0001057706 fbp:CombinationOfInterestRateBelowMarketReductionAndExtendedMaturityMember us-gaap:ConsumerPortfolioSegmentMember fbp:OtherLoansMember fbp:PermanentModificationMember 2024-01-01 2024-06-30 0001057706 us-gaap:CommercialPortfolioSegmentMember us-gaap:FinancialAssetAcquiredWithCreditDeteriorationMember us-gaap:CommercialRealEstateMember 2023-12-31
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
[ ]
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
☑
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
☑
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
☐
☑
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
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
Consolidated Statements of Income (Unaudited) – Quarters and Six-Month Periods ended June
30, 2024 and 2023
Consolidated Statements of Comprehensive Income (Unaudited) – Quarters and Six-Month
Periods ended June 30, 2024 and 2023
Consolidated Statements of Cash Flows (Unaudited) – Quarters and Six-Month Periods ended
June 30, 2024 and 2023
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Quarters and Six-
Month Periods ended June 30, 2024 and 2023
Notes to Consolidated Financial Statements (Unaudited)
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Item 5.
Unregistered Sales of Equity Securities and Use of Proceeds
Other Information
Item 6.
Exhibits
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.
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.
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
$
5,863,294
549
511
4,957,311
5,229,984
Held-to-maturity debt securities, at amortized cost, net of ACL of $
1,267
2,197
as of December 31, 2023 (fair value of $
333,690
346,132
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
261,843
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
2,000,000,000
223,663,116
163,865,453
shares outstanding as of June 30, 2024 and
169,302,812
22,366
22,366
Additional paid-in capital
961,254
965,707
Retained earnings, includes legal surplus reserve of $
199,576
1,941,980
1,846,112
Treasury stock (at cost),
59,797,663
54,360,304
(790,465)
(697,406)
Accumulated other comprehensive loss, net of tax of $
8,581
(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:
$
239,927
$
218,066
$
477,056
$
428,702
23,258
26,258
47,380
53,368
9,060
7,880
16,314
12,530
272,245
252,204
540,750
494,600
Interest expense:
63,671
41,604
126,696
71,489
-
1,328
-
2,397
-
435
-
4,776
5,610
5,613
11,220
8,448
3,336
3,409
6,686
6,790
72,617
52,389
144,602
93,900
199,628
199,815
396,148
400,700
Provision for credit losses - expense (benefit):
11,930
20,770
24,847
37,026
(417)
721
(136)
616
92
739
(939)
90
11,605
22,230
23,772
37,732
188,023
177,585
372,376
362,968
Non-interest income:
9,725
9,287
19,387
18,828
3,419
2,860
6,301
5,672
-
1,605
-
1,605
2,786
2,747
8,293
7,594
11,523
11,135
22,835
22,053
4,585
8,637
9,205
13,037
32,038
36,271
66,021
68,789
Non-interest expenses:
57,456
54,314
116,962
110,736
21,851
21,097
43,232
42,283
4,359
4,167
8,201
8,142
12,431
11,596
25,107
23,569
5,408
5,124
10,537
10,236
2,316
2,143
5,418
4,276
(3,609)
(1,984)
(5,061)
(3,980)
7,607
6,540
13,358
11,858
2,261
1,992
4,358
4,208
8,602
7,928
17,493
16,857
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:
$
0.46
$
0.39
$
0.90
$
0.79
$
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
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)
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
-
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)
(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:
959,319
959,912
965,707
970,722
1,922
1,922
4,847
3,997
(11)
-
(9,347)
(13,139)
24
395
47
649
961,254
962,229
961,254
962,229
Retained Earnings:
1,892,714
1,688,176
1,846,112
1,644,209
-
-
-
(1,357)
75,838
70,655
149,296
141,353
0.16
0.14
0.32
0.28
(26,572)
(25,334)
(53,428)
(50,708)
1,941,980
1,733,497
1,941,980
1,733,497
Treasury Stock (at cost):
(740,447)
(547,311)
(697,406)
(506,979)
(50,005)
-
(102,359)
(53,217)
11
-
9,347
13,139
(24)
(395)
(47)
(649)
(790,465)
(547,706)
(790,465)
(547,706)
Accumulated Other Comprehensive Loss, net of tax:
(654,235)
(717,550)
(639,170)
(804,778)
10,560
(54,837)
(4,505)
32,391
(643,675)
(772,387)
(643,675)
(772,387)
$
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
Note 2 –
Debt Securities
Note 3 –
Loans Held for Investment
Note 4
–
Allowance for Credit Losses for Loans and Finance Leases
Note 5 –
Other Real Estate Owned (“OREO”)
Note 6 –
Goodwill and Other Intangibles
Note 7 –
Non-Consolidated Variable Interest Entities (“VIEs”) and Servicing Assets
Note 8 –
Deposits
Note 9 –
Advances from the Federal Home Loan Bank (“FHLB”)
Note 10 –
Other Long-Term Borrowings
Note 11 –
Earnings per Common Share
Note 12 –
Stock-Based Compensation
Note 13 –
Stockholders’ Equity
Note 14 –
Accumulated Other Comprehensive Loss
Note 15 –
Employee Benefit Plans
Note 16 –
Income Taxes
Note 17
–
Fair Value
Note 18
–
Revenue from Contracts with Customers
Note 19 –
Segment Information
Note 20 –
Supplemental Statement of Cash Flows Information
Note 21 –
Regulatory Matters, Commitments, and Contingencies
Note 22 –
First BanCorp. (Holding Company Only) Financial Information
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:
$
100,370
$
-
$
2,156
$
-
$
98,214
0.70
19,901
-
1,042
-
18,859
0.65
U.S. government-sponsored entities' (“GSEs”) obligations:
782,777
-
16,859
-
765,918
0.91
1,564,870
51
111,755
-
1,453,166
0.82
8,850
-
750
-
8,100
2.64
8,228
15
-
-
8,243
5.69
Puerto Rico government obligation:
(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”):
4
-
-
-
4
4.31
16,204
-
754
-
15,450
2.06
138,723
-
12,739
-
125,984
1.55
948,539
6
172,740
-
775,805
1.41
1,103,470
6
186,233
-
917,243
1.44
841
-
8
-
833
3.29
11,837
-
648
-
11,189
0.93
31,168
2
2,783
-
28,387
1.77
191,483
101
25,966
-
165,618
2.65
235,329
103
29,405
-
206,027
2.45
26,921
-
1,236
-
25,685
2.11
272,851
-
23,789
-
249,062
1.74
988,450
2
165,091
-
823,361
1.36
1,288,222
2
190,116
-
1,098,108
1.45
259,830
-
54,810
-
205,020
1.52
1,322
-
317
5
1,000
8.93
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
44,240
9
7,121
-
37,128
2.18
22,121
-
2,795
-
19,326
2.16
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:
500
-
-
-
500
2.35
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
statements of financial condition, and excluded from the estimate of credit losses.
(2)
Includes $
465.5
538.5
2.7
3.1
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:
$
80,314
$
-
$
2,144
$
-
$
78,170
0.66
60,239
-
3,016
-
57,223
0.75
U.S. GSEs’ obligations:
542,847
-
15,832
-
527,015
0.77
1,899,620
49
135,347
-
1,764,322
0.86
8,850
-
687
-
8,163
2.64
8,891
8
2
-
8,897
5.49
Puerto Rico government obligation:
(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:
19,561
-
868
-
18,693
2.06
153,308
-
12,721
-
140,587
1.55
991,060
15
161,197
-
829,878
1.41
1,163,929
15
174,786
-
989,158
1.44
254
-
3
-
251
3.27
16,882
-
872
-
16,010
1.19
27,916
8
2,247
-
25,677
1.62
206,254
87
22,786
-
183,555
2.57
251,306
95
25,908
-
225,493
2.38
32,489
-
1,423
-
31,066
2.11
293,492
-
23,146
-
270,346
1.70
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,
273,539
-
52,263
-
221,276
1.54
7,086
-
2,185
116
4,785
7.66
Total Residential MBS
3,069,139
193
436,055
116
2,633,161
1.55
45,022
-
6,898
-
38,124
2.17
22,386
-
2,685
-
19,701
2.16
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
consolidated statements of financial condition, and excluded from the estimate of credit losses.
(2)
Includes $
477.9
527.2
2.8
3.2
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
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
Fair Value
Fair Value
(In thousands)
$
875
$
-
$
2,338,381
$
132,562
$
2,339,256
$
132,562
-
-
1,532
1,166
(1)
1,532
1,166
1,191
15
915,156
186,218
916,347
186,233
11,188
123
188,231
29,282
199,419
29,405
8,135
99
1,088,394
190,017
1,096,529
190,116
-
-
202,963
54,810
202,963
54,810
-
-
4,567
1,951
(1)
4,567
1,951
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
$
0.2
As of December 31, 2023
Less than 12 months
12 months or more
Total
Unrealized
Unrealized
Unrealized
Fair Value
Fair Value
Fair Value
(In thousands)
$
2,544
$
2
$
2,428,784
$
157,026
$
2,431,328
$
157,028
-
-
1,415
1,346
(1)
1,415
1,346
9
-
988,092
174,786
988,101
174,786
12,257
100
202,390
25,808
214,647
25,908
-
-
1,183,275
180,913
1,183,275
180,913
-
-
221,276
52,263
221,276
52,263
-
-
4,785
2,185
(1)
4,785
2,185
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
and $
0.1
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
-
-
-
$
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
-
-
-
$
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:
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
After 10 years
26,855
-
1,640
25,215
-
3.49
Total Residential MBS
138,615
-
8,242
130,373
-
3.86
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
statements of financial condition, and excluded from the estimate of credit losses.
(2)
Includes $
189.7
184.4
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:
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
After 10 years
28,139
-
1,274
26,865
-
3.49
Total Residential MBS
146,468
-
5,819
140,649
-
3.84
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
consolidated statements of financial condition, and excluded from the estimate of credit losses.
(2)
Includes $
126.6
125.9
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
Fair Value
Fair Value
(In thousands)
$
-
$
-
$
26,147
$
839
$
26,147
$
839
-
-
30,398
1,724
30,398
1,724
-
-
14,096
951
14,096
951
-
-
60,664
3,927
60,664
3,927
-
-
25,215
1,640
25,215
1,640
-
-
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
Fair Value
Fair Value
(In thousands)
$
-
$
-
$
34,682
$
958
$
34,682
$
958
-
-
33,523
1,270
33,523
1,270
-
-
15,476
789
15,476
789
-
-
64,785
2,486
64,785
2,486
-
-
26,865
1,274
26,865
1,274
-
-
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
2024, from $
2.2
quarter of 2024.
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.
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
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
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
787.5
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
24.7
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
4.6
December 31, 2023, respectively. As of June 30, 2024 and December 31, 2023, loans pledged as collateral include $
1.9
$
1.8
3.2
collateral to secure borrowing capacity at the FED Discount Window, compared to $
2.5
165.4
million pledged to secure as collateral for the uninsured portion of government deposits, compared to $
166.9
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:
(1) (3) (6)
$
70,479
$
-
$
2,753
$
22,911
$
-
$
96,143
$
-
(2) (6)
2,644,019
-
29,506
8,602
31,396
2,713,523
1,453
Commercial loans:
181,215
-
-
-
4,742
185,957
971
(2) (6)
2,409,272
1,047
65
1,189
11,736
2,423,309
6,795
3,217,351
1,157
1,112
7,296
27,661
3,254,577
1,580
Consumer loans:
1,895,003
60,591
11,760
-
14,669
1,982,023
368
861,235
14,271
2,229
-
2,577
880,312
137
367,140
6,183
2,643
-
1,999
377,965
-
304,688
5,275
3,181
7,175
-
320,319
-
144,352
3,840
1,795
-
1,393
151,380
-
$
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
(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
6.5
0.9
accruing category in the table above.
(3)
Include rebooked loans, which were previously pooled into GNMA securities, amounting to $
6.8
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
(5)
There were
no
(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
67.7
1.2
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:
(1) (3) (6)
$
68,332
$
-
$
2,592
$
29,312
$
-
$
100,236
$
-
(2) (6)
2,644,344
-
33,878
11,029
32,239
2,721,490
1,742
Commercial loans:
210,911
-
-
2,297
1,569
214,777
972
(2) (6)
2,303,753
17
-
1,108
12,205
2,317,083
2,536
3,148,254
1,130
1,143
8,455
15,250
3,174,232
1,687
Consumer loans:
1,846,652
60,283
13,753
-
15,568
1,936,256
4
837,881
13,786
1,861
-
3,287
856,815
12
370,746
5,873
2,815
-
1,841
381,275
-
313,360
5,012
3,589
7,251
-
329,212
-
147,278
3,084
1,997
-
1,748
154,107
-
$
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
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
7.4
residential mortgage loans, and $
0.9
(3)
Include rebooked loans, which were previously pooled into GNMA securities, amounting to $
7.9
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
(5)
There were
no
(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
69.9
1.1
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
1.5
0.5
and $
1.1
interest income recognized on nonaccrual loans amounted to $
0.3
0.9
0.5
$
1.0
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
12.8
loans, and $
5.2
foreclosure process on residential real estate loans when a borrower becomes
120
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
$
12,154
$
88,978
$
41,129
$
9,748
$
-
$
3,655
$
-
$
155,664
$
113,170
-
-
-
-
-
-
-
-
-
-
2,881
3,300
-
-
1,929
-
8,110
2,231
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
12,154
$
91,859
$
44,429
$
9,748
$
-
$
5,584
$
-
$
163,774
$
115,401
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
COMMERCIAL MORTGAGE
$
99,566
$
172,589
$
375,881
$
140,689
$
313,516
$
473,812
$
5,640
$
1,581,693
$
1,618,404
-
3,758
4,284
-
30,168
110,922
-
149,132
146,626
-
-
118
-
-
29,817
-
29,935
25,607
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
99,566
$
176,347
$
380,283
$
140,689
$
343,684
$
614,551
$
5,640
$
1,760,760
$
1,790,637
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
C&I
$
87,957
$
417,655
$
288,105
$
141,237
$
150,596
$
336,955
$
804,023
$
2,226,528
$
2,173,939
-
2,466
-
538
-
643
33,981
37,628
40,376
196
1
-
13,984
562
28,662
4,384
47,789
35,093
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
88,153
$
420,122
$
288,105
$
155,759
$
151,158
$
366,260
$
842,388
$
2,311,945
$
2,249,408
$
-
$
-
$
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
$
813
$
2,978
$
-
$
766
$
-
$
-
$
17,626
$
22,183
$
99,376
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
813
$
2,978
$
-
$
766
$
-
$
-
$
17,626
$
22,183
$
99,376
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
COMMERCIAL MORTGAGE
$
47,220
$
28,888
$
227,461
$
105,696
$
39,272
$
178,650
$
22,070
$
649,257
$
525,453
-
-
12,299
-
-
-
-
12,299
-
-
-
-
-
993
-
-
993
993
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
47,220
$
28,888
$
239,760
$
105,696
$
40,265
$
178,650
$
22,070
$
662,549
$
526,446
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
C&I
$
124,032
$
147,761
$
226,861
$
159,672
$
39,165
$
79,980
$
153,687
$
931,158
$
879,195
-
-
-
-
-
11,474
-
11,474
42,046
-
-
-
-
-
-
-
-
3,583
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
124,032
$
147,761
$
226,861
$
159,672
$
39,165
$
91,454
$
153,687
$
942,632
$
924,824
$
-
$
-
$
-
$
-
$
-
$
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
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
$
12,967
$
91,956
$
41,129
$
10,514
$
-
$
3,655
$
17,626
$
177,847
$
212,546
-
-
-
-
-
-
-
-
-
-
2,881
3,300
-
-
1,929
-
8,110
2,231
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
12,967
$
94,837
$
44,429
$
10,514
$
-
$
5,584
$
17,626
$
185,957
$
214,777
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
COMMERCIAL MORTGAGE
$
146,786
$
201,477
$
603,342
$
246,385
$
352,788
$
652,462
$
27,710
$
2,230,950
$
2,143,857
-
3,758
16,583
-
30,168
110,922
-
161,431
146,626
-
-
118
-
993
29,817
-
30,928
26,600
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
146,786
$
205,235
$
620,043
$
246,385
$
383,949
$
793,201
$
27,710
$
2,423,309
$
2,317,083
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
C&I
$
211,989
$
565,416
$
514,966
$
300,909
$
189,761
$
416,935
$
957,710
$
3,157,686
$
3,053,134
-
2,466
-
538
-
12,117
33,981
49,102
82,422
196
1
-
13,984
562
28,662
4,384
47,789
38,676
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
212,185
$
567,883
$
514,966
$
315,431
$
190,323
$
457,714
$
996,075
$
3,254,577
$
3,174,232
$
-
$
-
$
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
62.3
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
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
66.4
$
2.3
1.4
$
15.1
22.8
recognized a net gain on sale of $
0.3
0.6
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
7.9
During the first six months of 2024 and 2023, the Corporation repurchased, pursuant to the aforementioned repurchase option, $
0.9
million and $
1.9
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
65.4
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
charged-off consumer loans, net of a $
0.5
no
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
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
municipalities and public corporations, compared to $
187.7
$
129.4
property tax revenues, and $
25.7
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
loans granted to an affiliate of the Puerto Rico Electric Power Authority (“PREPA”) and $
42.3
corporations of the Puerto Rico government.
In addition, as of June 30, 2024, the Corporation had $
74.9
the PRHFA, a government instrumentality that has been designated as a covered entity under PROMESA, compared to $
77.7
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
loans to USVI government public corporations, compared to $
90.5
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
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
2.5
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%
$
-
$
-
$
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%
$
-
$
-
$
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%
$
-
$
-
$
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%
$
-
$
-
$
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
$
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
$
72
$
40
$
-
$
112
$
34,096
$
34,208
There were $
0.2
0.3
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
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
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
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
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
7.3
261.8
December 31, 2023. The ACL for residential mortgage loans decreased by $
11.3
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
variables associated with commercial real estate property performance, partially offset by increased volume.
Meanwhile, the ACL for consumer loans increased by $
5.3
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
32.2
$
19.3
32.5
1.7
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
during the second quarter of 2023. The $
0.3
the $
9.5
5.0
with a C&I loan in the Puerto Rico region recorded during the first six months of 2024, and the aforementioned $
6.2
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:
$
2,809,666
$
$
2,423,309
$
3,254,577
$
3,711,999
$
12,385,508
46,051
5,646
30,078
34,448
138,309
254,532
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:
$
2,821,726
$
214,777
$
2,317,083
$
3,174,232
$
3,657,665
$
12,185,483
57,397
5,605
32,631
33,190
133,020
261,843
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
4.6
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
4,556
10,807
Total
$
21,682
$
32,669
(1)
Excludes $
11.3
16.6
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
2.3
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
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
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
3.7
respectively, in amortization expense on its other intangibles subject to amortization, compared to $
2.0
4.0
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
103.1
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
Statutory Trust II used the proceeds of the issuance, together with the proceeds of the purchase by the Corporation of $
3.9
FBP Statutory Trust II variable-rate common securities, to purchase $
128.9
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
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).
December 31, 2023, these Junior Subordinated Deferrable Debentures amounted to $
161.7
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
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
4.6
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
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
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)
$
-
$
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)
2,774
2,869
5,527
5,772
Amortization and impairment of servicing assets
(1,038)
(1,101)
(2,075)
(2,225)
$
1,736
$
1,768
$
3,452
$
3,547
(1)
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:
6.8
%
17.1
%
3.2
%
6.8
%
15.9
%
2.9
%
6.2
%
7.6
%
4.4
%
Discount rate:
11.5
%
11.5
%
11.5
%
9.5
%
9.5
%
9.5
%
11.5
%
12.5
%
11.0
%
Six-Month Period Ended June 30, 2023
Constant prepayment rate:
6.7
%
11.6
%
4.8
%
7.4
%
16.0
%
3.8
%
5.9
%
9.0
%
2.1
%
Discount rate:
11.5
%
11.5
%
11.5
%
9.5
%
9.5
%
9.5
%
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
%
$
881
$
886
$
1,720
$
1,731
Discount rate (weighted-average annual rate)
10.70
%
10.68
%
$
1,890
$
1,927
$
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
$
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
$
3,661,899
Total Puerto Rico and U.S. time deposits with balances of more than $250,000 amounted to $
1.6
1.4
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
1.0
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
(1)
$
500,000
(1) Average remaining term to maturity of
1.99
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
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
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
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:
164,945
178,926
166,043
179,567
598
351
627
686
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
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
of common stock, subject to adjustments for stock splits, reorganizations and other similar events. As of June 30, 2024, there were
2,593,029
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
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
stock
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
396,289
which
84,122
3,502
of restricted stock awarded to independent directors and
492,389
33,718
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
3.7
of stock-based compensation expense related to restricted stock awards, compared to $
1.4
3.0
in 2023. As of June 30, 2024, there was $
7.0
stock that the Corporation expects to recognize over a weighted-average period of
1.8
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
1.1
of stock-based compensation expense related to performance units, compared to $
0.5
1.0
2023. As of June 30, 2024, there was $
4.9
the Corporation expects to recognize over a weighted-average period of
2.1
Shares withheld
During the first six months of 2024, the Corporation withheld
136,308
287,835
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
half of 2024, the Corporation repurchased
5,846,872
$
17.10
100.0
2,840,321
stock at an average price of $
17.60
50.0
2024. As of June 30, 2024, the Corporation has remaining authorization to repurchase approximately $
50.0
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
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
136,308
For the six-month period ended June 30, 2023 includes
287,835
For the quarter and six-month period ended June 30, 2024, total cash dividends declared on shares of common stock amounted to
$
26.6
0.16
53.4
0.32
25.3
0.14
$
50.7
0.28
July 22, 2024
, the Corporation’s Board of Directors
declared a quarterly cash dividend of $
0.16
September 13, 2024
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
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
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.
retained earnings in the Corporation’s consolidated statements of financial condition, amounted to $
199.6
30, 2024 and December 31, 2023. There were
no
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)
(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
-
-
-
-
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
30.3
second quarter of 2023. For the first six months of 2024, the Corporation recorded an income tax expense of $
49.5
to $
62.2
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
5.1
$
1.5
4.0
As of June 30, 2024, the Corporation had a net deferred tax asset of $
142.7
141.1
against the deferred tax asset, compared to a net deferred tax asset of $
150.1
139.2
of December 31, 2023. The net deferred tax asset of the Corporation’s banking subsidiary, FirstBank, amounted to $
142.7
of June 30, 2024, net of a valuation allowance of $
113.2
150.1
valuation allowance of $
111.4
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
0.8
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
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:
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.
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.
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.
a description of the valuation methodologies used to measure financial instruments at fair value on a recurring basis.
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
175
(19)
414
(181)
(2)
(60)
16
9
25
1,000
-
1,000
-
(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
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:
$
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%
$
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:
$
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%
$
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:
344,435
(1,267)
$
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:
12,385,508
(254,532)
$
12,130,976
12,058,472
-
-
12,058,472
MSRs (amortized cost)
25,952
44,590
-
-
44,590
Derivative assets (fair value)
316
316
-
316
-
Liabilities:
Deposits (amortized cost)
$
16,528,956
$
16,521,923
$
-
$
16,521,923
$
-
Advances from the FHLB (amortized cost):
500,000
495,838
-
495,838
-
Other long-term borrowings (amortized cost)
161,700
159,696
-
-
159,696
Derivative liabilities (fair value)
152
152
-
152
-
(1) Includes FHLB stock with a carrying value of $
34.0
(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:
354,178
(2,197)
$
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:
12,185,483
(261,843)
$
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)
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
(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
3,620
1,201
244
98
5
38
5,206
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
6,581
2,811
353
181
3
40
9,969
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
5,942
1,865
3,842
1,840
235
(6)
13,718
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
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
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
$
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
$
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
$
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
$
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
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
$
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
$
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:
$
134,995
$
84,530
49,236
82,215
8,693
8,630
Non-cash investing and financing activities:
4,599
10,738
29,590
29,720
1,107
1,238
58,911
65,092
118
2,962
-
1,714
-
4,502
5,112
2,263
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
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
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)
$
2,394,971
18.21
%
$
1,052,081
8.0
%
N/A
N/A
$
2,364,456
17.98
%
$
1,051,871
8.0
%
$
1,314,838
10.0
%
CET1 Capital (to Risk-Weighted Assets)
$
2,073,346
15.77
%
$
591,795
4.5
%
N/A
N/A
$
2,099,713
15.97
%
$
591,677
4.5
%
$
854,645
6.5
%
Tier I Capital (to Risk-Weighted Assets)
$
2,073,346
15.77
%
$
789,061
6.0
%
N/A
N/A
$
2,199,713
16.73
%
$
788,903
6.0
%
$
1,051,871
8.0
%
Leverage ratio
$
2,073,346
10.63
%
$
779,944
4.0
%
N/A
N/A
$
2,199,713
11.29
%
$
779,653
4.0
%
$
974,566
5.0
%
As of December 31, 2023
Total Capital (to Risk-Weighted Assets)
$
2,403,319
18.57
%
$
1,035,589
8.0
%
N/A
N/A
$
2,376,003
18.36
%
$
1,035,406
8.0
%
$
1,294,257
10.0
%
CET1 Capital (to Risk-Weighted Assets)
$
2,084,432
16.10
%
$
528,519
4.5
%
N/A
N/A
%
$
2,113,995
16.33
%
$
582,416
4.5
%
$
841,267
6.5
%
Tier I Capital (to Risk-Weighted Assets)
$
2,084,432
16.10
%
$
776,692
6.0
%
N/A
N/A
$
2,213,995
17.11
%
$
776,554
6.0
%
$
1,035,406
8.0
%
Leverage ratio
$
2,084,432
10.78
%
$
773,615
4.0
%
N/A
N/A
$
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
0.9
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
1.1
respectively, in the consolidated statements of income as part of “FDIC deposit insurance” expenses, which increased the estimated
FDIC special assessment to $
7.4
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
$
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
167,380
166,255
Stockholders’ equity
1,491,460
1,497,609
$
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
$
87
$
57
$
150
$
110
81,232
78,932
162,149
157,802
-
12,000
-
12,000
-
1,605
-
1,605
100
101
201
203
81,419
92,695
162,500
171,720
Expense
3,336
3,409
6,686
6,790
463
462
902
872
3,799
3,871
7,588
7,662
Income before income taxes and equity in undistributed
77,620
88,824
154,912
164,058
Income tax expense
-
-
1
1
Equity in undistributed earnings of subsidiaries
(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)
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
%
$
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)
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
%
$
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
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.
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
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
$
9,833,155
$
431,555
$
2,120,798
$
12,385,508
Loans held for sale
10,392
-
-
10,392
$
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
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
$
9,738,504
$
424,718
$
2,022,261
$
12,185,483
Loans held for sale
7,368
-
-
7,368
$
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:
$
92,624
$
88,485
$
160,267
$
149,965
38,459
33,829
74,110
57,267
83,852
28,704
101,754
96,691
337,347
365,796
742,566
814,977
404,645
442,213
798,551
866,686
$
956,927
$
959,027
$
1,877,248
$
1,985,586
Virgin Islands:
$
696
$
843
$
2,122
$
1,769
162
2
162
6
298
3,859
423
3,859
12,351
65,215
23,460
74,614
8,897
11,408
16,793
21,608
$
22,404
$
81,327
$
42,960
$
101,856
Florida:
$
28,884
$
25,923
$
47,985
$
40,819
9,609
13,175
20,655
25,232
20,304
9,821
77,933
30,526
219,086
119,563
391,253
216,865
2,970
384
3,427
1,029
$
280,853
$
168,866
$
541,253
$
314,471
Total:
$
122,204
$
115,251
$
210,374
$
192,553
48,230
47,006
94,927
82,505
104,454
42,384
180,110
131,076
568,784
550,574
1,157,279
1,106,456
416,512
454,005
818,771
889,323
$
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
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:
2,430,965
2,633,161
171,314
151,618
Other
1,000
-
4,957,311
5,229,984
Held-to-maturity debt securities, at amortized cost:
MBS:
138,615
146,468
98,370
100,670
Puerto Rico municipal bonds
107,450
107,040
(1,267)
(2,197)
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
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.
June 30, 2024
December 31, 2023
(In thousands)
Financial instruments whose contract amounts represent credit risk:
$
294,782
$
234,974
868,739
882,486
38,326
38,956
863,711
862,963
61,109
69,543
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)
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.
reporting requirements adjusted for cash held by wholly-owned subsidiaries at the Bank.
104
$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
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.
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
$
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 –
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
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.
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
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
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:
1.38
%
1.08
%
0.93
%
0.73
%
-3.06
%
-3.09
%
-1.95
%
-2.02
%
Immediate Change in Interest Rates:
1.90
%
2.45
%
-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 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.
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.
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
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:
$
2,809,666
$
185,957
$
2,423,309
$
3,254,577
$
3,711,999
$
12,385,508
23
%
2
%
20
%
26
%
29
%
100
%
$
46,051
$
5,646
$
30,078
$
34,448
$
138,309
$
254,532
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:
$
2,821,726
$
214,777
$
2,317,083
$
3,174,232
$
3,657,665
$
12,185,483
23
%
2
%
19
%
26
%
30
%
100
%
$
57,397
$
5,605
$
32,631
$
33,190
$
133,020
$
261,843
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
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
interest and principal for a period of 90 days or more.
Commercial and Construction Loans
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
a period of 90 days or more.
Consumer Loans
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.
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
1,532
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
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)
(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)
(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
3,397
3,009
7,993
5,090
(2,137)
(2,714)
(4,970)
(6,651)
(743)
(1,549)
(1,147)
(4,259)
(153)
(401)
(278)
(621)
(1,653)
(1,503)
(2,441)
(3,073)
-
-
-
(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
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.
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
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:
$
3,084
$
-
$
3,084
Total Puerto Rico Housing Finance Authority
3,084
-
3,084
Agencies and public corporation of the Puerto Rico government:
-
18,973
18,973
-
23,352
23,352
Total agencies and public corporation of the Puerto Rico government
-
42,325
42,325
-
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:
3,178
40,410
43,588
51,424
43,264
94,688
36,253
71,346
107,599
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
terminated
“non-Rule
10b5-1
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
31.2
32.1
32.2
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
Date: August 8, 2024
By: /s/ Orlando Berges