FIRST BANCORP /PR/
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT
OF 1934
For the Fiscal Year Ended
or
TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ___________________ to ___________________
COMMISSION FILE NUMBER
(EXACT NAME OF REGISTRANT AS SPECIFIED
IN ITS CHARTER)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
,
,
(Zip Code)
(Address of principal executive office)
Registrant’s telephone number, including area code:
(
)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Act.
☑
☐
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act. Yes
☐
☑
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.
☑
☐
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).
☑
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer,
a non-accelerated filer, a smaller reporting company,
or an emerging growth company.
See the
definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
☑
Accelerated filer
☐
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company,
indicate by check mark if the registrant has elected not to use
the extended transition period for complying with any new or revised
financial accounting
standards provided pursuant to Section 13 (a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a
report on and attestation to its management’s
assessment of the effectiveness of its internal control
over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its
audit report.
☑
If securities are registered pursuant to Section 12(b) of the Act,
indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an
error
to previously issued financial statements.
☐
Indicate by check mark whether any of those error corrections are
restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s
executive
officers during the relevant recovery period pursuant
to §240.10D-1(b).
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
☑
The aggregate market value of the voting common equity held
by non-affiliates of the registrant as of June 30,
2024 (the last trading day of the registrant’s
most recently completed second
fiscal quarter) was $
nonvoting common equity outstanding as of June 30, 2024.
For the purposes of the foregoing calculation only,
the registrant has defined affiliates to include (a) the executive
officers named in
Part III of this Annual Report on Form 10-K; (b) all directors
of the registrant; and (c) each shareholder,
including the registrant’s employee benefit
plans but excluding shareholders that file on
Schedule 13G, known to the registrant to be the beneficial owner
of 5% or more of the outstanding shares of common stock of the
registrant as of June 30, 2024. The registrant’s
response to
this item is not intended to be an admission that any person
is an affiliate of the registrant for any purposes other than this
response.
Indicate the number of shares outstanding of each of the
registrant’s classes of common stock,
as of the latest practicable date:
Documents incorporated by reference:
Portions of the definitive proxy statement relating to
the registrant’s annual meeting of stockholders
scheduled to be held on May 21, 2025 are
incorporated by reference in response to Items 10, 11,
12, 13 and 14 of Part III of this Form 10-K.
2
FIRST BANCORP.
2024 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART
I
Item 1.
5
Item 1A.
21
Item 1B.
34
Item 1C.
34
Item 2.
36
Item 3.
36
Item 4.
36
PART
II
Item 5.
37
Item 6.
40
Item 7.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
41
Item 7A.
108
Item 8.
109
Item 9.
226
Item 9A.
226
Item 9B.
226
Item 9C.
226
PART
III
Item 10.
227
Item 11.
227
Item 12.
227
Item 13.
227
Item 14.
228
PART
IV
Item 15.
228
Item 16.
228
3
Forward-Looking Statements
This Annual
Report on
Form 10-K
(this “Form 10-K”)
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-K 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-K, 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,” and the following:
●
the effect
of changes
in the
interest rate
environment
and inflation
levels 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;
●
volatility
in
the
financial
services
industry,
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
(including
as
a
result
of
the
new
U.S.
presidential
administration),
the
Puerto
Rico
government
and
other
governments,
including
those determined
by the
Board
of Governors
of the
Federal
Reserve
System (the
“Federal
Reserve
Board”),
the
Federal
Reserve
Bank
of
New
York
(the
“FED”),
the
Federal
Deposit
Insurance
Corporation
(the
“FDIC”),
government-sponsored
housing agencies
and
regulators
in Puerto
Rico, the
U.S., and
the U.S.
Virgin
Islands (the
“USVI”)
and British Virgin
Islands (the “BVI”), that may affect the future results of the Corporation;
●
uncertainty as
to the
ability of
the Corporation’s
banking subsidiary,
FirstBank Puerto
Rico (“FirstBank”
or the
“Bank”), to
retain its core
deposits and
generate sufficient
cash flow through
its wholesale funding
sources, such as
securities sold under
agreements
to
repurchase,
Federal
Home
Loan
Bank
(“FHLB”)
advances,
and
brokered
certificates
of
deposit
(“brokered
CDs”), which may require us to sell investment securities at a loss;
●
adverse changes
in general political
and economic
conditions in Puerto
Rico, the U.S.,
and the USVI
and the BVI,
including
in the interest rate environment,
unemployment rates, market liquidity,
housing absorption rates, real estate
markets, and U.S.
capital markets, which may affect
funding sources, loan portfolio performance
and credit quality,
market prices of investment
securities,
and
demand
for
the Corporation’s
products
and services,
and which
may
reduce
the
Corporation’s
revenues and
earnings and the value of the Corporation’s
assets;
●
the impact
of government
financial assistance
for hurricane
recovery and
other disaster
relief on
economic activity
in Puerto
Rico, and the timing and pace of disbursements of funds earmarked for
disaster relief;
●
the ability
of the
Corporation,
FirstBank,
and
third-party
service providers
to identify
and prevent
cyber-security
incidents,
such
as
data
security
breaches,
ransomware,
malware,
“denial
of
service”
attacks,
“hacking,”
identity
theft,
and
state-
sponsored
cyberthreats,
and
the
occurrence
of
and
response
to
any
incidents
that
occur,
which
may
result
in
misuse
or
misappropriation
of
confidential
or
proprietary
information,
disruption,
or
damage
to
our
systems
or
those
of
third-party
service providers on which we rely,
increased costs and losses and/or adverse effects
to our reputation;
●
general
competitive
factors
and
other
market
risks
as
well
as
the
implementation
of
existing
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;
4
●
uncertainty as
to the
implementation of
the debt
restructuring plan
of Puerto
Rico (“Plan
of Adjustment”
or “PoA”)
and the
fiscal
plan
for
Puerto
Rico
as
certified
on
June 5,
2024
(the
“2024
Fiscal Plan”)
by
the oversight
board
established
by the
Puerto Rico
Oversight, Management,
and Economic
Stability Act
(“PROMESA”),
or any
revisions to
it, on
our clients
and
loan portfolios, and any potential impact from future economic or political
developments and tax regulations in Puerto Rico;
●
the
impact
of
changes
in
accounting
standards,
or
determinations
and
assumptions
in
applying
those
standards,
and
of
forecasts of economic variables considered for the determination of
the allowance for credit losses (“ACL”);
●
the ability of FirstBank to realize the benefits of its net deferred tax assets;
●
the ability of FirstBank to generate sufficient cash flow to pay dividends
to the Corporation;
●
environmental, social, and governance (“ESG”) matters, including
our climate-related initiatives and commitments,
as well as
the impact and potential cost to us of any policies, legislation, or initiatives in opposition
to our ESG policies;
●
the impacts of natural
or man-made disasters, widespread
health emergencies, geopolitical
conflicts (including sanctions,
war
or
armed
conflict,
such as
the
ongoing
conflict
in
Ukraine, the
conflict
in
the
Middle
East, the
possible
expansion
of such
conflicts in
surrounding areas
and potential
geopolitical consequences
,
and the
threat of
conflict from
neighboring countries
in our
region), 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 further
downgrades of
the U.S.’s
Long-Term
Foreign-
Currency Issuer Default Rating and negative ratings outlooks;
●
the
impacts
of
applicable
legislative,
tax,
or
regulatory
changes
or
changes
in
legislative,
tax,
or
regulatory
priorities,
the
reduction
in
staffing
at
U.S.
governmental
agencies,
potential
government
shutdowns,
and
political
impasses,
including
uncertainties regarding
the U.S.
debt ceiling
and federal
budget, as
well as
the new
U.S. presidential
administration and
the
new Puerto Rico government administration,
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
PART
I
Item 1.
Business
GENERAL
First
BanCorp.
is
a
publicly
owned
financial
holding
company
that
is
subject
to
regulation,
supervision
and
examination
by
the
Federal Reserve Board. The Corporation was incorporated under
the laws of the Commonwealth of Puerto Rico in 1948 to serve as the
bank holding company
for FirstBank. Through
its subsidiaries, including
FirstBank, the Corporation
provides full-service commercial
and
consumer
banking
services,
mortgage
banking
services,
automobile
financing,
insurance
agency
services,
and
other
financial
products and
services in
Puerto Rico,
the U.S.,
the USVI
and the
BVI. As
of December
31, 2024,
the Corporation
had total assets
of
$19.3 billion, including loans held for investment
of $12.7 billion, total deposits of $16.9 billion, and total
stockholders’ equity of $1.7
billion.
The
Corporation
has
two
wholly-owned
subsidiaries:
FirstBank
and
FirstBank
Insurance
Agency,
Inc.
(“FirstBank
Insurance
Agency”).
FirstBank
is
a
Puerto
Rico-chartered
commercial
bank,
and
FirstBank
Insurance
Agency
is
a
Puerto
Rico-chartered
insurance agency.
FirstBank is subject to
the supervision, examination
and regulation of both
the Office of the
Commissioner of Financial Institutions
of
Puerto
Rico
(“OCIF”)
and
the
FDIC.
Deposits
are
insured
through
the
FDIC
Deposit
Insurance
Fund
(the
“DIF”).
In
addition,
within FirstBank,
the Bank’s
USVI operations
are subject to
regulation and examination
by the USVI
Division of Banking
Insurance,
and Financial
Regulation;
its BVI
operations are
subject to
regulation by
the BVI
Financial Services
Commission; and
its operations
in
the
state
of
Florida
are
subject
to
regulation
and
examination
by
the
Florida
Office
of
Financial
Regulation.
The
Consumer
Financial Protection
Bureau (“CFPB”)
regulates FirstBank’s
consumer financial
products and
services.
FirstBank Insurance
Agency
is subject to the supervision, examination
and regulation of the Office of
the Insurance Commissioner of the
Commonwealth of Puerto
Rico (the “Insurance Commissioner of Puerto Rico”) and the Division of
Banking, Insurance and Financial Regulation in the USVI.
FirstBank conducts its
business through its main
office located in
San Juan, Puerto Rico, 57
banking branches in Puerto
Rico, eight
banking
branches
in
the
USVI
and
the
BVI,
and
eight
banking
branches
in
the
state
of
Florida.
FirstBank
has
six
wholly-owned
subsidiaries
with
operations
in
Puerto
Rico:
First
Federal
Finance
Corp.
(d/b/a
Money
Express
La Financiera),
a
finance
company
specializing
in
the
origination
of
small
loans
with
25
offices
in
Puerto
Rico;
First
Management
of
Puerto
Rico,
a
Puerto
Rico
corporation,
which
holds
tax-exempt
assets;
FirstBank
Overseas
Corporation,
an
international
banking
entity
(an
“IBE”)
organized
under
the
International
Banking
Entity
Act
of
Puerto
Rico;
two
companies
engaged
in
the
operation
of
certain
real
estate
owned
(“OREO”)
properties
and
limited
liability
corporation
organized
in
2022
under
the
laws
of
the
Commonwealth
of
Puerto
Rico
and
Puerto
Rico
Tax
Incentive
Code
(“Act
60
of
2019”),
which
commenced
operations
in
2023
and
engages
in
qualified
investing
and
lending transactions.
For a
discussion of
certain significant
events that
have occurred
in the
year ended
December 31,
2024, please
refer to
“Significant
Events” included in Part II, Item
7, “Management’s
Discussion and Analysis of Financial Condition
and Results of Operations” of this
Form 10-K.
BUSINESS SEGMENTS
The Corporation has six reportable segments: Mortgage Banking;
Consumer (Retail) Banking; Commercial and Corporate Banking;
Treasury and Investments; United States
Operations; and Virgin
Islands Operations. These segments are described below,
as well as in
Note 25 – “Segment Information” to the audited financial statements included
in Part II, Item 8 of this Form 10-K.
Mortgage Banking
The Mortgage Banking segment consists of the origination, sale and
servicing of a variety of residential mortgage loan products and
related hedging
activities in
the Puerto
Rico region.
Originations are
sourced through
different channels,
such as
FirstBank branches
and purchases from mortgage bankers,
and in association with new project developers.
This segment focuses on originating
residential
real
estate
loans,
including
those
that
conform
to
the
U.S.
Federal
Housing
Administration
(the
“FHA”),
the
U.S.
Veterans
Administration (the “VA”)
and the U.S. Department
of Agriculture Rural
Development (the “RD”)
standards. Loans that
meet FHA’s
standards
qualify
for
FHA’s
insurance
while
loans
that
meet
VA
or
the
RD
standards
are
guaranteed
by
the
respective
federal
agencies.
Mortgage
loans that
do not
qualify
for
the FHA,
the
VA
or the
RD programs
are referred
to as
conventional
loans which
can be
conforming or non-conforming. Conforming
loans are those that meet the
standards for sale under the U.S.
Federal National Mortgage
Association
(“FNMA”)
and
the
U.S.
Federal
Home
Loan
Mortgage
Corporation
(“FHLMC”)
programs.
Loans
that
do
not
meet
FNMA
or
FHLMC
standards
are
referred
to
as
non-conforming
residential
real
estate
loans.
The
Mortgage
Banking
segment
also
6
acquires
and
sells mortgages
in the
secondary
market. Conforming
residential
real estate
loans are
sold to
investors
such
as FNMA
and
FHLMC,
and
the
Corporation
has
commitment
authority
to
issue
Government
National
Mortgage
Association
(“GNMA”)
mortgage-backed securities (“MBS”).
Consumer (Retail) Banking
The
Consumer
(Retail)
Banking
segment
includes
the
Corporation’s
consumer
lending,
commercial
lending
to
small
businesses,
commercial
transaction
banking,
and
deposit-taking
activities
(other
than
those assigned
to
the
Commercial
and
Corporate
Banking
segment)
primarily
conducted
through
FirstBank’s
branch
network,
ATMs
and
online
banking
in
the
Puerto
Rico
region.
Retail
deposits gathered through each
branch of FirstBank’s
retail network serve as
one of the funding
sources for its lending and
investment
activities. Other activities included in this segment are insurance activities
in the Puerto Rico region.
Commercial and Corporate Banking
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 government
sector in
the Puerto
Rico region.
This segment
consists of
the
Corporation’s
commercial
lending
(other
than
small business
commercial
loans)
and commercial
deposit-taking
activities (other
than the government sector). A substantial
portion of the commercial and
corporate banking portfolio is secured
by the underlying real
estate collateral and the personal guarantees from the borrowers.
Treasury and Investments
The
Treasury
and
Investments
segment
is
responsible
for
the
Corporation’s
investment
portfolio
and
treasury
functions.
The
treasury
function centrally
manages funding
by providing
funds to
the Mortgage
Banking, Consumer
(Retail) Banking,
Commercial
and
Corporate
Banking,
United
States
Operations,
and
Virgin
Islands
Operations
segments
to
support
their
respective
lending
activities and by
compensating these
units for deposits
gathered. The Treasury
and Investments segment
also obtains funding
through
brokered
deposits,
advances
from
the
FHLB,
and
repurchase
agreements
involving
investment
securities,
among
other
funding
sources.
United States Operations
The
United
States Operations
segment
consists of
all banking
activities conducted
by FirstBank
on
the U.S.
mainland.
FirstBank
provides a wide
range of banking services
to individual and corporate
customers, primarily in
southern Florida, through
eight banking
branches.
This
segment
offers
a
variety
of
consumer
and
commercial
banking
products
and
services.
Consumer
banking
products
include checking, savings and money market accounts, retail CDs, internet
banking services, residential mortgages, home equity loans,
and lines of credit. Retail deposits, as well as FHLB advances and
brokered CDs assigned to this segment, serve as funding sources
for
its lending activities.
Commercial
banking
services
include
checking,
savings
and
money
market
accounts,
retail
CDs,
internet
banking
services,
cash
management
services,
remote
deposit
capture,
and
automated
clearing
house
(“ACH”)
transactions.
Loan
products
include
the
traditional commercial and industrial
(“C&I”) and commercial real
estate products, such as lines
of credit, term loans
and construction
loans.
Virgin Islands Operations
The Virgin
Islands Operations
segment consists
of all
banking activities
conducted by
FirstBank in
the USVI
and BVI,
including
consumer and commercial banking
services.
This segment operates through eight
banking branches serving in the
USVI islands of St.
Thomas, St. Croix, and
St. John, as well the island
of Tortola
in the BVI. This segment
’s primary business
activities include consumer
and
commercial
lending
and
deposit-taking
activities.
Retail
deposits
gathered
through
each
branch
serve
as
the
primary
funding
sources for the segment’s lending
activities.
7
CORPORATE SUSTAINABILITY
PROGRAM OVERVIEW
The
Corporation
is
committed
to
supporting
its
clients,
employees,
shareholders
and
communities
it
serves.
Its
Corporate
Sustainability
program,
which
includes
environmental,
social
and
governance
(“ESG”)
matters,
builds
on
its
core
values,
including
being
a
socially
responsible
company.
The
Corporation
sees
effective
ESG
management
as
a
critical
step
towards
a
sustainable,
inclusive and successful future.
During
2021,
the
Corporation
adopted
an
ESG
framework
through
which
it
established
and
communicated
its
corporate
sustainability
strategy
and
overarching
governance
policy.
In
2024,
the
Corporation
continued
evolving
its Corporate
Sustainability
program,
including
the
publication
of
its
annual
First
BanCorp.
Corporate
Sustainability
Report
for
2023
(the
“2023
Report”).
The
2023
Report
disclosed
information
on
a
wide
range
of
ESG
topics,
including
governance
and
oversight;
business
ethics
and
compliance; responsible marketing
and sales practices;
sustainable and accessible
finance; responsible banking,
including details as
to
data security and cyber management; people and culture; community
impact; and environmental stewardship.
ESG Governance
The
Corporation’s
Board
of
Directors
and
executive
leadership
team
share
responsibilities
relating
to
oversight
of
its
corporate
sustainability
policies
and
practices.
In
February
2022,
the
Corporate
Governance
and
Nominating
Committee
of
the
Board
of
Directors
amended
its
charter
to
include
oversight
responsibility
of
ESG
matters,
and
it
has
primary
oversight
of
ESG
policies,
practices and
disclosures. Nonetheless, other
committees of the
Corporation’s
Board of Directors
also play a
role in ESG
oversight in
matters related to risk and cybersecurity management, human capital management,
and credit risk management.
Corporation’s
Board of
Directors in
2022, the
responsibility of
day-to-day management
of its
ESG framework
and strategy
has been
delegated
to
a
management-level
Sustainability
Committee,
comprised
of
leaders
from
different
areas,
such
as
Human
Resources,
Enterprise
Risk
Management,
Strategic
Planning
and
Investor
Relations,
Legal
and
Corporate
Affairs,
Marketing,
Compliance,
Finance,
and
Corporate
Internal
Audit.
The
Sustainability
Committee
is
tasked
with
aligning
priorities
and
initiatives
for
the
year,
setting
and
monitoring
long-term
objectives
and
goals,
and
leading
the
annual
reporting
process
on
ESG
related
topics.
The
Sustainability Committee reports to the Corporate Governance and Nominating
Committee of the Board of Directors.
HUMAN CAPITAL MANAGEMENT
First BanCorp.
strives to be
recognized as
a leading
and diversified financial
institution, offering
superior experience
to our clients
and employees. We
believe that the key to our success is caring about our team as much
as we care about our customers. Our goal is to
be an
employer of
choice
within our
primary operating
regions, which
we believe
is achieved
and sustained
by adding
value
to our
employees’
lives
and
providing
satisfying
and
evolving
work
experience.
The
core
of
our
employer
value
proposition,
“The
Experience of Being 1,” is our commitment to our employees’ well-being,
success, professional development, and work environment.
Employees
As of
December 31,
2024, the
Corporation and
its subsidiaries
had 3,113
regular employees
representing a
2% decrease
in overall
headcount
from December
31, 2023.
The Corporation
had 2,767
employees in
the Puerto
Rico region,
196 employees
in the
Florida
region,
and
150
employees
in
the
Virgin
Islands
region.
As
of
December
31,
2024,
approximately
67%
of
the
total
employee
population and 58% of management positions were women.
Oversight
Our
Human
Resources
Division
reports
directly
to
the
Corporation’s
Chief
Risk
Officer
and
manages
all
elements
of
the
Corporation’s
human
capital
programs
and
strategies,
including
talent
management,
talent
acquisition,
engagement,
learning
and
development, compensation and benefits.
The
Human
Resources
Division’s
efforts
are
also
overseen
by
the
Corporation’s
Chief
Executive
Officer
(“CEO”)
and
the
executive management team
through regular work-related
interactions. Our leaders focus
on strengthening employee
management and
engagement
and
maximizing
collaboration
between
departments
and
talents
by
promoting
an
open-door
culture
that
stimulates
frequent communication
between employees and
management. This provides
more opportunities to
identify employees’
needs, obtain
feedback
about
their
work-life
experience,
and
act
upon
such
feedback
to
improve
employee
engagement.
In
addition,
the
Corporation’s
Board
of
Directors
and
its
Compensation
and
Benefits
Committee
monitor
and
are
regularly
updated
on
the
Corporation’s human capital management
strategies.
8
Talent
Management
First BanCorp.
is an equal opportunity
employer which considers qualified candidates
for employment to fill its
open positions. We
focus
our
efforts
on attracting
and
retaining
the
best
talent for
the Corporation,
including
college
graduates,
and promoting
internal
mobility. The
attraction and selection process includes:
●
Promoting and posting our vacant positions
internally and externally;
●
Building our
employer brand
through social
media and
digital presence,
participating in
professional events
and job
fairs, and
maintaining relationships with universities through internship programs
and career forums;
●
Collaboration
with
hiring
managers
to
ensure
an
accurate
match
between
roles
and
candidates
to
accelerate
the
recruitment
process and attraction of top candidates with the right fit for the role;
●
A robust management
information system
to enhance
the effectiveness
of the recruitment
process and
provide candidates
with
a unique experience;
and
●
A robust
on-boarding process
to engage
and support
new employees
’
induction process,
including assignment
of a
“FirstPal”
from day one to help with the organizational culture
transition and learning process.
We
believe
that financial
security
is critical
for
our employees.
Our goal
is to
maintain
compensation
levels that
are competitive
with the
market
and comparable
job categories
in similar
organizations.
Our salary
administration
program
is designed
to provide
a
compensation
structure
that
is
consistent
with
our
employees’
level
of
responsibilities
to
attract
the
best
talent
for
each
job
and
commensurately pay for performance.
In addition
to base
salaries, some
job positions
are eligible
to participate
in variable
pay programs.
The Corporation
has incentive
programs
for
revenue
generation
and
sales
support
business
units.
The
incentive
programs
are
reviewed
annually
to
align
them
to
business
strategies
and
ensure
sound
risk
management.
Further,
the
Corporation’s
Management
Award
Program
recognizes
and
rewards
outstanding performance
for exempt
employees who
do not
participate in
other variable
pay programs.
The Corporation
also
has a
long-term
incentive plan
for top-performing
leaders and
employees with
high potential.
These programs
provide awards
based
upon
the
Corporation’s
and
individual’s
performance
and
are
key
for
the
attraction
and
engagement
of
the
best
talent.
The
Corporation’s
investment in its
employees has resulted
in a stable-tenured
workforce, with an
average tenure of
11 years of
service as
of December 31, 2024, and
a voluntary turnover rate of
10.91%, mostly related to hourly employees
in call centers, collections centers
and branches. The Corporation measures turnover among high performers;
such employees’ turnover rate was 3.6% for 2024.
Talent Development
and Engagement
We
believe
that a
culture of
learning and
development
maximizes the
talent of
human
capital and
is the
foundation for
sustained
business success. Our commitment to employee engagement continues
throughout employees’ time with the Corporation.
Our
learning
and
development
program
strives
to
reflect
both
employees’
and
the
organization’s
needs.
The
Corporation
offers
training opportunities
through online
courses and
in-person or
virtual classes,
as well
as development
activities, special
projects, and
partial tuition reimbursement to complete a bachelor’s
or master's degree to eligible employees. Training
is offered on various subjects
within
five
areas:
fundamentals,
compliance
and
corporate
governance,
specialized
technical
subjects,
soft
skills-professional
development, and leadership skills.
In 2024 we provided
over 100 training topics
through virtual and in-person
modalities allowing our
employees to continue
learning
and complete
development plans.
In 2024, we
delivered more than
109,000 hours of
training and employees
completed an
average of
31.33
training
hours.
Every year
around
100
new
and
existing
supervisors
and
managers
receive
training
specialized
in supervision
and
talent
management.
For
new
supervisors,
we
offer
a
development
program
intended
to
train
in
basic
supervision,
leadership,
communication
skills,
and
human
resources
policies
and
practices.
In
addition,
our
leadership
curriculum
continues
to
develop
our
supervisors
and
managers
in
their
technical
and
people
skills.
The
Leadership
Development
program
encourages
supervisors
and
managers to review
their leadership skills with
feedback received from instructors
and co-workers. The program
has been delivered to
63% of our current leaders since its launch.
In addition to these training opportunities, we have processes
to promote professional development and career
growth, including the
promotion
of internal
career
growth
opportunities,
performance
management
processes,
annual
talent review,
and
robust succession
planning. We
also encourage
employees to
participate in
our commitment
to our
communities through
our volunteer
and community
reinvestment
programs.
In
2024,
our
employees
supported
39
organizations
and
participated
in
multiple
corporate
initiatives,
contributing over 2,600 hours of volunteer
work. The Bank also encourages its
employees to serve on non-profit organizations’
boards
9
of
directors.
In
2024,
First
BanCorp
employees
were
members
of
the
board
of
directors
for
41
non-profit
organizations
across
the
Puerto Rico, Florida, and Virgin
Islands regions and offered approximately 3,310 hours of service.
Health & Wellness
Health
and
well-being
programs
are
a
strong
component
of
the
benefits
we
provide
to
our
employees.
First
BanCorp.
provides
competitive benefits
programs to
address even
the most
pressing needs
of our
employees and
their families
to promote
occupational,
physical,
emotional,
and financial
health.
Our
comprehensive
wellness
package
includes
health,
dental
and
vision insurance
offered
through
different
insurance company
options that
enable employees
to choose
those that
best accommodate
their and
their families’
needs. We
also offer life
insurance and disability
plans, as well
as a defined
contribution retirement plan
option where both
employee
and
employer
contribute,
and
the
employer
make
an
additional
true-up
contribution
for
the
Puerto
Rico
region.
In
addition,
the
Corporation offers
a fitness facility
in its main
offices which
allows employees
to participate
in fitness activities
including instructor-
led wellness sessions. Additionally,
in 2024 we included
in-house chiropractic services and
wellness tours to promote
healthy lifestyle
practices.
Work-life
balance remains
crucial; therefore,
we offer
various paid
time off
for vacation,
sickness, maternity
and paternity
leave,
bereavement,
marriage,
and
personal
days.
Our
wellness
program
includes
in-house
health
services,
nutrition,
fitness,
health
fairs,
personal finance
education, preventive
healthcare activities,
and nursing
services. The
Corporation subsidizes
a substantial
portion of
the
cost
of
these
benefits.
Flexible
work
arrangements
were
implemented
across
the
organization,
including
hybrid
work
arrangements.
MARKET AREA AND COMPETITION
The
Corporation
operates
in
highly
competitive
markets
and
is
subject
to
significant
business,
economic
and
competitive
uncertainties
and contingencies.
In particular,
the banking
market
is highly
competitive in
Puerto Rico,
the main
geographic
service
area of
the Corporation.
As of December
31, 2024,
the Corporation
also had presence
in the state
of Florida
and in the
USVI and
the
BVI.
Puerto
Rico
banks
are
subject
to
the
same
federal
laws,
regulations
and
supervision
that
apply
to
similar
institutions
on
the
United States mainland.
Competitors include
other banks,
insurance companies,
mortgage banking
companies, small
loan companies,
automobile financing
companies,
leasing companies,
brokerage firms
with retail
operations,
credit unions
and certain
retailers that
operate in
Puerto Rico,
the
USVI,
the
BVI,
and
the
state
of
Florida,
as well
as
financial
technology
(“fintech”)
companies
and
emerging
competition
from
digital
platforms.
The
Corporation’s
businesses
compete
with
these
other
firms
with
respect
to
the
range
of
products
and
services
offered and the types of clients, customers and industries served.
See Part I, Item 1A, “Risk Factors” for further discussion of risks related
to competition.
SUPERVISION AND REGULATION
The
Corporation
and
FirstBank,
its
bank
subsidiary,
are
subject
to
comprehensive
federal
and
Puerto
Rican
supervision
and
regulation.
These
supervisory
and
regulatory
requirements
apply
to
all
aspects
of
the
Corporation’s
and
the
Bank’s
activities,
including commercial
and consumer
lending, deposit
taking, management,
governance and
other activities.
As part
of this
regulatory
framework, the
Corporation and
the Bank
are subject
to extensive
consumer financial
regulatory legal
and supervisory
requirements.
Further,
U.S.
financial
supervision
and
regulation
is
dynamic
in
nature,
and
supervisory
and
regulatory
requirements
are
subject
to
change
as
new
legislative
and
regulatory
actions
are
taken.
See
Part
I,
Item
1,
“Business–General”
above
for
additional
regulatory
oversight
and
supervision
of
FirstBank
Insurance
Agency.
Future
legislation
may
increase
the
regulation
and
oversight
of
the
Corporation and the
Bank. Any change in
applicable laws or regulations,
however, may
have a material adverse
effect on the business
of commercial banks and bank holding companies, including the Bank and
the Corporation.
The Corporation
is also
subject to
the disclosure
and
regulatory requirements
of the
Securities Act
of 1933,
as amended,
and
the
Securities
Exchange
Act
of
1934,
as amended,
both
as administered
by
the
SEC, as
well
as the
rules
applicable
to
companies
with
securities listed on the New York
Stock Exchange.
The following discussion summarizes
certain laws, regulations and policies
to which the Company is subject.
It does not address all
applicable laws, regulations
and policies that
affect the Company
currently or might
affect it in
the future. This
discussion is qualified
in its entirety by reference to the full texts of the laws, regulations and policies described.
10
Bank Holding Company Activities and Other Limitations
The Corporation is registered under
the Bank Holding Company Act
of 1956, as amended (the
“Bank Holding Company Act”),
and
is subject to
ongoing supervision,
regulation and
examination by the
Federal Reserve
Board.
The Corporation
is required to
file with
the Federal
Reserve Board
periodic and
annual reports
and other
information concerning
its own
business operations
and those
of its
subsidiaries.
The Bank Holding
Company Act also permits
a bank holding company
to elect to become
a financial holding
company and engage
in
a
broader
range
of
financial
activities.
The
Corporation
has
elected
to
be
a
financial
holding
company
under
the
Bank
Holding
Company Act.
Financial holding
companies may
engage, directly or
indirectly,
in any activity
that is determined
to be (i)
financial in
nature, (ii) incidental to
such financial activity,
or (iii) complementary to
a financial activity and does
not pose a substantial risk
to the
safety
and
soundness
of
depository
institutions
or
the
financial
system
generally.
The
Bank
Holding
Company
Act
specifically
provides that
the following
activities have
been determined
to be
“financial in
nature”: (i)
lending, trust
and other
banking activities;
(ii) insurance activities; (iii) financial
or economic advice or services; (iv)
pooled investments; (v) securities
underwriting and dealing;
(vi) domestic activities
permitted for an
existing bank holding
company; (vii) foreign
activities permitted for
an existing bank holding
company; and (viii) merchant banking activities.
A
financial
holding
company
that
ceases
to
meet
certain
standards
is
subject
to
a
variety
of
restrictions,
depending
on
the
circumstances,
including
precluding
the
undertaking
of
new
financial
activities
or
the
acquisition
of
shares
or
control
of
other
companies.
Until
compliance
is
restored,
the
Federal
Reserve
Board
has
broad
discretion
to
impose
appropriate
limitations
on
the
financial holding
company’s
activities. The Corporation
and FirstBank must
be “well-capitalized”
and “well-managed”
for regulatory
purposes,
and
FirstBank
must
earn
“satisfactory”
or
better
ratings
on
its
periodic
Community
Reinvestment
Act
(“CRA”)
examinations for the Corporation to preserve its financial holding company
status.
Under
federal
law
and
Federal
Reserve
Board
policy,
a
bank
holding
company
such
as
the
Corporation
is
expected
to
act
as
a
source of strength
to its banking
subsidiaries and to
commit required
levels of support
to them. This
support may be
required at times
when,
absent
such
policy,
the
bank
holding
company
might
not
otherwise
provide
such
support.
In
the
event
of
a
bank
holding
company’s
bankruptcy,
any
commitment
by the
bank holding
company
to a
federal bank
regulatory
agency
to maintain
capital of
a
subsidiary bank will
be assumed by
the bankruptcy trustee
and be entitled
to a priority
of payment. In
addition, any capital
loans by a
bank
holding
company
to
any
of
its
subsidiary
banks
must
be
subordinated
in
right
of
payment
to
deposits
and
to
certain
other
indebtedness
of
such
subsidiary
bank.
As
of
December
31,
2024,
and
the
date
hereof,
FirstBank
was
and
is
the
only
banking
subsidiary of the Corporation.
State-Chartered Non-Member Bank and Banking Laws and Regulations
in General
FirstBank is
subject to
regulation and
examination by
the OCIF,
the CFPB
and the
FDIC, and
is subject
to comprehensive
federal
and state
(including, for
this purpose,
the Commonwealth
of Puerto
Rico) regulations
that regulate,
among other
things, the
scope of
its businesses, its
investments, its
reserves against
deposits, the
timing and
availability of deposited
funds, and
the nature and
amount
of collateral for certain loans.
The
OCIF,
the
CFPB
and
the
FDIC
periodically
examine
FirstBank
to
test
the
Bank’s
conformance
to
safe
and
sound
banking
practices and
compliance with
various statutory
and regulatory
requirements.
This oversight
establishes a
comprehensive framework
of
permissible
activities,
and
the
supervision
by
the
FDIC
is
also
intended
for
the
protection
of
the
FDIC’s
insurance
fund
and
depositors.
These
regulatory
authorities
have
discretion
in
connection
with
their
supervisory
and
enforcement
activities
and
examination policies, including policies
with respect to the classification of
assets and the establishment of adequate
loan loss reserves
for regulatory purposes.
Their enforcement authority
includes, among other
things, the ability to
assess civil monetary
penalties, issue
cease-and-desist
or
removal
orders,
and
initiate
injunctive
actions
against
banking
organizations
and
institution-affiliated
parties.
In
general,
these
enforcement
actions
may
be
initiated
for
violations
of
laws
and
regulations
and
for
engaging
in
unsafe
or
unsound
practices.
In addition,
certain bank
actions
are required
by statute
and
implementing regulations.
Other actions
or failure
to act
may
provide the basis for enforcement action, including the filing of misleading
or untimely reports with regulatory authorities.
11
Regulatory Capital Requirements
The federal
banking agencies
have implemented
rules for
U.S. banks
that establish
minimum
regulatory
capital requirements,
the
components
of
regulatory
capital,
and
the
risk-based
capital
treatment
of
bank
assets
and
off-balance
sheet
exposures.
These
rules
currently
apply
to
the
Corporation
and
FirstBank,
and
generally
are
intended
to
align
U.S.
regulatory
capital
requirements
with
international regulatory capital standards
adopted by the Basel Committee on Banking
Supervision (“Basel Committee”), in particular,
the international capital accord known as “Basel III.”
The current rules require a minimum common
equity capital requirement and an
additional common equity Tier 1 capital
conservation buffer.
Under the Basel III rules, the Corporation
must maintain certain minimum capital
ratios to be considered adequately capitalized
and
to
avoid
the
regulatory
limitations
described
above.
These
requirements
include:
(i)
a
minimum
common
equity
Tier
1
Capital
(“CET1”) ratio
of 4.5%,
plus the
2.5% capital
conservation buffer
;
(ii) a
minimum Tier
1 capital
ratio of
6.0%, plus
the 2.5%
capital
conservation buffer; (iii) a minimum Total
capital (Tier 1 plus Tier 2)
ratio of 8.0%, plus the 2.5% capital conservation buffer;
and (iv)
a required minimum leverage ratio (Tier
1 capital to average on-balance sheet non-risk adjusted assets) of 4%.
As part of
regulatory relief measures
in response
to the impact
of COVID-19,
federal banking
agencies issued an
interim final
rule
on
March
31,
2020,
providing
the
option
to
temporarily
delay
the
regulatory
capital
effects
of
current
expected
credit
losses
(“CECL”).
Under this rule a two-year delay was permitted for the initial impact
of CECL on retained earnings plus 25% of the change
in
the
ACL
(excluding
purchased
credit
deteriorated
(“PCD”)
loans)
from
January
1,
2020
to
December
31,
2021.
Following
the
deferral period, the capital impact is
phased-in over a three-year transition
period, at a rate of 25% per year beginning
January 1, 2022.
This
results
in
a
total
transition
period
of
five
years.
The Corporation
and
the
Bank
elected
to
phase
in
the
full
effect
of
CECL on
regulatory capital under this transition framework.
The
Corporation
and
the
Bank
compute
risk-weighted
assets
using
the
Standardized
Approach
under
Basel
III.
In
addition,
the
Collins Amendment
to the
Dodd-Frank Act,
among other
things, introduced
additional capital
restrictions, including
the phase
out of
certain trust-preferred
securities (“TRuPs”)
from Tier
1 capital.
Preferred securities
issued under
the U.S.
Treasury’s
Troubled
Asset
Relief Program
(“TARP”)
remain exempt
from this
phase out.
Bank holding
companies, including
the Corporation,
were required
to
fully
phase
out
from
Tier
1
capital
the
junior
subordinated
debentures
that
were
issued
to
support
TRuPs
by
January
1,
2016.
However,
these instruments
may continue
to qualify
as Tier
2 capital
until they
are redeemed
or reach
maturity.
As of December
31,
2024,
the
Corporation
had
$59.9
million
in
junior
subordinated
debentures
that
were
subject to
a
full
phase-out
from Tier
1
capital
under the final Basel III capital rules.
Reserve and FDIC guidelines:
Banking Subsidiary
First BanCorp.
FirstBank
Well-Capitalized
Minimum
As of December 31, 2024
Total capital (Total
capital to risk-weighted assets)
18.02%
17.76%
10.00%
CET1 Capital (CET1 capital to risk-weighted assets)
16.32%
15.76%
6.50%
Tier 1 capital ratio (Tier
1 capital to risk-weighted assets)
16.32%
16.51%
8.00%
Leverage ratio
(1)
11.07%
11.20%
5.00%
_______________
(1) Tier 1 capital to average assets.
12
Stress-Testing
and Capital Planning Requirements
Federal
regulations
currently
do
not
impose
formal
stress-testing
requirements
on
banking
organizations
with
total
assets
of
less
than $100
billion, such
as the Corporation
and FirstBank.
The federal
banking agencies
have indicated
through interagency
guidance
that the
capital planning
and risk
management
practices of
institutions
with total
assets of
less than
$100
billion will
continue
to be
reviewed through the regular
supervisory process. Notwithstanding,
the Corporation monitors its
capital consistent with the
safety and
soundness expectations
of the
federal regulators
and continues
to perform
internal stress
testing as
part of
its annual
capital planning
process.
Dividend Restrictions
cash
dividends
unless
its
net
income
available
to
common
shareholders
for
the
past
four
quarters,
net
of
dividends
previously
paid
during
that
period,
has
been
sufficient
to
fully
fund
the
dividends
and
the
prospective
rate
of
earnings
retention
appears
to
be
consistent with the organization’s
capital needs, asset quality,
and overall current and prospective financial condition. Furthermore,
the
Federal
Reserve Board’s
regulatory capital
rule (Regulation
Q) limits
the amount
of capital
a bank
holding
company may
distribute
under certain circumstances. A banking
organization must maintain
a capital conservation buffer
of CET1 capital in an amount
greater
than 2.5% of
total risk weighted
assets to avoid
being subject to
limitations on capital
distributions. The Corporation
is also subject to
certain restrictions
generally imposed
on Puerto
Rico corporations
with respect
to the declaration
and payment
of dividends
(i.e., that
dividends may
be paid
out only
from the
Corporation’s
capital surplus
or,
in the
absence of
such excess,
from the
Corporation’s
net
earnings for such fiscal year and/or the preceding fiscal year).
The principal
source of
funds for
the Corporation,
as a
parent holding
company,
is dividends
declared and
paid by
its subsidiary,
FirstBank. The
ability of
FirstBank to
declare and
pay dividends
on its
capital stock
is regulated
by the
Puerto Rico
Banking Law
of
1933,
as
amended
(the
“Puerto
Rico
Banking
Law”),
the
Federal
Deposit
Insurance
Act
(the
“FDIA”),
and
FDIC
regulations.
In
general
terms,
the
Puerto
Rico
Banking
Law
provides
that when
the
expenditures
of a
bank
are greater
than
receipts,
the
excess
of
expenditures over
receipts shall
be charged
against undistributed
profits of
the bank
and the
balance, if
any,
shall be
charged against
the required
reserve fund
of the
bank. If
the reserve
fund is
not sufficient
to cover
such balance
in whole
or in
part, the
outstanding
amount
must be
charged
against the
bank’s
capital account.
The Puerto
Rico Banking
Law provides
that, until
said capital
has been
restored to its original
amount and the reserve
fund to 20% of
the original capital, the
bank may not declare
any dividends. In general,
regulations
of
the
FDIA
and
the
FDIC
restrict
the
payment
of
dividends
when
a
bank
is
undercapitalized
(as
discussed
in
Prompt
Corrective
Action
below),
when
a
bank
has
failed
to
pay
insurance
assessments,
or
when
there
are
safety
and
soundness
concerns
regarding such bank.
Refer
to
Part
II,
Item
5,
“Market
for
Registrant’s
Common
Equity,
Related
Stockholder
Matters
and
Issuer
Purchases
of
Equity
Securities” of this Form 10-K for further information on the Corporation’s
distribution of dividends and repurchases of common stock.
Consumer Financial Protection Bureau
The CFPB has
primary examination
and enforcement authority
over FirstBank and
other banks with
over $10 billion
in assets with
respect to consumer financial products and services.
The
CFPB’s
primary
functions
include
the
supervision
of
“covered
persons”
(broadly
defined
to
include
any
person
offering
or
providing a consumer
financial product or
service and any
affiliated service
provider) for compliance
with federal consumer
financial
laws.
It
implements
amendments
to
and
has
primary
authority
to
enforce
the
federal
consumer
financial
laws,
including
the
Equal
Credit Opportunity Act, the Truth
in Lending Act (“TILA”) and the
Real Estate Settlement Procedures Act (“RESPA”),
among others.
The
CFPB
also
has
broad
powers
to
prescribe
rules
applicable
to
a
covered
person
or
service
provider
in
connection
with
any
transaction with a consumer for a consumer financial product or service,
or the offering of a consumer financial product or service.
Among other
actions, the
CFPB has
issued regulations
setting forth
mortgage servicing
rules that
apply to
the Bank,
which affect
consumer notices
regarding delinquency,
foreclosure alternatives,
modification applications,
interest rate
adjustments and
options for
avoiding
“force-placed”
insurance.
Further,
the
CFPB has
adopted
rules and
forms
that
combine
certain
disclosures
that
consumers
receive in connection with applying for and closing on a mortgage loan under
the TILA and the RESPA.
The
CFPB
has
been
actively
updating
its
regulations
to
address
emerging
issues
in
the
consumer
financial
marketplace.
This
includes implementing new rules on
personal financial data rights such
as the Open Banking Rule finalized
in October 2024, overdraft
lending practices, and the use of artificial intelligence in credit decisions.
The Trump
administration has
advocated for
reduction of
financial services
regulation. This
may include
structural changes
to, or
the elimination
of, the
CFPB. Consequently,
rulemaking and
regulatory guidance
previously issued
by the
CFPB may
be rolled
back
or modified. The ultimate impact of any changes to certain federal agencies,
like the CFPB, is uncertain at this time.
13
The Volcker
Rule
Section 13 of the Bank Holding
Company Act (commonly known as
the Volcker
Rule), generally prohibits a banking
entity such as
the Corporation or the
Bank from acquiring or
retaining any ownership in,
or acting as sponsor
to, a hedge fund
or private equity fund
(“covered
fund”).
The
Volcker
Rule
also
prohibits
these
entities
from
engaging,
for
their
own
account,
in
short-term
proprietary
trading of certain securities, derivatives, commodity futures and options
on these instruments.
The Corporation and
the Bank are not engaged
in “proprietary trading” as
defined in the Volcker
Rule. In addition, the
Corporation
has reviewed its investments and concluded that they are not considered
covered funds under the Volcker
Rule.
Community Reinvestment Act and Home Mortgage Disclosure Act Regulations
The CRA encourages
banks to help meet
the credit needs of
the local communities
in which they offer
services, including low- and
moderate-income individuals, consistent with the safe and sound operation
of the bank.
The
CRA
requires
the
federal
supervisory
agencies,
as
part
of
the
general
examination
of
supervised
banks,
to
assess
a
bank’s
record of meeting
the credit needs of
its community,
assign a performance rating,
and take such record
and rating into account
in their
evaluation
of certain
applications by
such bank,
such as
an application
for approval
of a
merger
or the
establishment of
a branch.
A
rating of
less than “satisfactory”
could result
in the denial
of such applications.
The CRA
also requires
all institutions
to make
public
disclosure of their CRA ratings. FirstBank received a “satisfactory” CRA rating
in its most recent examination by the FDIC.
In
October
2023,
the
U.S.
federal
banking
regulatory
agencies
issued
a
final
rule
to
strengthen
and
modernize
their
regulations
implementing the
CRA. The
final rule,
among other
things, revises
the CRA
regulations to
better achieve
the CRA’s
core purpose
of
encouraging banks to
help meet the credit
needs of their local
communities; provides greater
clarity and consistency
in the application
of CRA regulations;
tailors performance standards,
data collection, and reporting
requirements to account
for differences in
bank size,
business model,
and local
conditions; and
promotes a
consistent regulatory
approach that
applies to
banks regulated
by the OCC,
the
Federal
Reserve
Board
and
the
FDIC.
The
final
rule
was
expected
to
take
effect
on
April
1,
2024,
with
most
of
its
provisions
becoming
applicable
on January
1, 2026.
Reporting of
the collected
data
will not
be
required
until 2027.
Several
banking
industry
groups filed
a lawsuit seeking
to invalidate
the CRA final
rule, in which
they argued
that the federal
banking agencies exceeded
their
statutory authority in adopting the
CRA final rule. In March 2024,
a federal judge granted an injunction
to extend the CRA final rule’s
effective
date, originally
set for
April 1,
2024. The
effective date
will be
extended each
day the
injunction remains
in place,
pending
the resolution of the lawsuit.
USA PATRIOT
Act and Other Anti-Money Laundering Requirements
As a regulated
depository institution,
FirstBank is subject
to the
Bank Secrecy
Act, which imposes
a variety of
reporting and
other
requirements,
including
the requirement
to file
suspicious
activity and
currency
transaction
reports that
are designed
to assist
in the
detection and prevention
of money laundering,
terrorist financing and
other criminal activities.
In addition, under
Title III
of the USA
PATRIOT
Act of 2001,
all financial institutions
are required to
identify their customers,
adopt formal and
comprehensive anti-money
laundering programs,
scrutinize or
prohibit certain
transactions of
special concern,
and be
prepared to
respond to
inquiries from
U.S.
law enforcement agencies concerning their customers and their transactions.
In
January
2021,
major
legislative
amendments
to
U.S.
anti-money
laundering
requirements
became
effective
through
the
enactment
of
Division
F
of
the
National
Defense
Authorization
Act
for
fiscal
year
2021,
otherwise
known
as
the
Anti-Money
Laundering
Act
of
2020
(the
“AML
Act”).
The
AML
Act
includes
a
variety
of
provisions
designed
to
modernize
the
anti-money
laundering
regulatory
regime
and
remediate
gaps
in
the
U.S.’s
approach
to
anti-money
laundering
and
countering
the
financing
of
terrorism,
including the
creation of
a national
database of
absence corporate
beneficial ownership
along with
significantly enhanced
reporting
requirements,
increased
penalties
for
Bank
Secrecy
Act
violations,
clarification
of
Suspicious
Activity
Report
filing
and
sharing
requirements,
and
provisions
addressing
the
adverse
consequences
of
“de-risking,”
namely,
the
practice
of
financial
institutions’ termination or
limitation of business relationships
with clients or classes
of clients in order
to manage the risks associated
with such clients.
Regulations implementing the Bank Secrecy Act and the
USA PATRIOT
Act are published and primarily enforced
by the Financial
Crimes Enforcement Network (“FinCEN”), a bureau
of the U.S. Treasury.
Failure of a financial institution, such as the Corporation or
the
Bank,
to
comply
with
the
requirements
of
the
Bank
Secrecy
Act
or
the
USA
PATRIOT
Act
could
have
serious
legal
and
reputational
consequences
for
the
institution,
including
the
possibility
of
regulatory
enforcement
or
other
legal
actions,
such
as
significant
civil
monetary
penalties.
The
Corporation
is
also
required
to
comply
with
federal
economic
and
trade
sanctions
requirements enforced by the Office of Foreign Assets Control
(“OFAC”), a bureau
of the U.S. Treasury.
14
The Corporation believes
it has adopted appropriate
policies, procedures and controls
to address compliance with
the Bank Secrecy
Act, USA
PATRIOT
Act and
economic/trade
sanctions requirements,
and to
implement banking
agency,
FinCEN, OFAC
and
other
U.S. Treasury regulations.
Financial Privacy and Cybersecurity
The Gramm-Leach-Bliley
Act limits the ability
of financial institutions
to disclose non-public information
about consumers to non-
affiliated
third
parties.
These
limitations
require
disclosure
of
privacy
policies
to
consumers
and,
in
some
circumstances,
allow
consumers to prevent disclosure of certain personal information
to a non-affiliated third party.
The
federal
banking
regulators
regularly
issue
guidance
regarding
cybersecurity
intended
to
enhance
cyber
risk
management
standards among financial
institutions. A financial
institution is expected
to establish multiple
lines of defense
and to ensure
their risk
management processes
address the
risk posed
by potential
threats to
the institution.
A financial
institution’s
management is
expected
to
maintain
sufficient
processes
to
effectively
respond
and
recover
the
institution’s
operations
after
a
cyber-attack.
A
financial
institution
is
also
expected
to
develop
appropriate
processes
to
enable
recovery
of
data
and
business
operations
if
a
critical
service
provider
of the
institution
falls victim
to this
type
of a
cyber-attack.
Our
Corporate
Information
Security
Program
(“CISP”) reflects
these
requirements
and
outlines
our
overall
vision,
direction,
and
governance
efforts
to
protect
the
confidentiality,
integrity,
and
availability of customer information and prevent access by unauthorized
personnel.
In
July
2023,
the
SEC
adopted
rules
requiring
registrants
to
disclose
material
cybersecurity
incidents
they
experience
and
to
disclose on
an annual
basis material
information
regarding their
cybersecurity
risk management,
strategy,
and governance.
The new
rules
require
registrants
to
disclose
on
the
new
Item
1.05
of
Form
8-K
any
cybersecurity
incident
they
determine
to
be
material
generally
within
four
business
days
of
such
determination
and
to
describe
the
material
aspects
of
the
incident’s
nature,
scope,
and
timing, as
well as
its material
impact or
reasonably likely
material impact
on the
registrant. The
new rule
also added
Regulation S-K
Item 106,
which requires
disclosure of
the registrant’s
processes, if
any,
for assessing,
identifying, and
managing material
risks from
cybersecurity
threats,
as
well
as
the
material
effects
or
reasonably
likely
material
effects
of
risks
from
cybersecurity
threats
and
previous cybersecurity
incidents on
the new
Item 1C.
Cybersecurity of
Form 10-K.
Item 106
also requires
registrants to
describe the
board
of
directors’
oversight
of
risks
from
cybersecurity
threats
and
management’s
role
and
expertise
in
assessing
and
managing
material risks from such threats. These disclosures are included in Part I, Item
1C, “Cybersecurity” to this Form 10-K.
Limitations on Transactions with Affiliates
and Insiders
Certain transactions between FDIC-insured
banks financial institutions such
as FirstBank and its affiliates
are governed by Sections
23A and
23B of the
Federal Reserve Act
and by
Federal Reserve
Regulation
W.
An affiliate
of a bank
is, in general,
any corporation
or entity
that controls,
is controlled
by,
or is
under common
control with
the bank,
including the
bank’s
parent holding
company and
any companies that are controlled by such holding company.
Generally,
Sections 23A and 23B of
the Federal Reserve Act (i)
limit the extent to which
the bank or its subsidiaries
may engage in
“covered
transactions”
with
any
one
affiliate
to
an
amount
equal
to
10%
of
such
bank’s
capital
stock
and
surplus,
and
contain
an
aggregate limit
on all
such transactions
with all
affiliates to
an amount
equal to 20%
of such
bank’s
capital stock
and surplus
and (ii)
require
that all
“covered transactions”
be on
terms that
are substantially
the same,
or at
least as
favorable
to the
bank or
affiliate,
as
those
provided
to
a
non-affiliate.
The
term
“covered
transaction”
includes
the
making
of
loans,
purchase
of
assets,
issuance
of
a
guarantee, credit
derivatives, securities
lending and
other similar
transactions entailing
the provision
of financial
support by
the bank
to an affiliate. In
addition, loans or other extensions
of credit by the bank
to the affiliate are required
to be collateralized in accordance
with the requirements set forth in Section 23A of the Federal Reserve Act.
In
addition,
Sections
22(h)
and
(g)
of
the
Federal
Reserve
Act,
implemented
through
Regulation
O,
place
restrictions
on
commercial bank loans to executive
officers, directors, and principal stockholders
of the bank and its affiliates.
Under Section 22(h) of
the Federal Reserve
Act, bank loans to
a director, an
executive officer,
a greater than 10%
stockholder of the
bank, and certain related
interests of these persons,
may not exceed, together
with all other outstanding
loans to such persons
and affiliated interests,
the bank’s
limit on loans
to one borrower,
which is generally
equal to 15%
of the bank’s
unimpaired capital and
surplus in the
case of loans
that
are not fully secured,
and an additional 10% of
the bank's unimpaired capital
and unimpaired surplus in
the case of loans that
are fully
secured by
readily marketable
collateral having
a market
value at
least equal
to the
amount of
the loan.
Section 22(h)
of the
Federal
Reserve Act also requires
that loans to directors,
executive officers, and
principal stockholders be made
on terms that are substantially
the same
as offered
in comparable
transactions to
other persons
and also
requires prior
board approval
for certain
loans. In
addition,
the
aggregate
amount
of
extensions
of
credit
by
a
bank
to
insiders
cannot
exceed
the
bank’s
unimpaired
capital
and
surplus.
Furthermore, Section 22(g) of the Federal Reserve Act places additional
restrictions on loans to executive officers.
15
Executive Compensation
The federal banking agencies
have adopted interagency guidance
governing incentive-based compensation
programs, which applies
to
all
banking
organizations
regardless
of
asset
size.
This
guidance
uses
a
principles-based
approach
to
ensure
that
incentive-based
compensation
arrangements appropriately
tie rewards
to longer-term
performance and
do not
undermine the
safety and
soundness of
banking organizations
or create
undue risks
to the
financial system.
The interagency
guidance is
based on
three major
principles: (i)
balanced risk-taking
incentives; (ii) compatibility
with effective
controls and
risk management; and
(iii) strong
corporate governance.
The guidance further provides
that, where appropriate, the
banking agencies will take supervisory
or enforcement action to ensure
that
material deficiencies that pose a threat to the safety and soundness of the
organization are promptly addressed.
In May 2016, the federal financial regulators proposed
regulations (first proposed in 2011) governing
incentive-based compensation
practices
at covered
banking institutions,
which
would
include,
among
others,
all banking
organizations
with assets
of
$1 billion
or
greater.
Portions of these
proposed rules would
apply to the
Corporation and FirstBank.
Those applicable provisions
would generally
(i)
prohibit
types
and
features
of
incentive-based
compensation
arrangements
that
encourage
inappropriate
risk
because
they
are
“excessive”
or
“could
lead
to
material
financial
loss”
at
the
banking
institution;
(ii)
require
incentive-based
compensation
arrangements to
adhere to
three basic
principles: (1)
a balance
between risk
and reward;
(2) effective
risk management
and controls;
and
(3)
effective
governance;
and
(iii)
require
appropriate
board
of
directors
(or
committee)
oversight
and
recordkeeping
and
disclosures
to
the
banking
institution’s
primary
regulatory
agency.
As
of
December
31,
2024,
the
rule
has
not
been
finalized.
The
nature and substance of any final action to adopt these proposed rules, and the
timing of any such action, are not known at this time.
In August
2022, the SEC
introduced new
pay-versus-performance disclosure
rules, which took
effect in
October 2022. These
rules
require
companies
to
clearly
disclose
the
relationship
between
executive
compensation
and
the
company’s
financial
performance.
Additionally,
in
October
2022,
the
SEC
finalized
a
rule
that
directs
stock
exchanges
to
require
listed
companies
to
implement
clawback policies
to recover
incentive-based compensation
from current
or former
executive officers
in the
event of
certain financial
restatements,
and
requires
companies
to,
among
other
things,
file
their
clawback
policies
as
Exhibit
97
of
Form
10-K.
Our
Compensation Clawback Policy is compliant with NYSE’s
listing standards pursuant to this rule.
Prompt Corrective Action
The
“prompt
corrective
action”
provisions
of
the
FDIA
require
the
federal
bank
regulatory
agencies
to
take
prompt
corrective
action
against
any
insured
depository
institution
that
is
undercapitalized.
The
FDIA
establishes
five
capital
categories:
well-
capitalized,
adequately
capitalized,
undercapitalized,
significantly
undercapitalized,
and
critically
undercapitalized.
Well-capitalized
insured depository institutions significantly exceed the required minimum
level for each relevant capital measure.
A bank’s
capital category
may not
constitute
an accurate
representation
of the
overall financial
condition
or prospects
of a
bank,
such
as
the
Bank,
and
should
be
considered
in
conjunction
with
other
available
information
regarding
the
financial
condition
and
results of operations of such bank.
Deposit Insurance
FirstBank
is
subject
to
FDIC
deposit
insurance
assessments,
which
increased
for
all
banks,
including
FirstBank,
following
the
increase
in
deposit
insurance
coverage
to
up
to
$250,000
per
customer
and
the
FDIC’s
expanded
authority
to
increase
insurance
premiums implemented
by the
Dodd-Frank Act.
The FDIA
further requires
that the
designated reserve
ratio for
the DIF
for any
year
not be
less than
1.35% of
estimated insured
deposits or
the comparable
percentage of
the new
deposit assessment
base.
In addition,
the FDIC
was required
to take
the necessary
actions for
the reserve
ratio to
reach 1.35%
of estimated
insured deposits
by September
30, 2020.
The FDIC
managed to
reach the
goal early,
achieving a
reserve ratio
of 1.36%
in September
2018. However,
in the
third
quarter of
2020, the
FDIC announced
that the
reserve ratio
of the
DIF fell
nine basis
points between
the first
and second
quarters of
2020,
from 1.39%
to 1.30%.
The decline
was attributed
to an
unprecedented
surge
in deposits.
The
FDIC approved
a plan
that is
expected to restore
the DIF to
at least 1.35%
within eight years,
as required by
the FDIA. Under
the plan, the
FDIC will maintain
the
current
schedules
of assessment
rates for
all banks;
monitor
deposit
balance
trends,
potential losses
and
other
factors
that affect
the
reserve
ratio;
and
provide
updates
to
its
loss
and
income
projections
at
least twice
a
year.
The
FDIC
has
also
adopted
a
final
rule
raising its
industry target
ratio of
reserves to
insured deposits
to 2%,
65 basis
points above
the statutory
minimum, but
the FDIC
has
indicated that it does not project that goal to be met for several years.
In
October
2022,
the
FDIC
adopted
a
final
rule,
applicable
to
all
insured
depository
institutions,
to
increase
initial
base
deposit
insurance assessment rate schedules
uniformly by 2 basis points,
beginning in the first quarterly
assessment period of 2023.
The FDIC
also
concurrently
maintained
the
designated
reserve
ratio
for
the
DIF
at
2%
for
2023.
The
increase
in
assessment
rate
schedules
is
intended to
increase the likelihood
that the reserve
ratio of the
DIF reaches the
statutory minimum of
1.35% by the
statutory deadline
of September 30, 2028. The new assessment rate schedules
will remain in effect unless and until the reserve
ratio meets or exceeds 2%
in order
to support growth
in the DIF
and progress
toward the FDIC’s
long-term goal
of a 2%
designated reserve
ratio. Progressively
lower
assessment
rate
schedules
will
take
effect
when
the reserve
ratio
reaches
2%
and
again
when
it
reaches
2.5%.
For
2023,
the
16
Corporation recognized an increase of
approximately $2.4 million in deposit
insurance expense, when compared to 2022,
as a result of
the increase on the initial base deposit insurance assessment rate.
In November
2023, the
FDIC issued a
final rule
to impose a
special assessment
to recover
certain estimated
losses the DIF
arising
from
the
closures
of
Silicon
Valley
Bank
and
Signature
Bank.
The
estimated
losses
will
be
recovered
through
quarterly
special
assessments collected
from certain
insured depository
institutions, including
the Bank,
and collection
began during
the quarter
ended
June 30,
2024.
As such,
during the
years ended
December 31,
2024 and
2023, the
Corporation recorded
charges of
$1.1 million
and
$6.3 million,
respectively,
in the
consolidated
statements of
income as
part of
“FDIC deposit
insurance”
expenses. As
of December
31, 2024,
the Corporation’s
total estimated
FDIC special
assessment amounted
to $7.4
million, of
which $2.4
million has
been paid.
The Corporation continues to monitor the FDIC’s
estimated loss to the DIF,
which could affect the amount of its accrued liability.
FDIC Insolvency Authority
Under
Puerto
Rico banking
laws, the
OCIF may
appoint
the FDIC
as conservator
or receiver
of a
failed or
failing
FDIC-insured
Puerto Rican bank, and
the FDIA authorizes the FDIC
to accept such an appointment.
In addition, the FDIC has
broad authority under
the FDIA
to appoint
itself as
conservator
or receiver
of a
failed or
failing state
bank, including
a Puerto
Rican bank.
If the
FDIC is
appointed
conservator
or
receiver
of
a
bank
upon
the
bank’s
insolvency
or
the
occurrence
of
other
events,
the
FDIC
may
sell
or
transfer some, part or all
of a bank’s
assets and liabilities to another
bank, or liquidate the bank
and pay out insured depositors,
as well
as uninsured
depositors and
other creditors
to the
extent of
the closed
bank’s
available assets.
As part
of its
insolvency authority,
the
FDIC has
the authority,
among other
things, to
take possession
of and
administer the
receivership
estate, pay
out estate
claims, and
repudiate or
disaffirm certain
types of
contracts to
which the
bank was
a party
if the
FDIC believes
such contract
is burdensome
and
its disaffirmance
will aid
in
the
administration
of the
receivership.
The
FDIA
provides
that, in
the
event
of
the
liquidation
or
other
resolution of
an insured
depository institution,
including the
Bank, the
claims of
depositors of
the institution
(including the
claims of
the
FDIC
as
subrogee
of
insured
depositors)
and
certain
claims
for
administrative
expenses
of
the
FDIC
as
a
receiver
would
have
priority over
other general
unsecured claims
against the
institution. If
the Bank
were to
fail, insured
and uninsured
depositors, along
with the
FDIC, would
have priority
in payment
ahead of
unsecured, non-deposit
creditors, including
the Corporation,
with respect
to
any extensions of credit they have made to such insured depository
institution.
Activities and Investments
The
principal
activities
of
FDIC-insured,
state-chartered
banks,
such
as
FirstBank,
are
generally
limited
to
those
that
are
permissible for national
banks. Similarly,
under regulations dealing
with equity investments, an
insured state-chartered bank generally
may not directly
or indirectly acquire
or retain any equity
investments of a
type, or in an
amount, that is not
permissible for a national
bank.
Federal Home Loan Bank System
FirstBank is
a member
of the
FHLB system.
The FHLB
system consists
of eleven
regional FHLBs
governed and
regulated by
the
Federal
Housing
Finance
Agency.
The
FHLBs
serve
as
reserve
or
credit
facilities
for
member
institutions
within
their
assigned
regions.
FirstBank is a member
of the FHLB of
New York
and, as such,
is required to
acquire and hold
shares of capital
stock in the
FHLB
of New York
in an amount calculated
in accordance with the
requirements set forth in
applicable laws and regulations.
FirstBank is in
compliance
with
the
stock
ownership
requirements
of
the
FHLB
of
New
York.
All
loans,
advances
and
other
extensions
of
credit
made
by
the
FHLB
to
FirstBank
are
secured
by
a
portion
of
FirstBank’s
mortgage
loan
or
securities
portfolios,
certain
other
investments and the capital stock of the FHLB held by FirstBank.
The board of
directors of each
FHLB can increase
the minimum investment
requirements if it
has concluded that
additional capital
is required to meet its own regulatory capital requirements. Any
increase in the minimum investment requirements outside of
specified
ranges requires
the approval of
the Federal Housing
Finance Agency.
Because the extent
of any obligation
to increase our
investment
in any of
the FHLBs depends
entirely upon
the occurrence of
a future
event, the
amount of any
future investment
in the capital
stock
of the FHLBs is not determinable.
Ownership and Control
Because
of
FirstBank’s
status
as
an
FDIC-insured
bank,
as
defined
in
the
Bank
Holding
Company
Act,
the
Corporation,
as
the
owner of
FirstBank’s
common stock,
is subject to
certain restrictions and
disclosure obligations
under various
federal laws, including
the
Bank
Holding
Company
Act
and
the
Change
in
Bank
Control
Act
(the
“CBCA”).
Regulations
adopted
pursuant
to
the
Bank
Holding Company Act and
the CBCA generally require prior
Federal Reserve Board or other
federal banking agency approval or
non-
objection for an acquisition
of control of an
“insured institution” (as defined
in the Act) or holding
company thereof by any person
(or
persons acting in
concert). Control is deemed
to exist if, among
other things, a person
(or group of persons
acting in concert)
acquires
17
25% or more
of any class of
voting stock of
an insured institution
or holding company
thereof. Under the
CBCA, control is presumed
to exist
subject to
rebuttal if
a person
(or group
of persons
acting in
concert) acquires
10% or
more of
any class
of voting
stock and
either (i)
the corporation
has registered securities
under Section
12 of
the Exchange Act,
or (ii) no
person (or
group of persons
acting
in
concert)
will own,
control
or
hold
the
power
to
vote
a
greater
percentage
of that
class of
voting
securities
immediately
after
the
transaction.
The
concept
of
acting
in
concert
is
broad
and
subject
to
certain
rebuttable
presumptions,
including,
among
others,
that
relatives, business
partners, management
officials, affiliates
and others
are presumed
to be acting
in concert
with each other
and their
businesses. The regulations of the FDIC implementing the
CBCA are generally similar to those described above.
The Puerto
Rico Banking
Law requires
the approval
of the
OCIF for
changes in
control of
a Puerto
Rico bank.
See “Puerto
Rico
Banking Law” below for further detail.
Standards for Safety and Soundness
The
FDIA
requires
the
FDIC
and
other
federal
bank
regulatory
agencies
to
prescribe
standards
of
safety
and
soundness.
Bank
regulators
have
various
remedies
available
if
they
determine
that
the
financial
condition,
capital
resources,
asset
quality,
earnings
prospects, management,
liquidity,
or other
aspects of
a banking
organization’s
operations are
unsatisfactory.
The regulators
may also
take action
if they
determine that
the banking
organization or
its management
is violating
or has
violated any
law or
regulation. The
regulators
have
the
power
to,
among
other
things,
prohibit
unsafe
or
unsound
practices,
require
affirmative
actions
to
correct
any
violation
or
practice,
issue
administrative
orders
that
can
be
judicially
enforced,
direct
increases
in
capital,
direct
the
sale
of
subsidiaries
or
other
assets,
limit
dividends
and
distributions,
restrict
growth,
assess
civil
monetary
penalties,
remove
officers
and
directors, and terminate deposit insurance.
Engaging in
unsafe or
unsound practices
or failing
to comply
with applicable
laws, regulations,
and supervisory
agreements could
subject
the
Corporation,
its
subsidiaries,
and
their
respective
officers,
directors,
and
institution-affiliated
parties
to
the
remedies
described above,
and other
sanctions. In
addition, the
FDIC may
terminate a
bank’s
deposit insurance
upon a
finding that
the bank’s
financial condition is unsafe or
unsound or that the bank has engaged
in unsafe or unsound practices or has
violated an applicable rule,
regulation, order, or condition enacted
or imposed by the bank’s regulatory
agency.
Brokered Deposits
FDIC regulations
adopted
under the
FDIA govern
the receipt
of brokered
deposits by
banks. Well
-capitalized
institutions are
not
subject
to
limitations
on
brokered
deposits,
while
adequately
capitalized
institutions
are
able
to
accept,
renew
or
rollover
brokered
deposits only
with a
waiver from
the FDIC
and subject
to certain
restrictions on
the interest
paid on
such deposits.
Undercapitalized
institutions
are
not
permitted
to
accept
brokered
deposits.
In
October
2020,
the
FDIC
adopted
revisions
to
its
brokered
deposit
regulations that became
effective on April
1, 2021, with
full compliance extended
to January 1,
2022. For brokered
deposits, the final
rule established
a new framework
for analyzing
certain parts of
the “deposit
broker” definition,
including a
new interpretation
for the
“primary purpose” exception and the
business relationships that meet the exception.
Pursuant to this revision, during the
fourth quarter
of 2021, certain non-maturity deposits previously reported as brokered
deposits were recharacterized as non-brokered deposits.
Puerto Rico Banking Law
As
a
commercial
bank
organized
under
the
laws
of
the
Commonwealth
of
Puerto
Rico,
FirstBank
is
subject
to
supervision,
examination and regulation by the
commissioner of OCIF (the “Commissioner”)
pursuant to the Puerto Rico
Banking Law of 1933, as
amended (the “Banking Law”).
The Banking
Law contains various
provisions relating to
FirstBank and its
affairs, including
its incorporation and
organization, the
rights and responsibilities of its
directors, officers and
stockholders and its corporate powers,
lending limitations, capital requirements,
and investment requirements. In addition,
the Commissioner is given extensive rule-making
power and administrative discretion under
the Banking Law.
The Banking Law requires
every bank to maintain
a legal reserve, which shall
not be less than
20% of its demand
liabilities, except
government deposits (federal,
state and municipal) that
are secured by actual
collateral. The reserve is required
to be composed of
any
of
the
following
securities
or
a
combination
thereof:
(i) legal
tender
of
the
United
States;
(ii) checks
on
banks
or
trust
companies
located in any
part of Puerto
Rico that are
to be presented
for collection during
the day following
the day on
which they are
received;
(iii) money deposited
in other
banks provided
said deposits
are authorized
by the
Commissioner and
subject to
immediate collection;
(iv) federal
funds
sold
to any
Federal
Reserve
Bank
and
securities
purchased
under
agreements to
resell
executed
by the
bank
with
such funds
that are
subject to
be repaid
to the
bank on
or before
the close
of the
next
business day;
and
(v) any other
asset that
the
Commissioner identifies from time to time.
Section
17
of
the
Banking
Law
permits
Puerto
Rico
commercial
banks
to
make
loans
to
any
one
person,
firm,
partnership
or
corporation in an aggregate
amount of up to
15% of the sum of:
(i) the bank’s
paid-in capital; (ii) the bank’s
reserve fund; (iii) 50% of
the bank’s
retained earnings, subject
to certain limitations;
and (iv) any other
components that the
Commissioner may determine
from
18
time to time. If such loans are secured by
collateral worth at least 25% of the amount of the
loan, the aggregate maximum amount may
reach 33.33% of
the sum of
the bank’s
paid-in capital, reserve
fund, 50% of
retained earnings, subject
to certain limitations,
and such
other components
that the
Commissioner may
determine from
time to
time. There
are no
restrictions under
the Banking
Law on
the
amount of loans that
may be wholly secured
by bonds, securities and
other evidences of indebtedness
of the government of
the United
States,
or
of
the
Commonwealth
of
Puerto
Rico,
or
by
bonds,
not
in
default,
of
municipalities
or
instrumentalities
of
the
Commonwealth of Puerto Rico.
The Banking Law
requires that Puerto
Rico commercial banks prepare
each year a balance
summary of their
operations and submit
such balance
summary
for approval
at a
regular meeting
of stockholders,
together with
an explanatory
report thereon.
The Banking
Law also requires
that at least
10% of the
yearly net income
of a Puerto
Rico commercial bank
be credited annually
to a reserve
fund
until such reserve fund is in amount equal to the total paid-in-capital of the bank.
The
Banking
Law
also
provides
that
when
the
expenditures
of
a
Puerto
Rico
commercial
bank
are
greater
than
its
receipts,
the
excess of the expenditures
over receipts must be
charged against the
undistributed profits of the
bank, and the balance,
if any,
charged
against
the
reserve
fund,
as a
reduction
thereof.
If
there
is no
reserve
fund
sufficient
to cover
such balance
in
whole or
in part,
the
outstanding amount
must be
charged against
the capital
account and
no dividend
may be declared
until said
capital has
been restored
to its original amount and the amount in the reserve fund equals 20% of
the original capital.
The Finance Board, which
is composed of nine members
from enumerated Puerto Rico
Government agencies, instrumentalities and
public
corporations,
including
the
Commissioner,
has
the
authority
to
regulate
the
maximum
interest
rates
and
finance
charges
that
may be
charged on
loans to
individuals
and unincorporated
businesses in
Puerto Rico.
The current
regulations of
the Finance
Board
provide that the applicable
interest rate on loans
to individuals and unincorporated
businesses, including real estate
development loans
but excluding
certain other personal
and commercial loans
secured by mortgages
on real estate
properties, is
to be determined
by free
competition. Accordingly,
the regulations do
not set a maximum
rate for charges
on retail installment
sales contracts, small
loans, and
credit card purchases. Furthermore, there
is no maximum rate set for installment sales contracts involving
motor vehicles, commercial,
agricultural and industrial equipment, commercial electric appliances and
insurance premiums.
International Banking Center Regulatory Act of Puerto Rico (“IBE Act 52”)
The business and operations
of FirstBank International Branch
(“FirstBank IBE” or the “IBE
division of FirstBank”)
and FirstBank
Overseas Corporation (the IBE
subsidiary of FirstBank) are
subject to supervision and
regulation by the Commissioner.
FirstBank and
FirstBank
Overseas
Corporation
were
created
under
Puerto
Rico
Act
52-1989,
as
amended,
known
as
the
“International
Banking
Center
Regulatory
Act”
(the
IBE
Act
52),
which
provides
for
total
Puerto
Rico
tax
exemption
on
net
income
derived
by
an
IBE
operating in
Puerto Rico
on the specific
activities identified
in the
IBE Act 52.
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. Under
the IBE Act 52, certain
sales, encumbrances, assignments, mergers,
exchanges or transfers of shares,
interests or participation(s) in the
capital
of
an
IBE
may
not be
initiated
without
the
prior
approval
of the
Commissioner.
The
IBE
Act
52
and
the regulations
issued
thereunder
by
the
Commissioner
(the
“IBE
Regulations”)
limit
the
business
activities
that
may
be
carried
out
by
an
IBE.
Such
activities are limited in part to persons and assets located outside of Puerto
Rico.
Pursuant to
the IBE Act
52 and the
IBE Regulations,
each of FirstBank
IBE and FirstBank
Overseas Corporation
must maintain
in
Puerto
Rico
books
and
records
of
its
transactions
in
the
ordinary
course
of
business.
FirstBank
IBE
and
FirstBank
Overseas
Corporation
are also
required to
submit
to the
Commissioner quarterly
and annual
reports of
their financial
condition and
results of
operations, including annual audited financial statements.
The IBE Act
52 empowers
the Commissioner
to revoke
or suspend,
after notice
and hearing, a
license issued thereunder
if, among
other things, the IBE fails to
comply with the IBE Act 52, the IBE
Regulations or the terms of its license,
or if the Commissioner finds
that the business or affairs of the IBE are conducted in a manner
that is not consistent with the public interest.
In 2012, the Puerto Rico
government approved Act Number
273 (“Act 273”).
Act 273 replaces, prospectively,
IBE Act 52 with the
objective of
improving the
conditions for
conducting international
financial transactions
in Puerto Rico.
An IBE
existing on
the date
of approval
of Act
273, such
as FirstBank
IBE and
FirstBank Overseas
Corporation, can
continue operating
under IBE
Act 52,
or it
can
voluntarily
convert
to
an
International
Financial
Entity
(“IFE”)
under
Act
273
so
it
may
broaden
its
scope
of
Eligible
IFE
Activities, as
defined
below,
and
obtain
a grant
of tax
exemption
under
Act 273.
As of
the date
of the
issuance of
this Form
10-K,
FirstBank IBE and FirstBank Overseas Corporation are operating under
IBE Act 52.
On February 16, 2024,
the Governor of Puerto
Rico approved Act 45
of 2024 which amended
the IBE Act. The
amendments of the
IBE Act were effective
on May 15, 2024, and, among
other things, the amendments included
an increase to the annual license
fee paid
by
the
IBEs
to
OCIF
from
$5
thousand
to
$25
thousand
and
amended
certain
other
compliance
matters,
including
a
minimum
employment requirement of eight full-time employees. These amendments
did not have a material impact to the Corporation.
19
Puerto Rico Income Taxes
Under the
Puerto Rico
Internal Revenue
Code of
2011,
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
and,
thus,
the
Corporation
is
generally
not
entitled
to
utilize
losses
from
one
subsidiary
to
offset
gains
in
another
subsidiary.
Accordingly,
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.
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
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.
The
Corporation
has
maintained
an
effective
tax
rate
lower
than
the
maximum
statutory
rate
in
Puerto
Rico,
which
has
resulted
mainly
from conducting
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 IBE
Act 52,
and through
a wholly-owned
subsidiary that
engages in
certain Puerto
Rico qualified
investing activities
that have
certain tax advantages under Act 60 of 2019.
United States Income Taxes
As
a
Puerto
Rico
corporation,
First
BanCorp.
is
treated
as
a
foreign
corporation
for
U.S.
and
USVI
income
tax
purposes
and,
accordingly,
is generally
subject to
U.S. and
USVI income
tax only
on its income
from sources
within the
U.S. and
USVI or
income
effectively
connected with
the conduct
of a
trade or
business in
those jurisdictions.
Any such
tax paid
in the
U.S. and
USVI is
also
creditable against the Corporation’s
Puerto Rico tax liability, subject
to certain conditions and limitations.
Insurance Operations Regulation
As a financial holding
company under the Bank
Holding Company Act, we
are permitted to engage
in a broader range of
activities,
including insurance activities, that are permitted to bank holding
companies.
FirstBank Insurance Agency
is registered as an
insurance agency with
the Insurance Commissioner of
Puerto Rico and is subject
to
regulations issued by
the Insurance Commissioner
of Puerto Rico and
the Division of
Banking, Insurance and
Financial Regulation in
the USVI
relating to,
among other
things, the
licensing of
employees and
sales and
solicitation and
advertising practices,
and by
the
Federal Reserve
Board as
to certain
consumer protection
provisions mandated
by the
Gramm-Leach-Bliley Act
and its
implementing
regulations.
Mortgage Banking Operations
In
addition
to
FDIC
and
CFPB
regulations,
FirstBank
is
subject
to
the
rules
and
regulations
of
the
FHA,
VA,
FNMA,
FHLMC,
GNMA, and
the U.S.
Department of
Housing and
Urban Development
(“HUD”)
with respect
to originating,
processing,
selling and
servicing mortgage
loans and the
issuance and
sale of MBS.
Those rules
and regulations, among
other things,
prohibit discrimination
and
establish
underwriting
guidelines
that
include
provisions
for
inspections
and
appraisals,
require
credit
reports
on
prospective
borrowers
and
fix
maximum
loan
amounts,
and,
with
respect
to
VA
loans,
fix
maximum
interest
rates.
Moreover,
lenders
such
as
FirstBank are required
annually to submit
audited financial statements
to the FHA, VA,
FNMA, FHLMC, GNMA and
HUD and each
regulatory entity
has its
own financial
requirements. FirstBank’s
affairs are
also subject
to supervision
and examination
by the
FHA,
VA,
FNMA,
FHLMC,
GNMA
and
HUD
at
all
times
to
assure
compliance
with
applicable
regulations,
policies
and
procedures.
Mortgage origination activities are subject
to, among other requirements, the Equal
Credit Opportunity Act, TILA and
the RESPA
and
the
regulations
promulgated
thereunder
that,
among
other
things,
prohibit
discrimination
and
require
the
disclosure
of certain
basic
information to
mortgagors concerning
credit terms
and settlement
costs. FirstBank
is licensed
by the
Commissioner under
the Puerto
Rico
Mortgage
Banking
Law,
and,
as
such,
is
subject
to
regulation
by
the
Commissioner,
with
respect
to,
among
other
things,
licensing requirements and the establishment of maximum origination
fees on certain types of mortgage loan products.
20
WEBSITE ACCESS TO REPORT
The Corporation
makes available
annual reports
on Form
10-K, quarterly
reports on Form
10-Q, and
current reports
on Form
8-K,
and amendments to
those reports, and proxy
statements on Schedule 14A,
filed or furnished pursuant
to Sections 13(a), 14(a)
or 15(d)
of the Exchange
Act, free of
charge on or
through its internet
website at www.1firstbank.com
(under “Investor Relations”)
or directly
through
the
Corporation’s
investor
relations
website,
fbpinvestor.com,
as
soon
as
reasonably
practicable
after
the
Corporation
electronically
files
such
material
with,
or
furnishes
it
to,
the
SEC.
The
SEC
maintains
a
website
that
contains
reports,
proxy
and
information statements, and other information regarding
issuers that file electronically with the SEC at www.sec.gov.
The
Corporation
also
makes
available
its
Corporate
Governance
Guidelines
and
Principles,
the
charters
of
the
Audit,
Asset/Liability,
Compensation
and
Benefits,
Credit,
Risk,
Trust,
and
Corporate
Governance
and
Nominating
Committees
and
the
documents listed below,
free of charge on or through its internet website at www.fbpinvestor.com
(under Corporate Governance):
•
Code of Ethics for CEO and Senior Financial Officers (the “Code
of Ethics”)
•
Code of Ethical Conduct applicable to all employees
•
Independence Principles for Directors
•
Corporate Sustainability/ESG Reports
•
Sustainability Policy
The Corporate
Governance Guidelines and
Principles and the
aforementioned charters
and documents may
also be obtained
free of
charge
by
sending
a written
request
to
Mrs. Sara
Alvarez Cabrero
,
Executive
Vice
President,
General
Counsel
and
Secretary
of the
Board, PO Box 9146, San Juan, Puerto Rico 00908.
Website addresses
referenced in this Form
10-K are provided as textual references
and for convenience only,
and the content on the
referenced
websites does
not constitute
a part
of this
Form
10-K
or any
other report
or document
that the
Corporation
files with
or
furnishes to the SEC.
21
Item 1A.
Risk Factors
Below
is a
discussion
about material
risks
and
uncertainties that
could
impact
the Corporation’s
businesses,
results
of operations
and financial condition,
including by causing
the Corporation’s
actual results to differ
materially from those projected
in any forward-
looking statements. Other risks
and uncertainties, including those
not currently known to the
Corporation or its management and
those
that
the
Corporation
or
its management
currently
deems
to
be
immaterial,
could
also
materially
adversely
affect
the Corporation
in
future periods. Thus, the following
should not be considered a complete
discussion of all of the risks and
uncertainties the Corporation
may face. See the discussion under “Forward-Looking Statements,” in
this Form 10-K.
RISKS RELATING TO
THE BUSINESS ENVIRONMENT AND OUR INDUSTRY
The
effect
of
changes
in
the
interest
rate
environment
and
inflation
levels
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.
Net interest
income is
the difference
between the
amounts received
by us
on our
interest-earning assets
and the
interest paid
by us
on our interest-bearing
liabilities. Differences in the
repricing structure of
our assets and liabilities may
result in changes in our
profits
when interest rates change. For instance,
lower interest rates for prolonged periods
tend to compress the net interest margin
and reduce
profitability.
Conversely,
higher
interest
rates
increase
the
cost
of
mortgage
and
other
loans
to
consumers
and
businesses
and
may
reduce demand
for such loans,
which may
negatively impact
our profits
by reducing
the amount of
interest income due
to declines
in
volume.
This happens
because
the
decrease
in
interest
income
from
loans
and
investment securities
is greater
than
the reduction
in
interest
expense
on
interest-bearing
liabilities.
Competitive
pressures
among
banks
to
attract
deposits
often
lead
to
higher
interest
expenses
due
to
increased
reliance
on
wholesale
funding,
further
squeezing
the
net
interest
margin,
even
though
there
is
increased
demand
for
loans.
Interest
rates
are
highly
sensitive
to
many
factors
that
are
beyond
our
control,
including
general
economic
conditions,
inflationary
trends,
changes
in
government
spending
and
debt
issuances
and
policies
of
various
governmental
and
regulatory agencies, in particular, the
Federal Reserve Board.
Additionally,
basis risk is
the risk of
adverse consequences resulting
from unequal changes
in the difference,
also referred to
as the
“spread” or
basis, between
the rates
for two
or more
different
instruments with
the same
maturity and
occurs when
market rates
for
different financial
instruments or
the indices
used to
price assets and
liabilities change
at different
times or
by different
amounts. For
example, the interest expense
for liability instruments might
not change by the
same amount as interest income
received from loans
or
investments.
To
the
extent
that
the
interest
rates
on
loans
and
borrowings
change
at
different
rates
and
by
different
amounts,
the
margin between
our variable rate-based
assets and the cost
of the interest-bearing
liabilities might be
compressed and adversely
affect
net interest income.
Also,
changes
in
interest
rates
may
impact
the
ability
to
attract
and
retain
clients,
as
well
as
gain
acceptance
from
current
and
prospective
customers
for
new
and
existing
products
and
services.
This,
in
turn,
affects
demand
for
new
loan
originations,
the
composition
of the
Corporation’s
interest-earning
assets, and
the extent
of any
re-shifting between
non-interest-bearing
and interest-
bearing liabilities.
Further,
changes in
interest rates
impact the
value of
our fixed-rate
securities. Any
unrealized gains
or losses
from
these portfolios
impact other
comprehensive income,
stockholders’ equity,
and the
tangible common
equity ratio.
Any realized
gains
or losses from these portfolios impact regulatory capital ratios.
Changes in prepayments may adversely affect net interest income.
Net
interest
income
could
also
be
affected
by
prepayments
of
MBS.
Generally,
when
rates
rise,
prepayments
of
principal
and
interest
will
decrease,
and
the
duration
of
MBS
securities
will
increase.
Conversely,
when
rates
fall,
prepayments
of
principal
and
interest will
increase,
and
the duration
of MBS
will decrease.
Such acceleration
in the
prepayments
of MBS
would
lower yields
on
these
securities,
as
the
amortization
of
premiums
paid
upon
the
acquisition
of
these
securities
would
accelerate.
Conversely,
acceleration in
the prepayments
of MBS
would increase
yields on
securities purchased
at a
discount, as
the accretion
of the
discount
would
accelerate.
Also,
net
interest
income
in
future
periods
might
be
affected
by
our
investment
in
callable
securities
because
decreases in interest rates might prompt the early redemption of such securities.
The
volatility
in
the
financial
services
industry,
which
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 adverse developments
in the banking
industry such as
this one are highly
uncertain and difficult to predict.
22
In
the
aftermath
of
these
bank
failures,
the
banking
agencies
have
increased
regulatory
requirements
and
costs
that
may
impact
capital
ratios
or
the
FDIC
deposit
insurance
premium.
For
example,
in
2023,
the
FDIC
issued
a
final
rule
to
impose
a
special
assessment to recover certain
estimated losses to the Deposit
Insurance Fund (“DIF”) arising
from the closures of Silicon
Valley
Bank
and
Signature
Bank.
The
estimated
losses
will
be
recovered
through
quarterly
special
assessments
collected
from
certain
insured
depository
institutions,
including
the Bank,
and
collection began
during
the quarter
ended June
30,
2024.
As such,
during
the years
ended
December
31,
2024
and
2023,
the
Corporation
recorded
charges
of
$1.1
million
and
$6.3
million,
respectively,
in
the
consolidated
statements of
income as
part of
“FDIC deposit
insurance”
expenses. As
of December
31, 2024,
the Corporation’s
total
estimated
FDIC
special
assessment
amounted
to
$7.4
million,
of
which
$2.4
million
has
been
paid.
The
Corporation
continues
to
monitor the FDIC’s estimated loss to the DIF,
which could affect the amount of its accrued liability.
Difficult market
and general
economic conditions
have affected
the financial
industry in
the past
and could
adversely affect
us
in the future.
Given that most of our business is in Puerto Rico and the
U.S. and given the degree of interrelation between
Puerto Rico’s economy
and that
of the
U.S., we
are exposed
to downturns
in the
U.S. economy,
including factors
such as
employment levels
in the
U.S. and
real
estate
valuations.
The
deterioration
of
these
conditions
has
adversely
affected
us
in
the
past
and
in
the
future
could
adversely
affect
the
credit
performance
of
mortgage
loans,
and
result
in
significant
write-downs
of
asset
values
by
financial
institutions,
including U.S. government-sponsored entities (“GSEs”)
as well as major commercial banks and investment banks.
In particular, we may face the following
risks:
●
Our ability
to assess the
creditworthiness of
our customers
may be impaired
if the models
and approaches
we use to
select,
manage, and underwrite the loans become less predictive of future behaviors.
●
The
models
used
to
estimate
losses
inherent
in
the
credit
exposure,
particularly
those
under
CECL,
require
difficult,
subjective, and
complex judgments,
including forecasts
of economic
conditions and
how these
economic predictions
might
impair
the
ability
of
the borrowers
to
repay
their
loans, which
may
no longer
be
accurately estimated
and
which
may,
in
turn, impact the reliability of the models.
●
Our
ability
to
borrow
from
other
financial
institutions
or
to
engage
in
sales
of
mortgage
loans
to
third
parties
(including
mortgage
loan
securitization
transactions
with
GSEs
and
repurchase
agreements)
on
favorable
terms,
or
at
all,
could
be
adversely
affected
by
further
disruptions
in
the
capital
or
credit
markets
or
other
events,
including
deteriorating
investor
expectations.
●
Competitive dynamics
in the
industry could
change as
a result
of strategic
growth opportunities
in connection
with current
market conditions.
●
Expected
future
regulation
of
our
industry
may
increase
our
compliance
costs
and
limit
our
ability
to
pursue
business
opportunities.
●
There may be downward pressure on our stock price.
Any deterioration
of economic
conditions in
the U.S.
and disruptions
in the
financial markets
could adversely
affect our
ability to
access capital,
our business,
financial condition,
and results
of operations.
Unfavorable or
uncertain economic
and market
conditions
have
been
and
could
cause
declines
in
economic
growth,
business
activity
or
investor
or
business
confidence;
limitations
on
the
availability or
increases in
the cost
of credit
and capital;
increases in inflation
or interest rates;
high unemployment;
natural disasters;
epidemics and pandemics; or a combination of these or other factors.
Additionally,
the
residential
mortgage
loan
origination
business
is
impacted
by
home
values
and
has
historically
been
cyclical,
enjoying periods of strong growth and profitability followed by periods of
shrinking volumes and industry-wide losses. During periods
of rising
interest rates,
including
the series
of interest
rate increases
that have
occurred, the
refinancing
of many
mortgage
products
tends to decrease as the economic incentives for borrowers to refinance their
existing mortgage loans are reduced.
Any sustained
period of
increased delinquencies,
foreclosures, or
losses could
adversely affect
our ability
to sell
loans, the
prices
we receive
for loans,
the values
of mortgage
loans held
for sale,
or residual
interests in
securitizations, which
could adversely
affect
our
financial
condition
and
results
of
operations.
In
addition,
any
additional
material
decline
in
real
estate
values
would
further
weaken the loan-to-value
ratios and increase
the possibility of
loss if a
borrower defaults. In
such event, we
will be subject
to the risk
of loss on such real estate arising from borrower defaults to the extent not covered
by third-party credit enhancements.
23
We operate in a highly
competitive industry and market area.
We
face
substantial
competition
in
all
areas
of
our
operations
from
a
variety
of
different
competitors,
including
other
banks,
insurance
companies,
mortgage
banking
companies,
small
loan
companies,
automobile
financing
companies,
leasing
companies,
brokerage
firms
with
retail
operations,
credit
unions,
certain
retailers,
fintech
companies
and
digital
platforms.
The
Corporation’s
ability
to
compete
effectively
depends
on
the
relative
performance
of
its
products,
the
degree
to
which
the
features
of
its
products
appeal
to
customers,
and
the
extent
to
which
the
Corporation
meets
clients’
needs
and
expectations.
The
Corporation’s
ability
to
compete also depends on its ability to attract and retain professional and other
personnel, and on its reputation.
The
Corporation
encounters
intense competition
in attracting
and
retaining
deposits
and
in
its consumer
and
commercial
lending
activities. The
Corporation
competes for
loans with
other financial
institutions.
The Corporation’s
ability to
originate loans
depends
primarily on the rates and
fees charged and the
service it provides to its borrowers
in making prompt credit
decisions. There can be
no
assurance that
in the
future the
Corporation will
be able
to increase
its deposit
base, originate
loans in
the manner
or on
the terms
on
which it has done so in the past, or otherwise compete effectively.
The Corporation’s
credit quality and
the value of the
portfolio of Puerto
Rico government securities
has been, and
in the future
may
be,
adversely
affected
by
Puerto
Rico’s
economic
condition,
and
may
be
affected
by
actions
taken
by
the
Puerto
Rico
government or the PROMESA oversight board to address the ongoing fiscal and
economic challenges in Puerto Rico.
A significant portion
of our business activities and
credit exposure is concentrated
in Puerto Rico, which
has faced prolonged
fiscal
challenges
and
debt
restructuring
efforts
over
the
past
decades.
While
Puerto
Rico’s
economy
showed
growth
in
fiscal
year
2023,
driven
by
personal
consumption
and
capital
investments,
future
economic
prospects
remain
uncertain.
The
Puerto
Rico
Planning
Board (“PRPB”) projected
a real gross national
product (“GNP”) growth
of 0.7% for
fiscal year 2023,
the third consecutive
year with
a positive year-over-year variance.
In addition, the
2024 Fiscal Plan
for Puerto Rico
(the “2024 Fiscal
Plan”) certified by
the PROMESA oversight
board, projects the
GNP
growth
to
be
1.0%
of
in
fiscal
year
2024,
followed
by
declines
of
0.8%
and
0.1%
in
fiscal
year
2025
and
fiscal
year
2026,
reflecting the temporary nature of federal stimulus inflows and structural challenges
in the local economy.
The
fiscal
policies
and
economic
reforms
outlined
in
the
2024
Fiscal
Plan,
including
infrastructure
investment,
tax
reforms,
and
energy
modernization,
aim to
promote
sustainable
growth. However,
delays in
implementing these
reforms or
inefficiencies
in their
execution
could negatively
impact the
local economy
and, by
extension,
our business.
Furthermore,
while federal
disaster relief
and
COVID-19
aid
have
supported
economic
activity,
these
funds
are
finite,
and
their
gradual
depletion
could
expose
underlying
economic weaknesses.
As of December 31,
2024,
the Corporation had $288.6
million of direct exposure
to the Puerto Rico government,
its municipalities
and public corporations. As of December 31, 2024, approximately
$195.8 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 $51.1
million consisted of loans
and obligations which
are supported by one
or more specific sources
of municipal revenues. The
municipalities are required
by law to
levy
special
property
taxes
in
such
amounts
as
are
required
for
the
payment
of
all
of
their
respective
general
obligation
bonds
and
notes. In
addition to
municipalities, the
total direct
exposure also
included $8.8
million in
a loan
extended to
an affiliate
of PREPA,
$30.0
million
in
loans
to
public
corporations
of
the
Puerto
Rico
government,
and
obligations
of
the
Puerto
Rico
government,
specifically
a
residential
pass-through
MBS issued
by
the PR
Housing
Finance
Authority
(“PRHFA”),
at
an
amortized
cost
of
$2.9
million as part of its available-for-sale debt securities portfolio (fair value
of $1.6 million as of December 31, 2024).
Also,
as
of
December
31,
2024,
the
outstanding
balance
of
construction
loans
funded
through
conduit
financing
structures
to
support the
federal programs
of Low-Income
Housing Tax
Credit (“LIHTC”)
combined with
Community Development
Block Grant-
Disaster Recovery (“CDBG-DR”) funding
amounted to $59.2 million. The main
objective of these programs is to spur development
in
new or rehabilitated and affordable
rental housing. PRHFA,
as program subrecipient and conduct
issuer, issues tax-exempt
obligations
which
are
acquired
by
private
financial
institutions
and
are
required
to
co-underwrite
with
PRHFA
a
mirror
construction
loan
agreement for the specific
project loan to which
the Corporation will serve
as ultimate lender but
where the PRHFA
will be the lender
of
record.
In
addition,
as
of
December
31,
2024,
the
Corporation
had
$72.5
million
in
exposure
to
residential
mortgage
loans
guaranteed by the PRHFA.
The Corporation operates in various jurisdictions highly dependent
on federal funding programs. On January 27, 2025, the Office
of
Management
and
Budget
(“OMB”)
issued
Memorandum
M-25-13
entitled
“Temporary
Pause
of
Agency
Grant,
Loan,
and
Other
Financial Assistance
Programs.” The
Memo directed
every federal
agency to
“temporarily pause all
activities related
to obligation
or
disbursement
of
all
federal
financial
assistance,
and
other
relevant
agency
activities
that
may
be
implicated
by
executive
orders,
including, but not
limited to, financial
assistance for foreign
aid, nongovernmental organizations,
DEI, woke gender
ideology,
and the
green
new
deal.”
Lawsuits
challenging
the
pause
were
immediately
filed
and
on
January
28,
2025,
the
U.S.
District
Court
for
the
24
District of
Columbia
enjoined
the
Trump
administration
from
implementing
OMB Memorandum
M-25-13
for
disbursements
under
open
awards.
On
January
29,
2025,
OMB
rescinded
the
Memo,
however,
the
administration
indicated
that
it
would
still
pursue
a
spending
freeze. It
is uncertain
at
this time
whether the
administration
will issue
any
new or
different
directives
with respect
to the
review and/or pause of federal financial assistance in the future, but any such directives
could have a negative effect on our business.
Instability
in
economic
conditions,
delays
in
the
receipt
of
disaster
relief
funds
allocated
to
Puerto
Rico
or
any
temporary
or
permanent
pause on
any federal
funds,
and the
potential impact
on asset
values resulting
from past
or future
natural disaster
events,
when added
to Puerto
Rico’s
ongoing fiscal
challenges, could
materially adversely
affect our
business, financial
condition, liquidity,
results of operations and capital position.
A
deterioration
in
economic
conditions
in
the
U.S.
Virgin
Islands
and
British
Virgin
Islands
could
harm
our
results
of
operations.
The Corporation has exposure to the USVI and BVI economies,
which remain susceptible to fiscal challenges, natural disasters,
and
reliance on
federal disaster
relief and
recovery funding.
While the
USVI has
shown economic
recovery in
recent years,
uncertainties
persist,
including
the
pace
of
federal
fund
disbursements,
the
long-term
sustainability
of
public
finances,
and
the
potential
for
legislative actions impacting its debt obligations.
As of
December 31,
2024 and
2023, the
Corporation had
$100.4 million
and $90.5
million, respectively,
in loans
to USVI
public
corporations,
all
of
which
were
performing
as
of
that
date.
However,
a
downturn
in
the
USVI
and
BVI
economies,
delays
in
government funding,
or legal
or regulatory
changes affecting
their financial
stability could
negatively impact
the Corporation’s
asset
quality, credit performance,
and overall financial condition.
We are subject to ESG risks that
could adversely affect our reputation and the market price of our securities.
Although
the
current
U.S.
presidential
administration’s
policies
may
reduce
immediate
ESG
regulatory
burdens,
stakeholder
expectations are not uniform,
and both opponents and proponents
of various ESG-related matters
have increasingly resulted in
a range
of
activism
to
advocate
for
their
positions.
For
example,
in
the
last
several
years,
certain
state
attorneys
general,
treasurers,
and
legislators have
taken various
actions to
impact the
extent to which
ESG principles
are considered
by financial
institutions, including
to require
or prohibit
the consideration
of various
ESG matters
in certain
contexts. While
anti-ESG sentiment
has gained
momentum
across the
United States,
there is
continued focus
by investors
and certain
other stakeholders
on the
ESG practices
of publicly
traded
companies,
like
us,
that
has
included
or
may
in
the
future
include
expanding
mandatory
and
voluntary
reporting,
diligence,
and
disclosure
on
topics
such
as
climate
change,
human
capital,
labor
and
risk
oversight,
and
could
expand
the
nature,
scope,
and
complexity
of
matters
that
we
are
required
to
control,
assess
and
report.
These
requirements
would
likely
result
in
increased ESG-
related compliance costs, which could
result in increases to our overall operational
costs. Failure to adapt to or
comply with regulatory
requirements or
investor or stakeholder
expectations and standards
could negatively impact
our reputation,
ability to do
business with
certain partners, and our stock price.
For
example,
we
may
be
exposed
to
negative
publicity
based
on
the
identity
and
activities
of
those
to
whom
we
lend
and
with
which we
otherwise do
business and
the public’s
view of
the approach
and performance
of our
customers and
business partners
with
respect
to ESG matters.
Any
such
negative
publicity
could
arise
from
adverse
news
coverage
in
traditional
media
and
could
also
spread
through
the
use
of
social
media
platforms.
The
Corporation’s
relationships
and
reputation
with
its
existing
and
prospective
customers
and
third
parties
with
which
we
do
business
could
be
damaged
if
we
were
to
become
the
subject
of
any
such
negative
publicity. This,
in turn,
could have
an adverse
effect
on
our ability
to
attract
and retain
customers
and
employees
and could
have
a
negative impact
on our
business, financial
condition and
results of
operations.
In addition,
we could
be criticized
by ESG
detractors
for the scope
or nature of
our ESG initiatives
or policies or
for any revisions
to these policies.
We
could also be
subjected to
negative
responses by
governmental actors (such
as anti-ESG legislation
or retaliatory legislative
treatment) or consumers
(such as boycotts
or
negative publicity campaigns) that could adversely affect our reputation,
results of operations and financial condition.
Our results
of operations
could be
adversely affected
by natural
disasters,
public health
crises, political
crises, negative
global
climate patterns or other catastrophic events.
Natural disasters,
whose nature
and severity
may be
impacted by
climate change,
such as
hurricanes,
floods, extreme
cold events
and other
adverse weather
conditions; public
health crises;
political crises,
such as
terrorist
attacks, war,
labor unrest,
other political
instability,
trade policies,
tariffs and
sanctions, including
the repercussions
of the ongoing
conflict in
Ukraine, the
ongoing conflict in
the Middle
East, and
the possible
expansion of
such conflicts
to surrounding
areas and
potential geopolitical
consequences; negative
global climate
patterns, especially
in water
stressed regions;
or other
catastrophic events,
such as
fires or
other disasters
occurring at
our locations,
whether occurring
in Puerto
Rico, the
U.S., or
internationally,
could cause
a significant
adverse effect
on the
economy
and disrupt
our operations.
Certain areas
in which
our business
is concentrated,
including Puerto
Rico and
the USVI,
are particularly
susceptible
to
earthquakes,
hurricanes,
and
major
storms.
Further,
climate
change
may
increase
both
the
frequency
and
severity
of
extreme weather conditions and natural
disasters, which may affect our
business operations, either in a particular region
or globally,
as
25
well as the activities
of our customers.
The Corporation
is also not able
to predict the
positive or negative
effects that future
events or
changes to the U.S. or global economy,
financial markets, or regulatory and business environment could have on our operations.
Climate
change,
and
efforts
to
mitigate
its
long-term
effects,
may
materially
adversely
affect
the
Corporation's
business
and
results of operations.
Concerns over
the long-term effects
of climate change
have led and
will continue to
lead to governmental
efforts around
the world
to
mitigate
those
impacts.
Consumers
and
businesses
also
may
voluntarily
change
their behavior
as a
result
of
these
concerns.
The
Corporation
and
its
customers
will
need
to
respond
to
new
laws
and
regulations
as
well
as
consumer
and
business
preferences
resulting
from
climate
change
concerns.
The
Corporation
and
its
customers
may
face
cost
increases,
asset
value
reductions
and
operating process
changes. The
impact on
our customers
will likely
vary depending
on their
specific attributes,
including reliance
on
our
role in
fossil fuel
activities. Among
the impacts
to the
Corporation,
we could
face reductions
in creditworthiness
on the
part
of
some customers
or in
the value
of assets
securing loans.
The Corporation’s
efforts to
take these
risks into
account in
making lending
and
other
decisions,
including
increasing
our
business
with
climate-responsible
companies,
may
not
be
effective
in
protecting
the
Corporation from the negative impact of new laws and regulations or changes in
consumer or business behavior.
Deterioration in collateral values may result in additional losses.
Our business is affected by the value of the assets securing our loans or underlying
our investments.
We
had a
commercial and
construction loan
portfolio held
for investment
in the
amount of
$6.2 billion
as of
December 31,
2024.
Due to
their nature,
these loans
entail a
higher credit
risk than
consumer and
residential mortgage
loans, since
they are larger
in size,
concentrate
more
risk
in
a
single
borrower
and
are
generally
more
sensitive
to
economic
downturns.
Furthermore,
in
the
case
of
a
slowdown
in the
real estate
market,
it may
be difficult
to dispose
of the
properties
securing
these loans
upon any
foreclosure
of the
properties. We
may incur losses over the near term, either because of continued
deterioration in the quality of loans or because of sales
of
problem
loans,
which
would
likely
accelerate
the
recognition
of
losses. Any
such
losses
could
adversely
impact
our
overall
financial performance and results of operations.
Deterioration
of
the
value
of
real
estate
collateral
securing
our
construction
and
commercial
loan
portfolios,
whether
located
in
Puerto Rico
or elsewhere,
would result
in increased
credit losses.
Whether the
collateral that
underlies our
loans is
located in
Puerto
Rico, the USVI,
the BVI, or the
U.S. mainland, the performance
of our loan portfolio
and the collateral value
backing the transactions
are dependent upon the performance
of, and conditions within, each
specific real estate market. As
of December 31, 2024, $2.8
billion
of our commercial and construction loan portfolio held for investment,
or 22% of the total loan portfolio held for investment, consisted
of commercial mortgage and construction loans, of which $2.0 billion
was in the Puerto Rico region.
We
measure credit
losses for
collateral dependent
loans based
on the
fair value
of the
collateral, which
is generally
obtained from
appraisals, adjusted
for undiscounted
selling costs
as appropriate.
Updated appraisals
are obtained
when we
determine that
loans are
collateral
dependent
and
are
updated
annually
thereafter.
In
addition,
appraisals
are
also
obtained
for
certain
residential
mortgage
loans on a spot
basis based on specific
characteristics, such as delinquency
levels, and age of
the appraisal. The appraised
value of the
collateral may decrease, or we may
not be able to recover collateral at
its appraised value. A significant decline
in collateral valuations
for
collateral
dependent
loans
has
required
and,
in
the
future,
may
require,
increases
in
our
credit
loss
expense
on
loans. Any
such
increase would have an adverse effect on our future financial condition
and results of operations.
Labor shortages and constraints in the supply chain could adversely affect
our clients’ operations as well as our operations.
Many
sectors in
Puerto
Rico, the
United
States, the
Virgin
Islands and
around
the world
are experiencing
a shortage
of workers.
Many of our commercial clients have
been impacted by this shortage along with
disruptions and constraints in the supply
chain, which
could
adversely
impact
their
operations
and
could
lead
to
reduced
cash
flow
and
difficulty
in
making
loan
repayments.
The
Corporation’s
industry
has
also
been
affected
by
the
shortage
of
workers,
as
well
as
increasing
wages
for
entry
level
and
certain
professional roles. This may
lead to open positions remaining
unfilled for longer periods of time,
which may affect the level
of service
provided by the Corporation, or a need to increase wages to attract workers.
The failure of other financial institutions could adversely affect
us.
Our ability to engage in
routine financing transactions could
be adversely affected
by future failures of financial
institutions and the
actions and
commercial soundness
of other
financial institutions.
Financial institutions
are interrelated
as a result
of trading,
clearing,
counterparty
and
other relationships.
We
have
exposure
to different
industries
and
counterparties
and
routinely
execute
transactions
with counterparties
in the financial
services industry,
including brokers
and dealers,
commercial banks,
investment banks,
investment
companies and other
institutional clients. In
certain of these transactions,
we are required to
post collateral to secure
the obligations to
the
counterparties.
In the
event
of
a bankruptcy
or
insolvency
proceeding
involving
one of
such counterparties,
we
may
experience
26
delays in recovering
the assets posted as
collateral, or we
may incur a
loss to the extent
that the counterparty
was holding collateral
in
excess of the obligation to such counterparty or under other circumstances.
In addition, many of these transactions
expose us to credit risk in
the event of a default by our
counterparty or client. The credit
risk
may be exacerbated when
the collateral held by us cannot
be realized or is liquidated
at prices not sufficient
to recover the full amount
of the loan
or derivative
exposure due to
us. Any losses
resulting from
our routine funding
transactions may
materially and adversely
affect our financial condition and results of operations.
RISKS RELATING TO
THE CORPORATION’S
BUSINESS
Certain funding sources may not be available to us, and our funding sources may
prove insufficient and/or costly to replace.
FirstBank
relies
primarily
on
customer
deposits,
the
issuance
of
brokered
CDs,
and
advances
from
the
FHLB
of
New
York
to
maintain its lending
activities and to replace
certain maturing liabilities.
As of December 31,
2024, we had $478.1
million in brokered
CDs outstanding, representing approximately 3% of
our total deposits. Approximately $226.1 million, or 47%
in brokered CDs mature
over the twelve months
ending December 31, 2025, and
the average remaining term to
maturity of the brokered CDs outstanding
as of
December 31, 2024 was approximately 1.5
years.
None of these brokered CDs are callable at the Corporation’s
option. In addition, the
Corporation had
$500.0 million
of long-term
FHLB advances
outstanding as
of December
31, 2024,
with an
average remaining
term
to maturity of 1.48 years.
Although FirstBank has historically been
able to replace maturing deposits and
advances, we may not be able
to replace these funds
in the future if our financial condition or general market
conditions change. If we are unable to maintain access to funding
sources, our
results of operations and liquidity would be adversely affected.
Alternate
sources
of
funding
may
carry
higher
costs
than
sources
currently
utilized.
If
we
are
required
to
rely
heavily
on
more
expensive funding sources, profitability would be adversely affected.
We
may
determine
to
seek
debt
financing
in
the
future
to
achieve
our
long-term
business
objectives.
Additional
borrowings,
if
sought, may not be available to us, or if available, may
not be on acceptable terms. The availability of additional
financing will depend
on
a
variety
of
factors,
such
as
market
conditions,
the
general
availability
of
credit,
our
credit
ratings
and
our
credit
capacity.
In
addition,
FirstBank may seek to sell loans as an additional source of liquidity.
If additional financing sources are unavailable or are not
available on acceptable terms, our profitability and future prospects could
be adversely affected.
Downgrades in our credit ratings could further increase the cost of borrowing
funds.
The
Corporation’s
ability to
access new
non-deposit
sources of
funding
could be
adversely
affected
by downgrades
in our
credit
ratings. The Corporation’s
liquidity is to a
certain extent contingent upon
its ability to obtain
external sources of funding
to finance its
operations. The
Corporation’s
current credit
ratings and
any downgrades
in such
credit ratings
can hinder
the Corporation’s
access to
new
forms
of
external
funding
and/or
cause
external
funding
to
be
more
expensive,
which
could
in
turn
adversely
affect
results
of
operations.
We depend on
cash dividends from FirstBank to meet our cash obligations.
As a holding company,
dividends from FirstBank, our banking subsidiary,
have provided a substantial portion of our cash flow used
to
service
the
interest
payments
on
our
TRuPs
and
other
obligations.
FirstBank
is
limited
by
law
in
its
ability
to
make
dividend
payments
and other
distributions
to us
based on
its earnings
and
capital position.
A failure
by
FirstBank
to generate
sufficient
cash
flow to make dividend payments to us may have a negative impact on our results of
operations and financial condition.
Our level of non-performing assets may adversely affect our future results of
operations.
Although non-performing
assets decreased by
$7.6 million to $118.3
million as of December
31, 2024, or 6%,
from $125.9 million
as of
December
31,
2023,
we continue
to
have
a
relevant
amount
of
nonaccrual
loans.
If
we
are
unable
to
effectively
maintain
the
quality of our loan portfolio, our financial condition and results of operations
may be materially and adversely affected.
27
Our
ACL
may
not
be
adequate
to
cover
actual
losses,
and
we
may
be
required
to
materially
increase
our
ACL,
which
may
adversely affect our capital ratios, financial condition and results of
operations.
We are subject, among
other things, to the risk of loss from loan defaults and
foreclosures with respect to the loans we originate and
purchase. We
recognize periodic
credit loss
expenses on
loans, which
leads to
reductions in
our income
from operations,
in order
to
maintain
our ACL
on loans
at a
level that
our management
deems to
be appropriate
based upon
an assessment
of the
quality
of the
loan and lease portfolios.
Management may fail to
accurately estimate the level of
credit losses or may
have to increase our
credit loss
expense
on
loans in
the
future as
a
result
of
new
information
regarding
existing
loans,
future
increases
in
nonaccrual
loans
beyond
what
was
forecasted,
foreclosure
actions
and
loan
modifications,
changes
in
current
and
expected
economic
and
other
conditions
affecting
borrowers
or
for
other
reasons
beyond
our
control.
In
addition,
the
bank
regulatory
agencies
periodically
review
the
adequacy
of
our
ACL
on
loans
and
may
require
an
increase
in
the
credit
loss
expense
on
loans
or
the
recognition
of
additional
classified loans and loan charge-offs, based on
judgments that differ from those of management.
The level
of the
ACL reflects
management’s
estimates based
upon various
assumptions and
judgments as
to specific
credit risks;
evaluation of
industry concentrations;
loan loss
experience; current
loan portfolio
quality; present
economic, political
and regulatory
conditions;
unidentified
losses inherent
in the
current
loan portfolio
and reasonable
and supportable
forecasts. The
determination
of
the
appropriate
level
of
the
ACL
on
loans
inherently
involves
a
high
degree
of
subjectivity
and
requires
management
to
make
significant estimates and judgments
regarding current credit risks
and future trends, all
of which may undergo
material changes. If our
estimates
prove
to
be
incorrect,
our
ACL
on
loans
may
not
be
sufficient
to
cover
losses
in
our
loan
portfolio
and
our
credit
loss
expense on loans could increase substantially.
In addition, any increases in our credit loss expense on
loans or any loan losses in excess of our ACL on loans could have a material
adverse effect on our future capital ratios, financial condition
and results of operations.
The Corporation’s force-placed
insurance policies could be disputed by the customer.
The Corporation
maintains force-placed
insurance policies
that have
been put
into place
when a
borrower’s
insurance policy
on a
property has been canceled,
lapsed or was deemed
insufficient and the
borrower did not
secure a replacement policy.
A borrower may
make a
claim against
the Corporation
under such
force-placed
insurance policy,
and the
failure of
the Corporation
to resolve
such a
claim
to
the
borrower’s
satisfaction
may
result
in
a
dispute
between
the
borrower
and
the
Corporation,
which
if
not
adequately
resolved, could have an adverse effect on the Corporation.
Defective and repurchased loans may harm our business and financial condition.
In
connection
with
the
sale
and
securitization
of
loans,
we
are
required
to
make
a
variety
of
customary
representations
and
warranties relating
to the
loans sold
or securitized.
Our obligations
with respect
to these
representations and
warranties are
generally
outstanding
for
the
life
of
the
loan,
and
relate
to,
among
other
things,
the
following:
(i)
compliance
with
laws
and
regulations;
(ii)
underwriting
standards;
(iii)
the
accuracy
of
information
in
the
loan
documents
and
loan
files;
and
(iv)
the
characteristics
and
enforceability of the loan.
A loan that
does not comply
with the representations
and warranties made
may take longer
to sell, may impact
our ability to obtain
third-party
financing
for
the
loan,
and
may
not
be
saleable
or
may
be
saleable
only
at
a
significant
discount.
If
such a
loan
is
sold
before
we
detect
non-compliance,
we
may
be
obligated
to repurchase
the
loan
and
bear
any
associated
loss directly,
or
we
may
be
obligated
to
indemnify
the purchaser
against
any
loss,
either
of
which
could
reduce
our cash
available
for
operations
and
liquidity.
Management
believes
that
it has
established
controls
to
ensure
that
loans
are
originated
in
accordance
with
the
secondary
market’s
requirements, but certain employees may make mistakes or may deliberately
violate our lending policies.
Our controls and procedures
may fail or be circumvented,
our risk management policies and
procedures may be inadequate
and
operational risks could adversely affect our consolidated
results of operations.
We
may fail to
identify and manage
risks related to a
variety of aspects
of our business, including,
but not limited
to, liquidity risk;
interest rate
risk; market
risk; credit
risk; operational
risk; legal,
regulatory and
compliance risk;
reputational risk;
model risk;
capital
risk;
strategic
risk;
and
information
technology
and cybersecurity
risk.
We
have
adopted
and
periodically
improve
various
controls,
procedures,
policies and
systems to
monitor
and
manage risk.
Any improvements
to our
controls,
procedures,
policies
and
systems,
however,
may not
be adequate
to identify
and manage
the risks in
our various
businesses. If
our risk
framework is
ineffective,
either
because it fails to
keep pace with changes
in the financial markets
or our businesses or
for other reasons,
we could incur losses,
suffer
reputational damage, or find ourselves out of compliance with applicable
regulatory mandates or expectations.
We may also be
subject to disruptions from external events, such as natural disasters and
cyber-attacks, which could cause delays or
disruptions
to
operational
functions,
including
information
processing
and
financial
market
settlement
functions.
In
addition,
our
customers,
vendors
and
counterparties
could
suffer
from
such
events.
Should
these
events
affect
us,
or
the
customers,
vendors
or
28
counterparties with
which we
conduct business,
our consolidated
results of
operations could
be negatively
affected. When
we record
balance
sheet
reserves
for
probable
loss
contingencies
related
to
operational
losses,
we
may
be
unable
to
accurately
estimate
our
potential
exposure,
and
any
reserves
we
establish
to
cover
operational
losses
may
not
be
sufficient
to
cover
our
actual
financial
exposure, which
may have
a material
impact on
our consolidated
results of
operations or
financial condition
for the
periods in
which
we recognize the losses.
Our failure to attract and retain a qualified workforce could harm our overall business
and results of operations.
The Corporation’s
success depends,
in large
part, on its
ability to attract
and retain
skilled, experienced personnel.
Competition for
qualified
candidates
in
the
activities
and
markets
that
the
Corporation
and
FirstBank
serves
is
intense,
and
while
the
Corporation
invests significantly
in the training
and development of
its employees,
it may not
be able to
hire people or
to retain them.
In addition,
high inflation
has impacted
both cost
structure and
employee demand
for wage
growth, which
may lead
to sustained
higher turnover
rates.
If
the
Corporation
is
unable
to
retain
its
most
qualified
employees,
its
performance
and
competitive
positioning
could
be
materially adversely affected.
Our businesses may be adversely affected by litigation.
We
have, in
the past,
been party
to claims
and legal
actions by
our customers,
or subject
to regulatory
supervisory actions
by the
government on
behalf of
customers, relating
to our
performance of
fiduciary or
contractual responsibilities.
In the
past, we
have also
been
subject
to
securities
class
action
litigation
by
our
shareholders
and
we
have
also
faced
employment
lawsuits
and
other
legal
claims. In
any future
claims or
actions, demands
for substantial
monetary damages
may be
asserted against
us, resulting
in financial
liability
or
an
adverse
effect
on
our
reputation
among
investors
or
on
customer
demand
for
our
products
and
services.
A
securities
class
action
suit
against
us
in
the
future
could
result
in
substantial
costs,
potential
liabilities
and
the
diversion
of
management’s
attention
and
resources.
We
may
be
unable
to
accurately
estimate
our
exposure
to
litigation
risk
when
we
record
balance
sheet
reserves for probable loss contingencies.
As a result, reserves we establish to
cover any settlements or judgments may
not be sufficient
to
cover
our
actual
financial
exposure,
which
has
occurred
in
the
past
and
may
occur
in
the
future,
resulting
in
a
material
adverse
impact on our consolidated results of operations or financial condition.
In
the
ordinary
course
of
our
business,
we
are
also
subject
to
various
regulatory,
governmental
and
law
enforcement
inquiries,
investigations and
subpoenas. These
may be
directed generally
to participants
in the
businesses in
which we
are involved
or may
be
specifically directed
at us. In
regulatory enforcement
matters, claims for
disgorgement, the
imposition of penalties
and the imposition
of other remedial sanctions are possible.
The resolution
of legal
actions or
regulatory matters,
when unfavorable,
has had,
and could
in the
future have,
a material
adverse
effect on our consolidated results of operations for
the quarter in which such actions or matters are resolved or a reserve is established.
Our businesses may be negatively affected by adverse publicity or
other reputational harm.
Our relationships
with many of
our customers
are predicated upon
our reputation
as a fiduciary
and a service
provider that adheres
to
the
highest
standards
of
ethics,
service
quality
and
regulatory
compliance.
Adverse
publicity,
regulatory
actions,
litigation,
operational failures, the failure to meet customer expectations and other
issues with respect to one or more of our businesses, including
FirstBank as our banking
subsidiary, could
materially and adversely affect
our reputation, or our ability
to attract and retain customers
or obtain
sources of
funding for
the same
or other
businesses. Preserving
and enhancing
our reputation
also depends
on maintaining
systems and procedures that
address known risks and regulatory
requirements, as well as our
ability to identify and mitigate
additional
risks
that
arise
due
to
changes
in
our
businesses,
the
market
places
in
which
we
operate,
the
regulatory
environment
and
customer
expectations.
If we
fail to
promptly address
matters that
bear on
our reputation,
our reputation
may be
materially adversely
affected
and our business may suffer.
Any impairment of our goodwill or other intangible assets may adversely affect
our operating results.
We
review
goodwill
for
impairment
annually
and
assess
other
intangible
assets
periodically.
If
goodwill
or
other
intangibles
are
determined
to
be
impaired,
we
may
be
required
to
record
a
charge
to
earnings.
Impairment
risk
factors
include
deterioration
in
financial
performance
of
the
reporting
unit,
declining
market
valuation
of
the
Corporation
or
comparable
institutions,
and
adverse
economic
conditions
impacting
expected
cash
flows.
During
the
fourth
quarter
of
2024,
a
qualitative
goodwill
impairment
analysis
determined that the fair value of our reporting units exceeded their
carrying value; therefore, no quantitative impairment was recorded.
As
of
December
31,
2024,
our
goodwill
book
value
was
$38.6
million,
all
recorded
at
FirstBank.
Future
goodwill
impairments
could
reduce
earnings
and
affect
FirstBank’s
ability
to
pay
dividends
to
the
Corporation,
subject
to
regulatory
approval.
While
a
goodwill impairment would not impact our tangible book value or regulatory
capital, it could reduce reported earnings.
29
Recognition of deferred tax assets is dependent upon the generation of future taxable
income by the Bank.
As
of
December
31,
2024,
the
Corporation
had
a
deferred
tax
asset
of
$136.4
million
(net
of
a
valuation
allowance
of
$119.1
million, including
a valuation
allowance of
$98.5 million
against the
deferred
tax assets
of FirstBank).
Under the
PR Tax
Code, the
Corporation
and its
subsidiaries, including
FirstBank, are
treated as
separate taxable
entities and
are not
entitled to
file consolidated
tax returns.
Accordingly,
in order
to obtain
a tax
benefit from
a 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 commencing after
December 31, 2012
is 10 years. Accounting
for income taxes requires
that companies
assess whether a
valuation allowance
should be recorded
against their deferred
tax asset based
on an assessment
of the amount
of the
deferred
tax
asset
that
is
more
likely
than
not
to
be
realized.
Due
to
significant
estimates
utilized
in
determining
the
valuation
allowance
and
the
potential
for
changes
in
facts
and
circumstances
in
the
future,
the
Corporation
may
not
be
able
to
reverse
the
remaining valuation allowance or may need to increase its current deferred
tax asset valuation allowance.
The Corporation’s
judgments regarding tax accounting
policies and the resolution of
tax disputes may impact the
Corporation’s
earnings and cash
flow, and
changes in the tax
laws of multiple
jurisdictions can materially
affect our operations,
tax obligations,
and effective tax rate.
Significant
judgment
is
required
in
determining
the
Corporation’s
effective
tax
rate
and
in
evaluating
its
tax
positions.
The
Corporation
provides
for
uncertain
tax
positions
when
such
tax
positions
do
not
meet
the
recognition
thresholds
or
measurement
criteria prescribed by applicable generally accepted accounting principles in
the United States (“GAAP”).
Fluctuations in federal,
state, local, and foreign
taxes or a change
to uncertain tax positions,
including related interest
and penalties,
may impact
the Corporation’s
effective tax
rate. When particular
tax matters arise,
a number
of years may
elapse before such
matters
are audited
and finally
resolved. In
addition,
the Puerto
Rico Department
of Treasury
(“PRTD”),
the U.S.
Internal
Revenue Service
(“IRS”),
and
the
tax
authorities
in
the
jurisdictions
in
which
we
operate
may
challenge
our
tax
positions
and
we
may
estimate
and
provide
for
potential liabilities
that may
arise out
of tax
audits to
the extent
that uncertain
tax positions
fail to
meet the
recognition
standard under
applicable GAAP.
Unfavorable resolution
of any
tax matter
could increase
the effective
tax rate
and could
result in
a
material increase in our tax expense. Resolution of a tax issue may require
the use of cash in the year of resolution.
First BanCorp. is subject
to Puerto Rico income
tax on its income
from all sources. 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.
The USVI
jurisdiction
imposes
income
taxes
based
on
the
U.S.
Internal
Revenue
Code
under
the
“mirror
system”
established
by
the
Naval
Service
Appropriations Act of 1922. However,
the USVI jurisdiction also imposes an additional 10% surtax on the USVI tax liability,
if any.
These
tax
laws
are
complex
and
subject
to
different
interpretations.
We
must
make
judgments
and
interpretations
about
the
application
of
these
inherently
complex
tax
laws
when
determining
our
provision
for
income
taxes,
our
deferred
tax
assets
and
liabilities, and
our valuation
allowance. In
addition, legislative
changes, particularly
changes in
tax laws,
could adversely
impact our
results of operations.
Changes in applicable
tax laws in
Puerto Rico, the
U.S., or other
jurisdictions or tax
authorities’ new interpretations
could result
in
increases in our overall taxes and the Corporation’s
financial condition or results of operations may be adversely impacted.
Our ability to use our NOL carryforwards may be limited.
The Corporation
has U.S.
and USVI
sourced NOL
carryforwards. Section
382 of
the U.S.
Internal Revenue
Code (“Section
382”)
limits the
ability to
utilize U.S.
and USVI
NOLs for income
tax purposes,
respectively,
at such
jurisdictions following
an event
of an
ownership
change. Generally,
an “ownership
change” occurs
when
certain shareholders
increase their
aggregate ownership
by more
than 50
percentage points
over their
lowest ownership
percentage over
a three-year
testing period.
Section 1034.04(u)
of the
PR Tax
Code
is significantly
similar
to Section
382.
However,
Ac No.
60 of
2019 amended
the PR
Tax
Code
to repeal
the corporate
NOL
carryover limitations upon change in control for taxable years beginning
after December 31, 2018.
Upon the occurrence of a Section 382 ownership change, the use of NOLs
attributable to the period prior to the ownership change is
subject
to
limitations
and
only
a
portion
of
the
U.S.
and
USVI
NOLs,
as
applicable,
may
be
used
by
the
Corporation
to
offset
the
annual
U.S.
and
USVI
taxable
income,
if
any.
In
2017,
the
Corporation
completed
a
formal
ownership
change
analysis
within
the
meaning of Section 382 covering a
comprehensive period, and concluded that
an ownership change, for U.S. and
USVI purposes only,
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.
It is possible that
the utilization of our
U.S. and USVI NOLs
could be further limited
due to future changes
in our stock ownership,
as
a
result
of
either
sales
of
our
outstanding
shares
or
issuances
of
new
shares
that
could
separately
or
cumulatively
trigger
an
30
ownership
change
and,
consequently,
a
Section
382
limitation.
Any
further
Section
382
limitations
may
result
in
greater
U.S.
and
USVI tax
liabilities
than
we would
incur
in the
absence
of such
a limitation
and
any
increased liabilities
could
adversely affect
our
earnings and cash
flow.
We
may be able to
mitigate the adverse
effects associated with
a Section 382
limitation in the U.S.
and USVI
to the extent that we could credit any resulting
additional U.S. and USVI tax liability against our tax liability
in Puerto Rico. However,
our
ability
to
reduce
our
Puerto
Rico
tax
liability
through
such
a
credit
or
deduction
will
depend
on
our
tax
profile
at
each
annual
taxable period, which is dependent on various factors.
RISKS RELATING TO
CYBERSECURITY AND TECHNOLOGY
Cyber-attacks,
system
risks
and
data
security
breaches
to
our
computer
systems
and
networks
or
those
of
third-party
service
providers could adversely
affect our
ability to conduct
business, manage our
exposure to risk
or expand our
business, result in
the
disclosure
or
misuse
of
confidential
or
proprietary
information,
increase
our
costs
to
maintain
and
update
our
operational
and
security systems and infrastructure, and present significant reputational, legal
and regulatory costs.
Our
business
is
highly
dependent
on
the
security,
controls
and
efficacy
of
our
infrastructure,
computer
and
data
management
systems,
as
well
as
those
of
our
customers,
suppliers,
and
other
third
parties.
To
access
our
network,
products
and
services,
our
employees,
customers, suppliers,
and other
third parties,
including downstream
service providers,
the financial
services industry
and
financial
data
aggregators,
with
whom
we
interact,
on
whom
we
rely
or
who
have
access
to
our
customers’
personal
or
account
information, increasingly
use personal mobile
devices or computing
devices that are
outside of our
network and control
environments
and
are
subject
to
their
own
cybersecurity
risks.
Our
business
relies
on
effective
access
management
and
the
secure
collection,
processing,
transmission,
storage and
retrieval
of confidential,
proprietary,
personal and
other
information
in our
computer
and data
management systems and networks, and in the computer and data management
systems and networks of third parties.
Information
security
risks
for
financial
institutions
have
significantly
increased
in
recent
years,
especially
given
the
increasing
sophistication and activities
of organized
computer criminals, hackers,
and terrorists and
our expansion of
online and digital
customer
services to
better meet
our
customer’s
needs.
These threats
may
derive
from fraud
or malice
on the
part of
our employees
or third-
party
providers
or
may
result
from
human
error
or
accidental
technological
failure.
These
threats
include
cyber-attacks,
such
as
computer viruses,
malicious or
destructive code,
phishing attacks,
denial of
service attacks, or
other security
breach tactics
that could
result
in
the
unauthorized
release,
gathering,
monitoring,
misuse,
loss,
destruction,
or
theft
of
confidential,
proprietary,
and
other
information, including
intellectual property,
of ours, our
employees, our customers,
or third parties,
damages to systems,
or otherwise
material
disruption
to
our
or
our
customers’
or
other
third
parties’
network
access
or
business
operations,
both
domestically
and
internationally.
While we maintain a Corporate
Information Security Program that
continuously monitors cyber-related risks
and ultimately ensures
protection
for
the
processing,
transmission,
and
storage
of confidential,
proprietary,
and other
information
in our
computer
systems
and networks, as well as a
Vendor
Management Program to oversee third
party and vendor risks, there is
no guarantee that we will not
be exposed to or be affected by a cybersecurity incident.
Cyber threats are rapidly
changing, and future attacks or
breaches could lead to
other security breaches of
the networks, systems, or
devices that
our customers
use to
access our
integrated products
and services,
which, in
turn, could
result in
unauthorized disclosure,
release, gathering,
monitoring, misuse,
loss or
destruction of
confidential, proprietary,
and other
information (including
account data
information) or
data security
compromises. As
cyber threats
continue to
evolve, we
may be
required to
expend significant
additional
resources
to
modify
or
enhance
our
protective
measures,
investigate,
and
remediate
any
information
security
vulnerabilities
or
incidents
and
develop
our
capabilities
to
respond
and
recover.
The
full
extent
of
a
particular
cyberattack,
and
the
steps
that
the
Corporation may
need to take
to investigate
such attack, may
not be immediately
clear, and
it could take
considerable additional
time
for
us
to
determine
the complete
scope
of information
compromised,
at which
time
the impact
on the
Corporation
and
measures
to
recover and restore to
a business-as-usual state may
be difficult to assess.
These factors may also
inhibit our ability to provide
full and
reliable information about the cyberattack to our customers, third-party
vendors, regulators, and the public.
A successful penetration or circumvention of our system security,
or the systems of our customers, suppliers, and other third parties,
could cause us serious negative consequences, including significant
operational, reputational, legal, and regulatory costs and concerns.
Any of these
adverse consequences could
adversely impact our
results of operations,
liquidity,
and financial condition.
In addition,
our
insurance
policies
may
not
be
adequate
to
compensate
us
for
the
potential
costs
and
other
losses
arising
from
cyber-attacks,
failures of
information technology
systems, or
security breaches,
and such
insurance policies
may not
be available
to us in
the future
on
economically
reasonable
terms, or
at
all.
Insurers
may
also
deny
us
coverage
as to
any
future
claim.
Any of
these
results
could
harm our growth prospects, financial condition, business, and reputation.
31
Our
operational
or
security
systems
or
infrastructure,
or
those
of
third
parties,
could
fail
or
be
breached.
Any
such
future
incidents could
potentially disrupt
our business
and adversely
impact our
results of
operations, liquidity,
and financial
condition,
as well as cause legal or reputational harm.
The potential
for operational
risk exposure
exists throughout our
business and,
as a result
of our
interactions with, and
reliance on,
third
parties,
is
not
limited
to
our
own
internal
operational
functions.
Our
operational
and
security
systems
and
infrastructure,
including our computer systems,
data management, and internal
processes, as well as those
of third parties that
perform key aspects of
our
business
operations,
such
as
data
processing,
information
security,
recording
and
monitoring
transactions,
online
banking
interfaces and services,
internet connections, and
network access are
integral to our
performance. We
rely on our
employees and third
parties in
our day-to-day
and ongoing
operations,
who may,
because of
human error,
misconduct,
malfeasance,
failure, or
breach of
our or of third-party systems or infrastructure, expose us to risk.
Our ability to
implement backup systems
and other safeguards
with respect to
third-party systems is more
limited than with
respect
to
our
own
systems.
In
addition,
our
financial,
accounting,
data
processing,
backup,
or
other
operating
or
security
systems
and
infrastructure may fail to
operate properly or become disabled,
damaged, or otherwise compromised
as a result of a number
of factors,
including events that are wholly or partially beyond
our control. We
may need to take our systems offline if they
become infected with
malware or
a computer
virus or
because of
another form
of cyberattack.
If backup
systems are
utilized, they
may not
process data
as
quickly as
our primary
systems and
some data
might not
have been
saved to
backup systems,
potentially resulting
in a
temporary
or
permanent loss of such data.
We
frequently update
our systems
to support
our operations
and growth
and to
remain compliant
with applicable
laws, rules,
and
regulations.
In
addition,
we
review
and
strengthen
our
security
systems
in
response
to any
cyber
incident.
Such
strengthening
may
entail
significant
costs
and
risks
associated
with
implementing
new
systems
and
integrating
them
with
existing
ones,
including
potential
business
interruptions
and
the
risk
that
this
strengthening
may
not
be
entirely
effective.
Implementation
and
testing
of
controls
related
to
our
computer
systems,
security
monitoring,
and
retaining
and
training personnel
required
to
operate our
systems
also entail significant
costs. Such operational
risk exposures could
adversely impact
our operations,
liquidity,
and financial condition,
as well as
cause reputational
harm. In
addition, we may
not have adequate
insurance coverage
to compensate
for losses from
a major
interruption.
We
must respond
to
rapid
technological
changes,
and these
changes
may
be
more difficult
or
expensive
than
anticipated.
We
may also be negatively
affected if we fail
to identify and address
operational risks associated
with the introduction of
or changes to
products and services, or if we fail to respond to emerging technologies that seek to
displace traditional financial services.
Like
most
financial
institutions,
FirstBank
significantly
depends
on
technology
to
deliver
its
products
and
other
services
and
to
otherwise conduct
business. To
remain technologically
competitive and
operationally efficient,
FirstBank invests
in system
upgrades,
new
technological
solutions,
and
other
technology
initiatives.
If
competitors
introduce
new
products
and
services
embodying
new
technologies,
or if
new industry
standards and
practices emerge,
our existing
product
and service
offerings,
technology and
systems
may become obsolete.
Furthermore, if we fail
to adopt or develop
new technologies or
to adapt our products
and services to emerging
industry standards,
we may
lose current
and future
customers, which
could have
a material
adverse effect
on our
business, financial
condition and
results of
operations. The
financial services
industry is
changing rapidly
and, in
order to
remain competitive,
we must
continue
to
enhance
and
improve
the
functionality
and
features
of
our
products,
services
and
technologies.
These
changes
may
be
more difficult or expensive to implement than we anticipate.
We
may
not
be
able
to
effectively
implement
new
technology-driven
products
and
services
or
be
successful
in
marketing
these
products
and
services to
our
customers.
Failure to
successfully
keep
pace with
technological
change
affecting
the financial
services
industry could have a material adverse effect on our business,
financial condition and results of operations.
Additionally,
some
recent
innovations
may
trend
toward
replacing
traditional
banks
as
financial
service
providers
rather
than
merely
augmenting
those
services.
For
example,
companies
which
claim
to
offer
applications
and
services
based
on
artificial
intelligence
are
beginning
to compete
much
more
directly
with
traditional
financial
services
companies
in
areas
involving
personal
advice, including
high-margin services
such as
financial planning
and wealth
management. The
low-cost, high-speed
nature of
these
“robo-advisor” services can
be especially attractive
to younger,
less-affluent clients
and potential clients,
as well as
persons interested
in “self-service” investment
management. Similarly,
inventions based on
blockchain technology
eventually may be
the foundation for
greatly enhancing
transactional security throughout
the banking industry,
but also eventually
may reduce the
need for banks
as secure
deposit-keepers
and
intermediaries.
Any
of
the
foregoing
consequences
could
materially
and
adversely
affect
our
businesses
and
results of operations.
32
The Corporation is subject
to stringent and changing
privacy laws, regulations,
and standards as well
as policies, contracts, and
other
obligations
related
to
data
privacy
and
security.
Our
failure
to
comply
with
privacy
laws and
regulations,
as
well as
other
legal obligations, could have a material adverse effect on our business.
State,
federal,
and
foreign
governments
are
increasingly
enacting
laws
and
regulations
governing
the
collection,
use,
retention,
sharing, transfer,
and security
of personally
identifiable information
and data.
A variety
of federal,
state, local,
and foreign
laws and
regulations,
orders,
rules,
codes,
regulatory
guidance,
and
certain
industry
standards
regarding
privacy,
data
protection,
consumer
protection,
information
security,
and
the
processing
of
personal
information
and
other
data
apply
to
our
business.
State
laws
are
changing
rapidly,
and
new
legislation
proposed
or
enacted
in
a
number
of
other
states
imposes,
or
has
the
potential
to
impose,
additional obligations
on companies
that process
confidential, sensitive
and personal
information, and
will continue
to shape
the data
privacy
environment
nationally.
The
U.S.
federal
government
is
also
focused
on
privacy
matters.
Any
failure
by
us
or
any
of
our
business
partners
to
comply
with
applicable
laws,
rules,
and
regulations
may
result
in
investigations
or
actions
against
us
by
governmental entities, private
claims and litigation, fines,
penalties or other liabilities.
Such events may increase
our expenses, expose
us to
liabilities, and
impair our reputation,
which could have
a material
adverse effect
on our business.
While we
aim to comply
with
applicable data protection
laws and obligations
in all material
respects, there
is no assurance
that we will
not be subject
to claims that
we
have
violated
such
laws
and
obligations,
will
be
able
to
successfully
defend
against
such
claims,
or
will
not
be
subject
to
significant fines
and penalties
in the
event of
non-compliance. Additionally,
to the
extent multiple
state-level laws
are introduced
in
the U.S. with
inconsistent or conflicting
standards and there
is no federal
law to preempt
such laws, compliance
with such laws
could
be difficult and costly,
or impossible, to achieve, and we could be subject to fines and penalties in the event
of non-compliance.
The
current
U.S.
presidential
administration
has
advocated
for
reduction
of
financial
services
regulation.
This
may
include
amendments to
the Dodd-Frank Act
and other federal
banking laws, as
well as structural
changes to, or
the elimination of,
the CFPB.
Consequently,
rulemaking and regulatory
guidance previously issued
by such
agencies or prior
administrations may
be rolled back
or
modified. The
ultimate impact
of new
or amended
federal banking
statutes, or
changes to
certain federal
agencies, like
the CFPB,
is
uncertain at this time.
RISK RELATING
TO THE REGULATION
OF OUR INDUSTRY
We are subject to certain regulatory
restrictions that may adversely affect our operations.
We
are subject
to supervision
and regulation
by the
Federal Reserve
Board and
the FDIC.
We
are a
bank holding
company and
a
financial holding
company under
the Bank
Holding Company
Act of
1956, as
amended. The
Bank is
also subject
to supervision
and
regulation by OCIF.
Under
federal
law,
financial
holding
companies
are
permitted
to
engage
in
a
broader
range
of
“financial”
activities
than
those
permitted
to
bank
holding
companies
that
are
not
financial
holding
companies.
A
financial
holding
company
that
ceases
to
meet
certain
standards
is
subject
to
a
variety
of
restrictions,
depending
on
the
circumstances,
including
the
prohibition
from
undertaking
new activities
or acquiring
shares or
control of
other companies.
If we
fail to
comply with
the requirements
from our
regulators,
we
may
become
subject
to
regulatory
enforcement
action
and
other
adverse
regulatory
actions
that
might
have
a
material
and
adverse
effect on our operations.
The FDIC insures
deposits at
FDIC-insured depository
institutions up
to certain limits
(currently,
$250,000 per depositor
account).
The FDIC charges insured
depository institutions premiums to maintain
the DIF.
In the event of a bank
failure, the FDIC takes control
of a failed
bank and, if
necessary,
pays all insured
deposits up to
the statutory deposit
insurance limits using
the resources of
the DIF.
The FDIC
is required
by law to
maintain adequate
funding of
the DIF,
and the
FDIC may
increase premium
assessments to
maintain
such
funding.
The
Dodd-Frank
Wall
Street
Reform
and
Consumer
Protection
Act
(the
“Dodd-Frank
Act”)
requires
the
FDIC
to
increase the DIF’s
reserves against future losses, which will
require institutions with assets greater
than $10 billion, such as FirstBank,
to bear an increased responsibility for funding the prescribed reserve to support
the DIF.
The FDIC
may further
increase FirstBank’s
premiums or
impose additional
assessments or
prepayment requirements
in the
future.
The Dodd-Frank Act removed the statutory cap for the reserve ratio, leaving
the FDIC free to set this cap going forward.
Our
compensation
practices
are
subject
to
oversight
by
the
Federal
Reserve
Board
and
the
FDIC.
Any
deficiencies
in
our
compensation
practices
may
be
incorporated
into
our
supervisory
ratings,
which
can
affect
our
ability
to
make
acquisitions
or
perform other actions.
Our compensation
practices are
subject to
oversight
by the
Federal
Reserve
Board
and
the FDIC.
As discussed
in Part
I, Item
1,
“Business” of this
Form 10-K,
the Corporation
currently is subject
to the interagency
guidance governing
the incentive compensation
activities of regulated
banks and bank
holding companies,
and other financial
regulators have also
implemented regulations
regarding
compensation
practices.
Our
failure
to
satisfy
these
restrictions
and
guidelines
could
expose
us
to
adverse
regulatory
criticism,
lowered supervisory ratings, and restrictions on our operations and acquisition activities.
33
We
are
subject
to
regulatory
capital
adequacy
guidelines,
and,
if
we
fail
to
meet
these
guidelines,
our
business
and
financial
condition will be adversely affected.
We
are subject
to stringent
regulatory
capital requirements.
Although
the Corporation
and FirstBank
met general
well-capitalized
capital ratios
as of
December 31,
2024, and
we expect
both companies
will continue
to exceed
the minimum
risk-based and
leverage
capital
ratio
requirements
for
well-capitalized
status
under
the
current
capital
rules,
we
cannot
assure
that
we
will
remain
at
such
levels.
If
we
fail
to
meet
these
minimum
capital
guidelines
and
other
regulatory
requirements,
our
business
and
financial
condition
will be materially and adversely affected.
If we fail to maintain certain capital
levels or are deemed not well managed under
regulatory
exam procedures,
or if we
experience certain
regulatory violations,
our status as
a financial
holding company,
and our ability
to offer
certain financial products will be compromised and our financial condition
and results of operations could be adversely affected.
Monetary
policies
and
regulations
of
the
Federal
Reserve
Board
could
adversely
affect
our
business,
financial
condition
and
results of operations.
In addition
to being
affected
by general
economic conditions,
our earnings
and growth
are affected
by the
policies of
the Federal
Reserve Board. An important
function of the Federal
Reserve Board is to regulate
the money supply and
credit conditions. Among the
instruments
used
by
the
Federal
Reserve
Board
to
implement
these
objectives
are
open
market
operations
in
U.S.
government
securities,
adjustments
of
the
discount
rate
and
changes
in
reserve
requirements
for
bank
deposits.
These
instruments
are
used
in
varying combinations to
influence overall economic
growth and the
distribution of credit,
bank loans, investments
and deposits. Their
use also affects interest rates charged on loans or paid
on deposits.
The monetary policies
and regulations of
the Federal Reserve
Board, which include
d, but were
not limited to,
multiple increases in
the federal
funds rate
to reduce inflation,
have had
a significant effect
on the
operating results
of commercial
banks and
are expected
to continue
to do
so in
the future.
The effects
of such
policies upon
our business,
financial condition
and results
of operations
have
been adverse in the past and may be adverse in the future.
We
are subject
to numerous
laws designed
to protect
consumers, including
the Community
Reinvestment Act
and fair
lending
laws, and failure to comply with these laws could lead to a wide variety of sanctions.
The
Community
Reinvestment
Act,
the
Equal
Credit
Opportunity
Act,
the
Fair
Housing
Act
and
other
fair
lending
laws
and
regulations impose nondiscriminatory
lending requirements on financial
institutions. The U.S. Department
of Justice and other
federal
agencies
are
responsible
for
enforcing
these
laws and
regulations.
A successful
regulatory
challenge
to
an
institution's performance
under the Community Reinvestment
Act, the Equal Credit
Opportunity Act, the Fair
Housing Act or any
of the other fair lending
laws
and regulations
could result in
a wide variety
of sanctions, including
damages and civil
money penalties, injunctive
relief, restrictions
on mergers and acquisitions
activity, restrictions
on expansion and restrictions on entering
new business lines. Private parties may
also
have the
ability to
challenge an
institution's performance
under fair
lending laws
in private
class action
litigation. Such
actions could
have a material adverse effect on our business, financial condition
and results of operations.
We
face
a
risk
of
noncompliance
and
enforcement
action
related
to
the
Bank
Secrecy
Act
and
other
anti-money
laundering
statutes and regulations.
The
Bank
Secrecy
Act,
the
USA
PATRIOT
Act,
and
other
laws
and
regulations
require
financial
institutions
to
institute
and
maintain
an
effective
anti-money
laundering
program
and
file
suspicious
activity
and
currency
transaction
reports
as
appropriate,
among
other
duties.
The
Financial
Crimes
Enforcement
Network
is
authorized
to
impose
significant
civil
money
penalties
for
violations
of
those
requirements
and
has
recently
engaged
in
coordinated
enforcement
efforts
with
the
individual
federal
banking
regulators, as well
as the U.S. Department
of Justice’s
Drug Enforcement Administration.
We
are also subject
to increased scrutiny
of
our compliance with
trade and economic sanctions
requirements and rules enforced
by OFAC.
If our policies, procedures
and systems
are deemed
deficient, we
would be
subject to
liability,
including fines
and regulatory
actions, which
may include
restrictions on
our
ability to pay dividends and the necessity to obtain regulatory
approvals to proceed with certain aspects of our business
plan, including
our acquisition plans. Failure
to maintain and implement adequate
programs to combat money laundering
and terrorist financing could
also have serious reputational consequences
for us. Any of these results
could have a material adverse
effect on our business, financial
condition and results of operations.
34
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
The Corporation recognizes
the significance of cybersecurity
in the financial
industry and the potential
risks associated, such
as the
risks arising from
the loss of confidentiality,
integrity,
or availability of
information systems.
The Corporation’s
processes to identify,
assess,
and
monitor
material
risks
from
cybersecurity
threats
are
part
of
its
Enterprise
Risk
Management
(“ERM”)
Program,
under
which
the
Corporation
has
managed as
part of
the overall
information technology
risk, under
the direction
of the
Corporate Security
Office (“CSO”)
led by
the
Corporate
Security
Officer
(“CSO Officer”),
who
directly
reports
to
the
Chief
Operations
Officer.
The
CSO
Officer
also
serves
as
Chief Information Security Officer (“CISO”).
The
CISP
outlines
the
Corporation’s
overall
vision,
direction,
and
governance
to
protect
the
confidentiality,
integrity,
and
availability
of
customer
information
and
seeks
to
prevent
unauthorized
access
as
required
by
regulatory
guidelines
and
industry
security best practices. The CISP
is based on well-renowned frameworks
such as the International Organizational
Standard ISO 27000
series and
the NIST
Cybersecurity Framework.
As such,
it serves as
a guide
for the
implementation of
security safeguards
across the
Corporation
and
its
subsidiaries.
The
CISP
also
addresses
cybersecurity
breaches
and
procedures
for
appropriate
response
efforts,
including
any
required
notification,
depending
on the
severity
of the
specific security
incident. In
addition,
the
CISP incorporates
a
risk-based approach
to ensure that
risk is
treated in
a consistent
and effective
matter and
is designed
to protect
classified information
to
prevent
disclosure
to
unauthorized
individuals;
prioritize
the
use
of
information
security
resources
by
concentrating
on
critical
business
applications;
develop
quality,
cost-effective,
and
reliable
systems;
ensure
the
proper
and
secure
disposal
of
sensitive
information; and implement adequate processes to ensure compliance.
The
ERM
Program
includes
a
Corporate
Incident
Response
Program,
which
features
a
risk-based
escalation
process
to
manage
corporate
incidents,
including
cybersecurity
incidents,
and
notify
the
Risk
Committee
of
the
Board
of
Directors
and
applicable
stakeholders
as
appropriate.
The
Corporation
incorporates
the
Information
Technology
(“IT”)
Risk
Unit
of
the
ERM
Department,
which is comprised of several members such as IT
Risk Managers and the ERM Director who is part
of senior management, as well as
external expertise, in the review of
its processes, including an independent
internal assessment of cybersecurity measures
and controls.
The
Corporation
also
invests
in
threat
intelligence,
vulnerability
management,
and
incident
response
drills.
Furthermore,
all
of
the
Corporation’s
employees
and
consultants
with
access
to
the
Corporation’s
network
are
required
to
complete
a
comprehensive
cybersecurity
awareness
program
on
an
annual
basis.
Additionally,
awareness
and
training
on
information
technology
and
cybersecurity risk is provided to the Board on a regular basis.
The
Corporation
has
a
Vendor
Management
Program
and
a
risks
associated
with
conducting
business
with
third-party
vendors,
which
includes
the
requirement
for
third-party
vendors
to
vendors into tiers
based on the
inherent risk due
to the nature
of the relationship
with that vendor
to determine any
additional security
requirements commensurate to such level of risk.
The Corporation does not believe
that risks from cybersecurity threats or
attacks, including as a result of any
previous cybersecurity
incidents, have
2024.
While
the
Corporation
continues
to
closely
monitor
cyber
risk
and
has
implemented
processes
that
are
intended
to
assess,
identify,
and manage
material risks
from cybersecurity
threats, security
controls, no
matter how
well designed
or implemented,
may
only partially
mitigate and
not fully eliminate
these risks.
Events, when
detected by
security tools
or third parties,
may not
always be
immediately
understood
or
acted
upon.
See
Item
1A,
“Risk
Factors
–
Risks
Relating
to
Cybersecurity
and
Technology”
for
more
information on how cybersecurity risk could adversely affect the
Corporation, which should be read in conjunction with this Item 1C.
35
Governance
Responsibility for
risk oversight
and management
generally lies
with the
Corporation’s
Board of
Directors
.
To
effectively manage
oversight
of
the
CISP’s
governance
and
cybersecurity
risk
management,
the
Board
has
delegated
such
responsibility
to
the
Risk
Committee.
As part
of
its oversight,
the
Risk Committee
receives
reports
from
the
Executive
Risk Management
Committee
and
IT
Steering
Committee,
which
are
committees
at
the
management
level,
on
the
Corporation’s
cybersecurity
processes.
The
Corporate
Internal Audit Department
performs periodic audits of
the Corporation’s
information security practices and
presents them to the
Audit
Committee
of
the
Board.
The
periodicity
of
testing
is determined
by
the
Corporate
Internal
Audit
Department
based
on
their
risk
assessment.
Findings
from
internal
audit
procedures
are
reported
to
Management
and
the
Audit
Committee.
periodically
reports
to the
The Risk
Committee
with
updated
information
on
the
matters
discussed
in
the
Risk
Committee
meetings
as
it
relates
to
the
CISP
and
the
overall
information security
strategic direction
and evaluates
and approves
(if necessary)
reports presented
by executive
management related
to the information security strategic direction of the Corporation.
The
CSO,
led
by
the
CSO
Officer,
oversees
the
CISP,
its
development,
and
any
applicable
updates
in
response
to
changes
in
operations and other circumstances,
and reports on a quarterly
basis to the IT Steering
Committee and to the
Board’s Risk Committee.
The CSO Officer,
who has been in charge since
2016, has over 20 years of experience
in functional expertise concerning all
aspects of
information
security,
integrity
and
privacy
of
systems,
and
data
resources,
and
holds
several
relevant
licenses
and/or
certifications.
Also, certain
topics related
to information
security are
presented on
an ad
hoc basis
to the
Executive
Risk Management
Committee.
The CSO provides
the Board’s
Risk Committee regular
reports and engages in
discussions on the effectiveness
of the CISP,
including
risk mitigation
strategy and
progress. The
Board’s
Risk Committee
reviews and
approves the
CISP annually
and receives
a report
on
the security safeguards annually.
See “Risk Management – Risk Governance” for more information on the Corporation’s
risk governance structure.
36
Item 2. Properties
As of December 31, 2024, First BanCorp. has ownership in the following
principal buildings:
-
Headquarters –
Located at
First Federal
Building, 1519
Ponce de
León Avenue,
San Juan,
Puerto Rico.
Approximately 51%
of this 16-story office building is owned by the Corporation.
-
Service Center – Located
at 1130
Muñoz Rivera Avenue,
San Juan, Puerto
Rico. This facility,
which is fully occupied
by the
Corporation,
houses
over
1,000
employees
from
Human
Resources,
Data
processing
and
operations,
Administrative
Operation, Mortgage operations, collections, and Loss Mitigation, and
certain other departments.
-
Consumer Lending
Center –
Located at
876 Muñoz
Rivera Avenue,
San Juan,
Puerto Rico.
This three-story
facility is
fully
occupied
by the
Corporation
and
accommodates
a
retail
branch,
Money
Express
Headquarters,
Auto
Wholesale
and
Retail
Financing, and Leasing Financing, among others.
The Corporation
owns 18
retail branches
and 10
office centers,
other facilities,
and/or parking
lots. It
leases 87
branch premises,
loan
and
office
centers
and
other
facilities.
In
certain
situations,
financial
services
such
as
mortgage
and
insurance
businesses
and
commercial banking
services are
in the
same building
or branch.
All of
these premises
are in
Puerto Rico,
Florida, the
USVI and
the
BVI.
Management
believes
that
the
Corporation’s
properties
are
well
maintained
and
are suitable
for
the
Corporation’s
business
as
presently conducted.
Item 3. Legal Proceedings
Reference
is
made
to
Note
27
–
“Regulatory
Matters,
Commitments
and
Contingencies”
to
the
audited
consolidated
financial
statements included in Part II, Item 8 of this Form 10-K, which is incorporated
herein by reference.
Item 4. Mine Safety Disclosure.
Not applicable.
37
PART
II
Item 5. Market for Registrant’s Common Equity and Related
Stockholder Matters and Issuer Purchases of Equity Securities
INFORMATION ABOUT
MARKET AND HOLDERS
The Corporation’s
common stock
is traded
on the
New York
Stock Exchange
(“NYSE”) under
the symbol
FBP.
On February
21,
2025, there
were 415 holders
of record
of the Corporation’s
common stock,
not including
beneficial owners
whose shares are
held in
the name of brokers or other nominees.
As
of
December 31,
2024
and
2023,
the
Corporation
had
59,794,239
and
54,360,304
shares
held
as
treasury
stock, respectively.
Refer to
“Stock Repurchases”
for more
information on
common stock
repurchases during
the fourth
quarter of
2024 held
as treasury
stock.
DIVIDENDS
Since November 2018,
the Corporation has
made quarterly cash
dividend payments on
its shares of common
stock. On January
21,
2025, the Corporation announced that its Board of Directors
had declared a quarterly cash dividend of $0.18
per common share, which
represents
an
increase
of
$0.02
per
common
share,
or
a
13%
increase,
compared
to
its
most
recent
quarterly
dividend
paid
in
December 2024.
The dividend
is payable
on March
7, 2025
to shareholders
of record
at the
close of
business on
February 21,
2025.
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. Information
regarding restrictions
on dividends,
is set
forth in
Part I,
Item 1,
“Business -Supervision
and Regulation–
Dividend Restrictions” and incorporated herein by reference.
Under the PR Tax
Code, dividends paid by the Corporation are subject to tax withholding as follows:
Residents of Puerto Rico
A 15%
tax is
withheld on
dividends paid
to individuals,
trusts, and
estates, unless
the taxpayer
elects to
be taxed
at regular
rates.
Once
this election
is made,
it is
irrevocable.
The election
allows
the
taxpayer
to include
the
eligible dividends
received
in
ordinary
income and take a credit for the amount of tax withheld in excess, if any.
In certain cases, dividends may be included in the taxpayer’s
Alternative Minimum Tax
(“AMT”) calculation.
Nonresident U.S. Citizens
Dividends paid to a U.S.
citizen who is not a resident
of Puerto Rico are generally
subject to a 15% Puerto Rico
income tax, though
partial or total exemptions may apply under section 1062.08 of the PR Tax
Code.
Nonresident foreign
individuals (non-US citizens)
Dividends
paid
to any
individual who
are neither
United
States citizens
nor
Puerto
Rico residents
are generally
subject to
a 15%
Puerto Rico withholding tax.
Foreign Corporations and Partnerships
Entities
that
do
not
conduct
business
in
Puerto
Rico
are
subject
to
a
10%
Puerto
Rico
dividend
tax
withholding.
Entities
that
conduct business in Puerto Rico must report dividends as ordinary
income but are exempt from withholding.
AMT Considerations
Individuals
who are
residents of
Puerto
Rico may
be subject
to Puerto
Rico’s
AMT,
which can
include certain
categories of
tax-
exempt or
preferentially taxed
income, such
as dividends
on the
Corporation’s
common stock
and long-term
capital gains.
Investors
should consult with a tax professional regarding their specific AMT obligations
under Puerto Rico law.
38
STOCK REPURCHASES
Since April 2021, the Corporation’s
Board of Directors has announced repurchase program
authorizations totaling up to $1.1 billion
of
the
Corporation’s
outstanding
stock
and/or
junior
subordinated
debentures.
Repurchases
under
the
programs
may
be
executed
through open
market purchases,
accelerated
share repurchases,
privately
negotiated
transactions or
plans, including
plans complying
with Rule 10b5-1 under
the Exchange Act, and/or
redemption of junior subordinated
debentures. The Corporation has authorization
to
repurchase
$225
million
under
the
2023
stock
repurchase
program
and
$250
million
under
the
2024
stock
repurchase
program,
for
which it has
repurchased 5,846,872
shares of its
common stock at
an average price
of $17.10 for
a total cost
of $100.0 million
during
2024 and
5,080,832 shares
of its common
stock at
an average
price of
$14.76 for
a total cost
of $75.0
million during
2023. Also,
the
Corporation
redeemed
$100.0
million
of
junior
subordinated
debentures,
as
further
explained
in
Note
10
-
“Non-Consolidated
Variable
Interest Entities (“VIEs”) and
Servicing Assets” to the audited consolidated
financial statements included in Part
II, Item 8 of
this Form 10-K.
As of December
31, 2024, the
Corporation has remaining
authorization of $200.0
million. The amount
and timing of
repurchases will be
based on various
factors, including our
capital requirements,
market conditions (including
the trading price
of our
stock), and regulatory and legal considerations.
The
following
table
provides
information
in
relation
to
the
Corporation’s
purchases
of
shares
of
its
common
stock
during
the
quarter ended December 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
Approximate Dollar Value of
Shares That May Yet
be
Purchased Under The Plans or
Programs (in thousands)
(1)
October 1, 2024 - October 31, 2024
1,254
$
19.40
-
$
250,000
November 1, 2024 - November 30, 2024
-
-
-
250,000
December 1, 2024 - December 31, 2024
-
-
-
200,000
Total
1,254
(2)
-
(1)
As of December
31, 2024, the
Corporation was authorized
to purchase up
to $225 million
of the Corporation’s
common stock
under the 2023
stock repurchase
program. In addition,
the
Corporation was authorized
to purchase up to
$250 million that could
include repurchases of common
stock and/or junior subordinated
debentures under the
repurchase program that was
publicly
announced
on
July
22,
2024.
The
Corporation’s
repurchase
programs
do
not
obligate
it
to
acquire
any
specific
number
of
shares
and
do
not
have
an
expiration
date.
The
repurchase programs
may be
modified,
suspended,
or terminated
at any
time
at the
Corporation’s
discretion.
Repurchases
under the
programs
may be
executed
through
open market
purchases, accelerated
share repurchases,
privately negotiated
transactions, or
plans, including
plans complying
with Rule
10b5-1 under
the Exchange
Act, and/or
redemption of
junior
subordinated debentures.
(2)
Consists of 1,254 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.
39
STOCK PERFORMANCE GRAPH
The
following
graph
shall
not
be
deemed
incorporated
by
reference
into
any
filing
under
the
Securities
Act
or
the
Exchange
Act,
except
to
the
extent
that First
BanCorp.
specifically
incorporates
this information
by
reference,
and
shall not
otherwise
be
deemed
filed with the SEC.
The
graph
below
compares
the
cumulative
total
stockholder
return
of
First
BanCorp.
during
the
measurement
period
with
the
cumulative
total return,
assuming reinvestment
of dividends,
of the
S&P 500
Index and
the S&P
Supercom
Banks Index
(the “Peer
Group”).
The Performance
Graph assumes
that $100
was invested
on December
31, 2019
in each
of First
BanCorp. common
stock,
the S&P 500 Index and
the Peer Group. The comparisons
in this table are set forth
in response to SEC disclosure requirements
and are
therefore not intended to forecast or be indicative of future performance
of First BanCorp.’s common
stock.
The cumulative total stockholder return was obtained
by dividing (i) the cumulative amount of dividends per share,
assuming dividend
reinvestment since the
measurement point, December
31, 2019, plus (ii)
the change in the
per share price
since the measurement
date,
by the share price at the measurement date.
40
Item 6. [Reserved]
41
ITEM
7.
MANAGEMENT’S
DISCUSSION
AND
ANALYSIS
OF
FINANCIAL
CONDITION
AND
RESULTS
OF
OPERATIONS (“MD&A”)
The following MD&A
relates to the
accompanying audited 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.
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.
The detailed financial discussion
that follows focuses on
2024 results compared to
2023. For a discussion of
2023 results compared
to 2022, see Part I, Item 7,
“Management’s Discussion
and Analysis of Financial Condition
and Results of Operations” included
in the
Corporation’s Annual Report
on Form 10-K for the year ended December 31, 2023, filed on February
28, 2024.
In
this
discussion
and
analysis
of
our
financial
condition
and
results
of
operations,
we
have
included
information
that
may
constitute
“forward-looking
statements”
within
the
meaning
of
the
safe
harbor
provisions
of
Section
27A
of
the
Securities
Act
and
Section 21E
of the
Exchange Act.
Forward-looking statements
are not
historical facts
or statements
of current
conditions, but
instead
represent only our beliefs
regarding future events, many
of which, by their nature,
are inherently uncertain and
outside our control. By
identifying
these statements
for you
in this
manner,
we are
alerting you
to the
possibility that
our actual
results, financial
condition,
liquidity and capital actions may differ materially
from the anticipated results, financial condition, liquidity
and capital actions in these
forward-looking
statements. Important
factors
that could
cause our
results, financial
condition, liquidity
and capital
actions to
differ
from those in these statements include, among others, those described in
“Risk Factors” in Part I, Item 1A of this Form 10-K.
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.
Significant Events
Economy and Market Update
For
the
year
ended
December
31,
2024,
the
Corporation
was
able
to
achieve
year-over-year
growth
on
its
loan
portfolio
of
approximately
$569.0 million
or 4.7%
and expand
its core
deposit base
by $267.1
million or
2.1%,
while safeguarding
asset quality
and improving its
earnings profile. The
U.S. and Puerto
Rico economy remain
on solid footing
driven by positive
labor market trends
and increased business activity.
Unemployment in the Puerto Rico market has continued to decrease
during 2024 to 5.4% in December
2024, while in the U.S. the
unemployment rate was 4.1% for the
same period and real gross domestic product
(“GDP”) increased at an
annual rate of 2.3%.
The
Federal
Reserve
(the
“FED”)
has
continued
to
make
progress
on
stabilizing
inflation
with
Consumer
Price
Index
(“CPI”)
reaching 2.9%
year-over-year,
which is
above the
2% target
but has
allowed the
FED to
continue its
path toward
the economy’s
soft
landing.
With
a
strong
labor
market,
stable
economic
growth
and
inflation
stabilizing,
the
market
expects
the
FED
to
continue
lowering interest rates but at a slower pace during 2025.
As
we
look
ahead
into
2025,
assuming
no
meaningful
changes
in
deposit
balances,
the
Corporation
sees
opportunities
for
net
interest
income
and
margin
expansion
as
cash
flows
from
the
investment
portfolio
will
be
redeployed
into
loans,
higher
yielding
securities
or
used
to
pay
down
higher-cost
borrowings.
Credit
quality
continues
to
remain
stable
in
the
residential
mortgage
and
commercial
loan
portfolios
while
the
consumer
loan
portfolios
have
shown
increases
in
delinquency
levels
which
are
expected
to
stabilize
during
the
second
half
of
2025.
The
Corporation
expects
its
reserve
coverage
and
capital
levels
will
allow
it
to
continue
executing its capital plans and continue its strategic technology and branch
expansion projects.
42
Capital Deployment Actions and Dividend Payment Increase
In 2024, the Corporation delivered approximately $306.0
million, or over 100% of 2024 earnings, in the form of capital deployment
actions
through
$100.0
million
in
repurchases
of
common
stock,
$100.0
million
in
the
redemption
of
outstanding
trust-preferred
securities (“TruPS”)
issued by
FBP Statutory
Trust II,
and approximately
$106.0 million
in common
stock dividends
declared. In
the
aggregate, as of
February 21, 2025,
the Corporation has
remaining authorization
of approximately $200.0
million, which it
expects to
execute during 2025.
On January
21, 2025,
the Corporation’s
Board of
Directors declared
a quarterly
cash dividend
of $0.18
per common
share, which
represents
an
increase
of
$0.02
per
common
share,
or
a
13%
increase,
compared
to
its
most
recent
quarterly
dividend
paid
in
December 2024.
The dividend
is payable
on March
7, 2025
to shareholders
of record
at the
close of
business on
February 21,
2025.
The increased quarterly dividend level equates to an annualized dividend
of $0.72 per common share.
Legislative and Regulatory
A
comprehensive
discussion
of
legislative
and
regulatory
matters
affecting
us
can
be
found
in
Part
I,
Item
1,
“Business
–
Supervision and Regulation” of this Form 10-K.
43
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
a
net
income
of
$298.7
million
($1.81
per
diluted
common
share),
for
the
year
ended
December
31,
2024,
compared
to
$302.9
million
($1.71
per
diluted
common
share),
for
the
year
ended
December
31,
2023.
Other
relevant
selected
financial indicators for the periods presented are included below:
Year
Ended December 31,
2024
2023
2022
Key Performance Indicator:
(1)
Return on Average
Assets
(2)
1.58
%
1.62
%
1.57
%
Return on Average
Common Equity
(3)
19.09
21.86
18.66
Efficiency Ratio
(4)
51.92
50.70
48.25
(1)
These financial ratios are used by management to monitor the Corporation’s
financial performance and whether it is using its assets
efficiently.
(2)
Indicates how profitable the Corporation is in relation to its total assets
and is calculated by dividing net income by its average total assets.
(3)
Measures the Corporation’s performance
based on its average common stockholders’ equity and is calculated
by dividing net income 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.
The key
drivers of
the Corporation’s
GAAP financial
results for
the year
ended December
31, 2024,
compared to
the year
ended
December 31, 2023, include the following:
●
Net interest
income for
the year
ended December
31, 2024
increased to
$807.5 million,
compared to
$797.1 million
for the
year ended
December 31,
2023, driven
by loan
growth, partially
offset by
an increase
in interest expense
due to
higher rates
on interest-bearing
deposits given
the higher
interest rate
environment and
the change
in deposit
mix reflecting
a continued
migration
from
non-interest-bearing
and
other
low-cost
deposits
to
higher-cost
deposits.
See
“Result
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 year
ended
December 31,
2024 was $59.9
million, compared
to $60.9 million
for the year
ended December
31, 2023. The
results reflect
a decrease
in provision
for the
commercial and
residential mortgage
loan portfolios,
which was
almost entirely
offset
by an
increase in provision
for the consumer
loan and finance
lease portfolios
due to higher
charge-off and
delinquency levels and
portfolio growth.
Net charge-offs
totaled $80.8
million for
the year
ended December
31, 2024,
or 0.65%
of average
loans, compared
to $67.4
million, or
0.58% of
average loans,
for the
year ended
December 31,
2023, driven
by a
$22.6 million
increase in
consumer
loans
and
finance
leases
net
charge-offs,
which
is
net
of
a
$10.0
million
recovery
associated
with
the
bulk
sale
of
fully-
charged
off loans,
partially offset
by a
$5.0 million
recovery recorded
during 2024
on a
commercial
and industrial
(“C&I”)
loan
in
the
Puerto
Rico
region
and
a
$6.0
million
net
charge-off
recorded
during
2023
on
a
C&I
participated
loan
in
the
Florida
region
in
the
power
generation
industry.
See
“Results
of
Operations
–
Provision
for
Credit
Losses”
and
“Risk
Management” below for the analysis of the allowance for credit losses (“ACL”) and
non-performing assets and related ratios.
●
Non-interest income
for the year
ended December
31, 2024 decreased
to $130.7
million, compared
to $132.7 million
for the
year
ended
December
31,
2023,
mainly
due
to
the
effect
during
2023
of
a
$3.0
million
gain
associated
with
the
sale
of
a
banking premise in the Florida
region and a $3.6 million gain
recognized from a legal settlement
,
partially offset by increases
of $2.8
million
in card
and processing
income and
$2.1 million
in revenues
from mortgage
banking activities
during 2024.
See “Result of Operations – Non-Interest Income”
below for additional information.
44
●
Non-interest expenses for
the year ended December 31,
2024 increased to $487.1 million,
compared to $471.4 million
for the
year ended December
31, 2023, mainly due
to a $12.8 million
increase in employees’
compensation and benefits
expenses in
part due
to annual salary
merit increases. The
results for the
year ended
December 31,
2024 and 2023
include a $1.1
million
and $6.3 million FDIC special
assessment expense,
respectively.
See “Results of Operations
– Non-Interest Expenses” below
for additional information.
●
Income tax
expense decreased
to $92.5
million for
the year
ended December
31, 2024,
compared to
$94.6 million
for 2023,
driven by lower pre-tax
income. See “Income Taxes”
below and Note 20
– “Income Taxes
”
included in Part II,
Item 8 of this
Form 10-K for additional information.
●
As of
December 31,
2024, total
assets were
approximately $19.3
billion, an
increase of
$383.4 million
from December
31,
2023, primarily related to an increase in total loans and cash and
cash equivalents, partially offset by reductions of
investment
securities. See “Financial Condition and Operating Data Analysis” below for
additional information.
●
As of
December 31,
2024, total
liabilities were
$17.6 billion,
an increase
of $211.8
million from
December 31,
2023, which
includes
an
increase
in
non-brokered
deposits,
partially
offset
by
a
decrease
in
brokered
CDs
and
the
redemption
of
outstanding
TruPS
issued
by
FBP
Statutory
Trust
II.
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
December
31,
2024,
these
core
deposits,
amounting
to
$12.9
billion,
funded
66.70%
of
total
assets.
Excluding
fully
collateralized
government
deposits,
estimated
uninsured
deposits amounted
to $4.8
billion
as of
December
31,
2024.
Cash
and
cash
equivalents
amounted
to
$1.2
billion
as
of
December
31,
2024.
Also,
the
Corporation
had
approximately
$1.2
billion
in
free
high-quality
liquid
securities.
In
addition,
the
Bank maintains
borrowing
capacity
at
the
Federal
Home
Loan
Bank
(“FHLB”)
and
the
FED’s
Discount
Window.
As
of
December
31,
2024,
the
Corporation
had
approximately
$2.6
billion
available
for
funding
under
the
FED’s
Discount
Window
and
$912.4
million
available
for
additional
borrowing
capacity on
FHLB lines
of credit
based
on collateral
pledged
at these
entities. In
the aggregate,
as of
December 31, 2024, the Corporation had
$5.9 billion, or 124% of estimated uninsured deposits (excluding
fully collateralized
government
deposits),
available
to
meet
liquidity
needs.
See
“Risk
Management
–
Liquidity
Risk”
below
for
additional
information about the Corporation’s
funding sources and strategy.
●
As of
December 31,
2024, the
Corporation’s
total stockholders’
equity was
$1.7 billion,
an increase
of $171.6
million from
December 31,
2023. The
increase was driven
by net income
generated in
2024 and
a $73.2
million increase
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,
partially
offset
by
common
stock
dividends
declared
in
2024
totaling
$106.0
million
or
$0.64
per
common
share,
and
$100.0
million
in
common
stock
repurchases.
The
Corporation’s
CET1
capital,
tier
1
capital,
total
capital, and leverage
ratios were 16.32%,
16.32%, 18.02%, and
11.07%, respectively,
as of December 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
$291.1 million
to $5.4
billion for
the year
ended December
31, 2024.
See “Financial
Condition
and Operating Data Analysis” below for additional information.
●
Total
non-performing
assets were
$118.3
million as
of December
31, 2024,
a decrease
of $7.6
million, from
December 31,
2023,
driven
by
a
$15.3
million
decrease
in
the
other
real
estate
owned
(“OREO”)
portfolio
balance
mainly
in
the
Puerto
Rico region,
mostly attributable
to the
sale of
a $5.3
million commercial
real estate
OREO property
and sales
of residential
OREO properties.
This variance is
net of a
$3.7 million
increase in other
repossessed property
and a $3.7
million increase in
nonaccrual loans
held for
investment mainly
due to
the inflow
of a
$16.5 million
commercial relationship
in the
food retail
industry
in
the
Puerto
Rico
region,
partially
offset
by
the
sale
of
an
$8.2
million
nonaccrual
C&I
loan
in
the
Puerto
Rico
region,
that
resulted
in
a
$1.2
million
charge-off
that
had
been
previously
reserved,
loans
returned
to
accrual
status,
and
repayments. See “Risk Management – Nonaccrual Loans and Non-Performing
Assets” below for additional information.
●
Adversely
classified
commercial
and
construction
loans
increased
by
$19.8
million
to
$87.3
million
as
of
December
31,
2024,
when
compared
to
December
31,
2023,
driven
by the
downgrades
of two
commercial
mortgage
loans in
the
Florida
region
amounting
to
$24.4
million
and
the
aforementioned
inflow
to
nonaccrual
status
of
a
$16.5
million
commercial
relationship in
the Puerto
Rico region,
partially offset
by the
upgrade of
a $12.2
million C&I
loan in
the Puerto
Rico region
and the aforementioned sale and charge-off
of an $8.2 million nonaccrual C&I loan in the Puerto Rico region.
45
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS
The Corporation
has included
in this
Annual Report
on Form
10-K the
following financial
measures that
are not
recognized under
GAAP,
which are referred to as non-GAAP financial measures:
Net Interest Income,
Interest Rate Spread,
and Net Interest Margin, Excluding
Valuations
,
and on a Tax
-Equivalent Basis
Net interest
income, interest
rate spread,
and net
interest margin
are reported
excluding the
changes in
the fair
value of
derivative
instruments and
on a
tax-equivalent basis
in order
to provide
to investors
additional information
about the
Corporation’s
net interest
income
that management
uses and
believes
should facilitate comparability
and analysis
of the
periods presented.
The changes
in the
fair value
of derivative
instruments have
no effect
on interest
due or
interest earned
on interest-bearing
liabilities or
interest-earning
assets, respectively.
The tax-equivalent
adjustment to
net interest
income recognizes
the income
tax savings
when comparing
taxable
and
tax-exempt
assets
and
assumes
a
marginal
income
tax
rate.
Income
from
tax-exempt
earning
assets
is
increased
by
an
amount
equivalent to
the taxes
that would
have been
paid if
this income
had been
taxable at
statutory rates.
Management believes
that it
is a
standard
practice
in
the banking
industry
to
present
net
interest
income,
interest
rate
spread,
and
net
interest
margin
on
a
fully
tax-
equivalent basis. This adjustment
puts all earning assets, most
notably tax-exempt securities and
tax-exempt loans, on a common
basis
that facilitates comparison of results to the results of peers.
See “Results of Operations – Net Interest Income” below,
for the table that reconciles net interest income in accordance with GAAP
to
the
non-GAAP
financial
measure
of
net
interest
income,
excluding
valuations,
and
on
a
tax-equivalent
basis
for
the
indicated
periods. The table also reconciles
net interest spread and
net interest margin on
a GAAP basis to these items
excluding valuations, and
on a tax-equivalent basis.
Tangible
Common Equity Ratio and Tangible
Book Value
Per Common Share
The tangible
common equity
ratio and
tangible book
value per
common share
are non-GAAP
financial measures
that management
believes are generally
used by the financial
community to evaluate
capital adequacy.
Tangible
common equity is total
common equity
less goodwill
and other
intangible assets.
Similarly,
tangible assets
are total
assets less
goodwill and
other intangible
assets. 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
uses
and
believes
that
many
stock
analysts
use
the
tangible
common
equity
ratio
and
tangible
book
value
per
common
share
in
conjunction
with
other
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.
46
Adjusted Net Income,
Adjusted Non-Interest Income, and Adjusted Non-Interest
Expenses
To
supplement the
Corporation’s
financial statements
presented in
accordance with
GAAP,
the Corporation
uses, and believes
that
investors
benefit
from
disclosure
of,
non-GAAP
financial
measures
that
reflect
adjustments
to
net
income,
non-interest
income
and
non-interest expenses
to exclude
items that
management believes
are not
reflective of
core operating
performance (“Special
Items”).
The financial results
for the year
ended December 31,
2022 did not
include any significant
Special Items. The
financial results for
the
years ended December 31, 2024 and 2023 included the following Special
Items:
Years
Ended December 31, 2024 and 2023
FDIC Special Assessment Expense
-
Charges
of $1.1
million ($0.7
million
after-tax,
calculated based
on the
statutory tax
rate of
37.5%) and
$6.3 million
($3.9
million after
tax calculated
based on
the statutory
tax rate
of 37.5%)
were recorded
for the
years ended
December 31,
2024
and 2023,
respectively,
as a
result of
the special
assessment
imposed by
the FDIC
in connection
with losses
to the
Deposit
Insurance Fund associated with protecting
uninsured deposits following the failures of
certain financial institutions during the
first
half
of
2023.
The
estimated
FDIC
special
assessment
of
$7.4
million
was
the
revised
estimated
loss
reflected
in
the
FDIC
invoice
for
the
first
quarterly
collection
period
with
a
payment
date
of
June
28,
2024.
The
FDIC
deposit
special
assessment
is
reflected
in
the
consolidated
statements
of
income
for
the
year
ended
December
31,
2023
as
part
of
“FDIC
deposit insurance” expenses.
Gain Recognized from Legal Settlement
-
A
$3.6
million
($2.3
million
after-tax,
calculated
based
on
the
statutory
tax
rate
of
37.5%)
gain
recognized
from
a
legal
settlement reflected
in the
consolidated statements
of income
for
the year
ended December
31, 2023
as part
of “other
non-
interest income.”
Gain on Early Extinguishment of Debt
-
A
$1.6
million
gain
on
the
repurchase
of
$21.4
million
in
junior
subordinated
debentures
reflected
in
the
consolidated
statements
of
income
for
the
year
ended
December
31,
2023
as
“Gain
on
early
extinguishment
of
debt.”
The
junior
subordinated
debentures are
reflected in
the consolidated
statements of
financial condition
as “Long-term
borrowings.” The
purchase price
equated to 92.5%
of the $21.4
million par
value of the
TruPS. The
7.5% discount
resulted in the
gain of $1.6
million. The gain, realized at the holding company level, had no effect
on the income tax expense recorded during 2023.
47
Adjusted Net Income – The
following table reconciles for
the years ended December 31,
2024 and 2023, net income
to adjusted net
income, a non-GAAP
financial measure that
excludes the Special
Items identified above,
and shows for
the year ended
December 31,
2022, the reported net income.
Year Ended
December 31,
2024
2023
2022
(In thousands)
Net income, as reported (GAAP)
$
298,724
$
302,864
$
305,072
Adjustments:
FDIC special assessment expense
1,099
6,311
-
Gain recognized from a legal settlement
-
(3,600)
-
Gain on early extinguishment of debt
-
(1,605)
-
Income tax impact of adjustments
(1)
(412)
(1,017)
-
Adjusted net income (Non-GAAP)
$
299,411
$
302,953
$
305,072
(1)
See "Adjusted Net Income,
Adjusted Non-Interest Income and
Adjusted Non-Interest Expenses"
above for the individual tax
impact related to the above
adjustments, which were based
on
the Puerto Rico statutory tax rate of 37.5%, as applicable.
Adjusted
non-interest
income –
Non-interest
income
for the
year
ended
December 31,
2023 was
adjusted
for
the aforementioned
$3.6 million
gain recognized
from a
legal settlement
reflected in
the consolidated
statements of
income as
part of
“other non-interest
income” and
$1.6 million
gain on
the repurchase
of the
aforementioned
junior subordinated
debentures reflected
in the
consolidated
statements of income as “Gain on early extinguishment of debt.”
Adjusted
non-interest
expenses
–
Non-interest
expenses
for
the
years
ended
December
31,
2024
and
2023
were
adjusted
for
the
aforementioned
$1.1
million
and
$6.3
million
charges,
respectively,
related
to
the
FDIC
special
assessment
reflected
in
the
consolidated statements of income as part of “FDIC deposit insurance”
expenses.
48
CRITICAL ACCOUNTING ESTIMATES
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.
Accounting
estimates
require
assumptions
and
judgments
about
uncertain
matters
that
could
have
a
material
effect
on
the
consolidated
financial
statements.
The
Corporation’s
critical
accounting
estimates
that
are
particularly
susceptible
to
significant
changes
include
the
following:
(i)
the
ACL;
(ii)
valuation
of
financial
instruments;
and
(iii)
income taxes. Actual results could differ from estimates and assumptions
if different outcomes or conditions prevail.
Allowance for Credit Losses
The Corporation
maintains an ACL
for loans
and finance
leases based upon
management’s
estimate of the
lifetime expected
credit
losses in the loan portfolio, as of the balance sheet date,
excluding loans held for sale. Additionally,
the Corporation maintains an ACL
for
held-to-maturity
and
available-for-sale
debt
securities,
and
other
off-balance
sheet
credit
exposures
(
e.g.
, unfunded
loan
commitments). For loans and finance leases, unfunded
loan commitments, and held-to-maturity debt securities, the estimate of
lifetime
credit losses
includes the
use of
quantitative models
that incorporate
forward-looking macroeconomic
scenarios that
are applied
over
the
contractual
lives
of
the
portfolios,
adjusted,
as
appropriate,
for
prepayments
and
permitted
extension
options
using
historical
experience.
For
purposes
of
the
ACL
for
lending
commitments,
such
allowance
is
determined
using
the
same
methodology
as
the
ACL
for
loans,
while
also
taking
into
consideration
the
probability
of
drawdowns
or
funding,
and
whether
such
commitments
are
cancellable by us. The
ACL for available-for-sale debt
securities is measured using
a risk-adjusted discounted cash
flow approach that
also
considers
relevant
current
and
forward-looking
economic
variables
and
the
ACL
is
limited
to
the
difference
between
the
fair
value of the security
and its amortized cost.
Judgment is specifically applied
in the determination of
economic assumptions, the length
of
the
initial
loss
forecast
period,
the
reversion
of
losses
beyond
the
initial
forecast
period,
historical
loss
expectations,
usage
of
macroeconomic
scenarios,
and
qualitative
factors,
which
may
not
be
adequately
captured
in
the
loss
model,
as
further
discussed
below.
The macroeconomic
scenarios utilized by
the Corporation include
variables that have
historically been key
drivers of increases and
decreases
in
credit
losses.
These
variables
include,
but
are
not
limited
to,
unemployment
rates,
housing
and
commercial
real
estate
prices, gross
domestic product levels,
retail sales, interest
rate forecasts,
corporate bond spreads,
and changes in
equity market prices.
The
Corporation
derives
the
economic
forecasts
it
uses
in
its
ACL
model
from
Moody's
Analytics.
The
latter
has
a
large
team
of
economists, database managers and operational engineers with a history
of producing monthly economic forecasts for over 25 years.
The
Corporation
has
currently
set
an
initial
forecast
period
(“reasonable
and
supportable
period”)
of
two
years
and
a
reversion
period of up to three
years, utilizing a straight-line
approach and reverting back
to the historical macroeconomic
mean for Puerto Rico
and the Virgin
Islands regions. For the
Florida region, the methodology
considers a reasonable and
supportable forecast period
and an
implicit reversion towards the historical
trend that varies for each macroeconomic
variable. After the reversion period,
a historical loss
forecast
period
covering
the
remaining
contractual
life,
adjusted
for
prepayments,
is
used
based
on
the
change
in
key
historical
economic variables
during representative
historical expansionary
and recessionary periods.
Changes in
economic forecasts impact
the
probability
of
default
(“PD”),
loss-given
default
(“LGD”),
and
exposure
at
default
(“EAD”)
for
each
instrument,
and
therefore
influence the amount of future cash flows for each instrument that the
Corporation does not expect to collect.
Further,
the
Corporation
periodically
considers
the
need
for
qualitative
adjustments
to
the
ACL.
Qualitative
adjustments
may
be
related to and include,
but not be limited to,
factors such as 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
qualitative
factors
applied
at
December
31,
2024,
and
the
importance
and
levels
of
the
qualitative
factors
applied,
may
change
in
future
periods
depending
on
the
level
of
changes
to
items
such
as
the
uncertainty
of
economic
conditions
and
management's
assessment
of
the
level
of
credit
risk
within
the loan
portfolio
as
a
result
of
such
changes,
compared
to the
amount of
ACL calculated
by the
model.
The evaluation
of qualitative
factors
is inherently
imprecise
and
requires
significant management judgment.
49
The ACL can also be
impacted by factors outside the Corporation’s
control, which include unanticipated
changes in asset quality of
the
portfolio,
such
as deterioration
in
borrower
delinquencies,
or
credit
scores
in
our
residential
real
estate and
consumer
portfolio.
Further,
the current
fair
value of
collateral
is utilized
to assess
the
expected
credit losses
when
a financial
asset is
considered
to be
collateral dependent.
Our process for determining
the ACL is further
discussed in Note 1
– “Nature of Business
and Summary of
Significant Accounting
Policies” and
Note 5
– “Allowance
for
Credit Losses
and
Finance
Leases”
included
in
Part II,
Item 8
of this
Form
10-K.
Also, see
“Allowance
for
Credit
Losses
for
Loans
and
Finance
Leases”
below
for
additional
information
on
the
weighting
of
economic
scenarios
to estimate
the ACL,
changes in
key economic
variables,
and the
ACL sensitivity
analysis performed
as of
December
31,
2024.
Income Taxes
The Corporation is required to estimate income taxes in preparing
its consolidated financial statements. This involves the estimation
of
current
income
tax
expense
together
with
an
assessment
of
temporary
differences
between
the
carrying
amounts
of
assets
and
liabilities
for
financial
reporting
purposes
and
the
amounts
used
for
income
tax
purposes.
The
determination
of
current
income
tax
expense
involves
estimates
and
assumptions
that
require
the
Corporation
to
assume
certain
positions
based
on
its
interpretation
of
current tax regulations. Management assesses the relative benefits
and risks of the appropriate tax treatment of transactions, taking
into
account statutory,
judicial and regulatory
guidance, and recognizes
tax benefits
only when deemed
probable. Changes
in assumptions
affecting estimates
may be required
in the future
and estimated tax
liabilities may need
to be increased
or decreased accordingly.
The
Corporation
adjusts the
accrual of
tax contingencies
in light
of changing
facts and
circumstances, such
as the
progress of
tax audits,
case law
and emerging
legislation. The
Corporation’s
effective tax
rate includes
the impact
of tax
contingencies and
changes to
such
accruals,
as
considered
appropriate
by
management.
When
particular
tax
matters
arise,
a
number
of
years
may
elapse
before
such
matters are
audited by
the taxing
authorities and
finally resolved.
Favorable resolution
of such matters
or the
expiration of
the statute
of limitations may result in the release of tax contingencies that
the Corporation recognizes as a reduction to its effective
tax rate in the
year of resolution.
Unfavorable settlement
of any particular
issue could increase
the effective
tax rate and
may require the
use of cash
in the year of resolution.
As of December 31,
2024, we had $136.4
million of deferred tax assets,
net of a related valuation
allowance of $119.1
million. The
determination
of
deferred
tax
expense
or
benefit
is
based
on
changes
in
the
carrying
amounts
of
assets
and
liabilities
that
generate
temporary differences
and recognizes
enacted changes
in tax
rates and
laws in
the period
in which
they occur.
The carrying
value of
the Corporation’s net deferred
tax asset assumes that the Corporation will be able to generate sufficient
future taxable income based on
estimates and
assumptions. Valuation
allowances are
established, when
necessary,
to reduce
deferred tax
assets to
the amount
that is
more likely than not to be realized.
The determination of whether a valuation
allowance for deferred tax assets is appropriate
is subject
to
considerable
judgment
and
requires
the
evaluation
of
positive
and
negative
evidence
that
can
be
objectively
verified.
Positive
evidence
necessary
to
overcome
the
negative
evidence
includes
whether
future
taxable
income
in
sufficient
amounts
and
character
within the carryforward periods is
available under the tax law.
Consideration must be given to
all sources of taxable income including,
as
applicable,
the
future
reversal
of
existing
temporary
differences,
future
taxable
income
forecasts
exclusive
of
the
reversal
of
temporary differences and
carryforwards, and tax planning
strategies. When negative evidence (e.g.,
cumulative losses in recent years,
history
of operating
loss or
tax credit
carryforwards
expiring
unused)
exists, more
positive
evidence
than negative
evidence will
be
necessary.
The Corporation
has concluded
that based on
the level
of positive
evidence, it
is more
likely than
not that
the deferred
tax
asset will be realized, net of the existing valuation
allowances at December 31, 2024 and 2023. However,
there is no guarantee that the
tax benefits associated
with the deferred
tax assets will be
fully realized. The
positive evidence considered
by management in
arriving
at its
conclusion included
factors such
as the
following:
FirstBank’s
three-year cumulative
income position;
and sustained
periods of
profitability;
management’s
proven
ability
to
forecast
future
income
accurately
and
execute
tax
strategies.
The
negative
evidence
considered by management
included the following: uncertainties
about the state of
the Puerto Rico economy,
including considerations
relating to the pandemic
recovery funds together with
Puerto Rico government debt
restructuring and the ultimate
sustainability of the
latest fiscal plan certified by the Puerto Rico Oversight, Management,
and Economic Stability Act (“PROMESA”) oversight board.
See Note 20
– “
Income Taxes”
included in Part II, Item 8 on Form 10-K for further information related
to income taxes.
50
OTHER ESTIMATES
In addition to the critical accounting estimates we make
in connection with the ACL and the accounting for
income taxes, the use of
estimates
and
assumptions
is
also
important
in
performing
the
valuation
of
financial
instruments,
determining
the
accounting
for
goodwill
and
identifiable
intangible
assets,
pension
and
postretirement
benefit
obligations,
and
provisions
for
losses
that
may
arise
from litigation and regulatory proceedings (including governmental investigations).
Valuations
of
financial
instruments
often
involve
estimates
due
to
the
need
to
determine
fair
value
in
the
absence
of
readily
available market
prices. Since Level
1 and
Level 2 financial
instruments rely
on observable
market prices,
estimates are
minimal. On
the other
hand, Level
3 valuations
involve significant
unobservable inputs,
such as
internal models
or assumptions
about future
cash
flows,
which
introduce
a
higher
degree
of
subjectivity
and
estimation
uncertainty.
Notwithstanding,
as
of
December
31,
2024
and
2023, less than
1% of the
available-for-sale debt securities
portfolio was classified
as Level 3.
In addition, fair
value is also
used on a
non-recurring basis
for measuring
the fair value
of certain Level
3 assets such
as collateral
dependent loans
and OREO
properties, as
disclosed in Note 23 – “Fair Value”
included in Part II, Item 8 of this Form 10-K.
Goodwill is
assessed for
impairment at
least annually
and more
frequently if
circumstances exist
that indicate
a possible
reduction
in the
fair value
of a
reporting unit
below its
carrying value.
When assessing
goodwill for
impairment, first,
a qualitative
assessment
can be
made to
determine whether
it is
more likely
than not
that the
estimated fair
value of
a reporting
unit is
less than
its estimated
carrying value. If
the results of the
qualitative assessment are
not conclusive, a
quantitative goodwill test
is performed. Estimating
the
fair
value
of
our
reporting
units
requires
judgment.
Critical
inputs
to
the
fair
value
estimates
may
include
projected
earnings,
macroeconomic conditions, interest
rate levels, and peers
performance. See Note 1 –
“Nature of Business and
Summary of Significant
Accounting
Policies”
and
Note
9
–
“Goodwill
and
Other
Intangibles”
included
in
Part
II,
Item
8
of
this
Form
10-K
for
further
information
about
goodwill
and
identifiable
intangible
assets.
Based
on
our
annual
impairment
qualitative
analysis
of
goodwill
conducted
in
the
fourth
quarter
of
2024,
it
was
determined
that
it
is
more-likely-than-not
that
the
fair
value
of
the
reporting
units
exceeded their carrying value; therefore, goodwill is considered not impaired.
Identifiable
intangible
assets
are
tested
for
impairment
when
events
or
changes
in
circumstances
suggest
that
an
asset’s
or
asset
group’s
carrying
value
may
not
be
fully
recoverable.
Judgment
is
required
to
evaluate
whether
indications
of
potential
impairment
have
occurred,
and
to
test intangible
assets for
impairment,
if
required.
An
impairment
is recognized
if
the
estimated
undiscounted
cash flows
relating to
the asset
or asset
group is
less than
the corresponding
carrying value.
The amortization
of identified
intangible
assets
is
based
upon
the
estimated
economic
benefits
to
be
received
over
their
economic
life,
which
is
also
subjective.
Customer
attrition rates that are based on historical experience are used to determine
the estimated economic life of intangibles assets.
The
Corporation
maintains
two
frozen
qualified
noncontributory
defined
benefit
pension
plans,
and
a
related
complementary
postretirement
benefits
plan
covering
medical benefits
and
life insurance
after retirement.
Calculation
of the
obligations
and
related
expenses
under
these
plans
requires
the
use
of
actuarial
valuation
methods
and
assumptions,
which
are
subject
to
management
judgment
and may
differ
if different
assumptions are
used. The
discount rate
assumption used
to measure
the postretirement
benefit
obligation
is estimated
as the
single equivalent
rate such
that the
present
value of
the plan’s
projected
benefit obligation
cash flows
using
the
single
rate
equals
the
present
value
of
those
cash
flows
using
the
above
mean
actuarial
yield
curves.
See
Note
17
–
“Employee Benefit Plans” included in Part II, Item 8 of this Form 10-K, for disclosures
related to the benefit plans.
As necessary,
we
also estimate
and
provide
for potential
losses that
may
arise out
of litigation
and
regulatory
proceedings to
the
extent
that
such losses
are
probable
and
can be
reasonably
estimated.
Judgment
is required
in making
these
estimates
and
our
final
liabilities may
ultimately be
materially different.
Our total
estimated liability
with respect
to litigation
and regulatory
proceedings is
determined
on
a case-by-case
basis
and
represents
an
estimate
of
probable
losses
after
considering,
among
other
factors,
the
latest
information
available
advice from
legal
counsel,
and
available
insurance
coverage.
The outcomes
of
legal actions
are unpredictable
and subject
to significant
uncertainties, and
it is
inherently difficult
to determine
whether any
loss is
probable or
even possible.
It is
also
inherently
difficult
to
estimate
the
amount
of
any
loss
and
there
may
be
matters
for
which
a
loss
is
probable
or
reasonably
possible but not
currently estimable. Accordingly,
actual losses may
be in excess
of the established
accrual or the
range of reasonably
possible loss. See Note 27 – “Regulatory Matters, Commitments and
Contingencies”
included in Part II, Item 8 of this Form 10-K.
51
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 year
ended
December 31, 2024 was
$807.5 million, compared
to $797.1 million for
the year ended December
31, 2023. On a tax-equivalent
basis
and excluding
the changes
in the
fair value
of derivative
instruments, net
interest income
for the
year ended
December 31,
2024 was
$826.9 million, compared to $818.0 million for the year ended December
31, 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
change
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)
Year Ended December
31,
2024
2023
2022
2024
2023
2022
2024
2023
2022
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
$
710,945
$
584,083
$
1,156,127
$
37,082
$
30,419
$
11,791
5.22
%
5.21
%
1.02
%
Government obligations
(2)
2,517,327
2,843,284
2,870,889
34,139
40,314
39,033
1.36
%
1.42
%
1.36
%
MBS
3,348,925
3,702,908
4,052,660
59,092
67,641
85,090
1.76
%
1.83
%
2.10
%
FHLB stock
34,161
36,606
20,419
3,266
2,799
1,114
9.56
%
7.65
%
5.46
%
Other investments
18,510
14,167
12,747
543
490
126
2.93
%
3.46
%
0.99
%
Total investments
(3)
6,629,868
7,181,048
8,112,842
134,122
141,663
137,154
2.02
%
1.97
%
1.69
%
Residential mortgage loans
2,816,732
2,814,102
2,886,594
164,238
160,009
160,359
5.83
%
5.69
%
5.56
%
Construction loans
221,822
172,952
121,642
19,260
14,811
7,350
8.68
%
8.56
%
6.04
%
C&I and commercial mortgage loans
5,606,827
5,244,503
5,092,638
405,481
365,185
281,486
7.23
%
6.96
%
5.53
%
Finance leases
879,437
789,870
636,507
69,218
60,909
46,842
7.87
%
7.71
%
7.36
%
Consumer loans
2,830,678
2,704,877
2,461,632
322,267
301,756
262,542
11.38
%
11.16
%
10.67
%
Total loans
(4)(5)
12,355,496
11,726,304
11,199,013
980,464
902,670
758,579
7.94
%
7.70
%
6.77
%
$
18,985,364
$
18,907,352
$
19,311,855
$
1,114,586
$
1,044,333
$
895,733
5.87
%
5.52
%
4.64
%
Interest-bearing liabilities:
Time deposits
$
2,999,078
$
2,590,313
$
2,213,145
$
105,712
$
68,605
$
18,102
3.52
%
2.65
%
0.82
%
Brokered CDs
627,454
348,829
69,694
31,833
16,630
1,500
5.07
%
4.77
%
2.15
%
Other interest-bearing deposits
7,567,514
7,664,793
8,279,320
115,562
100,226
26,759
1.53
%
1.31
%
0.32
%
Securities sold under agreements to repurchase
245
54,570
194,948
12
2,769
7,555
4.90
%
5.07
%
3.88
%
Advances from the FHLB
500,055
541,000
179,452
22,566
24,608
5,136
4.51
%
4.55
%
2.86
%
Other borrowings
146,044
171,184
184,173
11,989
13,538
8,269
8.21
%
7.91
%
4.49
%
Total interest-bearing liabilities
$
11,840,390
$
11,370,689
$
11,120,732
$
287,674
$
226,376
$
67,321
2.43
%
1.99
%
0.61
%
Net interest income on a tax-equivalent basis and excluding
valuations - non-GAAP
$
826,912
$
817,957
$
828,412
Interest rate spread
3.44
%
3.53
%
4.03
%
Net interest margin
4.36
%
4.33
%
4.29
%
(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 $13.4
million,
$11.9
million and
$11.2
million for
the years
ended
December 31,
2024, 2023
and 2022,
respectively,
of income
from prepayment
penalties and late fees related to the Corporation’s
loan portfolio.
52
Part II
Year Ended December 31,
2024 Compared to 2023
2023 Compared to 2022
Variance due to:
Variance due to:
Volume
Rate
Total
Volume
Rate
Total
(In thousands)
Interest income on interest-earning assets:
Money market and other short-term investments
$
6,516
$
147
$
6,663
$
(17,813)
$
36,441
$
18,628
Government obligations
(4,543)
(1,632)
(6,175)
(382)
1,663
1,281
MBS
(6,423)
(2,126)
(8,549)
(6,963)
(10,486)
(17,449)
FHLB stock
(215)
682
467
1,118
567
1,685
Other investments
138
(85)
53
16
348
364
Total investments
(4,527)
(3,014)
(7,541)
(24,024)
28,533
4,509
Residential mortgage loans
134
4,095
4,229
(4,075)
3,725
(350)
Construction loans
4,190
259
4,449
3,751
3,710
7,461
C&I and commercial mortgage loans
25,143
15,153
40,296
8,618
75,081
83,699
Finance leases
6,868
1,441
8,309
11,737
2,330
14,067
Consumer loans
13,623
6,888
20,511
26,758
12,456
39,214
Total loans
49,958
27,836
77,794
46,789
97,302
144,091
Total interest income
$
45,431
$
24,822
$
70,253
$
22,765
125,835
$
148,600
Interest expense on interest-bearing liabilities:
Time deposits
$
11,890
$
25,217
$
37,107
$
3,574
$
46,929
$
50,503
Brokered CDs
13,992
1,211
15,203
11,608
3,522
15,130
Other interest-bearing deposits
(1,537)
16,873
15,336
(5,011)
78,478
73,467
Securities sold under agreements to repurchase
(2,757)
-
(2,757)
(6,282)
1,496
(4,786)
Advances from the FHLB
(1,905)
(137)
(2,042)
15,066
4,406
19,472
Other borrowings
(2,044)
495
(1,549)
(805)
6,074
5,269
Total interest expense
17,639
43,659
61,298
18,150
140,905
159,055
Change in net interest income
$
27,792
$
(18,837)
$
8,955
$
4,615
$
(15,070)
$
(10,455)
Portions of the Corporation’s
interest-earning assets, mostly investments
in obligations of some U.S.
government agencies and U.S.
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 20
– “Income
Taxes
to
the
audited
consolidated
financial
statements
included
in
Part
II,
Item
8
of
this
Form
10-K
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.
53
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:
Year Ended December 31,
2024
2023
2022
(Dollars in thousands)
Interest income - GAAP
1,095,153
$
1,023,486
$
862,614
Unrealized loss (gain) on derivative instruments
-
8
(30)
Interest income excluding valuations - non-GAAP
1,095,153
1,023,494
862,584
Tax-equivalent adjustment
19,433
20,839
33,149
Interest income on a tax-equivalent basis
and excluding valuations - non-GAAP
1,114,586
$
1,044,333
$
895,733
Interest expense - GAAP
287,674
$
226,376
$
67,321
Net interest income - GAAP
807,479
$
797,110
$
795,293
Net interest income excluding valuations - non-GAAP
807,479
$
797,118
$
795,263
Net interest income on a tax-equivalent basis
and excluding valuations - non-GAAP
826,912
$
817,957
$
828,412
Average Balances
Loans and leases
12,355,496
$
11,726,304
$
11,199,013
Total securities, other short-term investments and interest-bearing
cash balances
6,629,868
7,181,048
8,112,842
Average Interest-Earning Assets
18,985,364
$
18,907,352
$
19,311,855
Average Interest-Bearing Liabilities
11,840,390
$
11,370,689
$
11,120,732
Average Assets
(1)
18,961,356
$
18,706,423
$
19,378,649
Average Non-Interest-Bearing Deposits
5,351,124
$
5,741,345
$
6,391,171
Average Yield/Rate
Average yield on interest-earning assets - GAAP
5.77%
5.41%
4.47%
Average rate on interest-bearing liabilities - GAAP
2.43%
1.99%
0.61%
Net interest spread - GAAP
3.34%
3.42%
3.86%
Net interest margin - GAAP
4.25%
4.22%
4.12%
Average yield on interest-earning assets excluding valuations
- non-GAAP
5.77%
5.41%
4.47%
Average rate on interest-bearing liabilities
2.43%
1.99%
0.61%
Net interest spread excluding valuations
- non-GAAP
3.34%
3.42%
3.86%
Net interest margin excluding valuations - non-GAAP
4.25%
4.22%
4.12%
Average yield on interest-earning assets on a tax-equivalent
basis and excluding
valuations - non-GAAP
5.87%
5.52%
4.64%
Average rate on interest-bearing liabilities
2.43%
1.99%
0.61%
Net interest spread on a tax-equivalent basis
and excluding valuations - non-GAAP
3.44%
3.53%
4.03%
Net interest margin on a tax-equivalent basis and excluding
valuations - non-GAAP
4.36%
4.33%
4.29%
(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.
54
Net
interest
income
amounted
to
$807.5
million
for
the
year
ended
December
31,
2024,
an
increase
of
$10.4
million
when
compared to $797.1 million for same period in 2023. The $10.4 million
increase in net interest income was primarily due to:
●
A $74.9 million increase in interest income on loans,
including:
-
A $41.8
million
increase
in
interest income
on
commercial
and
construction
loans,
driven
by
a
$29.8
million
increase
associated
with
a
$411.2
million
increase
in
the
average
balance,
and
a
$12.0
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
December
31,
2024,
the
interest
rate
on
approximately
53%
of
the
Corporation’s
commercial
and
construction
loans was tied
to variable
rates, with 33%
based upon
SOFR of 3
months or
less, 12% based
upon the
Prime rate index,
and 8% based
on other indexes.
For the year
ended December 31,
2024, the average
one-month SOFR increased
4 basis
points, the
average three-month
SOFR decreased
11
basis points,
and the
average Prime
rate increased
12 basis
points,
compared to the average rates for such indexes for the year ended December
31, 2023.
-
A
$28.8
million
increase
in
interest
income
on
consumer
loans
and
finance
leases,
primarily
due
to
a
$215.4
million
increase in the average balance of this portfolio, mainly auto loans and finance leases.
●
A $61.3 million increase in interest expense on interest-bearing liabilities, consisting
of:
-
A
$37.1
million
increase
in
interest
expense
on
time
deposits,
excluding
brokered
CDs,
of
which
$25.2
million
was
related to higher
rates in 2024
on new issuances
and renewals,
also associated with
the higher
interest rate environment,
and $11.9
million was driven
by a $408.8
million increase
in the average
balance. The
average cost of
time deposits for
2024,
excluding brokered CDs, increased 87 bps to 3.52% as compared to 2.65%
for the same period in 2023.
-
A $15.3 million
increase in interest expense
on interest-bearing checking
and saving accounts,
also related to
the overall
higher interest
rate environment. The
average cost of
interest-bearing checking
and saving accounts
increased by
22 bps
to
1.53%
for
2024
as
compared
to
1.31%
for
the
same
period
in
2023,
mostly
driven
by
government
deposits
in
the
Puerto Rico
region. Excluding
government deposits,
the average
cost of
interest-bearing checking
and savings
accounts
for 2024 was 0.78%, compared to 0.70% for the same period in 2023.
-
A
$15.2
million
increase
in
interest
expense
on
brokered
CDs,
driven
by
a
$278.6
million
increase
in
the
average
balance.
Partially offset by:
-
A
$6.3
million
decrease
in
interest
expense
on
borrowings,
mainly
due
to
a
$2.8
million
decrease
on
short-term
repurchase agreements
since they
were not
used as
a funding
source during
2024; a
$2.0 million
decrease on
advances
from the FHLB, mainly
associated with a $40.9
million decrease in the average
balance;
and a $1.5 million
decrease due
to redemptions of junior subordinated debentures.
●
A
$3.2
million
decrease
in
interest
income
from
total
investments,
mainly
due
to
a
$10.4
million
net
decrease
in
interest
income
from
debt
securities,
mainly
associated
with
a
$679.9
million
decrease
in
the
average
balance
driven
by
the effect
during 2024
of $623.4
million in
maturities of
debt securities
with an
average yield
of 0.74%
as well
as repayments
of U.S.
agencies
MBS
and
debentures,
partially
offset
by
a
$6.7
million
increase
in
interest
income
from
interest-bearing
cash
balances,
which
consisted
primarily
of cash
balances
deposited at
the
FED, mainly
due to
a $126.9
million
increase
in the
average balance.
Net
interest
margin
for
the
year
ended
December
31,
2024
was
4.25%,
compared
to
4.22%
for
the
same
period
in
2023.
The
increase
in the
net interest
margin
was driven
by a
change in
asset mix
resulting
from
an increase
in interest-bearing
cash balances
deposited at the FED as a result of an increase in deposits, and the deployment
of cash flows from lower-yielding investment securities
to fund
loan growth
as well
as the
effect
of the
higher
interest rate
environment
on commercial
and
consumer
loan yields,
partially
offset by a
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,
as well as the
increase in balance
of brokered CDs.
55
Provision for Credit Losses
The provision
for credit
losses for
loans and
finance leases was
$62.9 million
for the year
ended December
31, 2024,
compared to
$66.6 million for the year ended December 31, 2023. The variances by
major portfolio category were as follows:
●
Provision for credit
losses for the
commercial and construction
loan portfolios was
a net benefit
of $17.5 million
for the year
ended of December 31,
2024, compared to an expense
of $5.7 million for the
year ended December 31, 2023.
The net benefit
recorded
during
2024
was
associated
with
the
improved
financial
condition
of
certain
borrowers,
an
improvement
on
the
economic outlook of
certain macroeconomic variables,
particularly variables associated
with commercial
real estate property
performance
and the
forecasted CRE
price index;
a recovery
of $5.0
million associated
with a
C&I loan
in the
Puerto Rico
region,
and
$1.2
million
in
recoveries
of
two
commercial
loans
in
the
Florida
region;
partially
offset
by
portfolio
growth.
Meanwhile, the expense
recorded during 2023
was mainly due
to the increase
in the size of
the commercial and
construction
loan portfolios,
a $6.0
million charge
associated with
a nonaccrual
C&I participated
loan in
the Florida
region in
the power
generation industry,
a $1.7 million
incremental reserve
recorded during
2023 associated
with the
inflow to nonaccrual
status
of
a
$9.5
million
C&I
loan
in the
Puerto
Rico
region,
and a
$1.0
million
charge-off
recorded
on
a
nonaccrual
commercial
mortgage
loan
transferred
to
OREO
during
2023,
partially
offset
by
an
improvement
on
the
economic
outlook
of
certain
macroeconomic variables, such as the unemployment rate.
●
Provision
for
credit losses
for
the residential
mortgage
loan portfolio
was a
net benefit
of $16.2
million
for the
year ended
December 31, 2024,
compared to a net benefit
of $6.9 million for
year ended December 31,
2023. The increase
in net benefit
recorded during
2024 was
driven by
updated historical
loss experience
used for
determining the
ACL estimate
resulting in
a
downward
revision
of
estimated
loss
severities
and
lower
required
reserve
levels
as
further
explained
in
Note
4
–
“Loans
Held
for
Investment,”
and
a
higher
benefit
associated
with
updated
macroeconomic
variables,
mainly
in
the
long-term
projection of the unemployment rate in the Puerto Rico region,
partially offset by newly originated loans.
●
Provision
for credit
losses for
the consumer
loan and
finance lease
portfolios
was an
expense of
$96.6
million for
the year
ended December
31, 2024, compared
to an expense
of $67.8
million for
the year ended
December 31,
2023. The
increase in
provision expense
was driven
by higher
charge-off
and delinquency
levels in
these portfolios
and portfolio
growth, partially
offset
by
a
$10.0
million
recovery
associated
with
the
bulk
sale
of
fully
charged-off
loans
recorded
during
2024
and
an
improvement
on
the
economic
outlook
of
certain
macroeconomic
variables,
mainly
in
the projection
of
the unemployment
rate.
The
provision
for
credit losses
for
unfunded
commercial
and
construction
loan
commitments and
standby
letters of
credit for
the
year ended December 31, 2024 was a net benefit of
$1.5 million, compared to an expense of $0.4 million
for the year ended December
31,
2023. The
net benefit
recorded during
2024 was
driven by
an improvement
on the
economic
outlook
of certain
macroeconomic
variables, particularly in variables associated with the CRE price index.
The provision
for credit
losses for
held-to-maturity
debt securities
was a
net benefit
of $1.4
million for
the year
ended December
31, 2024, compared
to a net
benefit of $6.1
million for the
year ended
December 31, 2023.
The net benefit
recorded during
2023 was
driven
by the
refinancing of
a $46.5
million
municipal bond
into a
shorter-term
commercial loan
structure
and, to
a lesser
extent,
a
reduction in qualitative reserves driven by updated financial information of certain
bond issuers received during 2023.
The provision for
credit losses for
available-for-sale debt
securities for the
year ended December
31, 2024 was
a net benefit
of $50
thousand, compared to an expense of $20 thousand for the year ended December
31, 2023.
56
Non-Interest Income
Non-interest income
for the
year ended
December 31,
2024 amounted
to $130.7
million, compared
to $132.7
million for
the same
period in 2023. Non-interest income for the year ended
December 31, 2023 included the following Special Items: the $3.6 million
gain
recognized
from
a
legal
settlement,
included
as part
of “other
non-interest
income,”
and
the
$1.6
million
gain
on
the repurchase
of
$21.4
million
in
junior
subordinated
debentures,
reported
as
“gain
on
early
extinguishment
of
debt.”
See
“Non-GAAP
Financial
Measures and
Reconciliations” above
for additional
information. On
a non-GAAP
basis, excluding
the effect
of these
Special Items,
adjusted non-interest income increased by $3.2 million primarily due
to:
●
A
$2.8
million
increase
in
card
and
processing
income,
mainly
in
merchant-related
fees
due
to
higher
transactional
volumes.
●
A $2.1 million
increase in revenues
from mortgage banking
activities, driven by
a $2.1 million increase
in the net
realized
gain on sales
of residential mortgage
loans in the
secondary market mainly
due to higher
margins. During
2024 and 2023,
net
realized
gains
of
$5.4
million
and
$3.3
million,
respectively,
were
recognized
as
a
result
of
GNMA
securitization
transactions and whole loan sales to U.S. GSEs amounting to $160.0 million and
$155.2 million, respectively.
●
A $0.8 million increase in insurance commission income,
mainly related to higher contingent commissions.
●
A $0.8
million increase
in service
charges and
fees on
deposit accounts,
in part
due to
an increase
in the
number of
cash
management transactions of commercial clients.
Partially offset by:
●
A $3.3
million decrease
in adjusted
other non-interest
income mainly
due to
a $3.0
million gain
recognized during
2023
associated with the sale of a banking premise in the Florida region.
Non-Interest Expenses
Non-interest expenses for
the year ended December
31, 2024 amounted to $487.1
million, compared to $471.4
million for the same
period in 2023. The efficiency
ratio for 2024 was 51.92%, compared
to 50.70% for the same period in 2023.
Non-interest expenses
for
the years ended
December 31, 2024
and 2023 include
the $1.1 million
and $6.3 million
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 $20.9 million primarily due to:
●
A $12.8
million increase
in employees’
compensation and
benefits expenses,
driven by
annual salary
merit increases
and
increases
in
bonuses
accruals,
stock-based
compensation
expense,
and
matching
contributions
to
the
employees’
retirement plan.
●
A
$3.6
million
increase
in
professional
service
fees,
mainly
due
to
a
$2.4
million
increase
in
consulting
fees
driven
by
information technology infrastructure enhancements,
and a $0.8 million increase in outsourced technology service fees.
●
A
$2.5
million
increase
in
occupancy
and
equipment
expenses,
mainly
related
to
an
increase
in
maintenance
charges,
partially offset by a decrease in depreciation charges.
●
A $1.6 million increase in credit and debit card processing fees, driven
by higher transactional volumes.
●
A $1.3 million increase in other
non-interest expenses, mainly due to
a $3.5 million increase in charges
for operational and
fraud
losses,
partially
offset
by
a
decrease
of
$1.3
million
in
the
amortization
of
intangible
assets
(mainly
from
core
deposit intangible
assets related
to savings
accounts from
the Banco
Santander Puerto
Rico acquisition,
which were
fully
amortized in 2024),
and a $0.7 million favorable variance in net periodic (benefit) cost of pension
plans.
●
A $1.0 million increase in taxes, other than income taxes, primarily related
to higher municipal license taxes.
Partially offset by:
●
A $2.0 million decrease in business promotion expenses, as a result of lower marketing
efforts.
57
Income Taxes
For
the
year
ended
December
31,
2024,
the
Corporation
recorded
an
income
tax
expense
of
$92.5
million,
compared
to
$94.6
million, for the same period in 2023.
The decrease in income tax expense was mainly due to lower pre-tax
income.
The
Corporation’s
annual effective
tax rate,
excluding
entities with
pre-tax
losses from
which
a tax
benefit cannot
be recognized
and discrete
items, was 23.0
%
for the
year ended
December 31,
2024, compared
to 23.5% for
the same period
in 2023. The
effective
tax rate
of the Corporation
is impacted by,
among other
things, the
relationship of
taxable to exempt
income.
See Note 20
– “Income
Taxes”
to the audited consolidated financial statements included in Part II, Item 8
of this Form 10-K for additional information.
As of
December 31,
2024, the
Corporation had
a net
deferred tax
asset of
$136.4 million,
net of
a valuation
allowance of
$119.1
million,
compared to
a net
deferred tax
asset of
$150.1
million,
net of
a valuation
allowance of
$139.2 million,
as of
December 31,
2023.
The decrease in the net deferred
tax asset was mainly related to
the usage of alternative minimum
tax credits and the decrease
in
the ACL.
Meanwhile, the
decrease in
the valuation
allowance was
primarily
related to
changes in
the market
value of
available-for-
sale
debt
securities
and
the
expiration
of
capital
loss
carryforwards,
both
which
resulted
in
an
equal
change
in
the
net
deferred
tax
asset without impacting earnings.
58
OPERATING SEGMENTS
The Corporation’s
operating segments
are based
primarily on
the Corporation’s
lines of
business for
its operations
in Puerto
Rico,
the Corporation’s
principal market,
and by
geographic areas
for its
operations outside
of Puerto
Rico. As
of December
31, 2024,
the
Corporation
had
six
reportable
segments:
Mortgage
Banking;
Consumer
(Retail)
Banking;
Commercial
and
Corporate
Banking;
Treasury and
Investments; United States Operations;
and Virgin
Islands Operations. The Chief Executive
Officer (“CEO”), who
is the
designated
chief
operating
decision
maker
(“CODM”),
as
ultimate
decision
maker,
evaluates
performance
and
allocates
resources
based
on financial
information
provided
by management.
In determining
the reportable
segments,
the
Corporation
considers
factors
such as
the organizational
structure, nature
of the
products,
distribution
channels, customer
relationship
management,
and economic
characteristics of
the business
lines. For
additional information
regarding First
BanCorp.’s
reportable
segments, please
refer
to Note
25, “Segment Information” to the audited financial statements included
in Part II, Item 8 of this Form 10-K.
The accounting
policies for
segment reporting
are consistent with
those described
in Note 1,
“Nature of
Business and
Summary of
Significant
Accounting
Policies” to
the audited
financial
statements
included
in Part
II, Item
8 of
this 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 non-
interest
expenses.
The
segments
are
also
evaluated
based
on
the
average
volume
of
their
interest-earning
assets
(net
of
fair
value
adjustments of investment securities and the ACL).
The Corporation
uses a
funds transfer
pricing system
to match fund
lending and
deposit gathering
functions with
the Treasury
and
Investments
segment
centrally
managing
funding
by
providing
funds
to
the
Mortgage
Banking,
Consumer
(Retail)
Banking,
Commercial
and
Corporate
Banking,
the
United
States
Operations,
and
the
Virgin
Islands
Operations
segments
to
support
their
lending
activities
and
compensating
these
units
for
deposits
gathered.
The
mismatch
between
funds
provided
and
funds
used
is
managed
by
the
Treasury
and
Investments
segment.
The
funds
transfer
pricing
charged
or
credited
are
calculated
using
the
SOFR/swap curve with term rates-based approach,
adjusted for a funding spread that reflects the Corporation’s
cost of funds.
During the
fourth quarter
of 2024,
the Corporation
adopted Accounting
Standard Update
(“ASU”) 2023-07.
In addition,
as part
of
the
Corporation’s
ongoing
efforts
to
enhance
internal
reporting,
in
the
fourth
quarter
of
2024,
the
Corporation
refined
its
segment
performance methodology.
These refinements align
with improvements in
internal reporting and
included changes in
the allocation of
support
units
and
overhead
expenses,
measurement
of
funds
transfer
pricing
(“FTP”),
and
recharacterization
of
certain
business
products.
As such,
to ensure
comparability,
prior period
segment
results have
been recast
to reflect
these refinements.
For the
years
2023
and
2022,
updated
segment
results
include
support
centers
and
overhead
expense
allocations
of
$168.7
million
and
$155.3
million, respectively,
which mainly impacted
the Consumer (Retail)
Banking segment. In
both periods, the
allocation of support
units
and overhead expenses primarily affected the
expense categories of employee’s
compensation and benefits, occupancy and equipment,
and professional
service fees.
See Note
25, “Segment
Information”, to
the audited
financial statements
included in
Part II,
Item 8
of
this Form 10-K for a detailed discussion of ASU 2023-07 adoption
and key refinements and their impact on segment reporting.
59
Mortgage Banking
The Mortgage Banking
segment conducts its operations
primarily through FirstBank.
This segment consists of
the origination, sale,
and
servicing
of
a
variety
of
residential
mortgage
loan
products.
Originations
are
sourced
through
different
channels,
such
as
FirstBank branches
and purchases
from mortgage
bankers, and
in association
with new
project developers.
This segment
focuses on
originating residential real estate loans, including those that conform
to the Federal Housing Administration (the “FHA”), the Veterans
Administration
(the
“VA”),
and
U.S.
Department
of
Agriculture
Rural
Development
(“RD”)
standards.
Loans
that
meet
FHA’s
standards qualify for FHA’s
insurance, while loans that meet VA
or RD standards are guaranteed by the respective federal agencies.
Mortgage
loans
that
do
not
qualify
for
the
FHA,
VA,
or
RD
programs
are
referred
to
as
conventional
loans,
which
can
be
conforming or non-conforming. Conforming
loans are those that meet the
standards for sale under the U.S.
Federal National Mortgage
Association
(“FNMA”)
and
the
U.S.
Federal
Home
Loan
Mortgage
Corporation
(“FHLMC”)
programs.
Loans
that
do
not
meet
FNMA
or
FHLMC
standards
are
referred
to
as
non-conforming
residential
real
estate
loans.
The
Mortgage
Banking
segment
also
acquires
and
sells mortgages
in the
secondary
market.
Conforming
residential
real estate
loans are
sold to
investors
such
as FNMA
and FHLMC, and the Corporation has commitment authority to issue GNMA
MBS.
For the year ended December 31, 2024, segment income before
taxes for the Mortgage Banking segment increased to $58.5 million,
compared to $55.0 million for the same period in 2023. The highlights
of the segment’s financial results are as follows
:
●
Net interest
income for
the year
ended December
31, 2024
was $72.5
million, compared
to $75.8
million for
the same
period in
2023. The
decrease in
net interest
income of
$3.3 million
was primarily
attributable to
a change
in asset
mix
and related funding costs.
●
The provision
for credit
losses for
the year ended
December 31,
2024 was
a net benefit
of $15.5
million, compared
to a
net benefit
of $7.9
million for
the same
period in
2023. The
increase in
net benefit
recorded during
2024 was
driven by
updated historical
loss experience used
for determining
the ACL estimate
resulting in
a downward
revision of estimated
loss
severities
and
lower
required
reserve
levels
as
further
explained
in
Note
4
–
“Loans
Held
for
Investment,”
and
a
higher
benefit
associated
with
updated
macroeconomic
variables,
mainly
in
the
long-term
projection
of
the
unemployment rate, partially offset by newly originated
loans.
●
Non-interest income
for the
year ended
December 31,
2024 was
$13.5 million,
compared to
$11.2
million for
the same
period
in
2023.
The
increase
of
$2.3
million
was driven
by an
increase
in
the
net
realized
gain
on
sales of
residential
mortgage loans in the secondary market mainly due to higher margins.
●
Non-interest expenses for the year ended December 31, 2024 were $43.0
million, compared to $39.9 million for the same
period in
2023. The
increase of
$3.1 million
was driven
by: (i)
a $1.6
million increase
in employees’
compensation and
benefits
expenses,
mainly
related
to
annual
salary
merit
increases
and
increases
in
bonuses
accruals
and
matching
contributions to the
employees’ retirement plan;
(ii) a $1.8
million decrease in
net gains on
OREO operations, driven
by
a
decrease
in net
realized
gains on
sales of
residential
OREO properties
in
the Puerto
Rico
region;
(iii)
a $0.6
million
increase
in
professional
service
fees,
driven
by
higher
collections,
appraisals,
and
credit-related
fees;
and
(iv)
a
$0.4
million
increase
in taxes,
other than
income taxes,
primarily
related
to higher
municipal license
taxes. These
variances
were partially
offset by
a $1.0
million decrease
in FDIC
deposit insurance
expense due
to the
lower special
assessment
charge recognized during 2024.
60
Consumer (Retail) Banking
The
Consumer
(Retail)
Banking
segment
includes
the
Corporation’s
consumer
lending,
commercial
lending
to
small
businesses,
commercial
transaction
banking,
and
deposit-taking
activities
(other
than
those assigned
to
the
Commercial
and
Corporate
Banking
segment) primarily
conducted through
FirstBank’s
branch network
and loan
centers in Puerto
Rico.
Retail deposits
gathered through
each branch
of FirstBank’s
retail network
serve as one
of the funding
sources for the
lending and
investing activities.
Other activities
included in this segment are insurance activities in the Puerto Rico region.
For
the
year
ended
December
31,
2024,
segment
income
before
taxes
for
the
Consumer
(Retail)
Banking
segment
increased
to
$243.3
million,
compared
to
$210.4
million
for
the
same
period
in
2023.
The
highlights
of
the
segment’s
financial
results
are
as
follows:
●
Net interest income
for the year ended
December 31, 2024 was
$550.8 million, compared
to $484.3 million
for the same
period in
2023. The increase
of $66.6
million was primarily
driven by
higher income
from funds loaned
to the Treasury
and
Investments
segment,
which
resulted
from higher
market interest
rates
and
higher
average deposit
balances
which
more than offset the increase in interest rates paid on retail deposits.
●
The
provision
for
credit
losses
for
the
year
ended
December
31,
2024
increased
by
$29.2
million
to
$95.3
million,
compared to
$66.1 million for
the same period
in 2023. The
increase in provision
expense was driven
by higher charge-
off and delinquency levels
and portfolio growth, partially offset by
a $10.0 million recovery associated with
the bulk sale
of fully charged-off
loans recorded during 2024 and
an improvement on the economic outlook
of certain macroeconomic
variables, mainly in the projection of the unemployment rate.
●
Non-interest income
for the
year ended
December 31,
2024 was
$96.2 million,
compared to
$92.6 million
for the
same
period in 2023. The increase of $3.6 million was driven
by a $2.4 million increase in card and processing income,
mainly
in
merchant-related
fees
due
to
higher
transactional
volumes,
and
a
$0.9
million
increase
in
insurance
commission
income, mainly related to higher contingent commissions.
●
Non-interest
expenses for
the year
ended December
31, 2024
were $308.4
million, compared
to $300.4
million for
the
same period in 2023.
The increase of $8.0 million
was driven by: (i) a
$5.8 million increase in employees’
compensation
and
benefits
expenses,
mainly
related
to
annual
salary
merit
increases
and
increases
in
bonuses
accruals,
stock-based
compensation
expense,
and
matching
contributions
to
the
employees’
retirement
plan;
(ii)
a
$2.3
million
increase
in
professional service
fees, driven
by information
technology infrastructure
enhancements; (iii)
a $1.5
million increase
in
occupancy and
equipment expenses;
and (iv)
a $1.4
million increase
in credit
and debit
card processing
fees, driven
by
higher transactional volumes.
These variances were partially
offset by a $1.6
million decrease in FDIC deposit
insurance
expense
due
to
a
lower
special
assessment
charge
recognized
during
2024,
and
a
$1.5
million
decrease
in
business
promotion expenses, as a result of lower marketing efforts.
61
Commercial and Corporate Banking
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
government
sector.
This
segment
consists
of
the
Corporation’s
commercial lending (other than small
business commercial loans) and commercial
deposit-taking activities (other than the
government
sector). A substantial
portion of the
commercial and corporate
banking portfolio is
secured by the underlying
real estate collateral
and
the personal guarantees from the borrowers.
For
the
year
ended
December
31,
2024,
segment
income
before
taxes
for
the
Commercial
and
Corporate
Banking
segment
increased to $137.9
million, compared to $119.8
million for the same
period in 2023. The
highlights of the segment’s
financial results
are as follows:
●
Net interest income
for the year ended
December 31, 2024 was
$157.7 million, compared
to $142.3 million
for the same
period
in 2023.
The increase
of $15.3
million
was primarily
attributable
to a
$22.7
million
increase
in interest
income
due to
higher average
loan balances
combined with
the effect
of higher
market interest
rates on
the upward
repricing of
variable-rate
loans.
These
factors
were
partially
offset
by
a
$6.5
million
increase
in
the
cost
of
funds
charged
to
this
segment resulting from higher market interest rates.
●
The provision
for credit
losses for
the year ended
December 31,
2024 was
a net benefit
of $12.9
million, compared
to a
net benefit
of $6.0
million
for the
same period
in 2023.
The net
benefit
recorded
during 2024
was associated
with the
improved financial
condition of
certain borrowers;
a recovery
of $5.0
million associated
with a
C&I loan
in the
Puerto
Rico
region;
and
an
improvement
on
the
economic
outlook
of
certain
macroeconomic
variables,
particularly
variables
associated
with
commercial
real
estate
property
performance
and
the
forecasted
CRE
price
index;
partially
offset
by
portfolio growth.
Meanwhile, the
net benefit
recorded during
2023 reflects
an improvement
on the
economic outlook
of
certain
macroeconomic
variables such
as the
unemployment rate,
partially offset
by a
$1.7 million
incremental
reserve
associated
with
the
inflow
to
nonaccrual
status
of
a
$9.5
million
C&I
loan
and
a
$1.0
million
charge
recorded
on
a
nonaccrual commercial mortgage loan transferred to OREO during 2023.
●
Non-interest
income
for the
year ended
December 31,
2024 was
$7.0
million,
compared to
$11.1
million
for the
same
period
in
2023.
The
decrease
of
$4.1
million
was
driven
by
the
$3.6
million
gain
recognized
in
2023
from
a
legal
settlement.
●
Non-interest expenses for the year ended December 31, 2024 were $39.7
million, compared to $39.6 million for the same
period in 2023.
The increase of
$0.1 million was
mainly due to
a $2.1 million
increase in employees’
compensation and
benefits
expenses,
mainly
related
to
annual
salary
merit
increases
and
increases
in
bonuses
accruals
and
stock-based
compensation
expense; a
$0.8 million
increase
in taxes,
other than
income taxes,
primarily
related
to higher
municipal
license taxes; and a $0.7
million increase in occupancy and equipment
expenses. These variances were partially
offset by
a
$2.6
million
increase
in
net
gains
on
OREO
operations,
driven
by
a
$2.3
million
realized
gain
on
the
sale
of
a
commercial
real
estate
OREO
property
in
the
Puerto
Rico
region
during
2024;
and
a
$1.4
million
decrease
in
FDIC
deposit insurance expense due to a lower special assessment charge
recognized during 2024.
62
Treasury and
Investments
The
Treasury
and
Investments
segment
is
responsible
for
the
Corporation’s
investment
portfolio
and
treasury
functions.
The
treasury
function centrally
manages funding
by providing
funds to
the Mortgage
Banking,
Consumer (Retail)
Banking,
Commercial
and
Corporate
Banking,
United
States
Operations,
and
Virgin
Islands
Operations
segments
to
support
their
respective
lending
activities and by
compensating these
units for deposits
gathered. The
Treasury function
also obtains funds
through brokered
deposits,
advances from the FHLB, and repurchase agreements involving investment
securities, among other funding sources.
The
investment
function
is intended
to
implement
a
funding
strategy
for
the
purposes of
liquidity
management,
interest rate
risk
management and earnings enhancement.
The funds
transfer pricing
charged
or credited
by Treasury
and Investments
are calculated
using the
SOFR/swap curve
with term
rates, adjusted for a funding spread that reflects the Corporation’s
cost of funds.
For the
year ended
December 31,
2024, segment
loss before
taxes for
the Treasury
and Investments
segment was
$120.8 million,
compared to $38.4 million for the same period in 2023. The highlights
of the segment’s financial results are as follows:
●
Net
interest
loss
for
the
year
ended
December
31,
2024
was
$112.1
million,
compared
to
$31.9
million
for
the
same
period in
2023. The
increase in
net interest
loss of
$80.3 million
was primarily
due to
a higher
charge on
funds loaned
from the Consumer (Retail) Banking segment.
●
Non-interest
income
for
the
year
ended
December
31,
2024
was
$0.5
million,
compared
to
$2.1
million
for
the
same
period in
2023. The
decrease was
driven by
the $1.6
million gain,
recognized during
2023, on
the repurchase
of $21.4
million in junior subordinated debentures.
●
Non-interest expenses
for the
year ended
December 31,
2024 were
$9.2 million,
compared to
$8.6 million
for the
same
period in 2023. The increase of $0.6 million was mainly in professional service
fees.
63
United States Operations
The United
States Operations
segment
consists of
all banking
activities conducted
by FirstBank
on the
U.S. mainland.
FirstBank
provides a wide
range of banking services
to individual and corporate
customers,
primarily in southern
Florida, through eight
banking
branches.
This
segment
offers
a
variety
of
consumer
and
commercial
banking
products
and
services.
Consumer
banking
products
include checking,
savings and
money market
accounts, retail
CDs, internet
banking services,
residential mortgages,
and home
equity
loans and
lines of
credit. Retail
deposits,
as well
as FHLB
advances
and brokered
CDs, allocated
to this
operation serve
as funding
sources for its lending activities.
Commercial
banking
services
include
checking,
savings
and
money
market
accounts,
retail
CDs,
internet
banking
services,
cash
management services, remote data capture,
and automated clearing house (“ACH”)
transactions.
Loan products include the traditional
C&I and commercial real estate products, such as lines of credit, term loans,
and construction loans.
For the
year ended
December 31,
2024, segment
income before
taxes for
the United
States Operations
segment increased
to $42.7
million, compared to $26.2 million for the same period in 2023. The highlights
of the segment’s financial results are
as follows:
●
Net interest
income for
the year
ended December
31, 2024
was $78.0
million, compared
to $70.8
million for
the same
period in 2023. The increase of $7.2 million
was mainly related to higher average loan balances combined
with the effect
of
higher
market
interest
rates
on
the
upward
repricing
of
variable-rate
loans
and
on
new
loan
originations
in
the
commercial and construction loan portfolios, that outweighed the impact of
the increase in interest rates paid on deposits.
●
The provision
for credit
losses for
the year ended
December 31,
2024 was
a net benefit
of $6.7
million, compared
to an
expense
of
$8.6
million
for
the
same
period
in
2023.
The
net
benefit
recorded
during
2024
was
associated
with
an
improvement
on
the
economic
outlook
of
certain
macroeconomic
variables,
particularly
variables
associated
with
commercial real
estate property
performance and
the forecasted
CRE price
index; and
$1.2 million
in recoveries
of two
commercial loans;
partially offset
by portfolio
growth. Meanwhile,
the provision
for credit
losses recorded
during 2023
was
mainly
due
to
a
$6.0
million
charge
associated
with
a
nonaccrual
C&I
participated
loan
in
the
power
generation
industry.
●
Non-interest
income
for
the
year
ended
December
31,
2024
was
$3.6
million,
compared
to
$6.8
million
for
the
same
period in
2023. The
decrease of
$3.2 million
was mainly
due to
a $3.0
million gain
recognized during
2023 associated
with the sale of a banking premise.
●
Non-interest expenses for the year ended December 31, 2024 were $45.6
million, compared to $42.8 million for the same
period
in
2023.
The
increase
of
$2.8
million
was
driven
by
a
$2.2
million
increase
in
employees’
compensation
and
benefits
expenses,
mainly
related
to
annual
salary
merit
increases
and
increases
in
bonuses
accruals,
stock-based
compensation expense, and matching contributions to the employees’
retirement plan.
64
Virgin
Islands Operations
The Virgin
Islands Operations
segment consists
of all
banking activities
conducted by
FirstBank in
the USVI
and BVI,
including
commercial and consumer
banking services.
This segment operates
through eight banking
branches serving in
the USVI islands of
St.
Thomas,
St.
Croix,
and
St.
John,
as
well
as
the
island
of
Tortola
in
the
BVI.
This
segment’s
primary
business
activities
include
consumer
and
commercial
lending,
and
deposit-taking
activities. Retail
deposits
gathered
through
each branch
serve as
the
primary
funding sources for the segment’s lending
activities.
For the year
ended December 31,
2024, segment
income before taxes
for the Virgin
Islands Operations segment
increased to $29.7
million, compared
to $24.6
million for
the same
period in
2023. The
increase was
mainly due
to higher
income from
funds loaned
to
other business segments
resulting from higher
market interest rates
that outweighed the
impact of the increase
in interest rates paid
on
government time deposits.
65
FINANCIAL CONDITION AND OPERATING
DATA
ANALYSIS
Financial Condition
December 31,
2024
2023
2022
(In thousands)
ASSETS
Interest-earning assets:
$
710,945
$
584,083
$
1,156,127
2,517,327
2,843,284
2,870,889
3,348,925
3,702,908
4,052,660
34,161
36,606
20,419
18,510
14,167
12,747
6,629,868
7,181,048
8,112,842
2,816,732
2,814,102
2,886,594
221,822
172,952
121,642
5,606,827
5,244,503
5,092,638
879,437
789,870
636,507
2,830,678
2,704,877
2,461,632
12,355,496
11,726,304
11,199,013
18,985,364
18,907,352
19,311,855
Total non-interest-earning assets
578,900
573,010
603,728
Valuation allowances and ACL
(1)
(602,908)
(773,939)
(536,934)
$
18,961,356
$
18,706,423
$
19,378,649
LIABILITIES
Interest-bearing liabilities:
$
2,999,078
$
2,590,313
$
2,213,145
627,454
348,829
69,694
7,567,514
7,664,793
8,279,320
11,194,046
10,603,935
10,562,159
245
54,570
194,948
500,055
541,000
179,452
146,044
171,184
184,173
11,840,390
11,370,689
11,120,732
Total non-interest-bearing liabilities
(2)
5,556,423
5,950,495
6,622,638
17,396,813
17,321,184
17,743,370
STOCKHOLDERS’ EQUITY
1,564,543
1,385,239
1,635,279
Total liabilities and stockholders' equity
$
18,961,356
$
18,706,423
$
19,378,649
(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.
(2) Includes, among other things, non-interest-bearing deposits.
The Corporation’s
total average assets
were $19.0
billion for the
year ended December
31, 2024, compared
to $18.7 billion
for the
year
ended December
31, 2023,
a net
increase
of $254.9
million.
The variance
primarily reflects
the following:
(i) a
$629.2 million
increase in the
average balance of
total loans,
mainly consisting
of a $411.2
million increase in
the commercial
and construction
loan
portfolios and an increase
of $215.4 million in
consumer loans, mainly in
the auto loan and
finance lease portfolios;
(ii) an increase of
$126.9
million in the average balance of interest-bearing
cash, which consisted primarily of deposits
maintained at the FED;
and (iii) a
decrease
of
$165.7
million
in
unrealized
losses
on
available-for-sale
debt
securities.
These
variances
were
partially
offset
by
a
decrease of $679.9 million in debt securities, mainly due to maturities
and principal repayments of U.S. agencies MBS and debentures
,
net of purchases.
The Corporation’s
total average liabilities were
$17.4 billion for the
year ended December 31,
2024, a net increase
of $75.6 million
compared to
December 31,
2023. The
net increase
was related
to increases
of $408.8
million in
the average
balance of
non-brokered
time
deposits
and
$278.6
million
in
the
average
balance
of
brokered
CDs.
These
variances
were
partially
offset
by
a
decrease
of
$394.1 million in the average balance of non-interest-bearing
liabilities, primarily in non-interest-bearing deposits, reflecting
the effect
of
customers
allocating
more
cash
into
higher
yielding
alternatives;
a
decrease
of
$120.4
million
in
the
average
balance
of
total
borrowings, mainly
associated with
FHLB advances,
and the aforementioned
$100.0 million
redemption of
outstanding TruPS
;
and a
decrease of $97.3 million in interest-bearing non-maturity deposits.
66
Assets
The Corporation’s
total assets were $19.3
billion as of December
31, 2024, an increase
of $383.4 million from
December 31, 2023,
primarily
related
to
an
increase
in
total
loans
and
cash
and
cash
equivalents,
partially
offset
by
net
repayments
of
investment
securities.
Loans Receivable, including Loans Held for Sale
As of
December 31,
2024, the
Corporation’s
total loan
portfolio before
the ACL
amounted to
$12.8 billion,
an increase
of $569.0
million
compared
to
December
31,
2023.
In
terms
of
geography,
the
growth
consisted
of
increases
of
$290.8
million
in
the
Puerto
Rico
region,
$273.0
million
in
the
Florida
region,
and
$5.2
million
in
the
Virgin
Islands
region.
On
a
portfolio
basis,
the
growth
consisted of increases of
$454.3 million in commercial
and construction loans;
$100.1 million in consumer
loans,
primarily auto loans
and finance leases; and $14.6 million in residential mortgage loans.
As
of
December
31,
2024,
the Corporation’s
loans
held-for-investment
portfolio
was
comprised
of
commercial
and
construction
loans (48%),
consumer loans
and finance
leases (30%),
and residential
real estate
loans (22%).
Of the
total gross
loan portfolio
held
for investment
of $12.7
billion as
of December
31, 2024,
the Corporation
had credit
risk concentration
of approximately
79% in
the
Puerto Rico region,
18% 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 December 31, 2024
Puerto Rico
Virgin Islands
United States
Total
(In thousands)
Residential mortgage loans
$
2,166,980
$
156,225
$
505,226
$
2,828,431
Construction loans
181,607
2,820
43,969
228,396
Commercial mortgage loans
1,800,445
67,449
698,090
2,565,984
C&I loans
2,192,468
133,407
1,040,163
3,366,038
4,174,520
203,676
1,782,222
6,160,418
Consumer loans and finance leases
3,680,628
69,577
7,502
3,757,707
$
10,022,128
$
429,478
$
2,294,950
$
12,746,556
Loans held for sale
14,558
434
284
15,276
$
10,036,686
$
429,912
$
2,295,234
$
12,761,832
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
First
BanCorp.
relies
primarily
on
its
retail
network
of
branches
to
originate
residential
and
consumer
personal
loans.
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 the relationships with auto dealers and dedicated sales professionals who serve
selected locations in order facilitate originations.
67
ACL on loans and finance leases as of and for the indicated dates:
For the Year
Ended December 31,
2024
2023
2022
(Dollars in thousands)
Beginning balance as of January 1
$
11,931,008
$
11,304,667
$
10,826,783
Residential real estate loans originated and purchased
460,726
424,641
468,599
Construction loans originated
207,421
154,720
112,640
C&I and commercial mortgage loans originated and purchased
3,113,258
2,750,817
2,950,904
Finance leases originated
263,693
327,528
308,811
Consumer loans originated
1,372,537
1,468,794
1,516,316
Total loans originated
and purchased
5,417,635
5,126,500
5,357,270
Sales of loans
(165,533)
(155,733)
(293,213)
Repayments and other decreases
(1)
(4,665,220)
(4,344,426)
(4,586,173)
Net increase
586,882
626,341
477,884
Ending balance as of December 31
$
12,517,890
$
11,931,008
$
11,304,667
Percentage increase
4.92%
5.54%
4.41%
_______________________
(1)
Includes, among other things, the change in the ACL on loans
and finance leases and cancellation of loans due to the repossession
of the collateral and loans repurchased.
Residential Real Estate Loans
As of
December
31, 2024,
the Corporation’s
total residential
mortgage
loan portfolio,
including
loans held
for
sale, increased
by
$14.6
million
compared
to
the
balance
as
of
December
31,
2023.
The
increase
in
the
residential
mortgage
loan
portfolio
reflects
a
growth
of
$39.8
million
in
the
Florida
region,
partially
offset
by
decreases
of
$13.7
million
in
the
Puerto
Rico
region
and
$11.5
million
in the
Virgin
Islands
region.
The
increase was
driven
by the
volume
of new
loan
originations,
mainly
non-conforming
loan
originations
kept
on
the
balance
sheet,
which
more
than
offset
repayments.
Approximately
47%
of
the
$362.2
million
residential
mortgage
loan
originations
in
the
Puerto
Rico
region
during
2024
consisted
of
conforming
loans,
compared
to
46%
of
the
$324.3
million originated in 2023.
As of
December 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 34% 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.
Residential
mortgage
loan
originations
for
the
year
ended
December
31,
2024
amounted
to
$460.7
million,
compared
to
$424.6
million for
2023. The increase
in residential
mortgage loan originations
of $36.1 million
mainly consisted
of a $37.9
million increase
in the Puerto Rico region.
Commercial and Construction Loans
As of
December 31,
2024, the
Corporation’s
commercial and
construction loans
portfolio increased
by $454.3
million, as compared
to the
balance as
of December
31, 2023.
This growth
included an
increase of
$231.6 million
in the
Florida region,
reflecting, among
other things, the effect
of the origination of several
commercial and construction relationships,
each in excess of $10 million,
of which
$186.3
million
are
related
to
ten
C&I
relationships
and
$63.1
million
are
related
to
four commercial
mortgage
relationships.
These
variances were partially
offset by payoffs
and paydowns of
five C&I relationships
totaling $78.9
million and lower
utilization of C&I
lines of credit.
The Puerto
Rico region
also grew
by $207.2
million, when
compared to
the balance
as of
December 31,
2023. This
increase was
driven by a $69.9
million increase in construction
loans, which includes
a $46.4 million increase
in construction loans
funded through
conduit
financing
structures
to
support
the
federal
programs
of
Low-Income
Housing
Tax
Credit
(“LIHTC”)
combined
with
Community
Development
Block
Grant-Disaster
Recovery
(“CDBG-DR”)
funding;
the
origination
of
five
commercial
relationships
with
an
aggregate
balance
of
$129.9
million;
higher
utilization
of
C&I
lines
of
credit;
and
the
origination
of
two
loans
to
municipalities
with an
aggregate balance
of $23.6
million. These
variances
were partially
offset
by multiple
payoffs
and paydowns,
including
the
payoffs
of
three
commercial
and
construction
relationships
totaling
$47.5
million
and
the
sale
of
an
$8.2
million
nonaccrual C&I loan, net of a $1.2 million charge-off.
68
In
the
Virgin
Islands
region,
commercial
and
construction
loans
increased
by
$15.5
million,
as
compared
to
the
balance
as
of
December 31, 2023, mainly associated with disbursements of a government
line of credit.
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
December
31,
2024,
the Corporation’s
total
commercial
mortgage
loan
exposure
amounted
to
$2.6
billion,
or 20%
of
the
total loan portfolio. In terms of
geography, $1.8
billion of the exposure was in the
Puerto Rico region, $0.7 billion of
the exposure was
in the
Florida region,
and $0.1
billion of
the exposure
was in
the Virgin
Islands region.
The $1.8
billion exposure
in the
Puerto Rico
region was
comprised mainly
of 40%
in the
retail industry,
25% in
office real
estate, and
22% in
the hotel
industry.
The $0.7
billion
exposure
in the
Florida region
was comprised
mainly of
35% in
the retail
industry,
22% in
the hotel
industry,
and 8%
in office
real
estate. Of
the Corporation’s
total commercial
mortgage
loan exposure
of $2.6
billion, $547.6
million matures
or reprices
within the
next
12
months.
Of
this
amount,
$420.7
million
matures
within
the
next
12
months
and
has
a
weighted-average
interest
rate
of
approximately
6.40%.
Commercial
mortgage
loan
exposure
in
the
office
real
estate
industry,
which
matures
within
the
next
12
months, amounted
to $120.4
million and
has a
weighted-average interest
rate of
approximately 6.51%.
During 2024,
the Corporation
modified $127.5
million commercial
mortgage loans,
of which
$110.0 million
are related
to a
commercial mortgage
relationship that
had been previously
reported as a troubled
debt restructuring under
ASC 310-40 and was performing
according to modified terms
and
a $12.2 million nonaccrual commercial mortgage loan in the Florida region.
As of
December
31, 2024
and 2023,
the Corporation’s
total exposure
to shared
national credit
(“SNC”) loans
(including
unused
commitments) amounted
to $1.3 billion
and $1.2 billion,
respectively.
As of December
31, 2024, approximately
$360.8 million of
the
SNC exposure is related to the portfolio in the Puerto Rico region and $894.3
million is related to the portfolio in the Florida region.
Commercial
and
construction
loan
originations
(excluding
government
loans)
for
the
year
ended
December
31,
2024 amounted
to
$3.1 billion, compared
to $2.7 billion for
2023. The increase
of $416.3 million
was mainly due to
an increase of
$347.4 million in the
Florida region.
The growth in
the Florida
region for
2024 includes the
effect of
the origination
of multiple
C&I relationships,
each in
excess
of
$10
million,
with
an
aggregate
balance
of
$274.3
million,
increased
utilization
of
C&I
lines
of
credit,
and
an
increase
in
commercial mortgage loan originations of $64.4 million.
Government loan originations for the year ended December
31, 2024 amounted to $179.5 million, compared to $180.7 million
for the
comparable period in 2023.
Consumer Loans and Finance Leases
As
of
December
31,
2024,
the
Corporation’s
consumer
loans
and
finance
leases
portfolio
increased
by
$100.1
million
to
$3.8
billion,
mainly
in
the
Puerto
Rico
region,
reflecting
growth
of
$89.9
million
and
$42.6
million
in
the
auto
loan
and
finance
lease
portfolios, respectively,
partially offset
by decreases in
the remaining portfolio
classes, including a
$19.4 million decrease
in personal
loans.
Originations of
auto loans (including
finance leases) for
the year ended
December 31, 2024
amounted to $933.9
million, compared
to
$1.0
billion
for
the
comparable
period
in
2023.
The
decrease
was
mainly
in
the
Puerto
Rico
region.
Other
consumer
loan
originations, other
than credit
cards, for
the year
ended December
31, 2024
amounted to
$236.7 million,
compared to
$302.6 million
for the comparable
period in 2023.
Most of the
decrease in other
consumer loan originations
was in the
Puerto Rico region
as a result
of a higher
interest rate environment
.
The utilization activity
on the outstanding
credit card portfolio
for the year
ended December 31,
2024 amounted to $465.6 million, compared to $492.6 million
for the comparable period in 2023.
69
Maturities of Loans Receivable
interest rate type:
After One Year
After Five Years
Total Portfolio
One Year or Less
Through Five Years
Through 15 Years
After 15 Years
(In thousands)
Residential mortgage
$
106,819
$
416,373
$
1,152,616
$
1,152,623
$
2,828,431
Construction loans
45,976
105,823
71,184
5,413
228,396
Commercial mortgage loans
572,353
1,619,325
369,558
4,748
2,565,984
C&I loans
1,352,683
1,674,202
336,114
3,039
3,366,038
Consumer loans
1,167,710
2,337,299
252,411
287
3,757,707
Total loans
(1)
$
3,245,541
$
6,153,022
$
2,181,883
$
1,166,110
$
12,746,556
Amount due in one year or less at:
Amount due after one year:
Total Portfolio
Fixed Interest Rates
Variable Interest
Rates
Fixed Interest Rates
Variable Interest
Rates
Residential mortgage
$
103,200
$
3,619
$
2,542,738
$
178,874
$
2,828,431
Construction loans
5,153
40,823
136,380
46,040
228,396
Commercial mortgage loans
348,193
224,160
1,533,795
459,836
2,565,984
C&I loans
303,764
1,048,919
559,633
1,453,722
3,366,038
Consumer loans
919,901
247,809
2,584,333
5,664
3,757,707
Total loans
(1)
$
1,680,211
$
1,565,330
$
7,356,879
$
2,144,136
$
12,746,556
(1)
Scheduled repayments are included in the maturity category in which the payment is due. The amounts provided do not reflect prepayment assumptions related to the loan portfolio.
70
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
December
31,
2024
amounted
to
$4.6
billion,
a
$664.7
million
decrease
from
December
31,
2023.
The
decrease
was
driven
by
repayments
of
$623.4
million
associated
with
matured
securities
and
approximately
$373.6
million
in
repayments
of
U.S.
agencies
MBS
and
debentures.
This
was
partially
offset
by
approximately $266.2
million in
purchases of
available-for-sale debt
securities, of
which $224.5
million consisted
of residential
U.S.
agencies
MBS
and
$40.7
million
of
U.S.
agencies
commercial
MBS,
as
well
as
$73.2
million
increase
in
fair
value
attributable
to
changes
in
market
interest
rates.
As
of
December
31,
2024,
the
Corporation
had
a
net
unrealized
loss
on
available-for-sale
debt
securities
of
$559.6
million. This
net
unrealized
loss is
primarily
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 December
31,
2024,
cash
inflows
ranging
from
$1.5
billion
to
$1.6
billion,
which
are
expected
to
be
received
during
2025
from
the
contractual
maturities
of the
available-for-sale
debt
securities portfolio
,
which
has an
average yield
of 1.24%.
These inflows
are expected
to be
redeployed to fund loan growth, reinvested into higher-yielding
securities,
or used to repay maturing brokered CDs.
As
of
December
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
December 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
$2.9
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 $1.3 million
as of December 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
December
31,
2024,
the
Corporation’s
held-to-maturity
debt
securities
portfolio,
before
the
ACL,
decreased
to
$317.8
million, compared to $354.2 million as of December 31, 2023.
Held-to-maturity
debt
securities
include
fixed-rate
GSEs’
MBS
with
a
carrying
value
of
$225.3
million
(fair
value
of
$212.4
million) as of December
31, 2024, compared to $247.1
million as of December 31,
2023. Held-to-maturity debt securities
also include
$92.4 million as
of December 31,
2024, compared to
$107.0 million as
of December 31,
2023,
of 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
December
31,
2024,
approximately
57%
of
the
Corporation’s
municipal
bonds
consisted
of
obligations
issued
by
three
of
the
largest
municipalities
in
Puerto Rico.
The municipalities are
required by law
to levy special
property taxes
in such amounts
as are required
for the payment
of
all of their respective general obligation bonds and loans.
See
“Risk Management
–
Exposure
to Puerto
Rico
Government”
below
for
information
and
details
about
the Corporation’s
total
direct exposure
to the
Puerto Rico
government, including
municipalities,
and “Risk
Management
– Credit
Risk Management”
below
and Note 3 – “Debt Securities” for the ACL of the exposure to Puerto Rico
municipal bonds.
71
December 31, 2024
December 31, 2023
(In thousands)
Money market investments
$
1,200
$
1,239
Available-for-sale
debt securities, at fair value:
U.S. government and agencies obligations
1,899,520
2,443,790
Puerto Rico government obligations
1,620
1,415
MBS:
2,481,253
2,633,161
181,909
151,618
Other
1,000
-
4,565,302
5,229,984
Held-to-maturity debt securities, at amortized cost:
MBS:
129,319
146,468
96,025
100,670
Puerto Rico municipal bonds
92,442
107,040
(802)
(2,197)
316,984
351,981
Equity securities, including $34.0 million and $34.6 million of FHLB stock
as of December 31, 2024 and 2023, respectively
52,018
49,675
Total money market
investments and investment securities
$
4,935,504
$
5,632,879
Carrying Amount
Weighted-Average
Yield %
(Dollars in thousands)
U.S. government and agencies obligations:
Due within one year
$
1,127,041
0.79
Due after one year through five years
764,679
0.96
Due after ten years
7,800
4.73
1,899,520
0.87
Puerto Rico government and municipalities obligations:
Due within one year
2,214
5.07
Due after one year through five years
61,289
7.33
Due after five years through ten years
13,184
5.79
Due after ten years
17,375
6.80
94,062
6.96
Other
1,000
2.32
MBS
2,888,506
1.95
ACL on held-to-maturity debt securities
(802)
-
Total debt securities
$
4,882,286
1.65
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
accretion 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
December 31,
2024, the
Corporation had
approximately $1.3
billion in
callable debt
securities (U.S.
agencies debt
securities) with
an average
yield of
0.81%
of which
approximately 64%
were purchased
at a discount
and 3% 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 3 – “Debt Securities”
for additional information regarding the Corporation’s
debt securities portfolio.
72
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.
Risk Definition
Liquidity Risk
Liquidity risk is
the risk to earnings
or capital arising
from the possibility
that the Corporation
will not have
sufficient cash to
meet
its short-term liquidity
demands, such as
from deposit redemptions
or loan commitments.
See “Liquidity Risk
and Capital Adequacy
”
below for further details.
Interest Rate Risk
Interest
rate
risk
is
the
risk
arising
from
adverse
movements
in
interest
rates.
See
“Interest
Rate
Risk
Management”
below
for
further details.
Market Risk
Market
risk
is
the
risk
of
loss
in
the
value
of
assets
or
liabilities
due
to
changes
in
market
conditions,
including
movements
in
market
rates or
prices, such
as interest
rates
or equity
prices. The
Corporation
evaluates market
risk together
with interest
rate risk.
Both changes in market values
and changes in interest rates
are evaluated and forecasted. See
“Interest Rate Risk Management”
below
for the effects of changes in interest rates on net interest income.
Credit Risk
Credit risk
is the
risk arising
from a
borrower’s or
a counterparty’s
failure to
meet the
terms of
a contract
with the
Corporation or
otherwise to perform as agreed. See “Credit Risk Management”
below for further details.
Operational Risk
controls,
information
systems,
third
party
vendors,
employees
and
operating
processes.
It
also
includes
risks
associated
with
the
Corporation’s preparedness
for the occurrence
of an unforeseen event.
This risk is inherent across
all functions, products,
and services
of the Corporation. See “Operational Risk” below for further details.
Legal,
Regulatory and Compliance Risk
Legal
and
regulatory
risk is
the risk
arising
from
the Corporation’s
failure
to comply
with laws
or
regulations
that can
adversely
affect the Corporation’s
reputation and/or increase its exposure to litigation or penalties.
Reputational Risk
Reputational
risk
is
the
risk
arising
from
any
adverse
effect
on
the
Corporation’s
market
value,
capital,
or
earnings
arising
from
negative public opinion,
whether true or not.
This risk affects the
Corporation’s
ability to establish new
relationships or services,
or to
continue servicing existing relationships.
73
Model Risk
Model risk
is the potential
for adverse
consequences from
decisions based
upon incorrect
or misused
model outputs
and reports
or
based upon
an incomplete or
inaccurate model.
The use of
models exposes the
Corporation to some
level of model
risk. Model errors
can
contribute
to
incorrect
valuations
and
lead
to
operational
errors,
inappropriate
business
decisions,
or
incorrect
financial
entries.
The Corporation seeks to reduce model risk through rigorous model identification
and validation.
Capital Risk
Capital risk
is the
risk that
the Corporation
may lose
value on
its capital
or have
an inadequate
capital plan,
which would
result in
insufficient capital
resources to meet
minimum regulatory requirements
(the Corporation’s
authority to operate
as a bank is dependent
upon the maintenance of adequate capital resources), support its credit rating,
or support its growth and strategic options.
Strategic Risk
Strategic
risk
is
the
risk
arising
from
adverse
business
decisions,
poor
implementation
of
business
decisions,
or
lack
of
responsiveness
to
changes
in
the
banking
industry,
and
operating
environment.
This
risk
is
a
function
of
the
compatibility
of
the
Corporation’s strategic
goals, the business strategies
developed to achieve
those goals, the resources deployed
against these goals, and
the quality of implementation.
Information Technology
and Cybersecurity Risk
Information technology
risk is
the risk
arising from
the loss of
confidentiality,
integrity,
or availability
of information
systems and
risk
of
cyber
incidents
or
data
breaches.
It
includes
business
risks
associated
with
the
use,
ownership,
operation,
involvement,
influence, and adoption of information technology within the Corporation.
Risk Governance
The
following
discussion
highlights
the
roles
and
responsibilities
of
the
key
participants
in
the
Corporation’s
risk
management
framework:
Board of Directors
The
Board
of Directors
oversees the
Corporation’s
overall
risk governance
program
with the
assistance
of the
Board
committees
discussed below.
Risk Committee
The
Board
of
Directors
has
appointed
the
Risk
Committee
to
assist
the
Board
in
fulfilling
its
responsibility
to
oversee
the
Corporation’s
management of
its company-wide
risk management
framework. The
committee’s
role is
one of
oversight, recognizing
that
management
is
responsible
for
designing,
implementing,
and
maintaining
an
effective
risk
management
framework.
The
committee’s primary responsibilities are
to:
●
Review and discuss management’s
assessment of the Corporation’s
aggregate enterprise-wide profile
and the alignment of the
Corporation’s risk profile with
the Corporation’s strategic plan,
goals,
and objectives;
●
Review and recommend to the Board the parameters and establishment of
the Corporation’s risk tolerance and risk
appetite;
●
Receive
reports
from
management
and,
if
appropriate,
other
Board
committees,
regarding
the
Corporation’s
policies
and
procedures
related
to
the
Corporation’s
adherence
to
risk
limits
and
its
established
risk
tolerance
and
risk
appetite
or
on
selected risk topics;
●
Oversee the strategies,
policies, procedures, and
systems established by
management to identify,
assess, measure, and
manage
the
major
risks
facing
the
Corporation,
which
may
include
an
overview
of
the
Corporation’s
credit
risk,
operational
risk,
information
technology
risk,
compliance
risk,
interest
rate
risk,
liquidity
risk,
market
risk,
and
reputational
risk,
as
well
as
management’s capital management,
planning,
and process;
●
Oversee the Corporation’s Retail Quality
Assurance and Loan Review program;
74
●
Oversee
management’s
activities
with
respect
to
capital
stress
testing,
model
risk
management,
vendor
management,
information technology risk and operational risk;
●
Review and discuss with management risk assessments for new products
and services;
●
Review periodically the scope and effectiveness of
the Corporation’s regulatory compliance
policies and programs; and
●
Annually assess the Corporation’s
institutional insurance programs.
The
Risk
Committee
also
receives
regular
reports
and
engages
in
discussions
throughout
the
year
on
the
effectiveness
of
the
Corporate Information Security Program (“CISP”),
including its inherent risk, the roadmap for addressing
those risks, and the progress
in
doing
so.
The
Risk
Committee
annually
reviews
and
approves
the
CISP
and
annually
receives
a
report
on
related
security
safeguards in accordance with the Gramm-Leach-Bliley Act.
Asset and Liability Committee
The
Board of
Directors has
appointed the
Asset and
Liability Committee
to assist
the Board
in its
oversight
of the
Corporation’s
asset
and
liability
management
policies
related
to
the
management
of
the
Corporation’s
funds,
investments,
liquidity,
market
and
interest rate risk, and the use of derivatives. In doing so, the committee’s
primary functions involve:
●
The
establishment
of
a
process
to
enable
the
identification,
assessment,
and
management
of
risks
that
could
affect
the
Corporation’s assets and liabilities management;
●
The
identification
of
the
Corporation’s
risk
tolerance
levels
for
yield
maximization
relating
to
its
assets
and
liabilities
management;
●
The evaluation
of the
adequacy,
effectiveness,
and
compliance
with the
Corporation’s
risk management
process relating
to
the Corporation’s assets and liabilities management,
including management’s role in
that process;
and
●
Oversight of the Corporation’s liquidity
position and liquidity stress testing.
Credit Committee
The Board of
Directors has appointed
the Credit Committee to
assist the Board in
its oversight of the
Corporation’s policies
related
to the Corporation’s lending
function, or credit management. The committee’s
primary responsibilities are to:
●
Monitor the
performance and
quality of
the Corporation’s
credit portfolio
through the
review of
selected measures
of credit
quality and trends and such other information as it deems appropriate;
●
Oversee the effectiveness and administration
of credit-related policies through the review of
such processes, reports and other
information as
it deems appropriate,
including the
loan-quality grading
and examination
process, internal
and external
audits
and examinations
of the
Corporation’s
credit processes,
the incidence
of new
problem assets,
the frequency
and reasons
for
credit policy exceptions, the loan review functions and the asset classification
process;
●
Review on an annual basis and recommend to the Board the lending authorities;
●
Approve loans as required by the lending authorities approved by
the Board; and
●
Report to the Board regarding credit management.
75
Audit Committee
The Board of Directors has appointed
the Audit Committee to assist the
Board in fulfilling its responsibility to oversee
management
regarding:
●
Oversight
of
the
charter,
strategic
plan
execution,
annual
internal
audit
plan
execution,
staffing,
budget
and
organizational
structure of the internal audit function;
●
The
conduct
and
integrity
of
the
Corporation’s
financial
reporting
to
any
governmental
or
regulatory
body,
stockholders,
other users of the Corporation’s financial
reports and the public;
●
The Corporation’s internal
control over financial reporting and disclosure controls and procedures;
●
The
qualifications,
engagement,
compensation,
independence,
and
performance
of
the
Corporation’s
independent
auditors,
their
conduct
of
the
annual
audit
of
the
Corporation’s
financial
statements,
and
their
engagement
to
provide
any
other
services;
●
The application of the Corporation’s
related parties transaction policy as established by the Board;
●
The application of the Corporation’s
code of business conduct and ethics as established by management
and the Board;
●
The preparation
of the
Audit Committee
report required
to be
included
in the
proxy statement
for the
Corporation’s
annual
stockholders’ meeting by the rules of the SEC;
●
The Corporation’s legal,
ethical compliance and fraud risk;
●
Oversight responsibilities with respect to the Trust
Department and its fiduciary responsibilities.
Corporate Governance and Nominating Committee
The
Board
of
Directors
has
appointed
the
Corporate
Governance
and
Nominating
Committee
to
develop,
review,
and
assess
corporate
governance
principles.
The
Corporate
Governance
and
Nominating
Committee
is
responsible
for
director
succession,
orientation
and
compensation,
identifying
and
recommending
new
director
candidates,
overseeing
the
evaluation
of
the
Board
and
management, annually
recommending to
the Board
the designation
of a
candidate to
hold the
position of
the Chairman
of the
Board,
and
directing
and
overseeing
the
Corporation’s
executive
succession
plan.
In
addition,
the
Corporate
Governance
and
Nominating
Committee is responsible for overseeing the Corporation’s
sustainability and environmental, social, and governance (“ESG”) policies.
Compensation and Benefits Committee
The
Board
of Directors
has appoint
ed the
Compensation
and Benefits
Committee
to oversee
compensation
policies and
practices
including
the
evaluation
and
recommendation
to
the
Board
of
the
proper
and
competitive
salaries
and
incentive
compensation
programs of the executive officers and key employees
of the Corporation.
Management Roles and Responsibilities
While
the
Board
of
Directors
has
the
responsibility
to
oversee
the
risk
governance
program,
management
is
responsible
for
implementing
the necessary
policies and
procedures,
and internal
controls. To
carry out
these responsibilities,
the Corporation
has a
clearly
defined
risk governance
culture. To
ensure that
risk management
is communicated
at all
levels of
the Corporation,
and each
area understands
its specific
role, the
Corporation has
established several
management level
committees to
support risk
oversight, as
follows:
Executive Risk Management Committee
The
Executive
Risk
Management
Committee
is
responsible
for
exercising
oversight
of
information
regarding
the
Corporation’s
enterprise
risk
management
framework,
including
the
significant
policies,
procedures,
and
practices
employed
to
manage
the
identified
risk
categories
(credit
risk,
operational
risk,
legal
and
regulatory
risk,
reputational
risk,
model
risk,
and
capital
risk).
In
carrying
out
its
oversight
responsibilities,
each
committee
member
is
entitled
to
rely
on
the
integrity
and
expertise
of
those
people
providing
information
to
the committee
and
on
the
accuracy
and
completeness
of
such
information,
absent
actual
knowledge
of
an
inaccuracy.
76
The
Chief
Executive
Officer
appoints
the
Executive
Risk Management
Committee
and members
of
the Corporation’s
senior
and
executive management have
the opportunity to
share their insights about
the types of risks
that could impede
the Corporation’s
ability
to achieve
its business
objectives. The
Chief Risk
Officer
of the
Corporation directs
the agenda
for
the meetings
and the
Enterprise
Risk Management
(“ERM”) and
Operational Risk
Director serves
as secretary
of the
committee and
maintains the
minutes on
behalf
of the committee. The General Auditor also participates in the committee as an
observer.
The
committee
provides
assistance
and
support
to
the
Chief
Risk
Officer
to
promote
effective
risk
management
throughout
the
Corporation.
The
Chief
Risk
Officer
and
the
ERM
and
Operational
Risk
Director
report
to
the
Committee
matters
related
to
the
enterprise risk management framework of the Corporation, including, but not
limited to:
●
The risk governance structure;
●
The risk assessments and profile of the Corporation;
●
The Corporation’s risk appetite statement
and risk tolerance;
●
The risk management
strategy and associated risk
management initiatives and
how both support the
business strategy
and business model of the Corporation; and
●
The Corporate Incident Response Program.
Other Management Committees
As
part
of
its
governance
framework,
the
Corporation
has
various
additional
risk
management-related
committees.
These
committees are
jointly responsible
for ensuring
adequate risk
measurement and
management in
their respective
areas of authority.
At
the management level, these committees include:
●
Management’s
Investment and
Asset Liability Committee
(the “MIALCO”)
– oversees interest
rate and market
risk, liquidity
management
and
other
related
matters,
including
sensitivity
of
the
Corporation’s
earnings
under
various
interest
rate
scenarios.
This committee makes recommendations
as to any adjustments
to asset liability management
and financial resource
allocation
in
light
of
current
events,
risks,
exposures,
and
regulatory
requirements
and
approves
related
policies.
Refer
to
“Liquidity Risk and Capital Adequacy”
and “Interest Rate Risk Management”
below for further details.
●
Information Technology
Steering Committee –
oversees and counsels
on matters related
to information
technology and cyber
security, including
the development of information management policies and procedures
throughout the Corporation.
●
Bank Secrecy Act Committee – oversees, monitors,
and reports on the Corporation’s compliance
with the Bank Secrecy Act.
●
Credit Committees (consisting
of a Credit Management
Committee and a
Delinquency Committee) –
oversees and establishes
standards for credit
risk management processes
within the Corporation.
The Credit Management
Committee is responsible
for
the approval
of loans
above an
established size
threshold. The
Delinquency Committee
is responsible
for the
periodic review
of credit exceptions,
past-due loans, portfolio
concentrations, foreclosures,
collection, loan mitigation
programs, risk appetite,
leveraged loans, business production and the Bank’s
internal credit-risk rating classification;
●
Vendor
Management
Committee
–
oversees
policies,
procedures,
and
related
practices
related
to
the
Corporation’s
vendor
management
efforts.
The
Vendor
Management
Committee’s
primary
functions
involve
the
establishment
of
processes
and
procedures to enable the recognition, assessment, management,
and monitoring of vendor management risks.
●
ESG Committee
– primarily
responsible for
aligning ESG
priorities and
initiatives for
the year,
setting and
monitoring long-
term objectives
and goals,
and leading
the annual
reporting process
on ESG
related topics.
The Committee
also oversees
the
sustainability policy
and integrates
climate change
risk factors
into the
corporate governance,
strategy and
risk management.
The ESG Committee regularly reports to the Corporate Governance
and Nominating Committee of the Board of Directors.
●
The Community
Reinvestment Act
Executive Committee
– oversees,
monitors,
and reports
on the
Corporation’s
compliance
with Community Reinvestment Act regulatory requirements.
●
Anti-Fraud
Committee
–
oversees
the
Corporation’s
policies,
procedures
and
related
practices
relating
to
the
Corporation’s
anti-fraud measures.
●
Regulatory
Compliance
Committee
–
oversees
the
Corporation’s
Regulatory
Compliance
Management
System.
The
Regulatory
Compliance
Committee
reviews
and
discusses
any
regulatory
compliance
laws
and
regulations
that
impact
77
performance
ensures the coordination of regulatory compliance requirements throughout
departments and business units.
●
Regulatory Reporting Committee
– oversees and
assists the senior
officers in fulfilling
their responsibility for oversight
of the
accuracy
and
timeliness
of
the
required
regulatory
reports
and
related
policies
and
procedures,
addresses
changes
and/or
concerns
communicated
by
the
regulators,
and
addresses
issues
identified
during
the
regulatory
reporting
process.
The
Regulatory
Reporting
Committee
oversees
and
updates,
as
necessary,
the
established
controls
and
procedures
designed
to
ensure that information in regulatory reports is recorded, processed, and
accurately reported and on a timely basis.
●
Complaints
Management
Committee
–
assists
in
overseeing
the
complaint
management
process
implemented
across
the
Corporation.
The Complaints
Management
Committee
supports
the
Corporation’s
complaints management
program relating
to resolution of
complaints within the
lines of business.
When appropriate,
the Complaints Management
Committee evaluates
existing corrective actions within
the lines of business related
to complaints and complaint
management practices within those
business units.
●
Project Portfolio
Management Committee
– reviews
and oversees
the performance
of the portfolio
and individual
technology
projects
during
the
Project
Management
Cycle
(Initiation,
Planning,
Execution,
Control
&
Monitoring,
and
Closing).
The
Project
Portfolio
Management
Committee
balances
conflicting
demands
between
projects,
decides
on
priorities
assigned
to
each project
based on
organizational priorities
and capacity,
and oversees
project budgets,
risks, and
actions taken
to control
and mitigate risks.
●
Current Expected Credit Losses (“CECL”)
Committee – oversees the Corporation’s
requirements for the calculation of CECL,
including the implementation
of new models,
if necessary,
selection of vendors
and monitoring of the
guidance from different
regulatory
agencies
with
regards
to
CECL
requirements.
The
CECL
Committee
reviews
estimated
credit
loss
inputs,
key
assumptions, and
qualitative overlays.
In addition,
the Committee
approves the
determination of
reasonable and
supportable
periods
used
with
respect
to macroeconomic
forecasts,
and
the
historical
loss reversion
method
and
parameters.
The CECL
Committee reports to the Audit Committee the results of the ACL each reporting
period.
●
Capital Planning
Committee –
oversees the
Capital Planning
Process and
is responsible
for operating
in accordance
with the
Capital
Policy
and
ensuring
compliance
with
its
guidelines.
The
Capital
Planning
Committee
develops
and
proposes
to
the
Board
changes
to
the
Capital
Policy
and
the
capital
plan
targets,
limits,
performance
metrics,
internal
stress
testing
and
guidelines for Capital Management Activities.
●
Business Continuity
Committee –
responsible to
create governance
and planning
structure that
will enable
FirstBank to
craft
an enterprise
Business Continuity
Management (BCM)
program that
ensures the Bank
is able to
continue business
operations
after a major disruption occurs.
●
Emergency Committee
– Responsible
to activate
an emergency
or disaster
recovery procedure
to ensure
the safety
of Bank’s
personnel and the continuity of critical Bank services.
●
Data
Governance
Council
–
Responsible
for
ensuring
the
effective
governance
of
data
assets.
This
includes
establishing
policies,
standards,
and
procedures
to
promote
data
quality,
security,
compliance,
and
strategic
data
utilization.
The
Data
Governance Council reports to the Executive Risk Management Committee.
Officers
As part of its governance framework, the following officers
play a key role in the Corporation’s risk
management process:
●
The Chief Executive
Officer (“CEO”) is
responsible for the
overall risk governance
structure of the Corporation.
The CEO is
ultimately responsible for business strategies, strategic objectives, risk management
priorities, and policies.
●
The General Auditor
is responsible for leading
the corporate internal audit
function and reporting matters
directly to the Audit
Committee and administratively to the CEO.
●
The
Chief Operating
Officer
(“COO”)
manages
the Corporation’s
operational
framework,
including
information
technology
(“IT”),
facilities,
banking
operations,
corporate
security,
and
enterprise
architecture.
The
COO
oversees
the
effective
and
efficient execution of the various technology initiatives
to support the Corporation’s growth and
improve overall efficiency.
78
●
The
Chief
Information
Officer
(“CIO”)
is responsible
for
overseeing
technology
services provided
by IT
vendors
including
the following:
(i) the fulfillment
of contractual
obligations and
responsibilities; (ii)
the development
of policies and
standards
related
to
the
technology;
(iii)
services
provided;
(iv)
Service
Level
Agreement
(SLA)
metrics
and
compliance;
and
v)
the
Business
Continuity
Strategy.
The
Corporate
Data
Officer
works
with
the
CIO
in
the
supervision
of
the
Data
Governance
practices.
●
The Corporate
Security Officer
(“CISO”) leads the
Corporate Security
Office (“CSO”),
which manages
the controls designed
to identify,
detect,
protect against,
respond
to, and
recover from
physical and
logical
events,
including
cybersecurity threats
and cybersecurity
incidents. The
CSO is responsible
for developing
and implementing
a CISP that
protects
the organization's
data and systems. The Corporation
engages in a continuous
risk monitoring process that
seeks to identify internal
and external
threats
to
our
information
security
systems
and
data
and
assesses
the
sufficiency
of
the
controls
in
place
to
mitigate
these
threats to acceptable levels on a risk-based basis. The CISO reports on a regular basis to
the Risk Committee on the CISP.
●
The Chief Credit
Officer is responsible
for the approval
of loans and
for reporting to
the Board regarding
Credit Management
activities
as
required
by
lending
authorities.
The
Chief
Credit
Officer,
Portfolio
Risk
Manager,
Loan
Review
Manager
and
other
Senior
Executives
are
responsible
for
managing
and
executing
the
Corporation’s
credit
risk
program.
The
credit
risk
program aims
to i)
maintain the
quality of
the Corporation’s
credit portfolio,
ii) review
the trends
affecting the
portfolio, and
iii) oversee the effectiveness and administration of
credit-related policies.
●
The
Chief
Financial
Officer
(“CFO”),
together
with
the
Corporation’s
Treasurer
and
the
Asset
and
Liability
Management
(“ALM”)
Director,
manage
the
Corporation’s
interest
rate
and
market
and
liquidity
risk
programs,
including
the
liquidity
stress testing
and policy
limits. The
CFO supervises
Capital Planning
and Capital
Stress Testing.
The CFO,
jointly with
the
Chief Accounting
Officer (“CAO”)
and the
Corporate Controller,
are responsible
for the development
and implementation
of
the
Corporation’s
accounting
policies
and
practices
and
the
review
and
monitoring
of
critical
accounts
and
transactions
to
ensure that they are reported in accordance with GAAP and the applicable
regulatory requirements for financial and regulatory
reporting purposes.
●
The Corporate Strategic
and Business Development
Director is responsible
for the development
of the Corporation’s
strategic
and
business
plan,
by
coordinating
and
collaborating
with
the
executive
team
and
all
corporate
groups
involved
with
the
strategic and business planning process.
●
The
Corporate
Strategy
and
Investor
Relations
Officer
is
responsible
for
managing
communications
with
the
investor
community
and
sell-side
research
analysts
and
for
coordinating
and
collaborating
with the
executive
team
and
all corporate
groups involved with the adequate execution of the strategic and business planning
process.
●
The Chief Risk Officer
(“CRO”) is responsible for
the oversight of the
risk management of the
Corporation as well as
the risk
governance
processes.
The
CRO, together
with
the
ERM
and
Operational
Risk Director,
monitor
key
risks
and
manage the
operational
risk
program.
The
CRO
provides
the
leadership
and
strategy
for
the
Corporation’s
risk
management
and
monitoring
activities and
is responsible
for the
oversight
of regulatory
compliance, loan
review,
model risk,
and operational
risk
management.
The
CRO
supervises
talent
management
efforts,
maintains
adequate
succession
planning
practices
and
promotes
employee
engagement.
The
Human
Resources
Director
supports
the
CRO
in
the
human
capital
and
talent
management efforts.
The CRO reports
regularly to the
Risk Committee of
the Board on
risk management activities
including
risk
assessments,
risk
tolerances,
regulatory
matters,
and
emerging
risks.
The
CRO
co-leads
with
the
CFO
the
CECL/allowance quarterly financial assessment.
●
The
ERM
and
Operational
Risk
Director
is
responsible
for
driving
the
identification,
assessment,
measurement,
mitigation,
and
monitoring
of
key
risks
throughout
the
Corporation.
The
ERM
and
Operational
Risk
Director
promotes
and
instills
a
culture
of
risk
control,
identifies
and
monitors
the
resolution
of
major
and
critical
operational
risk
issues
across
the
Corporation
and serves
as a
key
advisor
to business
executives with
regards
to risk
exposure
to the
organization,
corrective
actions
and
corporate
policies
and
best
practices
to
mitigate
risks.
ERM
and
Operational
Risk
Director
also
supervises
the
Corporate
Incident Response
Program.
The Financial
and Model
Risk Manager,
IT Risk
Manager,
Retail Quality
Assurance
Manager,
Regulatory
Affairs
Manager
and
Corporate
Risk
Managers
assist
the
ERM
and
Operational
Risk
Director
in
the
monitoring of
key risks
and oversight
of risk
management practices.
The ERM
and Operational
Risk Director
assist the
CFO
in
the
review
and
oversight
of
the
Corporation’s
internal
control
over
financial
reporting
and
disclosure
controls
and
procedures.
●
The
Compliance
Director
is
responsible
for
oversight
of
regulatory
compliance.
The
Compliance
Director
implements
an
enterprise-wide compliance
risk assessment,
and monitors
compliance with
significant regulations.
The Compliance
Director
is responsible for building awareness of and educating business units and subsidiaries
on, regulatory risks.
79
●
The General
Counsel is
responsible
for
the oversight
of legal
risks, including
matters such
as contract
structuring,
litigation
risk,
and
all
legal-related
aspects
of
the
Corporation’s
business.
The
Corporate
Affairs
Officer
assists
the
General
Counsel
with various
legal areas,
including,
but not
limited to
SEC reporting
matters, insurance
coverage
and liability,
and
the ESG
Program.
On January
31, 2025,
the Corporation
announced a
strategic reorganization
in line
with its
corporate succession
plan prompted
by
the retirement
of two
key Business
Group Executives.
This reorganization
aims to
improve operational
efficiency,
enhance customer
experience, and
drive business
transformation
to better
align resources
for future
growth and
success. The
strategic reorganization
is
effective April 1, 2025 and major changes are the following:
●
Chief Consumer Officer
– This newly created position
will oversee the mortgage,
unsecured consumer lending, auto,
leasing,
and insurance
lines of
business, which
were previously
managed by
the retiring
Business Group
Executives. In
addition, the
Chief Consumer
Officer has been
named Chief of
Staff and will
be responsible for
the oversight of
the Corporation’s
human
capital strategic plan, which was previously under the CRO role.
●
General
Counsel
and
Secretary
of
the
Board
–
This
position
has
been
expanded
to
include
managing
and
overseeing
Regulatory
Compliance
and Bank
Secrecy
Act
(“BSA”)
business
units,
reinforcing
the dedication
to
regulatory
adherence.
These responsibilities were previously under the CRO.
●
Chief
Risk
Officer
–
This
position
was
realigned
and
now
reports
to
the
Chief
Financial
Officer
and
to
the
Board
of
Director’s Risk Committee.
●
Chief Accounting
Officer –
This position was
expanded to
include oversight of
other areas including
the management
of the
CECL/allowance quarterly financial assessment, which was previously
under the supervision of the CRO.
For
a
full
detail
of
the
strategic
reorganization,
please
refer
to
our
Current
Report
on
Form
8-K,
which
was
filed with
the
SEC
on
January 31, 2025.
Liquidity
Risk
and
Capital
Adequacy,
Interest
Rate
Risk
Management,
Credit
Risk
Management,
Operational
Risk,
Legal
and Compliance Risk and Concentration Risk
The
following
discussion
highlights
First
BanCorp.’s
adopted
policies
and
procedures
for
liquidity
risk
and
capital
adequacy,
interest rate risk, credit risk, operational risk, legal and compliance risk,
and concentration risk.
Liquidity Risk and Capital Adequacy
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 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 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
Treasury
and
Investments
Accounting
and
Operations
area
of
the
Corporate
Controller’s
Department
is responsible
for
calculating
the liquidity
measurements
used
by
the Treasury
and Investment
80
Division to review
the Corporation’s
liquidity position
on a weekly
basis. The Financial
Planning and
ALM Division is
responsible
for estimating the liquidity gap.
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 $1.2
billion as
of December
31, 2024,
compared to
$663.2 million
as of
December 31,
2023. When
adding
$1.2 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
$2.4
billion
as
of
December
31,
2024,
or
12.54%
of
total
assets, compared to $2.8 billion, or 14.93% of total assets as of December
31, 2023.
In
addition
to
the
aforementioned
$2.4
billion
in
cash
and
free
high
quality
liquid
assets,
the
Corporation
had
$912.4
million
available
for
credit
with
the FHLB
based
on
the
value
of
loan
collateral
pledged
with
the
FHLB.
As
such,
the
basic
liquidity
ratio
(which adds
such available
secured lines of
credit to the
core liquidity) was
approximately 17.27%
of total assets
as of December
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
$2.6
billion
available for
funding under
the FED’s
Borrower-in-Custody (“BIC”)
Program as
of December
31, 2024,
compared to
$1.5 billion
as
of December 31, 2023 as an additional source of liquidity.
Total loans pledged
to the FED BIC Program amounted to $3.4 billion as of
December
31,
2024,
compared
to
$2.5
billion
as of
December
31,
2023.
The Corporation
does
not rely
on uncommitted
inter-bank
lines of credit
(federal funds lines)
to fund its
operations. In the
aggregate,
as of December
31, 2024, the
Corporation had $5.9
billion
available
to
meet
liquidity
needs,
or
124%
of
estimated
uninsured
deposits,
excluding
fully
collateralized
government
deposits,
compared to $5.2 billion or 118%, respectively,
as of December 31, 2023.
Liquidity
at
the Bank
level
is highly
dependent
on
bank deposits,
which
fund
87.7%
of the
Bank’s
assets (or
85.2%
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.
81
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 December
31, 2024,
the Corporation’s
commitments to
extend credit
amounted to
approximately $2.2
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.
December 31, 2024
December 31, 2023
(In thousands)
Financial instruments whose contract amounts represent credit risk:
$
283,302
$
234,974
787,849
882,486
37,140
38,956
1,053,938
862,963
41,738
69,543
24,635
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
$4.1 billion as of December
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.
82
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.
Deposits
The following table presents the composition of total deposits as of the indicated
dates:
As of December 31,
2024
2023
(Dollars in thousands)
Interest-bearing checking accounts
$
4,308,116
$
3,937,945
Interest-bearing saving accounts
3,530,382
3,596,855
Time deposits
3,485,262
3,617,064
Interest-bearing deposits
(1)
11,323,760
11,151,864
Non-interest-bearing deposits
5,547,538
5,404,121
Total
$
16,871,298
$
16,555,985
Interest-bearing deposits:
Average balance
outstanding
$
11,194,046
$
10,603,935
Weighted average
rate during the period on interest-bearing deposits
2.26%
1.75%
Non-interest-bearing deposits:
Average balance
outstanding
$
5,351,124
$
5,741,345
(1)
The weighted-average interest rate on total interest-bearing deposits
as of December 31, 2024 and 2023 was 2.18% and 2.24%,
respectively.
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 December
31, 2024 and 2023, the Corporation’s
core deposits, which exclude
government
deposits
and
brokered
CDs,
totaled
$12.9
billion
and
$12.6
billion,
respectively.
The
$267.1
million
increase
in
such
deposits consisted of increases
of $146.9 million in
the Puerto Rico region
and $146.1 million in the
Florida region,
partially offset by
a
$25.9
million
decrease
in
the
Virgin
Islands
region.
This
growth
includes
increases
of
$196.2
million
in
non-interest-bearing
deposits and $159.8 million in time deposits.
Government
deposits
(fully
collateralized)
sector deposits
($3.0 billion
in transactional
accounts and
$127.8 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 17% of the
public sector deposits as of
December 31, 2024 were
from municipalities and municipal
agencies in Puerto
Rico and 83% were from public corporations, the central
government and its agencies, and U.S. federal government agencies in Puerto
Rico.
In addition,
as of
December 31,
2024, the
Corporation
had $424.2
million of
government deposits
in the
Virgin
Islands region,
as
compared
to
$449.4
million
as of
December
31,
2023,
and
$21.3
million
in
the
Florida
region
as
compared
to
$10.2
million
as
of
December 31, 2023.
83
The
uninsured
portions of
government
deposits were
collateralized
by securities
and
loans with
an amortized
cost of
$3.7
billion
and $3.5 billion
as of December
31, 2024 and
2023, respectively,
and an estimated
market value of
$3.3 billion and
$3.1 billion as
of
December
31,
2024
and
2023,
respectively.
In
addition
to
securities
and
loans,
as
of
each
of
December
31,
2024
and
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
December
31,
2024 and
2023,
the estimated
amounts
of uninsured
deposits totaled
$8.1
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 December 31,
2024 and 2023,
the uninsured portion
of fully collateralized
government deposits
amounted to
$3.3 billion
and $3.0
billion, respectively
.
Excluding fully
collateralized
government deposits,
the
estimated
amounts
of
uninsured
deposits
amounted
to
$4.8
billion,
which
represent
29.36%
of
total
deposits
(excluding
brokered
CDs), as of December 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.
$250,000) and other time deposits that are otherwise uninsured as of December
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
$
506,443
$
113,938
$
269,881
$
147,873
$
1,038,135
Other uninsured time deposits
$
13,302
$
14,512
$
18,659
$
2,000
$
48,473
Brokered
CDs
million
as
of
December
31,
2023.
The
decline
reflects
maturing
brokered
CDs
amounting
to
$714.5
million
with
an
all-in
cost
of
5.39%
that
were
paid
off
during
2024,
partially
offset
by
$409.3
million
of
new
issuances
with
original
average
maturities
of
approximately 2 years and an all-in cost of 4.66%.
The average remaining term to maturity of the brokered CDs outstanding
as of December 31, 2024 was approximately 1.5 years.
The future use
of brokered
CDs will depend
on multiple factors
including excess
liquidity at each
of the regions,
future cash needs
and
any
tax implications.
Also,
depending
on
lending or
other
investment
opportunities available,
cash
inflows from
repayments
of
investment securities
may be used
as well
to repay brokered
CDs. Brokered
CDs are insured
by the FDIC
up to regulatory
limits and
can be obtained faster than regular retail deposits.
December 31, 2024:
Total
Weighted-average
interest rate %
(In thousands)
Three months or less
$
35,716
4.79
Over three months to six months
48,161
5.11
Over six months to one year
142,269
4.51
Over one year to two years
163,543
4.24
Over two years to three years
30,095
4.07
Over three years to four years
33,049
4.38
Over four years to five years
9,834
4.05
Over five years
15,451
4.61
$
478,118
4.46
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 years ended December 31, 2024, 2023,
and 2022.
84
Borrowings
Weighted Average
Rate as of
As of December 31,
December 31, 2024
2024
2023
(Dollars in thousands)
Long-term fixed-rate advances from the FHLB
4.45%
500,000
500,000
Long-term variable-rate borrowings
7.29%
61,700
161,700
Total
4.76%
$
561,700
$
661,700
Securities
sold
under
agreements
to
repurchase
–
additional source of funding. As of each of December 31, 2024
and 2023, there were no outstanding repurchase agreements.
When
the
Corporation
enters
into
repurchase
agreements,
as is
the
case
with
derivative
contracts,
the
Corporation
is
required
to
pledge
cash
or
qualifying
securities
to
meet
margin
requirements.
To
the
extent
that
the
value
of
securities
previously
pledged
as
collateral
declines
due
to
changes
in
interest
rates,
a
liquidity
crisis
or
any
other
factor,
the
Corporation
is
required
to
deposit
additional
cash
or
securities
to
meet
its
margin
requirements,
thereby
adversely
affecting
its
liquidity.
Given
the
quality
of
the
collateral
pledged,
the
Corporation
has
not
experienced
margin
calls
from
counterparties
arising
from
credit-quality-related
write-
downs in valuations.
Advances
from
the
FHLB
–
The
Bank
is
a
member
of
the
FHLB
system
and
obtains
advances
to
fund
its
operations
under
a
collateral
agreement
with
the
FHLB
that
requires
the
Bank
to
maintain
qualifying
mortgages
and/or
investments
as
collateral
for
advances
taken.
As
of
each
of
December
31,
2024
and
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
December
31,
2024,
$400.0
million
were
pledged
with
investment
securities
and
$100.0
million
were
pledged
with
mortgage
loans.
As
of
December
31,
2024,
the
Corporation
had
$912.4
million
available for additional credit on FHLB lines of credit based on collateral
pledged at the FHLB of New York.
as of December 31, 2024:
Total
Weighted-average
interest rate %
(In thousands)
Three months or less
$
180,000
4.60
Over six months to one year
30,000
4.83
Over one year to two years
90,000
4.49
Over two years to three years
200,000
4.25
(1)
$
500,000
4.45
(1) Average remaining term to maturity
of 1.48 years.
85
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
reflected
in
the
Corporation’s
consolidated
statements
of
financial
condition
as “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.
During 2024,
the Corporation
redeemed $100.0
million, or
84%, of
outstanding TruPS
issued by
FBP Statutory
Trust
II (or
$97.0
million after excluding the
Corporation’s interest
in the Trust of
approximately $3.0 million) at a
contractual call price of 100%.
As of
December
31,
2024
and
2023,
the
Corporation
had
junior
subordinated
debentures
outstanding
in
the
aggregate
amount
of
$61.7
million and
$161.7 million, respectively,
with maturity
dates ranging
from June 17,
2034 through September
20, 2034. As
previously
mentioned,
the
Corporation
expects
to
execute
the
redemption
of
the
remaining
junior
subordinated
debentures
during
2025.
As
of
December 31,
2024, the
Corporation was
current on
all interest
payments due
on its
subordinated debt.
See Note
12 –
“Borrowings”
and Note 10 – “Non-Consolidated
Variable
Interest Entities (“VIEs”) and Servicing
Assets” for additional information. Also, see
Note
15 – “Stockholders’
Equity” for additional details
of capital actions that
include the approval of
a repurchase program
of $250 million
that could include repurchases of common stock or junior subordinated
debentures.
FED Discount Window
loans may
be pledged as
collateral for borrowings
through the FED
Discount Window.
As previously mentioned,
as of December
31,
2024,
the
Corporation
had
approximately
$2.6
billion
fully
available
for
funding
under
the
FED’s
Discount
Window
based
on
collateral pledged at the FED.
Effect of Credit Ratings on Access to Liquidity
The
Corporation’s
liquidity
is
contingent
upon
its
ability
to
obtain
deposits
and
other
external
sources
of
funding
to
finance
its
operations.
The Corporation’s
current
credit ratings
and any
downgrade
in credit
ratings can
hinder the
Corporation’s
access to
new
forms
of
external
funding
and/or
cause
external
funding
to
be
more
expensive,
which
could,
in
turn,
adversely
affect
its
results
of
operations. Also, changes in credit ratings may further affect
the fair value of unsecured derivatives whose value takes into account
the
Corporation’s own credit risk.
The Corporation
does not
have any
outstanding debt
or derivative
agreements that
would be
affected by
credit rating
downgrades.
Furthermore, given the Corporation’s
non-reliance on corporate debt or
other instruments directly linked in
terms of pricing or volume
to credit
ratings, the
liquidity of
the Corporation
has not been
affected in
any material
way by downgrades.
The Corporation’s
ability
to access new non-deposit sources of funding, however,
could be adversely affected by credit downgrades.
As of
the date
hereof, the
Corporation’s
credit as
a long-term
issuer is
rated BB+
by S&P
and BB
by Fitch.
As of
the date
hereof,
FirstBank’s
credit ratings
as a long
-term issuer
are BB+ by
S&P and
Fitch, one
notch below
the minimum
BBB- level
required to
be
considered investment grade.
The Corporation’s
credit ratings are dependent
on a number of
factors, both quantitative
and qualitative,
and are
subject to
change at
any time.
The disclosure
of credit
ratings is
not a
recommendation to
buy,
sell or
hold the
Corporation’s
securities. Each rating should be evaluated independently of any
other rating.
86
Cash Flows
Cash and
cash equivalents
were $1.2 billion
as of December
31, 2024,
an increase of
$496.3 million
when compared
to December
31, 2023.
The following
discussion highlights
the major
activities and
transactions that
affected
the Corporation’s
cash flows
during
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 years ended
December 31, 2024 and 2023,
net cash provided by operating
activities was $404.2 million
and $363.0 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
year
ended
December
31,
2024,
net
cash
provided
by
investing activities was $136.2 million, primarily due
to repayments of U.S. agencies MBS, U.S. agencies debentures,
and Puerto Rico
municipal bonds;
proceeds from sales of repossessed assets; and proceeds
from sales of loans, driven by the bulk sale of fully charged-
off
consumer
loans
during
the
first
quarter
of
2024
and
the
sale
of
an
$8.2
million
nonaccrual
C&I
loan;
partially
offset
by
net
disbursements on loans held for investment and purchases of available
-for-sale debt securities during 2024.
For the
year ended
December 31,
2023, net
cash used
in investing
activities was
$78.5 million,
primarily due
to net
disbursements
on
loans
held
for
investment,
partially
offset
by
repayments
of
available-for-sale
and
held-to-maturity
debt
securities
and
proceeds
from sales of repossessed assets.
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
year ended
December 31,
2024, net
cash used
in financing
activities was
$44.1 million,
mainly reflecting
capital returned
to
stockholders
and
the
redemption
of
junior
subordinated
debentures,
as
further
explained
in
Note
10
–
“Non-Consolidated
Variable
Interest
Entities
(“VIEs”)
and
Servicing
Assets”
to
the
audited
consolidated
financial
statements
included
in
Part
II,
Item
8
of
this
Form 10-K, partially offset by a net increase in deposits.
For the year ended
December 31, 2023, net
cash used in financing
activities was $101.9 million,
mainly reflecting a net
decrease in
borrowings and capital returned to stockholders, partially offset
by a net increase in deposits.
87
Capital
As of
December 31,
2024, the
Corporation’s
stockholders’ equity
was $1.7
billion, an
increase of
$171.6 million
from December
31, 2023. The
increase was driven
by net income generated
in 2024 and
a $73.2 million
increase 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,
partially offset
by common
stock dividends
declared in
2024 totaling
$106.0 million
or $0.64
per common
share, and
$100.0 million
in common stock repurchases under the 2023 stock repurchase program
.
On January
21, 2025, the
Corporation’s
Board declared
a quarterly cash
dividend of $0.18
per common
share, which represents
an
increase of
$0.02 per
common share,
or a
13% increase,
compared to
its most
recent quarterly
dividend paid
in December
2024. The
dividend is payable on March 7, 2025 to shareholders of record
at the close of business on February 21, 2025. The Corporation
intends
to
continue
to
pay
quarterly
dividends
on
common
stock.
However,
the
Corporation’s
common
stock
dividends,
including
the
declaration, timing and amount, remain subject to the consideration and
approval by the Corporation’s Board
at the relevant times.
On
July
24, 2023,
the Corporation
announced
that its
Board
of Directors
approved
a stock
repurchase
program,
under which
the
Corporation may repurchase up
to $225 million of its outstanding
common stock, which commenced in
the fourth quarter of 2023 (the
“2023 stock
repurchase program”).
Furthermore, on
July 22,
2024, the
Corporation announced
that its
Board of
Directors approved
a
new repurchase program, under which the Corporation
may repurchase up to an additional $250 million that could
include repurchases
of common
stock and/or
junior subordinated
debentures, which
it expects
to execute
during 2025
(the
“2024 repurchase
program”).
Under the 2023
stock repurchase program,
the Corporation repurchased
approximately 5.8 million
shares of common
stock for a
total
cost
of
$100.0
million
during 2024
and
approximately
5.1
million
shares
for
a total
cost
of
$75.0
million
during
2023.
In
addition,
during 2024,
the Corporation redeemed
$100.0 million
of junior subordinated
debentures. As
of December
31, 2024,
the Corporation
has
remaining
authorization
of
approximately
$200.0
million.
For
more
information,
see
Part
II,
Item
5,
“Market
for
Registrant’s
Common Equity and Related Stockholder Matters and Issuer Purchases of
Equity Securities,” of this Form 10-K.
Repurchases
under
the
programs
may
be
executed
through
open
market
purchases,
accelerated
share
repurchases,
privately
negotiated
transactions
or plans,
including
plans complying
with Rule
10b5-1
under
the Exchange
Act, and/or
redemption of
junior
subordinated
debentures, and
will be
conducted
in accordance
with applicable
legal and
regulatory requirements.
The Corporation’s
repurchase programs
are subject
to various
factors, including
the Corporation’s
capital position,
liquidity,
financial performance
and
alternative uses
of capital, stock
trading price, and
general market conditions.
The Corporation’s
repurchase programs do
not obligate
it to acquire any
specific number of shares
and do not have
an expiration date. The
repurchase programs may be
modified, suspended,
or
terminated
at
any
time
at
the
Corporation’s
discretion.
The
Corporation’s
holding
company
has
no
operations
and
depends
on
dividends,
distributions
and
other
payments
from
its
subsidiaries
to
fund
dividend
payments,
stock
repurchases,
and
to
fund
all
payments on its obligations, including debt obligations.
The tangible common
equity ratio and
tangible book value
per common share
are non-GAAP financial
measures generally used
by
the
financial
community
to
evaluate
capital
adequacy.
Tangible
common
equity
is
total
common
equity
less
goodwill
and
other
intangible assets. Tangible
assets are total assets less
the previously mentioned
intangible assets. See “Non-GAAP
Financial Measures
and Reconciliations” above for additional information.
88
measures, to total equity and total assets, respectively,
as of the indicated dates:
December 31, 2024
December 31, 2023
(In thousands, except ratios and per share information)
Total common equity
- GAAP
$
1,669,236
$
1,497,609
Goodwill
(38,611)
(38,611)
Other intangible assets
(6,967)
(13,383)
Tangible common
equity - non-GAAP
$
1,623,658
$
1,445,615
Total assets - GAAP
$
19,292,921
$
18,909,549
Goodwill
(38,611)
(38,611)
Other intangible assets
(6,967)
(13,383)
Tangible assets - non
-GAAP
$
19,247,343
$
18,857,555
Common shares outstanding
163,869
169,303
Tangible common
equity ratio - non-GAAP
8.44%
7.67%
Tangible book value
per common share - non-GAAP
$
9.91
$
8.54
See Note 27
– “Regulatory
Matters, Commitments and
Contingencies” to
the audited
consolidated financial
statements included
in
Part II,
Item 8
of this
Form 10-K
for the
regulatory capital
positions of
the Corporation
and FirstBank
as of
December 31,
2024 and
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.
During the years ended December
31, 2024, 2023, and
2022,
the
Corporation
transferred
$30.6
million,
$31.1
million,
and
$30.9
million,
respectively,
to
the
legal
surplus
reserve.
FirstBank’s
legal
surplus
reserve,
included
as
part
of
retained
earnings
in
the
Corporation’s
consolidated
statements
of
financial
condition, amounted to $230.2 million as of December 31, 2024 and
$199.6 million as of December 31, 2023.
Capital risk is
the risk that
our capital is
insufficient to
support our business
activities under normal
and stressed market
conditions
or we
face capital
reductions
or risk-weighted
assets increases,
including
from
new or
revised rules
or changes
in interpretations
of
existing
rules,
and
are
therefore
unable
to
meet
our
internal
capital
targets
or
external
regulatory
capital
requirements.
Capital
adequacy
is of
critical importance
to us.
Accordingly,
we have
in place
a comprehensive
capital management
policy that
provides a
framework, defines objectives
and establishes guidelines
to maintain an
appropriate level and
composition of capital
in both business-
as-usual
and
stressed
conditions.
Our
capital
management
framework
is
designed
to
provide
us
with
the
information
needed
to
comprehensively manage risk and
develop and apply projected
stress scenarios that capture
idiosyncratic vulnerabilities with
a goal of
holding
sufficient
capital
to
remain
adequately
capitalized
even
after
experiencing
a
severe
stress
event.
We
have
established
a
comprehensive governance
structure to
manage and
oversee our
capital management
activities and
compliance with
capital rules
and
related
policies.
Capital
planning
activities
are
overseen
by
the
Capital
Planning
Committee
which
is
chaired
by
the
CEO
and
is
comprised
of
the
following
members:
the
CFO,
CRO,
and
the
Corporate
Strategy
and
Investor
Relations
Officer.
In
addition,
committees
and
members
of senior
management
are responsible
for
the ongoing
monitoring
of our
capital adequacy
and
evaluating
current
and
future
regulatory
capital
requirements,
reviewing
the
results
of
our
capital
planning
and
stress
tests
processes
and
the
results
of
our
capital
models,
and
reviewing
our
contingency
funding
and
capital
plan
and
key
capital
adequacy
metrics,
including
regulatory capital ratios.
89
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, and brokered
CDs rates.
As of
December 31,
2024, the
Corporation forecasted
the 12-month
net interest
income assuming
December 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
December 31,
2024,
as compared
with
December
31,
2023,
reflects a
decrease
of 85
bps on
average
in the
short-term
sector
of
the
curve, or
between
one
to
twelve
months;
an
increase
of
32 bps
in the
medium-term
sector
of the
curve,
or
between
2 to
5 years;
and an
increase
of 59
bps in
the long-term
sector of
the curve,
or over
5-year
maturities. A
similar change
in
market rates was observed
in the Constant Maturity Treasury
yield curve with a decrease
of 97 bps on average
in the short-term sector
of the
curve, an
increase of
27 bps
in the
medium-term sector
of the
curve, and
an increase
of 70
bps in
the long-term
sector of
the
curve.
90
prior years, these exclude non-cash changes in the fair value of derivatives:
Net Interest Income Risk
(% Change Projected for the next 12 months)
December 31, 2024
December 31, 2023
Gradual Change in Interest Rates:
3.05
%
1.08
%
2.04
%
0.73
%
-4.79
%
-3.09
%
-3.15
%
-2.02
%
Immediate Change in Interest Rates:
3.51
%
2.45
%
-7.17
%
-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
December
31,
2024
and
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
and
falling
rate
scenarios,
the
net
interest
income
simulation
shows
an
increase
in
interest
rate
sensitivity,
when
compared
with
December
31,
2023,
due
to
a
lower
sensitivity
in
the
liabilities
side
driven
by
updated
assumptions
in
combination with
a higher
sensitivity in
the assets
side driven
by a
higher interest-bearing
cash position.
Deposit betas
and repricing
lags were
modified for
some deposit
categories to
reflect current
behavior and
expectations under
current and
projected interest
rate
scenarios.
Also,
the
sensitivity
in
the
liabilities
side
was
impacted
by
higher
cost
shorter
term
brokered
CDs
that
are
either
being
repriced at lower rates or are not being renewed.
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.
Derivatives
First
BanCorp.
uses derivative
instruments
and
other
strategies
to
manage
its exposure
to
interest
rate
risk
caused
by
changes
in
interest rates beyond management’s
control.
As
of
December
31,
2024
and
2023,
the
Corporation
considered
all
of
its
derivative
instruments
to
be
undesignated
economic
hedges.
For
detailed
information
regarding
the
volume
of
derivative
activities
(e.g.,
notional
amounts),
location
and
fair
values
of
derivative
instruments
in
the
consolidated
statements
of
financial
condition
and
the
amount
of
gains
and
losses
reported
in
the
consolidated statements
of income,
see Note
22 –
“Derivative Instruments
and Hedging
Activities” included
in Part
II, Item
8 of
this
Form 10-K.
91
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.
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.
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
December
31,
2024
and
2023,
the
Corporation applied
100%
probability
to
the
baseline
scenario
for
the
commercial
mortgage
and
construction
loan
portfolios
since
certain
macroeconomic
variables associated with commercial real estate property
performance and the CRE price index, particularly in the
Puerto Rico region,
are
expected
to
continue
to
perform
in
a
more
favorable
manner
than
the
alternative
downside
economic
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.
92
As of
December 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
1.11%
for
the
year
2025
and
an
average
projected
appreciation of
4.42% for
the year
2026, compared
to an
average projected
appreciation
of 2.01%
and 8.65%
for
the years 2025 and 2026, respectively,
as of December 31, 2023.
●
Regional
Home Price
Index forecast
in Puerto
Rico (purchase only
prices) shows
an improvement
of 8.21%
and 11.22%
for
the
year
2025
and
for
the
year
2026,
respectively,
when
compared
to
the
same
periods
as
of
December
31,
2023.
For
the
Florida
region,
the
Home
Price
Index
forecast
shows
an
improvement
of
5.75%
and
6.95%
for
the
years
2025
and
2026,
respectively, when
compared to the same periods as of December 31, 2023.
●
Average
regional unemployment
rate in
Puerto Rico
is forecasted
at 6.26%
for the
year 2025
and 6.21%
for the
year 2026,
compared
to 8.08%
for the
year 2025
and 8.13%
for
the year
2026
as of
December 31,
2023.
For the
Florida and
the U.S.
mainland,
average
unemployment
rate
is
forecasted
at
4.40%
and
4.93%,
respectively,
for
the
year
2025,
and
4.15%
and
4.60%, respectively, for
the year 2026, compared to 4.12% and 4.52%, respectively,
for the year 2025, and 3.60% and 3.99%,
respectively, for the
year 2026, as of December 31, 2023.
●
Annualized
change
in
GDP
in
the
U.S.
mainland
of
1.46%
for
the
year
2025
and
1.91%
for
the
year
2026,
compared
to
1.64%
for the year 2025 and 2.50% for the year 2026, as of December 31, 2023.
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
December 31,
2024, management
compared the modeled
estimates under
the probability-
weighted
economic
scenarios
against
a
more
adverse
scenario.
Such
scenario
incorporates
an
additional
adverse
scenario
and
decreases the
weight applied
to the
baseline scenario.
Under this
more adverse
scenario, as
an example,
average unemployment
rate
for the
Puerto Rico
region increases
to 6.69%
for the
year 2025,
compared to
6.26% 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 December
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
$40 million at December 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
December 31, 2024.
As
of
December
31,
2024,
the
ACL
for
loans
and
finance
leases
was
$243.9
million,
a
decrease
of
$17.9
million,
from
$261.8
million as
of December
31, 2023.
The ACL
for residential
mortgage loans
decreased by
$16.7 million,
driven by
the aforementioned
updated historical loss experience
used for determining the ACL estimate resulting
in a downward revision of
estimated loss severities
and
improvements
in
the
long-term
projections
of
the
unemployment
rate
in
the
Puerto
Rico
region,
partially
offset
by
newly
originated
loans.
The
ACL
for
commercial
and
construction
loans
decreased
by
$12.9
million,
mainly
due
to
reserve
releases
associated
with
the
improved
financial
condition
of
certain
borrowers
and
an
improvement
on
the
economic
outlook
of
certain
macroeconomic variables,
particularly variables
associated with commercial
real estate property
performance and
the forecasted CRE
price index, partially offset by loan portfolio growth.
Meanwhile, the
ACL for
consumer loans
increased by
$11.7
million driven
by higher
charge-off
and delinquency
levels and
loan
portfolio growth, mainly in auto loans and finance leases.
The ratio
of the
ACL for
loans and
finance leases
to total
loans held
for investment
decreased to
1.91%
as of
December 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
1.44% as of December 31, 2024, mainly due to the aforementioned updated
historical loss experience and improvements in
the long-term projections of the unemployment rate, partially offset
by the aforementioned newly originated loans.
93
●
The ACL
to total
loans ratio
for the construction
loan portfolio
decreased from
2.61% as
of December
31, 2023
to 1.67%
as
of
December
31,
2024,
mainly
due
to
an
improvement
on
the
economic
outlook
of
certain
macroeconomic
variables
associated with commercial real estate property performance and the
CRE price index.
●
The ACL
to total
loans ratio
for the
commercial mortgage
loan portfolio
decreased from
1.41% as
of December
31, 2023
to 0.87%
as of
December 31,
2024,
driven by
the aforementioned
reserve releases
associated with
the improved
financial
condition of
certain borrowers
and an improvement
on the economic
outlook of macroeconomic
variables associated
with
commercial real estate property performance and the CRE price index.
●
The ACL
to total
loans ratio
for
the C&I
loan portfolio
decreased from
1.05% as
of December
31, 2023
to 0.96%
as of
December
31,
2024,
driven
by
the
aforementioned
reserve
releases
associated
with
the
improved
financial
condition
of
certain borrowers.
●
The ACL
to total
loans ratio
for the
consumer loan
portfolio increased
from 3.64%
as of December
31, 2023
to 3.85% as
of December 31, 2024, driven by increases in charge
-off and delinquency levels.
2024,
compared to 312.81% as of December 31, 2023.
Leases” to the audited consolidated financial statements included
in Part II, Item 8 of this Form 10-K for additional information.
Year Ended December
31,
2024
2023
2022
(Dollars in thousands)
ACL for loans and finance leases, beginning of year
$
261,843
$
260,464
$
269,030
Impact of adoption of ASU 2022-02
-
2,116
-
Provision for credit losses - (benefit) expense:
Residential mortgage
(16,225)
(6,866)
(8,734)
Construction
(1,912)
1,408
(2,342)
Commercial mortgage
(10,717)
(2,086)
(18,994)
C&I
(4,886)
6,372
(1,770)
Consumer and finance leases
96,601
67,816
57,519
Total provision for credit losses
- expense
62,861
66,644
25,679
Charge-offs:
Residential mortgage
(1,971)
(3,245)
(6,890)
Construction
-
(62)
(123)
Commercial mortgage
-
(1,133)
(85)
C&I
(2,742)
(6,936)
(2,067)
Consumer and finance leases
(109,115)
(76,726)
(48,165)
Total charge offs
(113,828)
(88,102)
(57,330)
Recoveries:
Residential mortgage
1,453
2,692
3,547
Construction
131
1,951
725
Commercial mortgage
533
786
1,372
C&I
6,704
841
2,459
Consumer and finance leases
24,245
(1)
14,451
14,982
Total recoveries
33,066
(1)
20,721
23,085
Net charge-offs
(80,762)
(67,381)
(34,245)
ACL for loans and finance leases, end of period
$
243,942
$
261,843
$
260,464
ACL for loans and finance leases to period-end total loans
held for investment
1.91%
2.15%
2.25%
Net charge-offs to average loans outstanding
during the period
0.65%
(2)
0.58%
0.31%
Provision for credit losses - expense for loans and finance
leases to net charge-offs during
the period
0.78x
0.99x
0.75x
(1)
For the year ended December 31, 2024 includes a recovery totaling $10.0 million associated with the bulk sale of fully charged-off consumer loans and finance leases.
(2)
The recovery associated with the aforementioned bulk sale reduced the ratio of total net charge-offs to related average loans by 9 basis points.
94
category, and the percentage
of loan balances in each category to the total of such loans as of the indicated dates:
As of December 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:
$
2,828,431
$
228,396
$
2,565,984
$
3,366,038
$
3,757,707
$
12,746,556
22
%
2
%
20
%
26
%
30
%
100
%
$
40,654
$
3,824
$
22,447
$
32,266
$
144,751
$
243,942
1.44
%
1.67
%
0.87
%
0.96
%
3.85
%
1.91
%
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
December
31,
2024,
the
ACL
for
off-balance
sheet
credit exposures
decreased by
$1.5 million
to $3.1
million, when
compared to
December 31,
2023, driven
by an
improvement on
the
economic outlook of certain macroeconomic variables, particularly
in variables associated with the CRE price index.
Allowance for Credit Losses for Held-to-Maturity
Debt Securities
As
of
December
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
December
31,
2024,
the
ACL
for
held-to-maturity
debt
securities
was
$0.8
million,
compared
to
$2.2
million
as
of
December
31,
2023.
The
decrease
was
driven
by
improvements
in
the
underlying updated financial information of a Puerto Rico municipal
bond issuer.
Allowance for Credit Losses for Available
-for-Sale Debt Securities
issued by the PRHFA, was $0.5
million as of each of December 31, 2024 and December 31, 2023.
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.
See Note 1 – “Nature
of Business and
Summary of
Significant Accounting
Policies” to the
audited consolidated financial
statements included
in Part II,
Item 8 of
this Form
10-K, for additional information.
95
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.
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.
Other Real Estate Owned
OREO
acquired
in
settlement
of
loans
is
carried
at
fair
value
less
estimated
costs
to
sell
the
real
estate
acquired.
Appraisals
are
obtained periodically,
generally on an annual basis.
Other Repossessed Property
The
other
repossessed
property
category
generally
includes repossessed
autos
acquired
in settlement
of
loans. Repossessed
autos
are recorded at the lower of cost or estimated fair value.
Other Non-Performing Assets
This
category
consists
of a
residential
pass-through
MBS
issued
by
the
PRHFA placed
in
non-performing
status
in
the
second
quarter of 2021 based on the delinquency status of the underlying second
mortgage loans.
96
December 31, 2024
December 31, 2023
(In thousands)
Puerto Rico:
Nonaccrual loans held for investment:
Residential mortgage
$
16,854
$
18,324
Construction
403
595
Commercial mortgage
2,716
3,106
C&I
19,595
13,414
Consumer and finance leases
22,538
21,954
Total nonaccrual loans held for investment
62,106
57,393
OREO
13,691
28,382
Other repossessed property
11,637
7,857
Other assets
1,620
1,415
Total non-performing assets
$
89,054
$
95,047
Past due loans 90 days and still accruing
$
39,307
$
53,308
Virgin Islands:
Nonaccrual loans held for investment:
Residential mortgage
$
6,555
$
6,688
Construction
962
974
Commercial mortgage
8,135
9,099
C&I
919
1,169
Consumer
205
419
Total nonaccrual loans held for investment
16,776
18,349
OREO
3,615
4,287
Other repossessed property
219
252
Total non-performing assets
$
20,610
$
22,888
Past due loans 90 days and still accruing
$
3,083
$
6,005
United States:
Nonaccrual loans held for investment:
Residential mortgage
$
8,540
$
7,227
C&I
-
667
Consumer
45
71
Total nonaccrual loans held for investment
8,585
7,965
Other repossessed property
3
6
Total non-performing assets
$
8,588
$
7,971
Past due loans 90 days and still accruing
$
-
$
139
Total
Nonaccrual loans held for investment:
Residential mortgage
$
31,949
$
32,239
Construction
1,365
1,569
Commercial mortgage
10,851
12,205
C&I
20,514
15,250
Consumer and finance leases
22,788
22,444
Total nonaccrual loans held for investment
87,467
83,707
OREO
17,306
32,669
Other repossessed property
11,859
8,115
Other assets
(1)
1,620
1,415
Total non-performing assets
$
118,252
$
125,906
Past due loans 90 days and still accruing
(2) (3) (4)
$
42,390
$
59,452
Non-performing assets to total assets
0.61%
0.67%
Nonaccrual loans held for investment to total loans held for investment
0.69%
0.69%
ACL for loans and finance leases
243,942
261,843
ACL for loans and finance leases to total nonaccrual loans held
for investment
278.90%
312.81%
ACL for loans and finance leases to total nonaccrual loans held
for investment, excluding residential real estate loans
439.39%
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
$6.2 million and $8.3 million as of December 31, 2024 and 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
$8.0
million
and
$15.4
million of
FHA
government guaranteed residential mortgage loans that were over 15 months delinquent as of December 31, 2024 and
2023, respectively.
(4)
These includes rebooked loans, which were
previously pooled into GNMA securities, amounting
to $5.7 million and $7.9 million
as of December 31, 2024 and 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.
97
Total
non-performing assets
decreased by
$7.6 million
to $118.3
million as
of December
31, 2024,
compared to
$125.9 million
as
of December
31, 2023. The
decrease in non-performing
assets was driven
by a $15.3
million decrease in
the OREO portfolio
balance
mainly in
the Puerto
Rico region,
driven by
the sale
of a
$5.3 million
commercial real
estate OREO
property
and sales
of residential
OREO properties,
partially offset
by a
$3.7 million
increase in
total nonaccrual
loans held
for investment,
as explained
below,
and a
$3.7 million increase in other repossessed property.
Total
nonaccrual
loans
were
$87.4
million
as
of
December
31,
2024.
This
represents
a
net
increase
of
$3.7
million
from
$83.7
million as
of December
31, 2023,
mainly in
commercial and
construction loans,
driven by
the inflow
of a
$16.5 million
commercial
relationship in the
Puerto Rico region
in the food retail
industry,
partially offset by
the sale of an
$8.2 million nonaccrual
C&I loan in
the Puerto
Rico region
that resulted
in a
$1.2 million
charge-off
that had
been previously
reserved,
loans returned
to accrual
status,
repayments, and a $0.5 million charge-off
recorded on a nonaccrual C&I loan in the Puerto Rico region.
The
following
tables
present
the
activity
of
commercial
and
construction
nonaccrual
loans
held
for
investment
for
the
indicated
periods:
Construction
Commercial
Mortgage
C&I
Total
(In thousands)
Year
Ended December 31, 2024
Beginning balance
$
1,569
$
12,205
$
15,250
$
29,024
Plus:
Additions to nonaccrual
3,300
151
28,064
31,515
Less:
Loans returned to accrual status
(35)
(209)
(9,495)
(1)
(9,739)
Nonaccrual loans transferred to OREO
(48)
-
(1,008)
(1,056)
Nonaccrual loans charge-offs
-
-
(2,742)
(2,742)
Loan collections
(288)
(1,296)
(4,488)
(6,072)
Reclassification
(3,133)
-
3,133
-
Nonaccrual loans sold, net of charge-offs
-
-
(8,200)
(8,200)
Ending balance
$
1,365
$
10,851
$
20,514
$
32,730
(1)
Mainly related to
the restoration to
accrual status of
a participated C&I
loan in the
Florida region associated
with the power
generation industry that
entered in nonaccrual
status during
the first quarter of 2024.
Construction
Commercial
Mortgage
C&I
Total
(In thousands)
Year
Ended December 31, 2023
Beginning balance
$
2,208
$
22,319
$
7,830
$
32,357
Plus:
Additions to nonaccrual
133
2,633
21,088
23,854
Less:
Loans returned to accrual status
-
(3,466)
(765)
(4,231)
Nonaccrual loans transferred to OREO
(367)
(5,544)
(742)
(6,653)
Nonaccrual loans charge-offs
(14)
(1,120)
(6,910)
(8,044)
Loan collections
(391)
(2,097)
(5,251)
(7,739)
Reclassification
-
6
-
6
Nonaccrual loans sold, net of charge-offs
-
(526)
-
(526)
Ending balance
$
1,569
$
12,205
$
15,250
$
29,024
98
The following table presents the activity of residential nonaccrual loans
held for investment for the indicated periods:
Year
Ended December 31,
2024
2023
(In thousands)
Beginning balance
$
32,239
$
42,772
16,880
14,946
(9,553)
(12,028)
(1,935)
(5,523)
(376)
(902)
(5,306)
(7,020)
-
(6)
Ending balance
$
31,949
$
32,239
The amount of
nonaccrual consumer loans,
including finance leases, increased
by $0.4 million to
$22.8 million as of
December 31,
2024,
compared to
$22.4 million
as of
December 31,
2023. The
inflows of
nonaccrual consumer
loans during
year ended
December
31, 2024 amounted to $118.2 million,
compared to inflows of $91.3 million for the same period in 2023.
As of December
31, 2024, approximately
$29.3 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 nonaccrual loans
are
being recorded on a cash basis through earnings, or on a cost-recovery basis, as conditions
warrant.
During
the
year
ended
December
31,
2024,
interest
income
of
approximately
$0.9
million
related
to
nonaccrual
loans
with
a
carrying value
of $29.3
million as
of December
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 $153.0
million as
of December
31, 2024,
an increase of
$2.2 million,
compared to
$150.8 million
as of December
31, 2023, mainly
due to
a
$6.0 million increase in
consumer loans in early
delinquency, mostly
reflected in the finance leases
portfolio, partially offset
by a $3.7
million decrease in residential mortgage loans in early delinquency.
In addition,
the Corporation
provides
homeownership
preservation
assistance to
its customers
through
a loss
mitigation
program.
Depending
upon
the
nature
of
a
borrower’s
financial
condition,
restructurings
or
loan
modifications
through
this
program
are
provided,
as well
as other
modifications of
individual C&I,
commercial
mortgage, construction,
and residential
mortgage loans.
For
the
year
ended
December
31,
2024,
loans
modified
to
borrowers
experiencing
financial
difficulty
had
an
amortized
cost
basis
of
$146.4
million.
The
modifications
for
year
ended
December
31,
2024
include
$110.0
million
related
to
a
commercial
mortgage
relationship
that had
been
previously
reported
as a
troubled
debt
restructuring
under
ASC 310-40
and
was performing
according
to
modified
terms,
a
$12.2
million
nonaccrual
commercial
mortgage
loan
in
the
Florida
region,
and
$6.1
million
associated
with
a
commercial relationship in
the food retail industry
in the Puerto Rico
region. See Note 4
– “Loans Held for
Investment” for additional
information and statistics about the Corporation’s
modified loans.
99
The OREO portfolio, which is part of non-performing assets,
amounted to $17.3 million as of December 31, 2024 and $32.7 million
as of
December 31,
2023. The
following tables
show the
composition of
the OREO
portfolio as
of December
31, 2024
and 2023,
as
well as the activity of the OREO portfolio by geographic area during the
year ended
December 31, 2024:
OREO Composition by Region
As of December 31, 2024
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Residential
$
12,092
$
805
$
-
$
12,897
Construction
522
-
-
522
Commercial
1,077
2,810
-
3,887
$
13,691
$
3,615
$
-
$
17,306
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
Year
Ended December 31, 2024
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Beginning Balance
$
28,382
$
4,287
$
-
$
32,669
Additions
9,211
-
67
9,278
Sales
(21,748)
(639)
(67)
(22,454)
Subsequent measurement adjustments
(424)
(33)
-
(457)
Other adjustments
(1,730)
-
-
(1,730)
Ending Balance
$
13,691
$
3,615
$
-
$
17,306
100
Net Charge-offs and Total
Credit Losses
or 0.58% of average loans,
for the same period in 2023.
Net charge-offs for the year
ended December 31, 2024 include a
$10.0 million
recovery
associated
with
the bulk
sale
of fully
charged-off
consumer
loans
and
finance leases,
which
reduced
by 9
basis points
the
ratio of total net charge-offs to average
loans for such period.
Consumer loans
and finance
leases net charge
-offs for
the year
ended December
31, 2024
were $84.9
million, or
2.29% of
related
average
loans,
compared
to
net
charge-offs
of
$62.3
million,
or
1.78%
of
related
average
loans,
for
the
same
period
in
2023.
The
increase
in
charge-offs
was
reflected
across
all
major
portfolio
classes,
which
have
been
trending
higher
towards
historical
loss
experience, partially
offset by
the aforementioned
recovery associated
with the
aforementioned bulk
sale, which
reduced by
27 basis
points the ratio of consumer loans and finance leases net charge
-offs to related average loans during 2024.
Construction
loans
net
recoveries
for
the
year
ended
December
31,
2024
were
$0.1
million,
or
0.06%
of
related
average
loans,
compared
to
net
recoveries
of
$1.9
million,
or
1.09%
of
related
average
loans,
for
the
same
period
in
2023.
For
the
year
ended
December 31, 2023, a recovery of $1.4 million was recorded on a construction
loan in the Puerto Rico region.
C&I loans net
recoveries for the
year ended December
31, 2024 were
$4.0 million, or
0.12% of related
average loans, compared
to
net
charge-offs
of
$6.1
million,
or
0.21%
of
related
average
loans,
for
the
same
period
in
2023.
The
results
for
the
year
ended
December 31, 2024
include a $5.0
million recovery
associated with a
C&I loan in
the Puerto Rico
region and a
$0.8 million recovery
associated with a C&I loan
in the Florida region,
partially offset by the aforementioned
$1.2 million charge-off
recorded on the sale of
a nonaccrual
C&I loan in
the Puerto Rico
region and
a $0.5 million
charge-off
recorded on a
nonaccrual C&I
loan in the
Puerto Rico
region.
Meanwhile,
the
net
charge-offs
for
the
year
ended
December
31,2023
included
a
$6.0
million
net
charge-off
recorded
on
a
C&I participated loan in the Florida region in the power generation industry.
Commercial mortgage
loans net
recoveries for
the year
ended December
31, 2024
were $0.5
million, or
0.02% of
related average
loans, compared to
net charge-offs
of $0.3 million,
or 0.01% of related
average loans, for
the same period
in 2023. The net
recoveries
for the year ended December
31, 2024 include a $0.4
million recovery recorded on a
commercial real estate loan in
the Florida region.
The
net
charge-offs
recorded
during
2023
include
a
$1.0
million
charge-off
recorded
on
a
nonaccrual
commercial
mortgage
loan
transferred
to
OREO,
partially
offset
by
$0.8
million
in
recoveries
recorded
during
2023,
which
include
a
$0.3
million
recovery
associated with the sale of a commercial mortgage loan in the Puerto Rico region.
Year Ended December
31,
2024
2023
2022
Residential mortgage
0.02
%
0.02
%
0.12
%
Construction
(0.06)
%
(1.09)
%
(0.49)
%
Commercial mortgage
(0.02)
%
0.01
%
(0.06)
%
C&I
(0.12)
%
0.21
%
(0.01)
%
Consumer and finance leases
2.29
%
(1)
1.78
%
1.07
%
Total loans
0.65
%
(1)
0.58
%
0.31
%
(1)
The $10.0 million recovery associated with the bulk sale
of fully charged-off consumer loans and finance leases
for the year ended December 31, 2024 reduced the ratios of consumer loans
and finance leases and total net charge-offs to related
average loans by 27 basis points and 9 basis points,
respectively.
101
indicated periods:
Year Ended December
31,
2024
2023
2022
PUERTO RICO:
Residential mortgage
0.03
%
0.03
%
0.14
%
Construction
-
%
(2.66)
%
(1.68)
%
Commercial mortgage
-
%
0.03
%
(0.04)
%
C&I
(0.14)
%
(0.01)
%
(0.11)
%
Consumer and finance leases
2.27
%
(1)
1.78
%
1.07
%
Total loans
0.82
%
(1)
0.65
%
0.37
%
VIRGIN ISLANDS:
Residential mortgage
-
%
-
%
0.18
%
Construction
-
%
0.03
%
-
%
Commercial mortgage
(0.25)
%
(0.02)
%
(0.22)
%
Consumer and finance leases
3.37
%
0.26
%
1.23
%
Total loans
0.53
%
0.04
%
0.23
%
FLORIDA:
Residential mortgage
(0.01)
%
(0.01)
%
(0.03)
%
Construction
(0.22)
%
(0.05)
%
(0.06)
%
Commercial mortgage
(0.06)
%
(0.02)
%
(0.10)
%
C&I
(0.09)
%
0.67
%
0.17
%
Consumer and finance leases
(1.40)
%
(0.50)
%
0.30
%
Total loans
(0.07)
%
0.30
%
0.05
%
(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 year ended December 31, 2024 by 28 basis
points and 10 basis points, respectively.
102
The following table presents information about the OREO inventory
and related gains and losses for the indicated periods:
Year Ended
December 31,
2024
2023
2022
(Dollars in thousands)
OREO
OREO balances, carrying value:
Residential
$
12,897
$
20,261
$
24,025
Construction
522
1,601
1,764
Commercial
3,887
10,807
5,852
Total
$
17,306
$
32,669
$
31,641
OREO activity (number of properties):
Beginning property inventory
277
344
418
Properties acquired
93
171
156
Properties disposed
(189)
(238)
(230)
Ending property inventory
181
277
344
Average holding period (in days)
Residential
517
483
606
Construction
1,560
2,412
2,185
Commercial
3,752
1,491
2,570
Total average holding period (in days)
1,275
911
1,057
OREO operations (gain) loss:
Market adjustments and (gains) losses on sale:
Residential
$
(6,648)
$
(8,962)
$
(7,742)
Construction
(602)
(61)
418
Commercial
(2,272)
(305)
(420)
Total net gain
(9,522)
(9,328)
(7,744)
Other OREO operations expenses
2,048
2,190
1,918
Net Gain on OREO operations
$
(7,474)
$
(7,138)
$
(5,826)
103
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 $12.7 billion
as of December
31, 2024, the
Corporation had
credit risk of
approximately 79%
in
the Puerto Rico region, 18% in the United States region, and 3% in the Virgin
Islands region.
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 November 2024,
estimates showed that the
EDB-EAI stood at 126.4,
down
1.1%
on
a
year-over-year
basis.
Over
the
12-month
period
ended
November
30,
2024,
the
EDB-EAI
averaged
126.1,
0.4%
below the comparable figure a year earlier.
104
Labor market trends
remain positive. Data
published by the
Bureau of Labor
Statistics showed that
non-farm payrolls in
December
2024 in
Puerto Rico increased
by 1.6%
when compared
to December
2023, primarily
driven by
payrolls in the
private sector as
these
increased by
2.4% from
the comparable
figure a
year earlier.
Key industries
driving private-sector
payroll growth
include Leisure
&
Hospitality
with
a
year-over-year
increase
of
5.1%
and
Construction
with
a
positive
variance
of
6.4%.
The
unemployment
rate
continued to trend lower to a record-low level of 5.4% in December 2024.
Fiscal Plan
On June
5, 2024,
the PROMESA
oversight board
certified the
2024 Fiscal
Plan for
Puerto Rico
(the “2024
Fiscal Plan”),
updated
with
the
most
recent
data
and
projections
for
revenues
and
expenses,
and
renewed
roadmap
for
Puerto
Rico
to
achieve
fiscal
responsibility.
The 2024
Fiscal Plan is
made up
of four
parts: (i) progress
made in stabilizing
government finances,
(ii) Puerto Rico’s
current financial
conditions and
risks, (iii) details
of the actions
required to
achieve fiscal
responsibility and
adequate access
to credit
markets, and
(iv) description
of the
actions the
PROMESA oversight
board and
the Government must
take to complete
PROMESA’s
mandate.
The 2024
Fiscal Plan
outlines
eight areas
of focus
to achieve
long-term
fiscal responsibility:
(i) improved
economic
and revenue
forecasting,
(ii)
adoption
of
budget
best
practices,
(iii)
comprehensive
capital
delivery
program,
(iv)
improved
management
of
education
resources,
(v)
improved
government
service
delivery
and
labor
relations,
(vi)
outcome-based,
data-driven,
and
controlled
healthcare
spending,
(vii)
improved,
transparent
financial
reporting,
and
(viii)
optimized
municipal
fiscal
management.
Success
in
these areas, which
aim to address
the most crucial
financial management
challenges that Puerto
Rico faces, is
critical for
Puerto Rico
to fully recover from bankruptcy and to fulfill the mandate of PROMESA to achieve
fiscal responsibility.
As the
debt restructurings
come to
an end,
a significant
portion of
the uncertainty
that has
plagued the
economy over
the past
ten
years has
faded away.
To
generate revenues
that are
resilient even
when the
unprecedented influx
of federal
funding subsides,
fiscal
stability alone
will not
suffice. The
2024 Fiscal
Plan describes
an effort
to develop
an integrated
plan that
will serve
as a
roadmap to
unlock
future
growth.
While
that
plan
is
developed,
the
PROMESA
oversight
board
and
the
Government
will
continue
to
support
specific priorities
through a first
wave of economic
growth initiatives that
aim to address
the most crucial
challenges that Puerto
Rico
faces.
The
list
of
focus
areas
outlined
in
the
2024
Fiscal
Plan
to
promote
economic
growth
include:
(i)
integrated
framework
for
economic
growth,
(ii)
human
capital,
focused
on
robust,
highly-skilled,
and
health
workforce,
(iii)
economic
strategies,
focused
on
improved
ease
of
doing
business,
(iv)
economic
policies,
focused
on
reforms
of
Puerto
Rico’s
tax
system,
and
(v)
infrastructure,
focused on reduced cost and increased reliability of energy,
transportation, and internet connectivity.
Similar to
previous
fiscal plans,
the 2024
Fiscal Plan
includes
an updated
macroeconomic forecast
reflecting
the impact
of fiscal
and
structural
measures,
natural disasters,
COVID-19,
and
federal
funding
in response
to natural
disasters
and
the
pandemic
on the
baseline
economic
trajectory.
The
2024
Fiscal
Plan
projects
Puerto
Rico
GNP
growth
in
fiscal
year
2024
to
be
1.0%,
followed
by
declines of 0.8% and
0.1% in fiscal year
2025 and fiscal year
2026, respectively.
On average, Puerto Rico’s
GNP is projected
to grow
approximately 0.4%
between fiscal
year 2023
and fiscal
year 2026.
Contrary to
previous fiscal
plans where
Puerto Rico’s
population
was projected to decline,
the 2024 Fiscal Plan includes
a stable population projection
through 2029 mainly due to
the offset between a
negative
natural
population
decline
and
positive
net
migration.
Specifically,
the
revised
fiscal
plan
projections
contemplate
a
net
inflow of over 20,000 people annually through 2029, compared to
an average of less than 5,000 people in the 2023 fiscal plan.
The 2024 Fiscal Plan projects
that approximately $54.5 billion
in total disaster relief funding,
from federal and private
sources, will
be
disbursed
as part
of
the
reconstruction
efforts
over
a
span of
9
years
(fiscal
years
2024
through
2035).
These
funds
will
benefit
individuals, the
public (e.g.,
reconstruction of
major infrastructure,
roads, and
schools), and
will cover
part of
Puerto Rico’s
share of
the
cost
of
disaster
relief
funding.
Also,
the
2024
Fiscal
Plan
projects
the
$5.9
billion
in
remaining
COVID-19
relief
funds
to
be
deployed
in fiscal
years 2024
and
2025.
Additionally,
the 2024
Fiscal Plan
continues
to account
for $2.1
billion
in federal
funds
to
Puerto
Rico
from
the
Bipartisan
Infrastructure
Law
directed
towards
improving
Puerto
Rico’s
infrastructure
over
fiscal
years
2024
through
2026.
Overall,
Puerto
Rico’s
economic
growth
is highly
dependent
on
the
Government’s
ability
to
efficiently
deploy
these
federal funds.
105
Debt Restructuring
Over
80%
of
Puerto
Rico’s
outstanding
debt
has
been
restructured
to
date.
On
March
15,
2022,
the
Plan
of
Adjustment
of
the
central
government’s
debt
became
effective
through
the
exchange
of more
than
$33
billion
of
existing
bonds
and
other
claims
into
approximately
$7
billion
of
new
bonds,
saving
Puerto
Rico
more
than
$50
billion
in
debt
payments
to
creditors.
Also,
the
restructurings
of
the
Puerto
Rico
Sales
Tax
Financing
Corporation
(“COFINA”),
the
Highways
and
Transportation
Authority
(“HTA”),
and
the
Puerto
Rico
Aqueducts
and
Sewers
Authority
(“PRASA”)
are
expected
to
yield
savings
of
approximately
$17.5
billion,
$3.0
billion,
and
$400
million,
respectively,
in
future
debt
service
payments.
The
main
restructuring
pending
is
that
of
the
Puerto Rico
Electric Power
Authority (“PREPA”).
All PREPA
plan confirmation
and bond-related
litigation is
currently stayed
until
March
24,
2025,
pursuant
to
a
Court
order
dated
January
29,
2025,
as
the
mediation
team
continues
to
participate
in
multiple
discussions with the PROMESA oversight
board, certain mediation parties and
additional parties who filed objections
to conformation
of the PREPA
plan of adjustment.
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
November
30,
2024,
over
$3.7
billion
in
disaster
relief
funds
were
disbursed
through
the
Federal
Emergency
Management
Agency
(“FEMA”)
Public
Assistance
program
and
the
HUD
Community
Development
Block
Grant
(“CDBG”)
program,
a
16%
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
January
25,
2025,
over
3,700
projects had
already been
completed
under FEMA’s
Public Assistance
Permanent Work
programs
while over
20,300 projects
were
active
across
different
stages
of
execution
for
a
total
cost
of
$12.1
billion,
equivalent
to
approximately
33%
of
the
agency’s
$36.0 billion obligation, according to the Central Office
for Recovery, Reconstruction
and Resiliency (“COR3”).
After more
than five
years since
the confirmation
of the
COFINA plan
of adjustment,
on October
30, 2024,
the Court
granted the
PROMESA oversight
board’s
request for
entry of
an order
closing the
COFINA Title
III case,
making it
the first
closed bankruptcy
case since the enactment of PROMESA.
106
Exposure to Puerto Rico Government
As of December
31, 2024, the
Corporation had $288.6
million of direct
exposure to the
Puerto Rico government,
its municipalities
and
public
corporations,
compared
to
$285.1
million
as
of
December
31,
2023.
As
of
December
31,
2024,
approximately
$195.8
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 $51.1
million consisted of
loans and obligations
which are supported
by one or more
specific sources
of municipal
revenues. Approximately
72% of the
Corporation’s
exposure to
Puerto Rico municipalities
consisted primarily
of senior
priority loans
and obligations concentrated
in four of
the largest municipalities
in Puerto Rico.
The municipalities
are required by
law
to levy
special property
taxes in
such amounts
as are
required for
the payment
of all
of their
respective general
obligation bonds
and
notes. In
addition to
municipalities, the
total direct
exposure also
included $8.8
million in
a loan
extended to
an affiliate
of PREPA,
$30.0
million
in
loans
to
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 $2.9 million
as part of its available-for
-sale
debt securities portfolio (fair value of $1.6 million as of December 31,
2024).
The
following
table
details
the
Corporation’s
total
direct
exposure
to
Puerto
Rico
government
obligations
according
to
their
maturities:
As of December 31, 2024
Investment
Portfolio
(Amortized cost)
Loans
Total
Exposure
(In thousands)
Puerto Rico Housing Finance Authority:
$
2,951
$
-
$
2,951
Total Puerto Rico Housing Finance Authority
2,951
-
2,951
Public corporation of the Puerto Rico government:
-
8,458
8,458
-
21,607
21,607
Total public corporation of the Puerto Rico government
-
30,065
30,065
-
8,787
8,787
Total Puerto Rico government affiliate
-
8,787
8,787
Total Puerto Rico public corporations and government affiliate
-
38,852
38,852
Municipalities:
2,214
26,343
28,557
61,289
39,220
100,509
13,184
88,821
102,005
15,755
-
15,755
Total Municipalities
92,442
154,384
246,826
Total Direct
Government Exposure
$
95,393
$
193,236
$
288,629
Also,
as
of
December
31,
2024,
the
outstanding
balance
of
construction
loans
funded
through
conduit
financing
structures
to
support the
federal programs
of LIHTC
combined with
CDBG-DR funding
amounted to $59.2
million, compared
to $12.8
million as
of
December
31,
2023.
The
main
objective
of
these
programs
is
to
spur
development
in
new
or
rehabilitated
and
affordable
rental
housing. PRHFA,
as program
subrecipient and
conduct issuer,
issues tax-exempt
obligations which
are acquired
by private
financial
institutions and are
required to co-underwrite
with PRHFA
a mirror construction
loan agreement for
the specific project loan
to which
the Corporation will serve as ultimate lender but where the PRHFA
will be the lender of record.
In
addition,
as
of
December
31,
2024,
the
Corporation
had
$72.5
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,
2023,
the
PRHFA’s
mortgage
loans
insurance
program
covered
loans
in
an
aggregate
amount
of
approximately
$388
million.
The
regulations
adopted
by
the
PRHFA
require
the
establishment
of
adequate
reserves to
guarantee
the solvency
of the
mortgage loans
insurance program.
As of
June 30,
2023, the
most recent
date as
of which
information is available, the PRHFA
had a liability of approximately $1.3 million as an estimate of the
losses inherent in the portfolio.
107
As
of
December
31,
2024
and
2023,
the
Corporation
had
$3.1
billion
and
$2.7
billion,
respectively,
of
public
sector
deposits
in
Puerto
Rico.
Approximately
17%
of
the
public
sector
deposits
as
of
December
31,
2024
were
from
municipalities
and
municipal
agencies in
Puerto Rico
and 83%
were from
public corporations,
the Puerto
Rico central
government and
agencies, and
U.S. federal
government agencies in Puerto Rico.
Exposure to USVI Government
The Corporation has operations in the USVI and has credit exposure
to USVI government entities.
For many years, the
USVI has been experiencing
several fiscal and economic
challenges that have deteriorated
the overall financial
and
economic
conditions
in
the
area.
On
June
17,
2024,
the
United
States
Bureau
of
Economic
Analysis
(the
“BEA”)
released
its
estimates of GDP
for 2022.
According to
the BEA, the
USVI’s
real GDP decreased
1.3% in 2022
after increasing
3.7% in 2021.
The
decrease
in
real
GDP
reflected
declines
in
exports,
private
fixed
investment,
government
spending,
and
personal
consumption
expenditures. These
negative variances were
partly offset
by an increase
in inventory investment,
while imports,
a subtraction item
in
the calculation of GDP,
decreased.
Over the past
three years, the
USVI has been
recovering from the
adverse impact caused
by COVID-19 and
has continued to
make
progress
on
its
rebuilding
efforts
related
to
Hurricanes
Irma
and
Maria,
which
occurred
in
September
2017.
According
to
data
published by
FEMA, over
$5.7
billion in
disaster recovery
funds had
been disbursed
through November
2024 and
nearly $14
billion
were remaining obligated
funds pending to
be disbursed. Disaster
recovery disbursements totaled
$685.6 million
during the 12-month
period ended
November 30,
2024, 60% above
the comparable figure
a year earlier.
Moreover, labor
market trends remain
stable with
average non-farm payrolls during 2024 down by 0.7% on a year-over-year
basis.
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
December 31,
2024 and
2023, the
Corporation had
$100.4 million
and $90.5
million, respectively,
in loans
to USVI
public
corporations, of which $68.2 million and $57.2 million, respectively,
were fully collateralized by cash balances held at the Bank. As of
December 31, 2024, all loans were currently performing and up to date on principal
and interest payments.
108
CEO and CFO Certifications
First BanCorp.’s Chief Executive
Officer and Chief Financial Officer have
filed with the SEC certifications required by Section 302
and Section 906 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1, 31.2,
32.1 and 32.2 to this Form 10-K.
In addition, in 2024, First BanCorp’s
Chief Executive Officer provided to the NYSE his annual certification,
as required for all
NYSE listed companies, that he was not aware of any violation by the Corporation
of the NYSE corporate governance listing
standards.
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk
The information required
herein is incorporated by
reference to the
information included under the
sub-caption “Interest Rate Risk
Management”
in Part
II, Item
7 “Management’s
Discussion and
Analysis of
Financial Condition
and Results
of Operations,”
of this
Form 10-K.
109
Item 8. Financial Statements and Supplementary Data
FIRST BANCORP.
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
)….…………………………..
110
…………………………………………
112
……………………………………………………………...
113
114
115
………………………………………………………………………
116
………………………………………………..
117
…………………………………………………………………..
118
110
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors of First BanCorp.
San Juan, Puerto Rico
Opinions on the Financial Statements and Internal Control
over Financial Reporting
We
have audited the accompanying
consolidated statements of financial condition
of First BanCorp. (the "Company")
as of December
31,
2024
and
2023,
the
related
consolidated
statements
of
income,
comprehensive
income
(loss),
cash
flows,
and
changes
in
stockholders’
equity,
for
each
of
the
years
in
the
three-year
period
ended
December
31,
2024,
and
the
related
notes
(collectively
referred
to
as
the
“financial
statements”).
We
also
have
audited
the
Company’s
internal
control
over
financial
reporting
as
of
December
31,
2024,
based
on
criteria
established
in
Internal
Control
–
Integrated
Framework:
(2013)
issued
by
the
Committee
of
Sponsoring Organizations of the Treadway
Commission (COSO).
In our opinion,
the financial statements
referred to above
present fairly,
in all material respects,
the financial position
of the Company
as of
December 31,
2024 and
2023, and
the results
of its
operations and
its cash
flows for
each of
the years
in the
three-year period
ended December
31, 2024
in conformity
with accounting
principles generally
accepted in
the United
States of
America.
Also in
our
opinion, the Company maintained,
in all material respects, effective
internal control over financial
reporting as of December
31, 2024,
based on criteria established in Internal Control – Integrated Framework:
(2013) issued by COSO.
Basis for Opinions
The
Company’s
management
is
responsible
for
these
financial
statements,
for
maintaining
effective
internal
control
over
financial
reporting,
and
for
its
assessment
of
the
effectiveness
of
internal
control
over
financial
reporting,
included
in
the
accompanying
Management’s
Report
on
Internal
Control
over
Financial
Reporting.
Our
responsibility
is
to
express
an
opinion
on
the
Company’s
financial statements
and an
opinion on
the Company’s
internal control
over financial
reporting based
on our
audits.
We
are a
public
accounting firm
registered with
the Public
Company Accounting
Oversight Board
(United States)
("PCAOB") and
are required
to be
independent with
respect to
the Company
in accordance
with the
U.S. federal
securities laws and
the applicable
rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance
with the standards of the PCAOB. Those
standards require that we plan and perform
the audits
to obtain reasonable
assurance about whether
the financial statements are
free of material misstatement,
whether due to error
or fraud,
and whether effective internal control over financial
reporting was maintained in all material respects.
Our
audits
of
the
financial
statements
included
performing
procedures
to
assess
the
risks
of
material
misstatement
of
the
financial
statements, whether due to error or fraud,
and performing procedures that respond to
those risks. Such procedures included examining,
on
a
test basis,
evidence
regarding
the
amounts
and
disclosures
in
the
financial
statements.
Our
audits
also
included
evaluating
the
accounting
principles
used
and
significant
estimates
made
by
management,
as
well
as
evaluating
the
overall
presentation
of
the
financial statements. Our audit
of internal control over
financial reporting included obtaining
an understanding of internal control
over
financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design
and operating effectiveness
of internal
control based
on the assessed
risk. Our
audits also
included performing
such other
procedures as
we considered
necessary
in the circumstances.
We
believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over
Financial Reporting
A company’s
internal control over financial reporting is a
process designed to provide reasonable
assurance regarding the reliability of
financial reporting and
the preparation of
financial statements for
external purposes in
accordance with generally
accepted accounting
principles.
A
company’s
internal
control
over
financial
reporting
includes
those
policies
and
procedures
that
(1)
pertain
to
the
maintenance
of
records
that,
in
reasonable
detail,
accurately
and
fairly
reflect
the
transactions
and
dispositions
of
the
assets
of
the
company; (2) provide
reasonable assurance that
transactions are recorded
as necessary to permit
preparation of financial
statements in
accordance with
generally accepted
accounting principles,
and that
receipts and
expenditures of
the company
are being
made only
in
accordance
with
authorizations
of
management
and
directors
of
the
company;
and
(3)
provide
reasonable
assurance
regarding
prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s
assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections
of any evaluation
of effectiveness to
future periods are
subject to the
risk that controls
may become inadequate
because of changes
in
conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
111
Critical Audit Matter
The
critical
audit
matter
communicated
below
is a
matter
arising
from
the
current
period
audit
of
the
financial
statements
that
was
communicated or required
to be communicated
to the audit
committee and that:
(1) relates to accounts
or disclosures that
are material
to the
financial statements
and (2)
involved our
especially challenging,
subjective, or
complex judgments.
The communication
of the
critical
audit
matter
does
not
alter
in
any
way
our
opinion
on
the
financial
statements,
taken
as
a
whole,
and
we
are
not,
by
communicating
the
critical
audit
matter
below,
providing
a
separate
opinion
on
the
critical
audit
matter
or
on
the
accounts
or
disclosures to which it relates.
Allowance for Credit Losses – Economic Forecasts and Macroeconomic Variables
As described
in Notes
1 and
5 to
the financial
statements, the
allowance for
credit losses
(“ACL”) for
loans and
finance leases
is an
accounting
estimate
of
expected
credit
losses
over
the
contractual
life
of
financial
assets
carried
at
amortized
cost
and
off-balance-
sheet credit exposures.
The calculation
of the
ACL for
loans and
finance leases,
is primarily
measured based
on a
probability of
default /
loss given
default
modeled approach. The
estimate of the
probability of default
and loss given
default assumptions uses
one or more
economic forecasts
of
relevant
current
and
forward-looking
macroeconomic
variables
determined
by
portfolio
segment,
such
as:
unemployment
rate;
housing
and
real
estate
price
indices;
interest
rates;
market
risk
factors;
and
gross
domestic
product,
and
considers
conditions
throughout
Puerto
Rico,
the
Virgin
Islands,
and
the
State
of
Florida.
A
significant
amount
of
judgment
is
required
to
assess
the
reasonableness
of
the
selection
of
economic
forecasts
and
macroeconomic
variables.
Changes
to
these
assumptions
could
have
a
material effect on the Company’s
financial results.
The economic
forecasts and
current and
forward-looking macroeconomic
variables used
contribute significantly
to the
determination
of the ACL for loans
and finance leases.
We
identified the assessment of
economic forecasts and relevant
macroeconomic variables as
a critical
audit matter
as the
impact of
these judgments
represents a
significant portion
of the
ACL for
loans and
finance leases
and
because
management’s
estimate
required
especially
subjective
auditor
judgment
and
significant
audit
effort,
including
the
need
for
specialized skill.
The primary procedures we performed to address these critical audit matters
included:
●
Testing
the effectiveness
of controls
over the
evaluation of
the selection
of economic
forecasts and
the current
and forward-
looking macroeconomic variables, including controls addressing:
o
Management’s review and
approval of the economic forecasts and macroeconomic variables.
o
Management’s
review
of
the
reasonableness
of
the
results
of
the
selection
of
economic
forecasts
and
macroeconomic variables used in the calculation.
●
Substantively
testing
management’s
process,
including
evaluating
their
judgments
and
assumptions
for
economic
forecast
selection and macroeconomic variables, which included:
o
Evaluation of reasonableness of economic forecasts selection.
o
Evaluation
of
the
completeness
and
accuracy
of
data
inputs
used
as
a
basis
for
the
adjustments
relating
to
macroeconomic variables.
o
Evaluation,
with
the
assistance
of
professionals
with
specialized
skill
and
knowledge,
of
the
reasonableness
of
management’s
judgments related
to the
economic forecast
and macroeconomic
variables used
in the
determination
of
the
ACL
for
loans.
Among
other
procedures,
our
evaluation
considered
evidence
from
internal
and
external
sources, loan portfolio performance trends and whether such assumptions
were applied consistently period to period.
o
Analytical evaluation of the variables period to period for directional consistency
and testing for reasonableness.
We
have served as the Company’s
auditor since 2018.
/s/
February 28, 2025
Stamp No. E566476 of the
Puerto Rico Society of Certified
Public Accountants was affixed to
the record copy this report.
112
Management’s Report on Internal Control
over Financial Reporting
To the Stockholders
and Board of Directors of First BanCorp.:
First BanCorp.’s
(the “Corporation”)
internal control
over financial
reporting is
a process
designed and
effected
by those
charged
with
governance,
management,
and
other
personnel,
to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and the preparation of reliable
financial statements in accordance
with accounting principles generally
accepted in the United States of
America
(“GAAP”).
The
Corporation’s
internal
control
over
financial
reporting
includes
those
policies
and
procedures
that:
(1) pertain to the
maintenance of records
that, in reasonable detail,
accurately and fairly reflect
the transactions and dispositions
of the
assets
of
the
Corporation;
(2) provide
reasonable
assurance
that
transactions
are
recorded
as
necessary
to
permit
the
preparation
of
financial
statements
in
accordance
with
GAAP,
and
that
receipts
and
expenditures
of
the
Corporation
are
being
made
only
in
accordance
with
authorizations
of
management
and
directors
of
the
Corporation;
and
(3) provide
reasonable
assurance
regarding
prevention,
or timely
detection and
correction
of unauthorized
acquisition,
use, or
disposition of
the Corporation’s
assets that
could
have a material effect on the financial statements.
Because of
its inherent
limitations,
internal control
over financial
reporting may
not prevent,
or detect
and correct
misstatements.
Also,
projections
of
any
evaluation
of
effectiveness
to
future
periods
are
subject
to
the
risk
that
controls
may
become
inadequate
because of changes in conditions, or that the degree of compliance with the policies
and procedures may deteriorate.
Management
is
responsible
for
establishing
and
maintaining
effective
internal
control
over
financial
reporting.
Management
assessed
the
effectiveness
of
the
Corporation’s
internal
control
over
financial
reporting
as
of
December 31,
2024,
based
on
the
framework
set
forth
by
the
Committee
of
Sponsoring
Organizations
of
the
Treadway
Commission
(COSO)
in
Internal
Control-
Integrated
Framework
(2013).
Based
on
that
assessment,
management
concluded
that,
as
of
December
31,
2024,
the
Corporation’s
internal control over financial reporting is effective based
on the criteria established in Internal Control-Integrated Framework (2013).
The
Corporation’s
independent
registered
public
accounting
firm,
Crowe LLP,
has
audited
the effectiveness
of the
Corporation’s
internal control over financial reporting as of December 31, 2024, as stated in their
report dated February 28, 2025.
First BanCorp.
113
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2024
December 31, 2023
(In thousands, except for share information)
ASSETS
Cash and due from banks
$
$
Money market investments:
Time deposits with other financial institutions
Other short-term investments
Total money market investments
Available-for-sale debt securities, at fair value (amortized cost of
$
$
Held-to-maturity debt securities, at amortized
cost, net of ACL of $
as of December 31, 2023 (fair value of
$
Equity securities
Total investment securities
Loans, net of ACL of $
Mortgage loans held for sale, at lower of
cost or market
Total loans, net
Accrued interest receivable on loans and
investments
Premises and equipment, net
Other real estate owned (“OREO”)
Deferred tax asset, net
Goodwill
Other intangible assets
Other assets
Total assets
$
$
LIABILITIES
Non-interest-bearing deposits
$
$
Interest-bearing deposits
Total deposits
Long-term borrowings
Accounts payable and other liabilities
Total liabilities
Commitments and contingencies (See
Note 27)
(nil)
(nil)
STOCKHOLDERS’ EQUITY
Common stock, $
shares outstanding as of December 31, 2024
and
Additional paid-in capital
Retained earnings, includes legal surplus
reserve of $
Treasury stock (at cost),
(
790,350
)
(
697,406
)
Accumulated other comprehensive loss, net
of tax of $
(
566,556
)
(
639,170
)
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
The accompanying notes are an integral part
of these statements.
114
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
2024
2023
2022
(In thousands, except per share information)
Interest and dividend income:
$
$
$
Interest expense:
Provision for credit losses - expense (benefit):
(
1,495
)
(
1,445
)
(
6,069
)
(
719
)
Non-interest income:
Non-interest expenses:
(
7,474
)
(
7,138
)
(
5,826
)
Income before income taxes
Income tax expense
Net income
$
$
$
Net income attributable to common stockholders
$
$
$
Net income per common share:
$
$
$
$
$
$
The accompanying notes are an integral part
of these statements.
115
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
Year Ended
December 31,
2024
2023
2022
(In thousands)
Net income
$
$
$
Other comprehensive income (loss), net of tax:
Available-for-sale debt securities:
Net unrealized holding gains (losses) on debt securities
(1)
(
718,582
)
Defined benefit plans adjustments:
Net actuarial (loss) gain
(
635
)
(
2,199
)
Reclassification adjustment for amortization of net actuarial loss
Other comprehensive income (loss) for the year, net of tax
(
720,779
)
Total comprehensive income (loss)
$
$
$
(
415,707
)
Year Ended
December 31,
2024
2023
2022
(In thousands)
Income tax effect of items included in other comprehensive income (loss):
Defined benefit plans adjustments:
Net actuarial (loss) gain
$
$
(
107
)
$
Reclassification adjustment for amortization of net actuarial loss
(
21
)
(
6
)
(
1
)
Total income tax effect of items included in other comprehensive income (loss)
$
$
(
113
)
$
(1) Net unrealized holding gains (losses)
on available-for-sale debt securities have no tax
effect because securities are either tax-exempt,
held by an International Banking Entity
("IBE"), or have a full deferred tax asset
valuation allowance.
The accompanying notes are an integral part of these statements.
116
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2024
2023
2022
(In thousands)
Cash flows from operating activities:
Net income
$
$
$
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of intangible assets
Provision for credit losses
Deferred income tax expense
Stock-based compensation
Gain on early extinguishment of debt
(
1,605
)
Unrealized gain on derivative instruments
(
537
)
(
301
)
(
1,098
)
Net gain on disposals or sales, and impairments of premises
and equipment and other assets
(
103
)
(
3,514
)
(
706
)
Net gain on sales of loans and loans held-for-sale valuation adjustments
(
3,426
)
(
1,572
)
(
5,498
)
Net amortization of discounts, premiums, and deferred loan fees
and costs
(
7,853
)
Originations and purchases of loans held for sale
(
165,291
)
(
147,460
)
(
214,962
)
Sales and repayments of loans held for sale
Amortization of broker placement fees
Net amortization of premiums and discounts on investment securities
Decrease (increase) in accrued interest receivable
(
5,437
)
(
11,340
)
Increase in accrued interest payable
Increase in other assets
(
10,514
)
(
16,619
)
(
2,437
)
(Decrease) increase in other liabilities
(
176
)
(
41,290
)
Cash flows from investing activities:
Net disbursements on loans held for investment
(
705,368
)
(
758,232
)
(
603,853
)
Proceeds from sales of loans held for investment
Proceeds from sales of repossessed assets
Purchases of available-for-sale debt securities
(
266,198
)
(
5,458
)
(
512,327
)
Proceeds from principal repayments and maturities of available-for-sale
debt securities
Purchases of held-to-maturity debt securities
(
289,784
)
Proceeds from principal repayments and maturities of held-to-maturity
debt securities
Additions to premises and equipment
(
10,008
)
(
22,599
)
(
20,459
)
Proceeds from sales of premises and equipment and other assets
Net (purchases) redemptions of equity securities
(
2,350
)
(
23,637
)
Proceeds from the settlement of insurance claims - investing activities
(
78,450
)
(
681,460
)
Cash flows from financing activities:
Net increase (decrease) in deposits
(
1,706,118
)
Net (repayments) proceeds of short-term borrowings
(
550,133
)
Repayments of long-term borrowings
(
97,000
)
(
19,795
)
(
500,000
)
Proceeds from long-term borrowings
Repurchase of outstanding common stock
(
102,393
)
(
203,241
)
(
277,769
)
Dividends paid on common stock
(
105,581
)
(
99,666
)
(
87,824
)
(
44,131
)
(
101,854
)
(
1,821,578
)
Net increase (decrease) in cash and cash equivalents
(
2,062,553
)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
$
$
Cash and cash equivalents include:
Cash and due from banks
$
$
$
Money market investments
$
$
$
The accompanying notes are an integral part of these statements.
117
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
Year Ended December 31,
2024
2023
2022
(In thousands, except per share information)
Common Stock
$
$
$
Additional Paid-In Capital:
(
9,659
)
(
13,531
)
(
7,365
)
Retained Earnings:
(
1,357
)
(
106,024
)
(
99,604
)
(
88,158
)
Treasury Stock (at cost):
(
697,406
)
(
506,979
)
(
236,442
)
(
102,393
)
(
203,241
)
(
277,769
)
(
210
)
(
717
)
(
133
)
(
790,350
)
(
697,406
)
(
506,979
)
Accumulated Other Comprehensive Loss, net of tax:
(
639,170
)
(
804,778
)
(
83,999
)
(
720,779
)
(
566,556
)
(
639,170
)
(
804,778
)
$
$
$
The accompanying notes are an integral part of these statements.
118
FIRST BANCORP.
INDEX TO NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
PAGE
Note 1 –
Nature of Business and Summary of Significant Accounting Policies
Note 2 –
Money Market Investments
Note 3 –
Debt Securities
Note 4 –
Loans Held for Investment
Note 5
–
Allowance for Credit Losses for Loans and Finance Leases
Note 6
–
Premises and Equipment
Note 7 –
Other Real Estate Owned (“OREO”)
Note 8 –
Related-Party Transactions
Note 9 –
Goodwill and Other Intangibles
Note 10 –
Non-Consolidated Variable Interest Entities (“VIEs”) and Servicing Assets
Note 11 –
Deposits
Note 12 –
Borrowings
Note 13 –
Earnings per Common Share
Note 14 –
Stock-Based Compensation
Note 15 –
Stockholders’ Equity
Note 16 –
Accumulated Other Comprehensive Loss
Note 17 –
Employee Benefit Plans
Note 18 –
Other Non-Interest Income
Note 19 –
Other Non-Interest Expenses
Note 20 –
Income Taxes
Note 21 –
Operating Leases
Note 22 –
Derivative Instruments and Hedging Activities
Note 23
–
Fair Value
Note 24
–
Revenue from Contracts with Customers
Note 25 –
Segment Information
Note 26 –
Supplemental Statement of Cash Flows Information
Note 27 –
Regulatory Matters, Commitments, and Contingencies
Note 28 –
First BanCorp. (Holding Company Only) Financial Information
119
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS
(Audited)
NOTE 1 –
NATURE OF BUSINESS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
First BanCorp. (the “Corporation”)
is a publicly owned, Puerto
Rico-chartered financial holding
company organized under
the laws
of the Commonwealth
of Puerto Rico in
1948. The Corporation
is subject to regulation,
supervision, and examination
by the Board
of
Governors of
the Federal
Reserve System
(the “Federal
Reserve Board”).
Through its
subsidiaries, including
its banking
subsidiary,
FirstBank Puerto Rico (“FirstBank”
or the “Bank”), the Corporation
provides full-service commercial
and consumer banking services,
mortgage banking
services, automobile
financing, trust
services, insurance
agency services,
and other
financial products
and services
with operations in Puerto Rico, the United States, the U.S. Virgin
Islands (the “USVI”), and the British Virgin
Islands (the “BVI”).
The Corporation
has two
wholly-owned subsidiaries:
FirstBank Puerto
Rico (“FirstBank”
or the
“Bank”), and
FirstBank Insurance
Agency,
Inc.
(“FirstBank
Insurance
Agency”).
FirstBank
is
a
Puerto
Rico-chartered
commercial
bank,
and
FirstBank
Insurance
Agency is
a Puerto
Rico-chartered insurance
agency.
FirstBank is
subject to
the supervision,
examination, and
regulation of
both the
Office of
the Commissioner
of Financial
Institutions of
the Commonwealth
of Puerto
Rico (the
“OCIF”) and
the FDIC.
Deposits are
insured
through
the
FDIC
Deposit
Insurance
Fund.
FirstBank
also
operates
in
the
State
of
Florida,
subject
to
regulation
and
examination by
the Florida
Office of
Financial Regulation
and the
FDIC; in
the USVI,
subject to
regulation and
examination by
the
USVI
Division
of
Banking,
Insurance
and
Financial
Regulation;
and
in the
BVI,
subject to
regulation
by the
British Virgin
Islands
Financial
Services Commission.
The Consumer
Financial Protection
Bureau (the
“CFPB”) regulates
FirstBank’s
consumer
financial
products and services.
FirstBank
Insurance
Agency
is
subject
to
the
supervision,
examination,
and
regulation,
including
the
Office
of
the
Insurance
Commissioner of
the Commonwealth
of Puerto
Rico and
the Division
of Banking,
Insurance and
Financial Regulation
in the
USVI.
FirstBank conducts its
business through its
main office located
in San Juan, Puerto
Rico,
banking branches in the USVI and the BVI, and
subsidiaries
with
operations
in
Puerto
Rico:
First
Federal
Finance
Corp.
(d/b/a
Money
Express
La Financiera),
a
finance
company
specializing
in
the
origination
of
small
loans
with
corporation,
which
holds
tax-exempt
assets;
FirstBank
Overseas
Corporation,
an
international
banking
entity
(an
“IBE”)
organized
under the
International Banking
Entity Act
of Puerto
Rico; two
companies engaged
in the
operation of
certain real
estate properties;
and
a
limited
liability
corporation
organized
in
2022
under
the
laws
of
the
Commonwealth
of
Puerto
Rico
and
Puerto
Rico
Tax
Incentives Code (“Act 60 of 2019”), which commenced operations in
2023 and engages in investing and lending transactions.
General
principles in the
United States of
America (“GAAP”). The
following is a description
of the Corporation’s
most significant accounting
policies.
Principles of consolidation
The
consolidated
financial
statements
include
the
accounts
of
the
Corporation
and
its
subsidiaries.
All
significant
intercompany
balances
and
transactions
have
been
eliminated
in
consolidation.
The
results
of
operations
of
companies
or
assets
acquired
in
a
business combination are
included from the date
of acquisition. Entities in
which the Corporation
holds a controlling financial
interest
are
consolidated.
For
a
voting
interest
entity,
a
controlling
financial
interest
is
generally
where
the
Corporation
holds,
directly
or
indirectly,
more than
50 percent
of the
outstanding voting
shares. For
a VIE,
a controlling
financial interest
is where
the Corporation
has
the
power
to
direct
the
activities
of
an
entity
that
most
significantly
impact
the
entity’s
economic
performance
and
has
an
obligation
to
absorb
losses
or
the
right
to
receive
benefits
from
the
VIE.
Statutory
business
trusts
that
are
wholly
owned
by
the
Corporation and are
issuers of trust-preferred
securities (“TRuPs”) and
entities in which the
Corporation has a non-controlling
interest
are
not
consolidated
in
the
Corporation’s
consolidated
financial
statements
in
accordance
with
authoritative
guidance
issued
by
the
Financial Accounting Standards Board (“FASB”)
for consolidation of VIEs.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
120
Use of estimates in the preparation of financial statements
The
preparation
of
financial
statements
in
conformity
with GAAP
requires
management
to
make
estimates
and
assumptions
that
significantly
affect
amounts
reported
in
the
consolidated
financial
statements.
Although
estimates
and
assumptions
about
future
economic and market conditions (for
example, unemployment, market liquidity,
real estate prices, etc.) contemplate current
conditions
and
how
we expect
them to
change in
the future,
it is
reasonably
possible
that actual
conditions
could be
worse
than anticipated
in
those estimates, which could materially affect our results of operations
and financial condition.
The Corporation
utilizes processes
that involve
the use
of significant
estimates and
the judgements
of management
in determining
the amount
of its
ACL, income
taxes, as
well as
fair value
measurements
of investment
securities, goodwill,
other intangible
assets,
pension
plans,
mortgage
servicing
rights,
and
loans
held
for
sale.
As
with
any
estimate,
actual
results
could
differ
from
those
estimates.
Cash and cash equivalents
For purposes of
reporting cash
flows, cash and
cash equivalents include
cash on hand,
cash items in
transit, and
amounts due
from
the Federal Reserve Bank of New York
(the “FED”) and other depository institutions. The
term also includes money market funds and
short-term investments with original maturities of three months or less.
Investment securities
The Corporation classifies its investments in debt and equity securities into one
of four categories:
Held-to-maturity
amortized
cost.
The
Corporation
may
not
sell
or
transfer
held-to-maturity
securities
without
calling
into
question
its
intent
to
hold other debt securities to
maturity, unless
a nonrecurring or unusual event
that could not have been reasonably
anticipated has
occurred.
Trading
are
carried
at
fair
value,
with
unrealized
gains
and
losses
reported
in
earnings.
As
of
December
31,
2024
and
2023,
the
Corporation did not hold debt securities for trading purposes.
Available-for-sale
unrealized
holding
gains
and
losses,
net
of
deferred
taxes,
reported
in
other
comprehensive
loss
(“OCL”)
as
a
separate
component of
stockholders’ equity.
The unrealized
holding gains
and losses
do not
affect earnings
until they
are realized,
or an
ACL is recorded.
Equity
securities
consolidated
statements
of
financial
condition.
These
securities
are
stated
at
cost
less
impairment,
if
any.
This
category
is
principally composed
of Federal Home
Loan Bank (“FHLB”)
stock that the
Corporation owns to
comply with FHLB
regulatory
requirements.
The
realizable
value
of
the
FHLB
stock
equals
its
cost.
Also
included
in
this
category
are
marketable
equity
securities held at fair value with changes in unrealized gains or losses recorded through
earnings in other non-interest income.
Premiums
and
discounts
on
debt
securities
are
amortized
as an
adjustment
to
interest
income
on
investments
over
the life
of
the
related securities
under the
interest method
without anticipating
prepayments, except
for mortgage-backed
securities (“MBS”)
where
prepayments are anticipated. Premiums on
callable debt securities, if any,
are amortized to the earliest call date.
Purchases and sales of
securities are
recognized on
a trade-date
basis, the
date the
order to
buy or
sell is executed.
Gains and
losses on
sales are
determined
using the specific identification method.
A debt
security
is placed
on nonaccrual
status at
the time
any
principal
or interest
payment
becomes 90 days
delinquent.
Interest
accrued but
not received
for a
security placed
on nonaccrual
is reversed
against interest
income.
See Note
3 –
“Debt Securities”
for
additional information on nonaccrual debt securities.
Allowance
for
Credit
Losses
–
Held-to-Maturity
Debt
Securities:
As
of
December
31,
2024
and
2023,
the
held-to-maturity
debt
securities portfolio consisted of U.S. government-sponsored entities
(“GSEs”) MBS and Puerto Rico municipal bonds.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
121
The ACL
on held-to-maturity
debt securities
is based
on an
expected loss
methodology referred
to as
current expected
credit loss
(“CECL”)
methodology
by
major
security
type.
Any
expected
credit
loss
is
provided
through
the
ACL
on
held-to-maturity
debt
securities
and
is
deducted
from
the
amortized
cost
basis
of
the
security
so
that
the
statement
of
financial
condition
reflects
the
net
amount the Corporation expects to collect.
The Corporation
does not
recognize an
ACL for
GSEs’ MBS
since they
are either
explicitly or
implicitly guaranteed
by the
U.S.
government,
are highly
rated by
major rating
agencies, and
have a
long history
of no
credit losses.
For the
ACL of
held-to-maturity
Puerto
Rico municipal
bonds,
the Corporation
considers historical
credit loss
information
that is
adjusted for
current conditions
and
reasonable
and
supportable
forecasts.
These
Puerto
Rico
municipal
obligations
typically
are
not
issued
in
bearer
form, nor
are they
registered
with
the
Securities
and
Exchange
Commission
(“SEC”)
and
are
not
rated
by
external
credit
agencies.
These
financing
arrangements with Puerto
Rico municipalities were
issued in bond form
and accounted for as
securities but underwritten as
loans with
features
that
are
typically
found
in
commercial
loans.
Accordingly,
similar
to
commercial
loans,
an
internal
risk
rating
(
i.e
.,
pass,
special
mention,
substandard,
doubtful,
or
loss)
is
assigned
to
each
bond
at
the
time
of
issuance
or
acquisition
and
monitored
on
a
continuous basis
with a
formal assessment
completed,
at a
minimum, on
a quarterly
basis. The
Corporation determines
the ACL
for
held-to-maturity
Puerto
Rico
municipal
bonds
based
on
the
product
of
a
cumulative
probability
of
default
(“PD”)
and
loss
given
default (“LGD”),
and the amortized
cost basis of
each bond over
its remaining expected
life. PD estimates
represent the point
-in-time
as
of
which
the
PD
is
developed,
and
are
updated
quarterly
based
on,
among
other
things,
the
payment
performance
experience,
financial
performance
and
market
value
indicators,
and
current
and
forecasted
relevant
forward-looking
macroeconomic
variables
over the
expected life
of the
bonds,
to determine
a lifetime
term structure
PD curve.
LGD estimates are
determined based
on, among
other
things,
historical
charge-off
events
and
recovery
payments
(if
any),
government
sector
historical
loss
experience,
as
well
as
relevant current
and forecasted
macroeconomic expectations
of variables,
such as unemployment
rates, interest
rates, and
market risk
factors based on industry
performance, to determine a
lifetime term structure LGD
curve. Under this approach,
all future period losses
for each
instrument are
calculated using
the PD
and LGD
loss rates
derived
from the
term structure
curves applied
to the
amortized
cost
basis
of
each
bond.
For
the
relevant
macroeconomic
expectations
of
variables,
the
methodology
considers
an
initial
forecast
period
(a
“reasonable
and
supportable
period”)
of
two
years
and
a
reversion
period
of
up
to
three
years,
utilizing
a
straight-line
approach and
reverting back
to the
historical macroeconomic
mean. After
the reversion
period, the
Corporation uses
a historical
loss
forecast period covering the remaining contractual
life based on the changes in key historical
economic variables during representative
historical
expansionary
and
recessionary
periods.
Furthermore,
the
Corporation
periodically
considers
the
need
for
qualitative
adjustments
to
the
ACL.
Qualitative
adjustments
may
be
related
to
and
include,
but
not
be
limited
to,
factors
such
as:
(i)
management’s
assessment
of
economic
forecasts
used
in
the
model
and
how
those
forecasts
align
with
management’s
overall
evaluation
of
current
and
expected
economic
conditions;
(ii)
organization
specific
risks
such
as
credit
concentrations,
collateral
specific risks, nature
and size of
the portfolio
and external factors
that may ultimately
impact credit quality,
and (iii) other
limitations
associated with factors such as changes in underwriting and resolution
strategies, among others.
The Corporation
has elected not
to measure
an ACL on
accrued interest related
to held-to-maturity
debt securities,
as uncollectible
accrued interest
receivables are written
off on
a timely manner.
See Note 3
– “Debt Securities”
for additional
information about
ACL
balances for held-to-maturity debt securities and activity during
the years ended December 31, 2024, 2023, and 2022.
Allowance
for
Credit
Losses
–
Available-for-Sale
Debt
Securities:
For
available-for-sale
debt
securities
in
an
unrealized
loss
position, the Corporation first assesses whether
it intends to sell, or it is more
likely than not that it will be required
to sell, the security
before recovery of its amortized cost basis. If either of the criteria regarding
intent or requirement to sell is met, the difference between
fair
value
and
amortized
cost
is considered
to be
impaired and
recognized
in provision
for
credit losses.
For
available-for-sale
debt
securities that
do not
meet the
aforementioned
criteria, the
Corporation evaluates
whether the
decline in
fair value
has resulted
from
credit losses or
other factors. In
making this assessment, management
considers the cash position
of the issuer and
its cash and capital
generation
capacity,
which
could increase
or
diminish
the
issuer’s
ability
to
repay
its bond
obligations,
the
extent
to which
the
fair
value
is
less
than
the
amortized
cost
basis,
any
adverse
change
to
the
credit
conditions
and
liquidity
of
the
issuer,
taking
into
consideration the latest information
available about the financial condition
of the issuer, credit
ratings, the failure of the
issuer to make
scheduled
principal or
interest payments,
recent legislation
and government
actions affecting
the issuer’s
industry,
and actions
taken
by the
issuer to
deal with
the economic
climate. The
Corporation also
takes into
consideration changes
in the
near-term prospects
of
the underlying
collateral of
a security,
if any,
such as
changes in
default rates,
loss severity
given default,
and significant
changes in
prepayment
assumptions
and
the
level
of
cash
flows
generated
from
the
underlying
collateral,
if
any,
supporting
the
principal
and
interest payments
on the
debt securities.
If this
assessment indicates
that a
credit loss
exists, the present
value of
cash flows
expected
to be collected from
the security is compared
to the amortized cost
basis of the security.
If the present value
of cash flows expected
to
be collected
is less
than the
amortized cost
basis, a
credit loss
exists and
the Corporation
records an
ACL for
the credit
loss portion,
limited to the
amount by which
the fair value
is less than
the amortized cost
basis. Meanwhile, the
non-credit portion
is recognized in
OCL. Non-credit-related impairments result from other factors, including increased
liquidity spreads and higher interest rates.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
122
Losses
are
charged
against
the
ACL
when
management
believes
the
uncollectability
of
an
available-for-sale
debt
security
is
confirmed or
when either
of the
criteria regarding
intent or requirement
to sell
is met.
The Corporation
has elected
not to measure
an
ACL on
accrued interest
related to
available-for-sale
debt
securities as
uncollectible
accrued interest
receivables are
written off
in a
timely manner as indicated above.
Substantially all
of the
Corporation’s
available-for-sale debt
securities are
issued by
GSEs. These
securities are
either explicitly
or
implicitly guaranteed
by the
U.S. government,
are highly
rated by
major rating
agencies, and
have a
long history
of no
credit losses.
Accordingly,
there
is
a
zero-credit
loss
expectation
on
these
securities.
For
further
information,
including
the
methodology
and
assumptions
used
for
the
discounted
cash
flow
analyses
performed
on
other
available-for-sale
debt
securities
such
as
private
label
MBS
and
bonds
issued
by
the Puerto
Rico
Housing
Finance
Authority
(“PRHFA”),
see
Note
3
–
“Debt
Securities”
and
Note
23
–
“Fair Value.”
Loans held for investment
Loans that the
Corporation has the
ability and
intent to hold
for the foreseeable
future,
or until maturity
or payoff,
are classified as
held
for
investment
and
are
reported
at
amortized
cost,
net
of
its
ACL.
The
substantial
majority
of
the
Corporation’s
loans
are
classified as held for investment.
Amortized cost is the principal outstanding
balance, net of unearned interest, cumulative
charge-offs,
unamortized deferred
origination fees
and costs,
and unamortized
premiums and
discounts. The
Corporation reports
credit card
loans
at
their
outstanding
unpaid
principal
balance
plus
uncollected
billed
interest
and
fees
net
of
such
amounts
deemed
uncollectible.
Interest
income
is
accrued
on
the
unpaid
principal
balance.
Fees
collected
and
costs
incurred
in
the
origination
of
new
loans
are
deferred
and amortized
using the
interest method
or a
method that
approximates the
interest method
over the
term of
the loan
as an
adjustment to
interest yield.
Unearned
interest on
certain personal
loans, auto
loans,
and finance
leases and
discounts and
premiums
are
recognized
as
income
under
a
method
that
approximates
the
interest
method.
When
a
loan
is
paid-off
or
sold,
any
remaining
unamortized net deferred fees, or costs, discounts and premiums are included
in loan interest income in the period of payoff.
Nonaccrual
and
Past-Due
Loans
nonaccrual.
Loans
are
classified
as
nonaccrual
when
they
are
mortgage loans insured or guaranteed
by the Federal Housing Administration
(the “FHA”), the Veterans
Administration (the “VA”)
or
the
PRHFA,
and
credit
card
loans.
It
is
the
Corporation’s
policy
to
report
delinquent
mortgage
loans
insured
by
the
FHA,
or
guaranteed by
the VA
or the
PRHFA,
as loans
past due
repayment
is
insured
or
guaranteed,
and
such
loans
continue
to
accrue
interest
at
the
rate
guaranteed
by
the
government
agency.
However,
when
such FHA/VA
loans are
over
into
consideration
the
FHA
interest
curtailment
process,
and
with
respect
to
PRHFA
loans
when
such
loans
are
over
delinquent. Credit card loans continue
to accrue finance charges and
fees until charged off at
on nonaccrual status
prior to when required
by the policies described
above when the full
and timely collection
of interest or principal
becomes
uncertain
(generally
based
on
an
assessment
of
the
borrower’s
financial
condition
and
the
adequacy
of
collateral,
if
any).
When
a
loan
is
placed
on
nonaccrual
status,
any
accrued
but
uncollected
interest
income
is
reversed
and
charged
against
interest
income and amortization
of any net
deferred fees is suspended.
Interest income on
nonaccrual loans is recognized
only to the extent
it
is received in
cash. However,
when there is
doubt regarding the
ultimate collectability of
loan principal, all
cash thereafter received
is
applied to reduce
the carrying value of
such loans (
i.e.
, the cost recovery
method). Under the cost-recovery
method, interest income
is
not recognized until the loan
balance has been collected
in full, including the charged
-off portion.
Generally,
the Corporation returns a
loan
to
accrual
status
when
all
delinquent
interest
and
principal
becomes
current
under
the
terms
of
the
loan
agreement,
or
after
a
sustained
period
of
repayment
performance
(
)
and
the
loan
is
well
secured
and
in
the
process
of
collection,
and
full
repayment of
the remaining
contractual principal
and interest
is expected.
Loans that
are past
due 30
days or
more as
to principal
or
interest
are
considered
delinquent,
with
the
exception
of residential
mortgage,
commercial
mortgage,
and
construction
loans,
which
are
considered
past
due
when
the
borrower
is
in
arrears
on
two
or
more
monthly
payments.
The
Corporation
has
elected
not
to
measure an ACL on accrued interest related to loans held for investment
as uncollectible accrued interest receivables are written off
on
a timely manner.
Collateral-dependent Loans
– Certain commercial,
residential and consumer
loans for which
repayment is expected
to be provided
substantially
through
the
operation
or
sale
of
the
loan
collateral
are
considered
to
be
collateral-dependent.
Commercial
and
construction loans of $
credit deterioration,
are considered
collateral dependent.
Residential mortgage
loans and
home equity
lines of
credit are
considered
collateral dependent when
they are
collateral at
the reporting
date, adjusted
for undiscounted
estimated costs
to sell,
as further
discussed below.
Auto loans
and finance
leases are not considered collateral dependent because its ACL is calculated using
a PD/LGD model as further discussed below.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
123
Charge-off
of Uncollectible
Loans
Net charge
-offs consist
of the
unpaid principal
balances of
loans held
for investment
that the
Corporation
determines are
uncollectible,
net of
recovered amounts.
The Corporation
records charge
-offs as
a reduction
to the
ACL
and subsequent recoveries of previously charged-off
amounts are credited to the ACL.
Collateral
dependent
loans
in
the
construction,
commercial
mortgage,
and
commercial
and
industrial
(“C&I”)
loan
portfolios
are
written
down
to
their
net
realizable
value
(fair
value
of
collateral,
less
estimated
costs
to
sell)
when
loans
are
considered
to
be
uncollectible. Within
the consumer loan portfolio,
closed-end consumer loans,
including auto loans and finance
leases, are charged off
when payments are
payments are
the fair value
of the underlying
collateral less cost
to sell. Generally,
all loans may
be charged off
or written down
to the fair
value of
the collateral
prior to
the application
of the
policies described
above if
a loss-confirming
event has
occurred. Loss-confirming
events
include, but
are not
limited to,
bankruptcy (unsecured),
continued delinquency,
or receipt
of an
asset valuation
indicating a
collateral
deficiency when the asset is the sole source of repayment.
Modifications Granted
to Debtors
Experiencing
Financial Difficulties
– Effective
January 1,
2023, the
Corporation adopted
ASU
2022-02
Financial
Instruments
–
Credit
Losses
(Topic
326)
Troubled
Debt
Restructurings
(“TDR”)
and
Vintage
Disclosures.
For
years 2024
and 2023, modifications
granted to debtors
experiencing financial
difficulties during
the current reporting
period in which
there was a change in
the timing and/or amount
of contractual cash flows in
the form of a reduction
in interest rate, term extension,
an
other-than-insignificant
payment
delay,
or
any
combination
thereof
are
disclosed.
For
the
year
2022,
modifications
resulting
in
troubled debt
restructurings (“TDRs”)
in which
the creditor for
economic or
legal reasons
related to
the debtor’s
financial difficulties
grants
a
concession
to
the
debtor
that
it
would
not
otherwise
consider
are
disclosed.
A
debtor
is
considered
to
be
experiencing
financial
difficulties
when
there
is
significant
doubt
about
the
debtor’s
ability
to
make
required
payments
on
the
debt
or
to
get
equivalent
financing
from
another
creditor
at
a
market
rate
for
similar
debt.
Modified
loans
are
classified
as
either
accrual
or
nonaccrual loans.
Loans in
accrual status
may remain
in accrual
status when
their contractual
terms have
been modified
if the
loans
had
demonstrated
performance
prior
to
the
restructuring
and
payment
in
full
under
the
restructured
terms
is
expected.
Otherwise,
modified loans on nonaccrual
status at the time
of the restructuring will
remain on nonaccrual status
until the borrower has
proven the
ability to perform
under the modified
structure, generally for a
minimum of six months,
and there is evidence
that such payments
can,
and
are
likely
to,
continue
as agreed.
Furthermore,
the
Corporation
applies
a
non-discounted
flow
portfolio-based
approach
for
the
estimation of the ACL of modified loans to borrowers experiencing financial
difficulties for all portfolios.
Allowance for credit losses for loans and finance leases
The ACL
for
loans and
finance leases
held
for
investment
is a
valuation
account
that is
deducted
from the
loans’
amortized
cost
basis to present
the net amount expected
to be collected on
loans. Loans are charged
-off against the
ACL when management
confirms
the loan balance is uncollectable.
The Corporation estimates the
ACL using relevant available
information, from internal and
external sources, relating to past
events,
current conditions,
and reasonable
and supportable
forecasts. Historical
credit loss
experience is
a significant
input for
the estimation
of
expected
credit
losses,
as
well
as
adjustments
to
historical
loss
information
made
for
differences
in
current
loan-specific
risk
characteristics,
such
as
any
difference
in
underwriting
standards,
portfolio
mix,
delinquency
level,
or
term.
Additionally,
the
Corporation’s
assessment
involves
evaluating
key
factors,
which
include
credit
and
macroeconomic
indicators,
such
as
changes
in
unemployment rates, property values, and other relevant
factors, to account for current and forecasted market
conditions that are likely
to cause
estimated credit
losses over
the life
of the
loans to
differ
from historical
credit losses.
Expected
credit losses
are
estimated
over the contractual term
of the loans, adjusted by
prepayments when appropriate.
The contractual term excludes
expected extensions,
and renewals,
unless
the extension or renewal options are included in
the original or modified contract at the reporting date and
are not
unconditionally cancellable by the Corporation.
The
Corporation
estimates
the
ACL
primarily
based
on
a
PD/LGD
modeled
approach,
or
individually
primarily
for
collateral
dependent loans. The Corporation
evaluates the need for changes
to the ACL by portfolio
segments and classes of loans
within certain
of
those
portfolio
segments.
Factors
such
as
the
credit
risk
inherent
in
a
portfolio
and
how
the
Corporation
monitors
the
related
quality, as well as the estimation
approach to estimate credit losses, are considered in the determination
of such portfolio segments and
classes. The Corporation has identified the following portfolio segments:
●
Residential
mortgage
– Residential
mortgage
loans
are
loans
secured
by
residential
real
property
together
with
the
right
to
receive
the payment
of principal
and interest
on the
loan. The
majority of
the Corporation’s
residential
loans are
fixed-rate
first lien closed-end loans secured by 1-4 single-family residential properties.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
124
●
Commercial
mortgage
which
the
primary
source
of
repayment
comes
from
rent
and
lease
payments
that
are
generated
by
an
income-producing
property.
●
Commercial and Industrial
comes
from
the
ongoing
operations
and
activities
conducted
by
the
borrower
and
not
from
rental
income
or
the
sale
or
refinancing
of
any
underlying
real
estate
collateral;
thus,
credit
risk
is
largely
dependent
on
the
commercial
borrower’s
current
and
expected
financial condition.
The
C&I
loan
portfolio
consists
of
loans
granted
to
large
corporate
customers
as
well as middle-market customers across several industries, and the government
sector.
●
Construction
–
industrial, commercial, or residential
buildings and include loans to
finance land development in preparation
for erecting new
structures.
These
loans
involve
an
inherently
higher
level
of
risk
and
sensitivity
to
market
conditions.
Demand
from
prospective tenants or purchasers may erode after construction begins because
of a general economic slowdown or otherwise.
●
Consumer
Consumer loans generally
consist of unsecured
and secured loans
extended to individuals
for household, family,
and other personal expenditures, including several classes of products.
For
purposes
of
the
ACL
determination,
the
Corporation
stratifies
portfolio
segments
by
two
main
regions
(
i.e.,
Rico/Virgin
Islands
region
and
the
Florida
region).
The
ACL
is
measured
using
a
PD/LGD
model
that
is
calculated
based
on
the
product of a
cumulative PD and
LGD. PD and
LGD estimates are
updated quarterly
for each loan
over the remaining
expected life
to
determine
lifetime
term
structure
curves.
Under
this approach,
the
Corporation
calculates losses
for
each
loan
for
all future
periods
using the
PD and
LGD loss
rates derived
from the
term structure
curves applied
to the
amortized cost
basis of
the loans,
considering
prepayments.
For
residential
mortgage
loans,
the
Corporation
stratifies
the
portfolio
segment
by
the
following
two
classes:
(i)
government-
guaranteed
residential
mortgage
loans,
and
(ii)
conventional
mortgage
loans.
Government-guaranteed
loans
are
those
originated
to
qualified
borrowers
under
the
FHA
and
the
VA
standards.
Originated
loans
that
meet
the
FHA’s
standards
qualify
for
the
FHA’s
insurance program whereas
loans that meet the
standards of the VA
are guaranteed by
such entity.
No credit losses are
determined for
loans insured or guaranteed
by the FHA or the VA
due to the explicit
guarantee of the U.S. federal
government. On the other
hand, an
ACL is
calculated for
conventional
residential mortgage
loans, which
are loans
that do
not qualify
under the
FHA or
VA
programs.
PD
estimates
are
based
on,
among
other
things,
historical
payment
performance
and
relevant
current
and
forward-looking
macroeconomic variables,
such as regional
unemployment rates. On
the other hand,
LGD estimates are based
on, among other
things,
historical
charge-off
events
and
recovery
payments,
loan-to-value
attributes,
and
relevant
current
and
forecasted
macroeconomic
variables, such as the regional housing price index.
For commercial
mortgage loans,
PD estimates
are based on,
among other
things, industry historical
loss experience,
property type,
occupancy,
and
relevant
current
and
forward-looking
macroeconomic
variables.
On
the
other
hand,
LGD
estimates
are
based
on
historical charge-off events and recovery
payments, industry historical loss experience, specific attributes of
the loans, such as loan-to-
value,
debt
service
coverage
ratios,
and
net
operating
income,
as
well
as
relevant
current
and
forecasted
macroeconomic
variables
expectations,
such
as
commercial
real
estate
price
indexes,
the
gross
domestic
product
(“GDP”),
interest
rates,
and
unemployment
rates, among others.
For C&I
loans, PD
estimates are
based on
industry historical
loss experience,
financial performance
and market
value indicators,
and
current
and
forecasted
relevant
forward-looking
macroeconomic
variables.
On
the
other
hand,
LGD
estimates
are
based
on
industry
historical
loss
experience,
specific
attributes
of
the loans,
such
as loan
to
value,
as
well
as relevant
current
and
forecasted
expectations
for
macroeconomic
variables,
such
as
unemployment
rates,
interest
rates,
and
market
risk
factors
based
on
industry
performance and the equity market.
For
construction
loans,
PD
estimates
are
based
on,
among
other
things,
historical
payment
performance
experience,
industry
historical
loss experience,
underlying
type
of collateral,
and
relevant
current and
forward-looking
macroeconomic
variables. On
the
other
hand,
LGD
estimates
are
based
on
historical
charge-off
events
and
recovery
payments,
industry
historical
loss
experience,
specific attributes of the
loans, such as loan-to-value, debt service coverage
ratios, and relevant current and
forecasted macroeconomic
variables, such as unemployment rates, GDP,
interest rates, and real estate price indexes.
For consumer loans,
the Corporation stratifies
the portfolio segment by
the following five classes: (i)
auto loans; (ii) finance
leases;
(iii) credit
cards; (iv)
personal loans;
and (v)
other consumer
loans, such
as open-end
home equity
revolving lines
of credit
and other
types
of
consumer
credit
lines,
among
others.
In
determining
the
ACL,
management
considers
consumer
loans
risk
characteristics
including, but not limited to,
credit quality indicators such as
payment performance period, delinquency
and original FICO scores. For
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
125
auto loans and finance
leases, PD estimates are based on,
among other things, the historical
payment performance and relevant
current
and forward-looking macroeconomic
variables, such as regional
unemployment rates. On the
other hand, LGD estimates
are primarily
based
on
historical
charge-off
events
and
recovery
payments.
For
the
credit
card
and
personal
loan
portfolios,
the
Corporation
determines
the ACL
on a
pool basis,
based on
products
PDs and
LGDs developed
considering
historical
losses for
each origination
vintage by
length of
loan terms,
by geography,
payment performance
and by
credit score.
The PD
and LGD
for each cohort
consider
key macroeconomic variables, such as regional GDP,
unemployment rates, and retail sales, among others.
For the
ACL determination
of all
portfolios, the
expectations for
relevant macroeconomic
variables related
to the
Puerto Rico
and
Virgin
Islands
region consider
an initial
reasonable
and
supportable
period of
,
utilizing a
straight-line approach
and reverting
back to
the historical
macroeconomic
mean. For
the Florida
region, the
methodology
considers
a
reasonable
and
supportable
forecast
period
and
an
implicit
reversion
towards
the
historical
trend
that
varies
for
each
macroeconomic variable.
After the reversion
period, a
historical loss
forecast period
covering the
remaining contractual
life, adjusted
for prepayments,
is used
based on
the changes
in key
historical economic
variables during
representative historical
expansionary and
recessionary periods.
Furthermore, the
Corporation periodically
considers the
need for
qualitative adjustments
to the
ACL. Qualitative
adjustments may
be related to
and include, but not
be limited to,
factors such as: (i)
management’s
assessment of economic
forecasts used in the
model
and how
those forecasts
align with
management’s
overall evaluation
of current
and expected
economic conditions,
including, but
not
limited to,
expectations about
interest rate,
inflation, and
real estate
price levels,
as well
as labor
market challenges;
(ii) organization
specific
risks
such
as
credit
concentrations,
collateral
specific
risks,
nature
and
size
of
the
portfolio
and
external
factors
that
may
ultimately impact credit
quality,
and (iii) other
limitations associated
with factors such
as changes in
underwriting and loan
resolution
strategies, among others.
The
ACL
of
non-collateral
dependent
loans
previously
written
down
to
their
respective
realizable
values
is
generally
measured
using a risk-adjusted discounted
cash flow method. Under this
approach, all future cash
flows (interest and principal) for
each loan are
adjusted by
the PDs
and LGDs
derived from
the term
structure curves
and prepayments
and then
discounted at
the effective
interest
rate as of the reporting date to arrive at the net present value of future cash
flows.
See Note
5 –
“Allowance
for Credit
Losses for
Loans
and Finance
Leases” for
additional information
about reserve
balances
for
each portfolio segment and activity during the years ended December
31, 2024, 2023, and 2022.
Allowance for credit losses on off-balance sheet credit exposures and
other assets
The Corporation estimates expected
credit losses over the contractual period
in which the Corporation is exposed to
credit risk via a
contractual
obligation
to
extend
credit
unless
the
obligation
is
unconditionally
cancellable
by
the
Corporation.
The
ACL
on
off-
balance sheet
credit exposures is
adjusted as a
provision for credit
loss expense. The
estimate includes consideration
of the likelihood
that funding
will occur and
an estimate of
expected credit
losses on commitments
expected to be
funded over its
estimated life.
As of
December 31,
2024 and
2023, the
off-balance
sheet credit
exposures primarily
consisted of
unfunded loan
commitments and
standby
letters of credit for
commercial and construction
loans. The Corporation
utilized the PDs and
LGDs derived from the
above-explained
methodologies
for
the
commercial
and
construction
loan
portfolios.
Under
this
approach,
all
future
period
losses
for
each
loan
are
calculated using
the PD
and LGD
loss rates
derived from
the term
structure curves
applied to
the usage
given default
exposure.
The
ACL on
off-balance sheet
credit exposures
is included
as part of
accounts payable
and other
liabilities in
the consolidated
statements
of financial condition with adjustments included as part of the provision
for credit losses in the consolidated statements of income.
See Note
5 –
“Allowance
for Credit
Losses” for
Loans
and
Finance
Leases for
additional information
about reserve
balances
for
unfunded loan commitments and activity during the years ended December 31,
2024, 2023, and 2022.
The
Corporation
also
estimates
expected
credit
losses
for
certain
accounts
receivable,
primarily
claims
from
government-
guaranteed
loans,
loan
servicing-related
receivables,
and
other
receivables.
The
ACL
on other
assets
measured
at
amortized
cost
is
included
as part
of other
assets in
the consolidated
statements of
financial condition
with adjustments
included
as part
of other
non-
interest expenses
in the consolidated
statements of income.
As of December
31, 2024 and
2023, the
ACL on other
assets measured at
amortized cost was immaterial.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
126
Loans held for sale
Loans
that the
Corporation
intends to
sell or
that
the Corporation
does not
have
the ability
and
intent to
hold
for the
foreseeable
future
are
classified
as
held-for-sale
loans.
Loans
held
for
sale
are
recorded
at
the
lower
of
cost
or
fair
value
less
costs
to
sell.
Generally,
the
loans
held-for-sale
portfolio
consists
of
conforming
residential
mortgage
loans
that
will
be
pooled
into
Government
National Mortgage Association (“GNMA”)
MBS, which are then sold to
investors, and conforming residential mortgage
loans that the
Corporation intends
to sell to
GSEs, such as
the Federal National
Mortgage Association
(“FNMA”) and the
U.S. Federal Home
Loan
Mortgage Corporation (“FHLMC”).
Generally,
residential mortgage
loans held for sale
are valued on
an aggregate portfolio
basis and
the
value
is
primarily
derived
from
quotations
based
on
the
MBS
market.
The
amount
by
which
cost
exceeds
market
value
in
the
aggregate portfolio
of residential
mortgage loans
held for
sale, if
any,
is accounted
for as
a valuation
allowance with
changes therein
included
in
the
determination
of
net
income
and
reported
as
part
of
mortgage
banking
activities
in
the
consolidated
statements
of
income.
Loan
costs
and
fees
are
deferred
at
origination
and
are
recognized
in
income
at
the
time
of
sale
and
are
included
in
the
amortized cost basis when
evaluating the need for
a valuation allowance. The
fair value of commercial and
construction loans held for
sale, if any,
is primarily derived
from external appraisals,
or broker price
opinions that the
Corporation considers,
with changes in
the
valuation allowance reported as part of other non-interest income
in the consolidated statements of income.
In certain circumstances,
the Corporation transfers
loans from/to held
for sale or held
for investment based
on a change in
strategy.
If such a
change in holding
strategy is made, significant
adjustments to the loans’
carrying values may
be necessary.
Reclassifications
of loans held
for investment to held
for sale are made
at the amortized
cost on the date
of transfer and
establish a new cost
basis upon
transfer.
Write-downs of
loans transferred from
held for investment
to held for
sale are recorded
as charge-offs at
the time of
transfer.
Any
previously
recorded
ACL
is
reversed
in
earnings
after
applying
the
write-down
policy.
Subsequent
changes
in
value
below
amortized cost
are recorded
through a
valuation allowance
and are
reflected in
non-interest income
in the
consolidated statements
of
income.
Reclassifications
of
loans
held
for
sale
to
held
for
investment
are
made
at
the
amortized
cost
on
the
transfer
date
and
any
previously
recorded valuation
allowance is
reversed in
earnings. Upon
transfer to
held for
investment, the
Corporation calculates
an
ACL using the CECL impairment model.
Transfers and servicing of financial assets and extinguishment
of liabilities
After a transfer of
financial assets in a
transaction that qualifies
for accounting as
a sale, the Corporation
derecognizes the financial
assets when it has surrendered control and derecognizes liabilities when they
are extinguished.
A transfer of financial
assets in which the
Corporation surrenders control
over the assets is
accounted for as
a sale to the extent
that
consideration other
than beneficial
interests is
received in
exchange. The
criteria that
must be
met to
determine that
the control
over
transferred
assets has
been surrendered
include
the following:
(i) the assets
must be
isolated from
creditors of
the transferor;
(ii) the
transferee
must
obtain
the
right
(free
of
conditions
that
constrain
it
from
taking
advantage
of
that
right)
to
pledge
or
exchange
the
transferred
assets;
and
(iii) the
transferor
cannot
maintain
effective
control
over
the
transferred
assets
through
an
agreement
to
repurchase
them
before
their
maturity.
When
the
Corporation
transfers
financial
assets
and
the
transfer
fails
any
one
of
the
above
criteria,
the
Corporation
is
prevented
from
derecognizing
the
transferred
financial
assets
and
the
transaction
is
accounted
for
as
a
secured borrowing.
Servicing assets
The Corporation recognizes
as separate assets the
rights to service
loans for others,
whether those servicing
assets are originated
or
purchased. In the ordinary course of business, loans are
pooled into GNMA MBS for sale in the secondary
market or sold to FNMA or
FHLMC, with
servicing retained.
When the
Corporation sells
mortgage
loans, it
recognizes any
retained servicing
right (“servicing
assets” or “MSRs”) at the time of sale, based on its fair value.
MSRs
retained
in
a
sale
or
securitization
arise
from
contractual
agreements
between
the
Corporation
and
investors
in
MBS
and
mortgage
loans.
Under
these
contracts,
the
Corporation
performs
loan-servicing
functions
in
exchange
for
fees
and
other
remuneration. The
MSRs, included as
part of other
assets in the
statements of financial
condition, entitle
the Corporation to
servicing
fees
based
on
the
outstanding
principal
balance
of
the
mortgage
loans
and
the
contractual
servicing
rate.
The
servicing
fees
are
credited
to
income
on
a
monthly
basis
when
collected
and
recorded
as
part
of
mortgage
banking
activities
in
the
consolidated
statements of income. In
addition, the Corporation generally receives
other remuneration consisting of
mortgagor-contracted fees such
as late charges and prepayment penalties, which are credited to income
when collected.
Considerable judgment is required
to determine the fair value of
the Corporation’s
MSRs. Unlike highly liquid investments,
the fair
value
of
MSRs
cannot
be
readily
determined
because
these
assets
are
not
actively
traded
in
securities
markets.
The
initial
carrying
value
of
an
MSR is
determined
based
on
its fair
value.
The Corporation
determines
the
fair
value
of
the
MSRs using
a
discounted
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
127
static cash
flow analysis,
which incorporates
current market
assumptions commonly
used by
buyers of
these MSRs
and was
derived
from
prevailing
conditions
in
the
secondary
servicing
market.
The
valuation
of
the
Corporation’s
MSRs
incorporates
two
sets
of
assumptions: (i) market-derived
assumptions for discount
rates, servicing costs,
escrow earnings rates,
floating earnings rates,
and the
cost
of
funds;
and
(ii) market
assumptions
calibrated
to
the
Corporation’s
loan
characteristics
and
portfolio
behavior
for
escrow
balances, delinquencies and foreclosures, late fees, prepayments, and prepayment
penalties.
Once
recorded,
the
Corporation
periodically
evaluates
MSRs
for
impairment.
Impairments
are
recognized
through
a
valuation
allowance for
each individual
stratum of
servicing assets.
For purposes
of performing
the MSR
impairment evaluation,
the servicing
portfolio is
stratified on
the basis of
certain risk
characteristics, such
as region,
terms, and
coupons. Impairment
charges are
recorded
as part
of revenues
from mortgage
banking activities
in the
consolidated statements
of income.
If the value
of the
MSR subsequently
increases, the recovery
in value is recognized
in current period earnings
also as part of
revenues from mortgage
banking activities and
the carrying
value of
the MSR
is adjusted
through
a reduction
in the
valuation
allowance.
The Corporation
conducts an
other-than-
temporary
impairment
analysis
to
evaluate
whether
a
loss
in
the
value
of
the
MSR
in
a
particular
stratum,
if
any,
is
other
than
temporary or
not. When
the recovery
of the
value is
unlikely in
the foreseeable
future, a write-down
of the
MSR in
the stratum
to its
estimated recoverable value is charged to the valuation
allowance.
The
MSRs
are
amortized
over
the
estimated
life
of
the
underlying
loans
based
on
an
income
forecast
method
as
a
reduction
of
servicing income.
The income forecast
method of amortization
is based on
projected cash flows.
A particular periodic
amortization is
calculated
by
applying
to
the
carrying
amount
of
the
MSRs
the
ratio
of
the
cash
flows
projected
for
the
current
period
to
total
remaining net MSR forecasted cash flow.
Premises and equipment
Premises
and
equipment
are
carried
at
cost,
net
of
accumulated
depreciation
and
amortization.
Depreciation
is
provided
on
the
straight-line method over the estimated useful
life of each type of asset. Amortization of
leasehold improvements is computed over
the
terms
of
the
leases
(
i.e.
,
the
contractual
term
plus
lease
renewals
that
are
reasonably
assured)
or
the
estimated
useful
lives
of
the
improvements, whichever
is shorter.
Costs of
maintenance and
repairs that
do not
improve or
extend the
life of
the respective
assets
are expensed
as incurred.
Costs of
renewals and
betterments
are capitalized.
When
the Corporation
sells or
disposes of
assets, their
cost and related
accumulated depreciation
are removed from
the accounts and
any gain or
loss is reflected
in earnings as
part of other
non-interest
income
in
the
consolidated
statements
of
income.
When
the
asset
is
no
longer
used
in
operations,
and
the Corporation
intends to
sell it,
the asset
is reclassified
to other
assets held
for sale
and is
reported at
the lower
of the
carrying amount
or fair
value
less cost to
sell. Premises
and equipment
are evaluated
for impairment
whenever events
or changes
in circumstances
indicate that
the
carrying amount
of the
asset may
not be
recoverable. Impairments
on premises
and equipment
are included
as part of
occupancy and
equipment expenses in the consolidated statements of income.
Operating leases
recognized
based
on
the
present
value
of
the
remaining
lease
payments,
discounted
using
the
discount
rate
for
the
lease
at
the
commencement
date,
or
at
acquisition
date
in
case
of
a
business
combination.
As
the
rates
implicit
in
the
Corporation’s
operating
leases are
not readily
determinable,
the Corporation
generally uses
an incremental
borrowing
rate based
on information
available
at
the commencement
date to
determine the
present value
of future
lease payments.
The incremental
borrowing rate
is calculated
based
on fully
amortizing secured
borrowings. Operating
right-of-use (“ROU”)
assets are
generally recognized
based on
the amount
of the
initial measurement of the
lease liability. Non-lease
components, such as common
area maintenance charges,
are not considered a part
of the
gross-up of
the ROU
asset and
lease liability
and are
recognized as
incurred. The
Corporation’s
leases are
primarily related
to
operating leases
for the
Bank’s
branches. Most
of the
Corporation’s
leases with
operating ROU
assets have
terms of
years, some
of which
include options
to extend
the leases
for up
to
.
The Corporation
does not
recognize ROU
assets and
lease
liabilities
that
arise
from
short-term
leases
(less
than
12
months).
Operating
lease
expense,
which
is
included
as
part
of
occupancy and equipment expenses
in the consolidated statements
of income,
is recognized on a straight-line
basis over the lease term
that is based
on the
Corporation’s
assessment of
whether the
renewal options
are reasonably
certain to be
exercised. The
Corporation
includes
the
ROU
assets
and
lease
liabilities
as
part
of
other
assets
and
accounts
payable
and
other
liabilities,
respectively,
in
the
consolidated statements
of financial condition.
As of December 31, 2024 and 2023, the Corporation, as lessee, did
t have any leases that qualified as finance leases.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
128
Other real estate owned
OREO,
which
consists
of
real estate
acquired
in
settlement of
loans,
is recorded
at fair
value
less estimated
costs to
sell the
real
estate acquired.
Generally,
loans have
been
written down
to their
net realizable
value
prior
to
foreclosure.
Any further
reduction
to
their
net
realizable
value
is
recorded
with
a
charge
to
the
ACL
at
the
time
of
foreclosure
or
within
six
months
after
foreclosure.
Thereafter, costs of maintaining and
operating these properties, losses recognized on the periodic reevaluations of
these properties, and
gains or
losses resulting
from the
sale of
these properties
are charged
or credited
to earnings
and are
included as
part of
net gain
on
OREO operations in the consolidated statements of income. Appraisals are obtained
periodically, generally
on an annual basis
.
Claims arising from FHA/VA
government-guaranteed residential mortgage loans
Upon
the
foreclosure
on
property
collateralizing
an
FHA/VA
government-guaranteed
residential
mortgage
loan,
the
Corporation
derecognizes
the
government-guaranteed
mortgage
loan
and
recognizes
a
receivable
as
part
of
other
assets
in
the
consolidated
statements
of
condition
if
the
conditions
in
ASC
Subtopic
310-40,
“Reclassification
of
Residential
Real
Estate
Collateralized
Consumer
Mortgage
Loans
upon
Foreclosure,”
(“ASC
Subtopic
310-40”)
are
met.
See
Note
7–
“Other
Real
Estate
Owned”
for
additional information
on foreclosures
associated to
FHA/VA
government-guaranteed residential
mortgage loans
reclassified to
other
assets as of December 31, 2024 and 2023.
Goodwill and other intangible assets
Goodwill
–
Goodwill
represents
the
cost
in
excess
of
the
fair
value
of
net
assets
acquired
(including
identifiable
intangibles)
in
transactions accounted
for as
business combinations.
The Corporation
allocates goodwill
to the
reporting unit(s)
that are
expected to
benefit from
the synergies
of the
business combination.
Once goodwill
has been
assigned to
a reporting
unit, it
no longer
retains its
association with
a particular
acquisition, and
all of
the activities within
a reporting
unit, whether
acquired or
internally generated,
are
available to support
the value of the goodwill.
The Corporation tests goodwill
for impairment at
least annually and more
frequently if
circumstances exist that indicate a possible reduction
in the fair value of a reporting unit below its carrying
value. If, after assessing all
relevant
events
or
circumstances,
the
Corporation
concludes
that
it
is
more-likely-than-not
that
the
fair
value
of
a
reporting
unit
is
below its
carrying value,
then an
impairment test
is required.
In addition
to the
goodwill recorded
at the
Commercial and
Corporate,
Consumer Retail, and Mortgage
Banking reporting units in connection
with the acquisition of Banco
Santander Puerto Rico (“BSPR”)
in 2020,
the Corporation’s
goodwill is
mostly related
to the
United States
(Florida) reporting
unit. See
Note 9–
“Goodwill and
Other
Intangible Assets” for information on the qualitative assessment performed
by the Corporation during the fourth quarter of 2024.
Other
Intangible
Assets
Corporation amortizes
core deposit
intangibles based
on the
projected useful
lives of
the related
deposits, generally
on a
straight-line
basis, and reviews these assets for
impairment whenever events or changes
in circumstances indicate that the carrying
amount may not
exceed their fair value.
Securities purchased and sold under agreements to repurchase
The
Corporation
accounts
for
securities
purchased
under
resale
agreements
and
securities
sold
under
repurchase
agreements
as
collateralized financing
transactions. Generally,
the Corporation
records these
agreements at
the amount
at which
the securities
were
purchased or
sold. The
Corporation monitors
the fair
value of
securities purchased
and sold,
and obtains
collateral from,
or returns
it
to,
the counterparties
when
appropriate.
These financing
transactions
do not
create material
credit risk
given
the collateral
involved
and the related monitoring process.
The Corporation sells and acquires
securities under agreements to repurchase or
resell the same or
similar
securities.
Generally,
similar
securities
are
securities
from
the
same
issuer,
with
identical
form
and
type,
similar
maturity,
identical
contractual
interest rates,
similar assets
as collateral,
and the
same aggregate
unpaid
principal amount.
The counterparty
to
certain agreements may have the right to repledge the collateral by
contract or custom. The Corporation presents such assets separately
in
the
consolidated
statements
of
financial
condition
as
securities
pledged
with
creditors’
rights
to
repledge.
Repurchase
and
resale
activities may be
transacted under
legally enforceable
master repurchase
agreements that give
the Corporation, in
the event of
default
by
the
counterparty,
the
right
to
liquidate
securities
held
and
to
offset
receivables
and
payables
with
the
same
counterparty.
The
Corporation offsets repurchase
and resale transactions with the same
counterparty in the consolidated statements
of financial condition
where it has such
a legally enforceable
right under a master
netting agreement,
the intention of setoff
is existent, the transactions
have
the same maturity date, and the amounts are determinable.
From
time
to
time,
the
Corporation
modifies
repurchase
agreements
to
take
advantage
of
prevailing
interest
rates.
Following
applicable
GAAP guidance,
if
the
Corporation determines
that
the debt
under
the modified
terms
is substantially
different
from
the
original terms,
the modification
must be accounted
for as an
extinguishment of
debt. The
Corporation considers
modified terms
to be
substantially different
if the present
value of
the cash flows
under the
terms of the
new debt instrument
is at least
10% different
from
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
129
the
present
value
of
the
remaining
cash
flows
under
the
terms
of
the
original
instrument.
The
new
debt
instrument
will be
initially
recorded
at fair
value, and
that amount
will be
used to
determine
the debt
extinguishment
gain or
loss to
be recognized
through
the
consolidated statements
of income
and the
effective rate
of the
new instrument.
If the
Corporation determines
that the
debt under
the
modified
terms is
not
substantially
different,
then
the
new effective
interest
rate
is determined
based on
the
carrying amount
of
the
original
debt
instrument.
The
Corporation
has
determined
that
none
of
the
repurchase
agreements
modified
in
the
past
were
substantially different from the original terms, and,
therefore, these modifications were not accounted for as extinguishments of debt
.
Income taxes
The Corporation
uses the
asset and
liability method
for the recognition
of deferred
tax assets and
liabilities for
the expected
future
tax
consequences
of events
that have
been
recognized
in
the Corporation’s
financial
statements
or
tax returns.
Deferred
income
tax
assets
and
liabilities
are
determined
for
differences
between
the
financial
statement
and
tax
bases
of
assets
and
liabilities
that
will
result in
taxable or
deductible amounts
in the
future. The
computation is
based on
enacted tax
laws and
rates applicable
to periods
in
which the temporary
differences are expected
to be recovered or
settled. The effect
on deferred tax assets and
liabilities of a change
in
tax rates
is recognized
in income
at the
time of
enactment of
such change
in tax
rates. Any
interest or
penalties due
for payment
of
income taxes are included
in the provision for income
taxes. Valuation
allowances are established, when
necessary, to
reduce deferred
tax assets to the
amount that is more
likely than not to
be realized. In making
such assessment, significant
weight is given to
evidence
that can
be objectively
verified, including
both positive
and negative
evidence. The
authoritative guidance
for accounting
for income
taxes requires the consideration of all sources of taxable income
available to realize the deferred tax asset, including the future
reversal
of
existing
temporary
differences,
tax
planning
strategies
and
future
taxable
income,
exclusive
of
the
impact
of
the
reversal
of
temporary differences and
carryforwards. In estimating
taxes, management assesses the
relative merits and risks
of the appropriate tax
treatment
of
transactions
considering
statutory,
judicial,
and
regulatory
guidance.
The Corporation
releases
income
tax effects
from
OCL
as
pension
and
postretirement
liabilities
are
extinguished.
Discounts
on
purchased
income
tax
credits
are
recognized
in
non-
interest income when realized. See Note 20 – “Income Taxes
”
for additional information.
Under
the authoritative
accounting guidance,
income tax
benefits are
recognized and
measured based
on a
two-step analysis:
i) a
tax
position
must
be
more
likely than
not
to be
sustained
based solely
on
its technical
merits
in
order
to
be recognized;
and
ii)
the
benefit
is
measured
at
the
largest
dollar
amount
of
that
position
that
is
more
likely
than
not
to
be
sustained
upon
settlement.
The
difference between
a benefit not
recognized in
accordance with
this analysis
and the
tax benefit
claimed on
a tax return
is referred
to
as an unrecognized tax benefit.
Stock repurchases
Treasury
shares
are
recorded
at
their
reacquisition
cost,
as
a
reduction
of
stockholders’
equity
in
the
consolidated
statements
of
financial condition. When
reissuing treasury shares
for the granting
of stock-based compensation
awards, treasury stock
is reduced by
the
cost
allocated
to
such
stock
and
additional
paid-in
capital
is
credited
for
gains
and
debited
for
losses
when
treasury
stock
is
reissued at prices that differ from the reacquisition cost.
Stock-based compensation
Compensation
cost
is
recognized
in
the
financial
statements
for
all
share-based
payment
grants.
The
First
BanCorp.
Omnibus
Incentive
Plan,
as
amended
(the
“Omnibus
Plan”)
provides
for
equity-based
and
non-equity-based
compensation
incentives
(the
“awards”)
through
the
grant
of
stock
options,
stock
appreciation
rights,
restricted
stock,
restricted
stock
units,
performance
shares,
other stock-based
awards and
cash-based awards.
The compensation
cost for
an award,
determined
based on
the estimate
of the
fair
value
at
the
grant
date
(considering
forfeitures
and
any
post-vesting
restrictions),
is
recognized
over
the
period
during
which
an
employee
or director
is required
to
provide
services
in
exchange
for
an
award,
which
is the
vesting
period,
taking
into account
the
retirement eligibility of the award.
Stock-based compensation
accounting guidance
requires the
Corporation to
reverse compensation
expense for
any awards
that are
forfeited due
to employee
or director
turnover.
Changes in
the estimated
forfeiture rate
may have
a significant
effect on
stock-based
compensation
as
the
Corporation
recognizes
the
effect
of
adjusting
the
rate
for
all
expense
amortization
in
the
period
in
which
the
forfeiture estimate is changed. If the actual forfeiture
rate is higher than the estimated forfeiture rate, an adjustment
is made to increase
the
estimated
forfeiture
rate,
which
will
decrease
the
expense
recognized
in
the
financial
statements.
If
the
actual
forfeiture
rate
is
lower
than
the
estimated
forfeiture
rate,
an
adjustment
is
made
to
decrease
the
estimated
forfeiture
rate,
which
will
increase
the
expense recognized in the financial
statements. For additional information regarding
the Corporation’s
equity-based compensation and
awards granted, see Note 14– “Stock-Based Compensation.”
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
130
Comprehensive income (loss)
Comprehensive income
(loss) for First
BanCorp. includes
net income,
as well as
changes
in unrealized
gains (losses) on
available-
for-sale debt securities and change in unrecognized
pension and post-retirement costs, net of estimated tax effects.
Pension and other postretirement benefits
The Corporation
maintains two
frozen qualified
noncontributory defined
benefit pension
plans (the
“Pension Plans”)
(including a
complementary postretirement
benefits plan covering medical
benefits and life insurance
after retirement) that it assumed
in the BSPR
acquisition.
based on
various actuarial
assumptions regarding
future experience
under the
plan, which
include costs
for services
rendered during
the
period,
interest
costs
and
return
on
plan
assets,
as
well
as
deferral
and
amortization
of
certain
items
such
as
actuarial
gains
or
losses.
The funding
policy is to
contribute to
the plan,
as necessary,
to provide
for services
to date and
for those expected
to be earned
in
the future. To
the extent that these
requirements are fully
covered by assets in
the plan, a contribution
may not be made
in a particular
year.
The
cost
of
postretirement
benefits,
which
is determined
based on
actuarial
assumptions
and
estimates
of
the
costs of
providing
these benefits in the future, is accrued during the years that the employee
renders the required service.
The
guidance
for
compensation
retirement
benefits
of
ASC
Topic
715,
“Retirement
Benefits,”
requires
the
recognition
of
the
funded status of
each defined pension
benefit plan, retiree
health care plan
and other postretirement
benefit plans on
the statements
of
financial condition.
In addition,
the Corporation
maintains contributory
retirement plans
covering substantially
all employees.
Employer contributions
to the plan are charged
to current earnings as part of
employees’ compensation and benefits expenses
in the consolidated statements of
income.
Segment information
The Corporation reports financial and
descriptive information about its reportable
segments. Operating segments are components
of
an
enterprise
about
which
separate
financial
information
is
available
that
is
evaluated
regularly
by
the
Chief
Executive
Officer
in
deciding how
to allocate
resources and
assess performance.
The Corporation’s
CEO determined
that the
segregation that
best fulfills
the segment
definition
described
above is
by lines
of business
for
its operations
in Puerto
Rico, the
Corporation’s
principal
market,
and
by
geographic
areas
for
its
operations
outside
of
Puerto
Rico.
As
of
December
31,
2024
and
2023,
the
Corporation
had
the
following
(Retail) Banking; Treasury
and Investments; United
States Operations; and
Virgin
Islands Operations. The
accounting policies for
the
reportable
business segments
are the
same as
those used
in the
preparation of
the Consolidated
Financial Statements
with respect
to
activities
specifically
attributable
to
each
business
segment.
However,
management
methodologies
utilized
in
compiling
segment
financial information are
highly subjective and,
unlike financial accounting,
are not based on
authoritative guidance similar
to GAAP.
As a
result, reported
segment results
are not
necessarily comparable
with similar
information reported
by other
financial institutions.
See Note 25 – “Segment Information” for additional information.
See
Accounting
Standards
Update
(“ASU”)
2023-07,
“Segment
Reporting
(Topic
280):
Improvements
to
Reportable
Segment
Disclosure” below for the impact associated with the adoption of this standard
during the fourth quarter of 2024.
Valuation
of financial instruments
The measurement
of fair value
is fundamental
to the Corporation’s
presentation of
its financial condition
and results of
operations.
The Corporation
holds debt
and equity
securities, derivatives,
and other
financial instruments
at fair
value. The
Corporation holds
its
investments and liabilities
mainly to manage liquidity
needs and interest
rate risks. A meaningful
part of the Corporation’s
total assets
is reflected at fair value on the Corporation’s
financial statements.
The FASB’s
authoritative guidance
for fair
value measurement
defines fair
value as
the exchange
price that
would be
received for
an asset or paid to
transfer a liability (an
exit price) in the principal
or most advantageous market
for the asset or liability
in an orderly
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
131
transaction between
market participants on
the measurement date.
This guidance also
establishes a fair
value hierarchy for
classifying
financial
instruments.
The
hierarchy
is
based
on
whether
the
inputs
to
the
valuation
techniques
used
to
measure
fair
value
are
observable or unobservable.
Under the
fair value
accounting guidance,
an entity
has the
irrevocable option
to elect,
on a
contract-by-contract
basis, to measure
certain financial assets and
liabilities at fair value
at the inception of
the contract and, thereafter,
to reflect any changes
in fair value in
current earnings.
The Corporation
did not
make any fair
value option
election as of
December 31,
2024 or
2023. See Note
23 – “Fair
Value”
for additional information.
Revenue from contract with customers
See Note 24 –
“Revenue from Contracts with
Customers”
for a detailed description
of the Corporation’s
policies on the recognition
and presentation
of revenues from
contracts with customers,
including the
income recognition for
the insurance agency
commissions’
revenue.
Earnings per common share
Basic earnings per share
is calculated by dividing net
income attributable to common stockholders
by the weighted-average number
of
common
shares
issued
and outstanding.
Net
income
attributable
to
common
stockholders
represents
net
income
adjusted
for
any
preferred
stock
dividends,
if
any,
including
any
preferred
stock
dividends
declared
but
not
yet
paid,
and
any
cumulative
preferred
stock dividends
related to the
current dividend period
that have not
been declared as
of the end
of the period.
Basic weighted-average
common
shares
outstanding
excludes
unvested
shares
of
restricted
stock
that
do
not
contain
non-forfeitable
dividend
rights.
The
computation of diluted earnings per share is similar to the computation
of basic earnings per share except that the number of weighted-
average
common
shares
is
increased
to
include
the
number
of
additional
common
shares
that
would
have
been
outstanding
if
the
dilutive common shares had been issued, referred to as potential common shares.
Potential dilutive
common shares
consist of
unvested shares
of restricted
stock that
do not
contain non-forfeitable
dividend rights,
warrants
outstanding
during
the
period,
and
common
stock
issued
under
the
assumed
exercise
of
stock
options,
if
any,
using
the
treasury
stock method.
This method
assumes that
the potential
dilutive
common
shares are
issued and
outstanding
and the
proceeds
from the exercise, in addition to the amount
of compensation cost attributable to future services, are used
to purchase common stock at
the
exercise
date.
The
difference
between
the
number
of
potential
dilutive
shares
issued
and
the
shares
purchased
is
added
as
incremental
shares
to
the
actual
number
of
shares
outstanding
to
compute
diluted
earnings
per
share.
Unvested
shares
of
restricted
stock, stock options, and
warrants outstanding during the
period, if any,
that result in lower potential
dilutive shares issued than
shares
purchased
under
the
treasury
stock
method
are
not
included
in
the
computation
of
dilutive
earnings
per
share
since
their
inclusion
would have
an antidilutive
effect on
earnings per
share. Potential
dilutive common
shares also
include performance
units that
do not
contain non-forfeitable dividend rights if the performance condition
is met as of the end of the reporting period.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
132
Adoption of New Accounting Requirements
Standard
Description
Effective Date
Effect on the financial statements
ASU 2023-07 - Segment
Reporting (Topic 280):
Improvements to Reportable
Segment Disclosure, Issued
November 2023
In November 2023, the FASB issued ASU
2023-07 to improve the disclosures about a
public entity’s reportable segments. Among
other things, the amendments in this ASU
require disclosure on an interim and annual
basis of the following: significant segment
expenses that are regularly provided to the
chief operating decision maker (“CODM”)
and included within each reported measure of
segment profit or loss; and an amount for
other segment items (to reconcile segment
revenues less significant expenses to the
reported measure(s) of a segment’s profit or
loss) by reportable segment and a description
of its composition. This ASU also requires
disclosure on an annual basis of the title and
position of the CODM and an explanation of
how the CODM uses the reported measure(s)
of segment profit or loss in assessing segment
performance and deciding how to allocate
resources. In addition, this ASU requires
interim disclosure of segment-related
disclosures that were previously only required
on an annual basis and permits disclosure of
multiple measures of segment profit or loss,
provided that disclosure of the measure that is
closest to GAAP is also provided and certain
other criteria are met.
Management adopted the guidance
during the fourth quarter of 2024.
The ASU has been applied
retrospectively. As part of the
adoption of this ASU, the
Corporation added the disclosure of
significant segment expenses and the
title and position of the CODM.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
133
Recently Issued Accounting Standards Not Yet
Effective or Not Yet
Adopted
Standard
Description
Effective Date
Effect on the financial statements
ASU 2024-03, Income
Statement – Reporting
Comprehensive Income –
Expense Disaggregation
Disclosures (Subtopic 220-
40): Disaggregation of
Income Statement Expenses,
Issued November 2024
In November 2024, the FASB issued ASU
2024-03, which requires disclosure in the
notes to financial statements at each interim
and annual reporting period, of specified
information about certain costs and expenses
in a tabular format, including but not limited
to, employee compensation and intangible
asset amortization; the inclusion of amounts
already required under previous GAAP in the
same disclosure as these disaggregation
requirements; and a qualitative description of
the amounts remaining in relevant expense
captions that are not separately disaggregated
quantitatively.
Effective for annual periods
beginning after December 15,
2026, and interim periods
beginning after December 15,
2027. Early adoption is permitted
for annual financial statements not
yet issued. The amendments in
this ASU should be applied on a
prospective basis. Retrospective
application is permitted.
The Corporation will be impacted by
the standard and will disclose
required information by the adoption
date.
ASU 2023-09 - Income
Taxes (Topic
740):
Improvements to Income
Tax Disclosures, Issued
December 2023
In December 2023, the FASB issued ASU
2023-09 to improve the annual income tax
disclosures to, among other things, require
disclosure of the following: eight prescribed
categories in the tabular rate reconciliation
(using both percentages and dollar amounts)
with certain reconciling items at or above 5%
further broken out by nature and/or
jurisdiction; income taxes paid (net of refunds
received) disaggregated by federal, state, and
foreign taxes; the amount of income taxes
paid (net of refunds received) disaggregated
by individual jurisdictions in which income
taxes paid (net of refunds received) is equal to
or greater than 5% of total income taxes paid
(net of refunds received); income or loss from
continuing operations before income tax
expense or benefit disaggregated between
domestic and foreign; and income tax expense
or benefit from continuing operations
disaggregated by federal, state, and foreign.
Effective for fiscal years ending
on December 31, 2025. Early
adoption is permitted for annual
financial statements not yet issued.
The amendments in this ASU
should be applied on a prospective
basis. Retrospective application is
permitted.
The Corporation will be impacted by
the standard and will disclose
required information by the adoption
date. The Corporation is reviewing
its processes to ensure accurate data
collection for disaggregation of
income taxes by jurisdiction and
other required disclosures.
Preparatory steps will be taken to
comply with the new disclosure
requirements, ensuring timely and
accurate reporting starting in 2025.
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 2024-04, “Debt – Debt with Conversion and Other Options (Subtopic 470-20):
Induced Conversions of Convertible Debt
Instruments”
●
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”
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
134
NOTE 2 – MONEY MARKET
.
INVESTMENTS
Money market investments are composed of time deposits,
overnight deposits with other financial institutions,
and other short-term
investments with original maturities of three months or less.
Money market investments were as follows as of the indicated dates:
As of December 31,
2024
2023
(Dollars in thousands)
Time deposits with other financial institutions
(1)
$
$
Overnight deposits with other financial institutions
(2)
Other short-term investments
(3)
$
$
(1)
Consists of time deposits segregated for compliance with the Puerto
Rico International Banking Law.
Interest rate of
% as of each of December 31, 2024 and 2023, respectively.
(2)
Weighted-average interest rate
of
% and
% as of December 31, 2024 and 2023, respectively.
(3)
Weighted-average interest rate
of
% and
% as of December 31, 2024 and 2023, respectively.
As
of
December
31,
2024,
the
Corporation
had
$
collateral as part of margin calls associated to derivative contracts.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
135
NOTE 3 – 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 December 31, 2024
and 2023 were as follows:
December 31, 2024
Amortized cost
(1)
Gross Unrealized
ACL
Fair Value
(2)
Weighted-
Gains
Losses
average yield%
(Dollars in thousands)
U.S. Treasury securities:
$
$
$
$
$
U.S. GSEs obligations:
Puerto Rico government obligation:
(3)
United States and Puerto Rico government obligations
MBS:
Total Residential MBS
Total Commercial MBS
Total MBS
Other:
Total available-for-sale debt securities
$
$
$
$
$
(1)
Excludes accrued
interest receivable
on available-for-sale
debt securities
that totaled
$
consolidated statements of financial condition, and excluded from the estimate of credit losses.
(2)
Includes $
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)
136
December 31, 2023
Amortized cost
(1)
Gross Unrealized
ACL
Fair value
(2)
Weighted-
Gains
Losses
average yield%
(Dollars in thousands)
U.S. Treasury securities:
$
$
$
$
$
U.S. GSEs’ obligations:
Puerto Rico government obligation:
(3)
United States and Puerto Rico government obligations
MBS:
CMOs issued or guaranteed by the FHLMC, FNMA,
Total Residential MBS
Total Commercial MBS
Total MBS
Total available-for-sale debt securities
$
$
$
$
$
(1)
Excludes accrued
interest receivable
on available-for-sale
debt securities
that totaled
$
consolidated statements of financial condition, and excluded from the estimate of credit losses.
(2)
Includes $
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)
137
During
2024,
the
Corporation
purchased
approximately
$
$
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 December 31, 2024 and 2023. The tables also include debt securities for
which an ACL was recorded.
As of December 31, 2024
Less than 12 months
12 months or more
Total
Unrealized
Unrealized
Unrealized
Fair Value
Fair Value
Fair Value
(In thousands)
$
$
$
$
$
$
(1)
(1)
$
$
$
$
$
$
(1)
Unrealized losses do not include the credit loss component recorded
as part of the ACL. As of December 31, 2024, the
PRHFA bond and private label MBS
had an ACL of $
and $
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)
$
$
$
$
$
$
(1)
(1)
$
$
$
$
$
$
(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 $
and $
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
138
Assessment for Credit Losses
Debt securities
issued by
U.S. government
agencies,
U.S. GSEs,
and
the U.S.
Treasury,
including
notes and
MBS, accounted
for
substantially all of the total available-for
-sale portfolio as of December 31, 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 December 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
%), 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
% 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
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 23 – “Fair Value
”
for the significant assumptions used in the valuation
of the private label MBS as of December 31, 2024 and 2023.
For the residential
pass-through MBS issued
by the PRHFA
held as part of
the Corporation’s
available-for-sale portfolio
backed by
second
mortgage
residential
loans
in
Puerto
Rico,
the
ACL
was
determined
based
on
a
discounted
cash
flow
methodology
that
considered the structure and
terms of the debt security.
The expected cash flows were
discounted at the U.S. Treasury
yield curve plus
a spread as
of the reporting date
and compared to
the amortized cost. The
Corporation utilized PDs and
LGDs that considered,
among
other
things,
historical
payment
performance,
loan-to-value
attributes,
and
relevant
current
and
forward-looking
macroeconomic
variables, such as
regional unemployment
rates, the housing
price index,
and expected recovery
from the PRHFA
guarantee. PRHFA,
not the
Puerto Rico
government, provides
a guarantee
in the event
of default
and subsequent
foreclosure of
the properties underlying
the
second
mortgage
loans.
In
the
event
that
the
second
mortgage
loans
default
and
the
collateral
is
insufficient
to
satisfy
the
outstanding
balance
of
this
residential
pass-through
MBS,
PRHFA’s
ability
to
honor
such
guarantee
will
depend
on,
among
other
factors,
its
financial
condition
at
the
time
such
obligation
becomes
due
and
payable.
Deterioration
of
the
Puerto
Rico
economy
or
fiscal health of the PRHFA
could impact the value of this security,
resulting in additional losses to the Corporation.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
139
The
following
tables
present
a
roll-forward
of
the
ACL on
available-for-sale
debt
securities by
major
security
type
for
the
years
ended December 31, 2024, 2023 and 2022:
Year
Ended December 31, 2024
Private label MBS
Puerto Rico
Government
Obligations
Total
(In thousands)
Beginning balance
$
$
$
Provision for credit losses - (benefit)
(
50
)
(
50
)
Net recoveries
$
$
$
Year
Ended December 31, 2023
Private label MBS
Puerto Rico
Government
Obligations
Total
(In thousands)
Beginning balance
$
$
$
Provision for credit losses - expense
Net recoveries
$
$
$
Year
Ended December 31, 2022
Private label MBS
Puerto Rico
Government
Obligations
Total
(In thousands)
Beginning balance
$
$
$
Provision for credit losses - (benefit) expense
(
501
)
(
434
)
Net charge-offs
(
213
)
(
213
)
$
$
$
During
2024,
the
Corporation
recognized
$
million; 2022 - $
primarily relate to MBS and
government obligations held by
IBEs (as defined in the
International Banking Entity
Act of Puerto Rico),
whose interest income and sales are exempt from Puerto Rico income
taxation under that act.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
140
Held-to-Maturity Debt Securities
The
amortized
cost,
gross
unrecognized
gains
and
losses,
estimated
fair
value,
ACL,
weighted-average
yield
and
contractual
maturities of held-to-maturity debt securities as of December 31,
2024 and 2023 were as follows:
December 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
$
$
$
$
$
After 1 to 5 years
After 5 to 10 years
After 10 years
Total Puerto Rico municipal bonds
MBS:
FHLMC certificates:
After 5 to 10 years
After 10 years
GNMA certificates:
After 10 years
FNMA certificates:
After 10 years
CMOs issued or guaranteed by
After 10 years
Total Residential MBS
After 1 to 5 years
After 10 years
Total Commercial MBS
Total MBS
Total held-to-maturity debt securities
$
$
$
$
$
(1)
Excludes accrued
interest receivable
on held-to-maturity
debt securities
that totaled
$
consolidated statements of financial condition, and excluded from the estimate of credit losses.
(2)
Includes $
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
141
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
$
$
$
$
$
After 1 to 5 years
After 5 to 10 years
After 10 years
Total Puerto Rico municipal bonds
MBS:
FHLMC certificates:
After 5 to 10 years
After 10 years
GNMA certificates:
After 10 years
FNMA certificates:
After 10 years
CMOs issued or guaranteed by
After 10 years
Total Residential MBS
After 1 to 5 years
After 10 years
Total Commercial MBS
Total MBS
Total held-to-maturity debt securities
$
$
$
$
$
(1)
Excludes accrued
interest receivable
on held-to-maturity
debt securities
that totaled
$
consolidated statements of financial condition, and excluded from the estimate of credit losses.
(2)
Includes $
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
142
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
December 31, 2024 and 2023, including debt securities for which an ACL was recorded:
As of December 31, 2024
Less than 12 months
12 months or more
Total
Unrecognized
Unrecognized
Unrecognized
Fair Value
Fair Value
Fair Value
(In thousands)
$
$
$
$
$
$
Total held-to-maturity debt securities
$
$
$
$
$
$
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)
$
$
$
$
$
$
Total held-to-maturity debt securities
$
$
$
$
$
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
143
The
Corporation
classifies
the
held-to-maturity
debt
securities
portfolio
into
the
following
major
security
types:
MBS
issued
or
guaranteed by
GSEs and
underlying collateral
and Puerto
Rico municipal
bonds. The
Corporation does
not recognize
an ACL
for MBS
issued or guaranteed by GSEs since they are highly rated by major rating agencies and have a long history of no credit losses. In the case of
Puerto Rico municipal
bonds, the Corporation
determines the ACL
based on the product
of a cumulative
PD and LGD, and
the amortized
cost
basis
of
the
bonds
over
their
remaining
expected
life
as
described
in
Note
1
–
“Nature
of
Business
and
Summary
of
Significant
Accounting Policies.”
The Corporation
performs periodic
credit quality
reviews on
these issuers.
All of
the Puerto
Rico municipal
bonds were
current as
to
scheduled
contractual
payments
as
of
December
31,
2024.
The
ACL
of
Puerto
Rico
municipal
bonds
decreased
to
$
December 31, 2024, from $
during 2024.
December 31, 2024, 2023 and 2022:
Puerto Rico Municipal Bonds
Year
Ended December 31,
2024
2023
2022
(In thousands)
Beginning Balance
$
$
$
Provision for credit losses - (benefit)
(
1,395
)
(
6,089
)
(
285
)
ACL on held-to-maturity debt securities
$
$
$
Municipalities,
which
are
covered
instrumentalities
under
Puerto
Rico
Oversight,
Management,
and
Economic
Stability
Act
(“PROMESA”),
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
December 31,
2024 and
2023, the
Corporation had
cash and cash equivalents.
During
2024,
the
Corporation
recognized
$
million; 2022 - $
relate to tax-exempt Puerto Rico municipal bonds
and MBS held by IBEs (as defined in the International Banking
Entity Act of Puerto
Rico), whose interest income and sales are exempt from Puerto Rico income
taxation under that act.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
144
Credit Quality Indicators:
The
held-to-maturity
debt
securities
portfolio
consisted
of
GSEs’
MBS,
for
which
the
Corporation
expects
no
credit
losses,
and
financing arrangements
with Puerto
Rico municipalities
issued in
bond form.
The Puerto
Rico municipal
bonds are
accounted for
as
securities
but
are
underwritten
as
loans
with
features
that
are
typically
found
in
commercial
loans.
Accordingly,
the
Corporation
monitors the
credit quality
of these
municipal bonds
through the
use of
internal credit-risk
ratings, which
are generally
updated on
a
quarterly
basis.
The
Corporation
considers
a
municipal
bond
as
a
criticized
asset
if
its
risk
rating
is
Special
Mention,
Substandard,
Doubtful, or Loss.
Puerto Rico municipal
bonds that do
not meet the
criteria for classification
as criticized assets
are considered
to be
Pass-rated securities. The asset categories are defined below:
Pass –
Assets classified
as Pass
have a
well-defined primary
source of
repayment, with
no apparent
risk, strong
financial position,
minimal operating
risk, profitability,
liquidity and
strong capitalization
and include
assets categorized
as Watch.
Assets classified
as
Watch
have
acceptable business
credit,
but borrowers’
operations, cash
flow or
financial condition
evidence more
than average
risk
and requires additional level of supervision and attention from loan officers.
Special Mention – Special
Mention assets have potential
weaknesses that deserve management’s
close attention. If left uncorrected,
these potential
weaknesses may
result in
deterioration of
the repayment
prospects for
the asset or
in the
Corporation’s
credit position
at some future date.
Special Mention assets are
not adversely classified and
do not expose the
Corporation to sufficient
risk to warrant
adverse classification.
Substandard – Substandard assets are inadequately protected
by the current sound worth and paying capacity of the obligor
or of the
collateral
pledged,
if
any.
Assets
classified
as
Substandard
must
have
a
well-defined
weakness
or
weaknesses
that
jeopardize
the
liquidation of
the debt.
They are
characterized by
the distinct
possibility that
the institution
will sustain
some loss
if the
deficiencies
are not corrected.
Doubtful –
Doubtful classifications
have all
the weaknesses
inherent in
those classified
Substandard
with the
added characteristic
that
the
weaknesses
make
collection
or
liquidation
in
full
highly
questionable
and
improbable,
based
on
currently
known
facts,
conditions and
values. A
Doubtful classification
may be
appropriate in
cases where
significant risk
exposures are
perceived, but
loss
cannot be determined because of specific reasonable pending factors,
which may strengthen the credit in the near term.
Loss – Assets classified
as Loss are considered
uncollectible and of
such little value that
their continuance as
bankable assets is not
warranted. This classification does not mean that the asset has absolutely
no recovery or salvage value, but rather that it is not practical
or desirable
to defer
writing off
this asset even
though partial
recovery may
occur in
the future. There
is little or
no prospect
for near
term improvement and no realistic strengthening action of significance
pending.
The
Corporation
periodically
reviews
its Puerto
Rico
municipal
bonds
to
evaluate
if
they are
properly
classified,
and to
measure
credit losses on
these securities. The
frequency of these
reviews will depend
on the amount
of the aggregate
outstanding debt, and
the
risk rating classification of the obligor.
The
Corporation
has
a
Loan
Review
Group
that
reports
directly
to
the
Corporation’s
Risk
Management
Committee
and
administratively
to
the
Chief
Risk
Officer.
The
Loan
Review
Group
performs
annual
comprehensive
credit
process
reviews
of
the
Bank’s
commercial
loan
portfolios,
including
the
above-mentioned
Puerto
Rico
municipal
bonds
accounted
for
as
held-to-maturity
debt
securities.
The objective
of
these
loan
reviews is
to
assess accuracy
of the
Bank’s
determination
and
maintenance
of
loan
risk
rating
and
its
adherence
to
lending
policies,
practices
and
procedures.
The
monitoring
performed
by
this
group
contributes
to
the
assessment
of
compliance
with
credit
policies
and
underwriting
standards,
the
determination
of
the
current
level
of
credit
risk,
the
evaluation of
the effectiveness
of the credit
management process,
and the identification
of any deficiency
that may arise
in the credit-
granting process. Based
on its findings, the
Loan Review Group recommends
corrective actions, if
necessary,
that help in maintaining
a sound credit process. The Loan Review Group reports the results of the credit
process reviews to the Risk Management Committee.
As of December 31, 2024 and 2023, all Puerto Rico municipal bonds
classified as held-to-maturity were classified as Pass.
2024 and 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)
145
NOTE 4 – LOANS HELD FOR INVESTMENT
The
following table
provides information
about
the
loan
portfolio held
for
investment by
portfolio segment
and
disaggregated by
geographic locations
as of the indicated
dates:
As of December 31,
As of December 31,
2024
2023
(In thousands)
Puerto Rico and Virgin Islands region:
Residential mortgage loans, mainly secured by first mortgages
$
$
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans
Loans held for investment
$
$
Florida region:
Residential mortgage loans, mainly secured by first mortgages
$
$
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans
Loans held for investment
$
$
Total:
Residential mortgage loans, mainly secured by first mortgages
$
$
Construction loans
Commercial mortgage loans
C&I loans
(1)
Consumer loans
Loans held for investment
(2)
ACL on loans and finance leases
(
243,942
)
(
261,843
)
Loans held for investment, net
$
$
(1)
As of December 31,
2024 and 2023, includes $
the primary source of repayment at origination was not dependent
upon such real estate.
(2)
Includes accretable fair value net purchase discounts of $
As
of
December 31,
2024
and
2023,
the
Corporation
had
net
deferred
origination
costs
on
its
loan
portfolio
amounting
to
$
million and
$
December 31, 2024
and 2023,
respectively,
of which
$
31, 2024 and 2023, respectively.
As of
December 31,
2024,
the Corporation
was
servicing
residential
mortgage
loans owned
by others
in an
aggregate
amount
of
$
of December 31, 2024 (2023 — $
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 $
and
2023,
respectively.
As
of
December
31,
2024
and
2023,
loans
pledged
as
collateral
include
$
respectively,
that
were
pledged
at
the
FHLB
as
collateral
for
borrowings
and
letters
of
credit;
$
secure borrowing
capacity at
the FED
Discount Window,
compared to
$
to secure
as collateral
for the
uninsured
portion
of government
deposits,
compared
to $
$
.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
146
The Corporation’s
aging of
the loan
portfolio held
for investment,
as well
as information
about nonaccrual
loans with
no ACL,
by
portfolio classes as of December 31, 2024 and 2023 are as follows:
As of December 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)
$
$
$
$
$
$
$
(2) (6)
Commercial loans:
(2) (6)
Consumer loans:
$
$
$
$
$
$
$
(1)
It is the
Corporation’s policy
to report delinquent
FHA/VA
government-guaranteed residential mortgage
loans as past-due
loans 90 days
and still accruing
as opposed to
nonaccrual loans. The
Corporation continues
accruing interest on these loans until they
have passed the 15-month delinquency mark, taking
into consideration the FHA interest curtailment process. These
balances include $
guaranteed by the FHA that were over 15 months delinquent as of December 31, 2024.
(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 methodology on January 1, 2020 and on an
ongoing basis for credit loss measurement. These loans will
continue to be excluded from nonaccrual loan statistics as long
as
the Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due 90 days or more, amounting to $
December 31, 2024 ($
(3)
Include rebooked loans, which
were previously pooled into
GNMA securities, amounting 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 $
(5)
There were
(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, 2024
amounted to $
respectively.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
147
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)
$
$
$
$
$
$
$
(2) (6)
Commercial loans:
(2) (6)
Consumer loans:
$
$
$
$
$
$
$
(1)
It is
the Corporation’s
policy to
report delinquent
FHA/VA
government-guaranteed residential
mortgage loans
as past-due
loans 90
days and
still accruing
as opposed
to nonaccrual
loans. The
Corporation continues
accruing interest on these loans until they
have passed the 15-month delinquency mark,
taking into consideration the FHA interest
curtailment process. These balances include $
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
$
residential mortgage loans, and $
(3)
Include rebooked loans,
which were previously
pooled into GNMA
securities, amounting 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 $
(5)
There were
(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
$
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 $
the
years
ended
December
31,
2024
and
2023,
interest
income
recognized
on
nonaccrual loans
amounted
to
$
million for the year ended December 31, 2022.
As of
December 31,
2024, the
recorded investment
on residential
mortgage loans
collateralized by
residential real
estate property
that
were
in
the
process
of
foreclosure
amounted
to
$
mortgage
loans,
and
$
commences
the
foreclosure
process
on
residential
real
estate
loans
when
a
borrower
becomes
procedures
and
timelines
vary
depending
on
whether
the
property
is
located
in
a
judicial
or
non-judicial
state.
Occasionally,
foreclosures may be delayed due to, among other reasons, mandatory
mediations, bankruptcy,
court delays, and title issues.
Credit Quality Indicators:
The Corporation
categorizes loans
into risk
categories based
on relevant
information
about the
ability of
the borrowers
to service
their debt
such as
current financial
information, historical
payment experience,
credit documentation,
public information,
and current
economic
trends,
among
other
factors.
The
Corporation
analyzes
non-homogeneous
loans,
such
as commercial
mortgage,
C&I,
and
construction loans individually to
classify the loans’ credit
risk. The Corporation
periodically reviews its commercial
and construction
loans
to
evaluate
if
they
are
properly
classified.
The
frequency
of
these
reviews
will
depend
on
the
amount
of
the
aggregate
outstanding
debt,
and
the
risk
rating
classification
of
the
obligor.
In
addition,
during
the
renewal
and
annual
review
process
of
applicable credit facilities,
the Corporation evaluates
the corresponding loan
grades. The Corporation
uses the same definition
for risk
ratings as those
described for Puerto
Rico municipal bonds
accounted for
as held-to-maturity debt
securities, as discussed
in Note 3
–
“Debt Securities.”
For residential mortgage and consumer loans, the Corporation evaluates
credit quality based on its interest accrual status.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
148
Based on
the most
recent analysis
performed, the
amortized cost
of commercial
and construction
loans by portfolio
classes and
by
origination year
based on
the internal
credit-risk category
as of December
31, 2024
and 2023,
and the
gross charge-offs
for the
years
ended December 31, 2024 and 2023 by portfolio classes and by origination
year were as follows:
As of December 31,2024
Puerto Rico and Virgin Islands Regions
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
CONSTRUCTION
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
COMMERCIAL MORTGAGE
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
C&I
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
149
As of December 31,2024
Term Loans
Florida Region
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
CONSTRUCTION
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
COMMERCIAL MORTGAGE
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
C&I
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
150
As of December 31,2024
Term Loans
Total
Amortized Cost Basis by Origination Year
2024
2023
2022
2021
2020
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
CONSTRUCTION
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
COMMERCIAL MORTGAGE
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
C&I
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
151
As of December 31, 2023
Puerto Rico and Virgin Islands Regions
Term Loans
Amortized Cost Basis by Origination Year
(1)
2023
2022
2021
2020
2019
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
CONSTRUCTION
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
COMMERCIAL MORTGAGE
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
C&I
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
152
As of December 31, 2023
Term Loans
Florida Region
Amortized Cost Basis by Origination Year
(1)
2023
2022
2021
2020
2019
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
CONSTRUCTION
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
COMMERCIAL MORTGAGE
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
C&I
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
153
As of December 31, 2023
Term Loans
Total
Amortized Cost Basis by Origination Year (1)
2023
2022
2021
2020
2019
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
CONSTRUCTION
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
COMMERCIAL MORTGAGE
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
C&I
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
154
The following
tables present the
amortized cost of
residential mortgage
loans by portfolio
classes and by
origination year
based on
accrual
status
as
of
December
31,
2024
and
2023,
and
the
gross
charge-offs
for
the
years
ended
December
31,
2024
and
2023
by
origination year:
As of December 31,2024
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
Puerto Rico and Virgin Islands Regions:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total FHA/VA
government-guaranteed loans
$
$
$
$
$
$
$
$
Conventional residential mortgage loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total conventional residential mortgage loans
$
$
$
$
$
$
$
$
Total
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total residential mortgage loans
$
$
$
$
$
$
$
$
Charge-offs on residential mortgage loans
$
$
$
$
$
$
$
$
(1)
Excludes accrued interest receivable.
As of December 31,2024
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
Florida Region:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total FHA/VA
government-guaranteed loans
$
$
$
$
$
$
$
$
Conventional residential mortgage loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total conventional residential mortgage loans
$
$
$
$
$
$
$
$
Total
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total residential mortgage loans
$
$
$
$
$
$
$
$
Charge-offs on residential mortgage loans
$
$
$
$
$
$
$
$
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
155
As of December 31,2024
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
Total:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total FHA/VA
government-guaranteed loans
$
$
$
$
$
$
$
$
Conventional residential mortgage loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total conventional residential mortgage loans
$
$
$
$
$
$
$
$
Total
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total residential mortgage loans
$
$
$
$
$
$
$
$
Charge-offs on residential mortgage loans
$
$
$
$
$
$
$
$
(1)
Excludes accrued interest receivable.
As of December 31, 2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2023
2022
2021
2020
2019
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
Puerto Rico and Virgin Islands Regions:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total FHA/VA
government-guaranteed loans
$
$
$
$
$
$
$
$
Conventional residential mortgage loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total conventional residential mortgage loans
$
$
$
$
$
$
$
$
Total
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total residential mortgage loans
$
$
$
$
$
$
$
$
Charge-offs on residential mortgage loans
$
$
$
$
$
$
$
$
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
156
As of December 31, 2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2023
2022
2021
2020
2019
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
Florida Region:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total FHA/VA
government-guaranteed loans
$
$
$
$
$
$
$
$
Conventional residential mortgage loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total conventional residential mortgage loans
$
$
$
$
$
$
$
$
Total
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total residential mortgage loans
$
$
$
$
$
$
$
$
Charge-offs on residential mortgage loans
$
$
$
$
$
$
$
$
(1)
Excludes accrued interest receivable.
As of December 31, 2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2023
2022
2021
2020
2019
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
Total:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total FHA/VA
government-guaranteed loans
$
$
$
$
$
$
$
$
Conventional residential mortgage loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total conventional residential mortgage loans
$
$
$
$
$
$
$
$
Total
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total residential mortgage loans
$
$
$
$
$
$
$
$
Charge-offs on residential mortgage loans
$
$
$
$
$
$
$
$
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
157
The
following
tables present
the
amortized
cost
of
consumer
loans
by
portfolio
classes
and
by origination
year
based on
accrual
status as
of
December 31,
2024 and
2023,
and
the gross
charge-offs
for the
years
ended December
31,
2024 and
2023 by
portfolio
classes and by origination year:
As of December 31, 2024
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
Puerto Rico and Virgin Islands Regions:
Auto loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total auto loans
$
$
$
$
$
$
$
$
Charge-offs on auto loans
$
$
$
$
$
$
$
$
Finance leases
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total finance leases
$
$
$
$
$
$
$
$
Charge-offs on finance leases
$
$
$
$
$
$
$
$
Personal loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total personal loans
$
$
$
$
$
$
$
$
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
$
$
$
$
$
$
$
$
Non-Performing
Total other consumer loans
$
$
$
$
$
$
$
$
Charge-offs on other consumer loans
$
$
$
$
$
$
$
$
Total
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total consumer loans
$
$
$
$
$
$
$
$
Charge-offs on total consumer loans
$
$
$
$
$
$
$
$
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
158
As of December 31, 2024
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
Florida Region:
Auto loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total auto loans
$
$
$
$
$
$
$
$
Charge-offs on auto loans
$
$
$
$
$
$
$
$
Finance leases
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total finance leases
$
$
$
$
$
$
$
$
Charge-offs on finance leases
$
$
$
$
$
$
$
$
Personal loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total personal loans
$
$
$
$
$
$
$
$
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
$
$
$
$
$
$
$
$
Non-Performing
Total other consumer loans
$
$
$
$
$
$
$
$
Charge-offs on other consumer loans
$
$
$
$
$
$
$
$
Total
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total consumer loans
$
$
$
$
$
$
$
$
Charge-offs on total consumer loans
$
$
$
$
$
$
$
$
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
159
As of December 31, 2024
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
Total:
Auto loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total auto loans
$
$
$
$
$
$
$
$
Charge-offs on auto loans
$
$
$
$
$
$
$
$
Finance leases
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total finance leases
$
$
$
$
$
$
$
$
Charge-offs on finance leases
$
$
$
$
$
$
$
$
Personal loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total personal loans
$
$
$
$
$
$
$
$
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
$
$
$
$
$
$
$
$
Non-Performing
Total other consumer loans
$
$
$
$
$
$
$
$
Charge-offs on other consumer loans
$
$
$
$
$
$
$
$
Total
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total consumer loans
$
$
$
$
$
$
$
$
Charge-offs on total consumer loans
$
$
$
$
$
$
$
$
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
160
As of December 31, 2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2023
2022
2021
2020
2019
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
Puerto Rico and Virgin Islands Regions:
Auto loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total auto loans
$
$
$
$
$
$
$
$
Charge-offs on auto loans
$
$
$
$
$
$
$
$
Finance leases
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total finance leases
$
$
$
$
$
$
$
$
Charge-offs on finance leases
$
$
$
$
$
$
$
$
Personal loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total personal loans
$
$
$
$
$
$
$
$
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
$
$
$
$
$
$
$
$
Non-Performing
Total other consumer loans
$
$
$
$
$
$
$
$
Charge-offs on other consumer loans
$
$
$
$
$
$
$
$
Total
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total consumer loans
$
$
$
$
$
$
$
$
Charge-offs on total consumer loans
$
$
$
$
$
$
$
$
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
161
As of December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2023
2022
2021
2020
2019
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
Florida Region:
Auto loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total auto loans
$
$
$
$
$
$
$
$
Charge-offs on auto loans
$
$
$
$
$
$
$
$
Finance leases
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total finance leases
$
$
$
$
$
$
$
$
Charge-offs on finance leases
$
$
$
$
$
$
$
$
Personal loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total personal loans
$
$
$
$
$
$
$
$
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
$
$
$
$
$
$
$
$
Non-Performing
Total other consumer loans
$
$
$
$
$
$
$
$
Charge-offs on other consumer loans
$
$
$
$
$
$
$
$
Total
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total consumer loans
$
$
$
$
$
$
$
$
Charge-offs on total consumer loans
$
$
$
$
$
$
$
$
(1)
Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
162
As of December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2023
2022
2021
2020
2019
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
Total:
Auto loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total auto loans
$
$
$
$
$
$
$
$
Charge-offs on auto loans
$
$
$
$
$
$
$
$
Finance leases
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total finance leases
$
$
$
$
$
$
$
$
Charge-offs on finance leases
$
$
$
$
$
$
$
$
Personal loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total personal loans
$
$
$
$
$
$
$
$
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
$
$
$
$
$
$
$
$
Non-Performing
Total other consumer loans
$
$
$
$
$
$
$
$
Charge-offs on other consumer loans
$
$
$
$
$
$
$
$
Total
Accrual Status:
Performing
$
$
$
$
$
$
$
$
Non-Performing
Total consumer loans
$
$
$
$
$
$
$
$
Charge-offs on total consumer loans
$
$
$
$
$
$
$
$
(1)
Excludes accrued interest receivable.
As of December 31, 2024 and 2023, the balance of revolving loans converted to term
loans was
t material.
Accrued interest
receivable on
loans totaled
$
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)
163
The
following
tables
present
information
about
collateral
dependent
loans
that
were
individually
evaluated
for
purposes
of
determining the ACL as of December 31, 2024 and 2023
:
As of December 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
$
$
$
$
$
Commercial loans:
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans:
Personal loans
Other consumer loans
$
$
$
$
$
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
$
$
$
$
$
Commercial loans:
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans:
Personal loans
Other consumer loans
$
$
$
$
$
The
underlying
collateral
for
residential
mortgage
and
consumer
collateral
dependent
loans consisted
of
single-family
residential
properties,
and for
commercial and
construction loans
consisted primarily
of office
buildings, multifamily
residential properties,
and
retail establishments. The
weighted-average loan-to-value
coverage for collateral
dependent loans as of
December 31, 2024
was
%,
compared
to
%
as
of
December
31,
2023,
mainly
related
to
the
inflow
to
nonaccrual
status
of
a
$
relationship in the
Puerto Rico region in
the food retail industry,
with a high loan-to-value,
classified as collateral
dependent, partially
offset by
the sale
of an
$
had been previously reserved.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
164
Purchases and Sales of Loans
In
the
ordinary
course
of
business,
the
Corporation
enters
into
securitization
transactions
and
whole
loan
sales
with
GNMA
and
GSEs,
such
as
FNMA
and
FHLMC.
During
the
years
ended
December
31,
2024,
2023,
and
2022,
loans
pooled
into GNMA
MBS
amounted to
approximately $
net gain
on sale of
$
and 2022,
the Corporation
sold approximately
$
mortgage
loans
to
GSEs,
for
which
the
Corporation
recognized
a
net
gain
on
sale
of
$
respectively.
The
Corporation’s
continuing
involvement
with
the
loans
that
it
sells
consists
primarily
of
servicing
the
loans.
In
addition,
the
Corporation
agrees
to
repurchase
loans
if
it
breaches
any
of
the
representations
and
warranties
included
in
the
sale
agreement. These
representations and
warranties are consistent
with the GSEs’
selling and servicing
guidelines (
i.e.
, ensuring that
the
mortgage was properly underwritten according to established guidelines).
For loans
pooled into
GNMA MBS,
the Corporation,
as servicer,
holds an
option to
repurchase individual
delinquent loans
issued
on or after
January 1, 2003,
when certain delinquency
criteria are met. This
option gives the
Corporation the unilateral
ability,
but not
the obligation, to
repurchase the delinquent
loans at par without
prior authorization from
GNMA. Since the
Corporation is considered
to
have
regained
effective
control
over
the
loans,
it
is
required
to
recognize
the
loans
and
a
corresponding
repurchase
liability
regardless
of
its
intent
to
repurchase
the
loans.
As
of
December
31,
2024
and
2023,
rebooked
GNMA
delinquent
loans
that
were
included in the residential mortgage loan portfolio amounted to $
During
the
years
ended
December
31,
2024,
2023,
and
2022,
the
Corporation
repurchased,
pursuant
to
the
aforementioned
repurchase
option,
$
principal
balance
of
these
loans
is
fully
guaranteed,
and
the
risk
of
loss
related
to
the
repurchased
loans
is generally
limited
to
the
difference between
the delinquent interest
payment advanced to
GNMA, which is computed
at the loan’s
interest rate, and
the interest
payments
reimbursed
by
FHA,
which
are
computed
at
a
pre-determined
debenture
rate.
Repurchases
of
GNMA
loans
allow
the
Corporation,
among
other
things,
to maintain
acceptable
delinquency
rates
on outstanding
GNMA
pools
and
remain as
a
seller
and
servicer in good standing with GNMA.
Historically, losses
on these repurchases of GNMA
delinquent loans have been immaterial
and
no provision has been made at the time of sale.
Loan sales to FNMA and FHLMC are without recourse in relation
to the future performance of the loans.
The Corporation’s risk of
loss
with
respect
to
these
loans
is
also
minimal
as
these
repurchased
loans
are
generally
performing
loans
with
documentation
deficiencies.
During the year
ended December 31,
2024, the Corporation
purchased commercial
loan participations in
the Florida region
totaling
$
portfolio,
compared to
C&I loan
participations
purchased
in the
Florida region
totaling $
years
ended
December
31,
2023
and
2022,
respectively.
In
addition,
during
the
year
ended
December
31,
2024,
the
Corporation
purchased commercial mortgage loan participations in the Puerto Rico
region totaling $
During
the year
ended December
31, 2024,
the Corporation
recognized
a $
fully charged-off
consumer loans
and sold
the aforementioned
$
$
participation
in
the
Puerto
Rico
region
and
a
$
significant
sales
of
loans
during
the
year
ended
December
31,
2023,
other
than
the
sales
of
conforming
residential
mortgage
loans
mentioned above.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
165
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 $
% in
Puerto Rico,
% in
the U.S.,
and
%
in the USVI and the BVI.
As of
December
31,
2024,
the Corporation
had
$
municipalities
and
public
corporations,
compared
to
$
approximately
$
assigned
property
tax
revenues,
and
$
revenues. The
vast
majority
of
revenues
of
the
municipalities
included
in
the
Corporation’s
loan
portfolio
are
independent
of
budgetary subsidies provided by the Puerto Rico central
government. These municipalities are required
by law to levy special property
taxes in such amounts as are required to satisfy the
payment of all of their respective general obligation
bonds and notes. In addition to
loans extended
to municipalities,
the Corporation’s
exposure to
the Puerto
Rico government
as of
December 31,
2024 included
$
million in a
loan granted to
an affiliate of
the Puerto Rico
Electric Power Authority
(“PREPA”)
and $
corporation of the Puerto Rico government.
Moreover,
as of
December 31,
2024, the
outstanding balance
of construction
loans funded
through conduit
financing structures
to
support the
federal programs
of Low-Income
Housing Tax
Credit (“LIHTC”)
combined with
Community Development
Block Grant-
Disaster Recovery (“CDBG-DR”)
funding amounted to
$
objective
of
these
programs
is
to
spur
development
in
new
or
rehabilitated
and
affordable
rental
housing.
PRHFA,
as
program
subrecipient and
conduit issuer,
issues tax-exempt
obligations which
are acquired
by private
financial institutions
and are
required to
co-underwrite with
PRHFA
a mirror
construction loan
agreement for
the specific
project loan
to which
the Corporation
will serve
as
ultimate lender but where the PRHFA
will be the lender of record.
In
addition,
as
of
December
31,
2024,
the
Corporation
had
$
guaranteed by the
PRHFA, a
government instrumentality
that has been designated
as a covered entity
under PROMESA,
compared to
$
properties and the guarantees serve to cover shortfalls in collateral in the event
of a borrower default.
The
Corporation
also
has
credit
exposure
to
USVI
government
entities.
As
of
December
31,
2024,
the
Corporation
had
$
million in
loans to
USVI government
public corporations,
compared to
$
2024, all loans were currently performing and up to date on principal
and interest payments.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
166
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
$
restructured
residential
mortgage
loans
that
are
government-guaranteed
(e.g.,
FHA/VA
loans)
and
were
modified
during
the
year
ended December 31, 2024, compared to $
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
167
The
following
tables
present
the
amortized
cost
basis
as
of
December
31,
2024
and
2023
of
loans
modified
to
borrowers
experiencing
financial difficulty
during the
years ended
December 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:
Year Ended December 31, 2024
Payment Delay
Only
Trial
Modification
Change in
Amortization
Term
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
$
$
$
$
$
$
$
Construction loans
Commercial mortgage loans
C&I loans
(1)
Consumer loans:
Auto loans
(1)
Personal loans
Credit cards
(2)
Other consumer loans
(1)
$
$
$
$
$
$
$
Year Ended December 31, 2023
Payment Delay
Only
Trial
Modification
Change in
Amortization
Term
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
$
$
$
$
$
$
$
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans:
Auto loans
(1)
Personal loans
Credit cards
(2)
Other consumer loans
(1)
$
$
$
$
$
$
$
(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)
168
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 years ended
December 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:
Year Ended December 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)
Change in
Amortization Term
(In thousands)
Conventional residential mortgage loans
%
%
-
Construction loans
%
%
-
-
Commercial mortgage loans
%
%
-
C&I loans
%
%
Consumer loans:
Auto loans
%
%
-
Personal loans
%
%
-
Credit cards
%
-
%
-
-
Other consumer loans
%
%
-
Year Ended December 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)
Change in
Amortization Term
(In thousands)
Conventional residential mortgage loans
%
%
-
Construction loans
%
-
%
-
-
Commercial mortgage loans
%
%
-
C&I loans
%
%
-
-
Consumer loans:
Auto loans
%
%
-
Personal loans
%
%
-
Credit cards
%
-
%
-
-
Other consumer loans
%
%
-
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
169
The following
tables present
by portfolio
classes the
performance
of loans
modified
during the
years ended
December 31,
2024
and 2023 that were granted to borrowers experiencing financial difficulty:
Year Ended December 31, 2024
30-59
60-89
90+
Total
Delinquency
Current
Total
(In thousands)
Conventional residential mortgage loans
$
$
$
$
$
$
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans:
Auto loans
Personal loans
Credit cards
Other consumer loans
$
$
$
$
$
$
Year Ended December 31, 2023
30-59
60-89
90+
Total
Delinquency
Current
Total
(In thousands)
Conventional residential mortgage loans
$
$
$
$
$
$
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans:
Auto loans
Personal loans
Credit cards
Other consumer loans
$
$
$
$
$
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
170
Troubled Debt
Restructuring (“TDR”) Disclosures Prior to Adoption
of ASU 2022-02
Restructurings by
Creditors, related
to the
year ended
December 31,
2022. Prior
to the
adoption of
ASU 2022-02,
a restructuring
of a
loan constituted a TDR if
the creditor, for
economic or legal reasons related
to the borrower's financial difficulties,
granted a concession
to the borrower that it would not otherwise consider.
See Note 1 -“Nature of Business and Summary of Significant Accounting
Policies”
and
Note 4
- “Loans
Held For
Investment”
included
in the
Annual
Report
on Form
10-K for
the year
ended
December 31,
2022,
as
amended on
October 13,
2023, for
additional discussion
of TDRs.
The following
tables present
TDR loans
completed during
the year
ended December 31, 2022:
Year Ended December 21, 2022
Total
Interest rate
below market
Maturity or
term extension
Combination of
reduction in
interest rate and
extension of
maturity
Forgiveness of
principal
and/or interest
Other
(1)
Total
(In thousands)
TDRs:
Conventional residential mortgage loans
$
$
$
$
$
$
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans:
Auto loans
Finance leases
Personal loans
Credit cards
(2)
Other consumer loans
Total TDRs
$
$
$
$
$
$
(1)
Other concessions granted by the Corporation include payment
plans under judicial stipulation or loss mitigation programs, or
a combination of two or more of the concessions listed
in the
table. Amounts included in Other that represent a combination
of concessions are excluded from the amounts reported in the column
for such individual concessions.
(2)
Concession consists of reduction in interest rate and revocation
of revolving line privileges.
Year Ended December
31, 2022
Number of contracts
Pre-modification Amortized Cost
Post-modification Amortized Cost
(Dollars in thousands)
TDRs:
Conventional residential mortgage loans
$
$
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans:
$
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
171
Loan modifications considered
TDR loans that defaulted
(failure by the
borrower to make
payments of either
principal, interest, or
both for
a period
of 90
days or
more) during
the year
ended December
31, 2022,
and had
become TDR
loans during
the 12-months
preceding the default date, were as follows:
Year Ended December 31, 2022
Number of contracts
Amortized Cost
(Dollars in thousands)
Conventional residential mortgage loans
$
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans:
Auto loans
Finance leases
Personal loans
Credit cards
Other consumer loans
Total
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
172
NOTE 5 – ALLOWANCE
FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES
The following tables present the activity in the ACL on loans and finance leases by portfolio
segment for the indicated periods:
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
C&I
Loans
Consumer Loans
Total
Year Ended December
31, 2024
(In thousands)
ACL:
Beginning balance
$
$
$
$
$
$
Provision for credit losses - (benefit) expense
(
16,225
)
(
1,912
)
(
10,717
)
(
4,886
)
Charge-offs
(
1,971
)
(
2,742
)
(
109,115
)
(
113,828
)
Recoveries
(1)
Ending balance
$
$
$
$
$
$
(1)
Includes recoveries totaling $
.0 million associated with the bulk sale of fully charged-off consumer loans and finance leases.
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
C&I
Loans
Consumer Loans
Total
Year Ended December
31, 2023
(In thousands)
ACL:
Beginning balance
$
$
$
$
$
$
Impact of adoption of ASU 2022-02
(1)
Provision for credit losses - (benefit) expense
(
6,866
)
(
2,086
)
Charge-offs
(
3,245
)
(
62
)
(
1,133
)
(
6,936
)
(
76,726
)
(
88,102
)
Recoveries
Ending balance
$
$
$
$
$
$
(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.
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
C&I
Loans
Consumer Loans
Total
Year Ended December
31, 2022
(In thousands)
ACL:
Beginning balance
$
$
$
$
$
$
Provision for credit losses - (benefit) expense
(
8,734
)
(
2,342
)
(
18,994
)
(
1,770
)
Charge-offs
(
6,890
)
(
123
)
(
85
)
(
2,067
)
(
48,165
)
(
57,330
)
Recoveries
Ending balance
$
$
$
$
$
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
173
The
Corporation
estimates
the
ACL
following
the
methodologies
described
in
Note
1
–
“Nature
of
Business
and
Summary
of
Significant Accounting Policies” 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
December
31,
2024
and
2023,
the
Corporation applied
100%
probability
to
the
baseline
scenario
for
the
commercial
mortgage
and
construction
loan
portfolios
since
certain
macroeconomic
variables
associated
with
commercial
real
estate
property
performance
and
the
commercial
real
estate
(“CRE”)
price
index,
particularly in
the Puerto
Rico region,
are expected
to continue
to perform
in a
more favorable
manner than
the alternative
downside
economic scenario.
At least every other
year, the
Corporation reviews the
credit models used
in determining the
ACL. Such exercise
consists primarily
in
updating
the
model
with
recent
historical
losses
and
determining
if
other
changes
are
required
for
purposes
of
estimating
credit
losses. During
2024, the
Corporation completed
the aforementioned
review for
the residential
mortgage, auto
loan, and
finance lease
portfolios, primarily for
the Puerto Rico
region. The residential
mortgage loan portfolio,
which has recently
experienced a historically
low level of
credit losses, as a
result of high
collateral values in
the Puerto Rico
region, resulted in
a lower required
reserve level. For
the auto loan
and finance lease portfolios,
historical loss trends
were updated and
resulted in an increase
in the required
reserve levels
as the loss experience in such portfolios have been trending higher towards historical
loss experience.
As
of
December
31,
2024,
the
ACL
for
loans
and
finance
leases
was
$
million as
of December
31, 2023.
The ACL
for residential
mortgage loans
decreased by
$
updated historical loss experience
used for determining the ACL estimate resulting
in a downward revision of
estimated loss severities
and
improvements
in
the
long-term
projections
of
the
unemployment
rate
in
the
Puerto
Rico
region,
partially
offset
by
newly
originated
loans.
The
ACL
for
commercial
and
construction
loans
decreased
by
$
associated
with
the
improved
financial
condition
of
certain
borrowers
and
an
improvement
on
the
economic
outlook
of
certain
macroeconomic variables,
particularly variables
associated with commercial
real estate property
performance and
the forecasted CRE
price index, partially offset by loan portfolio growth
.
Meanwhile, the
ACL for
consumer loans
increased by
$
portfolio growth, mainly in auto loans and finance leases.
Net charge-offs
were $
The $
finance
leases
charge-offs
across
all
major
portfolio
classes,
partially
offset
by
the
effect
during
2024
of
both
the
$
recovery associated
with the
bulk sale
of fully
charged-off
consumer loans
and finance
leases and
a $
with a C&I loan
in the Puerto Rico region,
and a $
during 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
174
The tables below
present the ACL
related to loans
and finance leases
and the carrying
values of loans
by portfolio segment
as of
December 31, 2024 and 2023:
As of December 31, 2024
Residential Mortgage
Loans
Construction
Loans
Commercial Mortgage
Loans
C&I
Loans
Consumer Loans
Total
(Dollars in thousands)
Total loans held for investment:
$
$
$
$
$
$
%
%
%
%
%
%
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:
$
$
$
$
$
$
%
%
%
%
%
%
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
27
–
“Regulatory Matters,
Commitments and
Contingencies” for information
on off-balance
sheet exposures as
of December
31, 2024 and
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.”
As
of
December
31,
2024,
the
ACL
for
off-balance
sheet
credit
exposures
amounted
to
$
improvement
on
the
economic
outlook
of
certain
macroeconomic
variables,
particularly
in
variables
associated
with
the
CRE
price
index.
The
following
table
presents
the
activity
in
the
ACL
for
unfunded
loan
commitments
and
standby
letters
of
credit
for
the
years
ended December 31, 2024, 2023 and 2022:
Year
Ended December 31,
2024
2023
2022
(In thousands)
Beginning Balance
$
$
$
Provision for credit losses - (benefit) expense
(
1,495
)
$
$
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
175
NOTE 6 – PREMISES AND EQUIPMENT
Premises and equipment comprise:
Useful Life Range In Years
As of December 31,
Minimum
Maximum
2024
2023
(Dollars in thousands)
Buildings and improvements
$
$
Leasehold improvements
Furniture, equipment and software
Accumulated depreciation and amortization
(
274,731
)
(
277,853
)
Land
Projects in progress
$
$
Depreciation and
amortization expense
amounted to
$
31, 2024, 2023, and 2022, respectively.
During
the
year
ended
December
31,
2024,
the
Corporation
recognized
$
compared to $
region;
and
$
consolidated statements of income.
During
the
years
ended
December
31,
2024
and
2023,
the
Corporation
received
insurance
proceeds
of
$
million, respectively,
of which
$
with property damage caused by
Hurricane Fiona. These amounts
are included as part of
other non-interest income in
the consolidated
statements of income.
See Note 23 – “Fair Value”
for information on write-downs recorded on long-lived assets held for sale.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
176
NOTE 7
–
OTHER REAL ESTATE
OWNED (“OREO”)
The following table presents the OREO inventory as of the indicated dates:
December 31, 2024
December 31, 2023
(In thousands)
OREO balances, carrying value:
Residential
(1)
$
$
Construction
Commercial
Total
$
$
(1)
Excludes $
Real Estate Collateralized Consumer Mortgage Loans upon
Foreclosure,” and are presented as a receivable as part of other
assets in the consolidated statements of financial condition.
(2)
Decrease was mainly associated with the sale of a $
See Note 23 – “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 years
ended December
31, 2024,
2023, and
2022.
NOTE 8 – RELATED-PARTY
TRANSACTIONS
The
Corporation
has
granted
loans
to
its
directors,
executive
officers,
and
certain
related
individuals
or
entities
in
the
ordinary
course of business. The movement and balance of these loans were as follows:
Amount
(1)
(In thousands)
Balance at December 31,
2022
$
Additions
Payments
(
389
)
Balance at December 31,
2023
Additions
Payments
(
120
)
Balance at December 31,
2024
$
(1) Includes loans granted to related parties which were then
sold in the secondary market.
These
loans
were
made
subject
to
the
provisions
of
the
Federal
Reserve
Board’s
Regulation
O
–
“Loans
to
Executive
Officers,
Directors
and
Principal
Shareholders
of
Member
Banks,”
which
governs
the
permissible
lending
relationships
between
a
financial
institution and its
executive officers, directors,
principal shareholders, their
families, and related
parties. There were
no changes in
the
status of related parties during 2024 and 2023.
From
time
to
time,
the
Corporation,
in
the
ordinary
course
of
its
business,
obtains
services
from
related
parties
or
makes
contributions to non-profit organizations that have some association
with the Corporation.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
177
NOTE 9 – GOODWILL AND OTHER INTANGIBLES
Goodwill
Goodwill as of each of December
31, 2024 and 2023 amounted to $
In
the
qualitative
assessment
performed
for
each
reporting
unit,
the
Corporation
evaluated
events
and
circumstances
that
could
impact the fair value including the following:
●
Macroeconomic conditions, such as improvement or deterioration
in general economic conditions;
●
Industry and market considerations;
●
Interest rate fluctuations;
●
Overall financial performance of the reporting unit;
●
Performance of industry peers over the last year; and
●
Recent market transactions
There were
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
December 31, 2024
December 31, 2023
(Dollars in thousands)
Core deposit intangible:
Gross amount
$
$
Accumulated amortization
(
80,577
)
(
74,161
)
Net carrying amount
$
$
Remaining amortization period (in years)
During
the
years
ended
December
31,
2024,
2023,
and
2022,
the
Corporation
recognized
$
million, respectively,
in amortization expense on its intangible assets 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 December
31, 2024.
The
estimated
aggregate
annual
amortization
expense
related
to
core
deposit
intangibles
for
future
periods
was
as
follows
as
of
December 31, 2024:
(In thousands)
2025
$
2026
2027
2028
2029
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
178
NOTE 10 – 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 $
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
$
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
$
Statutory Trust
II used
the proceeds of
the issuance,
together with
the proceeds of
the purchase by
the Corporation
of $
FBP Statutory
Trust
II variable-rate
common securities,
to purchase
$
Junior
Subordinated
Deferrable
Debentures.
The
debentures,
net
of
related
issuance
costs,
are
reflected
in
the
Corporation’s
consolidated
statements
of financial
condition
as
“Long-term
borrowings.”
These
TruPS
are
variable-rate
instruments
indexed
to
month CME Term SOFR
% and the
original spread
of
% for the
FBP Statutory
Trust I
and
% for
the FBP
Statutory Trust
II.
During 2024,
the Corporation
redeemed $
%, of
outstanding TruPS
issued by
FBP Statutory
Trust
II (or
$
million
after excluding
the Corporation’s
interest in
the Trust
of approximately
$
%, as
further
explained
in
Note
15
–
“Stockholders’
Equity.”
As
of
December
31,
2024
and
2023,
these
Junior
Subordinated
Deferrable
Debentures amounted to $
the debentures
of the
Corporation’s
intent to
redeem $
the redemption of the remaining junior subordinated debentures also in 2025.
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 December
31, 2024, the Corporation was current on all interest payments due on its subordinated
debt.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
179
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
% 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 December
31, 2024,
the amortized
cost and
fair
value
of these
private
label MBS
amounted
to $
%,
which is included as part of
the Corporation’s available
-for-sale debt securities portfolio, compared
to an amortized cost and fair
value
of $
% as of December 31, 2023.
As described in Note
3 – “Debt Securities,” the ACL on these private label MBS amounted to
$
Servicing Assets, or Mortgage Servicing Rights (“MSRs”)
The
Corporation
typically
transfers
first
lien
residential
mortgage
loans in
conjunction
with
GNMA
securitization
transactions
in
which the
loans are
exchanged for
cash or
securities that
are readily
redeemed for
cash proceeds
and servicing
rights. The
securities
issued
through
these
transactions
are
guaranteed
by
GNMA
and,
under
seller/servicer
agreements,
the
Corporation
is
required
to
service
the
loans
in
accordance
with
the
issuers’
servicing
guidelines
and
standards.
As
of
December
31,
2024,
the
Corporation
serviced
loans securitized
through
GNMA with
a principal
balance
of $
sold to FNMA or FHLMC
with servicing retained. The
Corporation recognizes as separate
assets the rights to service
loans for others,
whether those servicing
assets are originated or
purchased. MSRs are included
as part of other
assets in the consolidated
statements of
financial condition.
The changes in MSRs are shown below for the indicated periods:
Year
Ended December 31,
2024
2023
2022
(In thousands)
Balance at beginning of year
$
$
Capitalization of servicing assets
Amortization
(
4,175
)
(
4,322
)
(
4,978
)
Temporary impairment
(charges) recoveries
(
44
)
Other
(1)
(
45
)
(
26
)
(
159
)
Balance at end of year
$
$
(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)
180
Changes in the impairment allowance were as follows for the indicated periods:
Year
Ended December 31,
2024
2023
2022
(In thousands)
Balance at beginning of year
$
$
$
Temporary impairment
charges (recoveries)
(
12
)
(
66
)
$
$
$
The components
of net servicing
income, included as
part of mortgage
banking activities in
the consolidated statements
of income,
are shown below for the indicated periods:
Year
Ended December 31,
2024
2023
2022
(In thousands)
Servicing fees
$
$
$
Late charges and prepayment penalties
Other
(1)
(
45
)
(
26
)
(
159
)
Amortization and impairment of servicing assets
(
4,219
)
(
4,310
)
(
4,912
)
$
$
$
(1) Mainly represents adjustments related to the repurchase
of loans serviced for others.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
181
The Corporation’s
MSRs are subject
to prepayment
and interest rate
risks. Key economic
assumptions used
in determining
the fair
value at the time of sale of the related mortgages for the indicated periods
ranged as follows:
Weighted Average
Maximum
Minimum
Year Ended
December 31, 2024
Constant prepayment rate:
%
%
%
%
%
%
%
%
%
Discount rate:
%
%
%
%
%
%
%
%
%
Year Ended
December 31, 2023
Constant prepayment rate:
%
%
%
%
%
%
%
%
%
Discount rate:
%
%
%
%
%
%
%
%
%
Year Ended
December 31, 2022
Constant prepayment rate:
%
%
%
%
%
%
%
%
%
Discount rate:
%
%
%
%
%
%
%
%
%
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
182
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
%
and
%
adverse
changes
in
those
assumptions
for
mortgage
loans
were
as
follows
as
of
the
indicated dates:
December 31, 2024
December 31, 2023
(In thousands)
Carrying amount of servicing assets
$
$
Fair value
$
$
Weighted-average
expected life (in years)
Constant prepayment rate (weighted-average annual
rate)
%
%
$
$
$
$
Discount rate (weighted-average annual rate)
%
%
$
$
$
$
.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
183
NOTE 11 – DEPOSITS
The following table summarizes deposit balances as of the indicated dates:
December 31, 2024
December 31, 2023
(In thousands)
Type of account:
Non-interest-bearing deposit accounts
$
$
Interest-bearing checking accounts
Interest-bearing saving accounts
Time deposits
Brokered certificates of deposits (“CDs”)
$
$
The
weighted-average
interest
rate
on
total
interest-bearing
deposits
as
of
December 31,
2024
and
2023
was
%
and
%,
respectively.
As
of
December 31,
2024,
the
aggregate
amount
of
unplanned
overdrafts
of
demand
deposits
that
were
reclassified
as
loans
amounted
to
$
million as of December 31, 2024 (2023 - $
The following
table presents
the
remaining
contractual
maturities
of
time deposits,
including
brokered
CDs, as
of December
31,
2024:
Total
(In thousands)
Three months or less
$
Over three months to six months
Over six months to one year
Over one year to two years
Over two years to three years
Over three years to four years
Over four years to five years
Over five years
$
Total
Puerto
Rico
and
U.S.
time
deposits
with
balances
of
more
than
$250,000
amounted
to
$
December 31, 2024
and 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
December 31,
2024,
unamortized
broker
placement
fees
amounted
to
$
million (2023 - $
As of
December 31,
2024, deposit
accounts
issued to
government
agencies amounted
to $
deposits are insured by the FDIC up to the applicable limits. The uninsured
portions were collateralized by securities and loans with an
amortized cost
of $
securities and
loans, as
of both
December 31,
2024 and
2023,
the Corporation
used $
FHLB as pledges
for public deposits
in the Virgin
Islands. As of
December 31, 2024,
the Corporation had
$
deposits in Puerto Rico (2023 – $
(2023 – $
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
184
A table showing interest expense on interest-bearing deposits for
the indicated periods follows:
Year Ended
December 31,
2024
2023
2022
(In thousands)
Checking accounts
$
$
$
Saving accounts
Time deposits
Brokered CDs
$
$
$
NOTE 12 –BORROWINGS
Advances from the Federal Home Loan Bank (“FHLB”)
The following is a summary of the advances from the FHLB as of the indicated dates:
December 31, 2024
December 31, 2023
(In thousands)
Long-term
-rate advances from the FHLB
(1)
$
$
(1)
Weighted-average interest rate of
% as of each of December 31, 2024 and 2023, respectively.
Advances from the FHLB mature as follows as of the indicated date:
December 31, 2024
(In thousands)
Three months or less
$
Over six months to one year
Over one year to two years
Over two years to three years
(1)
$
(1) Average remaining term to maturity of
The maximum
aggregate balance
of advances
from the
FHLB outstanding
at any
month end
during the
years ended
December 31,
2024 and
2023 was
$
$
The Corporation
receives advances
and applies
for the
issuance of
letters of
credit from
the FHLB
under an
Advances, Collateral
Pledge, and
Security Agreement
(the “Collateral
Agreement”), which
requires the
Corporation to
maintain a
minimum of
qualifying
mortgage collateral or
U.S. Treasury
or U.S. agencies MBS
collateral, as applicable.
The amount of collateral
required for an
advance
incorporates a
collateral discount
or “haircut,”
which is incorporated
into the member’s
pledge and determined
by the FHLB.
Haircut
refers to
the percentage
by which
an asset’s
market value
is reduced
for the
purpose of
collateral levels. As
of each
of December
31,
2024
and
2023,
the
estimated
value
of
specific
mortgage
loans
pledged
as
collateral,
net
of
haircut,
amounted
to
$
computed
by
the
FHLB
for
collateral
purposes.
As
of
December
31,
2024
and
2023,
the
estimated
value
of
U.S.
government-
sponsored agencies’
obligations and
U.S. agencies
MBS pledged
as collateral,
net of
haircut, amounted
to $
million,
respectively.
As
of
December
31,
2024,
the
Corporation
had
additional
capacity
of
approximately
$
credit
facility
based
on
collateral
pledged
at
the
FHLB,
adjusted
by
a
haircut
reflecting
the
perceived
risk
associated
with
the
collateral. Advances may be repaid prior to
maturity, in whole or
in part, at the option of the borrower upon
payment of any applicable
fee
specified
in
the
contract
governing
such
advance.
In
calculating
the
fee,
due
consideration
is
given
to
(i)
all
relevant
factors,
including,
but
not
limited
to,
any
and
all
applicable
costs
of
repurchasing
and/or
prepaying
any
associated
liabilities
and/or
hedges
entered into with respect to the
applicable advance; (ii) the financial characteristics,
in their entirety,
of the advance being prepaid;
and
(iii),
in
the
case
of
adjustable-rate
advances,
the
expected
future
earnings
of
the
replacement
borrowing
as long
as
the replacement
borrowing is at
least equal to the
original advance’s
par value and the
replacement borrowing’s
tenor is at least
equal to the remaining
maturity of the prepaid advance.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
185
Securities Sold Under Agreements to Repurchase (“Repurchase Agreements”)
There was
31, 2024.
The maximum
aggregate balance
of repurchase
agreements outstanding
at any month-end
for the year
ended December 31,
2023 was $
Junior Subordinated Debentures
Junior subordinated debentures, as of the indicated dates, consisted of:
(In thousands)
December 31, 2024
December 31, 2023
Long-term floating rate junior subordinated debentures (FBP Statutory Trust I)
(1)
$
$
Long-term floating rate junior subordinated debentures (FBP Statutory Trust II)
(2)
$
$
(1)
Amount represents
junior subordinated
interest-bearing
debentures
due in
2034 with
a floating
interest rate
of
% over
3-month CME Term SOFR
% tenor
spread
adjustment as of December 31, 2024 and 2023 (
% as of December 31, 2024 and
% as of December 31, 2023).
(2)
Amount represents
junior subordinated
interest-bearing
debentures
due in
2034 with
a floating
interest rate
of
% over
3-month CME Term SOFR
% tenor
spread
adjustment as of December 31, 2024 and 2023 (
% as of December 31, 2024 and
% as of December 31, 2023).
See Note 10 –
“Non-Consolidated Variable
Interest Entities (“VIEs”)
and Servicing Assets” and
Note 15 – “Stockholders’
Equity”
for additional information on
junior subordinated debentures, including
the $
FBP Statutory Trust II.
Loans Payable
The Corporation
participates in
the Borrower-in-Custody
Program (the
“BIC Program”)
of the
FED. Through
the BIC
Program, a
broad
range
of
loans
(including
commercial,
consumer,
and
residential
mortgages)
may
be
pledged
as
collateral
for
borrowings
through the FED Discount Window.
As of December 31, 2024, pledged collateral that is related
to this credit facility amounted to $
billion, net
of haircut,
mainly commercial,
consumer,
and residential
mortgage
loans,
which is
fully available
for funding.
The FED
Discount
Window
program
provides
the
opportunity
to
access
a
low-rate
short-term
source
of
funding
in
a
high
volatility
market
environment.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
186
NOTE 13 – EARNINGS PER COMMON
.
SHARE
The calculations of earnings per common share for the years ended December 31,
2024, 2023, and 2022 are as follows:
Year
Ended December 31,
2024
2023
2022
(In thousands, except per share information)
Net income attributable to common stockholders
$
$
$
Weighted-Average
Shares:
Earnings per common share:
Basic
$
$
$
Diluted
$
$
$
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
shares of common stock during the years ended December 31,
2024, 2023 and 2022.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
187
NOTE 14 – STOCK-BASED
.
COMPENSATION
The
First
Bancorp
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
subject
to
adjustments
for
stock
splits,
reorganizations
and
other
similar
events.
As
of
December
31,
2024,
there
were
authorized
shares of
common stock
available for
issuance under
the Omnibus
Plan. The
Corporation’s
Board of
Directors, 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
(
%) of
those shares
vest on
the
two-year
% vest
on
the
three-year
one-year
The following
table summarizes
the restricted
stock activity
under the
Omnibus Plan
during the
years ended December
31, 2024,
2023 and 2022:
Year Ended December 31,
2024
2023
2022
Number of
Weighted-
Number of
Weighted-
Number of
Weighted-
shares of
Average
shares of
Average
shares of
Average
restricted
Grant Date
restricted
Grant Date
restricted
Grant Date
stock
stock
stock
Unvested shares outstanding at beginning of year
$
$
$
Granted
(1)
Forfeited
(
14,896
)
(
63,133
)
(
15,108
)
Vested
(
282,702
)
(
508,517
)
(
522,371
)
Unvested shares outstanding at end of year
$
$
$
(1)
For the
year ended
December 31,
2024, includes
which
restricted stock awarded to independent directors
and
thus charged
to earnings as
of the grant
date. For the
year ended December
31, 2022, includes
restricted stock awarded to employees, of which
For the
years ended
December 31,
2024, 2023
and 2022,
the Corporation
recognized
$
respectively,
of
stock-based
compensation
expense
related
to
restricted
stock
awards.
As
of
December
31,
2024,
there
was
$
million of total unrecognized compensation cost related to
unvested shares of restricted stock that the Corporation expects to recognize
over a weighted-average period of
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
188
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.
The following table summarizes the
performance units activity under
the Omnibus Plan during the
years ended December 31, 2024,
2023 and 2022:
Year Ended
December 31,
2024
2023
2022
Number
Weighted-
Number
Weighted-
Number
Weighted-
of
Average
of
Average
of
Average
Performance
Grant Date
Performance
Grant Date
Performance
Grant Date
Units
Fair Value
Units
Fair Value
Units
Fair Value
Performance units at beginning of year
$
$
$
Additions
(1)
Vested
(2)
(
150,716
)
(
474,538
)
(
189,645
)
Performance units at end of year
$
$
$
(1)
Units granted during
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.
Units granted
during 2022
are subject
to the
achievement of
the TBVPS
performance goal during a three-year performance cycle beginning
January 1, 2022 and ending on December 31, 2024.
(2)
Units vested during 2024, 2023 and
2022 are related to performance units granted
in 2021, 2020 and 2019, respectively,
that met the pre-established targets
and were settled with shares of
common stock reissued from treasury shares.
The fair value
of the performance
units awarded during
the years ended
December 31, 2024,
2023 and 2022,
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 December 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 during 2024 and 2023,
that was based on
the
Relative
TSR
component,
was
calculated
using
a
Monte
Carlo
simulation.
Since
the
Relative
TSR
component
is
considered
a
market condition,
the fair
value of
the portion
of the
award based
on Relative
TSR is
not revised
subsequent
to grant
date based
on
actual performance.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
189
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 years ended
December 31, 2024 and 2023:
Year
Ended December 31,
2024
2023
Risk-free interest rate
(1)
%
%
Correlation coefficient
Expected dividend yield
(2)
Expected volatility
(3)
Expected life (in years)
(1)
Based on the yield on zero-coupon U.S. Treasury
Separate Trading of Registered Interest and
Principal of Securities as of the grant date for a period equal to the simulation
term.
(2)
Assumes that dividends are reinvested at each ex-dividend date.
(3)
Calculated based on the historical volatility of the Corporation's
stock price with a look-back period equal to the simulation term
using daily stock prices.
For the
years ended
December 31,
2024, 2023
and 2022,
the Corporation
recognized
$
respectively,
of stock-based
compensation expense
related to performance
units. As of
December 31,
2024, there
was $
total
unrecognized
compensation
cost
related
to
unvested
performance
units
that
the
Corporation
expects
to
recognize
over
a
weighted-average period of
Shares withheld
During 2024,
the Corporation
withheld
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)
190
NOTE 15 –
STOCKHOLDERS’
EQUITY
Repurchase Programs
On
July
24,
2023,
the
Corporation
announced
that
its Board
approved
a stock
repurchase
program,
under
which
the Corporation
may repurchase up
to $
2024,
the Corporation
announced that
its Board
of Directors
approved
a new
repurchase program
(“the 2024
repurchase program”),
under
which
the
Corporation
may
repurchase
up
to
an
additional
$
junior subordinated debentures, which it expects to execute during 2025.
Under
the 2023
stock repurchase
program,
the
Corporation repurchased
transactions
at
an
average
price
of
$
common
stock
through
open
market
transactions
at
an
average
price
of
$
2023.
In
addition,
the
Corporation
redeemed
$
Corporation has remaining authorization of approximately
$
Repurchases
under
these
programs
may
be
executed
through
open
market
purchases,
accelerated
share
repurchases,
privately
negotiated
transactions
or plans,
including
plans complying
with Rule
10b5-1
under
the Exchange
Act, and/or
redemption of
junior
subordinated
debentures, and
will be
conducted
in accordance
with applicable
legal and
regulatory requirements
.
The Corporation’s
repurchase program
s
are subject
to various
factors, including
the Corporation’s
capital position,
liquidity,
financial performance
and
alternative uses
of capital, stock
trading price, and
general market conditions.
The Corporation’s
repurchase programs
do not obligate
it to acquire any
specific number of shares
and do not have
an expiration date. The
repurchase programs
may be modified, suspended,
or terminated at any time
at the Corporation’s
discretion. Any repurchased shares
of common stock are expected to
be held as treasury
shares.
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 years ended December 31, 2024, 2023 and
2022:
Total
Number of Shares
2024
2023
2022
Common stock outstanding, beginning of year
Common stock repurchased
(1)
(
5,985,332
)
(
14,340,453
)
(
19,619,178
)
Common stock reissued under stock-based compensation plan
Restricted stock forfeited
(
14,896
)
(
63,133
)
(
15,108
)
Common stock outstanding, end of year
(1)
For 2024, 2023 and 2022, includes
;
For
the
years
ended
December
31,
2024,
2023
and
2022,
total
cash
dividends
declared
on
shares
of
common
stock
amounted
to
$
,
the
Corporation’s
Board
of
Directors
declared
a
quarterly
cash
dividend
of
$
increase of
$
% increase,
compared to
its most
recent quarterly
dividend paid
in December
2024. The
dividend is payable on
. The Corporation intends
to
continue
to
pay
quarterly
dividends
on
common
stock.
However,
the
Corporation’s
common
stock
dividends,
including
the
declaration,
timing,
and
amount,
remain
subject
to
consideration
and
approval
by
the
Corporation’s
Board
Directors
at
the
relevant
times.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
191
Preferred Stock
The Corporation
has
, 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.
preferred stock were outstanding as of December 31, 2024 and 2023.
Treasury Stock
The following table shows the changes in shares of treasury stock for the years ended
December 31, 2024, 2023 and 2022:
Total
Number of Shares
2024
2023
2022
Treasury stock, beginning of year
Common stock repurchased
Common stock reissued under stock-based compensation plan
(
566,293
)
(
997,339
)
(
516,840
)
Restricted stock forfeited
Treasury stock, end of year
FirstBank Statutory Reserve (Legal Surplus)
The
Puerto
Rico
Banking
Law
of
1933,
as
amended
(the
“Puerto
Rico
Banking
Law”),
requires
that
a
minimum
of
%
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.
2022,
the
Corporation
transferred
$
FirstBank’s
legal
surplus
reserve,
included
as
part
of
retained
earnings
in
the
Corporation’s
consolidated
statements
of
financial
condition, amounted to $
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
192
NOTE 16 – ACCUMULATED
OTHER COMPREHENSIVE LOSS
The following
table presents
the changes
in accumulated
other comprehensive
loss for
the years
ended December
31, 2024,
2023,
and 2022:
Changes in Accumulated Other Comprehensive
Loss by Component
(1)
Year Ended December 31,
2024
2023
2022
(In thousands)
Unrealized net holding losses on available-for-sale
debt securities:
Beginning balance
$
(
640,552
)
$
(
805,972
)
$
(
87,390
)
(
718,582
)
Ending balance
$
(
567,338
)
$
(
640,552
)
$
(
805,972
)
Adjustment of pension and postretirement
benefit plans:
Beginning balance
$
$
$
(
600
)
(
2,197
)
Ending balance
$
$
$
(1)
All amounts presented are net of tax.
(2)
Net unrealized holding losses on available-for-sale debt securities have no tax effect
because securities are either tax-exempt, held by an IBE, or have a full deferred tax asset valuation allowance.
The following table presents the amounts reclassified out of each component
of accumulated other comprehensive loss for the years
ended December 31, 2024, 2023, and 2022:
Reclassifications Out of Accumulated Other
Comprehensive Loss
Affected Line Item in the Consolidated
Statements of Income
Year Ended December 31,
2024
2023
2022
(In thousands)
Adjustment of pension and postretirement benefit plans:
Amortization of net loss
Other expenses
$
$
$
Total before tax
$
$
$
Income tax expense
(
21
)
(
6
)
(
1
)
Total, net of tax
$
$
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
193
NOTE 17 – EMPLOYEE BENEFIT PLANS
The Corporation
maintains two frozen
qualified noncontributory
defined benefit pension
plans (the “Pension
Plans”), and
a related
complementary
post-retirement
benefit
plan
(the
“Postretirement
Benefit
Plan”)
covering
medical
benefits
and
life
insurance
after
retirement that it
obtained in the BSPR
acquisition on September
1, 2020. One
defined benefit pension
plan covers substantially
all of
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 changes
in projected
benefit obligation
and changes
in plan
assets for
the years
ended December
31, 2024 and 2023:
December 31, 2024
December 31, 2023
(In thousands)
Changes in projected benefit obligation:
Projected benefit obligation at the beginning of year,
defined benefit pension plans
$
$
Interest cost
Actuarial (gain) loss
(
1,813
)
Benefits paid
(
5,778
)
(
5,727
)
Projected benefit obligation at the end of year,
pension plans
$
$
Projected benefit obligation, other postretirement benefit plan
Projected benefit obligation at the end of year
$
$
Changes in plan assets:
Fair value of plan assets at the beginning of year
$
$
Actual return on plan assets - gain
Benefits paid
(
5,778
)
(
5,727
)
Fair value of pension plan assets at the end of year
(1)
$
$
Net asset, pension plans
Net benefit obligation, other postretirement benefit plan
(
151
)
(
244
)
Net asset
$
$
(1)
Other postretirement plan did not contain any assets as
of December 31, 2024 and 2023.
The weighted-average
discount rate
used to
determine
the benefit
obligation
as of
December
31, 2024
and
2023, was
% and
%,
respectively.
The
discount
rate
is
estimated
as
the
single
equivalent
rate
such
that
the
present
value
of
the
plan’s
projected
benefit obligation
cash flows
using the
single rate
equals the
present value
of those
cash flows
using the
above mean
actuarial yield
curve.
In
developing
the
expected
long-term
rate
of
return
assumption,
the
Corporation
evaluated
input
from
a
consultant
and
the
Corporation’s
long-term inflation
assumptions and
interest rate
scenarios. Projected
returns are
based on
the same
asset categories
as
the plan using
well-known broad
indexes. Expected
returns are based
on historical
returns with adjustments
to reflect a
more realistic
future return. The Corporation anticipated
that the Plan’s portfolio
would generate a long-term rate of
return of
% and
% as of
December 31, 2024 and 2023. Adjustments are done
by categories, taking into consideration current and
future market conditions. The
Corporation also considered
historical returns on
its plan assets to
review the expected
rate of return. The
investment policy statement
for
the
Pension
Plans
includes
the
following:
(i)
liability
hedging
assets
to
reduce
funded
status
risk,
(ii)
diversified
return
seeking
assets to reduce
equity risk,
and (iii) establishes
different glidepaths
specific for
each plan
to systematically reduce
risk as
the funded
status improves.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
194
The following
table presents
information
for
the plans
with a
projected
benefit obligation
and accumulated
benefit obligation
in
excess of plan assets for the years ended December 31, 2024 and 2023:
December 31, 2024
December 31, 2023
(In thousands)
Projected benefit obligation
$
$
Accumulated benefit obligation
Fair value of plan assets
The following table presents the components of net periodic (benefit) cost for
the years ended December 31, 2024, 2023, and 2022:
Affected Line Item
in the Consolidated
Year Ended December 31,
Statements of Income
2024
2023
2022
(In thousands)
Net periodic (benefit) cost, pension plans:
Interest cost
Other expenses
$
$
$
Expected return on plan assets
Other expenses
(
4,072
)
(
3,543
)
(
4,158
)
Net periodic (benefit) cost, pension plans
(
469
)
(
1,544
)
Net periodic cost, postretirement plan
Other expenses
Net periodic (benefit) cost
$
(
403
)
$
$
(
1,536
)
The following table presents the
weighted-average assumptions used to
determine the net periodic (benefit)
cost for the pension and
other postretirement benefit plans for the years ended December 31, 2024,
2023, and 2022:
Year Ended December 31,
2024
2023
2022
Discount rate
Expected return on plan assets
The
following
table
presents
the
changes
in
pre-tax
accumulated
other
comprehensive
income
of
the
Pension
Plans
and
Postretirement Benefit Plan for the years ended December 31, 2024, 2023,
and 2022:
Year Ended December 31,
2024
2023
2022
(In thousands)
Accumulated other comprehensive income at beginning of year, pension plans
$
$
$
Net (loss) gain
(
1,038
)
(
3,483
)
Accumulated other comprehensive income at end of year, pension plans
Accumulated other comprehensive loss at end of year, postretirement plan
(
77
)
(
155
)
(
61
)
Accumulated other comprehensive income at end of year
$
$
$
The following
are the
pre-tax amounts
recognized in
accumulated other
comprehensive income
for the
years ended
December 31,
2024, 2023, and 2022:
Year
Ended December 31,
2024
2023
2022
(In thousands)
Net actuarial (loss) gain, pension plans
$
(
1,038
)
$
$
(
3,483
)
Net actuarial gain (loss), other postretirement benefit plan
(
111
)
(
35
)
Amortization of net loss
Net amount recognized
$
(
960
)
$
$
(
3,515
)
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
195
The Pension Plans asset allocations by asset category are as follows as of the indicated
dates:
December 31, 2024
December 31, 2023
Asset category
Investment in funds
Other
As
of
December
31,
2024
and
2023,
substantially
all
of
the
plan
assets
of
$
invested in common collective trusts, which primarily consist of equity securities,
MBS, corporate bonds and U.S. Treasuries.
Determination of Fair Value
The following is a description of the valuation inputs and techniques
used to measure the fair value of pension plan assets:
Investment in Funds
-
Investment in common collective
trusts have been measured
at fair value using
the net asset value per
unit as
a practical
expedient and,
accordingly,
have not
been
classified in
the fair
value hierarchy.
Fair value
is based
on the
calculated
net
asset value of shares held by the Plan as reported by the sponsor of the funds.
Interest-Bearing
Deposits
-
Interest-bearing
deposits consist
of
money
market
accounts with
short-term
maturities and,
therefore,
the carrying value approximates fair value.
The Corporation does not expect to contribute to the Pension Plans during
2025.
The Corporation’s
investment policy
with respect
to the
Corporation’s
Pension
Plans is
to optimize,
without undue
risk, the
total
return
on investment
of the
Plan assets
after inflation,
within
a framework
of prudent
and reasonable
portfolio
risk. The
investment
portfolio
is
diversified
in
multiple
asset
classes
to
reduce
portfolio
risk,
and
assets
may
be
shifted
between
asset
classes
to
reduce
volatility when
warranted by projections
of the economic
and/or financial
market environment,
consistent with
Employee Retirement
Income
Security Act
of 1974,
as amended
(ERISA).
As circumstances
and
market conditions
change,
the Corporation’s
target
asset
allocations
may
be
amended
to reflect
the
most
appropriate
distribution
given
the new
environment,
consistent with
the
investment
objectives.
Expected future benefit payments for the plans during the next ten years
are as follows:
Amount
(In thousands)
2025
$
2026
2027
2028
2029
2030 through 2034
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
196
Defined Contribution Plan
In
addition,
FirstBank
provides
contributory
retirement
plans
pursuant
to
Section 1081.01
of
the
Puerto
Rico
Internal
Revenue
Code of 2011,
as amended (the “PR
Tax
Code”) for Puerto Rico
employees and Section 401(k)
of the U.S. Internal Revenue
Code for
USVI and
U.S. employees (the
“Plans”). Eligible
employees may
participate in
the Plans
after completion
of
for
purposes
of
making
elective
deferral
contributions
and
1,000
sharing
in
the
Bank’s
matching,
qualified
matching,
and
qualified
non-elective
contributions.
The
Bank
contributes
a
matching
contribution of
fifty
% of the participants’
eligible compensation
that a participant contributes
to
the Plan
on a pre-tax basis.
permitted to
contribute
up to
$
$
Bank as determined
by its Board
of Directors.
2024, 2023,
and 2022. The
Bank had
total plan
expenses of
$
2022 - $
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
197
NOTE 18 – OTHER NON-INTEREST INCOME
A detail of other non-interest income is as follows for the indicated periods:
Year
Ended December 31,
2024
2023
2022
(In thousands)
Non-deferrable loan fees
$
$
$
Mail and cable transmission commissions
Gain from insurance proceeds
Net (loss) gain on equity securities
(
19
)
(
522
)
Insurance referrals commissions
Gain from sales of fixed assets
(1)
Gain recognized from legal settlement
Other
$
$
$
(1) See Note 6 - “Premises and Equipment” for additional
information related to gains from sales of fixed assets.
NOTE 19 – OTHER NON-INTEREST EXPENSES
A detail of other non-interest expenses is as follows for the indicated periods:
Year
Ended December 31,
2024
2023
2022
(In thousands)
Supplies and printing
$
$
$
Amortization of intangible assets
Servicing and processing fees
Insurance and supervisory fees
Provision for operational losses
Net periodic (benefit) cost, pension and other postretirement plans
(
403
)
(
1,536
)
Other
$
$
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
198
NOTE 20 –
INCOME TAXES
The Corporation
is subject to Puerto
Rico income tax
on its income
from all sources.
Under the PR Tax
Code, the Corporation
and
its subsidiaries are treated as separate taxable entities and
are not entitled to file consolidated tax returns. However,
certain subsidiaries
that
are
organized
as limited
liability
companies
with
a
partnership
election
are
treated
as pass-through
entities
for
Puerto
Rico
tax
purposes.
Furthermore,
the
Corporation
conducts
business
through
certain
entities
that
have
special
tax
treatments,
including
doing
business
through
an
IBE
unit
of
the
Bank
and
through
FirstBank
Overseas
Corporation,
each
of
which
are
generally
exempt
from
Puerto Rico income
taxation under the International
Banking Entity Act of
Puerto Rico (“IBE Act”).
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.
In addition
to the
IBE entities,
the bank
has 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
carryforward
period
for
NOLs
incurred
during
taxable
years
commencing
after
December
31,
2012
is
10
years.
The
PR
Tax
Code
provides
a
dividend
received
deduction
of
%
on dividends
received
from
“controlled”
subsidiaries
subject
to
taxation
in
Puerto
Rico and
% on dividends received from other taxable domestic corporations.
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.
The components of income tax expense are summarized below for the indicated periods:
Year
Ended December 31,
2024
2023
2022
(In thousands)
Current income tax expense
$
$
$
Deferred income tax expense
Total income
tax expense
$
$
$
The
Corporation
maintains
an
effective
tax
rate
lower
than
the
Puerto
Rico
maximum
statutory
tax
rate
of
%.
The
differences between the income tax expense
applicable to income before the provision for
income taxes and the amount computed
by applying the statutory tax rate in Puerto Rico were as follows for the indicated periods:
Year Ended December
31,
2024
2023
2022
Amount
% of Pretax
Income
Amount
% of Pretax
Income
Amount
% of Pretax
Income
(Dollars in thousands)
Computed income tax at statutory rate
$
%
$
%
$
%
Federal and state taxes
%
%
%
Benefit of net exempt income
(
40,599
)
(
10.4
)
%
(
35,153
)
(
8.8
)
%
(
31,266
)
(
7.0
)
%
Disallowed NOL carryforward resulting from net exempt income
(1)
%
%
%
Deferred tax valuation allowance
(1)
%
%
(
8,410
)
(
1.9
)
%
Share-based compensation windfall
(
823
)
(
0.2
)
%
(
2,134
)
(
0.5
)
%
(
1,492
)
(
0.3
)
%
Preferential tax treatment on qualified investing and lending activities
(
19,642
)
(
5.0
)
%
(
19,125
)
(
4.8
)
%
(
4,500
)
(
1.0
)
%
Other permanent differences
(
4,284
)
(
1.1
)
%
(
5,138
)
(
1.3
)
%
(
3,147
)
(
0.7
)
%
Tax return to provision adjustments
%
(
1,709
)
(
0.4
)
%
(
519
)
(
0.1
)
%
Other-net
%
(
1,215
)
(
0.3
)
%
(
487
)
(
0.1
)
%
$
%
$
%
$
%
(1)
During 2022 the Corporation fully utilized certain NOLs which under the PR Tax Code were disallowed for carryforward purposes; therefore, there was no adjustment in 2023 and 2024 in the amount of disallowed
NOL carryforward and any related deferred tax valuation allowance.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
199
Deferred income taxes reflect
the net tax effects
of temporary differences
between the carrying amounts
of assets and liabilities
for
financial
reporting purposes
and their
tax bases.
Significant components
of the
Corporation's deferred
tax assets
and
liabilities as
of
December 31, 2024 and 2023 were as follows:
As of December 31,
2024
2023
(In thousands)
Deferred tax asset:
$
$
4,763
3,569
$
$
Deferred tax liabilities:
Valuation
allowance
(
119,080
)
(
139,188
)
$
$
Accounting
for
income
taxes
requires
that
companies
assess
whether
a
valuation
allowance
should
be
recorded
against
their
deferred
tax
asset
based
on
an
assessment
of
the
amount
of
the
deferred
tax
asset
that
is
“more
likely
than
not”
to
be
realized.
Valuation
allowances are
established,
when necessary,
to reduce
deferred tax
assets to
the amount
that is
more likely
than not
to be
realized. Management
assesses the valuation
allowance recorded
against deferred
tax assets at
each reporting
date. The determination
of whether a
valuation allowance for
deferred tax assets
is appropriate
is subject to considerable
judgment and requires
the evaluation
of
positive
and
negative
evidence
that
can
be
objectively
verified.
Consideration
must
be
given
to
all
sources
of
taxable
income
available to realize
the deferred tax asset,
including, as applicable,
the future reversal
of existing temporary
differences, future
taxable
income forecasts exclusive of the reversal of temporary
differences and carryforwards, and tax planning
strategies. In estimating taxes,
management assesses
the relative
merits and
risks of
the appropriate
tax treatment
of transactions
considering statutory,
judicial, and
regulatory guidance.
As of
December 31,
2024, the
Corporation
had a
net deferred
tax asset
of $
million,
compared to
a net
deferred tax
asset of
$
2023. The
net deferred
tax asset of
the Corporation’s
banking subsidiary,
FirstBank, amounted
to $
2024,
net
of
a
valuation
allowance
of
$
allowance of
$
alternative
minimum
tax
credits
and
the
decrease
in
the
ACL.
Meanwhile,
the
decrease
in
the
valuation
allowance
was
related
primarily
to
changes
in
the
market
value
of
available-for-sale
debt
securities
and
the
expiration
of
capital
loss
carryforwards,
both
which resulted in
an equal change in
the net deferred
tax asset without impacting
earnings. The Corporation
maintains a full valuation
allowance for its deferred
tax assets associated with
capital loss carryforwards,
NOL carryforwards and unrealized
losses of available-
for-sale debt securities.
Management’s
estimate
of
future
taxable
income
is
based
on
internal
projections
that
consider
historical
performance,
multiple
internal scenarios and
assumptions, as well as
external data that
management believes is
reasonable. If events
are identified that affect
the Corporation’s
ability to utilize
its deferred tax
assets, the analysis
will be updated
to determine if
any adjustments to
the valuation
allowance
are
required.
If
actual
results
differ
significantly
from
the
current
estimates
of
future
taxable
income,
even
if
caused
by
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
200
adverse
macro-economic
conditions,
the
remaining
valuation
allowance
may
need
to
be
increased.
Such
an
increase
could
have
a
material adverse effect on the Corporation’s
financial condition and results of operations.
As of December
31, 2024, approximately
$
differences
or
tax
credit
carryforwards
that
have
no
expiration
date,
compared
to
$
attributable to FirstBank’s
deferred tax assets of
$
available-for-sale
debt securities,
NOLs attributable
to the
Virgin
Islands jurisdiction,
and capital
loss carryforwards.
The remaining
balance of $
NOLs at the
holding company
level. The
Corporation will
continue to
provide a valuation
allowance against
its deferred
tax assets in
each applicable tax jurisdiction until the need
for a valuation allowance is eliminated. The need for
a valuation allowance is eliminated
when
the Corporation
determines that
it is
more
likely than
not the
deferred
tax assets
will be
realized.
The ability
to recognize
the
remaining deferred tax assets that
continue to be subject
to a valuation allowance
will be evaluated on a quarterly
basis to determine if
there
were
any
significant
events that
would
affect
the
ability
to
utilize
these
deferred
tax
assets.
As of
December
31,
2024,
of
the
$
ranging from year 2025 through year 2037. From this amount, approximately
$
be realized.
In
2017,
the
Corporation
completed
a
formal
ownership
change
analysis
within
the
meaning
of
Section
382
of
the
U.S.
Internal
Revenue Code
(“Section 382”)
covering a
comprehensive period
and concluded
that an
ownership
change had
occurred during
such
period.
The
Section
382
limitation
has
resulted
in
higher
U.S.
and
USVI
income
tax
liabilities
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 2024,
2023, and
2022, FirstBank
incurred current
income tax
expense of approximately $
not impact the USVI operations in 2024, 2023, and 2022.
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
December 31,
2024, the
Corporation had
$
BSPR,
which,
if
recognized,
would
decrease
the
effective
income
tax
rate
in
future
periods.
During
2024,
a
$
contingency accrual
release was
recognized
as a
result of
the expiration
of the
statute of
limitation on
uncertain tax
positions, which
were
acquired
from
BSPR.
The
amount
of
unrecognized
tax
benefits
may
increase
or
decrease
in
the
future
for
various
reasons,
including
adding
amounts
for
current
tax
year
positions,
expiration
of
open
income
tax
returns
due
to
the
statute
of
limitations,
changes
in management’s
judgment
about the
level of
uncertainty,
the status
of examinations,
litigation
and legislative
activity,
and
the addition or
elimination of uncertain
tax positions. The
statute of limitations
under the 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 2020 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)
201
NOTE 21
–
OPERATING
LEASES
The
Corporation
accounts
for
its
leases
in
accordance
with
ASC
842
“Leases”
(“ASC
Topic
842).
The
Corporation’s
operating
leases are primarily
related to the
Corporation’s
branches. Our
leases mainly have
terms ranging
from
, some of
which
include
options
to
extend
the
leases
for
up
to
.
Liabilities
to
make
future
lease
payments
are
recorded
in
accounts
payable and
other liabilities,
while ROU
assets are
recorded in
other assets
in the
Corporation’s
consolidated statements
of financial
condition. As of December 31, 2024 and 2023, the Corporation
did not classify any of its leases as a finance lease.
Operating lease cost for the
year ended December 31, 2024
amounted to $
and is recorded in occupancy and equipment in the consolidated
statements
of income.
Supplemental balance sheet information related to leases was as follows as of the
indicated dates:
As of December 31,
2024
2023
(Dollars in thousands)
ROU asset
$
$
Operating lease liability
$
$
Operating lease weighted-average remaining lease term (in years)
Operating lease weighted-average discount rate
Generally,
the
Corporation
cannot
practically
determine
the interest
rate
implicit
in
the lease.
Therefore,
the Corporation
uses its
incremental
borrowing
rate
as
the
discount
rate
for
the
lease.
See
Note
1
–
“Nature
of
Business
and
Summary
of
Significant
Accounting Policies” for information on how the Corporation determines
its incremental borrowing rate.
Supplemental cash flow information related to leases was as follows:
Year Ended
December 31,
2024
2023
2022
(In thousands)
Operating cash flow from operating leases
(1)
$
$
$
ROU assets obtained in exchange for operating lease liabilities
$
$
$
(1)
Represents cash paid for amounts included in the measurement of
operating lease liabilities.
(2)
Represents non-cash activity and, accordingly,
is not reflected in the consolidated statements of cash flows.
(3)
For the years ended December 31, 2024, 2023, and 2022 excludes
$
Maturities under operating lease liabilities as of December 31, 2024,
were as follows:
Amount
(In thousands)
2025
$
2026
2027
2028
2029
2030 and later years
Total lease payments
Less: imputed interest
(
9,205
)
Total present value
of lease liability
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
202
NOTE 22 – DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES
One of
the market
risks facing
the Corporation
is interest
rate risk,
which includes
the risk that
changes in
interest rates
will result
in changes in the value of
the Corporation’s assets or
liabilities and will adversely
affect the Corporation’s
net interest income from its
loan
and
investment
portfolios.
The
overall
objective
of
the
Corporation’s
interest
rate
risk
management
activities
is
to
reduce
the
variability of earnings caused by changes in interest rates.
As of
December 31,
2024 and
2023, all
derivatives held
by the
Corporation were
considered economic
undesignated hedges.
The
Corporation records these undesignated hedges at fair value with the
resulting gain or loss recognized in current earnings.
The following summarizes the principal derivative activities used by
the Corporation in managing interest rate risk:
Interest
Rate
Swaps
agreements consist
of the
Corporation offering
borrower-facing
derivative products
using a
“back-to-back”
structure in
which the
borrower-facing
derivative
transaction is
paired with
an identical,
offsetting
transaction with
an approved
dealer-counterparty.
By
using
a back-to-back
trading structure,
both
the commercial
borrower
and
the Corporation
are largely
insulated
from market
risk
and volatility.
The agreements
set the
dates on
which the
cash flows
will be
paid and
the manner
in which
the cash
flows will
be
calculated.
Interest Rate
Cap Agreements
a contractual rate. The value of
the interest rate cap increases as the
reference interest rate rises. The Corporation
enters into interest
rate cap agreements for protection from rising interest rates.
Interest
Rate
Lock
Commitments
credit
to
a
borrower
under
certain
specified
terms
and
conditions
in
which
the
interest
rate
and
the
maximum
amount
of
the
residential
mortgage
loan
are
set
prior
to
funding.
Under
the
agreement,
the
Corporation
commits
to
lend
funds
to
a
potential
borrower, generally on a fixed rate basis, regardless
of whether interest rates change in the market.
Forward
Contracts
delivery
date
and
do
not
qualify
as
“regular
way”
security
trades.
Regular-way
security
trades
are
contracts
that
have
no
net
settlement provision and no market
mechanism to facilitate net settlement
and that provide for delivery
of a security within the time
frame
generally
established
by
regulations
or
conventions
in
the
marketplace
or
exchange
in
which
the
transaction
is
being
executed.
The forward
sales are
considered
derivative
instruments
that need
to be
marked
to market.
The Corporation
uses these
securities
to
economically
hedge
the
FHA/VA
residential
mortgage
loan
securitizations
of
the mortgage
banking
operations.
The
Corporation
also
reports
as forward
contracts
the mandatory
mortgage
loan
sales commitments
that
it enters
into with
GSEs that
require or permit net settlement via a pair-off
transaction or the payment of a pair-off fee.
To
satisfy
the
needs
of
its
customers,
the
Corporation
may
enter
into
non-hedging
transactions.
In
these
transactions,
the
Corporation generally participates as
a buyer in one
of the agreements and
as a seller in the
other agreement under
the same terms and
conditions.
In addition, the Corporation
enters into certain contracts
with embedded derivatives that
do not require separate accounting
as these
are clearly and closely
related to the economic
characteristics of the host
contract. When the embedded
derivative possesses economic
characteristics that are not clearly and closely related
to the economic characteristics of the host contract,
it is bifurcated, carried at fair
value, and designated as a trading or non-hedging derivative instrument.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
203
The
following
table
summarizes
for
derivative
instruments
their
notional
amounts,
fair
values
and
location
in
the
consolidated
statements of financial condition as of the indicated dates:
Asset Derivatives
Liability Derivatives
Notional Amounts
(1)
Statements of Financial
Condition Location
Fair Value
Statements of Financial Condition
Location
Fair Value
December 31,
December 31,
December 31,
2024
2023
2024
2023
2024
2023
(In thousands)
Undesignated economic hedges:
Interest rate contracts:
$
$
Other assets
$
$
Accounts payable and other liabilities
$
$
Other assets
Accounts payable and other liabilities
Forward Contracts:
Other assets
Accounts payable and other liabilities
$
$
$
$
$
$
(1) Notional amounts are presented on a gross basis with no netting of offsetting exposure positions.
The
following
table
summarizes
the
effect
of
derivative
instruments
on
the
consolidated
statements
of
income
for
the
indicated
periods:
(Loss) Gain
Location of (Loss) Gain
Year Ended
on Derivatives Recognized in
December 31,
Statements of Income
2024
2023
2022
(In thousands)
Undesignated economic hedges:
Interest income - loans
$
$
(
7
)
$
Interest income - loans
(
1
)
Mortgage banking activities
(
21
)
(
74
)
(
322
)
Mortgage banking activities
(
119
)
Mortgage banking activities
(
20
)
$
$
(
201
)
$
(
177
)
Derivative
instruments
are
subject
to
market
risk.
As
is
the
case
with
investment
securities,
the
market
value
of
derivative
instruments
is largely
a
function
of
the financial
market’s
expectations
regarding
the future
direction
of interest
rates.
Accordingly,
current market
values are
not necessarily
indicative of
the future
impact of
derivative instruments
on earnings.
This will
depend, for
the most part, on the shape of the yield curve, and the level of interest rates, as well as the expectations
for rates in the future.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
204
Credit and Market Risk of Derivatives
The
Corporation
uses
derivative
instruments
to
manage
interest
rate
risk.
By
using
derivative
instruments,
the
Corporation
is
exposed to credit and market risk.
If the
counterparty fails
to perform,
credit risk
is equal
to the
extent of
the Corporation’s
fair value
gain on
the derivative.
When
the fair value of
a derivative instrument contract
is positive, this generally
indicates that the counterparty
owes the Corporation which,
therefore, creates a credit
risk for the Corporation.
When the fair value
of a derivative instrument
contract is negative, the
Corporation
owes the counterparty.
The Corporation minimizes
its credit risk in
derivative instruments by
entering into transactions with
reputable
broker
dealers
(
i.e.,
financial
institutions)
that
are
reviewed
periodically
by
the
Management
Investment
and
Asset
Liability
Committee
of the
Corporation
(the “MIALCO”)
and
by the
Corporation’s
Board
of Directors.
The Corporation
also has
a policy
of
requiring
that
all
derivative
instrument
contracts
be
governed
by
an
International
Swaps
and
Derivatives
Association
Master
Agreement, which
includes a
provision for
netting. The
Corporation has
a policy
of diversifying
derivatives counterparties
to reduce
the
consequences
of
counterparty
default.
The
cumulative
mark-to-market
effect
of
credit
risk
in
the
valuation
of
derivative
instruments in 2024, 2023, and 2022 was immaterial.
Market risk is
the adverse effect
that a change
in interest rates
or implied volatility
rates has on
the value of
a financial instrument.
The Corporation
manages the
market risk
associated with
interest rate
contracts by
establishing and
monitoring limits
as to
the types
and degree of risk that may be undertaken.
In
accordance
with
the
master
agreements,
in
the
event
of
default,
each
party
has
a
right
of
set-off
against
the
other
party
for
amounts
owed
under
the
related
agreement
and
any
other
amount
or
obligation
owed
with
respect
to
any
other
agreement
or
transaction between them. As of December 31, 2024 and 2023, derivatives
were overcollateralized.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
205
NOTE 23 –
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.
as well
as the
classification of
such instruments
pursuant to
the fair
value hierarchy.
There were
no transfers
of assets
and liabilities
measured at fair value between Level 1 and Level 2 measurements during the years ended
December 31, 2024 and 2023.
Financial Instruments Recorded at Fair Value
on a Recurring Basis
Available-for-sale
debt securities and marketable equity securities held at fair value
and equity securities with
readily determinable fair values),
when available (Level 1),
or market prices for comparable
assets (as is the
case with
U.S. agencies
MBS and
U.S. agency
debt securities)
that are
based on
observable market
parameters, including
benchmark
yields,
reported
trades,
quotes
from
brokers
or
dealers,
issuer
spreads,
bids,
offers
and
reference
data,
including
market
research
operations, when
available (Level
2). Observable
prices in
the market
already consider
the risk
of nonperformance.
If listed
prices or
quotes are
not available, fair
value is based
upon discounted
cash flow models
that use unobservable
inputs due to
the limited market
activity of the instrument, as is the case with certain private label MBS held by the
Corporation (Level 3).
Derivative instruments
into consideration
the credit risk
component of
paying counterparties,
when appropriate.
On interest
rate caps,
only the
seller’s credit
risk is considered. The Corporation
valued the interest rate swaps and
caps using a discounted cash flow
approach based on the related
reference rate for each cash flow.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
206
Assets and liabilities measured at fair value on a recurring basis are summarized below as of
December 31, 2024 and 2023:
As of December 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:
U.S. Treasury securities
$
$
$
$
$
$
$
$
Noncallable U.S. agencies debt securities
Callable U.S. agencies debt securities
MBS
(1)
(1)
Puerto Rico government obligation
Other investments
Liabilities:
(1) Related to private label MBS.
The table
below presents
a reconciliation
of the
beginning and
ending balances
of all
assets measured
at fair
value on
a recurring
basis using significant unobservable inputs (Level 3) for the years ended
December 31, 2024, 2023, and 2022:
(1)
Level 3 Instruments Only
2024
2023
2022
(In thousands)
Beginning balance
$
$
$
(
750
)
(
401
)
Included in earnings (unrealized) (2)
(
20
)
(3)
(
1,265
)
(
1,525
)
(
2,622
)
Ending balance
$
$
$
(1)
(2)
(3)
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
207
The
tables
below
present
quantitative
information
for
significant
assets
measured
at
fair
value
on
a
recurring
basis
using
significant unobservable inputs (Level 3) as of December 31, 2024 and 2023:
December 31, 2024
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
Maximum
(Dollars in thousands)
Available-for-sale
debt securities:
$
Discounted cash flows
Discount rate
Prepayment rate
Projected cumulative loss rate
$
Discounted cash flows
Discount rate
Projected cumulative loss rate
December 31, 2023
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
Maximum
(Dollars in thousands)
Available-for-sale
debt securities:
$
Discounted cash flows
Discount rate
Prepayment rate
Projected cumulative loss rate
$
Discounted cash flows
Discount rate
Projected cumulative loss rate
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
3 –
“Debt Securities”
for information
on
the methodology used to calculate the fair value of this debt security.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
208
Additionally, fair value
is used on a non-recurring basis to evaluate certain assets in accordance with GAAP.
For
the
years
ended
December
31,
2024,
2023,
and
2022,
the
Corporation
recorded
losses
or
valuation
adjustments
for
assets
recognized at fair value on a non-recurring basis and still held at the respective
reporting dates, as shown in the following table:
Carrying value as of December 31,
Related to losses recorded for the Year Ended
December 31,
2024
2023
2022
2024
2023
2022
(In thousands)
Level 3:
Loans receivable
(1)
$
$
$
$
(
373
)
$
(
1,839
)
$
(
736
)
OREO
(2)
(
100
)
(
416
)
(
917
)
Premises and equipment
(3)
(
218
)
Level 2:
Loans held for sale
(4)
$
$
$
$
(
78
)
$
$
(
106
)
(1)
Consists mainly
of collateral dependent
commercial and construction
loans. The Corporation
generally measured losses
based on
the fair
value of the
collateral. The Corporation
derived the fair
values from external
appraisals that took into
consideration prices in observed transactions
involving similar assets in
similar locations but adjusted for
specific characteristics and assumptions of
the collateral (e.g., absorption rates),
which
are not market observable.
The haircuts applied on appraisals
for the year ended
December 31, 2024 were
%, and for the year
ended December 31, 2023 the
haircuts ranged from
% to
%. There were no
haircuts
applied on appraisals for the year ended December 31, 2022.
(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 on appraisals ranged from
% to
% for the year ended December 31, 2024 and
% to
%, for the years ended December 31 , 2023 and 2022.
(3)
Relates to a banking facility reclassified to held-for-sale and measured at the fair value of the collateral.
(4)
The Corporation derived the fair value of these loans based on published secondary market prices of MBS with similar characteristics.
Qualitative
information
regarding
the
financial
instruments
measured
at
fair
value
on
a
non-recurring
basis
using
significant
unobservable inputs (Level 3) as of December 31, 2024 are as follows:
December 31, 2024
Method
Inputs
Loans
Income, Market, Comparable
Sales, Discounted Cash Flows
External appraised values; probability weighting of broker price
opinions; management assumptions regarding market trends or other
relevant factors
OREO
Income, Market, Comparable
Sales, Discounted Cash Flows
External appraised values; probability weighting of broker price
opinions; management assumptions regarding market trends or other
relevant factors
Premises and equipment
Market
External appraised value
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
209
The
following
tables
present
the
carrying
value,
estimated
fair
value
and
estimated
fair
value
level
of
the
hierarchy
of
financial
instruments as of December 31, 2024 and 2023:
Total Carrying Amount
in Statement of
Financial Condition as
of December 31, 2024
Fair Value Estimate as
of
December 31, 2024
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money market investments (amortized
cost)
$
$
$
$
$
Available-for-sale debt
securities (fair value)
Held-to-maturity debt securities:
(
802
)
$
Equity securities (amortized cost)
(1)
Other equity securities (fair value)
Loans held for sale (lower of cost or market)
Loans held for investment:
(
243,942
)
$
MSRs (amortized cost)
Derivative assets (fair value)
Liabilities:
Deposits (amortized cost)
$
$
$
$
$
Long-term advances from the FHLB (amortized cost)
Junior subordinated debentures (amortized cost)
Derivative liabilities (fair value)
(1) Includes FHLB stock with a carrying value of $
(2) Includes interest rate swap agreements and forward contracts.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
210
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)
$
$
$
$
$
Available-for-sale debt
securities (fair value)
Held-to-maturity debt securities:
(
2,197
)
$
Equity securities (amortized cost)
(1)
Other equity securities (fair value)
Loans held for sale (lower of cost or market)
Loans held for investment:
(
261,843
)
$
MSRs (amortized cost)
Derivative assets (fair value)
(2)
Liabilities:
Deposits (amortized cost)
$
$
$
$
$
Long-term advances from the FHLB (amortized cost)
Junior subordinated debentures (amortized cost)
Derivative liabilities (fair value)
(2)
(1) Includes FHLB stock with a carrying value of $
(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)
211
NOTE 24 – 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
years
ended
December 31, 2024, 2023 and 2022:
Year Ended December
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)
$
$
$
$
(
112,151
)
$
$
$
Service charges and fees on deposit accounts
Insurance commission income
Card and processing income
Other service charges and fees
Not in scope of ASC Topic
606
Total Revenue (Loss)
$
$
$
$
(
111,696
)
$
$
$
Year Ended December
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)
$
$
$
$
(
31,944
)
$
$
$
Service charges and fees on deposit accounts
Insurance commission income
Card and processing income
Other service charges and fees
Not in scope of ASC Topic
606
Total Revenue (Loss)
$
$
$
$
(
29,819
)
$
$
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
212
Year Ended December
31, 2022
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial
and Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income (loss) (1)
$
$
$
$
(
13,964
)
$
$
$
Service charges and fees on deposit accounts
Insurance commission income
Card and processing income
Other service charges and fees
Not in scope of ASC Topic
606 (1)
(
161
)
(
161
)
Total Revenue (Loss)
$
$
$
$
(
14,125
)
$
$
$
(1)
Most of the Corporation’s revenue is
not within the scope of ASC Topic
606. The guidance explicitly excludes net interest income from financial assets and
liabilities, as well as other non-interest income from loans, leases,
investment securities and derivative
financial instruments.
For
2024,
2023,
and
2022,
most
of
the
Corporation’s
revenue
within
the
scope
of
ASC
Topic
606
was
related
to
performance
obligations satisfied at a point in time.
The following is a discussion of the revenues under the scope of ASC Topic
606.
Service Charges and Fees on Deposit Accounts
Service
charges
and fees
on deposit
accounts
relate to
fees generated
from a
variety of
deposit products
and
services rendered
to
customers. Charges
primarily include,
but are not
limited to, overdraft
fees, insufficient
fund fees,
dormant fees,
and monthly
service
charges. Such
fees are recognized
concurrently with
the event at
the time of
occurrence or on
a monthly basis,
in the case
of monthly
service charges.
These depository arrangements are considered
day-to-day contracts that do not extend
beyond the services performed,
as customers have the right to terminate these contracts with no penalty or,
if any, nonsubstantive penalties.
Insurance Commissions
For
insurance
commissions,
which
include
regular
and
contingent
commissions
paid
to
the
Corporation’s
insurance
agency,
the
agreements
contain
a
performance
obligation
related
to
the
sale/issuance
of
the
policy
and
ancillary
administrative
post-issuance
support.
The performance
obligations
are
satisfied
when
the policies
are
issued, and
revenue
is recognized
at
that point
in
time.
In
addition,
contingent
commission
income
may
be
considered
to
be
constrained,
as
defined
under
ASC
Topic
606.
Contingent
commission income is included
in the transaction price
only to the extent that
it is probable that a
significant reversal in the
amount of
cumulative revenue
recognized will
not occur
or payments
are received,
thus, is
recorded in
subsequent periods.
For the
years ended
December
31,
2024,
2023,
and
2022,
the
Corporation
recognized
contingent
commission
income
at
the
time
that
payments
were
confirmed and constraints
were released of
$
of insurance policies sold in the prior year.
Card and processing
income
Card and processing income includes merchant-related income, and
credit and debit card fees.
For
merchant-related
income,
the
determination
of
income
recognition
included
the
consideration
of
a
2015
sale
of
merchant
contracts
that
involved
sales
of
point
of
sale
(“POS”)
terminals
and
a
marketing
alliance
under
a
revenue-sharing
agreement.
The
Corporation
concluded
that
control
of
the
POS
terminals
and
merchant
contracts
was
transferred
to
the
customer
at
the
contract’s
inception.
With
respect
to
the
related
revenue-sharing
agreement,
the
Corporation
satisfies
the
marketing
alliance
performance
obligation over
the life of
the contract,
and recognizes the
associated transaction price
as the entity
performs and any
constraints over
the variable consideration are resolved.
Credit
and
debit
card
fees
primarily
represent
revenues
earned
from
interchange
fees
and
ATM
fees.
Interchange
and
network
revenues are earned on credit and
debit card transactions conducted with
payment networks. ATM
fees are primarily earned as a
result
of surcharges
assessed to
non-FirstBank customers
who use
a FirstBank
ATM.
Such fees
are generally
recognized concurrently
with
the delivery of services on a daily basis.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
213
The
Corporation
offers
products,
primarily
credit
cards,
that
offer
various
rewards
to
reward
program
members,
such
as
airline
tickets, cash, or
merchandise, based
on account
activity.
The Corporation
generally recognizes the
cost of rewards
as part of
business
promotion
expenses when
the rewards
are earned
by the
customer and,
at that
time, records
the corresponding
reward liability.
The
Corporation
determines
the
reward
liability
based
on
points
earned
to
date
that
the
Corporation
expects
to
be
redeemed
and
the
average
cost
per
point
redemption.
The
reward
liability
is
reduced
as
points
are
redeemed.
In
estimating
the
reward
liability,
the
Corporation considers historical
reward redemption behavior,
the terms of the
current reward program,
and the card purchase
activity.
The reward liability
is sensitive to
changes in the
reward redemption
type and redemption
rate, which is
based on the
expectation that
the
vast
majority
of
all points
earned
will eventually
be
redeemed.
The reward
liability,
which
is included
in other
liabilities in
the
consolidated statements of financial condition, totaled $
Other Fees
Other fees primarily
include revenues generated
from wire transfers,
lockboxes, bank
issuances of checks
and trust fees
recognized
from
transfer
paying
agent,
retirement
plan,
and
other
trustee
activities.
Revenues
are
recognized
on
a
recurring
basis
when
the
services are rendered and are included as part of other non-interest income
in the consolidated statements of income.
Contract Balances
As of December
31, 2024 and
2023, there were
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)
214
NOTE 25 – SEGMENT INFORMATION
The Corporation’s
operating segments
are based
primarily on
the Corporation’s
lines of
business for
its operations
in Puerto
Rico,
the Corporation’s
principal market,
and by
geographic areas
for its
operations outside
of Puerto
Rico. As
of December
31, 2024,
the
Corporation
had
Treasury and
Investments; United States Operations;
and Virgin
Islands Operations. The Chief
Executive Officer (“CEO”),
who is the
designated
chief
operating
decision
maker
(“CODM”),
as
ultimate
decision
maker,
evaluates
performance
and
allocates
resources
based
on financial
information
provided
by management.
In determining
the reportable
segments,
the
Corporation
considers
factors
such as
the organizational
structure, nature
of the
products,
distribution
channels, customer
relationship
management,
and economic
characteristics
of
the
business
lines.
The
Corporation
evaluates
the
performance
of
the
segments
based
on
segment
income
or
loss,
which consists of
net interest income,
the provision for
credit losses, non-interest
income and
non-interest expenses.
Segment income
or
loss
is
measured
on
a
pre-tax
basis,
consistent
with
the
Corporation’s
consolidated
financial
statements
under
GAAP.
The
total
segment income or loss equals
consolidated pre-tax income or
loss, and no adjustments or
reconciliations are necessary.
The segments
are also
evaluated based
on the
average volume
of their
interest-earning assets
(net of
fair value
adjustments of
investment securities
and the ACL).
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
market.
The
Consumer
(Retail)
Banking
segment
includes the
Corporation’s
consumer lending,
commercial lending
to small
businesses, commercial
transaction banking,
and deposit-
taking activities
primarily conducted
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 government sector.
The Commercial and Corporate Banking segment
consists of the Corporation’s
commercial lending (other than
small
business
commercial
loans)
and
commercial
deposit-taking
activities
(other
than
the
government
sector).
The
Treasury
and
Investments segment
is responsible for
the Corporation’s
investment portfolio
and treasury functions
that are executed
to manage and
enhance
liquidity.
Under
the
Corporation’s
fund
transfer
pricing
(“FTP”)
methodology,
the
Treasury
and
Investments
segment
centrally
manages
funding
by
providing
funds
to
the
Mortgage
Banking,
Consumer
(Retail)
Banking,
Commercial
and
Corporate
Banking, United States
Operations, and Virgin
Islands Operations segments
to support their lending
activities and compensating
these
units
for
deposits
gathered.
The
mismatch
between
funds
provided
and
funds
used
is
managed
by
the
Treasury
and
Investments
segment.
The
funds
transfer
pricing
charged
or
credited
are
calculated
using
the
SOFR/swap
curve
with
term
rates,
adjusted
for
a
funding
spread
that
reflects
the
Corporation’s
cost
of
funds.
The
methodology,
which
is
performed
based
on
matched
maturity
funding,
ensures a
market-based
allocation of
funding costs
and credits,
impacting segment
profitability
by aligning
internal pricing
with external market conditions. 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.
During the
fourth quarter of
2024, the
Corporation adopted ASU
2023-07. In
addition, as part
of the Corporation’s
ongoing efforts
to
enhance
internal
reporting,
in
the
fourth
quarter
of
2024,
the
Corporation
refined
its
segment
performance
methodology.
These
refinements align with improvements in internal reporting. Key changes
included the following:
Support units and Overhead
Expense Allocations
segments
due
to
limitations
in
identifying
appropriate
cost
drivers.
With
enhanced
granularity
in
expense
drivers,
the
Corporation
implemented a refined
allocation methodology based
on specific usage,
allowing for a reasonable
allocation of these
expenses to each
reportable
segment.
This
change
resulted
in
a
decrease
in
segment
income
across
business
lines,
as
expenses
that
were
previously
excluded from segment reporting are now appropriately allocated.
Recharacterization
of Certain
Business Products
and
Enhancements
to FTP
– Previously,
certain
commercial
and
retail business
products were
reported under
the segment
where the
product is reported
for purposes of
credit-risk oversight,
rather than the
segment
responsible for
the customer
relationship and
overall business
results. The
shift from
commercial products
to retail
business products
aligns
product
classification
with
the
business
unit
managing
the
customer
relationship.
Also,
the
Corporation
refined
its
FTP
methodology
to
better
reflect
the
cost
of
funds
and
transfer
pricing
mechanics
across
business
lines
and
recharacterization.
These
refinements resulted
in adjustments
to the
FTP charges
and credits,
improving the
comparability of
segment results.
Specifically,
the
Corporation
transitioned to
a SOFR/swap
curve with
term rates-based
approach, replacing
the previous
methodology that
was based
on historical
market rates
tied to
the portfolio
type of
each segment.
In the aggregate,
due to
the above,
this resulted
in lower
income
from
funds
loaned
to
other
business
segments
in
the
Consumer
(Retail)
Banking
Segment
and
a
related
impact
on
the
remaining
segments.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
215
To ensure comparability,
prior period segment results have been recast to reflect these refinements.
See Note 1 – “Nature of Business and Summary of Significant
Accounting Policies” for the accounting policies of the
segments and
information related to the adoption of ASU 2023-07.
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)
Year Ended December
31, 2024
Interest income
$
$
$
$
$
$
$
Net (charge) credit for transfer of funds
(
54,734
)
(
78,291
)
(
184,627
)
(
7,215
)
Interest expense
(
156,983
)
(
15,936
)
(
44,258
)
(
61,434
)
(
9,063
)
(
287,674
)
Net interest income (loss)
(
112,151
)
Provision for credit losses - (benefit) expense
(
15,526
)
(
12,928
)
(
50
)
(
6,661
)
(
229
)
Non-interest income
Non-interest expenses:
(
5,553
)
(
51
)
(
2,483
)
(
4
)
(
7,474
)
(1)
$
$
$
$
(
120,843
)
$
$
$
Average interest-earning assets
$
$
$
$
$
$
$
Mortgage
Banking
Consumer
(Retail) Banking
Commercial and
Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Year Ended December
31, 2023
Interest income
$
$
$
$
$
$
$
Net (charge) credit for transfer of funds
(
51,380
)
(
71,813
)
(
111,433
)
(
12,830
)
Interest expense
(
120,705
)
(
15,091
)
(
36,893
)
(
48,862
)
(
4,825
)
(
226,376
)
Net interest income (loss)
(
31,944
)
Provision for credit losses - (benefit) expense
(
7,908
)
(
5,997
)
Non-interest income
Non-interest expenses:
(
7,305
)
(
58
)
(
150
)
(
7,138
)
(1)
$
$
$
$
(
38,432
)
$
$
$
Average interest-earning assets
$
$
$
$
$
$
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
216
Mortgage
Banking
Consumer
(Retail) Banking
Commercial and
Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Year ended December
31, 2022:
Interest income
$
$
$
$
$
$
$
Net (charge) credit for transfer of funds
(
52,746
)
(
30,130
)
(
96,178
)
(
9,065
)
Interest expense
(
30,301
)
(
3,620
)
(
20,777
)
(
11,549
)
(
1,074
)
(
67,321
)
Net interest income (loss)
(
13,964
)
Provision for credit losses - (benefit) expense
(
7,936
)
(
17,759
)
(
434
)
(
3,073
)
Non-interest income
(
161
)
Non-interest expenses:
(
6,391
)
(
172
)
(
5,826
)
(1)
$
$
$
$
(
22,687
)
$
$
$
Average interest-earning assets
$
$
$
$
$
$
$
(1)
Consists of communication expenses and the expense categories included
in Note 19 - “Other Non-Interest Expenses.”
The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods:
Year Ended
December 31,
2024
2023
2022
(In thousands)
Average assets:
Total average interest-earning assets for segments
$
$
$
Average non-interest-earning assets
(1)
$
$
$
(1)
Includes, among other things, non-interest-earning cash, premises
and equipment, net deferred tax asset, ROU assets, and accrued interest receivable
on loans and investments.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
217
The following table presents revenues (interest income plus non-interest income) and selected balance sheet data by geography based on the
location in which the transaction was originated as of the indicated dates:
2024
2023
2022
(In thousands)
Revenues:
$
$
$
$
$
$
Selected Balance Sheet Information:
Total assets:
$
$
$
Loans:
$
$
$
Deposits:
(1)
$
$
$
(2)
(1)
For 2024, 2023, and 2022, includes $
(2)
For 2024, 2023, and 2022, includes $
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
218
NOTE 26 – SUPPLEMENTAL
STATEMENT
OF CASH FLOWS INFORMATION
Supplemental statement of cash flows information is as follows for the indicated
periods:
Year Ended
December 31,
2024
2023
2022
(In thousands)
Cash paid for:
$
$
$
Non-cash investing and financing activities:
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
219
NOTE 27 – REGULATORY
MATTERS, COMMITMENTS
AND CONTINGENCIES
Regulatory Matters
The
Corporation
and
FirstBank
are
each
subject
to
various
regulatory
capital
requirements
imposed
by
the
U.S.
federal
banking
agencies. Failure
to meet
minimum capital
requirements can
result in
certain mandatory
and possibly
additional discretionary
actions
by regulators
that, if
undertaken, could
have a
direct material
adverse effect
on the
Corporation’s
financial statements
and activities.
Under
capital
adequacy
guidelines
and
the
regulatory
framework
for
prompt
corrective
action,
the
Corporation
must
meet
specific
capital
guidelines
that
involve
quantitative
measures
of
the Corporation’s
and
FirstBank’s
assets,
liabilities,
and
certain
off-balance
sheet items
as calculated
under regulatory
accounting practices.
The Corporation’s
capital amounts
and classification
are also
subject
to qualitative judgments and
adjustment by the regulators with respect
to minimum capital requirements, components,
risk weightings,
and other factors.
As of December
31, 2024 and
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
December 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
%
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
% 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
%
per
year
beginning
on
January
1,
2022
over
a
three-year
period,
resulting
in
a
total
transition period
of five years.
Accordingly,
as of December
31, 2024, the
capital measures of
the Corporation and
the Bank included
$
% of
the increase
in the
ACL (as
defined in
the
interim
final
rule)
from
January
1,
2020
to
December
31,
2021,
and
$
2025.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
220
The regulatory capital position
of the Corporation and
FirstBank as of December
31, 2024 and 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 December 31, 2024
Total Capital (to Risk-Weighted
Assets)
$
%
$
%
N/A
N/A
$
%
$
%
$
%
CET1 Capital (to Risk-Weighted Assets)
$
%
$
%
N/A
N/A
$
%
$
%
$
%
Tier I Capital (to Risk-Weighted
Assets)
$
%
$
%
N/A
N/A
$
%
$
%
$
%
Leverage ratio
$
%
$
%
N/A
N/A
$
%
$
%
$
%
As of December 31, 2023
Total Capital (to Risk-Weighted
Assets)
$
%
$
%
N/A
N/A
$
%
$
%
$
%
CET1 Capital (to Risk-Weighted Assets)
$
%
$
%
N/A
N/A
%
$
%
$
%
$
%
Tier I Capital (to Risk-Weighted
Assets)
$
%
$
%
N/A
N/A
$
%
$
%
$
%
Leverage ratio
$
%
$
%
N/A
N/A
$
%
$
%
$
%
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
221
Cash Restrictions
Cash and
cash
equivalents
include
amounts
segregated
for
regulatory
purposes.
The
Corporation’s
bank
subsidiary,
FirstBank,
is
required
by
the
Puerto
Rico
Banking
Law
to
maintain
minimum
average
weekly
reserve
balances
to
cover
demand
deposits.
The
amount of
those minimum average
weekly reserve balances
was $
As of December 31,
2024 and 2023,
the Bank complied
with the requirement.
Cash and due
from banks as
well as other
highly liquid
securities are used to cover the required average reserve balances.
As of December
31, 2024, and
as required by
the Puerto Rico
International Banking
Law,
the Corporation maintained
$
in time deposits, related to FirstBank Overseas Corporation, an international
banking entity that is a subsidiary of FirstBank.
Commitments
The
Corporation’s
exposure
to
credit
loss
in
the
event
of
nonperformance
by
the
other
party
to
the
financial
instrument
on
commitments to extend credit
and standby letters of credit
is represented by the contractual amount
of those instruments. Management
uses the same
credit policies
and approval process
in entering into
commitments and
conditional obligations
as it does
for on-balance
sheet instruments.
Commitments to extend
credit are agreements
to lend to
a customer as long
as there is no
violation of any
conditions established in
the contract. Commitments generally have fixed expiration
dates or other termination clauses. Since certain commitments
are expected
to expire
without being
drawn upon,
the total
commitment amount
does not
necessarily represent
future cash
requirements. For
most
of the commercial
lines of credit,
the Corporation
has the option
to reevaluate
the agreement prior
to additional disbursements.
In the
case of credit cards and personal lines of credit, the Corporation can cancel the unused credit facility
at any time and without cause.
In
general,
commercial
and
standby
letters
of
credit
are
issued
to
facilitate
foreign
and
domestic
trade
transactions.
Normally,
commercial and standby
letters of credit
are short-term commitments
used to finance
commercial contracts for
the shipment of goods.
The
collateral
for
these
letters
of
credit
includes
cash
or
available
commercial
lines
of
credit.
The
fair
value
of
commercial
and
standby letters
of credit
is based
on the
fees currently
charged for
such agreements,
which, as
of December
31, 2024
and 2023,
were
not significant.
The following table summarizes commitments to extend credit and standby letters of
credit as of the indicated dates:
December 31,
2024
2023
(In thousands)
Financial instruments whose contract amounts represent credit risk:
$
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
222
Contingencies
As of
December 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,
advice
from
legal
counsel,
and
available
insurance
coverage.
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 complexity of the facts, the
novelty of the legal theories, 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,
it may
take months
or
years after the filing of
a case or commencement of
a proceeding or an investigation
before an estimate of the
reasonably possible loss
can
be
made
and
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,
including
tax
contingencies,
the
Corporation
discloses an
estimate of
the possible
loss or
range of
loss, either
individually or
in the
aggregate, as
appropriate, if
such an
estimate
can be made,
or discloses that
an estimate cannot
be made. Based
on the Corporation’s
assessment as of
December 31, 2024,
no such
disclosures were necessary.
In 2023,
the FDIC
issued a
final rule
to impose
a special
assessment to
recover
certain estimated
losses to
the Deposit
Insurance
Fund (“DIF”)
arising from
the closures
of Silicon
Valley
Bank and
Signature Bank.
The estimated
losses will
be recovered
through
quarterly
special assessments
collected from
certain insured
depository
institutions, including
the Bank,
and collection
began
during
the quarter ended
June 30, 2024.
As such, during
the years ended
December 31, 2024
and 2023, the
Corporation recorded charges
of
$
of December 31, 2024, the Corporation’s
total estimated FDIC special assessment amounted to $
been paid.
The Corporation
continues to
monitor the
FDIC’s
estimated loss
to the
DIF,
which could
affect the
amount of
its accrued
liability.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
223
NOTE 28 – FIRST BANCORP.
(HOLDING COMPANY
ONLY) FINANCIAL
INFORMATION
The following condensed
financial information presents
the financial position
of First BanCorp.
at the holding
company level only
as of December
31, 2024 and
2023, and the
results of its operations
and cash flows
for the years
ended December 31,
2024, 2023 and
2022:
Statements of Financial Condition
As of December 31,
2024
2023
(In thousands)
Assets
Cash and due from banks
$
$
Other investment securities
Investment in First Bank Puerto Rico, at equity
Investment in First Bank Insurance Agency,
at equity
Investment in FBP Statutory Trust I
Investment in FBP Statutory Trust II
(1)
Dividends receivable
Other assets
Total assets
$
$
Liabilities and Stockholders’ Equity
Liabilities:
Long-term borrowings
(1)
$
$
Accounts payable and other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’
equity
$
$
(1)
During 2024, the
Corporation redeemed $
%, of outstanding TruPS
issued by FBP Statutory
Trust II (or
$
Trust of approximately $
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
224
Statements of Income
Year
Ended December 31,
2024
2023
2022
(In thousands)
Income
$
$
$
Expense
Income before income taxes and equity
Income tax expense
Equity in undistributed earnings of subsidiaries
(
8,603
)
(
15,705
)
(
53,941
)
Net income
$
$
$
Other comprehensive income (loss), net of tax
(
720,779
)
Comprehensive income (loss)
$
$
$
(
415,707
)
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
225
Statements of Cash Flows
Year Ended December 31,
2024
2023
2022
(In thousands)
Cash flows from operating activities:
Net income
$
$
$
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation
Equity in distributions in excess of earnings of subsidiaries
Gain on early extinguishment of debt
(
1,605
)
Net increase in other assets
(
2
)
(
146
)
(
688
)
Net decrease in other liabilities
(
201
)
(
1,998
)
(
1,902
)
Cash flows from investing activities:
Purchase of equity securities
(
450
)
(
90
)
(
450
)
Return of capital from wholly-owned subsidiaries
(1)
(
450
)
(
90
)
Cash flows from financing activities:
Repurchase of common stock
(
102,393
)
(
203,241
)
(
277,769
)
Repayment of junior subordinated debentures
(
97,000
)
(
19,795
)
Dividends paid on common stock
(
105,581
)
(
99,666
)
(
87,824
)
(
304,974
)
(
322,702
)
(
365,593
)
Net increase (decrease) in cash and cash equivalents
(
7,827
)
(
1,472
)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
$
$
Cash and cash equivalents include:
Cash and due from banks
$
$
$
Money market instruments
$
$
$
During 2022, FirstBank, a
wholly-owned subsidiary of First BanCorp.,
redeemed
$
226
Item 9. Changes in and Disagreements with Accountants on Accounting
and
Financial Disclosures
None.
Item 9A. 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 Rule
13a-15(e) and
15d-15(e) under
the Exchange
Act) as
of the
end of the period covered
by this Form 10-K. Based
on this evaluation as of
the period covered by this
Form 10-K, our CEO and CFO
concluded
that
the
Corporation’s
disclosure
controls
and
procedures
were
effective
and
provide
reasonable
assurance
that
the
information
required
to
be
disclosed
by
the
Corporation
in
reports
that
the
Corporation
files
or
submits
under
the
Exchange
Act
is
recorded,
processed,
summarized
and
reported
within
the
time
periods
specified
in
SEC
rules
and
forms
and
is
accumulated
and
reported to
the Corporation’s
management,
including the
CEO and
CFO, as
appropriate to
allow timely
decisions regarding
required
disclosure.
Management’s Report on Internal Control
over Financial Reporting
Management’s
Report
on
Internal
Control
over
Financial
Reporting
is
included
in
Part
II,
Item
8
of
this
Form
10-K
and
incorporated herein by reference.
The effectiveness of the Corporation’s
internal control over financial reporting as of December
31, 2024 has been audited by Crowe
LLP,
an independent
registered public
accounting firm,
as stated
in their
report included
in Part
II, Item
8 of
this Annual
Report on
Form 10-K.
Changes in Internal Control over Financial Reporting
There have
been 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
December
31,
2024
that
have
materially
affected,
or
are
reasonably likely to materially affect, the Corporation’s
internal control over financial reporting.
Item 9B. Other Information
Rule 10b5-1 Trading Arrangements
During
the
quarter
ended
December
31,
2024,
none
of
the
Company’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.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
227
PART
III
Item 10. Directors, Executive Officers and Corporate Governance
Except
as
stated
below,
information
in
response
to
this
item
is
incorporated
herein
by
reference
from
the
sections
entitled
“Information
With
Respect
to
Nominees
Standing
for
Election
as
Directors
and
With
Respect
to
Executive
Officers
of
the
Corporation,”
“Corporate
Governance
and
Related
Matters,”
“Delinquent
Section
16(a)
Reports”
and
“Audit
Committee
Report”
contained
in
First
BanCorp.’s
definitive
Proxy
Statement
for
use
in
connection
with
its 2025
Annual
Meeting
of
Stockholders
(the
“2025 Proxy Statement”) to be filed with the SEC within 120 days of December
31, 2024.
The Company
has adopted
insider trading
policies and
procedures regarding
securities transactions
(the “Insider
Trading
Policy”)
that
apply
to
all
officers,
directors,
employees,
consultants
and
contractors
of
the
Company
and
its
subsidiaries,
as
well
as
the
Company
itself.
The
Company
believes
that
the
Insider
Trading
Policy
is
reasonably
designed
to
promote
compliance
with
insider
trading laws,
rules and regulations
with respect to
the purchase,
sale and/or
other dispositions
of the Company’s
securities, as well
as
the applicable rules
and regulations of
the New York
Stock Exchange. A
copy of the
Insider Trading
Policy is filed
as Exhibit 19.1
to
this Annual Report on Form 10-K.
Item 11. Executive Compensation.
Information
in
response
to
this
item
is
incorporated
herein
by
reference
from
the
sections
entitled
“Compensation
Committee
Interlocks
and
Insider
Participation,”
“Compensation
of
Directors,”
“Non-Management
Chairman
and
Specialized
Expertise,”
“Executive Compensation Disclosure –
Compensation Discussion and Analysis,”
“Executive Compensation Tables
and Compensation
Information” “Compensation Committee Report” in the 2025 Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
existing equity compensation plan as of December 31, 2024:
Plan category
(a)
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights
(b)
Weighted Average Exercise
Price of Outstanding
Options, Warrants and
Rights
(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
Equity compensation plans, approved by stockholders
549,032
(1)
$
-
2,587,453
(2)
Equity compensation plans not approved by stockholders
N/A
N/A
N/A
Total
549,032
$
-
2,587,453
(1)
Amount represents unvested performance-based
units granted to executives, with each
unit representing one share of the
Corporation's common stock.
Performance shares will vest
on the
achievement of a
pre-established performance
target goal at
the end of
a three-year performance
period. See Note
14 - “Stock-Based
Compensation” to the
audited consolidated financial
statements included in Part II, Item 8 of this Form 10-K for more
information on performance units.
(2)
Securities available
for future
issuance under
the First
BanCorp. Omnibus
Incentive Plan,
as amended
(the “Omnibus
Plan”), which
is effective
until May
24, 2026.
The Omnibus
Plan
provides for equity-based compensation incentives
through the grant of stock options,
stock appreciation rights, restricted stock,
restricted stock units, performance shares,
and other stock-
based awards.
As amended,
the Omnibus
Plan provides
for the
issuance of
up to
14,169,807 shares
of common
stock, subject
to adjustments
for stock
splits, reorganization
and other
similar events.
Additional
information
in
response
to
this
item
is
incorporated
by
reference
from
the
section
entitled
“Security
Ownership
of
Certain Beneficial Owners and Management” in the 2025 Proxy
Statement.
Item 13. Certain Relationships and Related Transactions,
and Director Independence
Person Transactions” and “Corporate
Governance and Related Matters” in the 2025 Proxy Statement.
228
Item 14. Principal Accountant Fees and Services.
Audit Fees
Information
in
response
to
this
item
is
incorporated
herein
by
reference
from
the
section
entitled
“Audit
Fees”
and
“Audit
Committee Report” in the 2025 Proxy Statement.
PART
IV
Item 15. Exhibits and Financial Statement Schedules
(1)
Financial Statements.
The
following
consolidated
financial
statements
of
First
BanCorp.,
together
with
the
reports
thereon
of
First
BanCorp.’s
independent
registered public
accounting
firm, Crowe
LLP (PCAOB
ID No.
173),
dated February
28, 2025,
are included
in Part
II,
Item 8 of this Form 10-K:
– Report of Crowe LLP,
Independent Registered Public Accounting Firm.
– Attestation Report of Crowe LLP,
Independent Registered Public Accounting Firm on Internal Control
over Financial
Reporting.
– Consolidated Statements of Financial Condition as of December
31, 2024 and 2023.
– Consolidated Statements of Income for Each of the Three Years
in the Period Ended December 31, 2024.
– Consolidated Statements of Comprehensive Income (Loss) for
Each of the Three Years
in the Period Ended December 31,
2024.
– Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended December 31, 2024.
– Consolidated Statements of Changes in Stockholders’ Equity for
Each of the Three Years
in the Period Ended December 31,
2024.
– Notes to the Consolidated Financial Statements.
(2)
Financial statement schedules.
All financial schedules have been omitted because they are not applicable
or the required information is shown in the financial
statements or notes thereto.
herein by reference.
Item 16. Form 10-K Summary
Not applicable.
229
EXHIBIT INDEX
Exhibit No.
Description
3.1
3.2
4.1
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
18.1
19.1
21.1
23.1
31.1
31.2
32.1
32.2
97.1
101.INS
Inline XBRL Instance Document, filed herewith. The
instance document does not appear in the interactive
data file because
its XBRL tags are embedded within the inline XBRL
document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document, filed herewith
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document, filed herewith
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith
101.DEF
Inline XBRL Taxonomy Extension Definitions Linkbase Document, filed herewith
104
The cover page of First BanCorp. Annual Report on Form
10-K for the year ended December 31, 2024, formatted in Inline
XBRL (included within the Exhibit 101 attachments)
_________________________________________________________
*Management contract or compensatory plan or agreement.
230
SIGNATURES
Pursuant to the requirements of
the Securities Exchange Act of
1934, the Corporation has
duly caused this report to
be signed on its behalf
by the
undersigned hereunto duly authorized.
FIRST BANCORP.
/s/ Aurelio Alemán
Date: 2/28/2025
Aurelio Alemán
President, Chief Executive Officer and Director
Pursuant
to
the
requirements
of
the
Securities
Exchange
Act
of
1934,
this
report
has
been
signed
by
the
following
persons
on
behalf
of
the
registrant and in the capacities and on the dates indicated.
/s/ Aurelio Alemán
Date: 2/28/2025
Aurelio Alemán
President, Chief Executive Officer and Director
/s/ Orlando Berges
Date: 2/28/2025
Orlando Berges, CPA
Executive Vice President and Chief Financial Officer
/s/ Roberto R. Herencia
Date: 2/28/2025
Roberto R. Herencia,
Director and Chairman of the Board
/s/ Patricia M. Eaves
Date: 2/28/2025
Patricia M. Eaves,
Director
/s/ Luz A. Crespo
Date: 2/28/2025
Luz A. Crespo,
Director
/s/ Juan Acosta-Reboyras
Date: 2/28/2025
Juan Acosta-Reboyras,
Director
/s/ John A. Heffern
Date: 2/28/2025
John A. Heffern,
Director
/s/ Daniel E. Frye
Date: 2/28/2025
Daniel E. Frye,
Director
/s/ Tracey Dedrick
Date: 2/28/2025
Tracey Dedrick,
Director
/s/ Felix Villamil
Date: 2/28/2025
Felix Villamil,
Director
/s/ Said Ortiz
Date: 2/28/2025
Said Ortiz, CPA
Senior Vice President and Chief Accounting Officer
TABLE OF CONTENTS
Part IPart IIItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataNote 1 Nature Of Business and Summary Of Significant Accounting PoliciesNote 2 Money Market.investmentsNote 2 Money MarketNote 3 Debt SecuritiesNote 4 Loans Held For InvestmentNote 5 Allowance For Credit Losses For Loans and Finance LeasesNote 6 Premises and Equipment Premises and Equipment Comprise:Note 6 Premises and EquipmentNote 7 Other Real Estate Owned ( Oreo )Note 8 Related-party TransactionsNote 9 Goodwill and Other IntangiblesNote 10 Non-consolidated Variable Interest Entities ( Vies ) and Servicing AssetsNote 11 DepositsNote 12 BorrowingsNote 13 Earnings Per Common.shareNote 13 Earnings Per CommonNote 14 Stock-based.compensationNote 14 Stock-basedNote 15 Stockholders EquityNote 16 Accumulated Other Comprehensive LossNote 17 Employee Benefit PlansNote 18 Other Non-interest IncomeNote 19 Other Non-interest ExpensesNote 20 Income TaxesNote 21 Operating LeasesNote 22 Derivative Instruments and Hedging ActivitiesNote 23 Fair ValueNote 24 Revenue From Contracts with CustomersNote 25 Segment InformationNote 26 Supplemental Statement Of Cash Flows InformationNote 27 Regulatory Matters, Commitments and ContingenciesNote 28 First Bancorp. (holding Company Only) Financial InformationItem 9. Changes in and Disagreements with Accountants on Accounting andItem 9A. Controls and ProceduresItem 9B. Other InformationItem 9C. Disclosure Regarding Foreign Jurisdictions That Prevent InspectionsPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement SchedulesItem 8 Of This Form 10-k:Item 16. Form 10-k Summary