corporation
had
net
income
of
$75.8
million
($0.46
per
diluted
common
share)
and
$149.3
million
($0.90
per
diluted
common
share),
respectively,
compared
to
$70.7
million
($0.39
per
diluted
common share) and $141.4 million ($0.78 per diluted
common share), respectively,
for the comparable periods in 2023. Other relevant
selected financial indicators for the periods presented are included below:
Quarter Ended June 30,
Six-Month Period Ended June 30,
2024
2023
2024
2023
Key Performance Indicator:
(1)
Return on Average
Assets
(2)
1.61
%
1.51
%
1.59
%
1.53
%
Return on Average
Common Equity
(3)
20.80
19.66
20.17
20.31
Efficiency Ratio
(4)
51.23
47.83
51.84
48.60
(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.
78
The key drivers of the Corporation’s
GAAP financial results for the quarter ended
June 30, 2024, compared to the
second quarter of
2023, include the following:
●
Net
interest
income
for
the
quarter
ended
June
30,
2024
remained
relatively
flat
at
$199.6
million,
compared
to
$199.8
million for
the second
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 change
in deposit
mix, almost
entirely offset
by a
change in
asset mix resulting
from the deployment
of cash flows
from lower-yielding
investment securities to
fund loan growth
as well
as the
effect of
the higher
interest rate
environment on
commercial and
consumer loans
yields. 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
June 30,
2024 was
$11.6
million,
compared to
$22.0 million
for the
second quarter
of 2023.
The decrease
in the
provision
expense was driven by a reduction in the provision
for the commercial and construction loan portfolio
due to an improvement
on the economic outlook
of certain macroeconomic
variables, particularly in variables
associated with commercial
real estate
property
performance,
and
a
reduction
in
the
provision
for
the
residential
mortgage
loan
portfolio
associated
with
updated
historical
loss
experience,
partially
offset
by
increases
in
delinquency
levels
in
the
consumer
loans
and
finance
leases
portfolio.
Net charge-offs
totaled $21.0 million
for the quarter
ended June 30,
2024, or 0.69%
of average loans
on an annualized
basis,
compared
to
$19.3
million,
or
an
annualized
0.67%
of
average
loans,
for
the
second
quarter
of
2023.
The
increase
in
net
charge-offs was
mainly due to
an increase
in consumer loans
and finance
leases net charge-offs,
partially offset
by the effect
during the
second quarter
of 2023
of a
$6.2 million
charge-off
recorded on
a C&I
participated loan
in the
Florida region
in
the power generation
industry. 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
$32.0
million
for
the
quarter
ended
June
30,
2024,
compared
to
$36.3
million
for
the second
quarter of
2023.
Non-interest
income for
the
second quarter
of 2023
included
the following
Special
Items: a
$3.6 million
gain recognized
from a
legal settlement
and a
$1.6 million
gain on
the repurchase
of $21.4
million in
junior subordinated debentures. See “Results of Operations – Non-Interest
Income”
below for additional information.
●
Non-interest
expenses
for
the
quarter
ended
June
30,
2024
increased
by
$5.8
million
to
$118.7
million
reflecting,
among
other things, a
$3.1 million increase in
employees’ compensation and
benefits expenses mainly
driven by annual
salary merit
increases,
a
$1.1
million
increase
in
credit
and
debit
card
processing
fees
due
to
higher
transactional
volumes,
and
a
$1.1
million increase
in charges
for legal and
operational reserves, partially
offset by
a $1.6 million
increase in net
gains on other
real estate owned (“OREO”)
operations, mainly driven
by a $2.3 million
realized gain on the
sale of a commercial
real estate
OREO
property
in
the
Puerto
Rico
region.
See
“Results
of
Operations
–
Non-Interest
Expenses”
below
for
additional
information.
●
Income tax expense decreased to
$25.5 million for the second quarter of
2024, compared to $30.3 million for
the same period
in 2023,
driven by a lower estimated
effective tax rate.
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 24.1%
for the
first half
2024,
compared
to
30.1%
for
the
same
period
of
2023,
due
to
the
Corporation
engaging
in
certain
business
activities
with
preferential
tax treatment
under the
PR Tax
Code during
the fourth
quarter of
2023 which
resulted
in a
lower effective
tax
rate
for
the year
2023.
See
“Income Taxes”
below
and
Note 16
– “Income
Taxes,”
to the
unaudited
consolidated
financial
statements herein for additional information.
●
As
of
June
30,
2024,
total
assets were
approximately
$18.9
billion,
a
decrease
of
$28.2
million
from
December
31,
2023,
primarily related to
repayments of investment
securities and a decrease
in cash and cash
equivalents in part due
to a decrease
in total deposits,
partially offset by an increase in total loans.
●
As of June 30, 2024, total liabilities were $17.4 billion,
a decrease of $22.0 million from December 31, 2023, which
reflects a
$27.0 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 June 30, 2024
,
these core deposits, amounting to $12.7
billion, funded 67.30% of total assets.
Excluding
fully
collateralized
government
deposits,
estimated
uninsured
deposits
amounted
to
$4.5
billion
as
of
June
30,
2024.
In
addition to
approximately $1.9
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
June 30,
2024, the
Corporation had
approximately $2.5
billion available
79
for
funding
under
the
FED’s
Discount
Window
and
$
968.1
million
available
for
additional
borrowing
capacity
on
FHLB
lines of
credit based
on collateral
pledged
at these
entities. On
a combined
basis, as
of June
30, 2024,
the Corporation
had
$6.0 billion,
or 132%
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.
●
As of June 30,
2024, the Corporation’s
total stockholders’ equity
was $1.5 billion, a
decrease of $6.1 million
from December
31,
2023.
The
decrease
was
driven
by
$100.0
million
in
common
stock
repurchases
under
the
2023
stock
repurchase
program,
common stock dividends
declared in the
first half of
2024 totaling $53.4
million or $0.32
per common share,
and a
$4.5
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 half
of 2024.
The Corporation’s
CET1 capital,
tier 1
capital, total
capital, and
leverage ratios
were 15.77%, 15.77%, 18.21%,
and 10.63%, respectively,
as of June 30, 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
$51.0
million
to
$1.3
billion
for
the
quarter
ended
June
30,
2024,
as
compared
to
the
second
quarter of
2023, driven
by a
higher volume
of commercial
and construction
loan originations
in the
Puerto Rico
region.
See
“Results of Operations – Loan Production”
below for additional information.
●
Total
non-performing assets
were $126.9
million as of
June 30,
2024, an
increase of $1.0
million, from
December 31,
2023,
driven by
a $12.5
million increase
in total
nonaccrual loans
held for
investment mainly
due to
the inflow
of a
$16.5 million
commercial relationship
in the food
retail industry
in the
Puerto Rico region,
partially offset
by an
$11.0
million decrease in
the OREO portfolio balance
in the Puerto Rico region,
mainly attributable to the
sale of a $5.3 million
commercial real estate
OREO property
and sales of
residential OREO
properties.
See “Risk
Management –
Nonaccrual Loans
and Non-Performing
Assets” below for additional information.
●
Adversely
classified
commercial
and
construction
loans
increased
by
$19.3
million
to
$86.8
million
as
of
June
30,
2024,
compared
to
December
31,
2023,
also
driven
by
the
aforementioned
inflow
to
nonaccrual
status
of
a
$16.5
million
commercial
relationship
in
the
Puerto
Rico
region
and
the
downgrade
of
a
$5.1
million
commercial
mortgage
loan
in
the
Puerto Rico region.
80
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
are reported
excluding the
changes in
the fair
value of
derivative
instruments and
on a
tax-equivalent basis
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.
81
Adjusted Net Income,
Adjusted Non-Interest 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,
non-interest
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 quarters and six-month periods ended
June 30, 2024 and 2023 included the following Special Items:
Quarter and Six-Month Period Ended June 30, 2024
-
Charges
of $0.2
million ($0.
1
million
after-tax,
calculated based
on the
statutory tax
rate of
37.5%)
and $1.1
million ($0.
7
million
after-tax,
calculated
based
on
the
statutory
tax
rate
of
37.5%)
were
recorded
in
the
quarter
and
six-month
period
ended
June
30,
2024,
respectively,
to
increase
the
initial
estimated
FDIC
special
assessment
resulting
from
the
FDIC’s
updates
related
to
the
loss
estimate
in
connection
with
losses
to
the
Deposit
Insurance
Fund
associated
with
protecting
uninsured
deposits
following
the
failures
of
certain
financial
institutions
during
the
first
half
of
2023.
The
aforementioned
charges
increased
the
estimated
FDIC
special
assessment
for
a
total
of
$7.4
million,
which
was
the
revised
estimated
loss
reflected in the FDIC invoice
for the first quarterly collection
period with a payment date of
June 28, 2024. The FDIC special
assessment is reflected in the consolidated statements of income as part
of “FDIC deposit insurance” expenses.
Quarter and Six-Month Period Ended June 30, 2023
-
A
$3.6
million
($2.3
million
after-tax,
calculated
based
on
the
statutory
tax
rate
of
37.5%)
gain
recognized
from
a
legal
settlement reflected in the consolidated statements of income as part of other non
-interest income.
-
A
$1.6
million
gain
on
the
repurchase
of
$21.4
million
in
junior
subordinated
debentures
reflected
in
the
consolidated
statements
of
income
as
“Gain
on
early
extinguishment
of
debt.”
The
junior
subordinated
debentures
are
reflected
in
the
consolidated statements
of financial condition
as “Other long-term
borrowings.” The
purchase price
equated to
92.5% of the
$21.4
million
par
value
of
the
trust
preferred
securities.
The
7.5%
discount
resulted
in
the
gain
of
$1.6
million.
The gain,
realized at the holding company level, had no effect on
the income tax expense in 2023.
Adjusted Net
Income
– The
following table
reconciles for
the quarters
and six-month
periods ended
June 30,
2024 and
2023, net
income to adjusted net income, a non-GAAP financial measure that excludes
the Special Items identified above.
Quarter Ended June 30,
Six-Month Period Ended June 30,
2024
2023
2024
2023
(In thousands)
Net income, as reported (GAAP)
$
75,838
$
70,655
$
149,296
$
141,353
Adjustments:
FDIC special assessment expense
152
-
1,099
-
Gain recognized from a legal settlement
-
(3,600)
-
(3,600)
Gain on early extinguishment of debt
-
(1,605)
-
(1,605)
Income tax impact of adjustments
(1)
(57)
1,350
(412)
1,350
Adjusted net income (Non-GAAP)
$
75,933
$
66,800
$
149,983
$
137,498
(1)
See “Adjusted Net Income, Adjusted Non-Interest Income, and
Adjusted Non-Interest Expenses” above for the individual tax
impact related to the above adjustments, which were based
on the Puerto Rico statutory tax rate of 37.5%, as applicable.
82
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
and
six-month period
ended June
30, 2024
was $199.6
million and
$396.1 million,
respectively,
compared to
$199.8 million
and $400.7
million
for
the
comparable
periods
in
2023,
respectively.
On
a
tax-equivalent
basis
and
excluding
the
changes
in
the
fair
value
of
derivative instruments,
net interest
income for
the quarter
and six-month
period ended
June 30,
2024 was
$204.5 million
and $405.8
million, respectively,
compared to $205.4 million and $412.6 million for the comparable periods in 2023, respectively.
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 June 30,
2024
2023
2024
2023
2024
2023
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
$
667,564
$
617,356
$
9,060
$
7,880
5.44
%
5.12
%
Government obligations
(2)
2,619,778
2,909,204
8,947
10,973
1.37
%
1.51
%
MBS
3,359,598
3,757,425
14,339
17,087
1.71
%
1.82
%
FHLB stock
34,032
36,265
818
780
9.64
%
8.63
%
Other investments
17,637
13,739
244
58
5.55
%
1.69
%
Total investments
(3)
6,698,609
7,333,989
33,408
36,778
2.00
%
2.01
%
Residential mortgage loans
2,807,639
2,808,465
40,686
39,864
5.81
%
5.69
%
Construction loans
245,219
149,783
4,955
2,903
8.10
%
7.77
%
C&I and commercial mortgage loans
5,528,607
5,191,040
100,919
89,290
7.32
%
6.90
%
Finance leases
873,908
769,316
17,255
14,714
7.92
%
7.67
%
Consumer loans
2,817,443
2,672,912
79,888
74,192
11.37
%
11.13
%
Total loans
(4)(5)
12,272,816
11,591,516
243,703
220,963
7.96
%
7.65
%
Total interest-earning assets
$
18,971,425
$
18,925,505
$
277,111
$
257,741
5.86
%
5.46
%
Interest-bearing liabilities:
Time deposits
$
3,002,159
$
2,511,504
$
26,588
$
15,667
3.55
%
2.50
%
Brokered certificates of deposit (“CDs”)
676,421
333,557
8,590
3,761
5.09
%
4.52
%
Other interest-bearing deposits
7,528,378
7,517,995
28,493
22,176
1.52
%
1.18
%
Securities sold under agreements to repurchase
-
101,397
-
1,328
-
%
5.25
%
Advances from the FHLB
500,000
534,231
5,610
6,048
4.50
%
4.54
%
Other borrowings
161,700
177,701
3,336
3,409
8.27
%
7.69
%
Total interest-bearing liabilities
$
11,868,658
$
11,176,385
$
72,617
$
52,389
2.45
%
1.88
%
Net interest income on a tax-equivalent basis and excluding
valuations - non-GAAP
$
204,494
$
205,352
Interest rate spread
3.41
%
3.58
%
Net interest margin
4.32
%
4.35
%
83
Part I
Average volume
Interest income
(1)
/ expense
Average rate
(1)
Six-Month Period Ended June 30,
2024
2023
2024
2023
2024
2023
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
$
600,655
$
511,392
$
16,314
$
12,530
5.45
%
4.94
%
Government obligations
(2)
2,651,974
2,909,587
18,000
21,738
1.36
%
1.51
%
MBS
3,405,445
3,810,491
29,577
36,483
1.74
%
1.93
%
FHLB stock
34,334
38,539
1,672
1,201
9.77
%
6.28
%
Other investments
17,094
13,441
310
197
3.64
%
2.96
%
Total investments
(3)
6,709,502
7,283,450
65,873
72,149
1.97
%
2.00
%
Residential mortgage loans
2,808,972
2,821,779
81,159
79,658
5.79
%
5.69
%
Construction loans
232,036
147,923
9,492
5,579
8.20
%
7.61
%
C&I and commercial mortgage loans
5,516,695
5,179,448
199,993
175,175
7.27
%
6.82
%
Finance leases
868,796
752,501
34,382
28,523
7.94
%
7.64
%
Consumer loans
2,813,829
2,654,008
159,528
145,406
11.37
%
11.05
%
Total loans
(4)(5)
12,240,328
11,555,659
484,554
434,341
7.94
%
7.58
%
Total interest-earning assets
$
18,949,830
$
18,839,109
$
550,427
$
506,490
5.83
%
5.42
%
Interest-bearing liabilities:
Time deposits
$
2,947,257
$
2,427,399
$
50,998
$
26,449
3.47
%
2.20
%
Brokered CDs
713,091
250,588
18,270
5,348
5.14
%
4.30
%
Other interest-bearing deposits
7,531,361
7,531,374
57,428
39,692
1.53
%
1.06
%
Securities sold under agreements to repurchase
-
96,229
-
2,397
-
%
5.02
%
Advances from the FHLB
500,000
581,436
11,220
13,224
4.50
%
4.59
%
Other borrowings
161,700
180,715
6,686
6,790
8.29
%
7.58
%
Total interest-bearing liabilities
$
11,853,409
$
11,067,741
$
144,602
$
93,900
2.45
%
1.71
%
Net interest income on a tax-equivalent basis and excluding
valuations - non-GAAP
$
405,825
$
412,590
Interest rate spread
3.38
%
3.71
%
Net interest margin
4.29
%
4.42
%
(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 $3.1
million and
$2.9 million
for the
quarters ended
June 30,
2024 and
2023, respectively,
and $6.3
million and
$6.0 million
for the
six-month periods
ended June 30, 2024 and 2023, respectively,
of income from prepayment penalties and late fees related to the Corporation’s
loan portfolio.
84
Part II
Quarter Ended June 30,
Six-Month Period Ended June 30,
2024 Compared to 2023
2024 Compared to 2023
Variance due to:
Variance due to:
Volume
Rate
Total
Volume
Rate
Total
(In thousands)
Interest income on interest-earning assets:
Money market and other short-term investments
$
664
$
516
$
1,180
$
2,333
$
1,451
$
3,784
Government obligations
(1,039)
(987)
(2,026)
(1,841)
(1,897)
(3,738)
MBS
(1,739)
(1,009)
(2,748)
(3,690)
(3,216)
(6,906)
FHLB stock
(51)
89
38
(168)
639
471
Other investments
21
165
186
60
53
113
Total investments
(2,144)
(1,226)
(3,370)
(3,306)
(2,970)
(6,276)
Residential mortgage loans
(12)
834
822
(366)
1,867
1,501
Construction loans
1,923
129
2,052
3,394
519
3,913
C&I and commercial mortgage loans
5,990
5,639
11,629
11,813
13,005
24,818
Finance leases
2,053
488
2,541
4,547
1,312
5,859
Consumer loans
4,074
1,622
5,696
8,944
5,178
14,122
Total loans
14,028
8,712
22,740
28,332
21,881
50,213
Total interest income
$
11,884
$
7,486
$
19,370
$
25,026
$
18,911
$
43,937
Interest expense on interest-bearing liabilities:
Time deposits
$
3,469
$
7,452
$
10,921
$
6,576
$
17,973
$
24,549
Brokered CDs
4,301
528
4,829
11,609
1,313
12,922
Other interest-bearing deposits
31
6,286
6,317
-
17,736
17,736
Securities sold under agreements to repurchase
(1,328)
-
(1,328)
(2,397)
-
(2,397)
Advances from the FHLB
(384)
(54)
(438)
(1,823)
(181)
(2,004)
Other borrowings
(319)
246
(73)
(750)
646
(104)
Total interest expense
5,770
14,458
20,228
13,215
37,487
50,702
Change in net interest income
$
6,114
$
(6,972)
$
(858)
$
11,811
$
(18,576)
$
(6,765)
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.
85
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
Six-Month Period Ended
June 30,
June 30,
2024
2023
2024
2023
(Dollars in thousands)
Interest income - GAAP
$
272,245
$
252,204
$
540,750
$
494,600
Unrealized (gain) loss on derivative instruments
-
(3)
(2)
3
Interest income excluding valuations - non-GAAP
272,245
252,201
540,748
494,603
Tax-equivalent adjustment
4,866
5,540
9,679
11,887
Interest income on a tax-equivalent basis
and excluding valuations - non-GAAP
$
277,111
$
257,741
$
550,427
$
506,490
Interest expense - GAAP
$
72,617
$
52,389
$
144,602
$
93,900
Net interest income - GAAP
$
199,628
$
199,815
$
396,148
$
400,700
Net interest income excluding valuations - non-GAAP
$
199,628
$
199,812
$
396,146
$
400,703
Net interest income on a tax-equivalent basis
and excluding valuations - non-GAAP
$
204,494
$
205,352
$
405,825
$
412,590
Average Balances
Loans and leases
$
12,272,816
$
11,591,516
$
12,240,328
$
11,555,659
Total securities, other short-term investments and interest-bearing
cash balances
6,698,609
7,333,989
6,709,502
7,283,450
Average Interest-Earning Assets
$
18,971,425
$
18,925,505
$
18,949,830
$
18,839,109
Average Interest-Bearing Liabilities
$
11,868,658
$
11,176,385
$
11,853,409
$
11,067,741
Average Assets
(1)
$
18,884,431
$
18,788,578
$
18,871,365
$
18,673,506
Average Non-Interest-Bearing Deposits
$
5,351,308
$
5,968,892
$
5,329,920
$
5,983,896
Average Yield/Rate
Average yield on interest-earning assets - GAAP
5.76%
5.35%
5.72%
5.29%
Average rate on interest-bearing liabilities - GAAP
2.45%
1.88%
2.45%
1.71%
Net interest spread - GAAP
3.31%
3.47%
3.27%
3.58%
Net interest margin - GAAP
4.22%
4.23%
4.19%
4.29%
Average yield on interest-earning assets excluding valuations
- non-GAAP
5.76%
5.35%
5.72%
5.29%
Average rate on interest-bearing liabilities
2.45%
1.88%
2.45%
1.71%
Net interest spread excluding valuations
- non-GAAP
3.31%
3.47%
3.27%
3.58%
Net interest margin excluding valuations - non-GAAP
4.22%
4.23%
4.19%
4.29%
Average yield on interest-earning assets on a tax-equivalent
basis and excluding
valuations - non-GAAP
5.86%
5.46%
5.83%
5.42%
Average rate on interest-bearing liabilities
2.45%
1.88%
2.45%
1.71%
Net interest spread on a tax-equivalent basis
and excluding valuations - non-GAAP
3.41%
3.58%
3.38%
3.71%
Net interest margin on a tax-equivalent basis and excluding
valuations - non-GAAP
4.32%
4.35%
4.29%
4.42%
(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.
86
Net interest income
amounted to $199.6
million for the quarter
ended June 30,
2024,
a decrease of $0.2
million, when compared
to
$199.8 million for same period in 2023. The $0.2 million decrease in
net interest income was primarily due to:
●
A $20.2 million increase in interest expense on interest-bearing liabilities, consisting
of:
-
A
$10.9
million
increase
in
interest
expense
on
time
deposits,
excluding
brokered
CDs,
of
which
$7.4
million
was
related to higher rates
paid on new issuances
and renewals, mainly on
non-government deposits, given
the overall higher
interest rate environment
,
and $3.5
million was driven
by a $490.7
million increase
in the average
balance.
The average
cost of time deposits in the second quarter
of 2024, excluding brokered CDs, increased 105
basis points (“bps”) to 3.55%
when compared to the same period in 2023.
-
A $6.3
million increase
in interest
expense on
interest-bearing
checking and
saving accounts,
also driven
by the
higher
interest rate environment
and primarily reflected on
public sector deposits. The
average cost of interest-bearing
checking
and
saving
accounts
increased
by
34
bps
to
1.52%
in
the
second
quarter
of
2024
as
compared
to
1.18%
in
the
same
period in
2023. Excluding
public sector
deposits, the
average cost
of interest-bearing
checking and
saving accounts
for
the second quarter of 2024 was 0.75%, compared to 0.70% for the same period
a year ago.
-
A $4.8
million increase
in interest expense
on brokered
CDs, mainly
driven by
a $342.9
million increase
in the
average
balance.
Partially offset by:
-
A
$1.8
million
decrease
in
interest
expense
on
borrowings,
mainly
due
to
a
$1.3
million
decrease
on
short-term
repurchase agreements, since they were not used as a funding source in
the second quarter of 2024.
●
A $1.8 million decrease in interest
income from total investments,
consisting of a $3.0 million net decrease
in interest income
from investment securities, of which
$3.5 million was associated with
a $687.3 million decrease in the
average balance of the
debt
securities
portfolio,
partially
offset
by
a
$1.2
million
increase
in
interest
income
from
interest-bearing
cash
balances,
which
consisted
primarily
of
cash
balances
deposited
at
the
FED,
of
which
$0.6
million
was
driven
by
a
$50.2
million
increase in the average balance, and $0.6
million was due to the effect of higher market interest rates.
Partially offset by:
●
A $21.8
million increase in interest income on loans including:
-
A $12.8
million
increase
in
interest income
on
commercial
and
construction
loans,
driven
by
an $8.3
million
increase
associated
with
a
$433.0
million
increase
in
the
average
balance,
and
a
$4.5
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 June 30, 2024, the
interest rate on approximately 54%
of the Corporation’s
commercial and construction loans was
tied to
variable rates,
with 32%
based upon
SOFR of
3 months
or less,
13% based
upon the
Prime rate
index, and
9%
based
on
other
indexes.
For
the
second
quarter
of
2024,
the
average
one-month
SOFR
increased
29
bps,
the
average
three-month SOFR increased 23 bps, and the average Prime rate increased
34 bps, compared to the average rates for such
indexes during the second quarter of 2023.
-
An
$8.2
million
increase
in
interest
income
on
consumer
loans and
finance
leases,
primarily
associated
with
a
$249.1
million increase in the average balance
of this portfolio,
mainly auto loans and finance leases,
under a higher interest rate
environment.
87
Net interest
income
amounted
to $396.1
million
for the
six-month period
ended June
30, 2024,
a decrease
of $4.6
million, when
compared to $400.7 million for same period in 2023. The $4.6 million
decrease in net interest income was primarily due to:
●
A $50.7 million increase in interest expense on interest-bearing liabilities, consisting
of:
-
A
$24.6
million
increase
in
interest
expense
on
time
deposits,
excluding
brokered
CDs,
of
which
$18.0
million
was
related to higher
rates paid in
the first half
of 2024 on
new issuances and
renewals,
mainly on non-government
deposits,
also associated with the higher
interest rate environment,
and $6.6 million was driven
by a $519.9 million increase
in the
average balance. The
average cost of time
deposits for the
first half of 2024,
excluding brokered CDs,
increased 127 bps
to 3.47% when compared to the same period in 2023.
-
A $17.7 million
increase in interest expense
on interest-bearing checking
and saving accounts,
also related to
the overall
higher interest
rate environment. The
average cost of
interest-bearing checking
and saving accounts
increased by
47 bps
to 1.53%
for the
first half
of 2024
as compared
to 1.06%
for 2023,
mostly driven
by government
deposits in
the Puerto
Rico region.
Excluding government
deposits, the
average cost
of interest-bearing
checking and
savings accounts
for the
first half of 2024 was 0.75%, compared to 0.65% for 2023.
-
A $12.9
million
increase
in
interest expense
on brokered
CDs, driven
by
an increase
of
$462.5
million
in
the
average
balance.
Partially offset by:
-
A
$4.5
million
decrease
in
interest
expense
on
borrowings,
mainly
due
to
a
$2.4
million
decrease
on
short-term
repurchase agreements since
they were not used
as a funding source
in the first half of
2024, and a $2.0
million decrease
on advances from the FHLB, mainly associated with a decrease of $81.4
million in the average balance.
●
A $2.2 million decrease in interest
income from total investments,
consisting of a $6.0 million net decrease
in interest income
on investment
securities, of
which $7.0
million was
driven by
a $662.7
million decrease
in the
average balance
of the
debt
securities portfolio
,
partially offset
by a
$3.8 million
increase in
interest income
from interest-bearing
cash balances,
which
consisted primarily
of cash
balances deposited
at the
FED, of
which $2.3
million was
driven by
a $89.3
million increase
in
the average balance, and $1.5 million was due to the effect
of higher market interest rates.
Partially offset by:
●
A $48.3 million increase in interest income on loans including:
-
A $26.8
million
increase
in
interest income
on
commercial
and
construction
loans,
driven
by
a
$16.3
million
increase
associated with a
$421.4 million increase
in the average
balance of this
portfolio, and a
$10.5 million increase
related to
the effect of higher market interest rates on the upward repricing of variable
-rate loans and on new loan originations.
-
A $20.0 million increase
in interest income on consumer
loans and finance leases, primarily
due to an increase of
$276.1
million
in
the
average
balance
of
this
portfolio,
mainly
auto
loans
and
finance
leases,
under
a
higher
interest
rate
environment.
Net
interest
margin
for
the
second
quarter
of
2024
remained
relatively
flat
at
4.22%,
compared
to
4.23%
for
the
same
period
in
2023.
For the
six-month
period ended
June 30,
2024, net
interest margin
decreased by
10 bps
to 4.19%,
compared to
4.29% 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
a change
in asset mix
resulting from
the deployment
of
cash flows
from lower-yielding
investment securities
to fund
loan growth
as well
as the effect
of the higher
interest rate
environment
on commercial and consumer loans yields.
88
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 $11.9
million for
the second
quarter of
2024, compared
to $20.8
million for the second quarter of 2023. The variances by major portfolio
category were as follows:
●
Provision for credit losses for the
residential mortgage loan portfolio was
a net benefit of $10.6 million
for the second quarter
of 2024, compared
to a net benefit
of $3.5 million for
the second quarter of
2023. The net benefit
recorded during the second
quarter of 2024 was mainly
driven by updated historical
loss experience used for determining
the ACL estimate resulting in a
downward revision
of estimated loss
severities and lower
required reserve
levels. See Note
3 – “Loans
Held for Investment”
to
the
unaudited
consolidated
financial
statements
herein
for
additional
information
on
the
review
of
the
credit
models
completed by the Corporation during the second quarter of 2024.
●
Provision for credit
losses for the commercial
and construction loan portfolio
was a net benefit of
$4.2 million for the
second
quarter of 2024, compared
to an expense of
$10.2 million for the
second quarter of 2023.
The net benefit recorded
during the
second quarter of
2024 was mainly
driven by an
improvement on
the economic outlook
of certain macroeconomic
variables,
particularly in
variables associated
with commercial
real estate
property performance
,
and $1.2
million in
recoveries of
two
commercial loans
in the
Florida region.
Meanwhile, the
net expense
recorded during
the second
quarter of
2023 was
mainly
due to a deterioration in the forecasted commercial real estate (“CRE”) price
index and the increase in size of this portfolio.
●
Provision for credit losses for the
consumer loans and finance leases portfolio
was an expense of $26.7 million
for the second
quarter of
2024, compared
to an expense
of $14.1
million for
the second
quarter of
2023. The
increase in
provision expense
was
mainly
driven
by
increases
in
delinquency
levels
and,
to
a
lesser
extent,
updated
historical
loss
experience
used
for
determining the
ACL estimate
resulting in
an upward
revision of
estimated loss
severities and
higher required
reserve levels
in the auto loans and finance leases portfolios.
The provision
for credit
losses for
loans and
finance leases
was $24.8
million for
the first
half of
2024, compared
to $37.0
million
for the same period of 2023. The variances by major portfolio category were
as follows:
●
Provision for
credit losses
for the
residential mortgage
loan portfolio
was a
net benefit
of $11.1
million for
the first
half of
2024, compared
to a net
benefit of
$3.4 million
for the
same period
of 2023.
The increase
in net
benefit recorded
during the
first
half
of
2024
was
mainly
driven
by
the
aforementioned
updated
historical
loss
experience,
partially
offset
by
newly
originated loans that have a longer life.
●
Provision for
credit losses
for the
commercial and
construction loan
portfolios was
a net
benefit of
$7.0 million
for the
first
half of 2024,
compared to
an expense of
$10.7 million
for the same
period of 2023.
The net benefit
recorded during
the first
six months of 2024 was mainly driven
by recoveries of $5.0 million associated
with a C&I loan in the Puerto Rico
region and
the
aforementioned
$1.2
million
in
recoveries
in
the
Florida
region,
partially
offset
by
increased
volume.
Meanwhile,
the
expense recorded
during the
first six months
of 2023
was mainly
due to
a deterioration
in the
forecasted CRE
price index,
a
$6.2 million charge
associated with a
nonaccrual C&I participated
loan in the
Florida region and,
to a lesser
extent, portfolio
growth.
●
Provision
for
credit losses
for
the consumer
loan
and
finance leases
portfolio
was an
expense
of $42.9
million
for
the first
half of
2024, compared
to an
expense of
$29.7 million
for the
same period
of 2023.
The increase
in provision
expense was
mainly
driven
by
increases
in
delinquency
levels,
the
aforementioned
updated
historical
loss
experience,
and
increases
in
portfolio volumes,
partially offset
by a
$9.5 million
recovery associated
with the
aforementioned
bulk sale
of fully
charged-
off loans recorded during the first six months of 2024.
89
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
for
the
second quarter
and the
first half
of 2024
was a
net benefit
of $0.4
million and
$0.1 million,
respectively,
compared to
an expense
of
$0.7 million and $0.6 million, respectively,
for the same periods in 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 an
expense of
$32 thousand
and a
net benefit
$0.9 million
for the
second quarter
and first
half of
2024, respectively,
compared to
an expense
of $0.8
million and
$0.1 million,
respectively,
for
the same periods
in 2023. The net
benefit recorded during
the first half of
2024 was mostly driven
by improvements in the
underlying
updated
financial information
of a
Puerto Rico
municipal bond
issuer.
Meanwhile, the
provision recorded
during the
second quarter
and the first half of 2023 was mostly driven by higher exposure risk associated
with the rising interest rate environment.
The provision
for credit losses
for available-for-sale
debt securities for
the second
quarter and
first half of
2024 was an
expense of
$60
thousand
and
a
net
benefit
of
$9
thousand,
respectively,
compared
to
a
net
benefit
of
$16
thousand
and
$25
thousand,
respectively, for the
same periods in 2023.
90
Non-Interest Income
Non-interest
income amounted
to $32.0
million for
the second
quarter of
2024, compared
to $36.3
million for
the same
period in
2023.
Non-interest income for the second
quarter of 2023 included
the following Special Items: the
$3.6 million gain recognized
from
a
legal
settlement,
included
as part
of
“other
non-interest
income,”
and
the
$1.6
million
gain
on
the
repurchase
of
$21.4
million
in
junior subordinated
debentures, included
as part of
“gain on early
extinguishment of
debt.” See “Non-GAAP
Financial Measures
and
Reconciliations” above for additional information.
On a non-GAAP basis, excluding the effect of
these Special Items, adjusted non-interest income increased by $0.9 million primarily
due to a
$0.6 million
increase in revenues
from mortgage banking
activities, driven by
an increase in
the net realized
gain on sales
of
residential mortgage
loans in the
secondary market
due to higher
margins.
During the
second quarters
of 2024
and 2023,
net realized
gains of $1.
5
million and $0.9
million, respectively,
were recognized
as a result
of GNMA securitization
transactions and
whole loan
sales to U.S. GSEs amounting to $43.5 million and $51.8 million, respectively.
Non-interest
income for
the six-month
period ended
June 30,
2024 amounted
to $66.0
million, compared
to $68.8
million for
the
same period
in 2023.
On a
non-GAAP basis,
excluding the
effect of
the aforementioned
Special Items,
adjusted non-interest
income
increased by $2.4 million primarily due to:
●
A
$0.7
million
increase
in
card
and
processing
income,
mainly
in
merchant-related
fees
due
to
higher
transactional
volumes.
●
A $0.7 million increase in insurance commission income,
mainly related to higher contingent commissions.
●
A $0.6
million
increase
in
revenues
from
mortgage
banking
activities,
driven
by
an
increase
in
the
net
realized
gain
on
sales of residential mortgage
loans in the secondary
market due to higher
margins. During the first
six months of 2024
and
2023, net realized gains of $2.6 million and $2.0
million, respectively,
were recognized as a result of GNMA securitization
transactions and whole loan sales to U.S. GSEs amounting to $75.0 million and
$89.2 million, respectively.
●
A $0.6
million increase
in service
charges and
fees on
deposits accounts,
in part
due to
an increase
in the number
of cash
management transactions of commercial clients.
91
Non-Interest Expenses
Non-interest
expenses for
the quarter
ended June
30, 2024
amounted
to $118.7
million, compared
to $11
2.9 million
for the
same
period in
2023. The
efficiency ratio
for the second
quarter of
2024 was
51.23%, compared
to 47.83% for
the second
quarter of
2023.
Non-interest expenses for
the second quarter of
2024 include the $0.2
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 $5.6 million
primarily due to:
●
A
$3.1
million
increase
in employees’
compensation
and benefits
expenses,
driven by
annual
salary merit
increases
and
medical insurance premium costs.
●
A
$1.1 million increase in credit and debit card processing fees, driven by
higher transactional volumes.
●
A
$0.8
million
increase
in
professional
service
fees,
due
to
increases
of
$0.5
million
in
consulting
fees
driven
by
information technology infrastructure enhancements and $0.4 million
in outsourced technology service fees.
●
A $0.8
million increase
in occupancy
and equipment
expenses, mainly
due to
increases in
maintenance charges,
partially
offset by a decrease in depreciation charges.
●
A
$0.7
million
increase
in
other
non-interest
expenses,
mainly
due
to
a
$1.1
million
increase
in
charges
for
legal
and
operational reserves, partially offset by a $0.2 million
decrease in net periodic cost of pension plans.
●
A $0.3 million increase in taxes, other than income taxes, primarily related
to higher municipal license taxes.
●
A $0.3 million increase in communication expenses.
Partially offset by:
●
A
$1.6 million
increase in
net gains
on OREO
operations, driven
by the
aforementioned $2.3
million realized
gain on
the
sale
of
a
commercial
real
estate
OREO
property
in
the
Puerto
Rico
region,
which
more
than
offset
the
decrease
in
net
realized gains on sales of residential OREO properties in the Puerto Rico region.
92
Non-interest
expenses for
the six-month
period ended
June 30,
2024 amounted
to $239.6
million, compared
to $228.2
million for
the same period in 2023. The efficiency ratio for the first six months
of 2024 was 51.84%, compared to 48.60% for the first six months
of
2023.
Non-interest
expenses
for
the
six-month
period
ended
June
30,
2024
include
the
$1.1
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 $10.3 million primarily due to:
●
A
$6.2
million
increase
in employees’
compensation
and benefits
expenses,
driven by
annual
salary merit
increases
and
increases
in
stock-based
compensation
expense
of
retirement-eligible
employees,
medical
insurance
premium
costs,
and
higher matching contributions to the employees’ retirement plan.
●
A
$1.5
million
increase
in
professional
service
fees,
due
to
increases
of
$1.4
million
in
consulting
fees
driven
by
information
technology
infrastructure
enhancements
and
$0.4
million
in
collections,
appraisals,
and
other
credit-related
fees, partially offset by a decrease of $0.3
million in outsourced technology service fees.
●
A
$1.5 million increase in credit and debit card processing fees, driven by
higher transactional volumes.
●
A
$0.9
million
increase
in
occupancy
and
equipment
expenses,
mainly
related
to
an
increase
in
maintenance
charges,
partially offset by a decrease in depreciation charges.
●
A
$0.6
million
increase
in
other
non-interest
expenses,
mainly
due
to
a
$1.0
million
increase
in
charges
for
legal
and
operational reserves, partially offset by a $0.3 million
decrease in net periodic cost of pension plans.
●
A $0.3 million increase in taxes, other than income taxes, primarily related
to higher municipal license taxes.
Partially offset by:
●
A
$1.1 million
increase in
net gains
on OREO
operations, driven
by the
aforementioned $2.3
million realized
gain on
the
sale
of
a
commercial
real
estate
OREO
property
in
the
Puerto
Rico
region,
which
more
than
offset
the
decrease
in
net
realized gains on sales of residential OREO properties in the Puerto Rico
region.
93
Income Taxes
For the second quarter of 2024, the Corporation recorded an income
tax expense of $25.5 million, compared to $30.3 million for the
same period in
2023. For the
first six months of
2024, the Corporation
recorded an income
tax expense of
$49.5 million, compared
to
$62.2 million for the same period in 2023. The
decrease in income tax expense for the second quarter
and first six months of 2024 was
mainly driven
by a
lower effective
tax rate
as a
result of
the Corporation
engaging in
certain business
activities with
preferential
tax
treatment under
the PR Tax
Code during
the fourth quarter
of 2023
which resulted
in a lower
effective tax
rate for
the second
half of
2023 and for the year 2024.
The Corporation’s
annual estimated
effective
tax rate
for the
first six
months of
2024, excluding
entities from
which a
tax benefit
cannot be recognized
and discrete items, was
24.1%, compared to
30.1% for the same
period in 2023.
Based on current strategies,
the
Corporation
expects
that
the
effective
tax
rate
for
the
year
2024
will
be
around
24%.
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 June
30, 2024, the
Corporation had
a net deferred
tax asset of
$142.7 million, net
of a valuation
allowance of $141.1
million
against the deferred tax asset, compared to a net deferred tax asset of $150.1
million, net of a valuation allowance of $139.2 million, as
of December
31, 2023.
The decrease
in the
net deferred
tax asset
was mainly
related to
the usage
of alternative
minimum tax
credits
and the decrease
in the ACL. Meanwhile,
the increase in the
valuation allowance was
related primarily to changes
in the market value
of available-for-sale debt securities which resulted in an
equal change in the net deferred tax asset without impacting earnings.
94
Assets
The
Corporation’s
total
assets
were
$18.9
billion
as
of
June
30,
2024,
a
decrease
of
$28.2
million
from
December
31,
2023,
primarily related
to repayments of
investment securities and
a decrease in
cash and cash
equivalents,
partially offset
by an increase
in
total loans.
Loans Receivable, including Loans Held for Sale
As of June 30, 2024,
the Corporation’s
total loan portfolio before
the ACL amounted to $12.4
billion, an increase of
$203.0 million
compared
to
December
31,
2023.
In
terms
of
geography,
the
growth
consisted
of
increases
of
$98.5
million
in
the
Florida
region,
$97.7
million in
the Puerto
Rico region,
and $6.8
million in
the Virgin
Islands region.
On a
portfolio
basis, the
growth consisted
of
increases
of
$157.7
million
in
commercial
and
construction
loans
and
$54.3
million
in
consumer
loans,
primarily
auto
loans
and
finance leases, partially offset by a $9.0 million decrease
in residential mortgage loans.
As of
June
30,
2024,
the
Corporation’s
loans
held-for-investment
portfolio
was comprised
of
commercial
and
construction
loans
(48%),
consumer
and
finance
leases
(29%),
and
residential
real
estate
loans
(23%).
Of
the
total
gross
loan
portfolio
held
for
investment of $12.4 billion as of June 30, 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 June 30, 2024
Puerto Rico
Virgin Islands
United States
Total
(In thousands)
Residential mortgage loans
$
2,163,245
$
161,057
$
485,364
$
2,809,666
Construction loans
160,093
3,681
22,183
185,957
Commercial mortgage loans
1,697,939
62,821
662,549
2,423,309
C&I loans
2,176,489
135,456
942,632
3,254,577
Total commercial loans
4,034,521
201,958
1,627,364
5,863,843
Consumer loans and finance leases
3,635,389
68,540
8,070
3,711,999
Total loans held for investment,
gross
$
9,833,155
$
431,555
$
2,120,798
$
12,385,508
Loans held for sale
10,392
-
-
10,392
Total loans, gross
$
9,843,547
$
431,555
$
2,120,798
$
12,395,900
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
95
Residential Real Estate Loans
As of
June 30,
2024,
the Corporation’s
total residential
mortgage
loan portfolio,
including
loans held
for sale,
decreased by
$9.0
million, as compared
to the balance as
of December 31, 2023.
The decline in the
residential mortgage loan portfolio
reflects decreases
of $21.6 million in the Puerto Rico region and $7.0
million in the Virgin
Islands region, partially offset by an increase of
$19.6 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.
Approximately 50%
of the
$160.3 million
residential mortgage
loan originations
in the
Puerto Rico
region during
the
first six
months of
2024 consisted
of conforming
loans, compared
to 58%
of the
$150.0 million
originated for
the first
six months
of
2023.
As of June 30,
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
37%
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
June 30,
2024, the
Corporation’s
commercial and
construction loans
portfolio increased
by $157.7
million, as
compared to
the balance as
of December 31,
2023.
The growth included
an increase of
$76.7 million in
the Florida region,
reflecting, among other
things,
the
effect
of
the
origination
of
various
commercial
and
construction
relationships,
each
in
excess
of
$10
million,
of
which
$52.3
million
are
related
to
three
commercial
mortgage
relationships
and
$40.0
million
are
related
to
two
C&I
relationships,
and
higher utilization
of C&I
lines of
credit, including
a $14.1
million line
of credit
utilization.
These variances
were partially
offset
by
payoffs
and paydowns of three C&I relationships totaling $47.7 million.
The Puerto
Rico region
also grew
by $67.1
million, when
compared
to the
balance
as of
December 31,
2023.
This increase
was
driven by a $48.4
million increase in construction
loans;
a $33.7 million increase
in floor plan loans;
higher utilization of C&I
lines of
credit, including two lines of
credit with utilization over $10 million
totaling $33.3 million; 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, including payoffs
of four commercial and construction relationships totaling $52.7 million.
In
the
Virgin
Islands
region,
commercial
and
construction
loans
increased
by
$13.9
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 June 30, 2024, the
Corporation’s total
commercial mortgage loan exposure amounted
to $2.4 billion, or 20% 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,
26% in office real estate,
and 20% in the hotel industry.
The $0.6 billion exposure
in the Florida region was comprised mainly of 33% in the retail industry,
23% in the hotel industry,
and 8% in office real estate. Of the
Corporation’s
total commercial
mortgage loan
exposure of
$2.4 billion,
$573.8 million
matures within
the next
12 months
and has
a
weighted-average interest
rate of
approximately 6.74%.
Commercial mortgage
loan exposure
in the
office real
estate industry,
which
matures within the next 12 months, amounted to $127.0 million and has
a weighted-average interest rate of approximately 6.56%.
As
of
each
of
June
30,
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 June
30, 2024, approximately $386.6 million
of the SNC exposure is
related to the portfolio in the Puerto Rico region and $803.5 million is related to
the portfolio in the Florida region.
Consumer Loans and Finance Leases
As
of
June
30,
2024,
the
Corporation’s
consumer
loans
and
finance
leases
portfolio
increased
by
$54.3
million
to
$3.7
billion,
mainly in
the Puerto Rico
region, reflecting growth
of $45.8 million
and $23.5 million
in the auto
loans and finance
leases portfolios,
respectively.
96
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 by geographic
segment,
for the indicated periods:
Quarter Ended June 30,
Six-Month Period Ended June 30,
2024
2023
2024
2023
(In thousands)
Puerto Rico:
Residential mortgage
$
92,624
$
88,485
$
160,267
$
149,965
Construction
38,459
33,829
74,110
57,267
Commercial mortgage
83,852
28,704
101,754
96,691
C&I
337,347
365,796
742,566
814,977
Consumer
404,645
442,213
798,551
866,686
Total loan production
$
956,927
$
959,027
$
1,877,248
$
1,985,586
Virgin Islands:
Residential mortgage
$
696
$
843
$
2,122
$
1,769
Construction
162
2
162
6
Commercial mortgage
298
3,859
423
3,859
C&I
12,351
65,215
23,460
74,614
Consumer
8,897
11,408
16,793
21,608
Total loan production
$
22,404
$
81,327
$
42,960
$
101,856
Florida:
Residential mortgage
$
28,884
$
25,923
$
47,985
$
40,819
Construction
9,609
13,175
20,655
25,232
Commercial mortgage
20,304
9,821
77,933
30,526
C&I
219,086
119,563
391,253
216,865
Consumer
2,970
384
3,427
1,029
Total loan production
$
280,853
$
168,866
$
541,253
$
314,471
Total:
Residential mortgage
$
122,204
$
115,251
$
210,374
$
192,553
Construction
48,230
47,006
94,927
82,505
Commercial mortgage
104,454
42,384
180,110
131,076
C&I
568,784
550,574
1,157,279
1,106,456
Consumer
416,512
454,005
818,771
889,323
Total loan production
$
1,260,184
$
1,209,220
$
2,461,461
$
2,401,913
97
Commercial and
construction loan
originations (excluding
government loans)
for the
quarter and
six-month period
ended June
30,
2024
amounted
to
$708.4
million
and
$1.4
billion,
respectively,
compared
to
$563.6
million
and
$1.2
billion,
respectively,
for
the
comparable periods
in 2023.
The increase
of $144.8
million in
the second
quarter of
2024, as
compared to
the same
period in
2023,
reflects growth
of $106.5
million in
the Florida
region and
$40.5 million
in the
Puerto Rico
region, partially
offset by
a $2.2
million
decrease in
the Virgin
Islands regions.
For the
first six
months of
2024, the
increase of
$157.1 million
consisted of
growth of
$217.3
million
in the
Florida region,
partially
offset
by decreases
of $54.5
million
in the
Puerto Rico
region
and $5.7
million in
the Virgin
Islands region.
The growth
in the
Florida region
for the
first six
months of
2024 includes
the effect
of the
origination of
seven C&I
relationships, each
in excess of
$10 million,
with an
aggregate balance
of $116.4
million, increased
utilization of
C&I lines of
credit,
and an increase
in the commercial
mortgage loan portfolio
by $47.4 million.
Meanwhile, the decline
in the Puerto
Rico region for
the
first six
months of
2024 was
mainly driven
by a
decrease of
$76.0 million
in the
C&I loan
portfolio, partially
offset by
increases of
$16.4 million in the construction loan portfolio and $5.1 million in the
commercial mortgage loan portfolio.
Government
loan
originations
for
the
quarter
and
six-month
period
ended
June
30,
2024
amounted
to
$13.1
million
and
$38.8
million, respectively,
compared to $76.3 million and $83.6 million, respectively,
for the comparable periods in 2023. Government loan
originations
during
the
first
six
months
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.
On the
other hand,
government loan
originations during
the first
six months
of 2023 were mainly
related
to
the
line
of
credit
utilization
in
the
Virgin
Islands
region,
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
and six-month period
ended June 30,
2024 amounted to
$233.9
million and
$462.0 million,
respectively,
compared to
$250.3 million
and $495.4
million, respectively,
for the
comparable periods
in
2023. The
decrease in the
second quarter of
2024, as
compared to
the same
quarter of
2023, consisted
of declines
of $14.7
million in
the Puerto
Rico region and
$1.7 million
in the Virgin
Islands region.
The decrease in
the first six
months of 2024,
as compared to
the
same
period
of
the
previous
year,
consisted
of
declines
of
$30.4
million
in
the
Puerto
Rico
region
and
$3.0
million
in
the
Virgin
Islands region.
Other consumer
loan originations
,
other than
credit cards,
for the
quarter and
six-month period
ended June
30, 2024
amounted
to
$64.6
million
and
$124.5
million,
respectively,
compared
to
$77.7
million
and
$149.6
million,
respectively,
for
the
comparable periods
in 2023.
Most of
the decrease
in other
consumer loan
originations for
the first
six months
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 and
six-month period
ended June
30, 2024
amounted to
$118.0 million
and $232.3
million, respectively,
compared to
$125.9
million and $244.3 million, respectively,
for the comparable periods in 2023.
98
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
June 30,
2024 amounted
to $5.0
billion, a
$272.7 million
decrease from
December 31, 2023
.
The decrease was
mainly driven
by repayments of
approximately $178.8
million of U.S.
agencies
mortgage-backed
securities
(“MBS”)
and
debentures,
repayments
of
$115.1
million
associated
to
matured
securities,
and
a
$4.5
million decrease in
fair value attributable
to changes in market
interest rates. These
variances were partially
offset by $28.0
million in
purchases
of
Community
Reinvestment
Act
qualified
debt
securities
during
the
second
quarter
of
2024.
As
of
June
30,
2024,
the
Corporation had
a net unrealized
loss on available-for-sale
debt securities of
$637.3 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 June
30, 2024,
approximately $500
million in
cash inflows, which
are expected
to be
received during
the
second
half
of
2024
from
contractual
maturities
of
the
available-for-sale
debt
securities
portfolio,
are
expected
to
be
redeployed
to
fund loan growth, reinvested into higher-yielding
securities,
or used to repay maturing brokered CDs.
As
of
June
30,
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
June 30, 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
- $1.5
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 June 30,
2024, of which
$0.4 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
June
30,
2024,
the
Corporation’s
held-to-maturity
debt
securities
portfolio,
before
the
ACL,
decreased
to
$344.4
million,
compared to
$354.2 million
as of December
31, 2023,
mainly driven
by repayments
of approximately
$10.5 million
of U.S.
agencies
MBS.
Held-to-maturity
debt
securities
include
fixed-rate
GSEs’ MBS
with
a
carrying
value
of $237.0
million
(fair
value
of $222.4
million)
as
of
June
30,
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 June
30, 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.
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
and Note
2 –
“Debt Securities”
to the
unaudited consolidated
financial statements
herein for
the ACL
of the
exposure to
Puerto Rico
municipal bonds.
99
The following table presents the carrying values of investments as of the indicated dates:
June 30, 2024
December 31, 2023
(In thousands)
Money market investments
$
4,439
$
1,239
Available-for-sale
debt securities, at fair value:
U.S. government and agencies obligations
2,352,500
2,443,790
Puerto Rico government obligations
1,532
1,415
MBS:
Residential
2,430,965
2,633,161
Commercial
171,314
151,618
Other
1,000
-
Total available-for-sale
debt securities, at fair value
4,957,311
5,229,984
Held-to-maturity debt securities, at amortized cost:
MBS:
Residential
138,615
146,468
Commercial
98,370
100,670
Puerto Rico municipal bonds
107,450
107,040
ACL for held-to-maturity Puerto Rico municipal bonds
(1,267)
(2,197)
Total held-to-maturity
debt securities
343,168
351,981
Equity securities, including $34.0 million and $34.6 million of FHLB stock
as of June 30, 2024 and December 31, 2023
51,037
49,675
Total money market
investments and investment securities
$
5,355,955
$
5,632,879
The carrying values of debt securities as of June 30, 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
$
864,132
0.88
Due after one year through five years
1,472,025
0.82
Due after five years through ten years
8,100
2.64
Due after ten years
8,243
5.69
2,352,500
0.86
Puerto Rico government and municipalities obligations:
Due within one year
3,178
9.30
Due after one year through five years
51,424
7.72
Due after five years through ten years
36,253
7.03
Due after ten years
18,127
7.40
108,982
7.48
MBS
2,839,264
1.72
ACL on held-to-maturity debt securities
(1,267)
-
Total debt securities
$
5,300,479
1.47
100
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 June 30, 2024, the
Corporation had
approximately $1.7
billion in
callable debt
securities (U.S.
agencies debt
securities) with
an average
yield of
0.80%
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.
101
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 $586.3
million as of June 30,
2024, compared to $663.2
million as of December 31,
2023. When adding $1.9
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 $2.5
billion
as of
June 30,
2024,
or 13.37%
of
total assets,
compared to $2.8 billion, or 14.93%
of total assets as of December 31, 2023.
In
addition
to
the
aforementioned
$1.9
billion
in
cash
and
free
high
quality
liquid
assets,
the
Corporation
had
$968.1
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 such
available secured lines
of credit to
the core liquidity)
was approximately 18.50%
of total assets as
of June 30,
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
$2.5
billion
available for funding under
the FED’s
Borrower-in-Custody (“BIC”) Program
as of June 30, 2024
as an additional source
of liquidity.
Total
loans pledged
to the
FED BIC
Program
amounted
to $3.2
billion
as of
June 30,
2024.
The Corporation
also does
not
rely on
uncommitted
inter-bank
lines
of
credit
(federal
funds
lines)
to
fund
its
operations.
On
a
combined
basis,
as
of
June
30,
2024,
the
Corporation had $6.0
billion available to meet
liquidity needs, or 132%
of estimated uninsured deposits
,
excluding fully collateralized
government deposits.
Liquidity
at
the Bank
level
is highly
dependent
on
bank deposits,
which
fund
87.8%
of the
Bank’s
assets (or
84.4%
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.
102
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 June 30, 2024,
the Corporation’s commitments to
extend credit amounted to approximately $2.1
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:
June 30, 2024
December 31, 2023
(In thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit:
Construction undisbursed funds
$
294,782
$
234,974
Unused credit card lines
868,739
882,486
Unused personal lines of credit
38,326
38,956
Commercial lines of credit
863,711
862,963
Letters of credit:
Commercial letters of credit
61,109
69,543
Standby letters of credit
19,359
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 June
30,
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.
103
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 June
30, 2024,
the Corporation’s
core deposits,
which exclude
government
deposits
and
brokered
CDs,
increased
by
$105.9
million
to
$12.7
billion
from
$12.6
billion
as
of
December
31,
2023.
The
$105.9
million
increase
in such
deposits was
primarily
related
to increases
of $71.7
million
in the
Puerto
Rico region,
$21.1 million
in the
Virgin Islands
region, and $13.1 million in the Florida region. This increase includes a $162.4
million increase in time deposits.
Government
deposits
(fully
collateralized)
–
As
of
June
30,
2024,
the
Corporation
had
$2.7
billion
of
Puerto
Rico
public
sector
deposits ($2.5
billion in transactional
accounts and
$159.2 million in
time deposits),
relatively unchanged
compared to the
balance 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 23% of
the public sector
deposits as of
June 30, 2024
were from municipalities
and municipal agencies
in Puerto Rico and 77% were from public corporations,
the central government and its agencies, and U.S. federal government
agencies
in Puerto Rico.
In
addition,
as
of
June
30,
2024,
the
Corporation
had
$491.8
million
of
government
deposits
in
the
Virgin
Islands
region,
as
compared
to
$449.4
million
as of
December
31,
2023,
and
$19.0
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
June 30, 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
June
30,
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 June 30, 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
June 30,
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
$4.5
billion,
which
represent
28.46%
of
total
deposits
(excluding
brokered
CDs), as of June 30, 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.
104
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 June 30,2024:
(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
$
370,764
$
212,827
$
372,052
$
128,489
$
1,084,132
Other uninsured time deposits
$
10,947
$
16,493
$
18,906
$
1,644
$
47,990
Brokered
CDs
–
Total
brokered
CDs
decreased
by
$158.5
million
to
$624.8
million
as
of
June
30,
2024,
compared
to
$783.3
million as
of December
31, 2023.
The decline
reflects maturing
short-term brokered
CDs amounting
to $370.1
million with
an all-in
cost of 5.46%
that were paid
off during
the first six
months of 2024,
partially offset
by $211.7
million of new
issuances with original
average maturities of approximately 2 years and an all-in cost of 4.92%.
The average remaining term to maturity of the brokered CDs outstanding
as of June 30, 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.
Also,
depending
on
lending or
other
investment
opportunities available,
cash
inflows from
repayments
of
investment securities
may be used
as well
to repay brokered
CDs. 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 remaining contractual maturities of brokered
CDs as of June 30, 2024:
Total
(In thousands)
Three months or less
$
170,272
Over three months to six months
173,892
Over six months to one year
83,839
Over one year to three years
123,732
Over three years to five years
57,603
Over five years
15,441
Total
$
624,779
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 and six-month periods ended June
30, 2024 and 2023.
Securities
sold
under
agreements
to
repurchase
–
From
time
to
time,
the
Corporation
enters
into
repurchase
agreements
as
an
additional source of funding. As of June 30, 2024 and December 31,
2023, there were no outstanding repurchase agreements.
When
the
Corporation
enters
into
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 June 30, 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
June
30,
2024,
$400.0
million
were
pledged
with
investment
securities and
$100.0 million
were pledged
with mortgage
loans. As
of June
30, 2024,
the Corporation
had $968.1
million available
for additional credit on FHLB lines of credit based on collateral pledged
at the FHLB of New York.
105
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.
As
of
each
of
June
30,
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
June
30,
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.
Also,
see
Note
13
–
“Stockholders’
Equity”
to
the
unaudited
consolidated
financial
statements
herein
for
additional
details
of
capital
actions
that
include
the
approval
of
a
new
repurchase
program
of
$250
million that could include repurchases
of common stock or junior subordinated debentures.
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
six months of
2024, loans
pooled into
Government
National
Mortgage
Association
(“GNMA”)
MBS
amounted
to
approximately
$59.9
million.
Also,
during
the
first
six
months of 2024, the Corporation sold approximately $15.1 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
June 30,
2024, the
Corporation had
approximately $2.5
billion fully
available for
funding
under the FED’s Discount Window
based on collateral pledged at the FED.
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 and
Fitch, one
notch below
the 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.
106
Cash Flows
Cash and
cash equivalents
were $586.3
million as
of June
30, 2024,
a decrease
of $76.9
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 six months 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
first
six
months
of
June
30,
2024
and
2023,
net
cash
provided
by
operating
activities
was
$189.4
million
and
$166.5
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 six-month period
ended June 30,
2024, net cash
provided
by investing
activities was
$11.3
million, primarily
due to
repayments of
U.S. agencies
MBS and
debentures; proceeds
from sales
of
repossessed assets;
and proceeds
from sales
of loans,
mainly driven
by the
bulk sale
of fully
charged-off
consumer loans
during
the
first half
of 2024;
partially offset
by net
disbursements on
loans held
for investment
and purchases
of Community
Reinvestment Act
qualified debt securities during the second quarter of 2024.
For
the
six-month
period
ended
June
30,
2023,
net
cash
provided
by
investing
activities
was
$25.0
million,
primarily
due
to
repayments of U.S.
agencies MBS and debentures
and proceeds from sales
of repossessed assets,
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
six-month
period
ended
June
30,
2024,
net
cash
used
in
financing
activities
was
$277.6
million,
mainly
reflecting
capital
returned to stockholders and a decrease in total deposits.
For the
first six
months of
2023, net
cash provided
by financing
activities was
$375.5 million,
mainly reflecting
a $675.9
million
net
increase
in
deposits,
partially
offset
by
a
$196.0
million
net
decrease
in
borrowings
and
$104.4
million
of
capital
returned
to
stockholders.
107
Capital
As of
June 30,
2024, the
Corporation’s
stockholders’ equity
was $1.5
billion, a
decrease of
$6.1 million
from December
31, 2023.
The decrease
was driven
by $100.0
million in
common stock
repurchases
under the
2023 stock
repurchase program,
common
stock
dividends declared
in the
first half
of 2024
totaling $53.4
million or
$0.32 per
common share,
and a
$4.5 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 half of 2024.
On July 22,
2024, the Corporation’s
Board declared a
quarterly cash dividend
of $0.16 per common
share. The dividend
is payable
on September
13, 2024 to
shareholders of
record at the
close of business
on August
29, 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 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
commenced
in
the fourth
quarter
of 2023.
During the first half of 2024, the Corporation
repurchased approximately 5.8 million shares of common
stock for a total cost of $100.0
million,
of
which
approximately
2.8
million
shares
of
common
stock
for
a
total
cost
of
$50.0
million
were
repurchased
during
the
second quarter
of 2024.
As of June
30, 2024,
the Corporation
has remaining
authorization to
repurchase approximately
$50.0 million
of common
stock. 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.
Furthermore,
on
July 22,
2024,
the
Corporation
announced
that
its Board
of Directors
approved
a
new repurchase program, under which the Corporation may
repurchase up to an additional $250 million that could
include repurchases
of common stock or junior subordinated debentures, which it expects to execute
through the end of the fourth quarter of 2025.
Repurchases
under
the
programs
may
be
executed
through
open
market
purchases,
accelerated
share
repurchases,
privately
negotiated
transactions
or plans,
including
plans complying
with Rule
10b5-1
under
the Exchange
Act, and/or
redemption of
junior
subordinated
debentures, and
will be
conducted
in accordance
with applicable
legal and
regulatory requirements.
The Corporation’s
repurchase programs
are 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
repurchase programs do
not obligate
it to acquire any
specific number of shares
and do not have
an expiration date. The
repurchase programs may be
modified, suspended,
or
terminated
at
any
time
at
the
Corporation’s
discretion.
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.
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.
108
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 June 30, 2024 and December 31, 2023, respectively:
June 30, 2024
December 31, 2023
(In thousands, except ratios and per share information)
Total common equity
- GAAP
$
1,491,460
$
1,497,609
Goodwill
(38,611)
(38,611)
Other intangible assets
(9,700)
(13,383)
Tangible common
equity - non-GAAP
$
1,443,149
$
1,445,615
Total assets - GAAP
$
18,881,374
$
18,909,549
Goodwill
(38,611)
(38,611)
Other intangible assets
(9,700)
(13,383)
Tangible assets -
non-GAAP
$
18,833,063
$
18,857,555
Common shares outstanding
163,865
169,303
Tangible common
equity ratio - non-GAAP
7.66%
7.67%
Tangible book
value per common share - non-GAAP
$
8.81
$
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 June
30, 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 June
30, 2024 and December 31, 2023, respectively.
There were no transfers to the legal surplus reserve during the first half of 2024.
109
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
June
30,
2024,
the
Corporation
forecasted
the
12-month
net
interest
income
assuming
June
30,
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
June 30,
2024, as
compared with
December 31,
2023, reflects
an increase
of 10
bps on
average in
the short-
term sector of the curve, or
between one to twelve months;
an increase of 52 bps
in the medium-term sector of
the curve, or between 2
to 5 years; and
an increase of 50 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
49 bps in the medium-term sector, and an
increase of 46 bps in the long-term sector.
110
The following table presents the results of the static simulations as of June 30,2024
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)
June 30, 2024
December 31, 2023
Gradual Change in Interest Rates:
+ 300 bps ramp
1.38
%
1.08
%
+ 200 bps ramp
0.93
%
0.73
%
- 300 bps ramp
-3.06
%
-3.09
%
- 200 bps ramp
-1.95
%
-2.02
%
Immediate Change in Interest Rates:
+ 200 bps shock
1.90
%
2.45
%
- 200 bps shock
-4.94
%
-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
June 30,
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
saving
accounts
and
time
deposits
as
a
result
of
higher
balances.
On
the
assets
side,
the
sensitivity
remained
flat.
The
increase
in
sensitivity from
the investment
securities portfolio
due to
the level
of scheduled
maturities of
U.S. agencies
debentures over
the next
twelve months and an increase in the prepayment rate assumptions of MBS was offset
by lower sensitivity due to lower cash balances.
Gradual falling
rates scenarios
show a
slight decrease
in interest
rate sensitivity,
when compared
with December
31, 2023,
due to
lower sensitivity
in the
assets side.
The decrease
in sensitivity
due to
lower cash
balances was
partially offset
by the
aforementioned
increase
in
sensitivity
from
the
investment
securities
portfolio.
On
the
liabilities
side,
the
sensitivity
resulted
in
a
minor
decrease
driven
by
the
aforementioned
increase
in
repricing
lag,
partially
offset
by
higher
sensitivity
in
time
deposits
as
a
result
of
higher
balances.
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.
111
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.
112
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
June 30,
2024 and December
31, 2023,
the Corporation
applied
the
baseline
scenario
for
the
commercial
mortgage
and
construction
loan
portfolios
since
it
expects
a
more
favorable
economic
outlook
of certain
macroeconomic
variables
associated
with
commercial
real
estate property
performance,
particularly
in
the Puerto
Rico
region.
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
June
30,
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
7.58%
for
the
remainder
of
2024
and
an
average
projected
appreciation of
0.81% for
the year
2025, compared
to an
average projected
contraction
of 6.88%
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
and for
the year
2025,
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 6.42%
and 6.39% for the
remainder of 2024
and for
the year 2025, respectively,
when compared to the same period as of December 31, 2023.
●
Average
regional unemployment
rate in
Puerto Rico
is forecasted
at 6.08%
for the
remainder of
2024 and
6.27% for
2025,
compared to 7.53%
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
4.03%
and 4.45%, respectively,
for the remainder
of 2024,
and -
4.44%
and 4.84%,
respectively,
for the
year 2025,
compared to
4.42% and
4.87%, 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
GDP in the U.S.
mainland of 1.66% for
the remainder of 2024
and 1.13%
for the year 2025,
compared
to 0.48%
for the remainder of 2024 and 1.64%
for the year 2025 as of December 31, 2023.
113
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
June
30,
2024,
management
compared
the
modeled
estimates
under
the
probability-
weighted
economic
scenarios
against
a
more
adverse
scenario.
Such
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 6.40%
for the
remainder of
2024, compared
to 6.08%
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
June
30,
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
$44
million
at
June
30,
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
June 30, 2024.
As of June 30, 2024, the ACL for loans and finance
leases was $254.5 million, a decrease of $7.3 million, from $261.8 million
as of
December
31,
2023.
The
ACL
for
residential
mortgage
loans
decreased
by
$11.3
million,
mainly
driven
by
updated
historical
loss
experience
used for
determining the
ACL estimate
resulting
in a
downward
revision
of estimated
loss severities
and
lower
required
reserve
levels,
partially
offset
by
newly
originated
loans
that
have
a
longer
life.
The
ACL
for
commercial
and
construction
loans
decreased by $1.3 million, mainly due to an improvement on the
economic outlook of certain macroeconomic variables, particularly
in
variables associated with commercial real estate property performance,
partially offset by increased volume.
Meanwhile,
the
ACL
for
consumer
loans
increased
by
$5.3
million
mainly
driven
by
increases
in
historical
charge-off
and
delinquency levels, mainly
in credit cards;
increases in portfolio volumes
in auto loan portfolio; and
updated historical loss experience
used for
determining the
ACL estimate
resulting in
an upward
revision of
estimated loss
severities and
higher required
reserve levels
in
the
auto
loan
and
finance
lease
portfolios.
See
Note
3
–
“Loans
Held
for
Investment”
to
the
unaudited
consolidated
financial
statements
herein
for
additional
information
on
the
review
of
the
credit
models
completed
by
the
Corporation
during
the
second
quarter of 2024.
The
ratio
of
the
ACL
for
loans
and
finance
leases
to
total
loans
held
for
investment
decreased
to
2.06%
as
of
June
30,
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
1.64% as of
June 30, 2024,
mainly due to
the aforementioned updated
historical loss experience
,
partially offset
by newly
originated loans that have a longer life.
●
The ACL
to total
loans ratio
for the
construction loan
portfolio increased
from 2.61%
as of
December 31,
2023 to
3.04%
as of June 30, 2024, mainly due to newly originated loans which have a longer
life.
●
The ACL
to total
loans ratio
for the
commercial mortgage
loan portfolio
decreased from
1.41% as
of December
31, 2023
to
1.24%
as
of
June
30,
2024,
mainly
driven
by
an
improvement
on
the
economic
outlook
of
certain
macroeconomic
variables.
●
The ACL to total
loans ratio for
the C&I loan portfolio
remained relatively flat
at 1.06% as of
June 30, 2024, compared
to
1.05% as of December 31, 2023.
●
The ACL
to total
loans ratio
for the
consumer loan
portfolio increased
from 3.64%
as of December
31, 2023
to 3.73% as
of
June
30,
2024,
mainly
driven
by
increases
in
delinquency
levels
and
the
aforementioned
updated
historical
loss
experience.
The ratio
of the
total ACL
for loans
and finance
leases to
nonaccrual loans
held for
investment was
264.66% as
of June
30, 2024,
compared to 312.81% as of December 31, 2023.
114
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 $254.5
million as of
June 30,
2024, or 2.06%
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 June 30,
Six-Month Period Ended June 30,
2024
2023
2024
2023
(Dollars in thousands)
ACL for loans and finance leases, beginning of year
$
263,592
$
265,567
$
261,843
$
260,464
Impact of adoption of ASU 2022-02
-
-
-
2,116
Provision for credit losses - (benefit) expense:
Residential mortgage
(10,593)
(3,500)
(11,057)
(3,427)
Construction
(554)
1,202
17
2,062
Commercial mortgage
(2,976)
5,999
(2,986)
7,245
C&I
(668)
2,997
(4,028)
1,347
Consumer and finance leases
26,721
14,072
42,901
29,799
Total provision for credit losses
- expense
11,930
20,770
24,847
37,026
Charge-offs:
Residential mortgage
(491)
(1,146)
(1,007)
(2,129)
Construction
-
(38)
-
(38)
Commercial mortgage
-
(88)
-
(106)
C&I
(332)
(6,350)
(791)
(6,468)
Consumer and finance leases
(25,591)
(16,462)
(53,955)
(33,260)
Total charge offs
(26,414)
(24,084)
(55,753)
(42,001)
Recoveries:
Residential mortgage
446
757
718
1,254
Construction
14
409
24
472
Commercial mortgage
393
56
433
224
C&I
958
132
6,077
222
Consumer and finance leases
3,613
3,451
16,343
(1)
7,281
Total recoveries
5,424
4,805
23,595
(1)
9,453
Net charge-offs
(20,990)
(19,279)
(32,158)
(32,548)
ACL for loans and finance leases, end of period
$
254,532
$
267,058
$
254,532
$
267,058
ACL for loans and finance leases to period-end total loans
held for investment
2.06%
2.28%
2.06%
2.28%
Net charge-offs (annualized) to average loans
outstanding during the period
0.69%
0.67%
0.53%
(2)
0.56%
Provision for credit losses - expense for loans and finance
leases to net charge-offs during
the period
0.57x
1.08x
0.77x
1.14x
(1)
For the six-month period ended June 30, 2024 includes a recovery totaling $9.5 million associated with the bulk sale of fully charged-off consumer loans and finance leases.
(2)
The recovery associated with the aforementioned bulk sale reduced the ratio of total net charge-offs to related average loans by 15 basis points.
115
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 June 30, 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
$
2,809,666
$
185,957
$
2,423,309
$
3,254,577
$
3,711,999
$
12,385,508
Percent of loans in each category to total loans
23
%
2
%
20
%
26
%
29
%
100
%
Allowance for credit losses
$
46,051
$
5,646
$
30,078
$
34,448
$
138,309
$
254,532
Allowance for credit losses to amortized cost
1.64
%
3.04
%
1.24
%
1.06
%
3.73
%
2.06
%
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
June 30,
2024,
the
ACL for
off-balance
sheet
credit
exposures decreased by $0.1 million to $4.5 million, when compared
to December 31, 2023.
Allowance for Credit Losses for Held-to-Maturity
Debt Securities
As of
June 30,
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
June
30,
2024,
the
ACL
for
held-to-maturity
debt
securities
was
$1.3
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.
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 $0.5
million as of each of June 30, 2024 and December 31, 2023.
116
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
autos
acquired
in settlement
of
loans. Repossessed
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.
117
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:
June 30, 2024
December 31, 2023
(Dollars in thousands)
Nonaccrual loans held for investment:
Residential mortgage
$
31,396
$
32,239
Construction
4,742
1,569
Commercial mortgage
11,736
12,205
C&I
27,661
15,250
Consumer and finance leases
20,638
22,444
Total nonaccrual loans held for investment
96,173
83,707
OREO
21,682
32,669
Other repossessed property
7,513
8,115
Other assets
(1)
1,532
1,415
Total non-performing assets
$
126,900
$
125,906
Past due loans 90 days and still accruing
(2) (3) (4)
$
47,173
$
59,452
Non-performing assets to total assets
0.67
%
0.67
%
Nonaccrual loans held for investment to total loans held for investment
0.78
%
0.69
%
ACL for loans and finance leases
$
254,532
$
261,843
ACL for loans and finance leases to total nonaccrual loans held
for investment
264.66
%
312.81
%
ACL for loans and finance leases to total nonaccrual loans held
for investment, excluding residential real estate loans
392.94
%
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 $7.4 million and $8.3 million as of
June 30, 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 $11.0 million and $15.4
million
of FHA government guaranteed residential mortgage loans that were
over 15 months delinquent as of
June 30, 2024 and December 31, 2023,
respectively.
(4)
These includes rebooked loans, which were previously pooled into
GNMA securities, amounting to $6.8 million and $7.9 million as
of June 30, 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.
118
Total
non-performing
assets
increased
by
$1.0
million
to
$126.9
million
as
of
June
30,
2024,
compared
to
$125.9
million
as
of
December 31,
2023. The
increase in
non-performing assets
was driven
by a
$12.5 million
increase in
total nonaccrual
loans held
for
investment, partially offset
by an $11.0
million decrease in
the OREO portfolio
balance in the
Puerto Rico region,
mainly attributable
to the sale of a $5.3 million commercial real estate OREO property and sales of
residential OREO properties.
Total nonaccrual
loans were $96.2 million as of June 30, 2024. This represents
a net increase of $12.5 million from $83.7 million as
of December
31, 2023,
consisting of
increases of
$15.1 million
in nonaccrual
commercial and
construction loans,
partially offset
by
decreases
of
$1.8
million
in
nonaccrual
consumer
loans
and
$0.8
million
in
nonaccrual
residential
mortgage
loans.
The
increase
in
nonaccrual commercial
and construction
loans was
primarily driven
by the
inflow of
a $16.5
million commercial
relationship
in the
Puerto Rico region in the food retail industry.
The following table shows non-performing assets by geographic segment
as of the indicated dates:
June 30, 2024
December 31, 2023
(In thousands)
Puerto Rico:
Nonaccrual loans held for investment:
Residential mortgage
$
16,895
$
18,324
Construction
3,776
595
Commercial mortgage
2,865
3,106
C&I
26,387
13,414
Consumer and finance leases
20,276
21,954
Total nonaccrual loans held for investment
70,199
57,393
OREO
17,413
28,382
Other repossessed property
7,330
7,857
Other assets
1,532
1,415
Total non-performing assets
$
96,474
$
95,047
Past due loans 90 days and still accruing
$
44,028
$
53,308
Virgin Islands:
Nonaccrual loans held for investment:
Residential mortgage
$
6,446
$
6,688
Construction
966
974
Commercial mortgage
8,871
9,099
C&I
1,274
1,169
Consumer
326
419
Total nonaccrual loans held for investment
17,883
18,349
OREO
4,202
4,287
Other repossessed property
183
252
Total non-performing assets
$
22,268
$
22,888
Past due loans 90 days and still accruing
$
3,145
$
6,005
United States:
Nonaccrual loans held for investment:
Residential mortgage
$
8,055
$
7,227
C&I
-
667
Consumer
36
71
Total nonaccrual loans held for investment
8,091
7,965
OREO
67
-
Other repossessed property
-
6
Total non-performing assets
$
8,158
$
7,971
Past due loans 90 days and still accruing
$
-
$
139
119
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 June 30, 2024
Beginning balance
$
1,498
$
11,976
$
25,067
$
38,541
Plus:
Additions to nonaccrual
3,300
7
14,800
18,107
Less:
Loans returned to accrual status
(35)
(77)
(9,226)
(1)
(9,338)
Nonaccrual loans transferred to OREO
-
-
(684)
(684)
Nonaccrual loans charge-offs
-
-
(332)
(332)
Loan collections
(21)
(170)
(1,964)
(2,155)
Ending balance
$
4,742
$
11,736
$
27,661
$
44,139
(1)
Mainly related to the restoration to accrual status of a C&I
loan in the Florida region in the power generation industry that entered
in nonaccrual status during the first quarter of 2024.
Construction
Commercial
Mortgage
C&I
Total
(In thousands)
Quarter Ended June 30, 2023
Beginning balance
$
1,794
$
21,598
$
13,404
$
36,796
Plus:
Additions to nonaccrual
-
439
2,691
3,130
Less:
Loans returned to accrual status
-
-
(374)
(374)
Nonaccrual loans transferred to OREO
-
(61)
-
(61)
Nonaccrual loans charge-offs
-
(88)
(6,350)
(6,438)
Loan collections
(117)
(352)
(177)
(646)
Ending balance
$
1,677
$
21,536
$
9,194
$
32,407
120
Construction
Commercial
Mortgage
C&I
Total
(In thousands)
Six-Month Period Ended June 30, 2024
Beginning balance
$
1,569
$
12,205
$
15,250
$
29,024
Plus:
Additions to nonaccrual
3,300
7
25,841
29,148
Less:
Loans returned to accrual status
(35)
(77)
(9,226)
(1)
(9,338)
Nonaccrual loans transferred to OREO
(48)
-
(684)
(732)
Nonaccrual loans charge-offs
-
-
(791)
(791)
Loan collections
(44)
(399)
(2,729)
(3,172)
Ending balance
$
4,742
$
11,736
$
27,661
$
44,139
(1)
Mainly related to the restoration to accrual status of a C&I
loan in the Florida region in the power generation industry that entered
in nonaccrual status during the first quarter of 2024.
Construction
Commercial
Mortgage
C&I
Total
(In thousands)
Six-Month Period Ended June 30, 2023
Beginning balance
$
2,208
$
22,319
$
7,830
$
32,357
Plus:
Additions to nonaccrual
127
983
10,161
11,271
Less:
Loans returned to accrual status
-
(361)
(526)
(887)
Nonaccrual loans transferred to OREO
(332)
(223)
(183)
(738)
Nonaccrual loans charge-offs
-
(106)
(6,468)
(6,574)
Loan collections
(326)
(1,082)
(1,620)
(3,028)
Reclassification
-
6
-
6
Ending balance
$
1,677
$
21,536
$
9,194
$
32,407
121
The following table presents the activity of residential nonaccrual loans held for investment
for the indicated periods:
Quarter Ended June 30,
Six-Month Period Ended June 30,
2024
2023
2024
2023
(In thousands)
Beginning balance
$
32,685
$
36,410
$
32,239
$
42,772
Plus:
Additions to nonaccrual
3,397
3,009
7,993
5,090
Less:
Loans returned to accrual status
(2,137)
(2,714)
(4,970)
(6,651)
Nonaccrual loans transferred to OREO
(743)
(1,549)
(1,147)
(4,259)
Nonaccrual loans charge-offs
(153)
(401)
(278)
(621)
Loan collections
(1,653)
(1,503)
(2,441)
(3,073)
Reclassification
-
-
-
(6)
Ending balance
$
31,396
$
33,252
$
31,396
$
33,252
The amount of nonaccrual consumer loans, including finance leases, decreased
by $1.8 million to $20.6 million as of June 30, 2024,
compared to $22.4 million as of December 31, 2023. The decrease was mainly
reflected in the auto loan and finance lease portfolios.
As
of
June
30,
2024,
approximately
$29.7
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 six-month
period ended June
30, 2024, interest income
of approximately $0.2 million
related to nonaccrual
loans with a
carrying
value of
$40.3 million
as of
June 30,
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 $147.4
million as of June 30, 2024,
a decrease of $3.4 million, compared
to $150.8 million as of December
31, 2023.
The variances by major
portfolio categories are as follows:
●
Residential mortgage loans in early delinquency decreased by $4.2
million to $32.3 million.
●
Consumer loans in early delinquency decreased by $0.3 million to $111.7
million, mainly reflected in the auto loan portfolio.
●
Commercial
and
construction
loans
in
early
delinquency
increased
by
$1.1
million
to
$3.4
million,
mainly
due
to
a
commercial mortgage
loan that
matured and
is 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.
For
the quarter and six-month
period ended June 30,
2024, loans modified to
borrowers experiencing financial
difficulty had an
amortized
cost
basis of
$118.9
million
and $121.4
million,
respectively,
which
included
$110.9
million
related
to a
relationship
that had
been
previously
reported as
a troubled
debt restructuring
under ASC
310-40.
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.
122
The OREO portfolio, which is part of non-performing
assets, amounted to $21.7 million as of June 30,
2024 and $32.7 million as of
December 31,
2023. The
following tables
show the
composition of
the OREO portfolio
as of
June 30,
2024 and
December 31,
2023,
as well as the activity of the OREO portfolio by geographic area during the
six-month period ended
June 30, 2024:
OREO Composition by Region
As of June 30, 2024
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Residential
$
14,035
$
1,366
$
67
$
15,468
Construction
1,632
26
-
1,658
Commercial
1,746
2,810
-
4,556
$
17,413
$
4,202
$
67
$
21,682
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
Six-Month Period Ended June 30, 2024
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Beginning Balance
$
28,382
$
4,287
$
-
$
32,669
Additions
4,532
-
67
4,599
Sales
(14,690)
(85)
-
(14,775)
Subsequent measurement adjustments
(169)
-
-
(169)
Other adjustments
(642)
-
-
(642)
Ending Balance
$
17,413
$
4,202
$
67
$
21,682
123
Net Charge-offs and Total
Credit Losses
Net charge-offs
totaled $21.0
million for
the second
quarter of
2024, or
0.69% of
average loans
on an
annualized basis,
compared
to $19.3
million, or
an annualized
0.67% of
average loans,
for the
second quarter
of 2023.
For the
six-month period
ended June
30,
2024,
net
charge-offs
totaled
$32.2
million,
or
an
annualized
0.53%
of
average
loans,
compared
to $32.5
million,
or an
annualized
0.56%
of average
loans, for
the same
period
in 2023.
Net charge
-offs
for
the six-month
period
ended
June 30,
2024 include
a $9.5
million
recovery
associated
with
the
bulk
sale
of
fully
charged-off
consumer
loans
and
finance
leases,
which
reduced
by
15
basis
points the ratio of total net charge-offs to average loans
for such period.
Consumer loans
and finance
leases net
charge-offs
for the
second quarter
of 2024
were $22.0
million, or
an annualized
2.38% of
related average
loans, compared
to net
charge-offs
of $13.0
million, or
an annualized
1.51% of
related average
loans, for
the second
quarter
of
2023.
Net
charge-offs
of
consumer
loans
and
finance
leases
for
the
six-month
period
ended
June
30,
2024
were
$37.6
million, or
2.04% of
related average
loans, compared
to net
charge-offs
of $26.0
million, or
an annualized
1.53% of
related average
loans, for the
same period in
2023. The increase
for the second
quarter and first
six months of 2024
was mainly driven
by an increase
in charge-offs
across all major portfolio
classes which have been
trending higher towards historical
loss experience, partially
offset by
the recovery
associated with
the aforementioned
bulk sale,
which reduced
by 52
basis points
the ratio
of consumer
loans and
finance
leases net charge-offs to related average loans for the
first six months of 2024.
C&I
loans
net
recoveries
for
the
second
quarter
of
2024
were
$0.6
million,
or
an
annualized
0.08%
of
related
average
loans,
compared
to net
charge-offs
of
$6.2 million,
or
an annualized
0.87%
of related
average loans,
for
the second
quarter of
2023.
C&I
loans net recoveries for
the six-month period ended
June 30, 2024 were $5.3
million, or an annualized 0.33%
of related average loans,
compared
to net
charge-offs
of $6.2
million, or
an annualized
0.44% of
related average
loans,
for the
same period
in 2023.
The net
recoveries
for
the
second
quarter
and
first
six
months
of
2024
include
a
$0.8
million
recovery
associated
with
a
C&I
loan
in
the
Florida region.
The net recoveries
for the
first six
months of 2024
also include
a $5.0 million
recovery associated
with a C&I
loan in
the
Puerto
Rico region.
Meanwhile,
the
net charge
-offs
for
the
second
quarter
and first
six
months
of 2023
included
a
$6.2
million
charge-off recorded on a C&I participated loan in
the Florida region in the power generation industry.
Commercial mortgage
loans net recoveries
for the second
quarter and
six-month period
ended June 30,
2024 were $0.4
million, or
an
annualized
0.07%
and
0.04%,
respectively,
of
related
average
loans,
compared
to
net
charge-offs
of
$32
thousand
and
net
recoveries of
$0.1 million,
or an
annualized 0.01%
of related
average loans,
for the
comparable periods
in 2023.
The net
charge-offs
for the
second quarter
and first
six months
of 2024
include a
$0.4 million
recovery
recorded on
a commercial
real estate
loan in
the
Florida region.
The following table presents annualized net charge-offs
(recoveries) to average loans held-in-portfolio for the indicated periods:
Quarter Ended June 30,
Six-Month Period Ended June 30,
2024
2023
2024
2023
Residential mortgage
0.01
%
0.06
%
0.02
%
0.06
%
Construction
(0.02)
%
(0.99)
%
(0.02)
%
(0.59)
%
Commercial mortgage
(0.07)
%
0.01
%
(0.04)
%
(0.01)
%
C&I
(0.08)
%
0.87
%
(0.33)
%
0.44
%
Consumer and finance leases
2.38
%
1.51
%
2.04
%
(1)
1.53
%
Total loans
0.69
%
0.67
%
0.53
%
(1)
0.56
%
(1)
The $9.5 million recovery associated with the bulk sale
of fully charged-off consumer loans and finance leases
during the first six months of 2024 reduced the ratios of consumer loans
and
finance leases and total net charge-offs to related
average loans by 52 basis points and 15 basis points,
respectively.
124
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 June 30,
Six-Month Period Ended June 30,
2024
2023
2024
2023
PUERTO RICO:
Residential mortgage
0.01
%
0.08
%
0.03
%
0.09
%
Construction
-
%
(3.04)
%
-
%
(1.86)
%
Commercial mortgage
-
%
0.02
%
-
%
0.01
%
C&I
0.04
%
0.01
%
(0.44)
%
0.01
%
Consumer and finance leases
2.39
%
1.51
%
2.03
%
(1)
1.47
%
Total loans
0.90
%
0.56
%
0.66
%
(1)
0.57
%
VIRGIN ISLANDS:
Residential mortgage
-
%
(0.02)
%
-
%
(0.05)
%
Construction
-
%
3.93
%
-
%
1.93
%
Commercial mortgage
(0.23)
%
(0.23)
%
(0.04)
%
(0.22)
%
C&I
-
%
-
%
-
%
(0.01)
%
Consumer and finance leases
2.49
%
2.02
%
0.42
%
2.10
%
Total loans
0.36
%
0.34
%
0.06
%
0.31
%
FLORIDA:
Residential mortgage
-
%
(0.04)
%
-
%
(0.02)
%
Construction
(0.07)
%
(0.06)
%
(0.06)
%
(0.05)
%
Commercial mortgage
(0.23)
%
-
%
(0.12)
%
(0.04)
%
C&I
(0.37)
%
2.67
%
(0.13)
%
1.31
%
Consumer and finance leases
(3.57)
%
(1.16)
%
(1.69)
%
(0.45)
%
Total loans
(0.25)
%
1.23
%
(0.10)
%
0.60
%
(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 six-month period ended June 30, 2024 by 53
basis points and 20 basis points, respectively.
125
The following table presents information about the OREO inventory
and related gains and losses for the indicated periods:
Quarter ended June 30,
Six-Month Period Ended June 30,
2024
2023
2024
2023
(Dollars in thousands)
OREO
OREO balances, carrying value:
Residential
$
15,468
$
23,621
$
15,468
$
23,621
Construction
1,658
1,892
1,658
1,892
Commercial
4,556
6,058
4,556
6,058
Total
$
21,682
$
31,571
$
21,682
$
31,571
OREO activity (number of properties):
Beginning property inventory
247
344
277
344
Properties acquired
33
44
49
103
Properties disposed
(58)
(68)
(104)
(127)
Ending property inventory
222
320
222
320
Average holding period (in days)
Residential
512
524
512
524
Construction
2,541
2,178
2,541
2,178
Commercial
3,342
2,580
3,342
2,580
Total average holding period (in days)
1,262
1,018
1,262
1,018
OREO operations (gain) loss:
Market adjustments and (gains) losses on sale:
Residential
$
(1,918)
$
(2,553)
$
(3,744)
$
(5,043)
Construction
(10)
(7)
(19)
(47)
Commercial
(2,241)
-
(2,222)
67
Total net gain
(4,169)
(2,560)
(5,985)
(5,023)
Other OREO operations expenses
560
576
924
1,043
Net Gain on OREO operations
$
(3,609)
$
(1,984)
$
(5,061)
$
(3,980)
126
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
$12.4 billion
as of
June 30,
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.
127
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 April 2024, estimates showed that the EDB-EAI stood
at 123.9, down
2.0% on a year-over-year basis.
Over the 12-month period
ended April 30, 2024, the EDB-EAI
averaged 126.7, the highest level
since
April 2015
and approximately 2.0% above the comparable figure a year earlier.
Labor
market trends
remain positive.
Data published
by the
Bureau
of Labor
Statistics showed
that non-farm
payrolls as
of June
2024 in
Puerto Rico
increased by
2.0% when
compared to
June 2023,
supported by
a year-over-year
increase of
8.5% in Leisure
and
Hospitality payroll
employment and
a 5.8%
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 June
5, 2024,
the PROMESA
oversight board
certified the
2024 Fiscal
Plan for
Puerto Rico
(the “2024
Fiscal Plan”),
updated
with
the
most
recent
data
and
projections
for
revenues
and
expenses,
and
renewed
roadmap
for
Puerto
Rico
to
achieve
fiscal
responsibility.
The 2024
Fiscal Plan is
made up
of four
parts: (i) progress
made in stabilizing
government finances,
(ii) Puerto Rico’s
current financial
conditions and
risks, (iii) details
of the actions
required to
achieve fiscal
responsibility and
adequate access
to credit
markets, and
(iv) description
of the
actions the
PROMESA oversight
board and
the Government must
take to complete
PROMESA’s
mandate.
The 2024
Fiscal Plan
outlines
eight areas
of focus
to achieve
long-term
fiscal responsibility:
(i) improved
economic
and revenue
forecasting,
(ii)
adoption
of
budget
best
practices,
(iii)
comprehensive
capital
delivery
program,
(iv)
improved
management
of
education
resources,
(v)
improved
government
service
delivery
and
labor
relations,
(vi)
outcome-based,
data-driven,
and
controlled
healthcare
spending,
(vii)
improved,
transparent
financial
reporting,
and
(viii)
optimized
municipal
fiscal
management.
Success
in
these areas, which
aim to address
the most crucial
financial management
challenges that Puerto
Rico faces, is
critical for
Puerto Rico
to fully recover from bankruptcy and to fulfill the mandate of PROMESA to achieve
fiscal responsibility.
As the
debt restructurings
come to
an end,
a significant
portion of
the uncertainty
that has
plagued the
economy over
the past
ten
years has
faded away.
To
generate revenues
that are
resilient even
when the
unprecedented influx
of federal
funding subsides,
fiscal
stability alone
will not
suffice. The
2024 Fiscal
Plan describes
an effort
to develop
an integrated
plan that
will serve
as a
roadmap to
unlock
future
growth.
While
that
plan
is
developed,
the
PROMESA
oversight
board
and
the
Government
will
continue
to
support
specific priorities
through a first
wave of economic
growth initiatives that
aim to address
the most crucial
challenges that Puerto
Rico
faces.
The
list
of
focus
areas
outlined
in
the
2024
Fiscal
Plan
to
promote
economic
growth
include:
(i)
integrated
framework
for
economic
growth,
(ii)
human
capital,
focused
on
robust,
highly-skilled,
and
health
workforce,
(iii)
economic
strategies,
focused
on
improved
ease
of
doing
business,
(iv)
economic
policies,
focused
on
reforms
of
Puerto
Rico’s
tax
system,
and
(v)
infrastructure,
focused on reduced cost and increased reliability of energy,
transportation, and internet connectivity.
Similar to
previous
fiscal plans,
the 2024
Fiscal Plan
includes
an updated
macroeconomic forecast
reflecting
the impact
of fiscal
and
structural
measures,
natural disasters,
COVID-19,
and
federal
funding
in response
to natural
disasters
and
the
pandemic
on the
baseline
economic
trajectory.
The
2024
Fiscal
Plan
projects
Puerto
Rico
GNP
growth
in
fiscal
year
2024
to
be
1.0%,
followed
by
declines of 0.8% and
0.1% in fiscal year
2025 and fiscal year
2026, respectively.
On average, Puerto Rico’s
GNP is projected
to grow
approximately 0.4%
between fiscal
year 2023
and fiscal
year 2026.
Contrary to
previous fiscal
plans where
Puerto Rico’s
population
128
was projected to decline,
the 2024 Fiscal Plan includes
a stable population projection
through 2029 mainly due to
the offset between a
negative
natural
population
decline
and
positive
net
migration.
Specifically,
the
revised
fiscal
plan
projections
contemplate
a
net
inflow of over 20,000 people annually through 2029, compared to
an average of less than 5,000 people in the 2023 fiscal plan.
The 2024 Fiscal Plan projects
that approximately $54.5 billion
in total disaster relief funding,
from federal and private
sources, will
be
disbursed
as part
of
the
reconstruction
efforts
over
a
span of
9
years
(fiscal
years
2024
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
2024
Fiscal
Plan
projects
the
$5.9
billion
in
remaining
COVID-19
relief
funds
to
be
deployed
in fiscal
years 2024
and
2025.
Additionally,
the 2024
Fiscal Plan
continues
to account
for $2.1
billion
in federal
funds
to
Puerto
Rico
from
the
Bipartisan
Infrastructure
Law
directed
towards
improving
Puerto
Rico’s
infrastructure
over
fiscal
years
2024
through
2026.
Overall,
Puerto
Rico’s
economic
growth
is highly
dependent
on
the
Government’s
ability
to
efficiently
deploy
these
federal funds.
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
restructuring
pending
is
that
of
the
Puerto Rico Electric Power Authority (“PREPA”).
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.
On June
12, 2024,
the Court
of Appeals
for the
First Circuit
(the “First
Circuit”) issued
its opinion
in the
appeal of
the Amended
Lien & Recourse
Challenge whereby it
ruled that PREPA’s
bondholders are secured
by a perfected security
interest in PREPA’s
“Net
Revenues” (as
defined in
the Trust
Agreement) and
that they hold
non-recourse claims
secured by
the Net
Revenues and
do not
hold
any unsecured
claims. As
a result
of the
First Circuit’s
ruling, the
PROMESA oversight
board expressed
its intention
of requesting
a
reopening
of
the
confirmation
hearing
record
for
the
limited
purpose
of
valuing
the
non-settling
bondholders’
share
of
the
bonds’
collateral, namely PREPA’s
net revenues and showing the court how such value as determined by the court will be
paid.
Recognizing that
parties’ views
of appropriate
next steps
may vary,
on July 10,
2024, the
Court held
a conference
to address
what
further
submissions
or
proceedings
are
necessary
regarding
or
related
to
the
pending
motion
for
confirmation
of
the
PREPA
Plan.
Following the
conference, Judge
Taylor
Swain issued an
order whereby
all PREPA
confirmation and
bond-related litigation
is stayed
for at least
sixty days, through
and including September
8, 2024, unless
otherwise ordered
by the court.
In addition, the
court ordered
all parties to begin working with the mediation team throughout the duration of
the stay period.
129
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
May 31,
2024, over
$3.5
billion
in disaster
relief funds
were disbursed
through the
Federal
Emergency
Management
Agency
(“FEMA”) Public Assistance program and the
HUD Community Development Block Grant
(“CDBG”) program, a 20% 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 July
15, 2024,
over 3,170
projects had
already
been
completed
under
FEMA’s
Public
Assistance
programs
while
over
20,800
projects
were
active
across
different
stages
of
execution for
a total
cost of $10.6
billion, equivalent
to approximately
30% of
the agency’s
$35.7 billion
obligation, according
to the
Central Office for Recovery,
Reconstruction and Resiliency (“COR3”).
130
Exposure to Puerto Rico Government
As of
June 30,
2024, the
Corporation had
$316.7 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
$18.8
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
and
$6.1
million
in
disbursements
on
a
construction
loan
to
a
public
corporation
of
the
Puerto
Rico
government.
As
of
June
30,
2024,
approximately $203.1 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
$59.4 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.
In addition
to municipalities,
the total
direct exposure
also included
$8.8 million
in a
loan extended
to an affiliate
of PREPA,
$42.3 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 $1.5 million as of June 30, 2024).
The
following
table
details
the
Corporation’s
total
direct
exposure
to
Puerto
Rico
government
obligations
according
to
their
maturities:
As of June 30,2024
Investment
Portfolio
(Amortized
cost)
Loans
Total
Exposure
(In thousands)
Puerto Rico Housing Finance Authority:
After 10 years
$
3,084
$
-
$
3,084
Total
Puerto Rico Housing Finance Authority
3,084
-
3,084
Agencies and public corporation of the Puerto Rico government:
After 1 to 5 years
-
18,973
18,973
After 5 to 10 years
-
23,352
23,352
Total agencies and public
corporation of the Puerto Rico government
-
42,325
42,325
Affiliate of the Puerto Rico Electric Power Authority:
After 1 to 5 years
-
8,849
8,849
Total Puerto Rico government
affiliate
-
8,849
8,849
Total
Puerto Rico public corporations and government affiliate
-
51,174
51,174
Municipalities:
Due within one year
3,178
40,410
43,588
After 1 to 5 years
51,424
43,264
94,688
After 5 to 10 years
36,253
71,346
107,599
After 10 years
16,595
-
16,595
Total
Municipalities
107,450
155,020
262,470
Total
Direct Government Exposure
$
110,534
$
206,194
$
316,728
131
In addition, as of
June 30, 2024, the Corporation
had $74.9 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, 2023, the PRHFA’s
mortgage loans insurance program covered
loans in an aggregate amount
of approximately $388 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, 2023,
the most recent date
as of which information
is available, the
PRHFA had a
liability of approximately $1.3 million as an estimate of the losses inherent in the portfolio.
As
of
each
of
June
30,
2024 and
December
31,
2023,
the
Corporation
had
$2.7
billion
of
public
sector
deposits
in
Puerto
Rico.
Approximately 23% of
the public sector deposits
as of June 30,
2024 were from municipalities
and municipal agencies
in Puerto Rico
and 77%
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.
On
June
17,
2024,
the
United
States
Bureau
of
Economic
Analysis
(the
“BEA”)
released
its
estimates of GDP
for 2022.
According to
the BEA, the
USVI’s
real GDP decreased
1.3% in 2022
after increasing
3.7% in 2021.
The
decrease
in
real
GDP
reflected
declines
in
exports,
private
fixed
investment,
government
spending,
and
personal
consumption
expenditures. These
negative variances were
partly offset
by an increase
in inventory investment,
while imports,
a subtraction item
in
the calculation of GDP,
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
September
2017.
According
to
data
published by
FEMA, over
$5.2 billion
in disaster
recovery funds
had been
disbursed through
May 2024
and nearly
$10 billion
were
remaining
obligated
funds
pending
to
be disbursed.
Moreover,
labor
market
trends
remain
stable
with
non-farm
payrolls as
of
May
2024 in line with the comparable figure for the first quarter of 2024 and 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 June 30,
2024 and December
31, 2023, the
Corporation had $105.0
million and $90.5
million, respectively,
in loans to USVI
public
corporations,
of
which
$69.9
million
and
$57.2
million,
respectively,
were
fully
collateralized
by
cash
balances
held
at
the
Bank. As of June 30, 2024, all loans were currently performing and up
to date on principal and interest payments.
132
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 June
30, 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
June 30,
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 June 30,
2024 that have materially
affected, or are
reasonably likely to
materially affect, the Corporation’s
internal control over financial reporting.
133
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,
in 2023, the FDIC issued a final rule to impose a
special assessment to
recover
certain estimated
losses
to
the
Deposit
Insurance
Fund
(“DIF”) arising
from
the
closures of
Silicon Valley
Bank
and
Signature
Bank. The
estimated losses
will be recovered
through quarterly special
assessments collected
from certain
insured depository
institutions,
including the
Bank, and
collection began
during the
quarter ended
June 30,
2024. In
connection with
updates made
by the
FDIC to
the
initial
estimated
losses
to
the DIF,
the
Corporation recorded
charges of
$0.2
million
and $1.1
million during
the quarter
and
six-month
period ended
June 30,
2024, respectively,
in the
consolidated statements
of income
as part
of “FDIC
deposit insurance”
expenses, which
increased the
estimated FDIC
special assessment
to $7.4
million. The
Corporation continues
to monitor
the FDIC’s
estimated loss
to the
DIF, which could
affect the
amount of
its accrued
liability.
134
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 June
30, 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
June
30, 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)
April 1, 2024 - April 30, 2024
160,195
$
17.41
160,195
$
97,212
May 1, 2024 - May 31, 2024
1,234,806
17.84
1,234,806
75,179
June 1, 2024 - June 30, 2024
1,445,590
17.42
1,445,320
50,000
Total
2,840,591
(2) (3)
2,840,321
(1)
As of June 30, 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 $175 million
had been utilized.
The remaining $50 million
in the table represents
the remaining amount authorized
under the stock
repurchase program as of
June 30, 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 2,840,321 shares of common stock repurchased in the
open market at an average price of $17.60 for a total purchase price
of approximately $50.0 million.
(3)
Includes 270
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 June 30, 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.
135
ITEM 6.
EXHIBITS
See the Exhibit Index below, which is incorporated by
reference herein:
EXHIBIT INDEX
Exhibit No.
Description
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 June 30, 2024, formatted in Inline
XBRL (included within the Exhibit 101 attachments)
136
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:
August 8, 2024
By:
/s/ Aurelio Alemán
Aurelio Alemán
President and Chief Executive Officer
Date: August 8, 2024
By:
/s/ Orlando Berges
Orlando Berges
Executive Vice President and Chief Financial Officer