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NON-CONSOLIDATED VARIABLE INTEREST ENTITIES (VIEs) AND SERVICING ASSETS | 6 Months Ended
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Jun. 30, 2025
NON-CONSOLIDATED VARIABLE INTEREST ENTITIES (VIEs) AND SERVICING ASSETS [Abstract] |
NON-CONSOLIDATED VARIABLE INTEREST ENTITIES (VIEs) AND SERVICING ASSETS | NOTE 6 – 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 2004, FBP Statutory Trusts I and II, financing trusts that are wholly owned by the Corporation , sold to institutional investors $ 100 million and $ 125 million of its variable-rate TruPS, respectively. Such proceeds, along with the proceeds associated with the Corporation’s purchase of common securities of $ 3.1 million and $ 3.9 million, respectively, were used to purchase $ 103.1 million and $ 128.9 million, respectively, in Junior Subordinated Deferrable Debentures. These debentures, net of related issuance costs, are reflected as part of “Long-term borrowings” in the Corporation’s consolidated statements of financial condition. See Note 8 – “Borrowings” for additional information related to the terms of these debentures. During the first half of 2025, the Corporation redeemed the remaining $ 61.7 million of outstanding TruPS as of December 31, 2024 at a contractual call price of 100 %, as further explained in Note 11 – “Stockholders’ Equity.” Following the redemption of these TruPS, FBP Statutory Trusts I and II were liquidated by the Corporation. 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 securitize mortgage loans and sell trust certificates (“private label MBS”). The seller initially provided the servicing for a fee, then sold and issued the private label MBS in favor of FirstBank. Currently, FirstBank is the sole owner of these private label MBS, with another third-party performing the servicing for a fee. The FDIC became owner of an interest-only strip (“IO”) upon its intervention of the seller, a failed financial institution, and, as such, 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. Since no recourse agreement exists, the Bank, as the sole holder, bears all risks from losses on non-accruing loans and repossessed collateral. As of June 30, 2025, the amortized cost and fair value of these private label MBS amounted to $ 5.4 million and $ 3.8 million, respectively, which is included as part of the Corporation’s available- for-sale debt securities portfolio, compared to an amortized cost and fair value of $ 6.1 million and $ 4.2 million, respectively, as of December 31, 2024. As described in Note 2 – “Debt Securities,” the ACL on these private label MBS amounted to $ 0.2 million as of each of June 30, 2025 and December 31, 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, 2025, 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, 2025 2024 2025 2024 (In thousands) Balance at beginning of period $ 24,624 $ 26,355 $ 25,019 $ 26,941 Capitalization of servicing assets 638 647 1,279 1,107 Amortization (1,110) (1,038) (2,137) (2,075) Other (1) (22) (12) (31) (21) Balance at end of period $ 24,130 $ 25,952 $ 24,130 $ 25,952 (1) Consists of adjustments related to the repurchase of loans serviced for others and temporary impairment charges. 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, 2025 2024 2025 2024 (In thousands) Servicing fees $ 2,382 $ 2,605 $ 5,060 $ 5,178 Late charges and prepayment penalties 159 181 367 370 Other (1) (22) (12) (31) (21) Servicing income, gross 2,519 2,774 5,396 5,527 Amortization (1,110) (1,038) (2,137) (2,075) Servicing income, net $ 1,409 $ 1,736 $ 3,259 $ 3,452 (1) Consists of adjustments related to the repurchase of loans serviced for others and temporary impairment charges. 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, 2025 Constant prepayment rate: Government-guaranteed mortgage loans 6.7 % 16.6 % 3.9 % Conventional conforming mortgage loans 7.0 % 12.8 % 2.4 % Conventional non-conforming mortgage loans 6.1 % 9.0 % 2.4 % 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 11.7 % 12.5 % 11.0 % 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 % 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, 2025 December 31, 2024 (In thousands) Carrying amount of servicing assets $ 24,130 $ 25,019 Fair value $ 42,617 $ 43,046 Weighted-average expected life (in years) 7.67 7.63 Constant prepayment rate (weighted-average annual rate) 6.10 % 6.34 % Decrease in fair value due to 10% adverse change $ 831 $ 858 Decrease in fair value due to 20% adverse change $ 1,624 $ 1,675 Discount rate (weighted-average annual rate) 10.75 % 10.72 % Decrease in fair value due to 10% adverse change $ 1,795 $ 1,815 Decrease in fair value due to 20% adverse change $ 3,458 $ 3,495 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 .

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- Definition The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 946 -SubTopic 210 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SX 210.6-04(11)) -Publisher 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