UNITED STATES |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DCD.C. 20549
____________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 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.BanCorp.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Puerto Rico | 66-0561882 | |
(State or other jurisdiction of incorporation or organization) | (
| |
1519 Ponce de León Avenue, Stop 23 Santurce, Puerto Rico (Address of principal executive offices) | 00908 (Zip Code) | |
(787) 729-8200 | ||
(Registrant’s telephone number, including area code) | ||
Not applicable (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act: | ||||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock ($0.10 par value) | FBP | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer☑ | Accelerated filer☐ | |
Non-accelerated filer ☐ | Smaller reporting company ☐ | |
Emerging growth company ☐ |
Large accelerated filer ☐ Accelerated filer ☑
Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☑
Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common stock: 216,208,829197,514,409 shares outstanding as of October 31, 2017.May 5, 2022.
FIRST BANCORP.
INDEX PAGE
PART | PAGE |
Item 1. Financial Statements: | |
Consolidated Statements of Financial Condition (Unaudited) as of |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. Controls and Procedures |
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PART II. OTHER INFORMATION | |
Item 1. Legal Proceedings |
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Item 1A. Risk Factors |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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Item |
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2
Forward Looking Statements
This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the safe harbor created by such sections. When used in this Form 10-Q or future filings by First BanCorp. (the “Corporation”“Corporation,” “we,” “us,” or “our”) with the U.S. Securities and Exchange Commission (“SEC”(the “SEC”), in the Corporation’s press releases or in other public or stockholder communications made by the Corporation, or in oral statements made on behalf of the Corporation by, or with the approval of, an authorized executive officer, the words or phrases “would,” “intends,” “will, likely result,” “expect,” “should,” “plans,” “forecast,” “anticipate,” “look forward,” “believes,” and other terms of similar meaning or import in connection with any discussion of future operating, financial or other performance are meant to identify “forward-looking statements.”
First BanCorp. wishes to cautionThe Corporation cautions readers not to place undue reliance on any such “forward-looking statements,” which speak only as of the date made, and to adviseadvises readers that these forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, estimates, and assumptions by us that are difficult to predict. Various factors, some of which are beyond our control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements.
The two hurricanesFactors that affectedcould cause results to differ from those expressed in the Corporation’s service area during the third quarter of 2017 are discussed below in Note 2 to the financial statements, in the “Executive Summary” section and various other sections of “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and in Part II, Item 1A, “Risk Factors.” There is pervasive uncertainty surrounding the future economic conditions that will emerge in the storm-affected areas. As a consequence, estimates of the financial impact of these disasters on the Corporation are subject to greater uncertainty than is inherent in other forward-looking statements. The more significant estimates are included in the discussion of the provision for loan and lease losses and the discussion of casualty and disaster response costs and related insurance coverages.
These forward-looking statements include, but are not limited to, the risks described or referenced below in Part II,I, Item 1A,1A., “Risk Factors,” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report on Form 10-K”) and the following:
·the impact of rising interest rates and inflation on the Corporation, including a decrease in demand for new mortgage loan originations and refinancings, increased competition for borrowers, and increase in non-interest expenses which would have an impact on the Corporation’s margins and may have an adverse impact on origination volumes and financial performance;
uncertainties relating to the impact of the COVID-19 pandemic, including new variants and mutations of the virus, such as the Omicron variant, and the efficacy and acceptance of various vaccines and treatments for the disease, on the Corporation’s business, operations, employees, credit quality, financial condition and net income, including because of uncertainties as to the extent and duration of the pandemic and the impact of the pandemic on consumer spending, borrowing and saving habits, the underemployment and unemployment rates, which can adversely affect repayment patterns, the Puerto Rico economy and the global economy, as well as the risk that the COVID-19 pandemic may exacerbate any other factor that could cause our actual paceresults to differ materially from those expressed in or implied by any forward-looking statements;
risks related to the effect on the Corporation and magnitudeits customers of economic recoverygovernmental, regulatory, or central bank responses to the COVID-19 pandemic and the Corporation’s participation in any such responses or programs, such as the regions impactedSmall Business Administration Paycheck Protection Program (“SBA PPP”) established by the two hurricanes that affectedCoronavirus Aid, Relief and Economic Security Act of 2020, as amended (the “CARES Act of 2020”), including any judgments, claims, damages, penalties, fines or reputational damage resulting from claims or challenges against the Corporation by governments, regulators, customers or otherwise, relating to the Corporation’s service areas duringparticipation in any such responses or programs;
risks, uncertainties and other factors related to the third quarterCorporation’s acquisition of 2017 compared to Management’s current views on the economic recovery;
·uncertainties about how and when rebuilding will take place in the regions affected by the recent storms,Banco Santander Puerto Rico (“BSPR”), including the rebuildingrisk that the Corporation may not realize, either fully or on a timely basis, the cost savings and any other synergies from the acquisition that the Corporation expected, because of the public infrastructure, suchdeposit attrition, customer loss and/or revenue loss as Puerto Rico’s powergrid, what levela result of government, privateunexpected factors or events, including those that are outside of philanthropic funds will be invested in the affected communities, how many displaced individuals will return to their homes in both the short-our control, and long-term, and what other demographic changes will take place, if any;any futures business acquisitions or dispositions;
·uncertainty as to the ultimate outcomesoutcome of actions taken,the recently approved debt restructuring plan of Puerto Rico (“Plan of Adjustment” or those that may be taken,“PoA”) and 2022 Fiscal Plan for Puerto Rico as certified by the Financial Oversight and Management Board for Puerto Rico government, or the oversight board established by the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”2022 Fiscal Plan”) to address Puerto Rico’s financial problems, including the filing of a form of bankruptcy under Title III of PROMESA that provides a court debt restructuring process similar to U.S. bankruptcy protection and the effect of measures included in the Puerto Rico government fiscal plan,, or any revisions to it, on our clients and loan portfolios;portfolios, and any potential impact from future economic or political developments in Puerto Rico;
·the abilityimpact that a resumption of the Puerto Rico governmentslowing economy and increased unemployment or any of its public corporations or other instrumentalities to repay its respective debt obligations, including the effect of payment defaultsunderemployment may have on the Puerto Rico government general obligations, bondsperformance of our loan and lease portfolio, the Government Development Bank for Puerto Rico (the “GDB”)market price of our investment securities, the availability of sources of funding and certain bonds of government public corporations, and recent and any future downgrades of the long-term and short-term debt ratings of the Puerto Rico government, which could exacerbate Puerto Rico’s adverse economic conditions and, in turn, further adversely impact the Corporation;
3
·uncertainty about whether the Federal Reserve Bank of New York (the “New York FED” or “Federal Reserve”) will provide approvals for receiving dividends from FirstBank Puerto Rico (“FirstBank” or the “Bank”) or for making payments of dividends on non-cumulative perpetual preferred stock, or payments on trust preferred securities or subordinated debt, incurring, increasing or guaranteeing debt or repurchasing any capital securities, despite the consents that have enabled the Corporation to pay quarterly interest payments on the Corporation’s subordinated debentures associated with its trust preferred securities since the second quarter of 2016, and to pay monthly dividends on the non-cumulative perpetual preferred stock since December 2016;
·a decrease in demand for the Corporation’s products and services and lower revenues and earnings because of the continued recession in Puerto Rico;our products;
·uncertainty as to the availability of certainwholesale funding sources, such as securities sold under agreements to repurchase, Federal Home Loan Bank (“FHLB”) advances and brokered certificates of deposit (“brokered CDs”);
·the Corporation’s reliance on brokered CDs to fund operations and provide liquidity;
·the riskeffect of not being able to fulfill the Corporation’s cash obligations or resume paying dividends to the Corporation’s common stockholdersa resumption of deteriorating economic conditions in the future due to the Corporation’s need to receive regulatory approvals to declare or pay any dividends and to take dividends or any other form of payment representing a reduction in capital from FirstBank or FirstBank’s failure to generate sufficient cash flow to make a dividend payment to the Corporation;
·the weakness of the real estate markets and of the consumer and commercial sectors and their impact on the credit quality of the Corporation’s loans and other assets, which have contributed and may continue to contribute to, among other things, highhigher than targeted levels of non-performing assets, charge-offs and provisions for loan and leasecredit losses, and may subject the Corporation to further risk from loan defaults and foreclosures;
3
the impact of changes in accounting standards or assumptions in applying those standards, including the continuing impact of the COVID-19 pandemic on forecasts of economic variables considered for the determination of the allowance for credit losses (“ACL”) required by the current expected credit losses (“CECL”) accounting standard;
·
the ability of the Corporation’s banking subsidiary, FirstBank Puerto Rico (“FirstBank” or the “Bank”) to realize the benefits of its net deferred tax assets subjectassets;
the ability of FirstBank to generate sufficient cash flow to make dividend payments to the remaining valuation allowance;Corporation;
·adverse changes in general economic conditions in Puerto Rico, the United States (“U.S.”), and the U.S. Virgin Islands (“USVI”)(the “USVI”, and British Virgin Islands (“BVI”(the “BVI”), including the interest rate environment, market liquidity, housing absorption rates, real estate prices, and disruptions in the U.S. capital markets, including as a result of the COVID-19 pandemic, which reducedmay reduce interest margins, and affectedaffect funding sources and have affected demand for all of the Corporation’s products and services, and reducedreduce the Corporation’s revenues and earnings and the value of the Corporation’s assets,assets;
uncertainty about the effect of the cessation of the London Interbank Offered Rate (“LIBOR”), which could adversely affect the Corporation’s results of operations, cash flows, and may continue to have these effects;liquidity;
·an adverse change in the Corporation’s ability to attract new clients and retain existing ones;
·the risk that additional portions of the unrealized losses in the Corporation’s investment portfolio are determined to be other-than-temporary, includingcredit-related, resulting in additional impairmentscharges to the provision for credit losses on the Corporation’s remaining $8.0 million of the Puerto Rico government’s debt securities;
·available-for-sale securities portfolio uncertainty about legislative, tax or regulatory and legislative changes forthat affect financial services companies in Puerto Rico, the U.S., and the USVI and the BVI, which could affect the Corporation’s financial condition or performance and could cause the Corporation’s actual results for future periods to differ materially from prior results and anticipated or projected results;
4
·changes in the fiscal and monetary policies and regulations of the U.S. federal government and the Puerto Rico and other governments, including those determined by the Board of the Governors of the Federal Reserve Board,System (the “Federal Reserve Board”), the Federal Reserve Bank of New York FED,(the “New York FED” or “Federal Reserve”) , the Federal Deposit Insurance Corporation (“FDIC”(the “FDIC”), government-sponsored housing agencies, and regulators in Puerto Rico and the USVI and the BVI;
·the risk of possible failure or circumvention of the Corporation’s internal controls and procedures and the risk that the Corporation’s risk management policies may not be adequate;
·the Corporation’s ability to identify and prevent cyber-security incidents, such as data security breaches, ransomware, malware, “denial of service” attacks, “hacking” identity theft and state-sponsored cyberthreats, and the occurrence of any of which may result in misuse or misappropriation of confidential or proprietary information and could result in the disruption or damage to our systems, increased costs and losses or an adverse effect to our reputation;
the risk that the FDIC may increase the deposit insurance premium and/or require special assessments to replenish its insurance fund, causing an additional increase in the Corporation’s non-interest expenses;
·the impact on the Corporation’s results of operations and financial condition of acquisitions and dispositions;
·a need to recognize impairments on the Corporation’s financial instruments, goodwill orand other intangible assets relating to acquisitions;business acquisitions, including as a result of the COVID-19 pandemic;
·the risk that downgrades in the credit ratingsimpact of the Corporation’s long-term senior debt will adversely affect the Corporation’s ability to access necessary external funds;
·the impactoccurrence of any of these uncertainties on the Corporation’s businesses, business practicescapital would preclude further growth of the Bank and resultspreclude the Corporation’s Board of operations of a potential higher interest rate environment;Directors from declaring dividends;
·uncertainty as to whether FirstBank will be able to continue to satisfy its regulators regarding, among other things, its asset quality, liquidity plans, maintenance of capital levels and compliance with applicable laws, regulations, and related requirements; and
·general competitive factors and industry consolidation.
The Corporation does not undertake, and specifically disclaims any obligation, to update any “forward-looking statements” to reflect occurrences or unanticipated events or circumstances after the date of such statements, except as required by the federal securities laws.
Investors should refer to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2016, as well as “Part II, Item 1A, Risk Factors,” in this quarterly report on Form 10-Q, for a discussion of such factors and certain risks and uncertainties to which the Corporation is subject.
54
FIRST BANCORP. |
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
| September 30, 2017 |
| December 31, 2016 | March 31, 2022 |
| December 31, 2021 | ||||
(In thousands, except for share information) |
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| (In thousands, except for share information) | ||||
ASSETS |
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Cash and due from banks | $ | 726,779 |
| $ | 289,591 | $ | 1,694,066 |
| $ | 2,540,376 |
Money market investments: |
|
|
|
|
|
|
|
|
|
|
Time deposits with other financial institutions |
| 3,126 |
|
| 2,800 |
| 300 |
|
| 300 |
Other short-term investments |
| 7,289 |
|
| 7,294 |
| 1,883 |
|
| 2,382 |
Total money market investments |
| 10,415 |
|
| 10,094 |
| 2,183 |
|
| 2,682 |
|
|
|
|
|
| |||||
Investment securities available for sale, at fair value: |
|
|
|
|
|
|
|
|
|
|
Securities pledged that can be repledged |
| 348,724 |
|
| 339,390 | |||||
Other investment securities |
| 1,401,748 |
|
| 1,542,530 | |||||
Total investment securities available for sale |
| 1,750,472 |
|
| 1,881,920 | |||||
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|
|
|
| |||||
Investment securities held to maturity, at amortized cost: |
|
|
|
|
| |||||
Securities pledged that can be repledged |
| - |
|
| - | |||||
Other investment securities |
| 150,627 |
|
| 156,190 | |||||
Total investment securities held to maturity, fair value of $130,125 (2016- $132,759) |
| 150,627 |
|
| 156,190 | |||||
|
|
|
|
|
| |||||
Other equity securities |
| 52,119 |
|
| 42,992 | |||||
Loans, net of allowance for loan and lease losses of $230,870 |
|
|
|
|
| |||||
(2016 - $205,603) |
| 8,646,344 |
|
| 8,681,270 | |||||
Securities pledged with creditors' right to repledge |
| 200,983 |
|
| 321,180 | |||||
Other investment securities available for sale |
| 6,223,677 |
|
| 6,132,581 | |||||
Total investment securities available for sale, at fair value (amortized cost 2022 - $6,836,842 |
|
|
|
|
| |||||
2021 - $6,534,503; ACL of $711 as of March 31, 2022 and $1,105 as of December 31, 2021) |
| 6,424,660 |
|
| 6,453,761 | |||||
Investment securities held to maturity, at amortized cost, net of ACL of $12,324 as of March 31, 2022 |
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|
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|
| |||||
and $8,571 December 31, 2021 (fair value 2022 - $168,814; 2021 - $167,147) |
| 165,735 |
|
| 169,562 | |||||
Equity securities |
| 32,014 |
|
| 32,169 | |||||
Loans, net of ACL of $245,447 (2021 - $269,030) |
| 10,852,258 |
|
| 10,791,628 | |||||
Loans held for sale, at lower of cost or market |
| 27,576 |
|
| 50,006 |
| 27,905 |
|
| 35,155 |
Total loans, net |
| 8,673,920 |
|
| 8,731,276 |
| 10,880,163 |
|
| 10,826,783 |
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|
|
|
|
| |||||
Premises and equipment, net |
| 144,247 |
|
| 150,828 |
| 145,850 |
|
| 146,417 |
Other real estate owned |
| 152,977 |
|
| 137,681 | |||||
Other real estate owned (“OREO”) |
| 42,894 |
|
| 40,848 | |||||
Accrued interest receivable on loans and investments |
| 49,231 |
|
| 45,453 |
| 57,425 |
|
| 61,507 |
Deferred tax asset, net |
| 176,775 |
|
| 208,482 | |||||
Goodwill |
| 38,611 |
|
| 38,611 | |||||
Intangible assets |
| 27,648 |
|
| 29,934 | |||||
Other assets |
| 462,861 |
|
| 476,430 |
| 241,013 |
|
| 234,143 |
Total assets | $ | 12,173,648 |
| $ | 11,922,455 | $ | 19,929,037 |
| $ | 20,785,275 |
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LIABILITIES |
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Non-interest-bearing deposits | $ | 1,586,198 |
| $ | 1,484,155 | $ | 6,344,385 |
| $ | 7,027,513 |
Interest-bearing deposits |
| 7,179,693 |
|
| 7,347,050 |
| 10,991,018 |
|
| 10,757,381 |
Total deposits |
| 8,765,891 |
|
| 8,831,205 |
| 17,335,403 |
|
| 17,784,894 |
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|
| |||||
Securities sold under agreements to repurchase |
| 300,000 |
|
| 300,000 |
| 200,000 |
|
| 300,000 |
Advances from the Federal Home Loan Bank (FHLB) |
| 915,000 |
|
| 670,000 | |||||
FHLB advances |
| 200,000 |
|
| 200,000 | |||||
Other borrowings |
| 208,639 |
|
| 216,187 |
| 183,762 |
|
| 183,762 |
Accounts payable and other liabilities |
| 130,367 |
|
| 118,820 |
| 228,770 |
|
| 214,852 |
Total liabilities |
| 10,319,897 |
|
| 10,136,212 |
| 18,147,935 |
|
| 18,683,508 |
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STOCKHOLDERS' EQUITY |
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Preferred stock, authorized, 50,000,000 shares: |
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Non-cumulative Perpetual Monthly Income Preferred Stock: issued 22,004,000 |
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|
| |||||
shares, outstanding 1,444,146 shares, aggregate liquidation value of $36,104 |
| 36,104 |
|
| 36,104 | |||||
Common stock, $0.10 par value, authorized, 2,000,000,000 shares; |
|
|
|
|
| |||||
issued, 220,220,026 shares (2016 - 218,700,394 shares issued) |
| 22,022 |
|
| 21,870 | |||||
STOCKHOLDERSʼ EQUITY |
|
|
|
|
| |||||
Common stock, $0.10 par value, authorized, 2,000,000,000 shares; 223,663,116 shares issued |
| 22,366 |
|
| 22,366 | |||||
Less: Treasury stock (at par value) |
| (404) |
|
| (125) |
| (2,496) |
|
| (2,183) |
Common stock outstanding, 216,175,003, shares outstanding (2016 - 217,446,205 |
|
|
|
|
| |||||
shares outstanding) |
| 21,618 |
|
| 21,745 | |||||
Common stock outstanding, 198,700,871 shares outstanding (2021 - 201,826,505 shares outstanding) |
| 19,870 |
|
| 20,183 | |||||
Additional paid-in capital |
| 935,231 |
|
| 931,856 |
| 687,070 |
|
| 738,288 |
Retained earnings, includes legal surplus reserve of $52,436 |
| 871,708 |
|
| 830,928 | |||||
Accumulated other comprehensive loss, net of tax of $7,752 |
| (10,910) |
|
| (34,390) | |||||
Retained earnings, includes legal surplus reserve of $137,591 |
| 1,489,995 |
|
| 1,427,295 | |||||
Accumulated other comprehensive loss, net of tax of $9,786 |
| (415,833) |
|
| (83,999) | |||||
Total stockholders' equity |
| 1,853,751 |
|
| 1,786,243 |
| 1,781,102 |
|
| 2,101,767 |
Total liabilities and stockholders' equity | $ | 12,173,648 |
| $ | 11,922,455 | $ | 19,929,037 |
| $ | 20,785,275 |
|
|
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|
|
| |||||
The accompanying notes are an integral part of these statements. | The accompanying notes are an integral part of these statements. | The accompanying notes are an integral part of these statements. |
65
FIRST BANCORP. |
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(Unaudited)
| Quarter Ended |
| Nine-Month Period Ended | ||||||||||||||
| September 30, |
| September 30, |
| Quarter Ended | ||||||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| March 31, 2022 |
| March 31, 2021 | ||||||
(In thousands, except per share information) | (In thousands, except per share information) |
|
|
|
| ||||||||||||
Interest and dividend income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans | $ | 134,593 |
| $ | 131,017 |
| $ | 398,732 |
| $ | 398,267 |
| $ | 173,787 |
| $ | 179,973 |
Investment securities |
| 12,109 |
| 11,894 |
|
| 39,361 |
| 40,065 |
|
| 23,247 |
| 14,320 | |||
Money market investments |
| 1,293 |
|
| 662 |
|
| 2,504 |
|
| 3,006 | ||||||
Total interest income |
| 147,995 |
|
| 143,573 |
|
| 440,597 |
|
| 441,338 | ||||||
Money market investments and interest-bearing cash accounts |
|
| 820 |
|
| 349 | |||||||||||
Total interest and dividend income |
| 197,854 |
| 194,642 | |||||||||||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| 16,898 |
| 16,742 |
|
| 49,218 |
| 51,223 |
|
| 7,652 |
| 12,342 | |||
Securities sold under agreements to repurchase |
| 2,917 |
| 5,363 |
|
| 8,305 |
| 16,868 |
|
| 2,182 |
| 2,278 | |||
Advances from FHLB |
| 3,209 |
| 1,474 |
|
| 7,623 |
| 4,416 |
|
| 1,063 |
| 2,463 | |||
Other borrowings |
| 2,139 |
|
| 1,816 |
|
| 6,166 |
|
| 5,777 |
|
| 1,333 |
|
| 1,294 |
Total interest expense | 25,163 |
| 25,395 |
| 71,312 |
| 78,284 |
| 12,230 |
| 18,377 | ||||||
Net interest income |
| 122,832 |
|
| 118,178 |
|
| 369,285 |
|
| 363,054 |
|
| 185,624 |
|
| 176,265 |
Provision for loan and lease losses |
| 75,013 |
|
| 21,503 |
|
| 118,551 |
|
| 63,542 | ||||||
Net interest income after provision for loan and lease losses | 47,819 |
| 96,675 |
| 250,734 |
| 299,512 | ||||||||||
Provision for credit losses - (benefit) expense: |
|
|
|
|
| ||||||||||||
Loans and finance leases |
|
| (16,989) |
| (14,443) | ||||||||||||
Unfunded loan commitments |
|
| (178) |
| (706) | ||||||||||||
Debt securities |
|
| 3,365 |
|
| (103) | |||||||||||
Provision for credit losses - (benefit) |
|
| (13,802) |
|
| (15,252) | |||||||||||
Net interest income after provision for credit losses |
| 199,426 |
| 191,517 | |||||||||||||
Non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees on deposit accounts |
| 5,797 |
| 5,788 |
|
| 17,390 |
| 17,206 |
|
| 9,363 |
| 8,304 | |||
Mortgage banking activities |
| 3,117 |
| 5,485 |
|
| 11,579 |
| 15,131 |
|
| 5,206 |
| 7,273 | |||
Net gain on sale of investments |
| - |
| 6,096 |
|
| 371 |
| 6,104 | ||||||||
Other-than-temporary impairment (OTTI) losses on available-for-sale debt securities: |
|
|
|
|
|
|
|
|
| ||||||||
Total other-than-temporary impairment losses |
| - |
| - |
|
| (12,231) |
| (1,845) | ||||||||
Portion of other-than-temporary impairment |
|
|
|
|
|
|
|
|
| ||||||||
recognized in other comprehensive income (OCI) |
| - |
| - |
|
| - |
| (4,842) | ||||||||
Net impairment losses on available-for-sale debt securities |
| - |
|
| - |
|
| (12,231) |
|
| (6,687) | ||||||
Gain on early extinguishment of debt |
| 1,391 |
| - |
|
| 1,391 |
| 4,217 | ||||||||
Insurance commission income |
| 1,377 |
| 1,363 |
|
| 6,819 |
| 6,174 |
|
| 5,275 |
| 5,241 | |||
Other non-interest income |
| 6,963 |
|
| 7,414 |
|
| 22,118 |
|
| 22,248 |
|
| 13,014 |
|
| 10,138 |
Total non-interest income | 18,645 |
| 26,146 |
| 47,437 |
| 64,393 |
| 32,858 |
| 30,956 | ||||||
Non-interest expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees' compensation and benefits |
| 37,128 |
| 38,005 |
|
| 114,190 |
| 113,841 |
|
| 49,554 |
| 50,842 | |||
Occupancy and equipment |
| 13,745 |
| 13,888 |
|
| 41,592 |
| 41,114 |
|
| 22,386 |
| 24,242 | |||
Business promotion |
| 3,244 |
| 3,169 |
|
| 9,717 |
| 11,220 |
|
| 3,463 |
| 2,970 | |||
Professional fees |
| 12,023 |
| 10,672 |
|
| 34,779 |
| 32,775 |
|
| 10,594 |
| 17,701 | |||
Taxes, other than income taxes |
| 3,763 |
| 3,927 |
|
| 11,184 |
| 11,475 |
|
| 5,018 |
| 6,199 | |||
Insurance and supervisory fees |
| 4,353 |
| 5,604 |
|
| 14,117 |
| 20,013 | ||||||||
Net loss on other real estate owned (OREO) and OREO operations |
| 1,351 |
| 2,603 |
|
| 8,796 |
| 9,134 | ||||||||
FDIC deposit insurance |
|
| 1,673 |
| 1,988 | ||||||||||||
Net (gain) loss on OREO and OREO expenses |
|
| (720) |
| 1,898 | ||||||||||||
Credit and debit card processing expenses |
| 3,737 |
| 3,546 |
|
| 10,134 |
| 10,102 |
|
| 4,121 |
| 4,278 | |||
Communications |
| 1,603 |
| 1,711 |
|
| 4,774 |
| 5,244 |
|
| 2,151 |
| 2,462 | |||
Merger and restructuring costs |
|
| 0 |
| 11,267 | ||||||||||||
Other non-interest expenses |
| 4,667 |
|
| 5,178 |
|
| 13,282 |
|
| 15,926 |
|
| 8,419 |
|
| 9,454 |
Total non-interest expenses | 85,614 |
| 88,303 |
| 262,565 |
| 270,844 |
| 106,659 |
| 133,301 | ||||||
(Loss) income before income taxes |
| (19,150) |
|
| 34,518 |
|
| 35,606 |
|
| 93,061 | ||||||
Income tax benefit (expense) |
| 8,398 |
|
| (10,444) |
|
| 7,181 |
|
| (23,690) | ||||||
Net (loss) income | $ | (10,752) |
| $ | 24,074 |
| $ | 42,787 |
| $ | 69,371 | ||||||
Net (loss) income attributable to common stockholders | $ | (11,421) |
| $ | 24,074 |
| $ | 40,780 |
| $ | 69,371 | ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net (loss) income per common share: |
|
|
|
|
|
|
|
|
| ||||||||
Income before income taxes |
|
| 125,625 |
|
| 89,172 | |||||||||||
Income tax expense |
|
| 43,025 |
|
| 28,022 | |||||||||||
Net income |
| $ | 82,600 |
| $ | 61,150 | |||||||||||
Net income attributable to common stockholders |
| $ | 82,600 |
| $ | 60,481 | |||||||||||
Net income per common share: |
|
|
|
|
|
| |||||||||||
Basic | $ | (0.05) |
| $ | 0.11 |
| $ | 0.19 |
| $ | 0.33 |
| $ | 0.42 |
| $ | 0.28 |
Diluted | $ | (0.05) |
| $ | 0.11 |
| $ | 0.19 |
| $ | 0.32 |
| $ | 0.41 |
| $ | 0.28 |
Dividends declared per common share | $ | - |
| $ | - |
| $ | - |
| $ | - | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements. | The accompanying notes are an integral part of these statements. | The accompanying notes are an integral part of these statements. | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
76
FIRST BANCORP. |
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOMELOSS
(Unaudited)
| Quarter Ended |
| Nine-Month Period Ended | ||||||||
| September 30, |
| September 30, | ||||||||
|
| 2017 |
|
| 2016 |
| 2017 |
|
| 2016 | |
(In thousands) |
|
| |||||||||
Net (loss) income | $ | (10,752) |
| $ | 24,074 |
| $ | 42,787 |
| $ | 69,371 |
Available-for-sale debt securities on which an other-than-temporary |
|
|
|
|
|
|
|
|
|
|
|
impairment has been recognized: |
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on debt securities on which an |
|
|
|
|
|
|
|
|
|
|
|
other-than-temporary impairment has been recognized |
| 647 |
|
| (2,228) |
|
| (1,156) |
|
| (773) |
Reduction of non-credit OTTI component on securities sold |
| - |
|
| - |
|
| 5,678 |
|
| - |
Reclassification adjustments for net gain included in net income |
| - |
|
| - |
|
| (371) |
|
| - |
Reclassification adjustment for other-than-temporary impairment |
|
|
|
|
|
|
|
|
|
|
|
on debt securities included in net income |
| - |
|
| - |
|
| 12,231 |
|
| 6,687 |
All other unrealized gains and losses on available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustments for net gain included in net income |
| - |
|
| (6,096) |
|
| - |
|
| (6,104) |
All other unrealized holding gains (losses) on available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
securities arising during the period |
| 3,072 |
|
| (3,833) |
|
| 7,098 |
|
| 32,299 |
Other comprehensive income (loss) for the period |
| 3,719 |
|
| (12,157) |
|
| 23,480 |
|
| 32,109 |
Total comprehensive (loss) income | $ | (7,033) |
| $ | 11,917 |
| $ | 66,267 |
| $ | 101,480 |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements. | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended | ||||
|
| March 31, |
|
| March 31, |
| 2022 |
|
| 2021 | |
(In thousands) |
| ||||
|
|
|
|
|
|
Net income | $ | 82,600 |
| $ | 61,150 |
Other comprehensive loss, net of tax: |
|
|
|
|
|
Debt securities available-for-sale: |
|
|
|
|
|
Net unrealized holding losses on debt securities |
| (331,834) |
|
| (98,929) |
Other comprehensive loss for the period, net of tax |
| (331,834) |
|
| (98,929) |
Total comprehensive loss | $ | (249,234) |
| $ | (37,779) |
|
|
|
|
|
|
The accompanying notes are an integral part of these statements. |
87
FIRST BANCORP. |
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine-Month Period Ended | |||||||||
| September 30, |
| September 30, | Quarter Ended | ||||||
| 2017 |
| 2016 | March 31, 2022 |
| March 31, 2021 | ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
Net income | $ | 42,787 |
| $ | 69,371 | $ | 82,600 |
| $ | 61,150 |
|
|
|
|
|
| |||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
| 12,263 |
|
| 13,359 |
| 5,872 |
|
| 6,808 |
Amortization of intangible assets |
| 3,325 |
|
| 3,669 |
| 2,286 |
|
| 2,954 |
Provision for loan and lease losses |
| 118,551 |
|
| 63,542 | |||||
Deferred income tax (benefit) expense |
| (18,094) |
|
| 19,153 | |||||
Provision for credit losses - (benefit) |
| (13,802) |
|
| (15,252) | |||||
Deferred income tax expense |
| 31,707 |
|
| 23,044 | |||||
Stock-based compensation |
| 5,423 |
|
| 5,132 |
| 1,182 |
|
| 1,415 |
Gain on sales of investments |
| (371) |
|
| (6,104) | |||||
Other-than-temporary impairments on debt securities |
| 12,231 |
|
| 6,687 | |||||
Gain on early extinguishment of debt |
| (1,391) |
|
| (4,217) | |||||
Unrealized (gain) loss on derivative instruments |
| (272) |
|
| 19 | |||||
Net gain on sales of premises and equipment and other assets |
| (146) |
|
| (686) | |||||
Impairment of fixed assets |
| 640 |
|
| - | |||||
Unrealized gain on derivative instruments |
| (618) |
|
| (1,617) | |||||
Net gain on disposals or sales of premises and equipment and other assets |
| (26) |
|
| (26) | |||||
Net gain on sales of loans |
| (5,348) |
|
| (7,794) |
| (2,461) |
|
| (4,371) |
Net amortization/accretion of premiums, discounts and deferred loan fees and costs |
| (6,331) |
|
| (6,629) | |||||
Net amortization/accretion of discounts, premiums, and deferred loan fees and costs |
| (2,933) |
|
| (5,774) | |||||
Originations and purchases of loans held for sale |
| (257,997) |
|
| (354,006) |
| (86,802) |
|
| (144,910) |
Sales and repayments of loans held for sale |
| 275,855 |
|
| 355,636 |
| 93,739 |
|
| 155,573 |
Amortization of broker placement fees |
| 1,461 |
|
| 2,300 |
| 35 |
|
| 73 |
Net amortization/accretion of premium and discounts on investment securities |
| 1,283 |
|
| 4,503 | |||||
(Increase) decrease in accrued interest receivable |
| (4,791) |
|
| 7,258 | |||||
Increase (decrease) in accrued interest payable |
| 1,030 |
|
| (27,865) | |||||
Decrease (increase) in other assets |
| 4,926 |
|
| (10,275) | |||||
Increase (decrease) in other liabilities |
| 9,604 |
|
| (13,944) | |||||
Net amortization of premiums and discounts on investment securities |
| 1,690 |
|
| 9,435 | |||||
Decrease in accrued interest receivable |
| 3,919 |
|
| 7,981 | |||||
Decrease in accrued interest payable |
| (906) |
|
| (174) | |||||
Decrease in other assets |
| 352 |
|
| 18,569 | |||||
Decrease in other liabilities |
| (1,000) |
|
| (2,200) | |||||
Net cash provided by operating activities |
| 194,638 |
|
| 119,109 |
| 114,834 |
|
| 112,678 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Principal collected on loans |
| 1,920,088 |
|
| 2,174,933 | |||||
Loans originated and purchased |
| (2,092,161) |
| (2,085,444) | ||||||
|
|
|
|
|
| |||||
Net (disbursements) repayments on loans held for investment |
| (48,370) |
|
| 98,926 | |||||
Proceeds from sales of loans held for investment |
| 53,245 |
|
| 20,186 |
| 1,306 |
|
| 13,985 |
Proceeds from sales of repossessed assets |
| 28,004 |
|
| 43,093 |
| 9,361 |
|
| 11,583 |
Proceeds from sales of available-for-sale securities |
| 23,408 |
|
| 219,780 | |||||
Purchases of available-for-sale securities |
| (53,208) |
|
| (420,513) |
| (497,327) |
|
| (1,413,370) |
Proceeds from principal repayments and maturities of available-for-sale securities |
| 172,493 |
|
| 270,345 |
| 208,397 |
|
| 531,096 |
Proceeds from principal repayments and maturities of held-to-maturity securities |
| 5,563 |
|
| 5,293 |
| 400 |
|
| 142 |
Additions to premises and equipment |
| (7,607) |
|
| (8,239) |
| (6,764) |
|
| (3,318) |
Proceeds from sale of premises and equipment and other assets |
| 2,040 |
|
| 2,265 | |||||
Net purchase/sales of other equity securities |
| (9,127) |
|
| 3,452 | |||||
Net cash outflows from purchase/sale of insurance contracts |
| - |
|
| (960) | |||||
Net cash provided by investing activities |
| 42,738 |
|
| 224,191 | |||||
Proceeds from sales of premises and equipment and other assets |
| 26 |
|
| 245 | |||||
Net purchases of other investment securities |
| (21) |
|
| (4,000) | |||||
Payment related to previous acquisition |
| 0 |
|
| (3,382) | |||||
Net cash used in investing activities |
| (332,992) |
|
| (768,093) | |||||
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
Net decrease in deposits |
| (34,754) |
|
| (358,930) | |||||
Change in securities sold under agreements to repurchase |
| - |
|
| (100,000) | |||||
Net FHLB advances proceeds (repayments) |
| 245,000 |
|
| (100,000) | |||||
Net (decrease) increase in deposits |
| (456,211) |
|
| 697,974 | |||||
Repayments of long-term borrowings |
| (100,000) |
|
| 0 | |||||
Repurchase of outstanding common stock |
| (52,713) |
|
| (2,375) | |||||
Dividends paid on common stock |
| (19,727) |
|
| (15,184) | |||||
Dividends paid on preferred stock |
| (2,007) |
|
| - |
| 0 |
|
| (669) |
Repurchase of outstanding common stock |
| (2,176) |
|
| (860) | |||||
Repayment of junior subordinated debentures |
| (5,930) |
|
| (7,025) | |||||
Net cash provided by (used in) financing activities |
| 200,133 |
|
| (566,815) | |||||
|
|
|
|
|
| |||||
Net increase (decrease) in cash and cash equivalents |
| 437,509 |
|
| (223,515) | |||||
Net cash (used in) provided by financing activities |
| (628,651) |
|
| 679,746 | |||||
Net (decrease) increase in cash and cash equivalents |
| (846,809) |
|
| 24,331 | |||||
Cash and cash equivalents at beginning of period |
| 299,685 |
|
| 752,458 |
| 2,543,058 |
|
| 1,493,833 |
Cash and cash equivalents at end of period | $ | 737,194 |
| $ | 528,943 | $ | 1,696,249 |
| $ | 1,518,164 |
|
|
|
|
|
| |||||
Cash and cash equivalents include: |
|
|
|
|
|
|
|
|
|
|
Cash and due from banks | $ | 726,779 |
| $ | 518,835 | $ | 1,694,066 |
| $ | 1,515,232 |
Money market instruments |
| 10,415 |
|
| 10,108 |
| 2,183 |
|
| 2,932 |
| $ | 737,194 |
| $ | 528,943 | $ | 1,696,249 |
| $ | 1,518,164 |
|
|
|
|
|
| |||||
The accompanying notes are an integral part of these statements. |
|
|
|
|
| The accompanying notes are an integral part of these statements. | ||||
|
|
|
|
|
98
FIRST BANCORP. |
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
| Nine-Month Period Ended | ||||
| September 30, |
| September 30, | ||
| 2017 |
| 2016 | ||
(In thousands) |
|
|
|
|
|
|
|
|
|
| |
Preferred Stock | $ | 36,104 |
| $ | 36,104 |
|
|
|
|
|
|
Common Stock outstanding: |
|
|
|
|
|
Balance at beginning of period |
| 21,745 |
|
| 21,509 |
Common stock issued as compensation |
| 43 |
|
| 63 |
Common stock withheld for taxes |
| (39) |
|
| (26) |
Restricted stock grants |
| 109 |
|
| 193 |
Restricted stock forfeited |
| (240) |
|
| - |
Balance at end of period |
| 21,618 |
|
| 21,739 |
|
|
|
|
|
|
Additional Paid-In-Capital: |
|
|
|
|
|
Balance at beginning of period |
| 931,856 |
|
| 926,348 |
Stock-based compensation |
| 5,423 |
|
| 5,132 |
Common stock withheld for taxes |
| (2,136) |
|
| (834) |
Restricted stock grants |
| (109) |
|
| (193) |
Common stock issued as compensation |
| (43) |
|
| (63) |
Restricted stock forfeited |
| 240 |
|
| - |
Balance at end of period |
| 935,231 |
|
| 930,390 |
|
|
|
|
|
|
Retained Earnings: |
|
|
|
|
|
Balance at beginning of period |
| 830,928 |
|
| 737,922 |
Net income |
| 42,787 |
|
| 69,371 |
Dividends on preferred stock |
| (2,007) |
|
| - |
Balance at end of period |
| 871,708 |
|
| 807,293 |
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss), net of tax: |
|
|
|
|
|
Balance at beginning of period |
| (34,390) |
|
| (27,749) |
Other comprehensive income, net of tax |
| 23,480 |
|
| 32,109 |
Balance at end of period |
| (10,910) |
|
| 4,360 |
|
|
|
|
|
|
Total stockholders' equity | $ | 1,853,751 |
| $ | 1,799,886 |
|
|
|
|
|
|
The accompanying notes are an integral part of these statements. |
|
|
|
|
|
| Quarter Ended | ||||
| March 31, |
| March 31, | ||
| 2022 |
| 2021 | ||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock | $ | 0 |
| $ | 36,104 |
|
|
|
|
|
|
Common Stock: |
|
|
|
|
|
Balance at beginning of period |
| 22,366 |
|
| 22,303 |
Common stock issued under stock-based compensation plan |
| 0 |
|
| 60 |
Balance at end of period |
| 22,366 |
|
| 22,363 |
|
|
|
|
|
|
Treasury stock (at par value): |
|
|
|
|
|
Balance at beginning of period |
| (2,183) |
|
| (480) |
Common stock repurchases (See Note 15) |
| (362) |
|
| (19) |
Common stock issued under stock-based compensation plan |
| 49 |
|
| 0 |
Restricted stock forfeited |
| 0 |
|
| (1) |
Balance at end of period |
| (2,496) |
|
| (500) |
|
|
|
|
|
|
Additional Paid-In-Capital: |
|
|
|
|
|
Balance at beginning of period |
| 738,288 |
|
| 946,476 |
Common stock repurchases (See Note 15) |
| (52,351) |
|
| (2,356) |
Stock-based compensation expense |
| 1,182 |
|
| 1,415 |
Common stock issued under stock-based compensation plan |
| (49) |
|
| (60) |
Restricted stock forfeited |
| 0 |
|
| 1 |
Balance at end of period |
| 687,070 |
|
| 945,476 |
|
|
|
|
|
|
Retained Earnings: |
|
|
|
|
|
Balance at beginning of period |
| 1,427,295 |
|
| 1,215,321 |
Net income |
| 82,600 |
|
| 61,150 |
Dividends on common stock (2022 - $0.10 per share; 2021 - $0.07 per share) |
| (19,900) |
|
| (15,346) |
Dividends on preferred stock |
| 0 |
|
| (669) |
Balance at end of period |
| 1,489,995 |
|
| 1,260,456 |
|
|
|
|
|
|
Accumulated Other Comprehensive (Loss) Income, net of tax: |
|
|
|
|
|
Balance at beginning of period |
| (83,999) |
|
| 55,455 |
Other comprehensive loss, net of tax |
| (331,834) |
|
| (98,929) |
Balance at end of period |
| (415,833) |
|
| (43,474) |
|
|
|
|
|
|
Total stockholdersʼ equity | $ | 1,781,102 |
| $ | 2,220,425 |
|
|
|
|
|
|
The accompanying notes are an integral part of these statements. |
109
FIRST BANCORP. |
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The Consolidated Financial Statements (unaudited) of First BanCorp. (the “Corporation”) have been prepared in conformity with the accounting policies stated in the Corporation’s Audited Consolidated Financial Statements for the fiscal year ended December 31, 2021 (the “audited consolidated financial statements”) included in the Corporation’s2021 Annual Report on Form 10-K for the year ended December 31, 2016.10-K. Certain information and note disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted from these statements pursuant to the rules and regulations of the SEC and, accordingly, these financial statements should be read in conjunction with the Audited Consolidated Financial Statements of the Corporation for the year ended December 31, 2016,audited consolidated financial statements, which are included in the Corporation’s 20162021 Annual Report on Form 10-K. All adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the statement of financial position, results of operations and cash flows for the interim periods have been reflected. All significant intercompany accounts and transactions have been eliminated in consolidation.
The results of operations for the quarter and nine-month period ended September 30, 2017March 31, 2022 are not necessarily indicative of the results to be expected for the entire year.
Adoption of new accounting requirements and recently issued but not yet effective accounting requirements
New Accounting Requirements
The Financial Accounting Standards Board (“FASB”) has issued the following accounting pronouncements and guidance relevant to the Corporation’s operations:
In May 2014, the FASB updated the Accounting Standards Codification (the “Codification” or the “ASC”) to create a new, principles-based revenue recognition framework. The Update is the culmination of efforts by the FASB and the International Accounting Standards Board to develop a common revenue standard for GAAP and International Financial Reporting Standards. The core principal of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance describes a 5-step process that entities can apply to achieve the core principle of revenue recognition and requires disclosures sufficient to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers and the significant judgments used in determining that information. The new framework is effective for public business entities, with certain exceptions that are not SEC registrants provided recently by the SEC staff, for annual periods beginning after December 15, 2017, including interim periods within those reporting periods, as a result of the FASB’s amendment to the standard to defer the effective date by one year. Early adoption is permitted for interim periods beginning after December 15, 2016.
The Corporation plans to adopt the revenue recognition guidance on January 1, 2018 using the modified retrospective method of adoption. The Corporation���s implementation efforts include the identification of revenue within the scope of the guidance, as well as the evaluation of revenue contracts and related accounting policies. Because the amended guidance doeswas not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other U.S. GAAP, the Corporation’s has scoped out the majority of its revenue streams. While in scope of the new guidance, the Corporation does not expect a material change in the timing or measurement of revenues related to deposit fees. The Corporation has concluded that its credit cardholder fees and mortgage servicing fees standards are not subject to the new standard. Nonetheless, the Corporation continues to evaluate other revenue streams such as interchange fees, merchant fees and insurance commissions but does not expect material changes in the timing of when revenues are recognized uponimpacted by the adoption of this standard.
In March 2016, the FASB updated the Codification to simplify certain aspects of the accounting for share-based payment transactions. The main provisions in this Update include: (i) recognition of all tax benefits and tax deficiencies (including tax benefits of dividends on share-base payment awards) as income tax expense or benefit in the income statement, (ii) classification of the excess tax benefit along with other income tax cash flows as an operating activity, (iii) an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur, (iv) a threshold to qualify for equity classification that permits withholding up to the maximum statutory tax rate in the applicable jurisdictions, and (v) classification of cash paid by an employer as a financing activity when the payment results from the withholding of shares for tax withholding purposes. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Corporation adopted the provisionsfollowing Accounting Standards Updates (“ASUs”) during the first quarter of 2017 without any material impact on the Corporation’s consolidated financial statements.2022:
In March 2016, the FASB updated the Codification to require an equity method investor to add the costASU 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 acquiring an additional interest in the investee to the current basisFreestanding Equity-Classified Written Call Options (a Consensus of the investor’s previously held interest and adopt the equity method of accounting as of
11
the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. Also, this Update requires that an entity that has an available-for sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. The adoption of this guidance during the first quarter of 2017 did not have an impact on the Corporation’s consolidated financial statements.Emerging Issues Task Force)”
In June 2016, the FASB updated the Codification to introduce new guidance for the accounting for credit losses on instruments that includes an impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. The Corporation has developed a transition roadmap in order to complyASU 2020-06, “Debt – Debt with the timely implementation of this new accounting framework. The Corporation has created a Working Group with members from multiple areas across the organization that is responsible for assessing the impact of the standard, evaluating interpretative issues, and evaluating the current credit loss models against the new guidance to determine any changes necessaryConversion and other related implementation activities. The Working Group provides periodic updates to the Corporation’s CECL Management Committee, which has oversight responsibilitiesOptions (Subtopic 470-20) and Derivatives and Hedging – Contracts in an Entity’s Own Equity (Subtopic 815-40): Accounting for the implementation efforts.Convertible Instruments and Contracts in an Entity’s Own Equity”
10
Recently Issued Accounting Standards Not Yet Effective or Not Yet Adopted
In October 2016, the FASB updated the Codification to modify the criteria used by a reporting entity when determining if it is the primary beneficiary
Standard | Description | Effective Date | Effect on the financial statements |
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 troubled debt restructurings (“TDRs”) recognition and measurement guidance, enhances disclosure requirements for loan restructurings by creditors made to borrowers experiencing financial difficulty for which the terms of the receivables have been modified, 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 is evaluating the impact that this ASU will have on its financial statements and disclosures. The Corporation expects to adopt the amendments of this update during the first quarter of 2023 using a modified retrospective transition method to adjust the ACL for loans modified as a TDR prior to the adoption of these amendments. |
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. |
For other recently issued Accounting Standards not yet effective or not yet adopted, see Note 1 – Nature of a variable interest entity (“VIE”) when the entities are under common controlBusiness and the reporting entity has indirect interests in the VIE through related parties. If the reporting entity meets the first criteria in that it has the power to direct the activitiesSummary of the VIE that are most significant to its economic performance, it is required to consider all interests held indirectly through related entities on a proportionate basis in determining if it meets the second criterion, that is, the obligation to absorb losses of the VIE or the right to receive benefits from it that are potentially significant to the VIE. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The adoption of this guidance did not have an impact on the Corporation’s consolidated financial statements.
In March 2017, the FASB updated the Codification to shorten the amortization period for certain purchased callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. With respect to securities held at a discount, the amendments do not require an accounting change; thus, the discount continues to be amortized to maturity. Under current GAAP, premiums and discounts on callable debt securities generally are amortized to the maturity date. An entity must have a large number of similar loans to consider estimates of future principal prepayments when applying the interest method. However, an entity that holds an individual callable debt security at a premium may not amortize that premium to the earliest call date. If that callable debt security is subsequently called, the entity records a loss equal to the unamortized premium. The amendments in this Update more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. In most cases, market participants price securities to the call date that produces the worst yield when the coupon is above current market rates (that is, the security is trading at a premium) and price securities to maturity when the coupon is below market rates (that is, the security is trading at a discount) in anticipation that the borrower will act in its economic best interest. As a result, the amendments more closely align interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of this guidance is not expected to have a material impact on the Corporation’s statement of financial condition or results of operations. As of September 30, 2017, the Corporation had $4.2 million of callable debt securities held at a premium (unamortized premium of $0.1 million).
In May 2017, the FASB updated the codification to reduce the cost and complexity when applying ASC Topic 718 and standardize the practice of applying Topic 718 to financial reporting. Topic 718 prescribes the accounting treatment of a modification in the terms or conditions of a share-based payment award. The guidance clarifies what changes would qualify as a modification. This was done by better defining what does not constitute a modification. In order for a change to a share-based arrangement to not require Topic 718 modification treatment, all of the following must be met: (i) the fair value (or alternative measurement method used) of the modified award equals the fair value (or alternative measurement method used) of the original award immediately before the original award is modified, (ii) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified, and (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under this Update. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The amendments in this Update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Corporation’s Omnibus Plan provides for equity based compensation incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, cash-based awards and other stock-based awards. If any change occurs in the future to awards issued under the Omnibus Plan, the Corporation will evaluate it under this guidance.
12
In August 2017, the FASB updated the Codification to: (i) expand hedge accounting for nonfinancial and financial risk components and amend measurement methodologies to more closely align hedge accounting with a company’s risk management activities, (ii) decrease the complexity of preparing and understanding hedge results by eliminating the separate measurement and reporting of hedge ineffectiveness, (iii) enhance transparency, comparability, and understanding of hedge results through enhanced disclosures and changing the presentation of hedge results to align the effects of the hedging instrument and the hedged item, and (iv) reduce the cost and complexity of applying hedge accounting by simplifying the manner in which assessments of hedge effectiveness may be performed. This Update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The guidance requires companies to apply requirements to existing hedging relationships on the date of adoption, and the effect of the adoption should be reflected as of the beginning of the fiscal year of adoption. As of September 30, 2017, all of the derivatives held by the Corporation were considered economic undesignated hedges. The adoption of this guidance is not expected to have a material impact on the Corporation’s statement of financial condition or results of operations.
NOTE 2 – NATURAL DISASTERS AFFECTING FIRST BANCORP. IN THIRD QUARTER 2017
Two strong hurricanes affected the Corporation’s service areas during the third quarter of 2017. Early in September, Hurricane Irma hit ground through the eastern Caribbean as a Category 5 storm affecting several islands, including the U.S. Virgin Islands of St. Thomas and St. John and Tortola in the British Virgin Islands, with lesser impacts on St. Croix and Puerto Rico. After hitting the eastern Caribbean, Hurricane Irma made landfall along Florida’s southwest shoreline. Two weeks after Hurricane Irma sideswiped Puerto Rico, Hurricane Maria made landfall in the south east corner of Puerto Rico as a Category 4 storm and exited on the northern coast at a point between the cities of Arecibo and Barceloneta after battering other islands in the Caribbean, including the U.S. Virgin Island of St. Croix. These storms caused, among other things, widespread property damage, flooding, power outages, and water and communication services interruptions, and severely disrupted normal economic activity in all of these regions.
The following summarizes the more significant financial repercussions of these natural disasters for the Corporation and for its major subsidiary, FirstBank.
Credit Quality and Allowance for Loan and Lease Losses
The Corporation established a $66.5 million allowance for loan and lease losses in the third quarter of 2017 directly related to the initial estimate, based on available information, of inherent losses resulting from the impact of the recent storms. As the Corporation acquires additional information on overall economic prospects in the affected areas together with loan officers’ further assessments of the impact on individual borrowers, the loss estimate will be revised as needed, and these revisions could be material. The Corporation’s approach to estimating the storms’ impact on credit quality is presented in Note 8 – “Allowance for Loan and Lease Losses.”
Interruptions in regular collection efforts caused by Hurricanes Irma and Maria adversely affected the Corporation’s non-performing loan statistics. Non-performing residential mortgage loans increased in the third quarter by $23.2 million to $178.5 million as of September 30, 2017 and non-performing consumer loans and finance leases increased in the third quarter by $5.4 million to $26.5 million as of September 30, 2017. Refer to Note 7 – “Loans Held For Investment” for additional information about early delinquency statistics and payment deferral programs established by the Corporation to assist individuals affected by the recent storms.
Disaster Response Plan Costs, Casualty Losses and Related Insurance
The Corporation implemented its disaster response plan as these storms approached its service areas. To operate in disaster response mode, the Corporation incurred expenses for, among other things, buying diesel and generators for electric power, debris removal, security matters, and emergency communications with customers regarding the status of Bank operations. The disaster response plan costs, combined with payroll and rental costs during the idle time caused by the storms, totaled $2.9 million as of September 30, 2017, including $0.6 million in donations and other storm relief efforts and employee assistance. The Corporation will incur additional costs through the end of 2017 as the Corporation addresses ongoing operational issues. The Corporation maintains insurance for its disaster response costs, as well as for certain revenue lost through business interruption.
The Bank was able to resume operations in Puerto Rico within a week after Hurricane Maria made landfall, but with some limitations. Certain of the Corporation’s facilities and their contents were damaged by these storms. The Corporation has recognized asset impairments of approximately $0.6 million as of September 30, 2017, and the Corporation may identify additional impairments through the end of 2017. The Corporation maintains insurance policies for casualty losses that provide for replacement value coverage.
Management believes, based on its understanding of the insurance coverages, that recovery of $2.9 million of the $3.5 million above-mentioned costs and asset impairments identified as of September 30, 2017 is probable. Accordingly, a receivable of $2.9
13
million was included in “Other assets” as of September 30, 2017 for the expected recovery. The impairments, recoverable expenses and expected recoveries are included as part of “Other non-interest income” in the statement of (loss) income. Management also believes that there is a possibility that some gains will be recognized with respect to casualty and lost revenue claims in future periods, but this is contingent on reaching agreement on the Corporation’s claims with the insurance carriers.
NOTE 3 – EARNINGS PER COMMON SHARE
| The calculations of earnings (loss) per common share for the quarters and nine-month periods ended September 30, 2017 and 2016 are as follows: | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended |
| Nine-Month Period Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share information) |
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |
Net (loss) income | $ | (10,752) |
| $ | 24,074 |
| $ | 42,787 |
| $ | 69,371 | |
Less: Preferred stock dividends |
| (669) |
|
| - |
|
| (2,007) |
|
| - | |
Net (loss) income attributable to common stockholders | $ | (11,421) |
| $ | 24,074 |
| $ | 40,780 |
| $ | 69,371 | |
Weighted-Average Shares: |
|
|
|
|
|
|
|
|
|
|
| |
Average common shares outstanding |
| 214,187 |
|
| 212,927 |
|
| 213,812 |
|
| 212,682 | |
Average potential dilutive common shares |
| - |
|
| 3,651 |
|
| 2,322 |
|
| 2,577 | |
Average common shares outstanding - assuming dilution |
| 214,187 |
|
| 216,578 |
|
| 216,134 |
|
| 215,259 | |
(Loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
| |
Basic | $ | (0.05) |
| $ | 0.11 |
| $ | 0.19 |
| $ | 0.33 | |
Diluted | $ | (0.05) |
| $ | 0.11 |
| $ | 0.19 |
| $ | 0.32 | |
|
|
Earnings (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares issued and outstanding. Net income (loss) attributable to common stockholders represents net income (loss) adjusted for any preferred stock dividends, including any dividends declared, and any cumulative 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 exclude unvested shares of restricted stock that do not contain non-forfeitable dividend rights.
Potential dilutive common shares consist of common stock issuable under the assumed exercise of stock options, unvested shares of restricted stock that do not contain non-forfeitable dividend rights, and outstanding warrants 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 numbers 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. Stock options, unvested shares of restricted stock that do not contain non-forfeitable dividend rights, and outstanding warrants that result in lower potential dilutive shares issued than shares purchased under the treasury stock method are notSignificant Accounting Policies included in the computation of dilutive earnings per share since their inclusion would have an antidilutive effect2021 Annual Report on earnings per share. Warrants outstanding to purchase 1,285,899 shares of common stock and 1,815,904 unvested shares of restricted stock that do not contain non-forfeitable dividend rights were excluded from the computation of diluted earnings per share for the quarter ended September 30, 2017 because the Corporation reported a net loss attributable to common stockholders and their inclusion would have an antidilutive effect. Stock options not included in the computation of outstanding shares because they were antidilutive amounted to 34,989 as of September 30, 2016.
14
NOTE 4 – STOCK-BASED COMPENSATION
As of January 21, 2007, the Corporation’s 1997 stock option plan expired and no additional awards could be granted under that plan. All outstanding awards granted under this plan continued in full force and effect since then, subject to their original terms. No awards of shares could be granted under the 1997 stock option plan as of its expiration. During the first quarter of 2017, all of the remaining outstanding awards granted under the 1997 stock option plan expired.
The activity of stock options granted under the 1997 stock option plan for the nine-month period ended September 30, 2017 is set forth below: | |||||||||
|
| ||||||||
|
|
|
|
|
| Weighted-Average |
|
|
|
|
|
|
|
|
| Remaining |
|
| Aggregate |
| Number of |
|
| Weighted-Average |
| Contractual Term |
|
| Intrinsic Value |
| Options |
| Exercise Price |
| (Years) |
| (In thousands) | ||
|
|
|
|
|
|
|
|
|
|
Beginning of period outstanding and |
|
|
|
|
|
|
|
|
|
exercisable | 34,989 |
| $ | 138.00 |
|
|
|
|
|
Options expired | (34,989) |
|
| 138.00 |
|
|
|
|
|
End of period outstanding and exercisable | - |
| $ | - |
| - |
| $ | - |
|
|
|
|
|
|
|
|
|
|
On May 24, 2016, the Corporation’s stockholders approved the amendment and restatement of the First BanCorp. Omnibus Incentive Plan, as amended (the “Omnibus Plan”), 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 Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended. The Omnibus Plan provides for equity-based compensation incentives (the “awards”) through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, cash-based awards and other stock-based awards. The Omnibus Plan authorizes the issuance of up to14,169,807shares of common stock, subject to adjustments for stock splits, reorganizations, and other similar events. As of September 30, 2017, 7,713,767 authorized shares of common stock were available for issuance under the Omnibus Plan. The Corporation’s Board of Directors, based on the recommendation of the Corporation’s Compensation 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.
Under the Omnibus Plan, during the first nine months of 2017, the Corporation awarded to its independent directors 140,360 shares of restricted stock that are subject to a one-year vesting period. In addition, during the first nine months of 2017, the Corporation awarded 951,332 shares of restricted stock to employees subject to vesting periods that range from 1 to 2 years. Included in those 951,332 shares of restricted stock were 838,332 shares granted in the first quarter of 2017 to certain senior officers consistent with the requirements of the Troubled Asset Relief Program (“TARP”) Interim Final Rule, which permit TARP recipients to grant “long-term restricted stock” without violating the prohibition on paying or accruing a bonus payment, subject to limits on value and certain vesting and non-transferability requirements. On May 10, 2017, the United States Department of the Treasury (the “U.S. Treasury”) announced that it had sold all of its remaining 10,291,553 shares of the Corporation’s common stock. As a result of the U.S. Treasury’s sale, the Corporation is no longer subject to the compensation-related restrictions under TARP, which substantially limited the Corporation’s ability to award short-term and long-term incentives to the Corporation’s executives, and the Corporation’s senior officers are no longer subject to the transferability restrictions on their shares of restricted stock. However, since the U.S. Treasury did not recover the full amount of its original investment under TARP, the senior officers forfeited 2,370,571 of their outstanding shares of restricted stock, resulting in a reduction in the number of common shares outstanding. The U.S. Treasury continues to hold a warrant to purchase 1,285,899 shares of the Corporation’s common stock.
The Corporation accounted for the restricted stock that it granted in 2017 prior to the U.S. Treasury’s sale of its shares at a discount from the market price of the Corporation’s outstanding common stock on the date of the grant. For the 838,332 shares of restricted stock granted subject to the TARP requirements, the market price was discounted assuming that 50% of the shares of restricted stock would become freely transferable and the remaining 50% would be forfeited, resulting in a fair value of $2.71 for each share of restricted stock granted under TARP requirements. Since the assumption was correct, the forfeiture resulting from the U.S. Treasury’s sale did not have an impact on the Corporation’s operating results. Also, the Corporation used empirical data to estimate employee terminations; separate groups of employees that have similar historical exercise behavior were considered separately for valuation purposes.
15
Form 10-K.
| The following table summarizes the restricted stock activity in the first nine months of 2017 under the Omnibus Plan: | ||||
|
|
|
|
|
|
|
| Nine-Month Period Ended | |||
|
| September 30, 2017 | |||
|
|
|
|
|
|
|
| Number of shares |
|
| Weighted-Average |
|
| of restricted |
|
| Grant Date |
|
| stock |
|
| Fair Value |
|
|
|
|
|
|
Non-vested shares at beginning of year | 4,178,791 |
| $ | 2.58 | |
Granted | 1,091,692 |
|
| 3.30 | |
Forfeited (1) | (2,404,223) |
|
| 2.33 | |
Vested (2) | (1,050,356) |
|
| 3.57 | |
Non-vested shares at September 30, 2017 | 1,815,904 |
| $ | 2.76 | |
|
|
|
|
|
|
(1) | Includes 2,370,571 of outstanding shares of restricted stock, subject to TARP requirements, that were forfeited as a result of the U.S. Treasury's sale of its remaining shares of the Corporation's common stock. | ||||
(2) | Includes 743,021 shares of restricted stock released from TARP restrictions. |
11
For the quarter and nine-month period ended September 30, 2017, the Corporation recognized $1.0 million and $3.0 million, respectively, of stock-based compensation expense related to restricted stock awards, compared to $1.0 million and $2.9 million for the same periods in 2016, respectively. As of September 30, 2017, there was $4.0 million of total unrecognized compensation cost related to non-vested shares of restricted stock. The weighted average period over which the Corporation expects to recognize such cost is 1.2 years.
During the first nine months of 2016, 130,873 shares of restricted stock were awarded to the Corporation’s independent directors subject to a one-year vesting period. Also, during the first nine months of 2016, the Corporation awarded 1,794,702 shares of restricted stock to employees subject to vesting periods that range fromNOTE 2 to 3 years. Included in those 1,794,702 shares of restricted stock were 1,546,137 shares granted to certain senior officers consistent with the requirements of TARP. As explained above, the Corporation is no longer subject to the compensation-related restrictions under TARP as a result of the U.S. Treasury’s sale of its remaining shares of the Corporation’s common stock.
The fair value of the shares of restricted stock granted in the first nine months of 2016 was based on the market price of the Corporation’s outstanding common stock on the date of the grant. For the 1,546,137 shares of restricted stock granted under the TARP requirements, the market price was discounted due to the post-vesting restrictions. For purposes of determining the awards’ fair value, the Corporation assumed that 50% of the shares of restricted stock would become freely transferable and the remaining 50% will be forfeited, resulting in a fair value of $1.43 for restricted shares granted under the TARP requirements.
Stock-based compensation accounting guidance requires the Corporation to reverse compensation expense for any awards that are forfeited due to employee or director turnover. Quarterly changes in the estimated forfeiture rate may have a significant effect on share-based compensation, as the effect of adjusting the rate for all expense amortization is recognized in the period in which the forfeiture estimate is changed. If the actual forfeiture rate is higher than the estimated forfeiture rate, then an adjustment is made to increase the estimated forfeiture rate, which will result in a decrease in 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 result in an increase in the expense recognized in the financial statements. The estimated forfeiture rate did not change as a result of the restricted shares forfeited in connection with the aforementioned U.S. Treasury’s sale of the Corporation’s common stock. Approximately $48 thousand of compensation expense was reversed during 2017 related to forfeitures upon resignation of two of the Corporation’s independent directors.
Also, under the Omnibus Plan, effective April 1, 2013, the Corporation’s Board of Directors determined to increase the salary amounts paid to certain executive officers primarily by paying the increased salary amounts in the form of shares of the Corporation’s common stock, instead of cash. During the first nine months of 2017, the Corporation issued 427,940 shares of common stock (first nine months of 2016 – 629,476 shares) with a weighted average market value of $5.88 (first nine months of 2016 – $3.60) as salary stock compensation. This resulted in a compensation expense of $2.5 million recorded in the first nine months of 2017 (first nine months of 2016 – $2.2 million).
For the first nine months of 2017, the Corporation withheld 143,509 shares (first nine months of 2016 – 189,604 shares) from the common stock paid to certain senior officers as additional compensation and 243,102 shares of restricted stock that vested during the first nine months of 2017 (first nine months of 2016 – 65,498) to cover employees’ payroll and income tax withholding liabilities; these shares are held as treasury shares. The Corporation paid any fractional share of salary stock that the officer was entitled to in cash. In the consolidated financial statements, the Corporation treats shares withheld for tax purposes as common stock repurchases.
On June 29, 2017, upon the recommendation of the Corporation’s Compensation and Benefits Committee, the Corporation’s Board of Directorsapproved a new executive compensation program that, as of July 1, 2017, applies to the Corporation’s executive officers
16
as a result of the aforementioned sale by the U.S. Treasury of its remaining shares of the Corporation’s common stock. The new compensation program for executive officers maintains the current levels of cash salary through calendar year 2017. The payment of additional salary amounts currently paid in the form of stock will continue through the second quarter of 2018 and will be eliminated at such time.
In addition, as a long-term incentive, the new compensation program provides a variable pay opportunity for long-term performance through a combination of performance shares and restricted stock. The aggregate value of the performance shares and restricted stock will be determined based upon a qualitative assessment of the achievement by executives of their individual goals for the prior year and at three different possible aggregate equity valuation levels (minimum threshold, target and maximum). The Corporation’s Board of Directors has determined that 60% of the long-term incentive award value based upon prior year performance will be in performance shares and 40% will be in restricted stock with the following terms:
·Performance Shares— the payout of the performance shares will depend upon the achievement of a pre-established corporate tangible book value per share goal at the end of a three-year period. All of the performance shares will vest if performance is at the pre-established performance goal level or above. To the extent that performance is below the target but at or above a pre-defined minimum threshold, a proportionate amount of the performance shares will vest. No performance shares will vest if performance is below the threshold.
·Restricted Stock—Restricted stock will vest over a three-year period as follows: fifty percent (50%) of the shares will vest on the second anniversary date of the grant of the award and the remaining fifty percent (50%) will vest on the third anniversary date of the grant of the award.
The first awards of performance shares are expected to be made in early 2018.
17
NOTE 5 – INVESTMENT SECURITIES
Investment Securities Available for Sale
The amortized cost, non-credit loss component of other-than-temporary impairment (“OTTI”) recorded in other comprehensive income (“OCI”), gross unrealized gains and losses recorded in OCI, approximateaccumulated other comprehensive loss, ACL, estimated fair value, and weighted averageweighted-average yield of investment securities available for sale by contractual maturities as of September 30, 2017March 31, 2022 were as follows:
|
| March 31, 2022 | |||||||||||||||
|
| Amortized cost |
| Gross |
|
|
|
| Fair value |
|
| ||||||
|
| Unrealized |
|
|
|
|
| Weighted- | |||||||||
|
|
| Gains |
| Losses |
|
| ACL |
|
| average yield % | ||||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 1 to 5 years | $ | 149,462 |
| $ | 0 |
| $ | 6,713 |
| $ | 0 |
| $ | 142,749 |
| 0.68 |
U.S. government-sponsored agencies' obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 1 to 5 years |
| 2,340,512 |
|
| 28 |
|
| 122,189 |
|
| 0 |
|
| 2,218,351 |
| 0.77 |
| After 5 to 10 years |
| 239,860 |
|
| 62 |
|
| 19,049 |
|
| 0 |
|
| 220,873 |
| 0.96 |
| After 10 years |
| 14,775 |
|
| 202 |
|
| 0 |
|
| 0 |
|
| 14,977 |
| 0.88 |
Puerto Rico government obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 10 years (1) |
| 3,498 |
|
| 0 |
|
| 463 |
|
| 308 |
|
| 2,727 |
| 0 |
United States and Puerto Rico government obligations |
| 2,748,107 |
|
| 292 |
|
| 148,414 |
|
| 308 |
|
| 2,599,677 |
| 0.78 | |
Mortgage-backed securities ("MBS"): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Freddie Mac ("FHLMC") certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 1 to 5 years |
| 6,181 |
|
| 19 |
|
| 11 |
|
| 0 |
|
| 6,189 |
| 2.33 |
After 5 to 10 years |
| 207,503 |
|
| 207 |
|
| 7,905 |
|
| 0 |
|
| 199,805 |
| 1.37 | |
After 10 years |
| 1,221,834 |
|
| 194 |
|
| 94,235 |
|
| 0 |
|
| 1,127,793 |
| 1.26 | |
|
|
| 1,435,518 |
|
| 420 |
|
| 102,151 |
|
| 0 |
|
| 1,333,787 |
| 1.28 |
Ginnie Mae ("GNMA") certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Due within one year |
| 7 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 7 |
| 1.70 |
| After 1 to 5 years |
| 22,699 |
|
| 201 |
|
| 265 |
|
| 0 |
|
| 22,635 |
| 2.05 |
| After 5 to 10 years |
| 27,524 |
|
| 0 |
|
| 1,097 |
|
| 0 |
|
| 26,427 |
| 0.68 |
| After 10 years |
| 297,566 |
|
| 3,595 |
|
| 11,611 |
|
| 0 |
|
| 289,550 |
| 1.69 |
|
|
| 347,796 |
|
| 3,796 |
|
| 12,973 |
|
| 0 |
|
| 338,619 |
| 1.64 |
Fannie Mae ("FNMA") certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Due within one year |
| 4,935 |
|
| 0 |
|
| 6 |
|
| 0 |
|
| 4,929 |
| 1.92 |
| After 1 to 5 years |
| 16,108 |
|
| 194 |
|
| 38 |
|
| 0 |
|
| 16,264 |
| 2.85 |
| After 5 to 10 years |
| 388,664 |
|
| 185 |
|
| 14,483 |
|
| 0 |
|
| 374,366 |
| 1.49 |
| After 10 years |
| 1,382,595 |
|
| 1,339 |
|
| 97,180 |
|
| 0 |
|
| 1,286,754 |
| 1.31 |
|
|
| 1,792,302 |
|
| 1,718 |
|
| 111,707 |
|
| 0 |
|
| 1,682,313 |
| 1.36 |
Collateralized mortgage obligations issued or guaranteed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
by the FHLMC, FNMA and GNMA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Due within one year |
| 68 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 68 |
| 1.12 |
After 1 to 5 years |
| 35,157 |
|
| 50 |
|
| 2,008 |
|
| 0 |
|
| 33,199 |
| 1.25 | |
After 10 years |
| 467,368 |
|
| 82 |
|
| 38,373 |
|
| 0 |
|
| 429,077 |
| 1.21 | |
|
|
| 502,593 |
|
| 132 |
|
| 40,381 |
|
| 0 |
|
| 462,344 |
| 1.22 |
Private label: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 10 years |
| 9,526 |
|
| 0 |
|
| 2,203 |
|
| 403 |
|
| 6,920 |
| 2.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
| 4,087,735 |
|
| 6,066 |
|
| 269,415 |
|
| 403 |
|
| 3,823,983 |
| 1.34 | |
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Due within one year |
| 1,000 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 1,000 |
| 0.78 |
Total investment securities available-for-sale | $ | 6,836,842 |
| $ | 6,358 |
| $ | 417,829 |
| $ | 711 |
| $ | 6,424,660 |
| 1.11 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(1) | Consists of a residential pass-through MBS issued by the Puerto Rico Housing Finance Authority (“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. |
12
The amortized cost, gross unrealized gains and losses recorded in accumulated other comprehensive loss, ACL, estimated fair value, and weighted-average yield of investment securities available-for-sale by contractual maturities as of December 31, 20162021 were as follows:
|
| September 30, 2017 | |||||||||||||||
|
| Amortized cost |
| Noncredit Loss Component of OTTI Recorded in OCI |
|
|
| Fair value |
| Weighted-average yield% | |||||||
|
|
| Gross Unrealized |
|
| ||||||||||||
|
|
|
| gains |
| losses |
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 1 to 5 years | $ | 7,450 |
| $ | - |
| $ | - |
| $ | 18 |
| $ | 7,432 |
| 1.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
government-sponsored |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Due within one year |
| 97,465 |
|
| - |
|
| - |
|
| 160 |
|
| 97,305 |
| 1.05 | |
After 1 to 5 years |
| 334,476 |
|
| - |
|
| 138 |
|
| 1,873 |
|
| 332,741 |
| 1.39 | |
After 5 to 10 years |
| 16,943 |
|
| - |
|
| 29 |
|
| 164 |
|
| 16,808 |
| 2.01 | |
After 10 years |
| 41,833 |
|
| - |
|
| - |
|
| 193 |
|
| 41,640 |
| 1.60 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico government |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
After 10 years |
| 7,994 |
|
| - |
|
| 72 |
|
| 1,295 |
|
| 6,771 |
| 5.01 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Puerto Rico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
government obligations |
| 506,161 |
|
| - |
|
| 239 |
|
| 3,703 |
|
| 502,697 |
| 1.42 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
FHLMC certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
After 5 to 10 years |
| 20,074 |
|
| - |
|
| 115 |
|
| - |
|
| 20,189 |
| 2.15 | |
After 10 years |
| 267,081 |
|
| - |
|
| 550 |
|
| 3,555 |
|
| 264,076 |
| 2.17 | |
|
|
| 287,155 |
|
| - |
|
| 665 |
|
| 3,555 |
|
| 284,265 |
| 2.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
After 1 to 5 years |
| 91 |
|
| - |
|
| 2 |
|
| - |
|
| 93 |
| 3.07 | |
After 5 to 10 years |
| 75,270 |
|
| - |
|
| 1,621 |
|
| - |
|
| 76,891 |
| 3.05 | |
After 10 years |
| 150,231 |
|
| - |
|
| 7,683 |
|
| 56 |
|
| 157,858 |
| 3.81 | |
|
|
| 225,592 |
|
| - |
|
| 9,306 |
|
| 56 |
|
| 234,842 |
| 3.56 |
FNMA certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Due within one year |
| 12 |
|
| - |
|
| - |
|
| - |
|
| 12 |
| 1.85 | |
After 1 to 5 years |
| 19,563 |
|
| - |
|
| 418 |
|
| 20 |
|
| 19,961 |
| 2.61 | |
After 5 to 10 years |
| 56,234 |
|
| - |
|
| 6 |
|
| 489 |
|
| 55,751 |
| 1.86 | |
After 10 years |
| 579,082 |
|
| - |
|
| 4,761 |
|
| 4,944 |
|
| 578,899 |
| 2.42 | |
|
| 654,891 |
|
| - |
|
| 5,185 |
|
| 5,453 |
|
| 654,623 |
| 2.38 | |
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
guaranteed by the FHLMC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
and GNMA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
After 5 to 10 years |
| 18,874 |
|
| - |
|
| 28 |
|
| - |
|
| 18,902 |
| 1.88 | |
After 10 years |
| 36,814 |
|
| - |
|
| 181 |
|
| - |
|
| 36,995 |
| 1.90 | |
|
|
| 55,688 |
|
| - |
|
| 209 |
|
| - |
|
| 55,897 |
| 1.89 |
Other mortgage pass-through |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
trust certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
After 10 years |
| 23,620 |
|
| 5,990 |
|
| - |
|
| - |
|
| 17,630 |
| 2.38 | |
|
|
| 23,620 |
|
| 5,990 |
|
| - |
|
| - |
|
| 17,630 |
| 2.38 |
Total mortgage-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
securities |
| 1,246,946 |
|
| 5,990 |
|
| 15,365 |
|
| 9,064 |
|
| 1,247,257 |
| 2.52 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Due within one year |
| 100 |
|
| - |
|
| - |
|
| - |
|
| 100 |
| 1.49 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities (1) |
| 422 |
|
| - |
|
| - |
|
| 4 |
|
| 418 |
| 2.08 | |
|
|
| |||||||||||||||
Total investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
available for sale | $ | 1,753,629 |
| $ | 5,990 |
| $ | 15,604 |
| $ | 12,771 |
| $ | 1,750,472 |
| 2.20 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Equity securities consisted of an investment in a Community Reinvestment Act Qualified Investment Fund. | ||||||||||||||||
|
|
|
| December 31, 2021 | |||||||||||||||
|
| Amortized cost |
| Gross |
|
|
|
| Fair value |
|
| ||||||
|
| Unrealized |
|
|
|
|
| Weighted- | |||||||||
|
|
| Gains |
| Losses |
| ACL |
|
| average yield% | |||||||
(Dollars in thousands) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 1 to 5 years | $ | 149,660 |
| $ | 59 |
| $ | 1,233 |
| $ | 0 |
| $ | 148,486 |
| 0.68 |
U.S. government-sponsored agencies' obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 1 to 5 years |
| 1,877,181 |
|
| 240 |
|
| 29,555 |
|
| 0 |
|
| 1,847,866 |
| 0.60 |
| After 5 to 10 years |
| 403,785 |
|
| 175 |
|
| 10,856 |
|
| 0 |
|
| 393,104 |
| 0.90 |
| After 10 years |
| 15,788 |
|
| 224 |
|
| 0 |
|
| 0 |
|
| 16,012 |
| 0.63 |
Puerto Rico government obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 10 years (1) |
| 3,574 |
|
| 0 |
|
| 416 |
|
| 308 |
|
| 2,850 |
| 0 |
United States and Puerto Rico government obligations |
| 2,449,988 |
|
| 698 |
|
| 42,060 |
|
| 308 |
|
| 2,408,318 |
| 0.67 | |
MBS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
FHLMC certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 1 to 5 years |
| 2,811 |
|
| 119 |
|
| 0 |
|
| 0 |
|
| 2,930 |
| 2.65 |
| After 5 to 10 years |
| 193,234 |
|
| 2,419 |
|
| 1,122 |
|
| 0 |
|
| 194,531 |
| 1.29 |
| After 10 years |
| 1,240,964 |
|
| 3,748 |
|
| 23,503 |
|
| 0 |
|
| 1,221,209 |
| 1.18 |
|
|
| 1,437,009 |
|
| 6,286 |
|
| 24,625 |
|
| 0 |
|
| 1,418,670 |
| 1.20 |
GNMA certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Due within one year |
| 2 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 2 |
| 1.32 |
| After 1 to 5 years |
| 16,714 |
|
| 572 |
|
| 0 |
|
| 0 |
|
| 17,286 |
| 2.90 |
| After 5 to 10 years |
| 27,271 |
|
| 80 |
|
| 139 |
|
| 0 |
|
| 27,212 |
| 0.51 |
| After 10 years |
| 338,927 |
|
| 7,091 |
|
| 2,174 |
|
| 0 |
|
| 343,844 |
| 1.45 |
|
|
| 382,914 |
|
| 7,743 |
|
| 2,313 |
|
| 0 |
|
| 388,344 |
| 1.45 |
FNMA certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Due within one year |
| 4,975 |
|
| 21 |
|
| 0 |
|
| 0 |
|
| 4,996 |
| 2.03 |
| After 1 to 5 years |
| 21,337 |
|
| 424 |
|
| 0 |
|
| 0 |
|
| 21,761 |
| 2.87 |
| After 5 to 10 years |
| 298,771 |
|
| 4,387 |
|
| 1,917 |
|
| 0 |
|
| 301,241 |
| 1.41 |
| After 10 years | 1,389,381 |
|
| 8,953 |
|
| 21,747 |
|
| 0 |
|
| 1,376,587 |
| 1.21 | |
|
|
| 1,714,464 |
|
| 13,785 |
|
| 23,664 |
|
| 0 |
|
| 1,704,585 |
| 1.27 |
Collateralized mortgage obligations issued or guaranteed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| by the FHLMC, FNMA and GNMA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| After 1 to 5 years |
| 24,007 |
|
| 1 |
|
| 778 |
|
| 0 |
|
| 23,230 |
| 1.31 |
| After 5 to 10 years |
| 14,316 |
|
| 97 |
|
| 0 |
|
| 0 |
|
| 14,413 |
| 0.76 |
| After 10 years |
| 500,811 |
|
| 290 |
|
| 13,134 |
|
| 0 |
|
| 487,967 |
| 1.23 |
|
|
| 539,134 |
|
| 388 |
|
| 13,912 |
|
| 0 |
|
| 525,610 |
| 1.22 |
Private label: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 10 years |
| 9,994 |
|
| 0 |
|
| 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 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 500 |
| 0.72 |
| After 1 to 5 years |
| 500 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 500 |
| 0.84 |
|
|
| 1,000 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 1,000 |
| 0.78 |
Total investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| available-for-sale | $ | 6,534,503 |
| $ | 28,900 |
| $ | 108,537 |
| $ | 1,105 |
| $ | 6,453,761 |
| 1.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | 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. |
1813
|
| December 31, 2016 | |||||||||||||||
|
| Amortized cost |
| Noncredit Loss Component of OTTI Recorded in OCI |
|
|
| Fair value |
| Weighted-average yield% | |||||||
|
|
|
| Gross Unrealized |
|
| |||||||||||
|
|
|
| gains |
| losses |
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Due within one year | $ | 7,508 |
| $ | - |
| $ | 1 |
| $ | - |
| $ | 7,509 |
| 0.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
government-sponsored |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 1 to 5 years |
| 440,438 |
|
| - |
|
| 142 |
|
| 2,912 |
|
| 437,668 |
| 1.33 |
| After 5 to 10 years |
| 16,942 |
|
| - |
|
| 9 |
|
| 256 |
|
| 16,695 |
| 1.91 |
| After 10 years |
| 44,145 |
|
| - |
|
| 8 |
|
| 166 |
|
| 43,987 |
| 1.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico government |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 1 to 5 years |
| 21,422 |
|
| 12,222 |
|
| - |
|
| - |
|
| 9,200 |
| - |
| After 10 years |
| 21,245 |
|
| 2,028 |
|
| 73 |
|
| 1,662 |
|
| 17,628 |
| 1.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Puerto Rico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
government obligations |
| 551,700 |
|
| 14,250 |
|
| 233 |
|
| 4,996 |
|
| 532,687 |
| 1.29 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 5 to 10 years |
| 5,908 |
|
| - |
|
| 72 |
|
| - |
|
| 5,980 |
| 2.25 |
| After 10 years |
| 314,906 |
|
| - |
|
| 261 |
|
| 5,827 |
|
| 309,340 |
| 2.17 |
|
|
| 320,814 |
|
| - |
|
| 333 |
|
| 5,827 |
|
| 315,320 |
| 2.17 |
GNMA certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 1 to 5 years |
| 83 |
|
| - |
|
| 3 |
|
| - |
|
| 86 |
| 3.82 |
| After 5 to 10 years |
| 91,744 |
|
| - |
|
| 1,635 |
|
| 92 |
|
| 93,287 |
| 3.06 |
| After 10 years |
| 123,548 |
|
| - |
|
| 9,706 |
|
| - |
|
| 133,254 |
| 4.36 |
|
|
| 215,375 |
|
| - |
|
| 11,344 |
|
| 92 |
|
| 226,627 |
| 3.81 |
FNMA certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Due within one year |
| 152 |
|
| - |
|
| 2 |
|
| - |
|
| 154 |
| 4.71 |
| After 1 to 5 years |
| 24,409 |
|
| - |
|
| 435 |
|
| - |
|
| 24,844 |
| 2.18 |
| After 5 to 10 years |
| 17,181 |
|
| - |
|
| - |
|
| 261 |
|
| 16,920 |
| 1.87 |
| After 10 years | 690,625 |
|
| - |
|
| 4,136 |
|
| 9,406 |
|
| 685,355 |
| 2.35 | |
|
|
| 732,367 |
|
| - |
|
| 4,573 |
|
| 9,667 |
|
| 727,273 |
| 2.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| obligations issued or guaranteed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| by the FHLMC and GNMA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| After 1 to 5 years |
| 19,851 |
|
| - |
|
| 4 |
|
| 31 |
|
| 19,824 |
| 1.42 |
| After 10 years |
| 39,120 |
|
| - |
|
| - |
|
| 132 |
|
| 38,988 |
| 1.44 |
|
|
| 58,971 |
|
| - |
|
| 4 |
|
| 163 |
|
| 58,812 |
| 1.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other mortgage pass-through |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
trust certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 10 years |
| 28,815 |
|
| 8,122 |
|
| - |
|
| - |
|
| 20,693 |
| 2.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total mortgage-backed securities |
| 1,356,342 |
|
| 8,122 |
|
| 16,254 |
|
| 15,749 |
|
| 1,348,725 |
| 2.49 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 1 to 5 years |
| 100 |
|
| - |
|
| - |
|
| - |
|
| 100 |
| 1.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities (1) |
| 415 |
|
| - |
|
| - |
|
| 7 |
|
| 408 |
| 2.44 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| available for sale | $ | 1,908,557 |
| $ | 22,372 |
| $ | 16,487 |
| $ | 20,752 |
| $ | 1,881,920 |
| 2.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Equity securities consisted of an investment in a Community Reinvestment Act Qualified Investment Fund. | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Maturities of mortgage-backed securitiesMBS are based on the period of final contractual terms assuming no prepayments.maturity. Expected maturities of investments might differ from contractual maturities because they may be subject to prepayments and/or call options. The weighted-average yield on investment securities available for sale is based on amortized cost and, therefore, does not give effect to changes in fair value. The net unrealized gain or loss on securities available for sale and the noncredit loss component of OTTI areis presented as part of OCI.accumulated other comprehensive income (loss).
The following tables show the Corporation’s available-for-sale investments’ fair valuesvalue and gross unrealized losses of the Corporation’s available-for-sale investment securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of September 30, 2017March 31, 2022 and December 31, 2016.2021. The tables also include debt securities for which an OTTIACL was recognized and only the amount related to a credit loss was recognized in earnings. For unrealized losses for which OTTI was recognized, the related credit loss was charged against the amortized cost basis of the debt security.recorded.
|
| As of March 31, 2022 | ||||||||||||||||
|
| Less than 12 months |
| 12 months or more |
| Total | ||||||||||||
|
|
|
| Unrealized |
|
|
| Unrealized |
|
|
| Unrealized | ||||||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
(In thousands) |
|
| ||||||||||||||||
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Puerto Rico-government obligations | $ | 0 |
| $ | 0 |
| $ | 2,727 |
| $ | 463 | (1) | $ | 2,727 |
| $ | 463 |
| U.S. Treasury and U.S. government |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| agenciesʼ obligations |
| 1,717,041 |
|
| 80,078 |
|
| 854,995 |
|
| 67,873 |
|
| 2,572,036 |
|
| 147,951 |
MBS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| FNMA |
| 1,053,447 |
|
| 60,002 |
|
| 548,419 |
|
| 51,705 |
|
| 1,601,866 |
|
| 111,707 |
| FHLMC |
| 824,433 |
|
| 53,859 |
|
| 479,664 |
|
| 48,292 |
|
| 1,304,097 |
|
| 102,151 |
| GNMA |
| 198,644 |
|
| 7,247 |
|
| 63,924 |
|
| 5,726 |
|
| 262,568 |
|
| 12,973 |
| Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| issued or guaranteed by the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| FHLMC, FNMA and GNMA |
| 305,798 |
|
| 28,149 |
|
| 131,285 |
|
| 12,232 |
|
| 437,083 |
|
| 40,381 |
| Private label MBS |
| 0 |
|
| 0 |
|
| 6,920 |
|
| 2,203 | (1) |
| 6,920 |
|
| 2,203 |
|
| $ | 4,099,363 |
| $ | 229,335 |
| $ | 2,087,934 |
| $ | 188,494 |
| $ | 6,187,297 |
| $ | 417,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Unrealized losses do not include credit loss component recorded as part of the ACL. As of March 31, 2022, PRHFA bond and private label MBS had an ACL of $0.3 million and $0.4 million, respectively. | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2021 | ||||||||||||||||
|
| Less than 12 months |
| 12 months or more |
| Total | ||||||||||||
|
|
|
| Unrealized |
|
|
| Unrealized |
|
|
| Unrealized | ||||||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
(In thousands) |
|
| ||||||||||||||||
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Puerto Rico-government obligations | $ | 0 |
| $ | 0 |
| $ | 2,850 |
| $ | 416 | (1) | $ | 2,850 |
| $ | 416 |
| U.S. Treasury and U.S. government |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| agenciesʼ obligations |
| 1,717,340 |
|
| 25,401 |
|
| 606,179 |
|
| 16,243 |
|
| 2,323,519 |
|
| 41,644 |
MBS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| FNMA |
| 1,237,701 |
|
| 19,843 |
|
| 112,559 |
|
| 3,821 |
|
| 1,350,260 |
|
| 23,664 |
| 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 |
| Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| issued or guaranteed by the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| FHLMC, FNMA and GNMA |
| 466,004 |
|
| 13,552 |
|
| 16,656 |
|
| 360 |
|
| 482,660 |
|
| 13,912 |
| Private label MBS |
| 0 |
|
| 0 |
|
| 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 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 million and $0.8 million, respectively. |
| As of September 30, 2017 | ||||||||||||||||
| Less than 12 months |
| 12 months or more |
| Total | ||||||||||||
|
|
| Unrealized |
|
|
| Unrealized |
|
|
| Unrealized | ||||||
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
(In thousands) |
|
| |||||||||||||||
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico-government obligations | $ | - |
| $ | - |
| $ | 2,609 |
| $ | 1,295 |
| $ | 2,609 |
| $ | 1,295 |
U.S. Treasury and U.S. government |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies obligations |
| 368,367 |
|
| 1,815 |
|
| 89,811 |
|
| 593 |
|
| 458,178 |
|
| 2,408 |
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA |
| 320,072 |
|
| 2,839 |
|
| 113,145 |
|
| 2,614 |
|
| 433,217 |
|
| 5,453 |
FHLMC |
| 133,966 |
|
| 1,394 |
|
| 75,028 |
|
| 2,161 |
|
| 208,994 |
|
| 3,555 |
GNMA |
| 10,966 |
|
| 56 |
|
| - |
|
| - |
|
| 10,966 |
|
| 56 |
Other mortgage pass-through trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates |
| - |
|
| - |
|
| 17,630 |
|
| 5,990 |
|
| 17,630 |
|
| 5,990 |
Equity securities |
| 406 |
|
| 4 |
|
| 6 |
|
| - |
|
| 412 |
|
| 4 |
| $ | 833,777 |
| $ | 6,108 |
| $ | 298,229 |
| $ | 12,653 |
| $ | 1,132,006 |
| $ | 18,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2016 | ||||||||||||||||
| Less than 12 months |
| 12 months or more |
| Total | ||||||||||||
|
|
| Unrealized |
|
|
| Unrealized |
|
|
| Unrealized | ||||||
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
(In thousands) |
|
| |||||||||||||||
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico-government obligations | $ | - |
| $ | - |
| $ | 22,609 |
| $ | 15,912 |
| $ | 22,609 |
| $ | 15,912 |
U.S. Treasury and U.S. government |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies obligations |
| 469,046 |
|
| 3,334 |
|
| - |
|
| - |
|
| 469,046 |
|
| 3,334 |
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA |
| 519,008 |
|
| 9,667 |
|
| - |
|
| - |
|
| 519,008 |
|
| 9,667 |
FHLMC |
| 244,839 |
|
| 5,827 |
|
| - |
|
| - |
|
| 244,839 |
|
| 5,827 |
GNMA |
| 43,388 |
|
| 92 |
|
| - |
|
| - |
|
| 43,388 |
|
| 92 |
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued or guaranteed by FHLMC and GNMA |
| 55,309 |
|
| 163 |
|
| - |
|
| - |
|
| 55,309 |
|
| 163 |
Other mortgage pass-through trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates |
| - |
|
| - |
|
| 20,693 |
|
| 8,122 |
|
| 20,693 |
|
| 8,122 |
Equity securities |
| 408 |
|
| 7 |
|
| - |
|
| - |
|
| 408 |
|
| 7 |
| $ | 1,331,998 |
| $ | 19,090 |
| $ | 43,302 |
| $ | 24,034 |
| $ | 1,375,300 |
| $ | 43,124 |
|
14
Assessment for OTTICredit Losses
Debt securities issued by U.S. government agencies, U.S. government-sponsored entities (“GSEs”), and the U.S. Treasury, including notes and MBS, accounted for approximately 99%99% of the total available-for-sale portfolio as of September 30, 2017March 31, 2022 and the Corporation expects no credit losses are expected,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 March 31, 2022. The Corporation’s OTTIcredit loss assessment was concentrated mainly on private label mortgage-backed securities (“MBS”)MBS, and on Puerto Rico government debt securities, for which credit losses are evaluated on a quarterly basis.
The Corporation considered the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:
·The length of time and the extent to which the fair value has been 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 present economic climate;
·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 of the debt securities.
The Corporation recorded OTTI losses onCorporation’s available-for-sale debt securities as follows:
|
|
|
|
| ||||||||
|
| Quarter Ended |
| Nine-Month Period Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
| |
Total other-than-temporary impairment losses | $ | - |
| $ | - |
| $ | (12,231) |
| $ | (1,845) | |
Portion of other-than-temporary impairment recognized in OCI |
| - |
|
| - |
|
| - |
|
| (4,842) | |
Net impairment losses recognized in earnings (1) | $ | - |
| $ | - |
| $ | (12,231) |
| $ | (6,687) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | For the nine-month periods ended September 30, 2017 and 2016, approximately $12.2 million and $6.3 million, respectively, of the credit impairment recognized in earnings consisted of credit losses on Puerto Rico Government debt securities that were sold in the second quarter of 2017, as further discussed below. For the nine-month period ended September 30, 2016, $0.4 million of the credit impairment recognized in earnings was associated with credit losses on private label MBS. | |||||||||||
|
|
21
The following tables summarize the roll-forward of credit losses on debt securities held by the Corporation for which a portion of an OTTI is recognized in OCI: |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cumulative OTTI credit losses recognized in earnings on securities still held |
| |||||||||||||
|
|
|
|
| Credit impairments | Credit impairments |
| Credit loss |
|
|
| |||||
|
| June 30, |
| recognized in earnings |
| recognized in earnings on |
| reductions for |
| September 30, |
| |||||
|
| 2017 |
| on securities not |
| securities that have been |
| securities sold |
| 2017 |
| |||||
|
| Balance |
| previously impaired |
| previously impaired |
| during the period |
| Balance |
| |||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Private label MBS | $ | 6,792 |
| $ | - |
| $ | - |
| $ | - |
| $ | 6,792 |
| |
Total OTTI credit losses for available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
debt securities | $ | 6,792 |
| $ | - |
| $ | - |
| $ | - |
| $ | 6,792 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Cumulative OTTI credit losses recognized in earnings on securities still held |
| ||||||||||
|
|
|
|
| Credit impairments |
| Credit loss |
|
|
| |||
|
| December 31, |
| recognized in earnings on |
| reductions for |
| September 30, |
| ||||
|
| 2016 |
| securities that have been |
| securities sold |
| 2017 |
| ||||
|
| Balance |
| previously impaired |
| during the period |
| Balance |
| ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
| |
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
| |
Puerto Rico government obligations | $ | 22,189 |
| $ | 12,231 |
| $ | (34,420) |
| $ | - |
| |
Private label MBS |
| 6,792 |
|
| - |
|
| - |
|
| 6,792 |
| |
Total OTTI credit losses for available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
| |
debt securities | $ | 28,981 |
| $ | 12,231 |
| $ | (34,420) |
| $ | 6,792 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Cumulative OTTI credit losses recognized in earnings on securities still held |
| ||||||||||
|
|
|
|
| Credit impairments |
| Credit impairments |
|
|
| |||
|
| June 30, |
| recognized in earnings |
| recognized in earnings on |
| September 30, |
| ||||
|
| 2016 |
| on securities not | securities that have been |
| 2016 |
| |||||
|
| Balance |
| previously impaired |
| previously impaired |
| Balance |
| ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
| |
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
| |
Puerto Rico government obligations | $ | 22,189 |
| $ | - |
| $ | - |
| $ | 22,189 |
| |
Private label MBS |
| 6,792 |
|
| - |
|
| - |
|
| 6,792 |
| |
Total OTTI credit losses for available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
| |
debt securities | $ | 28,981 |
| $ | - |
| $ | - |
| $ | 28,981 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Cumulative OTTI credit losses recognized in earnings on securities still held |
| ||||||||||
|
|
|
|
| Credit impairments |
| Credit impairments |
|
|
| |||
|
| December 31, |
| recognized in earnings |
| recognized in earnings on |
| September 30, |
| ||||
|
| 2015 |
| on securities not |
| securities that have been |
| 2016 |
| ||||
|
| Balance |
| previously impaired |
| previously impaired |
| Balance |
| ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
| |
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
| |
Puerto Rico government obligations | $ | 15,889 |
| $ | - |
| $ | 6,300 |
| $ | 22,189 |
| |
Private label MBS |
| 6,405 |
|
| - |
|
| 387 |
|
| 6,792 |
| |
Total OTTI credit losses for available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
| |
debt securities | $ | 22,294 |
| $ | - |
| $ | 6,687 |
| $ | 28,981 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
22
During the second quarter of 2017, the Corporation sold for an aggregate of $23.4 million three Puerto Rico Government available-for-sale debt securities, specifically bonds of the GDB and the Puerto Rico Public Buildings Authority, carried on its book at an amortized cost at the time of sale of $23.0 million (net of $34.4 million in cumulative OTTI impairment charges). This transaction resulted in a $0.4 million recovery from previous OTTI charges reflected in the statement of (loss) income as part of “net gain on sale of investments.” Approximately $12.2 million of the cumulative OTTI charges on these securities was recorded in the first quarter of 2017.
For the OTTI charge recorded in the first quarter of 2017, the Corporation considered revised estimates of recovery rates based on the latest available information about the Puerto Rico government’s financial condition, including the downgrade of credit ratings, and the revised fiscal plan published by the Puerto Rico government in March 2017. The Corporation applied a discounted cash flow analysis to its Puerto Rico government debt securities in order to calculate the cash flows expected to be collected and to determine if any portion of the decline in market value of these securities was considered a credit-related other-than-temporary impairment. The analysis derived an estimate of value based on the present value of risk-adjusted cash flows of the underlying securities andMBS portfolio included the following components:
·The contractual future cash flows of the bonds were projected based on the key terms as set forth in the official statements for each security. Such key terms include, among others, the interest rate, amortization schedule, if any, and maturity date.
·The risk-adjusted cash flows were calculated based on a probability of default analysis and recovery rate assumptions, including the weighting of different scenarios of ultimate recovery, considering the credit rating of each security. Constant monthly default rates were assumed throughout the life of the bonds, which considered the respective security's credit rating as of the date of the analysis.
·The adjusted future cash flows were then discounted at the original effective yield of each investment based on the purchase price and expected risk-adjusted future cash flows as of the purchase date of each investment.
The discounted risk-adjusted cash flow analysis for the three Puerto Rico government bonds mentioned above assumed a default probability of 100%, as these three non-performing bonds had been in default since the third quarter of 2016. Based on this analysis, the Corporation recorded in the first quarter of 2017 other-than-temporary credit-related impairment charges amounting to $12.2 million, assuming recovery rates ranging from 15% to 80% (with a weighted average of 41%).
In addition, during the first quarter of 2016, the Corporation recorded a $0.4 million credit-related impairment loss associated with private label MBS with a fair value of $6.9 million, which are collateralized by fixed-rate mortgages on single-family residential properties inhad unrealized losses of approximately $2.6 million as of March 31, 2022, of which $0.4 million is due to credit deterioration and is part of the United States.ACL. The interest ratesrate on these private-label MBS areis variable, tied to 3-month LIBOR, and limited to the weighted-average coupon ofon the underlying collateral. The underlying mortgagescollateral are fixed-rate, single-family residential mortgage loans in the United States with original high FICO scores (overover 700) and moderate original loan-to-value ratios (under 80%80%), as well as moderate delinquency levels.
Based on the expected cash flows, and since As of March 31, 2022, the Corporation doesdid not have the intentionintent 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 has sufficient capital and liquidity to hold these securities until a recoveryterms of the fairinstruments. The Corporation utilized probability of default (“PDs”) and loss given default (“LGDs”) that considered, among other things, historical payment performance, loan-to value occurs, onlyattributes and relevant current and forward-looking macroeconomic variables, such as regional unemployment rates and the credit loss component was reflected in earnings.housing price index. Under this approach, all future cash flows (interest and principal) from the underlying collateral loans, adjusted by prepayments and the PDs and LGDs, were discounted at the effective interest rate as of the reporting date. Significant assumptions in the valuation of the private label MBS were as follows:
| As of |
| As of | ||||||||
| March 31, 2022 |
| December 31, 2021 | ||||||||
| Weighted |
| Range |
| Weighted |
| Range | ||||
| Average |
| Minimum |
| Maximum |
| Average |
| Minimum |
| Maximum |
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate | 14.3% |
| 14.3% |
| 14.3% |
| 12.9% |
| 12.9% |
| 12.9% |
Prepayment rate | 14.4% |
| 9.4% |
| 24.1% |
| 15.2% |
| 7.6% |
| 24.9% |
Projected Cumulative Loss Rate | 6.5% |
| 0.3% |
| 14.9% |
| 7.6% |
| 0.2% |
| 15.7% |
| As of |
| As of | ||||
| September 30, 2017 |
| December 31, 2016 | ||||
| Weighted |
|
|
| Weighted |
|
|
| Average |
| Range |
| Average |
| Range |
|
|
|
|
|
|
|
|
Discount rate | 14.2% |
| 14.2% |
| 14.1% |
| 12.88% - 14.43% |
Prepayment rate | 16.5% |
| 12.0% - 29.0% |
| 13.8% |
| 6.5% - 22.5% |
Projected Cumulative Loss Rate | 4% |
| 0.1% - 7.1% |
| 4% |
| 0.2% - 8.6% |
|
|
|
|
|
|
|
|
|
15
The Corporation evaluates if a credit loss exists, primarily by monitoring adverse variances in the present value of expected cash flows. As of March 31, 2022, the ACL for these private label MBS was $0.4 million, compared to $0.8 million as of December 31, 2021.
As of March 31, 2022, the Corporation’s available-for-sale investment securities portfolio also included a residential pass-through MBS issued by the PRHFA, collateralized by certain second mortgages, with a fair value of $2.7 million, which had an unrealized loss of approximately $0.8 million. Approximately $0.3 million of the unrealized losses was due to credit deterioration and is part of the 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 is 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 risk-adjusted discounted cash flow methodology that considered the structure and terms of the underlying collateral. 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, all future cash flows (interest and principal) from the underlying collateral loans, adjusted by prepayments and the PDs and LGDs, were discounted at the internal rate of return 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 March 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. Accrued interest receivable on available-for-sale debt securities totaled $11.1 million as of March 31, 2022 ($10.1 million as of December 31, 2021) and is excluded from the estimate of credit losses.
The following tables present a rollforward by major security type for the quarters ended March 31, 2022 and 2021 of the ACL on debt securities available for sale:
| Quarter Ended March 31, 2022 | |||||||
| Private label |
| Puerto Rico Government |
|
| |||
| MBS |
| Obligations |
| Total | |||
(In thousands) |
|
|
|
|
|
|
|
|
Beginning Balance | $ | 797 |
| $ | 308 |
| $ | 1,105 |
Provision for credit losses - benefit |
| (388) |
|
| 0 |
|
| (388) |
Net charge-offs |
| (6) |
|
| 0 |
|
| (6) |
ACL on debt securities available for sale | $ | 403 |
| $ | 308 |
| $ | 711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended March 31, 2021 | |||||||
| Private label |
| Puerto Rico Government |
|
| |||
| MBS |
| Obligations |
| Total | |||
(In thousands) |
|
|
|
|
|
|
|
|
Beginning Balance | $ | 1,002 |
| $ | 308 |
| $ | 1,310 |
Provision for credit losses - benefit |
| (127) |
|
| 0 |
|
| (127) |
ACL on debt securities available for sale | $ | 875 |
| $ | 308 |
| $ | 1,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2316
Investments Held to MaturityHeld-to-Maturity
The amortized cost, gross unrealizedunrecognized gains and losses, approximateestimated fair value, ACL, weighted-average yield and contractual maturities of investment securities held to maturity as of September 30, 2017March 31, 2022 and December 31, 20162021 were as follows:
|
| March 31, 2022 | |||||||||||||||
|
| Amortized cost |
|
|
| Fair value |
|
|
|
|
| ||||||
|
|
| Gross Unrecognized |
|
| ACL |
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
| Weighted - average yield % | ||||||
|
| Gains |
| Losses |
|
|
| ||||||||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Puerto Rico municipal bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Due within one year | $ | 2,598 |
| $ | 1 |
| $ | 4 |
| $ | 2,595 |
| $ | 93 |
| 5.39 |
| After 1 to 5 years |
| 14,903 |
|
| 541 |
|
| 151 |
|
| 15,293 |
|
| 550 |
| 2.40 |
| After 5 to 10 years |
| 90,790 |
|
| 1,683 |
|
| 3,639 |
|
| 88,834 |
|
| 6,774 |
| 4.28 |
| After 10 years |
| 69,768 |
|
| 0 |
|
| 7,676 |
|
| 62,092 |
|
| 4,907 |
| 4.07 |
Total investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| held to maturity | $ | 178,059 |
| $ | 2,225 |
| $ | 11,470 |
| $ | 168,814 |
| $ | 12,324 |
| 4.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2021 | ||||||||||||||||
|
| Amortized cost |
|
|
|
| Fair value |
|
|
|
|
| ||||||
|
|
|
| Gross Unrecognized |
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted - average yield % | ||||
|
|
|
| Gains |
| Losses |
|
| ACL |
| ||||||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Puerto Rico municipal bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Due within one year | $ | 2,995 |
|
| $ | 5 |
| $ | 0 |
| $ | 3,000 |
| $ | 70 |
| 5.39 |
| After 1 to 5 years |
| 14,785 |
|
|
| 526 |
|
| 156 |
|
| 15,155 |
|
| 347 |
| 2.35 |
| After 5 to 10 years |
| 90,584 |
|
|
| 1,555 |
|
| 3,139 |
|
| 89,000 |
|
| 3,258 |
| 4.25 |
| After 10 years |
| 69,769 |
|
|
| 0 |
|
| 9,777 |
|
| 59,992 |
|
| 4,896 |
| 4.06 |
Total investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| held to maturity | $ | 178,133 |
|
| $ | 2,086 |
| $ | 13,072 |
| $ | 167,147 |
| $ | 8,571 |
| 4.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 | |||||||||||||
|
| Amortized cost |
|
|
|
| Fair value |
| Weighted average yield% | ||||||
|
|
|
| Gross Unrealized |
|
| |||||||||
|
|
|
| gains |
| losses |
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico Municipal Bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 1 to 5 years | $ | 3,853 |
|
| $ | - |
| $ | 146 |
| $ | 3,707 |
| 5.38 |
| After 5 to 10 years |
| 39,523 |
|
|
| - |
|
| 2,775 |
|
| 36,748 |
| 5.27 |
| After 10 years |
| 107,251 |
|
|
| - |
|
| 17,581 |
|
| 89,670 |
| 4.88 |
Total investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| held to maturity | $ | 150,627 |
|
| $ | - |
| $ | 20,502 |
| $ | 130,125 |
| 4.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
| December 31, 2016 | ||||||||||||
|
| Amortized cost |
|
|
| Fair value |
| Weighted average yield% | ||||||
|
|
| Gross Unrealized |
|
| |||||||||
|
|
| gains |
| losses |
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico Municipal Bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| After 1 to 5 years | $ | 1,136 |
| $ | - |
| $ | 20 |
| $ | 1,116 |
| 5.38 |
| After 5 to 10 years |
| 10,741 |
|
| - |
|
| 718 |
|
| 10,023 |
| 4.47 |
| After 10 years |
| 144,313 |
|
| - |
|
| 22,693 |
|
| 121,620 |
| 4.74 |
Total investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| held to maturity | $ | 156,190 |
| $ | - |
| $ | 23,431 |
| $ | 132,759 |
| 4.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
The following tables show the Corporation’s held-to-maturity investments’ fair value and gross unrealizedunrecognized losses, aggregated by investment category and length of time that individual securities havehad been in a continuous unrealizedunrecognized loss position, as of September 30, 2017March 31, 2022 and December 31, 2016:2021, including debt securities for which an ACL was recorded.
| As of March 31, 2022 | ||||||||||||||||
| Less than 12 months |
| 12 months or more |
| Total | ||||||||||||
|
|
| Unrecognized |
|
|
| Unrecognized |
|
|
| Unrecognized | ||||||
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico municipal bonds | $ | 0 |
| $ | 0 |
| $ | 138,389 |
| $ | 11,470 |
| $ | 138,389 |
| $ | 11,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2021 | ||||||||||||||||
| Less than 12 months |
| 12 months or more |
| Total | ||||||||||||
|
|
| Unrecognized |
|
|
| Unrecognized |
|
|
| Unrecognized | ||||||
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico municipal bonds | $ | 0 |
| $ | 0 |
| $ | 140,732 |
| $ | 13,072 |
| $ | 140,732 |
| $ | 13,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of September 30, 2017 | ||||||||||||||||
| Less than 12 months |
| 12 months or more |
| Total | ||||||||||||
|
|
| Unrealized |
|
|
| Unrealized |
|
|
| Unrealized | ||||||
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
|
| (In thousands) | |||||||||||||||
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico Municipal Bonds | $ | - |
| $ | - |
| $ | 130,125 |
| $ | 20,502 |
| $ | 130,125 |
| $ | 20,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2016 | ||||||||||||||||
| Less than 12 months |
| 12 months or more |
| Total | ||||||||||||
|
|
| Unrealized |
|
|
| Unrealized |
|
|
| Unrealized | ||||||
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
|
| (In thousands) | |||||||||||||||
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico Municipal Bonds | $ | - |
| $ | - |
| $ | 132,759 |
| $ | 23,431 |
| $ | 132,759 |
| $ | 23,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation determines the fair market valueACL of Puerto Rico Municipal Bondsmunicipal bonds based on the product of a discounted cash flow analysis using risk-adjusted discount rates. A security with similar characteristics tradedcumulative 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 in the open market is used as a proxy for each municipal bond. Thenaudited consolidated financial statements included in the cash flow is discounted at the average spread over the discount curve exhibited by the proxy security at the end of each quarter.2021 Annual Report on Form 10-K.
Approximately 70% of the held-to-maturity municipal bonds were issued by three of the largest municipalities in Puerto Rico.
The vast majority of revenues ofCorporation performs periodic credit quality reviews on these three municipalities is independentissuers. All of the Puerto Rico central government. These obligations typically are not issuedmunicipal bonds were current as to scheduled contractual payments as of March 31, 2022. The Puerto Rico municipal bonds had an ACL of $12.3 million as of March 31, 2022, a $3.7 million increase when compared to $8.6 million as of December 31, 2021, primarily reflecting the Corporation’s change of applying probability weights to the baseline and alternative downside economic scenarios to estimate the ACL and the associated impact on qualitative reserves. According to the Corporation’s policy, accrued interest receivable on held-to-maturity debt securities that totaled $1.7 million as of March 31, 2022 ($3.4 million as of December 31, 2021), was excluded from the estimate of credit losses.
18
The following table presents the activity in bearer form, nor are they registered with the SEC and are not ratedACL for debt securities held-to-maturity by external credit agencies. In most cases, these bonds have priority over the payment of operating costs and expenses of the municipality, which are required by law to levy special property taxes in such amounts as are requiredmajor security type for the paymentquarters ended March 31, 2022 and 2021:
| Puerto Rico Municipal Bonds | ||||
| Quarter Ended |
| Quarter Ended | ||
| March 31, 2022 |
| March 31, 2021 | ||
(In thousands) |
|
|
|
|
|
Beginning balance | $ | 8,571 |
| $ | 8,845 |
Provision for credit losses - expense |
| 3,753 |
|
| 24 |
| $ | 12,324 |
| $ | 8,869 |
|
|
|
|
|
|
During the second quarter of all of their respective general obligation bonds and loans. The PROMESA2019, the oversight board has not designated anyestablished by the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) announced the designation of the Commonwealth’sPuerto Rico’s 78 municipalities as covered entitiesinstrumentalities under PROMESA. However, while the revised fiscal plan submitted by the Puerto Rico government did not contemplate a restructuring of the debt of Puerto Rico’s municipalities, the plan did call for the gradual elimination of budgetary subsidies provided to municipalities. Furthermore, municipalities are also likely toMunicipalities may be affected by the negative economic and other effects resulting from the recent storms and from expense, revenue, or cash management measures taken by the Puerto Rico government to address its fiscal and liquidity shortfalls,situation, or measures included in fiscal plans of other government entities, such asand, more recently, by the gradual reductioneffect of the Municipal Contribution in Lieu of Taxes (“CILT”) included inCOVID-19 pandemic on the Puerto Rico Electric Power Authority (“PREPA”) fiscal plan and the GDB Restructuring Support Agreement (the “GDB RSA”). The GDB RSA provides for the restructuring under Title VI of PROMESA of substantial portions of the GDB’s indebtedness, including deposits of municipalities, through the issuance of “Participating Bond Claims” in exchange for the release of GDB from liability relating to the bonds, deposits, letters of credit and guarantees.global economy. Given the uncertain impact thatinherent uncertainties about the negative fiscal situation of the Puerto Rico central government, the COVID-19 pandemic, and the measures taken, or to be taken, by other government entities may havein response to the COVID-19 pandemic on municipalities, the Corporation cannot be certain ifwhether future impairment charges to the ACL on these securities will be required relating to these securities. required.
From time to time, the Corporation has securities held to maturity with an original maturity of three months or less that are considered cash and cash equivalents and are classified as money market investments in the consolidated statements of financial condition. As of September 30, 2017March 31, 2022 and December 31, 2016,2021, the Corporation had no outstanding securities held to maturity that were classified as cash and cash equivalents.
19
NOTE 6 – OTHER EQUITY SECURITIES
InstitutionsThe held-to-maturity investment securities portfolio consisted of financing arrangements with Puerto Rico municipalities issued in bond form, which are accounted for as securities, but are underwritten as loans with features that are memberstypically found in commercial loans. Accordingly, the Corporation monitors the credit quality of Puerto Rico municipal bonds held to maturity through the use of internal credit-risk ratings, which are generally updated on a quarterly basis. The Corporation considers a debt security held to maturity as a criticized asset if its risk rating is Special Mention, Substandard, Doubtful or Loss. Puerto Rico municipal bonds that do not meet the criteria for classification as criticized assets are considered to be pass-rated securities. For the definitions of the FHLB systeminternal credit-risk ratings, refer to Note 5 – Investment Securities included in the 2021 Annual Report on Form 10-K.
The Corporation periodically reviews its assets to evaluate if they are requiredproperly classified, and to maintain a minimum investment in FHLB stock. Such minimum investment is calculated as a percentagedetermine impairment, if any. The frequency of these reviews will depend on the amount of the aggregate outstanding mortgages,debt, and an additional investmentthe 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 securities. The objective of these loan reviews is required that is calculated as a percentageto assess accuracy of total FHLB advances, lettersthe 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 collateralized portionidentification of interest-rate swaps outstanding.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 stock is capital stock issued at $100 par value. Both stock and cash dividends may be received on FHLB stock.Loan Review Group reports the results of the credit process reviews to the Risk Management Committee.
As of September 30, 2017March 31, 2022 and December 31, 2016, the Corporation had investments in FHLB stock with a book value of $49.9 million2021, all Puerto Rico municipal bonds were classified as Pass.
NaN held-to-maturity debt securities were on nonaccrual status, 90 days past due and $40.8 million, respectively. The net realizable value is a reasonable proxy for the fair value of these instruments. Dividend income from FHLB stock for the quarters ended September 30, 2017 and 2016 was $0.5 million and $0.4 million, respectively, and for the nine-month periods ended September 30, 2017 and 2016 was $1.5 million and $1.1 million, respectively.
The shares of FHLB stock owned by the Corporation were issued by the FHLB of New York. The FHLB of New York is part of the Federal Home Loan Bank System, a national wholesale banking network of 11 regional, stockholder-owned congressionally chartered banks. The Federal Home Loan Banks are all privately capitalized and operated by their member stockholders. The system is supervised by the Federal Housing Finance Agency, which ensures that the Federal Home Loan Banks operate in a financially safe and sound manner, remain adequately capitalized and able to raise funds in the capital markets, and carry out their housing finance mission.
The Corporation has other equity securities that do not have readily available fair values. The aggregate carrying value of such securitiesstill accruing, or past due as of September 30, 2017March 31, 2022 and December 31, 2016 was $2.2 million.2021. A security is considered to be past due once it is 30 days contractually past due under the terms of the agreement.
20
NOTE 73 – LOANS HELD FOR INVESTMENT
The following table provides information about the loan portfolio held for investment: investment as of the indicated dates:
|
| As of September 30, |
| As of December 31, |
| As of March 31, |
| As of December 31, | ||||
|
| 2017 |
| 2016 |
| 2022 |
| 2021 | ||||
(In thousands) | (In thousands) |
| (In thousands) |
| ||||||||
Residential mortgage loans, mainly secured by first mortgages | Residential mortgage loans, mainly secured by first mortgages | $ | 3,274,340 |
| $ | 3,296,031 | Residential mortgage loans, mainly secured by first mortgages | $ | 2,891,699 |
| $ | 2,978,895 |
Commercial loans: |
|
|
|
|
| |||||||
Construction loans | Construction loans |
| 129,460 |
| 124,951 | Construction loans |
| 111,908 |
|
| 138,999 | |
Commercial mortgage loans | Commercial mortgage loans |
| 1,601,638 |
| 1,568,808 | Commercial mortgage loans |
| 2,237,702 |
|
| 2,167,469 | |
Commercial and Industrial loans (1) |
| 2,144,236 |
| 2,180,455 | ||||||||
Total commercial loans |
| 3,875,334 |
|
| 3,874,214 | |||||||
Finance leases |
| 246,084 |
|
| 233,335 | |||||||
Commercial and Industrial ("C&I") loans (1) (2) | Commercial and Industrial ("C&I") loans (1) (2) |
| 2,880,256 |
|
| 2,887,251 | ||||||
Consumer loans | Consumer loans |
| 1,481,456 |
|
| 1,483,293 | Consumer loans |
| 2,976,140 |
|
| 2,888,044 |
Loans held for investment |
| 8,877,214 |
|
| 8,886,873 | |||||||
Allowance for loan and lease losses |
| (230,870) |
|
| (205,603) | |||||||
Loans held for investment (3) | Loans held for investment (3) |
| 11,097,705 |
|
| 11,060,658 | ||||||
ACL on loans and finance leases | ACL on loans and finance leases |
| (245,447) |
|
| (269,030) | ||||||
Loans held for investment, net | Loans held for investment, net | $ | 8,646,344 |
| $ | 8,681,270 | Loans held for investment, net | $ | 10,852,258 |
| $ | 10,791,628 |
|
|
|
|
|
|
| ||||||
(1) | As of March 31, 2022 and December 31, 2021, includes $89.7 million and $145.0 million, respectively, of SBA PPP loans. | |||||||||||
(2) | As of March 31, 2022 and December 31, 2021, includes $938.9 million and $952.1 million, respectively, of commercial loans that were secured by real estate but were not dependent upon the real estate for repayment. | |||||||||||
|
|
|
|
|
|
| Includes accretable fair value net purchase discounts of $33.9 million and $35.3 million as of March 31, 2022 and December 31, 2021, respectively. | |||||
(1) As of September 30, 2017 and December 31, 2016, includes $884.0 million and $853.9 million, respectively, of commercial loans that are secured by real estate but are not dependent upon the real estate for repayment. | ||||||||||||
|
|
|
|
|
|
2621
Loans held for investment on which accrual of interest income had been discontinued were as follows: | ||||||
|
|
|
|
|
|
|
(In thousands) | September 30, |
| December 31, | |||
|
| 2017 |
| 2016 | ||
Non-performing loans: |
|
|
|
|
| |
Residential mortgage | $ | 178,530 |
| $ | 160,867 | |
Commercial mortgage |
| 137,059 |
|
| 178,696 | |
Commercial and Industrial |
| 84,317 |
|
| 146,599 | |
Construction: |
|
|
|
|
| |
Land |
| 10,500 |
|
| 11,026 | |
Construction-commercial |
| 35,519 |
|
| 36,893 | |
Construction-residential |
| 701 |
|
| 1,933 | |
Consumer: |
|
|
|
|
| |
Auto loans |
| 15,809 |
|
| 14,346 | |
Finance leases |
| 1,888 |
|
| 1,335 | |
Other consumer loans |
| 8,809 |
|
| 8,399 | |
Total non-performing loans held for investment (1) (2)(3) | $ | 473,132 |
| $ | 560,094 | |
|
|
|
|
|
|
|
(1) | Excludes $8.3 million and $8.1 million of non-performing loans held for sale as of September 30, 2017 and December 31, 2016, respectively. | |||||
|
|
|
|
|
|
|
(2) | Amount excludes purchased-credit impaired ("PCI") loans with a carrying value of approximately $157.8 million and $165.8 million as of September 30, 2017 and December 31, 2016, respectively, primarily mortgage loans acquired from Doral Bank in the first quarter of 2015 and from Doral Financial in the second quarter of 2014, as further discussed below. These loans are not considered non-performing due to the application of the accretion method, under which these loans will accrete interest income over the remaining life of the loans using an estimated cash flow analysis. | |||||
|
|
|
|
|
|
|
(3) | Non-performing loans exclude $388.8 million and $384.9 million of Troubled Debt Restructuring ("TDR") loans that are in compliance with modified terms and in accrual status as of September 30, 2017 and December 31, 2016, respectively. |
The following tables present by portfolio classes the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing as of March 31, 2022 and the interest income recognized on nonaccrual loans for the quarters ended March 31, 2022 and 2021: | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| As of March 31, 2022 |
| Quarter Ended March 31, 2022 |
| Quarter Ended March 31, 2021 | ||||||||||||
Puerto Rico and Virgin Islands region | Nonaccrual Loans with No ACL |
| Nonaccrual Loans with ACL |
| Total Nonaccrual Loans (2) |
| Loans Past Due 90 days or more and Still Accruing (2)(3) |
| Interest Income Recognized on Nonaccrual Loans |
| Interest Income Recognized on Nonaccrual Loans | |||||||
(In thousands) |
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans, mainly secured |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
by first mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| FHA\VA government-guaranteed | $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 57,744 |
| $ | 0 |
| $ | 0 |
| Conventional residential mortgage loans |
| 2,839 |
|
| 40,360 |
|
| 43,199 |
|
| 24,636 |
|
| 166 |
|
| 312 |
Construction loans |
| 982 |
|
| 1,561 |
|
| 2,543 |
|
| 2,269 |
|
| 14 |
|
| 15 | |
Commercial mortgage loans |
| 8,672 |
|
| 17,904 |
|
| 26,576 |
|
| 18,983 |
|
| 79 |
|
| 50 | |
C&I loans |
| 10,395 |
|
| 6,810 |
|
| 17,205 |
|
| 9,782 |
|
| 31 |
|
| 17 | |
Consumer Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 2,548 |
|
| 4,664 |
|
| 7,212 |
|
| 0 |
|
| 18 |
|
| 22 | |
Finance leases |
| 278 |
|
| 682 |
|
| 960 |
|
| 0 |
|
| 1 |
|
| 1 | |
Personal loans |
| 0 |
|
| 1,140 |
|
| 1,140 |
|
| 0 |
|
| 19 |
|
| 28 | |
Credit cards |
| 0 |
|
| 0 |
|
| 0 |
|
| 3,579 |
|
| 0 |
|
| 0 | |
Other consumer loans |
| 18 |
|
| 1,481 |
|
| 1,499 |
|
| 0 |
|
| 2 |
|
| 0 | |
Total loans held for investment (1) | $ | 25,732 |
| $ | 74,602 |
| $ | 100,334 |
| $ | 116,993 |
| $ | 330 |
| $ | 445 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Nonaccrual loans exclude $348.3 million of TDR loans that were in compliance with modified terms and in accrual status as of March 31, 2022. | |||||||||||||||||
(2) | Nonaccrual loans exclude purchase with credit deterioration ("PCD") loans previously accounted for under Accounting Standard Codification ("ASC") Subtopic 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality" ("ASC Subtopic 310-30") for which the Corporation made the accounting policy election of maintaining pools of loans accounted for under ASC Subtopic 310-30 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 accrete interest income based on the effective interest rate of the loan pools determined at the time of adoption of CECL and 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 amortized cost of such loans as of March 31, 2022 was $113.5 million. The portion of such loans contractually past due 90 days or more, amounting to $18.0 million as of March 31, 2022 ($16.4 million conventional residential mortgage loans and $1.6 million commercial mortgage loans), is presented in the loans past due 90 days or more and still accruing category in the table above. | |||||||||||||||||
(3) | These include rebooked loans, which were previously pooled into GNMA securities amounting to $9.5 million as of March 31, 2022. Under the GNMA program, the Corporation has the option but not the obligation to repurchase loans that meet GNMA’s specified delinquency criteria. For accounting purposes, the loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting liability. |
|
| As of March 31, 2022 |
| Quarter Ended March 31, 2022 |
| Quarter Ended March 31, 2021 | ||||||||||||
Florida region | Nonaccrual Loans with No ACL |
| Nonaccrual Loans with ACL |
| Total Nonaccrual Loans |
| Loans Past Due 90 days or more and Still Accruing |
| Interest Income Recognized on Nonaccrual Loans |
| Interest Income Recognized on Nonaccrual Loans | |||||||
(In thousands) |
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans, mainly secured |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
by first mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| FHA\VA government-guaranteed | $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 121 |
| $ | 0 |
| $ | 0 |
| Conventional residential mortgage loans |
| 0 |
|
| 5,619 |
|
| 5,619 |
|
| 0 |
|
| 41 |
|
| 64 |
Construction loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
Commercial mortgage loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
C&I loans |
| 445 |
|
| 479 |
|
| 924 |
|
| 10 |
|
| 16 |
|
| 18 | |
Consumer Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 0 |
|
| 22 |
|
| 22 |
|
| 0 |
|
| 0 |
|
| 0 | |
Finance leases |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
Personal loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
Credit cards |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| - |
|
| 0 | |
Other consumer loans |
| 0 |
|
| 131 |
|
| 131 |
|
| 0 |
|
| 2 |
|
| 5 | |
Total loans held for investment (1) | $ | 445 |
| $ | 6,251 |
| $ | 6,696 |
| $ | 131 |
| $ | 59 |
| $ | 87 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Nonaccrual loans exclude $5.7 million of TDR loans that were in compliance with modified terms and in accrual status as of March 31, 2022. |
22
| As of March 31, 2022 |
| Quarter Ended March 31, 2022 |
| Quarter Ended March 31, 2021 | |||||||||||||
Total | Nonaccrual Loans with No ACL |
| Nonaccrual Loans with ACL |
| Total Nonaccrual Loans (2) |
| Loans Past Due 90 days or more and Still Accruing (2)(3) |
| Interest Income Recognized on Nonaccrual Loans |
| Interest Income Recognized on Nonaccrual Loans | |||||||
(In thousands) |
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans, mainly secured |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
by first mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| FHA\VA government-guaranteed | $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 57,865 |
| $ | 0 |
| $ | 0 |
| Conventional residential mortgage loans |
| 2,839 |
|
| 45,979 |
|
| 48,818 |
|
| 24,636 |
|
| 207 |
|
| 376 |
Construction loans |
| 982 |
|
| 1,561 |
|
| 2,543 |
|
| 2,269 |
|
| 14 |
|
| 15 | |
Commercial mortgage loans |
| 8,672 |
|
| 17,904 |
|
| 26,576 |
|
| 18,983 |
|
| 79 |
|
| 50 | |
C&I loans |
| 10,840 |
|
| 7,289 |
|
| 18,129 |
|
| 9,792 |
|
| 47 |
|
| 35 | |
Consumer Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 2,548 |
|
| 4,686 |
|
| 7,234 |
|
| 0 |
|
| 18 |
|
| 22 | |
Finance leases |
| 278 |
|
| 682 |
|
| 960 |
|
| 0 |
|
| 1 |
|
| 1 | |
Personal loans |
| 0 |
|
| 1,140 |
|
| 1,140 |
|
| 0 |
|
| 19 |
|
| 28 | |
Credit cards |
| 0 |
|
| 0 |
|
| 0 |
|
| 3,579 |
|
| 0 |
|
| 0 | |
Other consumer loans |
| 18 |
|
| 1,612 |
|
| 1,630 |
|
| 0 |
|
| 4 |
|
| 5 | |
Total loans held for investment (1) | $ | 26,177 |
| $ | 80,853 |
| $ | 107,030 |
| $ | 117,124 |
| $ | 389 |
| $ | 532 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Nonaccrual loans exclude $354.0 million of TDR loans that were in compliance with modified terms and in accrual status as of March 31, 2022. | |||||||||||||||||
(2) | Nonaccrual loans excludes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans accounted for under ASC Subtopic 310-30 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 accrete interest income based on the effective interest rate of the loan pools determined at the time of adoption of CECL and 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 amortized cost of such loans as of March 31, 2022 was $113.5 million. The portion of such loans contractually past due 90 days or more, amounting to $18.0 million as of March 31, 2022 ($16.4 million conventional residential mortgage loans and $1.6 million commercial mortgage loans), is presented in the loans past due 90 days or more and still accruing category in the table above. | |||||||||||||||||
(3) | These include rebooked loans, which were previously pooled into GNMA securities, amounting to $9.5 million as of March 31, 2022. Under the GNMA program, the Corporation has the option but not the obligation to repurchase loans that meet GNMA’s specified delinquency criteria. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting liability. |
23
The following tables present by portfolio classes the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing as of December 31, 2021: | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |
|
| As of December 31, 2021 | ||||||||||
Puerto Rico and Virgin Islands region | Nonaccrual Loans with No ACL |
| Nonaccrual Loans with ACL |
| Total Nonaccrual Loans (2) |
| Loans Past Due 90 days or more and Still Accruing (2)(3) | |||||
(In thousands) |
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans, mainly secured |
|
|
|
|
|
|
|
|
|
|
| |
by first mortgages: |
|
|
|
|
|
|
|
|
|
|
| |
| FHA\VA government-guaranteed | $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 65,394 |
| Conventional residential mortgage loans |
| 3,689 |
|
| 44,286 |
|
| 47,975 |
|
| 28,433 |
Construction loans |
| 1,000 |
|
| 1,664 |
|
| 2,664 |
|
| 0 | |
Commercial mortgage loans |
| 8,289 |
|
| 17,048 |
|
| 25,337 |
|
| 9,919 | |
C&I loans |
| 10,925 |
|
| 5,259 |
|
| 16,184 |
|
| 7,766 | |
Consumer Loans: |
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 3,146 |
|
| 3,538 |
|
| 6,684 |
|
| 0 | |
Finance leases |
| 196 |
|
| 670 |
|
| 866 |
|
| 0 | |
Personal loans |
| 0 |
|
| 1,208 |
|
| 1,208 |
|
| 0 | |
Credit cards |
| 0 |
|
| 0 |
|
| 0 |
|
| 2,985 | |
Other consumer loans |
| 20 |
|
| 1,543 |
|
| 1,563 |
|
| 0 | |
Total loans held for investment (1) | $ | 27,265 |
| $ | 75,216 |
| $ | 102,481 |
| $ | 114,497 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Nonaccrual loans exclude $357.7 million of TDR loans that were in compliance with modified terms and in accrual status as of December 31, 2021. | |||||||||||
(2) | Nonaccrual loans exclude PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans accounted for under ASC Subtopic 310-30 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 accrete interest income based on the effective interest rate of the loan pools determined at the time of adoption of CECL and 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 amortized cost of such loans as of December 31, 2021 was $117.5 million. The portion of such loans contractually past due 90 days or more, amounting to $20.6 million as of December 31, 2021 ($19.1 million conventional residential mortgage loans and $1.5 million commercial mortgage loans), is presented in the loans past due 90 days or more and still accruing category in the table above. | |||||||||||
(3) | These include rebooked loans, which were previously pooled into GNMA securities amounting to $7.2 million as of December 31, 2021. Under the GNMA program, the Corporation has the option but not the obligation to repurchase loans that meet GNMA’s specified delinquency criteria. For accounting purposes, the loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting liability. |
|
| As of December 31, 2021 | ||||||||||
Florida region | Nonaccrual Loans with No ACL |
| Nonaccrual Loans with ACL |
| Total Nonaccrual Loans |
| Loans Past Due 90 days or more and Still Accruing | |||||
(In thousands) |
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans, mainly secured |
|
|
|
|
|
|
|
|
|
|
| |
by first mortgages: |
|
|
|
|
|
|
|
|
|
|
| |
| FHA\VA government-guaranteed | $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 121 |
| Conventional residential mortgage loans |
| 0 |
|
| 7,152 |
|
| 7,152 |
|
| 0 |
Construction loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
Commercial mortgage loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
C&I loans |
| 468 |
|
| 483 |
|
| 951 |
|
| 61 | |
Consumer Loans: |
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
Finance leases |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
Personal loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
Credit cards |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
Other consumer loans |
| 0 |
|
| 133 |
|
| 133 |
|
| 0 | |
Total loans held for investment (1) | $ | 468 |
| $ | 7,768 |
| $ | 8,236 |
| $ | 182 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Nonaccrual loans exclude $5.7 million of TDR loans that were in compliance with modified terms and in accrual status as of December 31, 2021. |
24
| As of December 31, 2021 | |||||||||||
Total | Nonaccrual Loans with No ACL |
| Nonaccrual Loans with ACL |
| Total Nonaccrual Loans (2) |
| Loans Past Due 90 days or more and Still Accruing (2)(3) | |||||
(In thousands) |
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans, mainly secured |
|
|
|
|
|
|
|
|
|
|
| |
by first mortgages: |
|
|
|
|
|
|
|
|
|
|
| |
| FHA\VA government-guaranteed | $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 65,515 |
| Conventional residential mortgage loans |
| 3,689 |
|
| 51,438 |
|
| 55,127 |
|
| 28,433 |
Construction loans |
| 1,000 |
|
| 1,664 |
|
| 2,664 |
|
| 0 | |
Commercial mortgage loans |
| 8,289 |
|
| 17,048 |
|
| 25,337 |
|
| 9,919 | |
C&I loans |
| 11,393 |
|
| 5,742 |
|
| 17,135 |
|
| 7,827 | |
Consumer Loans: |
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 3,146 |
|
| 3,538 |
|
| 6,684 |
|
| 0 | |
Finance leases |
| 196 |
|
| 670 |
|
| 866 |
|
| 0 | |
Personal loans |
| 0 |
|
| 1,208 |
|
| 1,208 |
|
| 0 | |
Credit cards |
| 0 |
|
| 0 |
|
| 0 |
|
| 2,985 | |
Other consumer loans |
| 20 |
|
| 1,676 |
|
| 1,696 |
|
| 0 | |
Total loans held for investment (1) | $ | 27,733 |
| $ | 82,984 |
| $ | 110,717 |
| $ | 114,679 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Nonaccrual loans exclude $363.4 million of TDR loans that were in compliance with modified terms and in accrual status as of December 31, 2021. | |||||||||||
(2) | Nonaccrual loans excludes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans accounted for under ASC Subtopic 310-30 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 accrete interest income based on the effective interest rate of the loan pools determined at the time of adoption of CECL and 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 amortized cost of such loans as of December 31, 2021 was $117.5 million. The portion of such loans contractually past due 90 days or more, amounting to $20.6 million as of December 31, 2021 ($19.1 million conventional residential mortgage loans and $1.5 million commercial mortgage loans), is presented in the loans past due 90 days or more and still accruing category in the table above. | |||||||||||
(3) | These include rebooked loans, which were previously pooled into GNMA securities, amounting to $7.2 million as of December 31, 2021. Under the GNMA program, the Corporation has the option but not the obligation to repurchase loans that meet GNMA’s specified delinquency criteria. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting liability. |
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. The amount of accrued interest reversed against interest income totaled $0.4 million for the first quarter of 2022 ($1.0 million for the first quarter of 2021).
Loans in Process of Foreclosure
As of September 30, 2017,March 31, 2022, the recorded investment ofon residential mortgage loans collateralized by residential real estate property that arewere in the process of foreclosure amounted to $156.8$84.8 million, including $24.4$37.7 million of loans insured by the FHA or guaranteed by the VA, and $20.2$11.7 million of PCI loans. PCD loans acquired prior to the adoption on January 1, 2020 of CECL and for which the Corporation made the accounting policy election of maintaining pools of loans previously accounted for under ASC 310-30 as “units of account.” The Corporation commences the foreclosure process on residential real estate loans when a borrower becomes 120 days delinquent, in accordance with the guidelinesrequirements of the Consumer Financial Protection Bureau (CFPB)(“CFPB”). Foreclosure procedures and timelines vary depending on whether the property is located in a judicial or non-judicial state. Judicial states (Puerto(i.e., Puerto Rico, Florida and the USVI) require the foreclosure to be processed through the state’s court while foreclosure in non-judicial states (BVI)(i.e., the BVI) is processed without court intervention. Foreclosure timelines vary according to statelocal jurisdiction law and investor guidelines. Occasionally, foreclosures may be delayed due to, among other reasons, mandatory mediations, bankruptcy, court delays, and title issues,issues.
25
The Corporation’s aging of the loan portfolio held for investment by portfolio classes as of March 31, 2022 is as follows: | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Puerto Rico and Virgin Islands region | 30-59 Days Past Due |
| 60-89 Days Past Due |
| 90 days or more Past Due (1) (2) (3) |
| Total Past Due |
| Current |
| Total loans held for investment | |||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Residential mortgage loans, mainly secured by first mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
FHA/VA government-guaranteed loans (2) (3) (4) | $ | 0 |
| $ | 2,254 |
| $ | 57,744 |
| $ | 59,998 |
| $ | 60,276 |
| $ | 120,274 | |
Conventional residential mortgage loans (4) |
| 0 |
|
| 29,830 |
|
| 67,835 |
|
| 97,665 |
|
| 2,269,154 |
|
| 2,366,819 | |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Construction loans |
| 63 |
|
| 0 |
|
| 4,812 |
|
| 4,875 |
|
| 40,545 |
|
| 45,420 | |
Commercial mortgage loans (4) |
| 6,017 |
|
| 5,880 |
|
| 45,559 |
|
| 57,456 |
|
| 1,676,401 |
|
| 1,733,857 | |
C&I loans |
| 5,704 |
|
| 6,675 |
|
| 26,987 |
|
| 39,366 |
|
| 1,887,560 |
|
| 1,926,926 | |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 21,961 |
|
| 3,948 |
|
| 7,212 |
|
| 33,121 |
|
| 1,596,528 |
|
| 1,629,649 | |
Finance leases |
| 4,870 |
|
| 1,254 |
|
| 960 |
|
| 7,084 |
|
| 599,182 |
|
| 606,266 | |
Personal loans |
| 2,633 |
|
| 1,510 |
|
| 1,140 |
|
| 5,283 |
|
| 304,364 |
|
| 309,647 | |
Credit cards |
| 3,039 |
|
| 1,681 |
|
| 3,579 |
|
| 8,299 |
|
| 280,093 |
|
| 288,392 | |
Other consumer loans |
| 1,615 |
|
| 751 |
|
| 1,499 |
|
| 3,865 |
|
| 124,180 |
|
| 128,045 | |
Total loans held for investment | $ | 45,902 |
| $ | 53,783 |
| $ | 217,327 |
| $ | 317,012 |
| $ | 8,838,283 |
| $ | 9,155,295 | |
|
| |||||||||||||||||
(1) | Includes nonaccrual loans and accruing loans that were contractually delinquent 90 days or more (i.e., FHA/VA guaranteed loans and credit cards). Credit card loans continue to accrue finance charges and fees until charged-off at 180 days. | |||||||||||||||||
(2) | It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans since the principal repayment is insured. 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 $38.6 million of residential mortgage loans insured by the FHA that were over 15 months delinquent. | |||||||||||||||||
(3) | As of March 31, 2022, includes $9.5 million of defaulted loans collateralizing GNMA securities for which the Corporation has an unconditional option (but not an obligation) to repurchase the defaulted loans. | |||||||||||||||||
(4) | According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA government-guaranteed loans, conventional residential mortgage loans, and commercial mortgage loans past due 30-59 days, but less than two payments in arrears, as of March 31, 2022 amounted to $5.9 million, $54.0 million, and $0.9 million, respectively. |
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Florida region | 30-59 Days Past Due |
| 60-89 Days Past Due |
| 90 days or more Past Due (1) (2) |
| Total Past Due |
| Current |
| Total loans held for investment | |||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Residential mortgage loans, mainly secured by first mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
FHA/VA government-guaranteed loans (2) | $ | 0 |
| $ | 0 |
| $ | 121 |
| $ | 121 |
| $ | 615 |
| $ | 736 | |
Conventional residential mortgage loans (3) |
| 0 |
|
| 0 |
|
| 5,619 |
|
| 5,619 |
|
| 398,251 |
|
| 403,870 | |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Construction loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 66,488 |
|
| 66,488 | |
Commercial mortgage loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 503,845 |
|
| 503,845 | |
C&I loans |
| 307 |
|
| 0 |
|
| 934 |
|
| 1,241 |
|
| 952,089 |
|
| 953,330 | |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 299 |
|
| 95 |
|
| 22 |
|
| 416 |
|
| 6,650 |
|
| 7,066 | |
Finance leases |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
Personal loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 410 |
|
| 410 | |
Credit cards |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
Other consumer loans |
| 13 |
|
| 0 |
|
| 131 |
|
| 144 |
|
| 6,521 |
|
| 6,665 | |
Total loans held for investment | $ | 619 |
| $ | 95 |
| $ | 6,827 |
| $ | 7,541 |
| $ | 1,934,869 |
| $ | 1,942,410 | |
|
| |||||||||||||||||
(1) | Includes nonaccrual loans and accruing loans that were contractually delinquent 90 days or more (i.e., FHA/VA guaranteed loans). | |||||||||||||||||
(2) | It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans since the principal repayment is insured. 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 $0.1 million of residential mortgage loans insured by the FHA that were over 15 months delinquent. | |||||||||||||||||
(3) | 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. Conventional residential mortgage loans past due 30-59 days, but less than two payments in arrears, as of March 31, 2022 amounted to $7.7 million. |
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total | 30-59 Days Past Due |
| 60-89 Days Past Due |
| 90 days or more Past Due (1) (2) (3) |
| Total Past Due |
| Current |
| Total loans held for investment | |||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Residential mortgage loans, mainly secured by first mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
FHA/VA government-guaranteed loans (2) (3) (4) | $ | 0 |
| $ | 2,254 |
| $ | 57,865 |
| $ | 60,119 |
| $ | 60,891 |
| $ | 121,010 | |
Conventional residential mortgage loans (4) |
| 0 |
|
| 29,830 |
|
| 73,454 |
|
| 103,284 |
|
| 2,667,405 |
|
| 2,770,689 | |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Construction loans |
| 63 |
|
| 0 |
|
| 4,812 |
|
| 4,875 |
|
| 107,033 |
|
| 111,908 | |
Commercial mortgage loans (4) |
| 6,017 |
|
| 5,880 |
|
| 45,559 |
|
| 57,456 |
|
| 2,180,246 |
|
| 2,237,702 | |
C&I loans |
| 6,011 |
|
| 6,675 |
|
| 27,921 |
|
| 40,607 |
|
| 2,839,649 |
|
| 2,880,256 | |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 22,260 |
|
| 4,043 |
|
| 7,234 |
|
| 33,537 |
|
| 1,603,178 |
|
| 1,636,715 | |
Finance leases |
| 4,870 |
|
| 1,254 |
|
| 960 |
|
| 7,084 |
|
| 599,182 |
|
| 606,266 | |
Personal loans |
| 2,633 |
|
| 1,510 |
|
| 1,140 |
|
| 5,283 |
|
| 304,774 |
|
| 310,057 | |
Credit cards |
| 3,039 |
|
| 1,681 |
|
| 3,579 |
|
| 8,299 |
|
| 280,093 |
|
| 288,392 | |
Other consumer loans |
| 1,628 |
|
| 751 |
|
| 1,630 |
|
| 4,009 |
|
| 130,701 |
|
| 134,710 | |
Total loans held for investment | $ | 46,521 |
| $ | 53,878 |
| $ | 224,154 |
| $ | 324,553 |
| $ | 10,773,152 |
| $ | 11,097,705 | |
|
| |||||||||||||||||
(1) | Includes nonaccrual loans and accruing loans that were contractually delinquent 90 days or more (i.e., FHA/VA guaranteed loans and credit cards). Credit card loans continue to accrue finance charges and fees until charged-off at 180 days. | |||||||||||||||||
(2) | It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans since the principal repayment is insured. 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 $38.7 million of residential mortgage loans insured by the FHA that were over 15 months delinquent. | |||||||||||||||||
(3) | As of Mach 31, 2022, includes $9.5 million of defaulted loans collateralizing GNMA securities for which the Corporation has an unconditional option (but not an obligation) to repurchase the defaulted loans. | |||||||||||||||||
(4) | According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA government-guaranteed loans, conventional residential mortgage loans, and commercial mortgage loans past due 30-59 days, but less than two payments in arrears, as of March 31, 2022 amounted to $5.9 million, $61.7 million, and $0.9 million, respectively. |
28
The Corporation’s aging of the loan portfolio held for investment by portfolio classes as of December 31, 2021 is as follows: | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Puerto Rico and Virgin Islands region | 30-59 Days Past Due |
| 60-89 Days Past Due |
| 90 days or more Past Due (1) (2) (3) |
| Total Past Due |
| Current |
| Total loans held for investment | |||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Residential mortgage loans, mainly secured by first mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
FHA/VA government-guaranteed loans (2) (3) (4) | $ | 0 |
| $ | 2,355 |
| $ | 65,394 |
| $ | 67,749 |
| $ | 56,903 |
| $ | 124,652 | |
Conventional residential mortgage loans (4) |
| 0 |
|
| 29,724 |
|
| 76,408 |
|
| 106,132 |
|
| 2,318,789 |
|
| 2,424,921 | |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Construction loans |
| 18 |
|
| 0 |
|
| 2,664 |
|
| 2,682 |
|
| 40,451 |
|
| 43,133 | |
Commercial mortgage loans (4) |
| 2,402 |
|
| 436 |
|
| 35,256 |
|
| 38,094 |
|
| 1,664,137 |
|
| 1,702,231 | |
C&I loans |
| 2,007 |
|
| 1,782 |
|
| 23,950 |
|
| 27,739 |
|
| 1,918,858 |
|
| 1,946,597 | |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 26,020 |
|
| 4,828 |
|
| 6,684 |
|
| 37,532 |
|
| 1,525,249 |
|
| 1,562,781 | |
Finance leases |
| 4,820 |
|
| 713 |
|
| 866 |
|
| 6,399 |
|
| 568,606 |
|
| 575,005 | |
Personal loans |
| 3,299 |
|
| 1,285 |
|
| 1,208 |
|
| 5,792 |
|
| 310,283 |
|
| 316,075 | |
Credit cards |
| 3,158 |
|
| 1,904 |
|
| 2,985 |
|
| 8,047 |
|
| 282,179 |
|
| 290,226 | |
Other consumer loans |
| 1,985 |
|
| 811 |
|
| 1,563 |
|
| 4,359 |
|
| 123,938 |
|
| 128,297 | |
Total loans held for investment | $ | 43,709 |
| $ | 43,838 |
| $ | 216,978 |
| $ | 304,525 |
| $ | 8,809,393 |
| $ | 9,113,918 | |
|
| |||||||||||||||||
(1) | Includes nonaccrual loans and accruing loans that were contractually delinquent 90 days or more (i.e., FHA/VA guaranteed loans and credit cards). Credit card loans continue to accrue finance charges and fees until charged-off at 180 days. | |||||||||||||||||
(2) | It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans since the principal repayment is insured. 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 million of residential mortgage loans insured by the FHA that were over 15 months delinquent. | |||||||||||||||||
(3) | As of December 31, 2021, includes $7.2 million of defaulted loans collateralizing GNMA securities for which the Corporation has an unconditional option (but not an obligation) to repurchase the defaulted loans. | |||||||||||||||||
(4) | 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 million, $63.1 million, and $0.7 million, respectively. |
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Florida region | 30-59 Days Past Due |
| 60-89 Days Past Due |
| 90 days or more Past Due (1) (2) |
| Total Past Due |
| Current |
| Total loans held for investment | |||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Residential mortgage loans, mainly secured by first mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
FHA/VA government-guaranteed loans (2) | $ | 0 |
| $ | 0 |
| $ | 121 |
| $ | 121 |
| $ | 619 |
| $ | 740 | |
Conventional residential mortgage loans (3) |
| 0 |
|
| 2,108 |
|
| 7,152 |
|
| 9,260 |
|
| 419,322 |
|
| 428,582 | |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Construction loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 95,866 |
|
| 95,866 | |
Commercial mortgage loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 465,238 |
|
| 465,238 | |
C&I loans |
| 40 |
|
| 63 |
|
| 1,012 |
|
| 1,115 |
|
| 939,539 |
|
| 940,654 | |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 442 |
|
| 121 |
|
| 0 |
|
| 563 |
|
| 8,196 |
|
| 8,759 | |
Finance leases |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
Personal loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 107 |
|
| 107 | |
Credit cards |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
Other consumer loans |
| 11 |
|
| 0 |
|
| 133 |
|
| 144 |
|
| 6,650 |
|
| 6,794 | |
Total loans held for investment | $ | 493 |
| $ | 2,292 |
| $ | 8,418 |
| $ | 11,203 |
| $ | 1,935,537 |
| $ | 1,946,740 | |
|
| |||||||||||||||||
(1) | Includes nonaccrual loans and accruing loans that were contractually delinquent 90 days or more (i.e., FHA/VA guaranteed loans). | |||||||||||||||||
(2) | It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans since the principal repayment is insured. 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. NaN residential mortgage loans insured by the FHA in the Florida region were over 15 months delinquent as of December 31, 2021. | |||||||||||||||||
(3) | 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. Conventional residential mortgage loans past due 30-59 days, but less than two payments in arrears, as of December 31, 2021 amounted to $2.9 million. |
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total | 30-59 Days Past Due |
| 60-89 Days Past Due |
| 90 days or more Past Due (1) (2) (3) |
| Total Past Due |
| Current |
| Total loans held for investment | |||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Residential mortgage loans, mainly secured by first mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
FHA/VA government-guaranteed loans (2) (3) (4) | $ | 0 |
| $ | 2,355 |
| $ | 65,515 |
| $ | 67,870 |
| $ | 57,522 |
| $ | 125,392 | |
Conventional residential mortgage loans (4) |
| 0 |
|
| 31,832 |
|
| 83,560 |
|
| 115,392 |
|
| 2,738,111 |
|
| 2,853,503 | |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Construction loans |
| 18 |
|
| 0 |
|
| 2,664 |
|
| 2,682 |
|
| 136,317 |
|
| 138,999 | |
Commercial mortgage loans (4) |
| 2,402 |
|
| 436 |
|
| 35,256 |
|
| 38,094 |
|
| 2,129,375 |
|
| 2,167,469 | |
C&I loans |
| 2,047 |
|
| 1,845 |
|
| 24,962 |
|
| 28,854 |
|
| 2,858,397 |
|
| 2,887,251 | |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 26,462 |
|
| 4,949 |
|
| 6,684 |
|
| 38,095 |
|
| 1,533,445 |
|
| 1,571,540 | |
Finance leases |
| 4,820 |
|
| 713 |
|
| 866 |
|
| 6,399 |
|
| 568,606 |
|
| 575,005 | |
Personal loans |
| 3,299 |
|
| 1,285 |
|
| 1,208 |
|
| 5,792 |
|
| 310,390 |
|
| 316,182 | |
Credit cards |
| 3,158 |
|
| 1,904 |
|
| 2,985 |
|
| 8,047 |
|
| 282,179 |
|
| 290,226 | |
Other consumer loans |
| 1,996 |
|
| 811 |
|
| 1,696 |
|
| 4,503 |
|
| 130,588 |
|
| 135,091 | |
Total loans held for investment | $ | 44,202 |
| $ | 46,130 |
| $ | 225,396 |
| $ | 315,728 |
| $ | 10,744,930 |
| $ | 11,060,658 | |
|
| |||||||||||||||||
(1) | Includes nonaccrual loans and accruing loans that were contractually delinquent 90 days or more (i.e., FHA/VA guaranteed loans and credit cards). Credit card loans continue to accrue finance charges and fees until charged-off at 180 days. | |||||||||||||||||
(2) | It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans since the principal repayment is insured. 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 million of residential mortgage loans insured by the FHA that were over 15 months delinquent. | |||||||||||||||||
(3) | As of December 31, 2021, includes $7.2 million of defaulted loans collateralizing GNMA securities for which the Corporation has an unconditional option (but not an obligation) to repurchase the defaulted loans. | |||||||||||||||||
(4) | 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 million, $66.0 million, and $0.7 million, respectively. |
31
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 reasons.
27
The Corporation’s aging of the loans held for investment portfolio is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
| Purchased Credit-Impaired Loans |
|
|
| Total loans held for investment |
| 90 days past due and still accruing (2) | |||||||||
| 30-59 Days Past Due |
| 60-89 Days Past Due |
|
| 90 days or more Past Due (1) |
| Total Past Due |
|
|
|
|
| |||||||||||
As of September 30, 2017 |
|
|
|
|
|
|
|
|
| |||||||||||||||
(In thousands) |
|
|
|
|
|
| Current |
|
| |||||||||||||||
Residential mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
FHA/VA and other government-guaranteed loans (2) (3) (4) | $ | - |
| $ | 4,300 |
| $ | 76,601 |
| $ | 80,901 |
| $ | - |
| $ | 40,667 |
| $ | 121,568 |
| $ | 76,601 | |
Other residential mortgage loans (4) |
| - |
|
| 82,263 |
|
| 197,176 |
|
| 279,439 |
|
| 153,609 |
|
| 2,719,724 |
|
| 3,152,772 |
|
| 18,646 | |
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial and Industrial loans |
| 12,011 |
|
| 1,763 |
|
| 87,970 |
|
| 101,744 |
|
| - |
|
| 2,042,492 |
|
| 2,144,236 |
|
| 3,653 | |
Commercial mortgage loans (4) |
| - |
|
| 16,300 |
|
| 143,558 |
|
| 159,858 |
|
| 4,185 |
|
| 1,437,595 |
|
| 1,601,638 |
|
| 6,499 | |
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Land (4) |
| - |
|
| 163 |
|
| 10,715 |
|
| 10,878 |
|
| - |
|
| 19,075 |
|
| 29,953 |
|
| 215 | |
Construction-commercial |
| - |
|
| - |
|
| 35,519 |
|
| 35,519 |
|
| - |
|
| 56,058 |
|
| 91,577 |
|
| - | |
Construction-residential |
| - |
|
| - |
|
| 701 |
|
| 701 |
|
| - |
|
| 7,229 |
|
| 7,930 |
|
| - | |
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 64,869 |
|
| 28,638 |
|
| 15,809 |
|
| 109,316 |
|
| - |
|
| 724,896 |
|
| 834,212 |
|
| - | |
Finance leases |
| 10,960 |
|
| 4,239 |
|
| 1,888 |
|
| 17,087 |
|
| - |
|
| 228,997 |
|
| 246,084 |
|
| - | |
Other consumer loans |
| 15,388 |
|
| 5,644 |
|
| 12,746 |
|
| 33,778 |
|
| - |
|
| 613,466 |
|
| 647,244 |
|
| 3,937 | |
Total loans held for investment | $ | 103,228 |
| $ | 143,310 |
| $ | 582,683 |
| $ | 829,221 |
| $ | 157,794 |
| $ | 7,890,199 |
| $ | 8,877,214 |
| $ | 109,551 | |
_____________ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(1) | Includes non-performing loans and accruing loans that are contractually delinquent 90 days or more (i.e., FHA/VA guaranteed loans and credit cards). Credit card loans continue to accrue finance charges and fees until charged-off at 180 days. | |||||||||||||||||||||||
(2) | It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA or guaranteed by the VA as past-due loans 90 days and still accruing as opposed to non-performing loans since the principal repayment is insured. These balances include $28.9 million of residential mortgage loans insured by the FHA or guaranteed by the VA that are over 15 months delinquent, and are no longer accruing interest as of September 30, 2017. | |||||||||||||||||||||||
(3) | As of September 30, 2017, includes $45.1 million of defaulted loans collateralizing Government National Mortgage Association ("GNMA") securities for which the Corporation has an unconditional option (but not an obligation) to repurchase the defaulted loans. | |||||||||||||||||||||||
(4) | 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, other residential mortgage loans, commercial mortgage loans, land loans, construction-residential loans and construction-commercial loans past due 30-59 days as of September 30, 2017 amounted to $9.4 million, $216.1 million, $33.8 million, $0.9 million, $6.4 million and $0.1 million, respectively. | |||||||||||||||||||||||
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||
As of December 31, 2016 | 30-59 Days Past Due |
| 60-89 Days Past Due |
| 90 days or more Past Due (1) |
|
|
|
|
|
|
|
|
|
| Total loans held for investment |
| 90 days past due and still accruing (2) | ||||||
(In thousands) |
|
|
|
| Total Past Due |
|
| Purchased Credit- Impaired Loans |
|
| Current |
|
| |||||||||||
Residential mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
FHA/VA and other government-guaranteed loans (2) (3) (4) | $ | - |
| $ | 5,179 |
| $ | 77,052 |
| $ | 82,231 |
| $ | - |
| $ | 44,627 |
| $ | 126,858 |
| $ | 77,052 | |
Other residential mortgage loans (4) |
| - |
|
| 94,004 |
|
| 177,568 |
|
| 271,572 |
|
| 162,676 |
|
| 2,734,925 |
|
| 3,169,173 |
|
| 16,701 | |
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial and Industrial loans |
| 14,195 |
|
| 3,724 |
|
| 151,967 |
|
| 169,886 |
|
| - |
|
| 2,010,569 |
|
| 2,180,455 |
|
| 5,368 | |
Commercial mortgage loans (4) |
| - |
|
| 4,534 |
|
| 181,977 |
|
| 186,511 |
|
| 3,142 |
|
| 1,379,155 |
|
| 1,568,808 |
|
| 3,281 | |
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Land (4) |
| - |
|
| 436 |
|
| 11,504 |
|
| 11,940 |
|
| - |
|
| 19,826 |
|
| 31,766 |
|
| 478 | |
Construction-commercial |
| - |
|
| - |
|
| 36,893 |
|
| 36,893 |
|
| - |
|
| 40,582 |
|
| 77,475 |
|
| - | |
Construction-residential (4) |
| - |
|
| - |
|
| 1,933 |
|
| 1,933 |
|
| - |
|
| 13,777 |
|
| 15,710 |
|
| - | |
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 57,142 |
|
| 13,523 |
|
| 14,346 |
|
| 85,011 |
|
| - |
|
| 762,947 |
|
| 847,958 |
|
| - | |
Finance leases |
| 7,714 |
|
| 1,671 |
|
| 1,335 |
|
| 10,720 |
|
| - |
|
| 222,615 |
|
| 233,335 |
|
| - | |
Other consumer loans |
| 7,675 |
|
| 5,254 |
|
| 12,328 |
|
| 25,257 |
|
| - |
|
| 610,078 |
|
| 635,335 |
|
| 3,929 | |
Total loans held for investment | $ | 86,726 |
| $ | 128,325 |
| $ | 666,903 |
| $ | 881,954 |
| $ | 165,818 |
| $ | 7,839,101 |
| $ | 8,886,873 |
| $ | 106,809 | |
____________ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(1) | Includes non-performing loans and accruing loans that are contractually delinquent 90 days or more (i.e. FHA/VA guaranteed loans and credit cards). Credit card loans continue to accrue finance charges and fees until charged-off at 180 days. | |||||||||||||||||||||||
(2) | It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA or guaranteed by the VA as past-due loans 90 days and still accruing as opposed to non-performing loans since the principal repayment is insured. These balances include $29.3 million of residential mortgage loans insured by the FHA or guaranteed by the VA that are over 15 months delinquent, and are no longer accruing interest as of December 31, 2016. | |||||||||||||||||||||||
(3) | As of December 31, 2016, includes $43.7 million of defaulted loans collateralizing GNMA securities for which the Corporation has an unconditional option (but not an obligation) to repurchase the defaulted loans. | |||||||||||||||||||||||
(4) | 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, other residential mortgage loans, commercial mortgage loans, land loans and construction-residential loans past due 30-59 days as of December 31, 2016 amounted to $9.9 million, $142.8 million, $4.6 million, $0.7 million and $0.4 million, respectively. | |||||||||||||||||||||||
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||
28
In working with borrowers affected by Hurricanes Irmafactors. The Corporation analyzes non-homogeneous loans, such as commercial mortgage, commercial and Maria, which made landfall on September 6, 2017industrial, and September 20, 2017, respectively,construction loans individually to classify the loans’ credit risk. As mentioned above, the Corporation provided automatic three-month deferred repayment arrangements across-the-boardperiodically reviews its commercial and construction loans to all consumer borrowers (i.e. personal loans, auto loans, finance leases and credit cards) who were current in their payments or no more than 2 payment in arrears asevaluate if they are properly classified. The frequency of these reviews will depend on the amount of the dateaggregate outstanding debt, and the risk rating classification of the respective hurricane. 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 securities, as discussed in Note 5 – Investment Securities, in the 2021 Annual Report on Form 10-K.
For residential mortgage and consumer loans, the Corporation has entered into deferral payment agreementsalso evaluates credit quality based on 10,160 residential mortgages totaling $1.3 billion that provide for a three-month payment deferral for thoseits interest accrual status.
Based on the most recent analysis performed, the amortized cost of commercial and construction loans current or no more than 2 payment in arrearsby portfolio classes and by origination year based on the internal credit-risk category as of March 31, 2022 and the dateamortized cost of commercial and construction loans by portfolio classes based on the event. internal credit-risk category as of December 31, 2021 was as follows:
|
| As of March 31, 2022 |
|
|
|
|
|
|
|
| |||||||||||||||||
Puerto Rico and Virgin Islands region |
| Term Loans |
|
|
|
|
|
|
| As of December 31, 2021 | |||||||||||||||||
| Amortized Cost Basis by Origination Year (1) |
|
|
|
|
|
|
| |||||||||||||||||||
(In thousands) |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| Prior |
| Revolving Loans Amortized Cost Basis |
| Total |
| Total | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSTRUCTION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Ratings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 0 |
| $ | 3,222 |
| $ | 10,366 |
| $ | 22,187 |
| $ | 0 |
| $ | 4,988 |
| $ | 0 |
| $ | 40,763 |
| $ | 38,066 |
Criticized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Mention |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 763 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 763 |
|
| 765 |
Substandard |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 560 |
|
| 3,334 |
|
| 0 |
|
| 3,894 |
|
| 4,302 |
Doubtful |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Loss |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Total construction loans |
| $ | 0 |
| $ | 3,222 |
| $ | 10,366 |
| $ | 22,950 |
| $ | 560 |
| $ | 8,322 |
| $ | 0 |
| $ | 45,420 |
| $ | 43,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMERCIAL MORTGAGE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Ratings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 77,512 |
| $ | 157,048 |
| $ | 362,643 |
| $ | 212,643 |
| $ | 207,859 |
| $ | 412,942 |
| $ | 13 |
| $ | 1,430,660 |
| $ | 1,395,569 |
Criticized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Mention |
|
| 0 |
|
| 0 |
|
| 10,517 |
|
| 86,271 |
|
| 19,071 |
|
| 139,787 |
|
| 0 |
|
| 255,646 |
|
| 259,263 |
Substandard |
|
| 140 |
|
| 1,385 |
|
| 0 |
|
| 2,976 |
|
| 775 |
|
| 42,275 |
|
| 0 |
|
| 47,551 |
|
| 47,399 |
Doubtful |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Loss |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Total commercial mortgage loans |
| $ | 77,652 |
| $ | 158,433 |
| $ | 373,160 |
| $ | 301,890 |
| $ | 227,705 |
| $ | 595,004 |
| $ | 13 |
| $ | 1,733,857 |
| $ | 1,702,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMERCIAL AND INDUSTRIAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Ratings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 15,449 |
| $ | 270,721 |
| $ | 197,640 |
| $ | 341,326 |
| $ | 176,703 |
| $ | 326,633 |
| $ | 508,459 |
| $ | 1,836,931 |
| $ | 1,852,552 |
Criticized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Mention |
|
| 0 |
|
| 9,493 |
|
| 1,332 |
|
| 415 |
|
| 242 |
|
| 11,192 |
|
| 6,501 |
|
| 29,175 |
|
| 32,650 |
Substandard |
|
| 247 |
|
| 437 |
|
| 1,434 |
|
| 14,175 |
|
| 2,052 |
|
| 36,137 |
|
| 6,338 |
|
| 60,820 |
|
| 61,395 |
Doubtful |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Loss |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Total commercial and industrial loans |
| $ | 15,696 |
| $ | 280,651 |
| $ | 200,406 |
| $ | 355,916 |
| $ | 178,997 |
| $ | 373,962 |
| $ | 521,298 |
| $ | 1,926,926 |
| $ | 1,946,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Excludes accrued interest receivable. |
32
|
|
|
|
|
|
|
| As of March 31, 2022 |
|
|
|
|
|
|
|
| |||||||||||
|
|
|
|
|
|
|
| Term Loans |
|
|
|
|
|
|
| As of December 31, 2021 | |||||||||||
Florida region |
|
|
|
|
|
|
| Amortized Cost Basis by Origination Year (1) |
|
|
|
|
|
|
| ||||||||||||
(In thousands) |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| Prior |
| Revolving Loans Amortized Cost Basis |
| Total |
| Total | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSTRUCTION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Ratings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 6,982 |
| $ | 37,839 |
| $ | 0 |
| $ | 83 |
| $ | 21,584 |
| $ | 0 |
| $ | 0 |
| $ | 66,488 |
| $ | 95,866 |
Criticized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Mention |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Substandard |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Doubtful |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Loss |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Total construction loans |
| $ | 6,982 |
| $ | 37,839 |
| $ | 0 |
| $ | 83 |
| $ | 21,584 |
| $ | 0 |
| $ | 0 |
| $ | 66,488 |
| $ | 95,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMERCIAL MORTGAGE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Ratings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 43,530 |
| $ | 92,525 |
| $ | 81,498 |
| $ | 86,030 |
| $ | 70,448 |
| $ | 60,170 |
| $ | 19,965 |
| $ | 454,166 |
| $ | 404,304 |
Criticized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Mention |
|
| 0 |
|
| 0 |
|
| 8,270 |
|
| 13,527 |
|
| 6,734 |
|
| 20,834 |
|
| 0 |
|
| 49,365 |
|
| 60,618 |
Substandard |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 314 |
|
| 0 |
|
| 314 |
|
| 316 |
Doubtful |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Loss |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Total commercial mortgage loans |
| $ | 43,530 |
| $ | 92,525 |
| $ | 89,768 |
| $ | 99,557 |
| $ | 77,182 |
| $ | 81,318 |
| $ | 19,965 |
| $ | 503,845 |
| $ | 465,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMERCIAL AND INDUSTRIAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Ratings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 38,289 |
| $ | 211,235 |
| $ | 93,566 |
| $ | 223,963 |
| $ | 115,721 |
| $ | 63,524 |
| $ | 80,989 |
| $ | 827,287 |
| $ | 826,823 |
Criticized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Mention |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 18,878 |
|
| 13,076 |
|
| 12,556 |
|
| 17,973 |
|
| 62,483 |
|
| 49,946 |
Substandard |
|
| 0 |
|
| 0 |
|
| 24,196 |
|
| 34,502 |
|
| 0 |
|
| 4,527 |
|
| 335 |
|
| 63,560 |
|
| 63,885 |
Doubtful |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Loss |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Total commercial and industrial loans |
| $ | 38,289 |
| $ | 211,235 |
| $ | 117,762 |
| $ | 277,343 |
| $ | 128,797 |
| $ | 80,607 |
| $ | 99,297 |
| $ | 953,330 |
| $ | 940,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Excludes accrued interest receivable. |
33
|
| As of March 31, 2022 |
|
|
|
|
|
|
|
| |||||||||||||||||
Total |
| Term Loans |
|
|
|
|
|
|
| As of December 31, 2021 | |||||||||||||||||
|
| Amortized Cost Basis by Origination Year (1) |
|
|
|
|
|
|
| ||||||||||||||||||
(In thousands) |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| Prior |
| Revolving Loans Amortized Cost Basis |
| Total |
| Total | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSTRUCTION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Ratings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 6,982 |
| $ | 41,061 |
| $ | 10,366 |
| $ | 22,270 |
| $ | 21,584 |
| $ | 4,988 |
| $ | 0 |
| $ | 107,251 |
| $ | 133,932 |
Criticized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Mention |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 763 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 763 |
|
| 765 |
Substandard |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 560 |
|
| 3,334 |
|
| 0 |
|
| 3,894 |
|
| 4,302 |
Doubtful |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Loss |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Total construction loans |
| $ | 6,982 |
| $ | 41,061 |
| $ | 10,366 |
| $ | 23,033 |
| $ | 22,144 |
| $ | 8,322 |
| $ | 0 |
| $ | 111,908 |
| $ | 138,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMERCIAL MORTGAGE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Ratings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 121,042 |
| $ | 249,573 |
| $ | 444,141 |
| $ | 298,673 |
| $ | 278,307 |
| $ | 473,112 |
| $ | 19,978 |
| $ | 1,884,826 |
| $ | 1,799,873 |
Criticized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Mention |
|
| 0 |
|
| 0 |
|
| 18,787 |
|
| 99,798 |
|
| 25,805 |
|
| 160,621 |
|
| 0 |
|
| 305,011 |
|
| 319,881 |
Substandard |
|
| 140 |
|
| 1,385 |
|
| 0 |
|
| 2,976 |
|
| 775 |
|
| 42,589 |
|
| 0 |
|
| 47,865 |
|
| 47,715 |
Doubtful |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Loss |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Total commercial mortgage loans |
| $ | 121,182 |
| $ | 250,958 |
| $ | 462,928 |
| $ | 401,447 |
| $ | 304,887 |
| $ | 676,322 |
| $ | 19,978 |
| $ | 2,237,702 |
| $ | 2,167,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMERCIAL AND INDUSTRIAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Ratings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 53,738 |
| $ | 481,956 |
| $ | 291,206 |
| $ | 565,289 |
| $ | 292,424 |
| $ | 390,157 |
| $ | 589,448 |
| $ | 2,664,218 |
| $ | 2,679,375 |
Criticized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Mention |
|
| 0 |
|
| 9,493 |
|
| 1,332 |
|
| 19,293 |
|
| 13,318 |
|
| 23,748 |
|
| 24,474 |
|
| 91,658 |
|
| 82,596 |
Substandard |
|
| 247 |
|
| 437 |
|
| 25,630 |
|
| 48,677 |
|
| 2,052 |
|
| 40,664 |
|
| 6,673 |
|
| 124,380 |
|
| 125,280 |
Doubtful |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Loss |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Total commercial and industrial loans |
| $ | 53,985 |
| $ | 491,886 |
| $ | 318,168 |
| $ | 633,259 |
| $ | 307,794 |
| $ | 454,569 |
| $ | 620,595 |
| $ | 2,880,256 |
| $ | 2,887,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Excludes accrued interest receivable. |
34
The qualifying mortgage borrowers were required to contactfollowing table presents the Corporation and opt in for the program. For both consumer andamortized cost of residential mortgage loans subject to the deferral programs, each borrower is required to resume making their regularly scheduled loan payments at the endby origination year based on accrual status as of the deferral periodMarch 31, 2022, and the deferred amounts were moved to the endamortized cost of the loan. The payment deferral programs were applied prospectively from the respective dates of the events and did not change the delinquency status of the loans as of such dates. Accordingly, if all payments were current at the date of the event, the loan will not be reported as past due during the deferral period. Furthermore, for loans subject to the deferral programs on which payments were past due prior to the event, the delinquency status of such loans was frozen to the status that existed at the date of the event until the end of the deferral period. As of September 30, 2017, residential mortgage loans in early delinquency (i.e.by accrual status as of December 31, 2021:
|
| As of March 31, 2022 |
|
|
|
|
|
|
| As of December 31, 2021 | ||||||||||||||||||||
|
|
|
|
| Term Loans |
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
| Amortized Cost Basis by Origination Year (1) |
|
|
|
|
|
|
| ||||||||||||||||||
(In thousands) |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| Prior |
| Revolving Loans Amortized Cost Basis |
| Total |
| Total | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico and Virgin Islands Region: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
| FHA/VA government-guaranteed loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 0 |
| $ | 183 |
| $ | 567 |
| $ | 959 |
| $ | 2,286 |
| $ | 116,279 |
| $ | 0 |
| $ | 120,274 |
| $ | 124,652 | |
|
| Non-Performing |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
|
|
| Total FHA/VA government-guaranteed loans |
| $ | 0 |
| $ | 183 |
| $ | 567 |
| $ | 959 |
| $ | 2,286 |
| $ | 116,279 |
| $ | 0 |
| $ | 120,274 |
| $ | 124,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Conventional residential mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 33,248 |
| $ | 78,995 |
| $ | 33,191 |
| $ | 55,682 |
| $ | 82,269 |
| $ | 2,040,235 |
| $ | 0 |
| $ | 2,323,620 |
| $ | 2,376,946 | |
|
| Non-Performing |
|
| 0 |
|
| 35 |
|
| 0 |
|
| 113 |
|
| 279 |
|
| 42,772 |
|
| 0 |
|
| 43,199 |
|
| 47,975 | |
|
|
| Total conventional residential mortgage loans |
| $ | 33,248 |
| $ | 79,030 |
| $ | 33,191 |
| $ | 55,795 |
| $ | 82,548 |
| $ | 2,083,007 |
| $ | 0 |
| $ | 2,366,819 |
| $ | 2,424,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 33,248 |
| $ | 79,178 |
| $ | 33,758 |
| $ | 56,641 |
| $ | 84,555 |
| $ | 2,156,514 |
| $ | 0 |
| $ | 2,443,894 |
| $ | 2,501,598 | |
|
| Non-Performing |
|
| 0 |
|
| 35 |
|
| 0 |
|
| 113 |
|
| 279 |
|
| 42,772 |
|
| 0 |
|
| 43,199 |
|
| 47,975 | |
|
|
| Total residential mortgage loans in Puerto Rico and Virgin Islands Region |
| $ | 33,248 |
| $ | 79,213 |
| $ | 33,758 |
| $ | 56,754 |
| $ | 84,834 |
| $ | 2,199,286 |
| $ | 0 |
| $ | 2,487,093 |
| $ | 2,549,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Excludes accrued interest receivable. |
|
| As of March 31, 2022 |
|
|
|
|
|
|
| As of December 31, 2021 | ||||||||||||||||||||
|
|
|
|
| Term Loans |
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
| Amortized Cost Basis by Origination Year (1) |
|
|
|
|
|
|
| ||||||||||||||||||
(In thousands) |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| Prior |
| Revolving Loans Amortized Cost Basis |
| Total |
| Total | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida Region: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
| FHA/VA government-guaranteed loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 736 |
| $ | 0 |
| $ | 736 |
| $ | 740 | |
|
| Non-Performing |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
|
|
| Total FHA/VA government-guaranteed loans |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 736 |
| $ | 0 |
| $ | 736 |
| $ | 740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Conventional residential mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 9,299 |
| $ | 52,509 |
| $ | 35,178 |
| $ | 35,736 |
| $ | 45,770 |
| $ | 219,759 |
| $ | 0 |
| $ | 398,251 |
| $ | 421,430 | |
|
| Non-Performing |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 292 |
|
| 0 |
|
| 5,327 |
|
| 0 |
|
| 5,619 |
|
| 7,152 | |
|
|
| Total conventional residential mortgage loans |
| $ | 9,299 |
| $ | 52,509 |
| $ | 35,178 |
| $ | 36,028 |
| $ | 45,770 |
| $ | 225,086 |
| $ | 0 |
| $ | 403,870 |
| $ | 428,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 9,299 |
| $ | 52,509 |
| $ | 35,178 |
| $ | 35,736 |
| $ | 45,770 |
| $ | 220,495 |
| $ | 0 |
| $ | 398,987 |
| $ | 422,170 | |
|
| Non-Performing |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 292 |
|
| 0 |
|
| 5,327 |
|
| 0 |
|
| 5,619 |
|
| 7,152 | |
|
|
| Total residential mortgage loans in Florida region |
| $ | 9,299 |
| $ | 52,509 |
| $ | 35,178 |
| $ | 36,028 |
| $ | 45,770 |
| $ | 225,822 |
| $ | 0 |
| $ | 404,606 |
| $ | 429,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Excludes accrued interest receivable. |
35
|
| As of March 31, 2022 |
|
|
|
|
|
|
| As of December 31, 2021 | ||||||||||||||||||||
|
|
|
|
| Term Loans |
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
| Amortized Cost Basis by Origination Year (1) |
|
|
|
|
|
|
| ||||||||||||||||||
(In thousands) |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| Prior |
| Revolving Loans Amortized Cost Basis |
| Total |
| Total | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
| FHA/VA government-guaranteed loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 0 |
| $ | 183 |
| $ | 567 |
| $ | 959 |
| $ | 2,286 |
| $ | 117,015 |
| $ | 0 |
| $ | 121,010 |
| $ | 125,392 | |
|
| Non-Performing |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
|
|
| Total FHA/VA government-guaranteed loans |
| $ | 0 |
| $ | 183 |
| $ | 567 |
| $ | 959 |
| $ | 2,286 |
| $ | 117,015 |
| $ | 0 |
| $ | 121,010 |
| $ | 125,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Conventional residential mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 42,547 |
| $ | 131,504 |
| $ | 68,369 |
| $ | 91,418 |
| $ | 128,039 |
| $ | 2,259,994 |
| $ | 0 |
| $ | 2,721,871 |
| $ | 2,798,376 | |
|
| Non-Performing |
|
| 0 |
|
| 35 |
|
| 0 |
|
| 405 |
|
| 279 |
|
| 48,099 |
|
| 0 |
|
| 48,818 |
|
| 55,127 | |
|
|
| Total conventional residential mortgage loans |
| $ | 42,547 |
| $ | 131,539 |
| $ | 68,369 |
| $ | 91,823 |
| $ | 128,318 |
| $ | 2,308,093 |
| $ | 0 |
| $ | 2,770,689 |
| $ | 2,853,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 42,547 |
| $ | 131,687 |
| $ | 68,936 |
| $ | 92,377 |
| $ | 130,325 |
| $ | 2,377,009 |
| $ | 0 |
| $ | 2,842,881 |
| $ | 2,923,768 | |
|
| Non-Performing |
|
| 0 |
|
| 35 |
|
| 0 |
|
| 405 |
|
| 279 |
|
| 48,099 |
|
| 0 |
|
| 48,818 |
|
| 55,127 | |
|
|
| Total residential mortgage loans |
| $ | 42,547 |
| $ | 131,722 |
| $ | 68,936 |
| $ | 92,782 |
| $ | 130,604 |
| $ | 2,425,108 |
| $ | 0 |
| $ | 2,891,699 |
| $ | 2,978,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Excludes accrued interest receivable. |
36
The following tables present the amortized cost of consumer loans by origination year based on accrual status as of March 31, 2022 and the amortized cost of consumer loans by accrual status as of December 31, 2021:
|
| As of March 31, 2022 |
|
|
|
|
|
|
| As of December 31, 2021 | ||||||||||||||||||||
|
|
|
|
| Term Loans |
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
| Amortized Cost Basis by Origination Year (1) |
|
|
|
|
|
|
| ||||||||||||||||||
(In thousands) |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| Prior |
| Revolving Loans Amortized Cost Basis |
| Total |
| Total | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico and Virgin Islands Region: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
| Auto loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 189,161 |
| $ | 613,735 |
| $ | 324,347 |
| $ | 274,903 |
| $ | 141,796 |
| $ | 78,495 |
| $ | 0 |
| $ | 1,622,437 |
| $ | 1,556,097 | |
|
| Non-Performing |
|
| 0 |
|
| 1,275 |
|
| 926 |
|
| 1,820 |
|
| 1,423 |
|
| 1,768 |
|
| 0 |
|
| 7,212 |
|
| 6,684 | |
|
|
| Total auto loans |
| $ | 189,161 |
| $ | 615,010 |
| $ | 325,273 |
| $ | 276,723 |
| $ | 143,219 |
| $ | 80,263 |
| $ | 0 |
| $ | 1,629,649 |
| $ | 1,562,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Finance leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 72,035 |
| $ | 220,610 |
| $ | 108,440 |
| $ | 105,971 |
| $ | 68,243 |
| $ | 30,007 |
| $ | 0 |
| $ | 605,306 |
| $ | 574,139 | |
|
| Non-Performing |
|
| 0 |
|
| 16 |
|
| 61 |
|
| 411 |
|
| 201 |
|
| 271 |
|
| 0 |
|
| 960 |
|
| 866 | |
|
|
| Total finance leases |
| $ | 72,035 |
| $ | 220,626 |
| $ | 108,501 |
| $ | 106,382 |
| $ | 68,444 |
| $ | 30,278 |
| $ | 0 |
| $ | 606,266 |
| $ | 575,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Personal loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 31,809 |
| $ | 78,715 |
| $ | 46,085 |
| $ | 85,006 |
| $ | 38,945 |
| $ | 27,947 |
| $ | 0 |
| $ | 308,507 |
| $ | 314,867 | |
|
| Non-Performing |
|
| 0 |
|
| 127 |
|
| 227 |
|
| 392 |
|
| 168 |
|
| 226 |
|
| 0 |
|
| 1,140 |
|
| 1,208 | |
|
|
| Total personal loans |
| $ | 31,809 |
| $ | 78,842 |
| $ | 46,312 |
| $ | 85,398 |
| $ | 39,113 |
| $ | 28,173 |
| $ | 0 |
| $ | 309,647 |
| $ | 316,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Credit cards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 288,392 |
| $ | 288,392 |
| $ | 290,226 | |
|
| Non-Performing |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
|
|
| Total credit cards |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 288,392 |
| $ | 288,392 |
| $ | 290,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 20,841 |
| $ | 46,300 |
| $ | 15,153 |
| $ | 21,115 |
| $ | 7,295 |
| $ | 7,381 |
| $ | 8,461 |
| $ | 126,546 |
| $ | 126,734 | |
|
| Non-Performing |
|
| 0 |
|
| 278 |
|
| 87 |
|
| 175 |
|
| 33 |
|
| 775 |
|
| 151 |
|
| 1,499 |
|
| 1,563 | |
|
|
| Total other consumer loans |
| $ | 20,841 |
| $ | 46,578 |
| $ | 15,240 |
| $ | 21,290 |
| $ | 7,328 |
| $ | 8,156 |
| $ | 8,612 |
| $ | 128,045 |
| $ | 128,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Performing |
| $ | 313,846 |
| $ | 959,360 |
| $ | 494,025 |
| $ | 486,995 |
| $ | 256,279 |
| $ | 143,830 |
| $ | 296,853 |
| $ | 2,951,188 |
| $ | 2,862,063 | |
|
| Non-Performing |
|
| 0 |
|
| 1,696 |
|
| 1,301 |
|
| 2,798 |
|
| 1,825 |
|
| 3,040 |
|
| 151 |
|
| 10,811 |
|
| 10,321 | |
|
|
| Total consumer loans in Puerto Rico and Virgin Islands region |
| $ | 313,846 |
| $ | 961,056 |
| $ | 495,326 |
| $ | 489,793 |
| $ | 258,104 |
| $ | 146,870 |
| $ | 297,004 |
| $ | 2,961,999 |
| $ | 2,872,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Excludes accrued interest receivable. |
37
|
| As of March 31, 2022 |
|
|
|
|
|
|
| As of December 31, 2021 | ||||||||||||||||||||
|
|
|
|
| Term Loans |
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
| Amortized Cost Basis by Origination Year (1) |
|
|
|
|
|
|
| ||||||||||||||||||
(In thousands) |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| Prior |
| Revolving Loans Amortized Cost Basis |
| Total |
| Total | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida Region: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
| Auto loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 538 |
| $ | 3,924 |
| $ | 2,582 |
| $ | 0 |
| $ | 7,044 |
| $ | 8,759 | |
|
| Non-Performing |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 2 |
|
| 15 |
|
| 5 |
|
| 0 |
|
| 22 |
|
| 0 | |
|
|
| Total auto loans |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 540 |
| $ | 3,939 |
| $ | 2,587 |
| $ | 0 |
| $ | 7,066 |
| $ | 8,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Finance leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 | |
|
| Non-Performing |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
|
|
| Total finance leases |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Personal loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 311 |
| $ | 71 |
| $ | 20 |
| $ | 8 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 410 |
| $ | 107 | |
|
| Non-Performing |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
|
|
| Total personal loans |
| $ | 311 |
| $ | 71 |
| $ | 20 |
| $ | 8 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 410 |
| $ | 107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Credit cards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 | |
|
| Non-Performing |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
|
|
| Total credit cards |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 0 |
| $ | 236 |
| $ | 478 |
| $ | 0 |
| $ | 40 |
| $ | 3,235 |
| $ | 2,545 |
| $ | 6,534 |
| $ | 6,661 | |
|
| Non-Performing |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 23 |
|
| 108 |
|
| 131 |
|
| 133 | |
|
|
| Total other consumer loans |
| $ | 0 |
| $ | 236 |
| $ | 478 |
| $ | 0 |
| $ | 40 |
| $ | 3,258 |
| $ | 2,653 |
| $ | 6,665 |
| $ | 6,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Performing |
| $ | 311 |
| $ | 307 |
| $ | 498 |
| $ | 546 |
| $ | 3,964 |
| $ | 5,817 |
| $ | 2,545 |
| $ | 13,988 |
| $ | 15,527 | |
|
| Non-Performing |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 2 |
|
| 15 |
|
| 28 |
|
| 108 |
|
| 153 |
|
| 133 | |
|
|
| Total consumer loans in Florida region |
| $ | 311 |
| $ | 307 |
| $ | 498 |
| $ | 548 |
| $ | 3,979 |
| $ | 5,845 |
| $ | 2,653 |
| $ | 14,141 |
| $ | 15,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Excludes accrued interest receivable. |
38
|
| As of March 31, 2022 |
|
|
|
|
|
|
| As of December 31, 2021 | ||||||||||||||||||||
|
|
|
|
| Term Loans |
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
| Amortized Cost Basis by Origination Year (1) |
|
|
|
|
|
|
| ||||||||||||||||||
(In thousands) |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| Prior |
| Revolving Loans Amortized Cost Basis |
| Total |
| Total | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
| Auto loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 189,161 |
| $ | 613,735 |
| $ | 324,347 |
| $ | 275,441 |
| $ | 145,720 |
| $ | 81,077 |
| $ | 0 |
| $ | 1,629,481 |
| $ | 1,564,856 | |
|
| Non-Performing |
|
| 0 |
|
| 1,275 |
|
| 926 |
|
| 1,822 |
|
| 1,438 |
|
| 1,773 |
|
| 0 |
|
| 7,234 |
|
| 6,684 | |
|
|
| Total auto loans |
| $ | 189,161 |
| $ | 615,010 |
| $ | 325,273 |
| $ | 277,263 |
| $ | 147,158 |
| $ | 82,850 |
| $ | 0 |
| $ | 1,636,715 |
| $ | 1,571,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Finance leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 72,035 |
| $ | 220,610 |
| $ | 108,440 |
| $ | 105,971 |
| $ | 68,243 |
| $ | 30,007 |
| $ | 0 |
| $ | 605,306 |
| $ | 574,139 | |
|
| Non-Performing |
|
| 0 |
|
| 16 |
|
| 61 |
|
| 411 |
|
| 201 |
|
| 271 |
|
| 0 |
|
| 960 |
|
| 866 | |
|
|
| Total finance leases |
| $ | 72,035 |
| $ | 220,626 |
| $ | 108,501 |
| $ | 106,382 |
| $ | 68,444 |
| $ | 30,278 |
| $ | 0 |
| $ | 606,266 |
| $ | 575,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Personal loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 32,120 |
| $ | 78,786 |
| $ | 46,105 |
| $ | 85,014 |
| $ | 38,945 |
| $ | 27,947 |
| $ | 0 |
| $ | 308,917 |
| $ | 314,974 | |
|
| Non-Performing |
|
| 0 |
|
| 127 |
|
| 227 |
|
| 392 |
|
| 168 |
|
| 226 |
|
| 0 |
|
| 1,140 |
|
| 1,208 | |
|
|
| Total personal loans |
| $ | 32,120 |
| $ | 78,913 |
| $ | 46,332 |
| $ | 85,406 |
| $ | 39,113 |
| $ | 28,173 |
| $ | 0 |
| $ | 310,057 |
| $ | 316,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Credit cards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 288,392 |
| $ | 288,392 |
| $ | 290,226 | |
|
| Non-Performing |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 | |
|
|
| Total credit cards |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 288,392 |
| $ | 288,392 |
| $ | 290,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Accrual Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Performing |
| $ | 20,841 |
| $ | 46,536 |
| $ | 15,631 |
| $ | 21,115 |
| $ | 7,335 |
| $ | 10,616 |
| $ | 11,006 |
| $ | 133,080 |
| $ | 133,395 | |
|
| Non-Performing |
|
| 0 |
|
| 278 |
|
| 87 |
|
| 175 |
|
| 33 |
|
| 798 |
|
| 259 |
|
| 1,630 |
|
| 1,696 | |
|
|
| Total other consumer loans |
| $ | 20,841 |
| $ | 46,814 |
| $ | 15,718 |
| $ | 21,290 |
| $ | 7,368 |
| $ | 11,414 |
| $ | 11,265 |
| $ | 134,710 |
| $ | 135,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Performing |
| $ | 314,157 |
| $ | 959,667 |
| $ | 494,523 |
| $ | 487,541 |
| $ | 260,243 |
| $ | 149,647 |
| $ | 299,398 |
| $ | 2,965,176 |
| $ | 2,877,590 | |
|
| Non-Performing |
|
| 0 |
|
| 1,696 |
|
| 1,301 |
|
| 2,800 |
|
| 1,840 |
|
| 3,068 |
|
| 259 |
|
| 10,964 |
|
| 10,454 | |
|
|
| Total consumer loans |
| $ | 314,157 |
| $ | 961,363 |
| $ | 495,824 |
| $ | 490,341 |
| $ | 262,083 |
| $ | 152,715 |
| $ | 299,657 |
| $ | 2,976,140 |
| $ | 2,888,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Excludes accrued interest receivable. |
39
Accrued interest receivable on loans totaled $44.6 million as of March 31, 2022 ($48.1 million as of December 31, 2021), 60-89 daysand was reported as part of accrued interest receivable on loans and investment securities in the table above) include $86.3 millionconsolidated statements of loans subject tofinancial condition, and is excluded from the storm-related deferral programs established in Puerto Rico and the Virgin Islands.estimate of credit losses.
The Corporation’s credit quality indicators by loan type as of September 30, 2017 and December 31, 2016 are summarized below: | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Commercial Credit Exposure - Credit Risk Profile Based on Creditworthiness Category: | |||||||||||||
|
| Substandard |
| Doubtful |
| Loss |
| Total Adversely Classified (1) |
| Total Portfolio | |||||
September 30, 2017 |
|
|
|
| |||||||||||
(In thousands) |
|
| |||||||||||||
Commercial mortgage | $ | 158,960 |
| $ | 6,416 |
| $ | - |
| $ | 165,376 |
| $ | 1,601,638 | |
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Land |
| 18,753 |
|
| - |
|
| - |
|
| 18,753 |
|
| 29,953 | |
Construction - commercial |
| 35,520 |
|
| - |
|
| - |
|
| 35,520 |
|
| 91,577 | |
Construction - residential |
| 701 |
|
| - |
|
| - |
|
| 701 |
|
| 7,930 | |
Commercial and Industrial |
| 142,800 |
|
| 3,472 |
|
| 798 |
|
| 147,070 |
|
| 2,144,236 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Commercial Credit Exposure - Credit Risk Profile Based on Creditworthiness Category: | |||||||||||||
|
| Substandard |
| Doubtful |
| Loss |
| Total Adversely Classified (1) |
| Total Portfolio | |||||
December 31, 2016 |
|
|
|
| |||||||||||
(In thousands) |
|
| |||||||||||||
Commercial mortgage | $ | 193,391 |
| $ | 35,416 |
| $ | - |
| $ | 228,807 |
| $ | 1,568,808 | |
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Land |
| 19,345 |
|
| - |
|
| - |
|
| 19,345 |
|
| 31,766 | |
Construction - commercial |
| 36,893 |
|
| - |
|
| - |
|
| 36,893 |
|
| 77,475 | |
Construction - residential |
| 1,933 |
|
| - |
|
| - |
|
| 1,933 |
|
| 15,710 | |
Commercial and Industrial |
| 133,599 |
|
| 67,996 |
|
| 784 |
|
| 202,379 |
|
| 2,180,455 | |
_________ |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(1) | Excludes $8.3 million and $8.1 million of construction-land non-performing loans held for sale as of September 30, 2017 and December 31, 2016, respectively. |
29
The Corporation considers a loan as adversely classified if its risk rating is Substandard, Doubtful or Loss. These categories are defined as follows:
Substandard- A Substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified 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, on the basis of currently known facts, conditions and values, highly questionable and improbable. 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 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 basically worthless asset even though partial recovery may be affected in the future. There is little or no prospect for near term improvement and no realistic strengthening action of significance pending.
|
| Consumer Credit Exposure - Credit Risk Profile based on Payment activity | |||||||||||||
|
| Residential Real Estate |
| Consumer | |||||||||||
September 30, 2017 | FHA/VA/ Guaranteed (1) |
| Other residential loans |
| Auto |
| Finance Leases |
| Other Consumer | ||||||
(In thousands) |
|
| |||||||||||||
Performing | $ | 121,568 |
| $ | 2,820,633 |
| $ | 818,403 |
| $ | 244,196 |
| $ | 638,435 | |
Purchased Credit-Impaired (2) |
| - |
|
| 153,609 |
|
| - |
|
| - |
|
| - | |
Non-performing |
| - |
|
| 178,530 |
|
| 15,809 |
|
| 1,888 |
|
| 8,809 | |
Total | $ | 121,568 |
| $ | 3,152,772 |
| $ | 834,212 |
| $ | 246,084 |
| $ | 647,244 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA or guaranteed by the VA as past due loans 90 days and still accruing as opposed to non-performing loans since the principal repayment is insured. This balance includes $28.9 million of residential mortgage loans insured by the FHA or guaranteed by the VA that are over 15 months delinquent, and are no longer accruing interest as of September 30, 2017. | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) | PCI loans are excluded from non-performing statistics due to the application of the accretion method, under which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analyses. | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consumer Credit Exposure - Credit Risk Profile based on Payment activity | |||||||||||||
|
|
| Residential Real Estate |
| Consumer | ||||||||||
December 31, 2016 | FHA/VA/ Guaranteed (1) |
| Other residential loans |
| Auto |
| Finance Leases |
| Other Consumer | ||||||
(In thousands) |
|
| |||||||||||||
Performing | $ | 126,858 |
| $ | 2,845,630 |
| $ | 833,612 |
| $ | 232,000 |
| $ | 626,936 | |
Purchased Credit-Impaired (2) |
| - |
|
| 162,676 |
|
| - |
|
| - |
|
| - | |
Non-performing |
| - |
|
| 160,867 |
|
| 14,346 |
|
| 1,335 |
|
| 8,399 | |
Total | $ | 126,858 |
| $ | 3,169,173 |
| $ | 847,958 |
| $ | 233,335 |
| $ | 635,335 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA or guaranteed by the VA as past due loans 90 days and still accruing as opposed to non-performing loans since the principal repayment is insured. This balance includes $29.3 million of residential mortgage loans insured by the FHA or guaranteed by the VA that are over 15 months delinquent, and are no longer accruing interest as of December 31, 2016. | ||||||||||||||
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(2) | PCI loans are excluded from non-performing statistics due to the application of the accretion method, under which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analyses. |
30
The following tables present information about impairedcollateral dependent loans excluding PCIthat were individually evaluated for purposes of determining the ACL as of March 31, 2022 and December 31, 2021:
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March 31, 2022 |
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|
| Collateral Dependent Loans - With Allowance |
| Collateral Dependent Loans - With No Related Allowance |
| Collateral Dependent Loans - Total | ||||||||
Puerto Rico and Virgin Islands region | Amortized Cost |
| Related Allowance |
| Amortized Cost |
| Amortized Cost |
| Related Allowance | |||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHA/VA government-guaranteed loans | $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
Conventional residential mortgage loans |
| 44,315 |
|
| 3,130 |
|
| 111 |
|
| 44,426 |
|
| 3,130 |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction loans |
| 0 |
|
| 0 |
|
| 1,515 |
|
| 1,515 |
|
| 0 |
Commercial mortgage loans |
| 9,394 |
|
| 1,019 |
|
| 54,137 |
|
| 63,531 |
|
| 1,019 |
C&I loans |
| 21,894 |
|
| 3,516 |
|
| 17,117 |
|
| 39,011 |
|
| 3,516 |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Finance leases |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Personal loans |
| 57 |
|
| 1 |
|
| 0 |
|
| 57 |
|
| 1 |
Credit cards |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Other consumer loans |
| 780 |
|
| 111 |
|
| 0 |
|
| 780 |
|
| 111 |
| $ | 76,440 |
| $ | 7,777 |
| $ | 72,880 |
| $ | 149,320 |
| $ | 7,777 |
|
March 31, 2022 |
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| Collateral Dependent Loans - With Allowance |
| Collateral Dependent Loans - With No Related Allowance |
| Collateral Dependent Loans - Total | ||||||||
Florida region | Amortized Cost |
| Related Allowance |
| Amortized Cost |
| Amortized Cost |
| Related Allowance | |||||
(In thousands) |
|
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|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHA/VA government-guaranteed loans | $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | - |
| $ | 0 |
Conventional residential mortgage loans |
| 2,862 |
|
| 200 |
|
| 0 |
|
| 2,862 |
|
| 200 |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Commercial mortgage loans |
| 0 |
|
| 0 |
|
| 2,248 |
|
| 2,248 |
|
| 0 |
C&I loans |
| 0 |
|
| 0 |
|
| 445 |
|
| 445 |
|
| 0 |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Finance leases |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Personal loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Credit cards |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Other consumer loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
| $ | 2,862 |
| $ | 200 |
| $ | 2,693 |
| $ | 5,555 |
| $ | 200 |
|
40
March 31, 2022 |
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| Collateral Dependent Loans - With Allowance |
| Collateral Dependent Loans - With No Related Allowance |
| Collateral Dependent Loans - Total | ||||||||
Total | Amortized Cost |
| Related Allowance |
| Amortized Cost |
| Amortized Cost |
| Related Allowance | |||||
(In thousands) |
|
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|
|
|
|
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|
|
|
|
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Residential mortgage loans: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
FHA/VA government-guaranteed loans | $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
Conventional residential mortgage loans |
| 47,177 |
|
| 3,330 |
|
| 111 |
|
| 47,288 |
|
| 3,330 |
Commercial loans: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
Construction loans |
| 0 |
|
| 0 |
|
| 1,515 |
|
| 1,515 |
|
| 0 |
Commercial mortgage loans |
| 9,394 |
|
| 1,019 |
|
| 56,385 |
|
| 65,779 |
|
| 1,019 |
C&I loans |
| 21,894 |
|
| 3,516 |
|
| 17,562 |
|
| 39,456 |
|
| 3,516 |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Auto loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Finance leases |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Personal loans |
| 57 |
|
| 1 |
|
| 0 |
|
| 57 |
|
| 1 |
Credit cards |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Other consumer loans |
| 780 |
|
| 111 |
|
| 0 |
|
| 780 |
|
| 111 |
| $ | 79,302 |
| $ | 7,977 |
| $ | 75,573 |
| $ | 154,875 |
| $ | 7,977 |
|
41
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December 31, 2021 |
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| Collateral Dependent Loans - With Allowance |
| Collateral Dependent Loans - With No Related Allowance |
| Collateral Dependent Loans - Total | ||||||||
Puerto Rico and Virgin Islands region | Amortized Cost |
| Related Allowance |
| Amortized Cost |
| Amortized Cost |
| Related Allowance | |||||
(In thousands) |
|
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|
|
|
|
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|
|
|
|
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Residential mortgage loans: |
|
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|
|
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|
|
|
|
|
|
|
|
FHA/VA government-guaranteed loans | $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
Conventional residential mortgage loans |
| 48,398 |
|
| 3,731 |
|
| 781 |
|
| 49,179 |
|
| 3,731 |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction loans |
| 0 |
|
| 0 |
|
| 1,797 |
|
| 1,797 |
|
| 0 |
Commercial mortgage loans |
| 9,908 |
|
| 1,152 |
|
| 54,096 |
|
| 64,004 |
|
| 1,152 |
C&I loans |
| 5,781 |
|
| 670 |
|
| 33,575 |
|
| 39,356 |
|
| 670 |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Finance leases |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Personal loans |
| 78 |
|
| 1 |
|
| 0 |
|
| 78 |
|
| 1 |
Credit cards |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Other consumer loans |
| 782 |
|
| 98 |
|
| 0 |
|
| 782 |
|
| 98 |
| $ | 64,947 |
| $ | 5,652 |
| $ | 90,249 |
| $ | 155,196 |
| $ | 5,652 |
|
December 31, 2021 |
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|
|
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|
| Collateral Dependent Loans - With Allowance |
| Collateral Dependent Loans - With No Related Allowance |
| Collateral Dependent Loans - Total | ||||||||
Florida region | Amortized Cost |
| Related Allowance |
| Amortized Cost |
| Amortized Cost |
| Related Allowance | |||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHA/VA government-guaranteed loans | $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
Conventional residential mortgage loans |
| 3,373 |
|
| 235 |
|
| 0 |
|
| 3,373 |
|
| 235 |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Commercial mortgage loans |
| 0 |
|
| 0 |
|
| 2,265 |
|
| 2,265 |
|
| 0 |
C&I loans |
| 0 |
|
| 0 |
|
| 468 |
|
| 468 |
|
| 0 |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Finance leases |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Personal loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Credit cards |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Other consumer loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
| $ | 3,373 |
| $ | 235 |
| $ | 2,733 |
| $ | 6,106 |
| $ | 235 |
|
42
December 31, 2021 |
|
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|
|
|
|
|
|
|
|
|
|
| Collateral Dependent Loans - With Allowance |
| Collateral Dependent Loans - With No Related Allowance |
| Collateral Dependent Loans - Total | ||||||||
Total | Amortized Cost |
| Related Allowance |
| Amortized Cost |
| Amortized Cost |
| Related Allowance | |||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHA/VA government-guaranteed loans | $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
Conventional residential mortgage loans |
| 51,771 |
|
| 3,966 |
|
| 781 |
|
| 52,552 |
|
| 3,966 |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction loans |
| 0 |
|
| 0 |
|
| 1,797 |
|
| 1,797 |
|
| 0 |
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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Finance leases |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Personal loans |
| 78 |
|
| 1 |
|
| 0 |
|
| 78 |
|
| 1 |
Credit cards |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Other consumer loans |
| 782 |
|
| 98 |
|
| 0 |
|
| 782 |
|
| 98 |
| $ | 68,320 |
| $ | 5,887 |
| $ | 92,982 |
| $ | 161,302 |
| $ | 5,887 |
|
The allowance related to collateral dependent loans which are reported separately, as discussed below:
Impaired Loans |
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| Quarter Ended |
| Nine-Month Period Ended | ||||||||
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| September 30, 2017 | |||||||||
| Recorded Investment |
| Unpaid Principal Balance |
| Related Specific Allowance |
| Year-To-Date Average Recorded Investment |
| Interest Income Recognized on Accrual Basis |
| Interest Income Recognized on Cash Basis |
| Interest Income Recognized on Accrual Basis |
| Interest Income Recognized on Cash Basis | ||||||||
(In thousands) |
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As of September 30, 2017 |
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With no related specific allowance recorded: |
|
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FHA/VA-Guaranteed loans | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Other residential mortgage loans |
| 88,479 |
|
| 116,636 |
|
| - |
|
| 90,381 |
|
| 594 |
|
| 91 |
|
| 1,712 |
|
| 427 |
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans |
| 22,832 |
|
| 27,204 |
|
| - |
|
| 23,403 |
|
| 194 |
|
| 67 |
|
| 583 |
|
| 199 |
Commercial and Industrial Loans |
| 8,379 |
|
| 11,106 |
|
| - |
|
| 8,566 |
|
| 74 |
|
| - |
|
| 208 |
|
| - |
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Construction-commercial |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Construction-residential |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto loans |
| 339 |
|
| 339 |
|
| - |
|
| 357 |
|
| 1 |
|
| - |
|
| 2 |
|
| - |
Finance leases |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Other consumer loans |
| 2,048 |
|
| 3,028 |
|
| - |
|
| 2,220 |
|
| 17 |
|
| 25 |
|
| 52 |
|
| 67 |
| $ | 122,077 |
| $ | 158,313 |
| $ | - |
| $ | 124,927 |
| $ | 880 |
| $ | 183 |
| $ | 2,557 |
| $ | 693 |
With a related specific allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHA/VA-Guaranteed loans | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Other residential mortgage loans |
| 337,356 |
|
| 375,130 |
|
| 19,417 |
|
| 341,360 |
|
| 3,815 |
|
| 311 |
|
| 11,458 |
|
| 1,121 |
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans |
| 131,043 |
|
| 190,883 |
|
| 10,456 |
|
| 153,354 |
|
| 570 |
|
| 18 |
|
| 1,038 |
|
| 88 |
Commercial and Industrial Loans |
| 102,560 |
|
| 124,335 |
|
| 11,240 |
|
| 104,076 |
|
| 380 |
|
| 174 |
|
| 744 |
|
| 211 |
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
| 14,601 |
|
| 19,938 |
|
| 848 |
|
| 14,800 |
|
| 122 |
|
| 9 |
|
| 358 |
|
| 32 |
Construction-commercial |
| 35,520 |
|
| 38,595 |
|
| 979 |
|
| 36,101 |
|
| - |
|
| - |
|
| - |
|
| - |
Construction-residential |
| 252 |
|
| 355 |
|
| 38 |
|
| 252 |
|
| - |
|
| - |
|
| - |
|
| - |
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto loans |
| 23,164 |
|
| 23,164 |
|
| 3,646 |
|
| 24,917 |
|
| 461 |
|
| - |
|
| 1,355 |
|
| - |
Finance leases |
| 2,248 |
|
| 2,271 |
|
| 63 |
|
| 2,532 |
|
| 43 |
|
| - |
|
| 140 |
|
| - |
Other consumer loans |
| 10,438 |
|
| 12,104 |
|
| 1,468 |
|
| 12,221 |
|
| 371 |
|
| 15 |
|
| 975 |
|
| 38 |
| $ | 657,182 |
| $ | 786,775 |
| $ | 48,155 |
| $ | 689,613 |
| $ | 5,762 |
| $ | 527 |
| $ | 16,068 |
| $ | 1,490 |
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHA/VA-Guaranteed loans | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Other residential mortgage loans |
| 425,835 |
|
| 491,766 |
|
| 19,417 |
|
| 431,741 |
|
| 4,409 |
|
| 402 |
|
| 13,170 |
|
| 1,548 |
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans |
| 153,875 |
|
| 218,087 |
|
| 10,456 |
|
| 176,757 |
|
| 764 |
|
| 85 |
|
| 1,621 |
|
| 287 |
Commercial and Industrial Loans |
| 110,939 |
|
| 135,441 |
|
| 11,240 |
|
| 112,642 |
|
| 454 |
|
| 174 |
|
| 952 |
|
| 211 |
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
| 14,601 |
|
| 19,938 |
|
| 848 |
|
| 14,800 |
|
| 122 |
|
| 9 |
|
| 358 |
|
| 32 |
Construction-commercial |
| 35,520 |
|
| 38,595 |
|
| 979 |
|
| 36,101 |
|
| - |
|
| - |
|
| - |
|
| - |
Construction-residential |
| 252 |
|
| 355 |
|
| 38 |
|
| 252 |
|
| - |
|
| - |
|
| - |
|
| - |
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto loans |
| 23,503 |
|
| 23,503 |
|
| 3,646 |
|
| 25,274 |
|
| 462 |
|
| - |
|
| 1,357 |
|
| - |
Finance leases |
| 2,248 |
|
| 2,271 |
|
| 63 |
|
| 2,532 |
|
| 43 |
|
| - |
|
| 140 |
|
| - |
Other consumer loans |
| 12,486 |
|
| 15,132 |
|
| 1,468 |
|
| 14,441 |
|
| 388 |
|
| 40 |
|
| 1,027 |
|
| 105 |
| $ | 779,259 |
| $ | 945,088 |
| $ | 48,155 |
| $ | 814,540 |
| $ | 6,642 |
| $ | 710 |
| $ | 18,625 |
| $ | 2,183 |
|
31
Impaired Loans |
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
| |||
| Recorded Investment |
| Unpaid Principal Balance |
| Related Specific Allowance |
| Year-To-Date Average Recorded Investment | ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
With no related specific allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
FHA/VA-Guaranteed loans | $ | - |
| $ | - |
| $ | - |
| $ | - |
Other residential mortgage loans |
| 67,996 |
|
| 82,602 |
|
| - |
|
| 71,003 |
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans |
| 72,620 |
|
| 91,685 |
|
| - |
|
| 80,713 |
Commercial and Industrial Loans |
| 14,656 |
|
| 24,642 |
|
| - |
|
| 17,209 |
Construction: |
|
|
|
|
|
|
|
|
|
|
|
Land |
| 180 |
|
| 233 |
|
| - |
|
| 212 |
Construction-commercial |
| - |
|
| - |
|
| - |
|
| - |
Construction-residential |
| 956 |
|
| 1,531 |
|
| - |
|
| 956 |
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
Auto loans |
| 599 |
|
| 599 |
|
| - |
|
| 615 |
Finance leases |
| 94 |
|
| 94 |
|
| - |
|
| 95 |
Other consumer loans |
| 4,516 |
|
| 5,876 |
|
| - |
|
| 4,696 |
| $ | 161,617 |
| $ | 207,262 |
| $ | - |
| $ | 175,499 |
With a related specific allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
FHA/VA-Guaranteed loans | $ | - |
| $ | - |
| $ | - |
| $ | - |
Other residential mortgage loans |
| 374,271 |
|
| 423,648 |
|
| 8,633 |
|
| 380,273 |
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans |
| 121,771 |
|
| 133,883 |
|
| 26,172 |
|
| 122,609 |
Commercial and Industrial Loans |
| 138,887 |
|
| 165,399 |
|
| 22,638 |
|
| 149,153 |
Construction: |
|
|
|
|
|
|
|
|
|
|
|
Land |
| 14,870 |
|
| 19,918 |
|
| 947 |
|
| 15,589 |
Construction-commercial |
| 36,893 |
|
| 38,721 |
|
| 324 |
|
| 38,191 |
Construction-residential |
| 392 |
|
| 551 |
|
| 134 |
|
| 392 |
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
Auto loans |
| 24,276 |
|
| 24,276 |
|
| 3,717 |
|
| 26,562 |
Finance leases |
| 2,553 |
|
| 2,553 |
|
| 71 |
|
| 2,751 |
Other consumer loans |
| 12,375 |
|
| 12,734 |
|
| 1,785 |
|
| 13,322 |
| $ | 726,288 |
| $ | 821,683 |
| $ | 64,421 |
| $ | 748,842 |
Total: |
|
|
|
|
|
|
|
|
|
|
|
FHA/VA-Guaranteed loans | $ | - |
| $ | - |
| $ | - |
| $ | - |
Other residential mortgage loans |
| 442,267 |
|
| 506,250 |
|
| 8,633 |
|
| 451,276 |
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans |
| 194,391 |
|
| 225,568 |
|
| 26,172 |
|
| 203,322 |
Commercial and Industrial Loans |
| 153,543 |
|
| 190,041 |
|
| 22,638 |
|
| 166,362 |
Construction: |
|
|
|
|
|
|
|
|
|
|
|
Land |
| 15,050 |
|
| 20,151 |
|
| 947 |
|
| 15,801 |
Construction-commercial |
| 36,893 |
|
| 38,721 |
|
| 324 |
|
| 38,191 |
Construction-residential |
| 1,348 |
|
| 2,082 |
|
| 134 |
|
| 1,348 |
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
Auto loans |
| 24,875 |
|
| 24,875 |
|
| 3,717 |
|
| 27,177 |
Finance leases |
| 2,647 |
|
| 2,647 |
|
| 71 |
|
| 2,846 |
Other consumer loans |
| 16,891 |
|
| 18,610 |
|
| 1,785 |
|
| 18,018 |
| $ | 887,905 |
| $ | 1,028,945 |
| $ | 64,421 |
| $ | 924,341 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income of approximately $7.2 million ($6.4 million on an accrual basis and $0.8 million on a cash basis) and $21.7 million ($18.9 million on an accrual basis and $2.8 on a million cash basis) was recognized on impaired loans for the third quarter and nine-month period ended September 30, 2016, respectively. |
32
The following tables show the activity for impaired loans and the related specific reserve for the quarters and nine-month periods ended September 30, 2017 and 2016: | ||||||||||||||||
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
| Quarter Ended |
| Nine-Month Period Ended | ||||||||
|
|
|
|
|
| September 30, |
| September 30, | ||||||||
|
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 | ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Impaired Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Balance at beginning of period |
|
|
| $ | 735,625 |
| $ | 953,774 |
| $ | 887,905 |
| $ | 806,509 | ||
Loans determined impaired during the period |
|
|
|
| 71,884 |
|
| 26,613 |
|
| 110,488 |
|
| 261,544 | ||
Charge-offs (1) |
|
|
|
| (6,472) |
|
| (30,426) |
|
| (66,959) |
|
| (50,027) | ||
Loans sold, net of charge-offs |
|
|
|
| - |
|
| - |
|
| (53,245) |
|
| - | ||
Increases to impaired loans-additional disbursements |
|
|
|
| 3,215 |
|
| 1,091 |
|
| 4,454 |
|
| 2,852 | ||
Foreclosures |
|
|
|
| (5,657) |
|
| (11,856) |
|
| (36,347) |
|
| (28,466) | ||
Loans no longer considered impaired |
|
|
|
| (542) |
|
| (2,674) |
|
| (3,324) |
|
| (27,560) | ||
Paid in full or partial payments |
|
|
|
| (18,794) |
|
| (23,668) |
|
| (63,713) |
|
| (51,998) | ||
Balance at end of period |
|
|
| $ | 779,259 |
| $ | 912,854 |
| $ | 779,259 |
| $ | 912,854 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | For the nine-month period ended September 30, 2017, includes a charge-off of $10.7 million related to the sale of the PREPA credit line, as further discussed below. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
| Quarter Ended |
| Nine-Month Period Ended | ||||||||
|
|
|
|
| September 30, |
| September 30, | ||||||||
| 2017 | 2016 |
| 2017 | 2016 | ||||||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific Reserve: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance at beginning of period |
|
|
| $ | 40,794 |
| $ | 86,372 |
| $ | 64,421 |
|
| 52,581 | |
Provision for loan losses |
|
|
|
| 13,819 |
|
| 16,619 |
|
| 50,014 |
|
| 70,011 | |
Net charge-offs |
|
|
|
| (6,458) |
|
| (30,309) |
|
| (66,280) |
|
| (49,910) | |
Balance at end of period |
|
|
| $ | 48,155 |
| $ | 72,682 |
| $ | 48,155 |
| $ | 72,682 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Purchased Credit Impaired (PCI) Loans
The Corporation acquired PCI loans accounted for under ASC 310-30 as part of a transaction that closed on February 27, 2015 in which FirstBank acquired 10 Puerto Rico branches of Doral Bank, and acquired certain assets, including PCI 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. The Corporation also acquired PCI loans in previously completed asset acquisitions that are accounted for under ASC 310-30. These previous transactions include the acquisition from Doral Financial in the second quartertables 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 2014single-family residential properties, and for commercial and construction loans consisted primarily of all Doral Financial’s rights, titleoffice buildings, multifamily residential properties, and interest in first and second residential mortgagesretail establishments. The weighted-average loan-to-value coverage for collateral dependent loans in full satisfaction of secured borrowings owed by such entity to FirstBank.
Under ASC 310-30, the acquired PCI loans were aggregated into pools based on similar characteristics (i.e., delinquency status, loan terms). Each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Since the loans are accounted for by the Corporation under ASC 310-30, they are not considered non-performing and will continue to have an accretable yield as long as there is a reasonable expectation about the timing and amount of cash flows expected to be collected. The Corporation recognizes additional losses on this portfolio when it is probable that the Corporation will be unable to collect all cash flows expected as of the acquisition date plus additional cash flows expectedMarch 31, 2022 was 75%, compared to be collected arising from changes in estimates after the acquisition date.
The carrying amount of PCI loans was as follows: | ||||||
|
| As of | ||||
| September 30, |
| December 31, | |||
| 2017 |
| 2016 | |||
(In thousands) |
|
|
|
|
| |
Residential mortgage loans | $ | 153,609 |
| $ | 162,676 | |
Commercial mortgage loans |
| 4,185 |
|
| 3,142 | |
Total PCI loans | $ | 157,794 |
| $ | 165,818 | |
Allowance for loan losses |
| (10,235) |
|
| (6,857) | |
Total PCI loans, net of allowance for loan losses | $ | 147,559 |
| $ | 158,961 | |
|
|
|
|
|
|
|
The following tables present PCI loans by past due status as of September 30, 2017 and December 31, 2016: | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
As of September 30, 2017 | 30-59 Days |
| 60-89 Days |
| 90 days or more |
| Total Past Due |
|
|
|
| Total PCI loans |
| |||||||
|
|
|
|
|
| Current |
|
| ||||||||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Residential mortgage loans | $ | - |
| $ | 14,310 |
| $ | 28,820 |
| $ | 43,130 |
|
| $ | 110,479 |
| $ | 153,609 |
| |
Commercial mortgage loans |
| - |
|
| 471 |
|
| 2,285 |
|
| 2,756 |
|
|
| 1,429 |
|
| 4,185 |
| |
Total (1) | $ | - |
| $ | 14,781 |
| $ | 31,105 |
| $ | 45,886 |
|
| $ | 111,908 |
| $ | 157,794 |
| |
_____________ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(1) | 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 and commercial mortgage loans are considered past due when the borrower is in arrears on two or more monthly payments. PCI residential mortgage loans and commercial mortgage loans past due 30-59 days as of September 30, 2017 amounted to $27.5 million and $0.4 million, respectively. | |||||||||||||||||||
|
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
As of December 31, 2016 | 30-59 Days |
| 60-89 Days |
| 90 days or more |
| Total Past Due |
|
|
|
| Total PCI loans |
| |||||||
|
|
|
|
|
| Current |
|
| ||||||||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Residential mortgage loans | $ | - |
| $ | 11,892 |
| $ | 27,849 |
| $ | 39,741 |
|
| $ | 122,935 |
| $ | 162,676 |
| |
Commercial mortgage loans |
| - |
|
| 355 |
|
| 1,150 |
|
| 1,505 |
|
|
| 1,637 |
|
| 3,142 |
| |
Total (1) | $ | - |
| $ | 12,247 |
| $ | 28,999 |
| $ | 41,246 |
|
| $ | 124,572 |
| $ | 165,818 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | 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 and commercial mortgage loans are considered past due when the borrower is in arrears on two or more monthly payments. PCI residential mortgage loans and commercial mortgage loans past due 30-59 days as of December 31, 2016 amounted to $22.3 million and $0.1 million, respectively. | |||||||||||||||||||
|
|
34
Initial Fair Value and Accretable Yield78% as of PCI Loans
At acquisition, the Corporation estimated the cash flows the Corporation expected to collect on the PCI loans. Under the accounting guidance for PCI loans, the difference between the contractually required payments and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference. This difference is neither accreted into income nor recorded on the Corporation’s consolidated statement of financial condition. The excess of cash flows expected to be collected over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loans, using the effective-yield method.
Changes in accretable yield of acquired loans
Subsequent to an acquisition of loans, the Corporation is required to periodically evaluate its estimate of cash flows expected to be collected. These evaluations, performed quarterly, require the continued use of key assumptions and estimates, similar to the initial estimate of fair value. SubsequentDecember 31, 2021. There were no significant changes in the estimated cash flows expectedextent to be collected may result in changes in the accretable yield and non-accretable difference or reclassifications from non-accretable yield to accretable yield. Increases in the cash flows expected to be collected will generally result in an increase in interest income over the remaining life of the loan or pool of loans. Decreases in expected cash flows due to further credit deterioration will generally result in an impairment charge recognized inwhich collateral secured the Corporation’s provision for loan and lease losses, resulting in an increase to the allowance for loan losses. Duringcollateral dependent financial assets during the first nine monthsquarter of 2017, the Corporation increased by $3.4 million to $10.2 million the reserve related to PCI loans acquired from Doral Financial in 2014 and from Doral Bank in 2015. The reserve is driven by the revisions to the expected cash flows of the portfolios for the remaining term of the loan pools based on expected performance and market conditions.2022.
Changes in the accretable yield of PCI loans for the quarters and nine-month periods ended September 30, 2017 and 2016 were as follows: | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended |
| Nine-Month Period Ended | ||||||||
| September 30, |
| September 30, |
| September 30, |
| September 30, | ||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 108,971 |
| $ | 122,179 |
| $ | 116,462 |
| $ | 118,385 |
Accretion recognized in earnings |
| (2,656) |
|
| (2,875) |
|
| (8,177) |
|
| (8,691) |
Reclassification (to) from non-accretable |
| - |
|
| - |
|
| (1,970) |
|
| 9,610 |
Balance at end of period | $ | 106,315 |
| $ | 119,304 |
| $ | 106,315 |
| $ | 119,304 |
|
|
|
|
|
|
|
|
|
|
|
|
3543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the carrying amount of loans accounted for pursuant to ASC 310-30 were as follows: | |||||||||||||
|
|
| Quarter Ended |
| Nine-Month Period Ended | ||||||||
|
|
| September 30, 2017 |
| September 30, 2016 |
| September 30, 2017 |
| September 30, 2016 | ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
| |
Balance at beginning of period | $ | 160,368 |
| $ | 169,690 |
| $ | 165,818 |
| $ | 173,913 | ||
Accretion |
| 2,656 |
|
| 2,875 |
|
| 8,177 |
|
| 8,691 | ||
Collections |
| (4,225) |
|
| (4,184) |
|
| (13,327) |
|
| (13,136) | ||
Foreclosures |
| (1,005) |
|
| (240) |
|
| (2,874) |
|
| (1,327) | ||
Ending balance | $ | 157,794 |
| $ | 168,141 |
| $ | 157,794 |
| $ | 168,141 | ||
Allowance for loan losses |
| (10,235) |
|
| (6,857) |
|
| (10,235) |
|
| (6,857) | ||
Ending balance, net of allowance for loan losses | $ | 147,559 |
| $ | 161,284 |
| $ | 147,559 |
| $ | 161,284 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the allowance for loan losses related to PCI loans follows: | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
| Quarter Ended |
| Nine-Month Period Ended | ||||||||
|
|
| September 30, 2017 |
| September 30, 2016 |
| September 30, 2017 |
| September 30, 2016 | ||||
(In thousands) |
|
| |||||||||||
Balance at beginning of period | $ | 9,446 |
| $ | 6,857 |
| $ | 6,857 |
| $ | 3,962 | ||
Provision for loan losses |
| 789 |
|
| - |
|
| 3,378 |
|
| 2,895 | ||
Balance at end of period |
| $ | 10,235 |
| $ | 6,857 |
| $ | 10,235 |
| $ | 6,857 |
The outstanding principal balance of PCI loans, including amounts charged off by the Corporation, amounted to $196.4 million as of September 30, 2017 (December 2016 - $207.3 million).
36
Purchases and Sales of Loans
During the first nine months of 2017,quarter ended March 31, 2022, the Corporation purchased $48.9transferred $41.5 million ofin residential mortgage loans consistent with a strategic program to purchase ongoing residential mortgage loan production from mortgage bankers in Puerto Rico. Generally, the loans purchased from mortgage bankers were conforming residential mortgage loans. Purchases of conforming residential mortgage loans provide the Corporation the flexibility to retain or sell the loans, including through securitization transactions, depending upon the Corporation’s interest rate risk management strategies. When the Corporation sells such loans, it generally keeps the servicing of the loans.
In the ordinary course of business, the Corporation sells residential mortgage loans (originated or purchased) to GNMA, and government-sponsored entities (“GSEs”) such as Fannie Mae (“FNMA”) and Freddie Mac (“FHLMC”), which generally securitize the transferred loanspackaged them into mortgage-backed securitiesMBS for sale intoin the secondary market. Themarket, compared to $55.3 million for the same period in 2021. Also, during the first quarter of 2022, the Corporation sold approximately $69.5$52.4 million of performing residential mortgage loans to FNMA and FHLMC, duringcompared to sales of $95.4 million for the first nine months of 2017. Also, during the first nine months of 2017, the Corporation sold $200.2 million of FHA/VA mortgage loans to GNMA, which packages them into mortgage-backed securities.same period in 2021. The Corporation’s continuing involvement in these soldwith the loans it sells consists primarily of servicing the loans. In addition, the Corporation agrees to repurchase loans whenif 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 sold topooled into GNMA MBS, the Corporation holds an option to repurchase individual delinquent loans issued on or after January 1, 2003 when the borrower fails to make any payment for three consecutive months. This option gives the Corporation the ability, but not the obligation, to repurchase the delinquent loans at par without prior authorization from GNMA.
Under ASC Topic 860, Transfer“Transfer and Servicing,,” once the Corporation has the unilateral ability to repurchase the delinquent loan, it is considered to have regained effective control over the loan and is required to recognize the loan and a corresponding repurchase liability on the statement of financial conditionbalance sheet regardless of the Corporation’s intent to repurchase the loan. As of March 31, 2022 and December 31, 2021, rebooked GNMA delinquent loans that were included in the residential mortgage loan portfolio amounted to $9.5 million and $7.2 million, respectively.
During the first nine monthsquarter of 20172022 and 2016,2021, the Corporation repurchased, pursuant to itsthe aforementioned repurchase option, with GNMA, $24.7$0.5 million and $20.9$0.3 million, respectively, of loans previously sold to GNMA.pooled into GNMA MBS. The principal balance of these loans is fully guaranteed and the risk of loss related to the repurchased loans is generally limited to the difference between the delinquent interest payment advanced to GNMA, which is computed at the loan’s interest rate, and the interest payments reimbursed by FHA, which are computed at a pre-determined debenture rate. Repurchases of GNMA loans allow the Corporation, among other things, to maintain acceptable delinquency rates on outstanding GNMA pools and remain as a seller and servicer in good standing with GNMA. On May 14, 2020, in response to the national emergency declared by the U.S. President related to the COVID-19 pandemic, GNMA announced a temporary relief that excludes any new borrower delinquencies, occurring on or after April 2020, from the calculation of delinquency and default ratios established in the GNMA MBS guide. This exclusion was extended automatically to issuers that were compliant with GNMA delinquency rate thresholds as reflected by their April 2020 investor accounting report, reflecting March 2020 servicing data. The Corporation generally remediates any breachexemptions and delinquent loan exclusions will automatically expire on July 31, 2022, unless earlier rescinded or extended by GNMA, or the end of the national emergency, whichever comes earlier. Historically, losses for violations of representations and warranties, related toand on optional repurchases of GNMA delinquent loans, have been immaterial and no provision has been made at the underwritingtime of such loans according to established GNMA guidelines without incurring losses. The Corporation does not maintain a liability for estimated losses as a result of breaches in representations and warranties.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 $27$2 thousand and $0.7$0.3 million during the first nine monthsquarter of 20172022 and 2016,2021, 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. No losses related to breaches of representations and warranties were incurred in
During the first nine monthsquarter of 2017. Historically, losses experienced on these loans have been immaterial. As2021, a consequence, as of September 30, 2017, the Corporation does not maintain a liability for estimated losses on loans expectedcriticized commercial loan participation amounting to be repurchased as a result of breaches in loan and servicer representations and warranties.$14.3 million was sold.
In addition, during the first nine monthsquarter of 2017,2022 and 2021, the Corporation purchased $32.0 million in commercial and industrial loan participations. Also, during the first nine months of 2016, the Corporation sold a $20.2 million participation in a commercial mortgage loan.
Sale of the Puerto Rico Electric Power Authority (PREPA) Loan
During the first quarter of 2017, the Corporation received an unsolicited offer and sold its outstanding participation loans participations in the PREPA line of credit with a book value of $64 Florida region totaling $46.4 million at the time of sale (principal balance of $75 million), thereby reducing its direct exposure to the Puerto Rico government. A specific reserve of approximately $10.2 and $15.1 million, had been allocated to this loan. Gross proceeds from the sale of $53.2 million have resulted in an incremental loss of $0.6 million recorded as a charge to the provision for loan and lease losses.respectively.
3744
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 $8.9$11.1 billion as of September 30, 2017, approximately 75% haveMarch 31, 2022, credit risk concentration was approximately 79% in Puerto Rico, 18%18% in the United States, and 7%3% in the USVI and BVI.
As of September 30, 2017,March 31, 2022, the Corporation had $56.2$175.2 million of outstanding in loans extended to the Puerto Rico government, its municipalities and public corporations, compared to $133.6 $178.4 million as of December 31, 2016. 2021. As mentioned above, during the first quarter of 2017, the Corporation received an unsolicited offer and sold its outstanding participation in the PREPA line of credit with a book value of $64March 31, 2022, approximately $100.2 million at the time of sale (principal balance of $75 million), thereby reducing its direct exposure to the Puerto Rico government. Approximately $33.9 million of the outstanding loans consisted of loans extended to municipalities in Puerto Rico which in most casesthat are general obligations supported by assigned property tax revenues.revenues, and $31.3 million consisted of municipal special obligation bonds. 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 forto satisfy the payment of all of their respective general obligation bonds and notes. Late in 2015, the GDBGovernment Development Bank for Puerto Rico (“GDB”) and the Municipal Revenue Collection Center (CRIM)(“CRIM”) signed and perfected a deed of trust. Through this deed, the GDB,Puerto Rico Fiscal Agency and Financial Advisory Authority, as fiduciary, is bound to keep the CRIM funds separate from any other deposits and must distribute the funds pursuant to applicable law. The CRIM funds are deposited at another commercial depository financial institution in Puerto Rico. Approximately $6.8 million ofIn addition to loans extended to municipalities, the outstanding loansCorporation’s exposure to the Puerto Rico government as of September 30, 2017 consisted of a loan to a unit of the central government, and approximately $15.4March 31, 2022 included $12.3 million consisted of a loanin loans granted to an affiliate of a public corporation.the Puerto Rico Electric Power Authority (“PREPA”) and $31.4 million in loans to an agency of the Puerto Rico central government.
Furthermore,In addition, as of September 30, 2017,March 31, 2022, the Corporation had three loans granted to the hotel industry in Puerto Rico guaranteed by the Puerto Rico Tourism Development Fund (“TDF”) with an outstanding principal balance of $120.2 million (book value $72.4 million), compared to $127.7 million outstanding (book value of $111.8 million) as of December 31, 2016. The borrower and the operations of the underlying collateral of these loans are the primary sources of repayment and the TDF provides a secondary guarantee for payment performance. The TDF is a subsidiary of the GDB. These loans have been classified as non-performing and impaired since the first quarter of 2016, and interest payments have been applied against principal since then. Approximately $4.1 million of interest payments received on loans guaranteed by the TDF since late March 2016 have been applied against principal. During the second quarter of 2017, the Corporation recorded charge-offs of $29.7 million on these facilities. The largest of these three loans became over 90 days matured in the second quarter of 2017 and, as a collateral dependent loan, the portion of the recorded investment in excess of the fair value of the collateral and the guarantee was charged-off. A portion of the charge-offs was related to an adjustment to the estimated fair value of the guarantee on these loans in light of an agreement reached in the second quarter of 2017 in which the TDF agreed to honor a portion of its guarantee through a cash payment and a fixed income financial instrument. During the third quarter of 2017, the Corporation received a cash payment of $ 7.6 million in connection with this agreement. The issuance of the fixed income financial instrument is linked to the GDB’s Restructuring Support Agreement approved by the PROMESA oversight board. Upon completion of the agreement, TDF will be released as guarantor and the income-producing real estate properties will be the only collateral on these loans, thus, any decline in the collateral valuations may require additional impairments on these bonds. As of September 30, 2017, the non-performing loans guaranteed by the TDF and related facilities are being carried (net of reserves and accumulated charge-offs) at 53% of unpaid principal balance.
In addition, the Corporation had $116.0$90.6 million in exposure to residential mortgage loans that are guaranteed by the Puerto Rico Housing Finance Authority.PRHFA, a government instrumentality that has been designated as a covered entity under PROMESA, compared to $92.8 million as of December 31, 2021. Residential mortgage loans guaranteed by the Puerto Rico Housing Finance AuthorityPRHFA are secured by the underlying properties and the guarantees serve to cover shortfalls in collateral in the event of a borrower default. The Puerto Rico government guarantees up to $75$75 million of the principal guaranteedfor all loans under the mortgage loan insurance program. According to the most recently releasedrecently-released audited financial statements of the Puerto Rico Housing Financing Authority,PRHFA, as of June 30, 2015,2019, the Puerto Rico Housing Finance Authority’sPRHFA’s mortgage loanloans insurance program covered loans in an aggregate amount of approximately $552$557 million. The regulations adopted by the Puerto Rico Housing Finance Authority requirePRHFA, requires the establishment of adequate reserves to guarantee the solvency of the mortgage loanloans insurance fund.program. As of June 30, 2015,2019, the most recent date as toof which information is available, the Puerto Rico Housing Finance AuthorityPRHFA had a restricted net position for such purposesan unrestricted deficit of approximately $77.4 million.$5.2 million with respect to required reserves for the mortgage loan insurance program.
The Corporation also has credit exposure to USVI government entities. As of September 30, 2017, the Corporation had $84.8 million in loans to USVI government instrumentalities and public corporations, compared to $84.7 million as of December 31, 2016. Of the amount outstanding as of September 30, 2017, approximately $61.6 million was owed by public corporations of the USVI and $23.2 million was owed by an independent instrumentality of the USVI government. All loans are currently performing and up to date with their respective principal and interest payments.
The Corporation cannot predict at this time the impact thatultimate effect on the current fiscalPuerto Rico economy, the Corporation’s clients, and the Corporation’s financial condition and results of operations of the financial situation of the Commonwealth of Puerto Rico, the uncertainty about the ultimate effect of the Puerto Rico’s government debt restructuring process,adjustment plan approved by the U.S. District Court for the District of Puerto Rico, and the various legislative and other measures adopted and to be adopted by the Puerto Rico government and the PROMESA oversight board in response to such fiscal situationsituation.
The Corporation also has credit exposure to USVI government entities. As of March 31, 2022, the Corporation had $38.0 million in loans to USVI government public corporations, compared to $39.2 million as of December 31, 2021. As of March 31, 2022, all loans were currently performing and Hurricanes Irmaup to date on principal and Maria will have oninterest payments. The USVI has been experiencing a number of fiscal and economic challenges that could adversely affect the Puerto Rico economy, the Corporation’s clients, and on the Corporation’s financial condition and resultsability of operations. its public corporations to service their outstanding debt obligations.
3845
Refer to Note 8 – “Allowance for Loan and Lease Losses” for additional information about the Corporation’s initial estimate of losses related to the impact of Hurricanes Irma and Maria in the third quarter of 2017.
Troubled Debt Restructurings
The Corporation provides homeownership preservation assistance to its customers through a loss mitigation program in Puerto Rico that is similar to the U.S. government’s Home Affordable Modification Program guidelines.Rico. Depending upon the nature of borrowers’a borrower’s financial condition, restructurings or loan modifications through this program, as well as other restructurings of individual commercial,C&I, commercial mortgage, construction, and residential mortgage loans, fit the definition of a TDR. A restructuring of a debt constitutes a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. Modifications involve changes in one or more of the loan terms that bring a defaulted loan current and provide sustainable affordability. Changes may include, among others, the extension of the maturity of the loan and modifications of the loan rate. As of September 30, 2017,March 31, 2022, the Corporation’s total TDR loans held for investment of $585.8$404.7 million consisted of $363.3$252.3 million of residential mortgage loans, $88.0$68.5 million of commercial and industrialC&I loans, $51.6$67.7 million of commercial mortgage loans, $44.9$2.0 million of construction loans, and $38.0 $14.2 million of consumer loans. Outstanding unfunded commitmentsAs of March 31, 2022, the Corporation has committed to lend up to additional $8 thousand on TDR loans amounted to $4.1 million as of September 30, 2017.these loans.
The Corporation’s loss mitigation programs for residential mortgage and consumer loans can provide for one or a combination of the following: movement of interest past due to the end of the loan, extension of the loan term, deferral of principal payments, and reduction of interest rates either permanently or for a period of up to six years (increasing back in step-up rates). Additionally, in certain cases, the restructuring may provide for the forgiveness of contractually duecontractually-due principal or interest. Uncollected interest is added to the principal at the end of the loan term at the time of the restructuring and not recognized as income until collected or when the loan is paid off. These programs are available only to those borrowers who have defaulted, or are likely to default, permanently on their loanloans and would lose their homes in a foreclosure action absent some lender concession. Nevertheless, if the Corporation is not reasonably assured that the borrower will comply with its contractual commitment, properties arethe property is foreclosed.
Prior to permanently modifying a loan, the Corporation may enter into trial modifications with certain borrowers. Trial modifications generally represent a six-month period during which the borrower makes monthly payments under the anticipated modified payment terms prior to a formal modification. Upon successful completion of a trial modification, the Corporation and the borrower enter into a permanent modification. TDR loans that are participating in or that have been offered a binding trial modification are classified as TDRs when the trial offer is made and continue to be classified as TDRs regardless of whether the borrower enters into a permanent modification. As of September 30, 2017, we classified an additional $1.8March 31, 2022, the Corporation included as TDRs $0.4 million of residential mortgage loans as TDRs that were participating in or had been offered a trial modification.
For the commercial real estate, commercial and industrial, and construction loan portfolios, at the time of a restructuring, the Corporation determines, on a loan-by-loan basis, whether a concession was granted for economic or legal reasons related to the borrower’s financial difficulty. Concessions granted for commercial loans in these portfolios could include:include the following: reductions in interest rates to rates that are considered below market;market, extension of repayment schedules and maturity dates beyond the original contractual terms; waivers of borrower covenants;covenants, forgiveness of principal or interest;interest, or other contractual changes that wouldare considered to be considered a concession.concessions. The Corporation mitigates loan defaults for its commercialthese loan portfolios through its collection function. The function’s objective is to minimize both early stageearly-stage delinquencies and losses upon default of commercial loans. loans in these portfolios. In the case of the commercial and industrial, commercial mortgage, and construction loan portfolios, the Corporation’s Special Asset Group (“SAG”) focuses on strategies for the accelerated reduction of non-performing assets through note sales, short sales, loss mitigation programs, and sales of OREO. OREO.
In addition, the Corporation extends, renews, and restructures loans with satisfactory credit profiles. Many commercial loan facilities are structured as lines of credit, which primarilygenerally have one-year terms and, therefore, are required to be renewed annually.require annual renewals. Other facilities may be restructured or extended from time to time based upon changes in the borrower’s business needs, use of funds, and timing of completion of projects, and other factors. If the borrower is not deemed to have financial difficulties, extensions, renewals, and restructurings are done in the normal course of business and are not considered to be concessions, and the loans continue to be recorded as performing.
Loans subject to the above described three-month payment deferral programs established by the Corporation in the third quarter of 2017 to assist individuals affected by Hurricanes Irma and Maria are not considered TDRs as the time period for deferral of payments is not significant.
39
Selected information on TDR loans that includes the recorded investment by loan class and modification type is summarized in the following tables. This information reflects all TDRs: | ||||||||||||||||||
|
|
|
|
| ||||||||||||||
|
| September 30, 2017 | ||||||||||||||||
| 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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Troubled Debt Restructurings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Non-FHA/VA Residential Mortgage loans | $ | 26,013 |
| $ | 8,308 |
| $ | 268,035 |
| $ | - |
| $ | 60,913 |
| $ | 363,269 | |
Commercial Mortgage Loans |
| 6,639 |
|
| 2,124 |
|
| 32,697 |
|
| - |
|
| 10,185 |
|
| 51,645 | |
Commercial and Industrial Loans |
| 2,115 |
|
| 20,749 |
|
| 16,026 |
|
| 94 |
|
| 49,039 |
|
| 88,023 | |
Construction Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Land |
| 17 |
|
| 6,645 |
|
| 2,181 |
|
| - |
|
| 320 |
|
| 9,163 | |
Construction-commercial |
| - |
|
| - |
|
| - |
|
| 35,520 |
|
| - |
|
| 35,520 | |
Construction-residential |
| - |
|
| - |
|
| - |
|
| - |
|
| 217 |
|
| 217 | |
Consumer Loans - Auto |
| - |
|
| 1,371 |
|
| 14,721 |
|
| - |
|
| 7,412 |
|
| 23,504 | |
Finance Leases |
| - |
|
| 255 |
|
| 2,016 |
|
| - |
|
| - |
|
| 2,271 | |
Consumer Loans - Other |
| 821 |
|
| 2,053 |
|
| 7,323 |
|
| 250 |
|
| 1,736 |
|
| 12,183 | |
Total Troubled Debt Restructurings | $ | 35,605 |
| $ | 41,505 |
| $ | 342,999 |
| $ | 35,864 |
| $ | 129,822 |
| $ | 585,795 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation, or a combination of the concessions listed in the table. | |||||||||||||||||
|
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 | ||||||||||||||||
| 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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Troubled Debt Restructurings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Non-FHA/VA Residential Mortgage loans | $ | 29,254 |
| $ | 8,373 |
| $ | 280,588 |
| $ | - |
| $ | 57,594 |
| $ | 375,809 | |
Commercial Mortgage Loans |
| 6,044 |
|
| 2,007 |
|
| 30,005 |
|
| - |
|
| 10,686 |
|
| 48,742 | |
Commercial and Industrial Loans |
| 2,111 |
|
| 66,830 |
|
| 16,359 |
|
| 863 |
|
| 47,358 |
|
| 133,521 | |
Construction Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Land |
| - |
|
| 6,735 |
|
| 2,219 |
|
| - |
|
| 408 |
|
| 9,362 | |
Construction-commercial |
| - |
|
| - |
|
| - |
|
| 36,893 |
|
| - |
|
| 36,893 | |
Construction-residential |
| - |
|
| - |
|
| - |
|
| - |
|
| 357 |
|
| 357 | |
Consumer Loans - Auto |
| - |
|
| 1,706 |
|
| 14,698 |
|
| - |
|
| 8,471 |
|
| 24,875 | |
Finance Leases |
| - |
|
| 366 |
|
| 2,281 |
|
| - |
|
| - |
|
| 2,647 | |
Consumer Loans - Other |
| 236 |
|
| 2,518 |
|
| 9,662 |
|
| 299 |
|
| 2,127 |
|
| 14,842 | |
Total Troubled Debt Restructurings | $ | 37,645 |
| $ | 88,535 |
| $ | 355,812 |
| $ | 38,055 |
| $ | 127,001 |
| $ | 647,048 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation or a combination of the concessions listed in the table. | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
| The following table presents the Corporation's TDR loans activity: | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended |
| Nine-Month Period Ended | ||||||||||
| September 30, |
| September 30, | ||||||||||||
|
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance of TDRs |
| $ | 568,543 |
|
| $ | 670,991 |
| $ | 647,048 |
|
| $ | 661,591 | |
New TDRs |
|
| 29,101 |
|
|
| 15,596 |
|
| 83,368 |
|
|
| 66,075 | |
Increases to existing TDRs - additional |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
disbursements |
|
| 2,650 |
|
|
| 517 |
|
| 3,404 |
|
|
| 1,573 | |
Charge-offs post modification (1) |
|
| (2,949) |
|
|
| (5,445) |
|
| (26,976) |
|
|
| (15,899) | |
Sales, net of charge-offs |
|
| - |
|
|
| - |
|
| (53,245) |
|
|
| - | |
Foreclosures |
|
| (3,564) |
|
|
| (5,567) |
|
| (24,085) |
|
|
| (12,967) | |
Removed from the TDR classification |
|
| - |
|
|
| - |
|
| - |
|
|
| (3,031) | |
Paid-off and partial payments |
|
| (7,986) |
|
|
| (19,774) |
|
| (43,719) |
|
|
| (41,024) | |
Ending balance of TDRs |
| $ | 585,795 |
|
| $ | 656,318 |
| $ | 585,795 |
|
| $ | 656,318 | |
|
|
|
|
|
|
|
|
| |||||||
(1) | For the nine-month period ended September 30, 2017, includes a charge-off of $10.7 million related to the sale of the PREPA credit line. |
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 loanloans had demonstrated performance prior to the restructuring and payment in full under the restructured terms is expected. Otherwise, loansa loan on nonaccrual status and restructured as a TDR 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. Performance prior to the restructuring, or significant events that coincide with the restructuring, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of the restructuring or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains classified as a nonaccrual loan. Loan modifications increase the Corporation’s interest income by returning a non-performingnonaccrual loan to performing status, if applicable, increase cash flows by providing for payments to be made by the borrower, and limit increases in foreclosure and OREO costs.
46
The following tables provide a breakdown of the TDR loans held for investment by those in accrual and nonaccrual status as of the indicated dates: | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2022 | Puerto Rico and |
|
|
|
| ||||||||||||||||
|
| Virgin Islands region |
| Florida region |
| Total | |||||||||||||||
| Accrual | Nonaccrual | Total TDRs |
| Accrual | Nonaccrual | Total TDRs |
| Accrual | Nonaccrual (1) | Total TDRs | ||||||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Conventional residential mortgage loans | $ | 228,058 | $ | 19,651 | $ | 247,709 |
| $ | 3,006 | $ | 1,593 | $ | 4,599 |
| $ | 231,064 | $ | 21,244 | $ | 252,308 | |
Construction loans |
| 1,555 |
| 431 |
| 1,986 |
|
| 0 |
| 0 |
| 0 |
|
| 1,555 |
| 431 |
| 1,986 | |
Commercial mortgage loans |
| 49,917 |
| 15,523 |
| 65,440 |
|
| 2,248 |
| 0 |
| 2,248 |
|
| 52,165 |
| 15,523 |
| 67,688 | |
C&I loans |
| 58,561 |
| 9,596 |
| 68,157 |
|
| 0 |
| 388 |
| 388 |
|
| 58,561 |
| 9,984 |
| 68,545 | |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 3,878 |
| 3,211 |
| 7,089 |
|
| 30 |
| 0 |
| 30 |
|
| 3,908 |
| 3,211 |
| 7,119 | |
Finance leases |
| 999 |
| 16 |
| 1,015 |
|
| 0 |
| 0 |
| 0 |
|
| 999 |
| 16 |
| 1,015 | |
Personal loans |
| 906 |
| 0 |
| 906 |
|
| 0 |
| 0 |
| 0 |
|
| 906 |
| 0 |
| 906 | |
Credit Cards |
| 2,480 |
| 0 |
| 2,480 |
|
| 0 |
| 0 |
| 0 |
|
| 2,480 |
| 0 |
| 2,480 | |
Other consumer loans |
| 1,979 |
| 330 |
| 2,309 |
|
| 393 |
| 0 |
| 393 |
|
| 2,372 |
| 330 |
| 2,702 | |
Total TDRs | $ | 348,333 | $ | 48,758 | $ | 397,091 |
| $ | 5,677 | $ | 1,981 | $ | 7,658 |
| $ | 354,010 | $ | 50,739 | $ | 404,749 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Included in nonaccrual loans are $14.3 million in loans that are performing under the terms of the restructuring agreement but are reported in nonaccrual status until the restructured loans meet the criteria of sustained payment performance under the revised terms for reinstatement to accrual status and are deemed fully collectible. | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 | Puerto Rico and |
|
|
|
| ||||||||||||||||
|
| Virgin Islands region |
| Florida region |
| Total | |||||||||||||||
| Accrual | Nonaccrual | Total TDRs |
| Accrual | Nonaccrual | Total TDRs |
| Accrual | Nonaccrual (1) | Total TDRs | ||||||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Conventional residential mortgage loans | $ | 234,597 | $ | 19,919 | $ | 254,516 |
| $ | 3,030 | $ | 1,027 | $ | 4,057 |
| $ | 237,627 | $ | 20,946 | $ | 258,573 | |
Construction loans |
| 1,845 |
| 458 |
| 2,303 |
|
| 0 |
| 0 |
| 0 |
|
| 1,845 |
| 458 |
| 2,303 | |
Commercial mortgage loans |
| 50,608 |
| 15,960 |
| 66,568 |
|
| 2,265 |
| 0 |
| 2,265 |
|
| 52,873 |
| 15,960 |
| 68,833 | |
C&I loans |
| 59,792 |
| 10,213 |
| 70,005 |
|
| 0 |
| 415 |
| 415 |
|
| 59,792 |
| 10,628 |
| 70,420 | |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 4,174 |
| 3,076 |
| 7,250 |
|
| 34 |
| 0 |
| 34 |
|
| 4,208 |
| 3,076 |
| 7,284 | |
Finance leases |
| 975 |
| 0 |
| 975 |
|
| 0 |
| 0 |
| 0 |
|
| 975 |
| 0 |
| 975 | |
Personal loans |
| 973 |
| 1 |
| 974 |
|
| 0 |
| 0 |
| 0 |
|
| 973 |
| 1 |
| 974 | |
Credit Cards |
| 2,583 |
| 0 |
| 2,583 |
|
| 0 |
| 0 |
| 0 |
|
| 2,583 |
| 0 |
| 2,583 | |
Other consumer loans |
| 2,111 |
| 275 |
| 2,386 |
|
| 407 |
| 0 |
| 407 |
|
| 2,518 |
| 275 |
| 2,793 | |
Total TDRs | $ | 357,658 | $ | 49,902 | $ | 407,560 |
| $ | 5,736 | $ | 1,442 | $ | 7,178 |
| $ | 363,394 | $ | 51,344 | $ | 414,738 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Included in nonaccrual loans are $13.5 million in loans that are performing under the terms of the restructuring agreement but are reported in nonaccrual status until the restructured loans meet the criteria of sustained payment performance under the revised terms for reinstatement to accrual status and are deemed fully collectible. |
47
TDR loans exclude restructured residential mortgage loans that are government-guaranteed (e.g., FHA/VA loans) totaling $55.5 million as of March 31, 2022 (compared with $57.6 million as of December 31, 2021). The Corporation excludes FHA/VA guaranteed loans from TDR loan statistics given that, in the event that the borrower defaults on the loan, the principal and interest (at the specified debenture rate) are guaranteed by the U.S. government. Therefore, the risk of loss on these types of loans is very low.
The following table presents the Corporation's TDR loans held for investment activity for the indicated periods: | ||||||
|
|
|
|
|
|
|
|
| Quarter Ended | ||||
|
| March 31, 2022 |
| March 31, 2021 | ||
(In thousands) |
|
|
|
|
| |
Beginning balance of TDRs | $ | 414,738 |
| $ | 479,196 | |
New TDRs |
| 4,670 |
|
| 3,019 | |
Increases to existing TDRs |
| 45 |
|
| 34 | |
Charge-offs post-modification |
| (881) |
|
| (2,909) | |
Foreclosures |
| (689) |
|
| (866) | |
Removed from TDR classification |
| 0 |
|
| (6,023) | |
Paid-off, partial payments and other |
| (13,134) |
|
| (12,247) | |
Ending balance of TDRs | $ | 404,749 |
| $ | 460,204 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A TDR loan that specifies an interest rate that at the time of the restructuring is greater than or equal to the rate the Corporation is willing to accept for a new loan with comparable risk may not be reported as a TDR or as an impaired loan in the calendar years subsequent to the restructuring, if it is in compliance with its modified terms. During the first nine months of 2016,quarter ended March 31, 2021, the Corporation removed a $3.0$6.0 million loanin loans from the TDR classification as the borrower was no longer experiencing financial difficulties, and the loan was refinancedoutstanding loans are at market terms, and doesdid not contain any concession to the borrower.
41
The following table provides a breakdown of the TDR loans by those in accrual and nonaccrual status: |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| As of September 30, 2017 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| Accrual |
| Nonaccrual (1) |
| Total TDRs | |||
(In thousands) |
|
|
|
|
|
|
|
| |
Non-FHA/VA Residential Mortgage loans | $ | 281,256 |
| $ | 82,013 |
| $ | 363,269 | |
Commercial Mortgage Loans |
| 33,695 |
|
| 17,950 |
|
| 51,645 | |
Commercial and Industrial Loans |
| 38,077 |
|
| 49,946 |
|
| 88,023 | |
Construction Loans: |
|
|
|
|
|
|
|
| |
Land |
| 7,599 |
|
| 1,564 |
|
| 9,163 | |
Construction-commercial |
| - |
|
| 35,520 |
|
| 35,520 | |
Construction-residential |
| - |
|
| 217 |
|
| 217 | |
Consumer Loans - Auto | 15,599 |
|
| 7,905 |
|
| 23,504 | ||
Finance Leases | 2,045 |
|
| 226 |
|
| 2,271 | ||
Consumer Loans - Other |
| 10,563 |
|
| 1,620 |
|
| 12,183 | |
Total Troubled Debt Restructurings | $ | 388,834 |
| $ | 196,961 |
| $ | 585,795 | |
|
|
|
|
|
|
|
|
|
|
(1) | Included in non-accrual loans are $82.8 million in loans that are performing under the terms of the restructuring agreement but are reported in nonaccrual status until the restructured loans meet the criteria of sustained payment performance under the revised terms for reinstatement to accrual status and are deemed fully collectible. |
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2016 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| Accrual |
| Nonaccrual (1) |
| Total TDRs | |||
(In thousands) |
|
|
|
|
|
|
|
| |
Non- FHA/VA Residential Mortgage loans | $ | 295,656 |
| $ | 80,153 |
| $ | 375,809 | |
Commercial Mortgage Loans |
| 32,340 |
|
| 16,402 |
|
| 48,742 | |
Commercial and Industrial Loans |
| 18,496 |
|
| 115,025 |
|
| 133,521 | |
Construction Loans: |
|
|
|
|
|
|
|
| |
Land |
| 7,732 |
|
| 1,630 |
|
| 9,362 | |
Construction-commercial |
| - |
|
| 36,893 |
|
| 36,893 | |
Construction-residential |
| - |
|
| 357 |
|
| 357 | |
Consumer Loans - Auto |
| 16,253 |
|
| 8,622 |
|
| 24,875 | |
Finance Leases |
| 2,542 |
|
| 105 |
|
| 2,647 | |
Consumer Loans - Other |
| 11,868 |
|
| 2,974 |
|
| 14,842 | |
Total Troubled Debt Restructurings | $ | 384,887 |
| $ | 262,161 |
| $ | 647,048 | |
|
|
|
|
|
|
|
|
|
|
(1) | Included in non-accrual loans are $110.6 million in loans that are performing under the terms of the restructuring agreement but are reported in non-accrual status until the restructured loans meet the criteria of sustained payment performance under the revised terms for reinstatement to accrual status and are deemed fully collectible. |
42
TDR loans exclude restructured residential mortgage loans that are guaranteed by the U.S. federal government (i.e., FHA/VA loans) totaling $62.1 million as of September 30, 2017 (December 31, 2016 - $69.1 million). The Corporation excludes FHA/VA guaranteeddid not remove any loans from the TDR loan statistics given that, in the event that the borrower defaults on the loan, the principal and interest (at the specified debenture rate) are guaranteed by the U.S. government; therefore, the risk of loss on these types of loans is very low. The Corporation does not consider loans with U.S. federal government guarantees to be impaired loans for the purpose of calculating the allowance for loan and lease losses.
Loan modifications that are considered TDRs and were completedclassification during the quarters and nine-month periods ended September 30, 2017 were as follows:first quarter of 2022.
| Quarter Ended September 30, 2017 | ||||||
| Number of contracts |
| Pre-modification Outstanding Recorded Investment |
| Post-Modification Outstanding Recorded Investment | ||
(Dollars in thousands) |
|
|
|
|
|
|
|
Troubled Debt Restructurings: |
|
|
|
|
|
|
|
Non-FHA/VA Residential Mortgage loans | 25 |
| $ | 3,358 |
| $ | 3,358 |
Commercial Mortgage Loans | 4 |
|
| 2,569 |
|
| 2,318 |
Commercial and Industrial Loans | 8 |
|
| 21,079 |
|
| 21,019 |
Land | 1 |
|
| 18 |
|
| 18 |
Consumer Loans - Auto | 109 |
|
| 1,568 |
|
| 1,568 |
Consumer Loans - Other | 199 |
|
| 796 |
|
| 820 |
Total Troubled Debt Restructurings | 346 |
| $ | 29,388 |
| $ | 29,101 |
|
|
|
|
|
|
|
|
| Nine-Month Period Ended September 30, 2017 | ||||||
| Number of contracts |
| Pre-modification Outstanding Recorded Investment |
| Post-Modification Outstanding Recorded Investment | ||
(Dollars in thousands) |
|
|
|
|
|
|
|
Troubled Debt Restructurings: |
|
|
|
|
|
|
|
Non-FHA/VA Residential Mortgage loans | 113 |
| $ | 17,585 |
| $ | 17,349 |
Commercial Mortgage Loans | 12 |
|
| 25,274 |
|
| 24,783 |
Commercial and Industrial Loans | 13 |
|
| 32,153 |
|
| 32,093 |
Construction Loans: |
|
|
|
|
|
|
|
Land | 2 |
|
| 43 |
|
| 46 |
Consumer Loans - Auto | 383 |
|
| 5,741 |
|
| 5,741 |
Finance Leases | 22 |
|
| 548 |
|
| 548 |
Consumer Loans - Other | 602 |
|
| 2,756 |
|
| 2,808 |
Total Troubled Debt Restructurings | 1,147 |
| $ | 84,100 |
| $ | 83,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4348
| Quarter Ended September 30, 2016 | ||||||
| Number of contracts |
| Pre-Modification Outstanding Recorded Investment |
| Post-Modification Outstanding Recorded Investment | ||
(Dollars in thousands) |
|
|
|
|
|
|
|
Troubled Debt Restructurings: |
|
|
|
|
|
|
|
Non-FHA/VA Residential Mortgage loans | 55 |
| $ | 8,631 |
| $ | 8,449 |
Commercial Mortgage Loans | 5 |
|
| 679 |
|
| 712 |
Commercial and Industrial Loans | 2 |
|
| 1,432 |
|
| 1,432 |
Construction Loans: |
|
|
|
|
|
|
|
Land | 4 |
|
| 158 |
|
| 155 |
Consumer Loans - Auto | 189 |
|
| 3,262 |
|
| 3,262 |
Finance Leases | 11 |
|
| 295 |
|
| 295 |
Consumer Loans - Other | 257 |
|
| 1,269 |
|
| 1,291 |
Total Troubled Debt Restructurings | 523 |
| $ | 15,726 |
| $ | 15,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine-Month Period Ended September 30, 2016 | ||||||
| Number of contracts |
| Pre-Modification Outstanding Recorded Investment |
| Post-Modification Outstanding Recorded Investment | ||
(Dollars in thousands) |
|
|
|
|
|
|
|
Troubled Debt Restructurings: |
|
|
|
|
|
|
|
Non-FHA/VA Residential Mortgage loans | 167 |
| $ | 25,040 |
| $ | 24,040 |
Commercial Mortgage Loans | 8 |
|
| 3,351 |
|
| 3,380 |
Commercial and Industrial Loans | 21 |
|
| 21,693 |
|
| 21,693 |
Construction Loans: |
|
|
|
|
|
|
|
Land | 4 |
|
| 158 |
|
| 155 |
Consumer Loans - Auto | 612 |
|
| 10,961 |
|
| 10,961 |
Finance Leases | 59 |
|
| 1,477 |
|
| 1,477 |
Consumer Loans - Other | 862 |
|
| 4,312 |
|
| 4,369 |
Total Troubled Debt Restructurings | 1,733 |
| $ | 66,992 |
| $ | 66,075 |
| |||||||
|
Selected information on the Corporation's TDR loans held for investment based on the amortized cost by loan class and modification type is summarized in the following tables as of the indicated dates: | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of March 31, 2022 | ||||||||||||||||||||
Puerto Rico and Virgin Islands region | 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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
TDRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Conventional residential mortgage loans | $ | 14,404 |
| $ | 10,328 |
| $ | 171,065 |
| $ | 0 |
| $ | 219 |
|
| $ | 51,693 |
| $ | 247,709 | |
Construction loans |
| 15 |
|
| 585 |
|
| 1,344 |
|
| 0 |
|
| 0 |
|
|
| 42 |
|
| 1,986 | |
Commercial mortgage loans |
| 1,192 |
|
| 599 |
|
| 40,867 |
|
| 0 |
|
| 15,946 |
|
|
| 6,836 |
|
| 65,440 | |
C&I loans |
| 220 |
|
| 2,358 |
|
| 16,729 |
|
| 0 |
|
| 16,670 |
|
|
| 32,180 |
|
| 68,157 | |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 0 |
|
| 147 |
|
| 2,139 |
|
| 0 |
|
| 0 |
|
|
| 4,803 |
|
| 7,089 | |
Finance leases |
| 0 |
|
| 0 |
|
| 193 |
|
| 0 |
|
| 0 |
|
|
| 822 |
|
| 1,015 | |
Personal loans |
| 42 |
|
| 6 |
|
| 264 |
|
| 0 |
|
| 0 |
|
|
| 594 |
|
| 906 | |
Credit cards |
| 0 |
|
| 0 |
|
| 2,470 |
|
| 10 |
|
| 0 |
|
|
| 0 |
|
| 2,480 | |
Other consumer loans |
| 824 |
|
| 840 |
|
| 270 |
|
| 91 |
|
| 0 |
|
|
| 284 |
|
| 2,309 | |
Total TDRs in Puerto Rico and Virgin Islands region | $ | 16,697 |
| $ | 14,863 |
| $ | 235,341 |
| $ | 101 |
| $ | 32,835 |
|
| $ | 97,254 |
| $ | 397,091 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation, 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. |
|
| As of March 31, 2022 | ||||||||||||||||||||
Florida region | 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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
TDRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Conventional residential mortgage loans | $ | 596 |
| $ | 1,477 |
| $ | 2,526 |
| $ | 0 |
| $ | 0 |
|
| $ | 0 |
| $ | 4,599 | |
Construction loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
|
| 0 |
|
| 0 | |
Commercial mortgage loans |
| 0 |
|
| 806 |
|
| 1,442 |
|
| 0 |
|
| 0 |
|
|
| 0 |
|
| 2,248 | |
C&I loans |
| 0 |
|
| 278 |
|
| 0 |
|
| 0 |
|
| 0 |
|
|
| 110 |
|
| 388 | |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 0 |
|
| 28 |
|
| 2 |
|
| 0 |
|
| 0 |
|
|
| 0 |
|
| 30 | |
Finance leases |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
|
| 0 |
|
| 0 | |
Personal loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
|
| 0 |
|
| 0 | |
Credit cards |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
|
| 0 |
|
| 0 | |
Other consumer loans |
| 0 |
|
| 0 |
|
| 75 |
|
| 0 |
|
| 0 |
|
|
| 318 |
|
| 393 | |
Total TDRs in Florida Region | $ | 596 |
| $ | 2,589 |
| $ | 4,045 |
| $ | 0 |
| $ | 0 |
|
| $ | 428 |
| $ | 7,658 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation, 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. |
|
| As of March 31, 2022 | ||||||||||||||||||||
Total | 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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
TDRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Conventional residential mortgage loans | $ | 15,000 |
| $ | 11,805 |
| $ | 173,591 |
| $ | 0 |
| $ | 219 |
|
| $ | 51,693 |
| $ | 252,308 | |
Construction loans |
| 15 |
|
| 585 |
|
| 1,344 |
|
| 0 |
|
| 0 |
|
|
| 42 |
|
| 1,986 | |
Commercial mortgage loans |
| 1,192 |
|
| 1,405 |
|
| 42,309 |
|
| 0 |
|
| 15,946 |
|
|
| 6,836 |
|
| 67,688 | |
C&I loans |
| 220 |
|
| 2,636 |
|
| 16,729 |
|
| 0 |
|
| 16,670 |
|
|
| 32,290 |
|
| 68,545 | |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 0 |
|
| 175 |
|
| 2,141 |
|
| 0 |
|
| 0 |
|
|
| 4,803 |
|
| 7,119 | |
Finance leases |
| 0 |
|
| 0 |
|
| 193 |
|
| 0 |
|
| 0 |
|
|
| 822 |
|
| 1,015 | |
Personal loans |
| 42 |
|
| 6 |
|
| 264 |
|
| 0 |
|
| 0 |
|
|
| 594 |
|
| 906 | |
Credit cards |
| 0 |
|
| 0 |
|
| 2,470 |
|
| 10 |
|
| 0 |
|
|
| 0 |
|
| 2,480 | |
Other consumer loans |
| 824 |
|
| 840 |
|
| 345 |
|
| 91 |
|
| 0 |
|
|
| 602 |
|
| 2,702 | |
Total TDRs | $ | 17,293 |
| $ | 17,452 |
| $ | 239,386 |
| $ | 101 |
| $ | 32,835 |
|
| $ | 97,682 |
| $ | 404,749 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation, 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. |
49
|
| As of December 31, 2021 | ||||||||||||||||||||
Puerto Rico and Virgin Islands region | 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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
TDRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Conventional residential mortgage loans | $ | 15,800 |
| $ | 10,265 |
| $ | 176,615 |
| $ | 0 |
| $ | 220 |
|
| $ | 51,616 |
| $ | 254,516 | |
Construction loans |
| 16 |
|
| 869 |
|
| 1,374 |
|
| 0 |
|
| 0 |
|
|
| 44 |
|
| 2,303 | |
Commercial mortgage loans |
| 1,421 |
|
| 718 |
|
| 41,480 |
|
| 0 |
|
| 16,041 |
|
|
| 6,908 |
|
| 66,568 | |
C&I loans |
| 218 |
|
| 2,401 |
|
| 17,319 |
|
| 0 |
|
| 16,765 |
|
|
| 33,302 |
|
| 70,005 | |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 0 |
|
| 186 |
|
| 2,561 |
|
| 0 |
|
| 0 |
|
|
| 4,503 |
|
| 7,250 | |
Finance leases |
| 0 |
|
| 2 |
|
| 258 |
|
| 0 |
|
| 0 |
|
|
| 715 |
|
| 975 | |
Personal loans |
| 43 |
|
| 6 |
|
| 329 |
|
| 0 |
|
| 0 |
|
|
| 596 |
|
| 974 | |
Credit cards |
| 0 |
|
| 0 |
|
| 2,574 |
|
| 9 |
|
| 0 |
|
|
| 0 |
|
| 2,583 | |
Other consumer loans |
| 892 |
|
| 816 |
|
| 282 |
|
| 122 |
|
| 0 |
|
|
| 274 |
|
| 2,386 | |
Total TDRs in Puerto Rico and Virgin Island region | $ | 18,390 |
| $ | 15,263 |
| $ | 242,792 |
| $ | 131 |
| $ | 33,026 |
|
| $ | 97,958 |
| $ | 407,560 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation, 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. |
|
| As of December 31, 2021 | ||||||||||||||||||||
Florida region | 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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
TDRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Conventional residential mortgage loans | $ | 603 |
| $ | 897 |
| $ | 2,557 |
| $ | 0 |
| $ | 0 |
|
| $ | 0 |
| $ | 4,057 | |
Construction loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
|
| 0 |
|
| - | |
Commercial mortgage loans |
| 0 |
|
| 812 |
|
| 1,453 |
|
| 0 |
|
| 0 |
|
|
| 0 |
|
| 2,265 | |
C&I loans |
| 0 |
|
| 282 |
|
| 0 |
|
| 0 |
|
| 0 |
|
|
| 133 |
|
| 415 | |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 0 |
|
| 31 |
|
| 3 |
|
| 0 |
|
| 0 |
|
|
| 0 |
|
| 34 | |
Finance leases |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
|
| 0 |
|
| 0 | |
Personal loans |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
|
| 0 |
|
| 0 | |
Credit cards |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
|
| 0 |
|
| 0 | |
Other consumer loans |
| 0 |
|
| 0 |
|
| 75 |
|
| 0 |
|
| 0 |
|
|
| 332 |
|
| 407 | |
Total TDRs in Florida region | $ | 603 |
| $ | 2,022 |
| $ | 4,088 |
| $ | 0 |
| $ | 0 |
|
| $ | 465 |
| $ | 7,178 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation, 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. |
|
| As of December 31, 2021 | ||||||||||||||||||||
Total | 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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
TDRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Conventional residential mortgage loans | $ | 16,403 |
| $ | 11,162 |
| $ | 179,172 |
| $ | 0 |
| $ | 220 |
|
| $ | 51,616 |
| $ | 258,573 | |
Construction loans |
| 16 |
|
| 869 |
|
| 1,374 |
|
| 0 |
|
| 0 |
|
|
| 44 |
|
| 2,303 | |
Commercial mortgage loans |
| 1,421 |
|
| 1,530 |
|
| 42,933 |
|
| 0 |
|
| 16,041 |
|
|
| 6,908 |
|
| 68,833 | |
C&I loans |
| 218 |
|
| 2,683 |
|
| 17,319 |
|
| 0 |
|
| 16,765 |
|
|
| 33,435 |
|
| 70,420 | |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auto loans |
| 0 |
|
| 217 |
|
| 2,564 |
|
| 0 |
|
| 0 |
|
|
| 4,503 |
|
| 7,284 | |
Finance leases |
| 0 |
|
| 2 |
|
| 258 |
|
| 0 |
|
| 0 |
|
|
| 715 |
|
| 975 | |
Personal loans |
| 43 |
|
| 6 |
|
| 329 |
|
| 0 |
|
| 0 |
|
|
| 596 |
|
| 974 | |
Credit cards |
| 0 |
|
| 0 |
|
| 2,574 |
|
| 9 |
|
| 0 |
|
|
| 0 |
|
| 2,583 | |
Other consumer loans |
| 892 |
|
| 816 |
|
| 357 |
|
| 122 |
|
| 0 |
|
|
| 606 |
|
| 2,793 | |
Total TDRs | $ | 18,993 |
| $ | 17,285 |
| $ | 246,880 |
| $ | 131 |
| $ | 33,026 |
|
| $ | 98,423 |
| $ | 414,738 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation, 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. |
50
Loan modifications that are considered TDR loans completed during the first quarters of 2022 and 2021 were as follows: |
|
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Puerto Rico and Virgin Islands region |
| Florida region |
| Total | ||||||||||||||||||
| 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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional residential mortgage loans | 21 |
| $ | 2,411 |
| $ | 2,408 |
| 2 |
| $ | 585 |
| $ | 585 |
| 23 |
| $ | 2,996 |
| $ | 2,993 |
Construction loans | 0 |
|
| 0 |
|
| 0 |
| 0 |
|
| 0 |
|
| 0 |
| 0 |
|
| 0 |
|
| 0 |
Commercial mortgage loans | 0 |
|
| 0 |
|
| 0 |
| 0 |
|
| 0 |
|
| 0 |
| 0 |
|
| 0 |
|
| 0 |
C&I loans | 1 |
|
| 5 |
|
| 5 |
| 0 |
|
| 0 |
|
| 0 |
| 1 |
|
| 5 |
|
| 5 |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto loans | 51 |
|
| 995 |
|
| 993 |
| 0 |
|
| 0 |
|
| 0 |
| 51 |
|
| 995 |
|
| 993 |
Finance leases | 13 |
|
| 264 |
|
| 264 |
| 0 |
|
| 0 |
|
| 0 |
| 13 |
|
| 264 |
|
| 264 |
Personal loans | 5 |
|
| 78 |
|
| 78 |
| 0 |
|
| 0 |
|
| 0 |
| 5 |
|
| 78 |
|
| 78 |
Credit Cards | 44 |
|
| 189 |
|
| 189 |
| 0 |
|
| 0 |
|
| 0 |
| 44 |
|
| 189 |
|
| 189 |
Other consumer loans | 27 |
|
| 146 |
|
| 148 |
| 0 |
|
| 0 |
|
| 0 |
| 27 |
|
| 146 |
|
| 148 |
Total TDRs | 162 |
| $ | 4,088 |
| $ | 4,085 |
| 2 |
| $ | 585 |
| $ | 585 |
| 164 |
| $ | 4,673 |
| $ | 4,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Puerto Rico and Virgin Islands region |
| Florida |
| Total | ||||||||||||||||||
| 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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional residential mortgage loans | 10 |
| $ | 1,046 |
| $ | 945 |
| 1 |
| $ | 321 |
| $ | 321 |
| 11 |
| $ | 1,367 |
| $ | 1,266 |
Construction loans | 0 |
|
| 0 |
|
| 0 |
| 0 |
|
| 0 |
|
| 0 |
| 0 |
|
| 0 |
|
| 0 |
Commercial mortgage loans | 2 |
|
| 165 |
|
| 165 |
| 0 |
|
| 0 |
|
| 0 |
| 2 |
|
| 165 |
|
| 165 |
C&I loans | 0 |
|
| 0 |
|
| 0 |
| 0 |
|
| 0 |
|
| 0 |
| 0 |
|
| 0 |
|
| 0 |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto loans | 45 |
|
| 818 |
|
| 815 |
| 0 |
|
| 0 |
|
| 0 |
| 45 |
|
| 818 |
|
| 815 |
Finance leases | 13 |
|
| 189 |
|
| 188 |
| 0 |
|
| 0 |
|
| 0 |
| 13 |
|
| 189 |
|
| 188 |
Personal loans | 6 |
|
| 26 |
|
| 26 |
| 0 |
|
| 0 |
|
| 0 |
| 6 |
|
| 26 |
|
| 26 |
Credit Cards | 65 |
|
| 434 |
|
| 434 |
| 0 |
|
| 0 |
|
| 0 |
| 65 |
|
| 434 |
|
| 434 |
Other consumer loans | 30 |
|
| 125 |
|
| 125 |
| 0 |
|
| 0 |
|
| 0 |
| 30 |
|
| 125 |
|
| 125 |
Total TDRs | 171 |
| $ | 2,803 |
| $ | 2,698 |
| 1 |
| $ | 321 |
| $ | 321 |
| 172 |
| $ | 3,124 |
| $ | 3,019 |
44
Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-performingnonaccrual loan. Recidivism on a modified loansloan occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans. The Corporation considers a loan to have defaulted if the borrower has failed to make payments of either principal, interest, or both for a period of 90 days or more.
51
Loan modifications considered TDR loans that defaulted during the quarters ended March 31, 2022 and 2021, and had become TDR loans during the 12-months preceding the default date, were as follows: | |||||||||
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, | ||||||||
| 2022 |
| 2021 | ||||||
Puerto Rico and Virgin Islands region | Number of contracts |
| Amortized Cost |
| Number of contracts |
| Amortized Cost | ||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
Conventional residential mortgage loans | 3 |
| $ | 389 |
| 2 |
| $ | 178 |
Construction loans | 0 |
|
| 0 |
| 0 |
|
| 0 |
Commercial mortgage loans | 0 |
|
| 0 |
| 0 |
|
| 0 |
C&I loans | 0 |
|
| 0 |
| 0 |
|
| 0 |
Consumer loans: |
|
|
|
|
|
|
|
|
|
Auto loans | 24 |
|
| 522 |
| 29 |
|
| 557 |
Finance leases | 1 |
|
| 16 |
| 0 |
|
| 0 |
Personal loans | 0 |
|
| 0 |
| 0 |
|
| 0 |
Credit cards | 11 |
|
| 79 |
| 1 |
|
| 7 |
Other consumer loans | 2 |
|
| 11 |
| 7 |
|
| 33 |
Total Puerto Rico and Virgin Islands region | 41 |
| $ | 1,017 |
| 39 |
| $ | 775 |
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, | ||||||||
| 2022 |
| 2021 | ||||||
Florida region | Number of contracts |
| Amortized Cost |
| Number of contracts |
| Amortized Cost | ||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
Conventional residential mortgage loans | 0 |
| $ | 0 |
| 0 |
| $ | 0 |
Construction loans | 0 |
|
| 0 |
| 0 |
|
| 0 |
Commercial mortgage loans | 0 |
|
| 0 |
| 0 |
|
| 0 |
C&I loans | 0 |
|
| 0 |
| 0 |
|
| 0 |
Consumer loans: |
|
|
|
|
|
|
|
|
|
Auto loans | 0 |
|
| 0 |
| 0 |
|
| 0 |
Finance leases | 0 |
|
| 0 |
| 0 |
|
| 0 |
Personal loans | 0 |
|
| 0 |
| 0 |
|
| 0 |
Credit cards | 0 |
|
| 0 |
| 0 |
|
| 0 |
Other consumer loans | 0 |
|
| 0 |
| 0 |
|
| 0 |
Total in Florida region | 0 |
| $ | 0 |
| 0 |
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
| Quarter ended March 31, | ||||||||
| 2022 |
| 2021 | ||||||
Total | Number of contracts |
| Amortized Cost |
| Number of contracts |
| Amortized Cost | ||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
Conventional residential mortgage loans | 3 |
| $ | 389 |
| 2 |
| $ | 178 |
Construction loans | 0 |
|
| 0 |
| 0 |
|
| 0 |
Commercial mortgage loans | 0 |
|
| 0 |
| 0 |
|
| 0 |
C&I loans | 0 |
|
| 0 |
| 0 |
|
| 0 |
Consumer loans: |
|
|
|
|
|
|
|
|
|
Auto loans | 24 |
|
| 522 |
| 29 |
|
| 557 |
Finance leases | 1 |
|
| 16 |
| 0 |
|
| 0 |
Personal loans | 0 |
|
| 0 |
| 0 |
|
| 0 |
Credit cards | 11 |
|
| 79 |
| 1 |
|
| 7 |
Other consumer loans | 2 |
|
| 11 |
| 7 |
|
| 33 |
Total | 41 |
| $ | 1,017 |
| 39 |
| $ | 775 |
|
|
|
|
|
|
|
|
|
|
52
NOTE 4 – ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES
The following tables present the activity in the ACL on loans and finance leases by portfolio segment for the indicated periods: | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Quarter ended March 31, 2022 | Residential Mortgage Loans |
| Construction Loans |
| Commercial Mortgage Loans |
| Commercial & Industrial Loans |
| Consumer Loans |
| Total | |||||||
|
|
|
|
|
| |||||||||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance | $ | 74,837 |
| $ | 4,048 |
| $ | 52,771 |
| $ | 34,284 |
| $ | 103,090 |
| $ | 269,030 | |
Provision for credit losses - (benefit) expense |
| (4,871) |
|
| (2,214) |
|
| (22,640) |
|
| 1,755 |
|
| 10,981 |
|
| (16,989) | |
Charge-offs |
| (2,528) |
|
| (44) |
|
| (37) |
|
| (290) |
|
| (9,816) |
|
| (12,715) | |
Recoveries |
| 1,382 |
|
| 52 |
|
| 44 |
|
| 1,035 |
|
| 3,608 |
|
| 6,121 | |
Ending balance | $ | 68,820 |
| $ | 1,842 |
| $ | 30,138 |
| $ | 36,784 |
| $ | 107,863 |
| $ | 245,447 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan modifications considered TDR loans that defaulted during
Quarter ended March 31, 2021 | Residential Mortgage Loans |
| Construction Loans |
| Commercial Mortgage Loans |
| Commercial & Industrial Loans |
| Consumer Loans |
| Total | |||||||
|
|
|
|
|
|
| ||||||||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance | $ | 120,311 |
| $ | 5,380 |
| $ | 109,342 |
| $ | 37,944 |
| $ | 112,910 |
| $ | 385,887 | |
Provision for credit losses - (benefit) expense |
| (4,175) |
|
| (456) |
|
| (8,820) |
|
| (5,312) |
|
| 4,320 |
|
| (14,443) | |
Charge-offs |
| (2,825) |
|
| (45) |
|
| (794) |
|
| (809) |
|
| (11,761) |
|
| (16,234) | |
Recoveries |
| 733 |
|
| 36 |
|
| 54 |
|
| 264 |
|
| 2,639 |
|
| 3,726 | |
Ending balance | $ | 114,044 |
| $ | 4,915 |
| $ | 99,782 |
| $ | 32,087 |
| $ | 108,108 |
| $ | 358,936 |
The Corporation estimates the quartersACL following the methodologies described in Note 1 – Nature of Business and nine-month periods ended September 30, 2017 and September 30, 2016 and had become TDR duringSummary of Significant Accounting Policies, in the 12-months precedingaudited consolidated financial statements included in the default date, were as follows:
| Quarter Ended September 30, | ||||||||
| 2017 |
| 2016 | ||||||
| Number of contracts |
| Recorded Investment |
| Number of contracts |
| Recorded Investment | ||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
Non-FHA/VA Residential Mortgage loans | 16 |
| $ | 1,795 |
| 14 |
| $ | 1,707 |
Consumer Loans - Auto | 4 |
|
| 59 |
| 5 |
|
| 68 |
Consumer Loans - Other | 53 |
|
| 223 |
| 22 |
|
| 93 |
Finance Leases | - |
|
| - |
| 1 |
|
| 30 |
Total | 73 |
| $ | 2,077 |
| 42 |
| $ | 1,898 |
| Nine-Month Period Ended September 30, | ||||||||
| 2017 |
| 2016 | ||||||
| Number of contracts |
| Recorded Investment |
| Number of contracts |
| Recorded Investment | ||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
Non-FHA/VA Residential Mortgage loans | 38 |
| $ | 4,686 |
| 35 |
| $ | 4,863 |
Commercial Mortgage Loans | 1 |
|
| 57 |
| - |
|
| - |
Consumer Loans - Auto | 13 |
|
| 189 |
| 45 |
|
| 702 |
Consumer Loans - Other | 99 |
|
| 387 |
| 89 |
|
| 339 |
Finance Leases | - |
|
| - |
| 2 |
|
| 43 |
Total | 151 |
| $ | 5,319 |
| 171 |
| $ | 5,947 |
For certain TDR loans,2021 Annual Report on Form 10-K, for each portfolio segment. As of March 31, 2022, the Corporation splitsapplied probability weights to the loans into two new notes, Abaseline and B notes. The A note is restructuredalternative downside economic scenarios to complyestimate the ACL with the Corporation’s lending standards at current market rates, and is tailored to suitbaseline scenario carrying the customer’s ability to make timely interest and principal payments. The B note includeshighest weight. In weighting these macroeconomic scenarios, the grantingCorporation applied judgment based on a variety of the concession to the borrower and variesfactors such as economic uncertainties including a prolonged conflict in Ukraine, adverse conditions created by situation. The B note is charged off but the obligation is not forgiven to the borrower, and any payments collected are accounted for as recoveries. At the time of the restructuring, the A note is identified and classified as a TDR loan. If the loan performs for at least six months according to the modified terms, the A note may be returned to accrual status. The borrower’s payment performance prior to the restructuring is included in assessing whether the borrower can meet the new terms and may resultdisruptions in the loan being returned to accrual status atsupply chain and the time ofoverall inflationary environment. For prior periods, the restructuring. InCorporation calculated the periods following the calendar year in which a loan was restructured, the A note may no longer be reported as a TDR loan if it is in accrual status, is in compliance with its modified terms, and yields a market rate (as determined and documented at the time of the restructuring).
The recorded investment in loans held for investment restructuredACL using the A/B note restructure workout strategybaseline scenario.
As of March 31, 2022, the ACL for loans and finance leases was approximately $35.6$245.4 million, as of September 30, 2017.down $23.6 million from December 31, 2021. The following table provides additional information about the volume of this type of loan restructuringACL reduction for commercial and the effect on the allowance for loan and lease lossesconstruction loans was $22.3 million in the first nine monthsquarter of 20172022, primarily reflecting reductions in qualitative reserves mostly associated with a continued positive long-term outlook of macroeconomic variables, mainly in the commercial real estate price index, as a result of a reduced uncertainty regarding COVID-19, particularly on loans in the hotel, transportation and 2016:
| September 30, 2017 |
|
| September 30, 2016 | |
(In thousands) |
|
|
|
|
|
Principal balance | $ | 35,603 |
| $ | 38,004 |
Amount charged off | $ | - |
| $ | - |
(Release) charges to the provision for loan losses | $ | (1,080) |
| $ | 2,660 |
Allowance for loan losses at end of period | $ | 4,061 |
| $ | 3,521 |
|
Approximately $3.1entertainment industries and, to a lesser extent, improvements in updated financial information received from borrowers during the first quarter of 2022. In addition, there was an ACL reduction of $6.0 million for residential mortgage loans, partially offset by a $4.7 million increase in the ACL for consumer loans. The net reduction for residential mortgage loans was primarily driven by the overall decrease in the size of this portfolio and continued improvements in the long-term outlook of forecasted macroeconomic variables, such as the housing price index. The ACL increase for consumer loans consisted of charges to the provision of $11.0 million recorded in the first quarter to account for the increase in the size of the portfolio of auto loans restructured usingand finance leases and an increase in cumulative historical charge-off levels mostly related to the A/B note restructure workout strategy are in accrual status. These loans continue to be individually evaluated for impairment purposes.
45
NOTE 8 – ALLOWANCE FOR LOAN AND LEASE LOSSES
The changes in the allowance for loan and lease losses were as follows: | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential Mortgage Loans |
| Commercial Mortgage Loans |
| Commercial & Industrial Loans |
| Construction Loans |
| Consumer Loans |
| Total | |||||||
|
|
|
|
|
| |||||||||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Quarter ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for loan and lease losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance | $ | 40,587 |
| $ | 38,576 |
| $ | 42,082 |
| $ | 3,736 |
| $ | 48,504 |
| $ | 173,485 | |
Charge-offs |
| (7,177) |
|
| (266) |
|
| (738) |
|
| (47) |
|
| (11,141) |
|
| (19,369) | |
Recoveries |
| 321 |
|
| 43 |
|
| 114 |
|
| 16 |
|
| 1,247 |
|
| 1,741 | |
Provision (release) |
| 23,321 |
|
| 17,590 |
|
| (1,079) |
|
| 242 |
|
| 34,939 |
|
| 75,013 | |
Ending balance | $ | 57,052 |
| $ | 55,943 |
| $ | 40,379 |
| $ | 3,947 |
| $ | 73,549 |
| $ | 230,870 | |
Ending balance: specific reserve for impaired loans | $ | 19,417 |
| $ | 10,456 |
| $ | 11,240 |
| $ | 1,865 |
| $ | 5,177 |
| $ | 48,155 | |
Ending balance: purchased credit-impaired loans (1) | $ | 9,863 |
| $ | 372 |
| $ | - |
| $ | - |
| $ | - |
| $ | 10,235 | |
Ending balance: general allowance | $ | 27,772 |
| $ | 45,115 |
| $ | 29,139 |
| $ | 2,082 |
| $ | 68,372 |
| $ | 172,480 | |
Loans held for investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Ending balance | $ | 3,274,340 |
| $ | 1,601,638 |
| $ | 2,144,236 |
| $ | 129,460 |
| $ | 1,727,540 |
| $ | 8,877,214 | |
Ending balance: impaired loans | $ | 425,835 |
| $ | 153,875 |
| $ | 110,939 |
| $ | 50,373 |
| $ | 38,237 |
| $ | 779,259 | |
Ending balance: purchased credit-impaired loans | $ | 153,609 |
| $ | 4,185 |
| $ | - |
| $ | - |
| $ | - |
| $ | 157,794 | |
Ending balance: loans with general allowance | $ | 2,694,896 |
| $ | 1,443,578 |
| $ | 2,033,297 |
| $ | 79,087 |
| $ | 1,689,303 |
| $ | 7,940,161 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential Mortgage Loans |
| Commercial Mortgage Loans |
| Commercial & Industrial Loans |
| Construction Loans |
| Consumer Loans |
| Total | |||||||
|
|
|
|
|
| |||||||||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Nine-Month Period Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Allowance for loan and lease losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance | $ | 33,980 |
| $ | 57,261 |
| $ | 61,953 |
| $ | 2,562 |
| $ | 49,847 |
| $ | 205,603 | |
Charge-offs |
| (22,369) |
|
| (32,123) |
|
| (19,168) |
|
| (705) |
|
| (33,386) |
|
| (107,751) | |
Recoveries |
| 1,961 |
|
| 151 |
|
| 5,613 |
|
| 594 |
|
| 6,148 |
|
| 14,467 | |
Provision (release) |
| 43,480 |
|
| 30,654 |
|
| (8,019) |
|
| 1,496 |
|
| 50,940 |
|
| 118,551 | |
Ending balance | $ | 57,052 |
| $ | 55,943 |
| $ | 40,379 |
| $ | 3,947 |
| $ | 73,549 |
| $ | 230,870 | |
Ending balance: specific reserve for impaired loans | $ | 19,417 |
| $ | 10,456 |
| $ | 11,240 |
| $ | 1,865 |
| $ | 5,177 |
| $ | 48,155 | |
Ending balance: purchased credit-impaired loans (1) | $ | 9,863 |
| $ | 372 |
| $ | - |
| $ | - |
| $ | - |
| $ | 10,235 | |
Ending balance: general allowance | $ | 27,772 |
| $ | 45,115 |
| $ | 29,139 |
| $ | 2,082 |
| $ | 68,372 |
| $ | 172,480 | |
Loans held for investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Ending balance | $ | 3,274,340 |
| $ | 1,601,638 |
| $ | 2,144,236 |
| $ | 129,460 |
| $ | 1,727,540 |
| $ | 8,877,214 | |
Ending balance: impaired loans | $ | 425,835 |
| $ | 153,875 |
| $ | 110,939 |
| $ | 50,373 |
| $ | 38,237 |
| $ | 779,259 | |
Ending balance: purchased credit-impaired loans | $ | 153,609 |
| $ | 4,185 |
| $ | - |
| $ | - |
| $ | - |
| $ | 157,794 | |
Ending balance: loans with general allowance | $ | 2,694,896 |
| $ | 1,443,578 |
| $ | 2,033,297 |
| $ | 79,087 |
| $ | 1,689,303 |
| $ | 7,940,161 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
| Residential Mortgage Loans |
| Commercial Mortgage Loans |
| Commercial & Industrial Loans |
| Construction Loans |
| Consumer Loans |
| Total | |||||||
|
|
|
|
|
| |||||||||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Quarter ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for loan and lease losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance | $ | 38,955 |
| $ | 69,799 |
| $ | 69,789 |
| $ | 2,747 |
| $ | 53,164 |
| $ | 234,454 | |
Charge-offs |
| (8,514) |
|
| (13,730) |
|
| (10,587) |
|
| (19) |
|
| (13,716) |
|
| (46,566) | |
Recoveries |
| 972 |
|
| 335 |
|
| 929 |
|
| 140 |
|
| 2,303 |
|
| 4,679 | |
Provision (release) |
| 4,553 |
|
| (152) |
|
| 5,597 |
|
| 2,480 |
|
| 9,025 |
|
| 21,503 | |
Ending balance | $ | 35,966 |
| $ | 56,252 |
| $ | 65,728 |
| $ | 5,348 |
| $ | 50,776 |
| $ | 214,070 | |
Ending balance: specific reserve for impaired loans | $ | 9,667 |
| $ | 25,907 |
| $ | 28,668 |
| $ | 3,004 |
| $ | 5,436 |
| $ | 72,682 | |
Ending balance: purchased credit-impaired loans (1) | $ | 6,638 |
| $ | 219 |
| $ | - |
| $ | - |
| $ | - |
| $ | 6,857 | |
Ending balance: general allowance | $ | 19,661 |
| $ | 30,126 |
| $ | 37,060 |
| $ | 2,344 |
| $ | 45,340 |
| $ | 134,531 | |
Loans held for investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Ending balance | $ | 3,299,942 |
| $ | 1,545,014 |
| $ | 2,167,011 |
| $ | 124,298 |
| $ | 1,727,389 |
| $ | 8,863,654 | |
Ending balance: impaired loans | $ | 444,039 |
| $ | 198,500 |
| $ | 178,174 |
| $ | 47,707 |
| $ | 44,434 |
| $ | 912,854 | |
Ending balance: purchased credit-impaired loans | $ | 165,014 |
| $ | 3,127 |
| $ | - |
| $ | - |
| $ | - |
| $ | 168,141 | |
Ending balance: loans with general allowance | $ | 2,690,889 |
| $ | 1,343,387 |
| $ | 1,988,837 |
| $ | 76,591 |
| $ | 1,682,955 |
| $ | 7,782,659 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential Mortgage Loans |
| Commercial Mortgage Loans |
| Commercial & Industrial Loans |
| Construction Loans |
| Consumer Loans |
| Total | |||||||
|
|
|
|
|
| |||||||||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Nine-Month Period Ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for loan and lease losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance | $ | 39,570 |
| $ | 68,211 |
| $ | 68,768 |
| $ | 3,519 |
| $ | 60,642 |
| $ | 240,710 | |
Charge-offs |
| (27,352) |
|
| (15,742) |
|
| (16,260) |
|
| (623) |
|
| (41,490) |
|
| (101,467) | |
Recoveries |
| 2,159 |
|
| 414 |
|
| 1,885 |
|
| 301 |
|
| 6,526 |
|
| 11,285 | |
Provision |
| 21,589 |
|
| 3,369 |
|
| 11,335 |
|
| 2,151 |
|
| 25,098 |
|
| 63,542 | |
Ending balance | $ | 35,966 |
| $ | 56,252 |
| $ | 65,728 |
| $ | 5,348 |
| $ | 50,776 |
| $ | 214,070 | |
Ending balance: specific reserve for impaired loans | $ | 9,667 |
| $ | 25,907 |
| $ | 28,668 |
| $ | 3,004 |
| $ | 5,436 |
| $ | 72,682 | |
Ending balance: purchased credit-impaired loans (1) | $ | 6,638 |
| $ | 219 |
| $ | - |
| $ | - |
| $ | - |
| $ | 6,857 | |
Ending balance: general allowance | $ | 19,661 |
| $ | 30,126 |
| $ | 37,060 |
| $ | 2,344 |
| $ | 45,340 |
| $ | 134,531 | |
Loans held for investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Ending balance | $ | 3,299,942 |
| $ | 1,545,014 |
| $ | 2,167,011 |
| $ | 124,298 |
| $ | 1,727,389 |
| $ | 8,863,654 | |
Ending balance: impaired loans | $ | 444,039 |
| $ | 198,500 |
| $ | 178,174 |
| $ | 47,707 |
| $ | 44,434 |
| $ | 912,854 | |
Ending balance: purchased credit-impaired loans | $ | 165,014 |
| $ | 3,127 |
| $ | - |
| $ | - |
| $ | - |
| $ | 168,141 | |
Ending balance: loans with general allowance | $ | 2,690,889 |
| $ | 1,343,387 |
| $ | 1,988,837 |
| $ | 76,591 |
| $ | 1,682,955 |
| $ | 7,782,659 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Refer to Note 7- "Loans Held For Investment-PCI Loans" for additional information about changes in the allowance for loan losses related to PCI loans. |
47
As described in Note 2 – “Natural Disasters Affecting First BanCorp. in Third Quarter 2017” two strong hurricanes affected the Corporation’s service areas during September 2017. These storms caused widespread property damage, flooding, power outages,personal and water and communication services interruptions, and severely disrupted normal economic activity in the affected areas.
Damages associated with the storm-related events will have significant short-term economic repercussions, both positive and negative, for the Corporation’ s commercial and individual loan customers in the most severely affected parts of Puerto Rico and the Virgin Islands. While these events have affected certain asset quality metrics, including higher delinquencies and non-performing loans, the storms’ ultimate effect on loan collections is uncertain. However, the Corporation’s loan officers are making individual storm-impact assessments for all commercial customers. The recent occurrence of the events makes it difficult to estimate the immediate impact at such level. The expectation is that the assessment will be substantially completed by the fourth quarter of 2017.
The Corporation’scredit card loan portfolio, in Puerto Rico andpartially offset by net charge-offs of $6.2 million. For those loans where the Virgin Islands totaled $7.3 billion as of September 30, 2017, or 82% of the entire portfolio. The composition of these loans generally reflects the composition of the entire portfolio, which is close to 60% of residential and consumer loans to individual customers and 40% of commercial and construction loans.
Management has determined a separate qualitative element of the allowance to represent the estimate of inherent losses associated with the impact of the storm-related events on the Corporation’s Puerto Rico and Virgin Islands loan portfolios. This estimate is judgmental and subject to changes as conditions evolve. This qualitative element of the allowanceACL was determined based on a discounted cash flow model, the estimated impact the storms could have on current employment levels (e.g unemployment rate that doubles current levels in Puerto Rico based on statistics observedchange in the aftermath of similar natural disasters in the U.S mainland like Hurricane Katrina) economic activity in the Corporation’s geographic regions, and the time it could take for the affected regions to return to a more normalized operating environment. It is expected that the rebuilding efforts will stimulate economic activity and accelerate the pace of economic recovery from the hurricanes.
The Corporation’s credit risk modeling framework used to determine the storm-related estimate is similarACL due to the one used for benchmarking purposespassage of time is recorded as part of the annual Dodd-Frank Act Stress Testing (“DFAST”) regulatory exercise. Models were developed followingprovision for credit losses.
Total net charge-offs decreased by $5.9 million to $6.6 million, when compared to the first quarter of 2021. The variance consisted of a regression modeling approach$3.0 million decrease in net charge-offs of consumer and finance leases, primarily reflected in the auto and personal loan portfolios, and a $2.0 million decrease in commercial and construction loans net charge-offs.
53
The tables below present the ACL related to loans and finance leases and the carrying value of loans by portfolio segment as of March 31, 2022 and December 31, 2021: |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
As of March 31, 2022 | Residential Mortgage Loans |
|
|
|
| Commercial Mortgage Loans |
| Commercial and Industrial Loans (1) |
| Consumer Loans |
|
|
| ||||||
|
|
| Construction Loans |
|
|
|
|
|
| ||||||||||
(Dollars in thousands) |
|
|
|
|
| Total | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans held for investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Amortized cost of loans | $ | 2,891,699 |
| $ | 111,908 |
| $ | 2,237,702 |
| $ | 2,880,256 |
| $ | 2,976,140 |
| $ | 11,097,705 |
| |
Allowance for credit losses |
| 68,820 |
|
| 1,842 |
|
| 30,138 |
|
| 36,784 |
|
| 107,863 |
|
| 245,447 |
| |
Allowance for credit losses to amortized cost |
| 2.38 | % |
| 1.65 | % |
| 1.35 | % |
| 1.28 | % |
| 3.62 | % |
| 2.21 | % |
As of December 31, 2021 | Residential Mortgage Loans |
|
|
| Commercial Mortgage Loans |
| Commercial and Industrial Loans (1) |
| Consumer Loans |
|
|
| |||||||
|
|
| Construction Loans |
|
|
|
|
| |||||||||||
(Dollars in thousands) |
|
|
|
| Total | ||||||||||||||
Total loans held for investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Amortized cost of loans | $ | 2,978,895 |
| $ | 138,999 |
| $ | 2,167,469 |
| $ | 2,887,251 |
| $ | 2,888,044 |
| $ | 11,060,658 |
| |
Allowance for credit losses |
| 74,837 |
|
| 4,048 |
|
| 52,771 |
|
| 34,284 |
|
| 103,090 |
|
| 269,030 |
| |
Allowance for credit losses to amortized cost |
| 2.51 | % |
| 2.91 | % |
| 2.43 | % |
| 1.19 | % |
| 3.57 | % |
| 2.43 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | As of March 31, 2022 and December 31, 2021, includes $89.7 million and $145.0 million of SBA PPP loans, respectively, which require no ACL as these loans are 100% guaranteed by the SBA. |
|
In addition, the Corporation estimates expected credit losses over the contractual period in which relationships between portfolio-level loss rates and key economic indicators were derived based on historical behavior. These models went through an extensive model specification and selection process that resulted in the use of certain variables,Corporation is exposed to credit risk via a contractual obligation to extend credit, such as the unemployment rateunfunded loan commitments and the Puerto Rico Economic Activity Index, which showed the highest predictive powerstandby letters of potential losses in our outstanding loan portfolio.
Resulting loss factors were assigned to the overall performing balance of each major loan portfolio category in the affected regions, resulting in a total charge of $66.5 million (composed of $59.2 million for Puerto Rico and $7.3 million for Virgin Islands) that consisted of: (i) a $13.7 million charge to the provision for residential mortgage loans, (ii) an $18.1 million charge to the provision of commercial mortgage loans, (iii) an $8.0 million charge to the provisioncredit for commercial and industrial loans, (iv) a $0.8 million charge to the provision for construction loans, unless the obligation is unconditionally cancellable by the Corporation. The Corporation estimates the ACL for these off-balance sheet exposures following the methodology described in Note 1 – Nature of Business and (v) a $25.9 million charge to the provision for consumer loans.
Residential and consumer loans are underwritten principally on income streams, with collateral viewed as a second sourceSummary of repayment. The storms’ impact varies widely within the residential and consumer portfolio, with some individual borrowers experiencing the devastation of loss of both home and employment and others with both homes and jobs intact. Properties used as collateral generally require insurance, minimizing the potential loss from property damages.
For the commercial portfolio, the Corporation conducted a preliminary review of all loansSignificant Accounting Policies, in the Puerto Rico and Virgin Islands regions in amounts over $10 million,audited consolidated financial statements, which accounts for 74.5% of the total commercial portfolio of such regions, and determined that 100% of the real estate-backed loans have property insurance. As such, the Corporation understands that credit losses and/or credit deterioration will mainly occur from the overall economic effect the storms will have on the economy of Puerto Rico and the Virgin Islands.
Estimates of the storms’ effect on loan losses will change over time as additional information becomes available, and any related revisionsare included in the allowance calculation will be reflected2021 Annual Report on Form 10-K. As of March 31, 2022, the ACL for off-balance sheet credit exposures was $1.4 million, compared with $1.5 million as of December 31, 2021.
The following table presents the activity in the provision for loan losses as they occur. Such revisions could be material.
As of September 30, 2017, the Corporation maintained a $0.9 million reserveACL for unfunded loan commitments (Decemberand standby letters of credit for the quarters ended March 31, 2016 - $1.6 million), mainly related to outstanding commitments on floor plan revolving lines of credit. The reserve for unfunded loan commitments is an estimate of the losses inherent in off-balance sheet loan commitments to borrowers that are experiencing financial difficulties at the balance sheet date. It is calculated by multiplying an estimated loss factor by an estimated probability of funding,2022 and then by the period-end amounts for unfunded commitments. The reserve for unfunded loan commitments is included as part of accounts payable and other liabilities in the consolidated statement of financial condition and any change to the reserve is included as part of other non-interest expenses in the consolidated statements of income.2021:
|
| Quarter ended | ||||
|
| March 31, 2022 |
| March 31, 2021 | ||
(In thousands) |
|
|
|
|
| |
Beginning balance | $ | 1,537 |
| $ | 5,105 | |
Provision for credit losses - (benefit) |
| (178) |
|
| (706) | |
| Ending balance | $ | 1,359 |
| $ | 4,399 |
4854
NOTE 95 – LOANS HELD FOR SALE
The Corporation’s loans held-for-sale portfolio as of the dates indicated was composed of:
|
|
| ||||
|
| March 31, 2022 |
| December 31, 2021 | ||
|
|
|
|
|
|
|
(In thousands) |
| |||||
Residential mortgage loans | $ | 27,905 |
| $ | 35,155 | |
|
|
|
|
|
|
|
|
|
| As of |
| ||||
| September 30, 2017 |
| December 31, 2016 |
| ||
(In thousands) |
|
| ||||
Residential mortgage loans | $ | 19,286 |
| $ | 41,927 |
|
Construction loans |
| 8,290 |
|
| 8,079 |
|
Total | $ | 27,576 |
| $ | 50,006 |
|
Non-performing loans held for sale totaled $8.3 million and $8.1 million as of September 30, 2017 and December 31, 2016, respectively.
NOTE 10 6 –OTHER REAL ESTATE OWNED
The following table presents OREO inventory as of the dates indicated: | ||||||
|
|
|
|
|
|
|
|
| September 30, |
|
| December 31, | |
| 2017 |
| 2016 | |||
(In thousands) |
|
| ||||
OREO |
|
|
|
|
| |
OREO balances, carrying value: |
|
|
|
|
| |
Residential (1) | $ | 56,993 |
| $ | 46,917 | |
Commercial |
| 85,194 |
|
| 78,698 | |
Construction |
| 10,790 |
|
| 12,066 | |
Total | $ | 152,977 |
| $ | 137,681 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Excludes $22.6 million and $15.0 million as of September 30, 2017 and December 31, 2016, respectively, of foreclosures that meet the conditions of ASC 310-40 and are presented as a receivable (other assets) in the statement of financial condition. | |||||
|
| |||||
|
|
NOTE 11 – 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.
The Corporation designates a derivative as a fair value hedge, cash flow hedge or economic undesignated hedge when it enters into the derivative contract. As of September 30, 2017 and December 31, 2016, all derivatives held by the Corporation were considered economic undesignated hedges. These undesignated hedges are recorded 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 - Interest rate cap agreements provide the right to receive cash if a reference interest rate rises above a contractual rate. The value increases as the reference interest rate rises. The Corporation enters into interest rate cap agreements for protection from rising interest rates.
Forward Contracts - Forward contracts are sales of to-be-announced (“TBA”) mortgage-backed securities that will settle over the standard 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 market place or exchange in which the transaction is being executed. The forward sales are considered derivative instruments that need to be marked to market. These securities are used to economically hedge the FHA/VA residential mortgage loan securitizations of the mortgage-banking operations. Unrealized gains (losses) are recognized as part of mortgage banking activities in the consolidated statements of income.
49
To satisfy the needs of its customers, the Corporation may enter into non-hedging transactions. On 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.
The following table summarizes the notional amounts of all derivative instruments: |
|
|
| |||
|
|
|
|
|
|
|
|
| Notional Amounts (1) | ||||
|
| As of |
| As of | ||
|
| September 30, |
| December 31, | ||
|
| 2017 |
| 2016 | ||
(In thousands) |
| |||||
Undesignated economic hedges: |
|
|
|
|
| |
Interest rate contracts: |
|
|
|
|
| |
Written interest rate cap agreements | $ | 91,510 |
| $ | 91,510 | |
Purchased interest rate cap agreements |
| 91,510 |
|
| 91,510 | |
Forward Contracts: |
|
|
|
|
| |
Sale of TBA GNMA MBS pools |
| 20,000 |
|
| 33,000 | |
|
| $ | 203,020 |
| $ | 216,020 |
|
|
|
|
|
|
|
(1) | Notional amounts are presented on a gross basis with no netting of offsetting exposure positions. |
|
|
|
The following table presents the OREO inventory as of the dates indicated: | ||||||
|
|
|
|
|
|
|
|
| March 31, |
|
| December 31, | |
|
| 2022 |
| 2021 | ||
(In thousands) |
|
|
|
|
| |
OREO |
|
|
|
|
| |
OREO balances, carrying value: |
|
|
|
|
| |
| Residential (1) | $ | 32,208 |
| $ | 29,533 |
| Commercial |
| 7,228 |
|
| 7,331 |
| Construction |
| 3,458 |
|
| 3,984 |
| Total | $ | 42,894 |
| $ | 40,848 |
|
|
|
|
|
|
|
(1) | Excludes $24.4 million and $22.2 million as of March 31, 2022 and December 31, 2021, respectively, of foreclosures that meet the conditions of ASC Subtopic 310-40 “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” and are presented as a receivable as part of other assets in the consolidated statements of financial condition. |
5055
The following table summarizes for derivative instruments their fair value and location in the consolidated statements of financial condition: | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Asset Derivatives |
| Liability Derivatives | ||||||||||||
| Statement of |
| September 30, |
| December 31, |
|
|
| September 30, |
| December 31, | ||||
| Financial |
| 2017 |
| 2016 |
|
|
| 2017 |
| 2016 | ||||
| Condition Location |
| Fair Value |
| Fair Value |
| Statement of Financial Condition Location |
| Fair Value |
| Fair Value | ||||
(In thousands) |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undesignated economic hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written interest rate cap agreements | Other assets |
| $ | - |
| $ | - |
| Accounts payable and other liabilities |
| $ | 219 |
| $ | 552 |
Purchased interest rate cap agreements | Other assets |
|
| 219 |
|
| 554 |
| Accounts payable and other liabilities |
|
| - |
|
| - |
Forward Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of TBA GNMA MBS pools | Other assets |
|
| 75 |
|
| - |
| Accounts payable and other liabilities |
|
| 2 |
|
| 201 |
|
|
| $ | 294 |
| $ | 554 |
|
|
| $ | 221 |
| $ | 753 |
The following table summarizes the effect of derivative instruments on the consolidated statements of income: | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gain (or Loss) |
| Gain (or Loss) | ||||||||||||
| Location of Gain or (Loss) |
| Quarter Ended |
| Nine-Month Period Ended | ||||||||||||
| Recognized in Statement of |
| September 30, |
| September 30, | ||||||||||||
| Income on Derivatives |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
| ||||||||||||||
Undesignated economic hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written and purchased interest rate cap agreements | Interest income - Loans |
| $ |
| (1) |
| $ | 5 |
| $ |
| (2) |
| $ | (2) | ||
Forward contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of TBA GNMA MBS pools | Mortgage banking activities |
|
|
| (34) |
|
| 219 |
|
|
| 274 |
|
| (17) | ||
Total (loss) gain on derivatives |
|
| $ |
| (35) |
| $ | 224 |
| $ |
| 272 |
| $ | (19) |
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 September 30, 2017, the Corporation has not entered into any derivative instrument containing credit-risk-related contingent features.
51
NOTE 12 – OFFSETTING OF ASSETS AND LIABILITIES
The Corporation enters into master agreements with counterparties, primarily related to derivatives and repurchase agreements, that may allow for netting of exposures in the event of default. In an 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 in respect of any other agreement or transaction between them. The following table presents information about the offsetting of financial assets and liabilities as well as derivative assets and liabilities:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offsetting of Financial Assets and Derivative Assets | |||||||||||||||||
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|
|
| Gross Amounts Not Offset in the Statement of Financial Position |
|
|
| ||||
|
|
|
|
|
|
| Net Amounts of Assets Presented in the Statement of Financial Position |
|
|
|
|
|
|
|
|
| |
| Gross Amounts of Recognized Assets |
| Gross Amounts Offset in the Statement of Financial Position |
|
|
|
|
|
|
|
| ||||||
|
|
|
| Financial Instruments |
| Cash Collateral |
|
| |||||||||
As of September 30, 2017 |
|
|
|
|
| Net Amount | |||||||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
| |||||||||||||||
Derivatives | $ | 219 |
| $ | - |
| $ | 219 |
| $ | (219) |
| $ | - |
| $ | - |
Securities purchased under agreements to resell |
| 200,000 |
|
| (200,000) |
|
| - |
|
| - |
|
| - |
|
| - |
Total | $ | 200,219 |
| $ | (200,000) |
| $ | 219 |
| $ | (219) |
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross Amounts Not Offset in the Statement of Financial Position |
|
|
| ||||
|
|
|
|
|
|
| Net Amounts of Assets Presented in the Statement of Financial Position |
|
|
|
|
|
|
|
|
| |
| Gross Amounts of Recognized Assets |
| Gross Amounts Offset in the Statement of Financial Position |
|
|
|
|
|
|
|
| ||||||
|
|
|
| Financial Instruments |
| Cash Collateral |
|
| |||||||||
As of December 31, 2016 |
|
|
|
|
| Net Amount | |||||||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
| |||||||||||||||
Derivatives | $ | 554 |
| $ | - |
| $ | 554 |
| $ | (554) |
| $ | - |
| $ | - |
Securities purchased under agreements to resell |
| 200,000 |
|
| (200,000) |
|
| - |
|
| - |
|
| - |
|
| - |
Total | $ | 200,554 |
| $ | (200,000) |
| $ | 554 |
| $ | (554) |
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
|
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|
|
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52
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
Offsetting of Financial Liabilities and Derivative Liabilities | |||||||||||||||||
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|
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|
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|
|
|
|
|
|
|
|
| Gross Amounts Not Offset in the Statement of Financial Position |
|
|
| ||||
|
|
|
|
|
|
| Net Amounts of Liabilities Presented in the Statement of Financial Position |
|
|
|
|
|
|
|
|
| |
| Gross Amounts of Recognized Liabilities |
| Gross Amounts Offset in the Statement of Financial Position |
|
|
|
|
|
|
|
| ||||||
|
|
|
| Financial Instruments |
| Cash Collateral |
|
| |||||||||
As of September 30, 2017 |
|
|
|
|
| Net Amount | |||||||||||
(In thousands) |
|
|
|
|
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Description |
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| |||||||||||||||
Securities sold under agreements to repurchase | $ | 200,000 |
| $ | (200,000) |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
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| Gross Amounts Not Offset in the Statement of Financial Position |
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| Net Amounts of Liabilities Presented in the Statement of Financial Position |
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| |
| Gross Amounts of Recognized Liabilities |
| Gross Amounts Offset in the Statement of Financial Position |
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| Financial Instruments |
| Cash Collateral |
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As of December 31, 2016 |
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| Net Amount | |||||||||||
(In thousands) |
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Description |
|
| |||||||||||||||
Securities sold under agreements to repurchase | $ | 200,000 |
| $ | (200,000) |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
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53
NOTE 137 – GOODWILL AND OTHER INTANGIBLES
Goodwill as of September 30, 2017each of March 31, 2022 and December 31, 20162021 amounted to $28.1 million, recognized as part of “Other Assets” in the consolidated statements of financial condition.$38.6 million. The Corporation conducted its annual evaluation ofCorporation’s policy is to assess goodwill and other intangibles for impairment on an annual basis during the fourth quarter of 2016.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 2021, as part of its annual evaluation, the Corporation performed a qualitative assessment to determine if a goodwill impairment test was necessary. This assessment involved identifying the inputs and assumptions that most affects fair value, evaluating the significance of all identified relevant events and circumstances that affect fair value of the 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 unit is greater than its carrying amount. As of December 31, 2021, the Corporation concluded that it is more-likely-than-not that the fair value of the reporting units exceeded their carrying value. The Corporation’s goodwill is related to the acquisition of FirstBank Florida in 2005.
ThereCorporation determined that there have been no significant events related tosince the Florida reporting unitlast annual assessment that could indicate potential goodwill impairment since the date of the last evaluation; therefore, no goodwill impairment evaluation was performed during the first nine months of 2017. Goodwill and other indefinite life intangibles are reviewed at least annuallyon reporting units for impairment.
In connection with the acquisition of the FirstBank-branded credit card loan portfolio, in the second quarter of 2012, the Corporation recognized a purchased credit card relationship intangible of $24.5 million, which is being amortized over the remaining estimated life of 4.2 years on an accelerated basis based on the estimated attrition rate of the purchased credit card accounts, which reflects the pattern in which the economic benefits of the intangible asset are consumed. These benefits are consumed as the revenue stream generated by the cardholder relationshipgoodwill is realized.
The core deposit intangible acquired in the February 2015 Doral Bank transaction amounted to $5.8 million ($3.9 million as of September 30, 2017).
Inallocated. As a result, 0 impartment charges for goodwill were recorded during the first quarter of 2016, FirstBank Insurance Agency acquired certain insurance customer accounts2022.
There were 0 changes in the carrying amount of goodwill during the quarter ended March 31, 2022. The changes in the carrying amount of goodwill attributable to operating segments during 2020 and related customer recordsthe quarter ended March 31, 2021 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 | $ | 0 |
| $ | 1,406 |
| $ | 0 |
| $ | 26,692 |
| $ | 28,098 | |
| Merger and acquisitions (1) |
| 574 |
|
| 794 |
|
| 4,935 |
|
| 0 |
|
| 6,303 |
| Measurement period adjustment (1) |
| 385 |
|
| 533 |
|
| 3,313 |
|
| 0 |
|
| 4,231 |
Goodwill, December 31, 2020 | $ | 959 |
| $ | 2,733 |
| $ | 8,248 |
| $ | 26,692 |
| $ | 38,632 | |
| Measurement period adjustment (2) |
| 53 |
|
| 74 |
|
| (148) |
|
| 0 |
|
| (21) |
Goodwill, March 31, 2021 | $ | 1,012 |
| $ | 2,807 |
| $ | 8,100 |
| $ | 26,692 |
| $ | 38,611 | |
|
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|
(1) | Recognized in connection with the BSPR acquisition on September 1, 2020. Refer to Note 2 - Business Combination included in the 2021 Annual Report on Form 10-K for additional information. | ||||||||||||||
(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"). |
The following table shows the gross amount and accumulated amortization of the Corporation’s other intangible assets subject to amortization as of the indicated dates:
|
| As of |
| As of | ||
|
| March 31, |
| December 31, | ||
|
| 2022 |
| 2021 | ||
(Dollars in thousands) |
|
|
|
|
| |
Core deposit intangible: |
|
|
|
|
| |
Gross amount | $ | 87,544 |
| $ | 87,544 | |
Accumulated amortization |
| (60,896) |
|
| (58,973) | |
| Net carrying amount | $ | 26,648 |
| $ | 28,571 |
|
|
|
|
|
|
|
Remaining amortization period (in years) |
| 7.8 |
|
| 8.0 | |
|
|
|
|
|
|
|
Purchased credit card relationship intangible: |
|
|
|
|
| |
Gross amount | $ | 3,800 |
| $ | 3,800 | |
Accumulated amortization |
| (2,927) |
|
| (2,602) | |
| Net carrying amount | $ | 873 |
| $ | 1,198 |
|
|
|
|
|
|
|
Remaining amortization period (in years) |
| 1.4 |
|
| 1.7 | |
|
|
|
|
|
|
|
Insurance customer relationship intangible: |
|
|
|
|
| |
Gross amount | $ | 1,067 |
| $ | 1,067 | |
Accumulated amortization |
| (940) |
|
| (902) | |
| Net carrying amount | $ | 127 |
| $ | 165 |
|
|
|
|
|
|
|
Remaining amortization period (in years) |
| 0.8 |
|
| 1.1 |
During the quarters ended March 31, 2022 and 2021, the Corporation recognized an insurance$2.3 million and $3.0 million, respectively, in amortization expense on its other intangibles subject to amortization.
56
The Corporation amortizes core deposit intangibles and customer relationship intangibleintangibles based on the projected useful lives of $1.1 million ($0.8 millionthe 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. As mentioned above, 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 September 30, 2017), which is being amortized over the next 5.3 years on a straight-line basis. March 31, 2022.
The acquired accounts have a direct relationshipestimated aggregate annual amortization expense related to the previous mortgage loan portfolio acquisitions from Doral Bank and Doral Financial in 2015 and 2014. intangible assets subject to amortization for future periods was as follows as of March 31, 2022:
|
|
| Amount |
(In thousands) |
|
| |
2022 | $ | 6,550 | |
2023 |
| 7,775 | |
2024 |
| 6,429 | |
2025 |
| 3,437 | |
2026 |
| 872 | |
2027 and after |
| 2,585 | |
|
|
|
|
5457
The following table shows the gross amount and accumulated amortization of the Corporation’s intangible assets recognized as part of Other Assets in the consolidated statements of financial condition: | |||||
|
|
|
|
|
|
| As of |
| As of | ||
| September 30, |
| December 31, | ||
| 2017 |
| 2016 | ||
(Dollars in thousands) |
|
|
|
|
|
Core deposit intangible: |
|
|
|
|
|
Gross amount, beginning of period | $ | 51,664 |
| $ | 51,664 |
Accumulated amortization (1) |
| (45,779) |
|
| (44,466) |
Net carrying amount | $ | 5,885 |
| $ | 7,198 |
|
|
|
|
|
|
Remaining amortization period |
| 7.3 years |
|
| 8.1 years |
|
|
|
|
|
|
Purchased credit card relationship intangible: |
|
|
|
|
|
Gross amount | $ | 24,465 |
| $ | 24,465 |
Accumulated amortization (2) |
| (15,832) |
|
| (13,934) |
Net carrying amount | $ | 8,633 |
| $ | 10,531 |
|
|
|
|
|
|
Remaining amortization period |
| 4.2 years |
|
| 5 years |
|
|
|
|
|
|
Insurance customer relationship intangible: |
|
|
|
|
|
Gross amount | $ | 1,067 |
| $ | 1,067 |
Accumulated amortization (3) |
| (254) |
|
| (140) |
Net carrying amount | $ | 813 |
| $ | 927 |
|
|
|
|
|
|
Remaining amortization period |
| 5.3 years |
|
| 6.1 years |
|
|
|
|
|
|
|
|
|
|
|
|
(1) For the quarter and nine-month period ended September 30, 2017, the amortization expense of core deposit intangibles amounted to $0.4 million and $1.3 million, respectively (2016 - $0.5 million and $1.5 million, respectively). | |||||
(2) For the quarter and nine-month period ended September 30, 2017, the amortization expense of the purchased credit card relationship intangible amounted to $0.6 million and $1.9 million, respectively (2016 - $0.7 million and $2.1 million, respectively). | |||||
(3) For the quarter and nine-month period ended September 30, 2017, the amortization expense of insurance customer relationship intangible amounted to $38 thousand and $0.1 million, respectively (2016 - $38 thousand and $0.1 million, respectively). |
The estimated aggregate annual amortization expense related to these intangible assets for future periods is as follows: | ||||
|
|
|
|
|
|
|
| Amount |
|
|
|
| (In thousands) |
|
| 2017 | $ | 1,077 |
|
| 2018 |
| 3,591 |
|
| 2019 |
| 3,088 |
|
| 2020 |
| 2,851 |
|
| 2021 |
| 2,658 |
|
| 2022 and after |
| 2,066 |
|
|
|
|
|
|
55
NOTE 148 – NON CONSOLIDATEDNON-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 ifwhether it is the primary beneficiary of the VIE and whether the entity should be consolidated or not.
Below is a summary of transfers of financial assets totransactions with VIEs for which the Corporation has retained some level of continuing involvement:
GNMA
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 the issuer and, as such, under seller/servicer agreements, the Corporation is required to service the loans in accordance with the issuers’ servicing guidelines and standards. As of September 30, 2017, the Corporation serviced loans securitized through GNMA with a principal balance of $1.6 billion.
Trust-Preferred Securities
In 2004, FBP Statutory Trust I, a financing trust that is wholly owned by the Corporation, sold to institutional investors $100 million of its variable ratevariable-rate trust-preferred securities. Thesecurities (“TRuPs”). FBP Statutory Trust I used the proceeds of the issuance, together with the proceeds of the purchase by the Corporation of $3.1 million of FBP Statutory Trust I variable ratevariable-rate common securities, were used by FBP Statutory Trust I to purchase $103.1 million aggregate principal amount of the Corporation’s Junior Subordinated Deferrable Debentures. Also in 2004, FBP Statutory Trust II, a financing trust that is wholly owned by the Corporation, sold to institutional investors $125 million of its variable rate trust-preferred securities. Thevariable-rate TRuPs. FBP Statutory Trust II used the proceeds of the issuance, together with the proceeds of the purchase by the Corporation of $3.9 million of FBP Statutory Trust II variable ratevariable-rate common securities, were used by FBP Statutory Trust II to purchase $128.9 million aggregate principal amount of the Corporation’s Junior Subordinated Deferrable Debentures. The debentures, net of related issuance costs, are presented in the Corporation’s consolidated statements of financial condition as Other Borrowings, net of related issuance costs.other borrowings. The variable rate trust-preferred securitiesvariable-rate TRuPs are fully and unconditionally guaranteed by the Corporation. The Junior Subordinated Deferrable Debentures issued by the Corporation in April 2004 and in September 2004 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 trust-preferred securities)variable-rate TRuPs). As of each March 31, 2022 and December 31, 2021, these TRuPs amounted to $183.8 million.
During the third quarter of 2017, the Corporation completed the repurchase of $7.3 million of trust preferred securities of the FBP Statutory Trust I that were offered to the Corporation by an investment banking firm. The Corporation repurchased and cancelled the repurchased trust preferred securities, resulting in a commensurate reduction in the related Floating Rate Junior Subordinated Debenture. The Corporation’s purchase price equated to 81% of the $7.3 million par value. The 19% discount, plus accrued interest, resulted in a gain of approximately $1.4 million, which is reflected in the statement of income as a “Gain on early extinguishment of debt”. In a separate transaction, during the first quarter of 2016, the Corporation completed the repurchase of $10 million of trust-preferred securities of the FBP Statutory Trust II that were auctioned in a public sale at which the Corporation was invited to participate. The Corporation repurchased and cancelled the repurchased trust preferred securities, resulting in a commensurate reduction in the related Junior Subordinated Deferrable Debentures. The Corporation’s winning bids equated to 70% of the $10 million par value. The 30% discount, plus accrued interest, resulted in a gain of approximately $4.2 million, which is also reflected in the statement of income as a “Gain on early extinguishment of debt.” During the second quarter of 2015, the Corporation issued 852,831 shares of the Corporation’s common stock in exchange for $5.3 million of trust preferred securities (FBP Statutory Trust I), which enabled the Corporation to cancel $5.5 million of the carrying value of the debentures underlying the purchased trust preferred securities.
The Collins Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act eliminateseliminated certain trust-preferred securitiesTRuPs 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. During the second quarterAs of 2016,March 31, 2022, the Corporation received approval from the Federal Reserve and paid $31.2 million for all the accrued but deferred interest payments plus the interest for the second quarter on the Corporation’s subordinated debentures associated with its trust preferred securities. Subsequently, the Corporation received quarterly approvals and made scheduled quarterly interest payments for the third and fourth
56
quarters of 2016 and the first, second and third quarters of 2017. The Corporation received approval to make the quarterly payment for December 31, 2017. As of September 30, 2017, the Corporation iswas current on all interest payments due on its subordinated debt. On October 2017, the Federal Reserve Bank of New York terminated the formal written agreement (the “Written Agreement”) entered into on June 3, 2010 between the Corporation and the Reserve Bank. However, the Corporation has agreed with the Reserve Bank to continue to obtain the approval of the Reserve Bank before paying dividends, receiving dividends from the Bank, making payments on subordinated debt or trust preferred securities, incurring or guaranteeing debt or purchasing or redeeming any corporate stock.
58
Private Label MBS
Grantor Trusts
During 2004 and 2005, a thirdan unaffiliated party, to the Corporation, 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.certificates (“private label MBS”). The seller initially provided the servicing for a fee, which is senior to the obligations to pay trust certificateprivate label MBS holders. The seller then entered into a sales agreement through which it sold and issued the trust certificatesprivate label MBS in favor of the Corporation’s banking subsidiary.FirstBank. Currently, the Bank is the sole owner of the trust certificates;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. The securitiesThese private label MBS are variable ratevariable-rate securities indexed to 90-day3-month LIBOR plus a spread. The principal payments from the underlying loans are remitted to a paying agent (servicer), who then remits interest to the Bank; interestBank. 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 securities.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 are absorbed by the Bank as the sole holder of the certificates.collateral. As of September 30, 2017,March 31, 2022, the amortized cost and fair value of the Grantor Truststhese private label MBS amounted to $23.6$9.5 million and $17.6$6.9 million, respectively, with a weighted averageweighted-average yield of 2.38%.2.96%, which is included as part of the Corporation’s available-for-sale investment securities portfolio. As described in Note 2 – Investment Securities, above, the ACL on these private label MBS amounted to $0.4 million as of March 31, 2022.
Investment in unconsolidated entity
On February 16, 2011, FirstBank sold an asset portfolio consisting of performing and non-performingnonaccrual construction, commercial mortgage and commercial and industrial loans with an aggregate book value of $269.3 million to CPG/GS, an entity organized under the laws of the Commonwealth of Puerto Rico and majority owned by PRLP Ventures LLC ("PRLP"(“PRLP”), a company created by Goldman, Sachs & Co. and Caribbean Property Group. In connection with the sale, the Corporation received $88.5 million in cash and a 35%35% interest in CPG/GS, and made a loan in the amount of $136.1 million representing seller financing provided by FirstBank. The loan has a seven-year maturitywas refinanced and bears variable interest at 30-day LIBOR plus 300 basis points and is secured by a pledgeconsolidated with other outstanding loans of all of the acquiring entity's assets as well as PRLP’s 65% ownership interest in CPG/GS. As of September 30, 2017, the carrying amount of the loan was $4.0 million, which was includedGS in the Corporation's commercialsecond quarter of 2018 and industrial loans held for investment portfolio.was paid in full in October 2019. FirstBank’s equity interest in CPG/GS is accounted for under the equity method. When applying the equity method, the Bank follows the Hypothetical Liquidation Book Value method (“HLBV”) to determineFirstBank recorded a loss on its share ofinterest in CPG/GS’s earnings or loss. The loss recordedGS 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. Any potential increase in the carrying value
CPG/GS used cash proceeds of the investment in CPG/GS, under the HLBV method, would depend upon how better off the Bank is at the end of the period than it was at the beginning of the period after the waterfall calculation performed to determine the amount of gain allocated to the investors.
FirstBank also provided an $80 million advance facility to CPG/GS to fund unfunded commitments and costs to complete projects under construction, which was fully disbursed in 2011, and a $20 million working capital line of credit to fund certain expenses of CPG/GS. The working capital line expired in September 2016 and no amount is outstanding. During 2012, CPG/GS repaid the outstanding balance of the advance facility to fund unfunded commitments, and the funds became available for rewithdrawal under a one-time revolver agreement. This facilityaforementioned seller-financed loan bears variable interest at 30-day LIBOR plus 300 basis points. As of September 30, 2017, the carrying value of the revolver agreement was $6.7 million, which was included in the Corporation's commercial and industrial loans held for investment portfolio.
Cash proceeds received by CPG/GS have been first used to cover operating expenses and debt service payments, including those related to the note receivable and the advance facility described above, which must be substantially repaid before proceeds can be used for other purposes, including the return of capital to both PRLP and FirstBank.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%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%35% and 65%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
57
most significantly impactaffect the entity'sentity’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 or the right to receive benefits from the entity 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, impact foreclosure proceedings, or manage the construction and sale of the property; therefore, the Bank concluded that it is not the primary beneficiary of CPG/GS. As a creditor to CPG/GS, the Bank has certain rights related to CPG/GS; however, these are intended to be protective in nature and do not provide the Bank with the ability to manage the operations of CPG/GS. Since CPG/GS is not a consolidated subsidiary of the Bank and the transaction met the criteria for sale accounting under authoritative guidance, the Bank accounted for this transaction as a true sale, recognizing the cash received, the notes receivable, and the interest in CPG/GS, and derecognizing the loan portfolio sold.
59
Servicing Assets (MSRs)
The Corporation sellstypically transfers first lien residential mortgage loans in conjunction with GNMA securitization transactions in which the loans are exchanged for cash or securities that are readily redeemed for cash proceeds and servicing rights. The securities issued through these transactions are guaranteed by GNMA and, under seller/servicer agreements, the Corporation is required to service the loans in accordance with the issuers’ servicing guidelines and standards. As of March 31, 2022, the Corporation serviced loans securitized through GNMA which generally securitizes the transferred loans into mortgage-backed securities.with a principal balance of $2.1 billion. Also, certain conventional conforming loans are sold to FNMA or FHLMC with servicing retained. The Corporation recognizes as separate assets the rights to service loans for others, whether those servicing assets are originated or purchased. MSRs are included as part of other assets in the consolidated statements of financial condition.
The changes in MSRs are shown below for the indicated periods: |
| ||||||
|
|
|
|
|
|
|
|
|
| Quarter ended |
| ||||
|
| March 31, |
| March 31, |
| ||
|
| 2022 |
| 2021 |
| ||
(In thousands) |
|
|
|
|
|
| |
Balance at beginning of period | $ | 30,986 |
| $ | 33,071 |
| |
Capitalization of servicing assets |
| 1,130 |
|
| 1,350 |
| |
Amortization |
| (1,330) |
|
| (1,637) |
| |
Temporary impairment recoveries, net |
| 55 |
|
| 7 |
| |
Other (1) |
| (88) |
|
| (81) |
| |
| Balance at end of period | $ | 30,753 |
| $ | 32,710 |
|
|
|
|
|
|
|
|
|
(1) | Amount represents adjustments related to the repurchase of loans serviced for others. |
|
The changes in servicing assets are shown below: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended |
| Nine-Month Period Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
(In thousands) | 2017 |
| 2016 |
| 2017 |
| 2016 |
| |||||
|
|
| |||||||||||
Balance at beginning of period | $ | 26,502 |
| $ | 25,044 |
| $ | 26,244 |
| $ | 24,282 |
| |
Capitalization of servicing assets |
| 833 |
|
| 1,420 |
|
| 2,757 |
|
| 3,878 |
| |
Amortization |
| (775) |
|
| (817) |
|
| (2,342) |
|
| (2,424) |
| |
Adjustment to fair value |
| (690) |
|
| (263) |
|
| (1,047) |
|
| (387) |
| |
Other (1) |
| 129 |
|
| 91 |
|
| 387 |
|
| 126 |
| |
Balance at end of period | $ | 25,999 |
| $ | 25,475 |
| $ | 25,999 |
| $ | 25,475 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Amount represents the adjustment to fair value related to the repurchase of loans serviced for others. |
|
|
|
|
|
|
Impairment charges are recognized through a valuation allowance for each individual stratum of servicing assets. The valuation allowance is adjusted to reflect the amount, if any, by which the cost basis of the servicing asset for a given stratum of loans being serviced exceeds its fair value. Any fair value in excess of the cost basis of the servicing asset for a given stratum is not recognized.
Changes in the impairment allowance were as follows: |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended |
| Nine-Month Period Ended |
| ||||||||
| September 30, |
| September 30, |
| ||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
(In thousands) |
| |||||||||||
Balance at beginning of period | $ | 197 |
| $ | 260 |
| $ | 461 |
| $ | 136 |
|
Temporary impairment charges |
| 690 |
|
| 266 |
|
| 1,047 |
|
| 460 |
|
OTTI of servicing assets |
| - |
|
| - |
|
| (621) |
|
| - |
|
Recoveries |
| - |
|
| (3) |
|
| - |
|
| (73) |
|
Balance at end of period | $ | 887 |
| $ | 523 |
| $ | 887 |
| $ | 523 |
|
|
|
Changes in the impairment allowance were as follows for the indicated periods: |
| ||||||
|
|
|
|
|
|
|
|
|
| Quarter ended |
| ||||
|
| March 31, |
| March 31, |
| ||
|
| 2022 |
| 2021 |
| ||
(In thousands) |
|
|
|
|
|
| |
Balance at beginning of period | $ | 78 |
| $ | 202 |
| |
Recoveries |
| (55) |
|
| (7) |
| |
| Balance at end of period | $ | 23 |
| $ | 195 |
|
5860
| The components of net servicing income are shown below: |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended |
| Nine-Month Period Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
| ||||||||||||
Servicing fees | $ | 1,898 |
| $ | 1,930 |
| $ | 5,897 |
| $ | 5,657 |
| |
Late charges and prepayment penalties |
| 103 |
|
| 200 |
|
| 340 |
|
| 505 |
| |
Adjustment for loans repurchased |
| 129 |
|
| 91 |
|
| 387 |
|
| 126 |
| |
Other (1) |
| - |
|
| - |
|
| (35) |
|
| (1) |
| |
Servicing income, gross |
| 2,130 |
|
| 2,221 |
|
| 6,589 |
|
| 6,287 |
| |
Amortization and impairment of servicing assets |
| (1,464) |
|
| (1,080) |
|
| (3,389) |
|
| (2,811) |
| |
Servicing income, net | $ | 666 |
| $ | 1,141 |
| $ | 3,200 |
| $ | 3,476 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Mainly consisted of compensatory fees imposed by GSEs. |
|
The components of net servicing income, included as part of mortgage banking activities in the consolidated statements of income, are shown below for the indicated periods:
|
|
|
|
|
|
|
|
|
| Quarter ended |
| ||||
|
| March 31, |
| March 31, |
| ||
|
| 2022 |
| 2021 |
| ||
(In thousands) |
|
| |||||
Servicing fees | $ | 2,819 |
| $ | 2,915 |
| |
Late charges and prepayment penalties |
| 194 |
|
| 239 |
| |
Adjustment for loans repurchased |
| (88) |
|
| (81) |
| |
| Servicing income, gross |
| 2,925 |
|
| 3,073 |
|
Amortization and impairment of servicing assets |
| (1,275) |
|
| (1,630) |
| |
| Servicing income, net | $ | 1,650 |
| $ | 1,443 |
|
|
|
|
|
|
|
|
|
|
|
|
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 | |||
Three-Month Period Ended March 31, 2022: |
|
|
|
|
|
|
|
|
Constant prepayment rate: |
|
|
|
|
|
|
|
|
Government-guaranteed mortgage loans | 6.7 | % |
| 18.3 | % |
| 4.8 | % |
Conventional conforming mortgage loans | 6.6 | % |
| 18.4 | % |
| 3.4 | % |
Conventional non-conforming mortgage loans | 6.6 | % |
| 21.9 | % |
| 4.9 | % |
Discount rate: |
|
|
|
|
|
|
|
|
Government-guaranteed mortgage loans | 12.0 | % |
| 12.0 | % |
| 12.0 | % |
Conventional conforming mortgage loans | 10.0 | % |
| 10.0 | % |
| 10.0 | % |
Conventional non-conforming mortgage loans | 12.3 | % |
| 14.5 | % |
| 12.0 | % |
|
|
|
|
|
|
|
|
|
Three-Month Period Ended March 31, 2021: |
|
|
|
|
|
|
|
|
Constant prepayment rate: |
|
|
|
|
|
|
|
|
Government-guaranteed mortgage loans | 6.0 | % |
| 14.0 | % |
| 4.5 | % |
Conventional conforming mortgage loans | 6.1 | % |
| 17.4 | % |
| 3.6 | % |
Conventional non-conforming mortgage loans | 0 | % |
| 0 | % |
| 0 | % |
Discount rate: |
|
|
|
|
|
|
|
|
Government-guaranteed mortgage loans | 12.0 | % |
| 12.0 | % |
| 12.0 | % |
Conventional conforming mortgage loans | 10.0 | % |
| 10.0 | % |
| 10.0 | % |
Conventional non-conforming mortgage loans | 0 | % |
| 0 | % |
| 0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation’s servicing assets 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 ranged as follows: | |||||
|
|
|
|
|
|
| Maximum |
| Minimum | ||
Nine-Month Period Ended September 30, 2017: |
|
|
|
|
|
Constant prepayment rate: |
|
|
|
|
|
Government-guaranteed mortgage loans | 6.2 | % |
| 6.0 | % |
Conventional conforming mortgage loans | 6.7 | % |
| 6.3 | % |
Conventional non-conforming mortgage loans | 9.5 | % |
| 9.1 | % |
Discount rate: |
|
|
|
|
|
Government-guaranteed mortgage loans | 12.0 | % |
| 12.0 | % |
Conventional conforming mortgage loans | 10.0 | % |
| 10.0 | % |
Conventional non-conforming mortgage loans | 14.3 | % |
| 14.3 | % |
|
|
|
|
|
|
Nine-Month Period Ended September 30, 2016: |
|
|
|
|
|
Constant prepayment rate: |
|
|
|
|
|
Government-guaranteed mortgage loans | 7.6 | % |
| 6.1 | % |
Conventional conforming mortgage loans | 8.0 | % |
| 6.5 | % |
Conventional non-conforming mortgage loans | 14.1 | % |
| 10.6 | % |
Discount rate: |
|
|
|
|
|
Government-guaranteed mortgage loans | 12.0 | % |
| 11.5 | % |
Conventional conforming mortgage loans | 10.0 | % |
| 9.5 | % |
Conventional non-conforming mortgage loans | 14.3 | % |
| 13.8 | % |
|
|
|
|
|
|
61
The weighted-averages of the key economic assumptions used bythat the Corporation used in its valuation model and the sensitivity of the current fair value to immediate 10%10% and 20%20% adverse changes in those assumptions for mortgage loans as of September 30, 2017March 31, 2022 and December 31, 2021 were as follows:
|
| March 31, |
| December 31, | ||
|
| 2022 |
| 2021 | ||
(In thousands) |
|
|
| |||
Carrying amount of servicing assets | $ | 30,753 |
| $ | 30,986 | |
Fair value | $ | 43,037 |
| $ | 42,132 | |
Weighted-average expected life (in years) |
| 7.97 |
|
| 7.96 | |
|
|
|
|
|
|
|
Constant prepayment rate (weighted-average annual rate) |
| 6.59% |
|
| 6.55% | |
| Decrease in fair value due to 10% adverse change | $ | 1,051 |
| $ | 1,027 |
| Decrease in fair value due to 20% adverse change | $ | 2,057 |
| $ | 2,011 |
|
|
|
|
|
|
|
Discount rate (weighted-average annual rate) |
| 11.17% |
|
| 11.17% | |
| Decrease in fair value due to 10% adverse change | $ | 1,911 |
| $ | 1,852 |
| Decrease in fair value due to 20% adverse change | $ | 3,671 |
| $ | 3,561 |
| (Dollars in thousands) | ||
Carrying amount of servicing assets | $ | 25,999 |
|
Fair value | $ | 29,543 |
|
Weighted-average expected life (in years) |
| 8.30 |
|
|
|
|
|
Constant prepayment rate (weighted-average annual rate) |
| 6.41% |
|
Decrease in fair value due to 10% adverse change | $ | 767 |
|
Decrease in fair value due to 20% adverse change | $ | 1,500 |
|
|
|
|
|
Discount rate (weighted-average annual rate) |
| 11.22% |
|
Decrease in fair value due to 10% adverse change | $ | 1,383 |
|
Decrease in fair value due to 20% adverse change | $ | 2,653 |
|
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 servicing assetMSR 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.
62
NOTE 9 – DEPOSITS
The following table summarizes deposit balances as of the indicated dates: | ||||||
|
|
|
|
|
|
|
|
| March 31, 2022 |
| December 31, 2021 | ||
(In thousands) |
|
|
|
|
| |
Type of account: |
|
|
|
|
| |
Non-interest-bearing deposit accounts | $ | 6,344,385 |
| $ | 7,027,513 | |
Interest-bearing savings accounts |
| 4,458,415 |
|
| 4,729,387 | |
Interest-bearing checking accounts |
| 4,146,031 |
|
| 3,492,645 | |
Certificates of deposit ("CDs") |
| 2,300,790 |
|
| 2,434,932 | |
Brokered CDs |
| 85,782 |
|
| 100,417 | |
| Total | $ | 17,335,403 |
| $ | 17,784,894 |
|
|
|
|
|
|
|
NOTE 15 – IMPAIRMENT OF FIXED ASSETS
The following table presents the contractual maturities of CDs, including brokered CDs, as of March 31, 2022: | ||
|
|
|
|
| Total |
(In thousands) |
|
|
Three months or less | $ | 641,249 |
Over three months to six months |
| 377,287 |
Over six months to one year |
| 668,001 |
Over one year to two years |
| 376,830 |
Over two years to three years |
| 175,461 |
Over three years to four years |
| 55,285 |
Over four years to five years |
| 85,649 |
Over five years |
| 6,810 |
Total | $ | 2,386,572 |
|
|
|
The following were the components of interest expense on deposits for the indicated periods: | ||||||
|
|
|
|
|
|
|
|
| Quarter Ended | ||||
|
| March 31, 2022 |
|
| March 31, 2021 | |
(In thousands) |
| |||||
Interest expense on deposits | $ | 7,817 |
| $ | 12,725 | |
Accretion of premium from acquisitions |
| (200) |
|
| (456) | |
Amortization of broker placement fees |
| 35 |
|
| 73 | |
| Interest expense on deposits | $ | 7,652 |
| $ | 12,342 |
The Corporation identified impairment
Time deposits with balances of more than $250,000 amounted to several of its facilities and equipment in the areas affected by Hurricanes Irma and Maria. Losses related to the damaged facilities and equipment have been charged against earnings in the third quarter of 2017, and included as a component of “Other non-interest income” in the statement of (loss) income. The losses have been determined with information currently available as to carrying amounts of impaired assets and extent of damage sustained. Management has currently identified asset impairments of approximately $0.6 million$1.0 billion as of September 30, 2017. Ifeach March 31, 2022 and December 31, 2021. This amount does not include brokered CDs that are generally participated out by brokers in shares of less than the sustained damage differs fromFDIC insurance limit. As of each March 31, 2022 and December 31, 2021 unamortized broker placement fees amounted to $0.2 million, which are amortized over the initial assessments, the result could cause additional charges for estimated losses through the end of 2017. The Corporation maintains insurance policies for casualty losses that provide for replacement value coverage.
Management believes, based on its understandingcontractual maturity of the insurance coverages, that recovery of asset impairments identified as of September 30, 2017 is probable. As such, insurance recoveries of $0.6 million was recorded inbrokered CDs under the third quarter of 2017, also as a component of “Other non-interest income” in the statement of (loss) income, and the corresponding receivable was included as part of “Other assets” in the statement of financial condition as of September 30, 2017.interest method.
6063
The following table summarizes deposit balances: |
|
|
|
|
|
| September 30, |
|
| December 31, | |
| 2017 |
| 2016 | ||
(In thousands) |
| ||||
Type of account: |
|
|
|
|
|
Non-interest bearing checking accounts | $ | 1,586,198 |
| $ | 1,484,155 |
Savings accounts |
| 2,333,965 |
|
| 2,518,496 |
Interest-bearing checking accounts |
| 1,134,066 |
|
| 1,075,929 |
Certificates of deposit |
| 2,456,403 |
|
| 2,312,928 |
Brokered CDs |
| 1,255,259 |
|
| 1,439,697 |
| $ | 8,765,891 |
| $ | 8,831,205 |
Brokered CDs mature as follows: | ||
|
|
|
| September 30, | |
| 2017 | |
(In thousands) |
| |
|
|
|
Three months or less | $ | 203,112 |
Over three months to six months |
| 194,631 |
Over six months to one year |
| 282,118 |
Over one year but less than three years |
| 426,394 |
Three to five years |
| 147,624 |
Over five years |
| 1,380 |
Total | $ | 1,255,259 |
|
The following are the components of interest expense on deposits: |
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended |
| Nine-Month Period Ended | ||||||||
| September 30, |
| September 30, | ||||||||
| 2017 |
|
| 2016 |
| 2017 |
|
| 2016 | ||
(In thousands) |
|
|
| ||||||||
Interest expense on deposits | $ | 16,453 |
| $ | 16,130 |
| $ | 47,804 |
| $ | 49,104 |
Accretion of premium from acquisition |
| (9) |
|
| (43) |
|
| (47) |
|
| (181) |
Amortization of broker placement fees |
| 454 |
|
| 655 |
|
| 1,461 |
|
| 2,300 |
Interest expense on deposits | $ | 16,898 |
| $ | 16,742 |
| $ | 49,218 |
| $ | 51,223 |
61
NOTE 1710 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase (repurchase agreements) as of the dates indicated consisted of the following: | ||||||
|
|
|
|
| ||
|
| March, 31 |
| December 31, | ||
|
| 2022 |
| 2021 | ||
(In thousands) |
|
|
|
|
| |
|
|
|
|
|
|
|
Long-term fixed-rate repurchase agreement (1) | $ | 200,000 |
| $ | 300,000 | |
(1) | Weighted-average interest rate of 3.90% and 3.35% as of March 31, 2022 and December 31, 2021, respectively. | |||||
|
|
|
|
|
|
|
Repurchase agreements mature as follows as of the indicated date: | |||
|
| March 31, 2022 | |
(In thousands) |
| ||
|
|
|
|
Over three years to five years | $ | 200,000 | |
|
|
|
|
Securities sold under agreements to repurchase (repurchase agreements) consist of the following: | ||||||
|
|
|
|
| ||
| September 30, 2017 |
| December 31, 2016 | |||
(Dollars in thousands) |
|
|
|
|
| |
Repurchase agreements, interest ranging from 1.96% to 3.26% |
|
|
|
|
| |
(December 31, 2016 - 1.96% to 2.83%) (1)(2) | $ | 300,000 |
| $ | 300,000 | |
|
|
|
|
|
|
|
(1) | Reported net of securities purchased under agreements to repurchase (reverse repurchase agreements) by counterparty, when applicable, pursuant to ASC 210-20-45-11. | |||||
(2) | As of September 30, 2017, includes $200 million with an average rate of 2.11% that lenders have the right to call before their contractual maturities at various dates beginning on July 19, 2017. In addition, $100 million is tied to variable rates. | |||||
|
|
|
|
|
|
|
Repurchase agreements mature as follows: | ||||
|
|
|
|
|
|
|
| September 30, 2017 | |
|
|
| (In thousands) | |
|
|
|
|
|
| One month to three months | $ | 100,000 | |
| Over four to five years |
| 200,000 | |
| Total | $ | 300,000 | |
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017March 31, 2022 and December 31, 2016,2021, 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, securities sold under agreements to repurchase (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 March 31, 2022 and December 31, 2021, repurchase agreements are overcollateralized
Repurchase agreements as of March 31, 2022, grouped by counterparty, were as follows: | ||||
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
| Weighted-Average |
Counterparty | Amount |
| Maturity (In Months) | |
|
|
|
|
|
Credit Suisse First Boston | $ | 200,000 |
| 34 |
|
|
|
|
|
Repurchase agreements as of September 30, 2017, grouped by counterparty, were as follows: |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Dollars in thousands) |
|
|
|
| Weighted-Average |
|
|
| Counterparty |
| Amount |
| Maturity (In Months) |
| |
|
|
|
|
|
|
|
|
|
|
| Dean Witter / Morgan Stanley |
| $ | 100,000 |
| 1 |
|
|
| JP Morgan Chase |
|
| 200,000 |
| 52 |
|
|
|
|
| $ | 300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
NOTE 1811 – ADVANCES FROM THE FEDERAL HOME LOAN BANK (FHLB)
The following is a summary of the advances from the FHLB as of the indicated dates: | ||||||
|
|
|
|
|
|
|
|
| March 31, 2022 |
| December 31, 2021 | ||
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
| |
|
|
|
|
|
|
|
Long-term rate advances from FHLB (1) | $ | 200,000 |
| $ | 200,000 | |
|
|
|
|
|
|
|
(1) | Weighted-average interest rate of 2.16% as of each March 31, 2022 and December 31, 2021. |
Advances from FHLB mature as follows as of the indicated date: | |||
|
|
|
|
|
| March 31, 2022 | |
(In thousands) |
|
| |
Over three to six months | $ | 200,000 | |
|
|
|
|
The following is a summary of the advances from the FHLB: | ||||||
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
| (Dollars in thousands) | 2017 |
| 2016 | ||
|
|
|
|
|
|
|
| Short-term fixed-rate advances from FHLB, with a weighted-average |
|
|
|
|
|
| interest rate of 1.31% (December 31, 2016 - 0.78%) | $ | 250,000 |
| $ | 170,000 |
| Long-term fixed-rate advances from FHLB, with a weighted-average |
|
|
|
|
|
| interest rate of 1.90% (December 31, 2016 - 1.49%) |
| 665,000 |
|
| 500,000 |
|
|
| $915,000 |
|
| $670,000 |
|
|
|
|
|
|
|
Advances from FHLB mature as follows: | |||
|
|
|
|
|
|
| |
|
|
|
|
|
| September 30, 2017 | |
| (In thousands) |
|
|
| Within one month | $ | 250,000 |
| Over one to three months |
| - |
| Over three to six months |
| - |
| Over six months to one year |
| 25,000 |
| Over one to three years |
| 320,000 |
| Over three to four years |
| 320,000 |
| Total | $ | 915,000 |
|
|
|
|
As of September 30, 2017, the Corporation had additional capacity of approximately $502.7 million on this credit facility based on collateral pledged at the FHLB, including a haircut reflecting the perceived risk associated with the collateral.
Other borrowings, as of the indicated dates, consisted of:
|
| March 31, |
| December 31, | ||
|
| 2022 |
| 2021 | ||
(In thousands) |
| |||||
Floating rate junior subordinated debentures (FBP Statutory Trust I) (1) | $ | 65,205 |
| $ | 65,205 | |
Floating rate junior subordinated debentures (FBP Statutory Trust II) (2) |
| 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 (3.67% as of March 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 (3.43% as of March 31, 2022 and 2.71% as of December 31, 2021). |
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NOTE 13 – EARNINGS PER COMMON SHARE
| The calculations of earnings per common share for the quarters ended March 31, 2022 and 2021 are as follows: | ||||||
|
|
|
|
|
|
|
|
|
| Quarter Ended |
| ||||
|
| March 31, |
| March 31, |
| ||
|
| 2022 |
| 2021 |
| ||
(In thousands, except per share information) |
|
| |||||
Net income | $ | 82,600 |
| $ | 61,150 |
| |
Less: Preferred stock dividends |
| 0 |
|
| (669) |
| |
Net income attributable to common stockholders | $ | 82,600 |
| $ | 60,481 |
| |
|
|
|
|
|
|
|
|
Weighted-Average Shares: |
|
|
|
|
|
| |
| Average common shares outstanding |
| 198,130 |
|
| 217,033 |
|
| Average potential dilutive common shares |
| 1,407 |
|
| 1,244 |
|
| Average common shares outstanding-assuming dilution |
| 199,537 |
|
| 218,277 |
|
|
|
|
|
|
|
|
|
Earnings per common share: |
|
|
|
|
|
| |
| Basic | $ | 0.42 |
| $ | 0.28 |
|
| Diluted | $ | 0.41 |
| $ | 0.28 |
|
|
|
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. 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: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. 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.
66
NOTE 14 – STOCK-BASED COMPENSATION
|
| September 30, |
| December 31, | ||
| (In thousands) | 2017 |
| 2016 | ||
|
|
| ||||
Junior subordinated debentures due in 2034, |
|
|
|
|
| |
interest-bearing at a floating rate of 2.75% |
|
|
|
|
| |
over 3-month LIBOR (4.07% as of September 30, 2017 |
|
|
|
|
| |
and 3.74% as of December 31, 2016) (1) | $ | 90,082 |
| $ | 97,630 | |
Junior subordinated debentures due in 2034, |
|
|
|
|
| |
interest-bearing at a floating rate of 2.50% |
|
|
|
|
| |
over 3-month LIBOR (3.82% as of September 30, 2017 |
|
|
|
|
| |
and 3.50% as of December 31, 2016) |
| 118,557 |
|
| 118,557 | |
| $ | 208,639 |
| $ | 216,187 | |
|
|
|
|
|
|
|
(1) Refer to Note 14 - "Non Consolidated Variable Interest Entities and Servicing Assets - Trust Preferred Securities" for additional information about the Corporation's repurchase and cancellation in the third quarter of 2017 of $7.3 million of trust preferred securities associated with this junior subordinated debentures. |
63
NOTE 20 – STOCKHOLDERS’ EQUITY
Common Stock
On May 24, 2016, the Corporation’s stockholders approved the amendment and restatement of the First BanCorp. Omnibus Incentive Plan, as amended (the “Omnibus Plan”), 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”) 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 Omnibus Plan authorizes the issuance of up to 14,169,807 shares of common stock, subject to adjustments for stock splits, reorganizations and other similar events. As of September 30, 2017 and DecemberMarch 31, 2016, the Corporation had 2,000,000,0002022, there were 3,845,904 authorized shares of common stock with a par value of $0.10 per share. As of September 30, 2017 and December 31, 2016, there were 220,220,026 and 218,700,394 shares issued, respectively, and 216,175,003 and 217,446,205 shares outstanding, respectively. Refer to Note 4available for information about transactions related to common stockissuance under the Omnibus Plan.
On May 10, 2017, The Corporation’s Board of Directors, based on the U.S. Departmentrecommendation of the Treasury announcedCorporation’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 it soldapply 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 restricted stock granted under the Omnibus Plan is typically subject to a vesting period. During the first quarter of 2022, the Corporation awarded to an independent director 3,048 shares of restricted stock that are subject to one-year vesting from the date of grant. In addition, during the first quarter of 2022, the Corporation awarded 296,392 shares of restricted stock to employees; fifty percent (50%) of those shares vest on the two-year anniversary of the grant date and the remaining 50% vest on the three-year anniversary of the grant date. Included in those 296,392 shares of restricted stock were 6,084 shares granted to retirement-eligible employees. The total expense determined for the restricted stock awarded to retirement-eligible employees was charged against earnings as of the grant date. Common shares issued during the first quarter of 2022 in connection with restricted stock awards were reissued from treasury shares. During the first quarter of 2021, the Corporation awarded to an independent director 3,552 shares of restricted stock that were subject to one-year vesting from the date of grant. In addition, during the first quarter of 2021, the Corporation awarded 288,649 shares of restricted stock to employees; 50% of those shares vest on the two-year anniversary of the grant date and the remaining 50% vest on the three-year anniversary of the grant date. Included in those 288,649 shares of restricted stock were 19,271 shares granted to retirement-eligible employees. The fair value of the shares of restricted stock granted in the first quarter of 2022 and 2021 was based on the market price of the Corporation’s outstanding common stock on the date of the respective grant.
The following table summarizes the restricted stock activity in the first quarter of 2022 under the Omnibus Plan: | |||||
|
|
|
|
|
|
|
| Quarter Ended | |||
|
| March 31, 2022 | |||
|
| Number of |
|
|
|
|
| shares of |
|
| Weighted-Average |
|
| restricted |
|
| Grant Date |
|
| stock |
|
| Fair Value |
|
|
|
|
|
|
Unvested shares outstanding at beginning of period | 1,148,775 |
| $ | 6.61 | |
Granted | 299,440 |
|
| 13.15 | |
Forfeited | (3,092) |
|
| 6.69 | |
Vested | (487,198) |
|
| 5.72 | |
Unvested shares outstanding as of March 31, 2022 | 957,925 |
| $ | 9.10 | |
|
|
|
|
|
|
For each of the quarters ended March 31, 2022 and 2021, the Corporation recognized $0.9 million of stock-based compensation expense related to restricted stock awards. As of March 31, 2022, there was $6.1 million of total unrecognized compensation cost related to unvested shares of restricted stock. The weighted average period over which the Corporation expects to recognize such cost was 2.0 years as of March 31, 2022.
67
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.
Performance Units
Under the Omnibus Plan, the Corporation may award performance units to Omnibus Plan participants. During the first quarter of its remaining 10,291,553 2022, the Corporation granted 166,669 units to executives, with each unit representing the value of one share of the Corporation’s common stock. The performance units granted in 2022 are for the performance period beginning January 1, 2022 and ending on December 31, 2024. These awards do not contain non-forfeitable rights to dividend equivalent amounts and can only be settled in shares of the Corporation’s common stock. SinceThe performance units will vest on the U.S. Treasury didthird anniversary of the effective date of the awards, subject to the achievement of a pre-established tangible book value per share target as of December 31, 2024. All the performance units will vest if performance is at the pre-established performance target level or above. However, the participants may vest with respect to 50% of the awards to the extent that performance is below the target but not recoverless than 80% of the fullpre-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. During the quarter ended March 31, 2022, the Corporation reissued, from treasury shares, 189,645 shares of common stock related to performance units granted in 2019 that met the pre-established target and vested in the first quarter.
During the first quarter of 2021, the Corporation awarded 160,485 performance units to executives. The performance units will vest on the third anniversary of the effective date of the awards and are subject to a pre-established performance target level as described above. In addition, the Corporation issued 304,408 shares of common stock related to performance units granted in 2018 that met the pre-established target and vested in the first quarter of 2021.
The following table summarizes the performance units activity in the first quarter of 2022 under the Omnibus Plan:
Quarter Ended | ||
(Number of units) | March 31, 2022 | |
Performance units at beginning of year | 814,899 | |
Additions | 166,669 | |
Vested | (189,645) | |
Performance units as of March 31, 2022 | 791,923 | |
The fair values of the performance units awarded were based on the market price of the Corporation’s outstanding common stock on the respective date of the grant. For the quarters ended March 31, 2022 and 2021, the Corporation recognized $0.3 million and $0.5 million, respectively, of stock-based compensation expense related to performance units. As of March 31, 2022, there was $4.0 million of total unrecognized compensation cost related to unvested performance units that the Corporation expects to recognize over the next three years. The total amount of its original investment under TARP, 2,370,571 outstandingcompensation 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.
Shares withheld
During the quarter ended March 31, 2022, the Corporation withheld 201,930 shares (first quarter of 2021 –194,471 shares) of the restricted stock and performance units 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.
68
NOTE 15 – STOCKHOLDERS’ EQUITY
Stock Repurchase Program
During the first quarter of 2022 the Corporation completed the $300 million stock repurchase program approved by the Corporation’s employees were forfeited, resulting inBoard of Directors on April 26, 2021 by purchasing though open market transactions 3,409,697 million shares of common stock for a reductiontotal purchase price of $50 million that remained in the program.
On April 27, 2022, the Corporation announced that its Board of Directors approved a new stock repurchase program, under which the Corporation may repurchase up to $350 million of its outstanding common stock, to be executed through the next four quarters, commencing in the second quarter of 2022. 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, extended, 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.
Common Stock
The following table shows the change in shares of common stock outstanding in the first quarter of 2022:
Quarter Ended | ||||
March 31, 2022 | ||||
Common stock outstanding, beginning balance | 201,826,505 | |||
Common stock repurchased (1) | (3,611,627) | |||
Common stock reissued | 489,085 | |||
Restricted stock forfeited | (3,092) | |||
Common stock outstanding, ending balance | 198,700,871 | |||
(1) | Includes 201,930 shares of common stock surrender to cover officers' payroll and income taxes and 3,409,697 shares of common stock repurchased in the open market at an average price of $14.66 for a total purchase price of approximately $50 million. |
For the quarters ended March 31, 2022 and 2021, total cash dividends declared on shares outstanding.
of common stock amounted to $19.9 million and $15.3 million, respectively. On February 7, 2017,April 27, 2022, the Corporation’s Board of Directors declared a secondary offeringquarterly cash dividend of $0.12 per common share, which represented an increase of $0.02 per common share, or a 20% increase from the immediate preceding quarter’s dividend level. The dividend is payable on June 10, 2022 to shareholders of record at the close of business on May 25, 2022. 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 certain of the Corporation’s existing stockholders was completed. Funds affiliated with Thomas H. Lee Partners, L.P. (“THL”) sold 10 million shares ofBoard Directors at the Corporation’s common stock, and funds managed by Oaktree Capital Management, L.P. (“Oaktree”) sold 10 million shares of the Corporation’s common stock. Subsequently, the underwriters exercised their option to purchase an additional 3 million shares of the Corporation’s common stock from the selling stockholders. On August 3, 2017, THL and Oaktree participated in another secondary offering of the Corporation’s common stock in which they sold an aggregate of 20 million shares (10 million shares each) of common stock. The Corporation did not receive any proceeds from these offering. As of September 30, 2017, each of THL and Oaktree owned less than 5% of the Corporation’s common stock.relevant times.
69
Preferred Stock
The Corporation has 50,000,000 authorized shares of preferred stock with a par value of $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 will have such rights and preferences as are fixed by the Board of Directors when authorizing the issuance of that particular series. As of September
On November 30, 2017,2021, the Corporation has five outstanding series of non-convertible, non-cumulative preferred stock: 7.125% non-cumulative perpetual monthly income preferred stock, Series A; 8.35% non-cumulative perpetual monthly income preferred stock, Series B; 7.40% non-cumulative perpetual monthly income preferred stock, Series C; 7.25% non-cumulative perpetual monthly income preferred stock, Series D; and 7.00% non-cumulative perpetual monthly income preferred stock, Series E. The liquidation value per share is $25.
Effective January 17, 2012, the Corporation delistedredeemed all of its 1,444,146 outstanding seriesshares of non-convertible, non-cumulativeSeries A through Series E Preferred Stock for its liquidation value of $25 per share of $36.1 million. The difference between the liquidation value and net carrying value was $1.2 million, which was recorded as a reduction to retained earnings in 2021. The redeemed preferred stock from the New York Stock Exchange. The Corporation hasshares were not arranged for listing and/or registrationlisted on another nationalany securities exchange or forautomated quotation system. NaN shares of the Series A through E Preferred Stock in a quotation medium. In December 2016, for the first time since July 2009, the Corporation paid dividends on its non-cumulative perpetual monthly income preferred stock after receiving regulatory approval. Since then,were outstanding as of March 31, 2022. For the Corporation has continuedquarter ended March 31, 2021, total cash dividends declared on shares of preferred stock amounted to paid monthly dividend payments on the non-cumulative perpetual monthly income preferred stock. The Corporation has received regulatory approval to pay the monthly dividends on the Corporation’s Series A through E Preferred Stock through December 2017.$0.7 million.
On October 3, 2017, the Federal Reserve terminated the Written Agreement entered to on June 3, 2010 between the Corporation and the Federal Reserve. However, the Corporation has agreed with the Federal Reserve to continue to obtain its approval before paying dividends, receiving dividends from the Bank, making payments on subordinated debt or trust preferred securities, incurring or guaranteeing debt or purchasing or redeeming any corporate stock.
During the first nine monthsquarter of 2017 and 2016,2022, the Corporation withheld an aggregate of 386,611201,930 shares and 255,102 shares, respectively,(first quarter of 2021 - 194,471 shares) of the commonrestricted stock paid to certain senior officers as additional compensation and restricted stockperformance units that vested during the first nine months of 2017 and 2016quarter to cover employees’the officers’ payroll and income tax withholding liabilities; these shares are held as treasury shares. In addition, 2,404,223stock. Also held as treasury stock are the 3,409,697 shares of restrictedcommon stock forfeitedrepurchased in the first nine monthsquarter of 2017 are now held2022 as part of the $300 million stock repurchase program authorized by the Corporation’s Board of Directors in April 2021. During the first quarter of 2022, a total of 489,085 common shares issued in connection with restricted stock and performance shares awards, were reissued from treasury shares. As of September 30, 2017March 31, 2022 and December 31, 2016,2021, the Corporation had 4,045,02324,962,245 and 1,254,18921,836,611 shares held as treasury stock, respectively.
FirstBank Statutory Reserve (Legal Surplus)
The Banking Law of the Commonwealth of Puerto Rico requires that a minimum of 10%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 accountreserve from the retained earnings account are not available for distribution to the Corporation, including for payment as dividends to the stockholders, without the prior consent of the Puerto Rico Commissioner of Financial Institutions. The
64
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, fund, as a reduction thereof. If therethe legal surplus reserve is no reserve fundnot 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 fund to an amount of at least 20%20% of the original capital contributed. During the fourth quarter of 2016, $9.6 million was transferred to the legal surplus reserve. FirstBank’s legal surplus reserve, included as part of retained earnings in the Corporation’s statementconsolidated statements of financial condition, amounted to $52.4$137.6 million as of September 30, 2017.each March 31, 2022 and December 31, 2021. There were no0 transfers to the legal surplus reserve during the first nine monthsquarter ended March 31, 2022.
70
NOTE 16 – OTHER COMPREHENSIVE LOSS
The following table presents changes in accumulated other comprehensive loss for the quarters ended March 31, 2022 and 2021: | |||||
|
| Changes in Accumulated Other Comprehensive Loss by Component (1) | |||
| Quarter ended March 31, | ||||
|
| 2022 |
| 2021 | |
(In thousands) |
| ||||
Unrealized net holding (losses) gains on debt securities available-for-sale: |
|
|
|
| |
| Beginning balance | $ | (87,390) | $ | 55,725 |
| Other comprehensive loss |
| (331,834) |
| (98,929) |
| Ending balance | $ | (419,224) | $ | (43,204) |
|
|
|
|
| |
Adjustment of pension and postretirement benefit plans: |
|
|
|
| |
| Beginning balance | $ | 3,391 | $ | (270) |
| Other comprehensive (loss) income |
| 0 |
| 0 |
| Ending balance | $ | 3,391 | $ | (270) |
____________________ |
|
|
|
| |
|
|
|
|
|
|
(1) | All amounts presented are net of tax. |
|
|
|
|
71
NOTE 17 – 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 2017. BSPR’s former employees who were active before January 1, 2007, while the other defined benefit pension plan covers personnel of an institution previously-acquired by BSPR. Benefits are based on salary and years of service. The accrual of benefits under the Pension Plans is frozen to all participants.
The Corporation requires recognition of a plan’s overfunded and underfunded status as an asset or liability with an offsetting adjustment to accumulated other comprehensive loss pursuant to ASC Topic 715, Compensation-Retirement Benefits.
The following table presents the components of net periodic benefit income for the Pension Plans and Postretirement Benefit Plan for the indicated periods:
|
| Affected Line Item in the Consolidated Statements of Income |
| Quarter Ended | ||||
|
| March 31, 2022 |
| March 31, 2021 | ||||
(In thousands) |
|
|
|
|
|
|
| |
Net periodic benefit income: |
|
|
|
|
|
|
| |
| Interest cost | Other expenses |
| $ | 655 |
| $ | 620 |
| Estimated return on plan assets | Other expenses |
|
| (1,039) |
|
| (1,131) |
| Net periodic benefit income |
|
| $ | (384) |
| $ | (511) |
The Corporation does not expect to contribute to the Pension Plans during 2022.
72
NOTE 2118 - 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, First BanCorp. 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 regions.jurisdictions. Any such tax paid in the U.S. and USVI is also either creditable against the Corporation’s Puerto Rico tax liability, or taken as a deduction against taxable income, subject to certain conditions and limitations.
Under the Puerto Rico Internal Revenue Code of 2011, as amended (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 allows entities organized as limited liability companies to perform an election to become a non-taxable “pass-through” entity and utilize losses to offset income from other “pass-through” entities, subject to certain limitations, with the remaining net income passing-through to its partner entities. The 2011 PR Code also provides a dividend received deduction of 100%100% on dividends received from “controlled” subsidiaries subject to taxation in Puerto Rico and 85%85% on dividends received from other taxable domestic corporations.
On March 1, 2017, the Corporation completed the applicable regulatory filings to change the tax status of its subsidiary, First Federal Finance, from a taxable corporation to a non-taxable “pass-through” entity. This election allows the Corporation to realize tax benefits of its deferred tax assets associated with pass-through ordinary net operating losses available at the banking subsidiary, FirstBank, which were subject to a full valuation allowance as of December 31, 2016, against now pass-through ordinary income from this profitable subsidiary.
On March 1, 2017, the Corporation also completed the applicable regulatory filings to change the tax status of its subsidiary, FirstBank Insurance, from a taxable corporation to a non-taxable “pass-through” entity. This election allows the Corporation to offset pass-through income projected to be earned by FirstBank Insurance with the projected net operating losses at the holding company (the “Holding Company”) level.
The Corporation has maintained an effective tax rate lower than the maximum statutory rate of 37.5% mainly by investing in government obligations and mortgage-backed securitiesMBS exempt from U.S. and Puerto Rico income taxes and by doing business through an International Banking Entityinternational banking entity (“anIBE”) unit of the Bank, and through the Bank’s subsidiary, FirstBank Overseas Corporation, whose interest income and gaingains on sales is 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%20% of the bank’s total net taxable income.
For the thirdfirst quarter and first nine months of 2017,2022, the Corporation recorded income tax benefits of $8.4 million and $7.2 million, respectively, compared toan income tax expense of $10.4$43.0 million, and $23.7 million, for comparable periods in 2016. The tax benefit for the third quarter of 2017, as compared to the tax expense$28.0 million for the same period in 2016,2021. The variance was primarily driven by the tax benefit recognized associated with the storm-related loss recorded in the third quarter of 2017related to higher pre-tax income and a lowerhigher estimated effective tax rate, driven by an increase in the projected ratio of exempt to taxable income.as explained below.
The tax benefit for the first nine months of 2017, as compared to the tax expense for the same period in 2016, was mostly attributable to the tax benefit recognized related to the storm-related charges and the $13.2 million tax benefit recorded in the first quarter of 2017 as a result of the above discussed change in tax status of certain subsidiaries from taxable corporations to limited liability companies that have elected to be treated as partnerships for income tax purposes in Puerto Rico. The $13.2 million tax benefit was primarily associated with the reversal of the $13.9 million deferred tax asset valuation allowance previously recorded at FirstBank related to pass-through ordinary net operating losses, partially offset by the elimination of the $0.7 million deferred tax asset
65
previously recorded at FirstBank Insurance. A lower effective tax rate for the first nine months of 2017, as compared to the same period in 2016, also contributed to the positive variance in income tax expense.
For the nine-month periodquarter ended September 30, 2017,March 31, 2022, the Corporation calculated the provision for income taxes by applying the estimated annual effective tax rate for the full fiscal year to ordinary income or loss. In the computation of the consolidated worldwide annual estimated effective tax rate, ASC Topic 740-270, “Income Taxes” (“ASC 740-270”), requires the exclusion of legal entities with pre-tax losses from which a tax benefit cannot be recognized. The Corporation’s estimated annual effective tax rate in the first nine monthsquarter of 2017,2022, excluding entities from which a tax benefit cannot be recognized and discrete items, was 20%32.9% compared to 24%30.6% for the first nine monthsquarter of 2016.2021. The estimated annual effective tax rate including all entities for 20172022 was -2% (21%33.2% (33.5% excluding discrete items, primarily the tax benefit resulting from the previously mentioned change in the tax status of two subsidiaries)items), compared to 25%30.6% for the first nine monthsquarter of 2016.2021 (31.1% excluding discrete items). The Corporation’s estimated effective tax rate, excluding entities with pre-tax losses from which a tax benefit cannot be recognized and discrete items, increase is mostly attributable to a higher proportion of taxable to exempt income when compared to March 31, 2021.
The Corporation’s net deferred tax asset amounted to $299.8$176.8 million as of September 30, 2017,March 31, 2022, net of a valuation allowance of $186.9$147.0 million, and management concluded, based upon the assessment of all positive and negative evidence, that it is more likely than not that the Corporation will generate sufficient taxable income within the applicable NOL carry-forward periods to realize such amount. The net deferred tax asset of the Corporation’s banking subsidiary, FirstBank, amounted to $299.5$176.7 million as of September 30, 2017,March 31, 2022, net of a valuation allowance of $146.6$107.5 million, compared to a net deferred tax asset of $277.4 $208.4 million, net of a valuation allowance of $171.0 $69.7 million, as of December 31, 2016.
We have U.S.2021. The decrease in the deferred tax assets is mainly driven by credit losses reserve releases and USVI sourced NOLs that we incurredthe usage of NOLs. The increase in prior years. Section 382the valuation allowance during the first quarter of the U.S. Internal Revenue Code (the “Section 382”) limits the ability to utilize U.S. and USVI NOLs for income tax purposes at such jurisdictions following an event resulting in an ownership change. Generally, an ownership change occurs when certain shareholders increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage over a three-year testing period. Upon the occurrence of a Section 382 ownership change, the use of NOLs attributable2022 was primarily related to the period prior todecrease in the ownershipmarket value of available-for-sale securities. The Corporation maintains a full valuation allowance for its deferred tax assets associated with capital loss carryforward, thus, the change is subject to limitationsin the market value of available-for-sale securities resulted in a change in the deferred tax asset and only a portion ofan equal change in the U.S. and USVI NOLs may be used by the Corporation to offset its annual U.S. and USVI taxable income, if any. valuation allowance without having an effect on earnings.
During the third quarter ofIn 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 comprehensive period. The ownership change and resulting Section 382 limitation did not cause a U.S. or USVI income tax liability or material income tax expense related to prior periods since the Corporation had sufficient post ownership change NOLs in those jurisdictions to offset taxable income. The Section 382 limitation could resulthas resulted in higher U.S. and USVI income tax liabilities in the future than we would incurhave incurred in the absence of such limitation. Prospectively, theThe Corporation expects that it will be ablehas mitigated to mitigatean extent the adverse effects associated with the Section 382 limitation as any such tax paid in the U.S. or USVI couldcan 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 dependsis dependent on various factors. For the thirdfirst quarter of 2017, as a result of the Section 382 limitation and based on the tax profile as of September 30, 2017,2022, the Corporation incurred an income tax expense of approximately $1.6 million related to its U.S. operations.operations, compared to $1.1 million for the same period in 2021. The limitation did not affectimpact the USVI operations in the first quarters of 2022 and 2021.
The Corporation accounts for uncertain tax positions under the third quarterprovisions of 2017.
ASC Topic 740. The Corporation’s policy is to report interest and penalties related to unrecognized tax benefits in income tax expense. As of September 30, 2017,March 31, 2022, the Corporation did not have Unrecognized Tax Benefits (“UTBs”) recorded on its books. Audit periods remainhad $0.2 million of accrued interest and penalties related to uncertain tax positions in the amount of $1.0 million that it acquired from BSPR, which, if recognized, would decrease the effective income tax rate in future periods. The amount of unrecognized tax benefits may increase or decrease in the future for various reasons, including adding amounts for current tax year positions, expiration of open for review untilincome tax returns due to the statute of limitations, has passed.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; the statute of limitations for U.S. Virgin Islands and U.S.USVI income taxestax 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. On January 23, 2017, the Corporation received confirmation from the IRS that the audit for the years 2011For U.S. and 2012 were closed with no adjustments to the previously filed returns. For Virgin Islands and U.S.USVI income tax purposes, all tax years subsequent to 20122018 remain open to examination. For Puerto Rico tax purposes, all tax years subsequent to 20122017 remain open to examination.
6674
NOTE 2219 – FAIR VALUE
Fair Value Measurement
The FASB 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. ThreeOne of three levels of inputs may be used to measure fair value:
Level 1 | Valuations of Level 1 assets and liabilities are obtained from |
Level 2 | |
| Valuations 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 2 assets and liabilities include (i) |
Level 3 | |
| Valuations 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 |
67
For the first nine months of 2017, there were no transfers into or out of Level 1, Level 2 or Level 3 of the fair value hierarchy.
Financial Instruments Recorded at Fair Value on a Recurring Basis
Investment securities available for sale and marketable equity securities held at fair value
The fair value of investment securities available for sale was the market value based on quoted market prices (as is the case with U.S. Treasury notes, non-callable U.S. agencies debt securities, and equity securities Treasury notes, and non-callable U.S. Agency debt securities)with readily determinable fair values), when available (Level 1), or, when available, market prices for identical or comparable assets (as is the case with MBS and callable U.S. agency debt)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 mortgage-backed securitiesMBS held by the Corporation (Level 3).
Private label MBS are collateralized by fixed-rate mortgages on single-family residential properties in the United States; the interest rate on the securities is variable, tied to 3-month LIBOR and limited to the weighted-average coupon of the underlying collateral. The market valuation represents the estimated net cash flows over the projected life of the pool of underlying assets applying a discount rate that reflects market observed floating spreads over LIBOR, with a widening spread based on a nonrated security. The market valuation is derived from a model that utilizes relevant assumptions such as the prepayment rate, default rate, and loss severity on a loan level basis. The Corporation modeled the cash flow from the fixed-rate mortgage collateral using a static cash flow analysis according to collateral attributes of the underlying mortgage pool (i.e., loan term, current balance, note rate, rate adjustment type, rate adjustment frequency, rate caps, and others) in combination with prepayment forecasts based on historical portfolio performance. The variable cash flow of the security is modeled using the 3-month LIBOR forward curve. Loss assumptions were driven by the combination of default and loss severity estimates, using an asset-level risk assessment method taking into account loan credit characteristics (loan-to-value, state jurisdiction, delinquency, property type and pricing behavior, and other) to provide an estimate of default and loss severity.
Refer to the table below for further information regarding qualitative information for all assets and liabilities measured at fair value using significant unobservable inputs (Level 3).
Derivative instruments
The fair value of most of the Corporation’s derivative instruments is based on observable market parameters and takes into consideration the credit risk component of paying counterparties, when appropriate. On interest rate caps, only the seller's credit risk is considered. The Corporation valued the caps were valued using a discounted cash flow approach and usingbased on the related LIBOR and swap rate for each cash flow The Corporation valued the interest rate swaps using a discounted cash flow approach based on the related LIBOR and swap forward rate for each cash flow.
AThe Corporation considers a credit spread is considered for those derivative instruments that are not secured. The cumulative mark-to-market effect of credit risk in the valuation of derivative instruments for the quarters ended March 31, 2022 and nine-month periods ended September 30, 2017 and 20162021 was immaterial.
75
Assets and liabilities measured at fair value on a recurring basis are summarized below as of March 31, 2022 and December 31, 2021: | |||||||||||||||||||||||
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|
| As of March 31, 2022 |
| As of December 31, 2021 | ||||||||||||||||||||
| Fair Value Measurements Using |
| Fair Value Measurements Using | ||||||||||||||||||||
(In thousands) | Level 1 |
| Level 2 |
| Level 3 |
| Assets/Liabilities at Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Assets/Liabilities at Fair Value | ||||||||
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Assets: |
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Securities available for sale: |
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
U.S. Treasury Securities | $ | 142,749 |
| $ | 0 |
| $ | 0 |
| $ | 142,749 |
| $ | 148,486 |
| $ | 0 |
| $ | 0 |
| $ | 148,486 |
Noncallable U.S. agencies debt securities |
| 0 |
|
| 323,180 |
|
| 0 |
|
| 323,180 |
|
| 0 |
|
| 285,028 |
|
| 0 |
|
| 285,028 |
Callable U.S. agencies debt securities |
|
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|
|
|
|
|
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|
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|
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|
and MBS |
| 0 |
|
| 5,948,084 |
|
| 0 |
|
| 5,948,084 |
|
| 0 |
|
| 6,009,163 |
|
| 0 |
|
| 6,009,163 |
Puerto Rico government obligations |
| 0 |
|
| 0 |
|
| 2,727 |
|
| 2,727 |
|
| 0 |
|
| 0 |
|
| 2,850 |
|
| 2,850 |
Private label MBS |
| 0 |
|
| 0 |
|
| 6,920 |
|
| 6,920 |
|
| 0 |
|
| 0 |
|
| 7,234 |
|
| 7,234 |
Other investments |
| 0 |
|
| 0 |
|
| 1,000 |
|
| 1,000 |
|
| 0 |
|
| 0 |
|
| 1,000 |
|
| 1,000 |
Equity securities |
| 5,202 |
|
| 0 |
|
| 0 |
|
| 5,202 |
|
| 5,378 |
|
| 0 |
|
| 0 |
|
| 5,378 |
Derivatives, included in assets: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
| 0 |
|
| 755 |
|
| 0 |
|
| 755 |
|
| 0 |
|
| 1,098 |
|
| 0 |
|
| 1,098 |
Purchased interest rate cap agreements |
| 0 |
|
| 60 |
|
| 0 |
|
| 60 |
|
| 0 |
|
| 8 |
|
| 0 |
|
| 8 |
Forward contracts |
| 0 |
|
| 238 |
|
| 0 |
|
| 238 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
Interest rate lock commitments |
| 0 |
|
| 108 |
|
| 0 |
|
| 108 |
|
| 0 |
|
| 379 |
|
| 0 |
|
| 379 |
Forward loan sales commitments |
| 0 |
|
| 9 |
|
| 0 |
|
| 9 |
|
| 0 |
|
| 20 |
|
| 0 |
|
| 20 |
Liabilities: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives, included in liabilities: |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
| 0 |
|
| 734 |
|
| 0 |
|
| 734 |
|
| 0 |
|
| 1,092 |
|
| 0 |
|
| 1,092 |
Written interest rate cap agreements |
| 0 |
|
| 60 |
|
| 0 |
|
| 60 |
|
| 0 |
|
| 8 |
|
| 0 |
|
| 8 |
Forward contracts |
| 0 |
|
| 28 |
|
| 0 |
|
| 28 |
|
| 0 |
|
| 78 |
|
| 0 |
|
| 78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets and liabilities measured at fair value on a recurring basis are summarized below: | |||||||||||||||||||||||
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|
| As of September 30, 2017 |
| As of December 31, 2016 | ||||||||||||||||||||
| Fair Value Measurements Using |
| Fair Value Measurements Using | ||||||||||||||||||||
(In thousands) | Level 1 |
| Level 2 |
| Level 3 |
| Assets/Liabilities at Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Assets/Liabilities at Fair Value | ||||||||
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Assets: |
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|
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|
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|
|
|
|
|
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Securities available for sale : |
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Equity securities | $ | 418 |
| $ | - |
| $ | - |
| $ | 418 |
| $ | 408 |
| $ | - |
| $ | - |
| $ | 408 |
U.S. Treasury Securities |
| 7,432 |
|
| - |
|
| - |
|
| 7,432 |
|
| 7,509 |
|
| - |
|
| - |
|
| 7,509 |
Noncallable U.S. agency debt |
| - |
|
| 364,859 |
|
| - |
|
| 364,859 |
|
| - |
|
| 356,919 |
|
| - |
|
| 356,919 |
Callable U.S. agency debt and MBS |
| - |
|
| 1,353,262 |
|
| - |
|
| 1,353,262 |
|
| - |
|
| 1,469,463 |
|
| - |
|
| 1,469,463 |
Puerto Rico government obligations |
| - |
|
| 4,162 |
|
| 2,609 |
|
| 6,771 |
|
| - |
|
| 24,707 |
|
| 2,121 |
|
| 26,828 |
Private label MBS |
| - |
|
| - |
|
| 17,630 |
|
| 17,630 |
|
| - |
|
| - |
|
| 20,693 |
|
| 20,693 |
Other investments |
| - |
|
| - |
|
| 100 |
|
| 100 |
|
| - |
|
| - |
|
| 100 |
|
| 100 |
Derivatives, included in assets: |
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|
Purchased interest rate cap agreements |
| - |
|
| 219 |
|
| - |
|
| 219 |
|
| - |
|
| 554 |
|
| - |
|
| 554 |
Forward contracts |
| - |
|
| 75 |
|
| - |
|
| 75 |
|
| - |
|
| - |
|
| - |
|
| - |
Liabilities: |
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Derivatives, included in liabilities: |
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|
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|
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|
Written interest rate cap agreements |
| - |
|
| 219 |
|
| - |
|
| 219 |
|
| - |
|
| 552 |
|
| - |
|
| 552 |
Forward contracts |
| - |
|
| 2 |
|
| - |
|
| 2 |
|
| - |
|
| 201 |
|
| - |
|
| 201 |
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68
The table below presents a reconciliation of the beginning and ending balances of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarters ended March 31, 2022 and nine-month periods ended September 30, 2017 and 2016:2021:
|
| Quarter Ended September 30, | ||||
|
| 2017 |
| 2016 | ||
Level 3 Instruments Only | Securities |
| Securities | |||
(In thousands) | Available For Sale(1) |
| Available For Sale(1) | |||
|
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|
|
|
Beginning balance | $ | 19,771 |
| $ | 26,020 | |
Total gains or (losses) (realized/unrealized): |
|
|
|
|
| |
Included in other comprehensive income |
| 1,754 |
|
| (477) | |
Principal repayments and amortization |
| (1,186) |
|
| (1,065) | |
Ending balance | $ | 20,339 |
| $ | 24,478 | |
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|
|
|
|
|
(1) | Amounts mostly related to private label mortgage-backed securities. | |||||
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|
| Nine-Month Period Ended September 30, |
| Quarter ended March 31, | ||||||||
|
| 2017 |
| 2016 |
| 2022 |
| 2021 | ||||
Level 3 Instruments Only | Level 3 Instruments Only | Securities |
| Securities | Level 3 Instruments Only | Securities |
| Securities | ||||
(In thousands) | (In thousands) | Available For Sale(1) |
| Available For Sale(1) | (In thousands) | Available For Sale(1) |
| Available For Sale(1) | ||||
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|
|
Beginning balance | Beginning balance | $ | 22,914 |
| $ | 27,297 | Beginning balance | $ | 11,084 |
| 11,977 | |
Total gains or (losses) (realized/unrealized): |
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|
|
| ||||||||
Included in earnings |
| - |
| (387) | ||||||||
Included in other comprehensive income |
| 2,500 |
| 1,339 | ||||||||
Principal repayments and amortization |
| (5,075) |
|
| (3,771) | |||||||
| Total gains (losses) (realized/unrealized): |
|
|
|
| |||||||
| Included in other comprehensive income |
| (287) |
| 321 | |||||||
| Included in earnings |
| 388 |
| 127 | |||||||
| Principal repayments and amortization |
| (538) |
|
| (649) | ||||||
Ending balance | Ending balance | $ | 20,339 |
| $ | 24,478 | Ending balance | $ | 10,647 |
| $ | 11,776 |
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(1) | Amounts mostly related to private label mortgage-backed securities. | Amounts mostly related to private label MBS. | ||||||||||
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6976
The table below presents qualitative information for significant assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of September 30, 2017: | ||||||||
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|
|
|
| September 30, 2017 | |||||||
(In thousands) | Fair Value |
| Valuation Technique |
| Unobservable Input |
| Range | |
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|
|
|
|
|
|
Investment securities available-for-sale: | ||||||||
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|
|
|
|
|
|
|
|
Private label MBS | $ | 17,630 |
| Discounted cash flow |
| Discount rate |
| 14.2% |
|
|
|
|
|
| Prepayment rate |
| 12.0% - 29.0% (Weighted Average 16.5%) |
|
|
|
|
|
| Projected cumulative loss rate |
| 0.1% - 7.1% (Weighted Average 4.0%) |
|
|
|
|
|
|
|
|
|
Puerto Rico Government Obligations |
| 2,609 |
| Discounted cash flow |
| Discount rate |
| 7.00% |
|
|
|
|
|
| Prepayment rate |
| 3.00% |
|
|
|
|
|
|
|
|
|
The tables below present qualitative information for significant assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of March 31, 2022 and December 31, 2021: | |||||||||||||
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| March 31, 2022 | ||||||||||||
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|
| Range |
| Weighted Average | |||
(In thousands) | Fair Value |
| Valuation Technique |
| Unobservable Input |
| Minimum |
| Maximum |
| |||
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|
|
|
|
|
|
|
|
|
|
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Investment securities available-for-sale: |
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|
|
|
| ||||||||
Private label MBS | $ | 6,920 |
| Discounted cash flows |
| Discount rate |
| 14.3 | % | 14.3 | % | 14.3 | % |
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|
|
| Prepayment rate |
| 9.4 | % | 24.1 | % | 14.4 | % |
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|
| Projected Cumulative Loss Rate |
| 0.3 | % | 14.9 | % | 6.5 | % |
Puerto Rico government obligations |
| 2,727 |
| Discounted cash flows |
| Discount rate |
| 6.3 | % | 8.6 | % | 8.4 | % |
| Projected Cumulative Loss Rate |
| 8.8 | % | 8.8 | % | 8.8 | % | |||||
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| December 31, 2021 | ||||||||||||
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| Range |
| Weighted | |||
(In thousands) | Fair Value |
| Valuation Technique |
| Unobservable Input |
| Minimum |
| Maximum |
| Average | ||
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|
|
Investment securities available-for-sale: |
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|
|
| ||||||||
Private label MBS | $ | 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 | % |
Puerto Rico government obligations |
| 2,850 |
| Discounted cash flows |
| Discount rate |
| 6.6 | % | 8.4 | % | 7.9 | % |
| Projected Cumulative Loss Rate |
| 8.6 | % | 8.6 | % | 8.6 | % | |||||
|
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77
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. MeaningfulThe Corporation modeled meaningful and possible shifts of each input were modeled 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 prepaymentloss rate of the underlying residential mortgage loans that collateralize these obligations, thatwhich are guaranteed by the Puerto Rico Housing Finance Authority (“PRHFA”).PRHFA. A significant increase (decrease) in the assumed rate would lead to a (lower) higher (lower) fair value estimate. The fair value of these bonds was based on a discounted cash flow analysismethodology that contemplatesconsiders the credit qualitystructure and terms of the holderunderlying collateral. 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 the expected recovery of second mortgagesPRHFA guarantee. Under this approach, all future cash flows (interest and a discount for liquidity constraints onprincipal) from the bonds consideringunderlying collateral loans, adjusted by prepayments and the absencePDs and LGDs derived from the above-described methodology, are discounted at the internal rate of an active market for them. Duereturn as of the reporting date and compared to the guaranteeamortized cost.
The table below summarizes changes in unrealized gains and losses recorded in earnings for the quarters ended March 31, 2022 and 2021 for Level 3 assets and liabilities that were still held at the end of the PRHFA and other applicable contractual safeguards, no additional credit spread is applied for servicer default. each period:
|
|
| ||||
|
| Changes in Unrealized Losses | ||||
Level 3 Instruments Only | Quarter ended March 31, | |||||
(In thousands) | 2022 |
| 2021 | |||
Changes in unrealized losses relating to assets still held at reporting date: |
|
|
|
|
| |
Provision for credit losses - (benefit) | $ | (388) |
| $ | (127) | |
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70
Additionally, fair value is used on a nonrecurring basis to evaluate certain assets in accordance with GAAP. Adjustments to fair value usually result from the application of lower-of-cost or market accounting (e.g.(e.g., loans held for sale carried at the lower-of-cost or fair value and repossessed assets) or write downswrite-downs of individual assets (e.g.(e.g., goodwill and loans).
As of September 30, 2017, impairment or valuation adjustments were recorded for assets recognized at fair value on a non-recurring basis as shown in the following table: | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Carrying value as of September 30, 2017 |
| (Losses) recorded for the Quarter Ended September 30, 2017 |
| (Losses) recorded for the Nine-Month Period Ended September 30, 2017 | |||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
|
|
|
|
|
| |||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable (1) | $ | - |
| $ | - |
| $ | 374,740 |
| $ | (686) |
| $ | (23,467) | |
OREO (2) |
| - |
|
| - |
|
| 152,977 |
|
| (818) |
|
| (7,563) | |
Mortgage servicing rights (3) |
| - |
|
| - |
|
| 25,999 |
|
| (690) |
|
| (1,047) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Consist mainly of impaired commercial and construction loans. The impairments were generally measured based on the fair value of underlying the collateral. The fair values were derived from external appraisals that take 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 fair values were derived from appraisals that take 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) | Fair value adjustments to mortgage servicing rights were mainly due to assumptions associated with mortgage prepayment rates. The Corporation carries its mortgage servicing rights at the lower of cost or market, measured at fair value on a non-recurring basis. Assumptions for the value of mortgage servicing rights include: Prepayment rate of 6.41%, Discount Rate of 11.22%. |
As of September 30, 2016, impairment or valuation adjustments were recorded for assets recognized at fair value on a non-recurring basis as shown in the following table: | |||||||||||||||
|
|
|
|
|
|
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|
|
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|
|
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|
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|
|
| Carrying value as of September 30, 2016 |
| (Losses) recorded for the Quarter Ended September 30, 2016 |
| (Losses) recorded for the Nine-Month Period Ended September 30, 2016 | |||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
|
|
|
|
|
| |||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
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|
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|
|
|
Loans receivable (1) | $ | - |
| $ | - |
| $ | 426,444 |
| $ | (13,912) |
| $ | (41,621) | |
OREO (2) |
| - |
|
| - |
|
| 139,446 |
|
| (1,702) |
|
| (6,580) | |
Mortgage servicing rights (3) |
| - |
|
| - |
|
| 25,475 |
|
| (263) |
|
| (387) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Consist mainly of impaired commercial and construction loans. The impairments were generally measured based on the fair value of the underlying collateral. The fair value was derived from external appraisals that take 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 fair values were derived from appraisals that take 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) | Fair value adjustments to the mortgage servicing rights were mainly due to assumptions associated with mortgage prepayments rates. The Corporation carries its mortgage servicing rights at the lower of cost or market, measured at fair value on a non-recurring basis. Assumptions for the value of mortgage servicing rights include: Prepayment Rate of 6.34%, Discount Rate of 11.18%. |
7178
As of March 31, 2022, the Corporation recorded losses or valuation adjustments for assets recognized at fair value on a non-recurring basis as shown in the following table: | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Carrying value as of March 31, 2022 |
| Losses recorded for the Quarter Ended March 31, 2022 | ||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
|
|
| |||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable (1) | $ | 0 |
| $ | 0 |
| $ | 154,875 |
| $ | (2,787) | |
OREO (2) |
| 0 |
|
| 0 |
|
| 42,894 |
|
| (73) | |
(1) | Consists mainly of collateral dependent commercial and construction loans. The Corporation generally measured losses 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. |
As of March 31, 2021, the Corporation recorded losses or valuation adjustments for assets recognized at fair value on a non-recurring basis as shown in the following table: | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Carrying value as of March 31, 2021 |
| Losses recorded for the Quarter Ended March 31, 2021 | ||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
|
|
| |||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable (1) | $ | 0 |
| $ | 0 |
| $ | 237,025 |
| $ | (1,203) | |
OREO (2) |
| 0 |
|
| 0 |
|
| 79,207 |
|
| (2,364) | |
Loans held for sale (3) |
| 0 |
|
| 0 |
|
| 13,425 |
|
| (360) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Consists mainly of collateral dependent commercial and construction loans. The Corporation generally measured losses 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) | Commercial loan participations transferred to held for sale in the first quarter of 2021 and still in inventory at the end of the period. The value of these loans was primarily derived from offers of market participants that the Corporation considered. |
Qualitative information regarding the fair value measurements for Level 3 financial instruments as of March 31, 2022 are as follows: | |||
| |||
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 | |
|
|
|
79
The following tables present the carrying value, estimated fair value and estimated fair value level of the hierarchy of financial instruments as of March 31, 2022 and December 31, 2021: | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Carrying Amount in Statement of Financial Condition as of March 31, 2022 |
| Fair Value Estimate as of March 31, 2022 |
| Level 1 |
| Level 2 |
| Level 3 | |||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and due from banks and money market |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| investments (amortized cost) | $ | 1,696,249 |
| $ | 1,696,249 |
| $ | 1,696,249 |
| $ | 0 |
| $ | 0 |
Investment securities available for sale (fair value) |
| 6,424,660 |
|
| 6,424,660 |
|
| 142,749 |
|
| 6,271,264 |
|
| 10,647 | |
Investment securities held to maturity (amortized cost) |
| 178,059 |
|
|
|
|
|
|
|
|
|
|
|
| |
Less: ACL on held to maturity debt securities |
| (12,324) |
|
|
|
|
|
|
|
|
|
|
|
| |
Investment securities held to maturity, net of ACL | $ | 165,735 |
|
| 168,814 |
|
| 0 |
|
| 0 |
|
| 168,814 | |
Equity Securities (fair value) |
| 32,014 |
|
| 32,014 |
|
| 5,202 |
| (1) | 26,812 |
| (2) | 0 | |
Loans held for sale (lower of cost or market) |
| 27,905 |
|
| 27,600 |
|
| 0 |
|
| 27,600 |
|
| 0 | |
Loans, held for investment (amortized cost) |
| 11,097,705 |
|
|
|
|
|
|
|
|
|
|
|
| |
Less: ACL for loans and finance leases |
| (245,447) |
|
|
|
|
|
|
|
|
|
|
|
| |
Loans held for investment, net of ACL | $ | 10,852,258 |
|
| 10,954,163 |
|
| 0 |
|
| 0 |
|
| 10,954,163 | |
MSRs (amortized cost) |
| 30,753 |
|
| 43,037 |
|
| 0 |
|
| 0 |
|
| 43,037 | |
Derivatives, included in assets (fair value) |
| 1,170 |
|
| 1,170 |
|
| 0 |
|
| 1,170 |
|
| 0 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Deposits (amortized cost) | $ | 17,335,403 |
|
| 17,351,115 |
|
| 0 |
|
| 17,351,115 |
|
| 0 | |
Securities sold under agreements to repurchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| (amortized cost) |
| 200,000 |
|
| 212,544 |
|
| 0 |
|
| 212,544 |
|
| 0 |
Advances from FHLB (amortized cost) |
| 200,000 |
|
| 200,766 |
|
| 0 |
|
| 200,766 |
|
| 0 | |
Other borrowings (amortized cost) |
| 183,762 |
|
| 180,698 |
|
| 0 |
|
|
|
|
| 180,698 | |
Derivatives, included in liabilities (fair value) |
| 822 |
|
| 822 |
|
| 0 |
|
| 822 |
|
| 0 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | These securities have a readily determinable fair value. | ||||||||||||||
(2) | Includes FHLB stock with a carrying value of $21.5 million. |
80
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| investments (amortized cost) | $ | 2,543,058 |
| $ | 2,543,058 |
| $ | 2,543,058 |
| $ | 0 |
| $ | 0 |
Investment securities available for sale (fair value) |
| 6,453,761 |
|
| 6,453,761 |
|
| 148,486 |
|
| 6,294,191 |
|
| 11,084 | |
Investment securities held to maturity (amortized cost) |
| 178,133 |
|
|
|
|
|
|
|
|
|
|
|
| |
Less: ACL on held to maturity debt securities |
| (8,571) |
|
|
|
|
|
|
|
|
|
|
|
| |
Investment securities held to maturity, net of ACL | $ | 169,562 |
|
| 167,147 |
|
| 0 |
|
| 0 |
|
| 167,147 | |
Equity Securities (fair value) |
| 32,169 |
|
| 32,169 |
|
| 5,378 |
| (1) | 26,791 |
| (2) | 0 | |
Loans held for sale (lower of cost or market) |
| 35,155 |
|
| 36,147 |
|
| 0 |
|
| 36,147 |
|
| 0 | |
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 |
|
| 0 |
|
| 0 |
|
| 10,900,400 | |
MSRs (amortized cost) |
| 30,986 |
|
| 42,132 |
|
| 0 |
|
| 0 |
|
| 42,132 | |
Derivatives, included in assets (fair value) |
| 1,505 |
|
| 1,505 |
|
| 0 |
|
| 1,505 |
|
| 0 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Deposits (amortized cost) | $ | 17,784,894 |
|
| 17,800,706 |
|
| 0 |
|
| 17,800,706 |
|
| 0 | |
Securities sold under agreements to repurchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| (amortized cost) |
| 300,000 |
|
| 322,105 |
|
| 0 |
|
| 322,105 |
|
| 0 |
Advances from FHLB (amortized cost) |
| 200,000 |
|
| 202,044 |
|
| 0 |
|
| 202,044 |
|
| 0 | |
Other borrowings (amortized cost) |
| 183,762 |
|
| 177,689 |
|
| 0 |
|
| 0 |
|
| 177,689 | |
Derivatives, included in liabilities (fair value) |
| 1,178 |
|
| 1,178 |
|
| 0 |
|
| 1,178 |
|
| 0 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(1) | These securities have a readily determinable fair value. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) | Includes FHLB stock with a carrying value of $21.5 million. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, mortgage servicing rights, core deposit, and other customer relationship intangibles, 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 futures cash flows, and appropriate discount rates.
81
NOTE 20 – 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. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC Topic 606, the Corporation performs the following five steps: (i) identifies the contract(s) with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when (or as) the Corporation satisfies a performance obligation. The Corporation only applies the five-step model to contracts when it is probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. 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 those that contain performance obligations, and assesses whether each promised good or service is distinct. The Corporation then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Disaggregation of Revenue
The following table summarizes 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 quarters ended March 31, 2022 and 2021:
For the quarter ended March 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) | $ | 25,779 |
| $ | 89,546 |
| $ | 40,415 |
| $ | 7,409 |
| $ | 16,482 |
| $ | 5,993 |
| $ | 185,624 | |
Non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Service charges and fees on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| deposit accounts |
| 0 |
|
| 5,539 |
|
| 2,976 |
|
| 0 |
|
| 138 |
|
| 710 |
|
| 9,363 |
Insurance commissions |
| 0 |
|
| 4,967 |
|
| 0 |
|
| 0 |
|
| 29 |
|
| 279 |
|
| 5,275 | |
Merchant-related income |
| 0 |
|
| 1,822 |
|
| 373 |
|
| 0 |
|
| 5 |
|
| 389 |
|
| 2,589 | |
Credit and debit card fees |
| 0 |
|
| 6,671 |
|
| 16 |
|
| 0 |
|
| (7) |
|
| 410 |
|
| 7,090 | |
Other service charges and fees |
| 143 |
|
| 1,110 |
|
| 1,113 |
|
| 0 |
|
| 499 |
|
| 157 |
|
| 3,022 | |
Not in scope of Topic 606 (1) |
| 5,109 |
|
| 354 |
|
| 76 |
|
| (112) |
|
| 80 |
|
| 12 |
|
| 5,519 | |
| Total non-interest income |
| 5,252 |
|
| 20,463 |
|
| 4,554 |
|
| (112) |
|
| 744 |
|
| 1,957 |
|
| 32,858 |
Total Revenue | $ | 31,031 |
| $ | 110,009 |
| $ | 44,969 |
| $ | 7,297 |
| $ | 17,226 |
| $ | 7,950 |
| $ | 218,482 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended March 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 (1) | $ | 25,240 |
| $ | 58,483 |
| $ | 48,981 |
| $ | 21,583 |
| $ | 15,023 |
| $ | 6,955 |
| $ | 176,265 | |
Non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Service charges and fees on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| deposit accounts |
| 0 |
|
| 4,476 |
|
| 2,971 |
|
| 0 |
|
| 149 |
|
| 708 |
|
| 8,304 |
Insurance commissions |
| 0 |
|
| 4,967 |
|
| 0 |
|
| 0 |
|
| 29 |
|
| 245 |
|
| 5,241 | |
Merchant-related income |
| 0 |
|
| 922 |
|
| 256 |
|
| 0 |
|
| 13 |
|
| 204 |
|
| 1,395 | |
Credit and debit card fees |
| 0 |
|
| 5,645 |
|
| 19 |
|
| 0 |
|
| 3 |
|
| 370 |
|
| 6,037 | |
Other service charges and fees |
| 173 |
|
| 865 |
|
| 519 |
|
| 0 |
|
| 458 |
|
| 141 |
|
| 2,156 | |
Not in scope of Topic 606 (1) |
| 6,943 |
|
| 368 |
|
| 132 |
|
| 56 |
|
| 323 |
|
| 1 |
|
| 7,823 | |
| Total non-interest income |
| 7,116 |
|
| 17,243 |
|
| 3,897 |
|
| 56 |
|
| 975 |
|
| 1,669 |
|
| 30,956 |
Total Revenue | $ | 32,356 |
| $ | 75,726 |
| $ | 52,878 |
| $ | 21,639 |
| $ | 15,998 |
| $ | 8,624 |
| $ | 207,221 | |
(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. | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
For the quarters ended March 31, 2022 and 2021, substantially all 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 descriptiondiscussion of 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 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 on a daily basis or on a monthly basis depending upon the customer’s cycle date. 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, no-substantive 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 valuation methodologies used for instrumentspolicy 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 not measured or reportedreceived. For the quarters ended March 31, 2022 and 2021, the Corporation recognized revenue at fair valuethe time that payments were confirmed and constraints were released of $3.0 million and $3.3 million, respectively.
Merchant-related Income
For merchant-related income, the determination of which included the consideration of a 2015 sale of merchant contracts that involved sales of point of sale (“POS”) terminals and entry into 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
Credit and debit card fees primarily represent revenues earned from interchange fees and automated teller machine (“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.
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.
83
Contract Balances
A contract liability is an entity’s obligation to transfer goods or reported at fair value on a non-recurring basis. The estimated fair value was calculated using certain facts and assumptions, which vary depending on the specific financial instrument.
Cash and due from banks and money market investments
The carrying amounts of cash and due from banks and money market investments are reasonable estimates of their fair value. Money market investments include held-to-maturity securities, which have a contractual maturity of three months or less. The fair value of these securities is based on quoted market prices in active markets that incorporate the risk of nonperformance.
Investment securities held to maturity
Investment securities held to maturity consist of financing arrangements with Puerto Rico municipalities issued in bond form, but underwritten as loans with features that are typically found in commercial loan transactions. These obligations typically are not issued in bearer form, nor are they registered with the SEC and are not rated by external credit agencies. The fair value of these financing arrangements was based on a discounted cash flow analysis using risk-adjusted discount rates (Level 3). The credit spreads for valuations are based on a similar security that traded in the open market.
Other equity securities
Equity or other securities that do not have a readily available fair value are stated at their net realizable value, which management believes is a reasonable proxy for their fair value. This category is principally composed of stock that is owned by the Corporation to comply with FHLB regulatory requirements. The realizable value of the FHLB stock equals its cost as this stock can be freely redeemed at par.
Loans receivable, including loans held for sale
The fair values of loans held for investment and of mortgage loans held for sale were estimated using discounted cash flow analyses, based on interest rates currently being offered for loans with similar terms and credit quality and with adjustments that the Corporation’s management believes a market participant would consider in determining fair value. Loans were classified by type, such as commercial, residential mortgage, and automobile. These asset categories were further segmented into fixed- and adjustable-rate categories. Valuations are carried out based on categories and not on a loan-by-loan basis. The fair values of performing fixed-rate and adjustable-rate loans were calculated by discounting expected cash flows through the estimated maturity date. This fair value is not currently an indication of an exit price as that type of assumption could result in a different fair value estimate. The fair values of credit card loans were estimated using a discounted cash flow method and excludes any value relatedservices to a customer account relationship. Other loansin exchange for consideration from the customer. During 2019, the Bank entered into a growth agreement with no stated maturity, like credit lines, were valued at book value. Prepayment assumptions were considered for non-residential loans. For residential mortgage loans, prepayment estimates were based onan international card service association to expand the customer base and enhance product offerings. The primary performance obligation of this contract required the Bank to either launch a prepayment model that combined bothnew debit card product by 2021, or maintain a historical calibration and current market prepayment expectations. Discount rates were based on the U.S. Treasury and LIBOR/Swap Yield Curves at the dateratio of over 50% of the analysis, and included appropriate adjustments for expected credit losses and liquidity. For impaired collateral dependent loans,portfolio with the impairment was primarily measured based onrelated card service association by the fair valueyear ended December 31, 2021. In connection with this agreement, the Corporation recognized a contract liability as the revenue is constrained to the fulfillment of the collateral,above conditions. During the third quarter of 2021, the Bank successfully launched the new debit card product required and recognized revenues of $0.4 million from this contract. In addition, as discussed above, during 2015, the Bank entered into a long-term strategic marketing alliance under a revenue-sharing agreement with another entity to which is derived from appraisals that take into consideration pricesthe Bank sold its merchant contracts portfolio and related POS terminals. Merchant services are marketed through the Bank’s branches and offices in observable transactions involving similar assets in similar locations.
72
Deposits
The estimated fair values of demand depositsPuerto Rico and savings accounts, which are depositsthe Virgin Islands. Under the revenue-sharing agreement, FirstBank shares with no defined maturities, equalsthis entity revenues generated by the amount payable on demand atmerchant contracts over the reporting date. The fair values of retail fixed-rate time deposits, with stated maturities, are based on the present valueterm of the future cash flows expected10-year agreement. As of March 31, 2022 and 2021, this contract liability amounted to $1.0 million and $1.3 million, respectively, which will be paid onrecognized over the deposits. The cash flows were based on contractual maturities; no early repayments were assumed. Discount rates were based on the LIBOR yield curve.
The estimated fair value of total deposits excludes the fair value of core deposit intangibles, which represent the valueremaining term of the customer relationship. The fair valuecontract. For the quarters ended March 31, 2022 and 2021, the Corporation recognized revenue and its contract liabilities decreased by approximately $0.3 million and $0.1 million, respectively, due to the completion of total deposits is measured by the value of demand deposits and savings deposits that bear a low or zero rate of interest and do not fluctuateperformance over time. There were no changes in responsecontract liabilities due to changes in interest rates.transaction price estimates.
A contract asset is the right to consideration for transferred goods or services when the amount is conditioned on something other than the passage of time. As of March 31, 2022 and 2021, there were no contract assets from contracts with customers or contract assets recorded on the Corporation’s consolidated financial statements.
The fair valuesfollowing table shows the activity of brokered CDs, which are included within deposits, are determined using discounted cash flow analyses overcontract liabilities for the full terms ofquarters ended March 31, 2022 and 2021:
(In thousands) | March 31, 2022 |
| March 31, 2021 | ||
Beginning Balance | $ | 1,443 |
| $ | 2,151 |
Less: |
|
|
|
|
|
Revenue recognized |
| (289) |
|
| (81) |
Ending balance | $ | 1,154 |
| $ | 2,070 |
|
|
|
|
|
|
Other
Except for the CDs. The fair values ofcontract liabilities noted above, the CDs are computed using the outstanding principal amount. The discount rates used were based on brokered CD market ratesCorporation did not have any significant performance obligations as of September 30, 2017.March 31, 2022. The fair values doCorporation also did not incorporate the risk of nonperformance, since interestshave any material contract acquisition costs and did not make any significant judgments or estimates in brokered CDs are generally sold by brokers in amounts of less than $250,000 and, therefore, are insured by the FDIC.recognizing revenue for financial reporting purposes.
Securities sold under agreements to repurchase
Some repurchase agreements reprice at least quarterly, and their outstanding balances are estimated to be their fair value. Where longer commitments are involved, fair values are estimated using exit price indications of the cost of unwinding the transactions as of the end of the reporting period. The brokers who are the counterparties provide these indications, which the Corporation evaluates. Securities sold under agreements to repurchase are fully collateralized by investment securities.
Advances from the FHLB
The fair values of advances from the FHLB with fixed maturities are determined using discounted cash flow analyses over the full terms of the borrowings, using indications of the fair value of similar transactions. The cash flows assume no early repayment of the borrowings. Discount rates are based on the LIBOR yield curve. Advances from the FHLB are fully collateralized by mortgage loans and, to a lesser extent, investment securities.
Other borrowings
Other borrowings consist of junior subordinated debentures. Projected cash flows from the debentures were discounted using the Bloomberg BB Finance curve plus a credit spread. This credit spread was estimated using the difference in yield curves between swap rates and a yield curve that considers the industry and credit rating of the Corporation as issuer of the debentures at a tenor comparable to the time to maturity of the debentures.
73
The following tables present the carrying value, estimated fair value and estimated fair value level of hierarchy of financial instruments as of September 30, 2017 and December 31, 2016: | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Carrying Amount in Statement of Financial Condition September 30, 2017 |
| Fair Value Estimate September 30, 2017 |
| Level 1 |
| Level 2 |
| Level 3 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks and money |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
market investments | $ | 737,194 |
| $ | 737,194 |
| $ | 737,194 |
| $ | - |
| $ | - |
Investment securities available |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for sale |
| 1,750,472 |
|
| 1,750,472 |
|
| 7,850 |
|
| 1,722,283 |
|
| 20,339 |
Investment securities held to maturity |
| 150,627 |
|
| 130,125 |
|
| - |
|
| - |
|
| 130,125 |
Other equity securities |
| 52,119 |
|
| 52,119 |
|
| - |
|
| 52,119 |
|
| - |
Loans held for sale |
| 27,576 |
|
| 29,612 |
|
| - |
|
| 19,826 |
|
| 9,786 |
Loans held for investment |
| 8,877,214 |
|
|
|
|
|
|
|
|
|
|
|
|
Less: allowance for loan and lease losses |
| (230,870) |
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for investment, net of allowance | $ | 8,646,344 |
|
| 8,354,635 |
|
| - |
|
| - |
|
| 8,354,635 |
Derivatives, included in assets |
| 294 |
|
| 294 |
|
| - |
|
| 294 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| 8,765,891 |
|
| 8,769,746 |
|
| - |
|
| 8,769,746 |
|
| - |
Securities sold under agreements to repurchase |
| 300,000 |
|
| 329,444 |
|
| - |
|
| 329,444 |
|
| - |
Advances from FHLB |
| 915,000 |
|
| 913,134 |
|
| - |
|
| 913,134 |
|
| - |
Other borrowings |
| 208,639 |
|
| 180,305 |
|
| - |
|
| - |
|
| 180,305 |
Derivatives, included in liabilities |
| 221 |
|
| 221 |
|
| - |
|
| 221 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
| Total Carrying Amount in Statement of Financial Condition December 31, 2016 |
| Fair Value Estimate December 31, 2016 |
| Level 1 |
| Level 2 |
| Level 3 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks and money |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
market investments | $ | 299,685 |
| $ | 299,685 |
| $ | 299,685 |
| $ | - |
| $ | - |
Investment securities available |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for sale |
| 1,881,920 |
|
| 1,881,920 |
|
| 7,917 |
|
| 1,851,089 |
|
| 22,914 |
Investment securities held to maturity |
| 156,190 |
|
| 132,759 |
|
| - |
|
| - |
|
| 132,759 |
Other equity securities |
| 42,992 |
|
| 42,992 |
|
| - |
|
| 42,992 |
|
| - |
Loans held for sale |
| 50,006 |
|
| 52,707 |
|
| - |
|
| 42,921 |
|
| 9,786 |
Loans held for investment |
| 8,886,873 |
|
|
|
|
|
|
|
|
|
|
|
|
Less: allowance for loan and lease losses |
| (205,603) |
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for investment, net of allowance | $ | 8,681,270 |
|
| 8,455,104 |
|
| - |
|
| - |
|
| 8,455,104 |
Derivatives, included in assets |
| 554 |
|
| 554 |
|
| - |
|
| 554 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| 8,831,205 |
|
| 8,838,606 |
|
| - |
|
| 8,838,606 |
|
| - |
Securities sold under agreements to repurchase |
| 300,000 |
|
| 335,840 |
|
| - |
|
| 335,840 |
|
| - |
Advances from FHLB |
| 670,000 |
|
| 669,687 |
|
| - |
|
| 669,687 |
|
| - |
Other borrowings |
| 216,187 |
|
| 171,374 |
|
| - |
|
| - |
|
| 171,374 |
Derivatives, included in liabilities |
| 753 |
|
| 753 |
|
| - |
|
| 753 |
|
| - |
|
74
Supplemental statement of cash flowflows information is as follows:
| Nine-Month Period Ended September 30, | ||||
| 2017 |
| 2016 | ||
| (In thousands) | ||||
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
Interest on borrowings | $ | 68,869 |
| $ | 104,031 |
Income tax |
| 3,205 |
|
| 1,878 |
Non-cash investing and financing activities: |
|
|
|
|
|
Additions to other real estate owned |
| 46,648 |
|
| 37,606 |
Additions to auto and other repossessed assets |
| 33,113 |
|
| 42,934 |
Capitalization of servicing assets |
| 2,757 |
|
| 3,878 |
Loan securitizations |
| 200,236 |
|
| 238,599 |
Loans held for investment transferred to held for sale |
| - |
|
| 10,332 |
Loans held for sale transferred to held for investment |
| 10,289 |
|
| 1,321 |
Property plant and equipment transferred to other assets |
| 1,185 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended March 31, | ||||
|
| 2022 |
| 2021 | ||
(In thousands) |
|
|
|
|
| |
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
| |
|
|
|
|
|
|
|
| Interest on borrowings | $ | 13,300 |
| $ | 18,934 |
| Income tax |
| 2,598 |
|
| 4,484 |
| Operating cash flow from operating leases |
| 4,751 |
|
| 4,889 |
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
| |
|
|
|
|
|
|
|
| Additions to OREO |
| 6,770 |
|
| 4,521 |
| Additions to auto and other repossessed assets |
| 10,772 |
|
| 11,456 |
| Capitalization of servicing assets |
| 1,130 |
|
| 1,350 |
| Loan securitizations |
| 40,823 |
|
| 56,135 |
| Loans held for investment transferred to held for sale |
| 1,176 |
|
| 28,283 |
| ROU assets obtained in exchange for operating lease liabilities |
| 2,791 |
|
| 0 |
| Unsettled purchases of available-for-sale investment securities |
| 15,000 |
|
| 10,071 |
7585
Based upon the Corporation’s organizational structure and the information provided to the Chief Executive Officer, of the Corporation and, to a lesser extent, the Board of Directors, the operating segments are drivenbased primarily byon 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 September 30, 2017,March 31, 2022, the Corporation had six6 reportable segments: Commercial and Corporate Banking; Mortgage Banking; Consumer (Retail) Banking; Treasury and Investments; United States Operations; and Virgin Islands Operations. Management determined the reportable segments based on the internal reportingstructure 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 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 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 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, Mortgage Banking, and Consumer (Retail) Banking, and United States Operations segments to finance their lending activities and borrows from those segments. The Consumer (Retail) Banking and the United States Operations segmentssegment also lendlends funds to the other segments. The interest rates charged or credited by the Treasury and Investments and the Consumer (Retail) Banking and the United States Operations 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 retailconsumer banking services. The Virgin Islands Operations segment consists of all banking activities conducted by the Corporation in the USVI and BVI, including commercial and retailconsumer banking services.
The accounting policies of the segments are the same as those referred to in Note 1 “Basis– Nature of PresentationBusiness and Summary of Significant Accounting Policies,” in the audited consolidated financial statements, of the Corporation for the year ended December 31, 2016, which are included in the Corporation’s 20162021 Annual Report on Form 10-K.
The Corporation evaluates the performance of the segments based on net interest income, the provision for loan and leasecredit 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 allowance for loan and lease losses.
76
ACL.
The following table presents information about the reportable segments: | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) | Mortgage Banking |
| Consumer (Retail) Banking |
| Commercial and Corporate |
| Treasury and Investments |
| United States Operations |
| Virgin Islands Operations |
| Total | |||||||
For the quarter ended September 30, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income | $ | 32,317 |
| $ | 43,769 |
| $ | 31,083 |
| $ | 13,374 |
| $ | 18,446 |
| $ | 9,006 |
| $ | 147,995 |
Net (charge) credit for transfer of funds |
| (11,268) |
|
| 9,351 |
|
| (8,748) |
|
| 11,198 |
|
| (533) |
|
| - |
|
| - |
Interest expense |
| - |
|
| (6,520) |
|
| - |
| �� | (12,924) |
|
| (4,932) |
|
| (787) |
|
| (25,163) |
Net interest income |
| 21,049 |
|
| 46,600 |
|
| 22,335 |
|
| 11,648 |
|
| 12,981 |
|
| 8,219 |
|
| 122,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Provision) release for loan and lease losses |
| (20,495) |
|
| (33,067) |
|
| (13,621) |
|
| - |
|
| (789) |
|
| (7,041) |
|
| (75,013) |
Non-interest income |
| 2,908 |
|
| 11,242 |
|
| 1,014 |
|
| 1,459 |
|
| 697 |
|
| 1,325 |
|
| 18,645 |
Direct non-interest expenses |
| (8,174) |
|
| (27,193) |
|
| (8,102) |
|
| (1,014) |
|
| (7,605) |
|
| (7,254) |
|
| (59,342) |
Segment (loss) income | $ | (4,712) |
| $ | (2,418) |
| $ | 1,626 |
| $ | 12,093 |
| $ | 5,284 |
| $ | (4,751) |
| $ | 7,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earning assets | $ | 2,434,963 |
| $ | 1,758,653 |
| $ | 2,477,266 |
| $ | 2,228,990 |
| $ | 1,581,726 |
| $ | 602,366 |
| $ | 11,083,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
(In thousands) | Mortgage Banking |
| Consumer (Retail) Banking |
| Commercial and Corporate |
| Treasury and Investments |
| United States Operations |
| Virgin Islands Operations |
| Total | |||||||
For the quarter ended September 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income | $ | 34,605 |
| $ | 44,455 |
| $ | 28,981 |
| $ | 12,529 |
| $ | 13,944 |
| $ | 9,059 |
| $ | 143,573 |
Net (charge) credit for transfer of funds |
| (12,074) |
|
| 2,810 |
|
| (6,700) |
|
| 15,839 |
|
| 125 |
|
| - |
|
| - |
Interest expense |
| - |
|
| (6,323) |
|
| - |
|
| (14,487) |
|
| (3,811) |
|
| (774) |
|
| (25,395) |
Net interest income |
| 22,531 |
|
| 40,942 |
|
| 22,281 |
|
| 13,881 |
|
| 10,258 |
|
| 8,285 |
|
| 118,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Provision) release for loan and lease losses |
| (3,860) |
|
| (8,655) |
|
| (8,162) |
|
| - |
|
| 2,024 |
|
| (2,850) |
|
| (21,503) |
Non-interest income |
| 5,222 |
|
| 11,292 |
|
| 985 |
|
| 6,154 |
|
| 884 |
|
| 1,609 |
|
| 26,146 |
Direct non-interest expenses |
| (8,864) |
|
| (27,100) |
|
| (11,871) |
|
| (914) |
|
| (7,556) |
|
| (7,097) |
|
| (63,402) |
Segment income | $ | 15,029 |
| $ | 16,479 |
| $ | 3,233 |
| $ | 19,121 |
| $ | 5,610 |
| $ | (53) |
| $ | 59,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earning assets | $ | 2,549,358 |
| $ | 1,973,424 |
| $ | 2,410,037 |
| $ | 2,565,019 |
| $ | 1,252,271 |
| $ | 604,150 |
| $ | 11,354,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
The following table presents information about the reportable segments for the quarters ended March 31, 2022 and 2021: | The following table presents information about the reportable segments for the quarters ended March 31, 2022 and 2021: | |||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
(In thousands) | Mortgage Banking |
| Consumer (Retail) Banking |
| Commercial and Corporate |
| Treasury and Investments |
| United States Operations |
| Virgin Islands Operations |
| Total | Mortgage Banking |
| Consumer (Retail) Banking |
| Commercial and Corporate Banking |
| Treasury and Investments |
| United States Operations |
| Virgin Islands Operations |
| Total | ||||||||||||||
Nine-Month Period Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
For the quarter ended March 31, 2022: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Interest income | $ | 99,361 |
| $ | 130,055 |
| $ | 90,858 |
| $ | 41,788 |
| $ | 50,910 |
| $ | 27,625 |
| $ | 440,597 | $ | 33,071 |
| $ | 70,437 |
| $ | 47,027 |
| $ | 22,184 |
| $ | 18,857 |
| $ | 6,278 |
| $ | 197,854 |
Net (charge) credit for transfer of funds |
| (34,466) |
| 20,799 |
| (27,071) |
| 41,858 |
| (1,120) |
| - |
| - |
| (7,292) |
| 24,282 |
| (6,612) |
| (9,949) |
| (429) |
| 0 |
| 0 | ||||||||||||
Interest expense |
| - |
|
| (18,603) |
|
| - |
|
| (36,842) |
|
| (13,499) |
|
| (2,368) |
|
| (71,312) |
| 0 |
|
| (5,173) |
|
| 0 |
|
| (4,826) |
|
| (1,946) |
|
| (285) |
|
| (12,230) |
Net interest income |
| 64,895 |
|
| 132,251 |
|
| 63,787 |
|
| 46,804 |
|
| 36,291 |
|
| 25,257 |
|
| 369,285 |
| 25,779 |
|
| 89,546 |
|
| 40,415 |
|
| 7,409 |
|
| 16,482 |
|
| 5,993 |
|
| 185,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Provision for loan and lease losses |
| (40,598) |
| (47,976) |
| (20,906) |
| - |
| (885) |
| (8,186) |
| (118,551) | ||||||||||||||||||||||||||
Non-interest income (loss) |
| 11,258 |
| 37,224 |
| 2,972 |
| (10,273) |
| 1,776 |
| 4,480 |
| 47,437 | ||||||||||||||||||||||||||
Provision for credit losses - (benefit) expense |
| (3,703) |
| 11,144 |
| (16,622) |
| (388) |
| (3,547) |
| (686) |
| (13,802) | ||||||||||||||||||||||||||
Non-interest income |
| 5,252 |
| 20,463 |
| 4,554 |
| (112) |
| 744 |
| 1,957 |
| 32,858 | ||||||||||||||||||||||||||
Direct non-interest expenses |
| (27,675) |
|
| (82,677) |
|
| (27,240) |
|
| (3,190) |
|
| (23,579) |
|
| (20,922) |
|
| (185,283) |
| 6,906 |
|
| 39,271 |
|
| 8,859 |
|
| 885 |
|
| 8,479 |
|
| 6,973 |
|
| 71,373 |
Segment income | $ | 7,880 |
| $ | 38,822 |
| $ | 18,613 |
| $ | 33,341 |
| $ | 13,603 |
| $ | 629 |
| $ | 112,888 | $ | 27,828 |
| $ | 59,594 |
| $ | 52,732 |
| $ | 6,800 |
| $ | 12,294 |
| $ | 1,663 |
| $ | 160,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earning assets | $ | 2,469,037 |
| $ | 1,771,376 |
| $ | 2,500,180 |
| $ | 2,176,164 |
| $ | 1,492,727 |
| $ | 609,765 |
| $ | 11,019,249 | $ | 2,293,648 |
| $ | 2,759,482 |
| $ | 3,664,104 |
| $ | 8,145,949 |
| $ | 2,065,638 |
| $ | 378,169 |
| $ | 19,306,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
(In thousands) | Mortgage Banking |
| Consumer (Retail) Banking |
| Commercial and Corporate |
| Treasury and Investments |
| United States Operations |
| Virgin Islands Operations |
| Total | Mortgage Banking |
| Consumer (Retail) Banking |
| Commercial and Corporate Banking |
| Treasury and Investments |
| United States Operations |
| Virgin Islands Operations |
| Total | ||||||||||||||
Nine-Month Period Ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
For the quarter ended March 31, 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Interest income | $ | 104,865 |
| $ | 135,655 |
| $ | 93,915 |
| $ | 39,206 |
| $ | 40,091 |
| $ | 27,606 |
| $ | 441,338 | $ | 37,060 |
| $ | 65,733 |
| $ | 51,458 |
| $ | 12,762 |
| $ | 20,332 |
| $ | 7,297 |
| $ | 194,642 |
Net (charge) credit for transfer of funds |
| (37,673) |
| 10,546 |
| (18,212) |
| 44,226 |
| 1,113 |
| - |
| - |
| (11,820) |
| 1,055 |
| (2,477) |
| 14,934 |
| (1,692) |
| 0 |
| 0 | ||||||||||||
Interest expense |
| - |
|
| (18,765) |
|
| - |
|
| (45,828) |
|
| (11,214) |
|
| (2,477) |
|
| (78,284) |
| 0 |
|
| (8,305) |
|
| 0 |
|
| (6,113) |
|
| (3,617) |
|
| (342) |
|
| (18,377) |
Net interest income |
| 67,192 |
|
| 127,436 |
|
| 75,703 |
|
| 37,604 |
|
| 29,990 |
|
| 25,129 |
|
| 363,054 |
| 25,240 |
|
| 58,483 |
|
| 48,981 |
|
| 21,583 |
|
| 15,023 |
|
| 6,955 |
|
| 176,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
(Provision) release for loan and lease losses |
| (21,608) |
| (24,451) |
| (17,730) |
| - |
| 1,563 |
| (1,316) |
| (63,542) | ||||||||||||||||||||||||||
Provision for credit losses expense |
| (786) |
| 3,962 |
| (17,179) |
| (127) |
| (237) |
| (885) |
| (15,252) | ||||||||||||||||||||||||||
Non-interest income |
| 14,381 |
| 35,318 |
| 2,459 |
| 3,815 |
| 2,799 |
| 5,621 |
| 64,393 |
| 7,116 |
| 17,243 |
| 3,897 |
| 56 |
| 975 |
| 1,669 |
| 30,956 | ||||||||||||
Direct non-interest expenses |
| (29,828) |
|
| (87,218) |
|
| (33,194) |
|
| (3,462) |
|
| (23,070) |
|
| (20,757) |
|
| (197,529) |
| 7,997 |
|
| 41,091 |
|
| 11,538 |
|
| 1,234 |
|
| 8,294 |
|
| 7,405 |
|
| 77,559 |
Segment income | $ | 30,137 |
| $ | 51,085 |
| $ | 27,238 |
| $ | 37,957 |
| $ | 11,282 |
| $ | 8,677 |
| $ | 166,376 | ||||||||||||||||||||
Segment (loss) income | $ | 25,145 |
| $ | 30,673 |
| $ | 58,519 |
| $ | 20,532 |
| $ | 7,941 |
| $ | 2,104 |
| $ | 144,914 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earning assets | $ | 2,576,194 |
| $ | 1,989,426 |
| $ | 2,489,268 |
| $ | 2,774,118 |
| $ | 1,188,463 |
| $ | 613,666 |
| $ | 11,631,135 | $ | 2,658,887 |
| $ | 2,442,174 |
| $ | 4,029,377 |
| $ | 6,259,344 |
| $ | 2,078,660 |
| $ | 449,532 |
| $ | 17,917,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7787
The following table presents a reconciliation of the reportable segment financial information to the consolidated totals: | |||||||||||||||||||||||||
The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods: | The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods: | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended |
| ||||||||||||
|
|
| Quarter Ended |
| Nine-Month Period Ended |
| March 31, |
| |||||||||||||||||
(In thousands) | (In thousands) | 2022 |
| 2021 |
| ||||||||||||||||||||
|
|
| September 30, |
| September 30, |
|
|
|
|
|
|
| |||||||||||||
Net income: | Net income: |
|
|
|
|
| |||||||||||||||||||
|
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Net income : |
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total segment income |
| $ | 7,122 |
| $ | 59,419 |
| $ | 112,888 |
| $ | 166,376 | |||||||||||||
Total income for segments | Total income for segments | $ | 160,911 |
| $ | 144,914 |
| ||||||||||||||||||
Other operating expenses (1) | Other operating expenses (1) |
|
| (26,272) |
|
| (24,901) |
|
| (77,282) |
|
| (73,315) | Other operating expenses (1) |
| 35,286 |
|
| 55,742 |
| |||||
(Loss) income before income taxes |
|
| (19,150) |
|
| 34,518 |
|
| 35,606 |
|
| 93,061 | |||||||||||||
Income tax benefit (expense) |
|
| 8,398 |
|
| (10,444) |
|
| 7,181 |
|
| (23,690) | |||||||||||||
Total consolidated net (loss) income |
| $ | (10,752) |
| $ | 24,074 |
| $ | 42,787 |
| $ | 69,371 | |||||||||||||
Income before income taxes | Income before income taxes |
| 125,625 |
|
| 89,172 |
| ||||||||||||||||||
Income tax expense | Income tax expense |
| 43,025 |
|
| 28,022 |
| ||||||||||||||||||
Total consolidated net income | Total consolidated net income | $ | 82,600 |
| $ | 61,150 |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Average assets: | Average assets: |
|
|
|
|
|
|
|
|
| Average assets: |
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total average earning assets for segments | Total average earning assets for segments |
| $ | 11,083,964 |
| $ | 11,354,259 |
| $ | 11,019,249 |
| $ | 11,631,135 | Total average earning assets for segments | $ | 19,306,990 |
| $ | 17,917,974 |
| |||||
Average non-earning assets | Average non-earning assets |
|
| 900,334 |
|
| 926,043 |
|
| 896,071 |
|
| 927,732 | Average non-earning assets |
| 947,011 |
|
| 1,168,336 |
| |||||
Total consolidated average assets | Total consolidated average assets |
| $ | 11,984,298 |
| $ | 12,280,302 |
| $ | 11,915,320 |
| $ | 12,558,867 | Total consolidated average assets | $ | 20,254,001 |
| $ | 19,086,310 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
(1) | Expenses pertaining to corporate administrative functions that support the operating segments 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. | 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 |
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
88
NOTE 2523 – REGULATORY MATTERS, COMMITMENTS, AND CONTINGENCIES
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.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.
On October 3, 2017, the New York FED has terminated the Written Agreement entered into on June 3, 2010 between the Corporation As of March 31, 2022 and the New York FED. However, the Corporation has agreed with the New York FED to continue to obtain the approval of the New York FED before paying dividends, receiving dividends from the Bank, making payments on subordinated debt or trust preferred securities, incurring or guaranteeing debt or purchasing or redeeming any corporate stock.
AlthoughDecember 31, 2021, the Corporation and FirstBank became subjectexceeded the minimum regulatory capital ratios for capital adequacy purposes and FirstBank exceeded the minimum regulatory capital ratios to be considered a well capitalized institution under the regulatory framework for prompt corrective action. As of March 31, 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”) beginning on January 1, 2015, certain requirements of the Basel III rules are being phased in over several years. The phase-in period for certain deductions and adjustments to regulatory capital (such as certain intangible assets and deferred tax assets that arise from net operating losses and tax credit carryforwards) will be completed on January 1, 2018. The Corporation and FirstBank compute risk-weighted assets using the Standardized Approach required by the Basel III rules..
The Basel III rules require the Corporation to maintain an additional capital conservation buffer of 2.5%2.5% on certain regulatory capital ratios to avoid limitations on both (i) capital distributions (e.g.(e.g., repurchases of capital instruments, or dividend ordividends 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 phase-ininterim final rule provides that, at the election of a qualified banking organization, the day one impact to retained earnings plus 25% of the capital conservation buffer beganchange in the ACL (as defined in the interim 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, 2016 with a first year requirement of 0.625% of additional Common Equity Tier 1 Capital (“CET1”), which is being progressively increased2022 over a four-yearthree-year period, increasing by that same percentage amount on each subsequent January 1 until it reaches the fully phased-in 2.5% CET1 requirement on January 1, 2019.
Under the fully phased-in Basel III rules, in order to be considered adequately capitalized, the Corporation will be required to maintain: (i) a minimum CET1 capital to risk-weighted assets ratio of at least 4.5%, plus the 2.5% “capital conservation buffer,” resulting in a required minimum CET1 ratiototal transition period of at least 7%, (ii) a minimum ratio of total Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer, resulting in a required minimum Tier 1 capital ratio of 8.5%, (iii) a minimum ratio of total Tier 1 plus Tier 2 capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer, resulting in a required minimum total capital ratio of 10.5%, and (iv) a required minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average on-balance sheet (non-risk adjusted) assets.
In addition, as required under the Basel III rules, the Corporation’s trust preferred securities (“TRuPs”) were fully phased out from Tier 1 capitalfive years. Accordingly, as of January 1, 2016. However,March 31, 2022, the Corporation’s TRuPs may continue to be included in Tier 2 capital until the instruments are redeemed or mature.
Please refer to the discussion in “Part I – Item 7 – Business – Supervision and Regulation” included in the Corporation’s 2016 Form 10-K for a more complete discussionmeasures of supervision and regulatory matters and activities that affect the Corporation and its subsidiaries.
79
the Bank included $16.2 million associated with the CECL day one impact to retained earnings plus 25% of the increase in the ACL (as defined in the interim final rule) from January 1, 2020 to December 31, 2021, and $48.6 million remains excluded to be phase-in during the next two years. The federal financial regulatory agencies may take other measures affecting regulatory capital to address the COVID-19 pandemic, although the nature and impact of such actions cannot be predicted at this time.
The Corporation's and its banking subsidiary's regulatory capital positions as of September 30, 2017 and December 31, 2016 were as follows: | ||||||||||||||||
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| Actual |
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| Amount |
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(Dollars in thousands) |
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As of September 30, 2017 |
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Total Capital (to |
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Risk-Weighted Assets) |
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First BanCorp. | $ | 1,957,282 |
| 22.18% |
| $ | 705,895 |
| 8.0% |
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| N/A |
| N/A | ||
FirstBank | $ | 1,914,708 |
| 21.71% |
| $ | 705,618 |
| 8.0% |
| $ | 882,022 |
| 10.0% | ||
Common Equity Tier 1 Capital |
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(to Risk-Weighted Assets) |
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First BanCorp. | $ | 1,642,777 |
| 18.62% |
| $ | 397,066 |
| 4.5% |
|
| N/A |
| N/A | ||
FirstBank | $ | 1,530,926 |
| 17.36% |
| $ | 396,910 |
| 4.5% |
| $ | 573,314 |
| 6.5% | ||
Tier I Capital (to |
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Risk-Weighted Assets) |
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First BanCorp. | $ | 1,642,777 |
| 18.62% |
| $ | 529,421 |
| 6.0% |
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| N/A |
| N/A | ||
FirstBank | $ | 1,802,621 |
| 20.44% |
| $ | 529,213 |
| 6.0% |
| $ | 705,618 |
| 8.0% | ||
Leverage ratio |
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First BanCorp. | $ | 1,642,777 |
| 13.96% |
| $ | 470,583 |
| 4.0% |
|
| N/A |
| N/A | ||
FirstBank | $ | 1,802,621 |
| 15.34% |
| $ | 469,985 |
| 4.0% |
| $ | 587,481 |
| 5.0% | ||
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As of December 31, 2016 |
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Total Capital (to |
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Risk-Weighted Assets) |
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First BanCorp. | $ | 1,921,329 |
| 21.34% |
| $ | 720,329 |
| 8.0% |
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| N/A |
| N/A | ||
FirstBank | $ | 1,872,120 |
| 20.80% |
| $ | 720,091 |
| 8.0% |
| $ | 900,114 |
| 10.0% | ||
Common Equity Tier 1 Capital |
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(to Risk-Weighted Assets) |
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First BanCorp. | $ | 1,597,117 |
| 17.74% |
| $ | 405,185 |
| 4.5% |
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| N/A |
| N/A | ||
FirstBank | $ | 1,523,332 |
| 16.92% |
| $ | 405,051 |
| 4.5% |
| $ | 585,074 |
| 6.5% | ||
Tier I Capital (to |
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Risk-Weighted Assets) |
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First BanCorp. | $ | 1,597,117 |
| 17.74% |
| $ | 540,247 |
| 6.0% |
|
| N/A |
| N/A | ||
FirstBank | $ | 1,757,642 |
| 19.53% |
| $ | 540,068 |
| 6.0% |
| $ | 720,091 |
| 8.0% | ||
Leverage ratio |
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First BanCorp. | $ | 1,597,117 |
| 13.70% |
| $ | 466,376 |
| 4.0% |
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| N/A |
| N/A | ||
FirstBank | $ | 1,757,642 |
| 15.10% |
| $ | 465,740 |
| 4.0% |
| $ | 582,174 |
| 5.0% | ||
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89
The regulatory capital positions of the Corporation and FirstBank as of March 31, 2022 and December 31, 2021, which reflect the delay in the effect of CECL on regulatory capital, were as follows: | |||||||||||||||
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| Regulatory Requirements | ||||||||
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| Actual |
| For Capital Adequacy Purposes |
| To be Well-Capitalized Thresholds | |||||||||
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| Amount |
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| Ratio |
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| Ratio | |||
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(Dollars in thousands) |
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As of March 31, 2022 |
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Total Capital (to Risk-Weighted Assets) |
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First BanCorp. | $ | 2,428,930 |
| 20.44% |
| $ | 950,603 |
| 8.0% |
|
| N/A |
| N/A | |
FirstBank | $ | 2,395,864 |
| 20.17% |
| $ | 950,418 |
| 8.0% |
| $ | 1,188,022 |
| 10.0% | |
CET1 Capital (to Risk-Weighted Assets) |
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First BanCorp. | $ | 2,103,970 |
| 17.71% |
| $ | 534,714 |
| 4.5% |
|
| N/A |
| N/A | |
FirstBank | $ | 2,149,154 |
| 18.09% |
| $ | 534,610 |
| 4.5% |
| $ | 772,214 |
| 6.5% | |
Tier I Capital (to Risk-Weighted Assets) |
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First BanCorp. | $ | 2,103,970 |
| 17.71% |
| $ | 712,952 |
| 6.0% |
|
| N/A |
| N/A | |
FirstBank | $ | 2,249,154 |
| 18.93% |
| $ | 712,813 |
| 6.0% |
| $ | 950,418 |
| 8.0% | |
Leverage ratio |
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First BanCorp. | $ | 2,103,970 |
| 10.35% |
| $ | 813,172 |
| 4.0% |
|
| N/A |
| N/A | |
FirstBank | $ | 2,249,154 |
| 11.07% |
| $ | 812,893 |
| 4.0% |
| $ | 1,016,117 |
| 5.0% | |
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As of December 31, 2021 |
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Total Capital (to Risk-Weighted Assets) |
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First BanCorp. | $ | 2,433,953 |
| 20.50% |
| $ | 949,637 |
| 8.0% |
|
| N/A |
| N/A | |
FirstBank | $ | 2,401,390 |
| 20.23% |
| $ | 949,556 |
| 8.0% |
| $ | 1,186,944 |
| 10.0% | |
CET1 Capital (to Risk-Weighted Assets) |
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First BanCorp. | $ | 2,112,630 |
| 17.80% |
| $ | 534,171 |
| 4.5% |
|
| N/A |
| N/A | |
FirstBank | $ | 2,150,317 |
| 18.12% |
| $ | 534,125 |
| 4.5% |
| $ | 771,514 |
| 6.5% | |
Tier I Capital (to Risk-Weighted Assets) |
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| |
First BanCorp. | $ | 2,112,630 |
| 17.80% |
| $ | 712,228 |
| 6.0% |
|
| N/A |
| N/A | |
FirstBank | $ | 2,258,317 |
| 19.03% |
| $ | 712,167 |
| 6.0% |
| $ | 949,556 |
| 8.0% | |
Leverage ratio |
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First BanCorp. | $ | 2,112,630 |
| 10.14% |
| $ | 833,091 |
| 4.0% |
|
| N/A |
| N/A | |
FirstBank | $ | 2,258,317 |
| 10.85% |
| $ | 832,773 |
| 4.0% |
| $ | 1,040,967 |
| 5.0% | |
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90
The Corporation enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments may include commitments to extend credit and commitments to sell mortgage loans at fair value. As of September 30, 2017, commitments to extend credit amounted to approximately $1.1 billion, of which $663.4 million relates to credit card loans. Commercial and Financial standby letters of credit amounted to approximately $45.1 million.credits. 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. Generally, the Corporation does not enter into interest rate lock agreements with prospective borrowers in connection with its mortgage banking activities.
As of September 30, 2017,March 31, 2022, commitments to extend credit amounted to approximately $2.1 billion, of which $1.2 billion relates to credit card loans. Commercial and financial standby letters of credit amounted to approximately $151.4 million.
As of March 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 cases, mattersproceedings, claims, and proceedings,other loss contingencies utilizing the latest information available. For cases, matterslegal proceedings, claims, and proceedingsother 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
80
accrual for the loss. Once established, the accrual is adjusted as appropriate to reflect any relevant developments. For cases, matters orlegal 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 of multiple defendants 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 cases, matters,proceedings, claims, and proceedingsother loss contingencies is inherently uncertain, based on information currently available, Managementmanagement believes that the final disposition of the Corporation’s legal cases, matters or proceedings, claims, and other loss contingencies, to the extent not previously provided for, will not have a material negative 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 additional material loss in excess of any accrual) will be incurred in connection with any legal actions,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 at September 30, 2017,as of March 31, 2022, no such disclosures were necessary.
However in the event of unexpected future developments, it is possible that the ultimate resolution of these cases, matters and proceedings, if unfavorable, may be material to the Corporation’s consolidated financial position on a particular period.
Ramirez Torres, et al. v Banco Popular de Puerto Rico, et al. FirstBank Puerto Rico has been named a defendant in a class action complaint captioned Ramirez Torres, et al. v. Banco Popular de Puerto Rico, et al.The complaint seeks damages and preliminary and permanent injunctive relief on behalf of the purported class against Banco Popular de Puerto Rico and other financial institutions with insurance agency subsidiaries in Puerto Rico. Plaintiffs contend that in November 2015, Antilles Insurance Company obtained approval from the Puerto Rico Insurance Commissioner to market an endorsement that allowed its customers to obtain a reimbursement on their insurance premium for good experience, but that defendants failed to offer this product or disclose its existence to their customers, favoring other products instead, in violation of their fiduciary duties as insurance producers. Plaintiffs seek a determination that defendants unlawfully failed to comply with their fiduciary duty to disclose the existence of this new insurance benefit from this carrier, as well as double or treble damages (the latter subject to a determination that defendants engaged in anti-monopolistic practices in failing to offer this product). On July 31, 2017, the court entered judgment dismissing the complaint with prejudice.On August 30, 2017, Plaintiffs filed an Appeal before the Court of Appeals and FirstBank filed its opposition. Writ of Appeal is currently under the Court’s advisement.
8191
NOTE 2624 – FIRST BANCORP. (HOLDING COMPANY ONLY) FINANCIAL INFORMATION
The following condensed financial information presents the financial position of First BanCorp. at the Holding Companyholding company level only as of September 30, 2017March 31, 2022 and December 31, 20162021, and the results of its operations for the quarters ended March 31, 2022 and nine-month periods ended September 30, 2017 and 2016.2021:
Statements of Financial Condition | Statements of Financial Condition | Statements of Financial Condition | ||||||||
(Unaudited) | (Unaudited) | |||||||||
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| As of September 30, |
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| As of December 31, | As of March 31, |
| As of December 31, | |||
| 2017 |
| 2016 | 2022 |
| 2021 | ||||
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| (In thousands) | |||||||||
(In thousands) |
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Assets |
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|
|
|
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| ||
Cash and due from banks | $ | 19,091 |
| $ | 29,393 | $ | 14,985 |
| $ | 20,751 |
Money market investments |
| 6,111 |
| 6,111 | ||||||
Other investment securities |
| 285 |
| 285 |
| 285 |
| 285 | ||
Loans held for investment, net |
| 199 |
| 227 | ||||||
Investment in FirstBank Puerto Rico, at equity |
| 2,012,945 |
| 1,946,211 | ||||||
Investment in First Bank Puerto Rico, at equity |
| 1,926,159 |
| 2,247,289 | ||||||
Investment in First Bank Insurance Agency, at equity |
| 11,759 |
| 10,941 |
| 23,802 |
| 19,521 | ||
Investment in FBP Statutory Trust I |
| 2,702 |
| 2,929 |
| 1,951 |
| 1,951 | ||
Investment in FBP Statutory Trust II |
| 3,561 |
| 3,561 |
| 3,561 |
| 3,561 | ||
Other assets |
| 6,672 |
|
| 3,791 |
| 923 |
|
| 366 |
Total assets | $ | 2,063,325 |
| $ | 2,003,449 | $ | 1,971,666 |
| $ | 2,293,724 |
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Liabilities and Stockholders' Equity |
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| |
Liabilities: |
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|
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|
| ||
Other borrowings | $ | 208,639 |
| $ | 216,187 | $ | 183,762 |
| $ | 183,762 |
Accounts payable and other liabilities |
| 935 |
|
| 1,019 |
| 6,802 |
|
| 8,195 |
Total liabilities |
| 209,574 |
|
| 217,206 |
| 190,564 |
|
| 191,957 |
|
|
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|
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| |||||
Stockholders' equity |
| 1,853,751 |
|
| 1,786,243 |
| 1,781,102 |
|
| 2,101,767 |
Total liabilities and stockholders' equity | $ | 2,063,325 |
| $ | 2,003,449 | $ | 1,971,666 |
| $ | 2,293,724 |
8292
Statements of (Loss) Income |
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| Quarter Ended |
| Nine-Month Period Ended |
| ||||||||
| September 30, |
| September 30, |
| ||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
| (In thousands) | (In thousands) | ||||||||||
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Income: |
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Interest income on money market investments | $ | 5 |
| $ | 5 |
| $ | 15 |
| $ | 15 |
|
Dividend income from banking subsidiaries |
| 1,800 |
|
| 1,822 |
|
| 5,400 |
|
| 32,980 |
|
Dividend income from non-banking subsidiaries |
| 3,000 |
|
| - |
|
| 3,000 |
|
| 7,000 |
|
Other income |
| 68 |
|
| 58 |
|
| 195 |
|
| 181 |
|
|
| 4,873 |
|
| 1,885 |
|
| 8,610 |
|
| 40,176 |
|
|
|
|
|
|
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|
|
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|
|
Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowings |
| 2,139 |
|
| 1,817 |
|
| 6,166 |
|
| 5,777 |
|
Other operating expenses |
| 814 |
|
| 685 |
|
| 2,480 |
|
| 2,313 |
|
|
| 2,953 |
|
| 2,502 |
|
| 8,646 |
|
| 8,090 |
|
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|
|
Gain on early extinguishment of debt |
| 1,391 |
|
| - |
|
| 1,391 |
|
| 4,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and equity |
|
|
|
|
|
|
|
|
|
|
|
|
in undistributed (losses) earnings of subsidiaries |
| 3,311 |
|
| (617) |
|
| 1,355 |
|
| 36,303 |
|
Income tax expense |
| (45) |
|
| - |
|
| (45) |
|
| - |
|
Equity in undistributed (losses) earnings of subsidiaries |
| (14,018) |
|
| 24,691 |
|
| 41,477 |
|
| 33,068 |
|
Net (loss) income | $ | (10,752) |
| $ | 24,074 |
| $ | 42,787 |
| $ | 69,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive income, net of tax |
| 3,719 |
|
| (12,157) |
|
| 23,480 |
|
| 32,109 |
|
Comprehensive (loss) income | $ | (7,033) |
| $ | 11,917 |
| $ | 66,267 |
| $ | 101,480 |
|
|
|
Statements of Income |
| |||||
(Unaudited) |
| |||||
|
|
|
|
|
|
|
| Quarter Ended |
| ||||
| March 31, |
| March 31, |
| ||
| 2022 |
| 2021 |
| ||
(In thousands) |
|
|
|
|
|
|
Income: |
|
|
|
|
|
|
Interest income on money market investments | $ | 4 |
| $ | 16 |
|
Dividend income from banking subsidiaries |
| 63,593 |
|
| 18,801 |
|
Other income |
| 40 |
|
| 38 |
|
|
| 63,637 |
|
| 18,855 |
|
Expense: |
|
|
|
|
|
|
Other borrowings |
| 1,333 |
|
| 1,294 |
|
Other operating expenses |
| 439 |
|
| 499 |
|
|
| 1,772 |
|
| 1,793 |
|
Income before income taxes and equity in undistributed |
|
|
|
|
|
|
earnings of subsidiaries |
| 61,865 |
|
| 17,062 |
|
Income tax expense |
| 1,106 |
|
| 1,129 |
|
Equity in undistributed earnings of subsidiaries |
| 21,841 |
|
| 45,217 |
|
Net income | $ | 82,600 |
| $ | 61,150 |
|
Other comprehensive loss, net of tax |
| (331,834) |
|
| (98,929) |
|
Comprehensive loss | $ | (249,234) |
| $ | (37,779) |
|
The CorporationManagement has performed an evaluation ofreviewed the events occurringsubsequent to September 30, 2017; management has determined thatMarch 31, 2022, and, other than the discussion of the new $350 million stock repurchase program and the $0.02 or $20% increase in the quarterly common stock dividend rate per share, both approved by the Corporation’s Board of Directors on April 27, 2022 and included in Note 15 – Stockholders’ Equity above, there arewere no subsequent events occurring in this period that require additional disclosure in or adjustment to the accompanying financial statements. statements.
8393
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (MD&A)(“MD&A”)
SELECTED FINANCIAL DATA |
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended |
|
| Nine-Month Period Ended | |||||||
(In thousands, except for per share and financial ratios) | September 30, |
| September 30, | ||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Condensed Income Statements: |
|
|
|
|
|
|
|
|
|
|
|
Total interest income | $ | 147,995 |
| $ | 143,573 |
| $ | 440,597 |
| $ | 441,338 |
Total interest expense |
| 25,163 |
|
| 25,395 |
|
| 71,312 |
|
| 78,284 |
Net interest income |
| 122,832 |
|
| 118,178 |
|
| 369,285 |
|
| 363,054 |
Provision for loan and lease losses |
| 75,013 |
|
| 21,503 |
|
| 118,551 |
|
| 63,542 |
Non-interest income |
| 18,645 |
|
| 26,146 |
|
| 47,437 |
|
| 64,393 |
Non-interest expenses |
| 85,614 |
|
| 88,303 |
|
| 262,565 |
|
| 270,844 |
(Loss) income before income taxes |
| (19,150) |
|
| 34,518 |
|
| 35,606 |
|
| 93,061 |
Income tax benefit (expense) |
| 8,398 |
|
| (10,444) |
|
| 7,181 |
|
| (23,690) |
Net (loss) income |
| (10,752) |
|
| 24,074 |
|
| 42,787 |
|
| 69,371 |
Net (loss) income attributable to common stockholders |
| (11,421) |
|
| 24,074 |
|
| 40,780 |
|
| 69,371 |
Per Common Share Results: |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per common share-basic | $ | (0.05) |
| $ | 0.11 |
| $ | 0.19 |
| $ | 0.33 |
Net (loss) earnings per common share-diluted | $ | (0.05) |
| $ | 0.11 |
| $ | 0.19 |
| $ | 0.32 |
Cash dividends declared | $ | - |
| $ | - |
| $ | - |
| $ | - |
Average shares outstanding |
| 214,187 |
|
| 212,927 |
|
| 213,812 |
|
| 212,682 |
Average shares outstanding diluted |
| 214,187 |
|
| 216,578 |
|
| 216,134 |
|
| 215,259 |
Book value per common share | $ | 8.41 |
| $ | 8.11 |
| $ | 8.41 |
| $ | 8.11 |
Tangible book value per common share (1) | $ | 8.21 |
| $ | 7.89 |
| $ | 8.21 |
| $ | 7.89 |
Selected Financial Ratios (In Percent): |
|
|
|
|
|
|
|
|
|
|
|
Profitability: |
|
|
|
|
|
|
|
|
|
|
|
Return on Average Assets |
| (0.36) |
|
| 0.78 |
|
| 0.48 |
|
| 0.74 |
Interest Rate Spread |
| 4.03 |
|
| 3.81 |
|
| 4.11 |
|
| 3.84 |
Net Interest Margin |
| 4.33 |
|
| 4.06 |
|
| 4.40 |
|
| 4.09 |
Interest Rate Spread - tax equivalent basis (2) |
| 4.14 |
|
| 3.89 |
|
| 4.24 |
|
| 3.96 |
Net Interest Margin - tax equivalent basis (2) |
| 4.44 |
|
| 4.15 |
|
| 4.53 |
|
| 4.21 |
Return on Average Total Equity |
| (2.28) |
|
| 5.35 |
|
| 3.11 |
|
| 5.28 |
Return on Average Common Equity |
| (2.32) |
|
| 5.46 |
|
| 3.18 |
|
| 5.39 |
Average Total Equity to Average Total Assets |
| 15.63 |
|
| 14.58 |
|
| 15.42 |
|
| 13.98 |
Tangible common equity ratio (1) |
| 14.63 |
|
| 14.27 |
|
| 14.63 |
|
| 14.27 |
Dividend payout ratio |
| - |
|
| - |
|
| - |
|
| - |
Efficiency ratio (3) |
| 60.51 |
|
| 61.18 |
|
| 63.01 |
|
| 63.36 |
Asset Quality: |
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses to total loans held for investment |
| 2.60 |
|
| 2.42 |
|
| 2.60 |
|
| 2.42 |
Net charge-offs (annualized) to average loans (4) |
| 0.80 |
|
| 1.90 |
|
| 1.40 |
|
| 1.35 |
Provision for loan and lease losses to net charge-offs |
| 425.54 |
|
| 51.34 |
|
| 127.09 |
|
| 70.46 |
Non-performing assets to total assets (4) |
| 5.26 |
|
| 6.16 |
|
| 5.26 |
|
| 6.16 |
Non-performing loans held for investment to total loans held for investment (4) |
| 5.33 |
|
| 6.39 |
|
| 5.33 |
|
| 6.39 |
Allowance to total non-performing loans held for investment (4) |
| 48.80 |
|
| 37.77 |
|
| 48.80 |
|
| 37.77 |
Allowance to total non-performing loans held for investment, |
|
|
|
|
|
|
|
|
|
|
|
excluding residential real estate loans |
| 78.37 |
|
| 52.92 |
|
| 78.37 |
|
| 52.92 |
Other Information: |
|
|
|
|
|
|
|
|
|
|
|
Common Stock Price: End of period | $ | 5.12 |
| $ | 5.20 |
| $ | 5.12 |
| $ | 5.20 |
|
|
|
|
|
|
|
|
|
|
|
|
| As of September 30, 2017 |
| As of December 31, 2016 |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including loans held for sale | $ | 8,904,790 |
| $ | 8,936,879 |
|
|
|
|
|
|
Allowance for loan and lease losses |
| 230,870 |
|
| 205,603 |
|
|
|
|
|
|
Money market and investment securities |
| 1,963,633 |
|
| 2,091,196 |
|
|
|
|
|
|
Intangible assets |
| 43,429 |
|
| 46,754 |
|
|
|
|
|
|
Deferred tax asset, net |
| 299,751 |
|
| 281,657 |
|
|
|
|
|
|
Total assets |
| 12,173,648 |
|
| 11,922,455 |
|
|
|
|
|
|
Deposits |
| 8,765,891 |
|
| 8,831,205 |
|
|
|
|
|
|
Borrowings |
| 1,423,639 |
|
| 1,186,187 |
|
|
|
|
|
|
�� Total preferred equity |
| 36,104 |
|
| 36,104 |
|
|
|
|
|
|
Total common equity |
| 1,828,557 |
|
| 1,784,529 |
|
|
|
|
|
|
Accumulated other comprehensive loss, net of tax |
| (10,910) |
|
| (34,390) |
|
|
|
|
|
|
Total equity |
| 1,853,751 |
|
| 1,786,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
______________ | |||||||||||
(1) Non-GAAP financial measures. Refer to "Capital" below for additional information about the components and a reconciliation of these measures. | |||||||||||
(2) On a tax-equivalent basis and excluding the changes in fair value of derivative instruments (see "Net Interest Income" below for a reconciliation of these non-GAAP financial measures). | |||||||||||
(3) Non-interest expenses to the sum of net interest income and non-interest income. The denominator includes non-recurring income and changes in the fair value of derivative instruments. | |||||||||||
(4) Loans used in the denominator in calculating each of these ratios include purchased credit-impaired ("PCI") loans. However, the Corporation separately tracks and reports PCI loans and excludes these from non-performing loan and non-performing asset amounts. | |||||||||||
| |||||||||||
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
84
The following Management’s Discussion and Analysis of Financial Condition and Results of OperationsMD&A relates to the accompanying unaudited consolidated financial statements of First BanCorp. (the “Corporation”“Corporation,” “we,” “us,” “our,” or “First BanCorp.”) and should be read in conjunction with such financial statements and the notes thereto.thereto and our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report on Form 10-K”). This section also presents certain non-GAAP financial measures. Refer to Basismeasures that are not based on generally accepted accounting principles in the United States (“GAAP”). See “Basis of PresentationPresentation” below for information about why the non-GAAP financial measures are being presented and the reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures for which the reconciliation is not presented earlier.
EXECUTIVE SUMMARY
First BanCorp. is a diversified financial holding company headquartered in San Juan, Puerto Rico offering a full range of financial products to consumers and commercial customers through various subsidiaries. First BanCorp. is the holding company of FirstBank Puerto Rico (“FirstBank” or the “Bank”) and FirstBank Insurance Agency. Through its wholly ownedwholly-owned subsidiaries, the Corporation operates offices in Puerto Rico, the United States Virgin Islands and(“USVI”), the British Virgin Islands (“BVI”), and the State of Florida, (USA), concentrating on commercial banking, residential mortgage loan originations,loans, finance leases, credit cards, personal loans, small loans, auto loans, and insurance agency activities.
Recent Developments
New Stock Repurchase Program
On April 27, 2022, the Corporation announced that its Board of Directors approved a new stock repurchase program, under which the Corporation may repurchase up to $350 million of its outstanding common stock, to be executed through the next four quarters, commencing in the second quarter of 2022. Repurchases under the program may be executed through open market purchases, accelerated share repurchases, and/or privately negotiated transactions or plans, including under plans complying with Rule 10b5-1 under the Exchange Act. The Corporation’s stock repurchase program is subject to various factors, including the Corporation’s capital position, liquidity, financial performance and broker-dealer activities.alternative uses of capital, stock trading price, and general market conditions. The stock repurchase program may be modified, extended, suspended, or terminated at any time at the Corporation’s discretion.
Natural Disasters AffectingIncrease in the Quarterly Cash Common Stock Dividends
On April 27, 2022, the Corporation’s Board of Directors declared a quarterly cash dividend of $0.12 per common share, which represents an increase of $0.02 per common share, or a 20% increase, from the immediately preceding quarter’s dividend level.
Release of Environmental, Social, and Governance (“ESG”) Report
On April 22, 2022, the Corporation announced the release of its ESG Report for 2021. This ESG Report focuses on a wide range of topics, including governance and leadership; responsible business practices; employees and culture; diversity, equity and inclusion; community engagement; and environmental stewardship.
In addition, the Corporation’s Board of Directors approved First BanCorp. In Third Quarter 2017
Two strong hurricanes affected’s Sustainability Policy, which outlines the Corporation’s service areascorporate-wide activities and commitment to each ESG focus area.
These efforts build upon the steps that the Corporation took towards evolving its ESG program in 2021, including the adoption of an ESG framework that establishes the Corporation’s ESG strategy and overarching policy.
Integration of BSPR
As part of the integration of BSPR, during the thirdfirst quarter of 2017. Early2022, the Corporation completed the consolidation of three additional branches for a total of 12 branches to date.
94
LIBOR Transition
Following the 2017 announcement by the United Kingdom’s Financial Conduct Authority (the “FCA”) that it would no longer compel participating banks to submit rates for the London Interbank Offered Rate (“LIBOR”) after 2021, regulators and market participants in September, Hurricane Irma hit ground throughvarious jurisdictions identified recommended replacement rates for LIBOR, and many published recommended conventions to allow new and existing products to incorporate fallbacks or that reference these Alternative Reference Rates (“ARRs”). In the eastern CaribbeanU.S., the Alternative Reference Rates Committee (“ARRC”), a group of market participants convened by the Federal Reserve, recommended the Secured Overnight Financing Rate (“SOFR”) as a Category 5 storm affecting several islands,replacement index for U.S. Dollar LIBOR-indexed contracts. SOFR is an overnight interest rate based on U.S. Dollar Treasury repurchase agreements. In March 2021, the FCA confirmed that publication of the overnight and one-month, three-month, six-month and twelve-month U.S. Dollar LIBOR settings will cease or become no longer representative of the market the rates seek to measure (i.e., non-representative) immediately after June 30, 2023, and all other U.S. Dollar LIBOR settings, including the one week and two-month U.S. Virgin Islands of St. Thomas and St. John and TortolaDollar LIBOR settings, became non-representative after December 31, 2021. See “ Executive Summary — Recent Developments — LIBOR Transition” in the British Virgin Islands,MD&A of the Corporation’s 2021 Annual Report on Form 10-K for additional information.
On March 15, 2022, President Biden signed the Adjustable Interest Rate Act (the “LIBOR Act”) into law. The LIBOR Act provides a nationwide framework for transitioning legacy contracts that either lack or contain insufficient contractual provisions addressing the permanent cessation of LIBOR to a benchmark interest rate. Under the LIBOR Act, references to the most common tenors of LIBOR (overnight, one-month, three-month, six-month, and twelve-month tenors) in these contracts will be replaced as a matter of law, without the need to be amended, to a replacement benchmark interest rate that will be identified in regulations of the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Federal Reserve must promulgate these regulations by September 11, 2022, the date that is 180 days after the statute’s enactment. Any Federal Reserve-identified replacement benchmark interest rate will be based on the SOFR and will include an appropriate “tenor spread adjustment” to reflect historical spreads between LIBOR and SOFR. The statute also provides a “safe harbor,” under which a party that has discretion to select a replacement for LIBOR may choose to adopt the replacement benchmark identified by the Federal Reserve. The LIBOR Act preempts state and local laws (including any territory or possession) that limit the manner interest is calculated with lesser impacts on St. Croixrespect to the replacement benchmark interest rate.
As of March 31, 2022, the Corporation’s LIBOR exposure consisted of the following: (i) $2.1 billion of variable rate commercial and Puerto Rico. After hittingconstruction loans (including unused commitments), (ii) $52.9 million of U.S. agencies debt securities and private label MBS held as part of the eastern Caribbean, Hurricane Irma made landfall along Florida’s southwest shoreline. Two weeks after Hurricane Irma sideswiped Puerto Rico, Hurricane Maria made landfall in the south-east corneravailable-for-sale investment securities portfolio, (iii) $134.3 million of Puerto Rico municipalities bonds held as part of the held-to-maturity investment securities portfolio, and (iv) $183.8 million of junior subordinated debentures (other borrowings). Of the Corporation’s total LIBOR exposure as of March 31, 2022, approximately $368.2 million does not contain fallback language and is mostly comprised by $134.3 million of Puerto Rico municipalities held as part of the held-to-maturity investment securities portfolio and $183.8 million of other borrowings. The Corporation expects to follow the provisions of the LIBOR Act for the transition of any residual exposure after June 30, 2023.
The Corporation continues to execute its LIBOR transition workplan. Effective December 31, 2021, the Corporation discontinued originations that use U.S. Dollar LIBOR as a Category 4 storm and exited on the northern coast at a point between the cities of Arecibo and Barceloneta after battering other islands in the Caribbean, including St. Croix in the U.S. Virgin Islands. These storms caused, among other things, widespread property damage, flooding, power outages, and water and communication services interruptions, and severely disrupted normal economic activity in all of these regions.
The following paragraphs summarize the more significant impacts of these natural disasters on the Corporation’s financial results for the third quarter of 2017.
Credit Quality and Allowance for Loan and Lease Losses
The Corporation established a $66.5 million provision for loan losses directly related to the initial estimate, based on available information, of inherent losses resulting from the impact of Hurricanes Irma and Maria. Asreference rate. In addition, the Corporation acquirescontinues working with the update of systems, processes, documentation, and models, with additional information on overall economic prospects in the affected areas together with loan officers’ further assessmentsupdates expected through 2023.
95
Critical Accounting Policies and Practices
The accounting principles of the impact on individual borrowers,Corporation and the loss estimate will be revisedmethods of applying these principles conform to GAAP. In preparing the consolidated financial statements, management is required to make estimates, assumptions, and judgments that affect the amounts recorded for assets, liabilities and contingent liabilities as needed. The Corporation’s approach to estimating the storm impact on credit quality is discussed in the Provision for Loan and Lease Losses section below.
Interruption in regular collection efforts caused by Hurricanes Irma and Maria adversely affected the Corporation’s non-performing loan statistics. Non-performing residential mortgage loans increased by $23.2 million during the third quarter to $178.5 million as of September 30, 2017 and non-performing consumer loans and finance leases increased during the third quarter by $5.4 million to $26.5 million as of September 30, 2017. Refer to Risk Management – Non-performing Loans and Non-performing Assets section below for additional information about early delinquency statistics and payment deferral programs established by the Corporation to assist individuals affected by the recent storms.
Disaster Response Plan Costs, Casualty Losses and Related Insurance
The Corporation implemented its disaster response plan as these storms approached its service areas. To operate in disaster response mode, the Corporation incurred expenses for, among other things, buying diesel and generators for electric power, debris removal, security matters, and emergency communications with customers regarding the status of Bank operations. The disaster response plan costs, combined with the payroll and rental costs during the idle time caused by the storms, totaled $2.9 million as of September 30, 2017, including $0.6 million in donations and other storm relief efforts and employee assistance. The Corporation will incur additional costs through the end of 2017 as the Corporation addresses ongoing operational issues. The Corporation maintains insurance for its disaster response costs, as well as for certain revenue lost through business interruption.
The Bank was able to resume operations in Puerto Rico within a week after Hurricane Maria made landfall, but with some limitations. Certain of the Corporation’s facilities and their contents were damaged by these storms. As of the date of the filingfinancial statements and the reported amounts of this report, 43 outrevenues and expenses during the reporting periods. The Corporation’s significant accounting policies are described in Note 1 – Nature of 48 FirstBank branchesBusiness and Summary of Significant Accounting Policies to the consolidated financial statements included in Puerto Ricothe 2021 Annual Report on Form 10-K.
Not all significant accounting policies require management to make difficult, subjective or complex judgments. The Corporation’s critical accounting estimates that are providing service, 90%particularly susceptible to significant changes include, but are not limited to, the following: (i) the allowance for credit losses (“ACL”); (ii) valuation of our network. Offinancial instruments; (iii) acquired loans; and (iv) income taxes. For more information, see “Critical Accounting Policies and Practices” in the opened branches in Puerto Rico, 31 or 72% areMD&A of the Corporation’s 2021 Annual Report on Form 10-K and “Risk Management - Credit Risk Management” below for information on the electrical gridACL estimation methodology. Actual results could differ from estimates and 12assumptions if different outcomes or 28% are running on generators. In addition, approximately 92 of our ATM’s are operational, 70% of our network, plus 57 more functioning ATM’s through a third party alliance. Some of the reopened facilities require the repair and replacement of equipment and furnishings. The Corporation has recognized asset impairments of approximately
85
$0.6 million as of September 30, 2017, and the Corporation may identify additional impairments through the end of 2017. The Corporation maintains insurance policies for casualty losses that provide for replacement value coverage. conditions prevail.
Management believes that recovery of $2.9 million of the $3.5 million above-mentioned costs and assets impairments identified as of September 30, 2017 is probable. Accordingly, a receivable of $2.9 million was included as part of “Other Assets” as of September 30, 2017 for the expected recovery. Management also believes that there is a possibility that some gains will be recognized with respect to casualty and lost revenue claims in future periods, but this is contingent on reaching agreement on the Corporation’s claims with the insurance carriers.
Liquidity Management
In anticipation of a potential increase in short-term liquidity requirements of customers, the Corporation increased its cash balances primarily from temporary funding provided by short-term Federal Home Loan Bank (“FHLB”) advances. The cash and cash equivalent balance increased during the third quarter by $304.6 million to $737.2 million as of September 30, 2017.
Overview of Results of Operations
First BanCorp.'s results of operations depend primarily on its net interest income, which is the difference between the interest income earned on its interest-earning assets, including investment securities and loans, and the interest expense incurred on its interest-bearing liabilities, including deposits and borrowings. Net interest income is affected by various factors, including:including the following: the interest rate scenario;environment; the volumes, mix and composition of interest-earning assets and interest-bearing liabilities; and the re-pricing characteristics of these assets and liabilities. The Corporation's results of operations also depend on the provision for loan and leasecredit losses, non-interest expenses (such as personnel, occupancy, the deposit insurance premium and other costs), non-interest income (mainly service charges and fees on deposits, and insurance income and revenues from broker-dealer operations)income), gains (losses) on sales of investments, gains (losses) on mortgage banking activities, and income taxes.
The Corporation had a net lossnet income of $10.8$82.6 million, or $0.05$0.41 per diluted common share, for the quarter ended September 30, 2017,March 31, 2022, compared to net income of $24.1$61.2 million, or $0.11$0.28 per diluted common share, for the same period in 2016. 2021. Other relevant selected financial indicators for the periods presented is included below:
(In percent) | March 31, 2022 |
| March 31, 2021 |
| |||
Key Performance Indicator: |
|
|
|
|
|
| |
| Return on Average Assets (1) (2) |
| 1.65 | % |
| 1.30 | % |
| Return on Average Total Equity (1) (3) |
| 16.64 |
|
| 10.82 |
|
| Efficiency Ratio (1) (4) |
| 48.82 |
|
| 64.33 |
|
(1) | These financial ratios are used by Management to monitor the Corporation’s financial performance and whether it is using its assets efficiently. |
| |||||
(2) | Indicates how profitable the Corporation is in relation to its total assets and is calculated by dividing net income by its average total assets. |
| |||||
(3) | Measures the Corporation’s performance based on its average stockholders’ equity and is calculated by dividing net income by its average total stockholders’ equity. |
| |||||
(4) | Measures the Corporation’s ability to use its assets to generate income and is calculated by dividing non-interest expenses by total revenue. |
|
96
The key drivers of the Corporation’s GAAP financial results for the third quarter ended March 31, 2022, compared to the first quarter of 2021, include the following:
Net interest income for the quarter ended March 31, 2022 was $185.6 million, compared to $176.3 million for the first quarter of 2021. The increase was mainly driven by a lower U.S. agencies MBS premium amortization expense, as well as reductions in the average cost of deposits.
The net interest margin decreased by ten basis points to 3.81% for the first quarter of 2022, compared to 3.91% for the first quarter of 2021. The decrease was primarily attributable to a higher proportion of low-yielding assets, such as interest-bearing cash balances, U.S. agencies MBS and debt securities, to total interest-earning assets, partially offset by higher yields on U.S. agencies MBS favorably affected by lower prepayment volume and the decrease in the average rate paid on interest-bearing deposits. See “Net Interest Income”belowfor additional information.
The provision for credit losses on loans, finance leases, and debt securities for the first nine monthsquarter of 20172022 was a net benefit of $13.8 million, compared to a net benefit of $15.3 million for the first quarter of 2021 reflecting, among other things, a continued positive long-term outlook of forecasted macroeconomic variables and 2016reductions in qualitative reserves.
Net charge-offs totaled $6.6 million for the first quarter of 2022, or 0.24% of average loans on an annualized basis, compared to $12.5 million, or 0.43% of average loans for the same period in 2021. The decrease consisted of a $3.0 million decline in net charge-offs taken on consumer loans, a $2.0 million decline in net charge-offs taken on commercial and construction loans, and a $0.9 million reduction in net charge-offs taken on residential mortgage loans. See “Provision for Credit Losses” and “Risk Management” below for analyses of the ACL and non-performing assets and related ratios.
The Corporation recorded non-interest income of $32.9 million for the first quarter of 2022, compared to $31.0 million for the same period in 2021. The increase was primarily driven by: (i) a $2.9 million increase in revenues from other non-interest income, primarily in credit card and POS interchange fees, contractual shared revenues from merchant contracts, and higher benefit of purchased income tax credits; and (ii) a $1.1 million increase in services charges and fees on deposit accounts. These variances were partially offset by a $2.1 million decrease in revenues from mortgage banking activities, primarily related to a lower volume of sales. See “Non-Interest Income” and “Basis of Presentation” below for additional information.
Non-interest expenses for the first quarter of 2022 were $106.7 million, compared to $133.3 million for the same period in 2021. Non-interest expenses for the first quarter of 2021 included $11.3 million of merger and restructuring costs associated with the following itemsacquisition and integration of BSPR and $1.2 million of COVID-19 pandemic-related expenses, primarily related to cleaning and security protocols. Adjusted for the above-mentioned costs, total non-interest expenses for the first quarter of 2022 decreased by $14.1 million, compared to the same period in 2021, primarily related to decreases in professional services fees and employees’ compensation and benefits expenses and a net gain on OREO operations, among others. See “Non-Interest Expenses” below for additional information.
For the first quarter of 2022, the Corporation recorded an income tax expense of $43.0 million, compared to $28.0 million for the same period in 2021. The variance was primarily related to both higher pre-tax income and a higher estimated effective tax rate resulting from a higher level of taxable income. As of March 31, 2022, the Corporation’s net deferred tax asset amounted to $176.8 million (net of a valuation allowance of $147.0 million, including a valuation allowance of $107.5 million of the Corporation’s banking subsidiary, FirstBank), compared to a net deferred tax asset of $208.5 million as of December 31, 2021. See “Income Taxes” below for additional information.
As of March 31, 2022, total assets were $19.9 billion, down $856.2 million from December 31, 2021. The decrease was primarily related to an $846.8 million decrease in cash and cash equivalents mainly attributable to a decline in government deposits, the deployment of cash balances into U.S. agencies MBS and other debt securities, the repayment of a $100 million repurchase agreement, and the repurchase of 3.4 million shares of common stock for a total purchase price of $50 million, partially offset by a $29.8 million increase in total loans. See “Financial Condition and Operating Data Analysis” below for additional information.
As of March 31, 2022, total liabilities were $18.1 billion, down $535.6 million from December 31, 2021. The decrease was mainly driven by a $489.9 million decrease in government deposits and the repayment of a $100 million repurchase agreement during the first quarter of 2022. See “Risk Management – Liquidity Risk and Capital Adequacy” below for additional information about the Corporation’s funding sources.
97
As of March 31, 2022, the Corporation’s stockholders’ equity was $1.8 billion, a decrease of $320.7 million from December 31, 2021. The decline was driven by a $331.8 million decrease in the fair value of available-for-sale investment securities recorded as part of accumulated other comprehensive loss in the consolidated statements of financial condition, as a result of changes in market interest rates. The decrease in total stockholders’ equity also reflects the repurchase of 3.4 million shares of common stock for a total purchase price of approximately $50.0 million and $19.9 million in quarterly dividends declared to common stock shareholders. These variances were partially offset by earnings generated in the first quarter of 2022. The Corporation’s common equity tier 1 capital, tier 1 capital, total capital and leverage ratios under the Basel III rules were 17.71%, 17.71%, 20.44%, and 10.35%, respectively, as of March 31, 2022, compared to common equity tier 1 capital, tier 1 capital, total capital and leverage ratios of 17.80%, 17.80%, 20.50%, and 10.14%, respectively, as of December 31, 2021. See “Risk Management – Capital” below for additional information.
Total loan production, including purchases, refinancings, renewals, and draws from existing revolving and non-revolving commitments, but excluding the utilization activity on outstanding credit cards, was $1.1 billion for the quarter ended March 31, 2022, compared to $1.2 billion for the same period in 2021. During the first quarter of 2021, the Corporation originated $209.3 million of Small Business Administration Paycheck Protection Program (“SBA PPP”) loans. Excluding those loans, total loan originations increased by $42.4 million, as compared to the first quarter of 2021. The increase consisted of a $69.1 million increase in consumer loan originations and a $14.7 million increase in commercial and construction loan originations (excluding SBA PPP loans originations in 2021), partially offset by a $41.4 million decrease in residential mortgage loan originations.
Total non-performing assets were $156.5 million as of March 31, 2022, a decrease of $1.6 million from December 31, 2021. The decrease was driven by a $6.3 million reduction in nonaccrual residential mortgage loans, mainly related to payoffs and paydowns received during the first quarter across all regions, partially offset by a $2.1 million increase in nonaccrual commercial and construction loans, a $2.1 million increase in OREO and other repossessed assets, and a $0.5 million increase in nonaccrual consumer loans.See “Risk Management – Non-Accruing and Non-Performing Assets” below for additional information.
Adversely classified commercial and construction loans decreased by $1.2 million to $176.1 million as of March 31, 2022, compared to December 31, 2021. The decrease was mostly driven by upgrades and principal reductions of several low balance individual loans, partially offset by the downgrade of a commercial loan of approximately $2.9 million in the Puerto Rico region. The Corporation monitors its loan portfolio to identify potential at-risk segments, payment performance, the need for permanent modifications, and the performance of different sectors of the economy in all the markets where the Corporation operates.
98
The financial results for the first quarter of 2022 did not include any significant special item that management believes areis not reflective of core operating performance, areis not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts (the “Special Items”):
Quarter and Nine-Month Period Ended September 30, 2017
·A $67.1 million ($41.0 million after-tax) charge related to the impacts of Hurricanes Irma and Maria in the third quarter of 2017, that includes the following items: a $66.5 million charge to establish a storm-related provision for loan and lease losses and approximately $0.6 million of non-interest expenses associated with storm relief efforts and assistance to employees. These amounts were partially offset by expected insurance recoveries of $1.7 million for compensation and rental costs that the Corporation incurred when Hurricanes Irma and Maria precluded employees from working during September.
·A gain of $1.4 million recorded in the third quarter of 2017 on the repurchase and cancellation of $7.3 million in trust-preferred securities, reflected in the statement of (loss) income as “Gain on early extinguishment of debt.”. The gain, realized at the Holding Company level, has no effect on the income tax expense in 2017. Refer to the Non-Interest Income discussion below for additional information.
·Costs of $0.1 million for the third quarter of 2017 and $0.4 millionCorporation’s financial results for the first nine monthsquarter of 2017 associated2021 included the following Special Items:
Quarter ended March 31, 2021
Merger and restructuring costs of $11.3 million ($7.0 million after-tax) in connection with the previously reported secondary offerings of the Corporation’s common stock by certain of our existing stockholders, which were completed in the thirdBSPR acquisition integration process and first quarters of 2017. Therelated restructuring initiatives. Merger and restructuring costs incurred at the Holding Company level, had no effect on the income tax expense in 2017.
·The recovery of $0.4 million of previously recorded other-than-temporary impairment (“OTTI”) charges on non-performing bonds of the Government Development Bank for Puerto Rico (the “GDB”) and the Puerto Rico Public Buildings Authority sold in the second quarter of 2017, reflected in the statement of (loss) income as part of “Net gain on sale of investments.” The aggregate book value of the bonds at the time of sale was $23.0 million. No tax expense was recognized for the recovery on the sale of bonds. Refer to the Exposure to Puerto Rico Government discussion below for additional information.
·A tax benefit of $13.2 million recorded in the first quarter of 2017 associated with2021 included approximately $4.8 million related to voluntary and involuntary employee separation programs implemented in the change in tax status of certain subsidiaries from taxable corporations to limited liability companies that make an election to be treated as partnerships for income tax purposes in Puerto Rico. Refer to the Income Taxes discussion below for additional information.
86
·An OTTI charge of $12.2 million recordedRico region. In addition, merger and restructuring costs in the first quarter of 2017 on the aforementioned non-performing bonds of the GDB and the Puerto Rico Public Buildings Authority. No tax benefit was recognized for the OTTI charge. Refer to the Exposure to Puerto Rico Government discussion below for additional information.
·A charge to the provision for loan and lease losses of $0.6 million ($0.3 million after-tax) recorded in the first quarter of 2017 associated with the sale of the Corporation’s participation in the Puerto Rico Electric Power Authority (“PREPA”) credit line with a book value of $64 million at the time of sale. Refer to the Provision for Loan and Lease Losses discussion below for additional information.
Quarter and Nine-Month Period Ended September 30, 2016
·A gain of $6.1 million ($5.9 million after-tax) on sales of $198.7 million of U.S. agency mortgage-backed securities (“MBS”) that carried an average yield of 2.36% recorded in the third quarter of 2016.
·Severance payments of $0.3 million ($0.2 million after-tax)2021 included consulting fees, expenses related to permanent job discontinuance recorded in the third quarter of 2016.
·OTTIsystem conversions and other integration related efforts, and accelerated depreciation charges on debt securities of $6.7 million recorded in the first quarter of 2016, primarily on the aforementioned bonds of the GDB and the Puerto Rico Public Buildings Authority. No tax benefit was recognized for the OTTI charges.
·A gain of $4.2 million recorded in the first quarter of 2016 on the repurchase and cancellation of $10 million in trust preferred securities, reflected in the statement of operations as “Gain on early extinguishment of debt.” The gain, incurred at the Holding Company level, had no effect on the income tax expense in 2016. Refer to Non-Interest Income discussion below for additional information.
The following table reconciles for the third quarter and first nine months of 2017 and 2016, the reported net (loss) income to adjusted net income, a non-GAAP financial measure that excludes the Special Items identified above: | |||||||||||
| Quarter ended September 30, |
| Nine-month period ended September 30, | ||||||||
|
| ||||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income, as reported | $ | (10,752) |
| $ | 24,074 |
| $ | 42,787 |
| $ | 69,371 |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Storm-related provision for loan and lease losses |
| 66,490 |
|
| - |
|
| 66,490 |
|
| - |
Storm-related expenses |
| 599 |
|
| - |
|
| 599 |
|
| - |
Storm-related idle time payroll and rental costs insurance recovery |
| (1,662) |
|
| - |
|
| (1,662) |
|
| - |
Gain on early extinguishment of debt |
| (1,391) |
|
| - |
|
| (1,391) |
|
| (4,217) |
Recovery of previously recorded OTTI charges on Puerto Rico |
|
|
|
|
|
|
|
|
|
|
|
government debt securities sold |
| - |
|
| - |
|
| (371) |
|
| - |
Income tax benefit related to change in tax-status of certain subsidiaries |
| - |
|
| - |
|
| (13,161) |
|
| - |
Other-than-temporary impairment on debt securities |
|
|
|
|
|
|
| 12,231 |
|
| 6,687 |
Charge related to sale of the PREPA credit line |
| - |
|
| - |
|
| 569 |
|
| - |
Secondary offering costs |
| 118 |
|
| - |
|
| 392 |
|
| - |
Gain on sale of investments |
| - |
|
| (6,096) |
|
| - |
|
| (6,104) |
Severance payments on job discontinuance |
| - |
|
| 281 |
|
| - |
|
| 281 |
Income tax impact of adjustments (1) |
| (26,048) |
|
| 76 |
|
| (26,270) |
|
| 76 |
Adjusted net income (non-GAAP) | $ | 27,354 |
| $ | 18,335 |
| $ | 80,213 |
| $ | 66,094 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) See Basis of Presentation for the individual tax impact for each reconciling item. |
|
|
|
|
|
|
87
The key drivers of the Corporation’s GAAP financial results for the quarter ended September 30, 2017, compared to the same period in 2016, include the following:
·Net interest income increased by $4.7 million to $122.8 million for the quarter ended September 30, 2017 compared to $118.2 million for the same period in 2016. The increase in net interest income was driven by: (i) a $5.9 million increase in interest income on commercial and construction loans primarily associated with both the growth of the performing commercial portfolios, primarily in the Florida region, and the upward repricing of variable rate commercial loans, (ii) a $0.6 million increase in interest income from deposits maintained at the Federal Reserve Bank due to increases in the Federal Funds target rate late in 2016 and in 2017, (iii) a $1.5 million increase in interest income associated with a decrease in the U.S. agency MBS premium amortization expense resulting from lower prepayment rates used to forecast future cash flows, and (iv) a $0.2 million decrease in interest expense primarily associated with lower average balances on repurchase agreements and brokered CDs during 2017, partially offset by higher cost of funds for borrowings and deposits.
The aforementioned variances were partially offset by: (i) a $1.7 million decrease in interest income on residential mortgage loans, reflecting the effect of both higher inflows of residential mortgage loans to non-performing status, as compared to the third quarter of 2016, and a $35.2 million decrease in the average balance of this portfolio, (ii) a $1.2 million decrease in interest income associated with a $247.2 million decrease in the average balance of investment securities, (iii) a $0.6 million decrease in interest income on consumer loans primarily associated with a $21.0 million decrease in the average balance of auto loans and higher inflows of consumer loans to non-performing status, as compared to the third quarter of 2016. Interruption in regular collection efforts caused by Hurricanes Irma and Maria adversely affected the residential and consumer non-performing loan levels in the third quarter of 2017.
The net interest margin increased to 4.33% for the third quarter of 2017 compared to 4.06% for the same period a year ago, primarily reflecting the benefit of cash balances used for the repayment of high-cost repurchase agreements that matured in the third and fourth quarters of 2016, lower U.S. agency MBS prepayment rates that resulted in a decrease in the premium amortization expense, and the change in mix of earning assets. Refer to Net Interest Income discussion below for additional information.
·The provision for loan and lease losses increased by $53.5 million to $75.0 million for the third quarter of 2017 compared to $21.5 million for the same period in 2016. The increase primarily reflects the establishment of the $66.5 million provision related to the initial estimateplanned closures and consolidation of the impact of Hurricanes Irma and Maria in the third quarter of 2017. On a non-GAAP basis, excluding the $66.5 million storm-related provision, the adjusted provision for loan and lease losses of $8.5 million for the third quarter of 2017 decreased by $13.0 million compared to the $21.5 million provision for the third quarter of 2016. The decrease reflects the effect of a $10.1 million adjusted net loan loss reserve release for commercial and construction loans in the third quarter of 2017, primarily related to lower specific reserve requirements for two commercial loans classified as impaired in the third quarter of 2017 as well as improvements in historical loss rates used for the general reserve calculation, compared to a provision for commercial and construction loans of $7.9 million recorded in the third quarter of 2016. This was partially offset by a $5.1 million increase in the adjusted provision for residential mortgage loans primarily related to higher loss severity estimates in 2017 and increased specific reserves for residential mortgage troubled debt restructurings (“TDRs”). The adjusted provision for loan and lease losses is a non-GAAP financial measure. Refer to Basis of Presentation below for additional information and reconciliation of the provision for loan and lease lossesbranches in accordance with GAAP to the non-GAAP adjusted provision for loanCorporation’s integration and lease losses. restructuring plan.
Net charge-offs totaled $17.6 million for the third quarterCOVID-19 pandemic-related expenses of 2017, or 0.80% of average loans on an annualized basis, compared to $41.9 million, or 1.90% of average loans for the same period in 2016. The decrease primarily reflects the effect of four large commercial loan charge-offs totaling $22.9 million recorded in the third quarter of 2016, including charge-offs of $13.7 million recorded on loans guaranteed by the Puerto Rico Tourism Development Fund (“TDF commercial mortgage loans”). In addition, consumer and residential mortgage loans net charge-offs in the third quarter of 2017 decreased by $1.5 million and $0.7 million, respectively, compared to the same period in 2016. Refer to the discussions under Provision for loan and lease losses and Risk Management below for an analysis of the allowance for loan and lease losses and non-performing assets and related ratios.
·The Corporation recorded non-interest income of $18.6 million for the third quarter of 2017, compared to $26.1 million for the same period in 2016. The decrease primarily reflects: (i) the effect in the third quarter of 2016 of a $6.1 million gain on sales of $198.7 million of U.S. agency MBS, (ii) a $2.4 million decrease in revenues from mortgage banking activities primarily due to lower conforming loan origination and sales volume in the secondary market due to higher market interest rates and exacerbated by interruptions caused by Hurricanes Maria and Irma in the third quarter of 2017, and (iii) a $0.4 million decrease in certain loan fees such as unused commitment and agent fees. These variances were partially offset by the $1.4 million gain recorded in the third quarter of 2017 on the repurchase and cancellation of $7.3 million in trust preferred securities. Refer to Non-Interest Income discussion below for additional information.
88
·Non-interest expenses for the third quarter of 2017 were $85.6 million compared to $88.3 million for the same period in 2016. The decrease in non-interest expenses was driven by: (i) a $1.3 million decrease in losses on other real estate owned (“OREO”), primarily reflecting a $1.6 million decrease in write downs to the value of OREO properties, partially offset by a $0.4 million decrease in rental income from commercial OREO income-producing properties, (ii) a $1.2 million decrease in the FDIC insurance premium expense reflecting, among other things, the effect of reductions in brokered deposits and average assets, a strengthened capital position, and improved liquidity metrics, (iii) a $0.9($0.8 million decrease in employees’ compensation expenses after-tax), primarily associated with expected insurance recoveries for payroll costs incurred when Hurricanes Irma and Maria precluded employees from working during the third quarter of 2017, and (iv) a $0.7 million decrease in the provision for unfunded loan commitments and letters of credit, included as part of “Other non-interest expenses” in the consolidated statement of (loss) income, reflecting a decline in the unused balance on an adversely classified floor plan revolving credit facility.
These reductions were partially offset by a $1.4 million increase in professional service fees, primarily reflecting higher consulting fees related to the implementation of new technology systems, higher outsourcing fees related to network services,additional cleaning, safety materials, and costs incurred in connection with a secondary offering of the Corporation’s common stock by certain of the Corporation’s existing stockholders, which was completed in the third quarter of 2017. Refer to Non-Interest Expenses below for additional information.security measures.
·For the third quarter of 2017, the Corporation recorded an income tax benefit of $8.4 million, compared to income tax expense of $10.4 million for the same period in 2016. The tax benefit for the third quarter of 2017, as compared to the tax expense for the same period in 2016, was primarily driven by the tax benefit recognized in connection with the storm-related loss recorded in the third quarter of 2017 and a lower effective tax rate driven by an increase in the projected ratio of exempt to taxable income. The Corporation’s estimated annual effective tax rate for the first nine months of 2017, excluding entities from which a tax benefit cannot be recognized and discrete items, was 20% compared to 24% for the first nine months of 2016. The estimated annual effective tax rate including all entities for 2017 was -2% (21% excluding discrete items, primarily the tax benefit resulting from the change in the tax status of two subsidiaries). As of September 30, 2017, the Corporation had a net deferred tax asset of $299.8 million (net of a valuation allowance of $186.9 million). Refer to Income Taxes below for additional information.
·As of September 30, 2017, total assets were $12.2 billion, an increase of $251.2 million from December 31, 2016. The increase primarily reflects: (i) a $437.5 million increase in cash and cash equivalents, largely driven by temporary funding obtained through short-term FHLB advances in anticipation of a potential increase in short-term liquidity requirements of customers after Hurricanes Irma and Maria, proceeds from U.S. agency MBS prepayments, and higher balances tied to the increase of $102.0 million in non-interest bearing deposits, (ii) an $18.1 million increase in the net deferred tax asset, and (iii) a $15.3 million increase in the OREO portfolio balance, primarily related to acquired collateral amounting to $10.6 million in connection with the resolution in the second quarter of 2017 of a $27.6 million non-performing commercial relationship in Puerto Rico.
These variances were partially offset by: (i) a $127.9 million decrease in total investment securities, driven by prepayments of U.S. agency MBS and the aforementioned sale of non-performing bonds of the GDB and the Puerto Rico Public Buildings Authority in the second quarter of 2017, (ii) a $32.1 million decrease in total loans, before the allowance for loan losses, primarily reflecting reductions of $239.7 million and $19.2 million in Puerto Rico and the Virgin Islands, respectively, including the effect of the sale of the PREPA credit line with a book value of $64 million at the time of sale in the first quarter of 2017, charge-offs of $29.7 million in the second quarter of 2017 and cash collections of $9.6 million during the nine-month 2017 period on TDF commercial mortgage loans, the resolution of a $27.6 million non-performing commercial relationship in the second quarter of 2017, and a $99.1 million reduction in residential mortgage loans in Puerto Rico, partially offset by a $226.8 million growth in the Florida region, primarily reflected in the commercial and residential loan portfolios, (iii) a $25.3 million increase in the allowance for loan and lease losses driven by the establishment of the $66.5 million storm-related provision in the third quarter of 2017, partially offset by the aforementioned $29.7 million of charge-offs on TDF commercial mortgage loans, and (iv) a $33.9 million decrease in certain accounts receivable recorded as part of “Other assets” in the statement of financial condition. Refer to Financial Condition and Operating Data discussion below for additional information.
·As of September 30, 2017, total liabilities were $10.3 billion, an increase of $183.7 million from December 31, 2016. The increase was mainly due to: (i) a $245.0 million increase in FHLB advances, reflecting both an increased reliance on long-term FHLB advances as a source of funding for lending activities and a higher volume of short-term borrowings obtained in anticipation of Hurricanes Irma and Maria in the third quarter of 2017, and (ii) a $119.1 million increase in non-brokered deposits, primarily associated with increases in government deposits, retail certificates of deposit (“retail CDs”), and demand deposits in Puerto Rico.
| The following table shows the net income reported for the first quarter of 2022 and reconciles for the first quarter of 2021 the reported net income to adjusted net income, a non-GAAP financial measure that excludes the Special Items identified above: | |||||
|
|
|
|
|
|
|
|
| Quarter ended March 31, | ||||
|
| 2022 |
| 2021 | ||
(In thousands) |
|
|
|
|
| |
Net income, as reported (GAAP) | $ | 82,600 |
| $ | 61,150 | |
Adjustments: |
|
|
|
|
| |
Merger and restructuring costs |
| - |
|
| 11,267 | |
COVID-19 pandemic-related expenses |
| - |
|
| 1,209 | |
Income tax impact of adjustments (1) |
| - |
|
| (4,679) | |
Adjusted net income (Non-GAAP) | $ | 82,600 |
| $ | 68,947 | |
|
|
|
|
|
|
|
(1) | See "Basis of Presentation" below for the individual tax impact related to reconciling items. |
|
|
|
|
|
8999
These variances were partially offset by: (i) a $184.4 million decrease in brokered certificates of deposit (“brokered CDs”), and (ii) the repurchase and cancellation of $7.3 million in trust-preferred securities, reflected in the statement of financial condition as “Other borrowings.” Refer to Risk Management – Liquidity and Capital Adequacy discussion below for additional information about the Corporation’s funding sources.
·As of September 30, 2017, the Corporation’s stockholders’ equity was $1.9 billion, an increase of $67.5 million from December 31, 2016. The increase was mainly driven by the earnings generated in the first nine months of 2017, exclusive of the effect of the $12.2 million OTTI charge to earnings in the first quarter and previously included as part of other comprehensive loss in total equity, and the increase in the fair value of available-for-sale investment securities. The Corporation’s Total Capital, Common Equity Tier 1 Capital, Tier 1 Capital and Leverage ratios calculated under the Basel III rules as currently in effect were 22.18%, 18.62%, 18.62%, and 13.96%, respectively, as of September 30, 2017, compared to Total Capital, Common Equity Tier 1 Capital, Tier 1 Capital and Leverage ratios of 21.34%, 17.74%, 17.74%, and 13.70%, respectively, as of December 31, 2016. Refer to Risk Management – Capital discussion below for additional information.
·Total loan production, including purchases, refinancings, renewals and draws from existing revolving and non-revolving commitments, was $589.7 million for the quarter ended September 30, 2017, excluding the utilization activity on outstanding credit cards, compared to $803.6 million for the same period in 2016. The variance was primarily related to a $230.3 million decrease in Puerto Rico loan originations, including reductions of $151.4 million and $75.3 million in commercial and residential mortgage loan originations, respectively, and a $13.3 million decrease in the Virgin Islands loan originations reflected in all major loan categories, partially offset by a $29.7 million increase in the Florida region, primarily commercial loans. Loan origination volumes in Puerto Rico and the Virgin Islands were adversely affected by interruptions caused by Hurricanes Irma and Maria in the third quarter of 2017.
·Total non-performing assets were $640.7 million as of September 30, 2017, a decrease of $93.8 million from December 31, 2016. The decrease primarily reflects the effect of the sale of the Corporation’s participation in the PREPA credit line with a book value of $64 million at the time of sale, charge-offs of $29.7 million and cash collections of $9.6 million on TDF commercial mortgage loans, the sale of non-performing bonds of the GDB and the Puerto Rico Public Buildings Authority with a book value at the time of sale of $23.0 million, and the resolution of a $27.6 million non-performing commercial relationship in Puerto Rico. As part of the aforementioned resolution, the Corporation received a cash payment of $12.8 million, recorded charge-offs of $3.5 million, and acquired collateral amounting to $10.6 million transferred to the OREO portfolio.
These variances were partially offset by the inflow to non-performing status in the third quarter of two large commercial relationships in Puerto Rico totaling $34.2 million, and increases of $17.7 million and $2.4 million in non-performing residential and consumer loans, respectively. As mentioned above, interruptions in regular collection efforts and loss mitigation programs caused by the passage of Hurricanes Irma and Maria adversely affected the non-performing residential and consumer loan statistics in the third quarter of 2017.
·Adversely classified commercial and construction loans held for investment decreased by $121.9 million to $367.4 million as of September 30, 2017, driven by the reduction in non-performing loans discussed in the above bullet.
90
Critical Accounting Policies and Practices
The accounting principles of the Corporation and the methods of applying these principles conform to GAAP. The Corporation’s critical accounting policies relate to: 1) the allowance for loan and lease losses; 2) other-than-temporary impairments; 3) income taxes; 4) the classification and values of financial instruments; 5) income recognition on loans; 6) loans acquired; and 7) loans held for sale. These critical accounting policies involve judgments, estimates and assumptions made by management that affect the amounts recorded for assets, liabilities and contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from estimates, if different assumptions or conditions prevail. Certain determinations inherently require greater reliance on the use of estimates, assumptions, and judgments and, as such, have a greater possibility of producing results that could be materially different than those originally reported.
The Corporation’s critical accounting policies are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in First BanCorp.’s 2016 Annual Report on Form 10-K. There have not been any material changes in the Corporation’s critical accounting policies since December 31, 2016.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is the excess of interest earned by First BanCorp. on its interest-earning assets over the interest incurred on its interest-bearing liabilities. First BanCorp.’s net interest income is subject to interest rate risk due to the repricing and maturity mismatch of the Corporation’s assets and liabilities. Net interest income for the quarter and nine-month period ended September 30, 2017March 31, 2022 was $122.8$185.6 million, and $369.3 million, respectively, compared to $118.2 million and $363.1$176.3 million for the comparable periodsperiod in 2016, respectively.2021. On aan adjusted tax-equivalent basis and excluding the changes in the fair value of derivative instruments, net interest income for the quarter and nine-month period ended September 30, 2017March 31, 2022 was $126.0$192.8 million, and $380.2 million, respectively, compared to $120.7 million and $373.8$180.8 million for the comparable periodsperiod in 2016, respectively.2021.
The following tables include a detailed analysis of net interest income.income for the indicated periods. Part I presents average volumes (based on the average daily balance) and rates on an adjusted tax-equivalent basis and Part II presents, also on an adjusted tax-equivalent basis, the extent to which changes in interest rates and changes in the volume of interest-related assets and liabilities have affected the Corporation’s net interest income. For each category of interest-earning assets and interest-bearing liabilities, the tables provide information is provided on changes attributable toin (i) changes in volume (changes in volume multiplied by prior period rates), and (ii) changes in rate (changes in rate multiplied by prior period volumes). Rate-volumeThe Corporation has allocated rate-volume variances (changes in rate multiplied by changes in volume) have been allocated to either the changes in volume andor the changes in rate based upon their respective percentagethe effect of each factor on the combined totals.
The netNet interest income is computed on an adjusted tax-equivalent basis and excluding the change in the fair value of derivative instruments.instruments is a non-GAAP financial measure. For athe definition and reconciliation of this non-GAAP financial measure, refer to the discussionsdiscussion in “Basis of Presentation” below.
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Part I |
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| Average Volume |
| Interest income (1) / expense |
| Average Rate (1) | ||||||||||||
| Quarter ended September 30, | 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||||
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| Interest-earning assets: |
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| Money market & other short-term investments | $ | 428,639 |
| $ | 525,172 |
| $ | 1,293 |
| $ | 662 |
| 1.20 | % |
| 0.50 | % |
| Government obligations (2) |
| 657,119 |
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| 785,670 |
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| 4,469 |
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| 5,189 |
| 2.70 | % |
| 2.63 | % |
| Mortgage-backed securities |
| 1,264,155 |
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| 1,395,189 |
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| 9,594 |
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| 8,017 |
| 3.01 | % |
| 2.29 | % |
| FHLB stock |
| 42,682 |
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| 30,939 |
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| 511 |
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| 368 |
| 4.75 | % |
| 4.73 | % |
| Other investments |
| 2,703 |
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| 2,047 |
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| 2 |
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| 2 |
| 0.29 | % |
| 0.39 | % |
| Total investments (3) |
| 2,395,298 |
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| 2,739,017 |
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| 15,869 |
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| 14,238 |
| 2.63 | % |
| 2.07 | % |
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| Residential mortgage loans |
| 3,263,348 |
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| 3,298,546 |
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| 43,132 |
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| 44,888 |
| 5.24 | % |
| 5.41 | % |
| Construction loans |
| 134,842 |
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| 132,658 |
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| 1,219 |
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| 1,069 |
| 3.59 | % |
| 3.21 | % |
| C&I and commercial mortgage loans |
| 3,726,341 |
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| 3,667,955 |
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| 44,649 |
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| 38,957 |
| 4.75 | % |
| 4.23 | % |
| Finance leases |
| 244,149 |
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| 228,578 |
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| 4,346 |
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| 4,301 |
| 7.06 | % |
| 7.49 | % |
| Consumer loans |
| 1,486,726 |
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| 1,507,101 |
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| 41,927 |
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| 42,598 |
| 11.19 | % |
| 11.24 | % |
| Total loans (4) (5) |
| 8,855,406 |
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| 8,834,838 |
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| 135,273 |
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| 131,813 |
| 6.06 | % |
| 5.94 | % |
| Total interest-earning assets | $ | 11,250,704 |
| $ | 11,573,855 |
| $ | 151,142 |
| $ | 146,051 |
| 5.33 | % |
| 5.02 | % |
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| Interest-bearing liabilities: |
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| Brokered CDs | $ | 1,244,355 |
| $ | 1,670,324 |
| $ | 4,711 |
| $ | 5,177 |
| 1.50 | % |
| 1.23 | % |
| Other interest-bearing deposits |
| 5,904,022 |
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| 5,959,320 |
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| 12,187 |
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| 11,565 |
| 0.82 | % |
| 0.77 | % |
| Other borrowed funds |
| 515,202 |
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| 835,752 |
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| 5,056 |
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| 7,179 |
| 3.89 | % |
| 3.42 | % |
| FHLB advances |
| 740,663 |
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| 449,565 |
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| 3,209 |
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| 1,474 |
| 1.72 | % |
| 1.30 | % |
| Total interest-bearing liabilities | $ | 8,404,242 |
| $ | 8,914,961 |
| $ | 25,163 |
| $ | 25,395 |
| 1.19 | % |
| 1.13 | % |
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| Net interest income |
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| $ | 125,979 |
| $ | 120,656 |
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| Interest rate spread |
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| 4.14 | % |
| 3.89 | % |
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| Net interest margin |
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| 4.44 | % |
| 4.15 | % |
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100
Part I |
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| Average Volume |
| Interest income (1) / expense |
| Average Rate (1) | ||||||||||||
| Quarter ended March 31, | 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
| (Dollars in thousands) |
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| Interest-earning assets: |
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| Money market and other short-term investments | $ | 1,835,766 |
| $ | 1,428,038 |
| $ | 820 |
| $ | 349 |
| 0.18 | % |
| 0.10 | % |
| Government obligations (2) |
| 2,736,095 |
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| 1,439,872 |
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| 8,232 |
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| 5,974 |
| 1.22 | % |
| 1.68 | % |
| MBS |
| 4,041,975 |
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| 3,604,584 |
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| 19,420 |
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| 9,730 |
| 1.95 | % |
| 1.09 | % |
| FHLB stock |
| 21,465 |
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| 31,228 |
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| 287 |
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| 401 |
| 5.42 | % |
| 5.21 | % |
| Other investments |
| 11,786 |
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| 7,238 |
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| 21 |
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| 9 |
| 0.72 | % |
| 0.50 | % |
| Total investments (3) |
| 8,647,087 |
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| 6,510,960 |
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| 28,780 |
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| 16,463 |
| 1.35 | % |
| 1.03 | % |
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| Residential mortgage loans |
| 2,961,456 |
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| 3,493,822 |
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| 40,687 |
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| 45,586 |
| 5.57 | % |
| 5.29 | % |
| Construction loans |
| 114,732 |
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| 212,676 |
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| 1,524 |
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| 3,244 |
| 5.39 | % |
| 6.19 | % |
| Commercial and Industrial (“C&I”) |
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| and Commercial mortgage loans |
| 5,103,870 |
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| 5,431,614 |
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| 62,004 |
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| 66,269 |
| 4.93 | % |
| 4.95 | % |
| Finance leases |
| 588,200 |
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| 481,995 |
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| 10,912 |
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| 8,870 |
| 7.52 | % |
| 7.46 | % |
| Consumer loans |
| 2,338,597 |
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| 2,148,159 |
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| 61,151 |
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| 58,737 |
| 10.60 | % |
| 11.09 | % |
| Total loans (4) (5) |
| 11,106,855 |
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| 11,768,266 |
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| 176,278 |
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| 182,706 |
| 6.44 | % |
| 6.30 | % |
| Total interest-earning assets | $ | 19,753,942 |
| $ | 18,279,226 |
| $ | 205,058 |
| $ | 199,169 |
| 4.21 | % |
| 4.42 | % |
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| Interest-bearing liabilities: |
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| Brokered certificates of deposit (“CDs”) | $ | 91,713 |
| $ | 188,949 |
| $ | 477 |
| $ | 989 |
| 2.11 | % |
| 2.12 | % |
| Other interest-bearing deposits |
| 10,495,194 |
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| 10,702,468 |
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| 7,175 |
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| 11,353 |
| 0.28 | % |
| 0.43 | % |
| Other borrowed funds |
| 424,873 |
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| 483,762 |
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| 3,515 |
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| 3,572 |
| 3.36 | % |
| 2.99 | % |
| FHLB advances |
| 200,000 |
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| 440,000 |
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| 1,063 |
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| 2,463 |
| 2.16 | % |
| 2.27 | % |
| Total interest-bearing liabilities | $ | 11,211,780 |
| $ | 11,815,179 |
| $ | 12,230 |
| $ | 18,377 |
| 0.44 | % |
| 0.63 | % |
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| Net interest income on a tax equivalent |
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| basis and excluding valuations |
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| $ | 192,828 |
| $ | 180,792 |
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| Interest rate spread |
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| 3.77 | % |
| 3.79 | % |
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| Net interest margin |
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| 3.96 | % |
| 4.01 | % |
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(1) | On an adjusted tax-equivalent basis. The Corporation estimated the adjusted tax-equivalent yield by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax rate of 37.5% and adding to it the cost of interest-bearing liabilities. The tax-equivalent adjustment recognizes the income tax savings when comparing taxable and tax-exempt assets. Management believes that it is a standard practice in the banking industry to present net interest income, interest rate spread and net interest margin on a fully tax-equivalent basis. Therefore, management believes these measures provide useful information to investors by allowing them to make peer comparisons. The Corporation excludes changes in the fair value of derivatives from interest income and interest expense because the changes in valuation do not affect interest received or paid. | |||||||||||||||||
(2) | Government obligations include debt issued by government-sponsored agencies. | |||||||||||||||||
(3) | Unrealized gains and losses on available-for-sale securities are excluded from the average volumes. | |||||||||||||||||
(4) | Average loan balances include the average of nonaccrual loans. | |||||||||||||||||
(5) | Interest income on loans includes $2.6 million for each of the first quarters of 2022 and 2021, of income from prepayment penalties and late fees related to the Corporation’s loan portfolio. | |||||||||||||||||
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92101
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| Average Volume |
| Interest income (1) / expense |
| Average Rate (1) | ||||||||||||
| Nine-Month Period Ended September 30, | 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||||
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| Interest-earning assets: |
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| Money market & other short-term investments | $ | 334,964 |
| $ | 794,132 |
| $ | 2,504 |
| $ | 3,006 |
| 1.00 | % |
| 0.51 | % |
| Government obligations (2) |
| 694,701 |
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| 744,540 |
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| 13,305 |
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| 16,673 |
| 2.56 | % |
| 2.99 | % |
| Mortgage-backed securities |
| 1,296,979 |
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| 1,388,372 |
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| 33,697 |
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| 30,192 |
| 3.47 | % |
| 2.90 | % |
| FHLB stock |
| 39,843 |
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| 31,120 |
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| 1,460 |
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| 1,066 |
| 4.90 | % |
| 4.58 | % |
| Other investments |
| 2,701 |
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| 1,750 |
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| 6 |
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| 5 |
| 0.30 | % |
| 0.38 | % |
| Total investments (3) |
| 2,369,188 |
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| 2,959,914 |
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| 50,972 |
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| 50,942 |
| 2.88 | % |
| 2.30 | % |
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| Residential mortgage loans |
| 3,265,031 |
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| 3,309,266 |
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| 131,090 |
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| 135,537 |
| 5.37 | % |
| 5.47 | % |
| Construction loans |
| 139,829 |
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| 145,881 |
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| 3,821 |
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| 3,985 |
| 3.65 | % |
| 3.65 | % |
| C&I and commercial mortgage loans |
| 3,737,072 |
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| 3,684,450 |
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| 128,074 |
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| 118,753 |
| 4.58 | % |
| 4.31 | % |
| Finance leases |
| 239,418 |
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| 229,561 |
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| 12,993 |
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| 13,045 |
| 7.26 | % |
| 7.59 | % |
| Consumer loans |
| 1,479,026 |
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| 1,539,844 |
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| 124,533 |
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| 129,853 |
| 11.26 | % |
| 11.26 | % |
| Total loans (4) (5) |
| 8,860,376 |
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| 8,909,002 |
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| 400,511 |
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| 401,173 |
| 6.04 | % |
| 6.01 | % |
| Total interest-earning assets | $ | 11,229,564 |
| $ | 11,868,916 |
| $ | 451,483 |
| $ | 452,115 |
| 5.38 | % |
| 5.09 | % |
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| Interest-bearing liabilities: |
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| Brokered CDs | $ | 1,321,853 |
| $ | 1,907,199 |
| $ | 14,211 |
| $ | 17,041 |
| 1.44 | % |
| 1.19 | % |
| Other interest-bearing deposits |
| 5,899,081 |
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| 5,964,129 |
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| 35,007 |
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| 34,182 |
| 0.79 | % |
| 0.77 | % |
| Other borrowed funds |
| 515,855 |
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| 914,205 |
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| 14,471 |
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| 22,645 |
| 3.75 | % |
| 3.31 | % |
| FHLB advances |
| 659,253 |
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| 453,175 |
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| 7,623 |
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| 4,416 |
| 1.55 | % |
| 1.30 | % |
| Total interest-bearing liabilities | $ | 8,396,042 |
| $ | 9,238,708 |
| $ | 71,312 |
| $ | 78,284 |
| 1.14 | % |
| 1.13 | % |
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| Net interest income |
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| $ | 380,171 |
| $ | 373,831 |
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| Interest rate spread |
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| 4.24 | % |
| 3.96 | % |
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| Net interest margin |
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| 4.53 | % |
| 4.21 | % |
Part II |
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| Quarter ended March 31, |
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| 2022 compared to 2021 |
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| Increase (decrease) |
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| Due to: |
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(In thousands) | Volume |
| Rate |
| Total |
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Interest income on interest-earning assets: |
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Money market and other short-term investments | $ | 121 |
| $ | 350 |
| $ | 471 |
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Government obligations |
| 4,688 |
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| (2,430) |
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| 2,258 |
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MBS |
| 1,305 |
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| 8,385 |
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| 9,690 |
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FHLB stock |
| (129) |
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| 15 |
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| (114) |
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Other investments |
| 7 |
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| 5 |
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| 12 |
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| Total investments |
| 5,992 |
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| 6,325 |
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| 12,317 |
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Residential mortgage loans |
| (7,130) |
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| 2,231 |
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| (4,899) |
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Construction loans |
| (1,344) |
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| (376) |
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| (1,720) |
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Commercial and Industrial and Commercial mortgage loans |
| (3,983) |
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| (282) |
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| (4,265) |
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Finance leases |
| 1,970 |
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| 72 |
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| 2,042 |
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Consumer loans |
| 5,148 |
|
| (2,734) |
|
| 2,414 |
| ||
| Total loans |
| (5,339) |
|
| (1,089) |
|
| (6,428) |
| |
|
| Total interest income |
| 653 |
|
| 5,236 |
|
| 5,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on interest-bearing liabilities: |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
Brokered CDs |
| (505) |
|
| (7) |
|
| (512) |
| ||
Non-brokered interest-bearing deposits |
| (216) |
|
| (3,962) |
|
| (4,178) |
| ||
Other borrowed funds |
| (461) |
|
| 404 |
|
| (57) |
| ||
FHLB advances |
| (1,281) |
|
| (119) |
|
| (1,400) |
| ||
|
| Total interest expense |
| (2,463) |
|
| (3,684) |
|
| (6,147) |
|
Change in net interest income | $ | 3,116 |
| $ | 8,920 |
| $ | 12,036 |
|
|
|
|
|
|
|
|
|
|
|
93
Part II |
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| Quarter ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||||||||
|
| 2017 compared to 2016 |
| 2017 compared to 2016 | ||||||||||||||
|
| Increase (decrease) |
| Increase (decrease) | ||||||||||||||
|
| Due to: |
| Due to: | ||||||||||||||
| (In thousands) | Volume |
| Rate |
| Total |
| Volume |
| Rate |
| Total | ||||||
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|
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| Interest income on interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Money market & other short-term investments | $ | (201) |
| $ | 832 |
| $ | 631 |
| $ | (2,592) |
| $ | 2,090 |
| $ | (502) |
| Government obligations |
| (852) |
|
| 132 |
|
| (720) |
|
| (1,069) |
|
| (2,299) |
|
| (3,368) |
| Mortgage-backed securities |
| (850) |
|
| 2,427 |
|
| 1,577 |
|
| (2,205) |
|
| 5,710 |
|
| 3,505 |
| FHLB stock |
| 142 |
|
| 1 |
|
| 143 |
|
| 315 |
|
| 79 |
|
| 394 |
| Other investments |
| 1 |
|
| (1) |
|
| - |
|
| 2 |
|
| (1) |
|
| 1 |
| Total investments |
| (1,760) |
|
| 3,391 |
|
| 1,631 |
|
| (5,549) |
|
| 5,579 |
|
| 30 |
| Residential mortgage loans |
| (445) |
|
| (1,311) |
|
| (1,756) |
|
| (1,848) |
|
| (2,599) |
|
| (4,447) |
| Construction loans |
| 18 |
|
| 132 |
|
| 150 |
|
| (167) |
|
| 3 |
|
| (164) |
| C&I and commercial mortgage loans |
| 643 |
|
| 5,049 |
|
| 5,692 |
|
| 1,694 |
|
| 7,627 |
|
| 9,321 |
| Finance leases |
| 289 |
|
| (244) |
|
| 45 |
|
| 543 |
|
| (595) |
|
| (52) |
| Consumer loans |
| (490) |
|
| (181) |
|
| (671) |
|
| (5,239) |
|
| (81) |
|
| (5,320) |
| Total loans |
| 15 |
|
| 3,445 |
|
| 3,460 |
|
| (5,017) |
|
| 4,355 |
|
| (662) |
| Total interest income |
| (1,745) |
|
| 6,836 |
|
| 5,091 |
|
| (10,566) |
|
| 9,934 |
|
| (632) |
| Interest expense on interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Brokered CDs |
| (1,451) |
|
| 985 |
|
| (466) |
|
| (5,779) |
|
| 2,949 |
|
| (2,830) |
| Other interest-bearing deposits |
| (92) |
|
| 714 |
|
| 622 |
|
| (397) |
|
| 1,222 |
|
| 825 |
| Other borrowed funds |
| (2,928) |
|
| 805 |
|
| (2,123) |
|
| (10,545) |
|
| 2,371 |
|
| (8,174) |
| FHLB advances |
| 1,164 |
|
| 571 |
|
| 1,735 |
|
| 2,270 |
|
| 937 |
|
| 3,207 |
| Total interest expense |
| (3,307) |
|
| 3,075 |
|
| (232) |
|
| (14,451) |
|
| 7,479 |
|
| (6,972) |
| Change in net interest income | $ | 1,562 |
| $ | 3,761 |
| $ | 5,323 |
| $ | 3,885 |
| $ | 2,455 |
| $ | 6,340 |
|
Portions of the Corporation’s interest-earning assets, mostly investments in obligations of some U.S. government agencies and sponsoredU.S. government-sponsored entities (“GSEs”), generate interest that is exempt from income tax, principally in Puerto Rico. Also, interest and gains on sales of investments held by the Corporation’s international banking entities (“IBEs”) are tax-exempt under the Puerto Rico tax law (refer to Income Taxes(see “Income Taxes” below for additional information). To facilitateManagement believes that the presentation of interest income on an adjusted tax-equivalent basis facilitates the comparison of all interest data related to these assets,assets. The Corporation estimated the interest income has been converted to an adjusted taxable equivalent basis. The tax equivalent yield was estimated by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax rate as adjusted for changes to enacted tax rates (39.0%(37.5%) and adding to it the average cost of interest-bearing liabilities. The computation considers the interest expense disallowance required by Puerto Rico tax law.
TheManagement believes that the presentation of net interest income excluding the effects of the changes in the fair value of the derivative instruments (“valuations”) provides additional information about the Corporation’s net interest income and facilitates comparability and analysis.analysis from period to period. The changes in the fair value of the derivative instruments have no effect on interest due on interest-bearing liabilities or interest earned on interest-bearing liabilities or interest-earning assets, respectively. assets.
94
The following table reconciles net interest income in accordance with GAAP to net interest income, excluding valuations, and net interest income on an adjusted tax-equivalent basis. The table also reconciles net interest spread and net interest margin on a GAAP basis to these items excluding valuations and on an adjusted tax-equivalent basis: | |||||||||||||||
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| Quarter Ended |
| Nine-Month Period Ended | ||||||||||||
(Dollars in thousands) | September 30, 2017 |
| September 30, 2016 |
| September 30, 2017 |
| September 30, 2016 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income - GAAP | $ | 147,995 |
|
| $ | 143,573 |
|
| $ | 440,597 |
|
| $ | 441,338 |
|
Unrealized (gain) loss on derivative instruments |
| - |
|
|
| (5) |
|
|
| 1 |
|
|
| 1 |
|
Interest income excluding valuations |
| 147,995 |
|
|
| 143,568 |
|
|
| 440,598 |
|
|
| 441,339 |
|
Tax-equivalent adjustment |
| 3,147 |
|
|
| 2,483 |
|
|
| 10,885 |
|
|
| 10,776 |
|
Interest income on a tax-equivalent basis excluding valuations |
| 151,142 |
|
|
| 146,051 |
|
|
| 451,483 |
|
|
| 452,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense - GAAP |
| 25,163 |
|
|
| 25,395 |
|
|
| 71,312 |
|
|
| 78,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income - GAAP | $ | 122,832 |
|
| $ | 118,178 |
|
| $ | 369,285 |
|
| $ | 363,054 |
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
Net interest income excluding valuations | $ | 122,832 |
|
| $ | 118,173 |
|
| $ | 369,286 |
|
| $ | 363,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income on a tax-equivalent basis excluding valuations | $ | 125,979 |
|
| $ | 120,656 |
|
| $ | 380,171 |
|
| $ | 373,831 |
|
|
|
|
|
|
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|
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|
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|
|
|
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|
|
Average Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases | $ | 8,855,406 |
|
| $ | 8,834,838 |
|
| $ | 8,860,376 |
|
| $ | 8,909,002 |
|
Total securities, other short-term investments and interest-bearing cash balances |
| 2,395,298 |
|
|
| 2,739,017 |
|
|
| 2,369,188 |
|
|
| 2,959,914 |
|
Average Interest-Earning Assets | $ | 11,250,704 |
|
| $ | 11,573,855 |
|
| $ | 11,229,564 |
|
| $ | 11,868,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Interest-Bearing Liabilities | $ | 8,404,242 |
|
| $ | 8,914,961 |
|
| $ | 8,396,042 |
|
| $ | 9,238,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Yield/Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average yield on interest-earning assets - GAAP |
| 5.22 | % |
|
| 4.94 | % |
|
| 5.25 | % |
|
| 4.97 | % |
Average rate on interest-bearing liabilities - GAAP |
| 1.19 | % |
|
| 1.13 | % |
|
| 1.14 | % |
|
| 1.13 | % |
Net interest spread - GAAP |
| 4.03 | % |
|
| 3.81 | % |
|
| 4.11 | % |
|
| 3.84 | % |
Net interest margin - GAAP |
| 4.33 | % |
|
| 4.06 | % |
|
| 4.40 | % |
|
| 4.09 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average yield on interest-earning assets excluding valuations |
| 5.22 | % |
|
| 4.93 | % |
|
| 5.25 | % |
|
| 4.97 | % |
Average rate on interest-bearing liabilities |
| 1.19 | % |
|
| 1.13 | % |
|
| 1.14 | % |
|
| 1.13 | % |
Net interest spread excluding valuations |
| 4.03 | % |
|
| 3.80 | % |
|
| 4.11 | % |
|
| 3.84 | % |
Net interest margin excluding valuations |
| 4.33 | % |
|
| 4.06 | % |
|
| 4.40 | % |
|
| 4.09 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average yield on interest-earning assets on a tax-equivalent basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and excluding valuations |
| 5.33 | % |
|
| 5.02 | % |
|
| 5.38 | % |
|
| 5.09 | % |
Average rate on interest-bearing liabilities |
| 1.19 | % |
|
| 1.13 | % |
|
| 1.14 | % |
|
| 1.13 | % |
Net interest spread on a tax-equivalent basis and excluding valuations |
| 4.14 | % |
|
| 3.89 | % |
|
| 4.24 | % |
|
| 3.96 | % |
Net interest margin on a tax-equivalent basis and excluding valuations |
| 4.44 | % |
|
| 4.15 | % |
|
| 4.53 | % |
|
| 4.21 | % |
102
The following table reconciles net interest income in accordance with GAAP to net interest income, excluding valuations, and net interest income on an adjusted tax-equivalent basis for the indicated periods. The table also reconciles net interest spread and net interest margin on a GAAP basis to these items excluding valuations, and on an adjusted tax-equivalent basis: | |||||||
|
|
|
|
|
|
|
|
| Quarter Ended March 31, | ||||||
| 2022 |
| 2021 | ||||
(Dollars in thousands) |
|
|
|
|
|
|
|
Interest Income - GAAP | $ | 197,854 |
|
| $ | 194,642 |
|
Unrealized gain on derivative instruments |
| (15) |
|
|
| (25) |
|
Interest income excluding valuations |
| 197,839 |
|
|
| 194,617 |
|
Tax-equivalent adjustment |
| 7,219 |
|
|
| 4,552 |
|
Interest income on a tax-equivalent basis and excluding valuations |
| 205,058 |
|
|
| 199,169 |
|
|
|
|
|
|
|
|
|
Interest Expense - GAAP |
| 12,230 |
|
|
| 18,377 |
|
|
|
|
|
|
|
|
|
Net interest income - GAAP | $ | 185,624 |
|
| $ | 176,265 |
|
|
|
|
|
|
|
|
|
Net interest income excluding valuations | $ | 185,609 |
|
| $ | 176,240 |
|
|
|
|
|
|
|
|
|
Net interest income on a tax-equivalent basis and excluding valuations | $ | 192,828 |
|
| $ | 180,792 |
|
|
|
|
|
|
|
|
|
Average Balances |
|
|
|
|
|
|
|
Loans and leases | $ | 11,106,855 |
|
| $ | 11,768,266 |
|
Total securities, other short-term investments and interest-bearing cash balances |
| 8,647,087 |
|
|
| 6,510,960 |
|
Average Interest-Earning Assets | $ | 19,753,942 |
|
| $ | 18,279,226 |
|
Average Interest-Bearing Liabilities | $ | 11,211,780 |
|
| $ | 11,815,179 |
|
|
|
|
|
|
|
|
|
Average Yield/Rate |
|
|
|
|
|
|
|
Average yield on interest-earning assets - GAAP |
| 4.06 | % |
|
| 4.32 | % |
Average rate on interest-bearing liabilities - GAAP |
| 0.44 | % |
|
| 0.63 | % |
Net interest spread - GAAP |
| 3.62 | % |
|
| 3.69 | % |
Net interest margin - GAAP |
| 3.81 | % |
|
| 3.91 | % |
|
|
|
|
|
|
|
|
Average yield on interest-earning assets excluding valuations |
| 4.06 | % |
|
| 4.32 | % |
Average rate on interest-bearing liabilities |
| 0.44 | % |
|
| 0.63 | % |
Net interest spread excluding valuations |
| 3.62 | % |
|
| 3.69 | % |
Net interest margin excluding valuations |
| 3.81 | % |
|
| 3.91 | % |
|
|
|
|
|
|
|
|
Average yield on interest-earning assets on a tax-equivalent basis |
|
|
|
|
|
|
|
and excluding valuations |
| 4.21 | % |
|
| 4.42 | % |
Average rate on interest-bearing liabilities |
| 0.44 | % |
|
| 0.63 | % |
Net interest spread on a tax-equivalent basis and excluding valuations |
| 3.77 | % |
|
| 3.79 | % |
Net interest margin on a tax-equivalent basis and excluding valuations |
| 3.96 | % |
|
| 4.01 | % |
103
Interest income on interest-earning assets primarily represents interest earned on loans heldOn a GAAP basis, for investment and investment securities.
Interest expense on interest-bearing liabilities primarily represents interest paid on brokered CDs, branch-based deposits, repurchase agreements, advances from the FHLB and junior subordinated debentures.
Unrealized gains or losses on derivatives represent changes in the fair value of derivatives, primarily interest rate caps used for protection against rising interest rates.
For the quarter and nine-month period ended September 30, 2017,March 31, 2022, net interest income increased $4.7amounted to $185.6 million, to $122.8a $9.3 million and $6.2 million to $369.3 million, respectively,increase compared to net interest income of $176.3 million for the same periodsperiod in 2016.2021. The $4.7 million increase in net interest income for the third quarter of 2017, compared to the same period in 2016, was primarily due to:
·A $5.9 million increase in interest income on commercial and construction loans primarily associated with both the growth of the performing commercial portfolios, primarily in the Florida region, and the upward repricing of variable rate commercial loans.
·A $0.6 million increase in interest income from deposits maintained at the Federal Reserve Bank due to increases in the Federal Funds target rate late in 2016 and in 2017.
95
·A $1.5$9.4 million increase in interest income on investment securities including: (i) an increase of $0.7 million in interest income on U.S. agency MBS that was primarily associated withand interest-bearing cash balances, mainly related to a $1.5$7.8 million decrease in the U.S. agencies MBS premium amortization expense resulting fromrelated to a lower prepayment rates usedvolume, as well as the positive effect related to forecast future cash flows, partially offseta $2.1 billion increase in the average balance of investment securities that was driven by purchases of U.S. agencies MBS and other debt securities.
A $6.1 million decrease in total interest expense, primarily due to: (i) a $4.2 million decrease of $0.7 million in interest income associated withexpense on interest-bearing checking, savings and non-brokered time deposits, primarily reflecting the effect of higher cost time deposits that matured and were renewed at lower rates and, to some extent, lower rates paid on savings and non-interest bearing checking accounts; (ii) a $131.0$1.4 million decrease in interest expense on FHLB advances, primarily related to a $240.0 million decrease in the average balance of MBS,FHLB advances; and (ii) an increase of $0.1 million in FHLB stock dividends. These variances were partially offset by a $0.6 million decrease in interest income on U.S. agencies and Puerto Rico government debt securities, reflecting an adverse impact of approximately $0.3 million related to the bonds of the GDB and the Puerto Rico Public Buildings Authority, for which recognition of interest income was discontinued during the third quarter 2016 and which were subsequently sold in 2017, and the effect in the third quarter of 2016 of discount accretions totaling $0.3 million related to $11.1 million of U.S. agencies debt securities called prior to maturity.
·A $0.2 million decrease in interest expense driven by: (i) a $2.4 million decrease in interest expense on repurchase agreements, primarily reflecting the effect of repurchase agreements totaling $400 million that matured in the third and fourth quarters of 2016 that carried an average cost of 3.35%, partially offset by the upward repricing of variable rate repurchase agreements in 2017, and (ii)(iii) a $0.5 million decrease in interest expense on brokered CDs, primarily related to a $426.0 million decrease in the average volume that offset higher costs on new issuances. Over the last 12 months, the Corporation repaid $950.3 million of maturing brokered CDs with an average all-in cost of 1.06% and new issuances amounted to $646.8 million with an average all-in cost of 1.54%. The aforementioned decreases were partially offset by (i) an increase of $1.7 million in interest expense on FHLB advances, reflecting both higher average balances on long- and short-term FHLB advances and higher market interest rates in 2017, (ii) an increase of $0.6 million on non-brokered interest bearing deposits reflecting, among other things, a higher proportion of time deposits to total deposits, retail CDs renewed at longer terms, and higher market interest rates in 2017, and (iii) an increase of $0.3 million in interest expense related to the upward repricing of floating-rate junior subordinated debentures.
Partially offset by
·A $1.7 million decrease in interest income on residential mortgage loans, reflecting the effect of both higher inflows of residential mortgage loans to non-performing status, as compared to the third quarter of 2016, and a $35.2$97.2 million decrease in the average balance of this portfolio. Interruption in regular collection efforts caused by Hurricanes Irma and Maria adversely affected the residential and consumer non-performing loan levels in the third quarter of 2017.related deposits.
·A $0.6 million decrease in interest income on consumer loans, primarily associated with a $21.0 million decrease in the average balance of auto loans and higher inflows of consumer loans to non-performing status, as compared to the third quarter of 2016.
The $6.2$4.5 million increase in net interest income for the first nine months of 2017, compared to the same period in 2016, was primarily due to:
·A $10.1 million increase in interest income on commercial and construction loans, primarily associated with both the growth of the performing commercial portfolios, primarily in the Florida region, and the upward repricing of variable rate commercial loans.
·A $7.0 million decrease in interest expense driven by: (i) an $8.6 million decrease in interest expense on repurchase agreements, primarily reflecting the effect of the aforementioned repayments of repurchase agreements totaling $400 million that matured in the third and fourth quarter of 2016, partially offset by the upward repricing of variable rate repurchase agreements in 2017, and (ii) a $2.8 million decrease in interest expense on brokered CDs, primarily related to a $585.3 million decrease in the average volume that offset higher costs on new issuances. The aforementioned decreases were partially offset by (i) an increase of $3.2 million in interest expense on FHLB advances, reflecting both higher average balances on long- and short-term FHLB advances and the effect of higher market interest rates, (ii) an increase of $0.8 million in interest expense on non-brokered interest bearing deposits reflecting, among other things, a higher proportion of time deposits to total deposits, retail CDs renewed at longer terms, and higher market interest rates in 2017, and (iii) an increase of $0.4 million in interest expense related to the upward repricing of floating-rate junior subordinated debentures.
Partially offset by:
·A $5.3 million decrease in interest income on consumer loans and finance leases, mainly attributabledue to the $51.0a $296.6 million reductionincrease in the average balance of this portfolio, primarilymostly related to the growth in the auto loans.loans and finance leases portfolios, partially offset by lower average yields.
·Partially offset by:
A $4.3$5.0 million decrease in interest income on residential mortgage loans, reflecting the effect of both higher inflows of residential mortgage loansprimarily related to non-performing status in the first nine months of 2017, as compared to the same period in 2016, and a $44.2$532.4 million decreasereduction in the average balance of this portfolio.
96
·
A $0.5$5.7 million decrease in interest income on commercial and construction loans, mainly due to a $425.7 million reduction in the average balance of this portfolio. The above-mentioned reduction in the average balance included a $284.4 million reduction in the average balance of SBA PPP loans. Interest income for the first quarter of 2022 includes $3.2 million on an average loan balance of $121.8 million, compared to $5.4 million on an average loan balance of $406.2 million in the first quarter of 2021.
The net interest margin decreased by ten basis points to 3.81% for the first quarter of 2022, compared to 3.91% for the first quarter of 2021. The decrease was primarily attributable to a higher proportion of low-yielding assets, such as interest-bearing cash balances, U.S. agencies MBS and cash equivalents, primarily relatedother debt securities, to the utilization of deposits maintained at the Federal Reserve Bank to repay maturing brokered CDs and the aforementioned repurchase agreements that matured in the second half of 2016,total interest-earning assets, partially offset by higher yields on U.S. agencies MBS, favorably affected by lower prepayment volume and the increasesdecrease in the Federal Funds target rate.
·A $0.7 million decrease in interest incomeaverage rate paid on interest-bearing deposits. The total average balance of interest-bearing cash balances and investment securities including an adverse impactincreased by $2.1 billion to 44% of approximately $1.7 million related to the bonds of the GDB and the Puerto Rico Public Buildings Authority for which recognition of interest income was discontinued during the third quarter 2016, and the effecttotal average interest-earning assets in the first nine months of 2016 of discount accretions totaling $0.8 million related to $72.4 million of U.S. agencies debt securities called prior to maturity. These variances were partially offset by a $1.5 million increase in interest income on U.S. agency MBS, primarily due to a lower premium amortization expense resulting from lower prepayment rates in 2017, and a $0.4 million increase in FHLB stock dividends.
Net interest margin increased by 27 basis points to 4.33% for the third quarter of 2017,2022, compared to the same period36% in 2016, and increased by 31 basis points to 4.40% for the first nine monthsquarter of 2017, compared to2021.
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Provision for Credit Losses
The provision for credit losses consists of provisions for credit losses on loans and finance leases and unfunded loan commitments, as well as held-to-maturity and available-for-sale debt securities. The principal changes in the same period in 2016. provision for credit losses by main categories follow:
Provision for credit losses for loans and finance leases
The increaseprovision for credit losses for loans and finance leases was primarily driven by thea net benefit of cash balances used for the repayment of high-cost repurchase agreements that matured in the second half of 2016, the change in mix of earning assets, lower U.S. agency MBS prepayment rates that resulted in a decrease in the premium amortization expense, and the reduction achieved in non-performing loans over the prior 12 months. Loans increased as a percentage of interest-earning assets from 76.3% and 75.1% in the third quarter and first nine months of 2016, respectively, to 78.7% and 78.9% in the third quarter and first nine months of 2017, respectively.
On an adjusted tax-equivalent basis, net interest income for the quarter ended September 30, 2017 increased by $5.3 million to $126.0 million, when compared to the same period in 2016, and by $6.3 million to $380.2$17.0 million for the first nine monthsquarter of 2017,2022, compared to the same period in 2016. In addition to the facts discussed above, the increase in the third quartera net benefit of 2017, as compared to the same period in 2016, also includes an increase of $0.7 million in the tax-equivalent adjustment related to the increased interest income on U.S. agency MBS held by the IBE subsidiary First Bank Overseas. For the first nine months of 2017, the tax equivalent adjustment increased by $0.1 million, as compared to the same period in 2016.
Provision for Loan and Lease Losses
The provision for loan and lease losses is charged to earnings to maintain the allowance for loan and lease losses at a level that the Corporation considers adequate to absorb probable losses inherent in the portfolio. The adequacy of the allowance for loan and lease losses is also based upon a number of additional factors, including trends in charge-offs and delinquencies, current economic conditions, the fair value of the underlying collateral and the financial condition of the borrowers, and, as such, includes amounts based on judgments and estimates made by the Corporation. Important factors that influence this judgement are re-evaluated quarterly to respond to changing conditions.
As described above in ‘’Executive Summary,’’ two strong hurricanes affected the Corporation’s service areas during September 2017. These storms caused widespread property damage, flooding, power outages, and water and communication services interruptions, and severely disrupted normal economic activity in the affected areas.
In addition to immediate uncertainties regarding the adequacy and timeliness of insurance recoveries, continued personal employment, the ability of businesses to reopen and the availability of goods and services to operate homes and businesses, there is a significant level of uncertainty regarding the level of economic activity to which Puerto Rico and the Virgin Islands will return over time. Some uncertainties include how and when rebuilding will take place, including the rebuilding of the public infrastructure such as Puerto Rico’s power grid, what level of government, private or philanthropic funds will be invested in the affected communities, how many displaced individuals will return to their homes in both the short- and long-term, and what other demographic changes will take place, if any.
Damages associated with the storm-related events will have significant short-term economic repercussions, both positive and negative, for the Corporation’ s commercial and individual loan customers in the most severely affected parts of Puerto Rico and the Virgin Islands. While these events have affected certain asset quality metrics, including higher delinquencies and non-performing loans, the storms' ultimate effect on loan collections is uncertain. However, the Corporation’s loan officers are making individual storm-impact assessments for all commercial customers. The recent occurrence of the events makes it difficult to estimate the immediate impact at such level. The expectation is that the assessment will be substantially completed by the fourth quarter of 2017.
The Corporation’s loan portfolio in Puerto Rico and the Virgin Islands totaled $7.3 billion as of September 30, 2017, or 82% of the entire portfolio. The composition of these loans generally reflects the composition of the entire portfolio, which is close to 60% of residential and consumer loans to individual customers and 40% of commercial and construction loans.
Management has determined a separate qualitative element of the allowance to represent the estimate of inherent losses associated with the impact of the storm-related events on the Corporation’s Puerto Rico and Virgin Islands loan portfolios. This estimate is
97
judgmental and subject to changes as conditions evolve. This qualitative element of the allowance was determined based on the estimated impact the storm could have on current employment levels (e.g unemployment rate that doubles current levels in Puerto Rico based on statistics observed in the aftermath of similar natural disasters in the U.S mainland like Hurricane Katrina) economic activity in the Corporation’s geographic regions, and the time it could take for the affected regions to return to a more normalized operating environment. It is expected that the rebuilding efforts will stimulate economic activity and accelerate the pace of economic recovery from the hurricanes.
The Corporation’s credit risk modeling framework used to determine the storm-related estimate is similar to the one used for benchmarking purposes as part of the annual Dodd-Frank Act Stress Testing (DFAST) regulatory exercise. Models were developed following a regression modeling approach in which relationships between portfolio-level loss rates and key economic indicators were derived based on historical behavior. These models went through an extensive model specification and selection process that resulted in the use of certain variables, such as the unemployment rate and the Puerto Rico Economic Activity Index, which showed the highest predictive power of potential losses in our outstanding loan portfolio.
Resulting loss factors were assigned to the overall performing balance of each major loan portfolio category in the affected regions, resulting in a total charge of $66.5 million (composed of $59.2 million for Puerto Rico and $7.3 million for Virgin Islands) that consisted of: (i) a $13.7 million charge to the provision for residential mortgage loans, (ii) an $18.1 million charge to the provision of commercial mortgage loans, (iii) an $8.0 million charge to the provision for commercial and industrial loans, (iv) a $0.8 million charge to the provision for construction loans, and (v) a $25.9 million charge to the provision for consumer loans.
Residential and consumer loans are underwritten principally on income streams, with collateral viewed as a second source of repayment. The storms’ impact varies widely within the residential and consumer portfolio, with some individual borrowers experiencing the devastation of loss of both home and employment and others with both homes and jobs intact. Properties used as collateral generally require insurance, minimizing the potential loss from property damages.
For the commercial portfolio, the Corporation conducted a preliminary review of all loans in the Puerto Rico and Virgin Islands regions in amounts over $10 million, which accounts for 74.5% of the total commercial portfolio of such regions, and determined that 100% of the real estate-backed loans have property insurance. As such, the Corporation understands that credit losses and/or credit deterioration will mainly occur from the overall economic effect the storms will have on the economy of Puerto Rico and the Virgin Islands.
Estimates of the storms’ effect on loan losses will change over time as additional information becomes available, and any related revisions in the allowance calculation will be reflected in the provision for loan losses as they occur. Such revisions could be material.
For the third quarter ended September 30, 2017, the Corporation recorded a provision for loan and lease losses of $75.0 million compared to $21.5 million for the comparable period in 2016. On a non-GAAP basis, excluding the impact of the above mentioned $66.5 million storm-related provision, the adjusted provision of $8.5 million for the third quarter of 2017 decreased by $13.0 million compared to the provision of $21.5 million for the same period in 2016. The $13.0 million decrease in the adjusted provision was driven by:
·A $10.1 million adjusted net loan loss reserve release for commercial and construction loans in the third quarter of 2017, primarily related to lower specific reserve requirements for two commercial loans classified as impaired in the third quarter of 2017 as well as improvements in historical loss rates used for the general reserve calculation, in contrast to a provision for commercial and construction loans of $7.9 million recorded in the third quarter of 2016 that was driven by additional specific reserve requirements for three relationships.
Partially offset by:
·A $5.1 million increase in the adjusted provision for residential mortgage loans primarily related to the increased specific reserves for residential mortgage troubled debt restructurings, and higher loss severity estimates in 2017.
For the nine-month period ended September 30, 2017, the Corporation recorded a provision for loan and lease losses of $118.6 million compared to $63.5 million for the same period in 2016. In addition to the $66.5 million storm-related provision, the provision for the first nine months of 2017 included a charge of $0.6 million associated with the sale of the PREPA credit line in the first quarter.
On a non-GAAP basis, excluding the impact of the above mentioned charges, the adjusted provision of $51.5$14.4 million for the first nine monthsquarter of 2017 decreased2021. The variances by $12.1 million compared tomajor portfolio category were as follows:
Provision for credit losses for the provisioncommercial and construction loan portfolio was a net benefit of $63.5$23.1 million for the same period in 2016. The $12.1first quarter of 2022, compared to a net benefit of $14.6 million decrease in the adjusted provision was driven by:
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·A $3.3 million adjustedfirst quarter of 2021. The net loan loss reserve release forbenefit recorded during the first quarter of 2022 mainly reflects reductions in qualitative reserves mostly associated with a continued positive long-term outlook of forecasted macroeconomic variables, primarily in the commercial and constructionreal estate price index, as a result of the reduced uncertainty regarding COVID-19, particularly on loans in the first nine months of 2017 comparedhotel, transportation and entertainment industries and, to a provisionlesser extent, improvements in updated financial information received from borrowers during the first quarter of $16.9 million2022. On the other hand, the results for the same period in 2016. The variance was primarily related to lower specific reserve requirements for impaired loans,first quarter of 2021 mainly reflect improvements in historical loss rates used for the general reserve calculation, a $3.8 million increase in loss loans recoveries, including a $4.2 million recovery recordedprojected macroeconomic variables, primarily in the second quarter of 2017 onunemployment variable and, to a previously charged-off commercial loan in Puerto Rico, andlesser extent, the overall decrease in the balancesize of adversely classified assets.
Partially offset by:
·An $8.2 million increasethese portfolios in the adjusted provisionPuerto Rico region.
Provision for credit losses for the residential mortgage loansloan portfolio was a net benefit of $4.9 million for the first quarter of 2022, compared to a net benefit of $4.2 million in the first quarter of 2021. The net benefit recorded for both periods was primarily related to the higher leveloverall decrease in the size of residential non-performing loans, increased specific reserves forthe residential mortgage TDRs,loan portfolio and higher loss severity estimatescontinued improvements in 2017, including adjustmentsthe long-term outlook of forecasted macroeconomic variables, such as the housing price index.
Provision for credit losses for the consumer loans and finance leases portfolio was an expense of $11.0 million for the first quarter of 2022, compared to liquidation cost assumptions. an expense of $4.3 million in the first quarter of 2021. The charges to the provision in both periods are mainly in the auto loans and finance leases portfolio due to the overall increase in the size of these portfolios.
ReferAs of March 31, 2022, the Corporation applied probability weights to “Creditthe baseline and alternative downside economic scenarios to estimate the ACL with the baseline scenario carrying the highest weight. For prior periods, the Corporation calculated the ACL using the baseline scenario. See “Risk Management – Credit Risk Management” below for additional information on the ACL estimation methodology and for an analysis of the allowance for loan and lease losses,ACL, non-performing assets, impaired loans and related information, and refer to “Financial Condition and Operating Data Analysis – Loan PortfolioPortfolio” and Risk“Risk Management — Credit Risk Management” below for additional information concerning the Corporation’s loan portfolio exposure in the geographic areas where the Corporation does business.
Non-Interest Income |
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| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||
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| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
| (In thousands) |
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| |||||||||
| Service charges on deposit accounts | $ | 5,797 |
| $ | 5,788 |
| $ | 17,390 |
| $ | 17,206 |
| Mortgage banking activities |
| 3,117 |
|
| 5,485 |
|
| 11,579 |
|
| 15,131 |
| Insurance income |
| 1,377 |
|
| 1,363 |
|
| 6,819 |
|
| 6,175 |
| Other operating income |
| 6,963 |
|
| 7,414 |
|
| 22,118 |
|
| 22,247 |
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| Non-interest income before net gain (loss) on investments and |
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| gain on early extinguishment of debt |
| 17,254 |
|
| 20,050 |
|
| 57,906 |
|
| 60,759 |
|
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|
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| Net gain on sale of investments securities |
| - |
|
| 6,096 |
|
| 371 |
|
| 6,104 |
| OTTI on debt securities |
| - |
|
| - |
|
| (12,231) |
|
| (6,687) |
| Net gain (loss) on investments securities |
| - |
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| 6,096 |
|
| (11,860) |
|
| (583) |
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| Gain on early extinguishment of debt |
| 1,391 |
|
| - |
|
| 1,391 |
|
| 4,217 |
| Total | $ | 18,645 |
| $ | 26,146 |
| $ | 47,437 |
| $ | 64,393 |
Non-interest income primarily consistsProvision for credit losses for unfunded loan commitments
The provision for credit losses for unfunded commercial and construction loan commitments and standby letters of income from service charges on deposit accounts, commissions derived from various banking, securities and insurance activities, gains and losses on mortgage banking activities, interchange and other fees related to debit and credit cards, andwas a net gains and losses on investments and impairments.
Service charges on deposit accounts include monthly fees, overdraft fees and other fees on deposit accounts as well as corporate cash management fees.
Income from mortgage banking activities includes gain on sales and securitizationbenefit of loans, revenues earned$0.1 million for administering residential mortgage loans originated by the Corporation and subsequently sold with servicing retained, and unrealized gains and losses on forward contracts used to hedge the Corporation’s securitization pipeline. In addition, lower-of-cost-or-market valuation adjustments to the Corporation’s residential mortgage loans held for sale portfolio and servicing rights portfolio, if any, are recorded as part of mortgage banking activities.
Insurance income consists of insurance commissions earned by the Corporation’s subsidiary, FirstBank Insurance Agency, Inc.
The other operating income category is composed of miscellaneous fees such as debit, credit card and point of sale (POS) interchange fees, as well as contractual shared revenues from merchant contracts sold in 2015.
The net gain (loss) on investment securities reflects gains or losses as a result of sales that are consistent with the Corporation’s investment policies as well as OTTI charges on the Corporation’s investment portfolio.
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The gain on early extinguishment of debt is related to the repurchase and cancellation of $7.3 million in trust-preferred securities of the FBP Statutory Trust I in the thirdfirst quarter of 2017 and $102022, compared to a net benefit of $0.7 million in trust-preferred securities of the FBP Statutory Trust II in the first quarter of 2016.2021.
Provision for credit losses for held-to-maturity and available-for-sale debt securities
As of March 31, 2022, the held-to-maturity debt securities portfolio consisted of Puerto Rico municipal bonds. The Corporation repurchased and cancelled the repurchased trust-preferredprovision for credit losses for held-to-maturity debt securities resulting in a commensurate reduction in the related Junior Subordinated Deferrable Debentures. The Corporation’s purchase price equated to 81%was an expense of the $7.3$3.7 million par value of trust-preferred securities repurchased in the third quarter of 2017 and the purchase price equated to 70% of the $10 million par value of trust-preferred securities repurchased infor the first quarter of 2016. The 19% discount2022, compared to an expense of $24 thousand for the trust-preferred securities repurchased in the third quarter of 2017, plus accrued interest, resulted insame period a gain of $1.4 million and the 30% discount for the trust-preferred securities repurchased inyear ago. The expense recorded during the first quarter of 2016, plus accrued interest, resulted in2022 was mainly due to the Corporation’s change of applying probability weights to the baseline and alternative downside economic scenarios to estimate the ACL and the associated impact on qualitative reserves. On the other hand, the provision for credit losses for available-for-sale debt securities was a gainnet benefit of $4.2 million. These gains are reflected in$0.4 million for the statementfirst quarter of operations as2022, compared to a “Gain on early extinguishmentnet benefit of debt.” As$0.1 million for the same period of September 30, 2017, the Corporation still has Junior Subordinated Deferrable Debentures outstanding in the aggregate amount of $208.6 million.previous year.
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Non-Interest Income
Non-interest income for the thirdfirst quarter of 20172022 amounted to $18.6$32.9 million, compared to $26.1$31.0 million for the same period in 2016.2021. The decrease$1.9 million increase in non-interest income of $7.5 million was primarily related to:
·The effectA $2.9 million increase in the third quarterother non-interest income primarily in credit card and POS interchange fees, merchant fees, and higher benefit of 2016 of a $6.1purchased income tax credits.
A $1.1 million gainincrease in service charges and fees on sales of $198.7 million of U.S. agency MBS.deposit accounts, mainly due to an increase in transactional volumes.
·Partially offset by:
A $2.4$2.1 million decrease in revenues from the mortgage banking activities, mainly driven by lower conforming loan origination anda $2.4 million decrease in net realized gain on sales volumeof residential mortgage loans in the secondary market due to higher market interest ratesa lower volume of sales. During the first quarters of 2022 and exacerbated by interruptions caused by the passage2021, net gains of Hurricanes Irma$3.5 million and Maria in the third quarter$5.9 million, respectively, were recognized as a result of 2017. Total loans sold in the secondary marketGNMA securitization transactions and whole loan sales to U.S. government-sponsored entities amountedGSEs amounting to $85.1$93.9 million with a related gain of $2.4and $150.7 million, net of To-Be-Announced MBS (“TBAs”) hedge losses of $0.3respectively.
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Non-Interest Expenses
Non-interest expenses decreased by $26.6 million in the third quarter of 2017, compared to $127.9 million with a related gain of $4.3 million, net of TBAs hedge losses of $0.6 million, in the third quarter of 2016. In addition, temporary impairments on servicing rights increased by $0.4 million in the third quarter of 2017 compared to the same period in 2016.
·A $0.5 million decrease in “other operating income” in the above table, primarily due to a $0.4 million reduction in certain non-deferrable loan fees such as unused commitment and agent fees.
Partially offset by:
·The $1.4 million gain recorded in the third quarter of 2017 on the repurchase and cancellation of $7.3 million in trust preferred securities, as described above.
Non-interest income for the nine-month period ended September 30, 2017 amounted to $47.4 million, compared to $64.4$106.7 million for the same period in 2016. The $17.0quarter ended March 31, 2022, compared to $133.3 million decrease in non-interest income was primarily due to:
·The effect in 2016 of the aforementioned $6.1 million gain on sales of $198.7 million of U.S. agency MBS.
·A $5.5 million increase in OTTI charges on debt securities. Duringfor the first quarter of 2017,2021. On a non-GAAP basis, excluding $11.3 million in merger and restructuring costs associated with the Corporation recorded a $12.2acquisition of BSPR and costs of $1.2 million OTTI charge on bonds ofrelated to the GDB and the Puerto Rico Public Buildings Authority thatCOVID-19 pandemic response efforts which were subsequently sold in the second quarter. An OTTI charge of $6.3 million on the same securities was recorded inrecognized during the first quarter of 2016. 2021, non-interest expenses decreased by $14.1 million when compared with the same quarter of the previous year. See “Basis of Presentation” below for additional information. Some of the most significant variances in adjusted non-interest expenses were as follows:
·A $2.8$7.1 million decrease in gains on early extinguishment of debt. During the third quarter of 2017, the Corporation recorded a $1.4 million gain on the repurchase and cancellation of $7.3 million of trust preferred securities, compared to a $4.2 million gain on the repurchase and cancellation of $10 million of trust preferred securities in the first quarter of 2016.
·A $3.6 million decrease in revenues from the mortgage banking activities driven by lower conforming loan origination and sales volume in the secondary market due to higher market interest rates in recent periods and exacerbated by interruptions caused by Hurricanes Irma and Maria in the third quarter of 2017. Total loans sold in the secondary market to U.S. government-sponsored entities amounted to $269.7 million with a related gain of $8.4 million, net of TBAs hedge losses of $1.0 million, for the first nine months of 2017, compared to $347.1 million with a related gain of $11.7 million, net of TBAs hedge losses of $1.4 million, for the first nine months of 2016.
· A $0.1 million decrease in “other operating income” in the above table, reflecting a $0.8 million reduction in non-deferrable loan fees such as agent fees and unused commitment fees, the effect in 2016 of fee income of $0.4 million recorded in connection with a terminated credit agreement in which the Bank was committed to participate, and a $0.4 million decrease in gain on sales of fixed asset, partially offset by a $1.6 million increase in transactional fees such as credit and debit cards interchange fess, ATM fees, and merchant referral income.
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Partially offset by:
·A $0.6 million increase in insurance income, including a $0.2 million increase in contingent commissions received by the insurance agency in 2017 and a $0.3 million decrease in the unearned insurance commissions’ reserve.
·A $0.4 million partial recovery of previously recorded OTTI charges on non-performing bonds of the GDB and the Puerto Rico Public Buildings Authority sold in the second quarter of 2017. The Corporation sold for an aggregate of $23.4 million these non-performing bonds that were carried on its books at an amortized cost of $23.0 million (net of $34.4 million in cumulative OTTI charges).
·A $0.2 million increase in service charges on deposits, primarily related to higher corporate cash management fees recorded in 2017.
Non-Interest Expenses |
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The following table presents non-interest expenses for the periods indicated: | ||||||||||||
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| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||
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| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
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| (In thousands) |
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| Employees' compensation and benefits | $ | 37,128 |
| $ | 38,005 |
| $ | 114,190 |
| $ | 113,841 |
| Occupancy and equipment |
| 13,745 |
|
| 13,888 |
|
| 41,592 |
|
| 41,114 |
| Insurance and supervisory fees |
| 4,353 |
|
| 5,604 |
|
| 14,117 |
|
| 20,013 |
| Taxes, other than income taxes |
| 3,763 |
|
| 3,927 |
|
| 11,184 |
|
| 11,475 |
| Professional fees: |
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| Collections, appraisals and other credit-related fees |
| 2,295 |
|
| 2,267 |
|
| 6,819 |
|
| 7,546 |
| Outsourcing technology services |
| 5,403 |
|
| 5,124 |
|
| 16,155 |
|
| 14,829 |
| Other professional fees |
| 4,325 |
|
| 3,281 |
|
| 11,805 |
|
| 10,400 |
| Credit and debit card processing expenses |
| 3,737 |
|
| 3,546 |
|
| 10,134 |
|
| 10,102 |
| Business promotion |
| 3,244 |
|
| 3,169 |
|
| 9,717 |
|
| 11,220 |
| Communications |
| 1,603 |
|
| 1,711 |
|
| 4,774 |
|
| 5,244 |
| Net loss on OREO and OREO operations |
| 1,351 |
|
| 2,603 |
|
| 8,796 |
|
| 9,134 |
| Other |
| 4,667 |
|
| 5,178 |
|
| 13,282 |
|
| 15,926 |
| Total | $ | 85,614 |
| $ | 88,303 |
| $ | 262,565 |
| $ | 270,844 |
Non-interest expenses for the third quarter of 2017 were $85.6 million, compared to $88.3 million for the same period in 2016. The $2.7million decrease in non-interest expenses was mainly due to:
·A $1.3 million decrease in losses from OREO operations, primarily reflecting a $1.6 million decrease in write downs to the value of OREO properties, partially offset by a $0.4 million decrease in rental income from commercial OREO income-producing properties.
·A $1.2 million decrease in the FDIC insurance premium expense, included as part of “Insurance and supervisory fees” in the table above, reflecting, among other things, the effect of reductions in brokered deposits and average assets, a strengthened capital position, and improved liquidity metrics.
·A $0.9 million decrease in employees’ compensation expenses, reflecting the effect of expected insurance recoveries of approximately $1.4 million in connection with payroll costs incurred when Hurricanes Irma and Maria precluded employees from working during the third quarter of 2017, partially offset by costs of $0.6 million recorded in the third quarter of 2017 associated with a cash transition award paid to certain senior officers as contemplated in the new executive compensation program that became effective on July 1, 2017. The total cash transition award will be paid over a four-quarter period.
·A $0.5 million decrease in “other operating expenses” in the table above, including reductions of $0.7 million in the provision for unfunded loan commitments and letters of credit, primarily related to lower unused balances on adversely classified loans, partially offset by an increase of $0.3 million in plastic card expenses.
Partially offset by:
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·A $1.4 million increase inadjusted professional service fees, primarily reflecting higher consulting fees related to the implementation of new technology systems and higher outsourcing fees related to network services, and, to a lesser extent, costs incurred in connection with a secondary offering of the Corporation’s common stock by certain of the Corporation’s existing stockholders completed in the third quarter of 2017.
·A $0.1 million increase in business promotion expenses primarily related to the expenses incurred in connection with relief efforts and assistance to employees and communities after Hurricanes Irma and Maria in the third quarter of 2017, partially offset by a decrease related to the timing of advertising, sponsorships and other marketing-related activities.
Non-interest expenses for the first nine months of 2017 were $262.6 million, compared to $270.8 million for the same period in 2016. The $8.3 million decrease in non-interest expenses was principally attributable to:
·A $5.9 million decrease in insurance and supervisory fees, including a $5.5 million decrease in the FDIC insurance premium expense mainlyoutsourced technology fees primarily related to among other things, the effect in the first quarter of reductions2021 of both $3.1 million of temporary technology processing costs of the acquired BSPR operations and costs of approximately $1.5 million incurred in brokered depositsconnection with the platform used for SBA PPP loan originations and average assets, a strengthened capital position, and improved liquidity metrics.forgiveness funding.
·A $2.6 million increase in net gains on OREO operations, primarily reflecting a $2.3 million decrease in “other operating expenses”write-downs to the value of OREO properties, in part related to a write-down to the value of a commercial property in the table above, including reductionsPuerto Rico region recorded during the first quarter of $2.32021; (ii) $0.7 million decrease in the provision for unfunded loan commitmentsOREO-related operating expenses, primarily taxes and lettersinsurance; and (iii) a $0.3 million increase in net realized gains on sales of credit,OREO properties, primarily on residential properties. These variances were partially offset by a $0.7 million decrease in income recognized from rental payments associated with OREO income-producing properties.
A $1.3 million decrease in adjusted employees’ compensation and benefits expenses, principally in incentive compensation.
A $1.1 million decrease in adjusted taxes, other than income taxes, primarily related to lower unused balances on adversely classified loans, a $0.6municipal license taxes, sales and use taxes, and property taxes.
A $1.0 million decrease in losses andadjusted other non-interest expenses relatedmainly due to non-real estate repossessed assets, and a $0.3$0.6 million decrease in amortization of intangible assets partially offset bymainly associated to the purchased credit card relationship intangible asset recognized in connection with the acquisition of a $0.5 million increaseFirstBank-branded credit card loan portfolio in plastic card expenses.
·A $1.52012 which became fully amortized at the end of 2021 and a $0.4 million decrease in business promotion expenses, primarily due to a $1.1 million decrease associated with lower advertisingsupplies and marketing-related activities and a $0.5printing expenses.
A $0.8 million decrease in costs of credit card and deposit reward programs.
·A $0.5 million decrease in communication expenses, primarily due to lower postage expenses.
·A $0.3 million decrease in losses from OREO operations, primarily reflecting a $1.5 million decrease in write downs to the value of OREO properties, partially offset by a $1.0 million decrease in rental income from commercial OREO income-producing properties.
Partially offset by:
·A $2.0 million increase in professional service fees, primarily reflecting higher consulting fees related to the implementation of new technology systems and higher outsourcing fees related to network services, and $0.4 million in costs incurred in connection with secondary offerings of the Corporation’s common stock by certain of the Corporation’s existing stockholders completed in 2017, partially offset by lower appraisals, title and collection fees related to troubled loan resolution efforts.
·A $0.3 million increase in employees’ compensation and benefits mainly due to salary merit increases and higher stock-based compensation costs as well as an increase of $0.7 million in bonus and incentive-based compensation accruals and the aforementioned $0.6 million recorded in the third quarter of 2017 associated with a cash transition award paid to certain senior officers in the third quarter of 2017. These variances were partially offset by the expected insurance recoveries of approximately $1.4 million in connection with payroll costs incurred when Hurricanes Irma and Maria precluded employees from working during the third quarter of 2017.
·A $0.5 million increase inadjusted occupancy and equipment expenses, primarily due to higher electricity, property taxes and rental expenses.
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, First BanCorp. is treated as a foreign corporation for U.S. and USVI income tax purposes and is generally subject to U.S. and USVI income tax only on its income from sources within the U.S. and USVI or income effectively connected with the conduct of a trade or business in those regions. Any such tax paid in the U.S. and USVI is also either creditable against the Corporation’s Puerto Rico tax liability or taken as a deduction against taxable income, subject to certain conditions and limitations.
Under the Puerto Rico Internal Revenue Code of 2011, as amended (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
102
net operating loss (“NOL”), a particular subsidiary must be able to demonstrate sufficient taxable income within the applicable NOL carry-forward period. The 2011 PR Code allows entities organized as limited liability companies to perform an election to become a non-taxable “pass-through” entity and utilize losses to offset income from other “pass-through” entities, subject to certain limitations, with the remaining net income passing-through to its partner entities. The 2011 PR Code also 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.
On March 1, 2017, the Corporation completed the applicable regulatory filings to change the tax status of its subsidiary, First Federal Finance, from a taxable corporationrelated to a non-taxable “pass-through” entity. This election allows the Corporation to realize tax benefits of its deferred tax assets associated with pass-through ordinary net operating losses available at the banking subsidiary, FirstBank, which were subject to a full valuation allowance as of December 31, 2016, against now pass-through ordinary income from this profitable subsidiary.reduction in rental expense and equipment related depreciation charges.
On March 1, 2017, the Corporation also completed the applicable regulatory filings to change the tax status of its subsidiary, FirstBank Insurance, from a taxable corporation to a non-taxable “pass-through” entity. This election allows the Corporation to offset pass-through income projected to be earned by FirstBank Insurance with the projected net operating losses at the Holding Company.
Income Taxes
The Corporation has maintained an effective tax rate lower than the maximum statutory rate mainly by investing in government obligations and mortgage-backed securities exempt from U.S. and Puerto Rico income taxes and by doing business through an International Banking Entity (“IBE”) unit of the Bank, and through the Bank’s subsidiary, FirstBank Overseas Corporation, whose interest income and gain on sales is exempt from Puerto Rico income taxation. The IBE 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.
For the thirdfirst quarter and first nine months of 2017,2022, the Corporation recorded income tax benefits of $8.4 million and $7.2 million, respectively, compared toan income tax expense of $10.4$43.0 million, and $23.7 million, for comparable periods in 2016. The tax benefit for the third quarter of 2017, as compared to the tax expense$28.0 million for the same period in 2016,2021. The variance was primarily driven by the tax benefit recognized associated with the storm-related charges recorded in the third quarter of 2017related to both higher pre-tax income and a lower effective tax rate driven by an increase in the projected ratio of exempt to taxable income.
The tax benefit for the first nine months of 2017, as compared to the tax expense for the same period in 2016, was mostly attributable to the tax benefit recognized related to the storm-related charges and the $13.2 million tax benefit recorded in the first quarter of 2017 as a result of the above discussed change in tax status of certain subsidiaries from taxable corporations to limited liability companies that have elected to be treated as partnerships for income tax purposes in Puerto Rico. The $13.2 million tax benefit was primarily associated with the reversal of the $13.9 million deferred tax asset valuation allowance previously recorded at FirstBank related to pass-through ordinary net operating losses, partially offset by the elimination of the $0.7 million deferred tax asset previously recorded at FirstBank Insurance. A lower effective tax rate for the first nine months of 2017, as compared to the same period in 2016, also contributed to the positive variance in income tax expense.
For the nine-month period ended September 30, 2017, the Corporation calculated the provision for income taxes by applying the estimated annual effective tax rate for the full fiscal year to ordinary income or loss. In the computation of the consolidated worldwide annualhigher estimated effective tax rate ASC 740-270 requires the exclusionresulting from a higher level of legal entities with pre-tax losses from which a tax benefit cannot be recognized.taxable income. The Corporation’s estimated annual effective tax rate in the first nine monthsquarter of 2017,2022, excluding entities from which a tax benefit cannot be recognized and discrete items, was 20%32.9% compared to 24%30.6% for the first nine monthsquarter of 2016.2021. The estimated annual effective tax rate including all entities for 20172022 was -2% (21%33.2% (33.5% excluding discrete items, primarily the tax benefit resulting from the previously mentioned change in the tax status of two subsidiaries)items), compared to 25%30.6% for the first nine monthsquarter of 2016.
The2021 (31.1% excluding discrete items). See Note 18 - Income Taxes for additional information on the Corporation’s net deferred tax asset amounted to $299.8 million as of September 30, 2017, net of a valuation allowance of $186.9 million,March 31, 2022 and management concluded, based upon the assessment of all positive and negative evidence, that it is more likely than not that the Corporation will generate sufficient taxable income within the applicable NOL carry-forward periods to realize such amount. The net deferred tax asset of the Corporation’s banking subsidiary, FirstBank, amounted to $299.5 million as of September 30, 2017, net of a valuation allowance of $146.6 million, compared to a net deferred tax asset of $277.4 million, net of a valuation allowance of $171.0 million, as of December 31, 2016.2021.
We have U.S. and USVI sourced NOLs that we incurred in prior years. Section 382 of the U.S. Internal Revenue Code (the “Section 382”) limits the ability to utilize U.S. and USVI NOLs for income tax purposes at such jurisdictions following an event resulting in an ownership change. Generally, an ownership change occurs when certain shareholders increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage over a three-year testing period. Upon the
103107
occurrence of a Section 382 ownership change, the use of NOLs attributable to the period prior to the ownership change is subject to limitations and only a portion of the U.S. and USVI NOLs may be used by the Corporation to offset its annual U.S. and USVI taxable income, if any.
During the third quarter of 2017, the Corporation completed a formal ownership change analysis within the meaning of Section 382 covering a comprehensive period, and concluded that an ownership change occurred during such comprehensive period. The ownership change and resulting Section 382 limitation did not cause a U.S. or USVI income tax liability or material income tax expense related to prior periods since the Corporation had sufficient post ownership change NOL’s in those jurisdictions to offset taxable income. The Section 382 limitation could result in higher U.S. and USVI liabilities in the future than we would incur in the absence of such limitation. Prospectively, the Corporation expects that it will be able to mitigate the adverse effects associated with the Section 382 limitation as any such tax paid in the U.S. or USVI could be creditable against Puerto Rico tax liabilities or taken as 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 depends on various factors. For the third quarter of 2017, as a result of the Section 382 limitation and based on the tax profile as of September 30, 2017, the Corporation incurred an income tax expense of approximately $1.6 million related to its U.S. operations. The limitation did not affect the USVI operations for the third quarter of 2017.
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FINANCIAL CONDITION AND OPERATING DATA ANALYSIS
Assets
The Corporation’s total assets were $12.2$19.9 billion as of September 30, 2017, an increaseMarch 31, 2022, a decrease of $251.2$856.2 million from December 31, 2016. 2021.
The increasedecrease was mainly dueprimarily related to a $437.5 million increasedecrease in cash and cash equivalents largely driven by temporary funding obtained through FHLB advancesmainly attributable to a decrease in anticipationgovernment deposits, the repayment of a potential increase in short-term liquidity requirements of customers as a result of Hurricanes Irma and Maria in the third quarter of 2017 and higher balances tied to the increase of $102.0$100 million in non-interest bearing deposits. In addition, the deferred tax asset (net of valuation allowance) increased by $18.1 million, mainly in connection with the storm-related charges recorded in the third quarter of 2017,repurchase agreement, and the OREO portfolio balance increased by $15.3repurchase of approximately 3.4 million primarily related to $10.6 millionshares of collateral acquired in connection with the aforementioned resolutioncommon stock for a total purchase price of a $27.6 million non-performing commercial relationship in Puerto Rico.
These$50 million. As further discussed below, these variances were partially offset as further discussed below, by a $127.9 million decrease in total investment securities, driven by prepayments of U.S. agency MBS and the aforementioned sale of non-performing bonds of the GDB and the Puerto Rico Public Buildings Authority in the second quarter of 2017, a $32.1 million decrease in total loans before the allowance for loan and lease losses, a $25.3$29.8 million increase in the allowance, and a $33.9 million decrease in certain accounts receivable recorded as part of “Other assets” in the statement of financial condition.total loans.
Loan Portfolio
The following table presents the composition of the Corporation’s loan portfolio, including loans held for sale, as of the indicated dates: | |||||||
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, | ||
|
| 2022 |
| 2021 | |||
| (In thousands) |
|
|
|
|
| |
| Residential mortgage loans | $ | 2,891,699 |
| $ | 2,978,895 | |
| Commercial loans: |
|
|
|
|
| |
| Commercial mortgage loans |
| 2,237,702 |
|
| 2,167,469 | |
| Construction loans |
| 111,908 |
|
| 138,999 | |
| Commercial and Industrial loans (1) |
| 2,880,256 |
|
| 2,887,251 | |
| Total commercial loans |
| 5,229,866 |
|
| 5,193,719 | |
| Consumer loans and finance leases |
| 2,976,140 |
|
| 2,888,044 | |
| Total loans held for investment |
| 11,097,705 |
|
| 11,060,658 | |
| Less: |
|
|
|
|
| |
| Allowance for credit losses for loans and finance leases |
| (245,447) |
|
| (269,030) | |
| Total loans held for investment, net | $ | 10,852,258 |
| $ | 10,791,628 | |
| Loans held for sale |
| 27,905 |
|
| 35,155 | |
| Total loans, net | $ | 10,880,163 |
| $ | 10,826,783 | |
|
|
|
|
|
|
|
|
| (1) As of March 31, 2022 and December 31, 2021, includes $89.7 million and $145.0 million, respectively, of SBA PPP loans. |
Loan Portfolio |
|
|
| |||
|
|
|
|
|
|
|
The following table presents the composition of the Corporation’s loan portfolio, including loans held for sale, as of the dates indicated: | ||||||
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
(In thousands) | 2017 |
| 2016 | |||
|
|
|
|
|
|
|
Residential mortgage loans | $ | 3,274,340 |
| $ | 3,296,031 | |
|
|
|
|
|
|
|
Commercial loans: |
|
|
|
|
| |
Commercial mortgage loans |
| 1,601,638 |
|
| 1,568,808 | |
Construction loans |
| 129,460 |
|
| 124,951 | |
Commercial and Industrial loans |
| 2,144,236 |
|
| 2,180,455 | |
Total commercial loans |
| 3,875,334 |
|
| 3,874,214 | |
Finance leases |
| 246,084 |
|
| 233,335 | |
Consumer loans |
| 1,481,456 |
|
| 1,483,293 | |
Total loans held for investment |
| 8,877,214 |
|
| 8,886,873 | |
|
|
|
|
|
|
|
Less: |
|
|
|
|
| |
Allowance for loan and lease losses |
| (230,870) |
|
| (205,603) | |
Total loans held for investment, net | $ | 8,646,344 |
| $ | 8,681,270 | |
Loans held for sale |
| 27,576 |
|
| 50,006 | |
Total loans, net | $ | 8,673,920 |
| $ | 8,731,276 | |
|
|
|
|
|
|
|
|
105
As of September 30, 2017,March 31, 2022, the Corporation’s total loan portfolio before allowance,the ACL amounted to $8.9$11.1 billion, down $32.1an increase of $29.8 million when compared to December 31, 2016.2021. The decline primarily reflectsincrease consisted of a $239.7$45.7 million decreaseincrease in the Puerto Rico region, including the effectpartially offset by reductions of the sale of the PREPA credit line with a book value of $64$10.1 million at the time of the sale in the first quarter of 2017, charge-offs of $29.7 million and cash collections of $9.6 million during the year on TDF commercial mortgage loans, the resolution of a $27.6 million non-performing commercial relationship, and a $99.1 million reduction in residential mortgage loans. In addition, the total loan portfolio balance in the Virgin Islands decreased by $19.2 million. These variances were partially offset byregion and $5.8 million in the Florida region. On a $226.8portfolio basis, the increase consisted of an increase of $88.1 million in consumer loans, mainly related to a $96.4 million increase in the Florida region, includingauto loans and leases, and an increase of $136.4$36.1 million in commercial and construction loans, and an $85.1partially offset by a reduction of $94.4 million increasein residential mortgage loans. Excluding the $55.3 million decrease in the residential mortgagecarrying value of the SBA PPP loan portfolio. portfolio, commercial and construction loans increased by $91.4 million, mainly reflecting the origination of loans related to nine commercial relationships, each in excess of $10 million, totaling $157.6 million, partially offset by the payoffs and paydowns of three commercial and industrial relationships, each in excess of $10 million, totaling $62.8 million.
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As shown in the table above, as of September 30, 2017, theMarch 31, 2022, loans held for investment portfolio waswere comprised of commercial and construction loans (44%(47%), residential real estate loans (37%(26%), and consumer and finance leases (19%(27%). Of the total gross loan portfolio held for investment of $8.9$11.1 billion as of September 30, 2017, approximately 75% hasMarch 31, 2022, the Corporation had a credit risk concentration of approximately 79% in the Puerto Rico region, 18% in the United States region (mainly in the state of Florida), and 7%3% in the Virgin Islands region, as shown in the following table:
As of March 31, 2022 | Puerto Rico |
| Virgin Islands |
| United States |
| Total | ||||
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans | $ | 2,305,461 |
| $ | 181,632 |
| $ | 404,606 |
| $ | 2,891,699 |
Commercial mortgage loans |
| 1,667,028 |
|
| 66,829 |
|
| 503,845 |
|
| 2,237,702 |
Construction loans |
| 41,176 |
|
| 4,244 |
|
| 66,488 |
|
| 111,908 |
Commercial and Industrial loans (1) |
| 1,851,527 |
|
| 75,399 |
|
| 953,330 |
|
| 2,880,256 |
Total commercial loans |
| 3,559,731 |
|
| 146,472 |
|
| 1,523,663 |
|
| 5,229,866 |
Consumer loans and finance leases |
| 2,908,746 |
|
| 53,253 |
|
| 14,141 |
|
| 2,976,140 |
Total loans held for investment, gross | $ | 8,773,938 |
| $ | 381,357 |
| $ | 1,942,410 |
| $ | 11,097,705 |
Loans held for sale |
| 27,151 |
|
| 232 |
|
| 522 |
|
| 27,905 |
Total loans, gross | $ | 8,801,089 |
| $ | 381,589 |
| $ | 1,942,932 |
| $ | 11,125,610 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) As of March 31, 2022, includes $89.7 million of SBA PPP loans consisting of $67.7 million in the Puerto Rico region, $5.1 million in the Virgin Islands region, and $16.9 million in the United States region. |
As of September 30, 2017 | Puerto Rico |
| Virgin Islands |
| United States |
| Total | |||||||||||||||
As of December 31, 2021 | Puerto Rico |
| Virgin Islands |
| United States |
| Total | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Residential mortgage loans | $ | 2,396,557 |
| $ | 284,467 |
| $ | 593,316 |
| $ | 3,274,340 | $ | 2,361,322 |
| $ | 188,251 |
| $ | 429,322 |
| $ | 2,978,895 |
Commercial mortgage loans |
| 1,130,550 |
|
| 97,753 |
|
| 373,335 |
|
| 1,601,638 |
| 1,635,137 |
|
| 67,094 |
|
| 465,238 |
|
| 2,167,469 |
Construction loans |
| 51,107 |
|
| 44,011 |
|
| 34,342 |
|
| 129,460 |
| 38,789 |
| 4,344 |
| 95,866 |
| 138,999 | |||
Commercial and Industrial loans |
| 1,461,870 |
|
| 134,683 |
|
| 547,683 |
|
| 2,144,236 | |||||||||||
Commercial and Industrial loans (1) |
| 1,867,082 |
|
| 79,515 |
|
| 940,654 |
|
| 2,887,251 | |||||||||||
Total commercial loans |
| 2,643,527 |
|
| 276,447 |
|
| 955,360 |
|
| 3,875,334 |
| 3,541,008 |
|
| 150,953 |
|
| 1,501,758 |
|
| 5,193,719 |
Finance leases |
| 246,084 |
|
| - |
|
| - |
|
| 246,084 | |||||||||||
Consumer loans |
| 1,377,820 |
|
| 47,453 |
|
| 56,183 |
|
| 1,481,456 | |||||||||||
Consumer loans and finance leases |
| 2,820,102 |
|
| 52,282 |
|
| 15,660 |
|
| 2,888,044 | |||||||||||
Total loans held for investment, gross | $ | 6,663,988 |
| $ | 608,367 |
| $ | 1,604,859 |
| $ | 8,877,214 | $ | 8,722,432 |
| $ | 391,486 |
| $ | 1,946,740 |
| $ | 11,060,658 |
Loans held for sale |
| 33,002 |
|
| 177 |
|
| 1,976 |
|
| 35,155 | |||||||||||
Total loans, gross | $ | 8,755,434 |
| $ | 391,663 |
| $ | 1,948,716 |
| $ | 11,095,813 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
| 23,038 |
|
| 169 |
|
| 4,369 |
|
| 27,576 | |||||||||||
Total loans | $ | 6,687,026 |
| $ | 608,536 |
| $ | 1,609,228 |
| $ | 8,904,790 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
As of December 31, 2016 | Puerto Rico |
| Virgin Islands |
| United States |
| Total | |||||||||||||||
(In thousands) |
|
| ||||||||||||||||||||
Residential mortgage loans | $ | 2,480,076 |
| $ | 314,915 |
| $ | 501,040 |
| $ | 3,296,031 | |||||||||||
Commercial mortgage loans |
| 1,177,550 |
|
| 79,365 |
|
| 311,893 |
|
| 1,568,808 | |||||||||||
Construction loans |
| 42,753 |
|
| 44,687 |
|
| 37,511 |
|
| 124,951 | |||||||||||
Commercial and Industrial loans |
| 1,571,097 |
|
| 139,795 |
|
| 469,563 |
|
| 2,180,455 | |||||||||||
Total commercial loans |
| 2,791,400 |
|
| 263,847 |
|
| 818,967 |
|
| 3,874,214 | |||||||||||
Finance leases |
| 233,335 |
|
| - |
|
| - |
|
| 233,335 | |||||||||||
Consumer loans |
| 1,383,485 |
|
| 48,958 |
|
| 50,850 |
|
| 1,483,293 | |||||||||||
Total loans held for investment, gross | $ | 6,888,296 |
| $ | 627,720 |
| $ | 1,370,857 |
| $ | 8,886,873 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Loans held for sale |
| 38,423 |
|
| - |
|
| 11,583 |
|
| 50,006 | |||||||||||
Total loans | $ | 6,926,719 |
| $ | 627,720 |
| $ | 1,382,440 |
| $ | 8,936,879 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
(1) As of December 31, 2021, includes $145.0 million of SBA PPP loans consisting of $102.8 million in the Puerto Rico region, $8.2 million in the Virgin Islands region, and $34.0 million in the United States region. | (1) As of December 31, 2021, includes $145.0 million of SBA PPP loans consisting of $102.8 million in the Puerto Rico region, $8.2 million in the Virgin Islands region, and $34.0 million in the United States region. |
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Residential Real Estate Loans
As of September 30, 2017,March 31, 2022, the Corporation’s total residential real estatemortgage loan portfolio, including loans held for investmentsale, decreased by $21.7$94.4 million, as compared to the balance as of December 31, 2016, mainly resulting from activities2021. The decline reflects reductions in Puerto Rico and the Virgin Islands as principalall regions driven by repayments and charge-offs, exceededwhich more than offset the volume of new loans originated and held for investment purposes. Theloan originations kept on the balance sheet. Consistent with the Corporation’s strategies, the residential mortgage loan portfolio held for investmentdecreased by $61.7 million in the Puerto Rico region, $26.2 million in the Florida region, and $6.5 million in the Virgin Islands regions decreased during the first nine months of 2017 by $83.5 million and $30.4 million, respectively, partially offset by an increase of $92.3 million in Florida.region.
The majority of the Corporation’s outstanding balance of residential mortgage loans in the Puerto Rico and the Virgin Islands consistsregions consisted of fixed-rate loans that traditionally carriedcarry higher yields than residential mortgage loans in Florida.the Florida region. In the Florida region, approximately 56%53% of the residential real estatemortgage loan portfolio consisted of adjustable ratehybrid adjustable-rate mortgages. In accordance with the Corporation’s underwriting guidelines, residential real estatemortgage loans are mostly fully documentedprimarily fully-documented loans, and the Corporation does not generally originate negative amortization loans. Refer to “Contractual Obligations and Commitments” below for additional information about outstanding commitments to sell mortgage loans.
Commercial and Construction Loans
As of September 30, 2017,March 31, 2022, the Corporation’s commercial and construction loan portfolio held for investment increased by $1.1$36.1 million to $3.9 billion,(net of a $55.3 million decrease in the SBA PPP loan portfolio), as compared to the balance as of December 31, 2016. The increase reflects2021.
In the Puerto Rico region, commercial and construction loans increased by $18.7 million (net of a $136.4$35.1 million growthdecrease in the SBA PPP loan portfolio), as compared to the balance as of December 31, 2021. Excluding the $35.1 million decrease in the SBA PPP loan portfolio, commercial and construction loans in the Puerto Rico region increased by $53.8 million, driven by the origination of loans related to four commercial relationships, each in excess of $10 million, totaling $81.0 million, partially offset by the early payoff of a $19.4 million commercial and industrial loan.
In the Florida region, commercial and construction loans increased by $21.9 million (net of a $17.1 million decrease in the SBA PPP loan portfolio), as compared to the balance as of December 31, 2021. Excluding the $17.1 million decrease in the SBA PPP loan portfolio, commercial and construction loans in the Florida region increased by $39.0 million, driven by the origination of loans related to five commercial relationships, each in excess of $10 million, amounting to $76.6 million, partially offset by the payoffs and an increasepaydowns of $12.6loans associated with two commercial and industrial relationships, each in excess of $10 million, totaling $43.4 million.
In the Virgin Islands region, commercial and construction loans decreased by $4.5 million driven by a $3.1 million decrease in the SBA PPP loan portfolio, as compared to the balance as of December 31, 2021.
As of March 31, 2022, the SBA PPP loan portfolio amounted to $89.7 million, net of unearned fees of $5.1 million, compared to $145.0 million, net of unearned fees of $7.9 million as of December 31, 2021. In the first quarter of 2021, the Corporation originated $209.3 million in SBA PPP loans. In the first quarter of 2022, the Corporation received forgiveness remittances and customer payments of approximately $58.1 million in the Virgin Islands. The Corporation has investedprincipal balance of PPP loans, compared with $177.3 million for the same period in facilities, increased its resources dedicated to commercial and corporate banking functions and invested in a technology platform in Florida as the Corporation expects to achieve continued growth in this region. These increases were almost entirely offset by a decrease of $147.9 million in Puerto Rico, largely driven by the aforementioned sale of the PREPA credit line2021. In addition, forgiveness remittances in the first quarter of 2017 with a book value of $64 million at the time of sale, charge offs of $29.7 million and cash collections of $9.6 million during the year on TDF commercial mortgage loans, and the resolution of a $27.6 million non-performing commercial relationship2022 resulted in the second quarteracceleration of 2017. fee income recognition in the amount of $2.4 million, compared with $3.2 million for the same period in 2021.
As of September 30, 2017,March 31, 2022, the Corporation had $56.2$175.2 million outstanding in loans extended to the Puerto Rico government, its municipalities, and public corporations, compared to $133.6$178.4 million outstanding as of December 31, 2016. As mentioned above, during the first quarter of 2017, the Corporation received an unsolicited offer and sold its outstanding participation in the PREPA line of credit with a book value of $64 million at the time of sale (principal balance of $75 million), thereby reducing its direct exposure to the Puerto Rico government.2021. As of September 30, 2017,March 31, 2022, approximately $33.9$100.2 million of the outstanding loans consisted of loans extended to municipalities in Puerto Rico which in most casesthat are supported by assigned property tax revenues. The vast majorityrevenues, and $31.3 million consisted of revenues of themunicipal special obligation bonds. In addition to loans extended to municipalities, included in the Corporation’s loan portfolio are independentexposure to the Puerto Rico government as of March 31, 2022, included $12.3 million in loans granted to an affiliate of PREPA and $31.4 million in loans to an agency of the Puerto Rico central government as the amount of revenues that depend from the Puerto Rico government General Fund subsidy represents just below 5% of the total revenues of these municipalities. These municipalities are required by law to levy special property taxes in such amounts as are required for the payment of all of their respective general obligation bonds and notes. Late in 2015, the GDB and the Municipal Revenue Collection Center (“CRIM”) signed and perfected a deed of trust. Through this deed, the GDB, as fiduciary, is bound to keep the CRIM funds separate from any other deposits and must distribute the funds pursuant to applicable law. The CRIM funds are deposited at another commercial depository financial institution in Puerto Rico. Approximately $6.8 million of the outstanding loans as of September 30, 2017 consisted of a loan to a unit of the central government, and approximately $15.4 million consisted of a loan to an affiliate of a public corporation.government.
Furthermore, as of September 30, 2017, the Corporation had three loans granted to the hotel industry in Puerto Rico guaranteed by the TDF with an outstanding principal balance of $120.2 million (book value $72.4 million), compared to $127.7 million outstanding (book value of $111.8 million) as of December 31, 2016. The borrower and the operations of the underlying collateral of these loans are the primary sources of repayment and the TDF provides a secondary guarantee for payment performance. The TDF is a subsidiary of the GDB. These loans have been classified as non-performing and impaired since the first quarter of 2016, and interest payments have been applied against principal since then. Approximately $4.1 million of interest payments received on loans guaranteed by the TDF since late March 2016 have been applied against principal. During the second quarter of 2017, the Corporation recorded charge-offs of $29.7 million on these facilities. The largest of these three loans became over 90 days matured in the second quarter of 2017 and, as a collateral dependent loan, the portion of the recorded investment in excess of the fair value of the collateral and the guarantee was charged-off. A portion of the charge-offs was related to an adjustment to the estimated fair value of the guarantee on these loans in light of an agreement reached in the second quarter of 2017 in which the TDF agreed to honor a portion of its guarantee through a cash payment and a fixed income financial instrument. During the third quarter of 2017, the Corporation received a cash payment of $7.6 million in connection with this agreement. The issuance of the fixed income financial instrument is linked to the GDB’s Restructuring Support Agreement approved by the PROMESA oversight board. Upon completion of the agreement, which is subject to the issuance of the fixed income financial instrument, TDF will be released as guarantor and the income-producing real estate properties will be the only collateral on these loans, thus, any decline in the collateral valuations may require additional impairments on these bonds. As of September 30, 2017, the non-performing loans guaranteed by the TDF and related facilities are being carried (net of reserves and accumulated charge-offs) at 53% of unpaid principal balance.
107
The Corporation also has credit exposure to USVI government entities. As of September 30, 2017,March 31, 2022, the Corporation had $84.8$38.0 million in loans to USVI government instrumentalities and public corporations, compared to $84.7$39.2 million as of December 31, 2016. Of the amount outstanding as2021. As of September 30, 2017, approximately $61.6 million was owned by public corporations of the USVI and $23.2 million was owned by an independent instrumentality of the USVI government. AllMarch 31, 2022, all loans arewere currently performing and up to date with their respectiveon principal and interest payments.
As of September 30, 2017,March 31, 2022, the Corporation’s total exposure to shared national credit (“SNC”) loans (including unused commitments) amounted to $870.6$930.3 million, compared to $717.6$918.6 million as of December 31, 2016.2021. As of September 30, 2017,March 31, 2022, approximately $410.7$148.5 million of the SNC exposure is related to the portfolio in Puerto Rico and $459.9$781.8 million is related to the portfolio in the Florida region.
The composition of the Corporation's construction loan portfolio held for investment as of September 30, 2017 by category and geographic location follows: | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
| Puerto Rico |
| Virgin Islands |
| United States |
| Total | ||||
(In thousands) |
|
| |||||||||
Loans for residential housing projects: |
|
|
|
|
|
|
|
|
|
|
|
Mid-rise (1) | $ | 827 |
| $ | - |
| $ | - |
| $ | 827 |
Single-family, detached |
| 2,206 |
|
| 319 |
|
| 3,144 |
|
| 5,669 |
Total for residential housing projects |
| 3,033 |
|
| 319 |
|
| 3,144 |
|
| 6,496 |
|
|
|
|
|
|
|
|
|
|
|
|
Construction loans to individuals secured by residential properties |
| 426 |
|
| 1,025 |
|
| - |
|
| 1,451 |
Loans for commercial projects |
| 20,441 |
|
| 40,106 |
|
| 31,095 |
|
| 91,642 |
Land loans - residential |
| 15,943 |
|
| 2,581 |
|
| 103 |
|
| 18,627 |
Land loans - commercial |
| 11,342 |
|
| - |
|
| - |
|
| 11,342 |
Total before net deferred fees and allowance for loan losses | $ | 51,185 |
| $ | 44,031 |
| $ | 34,342 |
| $ | 129,558 |
Net deferred fees |
| (78) |
|
| (20) |
|
| - |
|
| (98) |
Total construction loan portfolio, gross |
| 51,107 |
|
| 44,011 |
|
| 34,342 |
|
| 129,460 |
Allowance for loan losses |
| (2,422) |
|
| (1,520) |
|
| (5) |
|
| (3,947) |
|
|
|
|
|
|
|
|
|
|
|
|
Total construction loan portfolio, net | $ | 48,685 |
| $ | 42,491 |
| $ | 34,337 |
| $ | 125,513 |
____________________ | |||||||||||
(1) Mid-rise relates to buildings of up to seven stories. |
The following table presents further information related to the Corporation’s construction portfolio as of and for the nine-month period ended September 30, 2017: | ||||
|
|
|
|
|
| (In thousands) |
|
|
|
| Total undisbursed funds under existing commitments | $ | 66,459 |
|
|
|
|
|
|
| Construction loans held for investment in non-accrual status | $ | 46,720 |
|
|
|
|
|
|
| Construction loans held for sale in non-accrual status | $ | 8,290 |
|
|
|
|
|
|
| Net charge offs - Construction loans | $ | 111 |
|
|
|
|
|
|
| Allowance for loan losses - Construction loans | $ | 3,947 |
|
|
|
|
|
|
| Non-performing construction loans to total construction loans, including held for sale |
| 39.93% |
|
|
|
|
|
|
| Allowance for loan losses - construction loans to total construction loans held for investment |
| 3.04% |
|
|
|
|
|
|
| Net charge-offs (annualized) to total average construction loans |
| 0.11% |
|
|
|
|
|
|
|
|
|
|
|
108110
The following summarizes the construction loans for residential housing projects in Puerto Rico segregated by the estimated selling price of the units: | |||
|
|
|
|
| (In thousands) |
| |
|
|
|
|
Under $300k | $ | 2,116 |
|
Over $600k (1) |
| 917 |
|
| $ | 3,033 |
|
_____________ | |||
(1) One residential housing project in Puerto Rico. | |||
|
The composition of the Corporation’s construction loan portfolio held for investment as of March 31, 2022 and December 31, 2021, by category and geographic location follows: | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
| |
|
| Puerto Rico |
| Virgin Islands |
| United States |
| Total | ||||
(In thousands) |
|
| ||||||||||
Loans for residential housing projects: |
|
|
|
|
|
|
|
|
|
|
| |
Mid-rise (1) | $ | - |
| $ | 956 |
| $ | - |
| $ | 956 | |
Single-family, detached |
| 5,407 |
|
| - |
|
| 10,571 |
|
| 15,978 | |
Total for residential housing projects |
| 5,407 |
|
| 956 |
|
| 10,571 |
|
| 16,934 | |
Construction loans to individuals secured by residential properties |
| 48 |
|
| - |
|
| - |
|
| 48 | |
Loans for commercial projects |
| 31,132 |
|
| 2,251 |
|
| 55,025 |
|
| 88,408 | |
Land loans - residential |
| 4,030 |
|
| 1,037 |
|
| 892 |
|
| 5,959 | |
Land loans - commercial |
| 559 |
|
| - |
|
| - |
|
| 559 | |
Total construction loan portfolio, gross |
| 41,176 |
|
| 4,244 |
|
| 66,488 |
|
| 111,908 | |
ACL |
| (961) |
|
| (222) |
|
| (659) |
|
| (1,842) | |
Total construction loan portfolio, net | $ | 40,215 |
| $ | 4,022 |
| $ | 65,829 |
| $ | 110,066 | |
____________________ | ||||||||||||
(1) Mid-rise relates to buildings of up to 7 stories. |
As of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
| |
|
| Puerto Rico |
| Virgin Islands |
| United States |
| Total | ||||
(In thousands) |
|
| ||||||||||
Loans for residential housing projects: |
|
|
|
|
|
|
|
|
|
|
| |
Mid-rise (1) | $ | - |
| $ | 956 |
| $ | - |
| $ | 956 | |
Single-family, detached |
| 5,924 |
|
| - |
|
| 8,621 |
|
| 14,545 | |
Total for residential housing projects |
| 5,924 |
|
| 956 |
|
| 8,621 |
|
| 15,501 | |
Construction loans to individuals secured by residential properties |
| 48 |
|
| - |
|
| - |
|
| 48 | |
Loans for commercial projects |
| 27,839 |
|
| 2,251 |
|
| 86,348 |
|
| 116,438 | |
Land loans - residential |
| 4,137 |
|
| 1,137 |
|
| 897 |
|
| 6,171 | |
Land loans - commercial |
| 841 |
|
| - |
|
| - |
|
| 841 | |
Total construction loan portfolio, gross |
| 38,789 |
|
| 4,344 |
|
| 95,866 |
|
| 138,999 | |
ACL |
| (942) |
|
| (210) |
|
| (2,896) |
|
| (4,048) | |
Total construction loan portfolio, net | $ | 37,847 |
| $ | 4,134 |
| $ | 92,970 |
| $ | 134,951 | |
____________________ | ||||||||||||
(1) Mid-rise relates to buildings of up to 7 stories. | ||||||||||||
|
|
111
The following table presents further information related to the Corporation’s construction portfolio as of and for the quarter ended March 31, 2022: | |||
| |||
| (Dollars in thousands) |
|
|
| Total undisbursed funds under existing commitments | $ | 191,792 |
| Construction loans held for investment in nonaccrual status | $ | 2,543 |
| Net recoveries - Construction loans | $ | 8 |
| ACL - Construction loans | $ | 1,842 |
|
|
|
|
| Nonaccrual construction loans to total construction loans |
| 2.27% |
|
|
|
|
| ACL for construction loans to total construction loans held for investment |
| 1.65% |
|
|
|
|
| Net recoveries (annualized) to total average construction loans |
| -0.03% |
|
|
Consumer Loans and Finance Leases
As of September 30, 2017,March 31, 2022, the Corporation’s consumer loan and finance lease portfolio increased by $10.9$88.1 million to $1.7$3.0 billion, as compared to the portfolio balance of $2.9 billion as of December 31, 2016.2021. The increase waschange primarily reflectedreflects increases of $65.2 million and $31.2 million in personalthe auto loans and finance leases showing increases of $20.7 million and $12.7 million,portfolios, respectively, partially offset by a $13.7 million reductionreductions in autopersonal loans, a $4.9 million decrease in boatcredit cards loans, and a $3.2other loans of $6.1 million, reduction$1.8 million, and $0.4 million, respectively. The growth in the credit card loan portfolio balance. The increase was primarily associated with an increased level of loan originationsconsumer loans is mainly reflected in the Puerto Rico region and was driven by increased loan originations during the year, despite disruptions associated with Hurricanes Irma and Maria in the third quarter.first quarter of 2022.
112
Loan Production
First BanCorp. relies primarily on its retail network of branches to originate residential and consumer loans. The Corporation supplementsmay supplement its residential mortgage originations with wholesale servicing released mortgage loan purchases from mortgage bankers. The Corporation manages its construction and commercial loan originations through centralized units and most of its originations come from existing customers, as well as through referrals and direct solicitations.
The following table provides a breakdown of First BanCorp.’s loan production, including purchases, refinancings, renewals, and draws from existing revolving and non-revolving commitments, for the periods indicated:
| Quarter Ended March 31, |
|
|
|
|
| ||||
| 2022 |
| 2021 |
|
|
|
|
| ||
(In thousands) |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage | $ | 122,513 |
| $ | 163,927 |
|
|
|
|
|
Commercial mortgage |
| 127,985 |
|
| 31,539 |
|
|
|
|
|
Commercial and Industrial (1) |
| 490,296 |
|
| 777,203 |
|
|
|
|
|
Construction |
| 19,986 |
|
| 24,021 |
|
|
|
|
|
Consumer |
| 426,467 |
|
| 342,063 |
|
|
|
|
|
Total loan production | $ | 1,187,247 |
| $ | 1,338,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) For the quarter ended March 31, 2021, includes $209.3 million in originations of SBA PPP loans. |
|
|
|
|
|
| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
| (In thousands) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate | $ | 112,120 |
| $ | 199,125 |
| $ | 456,291 |
| $ | 556,181 |
C&I and commercial mortgage |
| 334,885 |
|
| 456,625 |
|
| 1,397,755 |
|
| 1,184,928 |
Construction |
| 10,605 |
|
| 9,006 |
|
| 45,602 |
|
| 16,975 |
Finance leases |
| 21,472 |
|
| 20,827 |
|
| 71,641 |
|
| 62,963 |
Consumer |
| 186,917 |
|
| 199,632 |
|
| 631,933 |
|
| 577,216 |
Total loan production | $ | 665,999 |
| $ | 885,215 |
| $ | 2,603,222 |
| $ | 2,398,263 |
|
The Corporation is experiencing continued loan demand and has continued its targeted origination strategy. During the quarter and nine-month period ended September 30, 2017, totalTotal loan originations, including purchases, refinancings, and draws from existing revolving and non-revolving commitments, amounted to approximately $666.0 million and $2.6$1.2 billion respectively,in the first quarter of 2022, compared to $885.2 million and $2.4$1.3 billion respectively, for the comparable periodsperiod in 2016. Loan2021. During the first quarter of 2021, the Corporation originated SBA PPP loans totaling $209.3 million. Excluding SBA PPP loans, total loan originations increased by $57.8 million from $1.1 billion originated in the thirdfirst quarter of 2017 reflect reductions2021 million to $1.2 billion in all major loan categories, which were adversely affected by disruptions in economic activity associated with Hurricanes Irma and Maria. the first quarter of 2022.
Residential mortgage loan originations and purchases for the quarter and nine-month period ended September 30, 2017 amounted to $112.1 million and $456.3 million, respectively, compared to $199.1 million and $556.2 million, respectively, for the comparable periods in 2016. These statistics include purchases of $16.5 million and $48.9 $122.5 million for the first quarter and nine-month period ended September 30, 2017, respectively,of 2022, compared to $23.2$163.9 million and $65.2 million, respectively, for the comparable periods in 2016.first quarter of 2021. The decrease of $87.0$41.4 million in the thirdfirst quarter of 2017,2022, as compared to the same period of 2016,2021, reflects declinesdecreases of approximately $75.3$27.7 million, $8.6$12.9 million, and $3.0$0.8 million in the Puerto Rico, Florida and the Virgin Islands regions, respectively. ForThe decrease was mainly driven by lower levels of refinancings driven by the nine-month period ended September 30, 2017,effect of higher market interest rates. Approximately 67% of the decrease includes reductions of $108.9$103.7 million and $6.3 million onresidential mortgage loan originations in the Puerto Rico andregion during the Virgin Islands regions, respectively, partially offset by an increasefirst quarter of $15.3 million in the Florida region. 2022 were of conforming loans.
Commercial and construction loan originations (excluding government loans) amounted to $633.8 million for the thirdfirst quarter of 2017 and 2016 amounted2022, compared to $345.5$829.7 million and $458.8 million, respectively, while the originations for the nine-month periods ended September 30, 2017first quarter of 2021. Total commercial and 2016 amounted to $1.4 billionconstruction loan originations during the first quarter of 2021 include SBA PPP loan originations of $209.3 million. Excluding SBA PPP loans, commercial and $1.2 billion, respectively. The decreaseconstruction loan originations increased by $13.4 million in the thirdfirst quarter of 2017,2022, compared towith the same period in
109
2016,2021. The growth reflects a decreasean increase of approximately $144.6$28.5 million in the Florida region, partially offset by reductions of $14.8 million and $0.3 million in the Puerto Rico region, which was adversely affected by disruptions in economic activity associated with Hurricanes Irma and Maria, partially offset by an increase of $37.6 million in the Florida region. For the nine-month period ended September 30, 2017, the increase includes the impact of the refinancing and renewal of five large commercial loans totaling $248.9 million and an increase of $148.4 million in the Florida region. Virgin Islands regions, respectively.
No government loans were originated during the third quarter and nine-month period ended September 30, 2017, compared to governmentGovernment loan originations of $6.8 million and $32.5amounted to $4.4 million for the thirdfirst quarter and nine-month period ended September 30, 2016, respectively.of 2022, compared to $3.1 million for the first quarter of 2021. Government loan originations in each of those periods are related to the utilization of an arranged overdraft line of credit of a government entity in the Virgin Islands region.
Originations of auto loans (including finance leases) for the first quarter and nine-month period ended September 30, 2017of 2022 amounted to $82.8$261.3 million, an increase of $52.6 million, compared to $208.7 million for the first quarter of 2021. The increase was primarily reflected in the Puerto Rico and the Virgin Islands regions with an increase of $52.1 million and $304.6$0.5 million, respectively, compared to $94.2 million and $262.2 million, respectively,respectively. Personal loan originations for the comparable periods in 2016. Personal loan originations,first quarter of 2022, other than credit cards, amounted to $55.7 million, compared to $39.2 million for the first quarter and nine-month period ended September 30, 2017 amounted to $49.3 million and $159.3 million, respectively, compared to $44.7 million and $141.6 million, respectively, for the comparable periods in 2016.of 2021. Most of the increase in consumerpersonal loan originations for the first nine monthsquarter of 2017,2022, as compared towith the same period in 2016, ocurred2021, was in the Puerto Rico region, despite disruptions associated with Hurricanes Irma and Maria in the third quarter of 2017.region. The utilization activity on the outstanding credit card portfolio for the first quarter and nine-month period ended September 30, 2017of 2022 amounted to approximately $76.3$109.5 million, and $239.7 million, respectively, compared to $81.6$94.1 million and $236.4 million, respectively, for the comparable periods in 2016. first quarter of 2021.
113
Investment Activities
As part of its liquidity, revenue diversification and interest rate risk management strategies, First BanCorp. maintains an investment portfolio that is classified as available for saleavailable-for-sale or held to maturity. The Corporation’s total available-for-sale investment securities portfolio as of September 30, 2017March 31, 2022 amounted to $1.8$6.4 billion, a $131.4$29.1 million decrease from December 31, 2016.2021. The decrease was mainly driven by: (i) U.S. agency MBSby a $331.8 million decrease in fair value attributable to changes in market interest rates and the prepayments of approximately $145.0$208.0 million (ii) the sale of non-performing bonds of the GDB and the Puerto Rico Public Buildings Authority with a book value of $23.0 million at the time of sale, and (iii) U.S. agency debt securities called prior to maturity of $8.5 million,agencies MBS, partially offset by purchases of approximately $40.8U.S. agencies and MBS totaling $512.3 million during the first quarter of 15-Year GNMA MBS with an average yield2022.
As of 2.14%.
ApproximatelyMarch 31, 2022, approximately 99% of the Corporation’s available-for-sale securities portfolio iswas invested in U.S. Governmentgovernment and Agencyagencies debentures and fixed rate U.S. government-sponsored agencyfixed-rate GSEs’ MBS (mainly GNMA, FNMA and FHLMC fixed-rate securities).
The In addition, as of March 31, 2022, the Corporation owns bonds ofheld a bond issued by the Puerto Rico Housing Finance Authority (“PRHFA”), classified as available for sale, specifically a residential pass-through MBS in the aggregate amount of $8.0$3.5 million carried(fair value - $2.7 million). This residential pass-through MBS issued by the PRHFA is collateralized by certain second mortgages originated under a program launched by the Puerto Rico government in 2010 and had an unrealized loss of $0.8 million as of March 31, 2022, of which $0.3 million is due to credit deterioration and was charged against earnings through an ACL during 2020. During 2021, the Corporation placed this instrument in nonaccrual status based on the Corporation’s books at their aggregate fair valuedelinquency status of $6.8 million that are current as to contractual payments as of September 30, 2017.the underlying second mortgage loans collateral.
As of September 30, 2017,March 31, 2022 and December 31, 2021, the Corporation’s held-to-maturity investment securities portfolio, amountedbefore the ACL, remained flat at $178.1 million. As of March 31, 2022, the ACL for held-to-maturity debt securities was $12.3 million, compared to $150.6$8.6 million down $5.6 million fromas of December 31, 2016.2021. Held-to-maturity investment securities consistconsisted of financing arrangements with Puerto Rico municipalities issued in bond form, accountedwhich the Corporation accounts for as securities, but which were underwritten as loans with features that are typically found in commercial loans. These obligations typically are not issued in bearer form, are not registered with the SECSecurities and Exchange Commission, and are not rated by external credit agencies. These bonds have seniority to the payment of operating costs and expenses of the municipality and, in most cases, are supported by assigned property tax revenues. Approximately 70% consist73% of the Corporation’s municipality bonds consisted of obligations issued by threefour of the largest municipalities in Puerto Rico. The vast majority of revenues of these three municipalities are independent of the Puerto Rico central government as the amount of revenues that depend from the Puerto Rico government General Fund subsidy represents just over 4% of the total revenues of these municipalities (6% of total revenues for the entire Corporation’s exposure to municipalities bonds). These municipalities are required by law to levy special property taxes in such amounts as are required for the payment of all of their respective general obligation bonds and loans. Given the uncertainties as to the effects that the fiscal position of the Puerto Rico central government, the COVID-19 pandemic, and the measures taken, or to be taken, by other government entities may have on municipalities, the Corporation cannot be certain whether future charges to the ACL on these securities will be required.
Refer to See “Risk Management – Exposure to Puerto Rico Government discussionGovernment” below for information and details about the Corporation’s total direct exposure to the Puerto Rico government.government, including municipalities and “Credit Risk Management” below for the ACL of these direct exposures.
110
The following table presents the carrying value of investments as of the indicated dates: | |||||
|
|
|
|
|
|
|
|
|
| ||
| September 30, |
| December 31, | ||
| 2017 |
| 2016 | ||
(In thousands) |
|
| |||
|
|
|
|
|
|
Money market investments | $ | 10,415 |
| $ | 10,094 |
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale, at fair value: |
|
|
|
|
|
U.S. Government and agencies obligations |
| 495,926 |
|
| 505,859 |
Puerto Rico government obligations |
| 6,771 |
|
| 26,828 |
Mortgage-backed securities |
| 1,247,257 |
|
| 1,348,725 |
Other |
| 518 |
|
| 508 |
Total investment securities available for sale, at fair value |
| 1,750,472 |
|
| 1,881,920 |
|
|
|
|
|
|
Investment securities held-to-maturity, at amortized cost: |
|
|
|
|
|
Puerto Rico Municipal Bonds |
| 150,627 |
|
| 156,190 |
|
|
|
|
|
|
Other equity securities, including $49.9 million and $40.8 million of FHLB stock |
|
|
|
|
|
as of September 30, 2017 and December 31, 2016, respectively |
| 52,119 |
|
| 42,992 |
Total money market investments and investment securities | $ | 1,963,633 |
| $ | 2,091,196 |
114
|
|
|
|
|
|
Mortgage-backed securities as of the indicated dates consisted of: | |||||
|
|
|
|
|
|
|
|
|
| ||
| September 30, |
| December 31, | ||
(In thousands) | 2017 |
| 2016 | ||
|
|
|
|
|
|
Available for sale: |
|
|
|
|
|
FHLMC certificates | $ | 284,265 |
| $ | 315,320 |
GNMA certificates |
| 234,842 |
|
| 226,627 |
FNMA certificates |
| 654,623 |
|
| 727,273 |
Collateralized mortgage obligations issued or |
|
|
|
|
|
guaranteed by FHLMC and GNMA |
| 55,897 |
|
| 58,812 |
Other mortgage pass-through certificates |
| 17,630 |
|
| 20,693 |
Total mortgage-backed securities | $ | 1,247,257 |
| $ | 1,348,725 |
The following table presents the carrying values of investments as of the indicated dates: | ||||||
|
|
|
|
|
|
|
|
| March 31, |
| December 31, | ||
|
| 2022 |
| 2021 | ||
(In thousands) |
|
|
|
|
| |
|
|
|
|
|
| |
Money market investments | $ | 2,183 |
| $ | 2,682 | |
Investment securities available-for-sale, at fair value: |
|
|
|
|
| |
U.S. government and agencies obligations |
| 2,596,950 |
|
| 2,405,468 | |
Puerto Rico government obligations |
| 2,727 |
|
| 2,850 | |
MBS |
| 3,823,983 |
|
| 4,044,443 | |
Other |
| 1,000 |
|
| 1,000 | |
Total investment securities available-for-sale, at fair value |
| 6,424,660 |
|
| 6,453,761 | |
|
|
|
|
|
|
|
Investment securities held-to-maturity, at amortized cost: |
|
|
|
|
| |
Puerto Rico municipal bonds |
| 178,059 |
|
| 178,133 | |
ACL for held-to-maturity debt securities |
| (12,324) |
|
| (8,571) | |
|
|
| 165,735 |
|
| 169,562 |
Equity securities, including $21.5 million of FHLB stock, as of each of |
|
|
|
|
| |
March 31, 2022 and December 31, 2021 |
| 32,014 |
|
| 32,169 | |
Total money market investments and investment securities | $ | 6,624,592 |
| $ | 6,658,174 | |
|
|
|
|
|
| |
|
| |||||
|
|
|
|
|
|
|
111115
The carrying values of investment securities classified as available for sale and held to maturity as of September 30, 2017 by contractual maturity (excluding mortgage-backed securities and equity securities) are shown below: | |||||
|
|
|
|
|
|
| Carrying |
| Weighted | ||
(Dollars in thousands) | Amount |
| Average Yield % | ||
|
|
|
|
|
|
U.S. Government and agencies obligations |
|
|
|
|
|
Due within one year | $ | 97,305 |
| 1.05 |
|
Due after one year through five years |
| 340,173 |
| 1.39 |
|
Due after five years through ten years |
| 16,808 |
| 2.01 |
|
Due after ten years |
| 41,640 |
| 1.60 |
|
|
| 495,926 |
| 1.36 |
|
|
|
|
|
|
|
Puerto Rico government and municipalities obligations |
|
|
|
|
|
Due after one year through five years |
| 3,853 |
| 5.38 |
|
Due after five years through ten years |
| 39,523 |
| 5.27 |
|
Due after ten years |
| 114,022 |
| 4.89 |
|
|
| 157,398 |
| 5.00 |
|
|
|
|
|
|
|
Other Investment Securities |
|
|
|
|
|
Due within one year |
| 100 |
| 1.49 |
|
|
|
|
|
|
|
Total |
| 653,424 |
| 2.24 |
|
|
|
|
|
|
|
Equity securities |
| 418 |
| 2.08 |
|
|
|
|
|
|
|
Mortgage-backed securities |
| 1,247,257 |
| 2.52 |
|
|
|
|
|
|
|
Total investment securities available for sale and held to maturity | $ | 1,901,099 |
| 2.42 |
|
|
|
MBS as of the indicated dates consisted of: | |||||
|
|
|
|
|
|
|
|
|
| ||
| March 31, |
| December 31, | ||
| 2022 |
| 2021 | ||
(In thousands) |
|
|
|
|
|
Available-for-sale: |
|
|
|
|
|
FHLMC certificates | $ | 1,333,787 |
| $ | 1,418,670 |
GNMA certificates |
| 338,619 |
|
| 388,344 |
FNMA certificates |
| 1,682,313 |
|
| 1,704,585 |
Collateralized mortgage obligations issued or guaranteed |
|
|
|
|
|
by FHLMC, FNMA or GNMA |
| 462,344 |
|
| 525,610 |
Private label MBS |
| 6,920 |
|
| 7,234 |
Total MBS | $ | 3,823,983 |
| $ | 4,044,443 |
The carrying values of investment securities classified as available-for-sale and held-to-maturity as of March 31, 2022 by contractual maturity (excluding MBS) are shown below: | |||||
|
|
|
|
|
|
| Carrying |
| Weighted | ||
(Dollars in thousands) | Amount |
| Average Yield % | ||
|
|
|
|
|
|
U.S. government and agencies obligations: |
|
|
|
|
|
Due after one year through five years | $ | 2,361,100 |
| 0.76 |
|
Due after five years through ten years |
| 220,873 |
| 0.96 |
|
Due after ten years |
| 14,977 |
| 0.88 |
|
|
| 2,596,950 |
| 0.78 |
|
Puerto Rico government and municipalities obligations: |
|
|
|
|
|
Due within one year |
| 2,598 |
| 5.39 |
|
Due after one year through five years |
| 14,903 |
| 2.40 |
|
Due after five years through ten years |
| 90,790 |
| 4.28 |
|
Due after ten years |
| 72,495 |
| 3.88 |
|
|
| 180,786 |
| 3.98 |
|
Other investment securities: |
|
|
|
|
|
Due within one year |
| 1,000 |
| 0.78 |
|
Total |
| 2,778,736 |
| 0.98 |
|
MBS |
| 3,823,983 |
| 1.34 |
|
ACL on held-to-maturity debt securities |
| (12,324) |
| - |
|
Total investment securities available-for-sale and held-to-maturity | $ | 6,590,395 |
| 1.19 |
|
112116
Net interest income of future periods could be affected by prepayments of mortgage-backed securities. AccelerationMBS. Any acceleration in the prepayments of mortgage-backed securitiesMBS purchased at a premium would lower yields on these securities, assince the amortization of premiums paid upon acquisition of these securities would accelerate. Conversely, acceleration of the prepayments of mortgage-backed securitiesMBS would increase yields on securities purchased at a discount, assince the amortization of the discount would accelerate. These risks are directly linked to future period market interest rate fluctuations. Also, net interest income in future periods might be affected by the Corporation’s investment in callable securities. As of September 30, 2017,March 31, 2022, the Corporation had approximately $127.8 million$2.1 billion in callable debt securities (U.S. Agencies and Puerto Ricoagencies government securities) with embedded calls and with an average yield of 1.39%. Refer to Risk Management0.80%, of which approximately 56% were purchased at a discount and 6% at a premium. See “Risk Management” below for further analysis of the effects of changing interest rates on the Corporation’s net interest income and of the Corporation’s interest rate risk management strategies followed by the Corporation.strategies. Also refer to Note 5 to2 – Investment Securities, in the accompanyingCorporation’s unaudited consolidated financial statements for the quarter ended March 31, 2022 for additional information regarding the Corporation’s investment portfolio.
RISK MANAGEMENT
Risks are inherent in virtually all aspects of the Corporation’s business activities and operations. Consequently, effective risk management is fundamental to the success of the Corporation. The primary goals of risk management are to ensure that the Corporation’s risk-taking activities are consistent with the Corporation’s objectives and risk tolerance, and that there is an appropriate balance between risk and reward in order to maximize stockholder value.
The Corporation has in place a risk management framework to monitor, evaluate and manage the principal risks assumed in conducting its activities. First BanCorp.’s business is subject to eleven broad categories of risks: (1)(i) liquidity risk; (2)(ii) interest rate risk; (3)(iii) market risk; (4)(iv) credit risk; (5)(v) operational risk; (6)(vi) legal and complianceregulatory risk; (7)(vii) reputational risk; (8)(viii) model risk; (9)(ix) capital risk; (10)(x) strategic risk; and (11)(xi) information technology risk. First BanCorp. has adopted policies and procedures designed to identify and manage the risks to which the Corporation is exposed.
The Corporation’s risk management policies are described below, as well as in the Management’sPart II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations, section of First BanCorp.’s 2016” in the 2021 Annual Report on Form 10-K.
Liquidity Risk and Capital Adequacy
Liquidity isrisk involves the ongoing ability to accommodate liability maturities and deposit withdrawals, fund asset growth and business operations, and meet contractual obligations through unconstrained access to funding at reasonable market rates. Liquidity management involves forecasting funding requirements and maintaining sufficient capacity to meet theliquidity needs for liquidity and accommodate fluctuations in asset and liability levels due to changes in the Corporation’s business operations or unanticipated events.
The Corporation manages liquidity at two levels. The first is the liquidity of the parent company, which is the Holding Companyholding company that owns the banking and non-banking subsidiaries. The second is the liquidity of the banking subsidiary. AsDuring the first quarter of September 30, 2017, FirstBank could not pay any dividend to the Holding Company except upon receipt of required regulatory approvals. In 2017,2022, the Corporation has paidcontinued to pay quarterly interest payments on the subordinated debentures associated with its trust preferred securitiesTRuPs and the monthly dividend incomequarterly dividends on its non-cumulative perpetual monthly income preferredcommon stock. In addition, during the first quarter of 2022, the Corporation repurchased 3,409,697 million shares of common stock pursuant to regulatory approvals received to make these payments. for approximately $50 million, completing the total repurchase amount of $300 million authorized by the Board of Directors in April 2021.
The Asset and Liability Committee of the Corporation’s Board of Directors is responsible for establishingoverseeing management’s establishment of the Corporation’s liquidity policy, as well as approving operating and contingency procedures and monitoring liquidity on an ongoing basis. The ManagementManagement’s Investment and Asset Liability Committee (“MIALCO”), usingwhich reports to the Board of Directors’ Asset and Liability Committee, uses measures of liquidity developed by management that involve the use of several assumptions reviewsto review the Corporation’s liquidity position on a monthly basis. The MIALCO oversees liquidity management, interest rate risk and other related matters.
The MIALCO which reports to the Board of Directors’ Asset and Liability Committee, consistsis composed of senior management officers, including the Chief Executive Officer, the Chief Financial Officer, the Chief Risk Officer, the Retail Financial ServicesBusiness Group Director, the Risk Manager ofStrategy Management Director, the Treasury and Investments Division,Risk Manager, the Financial AnalysisPlanning and Asset/LiabilityALM Director, and the Treasurer. The Treasury and Investments Division is responsible for planning and executing the Corporation’s funding activities and strategy, monitoring liquidity availability on a daily basis, and reviewing liquidity measures on a weekly basis. The Treasury and Investments Accounting and Operations area of the Comptroller’s Department is responsible for calculating the liquidity measurements used by the Treasury and Investment Division to review the Corporation’s liquidity position on a monthly basis. The Financial AnalysisPlanning and Asset/Liability Director estimatesALM Division is responsible for estimating the liquidity gap for longer periods.
117
To ensure adequate liquidity through the full range of potential operating environments and market conditions, the Corporation conducts its liquidity management and business activities in a manner that willis intended to preserve and enhance funding stability, flexibility and diversity. Key components of this operating strategy include a strong focus on the continued development of customer-based funding, the maintenance of direct relationships with wholesale market funding providers, and the maintenance of the ability to liquidate certain assets when, and if, requirements warrant.
113
The Corporation develops and maintains contingency funding plans. These plans evaluate the Corporation’s liquidity position under various operating circumstances and are designed to help ensure that the Corporation will be able to operate through periods of stress when access to normal sources of funds is constrained. The plans project funding requirements during a potential period of stress, specify and quantify sources of liquidity, outline actions and procedures for effectively managing liquidity through a difficult period, and define roles and responsibilities.responsibilities for the Corporation’s employees. Under the contingency funding plan,plans, the Corporation stresses the balance sheet and the liquidity position to critical levels that implymimic difficulties in getting newgenerating funds or even maintaining the current funding position of the Corporation and the Bank and are designed to help ensure the ability of the Corporation and the Bank to honor itstheir respective commitments, and establishcommitments. The Corporation has established liquidity triggers monitored bythat the MIALCO monitors in order to maintain the ordinary funding of the banking business. Four different scenarios are defined in theThe MIALCO developed contingency funding plan: local market event,plans for the following three scenarios: a credit rating downgrade, an economic cycle downturn event, and a funding concentration event. They are reviewed and approved annually by theThe Board of Directors’ Asset and Liability Committee.Committee reviews and approves these plans on an annual basis.
The Corporation manages its liquidity in a proactive manner and in orderan effort to maintain a sound liquidity position. It uses multiple measures to monitor the liquidity position, including core liquidity, basic liquidity, and time-based reserve measures. As of September 30, 2017,March 31, 2022, the estimated core liquidity reserve (which includes cash and free liquid assets) was $1.8$5.3 billion, or 14.69%26.5% of total assets, compared to $1.6$5.6 billion, or 13.35%27.0% of total assets, as of December 31, 2016. The increase in core liquidity levels was largely driven by temporary funding obtained through short-term FHLB advances in anticipation of a potential increase in short-term liquidity requirements of customers after Hurricanes Irma and Maria in the third quarter.2021. The basic liquidity ratio (which adds available secured lines of credit to the core liquidity) was approximately 18.9%32.6% of total assets as of March 31, 2022, compared to 19.7%32.7% of total assets as of December 31, 2016.2021. As of September 30, 2017,March 31, 2022, the Corporation had $502.7 million$1.2 billion available for additional credit from the FHLB of New York.FHLB. Unpledged liquid securities, as of September 30, 2017, mainly fixed-rate MBS and U.S. agency debentures, amounted to approximately $920.1 million. $3.6 billion as of March 31, 2022. The Corporation does not rely on uncommitted inter-bank lines of credit (federal funds lines) to fund its operations and does not include them in the basic liquidity measure. As of September 30, 2017,March 31, 2022, the Holding Companyholding company had $25.2$15.0 million of cash and cash equivalents. Cash and cash equivalents at the Bank level as of September 30, 2017March 31, 2022 were approximately $730.3 million.$1.7 billion. The Bank had $1.3 billion$85.8 million in brokered CDs as of September 30, 2017,March 31, 2022, of which approximately $679.9$50.5 million mature over the next twelve months. Liquidity at the Bank level is highly dependent on bank deposits, which fund 72%87.2% of the Bank’s assets (or 62%,86.8% excluding brokered CDs)deposits).
Sources of Funding
The Corporation utilizes different sources of funding to help ensure that adequate levels of liquidity are available when needed. Diversification of funding sources is of great importance to protect the Corporation’s liquidity from market disruptions. The principal sources of short-term funds are deposits, including brokered CDs, securities sold under agreements to repurchase, and lines of credit with the FHLB.
The Asset Liability Committee of the Board of Directors reviews credit availability on a regular basis. The Corporation has also sold mortgage loansFurthermore, as a supplementary source of funding. Long-term funding has also been obtained in the past through the issuance of notes and long-term brokered CDs. The cost of these different alternatives, among other things, is taken into consideration.
The Corporation has continued reducing the amounts of its outstanding brokered CDs. As of September 30, 2017, the amount of brokered CDs had decreased $184.4 million to $1.3 billion from December 31, 2016. At the same time as the Corporation focuses on reducing its reliance on brokered CDs, it is seeking to add core deposits. During the first nine months of 2017, the Corporation increased non-brokered deposits, excluding government deposits, by $15.3 million to $6.8 billion.
The Corporation continues to have the support of creditors, including counterparties to repurchase agreements, the FHLB, and other agents such as wholesale funding brokers. While liquidity is an ongoing challenge for all financial institutions, management believes that the Corporation’s available borrowing capacity and efforts to grow retail deposits will be adequate to provide the necessary funding for the Corporation’s business plans in the foreseeable future.
The Corporation’s principal sources of funding are:
Brokered CDs – A large portion of the Corporation’s funding has been brokered CDs issued by FirstBank. Total brokered CDs decreased during the first nine months of 2017 by $184.4 million to $1.3 billion as of September 30, 2017.
The average remaining term to maturity of the retail brokered CDs outstanding as of September 30, 2017 was approximately one year.
The use of brokered CDs has historically been important for the growth of the Corporation. The Corporation encounters intense competition in attracting and retaining regular retail deposits in Puerto Rico. The brokered CD market is very competitive and liquid, and has enabled the Corporation to obtain substantial amounts of funding in short periods of time. This strategy has enhanced the Corporation’s liquidity position, since brokered CDs are insured by the FDIC up to regulatory limits and can be obtained faster than regular retail deposits. During the first nine months of 2017, the Corporation issued $415.8 million in brokered CDs with an average cost of 1.67% (average life of 2 years).
114
The following table presents contractual maturities of time deposits with denominations of $100,000 or higher as of September 30, 2017: | |||||
|
|
| Total |
| |
|
|
| (In thousands) |
| |
|
|
|
|
| |
| Three months or less | $ | 479,572 |
| |
| Over three months to six months |
| 364,053 |
| |
| Over six months to one year |
| 728,515 |
| |
| Over one year |
| 1,337,777 |
| |
| Total | $ | 2,909,917 |
|
Certificates of deposit in denominations of $100,000 or higher include brokered CDs of $1.3 billion issued to deposit brokers in the form of large certificates of deposit that are generally participated out by brokers in shares of less than the FDIC insurance limit.
Government deposits – As of September 30, 2017, the Corporation had $508.2 million of Puerto Rico public sector deposits ($409.0 million in transactional accounts and $99.2 million in time deposits) compared to $408.8 million as of December 31, 2016. Approximately 31% came from municipalities and municipal agencies in Puerto Rico and 69% came from public corporations and the central government and agencies. Most of the increase in 2017 is related to higher balances in transactional deposit accounts of certain municipalities in Puerto Rico and an increase in time deposits of certain agencies of the central government.
In addition, as of September 30, 2017, the Corporation had $159.3 million of government deposits in the Virgin Islands, compared to $154.9 million as of December 31, 2016.
Retail deposits – The Corporation’s deposit products also include regular savings accounts, demand deposit accounts, money market accounts and retail CDs. Total deposits, excluding brokered CDs and government deposits, increased by $15.3 million to $6.8 billion as of September 30, 2017. The higher balance reflects an increase of $43.0 million in the Virgin Islands, primarily increases in the balance of savings accounts of commercial customers, partially offset by decreases of $18.7 million in Florida and $9.0 million in Puerto Rico. Refer to Note 16 in the accompanying unaudited consolidated financial statements for further details.
Refer to the Net Interest Income discussion above for information about average balances of interest-bearing deposits, and the average interest rate paid on deposits for the quarters and nine-month periods ended September 30, 2017 and 2016.
Securities sold under agreements to repurchase - The Corporation’s investment portfolio is funded in part with repurchase agreements. The Corporation’s outstanding securities sold under repurchase agreements amounted to $500 million as of September 30, 2017, unchanged from the balance as of December 31, 2016. One of the Corporation’s strategies has been the use of structured repurchase agreements and long-term repurchase agreements to reduce liquidity risk and manage exposure to interest rate risk by lengthening the final maturities of its liabilities while keeping funding costs at reasonable levels. In addition to these repurchase agreements, the Corporation has been able to maintain access to credit by using cost-effective sources such as FHLB advances. Refer to Note 17 in the accompanying unaudited consolidated financial statements for further details about repurchase agreements outstanding by counterparty and maturities.
As of September 30, 2017, the Corporation had $200 million of reverse repurchase agreements with a counterparty under a master netting arrangement that provides for a right of setoff that meets the conditions of ASC 210-20-45-11 for a net presentation. These repurchase agreements and reverse repurchase agreements are presented net on the consolidated statement of financial condition.
Under the Corporation’s repurchase agreements, as is the case with derivative contracts, the Corporation is required to pledge cash or qualifying securities to meet margin requirements. To the extent that the value of securities previously pledged as collateral declines due to changes in interest rates, a liquidity crisis or any other factor, the Corporation is required to deposit additional cash or securities to meet its margin requirements, thereby adversely affecting its liquidity.
Given the quality of the collateral pledged, the Corporation has not experienced margin calls from counterparties arising from credit-quality-related write-downs in valuations.
Advances from the FHLB – The Bank is a member of the FHLB system and obtains advances to fund its operations under a collateral agreement with the FHLB that requires the Bank to maintain qualifying mortgages and/or investments as collateral for advances taken. As of September 30, 2017 and December 31, 2016, the outstanding balance of FHLB advances was $915.0 million and $670.0 million, respectively. The variance is mainly driven by $165.0 million of long-term FHLB advances borrowed in the first half of 2017 with an aggregate average cost of 2.0% and an $80.0 million increase in short-term FHLB advances. The Corporation temporary increased its liquidity levels through funding obtained from FHLB advances in anticipation of a potential increase in short-term liquidity requirements of customers resulting from Hurricanes Irma and Maria in the third quarter of 2017. In addition, during the
115
third quarter of 2017, $200 million of maturing long-term FHLB advances that carried an average cost of 1.21% were replaced with new FHLB advances totaling $200 million with an average cost of 2.16%. As of September 30, 2017, the Corporation had $502.7 million available for additional credit on FHLB lines of credit.
Trust-Preferred Securities – In 2004, FBP Statutory Trust I, a statutory trust that is wholly owned by the Corporation and not consolidated in the Corporation’s financial statements, sold to institutional investors $100 million of its variable rate trust-preferred securities. The proceeds of the issuance, together with the proceeds of the purchase by the Corporation of $3.1 million of FBP Statutory Trust I variable rate common securities, were used by FBP Statutory Trust I to purchase $103.1 million aggregate principal amount of the Corporation’s Junior Subordinated Deferrable Debentures.
Also in 2004, FBP Statutory Trust II, a statutory trust that is wholly owned by the Corporation and not consolidated in the Corporation’s financial statements, sold to institutional investors $125 million of its variable rate trust-preferred securities. The proceeds of the issuance, together with the proceeds of the purchase by the Corporation of $3.9 million of FBP Statutory Trust II variable rate common securities, were used by FBP Statutory Trust II to purchase $128.9 million aggregate principal amount of the Corporation’s Junior Subordinated Deferrable Debentures.
The trust-preferred debentures are presented in the Corporation’s consolidated statement of financial condition as Other Borrowings. The variable rate trust-preferred securities are fully and unconditionally guaranteed by the Corporation. The $100 million Junior Subordinated Deferrable Debentures issued by the Corporation in April 2004 and the $125 million issued in September 2004 mature on June 17, 2034 and September 20, 2034, respectively; however, under certain circumstances, the maturity of the subordinated debentures may be shortened (such shortening would result in a mandatory redemption of the variable rate trust-preferred securities). The Collins Amendment of the Dodd-Frank Act eliminated certain trust-preferred securities from Tier 1 Capital. Bank holding companies such as the Corporation were required to fully phase out these instruments from Tier I capital in January 1, 2016; however, they may remain in Tier 2 capital until the instruments are redeemed or mature.
As mentioned above, during the third quarter of 2017, the Corporation completed the repurchase of $7.3 million of trust-preferred securities of the FBP Statutory Trust I that were offered to the Corporation by an investment banking firm. The Corporation repurchased and cancelled the repurchased trust-preferred securities, resulting in a commensurate reduction in the related subordinated debenture. In a separate transaction, during the first quarter of 2016, the Corporation completed the repurchase of trust-preferred securities that were being auctioned in a public sale at which the Corporation was invited to participate. The Corporation repurchased and cancelled $10 million in trust-preferred securities of the FBP Statutory Trust II. As of September 30, 2017, the Corporation still has subordinated debentures outstanding in the aggregate amount of $208.6 million.
During the second quarter of 2016, the Corporation received approval from the Federal Reserve and paid $31.2 million for all the accrued but deferred interest payments plus the interest for the 2016 second quarter on the Corporation’s subordinated debentures associated with its trust preferred securities. Subsequently, the Corporation has continued to pay quarterly interest payments on the subordinated debentures pursuant to quarterly regulatory approvals received to make these payments through December 31, 2017. On October 3, 2017 the Federal Reserve terminated the Written Agreement entered to on June 3, 2010 between the Corporation and the Federal Reserve. However, the Corporation has agreed with the Federal Reserve to continue to obtain its approval before paying dividends, receiving dividends from the Bank, making payments on subordinated debt or trust-preferred securities, incurring or guaranteeing debt or purchasing or redeeming any corporate stock.
As of September 30 2017, the Corporation is current on all interest payments due related to its subordinated debentures. It is the intent of the Corporation to request approval for future periods to continue regularly scheduled quarterly payments.
Other Sources of Funds and Liquidity - The Corporation’s principal uses of funds are for the origination of loans and the repayment of maturing deposits and borrowings. The ratio of residential real estate loans to total loans has increased over time. Commensurate with the increase in its mortgage banking activities, the Corporation has also invested in technology and personnel to enhance the Corporation’s secondary mortgage market capabilities.
The enhanced capabilities improve the Corporation’s liquidity profile as they allow the Corporation to derive liquidity, if needed, from the sale of mortgage loans in the secondary market. The U.S. (including Puerto Rico) secondary mortgage market is still highly liquid, in large part because of the sale of mortgages through guarantee programs of the FHA, VA, HUD, FNMA and FHLMC. During the first nine months of 2017, the Corporation sold approximately $200.2 million of FHA/VA mortgage loans to GNMA, which packages them into mortgage-backed securities. Any regulatory actions affecting GNMA, FNMA or FHLMC could adversely affect the secondary mortgage market.
Though currently not in use, other potential sources of short-term funding for the Corporation include commercial paper and federal funds purchased. Furthermore, in previous years, the Corporation entered into several financing transactions to diversify its funding sources, including the issuance of notes payable and, as noted above, junior subordinated debentures as part of its longer-term liquidity
116
and capital management activities. No assurance can be given that these sources of liquidity will be available in the future and, if available, will be on comparable terms.
Impact of Credit Ratings on Access to Liquidity
The Corporation’s liquidity is contingent upon its ability to obtain external sources of funding to finance its operations. The Corporation’s current credit ratings and any downgrade in credit ratings can hinder the Corporation’s access to new forms of external funding and/or cause external funding to be more expensive, which could in turn adversely affect results of operations. Also, changes in credit ratings may further affect the fair value of unsecured derivatives that consider the Corporation’s own credit risk as part of the valuation.
The Corporation does not have any outstanding debt or derivative agreements that would be affected by credit downgrades. Furthermore, given the Corporation’s non-reliance on corporate debt or other instruments directly linked in terms of pricing or volume to credit ratings, the liquidity of the Corporation so far has not been affected in any material way by downgrades. The Corporation’s ability to access new non-deposit sources of funding, however, could be adversely affected by credit downgrades.
The Corporation’s credit as a long-term issuer is currently rated B+ by S&P and B- by Fitch. At the FirstBank subsidiary level, long-term issuer ratings are currently Caa1 by Moody’s, seven notches below their definition of investment grade, B+ by S&P, four notches below their definition of investment grade, and B- by Fitch, six notches below their definition of investment grade. The Corporation’s credit ratings depended on a number of factors, both quantitative and qualitative, and are subject to change at any time. The disclosure of credit ratings is not a recommendation to buy, sell or hold the Corporation’s securities. Each rating should be evaluated independently of any other rating.
Cash Flows
Cash and cash equivalents were $737.2 million as of September 30, 2017, an increase of $437.5 million when compared to the balance as of December 31, 2016. The following discussion highlights the major activities and transactions that affected the Corporation’s cash flows during the first nine months of 2017 and 2016.
Cash Flows from Operating Activities
First BanCorp.’s operating assets and liabilities vary significantly in the normal course of business due to the amount and timing of cash flows. Management believes cash flows from operations, available cash balances and the Corporation’s ability to generate cash through short- and long-term borrowings will be sufficient to fund the Corporation’s operating liquidity needs for the foreseeable future.
For the first nine months of 2017 and 2016, net cash provided by operating activities was $194.6 million and $119.1 million, respectively. Net cash generated from operating activities was higher than reported net income largely as a result of adjustments for operating items such as the provision for loan and lease losses, depreciation and amortization, and impairments as well as the cash generated from sales of loans held for sale.
Cash Flows from Investing Activities
The Corporation’s investing activities primarily relate to originating loans to be held for investment and the purchasing, selling and repaying of available-for-sale and held-to-maturity investment securities. For the nine-month period ended September 30, 2017, net cash provided by investing activities was $42.7 million, primarily reflecting U.S. agency MBS prepayments and proceeds from the sales of the PREPA credit line and the non-performing bonds of GDB and the Puerto Rico Public Buildings Authority.
For the nine-month period ended September 30, 2016, net cash provided by investing activities was $ 224.2 million, primarily reflecting principal repayments on loans held for investment and proceeds from the sales of available-for-sale securities and mortgage-backed securities prepayments.
Cash Flows from Financing Activities
The Corporation’s financing activities primarily include the receipt of deposits and the issuance of brokered CDs, the issuance of and payments on long-term debt, the issuance of equity instruments and activities related to its short-term funding. During the nine-month period ended September 30, 2017, net cash provided by financing activities was $200.1 million, mainly due to temporary funding obtained through short-term FHLB advances in anticipation of a potential increase in short-term liquidity requirements of customers resulting from Hurricanes Irma and Maria in the third quarter of 2017, and the increase in non-brokered deposits, partially offset by the repayment of maturing brokered CDs, dividends paid on preferred stock, and the cash used for the repurchase and cancellation of trust preferred securities.
117
In the first nine months of 2016, net cash used in financing activities was $566.8 million, mainly due to repayments of maturing brokered CDs, repurchase agreements, FHLB advances and the cash used for the repurchase and cancellation of trust preferred securities, partially offset by the increase in non-brokered deposits.
Capital
As of September 30, 2017, the Corporation’s stockholders’ equity was $1.9 billion, an increase of $67.5 million from December 31, 2016. The increase was mainly driven by the earnings generated in the first nine months of 2017, exclusive of the $12.2 million OTTI charge to earnings in the first quarter and previously included as part of other comprehensive loss in total equity. In December 31, 2016, for the first time since July 2009, the Corporation paid dividends on its non-cumulative perpetual monthly income preferred stock, after receiving regulatory approval. Since then, the Corporation has continued to pay monthly dividend payments on the non-cumulative perpetual monthly income preferred stock. As mentioned above, on October 3, 2017, the Federal Reserve terminated the Written Agreement entered into on June 3, 2010 between the Corporation and the Federal Reserve. However, the Corporation has agreed with the Federal Reserve to continue to obtain its approval before paying dividends, receiving dividends from the Bank, making payments on subordinated debt or trust preferred securities, incurring or guaranteeing debt or purchasing or redeeming any corporate stock. The Corporation has received regulatory approvals to pay the monthly dividends on the Corporation’s Series A through E Preferred Stock through December 2017. The Corporation intends to request approval in future periods to continue to pay monthly dividend payments on the non-cumulative perpetual monthly income preferred stock.
Set forth below are First BanCorp.'s and FirstBank's regulatory capital ratios as of September 30, 2017 and December 31, 2016: | ||||||||
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| Banking Subsidiary | |||
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| |||
| First BanCorp. |
| FirstBank | To be well capitalized - General thresholds | ||||
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| Fully |
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| Fully |
|
As of September 30, 2017 | Actual |
| Phased-in (1) |
| Actual |
| Phased-in (1) |
|
Total capital ratio (Total capital to risk-weighted assets) | 22.18% |
| 21.64% |
| 21.71% |
| 21.18% | 10.00% |
Common Equity Tier 1 capital ratio |
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(Common equity Tier 1 capital to risk-weighted assets) | 18.62% |
| 17.74% |
| 17.36% |
| 16.51% | 6.50% |
Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) | 18.62% |
| 18.14% |
| 20.44% |
| 19.92% | 8.00% |
Leverage ratio | 13.96% |
| 13.94% |
| 15.34% |
| 15.32% | 5.00% |
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| Banking Subsidiary | |||
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| |||
| First BanCorp. |
| FirstBank | To be well capitalized - General thresholds | ||||
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| Fully |
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| Fully |
|
As of December 31, 2016 | Actual |
| Phased-in (1) |
| Actual |
| Phased-in (1) |
|
Total capital ratio (Total capital to risk-weighted assets) | 21.34% |
| 20.84% |
| 20.80% |
| 20.32% | 10.00% |
Common Equity Tier 1 capital ratio |
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(Common equity Tier 1 capital to risk-weighted assets) | 17.74% |
| 16.90% |
| 16.92% |
| 15.70% | 6.50% |
Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) | 17.74% |
| 17.30% |
| 19.53% |
| 19.05% | 8.00% |
Leverage ratio | 13.70% |
| 13.64% |
| 15.10% |
| 15.04% | 5.00% |
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(1) Certain adjustments required under Basel III rules will be phased in through the end of 2018. The ratios shown in this column are calculated assuming a fully phased-in basis of all such adjustments as if they were effective as of September 30, 2017 and December 31, 2016. | ||||||||
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118
Although the Corporation and FirstBank became subject to the Basel III rules beginning on January 1, 2015, certain requirements of the Basel III rules are being phased-in over several years. The phase-in period for certain deductions and adjustments to regulatory capital (such as certain intangible assets and deferred tax assets that arise from net operating losses and tax credit carryforwards) will be completed on January 1, 2018. The Corporation and FirstBank compute risk-weighted assets using the Standardized Approach required by the Basel III rules.
The Basel III rules require the Corporation to maintain an additional capital conservation buffer of 2.5% to avoid limitations on both (i) capital distributions (e.g., repurchases of capital instruments and dividend or interest payments on capital instruments) and (ii) discretionary bonus payments to executive officers and heads of major business lines. The phase-in of the capital conservation buffer began on January 1, 2016 with a first year requirement of 0.625% of additional Common Equity Tier 1 capital (“CET1”), which is being progressively increased over a four-year period, increasing by that same percentage amount on each subsequent January 1 until it reaches the fully phased-in 2.5% CET1 requirement on January 1, 2019.
Under the fully phased-in Basel III rules, in order to be considered adequately capitalized, the Corporation will be required to maintain: (i) a minimum CET1 capital to risk-weighted assets ratio of at least 4.5%, plus the 2.5% “capital conservation buffer,” resulting in a required minimum CET1 ratio of at least 7%, (ii) a minimum ratio of total Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer, resulting in a required minimum Tier 1 capital ratio of 8.5%, (iii) a minimum ratio of total Tier 1 plus Tier 2 capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer, resulting in a required minimum total capital ratio of 10.5%, and (iv) a required minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average on-balance sheet (non-risk adjusted) assets.
In addition, as required under Basel III rules, the Corporation’s trust-preferred securities were fully phased out from Tier 1 capital on January 1, 2016. However, the Corporation’s trust-preferred securities may continue to be included in Tier 2 capital until the instruments are redeemed or mature.
The Corporation, as an institution with more than $10 billion but less than $50 billion of total consolidated assets, is subject to certain requirements established by the Dodd-Frank Act, including those related to capital stress testing. Consistent with these requirements, the Corporation submitted its third annual company-run stress test results to regulators in July 2017, which were made public in October 2017. The results show that even in a severely adverse economic environment, the Corporation’s and the Bank’s capital ratios exceed both the regulatory minimum required ratios mandated under Basel III and the generally required well-capitalized thresholds throughout the nine-quarter planning horizon.
The tangible common equity ratio and tangible book value per common share are non-GAAP financial measures generally used by the financial community to evaluate capital adequacy. Tangible common equity is total equity less preferred equity, goodwill, core deposit intangibles, purchased credit card relationship asset and insurance customer relationship intangible asset. Tangible assets are total assets less goodwill, core deposit intangibles, purchased credit card relationship and insurance customer relationship intangible assets. Refer to Basis of Presentation below for additional information.
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The following table is a reconciliation of the Corporation’s tangible common equity and tangible assets as of September 30, 2017 and December 31, 2016, respectively: | ||||||
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| September 30, |
| December 31, | ||
| (In thousands, except ratios and per share information) | 2017 |
| 2016 | ||
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| Total equity - GAAP | $ | 1,853,751 |
| $ | 1,786,243 |
| Preferred equity |
| (36,104) |
|
| (36,104) |
| Goodwill |
| (28,098) |
|
| (28,098) |
| Purchased credit card relationship intangible |
| (8,633) |
|
| (10,531) |
| Core deposit intangible |
| (5,885) |
|
| (7,198) |
| Insurance customer relationship intangible |
| (813) |
|
| (927) |
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| Tangible common equity | $ | 1,774,218 |
| $ | 1,703,385 |
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| Total assets - GAAP | $ | 12,173,648 |
| $ | 11,922,455 |
| Goodwill |
| (28,098) |
|
| (28,098) |
| Purchased credit card relationship intangible |
| (8,633) |
|
| (10,531) |
| Core deposit intangible |
| (5,885) |
|
| (7,198) |
| Insurance customer relationship intangible |
| (813) |
|
| (927) |
| Tangible assets | $ | 12,130,219 |
| $ | 11,875,701 |
| Common shares outstanding (1) |
| 216,175 |
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| 217,446 |
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| Tangible common equity ratio |
| 14.63% |
|
| 14.34% |
| Tangible book value per common share | $ | 8.21 |
| $ | 7.83 |
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| (1) In May 2017, the U.S. Treasury sold its remaining shares of common stock in First BanCorp. As a result, senior officers forfeited approximately 2.4 million of restricted shares that they held. |
120
On May 10, 2017, the U.S. Department of the Treasury announced that it sold all of its remaining 10,291,553 shares of the Corporation’s common stock. Since the U.S. Treasury did not recover the full amount of its original investment under TARP, the Corporation’s senior officers forfeited 2,370,571 outstanding restricted shares that they held, resulting in a reduction in the number of common shares outstanding. The reduction in the number of common shares outstanding contributed approximately $0.09 to the increase in book value and tangible book value per common share in 2017. The U.S. Department of the Treasury continues to hold a warrant to purchase 1,285,899 shares of the Corporation’s common stock.
A secondary offering of the Corporation’s common stock by certain of the Corporation’s existing stockholders was completed on February 7, 2017. Funds affiliated with Thomas H. Lee Partners (“THL”) sold 10 million shares of the Corporation’s common stock, and funds managed by Oaktree Capital Management, L.P. (“Oaktree”) sold 10 million shares of the Corporation’s common stock. In addition, the underwriters exercised their option to purchase an additional 3 million shares of the Corporation’s common stock from the selling stockholders. Also, on August 3, 2017, THL and Oaktree participated in another secondary offering of the Corporation’s common stock in which they sold an aggregate of 20 million shares (10 million shares each) of common stock. The Corporation did not receive any proceeds from these offerings. As of September 30, 2017, each of THL and Oaktree owned less than 5% of the Corporation’s common stock.
Off -Balance Sheet Arrangements
In the ordinary course of business, the Corporation engages in financial transactions that are not recorded on the balance sheet, or may be recorded on the balance sheet in amounts that are different from the full contract or notional amount of the transaction. These transactions are designed to (1) meet the financial needs of customers, (2) manage the Corporation’s credit, market and liquidity risks, (3) diversify the Corporation’s funding sources, and (4) optimize capital.
As a provider of financial services, the Corporation routinely enters into commitments with off-balance sheet risk to meet the financial needs of its customers. These financial instruments may include loan commitments and standby letters of credit. These commitments are subject to the same credit policies and approval processprocesses used for on-balance sheet instruments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statementstatements of financial position.condition. As of September 30, 2017,March 31, 2022, the Corporation’s commitments to extend credit amounted to approximately $1.1$2.1 billion, of which $663.4 million relates$1.2 billion related to credit card loans. Commercial and financial standby letters of credit amounted to approximately $45.1$151.4 million. Commitments to extend credit are agreements to lend to customers as long as the conditions established in the contract are met. Generally, the Corporation does not enter into interest rate lock agreements with prospective borrowers in connection with mortgage banking activities.
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Contractual Obligations, Commitments and Contingencies | ||||||||||||||
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The following table presents a detail of the maturities of the Corporation’s contractual obligations and commitments, which consist of CDs, long-term contractual debt obligations, commitments to sell mortgage loans and commitments to extend credit: | ||||||||||||||
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| Contractual Obligations and Commitments | |||||||||||||
| As of September 30, 2017 | |||||||||||||
| Total |
| Less than 1 year |
| 1-3 years |
| 3-5 years |
| After 5 years | |||||
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(In thousands) |
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Contractual obligations: |
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Certificates of deposit | $ | 3,711,662 |
| $ | 2,020,932 |
| $ | 1,491,344 |
| $ | 191,905 |
| $ | 7,481 |
Securities sold under agreements to repurchase (1) |
| 300,000 |
|
| 100,000 |
|
| - |
|
| 200,000 |
|
| - |
Advances from FHLB |
| 915,000 |
|
| 275,000 |
|
| 320,000 |
|
| 320,000 |
|
| - |
Other borrowings |
| 208,639 |
|
| - |
|
| - |
|
| - |
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| 208,639 |
Total contractual obligations | $ | 5,135,301 |
| $ | 2,395,932 |
| $ | 1,811,344 |
| $ | 711,905 |
| $ | 216,120 |
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Commitments to sell mortgage loans | $ | 72,332 |
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Standby letters of credit | $ | 3,193 |
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Commitments to extend credit: |
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Lines of credit | $ | 1,035,839 |
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Letters of credit |
| 41,870 |
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Construction undisbursed funds |
| 66,459 |
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Total commercial commitments | $ | 1,144,168 |
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(1) Reported net of reverse repurchase agreement by counterparty, when applicable, pursuant to ASC 210-20-45-11. | ||||||||||||||
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The Corporation has obligations and commitments to make future payments under contracts, such as debt and lease agreements, and under other commitments to sell mortgage loans at fair value and to extend credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Other contractual obligations result mainly from contracts for the rental and maintenance of equipment. Since certain commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. For most of the commercial lines of credit, the Corporation has the option to reevaluate the agreement prior to additional disbursements. There have been no significant or unexpected draws on existing commitments. In the case of credit cards and personal lines of credit, the Corporation can cancel the unused credit facility at any time and without cause.
The Corporation engages in the ordinary course of business in other financial transactions that are not recorded on the balance sheet, or may be recorded on the balance sheet in amounts that are different from the full contract or notional amount of the transaction and thus, affecting the Corporation’s liquidity position. These transactions are designed to (i) meet the financial needs of customers, (ii) manage the Corporation’s credit, market and liquidity risks, (iii) diversify the Corporation’s funding sources, and (iv) optimize capital.
In addition to the aforementioned off-balance sheet debt obligations and unfunded commitments to extend credit, the Corporation has obligations and commitments to make future payments under contracts, amounting to approximately $3.1 billion as of March 31, 2022. Our material cash requirements comprise primarily of contractual obligations to make future payments related to time deposits, short-term borrowings, long-term debt, and operating lease obligations. We also have other contractual cash obligations related to certain binding agreements we have entered into for services including, outsourcing of technology services, security, advertising and other services which are not material to our liquidity needs. We currently anticipate that our available funds, credit facilities, and cash flow from operations will be sufficient to meet our operational cash needs for the foreseeable future.
Off-balance sheet transactions are continuously monitored to consider their potential impact to our liquidity position and changes are applied to the balance between sources and uses of funds as deemed appropriate to maintain a sound liquidity position.
118
Sources of Funding
The Corporation utilizes different sources of funding to help ensure that adequate levels of liquidity are available when needed. Diversification of funding sources is of great importance to protect the Corporation’s liquidity from market disruptions. The principal sources of short-term funds are deposits, including brokered CDs, securities sold under agreements to repurchase, and lines of credit with the FHLB.
The Asset and Liability Committee reviews credit availability on a regular basis. The Corporation has also sold mortgage loans as a supplementary source of funding and participates in the Borrower-in-Custody (“BIC”) Program of the FED. The Corporation has also obtained long-term funding in the past through the issuance of notes and long-term brokered CDs.
Consistent with its strategy, the Corporation has been seeking to add core deposits. As of March 31, 2022, the Corporation’s deposits, excluding government deposits and brokered CDs, increased by $55.0 million to $14.5 billion, compared to $14.4 billion as of December 31, 2021. Certain non-maturity deposits previously reported as brokered deposits, which amounted to $246.6 million and $247.5 million, as of March 31, 2022 and December 31, 2021, respectively, were recharacterized as non-brokered deposits for both periods presented based on exclusions and clarifications of the deposit broker definition included in the FDIC Brokered Deposits Final Rule. The above-mentioned increase of $55.0 million was primarily related to higher balances in the demand deposit accounts mainly in the Puerto Rico region, partially offset by a decrease in retail certificates of deposit (“CDs”) and savings deposit accounts balances.
The Corporation continues to have access to financing through counterparties to repurchase agreements, the FHLB, and other agents, such as wholesale funding brokers. While liquidity is an ongoing challenge for all financial institutions, management believes that the Corporation’s available borrowing capacity and efforts to grow retail deposits will be adequate to provide the necessary funding for the Corporation’s business plans in the foreseeable future.
The Corporation’s principal sources of funding are:
Retail deposits – The Corporation’s deposit products include regular savings accounts, demand deposit accounts, money market accounts and retail CDs. Total deposits, excluding government deposits and brokered CDs, increased by $55.0 million to $14.5 billion from a balance of $14.4 billion as of December 31, 2021, reflecting increases of $61.5 million in the Puerto Rico region and $29.1 million in the Virgin Islands region, partially offset by a decrease of $35.6 million in the Florida region. On a deposit type basis, the increase was primarily reflected in retail demand deposits, partially offset by a decrease in commercial savings accounts and retail CDs.
Government deposits – As of March 31, 2022, the Corporation had $2.3 billion of Puerto Rico public sector deposits ($2.1 billion in transactional accounts and $167.3 million in time deposits), compared to $2.7 billion as of December 31, 2021 which are fully collateralized. Approximately 22% of the public sector deposits as of March 31, 2022 was from municipalities and municipal agencies in Puerto Rico and 78% was from public corporations, the central government and agencies, and U.S. federal government agencies in Puerto Rico. The decrease was primarily related to decreases in transactional account balances of government public corporations that reflect, among other things, a reduction in the funds received by government entities from federal fundings allocated to Puerto Rico.
In addition, as of March 31, 2022, the Corporation had $514.1 million of government deposits in the Virgin Islands region (December 31, 2021 - $568.4 million) and $10.0 million in the Florida region (December 31, 2021 - $9.6 million).
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Estimate of Uninsured Deposits – As of March 31, 2022 and December 31, 2021, the estimated amount of uninsured deposits, excluding brokered CDs, totaled $8.4 billion and $8.9 billion, respectively, generally representing the portion of deposits in domestic offices that exceed the FDIC insurance limit of $250,000 and amounts in any other uninsured deposit account. The balances presented as of March 31, 2022 and December 31, 2021 include government deposits, which are uninsured but fully collateralized as previously mentioned. The amount of uninsured deposits is calculated based on the same methodologies and assumptions used for our bank regulatory reporting requirements.
The following table presents by contractual maturities the amount of U.S. time deposits in excess of FDIC insurance limits (over $250,000) and other time deposits that are otherwise uninsured as of March 31, 2022:
(In thousands) |
| 3 months or less |
| 3 months to 6 months |
| 6 months to 1 year |
| Over 1 year |
| Total | |
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|
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U.S. time deposits in excess of FDIC insurance limits | $ | 219,870 | $ | 70,291 | $ | 214,896 | $ | 154,509 | $ | 659,566 | |
Other uninsured time deposits | $ | 23,987 | $ | 10,304 | $ | 13,209 | $ | 5,390 | $ | 52,890 | |
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Brokered CDs – Total brokered CDs decreased during the first quarter of 2022 by $14.6 million to $85.8 million as of March 31, 2022, compared to $100.4 million as of December 31, 2021.
The average remaining term to maturity of the brokered CDs outstanding as of March 31, 2022 was approximately 1.2 years.
The use of brokered CDs provides an efficient channel for funding diversification and interest rate management. Brokered CDs are insured by the FDIC up to regulatory limits; and can be obtained faster than regular retail deposits.
Refer to Net Interest Income above for information about average balances of interest-bearing deposits, and the average interest rate paid on deposits for the quarters ended March 31, 2022 and 2021.
Securities sold under agreements to repurchase - The Corporation’s investment portfolio is funded in part with repurchase agreements. The Corporation’s outstanding securities sold under repurchase agreements amounted to $200 million as of March 31, 2022 (December 31, 2021 - $300 million). One of the Corporation’s strategies has been the use of structured repurchase agreements and long-term repurchase agreements to reduce liquidity risk and manage exposure to interest rate risk by lengthening the final maturities of its liabilities while keeping funding costs at reasonable levels. In addition to these repurchase agreements, the Corporation has been able to maintain access to credit by using cost-effective sources such as FHLB advances. See Note 10 – Securities Sold Under Agreements to Repurchase, in the Corporation’s unaudited consolidated financial statements for the quarter ended March 31, 2022 for further details about repurchase agreements outstanding by counterparty and maturities.
Under the Corporation’s repurchase agreements, as is the case with derivative contracts, the Corporation is required to pledge cash or qualifying securities to meet margin requirements. To the extent that the value of securities previously pledged as collateral declines due to changes in interest rates, a liquidity crisis or any other factor, the Corporation is required to deposit additional cash or securities to meet its margin requirements, thereby adversely affecting its liquidity. Given the quality of the collateral pledged, the Corporation has not experienced margin calls from counterparties arising from credit-quality-related write-downs in valuations.
Advances from the FHLB – The Bank is a member of the FHLB system and obtains advances to fund its operations under a collateral agreement with the FHLB that requires the Bank to maintain qualifying mortgages and/or investments as collateral for advances taken. As of each of March 31, 2022 and December 31, 2021, the outstanding balance of long-term fixed rate FHLB advances was $200 million. As of March 31, 2022, the Corporation had $1.2 billion available for additional borrowing capacity on FHLB lines of credit.
Trust-Preferred Securities – In 2004, FBP Statutory Trusts I and II, statutory trusts that are wholly-owned by the Corporation and not consolidated in the Corporation’s financial statements, sold to institutional investors variable-rate trust-preferred securities (“TRuPs”) and used the proceeds of these issuances, together with the proceeds of the purchases by the Corporation of variable rate common securities, to purchase junior subordinated deferrable debentures. The subordinated debentures are presented in the Corporation’s consolidated statements of financial condition as other borrowings. As of each of March 31, 2022 and December 31, 2021, the Corporation had subordinated debentures outstanding in the aggregate amount of $183.8 million with maturity dates from June 17, 2034 through September 20, 2034. See Note 12 – Other Borrowings and Note 8 – Non-Consolidated Variable Interest Entities (“VIE”) and Servicing Assets, for additional information.
Other Sources of Funds and Liquidity - The Corporation’s principal uses of funds are for the origination of loans and the repayment of maturing deposits and borrowings. In connection with its mortgage banking activities, the Corporation has invested in technology and personnel to enhance the Corporation’s secondary mortgage market capabilities.
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The enhanced capabilities improve the Corporation’s liquidity profile as they allow the Corporation to derive liquidity, if needed, from the sale of mortgage loans in the secondary market. The U.S. (including Puerto Rico) secondary mortgage market is still highly-liquid, in large part because of the sale of mortgages through guarantee programs of the FHA, VA, U.S. Department of Housing and Urban Development (“HUD”), FNMA and FHLMC. During the first quarter of 2022, loans pooled into GNMA MBS amounted to approximately $41.5 million.
In addition, the FED has taken several steps to promote economic and financial stability in response to the significant economic disruption caused by the COVID-19 pandemic. These actions are intended to stimulate economic activity by reducing interest rates and provide liquidity to financial markets so that participants have access to needed funding. Although the federal funds target rate increased by a quarter point to 0.25% - 0.5% during the first quarter of 2022, the Primary Credit FED Discount Window Program is still a cost-efficient contingent source of funding for the Corporation given the highly-volatile market conditions. Although currently not in use, as of March 31, 2022, the Corporation had approximately $1.3 billion available for funding under the FED’s Borrower-In-Custody (“BIC”) Program.
Effect of Credit Ratings on Access to Liquidity
The Corporation’s liquidity is contingent upon its ability to obtain external sources of funding to finance its operations. The Corporation’s current credit ratings and any downgrade in credit ratings can hinder the Corporation’s access to new forms of external funding and/or cause external funding to be more expensive, which could, in turn, adversely affect its results of operations. Also, changes in credit ratings may further affect the fair value of unsecured derivatives whose value takes into account the Corporation’s own credit risk.
The Corporation does not have any outstanding debt or derivative agreements that would be affected by credit rating downgrades. Furthermore, given the Corporation’s non-reliance on corporate debt or other instruments directly linked in terms of pricing or volume to credit ratings, the liquidity of the Corporation has not been affected in any material way by downgrades. The Corporation’s ability to access new non-deposit sources of funding, however, could be adversely affected by credit downgrades.
As of the date hereof, the Corporation’s credit as a long-term issuer is rated B+ by S&P and BB by Fitch. As of the date hereof, FirstBank’s credit ratings as a long-term issuer are B1 by Moody’s, four notches below Moody’s minimum Baa3 level required to be considered investment grade; BB+ by S&P, one notch below S&P’s minimum BBB- level required to be considered investment grade; and BB by Fitch, two notches below Fitch’s minimum BBB- level required to be considered investment grade. The Corporation’s credit ratings are dependent on a number of factors, both quantitative and qualitative, and are subject to change at any time. The disclosure of credit ratings is not a recommendation to buy, sell or hold the Corporation’s securities. Each rating should be evaluated independently of any other rating.
121
Cash Flows
Cash and cash equivalents were $1.7 billion as of March 31, 2022, a decrease of $846.8 million when compared to the balance as of December 31, 2021. The following discussion highlights the major activities and transactions that affected the Corporation’s cash flows during the first quarter of 2022 and 2021.
Cash Flows from Operating Activities
First BanCorp.’s operating assets and liabilities vary significantly in the normal course of business due to the amount and timing of cash flows. Management believes that cash flows from operations, available cash balances and the Corporation’s ability to generate cash through short- and long-term borrowings will be sufficient to fund the Corporation’s operating liquidity needs for the foreseeable future.
For the first quarters of 2022 and 2021, net cash provided by operating activities was $114.8 million and $112.7 million, respectively. Net cash generated from operating activities was higher than reported net income largely as a result of adjustments for items such as depreciation and amortization, as well as cash generated from sales of loans held for sale.
Cash Flows from Investing Activities
The Corporation’s investing activities primarily relate to originating loans to be held for investment, as well as purchasing, selling and repaying available-for-sale and held-to-maturity investment securities. For the quarter ended March 31, 2022, net cash used in investing activities was $333.0 million, primarily due to purchases of U.S. agencies and MBS and net disbursements on loans held for investment, partially offset by prepayments of U.S. agencies MBS. For the quarter ended March 31, 2021, net cash used in investing activities was $768.1 million, primarily due to purchases of U.S. agencies and liquidity used to fund commercial and consumer loan originations, partially offset by principal collected on loans and U.S. agencies MBS prepayments, as well as proceeds from U.S. agencies bonds called prior to maturity.
Cash Flows from Financing Activities
The Corporation’s financing activities primarily include the receipt of deposits and the issuance of brokered CDs, the issuance of and payments on long-term debt, the issuance of equity instruments, return of capital actions, and activities related to its short-term funding. For the first quarter of 2022, net cash used in financing activities was $628.7 million, mainly reflecting a decrease in government deposits, the repayment at maturity of a $100 million repurchase agreement, the repurchase of 3.4 million shares of common stock for a total purchase price of approximately $50 million, and the payment of $19.7 million in quarterly dividends to common stock shareholders.
For the first quarter of 2021, net cash provided by financing activities was $679.7 million, mainly reflecting an increase in non-brokered deposits, partially offset by dividends paid on common and preferred stock and the repayment of matured brokered CDs.
122
Capital
As of March 31, 2022, the Corporation’s stockholders’ equity was $1.8 billion, a decrease of $320.7 million from December 31, 2021. The decrease was driven by a $331.8 million decrease in the fair value of available-for-sale investment securities recorded as part of accumulated other comprehensive loss in the consolidated statements of financial condition, the repurchase of approximately 3.4 million shares of common stock for a total purchase price of $50.0 million and common stock dividends declared in the first quarter of 2022 totaling $19.9 million (or $0.10 per common share), partially offset by earnings generated in the first quarter of 2022. The aforementioned repurchases completed the $300 million stock repurchase program authorized by the Board of Directors in April 2021.
On April 27, 2022, the Corporation’s Board of Directors declared a quarterly cash dividend of $0.12 per common share, which represents an increase of $0.02 per common share, or a 20%, increase, from the immediately preceding quarter’s dividend level. The Corporation intends to continue to pay quarterly dividends on common stock. The Corporation’s common stock dividends, including the declaration, timing and amount, remain subject to the consideration and approval by the Corporation’s Board of Directors at the relevant times.
In addition, on April 27, 2022, the Corporation announced that its Board of Directors approved a new stock repurchase program, under which the Corporation may repurchase up to $350 million of its outstanding common stock, to be executed through the next four quarters, commencing in the second quarter of 2022. Repurchases under the program may be executed through open market purchases, accelerated share repurchases and/or privately negotiated transactions or plans, including under plans complying with Rule 10b5-1 under the Exchange Act. The Corporation’s stock repurchase program is subject to various factors, including the Corporation’s capital position, liquidity, financial performance and alternative uses of capital, stock trading price, and general market conditions. The repurchase program may be modified, extended, suspended, or terminated at any time at the Corporation’s discretion. The Corporation’s share repurchase program does not obligate it to acquire any specific number of shares. The Parent Company has no operations and depends on dividends, distributions and other payments from its subsidiaries to fund dividend payments, stock repurchases, and to fund all payments on its obligations, including debt obligations.
The tangible common equity ratio and tangible book value per common share are non-GAAP financial measures generally used by the financial community to evaluate capital adequacy. Tangible common equity is total equity less preferred equity, goodwill, core deposit intangibles, purchased credit card relationship intangible assets and insurance customer relationship intangible asset. Tangible assets are total assets less the previously mentioned intangible assets. See “Basis of Presentation” below for additional information.
123
The following table is a reconciliation of the Corporation’s tangible common equity and tangible assets, non-GAAP financial measures, to total equity and total assets, respectively, as of March 31, 2022 and December 31, 2021, respectively:
| March 31, |
| December 31, | ||
| 2022 |
| 2021 | ||
(In thousands, except ratios and per share information) |
|
|
|
|
|
Total equity - GAAP | $ | 1,781,102 |
| $ | 2,101,767 |
Goodwill |
| (38,611) |
|
| (38,611) |
Purchased credit card relationship intangible |
| (873) |
|
| (1,198) |
Core deposit intangible |
| (26,648) |
|
| (28,571) |
Insurance customer relationship intangible |
| (127) |
|
| (165) |
Tangible common equity | $ | 1,714,843 |
| $ | 2,033,222 |
|
|
|
|
|
|
Total assets - GAAP | $ | 19,929,037 |
| $ | 20,785,275 |
Goodwill |
| (38,611) |
|
| (38,611) |
Purchased credit card relationship intangible |
| (873) |
|
| (1,198) |
Core deposit intangible |
| (26,648) |
|
| (28,571) |
Insurance customer relationship intangible |
| (127) |
|
| (165) |
Tangible assets | $ | 19,862,778 |
| $ | 20,716,730 |
Common shares outstanding |
| 198,701 |
|
| 201,827 |
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|
Tangible common equity ratio |
| 8.63% |
|
| 9.81% |
Tangible book value per common share | $ | 8.63 |
| $ | 10.07 |
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See Note 23 – Regulatory Matters, Commitments and Contingencies for the regulatory capital positions of the Corporation and FirstBank as of March 31, 2022 and December 31, 2021, respectively.
The Banking Law of the Commonwealth of Puerto Rico 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, including for payment as dividends to the stockholders, without the prior consent of the Puerto Rico Commissioner of Financial Institutions. The Puerto Rico Banking Law provides that, when the expenditures of a Puerto Rico commercial bank are greater than receipts, the excess of the expenditures over receipts must be charged against the undistributed profits of the bank, and the balance, if any, must be charged against the legal surplus reserve, as a reduction thereof. If the legal surplus reserve is not sufficient to cover such balance in whole or in part, the outstanding amount must be charged against the capital account and the Bank cannot pay dividends until it can replenish the legal surplus reserve to an amount of at least 20% of the original capital contributed. FirstBank’s legal surplus reserve, included as part of retained earnings in the Corporation’s consolidated statements of financial condition, amounted to $137.6 million as of each March 31, 2022 and December 31, 2021. There were no transfers to the legal surplus reserve during the first quarter of 2022.
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Interest Rate Risk Management
First BanCorp. manages its asset/liability position in order to limit the effects of changes in interest rates on net interest income and to maintain stability of profitability under varying interest rate scenarios. The MIALCO oversees interest rate risk and the MIALCO meetings focus on, among other things, current and expected conditions in world financial markets, competition and prevailing rates in the local deposit market, liquidity, loan originations pipeline, securities market values, recent or proposed changes to the investment portfolio, alternative funding sources and related costs, hedging and the possible purchase of derivatives such as swaps and caps, and any tax or regulatory issues thatwhich may be pertinent to these areas. The MIALCO approves funding decisions in light ofconsidering the Corporation’s overall strategies and objectives.
On a quarterly basis, the Corporation performs a consolidated net interest income simulation analysis to estimate the potential change in future earnings from projected changes in interest rates. These simulations are carried out over a one-to-five-year time horizon, assuming upward and downward yield curve shifts. The rate scenarios considered in these simulationsdisclosures reflect gradual upward and downward interest rate movements of 200 basis points (“bps”) during a twelve-month period. Simulations are carried out in two ways:
(1) Using a static balance sheet, as the Corporation had on the simulation date, and
(2) Using a dynamic balance sheet based on recent patterns and current strategies.
The balance sheet is divided into groups of assets and liabilities detailed by maturity or re-pricing structure and their corresponding interest rate yields and costs. As interest rates rise or fall, these simulations incorporate expected future lending rates, current and expected future funding sources and costs, the possible exercise of options, changes in prepayment rates, deposit decay and other factors, thatwhich may be important in projecting net interest income.
The Corporation uses a simulation model to project future movements in the Corporation’s balance sheet and income statement. The starting point of the projections generally corresponds to the actual values on the balance sheet on the date of the simulations.
These simulations are highly complex and are based on many assumptions that are intended to reflect the general behavior of the balance sheet components over the period in question. It is unlikely that actual events will match these assumptions in mostall cases. For this reason, the results of these forward-looking computations are only approximations of the true sensitivity of net interest income to changes in market interest rates. Several benchmark and market rate curves were used in the modeling process, primarily the LIBOR/SWAP curve, Prime, U.S. Treasury, FHLB rates, brokered CD rates, repurchase agreementsagreement rates, and the mortgage commitment rate of 30 years.
TheAs of March 31, 2022, the Corporation forecasted the 12-month net interest income is forecasted assuming the September 30, 2017March 31, 2022 interest rate curves remain constant. Then, netNet interest income iswas then estimated under rising and falling rate scenarios. For the rising rate scenarios,rates scenario, a gradual (ramp) parallel upward shift of the yield curve is assumed during the first twelve months (the “+200 ramp” scenario). Conversely, for the falling rate scenarios,rates scenario, a gradual (ramp) parallel downward shift of the yield curve is assumed during the first twelve months (the “-200 ramp” scenario). However, given the current low levels of interest rates and rate compression in the short term, along with the current yield curve slope, a full downward shift of 200 basis pointsbps would represent an unrealistic scenario. Therefore, under the falling rate scenario, interest rates move downward up to 200 basis points, but withoutbps, until reaching the floor rate of zero. The resulting scenario shows interest rates close to zero in most cases, reflectingends with a flattening yield curve instead of a parallel downward scenario.
The Libor/LIBOR/Swap curve for September 2017,March 31, 2022, as compared to the January 31, 2022 curve used for the December 2016,31, 2021 sensitivity, reflected a 24 basis points increasean increment in the short-term horizon, between one to twelve months of 82 basis points on average; while market rates increased by 14 basis points in the medium-term,medium term by 102 bps, that is between 2 to 5 years. In the long-term,long term, that is over a 5-year time5-year-term horizon, market rates decreased by 4 basis points. The U.S.increased 55 bps as compared to January 31, 2022. A similar pattern on market rates changes were observed in the Treasury curve for the short, medium, and long term mentioned above with a 49 bps increase in the short-term increased by 53 basis points andhorizon, 94 bps increase in the medium-term horizon increased by 7 basis points as compared to December 2016 end of month levels. Themedium term, and 45 bps increase in the long-term horizon decreased by 16 basis points as compared to December 2016 end of month levels.horizon.
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The following table presents the results of the simulations as of September 30, 2017 and December 31, 2016. Consistent with prior years, these exclude non-cash changes in the fair value of derivatives: | |||||||||||||||||||||||
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| September 30, 2017 |
| December 31, 2016 | ||||||||||||||||||||
| Net Interest Income Risk |
| Net Interest Income Risk | ||||||||||||||||||||
| (Projected for the next 12 months) |
| (Projected for the next 12 months) | ||||||||||||||||||||
| Static Simulation |
| Growing Balance Sheet |
| Static Simulation |
| Growing Balance Sheet | ||||||||||||||||
(Dollars in millions) | Change |
| % Change |
| Change |
| % Change |
| Change |
| % Change |
| Change |
| % Change | ||||||||
+ 200 bps ramp | $ | 16.1 |
| 3.29 | % |
| $ | 18.8 |
| 3.78 | % |
| $ | 12.1 |
| 2.51 | % |
| $ | 14.0 |
| 2.89 | % |
- 200 bps ramp | $ | (14.2) |
| (2.89) | % |
| $ | (17.7) |
| (3.56) | % |
| $ | (6.5) |
| (1.36) | % |
| $ | (11.4) |
| (2.35) | % |
125
The following table presents the results of the simulations as of March 31, 2022 and December 31, 2021. Consistent with prior years, these exclude non-cash changes in the fair value of derivatives: |
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| March 31, 2022 |
| December 31, 2021 | ||||||||||||||||||||
| Net Interest Income Risk |
| Net Interest Income Risk | ||||||||||||||||||||
| (Projected for the next 12 months) |
| (Projected for the next 12 months) | ||||||||||||||||||||
| Static Simulation |
| Growing Balance Sheet |
| Static Simulation |
| Growing Balance Sheet | ||||||||||||||||
(Dollars in millions) | Change |
| % Change |
| Change |
| % Change |
| Change |
| % Change |
| Change |
| % Change | ||||||||
+ 200 bps ramp | $ | 22.3 |
| 3.00 | % |
| $ | 27.8 |
| 3.56 | % |
| $ | 34.5 |
| 4.81 | % |
| $ | 39.1 |
| 5.17 | % |
- 200 bps ramp | $ | (19.0) |
| (2.55) | % |
| $ | (18.6) |
| (2.38) | % |
| $ | (12.2) |
| (1.70) | % |
| $ | (13.5) |
| (1.78) | % |
The Corporation continues to manage its balance sheet structure to control and limit the overall interest rate risk. As part of March 31, 2022, the strategy to limit the interest rate risk, the Company has executed certain transactionssimulations showed that affected the simulation results. While the overall loan portfolio declined by $32.1 million, the performing loan portfolio increased by $54.7 million during the first nine months of 2017 despite the interruption in collection efforts caused by Hurricanes Irma and Maria on the markets in which the Corporation operates.continues to maintain an asset-sensitive position. For instance, a 100bps immediate increase in rates would represent approximately 4.10% increase in net interest income on a static simulation and 4.60% on a growing balance sheet simulation. The Corporation has continued repositioning the balance sheet and improving the funding mix, mainly driven by continuingincreasing the average balance of interest-bearing deposits. The above-mentioned growth in deposits, along with proceeds from loan repayments, U.S. agency bonds that matured or were called prior to maturity, and prepayments of U.S. agency MBS that have not been reinvested contributed to fund the continued increase in the investment securities portfolio, while maintaining higher liquidity levels.
The decrease its wholesale funding concentration, with a decreasein net interest income sensitivity for the +200bps ramp scenario, as compared to the exercise executed for balances held at December 31, 2021, was primarily related to: (i) the effect of $184.4 million in brokered CDs. Cash and cash equivalents increased by $437.5 millionthe repricing of certain assets on the balance sheet during the first nine monthsquarter of 2017, partially tied to2022, (ii) reductions in available cash balances with short-term FHLB advances issued as a precautionary liquidity measure at the end of September,repricing, and (iii) lower expected prepayments speeds in anticipation of liquidity needs from our clients resulting from Hurricanes Irma and Maria. The rest of the increase in cash is mainly tied to an increase in non-interest bearing deposits, proceeds from U.S. agency MBS prepaymentsas rates move upward resulting in a decline in refinancing activity. The increase in net interest income sensitivity for the -200bps ramp scenario was driven by rate decompression as market rates move away from historically low interest rate levels in 2021, allowing for greater downward interest rates shifts. However, a full down parallel movement of -200bps will still not be able to materialize due to near floor rate levels which has a major impact in variable rate and the sale of the PREPA credit lines, along with loan repayments.short-term products.
Taking into consideration the above-mentioned facts for modeling purposes, as of March 31, 2022, the net interest income for the next twelve months under a non-static balance sheet scenario is estimated to increase by $18.8$27.8 million in the rising rate scenario, when compared against the Corporation’s flat or unchanged interest rate forecast scenario. Under the falling rate, non-static scenario the net interest income is estimated to decrease by $17.7$18.6 million.
Derivatives
First BanCorp. uses derivative instruments and other strategies to manage its exposure to interest rate risk caused by changes in interest rates beyond management’s control.
The following summarizes major strategies, including derivative activities, used by the Corporation in managing interest rate risk:
Interest rate cap agreements - Interest rate cap agreements provide the right to receive cash if a reference interest rate rises above a contractual rate. The value increases as the reference interest rate rises. The Corporation enters into interest rate cap agreements for protection from rising interest rates.
Forward Contracts - Forward contracts are sales of TBAs mortgage-backed securities that will settle over the standard 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 provide for delivery of a security within the timeframe generally established by regulations or conventions in the market-place or exchange in which the transaction is being executed.The forward sales are considered derivative instruments that need to be marked-to-market. These securities are used to hedge the FHA/VA residential mortgage loan securitizations of the mortgage-banking operations. Unrealized gains (losses) are recognized as part of mortgage banking activities in the consolidated statements of income.
For detailed information regarding the volume of derivative activities (i.e., notional amounts), location and fair values of derivative instruments in the consolidated statements of Financial Condition and the amount of gains and losses reported in the consolidated statements of (loss) income, refer to Note 11 in the accompanying unaudited consolidated financial statements.
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The following tables summarize the fair value changes in the Corporation’s derivatives as well as the sources of the fair values: | |||||
| Asset Derivatives |
| Liability Derivatives | ||
| Nine-Month Period Ended |
| Nine-Month Period Ended | ||
(In thousands) | September 30, 2017 |
| September 30, 2017 | ||
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Fair value of contracts outstanding at the beginning of the period | $ | 554 |
| $ | (753) |
Changes in fair value during the period |
| (260) |
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| 532 |
Fair value of contracts outstanding as of September 30, 2017 | $ | 294 |
| $ | (221) |
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| Maturity 1-3 Years |
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| Total Fair Value |
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As of September 30, 2017 |
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Pricing from observable market inputs - Asset Derivatives |
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| $ | 75 |
| $ | 219 |
| $ | - |
| $ | - |
| $ | 294 |
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Pricing from observable market inputs - Liability Derivatives |
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| (2) |
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| (219) |
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| - |
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| - |
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| (221) |
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| $ | 73 |
| $ | - |
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| $ | 73 |
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Derivative instruments, such as interest rate caps, 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 level of interest rates, as well as the expectations for rates in the future.
As of September 30, 2017 and December 31, 2016, all of the derivative instruments held by the Corporation were considered economic undesignated hedges.
The use of derivatives involves market and credit risk. The market risk of derivatives stems principally from the potential for changes in the value of derivative contracts based on changes in interest rates. The credit risk of derivatives arises from the potential for default of the counterparty. To manage this credit risk, the Corporation deals with counterparties that it considers to be of good credit standing, enters into master netting agreements whenever possible and, when appropriate, obtains collateral.Master netting agreements incorporate rights
As of set-off that provide forMarch 31, 2022 and December 31, 2021, the net settlementCorporation considered all of contracts withits derivative instruments as undesignated economic hedges. As of March 31, 2022, the same counterparty inaggregate balance of derivative assets was of $1.2 million, compared to $1.5 million as of December 31, 2021. As of March 31, 2022, the eventaggregate balance of default.
Referderivative liabilities was of $0.8 million, compared to Note 22$1.2 million as of the accompanying unaudited consolidated financial statements for additionalDecember 31, 2021. For detailed information regarding the fair value determinationvolume of derivative instruments.activities (e.g., notional amounts), location and fair values of derivative instruments in the consolidated statements of financial condition as of December 31, 2021 and 2020 and the amount of gains and losses reported in the consolidated statements of income during 2021 and 2020, see Note 34 – Derivative Instruments and Hedging Activities included in the 2021 Annual Report on Form 10-K.
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Credit Risk Management
First BanCorp. is subject to credit risk mainly with respect to its portfolio of loans receivable and off-balance sheetoff-balance-sheet instruments, mainly derivatives and loan commitments. Loans receivable represents loans that First BanCorp. holds for investment and, therefore, First BanCorp. is at risk for the term of the loan. Loan commitments represent commitments to extend credit, subject to specific conditions, for specific amounts and maturities. These commitments may expose the Corporation to credit risk and are subject to the same review and approval process as for loans. Refer to Contractual Obligationsloans made by the Bank. See “Liquidity Risk and CommitmentsCapital Adequacy” above for further details. The credit risk of derivatives arises from the potential of the counterparty’s default on its contractual obligations. To manage this credit risk, the Corporation deals with counterparties of good credit standing, enters into master netting agreements whenever possible and, when appropriate, obtains collateral. For further details and information on the Corporation’s derivative credit risk exposure, refer to Interest Rate Risk Management above.The Corporation manages its credit risk through its credit policy, underwriting, independent loan review and quality control procedures, statistical analysis, comprehensive financial analysis, and established management committees. The Corporation also employs proactive collection and loss mitigation efforts.Furthermore, personnel performing structured loan workout functions are responsible for mitigating defaults and minimizing losses upon default within each region and for each business segment.In the case of the commercial and industrial, (“C&I”), commercial mortgage and construction loan portfolios, the Special Asset Group (“SAG”) focuses on strategies for the accelerated reduction of non-performing assets through note sales, short sales, loss mitigation programs, and sales of OREO. In addition to the management of the resolution process for problem loans, the SAG oversees collection efforts for all loans to prevent migration to the non-performingnonaccrual and/or adversely classified status. The SAG utilizes relationship officers, collection specialists and attorneys. In the case of residential construction projects, the workout function monitors project specifics, such as project management and marketing, as deemed necessary.
The Corporation may also have risk of default in the securities portfolio. The securities held by the Corporation are principally fixed-rate U.S. agency mortgage-backed securitiesMBS and U.S. Treasury and agencyagencies securities. Thus, a substantial portion of these instruments is backed by mortgages, a guarantee of a U.S. government-sponsored entityGSE or the full faith and credit of the U.S. government.
Management, consisting of the Corporation’s Commercial Credit Risk Officer, Retail Credit Risk Officer, Chief LendingCredit Officer, and other senior executives, has the primary responsibility for setting strategies to achieve the Corporation’s credit risk goals and objectives. TheseManagement has documented these goals and objectives are documented in the Corporation’s Credit Policy.
127
Allowance for Loan and LeaseCredit Losses and Non-performing Assets
Allowance for LoanCredit Losses for Loans and Lease LossesFinance Leases
The provisionACL for loanloans and lease losses is charged to earnings to maintain the allowance for loan and lease losses at a level that the Corporation considers adequate to absorb probable losses inherent in the portfolio. The adequacy of the allowance for loan and lease losses is also based upon a number of additional factors, including trends in charge-offs and delinquencies, current economic conditions, the fair value of the underlying collateral and the financial condition of the borrowers, and, as such, includes amounts based on judgments and estimates made by the Corporation. Important factors that influence this judgement are re-evaluated quarterly to respond to changing conditions.
The allowance for loan and lease lossesfinance leases represents the estimate of the level of reserves appropriate to absorb inherentexpected credit losses.losses over the estimated life of the loans. The amount of the allowance wasis determined by empirical analysis and judgments regarding the quality of each individual loan portfolio. All knownusing relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience is a significant input for the estimation of expected credit losses, as well as adjustments to historical loss information made for differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency level, or term. Additionally, the Corporation’s assessment involves evaluating key factors, that affected loan collectability were considered, including analyses of
126
historical charge-off experience, migration patterns,which include credit and macroeconomic indicators, such as changes in economicunemployment rates, property values, and other relevant factors to account for current and forecasted market conditions and changes in loan collateral values. For example, factors affectingthat are likely to cause estimated credit losses over the economieslife of Puerto Rico, Florida (USA), the USVI and the BVI may contributeloans to delinquencies and defaults above the Corporation’sdiffer from historical loan and leasecredit losses. Such factors are subject to regular review and may change to reflect updated performance trends and expectations, particularly in times of severe stress. The process includes judgments and quantitative elements that may be subject to significant change.
Further, the Corporation periodically considers the need for qualitative reserves to the ACL to consider factors such as 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, organization specific risks and other limitations. Qualitative adjustments may be related to and include, but are not limited to, factors such as the following: (i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions; (ii) organization specific risks such as credit concentrations, collateral specific risks, nature and size of the portfolio and external factors that may ultimately impact credit quality, and (iii) other limitations associated with factors such as changes in underwriting and loan resolution strategies, among others. The allowanceACL for loan and lease losses provides for probable losses that have been identified with specific valuation allowances for individually evaluated impaired loans and probable losses believed to be inherent in the loan portfolio that have not been specifically identified. An internal risk ratingfinance leases is assigned to each business loanreviewed at the time of approval and is subject to subsequent periodic reviews by the Corporation’s senior management. The allowance for loan and lease losses is reviewedleast on a quarterly basis as part of the Corporation’s continued evaluation of its asset quality.
Hurricanes IrmaAs of March 31, 2022, the Corporation applied probability weights to the baseline and Maria caused widespread property damage, flooding, power outages, and water and communication services interruptions, and severely disrupted normalalternative downside economic activityscenarios 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 including a prolonged conflict in Ukraine, adverse conditions created by disruptions in the affected areas. In addition to immediate uncertainties regarding the adequacy and timeliness of insurance recoveries, continued personal employment, the ability of businesses to reopensupply chain and the availabilityoverall inflationary environment. For prior periods, the Corporation calculated the ACL using the baseline scenario. As of goods and servicesMarch 31, 2022, the Corporation’s ACL model considered the following assumptions for key economic variables in the probability-weighted economic scenarios:
Increase in commercial real estate price index to operate homes and businesses, there is a significant level5.0% for 2022, compared to the previous forecast of uncertainty regarding the level of economic activity to which2.7%.
Increase in regional housing price index in Puerto Rico (purchase only prices) of 8.4% during 2022, when compared to the previous forecast. For the Florida region, increase in regional housing price index of 6.9% when compared to the previous forecast.
Slight increase in levels of regional unemployment in Puerto Rico to 7.8% for 2022, compared to the previous forecast of 7.4%. For the Florida region and the Virgin Islands will return over time. Some uncertainties include howU.S. mainland, slight increase in unemployment rate to 3.9% and when rebuilding will take place, including the rebuilding of public infrastructure such as Puerto Rico’s power grid, what level of government, private or philanthropic funds will be invested4.2%, respectively, for 2022, compared to 3.1% and 3.7%, respectively, in the affected communities, how many displaced individuals will returnprevious forecast.
A slight decrease in real gross domestic product (“GDP”) in the U.S. mainland to their homes in both3.3% for 2022, compared to the short-and long-term, and what other demographic changes will take place, if any. While itprevious forecast of 4.6%.
It is clear that the recent storms will have significant short-term economic repercussions, both positive and negative, for the Corporation’ s commercial and individual loan customers, the storms' ultimate effect on loan collections is uncertain. The Corporation’s loan officers are making individual storm-impact assessments for all commercial customers. However, the fact that the events occurred so recently make it difficult to estimate how potential changes in one factor or input might affect the immediate impactoverall ACL because management considers a wide variety of factors and inputs in estimating the ACL. Changes in the factors and inputs considered may not occur at the same rate and may not be consistent across all geographies or product types, and changes in factors and inputs may be directionally inconsistent, such levelthat improvement in one factor or input may offset deterioration in others. However, to demonstrate the sensitivity of credit loss estimates to macroeconomic forecasts as of March 31, 2022, management compared the modeled estimates under the probability-weighted economic scenarios against a more adverse scenario. Under this more adverse scenario, as an example, average unemployment rate for the Puerto Rico region increases to 8.17% for 2022 and 8.78% during 2023, compared to 7.72% and 7.92%, respectively, for the expectationsame periods on the probability-weighted economic scenario projections.
128
To demonstrate the sensitivity to key economic parameters used in the calculation of our ACL at March 31, 2022, management calculated the difference between our quantitative ACL and this more adverse scenario. Excluding consideration of qualitative adjustments, this sensitivity analysis would result in a hypothetical increase in our ACL of approximately $34 million at March 31, 2022. This analysis relates only to the modeled credit loss estimates and is thatnot intended to estimate changes in the assessment on an individual basis willoverall ACL as it does not reflect any potential changes in other adjustments to the qualitative calculation, which would also be substantially completedinfluenced by the fourthjudgment management applies to the modeled lifetime loss estimates to reflect the uncertainty and imprecision of these estimates based on current circumstances and conditions. Recognizing that forecasts of macroeconomic conditions are inherently uncertain, particularly in light of the recent economic conditions, management believes that its process to consider the available information and associated risks and uncertainties is appropriately governed and that its estimates of expected credit losses were reasonable and appropriate for the period ended March 31, 2022.
As of March 31, 2022, the ACL for loans and finance leases was $245.4 million, down $23.6 million from December 31, 2021. The reduction of the ACL for commercial and construction loans was $22.3 million, reflecting, among other things, continued positive long-term outlook of macroeconomic variables to which the reserve is correlated and their impact on qualitative reserves. In addition, the ACL for residential mortgage loans decreased by $6.0 million in the first quarter, primarily due to the overall reduction in the size of 2017.this portfolio. The aforementioned ACL reductions were partially offset by an increase of $4.7 million in the ACL for consumer loans primarily reflecting the effect of the increase in the size of the auto and finance leases loan portfolios and an increase in cumulative historical charge-off levels related to personal and credit card loans. Refer to “ProvisionNote 1, - Nature of Business and Summary of Significant Accounting Policies, in the 2021 Annual Report on Form 10-K for Loan and Lease Losses” above for information about the Corporation’s approach to estimating the storms’ impact on credit quality. Estimatesa description of the storms’ effect on loan losses could change over time as additional information becomes available, and any related revisions inmethodologies used by the allowance calculation will be reflected inCorporation to determine the provision for loan losses as they occur.ACL.
The ratio of the allowanceACL for loan lossesloans and finance leases to total loans held for investment increaseddecreased to 2.60%2.21% as of September 30, 2017March 31, 2022, compared to 2.31%2.43% as of December 31, 2016. 2021. On a non-GAAP basis, excluding SBA PPP loans, the ratio of the ACL for loans and finance leases to adjusted total loans held for investment was 2.23% as of March 31, 2022, compared to 2.46% as of December 31, 2021. For the definition and reconciliation of this non-GAAP financial measure, refer to the discussion in “Basis of Presentation” below. An explanation for the change for each portfolio follows:
The allowanceACL to total loans ratio for mostthe residential mortgage loan portfolio decreased from 2.51% as of December 31, 2021 to 2.38% as of March 31, 2022, primarily due to continued improvements in the categories showedlong-term outlook of forecasted macroeconomic variables, such as the housing price index.
The ACL to total loans ratio for the commercial mortgage loan portfolio decreased from 2.43% as of December 31, 2021 to 1.35% as of March 31, 2022, reflecting, among other things, reductions in qualitative reserves mostly associated with a higher coverage driven bycontinued positive long-term outlook of forecasted macroeconomic variables, primarily in the $66.5 million charge to the allowancecommercial real estate price index, as a result of the storm-related qualitative estimate determinedreduced uncertainty regarding COVID-19, particularly on loans in the thirdhotel, transportation, and entertainment industries, and to a lesser extent, improvements in updated financial information received from borrowers during the first quarter of 2017. 2022.
The change for each portfolio follows:
·The allowanceACL to total loans ratio for the residential mortgagecommercial and industrial portfolio increased from 1.03%1.19% as of December 31, 20162021 to 1.74%1.28% as of September 30, 2017, driven byMarch 31, 2022. On a non-GAAP basis, excluding SBA PPP loans, the $13.7 million qualitative storm-related estimate determinedratio of the ACL for this portfoliocommercial and the effectindustrial loans to adjusted total commercial and industrial loans held for investment was 1.32% as of increased reserves on residential mortgage TDRs driven by adjustmentsMarch 31, 2022, compared to the loss severity estimates, including adjustments to liquidation cost assumptions, and prepayments experience on these loans.
.
·The allowance to total loans for the commercial mortgage portfolio decreased from 3.65%1.25% as of December 31, 2016 to 3.49% as of September 30, 2017, driven by the impact of large charge-offs on commercial mortgage loans guaranteed by the TDF recorded in the second quarter of 2017 against previously-established specific reserves, partially offset by the $18.1 million qualitative storm-related estimate determined for this portfolio.2021.
·The allowanceACL to total loans for the C&I portfolio decreased from 2.84% as of December 31, 2016 to 1.88% as of September 30, 2017, reflecting the effect of the decrease in adversely classified and non-performing loans experienced during the first nine months of 2017, including the sale of the PREPA credit line as well as lower historical loss rates applied to the general reserve, partially offset by the $8.0 million qualitative storm-related estimate determined for this portfolio.
·The allowance to total loansratio for the construction loan portfolio increaseddecreased from 2.05%2.91% as of December 31, 20162021 to 3.05%1.65% as of September 30, 2017,March 31, 2022, primarily duereflecting reductions in qualitative reserves mostly associated to previously-identified specific risks for a construction project in Florida that were resolved during the increase in the specific reserve for construction loans in the Virgin Islands and the $0.8 million qualitative storm-related estimate determined for this portfolio.first quarter of 2022.
·The allowanceACL to total loans ratio for the consumer and finance leasesloan portfolio increased from 2.90%3.57% as of December 31, 20162021 to 4.26%3.62% as of September 30, 2017,March 31, 2022, primarily duereflecting an increase in cumulative historical charge-off levels mostly related to the $25.9 million qualitative storm-related estimate determined for thispersonal and credit card loan portfolio.
The ratio of the total allowanceACL to non-performingnonaccrual loans held for investment was 48.80%229.33% as of September 30, 2017March 31, 2022, compared to 36.71%242.99% as of December 31, 2016. 2021.
127
Substantially all of the Corporation’s loan portfolio is located within the boundaries of the U.S. economy. Whether the collateral is located in Puerto Rico, the U.S. and British Virgin Islands or the U.S. mainland (mainly in the state of Florida), the performance of the Corporation’s loan portfolio and the value of the collateral supporting the transactions are dependent upon the performance of and conditions within each specific area’s real estate market. The real estate market in Puerto Rico has experienced readjustments in value, driven by the loss of income due to higher unemployment, reduced demand and general adverse economic conditions that could be exacerbated by Hurricanes Irma and Maria in the third quarter of 2017. The Corporation believes it sets adequate loan-to-value ratios following its regulatory and credit policy standards.
129
As shown in the following table,tables, the allowanceACL for loanloans and lease lossesfinance leases amounted to $230.9$245.4 million as of September 30, 2017,March 31, 2022, or 2.60%2.21% of total loans, compared with $205.6$358.9 million, or 2.31%3.08% of total loans, as of March 31, 2021 and $269.0 million, or 2.43% of total loans, as of December 31, 2016. Refer to 2021. See “Results of Operation - Provision for Loan and Lease LossesCredit Losses” above for additional information.
|
| Quarter Ended March 31 | ||||||
| 2022 |
| 2021 | |||||
(Dollars in thousands) |
|
|
|
|
|
|
| |
ACL for loans and finance leases, beginning of period | $ | 269,030 |
| $ | 385,887 | |||
Provision for credit losses - (benefit) expense: |
|
|
|
|
|
|
| |
| Residential mortgage |
| (4,871) |
|
| (4,175) | ||
| Commercial mortgage |
| (22,640) |
|
| (8,820) | ||
| Commercial and Industrial |
| 1,755 |
|
| (5,312) | ||
| Construction |
| (2,214) |
|
| (456) | ||
| Consumer and finance leases |
| 10,981 |
|
| 4,320 | ||
Total provision for credit losses for loans and finance leases - (benefit) | $ | (16,989) |
| $ | (14,443) | |||
Charge-offs |
|
|
|
|
|
|
| |
| Residential mortgage | $ | (2,528) |
| $ | (2,825) | ||
| Commercial mortgage |
| (37) |
|
| (794) | ||
| Commercial and Industrial |
| (290) |
|
| (809) | ||
| Construction |
| (44) |
|
| (45) | ||
| Consumer and finance leases |
| (9,816) |
|
| (11,761) | ||
Total charge offs | $ | (12,715) |
| $ | (16,234) | |||
Recoveries: |
|
|
|
|
|
|
| |
| Residential mortgage |
| 1,382 |
|
| 733 | ||
| Commercial mortgage |
| 44 |
|
| 54 | ||
| Commercial and Industrial |
| 1,035 |
|
| 264 | ||
| Construction |
| 52 |
|
| 36 | ||
| Consumer and finance leases |
| 3,608 |
|
| 2,639 | ||
Total recoveries | $ | 6,121 |
| $ | 3,726 | |||
Net charge-offs | $ | (6,594) |
| $ | (12,508) | |||
ACL for loans and finance leases, end of period | $ | 245,447 |
| $ | 358,936 | |||
|
|
|
|
|
|
|
|
|
ACL for loans and finance leases to period-end total loans held for investment |
| 2.21 | % |
|
| 3.08 | % | |
Annualized net charge-offs to average loans outstanding during the period |
| 0.24 | % |
|
| 0.43 | % | |
Provision for credit losses - (benefit) expense for loans and finance leases to net charge-offs during the period |
| -2.58 | x |
|
| -1.15 | x |
128130
| Quarter Ended |
|
| Nine-Month Period Ended |
|
| ||||||||||
| September 30, |
|
| September 30, |
|
| ||||||||||
(Dollars in thousands) | 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| ||||
|
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses, beginning of period | $ | 173,485 |
|
| $ | 234,454 |
|
| $ | 205,603 |
|
| $ | 240,710 |
|
|
Provision (release) for loan and lease losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgage (1) |
| 23,321 |
|
|
| 4,553 |
|
|
| 43,480 |
|
|
| 21,589 |
|
|
Commercial Mortgage (2) |
| 17,590 |
|
|
| (152) |
|
|
| 30,654 |
|
|
| 3,369 |
|
|
Commercial and Industrial (3) |
| (1,079) |
|
|
| 5,597 |
|
|
| (8,019) |
|
|
| 11,335 |
|
|
Construction (4) |
| 242 |
|
|
| 2,480 |
|
|
| 1,496 |
|
|
| 2,151 |
|
|
Consumer and Finance Leases (5) |
| 34,939 |
|
|
| 9,025 |
|
|
| 50,940 |
|
|
| 25,098 |
|
|
Total provision for loan and lease losses |
| 75,013 |
|
|
| 21,503 |
|
|
| 118,551 |
|
|
| 63,542 |
|
|
Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgage |
| (7,177) |
|
|
| (8,514) |
|
|
| (22,369) |
|
|
| (27,352) |
|
|
Commercial Mortgage |
| (266) |
|
|
| (13,730) |
|
|
| (32,123) |
|
|
| (15,742) |
|
|
Commercial and Industrial (6) |
| (738) |
|
|
| (10,587) |
|
|
| (19,168) |
|
|
| (16,260) |
|
|
Construction |
| (47) |
|
|
| (19) |
|
|
| (705) |
|
|
| (623) |
|
|
Consumer and Finance Leases |
| (11,141) |
|
|
| (13,716) |
|
|
| (33,386) |
|
|
| (41,490) |
|
|
Total charge offs |
| (19,369) |
|
|
| (46,566) |
|
|
| (107,751) |
|
|
| (101,467) |
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgage |
| 321 |
|
|
| 972 |
|
|
| 1,961 |
|
|
| 2,159 |
|
|
Commercial Mortgage |
| 43 |
|
|
| 335 |
|
|
| 151 |
|
|
| 414 |
|
|
Commercial and Industrial |
| 114 |
|
|
| 929 |
|
|
| 5,613 |
|
|
| 1,885 |
|
|
Construction |
| 16 |
|
|
| 140 |
|
|
| 594 |
|
|
| 301 |
|
|
Consumer and Finance Leases |
| 1,247 |
|
|
| 2,303 |
|
|
| 6,148 |
|
|
| 6,526 |
|
|
Total recoveries |
| 1,741 |
|
|
| 4,679 |
|
|
| 14,467 |
|
|
| 11,285 |
|
|
Net Charge-Offs |
| (17,628) |
|
|
| (41,887) |
|
|
| (93,284) |
|
|
| (90,182) |
|
|
Allowance for loan and lease losses, end of period | $ | 230,870 |
|
| $ | 214,070 |
|
| $ | 230,870 |
|
| $ | 214,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses to period end total loans held for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investment |
| 2.60 | % |
|
| 2.42 | % |
|
| 2.60 | % |
|
| 2.42 | % |
|
Allowance for loan and lease losses, excluding the $66.5 million storm-related |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
allowance, to period end total loans held for investment (7) |
| 1.85 | % |
|
| 2.42 | % |
|
| 1.85 | % |
|
| 2.42 | % |
|
Net charge-offs (annualized) to average loans outstanding during the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period |
| 0.80 | % |
|
| 1.90 | % |
|
| 1.40 | % |
|
| 1.35 | % |
|
Net charge-offs (annualized) to average loans outstanding during the period, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
excluding net charge-offs of $10.7 million related to the sale of the PREPA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
credit line in the first nine months of 2017 (7) |
| 0.80 | % |
|
| 1.90 | % |
|
| 1.24 | % |
|
| 1.35 | % |
|
Provision for loan and lease losses to net charge-offs during the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period |
| 4.26x |
|
|
| 0.51x |
|
|
| 1.27x |
|
|
| 0.70x |
|
|
Provision for loan and lease losses to net charge-offs during the period, excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the impact of the storm-related provision in the third quarter and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
first nine-months of 2017 and the impact of the sale of the PREPA credit line |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in the first nine months of 2017 (7) |
| 0.48x |
|
|
| 0.51x |
|
|
| 1.27x |
|
|
| 0.70x |
|
|
___________ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)For the quarter and nine-month period ended September 30, 2017, includes a provision of $13.7 million associated with the impact of Hurricanes Irma and Maria. |
| |||||||||||||||
(2) For the quarter and nine-month period ended September 30, 2017, includes a provision of $18.1 million associated with the impact of Hurricanes Irma and Maria. |
| |||||||||||||||
(3) For the quarter and nine-month period ended September 30, 2017, includes a provision of $8.0 million associated with the impact of Hurricanes Irma and Maria. |
| |||||||||||||||
(4) For the quarter and nine-month period ended September 30, 2017, includes a provision of $0.8 million associated with the impact of Hurricanes Irma and Maria. |
| |||||||||||||||
(5) For the quarter and nine-month period ended September 30, 2017, includes a provision of $25.9 million associated with the impact of Hurricanes Irma and Maria. |
| |||||||||||||||
(6) For the nine-month period ended September 30, 2017, includes a charge-off of $10.7 million associated with the sale of the PREPA credit line. |
| |||||||||||||||
(7) Refer to Basis of Presentation below for a reconciliation of these measures.
|
|
The following table sets forth information concerning the allocation of the Corporation's ACL for loans and finance leases by loan category and the percentage of loan balances in each category to the total of such loans as of the indicated dates: | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| As of |
|
| As of |
| |||||||||
| March 31, 2022 |
|
| December 31, 2021 |
| |||||||||
| Amount |
| Percentage of total loans |
|
| Amount |
| Percentage of total loans |
| |||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Residential mortgage loans | $ | 68,820 |
|
| 26 | % |
| $ | 74,837 |
|
| 27 | % | |
Commercial mortgage loans |
| 30,138 |
|
| 20 | % |
|
| 52,771 |
|
| 20 | % | |
Construction loans |
| 1,842 |
|
| 1 | % |
|
| 4,048 |
|
| 1 | % | |
Commercial and Industrial loans |
| 36,784 |
|
| 26 | % |
|
| 34,284 |
|
| 26 | % | |
Consumer loans and finance leases |
| 107,863 |
|
| 27 | % |
|
| 103,090 |
|
| 26 | % | |
| $ | 245,447 |
|
| 100 | % |
| $ | 269,030 |
|
| 100 | % |
The following tables set forth information concerning the composition of the Corporation's loan portfolio and related ACL as of March 31, 2022 and December 31, 2021 by loan category: | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
As of March 31, 2022 | Residential Mortgage Loans |
| Commercial Mortgage Loans |
| Commercial and Industrial Loans |
|
|
| Consumer and Finance Leases |
|
|
| |||||||
|
|
|
|
| Construction Loans |
|
|
|
| ||||||||||
(Dollars in thousands) |
|
|
|
|
| Total |
| ||||||||||||
Total loans held for investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Amortized cost of loans | $ | 2,891,699 |
| $ | 2,237,702 |
| $ | 2,880,256 |
| $ | 111,908 |
| $ | 2,976,140 |
| $ | 11,097,705 |
|
| Allowance for credit losses |
| 68,820 |
|
| 30,138 |
|
| 36,784 |
|
| 1,842 |
|
| 107,863 |
|
| 245,447 |
|
| Allowance for credit losses to amortized cost |
| 2.38 | % |
| 1.35 | % |
| 1.28 | % |
| 1.65 | % |
| 3.62 | % |
| 2.21 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Residential Mortgage Loans |
| Commercial Mortgage Loans |
|
|
|
|
| Consumer and Finance Leases |
|
|
| ||||||
As of December 31, 2021 |
|
| Commercial and Industrial Loans |
| Construction Loans |
|
|
|
| ||||||||||
|
|
|
|
|
|
|
| ||||||||||||
(Dollars in thousands) |
|
|
|
|
| Total |
| ||||||||||||
Total loans held for investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Amortized cost of loans | $ | 2,978,895 |
| $ | 2,167,469 |
| $ | 2,887,251 |
| $ | 138,999 |
| $ | 2,888,044 |
| $ | 11,060,658 |
|
| Allowance for credit losses |
| 74,837 |
|
| 52,771 |
|
| 34,284 |
|
| 4,048 |
|
| 103,090 |
|
| 269,030 |
|
| Allowance for credit losses to amortized cost |
| 2.51 | % |
| 2.43 | % |
| 1.19 | % |
| 2.91 | % |
| 3.57 | % |
| 2.43 | % |
129131
The following table sets forth information concerning the allocation of the allowance for loan and lease losses by loan category and the percentage of loan balances in each category to the total of such loans as of the dates indicated: | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of |
| As of |
| ||||||||
| September 30, 2017 |
| December 31, 2016 |
| ||||||||
(In thousands) | Amount |
| Percent of loans in each category to total loans |
| Amount |
| Percent of loans in each category to total loans | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans | $ | 57,052 |
|
| 37% |
| $ | 33,980 |
|
| 37 | % |
Commercial mortgage loans |
| 55,943 |
|
| 18% |
|
| 57,261 |
|
| 18 | % |
Construction loans |
| 3,947 |
|
| 2% |
|
| 2,562 |
|
| 1 | % |
Commercial and Industrial loans |
| 40,379 |
|
| 24% |
|
| 61,953 |
|
| 25 | % |
Consumer loans and finance leases |
| 73,549 |
|
| 19% |
|
| 49,847 |
|
| 19 | % |
| $ | 230,870 |
|
| 100% |
| $ | 205,603 |
|
| 100 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Credit Losses for Unfunded Loan Commitments
The following table sets forth information concerning the composition of the Corporation's allowance for loan and lease losses as of September 30, 2017 and December 31, 2016 by loan category and by whether the allowance and related provisions were calculated individually or through a general valuation allowance. |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
As of September 30, 2017 | Residential Mortgage Loans |
| Commercial Mortgage Loans |
|
|
|
|
| Consumer and Finance Leases |
|
|
|
| ||||||
|
|
|
|
| Construction Loans |
|
|
|
|
| |||||||||
(Dollars in thousands) |
|
| C&I Loans |
|
|
|
| Total |
| ||||||||||
Impaired loans without specific reserves: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal balance of loans, net of charge-offs | $ | 88,479 |
| $ | 22,832 |
| $ | 8,379 |
| $ | - |
| $ | 2,387 |
|
| $ | 122,077 |
|
Impaired loans with specific reserves: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal balance of loans, net of charge-offs |
| 337,356 |
|
| 131,043 |
|
| 102,560 |
|
| 50,373 |
|
| 35,850 |
|
|
| 657,182 |
|
Allowance for loan and lease losses |
| 19,417 |
|
| 10,456 |
|
| 11,240 |
|
| 1,865 |
|
| 5,177 |
|
|
| 48,155 |
|
Allowance for loan and lease losses to principal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
balance |
| 5.76 | % |
| 7.98 | % |
| 10.96 | % |
| 3.70 | % |
| 14.44 | % |
|
| 7.33 | % |
PCI loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value of PCI loans |
| 153,609 |
|
| 4,185 |
|
| - |
|
| - |
|
| - |
|
|
| 157,794 |
|
Allowance for PCI loans |
| 9,863 |
|
| 372 |
|
| - |
|
| - |
|
| - |
|
|
| 10,235 |
|
Allowance for PCI loans to carrying value |
| 6.42 | % |
| 8.89 | % |
| - |
|
| - |
|
| - |
|
|
| 6.49 | % |
Loans with general allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal balance of loans |
| 2,694,896 |
|
| 1,443,578 |
|
| 2,033,297 |
|
| 79,087 |
|
| 1,689,303 |
|
|
| 7,940,161 |
|
Allowance for loan and lease losses |
| 27,772 |
|
| 45,115 |
|
| 29,139 |
|
| 2,082 |
|
| 68,372 |
|
|
| 172,480 |
|
Allowance for loan and lease losses to principal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
balance |
| 1.03 | % |
| 3.13 | % |
| 1.43 | % |
| 2.63 | % |
| 4.05 |
| % |
| 2.17 | % |
Total loans held for investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal balance of loans | $ | 3,274,340 |
| $ | 1,601,638 |
| $ | 2,144,236 |
| $ | 129,460 |
| $ | 1,727,540 |
|
| $ | 8,877,214 |
|
Allowance for loan and lease losses |
| 57,052 |
|
| 55,943 |
|
| 40,379 |
|
| 3,947 |
|
| 73,549 |
|
|
| 230,870 |
|
Allowance for loan and lease losses to principal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
balance (1) |
| 1.74 | % |
| 3.49 | % |
| 1.88 | % |
| 3.05 | % |
| 4.26 |
| % |
| 2.60 | % |
| |||||||||||||||||||
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Residential Mortgage Loans |
| Commercial Mortgage Loans |
|
|
|
|
| Consumer and Finance Leases |
|
|
| ||||||
|
|
|
|
| Construction Loans |
|
|
|
| |||||||||
(Dollars in thousands) |
|
| C&I Loans |
|
|
| Total |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans without specific reserves: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal balance of loans, net of charge-offs | $ | 67,996 |
| $ | 72,620 |
| $ | 14,656 |
| $ | 1,136 |
| $ | 5,209 |
| $ | 161,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with specific reserves: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal balance of loans, net of charge-offs |
| 374,271 |
|
| 121,771 |
|
| 138,887 |
|
| 52,155 |
|
| 39,204 |
|
| 726,288 |
|
Allowance for loan and lease losses |
| 8,633 |
|
| 26,172 |
|
| 22,638 |
|
| 1,405 |
|
| 5,573 |
|
| 64,421 |
|
Allowance for loan and lease losses to principal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
balance |
| 2.31 | % |
| 21.49 | % |
| 16.30 | % |
| 2.69 | % |
| 14.22 | % |
| 8.87 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCI loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value of PCI loans |
| 162,676 |
|
| 3,142 |
|
| - |
|
| - |
|
| - |
|
| 165,818 |
|
Allowance for PCI loans |
| 6,632 |
|
| 225 |
|
| - |
|
| - |
|
| - |
|
| 6,857 |
|
Allowance for PCI loans to carrying value |
| 4.08% |
|
| 7.16% |
|
| - |
|
| - |
|
| - |
|
| 4.14 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with general allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal balance of loans |
| 2,691,088 |
|
| 1,371,275 |
|
| 2,026,912 |
|
| 71,660 |
|
| 1,672,215 |
|
| 7,833,150 |
|
Allowance for loan and lease losses |
| 18,715 |
|
| 30,864 |
|
| 39,315 |
|
| 1,157 |
|
| 44,274 |
|
| 134,325 |
|
Allowance for loan and lease losses to principal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
balance |
| 0.70 | % |
| 2.25 | % |
| 1.94 | % |
| 1.61 | % |
| 2.65 | % |
| 1.71 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans held for investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal balance of loans | $ | 3,296,031 |
| $ | 1,568,808 |
| $ | 2,180,455 |
| $ | 124,951 |
| $ | 1,716,628 |
| $ | 8,886,873 |
|
Allowance for loan and lease losses |
| 33,980 |
|
| 57,261 |
|
| 61,953 |
|
| 2,562 |
|
| 49,847 |
|
| 205,603 |
|
Allowance for loan and lease losses to principal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
balance (1) |
| 1.03 | % |
| 3.65 | % |
| 2.84 | % |
| 2.05 | % |
| 2.90 | % |
| 2.31 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
__________ | ||||||||||||||||||
(1) Loans used in the denominator include PCI loans of $157.8 million and $165.8 million as of September 30, 2017 and December 31, 2016, respectively. However, the Corporation separately tracks and reports PCI loans and excludes these loans from the amounts of non-performing loans, impaired loans, TDRs and non-performing assets. |
131
The following tables show the activity for impaired loans held for investment and the related specific reserve during the quarters and nine-month periods ended September 30, 2017 and 2016: | |||||||||||
| Quarter Ended |
| Nine-Month Period Ended | ||||||||
| September 30, |
| September 30, | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| (In thousands) |
| (In thousands) | ||||||||
Impaired Loans: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 735,625 |
| $ | 953,774 |
| $ | 887,905 |
| $ | 806,509 |
Loans determined impaired during the period |
| 71,884 |
|
| 26,613 |
|
| 110,488 |
|
| 261,544 |
Charge-offs (1) |
| (6,472) |
|
| (30,426) |
|
| (66,959) |
|
| (50,027) |
Loans sold, net of charge-offs |
| - |
|
| - |
|
| (53,245) |
|
| - |
Increase to impaired loans - additional disbursements |
| 3,215 |
|
| 1,091 |
|
| 4,454 |
|
| 2,852 |
Foreclosures |
| (5,657) |
|
| (11,856) |
|
| (36,347) |
|
| (28,466) |
Loans no longer considered impaired |
| (542) |
|
| (2,674) |
|
| (3,324) |
|
| (27,560) |
Paid in full or partial payments |
| (18,794) |
|
| (23,668) |
|
| (63,713) |
|
| (51,998) |
Balance at end of period | $ | 779,259 |
| $ | 912,854 |
| $ | 779,259 |
| $ | 912,854 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) For the nine-month period ended September 30, 2017, includes a charge-off of $10.7 million related to the sale of the PREPA credit line. | |||||||||||
|
| Quarter Ended |
|
| Nine-Month Period Ended | ||||||
| September 30, |
| September 30, | ||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| (In thousands) |
| (In thousands) | ||||||||
Specific Reserve: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 40,794 |
| $ | 86,372 |
| $ | 64,421 |
| $ | 52,581 |
Provision for loan losses |
| 13,819 |
|
| 16,619 |
|
| 50,014 |
|
| 70,011 |
Charge-offs |
| (6,458) |
|
| (30,309) |
|
| (66,280) |
|
| (49,910) |
Balance at end of period | $ | 48,155 |
| $ | 72,682 |
| $ | 48,155 |
| $ | 72,682 |
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
In addition, as of September 30, 2017,The Corporation estimates expected credit losses over the contractual period in which the Corporation maintainedis exposed to credit risk as a $0.9 million reserve forresult of a contractual obligation to extend credit, such as pursuant to unfunded loan commitments and standby letters of credit for commercial and construction loans, unless the obligation is unconditionally cancellable by the Corporation. The ACL for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. As of March 31, 2022, the ACL for off-balance sheet credit exposures was $1.4 million, down $0.1 million from $1.5 million as of December 31, 2021.
Allowance for Credit Losses for Held-to-Maturity Debt Securities
As of March 31, 2022, the held-to-maturity debt securities portfolio consisted of Puerto Rico municipal bonds. As of March 31, 2022, the ACL for held-to-maturity debt securities was $12.3 million, compared to $8.6 million as of December 31, 2021. The increase in the ACL of $3.7 million was mainly due to the Corporation’s change of applying probability weights to the baseline and alternative downside economic scenarios to estimate the ACL and the associated impact on qualitative reserves. As of March 31, 2022, loans continue to be current and in compliance with financial covenants.
Allowance for Credit Losses for Available-for-Sale Debt Securities
The ACL for available-for-sale debt securities, which is associated to private label MBS and a residential pass-through MBS issued by the PRHFA, was $0.7 million as of March 31, 2022, compared to $1.1 million as of December 31, 2021. The decrease on the ACL is mostly related to outstanding commitments on floor plan revolving linesa continued positive long-term outlook of credit. The reserve for unfunded loan commitments is an estimate of the losses inherent in off-balance sheet loan commitments to borrowers that are experiencing financial difficultiesforecasted macroeconomic variables, such as of the balance sheet date. The reserve for unfunded loan commitments is included as part of accounts payable and other liabilities in the consolidated statement of financial condition and any change to the reserve is included as part of other non-interest expenses in the consolidated statements of (loss) income. housing price index.
Non-performingNonaccrual Loans and Non-performing AssetAssets
Total non-performing assets consist of non-performingnonaccrual loans (generally loans held for investment or loans held for sale on which the recognition of interest income has beenwas discontinued when the loan became 90 days past due or earlier if the full and timely collection of interest or principal is uncertain), foreclosed real estate and other repossessed properties, and non-performing investment securities.securities, if any. When a loan is placed in non-performingnonaccrual status, any interest previously recognized and not collected is reversed and charged against interest income.
Non-performing Loans Policy
Residential Real Estate Loans — The Corporation classifies real estate loans in non-performing status when interest and principal have not been received for a period of 90 days or more.
Commercial and Construction Loans — The Corporation places commercial loans (including commercial real estate and construction loans) in non-performing status when interest and principal have not been received for a period of 90 days or more or when collection of all of the principal or interest is not expected due to deterioration in the financial condition of the borrower.
Finance Leases — Finance leases are classified in non-performing status when interest and principal have not been received for a period of 90 days or more.
Consumer Loans — Consumer loans are classified in non-performing status when interest and principal have not been received for a period of 90 days or more. Credit card loans continue to accrue finance charges and fees until charged-off at 180 days delinquent.
Purchased Credit Impaired Loans — PCI loans were recorded at fair value at acquisition. Since the initial fair value of these loans included an estimate of credit losses expected to be realized over the remaining lives of the loans, the subsequent accounting for PCI loans differs from the accounting for non-PCI loans. The Corporation, therefore, separately tracks and reports PCI loans and excludes these from the amounts of non-performing loans, impaired loans, TDR loans, and non-performing assets.
Cash payments received on certain loans that are impaired and collateral dependent are recognized when collected in accordance with the contractual terms of the loans. The principal portion of the payment is used to reduce the principal balance of the loan, whereas the interest portion is recognized on a cash basis (when collected). However, when management believes that the ultimate collectability of principal is in doubt, the interest portion is applied to the outstanding principal. The risk exposure of this portfolio is diversified as to individual borrowers and industries, among other factors. In addition, a large portion is secured with real estate collateral.
Nonaccrual Loans Policy
Residential Real Estate Loans — The Corporation generally classifies real estate loans in nonaccrual status when it has not received interest and principal for a period of 90 days or more.
Commercial and Construction Loans — The Corporation classifies commercial loans (including commercial real estate and construction loans) in nonaccrual status when it has not received interest and principal for a period of 90 days or more or when it does not expect to collect all of the principal or interest due to deterioration in the financial condition of the borrower.
132
Finance Leases — The Corporation classifies finance leases in nonaccrual status when it has not received interest and principal for a period of 90 days or more.
Consumer Loans — The Corporation classifies consumer loans in nonaccrual status when it has not received interest and principal for a period of 90 days or more. Credit card loans continue to accrue finance charges and fees until charged-off at 180 days delinquent.
Purchased Credit Deteriorated Loans — For PCD loans, the nonaccrual status is determined in the same manner as for other loans, except for PCD loans that prior to the adoption of CECL were classified as purchased credit impaired (“PCI”) loans and accounted for under ASC Subtopic 310-30, “Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality” (ASC Subtopic 310-30). As allowed by CECL, the Corporation elected to maintain pools of loans accounted for under ASC Subtopic 310-30 as “units of accounts,” conceptually treating each pool as a single asset. Regarding interest income recognition, the prospective transition approach for PCD loans was applied at a pool level, which froze the effective interest rate of the pools as of January 1, 2020. According to regulatory guidance, the determination of nonaccrual or accrual status for PCD loans with respect to which the Corporation has made a policy election to maintain previously existing pools upon adoption of CECL should be made at the pool level, not the individual asset level. In addition, the guidance provides that the Corporation can continue accruing interest and not report the PCD loans as being in nonaccrual status if the following criteria are met: (i) the Corporation can reasonably estimate the timing and amounts of cash flows expected to be collected; and (ii) the Corporation did not acquire the asset primarily for the rewards of ownership of the underlying collateral, such as the use in operations or improving the collateral for resale. Thus, the Corporation continues to exclude these pools of PCD loans from nonaccrual loan statistics.
Other Real Estate Owned
OREO acquired in settlement of loans is carried at the lower of cost (carrying value of the loan) or fair value less estimated costs to sell off the real estate. Appraisals are obtained periodically, generally on an annual basis.
Other Repossessed Property
The other repossessed property category generally includesincluded repossessed boats and autos acquired in settlement of loans. Repossessed boats and autos are recorded at the lower of cost or estimated fair value.
Other Non-Performing Assets
This category consistsconsisted of bonds ofa residential pass-through MBS issued by the GDB and the Puerto Rico Public Buildings Authority prior to the sale of thesePRHFA placed in non-performing bondsstatus in the second quarter of 2017. These bonds were previously held by2021 based on the Corporation as partdelinquency status of its available-for-sale investment securities portfolio.the underlying second mortgage loans.
Loans Past-Due 90 Days and Still Accruing
133
Past Due Loans 90 days and still accruing
These are accruing loans that are contractually delinquent 90 days or more. These past duepast-due loans are either current as to interest but delinquent as to the payment of principal or are insured or guaranteed under applicable FHA, and VA, programs. Pastor other government-guaranteed programs for residential mortgage loans. Furthermore, as required by instructions in regulatory reports, loans past due loans 90 days and still accruing also include PCI loans previously pooled into GNMA securities for which the Corporation has the option but not the obligation to repurchase loans that meet GNMA’s specified delinquency criteria (e.g., borrowers fails to make any payment for three consecutive months). For accounting purposes, these GNMA loans subject to the repurchase option are required to be reflected on the financial statements with individual delinquencies over 90 days, primarily related to mortgage loans acquired from Doral Bank in 2015 and from Doral Financial in 2014.an offsetting liability
TDRs are classified as either accrual or nonaccrual loans. A loan on nonaccrual status and restructured as a TDR 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. PerformanceThe Corporation considers performance prior to the restructuring, or significant events that coincide with the restructuring, are included in assessing whether the borrower can meet the new terms, andwhich may result in the loansloan being returned to accrual status at the time of the restructuring or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains classified as a nonaccrual loan.
The following table presents non-performing assets as of the dates indicated: |
| ||||||
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||||
(Dollars in thousands) | 2017 |
| 2016 | ||||
|
|
|
|
|
|
|
|
Non-performing loans held for investment: |
|
|
|
|
|
|
|
Residential mortgage | $ | 178,530 |
|
| $ | 160,867 |
|
Commercial mortgage |
| 137,059 |
|
|
| 178,696 |
|
Commercial and Industrial |
| 84,317 |
|
|
| 146,599 |
|
Construction |
| 46,720 |
|
|
| 49,852 |
|
Finance leases |
| 1,888 |
|
|
| 1,335 |
|
Consumer |
| 24,618 |
|
|
| 22,745 |
|
Total non-performing loans held for investment | $ | 473,132 |
|
| $ | 560,094 |
|
OREO |
| 152,977 |
|
|
| 137,681 |
|
Other repossessed property |
| 6,320 |
|
|
| 7,300 |
|
Other assets (1) |
| - |
|
|
| 21,362 |
|
Total non-performing assets, excluding loans held for sale | $ | 632,429 |
|
| $ | 726,437 |
|
|
|
|
|
|
|
|
|
Non-performing loans held for sale |
| 8,290 |
|
|
| 8,079 |
|
Total non-performing assets, including loans held for sale (2) (3) | $ | 640,719 |
|
| $ | 734,516 |
|
|
|
|
|
|
|
|
|
Past due loans 90 days and still accruing (4) (5) | $ | 140,656 |
|
| $ | 135,808 |
|
Non-performing assets to total assets |
| 5.26 | % |
|
| 6.16 | % |
Non-performing loans held for investment to total loans held for investment |
| 5.33 | % |
|
| 6.30 | % |
Allowance for loan and lease losses | $ | 230,870 |
|
| $ | 205,603 |
|
Allowance to total non-performing loans held for investment (6) |
| 48.80 | % |
|
| 36.71 | % |
Allowance to total non-performing loans held for investment, |
|
|
|
|
|
|
|
excluding residential real estate loans (7) |
| 78.37 | % |
|
| 51.50 | % |
|
|
|
|
|
|
|
|
___________ | |||||||
(1) Fair market value of bonds of the GDB and the Puerto Rico Public Buildings Authority prior to the sale completed during the second quarter of 2017. | |||||||
(2) PCI loans accounted for under ASC 310-30 of $157.8 million and $165.8 million as of September 30, 2017 and December 31, 2016, respectively, are excluded and not considered non-performing due to the application of the accretion method, under which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analysis. | |||||||
(3) Non-performing assets exclude $388.8 million and $384.9 million of TDR loans that were in compliance with the modified terms and in accrual status as of September 30, 2017 and December 31, 2016, respectively. | |||||||
(4) It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA or guaranteed by the VA as past-due loans 90 days and still accruing as opposed to non-performing loans since the principal repayment is insured. These balances include $28.9 million of residential mortgage loans insured by the FHA or guaranteed by the VA that are over 15 months delinquent, and are no longer accruing interest as of September 30, 2017. | |||||||
(5) Amount includes PCI loans with individual delinquencies over 90 days and still accruing with a carrying value as of September 30, 2017 and December 31, 2016 of approximately $31.1 million and $29.0 million, respectively, primarily related to loans acquired from Doral Bank in the first quarter of 2015 and from Doral Financial in the second quarter of 2014. | |||||||
(6) The ratio of allowance for loan and lease losses to non-performing loans held for investment, excluding the storm-related element of the allowance, was 34.74% as of September 30, 2017. | |||||||
(7) The ratio of allowance for loan and lease losses to non-performing loans held for investment, excluding residential real estate and the storm-related element of the allowance, was 55.80% as of September 30, 2017. | |||||||
| |||||||
|
|
|
|
|
|
|
|
134133
The following table shows non-performing assets by geographic segment: | |||||
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
(Dollars in thousands) | 2017 |
| 2016 | ||
Puerto Rico: |
|
|
|
|
|
Non-performing loans held for investment: |
|
|
|
|
|
Residential mortgage | $ | 148,984 |
| $ | 135,863 |
Commercial mortgage |
| 124,450 |
|
| 167,241 |
Commercial and Industrial |
| 78,235 |
|
| 141,916 |
Construction |
| 9,297 |
|
| 10,227 |
Finance leases |
| 1,888 |
|
| 1,335 |
Consumer |
| 23,617 |
|
| 21,592 |
Total non-performing loans held for investment |
| 386,471 |
|
| 478,174 |
|
|
|
|
|
|
OREO |
| 145,005 |
|
| 128,395 |
Other repossessed property |
| 6,161 |
|
| 7,217 |
Other assets (1) |
| - |
|
| 21,362 |
Total non-performing assets, excluding loans held for sale | $ | 537,637 |
| $ | 635,148 |
Non-performing loans held for sale |
| 8,290 |
|
| 8,079 |
Total non-performing assets, including loans held for sale (2) | $ | 545,927 |
| $ | 643,227 |
Past due loans 90 days and still accruing (3) | $ | 135,194 |
| $ | 131,783 |
|
|
|
|
|
|
Virgin Islands: |
|
|
|
|
|
Non-performing loans held for investment: |
|
|
|
|
|
Residential mortgage | $ | 20,517 |
| $ | 19,860 |
Commercial mortgage |
| 9,545 |
|
| 7,617 |
Commercial and Industrial |
| 6,082 |
|
| 4,683 |
Construction |
| 37,352 |
|
| 39,625 |
Consumer |
| 609 |
|
| 452 |
Total non-performing loans held for investment |
| 74,105 |
|
| 72,237 |
|
|
|
|
|
|
OREO |
| 6,306 |
|
| 6,216 |
Other repossessed property |
| 42 |
|
| 5 |
Total non-performing assets | $ | 80,453 |
| $ | 78,458 |
Past due loans 90 days and still accruing | $ | 5,462 |
| $ | 2,133 |
|
|
|
|
|
|
United States: |
|
|
|
|
|
Non-performing loans held for investment: |
|
|
|
|
|
Residential mortgage | $ | 9,029 |
| $ | 5,144 |
Commercial mortgage |
| 3,064 |
|
| 3,838 |
Construction |
| 71 |
|
| - |
Consumer |
| 392 |
|
| 701 |
Total non-performing loans held for investment |
| 12,556 |
|
| 9,683 |
|
|
|
|
|
|
OREO |
| 1,666 |
|
| 3,070 |
Other repossessed property |
| 117 |
|
| 78 |
Total non-performing assets | $ | 14,339 |
| $ | 12,831 |
Past due loans 90 days and still accruing | $ | - |
| $ | 1,892 |
|
|
|
|
|
|
____________ | |||||
(1) Fair market value of bonds of the GDB and the Puerto Rico Public Buildings Authority prior to the sale completed during the second quarter of 2017. | |||||
(2) PCI loans accounted for under ASC 310-30 of $157.8 million and $165.8 million as of September 30, 2017 and December 31, 2016, respectively, are excluded and not considered non-performing due to the application of the accretion method, under which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analysis. | |||||
(3) Amount includes PCI loans with individual delinquencies over 90 days and still accruing with a carrying value as of September 30, 2017 and December 31, 2016 of approximately $31.1 million and $29.0 million, respectively, primarily related to loans acquired from Doral Bank in the first quarter of 2015 and from Doral Financial in the second quarter of 2014. | |||||
|
The following table presents non-performing assets as of the indicated dates: |
| |||||||
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, | ||||
| 2022 |
| 2021 | |||||
(Dollars in thousands) |
|
|
|
|
|
|
| |
Nonaccrual loans held for investment: |
|
|
|
|
|
|
| |
Residential mortgage | $ | 48,818 |
|
| $ | 55,127 |
| |
Commercial mortgage |
| 26,576 |
|
|
| 25,337 |
| |
Commercial and Industrial |
| 18,129 |
|
|
| 17,135 |
| |
Construction |
| 2,543 |
|
|
| 2,664 |
| |
Consumer and finance leases |
| 10,964 |
|
|
| 10,454 |
| |
Total nonaccrual loans held for investment | $ | 107,030 |
|
| $ | 110,717 |
| |
OREO |
| 42,894 |
|
|
| 40,848 |
| |
Other repossessed property |
| 3,823 |
|
|
| 3,687 |
| |
Other assets (1) |
| 2,727 |
|
|
| 2,850 |
| |
Total non-performing assets (2)(3) | $ | 156,474 |
|
| $ | 158,102 |
| |
|
|
|
|
|
|
|
|
|
Past due loans 90 days and still accruing (4)(5) | $ | 118,798 |
|
| $ | 115,448 |
| |
Non-performing assets to total assets |
| 0.79 | % |
|
| 0.76 | % | |
Nonaccrual loans held for investment to total loans held for investment |
| 0.96 | % |
|
| 1.00 | % | |
ACL for loans and finance leases | $ | 245,447 |
|
| $ | 269,030 |
| |
ACL for loans and finance leases to total nonaccrual loans held for investment |
| 229.33 | % |
|
| 242.99 | % | |
ACL for loans and finance leases to total nonaccrual loans held for investment, |
|
|
|
|
|
|
| |
excluding residential real estate loans |
| 421.64 | % |
|
| 483.95 | % | |
|
|
|
|
|
|
|
|
|
(1) | Residential pass-through MBS issued by the PRHFA held as part of the available-for-sale investment securities portfolio with an amortized cost of $3.5 million recorded on the Corporation's books at its fair value of $2.7 million as of March 31, 2022. For December 31, 2021, the amortized cost and fair value of this residential pass-through MBS amounted to $3.6 million and $2.9 million, respectively. |
| ||||||
(2) | Excludes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans accounted for under ASC Subtopic 310-30 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 accrete interest income based on the effective interest rate of the loan pools determined at the time of adoption of CECL and 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 amortized cost of such loans as of March 31, 2022 and December 31, 2021 amounted to $113.5 million and $117.5 million, respectively. |
| ||||||
(3) | Nonaccrual loans exclude $354.0 million and $363.4 million of TDR loans that were in compliance with the modified terms and in accrual status as of March 31, 2022 and December 31, 2021, respectively. |
| ||||||
(4) | It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as loans past-due 90 days and still accruing as opposed to nonaccrual loans since the principal repayment is insured. 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 $38.7 million and $46.6 million of residential mortgage loans insured by the FHA that were over 15 months delinquent as of March 31, 2022 and December 31, 2021, respectively. |
| ||||||
(5) | These include rebooked loans, which were previously pooled into GNMA securities, amounting to $9.5 million and $7.2 million as of March 31, 2022 and December 31, 2021, respectively. Under the GNMA program, the Corporation has the option but not the obligation to repurchase loans that meet GNMA’s specified delinquency criteria. For accounting purposes, the loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting liability. |
|
135134
Total non-performingnonaccrual loans including non-performing loans held for sale, were $481.4$107.0 million as of September 30, 2017.March 31, 2022. This represents a decrease of $86.8$3.7 million from $568.2$110.7 million as of December 31, 2016. The decrease was primarily attributable to the aforementioned sale in the first quarter of the PREPA credit line with a book value of $64 million at the time of sale, the charge offs of $29.7 million and cash collections during the year of $9.6 million on commercial mortgage loans guaranteed by TDF, and the effect of payments and charge offs totaling $16.3 million related to the resolution in the second quarter of a $27.6 million non-performing commercial relationship in Puerto Rico. These variances were partially offset by the inflow in the third quarter of two large commercial relationships in Puerto Rico totaling $34.2 million and increases of $17.7 million and $2.4 million in non-performing residential mortgage and consumer loans, respectively. As part of the aforementioned resolution of a non-performing commercial relationship in Puerto Rico, the Corporation received a cash payment of $12.8 million, recorded charge-offs of $3.5 million, and acquired collateral amounting to $10.6 million transferred to the OREO portfolio.
Non-performing commercial mortgage loans decreased by $41.6 million to $137.1 million as of September 30, 2017 from $178.7 million as of December 31, 2016.2021. The decrease was primarily related to charge offsa $6.3 million decrease in nonaccrual residential mortgage loans, mostly driven by collections, including the payoff of $29.7an individual loan of approximately $1.3 million, onas well as loans restored to accrual status, foreclosure, and charge-offs during the first quarter of 2022. This variance was partially offset by increases of $2.1 million and $0.5 million in nonaccrual commercial and construction loans and nonaccrual consumer loans, respectively.
The following table shows non-performing assets by geographic segment as of the indicated dates: | ||||||
| March 31, |
| December 31, | |||
(In thousands) | 2022 |
| 2021 | |||
Puerto Rico: |
|
|
|
|
| |
Nonaccrual loans held for investment: |
|
|
|
|
| |
Residential mortgage | $ | 36,348 |
| $ | 39,256 | |
Commercial mortgage |
| 16,861 |
|
| 15,503 | |
Commercial and Industrial |
| 15,582 |
|
| 14,708 | |
Construction |
| 1,119 |
|
| 1,198 | |
Consumer and finance leases |
| 10,643 |
|
| 10,177 | |
Total nonaccrual loans held for investment |
| 80,553 |
|
| 80,842 | |
|
|
|
|
|
|
|
OREO |
| 39,124 |
|
| 36,750 | |
Other repossessed property |
| 3,654 |
|
| 3,456 | |
Other assets |
| 2,727 |
|
| 2,850 | |
Total non-performing assets | $ | 126,058 |
| $ | 123,898 | |
Past due loans 90 days and still accruing | $ | 115,029 |
| $ | 114,001 | |
|
|
|
|
|
|
|
Virgin Islands: |
|
|
|
|
| |
Nonaccrual loans held for investment: |
|
|
|
|
| |
Residential mortgage | $ | 6,851 |
| $ | 8,719 | |
Commercial mortgage |
| 9,715 |
|
| 9,834 | |
Commercial and Industrial |
| 1,623 |
|
| 1,476 | |
Construction |
| 1,424 |
|
| 1,466 | |
Consumer |
| 168 |
|
| 144 | |
Total nonaccrual loans held for investment |
| 19,781 |
|
| 21,639 | |
|
|
|
|
|
|
|
OREO |
| 3,770 |
|
| 3,450 | |
Other repossessed property |
| 107 |
|
| 187 | |
Total non-performing assets | $ | 23,658 |
| $ | 25,276 | |
Past due loans 90 days and still accruing | $ | 3,638 |
| $ | 1,265 | |
|
|
|
|
|
|
|
United States: |
|
|
|
|
| |
Nonaccrual loans held for investment: |
|
|
|
|
| |
Residential mortgage | $ | 5,619 |
| $ | 7,152 | |
Commercial and Industrial |
| 924 |
|
| 951 | |
Consumer |
| 153 |
|
| 133 | |
Total nonaccrual loans held for investment |
| 6,696 |
|
| 8,236 | |
|
|
|
|
|
|
|
OREO |
| - |
|
| 648 | |
Other repossessed property |
| 62 |
|
| 44 | |
Total non-performing assets | $ | 6,758 |
| $ | 8,928 | |
Past due loans 90 days and still accruing | $ | 131 |
| $ | 182 |
135
Nonaccrual commercial mortgage loans guaranteedincreased by the TDF and the resolution of a $19.9 million loan that was part of the aforementioned resolution in the second quarter of a $27.6 million non-performing commercial relationship in Puerto Rico. Total inflows of non-performing commercial mortgage loans amounted to $27.4 million for the first nine months of 2017 compared to $166.0 million for the same period in 2016. Inflows in the prior year include the commercial mortgage loans guaranteed by the TDF and loans that were part of the $29.7 million non-performing commercial relationship resolved in the second quarter of 2017.
Non-performing C&I loans decreased by $62.3$1.3 million to $84.3$26.6 million as of September 30, 2017March 31, 2022 from $146.6$25.3 million as of December 31, 2016. 2021. The increase was primarily associated with the migration to nonaccrual status of a $2.9 million commercial mortgage loan related to the health care industry in the Puerto Rico region, partially offset by collections, loans transferred to OREO, and loans restored to accrual status during the first quarter of 2022.
Nonaccrual commercial and industrial loans increased by $1.0 million to $18.1 million as of March 31, 2022 from $17.1 million as of December 31, 2021. The increase was primarily driven by the migration to nonaccrual status of a $1.1 million commercial and industrial loan related to the entertainment industry in the Puerto Rico region.
Nonaccrual construction loans decreased by $0.2 million to $2.5 million as of March 31, 2022 from $2.7 million as of December 31, 2021.
The following tables present the activity of commercial and construction nonaccrual loans held for investment for the indicated period: | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Commercial Mortgage |
| Commercial & Industrial |
| Construction |
|
| Total | |||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
| ||
Quarter ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
| ||
Beginning balance | $ | 25,337 |
| $ | 17,135 |
| $ | 2,664 |
| $ | 45,136 | ||
Plus: |
|
|
|
|
|
|
|
|
|
|
| ||
| Additions to nonaccrual |
| 2,881 |
|
| 1,579 |
|
| - |
|
| 4,460 | |
Less: |
|
|
|
|
|
|
|
|
|
|
| ||
| Loans returned to accrual status |
| (201) |
|
| (209) |
|
| - |
|
| (410) | |
| Nonaccrual loans transferred to OREO |
| (461) |
|
| - |
|
| (13) |
|
| (474) | |
| Nonaccrual loans charge-offs |
| (37) |
|
| (290) |
|
| (40) |
|
| (367) | |
| Loan collections |
| (541) |
|
| (488) |
|
| (68) |
|
| (1,097) | |
Reclassification |
| (402) |
|
| 402 |
|
| - |
|
| - | ||
Ending balance | $ | 26,576 |
| $ | 18,129 |
| $ | 2,543 |
| $ | 47,248 |
Nonaccrual residential mortgage loans decreased by $6.3 million to $48.8 million as of March 31, 2022, compared to $55.1 million as of December 31, 2021. The decrease was primarily related to collections of $6.8 million, including the aforementioned salepayoff of the PREPA credit line with a book valuean individual loan of $64approximately $1.3 million, at the time of sale as well as the resolutionand $3.4 million of loans totaling $7.6 million that were part of the aforementioned resolution of a $27.6 million non-performing commercial relationship in Puerto Rico, partially offset by the inflow in the third quarter of a $12.6 million commercial relationship in Puerto Rico. Total inflows of non-performing C&I loans were $22.5 millionrestored to accrual status during the first nine monthsquarter.
136
| The following table presents the activity of residential mortgage nonaccrual loans held for investment for the indicated period: | ||
|
|
|
|
|
| Quarter Ended | |
(In thousands) | March 31, 2022 | ||
|
|
|
|
Beginning balance | $ | 55,127 | |
Plus: |
|
| |
Additions to nonaccrual |
| 5,328 | |
Less: |
|
| |
Loans returned to accrual status |
| (3,449) | |
Nonaccrual loans transferred to OREO |
| (937) | |
Nonaccrual loans charge-offs |
| (435) | |
Loan collections |
| (6,816) | |
Ending balance | $ | 48,818 |
The amount of 2017nonaccrual consumer loans, including finance leases, increased by $0.5 million to $11.0 million as of March 31, 2022, compared to $35.2 million for the same period in 2016.
Non-performing construction loans, including non-performing construction loans held for sale, decreased by $2.9 million to $55.0 million from $57.9$10.5 million as of December 31, 2016, primarily as a result of cash collections, including a $1.0 million loan paid-off in Puerto Rico. The inflows of non-performing construction loans during the first nine months of 2017 amounted to $1.2 million compared to inflows of $1.0 million for the same period in 2016.
The following tables present the activity of commercial and construction non-performing loans held for investment:
|
|
|
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Commercial Mortgage |
| Commercial & Industrial |
| Construction |
|
| Total | |||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
| ||
Quarter ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
| |||
Beginning balance |
| $ | 122,035 |
| $ | 65,575 |
| $ | 47,391 |
| $ | 235,001 | ||
Plus: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Additions to non-performing |
| 24,791 |
|
| 20,933 |
|
| 114 |
|
| 45,838 | ||
Less: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Loans returned to accrual status |
|
| (292) |
|
| (50) |
|
| - |
|
| (342) | |
| Non-performing loans transferred to OREO |
|
| (392) |
|
| (35) |
|
| (160) |
|
| (587) | |
| Non-performing loan charge-offs |
|
| (167) |
|
| (712) |
|
| (47) |
|
| (926) | |
| Loan collections |
|
| (8,916) |
|
| (2,374) |
|
| (178) |
|
| (11,468) | |
| Reclassification |
|
| - |
|
| 980 |
|
| (400) |
|
| 580 | |
Ending balance |
| $ | 137,059 |
| $ | 84,317 |
| $ | 46,720 |
| $ | 268,096 |
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Commercial Mortgage |
| Commercial & Industrial |
| Construction |
|
| Total | |||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
| ||
Nine-Month Period Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
| |||
Beginning balance |
| $ | 178,696 |
| $ | 146,599 |
| $ | 49,852 |
|
| 375,147 | ||
Plus: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Additions to non-performing |
| 27,424 |
|
| 22,477 |
|
| 1,205 |
|
| 51,106 | ||
Less: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Loans returned to accrual status |
|
| (2,333) |
|
| (1,037) |
|
| (20) |
|
| (3,390) | |
| Non-performing loans transferred to OREO |
|
| (9,039) |
|
| (4,263) |
|
| (342) |
|
| (13,644) | |
| Non-performing loan charge-offs |
|
| (31,620) |
|
| (19,065) |
|
| (705) |
|
| (51,390) | |
| Loan collections |
|
| (26,183) |
|
| (8,129) |
|
| (2,870) |
|
| (37,182) | |
| Reclassification |
|
| 114 |
|
| 980 |
|
| (400) |
|
| 694 | |
| Non-performing loans sold, net of charge-offs |
|
| - |
|
| (53,245) |
|
| - |
|
| (53,245) | |
Ending balance |
| $ | 137,059 |
| $ | 84,317 |
| $ | 46,720 |
| $ | 268,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Commercial Mortgage |
| Commercial & Industrial |
| Construction |
|
| Total | |||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
| ||
Quarter ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
| |||
Beginning balance |
| $ | 200,376 |
| $ | 154,405 |
| $ | 52,549 |
| $ | 407,330 | ||
Plus: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Additions to non-performing |
| 9,040 |
|
| 3,603 |
|
| 353 |
|
| 12,996 | ||
Less: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Loans returned to accrual status |
|
| (646) |
|
| (828) |
|
| (255) |
|
| (1,729) | |
| Non-performing loans transferred to OREO |
|
| (1,064) |
|
| (514) |
|
| (25) |
|
| (1,603) | |
| Non-performing loan charge-offs |
|
| (13,840) |
|
| (10,587) |
|
| (19) |
|
| (24,446) | |
| Loan collections |
|
| (3,797) |
|
| (7,683) |
|
| (1,836) |
|
| (13,316) | |
| Reclassification |
|
| 1,380 |
|
| (1,380) |
|
| - |
|
| - | |
Ending balance |
| $ | 191,449 |
| $ | 137,016 |
| $ | 50,767 |
| $ | 379,232 |
|
|
|
| |||||||||||
|
|
|
| Commercial Mortgage |
| Commercial & Industrial |
| Construction |
|
| Total | |||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
| ||
Nine-Month Period Ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
| |||
Beginning balance |
| $ | 51,333 |
| $ | 137,051 |
| $ | 54,636 |
| $ | 243,020 | ||
Plus: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Additions to non-performing |
| 165,999 |
|
| 35,211 |
|
| 959 |
|
| 202,169 | ||
Less: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Loans returned to accrual status |
|
| (1,265) |
|
| (1,570) |
|
| (255) |
|
| (3,090) | |
| Non-performing loans transferred to OREO |
|
| (2,808) |
|
| (2,051) |
|
| (821) |
|
| (5,680) | |
| Non-performing loan charge-offs |
|
| (15,468) |
|
| (16,180) |
|
| (599) |
|
| (32,247) | |
| Loan collections |
|
| (7,316) |
|
| (14,549) |
|
| (3,075) |
|
| (24,940) | |
| Reclassification |
|
| 974 |
|
| (896) |
|
| (78) |
|
| - | |
Ending balance |
| $ | 191,449 |
| $ | 137,016 |
| $ | 50,767 |
| $ | 379,232 |
137
Total non-performing commercial and construction loans, including non-performing loans held for sale, with a book value of $276.4 million as of September 30, 2017 are being carried (net of reserves and accumulated charge-offs) at 50.1% of unpaid principal balance.
Non-performing residential mortgage loans increased by $17.7 million to $178.5 million as of September 30, 2017 from $160.9 million as of December 31, 2016.2021. The increase was primarily attributable to interruptions in regular collection efforts caused by Hurricanes Irmaauto loans and Maria in the third quarter. The inflows of non-performing residential mortgage loans during the first nine months of 2017 amounted to $90.4 million compared to inflows of $71.0 million for the same period in 2016. Approximately $56.6 million, or 31.7% of total non-performing residential mortgage loans, have been written down to their net realizable value and no specific reserve was allocated.finance leases.
The following tables presents the activity of residential non-performing loans held for investment: |
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended |
|
| Nine-Month Period Ended | ||||||
|
|
|
| September 30, |
|
| September 30, | ||||||
(In thousands) |
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance |
| $ | 155,330 |
| $ | 164,399 |
| $ | 160,867 |
| $ | 169,001 | |
Plus: |
|
|
|
|
|
|
|
|
|
|
|
| |
| Additions to non-performing |
|
| 41,264 |
|
| 26,142 |
|
| 90,370 |
|
| 71,005 |
Less: |
|
|
|
|
|
|
|
|
|
|
|
| |
| Loans returned to accrual status |
|
| (6,300) |
|
| (10,028) |
|
| (28,589) |
|
| (28,283) |
| Non-performing loans transferred to OREO |
|
| (5,649) |
|
| (11,574) |
|
| (24,649) |
|
| (26,120) |
| Non-performing loan charge-offs |
|
| (4,808) |
|
| (6,259) |
|
| (14,135) |
|
| (18,914) |
| Loan collections |
|
| (727) |
|
| (479) |
|
| (4,640) |
|
| (4,488) |
| Reclassification |
|
| (580) |
|
| - |
|
| (694) |
|
| - |
Ending balance |
| $ | 178,530 |
| $ | 162,201 |
| $ | 178,530 |
| $ | 162,201 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138
The amount of non-performing consumer loans, including finance leases, showed a $2.4 million increase during the first nine months of 2017 to $26.5 million compared to $24.1 million as of December 31, 2016. The increase was mainly related to interruptions in regular collection efforts caused by Hurricanes Irma and Maria in the third quarter. The inflows of non-performing consumer loans of $33.4 million for the first nine months of 2017 increased by $0.8 million compared to inflows of $32.6 million for the same period in 2016.
As of September 30, 2017,March 31, 2022, approximately $139.8$25.7 million of the loans placed in non-accrualnonaccrual status, mainly commercial loans, were current, or had delinquencies of less than 90 days in their principal and interest payments, including $82.8$14.3 million of TDRs maintained in nonaccrual status until the restructured loans meet the criteria of sustained payment performance under the revised terms for reinstatement to accrual status and there is no doubt about full collectability. Collections on these loans are being recorded on a cash basis through earnings, or on a cost-recovery basis, as conditions warrant.
During the nine-month periodquarter ended September 30, 2017,March 31, 2022, interest income of approximately $5.7$0.3 million related to non-performingnonaccrual loans with a carrying value of $268.0$36.7 million as of September 30, 2017,March 31, 2022, mainly non-performingnonaccrual construction and commercial loans, was applied against the related principal balances under the cost-recovery method.
As of September 30, 2017, approximately $70.3 million, or 14.9%, of total non-performing loans held for investment have been charged-off to their net realizable value and no specific reserve was allocated, as shown in the following table: |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) | Residential Mortgage Loans |
| Commercial Mortgage Loans |
| C&I Loans |
| Construction Loans |
| Consumer and Finance Leases |
| Total |
| ||||||
As of September 30, 2017 |
|
|
| |||||||||||||||
Non-performing loans held for investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
charged-off to realizable value | $ | 56,630 |
| $ | 9,273 |
| $ | 3,236 |
| $ | - |
| $ | 1,136 |
| $ | 70,275 |
|
Other non-performing loans held |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for investment |
| 121,900 |
|
| 127,786 |
|
| 81,081 |
|
| 46,720 |
|
| 25,370 |
|
| 402,857 |
|
Total non-performing loans held |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for investment | $ | 178,530 |
| $ | 137,059 |
| $ | 84,317 |
| $ | 46,720 |
| $ | 26,506 |
| $ | 473,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance to non-performing loans held for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments |
| 31.96 | % |
| 40.82 | % |
| 47.89 | % |
| 8.45 | % |
| 277.48 | % |
| 48.80 | % |
Allowance to non-performing loans held for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments, excluding non-performing loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
charged-off to realizable value |
| 46.80 | % |
| 43.78 | % |
| 49.80 | % |
| 8.45 | % |
| 289.91 | % |
| 57.31 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016 |
|
|
| |||||||||||||||
Non-performing loans held for investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
charged-off to realizable value | $ | 54,356 |
| $ | 52,241 |
| $ | 12,488 |
| $ | 1,027 |
| $ | 1,243 |
| $ | 121,355 |
|
Other non-performing loans held |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for investment |
| 106,511 |
|
| 126,455 |
|
| 134,111 |
|
| 48,825 |
|
| 22,837 |
|
| 438,739 |
|
Total non-performing loans held |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for investment | $ | 160,867 |
| $ | 178,696 |
| $ | 146,599 |
| $ | 49,852 |
| $ | 24,080 |
| $ | 560,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance to non-performing loans held for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments |
| 21.12 | % |
| 32.04 | % |
| 42.26 | % |
| 5.14 | % |
| 207.01 | % |
| 36.71 | % |
Allowance to non-performing loans held for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments, excluding non-performing loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
charged-off to realizable value |
| 31.90 | % |
| 45.28 | % |
| 46.20 | % |
| 5.25 | % |
| 218.27 | % |
| 46.86 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139137
Total loans in early delinquency (i.e.(i.e., 30-89 days past due loans, as defined in regulatory reportreporting instructions) amounted to $261.3$100.4 million as of September 30, 2017,March 31, 2022, an increase of $34.0$10.1 million, compared to $227.3$90.3 million as of December 31, 2016.2021. The variances by major portfolio categories follow:were as follows:
·Consumer loans in early delinquency increased by $36.8 million to $129.7 million as of September 30, 2017 compared to $93.0 million as of December 31, 2016, reflecting disruptions in regular payment streams associated with Hurricanes Irma and Maria and the effect of loans subject to automatic payment deferral programs established by the Corporation to assist individuals affected by the recent storms, as described below.
·Commercial and construction loans in early delinquency increased in the first quarter by $7.5$17.9 million to $30.7$24.6 million as of September 30, 2017 comparedMarch 31, 2022, primarily as a result of the migration of five commercial and construction loans totaling $17.2 million that matured and are in the process of renewal but for which the Corporation continues to $23.2 million as of December 31, 2016.
receive interest and principal payments from the borrowers.
·
Residential mortgage loans in early delinquency decreased by $10.2$2.1 million to $100.9$32.1 million as of September 30, 2017 compared to $111.1 million as of DecemberMarch 31, 2016.
In working with borrowers affected by Hurricanes Irma2022, and Maria, which made landfall, on September 6, 2017 and September 20, 2017, respectively, the Corporation provided automatic three months deferred repayment arrangements across-the-board to all consumer borrowers (i.e. personal loans, auto loans, finance leases and credit cards) who were current in their payments or no more than 2 payment in arrears as of the date of the respective hurricane. For residential mortgage loans, the Corporation has entered into deferral payment agreements on 10,160 residential mortgages totaling $1.3 billion that provide for a three-month payment deferral for those loans current or no more than 2 payment in arrears as of the date of the event. The qualifying mortgage borrowers were required to contact the Corporation and opt in for the program. For both consumer and residential mortgage loans subject to the deferral programs, each borrower is required to resume making their regularly scheduled loan payments at the end of the deferral period and the deferred amounts were moved to the end of the loan. The payment deferral programs were applied prospectively from the respective dates of the events and did not change the delinquency status of the loans as of such dates. Accordingly, if all payments were current at the date of the event, the loan will not be reported as past due during the deferral period. Furthermore, for loans subject to the deferral programs on which payments were past due prior to the event, the delinquency status of such loans was frozen to the status that existed at the date of the event until the end of the deferral period. For commercial loans, any request for payment deferral is analyzed on a case by case basis. As of September 30, 2017, residential mortgage loans in early delinquency (i.e., 30-89 days past duedecreased by $5.7 million to $43.7 million as defined in regulatory report instructions) include $86.3 million of loans subject toMarch 31, 2022.
In addition, the storm-related deferral programs established in Puerto Rico and the Virgin Islands.
140
The Corporation provides homeownership preservation assistance to its customers through a loss mitigation program in Puerto Rico that is similar to the U.S. government’s Home Affordable Modification Program guidelines.Rico. Depending upon the nature of borrowers’ financial condition, restructurings or loan modifications through this program, as well as other restructurings of individual commercial, commercial mortgage, construction, and residential mortgage loans, fit the definition of a TDR. A restructuring of a debt constitutes a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. Modifications involve changes in one or more of the loan terms that bring a defaulted loan current and provide sustainable affordability. Changes may include, among others, the extension of the maturity of the loan and modifications of the loan rate. As of September 30, 2017,See Note 3 - Loans Held for Investment to the Corporation’s total TDR loans held for investment of $585.8 million consisted of $363.3 million of residential mortgage loans, $88.0 million of commercial and industrial loans, $51.7 million of commercial mortgage loans, $44.9 million of construction loans, and $38.0 million of consumer loans.
The Corporation’s loss mitigation programs for residential mortgage and consumer loans can provide for one or a combination of the following: movement of interest past due to the end of the loan, extension of the loan term, deferral of principal payments and reduction of interest rates either permanently or for a period of up to six years (increasing back in step-up rates). Additionally, in certain cases, the restructuring may provideunaudited consolidated financial statements for the forgiveness of contractually due principal or interest. Uncollected interest is added toquarter ended March 31, 2022for additional information and statistics about the end of the loan term at the time of the restructuring and not recognized as income until collected or when the loan is paid off. These programs are available only to those borrowers who have defaulted, or are likely to default, permanently on their loan and would lose their homes in a foreclosure action absent some lender concession. Nevertheless, if the Corporation is not reasonably assured that the borrower will comply with its contractual commitment, properties are foreclosed.Corporation’s TDR loans.
Prior to permanently modifying a loan, the Corporation may enter into trial modifications with certain borrowers. Trial modifications generally represent a six-month period during which the borrower makes monthly payments under the anticipated modified payment terms prior to a formal modification. Upon successful completion of a trial modification, the Corporation and the borrower enter into a permanent modification. TDR loans that are participating in or that have been offered a binding trial modification are classified as TDRs when the trial offer is made and continue to be classified as TDRs regardless of whether the borrower enters into a permanent modification. As of September 30, 2017, the Corporation classified an additional $1.8 million of residential mortgage loans as TDRs that were participating in or had been offered a trial modification.
For the commercial real estate, commercial and industrial, and construction loan portfolios, at the time of a restructuring, the Corporation determines, on a loan-by-loan basis, whether a concession was granted for economic or legal reasons related to the borrower’s financial difficulty. Concessions granted for commercial loans could include: reductions in interest rates to rates that are considered below market; extension of repayment schedules and maturity dates beyond original contractual terms; waivers of borrower covenants; forgiveness of principal or interest; or other contractual changes that would be considered a concession. The Corporation mitigates loan defaults for its commercial loan portfolios through its collection function. The function’s objective is to minimize both early stage delinquencies and losses upon default of commercial loans. In the case of the commercial and industrial, commercial mortgage, and construction loan portfolios, the SAG focuses on strategies for the accelerated reduction of non-performing assets through note sales, short sales, loss mitigation programs, and sales of OREO.
In addition, the Corporation extends, renews, and restructures loans with satisfactory credit profiles. Many commercial loan facilities are structured as lines of credit, which primarily have one-year terms and, therefore, are required to be renewed annually. Other facilities may be restructured or extended from time to time based upon changes in the borrower’s business needs, use of funds, timing of completion of projects, and other factors. If the borrower is not deemed to have financial difficulties, extensions, renewals, and restructurings are done in the normal course of business and are not considered to be concessions, and the loans continue to be recorded as performing.
Loans subject to the above described three-month payment deferral programs established by the Corporation to assist individuals affected by Hurricanes Irma and Maria in the third quarter of 2017 are not considered TDRs as the time period of deferral payments is not significant.
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 TDRsTDR 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 a TDR 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. Performance prior to the restructuring, or significant events that coincide with the restructuring, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of the restructuring or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains classified as a nonaccrual loan. Loan modifications increase the Corporation’s interest income by returning a non-performingnonaccrual loan to performing status, if applicable, increase cash flows by providing for payments to be made by the borrower, and limit increases in foreclosure and OREO costs.
141
The following table provides a breakdown between accrual and nonaccrual TDRs: |
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| |||
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(In thousands) | As of September 30, 2017 | |||||||
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| Accrual |
| Nonaccrual (1) |
| Total TDRs | |||
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|
|
|
Non-FHA/VA Residential Mortgage loans | $ | 281,256 |
| $ | 82,013 |
| $ | 363,269 |
Commercial Mortgage loans |
| 33,695 |
|
| 17,950 |
|
| 51,645 |
Commercial and Industrial loans |
| 38,077 |
|
| 49,946 |
|
| 88,023 |
Construction loans |
| 7,599 |
|
| 37,301 |
|
| 44,900 |
Consumer loans - Auto |
| 15,599 |
|
| 7,905 |
|
| 23,504 |
Finance leases |
| 2,045 |
|
| 226 |
|
| 2,271 |
Consumer loans - Other |
| 10,563 |
|
| 1,620 |
|
| 12,183 |
Total Troubled Debt Restructurings | $ | 388,834 |
| $ | 196,961 |
| $ | 585,795 |
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|
|
(1) Included in non-accrual loans are $82.8 million in loans that are performing under the terms of the restructuring agreements but are reported in nonaccrual status until the restructured loans meet the criteria of sustained payment performance under the revised terms for reinstatement to accrual status and are deemed fully collectible. | ||||||||
|
See Note 3 - Loans Held for Investment to the Corporation’s unaudited consolidated financial statements as of March 31, 2022for accruing and non-accruing TDRs as of March 31, 2022 and December 31, 2021.
The OREO portfolio, which is part of non-performing assets, increased by $15.3 million. The increase was driven by $10.6$2.1 million to $42.9 million as of collateral acquired in the aforementioned resolutionMarch 31, 2022, compared to $40.8 million as of a non-performing commercial relationship in Puerto Rico.December 31, 2021. The following tables show the composition of the OREO portfolio as of September 30, 2017March 31, 2022 and December 31, 2016,2021, as well as the activity during the nine-month period ended September 30, 2017 of the OREO portfolio by geographic region:area during the quarter ended March 31, 2022.
OREO Composition by Region |
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(In thousands) | As of September 30, 2017 |
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| |||||||
| Puerto Rico | Virgin Islands | Florida |
| Consolidated |
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| |||
Residential | $ | 54,945 | $ | 514 | $ | 1,534 | $ | 56,993 |
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|
Commercial |
| 80,135 |
| 4,927 |
| 132 |
| 85,194 |
|
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|
|
|
|
|
|
|
|
Construction |
| 9,925 |
| 865 |
| - |
| 10,790 |
|
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|
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|
|
|
| $ | 145,005 | $ | 6,306 | $ | 1,666 | $ | 152,977 |
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(In thousands) | As of December 31, 2016 |
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| |||||||
| Puerto Rico | Virgin Islands | Florida |
| Consolidated |
|
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|
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|
| |||
Residential | $ | 43,925 | $ | 289 | $ | 2,703 | $ | 46,917 |
|
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|
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Commercial |
| 73,393 |
| 4,938 |
| 367 |
| 78,698 |
|
|
|
|
|
|
|
|
|
|
Construction |
| 11,077 |
| 989 |
| - |
| 12,066 |
|
|
|
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|
|
|
| $ | 128,395 | $ | 6,216 | $ | 3,070 | $ | 137,681 |
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|
| 15,296 |
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|
OREO Activity by Region |
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(In thousands) | As of September 30, 2017 |
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| |||||||
| Puerto Rico | Virgin Islands | Florida |
| Consolidated |
|
|
|
|
|
|
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|
| |||
Beginning Balance | $ | 128,395 | $ | 6,216 | $ | 3,070 | $ | 137,681 |
|
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|
|
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|
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Additions |
| 46,106 |
| 226 |
| 317 |
| 46,649 |
|
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Sales |
| (16,295) |
| (150) |
| (1,589) |
| (18,034) |
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Fair value adjustments |
| (13,201) |
| 14 |
| (132) |
| (13,319) |
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Ending Balance | $ | 145,005 | $ | 6,306 | $ | 1,666 | $ | 152,977 |
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142138
OREO Composition by Region |
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(In thousands) | As of March 31, 2022 |
| |||||||
| Puerto Rico | Virgin Islands | Florida |
| Consolidated |
| |||
Residential | $ | 31,398 | $ | 810 | $ | - | $ | 32,208 |
|
Commercial |
| 4,419 |
| 2,809 |
| - |
| 7,228 |
|
Construction |
| 3,307 |
| 151 |
| - |
| 3,458 |
|
| $ | 39,124 | $ | 3,770 | $ | - | $ | 42,894 |
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|
(In thousands) | As of December 31, 2021 |
| |||||||
| Puerto Rico | Virgin Islands | Florida |
| Consolidated |
| |||
Residential | $ | 28,396 | $ | 489 | $ | 648 | $ | 29,533 |
|
Commercial |
| 4,521 |
| 2,810 |
| - |
| 7,331 |
|
Construction |
| 3,833 |
| 151 |
| - |
| 3,984 |
|
| $ | 36,750 | $ | 3,450 | $ | 648 | $ | 40,848 |
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OREO Activity by Region |
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(In thousands) | For the quarter ended March 31, 2022 |
| |||||||
| Puerto Rico | Virgin Islands | Florida |
| Consolidated |
| |||
Beginning Balance | $ | 36,750 | $ | 3,450 | $ | 648 | $ | 40,848 |
|
Additions |
| 6,214 |
| 556 |
| - |
| 6,770 |
|
Sales |
| (3,560) |
| (236) |
| (648) |
| (4,444) |
|
Write-down adjustments |
| (280) |
| - |
| - |
| (280) |
|
Ending Balance | $ | 39,124 | $ | 3,770 | $ | - | $ | 42,894 |
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139
Net Charge-offs and Total Credit Losses
Total net
Net charge-offs totaled $6.6 million for the first nine monthsquarter of 2017 were $93.3 million,2022, or 1.40%0.24% of average loans on an annualized basis, compared to $90.2$12.5 million, or an annualized 1.35%,0.43% of average loans, for the same period in 2016. Net2021.
For the first quarter of 2022, the commercial mortgage loans had a net recovery of $7 thousand, compared to net charge-offs of $0.7 million, or an annualized 0.13% of related average loans, for the first nine monthsquarter of 2017 include a $10.7 million charge-off associated with the sale of the PREPA credit line. Excluding the charge-offs related to the sale of the PREPA credit line, total adjusted net charge-offs for the first nine months of 2017 were $82.6 million, or 1.24% of average loans.
2021. Commercial mortgage loans net charge-offs for the first nine monthsquarter of 2017 were $32.02021 included a charge-off of $0.5 million taken on a commercial mortgage relationship in the Puerto Rico region.
For the first quarter of 2022, construction loans had a net recovery of $8 thousand, or an annualized 0.03% of related average loans, compared to net charge-offs of $9 thousand, or an annualized 0.02% of related average loans, for the first quarter of 2021.
For the first quarter of 2022, commercial and industrial loans had a net recovery of $0.8 million, or an annualized 2.65%0.10% of related average commercial mortgage loans, compared to $15.3net charge-offs of $0.5 million, or an annualized 1.34%,0.07% of related average loans, for the first nine monthsquarter of 2016. The increase2021. For the first quarter of 2022, a $0.9 million recovery was primarily related to the aforementioned charge-offs of $29.7 million recorded in the secondPuerto Rico region in connection with a nonaccrual commercial loan that was paid off during the quarter, compared to $0.7 million in charge-offs recorded in connection with $28.2 million in criticized commercial loan participations transferred to held for sale in the first quarter of 2017 on commercial mortgages loans guaranteed by the TDF compared to charge-off of $13.7 million recorded on such loans during the first nine months of 2016. 2021.
Commercial and Industrial
Residential mortgage loans net charge-offs in the first quarter of 2022 were $1.2 million, or an annualized 0.15% of related average loans, compared to $2.1 million, or an annualized 0.24% of related average loans, for the first nine monthsquarter of 2017 totaled $13.62021. Approximately $0.4 million of charge-offs taken in the first quarter of 2022 resulted from valuations of collateral dependent residential mortgage loans given high delinquency levels, compared to $2.2 million for the first quarter of 2021. Net charge-offs on residential mortgage loans for the first quarter of 2022 also included $1.3 million related to foreclosures, compared to $0.3 million in the first quarter of 2021.
Net charge-offs of consumer loans and finance leases in the first quarter of 2022 were $6.1 million, or an annualized 0.85% of related average commercial and industrial loans, compared to $14.4$9.1 million, or an annualized 0.89%, for the first nine months1.39% of 2016. Commercial and Industrial loans net charge-offs for the first nine months of 2017 included the $10.7 million charge-off associated with the sale of the PREPA credit line. Excluding the impact of the PREPA credit line, adjusted commercial and industrial loans net charge-offs were $2.8 million in the first nine months of 2017, or 0.18% of average loans. Approximately $5.5 million of the commercial and industrial loans charge-offs recorded in the first nine months of 2017 are associated with two commercial relationships in Puerto Rico, including charge-offs of $3.5 million recorded as part of the aforementioned resolution in the second quarter of a $27.6 million non-performing commercial relationship, partially offset by a $4.2 million recovery on a previously charged-off commercial loan.
Construction loans net charge-offs for the first nine months of 2017 were $0.1 million, or an annualized 0.11% of average construction loans, compared to net charge-offs of $0.3 million, or an annualized 0.29%, for the first nine months of 2016. The variance was primarily related to a loan loss recovery of $0.4 million recorded in 2017 on a non-performing construction loan paid-off in the Virgin Islands.
Residential mortgage loans net charge-offs for the first nine months of 2017 were $20.4 million, or an annualized 0.83% of average residential mortgage loans, compared to $25.2 million, or an annualized 1.02%, for the first nine months of 2016. Approximately $13.2 million in charge-offs for the first nine months of 2017 resulted from valuations for impairment purposes of residential mortgage loans considered homogeneous given high delinquency and loan-to-value levels compared to $18.3 million for the first nine months of 2016. Net charge-offs on residential mortgage loans also included $5.7 million related to foreclosures for the first nine months of 2017, compared to $5.6 million for the first nine months of 2016.
Consumer loans and finance leases net charge-offs in the first nine months of 2017 were $27.2 million, or an annualized 2.11% of average consumer loans and finance leases, compared to $35.0 million, or an annualized 2.63% of average loans, in the first nine monthsquarter of 2016.2021. The decrease was primarily reflected in the auto and personal loan portfolioportfolios with decreases of $1.4 million and also reflects the effect of a loan loss recovery of $1.2$0.9 million, recorded in 2017 on the sale of certain credit card loans that had been fully charged off in prior periods.respectively.
The following table presents annualized net charge-offs to average loans held in various portfolio: | |||||||||||
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| Quarter Ended |
| Nine-Month Period Ended | ||||||||
| September 30, 2017 |
| September 30, 2016 |
| September 30, 2017 |
| September 30, 2016 | ||||
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Residential mortgage | 0.84 | % |
| 0.91 | % |
| 0.83 | % |
| 1.02 | % |
Commercial mortgage | 0.06 | % |
| 3.49 | % |
| 2.65 | % |
| 1.34 | % |
Commercial and industrial (1) | 0.12 | % |
| 1.81 | % |
| 0.85 | % |
| 0.89 | % |
Construction | 0.09 | % |
| (0.36) | % |
| 0.11 | % |
| 0.29 | % |
Consumer and finance leases | 2.29 | % |
| 2.63 | % |
| 2.11 | % |
| 2.63 | % |
Total loans (2) | 0.80 | % |
| 1.90 | % |
| 1.40 | % |
| 1.35 | % |
_______________ |
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(1) For the nine-month period ended September 30, 2017, includes a charge-off of $10.7 million associated with the sale of the PREPA credit line. The ratio of commercial and industrial net charge-offs to average loans, excluding the charge-off associated with the sale of the PREPA credit line, was 0.18% for the first nine months of 2017. | |||||||||||
(2)For the nine-month period ended September 30, 2017, includes the charge-off of $10.7 million associated with the sale of the PREPA credit line. The ratio of total net charge-offs to average loans, excluding the charge-off associated with the sale of the PREPA credit line, was 1.24% for the first nine months of 2017. |
The following table presents the net charge-offs (recoveries) to average loans held-in-portfolio for the indicated periods: | |||||||
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| Quarter Ended |
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| |||
|
| March 31, 2022 |
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| March 31, 2021 |
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Residential mortgage | 0.15 | % |
| 0.24 | % |
| |
Commercial mortgage | - | % |
| 0.13 | % |
| |
Commercial and industrial | (0.10) | % |
| 0.07 | % |
| |
Construction | (0.03) | % |
| 0.02 | % |
| |
Consumer loans and finance leases | 0.85 | % |
| 1.39 | % |
| |
Total loans | 0.24 | % |
| 0.43 | % |
|
143140
The following table presents annualized net charge-offs or (recoveries) to average loans held in various portfolios by geographic segment: | ||||||||||||
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| Quarter Ended |
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| Nine-Month Period Ended |
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| September 30, |
| September 30, |
| September 30, |
| September 30, | ||||
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| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
PUERTO RICO: |
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Residential mortgage |
| 1.15 | % |
| 1.16 | % |
| 1.11 | % |
| 1.30 | % |
Commercial mortgage |
| 0.09 | % |
| 4.59 | % |
| 3.65 | % |
| 1.73 | % |
Commercial and Industrial (1) |
| 0.17 | % |
| 2.43 | % |
| 1.21 | % |
| 1.17 | % |
Construction |
| 0.31 | % |
| 0.01 | % |
| 1.68 | % |
| 1.08 | % |
Consumer and finance leases |
| 2.29 | % |
| 2.71 | % |
| 2.14 | % |
| 2.74 | % |
Total loans (2) |
| 1.03 | % |
| 2.39 | % |
| 1.83 | % |
| 1.68 | % |
VIRGIN ISLANDS: |
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Residential mortgage (3) |
| (0.01) | % |
| 0.31 | % |
| 0.06 | % |
| 0.17 | % |
Commercial mortgage (4) |
| (0.14) | % |
| (0.44) | % |
| (0.11) | % |
| (0.16) | % |
Commercial and Industrial (5) |
| (0.01) | % |
| 0.01 | % |
| (0.01) | % |
| (0.01) | % |
Construction (6) |
| - | % |
| 0.13 | % |
| (1.33) | % |
| 0.31 | % |
Consumer and finance leases |
| 2.84 | % |
| 0.95 | % |
| 2.04 | % |
| 0.89 | % |
Total loans |
| 0.17 | % |
| 0.20 | % |
| 0.05 | % |
| 0.17 | % |
FLORIDA: |
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Residential mortgage |
| 0.01 | % |
| 0.02 | % |
| 0.05 | % |
| 0.04 | % |
Commercial mortgage (7) |
| (0.01) | % |
| (0.20) | % |
| (0.01) | % |
| (0.05) | % |
Commercial and Industrial (8) |
| - | % |
| - | % |
| - | % |
| (0.01) | % |
Construction (9) |
| (0.18) | % |
| (1.58) | % |
| (0.53) | % |
| (1.41) | % |
Consumer and finance leases |
| 1.93 | % |
| 1.40 | % |
| 1.35 | % |
| 0.65 | % |
Total loans (10) |
| 0.07 | % |
| (0.03) | % |
| 0.06 | % |
| (0.01) | % |
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(1) For the nine-month period ended September 30, 2017, includes the charge-off of $10.7 million associated with the sale of the PREPA credit line. The ratio of commercial and industrial net charge-offs to average commercial and industrial loans in Puerto Rico, excluding the charge-off associated with the sale of the PREPA credit line, was 0.26%. | ||||||||||||
(2) For the nine-month period ended September 30, 2017, includes the charge-off of $10.7 million associated with the sale of the PREPA credit line. The ratio of total net charge-offs to average loans in Puerto Rico, excluding the charge-off associated with the sale of the PREPA credit line, was 1.7%. | ||||||||||||
(3) For the quarter ended September 30, 2017, recoveries in residential mortgage loans in the Virgin Islands exceeded charge-offs. |
| |||||||||||
(4) For the quarters and nine-month periods ended September 30, 2017 and 2016, recoveries in commercial mortgage loans in the Virgin Islands exceeded charge-offs. | ||||||||||||
(5) For the third quarter of 2017 and for the nine-month periods ended September 30, 2017 and 2016, recoveries in commercial and industrial loans in the Virgin Islands exceeded charge-offs. | ||||||||||||
(6) For the nine-month period ended September 30, 2017, recoveries in construction loans in the Virgin Islands exceeded charge-offs. | ||||||||||||
(7) For the quarters and nine-month periods ended September 30, 2017 and 2016, recoveries in commercial mortgage loans in Florida exceeded charge-offs. | ||||||||||||
(8) For the nine-month period ended September 2016, recoveries in commercial and industrial loans in Florida exceeded charge-offs. | ||||||||||||
(9) For the quarters and nine-month periods ended September 30, 2017 and 2016, recoveries in construction loans in Florida exceeded charge-offs. | ||||||||||||
(10) For the quarter and nine month period ended September 30, 2016, total recoveries in Florida exceeded charge-offs. | ||||||||||||
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The following table presents the ratio of annualized net charge-offs (recoveries) to average loans held in various portfolios by geographic segment for the indicated periods: | |||||
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| Quarter Ended |
| ||
|
| March 31, |
| March 31, |
|
|
| 2022 |
| 2021 |
|
PUERTO RICO: |
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| |
| Residential mortgage | 0.19 | % | 0.30 | % |
| Commercial mortgage | 0.01 | % | 0.18 | % |
| Commercial & Industrial | (0.16) | % | (0.03) | % |
| Construction | 0.08 | % | 0.12 | % |
| Consumer and finance leases | 0.83 | % | 1.34 | % |
| Total loans | 0.29 | % | 0.48 | % |
VIRGIN ISLANDS: |
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| |
| Residential mortgage | 0.10 | % | 0.10 | % |
| Commercial mortgage | (0.22) | % | (0.24) | % |
| Commercial and Industrial | (0.01) | % | - | % |
| Construction | - | % | - | % |
| Consumer and finance leases | 1.78 | % | 1.30 | % |
| Total loans | 0.25 | % | 0.16 | % |
FLORIDA: |
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|
|
| |
| Residential mortgage | - | % | - | % |
| Commercial mortgage | - | % | (0.01) | % |
| Commercial and Industrial | - | % | 0.29 | % |
| Construction | (0.09) | % | (0.04) | % |
| Consumer and finance leases | 1.31 | % | 6.55 | % |
| Total loans | 0.01 | % | 0.22 | % |
141
The above ratios are based on annualized charge-offs and are not necessarily indicative of the results expected for the entire year or in subsequent periods.
Total credit losses (equal to net charge-offs plus lossesgains (losses) on OREO operations)operations for the first nine monthsquarter of 20172022 amounted to $102.1 million, or 1.62% on an annualized basis to average loans and repossessed assets, in contrast to credit losses of $99.3$5.9 million, or a loss rate of 1.59%,0.21% on an annualized basis of average loans and repossessed assets, compared to losses of $14.4 million, or a loss rate of 0.49% on an annualized basis, for the same period in 2016.2021.
The following table presents information about the OREO inventory and credit losses for the periods indicated: | |||||||
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| Quarter Ended | ||||
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| March 31, | ||||
| 2022 |
| 2021 | ||||
(Dollars in thousands) |
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OREO |
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OREO balances, carrying value: |
|
|
|
|
| ||
Residential | $ | 32,208 |
| $ | 31,642 | ||
Commercial |
| 7,228 |
|
| 41,338 | ||
Construction |
| 3,458 |
|
| 6,227 | ||
Total | $ | 42,894 |
| $ | 79,207 | ||
|
|
|
|
|
|
|
|
OREO activity (number of properties): |
|
|
|
|
| ||
Beginning property inventory |
| 418 |
|
| 513 | ||
Properties acquired |
| 68 |
|
| 38 | ||
Properties disposed |
| (44) |
|
| (62) | ||
Ending property inventory |
| 442 |
|
| 489 | ||
|
|
|
|
|
|
|
|
Average holding period (in days) |
|
|
|
|
| ||
Residential |
| 656 |
|
| 652 | ||
Commercial |
| 2,011 |
|
| 2,266 | ||
Construction |
| 1,979 |
|
| 2,009 | ||
|
| Total average holding period (in days) |
| 991 |
|
| 1,601 |
OREO operations gain (loss): |
|
|
|
|
| ||
Market adjustments and gains (losses) on sale: |
|
|
|
|
| ||
Residential | $ | 992 |
| $ | 360 | ||
Commercial |
| (17) |
|
| (2,168) | ||
Construction |
| 103 |
|
| 224 | ||
|
| Total market adjustments and gains (losses) on sale |
| 1,078 |
|
| (1,584) |
Other OREO operations expenses |
| (358) |
|
| (314) | ||
Net Gain (Loss) on OREO operations | $ | 720 |
| $ | (1,898) | ||
|
|
|
|
|
|
|
|
CHARGE-OFFS |
|
|
|
|
| ||
Residential charge offs, net | $ | (1,146) |
| $ | (2,092) | ||
Commercial recoveries (charge offs), net |
| 752 |
|
| (1,285) | ||
Construction recoveries (charge-offs), net |
| 8 |
|
| (9) | ||
Consumer and finance leases charge-offs, net |
| (6,208) |
|
| (9,122) | ||
Total charge-offs, net |
| (6,594) |
|
| (12,508) | ||
TOTAL CREDIT LOSSES (1) | $ | (5,874) |
| $ | (14,406) | ||
|
|
|
|
|
|
|
|
LOSS RATIO PER CATEGORY (2): |
|
|
|
|
| ||
Residential |
| 0.02% |
|
| 0.20% | ||
Commercial |
| -0.06% |
|
| 0.25% | ||
Construction |
| -0.37% |
|
| -0.39% | ||
Consumer |
| 0.85% |
|
| 1.38% | ||
TOTAL CREDIT LOSS RATIO (3) |
| 0.21% |
|
| 0.49% | ||
________ | |||||||
(1) | Equal to net loss on OREO operations plus charge-offs, net. | ||||||
(2) | Calculated as net charge-offs plus market adjustments, and gains (losses) on sales of OREO divided by average loans and repossessed assets. | ||||||
(3) | Calculated as net charge-offs plus net loss on OREO operations divided by average loans and repossessed assets. |
144142
The following table presents a detail of the OREO inventory and credit losses for the periods indicated: | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended |
| Nine-Month Period Ended | ||||||||||||
| September 30, |
| September 30, | ||||||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||||||
(Dollars in thousands) |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO balances, carrying value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential | $ | 56,993 |
|
| $ | 45,887 |
|
| $ | 56,993 |
|
| $ | 45,887 |
|
Commercial |
| 85,194 |
|
|
| 81,038 |
|
|
| 85,194 |
|
|
| 81,038 |
|
Construction |
| 10,790 |
|
|
| 12,521 |
|
|
| 10,790 |
|
|
| 12,521 |
|
Total | $ | 152,977 |
|
| $ | 139,446 |
|
| $ | 152,977 |
|
| $ | 139,446 |
|
OREO activity (number of properties): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning property inventory |
| 696 |
|
|
| 566 |
|
|
| 626 |
|
|
| 549 |
|
Properties acquired |
| 84 |
|
|
| 123 |
|
|
| 305 |
|
|
| 309 |
|
Properties disposed |
| (43) |
|
|
| (94) |
|
|
| (194) |
|
|
| (263) |
|
Ending property inventory |
| 737 |
|
|
| 595 |
|
|
| 737 |
|
|
| 595 |
|
Average holding period (in days) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
| 361 |
|
|
| 309 |
|
|
| 361 |
|
|
| 309 |
|
Commercial |
| 941 |
|
|
| 730 |
|
|
| 941 |
|
|
| 730 |
|
Construction |
| 1,316 |
|
|
| 920 |
|
|
| 1,316 |
|
|
| 920 |
|
|
| 751 |
|
|
| 609 |
|
|
| 751 |
|
|
| 609 |
|
OREO operations gain (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market adjustments and gain (losses) on sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential | $ | (328) |
|
| $ | (473) |
|
| $ | (2,391) |
|
| $ | (1,608) |
|
Commercial |
| 562 |
|
|
| (1,772) |
|
|
| (4,990) |
|
|
| (7,190) |
|
Construction |
| (610) |
|
|
| 374 |
|
|
| 145 |
|
|
| 245 |
|
|
| (376) |
|
|
| (1,871) |
|
|
| (7,236) |
|
|
| (8,553) |
|
Other OREO operations expenses |
| (975) |
|
|
| (732) |
|
|
| (1,560) |
|
|
| (581) |
|
Net Loss on OREO operations | $ | (1,351) |
|
| $ | (2,603) |
|
| $ | (8,796) |
|
| $ | (9,134) |
|
CHARGE-OFFS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential charge-offs, net |
| (6,856) |
|
|
| (7,542) |
|
|
| (20,408) |
|
|
| (25,193) |
|
Commercial charge-offs, net |
| (847) |
|
|
| (23,053) |
|
|
| (45,527) |
|
|
| (29,703) |
|
Construction charge-offs, net |
| (31) |
|
|
| 121 |
|
|
| (111) |
|
|
| (322) |
|
Consumer and finance leases charge-offs, net |
| (9,894) |
|
|
| (11,413) |
|
|
| (27,238) |
|
|
| (34,964) |
|
Total charge-offs, net |
| (17,628) |
|
|
| (41,887) |
|
|
| (93,284) |
|
|
| (90,182) |
|
TOTAL CREDIT LOSSES (1) | $ | (18,979) |
|
| $ | (44,490) |
|
| $ | (102,080) |
|
| $ | (99,316) |
|
LOSS RATIO PER CATEGORY (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
| 0.87 | % |
|
| 0.96 | % |
|
| 0.92 | % |
|
| 1.07 | % |
Commercial |
| (0.03) | % |
|
| 2.65 | % |
|
| 1.74 | % |
|
| 1.30 | % |
Construction |
| 3.37 | % |
|
| (1.35) | % |
|
| 0.49 | % |
|
| 0.06 | % |
Consumer |
| 2.28 | % |
|
| 2.61 | % |
|
| 2.10 | % |
|
| 2.62 | % |
TOTAL CREDIT LOSS RATIO (3) |
| 0.86 | % |
|
| 2.06 | % |
|
| 1.62 | % |
|
| 1.59 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Equal to Net Loss on OREO operations plus charge-offs, net. | |||||||||||||||
(2) Calculated as net charge-offs plus market adjustments and gains (losses) on sales of OREO divided by average loans and repossessed assets. | |||||||||||||||
(3) Calculated as net charge-offs plus net loss on OREO operations divided by average loans and repossessed assets. | |||||||||||||||
|
145
Operational Risk
The Corporation faces ongoing and emerging risk and regulatory pressure related to the activities that surround the delivery of banking and financial products. Coupled with external influences, such as market conditions, security risks, and legal risks, the potential for operational and reputational loss has increased. To mitigate and control operational risk, the Corporation has developed, and continues to enhance, specific internal controls, policies and procedures that are designed to identify and manage operational risk at appropriate levels throughout the organization. The purpose of these mechanisms is to provide reasonable assurance that the Corporation’s business operations are functioning within the policies and limits established by management.
The Corporation classifies operational risk into two major categories: business-specific and corporate-wide affecting all business lines. For business specific risks, a risk assessment group works with the various business units to ensure consistency in policies, processes and assessments. With respect to corporate-wide risks, such as information security, business recovery, and legal and compliance, the Corporation has specialized groups, such as the Legal Department, Information Security, Corporate Compliance, and Operations. These groups assist the lines of business in the development and implementation of risk management practices specific to the needs of the business groups.
Legal and Compliance Risk
Legal and compliance risk includes the risk of noncompliance with applicable legal and regulatory requirements, the risk of adverse legal judgments against the Corporation, and the risk that a counterparty’s performance obligations will be unenforceable. The Corporation is subject to extensive regulation in the different jurisdictions in which it conducts its business, and this regulatory scrutiny has been significantly increasing over the last several years. The Corporation has established, and continues to enhance, procedures based on legal and regulatory requirements that are designed to ensure compliance with all applicable statutory, regulatory and regulatoryany other legal requirements. The Corporation has a Compliance Director who reports to the Chief Risk Officer and is responsible for the oversight of regulatory compliance and implementation of an enterprise-wide compliance risk assessment process. The Compliance division has officer roles in each major business area with direct reporting relationshipsresponsibilities to the Corporate Compliance Group.
Concentration Risk
The Corporation conducts its operations in a geographically concentrated area, as its main market is Puerto Rico. However, the Corporation has diversified its geographical risk, as evidenced by its operations in the Virgin Islands and in Florida. Of the total gross loan portfolio held for investment of $8.9$11.1 billion as of September 30, 2017, approximately 75% hasMarch 31, 2022, the Corporation had credit risk concentrationof approximately 79% in the Puerto Rico region, 18% in the United States region, and 7%3% in the Virgin Islands.Islands region.
Update to the Puerto Rico Fiscal Situation
The GDB-Economic Activity Index (the “GDB-EAI”)A significant portion of the Corporation’s business activities and credit exposure is concentrated in July 2017 was 121.0, a 2.1% reduction compared to July 2016, and a decreasethe Commonwealth of 0.1% compared to June 2017. The GDB-EAI is a coincident index of economic activity for Puerto Rico, made up of four indicators (non-farm payroll employment, electric power generation, cement saleswhich has experienced an economic and gasoline consumption). The seasonally adjusted unemployment rate in Puerto Rico was 10.1% in August 2017, comparedfiscal crisis for more than a decade.
Economic Indicators
According to 12.4% in December 2016.
Based on informationthe latest revised estimates published by the Puerto Rico government, General Fund net revenuesPlanning Board (“PRPB”) in July 2017 totaled $649.4 million, which was $15.8 million, or 2.4%, less than in July 2016. These revenues exceeded monthly projectionsMarch 2021, Puerto Rico’s real gross national product (“GNP”) grew by $48.3 million. The net revenues1.8% during fiscal year 2019 (previously at 1.5%). Also, the PRPB published its preliminary real GNP estimate for fiscal year 2020, suggesting that the Puerto Rico economy contracted by 3.2%. According to the General Fund forPRPB, the economic growth seen during fiscal year ended June 30, 2017 totaled $9,334.9 million, an increase2019 primarily reflects the economic stimulus generated by the influx of $159.6 million, or 1.7%, compared withfederal recovery funds in response to the previous fiscal year, and $234.9 million, or 2.6%, above projections. The General Fund revenues projection for the fiscal year 2017-2018 is $9,562 million.
Impact of Hurricanes Maria and Irma and measures taken by authorities
During the third quarter of 2017, Hurricanes Irma and Marianatural disasters that affected Puerto Rico causing significant damage toin September 2017, while the infrastructure and property. Incontraction experienced in fiscal year 2020 was primarily driven by the aftermathadverse impact of Hurricane Maria, the PROMESA oversight board stated that damages could be in the range of $45 to $95 billionCOVID-19 pandemic and the emergency will cause Puerto Rico’s central government and some of its instrumentalities to face severe cash shortfalls from lower revenues, higher cost, and delayed or reduced cost-saving measures that had been required by the fiscal plans previously approved. related mandatory restrictions.
The Puerto Rico government and the PROMESA oversight board requested federal assistance from the United Sates government. Such assistance is intended to provide Puerto Rico with the cash that it will need to operate its core government services and its disaster response effort in the near future. As of the date of filing of this Form 10-Q, the U.S. House of Representatives approved a $36.5 billion disaster aid package in emergency relief for Puerto Rico and other areas affected by recent natural events such as Texas, Florida and California. This measure includes approximately $5.0 billion to help the government of Puerto Rico with the cash shortfall
146
matter. It also provided $1.3 billion for disaster assistance food for Puerto Rico. In relation to the Federal Emergency Management Agency (“FEMA”) assistance, more than $500 million has been approved, which has been distributed as follows:Fiscal Plan
·$215 million to PREPA for emergency repairs;
·$114 million to individuals for housing assistance and critical needs;
·$2.3 million to the Small Business Administration in disaster assistance loans;
·$70 million to the Puerto Rico Aqueduct and Sewer Authority (PRASA); and
·$99.2 million to various public and non-profit organizations.
In addition, $44.1 million was allocated from various programs managed by the U.S. Housing and Urban Development Department’s (HUD) Office of Community Planning and Development. Of the total $44.1 million, the Puerto Rico Office for Socioeconomic and Community Development will receive $41.2 million in federal funding, including $23.1 million for municipalities with fewer than 50,000 residents. Municipalities with more than 50,000 residents can receive the funds directly from the Federal Housing Department.
Due to protracted economic and revenue disruptions caused by the Hurricane Maria, on October 11, 2017, Moody’s lowered the credit ratings on $13.3 billion of Puerto Rico’s general obligations from Caa3 to Ca. In addition, the bonds issued by the Puerto Rico Sales Tax Financing Corporation (“COFINA”) and PRASA were also downgraded from Ca to Caa3. In total, there were eight type of securities affected, which have a combined par value of $31 billion.
Actions taken by PROMESA after Hurricanes Maria and Irma
On September 21, 2017, the PROMESA oversight board authorized whatever modifications or reprogramming to the allocations in the Commonwealth’s budget up to an aggregate amount of $1 billion for emergency measures to respond to the catastrophic damage caused by Hurricane Maria. Furthermore, the PROMESA oversight board stated that, if the Puerto Rico government determines that increases to the Commonwealth’s budget are needed to respond to Hurricane Maria, the PROMESA oversight will be ready to approve such request. Additionally, in a letter sent to U.S. Senate on October 11, 2017, the PROMESA oversight board said that the entity was evaluating how the certified fiscal plans of the Puerto Rico government and PREPA would change in the aftermath of Hurricanes Irma and Maria. Previously, on June 30, 2017,January 27, 2022, the PROMESA oversight board certified the 2022 Fiscal Plan for Puerto Rico government’s budgetRico. Similar to previous fiscal plans, the 2022 Fiscal Plan incorporates updated information related to the macroeconomic environment, as well as government revenues, expenditures, structural reform efforts, and recent increases in federal funding. More importantly, the 2022 Fiscal Plan reflects the Commonwealth Plan of Adjustment recently confirmed by the U.S. District Court for the District of Puerto Rico. Relative to the previous fiscal plan, the 2022 Fiscal Plan incorporates a new set of expenditure projections that factor in the now-established debt service requirements pursuant to the Plan of Adjustment, as well as additional investments enabled by the increased resources available to the government. The 2022 Fiscal Plan prioritizes resource allocations across three major themes: (i) investing in the operational capacity of the government to deliver services with Civil Service Reform, (ii) prioritizing obligations to current and future retirees, and (iii) creating a fiscally responsible post-bankruptcy government. Accordingly, the 2022 Fiscal Plan projects a cumulative unrestricted surplus after debt service and Pension Trust contributions of approximately $2.0 billion between fiscal years 2022 and 2031.
143
The 2022 Fiscal Plan contains an updated macroeconomic forecast that reflects the adverse impact of the pandemic-induced recession at the end of fiscal year 2018, which totaled $9.562 billion2020, followed by a forecasted rebound and recovery in general fund revenues. This budget,fiscal years 2021 through 2023. Similar to the first certified under PROMESA,previous fiscal plan, the 2022 Fiscal Plan incorporates a real growth series that was based onadjusted for the short-term income effects resulting from the extraordinary unemployment insurance and other pandemic-related direct transfer programs. Specifically, the revised fiscal plan also approvedestimates that Puerto Rico’s GNP will grow by PROMESA oversight board.5.2% in the current fiscal year 2022, followed by a 0.6% growth in fiscal year 2023. Excluding the effect on household income from the unprecedented pandemic-related federal government stimulus, the 2022 Fiscal Plan estimates that real GNP growth would be 2.6% and 0.9% in fiscal years 2022 and 2023, respectively.
On May 3, 2017,Over the past few years, Puerto Rico governmenthas received an infusion of historical levels of federal support, creating new opportunities to address high priority needs. The 2022 Fiscal Plan projects that approximately $84 billion of disaster relief funding in total, from federal and the PROMESA oversight board filed for a form of bankruptcyprivate sources, will be disbursed in the U.S. District courtreconstruction process over a period of 18 years (2018 to 2035). Moreover, since the previous fiscal plan was certified in Puerto Rico under Title III of PROMESA. The Title III allows for a court debt restructuring process similar to U.S. bankruptcy protection. On July 2, 2017, the PROMESA oversight board filed for a form of bankruptcy in the U.S. District court in Puerto Rico under Title III of PROMESA for PREPA. Due to the Hurricane Maria, the hearings on2021, the Commonwealth’s bankruptcy cases under Title III were postponed.
On August 28, 2017, the PROMESA oversight board filed an Adversary Complaint for Declaratory and Injunctive Relief to force the Puerto Rico government to implementavailable resources have significantly increased principally as a furlough reform after the latter refused the adopt of this measure. The furlough program was expected to begin on September 1, 2017 and contemplated the reductionresult of two workdays every month (10%), which was less than the original plan of four workdays every month (20%). This reform would have run through fiscal year 2018 or until the Puerto Rico government demonstrated that it had achieved $218 million in savings related to right-sizing the government. Nevertheless,major developments: (i) incremental federal funding for health care as a result of the hurricane,recent guidance issued by the Board postponed any furlough discussions until next fiscalCenters for Medicare and Medicaid Services (“CMS”), which increases the federal funding cap by over $2 billion per year, and withdrew its related lawsuit.
On October 31, 2017,(ii) improved local revenue collections as a result of a better-than-expected recovery, increased local consumption and economic activity enabled by enhanced income support programs (e.g. incremental funding of approximately $460 million for the PROMESA oversight board’s tenth public meeting took place. In that meeting,Nutrition Assistance Program). The 2022 Fiscal Plan provides a roadmap to take maximum advantage of this unique opportunity, create an environment of fiscal stability, and develop the PROMESA oversight board’s executive director outlinedconditions for long-term growth and economic development. Nonetheless, the process for certifying a revised fiscal plan continues to underline the need to implement structural reforms to maximize the positive impact of federal recovery funds.
Debt Restructuring
After more than four years since the Commonwealth entered Title III, on January 18, 2022, the U.S. District Court for the District of Puerto Rico (the “Court”) issued an order to confirm the Plan of Adjustment to restructure approximately $35 billion of debt and other claims against the Commonwealth of Puerto Rico, the PBA, and the ERS; and more than $50 billion of pension liabilities. The Plan of Adjustment became effective on March 15, 2022, as the Government of Puerto Rico completed the exchange of more than $33 billion of existing bonds and other claims into approximately $7 billion of new bonds. As a result, annual debt service for the Commonwealth is anticipated to decrease from a maximum of $3.9 billion prior to the restructuring to $1.15 billion each year. In addition, the Commonwealth made more than $10 billion in cash payments to various creditor groups, as well as implemented the Pension Reserve Trust provisions created in the Plan of Adjustment. The Pension Reserve Trust is projected to be funded with more than $10 billion in contributions over the next 10 years, and up to $1.4 billion this year alone. Confirmation and implementation of the Plan of Adjustment marks a major milestone in the overall debt restructuring process and creates a foundation for Puerto Rico’s recovery and economic growth.
Key pending debt restructurings include the PREPA’s and the Puerto Rico government inHighway and Transportation Authority’s (“HTA”).
On April 25, 2022, the aftermath of Hurricane Maria. Several activities, including an assessment of the damages causedCourt granted a motion filed by Hurricane Maria, and renewed plans for fiscal and structural reforms, will inform the development of a revised fiscal plan. The PROMESA oversight board will conduct listening sessions with stakeholders through December 2017 and its review of the revised fiscal plan will occur during January 2018. The certification of the fiscal plan is expected on February 2, 2018.Pursuant to Section 204(b) of PROMESA, the PROMESA oversight board also adoptedwhich extends through June 1, 2022, the deadline for the PROMESA oversight board to file either (i) a new government contract approval policy. Underplan of adjustment, (ii) a term sheet for a plan of adjustment, (iii) a litigation schedule, or (iv) a declaration and memorandum of law showing cause as to why the new contract approval policy, all contracts or seriesCourt should not consider dismissal of related contracts, inclusivePREPA’s Title III case.
On May 2, 2022, the PROMESA oversight board announced that it filed the proposed plan of any amendments or modifications, with an aggregate expected valueadjustment to restructure approximately $6.4 billion of $10 million or more must be submittedclaims against the HTA. According to the PROMESA oversight Board for its approval before execution.board, the HTA plan of adjustment reduces HTA’s outstanding debt by more than 80% to $1.2 billion and saves Puerto Rico more than $3 billion in debt service payments. The plan also requires HTA to implement a comprehensive reorganization as defined in the HTA Fiscal Plan. In addition, it provides a path for HTA to exit bankruptcy and enables HTA to make the Commonwealth, timelines were established for the PREPA, PRASA, the Highwaysnecessary investments to improve and Transportation Authority, the University ofmaintain Puerto RicoRico’s roads and COSSEC to submit revised fiscal plans for certification by the PROMESA oversight board.other transportation infrastructure.
147144
Exposure to Puerto Rico Government
As of September 30, 2017,March 31, 2022, the Corporation had $214.8$356.8 million of direct exposure to the Puerto Rico Government,government, its municipalities and public corporations, compared to $323.3$360.1 million as of December 31, 2016. Approximately $184.62021. As of March 31, 2022, approximately $187.9 million of the exposure consisted of loans and obligations of municipalities in Puerto Rico that are supported by assigned property tax revenues and for which, in most cases, the good faith, credit and unlimited taxing power of the applicable municipality have been pledged to their repayment.repayment, and $121.7 million consisted of municipal revenue or special obligation bonds. Approximately 73%71% of the Corporation’s municipality exposure consiststo Puerto Rico municipalities consisted primarily of senior priority obligations concentrated in threefour of the largest municipalities in Puerto Rico. The vast majority of revenues of these three municipalities are independent of the Puerto Rico central government as the amount of revenues that depend from the Puerto Rico government General Fund subsidy represents just over 4% of the total revenues of these municipalities (6% of total revenues for the entire Corporation’s exposure to municipalities bonds and loans). These municipalities are required by law to levy special property taxes in such amounts as shall beare required for the payment of all of their respective general obligation bonds and loans. The PROMESA oversight board has not designated any of the Commonwealth’s 78 municipalities as covered entities under PROMESA. However, while the current fiscal plan of the Puerto Rico government did not contemplate a restructuring of the debt of Puerto Rico’s municipalities, the plan did call for the gradual elimination of budgetary subsidies provided to municipalities.notes. Furthermore, municipalities are also likely to be affected by the negative economic and other effects resulting from the COVID-19 pandemic, as well as expense, revenue, or cash management measures taken to address the Puerto Rico Government’sgovernment’s fiscal problems and liquidity shortfalls, or measures included in fiscal plans of other government entities, such as the gradual reduction of the CILT included in the PREPA fiscal plan and the GDB Restructuring Support Agreement. The GDB Restructuring Support Agreement provides for the restructuring of a substantial portion of the GDB’s indebtedness, including deposits of municipalities, through the issuance of “Participating Bond Claims” in exchange for the release of GDB from liability relating to the bonds, deposits, letters of credit and guarantees claims. entities. In addition to municipalities, the total direct exposure also includes a $6.8included $12.3 million loan to a unit of the central government and a $15.4 million loanin loans to an affiliate of a public corporation. As mentioned above, the salePREPA, $31.4 million in the first quarterloans to an agency of 2017 of the PREPA credit line, with a book value of $64 million at the time of sale, contributed significantly to the reduction of the Corporation’s direct exposure to the Puerto Rico government.
The Corporation’s total direct exposure also includescentral government, and obligations of the Puerto Rico Government,government, specifically bonds ofa residential pass-through MBS issued by the Puerto Rico Housing Finance Authority,PRHFA, at an amortized cost of $8.0$3.5 million as part of its available-for-sale investment securities portfolio recorded on its books at a fair(fair value of $6.8$2.7 million as of September 30, 2017.During the second quarter of 2017, the Corporation sold for an aggregate of $23.4 million non-performing bonds of the GDB and the Puerto Rico Public Buildings Authority carried on its books at an amortized cost of $23.0 million (net of $34.4 million in cumulative OTTI impairment charges)March 31, 2022). This transaction resulted in a $0.4 million recovery from previous OTTI charges reflected in the statement of (loss) income as part of “net gain on sale of investments.”
The following table details the Corporation’s total direct exposure to Puerto Rico government obligations according to their maturities: | |||||||||
|
|
|
|
|
|
|
|
|
|
|
| As of March 31, 2022 | |||||||
|
|
| Investment |
|
|
|
|
|
|
|
| Portfolio |
|
|
|
|
| Total | |
|
|
| (Amortized cost) |
|
| Loans |
|
| Exposure |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
| |
Puerto Rico Housing Finance Authority: |
|
|
|
|
|
|
|
| |
After 10 years | $ | 3,498 |
| $ | - |
| $ | 3,498 | |
Total Puerto Rico Housing Finance Authority |
| 3,498 |
|
| - |
|
| 3,498 | |
|
|
|
|
|
|
|
|
|
|
Puerto Rico public corporation: |
|
|
|
|
|
|
|
| |
Due within one year |
| - |
|
| 2,055 |
|
| 2,055 | |
After 5 to 10 years |
| - |
|
| 29,344 |
|
| 29,344 | |
Total Puerto Rico public corporation |
| - |
|
| 31,399 |
|
| 31,399 | |
|
|
|
|
|
|
|
|
|
|
Affiliate of the Puerto Rico Electric Power Authority: |
|
|
|
|
|
|
|
| |
Due within one year |
| - |
|
| 12,345 |
|
| 12,345 | |
Total Puerto Rico government affiliate |
| - |
|
| 12,345 |
|
| 12,345 | |
Total Puerto Rico public corporation and government affiliate |
| - |
|
| 43,744 |
|
| 43,744 | |
|
|
|
|
|
|
|
|
|
|
Municipalities: |
|
|
|
|
|
|
|
| |
Due within one year |
| 2,598 |
|
| 8,905 |
|
| 11,503 | |
After 1 to 5 years |
| 14,903 |
|
| 74,509 |
|
| 89,412 | |
After 5 to 10 years |
| 90,790 |
|
| 48,075 |
|
| 138,865 | |
After 10 years |
| 69,768 |
|
| - |
|
| 69,768 | |
Total Municipalities |
| 178,059 |
|
| 131,489 |
|
| 309,548 | |
Total Direct Government Exposure | $ | 181,557 |
| $ | 175,233 |
| $ | 356,790 |
148145
The following table details the Corporation’s total direct exposure to the Puerto Rico Government according to their maturities: | |||||||||
|
|
|
|
|
|
|
|
|
|
|
| As of September 30, 2017 | |||||||
|
|
| Investment |
|
|
|
|
|
|
|
| Portfolio |
|
|
|
|
| Total | |
|
|
| (Amortized cost) |
|
| Loans |
|
| Exposure |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
| ||||||||
Central Government: |
|
|
|
|
|
|
|
| |
After 1 to 5 years | $ | - |
| $ | 6,791 |
| $ | 6,791 | |
Total Central Government |
| - |
|
| 6,791 |
|
| 6,791 | |
|
|
|
|
|
|
|
|
|
|
Puerto Rico Housing Finance Authority: |
|
|
|
|
|
|
|
| |
After 10 years |
| 7,994 |
|
| - |
|
| 7,994 | |
Total Puerto Rico Housing Finance Authority |
| 7,994 |
|
| - |
|
| 7,994 | |
|
|
|
|
|
|
|
|
|
|
Public Corporations: |
|
|
|
|
|
|
|
| |
Affiliate of the Puerto Rico Electric Power Authority: |
|
|
|
|
|
|
|
| |
After 5 to 10 years |
| - |
|
| 15,419 |
|
| 15,419 | |
Total Public Corporations |
| - |
|
| 15,419 |
|
| 15,419 | |
|
|
|
|
|
|
|
|
|
|
Municipalities: |
|
|
|
|
|
|
|
| |
After 1 to 5 years |
| 3,853 |
|
| 28,625 |
|
| 32,478 | |
After 5 to 10 years |
| 39,523 |
|
| 5,317 |
|
| 44,840 | |
After 10 years |
| 107,251 |
|
| - |
|
| 107,251 | |
Total Municipalities |
| 150,627 |
|
| 33,942 |
|
| 184,569 | |
Total Direct Government Exposure | $ | 158,621 |
| $ | 56,152 |
| $ | 214,773 | |
|
|
149
Furthermore, as of September 30, 2017, the Corporation had three loans granted to the hotel industry in Puerto Rico guaranteed by the TDF with an outstanding principal balance of $120.2 million (book value $72.4 million), compared to $127.7 million outstanding (book value of $111.8 million) as of December 31, 2016. The borrower and the operations of the underlying collateral of these loans are the primary sources of repayment and the TDF provides a secondary guarantee for payment performance. The TDF is a subsidiary of the GDB. These loans have been classified as non-performing and impaired since the first quarter of 2016, and interest payments have been applied against principal since then. Approximately $4.1 million of interest payments received on loans guaranteed by the TDF since late March 2016 have been applied against principal. During the second quarter of 2017, the Corporation recorded charge-offs of $29.7 million on these facilities. The largest of these three loans became over 90 days matured in the second quarter of 2017 and, as a collateral dependent loan, the portion of the recorded investment in excess of the fair value of the collateral and the guarantee was charged-off. A portion of the charge-offs was related to an adjustment to the estimated fair value of the guarantee on these loans in light of an agreement reached in the second quarter of 2017 in which the TDF agreed to honor a portion of its guarantee through a cash payment and a fixed income financial instrument. During the third quarter of 2017, the Corporation received a cash payment of $7.6 million in connection with this agreement. The issuance of the fixed income financial instrument is linked to the GDB’s Restructuring Support Agreement approved by the PROMESA oversight board. Upon completion of the agreement, which is subject to the issuance of the fixed income financial instrument, TDF will be released as guarantor and the income-producing real estate properties will be the only collateral on these loans, thus, any decline in the collateral valuations may require additional impairments on these bonds. As of September 30, 2017, the non-performing loans guaranteed by the TDF and related facilities are being carried (net of reserves and accumulated charge-offs) at 53% of unpaid principal balance.
In addition, as of September 30, 2017,March 31, 2022, the Corporation had $116.0$90.6 million in exposure to residential mortgage loans that are guaranteed by the Puerto Rico Housing Finance Authority.PRHFA, a governmental instrumentality that has been designated as a covered entity under PROMESA (December 31, 2021 – $92.8 million). Residential mortgage loans guaranteed by the Puerto Rico Housing Finance AuthorityPRHFA are secured by the underlying properties and the guarantees serve to cover shortfalls in collateral in the event of a borrower default. The Puerto Rico government guarantees up to $75 million of the principal guaranteedfor all loans under the mortgage loansloan insurance program. According to the most recently released audited financial statements of the Puerto Rico Housing Financing Authority,PRHFA, as of June 30, 2015,2019, the Puerto Rico Housing Finance Authority’sPRHFA’s mortgage loans insurance program covered loans in an aggregate amount of approximately $552$557 million. The regulations adopted by the Puerto Rico Housing Finance Authority requirePRHFA, requires the establishment of adequate reserves to guarantee the solvency of the mortgage loans insurance fund.program. As of June 30, 2015,2019, the most recent date as toof which information is available, the Puerto Rico Housing Finance AuthorityPRHFA had a restricted net position for such purposesan unrestricted deficit of approximately $77.4 million.$5.2 million with respect to required reserves for the mortgage loan insurance program.
Furthermore, asAs of September 30, 2017,March 31, 2022, the Corporation had $508.2 million$2.3 billion of public sector deposits in Puerto Rico.Rico, compared to $2.7 billion as of December 31, 2021. Approximately 31% is22% of the public sector deposits as of March 31, 2022 was from municipalities and municipal agencies in Puerto Rico and 69% is78% was from the public corporations andcorporation, the Puerto Rico central government and agencies, and U.S. federal government agencies in Puerto Rico.
Exposure to USVI governmentGovernment
The Corporation has operations in the USVI and has credit exposure to USVI government entities.
TheFor many years, the USVI ishas been experiencing a number of fiscal and economic challenges exacerbatedthat have deteriorated the overall financial and economic conditions in the area. Between 2008 and 2017, the USVI real GDP contracted at a compound annual growth rate of -4.2%. On March 4, 2022, the United States Bureau of Economic Analysis (the “BEA”) released its estimates of GDP for 2020. According to the BEA, the USVI’s real GDP decreased 2.2%. Also, the BEA revised its previously published real GDP growth estimate for 2019 from 2.2% to 2.8%. According to the BEA, the decline in real GDP for 2020 reflected decreases in exports of services, private fixed investment, personal consumption expenditures, and government spending primarily as a result of the effects of the COVID-19 pandemic. Exports of services, which consists primarily of spending by visitors, decreased 43.5%, while private fixed investment decreased 27.7%. These decreases were partly offset by an increase in private inventory investment, reflecting an increase in crude oil and other petroleum products imported and store in the islands. In addition, imports declined by 10.6% as a result of reductions in imports of goods including consumer goods and equipment, and in import of services. According to the BEA, expenditures funded by the impact of Hurricane Irmavarious federal grants and transfer payments are reflected in the third quarterGDP estimates; however, the full effects of 2017, that could adversely affect the ability of its public corporationspandemic cannot be quantified in the GDP statistics for the USVI because the impacts are generally embedded in source data and instrumentalities to service their outstanding debt obligations. cannot be separately identified.
PROMESA does not apply to the USVI and, as such, there is currently no federal legislation permitting the restructuring of the debts of the USVI and its public corporations and instrumentalities.
To the extent that the fiscal condition of the USVI government continues to deteriorate, the U.S. Congress or the Governmentgovernment of the USVI may enact legislation allowing for the restructuring of the financial obligations of the USVI government entities or imposing a stay on creditor remedies, including by making PROMESA applicable to the USVI.
On April 6, 2022, the USVI Government announced the closing of the Matching Fund Special Purpose Securitization Corporation’s (the “Corporation”) Series 2022 Bonds for approximately $950 million to refinance the outstanding matching fund revenue bonds issued by the Virgin Islands Public Finance Authority, with a stated goal of freeing up funds to provide financial stability to the Government Employee Retirement System (the “GERS”).
As of September 30, 2017,March 31, 2022, the Corporation had $84.8$38.0 million in loans to USVI government instrumentalities and public corporations, compared to $84.7$39.2 million as of December 31, 2016. Of the amount outstanding as2021. As of September 30, 2017, approximately $61.6 million was owed by public corporations of the USVI and $23.2 million was owed by an independent instrumentality of the USVI government. AllMarch 31, 2022, all loans arewere currently performing and up to date with their respectiveon principal and interest payments.
Furthermore, the Corporation had $111.7 million of public sector deposits in the USVI.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in conformity with GAAP, which requires the measurement of the financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.
150146
Unlike most industrial companies, substantially all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a greater impact on a financial institution’s performance than the effects of general levels of inflation. Interest rate movements are not necessarily correlated with changes in the prices of goods and services.
Basis of Presentation
The Corporation has included in this Form 10-Q the following financial measures that are not recognized under GAAP, which are referred to as non-GAAP financial measures:
1.Net interest income, interest rate spread, and net interest margin are reported excluding the changes in the fair value of derivative instruments and on a tax-equivalent basis in orderare reported to provide to investors the additional information about the Corporation’s net interest income that management uses and believes should facilitate comparability and analysis.analysis of the periods presented. The changes in the fair value of derivative instruments have no effect on interest due or interest earned on interest-bearing liabilities or interest-earning assets, respectively. The tax-equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a marginal income tax rate. Income from tax-exempt earning assets is increased by an amount equivalent to the taxes that would have been paid if this income had been taxable at statutory rates. Management believes that it is a standard practice in the banking industry to present net interest income, interest rate spread, and net interest margin on a fully tax-equivalent basis. This adjustment puts all earning assets, most notably tax-exempt securities and certaintax-exempt loans, on a common basis that facilitates comparison of results to the results of peers. Refer to See “Results of Operations - Net Interest IncomeIncome” above for the table that reconciles the net interest income calculated and presented in accordance with GAAP with the non-GAAP financial measure “net interest income excluding fair value changes and on a tax-equivalent basis” withbasis.” The table also reconciles net interest incomespread and margin calculated and presented in accordance with GAAP. The table also reconcilesGAAP with the non-GAAP financial measures “net interest spread and margin excluding fair value changes and on a tax-equivalent basis” with net interest spread and margin calculated and presented in accordance with GAAP.basis.”
2.The tangible common equity ratio and tangible book value per common share are non-GAAP financial measures that management believes are generally used by the financial community to evaluate capital adequacy. Tangible common equity is total equity less preferred equity, goodwill, core deposit intangibles, and other intangibles, such as the purchased credit card relationship intangible and the insurance customer relationship intangible. Tangiblerelationship. Similarly, the tangible assets are total assets less goodwill, core deposit intangibles, and other intangibles, such as the purchased credit card relationship intangible and the insurance customer relationship intangible.relationship. Management and many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase method of accounting for mergers and acquisitions. Accordingly, the Corporation believes that disclosuredisclosures of these financial measures ismay be useful to investors. Neither tangible common equity nor tangible assets, or the related measures, should be considered in isolation or as a substitute for stockholders’ equity, total assets, or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Corporation calculates its tangible common equity, tangible assets, and any other related measures may differ from that of other companies reporting measures with similar names. Refer to RiskSee “Risk Management – CapitalCapital” above for a reconciliation of the Corporation’s tangible common equity and tangible assets.
3.Adjusted provisionACL for loanloans and lease losses,finance leases to adjusted net charge-offs,total loans held for investment ratio is a non-GAAP financial measure that excludes SBA PPP loans amounting to $89.7 million and $145.0 million as of March 31, 2022 and December 31, 2021, respectively. The SBA PPP loans are fully-guaranteed by the SBA, and the ratiosprincipal amount of adjusted net charge-offs to averagethe loans adjusted provisionmay be forgiven in full or in part, thus presenting less credit risk than a non-SBA PPP loan. Management believes the use of this non-GAAP measure provides additional understanding when assessing the Corporation’s reserve coverage and facilitates comparison with other periods. See below for loanthe reconciliation of the GAAP ratio of ACL for loans and lease losses to net charge-offs, and the adjusted allowance for loan and lease lossesfinance leases to total loans held for investment areto the Non-GAAP ratio of the ACL for loans and finance leases to adjusted total loans held for investment.
4.To supplement the Corporation’s financial statements presented in accordance with GAAP, the Corporation uses, and believes that investors would benefit from disclosure of, non-GAAP financial measures that exclude the effects relatedreflect adjustments to the impact of Hurricanes Irmanet income and Maria in the third quarter of 2017 and the sale of the Corporation’s participation in the PREPA line of credit in the first quarter of 2017 with a book value of $64 million at the time of sale. Management believes that the adjusted financial measures help investors understand the Corporation’s performance without regardnon-interest expenses to exclude items that are not expected to reoccur with any regularity or may reoccur at uncertain times and may have inconsistent impact on the reported results and facilitates comparisons with prior periods.
4.Adjusted non-interest income excluded for the third quarter and first nine months of 2017 and 2016, the following:
·Gains of $1.4 million and $4.2 million in the third quarter of 2017 and first quarter of 2016, respectively, on repurchases and cancellations of trust-preferred securities.
·Partial recovery of $0.4 million of previously recorded OTTI charges on non-performing bonds of the GDB and the Puerto Rico Public Buildings Authority sold in the second quarter of 2017.
·OTTI charges on debt securities of $12.2 million and $6.7 million in the first quarter of 2017 and 2016, respectively.
151
·Gains of $6.1 million on sales of U.S. agency MBS and of $8 thousand on the sale of a U.S. Treasury bill in the third and first quarters of 2016, respectively.
Managementmanagement identifies as Special Items because management believes that the exclusion from non-interest income of items that are not expected to reoccur with any regularity or may reoccur at uncertain times or in uncertain amounts facilitates comparisons with prior periods, and provides an alternate presentation of the Corporation’s performance.
5.Adjusted non-interest expenses reflected for the third quarter and first nine months of 2017 and 2016 the following:
·Exclusion of costs of $0.6 million for storm relief efforts and assistance to employees affected by Hurricanes Irma and Maria in the third quarter of 2017.
·Inclusion of $1.7 million of expected insurance recoveries for employees’ compensation and rental costs that the Corporation incurred when Hurricanes Irma and Maria precluded employees from working during the third quarter of 2017.
·Exclusion of costs of $0.1 million and $0.4 million for the quarter and nine-month period ended September 30, 2017, associated with secondary offerings of the Corporation’s common stock by certain of the existing stockholders.
·Exclusion of costs of $0.3 million related to severance payments on permanent job discontinuance in the third quarter of 2016 that are above normal or recurring levels.
Management believes that the exclusion from non-interest expenses of expenses that are above normal or recurring levels, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts, facilitates comparisons with prior periods, and provides an alternate presentation of the Corporation’s performance.
6.Adjusted net income that excludes the effect of a $13.2 million tax benefit recorded in the first quarter of 2017 related to the change in tax status of certain subsidiaries from taxable corporations to limited liability companies, and the effect of all the items mentioned above and their tax related impacts as follows:
·Tax benefit of $25.8 million related to the storm-related provision for loan and lease losses established in the third quarter of 2017 (calculated based on the statutory tax rate of 39% for the $59.2 million provision in Puerto Rico and 37.4% for the $7.3 million provision in the Virgin Islands).
·Tax benefit of $0.2 million related to expenses incurred for storm relief efforts and assistance to employees in the third quarter of 2017 (calculated based on the statutory tax rate of 39%).
·Tax benefit of $0.2 million related to the sale of the PREPA credit line in the first quarter of 2017 (calculated based on the statutory tax rate of 39%).
·Tax expense of $0.2 million related to the taxable portion of the gain on sale of U.S. agency MBS recorded in the third quarter of 2016 (calculated based on the applicable capital gain tax rate of 20%).
·Tax benefit of $0.1 million related to severance payments on permanent job discontinuance in the third quarter of 2016 (calculated based on the statutory tax rate of 39%).
·No tax benefit was recorded for the partial recovery of previously recorded OTTI charges on non-performing bonds sold in the second quarter of 2017 and for the OTTI charges recorded in the first quarter of 2017 and 2016.
·The gains realized on the repurchase and cancellation of trust-preferred securities and costs incurred associated with the secondary offerings, recorded at the Holding Company level, had no effect on the income tax expense in 2017 and 2016.
Management believes that the exclusion from net income of items thatthey are not reflective of core operating performance, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts facilitates comparisons with prior periods, and provides an alternate presentation ofamounts. This Form 10-Q includes the Corporation’s performance.
The Corporation believes that thesefollowing non-GAAP financial measures enhancefor the quarter ended March 31, 2021 that reflect the described items that were excluded for one of those reasons.
147
Net income for the first quarter of 2022 does not reflect the effect of any special items, whereas adjusted net income for the first quarter of 2021 reflects the effect of the following exclusions:
Merger and restructuring costs of $11.3 million in the first quarter of 2021 related to transaction costs and restructuring initiatives in connection with the acquisition of BSPR.
COVID-19 pandemic-related expenses of $1.2 million in the first quarter of 2021.
The tax-related effects of all the pre-tax items mentioned in the above bullets as follows:
-Tax benefit of $4.2 million in the first quarter of 2021 related to merger and restructuring costs in connection with the acquisition of BSPR (calculated based on the statutory tax rate of 37.5%).
-Tax benefit of $0.5 million in the first quarter of 2021 in connection with the COVID-19 pandemic-related expenses (calculated based on the statutory tax rate of 37.5%).
See “Overview of Results of Operations” above for the reconciliation of the non-GAAP financial measure “adjusted net income” to the GAAP financial measure.
148
Adjusted non-interest expenses – The following table reconciles for the first quarter of 2021 the non-interest expenses to adjusted non-interest expenses, which is a non-GAAP financial measure that excludes the relevant Special Items identified above.
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, 2021 |
| Non-Interest Expenses (GAAP) |
| Merger and Restructuring Costs |
| COVID 19 Pandemic-Related Expenses |
| Adjusted (Non-GAAP) | ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses |
| $ | 133,301 |
| $ | 11,267 |
| $ | 1,209 |
| $ | 120,825 |
Employees' compensation and benefits |
|
| 50,842 |
|
| - |
|
| 27 |
|
| 50,815 |
Occupancy and equipment |
|
| 24,242 |
|
| - |
|
| 1,039 |
|
| 23,203 |
Business promotion |
|
| 2,970 |
|
| - |
|
| 18 |
|
| 2,952 |
Professional service fees |
|
| 17,701 |
|
| - |
|
| - |
|
| 17,701 |
Taxes, other than income taxes |
|
| 6,199 |
|
| - |
|
| 125 |
|
| 6,074 |
FDIC deposit insurance |
|
| 1,988 |
|
| - |
|
| - |
|
| 1,988 |
Net loss on OREO and OREO expenses |
|
| 1,898 |
|
| - |
|
| - |
|
| 1,898 |
Credit and debit card processing expenses |
|
| 4,278 |
|
| - |
|
| - |
|
| 4,278 |
Communications |
|
| 2,462 |
|
| - |
|
| - |
|
| 2,462 |
Merger and restructuring costs |
|
| 11,267 |
|
| 11,267 |
|
| - |
|
| - |
Other non-interest expenses |
|
| 9,454 |
|
| - |
|
| - |
|
| 9,454 |
149
Allowance for credit losses on loans and finance leases to adjusted total loans held for investment ratio - The following tables reconcile the “ACL for loans and finance leases to total loans held for investment ratio,” the GAAP financial ratio, to the non-GAAP financial measure “ACL for loans and finance leases to adjusted total loans held for investment ratio,” as of March 31, 2022 and December 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Allowance for Credit Losses for Loans and Finance Leases | |||||
|
| to Loans Held for Investment | |||||
|
| (GAAP to Non-GAAP reconciliation) | |||||
|
|
| As of March 31, 2022 | ||||
|
| Allowance for Credit Losses for |
|
| Loans Held for Investment | ||
|
| Loans and Finance Leases |
|
| |||
(In thousands) |
|
|
|
|
|
|
|
Allowance for credit losses for loans and finance leases and loans held for investment (GAAP) |
| $ | 245,447 |
|
| $ | 11,097,705 |
Less: |
|
|
|
|
|
|
|
SBA PPP loans |
|
| - |
|
|
| 89,723 |
Allowance for credit losses for loans and finance leases and adjusted loans held for investment, |
|
|
|
|
|
|
|
excluding SBA PPP loans (Non-GAAP) |
| $ | 245,447 |
|
| $ | 11,007,982 |
|
|
|
|
|
|
|
|
Allowance for credit losses for loans and finance leases to loans held for investment (GAAP) |
|
| 2.21 | % |
|
|
|
Allowance for credit losses for loans and finance leases to adjusted loans held for investment, |
|
|
|
|
|
|
|
excluding SBA PPP loans (Non-GAAP) |
|
| 2.23 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Allowance for Credit Losses for Loans and Finance Leases | |||||
|
| to Loans Held for Investment | |||||
|
| (GAAP to Non-GAAP reconciliation) | |||||
|
|
| As of December 31, 2021 | ||||
|
| Allowance for Credit Losses for |
|
| Loans Held for Investment | ||
|
| Loans and Finance Leases |
|
| |||
(In thousands) |
|
|
|
|
|
|
|
Allowance for credit losses for loans and finance leases and loans held for investment (GAAP) |
| $ | 269,030 |
|
| $ | 11,060,658 |
Less: |
|
|
|
|
|
|
|
SBA PPP loans |
|
| - |
|
|
| 145,019 |
Allowance for credit losses for loans and finance leases and adjusted loans held for investment, |
|
|
|
|
|
|
|
excluding SBA PPP loans (Non-GAAP) |
| $ | 269,030 |
|
| $ | 10,915,639 |
|
|
|
|
|
|
|
|
Allowance for credit losses for loans and finance leases to loans held for investment (GAAP) |
|
| 2.43 | % |
|
|
|
Allowance for credit losses for loans and finance leases to adjusted loans held for investment, |
|
|
|
|
|
|
|
excluding SBA PPP loans (Non-GAAP) |
|
| 2.46 | % |
|
|
|
Management believes that the presentation of adjusted net income, adjusted non-interest expenses and adjustments to the various components of non-interest expenses, and the ratio of allowance for credit losses to adjusted total loans held for investment enhances the ability of analysts and investors to analyze trends in the Corporation’s business and understand the performance of the Corporation. In addition, investors may also benefit from disclosure
152
of these non-GAAP financial measures because the Corporation may utilize these non-GAAP financial measures as a guide in its budgeting and long-term planning process. Any analysis of these non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP.
Refer to Overview of Results of Operations discussion above for the reconciliation of the non-GAAP financial measure “adjusted net income” to the GAAP financial measure. The following tables reconcile the non-GAAP financial measures “adjusted provision for loan and lease losses,” “adjusted net charge-offs,” “adjusted net charge-offs to average loans ratio,” “adjusted provision for loan and lease losses to adjusted net charge-offs,” “adjusted allowance to total loans held for investment,” “adjusted non-interest income” and “adjusted non-interest expenses” to the GAAP financial measures:
| |||||||||||||||
2017 Third Quarter |
| As reported (GAAP) |
|
| Storm-related Provision for Loan and Lease Losses |
| Storm-related Expenses and Related Adjustments |
| Gain on Repurchase and Cancellation of Trust Preferred Securities |
|
| Secondary Offering Costs |
|
| Adjusted (Non-GAAP) |
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses | $ | 75,013 |
| $ | (66,490) | $ | - | $ | - |
| $ | - |
| $ | 8,523 |
Residential Mortgage Loans |
| 23,321 |
|
| (13,717) |
| - |
| - |
|
| - |
|
| 9,604 |
Commercial Mortgage Loans |
| 17,590 |
|
| (18,095) |
| - |
| - |
|
| - |
|
| (505) |
Commercial and Industrial Loans |
| (1,079) |
|
| (7,992) |
| - |
| - |
|
| - |
|
| (9,071) |
Construction Loans |
| 242 |
|
| (808) |
| - |
| - |
|
| - |
|
| (566) |
Consumer Loans |
| 34,939 |
|
| (25,878) |
| - |
| - |
|
| - |
|
| 9,061 |
Non-interest income | $ | 18,645 |
| $ | - | $ | - | $ | (1,391) |
| $ | - |
| $ | 17,254 |
Gain on early extinguishment of debt |
| 1,391 |
|
| - |
| - |
| (1,391) |
|
| - |
|
| - |
Non-interest expenses | $ | 85,614 |
| $ | - | $ | 1,063 | $ | - |
| $ | (118) |
| $ | 86,559 |
Employees' compensation and benefits |
| 37,128 |
|
| - |
| 1,410 |
| - |
|
| - |
|
| 38,538 |
Occupancy and equipment |
| 13,745 |
|
| - |
| 252 |
| - |
|
| - |
|
| 13,997 |
Business Promotion |
| 3,244 |
|
| - |
| (599) |
| - |
|
| (20) |
|
| 2,625 |
Professional Fees |
| 12,023 |
|
| - |
| - |
| - |
|
| (98) |
|
| 11,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
153150
| |||||||||||
2016 Third Quarter |
| As reported (GAAP) |
|
| Gain on Sale of Investment Securities |
|
| Severance Payments on Job Discontinuance |
|
| Adjusted (Non-GAAP) |
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
Non-interest income | $ | 26,146 |
| $ | (6,096) |
| $ | - |
| $ | 20,050 |
Gain on sale of investment securities |
| 6,096 |
|
| (6,096) |
|
| - |
|
| - |
Non-interest expenses | $ | 88,303 |
| $ | - |
| $ | (281) |
| $ | 88,022 |
Employees' compensation and benefits |
| 38,005 |
|
| - |
|
| (281) |
|
| 37,724 |
|
|
|
|
|
|
|
|
|
|
|
|
2017 First Nine-Months |
| As reported (GAAP) |
| Storm-related Provision for Loan and Lease Losses |
| Storm-related Expenses and Related Adjustments |
| Gain on Repurchase and Cancellation of Trust Preferred Securities |
| Secondary Offering Costs |
| OTTI on Debt Securities |
| Gain from Recovery of Previously recorded OTTI charges |
| Sale of PREPA credit line |
| Adjusted (Non-GAAP) |
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs | $ | 93,284 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | (10,734) | $ | 82,550 |
|
|
Total net charge-offs to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average loans |
| 1.40% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1.24% |
|
|
Commercial and Industrial |
| 13,555 |
| - |
| - |
| - |
| - |
| - |
| - |
| (10,734) |
| 2,821 |
|
|
Commercial and Industrial loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net charge-offs to average loans |
| 0.85% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0.18% |
|
|
Provision for loan and lease losses | $ | 118,551 | $ | (66,490) | $ | - | $ | - | $ | - | $ | - | $ | - | $ | (569) | $ | 51,492 |
|
|
Residential Mortgage Loans |
| 43,480 |
| (13,717) |
| - |
| - |
| - |
| - |
| - |
| - |
| 29,763 |
|
|
Commercial Mortgage Loans |
| 30,654 |
| (18,095) |
| - |
| - |
| - |
| - |
| - |
| - |
| 12,559 |
|
|
Commercial and industrial loans |
| (8,019) |
| (7,992) |
| - |
| - |
| - |
| - |
| - |
| (569) |
| (16,580) |
|
|
Construction Loans |
| 1,496 |
| (808) |
| - |
| - |
| - |
| - |
| - |
|
|
| 688 |
|
|
Consumer Loans |
| 50,940 |
| (25,878) |
| - |
| - |
| - |
| - |
| - |
|
|
| 25,062 |
|
|
Non-interest income | $ | 47,437 | $ | - | $ | - | $ | (1,391) | $ | - | $ | 12,231 | $ | (371) | $ | - | $ | 57,906 |
|
|
Net loss on investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and impairments |
| (11,860) |
| - |
| - |
| - |
| - |
| 12,231 |
| (371) |
| - |
| - |
|
|
Gain on early extinguishment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of debt |
| 1,391 |
| - |
| - |
| (1,391) |
| - |
| - |
| - |
| - |
| - |
|
|
Non-interest expenses | $ | 262,565 | $ | - | $ | 1,063 | $ | - | $ | (392) | $ | - | $ | - |
| - | $ | 263,236 |
|
|
Employees' compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and benefits |
| 114,190 |
| - |
| 1,410 |
| - |
| - |
| - |
| - |
| - |
| 115,600 |
|
|
Occupancy and Equipment |
| 41,592 |
| - |
| 252 |
| - |
|
|
| - |
| - |
| - |
| 41,844 |
|
|
Business promotion |
| 9,717 |
| - |
| (599) |
| - |
| (40) |
| - |
| - |
| - |
| 9,078 |
|
|
Professional Fees |
| 34,779 |
| - |
| - |
| - |
| (352) |
| - |
| - |
| - |
| 34,427 |
|
|
154
2016 First Nine-Months |
| As reported (GAAP) |
|
| OTTI on Debt Securities |
|
| Gain on Sale of Investment Securities |
| Gain on Repurchase and Cancellation of Trust Preferred Securities |
| Severance Payments |
|
| Adjusted (Non-GAAP) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income | $ | 64,393 |
| $ | 6,687 |
| $ | (6,104) | $ | (4,217) | $ | - |
| $ | 60,759 |
|
|
|
|
|
|
|
|
|
|
Net gain on sale of investments |
| 6,104 |
|
| - |
|
| (6,104) |
| - |
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
Net impairments losses on available-for-sale debt securities |
| (6,687) |
|
| 6,687 |
|
| - |
| - |
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
Gain on early extinguishment of debt |
| 4,217 |
|
| - |
|
| - |
| (4,217) |
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
Non-interest expenses | $ | 270,844 |
| $ | - |
| $ | - | $ | - | $ | (281) |
| $ | 270,563 |
|
|
|
|
|
|
|
|
|
|
Employees' compensation and benefits |
| 113,841 |
|
| - |
|
| - |
| - |
| (281) |
|
| 113,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Provision for Loan and Lease |
|
| Provision for Loan and Lease | |||||||||
| Losses to Net Charge-Offs |
|
| Losses to Net Charge-Offs | |||||||||
| (GAAP to Non-GAAP reconciliation) |
| (GAAP to Non-GAAP reconciliation) | ||||||||||
| Quarter Ended |
|
| Nine-Month Period Ended | |||||||||
| September 30, 2017 |
|
| September 30, 2017 | |||||||||
| Provision for Loan |
| Net Charge-Offs |
| Provision for Loan |
|
| Net Charge-Offs | |||||
| and Lease Losses |
|
| and Lease Losses |
|
| |||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses and net charge-offs (GAAP) | $ | 75,013 |
|
| $ | 17,628 |
| $ | 118,551 |
|
| $ | 93,284 |
Less special items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Storms-related provision for loan and lease losses |
| 66,490 |
|
|
| - |
|
| 66,490 |
|
|
| - |
Sale of the PREPA credit line |
| - |
|
|
| - |
|
| 569 |
|
|
| 10,734 |
Provision for loan and lease losses and net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
excluding special items (Non-GAAP) | $ | 8,523 |
|
| $ | 17,628 |
| $ | 51,492 |
|
| $ | 82,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses to net charge-offs (GAAP) |
| 425.53 | % |
|
|
|
|
| 127.09 | % |
|
|
|
Provision for loan and lease losses to net charge-offs, excluding special |
|
|
|
|
|
|
|
|
|
|
|
|
|
items (Non-GAAP) |
| 48.35 | % |
|
|
|
|
| 62.38 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Allowance for Loan and Lease |
|
|
|
|
|
|
|
| |||||
| Losses to Total Loans Held For Investment |
|
|
|
|
|
|
|
| |||||
| (GAAP to Non-GAAP reconciliation) |
|
|
|
|
|
|
|
| |||||
| As of September 30, 2017 |
|
|
|
|
|
|
|
| |||||
| Allowance for Loan |
| Total Loans Held for Investment |
|
|
|
| |||||||
| and Lease Losses |
|
|
|
| |||||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses and total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loans held for investment (GAAP) | $ | 230,870 |
|
| $ | 8,877,214 |
|
|
|
|
|
|
|
|
Less special items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Storms-related allowance for loand and lease losses |
| 66,490 |
|
|
| - |
|
|
|
|
|
|
|
|
Allowance for loan and lease losses and total loans held for investment, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
excluding special items (Non-GAAP) | $ | 164,380 |
|
| $ | 8,877,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses to total loans held for investment (GAAP) |
| 2.60 | % |
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses to total loans held for investment, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
excluding special items (Non-GAAP) |
| 1.85 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding market risk to which the Corporation is exposed, see the information contained in “PartPart I – Item 2 -“Management’s2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management.”
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
First BanCorp.’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of First BanCorp.’s disclosure controls and procedures (as defined in RulesRule 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2017.March 31, 2022. Based on this evaluation as of the end of the period covered by this Form 10-Q, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of theseCorporation’s disclosure controls and procedures were effective.effective and provide reasonable assurance that the information required to be disclosed by the Corporation in reports that the Corporation files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and reported to the Corporation’s management, including the Chief Executive Office and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Internal Control over Financial Reporting
There have been no changes to the Corporation’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscalour most recent quarter to which this report relatesended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
157151
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.For a discussion of legal proceedings, see Note 23 “Regulatory Matters and Contingencies” to the Corporation’s unaudited consolidated financial statements for the quarter ended March 31, 2022, which is incorporated by reference in this Item 1.
ITEM 1A. RISK FACTORS
The Corporation’s business, operating results and/or the market price of our common and preferred stock may be significantly affected by a number of factors. For a detailed discussion of certain risk factors that could affect the Corporation’s future operations, financial condition or results for future periods see the risk factors below andare set forth in Part I, Item 1A,1A., “Risk Factors,” in the Corporation’s 20162021 Annual Report on Form 10-K. These risk factors, and others, could also cause actual results to differ materially from historical results or the results contemplated by the forward-looking statements contained in this report. Also, refer to the discussion in “Part“Forward Looking Statements” and Part I, – Item 2 – Management’s2., “Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations,” in this report for additional information that may supplement or update the discussion of risk factors in the Corporation’s 20162021 Annual Report on Form 10-K.
There have been no material changes from those risk factors previously disclosed in Part I, Item 1A., “Risk Factors,” in the 2021 Annual Report on Form 10-K. Additional risks and uncertainties that are not currently known to the Corporation or are currently deemed by the Corporation to be immaterial also may materially adversely affect the Corporation’s business, financial condition or results of operations.
Uncertainty surrounding the future economic conditions that will emerge in the storm-impacted areas makes it difficult for management to estimate the impact of the storms on credit quality, inherent loss, revenues, and asset values.
During the third quarter of 2017, two hurricanes (Maria and Irma) struck the Corporation’s service areas and caused significant damage to the infrastructure and property and severely disrupted normal economic activity in all of these regions. There is pervasive uncertainty surrounding the future economic conditions that will emerge in the storm-impacted areas. As a result, management is confronted with a significant and unfamiliar degree of uncertainty in estimating the impact of the recent storms on credit quality, inherent loss, revenues, and asset values. In addition, there is uncertainty regarding the adequacy and timeliness of insurance recoveries, continued personal employment, the ability of businesses, including hotels, to reopen and the availability of goods and services to operate homes and businesses. Moreover, there is a significant level of uncertainty regarding the level of economic activity to which Puerto Rico and the Virgin Islands region will return over time. Some of these uncertainties include how and when rebuilding will take place, including the rebuilding of the public infrastructure such as Puerto Rico’s power grid, what level of government, private or philanthropic funds will be invested in the affected communities, how many dislocated individuals will return in both the short and long term, and what other demographic changes will take place.
At the end of the third quarter, a separate qualitative element of the allowance for loan losses was determined to represent the estimate of inherent losses associated with the impact of the storm-related events on the Corporation’s loan portfolios. This estimate is judgmental and subject to changes as additional information becomes available. This qualitative element of the allowance was determined using the Corporation’s stress models and is based on the estimated impact the storm could have on continued personal employment (e.g. unemployment rate that doubles current levels based on statistics observed in the aftermath of similar natural disasters in the U.S. mainland) and economic activity and the time it could take for the affected regions to return to a more normalized operating environment. However, the full extent of the adverse impact on our markets and current customers from the prolonged rebuilding efforts necessary in these areas is unknown at this time. Estimates of the storms' effect on loan losses could change over time as additional information becomes available, and any related revisions in the allowance calculation will be reflected in the provision for loan losses as they occur. Such revisions to these estimates could be material. As such, if these estimates prove to be incorrect, it may adversely impact our financial condition and results of operations.
Puerto Rico Government’s filing for bankruptcy may adversely affect our financial condition and results of operations.
On May 3, 2017, the Puerto Rico government and the PROMESA oversight board filed for a form of bankruptcy in the U.S. District Court in Puerto Rico under Title III of PROMESA. The Title III provision allows for a court debt restructuring process similar to U.S. bankruptcy protection. Since this is the first time that any state or territory of the United States has ever filed for relief that is expected to be comparable to bankruptcy relief because of the absence, until PROMESA, of any legal authority for such a relief, it is uncertain what impact this filing will have on the Corporation. A similar Title III form of bankruptcy was filed for PREPA on July 2, 2017. The Corporation’s financial condition and results of operations may be negatively affected as a result of the resolution of the bankruptcy relief filing and further adverse developments in the Puerto Rico government’s fiscal situation given the Corporation’s direct exposure to the Puerto Rico government (excluding municipalities) of $8.0 million of Puerto Rico government debt securities, a $6.8 million loan to an agency of the Puerto Rico central government, and a $15.4 million loan to a PREPA affiliate.
158152
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
a)Not applicable.
b)Not applicable.
c)PurchaseThe Corporation did not have any unregistered sales of equity securities by the issuer and affiliated purchasers. as of March 31, 2022.
Issuer Purchases of Equity Securities
The following table provides information relatingin relation to the Corporation’s purchases of shares of its common stock induring the third quarter of 2017.ended March 31, 2022:
| |||||||||||
Period |
| Total Number of Shares Purchased |
| Average Price Paid |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Approximate Dollar Value of Shares That May Yet be Purchased Under These Plans or Programs (In thousands) (1) | |
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2022 - January 31, 2022 |
| 2,712,584 | $ | 14.60 |
|
| 2,712,584 |
|
| - | |
February 1, 2022 - February 28, 2022 |
| 697,113 |
| 14.90 |
|
| 697,113 |
|
| - | |
March 1, 2022 - March 31, 2022 |
| 201,930 |
| 13.44 |
|
| - |
|
| - | |
Total |
| 3,611,627 | (2)(3) |
|
|
| 3,409,697 |
|
| - | |
|
|
|
|
|
|
|
|
|
|
|
|
(1) | During the first quarter of 2022, the Corporation completed the $300 million stock repurchase program approved by the Board of Directors on April 26, 2021. | ||||||||||
(2) | Includes 201,930 shares of common stock withheld by the Corporation to cover minimum tax withholding obligations upon the vesting of restricted stock and performance units. The Corporation intends to continue to satisfy statutory tax withholding obligations in connection with the vesting of outstanding restricted stock and performance units through the withholding of shares. | ||||||||||
(3) | Includes 3,409,697 shares of common stock repurchased in the open market at an average price of $14.66 for a total purchase price of approximately $50.0 million. |
|
|
|
|
|
|
|
|
|
|
| Maximum |
|
|
|
|
|
|
|
|
| Total Number of |
|
| Number of Shares |
|
|
|
|
|
|
|
|
| Shares Purchased |
|
| That May Yet be |
|
|
|
|
|
| Average |
|
| as Part of Publicly |
|
| Purchased Under |
|
|
| Total number of |
|
| Price |
|
| Announced Plans |
|
| These Plans or |
|
Period |
| shares purchased (1) |
|
| Paid |
|
| Or Programs |
|
| Programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July, 2017 |
| 15,003 |
| $ | 5.95 |
|
| - |
|
| - |
|
August, 2017 |
| 23,522 |
|
| 5.75 |
|
| - |
|
| - |
|
September, 2017 |
| 21,433 |
|
| 5.13 |
|
| - |
|
| - |
|
Total |
| 59,958 |
| $ | 5.70 |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Reflects shares of common stock withheld from the common stock (a) paid to certain senior officers as additional compensation, which the Corporation calls salary stock, and (b) upon vesting of restricted stock to cover minimum tax withholding obligations. The Corporation intends to continue to satisfy statutory tax withholding obligations in connection with shares paid as salary stock to certain senior officers and the vesting of outstanding restricted stock through the withholding of shares. |
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|
|
|
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159
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
See the Exhibit Index below:below, which is incorporated by reference herein.
160153
Exhibit Index
31.1 – CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 - CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
101.INS | 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. |
| XBRL Taxonomy Extension Schema Document, filed herewith |
| XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith |
| XBRL Taxonomy Extension Definitions Linkbase Document, filed herewith |
| XBRL Taxonomy Extension Label Linkbase Document, filed herewith |
| XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith |
| The cover page of First BanCorp. Quarterly Report on Form 10-Q for the |
|
161154
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Corporation has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized:
First BanCorp. | |
Registrant |
Date: | By: | /s/ Aurelio Alemán |
Aurelio Alemán | ||
President and Chief Executive Officer |
Date: | By: | /s/ Orlando Berges |
Orlando Berges | ||
Executive Vice President and Chief Financial Officer |
162155