0001057706 us-gaap:UnfundedLoanCommitmentMember 2020-01-01 2020-12-31 0001057706 fbp:ConsumerRetailBankingSegmentMember 2019-12-31
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K/A
Amendment No. 1
(Mark one)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended
December 31, 2022
or
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ___________________ to ___________________
COMMISSION FILE NUMBER
001-14793
FIRST BANCORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Puerto Rico
66-0561882
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1519 Ponce de León Avenue, Stop 23
00908
San Juan
,
Puerto Rico
(Zip Code)
(Address of principal executive office)
Registrant’s telephone number, including area code:
(
787
)
729-8200
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)
FBP
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☑
☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
☐
No
☑
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
☐
☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error
to previously issued financial statements.
☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive
officers during the relevant recovery period pursuant to §240.10D-1(b).
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
☑
The aggregate market value of the voting common equity held by non-affiliates of the registrant as of June 30, 2022 (the last trading day of the registrant’s most recently completed second
fiscal quarter) was $
2,373,329,883
nonvoting common equity outstanding as of June 30, 2022. For the purposes of the foregoing calculation only, the registrant has defined affiliates to include (a) the executive officers named in
Part III of this Annual Report on Form 10-K; (b) all directors of the registrant; and (c) each shareholder, including the registrant’s employee benefit plans but excluding shareholders that file on
Schedule 13G, known to the registrant to be the beneficial owner of 5% or more of the outstanding shares of common stock of the registrant as of June 30, 2022. The registrant’s response to
this item is not intended to be an admission that any person is an affiliate of the registrant for any purposes other than this response.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
180,585,944
Documents incorporated by reference:
Portions of the definitive proxy statement relating to the registrant’s annual meeting of stockholders scheduled to be held on May 18, 2023 are
incorporated by reference in response to Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K.
2
Explanatory Note
First BanCorp. (the “Corporation”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) solely to correct clerical
errors in the EDGARized version of the report titled “Report of the Independent Registered Public Accounting Firm” (the “Audit
Report”) provided by Crowe LLP (“Crowe”) in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December
31, 2022, as filed on February 28, 2023 (the “Original Annual Report”). The Audit Report in this Amendment is revised as follows:
the addressee is changed from stockholders to shareholders, the subtitle of the section titled “Critical Audit Matter” is changed from
“Allowance for Credit Losses – Model and Macroeconomic Variables” to “Allowance for Credit Losses – Economic Forecasts and
Macroeconomic Variables”, and the description of the critical audit matter assessment performed is updated to remove the reference to
the model design and construction related to ACL. These revisions were inadvertently omitted in the EDGARized Audit Report
included in the Original Annual Report and do not impact the opinion rendered on the financial statements as of December 31, 2022.
Pursuant to Rule 12b-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), this
Amendment includes: Item 8 of Part II, “Financial Statements and Supplementary Data” in its entirety and without change from the
Original Annual Report other than the corrections of the clerical errors in the Audit Report discussed above; and Item 15 of Part IV,
including new certifications by our principal executive officer and principal financial officer.
This Amendment does not change any previously reported financial results or otherwise amend the Original Annual Report as
previously filed, except as discussed above. Furthermore, this Amendment does not update or otherwise amend the Original Annual
Report as originally filed for changes in events, estimates or other developments subsequent to the date of the filing of the Original
Annual Report on February 28, 2023. This Amendment should be read in conjunction with the Original Annual Report and our other
filings with the Securities and Exchange Commission.
3
Item 8. Financial Statements and Supplementary Data
FIRST BANCORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
173
)….…………………………..
4
…………………………………………
6
……………………………………………………………...
7
8
9
………………………………………………………………………
10
………………………………………………..
11
…………………………………………………………………..
13
4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors
San Juan, Puerto Rico
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial condition of First BanCorp. (the "Company") as of
December 31, 2022 and 2021, the related consolidated statements of income, comprehensive (loss) income, cash flows, and changes in
stockholders’ equity for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively
referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of
December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company
as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period
ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022,
based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s
financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud,
and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
5
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the
critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Allowance for Credit Losses – Economic Forecasts and Macroeconomic Variables
As described in Notes 1 and 5 to the financial statements, the allowance for credit losses (“ACL”) for loans and finance leases is an
accounting estimate of expected credit losses over the contractual life of financial assets carried at amortized cost and off-balance-
sheet credit exposures.
The calculation of the ACL for loans and finance leases, is primarily measured based on a probability of default / loss given default
modeled approach. The estimate of the probability of default and loss given default assumptions uses economic forecasts and relevant
current and forward-looking macroeconomic variables, such as: unemployment rate; housing and real estate price indices; interest
rates; market risk factors; and gross domestic product, and considers conditions throughout Puerto Rico, the Virgin Islands, and the
State of Florida. A significant amount of judgment is required to assess the reasonableness of the selection of economic forecasts and
macroeconomic variables. Changes to these assumptions could have a material effect on the Company’s financial results.
The economic forecasts and current and forward-looking macroeconomic variables used contribute significantly to the determination
of the ACL for loans and finance leases. We identified the assessment of economic forecasts and relevant macroeconomic variables as
a critical audit matter as the impact of these judgments represents a significant portion of the ACL for loans and finance leases and
because management’s estimate required especially subjective auditor judgment and significant audit effort, including the need for
specialized skill.
The primary procedures we performed to address these critical audit matters included:
●
Testing the effectiveness of controls over the evaluation of the selection of economic forecasts and the current and forward-
looking macroeconomic variables, including controls addressing:
o
Management’s review and approval of the economic forecasts and macroeconomic variables.
o
Management’s review of the reasonableness of the results of the selection of economic forecasts and
macroeconomic variables used in the calculation.
●
Substantively testing management’s process, including evaluating their judgments and assumptions, for economic forecast
selection and macroeconomic variables, which included:
o
Evaluation of reasonableness of economic forecasts selection.
o
Evaluation of the completeness and accuracy of data inputs used as a basis for the adjustments relating to
macroeconomic variables.
o
Evaluation, with the assistance of professionals with specialized skill and knowledge, of the reasonableness of
management’s judgments related to the economic forecast and macroeconomic variables used in the determination
of the ACL for loans. Among other procedures, our evaluation considered, evidence from internal and external
sources, loan portfolio performance trends and whether such assumptions were applied consistently period to period.
o
Analytical evaluation of the variables period to period for directional consistency and testing for reasonableness.
/s/
Crowe LLP
We have served as the Company’s auditor since 2018.
Fort Lauderdale, Florida
February 28, 2023
Stamp No. E511055 of the Puerto Rico
Society of Certified Public Accountants
was affixed to the record copy of this report.
6
Management’s Report on Internal Control over Financial Reporting
To the Stockholders and Board of Directors of First BanCorp.:
First BanCorp.’s (the “Corporation”) internal control over financial reporting is a process designed and effected by those charged
with governance, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of reliable financial statements in accordance with accounting principles generally accepted in the United States of
America (“GAAP”). The Corporation’s internal control over financial reporting includes those policies and procedures that:
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Corporation; (2) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of
financial statements in accordance with GAAP, and that receipts and expenditures of the Corporation are being made only in
accordance with authorizations of management and directors of the Corporation; and (3) provide reasonable assurance regarding
prevention, or timely detection and correction of unauthorized acquisition, use, or disposition of the Corporation’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent, or detect and correct misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management is responsible for establishing and maintaining effective internal control over financial reporting. Management
assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2022, based on the
framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-
Integrated Framework (2013). Based on that assessment, management concluded that, as of December 31, 2022, the Corporation’s
internal control over financial reporting is effective based on the criteria established in Internal Control-Integrated Framework (2013).
LLP, an independent public accounting firm, as stated in their accompanying report dated February 28, 2023.
First BanCorp.
7
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2022
December 31, 2021
(In thousands, except for share information)
ASSETS
Cash and due from banks
$
478,480
$
2,540,376
Money market investments:
Time deposits with other financial institutions
300
300
Other short-term investments
1,725
2,382
Total money market investments
2,025
2,682
Available-for-sale debt securities, at fair value:
Securities pledged with creditors’ rights to repledge
81,103
321,180
Other available-for-sale debt securities
5,518,417
6,132,581
Total available-for-sale debt securities, at fair value (amortized cost 2022 - $
6,398,197
;
2021 - $
6,534,503
; allowance for credit losses (“ACL”) of $
458
and $
1,105
5,599,520
6,453,761
Held-to-maturity debt securities, at amortized cost, net of ACL of $
8,286
8,571
as of December 31, 2021 (fair value 2022 - $
427,115
; 2021 - $
167,147
)
429,251
169,562
Equity securities
55,289
32,169
Total investment securities
6,084,060
6,655,492
Loans, net of ACL of $
260,464
269,030
)
11,292,361
10,791,628
Mortgage loans held for sale, at lower of cost or market
12,306
35,155
Total loans, net
11,304,667
10,826,783
Accrued interest receivable on loans and investments
69,730
61,507
Premises and equipment, net
142,935
146,417
Other real estate owned (“OREO”)
31,641
40,848
Deferred tax asset, net
155,584
208,482
Goodwill
38,611
38,611
Other intangible assets
21,118
29,934
Other assets
305,633
234,143
Total assets
$
18,634,484
$
20,785,275
LIABILITIES
Non-interest-bearing deposits
$
6,112,884
$
7,027,513
Interest-bearing deposits
10,030,583
10,757,381
Total deposits
16,143,467
17,784,894
Securities sold under agreements to repurchase
75,133
300,000
Advances from the Federal Home Loan Bank ("FHLB")
675,000
200,000
Other borrowings
183,762
183,762
Accounts payable and other liabilities
231,582
214,852
Total liabilities
17,308,944
18,683,508
Commitments and contingencies (See Note 29)
(nil)
(nil)
STOCKHOLDERS’ EQUITY
Common stock, $
0.10
2,000,000,000
223,663,116
182,709,059
shares outstanding (2021 -
201,826,505
22,366
22,366
Additional paid-in capital (See Note 1)
970,722
972,547
Retained earnings, includes legal surplus reserve of $
168,484
137,591
)
1,644,209
1,427,295
Treasury stock, at cost
40,954,057
21,836,611
(506,979)
(236,442)
Accumulated other comprehensive loss, net of tax of $
8,468
9,786
)
(804,778)
(83,999)
Total stockholders’ equity
1,325,540
2,101,767
Total liabilities and stockholders’ equity
$
18,634,484
$
20,785,275
The accompanying notes are an integral part of these statements.
8
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
2022
2021
2020
(In thousands, except per share information)
Interest and dividend income:
$
747,901
$
719,153
$
631,047
102,922
72,893
58,547
11,791
2,662
3,388
862,614
794,708
692,982
Interest expense:
46,361
41,482
68,388
7,555
9,963
6,645
5,136
8,199
11,251
8,269
5,135
6,376
67,321
64,779
92,660
795,293
729,929
600,322
Provision for credit losses - expense (benefit):
25,679
(61,720)
168,717
2,736
(3,568)
1,183
(719)
(410)
1,085
27,696
(65,698)
170,985
767,597
795,627
429,337
Non-interest income:
37,823
35,284
24,612
15,260
24,998
22,124
-
-
13,198
-
-
94
13,743
11,945
9,364
40,416
36,508
25,609
15,850
12,429
16,225
123,092
121,164
111,226
Non-interest expenses:
206,038
200,457
177,073
88,277
93,253
74,633
18,231
15,359
12,145
47,848
59,956
52,633
20,267
22,151
17,762
6,149
6,544
6,488
(5,826)
(2,160)
3,598
22,736
22,169
19,144
8,723
9,387
8,437
-
26,435
26,509
30,662
35,423
25,818
443,105
488,974
424,240
Income before income taxes
447,584
427,817
116,323
Income tax expense
142,512
146,792
14,050
Net income
$
305,072
$
281,025
$
102,273
Net income attributable to common stockholders
$
305,072
$
277,338
$
99,597
Net income per common share:
$
1.60
$
1.32
$
0.46
$
1.59
$
1.31
$
0.46
The accompanying notes are an integral part of these statements.
9
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
Year Ended December 31,
2022
2021
2020
(In thousands)
Net income
$
305,072
$
281,025
$
102,273
Other comprehensive (loss) income, net of tax:
Available-for-sale debt securities:
Net unrealized holding (losses) gains on debt securities
(718,582)
(143,115)
61,791
Reclassification adjustment for provision for credit loss expense
-
-
368
Reclassification adjustment for net gains included in net income on sales
-
-
(13,198)
Defined benefit plans adjustments:
Net actuarial (loss) gain
(2,199)
3,660
(270)
Reclassification adjustment for amortization of net actuarial loss
2
1
-
Other comprehensive (loss) income for the year, net of tax
(720,779)
(139,454)
48,691
Total comprehensive (loss) income
$
(415,707)
$
141,571
$
150,964
Year Ended December 31,
2022
2021
2020
(In thousands)
Income tax effect of items included in other comprehensive (loss) income:
Defined benefit plans adjustments:
Net actuarial (loss) gain
$
1,319
$
(2,199)
$
162
Reclassification adjustment for amortization of net actuarial loss
(1)
-
-
Total income tax effect of items included in other comprehensive (loss) income
$
1,318
$
(2,199)
$
162
The accompanying notes are an integral part of these statements.
10
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2022
2021
2020
(In thousands)
Cash flows from operating activities:
$
305,072
$
281,025
$
102,273
Adjustments to reconcile net income to net cash provided by operating activities:
22,289
24,965
20,068
8,816
11,407
5,912
27,696
(65,698)
170,985
54,216
118,323
(4,371)
5,407
5,460
5,117
-
-
(94)
-
-
(13,198)
(1,098)
(4,227)
(5,635)
(706)
(32)
(215)
(5,498)
(14,791)
(13,273)
(7,853)
(25,294)
(8,602)
(214,962)
(503,200)
(648,052)
235,199
528,253
659,349
106
218
537
3,435
26,549
19,410
(11,340)
7,701
6,419
1,706
(2,776)
(2,990)
(2,437)
24,344
(5,018)
20,437
(12,506)
9,116
440,485
399,721
297,738
Cash flows from investing activities:
(603,853)
599,097
(335,152)
62,168
81,458
6,788
46,281
55,867
35,270
-
-
1,195,250
(512,327)
(3,447,921)
(3,820,148)
626,802
1,445,873
1,277,762
(289,784)
-
-
32,153
12,677
6,431
(20,459)
(13,349)
(16,070)
1,196
832
497
(23,637)
5,322
3,881
-
550
-
-
(3,381)
406,626
(681,460)
(1,262,975)
(1,238,865)
Cash flows from financing activities:
(1,706,118)
2,472,579
1,767,441
550,133
-
(35,000)
(500,000)
(240,000)
(95,282)
200,000
-
-
-
-
200,000
(277,769)
(216,522)
(206)
(87,824)
(65,021)
(43,416)
-
(2,453)
(2,676)
-
(36,104)
-
(1,821,578)
1,912,479
1,790,861
Net (decrease) increase in cash and cash equivalents
(2,062,553)
1,049,225
849,734
Cash and cash equivalents at beginning of year
2,543,058
1,493,833
644,099
Cash and cash equivalents at end of year
$
480,505
$
2,543,058
$
1,493,833
Cash and cash equivalents include:
$
478,480
$
2,540,376
$
1,433,261
2,025
2,682
60,572
$
480,505
$
2,543,058
$
1,493,833
The accompanying notes are an integral part of these statements.
11
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Year Ended December 31,
2022
2021
2020
(In thousands, except per share information)
Preferred Stock:
$
-
$
36,104
$
36,104
-
(36,104)
-
-
-
36,104
Common Stock:
22,366
22,303
22,210
-
63
93
22,366
22,366
22,303
Additional Paid-In Capital
(See Note 1)
:
972,547
965,385
960,342
5,407
5,460
5,117
(7,365)
(63)
(93)
133
531
19
-
1,234
-
970,722
972,547
965,385
Retained Earnings:
1,427,295
1,215,321
1,221,817
(62,322)
1,159,495
305,072
281,025
102,273
0.46
0.31
0.20
(88,158)
(65,364)
(43,771)
-
(2,453)
(2,676)
-
(1,234)
-
1,644,209
1,427,295
1,215,321
Treasury Stock (at cost)
(See Note 1)
:
(236,442)
(19,389)
(19,170)
(277,769)
(216,522)
(200)
7,365
-
-
(133)
(531)
(19)
(506,979)
(236,442)
(19,389)
Accumulated Other Comprehensive (Loss) Income, net of tax:
(83,999)
55,455
6,764
(720,779)
(139,454)
48,691
(804,778)
(83,999)
55,455
$
1,325,540
$
2,101,767
$
2,275,179
The accompanying notes are an integral part of these statements.
12
FIRST BANCORP.
INDEX TO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Note 1 –
Nature of Business and Summary of Significant Accounting Policies
Note 2 –
Money Market Investments
Note 3 –
Debt Securities
Note 4 –
Loans Held for Investment
Note 5
–
Allowance for Credit Losses for Loans and Finance Leases
Note 6
–
Premises and Equipment
Note 7 –
Other Real Estate Owned
Note 8 –
Related-Party Transactions
Note 9
–
Goodwill and Other Intangibles
Note 10 –
Non-Consolidated Variable Interest Entities (“VIE”) and Servicing Assets
Note 11 –
Deposits and Related Interest
Note 12 –
Securities Sold Under Agreements to Repurchase
Note 13 –
Advances from the Federal Home Loan Bank (“FHLB”)
Note 14 –
Other Borrowings
Note 15 –
Earnings per Common Share
Note 16 –
Stock-Based Compensation
Note 17 –
Stockholders’ Equity
Note 18 –
Other Comprehensive (Loss) Income
Note 19 –
Employee Benefit Plans
Note 20 –
Other Non-Interest Income
Note 21 –
Other Non-Interest Expenses
Note 22 –
Income Taxes
Note 23 –
Operating Leases
Note 24 –
Derivative Instruments and Hedging Activities
Note 25
–
Fair Value
Note 26
–
Revenue from Contracts with Customers
Note 27 –
Segment Information
Note 28 –
Supplemental Statement of Cash Flows Information
Note 29 –
Regulatory Matters, Commitments, and Contingencies
Note 30 –
First BanCorp. (Holding Company Only) Financial Information
13
NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
First BanCorp. (the “Corporation”) is a publicly owned, Puerto Rico-chartered financial holding company organized under the laws
of the Commonwealth of Puerto Rico in 1948. The Corporation is subject to regulation, supervision, and examination by the Board of
Governors of the Federal Reserve System (the “Federal Reserve Board”). Through its subsidiaries, including its banking subsidiary,
FirstBank Puerto Rico (“FirstBank” or the “Bank”), the Corporation provides full-service commercial and consumer banking services,
mortgage banking services, automobile financing, trust services, insurance agency services, and other financial products and services
with operations in Puerto Rico, the United States, the U.S. Virgin Islands (the “USVI”), and the British Virgin Islands (the “BVI”).
The Corporation has two wholly-owned subsidiaries: FirstBank Puerto Rico (“FirstBank” or the “Bank”), and FirstBank Insurance
Agency, Inc. (“FirstBank Insurance Agency”). FirstBank is a Puerto Rico-chartered commercial bank, and FirstBank Insurance
Agency is a Puerto Rico-chartered insurance agency. FirstBank is subject to the supervision, examination, and regulation of both the
Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico (the “OCIF”) and the Federal Deposit
Insurance Corporation (“FDIC”). Deposits are insured through the FDIC Deposit Insurance Fund. FirstBank also operates in the
State of Florida, subject to regulation and examination by the Florida Office of Financial Regulation and the FDIC; in the USVI,
subject to regulation and examination by the USVI Division of Banking, Insurance, and Financial Regulation; and in the BVI, subject
to regulation by the British Virgin Islands Financial Services Commission. The Consumer Financial Protection Bureau (the “CFPB”)
regulates FirstBank’s consumer financial products and services.
FirstBank Insurance Agency is subject to the supervision, examination, and regulation of the Office of the Insurance Commissioner
of the Commonwealth of Puerto Rico and the Division of Banking and Insurance Financial Regulation in the USVI.
FirstBank conducts its business through its main office located in San Juan, Puerto Rico,
59
eight
banking branches in the USVI and the BVI, and
nine
subsidiaries with operations in Puerto First Federal Finance Corp. (d/b/a Money Express La Financiera), a finance company
��
Rico:specializing in the origination of small loans with
27
corporation, which holds tax-exempt assets; FirstBank Overseas Corporation, an international banking entity (an “IBE”) organized
under the International Banking Entity Act of Puerto Rico; two companies engaged in the operation of certain real estate properties;
and a wholly-owned subsidiary of FirstBank organized in 2022 under the laws of the Commonwealth of Puerto Rico and Act 60 of
2019, which will commence operations in 2023 and will engage in investing and lending transactions.
General
principles (“GAAP”). The following is a description of the Corporation’s most significant accounting policies.
Principles of consolidation
The consolidated financial statements include the accounts of the Corporation and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. The results of operations of companies or assets acquired are
included from the date of acquisition. Statutory business trusts that are wholly-owned by the Corporation and are issuers of trust-
preferred securities (“TRuPs”) and entities in which the Corporation has a non-controlling interest, are not consolidated in the
Corporation’s consolidated financial statements in accordance with authoritative guidance issued by the Financial Accounting
Standards Board (“FASB”) for consolidation of variable interest entities (“VIEs”). See “Variable Interest Entities” below for further
details regarding the Corporation’s accounting policy for these entities
.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
14
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, and contingent liabilities as of the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period.
Management makes significant estimates in determining the allowance for credit losses (“ACL”), income taxes, as well as fair
value measurements of investment securities, goodwill, other intangible assets, pension assets and liabilities, mortgage servicing
rights, and loans held for sale.
Actual results could differ from those estimates.
Change in accounting method
Effective on September 30, 2022, the Corporation changed the accounting method for accounting for its treasury stock from a par
value to a cost method. The Corporation believes the cost method is preferable as it more accurately reflects in treasury stock the cost
of stocks repurchased and it enhances comparability of financial results with other financial institutions. The Corporation reflected the
application of this new accounting method retrospectively by adjusting prior period amounts for treasury stock and additional paid-in
capital. The retrospective adjustment, which was reflected in the consolidated statements of financial condition and statements of
changes in stockholders’ equity, was limited to an increase in the beginning balance of treasury stock at January 1, 2020 of $
19
million and an increase in additional paid-in capital for the same amount, which was considered immaterial. These adjustments had no
impact on previously issued statements of income, comprehensive income, cash flows, and executive compensation and regulatory
capital measures.
Cash and cash equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash items in transit, and amounts due from
the Federal Reserve Bank of New York (the “Federal Reserve” or the “FED”) and other depository institutions. The term also includes
money market funds and short-term investments with original maturities of three months or less.
Investment securities
The Corporation classifies its investments in debt and equity securities into one of four categories:
Held-to-maturity
amortized cost. The Corporation may not sell or transfer held-to-maturity securities without calling into question its intent to
hold other debt securities to maturity, unless a nonrecurring or unusual event that could not have been reasonably anticipated has
occurred.
Trading
are carried at fair value, with unrealized gains and losses reported in earnings. As of December 31, 2022, and 2021, the
Corporation did not hold debt securities for trading purposes.
Available-for-sale
unrealized holding gains and losses, net of deferred taxes, reported in other comprehensive loss (“OCL”) as a separate
component of stockholders’ equity. The unrealized holding gains and losses do not affect earnings until they are realized, or an
ACL is recorded.
Equity securities
consolidated statements of financial condition. These securities are stated at cost less impairment, if any. This category is
principally composed of FHLB stock that the Corporation owns to comply with FHLB regulatory requirements. The realizable
value of the FHLB stock equals its cost. Also included in this category are marketable equity securities held at fair value with
changes in unrealized gains or losses recorded through earnings in other non-interest income.
Premiums and discounts on debt securities are amortized as an adjustment to interest income on investments over the life of the
related securities under the interest method without anticipating prepayments, except for mortgage-backed securities (“MBS”) where
prepayments are anticipated. Premiums on callable debt securities, if any, are amortized to the earliest call date. Purchases and sales of
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
15
securities are recognized on a trade-date basis, the date the order to buy or sell is executed. Gains and losses on sales are determined
using the specific identification method.
A debt security is placed on nonaccrual status at the time any principal or interest payment becomes 90 days delinquent. Interest
accrued but not received for a security placed on nonaccrual is reversed against interest income. See Note 3 – Debt Securities for
additional information on nonaccrual debt securities.
Allowance for Credit Losses – Held-to-Maturity Debt Securities:
As of December 31, 2022, the held-to-maturity debt securities
portfolio consisted of U.S. government-sponsored entities (“GSEs”) MBS and Puerto Rico municipal bonds.
The ACL on held-to-maturity debt securities is based on an expected loss methodology referred to as current expected credit loss
(“CECL”) methodology by major security type. Any expected credit loss is provided through the ACL on held-to-maturity debt
securities and is deducted from the amortized cost basis of the security so that the statement of financial condition reflects the net
amount the Corporation expects to collect.
The Corporation does not recognize an ACL for GSEs’ MBS since they are either explicitly or implicitly guaranteed by the U.S.
government, are highly rated by major rating agencies, and have a long history of no credit losses. For the ACL of held-to-maturity
Puerto Rico municipal bonds, the Corporation considers historical credit loss information that is adjusted for current conditions and
reasonable and supportable forecasts. These Puerto Rico municipal obligations typically are not issued in bearer form, nor are they
registered with the Securities and Exchange Commission (“SEC”) and are not rated by external credit agencies. These financing
arrangements with Puerto Rico municipalities were issued in bond form and accounted for as securities but underwritten as loans with
features that are typically found in commercial loans. Accordingly, similar to commercial loans, an internal risk rating (
i.e
., pass,
special mention, substandard, doubtful, or loss) is assigned to each bond at the time of issuance or acquisition and monitored on a
continuous basis with a formal assessment completed, at a minimum, on a quarterly basis. The Corporation determines the ACL for
held-to-maturity Puerto Rico municipal bonds based on the product of a cumulative probability of default (“PD”) and loss given
default (“LGD”), and the amortized cost basis of each bond over its remaining expected life. PD estimates represent the point -in-time
as of which the PD is developed, and are updated quarterly based on, among other things, the payment performance experience,
financial performance and market value indicators, and current and forecasted relevant forward-looking macroeconomic variables
over the expected life of the bonds, to determine a lifetime term structure PD curve. LGD estimates are determined based on, among
other things, historical charge-off events and recovery payments (if any), government sector historical loss experience, as well as
relevant current and forecasted macroeconomic expectations of variables, such as unemployment rates, interest rates, and market risk
factors based on industry performance, to determine a lifetime term structure LGD curve. Under this approach, all future period losses
for each instrument are calculated using the PD and LGD loss rates derived from the term structure curves applied to the amortized
cost basis of each bond. For the relevant macroeconomic expectations of variables, the methodology considers an initial forecast
period (a “reasonable and supportable period”) of two years and a reversion period of up to three years, utilizing a straight-line
approach and reverting back to the historical macroeconomic mean. After the reversion period, the Corporation uses a historical loss
forecast period covering the remaining contractual life based on the changes in key historical economic variables during representative
historical expansionary and recessionary periods. Furthermore, the Corporation periodically considers the need for qualitative
adjustments to the ACL. Qualitative adjustments may be related to and include, but not be limited to, factors such as: (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 resolution strategies, among others.
The Corporation has elected not to measure an ACL on accrued interest related to held-to-maturity debt securities, as uncollectible
accrued interest receivables are written off on a timely manner. See Note 3 – Debt Securities for additional information about ACL
balances for held-to-maturity debt securities, activity during the period, and information about changes in circumstances that caused
changes in the ACL for held-to-maturity debt securities during the years ended December 31, 2022, 2021, and 2020.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
16
Allowance for Credit Losses – Available-for-Sale Debt Securities:
For available-for-sale debt securities in an unrealized loss
position, the Corporation first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security
before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s
amortized cost basis is written down to fair value. Any previously recognized ACL should first be written off and the write-down in
excess of such ACL would be recorded through a charge to the provision for credit losses. For available -for-sale debt securities that do
not meet the aforementioned criteria, the Corporation evaluates whether the decline in fair value has resulted from credit losses or
other factors. In making this assessment, management considers the cash position of the issuer and its cash and capital generation
capacity, which could increase or diminish the issuer’s ability to repay its bond obligations, the extent to which the fair value is less
than the amortized cost basis, any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the
latest information available about the financial condition of the issuer, credit ratings, the failure of the issuer to make scheduled
principal or interest payments, recent legislation and government actions affecting the issuer’s industry, and actions taken by the issuer
to deal with the economic climate. The Corporation also takes into consideration changes in the near-term prospects of the underlying
collateral of a security, if any, such as changes in default rates, loss severity given default, and significant changes in prepayment
assumptions and the level of cash flows generated from the underlying collateral, if any, supporting the principal and interest
payments on the debt securities. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be
collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be
collected is less than the amortized cost basis, a credit loss exists and the Corporation records an ACL for the credit loss, limited to the
amount by which the fair value is less than the amortized cost basis. The Corporation recognizes in OCL any impairment that has not
been recorded through an ACL. Non-credit-related impairments result from other factors, including changes in interest rates.
The Corporation records changes in the ACL as a provision for (or reversal of) credit loss expense. Losses are charged against the
allowance when management believes the uncollectability of an available-for-sale debt security is confirmed or when either of the
criteria regarding intent or requirement to sell is met. The Corporation has elected not to measure an ACL on accrued interest related
to available-for-sale debt securities, as uncollectible accrued interest receivables are written off on a timely manner.
Substantially all of the Corporation’s available-for-sale debt securities are issued by GSEs. These securities are either explicitly or
implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses.
Accordingly, there is a zero-credit loss expectation on these securities. For further information, including the methodology and
assumptions used for the discounted cash flow analyses performed on other available-for-sale debt securities such as private label
MBS and bonds issued by the Puerto Rico Housing Finance Authority (“PRHFA”), see Note 3 – Debt Securities, and Note 25 – Fair
Value.
Loans held for investment
Loans that the Corporation has the ability and intent to hold for the foreseeable future are classified as held for investment and are
reported at amortized cost, net of its ACL. The substantial majority of the Corporation’s loans are classified as held for investment.
Amortized cost is the principal outstanding balance, net of unearned interest, cumulative charge -offs, unamortized deferred origination
fees and costs, and unamortized premiums and discounts. The Corporation reports credit card loans at their outstanding unpaid
principal balance plus uncollected billed interest and fees net of such amounts deemed uncollectible. Interest income is accrued on the
unpaid principal balance. Fees collected and costs incurred in the origination of new loans are deferred and amortized using the
interest method or a method that approximates the interest method over the term of the loan as an adjustment to interest yield.
Unearned interest on certain personal loans, auto loans, and finance leases and discounts and premiums are recognized as income
under a method that approximates the interest method. When a loan is paid-off or sold, any remaining unamortized net deferred fees,
or costs, discounts and premiums are included in loan interest income in the period of payoff.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
17
Nonaccrual and Past-Due Loans
nonaccrual. Loans are classified as nonaccrual when they are
90
mortgage loans insured or guaranteed by the Federal Housing Administration (the “FHA”), the Veterans Administration (the “VA”) or
the PRHFA, and credit card loans. It is the Corporation’s policy to report delinquent mortgage loans insured by the FHA, or
guaranteed by the VA or the PRHFA, as loans past due
90
repayment is insured or guaranteed. However, the Corporation discontinues the recognition of income relating to FHA/VA loans when
such loans are over
15
loans when such loans are over
90
180
and timely collection of interest or principal becomes uncertain (generally based on an assessment of the borrower’s financial
condition and the adequacy of collateral, if any). When a loan is placed on nonaccrual status, any accrued but uncollected interest
income is reversed and charged against interest income and amortization of any net deferred fees is suspended. Interest income on
nonaccrual loans is recognized only to the extent it is received in cash. However, when there is doubt regarding the ultimate
collectability of loan principal, all cash thereafter received is applied to reduce the carrying value of such loans (
i.e.
, the cost recovery
method). Under the cost-recovery method, interest income is not recognized until the loan balance has been collected in full, including
the charged-off portion. Generally, the Corporation returns a loan to accrual status when all delinquent interest and principal becomes
current under the terms of the loan agreement, or after a sustained period of repayment performance (
six months
) and the loan is well
secured and in the process of collection, and full repayment of the remaining contractual principal and interest is expected. Loans that
are past due 30 days or more as to principal or interest are considered delinquent, with the exception of residential mortgage,
commercial mortgage, and construction loans, which are considered past due when the borrower is in arrears on two or more monthly
payments. The Corporation has elected not to measure an ACL on accrued interest related to loans held for investment, as
uncollectible accrued interest receivables are written off on a timely manner.
Loans Acquired –
Loans acquired through a purchase or a business combination are recorded at their fair value as of the acquisition
date. The Corporation performs an assessment of acquired loans to first determine if such loans have experienced a more than
insignificant deterioration in credit quality since their origination and thus should be classified and accounted for as purchased credit
deteriorated (“PCD”) loans. For loans that have not experienced a more than insignificant deterioration in credit quality since
origination, referred to as non-PCD loans, the Corporation records such loans at fair value, with any resulting discount or premium
accreted or amortized into interest income over the remaining life of the loan using the interest method. Additionally, upon the
purchase or acquisition of non-PCD loans, the Corporation measures and records an ACL based on the Corporation’s methodology for
determining the ACL. The ACL for non-PCD loans is recorded through a charge to the provision for credit losses in the period in
which the loans are purchased or acquired.
Acquired loans that are classified as PCD are recognized at fair value, which includes any premiums or discounts resulting from the
difference between the initial amortized cost basis and the par value. Premiums and non-credit loss related discounts are amortized or
accreted into interest income over the remaining life of the loan using the interest method. Unlike non-PCD loans, the initial ACL for
PCD loans is established through an adjustment to the acquired loan balance and not through a charge to the provision for credit losses
in the period in which the loans are acquired. At acquisition, the ACL for PCD loans, which represents the fair value credit discount, is
determined using a discounted cash flow method that considers the PDs and LGDs used in the Corporation’s ACL methodology.
Characteristics of PCD loans include the following: delinquency, payment history since origination, credit scores migration and/or
other factors the Corporation may become aware of through its initial analysis of acquired loans that may indicate there has been a
more than insignificant deterioration in credit quality since a loan’s origination. In connection with the Banco Santander Puerto Rico
(“BSPR”) acquisition on September 1, 2020, the Corporation acquired PCD loans with an aggregate fair value at acquisition of
approximately $
752.8
28.7
the loans.
Subsequent to acquisition, the ACL for both non-PCD and PCD loans is determined pursuant to the Corporation’s ACL
methodology in the same manner as all other loans.
For PCD loans that prior to the adoption of ASC 326 were classified as purchased credit impaired (“PCI”) loans and accounted for
under the FASB Accounting Standards Codification (the “Codification” or “ASC”) Subtopic 310-30, “Accounting for Purchased
Loans Acquired with Deteriorated Credit Quality” (ASC Subtopic 310-30), the Corporation adopted ASC 326 using the prospective
transition approach. As allowed by ASC 326, 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. As of December 31, 2022, such PCD loans consisted
of $
101.7
1.9
acquisitions completed prior to 2020. These previous transactions include a transaction completed on February 27, 2015, in which
FirstBank acquired ten Puerto Rico branches of Doral Bank, acquired certain assets, including PCD loans, and assumed deposits,
through an alliance with Banco Popular of Puerto Rico, which was the successful lead bidder with the FDIC on the failed Doral Bank,
as well as other co-bidders, and the acquisition from Doral Financial in the first quarter of 2014 of all of its rights, title and interest in
first and second residential mortgage loans in full satisfaction of secured borrowings owed by such entity to FirstBank. As the
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
18
Corporation elected to maintain pools of units of account for loans previously accounted for under ASC Subtopic 310-30, the
Corporation is not able to remove loans from the pools until they are paid off, written off or sold (consistent with the Corporation’s
practice prior to adoption of ASC 326), but is required to follow ASC 326 for purposes of the ACL. Regarding interest income
recognition for PCD loans that existed at the time of adoption of ASC 326, the prospective transition approach for PCD loans required
by ASC 326 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 that the Corporation has elected to maintain in
previously existing pools pursuant to the policy election right upon adoption of ASC 326 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 use of the collateral in operations or improving the collateral for resale. Thus, the
Corporation continues to exclude these pools of PCD loans from nonaccrual loan statistics. In accordance with ASC 326, the
Corporation did not reassess whether modifications to individual acquired loans accounted for within pools were troubled debt
restructurings (“TDRs”) as of the date of adoption.
Charge-off of Uncollectible Loans -
Corporation determines are uncollectible, net of recovered amounts. The Corporation records charge -offs as a reduction to the ACL
and subsequent recoveries of previously charged-off amounts are credited to the ACL.
The Corporation designates as collateral dependent certain commercial, residential and consumer loans secured by collateral when
foreclosure is probable or when repayment is expected to be provided substantially through the operation or sale of the collateral when
the borrower is experiencing financial difficulties based on its assessment as of the reporting date. Commercial and construction loans
are considered collateral dependent when they exhibit specific risk characteristics such as repayment capacity under certain thresholds
or credit deterioration. Residential mortgage loans are considered collateral dependent when
180
residential real estate. Moreover, since the ACL of auto loans and finance leases is calculated using either a PD/LGD model or a risk-
adjusted discounted cash flow method for loans modified or reasonably expected to be modified in a TDR and performing in
accordance with restructured terms, these loans are not considered collateral dependent. The ACL of collateral dependent loans is
based on the fair value of the collateral at the reporting date, adjusted for undiscounted estimated costs to sell.
Collateral dependent loans in the construction, commercial mortgage, and commercial and industrial (“C&I”) loan portfolios are
written down to their net realizable value (fair value of collateral, less estimated costs to sell) when loans are considered to be
uncollectible and have balances of $
0.5
closed-end consumer loans are charged
off when payments are
120
when payments are
180
180
needed, to the fair value of the underlying collateral less cost to sell. Generally, all loans may be charged off or written down to the
fair value of the collateral prior to the application of the policies described above if a loss-confirming event has occurred. Loss-
confirming events include, but are not limited to, bankruptcy (unsecured), continued delinquency, or receipt of an asset valuation
indicating a collateral deficiency when the asset is the sole source of repayment.
Troubled Debt Restructurings
the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. However, not all loan
modifications are TDRs. Modifications resulting in TDRs may include changes to one or more terms of the loan, including but not
limited to, a change in interest rate, an extension of the repayment period, a reduction in payment amount, and partial forgiveness or
deferment of principal or accrued interest. TDR loans are classified as either accrual or nonaccrual loans. Loans in accrual status may
remain in accrual status when their contractual terms have been modified in a TDR if the loans had demonstrated performance prior to
the restructuring and payment in full under the restructured terms is expected. Otherwise, loans on nonaccrual status and restructured
as TDRs will remain on nonaccrual status until the borrower has proven the ability to perform under the modified structure, generally
for a minimum of six months, and there is evidence that such payments can, and are likely to, continue as agreed.
A loan that had previously been modified in a TDR and is subsequently refinanced under then-current underwriting standards at a
market rate with no concessionary terms is accounted for as a new loan and is no longer reported as a TDR.
Refer to Accounting Standards Updates (“ASU”) 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt
Restructurings and Vintage Disclosures” below for information on the amendments to the TDR guidance that are effective on or after
January 1, 2023
.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
19
Allowance for credit losses for loans and finance leases
The ACL for loans and finance leases held for investment is a valuation account that is deducted from the loans’ amortized cost
basis to present the net amount expected to be collected on loans. Loans are charged-off against the allowance when management
confirms the loan balance is uncollectable.
The Corporation estimates the allowance 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 any difference 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. Expected credit losses are estimated
over the contractual term of the loans, adjusted by prepayments when appropriate. The contractual term excludes expected extensions,
renewals, and modifications unless either of the following applies: the Corporation has a reasonable expectation at the reporting date
that a TDR will be executed with an individual borrower or the extension or renewal options are included in the original or modified
contract at the reporting date and are not unconditionally cancellable by the Corporation.
The Corporation estimates the ACL primarily based on a PD/LGD modeled approach, or individually primarily for collateral
dependent loans and certain TDR loans. The Corporation evaluates the need for changes to the ACL by portfolio segments and classes
of loans within certain of those portfolio segments. Factors such as the credit risk inherent in a portfolio and how the Corporation
monitors the related quality, as well as the estimation approach to estimate credit losses, are considered in the determination of such
portfolio segments and classes. The Corporation has identified the following portfolio segments:
●
Residential mortgage
– Residential mortgage loans are loans secured by residential real property together with the right to
receive the payment of principal and interest on the loan. The majority of the Corporation’s residential loans are fixed-rate
first lien closed-end loans secured by 1-4 single-family residential properties.
●
Commercial mortgage
which the primary source of repayment comes from rent and lease payments that are generated by an income-producing
property.
●
Commercial and Industrial
comes from the ongoing operations and activities conducted by the borrower and not from rental income or the sale or
refinancing of any underlying real estate collateral; thus, credit risk is largely dependent on the commercial borrower’s
current and expected financial condition. The C&I loan portfolio consists of loans granted to large corporate customers as
well as middle-market customers across several industries, and the government sector.
●
Construction
–
industrial, commercial, or residential buildings and included loans to finance land development in preparation for erecting
new structures. These loans involve an inherently higher level of risk and sensitivity to market conditions. Demand from
prospective tenants or purchasers may erode after construction begins because of a general economic slowdown or otherwise.
●
Consumer
Consumer loans generally consisted of unsecured and secured loans extended to individuals for household,
family, and other personal expenditures, including several classes of products.
For purposes of the ACL determination, the Corporation stratifies portfolio segments by two main regions (
i.e.,
Rico/Virgin Islands region and the Florida region). The ACL is measured using a PD/LGD model that is calculated based on the
product of a cumulative PD and LGD. PD and LGD estimates are updated quarterly for each loan over the remaining expected life to
determine lifetime term structure curves. Under this approach, the Corporation calculates losses for each loan for all future periods
using the PD and LGD loss rates derived from the term structure curves applied to the amortized cost basis of the loans, considering
prepayments.
For residential mortgage loans, the Corporation stratifies the portfolio segment by the following two classes: (i) government-
guaranteed residential mortgage loans, and (ii) conventional mortgage loans. Government-guaranteed loans are those originated to
qualified borrowers under the FHA and the VA standards. Originated loans that meet the FHA’s standards qualify for the FHA’s
insurance program whereas loans that meet the standards of the VA are guaranteed by such entity. No credit losses are determined for
loans insured or guaranteed by the FHA or the VA due to the explicit guarantee of the U.S. federal government. On the other hand, an
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
20
ACL is calculated for conventional residential mortgage loans, which are loans that do not qualify under the FHA or VA programs.
PD estimates are based on, among other things, historical payment performance and relevant current and forward-looking
macroeconomic variables, such as regional unemployment rates. On the other hand, LGD estimates are based on, among other things,
historical charge-off events and recovery payments, loan-to-value attributes, and relevant current and forecasted macroeconomic
variables, such as the regional housing price index.
For commercial mortgage loans, PD estimates are based on, among other things, industry historical loss experience, property type,
occupancy, and relevant current and forward-looking macroeconomic variables. On the other hand, LGD estimates are based on
historical charge-off events and recovery payments, industry historical loss experience, specific attributes of the loans, such as loan-to-
value, debt service coverage ratios, and net operating income, as well as relevant current and forecasted macroeconomic variables
expectations, such as commercial real estate price indexes, the gross domestic product (“GDP”), interest rates, and unemployment
rates, among others.
For C&I loans, PD estimates are based on industry historical loss experience, financial performance and market value indicators,
and current and forecasted relevant forward-looking macroeconomic variables. On the other hand, LGD estimates are based on
industry historical loss experience, specific attributes of the loans, such as loan to value, as well as relevant current and forecasted
expectations for macroeconomic variables, such as unemployment rates, interest rates, and market risk factors based on industry
performance and the equity market.
For construction loans, PD estimates are based on, among other things, historical payment performance experience, industry
historical loss experience, underlying type of collateral, and relevant current and forward-looking macroeconomic variables. On the
other hand, LGD estimates are based on historical charge-off events and recovery payments, industry historical loss experience,
specific attributes of the loans, such as loan-to-value, debt service coverage ratios, and relevant current and forecasted macroeconomic
variables, such as unemployment rates, GDP, interest rates, and real estate price indexes.
For consumer loans, the Corporation stratifies the portfolio segment by the following five classes: (i) auto loans; (ii) finance leases;
(iii) credit cards; (iv) personal loans; and (v) other consumer loans, such as open-end home equity revolving lines of credit and other
types of consumer credit lines, among others. In determining the ACL, management considers consumer loans risk characteristics
including, but not limited to, credit quality indicators such as payment performance period, delinquency and original FICO scores. For
auto loans and finance leases, PD estimates are based on, among other things, the historical payment performance and relevant current
and forward-looking macroeconomic variables, such as regional unemployment rates. On the other hand, LGD estimates are primarily
based on historical charge-off events and recovery payments. For the credit card and personal loan portfolios, the Corporation
determines the ACL on a pool basis, based on products PDs and LGDs developed considering historical losses for each origination
vintage by length of loan terms, by geography, payment performance and by credit score. The PD and LGD for each cohort consider
key macroeconomic variables, such as regional GDP, unemployment rates, and retail sales, among others.
For the ACL determination of all portfolios, the expectations for relevant macroeconomic variables related to the Puerto Rico and
Virgin Islands region consider an initial reasonable and supportable period of
two years
three years
,
utilizing a straight-line approach and reverting back to the historical macroeconomic mean. For the Florida region, the methodology
considers a reasonable and supportable forecast period and an implicit reversion towards the historical trend that varies for each
macroeconomic variable. After the reversion period, a historical loss forecast period covering the remaining contractual life, adjusted
for prepayments, is used based on the changes in key historical economic variables during representative historical expansionary and
recessionary periods.
Furthermore, the Corporation periodically considers the need for qualitative adjustments to the ACL. Qualitative adjustments may
be related to and include, but not be limited to factors such as: (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, including, but not
limited to, expectations about interest rate, inflation, and real estate price levels, as well as labor challenges; (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.
In addition to loans previously written down to their respective realizable values, the ACL on loans that have been modified or are
reasonably expected to be modified in a TDR and that have balances of $
0.5
construction loans (other than commercial mortgage and construction loans, in which the ACL is based on the fair value of the
collateral at the reporting date, adjusted for undiscounted estimated costs to sell) is generally measured using a risk-adjusted
discounted cash flow method. Under this approach, all future cash flows (interest and principal) for each loan are adjusted by the PDs
and LGDs derived from the term structure curves and prepayments and then discounted at the rate of the loan prior to the restructuring
(or at the effective interest rate as of the reporting date for non-TDRs previously written down to their respective realizable values) to
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
21
arrive at the net present value of future cash flows. For credit cards, personal loans, and nonaccrual auto loans and finance leases
modified in a TDR, the ACL is measured using the same methodologies as those used for all other loans in those portfolios.
See Note 5 – Allowance for Credit Losses for Loans and Finance Leases for additional information about reserve balances for each
portfolio segment, activity during the period, and information about changes in circumstances that caused changes in the ACL for
loans and finance leases during the year ended December 31, 2022, 2021, and 2020.
Refer to ASU 2022-02 discussion below for information on the amendments to the TDR guidance that are effective on or after
January 1, 2023.
Allowance for credit losses on off-balance sheet credit exposures and other assets
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 unless the obligation is unconditionally cancellable by the Corporation. The ACL on off-
balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood
that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. As of
December 31, 2022, the off-balance sheet credit exposures primarily consisted of unfunded loan commitments and standby letters of
credit for commercial and construction loans. The Corporation utilized the PDs and LGDs derived from the above-explained
methodologies for the commercial and construction loan portfolios. Under this approach, all future period losses for each loan are
calculated using the PD and LGD loss rates derived from the term structure curves applied to the usage given default exposure. The
ACL on off-balance sheet credit exposures is included as part of accounts payable and other liabilities in the consolidated statement of
financial condition with adjustments included as part of the provision for credit losses in the consolidated statements of income.
See Note 5 – Allowance for Credit Losses for Loans and Finance Leases for additional information about reserve balances for
unfunded loan commitments, activity during the period, and information about changes in circumstances that caused changes in the
ACL for off-balance sheet credit exposures during the years ended December 31, 2022, 2021 and 2020.
The Corporation also estimates expected credit losses for certain accounts receivable, primarily claims from government-
guaranteed loans, loan servicing-related receivables, and other receivables. The ACL on other assets measured at amortized cost is
included as part of other assets in the consolidated statement of financial condition with adjustments included as part of other non-
interest expenses in the consolidated statements of income. As of December 31, 2022 and 2021, the ACL on other assets measured at
amortized cost was immaterial.
Loans held for sale
Loans that the Corporation intends to sell or that the Corporation does not have the ability and intent to hold for the foreseeable
future are classified as held-for-sale loans. Loans held for sale are recorded at the lower of cost or fair value less costs to sell.
Generally, the loans held-for-sale portfolio consists of conforming residential mortgage loans that will be pooled into Government
National Mortgage Association (“GNMA”) MBS, which are then sold to investors, and conforming residential mortgage loans that the
Corporation intends to sell to GSEs, such as the Federal National Mortgage Association (“FNMA”) and the U.S. Federal Home Loan
Mortgage Corporation (“FHLMC”). Generally, residential mortgage loans held for sale are valued on an aggregate portfolio basis and
the value is primarily derived from quotations based on the MBS market. The amount by which cost exceeds market value in the
aggregate portfolio of residential mortgage loans held for sale, if any, is accounted for as a valuation allowance with changes therein
included in the determination of net income and reported as part of mortgage banking activities in the consolidated statements of
income. Loan costs and fees are deferred at origination and are recognized in income at the time of sale and are included in the
amortized cost basis when evaluating the need for a valuation allowance. The fair value of commercial and construction loans held for
sale, if any, is primarily derived from external appraisals, or broker price opinions that the Corporation considers, with changes in the
valuation allowance reported as part of other non-interest income in the consolidated statements of income.
In certain circumstances, the Corporation transfers loans from/to held for sale or held for investment based on a change in strategy.
If such a change in holding strategy is made, significant adjustments to the loans’ carrying values may be necessary. Reclassifications
of loans held for investment to held for sale are made at the amortized cost on the date of transfer and establish a new cost basis upon
transfer. Write-downs of loans transferred from held for investment to held for sale are recorded as charge-offs at the time of transfer.
Any previously recorded ACL is reversed in earnings after applying the write-down policy. Subsequent changes in value below
amortized cost are reflected in non-interest income in the consolidated statements of income. Reclassifications of loans held for sale to
held for investment are made at the amortized cost on the transfer date and any previously recorded valuation allowance is reversed in
earnings. Upon transfer to held for investment, the Corporation calculates an ACL using the CECL impairment model.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
22
Transfers and servicing of financial assets and extinguishment of liabilities
After a transfer of financial assets in a transaction that qualifies for accounting as a sale, the Corporation derecognizes the financial
assets when it has surrendered control and derecognizes liabilities when they are extinguished.
A transfer of financial assets in which the Corporation surrenders control over the assets is accounted for as a sale to the extent that
consideration other than beneficial interests is received in exchange. The criteria that must be met to determine that the control over
transferred assets has been surrendered include the following: (i) the assets must be isolated from creditors of the transferor; (ii) the
transferee must obtain the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the
transferred assets; and (iii) the transferor cannot maintain effective control over the transferred assets through an agreement to
repurchase them before their maturity. When the Corporation transfers financial assets and the transfer fails any one of the above
criteria, the Corporation is prevented from derecognizing the transferred financial assets and the transaction is accounted for as a
secured borrowing.
Servicing assets
The Corporation recognizes as separate assets the rights to service loans for others, whether those servicing assets are originated or
purchased. In the ordinary course of business, loans are pooled into GNMA MBS for sale in the secondary market or sold to FNMA or
FHLMC, with servicing retained. When the Corporation sells mortgage loans, it recognizes any retained servicing right.
Mortgage servicing rights (“servicing assets” or “MSRs”) retained in a sale or securitization arise from contractual agreements
between the Corporation and investors in mortgage securities and mortgage loans. Under these contracts, the Corporation performs
loan-servicing functions in exchange for fees and other remuneration. The MSRs, included as part of other assets in the statements of
financial condition, entitle the Corporation to servicing fees based on the outstanding principal balance of the mortgage loans and the
contractual servicing rate. The servicing fees are credited to income on a monthly basis when collected and recorded as part of
mortgage banking activities in the consolidated statements of income. In addition, the Corporation generally receives other
remuneration consisting of mortgagor-contracted fees such as late charges and prepayment penalties, which are credited to income
when collected.
Considerable judgment is required to determine the fair value of the Corporation’s MSRs. Unlike highly liquid investments, the fair
value of MSRs cannot be readily determined because these assets are not actively traded in securities markets. The initial carrying
value of an MSR is determined based on its fair value. The Corporation determines the fair value of the MSRs using a discounted
static cash flow analysis, which incorporates current market assumptions commonly used by buyers of these MSRs and was derived
from prevailing conditions in the secondary servicing market. The valuation of the Corporation’s MSRs incorporates two sets of
assumptions: (i) market-derived assumptions for discount rates, servicing costs, escrow earnings rates, floating earnings rates, and the
cost of funds; and (ii) market assumptions calibrated to the Corporation’s loan characteristics and portfolio behavior for escrow
balances, delinquencies and foreclosures, late fees, prepayments, and prepayment penalties.
Once recorded, the Corporation periodically evaluates MSRs for impairment. Impairments are recognized through a valuation
allowance for each individual stratum of servicing assets. For purposes of performing the MSR impairment evaluation, the servicing
portfolio is stratified on the basis of certain risk characteristics, such as region, terms, and coupons. The Corporation conducts an
other-than-temporary impairment analysis to evaluate whether a loss in the value of the MSR in a particular stratum, if any, is other
than temporary or not. When the recovery of the value is unlikely in the foreseeable future, a write-down of the MSR in the stratum to
its estimated recoverable value is charged to the valuation allowance. Impairment charges are recorded as part of revenues from
mortgage banking activities in the consolidated statements of income .
The MSRs are amortized over the estimated life of the underlying loans based on an income forecast method as a reduction of
servicing income. The income forecast method of amortization is based on projected cash flows. A particular periodic amortization is
calculated by applying to the carrying amount of the MSRs the ratio of the cash flows projected for the current period to total
remaining net MSR forecasted cash flow.
Premises and equipment
Premises and equipment are carried at cost, net of accumulated depreciation and amortization. Depreciation is provided on the
straight-line method over the estimated useful life of each type of asset. Amortization of leasehold improvements is computed over
the terms of the leases (
i.e.
, the contractual term plus lease renewals that are reasonably assured) or the estimated useful lives of the
improvements, whichever is shorter. Costs of maintenance and repairs that do not improve or extend the life of the respective assets
are expensed as incurred. Costs of renewals and betterments are capitalized. When the Corporation sells or disposes of assets, their
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
23
cost and related accumulated depreciation are removed from the accounts and any gain or loss is reflected in earnings as part of other
non-interest income in the consolidated statements of income. When the asset is no longer used in operations, and the Corporation
intends to sell it, the asset is reclassified to other assets held for sale and is reported at the lower of the carrying amount or fair value
less cost to sell. Premises and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. Impairments on premises and equipment are included as part of occupancy and
equipment expenses in the consolidated statements of income.
Operating leases
recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the
commencement date, or at acquisition date in case of a business combination. As the rates implicit in the Corporation’s operating
leases are not readily determinable, the Corporation generally uses an incremental borrowing rate based on information available at
the commencement date to determine the present value of future lease payments. The incremental borrowing rate is calculated based
on fully amortizing secured borrowings. Operating right-of-use (“ROU”) assets are generally recognized based on the amount of the
initial measurement of the lease liability. Non-lease components, such as common area maintenance charges, are not considered a part
of the gross-up of the ROU asset and lease liability and are recognized as incurred. The Corporation’s leases are primarily related to
operating leases for the Bank’s branches. Most of the Corporation’s leases with operating ROU assets have terms of
two years
30
years
, some of which include options to extend the leases for up to
ten years
. The Corporation does not recognize ROU assets and
lease liabilities that arise from short-term leases (less than 12 months). Operating lease expense, which is included as part of
occupancy and equipment expenses in the consolidated statements of income, is recognized on a straight-line basis over the lease term
that is based on the Corporation’s assessment of whether the renewal options are reasonably certain to be exercised. The Corporation
includes the ROU assets and lease liabilities as part of other assets and accounts payable and other liabilities, respectively, in the
consolidated statements of financial condition.
As of December 31, 2022, the Corporation, as lessee, did
no
t have any leases that qualified as finance leases.
Other real estate owned (“OREO”)
OREO, which consists of real estate acquired in settlement of loans, is recorded at fair value less estimated costs to sell the real
estate acquired. Generally, loans have been written down to their net realizable value prior to foreclosure. Any further reduction to
their net realizable value is recorded with a charge to the ACL at the time of foreclosure or within six months. Thereafter, costs of
maintaining and operating these properties, losses recognized on the periodic reevaluations of these properties, and gains or losses
resulting from the sale of these properties are charged or credited to earnings and are included as part of net gain (loss) on OREO
operations in the consolidated statements of income. Appraisals are obtained periodically, generally on an annual basis
.
Claims arising from FHA/VA government-guaranteed residential mortgage loans
Upon the foreclosure on property collateralizing an FHA/VA government-guaranteed residential mortgage loan, the Corporation
derecognizes the government-guaranteed mortgage loan and recognizes a receivable as part of other assets in the consolidated
statements of condition if the conditions in ASC Subtopic 310-40, “Reclassification of Residential Real Estate Collateralized
Consumer Mortgage Loans upon Foreclosure,” (ASC Subtopic 310-40) are met. See Note 7– Other Real Estate Owned for
information on foreclosures associated to FHA/VA government-guaranteed residential mortgage loans reclassified to other assets as of
December 31, 2022 and 2021.
Goodwill and other intangible assets
Goodwill –
Goodwill represents the cost in excess of the fair value of net assets acquired (including identifiable intangibles) in
transactions accounted for as business combinations. The Corporation allocates goodwill to the reporting unit(s) that are expected to
benefit from the synergies of the business combination. Once goodwill has been assigned to a reporting unit, it no longer retains its
association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are
available to support the value of the goodwill. The Corporation tests goodwill for impairment at least annually and more frequently if
circumstances exist that indicate a possible reduction in the fair value of a reporting unit below its carrying value. If, after assessing all
relevant events or circumstances, the Corporation concludes that it is more-likely-than-not that the fair value of a reporting unit is
below its carrying value, then an impairment test is required. In addition to the goodwill recorded at the Commercial and Corporate,
Consumer Retail, and Mortgage Banking reporting units in connection with the acquisition of BSPR in 2020, the Corporation’s
goodwill is mostly related to the United States (Florida) reporting unit. See Note 9– Goodwill and Other Intangible Assets for
information on the qualitative assessment performed by the Corporation during the fourth quarter of 2022.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
24
Other Intangible Assets
core deposit intangibles based on the projected useful lives of the related deposits, generally on a straight-line basis, and reviews these
assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not exceed their fair value.
Securities purchased and sold under agreements to repurchase
The Corporation accounts for securities purchased under resale agreements and securities sold under repurchase agreements as
collateralized financing transactions. Generally, the Corporation records these agreements at the amount at which the securities were
purchased or sold. The Corporation monitors the fair value of securities purchased and sold, and obtains collateral from, or returns it
to, the counterparties when appropriate. These financing transactions do not create material credit risk given the collateral involved
and the related monitoring process. The Corporation sells and acquires securities under agreements to repurchase or resell the same or
similar securities. Generally, similar securities are securities from the same issuer, with identical form and type, similar maturity,
identical contractual interest rates, similar assets as collateral, and the same aggregate unpaid principal amount. The counterparty to
certain agreements may have the right to repledge the collateral by contract or custom. The Corporation presents such assets separately
in the consolidated statements of financial condition as securities pledged with creditors’ rights to repledge. Repurchase and resale
activities may be transacted under legally enforceable master repurchase agreements that give the Corporation, in the event of default
by the counterparty, the right to liquidate securities held and to offset receivables and payables with the same counterparty. The
Corporation offsets repurchase and resale transactions with the same counterparty in the consolidated statements of financial condition
where it has such a legally enforceable right under a master netting agreement, the intention of setoff is existent, the transactions have
the same maturity date, and the amounts are determinable.
From time to time, the Corporation modifies repurchase agreements to take advantage of prevailing interest rates. Following
applicable GAAP guidance, if the Corporation determines that the debt under the modified terms is substantially different from the
original terms, the modification must be accounted for as an extinguishment of debt. The Corporation considers modified terms to be
substantially different if the present value of the cash flows under the terms of the new debt instrument is at least
10
% different from
the present value of the remaining cash flows under the terms of the original instrument. The new debt instrument will be initially
recorded at fair value, and that amount will be used to determine the debt extinguishment gain or loss to be recognized through the
consolidated statements of income and the effective rate of the new instrument. If the Corporation determines that the debt under the
modified terms is not
substantially different, then the new effective interest rate is determined based on the carrying amount of the
original debt instrument. The Corporation has determined that none of the repurchase agreements modified in the past were
substantially different from the original terms, and, therefore, these modifications were not accounted for as extinguishments of debt
.
Income taxes
The Corporation uses the asset and liability method for the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Corporation’s financial statements or tax returns. Deferred income tax
assets and liabilities are determined for differences between the financial statement and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future. The computation is based on enacted tax laws and rates applicable to periods in
which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income at the time of enactment of such change in tax rates. Any interest or penalties due for payment of
income taxes are included in the provision for income taxes. Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount that is more likely than not to be realized. In making such assessment, significant weight is given to evidence
that can be objectively verified, including both positive and negative evidence. The authoritative guidance for accounting for income
taxes requires the consideration of all sources of taxable income available to realize the deferred tax asset, including the future reversal
of existing temporary differences, tax planning strategies and future taxable income, exclusive of the impact of the reversal of
temporary differences and carryforwards. In estimating taxes, management assesses the relative merits and risks of the appropriate tax
treatment of transactions considering statutory, judicial, and regulatory guidance. See Note 22 – Income Taxes for additional
information.
Under the authoritative accounting guidance, income tax benefits are recognized and measured based on a two-step analysis: i) a
tax position must be more likely than not to be sustained based solely on its technical merits in order to be recognized; and ii) the
benefit is measured at the largest dollar amount of that position that is more likely than not to be sustained upon settlement. The
difference between a benefit not recognized in accordance with this analysis and the tax benefit claimed on a tax return is referred to
as an Unrecognized Tax Benefit.
The Corporation releases income tax effects from OCL as pension and postretirement liabilities are extinguished.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
25
Stock repurchases
Treasury shares are recorded at their reacquisition cost, as a reduction of stockholders’ equity in the consolidated statements of
financial condition. When reissuing treasury shares for the granting of stock-based compensation awards, treasury stock is reduced by
the cost allocated to such stock and additional paid-in capital is credited for gains and debited for losses when treasury stock is
reissued at prices that differ from the reacquisition cost.
Stock-based compensation
Compensation cost is recognized in the financial statements for all share-based payment grants.
The First BanCorp. Omnibus
Incentive Plan, as amended (the “Omnibus Plan”) provides for equity-based and non-equity-based compensation incentives (the
“awards”) through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares,
other stock-based awards and cash-based awards. The compensation cost for an award, determined based on the estimate of the fair
value at the grant date (considering forfeitures and any post-vesting restrictions), is recognized over the period during which an
employee or director is required to provide services in exchange for an award, which is the vesting period, taking into account the
retirement eligibility of the award.
Stock-based compensation accounting guidance requires the Corporation to reverse compensation expense for any awards that are
forfeited due to employee or director turnover. Changes in the estimated forfeiture rate may have a significant effect on stock-based
compensation as the Corporation recognizes the effect of adjusting the rate for all expense amortization in the period in which the
forfeiture estimate is changed. If the actual forfeiture rate is higher than the estimated forfeiture rate, an adjustment is made to increase
the estimated forfeiture rate, which will decrease the expense recognized in the financial statements. If the actual forfeiture rate is
lower than the estimated forfeiture rate, an adjustment is made to decrease the estimated forfeiture rate, which will increase the
expense recognized in the financial statements. For additional information regarding the Corporation’s equity-based compensation and
awards granted, see Note 16 – Stock-Based Compensation.
Comprehensive (loss) income
Comprehensive (loss) income for First BanCorp. includes net income, as well as changes in unrealized gains (losses) on available-
for-sale debt securities and change in unrecognized pension and post-retirement costs, net of estimated tax effects.
Pension and other postretirement benefits
The Corporation maintains two frozen qualified noncontributory defined benefit pension plans (the “Pension Plans”) (including a
complementary postretirement benefits plan covering medical benefits and life insurance after retirement) that it assumed in the BSPR
acquisition.
based on various actuarial assumptions regarding future experience under the plan, which include costs for services rendered during
the period, interest costs and return on plan assets, as well as deferral and amortization of certain items such as actuarial gains or
losses.
The funding policy is to contribute to the plan, as necessary, to provide for services to date and for those expected to be earned in
the future. To the extent that these requirements are fully covered by assets in the plan, a contribution may not be made in a particular
year.
The cost of postretirement benefits, which is determined based on actuarial assumptions and estimates of the costs of providing
these benefits in the future, is accrued during the years that the employee renders the required service.
The guidance for compensation retirement benefits of ASC Topic 715, “Retirement Benefits,” requires the recognition of the
funded status of each defined pension benefit plan, retiree health care plan and other postretirement benefit plans on the statement of
financial condition.
In addition, the Corporation maintains contributory retirement plans covering substantially all employees. Employer contributions
to the plan are charged to current earnings as part of employees’ compensation and benefits expenses in the consolidated statements of
income.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
26
Segment information
The Corporation reports financial and descriptive information about its reportable segments. Operating segments are components of
an enterprise about which separate financial information is available that is evaluated regularly by management in deciding how to
allocate resources and in assessing performance. The Corporation’s management determined that the segregation that best fulfills the
segment definition described above is by 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 December 31, 2022, the Corporation had the following
six
segments that are all reportable segments: Commercial and Corporate Banking; Mortgage Banking; Consumer (Retail) Banking;
Treasury and Investments; United States Operations; and Virgin Islands Operations. See Note 27 – Segment Information for additional
information.
Valuation of financial instruments
The measurement of fair value is fundamental to the Corporation’s presentation of its financial condition and results of operations.
The Corporation holds debt and equity securities, derivatives, and other financial instruments at fair value. The Corporation holds its
investments and liabilities mainly to manage liquidity needs and interest rate risks. A meaningful part of the Corporation’s total assets
is reflected at fair value on the Corporation’s financial statements.
The FASB’s authoritative guidance for fair value measurement defines fair value as the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. This guidance also establishes a fair value hierarchy for classifying
financial instruments. The hierarchy is based on whether the inputs to the valuation techniques used to measure fair value are
observable or unobservable.
Under the fair value accounting guidance, an entity has the irrevocable option to elect, on a contract-by-contract basis, to measure
certain financial assets and liabilities at fair value at the inception of the contract and, thereafter, to reflect any changes in fair value in
current earnings. The Corporation did not make any fair value option election as of December 31, 2022 or 2021. See Note 25 – Fair
Value for additional information.
Revenue from contract with customers
See Note 26 – Revenue from Contracts with Customers, for a detailed description of the Corporation’s policies on the recognition
and presentation of revenues from contracts with customers, including the income recognition for the insurance agency commissions’
revenue.
Earnings per common share
Basic earnings per share is calculated by dividing net income attributable to common stockholders by the weighted-average number
of common shares issued and outstanding. Net income attributable to common stockholders represents net income adjusted for any
preferred stock dividends, including any preferred stock dividends declared but not yet paid, and any cumulative preferred stock
dividends related to the current dividend period that have not been declared as of the end of the period. Basic weighted-average
common shares outstanding excludes unvested shares of restricted stock that do not contain non-forfeitable dividend rights. The
computation of diluted earnings per share is similar to the computation of basic earnings per share except that the number of weighted-
average common shares is increased to include the number of additional common shares that would have been outstanding if the
dilutive common shares had been issued, referred to as potential common shares.
Potential dilutive common shares consist of unvested shares of restricted stock that do not contain non-forfeitable dividend rights,
warrants outstanding during the period, and common stock issued under the assumed exercise of stock options, if any, using the
treasury stock method. This method assumes that the potential dilutive common shares are issued and outstanding and the proceeds
from the exercise, in addition to the amount of compensation cost attributable to future services, are used to purchase common stock at
the exercise date. 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, stock options, and warrants outstanding during the period, if any, that result in lower potential 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. Potential dilutive common shares also include performance units that do not
contain non-forfeitable dividend rights if the performance condition is met as of the end of the reporting period.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
27
Accounting Standards Adopted in 2022
ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848”, which was effective upon the
issuance of this ASU in December 2022, extends the sunset (or expiration date) of ASC Topic 848 from December 31, 2022 to
December 31, 2024. Notwithstanding, the Corporation expects to follow the provisions of the LIBOR Act for the transition of any
residual exposure after June 30, 2023.
The Corporation was not impacted by the adoption of the following ASUs during 2022:
●
ASU 2021-05, “Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments”
●
ASU 2021-04, “Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50),
Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity
(Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written
Call Options (a Consensus of the Emerging Issues Task Force)”
●
ASU 2020-06, “Debt – Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts
in an Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own
Equity”
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
28
Recently Issued Accounting Standards Not Yet Effective or Not Yet Adopted
Standard
Description
Effective Date
Effect on the financial statements
ASU 2022-03, “Fair Value
Measurement (Topic 820): Fair
Value Measurement of Equity
Securities Subject to Contractual
Sale Restrictions”
In June 2022, the FASB issued
ASU 2022-03 which, among other
things, clarifies that a contractual
restriction on the sale of an equity
security is not considered part of
the unit of account and, therefore,
is not considered in measuring fair
value; and introduces new
disclosure requirements for equity
securities subject to contractual sale
restrictions.
January 1, 2024. Early adoption is
permitted for both interim and
annual financial statements that
have not yet been issued or made
available for issuance.
The Corporation is evaluating the
impact that this ASU will have on its
financial statements and disclosures.
The Corporation does not expect to
be materially impacted by the
adoption of this ASU during the first
quarter of 2024.
ASU 2022-02, “Financial
Instruments – Credit Losses (Topic
326): Troubled Debt Restructurings
and Vintage Disclosures”
In March 2022, the FASB issued
ASU 2022-02 which eliminates the
TDRs recognition and
measurement guidance. As such,
the requirement to use a discounted
cash flow method for TDRs that
involve a concession that can only
be captured by means of this
method is no longer required and
the consideration of reasonably
expected TDRs is eliminated from
ASC Topic 326. In addition, the
ASU enhances disclosure
requirements for loan restructurings
by creditors made to borrowers
experiencing financial difficulty for
which the terms of the receivables
have been modified, regardless of
whether the refinancing is
accounted for as a new loan, and
amends the guidance on vintage
disclosures to require disclosure of
gross write-offs by year of
origination.
January 1, 2023, unless early
adopted in which case the
amendments should be applied as
of the beginning of the fiscal year
that includes the interim period
The Corporation adopted the
amendments of this update during
the first quarter of 2023 using a
modified retrospective transition
method with respect to the portion of
the standard that relates to the
recognition and measurement of
TDRs (i.e. adjustments to the ACL
that had been calculated using a
discounted cash flow methodology
for loans modified as a TDR prior to
the adoption of these amendments).
As of January 1, 2023, the
Corporation recorded a cumulative
effect adjustment of $
1
after-tax, as a reduction to retained
earnings. In addition, the Corporation
performed the necessary data updates
to comply with the enhanced
disclosure requirements.
ASU 2022-01, “Derivatives and
Hedging (Topic 815): Fair Value
Hedging – Portfolio Layer Method”
In March 2022, the FASB issued
ASU 2022-01 which, among
others, expands the current last-of-
layer method to allow multiple
hedged layers and the scope of the
portfolio layer method to non-
prepayable financial assets.
January 1, 2023, unless early
adopted in which case the
amendments should be applied as
of the beginning of the fiscal year
that includes the interim period
The Corporation does not expect to
be impacted by the amendments of
this update since it does not apply
fair value hedge accounting to any of
its derivatives.
ASU 2021-08, “Business
Combinations (Topic 805):
Accounting for Contract Assets and
Contract Liabilities From Contracts
With Customers”
In October 2021, the FASB issued
ASU 2021-08 which, among
others, requires that the acquirer
recognize and measure contract
assets and contract liabilities
acquired in a business combination
in accordance with Topic 606 and
provides certain practical
expedients.
January 1, 2023, unless early
adopted in which case the
amendments should be applied as
of the beginning of the fiscal year
that includes the interim period
The Corporation will consider these
amendments on business
combinations completed on or after
the adoption date.
��
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
29
NOTE 2 – MONEY MARKET
.
INVESTMENTS
Money market investments are composed of time deposits, overnight deposits with other financial institutions, and other short-term
investments with original maturities of three months or less.
Money market investments as of December 31, 2022 and 2021 were as follows:
2022
2021
(Dollars in thousands)
Time deposits with other financial institutions
(1) (2)
$
300
$
300
Overnight deposits with other financial institutions
(3)
541
1,200
Other short-term investments
(4)
1,184
1,182
$
2,025
$
2,682
(1)
Consists of time deposits segregated for compliance with the Puerto Rico International Banking Law.
(2)
Interest rate of
0.40
% and
0.05
% as of December 31, 2022 and 2021, respectively.
(3)
Weighted-average interest rate of
4.33
% and
0.07
% as of December 31, 2022 and 2021, respectively.
(4)
Weighted-average interest rate of
0.14
% and
0.15
% as of December 31, 2022 and 2021, respectively.
As of December 31, 2022, the Corporation had $
0.5
1.2
collateral as part of margin calls associated to derivative contracts.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
30
NOTE 3 – DEBT SECURITIES
Available-for-Sale Debt Securities
The amortized cost, gross unrealized gains and losses recorded in OCL, ACL, estimated fair value, and weighted-average yield of
available-for-sale debt securities by contractual maturities as of December 31, 2022 were as follows:
December 31, 2022
Amortized cost
(1)
Gross
ACL
Fair value
Unrealized
Weighted-
Gains
Losses
average yield%
(Dollars in thousands)
U.S. Treasury securities:
Due within one year
$
7,493
$
-
$
309
$
-
$
7,184
0.22
After 1 to 5 years
141,366
-
9,675
-
131,691
0.70
U.S. GSEs' obligations:
Due within one year
129,018
-
4,036
-
124,982
0.32
After 1 to 5 years
2,395,273
22
227,724
-
2,167,571
0.83
After 5 to 10 years
56,251
13
7,670
-
48,594
1.54
After 10 years
12,170
36
-
-
12,206
4.62
Puerto Rico government obligations:
(2)
3,331
-
755
375
2,201
-
United States and Puerto Rico government obligations
2,744,902
71
250,169
375
2,494,429
0.83
MBS:
FHLMC certificates:
After 1 to 5 years
4,235
-
169
-
4,066
2.33
After 5 to 10 years
204,085
-
19,061
-
185,024
1.55
After 10 years
1,092,289
-
186,558
-
905,731
1.38
1,300,609
-
205,788
-
1,094,821
1.41
GNMA certificates:
Due within one year
5
-
-
-
5
1.73
After 1 to 5 years
15,508
-
622
-
14,886
2.00
After 5 to 10 years
45,322
1
3,809
-
41,514
1.31
After 10 years
232,632
51
27,169
-
205,514
2.47
293,467
52
31,600
-
261,919
2.27
FNMA certificates:
After 1 to 5 years
9,685
-
521
-
9,164
1.76
After 5 to 10 years
400,223
-
36,871
-
363,352
1.70
After 10 years
1,186,635
124
186,757
-
1,000,002
1.38
1,596,543
124
224,149
-
1,372,518
1.46
by the FHLMC, FNMA and GNMA ("CMOs"):
After 1 to 5 years
30,578
-
4,463
-
26,115
2.43
After 10 years
423,695
-
80,271
-
343,424
1.38
454,273
-
84,734
-
369,539
1.45
Private label:
7,903
-
2,026
83
5,794
6.83
Total MBS
3,652,795
176
548,297
83
3,104,591
1.52
Other
500
-
-
-
500
0.84
Total available-for-sale debt securities
$
6,398,197
$
247
$
798,466
$
458
$
5,599,520
1.22
(1)
Excludes accrued interest receivable on available-for-sale debt securities that totaled $
11.1
consolidated statements of financial condition, and excluded from the estimate of credit losses.
(2)
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. During 2021, the
Corporation placed this instrument in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
31
The amortized cost, gross unrealized gains and losses recorded in OCL, ACL, estimated fair value, and weighted-average yield of
available-for-sale debt securities by contractual maturities as of December 31, 2021 were as follows:
December 31, 2021
Amortized cost
Gross
ACL
Fair value
Unrealized
Weighted-
Gains
Losses
average yield%
(Dollars in thousands)
U.S. Treasury securities:
After 1 to 5 years
$
149,660
$
59
$
1,233
$
-
$
148,486
0.68
U.S. GSEs' obligations:
1,877,181
240
29,555
-
1,847,866
0.60
403,785
175
10,856
-
393,104
0.90
15,788
224
-
-
16,012
0.63
Puerto Rico government obligations:
(2)
3,574
-
416
308
2,850
-
United States and Puerto Rico government obligations
2,449,988
698
42,060
308
2,408,318
0.67
MBS:
After 1 to 5 years
2,811
119
-
-
2,930
2.65
After 5 to 10 years
193,234
2,419
1,122
-
194,531
1.29
After 10 years
1,240,964
3,748
23,503
-
1,221,209
1.18
1,437,009
6,286
24,625
-
1,418,670
1.20
Due within one year
2
-
-
-
2
1.32
After 1 to 5 years
16,714
572
-
-
17,286
2.90
After 5 to 10 years
27,271
80
139
-
27,212
0.51
After 10 years
338,927
7,091
2,174
-
343,844
1.45
382,914
7,743
2,313
-
388,344
1.45
Due within one year
4,975
21
-
-
4,996
2.03
After 1 to 5 years
21,337
424
-
-
21,761
2.87
After 5 to 10 years
298,771
4,387
1,917
-
301,241
1.41
After 10 years
1,389,381
8,953
21,747
-
1,376,587
1.21
1,714,464
13,785
23,664
-
1,704,585
1.27
CMOs:
After 1 to 5 years
24,007
1
778
-
23,230
1.31
After 5 to 10 years
14,316
97
-
-
14,413
0.76
After 10 years
500,811
290
13,134
-
487,967
1.23
539,134
388
13,912
-
525,610
1.22
Private label:
9,994
-
1,963
797
7,234
2.21
Total MBS
4,083,515
28,202
66,477
797
4,044,443
1.26
Other
Due within one year
500
-
-
-
500
0.72
After 1 to 5 years
500
-
-
-
500
0.84
1,000
-
-
-
1,000
0.78
Total available-for-sale debt securities
$
6,534,503
$
28,900
$
108,537
1,105
$
6,453,761
1.03
(1)
Excludes accrued interest receivable on available-for-sale debt securities that totaled $
10.1
consolidated statements of financial condition, and excluded from the estimate of credit losses.
(2)
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. During 2021, the
Corporation placed this instrument in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
32
Maturities of available-for-sale debt securities are based on the period of final contractual maturity. Expected maturities might
differ from contractual maturities because they may be subject to prepayments and/or call options. The weighted-average yield on
available-for-sale debt securities is based on amortized cost and, therefore, does not give effect to changes in fair value. The net
unrealized gain or loss on available-for-sale debt securities is presented as part of other comprehensive (loss) income.
The following tables show 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 December 31, 2022 and 2021. The tables also include debt securities for which an ACL was recorded.
As of December 31, 2022
Less than 12 months
12 months or more
Total
Unrealized
Unrealized
Unrealized
Fair Value
Fair Value
Fair Value
(In thousands)
Debt securities:
U.S. Treasury and U.S. GSEs'
$
298,313
$
18,057
$
2,174,724
$
231,357
$
2,473,037
$
249,414
Puerto Rico government obligations
-
-
2,201
755
(1)
2,201
755
MBS:
FHLMC
263,184
45,776
831,637
160,012
1,094,821
205,788
GNMA
74,829
3,433
179,854
28,167
254,683
31,600
FNMA
424,178
51,289
938,625
172,860
1,362,803
224,149
CMOs
54,688
6,788
314,851
77,946
369,539
84,734
Private label
-
-
5,794
2,026
(1)
5,794
2,026
$
1,115,192
$
125,343
$
4,447,686
$
673,123
$
5,562,878
$
798,466
(1)
Unrealized losses do not include the credit loss component recorded as part of the ACL. As of December 31, 2022, PRHFA bond and private label MBS had an ACL of $
0.4
$
0.1
As of December 31, 2021
Less than 12 months
12 months or more
Total
Unrealized
Unrealized
Unrealized
Fair Value
Fair Value
Fair Value
(In thousands)
Debt securities:
U.S. Treasury and U.S. GSEs'
$
1,717,340
$
25,401
$
606,179
$
16,243
$
2,323,519
$
41,644
Puerto Rico government obligations
-
-
2,850
416
(1)
2,850
416
MBS:
FHLMC
986,345
16,144
221,896
8,481
1,208,241
24,625
GNMA
194,271
1,329
41,233
984
235,504
2,313
FNMA
1,237,701
19,843
112,559
3,821
1,350,260
23,664
CMOs
466,004
13,552
16,656
360
482,660
13,912
Private label
-
-
7,234
1,963
(1)
7,234
1,963
$
4,601,661
$
76,269
$
1,008,607
$
32,268
$
5,610,268
$
108,537
(1)
Unrealized losses do not include the credit loss component recorded as part of the ACL. As of December 31, 2021, PRHFA bond and private label MBS had an ACL of $
0.3
$
0.8
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
33
There were no sales of available-for-sale debt securities during the years ended December 31, 2022 and 2021. During the year
ended December 31, 2020, proceeds from sales of available-for-sale debt securities amounted to $
1.2
gains of $
13.3
0.1
13.2
was realized at the tax-exempt international banking entity subsidiary, which had no effect in the income tax expense recorded during
the year ended December 31, 2020.
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 December 31, 2022, 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 the Corporation does not have the intent to sell these U.S.
government and agencies debt securities and it is likely that it will not be required to sell the securities before their anticipated
recovery, the Corporation does not consider impairments on these securities to be credit related as of December 31, 2022. 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.
The Corporation’s available-for-sale MBS portfolio included private label MBS with a fair value of $
5.8
unrealized losses of approximately $
2.1
0.1
part of the ACL.
The interest rate on these private-label MBS is variable, tied to 3-month LIBOR, and limited to the weighted-average
coupon on the underlying collateral.
The underlying collateral is fixed-rate, single-family residential mortgage loans in the United
States with original FICO scores over 700 and moderate loan-to-value ratios (under 80%), as well as moderate delinquency levels.
of December 31, 2022, the Corporation did not have the intent to sell these securities and determined that it is likely that it will not be
required to sell the securities before anticipated recovery. 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 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 and the housing price index. Under this approach,
expected cash flows (interest and principal) were discounted at the Treasury yield curve as of the reporting date. Significant
assumptions in the valuation of the private label MBS were as follows:
As of
As of
December 31, 2022
December 31, 2021
Weighted
Range
Weighted
Range
Average
Minimum
Maximum
Average
Minimum
Maximum
Discount rate
16.2%
16.2%
16.2%
12.9%
12.9%
12.9%
Prepayment rate
11.8%
1.5%
15.2%
15.2%
7.6%
24.9%
Projected Cumulative Loss Rate
5.6%
0.3%
15.6%
7.6%
0.2%
15.7%
The Corporation evaluates if a credit loss exists, primarily by monitoring adverse variances in the present value of expected cash
flows. As of December 31, 2022, the ACL for these private label MBS was $
0.1
0.8
2021.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
34
As of December 31, 2022, the Corporation’s available-for-sale debt securities portfolio also included a residential pass-through
MBS issued by the PRHFA, collateralized by certain second mortgages, with a fair value of $
2.2
of approximately $
1.1
0.4
ACL. The underlying second mortgage loans were originated under a program launched by the Puerto Rico government in 2010. This
residential pass-through MBS was structured as a zero-coupon bond for the first ten years (up to July 2019). The underlying source of
repayment on this residential pass-through MBS are second mortgage loans in Puerto Rico. 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.
During 2021, the Corporation placed this instrument in nonaccrual status based on the delinquency status of the underlying second
mortgage loans collateral. The Corporation determined the ACL on this instrument based on a discounted cash flow methodology that
considered the structure and terms of the debt security. 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. Under this approach,
expected cash flows (interest and principal) were discounted at the Treasury yield curve plus a spread as of the reporting date and
compared to the amortized cost. 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 its insurance will depend on, among other
factors, the financial condition of PRHFA at the time such obligation becomes due and payable. Further deterioration of the Puerto
Rico economy or fiscal health of the PRHFA could impact the value of these securities, resulting in additional losses to the
Corporation. As of December 31, 2022, the Corporation did not have the intent to sell this security and determined that it was likely
that it will not be required to sell the security before its anticipated recovery.
ACL on available-for-sale debt securities:
Year Ended December 31, 2022
Private label MBS
Puerto Rico
Government
Obligations
Total
(In thousands)
Beginning balance
$
797
$
308
$
1,105
Provision for credit losses - (benefit) expense
(501)
67
(434)
Net charge-offs
(213)
-
(213)
$
83
$
375
$
458
Year Ended December 31, 2021
Private label MBS
Puerto Rico
Government
Obligations
Total
(In thousands)
Beginning balance
$
1,002
$
308
$
1,310
Provision for credit losses - (benefit)
(136)
-
(136)
Net charge-offs
(69)
-
(69)
$
797
$
308
$
1,105
Year Ended December 31, 2020
Private label MBS
Puerto Rico
Government
Obligations
Total
(In thousands)
Beginning balance
$
-
$
-
$
-
Provision for credit losses - expense
1,333
308
1,641
Net charge-offs
(331)
-
(331)
$
1,002
$
308
$
1,310
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
35
During 2022, the Corporation recognized $
86.1
62.7
million; 2020 - $
49.0
40.7
25.7
38.5
primarily relate to MBS and government obligations held by IBEs (as defined in the International Banking Entity Act of Puerto Rico),
whose interest income and sales are exempt from Puerto Rico income taxation under that act.
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 December 31, 2022 and 2021 were as follows
:
December 31, 2022
Amortized cost
(1)
Gross Unrecognized
Fair value
Weighted-
Gains
Losses
ACL
average yield%
(Dollars in thousands)
Puerto Rico municipal bonds:
$
1,202
$
-
$
15
$
1,187
$
2
5.20
42,530
886
1,076
42,340
656
6.34
55,956
3,182
360
58,778
3,243
6.29
66,022
-
1,318
64,704
4,385
7.10
Total Puerto Rico municipal bonds
165,710
4,068
2,769
167,009
8,286
6.62
MBS:
After 5 to 10 years
$
21,443
$
-
$
746
$
20,697
$
-
3.03
After 10 years
19,362
-
888
18,474
-
4.21
40,805
-
1,634
39,171
-
3.59
`
After 10 years
19,131
-
943
18,188
-
3.35
After 1 to 5 years
9,621
-
396
9,225
-
3.48
After 10 years
72,347
-
3,155
69,192
-
4.14
81,968
-
-
3,551
78,417
-
4.06
After 10 years
129,923
-
5,593
124,330
-
3.24
Total MBS
271,827
-
11,721
260,106
-
3.55
Total held-to-maturity debt securities
$
437,537
$
4,068
$
14,490
$
427,115
$
8,286
4.71
(1)
Excludes accrued interest receivable on held-to-maturity debt securities that totaled $
5.5
consolidated statements of financial condition, and is excluded from the estimate of credit losses.
December 31, 2021
Amortized cost
(1)
Gross Unrecognized
Fair value
Weighted-
Gains
Losses
ACL
average yield%
(Dollars in thousands)
Puerto Rico municipal bonds:
$
2,995
$
5
$
-
$
3,000
$
70
5.39
14,785
526
156
15,155
347
2.35
90,584
1,555
3,139
89,000
3,258
4.25
69,769
-
9,777
59,992
4,896
4.06
Total held-to-maturity debt securities
$
178,133
$
2,086
$
13,072
$
167,147
$
8,571
4.04
(1)
Excludes accrued interest receivable on held-to-maturity debt securities that totaled $
3.4
consolidated statements of financial condition, and is excluded from the estimate of credit losses.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
36
During 2022, the Corporation purchased approximately $
289.9
debt securities.
The following tables show 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 December 31, 2022
and 2021, including debt securities for which an ACL was recorded:
As of December 31, 2022
Less than 12 months
12 months or more
Total
Unrecognized
Unrecognized
Unrecognized
Fair Value
Fair Value
Fair Value
(In thousands)
Debt securities:
$
-
$
-
$
98,797
$
2,769
$
98,797
$
2,769
FHLMC certificates
39,171
1,634
-
-
39,171
1,634
GNMA certificates
18,188
943
-
-
18,188
943
FNMA certificates
78,417
3,551
-
-
78,417
3,551
CMOs
124,330
5,593
-
-
124,330
5,593
Total held-to-maturity debt securities
$
260,106
$
11,721
$
98,797
$
2,769
$
358,903
$
14,490
As of December 31, 2021
Less than 12 months
12 months or more
Total
Unrecognized
Unrecognized
Unrecognized
Fair Value
Fair Value
Fair Value
(In thousands)
Debt securities:
$
-
$
-
$
140,732
$
13,072
$
140,732
$
13,072
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
37
The Corporation classifies the held-to-maturity debt securities portfolio into the following major security types: MBS issued by
GSEs and Puerto Rico municipal bonds. As of December 31, 2022, all of the MBS included in the held-to-maturity debt securities
portfolio were issued by GSEs. The Corporation does not recognize an ACL for these securities 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.
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 December 31, 2022. The Puerto Rico municipal bonds had an ACL of $
8.3
December 31, 2022, down $
0.3
8.6
reserves driven by improvements in the underlying financial information of certain issuers during 2022.
December 31, 2022, 2021 and 2020:
Puerto Rico Municipal Bonds
Year Ended
December 31, 2022
December 31, 2021
December 31, 2020
(In thousands)
Beginning Balance
$
8,571
$
8,845
$
-
Impact of adopting ASC 326
-
-
8,134
Initial allowance on PCD debt securities
-
-
1,269
Provision for credit losses - (benefit)
(285)
(274)
(558)
ACL on held-to-maturity debt securities
$
8,286
$
8,571
$
8,845
During the second quarter of 2019, the oversight board established by Puerto Rico Oversight, Management, and Economic Stability
Act (“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 fiscal plans of other government
entities, and, more recently, by the effect of the COVID-19 pandemic on the Puerto Rico and global economy. Given the inherent
uncertainties about the fiscal situation of the Puerto Rico central government, the COVID-19 pandemic, and the measures taken, or to
be taken, by other government entities in response to economic and fiscal challenges on municipalities, 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 December 31, 2022 and 2021, the Corporation had
no
cash and cash equivalents.
During 2022, the Corporation recognized $
15.5
8.8
2020 - $
7.6
15.4
8.8
7.6
relate to MBS held by IBEs (as defined in the International Banking Entity Act of Puerto Rico), whose interest income and sales are
exempt from Puerto Rico income taxation under that act; and tax-exempt Puerto Rico municipal bonds.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
38
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. The asset categories are defined below:
Pass – Assets classified as pass have a well-defined primary source of repayment, with no apparent risk, strong financial position,
minimal operating risk, profitability, liquidity and strong capitalization and include assets categorized as watch. Assets classified as
watch have acceptable business credit, but borrowers
’
operations, cash flow or financial condition evidence more than average risk
and requires additional level of supervision and attention from loan officers.
Special Mention – Special Mention assets have potential weaknesses that deserve management’s close attention. If left uncorrected,
these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Corporation’s credit position
at some future date. Special Mention assets are not adversely classified and do not expose the Corporation to sufficient risk to
warrant adverse classification.
Substandard – Substandard assets are inadequately protected by the current sound worth and paying capacity of the obligor or of the
collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the
debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful – Doubtful classifications have all the weaknesses inherent in those classified Substandard with the added characteristic
that the weaknesses make collection or liquidation in full highly questionable and improbable, based on currently known facts,
conditions and values. A Doubtful classification may be appropriate in cases where significant risk exposures are perceived, but loss
cannot be determined because of specific reasonable pending factors, which may strengthen the credit in the near term.
Loss – Assets classified as Loss are considered uncollectible and of such little value that their continuance as bankable assets is not
warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not
practical or desirable to defer writing off this asset even though partial recovery may occur in the future. There is little or no prospect
for near term improvement and no realistic strengthening action of significance pending.
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 December 31, 2022 and 2021, all Puerto Rico municipal bonds classified as held-to-maturity were classified as Pass.
No
2022 and 2021. 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)
39
NOTE 4 – 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 December 31,
As of December 31,
2022
2021
(In thousands)
Puerto Rico and Virgin Islands region:
Residential mortgage loans, mainly secured by first mortgages
$
2,417,900
$
2,549,573
Construction loans
34,772
43,133
Commercial mortgage loans
1,834,204
1,702,231
C&I loans
1,860,109
1,946,597
Consumer loans
3,317,489
2,872,384
Loans held for investment
$
9,464,474
$
9,113,918
Florida region:
Residential mortgage loans, mainly secured by first mortgages
$
429,390
$
429,322
Construction loans
98,181
95,866
Commercial mortgage loans
524,647
465,238
C&I loans
1,026,154
940,654
Consumer loans
9,979
15,660
Loans held for investment
$
2,088,351
$
1,946,740
Total:
Residential mortgage loans, mainly secured by first mortgages
$
2,847,290
$
2,978,895
Construction loans
132,953
138,999
Commercial mortgage loans
2,358,851
2,167,469
C&I loans
(1)
2,886,263
2,887,251
Consumer loans
3,327,468
2,888,044
Loans held for investment
(2)
11,552,825
11,060,658
ACL on loans and finance leases
(260,464)
(269,030)
Loans held for investment, net
$
11,292,361
$
10,791,628
(1)
As of December 31, 2022 and 2021, includes $
838.5
952.1
source of repayment at origination was not dependent upon the real estate.
(2)
Includes accretable fair value net purchase discounts of $
29.3
35.3
As of December 31, 2022, and 2021, the Corporation had net deferred origination costs on its loan portfolio amounting to $
11.2
million and $
4.3
103.4
79.0
December 31, 2022 and 2021, respectively, of which $
99.2
75.8
2022 and 2021, respectively.
As of December 31, 2022, the Corporation was servicing residential mortgage loans owned by others in an aggregate amount of
$
3.9
4.0
305.1
of December 31, 2022 (2021 — $
383.5
Various loans, mainly secured by first mortgages, were assigned as collateral for time deposits accounts, public funds, borrowings,
and related unused commitments. Total loans carrying value pledged as collateral amounted to $
4.3
4.1
December 31, 2022 and 2021, respectively. As of December 31, 2022, loans pledged as collateral include $
2.2
collateral related to the Borrower-in-Custody Program (the “BIC Program”) of the FED which remained undrawn and $
1.8
loans pledged to the FHLB, compared to $
2.1
1.8
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
40
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 December 31, 2022 and 2021 are as follows:
As of December 31, 2022
Days Past Due and Accruing
Current
30-59
60-89
90+
(1) (2) (3)
Nonaccrual
(4) (5)
Total loans held
for investment
Nonaccrual
Loans with no
ACL
(6)
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
(1) (3) (7)
$
67,116
$
-
$
2,586
$
48,456
$
-
$
118,158
$
-
(2) (7)
2,643,909
-
25,630
16,821
42,772
2,729,132
2,292
Commercial loans:
130,617
-
-
128
2,208
132,953
977
(2) (7)
2,330,094
300
2,367
3,771
22,319
2,358,851
15,991
2,868,989
1,984
1,128
6,332
7,830
2,886,263
3,300
Consumer loans:
1,740,271
40,039
7,089
-
10,672
1,798,071
2,136
707,646
7,148
1,791
-
1,645
718,230
330
346,366
3,738
1,894
-
1,248
353,246
-
301,013
3,705
2,238
4,775
-
311,731
-
141,687
1,804
1,458
-
1,241
146,190
-
$
11,277,708
$
58,718
$
46,181
$
80,283
$
89,935
$
11,552,825
$
25,026
(1)
It is the Corporation's policy to report delinquent FHA/VA government-guaranteed residential mortgage loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans. The Corporation continues
accruing interest on these loans until they have passed the 15 months delinquency mark, taking into consideration the FHA interest curtailment process. These balances include $
28.2
loans guaranteed by the FHA that were over 15 months delinquent.
(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 $
12.0
11.0
residential mortgage loans and $
1.0
(3)
Include rebooked loans, which were previously pooled into GNMA securities, amounting to $
10.3
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 $
8.3
(5)
Nonaccrual loans exclude $
328.1
(6)
Includes $
0.3
(7)
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, 2022 amounted to $
6.1
65.2
1.6
respectively.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
41
As of December 31, 2021
Days Past Due and Accruing
Current
30-59
60-89
90+
(1)(2)(3)
Nonaccrual
(4) (5)
Total loans held
for investment
Nonaccrual
Loans with no
ACL
(6)
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
(1) (3) (7)
$
57,522
$
-
$
2,355
$
65,515
$
-
$
125,392
$
-
(2) (7)
2,738,111
-
31,832
28,433
55,127
2,853,503
3,689
Commercial loans:
136,317
18
-
-
2,664
138,999
1,000
(2) (7)
2,129,375
2,402
436
9,919
25,337
2,167,469
8,289
2,858,397
2,047
1,845
7,827
17,135
2,887,251
11,393
Consumer loans:
1,533,445
26,462
4,949
-
6,684
1,571,540
3,146
568,606
4,820
713
-
866
575,005
196
310,390
3,299
1,285
-
1,208
316,182
-
282,179
3,158
1,904
2,985
-
290,226
-
130,588
1,996
811
-
1,696
135,091
20
$
10,744,930
$
44,202
$
46,130
$
114,679
$
110,717
$
11,060,658
$
27,733
(1)
It is the Corporation's policy to report delinquent FHA/VA government-guaranteed residential mortgage loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans. The Corporation continues
accruing interest on these loans until they have passed the 15 months delinquency mark, taking into consideration the FHA interest curtailment process. These balances include $
46.6
guaranteed by the FHA that were over 15 months delinquent.
(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 $
20.6
19.1
residential mortgage loans and $
1.5
(3)
Include rebooked loans, which were previously pooled into GNMA securities, amounting to $
7.2
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 $
8.2
(5)
Nonaccrual loans exclude $
363.4
(6)
Includes $
0.5
(7)
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, 2021 amounted to $
6.1
66.0
0.7
respectively.
When a loan is placed on 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 $
1.7
2.0
1.9
ended December 31, 2022, 2021, and 2020, the cash interest income recognized on nonaccrual loans amounted to $
1.5
2.3
million, and $
2.0
As of December 31, 2022, the recorded investment on residential mortgage loans collateralized by residential real estate property
that were in the process of foreclosure amounted to $
72.4
29.4
mortgage loans, and $
10.0
The Corporation
commences the foreclosure process on residential real estate loans when a borrower becomes
120
procedures and timelines vary depending on whether the property is located in a judicial or non-judicial state. Occasionally,
foreclosures may be delayed due to, among other reasons, mandatory mediations, bankruptcy, court delays, and title issues.
Credit Quality Indicators:
The Corporation categorizes loans into risk categories based on relevant information about the ability of the borrowers to service
their debt such as current financial information, historical payment experience, credit documentation, public information, and current
economic trends, among other factors. The Corporation analyzes non-homogeneous loans, such as commercial mortgage, C&I, and
construction loans individually to classify the loans’ credit risk. As mentioned above, the Corporation periodically reviews its
commercial and construction loans to evaluate if they are properly classified. The frequency of these reviews will depend on the
amount of the aggregate outstanding debt, and the risk rating classification of the obligor. In addition, during the renewal and annual
review process of applicable credit facilities, the Corporation evaluates the corresponding loan grades. The Corporation uses the same
definition for risk ratings as those described for Puerto Rico municipal bonds accounted for as held-to-maturity debt securities, as
discussed in Note 3 – Debt Securities.
For residential mortgage and consumer loans, the Corporation also evaluates credit quality based on its interest accrual status.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
42
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 December 31, 2022 and the amortized cost of commercial and
construction loans by portfolio classes based on the internal credit-risk category as of December 31, 2021 was as follows:
As of December 31, 2022
Puerto Rico and Virgin Islands region
Term Loans
As of December 31, 2021
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
$
9,463
$
18,385
$
-
$
-
$
-
$
4,031
$
-
$
31,879
$
38,066
-
-
-
-
-
-
-
-
765
-
-
-
-
-
2,893
-
2,893
4,302
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
9,463
$
18,385
$
-
$
-
$
-
$
6,924
$
-
$
34,772
$
43,133
COMMERCIAL MORTGAGE
$
391,589
$
141,456
$
363,115
$
296,954
$
193,795
$
267,793
$
1,026
$
1,655,728
$
1,395,569
1,198
-
3,583
6,919
12,042
121,673
-
145,415
259,263
135
-
-
2,819
-
30,107
-
33,061
47,399
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
392,922
$
141,456
$
366,698
$
306,692
$
205,837
$
419,573
$
1,026
$
1,834,204
$
1,702,231
C&I
$
297,932
$
195,460
$
184,856
$
315,987
$
88,484
$
179,201
$
527,652
$
1,789,572
$
1,852,552
138
912
-
500
9,867
2,631
29,176
43,224
32,650
203
351
1,324
14,119
725
10,238
353
27,313
61,395
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
298,273
$
196,723
$
186,180
$
330,606
$
99,076
$
192,070
$
557,181
$
1,860,109
$
1,946,597
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
43
As of December 31, 2022
Term Loans
As of December 31, 2021
Florida region
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
$
48,536
$
42,841
$
-
$
14
$
-
$
-
$
6,790
$
98,181
$
95,866
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
48,536
$
42,841
$
-
$
14
$
-
$
-
$
6,790
$
98,181
$
95,866
COMMERCIAL MORTGAGE
$
176,131
$
70,525
$
41,413
$
54,839
$
71,404
$
70,316
$
18,556
$
503,184
$
404,304
-
-
6,986
13,309
-
-
-
20,295
60,618
-
-
1,168
-
-
-
-
1,168
316
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
176,131
$
70,525
$
49,567
$
68,148
$
71,404
$
70,316
$
18,556
$
524,647
$
465,238
C&I
$
277,637
$
163,210
$
77,027
$
223,504
$
66,484
$
35,028
$
136,261
$
979,151
$
826,823
-
-
-
5,974
-
11,931
-
17,905
49,946
-
-
267
24,852
-
3,678
301
29,098
63,885
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
277,637
$
163,210
$
77,294
$
254,330
$
66,484
$
50,637
$
136,562
$
1,026,154
$
940,654
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
44
As of December 31, 2022
Total
Term Loans
As of December 31, 2021
Amortized Cost Basis by Origination Year (1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
$
57,999
$
61,226
$
-
$
14
$
-
$
4,031
$
6,790
$
130,060
$
133,932
-
-
-
-
-
-
-
-
765
-
-
-
-
-
2,893
-
2,893
4,302
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
57,999
$
61,226
$
-
$
14
$
-
$
6,924
$
6,790
$
132,953
$
138,999
COMMERCIAL MORTGAGE
$
567,720
$
211,981
$
404,528
$
351,793
$
265,199
$
338,109
$
19,582
$
2,158,912
$
1,799,873
1,198
-
10,569
20,228
12,042
121,673
-
165,710
319,881
135
-
1,168
2,819
-
30,107
-
34,229
47,715
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
569,053
$
211,981
$
416,265
$
374,840
$
277,241
$
489,889
$
19,582
$
2,358,851
$
2,167,469
C&I
$
575,569
$
358,670
$
261,883
$
539,491
$
154,968
$
214,229
$
663,913
$
2,768,723
$
2,679,375
138
912
-
6,474
9,867
14,562
29,176
61,129
82,596
203
351
1,591
38,971
725
13,916
654
56,411
125,280
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
575,910
$
359,933
$
263,474
$
584,936
$
165,560
$
242,707
$
693,743
$
2,886,263
$
2,887,251
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
45
The following tables present the amortized cost of residential mortgage loans by portfolio classes and by origination year based on
accrual status as of December 31, 2022, and the amortized cost of residential mortgage loans by portfolio classes based on accrual
status as of December 31, 2021:
As of December 31, 2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Puerto Rico and Virgin Islands Region:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
700
$
693
$
802
$
1,407
$
3,784
$
110,030
$
-
$
117,416
$
124,652
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA government-guaranteed loans
$
700
$
693
$
802
$
1,407
$
3,784
$
110,030
$
-
$
117,416
$
124,652
Conventional residential mortgage loans:
Accrual Status:
Performing
$
172,628
$
75,397
$
31,885
$
47,911
$
72,285
$
1,864,907
$
-
$
2,265,013
$
2,376,946
Non-Performing
-
35
-
219
279
34,938
-
35,471
47,975
Total conventional residential mortgage loans
$
172,628
$
75,432
$
31,885
$
48,130
$
72,564
$
1,899,845
$
-
$
2,300,484
$
2,424,921
Total:
Accrual Status:
Performing
$
173,328
$
76,090
$
32,687
$
49,318
$
76,069
$
1,974,937
$
-
$
2,382,429
$
2,501,598
Non-Performing
-
35
-
219
279
34,938
-
35,471
47,975
Total residential mortgage loans in Puerto Rico
and Virgin Islands Region
$
173,328
$
76,125
$
32,687
$
49,537
$
76,348
$
2,009,875
$
-
$
2,417,900
$
2,549,573
(1)
Excludes accrued interest receivable.
As of December 31, 2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Florida Region:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
742
$
-
$
742
$
740
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA government-guaranteed loans
$
-
$
-
$
-
$
-
$
-
$
742
$
-
$
742
$
740
Conventional residential mortgage loans:
Accrual Status:
Performing
$
82,968
$
49,479
$
31,405
$
31,144
$
37,268
$
189,083
$
-
$
421,347
$
421,430
Non-Performing
-
-
-
272
477
6,552
-
7,301
7,152
Total conventional residential mortgage loans
$
82,968
$
49,479
$
31,405
$
31,416
$
37,745
$
195,635
$
-
$
428,648
$
428,582
Total:
Accrual Status:
Performing
$
82,968
$
49,479
$
31,405
$
31,144
$
37,268
$
189,825
$
-
$
422,089
$
422,170
Non-Performing
-
-
-
272
477
6,552
-
7,301
7,152
Total residential mortgage loans in Florida region
$
82,968
$
49,479
$
31,405
$
31,416
$
37,745
$
196,377
$
-
$
429,390
$
429,322
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
46
As of December 31, 2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Total:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
700
$
693
$
802
$
1,407
$
3,784
$
110,772
$
-
$
118,158
$
125,392
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA government-guaranteed loans
$
700
$
693
$
802
$
1,407
$
3,784
$
110,772
$
-
$
118,158
$
125,392
Conventional residential mortgage loans:
Accrual Status:
Performing
$
255,596
$
124,876
$
63,290
$
79,055
$
109,553
$
2,053,990
$
-
$
2,686,360
$
2,798,376
Non-Performing
-
35
-
491
756
41,490
-
42,772
55,127
Total conventional residential mortgage loans
$
255,596
$
124,911
$
63,290
$
79,546
$
110,309
$
2,095,480
$
-
$
2,729,132
$
2,853,503
Total:
Accrual Status:
Performing
$
256,296
$
125,569
$
64,092
$
80,462
$
113,337
$
2,164,762
$
-
$
2,804,518
$
2,923,768
Non-Performing
-
35
-
491
756
41,490
-
42,772
55,127
Total residential mortgage loans
$
256,296
$
125,604
$
64,092
$
80,953
$
114,093
$
2,206,252
$
-
$
2,847,290
$
2,978,895
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
47
The following tables present the amortized cost of consumer loans by portfolio classes and by origination year based on accrual
status as of December 31, 2022, and the amortized cost of consumer loans by portfolio classes based on accrual status as of December
31, 2021:
As of December 31, 2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Puerto Rico and Virgin Islands Regions:
Auto loans:
Accrual Status:
Performing
$
674,145
$
510,950
$
254,196
$
206,345
$
99,008
$
39,138
$
-
$
1,783,782
$
1,556,097
Non-Performing
1,666
2,140
1,596
2,508
1,385
1,301
-
10,596
6,684
Total auto loans
$
675,811
$
513,090
$
255,792
$
208,853
$
100,393
$
40,439
$
-
$
1,794,378
$
1,562,781
Finance leases:
Accrual Status:
Performing
$
292,995
$
192,435
$
88,196
$
81,186
$
48,332
$
13,441
$
-
$
716,585
$
574,139
Non-Performing
176
253
305
219
384
308
-
1,645
866
Total finance leases
$
293,171
$
192,688
$
88,501
$
81,405
$
48,716
$
13,749
$
-
$
718,230
$
575,005
Personal loans:
Accrual Status:
Performing
$
175,875
$
55,993
$
29,320
$
53,911
$
22,838
$
13,727
$
-
$
351,664
$
314,867
Non-Performing
348
249
135
289
112
115
-
1,248
1,208
Total personal loans
$
176,223
$
56,242
$
29,455
$
54,200
$
22,950
$
13,842
$
-
$
352,912
$
316,075
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
311,731
$
311,731
$
290,226
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
311,731
$
311,731
$
290,226
Other consumer loans:
Accrual Status:
Performing
$
79,630
$
21,488
$
9,345
$
11,941
$
4,030
$
3,761
$
8,921
$
139,116
$
126,734
Non-Performing
409
201
61
119
20
241
71
1,122
1,563
Total other consumer loans
$
80,039
$
21,689
$
9,406
$
12,060
$
4,050
$
4,002
$
8,992
$
140,238
$
128,297
Total:
Performing
$
1,222,645
$
780,866
$
381,057
$
353,383
$
174,208
$
70,067
$
320,652
$
3,302,878
$
2,862,063
Non-Performing
2,599
2,843
2,097
3,135
1,901
1,965
71
14,611
10,321
Total consumer loans in Puerto Rico and Virgin
Islands region
$
1,225,244
$
783,709
$
383,154
$
356,518
$
176,109
$
72,032
$
320,723
$
3,317,489
$
2,872,384
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
48
As of December 31, 2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Florida Region:
Auto loans:
Accrual Status:
Performing
$
-
$
-
$
-
$
305
$
2,333
$
979
$
-
$
3,617
$
8,759
Non-Performing
-
-
-
-
36
40
-
76
-
Total auto loans
$
-
$
-
$
-
$
305
$
2,369
$
1,019
$
-
$
3,693
$
8,759
Finance leases:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total finance leases
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Personal loans:
Accrual Status:
Performing
$
254
$
71
$
9
$
-
$
-
$
-
$
-
$
334
$
107
Non-Performing
-
-
-
-
-
-
-
-
-
Total personal loans
$
254
$
71
$
9
$
-
$
-
$
-
$
-
$
334
$
107
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Other consumer loans:
Accrual Status:
Performing
$
49
$
231
$
464
$
-
$
39
$
2,588
$
2,462
$
5,833
$
6,661
Non-Performing
-
-
-
-
-
21
98
119
133
Total other consumer loans
$
49
$
231
$
464
$
-
$
39
$
2,609
$
2,560
$
5,952
$
6,794
Total:
Performing
$
303
$
302
$
473
$
305
$
2,372
$
3,567
$
2,462
$
9,784
$
15,527
Non-Performing
-
-
-
-
36
61
98
195
133
Total consumer loans in Florida region
$
303
$
302
$
473
$
305
$
2,408
$
3,628
$
2,560
$
9,979
$
15,660
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
49
As of December 31, 2022
As of
December 31,
2021
Term Loans
Amortized Cost Basis by Origination Year
(1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Total:
Auto loans:
Accrual Status:
Performing
$
674,145
$
510,950
$
254,196
$
206,650
$
101,341
$
40,117
$
-
$
1,787,399
$
1,564,856
Non-Performing
1,666
2,140
1,596
2,508
1,421
1,341
-
10,672
6,684
Total auto loans
$
675,811
$
513,090
$
255,792
$
209,158
$
102,762
$
41,458
$
-
$
1,798,071
$
1,571,540
Finance leases:
Accrual Status:
Performing
$
292,995
$
192,435
$
88,196
$
81,186
$
48,332
$
13,441
$
-
$
716,585
$
574,139
Non-Performing
176
253
305
219
384
308
-
1,645
866
Total finance leases
$
293,171
$
192,688
$
88,501
$
81,405
$
48,716
$
13,749
$
-
$
718,230
$
575,005
Personal loans:
Accrual Status:
Performing
$
176,129
$
56,064
$
29,329
$
53,911
$
22,838
$
13,727
$
-
$
351,998
$
314,974
Non-Performing
348
249
135
289
112
115
-
1,248
1,208
Total personal loans
$
176,477
$
56,313
$
29,464
$
54,200
$
22,950
$
13,842
$
-
$
353,246
$
316,182
Credit cards:
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
311,731
$
311,731
$
290,226
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
311,731
$
311,731
$
290,226
Other consumer loans:
Accrual Status:
Performing
$
79,679
$
21,719
$
9,809
$
11,941
$
4,069
$
6,349
$
11,383
$
144,949
$
133,395
Non-Performing
409
201
61
119
20
262
169
1,241
1,696
Total other consumer loans
$
80,088
$
21,920
$
9,870
$
12,060
$
4,089
$
6,611
$
11,552
$
146,190
$
135,091
Total:
Performing
$
1,222,948
$
781,168
$
381,530
$
353,688
$
176,580
$
73,634
$
323,114
$
3,312,662
$
2,877,590
Non-Performing
2,599
2,843
2,097
3,135
1,937
2,026
169
14,806
10,454
Total consumer loans
$
1,225,547
$
784,011
$
383,627
$
356,823
$
178,517
$
75,660
$
323,283
$
3,327,468
$
2,888,044
(1)
Excludes accrued interest receivable.
Accrued interest receivable on loans totaled $
53.1
48.1
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)
50
The following tables present information about collateral dependent loans that were individually evaluated for purposes of
determining the ACL as of December 31, 2022 and 2021
:
As of December 31, 2022
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
$
36,206
$
2,571
$
-
$
36,206
$
2,571
Commercial loans:
Construction loans
-
-
956
956
-
Commercial mortgage loans
2,466
897
62,453
64,919
897
C&I loans
1,513
322
17,590
19,103
322
Consumer loans:
Personal loans
56
1
64
120
1
Other consumer loans
207
29
-
207
29
$
40,448
$
3,820
$
81,063
$
121,511
$
3,820
As of December 31, 2021
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
$
51,771
$
3,966
$
781
$
52,552
$
3,966
Commercial loans:
Construction loans
-
-
1,797
1,797
-
Commercial mortgage loans
9,908
1,152
56,361
66,269
1,152
C&I loans
5,781
670
34,043
39,824
670
Consumer loans:
Personal loans
78
1
-
78
1
Other consumer loans
782
98
-
782
98
$
68,320
$
5,887
$
92,982
$
161,302
$
5,887
The allowance related to collateral dependent loans reported in the tables above includes qualitative adjustments applied to the loan
portfolio that consider possible changes in circumstances that could ultimately impact credit losses and might not be reflected in
historical data or forecasted data incorporated in the quantitative models. 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 December 2022 decreased to
70
%, compared to
78
% as of December 31, 2021,
mainly driven by the payoff of a $
16.2
116
%.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
51
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 years ended December 31, 2022, 2021, and 2020, loans pooled into GNMA MBS
amounted to approximately $
144.5
190.8
219.6
net gain on sale of $
4.2
8.8
9.9
Also, during the years ended December 31, 2022, 2021, and 2020, the Corporation sold approximately $
93.8
328.2
and $
255.0
recognized a net gain on sale of $
4.2
11.4
8.3
respectively. The Corporation’s continuing involvement with the loans that it sells consists primarily of servicing the loans. In
addition, the Corporation agrees to repurchase loans if it breaches any of the representations and warranties included in the sale
agreement. These representations and warranties are consistent with the GSEs’ selling and servicing guidelines (i.e., ensuring that the
mortgage was properly underwritten according to established guidelines).
For loans pooled into GNMA MBS, the Corporation, as servicer, holds an option to repurchase individual delinquent loans issued
on or after January 1, 2003 when certain delinquency criteria are met. This option gives the Corporation the unilateral ability, but not
the obligation, to repurchase the delinquent loans at par without prior authorization from GNMA. Since the Corporation is considered
to have regained effective control over the loans, it is required to recognize the loans and a corresponding repurchase liability
regardless of its intent to repurchase the loans. As of December 31, 2022 and 2021, rebooked GNMA delinquent loans that were
included in the residential mortgage loan portfolio amounted to $
10.4
7.2
During the years ended December 31, 2022, 2021, and 2020, the Corporation repurchased, pursuant to the aforementioned
repurchase option, $
8.2
1.1
55.0
principal balance of these loans is fully guaranteed, and the risk of loss related to the repurchased loans is generally limited to the
difference between the delinquent interest payment advanced to GNMA, which is computed at the loan’s interest rate, and the interest
payments reimbursed by FHA, which are computed at a pre-determined debenture rate. Repurchases of GNMA loans allow the
Corporation, among other things, to maintain acceptable delinquency rates on outstanding GNMA pools and remain as a seller and
servicer in good standing with GNMA. Historically, losses on these repurchases of GNMA delinquent loans have been immaterial and
no provision has been made at the time of sale.
Loan sales to FNMA and FHLMC are without recourse in relation to the future performance of the loans. The Corporation
repurchased at par loans previously sold to FNMA and FHLMC in the amount of $
0.4
0.3
42
the years ended December 31, 2022, 2021, and 2020, respectively. 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 year ended December 31, 2022, the Corporation sold a $
35.2
and a $
23.9
3.1
million construction loan in the Puerto Rico region and four criticized commercial loan participations in the Florida region totaling
$
43.1
52.5
mortgage loans and related servicing advances of $
2.0
31.5
58
% of book value before
reserves, for the $
54.5
20.9
been allocated to the loans sold. The transaction resulted in total net charge-offs of $
23.1
approximately $
2.1
Finally, the Corporation participated in the Main Street Lending program established by the FED under the CARES Act of 2020, as
amended, to support lending to small and medium-sized businesses that were in sound financial condition before the onset of the
COVID-19 pandemic. Under this program, the Corporation originated loans to borrowers meeting the terms and requirements of the
program, including requirements as to eligibility, use of proceeds and priority, and sold a 95% participation interest in these loans to a
special purpose vehicle (the “Main Street SPV”) organized by the FED to purchase the participation interests from eligible lenders,
including the Corporation. During the fourth quarter of 2020, the Corporation originated
23
184.4
million in principal amount and sold participation interests totaling $
175.1
During the years ended December 31, 2022, 2021, and 2020, the Corporation purchased C&I loan participations in the Florida
region totaling $
135.4
174.7
40.0
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
52
Loan Portfolio Concentration
The Corporation’s primary lending area is Puerto Rico. The Corporation’s banking subsidiary, FirstBank, also lends in the USVI
and BVI markets and in the United States (principally in the state of Florida). Of the total gross loans held for investment portfolio of
$
11.6
79
% in Puerto Rico,
18
% in the U.S., and
3
% in
the USVI and BVI.
As of December 31, 2022, the Corporation had $
169.8
municipalities and public corporations, compared to $
178.4
approximately $
102.7
assigned property tax revenues, and $
28.9
revenues. The vast majority of revenues of the municipalities included in the Corporation’s loan portfolio are independent of
budgetary subsidies provided by the Puerto Rico central government. These municipalities are required by law to levy special property
taxes in such amounts as are required to satisfy the payment of all of their respective general obligation bonds and notes. In addition
to loans extended to municipalities, the Corporation’s exposure to the Puerto Rico government as of December 31, 2022 included
$
10.8
Rico Electric
Power Authority (“PREPA”) and $
27.4
agency of the Puerto Rico central government.
In addition, as of December 31, 2022, the Corporation had $
84.7
guaranteed by the PRHFA, a government instrumentality that has been designated as a covered entity under PROMESA, compared to
$
92.8
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 December 31, 2022, the Corporation had
$
38.0
million in loans to USVI government public corporations, compared to $
39.2
2022, all loans were currently performing and up to date on principal and interest payments.
Troubled Debt Restructurings
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, as well as other
restructurings of individual C&I, commercial mortgage, construction, and residential mortgage loans, fit the definition of a TDR. As
of December 31, 2022, the Corporation’s total TDR loans held for investment amounted to $
366.7
328.1
were in accruing status. See Note 1 – Nature of Business and Summary Significant of Accounting Policies, for information on when
the Corporation classifies TDR loans as either accrual or nonaccrual loans. The total TDR loans held for investment consisted of
$
240.6
49.6
63.3
1.2
construction loans, and $
12.0
0.7
residential mortgage loans that were participating in or had been offered a trial modification, which generally represents a six-month
period during which the borrower makes monthly payments under the anticipated modified payment terms prior to a formal
modification. TDR loans exclude restructured residential mortgage loans that are government-guaranteed (e.g., FHA/VA loans)
totaling $
53.9
57.6
Corporation has committed to lend up to an additional $
4
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
53
The following tables present TDR loans completed during 2022, 2021 and 2020:
Year Ended December 31, 2022
Interest rate
below market
Maturity or
term extension
Combination of
reduction in
interest rate and
extension of
maturity
Forgiveness of
principal and/or
interest
Other
(1)
Total
(In thousands)
Conventional residential mortgage loans
$
433
$
1,551
$
242
$
-
$
4,874
$
7,100
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
245
5,178
-
467
5,890
C&I loans
2,402
-
618
825
1,083
4,928
Consumer loans:
Auto loans
2,877
232
345
-
-
3,454
Finance leases
-
573
-
-
18
591
Personal loans
99
171
105
-
19
394
Credit cards
(2)
-
-
-
-
816
816
Other consumer loans
112
272
16
43
-
443
Total TDRs
$
5,923
$
3,044
$
6,504
$
868
$
7,277
$
23,616
(1)
Other concessions granted by the Corporation include payment plans under judicial stipulation or loss mitigation programs, or a combination of two or more of the concessions listed in
the table. Amounts included in Other that represent a combination of concessions are excluded from the amounts reported in the column for such individual concessions.
(2)
Concession consists of reduction in interest rate and revocation of revolving line privileges.
Year Ended December 31, 2021
Interest rate
below market
Maturity or term
extension
Combination of
reduction in
interest rate and
extension of
maturity
Forgiveness of
principal and/or
interest
Other
(1)
Total
(In thousands)
Conventional residential mortgage loans
$
365
$
859
$
2,647
$
-
$
3,723
$
7,594
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
10,586
-
637
11,223
C&I loans
-
300
9,100
-
508
9,908
Consumer loans:
Auto loans
1,888
433
277
-
-
2,598
Finance leases
-
645
26
-
26
697
Personal loans
13
60
387
-
44
504
Credit cards
(2)
-
-
-
-
1,426
1,426
Other consumer loans
110
79
-
77
-
266
$
2,376
$
2,376
$
23,023
$
77
$
6,364
$
34,216
(1)
Other concessions granted by the Corporation include payment plans under judicial stipulation or loss mitigation programs, or a combination of two or more of the concessions listed in the
table. Amounts included in Other that represent a combination of concessions are excluded from the amounts reported in the column for such individual concessions.
(2)
Concession consists of reduction in interest rate and revocation of revolving line privileges.
Year Ended December 31, 2020
Interest rate
below market
Maturity or
term extension
Combination of
reduction in
interest rate
and extension
of maturity
Forgiveness of
principal
and/or interest
Forbearance
Agreement
Other
(1)
Total
(In thousands)
Conventional residential mortgage
loans
$
18
$
545
$
2,044
$
-
$
-
$
5,700
$
8,307
Construction loans
-
-
-
-
-
-
-
Commercial mortgage loans
-
-
271
-
-
553
824
C&I loans
31
-
4,107
-
18,386
-
22,524
Consumer loans:
Auto loans
1,902
413
275
-
-
33
2,623
Finance leases
-
408
-
-
-
-
408
Personal loans
38
74
145
-
-
48
305
Credit cards
(2)
-
-
-
-
-
783
783
Other consumer loans
219
83
24
219
-
-
545
$
2,208
$
1,523
$
6,866
$
219
$
18,386
$
7,117
$
36,319
(1)
Other concessions granted by the Corporation include payment plans under judicial stipulation or loss mitigation programs, or a combination of two or more of the concessions listed in the
table. Amounts included in Other that represent a combination of concessions are excluded from the amounts reported in the column for such individual concessions.
(2)
Concession consists of reduction in interest rate and revocation of revolving line privileges.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
54
Year Ended December 31,
2022
2021
2020
Number of
contracts
Pre-modification
Amortized Cost
Post-modification
Amortized Cost
Number of
contracts
Pre-modification
Amortized Cost
Post-modification
Amortized Cost
Number of
contracts
Pre-modification
Amortized Cost
Post-modification
Amortized Cost
(Dollars in thousands)
Conventional residential mortgage loans
68
$
7,165
$
7,100
66
$
7,687
$
7,594
103
$
9,027
$
8,307
Construction loans
-
-
-
-
-
-
-
-
-
Commercial mortgage loans
3
5,897
5,890
7
11,285
11,223
5
824
824
C&I loans
17
5,156
4,928
6
10,031
9,908
14
22,544
22,524
Consumer loans:
168
3,404
3,454
134
2,601
2,598
163
2,635
2,623
33
592
591
42
692
697
29
408
408
26
366
394
46
497
504
30
306
305
170
815
816
246
1,426
1,426
159
783
783
115
434
443
65
266
266
145
613
545
600
$
23,829
$
23,616
612
$
34,485
$
34,216
648
$
37,140
$
36,319
Loan modifications considered TDR loans that defaulted (failure by the borrower to make payments of either principal, interest, or
both for a period of 90 days or more) during 2022, 2021 and 2020, and had become TDR loans during the 12-months preceding the
default date, were as follows:
Year Ended December 31,
2022
2021
2020
Number of
contracts
Amortized Cost
Number of
contracts
Amortized Cost
Number of
contracts
Amortized Cost
(Dollars in thousands)
Conventional residential mortgage loans
2
$
124
-
$
-
4
$
465
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
C&I loans
-
-
-
-
3
124
Consumer loans:
96
2,049
92
1,625
55
947
1
16
-
-
1
5
-
-
1
1
1
7
28
156
24
126
23
93
8
30
11
45
58
209
135
$
2,375
128
$
1,797
145
$
1,850
For certain TDR loans, the Corporation splits the loans into two new notes (the “Note A” and the “Note B”). The A Note is
restructured to comply with the Corporation’s lending standards at current market rates and is tailored to suit the customer’s ability to
make timely interest and principal payments. The B Note includes the granting of the concession to the borrower and varies by
situation. The B Note is fully charged-off, unless it is collateral-dependent and the source of repayment is independent of the A Note
in which case a partial charge -off may be recorded. At the time of the restructuring, the A Note is identified and classified as a TDR
loan. During 2022, 2021, and 2020, there were no new Note A and B restructurings.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
55
NOTE 5 – 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
Commercial &
Industrial Loans
Consumer Loans
Total
Year Ended December 31, 2022
(In thousands)
ACL:
Beginning balance
$
74,837
$
4,048
$
52,771
$
34,284
$
103,090
$
269,030
Provision for credit losses - (benefit) expense
(8,734)
(2,342)
(18,994)
(1,770)
57,519
25,679
Charge-offs
(6,890)
(123)
(85)
(2,067)
(48,165)
(57,330)
Recoveries
3,547
725
1,372
2,459
14,982
23,085
Ending balance
$
62,760
$
2,308
$
35,064
$
32,906
$
127,426
$
260,464
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
Commercial &
Industrial Loans
Consumer Loans
Total
Year Ended December 31, 2021
(In thousands)
ACL:
Beginning balance
$
120,311
$
5,380
$
109,342
$
37,944
$
112,910
$
385,887
Provision for credit losses - (benefit) expense
(16,957)
(1,408)
(55,358)
(8,549)
20,552
(61,720)
Charge-offs
(33,294)
(87)
(1,494)
(1,887)
(43,948)
(80,710)
Recoveries
4,777
163
281
6,776
13,576
25,573
Ending balance
$
74,837
$
4,048
$
52,771
$
34,284
$
103,090
$
269,030
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
Commercial &
Industrial Loans
Consumer Loans
Total
Year Ended December 31, 2020
(In thousands)
ACL:
Beginning balance, prior to adoption of CECL
$
44,806
$
2,370
$
39,194
$
15,198
$
53,571
$
155,139
Impact of adopting CECL
49,837
797
(19,306)
14,731
35,106
81,165
Allowance established for acquired PCD loans
12,739
-
9,723
1,830
4,452
28,744
Provision for credit losses - expense
(1)
22,427
2,105
81,125
6,627
56,433
168,717
Charge-offs
(11,017)
(76)
(3,330)
(3,634)
(46,483)
(64,540)
Recoveries
1,519
184
1,936
3,192
9,831
16,662
Ending balance
$
120,311
$
5,380
$
109,342
$
37,944
$
112,910
$
385,887
(1)
Includes a $
37.5
13.5
charge related to non-PCD residential mortgage loans; (ii) a $
9.2
4.6
and (iv) a $
10.2
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
56
The Corporation estimates the ACL following the methodologies described in Note 1 – Nature of Business and Summary of
Significant Accounting Policies, above, for each portfolio segment.
During 2022, the Corporation applied probability weights to the baseline and alternative downside economic scenarios to estimate
the ACL with the baseline scenario carrying the highest weight. In weighting these macroeconomic scenarios, the Corporation applied
judgment based on a variety of factors such as economic uncertainties associated to the continued conflict in Ukraine, the overall
inflationary environment and a potential slowdown in economic activity as a result of the FED’s policy actions to control inflationary
economic conditions. For periods prior to 2022, the Corporation calculated the ACL using the baseline scenario.
As of December 31, 2022, the ACL for loans and finance leases was $
260.5
8.5
December 31, 2021. The ACL reduction for commercial and construction loans was $
20.8
reduced COVID-19 uncertainties, particularly on loans in the hotel, transportation and entertainment industries; and, to a lesser extent,
the effect during the second half of 2022 of reserve releases totaling $
4.8
were paid off or sold, partially offset by an increase in the size of the loan portfolio. In addition, there was an ACL reduction of $
12.0
million for residential mortgage loans, partially offset by a $
24.3
the ACL for residential mortgage loans was primarily driven by the overall decrease in the size of this portfolio and, to a lesser extent,
a decrease in qualitative adjustments due to improvements in underlying portfolio metrics. The ACL increase for consumer loans
consisted of charges to the provision of $
57.5
macroeconomic variables, such as the regional unemployment rate, and an increasing trend in delinquency and charge-off levels in the
consumer loan portfolios. For those loans where the ACL was determined based on a discounted cash flow model, the change in the
ACL due to the passage of time is recorded as part of the provision for credit losses.
Total net charge-offs decreased by $
20.9
34.2
25.2
million decrease in net charge-offs on residential mortgage loans, of which $
23.1
of the bulk sale of nonaccrual residential mortgage loans and related servicing advances during the third quarter of 2021; partially
offset by a $
2.8
$
1.5
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
57
The tables below present the ACL related to loans and finance leases and the carrying values of loans by portfolio segment as of
December 31, 2022 and 2021:
As of December 31, 2022
Residential Mortgage
Loans
Construction
Loans
Commercial Mortgage
Loans
Commercial and
Industrial Loans
(1)
Consumer Loans
Total
(Dollars in thousands)
Total loans held for investment:
$
2,847,290
$
132,953
$
2,358,851
$
2,886,263
$
3,327,468
$
11,552,825
62,760
2,308
35,064
32,906
127,426
260,464
2.20
%
1.74
%
1.49
%
1.14
%
3.83
%
2.25
%
As of December 31, 2021
Residential Mortgage
Loans
Construction
Loans
Commercial Mortgage
Loans
Commercial and
Industrial Loans
(1)
Consumer Loans
Total
(Dollars in thousands)
Total loans held for investment:
$
2,978,895
$
138,999
$
2,167,469
$
2,887,251
$
2,888,044
$
11,060,658
74,837
4,048
52,771
34,284
103,090
269,030
2.51
%
2.91
%
2.43
%
1.19
%
3.57
%
2.43
%
(1)
As of December 31, 2022 and 2021, includes $
6.8
145.0
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 29 – Regulatory
Matters, Commitments, and Contingencies for information on off -balance sheet exposures as of December 31, 2022 and 2021. The
Corporation estimates the ACL for these off-balance sheet exposures following the methodology described in Note 1 – Nature of
Business and Summary of Accounting Policies. As of December 31, 2022, the ACL for off-balance sheet credit exposures increased to
$
4.3
1.5
principally due to newly originated facilities which remained undrawn as of December 31, 2022.
The following table presents the activity in the ACL for unfunded loan commitments and standby letters of credit for the years
ended December 31, 2022, 2021 and 2020:
Year Ended December 31,
2022
2021
2020
(In thousands)
Beginning Balance
$
1,537
$
5,105
$
-
Impact of adopting CECL
-
-
3,922
Provision for credit losses - expense (benefit)
2,736
(3,568)
1,183
$
4,273
$
1,537
$
5,105
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
58
NOTE 6 – PREMISES AND EQUIPMENT
Premises and equipment comprise:
Useful Life Range In Years
As of December 31,
Minimum
Maximum
2022
2021
(Dollars in thousands)
Buildings and improvements
10
35
$
135,802
$
138,524
Leasehold improvements
1
10
76,390
79,419
Furniture, equipment and software
2
10
155,567
148,171
367,759
366,114
Accumulated depreciation and amortization
(264,233)
(251,659)
103,526
114,455
Land
24,485
23,873
Projects in progress
14,924
8,089
$
142,935
$
146,417
Depreciation and amortization expense amounted to $
22.3
25.0
20.1
31, 2022, 2021, and 2020, respectively.
During the year ended December 31, 2021, the Corporation received insurance proceeds of $
0.6
and collection of an insurance claim associated with a damaged property. This amount is included as part of other non-interest income
in the consolidated statements of income.
5.0
settlement of the business interruption insurance claim related to lost profits caused by Hurricanes Irma and Maria. This amount is
included as part of other non-interest income in the consolidated statements of income. In addition, during 2020, the Corporation
received insurance proceeds of $
1.2
expenses, primarily consisting of occupancy and equipment costs.
See Note 25 - Fair Value for information on write-downs recorded on long-lived assets held for sale as of December 31, 2022. Also,
see Note 20 – Other Non-Interest Income for gains on sales of fixed assets recognized during the years ended December 31, 2022,
2021, and 2020.
NOTE 7
–
OTHER REAL ESTATE OWNED
The following table presents the OREO inventory as of the indicated dates:
December 31,
2022
2021
(In thousands)
OREO
OREO balances, carrying value:
Residential
(1)
$
24,025
$
29,533
Commercial
5,852
7,331
Construction
1,764
3,984
Total
$
31,641
$
40,848
(1)
Excludes $
23.5
22.2
receivable as part of other assets in the consolidated statements of financial condition.
See Note 25 - Fair Value for information on write-downs recorded on OREO properties during the years ended December 31, 2022,
2021, and 2020.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
59
NOTE 8 – RELATED-PARTY TRANSACTIONS
The Corporation has granted loans to its directors, executive officers, and certain related individuals or entities in the ordinary
course of business. The movement and balance of these loans were as follows:
Amount
(In thousands)
Balance at December 31, 2020
(1)
$
504
New loans
286
Payments
(108)
Other changes
261
Balance at December 31, 2021
(1)
943
New loans
89
Payments
(149)
Balance at December 31, 2022
(1)
$
883
(1) Includes loans granted to related parties which were then sold in the secondary market.
These loans were made subject to the provisions of the Federal Reserve’s Regulation O - “Loans to Executive Officers, Directors
and Principal Shareholders of Member Banks,” which governs the permissible lending relationships between a financial institution
and its executive officers, directors, principal shareholders, their families, and related parties. Amounts related to changes in the status
of those who are considered related parties are reported as other changes in the table above, which, for 2021, was mainly related to the
addition of
three
one
parties during 2022.
From time to time, the Corporation, in the ordinary course of its business, obtains services from related parties or makes
contributions to non-profit organizations that have some association with the Corporation.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
60
NOTE 9 – GOODWILL AND OTHER INTANGIBLES
Goodwill
Goodwill as of each of December 31, 2022 and December 31, 2021 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 2022, management performed a qualitative analysis over 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.
In the qualitative assessment performed for each reporting unit, the Corporation evaluated events and circumstances that could
impact the fair value including the following:
● Macroeconomic conditions, such as improvement or deterioration in general economic conditions;
● Industry and market considerations;
● Interest rate fluctuations;
● Overall financial performance of the entity;
● Performance of industry peers over the last year; and
● Recent market transactions.
Management considered positive and negative evidence obtained during the evaluation of significant events and circumstances and
evaluated such information to conclude that it is more likely than not that the reporting unit’s fair value is greater than their carrying
amount; thus, quantitative tests were not required.
no
ended December 31, 2022.
There were
no
amount of goodwill attributable to operating segments are reflected in the following table:
Mortgage Banking
Consumer (Retail)
Banking
Commercial and
Corporate Banking
United States
Operations
Total
(In thousands)
Goodwill, January 1, 2020
$
-
$
1,406
$
-
$
26,692
$
28,098
Merger and acquisitions
(1)
574
794
4,935
-
6,303
Measurement period adjustment
(1) (2)
385
533
3,313
-
4,231
Goodwill, December 31, 2020
$
959
$
2,733
$
8,248
$
26,692
$
38,632
Measurement period adjustment
(1) (2)
53
74
(148)
-
(21)
Goodwill, December 31, 2021
$
1,012
$
2,807
$
8,100
$
26,692
$
38,611
(1)
Recognized in connection with the BSPR acquisition on September 1, 2020.
(2)
Relates to the fair value estimate update performed within one year of the closing of the BSPR acquisition, in accordance with ASC Topic 805, "Business Combinations"("ASC 805").
Merger and Restructuring Costs – BSPR Acquisition
In connection with the BSPR acquisition on September 1, 2020, the Corporation recognized acquisition expenses of $
26.4
and $
26.5
No
the year ended December 31, 2022. Acquisition, integration, and restructuring expenses were included in merger and restructuring
costs in the consolidated statements of income, and consisted primarily of legal fees, severance and personnel-related costs, service
contracts cancellation penalties, valuation services, systems conversion, and other integration efforts, as well as accelerated
depreciation charges related to planned closures and consolidation of branches in accordance with the Corporation’s integration and
restructuring plan.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
61
Other Intangible Assets
The following table shows the gross amount and accumulated amortization of the Corporation’s intangible assets subject to
amortization as of the indicated dates:
As of
As of
December 31,
December 31,
2022
2021
(Dollars in thousands)
Core deposit intangible:
Gross amount
$
87,544
$
87,544
Accumulated amortization
(66,644)
(58,973)
Net carrying amount
$
20,900
$
28,571
Remaining amortization period (in years)
7.0
8.0
Purchased credit card relationship intangible:
Gross amount
$
3,800
$
3,800
Accumulated amortization
(3,595)
(2,602)
Net carrying amount
$
205
$
1,198
Remaining amortization period (in years)
0.7
1.7
Insurance customer relationship intangible:
Gross amount
$
1,067
$
1,067
Accumulated amortization
(1,054)
(902)
Net carrying amount
$
13
$
165
Remaining amortization period (in years)
0.1
1.1
During the years ended December 31, 2022, 2021, and 2020, the Corporation recognized $
8.8
11.4
5.9
million, respectively, in amortization expense on its other intangibles subject to amortization.
The Corporation amortizes core deposit intangibles and customer relationship intangibles based on the projected useful lives of the
related deposits in the case of core deposit intangibles, and over the projected useful lives of the related client relationships in the case
of customer relationship intangibles. The Corporation analyzes core deposit intangibles and customer relationship intangibles 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 or customer relationship intangibles as of December 31, 2022.
The estimated aggregate annual amortization expense related to the intangible assets subject to amortization for future periods was
as follows as of December 31, 2022:
(In thousands)
2023
$
7,736
2024
6,416
2025
3,509
2026
872
2027
872
2028 and after
1,713
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
62
NOTE 10 – NON-CONSOLIDATED VARIABLE INTEREST ENTITIES (“VIE”) 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
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 borrowings. The variable-rate TRuPs are fully and unconditionally guaranteed
by the Corporation.
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).
Subordinated Deferrable Debentures amounted to $
183.8
0.4
which resulted in a commensurate reduction in the related Floating Rate Junior Subordinated Debentures. The Corporation’s purchase
price equated to
75
% of the $
0.4
25
% discount resulted in a gain of approximately $
0.1
reflected in the consolidated statements of income as gain on early extinguishment of debt.
The Collins Amendment to the Dodd -Frank Wall Street Reform and Consumer Protection Act eliminated certain TRuPs from Tier
1 capital; however, these instruments may remain in Tier 2 capital until the instruments are redeemed or mature. 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 December 31, 2022, the Corporation was current on all
interest payments due on its subordinated debt.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
63
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 LIBOR
(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. This IO is limited to the weighted-average coupon on the
mortgage loans. 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 December 31, 2022, the amortized cost and fair value of these private label MBS amounted to $
7.9
million and $
5.8
6.83
%, which is included as part of the Corporation’s
available-for-sale debt securities portfolio. As described in Note 3 – Debt Securities, the ACL on these private label MBS amounted to
$
0.1
Investment in Unconsolidated Entity
On February 16, 2011, FirstBank sold an asset portfolio consisting of performing and nonaccrual construction, commercial
mortgage, and C&I loans with an aggregate book value of $
269.3
Commonwealth of Puerto Rico and majority owned by PRLP Ventures LLC (“PRLP”), a company created by Goldman, Sachs & Co.
and Caribbean Property Group. In connection with the sale, the Corporation received $
88.5
35
% interest in
CPG/GS, and made a loan in the amount of $
136.1
refinanced and consolidated with other outstanding loans of CPG/GS in the second quarter of 2018 and was paid in full in October
2019. FirstBank’s equity interest in CPG/GS is accounted for under the equity method. FirstBank recorded a loss on its interest in
CPG/GS in 2014 that reduced to zero the carrying amount of the Bank’s investment in CPG/GS. No negative investment needs to be
reported as the Bank has no legal obligation or commitment to provide further financial support to this entity; thus, no further losses
have been or will be recorded on this investment.
CPG/GS used cash proceeds of the aforementioned seller-financed loan to cover operating expenses and debt service payments,
including those related to the loan that was paid off in October 2019. FirstBank will not receive any return on its equity interest until
PRLP receives an aggregate amount equivalent to its initial investment and a priority return of at least
12
%, which has not occurred,
resulting in FirstBank’s interest in CPG/GS being subordinate to PRLP’s interest. CPG/GS will then begin to make payments pro rata
to PRLP and FirstBank,
35
% and
65
%, respectively, until FirstBank has achieved a
12
% return on its invested capital and the
aggregate amount of distributions is equal to FirstBank’s capital contributions to CPG/GS.
The Bank has determined that CPG/GS is a VIE in which the Bank is not the primary beneficiary. In determining the primary
beneficiary of CPG/GS, the Bank considered applicable guidance that requires the Bank to qualitatively assess the determination of
whether it is the primary beneficiary (or consolidator) of CPG/GS based on whether it has both the power to direct the activities of
CPG/GS that most significantly affect the entity’s economic performance and the obligation to absorb losses of, or the right to receive
benefits from, CPG/GS that could potentially be significant to the VIE. The Bank determined that it does not have the power to direct
the activities that most significantly impact the economic performance of CPG/GS as it does not have the right to manage or influence
the loan portfolio, foreclosure proceedings, or the construction and sale of the property; therefore, the Bank concluded that it is not the
primary beneficiary of CPG/GS.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
64
Servicing Assets (MSRs)
The Corporation typically transfers first lien residential mortgage loans in conjunction with GNMA securitization transactions in
which the loans are exchanged for cash or securities that are readily redeemed for cash proceeds and servicing rights. The securities
issued through these transactions are guaranteed by GNMA and, under seller/servicer agreements, the Corporation is required to
service the loans in accordance with the issuers’ servicing guidelines and standards. As of December 31, 2022, the Corporation
serviced loans securitized through GNMA with a principal balance of $
2.1
sold to FNMA or FHLMC with servicing retained. The Corporation recognizes as separate assets the rights to service loans for others,
whether those servicing assets are originated or purchased. MSRs are included as part of other assets in the consolidated statements of
financial condition.
The changes in MSRs are show below for the indicated dates:
Year Ended December 31,
2022
2021
2020
(In thousands)
Balance at beginning of year
$
30,986
$
33,071
$
26,762
Purchases of servicing assets
-
-
7,781
Capitalization of servicing assets
3,122
5,194
4,864
Amortization
(4,978)
(7,215)
(5,777)
Temporary impairment recoveries (charges), net
66
124
(206)
Other
(2)
(159)
(188)
(353)
Balance at end of year
$
29,037
$
30,986
$
33,071
(1)
Represents MSRs acquired in the BSPR acquisition.
(2)
Mainly represents adjustments related to the repurchase of loans serviced for others, including MSRs related to loans previously serviced for BSPR and eliminated
as part of the acquisition in the third quarter of 2020.
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.
Changes in the impairment allowance were as follows for the indicated periods:
Year Ended December 31,
2022
2021
2020
(In thousands)
Balance at beginning of year
$
78
$
202
$
73
Temporary impairment charges
-
-
301
OTTI of servicing assets
-
-
(77)
Recoveries
(66)
(124)
(95)
$
12
$
78
$
202
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
65
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:
Year Ended December 31,
2022
2021
2020
(In thousands)
Servicing fees
$
11,096
$
12,176
$
9,268
Late charges and prepayment penalties
823
697
570
Adjustment for loans repurchased
(159)
(188)
(353)
Other
-
(1)
-
11,760
12,684
9,485
Amortization and impairment of servicing assets
(4,912)
(7,091)
(5,983)
$
6,848
$
5,593
$
3,502
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
Year Ended December 31, 2022
Constant prepayment rate:
6.7
%
18.3
%
4.8
%
7.4
%
18.4
%
3.4
%
6.0
%
21.9
%
3.6
%
Discount rate:
11.7
%
12.0
%
11.5
%
9.7
%
10.0
%
9.5
%
12.5
%
14.5
%
11.5
%
Year Ended December 31, 2021
Constant prepayment rate:
6.2
%
17.1
%
3.7
%
6.2
%
18.2
%
2.8
%
6.4
%
14.5
%
4.4
%
Discount rate:
12.0
%
12.0
%
12.0
%
10.0
%
10.0
%
10.0
%
12.8
%
14.5
%
12.0
%
Year Ended December 31, 2020
Constant prepayment rate:
6.1
%
16.0
%
3.9
%
6.3
%
19.0
%
3.0
%
6.3
%
18.0
%
4.3
%
Discount rate:
12.0
%
12.0
%
12.0
%
10.0
%
10.0
%
10.0
%
12.3
%
14.5
%
12.0
%
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
66
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 as of December 31, 2022 and
2021 were as follows:
December 31,
December 31,
2022
2021
(In thousands)
Carrying amount of servicing assets
$
29,037
$
30,986
Fair value
$
44,710
$
42,132
Weighted-average expected life (in years)
7.80
7.96
Constant prepayment rate (weighted-average annual rate)
6.40
%
6.55
%
$
1,048
$
1,027
$
2,054
$
2,011
Discount rate (weighted-average annual rate)
10.69
%
11.17
%
$
1,925
$
1,852
$
3,704
$
3,561
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)
67
NOTE 11 – DEPOSITS AND RELATED INTEREST
The following table summarizes deposit balances as of the indicated dates:
December 31,
2022
2021
(In thousands)
Type of account and interest rate:
Non-interest-bearing deposit accounts
$
6,112,884
$
7,027,513
Interest-bearing saving accounts
3,902,888
4,729,387
Interest-bearing checking accounts
3,770,993
3,492,645
Certificates of deposit ("CDs")
2,250,876
2,434,932
Brokered CDs
105,826
100,417
$
16,143,467
$
17,784,894
The weighted-average interest rate on total interest-bearing deposits as of December 31, 2022 and 2021 was
1.03
% and
0.31
%,
respectively.
As of December 31, 2022, the aggregate amount of unplanned overdrafts of demand deposits that were reclassified as loans
amounted to $
1.7
1.6
24.5
million as of December 31, 2022 (2021 - $
24.2
The following table presents the contractual maturities of CDs, including brokered CDs, as of December 31, 2022:
Total
(In thousands)
Three months or less
$
640,532
Over three months to six months
288,407
Over six months to one year
593,915
Over one year to two years
517,970
Over two years to three years
178,158
Over three years to four years
38,952
Over four years to five years
92,103
Over five years
6,665
$
2,356,702
Total U.S. time deposits with balances of more than $250,000 amounted to $
1.0
2022 and 2021. 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 December 31, 2022, unamortized broker placement fees amounted to $
0.3
0.2
which are amortized over the contractual maturity of the brokered CDs under the interest method.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
68
Brokered CDs mature as follows:
December 31,
2022
(In thousands)
Three months or less
$
42,681
Over six months to one year
12,986
Over one year to three years
35,440
Over three years to five years
14,719
$
105,826
As of December 31, 2022, deposit accounts issued to government agencies amounted to $
2.8
3.3
deposits are insured by the FDIC up to the applicable limits. The uninsured portions were collateralized by securities and loans with an
amortized cost of $
3.1
3.4
2.7
3.3
securities and loans, as of December 31, 2022, the Corporation used $
200.0
for public deposits in the Virgin Islands. As of December 31, 2022, the Corporation had $
2.3
Rico (2021 - $
2.7
442.8
568.4
11.6
9.6
million).
A table showing interest expense on deposits for the indicated periods follows:
Year Ended December 31,
2022
2021
2020
(In thousands)
Interest-bearing checking accounts
$
15,568
$
5,776
$
5,933
Savings
11,191
6,586
11,116
CDs
18,102
26,138
43,350
Brokered CDs
1,500
2,982
7,989
$
46,361
$
41,482
$
68,388
The total interest expense on deposits included the amortization of broker placement fees related to brokered CDs amounting to
$
0.1
0.2
0.5
0.5
$
1.3
1.0
in the BSPR acquisition.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
69
NOTE 12 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase (repurchase agreements) as of the indicated dates consisted of the following:
December 31,
2022
2021
(In thousands)
Short-term Fixed-rate repurchase agreements
(1)
$
75,133
$
-
Long-term Fixed-rate repurchase agreements
(2)
-
300,000
$
75,133
$
300,000
(1)
Weighted-average interest rate of
4.55
% as of December 31, 2022.
(2)
Weighted-average interest rate of
3.35
% as of December 31, 2021. During the first quarter of 2021, the interest rate related to securities sold under agreement to repurchase totaling $
200
million changed from a variable rate (3-month LIBOR plus
130
132
3.90
% after the end of a pre-specified lockout period.
Of the $
300.0
100.0
repaid in the first quarter of 2022 and the remaining $
200.0
counterparty’s call option in the fourth quarter of 2022. In addition, the Corporation added $
75.1
agreements reflecting actions taken as part of management’s liquidity and funding needs.
Repurchase agreements mature as follows as of the indicated date:
December 31, 2022
(In thousands)
Within one month
$
25,133
Over one month to three months
50,000
$
75,133
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
70
The following securities were sold under agreements to repurchase:
As of December 31, 2022
Underlying Securities
Amortized Cost
of Underlying
Securities
Balance of
Borrowing
Approximate
Fair Value of
Underlying
Securities
Weighted Average
Interest Rate of
Security
(Dollars in thousands)
U.S. government-sponsored agencies
$
60,081
$
50,134
$
54,093
0.62
%
MBS
29,959
24,999
27,010
2.08
%
$
90,040
$
75,133
$
81,103
Accrued interest receivable
$
137
As of December 31, 2021
Underlying Securities
Amortized Cost
of Underlying
Securities
Balance of
Borrowing
Approximate
Fair Value of
Underlying
Securities
Weighted Average
Interest Rate of
Security
(Dollars in thousands)
U.S. government-sponsored agencies
$
-
$
-
$
-
-
%
MBS
319,225
300,000
321,180
1.33
%
$
319,225
$
300,000
$
321,180
Accrued interest receivable
$
599
As of December 31, 2022 and 2021, the securities underlying such agreements were delivered to the dealers with which the
repurchase agreements were transacted. In accordance with the master agreements, in the event of default, repurchase agreements have
a right of set-off against the other party for amounts owed under the related agreement and any other amount or obligation owed with
respect to any other agreement or transaction between them. As of December 31, 2022 and 2021, repurchase agreements were fully
collateralized and not offset in the consolidated statements of financial condition. See Note 24
–
Activities for information on rights of set-off associated to economic undesignated hedges.
The maximum aggregate balance of repurchase agreements outstanding at any month-end during each of the year ended December
31, 2022 and 2021 was $
300.0
194.9
300.5
Repurchase agreements as of December 31, 2022, grouped by counterparty, were as follows:
Weighted-Average
Counterparty
Amount
Maturity (In Months)
(Dollars in thousands)
JP Morgan Chase
$
75,133
1
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
71
NOTE 13 – ADVANCES FROM THE FEDERAL HOME LOAN BANK (“FHLB
”)
The following is a summary of the advances from the FHLB as of the indicated dates:
December 31,
December 31,
2022
2021
(In thousands)
Short-term
Fixed
-rate advances from FHLB
(1)
$
475,000
$
-
Long-term
Fixed
-rate advances from FHLB
(2)
200,000
200,000
$
675,000
$
200,000
(1)
Weighted-average interest rate of
4.56
% as of December 31, 2022.
(2)
Weighted-average interest rate of
4.25
% and
2.16
% as of December 31, 2022 and 2021, respectively.
Advances from FHLB mature as follows as of the indicated date:
December 31, 2022
(In thousands)
Within one month
$
350,000
Over one to three months
125,000
Over three to five years
200,000
$
675,000
The $
200.0
2022. In addition, during the fourth quarter of 2022, the Corporation added $
475.0
200.0
million of long-term FHLB advances.
The maximum aggregate balance of advances from the FHLB outstanding at any month-end during the years ended December 31,
2022 and 2021 was $
675.0
440.0
$
179.5
354.1
The Corporation receives advances and applies for the issuance of letters of credit from the FHLB under an Advances, Collateral
Pledge, and Security Agreement (the “Collateral Agreement”), which requires the Corporation to maintain a minimum of qualifying
mortgage collateral or Treasury or U.S. agencies MBS collateral, as applicable. The amount of collateral required for an advance
incorporates a collateral discount or “haircut,” which is incorporated into the member’s pledge and determined by the FHLB. Haircut
refers to the percentage by which an asset’s market value is reduced for the purpose of collateral levels. As of December 31, 2022 and
2021, the estimated value of specific mortgage loans pledged as collateral amounted to $
1.3
1.4
computed by the FHLB for collateral purposes, which represents a haircut of
14
% and
17
% as of December 31, 2022 and 2021,
respectively. The carrying value of such loans as of December 31, 2022
amounted to $
1.8
- $
1.8
December 31, 2022, the estimated value of U.S. government-sponsored agencies’ obligations and U.S. agencies MBS pledged as
collateral amounted to $
238.1
644.2
million on this credit facility based on collateral pledged at the FHLB, adjusted by a haircut reflecting the perceived risk associated
with the collateral. Advances may be repaid prior to maturity, in whole or in part, at the option of the borrower upon payment of any
applicable fee specified in the contract governing such advance. In calculating the fee, due consideration is given to (i) all relevant
factors, including, but not limited to, any and all applicable costs of repurchasing and/or prepaying any associated liabilities and/or
hedges entered into with respect to the applicable advance; (ii) the financial characteristics, in their entirety, of the advance being
prepaid; and (iii), in the case of adjustable-rate advances, the expected future earnings of the replacement borrowing as long as the
replacement borrowing is at least equal to the original advance’s par value and the replacement borrowing’s tenor is at least equal to
the remaining maturity of the prepaid advance.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
72
NOTE 14 – OTHER BORROWINGS
Junior Subordinated Debentures
Junior subordinated debentures, as of the indicated dates, consisted of:
December 31,
December 31,
(In thousands)
2022
2021
Floating rate junior subordinated debentures (FBP Statutory Trust I)
(1) (3)
$
65,205
$
65,205
Floating rate junior subordinated debentures (FBP Statutory Trust II)
(2)(3)
118,557
118,557
$
183,762
$
183,762
(1)
Amount represents junior subordinated interest-bearing debentures due in 2034 with a floating interest rate of
2.75
% over
3-month LIBOR
7.49
% as of December 31, 2022 and
2.97
%
as of December 31, 2021).
(2)
Amount represents junior subordinated interest-bearing debentures due in 2034 with a floating interest rate of
2.50
% over
3-month LIBOR
7.25
% as of December 31, 2022 and
2.71
%
as of December 31, 2021).
(3)
See Note 10 - Non-Consolidated Variable Interest Entities and Servicing Assets for additional information on the nature and terms of these debentures.
Loans Payable
The Corporation participates in the BIC Program of the FED. Through the BIC Program, a broad range of loans (including
commercial, consumer, and residential mortgages) may be pledged as collateral for borrowings through the FED Discount Window.
As of December 31, 2022, pledged collateral that is related to this credit facility amounted to $
2.2
consumer, and residential mortgage loans, which after a margin “haircut” to discount the value of collateral pledged, represents
approximately $
1.3
access a low-rate short-term source of funding in a high volatility market environment. There were
no
the FED Discount Window as of December 31, 2022 and 2021.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
73
NOTE 15 – EARNINGS PER COMMON
.
SHARE
The calculations of earnings per common share for the years ended December 31, 2022, 2021, and 2020 are as follows:
Year Ended December 31,
2022
2021
2020
(In thousands, except per share information)
Net income
$
305,072
$
281,025
$
102,273
Less: Preferred stock dividends
-
(2,453)
(2,676)
Less: Excess of redemption value over carrying value of Series A through E
-
(1,234)
-
Net income attributable to common stockholders
$
305,072
$
277,338
$
99,597
Weighted-Average Shares:
190,805
210,122
216,904
1,163
1,178
764
191,968
211,300
217,668
Earnings per common share:
Basic
$
1.60
$
1.32
$
0.46
Diluted
$
1.59
$
1.31
$
0.46
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. Net income attributable to common stockholders represents net income adjusted for
any preferred stock dividends, including any dividends declared but not yet paid, and any cumulative dividends related to the current
dividend period that have not been declared as of the end of the period. For 2021, net income attributable to common stockholders was
also adjusted due to the one -time effect to retained earnings of the excess of the redemption value paid over the carrying value of the
Series A through E Preferred Stock redeemed as discussed in Note 17 – Stockholders’ Equity. 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 that do not contain non-forfeitable dividend 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 years ended December 31, 2022, 2021 and 2020. Potential dilutive common shares also include
performance units that do not contain non-forfeitable dividend rights if the performance condition is met as of the end of the reporting
period.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
74
NOTE 16 – STOCK-BASED
.
COMPENSATION
On April 29, 2008, the Corporation’s stockholders approved the Omnibus Plan. An amended and restated Omnibus Plan was
subsequently approved by the Corporation’s stockholders on May 24, 2016 to, among other things, increase the number of shares of
common stock reserved for issuance under the Omnibus Plan, extend the term of the Omnibus Plan to May 24, 2026 and re-approve
the material terms of the performance goals under the Omnibus Plan for purposes of the then-effective Section 162(m) of the U.S.
Internal Revenue Code of 1986, as amended. The Omnibus Plan provides for equity-based and non equity-based compensation
incentives (the “awards”). The Omnibus Plan authorizes the issuance of up to
14,169,807
adjustments for stock splits, reorganizations and other similar events. As of December 31, 2022, there were
3,830,165
shares of common stock available for issuance under the Omnibus Plan. The Corporation’s Board of Directors, based on the
recommendation of the Corporation’s Compensation and Benefits Committee, 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
50
% vest on
the
three-year
one-year
stock awards were reissued from treasury shares.
The following table summarizes the restricted stock activity under the Omnibus Plan during the years ended December 31, 2022
and 2021:
2022
2021
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
1,148,775
$
6.61
1,320,723
$
5.74
Granted
(1)
327,195
13.21
324,360
11.47
Forfeited
(15,108)
8.79
(82,486)
6.42
Vested
(522,371)
6.13
(413,822)
7.69
Unvested shares outstanding at end of year
938,491
$
9.14
1,148,775
$
6.61
(1)
For the year ended December 31, 2022, includes
27,529
299,666
which
6,084
29,291
restricted stock awarded to independent directors and
295,069
19,804
and thus charged to earnings as of the grant date.
For the years ended December 31, 2022, 2021, and 2020, the Corporation recognized $
3.7
3.5
3.2
respectively, of stock-based compensation expense related to restricted stock awards. As of December 31, 2022, there was $
3.8
million of total unrecognized compensation cost related to unvested shares of restricted stock that the Corporation expects to recognize
over a weighted average period of
1.5
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
75
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. The performance units will vest on
the third anniversary of the effective date of the awards, subject to the achievement of a pre-established tangible book value per share
target, adjusted for certain allowable non-recurring transactions. All the performance units will vest if performance is at the pre-
established performance target level or above at the end of a three-year performance period. However, the participants may vest with
respect to 50% of the awards to the extent that performance is below the target but not less than 80% of the pre-established
performance target level (the “80% minimum threshold”), which is measured based upon the growth in the tangible book value during
the performance cycle. If performance is between the 80% minimum threshold and the pre-established performance target level, the
participants will vest on a proportional amount. No performance units will vest if performance is below the 80% minimum threshold.
The performance units granted during the year ended December 31, 2022 are for the performance period beginning January 1, 2022
and ending on December 31, 2024.
The following table summarizes the performance units activity under the Omnibus Plan during the years ended December 31, 2022
and 2021:
Year Ended
Year Ended
(Number of units)
December 31, 2022
December 31, 2021
Performance units at beginning of year
814,899
1,006,768
Additions
166,669
160,485
Vested
(1)
(189,645)
(304,408)
Forfeited
-
(47,946)
Performance units as of December 31, 2022
791,923
814,899
(1)
Units vested during 2022 are related to performance units granted in 2019 that met the pre-established target and were settled with shares of common stock reissued from treasury shares.
Units vested during 2021 are related to performance units granted in 2018 that met the pre-established target and were settled with new shares of common stock.
The fair values of the performance units awarded were based on the market price of the Corporation’s common stock on the
respective date of the grant. For the years ended December 31, 2022, 2021, and 2020, the Corporation recognized $
1.7
2.0
million, and $
1.8
there was $
2.5
recognize over the next three years. The total amount of compensation expense recognized reflects management’s assessment of the
probability that the pre-established performance goal will be achieved. The Corporation will recognize a cumulative adjustment to
compensation expense in the then-current period to reflect any changes in the probability of achievement of the performance goals.
Other awards
Under the Omnibus Plan, the Corporation may grant shares of unrestricted stock to plan participants. During the third quarter of
2020, the Corporation granted to its independent directors
19,157
grant date. For the year ended December 31, 2020, the Corporation recognized $
0.1
related to unrestricted stock awards. There were
no
Shares withheld
During the year ended December 31, 2022, the Corporation withheld
205,807
214,374
that vested during such period to cover the officers’ 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)
76
NOTE 17 – STOCKHOLDERS’ EQUITY
Stock Repurchase Programs
During the first quarter of 2022 the Corporation completed the $
300
Directors on April 26, 2021 by purchasing though open market transactions
3,409,697
$
14.66
50
On April 27, 2022, the Corporation announced that its Board of Directors approved a stock repurchase program, under which the
Corporation may repurchase up to $
350
Repurchases under the program may be executed through open market purchases, accelerated share repurchases and/or privately
negotiated transactions or plans, including plans complying with Rule 10b5-1 under the Exchange Act. The Corporation’s common
stock repurchase program is subject to various factors, including the Corporation’s capital position, liquidity, financial performance
and alternative uses of capital, stock trading price, and general market conditions. The repurchase program may be modified,
suspended, or terminated at any time at the Corporation’s discretion. The program does not obligate the Corporation to acquire any
specific number of shares and does not have an expiration date. Under this stock repurchase program, the Corporation repurchased
during the year ended December 31, 2022,
16,003,674
purchase price of $
14.06
225
remaining authorization to repurchase approximately $
125
19,413,371
approximately $
275
Common Stock
The following table shows the change in shares of common stock outstanding for the years ended December 31, 2022, 2021 and 2020:
Total Number of Shares
2022
2021
2020
Common stock outstanding, beginning balance
201,826,505
218,235,064
217,359,337
Common stock repurchased
(1)
(19,619,178)
(16,954,841)
(51,814)
Common stock reissued/issued under stock-based compensation plan
516,840
628,768
930,627
Restricted stock forfeited
(15,108)
(82,486)
(3,086)
Common stock outstanding, ending balances
182,709,059
201,826,505
218,235,064
For 2022, 2021 and 2020 includes
205,807
,
214,374
51,814
For the years ended December 31, 2022, 2021 and 2020, total cash dividends declared on shares of common stock amounted to
$
88.2
65.4
43.8
February 9, 2023
Directors had declared a quarterly cash dividend of $
0.14
17
% or $
0.02
common share compared to its most recent dividend paid in December 2022. The dividend is payable on
March 10, 2023
shareholders of record at the close of business on
February 24, 2023
. 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)
77
Preferred Stock
The Corporation has
50,000,000
1.00
, redeemable at the Corporation’s
option, 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 Board of Directors when authorizing the issuance of that particular series.
On November 30, 2021, the Corporation redeemed all of its
1,444,146
Stock for its liquidation value of $
25
36.1
value was $
1.2
listed on any securities exchange or automated quotation system.
No
outstanding during the year ended December 31, 2022. For the years ended December 31, 2021 and 2020, total cash dividends paid on
shares of preferred stock amounted to $
2.5
2.7
Treasury Stock
The following table shows the change in shares of treasury stock for the years ended December 31, 2022, 2021 and 2020.
Total Number of Shares
2022
2021
2020
Treasury stock, beginning balance
21,836,611
4,799,284
4,744,384
Common stock repurchased
(1)
19,619,178
16,954,841
51,814
Common stock reissued under stock-based compensation plan
(516,840)
-
-
Restricted stock forfeited
15,108
82,486
3,086
Treasury stock, ending balances
40,954,057
21,836,611
4,799,284
(1)
For 2022, 2021 and 2020 includes
205,807
,
214,374
51,814
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.
$
30.9
28.3
as part of retained earnings in the Corporation’s consolidated statements of financial condition, amounted to $
168.5
$
137.6
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
78
NOTE 18 – OTHER COMPREHENSIVE (LOSS) INCOME
The following table presents change in accumulated other comprehensive (loss) income for the years ended December 31, 2022,
2021, and 2020:
Changes in Accumulated Other Comprehensive (Loss) Income by Component
(1)
Year ended December 31,
2022
2021
2020
(In thousands)
Unrealized net holding (losses) gains on available-for-sale debt securities:
Beginning balance
$
(87,390)
$
55,725
$
6,764
(718,582)
(143,115)
48,961
Ending balance
$
(805,972)
$
(87,390)
$
55,725
Adjustment of pension and postretirement benefit plans:
Beginning balance
$
3,391
$
(270)
$
-
(2,197)
3,661
(270)
Ending balance
$
1,194
$
3,391
$
(270)
____________________
(1) All amounts presented are net of tax.
The following table presents the amounts reclassified out of each component of accumulated other comprehensive (loss) income for
the years ended December 31, 2022, 2021, and 2020:
Reclassifications Out of Accumulated Other
Comprehensive (Loss) Income
Affected Line Item in the Consolidated
Statements of Income
Year ended
December 31,
2022
2021
2020
(In thousands)
Unrealized net holding (losses) gains on
Realized gain on sales
Net gain on investment securities
$
-
$
-
$
(13,198)
Adjustment of pension and postretirement
Amortization of net loss
Other expenses
3
1
-
Total before tax
$
3
$
1
$
(13,198)
Income tax expense
(1)
-
-
Total, net of tax
$
2
$
1
$
(13,198)
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
79
NOTE 19 – 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 BSPR acquisition on September 1, 2020. One defined benefit pension plan covers substantially all of
BSPR’s former employees who were active before January 1, 2007, while the other defined benefit pension plan covers personnel of
an institution previously acquired by BSPR. Benefits are based on salary and years of service. The accrual of benefits under the
Pension Plans is frozen to all participants.
The Corporation requires recognition of a plan’s overfunded and underfunded status as an asset or liability with an offsetting
adjustment to accumulated other comprehensive loss (income) pursuant to the ASC Topic 715, Compensation-Retirement Benefits.
The following table presents the changes in projected benefit obligation and changes in plan assets for the years ended December
31, 2022 and 2021:
December 31, 2022
December 31, 2021
(In thousands)
Changes in projected benefit obligation:
Projected benefit obligation at the beginning of period, defined benefit pension
plans
$
97,867
$
108,253
Interest cost
2,614
2,473
Actuarial gain
(1)
(21,265)
(6,699)
Benefits paid
(5,708)
(6,160)
Projected benefit obligation at the end of period, pension plans
$
73,508
$
97,867
Projected benefit obligation, other postretirement benefit plan
182
195
Projected benefit obligation at the end of period
$
73,690
$
98,062
Changes in plan assets:
Fair value of plan assets at the beginning of period
$
103,487
$
105,963
Actual return on plan assets - (loss) gain
(20,590)
3,684
Benefits paid
(5,708)
(6,160)
Fair value of pension plan assets at the end of period
(2)
$
77,189
$
103,487
Net asset, pension plans
3,681
5,620
Net benefit obligation, other postretirement benefit plan
(182)
(195)
Net asset
$
3,499
$
5,425
(1)
Significant components of the Pension Plans’ actuarial gain that changed the benefit obligation were mainly related to updates in discount rates.
(2)
Other postretirement plan did not contain any assets as of December 31, 2022 and 2021.
The weighted-average discount rate used to determine the benefit obligation as of December 31, 2022 and 2021, was
5.43
% and
2.77
%, respectively. The discount rate is estimated as the single equivalent rate such that the present value of the plan’s projected
benefit obligation cash flows using the single rate equals the present value of those cash flows using the above mean actuarial yield
curve. In developing the expected long-term rate of return assumption, the Corporation evaluated input from a consultant and the
Corporation’s long-term inflation assumptions and interest rate scenarios. Projected returns are based on the same asset categories as
the plan using well-known broad indexes. Expected returns are based on historical returns with adjustments to reflect a more realistic
future return. The Corporation anticipated that the Plan’s portfolio would generate a long-term rate of return of
4.80
% and
4.43
% as of
December 31, 2022 and 2021. Adjustments are done by categories, taking into consideration current and future market conditions. The
Corporation also considered historical returns on its plan assets to review the expected rate of return. The investment policy statement
for the Pension Plans includes the following: (i) liability hedging assets to reduce funded status risk, (ii) diversified return seeking
assets to reduce equity risk, and (iii) establishes different glidepaths specific for each plan to systematically reduce risk as the funded
status improves.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
80
The following table presents information for the plans with a projected benefit obligation and accumulated benefit obligation in
excess of plan assets for the years ended December 31, 2022 and 2021:
December 31, 2022
December 31, 2021
(In thousands)
Projected benefit obligation
$
48,501
$
195
Accumulated benefit obligation
48,501
195
Fair value of plan assets
$
46,398
$
-
The following table presents the components of net periodic benefit for the years ended December 31, 2022 and 2021, and for the
period from September 1, 2020 to December 31, 2020:
Affected Line Item
Period from
in the Consolidated
September 1, 2020 to
Statements of Income
December 31, 2022
December 31, 2021
December 31, 2020
(In thousands)
Net periodic benefit, pension plans:
Interest cost
Other expenses
$
2,614
$
2,473
$
900
Expected return on plan assets
Other expenses
(4,158)
(4,523)
(2,062)
Net periodic benefit, pension plans
(1,544)
(2,050)
(1,162)
Net periodic cost, postretirement plan
Other expenses
8
6
2
Net periodic benefit
$
(1,536)
$
(2,044)
$
(1,160)
The following table presents the weighted-average assumptions used to determine the net periodic benefit for the pension and other
postretirement benefit plans for the years ended December 31, 2022 and 2021, and for the period from September 1, 2020 to
December 31, 2020:
Period from
September 1, 2020 to
December 31, 2022
December 31, 2021
December 31, 2020
Discount rate
2.77%
2.36%
2.53%
Expected return on plan assets
4.43%
5.99%
5.98%
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
81
The following table presents the changes in pre-tax accumulated other comprehensive income (loss) of the Pension Plans and
Postretirement Benefit Plan as of December 31, 2022, 2021, and 2020:
December 31, 2022
December 31, 2021
Period from
September 1, 2020
to
December 31, 2020
(In thousands)
Accumulated other comprehensive income (loss) at beginning of period, pension plans
$
5,457
$
(404)
$
-
Net (loss) gain
(3,483)
5,861
(404)
Accumulated other comprehensive income (loss) at end of period, pension plans
1,974
5,457
(404)
Accumulated other comprehensive loss at end of period, postretirement plan
(61)
(29)
(28)
Accumulated other comprehensive income (loss) at end of period
$
1,913
$
5,428
$
(432)
The following are the pre-tax amounts recognized in accumulated other comprehensive (loss) income for the years ended December
31, 2022 and 2021, and for the period from September 1, 2020 to December 31, 2020:
December 31, 2022
December 31, 2021
Period from
September 1, 2020
to December 31,
2020
(In thousands)
Net actuarial (loss) gain, pension plans
$
(3,483)
$
5,861
$
(404)
Net actuarial loss, other postretirement benefit plan
(35)
(2)
(28)
Amortization of net loss
3
1
-
Net amount recognized
$
(3,515)
$
5,860
$
(432)
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
82
The Pension Plans asset allocations as of December 31, 2022 and 2021 by asset category are as follows:
December 31, 2022
December 31, 2021
Asset category
Investment in funds
97%
98%
Other
3%
2%
100%
100%
As of December 31, 2022 and 2021, substantially all of the plan assets of $
77.2
103.5
invested in common collective trusts, which primarily consist of equity securities, mortgage-backed securities, corporate bonds and
U.S. Treasuries. The portfolios in both plans have been measured at fair value using the net asset value per unit as a practical
expedient as permitted by ASC Topic 820 and, accordingly, have not been classified in the fair value hierarchy as of December 31,
2022.
Determination of Fair Value
The following is a description of the valuation inputs and techniques used to measure the fair value of pension plan assets:
Investment in Funds -
Investment in common collective trusts have been measured at fair value using the net assets value per unit
practical expedient and, accordingly, have not been classified in the fair value hierarchy. Fair value is based on the calculated net asset
value of shares held by the Plan as reported by the sponsor of the funds.
Interest-Bearing Deposits -
Interest-bearing deposits consist of money market accounts with short-term maturities and, therefore,
the carrying value approximates fair value.
The Corporation does
no
t expect to contribute to the Pension Plans during 2023.
The Corporation’s investment policy with respect to the Corporation’s Pension Plans is to optimize, without undue risk, the total
return on investment of the Plan assets after inflation, within a framework of prudent and reasonable portfolio risk. The investment
portfolio is diversified in multiple asset classes to reduce portfolio risk, and assets may be shifted between asset classes to reduce
volatility when warranted by projections of the economic and/or financial market environment, consistent with Employee Retirement
Income Security Act of 1974, as amended (ERISA). As circumstances and market conditions change, the Corporation’s target asset
allocations may be amended to reflect the most appropriate distribution given the new environment, consistent with the investment
objectives.
Expected future benefit payments for the plans are as follows:
Amount
(Dollars in thousands)
2023
$
6,436
2024
6,292
2025
5,985
2026
5,999
2027
5,860
2028 through 2031
27,411
$
57,983
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
83
Defined Contribution Plan
In addition, FirstBank provides contributory retirement plans pursuant to Section 1081.01 of the Puerto Rico Internal Revenue
Code of 2011 (the “2011 PR Code”) for Puerto Rico employees and Section 401(k) of the U.S. Internal Revenue Code for USVI and
U.S. employees (the “Plans”). All of the Corporation’s full-time employees are eligible to participate in the Plans after completion of
three months of service for purposes of making elective deferral contributions and one year of service for purposes of sharing in the
Bank’s matching, qualified matching, and qualified non-elective contributions. The Bank contributes a matching contribution of
fifty
cents for every dollar up to the first
6
% of the participants’ eligible compensation that a participant contributes to the Plan on a pre-
tax basis.
The matching contribution of fifty cents for every dollar of the employee’s contribution is comprised of: (i) twenty-five
cents for every dollar of the employee’s contribution up to 6% of the employee’s eligible compensation to be paid to the Plan as of
each bi-weekly payroll; and (ii) an additional twenty-five cents for every dollar of the employee’s contribution up to 6% of the
employee’s eligible compensation to be deposited as a lump sum subsequent to the Plan Year.
to contribute up to $
15,000
20,500
2022, $
19,500
19,500
determined by its Board of Directors.
No
2021, and 2020. The Bank had total plan expenses of $
3.5
3.5
$
3.0
On September 1, 2020, the Bank completed the acquisition of Santander Bancorp, a wholly-owned subsidiary of Santander
Holdings USA, Inc. and the holding company of BSPR. Prior to the acquisition date, BSPR was the sponsor of the Banco Santander
de Puerto Rico Employees’ Savings Plan (“the Santander Plan”). Effective on September 1, 2020, the Bank became the sponsor of the
Santander Plan. Overall responsibility for administrating the Santander Plan rests with the Plan’s Administration Committee. Effective
December 31, 2020, the Santander Plan was merged with the Plans. The contributory savings plan assumed in the BSPR acquisition
also provided for matching contribution up to
6
% of the employee’s compensation.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
84
NOTE 20 – OTHER NON-INTEREST INCOME
A detail of other non-interest income is as follows for the indicated periods:
Year Ended December 31,
2022
2021
2020
(In thousands)
Non-deferrable loan fees
$
3,167
$
2,990
$
3,750
Mail and cable transmission commissions
3,100
3,116
2,540
Gain from insurance proceeds
-
550
5,000
Net (loss) gain on equity securities
(522)
(102)
38
Gain from sales of fixed assets
924
32
215
Other
9,181
5,843
4,682
$
15,850
$
12,429
$
16,225
NOTE 21 – OTHER NON-INTEREST EXPENSES
A detail of other non-interest expenses is as follows for the indicated periods:
Year Ended December 31,
2022
2021
2020
(In thousands)
Supplies and printing
$
1,505
$
1,830
$
2,391
Amortization of intangible assets
8,816
11,407
5,912
Servicing and processing fees
5,343
5,121
4,696
Insurance and supervisory fees
9,354
9,098
6,324
Provision for operational losses
2,518
5,069
3,390
Other
3,126
2,898
3,105
$
30,662
$
35,423
$
25,818
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
85
NOTE 22 – INCOME TAXES
Income tax expense includes Puerto Rico and USVI income taxes, as well as applicable U.S. federal and state taxes. The
Corporation is subject to Puerto Rico income tax on its income from all sources. As a Puerto Rico corporation, FirstBank is treated as
a foreign corporation for U.S. and USVI income tax purposes and, accordingly, 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. Any 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.
Under the 2011 PR Code, the Corporation and its subsidiaries are treated as separate taxable entities and are not entitled to file
consolidated tax returns and, thus, the Corporation is generally not entitled to utilize losses from one subsidiary to offset gains in
another subsidiary. Accordingly, in order to obtain a tax benefit from a net operating loss (“NOL”), a particular subsidiary must be
able to demonstrate sufficient taxable income within the applicable NOL carry-forward period. Pursuant to the 2011 PR Code, the
carry-forward period for NOLs incurred during taxable years that commenced after December 31, 2004 and ended before January 1,
2013 is 12 years; for NOLs incurred during taxable years commencing after December 31, 2012, the carryover period is 10 years. The
2011 PR Code provides a dividend received deduction of
100
% on dividends received from “controlled” subsidiaries subject to
taxation in Puerto Rico and
85
% on dividends received from other taxable domestic corporations.
The Corporation has maintained an effective tax rate lower than the Puerto Rico maximum statutory rate of
37.5
% mainly by
investing in government obligations and MBS exempt from U.S. and Puerto Rico income taxes and by doing business through an IBE
unit of the Bank, and through the Bank’s subsidiary, FirstBank Overseas Corporation, whose interest income and gains on sales are
exempt from Puerto Rico income taxation. The IBE unit and FirstBank Overseas Corporation were created under the International
Banking Entity Act of Puerto Rico, which provides for total Puerto Rico tax exemption on net income derived by IBEs operating in
Puerto Rico on the specific activities identified in the IBE Act. An IBE that operates as a unit of a bank pays income taxes at the
corporate standard rates to the extent that the IBE’s net income exceeds
20
% of the bank’s total net taxable income.
The components of income tax expense are summarized below for the indicated periods:
Year Ended December 31,
2022
2021
2020
(In thousands)
Current income tax expense
$
88,296
$
28,469
$
18,421
Deferred income tax expense:
-
-
(8,000)
54,216
118,323
3,629
Total income tax expense
$
142,512
$
146,792
$
14,050
The differences between the income tax expense applicable to income before the provision for income taxes and the amount
computed by applying the statutory tax rate in Puerto Rico were as follows for the indicated periods:
Year Ended December 31,
2022
2021
2020
Amount
% of Pretax
Income
Amount
% of Pretax
Income
Amount
% of Pretax
Income
(Dollars in thousands)
Computed income tax at statutory rate
$
167,844
37.5
%
$
160,431
37.5
%
$
43,621
37.5
%
Federal and state taxes
10,268
2.2
%
7,014
1.6
%
4,944
4.2
%
Benefit of net exempt income
(31,266)
(7.0)
%
(20,717)
(4.8)
%
(26,780)
(23.0)
%
Disallowed NOL carryforward resulting from net exempt income
14,221
3.2
%
8,791
2.0
%
9,054
7.8
%
Deferred tax valuation allowance
(8,410)
(1.9)
%
(13,572)
(3.2)
%
(12,095)
(10.4)
%
Share-based compensation windfall
(1,492)
(0.3)
%
(1,044)
(0.2)
%
157
0.1
%
Other permanent differences
(7,647)
(1.7)
%
(1,185)
(0.3)
%
(387)
(0.3)
%
Tax return to provision adjustments
(519)
(0.1)
%
(406)
(0.1)
%
597
0.5
%
Other-net
(487)
(0.1)
%
7,480
1.7
%
(5,061)
(4.3)
%
$
142,512
31.8
%
$
146,792
34.2
%
$
14,050
12.1
%
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
86
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and their tax bases. Significant components of the Corporation's deferred tax assets and liabilities as of
December 31, 2022 and 2021 were as follows:
December 31,
2022
2021
(In thousands)
Deferred tax asset:
$
72,485
$
137,860
104,014
105,917
40,823
37,361
6,462
7,703
7,031
7,031
6,345
4,576
781
881
5,665
8,926
100,776
14,181
7,722
4,420
$
352,104
$
328,856
Deferred tax liabilities:
9,786
10,510
719
2,035
509
506
11,014
13,051
Valuation allowance
(185,506)
(107,323)
$
155,584
$
208,482
Accounting for income taxes requires that companies assess whether a valuation allowance should be recorded against their
deferred tax asset based on an assessment of the amount of the deferred tax asset that is “more likely than not” to be realized.
Valua tion allowances are established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be
realized. Management assesses the valuation allowance recorded against deferred tax assets at each reporting date. The determ ination
of whether a valuation allowance for deferred tax assets is appropriate is subject to considerable judgment and requires the evaluation
of positive and negative evidence that can be objectively verified. Consideration must be given to all sources of taxable income
available to realize the deferred tax asset, including, as applicable, the future reversal of existing temporary differences, future taxable
income forecasts exclusive of the reversal of temporary differences and carryforwards, and tax planning strategies. In estimating taxes,
management assesses the relative merits and risks of the appropriate tax treatment of transactions considering statutory, judicial, and
regulatory guidance.
The net deferred tax asset of the Corporation’s banking subsidiary, FirstBank, amounted to $
155.6
2022, net of a valuation allowance of $
149.5
208.4
allowance of $
69.7
NOLs. The increase in the valuation allowance during 2022 was primarily related to the change in the market value of available-for-
sale debt securities. The Corporation maintains a full valuation allowance for its deferred tax assets associated with capital losses carry
forward and unrealized losses of available-for-sale debt securities. Thus, the change in the market value of available-for-sale debt
securities resulted in a change in the deferred tax asset and an equal change in the valuation allowance without impacting earnings.
Management’s estimate of future taxable income is based on internal projections that consider historical performance, multiple
internal scenarios and assumptions, as well as external data that management believes is reasonable. If events are identified that affect
the Corporation’s ability to utilize its deferred tax assets, the analysis will be updated to determine if any adjustments to the valuation
allowance are required. If actual results differ significantly from the current estimates of future taxable income, even if caused by
adverse macro-economic conditions, the remaining valuation allowance may need to be increased. Such an increase could have a
material adverse effect on the Corporation’s financial condition and results of operations.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
87
As of December 31, 2022, approximately $
279.9
differences or tax credit carryforwards that have no expiration date, compared to $
177.9
attributable to FirstBank’s deferred tax assets of $
149.5
of available-for-sale debt securities, NOLs attributable to the Virgin Islands jurisdiction, and capital losses. The remaining balance of
$
36.0
capital losses at the holding company level. The Corporation will continue to provide a valuation allowance against its deferred tax
assets in each applicable tax jurisdiction until the need for a valuation allowance is eliminated. The need for a valuation allowance is
eliminated when the Corporation determines that it is more likely than not the deferred tax assets will be realized. The ability to
recognize the remaining deferred tax assets that continue to be subject to a valuation allowance will be evaluated on a quarterly basis
to determine if there are any significant events that would affect the ability to utilize these deferred tax assets. As of December 31,
2022, of the $
72.5
61.2
ranging from year 2023 through year 2037. From this amount, approximately $
30.5
to be realized.
In 2017, the Corporation completed a formal ownership change analysis within the meaning of Section 382 of the U.S. Internal
Revenue Code (“Section 382”) covering a comprehensive period and concluded that an ownership change had occurred during such
period. The Section 382 limitation has resulted in higher U.S. and USVI income tax liabilities that we would have incurred in the
absence of such limitation. The Corporation has mitigated to an extent the adverse effects associated with the Section 382 limitation as
any such tax paid in the U.S. or USVI can be creditable against Puerto Rico tax liabilities or taken as a deduction against taxable
income. However, our ability to reduce our Puerto Rico tax liability through such a credit or deduction depends on our tax profile at
each annual taxable period, which is dependent on various factors. For 2022, 2021 and 2020, the Corporation incurred current income
tax expense of approximately $
10.3
6.8
4.9
did not impact the USVI operations in 2022, 2021 and 2020.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into law in the United States. The IRA includes
various tax provisions, including a 1% excise tax on stock repurchases, and a 15% corporate alternative minimum tax that generally
applies to U.S. corporations with average adjusted financial statement income over a three-year period in excess of $1 billion. The
legislation did not have an effect on the Corporation’s effective tax rate in 2022 and is not expected to have a material impact on our
2023 financial results, including on our annual estimated effective tax rate or on our liquidity.
The Corporation accounts for uncertain tax positions under the provisions of ASC Topic 740. The Corporation’s policy is to report
interest and penalties related to unrecognized tax positions in income tax expense. As of December 31, 2022, the Corporation had $
0.2
million of accrued interest and penalties related to uncertain tax positions in the amount of $
1.0
which, if recognized, would decrease the effective income tax rate in future periods. During 2022, a $
0.4
recognized as a result of the expiration of uncertain tax positions acquired from BSPR. 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 2011 PR 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
2018 remain open to examination. For Puerto Rico tax purposes, all tax years subsequent to 2017 remain open to examination.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
88
NOTE 23
–
OPERATING LEASES
The Corporation accounts for its leases in accordance with ASC 842 “Leases” (“ASC Topic 842). The Corporation’s operating
leases are primarily related to the Corporation’s branches. Our leases mainly have terms ranging from
two years
30 years
, some of
which include options to extend the leases for up to
ten years
. Liabilities to make future lease payments are recorded in accounts
payable and other liabilities, while right-of-use (“ROU”) assets are recorded in other assets in the Corporation’s consolidated
statements of financial condition. As of December 31, 2022 and 2021, the Corporation did not classify any of its leases as a finance
lease.
Operating lease cost for the year ended December 31, 2022 amounted to $
18.4
18.2
13.8
and is recorded in occupancy and equipment in the consolidated statements of income.
Supplemental balance sheet information related to leases as of the indicated dates was as follows:
As of
As of
December 31,
December 31,
2022
2021
(Dollars in thousands)
ROU asset
$
78,855
$
90,319
Operating lease liability
$
81,954
$
93,772
Operating lease weighted-average remaining lease term (in years)
7.5
8.0
Operating lease weighted-average discount rate
2.37%
2.24%
Generally, the Corporation cannot practically determine the interest rate implicit in the lease. Therefore, the Corporation uses its
incremental borrowing rate as the discount rate for the lease. See Note 1 – Nature of Business and Summary of Significant Accounting
Policies for information on how the Corporation determines its incremental borrowing rate.
Supplemental cash flow information related to leases was as follows:
Year Ended
Year Ended
Year Ended
December 31,
December 31,
December 31,
2022
2021
2020
(In thousands)
Operating cash flow from operating leases
(1)
$
18,202
$
19,328
$
13,464
ROU assets obtained in exchange for operating lease liabilities
$
5,744
$
5,833
$
1,328
(1)
Represents cash paid for amounts included in the measurement of operating lease liabilities.
(2)
Represents non-cash activity and, accordingly, is not reflected in the consolidated statements of cash flows. For the year ended December 31, 2020 excludes $
52.1
related liabilities assumed in the BSPR acquisition.
(3)
For the year ended December 31, 2022 and 2021 excludes $
3.0
1.3
no
terminations.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
89
Maturities under operating lease liabilities as of December 31, 2022, were as follows:
Amount
(In thousands)
2023
$
16,763
2024
16,008
2025
15,096
2026
14,025
2027
5,929
2028 and after
23,025
Total lease payments
90,846
Less: imputed interest
(8,892)
Total present value of lease liability
$
81,954
Leases Not Yet Commenced
As of December 31, 2022, the Corporation has additional operating leases that were signed but have not yet commenced with an
undiscounted contract amount of $
1.1
five
ten years
.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
90
NOTE 24 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
One of the market risks facing the Corporation is interest rate risk, which includes the risk that changes in interest rates will result
in changes in the value of the Corporation’s assets or liabilities and will adversely affect the Corporation’s net interest income from its
loan and investment portfolios. The overall objective of the Corporation’s interest rate risk management activities is to reduce the
variability of earnings caused by changes in interest rates.
As of December 31, 2022 and 2021, all derivatives held by the Corporation were considered economic undesignated hedges. The
Corporation records these undesignated hedges at fair value with the resulting gain or loss recognized in current earnings.
The following summarizes the principal derivative activities used by the Corporation in managing interest rate risk:
Interest Rate Cap Agreements
a contractual rate. The value of the interest rate cap increases as the reference interest rate rises. The Corporation enters into interest
rate cap agreements for protection from rising interest rates.
Forward Contracts
delivery date and do not qualify as “regular way” security trades. Regular-way security trades are contracts that have no net
settlement provision and no market mechanism to facilitate net settlement and that provide for delivery of a security within the time
frame generally established by regulations or conventions in the marketplace or exchange in which the transaction is being
executed. The forward sales are considered derivative instruments that need to be marked to market. The Corporation uses these
securities to economically hedge the FHA/VA residential mortgage loan securitizations of the mortgage banking operations. The
Corporation also reports as forward contracts the mandatory mortgage loan sales commitments that it enters into with GSEs that
require or permit net settlement via a pair-off transaction or the payment of a pair-off fee. Unrealized gains (losses) are recognized
as part of mortgage banking activities in the consolidated statements of income .
Interest Rate Lock Commitments
credit to a borrower under certain specified terms and conditions in which the interest rate and the maximum amount of the loan are
set prior to funding. Under the agreement, the Corporation commits to lend funds to a potential borrower, generally on a fixed rate
basis, regardless of whether interest rates change in the market.
Interest Rate Swaps
an agreement between two entities to exchange cash flows in the future. The agreements acquired from BSPR consist of the
Corporation offering borrower-facing derivative products using a “back-to-back” structure in which the borrower-facing derivative
transaction is paired with an identical, offsetting transaction with an approved dealer-counterparty. By using a back-to-back trading
structure, both the commercial borrower and the Corporation are largely insulated from market risk and volatility. The agreements
set the dates on which the cash flows will be paid and the manner in which the cash flows will be calculated. The fair values of
these swaps are recorded as components of other assets or accounts payable and other liabilities in the Corporation’s consolidated
statements of financial condition. Changes in the fair values of interest rate swaps, which occur due to changes in interest rates, are
recorded in the consolidated statements of income as a component of interest income on loans.
To satisfy the needs of its customers, the Corporation may enter into non-hedging transactions. In these transactions, the
Corporation generally participates as a buyer in one of the agreements and as a seller in the other agreement under the same terms and
conditions.
In addition, the Corporation enters into certain contracts with embedded derivatives that do not require separate accounting as these
are clearly and closely related to the economic characteristics of the host contract. When the embedded derivative possesses economic
characteristics that are not clearly and closely related to the economic characteristics of the host contract, it is bifurcated, carried at fair
value, and designated as a trading or non-hedging derivative instrument.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
91
The following table summarizes for derivative instruments their notional amounts, fair values and location in the consolidated
statements of financial condition as of the indicated dates:
Asset Derivatives
Liability Derivatives
Notional Amounts
(1)
Statements of Financial
Condition Location
Fair Value
Statements of Financial Condition
Location
Fair Value
December 31,
December 31,
December 31,
2022
2021
2022
2021
2022
2021
(In thousands)
Undesignated economic hedges:
Interest rate contracts:
$
9,290
$
12,588
Other assets
$
313
$
1,098
Accounts payable and other liabilities
$
278
$
1,092
14,500
14,500
Other assets
-
-
Accounts payable and other liabilities
197
8
14,500
14,500
Other assets
199
8
Accounts payable and other liabilities
-
-
3,225
12,097
Other assets
63
379
Accounts payable and other liabilities
-
-
Forward Contracts:
11,000
27,000
Other assets
58
-
Accounts payable and other liabilities
1
78
-
12,668
Other assets
-
20
Accounts payable and other liabilities
-
-
$
52,515
$
93,353
$
633
$
1,505
$
476
$
1,178
(1) Notional amounts are presented on a gross basis with no netting of offsetting exposure positions.
The following table summarizes the effect of derivative instruments on the consolidated statements of income for the indicated
periods:
Gain (or Loss)
Location of Gain (Loss)
Year ended
on Derivative Recognized in
December 31,
Statements of Income
2022
2021
2020
(In thousands)
Undesignated economic hedges:
Interest income - loans
$
28
$
24
$
27
Interest income - loans
2
-
-
Mortgage banking activities
(322)
(687)
576
Mortgage banking activities
135
114
(54)
Mortgage banking activities
(20)
-
(37)
$
(177)
$
(549)
$
512
Derivative instruments are subject to market risk. As is the case with investment securities, the market value of derivative
instruments is largely a function of the financial market’s expectations regarding the future direction of interest rates. Accordingly,
current market values are not necessarily indicative of the future impact of derivative instruments on earnings. This will depend, for
the most part, on the shape of the yield curve, and the level of interest rates, as well as the expectations for rates in the future.
As of December 31, 2022 and 2021, the Corporation had not entered into any derivative instrument containing credit -risk-related
contingent features.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
92
Credit and Market Risk of Derivatives
The Corporation uses derivative instruments to manage interest rate risk. By using derivative instruments, the Corporation is
exposed to credit and market risk.
If the counterparty fails to perform, credit risk is equal to the extent of the Corporation’s fair value gain on the derivative. When
the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty owes the Corporation which,
therefore, creates a credit risk for the Corporation. When the fair value of a derivative instrument contract is negative, the Corporation
owes the counterparty. The Corporation minimizes its credit risk in derivative instruments by entering into transactions with reputable
broker dealers (
i.e.,
financial institutions) that are reviewed periodically by the Management Investment and Asset Liability
Committee of the Corporation (the “MIALCO”) and by the Board of Directors. The Corporation also has a policy of requiring that all
derivative instrument contracts be governed by an International Swaps and Derivatives Association Master Agreement, which includes
a provision for netting. The Corporation has a policy of diversifying derivatives counterparties to reduce the consequences of
counterparty default. The cumulative mark -to-market effect of credit risk in the valuation of derivative instruments in 2022, 2021 and
2020 was immaterial.
Market risk is the adverse effect that a change in interest rates or implied volatility rates has on the value of a financial instrument.
The Corporation manages the market risk associated with interest rate contracts by establishing and monitoring limits as to the types
and degree of risk that may be undertaken.
In accordance with the master agreements, in the event of default, each party has a right of set-off against the other party for
amounts owed under the related agreement and any other amount or obligation owed with respect to any other agreement or
transaction between them. As of December 31, 2022 and 2021, derivatives were overcollateralized. See Note 12
–
Under Agreements to Repurchase for information on rights of set-off associated to assets sold under agreements to repurchase.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
93
NOTE 25 – FAIR VALUE
Fair Value Measurement
ASC Topic 820, “Fair Value Measurement,” defines fair value as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. This guidance also establishes a fair value hierarchy for classifying assets and
liabilities, which is based on whether the inputs to the valuation techniques used to measure fair value are observable or unobservable.
One of three levels of inputs may be used to measure fair value:
Level 1
Valuations of Level 1 assets and liabilities are obtained from readily-available pricing sources for market
transactions involving identical assets or liabilities in active markets.
Level 2
Va
luations of Level 2 assets and liabilities are based on observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
Level 3
Va
luations of Level 3 assets and liabilities are based on unobservable inputs that are supported by little or no market
activity and are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial
instruments whose value is determined by using pricing models for which the determination of fair value requires
significant management judgment as to the estimation.
Financial Instruments Recorded at Fair Value on a Recurring Basis
Debt securities available for sale and marketable equity securities held at fair value
and equity securities with readily determinable fair values), when available (Level 1), or market prices for comparable assets (as is the
case with U.S. agencies MBS and U.S. agency debt securities) that are based on observable market parameters, including benchmark
yields, reported trades, quotes from brokers or dealers, issuer spreads, bids, offers and reference data, including market research
operations, when available (Level 2). Observable prices in the market already consider the risk of nonperformance. If listed prices or
quotes are not available, fair value is based upon discounted cash flow models that use unobservable inputs due to the limited market
activity of the instrument, as is the case with certain private label MBS held by the Corporation (Level 3).
Derivative instruments
consideration the credit risk component of paying counterparties, when appropriate. On interest caps, only the seller's credit risk is
considered. The Corporation valued the interest rate swaps and caps using a discounted cash flow approach based on the related
LIBOR and swap forward rate for each cash flow.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
94
Assets and liabilities measured at fair value on a recurring basis are summarized below as of December 31, 2022 and 2021:
As of December 31, 2022
As of December 31, 2021
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
$
138,875
$
-
$
-
$
138,875
$
148,486
$
-
$
-
$
148,486
Noncallable U.S. agencies debt securities
-
389,787
-
389,787
-
285,028
-
285,028
Callable U.S. agencies debt securities
-
1,963,566
-
1,963,566
-
1,971,954
-
1,971,954
MBS
-
3,098,797
5,794
(1)
3,104,591
-
4,037,209
7,234
(1)
4,044,443
Puerto Rico government obligations
-
-
2,201
2,201
-
-
2,850
2,850
Other investments
-
-
500
500
-
-
1,000
1,000
Equity securities
4,861
-
-
4,861
5,378
-
-
5,378
Derivative assets
-
633
-
633
-
1,505
-
1,505
Liabilities:
Derivative liabilities
-
476
-
476
-
1,178
-
1,178
(1) Related to private label MBS.
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 years ended December 31, 2022, 2021, and 2020:
2022
2021
2020
Level 3 Instruments Only
Securities Available for
Sale
(1)
Securities Available for
Sale
(1)
Securities Available for
Sale
(1)
(In thousands)
Beginning balance
$
11,084
$
11,977
$
14,590
(401)
1,281
2,403
(2)
434
136
(1,641)
-
-
150
-
1,000
-
(2,622)
(3,310)
(3,525)
Ending balance
$
8,495
$
11,084
$
11,977
___________________
(1)
(2)
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
95
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 December 31, 2022 and 2021:
December 31, 2022
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
Maximum
(Dollars in thousands)
Available-for-sale debt securities:
$
5,794
Discounted cash flows
Discount rate
16.2%
16.2%
16.2%
Prepayment rate
1.5%
15.2%
11.8%
Projected cumulative loss rate
0.3%
15.6%
5.6%
$
2,201
Discounted cash flows
Discount rate
12.9%
12.9%
12.9%
Projected cumulative loss rate
19.3%
19.3%
19.3%
December 31, 2021
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
Maximum
(Dollars in thousands)
Available-for-sale debt securities:
$
7,234
Discounted cash flows
Discount rate
12.9%
12.9%
12.9%
Prepayment rate
7.6%
24.9%
15.2%
Projected cumulative loss rate
0.2%
15.7%
7.6%
$
2,850
Discounted cash flows
Discount rate
6.6%
8.4%
7.9%
Projected cumulative loss rate
8.6%
8.6%
8.6%
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 Obligations: The significant unobservable input used in the fair value measurement is the assumed loss rate
of the underlying residential mortgage loans that collateralize these obligations, which are guaranteed by the PRHFA. A significant
increase (decrease) in the assumed rate would lead to a (lower) higher fair value estimate. The fair value of these bonds was based on
a discounted cash flow methodology that considers the structure and terms of the debt security. The Corporation utilizes PDs and
LGDs that consider, 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 of the
PRHFA guarantee. Under this approach, expected cash flows (interest and principal) are discounted at the Treasury yield curve plus a
spread as of the reporting date and compared to the amortized cost.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
96
Additionally, fair value is used on a nonrecurring basis to evaluate certain assets in accordance with GAAP.
As of December 31, 2022, the Corporation recorded losses or valuation adjustments for assets recognized at fair value on a non-
recurring basis and still held at December 31, 2022, as shown in the following table:
Carrying value as of December 31,
Related to losses recorded for the Year Ended
December 31,
2022
2021
2020
2022
2021
2020
(In thousands)
Level 3:
Loans receivable
$
11,437
$
31,534
$
74,197
$
(736)
$
(5,466)
$
(13,737)
OREO
(2)
5,461
9,126
50,248
(917)
(48)
(1,837)
Premises and equipment
(3)
1,242
-
-
(218)
-
-
Level 2:
Loans held for sale
$
12,306
$
-
$
-
$
(106)
$
-
$
-
(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.
(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.
(3)
Relates to a banking facility reclassified to held-for-sale and measured at the fair value of the collateral.
Qualitative information regarding the fair value measurements for Level 3 financial instruments as of December 31, 2022 are as
follows:
December 31, 2022
Method
Inputs
Loans
Income, Market, Comparable
Sales, Discounted Cash Flows
External appraised values; probability weighting of broker price
opinions; management assumptions regarding market trends or other
relevant factors
OREO
Income, Market, Comparable
Sales, Discounted Cash Flows
External appraised values; probability weighting of broker price
opinions; management assumptions regarding market trends or other
relevant factors
Premises and equipment
Market
External appraised value
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
97
The following tables present the carrying value, estimated fair value and estimated fair value level of the hierarchy of financial
instruments as of December 31, 2022 and 2021:
Total Carrying Amount
in Statement of
Financial Condition as
of December 31, 2022
Fair Value Estimate as of
December 31, 2022
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money market investments (amortized cost)
$
480,505
$
480,505
$
480,505
$
-
$
-
Available-for-sale debt securities (fair value)
5,599,520
5,599,520
138,875
5,452,150
8,495
Held-to-maturity debt securities (amortized cost)
437,537
Less: ACL on held-to-maturity debt securities
(8,286)
Held-to-maturity debt securities, net of ACL
$
429,251
427,115
-
260,106
167,009
Equity securities (amortized cost)
50,428
50,428
-
50,428
(1)
-
Other equity securities (fair value)
4,861
4,861
4,861
-
-
Loans held for sale (lower of cost or market)
12,306
12,306
-
12,306
-
Loans held for investment (amortized cost)
11,552,825
Less: ACL for loans and finance leases
(260,464)
Loans held for investment, net of ACL
$
11,292,361
11,106,809
-
-
11,106,809
MSRs (amortized cost)
29,037
44,710
-
-
44,710
Derivative assets (fair value)
(2)
633
633
-
633
-
Liabilities:
Deposits (amortized cost)
$
16,143,467
$
16,139,937
$
-
$
16,139,937
$
-
Securities sold under agreements to repurchase (amortized cost)
75,133
75,230
-
75,230
-
Advances from FHLB (amortized cost)
675,000
674,596
-
674,596
-
Other borrowings (amortized cost)
183,762
187,246
-
-
187,246
Derivative liabilities (fair value)
(2)
476
476
-
476
-
(1) Includes FHLB stock with a carrying value of $
42.9
(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)
98
Total Carrying
Amount in Statement
of Financial Condition
as of December 31,
2021
Fair Value Estimate as
of December 31, 2021
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money market investments (amortized cost)
$
2,543,058
$
2,543,058
$
2,543,058
$
-
$
-
Available-for-sale debt securities (fair value)
6,453,761
6,453,761
148,486
6,294,191
11,084
Held-to-maturity debt securities (amortized cost)
178,133
Less: ACL on held-to-maturity debt securities
(8,571)
Held-to-maturity debt securities, net of ACL
$
169,562
167,147
-
-
167,147
Equity securities (amortized cost)
26,791
26,791
-
26,791
(1)
-
Other equity securities (fair value)
5,378
5,378
5,378
-
-
Loans held for sale (lower of cost or market)
35,155
36,147
-
36,147
-
Loans held for investment (amortized cost)
11,060,658
Less: ACL for loans and finance leases
(269,030)
Loans held for investment, net of ACL
$
10,791,628
10,900,400
-
-
10,900,400
MSRs (amortized cost)
30,986
42,132
-
-
42,132
Derivative assets (fair value)
(2)
1,505
1,505
-
1,505
-
Liabilities:
Deposits (amortized cost)
$
17,784,894
$
17,800,706
$
-
$
17,800,706
$
-
Securities sold under agreements to repurchase (amortized cost)
300,000
322,105
-
322,105
-
Advances from FHLB (amortized cost)
200,000
202,044
-
202,044
-
Other borrowings (amortized cost)
183,762
177,689
-
-
177,689
Derivative liabilities (fair value)
(2)
1,178
1,178
-
1,178
-
'(1) Includes FHLB stock with a carrying value of $
21.5
(2) Includes interest rate swap agreements, interest rate caps, forward contracts, interest rate lock commitments, and forward loan sales 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.
NOTE 26 – 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.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
99
Disaggregation of Revenue
The following tables summarize the Corporation’s revenue, which includes net interest income on financial instruments and non-
interest income, disaggregated by type of service and business segment for the years ended December 31, 2022, 2021 and 2020:
Year ended December 31, 2022:
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income
(1)
$
98,920
$
442,624
$
109,822
$
39,600
$
80,485
$
23,842
$
795,293
Service charges and fees on deposit accounts
-
21,906
12,412
-
607
2,898
37,823
Insurance commissions
-
12,733
-
-
15
995
13,743
Merchant-related income
-
6,622
1,483
-
74
1,335
9,514
Credit and debit card fees
-
29,061
85
-
(7)
1,763
30,902
Other service charges and fees
341
4,558
3,397
-
2,113
684
11,093
Not in scope of ASC Topic 606
15,609
3,577
812
(74)
58
35
20,017
15,950
78,457
18,189
(74)
2,860
7,710
123,092
Total Revenue
$
114,870
$
521,081
$
128,011
$
39,526
$
83,345
$
31,552
$
918,385
Year ended December 31, 2021:
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income
$
104,638
$
281,703
$
191,917
$
59,331
$
65,967
$
26,373
$
729,929
Service charges and fees on deposit accounts
-
20,083
11,807
-
555
2,839
35,284
Insurance commissions
-
11,166
-
-
114
665
11,945
Merchant-related income
-
6,279
1,079
-
51
1,055
8,464
Credit and debit card fees
-
26,360
83
-
19
1,602
28,064
Other service charges and fees
771
4,185
2,640
-
1,825
556
9,977
Not in scope of ASC Topic 606
23,507
1,701
423
227
1,399
173
27,430
24,278
69,774
16,032
227
3,963
6,890
121,164
Total Revenue
$
128,916
$
351,477
$
207,949
$
59,558
$
69,930
$
33,263
$
851,093
Year ended December 31, 2020:
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income
(1)
$
76,025
$
220,678
$
135,591
$
87,879
$
54,025
$
26,124
$
600,322
Service charges and fees on deposit accounts
-
13,286
8,026
-
553
2,747
24,612
Insurance commissions
-
8,754
-
-
52
558
9,364
Merchant-related income
-
4,516
478
-
41
809
5,844
Credit and debit card fees
-
18,218
62
-
16
1,469
19,765
Other service charges and fees
342
2,900
2,260
184
1,800
1,508
8,994
Not in scope of ASC Topic 606 (1) (2)
21,727
3,288
1,780
13,524
2,168
160
42,647
22,069
50,962
12,606
13,708
4,630
7,251
111,226
Total Revenue
$
98,094
$
271,640
$
148,197
$
101,587
$
58,655
$
33,375
$
711,548
(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.
(2)
For the year ended December 31, 2020, includes a $
5.0
claim related to lost profits caused by Hurricanes Irma and Maria in 2017. This insurance recovery is presented as part of other non-interest income in the
consolidated statements of income.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
100
For 2022, 2021, and 2020, most of the Corporation’s revenue within the scope of ASC Topic 606 was related to performance
obligations satisfied at a point in time.
The following is a discussion of the revenues under the scope of ASC Topic 606.
Service Charges and Fees on Deposit Accounts
Service charges and fees on deposit accounts relate to fees generated from a variety of deposit products and services rendered to
customers. Charges primarily include, but are not limited to, overdraft fees, insufficient fund fees, dormant fees, and monthly service
charges. Such fees are recognized concurrently with the event at the time of occurrence or on a monthly basis, in the case of monthly
service charges. These depository arrangements are considered day-to-day contracts that do not extend beyond the services
performed, as customers have the right to terminate these contracts with no penalty or, if any, nonsubstantive penalties.
Insurance Commissions
For insurance commissions, which include regular and contingent commissions paid to the Corporation’s insurance agency, the
agreements contain a performance obligation related to the sale/issuance of the policy and ancillary administrative post-issuance
support. The performance obligations are satisfied when the policies are issued, and revenue is recognized at that point in time. In
addition, contingent commission income may be considered to be constrained, as defined under ASC Topic 606. Contingent
commission income is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of
cumulative revenue recognized will not occur or payments are received, thus, is recorded in subsequent periods. For the years ended
December 31, 2022, 2021 and 2020, the Corporation recognized contingent commission income at the time that payments were
confirmed and constraints were released of $
3.2
3.3
3.3
of insurance policies sold in the prior year.
Card and processing income
Card and processing income includes merchant-related income, and credit and debit card fees.
For merchant-related income, the determination of income recognition included the consideration of a 2015 sale of merchant
contracts that involved sales of point of sale (“POS”) terminals and a marketing alliance under a revenue-sharing agreement. The
Corporation concluded that control of the POS terminals and merchant contracts was transferred to the customer at the contract’s
inception. With respect to the related revenue-sharing agreement, the Corporation satisfies the marketing alliance performance
obligation over the life of the contract, and recognizes the associated transaction price as the entity performs and any constraints over
the variable consideration are resolved.
Credit and debit card fees primarily represent revenues earned from interchange fees and ATM fees. Interchange and network
revenues are earned on credit and debit card transactions conducted with payment networks. ATM fees are primarily earned as a result
of surcharges assessed to non-FirstBank customers who use a FirstBank ATM. Such fees are generally recognized concurrently with
the delivery of services on a daily basis.
The Corporation offers products, primarily credit cards, that offer various rewards to reward program members, such as airline
tickets, cash, or merchandise, based on account activity. The Corporation generally recognizes the cost of rewards as part of business
promotion expenses when the rewards are earned by the customer and, at that time, records the corresponding reward liability. The
Corporation determines the reward liability based on points earned to date that the Corporation expects to be redeemed and the
average cost per point redemption. The reward liability is reduced as points are redeemed. In estimating the reward liability, the
Corporation considers historical reward redemption behavior, the terms of the current reward program, and the card purchase activity.
The reward liability is sensitive to changes in the reward redemption type and redemption rate, which is based on the expectation that
the vast majority of all points earned will eventually be redeemed. The reward liability, which is included in other liabilities in the
consolidated statements of financial condition, totaled $
9.2
8.8
Other Fees
Other fees primarily include revenues generated from wire transfers, lockboxes, bank issuances of checks and trust fees recognized
from transfer paying agent, retirement plan, and other trustee activities. Revenues are recognized on a recurring basis when the
services are rendered and are included as part of other non-interest income in the consolidated statements of income.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
101
Contract Balances
A contract liability is an entity’s obligation to transfer goods or services to a customer in exchange for consideration from the
customer. FirstBank participates in a merchant revenue-sharing agreement with another entity to which the Bank sold its merchant
contracts portfolio and related POS terminals and a growth agreement with an international card service association to expand the
customer base and enhance product offerings. FirstBank recognizes the revenue under these agreements over time, as the Bank
completes its performance obligations.
The following table shows the balances of contract liabilities recognized in relation to these agreements and the amount of revenue
recognized for the years ended December 31, 2022, 2021 and 2020:
2022
2021
2020
(In thousands)
Beginning Balance
$
1,443
$
2,151
$
2,476
Less:
(602)
(708)
(325)
Ending balance
$
841
$
1,443
$
2,151
As of December 31, 2022 and 2021 there were
no
Other
Except for the contract liabilities noted above, the Corporation did not have any significant performance obligations as of December
31, 2022. 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)
102
NOTE 27 – SEGMENT INFORMATION
Based upon the Corporation’s organizational structure and the information provided to the Chief Executive Officer, 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 December 31, 2022, the Corporation had
six
reportable segments: Mortgage Banking; Consumer (Retail) Banking; Commercial and Corporate Banking; Treasury and Investments;
United States Operations; and Virgin Islands Operations. Management determined the reportable segments based on the internal
structure used to evaluate performance and to assess where to allocate resources. Other factors, such as the Corporation’s
organizational chart, nature of the products, distribution channels, and the economic characteristics of the products, were also
considered in the determination of the reportable segments.
The Mortgage Banking segment consists of the origination, sale, and servicing of a variety of residential mortgage loans. The
Mortgage Banking segment also acquires and sells mortgages in the secondary markets. In addition, the Mortgage Banking segment
includes mortgage loans purchased from other local banks and mortgage bankers. 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 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.
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.
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)
For the year ended December 31, 2022:
Interest income
$
130,185
$
302,631
$
205,888
$
104,215
$
94,782
$
24,913
$
862,614
Net (charge) credit for transfer of funds
(31,265)
173,917
(96,066)
(43,838)
(2,748)
-
-
Interest expense
-
(33,924)
-
(20,777)
(11,549)
(1,071)
(67,321)
Net interest income
98,920
442,624
109,822
39,600
80,485
23,842
795,293
Provision for credit losses - (benefit) expense
(7,643)
57,123
(20,241)
(434)
(3,073)
1,964
27,696
Non-interest income (loss)
15,950
78,457
18,189
(74)
2,860
7,710
123,092
Direct non-interest expenses
23,049
162,663
37,131
3,702
33,365
27,911
287,821
$
99,464
$
301,295
$
111,121
$
36,258
$
53,053
$
1,677
$
602,868
Average earnings assets
$
2,233,245
$
2,918,800
$
3,626,107
$
7,300,208
$
2,069,030
$
369,504
$
18,516,894
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
103
Mortgage
Banking
Consumer (Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
For the year ended December 31, 2021:
Interest income
$
144,203
$
271,127
$
201,684
$
67,841
$
82,194
$
27,659
$
794,708
Net (charge) credit for transfer of funds
(39,565)
38,859
(9,767)
14,687
(4,214)
-
-
Interest expense
-
(28,283)
-
(23,197)
(12,013)
(1,286)
(64,779)
Net interest income
104,638
281,703
191,917
59,331
65,967
26,373
729,929
Provision for credit losses - (benefit) expense
(16,030)
20,322
(67,544)
(136)
(975)
(1,335)
(65,698)
Non-interest income
24,278
69,774
16,032
227
3,963
6,890
121,164
Direct non-interest expenses
29,125
165,357
36,219
4,093
33,902
28,084
296,780
$
115,821
$
165,798
$
239,274
$
55,601
$
37,003
$
6,514
$
620,011
Average earnings assets
$
2,506,365
$
2,551,278
$
3,793,945
$
7,827,326
$
2,126,528
$
430,499
$
19,235,941
Mortgage
Banking
Consumer (Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
For the year ended December 31, 2020:
Interest income
$
128,043
$
240,725
$
155,254
$
55,003
$
84,169
$
29,788
$
692,982
Net (charge) credit for transfer of funds
(52,018)
18,771
(19,663)
59,074
(6,164)
-
-
Interest expense
-
(38,818)
-
(26,198)
(23,980)
(3,664)
(92,660)
Net interest income
76,025
220,678
135,591
87,879
54,025
26,124
600,322
Provision for credit losses - expense
22,518
54,094
74,607
2,774
12,592
4,400
170,985
Non-interest income
22,069
50,962
12,606
13,708
4,630
7,251
111,226
Direct non-interest expenses
33,054
131,133
28,631
3,449
33,782
28,815
258,864
$
42,522
$
86,413
$
44,959
$
95,364
$
12,281
$
160
$
281,699
Average earnings assets
$
2,241,753
$
2,202,595
$
3,039,786
$
4,232,144
$
2,026,619
$
458,608
$
14,201,505
The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods:
Year Ended December 31,
2022
2021
2020
(In thousands)
Net income:
Total income for segments
$
602,868
$
620,011
$
281,699
Other operating expenses
155,284
192,194
165,376
Income before income taxes
447,584
427,817
116,323
Income tax expense
142,512
146,792
14,050
$
305,072
$
281,025
$
102,273
Average assets:
Total average earning assets for segments
$
18,516,894
$
19,235,941
$
14,201,505
Average non-earning assets
861,755
1,067,092
1,031,141
$
19,378,649
$
20,303,033
$
15,232,646
(1)
Expenses pertaining to corporate administrative functions that support the operating segment, but are not specifically attributable to or managed by any segment, are not included in the
reported financial results of the operating segments. The unallocated corporate expenses include certain general and administrative expenses and related depreciation and amortization
expenses.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
104
The following table presents revenues (interest income plus non-interest income) and selected balance sheet data by geography based on the
location in which the transaction was originated as of indicated dates:
2022
2021
2020
(In thousands)
Revenues:
$
855,441
$
795,166
$
678,370
97,642
86,157
88,799
32,623
34,549
37,039
$
985,706
$
915,872
$
804,208
Selected Balance Sheet Information:
Total assets:
$
16,020,987
$
18,175,910
$
16,091,112
2,213,333
2,189,440
2,117,966
400,164
419,925
583,993
Loans:
$
9,097,013
$
8,755,434
$
9,367,032
2,088,351
1,948,716
1,993,797
379,767
391,663
466,749
Deposits:
(1)
$
12,933,570
$
14,113,874
$
12,338,934
(2)
1,623,725
1,928,749
1,622,481
1,586,172
1,742,271
1,355,968
(1)
For 2022, 2021, and 2020, includes $
1.4
34.2
109.0
(2)
For 2022, 2021, and 2020 includes $
104.4
66.2
107.1
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
105
NOTE 28 – SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
Supplemental statement of cash flows information is as follows for the indicated periods:
Year Ended December 31,
2022
2021
2020
(In thousands)
Cash paid for:
$
65,986
$
68,668
$
94,872
51,798
15,477
16,713
18,202
19,328
13,464
Non-cash investing and financing activities:
15,350
19,348
7,249
45,607
33,408
36,203
3,122
5,194
4,864
141,909
191,434
221,491
4,632
33,010
10,817
-
-
24,033
2,733
4,553
1,328
Acquisition
(1)
:
$
-
$
584
$
1,280,424
-
605
5,561,564
-
-
4,291,674
(1)
Recognized in connection with the BSPR acquisition on September 1, 2020.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
106
NOTE 29 – 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 December 31, 2022 and 2021, 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 December 31, 2022, 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 1 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 December 31, 2022, the capital measures of the Corporation and the Bank included
$
16.2
25
% of the increase in the ACL (as defined in the
interim final rule) from January 1, 2020 to December 31, 2021, and $
48.6
years. The federal financial regulatory agencies may take other measures affecting regulatory capital to address the COVID-19
pandemic and related macroeconomic conditions, although the nature and impact of such actions cannot be predicted at this time.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
107
The regulatory capital position of the Corporation and the Bank as of December 31, 2022, and 2021, which reflects the delay in the
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 December 31, 2022
Total Capital (to Risk-Weighted Assets)
$
2,385,866
19.21
%
$
993,405
8.0
%
N/A
N/A
%
$
2,346,093
18.90
%
$
993,264
8.0
%
$
1,241,580
10.0
%
CET1 Capital (to Risk-Weighted Assets)
$
2,052,333
16.53
%
$
558,790
4.5
%
N/A
N/A
%
$
2,090,832
16.84
%
$
558,711
4.5
%
$
807,027
6.5
%
Tier I Capital (to Risk-Weighted Assets)
$
2,052,333
16.53
%
$
745,054
6.0
%
N/A
N/A
%
$
2,190,832
17.65
%
$
744,948
6.0
%
$
993,264
8.0
%
Leverage ratio
$
2,052,333
10.70
%
$
767,075
4.0
%
N/A
N/A
%
$
2,190,832
11.43
%
$
766,714
4.0
%
$
958,392
5.0
%
As of December 31, 2021
Total Capital (to Risk-Weighted Assets)
$
2,433,953
20.50
%
$
949,637
8.0
%
N/A
N/A
%
$
2,401,390
20.23
%
$
949,556
8.0
%
$
1,186,944
10.0
%
CET1 Capital (to Risk-Weighted Assets)
$
2,112,630
17.80
%
$
534,171
4.5
%
N/A
N/A
%
$
2,150,317
18.12
%
$
534,125
4.5
%
$
771,514
6.5
%
Tier I Capital (to Risk-Weighted Assets)
$
2,112,630
17.80
%
$
712,228
6.0
%
N/A
N/A
%
$
2,258,317
19.03
%
$
712,167
6.0
%
$
949,556
8.0
%
Leverage ratio
$
2,112,630
10.14
%
$
833,091
4.0
%
N/A
N/A
%
$
2,258,317
10.85
%
$
832,773
4.0
%
$
1,040,967
5.0
%
Cash Restrictions
The Corporation’s bank subsidiary, FirstBank, is required by the Puerto Rico Banking Law to maintain minimum average weekly
reserve balances to cover demand deposits. The amount of those minimum average weekly reserve balances for the period that ended
December 31, 2022 was $
1.1
1.2
requirement. Cash and due from banks as well as other highly liquid securities are used to cover the required average reserve
balances.
As of December 31, 2022, and as required by the Puerto Rico International Banking Law, the Corporation maintained $
0.3
in time deposits, related to FirstBank Overseas Corporation, an international banking entity that is a subsidiary of FirstBank.
Commitments
The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument on
commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. Management
uses the same credit policies and approval process in entering into commitments and conditional obligations as it does for on-balance
sheet instruments.
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.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
108
In general, commercial and standby letters of credit are issued to facilitate foreign and domestic trade transactions. Normally,
commercial and standby letters of credit are short-term commitments used to finance commercial contracts for the shipment of goods.
The collateral for these letters of credit includes cash or available commercial lines of credit. The fair value of commercial and
standby letters of credit is based on the fees currently charged for such agreements, which, as of December 31, 2022 and 2021, were
not significant.
The following table summarizes commitments to extend credit and standby letters of credit as of the indicated dates:
December 31,
2022
2021
(In thousands)
Financial instruments whose contract amounts represent credit risk:
$
170,639
$
197,917
978,219
1,180,824
761,634
725,259
68,647
151,140
9,160
4,342
Contingencies
As of December 31, 2022, First BanCorp. and its subsidiaries were defendants in various legal proceedings, claims and other loss
contingencies arising in the ordinary course of business. On at least a quarterly basis, the Corporation assesses its liabilities and
contingencies in connection with threatened and outstanding legal proceedings, claims and other loss contingencies utilizing the latest
information available. For legal proceedings, claims and other loss contingencies where it is both probable that the Corporation will
incur a loss and the amount can be reasonably estimated, the Corporation establishes an accrual for the loss. Once established, the
accrual is adjusted as appropriate to reflect any relevant developments. For legal proceedings, claims and other loss contingencies
where a loss is not probable or the amount of the loss cannot be estimated, no accrual is established.
Any estimate involves significant judgment, given the varying stages of the proceedings (including the fact that some of them are
currently in preliminary stages), the existence in some of the current proceedings of multiple defendants whose share of liability has
yet to be determined, the numerous unresolved issues in the proceedings, and the inherent uncertainty of the various potential
outcomes of such proceedings. Accordingly, the Corporation’s estimate will change from time-to-time, and actual losses may be more
or less than the current estimate.
While the final outcome of legal proceedings, claims, and other loss contingencies is inherently uncertain, based on information
currently available, management believes that the final disposition of the Corporation’s legal proceedings, claims and other loss
contingencies, to the extent not previously provided for, will not have a material adverse effect on the Corporation’s consolidated
financial position as a whole.
If management believes that, based on available information, it is at least reasonably possible that a material loss (or material loss in
excess of any accrual) will be incurred in connection with any legal contingencies, the Corporation discloses an estimate of the
possible loss or range of loss, either individually or in the aggregate, as appropriate, if such an estimate can be made, or discloses that
an estimate cannot be made. Based on the Corporation’s assessment as of December 31, 2022, no such disclosures were necessary.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
109
NOTE 30- 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 December 31, 2022 and 2021, and the results of its operations and cash flows for the years ended December 31, 2022, 2021, and
2020:
Statements of Financial Condition
As of December 31,
2022
2021
(In thousands)
Assets
Cash and due from banks
$
19,279
$
20,751
Other investment securities
735
285
Investment in First Bank Puerto Rico, at equity
1,464,026
2,247,289
Investment in First Bank Insurance Agency, at equity
28,770
19,521
Investment in FBP Statutory Trust I
1,951
1,951
Investment in FBP Statutory Trust II
3,561
3,561
Dividends receivable
624
295
Other assets
430
71
$
1,519,376
$
2,293,724
Liabilities and Stockholders' Equity
Liabilities:
Other borrowings
$
183,762
$
183,762
Accounts payable and other liabilities
10,074
8,195
193,836
191,957
Stockholders' equity
1,325,540
2,101,767
$
1,519,376
$
2,293,724
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
110
Statements of Income
Year Ended December 31,
2022
2021
2020
(In thousands)
Income
$
79
$
51
$
71
368,670
98,060
52,707
-
30,000
-
248
154
439
368,997
128,265
53,217
Expense
8,253
5,135
6,355
1,730
1,929
2,097
9,983
7,064
8,452
Gain on early extinguishment of debt
-
-
94
Income before income taxes and equity
359,014
121,201
44,859
Income tax expense
3,448
2,854
2,429
Equity in undistributed earnings of subsidiaries (distribution in excess of
(50,494)
162,678
59,843
Net income
$
305,072
$
281,025
$
102,273
Other comprehensive (loss) income, net of tax
(720,779)
(139,454)
48,691
Comprehensive (loss) income
$
(415,707)
$
141,571
$
150,964
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
111
Statements of Cash Flows
Year Ended December 31,
2022
2021
2020
(In thousands)
Cash flows from operating activities:
Net income
$
305,072
$
281,025
$
102,273
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation
148
149
231
Equity in undistributed earnings of subsidiaries
50,494
(162,678)
(59,843)
Gain on early extinguishment of debt
-
-
(94)
Net decrease (increase) in other assets
(688)
1,657
(1,514)
Net increase (decrease) in other liabilities
1,545
3,578
(459)
Net cash provided by operating activities
356,571
123,731
40,594
Cash flows from investing activities:
Purchase of equity securities
(450)
-
-
Return of capital from wholly-owned subsidiaries
(1)
8,000
200,000
-
Net cash provided by investing activities
7,550
200,000
-
Cash flows from financing activities:
Repurchase of common stock
(277,769)
(216,522)
(206)
Repayment of junior subordinated debentures
-
-
(282)
Dividends paid on common stock
(87,824)
(65,021)
(43,416)
Dividends paid on preferred stock
-
(2,453)
(2,676)
Redemption of preferred stock - Series A through E
-
(36,104)
-
(365,593)
(320,100)
(46,580)
Net (decrease) increase in cash and cash equivalents
(1,472)
3,631
(5,986)
Cash and cash equivalents at beginning of the year
20,751
17,120
23,106
Cash and cash equivalents at end of year
$
19,279
$
20,751
$
17,120
Cash and cash equivalents include:
Cash and due from banks
$
19,279
$
20,751
$
10,909
Money market instruments
-
-
6,211
$
19,279
$
20,751
$
17,120
(1)
During 2022, FirstBank of Puerto Rico, a wholly-owned subsidiary of First BanCorp., redeemed
0.3
approximately $
8.0
8
preferred stock for a total price of approximately $
200
PART IV
Item 15. Exhibits and Financial Statement Schedules
(1)
Financial Statements.
The following consolidated financial statements of First BanCorp., together with the reports thereon of First BanCorp.’s
independent registered public accounting firm, Crowe LLP (PCAOB ID No. 173), dated February 28, 2023, are included in Item 8 of
this Annual Report on Form 10-K/A:
– Report of Crowe LLP, Independent Registered Public Accounting Firm.
– Attestation Report of Crowe LLP, Independent Registered Public Accounting Firm on Internal Control over Financial
Reporting.
–Consolidated Statements of Financial Condition as of December 31, 2022 and 2021.
–Consolidated Statements of Income for Each of the Three Years in the Period Ended December 31, 2022.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
112
– Consolidated Statements of Comprehensive (Loss) Income for Each of the Three Years in the Period Ended December 31,
2022.
– Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2022.
– Consolidated Statements of Changes in Stockholders’ Equity for Each of the Three Years in the Period Ended December 31,
2022.
– Notes to the Consolidated Financial Statements.
(2) Financial statement schedules.
All financial schedules have been omitted because they are not applicable or the required information is shown in the financial
statements or notes thereto.
supplement the Exhibits listed and/or filed with the Original Report.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
113
EXHIBIT INDEX
Exhibit No.
Description
3.1
3.2
4.1
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
Exhibit 10.1 of the Form 10-Q for the quarter ended September 30, 2022, filed on November 8, 2022.
18.1
21.1
23.1
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. Annual Report on Form 10-K for the year ended December 31, 2022, formatted in Inline XBRL (included
within the Exhibit 101 attachments)
_____________________________
*Management contract or compensatory plan or agreement.
**Filed herewith.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
114
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.
/s/ Orlando Berges
Date: 10/13/2023
Orlando Berges, CPA
Executive Vice President and Chief Financial Officer