0001057706 fbp:PersonalLoansMember us-gaap:ConsumerPortfolioSegmentMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2023-04-01 2024-03-31 0001057706 us-gaap:CommercialPortfolioSegmentMember us-gaap:CommercialAndIndustrialSectorMember us-gaap:PassMember country:US 2023-12-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM
10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2024
or
[ ]
For the transition period from ___________________ to ___________________
COMMISSION FILE NUMBER
001-14793
FIRST BANCORP
.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Puerto Rico
66-0561882
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1519 Ponce de León Avenue
,
Stop 23
San Juan
,
Puerto Rico
(Address of principal executive offices)
00908
(Zip Code)
(
787
)
729-8200
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock ($0.10 par value per share)
FBP
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes
☑
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer
☑
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common stock:
166,427,105
2
FIRST BANCORP.
INDEX PAGE
PART I. FINANCIAL INFORMATION
PAGE
Item 1.
Financial Statements:
Consolidated Statements of Financial Condition (Unaudited) as of March 31, 2024 and
December 31, 2023
Consolidated Statements of Income (Unaudited) – Quarters ended March 31, 2024 and 2023
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) – Quarters ended
March 31, 2024 and 2023
Consolidated Statements of Cash Flows (Unaudited) – Quarters ended March 31, 2024 and
2023
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Quarters ended
March 31, 2024 and 2023
Notes to Consolidated Financial Statements (Unaudited)
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Item 5.
Unregistered Sales of Equity Securities and Use of Proceeds
Other Information
Item 6.
Exhibits
SIGNATURES
3
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), which are subject to the safe harbor created by such sections. When used in this Form 10-Q or future filings by
First BanCorp. (the “Corporation,” “we,” “us,” or “our”) with the U.S. Securities and Exchange Commission (the “SEC”), in the
Corporation’s press releases or in other public or stockholder communications made by the Corporation, or in oral statements made on
behalf of the Corporation by, or with the approval of, an authorized executive officer of the Corporation, the words or phrases
“would,” “intends,” “will,” “expect,” “should,” “plans,” “forecast,” “anticipate,” “look forward,” “believes,” and other terms of
similar meaning or import, or the negatives of these terms or variations of them, in connection with any discussion of future operating,
financial or other performance are meant to identify “forward-looking statements.”
The Corporation cautions readers not to place undue reliance on any such “forward-looking statements,” which speak only as of the
date made or, with respect to such forward-looking statements contained in this Form 10-Q, the date hereof, and advises readers that
any such forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, estimates, and
assumptions by us that are difficult to predict . Various factors, some of which are beyond our control, could cause actual results to
differ materially from those expressed in, or implied by, such forward-looking statements.
statements include, but are not limited to, risks described or referenced in Part I, Item 1A, “Risk Factors,” in the Corporation’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Annual Report on Form 10-K”), and the following:
●
the effect of the current interest rate environment and inflation levels or changes in interest rates on the level, composition
and performance of the Corporation’s assets and liabilities, and corresponding effects on the Corporation’s net interest
income, net interest margin, loan originations, deposit attrition, overall results of operations, and liquidity position;
●
the effects of changes in the interest rate environment, including any adverse change in the Corporation’s ability to attract and
retain clients and gain acceptance from current and prospective customers for new products and services, including those
related to the offering of digital banking and financial services;
●
volatility in the financial services industry, including failures or rumored failures of other depository institutions, and actions
taken by governmental agencies to stabilize the financial system, which could result in, among other things, bank deposit
runoffs, liquidity constraints, and increased regulatory requirements and costs;
●
the effect of continued changes in the fiscal and monetary policies and regulations of the United States (“U.S.”) federal
government, the Puerto Rico government and other governments, including those determined by the Board of the Governors
of the Federal Reserve System (the “Federal Reserve Board”), the Federal Reserve Bank of New York (the “FED”), the
Federal Deposit Insurance Corporation (the “FDIC”), government-sponsored housing agencies and regulators in Puerto Rico,
the U.S., and the U.S. Virgin Islands (the “USVI”) and British Virgin Islands (the “BVI”), that may affect the future results
of the Corporation;
●
uncertainty as to the ability of the Corporation’s banking subsidiary, FirstBank Puerto Rico (“FirstBank” or the “Bank”), to
retain its core deposits and generate sufficient cash flow through its wholesale funding sources, such as securities sold under
agreements to repurchase, Federal Home Loan Bank (“FHLB”) advances, and brokered certificates of deposit (“brokered
CDs”), which may require us to sell investment securities at a loss;
●
adverse changes in general economic conditions in Puerto Rico, the U.S., and the USVI and the BVI, including in the interest
rate environment, unemployment rates, market liquidity, housing absorption rates, real estate markets, and U.S. capital
markets, which may affect funding sources, loan portfolio performance and credit quality, market prices of investment
securities, and demand for the Corporation’s products and services, and which may reduce the Corporation’s revenues and
earnings and the value of the Corporation’s assets;
●
the impact of government financial assistance for hurricane recovery and other disaster relief on economic activity in Puerto
Rico, and the timing and pace of disbursements of funds earmarked for disaster relief;
●
the ability of the Corporation, FirstBank, and third-party service providers to identify and prevent cyber-security incidents,
such as data security breaches, ransomware, malware, “denial of service” attacks, “hacking,” identity theft, and state-
sponsored cyberthreats, and the occurrence of and response to any incidents that occur, which may result in misuse or
misappropriation of confidential or proprietary information, disruption, or damage to our systems or those of third-party
service providers on which we rely, increased costs and losses and/or adverse effects to our reputation;
4
●
general competitive factors and other market risks as well as the implementation of existent or planned strategic growth
opportunities, including risks, uncertainties, and other factors or events related to any business acquisitions, dispositions,
strategic partnerships, strategic operational investments, including systems conversions, and any anticipated efficiencies or
other expected results related thereto;
●
uncertainty as to the implementation of the debt restructuring plan of Puerto Rico (“Plan of Adjustment” or “PoA”) and the
fiscal plan for Puerto Rico as certified on April 3, 2023 (the “2023 Fiscal Plan”) by the oversight board established by the
Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), or any revisions to it, on our clients and
loan portfolios, and any potential impact from future economic or political developments and tax regulations in Puerto Rico;
●
the impact of changes in accounting standards, or assumptions in applying those standards, and of forecasts of economic
variables considered for the determination of the allowance for credit losses (“ACL”);
●
the ability of FirstBank to realize the benefits of its net deferred tax assets;
●
the ability of FirstBank to generate sufficient cash flow to pay dividends to the Corporation;
●
environmental, social and governance (“ESG”) matters, including our climate-related initiatives and commitments;
●
the impacts of natural or man-made disasters, the emergence or continuation of widespread health emergencies, geopolitical
conflicts (including sanctions, war or armed conflict, such as the ongoing conflict in Ukraine, the conflict between Israel and
Hamas, and the possible expansion of such conflicts in surrounding areas and potential geopolitical consequences), terrorist
attacks, or other catastrophic external events, including impacts of such events on general economic conditions and on the
Corporation’s assumptions regarding forecasts of economic variables;
●
the risk that additional portions of the unrealized losses in the Corporation’s debt securities portfolio are determined to be
credit-related, resulting in additional charges to the provision for credit losses on the Corporation’s debt securities portfolio,
and the potential for additional credit losses that could emerge from the downgrade of the U.S.’s Long-Term Foreign-
Currency Issuer Default Rating to ‘AA+’ from ‘AAA’ in August 2023 and subsequent negative ratings outlooks;
●
the impacts of applicable legislative, tax, or regulatory changes, as well as of the 2024 U.S. and Puerto Rico general election,
on the Corporation’s financial condition or performance;
●
the risk of possible failure or circumvention of the Corporation’s internal controls and procedures and the risk that the
Corporation’s risk management policies may not be adequate;
●
the risk that the FDIC may further increase the deposit insurance premium and/or require further special assessments, causing
an additional increase in the Corporation’s non-interest expenses;
●
any need to recognize impairments on the Corporation’s financial instruments, goodwill, and other intangible assets;
●
the risk that the impact of the occurrence of any of these uncertainties on the Corporation’s capital would preclude further
growth of FirstBank and preclude the Corporation’s Board of Directors (the “Board”) from declaring dividends; and
●
uncertainty as to whether FirstBank will be able to continue to satisfy its regulators regarding, among other things, its asset
quality, liquidity plans, maintenance of capital levels, and compliance with applicable laws, regulations and related
requirements.
reflect occurrences or unanticipated events or circumstances after the date of such statements, except as required by the federal
securities laws.
5
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
March 31,2024
December 31, 2023
(In thousands, except for share information)
ASSETS
Cash and due from banks
$
680,734
$
661,925
Money market investments:
Time deposits with other financial institutions
300
300
Other short-term investments
3,485
939
Total money market investments
3,785
1,239
Available-for-sale debt securities, at fair value (amortized cost of $
5,695,485
$
5,863,294
442
511
5,047,179
5,229,984
Held-to-maturity debt securities, at amortized cost, net of ACL of $
1,235
2,197
as of December 31, 2023 (fair value of $
338,120
346,132
348,095
351,981
Equity securities
51,390
49,675
Total investment securities
5,446,664
5,631,640
Loans, net of ACL of $
263,592
261,843
12,047,856
11,923,640
Mortgage loans held for sale, at lower of cost or market
12,080
7,368
Total loans, net
12,059,936
11,931,008
Accrued interest receivable on loans and investments
73,154
77,716
Premises and equipment, net
141,471
142,016
Other real estate owned (“OREO”)
28,864
32,669
Deferred tax asset, net
147,743
150,127
Goodwill
38,611
38,611
Other intangible assets
11,542
13,383
Other assets
258,457
229,215
Total assets
$
18,890,961
$
18,909,549
LIABILITIES
Non-interest-bearing deposits
$
5,346,326
$
5,404,121
Interest-bearing deposits
11,199,185
11,151,864
Total deposits
16,545,511
16,555,985
Long-term advances from the FHLB
500,000
500,000
Other long-term borrowings
161,700
161,700
Accounts payable and other liabilities
204,033
194,255
Total liabilities
17,411,244
17,411,940
Commitments and contingencies (See Note 21)
(nil)
(nil)
STOCKHOLDERS’ EQUITY
Common stock, $
0.10
2,000,000,000
223,663,116
166,707,047
shares outstanding as of March 31, 2024 and
169,302,812
22,366
22,366
Additional paid-in capital
959,319
965,707
Retained earnings, includes legal surplus reserve of $
199,576
1,892,714
1,846,112
Treasury stock (at cost),
56,956,069
54,360,304
(740,447)
(697,406)
Accumulated other comprehensive loss, net of tax of $
8,581
(654,235)
(639,170)
Total stockholders’ equity
1,479,717
1,497,609
Total liabilities and stockholders’ equity
$
18,890,961
$
18,909,549
The accompanying notes are an integral part of these statements.
6
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Quarter Ended March 31,
2024
2023
(In thousands, except per share information)
Interest and dividend income:
$
237,129
$
210,636
24,122
27,110
7,254
4,650
268,505
242,396
Interest expense:
63,025
29,885
-
1,069
-
4,341
5,610
2,835
3,350
3,381
71,985
41,511
196,520
200,885
Provision for credit losses - expense (benefit):
12,917
16,256
281
(105)
(1,031)
(649)
12,167
15,502
184,353
185,383
Non-interest income:
9,662
9,541
2,882
2,812
5,507
4,847
11,312
10,918
4,620
4,400
33,983
32,518
Non-interest expenses:
59,506
56,422
21,381
21,186
3,842
3,975
12,676
11,973
5,129
5,112
3,102
2,133
(1,452)
(1,996)
5,751
5,318
2,097
2,216
8,891
8,929
120,923
115,268
Income before income taxes
97,413
102,633
Income tax expense
23,955
31,935
Net income
$
73,458
$
70,698
Net income attributable to common stockholders
$
73,458
$
70,698
Net income per common share:
$
0.44
$
0.39
$
0.44
$
0.39
The accompanying notes are an integral part of these statements.
7
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Quarter Ended March 31,
2024
2023
(In thousands)
Net income
$
73,458
$
70,698
(1)
(15,065)
87,228
(15,065)
87,228
$
58,393
$
157,926
(1)
Net unrealized holding (losses) gains on available-for-sale debt securities have no tax effect because securities are either tax-exempt, held by an International Banking Entity
("IBE"), or have a full deferred tax asset valuation allowance.
The accompanying notes are an integral part of these statements.
8
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter ended March 31,
2024
2023
(In thousands)
Cash flows from operating activities:
Net income
$
73,458
$
70,698
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
4,680
5,080
Amortization of intangible assets
1,841
2,045
Provision for credit losses
12,167
15,502
Deferred income tax expense
2,384
1,564
Stock-based compensation
2,925
2,075
Unrealized (gain) loss on derivative instruments
(108)
3
Net gain on disposals or sales, and impairments of premises and equipment and other assets
(33)
(8)
Net gain on sales of loans and loans held-for-sale valuation adjustments
(759)
(766)
Net amortization of discounts, premiums, and deferred loan fees and costs
33
283
Originations and purchases of loans held for sale
(35,577)
(38,500)
Sales and repayments of loans held for sale
31,588
34,836
Amortization of broker placement fees
130
44
Net amortization of premiums and discounts on investment securities
874
630
Decrease in accrued interest receivable
4,503
8,566
Increase in accrued interest payable
4,567
3,752
(Increase) decrease in other assets
(909)
168
Increase in other liabilities
16,482
9,443
118,246
115,415
Cash flows from investing activities:
Net disbursements on loans held for investment
(156,118)
(71,193)
Proceeds from sales of loans held for investment
10,162
2,552
Proceeds from sales of repossessed assets
17,784
12,347
Proceeds from principal repayments and maturities of available-for-sale debt securities
166,440
113,218
Proceeds from principal repayments and maturities of held-to-maturity debt securities
5,339
6,652
Additions to premises and equipment
(4,140)
(1,689)
Proceeds from sales of premises and equipment and other assets
1,280
8
Net purchases of other investments securities
(1,737)
(11,360)
Proceeds from the settlement of insurance claims - investing activities
667
-
39,677
50,535
Cash flows from financing activities:
Net decrease in deposits
(57,585)
(92,354)
Net proceeds of short-term borrowings
-
47,849
Proceeds from long-term borrowings
-
300,000
Repurchase of outstanding common stock
(52,354)
(53,217)
Dividends paid on common stock
(26,629)
(25,132)
(136,568)
177,146
Net increase in cash and cash equivalents
21,355
343,096
Cash and cash equivalents at beginning of year
663,164
480,505
Cash and cash equivalents at end of period
$
684,519
$
823,601
Cash and cash equivalents include:
Cash and due from banks
$
680,734
$
822,542
Money market investments
3,785
1,059
$
684,519
$
823,601
The accompanying notes are an integral part of these statements.
9
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Quarter Ended March 31,
2024
2023
(In thousands, except per share information)
Common Stock
$
22,366
$
22,366
Additional Paid-In Capital:
965,707
970,722
2,925
2,075
(9,336)
(13,139)
23
254
959,319
959,912
Retained Earnings:
1,846,112
1,644,209
-
(1,357)
73,458
70,698
0.16
0.14
(26,856)
(25,374)
1,892,714
1,688,176
Treasury Stock (at cost):
(697,406)
(506,979)
(52,354)
(53,217)
9,336
13,139
(23)
(254)
(740,447)
(547,311)
Accumulated Other Comprehensive Loss, net of tax:
(639,170)
(804,778)
(15,065)
87,228
(654,235)
(717,550)
$
1,479,717
$
1,405,593
The accompanying notes are an integral part of these statements.
10
FIRST BANCORP.
INDEX TO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Note 1 –
Basis of Presentation and Significant Accounting Policies
Note 2 –
Debt Securities
Note 3 –
Loans Held for Investment
Note 4
–
Allowance for Credit Losses for Loans and Finance Leases
Note 5 –
Other Real Estate Owned
Note 6 –
Goodwill and Other Intangibles
Note 7 –
Non-Consolidated Variable Interest Entities (“VIEs”) and Servicing Assets
Note 8 –
Deposits
Note 9 –
Advances from the Federal Home Loan Bank (“FHLB”)
Note 10 –
Other Long-Term Borrowings
Note 11 –
Earnings per Common Share
Note 12 –
Stock-Based Compensation
Note 13 –
Stockholders’ Equity
Note 14 –
Accumulated Other Comprehensive Loss
Note 15 –
Employee Benefit Plans
Note 16 –
Income Taxes
Note 17
–
Fair Value
Note 18
–
Revenue from Contracts with Customers
Note 19 –
Segment Information
Note 20 –
Supplemental Statement of Cash Flows Information
Note 21 –
Regulatory Matters, Commitments, and Contingencies
Note 22 –
First BanCorp. (Holding Company Only) Financial Information
11
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The Consolidated Financial Statements (unaudited) for the quarter ended March 31, 2024 (the “unaudited consolidated financial
statements”) of First BanCorp. (the “Corporation”) have been prepared in conformity with the accounting policies stated in the
Corporation’s Audited Consolidated Financial Statements for the fiscal year ended December 31, 2023 (the “audited consolidated financial
statements”) included in the 2023 Annual Report on Form 10-K, as updated by the information contained in this report. Certain information
and note disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles in
the United States of America (“GAAP”) have been condensed or omitted from these statements pursuant to the rules and regulations of the
SEC and, accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements, which
are included in the 2023 Annual Report on Form 10-K. All adjustments (consisting only of normal recurring adjustments) that are, in the
opinion of management, necessary for a fair presentation of the statement of financial position, results of operations and cash flows for the
interim periods have been reflected. All significant intercompany accounts and transactions have been eliminated in consolidation. The
Corporation evaluates subsequent events through the date of filing with the SEC.
The results of operations for the quarter ended March 31, 2024 are not necessarily indicative of the results to be expected for the entire
year.
Adoption of New Accounting Requirements
The Corporation was not impacted by the adoption of the following ASU during 2024:
●
ASU 2023-02, “Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit
Structures Using the Proportional Amortization Method”
●
ASU 2023-01, “Leases (Topic 842): Common Control Arrangements”
●
ASU 2022-03, “Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual
Sale Restrictions”
Recently Issued Accounting Standards Not Yet Effective or Not Yet Adopted
The Corporation does not expect to be impacted by the following ASUs issued during 2024 that are not yet effective or have not yet been
adopted:
●
ASU 2024-02, “Codification Improvements – Amendments to Remove References to the Concepts Statements”
●
ASU 2024-01, “Compensation – Stock Compensation (Topic 718): Stock Application of Profits Interest and Similar Awards”
For other issued accounting standards not yet effective or not yet adopted, see Note 1 – “Nature of Business and Summary of
Significant Accounting Policies”, to the audited consolidated financial statements included in the 2023 Annual Report on Form 10-K.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
12
NOTE 2 – DEBT SECURITIES
Available-for-Sale Debt Securities
The amortized cost, gross unrealized gains and losses, ACL, estimated fair value, and weighted-average yield of available-for-sale
debt securities by contractual maturities as of March 31, 2024 and December 31, 2023 were as follows:
March 31, 2024
Amortized cost
(1)
Gross
ACL
Fair value
Unrealized
Weighted-
Gains
Losses
average yield%
(Dollars in thousands)
U.S. Treasury securities:
$
100,519
$
-
$
3,144
$
-
$
97,375
0.70
19,881
-
1,188
-
18,693
0.65
U.S. government-sponsored entities' (“GSEs”) obligations:
683,768
-
17,920
-
665,848
0.90
1,698,700
59
128,048
-
1,570,711
0.82
8,850
-
754
-
8,096
2.64
8,762
3
4
-
8,761
5.51
Puerto Rico government obligation:
(3)
3,112
-
1,235
326
1,551
-
United States and Puerto Rico government obligations
2,523,592
62
152,293
326
2,371,035
0.86
Mortgage-backed securities (“MBS”):
7
-
-
-
7
4.50
17,827
-
856
-
16,971
2.06
146,335
-
13,488
-
132,847
1.55
970,917
8
169,069
-
801,856
1.41
1,135,086
8
183,413
-
951,681
1.44
281
-
3
-
278
3.25
14,493
-
789
-
13,704
1.11
26,563
4
2,387
-
24,180
1.65
201,129
165
25,748
-
175,546
2.60
242,466
169
28,927
-
213,708
2.41
29,694
-
1,411
-
28,283
2.11
284,547
-
24,926
-
259,621
1.73
1,016,944
32
161,363
-
855,613
1.36
1,331,185
32
187,700
-
1,143,517
1.46
267,401
-
53,977
-
213,424
1.54
400
-
93
2
305
8.44
6,496
-
1,963
114
4,419
7.58
6,896
-
2,056
116
4,724
7.63
Total Residential MBS
2,983,034
209
456,073
116
2,527,054
1.55
44,443
2
7,044
-
37,401
2.18
22,252
-
2,785
-
19,467
2.16
122,164
-
29,942
-
92,222
1.36
Total Commercial MBS
188,859
2
39,771
-
149,090
1.64
Total MBS
3,171,893
211
495,844
116
2,676,144
1.55
Total available-for-sale debt securities
$
5,695,485
$
273
$
648,137
$
442
$
5,047,179
1.25
(1)
Excludes accrued interest receivable on available-for-sale debt securities that totaled $
10.2
statements of financial condition, and excluded from the estimate of credit losses.
(2)
Includes $
473
.0 million (amortized cost - $
552.3
2.8
3.1
uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.
(3)
Consists of a residential pass-through MBS issued by the Puerto Rico Housing Finance Authority (the "PRHFA") that is collateralized by certain second mortgages originated under a program launched by the Puerto Rico
government in 2010 and is in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
13
December 31, 2023
Amortized cost
Gross
ACL
Fair value
Unrealized
Weighted-
Gains
Losses
average yield%
(Dollars in thousands)
U.S. Treasury securities:
$
80,314
$
-
$
2,144
$
-
$
78,170
0.66
60,239
-
3,016
-
57,223
0.75
U.S. GSEs’ obligations:
542,847
-
15,832
-
527,015
0.77
1,899,620
49
135,347
-
1,764,322
0.86
8,850
-
687
-
8,163
2.64
8,891
8
2
-
8,897
5.49
Puerto Rico government obligation:
(3)
3,156
-
1,346
395
1,415
-
United States and Puerto Rico government obligations
2,603,917
57
158,374
395
2,445,205
0.85
MBS:
19,561
-
868
-
18,693
2.06
153,308
-
12,721
-
140,587
1.55
991,060
15
161,197
-
829,878
1.41
1,163,929
15
174,786
-
989,158
1.44
254
-
3
-
251
3.27
16,882
-
872
-
16,010
1.19
27,916
8
2,247
-
25,677
1.62
206,254
87
22,786
-
183,555
2.57
251,306
95
25,908
-
225,493
2.38
32,489
-
1,423
-
31,066
2.11
293,492
-
23,146
-
270,346
1.70
1,047,298
83
156,344
-
891,037
1.37
1,373,279
83
180,913
-
1,192,449
1.46
CMOs issued or guaranteed by the FHLMC, FNMA,
273,539
-
52,263
-
221,276
1.54
7,086
-
2,185
116
4,785
7.66
Total Residential MBS
3,069,139
193
436,055
116
2,633,161
1.55
45,022
-
6,898
-
38,124
2.17
22,386
-
2,685
-
19,701
2.16
122,830
-
29,037
-
93,793
1.36
Total Commercial MBS
190,238
-
38,620
-
151,618
1.64
Total MBS
3,259,377
193
474,675
116
2,784,779
1.55
Total available-for-sale debt securities
$
5,863,294
$
250
$
633,049
$
511
$
5,229,984
1.24
(1)
Excludes accrued interest receivable on available-for-sale debt securities that totaled $
10.6
consolidated statements of financial condition, and excluded from the estimate of credit losses.
(2)
Includes $
477.9
527.2
2.8
3.2
uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.
(3)
Consists of a residential pass-through MBS issued by the PRHFA that is collateralized by certain second mortgages originated under a program launched by the Puerto Rico government in 2010 and is in nonaccrual
status based on the delinquency status of the underlying second mortgage loans collateral.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
14
Maturities of available-for-sale debt securities are based on the period of final contractual maturity. Expected maturities might
differ from contractual maturities because they may be subject to prepayments and/or call options. The weighted-average yield on
available-for-sale debt securities is based on amortized cost and, therefore, does not give effect to changes in fair value. The net
unrealized loss on available-for-sale debt securities is presented as part of accumulated other comprehensive loss in the consolidated
statements of financial condition.
The following tables present the fair value and gross unrealized losses of the Corporation’s available-for-sale debt securities,
aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as
of March 31, 2024 and December 31, 2023. The tables also include debt securities for which an ACL was recorded.
As of March 31,2024
Less than 12 months
12 months or more
Total
Unrealized
Unrealized
Unrealized
Fair Value
Fair Value
Fair Value
(In thousands)
$
4,238
$
5
$
2,354,777
$
151,053
$
2,359,015
$
151,058
-
-
1,551
1,235
(1)
1,551
1,235
7
-
950,687
183,413
950,694
183,413
3,452
20
195,424
28,907
198,876
28,927
3,963
11
1,134,624
187,689
1,138,587
187,700
-
-
211,178
53,977
211,178
53,977
-
-
4,724
2,056
(1)
4,724
2,056
5,346
65
137,794
39,706
143,140
39,771
$
17,006
$
101
$
4,990,759
$
648,036
$
5,007,765
$
648,137
(1)
Unrealized losses do not include the credit loss component recorded as part of the ACL. As of March 31,2024, the PRHFA bond and private label MBS had an ACL of $
0.3
$
0.1
As of December 31, 2023
Less than 12 months
12 months or more
Total
Unrealized
Unrealized
Unrealized
Fair Value
Fair Value
Fair Value
(In thousands)
$
2,544
$
2
$
2,428,784
$
157,026
$
2,431,328
$
157,028
-
-
1,415
1,346
(1)
1,415
1,346
9
-
988,092
174,786
988,101
174,786
12,257
100
202,390
25,808
214,647
25,908
-
-
1,183,275
180,913
1,183,275
180,913
-
-
221,276
52,263
221,276
52,263
-
-
4,785
2,185
(1)
4,785
2,185
11,370
18
140,248
38,602
151,618
38,620
$
26,180
$
120
$
5,170,265
$
632,929
$
5,196,445
$
633,049
(1)
Unrealized losses do not include the credit loss component recorded as part of the ACL. As of December 31, 2023, the PRHFA bond and private label MBS had an ACL of $
0.4
and $
0.1
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
15
Assessment for Credit Losses
Debt securities issued by U.S. government agencies, U.S. GSEs, and the U.S. Treasury, including notes and MBS, accounted for
substantially all of the total available-for-sale portfolio as of March 31, 2024, and the Corporation expects no credit losses on these
securities, given the explicit and implicit guarantees provided by the U.S. federal government. Because the decline in fair value is
attributable to changes in interest rates, and not credit quality, and because , as of March 31, 2024, the Corporation did not have the
intent to sell these U.S. government and agencies debt securities and determined that it was likely that it will not be required to sell
these securities before their anticipated recovery, the Corporation does not consider impairments on these securities to be credit
related. The Corporation’s credit loss assessment was concentrated mainly on private label MBS and on Puerto Rico government debt
securities, for which credit losses are evaluated on a quarterly basis.
Private label MBS held as part of the Corporation’s available for sale portfolio consist of trust certificates issued by an unaffiliated
party backed by fixed-rate, single-family residential mortgage loans in the U.S. mainland with original FICO scores over 700 and
moderate loan-to-value ratios (under
80
%), as well as moderate delinquency levels. The interest rate on these private label MBS is
variable, tied to 3-month CME Term Secured Overnight Financing Rate (“SOFR”) plus a tenor spread adjustment of
0.26161
% and
the original spread limited to the weighted-average coupon of the underlying collateral. The Corporation determined the ACL for
private label MBS based on a risk-adjusted discounted cash flow methodology that considers the structure and terms of the
instruments. The Corporation utilized probability of default (“PDs”) and loss-given default (“LGDs”) that considered, among other
things, historical payment performance, loan-to-value attributes, and relevant current and forward-looking macroeconomic variables,
such as regional unemployment rates and the housing price index. Under this approach, expected cash flows (interest and principal)
were discounted at the U.S. Treasury yield curve as of the reporting date. See Note 17 – “Fair Value ” for the significant assumptions
used in the valuation of the private label MBS as of March 31, 2024 and December 31 2023.
For the residential pass-through MBS issued by the PRHFA held as part of the Corporation’s available-for-sale portfolio backed by
second mortgage residential loans in Puerto Rico, the ACL was determined based on a discounted cash flow methodology that
considered the structure and terms of the debt security. The expected cash flows were discounted at the U.S. Treasury yield curve plus
a spread as of the reporting date and compared to the amortized cost. The Corporation utilized PDs and LGDs that considered, among
other things, historical payment performance, loan-to-value attributes, and relevant current and forward-looking macroeconomic
variables, such as regional unemployment rates, the housing price index, and expected recovery from the PRHFA guarantee. PRHFA,
not the Puerto Rico government, provides a guarantee in the event of default and subsequent foreclosure of the properties underlying
the second mortgage loans. In the event that the second mortgage loans default and the collateral is insufficient to satisfy the
outstanding balance of this residential pass-through MBS, PRHFA’s ability to honor such guarantee will depend on, among other
factors, its financial condition at the time such obligation becomes due and payable. Deterioration of the Puerto Rico economy or
fiscal health of the PRHFA could impact the value of this security, resulting in additional losses to the Corporation.
The following tables present a roll-forward of the ACL on available-for-sale debt securities by major security type for the quarters
ended March 31, 2024 and 2023:
Quarter Ended March 31,
2024
2023
Private label
MBS
Puerto Rico
Government
Obligation
Total
Private label
MBS
Puerto Rico
Government
Obligation
Total
(In thousands)
Beginning balance
$
116
$
395
$
511
$
83
$
375
$
458
Provision for credit losses – benefit
-
(69)
(69)
-
(9)
(9)
$
116
$
326
$
442
$
83
$
366
$
449
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
16
Held-to-Maturity Debt Securities
The amortized cost, gross unrecognized gains and losses, estimated fair value, ACL, weighted-average yield and contractual
maturities of held-to-maturity debt securities as of March 31, 2024 and December 31, 2023 were as follows:
March 31,2024
Amortized cost
(1) (2)
Gross Unrecognized
Fair value
Weighted-
Gains
Losses
ACL
average yield%
(Dollars in thousands)
Puerto Rico municipal bonds:
Due within one year
$
3,172
$
4
$
16
$
3,160
$
36
9.30
After 1 to 5 years
51,327
713
831
51,209
460
7.74
After 5 to 10 years
36,034
3,135
257
38,912
450
7.06
After 10 years
16,595
23
16
16,602
289
8.81
Total Puerto Rico municipal bonds
107,128
3,875
1,120
109,883
1,235
7.72
MBS:
FHLMC certificates:
After 5 to 10 years
15,337
-
626
14,711
-
3.03
After 10 years
18,165
-
1,025
17,140
-
4.33
33,502
-
1,651
31,851
-
3.74
GNMA certificates:
After 10 years
15,649
-
910
14,739
-
3.30
FNMA certificates:
After 10 years
66,109
-
3,504
62,605
-
4.18
CMOs issued or guaranteed by
After 10 years
27,417
-
1,584
25,833
-
3.49
Total Residential MBS
142,677
-
7,649
135,028
-
3.85
After 1 to 5 years
9,397
-
334
9,063
-
3.48
After 10 years
90,128
-
5,982
84,146
-
3.15
Total Commercial MBS
99,525
-
6,316
93,209
-
3.18
Total MBS
242,202
-
13,965
228,237
-
3.57
Total held-to-maturity debt securities
$
349,330
$
3,875
$
15,085
$
338,120
$
1,235
4.85
(1)
Excludes accrued interest receivable on held-to-maturity debt securities that totaled $
2.8
statements of financial condition, and excluded from the estimate of credit losses.
(2)
Includes $
126.2
125.5
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
17
December 31, 2023
Amortized cost
(1) (2)
Gross Unrecognized
Fair value
Weighted-
Gains
Losses
ACL
average yield%
(Dollars in thousands)
Puerto Rico municipal bonds:
Due within one year
$
3,165
$
8
$
38
$
3,135
$
50
9.30
After 1 to 5 years
51,230
994
710
51,514
1,266
7.78
After 5 to 10 years
36,050
3,540
210
39,380
604
7.13
After 10 years
16,595
269
-
16,864
277
8.87
Total Puerto Rico municipal bonds
107,040
4,811
958
110,893
2,197
7.78
MBS:
FHLMC certificates:
After 5 to 10 years
16,469
-
556
15,913
-
3.03
After 10 years
18,324
-
714
17,610
-
4.32
34,793
-
1,270
33,523
-
3.71
GNMA certificates:
After 10 years
16,265
-
789
15,476
-
3.32
FNMA certificates:
After 10 years
67,271
-
2,486
64,785
-
4.18
CMOs issued or guaranteed by
After 10 years
28,139
-
1,274
26,865
-
3.49
Total Residential MBS
146,468
-
5,819
140,649
-
3.84
After 1 to 5 years
9,444
-
297
9,147
-
3.48
After 10 years
91,226
-
5,783
85,443
-
3.15
Total Commercial MBS
100,670
-
6,080
94,590
-
3.18
Total MBS
247,138
-
11,899
235,239
-
3.57
Total held-to-maturity debt securities
$
354,178
$
4,811
$
12,857
$
346,132
$
2,197
4.84
(1)
Excludes accrued interest receivable on held-to-maturity debt securities that totaled $
4.8
consolidated statements of financial condition, and excluded from the estimate of credit losses.
(2)
Includes $
126.6
125.9
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
18
The following tables present the Corporation’s held-to-maturity debt securities’ fair value and gross unrecognized losses,
aggregated by category and length of time that individual securities had been in a continuous unrecognized loss position, as of March
31, 2024 and December 31, 2023, including debt securities for which an ACL was recorded:
As of March 31,2024
Less than 12 months
12 months or more
Total
Unrecognized
Unrecognized
Unrecognized
Fair Value
Fair Value
Fair Value
(In thousands)
$
-
$
-
$
31,125
$
1,120
$
31,125
$
1,120
-
-
31,851
1,651
31,851
1,651
-
-
14,739
910
14,739
910
-
-
62,605
3,504
62,605
3,504
-
-
25,833
1,584
25,833
1,584
-
-
93,209
6,316
93,209
6,316
Total held-to-maturity debt securities
$
-
$
-
$
259,362
$
15,085
$
259,362
$
15,085
As of December 31, 2023
Less than 12 months
12 months or more
Total
Unrecognized
Unrecognized
Unrecognized
Fair Value
Fair Value
Fair Value
(In thousands)
$
-
$
-
$
34,682
$
958
$
34,682
$
958
-
-
33,523
1,270
33,523
1,270
-
-
15,476
789
15,476
789
-
-
64,785
2,486
64,785
2,486
-
-
26,865
1,274
26,865
1,274
-
-
94,590
6,080
94,590
6,080
Total held-to-maturity debt securities
$
-
$
-
$
269,921
$
12,857
$
269,921
$
12,857
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
19
The Corporation classifies the held-to-maturity debt securities portfolio into the following major security types: MBS by GSEs and
underlying collateral and Puerto Rico municipal bonds. The Corporation does not recognize an ACL for MBS issued by GSEs since they
are highly rated by major rating agencies and have a long history of no credit losses. In the case of Puerto Rico municipal bonds, the
Corporation determines the ACL based on the product of a cumulative PD and LGD, and the amortized cost basis of the bonds over their
remaining expected life as described in Note 1 – “Nature of Business and Summary of Significant Accounting Policies,” to the audited
financial statements included in the 2023 Annual Report on Form 10-K.
The Corporation performs periodic credit quality reviews on these issuers. All of the Puerto Rico municipal bonds were current as to
scheduled contractual payments as of March 31, 2024. The ACL of Puerto Rico municipal bonds decreased to $
1.2
2024, from $
2.2
quarter of 2024.
ended March 31, 2024 and 2023:
Puerto Rico Municipal Bonds
Quarter Ended March 31,
2024
2023
(In thousands)
Beginning balance
$
2,197
$
8,286
Provision for credit losses – benefit
(962)
(640)
ACL on held-to-maturity debt securities
$
1,235
$
7,646
During the second quarter of 2019, the oversight board established by PROMESA announced the designation of Puerto Rico’s 78
municipalities as covered instrumentalities under PROMESA. Municipalities may be affected by the negative economic and other
effects resulting from expense, revenue, or cash management measures taken by the Puerto Rico government to address its fiscal
situation, or measures included in its fiscal plan or fiscal plans of other government entities. Given the inherent uncertainties about the
fiscal situation of the Puerto Rico central government and the measures taken, or to be taken, by other government entities in response
to economic and fiscal challenges, the Corporation cannot be certain whether future charges to the ACL on these securities will be
required.
considered cash and cash equivalents and are classified as money market investments in the consolidated statements of financial
condition. As of March 31, 2024 and December 31, 2023, the Corporation had
no
classified as cash and cash equivalents.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
20
Credit Quality Indicators:
The held-to-maturity debt securities portfolio consisted of GSEs’ MBS and financing arrangements with Puerto Rico municipalities
issued in bond form. As previously mentioned, the Corporation expects no credit losses on GSEs MBS. The Puerto Rico municipal
bonds are accounted for as securities but are underwritten as loans with features that are typically found in commercial loans.
Accordingly, the Corporation monitors the credit quality of these municipal bonds through the use of internal credit-risk ratings, which
are generally updated on a quarterly basis. The Corporation considers a municipal bond as a criticized asset if its risk rating is Special
Mention, Substandard, Doubtful, or Loss. Puerto Rico municipal bonds that do not meet the criteria for classification as criticized
assets are considered to be Pass-rated securities. For the definitions of the internal-credit ratings, see Note 3 – “Debt Securities,” to the
audited consolidated financial statements included in the 2023 Annual Report on Form 10-K.
The Corporation periodically reviews its Puerto Rico municipal bonds to evaluate if they are properly classified, and to measure
credit losses on these securities. The frequency of these reviews will depend on the amount of the aggregate outstanding debt, and the
risk rating classification of the obligor.
The Corporation has a Loan Review Group that reports directly to the Corporation’s Risk Management Committee and
administratively to the Chief Risk Officer. The Loan Review Group performs annual comprehensive credit process reviews of the
Bank’s commercial loan portfolios, including the above-mentioned Puerto Rico municipal bonds accounted for as held-to-maturity
debt securities. The objective of these loan reviews is to assess accuracy of the Bank’s determination and maintenance of loan risk
rating and its adherence to lending policies, practices and procedures. The monitoring performed by this group contributes to the
assessment of compliance with credit policies and underwriting standards, the determination of the current level of credit risk, the
evaluation of the effectiveness of the credit management process, and the identification of any deficiency that may arise in the credit-
granting process. Based on its findings, the Loan Review Group recommends corrective actions, if necessary, that help in maintaining
a sound credit process. The Loan Review Group reports the results of the credit process reviews to the Risk Management Committee.
As of March 31, 2024 and December 31, 2023, all Puerto Rico municipal bonds classified as held-to-maturity were classified as
Pass.
No
and December 31, 2023. A security is considered to be past due once it is 30 days contractually past due under the terms of the
agreement.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
21
NOTE 3 – LOANS HELD FOR INVESTMENT
The following table provides information about the loan portfolio held for investment by portfolio segment and disaggregated by
geographic locations as of the indicated dates:
As of March 31,
As of December 31,
2024
2023
(In thousands)
Puerto Rico and Virgin Islands region:
Residential mortgage loans, mainly secured by first mortgages
$
2,327,240
$
2,356,006
Construction loans
147,624
115,401
Commercial mortgage loans
1,769,247
1,790,637
Commercial and Industrial (“C&I loans”)
2,289,999
2,249,408
Consumer loans
3,674,220
3,651,770
Loans held for investment
$
10,208,330
$
10,163,222
Florida region:
Residential mortgage loans, mainly secured by first mortgages
$
474,347
$
465,720
Construction loans
89,664
99,376
Commercial mortgage loans
592,484
526,446
C&I loans
940,996
924,824
Consumer loans
5,627
5,895
Loans held for investment
$
2,103,118
$
2,022,261
Total:
Residential mortgage loans, mainly secured by first mortgages
$
2,801,587
$
2,821,726
Construction loans
237,288
214,777
Commercial mortgage loans
2,361,731
2,317,083
C&I loans
(1)
3,230,995
3,174,232
Consumer loans
3,679,847
3,657,665
Loans held for investment
(2)
12,311,448
12,185,483
ACL on loans and finance leases
(263,592)
(261,843)
Loans held for investment, net
$
12,047,856
$
11,923,640
(1)
As of March 31,2024 and December 31, 2023, includes $
774.0
787.5
for which the primary source of repayment at origination was not dependent upon such real estate.
(2)
Includes accretable fair value net purchase discounts of $
23.7
24.7
Various loans were assigned as collateral for borrowings, government deposits, time deposits accounts, and related unused
commitments. The carrying value of loans pledged as collateral amounted to $
4.8
4.6
December 31, 2023, respectively. As of each of March 31, 2024 and December 31, 2023, loans pledged as collateral include $
1.8
billion that were pledged at the FHLB as collateral for borrowings and letters of credit; $
2.7
Discount Window as collateral for borrowings, compared to $
2.5
166.2
collateral for the uninsured portion of government deposits, compared to $
166.9
.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
22
The Corporation’s aging of the loan portfolio held for investment, as well as information about nonaccrual loans with no ACL, by
portfolio classes as of March 31, 2024 and December 31, 2023 are as follows:
As of March 31,2024
Days Past Due and Accruing
Current
30-59
60-89
90+
(1) (2) (3)
Nonaccrual
(4)
Total loans held
for investment
Nonaccrual
Loans with no
ACL
(5)
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
(1) (3) (6)
$
69,170
$
-
$
2,220
$
28,265
$
-
$
99,655
$
-
(2) (6)
2,628,748
-
30,195
10,304
32,685
2,701,932
1,700
Commercial loans:
233,506
-
-
2,284
1,498
237,288
971
(2) (6)
2,347,395
708
713
939
11,976
2,361,731
6,865
3,194,816
3,134
149
7,829
25,067
3,230,995
1,644
Consumer loans:
1,880,077
49,811
9,056
-
15,132
1,954,076
388
852,320
14,312
2,551
-
2,744
871,927
87
368,984
5,624
2,887
-
2,030
379,525
-
306,767
4,760
3,641
7,894
-
323,062
-
145,519
2,361
1,544
-
1,833
151,257
7
$
12,027,302
$
80,710
$
52,956
$
57,515
$
92,965
$
12,311,448
$
11,662
(1)
It is the Corporation’s policy to report delinquent Federal Housing Authority (“FHA”)/U.S. Department of Veterans Affairs (“VA”) government-guaranteed residential mortgage loans as past-due loans 90 days and still
accruing as opposed to nonaccrual loans. The Corporation continues accruing interest on these loans until they have passed the 15 months delinquency mark, taking into consideration the FHA interest curtailment
process. These balances include $
13.7
(2)
Includes purchased credit deteriorated (“PCD”) loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans as “units of
account” both at the time of adoption of CECL on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from nonaccrual loan statistics as long as the
Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due 90 days or more, amounting to $
8.6
March 31, 2024 ($
7.7
0.9
(3)
Include rebooked loans, which were previously pooled into Government National Mortgage Association ("GNMA") securities, amounting to $
8.8
Corporation has the option but not the obligation to repurchase loans that meet GNMA’s specified delinquency criteria. For accounting purposes, these loans subject to the repurchase option are required to be reflected
on the financial statements with an offsetting liability.
(4)
Nonaccrual loans in the Florida region amounted to $
19.0
(5)
There were
no
(6)
According to the Corporation’s delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal
Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA government-guaranteed loans,
conventional residential mortgage loans, and commercial mortgage loans past due 30-59 days, but less than two payments in arrears, as of March 31, 2024 amounted to $
7.4
72.7
1.9
respectively.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
23
As of December 31, 2023
Days Past Due and Accruing
Current
30-59
60-89
90+
(1)(2)(3)
Nonaccrual
(4)
Total loans held
for investment
Nonaccrual
Loans with no
ACL
(5)
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
(1) (3) (6)
$
68,332
$
-
$
2,592
$
29,312
$
-
$
100,236
$
-
(2) (6)
2,644,344
-
33,878
11,029
32,239
2,721,490
1,742
Commercial loans:
210,911
-
-
2,297
1,569
214,777
972
(2) (6)
2,303,753
17
-
1,108
12,205
2,317,083
2,536
3,148,254
1,130
1,143
8,455
15,250
3,174,232
1,687
Consumer loans:
1,846,652
60,283
13,753
-
15,568
1,936,256
4
837,881
13,786
1,861
-
3,287
856,815
12
370,746
5,873
2,815
-
1,841
381,275
-
313,360
5,012
3,589
7,251
-
329,212
-
147,278
3,084
1,997
-
1,748
154,107
-
$
11,891,511
$
89,185
$
61,628
$
59,452
$
83,707
$
12,185,483
$
6,953
(1)
It is the Corporation’s policy to report delinquent FHA/VA government-guaranteed residential mortgage loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans. The Corporation continues
accruing interest on these loans until they have passed the 15 months delinquency mark, taking into consideration the FHA interest curtailment process. These balances include $
15.4
guaranteed by the FHA that were over 15 months delinquent as of December 31, 2023.
(2)
Includes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans as “units of account” both at the time of adoption
of CECL on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing
and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due 90 days or more, amounting to $
8.3
7.4
residential mortgage loans and $
0.9
(3)
Include rebooked loans, which were previously pooled into GNMA securities, amounting to $
7.9
repurchase loans that meet GNMA’s specified delinquency criteria. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting
liability.
(4)
Nonaccrual loans in the Florida region amounted to $
8.0
(5)
There were
no
(6)
According to the Corporation’s delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal
Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA government-guaranteed loans,
conventional residential mortgage loans, and commercial mortgage loans past due 30-59 days, but less than two payments in arrears, as of December 31, 2023 amounted to $
8.2
69.9
1.1
respectively.
When a loan is placed in nonaccrual status, any accrued but uncollected interest income is reversed and charged against interest
income and the amortization of any net deferred fees is suspended. The amount of accrued interest reversed against interest income
totaled $
0.8
0.6
2024 and 2023, the cash interest income recognized on nonaccrual loans amounted to $
0.6
0.5
As of March 31, 2024, the recorded investment on residential mortgage loans collateralized by residential real estate property that
were in the process of foreclosure amounted to $
37.7
14.8
loans, and $
5.3
foreclosure process on residential real estate loans when a borrower becomes
120
timelines vary depending on whether the property is located in a judicial or non-judicial state. Occasionally, foreclosures may be
delayed due to, among other reasons, mandatory mediations, bankruptcy, court delays, and title issues.
Credit Quality Indicators:
The Corporation categorizes loans into risk categories based on relevant information about the ability of the borrowers to service
their debt such as current financial information, historical payment experience, credit documentation, public information, and current
economic trends, among other factors. The Corporation analyzes non-homogeneous loans, such as commercial mortgage, C&I, and
construction loans individually to classify the loans’ credit risk. As mentioned above, the Corporation periodically reviews its
commercial and construction loans to evaluate if they are properly classified. The frequency of these reviews will depend on the
amount of the aggregate outstanding debt, and the risk rating classification of the obligor. In addition, during the renewal and annual
review process of applicable credit facilities, the Corporation evaluates the corresponding loan grades. The Corporation uses the same
definition for risk ratings as those described for Puerto Rico municipal bonds accounted for as held-to-maturity debt securities, as
discussed in Note 3 – “Debt Securities,” to the audited consolidated financial statements included in the 2023 Annual Report on Form
10-K.
For residential mortgage and consumer loans, the Corporation evaluates credit quality based on its interest accrual status.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
24
Based on the most recent analysis performed, the amortized cost of commercial and construction loans by portfolio classes and by
origination year based on the internal credit-risk category as of March 31, 2024, the gross charge -offs for the quarter ended March 31,
2024 by portfolio classes and by origination year, and the amortized cost of commercial and construction loans by portfolio classes
based on the internal credit-risk category as of December 31, 2023, were as follows:
As of March 31,2024
Puerto Rico and Virgin Islands Regions
Term Loans
As of
December 31,
2023
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
$
9,399
$
72,010
$
40,926
$
16,381
$
-
$
3,463
$
-
$
142,179
$
113,170
-
-
3,300
-
-
-
-
3,300
-
-
-
-
-
-
2,145
-
2,145
2,231
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
9,399
$
72,010
$
44,226
$
16,381
$
-
$
5,608
$
-
$
147,624
$
115,401
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
COMMERCIAL MORTGAGE
$
17,540
$
175,084
$
378,258
$
133,512
$
316,526
$
573,570
$
3,746
$
1,598,236
$
1,618,404
-
-
4,344
-
30,169
111,231
-
145,744
146,626
-
-
121
-
-
25,146
-
25,267
25,607
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
17,540
$
175,084
$
382,723
$
133,512
$
346,695
$
709,947
$
3,746
$
1,769,247
$
1,790,637
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
C&I
$
64,966
$
417,434
$
293,367
$
145,486
$
153,380
$
373,156
$
742,557
$
2,190,346
$
2,173,939
-
538
-
10,981
-
664
52,736
64,919
40,376
403
1
-
3,784
580
28,693
1,273
34,734
35,093
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
65,369
$
417,973
$
293,367
$
160,251
$
153,960
$
402,513
$
796,566
$
2,289,999
$
2,249,408
$
-
$
-
$
-
$
-
$
-
$
-
$
152
$
152
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
25
As of March 31,2024
Term Loans
As of
December 31,
2023
Florida Region
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized Cost
Basis
Total
Total
(In thousands)
CONSTRUCTION
$
-
$
1,592
$
37,231
$
39,360
$
-
$
-
$
11,481
$
89,664
$
99,376
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
$
1,592
$
37,231
$
39,360
$
-
$
-
$
11,481
$
89,664
$
99,376
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
COMMERCIAL MORTGAGE
$
39,429
$
28,979
$
189,840
$
63,181
$
39,557
$
187,173
$
24,621
$
572,780
$
525,453
-
-
12,355
-
-
6,356
-
18,711
-
-
-
-
-
993
-
-
993
993
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
39,429
$
28,979
$
202,195
$
63,181
$
40,550
$
193,529
$
24,621
$
592,484
$
526,446
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
C&I
$
31,037
$
143,301
$
227,770
$
184,808
$
54,357
$
125,159
$
149,521
$
915,953
$
879,195
-
-
-
-
-
11,657
-
11,657
42,046
-
-
-
-
-
11,808
-
11,808
3,583
-
-
-
-
-
1,578
-
1,578
-
-
-
-
-
-
-
-
-
-
$
31,037
$
143,301
$
227,770
$
184,808
$
54,357
$
150,202
$
149,521
$
940,996
$
924,824
$
-
$
-
$
-
$
-
$
-
$
48
$
259
$
307
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
26
As of March 31,2024
Term Loans
As of
December 31,
2023
Total
Amortized Cost Basis by Origination Year (1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
$
9,399
$
73,602
$
78,157
$
55,741
$
-
$
3,463
$
11,481
$
231,843
$
212,546
-
-
3,300
-
-
-
-
3,300
-
-
-
-
-
-
2,145
-
2,145
2,231
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
9,399
$
73,602
$
81,457
$
55,741
$
-
$
5,608
$
11,481
$
237,288
$
214,777
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
COMMERCIAL MORTGAGE
$
56,969
$
204,063
$
568,098
$
196,693
$
356,083
$
760,743
$
28,367
$
2,171,016
$
2,143,857
-
-
16,699
-
30,169
117,587
-
164,455
146,626
-
-
121
-
993
25,146
-
26,260
26,600
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
56,969
$
204,063
$
584,918
$
196,693
$
387,245
$
903,476
$
28,367
$
2,361,731
$
2,317,083
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
C&I
$
96,003
$
560,735
$
521,137
$
330,294
$
207,737
$
498,315
$
892,078
$
3,106,299
$
3,053,134
-
538
-
10,981
-
12,321
52,736
76,576
82,422
403
1
-
3,784
580
40,501
1,273
46,542
38,676
-
-
-
-
-
1,578
-
1,578
-
-
-
-
-
-
-
-
-
-
$
96,406
$
561,274
$
521,137
$
345,059
$
208,317
$
552,715
$
946,087
$
3,230,995
$
3,174,232
$
-
$
-
$
-
$
-
$
-
$
48
$
411
$
459
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
27
The following tables present the amortized cost of residential mortgage loans by portfolio classes and by origination year based on
accrual status as of March 31, 2024 , the gross charge-offs for the quarter ended March 31, 2024 by origination year, and the amortized
cost of residential mortgage loans by portfolio classes based on accrual status as of December 31, 2023:
As of March 31,2024
As of
December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Puerto Rico and Virgin Islands Regions:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
-
$
615
$
676
$
1,368
$
638
$
95,657
$
-
$
98,954
$
99,293
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA government-guaranteed loans
$
-
$
615
$
676
$
1,368
$
638
$
95,657
$
-
$
98,954
$
99,293
Conventional residential mortgage loans
Accrual Status:
Performing
$
30,350
$
170,121
$
161,045
$
66,738
$
28,955
$
1,746,863
$
-
$
2,204,072
$
2,231,701
Non-Performing
-
-
68
-
-
24,146
-
24,214
25,012
Total conventional residential mortgage loans
$
30,350
$
170,121
$
161,113
$
66,738
$
28,955
$
1,771,009
$
-
$
2,228,286
$
2,256,713
Total
Accrual Status:
Performing
$
30,350
$
170,736
$
161,721
$
68,106
$
29,593
$
1,842,520
$
-
$
2,303,026
$
2,330,994
Non-Performing
-
-
68
-
-
24,146
-
24,214
25,012
Total residential mortgage loans
$
30,350
$
170,736
$
161,789
$
68,106
$
29,593
$
1,866,666
$
-
$
2,327,240
$
2,356,006
Charge-offs on residential mortgage loans
$
-
$
-
$
-
$
-
$
-
$
516
$
-
$
516
(1)
Excludes accrued interest receivable.
As of March 31,2024
As of
December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Florida Region:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
701
$
-
$
701
$
943
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA government-guaranteed loans
$
-
$
-
$
-
$
-
$
-
$
701
$
-
$
701
$
943
Conventional residential mortgage loans
Accrual Status:
Performing
$
18,525
$
88,674
$
76,967
$
44,602
$
28,939
$
207,468
$
-
$
465,175
$
457,550
Non-Performing
-
-
248
-
-
8,223
-
8,471
7,227
Total conventional residential mortgage loans
$
18,525
$
88,674
$
77,215
$
44,602
$
28,939
$
215,691
$
-
$
473,646
$
464,777
Total
Accrual Status:
Performing
$
18,525
$
88,674
$
76,967
$
44,602
$
28,939
$
208,169
$
-
$
465,876
$
458,493
Non-Performing
-
-
248
-
-
8,223
-
8,471
7,227
Total residential mortgage loans
$
18,525
$
88,674
$
77,215
$
44,602
$
28,939
$
216,392
$
-
$
474,347
$
465,720
Charge-offs on residential mortgage loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
28
As of March 31,2024
As of
December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Total:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
-
$
615
$
676
$
1,368
$
638
$
96,358
$
-
$
99,655
$
100,236
Non-Performing
-
-
-
-
-
-
-
-
-
Total FHA/VA government-guaranteed loans
$
-
$
615
$
676
$
1,368
$
638
$
96,358
$
-
$
99,655
$
100,236
Conventional residential mortgage loans
Accrual Status:
Performing
$
48,875
$
258,795
$
238,012
$
111,340
$
57,894
$
1,954,331
$
-
$
2,669,247
$
2,689,251
Non-Performing
-
-
316
-
-
32,369
-
32,685
32,239
Total conventional residential mortgage loans
$
48,875
$
258,795
$
238,328
$
111,340
$
57,894
$
1,986,700
$
-
$
2,701,932
$
2,721,490
Total
Accrual Status:
Performing
$
48,875
$
259,410
$
238,688
$
112,708
$
58,532
$
2,050,689
$
-
$
2,768,902
$
2,789,487
Non-Performing
-
-
316
-
-
32,369
-
32,685
32,239
Total residential mortgage loans
$
48,875
$
259,410
$
239,004
$
112,708
$
58,532
$
2,083,058
$
-
$
2,801,587
$
2,821,726
Charge-offs on residential mortgage loans
$
-
$
-
$
-
$
-
$
-
$
516
$
-
$
516
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
29
The following tables present the amortized cost of consumer loans by portfolio classes and by origination year based on accrual
status as of March 31, 2024, the gross charge-offs for the quarter ended March 31, 2024 by portfolio classes and by origination year,
and the amortized cost of consumer loans by portfolio classes based on accrual status as of December 31,2023:
As of March 31, 2024
As of
December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Puerto Rico and Virgin Islands Regions:
Auto loans
Accrual Status:
Performing
$
161,277
$
598,793
$
498,696
$
354,754
$
161,557
$
163,146
$
-
$
1,938,223
$
1,919,583
Non-Performing
-
3,437
3,664
2,810
1,374
3,842
-
15,127
15,556
Total auto loans
$
161,277
$
602,230
$
502,360
$
357,564
$
162,931
$
166,988
$
-
$
1,953,350
$
1,935,139
Charge-offs on auto loans
$
-
$
2,724
$
3,060
$
1,802
$
559
$
1,211
$
-
$
9,356
Finance leases
Accrual Status:
Performing
$
67,120
$
301,479
$
234,744
$
142,589
$
59,904
$
63,347
$
-
$
869,183
$
853,528
Non-Performing
-
391
766
410
280
897
-
2,744
3,287
Total finance leases
$
67,120
$
301,870
$
235,510
$
142,999
$
60,184
$
64,244
$
-
$
871,927
$
856,815
Charge-offs on finance leases
$
-
$
617
$
1,000
$
403
$
182
$
394
$
-
$
2,596
Personal loans
Accrual Status:
Performing
$
37,408
$
157,655
$
106,185
$
27,959
$
13,945
$
34,032
$
-
$
377,184
$
379,161
Non-Performing
-
558
855
236
93
288
-
2,030
1,841
Total personal loans
$
37,408
$
158,213
$
107,040
$
28,195
$
14,038
$
34,320
$
-
$
379,214
$
381,002
Charge-offs on personal loans
$
-
$
1,342
$
2,778
$
533
$
232
$
573
$
-
$
5,458
Credit cards
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
323,062
$
323,062
$
329,212
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
323,062
$
323,062
$
329,212
Charge-offs on credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
5,995
$
5,995
Other consumer loans
Accrual Status:
Performing
$
18,852
$
69,221
$
27,159
$
8,387
$
5,003
$
7,534
$
8,706
$
144,862
$
147,913
Non-Performing
-
881
448
122
48
173
133
1,805
1,689
Total other consumer loans
$
18,852
$
70,102
$
27,607
$
8,509
$
5,051
$
7,707
$
8,839
$
146,667
$
149,602
Charge-offs on other consumer loans
$
2
$
2,400
$
1,672
$
403
$
99
$
149
$
175
$
4,900
Total
Accrual Status:
Performing
$
284,657
$
1,127,148
$
866,784
$
533,689
$
240,409
$
268,059
$
331,768
$
3,652,514
$
3,629,397
Non-Performing
-
5,267
5,733
3,578
1,795
5,200
133
21,706
22,373
Total consumer loans
$
284,657
$
1,132,415
$
872,517
$
537,267
$
242,204
$
273,259
$
331,901
$
3,674,220
$
3,651,770
Charge-offs on total consumer loans
$
2
$
7,083
$
8,510
$
3,141
$
1,072
$
2,327
$
6,170
$
28,305
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
30
As of March 31, 2024
As of
December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Florida Region:
Auto loans
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
721
$
-
$
721
$
1,105
Non-Performing
-
-
-
-
-
5
-
5
12
Total auto loans
$
-
$
-
$
-
$
-
$
-
$
726
$
-
$
726
$
1,117
Charge-offs on auto loans
$
-
$
-
$
-
$
-
$
-
$
59
$
-
$
59
Finance leases
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total finance leases
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Charge-offs on finance leases
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Personal loans
Accrual Status:
Performing
$
190
$
50
$
-
$
71
$
-
$
-
$
-
$
311
$
273
Non-Performing
-
-
-
-
-
-
-
-
-
Total personal loans
$
190
$
50
$
-
$
71
$
-
$
-
$
-
$
311
$
273
Charge-offs on personal loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Credit cards
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Charge-offs on credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Other consumer loans
Accrual Status:
Performing
$
55
$
54
$
46
$
221
$
324
$
2,155
$
1,707
$
4,562
$
4,446
Non-Performing
-
-
-
-
-
18
10
28
59
Total other consumer loans
$
55
$
54
$
46
$
221
$
324
$
2,173
$
1,717
$
4,590
$
4,505
Charge-offs on other consumer loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total
Accrual Status:
Performing
$
245
$
104
$
46
$
292
$
324
$
2,876
$
1,707
$
5,594
$
5,824
Non-Performing
-
-
-
-
-
23
10
33
71
Total consumer loans
$
245
$
104
$
46
$
292
$
324
$
2,899
$
1,717
$
5,627
$
5,895
Charge-offs on total consumer loans
$
-
$
-
$
-
$
-
$
-
$
59
$
-
$
59
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
31
As of March 31, 2024
As of
December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Total:
Auto loans
Accrual Status:
Performing
$
161,277
$
598,793
$
498,696
$
354,754
$
161,557
$
163,867
$
-
$
1,938,944
$
1,920,688
Non-Performing
-
3,437
3,664
2,810
1,374
3,847
-
15,132
15,568
Total auto loans
$
161,277
$
602,230
$
502,360
$
357,564
$
162,931
$
167,714
$
-
$
1,954,076
$
1,936,256
Charge-offs on auto loans
$
-
$
2,724
$
3,060
$
1,802
$
559
$
1,270
$
-
$
9,415
Finance leases
Accrual Status:
Performing
$
67,120
$
301,479
$
234,744
$
142,589
$
59,904
$
63,347
$
-
$
869,183
$
853,528
Non-Performing
-
391
766
410
280
897
-
2,744
3,287
Total finance leases
$
67,120
$
301,870
$
235,510
$
142,999
$
60,184
$
64,244
$
-
$
871,927
$
856,815
Charge-offs on finance leases
$
-
$
617
$
1,000
$
403
$
182
$
394
$
-
$
2,596
Personal loans
Accrual Status:
Performing
$
37,598
$
157,705
$
106,185
$
28,030
$
13,945
$
34,032
$
-
$
377,495
$
379,434
Non-Performing
-
558
855
236
93
288
-
2,030
1,841
Total personal loans
$
37,598
$
158,263
$
107,040
$
28,266
$
14,038
$
34,320
$
-
$
379,525
$
381,275
Charge-offs on personal loans
$
-
$
1,342
$
2,778
$
533
$
232
$
573
$
-
$
5,458
Credit cards
Accrual Status:
Performing
$
-
$
-
$
-
$
-
$
-
$
-
$
323,062
$
323,062
$
329,212
Non-Performing
-
-
-
-
-
-
-
-
-
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
323,062
$
323,062
$
329,212
Charge-offs on credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
5,995
$
5,995
Other consumer loans
Accrual Status:
Performing
$
18,907
$
69,275
$
27,205
$
8,608
$
5,327
$
9,689
$
10,413
$
149,424
$
152,359
Non-Performing
-
881
448
122
48
191
143
1,833
1,748
Total other consumer loans
$
18,907
$
70,156
$
27,653
$
8,730
$
5,375
$
9,880
$
10,556
$
151,257
$
154,107
Charge-offs on other consumer loans
$
2
$
2,400
$
1,672
$
403
$
99
$
149
$
175
$
4,900
Total
Accrual Status:
Performing
$
284,902
$
1,127,252
$
866,830
$
533,981
$
240,733
$
270,935
$
333,475
$
3,658,108
$
3,635,221
Non-Performing
-
5,267
5,733
3,578
1,795
5,223
143
21,739
22,444
Total consumer loans
$
284,902
$
1,132,519
$
872,563
$
537,559
$
242,528
$
276,158
$
333,618
$
3,679,847
$
3,657,665
Charge-offs on total consumer loans
$
2
$
7,083
$
8,510
$
3,141
$
1,072
$
2,386
$
6,170
$
28,364
(1)
Excludes accrued interest receivable.
As of March 31, 2024 and December 31, 2023, the balance of revolving loans converted to term loans was
no
t material.
Accrued interest receivable on loans totaled $
60.2
62.3
reported as part of accrued interest receivable on loans and investment securities in the consolidated statements of financial condition,
and is excluded from the estimate of credit losses.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
32
The following tables present information about collateral dependent loans that were individually evaluated for purposes of
determining the ACL as of March 31, 2024 and December 31, 2023
:
As of March 31,2024
Collateral Dependent Loans -
With Allowance
Collateral Dependent
Loans - With No
Related Allowance
Collateral Dependent Loans - Total
Amortized Cost
Related
Allowance
Amortized Cost
Amortized Cost
Related
Allowance
(In thousands)
Residential mortgage loans:
Conventional residential mortgage loans
$
25,622
$
1,888
$
77
$
25,699
$
1,888
Commercial loans:
Construction loans
-
-
956
956
-
Commercial mortgage loans
-
-
44,751
44,751
-
C&I loans
9,390
1,598
6,702
16,092
1,598
Consumer loans:
Personal loans
28
1
-
28
1
Other consumer loans
123
18
-
123
18
$
35,163
$
3,505
$
52,486
$
87,649
$
3,505
As of December 31, 2023
Collateral Dependent Loans -
With Allowance
Collateral Dependent
Loans - With No
Related Allowance
Collateral Dependent Loans - Total
Amortized Cost
Related
Allowance
Amortized Cost
Amortized Cost
Related
Allowance
(In thousands)
Residential mortgage loans:
Conventional residential mortgage loans
$
25,355
$
1,732
$
-
$
25,355
$
1,732
Commercial loans:
Construction loans
-
-
956
956
-
Commercial mortgage loans
4,454
135
40,683
45,137
135
C&I loans
9,390
1,563
6,780
16,170
1,563
Consumer loans:
Personal loans
28
1
-
28
1
Other consumer loans
123
12
-
123
12
$
39,350
$
3,443
$
48,419
$
87,769
$
3,443
The underlying collateral for residential mortgage and consumer collateral dependent loans consisted of single-family residential
properties, and for commercial and construction loans consisted primarily of office buildings, multifamily residential properties, and
retail establishments. The weighted-average loan-to-value coverage for collateral dependent loans as of March 31, 2024 was
67
%,
compared to
65
% as of December 31, 2023 which was not considered a significant change in the extent to which collateral secured the
loans
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
33
Purchases and Sales of Loans
In the ordinary course of business, the Corporation enters into securitization transactions and whole loan sales with the Government
National Mortgage Association (“GNMA”) and GSEs, such as the Federal National Mortgage Association (“FNMA”) and Federal
Home Loan Mortgage Corp. (“FHLMC”). During the quarters ended March 31, 2024, and 2023, loans pooled into GNMA MBS
amounted to approximately $
24.7
29.4
$
0.9
approximately $
6.8
8.0
Corporation recognized a net gain on sale of $
0.2
with the loans that it sells consists primarily of servicing the loans. In addition, the Corporation agrees to repurchase loans if it
breaches any of the representations and warranties included in the sale agreement. These representations and warranties are consistent
with the GSEs’ selling and servicing guidelines (
i.e.
, ensuring that the mortgage was properly underwritten according to established
guidelines).
For loans pooled into GNMA MBS, the Corporation, as servicer, holds an option to repurchase individual delinquent loans issued
on or after January 1, 2003, when certain delinquency criteria are met. This option gives the Corporation the unilateral ability, but not
the obligation, to repurchase the delinquent loans at par without prior authorization from GNMA. Since the Corporation is considered
to have regained effective control over the loans, it is required to recognize the loans and a corresponding repurchase liability
regardless of its intent to repurchase the loans. As of March 31, 2024 and December 31, 2023, rebooked GNMA delinquent loans that
were included in the residential mortgage loan portfolio amounted to $
8.8
7.9
During the quarters ended March 31, 2024 and 2023, the Corporation repurchased, pursuant to the aforementioned repurchase
option, $
0.2
1.5
is fully guaranteed, and the risk of loss related to the repurchased loans is generally limited to the difference between the delinquent
interest payment advanced to GNMA, which is computed at the loan’s interest rate, and the interest payments reimbursed by FHA,
which are computed at a pre-determined debenture rate. Repurchases of GNMA loans allow the Corporation, among other things, to
maintain acceptable delinquency rates on outstanding GNMA pools and remain as a seller and servicer in good standing with GNMA.
Historically, losses on these repurchases of GNMA delinquent loans have been immaterial and no provision has been made at the time
of sale.
Loan sales to FNMA and FHLMC are without recourse in relation to the future performance of the loans. The Corporation’s risk of
loss with respect to these loans is also minimal as these repurchased loans are generally performing loans with documentation
deficiencies.
During the quarter ended March 31, 2024, the Corporation purchased commercial loan participations in the Florida region totaling
$
23.2
13.7
9.5
portfolio.
No
During the first quarter of 2024, the Corporation recognized a $
9.5
off loans, net of a $
0.5
no
other than those sales of conforming residential mortgage loans mentioned above.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
34
Loan Portfolio Concentration
The Corporation’s primary lending area is Puerto Rico. The Corporation’s banking subsidiary, FirstBank, also lends in the USVI
and the BVI markets and in the United States (principally in the state of Florida). Of the total gross loans held for investment portfolio
of $
12.3
80
% in Puerto Rico,
17
% in the U.S., and
3
% in
the USVI and the BVI.
As of March 31, 2024, the Corporation had $
203.5
municipalities and public corporations, compared to $
187.7
$
129.4
property tax revenues, and $
25.6
vast majority of revenues of the municipalities included in the Corporation’s loan portfolio are independent of budgetary subsidies
provided by the Puerto Rico central government. These municipalities are required by law to levy special property taxes in such
amounts as are required to satisfy the payment of all of their respective general obligation bonds and notes. In addition to loans
extended to municipalities, the Corporation’s exposure to the Puerto Rico government as of March 31, 2024 included $
8.9
loans granted to an affiliate of the Puerto Rico Electric Power Authority (“PREPA”) and $
39.6
corporations of the Puerto Rico government.
In addition, as of March 31, 2024, the Corporation had $
76.5
by the PRHFA, a government instrumentality that has been designated as a covered entity under PROMESA, compared to $
77.7
million as of December 31, 2023. Residential mortgage loans guaranteed by the PRHFA are secured by the underlying properties and
the guarantees serve to cover shortfalls in collateral in the event of a borrower default.
The Corporation also has credit exposure to USVI government entities. As of March 31, 2024, the Corporation had
$
97.4
loans to USVI government public corporations, compared to $
90.5
were currently performing and up to date on principal and interest payments.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
35
Loss Mitigation Program for Borrowers Experiencing Financial Difficulty
The Corporation provides assistance to its customers through a loss mitigation program. Depending upon the nature of a borrower’s
financial condition, restructurings or loan modifications through this program are provided, as well as other restructurings of
individual C&I, commercial mortgage, construction, and residential mortgage loans. The Corporation may also modify contractual
terms to comply with regulations regarding the treatment of certain bankruptcy filings and discharge situations.
The loan modifications granted to borrowers experiencing financial difficulty that are associated with payment delays typically
include the following:
-
Forbearance plans – Payments of either interest and/or principal are deferred for a pre-established period of time, generally not
exceeding six months in any given year. The deferred interest and/or principal is repaid as either a lump sum payment at
maturity date or by extending the loan’s maturity date by the number of forbearance months granted.
-
Payment plans – Borrowers are allowed to pay the regular monthly payment plus the pre-established delinquent amounts
during a period generally not exceeding six months. At the end of the payment plan, the borrower is required to resume making
its regularly scheduled loan payments.
-
Trial modifications – These types of loan modifications are granted for residential mortgage loans. Borrower s continue making
reduced monthly payments during the trial period, which is generally of up to six months. The reduced payments that are made
by the borrower during the trial period will result in a payment delay with respect to the original contractual terms of the loan
since the loan has not yet been contractually modified. After successful completion of the trial period, the mortgage loan is
contractually modified.
Modifications in the form of a reduction in interest rate, term extension, an other-than-insignificant payment delay, or any
combination of these types of loan modifications that have occurred in the current reporting period for a borrower experiencing
financial difficulty are disclosed in the tables below. Many factors are considered when evaluating whether there is an other-than-
insignificant payment delay, such as the significance of the restructured payment amount relative to the unpaid principal balance or
collateral value of the loan or the relative significance of the delay to the original loan terms.
The below disclosures relate to loan modifications granted to borrowers experiencing financial difficulty in which there was a
change in the timing and/or amount of contractual cash flows in the form of any of the aforementioned types of modifications,
including restructurings that resulted in a more-than-insignificant payment delay. These disclosures exclude $
1.1
0.9
million, respectively, in restructured residential mortgage loans that are government-guaranteed (e.g., FHA/VA loans) and were
modified during the quarters ended March 31, 2024 and 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
36
The following tables present the amortized cost basis as of March 31, 2024 and 2023 of loans modified to borrowers experiencing
financial difficulty during the quarters ended March 31, 2024 and 2023, by portfolio classes and type of modification granted, and the
percentage of these modified loans relative to the total period-end amortized cost basis of receivables in the portfolio class:
Quarter Ended March 31,2024
Payment Delay Only
Forbearance
Payment Plan
Trial
Modification
Interest Rate
Reduction
Term
Extension
Combination
of Interest
Rate
Reduction and
Term
Extension
Other
Total
Percentage of
Total by
Portfolio
Classes
(In thousands)
Conventional residential mortgage loans
$
-
$
-
$
464
$
-
$
-
$
-
$
-
$
464
0.02%
Construction loans
-
-
-
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
-
-
-
C&I loans
-
-
-
13
-
-
-
13
0.00%
Consumer loans:
Auto loans
-
-
-
-
174
125
1,036
(1)
1,335
0.07%
Personal loans
-
-
-
9
14
5
-
28
0.01%
Credit cards
-
-
-
548
(2)
-
-
-
548
0.17%
Other consumer loans
-
-
-
-
140
7
24
(1)
171
0.11%
$
-
$
-
$
464
$
570
$
328
$
137
$
1,060
$
2,559
Quarter Ended March 31, 2023
Payment Delay Only
Forbearance
Payment Plan
Trial
Modification
Interest Rate
Reduction
Term
Extension
Combination
of Interest
Rate
Reduction and
Term
Extension
Other
Total
Percentage of
Total by
Portfolio
Classes
(In thousands)
Conventional residential mortgage loans
$
-
$
-
$
332
$
-
$
433
$
115
$
-
$
880
0.03%
Construction loans
-
-
-
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
-
-
-
C&I loans
-
-
-
-
-
-
40
(1)
40
0.00%
Consumer loans:
Auto loans
-
-
-
-
89
38
584
(1)
711
0.04%
Personal loans
-
-
-
-
28
14
-
42
0.01%
Credit cards
-
-
-
289
(2)
-
-
-
289
0.09%
Other consumer loans
-
-
-
-
132
60
26
(1)
218
0.15%
$
-
$
-
$
332
$
289
$
682
$
227
$
650
$
2,180
(1)
Modification consists of court mandated reduction to 0% interest rate for remaining loan term to borrowers in bankruptcy proceedings unless dismissal occurs.
(2)
Modification consists of reduction in interest rate and revocation of revolving line privileges.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
37
The following tables present by portfolio classes the financial effects of the modifications granted to borrowers experiencing
financial difficulty, other than those associated to payment delay, during the quarters ended March 31, 2024 and 2023. The financial
effects of the modifications associated to payment delay were discussed above and, as such, were excluded from the tables below:
Quarter Ended March 31, 2024
Combination of Interest Rate Reduction and Term
Extension
Weighted-Average
Interest Rate Reduction
(%)
Weighted-Average Term
Extension (in months)
Weighted-Average
Interest Rate Reduction
(%)
Weighted-Average Term
Extension (in months)
(In thousands)
Conventional residential mortgage loans
-
%
-
-
%
-
Construction loans
-
%
-
-
%
-
Commercial mortgage loans
-
%
-
-
%
-
C&I loans
13.00
%
-
-
%
-
Consumer loans:
Auto loans
-
%
30
2.68
%
25
Personal loans
8.49
%
25
1.79
%
14
Credit cards
16.55
%
-
-
%
-
Other consumer loans
-
%
23
2.81
%
19
Quarter Ended March 31, 2023
Combination of Interest Rate Reduction and Term
Extension
Weighted-Average
Interest Rate Reduction
(%)
Weighted-Average Term
Extension (in months)
Weighted-Average
Interest Rate Reduction
(%)
Weighted-Average Term
Extension (in months)
(In thousands)
Conventional residential mortgage loans
-
%
98
2.11
%
141
Construction loans
-
%
-
-
%
-
Commercial mortgage loans
-
%
-
-
%
-
C&I loans
-
%
-
-
%
-
Consumer loans:
Auto loans
-
%
22
2.88
%
28
Personal loans
-
%
30
3.36
%
12
Credit cards
16.04
%
-
-
%
-
Other consumer loans
-
%
27
1.96
%
26
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
38
The following tables present by portfolio classes the performance of loans modified during the last twelve months ended March
31, 2024 and during the quarter ended March 31, 2023 that were granted to borrowers experiencing financial difficulty:
Last Twelve Months Ended March 31, 2024
30-59
60-89
90+
Total
Delinquency
Current
Total
(In thousands)
Conventional residential mortgage loans
$
37
$
-
$
-
$
37
$
1,642
$
1,679
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
32,384
32,384
C&I loans
13
-
-
13
362
375
Consumer loans:
Auto loans
19
3
65
87
3,184
3,271
Personal loans
11
-
-
11
329
340
Credit cards
217
92
147
456
1,097
1,553
Other consumer loans
31
14
31
76
457
533
$
328
$
109
$
243
$
680
$
39,455
$
40,135
Quarter Ended March 31, 2023
30-59
60-89
90+
Total
Delinquency
Current
Total
(In thousands)
Conventional residential mortgage loans
$
-
$
-
$
-
$
-
$
880
$
880
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
C&I loans
-
-
-
-
40
40
Consumer loans:
Auto loans
44
138
-
182
529
711
Personal loans
-
-
-
-
42
42
Credit cards
103
89
-
192
97
289
Other consumer loans
-
-
-
-
218
218
$
147
$
227
$
-
$
374
$
1,806
$
2,180
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
39
The following table presents the amortized cost basis of classes of financing receivables that had a payment default (failure by the
borrower to make payments of either principal, interest, or both for a period of 90 days or more) and were modified to borrowers
experiencing financial difficulty during the last twelve months ended March 31, 2024:
Last Twelve Months Ended March 31, 2024
Interest Rate
Reduction
Term
Extension
Combination
of Interest
Rate
Reduction
and Term
Extension
Forgiveness of
Principal
and/or
Interest
Other
Total
(In thousands)
Conventional residential mortgage
loans
$
-
$
-
$
-
$
-
$
-
$
-
Construction loans
-
-
-
-
-
-
Commercial mortgage loans
-
-
-
-
-
-
C&I loans
-
-
-
-
-
-
Consumer loans:
Auto loans
-
9
-
-
56
(1)
65
Personal loans
-
-
-
-
-
-
Credit cards
147
-
-
-
-
147
Other consumer loans
-
31
-
-
-
31
$
147
$
40
$
-
$
-
$
56
$
243
(1)
Modification consists of court mandated reduction to 0% interest rate for remaining loan term to borrowers in bankruptcy proceedings unless dismissal occurs.
There were
no
the borrower to make payments of either principal, interest, or both for a period of 90 days or more) during the quarter ended March 31, 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
40
NOTE 4 – ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES
The following tables present the activity in the ACL on loans and finance leases by portfolio segment for the indicated periods:
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
C&I
Loans
Consumer Loans
Total
Quarter Ended March 31,2024
(In thousands)
ACL:
Beginning balance
$
57,397
$
5,605
$
32,631
$
33,190
$
133,020
$
261,843
Provision for credit losses - (benefit) expense
(464)
571
(10)
(3,360)
16,180
12,917
Charge-offs
(516)
-
-
(459)
(28,364)
(29,339)
Recoveries
272
10
40
5,119
12,730
(1)
18,171
Ending balance
$
56,689
$
6,186
$
32,661
$
34,490
$
133,566
$
263,592
(1) Includes recoveries totaling $
9.5
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
C&I
Consumer Loans
Total
Quarter Ended March 31, 2023
(In thousands)
ACL:
Beginning balance
$
62,760
$
2,308
$
35,064
$
32,906
$
127,426
$
260,464
Impact of adoption of ASU 2022-02
(1)
2,056
-
-
7
53
2,116
Provision for credit losses - expense (benefit)
73
860
1,246
(1,650)
15,727
16,256
Charge-offs
(983)
-
(18)
(118)
(16,798)
(17,917)
Recoveries
497
63
168
90
3,830
4,648
Ending balance
$
64,403
$
3,231
$
36,460
$
31,235
$
130,238
$
265,567
(1) Recognized as a result of the adoption of ASU 2022-02, for which the Corporation elected to discontinue the use of a discounted cash flow methodology for restructured accruing loans,
which had a corresponding decrease, net of applicable taxes, in beginning retained earnings as of January 1, 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
41
The Corporation estimates the ACL following the methodologies described in Note 1 – “Nature of Business and Summary of
Significant Accounting Policies” to the audited consolidated financial statements included in the 2023 Annual Report on Form 10-K,
as updated by the information contained in this report, for each portfolio segment .
The Corporation generally applies probability weights to the baseline and alternative downside economic scenarios to estimate the
ACL with the baseline scenario carrying the highest weight. The scenarios that are chosen each quarter and the weighting given to
each scenario for the different loan portfolio categories depend on a variety of factors including recent economic events, leading
national and regional economic indicators, and industry trends. As of March 31, 2024 and December 31, 2023, the Corporation
applied the baseline scenario for the commercial mortgage and construction loan portfolios as deterioration, particularly in variables
associated to the commercial real estate property performance in these portfolios was expected at a lower extent than projected in the
alternative downside scenario, particularly in the Puerto Rico region.
As of March 31, 2024, the ACL for loans and finance leases was $
263.6
1.8
261.8
of December 31, 2023. The ACL for commercial and construction loans increased by $
1.9
particularly in the commercial and industrial loan portfolio, coupled with a deterioration on the economic outlook of certain
macroeconomic variables.
0.6
cards, and increases in portfolio volumes in the auto loan and finance leases portfolios. This increase was partially offset by updated
macroeconomic variables, mainly in the projection of unemployment rates across all regions.
0.7
mostly due to updated macroeconomic variables,
mainly in the projection of unemployment rates, partially offset by newly originated loans that have a longer life.
Net charge-offs were $
11.2
13.3
2.1
million decrease in net charge-offs was mainly driven by the $
9.5
fully charged-off consumer loans during the first quarter of 2024 and a $
5.0
industrial loan in the Puerto Rico region, partially offset by an increase in consumer loans and finance leases charge-offs, mainly
reflected in the auto and personal loan portfolios, primarily associated with a higher delinquency during the quarter.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
42
The tables below present the ACL related to loans and finance leases and the carrying values of loans by portfolio segment as of
March 31,2024 and December 31, 2023:
As of March 31, 2024
Residential Mortgage
Loans
Construction
Loans
Commercial Mortgage
Loans
C&I
Loans
Consumer Loans
Total
(Dollars in thousands)
Total loans held for investment:
$
2,801,587
$
237,288
$
2,361,731
$
3,230,995
$
3,679,847
$
12,311,448
56,689
6,186
32,661
34,490
133,566
263,592
2.02
%
2.61
%
1.38
%
1.07
%
3.63
%
2.14
%
As of December 31, 2023
Residential Mortgage
Loans
Construction
Loans
Commercial Mortgage
Loans
C&I
Loans
Consumer Loans
Total
(Dollars in thousands)
Total loans held for investment:
$
2,821,726
$
214,777
$
2,317,083
$
3,174,232
$
3,657,665
$
12,185,483
57,397
5,605
32,631
33,190
133,020
261,843
2.03
%
2.61
%
1.41
%
1.05
%
3.64
%
2.15
%
In addition, the Corporation estimates expected credit losses over the contractual period in which the Corporation is exposed to
credit risk via a contractual obligation to extend credit, such as unfunded loan commitments and standby letters of credit for
commercial and construction loans, unless the obligation is unconditionally cancellable by the Corporation. See Note 21 –
“Regulatory Matters, Commitments and Contingencies” for information on off-balance sheet exposures as of March 31, 2024 and
December 31, 2023. The Corporation estimates the ACL for these off-balance sheet exposures following the methodology described
in Note 1 – “Nature of Business and Summary of Significant Accounting Policies” to the audited consolidated financial statements
included in the 2023 Annual Report on Form 10-K. As of March 31, 2024, the ACL for off-balance sheet credit exposures increased to
$
4.9
4.6
The following table presents the activity in the ACL for unfunded loan commitments and standby letters of credit for the quarters
ended March 31, 2024 and 2023:
Quarter Ended March 31,
2024
2023
(In thousands)
Beginning balance
$
4,638
$
4,273
Provision for credit losses - expense (benefit)
281
(105)
$
4,919
$
4,168
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
43
NOTE 5
–
OTHER REAL ESTATE OWNED
The following table presents the OREO inventory as of the indicated dates:
March 31,2024
December 31, 2023
(In thousands)
OREO balances, carrying value:
Residential
(1)
$
16,706
$
20,261
Construction
1,681
1,601
Commercial
10,477
10,807
Total
$
28,864
$
32,669
(1)
Excludes $
13.4
16.6
Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” and are presented as a receivable as part of other assets in the consolidated statements of financial
condition.
See Note 17 – “Fair Value” for information on subsequent measurement adjustments recorded on OREO properties reported as part
of “Net gain on OREO operations” in the consolidated statements of income during the quarters ended March 31, 2024 and 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
44
NOTE 6 – GOODWILL AND OTHER INTANGIBLES
Goodwill
Goodwill as of each of March 31, 2024 and December 31, 2023 amounted to $
38.6
The Corporation’s policy is to assess
goodwill and other intangibles for impairment on an annual basis during the fourth quarter of each year, and more frequently if events
or circumstances lead management to believe that the values of goodwill or other intangibles may be impaired. During the fourth
quarter of 2023, management performed a qualitative analysis of the carrying amount of each relevant reporting units’ goodwill and
concluded that it is more-likely-than-not that the fair value of the reporting units exceeded their carrying value. This assessment
involved identifying the inputs and assumptions that most affect fair value, including evaluating significant and relevant events
impacting each reporting entity, and evaluating such factors to determine if a positive assertion can be made that it is more-likely-
than-not that the fair value of the reporting units exceeded their carrying amount. As of December 31, 2023, the Corporation
concluded that it is more-likely-than-not that the fair value of the reporting units exceeded their carrying value. The Corporation
determined that there have been no significant events since the last annual assessment that could indicate potential goodwill
impairment on reporting units for which the goodwill is allocated. As a result, no impairment charges for goodwill were recorded
during the first quarter of 2024.
There were
no
Other Intangible Assets
The following table presents the gross amount and accumulated amortization of the Corporation’s intangible assets subject to
amortization as of the indicated dates:
As of
As of
March 31,
December 31,
2024
2023
(Dollars in thousands)
Core deposit intangible:
Gross amount
$
87,544
$
87,544
Accumulated amortization
(76,002)
(74,161)
Net carrying amount
$
11,542
$
13,383
Remaining amortization period (in years)
5.8
6.0
During the quarters ended March 31, 2024 and 2023, the Corporation recognized $
1.8
2.0
amortization expense on its other intangibles subject to amortization.
The Corporation amortizes core deposit intangibles based on the projected useful lives of the related deposits. Core deposit
intangibles are analyzed annually for impairment, or sooner if events and circumstances indicate possible impairment. Factors that
may suggest impairment include customer attrition and run-off. Management is unaware of any events and/or circumstances that
would indicate a possible impairment to the core deposit intangibles as of March 31, 2024.
The estimated aggregate annual amortization expense related to the intangible assets subject to amortization for future periods was
as follows as of March 31, 2024:
(In thousands)
2024
$
4,575
2025
3,509
2026
872
2027
872
2028
872
2029 and after
842
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
45
NOTE 7 – NON-CONSOLIDATED VARIABLE INTEREST ENTITIES (“VIEs”) AND SERVICING ASSETS
The Corporation transfers residential mortgage loans in sale or securitization transactions in which it has continuing involvement,
including servicing responsibilities and guarantee arrangements. All such transfers have been accounted for as sales as required by
applicable accounting guidance.
When evaluating the need to consolidate counterparties to which the Corporation has transferred assets, or with which the
Corporation has entered into other transactions, the Corporation first determines if the counterparty is an entity for which a variable
interest exists. If no scope exception is applicable and a variable interest exists, the Corporation then evaluates whether it is the
primary beneficiary of the VIE and whether the entity should be consolidated or not.
Below is a summary of transactions with VIEs for which the Corporation has retained some level of continuing involvement:
Trust-Preferred Securities (“TRuPs”)
In April 2004, FBP Statutory Trust I, a financing trust that is wholly owned by the Corporation, sold to institutional investors $
100
million of its variable -rate TRuPs. FBP Statutory Trust I used the proceeds of the issuance, together with the proceeds of the purchase
by the Corporation of $
3.1
103.1
principal amount of the Corporation’s Junior Subordinated Deferrable Debentures. In September 2004, FBP Statutory Trust II, a
financing trust that is wholly owned by the Corporation, sold to institutional investors $
125
Statutory Trust II used the proceeds of the issuance, together with the proceeds of the purchase by the Corporation of $
3.9
FBP Statutory Trust II variable-rate common securities, to purchase $
128.9
Junior Subordinated Deferrable Debentures. The debentures, net of related issuance costs, are presented in the Corporation’s
consolidated statements of financial condition as other long-term borrowings. These TRuPs are variable-rate instruments indexed to
3-
month CME Term SOFR
0.26161
% and the original spread of
2.75
% for the FBP Statutory Trust I
and
2.50
% for the FBP Statutory Trust II.
The Junior Subordinated Deferrable Debentures mature on June 17, 2034, and September
20, 2034, respectively; however, under certain circumstances, the maturity of Junior Subordinated Deferrable Debentures may be
shortened (such shortening would result in a mandatory redemption of the variable-rate TRuPs).
Under the indentures of these instruments, the Corporation has the right, from time to time, and without causing an event of default,
to defer payments of interest on the Junior Subordinated Deferrable Debentures by extending the interest payment period at any time
and from time to time during the term of the subordinated debentures for up to twenty consecutive quarterly periods. As of March 31,
2024, the Corporation was current on all interest payments due on its subordinated debt.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
46
Private Label MBS
During 2004 and 2005, an unaffiliated party, referred to in this subsection as the seller, established a series of statutory trusts to
effect the securitization of mortgage loans and the sale of trust certificates (“private label MBS”). The seller initially provided the
servicing for a fee, which is senior to the obligations to pay private label MBS holders. The seller then entered into a sales agreement
through which it sold and issued the private label MBS in favor of the Corporation’s banking subsidiary, FirstBank. Currently, the
Bank is the sole owner of these private label MBS; the servicing of the underlying residential mortgages that generate the principal
and interest cash flows is performed by another third party, which receives a servicing fee. These private label MBS are variable -rate
securities indexed to
3-month CME Term SOFR
0.26161
% and the original spread limited to the
weighted-average coupon of the underlying collateral. The principal payments from the underlying loans are remitted to a paying
agent (servicer), who then remits interest to the Bank. Interest income is shared to a certain extent with the FDIC, which has an
interest only strip (“IO”) tied to the cash flows of the underlying loans and is entitled to receive the excess of the interest income less a
servicing fee over the variable rate income that the Bank earns on the securities. The FDIC became the owner of the IO upon its
intervention of the seller, a failed financial institution. No recourse agreement exists, and the Bank, as the sole holder of the securities,
absorbs all risks from losses on non-accruing loans and repossessed collateral. As of March 31, 2024, the amortized cost and fair value
of these private label MBS amounted to $
6.9
4.7
7.63
%, which is
included as part of the Corporation’s available-for-sale debt securities portfolio. As described in Note 2 – “Debt Securities,” the ACL
on these private label MBS amounted to $
0.1
Servicing Assets (MSRs)
The Corporation typically transfers first lien residential mortgage loans in conjunction with GNMA securitization transactions in
which the loans are exchanged for cash or securities that are readily redeemed for cash proceeds and servicing rights. The securities
issued through these transactions are guaranteed by GNMA and, under seller/servicer agreements, the Corporation is required to
service the loans in accordance with the issuers’ servicing guidelines and standards. As of March 31, 2024, the Corporation serviced
loans securitized through GNMA with a principal balance of $
2.1
FNMA or FHLMC with servicing retained. The Corporation recognizes as separate assets the rights to service loans for others,
whether those servicing assets are originated or purchased. MSRs are included as part of other assets in the consolidated statements of
financial condition.
The changes in MSRs are shown below for the indicated periods:
Quarter Ended March 31,
2024
2023
(In thousands)
Balance at beginning of year
$
26,941
$
29,037
Capitalization of servicing assets
460
532
Amortization
(1,037)
(1,128)
Temporary impairment recoveries
-
4
Other
(1)
(9)
(14)
Balance at end of period
$
26,355
$
28,431
(1)
Mainly represents adjustments related to the repurchase of loans serviced for others.
Impairment charges are recognized through a valuation allowance for each individual stratum of servicing assets. The valuation
allowance is adjusted to reflect the amount, if any, by which the cost basis of the servicing asset for a given stratum of loans being
serviced exceeds its fair value. Any fair value in excess of the cost basis of the servicing asset for a given stratum is not recognized.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
47
Changes in the impairment allowance were as follows for the indicated periods:
Quarter Ended March 31,
2024
2023
(In thousands)
Balance at beginning of year
$
-
$
12
Temporary impairment recoveries
-
(4)
$
-
$
8
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,
2024
2023
(In thousands)
Servicing fees
$
2,573
$
2,718
Late charges and prepayment penalties
189
199
Other
(1)
(9)
(14)
2,753
2,903
Amortization and impairment of servicing assets
(1,037)
(1,124)
$
1,716
$
1,779
(1)
Mainly represents adjustments related to the repurchase of loans serviced for others.
The Corporation’s MSRs are subject to prepayment and interest rate risks. Key economic assumptions used in determining the fair
value at the time of sale of the related mortgages for the indicated periods ranged as follows:
Weighted Average
Maximum
Minimum
Quarter Ended March 31, 2024
Constant prepayment rate:
6.9
%
12.6
%
3.2
%
6.8
%
15.1
%
2.9
%
6.0
%
7.6
%
4.4
%
Discount rate:
11.5
%
11.5
%
11.5
%
9.5
%
9.5
%
9.5
%
11.5
%
12.5
%
11.0
%
Quarter Ended March 31, 2023
Constant prepayment rate:
6.7
%
11.6
%
4.8
%
7.7
%
16.0
%
3.8
%
5.7
%
7.0
%
2.1
%
Discount rate:
11.5
%
11.5
%
11.5
%
9.5
%
9.5
%
9.5
%
12.8
%
14.0
%
11.5
%
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
48
The weighted averages of the key economic assumptions that the Corporation used in its valuation model and the sensitivity of the
current fair value to immediate
10
% and
20
% adverse changes in those assumptions for mortgage loans were as follows as of the
indicated dates:
March 31,
December 31,
2024
2023
(In thousands)
Carrying amount of servicing assets
$
26,355
$
26,941
Fair value
$
44,764
$
45,244
Weighted-average expected life (in years)
7.74
7.79
Constant prepayment rate (weighted-average annual rate)
6.27
%
6.27
%
$
883
$
886
$
1,724
$
1,731
Discount rate (weighted-average annual rate)
10.69
%
10.68
%
$
1,904
$
1,927
$
3,668
$
3,712
These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10%
variation in assumptions generally cannot be extrapolated because the relationship between the change in assumption and the change
in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the MSR is
calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (for example,
increases in market interest rates may result in lower prepayments), which may magnify or counteract the sensitivities
.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
49
NOTE 8 – DEPOSITS
The following table summarizes deposit balances as of the indicated dates:
March 31,2024
December 31, 2023
(In thousands)
Type of account:
Non-interest-bearing deposit accounts
$
5,346,326
$
5,404,121
Interest-bearing checking accounts
3,934,508
3,937,945
Interest-bearing saving accounts
3,577,465
3,596,855
Time deposits
2,961,526
2,833,730
Brokered certificates of deposits ("CDs")
725,686
783,334
$
16,545,511
$
16,555,985
The following table presents the contractual maturities of time deposits, including brokered CDs, as of March 31,2024:
Total
(In thousands)
Three months or less
$
902,766
Over three months to six months
692,302
Over six months to one year
1,360,319
Over one year to two years
446,607
Over two years to three years
68,684
Over three years to four years
118,387
Over four years to five years
76,502
Over five years
21,645
$
3,687,212
The following were the components of interest expense on deposits for the indicated periods:
Quarter Ended March 31,
2024
2023
(In thousands)
Interest expense on deposits
$
62,929
$
29,924
Accretion of premiums from acquisitions
(34)
(83)
Amortization of broker placement fees
130
44
$
63,025
$
29,885
Total Puerto Rico and U.S. time deposits with balances of more than $250,000 amounted to $
1.5
1.4
March 31, 2024 and December 31, 2023, respectively. This amount does not include brokered CDs that are generally participated out
by brokers in shares of less than the FDIC insurance limit. As of March 31, 2024 and December 31, 2023, unamortized broker
placement fees amounted to $
1.2
1.0
brokered CDs under the interest method.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
50
NOTE 9 – ADVANCES FROM THE FEDERAL HOME LOAN BANK (“FHLB
”)
The following is a summary of the advances from the FHLB as of the indicated dates:
March 31,2024
December 31, 2023
(In thousands)
Long-term
Fixed
-rate advances from the FHLB
(1)
$
500,000
$
500,000
(1)
Weighted-average interest rate of
4.45
% as of each of March 31,2024 and December 31, 2023, respectively.
Advances from the FHLB mature as follows as of the indicated date:
March 31,2024
(In thousands)
Over six months to one year
$
180,000
Over one to five years
(1)
320,000
$
500,000
(1) Average remaining term to maturity of
2.24
NOTE 10 – OTHER LONG-TERM BORROWINGS
Junior Subordinated Debentures
Junior subordinated debentures, as of the indicated dates, consisted of:
(In thousands)
March 31, 2024
December 31, 2023
Long-term floating rate junior subordinated debentures (FBP Statutory Trust I) (1) (3)
$
43,143
$
43,143
Long-term floating rate junior subordinated debentures (FBP Statutory Trust II) (2) (3)
118,557
118,557
$
161,700
$
161,700
(1)
Amount represents junior subordinated interest-bearing debentures due in 2034 with a floating interest rate of
2.75
% over
3-month CME Term SOFR
0.26161
% tenor spread
adjustment as of March 31, 2024 and December 31, 2023 (
8.34
% as of March 31,2024 and
8.39
% as of December 31, 2023).
(2)
Amount represents junior subordinated interest-bearing debentures due in 2034 with a floating interest rate of
2.50
% over
3-month CME Term SOFR
0.26161
% tenor spread
adjustment as of March 31, 2024 and December 31, 2023 (
8.09
% as of March 31, 2024 and
8.13
% as of December 31, 2023).
(3)
See Note 7 - "Non-Consolidated Variable Interest Entities (“VIEs”) and Servicing Assets," for additional information on these debentures.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
51
NOTE 11 – EARNINGS PER COMMON
.
SHARE
The calculations of earnings per common share for the quarters ended March 31, 2024 and 2023 are as follows:
Quarter Ended March 31,
2024
2023
(In thousands, except per share information)
Net income attributable to common stockholders
$
73,458
$
70,698
Weighted-Average Shares:
167,142
180,215
656
1,021
167,798
181,236
Earnings per common share:
Basic
$
0.44
$
0.39
Diluted
$
0.44
$
0.39
Earnings per common share is computed by dividing net income attributable to common stockholders by the weighted-average
number of common shares issued and outstanding. Basic weighted-average common shares outstanding exclude unvested shares of
restricted stock that do not contain non-forfeitable dividend rights .
Potential dilutive common shares consist of unvested shares of restricted stock and performance units (if any of the performance
conditions are met as of the end of the reporting period) that do not contain non-forfeitable dividend or dividend equivalent rights
using the treasury stock method. This method assumes that proceeds equal to the amount of compensation cost attributable to future
services is used to repurchase shares on the open market at the average market price for the period. The difference between the
number of potential dilutive shares issued and the shares purchased is added as incremental shares to the actual number of shares
outstanding to compute diluted earnings per share. Unvested shares of restricted stock outstanding during the period that result in
lower potentially dilutive shares issued than shares purchased under the treasury stock method are not included in the computation of
dilutive earnings per share since their inclusion would have an antidilutive effect on earnings per share. There were
no
shares of common stock during the quarters ended March 31, 2024 and 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
52
NOTE 12 – STOCK-BASED
.
COMPENSATION
The First Bancorp Omnibus Incentive Plan (the “Omnibus Plan”), which is effective until May 24, 2026, provides for equity-based
and non-equity-based compensation incentives (the “awards”). The Omnibus Plan authorizes the issuance of up to
14,169,807
of common stock, subject to adjustments for stock splits, reorganizations and other similar events. As of March 31, 2024, there were
2,592,026
based on the recommendation of the Compensation and Benefits Committee of the Board, has the power and authority to determine
those eligible to receive awards and to establish the terms and conditions of any awards, subject to various limits and vesting
restrictions that apply to individual and aggregate awards.
Restricted Stock
Under the Omnibus Plan, the Corporation may grant restricted stock to plan participants, subject to forfeiture upon the occurrence
of certain events until the dates specified in the participant’s award agreement. While the restricted stock is subject to forfeiture and
does not contain non-forfeitable dividend rights, participants may exercise full voting rights with respect to the shares of restricted
stock granted to them. The fair value of the shares of restricted stock granted was based on the market price of the Corporation’s
common stock on the date of the respective grant. The shares of restricted stocks granted to employees are subject to the following
vesting period: fifty percent (
50
%) of those shares vest on the two-year anniversary of the grant date and the remaining
50
% vest on
the three-year anniversary of the grant date. The shares of restricted stock granted to directors are generally subject to vesting on the
one-year anniversary of the grant date. The Corporation issued
398,013
with restricted stock awards, which were reissued from treasury shares.
The following table summarizes the restricted stock activity under the Omnibus Plan during the quarters ended March 31, 2024
and 2023:
Quarter ended
Quarter ended
March 31, 2024
March 31, 2023
Number of
Weighted-
Number of
Weighted-
shares of
Average
shares of
Average
restricted
Grant Date
restricted
Grant Date
stock
stock
Unvested shares outstanding at beginning of year
889,642
$
12.30
938,491
$
9.14
Granted
(1)
398,013
17.35
495,891
11.99
Forfeited
(1,905)
12.14
(25,415)
9.98
Vested
(252,504)
12.26
(481,536)
5.93
Unvested shares outstanding at end of period
1,033,246
$
14.26
927,431
$
12.32
(1)
For the quarter ended March 31,2024, includes
2,280
395,733
84,122
3,502
stock awarded to independent directors and
33,718
charged to earnings as of the grant date.
For the quarters ended March 31, 2024 and 2023, the Corporation recognized $
2.4
1.6
based compensation expense related to restricted stock awards. As of March 31, 2024, there was $
8.2
compensation cost related to unvested shares of restricted stock that the Corporation expects to recognize over a weighted average
period of
2.0
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
53
Performance Units
Under the Omnibus Plan, the Corporation may award performance units to participants, with each unit representing the value of one
share of the Corporation’s common stock.
These awards, which are granted to executives, do not contain non-forfeitable rights to
dividend equivalent amounts and can only be settled in shares of the Corporation’s common stock.
Performance units granted during the quarters ended March 31, 2024 and 2023 vest on the third anniversary of the effective date of
the award based on actual achievement of two performance metrics weighted equally: relative total shareholder return (“Relative
TSR”), compared to companies that comprise the KBW Nasdaq Regional Banking Index, and the achievement of a tangible book
value per share (“TBVPS”) goal, which is measured based upon the growth in the tangible book value during the performance cycle,
adjusted for certain allowable non-recurring transactions. The participant may earn 50% of their target opportunity for threshold level
performance and up to 150% of their target opportunity for maximum level performance, based on the individual achievement of each
performance goal during a three-year performance cycle. Amounts between threshold, target and maximum performance will vest in a
proportional amount.
The following table summarizes the performance units activity under the Omnibus Plan during the quarters ended March 31, 2024
and 2023:
Quarter ended
Quarter ended
March 31, 2024
March 31, 2023
Number
Weighted -
Number
Weighted -
of
Average
of
Average
Performance
Grant Date
Performance
Grant Date
Units
Fair Value
Units
Fair Value
Performance units at beginning of year
534,261
12.25
791,923
7.36
Additions
(1)
165,487
18.39
216,876
12.24
Vested
(2)
(150,716)
11.26
(474,538)
4.08
Performance units at end of period
549,032
14.37
534,261
12.25
(1)
Units granted during the quarters ended March 31, 2024 and 2023 are based on the achievement of the Relative TSR and TBVPS performance goals during a three-year performance cycle
beginning January 1, 2024 and January 1, 2023, respectively, and ending on December 31, 2026 and December 31, 2025, respectively.
(2)
Units vested during the quarters ended March 31, 2024 and 2023 are related to performance units granted in 2021 and 2020, respectively, that met the pre-established target and were
settled with shares of common stock reissued from treasury shares.
The fair value of the performance units awarded during the quarters ended March 31, 2024 and 2023, that was based on the TBVPS
goal component, was calculated based on the market price of the Corporation’s common stock on the respective date of the grant and
assuming attainment of 100% of target opportunity. As of March 31, 2024, there have been no changes in management’s assessment
of the probability that the pre-established TBVPS goal will be achieved; as such, no cumulative adjustment to compensation expense
has been recognized. The fair value of the performance units awarded, that was based on the Relative TSR component, was calculated
using a Monte Carlo simulation. Since the Relative TSR component is considered a market condition, the fair value of the portion of
the award based on Relative TSR is not revised subsequent to grant date based on actual performance.
The following table summarizes the valuation assumptions used to calculate the fair value of the Relative TSR component of the
performance units granted under the Omnibus Plan during the quarters ended March 31, 2024 and 2023:
Quarter Ended March 31,
2024
2023
Risk-free interest rate
(1)
4.41
%
3.98
%
Correlation coefficient
73.80
77.16
Expected dividend yield
(2)
-
-
Expected volatility
(3)
34.65
41.37
Expected life (in years)
2.78
2.79
(1)
Based on the yield on zero-coupon U.S. Treasury Separate Trading of Registered Interest and Principal of Securities as of the grant date for a period equal to the simulation term.
(2)
Assumes that dividends are reinvested at each ex-dividend date.
(3)
Calculated based on the historical volatility of the Corporation's stock price with a look-back period equal to the simulation term using daily stock prices.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
54
For each of the quarters ended March 31, 2024 and 2023, the Corporation recognized $
0.5
expense related to performance units. As of March 31, 2024, there was $
5.6
unvested performance units that the Corporation expects to recognize over a weighted average period of
2.4
Shares withheld
During the first quarter of 2024, the Corporation withheld
136,038
287,835
stock and performance units that vested during such period to cover the participants’ payroll and income tax withholding liabilities;
these shares are held as treasury shares. The Corporation paid in cash any fractional share of salary stock to which an officer was
entitled. In the consolidated financial statements, the Corporation presents shares withheld for tax purposes as common stock
repurchases.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
55
NOTE 13 – STOCKHOLDERS’ EQUITY
Stock Repurchase Programs
On July 24, 2023, the Corporation announced that its Board of Directors approved a new stock repurchase program, under which
the Corporation may repurchase up to $
225
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 Corporation’s stock repurchase program does not obligate it to acquire any specific number of shares
and does not have an expiration date. The stock repurchase program may be modified, suspended, or terminated at any time at the
Corporation’s discretion. During the first quarter of 2024, the Corporation repurchased
3,006,551
open market transactions at an average price of $
16.63
50.0
program. As of March 31, 2024, the Corporation has remaining authorization to repurchase approximately $
100.0
stock, which it expects to execute through the end of the third quarter of 2024. The Corporation’s holding company has no operations
and depends on dividends, distributions and other payments from its subsidiaries to fund dividend payments, stock repurchases, and to
fund all payments on its obligations, including debt obligations.
Common Stock
The following table shows the changes in shares of common stock outstanding for the quarters ended March 31, 2024 and 2023:
Total Number of Shares
Quarter Ended March 31,
2024
2023
Common stock outstanding, beginning of year
169,302,812
182,709,059
Common stock repurchased
(1)
(3,142,589)
(3,865,375)
Common stock reissued under stock-based compensation plan
548,729
970,429
Restricted stock forfeited
(1,905)
(25,415)
Common stock outstanding, end of period
166,707,047
179,788,698
For the quarters ended March 31, 2024 and 2023 includes
136,038
287,835
For the quarters ended March 31, 2024 and 2023, total cash dividends declared on shares of common stock amounted to $
26.9
million ($
0.16
25.4
0.14
April 25, 2024
, the Corporation’s Board of Directors
declared a quarterly cash dividend of $
0.16
June 14, 2024
the close of business on
May 30, 2024
. The Corporation intends to continue to pay quarterly dividends on common stock. However,
the Corporation’s common stock dividends, including the declaration, timing, and amount, remain subject to consideration and
approval by the Corporation’s Board Directors at the relevant times.
Preferred Stock
The Corporation has
50,000,000
1.00
, subject to certain terms. This stock
may be issued in series and the shares of each series have such rights and preferences as are fixed by the Corporation’s Board of
Directors when authorizing the issuance of that particular series and are redeemable at the Corporation’s option.
No
preferred stock were outstanding as of March 31, 2024 and December 31, 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
56
Treasury Stock
The following table shows the changes in shares of treasury stock for the quarters ended March 31, 2024 and 2023.
Total Number of Shares
Quarter Ended March 31,
2024
2023
Treasury stock, beginning of year
54,360,304
40,954,057
Common stock repurchased
3,142,589
3,865,375
Common stock reissued under stock-based compensation plan
(548,729)
(970,429)
Restricted stock forfeited
1,905
25,415
Treasury stock, end of period
56,956,069
43,874,418
FirstBank Statutory Reserve (Legal Surplus)
The Puerto Rico Banking Law of 1933, as amended (the “Puerto Rico Banking Law”), requires that a minimum of
10
% of
FirstBank’s net income for the year be transferred to a legal surplus reserve until such surplus equals the total of paid-in-capital on
common and preferred stock. Amounts transferred to the legal surplus reserve from retained earnings are not available for distribution
to the Corporation without the prior consent of the Puerto Rico Commissioner of Financial Institutions.
The Puerto Rico Banking Law
provides that, when the expenditures of a Puerto Rico commercial bank are greater than receipts, the excess of the expenditures over
receipts must be charged against the undistributed profits of the bank, and the balance, if any, must be charged against the legal
surplus reserve, as a reduction thereof. If the legal surplus reserve is not sufficient to cover such balance in whole or in part, the
outstanding amount must be charged against the capital account and the Bank cannot pay dividends until it can replenish the legal
surplus reserve to an amount of at least 20% of the original capital contributed.
retained earnings in the Corporation’s consolidated statements of financial condition, amounted to $
199.6
31, 2024 and December 31, 2023. There were
no
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
57
NOTE 14 – ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents the changes in accumulated other comprehensive loss for the quarters ended March 31, 2024 and
2023:
Changes in Accumulated Other Comprehensive Loss by Component
(1)
Quarter ended March 31,
2024
2023
(In thousands)
Unrealized net holding losses on available-for-sale debt securities:
Beginning balance
$
(640,552)
$
(805,972)
(2)
(15,065)
87,228
Ending balance
$
(655,617)
$
(718,744)
Adjustment of pension and postretirement benefit plans:
Beginning balance
$
1,382
$
1,194
-
-
Ending balance
$
1,382
$
1,194
(1)
All amounts presented are net of tax.
(2)
Net unrealized holding (losses) gains on available-for-sale debt securities have no tax effect because securities are either tax-exempt, held by an IBE, or have a full deferred tax
asset valuation allowance.
NOTE 15 – EMPLOYEE BENEFIT PLANS
The Corporation maintains two frozen qualified noncontributory defined benefit pension plans (the “Pension Plans”), and a related
complementary post-retirement benefit plan (the “Postretirement Benefit Plan”) covering medical benefits and life insurance after
retirement that it obtained in the Banco Santander Puerto Rico (“BSPR”) acquisition on September 1, 2020. One defined benefit
pension plan covers substantially all of BSPR’s former employees who were active before January 1, 2007, while the other defined
benefit pension plan covers personnel of an institution previously acquired by BSPR. Benefits are based on salary and years of service.
The accrual of benefits under the Pension Plans is frozen to all participants.
The 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 the ASC Topic 715, “Compensation-Retirement Benefits.”
The following table presents the components of net periodic (benefit) cost for the indicated periods:
Affected Line Item
in the Consolidated
Quarter Ended
Statements of Income
March 31, 2024
March 31, 2023
(In thousands)
Net periodic (benefit) cost, pension plans:
Interest cost
Other expenses
$
901
$
950
Expected return on plan assets
Other expenses
(1,018)
(886)
Net periodic (benefit) cost, pension plans
(117)
64
Net periodic cost, postretirement plan
Other expenses
16
6
Net periodic (benefit) cost
$
(101)
$
70
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
58
NOTE 16 – INCOME TAXES
The Corporation is subject to Puerto Rico income tax on its income from all sources. Under the Puerto Rico Internal Revenue Code,
as amended (the “PR Tax Code”), the Corporation and its subsidiaries are treated as separate taxable entities and are not entitled to file
consolidated tax returns. However, certain subsidiaries that are organized as limited liability companies with a partnership election are
treated as pass-through entities for Puerto Rico tax purposes. The Corporation conducts business through certain entities that have
special tax treatments, including doing business through an IBE unit of the Bank and through FirstBank Overseas Corporation, each of
which are generally exempt from Puerto Rico income taxation under the International Banking Entity Act of Puerto Rico (“IBE Act”),
and through a wholly-owned subsidiary that engages in certain Puerto Rico qualified investing and lending activities that have certain
tax advantages under Act 60 of 2019.
Under the PR Tax Code, 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 PR Tax 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 PR Tax
Code provides a dividend received deduction of
100
% on dividends received from “controlled” subsidiaries subject to taxation in
Puerto Rico and
85
% on dividends received from other taxable domestic corporations. In addition, the IBE unit of the Bank and
FirstBank Overseas Corporation, which were created under the IBE Act, have an exemption on net income derived from specific
activities identified in such 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.
Income tax expense also includes USVI income taxes, as well as applicable U.S. federal and state taxes. As a Puerto Rico
corporation, FirstBank is treated as a foreign corporation for U.S. and USVI income tax purposes and is generally subject to U.S. and
USVI income tax only on its income from sources within the U.S. and USVI or income effectively connected with the conduct of a
trade or business in those jurisdictions. Such tax paid in the U.S. and USVI is also creditable against the Corporation’s Puerto Rico tax
liability, subject to certain conditions and limitations.
For the first quarter of 2024, the Corporation recorded an income tax expense of $23.9 million compared to $
31.9
first quarter of 2023. The decrease in income tax expense was mainly driven by a lower effective tax rate during the first quarter of
2024 and, to a lesser extent, by lower pre-tax income. During the fourth quarter of 2023, the Corporation engaged in certain business
activities with preferential tax treatment under the PR Tax Code which resulted in a lower effective tax rate for the year 2023. The
Corporation has maintained an effective tax rate lower than the Puerto Rico maximum statutory rate of
37.5
%. The Corporation’s
estimated annual effective tax rate, excluding entities with pre-tax losses from which a tax benefit cannot be recognized and discrete
items, was
24.3
% for the first quarter of 2024, compared to
31.2
% for the first quarter of 2023.
As of March 31, 2024, the Corporation had a deferred tax asset of $
147.7
140.1
against the deferred tax asset, compared to a deferred tax asset of $
150.1
139.2
December 31, 2023. The net deferred tax asset of the Corporation’s banking subsidiary, FirstBank, amounted to $
147.7
March 31, 2024, net of a valuation allowance of $
112.7
150.1
valuation allowance of $
111.4
tax assets associated with capital loss carryforwards, NOL carryforwards and unrealized losses of available-for-sale debt securities.
In 2017, the Corporation completed a formal ownership change analysis within the meaning of Section 382 of the U.S. Internal
Revenue Code (“Section 382”) covering a comprehensive period and concluded that an ownership change had occurred during such
period. The Section 382 limitation has resulted in higher U.S. and USVI income tax liabilities than we would have incurred in the
absence of such limitation. The Corporation has mitigated to an extent the adverse effects associated with the Section 382 limitation as
any such tax paid in the U.S. or USVI can be creditable against Puerto Rico tax liabilities or taken as a deduction against taxable
income. However, our ability to reduce our Puerto Rico tax liability through such a credit or deduction depends on our tax profile at
each annual taxable period, which is dependent on various factors. For the first quarters of 2024 and 2023, FirstBank incurred current
income tax expense of approximately $
2.2
2.5
impact the USVI operations in the first quarters of 2024 and 2023, respectively.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
59
The Corporation accounts for uncertain tax positions under the provisions of ASC Topic 740, Income Taxes. The Corporation’s
policy is to report interest and penalties related to unrecognized tax positions in income tax expense. As of March 31, 2024, the
Corporation had $
0.2
0.8
acquired from BSPR, which, if recognized, would decrease the effective income tax rate in future periods.
The amount of
unrecognized tax benefits may increase or decrease in the future for various reasons, including adding amounts for current tax year
positions, expiration of open income tax returns due to the statute of limitations, changes in management’s judgment about the level of
uncertainty, the status of examinations, litigation and legislative activity, and the addition or elimination of uncertain tax positions.
The statute of limitations under the PR Tax Code is four years after a tax return is due or filed, whichever is later; the statute of
limitations for U.S. and USVI income tax purposes is three years after a tax return is due or filed, whichever is later. The completion
of an audit by the taxing authorities or the expiration of the statute of limitations for a given audit period could result in an adjustment
to the Corporation’s liability for income taxes. Any such adjustment could be material to the results of operations for any given
quarterly or annual period based, in part, upon the results of operations for the given period. For U.S. and USVI income tax purposes,
all tax years subsequent to 2019 remain open to examination. For Puerto Rico tax purposes, all tax years subsequent to 2018 remain
open to examination.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
60
NOTE 17 – FAIR VALUE
Fair Value Measurement
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. This guidance also establishes a fair value hierarchy for classifying assets and
liabilities, which is based on whether the inputs to the valuation techniques used to measure fair value are observable or unobservable.
One of three levels of inputs may be used to measure fair value:
Valuations of Level 1 assets and liabilities are obtained from readily-available pricing sources for market
transactions involving identical assets or liabilities in active markets.
Va
luations of Level 2 assets and liabilities are based on observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
Va
luations of Level 3 assets and liabilities are based on unobservable inputs that are supported by little or no market
activity and are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial
instruments whose value is determined by using pricing models for which the determination of fair value requires
significant management judgment as to the estimation.
a description of the valuation methodologies used to measure financial instruments at fair value on a recurring basis.
quarters ended March 31, 2024 and 2023.
Assets and liabilities measured at fair value on a recurring basis are summarized below as of March 31,2024 and December 31, 2023:
As of March 31, 2024
As of December 31, 2023
Fair Value Measurements Using
Fair Value Measurements Using
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
(In thousands)
Assets:
Debt securities available for sale:
U.S. Treasury securities
$
116,068
$
-
$
-
$
116,068
$
135,393
$
-
$
-
$
135,393
Noncallable U.S. agencies debt securities
-
467,940
-
467,940
-
433,437
-
433,437
Callable U.S. agencies debt securities
-
1,785,476
-
1,785,476
-
1,874,960
-
1,874,960
MBS
-
2,671,420
4,724
(1)
2,676,144
-
2,779,994
4,785
(1)
2,784,779
Puerto Rico government obligation
-
-
1,551
1,551
-
-
1,415
1,415
Equity securities
4,871
-
-
4,871
4,893
-
-
4,893
Derivative assets
-
239
-
239
-
341
-
341
Liabilities:
Derivative liabilities
-
242
-
242
-
317
-
317
(1) Related to private label MBS.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
61
The table below presents a reconciliation of the beginning and ending balances of all assets measured at fair value on a recurring
basis using significant unobservable inputs (Level 3) for the quarters ended March 31, 2024 and 2023:
Quarter Ended March 31,
2024
2023
Level 3 Instruments Only
Securities Available
for Sale
(1)
Securities Available
for Sale
(1)
(In thousands)
Beginning balance
$
6,200
$
8,495
239
(162)
(2)
69
9
(3)
(233)
(737)
Ending balance
$
6,275
$
7,605
(1)
Amounts related to private label MBS and a Puerto Rico government obligation.
(2)
Changes in unrealized gains included in earnings were recognized within provision for credit losses - expense and relate to assets still held as of the reporting date.
(3)
0.5
The tables below present quantitative information for significant assets measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) as of March 31,2024 and December 31, 2023:
March 31, 2024
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
Maximum
(Dollars in thousands)
Available-for-sale debt securities:
$
4,724
Discounted cash flows
Discount rate
16.4%
16.4%
16.4%
Prepayment rate
0.0%
6.9%
3.7%
Projected cumulative loss rate
0.2%
10.5%
3.8%
$
1,551
Discounted cash flows
Discount rate
13.0%
13.0%
13.0%
Projected cumulative loss rate
21.3%
21.3%
21.3%
December 31, 2023
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
Maximum
(Dollars in thousands)
Available-for-sale debt securities:
$
4,785
Discounted cash flows
Discount rate
16.1%
16.1%
16.1%
Prepayment rate
0.0%
6.9%
3.7%
Projected cumulative loss rate
0.1%
10.9%
4.2%
$
1,415
Discounted cash flows
Discount rate
14.1%
14.1%
14.1%
Projected cumulative loss rate
25.8%
25.8%
25.8%
Information about Sensitivity to Changes in Significant Unobservable Inputs
Private label MBS: The significant unobservable inputs in the valuation include probability of default, the loss severity assumption,
and prepayment rates. Shifts in those inputs would result in different fair value measurements. Increases in the probability of default,
loss severity assumptions, and prepayment rates in isolation would generally result in an adverse effect on the fair value of the
instruments. The Corporation modeled meaningful and possible shifts of each input to assess the effect on the fair value estimation.
Puerto Rico Government Obligation: The significant unobservable input used in the fair value measurement is the assumed loss rate of
the underlying residential mortgage loans that collateralize a pass-through MBS guaranteed by the PRHFA. A significant increase
(decrease) in the assumed rate would lead to a (lower) higher fair value estimate. See Note 2 – “Debt Securities” for information on
the methodology used to calculate the fair value of these debt securities.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
62
Additionally, fair value is used on a nonrecurring basis to evaluate certain assets in accordance with GAAP.
For the quarters ended March 31, 2024 and 2023, the Corporation recorded losses or valuation adjustments for assets recognized at
fair value on a non-recurring basis and still held at March 31, 2024 and 2023, as shown in the following table:
Carrying value as of March 31,
Related to losses recorded for the Quarter Ended
March 31,
2024
2023
2024
2023
(In thousands)
Level 3:
Loans receivable
$
9,654
$
3,486
$
(41)
$
(60)
OREO
(2)
859
814
(163)
(33)
(1)
Consists mainly of collateral dependent commercial and construction loans. The Corporation generally measured losses based on the fair value of the collateral. The Corporation derived
the fair values from external appraisals that took into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and
assumptions of the collateral (e.g., absorption rates), which are not market observable. There were no significant haircuts applied on appraisals for the quarters ended March 31, 2024 and
2023.
(2)
The Corporation derived the fair values from appraisals that took into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific
characteristics and assumptions of the properties (e.g., absorption rates and net operating income of income producing properties), which are not market observable. Losses were related to
market valuation adjustments after the transfer of the loans to the OREO portfolio. The haircuts applied ranged from
2
% to
21
% for the quarter ended March 31, 2024 and from
10
% to
28
% for the quarter ended March 31, 2023.
See Note 25 – “Fair Value,” to the audited consolidated financial statements included in the 2023 Annual Report on Form 10-K for
qualitative information regarding the fair value measurements for Level 3 financial instruments measured at fair value on nonrecurring
basis.
The following tables present the carrying value, estimated fair value and estimated fair value level of the hierarchy of financial
instruments as of March 31,2024 and December 31, 2023:
Total Carrying Amount
in Statement of
Financial Condition as
of March 31, 2024
Fair Value Estimate as of
March 31, 2024
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money market investments (amortized cost)
$
684,519
$
684,519
$
684,519
$
-
$
-
Available-for-sale debt securities (fair value)
5,047,179
5,047,179
116,068
4,924,836
6,275
Held-to-maturity debt securities:
349,330
(1,235)
$
348,095
338,120
-
228,237
109,883
Equity securities (amortized cost)
46,519
46,519
-
46,519
(1)
-
Other equity securities (fair value)
4,871
4,871
4,871
-
-
Loans held for sale (lower of cost or market)
12,080
12,173
-
12,173
-
Loans held for investment:
12,311,448
(263,592)
$
12,047,856
11,953,468
-
-
11,953,468
MSRs (amortized cost)
26,355
44,764
-
-
44,764
Derivative assets (fair value)
239
239
-
239
-
Liabilities:
Deposits (amortized cost)
$
16,545,511
$
16,546,891
$
-
$
16,546,891
$
-
Advances from the FHLB (amortized cost):
500,000
496,672
-
496,672
-
Other long-term borrowings (amortized cost)
161,700
160,199
-
-
160,199
Derivative liabilities (fair value)
242
242
-
242
-
(1) Includes FHLB stock with a carrying value of $
34.6
(2) ) Includes interest rate swap agreements, interest rate caps, forward contracts, interest rate lock commitments, and forward loan sales commitments.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
63
Total Carrying
Amount in Statement
of Financial Condition
as of December 31,
2023
Fair Value Estimate as of
December 31, 2023
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money market investments (amortized cost)
$
663,164
$
663,164
$
663,164
$
-
$
-
Available-for-sale debt securities (fair value)
5,229,984
5,229,984
135,393
5,088,391
6,200
Held-to-maturity debt securities:
354,178
(2,197)
$
351,981
346,132
-
235,239
110,893
Equity securities (amortized cost)
44,782
44,782
-
44,782
(1)
-
Other equity securities (fair value)
4,893
4,893
4,893
-
-
Loans held for sale (lower of cost or market)
7,368
7,476
-
7,476
-
Loans held for investment:
12,185,483
(261,843)
$
11,923,640
11,762,855
-
-
11,762,855
MSRs (amortized cost)
26,941
45,244
-
-
45,244
Derivative assets (fair value)
(2)
341
341
-
341
-
Liabilities:
Deposits (amortized cost)
$
16,555,985
$
16,565,435
$
-
$
16,565,435
$
-
Advances from the FHLB (amortized cost)
500,000
500,522
-
500,522
-
Other long-term borrowings (amortized cost)
161,700
159,999
-
-
159,999
Derivative liabilities (fair value)
(2)
317
317
-
317
-
(1) Includes FHLB stock with a carrying value of $
34.6
(2) Includes interest rate swap agreements, interest rate caps, forward contracts and interest rate lock commitments.
The short-term nature of certain assets and liabilities result in their carrying value approximating fair value. These include cash and
cash due from banks and other short-term assets, such as FHLB stock. Certain assets, the most significant being premises and
equipment, goodwill and other intangible assets, are not considered financial instruments and are not included above. Accordingly,
this fair value information is not intended to, and does not, represent the Corporation’s underlying value. Many of these assets and
liabilities that are subject to the disclosure requirements are not actively traded, requiring management to estimate fair values. These
estimates necessarily involve the use of assumptions and judgment about a wide variety of factors, including but not limited to,
relevancy of market prices of comparable instruments, expected future cash flows, and appropriate discount rates.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
64
NOTE 18 – REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue Recognition
In accordance with ASC Topic 606, “Revenue from Contracts with Customers” (“ASC Topic 606”), revenues are recognized when
control of promised goods or services is transferred to customers and in an amount that reflects the consideration to which the
Corporation expects to be entitled in exchange for those goods or services. At contract inception, once the contract is determined to be
within the scope of ASC Topic 606, the Corporation assesses the goods or services that are promised within each contract, identifies
the respective performance obligations, and assesses whether each promised good or service is distinct. The Corporation then
recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the
performance obligation is satisfied.
Disaggregation of Revenue
The following tables summarize the Corporation’s revenue, which includes net interest income on financial instruments that is
outside of ASC Topic 606 and non-interest income, disaggregated by type of service and business segment for the quarters ended
March 31, 2024 and 2023:
Quarter ended March 31,2024
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial
and Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income (loss)
(1)
$
15,823
$
148,947
$
14,928
$
(6,532)
$
18,248
$
5,106
$
196,520
Service charges and fees on deposit accounts
-
5,281
3,492
-
148
741
9,662
Insurance commissions
-
5,234
-
-
56
217
5,507
Card and processing income
-
10,238
24
-
78
972
11,312
Other service charges and fees
58
1,043
876
-
621
141
2,739
Not in scope of ASC Topic 606
2,961
1,610
109
83
(2)
2
4,763
3,019
23,406
4,501
83
901
2,073
33,983
Total Revenue (Loss)
$
18,842
$
172,353
$
19,429
$
(6,449)
$
19,149
$
7,179
$
230,503
Quarter ended March 31,2023
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial
and Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income (loss)
(1)
$
21,788
$
137,744
$
14,940
$
(658)
$
20,930
$
6,141
$
200,885
Service charges and fees on deposit accounts
-
5,486
3,154
-
165
736
9,541
Insurance commissions
-
4,640
-
-
28
179
4,847
Card and processing income
-
9,901
22
-
31
964
10,918
Other service charges and fees
161
1,152
854
-
583
344
3,094
Not in scope of ASC Topic 606
(1)
2,913
855
145
160
40
5
4,118
Total non-interest income
3,074
22,034
4,175
160
847
2,228
32,518
Total Revenue (Loss)
$
24,862
$
159,778
$
19,115
$
(498)
$
21,777
$
8,369
$
233,403
(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.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
65
For the quarters ended March 31, 2024 and 2023, most of the Corporation’s revenue within the scope of ASC Topic 606 was
related to performance obligations satisfied at a point in time.
See Note 26 – “Revenue from Contracts with Customers,” to the audited consolidated financial statements included in the 2023
Annual Report on Form 10-K for a discussion of major revenue streams under the scope of ASC Topic 606.
Contract Balances
As of March 31, 2024 and December 31, 2023, there were
no
statements. Moreover, the balances of contract liabilities as of such dates were not significant.
Other
The Corporation also did not have any material contract acquisition costs and did not make any significant judgments or estimates
in recognizing revenue for financial reporting purposes.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
66
NOTE 19 – SEGMENT INFORMATION
Based upon the Corporation’s organizational structure and the information provided to the Chief Executive Officer and
management, the operating segments are based primarily on the Corporation’s lines of business for its operations in Puerto Rico, the
Corporation’s principal market, and by geographic areas for its operations outside of Puerto Rico. As of March 31, 2024, the
Corporation had
six
Treasury and Investments; United States Operations; and Virgin Islands Operations. Management determined the reportable segments
based on the internal structure used to evaluate performance and to assess where to allocate resources. Other factors, such as the
Corporation’s organizational chart, nature of the products, distribution channels, and the economic characteristics of the products,
were also considered in the determination of the reportable segments.
The Mortgage Banking segment consists of the origination, sale, and servicing of a variety of residential mortgage loans. The
Mortgage Banking segment also acquires and sells mortgages in the secondary markets. The Consumer (Retail) Banking segment
consists of the Corporation’s consumer lending and deposit -taking activities conducted mainly through its branch network and loan
centers. The Commercial and Corporate Banking segment consists of the Corporation’s lending and other services for large customers
represented by specialized and middle-market clients and the public sector. The Commercial and Corporate Banking segment offers
commercial loans, including commercial real estate and construction loans, and floor plan financings, as well as other products, such
as cash management and business management services. The Treasury and Investments segment is responsible for the Corporation’s
investment portfolio and treasury functions that are executed to manage and enhance liquidity. This segment lends funds to the
Commercial and Corporate Banking, the Mortgage Banking, the Consumer (Retail) Banking, and the United States Operations
segments to finance their lending activities and borrows from those segments. The Consumer (Retail) Banking segment also lends
funds to other segments. The interest rates charged or credited by the Treasury and Investments and the Consumer (Retail) Banking
segments are allocated based on market rates. The difference between the allocated interest income or expense and the Corporation’s
actual net interest income from centralized management of funding costs is reported in the Treasury and Investments segment. The
United States Operations segment consists of all banking activities conducted by FirstBank in the United States mainland, including
commercial and consumer banking services. The Virgin Islands Operations segment consists of all banking activities conducted by the
Corporation in the USVI and the BVI, including commercial and consumer banking services.
The accounting policies of the segments are the same as those referred to in Note 1 – “Nature of Business and Summary of
Significant Accounting Policies,” to the audited consolidated financial statements included in the 2023 Annual Report on Form 10-K.
The Corporation evaluates the performance of the segments based on net interest income, the provision for credit losses, non-
interest income and direct non-interest expenses. The segments are also evaluated based on the average volume of their interest-
earning assets less the ACL.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
67
The following tables present information about the reportable segments for the indicated periods:
Mortgage
Banking
Consumer
(Retail) Banking
Commercial and
Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Quarter ended March 31,2024:
Interest income
$
31,443
$
94,795
$
72,112
$
28,058
$
34,765
$
7,332
$
268,505
Net (charge) credit for transfer of funds
(15,620)
96,251
(57,184)
(21,472)
(1,975)
-
-
Interest expense
-
(42,099)
-
(13,118)
(14,542)
(2,226)
(71,985)
Net interest income (loss)
15,823
148,947
14,928
(6,532)
18,248
5,106
196,520
Provision for credit losses - (benefit) expense
(260)
15,418
(2,439)
(69)
82
(565)
12,167
Non-interest income
3,019
23,406
4,501
83
901
2,073
33,983
Direct non-interest expenses
6,705
42,645
10,339
1,071
9,110
6,591
76,461
$
12,397
$
114,290
$
11,529
$
(7,451)
$
9,957
$
1,153
$
141,875
Average earning assets
$
2,126,465
$
3,472,998
$
4,022,173
$
5,900,314
$
2,087,816
$
413,219
$
18,022,985
Mortgage
Banking
Consumer
(Retail) Banking
Commercial and
Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Quarter ended March 31,2023:
Interest income
$
31,907
$
83,174
$
62,343
$
27,466
$
31,114
$
6,392
$
242,396
Net (charge) credit for transfer of funds
(10,119)
77,735
(47,403)
(19,539)
(674)
-
-
Interest expense
-
(23,165)
-
(8,585)
(9,510)
(251)
(41,511)
Net interest income (loss)
21,788
137,744
14,940
(658)
20,930
6,141
200,885
Provision for credit losses - (benefit) expense
(506)
15,224
(2,536)
(9)
4,655
(1,326)
15,502
Non-interest income
3,074
22,034
4,175
160
847
2,228
32,518
Direct non-interest expenses
5,087
41,627
9,365
947
8,304
6,825
72,155
$
20,281
$
102,927
$
12,286
$
(1,436)
$
8,818
$
2,870
$
145,746
Average earning assets
$
2,171,061
$
3,174,150
$
3,713,633
$
6,216,498
$
2,067,848
$
366,338
$
17,709,528
The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods:
Quarter Ended March 31,
2024
2023
(In thousands)
Net income:
Total income for segments
$
141,875
$
145,746
Other non-interest expenses
44,462
43,113
Income before income taxes
97,413
102,633
Income tax expense
23,955
31,935
$
73,458
$
70,698
Average assets:
Total average earning assets for segments
$
18,022,985
$
17,709,528
Average non-earning assets
835,314
847,628
$
18,858,299
$
18,557,156
(1)
Expenses pertaining to corporate administrative functions that support the operating segment, but are not specifically attributable to or managed by any segment, are not included in the
reported financial results of the operating segments. The unallocated corporate expenses include certain general and administrative expenses and related depreciation and amortization
expenses.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
68
NOTE 20 – SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
Supplemental statement of cash flows information is as follows for the indicated periods:
Quarter Ended March 31,
2024
2023
(In thousands)
Cash paid for:
$
67,322
$
37,798
-
10,926
4,362
4,316
Non-cash investing and financing activities:
1,213
6,414
15,710
15,356
460
532
24,266
28,736
118
2,345
-
1,008
3,926
1,630
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
69
NOTE 21 – REGULATORY MATTERS, COMMITMENTS AND CONTINGENCIES
Regulatory Matters
The Corporation and FirstBank are each subject to various regulatory capital requirements imposed by the U.S. federal banking
agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions
by regulators that, if undertaken, could have a direct material adverse effect on the Corporation’s financial statements and activities.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific
capital guidelines that involve quantitative measures of the Corporation’s and FirstBank’s assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. The Corporation’s capital amounts and classification are also subject
to qualitative judgments and adjustment by the regulators with respect to minimum capital requirements, components, risk weightings,
and other factors. As of March 31, 2024 and December 31, 2023, the Corporation and FirstBank exceeded the minimum regulatory
capital ratios for capital adequacy purposes and FirstBank exceeded the minimum regulatory capital ratios to be considered a well-
capitalized institution under the regulatory framework for prompt corrective action. As of March 31, 2024, management does not
believe that any condition has changed or event has occurred that would have changed the institution’s status.
The Corporation and FirstBank compute risk-weighted assets using the standardized approach required by the U.S. Basel III capital
rules (“Basel III rules”).
The Basel III rules require the Corporation to maintain an additional capital conservation buffer of
2.5
% on certain regulatory
capital ratios to avoid limitations on both (i) capital distributions (
e.g.
, repurchases of capital instruments, dividends and interest
payments on capital instruments) and (ii) discretionary bonus payments to executive officers and heads of major business lines.
As part of its response to the impact of COVID-19, on March 31, 2020, the federal banking agencies issued an interim final rule
that provided the option to temporarily delay the effects of CECL on regulatory capital for two years, followed by a three-year
transition period. The interim final rule provides that, at the election of a qualified banking organization, the day one impact to
retained earnings plus
25
% of the change in the ACL (as defined in the final rule) from January 1, 2020 to December 31, 2021 will be
delayed for two years and phased-in at
25
% per year beginning on January 1, 2022 over a three-year period, resulting in a total
transition period of five years. Accordingly, as of March 31, 2024, the capital measures of the Corporation and the Bank included
$
48.6
25
% of the increase in the ACL (as defined in the
interim final rule) from January 1, 2020 to December 31, 2021, and $
16.2
2025.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
70
The regulatory capital position of the Corporation and FirstBank as of March 31, 2024 and December 31, 2023, which reflects the
delay in the full effect of CECL on regulatory capital, were as follows:
Regulatory Requirements
Actual
For Capital Adequacy Purposes
To be Well -Capitalized
Thresholds
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
As of March 31,2024
Total Capital (to Risk-Weighted Assets)
$
2,388,964
18.36
%
$
1,040,707
8.0
%
N/A
N/A
$
2,360,406
18.15
%
$
1,040,576
8.0
%
$
1,300,720
10.0
%
CET1 Capital (to Risk-Weighted Assets)
$
2,068,978
15.90
%
$
585,398
4.5
%
N/A
N/A
$
2,097,291
16.12
%
$
585,324
4.5
%
$
845,468
6.5
%
Tier I Capital (to Risk-Weighted Assets)
$
2,068,978
15.90
%
$
780,531
6.0
%
N/A
N/A
$
2,197,291
16.89
%
$
780,432
6.0
%
$
1,040,576
8.0
%
Leverage ratio
$
2,068,978
10.65
%
$
777,406
4.0
%
N/A
N/A
$
2,197,291
11.31
%
$
777,103
4.0
%
$
971,379
5.0
%
As of December 31, 2023
Total Capital (to Risk-Weighted Assets)
$
2,403,319
18.57
%
$
1,035,589
8.0
%
N/A
N/A
$
2,376,003
18.36
%
$
1,035,406
8.0
%
$
1,294,257
10.0
%
CET1 Capital (to Risk-Weighted Assets)
$
2,084,432
16.10
%
$
528,519
4.5
%
N/A
N/A
%
$
2,113,995
16.33
%
$
582,416
4.5
%
$
841,267
6.5
%
Tier I Capital (to Risk-Weighted Assets)
$
2,084,432
16.10
%
$
776,692
6.0
%
N/A
N/A
$
2,213,995
17.11
%
$
776,554
6.0
%
$
1,035,406
8.0
%
Leverage ratio
$
2,084,432
10.78
%
$
773,615
4.0
%
N/A
N/A
$
2,213,995
11.45
%
$
773,345
4.0
%
$
966,682
5.0
%
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
71
Commitments
The Corporation enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments may include commitments to extend credit and standby letters of credit.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any conditions established in the
contract. Commitments generally have fixed expiration dates or other termination clauses. Since certain commitments are expected to
expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. For most of
the commercial lines of credit, the Corporation has the option to reevaluate the agreement prior to additional disbursements. In the
case of credit cards and personal lines of credit, the Corporation can cancel the unused credit facility at any time and without cause. As
of March 31, 2024, commitments to extend credit amounted to approximately $
2.0
0.9
card loans. In addition, commercial and financial standby letters of credit as of March 31, 2024 amounted to approximately $
74.0
million.
Contingencies
As of March 31, 2024, First BanCorp. and its subsidiaries were defendants in various legal proceedings, claims and other loss
contingencies arising in the ordinary course of business. On at least a quarterly basis, the Corporation assesses its liabilities and
contingencies in connection with threatened and outstanding legal proceedings, claims and other loss contingencies utilizing the latest
information available. For legal proceedings, claims and other loss contingencies where it is both probable that the Corporation will
incur a loss and the amount can be reasonably estimated, the Corporation establishes an accrual for the loss. Once established, the
accrual is adjusted as appropriate to reflect any relevant developments. For legal proceedings, claims and other loss contingencies
where a loss is not probable or the amount of the loss cannot be estimated, no accrual is established.
Any estimate involves significant judgment, given the varying stages of the proceedings (including the fact that some of them are
currently in preliminary stages), the existence in some of the current proceedings of multiple defendants whose share of liability has
yet to be determined, the numerous unresolved issues in the proceedings, and the inherent uncertainty of the various potential
outcomes of such proceedings. Accordingly, the Corporation’s estimate will change from time to time, and actual losses may be more
or less than the current estimate.
While the final outcome of legal proceedings, claims, and other loss contingencies is inherently uncertain, based on information
currently available, management believes that the final disposition of the Corporation’s legal proceedings, claims and other loss
contingencies, to the extent not previously provided for, will not have a material adverse effect on the Corporation’s consolidated
financial position as a whole.
If management believes that, based on available information, it is at least reasonably possible that a material loss (or material loss in
excess of any accrual) will be incurred in connection with any legal contingencies, the Corporation discloses an estimate of the
possible loss or range of loss, either individually or in the aggregate, as appropriate, if such an estimate can be made, or discloses that
an estimate cannot be made. Based on the Corporation’s assessment as of March 31, 2024, no such disclosures were necessary.
On November 16, 2023, the FDIC approved a final rule to implement a special assessment to recover the loss to the Deposit
Insurance Fund associated with protecting uninsured depositors following the closure of Silicon Valley Bank and Signature Bank
during the first half of 2023. Under the final rule, the FDIC will collect the special assessment at quarterly rate of 3.36 basis points,
beginning with the first quarterly assessment period of 2024 (i.e, January 1 through March 31, 2024) with an invoice payment date of
June 28, 2024, and will continue to collect special assessments for an anticipated total of eight quarterly assessment periods. The base
for the special assessment is equal to the estimated uninsured deposits reported for the December 31, 2022 reporting period, adjusted
to exclude the first $5 billion of such amount. In association with this final rule and as required by ASC Topic 450, “Contingencies,”
as of December 31, 2023, the Corporation recorded an initial special assessment of $
6.3
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
72
On February 23, 2024, the FDIC informed that the estimated loss attributable to the protection of uninsured depositors of the
aforementioned failed institutions is $20.4 billion, an increase of approximately $4.1 billion from the estimate of $16.3 billion
described in the final rule. The estimated loss may be partially offset by any potential future recoveries from the residual interests
retained in each of the trusts. In connection with this notice, during the first quarter of 2024, the Corporation recorded a $0.9 million
additional expense in the consolidated statements of income as part of “FDIC deposit insurance” expenses to increase the estimated
FDIC special assessment to $7.3 million.
The FDIC retains the ability to cease collection early, extend the special assessment collection period beyond the eight-quarter
collection period, or impose an additional shortfall special assessment on a one-time basis after the receiverships for the two failed
institutions are terminated. The collection period may change due to updates to the estimated loss pursuant to the systemic risk
determination or if assessments collected change due to corrective amendments to the amount of uninsured deposits reported for the
December 31, 2022 reporting period. The FDIC will provide any updates on the estimated loss and collection period for the special
assessment with the first quarter 2024 special assessment invoice, to be released in June 2024.
The federal financial regulatory agencies may take other measures to address macroeconomic conditions, as well as the effect of
regional bank failures in the U.S. mainland during the first half of 2023, although the nature and impact of such actions cannot be
predicted at this time.
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
73
NOTE 22 – FIRST BANCORP. (HOLDING COMPANY ONLY) FINANCIAL INFORMATION
The following condensed financial information presents the financial position of First BanCorp. at the holding company level only
as of March 31, 2024 and December 31, 2023, and the results of its operations for the quarters ended March 31, 2024 and 2023:
Statements of Financial Condition
As of March 31,
As of December 31,
2024
2023
(In thousands)
Assets
Cash and due from banks
$
11,420
$
11,452
Other investment securities
975
825
Investment in First Bank Puerto Rico, at equity
1,608,030
1,627,172
Investment in First Bank Insurance Agency, at equity
21,509
18,376
Investment in FBP Statutory Trust I
1,289
1,289
Investment in FBP Statutory Trust II
3,561
3,561
Dividends receivable
709
713
Other assets
679
476
$
1,648,172
$
1,663,864
Liabilities and Stockholders’ Equity
Liabilities:
Long-term borrowings
$
161,700
$
161,700
Accounts payable and other liabilities
6,755
4,555
168,455
166,255
Stockholders’ equity
1,479,717
1,497,609
$
1,648,172
$
1,663,864
Statements of Income
Quarter Ended March 31,
2024
2023
(In thousands)
Income
$
63
$
53
80,917
78,870
101
102
81,081
79,025
Expense
3,350
3,381
439
410
3,789
3,791
Income before income taxes and equity in undistributed earnings of subsidiaries
77,292
75,234
Income tax expense
1
1
Equity in undistributed earnings of subsidiaries (distribution in excess of
(3,833)
(4,535)
Net income
$
73,458
$
70,698
Other comprehensive (loss) income, net of tax
(15,065)
87,228
Comprehensive income
$
58,393
$
157,926
74
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (“MD&A”)
The following MD&A relates to the accompanying unaudited consolidated financial statements of First BanCorp. (the
“Corporation,” “we,” “us,” “our,” or “First BanCorp.”) and should be read in conjunction with such financial statements and the notes
thereto, and our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Annual Report on Form 10-
K”). This section also presents certain financial measures that are not based on generally accepted accounting principles in the United
States of America (“GAAP”). See “Non-GAAP Financial Measures and Reconciliations” below for information about why non-
GAAP financial measures are presented, reconciliations of non-GAAP financial measures to the most comparable GAAP financial
measures, and references to non-GAAP financial measures reconciliations presented in other sections.
EXECUTIVE SUMMARY
First BanCorp. is a diversified financial holding company headquartered in San Juan, Puerto Rico offering a full range of financial
products to consumers and commercial customers through various subsidiaries. First BanCorp. is the holding company of FirstBank
Puerto Rico (“FirstBank” or the “Bank”) and FirstBank Insurance Agency. Through its wholly -owned subsidiaries, the Corporation
operates in Puerto Rico, the United States Virgin Islands (“USVI”), the British Virgin Islands (“BVI”), and the state of Florida,
concentrating on commercial banking, residential mortgage loans, credit cards, personal loans, small loans, auto loans and leases, and
insurance agency activities.
Recent Developments
Economy and Market Volatility
The Corporation continued to successfully navigate the challenging interest rate cycle by delivering another quarter of strong
operating results. Consistent with its guidance, the loan portfolio grew for the ninth consecutive quarter, expenses were prudently
managed, profitability was sustained, and over 100% of earnings was returned to shareholders during the first quarter of 2024 in the
form of buybacks and dividends. Core deposits, other than government and brokered, stabilized during the quarter although some
migration of customers seeking higher yields in time deposits continued as expected. Early delinquency metrics improved and the
Corporation took advantage of market opportunities to sell a portfolio of previously charged-off consumer loans which positively
impacted the provision expense for the first quarter of 2024.
Furthermore, the Corporation remains vigilant of the interest rate market environment. Following its May 1, 2024 meeting, the
Federal Reserve announced its decision to leave the federal funds rate unchanged, at a target rate of 5.25% to 5.50%, and commented
that it is prepared to maintain the current target range for the federal funds rate for longer. The Federal Reserve advised that it’s
unlikely that the next move will be a rate hike even after indications that inflation continues to be more resilient than expected.
Under a higher-for-longer interest rate environment, the Corporation expects to be margin accretive for the year and remains well-
positioned to redeploy cash inflows from repayments of the investment securities portfolio , which are expected at approximately $900
million for the remainder of the year, into higher-yielding assets. Moreover, although the Corporation expects some further increases
in time deposits, it expects other deposits to remain stable. Also, the Corporation expects to register mid-single-digit loan growth for
its core business since it remains encouraged by commercial and auto loan activity and loan origination opportunities available within
both Puerto Rico and the Florida region.
Return of Capital to Shareholders
In the first quarter of 2024, the Corporation returned approximately $76.6 million, or over 100% of first quarter 2024 earnings, to
its shareholders through $50.0 million in repurchases of common stock and the payment of $26.6 million in common stock dividends,
which reflects an increase in the common stock dividend of 14%, from $0.14 per share in the fourth quarter of 2023 to $0.16 per share
in the first quarter of 2024. As of May 2, 2024, the Corporation has remaining authorization to repurchase approximately $95.1
million of common stock, which it expects to execute through the end of the third quarter of 2024. The Corporation expects to update
its capital plan during the second quarter of 2024.
75
Strategic Partnership with nCino
In the first quarter of 2024, the Corporation partnered with nCino, a financial technology company that provides cloud banking
solutions for the global financial services industry, to offer a more modern commercial banking experience for its customers as part of
its digital transformation initiatives. These innovations, which represent an estimated investment of approximately $15 million, will
enhance the customer experience by providing simplicity in online commercial operations and shortening loan cycle times, while also
improving the lending and portfolio management capabilities for FirstBank Puerto Rico’s employees by simplifying the loan cycle and
enhancing credit response times.
CRITICAL ACCOUNTING POLICIES AND PRACTICES
The accounting principles of the Corporation and the methods of applying these principles conform to GAAP. In preparing the
consolidated financial statements, management is required to make estimates, assumptions, and judgments that affect the amounts
recorded for assets, liabilities and contingent liabilities as of the date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Note 1 of the Notes to Consolidated Financial Statements included in our 2023 Annual
Report on Form 10-K, as supplemented by this Quarterly Report on Form 10-Q, including this MD&A, describes the significant
accounting policies we used in our consolidated financial statements.
Not all significant accounting policies require management to make difficult, subjective or complex judgments. Critical accounting
estimates are those estimates made in accordance with GAAP that involve a significant level of uncertainty and have had or are
reasonably likely to have a material impact on the Corporation’s financial condition and results of operations. The Corporation’s
critical accounting estimates that are particularly susceptible to significant changes include, but are not limited to, the following: (i)
the allowance for credit losses (“ACL”); (ii) valuation of financial instruments; and (iii) income taxes. For more information regarding
valuation of financial instruments and income taxes policies, assumptions, and judgments, see “Critical Accounting Estimates” in Part
II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”),” in the 2023
Annual Report on Form 10-K. The “Risk Management – Credit Risk Management” section of this MD&A details the policies,
assumptions, and judgments related to the ACL. Actual results could differ from estimates and assumptions if different outcomes or
conditions prevail.
76
Overview of Results of Operations
The Corporation’s results of operations depend primarily on its net interest income, which is the difference between the interest
income earned on its interest-earning assets, including investment securities and loans, and the interest expense incurred on its
interest-bearing liabilities, including deposits and borrowings. Net interest income is affected by various factors, including the
following: (i) the interest rate environment; (ii) the volumes, mix, and composition of interest-earning assets, and interest-bearing
liabilities; and (iii) the repricing characteristics of these assets and liabilities. The Corporation ’s results of operations also depend on
the provision for credit losses, non-interest expenses (such as personnel, occupancy, professional service fees, the FDIC insurance
premium, and other costs), non-interest income (mainly service charges and fees on deposits, cards and processing income, and
insurance income), gains (losses) on mortgage banking activities, and income taxes.
The Corporation had net income of $73.5 million, or $0.44 per diluted common share, for the quarter ended March 31, 2024,
compared to $70.7 million, or $0.39 per diluted common share, for the quarter ended March 31, 2023. Other relevant selected
financial indicators for the periods presented are included below:
Quarter Ended March 31,
2024
2023
Key Performance Indicator:
(1)
Return on Average Assets
(2)
1.56
%
1.55
%
Return on Average Common Equity
(3)
19.56
21.00
Efficiency Ratio
(4)
52.46
49.39
(1)
These financial ratios are used by management to monitor the Corporation’s financial performance and whether it is using its assets efficiently.
(2)
Indicates how profitable the Corporation is in relation to its total assets and is calculated by dividing net income on an annualized basis by its average total assets.
(3)
Measures the Corporation’s performance based on its average common stockholders’ equity and is calculated by dividing net income on an annualized basis by its average total common
stockholders’ equity.
(4)
Measures how much the Corporation incurred to generate a dollar of revenue and is calculated by dividing non-interest expenses by total revenue.
77
The key drivers of the Corporation’s GAAP financial results for the quarter ended March 31, 2024, compared to the first quarter of
2023, include the following:
●
Net interest income for the quarter ended March 31, 2024 decreased to $196.5 million, compared to $200.9 million for the
first quarter of 2023, mainly driven by an increase in interest expense due to higher rates paid on interest-bearing deposits
given the higher interest rate environment and a change in deposit mix, partially offset by the effect of higher market interest
rates on the upward repricing of variable-rate commercial loans as well as the effect of higher average loan balances funded
with cash flows from the lower-yielding investment securities portfolio . See “Results of Operations – Net Interest Income”
below for additional information.
●
The provision for credit losses on loans, finance leases, unfunded loan commitments and debt securities for the quarter ended
March 31, 2024 was $12.2 million, compared to $15.5 million for the first quarter of 2023. The decrease in the provision
expense was primarily related to the effect during the first quarter of 2024 of a $9.5 million recovery associated with a bulk
sale of fully charged-off consumer loans and a $5.0 million recovery of a commercial and industrial (“C&I”) loan in the
Puerto Rico region, partially offset by increases in charge -off levels in the consumer loans and finance leases portfolio.
Net charge-offs totaled $11.2 million for the quarter ended March 31, 2024, or 0.37% of average loans on an annualized
basis, compared to $13.3 million, or an annualized 0.46% of average loans, for the first quarter of 2023. The recovery
associated with the aforementioned bulk sale of fully charged-off consumer loans reduced the ratio of total net charge-offs to
average loans for the first quarter of 2024 by approximately 31 basis points (“bps”). See “Results of Operations – Provision
for Credit Losses” and “Risk Management” below for analyses of the ACL and non-performing assets and related ratios.
●
The Corporation recorded non-interest income of $34.0 million for the quarter ended March 31, 2024, compared to $32.5
million for the first quarter of 2023. See “Results of Operations – Non-Interest Income” below for additional information.
●
Non-interest expenses for the quarter ended March 31, 2024 increased by $5.6 million to $120.9 million, of which $3.1
million was related to an increase in employees’ compensation and benefits expenses mainly driven by annual salary merit
increases. The efficiency ratio for the first quarter of 2024 was 52.46%, compared to 49.39% for the same period in 2023. See
“Results of Operations – Non-Interest Expenses” below for additional information.
●
Income tax expense decreased to $23.9 million for the first quarter of 2024, compared to $31.9 million for the same period in
2023, driven by a lower estimated effective tax rate and, to a lesser extent, by lower pre-tax income. The Corporation’s
estimated effective tax rate, excluding entities with pre-tax losses from which a tax benefit cannot be recognized and discrete
items, decreased to 24.3% for the first quarter of 2024, compared to 31.2% for the first quarter of 2023. See “Income Taxes”
below and Note 16 – “Income Taxes ,” to the unaudited consolidated financial statements herein for additional information.
●
As of March 31, 2024, total assets were approximately $18.9 billion, a decrease of $18.6 million from December 31, 2023,
primarily related to a $15.1 million decrease in the fair value of available-for-sale debt securities. Total assets were also
impacted by repayments of investment securities, partially offset by an increase in total loans.
●
As of March 31, 2024, total liabilities were $17.4 billion, a decrease of $0.7 million from December 31, 2023, which includes
a $10.4 million decrease in total deposits. See “Risk Management – Liquidity Risk” below for additional information about
the Corporation’s funding sources and strategy.
●
The Bank’s primary sources of funding are consumer and commercial core deposits, which exclude government deposits and
brokered CDs. As of March 31, 2024, these core deposits, amounting to $12.6 billion, funded 66.57% of total assets.
Excluding fully collateralized government deposits, estimated uninsured deposits amounted to $4.4 billion as of March 31,
2024. In addition to approximately $2.0 billion in cash and free high-quality liquid assets, the Bank maintains borrowing
capacity at the FHLB and the FED’s Discount Window. As of March 31, 2024, the Corporation had approximately $1.6
billion available for funding under the FED’s Discount Window and $972.5 million available for additional borrowing
capacity on FHLB lines of credit based on collateral pledged at these entities. On a combined basis, as of March 31, 2024, the
Corporation had $5.4 billion, or 121% of estimated uninsured deposits, available to meet liquidity needs. See “Risk
Management – Liquidity Risk” below for additional information about the Corporation’s funding sources and strategy.
78
●
As of March 31, 2024, the Corporation’s total stockholders’ equity was $1.5 billion, a decrease of $17.9 million from
December 31, 2023. The decrease was driven by the repurchase of approximately 3.0 million shares of common stock for a
total cost of $50.0 million, common stock dividends declared in the first quarter of 2024 totaling $26.9 million or $0.16 per
common share, and a $15.1 million decrease in the fair value of available-for-sale debt securities recorded as part of
accumulated other comprehensive loss in the consolidated statements of financial condition. These variances were partially
offset by the net income generated in the first quarter of 2024. The Corporation’s CET1 capital, tier 1 capital, total capital,
and leverage ratios were 15.90%, 15.90%, 18.36%, and 10.65%, respectively, as of March 31, 2024, compared to CET1
capital, tier 1 capital, total capital, and leverage ratios of 16.10%, 16. 10%, 18.57%, and 10.78%, respectively, as of December
31, 2023. See “Risk Management – Capital” below for additional information.
●
Total loan production, including purchases, refinancings, renewals, and draws from existing revolving and non-revolving
commitments, increased by $8.6 million to $1.2 billion for the quarter ended March 31, 2024, as compared to the first quarter
of 2023, driven by a higher volume of C&I loan originations. See “Results of Operations – Loan Production” below for
additional information.
●
Total non-performing assets were $129.6 million as of March 31, 2024, an increase of $3.7 million, from December 31, 2023,
mainly driven by the inflow to nonaccrual status of a $10.5 million C&I loan in the Florida region in the power generation
industry during the first quarter of 2024, partially offset by a $3.8 million decrease in the other real estate owned (“OREO”)
portfolio balance and a $1.9 million decrease in other repossessed property. See “Risk Management – Nonaccrual Loans and
Non-Performing Assets” below for additional information.
●
Adversely classified commercial and construction loans increased by $9.0 million to $76.5 million as of March 31, 2024,
compared to December 31, 2023, also driven by the aforementioned inflow to nonaccrual status of a $10.5 million C&I loan
in the Florida region.
79
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS
The Corporation has included in this Quarterly Report on Form 10-Q the following financial measures that are not recognized under
GAAP, which are referred to as non-GAAP financial measures:
Net Interest Income, Interest Rate Spread, and Net Interest Margin, Excluding Valuations , and on a Tax -Equivalent Basis
Net interest income, interest rate spread, and net interest margin, excluding the changes in the fair value of derivative instruments
and on a tax-equivalent basis, are reported in order to provide to investors additional information about the Corporation’s net interest
income that management uses and believes should facilitate comparability and analysis of the periods presented. The changes in the
fair value of derivative instruments have no effect on interest due or interest earned on interest-bearing liabilities or interest-earning
assets, respectively. The tax-equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable
and tax-exempt assets and assumes a marginal income tax rate. Income from tax-exempt earning assets is increased by an amount
equivalent to the taxes that would have been paid if this income had been taxable at statutory rates. Management believes that it is a
standard practice in the banking industry to present net interest income, interest rate spread, and net interest margin on a fully tax-
equivalent basis. This adjustment puts all earning assets, most notably tax-exempt securities and tax-exempt loans, on a common basis
that facilitates comparison of results to the results of peers.
See “Results of Operations – Net Interest Income” below, for the table that reconciles net interest income in accordance with GAAP
to the non-GAAP financial measure of net interest income, excluding valuations, and on a tax-equivalent basis for the indicated
periods. The table also reconciles net interest spread and net interest margin on a GAAP basis to these items excluding valuations, and
on a tax-equivalent basis.
Tangible Common Equity Ratio and Tangible Book Value Per Common Share
The tangible common equity ratio and tangible book value per common share are non-GAAP financial measures that management
believes are generally used by the financial community to evaluate capital adequacy. Tangible common equity is total common equity
less goodwill and other intangibles. Similarly, tangible assets are total assets less goodwill and other intangibles. Tangible common
equity ratio is tangible common equity divided by tangible assets. Tangible book value per common share is tangible assets divided by
the number of common shares outstanding. Management and many stock analysts use the tangible common equity ratio and tangible
book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking
organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase method
of accounting for mergers and acquisitions. Accordingly, the Corporation believes that disclosures of these financial measures may be
useful to investors. Neither tangible common equity nor tangible assets, or the related measures, should be considered in isolation or
as a substitute for stockholders’ equity, total assets, or any other measure calculated in accordance with GAAP. Moreover, the manner
in which the Corporation calculates its tangible common equity, tangible assets, and any other related measures may differ from that
of other companies reporting measures with similar names.
See “Risk Management – Capital” below for the table that reconciles the Corporation’s total equity and total assets in accordance
with GAAP to the tangible common equity and tangible assets figures used to calculate the non-GAAP financial measures of tangible
common equity ratio and tangible book value per common share.
80
Adjusted Net Income and Adjusted Non-Interest Expenses
To supplement the Corporation’s financial statements presented in accordance with GAAP, the Corporation uses, and believes that
investors benefit from disclosure of, non -GAAP financial measures that reflect adjustments to net income and non-interest expenses to
exclude items that management believes are not reflective of core operating performance (“Special Items”). The financial results for
the quarter ended March 31, 2023 did not include any significant Special Items. The financial results for the quarter ended March 31,
2024 included the following Special Item:
FDIC Special Assessment Expense
-
On November 16, 2023, the FDIC approved a final rule to implement a special assessment to recover the loss to the Deposit
Insurance Fund associated with protecting uninsured deposits following certain financial institution failures during the first
half of 2023. Under the final rule, the FDIC will collect the special assessment at a quarterly rate of 3.36 bps to be applied to
the special assessment base during an eight-quarter collection period. The base for the special assessment is equal to the
estimated uninsured deposits reported for the December 31, 2022 reporting period, adjusted to exclude the first $5 billion of
such amount. During the first quarter of 2024, the FDIC informed that the estimated loss attributable to the protection of
uninsured depositors of the financial institution failures increased, when compared with the estimate described in the final
rule. As such, the Corporation recorded a $0.9 million ($0.6 million after-tax, calculated based on the statutory tax rate of
37.5%) additional expense to increase the estimated FDIC special assessment to $7.3 million. The FDIC special assessment is
reflected in the consolidated statements of income as part of “FDIC deposit insurance” expenses.
Adjusted Net Income – The following table reconciles for the quarter ended March 31, 2024, net income to adjusted net income, a
non-GAAP financial measure that excludes the Special Item identified above, and shows net income for the quarter ended March 31,
2023.
Quarter Ended March 31,
2024
2023
(In thousands)
Net income, as reported (GAAP)
$
73,458
$
70,698
Adjustments:
FDIC special assessment expense
947
-
Income tax impact of adjustment
(355)
-
Adjusted net income (Non-GAAP)
$
74,050
$
70,698
81
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is the excess of interest earned by First BanCorp. on its interest-earning assets over the interest incurred on its
interest-bearing liabilities. First BanCorp.’s net interest income is subject to interest rate risk due to the repricing and maturity
mismatch of the Corporation’s assets and liabilities. In addition, variable sources of interest income, such as loan fees, periodic
dividends, and collection of interest in nonaccrual loans, can fluctuate from period to period. Net interest income for the quarter ended
March 31, 2024 was $196.5 million, compared to $200.9 million for the comparable period in 2023. On a tax-equivalent basis and
excluding the changes in the fair value of derivative instruments, net interest income for the quarter ended March 31, 2024 was $201.3
million, compared to $207.2 million for the comparable period in 2023.
The following tables include a detailed analysis of net interest income for the indicated periods. Part I presents average volumes
(based on the average daily balance) and rates on an adjusted tax-equivalent basis and Part II presents, also on an adjusted tax-
equivalent basis, the extent to which changes in interest rates and changes in the volume of interest-related assets and liabilities have
affected the Corporation’s net interest income. For each category of interest-earning assets and interest-bearing liabilities, the tables
provide information on changes in (i) volume (changes in volume multiplied by prior period rates), and (ii) rate (changes in rate
multiplied by prior period volumes). The Corporation has allocated rate-volume variances (changes in rate multiplied by changes in
volume) to either the changes in volume or the changes in rate based upon the effect of each factor on the combined totals.
Net interest income on an adjusted tax-equivalent basis and excluding the changes in the fair value of derivative instruments is a
non-GAAP financial measure. For the definition of this non-GAAP financial measure, refer to the discussion in “Non-GAAP
Financial Measures and Reconciliations” above.
Part I
Average volume
Interest income
(1)
Average rate
(1)
Quarter ended March 31,
2024
2023
2024
2023
2024
2023
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
$
533,747
$
404,249
$
7,254
$
4,650
5.45
%
4.67
%
Government obligations
(2)
2,684,169
2,909,976
9,053
10,765
1.35
%
1.50
%
MBS
3,451,293
3,864,145
15,238
19,396
1.77
%
2.04
%
FHLB stock
34,635
40,838
854
421
9.89
%
4.18
%
Other investments
16,551
13,139
66
139
1.60
%
4.29
%
Total investments
(3)
6,720,395
7,232,347
32,465
35,371
1.94
%
1.98
%
Residential mortgage loans
2,810,304
2,835,240
40,473
39,794
5.78
%
5.69
%
Construction loans
218,854
146,041
4,537
2,676
8.32
%
7.43
%
C&I and commercial mortgage loans
5,504,782
5,167,727
99,074
85,885
7.22
%
6.74
%
Finance leases
863,685
735,500
17,127
13,809
7.95
%
7.61
%
Consumer loans
2,810,215
2,634,891
79,640
71,214
11.37
%
10.96
%
Total loans
(4)(5)
12,207,840
11,519,399
240,851
213,378
7.91
%
7.51
%
$
18,928,235
$
18,751,746
$
273,316
$
248,749
5.79
%
5.38
%
Interest-bearing liabilities:
Time deposits
$
2,892,355
$
2,342,360
$
24,410
$
10,782
3.39
%
1.87
%
Brokered certificates of deposit (“CDs”)
749,760
166,698
9,680
1,587
5.18
%
3.86
%
Other interest-bearing deposits
7,534,344
7,544,901
28,935
17,516
1.54
%
0.94
%
Securities sold under agreements to repurchase
-
91,004
-
1,069
-
%
4.76
%
Advances from the FHLB
500,000
629,167
5,610
7,176
4.50
%
4.63
%
Other borrowings
161,700
183,762
3,350
3,381
8.31
%
7.46
%
Total interest-bearing liabilities
$
11,838,159
$
10,957,892
$
71,985
$
41,511
2.44
%
1.54
%
Net interest income on a tax-equivalent basis and excluding
valuations - non-GAAP
$
201,331
$
207,238
Interest rate spread
3.35
%
3.84
%
Net interest margin
4.27
%
4.48
%
(1)
On an adjusted tax-equivalent basis. The Corporation estimated the adjusted tax-equivalent yield by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax
rate of 37.5% and adding to it the cost of interest-bearing liabilities. The tax-equivalent adjustment recognizes the income tax savings when comparing taxable and tax-exempt assets.
Management believes that it is a standard practice in the banking industry to present net interest income, interest rate spread and net interest margin on a fully tax-equivalent basis.
Therefore, management believes these measures provide useful information to investors by allowing them to make peer comparisons. The Corporation excludes changes in the fair value of
derivatives from interest income because the changes in valuation do not affect interest received. See “Non-GAAP Financial Measures and Reconciliations” above.
(2)
Government obligations include debt issued by government-sponsored agencies.
(3)
Unrealized gains and losses on available-for-sale debt securities are excluded from the average volumes.
(4)
Average loan balances include the average of nonaccrual loans.
(5)
Interest income on loans includes $3.2 million and $3.1 million for the quarters ended March 31, 2024 and 2023, respectively, of income from prepayment penalties and late fees related to
the Corporation’s loan portfolio.
82
Part II
Quarter Ended March 31,
2024 Compared to 2023
Variance due to:
Volume
Rate
Total
(In thousands)
Interest income on interest-earning assets:
Money market and other short-term investments
$
1,660
$
944
$
2,604
Government obligations
(804)
(908)
(1,712)
MBS
(1,963)
(2,195)
(4,158)
FHLB stock
(108)
541
433
Other investments
25
(98)
(73)
Total investments
(1,190)
(1,716)
(2,906)
Residential mortgage loans
(355)
1,034
679
Construction loans
1,465
396
1,861
C&I and commercial mortgage loans
5,860
7,329
13,189
Finance leases
2,498
820
3,318
Consumer loans
4,870
3,556
8,426
Total loans
14,338
13,135
27,473
Total interest income
$
13,148
$
11,419
$
24,567
Interest expense on interest-bearing liabilities:
Time deposits
$
3,020
$
10,608
$
13,628
Brokered CDs
7,284
809
8,093
Other interest-bearing deposits
(32)
11,451
11,419
Securities sold under agreements to repurchase
(1,069)
-
(1,069)
Advances from the FHLB
(1,440)
(126)
(1,566)
Other borrowings
(431)
400
(31)
Total interest expense
7,332
23,142
30,474
Change in net interest income
$
5,816
$
(11,723)
$
(5,907)
Portions of the Corporation’s interest-earning assets, mostly investments in obligations of some U.S. government agencies and U.S.
government-sponsored entities (“GSEs”), generate interest that is exempt from income tax, principally in Puerto Rico. Also, interest
and gains on sales of investments held by the Corporation’s international banking entities (“IBEs”) are tax-exempt under Puerto Rico
tax law (see Note 16 – “Income Taxes” to the unaudited consolidated financial statements herein for additional information).
Management believes that the presentation of interest income on an adjusted tax-equivalent basis facilitates the comparison of all
interest data related to these assets. The Corporation estimated the tax equivalent yield by dividing the interest rate spread on exempt
assets by 1 less the Puerto Rico statutory tax rate (37.5%) and adding to it the average cost of interest-bearing liabilities. The
computation considers the interest expense disallowance required by Puerto Rico tax law.
Management believes that the presentation of net interest income, excluding the effects of the changes in the fair value of the
derivative instruments (“valuations”), provides additional information about the Corporation’s net interest income and facilitates
comparability and analysis from period to period. The changes in the fair value of the derivative instruments have no effect on interest
earned on interest-earning assets.
83
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,
2024
2023
(Dollars in thousands)
Interest income - GAAP
$
268,505
$
242,396
Unrealized (gain) loss on derivative instruments
(2)
6
Interest income excluding valuations - non-GAAP
268,503
242,402
Tax-equivalent adjustment
4,813
6,347
Interest income on a tax-equivalent basis and excluding valuations - non-GAAP
$
273,316
$
248,749
Interest expense - GAAP
$
71,985
$
41,511
Net interest income - GAAP
$
196,520
$
200,885
Net interest income excluding valuations - non-GAAP
$
196,518
$
200,891
Net interest income on a tax-equivalent basis and excluding valuations - non-GAAP
$
201,331
$
207,238
Average Balances
Loans and leases
$
12,207,840
$
11,519,399
Total securities, other short-term investments and interest-bearing cash balances
6,720,395
7,232,347
Average Interest-Earning Assets
$
18,928,235
$
18,751,746
Average Interest-Bearing Liabilities
$
11,838,159
$
10,957,892
Average Assets
(1)
$
18,858,299
$
18,557,156
Average Non-Interest-Bearing Deposits
$
5,308,531
$
5,999,066
Average Yield/Rate
Average yield on interest-earning assets - GAAP
5.69%
5.24%
Average rate on interest-bearing liabilities - GAAP
2.44%
1.54%
Net interest spread - GAAP
3.25%
3.70%
Net interest margin - GAAP
4.16%
4.34%
Average yield on interest-earning assets excluding valuations - non-GAAP
5.69%
5.24%
Average rate on interest-bearing liabilities
2.44%
1.54%
Net interest spread excluding valuations - non-GAAP
3.25%
3.70%
Net interest margin excluding valuations - non-GAAP
4.16%
4.34%
Average yield on interest-earning assets on a tax-equivalent basis and excluding valuations - non-GAAP
5.79%
5.38%
Average rate on interest-bearing liabilities
2.44%
1.54%
Net interest spread on a tax-equivalent basis and excluding valuations - non-GAAP
3.35%
3.84%
Net interest margin on a tax-equivalent basis and excluding valuations - non-GAAP
4.27%
4.48%
(1) Includes, among other things, the ACL on loans and finance leases and debt securities, as well as unrealized gains and losses on available-for-sale debt securities.
84
Net interest income amounted to $196.5 million for the quarter ended March 31, 2024, a decrease of $4.4 million, when compared
to $200.9 million for same period in 2023. The $4.4 million decrease in net interest income was primarily due to:
●
A $33.1 million increase in interest expense on interest-bearing deposits, consisting of:
-
A $13.6 million increase in interest expense on time deposits, excluding brokered CDs, of which $10.6 million was
related to higher rates paid on new issuances and renewals given the overall higher interest rate environment. The
average cost of time deposits in the first quarter of 2024, excluding brokered CDs, increased 152 bps to 3.39% when
compared to the same period in 2023. Excluding public sector deposits, the average cost of time deposits in the first
quarter of 2024, excluding brokered CDs, increased 140 bps to 3.29% when compared to the same period in 2023.
-
An $11.4 million increase in interest expense on interest-bearing checking and saving accounts, driven by higher interest
rates paid in the first quarter of 2024 also associated with the higher interest rate environment, primarily on public sector
deposits. The average cost of interest-bearing checking and saving accounts increased by 60 bps to 1.54% in the first
quarter of 2024 as compared to 0.94% in the same period in 2023. Excluding public sector deposits, the average cost of
interest-bearing checking and saving accounts for the first quarter of 2024 was 0.75%, compared to 0.60% for the same
period a year ago.
-
An $8.1 million increase in interest expense on brokered CDs, mainly driven by a $583.1 million increase in the average
balance.
●
A $0.4 million decrease in interest income from interest-bearing cash balances and investment securities, consisting of:
-
A $3.4 million decrease in interest income from debt securities, mainly driven by a $638.7 million decrease in the
average balance.
Partially offset by:
-
A $2.6 million increase in interest income from interest-bearing cash balances, which consisted primarily of cash
balances deposited at the FED, of which $1.7 million was driven by a $129.5 million increase in the average balance.
-
A $0.4 million increase in dividend income on equity securities, associated with income from FHLB stock.
85
Partially offset by:
●
A $26.4 million increase in interest income on loans including:
-
A $14.0 million increase in interest income on commercial and construction loans, driven by an $8.0 million increase
associated with a $409.9 million increase in the average balance, and a $6.0 million increase related to the effect of
higher market interest rates on the upward repricing of variable-rate loans and on new loan originations.
As of March 31, 2024, the interest rate on approximately 55% of the Corporation’s commercial and construction loans
was tied to variable rates, with 33% based upon SOFR of 3 months or less, 13% based upon the Prime rate index, and
9% based on other indexes. For the first quarter of 2024, the average one-month SOFR increased 71 bps, the average
three-month SOFR increased 57 bps, and the average Prime rate increased 81 bps, compared to the average rates for such
indexes during the first quarter of 2023.
-
An $11.7 million increase in interest income on consumer loans and finance leases associated with a $303.5 million
increase in the average balance of this portfolio, primarily in the auto loan and finance leases portfolios, under a higher
interest rate environment.
-
A $0.7 million increase in interest income on residential mortgage loans, mainly related to the positive effect of new loan
originations at higher current market interest rates.
●
A $2.7 million decrease in interest expense on borrowings, consisting of:
-
A $1.6 million decrease in interest expense on advances from the FHLB, mainly driven by a $129.2 million decrease in
the average balance.
-
A $1.1 million decrease in interest expense on short-term repurchase agreements, as the Corporation did not use
repurchase agreements as a funding source in the first quarter of 2024.
Net interest margin for the first quarter of 2024 decreased to 4.16%, compared to 4.34% for the same period in 2023. The decrease
in the net interest margin was driven by the higher cost of funds associated with the higher interest rate environment combined with a
change in deposit mix reflecting a continued migration from non-interest-bearing and other low-cost deposits to higher-cost deposits.
These variances were partially offset by the upward repricing of variable-rate commercial loans as well as the effect of higher average
loan balances funded with cash flows from the lower-yielding investment securities portfolio.
86
Provision for Credit Losses
The provision for credit losses consists of provisions for credit losses on loans and finance leases, unfunded loan commitments, as
well as the debt securities portfolio. The principal changes in the provision for credit losses by main categories follow:
Provision for credit losses for loans and finance leases
The provision for credit losses for loans and finance leases was $12.9 million for the first quarter of 2024, compared to $16.3
million for the first quarter of 2023. The variances by major portfolio category were as follows:
●
Provision for credit losses for the consumer loans and finance leases portfolio was an expense of $16.2 million for the first
quarter of 2024, compared to an expense of $15.7 million for the first quarter of 2023. The increase in provision expense was
mainly due to increases in charge-off levels, mainly in credit cards, and increases in portfolio volume, partially offset by a
$9.5 million recovery associated with the aforementioned bulk sale of fully charged-off loans during the first quarter of 2024
and updated macroeconomic variables, mainly in the projection of unemployment rates across all regions.
●
Provision for credit losses for the commercial and construction loan portfolio was a net benefit of $2.8 million for the first
quarter of 2024, compared to an expense of $0.5 million for the first quarter of 2023. The net benefit recorded during the first
quarter of 2024 was driven by a $5.0 million recovery of a C&I loan in the Puerto Rico region, partially offset by increased
volume. Meanwhile, the expense recorded during the first quarter of 2023 was impacted by reserve increases of $5.0 million
related to the inflow to nonacccrual status of a C&I participated loan in the Florida region in the power generation industry,
and $1.1 million due to a less favorable economic outlook in the projection of certain forecasted macroeconomic variables,
such as the commercial real estate price index (“CRE price index”), partially offset by reserve releases of $6.1 million
associated with improvements in the underlying updated financial information of certain borrowers.
●
Provision for credit losses for the residential mortgage loan portfolio was a net benefit of $0.5 million for the first quarter of
2024, compared to an expense of $0.1 million for the first quarter of 2023. The net benefit recorded during the first quarter of
2024 was mainly due to updated macroeconomic variables, partially offset by newly originated loans that have a longer life.
Provision for credit losses for unfunded loan commitments
The provision for credit losses for unfunded commercial and construction loan commitments and standby letters of credit was an
expense of $0.3 million for the first quarter of 2024, compared to a net benefit of $0.1 million for the first quarter of 2023.
Provision for credit losses for held-to-maturity and available-for-sale debt securities
The provision for credit losses for held-to-maturity debt securities was a net benefit of $1.0 million for the first quarter of 2024,
compared to a net benefit of $0.6 million for the first quarter of 2023. The net benefit recorded during both periods was mostly driven
by improvements in the underlying updated financial information of certain Puerto Rico municipal bond issuers.
The provision for credit losses for available-for-sale debt securities was a net benefit of $69 thousand for the first quarter of 2024,
compared to a net benefit of $9 thousand for the first quarter of 2023.
87
Non-Interest Income
Non-interest income amounted to $34.0 million for the first quarter of 2024, compared to $32.5 million for the same period in 2023.
The $1.5 million increase in non-interest income was primarily due to:
●
A $0.7 million increase in insurance commission income, mainly in seasonal contingent commissions.
●
A $0.4 million increase in card and processing income mainly due to higher transactional volumes, partially offset by $0.3
million in merchant-related referral fees received during the first quarter of 2023.
●
A $0.2 million increase in other non-interest income, mainly driven by $0.7 million in insurance proceeds collected during
the first quarter of 2024 associated with property damage caused by Hurricane Fiona, partially offset by a $0.4 million
decrease in unused loan commitment fees.
Non-Interest Expenses
Non-interest expenses for the quarter ended March 31, 2024 amounted to $120.9 million, compared to $115.3 million for the same
period in 2023. The efficiency ratio for the first quarter of 2024 was 52.46%, compared to 49.39% for the first quarter of 2023. Non-
interest expenses for the first quarter of 2024 include the $0.9 million additional FDIC special assessment expense. See “Non-GAAP
Financial Measures and Reconciliations” above for additional information. On a non-GAAP basis, excluding the effect of this Special
Item, adjusted non-interest expenses increased by $4.7 million primarily due to:
●
A
$3.1 million increase in employees’ compensation and benefits expenses, mainly driven by annual salary merit increases
and increases in stock-based compensation expense of retirement-eligible employees and medical insurance premium
costs.
●
A $0.7 million increase in professional service fees, due to increases of $0.9 million in consulting fees mainly driven by
information technology infrastructure enhancements and $0.5 million in collections, appraisals, and other credit-related
fees, partially offset by a decrease of $0.7 million in outsourced technology service fees.
●
A
$0.5 million decrease in net gains on OREO operations, mainly driven by a decrease in net realized gains on sales of
OREO properties, primarily residential properties in the Puerto Rico region.
●
A
$0.4 million increase in credit and debit card processing fees, mainly driven by higher transactional volumes.
Income Taxes
For the first quarter of 2024, the Corporation recorded an income tax expense of $23.9 million, compared to $31.9 million for the
same period in 2023. The decrease in income tax expense was mainly driven by a lower estimated effective tax rate during the first
quarter of 2024 and, to a lesser extent, by lower pre-tax income. During the fourth quarter of 2023, the Corporation engaged in certain
business activities with preferential tax treatment under the PR Tax Code which resulted in a lower effective tax rate for the year 2023.
The Corporation’s annual estimated effective tax rate for the quarter ended March 31, 2024, excluding entities from which a tax
benefit cannot be recognized and discrete items, was 24.3%, compared to 31.2% for the first quarter of 2023. Based on current
strategies, the Corporation expects that the effective tax rate for 2024 will be around the same levels of 2023. The estimated effective
tax rate of the Corporation is impacted by, among other things, the composition and source of its taxable income. See Note 16 –
“Income Taxes,” to the unaudited consolidated financial statements herein for additional information.
As of March 31, 2024, the Corporation had a deferred tax asset of $147.7 million, net of a valuation allowance of $140.1 million
against the deferred tax asset, compared to a deferred tax asset of $150.1 million, net of a valuation allowance of $139.2 million, as of
December 31, 2023.
88
Assets
The Corporation’s total assets were $18.9 billion as of March 31, 2024, a decrease of $18.6 million from December 31, 2023,
primarily related to a $15.1 million decrease in the fair value of available-for-sale debt securities. Total assets were also impacted by
repayments of investment securities, partially offset by a $130.7 million increase in the total loan portfolio before the ACL, as further
discussed below.
Loans Receivable, including Loans Held for Sale
As of March 31, 2024, the Corporation’s total loan portfolio before the ACL amounted to $12.3 billion, an increase of $130.7
million compared to December 31, 2023. In terms of geography, the growth consisted of increases of $80.9 million in the Florida
region and $50.1 million in the Puerto Rico region, partially offset by a decrease of $0.3 million in the Virgin Islands region. On a
portfolio basis, the growth consisted of increases of $123.9 million in commercial and construction loans and $22.2 million in
consumer loans, primarily auto loans and finance leases, partially offset by a $15.4 million decrease in residential mortgage loans.
As of March 31, 2024, the Corporation’s loans held-for-investment portfolio was comprised of commercial and construction loans
(47%), consumer and finance leases (30%), and residential real estate loans (23%). Of the total gross loan portfolio held for
investment of $12.3 billion as of March 31, 2024, the Corporation had credit risk concentration of approximately 80% in the Puerto
Rico region, 17% in the United States region (mainly in the state of Florida), and 3% in the Virgin Islands region, as shown in the
following table:
As of March 31,2024
Puerto Rico
Virgin Islands
United States
Total
(In thousands)
Residential mortgage loans
$
2,164,347
$
162,893
$
474,347
$
2,801,587
Construction loans
144,094
3,530
89,664
237,288
Commercial mortgage loans
1,705,745
63,502
592,484
2,361,731
C&I loans
2,163,439
126,560
940,996
3,230,995
4,013,278
193,592
1,623,144
5,830,014
Consumer loans and finance leases
3,606,274
67,946
5,627
3,679,847
$
9,783,899
$
424,431
$
2,103,118
$
12,311,448
Loans held for sale
12,080
-
-
12,080
$
9,795,979
$
424,431
$
2,103,118
$
12,323,528
As of December 31, 2023
Puerto Rico
Virgin Islands
United States
Total
(In thousands)
Residential mortgage loans
$
2,187,875
$
168,131
$
465,720
$
2,821,726
Construction loans
111,664
3,737
99,376
214,777
Commercial mortgage loans
1,725,325
65,312
526,446
2,317,083
C&I loans
2,130,368
119,040
924,824
3,174,232
3,967,357
188,089
1,550,646
5,706,092
Consumer loans and finance leases
3,583,272
68,498
5,895
3,657,665
$
9,738,504
$
424,718
$
2,022,261
$
12,185,483
Loans held for sale
7,368
-
-
7,368
$
9,745,872
$
424,718
$
2,022,261
$
12,192,851
89
Residential Real Estate Loans
As of March 31, 2024, the Corporation’s total residential mortgage loan portfolio, including loans held for sale, decreased by $15.4
million, as compared to the balance as of December 31, 2023. The decline in the residential mortgage loan portfolio reflects decreases
of $18.8 million in the Puerto Rico region and $5.2 million in the Virgin Islands region, partially offset by an increase of $8.6 million
in the Florida region. The decline was driven by repayments, which more than offset the volume of new loan originations kept on the
balance sheet.
As of March 31, 2024, the majority of the Corporation’s outstanding balance of residential mortgage loans in the Puerto Rico and
the Virgin Islands regions consisted of fixed-rate loans that traditionally carry higher yields than residential mortgage loans in the
Florida region. In the Florida region, approximately 38% of the residential mortgage loan portfolio consisted of hybrid adjustable-rate
mortgages. In accordance with the Corporation’s underwriting guidelines, residential mortgage loans are primarily fully documented
loans, and the Corporation does not originate negative amortization loans.
Commercial and Construction Loans
As of March 31, 2024, the Corporation’s commercial and construction loan portfolio increased by $123.9 million, as compared to
the balance as of December 31, 2023.
In the Florida region, commercial and construction loans increased by $72.5 million, as compared to the balance as of December
31, 2023. The increase reflects, among other things, the effect of the origination of three commercial mortgage relationships, each in
excess of $10 million, with an aggregate balance of $52.3 million and higher utilization of C&I lines of credit.
In the Puerto Rico region, commercial and construction loans increased by $45.9 million, as compared to the balance as of
December 31, 2023. This increase was driven the effect of higher utilization of C&I lines of credit, a $32.4 million increase in
construction loans, and the origination of a $13.6 million C&I loan to a municipality in Puerto Rico that is supported by assigned
property tax revenues. These variances were partially offset by multiple payoffs and paydowns.
In the Virgin Islands region, commercial and construction loans increased by $5.5 million, as compared to the balance as of
December 31, 2023, mainly associated with loans to government entities.
See “Risk Management – Exposure to Puerto Rico Government” and “Risk Management – Exposure to USVI Government” below
for information on the Corporation’s credit exposure to PR and USVI government entities.
As of March 31, 2024, the Corporation’s total commercial mortgage loan exposure amounted to $2.4 billion, or 19% of the total
loan portfolio. In terms of geography, $1.7 billion of the exposure was in the Puerto Rico region, $0.6 billion of the exposure was in
the Florida region, and $0.1 billion of the exposure was in the Virgin Islands region. The $1.7 billion exposure in the Puerto Rico
region was comprised mainly of 42% in the retail industry, 25% in office real estate, and 19% in the hotel industry. The $0.6 billion
exposure in the Florida region was comprised mainly of 27% in the hotel industry, 19% in the retail industry, and 11% in office real
estate. Of the Corporation’s total commercial mortgage loan exposure of $2.4 billion, $533.0 million matures within the next 12
months and has a weighted-average interest rate of approximately 5.62%. Commercial mortgage loan exposure in the office real estate
industry, which matures within the next 12 months, amounted to $97.1 million and has a weighted-average interest rate of
approximately 6.51%.
As of each of March 31, 2024 and December 31, 2023, the Corporation’s total exposure to shared national credit (“SNC”) loans
(including unused commitments) amounted to $1.2 billion. As of March 31, 2024, approximately $388.4 million of the SNC exposure
is related to the portfolio in the Puerto Rico region and $841.9 million is related to the portfolio in the Florida region.
Consumer Loans and Finance Leases
As of March 31, 2024, the Corporation’s consumer loan and finance lease portfolio increased by $22.2 million to $3.7 billion,
reflecting growth of $17.8 million and $15.1 million in the auto loans and finance leases portfolios, respectively, mainly in the Puerto
Rico region.
90
Loan Production
First BanCorp. relies primarily on its retail network of branches to originate residential and consumer loans. The Corporation may
supplement its residential mortgage originations with wholesale servicing released mortgage loan purchases from mortgage bankers.
The Corporation manages its construction and commercial loan originations through centralized units and most of its originations
come from existing customers, as well as through referrals and direct solicitations. Auto loans and finance leases originations rely
primarily on relationships with auto dealers and dedicated sales professionals who serve selected locations to facilitate originations.
The following table provides a breakdown of First BanCorp.’s loan production, including purchases, refinancings, renewals and
draws from existing revolving and non-revolving commitments, for the indicated periods:
Quarter Ended March 31,
2024
2023
(In thousands)
Residential mortgage
$
88,170
$
77,302
Construction
43,844
35,499
Commercial mortgage
75,656
88,692
C&I
591,348
555,882
Consumer
402,259
435,318
$
1,201,277
$
1,192,693
During the quarter ended March 31, 2024, total loan originations, including purchases, refinancings, and draws from existing
revolving and non-revolving commitments, amounted to approximately $1.2 billion, an increase of $8.6 million, compared to the first
quarter of 2023.
Residential mortgage loan originations for the quarter ended March 31, 2024 amounted to $88.2 million, compared to $77.3 million
for the first quarter of 2023. The increase of $10.9 million in the first quarter of 2024, as compared to the same period in 2023, reflects
growth of $6.2 million in the Puerto Rico region, $4.2 million in the Florida region, and $0.5 million in the Virgin Islands region.
Approximately 56% of the $67.6 million residential mortgage loan originations in the Puerto Rico region during the first quarter of
2024 consisted of conforming loans, compared to 60% of $61.5 million for the first quarter of 2023.
Commercial and construction loan originations (excluding government loans) for the quarter ended March 31, 2024 amounted to
$685.1 million, compared to $672.8 million for the first quarter of 2023. The increase of $12.3 million in the first quarter of 2024
consisted of an increase of $110.7 million in the Florida region, partially offset by decreases of $95.0 million in the Puerto Rico region
and $3.4 million in the Virgin Islands region. The growth in the Florida region includes the effect of the aforementioned origination of
three commercial mortgage relationships, each in excess of $10 million, with an aggregate balance of $52.3 million, and increased
utilization of C&I lines of credit. Meanwhile, the decline in the Puerto Rico region was mainly driven by decreases of $57.6 million in
the C&I loan portfolio, mainly in lines of credit, and $50.1 million in the commercial mortgage loan portfolio.
Government loan originations for the quarter ended March 31, 2024 amounted to $25.7 million, an increase of $18.5 million,
compared to $7.2 million for the first quarter of 2023. Government loan originations during the first quarter of 2024 were mainly
related to the aforementioned origination of a $13.6 million loan to a municipality in Puerto Rico that is supported by assigned
property tax revenues and the utilization of a line of credit of a government entity in the Virgin Islands region. Government loan
originations during the first quarter of 2023 were mainly related to the origination of a loan to an agency of the Puerto Rico
government for a low-income housing project and the utilization of an arranged overdraft line of credit of a government entity in the
Virgin Islands region.
Originations of auto loans (including finance leases) for the quarter ended March 31, 2024 amounted to $228.0 million, compared
to $245.1 million for the first quarter of 2023. The decline in the first quarter of 2024, as compared to the same quarter of 2023,
consisted of decreases of $15.7 million in the Puerto Rico region and $1.4 million in the Virgin Islands region. Other consumer loan
originations, other than credit cards, for the quarter ended March 31, 2024 amounted to $59.9 million, compared to $71.9 million for
the first quarter of 2023. Most of the decrease in other consumer loan originations for the first quarter of 2024, as compared with the
same period in 2023, was in the Puerto Rico region. The utilization activity on the outstanding credit card portfolio for the quarter
ended March 31, 2024 amounted to $114.3 million, compared to $118.4 million for the same period in 2023.
91
Investment Activities
As part of its liquidity, revenue diversification, and interest rate risk management strategies, First BanCorp. maintains a debt
securities portfolio classified as available for sale or held to maturity.
The Corporation’s total available-for-sale debt securities portfolio as of March 31, 2024 amounted to $5.0 billion, a $182.8 million
decrease from December 31, 2023. The decrease was mainly driven by repayments of approximately $86.3 million of U.S. agencies
mortgage-backed securities (“MBS”) and debentures, repayments of $80.1 million associated to matured securities, and a $15.1
million decrease in fair value attributable to changes in market interest rates. As of March 31, 2024, the Corporation had a net
unrealized loss on available-for-sale debt securities of $647.9 million. This net unrealized loss is attributable to instruments on books
carrying a lower interest rate than market rates. The Corporation expects that this unrealized loss will reverse over time and it is likely
that it will not be required to sell the securities before their anticipated recovery. The Corporation expects the portfolio will continue to
decrease and the accumulated other comprehensive loss will decrease accordingly, excluding the impact of market interest rates.
As of March 31, 2024, substantially all of the Corporation’s available-for-sale debt securities portfolio was invested in U.S.
government and agencies debentures and fixed-rate GSEs’ MBS. In addition, as of March 31, 2024, the Corporation held a bond
issued by the Puerto Rico Housing Finance Authority (“PRHFA”), classified as available for sale, specifically a residential pass-
through MBS in the aggregate amount of $3.1 million (fair value - $1.6 million). This residential pass-through MBS issued by the
PRHFA is collateralized by certain second mortgages originated under a program launched by the Puerto Rico government in 2010
and had an unrealized loss of $1.6 million as of March 31, 2024, of which $0.3 million is due to credit deterioration. During 2021, the
Corporation placed this instrument in nonaccrual status based on the delinquency status of the underlying second mortgage loans
collateral.
As of March 31, 2024, the Corporation’s held-to-maturity debt securities portfolio, before the ACL, decreased to $349.3 million,
compared to $354.2 million as of December 31, 2023, mainly driven by repayments of approximately $5.1 million of U.S. agencies
MBS. Held-to-maturity debt securities include fixed-rate GSEs’ MBS with a carrying value of $242.2 million (fair value of $228.2
million) as of March 31, 2024, compared to $247.1 million as of December 31, 2023. Held-to-maturity debt securities also include
financing arrangements with Puerto Rico municipalities issued in bond form, which the Corporation accounts for as securities, but
which were underwritten as loans with features that are typically found in commercial loans. Puerto Rico municipal bonds typically
are not issued in bearer form, are not registered with the SEC, and are not rated by external credit agencies. These bonds have
seniority to the payment of operating costs and expenses of the municipality and, in most cases, are supported by assigned property tax
revenues. As of March 31, 2024, approximately 54% of the Corporation’s municipal bonds consisted of obligations issued by three of
the largest municipalities in Puerto Rico. The municipalities are required by law to levy special property taxes in such amounts as are
required for the payment of all of their respective general obligation bonds and loans. Given the uncertainties as to the effects that the
fiscal position of the Puerto Rico central government, and the measures taken, or to be taken, by other government entities may have
on municipalities, and the higher interest rate environment, the Corporation cannot be certain whether future charges to the ACL on
these securities will be required. As of March 31, 2024, the ACL for held-to-maturity debt securities was $1.2 million, compared to
$2.2 million as of December 31, 2023. The decrease in the ACL of held-to-maturity debt securities was mostly driven by
improvements in the underlying updated financial information of a Puerto Rico municipal bond issuer received during the first quarter
of 2024.
See “Risk Management – Exposure to Puerto Rico Government” below for information and details about the Corporation’s total
direct exposure to the Puerto Rico government, including municipalities, and “Risk Management – Credit Risk Management” below
for the ACL of the exposure to Puerto Rico municipal bonds.
92
March 31, 2024
December 31, 2023
(In thousands)
Money market investments
$
3,785
$
1,239
Available-for-sale debt securities, at fair value:
U.S. government and agencies obligations
2,369,484
2,443,790
Puerto Rico government obligations
1,551
1,415
MBS:
2,527,054
2,633,161
149,090
151,618
5,047,179
5,229,984
Held-to-maturity debt securities, at amortized cost:
MBS:
142,677
146,468
99,525
100,670
Puerto Rico municipal bonds
107,128
107,040
(1,235)
(2,197)
348,095
351,981
Equity securities, including $34.6 million of FHLB stock
as of March 31, 2024 and December 31, 2023
51,390
49,675
Total money market investments and investment securities
$
5,450,449
$
5,632,879
Carrying Amount
Weighted-Average Yield %
(Dollars in thousands)
U.S. government and agencies obligations:
Due within one year
$
763,223
0.87
Due after one year through five years
1,589,404
0.82
Due after five years through ten years
8,096
2.64
Due after ten years
8,761
5.51
2,369,484
0.86
Puerto Rico government and municipalities obligations:
Due within one year
3,172
9.30
Due after one year through five years
51,327
7.74
Due after five years through ten years
36,034
7.06
Due after ten years
18,146
7.42
108,679
7.51
MBS
2,918,346
1.70
ACL on held-to-maturity debt securities
(1,235)
-
Total debt securities
$
5,395,274
1.45
93
Net interest income in future periods could be affected by prepayments of MBS. Any acceleration in the prepayments of MBS
purchased at a premium
would lower yields on these securities, since the amortization of premiums paid upon acquisition would
accelerate. Conversely, acceleration of the prepayments of MBS would increase yields on securities purchased at a discount, since the
amortization of the discount would accelerate. These risks are directly linked to future period market interest rate fluctuations. Net
interest income in future periods might also be affected by the Corporation’s investment in callable securities. As of March 31, 2024,
the Corporation had approximately $1.8 billion in callable debt securities (U.S. agencies debt securities) with an average yield of
0.79% of which approximately 64% were purchased at a discount and 2% at a premium. See “Risk Management” below for further
analysis of the effects of changing interest rates on the Corporation’s net interest income and the Corporation’s interest rate risk
management strategies. Also, refer to Note 2 – “Debt Securities” to the unaudited consolidated financial statements herein for
additional information regarding the Corporation’s debt securities portfolio.
RISK MANAGEMENT
General
Risks are inherent in virtually all aspects of the Corporation’s business activities and operations. Consequently, effective risk
management is fundamental to the success of the Corporation. The primary goals of risk management are to ensure that the
Corporation’s risk-taking activities are consistent with the Corporation’s objectives and risk tolerance, and that there is an appropriate
balance between risks and rewards to maximize stockholder value.
The Corporation has in place a risk management framework to monitor, evaluate and manage the principal risks assumed in
conducting its activities. First BanCorp.’s business is subject to eleven broad categories of risks: (i) liquidity risk; (ii) interest rate risk;
(iii) market risk; (iv) credit risk; (v) operational risk; (vi) legal and regulatory risk; (vii) reputational risk; (viii) model risk; (ix) capital
risk; (x) strategic risk; and (xi) information technology risk. First BanCorp. has adopted policies and procedures designed to identify
and manage the risks to which the Corporation is exposed.
The Corporation’s risk management policies are described below, as well as in Part II, Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” in the 2023 Annual Report on Form 10-K.
Liquidity Risk
Liquidity risk involves the ongoing ability to accommodate liability maturities and deposit withdrawals, fund asset growth and
business operations, and meet contractual obligations through unconstrained access to funding at reasonable market rates. Liquidity
management involves forecasting funding requirements and maintaining sufficient capacity to meet liquidity needs and
accommodate fluctuations in asset and liability levels due to changes in the Corporation’s business operations or unanticipated
events.
The Corporation manages liquidity at two levels. The first is the liquidity of the parent company, or First Bancorp., which is the
holding company that owns the banking and non-banking subsidiaries. The second is the liquidity of the banking subsidiary,
FirstBank.
The Asset and Liability Committee of the Corporation’s Board of Directors is responsible for overseeing management’s
establishment of the Corporation’s liquidity policy, as well as approving operating and contingency procedures and monitoring
liquidity on an ongoing basis. The Management’s Investment and Asset Liability Committee (“MIALCO”), which reports to the
Board’s Asset and Liability Committee, uses measures of liquidity developed by management that involve the use of several
assumptions to review the Corporation’s liquidity position on a monthly basis. The MIALCO oversees liquidity management,
interest rate risk, market risk, and other related matters.
The MIALCO is composed of senior management officers, including the Chief Executive Officer, the Chief Financial Officer, the
Chief Risk Officer, the Corporate Strategic and Business Development Director, the Business Group Director, the Treasury and
Investments Risk Manager, the Financial Planning and Asset and Liability Management (“ALM”) Director, and the Treasurer. The
Treasury and Investments Division is responsible for planning and executing the Corporation’s funding activities and strategy,
monitoring liquidity availability on a daily basis, and reviewing liquidity measures on a weekly basis. The Financial Planning and
ALM Division is responsible for estimating the liquidity gap.
94
To ensure adequate liquidity through the full range of potential operating environments and market conditions, the Corporation
conducts its liquidity management and business activities in a manner that is intended to preserve and enhance funding stability,
flexibility, and diversity. Key components of this operating strategy include a strong focus on the continued development of
customer-based funding, the maintenance of direct relationships with wholesale market funding providers, and the maintenance of
the ability to liquidate certain assets when, and if, requirements warrant.
The Corporation develops and maintains contingency funding plans. These plans evaluate the Corporation’s liquidity position
under various operating circumstances and are designed to help ensure that the Corporation will be able to operate through periods
of stress when access to normal sources of funds is constrained. The plans project funding requirements during a potential period of
stress, specify and quantify sources of liquidity, outline actions and procedures for effectively managing liquidity through a period of
stress, and define roles and responsibilities for the Corporation’s employees. Under the contingency funding plans, the Corporation
stresses the balance sheet and the liquidity position to critical levels that mimic difficulties in generating funds or even maintaining
the current funding position of the Corporation and the Bank and are designed to help ensure the ability of the Corporation and the
Bank to honor their respective commitments. The Corporation has established liquidity triggers that the MIALCO monitors in order
to maintain the ordinary funding of the banking business. The MIALCO has developed contingency funding plans for the following
three scenarios: a credit rating downgrade, an economic cycle downturn event, and a concentration event. The Board’s Asset and
Liability Committee reviews and approves these plans on an annual basis.
Liquidity Risk Management
The Corporation manages its liquidity in a proactive manner and in an effort to maintain a sound liquidity position. It uses multiple
measures to monitor its liquidity position, including core liquidity, basic liquidity, and time-based reserve measures. Cash and cash
equivalents amounted to $684.5 million as of March 31, 2024, compared to $663.2 million as of December 31, 2023. When adding
$2.0 billion of free high-quality liquid securities that could be liquidated or pledged within one day (which includes assets such as U.S.
government and GSEs obligations), the total core liquidity amounted to $2.7 billion as of March 31, 2024, or 14.45% of total assets,
compared to $2.8 billion, or 14.93% of total assets as of December 31, 2023.
In addition to the aforementioned $2.0 billion in cash and free high quality liquid assets, the Corporation had $972.5 million
available for credit with the FHLB based on the value of loan collateral pledged with the FHLB. As such, the basic liquidity ratio
(which adds available secured lines of credit to the core liquidity) was approximately 19.60% of total assets as of March 31, 2024,
compared to 19.82% of total assets as of December 31, 2023.
Further, the Corporation also maintains borrowing capacity at the FED Discount Window and had approximately $1.6 billion
available for funding under the FED’s Borrower-in-Custody (“BIC”) Program as of March 31, 2024 as an additional source of
liquidity. Total loans pledged to the FED BIC Program amounted to $2.7 billion as of March 31, 2024. The Corporation also 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. On a combined basis, as of March 31, 2024, the Corporation had $5.4 billion, or 121% of uninsured estimated
deposits, excluding fully collateralized government deposits, available to meet liquidity needs.
Liquidity at the Bank level is highly dependent on bank deposits, which fund 87.8% of the Bank’s assets (or 84.0% excluding
brokered CDs). In addition, as further discussed below, the Corporation maintains a diversified base of readily available wholesale
funding sources, including advances from the FHLB through pledged borrowing capacity, securities sold under agreements to
repurchase, and access to brokered CDs. Funding through wholesale funding may continue to increase the overall cost of funding for
the Corporation and adversely affect the net interest margin.
95
Commitments to extend credit and standby letters of credit
As a provider of financial services, the Corporation routinely enters into commitments with off-balance sheet risk to meet the
financial needs of its customers. These financial instruments may include loan commitments and standby letters of credit. These
commitments are subject to the same credit policies and approval processes used for on-balance sheet instruments. These
instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statements
of financial condition. As of March 31, 2024, the Corporation’s commitments to extend credit amounted to approximately $2.0
billion. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Since certain commitments are expected to expire without being drawn upon, the total commitment
amount does not necessarily represent future cash requirements. For most of the commercial lines of credit, the Corporation has the
option to reevaluate the agreement prior to additional disbursements. There have been no significant or unexpected draws on
existing commitments. In the case of credit cards and personal lines of credit, the Corporation can cancel the unused credit facility at
any time and without cause.
March 31, 2024
December 31, 2023
(In thousands)
Financial instruments whose contract amounts represent credit risk:
$
228,748
$
234,974
887,725
882,486
38,736
38,956
844,210
862,963
60,636
69,543
13,321
8,313
The Corporation engages in the ordinary course of business in other financial transactions that are not recorded on the balance
sheet or may be recorded on the balance sheet in amounts that are different from the full contract or notional amount of the
transaction and, thus, affect the Corporation’s liquidity position. These transactions are designed to (i) meet the financial needs of
customers, (ii) manage the Corporation’s credit, market and liquidity risks, (iii) diversify the Corporation’s funding sources, and (iv)
optimize capital.
In addition to the aforementioned off-balance sheet debt obligations and unfunded commitments to extend credit, the Corporation
has obligations and commitments to make future payments under contracts, amounting to approximately $4.4 billion as of March 31,
2024. Our material cash requirements comprise primarily of contractual obligations to make future payments related to time
deposits, long-term borrowings, and operating lease obligations. We also have other contractual cash obligations related to certain
binding agreements we have entered into for services including outsourcing of technology services, security, advertising and other
services which are not material to our liquidity needs. We currently anticipate that our available funds, credit facilities, and cash
flows from operations will be sufficient to meet our operational cash needs and support loan growth and capital plan execution for
the foreseeable future.
Off-balance sheet transactions are continuously monitored to consider their potential impact to our liquidity position and changes
are applied to the balance between sources and uses of funds, as deemed appropriate, to maintain a sound liquidity position.
96
Sources of Funding
The Corporation utilizes different sources of funding to help ensure that adequate levels of liquidity are available when needed.
Diversification of funding sources is of great importance to protect the Corporation’s liquidity from market disruptions. The
principal sources of short-term funding are deposits, including brokered CDs. Additional funding is provided by securities sold
under agreements to repurchase and lines of credit with the FHLB. In addition, the Corporation also maintains as additional sources
borrowing capacity at the FED’s BIC Program , as discussed above.
The Asset and Liability Committee reviews credit availability on a regular basis. The Corporation may also sell mortgage loans as
a supplementary source of funding and obtain long-term funding through the issuance of notes and long-term brokered CDs.
While liquidity is an ongoing challenge for all financial institutions, management believes that the Corporation’s available
borrowing capacity and efforts to grow core deposits will be adequate to provide the necessary funding for the Corporation’s business
plans in the next 12 months and beyond.
Retail and commercial core deposits –
The Corporation’s deposit products include regular saving accounts, demand deposit
accounts, money market accounts, and retail CDs. As of each of March 31, 2024 and December 31, 2023, the Corporation’s core
deposits, which exclude government deposits and brokered CDs, totaled $12.6 billion. The $25.8 million decrease in such deposits
was primarily related to a decline of $28.3 million in the Florida region, partially offset by increases of $1.3 million in the Virgin
Islands region and $1.2 million in the Puerto Rico region. This decrease is net of a $93.9 million increase in time deposits.
Government deposits (fully collateralized)
deposits ($2.6 billion in transactional accounts and $150.9 million in time deposits), compared to $2.7 billion as of December 31,
2023. Government deposits are insured by the FDIC up to the applicable limits and the uninsured portions are fully collateralized.
Approximately 20% of the public sector deposits as of March 31, 2024 were from municipalities and municipal agencies in Puerto
Rico and 80% were from public corporations, the central government and its agencies, and U.S. federal government agencies in Puerto
Rico.
In addition, as of March 31, 2024, the Corporation had $463.6 million of government deposits in the Virgin Islands region, as
compared to $449.4 million as of December 31, 2023, and $12.2 million in the Florida region as compared to $10.2 million as of
December 31, 2023.
The uninsured portions of government deposits were collateralized by securities and loans with an amortized cost of $3.4 billion
and $3.5 billion as of March 31, 2024 and December 31, 2023, respectively, and an estimated market value of $3.1 billion as of each
of such periods. In addition to securities and loans, as of each of March 31, 2024 and December 31,2023, the Corporation used $175.0
million in letters of credit issued by the FHLB as pledges for a portion of public deposits in the Virgin Islands.
Estimate of Uninsured Deposits –
As of March 31, 2024 and December 31, 2023, the estimated amounts of uninsured deposits
totaled $7.5 billion and $7.4 billion, respectively, generally representing the portion of deposits that exceed the FDIC insurance limit
of $250,000 and amounts in any other uninsured deposit account. As of each of March 31, 2024 and December 31, 2023, the
uninsured portion of fully collateralized government deposits amounted to $3.0 billion. Excluding fully collateralized government
deposits, the estimated amounts of uninsured deposits amounted to $4.4 billion, which represent 27.93% of total deposits (excluding
brokered CDs), as of March 31, 2024, compared to $4.4 billion, or 28.13%, as of December 31, 2023.
reporting requirements adjusted for cash held by wholly-owned subsidiaries at the Bank.
97
$250,000) and other time deposits that are otherwise uninsured as of March 31,2024:
(In thousands)
3 months or
less
3 months to
6 months
6 months to
1 year
Over 1 year
Total
U.S. time deposits in excess of FDIC insurance limits
$
321,274
$
163,085
$
461,011
$
131,218
$
1,076,588
Other uninsured time deposits
$
14,390
$
9,486
$
20,745
$
2,741
$
47,362
Brokered CDs
million as of December 31, 2023. The decline reflects maturing short-term brokered CDs amounting to $195.4 million with an all-in
cost of 5.42% that were paid off during the first quarter of 2024, partially offset by $138.0 million of new issuances with original
average maturities of approximately 2 years and an all-in cost of 4.79 %.
The average remaining term to maturity of the brokered CDs outstanding as of March 31, 2024 was approximately 1.1 years.
The future use of brokered CDs will depend on multiple factors including excess liquidity at each of the regions, future cash needs
and any tax implications. Brokered CDs are insured by the FDIC up to regulatory limits and can be obtained faster than regular retail
deposits.
Total
(In thousands)
Three months or less
$
174,639
Over three months to six months
170,215
Over six months to one year
209,581
Over one year to three years
98,233
Over three years to five years
57,582
Over five years
15,436
$
725,686
Refer to “Net Interest Income” above for information about average balances of interest-bearing deposits and the average interest
rate paid on such deposits for the quarters ended March 31, 2024 and 2023.
Securities sold under agreements to repurchase –
repurchase agreements.
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, 2024 and December 31, 2023, the outstanding balance of long-term fixed-rate FHLB
advances was $500.0 million. Of the $500.0 million in FHLB advances as of March 31, 2024, $400.0 million were pledged with
investment securities and $100.0 million were pledged with mortgage loans. As of March 31, 2024, the Corporation had $972.5
million available for additional credit on FHLB lines of credit based on collateral pledged at the FHLB of New York.
Trust Preferred Securities –
In 2004, FBP Statutory Trusts I and II, statutory trusts that are wholly-owned by the Corporation and
not consolidated in the Corporation’s financial statements, sold to institutional investors variable-rate TRuPs and used the proceeds of
these issuances, together with the proceeds of the purchases by the Corporation of variable rate common securities, to purchase junior
subordinated deferrable debentures. The subordinated debentures are presented in the Corporation’s consolidated statements of
financial condition as other long-term borrowings. Under the indentures, the Corporation has the right, from time to time, and without
causing an event of default, to defer payments of interest on the Junior Subordinated Deferrable Debentures by extending the interest
payment period at any time and from time to time during the term of the subordinated debentures for up to twenty consecutive
quarterly periods.
98
As of each of March 31, 2024 and December 31, 2023, the Corporation had junior subordinated debentures outstanding in the
aggregate amount of $161.7 million, with maturity dates ranging from June 17, 2034 through September 20, 2034. As of March 31,
2024, the Corporation was current on all interest payments due on its subordinated debt. See Note 10 – “Other Long-Term
Borrowings” and Note 7 – “Non-Consolidated Variable Interest Entities (“VIEs”) and Servicing Assets” to the unaudited consolidated
financial statements herein for additional information.
Other Sources of Funds and Liquidity
maturing deposits and borrowings, and deposits withdrawals. Over the years, in connection with its mortgage banking activities, the
Corporation has invested in technology and personnel to enhance the Corporation’s secondary mortgage market capabilities.
These enhanced capabilities improve the Corporation’s liquidity profile as they allow the Corporation to derive liquidity, if needed,
from the sale of mortgage loans in the secondary market. The U.S. (including Puerto Rico) secondary mortgage market is still highly
liquid, in large part because of the sale of mortgages through guarantee programs of the Federal Housing Authority (“FHA”), U.S.
Department of Veterans Affairs (“VA”), U.S. Department of Housing and Urban Development (“HUD”), Federal National Mortgage
Association (“FNMA”) and Federal Home Loan Mortgage Corp. (“FHLMC”). During the first quarter of 2024, loans pooled into
Government National Mortgage Association (“GNMA”) MBS amounted to approximately $24.7 million. Also, during the first quarter
of 2024, the Corporation sold approximately $6.8 million of performing residential mortgage loans to FNMA.
The FED Discount Window is a cost-efficient source of short-term funding for the Corporation in highly-volatile market
conditions. As previously mentioned, as of March 31, 2024, the Corporation had approximately $1.6 billion fully available for funding
under the FED’s Discount Window.
Effect of Credit Ratings on Access to Liquidity
The Corporation’s liquidity is contingent upon its ability to obtain deposits and other external sources of funding to finance its
operations. The Corporation’s current credit ratings and any downgrade in credit ratings can hinder the Corporation’s access to new
forms of external funding and/or cause external funding to be more expensive, which could, in turn, adversely affect its results of
operations. Also, changes in credit ratings may further affect the fair value of unsecured derivatives whose value takes into account the
Corporation’s own credit risk.
The Corporation does not have any outstanding debt or derivative agreements that would be affected by credit rating downgrades.
Furthermore, given the Corporation’s non-reliance on corporate debt or other instruments directly linked in terms of pricing or volume
to credit ratings, the liquidity of the Corporation has not been affected in any material way by downgrades. The Corporation’s ability
to access new non-deposit sources of funding, however, could be adversely affected by credit downgrades.
As of the date hereof, the Corporation’s credit as a long-term issuer is rated BB+ by S&P and BB by Fitch. As of the date hereof,
FirstBank’s credit ratings as a long-term issuer are BB+ by S&P, 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.
99
Cash Flows
Cash and cash equivalents were $684.5 million as of March 31, 2024, an increase of $21.4 million when compared to December 31,
2023. The following discussion highlights the major activities and transactions that affected the Corporation’s cash flows during the
first quarters of 2024 and 2023:
Cash Flows from Operating Activities
First BanCorp.’s operating assets and liabilities vary significantly in the normal course of business due to the amount and timing of
cash flows. Management believes that cash flows from operations, available cash balances, and the Corporation’s ability to generate
cash through short and long-term borrowings will be sufficient to fund the Corporation’s operating liquidity needs for the foreseeable
future.
For the quarters ended March 31, 2024 and 2023, net cash provided by operating activities was $118.2 million and $115.4 million,
respectively. Net cash generated from operating activities was higher than reported net income largely as a result of adjustments for
non-cash items such as depreciation and amortization, deferred income tax expense and the provision for credit losses, as well as cash
generated from sales and repayments of loans held for sale.
Cash Flows from Investing Activities
The Corporation’s investing activities primarily relate to originating loans to be held for investment, as well as purchasing, selling,
and repaying available-for-sale and held-to-maturity debt securities. For the quarter ended March 31, 2024, net cash provided by
investing activities was $39.7 million, primarily due to repayments of U.S. agencies MBS and debentures; proceeds from sales of
loans, mainly driven by the bulk sale of fully charged-off consumer loans during the first quarter of 2024; and proceeds from sales of
repossessed assets; partially offset by net disbursements on loans held for investment.
For the quarter ended March 31, 2023, net cash provided by investing activities was $50.5 million, primarily due to repayments of
U.S. agencies MBS, partially offset by net disbursements on loans held for investment.
The Corporation’s financing activities primarily include the receipt of deposits and the issuance of brokered CDs, the issuance of
and payments on long-term debt, the issuance of equity instruments, return of capital, and activities related to its short-term funding.
For the quarter ended March 31, 2024, net cash used in financing activities was $136.6 million, mainly reflecting capital returned to
stockholders and a decrease in total deposits.
For the quarter ended March 31, 2023, net cash provided by financing activities was $177.1 million, mainly reflecting net proceeds
of $347.8 million from borrowings reflecting precautionary measures taken by management in light of instability in the banking sector
during such period, partially offset by a decrease in total deposits and capital returned to stockholders.
100
Capital
As of March 31, 2024, the Corporation’s stockholders’ equity was $1.5 billion, a decrease of $17.9 million from December 31,
2023. The decrease was driven by the repurchase of approximately 3.0 million shares of common stock for a total cost of $50.0
million, common stock dividends declared in the first quarter of 2024 totaling $26.9 million or $0.16 per common share, and a $15.1
million decrease in the fair value of available-for -sale debt securities recorded as part of accumulated other comprehensive loss in the
consolidated statements of financial condition. These variances were partially offset by the net income generated in the first quarter of
2024.
On April 25, 2024, the Corporation’s Board declared a quarterly cash dividend of $0.1 6 per common share. The dividend is payable
on June 14, 2024 to shareholders of record at the close of business on May 30, 2024. 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 at the relevant times.
On July 24, 2023, the Corporation announced that its Board of Directors approved a stock repurchase program, under which the
Corporation may repurchase up to $225 million of its outstanding common stock, which it expects to execute through the end of the
third quarter of 2024. 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 Corporation’s stock repurchase
program does not obligate it to acquire any specific number of shares and does not have an expiration date. The stock repurchase
program may be modified, suspended, or terminated at any time at the Corporation’s discretion. As of May 2, 2024, the Corporation
has repurchased approximately 8.4 million shares of common stock for a total cost of $129.9 million under such stock repurchase
program. The Corporation’s holding company has no operations and depends on dividends, distributions and other payments from its
subsidiaries to fund dividend payments, stock repurchases, and to fund all payments on its obligations, including debt obligations. For
more information, see Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds,”
of this Quarterly Report on Form
10-Q.
The tangible common equity ratio and tangible book value per common share are non-GAAP financial measures generally used by
the financial community to evaluate capital adequacy. Tangible common equity is total common equity less goodwill and other
intangible assets. Tangible assets are total assets less the previously mentioned intangible assets. See “Non-GAAP Financial Measures
and Reconciliations” above for additional information.
101
measures, to total equity and total assets, respectively, as of March 31, 2024 and December 31, 2023, respectively:
March 31, 2024
December 31, 2023
(In thousands, except ratios and per share information)
Total common equity - GAAP
$
1,479,717
$
1,497,609
Goodwill
(38,611)
(38,611)
Other intangible assets
(11,542)
(13,383)
Tangible common equity - non-GAAP
$
1,429,564
$
1,445,615
Total assets - GAAP
$
18,890,961
$
18,909,549
Goodwill
(38,611)
(38,611)
Other intangible assets
(11,542)
(13,383)
Tangible assets - non-GAAP
$
18,840,808
$
18,857,555
Common shares outstanding
166,707
169,303
Tangible common equity ratio - non-GAAP
7.59%
7.67%
Tangible book value per common share - non-GAAP
$
8.58
$
8.54
See Note 21 – “Regulatory Matters, Commitments and Contingencies” to the unaudited consolidated financial statements herein for
the regulatory capital positions of the Corporation and FirstBank as of March 31, 2024 and December 31, 2023, respectively.
The Puerto Rico Banking Law of 1933, as amended (the “Puerto Rico Banking Law”) requires that a minimum of 10% of
FirstBank’s net income for the year be transferred to a legal surplus reserve until such surplus equals the total of paid-in-capital on
common and preferred stock. Amounts transferred to the legal surplus reserve from retained earnings are not available for distribution
to the Corporation without the prior consent of the Puerto Rico Commissioner of Financial Institutions. The Puerto Rico Banking Law
provides that, when the expenditures of a Puerto Rico commercial bank are greater than receipts, the excess of the expenditures over
receipts must be charged against the undistributed profits of the bank, and the balance, if any, must be charged against the legal
surplus reserve, as a reduction thereof. If the legal surplus reserve is not sufficient to cover such balance in whole or in part, the
outstanding amount must be charged against the capital account and the Bank cannot pay dividends until it can replenish the legal
surplus reserve to an amount of at least 20% of the original capital contributed. FirstBank’s legal surplus reserve, included as part of
retained earnings in the Corporation’s consolidated statements of financial condition, amounted to $199.6 million as of each of March
31, 2024 and December 31, 2023, respectively. There were no transfers to the legal surplus reserve during the quarter ended March 31,
2024.
102
Interest Rate Risk Management
First BanCorp manages its asset/liability position to limit the effects of changes in interest rates on net interest income and to
maintain stability of profitability under varying interest rate scenarios. The MIALCO oversees interest rate risk and monitors, among
other things, current and expected conditions in global financial markets, competition and prevailing rates in the local deposit market,
liquidity, loan originations pipeline, securities market values, recent or proposed changes to the investment portfolio, alternative
funding sources and related costs, hedging and the possible purchase of derivatives such as swaps and caps, and any tax or regulatory
issues which may be pertinent to these areas. The MIALCO approves funding decisions in light of the Corporation’s overall strategies
and objectives.
On at least a quarterly basis, the Corporation performs a consolidated net interest income simulation analysis to estimate the potential
change in future earnings from projected changes in interest rates. These simulations are carried out over a one-to-five-year time
horizon. The rate scenarios considered in these simulations reflect gradual upward or downward interest rate movements in the yield
curve, for gradual (ramp) parallel shifts in the yield curve of 200 and 300 bps during a twelve-month period, or immediate upward or
downward changes in interest rate movements of 200 bps, for interest rate shock scenarios. The Corporation carries out the
simulations in two ways:
(1)
Using a static balance sheet, as the Corporation had on the simulation date, and
(2)
Using a dynamic balance sheet based on recent patterns and current strategies.
The balance sheet is divided into groups of assets and liabilities by maturity or repricing structure and their corresponding interest
yields and costs. As interest rates rise or fall, these simulations incorporate expected future lending rates, current and expected future
funding sources and costs, the possible exercise of options, changes in prepayment rates, deposit decay and other factors, which may
be important in projecting net interest income.
The Corporation uses a simulation model to project future movements in the Corporation’s balance sheet and income statement. The
starting point of the projections corresponds to the actual values on the balance sheet on the simulation date. These simulations are
highly complex and are based on many assumptions that are intended to reflect the general behavior of the balance sheet components
over the modeled periods. It is unlikely that actual events will match these assumptions in all cases. For this reason, the results of these
forward-looking computations are only approximations of the sensitivity of net interest income to changes in market interest rates.
Several benchmark and market rate curves were used in the modeling process, primarily, SOFR curve, Prime Rate, U.S. Treasury
yield curve, FHLB rates, brokered CDs rates, repurchase agreements rates, and the mortgage commitment rate of 30 years.
As of March 31, 2024, the Corporation forecasted the 12-month net interest income assuming March 31, 2024 interest rate curves
remain constant. Then, net interest income was estimated under rising and falling rates scenarios. For the rising rate scenario, a
gradual (ramp) and immediate (shock) parallel upward shift of the yield curve is assumed during the first twelve months (the “+300
ramp”, “+200 ramp” and “+200 shock” scenarios). Conversely, for the falling rate scenario, a gradual (ramp) and immediate (shock)
parallel downward shift of the yield curve is assumed during the first twelve months (the “-300 ramp”, “-200 ramp” and “-200 shock”
scenarios).
The SOFR curve for March 31, 2024, as compared with December 31, 2023, reflects an increase of 12 bps on average in the short-
term sector of the curve, or between one to twelve months; an increase of 57 bps in the medium-term sector of the curve, or between 2
to 5 years; and an increase of 47 bps in the long-term sector of the curve, or over 5-year maturities. A similar behavior in market rates
changes was observed in the Constant Maturity Treasury yield curve with an increase of 8 bps in the short-term sector, an increase of
50 bps in the medium-term sector, and an increase of 42 bps in the long-term sector.
103
years, these exclude non-cash changes in the fair value of derivatives:
Net Interest Income Risk
(% Change Projected for the next 12 months)
March 31, 2024
December 31, 2023
Gradual Change in Interest Rates:
1.56
%
1.08
%
1.05
%
0.73
%
-3.39
%
-3.09
%
-2.19
%
-2.02
%
Immediate Change in Interest Rates:
2.37
%
2.45
%
-5.62
%
-5.67
%
The Corporation continues to manage its balance sheet structure to control and limit the overall interest rate risk by managing its
asset composition while maintaining a sound liquidity position. See “Risk Management – Liquidity Risk Management” above for
liquidity ratios.
As of March 31, 2024, and December 31, 2023, the net interest income simulations show that the Corporation continues to have an
asset sensitive position for the next twelve months under a static balance sheet simulation.
Under gradual rising scenarios, the net interest income simulation shows a slight increase in interest rate sensitivity, when
compared with December 31, 2023, due to lower sensitivity in the liabilities side. The decrease in sensitivity in the liabilities side was
mainly driven by an increase in repricing lag, mainly in public sector non -maturity deposits, partially offset by higher sensitivity in
time deposits as a result of higher balances. On the assets side, the sensitivity increased slightly in the investment securities portfolio
due to an increase in the prepayment rate assumptions of MBS and the level of scheduled maturities of U.S. agencies debentures over
the next twelve months.
Gradual falling rates scenarios also show an increase in interest rate sensitivity, when compared with December 31, 2023, as
decreases in interest rates are estimated to occur at a slower pace on the liabilities side as pricing pressures, deposits competition and
retention strategies will impact the pace of repricing, mainly in the public sector non-maturity deposits, partially offset by higher
sensitivity on the assets side, as explained above.
Under the static simulation, the Corporation assumes that maturing instruments are replaced with similar instruments at the
repricing rate upon maturity. The Corporation’s results may vary significantly from the ones presented above under alternative balance
sheet compositions, such as a dynamic balance sheet scenario which, for example, would assume that cash flows from the investment
securities portfolio and loan repayments will be redeployed into higher yielding alternatives.
104
Credit Risk Management
First BanCorp. is subject to credit risk mainly with respect to its portfolio of loans receivable and off-balance-sheet instruments,
principally loan commitments. Loans receivable represents loans that First BanCorp. holds for investment and, therefore, First
BanCorp. is at risk for the term of the loan. Loan commitments represent commitments to extend credit, subject to specific conditions,
for specific amounts and maturities. These commitments may expose the Corporation to credit risk and are subject to the same review
and approval process as for loans made by the Bank. See “Risk Management – Liquidity Risk” and “Risk Management – Capital”
above for further details. The Corporation manages its credit risk through its credit policy, underwriting, monitoring of loan
concentrations and related credit quality, counterparty credit risk, economic and market conditions, and legislative or regulatory
mandates. The Corporation also performs independent loan review and quality control procedures, statistical analysis, comprehensive
financial analysis, established management committees, and employs proactive collection and loss mitigation efforts. Furthermore,
personnel performing structured loan workout functions are responsible for mitigating defaults and minimizing losses upon default
within each region and for each business segment. In the case of the C&I, commercial mortgage and construction loan portfolios, the
Special Asset Group (“SAG”) focuses on strategies for the accelerated reduction of non-performing assets through note sales, short
sales, loss mitigation programs, and sales of OREO. In addition to the management of the resolution process for problem loans, the
SAG oversees collection efforts for all loans to prevent migration to the nonaccrual and/or adversely classified status. The SAG
utilizes relationship officers, collection specialists and attorneys.
The Corporation may also have risk of default in the securities portfolio. The securities held by the Corporation are principally
fixed-rate U.S. agencies MBS and U.S. Treasury and agencies securities. Thus, a substantial portion of these instruments is backed by
mortgages, a guarantee of a U.S. GSE or the full faith and credit of the U.S. government.
Management, consisting of the Corporation’s Chief Risk Officer, Commercial Credit Risk Officer, Retail Credit Risk Officer, Chief
Credit Officer, and other senior executives, has the primary responsibility for setting strategies to achieve the Corporation’s credit risk
goals and objectives. Management has documented these goals and objectives in the Corporation’s Credit Policy.
105
Allowance for Credit Losses and Non-Performing Assets
Allowance for Credit Losses for Loans and Finance Leases
The ACL for loans and finance leases represents the estimate of the level of reserves appropriate to absorb expected credit losses
over the estimated life of the loans. The amount of the allowance is determined using relevant available information, from internal and
external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience
is a significant input for the estimation of expected credit losses, as well as adjustments to historical loss information made for
differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency level,
or term. Additionally, the Corporation’s assessment involves evaluating key factors, which include credit and macroeconomic
indicators, such as changes in unemployment rates, property values, and other relevant factors to account for current and forecasted
market conditions that are likely to cause estimated credit losses over the life of the loans to differ from historical credit losses. Such
factors are subject to regular review and may change to reflect updated performance trends and expectations, particularly in times of
severe stress. The process includes judgments and quantitative elements that may be subject to significant change. Further, the
Corporation periodically considers the need for qualitative reserves to the ACL. Qualitative adjustments may be related to and include,
but are not limited to, factors such as the following: (i) management’s assessment of economic forecasts used in the model and how
those forecasts align with management’s overall evaluation of current and expected economic conditions; (ii) organization specific
risks such as credit concentrations, collateral specific risks, nature and size of the portfolio and external factors that may ultimately
impact credit quality, and (iii) other limitations associated with factors such as changes in underwriting and loan resolution strategies,
among others. The ACL for loans and finance leases is reviewed at least on a quarterly basis as part of the Corporation’s continued
evaluation of its asset quality.
The Corporation generally applies probability weights to the baseline and alternative downside economic scenarios to estimate the
ACL with the baseline scenario carrying the highest weight. The scenarios that are chosen each quarter and the weighting given to
each scenario for the different loan portfolio categories depend on a variety of factors including recent economic events, leading
national and regional economic indicators, and industry trends. As of March 31, 2024, the Corporation applied the baseline scenario
for the commercial mortgage and construction loan portfolios as deterioration in the CRE price index in these portfolios was expected
at a lower extent than projected in the alternative downside scenario. The economic scenarios used in the ACL determination
contained assumptions related to economic uncertainties associated with geopolitical instability, the CRE price index, unemployment
rate, inflation levels, and expected future interest rate adjustments in the Federal Reserve Board’s funds rate. As of March 31, 2024,
the Corporation’s ACL model considered the following assumptions for key economic variables in the probability-weighted economic
scenarios:
●
CRE price index at the national level with an average projected contraction of 6.25% for the remainder of 2024 and an
average projected appreciation of 1.98% for the year 2025, compared to an average projected contraction of 6.81% for the
remainder of 2024 and an average projected appreciation of 2.01% for the year 2025 as of December 31, 2023.
●
Regional Home Price Index forecast in Puerto Rico (purchase only prices) is projected to remain relatively flat for the
remainder of 2024, while for the year 2025 shows a deterioration of 1.22%, when compared to the same period projection as
of December 31, 2023. For the Florida region, the Home Price Index forecast shows an improvement of 0.72% for the
remainder of 2024 and an improvement of 0.91% for the year 2025, when compared to the same period as of December 31,
2023.
●
Average regional unemployment rate in Puerto Rico is forecasted at 7.03% for the remainder of 2024 and 8.16% for 2025,
compared to 7.35% for the remainder of 2024 and 8.08% for the year 2025 as of December 31, 2023. For the Florida and the
U.S. mainland, average unemployment rate is forecasted at 4.07% and 4.53%, respectively, for the remainder of 2024, and
4.34% and 4.73%, respectively, for the year 2025, compared to 4.27% and 4.74%, respectively, for the remainder of 2024,
and 4.12% and 4.52%, respectively, for the year 2025 as of December 31, 2023.
●
Annualized change in gross domestic product (“GDP”) in the U.S. mainland of 1.61% for the remainder of 2024 and 1.33%
for the year 2025, compared to 0.82% for the remainder of 2024 and 1.64% for the year 2025 as of December 31, 2023.
106
It is difficult to estimate how potential changes in one factor or input might affect the overall ACL because management considers a
wide variety of factors and inputs in estimating the ACL. Changes in the factors and inputs considered may not occur at the same rate
and may not be consistent across all geographies or product types, and changes in factors and inputs may be directionally inconsistent,
such that improvement in one factor or input may offset deterioration in others. However, to demonstrate the sensitivity of credit loss
estimates to macroeconomic forecasts as of March 31, 2024, management compared the modeled estimates under the probability-
weighted economic scenarios against a more adverse scenario. The more adverse scenario incorporates an additional adverse scenario
and decreases the weight applied to the baseline scenario. Under this more adverse scenario, as an example, average unemployment
rate for the Puerto Rico region increases to 7.45% for the remainder of 2024, compared to 7.03% for the same period on the
probability-weighted economic scenario projections.
To demonstrate the sensitivity to key economic parameters used in the calculation of the ACL at March 31, 2024, management
calculated the difference between the quantitative ACL and this more adverse scenario. Excluding consideration of qualitative
adjustments, this sensitivity analysis would result in a hypothetical increase in the ACL of approximately $47 million at March 31,
2024. This analysis relates only to the modeled credit loss estimates and is not intended to estimate changes in the overall ACL as it
does not reflect any potential changes in other adjustments to the qualitative calculation, which would also be influenced by the
judgment management applies to the modeled lifetime loss estimates to reflect the uncertainty and imprecision of these estimates
based on current circumstances and conditions. Recognizing that forecasts of macroeconomic conditions are inherently uncertain,
particularly in light of recent economic conditions and challenges, which continue to evolve, management believes that its process to
consider the available information and associated risks and uncertainties is appropriately governed and that its estimates of expected
credit losses were reasonable and appropriate for the period ended March 31, 2024.
The ratio of the ACL for loans and finance leases to total loans held for investment decreased to 2.14% as of March 31, 2024,
compared to 2.15% as of December 31, 2023. An explanation for the change for each portfolio follows:
●
The ACL to total loans ratio for the residential mortgage loan portfolio decreased from 2.03% as of December 31, 2023 to
2.02% as of March 31, 2024, primarily reflecting a more favorable economic outlook, particularly in the projection of
unemployment rates.
●
The ACL to total loans ratio for the construction loan portfolio was 2.61% as of each of March 31, 2024 and December 31,
2023.
●
The ACL to total loans ratio for the commercial mortgage loan portfolio decreased from 1.41% as of December 31, 2023
to 1.38% as of March 31, 2024, mainly driven by improvements in the financial information of certain borrowers and
delinquency improvements, partially offset by deterioration on the economic outlook of certain macroeconomic variables.
●
The ACL to total loans ratio for the C&I loan portfolio increased from 1.05% as of December 31, 2023 to 1.07% as of
March 31, 2024, mainly due to newly originated loans which have a longer life.
●
The ACL to total loans ratio for the consumer loan portfolio decreased from 3.64% as of December 31, 2023 to 3.63% as
of March 31, 2024, mainly driven by updated macroeconomic variables, partially offset by increases in historical charge-
off levels, mainly in credit cards.
compared to 312.81% as of December 31, 2023.
107
Substantially all of the Corporation’s loan portfolio is located within the boundaries of the U.S. economy. Whether the collateral is
located in Puerto Rico, the U.S. and British Virgin Islands, or the U.S. mainland (mainly in the state of Florida), the performance of
the Corporation’s loan portfolio and the value of the collateral supporting the transactions are dependent upon the performance of and
conditions within each specific area’s real estate market. The Corporation believes it sets adequate loan-to-value ratios following its
regulatory and credit policy standards.
As shown in the following tables, the ACL for loans and finance leases amounted to $263.6 million as of March 31, 2024, or 2.14%
of total loans, compared with $261.8 million, or 2.15% of total loans, as of December 31, 2023. See “Results of Operations - Provision
for Credit Losses” and Note 4 – “Allowance for Credit Losses for Loans and Finance Leases” above for additional information.
Quarter Ended March 31,
2024
2023
(Dollars in thousands)
ACL for loans and finance leases, beginning of year
$
261,843
$
260,464
Impact of adoption of ASU 2022-02
-
2,116
Provision for credit losses - (benefit) expense:
Residential mortgage
(464)
73
Construction
571
860
Commercial mortgage
(10)
1,246
C&I
(3,360)
(1,650)
Consumer and finance leases
16,180
15,727
Total provision for credit losses - expense
12,917
16,256
Charge-offs:
Residential mortgage
(516)
(983)
Commercial mortgage
-
(18)
C&I
(459)
(118)
Consumer and finance leases
(28,364)
(16,798)
Total charge offs
(29,339)
(17,917)
Recoveries:
Residential mortgage
272
497
Construction
10
63
Commercial mortgage
40
168
C&I
5,119
90
Consumer and finance leases
12,730
(1)
3,830
Total recoveries
18,171
(1)
4,648
Net charge-offs
(11,168)
(13,269)
ACL for loans and finance leases, end of period
$
263,592
$
265,567
ACL for loans and finance leases to period-end total loans held for investment
2.14%
2.29%
Net charge-offs (annualized) to average loans outstanding during the period
0.37%
(2)
0.46%
Provision for credit losses - expense for loans and finance leases to net charge-offs during the period
1.16x
1.23x
(1) For the quarter ended March 31, 2024 includes a recovery totaling $9.5 million associated with the bulk sale of fully charged -off consumer loans.
(2) The recovery associated with the aforementioned bulk sale reduced the ratio of total net charge-offs to related average loans by 31 basis points in the first quarter of 2024.
108
category, and the percentage of loan balances in each category to the total of such loans as of the indicated dates:
As of March 31, 2024
Residential
Mortgage
Loans
Commercial
Mortgage
Loans
C&I Loans
Consumer and
Finance
Leases
Construction
Loans
(Dollars in thousands)
Total
Total loans held for investment:
$
2,801,587
$
237,288
$
2,361,731
$
3,230,995
$
3,679,847
$
12,311,448
23
%
2
%
19
%
26
%
30
%
100
%
$
56,689
$
6,186
$
32,661
$
34,490
$
133,566
$
263,592
2.02
%
2.61
%
1.38
%
1.07
%
3.63
%
2.14
%
As of December 31, 2023
Residential
Mortgage
Loans
Commercial
Mortgage
Loans
C&I Loans
Consumer and
Finance Leases
Construction
Loans
(Dollars in thousands)
Total
Total loans held for investment:
$
2,821,726
$
214,777
$
2,317,083
$
3,174,232
$
3,657,665
$
12,185,483
23
%
2
%
19
%
26
%
30
%
100
%
$
57,397
$
5,605
$
32,631
$
33,190
$
133,020
$
261,843
2.03
%
2.61
%
1.41
%
1.05
%
3.64
%
2.15
%
Allowance for Credit Losses for Unfunded Loan Commitments
The Corporation estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk as a
result of a contractual obligation to extend credit, such as pursuant to unfunded loan commitments and standby letters of credit for
commercial and construction loans, unless the obligation is unconditionally cancellable by the Corporation. The ACL for off-balance
sheet credit exposures is adjusted as a provision for credit loss expense. As of March 31, 2024, the ACL for off-balance sheet credit
exposures increased by $0.3 million to $4.9 million, when compared to December 31, 2023.
Allowance for Credit Losses for Held-to-Maturity Debt Securities
As of March 31, 2024, the ACL for held-to-maturity securities portfolio was entirely related to financing arrangements with Puerto
Rico municipalities issued in bond form, which the Corporation accounts for as securities, but which were underwritten as loans with
features that are typically found in commercial loans. As of March 31, 2024, the ACL for held-to-maturity debt securities was $1.2
million, compared to $2.2 million as of December 31, 2023. The decrease was mostly driven by improvements in the underlying
updated financial information of a Puerto Rico municipal bond issuer received during the first quarter of 2024.
Allowance for Credit Losses for Available -for-Sale Debt Securities
issued by the PRHFA, was $0.4 million as of March 31, 2024, compared to $0.5 million as of December 31, 2023.
109
Nonaccrual Loans and Non-Performing Assets
Total non-performing assets consist of nonaccrual loans (generally loans held for investment or loans held for sale for which the
recognition of interest income was discontinued when the loan became 90 days past due or earlier if the full and timely collection of
interest or principal is uncertain), foreclosed real estate and other repossessed properties, and non-performing investment securities, if
any. When a loan is placed in nonaccrual status, any interest previously recognized and not collected is reversed and charged against
interest income. Cash payments received are recognized when collected in accordance with the contractual terms of the loans. The
principal portion of the payment is used to reduce the principal balance of the loan, whereas the interest portion is recognized on a
cash basis (when collected). However, when management believes that the ultimate collectability of principal is in doubt, the interest
portion is applied to the outstanding principal. The risk exposure of this portfolio is diversified as to individual borrowers and
industries, among other factors. In addition, a large portion is secured with real estate collateral.
Nonaccrual Loans Policy
Residential Real Estate Loans
interest and principal for a period of 90 days or more.
Commercial and Construction Loans
construction loans) in nonaccrual status when it has not received interest and principal for a period of 90 days or more or when it does
not expect to collect all of the principal or interest due to deterioration in the financial condition of the borrower.
Finance Leases
a period of 90 days or more.
Consumer Loans
for a period of 90 days or more. Credit card loans continue to accrue finance charges and fees until charged-off at 180 days delinquent.
Purchased Credit Deteriorated Loans (“PCD”)
— For PCD loans, the nonaccrual status is determined in the same manner as for
other loans, except for PCD loans that prior to the adoption of CECL were classified as purchased credit impaired (“PCI”) loans and
accounted for under ASC Subtopic 310-30, “Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality”
(“ASC Subtopic 310-30”). As allowed by CECL, the Corporation elected to maintain pools of loans accounted for under ASC
Subtopic 310-30 as “units of accounts,” conceptually treating each pool as a single asset. Regarding interest income recognition, the
prospective transition approach for PCD loans was applied at a pool level, which froze the effective interest rate of the pools as of
January 1, 2020. According to regulatory guidance, the determination of nonaccrual or accrual status for PCD loans with respect to
which the Corporation has made a policy election to maintain previously existing pools upon adoption of CECL should be made at the
pool level, not the individual asset level. In addition, the guidance provides that the Corporation can continue accruing interest and not
report the PCD loans as being in nonaccrual status if the following criteria are met: (i) the Corporation can reasonably estimate the
timing and amounts of cash flows expected to be collected; and (ii) the Corporation did not acquire the asset primarily for the rewards
of ownership of the underlying collateral, such as the use in operations or improving the collateral for resale. Thus, the Corporation
continues to exclude these pools of PCD loans from nonaccrual loan statistics.
Other Real Estate Owned
OREO acquired in settlement of loans is carried at fair value less estimated costs to sell the real estate acquired. Appraisals are
obtained periodically, generally on an annual basis.
Other Repossessed Property
The other repossessed property category generally includes repossessed 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 consists of a residential pass-through MBS issued by the PRHFA placed in non-performing status in the second
quarter of 2021 based on the delinquency status of the underlying second mortgage loans.
110
Loans Past-Due 90 Days and Still Accruing
These are accruing loans that are contractually delinquent 90 days or more. These past-due loans are either current as to interest but
delinquent as to the payment of principal (
i.e.
, well secured and in process of collection) or are insured or guaranteed under applicable
FHA, VA, or other government-guaranteed programs for residential mortgage loans. Furthermore, as required by instructions in
regulatory reports, loans past due 90 days and still accruing include loans previously pooled into GNMA securities for which the
Corporation has the option but not the obligation to repurchase loans that meet GNMA’s specified delinquency criteria (
e.g.
,
borrowers fail to make any payment for three consecutive months). For accounting purposes, these GNMA loans subject to the
repurchase option are required to be reflected in the financial statements with an offsetting liability. In addition, loans past due 90 days
and still accruing include PCD loans, as mentioned above, and credit cards that continue accruing interest until charged-off at 180
days.
March 31,2024
December 31, 2023
(Dollars in thousands)
Nonaccrual loans held for investment:
Residential mortgage
$
32,685
$
32,239
Construction
1,498
1,569
Commercial mortgage
11,976
12,205
C&I
25,067
15,250
Consumer and finance leases
21,739
22,444
Total nonaccrual loans held for investment
92,965
83,707
OREO
28,864
32,669
Other repossessed property
6,226
8,115
Other assets
1,551
1,415
Total non-performing assets
$
129,606
$
125,906
Past due loans 90 days and still accruing
(2) (3) (4)
$
57,515
$
59,452
Non-performing assets to total assets
0.69
%
0.67
%
Nonaccrual loans held for investment to total loans held for investment
0.76
%
0.69
%
ACL for loans and finance leases
$
263,592
$
261,843
ACL for loans and finance leases to total nonaccrual loans held for investment
283.54
%
312.81
%
ACL for loans and finance leases to total nonaccrual loans held for investment, excluding residential real estate loans
437.28
%
508.75
%
(1)
Residential pass-through MBS issued by the PRHFA held as part of the available-for-sale debt securities portfolio.
(2)
Includes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans as “units of
account” both at the time of adoption of CECL on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from nonaccrual loan
statistics as long as the Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due
90 days or more amounted to $8.6 million and $8.3 million as of March 31,2024 and December 31, 2023, respectively.
(3)
Includes FHA/VA government-guaranteed residential mortgage as loans past-due 90 days and still accruing as opposed to nonaccrual loans. The Corporation continues accruing interest on
these loans until they have passed the 15 months delinquency mark, taking into consideration the FHA interest curtailment process. These balances include $13.7 million and $15.4 million
of FHA government guaranteed residential mortgage loans that were over 15 months delinquent as of March 31, 2024 and December 31, 2023, respectively.
(4)
These includes rebooked loans, which were previously pooled into GNMA securities, amounting to $8.8 million and $7.9 million as of March 31, 2024 and December 31, 2023,
respectively. Under the GNMA program, the Corporation has the option but not the obligation to repurchase loans that meet GNMA’s specified delinquency criteria. For accounting
purposes, the loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting liability.
111
Total non-performing assets increased by $3.7 million to $129.6 million as of March 31, 2024, compared to $125.9 million as of
December 31, 2023. The increase in non-performing loans was driven by a $9.3 million increase in total nonaccrual loans held for
investment, partially offset by a $3.8 million decrease in the OREO portfolio balance and a $1.9 million decrease in other repossessed
property.
Total nonaccrual loans were $93.0 million as of March 31, 2024 . This represents a net increase of $9.3 million from $83.7 million
as of December 31, 2023, consisting of increases of $9.5 million and $0.5 million in nonaccrual commercial and construction loans
and nonaccrual residential mortgage loans, respectively, partially offset by a decrease of $0.7 million in nonaccrual consumer loans.
The increase in nonaccrual commercial and construction loans was primarily driven by the inflow to nonaccrual status of a $10.5
million C&I loan in the Florida region in the power generation industry.
The following table shows non-performing assets by geographic segment as of the indicated dates:
March 31,2024
December 31, 2023
(In thousands)
Puerto Rico:
Nonaccrual loans held for investment:
Residential mortgage
$
17,521
$
18,324
Construction
531
595
Commercial mortgage
3,037
3,106
C&I
13,431
13,414
Consumer and finance leases
21,503
21,954
Total nonaccrual loans held for investment
56,023
57,393
OREO
24,577
28,382
Other repossessed property
5,916
7,857
Other assets
1,551
1,415
Total non-performing assets
$
88,067
$
95,047
Past due loans 90 days and still accruing
$
51,614
$
53,308
Virgin Islands:
Nonaccrual loans held for investment:
Residential mortgage
$
6,693
$
6,688
Construction
967
974
Commercial mortgage
8,939
9,099
C&I
1,119
1,169
Consumer
203
419
Total nonaccrual loans held for investment
17,921
18,349
OREO
4,287
4,287
Other repossessed property
287
252
Total non-performing assets
$
22,495
$
22,888
Past due loans 90 days and still accruing
$
5,762
$
6,005
United States:
Nonaccrual loans held for investment:
Residential mortgage
$
8,471
$
7,227
C&I
10,517
667
Consumer
33
71
Total nonaccrual loans held for investment
19,021
7,965
Other repossessed property
23
6
Total non-performing assets
$
19,044
$
7,971
Past due loans 90 days and still accruing
$
139
$
139
112
periods:
Construction
Commercial
Mortgage
C&I
Total
(In thousands)
Quarter Ended March 31,2024
Beginning balance
$
1,569
$
12,205
$
15,250
$
29,024
Plus:
Additions to nonaccrual
-
-
11,041
11,041
Less:
Loans returned to accrual status
-
-
-
-
Nonaccrual loans transferred to OREO
(48)
-
-
(48)
Nonaccrual loans charge-offs
-
-
(459)
(459)
Loan collections
(23)
(229)
(765)
(1,017)
Ending balance
$
1,498
$
11,976
$
25,067
$
38,541
Construction
Commercial
Mortgage
C&I
Total
(In thousands)
Quarter Ended March 31,2023
Beginning balance
$
2,208
$
22,319
$
7,830
$
32,357
Plus:
Additions to nonaccrual
127
544
7,470
8,141
Less:
Loans returned to accrual status
-
(361)
(152)
(513)
Nonaccrual loans transferred to OREO
(332)
(162)
(183)
(677)
Nonaccrual loans charge-offs
-
(18)
(118)
(136)
Loan collections
(209)
(730)
(1,443)
(2,382)
Reclassification
-
6
-
6
Ending balance
$
1,794
$
21,598
$
13,404
$
36,796
113
The following table presents the activity of residential nonaccrual loans held for investment for the indicated periods:
Quarter Ended March 31,
2024
2023
(In thousands)
Beginning balance
$
32,239
$
42,772
4,596
2,081
(2,833)
(3,937)
(404)
(2,710)
(125)
(220)
(788)
(1,570)
-
(6)
Ending balance
$
32,685
$
36,410
The amount of nonaccrual consumer loans, including finance leases, decreased by $0.7 million to $21.7 million as of March 31,
2024, compared to $22.4 million as of December 31, 2023. The decrease was mainly reflected in the finance lease and auto loan
portfolios.
As of March 31, 2024, approximately $23.8 million of the loans placed in nonaccrual status, mainly commercial and residential
mortgage loans, were current, or had delinquencies of less than 90 days in their interest payments. Collections on these loans are being
recorded on a cash basis through earnings, or on a cost-recovery basis, as conditions warrant.
During the quarter ended March 31, 2024, interest income of approximately $0.1 million related to nonaccrual loans with a carrying
value of $33.4 million as of March 31, 2024, mainly nonaccrual commercial and construction loans, was applied against the related
principal balances under the cost-recovery method.
Total loans in early delinquency (
i.e.
, 30-89 days past due loans, as defined in regulatory reporting instructions) amounted to $133.7
million as of March 31, 2024, a decrease of $17.1 million, compared to $150.8 million as of December 31, 2023. The variances by
major portfolio categories are as follows:
●
Consumer loans in early delinquency decreased by $15.5 million to $96.5 million, mainly reflected in the auto loan portfolio.
●
Residential mortgage loans in early delinquency decreased by $4.0 million to $32.5 million.
●
Commercial and construction loans in early delinquency increased by $2.4 million to $4.7 million, mainly due to certain
commercial loans that matured and are in the process of renewal but for which the Corporation continues to receive interest
and principal payments from the borrower.
In addition, the Corporation provides homeownership preservation assistance to its customers through a loss mitigation program.
Depending upon the nature of a borrower’s financial condition, restructurings or loan modifications through this program are
provided, as well as other modifications of individual C&I, commercial mortgage, construction, and residential mortgage loans. See
Note 1 – “Basis of Presentation and Significant Accounting Policies” to the unaudited consolidated financial statements herein for
additional information related to the accounting policies of loan modifications granted to borrowers experiencing financial difficulty.
In addition, see Note 3 – “Loans Held for Investment” to the unaudited consolidated financial statements herein for additional
information and statistics about the Corporation’s modified loans.
114
The OREO portfolio, which is part of non -performing assets, amounted to $28.9 million as of March 31, 2024 and $32.7 million as
of December 31, 2023. The following tables show the composition of the OREO portfolio as of March 31, 2024 and December 31,
2023, as well as the activity of the OREO portfolio by geographic area during the quarter ended March 31, 2024:
OREO Composition by Region
As of March 31,2024
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Residential
$
15,254
$
1,452
$
-
$
16,706
Construction
1,656
25
-
1,681
Commercial
7,667
2,810
-
10,477
$
24,577
$
4,287
$
-
$
28,864
As of December 31, 2023
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Residential
$
18,809
$
1,452
$
-
$
20,261
Construction
1,576
25
-
1,601
Commercial
7,997
2,810
-
10,807
$
28,382
$
4,287
$
-
$
32,669
OREO Activity by Region
Quarter Ended March 31, 2024
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Beginning Balance
$
28,382
$
4,287
$
-
$
32,669
Additions
1,213
-
-
1,213
Sales
(4,451)
-
-
(4,451)
Subsequent measurement adjustments
(152)
-
-
(152)
Other adjustments
(415)
-
-
(415)
Ending Balance
$
24,577
$
4,287
$
-
$
28,864
115
Net Charge-offs and Total Credit Losses
$13.3 million, or an annualized 0.46% of average loans, for the first quarter of 2023. Net charge-offs for the first quarter of 2024
include a $9.5 million recovery associated with the bulk sale of fully charged-off consumer loans, which reduced by 31 basis points
the ratio of total net charge-offs to average loans for the first quarter of 2024.
C&I loans net recoveries for the first quarter of 2024 were $4.7 million, or an annualized 0.59% of related average loans, compared
to net charge-offs of $28 thousand for the first quarter of 2023. The net recoveries for the first quarter of 2024 include a $5.0 million
recovery associated with a C&I loan in the Puerto Rico region.
Consumer loans and finance leases net charge-offs for the first quarter of 2024 were $15.6 million, or an annualized 1.70% of
related average loans, compared to net charge-offs of $13.0 million, or an annualized 1.54% of related average loans, for the first
quarter of 2023. The increase, which was primarily reflected in the auto and personal loan portfolios, was partially offset by the
recovery associated with the aforementioned bulk sale, which reduced by 104 basis points the ratio of consumer loans and finance
leases net charge-offs to related average loans for the first quarter of 2024.
Quarter Ended March 31,
2024
2023
Residential mortgage
0.03
%
0.07
%
Construction
(0.02)
%
(0.17)
%
Commercial mortgage
(0.01)
%
(0.03)
%
C&I
(0.59)
%
-
%
Consumer and finance leases
1.70
%
(1)
1.54
%
Total loans
0.37
%
(1)
0.46
%
(1)
The $9.5 million recovery associated with the bulk sale of fully charged-off consumer loans during the first quarter of 2024 reduced the ratios of consumer loans and finance leases and
total net charge-offs to related average loans by 104 basis points and 31 basis points, respectively.
116
segment for the indicated periods:
Quarter Ended March 31,
2024
2023
PUERTO RICO:
Residential mortgage
0.05
%
0.10
%
Construction
-
%
(0.47)
%
C&I
(0.93)
%
0.01
%
Consumer and finance leases
1.67
%
(1)
1.53
%
Total loans
0.42
%
(1)
0.58
%
VIRGIN ISLANDS:
Residential mortgage
-
%
(0.08)
%
Commercial mortgage
(0.22)
%
(0.21)
%
C&I
-
%
(0.01)
%
Consumer and finance leases
3.73
%
2.19
%
Total loans
0.57
%
0.29
%
FLORIDA:
Construction
(0.05)
%
(0.05)
%
Commercial mortgage
-
%
(0.09)
%
C&I
0.11
%
-
%
Consumer and finance leases
0.55
%
0.17
%
Total loans
0.05
%
(0.03)
%
(1)
The recovery associated with the aforementioned bulk sale reduced the ratios of consumer loans and finance leases and total net charge-offs to related average loans for the quarter ended March 31, 2024 by 106 basis
points and 40 basis points, respectively.
117
The following table presents information about the OREO inventory and related gains and losses for the indicated periods:
Quarter ended March 31,
2024
2023
(Dollars in thousands)
OREO
OREO balances, carrying value:
Residential
$
16,706
$
24,984
Construction
1,681
1,764
Commercial
10,477
6,114
Total
$
28,864
$
32,862
OREO activity (number of properties):
Beginning property inventory
277
344
Properties acquired
16
59
Properties disposed
(46)
(59)
Ending property inventory
247
344
Average holding period (in days)
Residential
526
533
Construction
2,399
2,266
Commercial
1,579
2,468
Total average holding period (in days)
1,017
986
OREO operations (gain) loss:
Market adjustments and (gains) losses on sale:
Residential
$
(1,826)
$
(2,490)
Construction
(9)
(40)
Commercial
19
67
Total net gain
(1,816)
(2,463)
Other OREO operations expenses
364
467
Net Gain on OREO operations
$
(1,452)
$
(1,996)
118
Operational Risk
The Corporation faces ongoing and emerging risk and regulatory pressure related to the activities that surround the delivery of
banking and financial products. Coupled with external influences, such as market conditions, security risks, and legal risks, the
potential for operational and reputational loss has increased. To mitigate and control operational risk, the Corporation has developed,
and continues to enhance, specific internal controls, policies and procedures that are designed to identify and manage operational risk
at appropriate levels throughout the organization. The purpose of these mechanisms is to provide reasonable assurance that the
Corporation’s business operations are functioning within the policies and limits established by management.
The Corporation classifies operational risk into two major categories: business-specific and corporate-wide affecting all business
lines. For business specific risks, Enterprise Risk Management works with the various business units to ensure consistency in policies,
processes and assessments. With respect to corporate-wide risks, such as information security, business recovery, and legal and
compliance, the Corporation has specialized groups, such as the Legal Department, Information Security, Corporate Compliance,
Operations and Enterprise Risk Management. These groups assist the lines of business in the development and implementation of risk
management practices specific to the needs of the business groups.
Legal and Compliance Risk
Legal and compliance risk includes the risk of noncompliance with applicable legal and regulatory requirements, the risk of adverse
legal judgments against the Corporation, and the risk that a counterparty’s performance obligations will be unenforceable. The
Corporation is subject to extensive regulation in the different jurisdictions in which it conducts its business, and this regulatory
scrutiny has been significantly increasing over the years. The Corporation has established, and continues to enhance, procedures that
are designed to ensure compliance with all applicable statutory, regulatory and any other legal requirements. The Corporation has a
Compliance Director who reports to the Chief Risk Officer and is responsible for the oversight of regulatory compliance and
implementation of an enterprise-wide compliance risk assessment process. The Compliance division has officer roles in each major
business area with direct reporting responsibilities to the Corporate Compliance Group.
Concentration Risk
The Corporation conducts its operations in a geographically concentrated area, as its main market is Puerto Rico. Of the total gross
loan portfolio held for investment of $12.3 billion as of March 31, 2024, the Corporation had credit risk of approximately 80% in the
Puerto Rico region, 17% in the United States region, and 3% in the Virgin Islands region.
119
Update on the Puerto Rico Fiscal and Economic Situation
A significant portion of the Corporation’s business activities and credit exposure is concentrated in the Commonwealth of Puerto
Rico, which has experienced economic and fiscal distress over the last decade. See “Risk Management — Exposure to Puerto Rico
Government” below. Since declaring bankruptcy and benefitting from the enactment of the federal Puerto Rico Oversight,
Management and Economic Stability Act (“PROMESA”) in 2016, the Government of Puerto Rico has made progress on fiscal matters
primarily by restructuring a large portion of its outstanding public debt and identifying funding sources for its underfunded pension
system.
Economic Indicators
On March 18, 2024, the Puerto Rico Planning Board (“PRPB”) published an analysis of the Puerto Rico’s economy during fiscal
year 2023, as well as a short-term forecast for fiscal years 2024 and 2025. According to the preliminary estimates issued by the PRPB,
Puerto Rico’s real gross national product (“GNP”) grew by 0.7% in fiscal year 2023, the third consecutive year with a positive year-
over-year variance. The main drivers behind growth in fiscal year 2023 were personal consumption expenditures and fixed
investments in both construction, and machinery and equipment. The PRPB also revised previously published real GNP growth
estimates for fiscal years 2022 and 2021 from 3.7% to 3.8% and from 0.9% to 1.4%, respectively.
There are other indicators that gauge economic activity and are published with greater frequency, for example, the Economic
Development Bank for Puerto Rico’s Economic Activity Index (“EDB-EAI”). Although not a direct measure of Puerto Rico’s real
GNP, the EDB-EAI is correlated to Puerto Rico’s real GNP. For December 2023, estimates showed that the EDB-EAI stood at 127.4,
up 3.5% on a year-over-year basis. Over the 12-month period ended December 31, 2023, the EDB-EAI averaged 127.5, the highest
level since September 2014 and approximately 3.3% above the comparable figure a year earlier.
Labor market trends remain positive. Data published by the Bureau of Labor Statistics showed that March 2024 payroll
employment in Puerto Rico increased by 2.2% when compared to March 2023, supported by a year-over-year increase of 6.2% in
Leisure and Hospitality payroll employment and an 4.4% year-over-year increase in construction-related payroll employment. The
unemployment rate remained relatively at a near-record-low of 5.8%.
Fiscal Plan
On April 3, 2023, the PROMESA oversight board certified the 2023 Fiscal Plan for Puerto Rico (the “2023 Fiscal Plan”). Unlike
previous versions of the fiscal plan, the PROMESA oversight board segregated the 2023 Fiscal Plan into three different volumes. As
the first fiscal plan certified in a post-bankruptcy environment, Volume 1 presents a Transformation Plan that highlights priority areas
to cement fiscal responsibility, accelerate economic growth in a sustainable manner, and restore market access to Puerto Rico. Volume
2 provides additional details on economic trends and financial projections, and Volume 3 maps out the supplementary implementation
details to guide the government’s implementation of the requirements of the 2023 Fiscal Plan, as well as additional initiatives from
prior fiscal plans which remain mandatory and are still pending to be implemented.
The 2023 Fiscal Plan prioritizes resource allocation across three major pillars: (i) entrenching a legacy of strong financial
management through the implementation of a comprehensive financial management agenda, (ii) instilling a culture of public -sector
performance and excellence to properly delivery quality public services, and (iii) investing for economic growth to ensure sufficient
revenues are generated to support the delivery of services. According to the Transformation Plan, the fiscal and economic turnaround
of Puerto Rico cannot be accomplished without the implementation of structural economic reforms that promote sustainable economic
development. These reforms include power/energy sector reform to improve availability, reliability and affordability of energy,
education reform to expand opportunity and prepare the workforce to compete for jobs of the future, and an infrastructure reform
aimed at improving the efficiency of the economy and facilitating investment. The 2023 Fiscal Plan projects that these reforms, if
implemented successfully, will contribute 0.75% in GNP growth by fiscal year 2026. Additionally, the 2023 Fiscal Plan provides a
roadmap for a tax reform directed towards establishing a tax regime that is more competitive for investors and more equitable for
individuals.
120
The 2023 Fiscal Plan notes that Puerto Rico has had a strong recovery in the aftermath of the COVID-19 pandemic crisis with labor
participation trending positively and unemployment at historically low levels. However, it recognizes that such recovery has been
primarily fueled by the unprecedented influx of federal funds which have an outsized and temporary impact that may mask underlying
structural weaknesses in the economy. As such, the 2023 Fiscal Plan projects a 0.7% decline in real GNP for the current fiscal year
2023, followed by a period of near-zero real growth in fiscal years 2024 through 2026. Also, the fiscal plan projects that Puerto Rico’s
population will continue the long-term trend of steady decline. Notwithstanding, the Transformation Plan depicts that, if managed
properly, these non-recurring federal funds can be leveraged into sustainable longer-term growth and opportunity.
The 2023 Fiscal Plan projects that approximately $81 billion in total disaster relief funding, from federal and private sources, will
be disbursed as part of the reconstruction efforts over a span of 18 years (fiscal years 2018 through 2035). These funds will benefit
individuals, the public (e.g., reconstruction of major infrastructure, roads, and schools), and will cover part of Puerto Rico’s share of
the cost of disaster relief funding. Also, the 2023 Fiscal Plan projects the $9.3 billion in remaining COVID-19 relief funds to be
deployed in fiscal years 2023 through 2025, compared to $4.5 billion projected in the previous fiscal plan. Additionally, the 2023
Fiscal Plan continues to account for $2.3 billion in federal funds to Puerto Rico from the Bipartisan Infrastructure Law directed
towards improving Puerto Rico’s infrastructure over fiscal years 2022 through 2026.
On April 25, 2024, the PROMESA oversight board sent a letter to the Governor of Puerto Rico extending the deadline for
certification of the 2024 Fiscal Plan for Puerto Rico (the “2024 Fiscal Plan”) on or before May 3, 2024; however, as of the date of this
filing, the 2024 Fiscal Plan had not been published or certified by the PROMESA oversight board.
Debt Restructuring
Over 80% of Puerto Rico’s outstanding debt has been restructured to date. On March 15, 2022, the Plan of Adjustment of the
central government’s debt became effective through the exchange of more than $33 billion of existing bonds and other claims into
approximately $7 billion of new bonds, saving Puerto Rico more than $50 billion in debt payments to creditors. Also, the
restructurings of the Puerto Rico Sales Tax Financing Corporation (“COFINA”), the Highways and Transportation Authority
(“HTA”), and the Puerto Rico Aqueducts and Sewers Authority (“PRASA”) are expected to yield savings of approximately $17.5
billion, $3.0 billion, and $400 million, respectively, in future debt service payments. The main restructurings pending include that of
the Puerto Rico Electric Power Authority (“PREPA”) and the Puerto Rico Industrial Company (“PRIDCO”).
On June 23, 2023, the Fiscal Oversight and Management Board for Puerto Rico certified a new fiscal plan for PREPA which
included the most recent projections of energy consumption in Puerto Rico and consequently reflected a significant reduction in the
projected revenues for PREPA over the next years. As such, PREPA concluded that its ability to repay its outstanding debt was
significantly less than what was previously stated. On June 26, 2023, Judge Laura Taylor Swain resolved that PREPA’s bondholders
have an unsecured claim of $2.4 billion against PREPA and not the approximately $9.0 billion that bondholders were claiming.
On February 23, 2024, the PROMESA oversight board filed the fourth amended Plan of Adjustment to reduce more than $10
billion of total asserted claims by various creditors against PREPA by approximately 80% to $2.5 billion, excluding pension liabilities.
According to the PROMESA oversight board, bondholders who support the plan would recover 12.5% of their original asserted claim,
while bondholders who do not agree to the proposed plan would recover 3.5% of their asserted claim. Combined with other previous
agreements and settlements that remain in place, approximately 43% of PREPA’s creditors support the third amended plan. In addition
to conforming to Judge Taylor Swain’s ruling made in June, the amended plan also conforms to the previously disclosed debt
sustainability analysis in the revised PREPA Fiscal Plan certified in June 2023 that is based on the most recent projections of
PREPA’s operating costs and future demand for its services. The PREPA pension treatment remains unchanged under the third
amended plan. PREPA retirees will be paid in full for all benefits earned through the effective date of the plan. After that date, no
further benefits can be earned under the defined benefit plan by existing or new participants. From March 4, 2024, through March 18,
2024, the court held multiple hearings concerning the request of the PROMESA oversight board for approval of the PREPA plan. At
the end of the confirmation hearings, Judge Taylor Swain reserved judgement. On April 2, 2024, Judge Taylor Swain approved the
PROMESA oversight board’s request of extending the appointment of the lead mediator through September 30, 2024.
121
Other Developments
Notable progress continues to be made as part of the ongoing efforts of prioritizing the restoration, improvement, and
modernization of Puerto Rico’s infrastructure, particularly in the aftermath of Hurricane Maria in 2017. During the 12-month period
ended February 29, 2024, over $3.36 billion in disaster relief funds were disbursed through FEMA’s Public Assistance program and
the Department of Housing and Urban Development’s Community Development Block Grant (“CDBG”) program, a 46% increase
when compared to the same period in 2023. These funds will continue to play a key role in supporting Puerto Rico’s economic
stability and are expected to have a positive impact on the Island’s infrastructure. For example, approximately 86% of the projects that
FEMA has obligated to address damage caused by Hurricane Maria have resources to reinforce their infrastructure, among other
hazard mitigation measures, that will prepare these facilities for future weather events. As of April 29, 2024, over 2,750 projects had
already been completed under FEMA’s Public Assistance programs while over 21,000 projects were active across different stages of
execution for a total cost of $10.6 billion, equivalent to approximately 31% of the agency’s $33 billion obligation, according to the
Central Office for Recovery, Reconstruction and Resiliency (“COR3”).
122
Exposure to Puerto Rico Government
As of March 31, 2024, the Corporation had $313.7 million of direct exposure to the Puerto Rico government, its municipalities and
public corporations, compared to $297.9 million as of December 31, 2023. The $15.8 million increase was mainly due to the
origination of a $13.6 million loan to a municipality in Puerto Rico that is supported by assigned property tax revenues. As of March
31, 2024, approximately $202.9 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, and $59.2 million consisted of loans and obligations which are
supported by one or more specific sources of municipal revenues. Approximately 69% of the Corporation’s exposure to Puerto Rico
municipalities consisted primarily of senior priority loans and obligations concentrated in four of the largest municipalities in Puerto
Rico. The municipalities are required by law to levy special property taxes in such amounts as are required for the payment of all of
their respective general obligation bonds and notes. Furthermore, municipalities are also likely to be affected by the negative
economic and other effects resulting from expense, revenue, or cash management measures taken to address the Puerto Rico
government’s fiscal problems and measures included in fiscal plans of other government entities. In addition to municipalities, the
total direct exposure also included $8.9 million in a loan extended to an affiliate of the Puerto Rico Electric Power Authority
(“PREPA”), $39.6 million in loans to agencies or public corporations of the Puerto Rico government, and obligations of the Puerto
Rico government, specifically a residential pass-through MBS issued by the PRHFA, at an amortized cost of $3.1 million as part of its
available-for-sale debt securities portfolio (fair value of $1.6 million as of March 31, 2024).
The following table details the Corporation’s total direct exposure to Puerto Rico government obligations according to their
maturities:
As of March 31,2024
Investment
Portfolio
(Amortized
cost)
Loans
Total
Exposure
(In thousands)
Puerto Rico Housing Finance Authority:
$
3,112
$
-
$
3,112
Total Puerto Rico Housing Finance Authority
3,112
-
3,112
Agencies and public corporation of the Puerto Rico government:
-
15,732
15,732
-
23,841
23,841
Total agencies and public corporation of the Puerto Rico government
-
39,573
39,573
-
8,878
8,878
Total Puerto Rico government affiliate
-
8,878
8,878
Total Puerto Rico public corporations and government affiliate
-
48,451
48,451
Municipalities:
3,172
7,173
10,345
51,327
52,336
103,663
36,034
95,505
131,539
16,595
-
16,595
Total Municipalities
107,128
155,014
262,142
Total Direct Government Exposure
$
110,240
$
203,465
$
313,705
123
In addition, as of March 31, 2024, the Corporation had $76.5 million in exposure to residential mortgage loans that are guaranteed
by the PRHFA, a governmental instrumentality that has been designated as a covered entity under PROMESA (December 31, 2023 –
$77.7 million). Residential mortgage loans guaranteed by the PRHFA are secured by the underlying properties and the guarantees
serve to cover shortfalls in collateral in the event of a borrower default. The Puerto Rico government guarantees up to $75 million of
the principal for all loans under the mortgage loan insurance program. According to the most recently released audited financial
statements of the PRHFA, as of June 30, 2022, the PRHFA’s mortgage loans insurance program covered loans in an aggregate amount
of approximately $418 million. The regulations adopted by the PRHFA require the establishment of adequate reserves to guarantee the
solvency of the mortgage loans insurance program. As of June 30, 2022, the most recent date as of which information is available, the
PRHFA had a liability of approximately $1 million as an estimate of the losses inherent in the portfolio.
As of March 31, 2024, the Corporation had $2.8 billion of public sector deposits in Puerto Rico, compared to $2.7 billion as of
December 31, 2023. Approximately 20% of the public sector deposits as of March 31, 2024 were from municipalities and municipal
agencies in Puerto Rico and 80% were from public corporations, the Puerto Rico central government and agencies, and U.S. federal
government agencies in Puerto Rico.
Exposure to USVI Government
The Corporation has operations in the USVI and has credit exposure to USVI government entities.
For many years, the USVI has been experiencing several fiscal and economic challenges that have deteriorated the overall financial
and economic conditions in the area. However, on May 22, 2023, the United States Bureau of Economic Analysis (the “BEA”)
released its estimates of GDP for 2021. According to the BEA, the USVI’s real GDP increased 2.8% in 2021 after decreasing 1.9% in
2020. The increase in real GDP reflected increases in exports and personal consumption expenditures. These increases were partly
offset by decreases in private inventory investment, private fixed investment, and government spending. Imports, a subtraction item in
the calculation of GDP, also decreased.
Over the past three years, the USVI has been recovering from the adverse impact caused by COVID-19 and has continued to make
progress on its rebuilding efforts related to Hurricanes Irma and Maria, which occurred in 2017. According to data published by the
government, over $5.1 billion in disaster recovery funds had been disbursed through February 2024 and $8.6 billion were remaining
obligated funds waiting to be disbursed. Moreover, labor market trends remain stable with payroll employment for the first quarter of
2024 up 0.1% when compared to the fourth quarter of 2023.
On December 14, 2023, Fitch Ratings announced that it withdrew the ratings of the U.S. Virgin Islands Water and Power Authority
(“WAPA”) primarily due to limited availability of the authority’s operating and financial information from public sources or from
WAPA’s management.
Finally, PROMESA does not apply to the USVI and, as such, there is currently no federal legislation permitting the restructuring of
the debts of the USVI and its public corporations and instrumentalities. To the extent that the fiscal condition of the USVI government
deteriorates again, the U.S. Congress or the government of the USVI may enact legislation allowing for the restructuring of the
financial obligations of the USVI government entities or imposing a stay on creditor remedies, including by making PROMESA
applicable to the USVI.
As of March 31, 2024, the Corporation had $97.4 million in loans to USVI public corporations, compared to $90.5 million as of
December 31, 2023. As of March 31, 2024, all loans were currently performing and up to date on principal and interest payments.
124
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding market risk to which the Corporation is exposed, see the information contained in Part I, Item 2,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management” in this Quarterly
Report on Form 10-Q.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
First BanCorp.’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of
First BanCorp.’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
March 31, 2024 the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of March
31, 2024 and provide reasonable assurance that the information required to be disclosed by the Corporation in reports that the
Corporation files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms and is accumulated and reported to the Corporation’s management, including the Chief Executive
Office and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Internal Control over Financial Reporting
There were no changes to the Corporation’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during our most recent quarter ended March 31, 2024 that have materially affected, or are reasonably likely
to materially affect, the Corporation’s internal control over financial reporting.
125
PART II - OTHER INFORMATION
In accordance with the instructions to Part II of Form 10-Q, the other specified items in this part have been omitted because they are not
applicable, or the information has been previously reported.
ITEM 1. LEGAL PROCEEDINGS
For a discussion of legal proceedings, see Note 21 – “Regulatory Matters, Commitments and Contingencies,” to the unaudited
consolidated financial statements herein, which is incorporated by reference in this Part II, Item 1.
ITEM 1A. RISK FACTORS
The Corporation’s business, operating results and/or the market price of our common stock may be significantly affected by a number of
factors. A detailed discussion of certain risk factors that could affect the Corporation’s future operations, financial condition or results for
future periods is set forth in Part I, Item 1A, “Risk Factors,” in the 2023 Annual Report on Form 10-K. These risk factors, and others, could
cause actual results to differ materially from historical results or the results contemplated by the forward-looking statements contained in
this report. Also, refer to the discussion in “Forward-Looking Statements” and Part I, Item 2, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” in this Quarterly Report on Form 10-Q for additional information that may supplement or
update the discussion of risk factors in the 2023 Annual Report on Form 10-K.
Other than as described below, there have been no material changes from those risk factors previously disclosed in Part I, Item 1A, “Risk
Factors,” in the 2023 Annual Report on Form 10-K.
The volatility in the financial services industry, including failures or rumored failures of other depository institutions, and
actions taken by governmental agencies to stabilize the financial system, could result in, among other things, bank deposit runoffs,
liquidity constraints, and increased regulatory requirements and costs.
The closure and placement into receivership with the FDIC of certain large U.S. regional banks with assets over $100 billion in March
and May 2023, and adverse developments affecting other banks, resulted in heightened levels of market volatility and consequently
negatively impacted customer confidence in the safety and soundness of financial institutions. These developments resulted in certain
regional banks experiencing higher than normal deposit outflows and an elevated level of competition for available deposits in the market.
The impact of market volatility from the adverse developments in the banking industry, along with continued elevated interest rates on our
business and related financial results, will depend on future developments, which are highly uncertain and difficult to predict.
In the aftermath of these recent bank failures, the banking agencies have increased regulatory requirements and costs that may impact
capital ratios or the FDIC deposit insurance premium. For example, on November 16, 2023, the FDIC approved a final rule to implement a
special assessment to recover the loss to the Deposit Insurance Fund associated with protecting uninsured depositors following the closure
of Silicon Valley Bank and Signature Bank during the first half of 2023. Under the final rule, the FDIC will collect the special assessment
at quarterly rate of 3.36 basis points, beginning with the first quarterly assessment period of 2024 (i.e., January 1 through March 31, 2024)
with an invoice payment date of June 28, 2024, and will continue to collect special assessments for an anticipated total of eight quarterly
assessment periods. The base for the special assessment is equal to the estimated uninsured deposits reported for the December 31, 2022
reporting period, adjusted to exclude the first $5 billion of such amount. In association with this final rule, as of December 31, 2023, the
Corporation recorded an initial special assessment of $6.3 million.
On February 23, 2024, the FDIC informed that the estimated loss attributable to the protection of uninsured depositors of the
aforementioned failed institutions is $20.4 billion, an increase of approximately $4.1 billion from the estimate of $16.3 billion described in
the final rule. The estimated loss may be partially offset by any potential future recoveries from the residual interests retained in each of the
trusts. In connection with this notice, during the first quarter of 2024, the Corporation recorded a $0.9 million additional expense in the
consolidated statements of income as part of “FDIC deposit insurance” expenses to increase the estimated FDIC special assessment to $7.3
million.
126
The FDIC retains the ability to cease collection early, extend the special assessment collection period beyond the eight-quarter collection
period, or impose an additional shortfall special assessment on a one-time basis after the receiverships for the two failed institutions are
terminated. The collection period may change due to updates to the estimated loss pursuant to the systemic risk determination or if
assessments collected change due to corrective amendments to the amount of uninsured deposits reported for the December 31, 2022
reporting period. The FDIC will provide any updates on the estimated loss and collection period for the special assessment with the first
quarter 2024 special assessment invoice, to be released in June 2024.
The federal financial regulatory agencies may take other measures to address macroeconomic conditions, as well as the effect of regional
bank failures in the U.S. mainland during the first half of 2023, although the nature and impact of such actions cannot be predicted at this
time.
127
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Corporation did not have any unregistered sales of equity securities during the quarter ended March 31, 2024.
Issuer Purchases of Equity Securities
The following table provides information in relation to the Corporation’s purchases of its common stock during the quarter ended March
31, 2024.
Period
Total Number of Shares
Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
(1)
Approximate Dollar Value
of Shares that May Yet be
Purchased Under the Plans
or Programs (in thousands)
(1)
January 1, 2024 - January 31, 2024
120,499
$
16.96
120,499
$
147,957
February 1, 2024 - February 29, 2024
2,501,861
16.57
2,501,861
106,499
March 1, 2024 - March 31, 2024
520,229
17.02
384,191
100,000
Total
3,142,589
(2) (3)
3,006,551
(1)
As of March 31, 2024, the Corporation was authorized to purchase up to $225 million of the Corporation’s common stock under the program that was publicly announced on July 24,
2023, of which $125 million had been utilized. The remaining $100 million in the table represents the remaining amount authorized under the stock repurchase program as of March 31,
2024. The program does not obligate the Corporation to acquire any specific number of shares, does not have an expiration date and may be modified, suspended, or terminated at any time
at the Corporation's discretion. Under the stock repurchase program, shares may be repurchased through open market purchases, accelerated share repurchases and/or privately negotiated
transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.
(2)
Includes 3,006,551 shares of common stock repurchased in the open market at an average price of $16.63 for a total purchase price of approximately $50 million.
(3)
Includes 136,038 shares of common stock acquired by the Corporation to cover minimum tax withholding obligations upon the vesting of equity-based awards. The Corporation intends to
continue to satisfy statutory tax withholding obligations in connection with the vesting of outstanding restricted stock and performance units through the withholding of shares.
ITEM 5. OTHER INFORMATION
During the quarter ended March 31, 2024, none of the Corporation’s directors or officers (as defined in Rule 16a-1(f) of the
Exchange Act)
adopted
terminated
“non-Rule
10b5-1
are defined in Item 408 of Regulation S-K.
128
ITEM 6. EXHIBITS
See the Exhibit Index below, which is incorporated by reference herein:
EXHIBIT INDEX
Exhibit No.
Description
10.1*#
31.1
31.2
32.1
32.2
101.INS
Inline XBRL Instance Document, filed herewith. The instance document does not appear in the interactive data file because
its XBRL tags are embedded within the inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document, filed herewith
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document, filed herewith
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith
101.DEF
Inline XBRL Taxonomy Extension Definitions Linkbase Document, filed herewith
104
The cover page of First BanCorp. Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, formatted in
Inline XBRL (included within the Exhibit 101 attachments)
* Indicates management contract or compensatory plan or arrangement.
# The exhibits to this agreement have been omitted pursuant to Item 601 (a)(5) of Regulation S-K. A copy of any omitted exhibit will be furnished to the SEC upon
request.
129
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: May 9, 2024
By: /s/ Aurelio Alemán
Date: May 9, 2024
By: /s/ Orlando Berges