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)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
or
[ ]
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.)
,
,
(Address of principal executive offices)
(Zip Code)
(
)
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject
to such filing requirements for the past 90
days.
☑
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
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to
use the extended transition period for complying with any
new or revised
financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act.
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
☑
Indicate the number of shares outstanding of each of the
issuer’s classes of common stock, as of the latest practicable date.
Common stock:
2
FIRST BANCORP.
INDEX PAGE
PART
I. FINANCIAL INFORMATION
PAGE
Item 1.
Financial Statements:
Consolidated
Statements
of
Financial
Condition
(Unaudited)
as
of
September
30,
2024
and
December 31, 2023
Consolidated
Statements
of
Income
(Unaudited)
–
Quarters
and
Nine-Month
Periods
ended
September 30, 2024 and 2023
Consolidated
Statements
of
Comprehensive
Income
(Unaudited)
–
Quarters
and
Nine-Month
Periods ended September 30, 2024 and 2023
Consolidated
Statements
of
Cash
Flows
(Unaudited)
–
Nine-Month
Periods
ended
September
30, 2024 and 2023
Consolidated Statements
of Changes in
Stockholders’ Equity (Unaudited)
– Quarters and
Nine-
Month Periods ended September 30, 2024 and 2023
Notes to Consolidated Financial Statements (Unaudited)
Item 2.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
PART
II. OTHER INFORMATION
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Item 5.
Unregistered Sales of Equity Securities and Use of Proceeds
Other Information
Item 6.
Exhibits
SIGNATURES
3
Forward-Looking Statements
This Quarterly
Report on
Form 10-Q
(this “Form
10-Q”) contains
forward-looking statements
within the
meaning of
Section 27A
of the Securities Act of 1933, as
amended (the “Securities Act”), and
Section 21E of the Securities Exchange
Act of 1934, as amended
(the “Exchange Act”),
which are subject to
the safe harbor created
by such sections. When
used in this Form
10-Q or future filings
by
First
BanCorp.
(the
“Corporation,”
“we,”
“us,”
or
“our”)
with
the
U.S.
Securities
and
Exchange
Commission
(the
“SEC”),
in
the
Corporation’s press
releases or in other public or
stockholder communications made by
the Corporation, or in oral statements
made on
behalf
of
the
Corporation
by,
or
with
the
approval
of,
an
authorized
executive
officer
of
the
Corporation,
the
words
or
phrases
“would,”
“intends,”
“will,”
“expect,”
“should,”
“plans,”
“forecast,”
“anticipate,”
“look
forward,”
“believes,”
and
other
terms
of
similar meaning or import, or the
negatives of these terms or variations
of them, in connection with
any discussion of future operating,
financial or other performance are meant to identify “forward-looking
statements.”
The Corporation cautions readers
not to place undue reliance on
any such “forward-looking statements,” which
speak only as of the
date made
or,
with respect
to such
forward-looking statements
contained in
this Form
10-Q, the
date hereof,
and advises
readers that
any such
forward-looking statements
are not
guarantees of
future performance
and involve
certain risks,
uncertainties, estimates,
and
assumptions
by us
that are
difficult
to predict
.
Various
factors, some
of which
are beyond
our
control,
could cause
actual results
to
differ materially from those expressed in, or implied
by, such forward-looking
statements.
statements include, but are not
limited to, risks described or
referenced in Part I, Item 1A,
“Risk Factors,” in the Corporation’s
Annual
Report on Form 10-K for the fiscal year ended December 31, 2023 (the
“2023 Annual Report on Form 10-K”), Part II, Item 1A., “Risk
Factors,” in the Corporation’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2024, and the following:
●
the effect
of the current
global interest rate
environment (including
the potential for
ongoing reductions
in interest rates)
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;
●
the effects
of changes in the interest rate environment, including any
adverse change in the Corporation’s
ability to attract and
retain
clients
and
gain
acceptance
from
current
and
prospective
customers
for
new
and
existing
products
and
services,
including those related to the offering of digital banking
and financial services;
●
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,
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;
4
●
general
competitive
factors
and
other
market
risks
as
well
as
the
implementation
of
existent
or
planned
strategic
growth
opportunities,
including
risks,
uncertainties,
and
other
factors
or
events
related
to
any
business
acquisitions,
dispositions,
strategic
partnerships,
strategic
operational
investments,
including
systems
conversions,
and
any
anticipated
efficiencies
or
other expected results related thereto;
●
uncertainty as
to the
implementation of
the debt
restructuring plan
of Puerto
Rico (“Plan
of Adjustment”
or “PoA”)
and the
fiscal
plan
for
Puerto
Rico
as certified
on
June 5,
2024
(the “2024
Fiscal Plan”)
by
the oversight
board
established
by the
Puerto Rico
Oversight,
Management, and
Economic Stability
Act (“PROMESA”),
or any
revisions to
it, on
our clients
and
loan portfolios, and any potential impact from future economic or political
developments and tax regulations in Puerto Rico;
●
the
impact
of
changes
in
accounting
standards,
or
determinations
and
assumptions
in
applying
those
standards,
and
of
forecasts of economic variables considered for the determination of
the allowance for credit losses (“ACL”);
●
the ability of FirstBank to realize the benefits of its net deferred tax assets;
●
the ability of FirstBank to generate sufficient cash flow to pay dividends
to the Corporation;
●
environmental, social, and governance matters, including our
climate-related initiatives and commitments;
●
the impacts of natural
or man-made disasters, widespread
health emergencies, geopolitical
conflicts (including sanctions, war
or armed conflict, such as
the ongoing conflict in Ukraine,
the conflict in the Middle
East, and the possible expansion
of such
conflicts in surrounding areas and
potential geopolitical consequences), terrorist
attacks, or other catastrophic external events,
including impacts
of such
events on
general economic
conditions and
on the
Corporation’s
assumptions regarding
forecasts
of economic variables;
●
the
risk
that
additional
portions
of
the
unrealized
losses in
the
Corporation’s
debt
securities portfolio
are
determined
to
be
credit-related, resulting
in additional
charges to
the provision
for credit
losses on
the Corporation’s
debt securities
portfolio,
and
the potential
for additional
credit losses
that could
emerge
from 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,
potential
government
shutdowns, and
political impasses,
including
uncertainties
regarding
the U.S.
debt ceiling
and federal
budget,
as
well
as
the
change
in
administration
as
a
result
of
the
2024
U.S.
and
Puerto
Rico
general
elections,
on
the
Corporation’s financial
condition or performance;
●
the
risk
of
possible
failure
or
circumvention
of
the
Corporation’s
internal
controls
and
procedures
and
the
risk
that
the
Corporation’s risk management
policies may not be adequate;
●
the risk that the FDIC may
further increase the deposit insurance
premium and/or require further special
assessments, causing
an additional increase in the Corporation’s
non-interest expenses;
●
any need to recognize impairments on the Corporation’s
financial instruments, goodwill, and other intangible assets;
●
the risk
that the
impact
of the
occurrence
of any
of these
uncertainties on
the Corporation’s
capital would
preclude
further
growth of FirstBank and preclude the Corporation’s
Board of Directors (the “Board”) from declaring dividends; and
●
uncertainty as
to whether
FirstBank will
be able
to continue
to satisfy
its regulators
regarding,
among other
things, its
asset
quality,
liquidity
plans,
maintenance
of
capital
levels,
and
compliance
with
applicable
laws,
regulations
and
related
requirements.
reflect
occurrences
or
unanticipated
events
or
circumstances
after
the
date
of
such
statements,
except
as
required
by
the
federal
securities laws.
5
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
September 30, 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 advances from the FHLB
Other long-term borrowings
Accounts payable and other liabilities
Total liabilities
Commitments and contingencies (See Note 21)
(nil)
(nil)
STOCKHOLDERS’ EQUITY
Common stock, $
shares outstanding as of September 30, 2024 and
Additional paid-in capital
Retained earnings, includes legal surplus reserve of $
Treasury stock (at cost),
(
790,252
)
(
697,406
)
Accumulated other comprehensive loss, net of tax of $
(
483,621
)
(
639,170
)
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
The accompanying notes are an integral part of these statements.
6
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2024
2023
2024
2023
(In thousands, except per share information)
Interest and dividend income:
$
$
$
$
Interest expense:
Provision for credit losses - expense (benefit):
(
1,041
)
(
128
)
(
1,177
)
(
184
)
(
6,119
)
(
1,123
)
(
6,029
)
Non-interest income:
Non-interest expenses:
(
1,339
)
(
2,153
)
(
6,400
)
(
6,133
)
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.
7
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2024
2023
2024
2023
(In thousands)
Net income
$
$
$
$
Other comprehensive income (loss), net of tax:
Available-for-sale debt securities:
Net unrealized holding gains (losses) on debt securities
(
78,976
)
(
46,585
)
Other comprehensive income (loss) for the period
(
78,976
)
(
46,585
)
Total comprehensive income
$
$
$
$
(1)
Net unrealized holding
gains (losses) on
available-for-sale debt
securities have no
tax effect because
securities are either
tax-exempt, held by
an International Banking
Entity (“IBE”), or
have a full
deferred tax asset
valuation allowance.
The accompanying notes are an integral part of these statements.
8
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine-Month Period Ended September 30,
2024
2023
(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
(
232
)
(
464
)
Net gain on disposals or sales, and impairments of premises and
equipment and other assets
(
68
)
(
235
)
Net gain on sales of loans and loans held-for-sale valuation adjustments
(
2,864
)
(
1,422
)
Net amortization of discounts, premiums, and deferred loan fees
and costs
Originations and purchases of loans held for sale
(
116,430
)
(
125,886
)
Sales and repayments of loans held for sale
Amortization of broker placement fees
Net amortization of premiums and discounts on investment securities
Decrease in accrued interest receivable
Increase in accrued interest payable
(Increase) decrease in other assets
(
11,293
)
Decrease in other liabilities
(
558
)
(
39,810
)
Cash flows from investing activities:
Net disbursements on loans held for investment
(
365,298
)
(
485,198
)
Proceeds from sales of loans held for investment
Proceeds from sales of repossessed assets
Purchases of available-for-sale debt securities
(
44,063
)
(
5,458
)
Proceeds from principal repayments and maturities of available-for-sale
debt securities
Proceeds from principal repayments of held-to-maturity debt securities
Additions to premises and equipment
(
8,387
)
(
19,938
)
Proceeds from sales of premises and equipment and other assets
Net (purchases) redemptions of other investment securities
(
2,637
)
Proceeds from the settlement of insurance claims - investing activities
Cash flows from financing activities:
Net (decrease) increase in deposits
(
268,556
)
Net repayments of short-term borrowings
(
550,133
)
Repayments of long-term borrowings
(
48,500
)
(
19,795
)
Proceeds from long-term borrowings
Repurchase of outstanding common stock
(
102,369
)
(
126,918
)
Dividends paid on common stock
(
79,509
)
(
75,825
)
(
498,934
)
(
196,846
)
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of period
$
$
Cash and cash equivalents include:
Cash and due from banks
$
$
Money market investments
$
$
The accompanying notes are an integral part of these statements.
9
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
(Unaudited)
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2024
2023
2024
2023
(In thousands, except per share information)
Common Stock
$
$
$
$
Additional Paid-In Capital:
(
274
)
(
351
)
(
9,621
)
(
13,490
)
Retained Earnings:
(
1,357
)
(
26,288
)
(
24,867
)
(
79,716
)
(
75,575
)
Treasury Stock (at cost):
(
790,465
)
(
547,706
)
(
697,406
)
(
506,979
)
(
10
)
(
75,011
)
(
102,369
)
(
128,228
)
(
51
)
(
12
)
(
98
)
(
661
)
(
790,252
)
(
622,378
)
(
790,252
)
(
622,378
)
Accumulated Other Comprehensive Loss, net
of tax:
(
643,675
)
(
772,387
)
(
639,170
)
(
804,778
)
(
78,976
)
(
46,585
)
(
483,621
)
(
851,363
)
(
483,621
)
(
851,363
)
$
$
$
$
The accompanying notes are an integral part of these statements.
10
FIRST BANCORP.
INDEX TO NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
PAGE
Note 1 –
Basis of Presentation and Significant Accounting Policies
Note 2 –
Debt Securities
Note 3 –
Loans Held for Investment
Note 4
–
Allowance for Credit Losses for Loans and Finance Leases
Note 5 –
Other Real Estate Owned (“OREO”)
Note 6 –
Goodwill and Other Intangibles
Note 7 –
Non-Consolidated Variable Interest Entities (“VIEs”) and Servicing Assets
Note 8 –
Deposits
Note 9 –
Advances from the Federal Home Loan Bank (“FHLB”)
Note 10 –
Other Long-Term Borrowings
Note 11 –
Earnings per Common Share
Note 12 –
Stock-Based Compensation
Note 13 –
Stockholders’ Equity
Note 14 –
Accumulated Other Comprehensive Loss
Note 15 –
Employee Benefit Plans
Note 16 –
Income Taxes
Note 17
–
Fair Value
Note 18
–
Revenue from Contracts with Customers
Note 19 –
Segment Information
Note 20 –
Supplemental Statement of Cash Flows Information
Note 21 –
Regulatory Matters, Commitments, and Contingencies
Note 22 –
First BanCorp. (Holding Company Only) Financial Information
11
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS
(Unaudited)
NOTE 1 – BASIS
OF PRESENTATION AND
SIGNIFICANT
ACCOUNTING
POLICIES
The Consolidated
Financial Statements
(unaudited) for
the quarter
and nine-month
period ended
September 30,
2024 (the
“unaudited
consolidated financial
statements”) of
First BanCorp.
(the “Corporation”)
have been
prepared in
conformity with
the accounting
policies
stated
in
the
Corporation’s
Audited
Consolidated
Financial
Statements
for
the
fiscal
year
ended
December
31,
2023
(the
“audited
consolidated financial
statements”) included
in the
2023 Annual
Report on
Form 10-K,
as updated
by the
information contained
in this
report.
Certain
information
and
note
disclosures
normally
included
in
the
financial
statements
prepared
in
accordance
with
generally
accepted accounting principles in the United States of America
(“GAAP”) have been condensed or omitted from these statements pursuant
to
the
rules
and
regulations
of
the
SEC
and,
accordingly,
these
financial
statements
should
be
read
in
conjunction
with
the
audited
consolidated financial statements, which are included in the 2023 Annual Report on Form 10-K. All adjustments (consisting only of normal
recurring adjustments) that are, in the opinion of management,
necessary for a fair presentation of the statement of
financial position, results
of operations and cash flows
for the interim periods have
been reflected. All significant
intercompany accounts and transactions
have been
eliminated in consolidation. The Corporation evaluates subsequent events through
the date of filing with the SEC.
The results of operations for the quarter and nine-month period ended September 30, 2024 are not necessarily indicative of the results to
be expected
for the
entire
year.
Adoption of New Accounting Requirements
The Corporation was not impacted by the adoption
of the following Accounting Standards Updates (“ASUs”) during 2024:
●
ASU
2023-02,
“Investments
-
Equity
Method
and
Joint
Ventures
(Topic
323):
Accounting
for
Investments
in
Tax
Credit
Structures Using the Proportional Amortization Method”
●
ASU 2023-01, “Leases (Topic 842):
Common Control Arrangements”
●
ASU 2022-03,
“Fair Value
Measurements (Topic
820): Fair
Value Measurement
of Equity
Securities Subject
to Contractual
Sale Restrictions”
Recently Issued Accounting Standards Not Yet
Effective or Not Yet
Adopted
ASU
2024-03,
“Income
Statement
–
–
Expense
Disaggregation
Disclosures
(Subtopic
220-40):
Disaggregation of Income Statement Expenses”
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.
The
amendments
in
this
Update
should
be
applied
either
prospectively
to
financial
statements
issued
for
reporting
periods
after
the
effective date of
this Update or
retrospectively to any or
all prior periods
presented in the
financial statements and
are effective for annual
periods beginning after December 15, 2026, and interim periods beginning
after December 15, 2027.
ASU 2023-07,
“Segment
Reporting
(Topic 280): Improvements
to Reportable
Segment
Disclosure”
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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
12
The Corporation has carried out
the necessary data updates to be
able to include the above
information in its footnote disclosures
for all
periods presented. The Corporation does not expect adoption of the standard during
the fourth quarter of 2024 to have a material impact on
its consolidated financial statements.
The Corporation does not expect to be impacted by the following ASUs
issued during 2024 that are not yet effective
or have not yet been
adopted:
●
ASU 2024-02, “Codification Improvements – Amendments to
Remove References to the Concepts Statements”
●
ASU 2024-01, “Compensation – Stock Compensation (Topic 718):
Stock Application of Profits Interest and Similar Awards”
For
other
issued
accounting
standards
not
yet
effective
or
not
yet
adopted,
see
Note
1
–
“Nature
of
Business
and
Summary
of
Significant Accounting Policies”, to the audited consolidated financial
statements included in the 2023 Annual Report on Form 10-K.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
13
NOTE 2 – DEBT SECURITIES
Available-for-Sale
Debt Securities
The amortized
cost, gross
unrealized gains
and losses,
ACL, estimated
fair value,
and weighted-average
yield of
available-for-sale
debt securities by contractual maturities as of September 30, 2024 and
December 31, 2023 were as follows:
September 30, 2024
Amortized cost
(1)
Gross Unrealized
ACL
Fair Value
(2)
Weighted-
Gains
Losses
average yield%
(Dollars in thousands)
U.S. Treasury securities:
$
$
$
$
$
U.S. government-sponsored entities' (“GSEs”) obligations:
Puerto Rico government obligation:
(3)
United States and Puerto Rico government obligations
Mortgage-backed securities (“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
Puerto Rico Housing Finance Authority
(the “PRHFA”) that
is collateralized by certain
second mortgages originated under
a program launched by the
Puerto
Rico government in 2010 and is in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
14
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)
15
During
the
first
nine
months
of
2024,
the
Corporation
purchased
approximately
$
qualified investments, which were classified as available-for-sale debt securities,
and mainly consisted of commercial MBS.
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 September 30, 2024 and December 31, 2023. The tables also include debt
securities for which an ACL was recorded.
As of September 30, 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 September 30, 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)
16
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
September
30,
2024,
and
the
Corporation
expects
no
credit
losses
on
these securities, given
the explicit and
implicit guarantees
provided by
the U.S. federal
government. Because
the decline
in fair
value
is attributable to
changes in interest
rates, and not
credit quality,
and because,
as of September
30, 2024, the
Corporation did not
have
the intent to sell these U.S. government
and agencies debt securities and determined
that it was likely that it will not be
required to sell
these
securities
before
their
anticipated
recovery,
the
Corporation
does
not
consider
impairments
on
these
securities
to
be
credit
related. The Corporation’s
credit loss assessment was
concentrated mainly on
private label MBS and
on Puerto Rico government
debt
securities, for which credit losses are evaluated on a quarterly basis.
Private label MBS
held as part
of the Corporation’s
available for sale
portfolio consist of
trust certificates issued
by an unaffiliated
party
backed
by
fixed-rate,
single-family
residential
mortgage
loans
in
the
U.S.
mainland
with
original
FICO
scores
over
700
and
moderate
loan-to-value
ratios (under
%), 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
loss-given
default
(“LGDs”)
that
considered,
among
other
things, historical
payment performance,
loan-to-value attributes,
and relevant
current and
forward-looking
macroeconomic variables,
such as
regional unemployment
rates and
the housing
price index.
Under this
approach, expected
cash flows
(interest and
principal)
were discounted
at the U.S.
Treasury yield
curve as of
the reporting
date. See
Note 17
– “Fair Value
”
for the significant
assumptions
used in the valuation of the private label MBS as of September 30, 2024 and December
31 2023.
For the residential
pass-through MBS issued
by the PRHFA
held as part of
the Corporation’s
available-for-sale portfolio
backed by
second
mortgage
residential
loans
in
Puerto
Rico,
the
ACL
was
determined
based
on
a
discounted
cash
flow
methodology
that
considered the structure and
terms of the debt security.
The expected cash flows were
discounted at the U.S. Treasury
yield curve plus
a spread as
of the reporting date
and compared to
the amortized cost. The
Corporation utilized PDs and
LGDs that considered,
among
other
things,
historical
payment
performance,
loan-to-value
attributes,
and
relevant
current
and
forward-looking
macroeconomic
variables, such as
regional unemployment
rates, the housing
price index,
and expected recovery
from the PRHFA
guarantee. PRHFA,
not the
Puerto Rico
government, provides
a guarantee
in the event
of default
and subsequent
foreclosure of
the properties
underlying
the
second
mortgage
loans.
In
the
event
that
the
second
mortgage
loans
default
and
the
collateral
is
insufficient
to
satisfy
the
outstanding
balance
of
this
residential
pass-through
MBS,
PRHFA’s
ability
to
honor
such
guarantee
will
depend
on,
among
other
factors,
its
financial
condition
at
the
time
such
obligation
becomes
due
and
payable.
Deterioration
of
the
Puerto
Rico
economy
or
fiscal health of the PRHFA
could impact the value of this security,
resulting in additional losses to the Corporation.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
17
The following
tables present
a roll-forward
of the ACL
on available-for-sale
debt securities
by major
security type
for the quarters
and nine-month periods ended September 30, 2024 and 2023:
Quarter Ended September 30,
2024
2023
Private label
MBS
Puerto Rico
Government
Obligation
Total
Private label
MBS
Puerto Rico
Government
Obligation
Total
(In thousands)
Beginning balance
$
$
$
$
$
$
Provision for credit losses – (benefit) expense
(
36
)
(
36
)
Net recoveries
$
$
$
$
$
$
Nine-Month Period Ended September 30,
2024
2023
Private label
MBS
Puerto Rico
Government
Obligations
Total
Private label
MBS
Puerto Rico
Government
Obligations
Total
(In thousands)
Beginning balance
$
$
$
$
$
$
Provision for credit losses - (benefit) expense
(
45
)
(
45
)
Net recoveries
$
$
$
$
$
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
18
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 September 30, 2024
and December 31, 2023 were as follows:
September 30, 2024
Amortized cost
(1) (2)
Gross Unrecognized
Fair value
Weighted-
Gains
Losses
ACL
average yield%
(Dollars in thousands)
Puerto Rico municipal bonds:
Due within one year
$
$
$
$
$
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)
19
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)
20
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
September 30, 2024 and December 31, 2023, including debt securities for
which an ACL was recorded:
As of September 30, 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)
21
The
Corporation
classifies
the
held-to-maturity
debt
securities
portfolio
into
the
following
major
security
types:
MBS
issued
or
guaranteed by
GSEs and
underlying collateral
and Puerto
Rico municipal
bonds. The
Corporation does
not recognize
an ACL
for MBS
issued or guaranteed by GSEs since they are highly rated by major rating agencies and have a long history of no credit losses. In the case of
Puerto Rico municipal
bonds, the Corporation
determines the ACL
based on the product
of a cumulative
PD and LGD, and
the amortized
cost
basis
of
the
bonds
over
their
remaining
expected
life
as
described
in
Note
1
–
“Nature
of
Business
and
Summary
of
Significant
Accounting Policies,” to the audited financial statements included in the
2023 Annual Report on Form 10-K.
The Corporation
performs periodic
credit quality
reviews on
these issuers.
All of
the Puerto
Rico municipal
bonds were
current as
to
scheduled
contractual
payments
as
of
September
30,
2024.
The
ACL
of
Puerto
Rico
municipal
bonds
decreased
to
$
September 30, 2024, from $
during the first quarter of 2024.
nine-month periods ended September 30, 2024 and 2023:
Puerto Rico Municipal Bonds
Quarter Ended September 30,
2024
2023
(In thousands)
Beginning balance
$
$
Provision for credit losses – benefit
(
148
)
(
6,151
)
ACL on held-to-maturity debt securities
$
$
Puerto Rico Municipal Bonds
Nine-Month Period Ended September 30,
2024
2023
(In thousands)
Beginning Balance
$
$
Provision for credit losses - benefit
(
1,078
)
(
6,036
)
ACL on held-to-maturity debt securities
$
$
Municipalities, which are
covered instrumentalities under
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 September 30, 2024 and December 31, 2023, the
Corporation had
classified as cash and cash equivalents.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
22
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.
For
the
definitions
of
the
internal-credit
ratings,
see
Note
3
–
“Debt
Securities,”
to
the
audited
consolidated
financial statements included in the 2023 Annual Report on Form 10-K.
The
Corporation
periodically
reviews
its Puerto
Rico
municipal
bonds
to
evaluate
if
they are
properly
classified,
and to
measure
credit losses on
these securities. The
frequency of these
reviews will depend
on the amount
of the aggregate
outstanding debt, and
the
risk rating classification of the obligor.
The
Corporation
has
a
Loan
Review
Group
that
reports
directly
to
the
Corporation’s
Risk
Management
Committee
and
administratively
to
the
Chief
Risk
Officer.
The
Loan
Review
Group
performs
annual
comprehensive
credit
process
reviews
of
the
Bank’s
commercial
loan
portfolios,
including
the
above-mentioned
Puerto
Rico
municipal
bonds
accounted
for
as
held-to-maturity
debt
securities.
The objective
of
these
loan
reviews is
to
assess accuracy
of the
Bank’s
determination
and
maintenance
of
loan
risk
rating
and
its
adherence
to
lending
policies,
practices
and
procedures.
The
monitoring
performed
by
this
group
contributes
to
the
assessment
of
compliance
with
credit
policies
and
underwriting
standards,
the
determination
of
the
current
level
of
credit
risk,
the
evaluation of
the effectiveness
of the credit
management process,
and the identification
of any deficiency
that may arise
in the credit-
granting process. Based
on its findings, the
Loan Review Group recommends
corrective actions, if
necessary,
that help in maintaining
a sound credit process. The Loan Review Group reports the results of the credit
process reviews to the Risk Management Committee.
As of September 30, 2024 and December 31, 2023,
all Puerto Rico municipal bonds classified as held-to-maturity were
classified as
Pass.
2024 and
December 31,
2023. A security
is considered
to be past
due once
it is 30
days contractually
past due under
the terms of
the
agreement.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
23
NOTE 3 – LOANS HELD FOR INVESTMENT
The
following table
provides information
about
the
loan
portfolio held
for
investment by
portfolio segment
and
disaggregated by
geographic locations
as of the indicated
dates:
As of September 30,
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
Commercial and Industrial (“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
(
246,996
)
(
261,843
)
Loans held for investment, net
$
$
(1)
As of September 30, 2024 and
December 31, 2023, includes $
and for which the primary source of repayment at origination was
not dependent upon such real estate.
(2)
Includes accretable fair value net purchase discounts of $
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 December
31, 2023,
respectively.
As of
each of
September 30,
2024 and
December 31,
2023, loans
pledged as
collateral include
$
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)
24
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 September 30, 2024 and December 31, 2023 are as follows:
As of September 30, 2024
Days Past Due and Accruing
Current
30-59
60-89
90+
(1) (2) (3)
Nonaccrual
(4)
Total loans held
for investment
Nonaccrual
Loans with no
ACL
(5)
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
(1) (3) (6)
$
$
$
$
$
$
$
(2) (6)
Commercial loans:
(2) (6)
Consumer loans:
$
$
$
$
$
$
$
(1)
It is the Corporation’s policy to report
delinquent Federal Housing Authority (“FHA”)/U.S. Department of Veterans
Affairs (“VA”)
government-guaranteed residential mortgage loans as past-due loans 90 days and still
accruing as
opposed to
nonaccrual loans.
The Corporation
continues accruing
interest on
these loans
until they
have passed
the 15-month
delinquency mark,
taking into
consideration the
FHA interest
curtailment
process. These balances include $
(2)
Includes purchased credit
deteriorated (“PCD”) loans
previously accounted for
under ASC Subtopic
310-30 for
which the Corporation
made the
accounting policy election
of maintaining pools
of loans as
“units of
account” both at the time of
adoption of the current expected credit loss (“CECL”)
methodology on January 1, 2020 and
on an ongoing basis for credit
loss measurement. These loans will continue to
be excluded from
nonaccrual loan statistics as long as the
Corporation can reasonably estimate the timing and
amount of cash flows expected to
be collected on the loan pools.
The portion of such loans contractually past
due 90 days or
more, amounting to $
accruing category in the table above.
(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
September 30, 2024 amounted to $
respectively.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
25
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 $
million and $
the cash
interest income
recognized
on nonaccrual
loans amounted
to $
million and $
As of
September 30,
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,” to the audited consolidated financial statements
included in the 2023 Annual Report on Form 10-K.
For residential mortgage and consumer loans, the Corporation evaluates
credit quality based on its interest accrual status.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
26
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
September 30,
2024, the
gross charge
-offs for
the nine-month
period
ended September
30, 2024
by portfolio
classes and
by origination
year,
and the
amortized cost
of commercial
and construction
loans
by portfolio classes based on the internal credit-risk category as of December
31, 2023, were as follows:
As of September 30,2024
As of
December 31,
2023
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
Total
(In thousands)
CONSTRUCTION
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
COMMERCIAL MORTGAGE
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
C&I
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
27
As of September 30,2024
As of
December 31,
2023
Term Loans
Florida Region
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
COMMERCIAL MORTGAGE
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
C&I
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
28
As of September 30,2024
As of
December 31,
2023
Term Loans
Total
Amortized Cost Basis by Origination Year
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
CONSTRUCTION
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
COMMERCIAL MORTGAGE
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
C&I
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1) Excludes accrued interest receivable.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
29
The following
tables present the
amortized cost of
residential mortgage
loans by portfolio
classes and by
origination year
based on
accrual
status as
of
September
30,
2024,
the
gross charge
-offs
for
the
nine-month
period
ended
September
30,
2024 by
origination
year, and the amortized cost of residential mortgage
loans by portfolio classes based on accrual status as of December 31, 2023:
As of September 30,2024
As of
December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Puerto Rico and Virgin Islands Regions:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
$
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 September 30,2024
As of
December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Florida Region:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
$
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)
30
As of September 30,2024
As of
December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Total:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
$
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)
31
The
following
tables present
the
amortized
cost
of
consumer
loans
by
portfolio
classes
and
by
origination
year
based on
accrual
status as
of September
30, 2024,
the gross
charge-offs
for the
nine-month period
ended September
30, 2024
by portfolio
classes and
by origination year, and the amortized
cost of consumer loans by portfolio classes based on accrual status as of December 31,2023:
As of September 30, 2024
As of
December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Puerto Rico and Virgin Islands Regions:
Auto loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
$
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)
32
As of September 30, 2024
As of
December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Florida Region:
Auto loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
$
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)
33
As of September 30, 2024
As of
December 31,
2023
Term Loans
Amortized Cost Basis by Origination Year
(1)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total
(In thousands)
Total:
Auto loans
Accrual Status:
Performing
$
$
$
$
$
$
$
$
$
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 September 30, 2024 and December 31, 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)
34
The
following
tables
present
information
about
collateral
dependent
loans
that
were
individually
evaluated
for
purposes
of
determining the ACL as of September 30, 2024 and December
31, 2023
:
As of September 30, 2024
Collateral Dependent Loans -
With Allowance
Collateral Dependent
Loans - With No
Related Allowance
Collateral Dependent Loans - Total
Amortized Cost
Related
Allowance
Amortized Cost
Amortized Cost
Related
Allowance
(In thousands)
Residential mortgage loans:
Conventional residential mortgage loans
$
$
$
$
$
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 September
30, 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
loan-to-value
over
%, classified
as collateral
dependent,
partially offset
by the sale
of an $
off that had been previously reserved.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
35
Purchases and Sales of Loans
In
the
ordinary
course
of
business,
the
Corporation
enters
into
securitization
transactions
and
whole
loan
sales
with
GNMA
and
GSEs, such as FNMA and
FHLMC. During the first
nine months of 2024,
loans pooled into GNMA MBS
amounted to approximately
$
of
$
approximately
$
Corporation
recognized a
net gain
on sale
of $
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 September
30, 2024 and
December 31, 2023,
rebooked GNMA delinquent
loans
that were included in the residential mortgage loan portfolio amounted
to $
During
the
first
nine
months
of
2024
and
2023,
the
Corporation
repurchased,
pursuant
to
the
aforementioned
repurchase
option,
$
guaranteed,
and the
risk of
loss related
to the
repurchased loans
is generally
limited to
the difference
between the
delinquent interest
payment advanced
to GNMA, which
is computed at
the loan’s
interest rate,
and the interest
payments reimbursed
by FHA, which
are
computed
at a
pre-determined
debenture
rate.
Repurchases
of GNMA
loans allow
the
Corporation,
among
other
things, to
maintain
acceptable
delinquency
rates
on
outstanding
GNMA
pools
and
remain
as
a
seller
and
servicer
in
good
standing
with
GNMA.
Historically, losses
on these repurchases of
GNMA delinquent loans have
been immaterial and no provision has
been made at the time
of sale.
Loan sales to FNMA and FHLMC are without recourse in relation
to the future performance of the loans.
The Corporation’s risk of
loss
with
respect
to
these
loans
is
also
minimal
as
these
repurchased
loans
are
generally
performing
loans
with
documentation
deficiencies.
During
the
first
nine
months
of
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 $
In addition,
during
the first
nine months
of 2024,
the Corporation
purchased
commercial mortgage
loan participations
in the
Puerto
Rico region totaling $
During
the first
nine months
of
2024,
the Corporation
recognized
a $
charged-off
consumer
loans.
There
were
conforming
residential
mortgage loans
mentioned
above. In
addition, during
the first
nine months
of 2024,
the Corporation
sold the
aforementioned $
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
36
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
September
30,
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
September 30,
2024 included
$
million in
loans granted to
an affiliate of
the Puerto Rico
Electric Power Authority
(“PREPA”)
and $
or public corporations of the Puerto Rico government.
In
addition,
as
of
September
30,
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
September
30,
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)
37
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
$
million in restructured residential
mortgage loans that are
government-guaranteed (e.g.,
FHA/VA
loans) and were modified
during the
quarter and
nine-month period
ended September
30, 2024,
respectively,
compared to
$
the comparable periods in 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
38
The
following
tables
present
the
amortized
cost
basis
as
of
September
30,
2024
and
2023
of
loans
modified
to
borrowers
experiencing financial difficulty
during the quarters
and nine-month periods
ended September 30,
2024 and 2023,
by portfolio classes
and type
of modification
granted, and
the percentage
of these
modified
loans relative
to the
total period-end
amortized cost
basis of
receivables in the portfolio class:
Quarter Ended September 30, 2024
Payment Delay Only
Forbearance
Payment Plan
Trial
Modification
Interest Rate
Reduction
Term
Extension
Combination
of Interest
Rate
Reduction and
Term
Extension
Other
Total
Percentage of
Total by
Portfolio
Classes
(In thousands)
Conventional residential mortgage loans
$
$
$
$
$
$
$
$
Construction loans
Commercial mortgage loans
C&I loans
(1)
Consumer loans:
Auto loans
(1)
Personal loans
Credit cards
(2)
Other consumer loans
$
$
$
$
$
$
$
$
Quarter Ended September 30, 2023
Payment Delay Only
Forbearance
Payment Plan
Trial
Modification
Interest Rate
Reduction
Term
Extension
Combination
of Interest
Rate
Reduction and
Term
Extension
Other
Total
Percentage of
Total by
Portfolio
Classes
(In thousands)
Conventional residential mortgage loans
$
$
$
$
$
$
$
$
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans:
Auto loans
(1)
Personal loans
Credit cards
(2)
Other consumer loans
(1)
$
$
$
$
$
$
$
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
39
Nine-Month Period Ended September 30, 2024
Payment Delay Only
Forbearance
Payment Plan
Trial
Modification
Interest Rate
Reduction
Term
Extension
Combination
of Interest
Rate
Reduction and
Term
Extension
Other
Total
Percentage of
Total by
Portfolio
Classes
(In thousands)
Conventional residential mortgage loans
$
$
$
$
$
$
$
$
Construction loans
Commercial mortgage loans
C&I loans
(1)
Consumer loans:
Auto loans
(1)
Personal loans
Credit cards
(2)
Other consumer loans
(1)
$
$
$
$
$
$
$
$
Nine-Month Period Ended September 30, 2023
Payment Delay Only
Forbearance
Payment Plan
Trial
Modification
Interest Rate
Reduction
Term
Extension
Combination
of Interest
Rate
Reduction and
Term
Extension
Other
Total
Percentage of
Total by
Portfolio
Classes
(In thousands)
Conventional residential mortgage loans
$
$
$
$
$
$
$
$
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)
40
The
following
tables
present
by
portfolio
classes
the
financial
effects
of
the
modifications
granted
to
borrowers
experiencing
financial difficulty,
other than
those associated
to payment
delay,
during the
quarters and
nine-month
periods ended
September 30,
2024
and
2023.
The
financial
effects
of
the
modifications
associated
to
payment
delay
were
discussed
above
and,
as
such,
were
excluded from the tables below:
Quarter Ended September 30, 2024
Combination of Interest Rate Reduction and Term
Extension
Weighted-Average
Interest Rate Reduction
(%)
Weighted-Average Term
Extension (in months)
Weighted-Average
Interest Rate Reduction
(%)
Weighted-Average Term
Extension (in months)
(In thousands)
Conventional residential mortgage loans
%
-
%
-
Construction loans
%
%
-
Commercial mortgage loans
%
-
%
-
C&I loans
%
%
Consumer loans:
Auto loans
%
%
Personal loans
%
-
%
Credit cards
%
-
%
-
Other consumer loans
%
%
Quarter Ended September 30, 2023
Combination of Interest Rate Reduction and Term
Extension
Weighted-Average
Interest Rate Reduction
(%)
Weighted-Average Term
Extension (in months)
Weighted-Average
Interest Rate Reduction
(%)
Weighted-Average Term
Extension (in months)
(In thousands)
Conventional residential mortgage loans
%
-
%
-
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)
41
Nine-Month Period Ended September 30, 2024
Combination of Interest Rate Reduction and Term
Extension
Weighted-Average
Interest Rate Reduction
(%)
Weighted-Average Term
Extension (in months)
Weighted-Average
Interest Rate Reduction
(%)
Weighted-Average Term
Extension (in months)
(In thousands)
Conventional residential mortgage loans
%
%
Construction loans
%
%
-
Commercial mortgage loans
%
%
-
C&I loans
%
%
Consumer loans:
Auto loans
%
%
Personal loans
%
%
Credit cards
%
-
%
-
Other consumer loans
%
%
Nine-Month Period Ended September 30, 2023
Combination of Interest Rate Reduction and Term
Extension
Weighted-Average
Interest Rate Reduction
(%)
Weighted-Average Term
Extension (in months)
Weighted-Average
Interest Rate Reduction
(%)
Weighted-Average Term
Extension (in months)
(In thousands)
Conventional residential mortgage loans
%
%
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)
42
The
following
tables
present
by
portfolio
classes
the
performance
of
loans
modified
during
the
last
twelve
months
ended
September
30,
2024
and
during
the
nine-month
period
ended
September
30,
2023
that
were
granted
to
borrowers
experiencing
financial difficulty:
Last Twelve Months Ended September 30, 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
$
$
$
$
$
$
Nine-Month Period Ended September 30, 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)
43
NOTE 4 – ALLOWANCE
FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES
The following tables present the activity in the ACL on loans and finance leases by portfolio
segment for the indicated periods:
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
C&I
Loans
Consumer Loans
Total
Quarter Ended September 30, 2024
(In thousands)
ACL:
Beginning balance
$
$
$
$
$
$
Provision for credit losses - (benefit) expense
(
5,476
)
(
1,659
)
(
5,914
)
Charge-offs
(
421
)
(
1,350
)
(
27,274
)
(
29,045
)
Recoveries
Ending balance
$
$
$
$
$
$
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
C&I
Consumer Loans
Total
Quarter Ended September 30, 2023
(In thousands)
ACL:
Beginning balance
$
$
$
$
$
$
Provision for credit losses - (benefit) expense
(
3,349
)
(
642
)
(
1,344
)
Charge-offs
(
499
)
(
4
)
(
1
)
(
9
)
(
19,746
)
(
20,259
)
Recoveries
Ending balance
$
$
$
$
$
$
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
C&I
Loans
Consumer Loans
Total
Nine-Month Period Ended September 30, 2024
(In thousands)
ACL:
Beginning balance
$
$
$
$
$
$
Provision for credit losses - (benefit) expense
(
16,533
)
(
1,642
)
(
8,900
)
(
2,890
)
Charge-offs
(
1,428
)
(
2,141
)
(
81,229
)
(
84,798
)
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
Nine-Month Period Ended September 30, 2023
(In thousands)
ACL:
Beginning balance
$
$
$
$
$
$
Impact of adoption of ASU 2022-02
(1)
Provision for credit losses - (benefit) expense
(
6,776
)
Charge-offs
(
2,628
)
(
42
)
(
107
)
(
6,477
)
(
53,006
)
(
62,260
)
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.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
44
The
Corporation
estimates
the
ACL
following
the
methodologies
described
in
Note
1
–
“Nature
of
Business
and
Summary
of
Significant Accounting
Policies” to
the audited
consolidated financial
statements included
in the
2023 Annual
Report on
Form 10-K,
as updated by the information contained in this report, for each portfolio segment
.
The Corporation
generally applies
probability weights
to the
baseline and
alternative downside
economic scenarios
to estimate
the
ACL with
the
baseline
scenario
carrying
the highest
weight.
The
scenarios
that are
chosen each
quarter
and
the
weighting
given
to
each
scenario
for
the
different
loan
portfolio
categories
depend
on
a
variety
of
factors
including
recent
economic
events,
leading
national
and regional
economic indicators,
and industry
trends. As
of September
30, 2024
and December
31, 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 the
first nine months
of 2024,
the Corporation completed
the aforementioned review
for the residential
mortgage, auto
loan,
and finance
lease
portfolios,
primarily
for
the Puerto
Rico
region.
The residential
mortgage
loan
portfolio,
which
has
recently
experienced a
historically low level
of credit
losses, as a
result of
high collateral
values in the
Puerto Rico region,
resulted in
a lower
required reserve level.
For the auto loan
and finance lease
portfolios, historical loss
trends were updated
and resulted in an
increase in
the required reserve levels as the loss experience in such portfolios have been trending
higher towards historical loss experience.
As
of
September
30,
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
$
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 increased volume.
Meanwhile, the
ACL for
consumer loans
increased by
$
mainly in auto loans.
Net charge-offs
were $
$
quarter of
2024 was
driven by
an increase
in consumer
loans and
finance leases
charge-offs
across all
major portfolio
classes, a
$
million recovery recorded on a
construction loan in the
Puerto Rico region during the
third quarter of 2023,
and a $
off recorded
on the sale
of a nonaccrual
C&I loan in
the Puerto
Rico region
in the third
quarter of
2024. The
$
net
charge-offs
for
the
first
nine
months
of
2024
was
driven
by
the
aforementioned
increase
in
consumer
loans
and
finance
leases
charge-offs,
partially offset
by the
effect during
the first
nine months
of 2024
of both
the $
bulk sale of
fully charged-off
consumer loans and
finance leases and a
$
Rico region,
and a
$
2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
45
The tables below
present the ACL
related to loans
and finance leases
and the carrying
values of loans
by portfolio segment
as of
September 30, 2024 and December 31, 2023:
As of September 30, 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
21
–
“Regulatory Matters, Commitments
and Contingencies” for
information on off
-balance sheet exposures
as of September 30,
2024 and
December 31,
2023. The
Corporation estimates
the ACL
for these
off-balance
sheet exposures
following the
methodology described
in
Note
1 –
“Nature
of Business
and
Summary
of Significant
Accounting
Policies”
to
the audited
consolidated
financial statements
included
in
the
2023
Annual
Report
on
Form
10-K.
As
of
September
30,
2024,
the
ACL
for
off-balance
sheet
credit
exposures
amounted
to $
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
quarters
and nine-month periods ended September 30, 2024 and 2023:
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
2024
2023
2024
2023
(In thousands)
Beginning balance
$
$
$
$
Provision for credit losses - (benefit) expense
(
1,041
)
(
128
)
(
1,177
)
Ending balance
$
$
$
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
46
NOTE 5
–
OTHER REAL ESTATE
OWNED (“OREO”)
The following table presents the OREO inventory as of the indicated dates:
September 30, 2024
December 31, 2023
(In thousands)
OREO balances, carrying value:
Residential
(1)
$
$
Construction
Commercial
Total
$
$
(1)
Excludes $
of Residential Real Estate Collateralized Consumer
Mortgage Loans upon Foreclosure,” and
are presented as a receivable as part
of other assets in the consolidated statements
of financial
condition.
(2)
Decrease was mainly associated with the sale of a $
See Note 17 – “Fair
Value”
for information on subsequent
measurement adjustments recorded
on OREO properties reported
as part
of
“Net
gain
on
OREO
operations”
in
the
consolidated
statements
of
income
during
the
quarters
and
nine-month
periods
ended
September 30, 2024 and 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
47
NOTE 6 – GOODWILL AND OTHER INTANGIBLES
Goodwill
Goodwill
as
of
each
of
September
30,
2024
and
December
31,
2023
amounted
to
$
There were
and 2023.
Other Intangible Assets
The
following
table
presents
the
gross
amount
and
accumulated
amortization
of
the
Corporation’s
intangible
assets
subject
to
amortization as of the indicated dates:
As of
As of
September 30, 2024
December 31, 2023
(Dollars in thousands)
Core deposit intangible:
Gross amount
$
$
Accumulated amortization
(
79,284
)
(
74,161
)
Net carrying amount
$
$
Remaining amortization period (in years)
During the
quarter and
nine-month periods
ended September
30, 2024,
the Corporation
recognized $
respectively,
in amortization
expense
on its
other intangibles
subject to
amortization,
compared to
$
the same periods in 2023, respectively
The
estimated
aggregate
annual
amortization
expense
related
to
core
deposit
intangibles
for
future
periods
was
as
follows
as
of
September 30, 2024
:
(In thousands)
Remaining 2024
$
2025
2026
2027
2028
2029 and after
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
48
NOTE 7 – NON-CONSOLIDATED
VARIABLE
INTEREST ENTITIES (“VIEs”) AND SERVICING
ASSETS
The Corporation
transfers residential
mortgage loans
in sale
or securitization
transactions in
which it
has continuing
involvement,
including
servicing
responsibilities
and
guarantee
arrangements.
All
such
transfers
have
been
accounted
for
as
sales
as
required
by
applicable accounting guidance.
When
evaluating
the
need
to
consolidate
counterparties
to
which
the
Corporation
has
transferred
assets,
or
with
which
the
Corporation has
entered into
other transactions,
the Corporation
first determines
if the
counterparty is
an entity
for which
a variable
interest
exists.
If
no
scope
exception
is
applicable
and
a
variable
interest
exists,
the
Corporation
then
evaluates
whether
it
is
the
primary beneficiary of the VIE and whether the entity should be consolidated
or not.
Below is a summary of transactions with VIEs for which the Corporation has retained
some level of continuing involvement:
Trust-Preferred
Securities (“TruPS”)
In April 2004,
FBP Statutory Trust
I, a financing
trust that is wholly
owned by the
Corporation, sold to
institutional investors $
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
presented
in
the
Corporation’s
consolidated statements of
financial condition as other
long-term borrowings. These
TruPS are variable-rate
instruments indexed to
% and the
original spread
of
% for the
FBP Statutory
Trust I
and
% for
the FBP
Statutory Trust
II.
In September
2024,
the Corporation
redeemed $
%, of
outstanding
TruPS
issued by
FBP Statutory
Trust
II (or
$
%
as
part
of
the
2024
repurchase
program,
as
further
explained
in
Note
13
–
“Stockholders’
Equity”
to
the
unaudited
consolidated
financial
statements
herein.
As
of
September
30,
2024
and
December
31,
2023,
these
Junior
Subordinated
Deferrable
Debentures
amounted
to
$
junior subordinated debentures through the end of the fourth quarter of
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 September
30, 2024, the Corporation was current on all interest payments due on its subordinated
debt.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
49
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 September
30, 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
2 – “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
September
30,
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:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2024
2023
2024
2023
(In thousands)
Balance at beginning of period
$
$
$
$
Capitalization of servicing assets
Amortization
(
1,060
)
(
1,035
)
(
3,135
)
(
3,265
)
Temporary impairment
recoveries
Other
(1)
(
14
)
(
6
)
(
35
)
(
22
)
Balance at end of period
$
$
$
$
(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)
50
Changes in the impairment allowance were as follows for the indicated periods:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2024
2023
2024
2023
(In thousands)
Balance at beginning of period
$
$
$
$
Temporary impairment
recoveries
(
7
)
(
12
)
$
$
$
$
The components
of net servicing
income, included as
part of mortgage
banking activities in
the consolidated statements
of income,
are shown below for the indicated periods:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2024
2023
2024
2023
(In thousands)
Servicing fees
$
$
$
$
Late charges and prepayment penalties
Other
(1)
(
14
)
(
6
)
(
35
)
(
22
)
Amortization and impairment of servicing assets
(
1,060
)
(
1,028
)
(
3,135
)
(
3,253
)
$
$
$
$
(1)
The Corporation’s
MSRs are subject
to prepayment
and interest rate
risks. Key economic
assumptions used
in determining
the fair
value at the time of sale of the related mortgages for the indicated periods
ranged as follows:
Weighted Average
Maximum
Minimum
Nine-Month Period Ended September 30, 2024
Constant prepayment rate:
%
%
%
%
%
%
%
%
%
Discount rate:
%
%
%
%
%
%
%
%
%
Nine-Month Period Ended September 30, 2023
Constant prepayment rate:
%
%
%
%
%
%
%
%
%
Discount rate:
%
%
%
%
%
%
%
%
%
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
51
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:
September 30, 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)
52
NOTE 8 – DEPOSITS
The following table summarizes deposit balances as of the indicated dates:
September 30, 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 following
table presents
the remaining
contractual maturities
of time
deposits, including
brokered
CDs, as
of September
30,
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
$
September 30, 2024
and December 31,
2023, respectively.
This amount does
not include brokered
CDs that are generally
participated
out by
brokers in
shares of
less than the
FDIC insurance
limit. As
of each
September 30,
2024 and
December 31,
2023, unamortized
broker
placement
fees
amounted
to
$
interest method.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
53
NOTE 9 – ADVANCES
FROM THE FEDERAL HOME LOAN BANK (“FHLB”)
The following is a summary of the advances from the FHLB as of the indicated dates:
September 30, 2024
December 31, 2023
(In thousands)
Long-term
-rate advances from the FHLB
(1)
$
$
(1)
Weighted-average interest rate of
% as of each of September 30, 2024 and December 31, 2023,
respectively.
Advances from the FHLB mature as follows as of the indicated date:
September 30, 2024
(In thousands)
Over three months to six months
$
Over six months to one year
Over one year to two years
Over three years to four years
(1)
$
(1) Average remaining term to maturity of
NOTE 10 – OTHER LONG-TERM BORROWINGS
Junior Subordinated Debentures
Junior subordinated debentures, as of the indicated dates, consisted of:
(In thousands)
September 30, 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
% tenor
spread
adjustment as of September 30, 2024 and December 31,
2023 (
% as of September 30, 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
% tenor
spread
adjustment as of September 30, 2024 and December 31, 2023
(
% as of September 30, 2024 and
% as of December 31, 2023).
See Note
7 –
“Non-Consolidated Variable
Interest Entities
(“VIEs”) and
Servicing Assets”
and Note
13 –
“Stockholders’ Equity”
to the
unaudited consolidated
financial statements
herein
for additional
information on
junior subordinated
debentures, including
the
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
54
NOTE 11 – EARNINGS PER COMMON
.
SHARE
The calculations of earnings per
common share for the quarters
and nine-month periods ended
September 30, 2024 and 2023
are as
follows:
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
2024
2023
2024
2023
(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 quarters and nine-month periods
ended September 30, 2024 and 2023.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
55
NOTE 12 – STOCK-BASED
.
COMPENSATION
The First Bancorp
Omnibus Incentive
Plan (the “Omnibus
Plan”), which is
effective until
May 24, 2026,
provides for equity-based
and non-equity-based
compensation incentives
(the “awards”).
The Omnibus
Plan authorizes
the issuance
of up
to
of common
stock, subject
to adjustments
for
stock splits,
reorganizations
and other
similar events.
As of
September 30,
2024, there
were
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
anniversary of
the grant
date and
the remaining
% vest
on
the three-year
anniversary of
the grant
date. The
shares of
restricted stock
granted to
directors are
generally subject
to vesting
on the
one-year anniversary of the grant date.
The
following
table
summarizes
the
restricted
stock
activity
under
the
Omnibus
Plan
during
the
nine-month
periods
ended
September 30, 2024 and 2023:
Nine-Month Period Ended September 30,
2024
2023
Number of
Weighted-
Number of
Weighted-
shares of
Average
shares of
Average
restricted
Grant Date
restricted
Grant Date
stock
stock
Unvested shares outstanding at beginning of year
$
$
Granted
(1)
Forfeited
(
7,156
)
(
58,454
)
Vested
(
276,558
)
(
503,460
)
Unvested shares outstanding at end of period
$
$
(1)
For the
nine-month period
ended September
30, 2024,
includes
employees, of which
includes
retirement-eligible employees and thus charged to earnings
as of the grant date.
For
the
quarter
and
nine-month
period
ended
September
30,
2024,
the
Corporation
recognized
$
respectively,
of stock-based
compensation expense
related to
restricted stock
awards, compared
to $
the
same
periods
in
2023.
As
of
September
30,
2024,
there
was
$
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)
56
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
nine-month
periods
ended
September 30, 2024 and 2023:
Nine-Month Period Ended September 30,
2024
2023
Number
Weighted-
Number
Weighted-
of
Average
of
Average
Performance
Grant Date
Performance
Grant Date
Units
Fair Value
Units
Fair Value
Performance units at beginning of year
$
$
Additions
(1)
Vested
(2)
(
150,716
)
(
474,538
)
Performance units at end of period
$
$
(1)
Units granted
during the
nine-month periods
ended September
30, 2024
and 2023
are based on
the achievement
of the Relative
TSR and TBVPS
performance goals
during a three-year
performance cycle beginning January 1, 2024 and January
1, 2023, respectively, and ending on
December 31, 2026 and December 31, 2025, respectively.
(2)
Units vested during the nine-month periods ended September 30,
2024 and 2023 are related to performance units granted
in 2021 and 2020, respectively,
that met the pre-established target
and were settled with shares of common stock reissued from treasury shares.
The fair value of the performance units awarded during
the nine-month periods ended September 30, 2024 and 2023,
that was based
on the TBVPS goal component, was
calculated based on the market price of the
Corporation’s common
stock on the respective date of
the
grant
and
assuming
attainment
of
100%
of
target
opportunity.
As
of
September
30,
2024,
there
have
been
no
changes
in
management’s
assessment of the probability
that the pre-established
TBVPS goal will be
achieved; as such,
no cumulative adjustment
to compensation
expense has
been recognized.
The fair
value of
the performance
units awarded,
that was
based on
the Relative
TSR
component, was
calculated using
a Monte Carlo
simulation. Since
the Relative
TSR component
is considered
a market condition,
the
fair value of the portion of the award based on Relative TSR is not revised subsequent to
grant date based on actual performance.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
57
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 nine-month
periods ended September 30, 2024 and 2023:
Nine-Month Period Ended September 30,
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
quarter
and
nine-month
period
ended
September
30,
2024,
the
Corporation
recognized
$
respectively,
of
stock-based
compensation
expense
related
to
performance
units,
compared
to
$
same periods
in 2023.
As of September
30, 2024,
there was $
performance units that the Corporation expects to recognize over a weighted-average
period of
Shares withheld
During the
first nine months
of 2024,
the Corporation
withheld
restricted
stock
and
performance
units
that vested
during
such
period to
cover
the participants’
payroll
and
income
tax withholding
liabilities;
these
shares
are
held
as
treasury
shares.
The
Corporation
paid
in
cash
any
fractional
share
of
salary
stock
to
which
an
officer
was entitled.
In
the consolidated
financial
statements,
the
Corporation
presents
shares
withheld
for
tax purposes
as common
stock repurchases.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
58
NOTE 13 –
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
$
shares of common stock during the first nine months of 2024 through
open market transactions at an average price of $
cost
of
approximately
$
approximately $
Furthermore,
on
July 22,
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
$
repurchases of
common stock
or junior
subordinated debentures,
which it
expects to
execute through
the end
of the
fourth quarter
of
2025. As
of September
30, 2024,
the Corporation
has remaining
authorization to
repurchase approximately
$
2024
repurchase
program,
after
the
$
explained in Note 7 - “Non-Consolidated Variable
Interest Entities (“VIEs”) and Servicing Assets.”
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,
redemption
of
junior
subordinated debentures
(in the case
of the 2024
repurchase program),
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. 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
change
in
shares
of
common
stock
outstanding
for
the
quarters
and
nine-month
periods
ended
September 30, 2024 and 2023:
Total
Number of Shares
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
2024
2023
2024
2023
Common stock outstanding, beginning balance
Common stock repurchased
(1)
(
898
)
(
5,393,236
)
(
5,984,078
)
(
9,258,611
)
Common stock reissued under stock-based compensation plan
Restricted stock forfeited
(
3,692
)
(
963
)
(
7,156
)
(
58,454
)
Common stock outstanding, ending balance
(1)
For the
quarter and
nine-month period
ended September
30, 2024
includes
income taxes.
For the
quarter and
nine-month
period ended
September 30,
2023 includes
income taxes.
For
the
quarter
and
nine-month
period
ended
September
30,
2024,
total
cash
dividends
declared
on
shares
of
common
stock
amounted to
$
share) and $
, the Corporation’s
Board
of
Directors
declared
a
quarterly
cash
dividend
of
$
shareholders of record
at the close of business
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)
59
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 September 30, 2024 and December 31,
2023.
Treasury Stock
The
following
table
shows
the
change
in
shares
of
treasury
stock
for
the
quarters
and
nine-month
periods
ended
September
30,
2024 and 2023:
Total
Number of Shares
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
2024
2023
2024
2023
Treasury stock, beginning balance
Common stock repurchased
Common stock reissued under stock-based compensation plan
(
14,947
)
(
23,903
)
(
564,232
)
(
994,332
)
Restricted stock forfeited
Treasury stock, ending balance
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.
retained
earnings
in
the
Corporation’s
consolidated
statements
of
financial
condition,
amounted
to
$
September 30, 2024 and December 31, 2023. There were
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
60
NOTE 14 – ACCUMULATED
OTHER COMPREHENSIVE LOSS
The following
table presents
the changes
in accumulated
other comprehensive
loss for
the quarters
and nine-month
periods ended
September 30, 2024 and 2023:
Changes in Accumulated Other Comprehensive
Loss by Component
(1)
Quarter ended September 30,
Nine-Month Period Ended September
30,
2024
2023
2024
2023
(In thousands)
Net unrealized holding losses on available-for-sale
debt securities:
Beginning balance
$
(
645,057
)
$
(
773,581
)
$
(
640,552
)
$
(
805,972
)
(2)
(
78,976
)
(
46,585
)
Ending balance
$
(
485,003
)
$
(
852,557
)
$
(
485,003
)
$
(
852,557
)
Adjustment of pension and postretirement
benefit plans:
Beginning balance
$
$
$
$
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.
NOTE 15 – EMPLOYEE BENEFIT PLANS
The Corporation
maintains two frozen
qualified noncontributory
defined benefit pension
plans (the “Pension
Plans”), and
a related
complementary
post-retirement
benefit
plan
(the
“Postretirement
Benefit
Plan”)
covering
medical
benefits
and
life
insurance
after
retirement
that
it
obtained
in
the
Banco
Santander
Puerto
Rico
(“BSPR”)
acquisition
on
September
1,
2020.
One
defined
benefit
pension
plan covers
substantially all
of BSPR’s
former
employees who
were active
before January
1, 2007,
while
the other
defined
benefit pension plan covers personnel of an institution previously acquired
by BSPR. Benefits are based on salary and years of service.
The accrual of benefits under the Pension Plans is frozen to all participants.
The following table presents the components of net periodic (benefit) cost for
the indicated periods:
Affected Line Item
in the Consolidated
Quarter Ended September 30,
Nine-Month Period Ended September 30,
Statements of Income
2024
2023
2024
2023
(In thousands)
Net periodic (benefit) cost, pension plans:
Interest cost
Other expenses
$
$
$
$
Expected return on plan assets
Other expenses
(
1,017
)
(
886
)
(
3,053
)
(
2,657
)
Net periodic (benefit) cost, pension plans
(
117
)
(
351
)
Net periodic cost, postretirement plan
Other expenses
Net periodic (benefit) cost
$
(
100
)
$
$
(
302
)
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
61
NOTE 16 –
INCOME TAXES
The Corporation is subject to Puerto Rico income tax on
its income from all sources. Under the Puerto Rico Internal
Revenue Code,
as amended (the “PR Tax
Code”), the Corporation and its subsidiaries are treated as
separate taxable entities and are not entitled to file
consolidated tax returns. However,
certain subsidiaries that are
organized as limited liability
companies with a partnership
election are
treated as
pass-through entities
for Puerto
Rico tax
purposes. Furthermore,
the Corporation
conducts business
through certain
entities
that
have
special
tax
treatments,
including
doing
business
through
an
IBE
unit
of
the
Bank
and
through
FirstBank
Overseas
Corporation,
each
of
which
are
generally
exempt
from
Puerto
Rico
income
taxation
under
the
International
Banking
Entity
Act
of
Puerto Rico
(“IBE Act”),
and through
a wholly-owned
subsidiary that
engages in
certain Puerto
Rico qualified
investing and
lending
activities that have certain tax advantages under Act 60 of 2019.
For
the
third
quarter
and
first nine
months
of 2024,
the
Corporation
recorded
an
income tax
expense
of $
million, respectively,
compared to $
tax expense
for the
third quarter
of 2024
was mainly
due to
lower pre-tax
income and,
to a
lesser extent,
a lower
estimated effective
tax rate due
to increased business
activities with preferential
tax treatment under
the PR Tax
Code and a
$
accrual release
in connection with
the expiration
of the statute
of limitation on
some uncertain tax
positions. Meanwhile,
the decrease
in income
tax expense
for the first
nine months
of 2024
was driven
by a lower
estimated effective
tax rate due
to the
aforementioned
increased
business
activities
with
preferential
tax
treatment
and,
to
a
lesser
extent,
lower
pre-tax
income.
The
Corporation
has
maintained
an
effective
tax
rate
lower
than
the
Puerto
Rico
maximum
statutory
rate
of
%.
The
Corporation’s
estimated
annual
effective tax
rate, excluding
entities with pre-tax
losses from which
a tax benefit
cannot be recognized
and discrete items,
was
%
for the first nine months of 2024, compared to
% for the same period in 2023.
Income
tax
expense
also
includes
USVI
income
taxes,
as
well
as
applicable
U.S.
federal
and
state
taxes.
As
a
Puerto
Rico
corporation, FirstBank
is treated as
a foreign corporation
for U.S. and
USVI income tax
purposes and is
generally subject to
U.S. and
USVI income
tax only
on its
income from
sources within
the U.S.
and USVI
or income
effectively
connected with
the conduct
of a
trade or business in those jurisdictions.
Such tax paid in the U.S. and USVI
is also creditable against the Corporation’s
Puerto Rico tax
liability,
subject
to
certain
conditions
and
limitations.
For
the
quarter
and
nine-month
period
ended
September
30,
2024,
FirstBank
incurred
current
income
tax
expense
of
approximately
$
compared to $
As of
September 30,
2024, the
Corporation had
a net
deferred tax
asset of
$
million against
the deferred
tax asset,
compared to
a net
deferred tax
asset of
$
million, as of
December 31, 2023.
The net deferred
tax asset of
the Corporation’s
banking subsidiary,
FirstBank, amounted
to $
million
as
of
September
30,
2024,
net
of
a
valuation
allowance
of
$
million,
net
of
a
valuation
allowance
of
$
mainly related
to the usage
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
which resulted
in an equal
change
in
the
net
deferred
tax
asset
without
impacting
earnings.
The
Corporation
maintains
a
full
valuation
allowance
for
its
deferred
tax
assets associated with capital loss carryforwards, NOL carryforwards
and unrealized losses of available-for-sale debt securities.
See Note 22
– “Income Taxes,”
to the audited
consolidated financial statements
included in the
2023 Annual Report
on Form 10-K
for information
on the
tax treatment
of net
operating loss
(“NOL”) carryforwards
and dividend
received deduction
under the
PR Tax
Code and the limitation under Section 382 of the U.S. Internal Revenue
Code.
The Corporation
accounts for
uncertain tax
positions under
the provisions
of ASC
Topic
740, “Income
Taxes.”
The Corporation’s
policy is
to report
interest and
penalties related
to unrecognized
tax positions
in income
tax expense.
As of
September 30,
2024, the
Corporation
had
$
penalties,
which,
if
recognized,
would
decrease
the
effective
income
tax
rate
in
future
periods.
The
amount
of
unrecognized
tax
benefits may increase or
decrease in the future
for various reasons, including
adding amounts for current
tax year positions, expiration
of
open
income
tax
returns
due
to
the
statute
of
limitations,
changes
in
management’s
judgment
about
the
level
of
uncertainty,
the
status
of
examinations,
litigation
and
legislative
activity,
and
the
addition
or
elimination
of
uncertain
tax
positions.
The
statute
of
limitations under
the PR Tax
Code is four
years after
a tax return
is due or
filed, whichever is
later; the statute
of limitations
for U.S.
and USVI
income tax
purposes is
three years
after a
tax return
is due
or filed,
whichever is
later.
The completion
of an
audit by
the
taxing
authorities
or
the
expiration
of
the
statute
of
limitations
for
a
given
audit
period
could
result
in
an
adjustment
to
the
Corporation’s
liability for income
taxes. Any such
adjustment could be
material to the
results of operations
for any given
quarterly or
annual period based,
in part, upon the results
of operations for the
given period. For U.S. and
USVI income tax purposes,
all tax years
subsequent
to
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)
62
NOTE 17 –
FAIR VALUE
Fair Value
Measurement
transfer
a
liability
(an
exit
price)
in
the
principal
or
most
advantageous
market
for
the
asset
or
liability
in
an
orderly
transaction
between market
participants on
the measurement
date. This
guidance also
establishes a
fair value
hierarchy for
classifying assets
and
liabilities, which is based on
whether the inputs to
the valuation techniques used
to measure fair value are
observable or unobservable.
One of three levels of inputs may be used to measure fair value:
Valuations
of
Level
1
assets
and
liabilities
are
obtained
from
readily-available
pricing
sources
for
market
transactions involving identical assets or liabilities in active markets.
Va
luations of
Level 2 assets
and liabilities
are based on
observable inputs
other than Level
1 prices, such
as quoted
prices for similar assets or liabilities, or other inputs that are
observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
Va
luations of Level 3 assets and
liabilities are based on unobservable
inputs that are supported by
little or no market
activity and
are significant to
the fair value
of the
assets or liabilities.
Level 3 assets
and liabilities include
financial
instruments
whose value
is determined
by using
pricing models
for
which
the determination
of fair
value
requires
significant management judgment as to the estimation.
a description of the valuation methodologies used to measure financial instruments
at fair value on a recurring basis.
quarters and nine-month periods ended September 30, 2024 and
2023.
Assets and
liabilities measured
at fair value
on a
recurring basis
are summarized
below as
of September
30, 2024
and December
31,
2023:
As of September 30, 2024
As of December 31, 2023
Fair Value Measurements Using
Fair Value Measurements Using
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
(In thousands)
Assets:
Debt securities available for sale:
U.S. Treasury securities
$
$
$
$
$
$
$
$
Noncallable U.S. agencies debt securities
Callable U.S. agencies debt securities
MBS
(1)
(1)
Puerto Rico government obligation
Other investments
Equity securities
Derivative assets
Liabilities:
Derivative liabilities
(1) Related to private label MBS.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
63
The table
below presents
a reconciliation
of the
beginning and
ending balances
of all
assets measured
at fair
value on
a recurring
basis using significant unobservable inputs (Level 3) for the quarters
and nine-month periods ended September 30, 2024 and 2023:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2024
2023
2024
2023
Level 3 Instruments Only
Securities Available
for Sale
(1)
Securities Available
for Sale
(1)
Securities Available
for Sale
(1)
Securities Available
for Sale
(1)
(In thousands)
Beginning balance
$
$
$
$
(
722
)
(
903
)
(2)
(
32
)
(
7
)
(3)
(
425
)
(
237
)
(
949
)
(
1,219
)
Ending balance
$
$
$
$
___________________
(1)
Amounts mostly related to private label MBS.
(2)
Changes in unrealized gains (losses) included in earnings were
recognized within provision for credit losses – expense
and relate to assets still held as of the reporting date.
(3)
For the nine-month period ended September 30, 2023 includes
a $
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 September 30, 2024 and December
31, 2023:
September 30, 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
2 –
“Debt Securities”
for information
on
the methodology used to calculate the fair value of these debt securities.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
64
Additionally, fair value
is used on a non-recurring basis to evaluate certain assets in accordance with GAAP.
For
the
quarter
and
nine-month
period
ended
September
30,
2024,
the
Corporation
recorded
losses
or
valuation
adjustments
for
assets recognized at fair value on a non-recurring basis and still held at September
30, 2024, as shown in the following table:
Carrying value as of September 30, 2024
Related to losses
Quarter Ended
September 30, 2024
Related to losses
recorded for the
Nine-Month Period Ended
September 30, 2024
Losses recorded for the
Quarter Ended
September 30, 2024
Losses recorded for the
Nine-Month Period Ended
September 30, 2024
(In thousands)
Level 3:
Loans receivable
(1)
$
$
$
(
386
)
$
(
1,441
)
OREO
(2)
(
33
)
(
108
)
(1)
Consists mainly of
collateral dependent commercial
and construction
loans. The
Corporation generally measured
losses based
on the fair
value of the
collateral. The
Corporation derived
the fair values from
external appraisals that
took into consideration prices
in observed transactions
involving similar assets
in similar locations but
adjusted for specific characteristics
and
assumptions of the collateral (e.g., absorption rates), which are
not market observable. The haircuts applied on appraisals were
of
% for the nine-month period ended September 30, 2024.
(2)
The Corporation
derived the
fair values
from appraisals
that took
into consideration
prices in
observed transactions
involving similar
assets in
similar locations
but adjusted
for specific
characteristics and assumptions of
the properties (e.g., absorption
rates and net operating income
of income producing properties),
which are not market observable.
Losses were related to
market valuation adjustments after the transfer of the loans
to the OREO portfolio. The haircuts applied ranged from
% to
% for the quarter and nine-month period ended September
30,
2024.
For
the
quarter
and
nine-month
period
ended
September
30,
2023,
the
Corporation
recorded
losses
or
valuation
adjustments
for
assets recognized at fair value on a non-recurring basis and still held at September
30, 2023, as shown in the following table:
Carrying value as of September 30, 2023
Related to (losses) gains
Quarter Ended
Related to losses
recorded for the
Nine-Month Period Ended
(Losses) gains recorded for the
September 30, 2023
Losses recorded for the
Nine-Month Period Ended
September 30, 2023
(In thousands)
Level 3:
Loans receivable
(1)
$
$
$
(
2,495
)
$
(
9,234
)
OREO
(2)
(
169
)
(
205
)
Level 2:
Loans held for sale
(3)
$
$
$
$
(
57
)
(1)
Consists mainly of
collateral dependent commercial
and construction
loans. The
Corporation generally measured
losses based
on the fair
value of the
collateral. The
Corporation derived
the fair values from
external appraisals that
took into consideration prices
in observed transactions
involving similar assets
in similar locations but
adjusted for specific characteristics
and
assumptions
of
the
collateral
(e.g.,
absorption
rates),
which
are
not
market
observable.
The
haircuts
applied
on
appraisals
ranged
from
%
to
%
for
the
nine-month
period
ended
September 30, 2023.
(2)
The Corporation
derived the
fair values
from appraisals
that took
into consideration
prices in
observed transactions
involving similar
assets in
similar locations
but adjusted
for specific
characteristics and assumptions of
the properties (e.g., absorption
rates and net operating income
of income producing properties),
which are not market observable.
Losses were related to
market valuation adjustments after the transfer of the loans
to the OREO portfolio. The haircuts applied ranged from
% to
% for the quarter and nine-month period ended September
30,
2023.
(3)
The Corporation derived the fair value of these loans based
on published secondary market prices of MBS with similar characteristics.
See Note 25 –
“Fair Value,”
to the audited
consolidated financial statements
included in the
2023 Annual Report
on Form 10-K
for
qualitative
information
regarding
the
fair
value
measurements
for
Level
3
financial
instruments
measured
at
fair
value
on
a
nonrecurring basis.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
65
The
following
tables
present
the
carrying
value,
estimated
fair
value
and
estimated
fair
value
level
of
the
hierarchy
of
financial
instruments as of September 30, 2024 and December 31, 2023:
Total Carrying Amount
in Statement of
Financial Condition as
of September 30, 2024
Fair Value Estimate as
of
September 30, 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:
(
1,119
)
$
Equity securities (amortized cost)
(1)
Other equity securities (fair value)
Loans held for sale (lower of cost or market)
Loans held for investment:
(
246,996
)
$
MSRs (amortized cost)
Derivative assets (fair value)
Liabilities:
Deposits (amortized cost)
$
$
$
$
$
Long-term advances from the FHLB (amortized cost)
Other long-term borrowings (amortized cost)
Derivative liabilities (fair value)
(1) Includes FHLB stock with a carrying value of $
(2) Includes interest rate swap agreements, interest rate caps, forward contracts, interest rate lock commitments, and forward loan sales commitments.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
66
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)
Other long-term borrowings (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)
67
NOTE 18 – REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue Recognition
In accordance with
ASC Topic
606, “Revenue from
Contracts with Customers” (“ASC
Topic
606”), revenues are
recognized when
control
of
promised
goods
or
services
is
transferred
to
customers
and
in
an
amount
that
reflects
the
consideration
to
which
the
Corporation expects to be
entitled in exchange for those
goods or services. At contract
inception, once the contract is
determined to be
within the
scope of
ASC Topic
606, the
Corporation assesses
the goods
or services
that are
promised within
each contract,
identifies
the
respective
performance
obligations,
and
assesses
whether
each
promised
good
or
service
is
distinct.
The
Corporation
then
recognizes
as revenue
the amount
of the
transaction price
that is
allocated to
the respective
performance obligation
when (or
as) the
performance obligation is satisfied.
Disaggregation of Revenue
The
following
tables
summarize
the
Corporation’s
revenue,
which
includes
net
interest
income
on
financial
instruments
that
is
outside of
ASC Topic
606 and
non-interest income,
disaggregated by
type of service
and business
segment for
the quarters
and nine-
month periods ended September 30, 2024 and 2023:
Quarter ended September 30, 2024
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial
and Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income (loss)
(1)
$
$
$
$
(
1,634
)
$
$
$
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)
$
$
$
$
(
1,396
)
$
$
$
Quarter ended September 30, 2023
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial
and Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income (loss)
(1)
$
$
$
$
(
4,055
)
$
$
$
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)
(
3
)
(
14
)
(
13
)
(
3
)
Total Revenue (Loss)
$
$
$
$
(
4,058
)
$
$
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
68
Nine-Month Period Ended September 30, 2024
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income loss
(1)
$
$
$
$
(
13,017
)
$
$
$
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)
$
$
$
$
(
12,598
)
$
$
$
Nine-Month Period Ended September 30, 2023
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Net interest income (loss)
(1)
$
$
$
$
(
7,502
)
$
$
$
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
(
19
)
Total Revenue (Loss)
$
$
$
$
(
5,665
)
$
$
$
(1)
Most of the Corporation’s
revenue is not within the scope of
ASC Topic 606.
The guidance explicitly excludes net interest income
from financial assets and liabilities, as
well as other non-interest income
from loans,
leases, investment securities and derivative financial instruments.
For the nine-month period ended September 30, 2024, revenue
not within the scope of ASC Topic
606 includes $
which $
$
For the
quarters and
nine-month periods
ended September
30, 2024
and 2023,
most of
the Corporation’s
revenue within
the scope
of ASC Topic 606 was related
to performance obligations satisfied at a point in time.
See
Note
26
–
“Revenue
from
Contracts
with
Customers,”
to
the
audited
consolidated
financial
statements
included
in
the
2023
Annual Report on Form 10-K for a discussion of major revenue streams under
the scope of ASC Topic 606.
Contract Balances
As
of
September
30,
2024
and
December
31,
2023,
there
were
financial statements. Moreover, the
balances of contract liabilities as of such dates were not significant.
Other
The Corporation
also did
not have
any material contract
acquisition costs
and did
not make
any significant
judgments or
estimates
in recognizing revenue for financial reporting purposes.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
69
NOTE 19 – SEGMENT INFORMATION
Based
upon
the
Corporation’s
organizational
structure
and
the
information
provided
to
the
Chief
Executive
Officer
and
management, the
operating segments
are based
primarily on
the Corporation’s
lines of
business for
its operations
in Puerto
Rico, the
Corporation’s
principal
market,
and
by
geographic
areas
for
its
operations
outside
of
Puerto
Rico.
As
of
September
30,
2024,
the
Corporation
had
Treasury and
Investments; United States
Operations; and Virgin
Islands Operations. Management
determined the reportable
segments
based
on
the
internal
structure
used
to
evaluate
performance
and
to
assess
where
to
allocate
resources.
Other
factors,
such
as
the
Corporation’s
organizational
chart,
nature
of
the
products,
distribution
channels,
and
the
economic
characteristics
of
the
products,
were also considered in the determination of the reportable segments.
The
Mortgage
Banking
segment
consists
of
the
origination,
sale,
and
servicing
of
a
variety
of
residential
mortgage
loans.
The
Mortgage
Banking
segment
also
acquires
and
sells
mortgages
in
the
secondary
markets.
The
Consumer
(Retail)
Banking
segment
consists
of
the Corporation’s
consumer
lending
and deposit
-taking
activities
conducted
mainly
through
its branch
network
and loan
centers. The Commercial and
Corporate Banking segment
consists of the Corporation’s
lending and other services
for large customers
represented
by
specialized
and
middle-market
clients
and
the
government
sector.
The
Commercial
and
Corporate
Banking
segment
offers commercial
loans, including commercial
real estate and construction
loans, and floor plan
financings, as well as
other products,
such
as
cash
management
and
business
management
services.
The
Treasury
and
Investments
segment
is
responsible
for
the
Corporation’s
investment
portfolio
and
treasury
functions
that
are
executed
to
manage
and
enhance
liquidity.
This
segment
lends
funds
to
the
Commercial
and
Corporate
Banking,
the
Mortgage
Banking,
the
Consumer
(Retail)
Banking,
and
the
United
States
Operations
segments
to
finance their
lending
activities
and
borrows
from
those segments.
The
Consumer
(Retail)
Banking
segment
also lends funds
to other
segments. The interest
rates charged
or credited by
the Treasury
and Investments
and the Consumer
(Retail)
Banking
segments
are
allocated
based
on
market
rates.
The
difference
between
the
allocated
interest
income
or
expense
and
the
Corporation’s
actual net
interest income
from
centralized management
of funding
costs is
reported
in the
Treasury
and Investments
segment.
The
United
States
Operations
segment
consists
of
all
banking
activities
conducted
by
FirstBank
in
the
United
States
mainland,
including
commercial
and
consumer
banking
services.
The
Virgin
Islands
Operations
segment
consists
of
all
banking
activities conducted by the Corporation in the USVI and the BVI, including
commercial and consumer banking services.
The
accounting
policies
of
the
segments
are
the
same
as
those
referred
to
in
Note
1
–
“Nature
of
Business
and
Summary
of
Significant Accounting Policies,” to the audited consolidated financial
statements included in the 2023 Annual Report on Form 10-K.
The
Corporation
evaluates
the
performance
of
the
segments
based
on
net
interest
income,
the
provision
for
credit
losses,
non-
interest
income
and
direct
non-interest
expenses.
The
segments
are
also
evaluated
based
on
the
average
volume
of
their
interest-
earning assets less the ACL.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
70
The following tables present information about the reportable segments for
the indicated periods:
Mortgage
Banking
Consumer
(Retail) Banking
Commercial and
Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Quarter ended September 30, 2024:
Interest income
$
$
$
$
$
$
$
Net (charge) credit for transfer of funds
(
18,407
)
(
54,133
)
(
18,687
)
(
2,627
)
Interest expense
(
43,747
)
(
11,046
)
(
15,415
)
(
2,403
)
(
72,611
)
Net interest income (loss)
(
1,634
)
Provision for credit losses - (benefit) expense
(
4,982
)
(
6,524
)
(
36
)
(
1,010
)
(
206
)
Non-interest income
Direct non-interest expenses
$
$
$
$
(
2,399
)
$
$
(
238
)
$
Average earning assets
$
$
$
$
$
$
$
Mortgage
Banking
Consumer
(Retail) Banking
Commercial and
Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Quarter ended September 30, 2023:
Interest income
$
$
$
$
$
$
$
Net (charge) credit for transfer of funds
(
12,929
)
(
54,926
)
(
27,817
)
(
1,164
)
Interest expense
(
40,746
)
(
8,384
)
(
12,647
)
(
1,900
)
(
63,677
)
Net interest income (loss)
(
4,055
)
Provision for credit losses - (benefit) expense
(
3,288
)
(
7,235
)
Non-interest income (loss)
(
3
)
Direct non-interest expenses
$
$
$
$
(
5,048
)
$
$
$
Average earning assets
$
$
$
$
$
$
$
Mortgage
Banking
Consumer
(Retail) Banking
Commercial and
Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Nine-Month Period Ended September 30, 2024
Interest income
$
$
$
$
$
$
$
Net (charge) credit for transfer of funds
(
51,141
)
(
169,304
)
(
61,979
)
(
7,153
)
Interest expense
(
129,188
)
(
36,107
)
(
44,935
)
(
6,983
)
(
217,213
)
Net interest income (loss)
(
13,017
)
Provision for credit losses - (benefit) expense
(
15,036
)
(
10,610
)
(
45
)
(
4,452
)
(
337
)
Non-interest income
Direct non-interest expenses
$
$
$
$
(
15,647
)
$
$
$
Average earnings assets
$
$
$
$
$
$
$
Mortgage
Banking
Consumer
(Retail) Banking
Commercial and
Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
(In thousands)
Nine-Month Period Ended September 30, 2023
Interest income
$
$
$
$
$
$
$
Net (charge) credit for transfer of funds
(
33,293
)
(
154,752
)
(
70,095
)
(
2,575
)
Interest expense
(
94,447
)
(
26,547
)
(
33,828
)
(
2,755
)
(
157,577
)
Net interest income (loss)
(
7,502
)
Provision for credit losses - (benefit) expense
(
7,623
)
(
2,096
)
(
305
)
Non-interest income
Direct non-interest expenses
$
$
$
$
(
8,500
)
$
$
$
Average earnings assets
$
$
$
$
$
$
$
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
71
The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2024
2023
2024
2023
(In thousands)
Net income:
Total income for segments
$
$
$
$
Other operating expenses
Income before income taxes
Income tax expense
$
$
$
$
Average assets:
Total average earning assets for segments
$
$
$
$
Average non-earning assets
$
$
$
$
(1)
Expenses pertaining
to corporate
administrative functions
that support
the operating
segment, but
are not
specifically attributable
to or
managed by
any segment,
are not
included in
the
reported financial
results of
the operating
segments. The
unallocated corporate
expenses include
certain general
and administrative
expenses and
related depreciation
and amortization
expenses.
NOTE 20 – SUPPLEMENTAL
STATEMENT
OF CASH FLOWS INFORMATION
Supplemental statement of cash flows information is as follows for the
indicated periods:
Nine-Month Period Ended September 30, 2024
2024
2023
(In thousands)
Cash paid for:
$
$
Non-cash investing and financing activities:
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
72
NOTE 21 – REGULATORY
MATTERS, COMMITMENTS
AND CONTINGENCIES
Regulatory Matters
The
Corporation
and
FirstBank
are
each
subject
to
various
regulatory
capital
requirements
imposed
by
the
U.S.
federal
banking
agencies. Failure
to meet
minimum capital
requirements can
result in
certain mandatory
and possibly
additional discretionary
actions
by regulators
that, if
undertaken, could
have a
direct material
adverse effect
on the
Corporation’s
financial statements
and
activities.
Under
capital
adequacy
guidelines
and
the
regulatory
framework
for
prompt
corrective
action,
the
Corporation
must
meet
specific
capital
guidelines
that
involve
quantitative
measures
of
the Corporation’s
and
FirstBank’s
assets,
liabilities,
and
certain
off-balance
sheet items
as calculated
under regulatory
accounting practices.
The Corporation’s
capital amounts
and classification
are also
subject
to qualitative judgments and
adjustment by the regulators with respect
to minimum capital requirements, components,
risk weightings,
and
other
factors.
As
of
September
30,
2024
and
December
31,
2023,
the
Corporation
and
FirstBank
exceeded
the
minimum
regulatory capital ratios
for capital adequacy purposes
and FirstBank exceeded the
minimum regulatory capital
ratios to be considered
a
well-capitalized
institution
under
the regulatory
framework
for
prompt
corrective
action.
As of
September
30,
2024,
management
does not believe that any condition has changed or event has occurred that would
have changed the institution’s status.
The Corporation and FirstBank
compute risk-weighted assets
using the standardized
approach required by the
U.S. Basel III capital
rules (“Basel III rules”).
The
Basel
III
rules
require
the
Corporation
to
maintain
an
additional
capital
conservation
buffer
of
%
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 September
30, 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)
73
The regulatory
capital position of
the Corporation and
FirstBank as of
September 30,
2024 and December
31, 2023, which
reflects
the delay in the full effect of CECL on regulatory capital, were
as follows:
Regulatory Requirements
Actual
For Capital Adequacy Purposes
To be Well
-Capitalized
Thresholds
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
As of September 30, 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
$
%
$
%
$
%
Commitments
The Corporation enters
into financial instruments
with off-balance sheet
risk in the normal
course of business to
meet the financing
needs
of
its
customers.
These
financial
instruments
may
include
commitments
to
extend
credit
and
standby
letters
of
credit.
Commitments to extend credit are agreements
to lend to a customer as long
as there is no violation of any conditions
established in the
contract. Commitments
generally have fixed
expiration dates or
other termination clauses.
Since certain commitments
are expected
to
expire without
being drawn
upon, the
total commitment
amount does
not necessarily
represent future
cash requirements.
For most
of
the
commercial
lines
of
credit,
the
Corporation
has
the
option
to
reevaluate
the
agreement
prior
to
additional
disbursements.
In
the
case of credit cards and personal lines of credit, the Corporation can
cancel the unused credit facility at any time and without cause.
As
of September
30, 2024,
commitments to
extend credit
amounted to
approximately $
credit card loans.
In addition, commercial
and financial standby
letters of credit
as of September
30, 2024 amounted
to approximately
$
Contingencies
As of
September 30,
2024, First
BanCorp. and
its subsidiaries
were defendants
in various
legal proceedings,
claims and
other loss
contingencies
arising
in
the
ordinary
course
of
business.
On
at
least
a
quarterly
basis,
the
Corporation
assesses
its
liabilities
and
contingencies in connection
with threatened and
outstanding legal proceedings,
claims and other
loss contingencies utilizing
the latest
information
available. For
legal proceedings,
claims and
other loss
contingencies where
it is
both probable
that the
Corporation
will
incur
a
loss
and
the
amount
can
be
reasonably
estimated,
the
Corporation
establishes
an
accrual
for
the
loss.
Once
established,
the
accrual
is
adjusted
as
appropriate
to
reflect
any
relevant
developments.
For
legal
proceedings,
claims
and
other
loss
contingencies
where a loss is not probable or the amount of the loss cannot be estimated, no accrual
is established.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
74
Any estimate
involves significant
judgment, given
the varying
stages of
the proceedings
(including the
fact that
some of
them are
currently in
preliminary stages),
the existence
in some
of the
current proceedings
of multiple
defendants whose
share of
liability has
yet
to
be
determined,
the
numerous
unresolved
issues
in
the
proceedings,
and
the
inherent
uncertainty
of
the
various
potential
outcomes of such
proceedings. Accordingly,
the Corporation’s
estimate will change
from time to time,
and actual losses
may be more
or less than the current estimate.
While
the
final
outcome
of
legal
proceedings,
claims,
and
other
loss
contingencies
is
inherently
uncertain,
based
on
information
currently
available,
management
believes
that
the
final
disposition
of
the
Corporation’s
legal
proceedings,
claims
and
other
loss
contingencies,
to
the
extent
not
previously
provided
for,
will
not
have
a
material
adverse
effect
on
the
Corporation’s
consolidated
financial position as a whole.
If management believes that, based on available information,
it is at least reasonably possible that a material loss (or material
loss in
excess
of
any
accrual)
will
be
incurred
in
connection
with
any
legal
contingencies,
the
Corporation
discloses
an
estimate
of
the
possible loss or
range of loss,
either individually or
in the aggregate,
as appropriate, if
such an estimate can
be made, or
discloses that
an estimate cannot be made. Based on the Corporation’s
assessment as of September 30, 2024, no such disclosures were necessary.
In 2023,
the FDIC
issued a
final rule
to impose
a special
assessment to
recover
certain estimated
losses to
the
Deposit Insurance
Fund (“DIF”)
arising from
the closures
of Silicon
Valley
Bank and
Signature Bank.
The estimated
losses will
be recovered
through
quarterly
special assessments
collected from
certain insured
depository
institutions, including
the Bank,
and collection
began
during
the
quarter
ended
June
30,
2024.
In
connection
with
updates
made
by
the
FDIC
to
the
initial
estimated
losses
to
the
DIF,
the
Corporation recorded
charges of
$
of income
as part
of “FDIC
deposit insurance”
expenses. As
of September
30, 2024,
the Corporation’s
total estimated
FDIC special
assessment
amounted
to
$
estimated loss to the DIF,
which could affect the amount of its accrued liability.
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
75
NOTE 22 – FIRST BANCORP.
(HOLDING COMPANY
ONLY) FINANCIAL
INFORMATION
The following condensed
financial information presents
the financial position
of First BanCorp.
at the holding
company level only
as
of
September
30,
2024
and
December
31,
2023,
and
the
results
of
its
operations
for
the
quarters
and
nine-month
periods
ended
September 30, 2024 and 2023:
Statements of Financial Condition
As of September 30,
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)
In September 2024, the Corporation
redeemed $
%, of outstanding TruPS
issued by FBP Statutory Trust
II (or $
the Trust
of approximately
$
Assets” and Note 13 - “Stockholders' Equity.”
FIRST BANCORP.
NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS – (Continued)
76
Statements of Income
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
2024
2023
2024
2023
(In thousands)
Income
$
$
$
$
Expense
Income before income taxes and equity in undistributed
Income tax expense
Equity in undistributed earnings of subsidiaries
(
1,490
)
(
7,105
)
(
19,241
)
Net income
$
$
$
$
Other comprehensive income (loss), net of tax
(
78,976
)
(
46,585
)
Comprehensive income
$
$
$
$
77
ITEM
2.
MANAGEMENT’S
DISCUSSION
AND
ANALYSIS
OF
FINANCIAL
CONDITION
AND
RESULTS
OF
OPERATIONS (“MD&A”)
The
following
MD&A
relates
to
the
accompanying
unaudited
consolidated
financial
statements
of
First
BanCorp.
(the
“Corporation,” “we,” “us,”
“our,” or “First
BanCorp.”) and should be
read in conjunction with
such financial statements and
the notes
thereto,
and our
Annual Report
on Form
10-K for
the fiscal
year ended
December 31,
2023 (the
“2023 Annual
Report on
Form 10-
K”). This section
also presents certain
financial measures that
are not based
on generally accepted
accounting principles in
the United
States
of
America
(“GAAP”).
See
“Non-GAAP
Financial
Measures
and
Reconciliations”
below
for
information
about
why
non-
GAAP
financial
measures
are
presented,
reconciliations
of
non-GAAP
financial
measures
to
the
most
comparable
GAAP
financial
measures, and references to non-GAAP financial measures reconciliations
presented in other sections.
EXECUTIVE SUMMARY
First BanCorp. is
a diversified financial
holding company headquartered
in San Juan, Puerto
Rico, offering a
full range of financial
products to
consumers and
commercial customers
through various
subsidiaries. First
BanCorp.
is the
holding company
of FirstBank
Puerto
Rico
(“FirstBank”
or the
“Bank”)
and
FirstBank
Insurance
Agency.
Through
its wholly
-owned
subsidiaries,
the Corporation
operates
in
Puerto
Rico,
the
United
States
Virgin
Islands
(“USVI”),
the
British
Virgin
Islands
(“BVI”),
and
the
state
of
Florida,
concentrating on
commercial banking,
residential mortgage loans,
credit cards, personal
loans, small loans,
auto loans and
leases, and
insurance agency activities.
Recent Developments
Economy and Market Update
In light
of the
progress on
inflation and
a slower
than expected
growth in
the labor
market during
August 2024,
on September
18,
2024 and November 11,
2024, the Federal Reserve (the
“FED”) decided to lower the target
range for the federal funds rate by
50 basis
points (“bps”)
and 25
bps, respectively.
Nevertheless,
recent
indicators
suggest that
the U.S.
economy
has continued
to expand
at a
solid
pace.
Nonfarm
payrolls for
the month
of September
2024
added 254,000
jobs
and
the unemployment
rate
fell
to 4.1%.
Gross
Domestic
Product
(“GDP”)
rose
at
a
seasonally
adjusted
annual
rate
of
2.8%
in
the
third
quarter
of
2024,
slightly
below
estimates
which were expecting a 3% growth.
The
Corporation
maintained
positive
credit
performance
and
stable
deposit
trends
and
made
good
progress
on
its
capital
deployment strategy.
The U.S. and Puerto
Rico economy remain on
solid footing driven by
positive labor market trends
and increased
business activity.
This environment
continues to
support credit
demand and
has enabled
the Corporation
to have
its strongest
quarter
of commercial
loan originations
for the
year thus
far.
The Corporation
remains focused
on expanding
existing relationships,
building
loan pipeline, and adopting new platforms to enable future growth for the
remainder of 2024 and for 2025.
The market expectations are for the FED to continue lowering rates and
the federal funds rate is expected to be at 4.4% at the end of
this year and
at 3.4% at
the end of
2025. The Corporation
expects the net
interest margin
to remain flat
for the fourth
quarter of
2024
but
to
improve
for
2025.
The
Corporation
expects
the
downward
repricing
of
the
commercial
variable-rate
portfolio
to
be
compensated by
the repricing
of the
cash flows
from the
lower yielding
investment portfolio,
the redeployment
of cash
inflows from
repayments of investment
securities into loans or
higher yielding securities,
and the repricing
of deposits. In
addition, the replacement
of
higher
cost
of
funding
such
as
brokered
certificates
of
deposit
(“CDs”)
and
junior
subordinated
debentures
with
lower
cost
of
funding is expected to improve the net interest margin as well.
Repurchase of Trust
-Preferred Securities
(“TruPS”)
In September
2024,
the Corporation
redeemed $50.0
million,
or 42%,
of outstanding
TruPS
issued by
FBP Statutory
Trust
II (or
$48.5 million after excluding the Corporation’s
interest in the Trust of approximately $1.5 million)
at a contractual call price of 100%.
The
redemption
was
part
of
the
repurchase
program
approved
in
the
third
quarter
of
2024
under
which
the
Corporation
may
repurchase up to
$250 million of
common stock or
junior subordinated
debentures, which it
expects to execute
through the end
of the
fourth
quarter
of 2025.
As of
September
30,
2024,
the
Corporation
has
remaining
authorization
of approximately
$250.0
million
in
combination with the remaining availability under the 2023 stock repurchase
program.
78
CRITICAL ACCOUNTING POLICIES AND PRACTICES
The
accounting
principles
of
the
Corporation
and
the
methods
of
applying
these
principles
conform
to
GAAP.
In
preparing
the
consolidated
financial
statements,
management
is
required
to
make
estimates,
assumptions,
and
judgments
that
affect
the
amounts
recorded for assets,
liabilities and contingent
liabilities as of
the date of
the financial statements
and the reported
amounts of revenues
and
expenses
during
the
reporting
periods.
Note
1
of
the Notes
to
Consolidated
Financial
Statements
included
in
our
2023
Annual
Report
on
Form
10-K,
as
supplemented
by
this
Quarterly
Report
on
Form
10-Q,
including
this
MD&A,
describes
the
significant
accounting policies we used in our consolidated financial statements.
Not all significant
accounting policies require
management to make
difficult, subjective
or complex judgments.
Critical accounting
estimates
are
those
estimates
made
in
accordance
with
GAAP
that
involve
a
significant
level
of
uncertainty
and
have
had
or
are
reasonably
likely
to
have
a
material
impact
on
the
Corporation’s
financial
condition
and
results
of
operations.
The
Corporation’s
critical accounting
estimates that
are particularly
susceptible
to significant
changes include,
but are
not limited
to, the
following:
(i)
the allowance for credit losses (“ACL”);
(ii) valuation of financial instruments;
and (iii) income taxes. For more
information regarding
valuation
of financial
instruments and
income tax
policies, assumptions,
and judgments,
see “Critical
Accounting
Estimates” in
Part
II,
Item
7,
“Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations
(“MD&A”),”
in
the
2023
Annual
Report
on
Form
10-K.
The
“Risk
Management
–
Credit
Risk
Management”
section
of
this
MD&A
details
the
policies,
assumptions, and
judgments related
to the
ACL. Actual
results could
differ
from estimates
and assumptions
if different
outcomes or
conditions prevail.
Overview of Results of Operations
The
Corporation’s
results
of
operations
depend
primarily
on
its
net
interest
income,
which
is
the
difference
between
the
interest
income
earned
on
its
interest-earning
assets,
including
investment
securities
and
loans,
and
the
interest
expense
incurred
on
its
interest-bearing
liabilities,
including
deposits
and
borrowings.
Net
interest
income
is
affected
by
various
factors,
including
the
following:
(i)
the
interest
rate
environment;
(ii)
the
volumes,
mix,
and
composition
of
interest-earning
assets,
and
interest-bearing
liabilities; and
(iii) the
repricing
characteristics of
these assets
and liabilities.
The Corporation
’s
results of
operations also
depend on
the
provision
for
credit
losses,
non-interest
expenses
(such
as
personnel,
occupancy,
professional
service
fees,
the
FDIC
insurance
premium,
and
other
costs),
non-interest
income
(mainly
service
charges
and
fees
on
deposits,
cards
and
processing
income,
and
insurance income), gains (losses) on mortgage banking activities, and income
taxes.
For
the
quarter
and
nine-month
period
ended
September
30,
2024,
the
Corporation
had
net
income
of
$73.7
million
($0.45
per
diluted
common
share)
and
$223.0
million
($1.35
per
diluted
common
share),
respectively,
compared
to
$82.0
million
($0.46
per
diluted common share)
and $223.4 million
($1.25 per diluted common
share), respectively,
for the comparable
periods in 2023.
Other
relevant selected financial indicators for the periods presented are included
below:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2024
2023
2024
2023
Key Performance Indicator:
(1)
Return on Average
Assets
(2)
1.55
%
1.72
%
1.57
%
1.59
%
Return on Average
Common Equity
(3)
18.31
20.70
19.52
19.00
Efficiency Ratio
(4)
52.41
50.71
52.03
49.29
(1)
These financial ratios are used by management to monitor the Corporation’s
financial performance and whether it is using its assets
efficiently.
(2)
Indicates how profitable the Corporation is in relation to its total assets
and is calculated by dividing net income on an annualized basis
by its average total assets.
(3)
Measures the Corporation’s
performance based on
its average common stockholders’
equity and is calculated by
dividing net income on
an annualized basis by its
average total common
stockholders’ equity.
(4)
Measures how much the Corporation incurred to generate a
dollar of revenue and is calculated by dividing non-interest expenses
by total revenue.
79
The
key
drivers
of
the
Corporation’s
GAAP
financial
results
for
the
quarter
ended
September
30,
2024,
compared
to
the
third
quarter of 2023, include the following:
●
Net
interest
income
for
the
quarter
ended
September
30,
2024
increased
by
$2.4
million
to
$202.1
million,
compared
to
$199.7 million
for the
third quarter
of 2023,
driven
by higher
interest income
on loans
as a
result of
a change
in asset
mix
resulting from
the deployment
of cash
flows from
lower-yielding
investment securities
to fund
loan growth,
partially offset
by
an
increase
in
interest
expense
due
to
higher
rates
paid
on
interest-bearing
deposits
given
the
higher
interest
rate
environment and change in deposit mix. See “Results of Operations – Net Interest
Income”
below for additional information.
●
The provision for credit
losses on loans, finance
leases, unfunded loan commitments
and debt securities for the
quarter ended
September 30,
2024 was $15.2
million, compared
to $4.4 million
for the third
quarter of 2023
.
The increase in
the provision
expense
was driven
by
a
$14.4
million
increase
in
the provision
for
the
consumer
loan
and
finance
lease
portfolios
due to
higher charge-off levels.
Net charge-offs
totaled $24.0 million
for the quarter
ended September
30, 2024, or
0.78% of average
loans on an
annualized
basis, compared
to $14.1 million,
or an annualized
0.48% of average
loans, for the
third quarter of
2023. The increase
in net
charge-offs was mainly
due to an increase in consumer
loans and finance leases net charge
-offs. See “Results of
Operations –
Provision for
Credit Losses”
and “Risk
Management” below
for analyses
of the
ACL and
non-performing assets
and related
ratios.
●
Non-interest income for the quarter
ended September 30, 2024 increased by $2.2
million, reflecting, among other things, $0.8
million
in
insurance
proceeds
received
in
the
third
quarter
of
2024
and
an
increase
in
revenues
from
mortgage
banking
activities mainly due to a $0.8
million increase in the net
realized gain on sales of residential
mortgage loans in the secondary
market.
●
Non-interest
expenses
for
the
quarter
ended
September
30,
2024
increased
by
$6.3
million
to
$122.9
million,
reflecting,
among other things,
a $2.5 million increase
in employees’ compensation
and benefits expenses driven
by annual salary
merit
increases,
a $1.5 million increase in professional
services fees driven by information
technology infrastructure enhancements,
a
$1.8
million
increase
in
charges
for
operational
and
fraud
losses,
and
a
$0.8
million
decrease
in
net
gains
on
other
real
estate owned (“OREO”) operations.
See “Results of Operations – Non-Interest Expenses” below for additional
information.
●
Income tax expense decreased to $22.7 million for the third quarter
of 2024, compared to $27.0 million for the same period in
2023,
driven
by
lower
pre-tax
income
and
a
lower
estimated
effective
tax
rate
due
to
increased
business
activities
with
preferential tax treatment
under the PR Tax
Code. The Corporation’s
estimated effective tax
rate, excluding entities with
pre-
tax losses
from which
a tax benefit
cannot be
recognized and
discrete items,
decreased
to 23.7%
for the
first nine
months of
2024,
compared
to 28.2%
for
the
same period
of 2023.
See
“Income
Taxes”
below
and Note
16 –
“Income
Taxes,”
to
the
unaudited consolidated financial statements herein for additional information.
●
As
of
September
30,
2024,
total
assets
were
approximately
$18.9
billion,
a
decrease
of
$50.4
million
from
December
31,
2023,
primarily related to repayments
of investment securities,
partially offset by
an increase in total
loans and cash and
cash
equivalents.
●
As of
September 30,
2024,
total liabilities
were $17.2
billion, a
decrease of
$253.6 million
from December
31, 2023,
which
includes
an
increase
in
core
deposits,
which
was
more
than
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
September
30,
2024,
these
core
deposits,
amounting
to
$12.7
billion,
funded
67.18%
of
total
assets.
Excluding
fully collateralized
government
deposits, estimated
uninsured deposits
amounted
to $4.6
billion as
of September
30, 2024. In
addition to approximately
$1.8 billion in
cash and free
high-quality liquid
assets, the Bank
maintains borrowing
capacity at the
FHLB and
the FED’s
Discount Window.
As of September
30, 2024, the
Corporation had
approximately $2.6
billion
available
for
funding
under
the
FED’s
Discount
Window
and
$964.7
million
available
for
additional
borrowing
capacity on FHLB lines of
credit based on collateral
pledged at these entities. In
the aggregate, as of
September 30, 2024, the
Corporation had
$6.1 billion,
or 131%
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.
80
●
As of
September 30,
2024, the
Corporation’s
total stockholders’
equity was
$1.7 billion,
an increase
of $203.3
million from
December 31,
2023. The
increase was
driven by
net income
generated in
the first
nine months
of 2024
and a $155.5
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
$100.0
million
in
common
stock
repurchases
under
the
2023 stock repurchase
program and common
stock dividends declared
in the first nine
months of 2024 totaling
$79.7 million
or $0.48
per common
share. The
Corporation’s
CET1 capital,
tier 1
capital,
total capital,
and
leverage ratios
were 16.18%,
16.18%, 18.25%, and
10.96%, respectively,
as of September
30, 2024, compared
to CET1 capital, tier
1 capital, total
capital,
and
leverage
ratios
of
16.10%,
16.10%,
18.57%,
and
10.78%,
respectively,
as
of
December
31,
2023.
See
“Risk
Management – Capital” below for additional information.
●
Total
loan
production,
including
purchases,
refinancings,
renewals,
and
draws
from
existing
revolving
and
non-revolving
commitments, increased
by $4.8
million to
$1.3 billion
for the
quarter ended
September 30,
2024, as
compared to
the third
quarter of
2023, driven
by a
higher volume
of commercial
and construction
loan originations.
See “Results
of Operations
–
Loan Production”
below for additional information.
●
Total
non-performing assets
were $119.1
million as
of September
30, 2024,
a decrease
of $6.8
million, from
December 31,
2023,
driven by a
$13.3 million decrease
in the OREO
portfolio balance
in the Puerto
Rico region, mainly
attributable to the
sale of a $5.3 million commercial real estate OREO property
and sales of residential OREO properties. This variance
is net of
a $5.6
million increase in
total nonaccrual loans
held for investment
mainly due
to the inflow
of a $16.5
million commercial
relationship
in
the
food
retail industry
in
the
Puerto
Rico
region,
partially
offset
by
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.
See “Risk
Management – Nonaccrual Loans and Non-Performing Assets” below for
additional information.
●
Adversely
classified
commercial
and
construction
loans
increased
by
$10.2
million
to
$77.7
million
as
of
September
30,
2024,
compared
to
December
31,
2023,
also
driven
by
the
aforementioned
inflow
to
nonaccrual
status
of
a
$16.5
million
commercial
relationship
in
the
Puerto
Rico
region
and
the
downgrade
of
a
$5.1
million
commercial
mortgage
loan
in
the
Puerto Rico region
,
partially offset
by the aforementioned
sale and charge
-off of
an $8.2 million
nonaccrual C&I
loan in the
Puerto Rico region.
81
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS
The Corporation has included in this Quarterly Report on Form 10-Q
the following financial measures that are not recognized under
GAAP,
which are referred to as non-GAAP financial measures:
Net Interest Income,
Interest Rate Spread,
and Net Interest Margin, Excluding
Valuations
,
and on a Tax
-Equivalent Basis
Net interest
income, interest
rate spread,
and net
interest margin
are reported
excluding the
changes in
the fair
value of
derivative
instruments and
on a
tax-equivalent basis
in order
to provide
to investors
additional information
about the
Corporation’s
net interest
income
that management
uses and
believes should
facilitate comparability and
analysis of
the periods
presented.
The changes
in the
fair value
of derivative
instruments have
no effect
on interest
due or
interest earned
on interest-bearing
liabilities or
interest-earning
assets, respectively.
The tax-equivalent
adjustment to
net interest
income recognizes
the income
tax savings
when comparing
taxable
and
tax-exempt
assets
and
assumes
a
marginal
income
tax
rate.
Income
from
tax-exempt
earning
assets
is
increased
by
an
amount
equivalent to
the taxes
that would
have been
paid if
this income
had been
taxable at
statutory rates.
Management believes
that it
is a
standard
practice
in
the banking
industry
to
present
net
interest
income,
interest
rate
spread,
and
net
interest
margin
on
a
fully
tax-
equivalent basis. This adjustment
puts all earning assets, most
notably tax-exempt securities and
tax-exempt loans, on a common
basis
that facilitates comparison of results to the results of peers.
See “Results of Operations – Net Interest Income” below,
for the table that reconciles net interest income in accordance with GAAP
to
the
non-GAAP
financial
measure
of
net
interest
income,
excluding
valuations,
and
on
a
tax-equivalent
basis
for
the
indicated
periods. The table also reconciles
net interest spread and
net interest margin on
a GAAP basis to these items
excluding valuations, and
on a tax-equivalent basis.
Tangible
Common Equity Ratio and Tangible
Book Value
Per Common Share
The tangible
common equity
ratio and
tangible book
value per
common share
are non-GAAP
financial measures
that management
believes are generally
used by the financial
community to evaluate
capital adequacy.
Tangible
common equity is total
common equity
less goodwill
and
other
intangibles. Similarly,
tangible
assets are
total assets
less goodwill
and
other
intangibles.
Tangible
common
equity ratio is tangible common
equity divided by tangible assets. Tangible
book value per common share is
tangible assets divided by
the number
of common
shares outstanding.
Management 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.
82
Adjusted Net Income,
Adjusted Non-Interest Income, and Adjusted Non-Interest
Expenses
To
supplement the
Corporation’s
financial statements
presented in
accordance with
GAAP,
the Corporation
uses, and believes
that
investors
benefit
from
disclosure
of,
non-GAAP
financial
measures
that
reflect
adjustments
to
net
income,
non-interest
income
and
non-interest expenses
to exclude
items that
management believes
are not
reflective of
core operating
performance (“Special
Items”).
The financial
results for the
quarters ended
September 30, 2024
and 2023 did
not include any
significant Special
Items. The financial
results for the nine-month periods ended September 30, 2024
and 2023 included the following Special Items:
Nine-Month Period Ended September 30, 2024
-
Charges of $1.1 million ($0.7 million after-tax,
calculated based on the statutory tax rate of 37.5%) were recorded in the nine-
month
period
ended
September
30,
2024,
respectively,
to
increase
the
initial
estimated
FDIC
special
assessment
resulting
from the FDIC’s
updates related to
the loss estimate
in connection with
losses to the
Deposit Insurance Fund
associated with
protecting
uninsured
deposits
following
the
failures
of
certain
financial
institutions
during
the
first
half
of
2023.
The
aforementioned
charges
increased
the
estimated
FDIC
special
assessment
to
a
total
of
$7.4
million,
which
was the
revised
estimated loss
reflected
in the
FDIC invoice
for
the first
quarterly
collection period
with a
payment
date of
June 28,
2024.
The
FDIC
special
assessment
is
reflected
in
the
consolidated
statements
of
income
as
part
of
“FDIC
deposit
insurance”
expenses.
Nine-Month Period Ended September 30, 2023
-
A
$3.6
million
($2.3
million
after-tax,
calculated
based
on
the
statutory
tax
rate
of
37.5%)
gain
recognized
from
a
legal
settlement reflected in the consolidated statements of income as part of
“other non-interest income.”
-
A
$1.6
million
gain
on
the
repurchase
of
$21.4
million
in
junior
subordinated
debentures
reflected
in
the
consolidated
statements
of
income
as
“Gain
on
early
extinguishment
of
debt.”
The
junior
subordinated
debentures
are
reflected
in
the
consolidated statements
of financial condition
as “Other long-term
borrowings.” The
purchase price
equated to
92.5% of the
$21.4
million
par
value
of
the
trust
preferred
securities.
The
7.5%
discount
resulted
in
the
gain
of
$1.6
million.
The gain,
realized at the holding company level, had no effect on
the income tax expense in 2023.
Adjusted Net Income
– The following
table reconciles for
the nine-month periods
ended September 30,
2024 and 2023, net
income
to adjusted net income, a non-GAAP financial measure that excludes the
Special Items identified above.
Nine-Month Period Ended September 30,
2024
2023
(In thousands)
Net income, as reported (GAAP)
$
223,023
$
223,375
Adjustments:
FDIC special assessment expense
1,099
-
Gain recognized from a legal settlement
-
(3,600)
Gain on early extinguishment of debt
-
(1,605)
Income tax impact of adjustments
(1)
(412)
1,350
Adjusted net income (Non-GAAP)
$
223,710
$
219,520
(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.
83
RESULTS
OF OPERATIONS
Net Interest Income
Net interest
income is
the excess of
interest earned
by First
BanCorp. on
its interest-earning
assets over
the interest
incurred on its
interest-bearing
liabilities.
First
BanCorp.’s
net
interest
income
is
subject
to
interest
rate
risk
due
to
the
repricing
and
maturity
mismatch
of
the
Corporation’s
assets
and
liabilities.
In
addition,
variable
sources
of
interest
income,
such
as
loan
fees,
periodic
dividends, and
collection of
interest in
nonaccrual loans,
can fluctuate
from period
to period.
Net interest
income for
the quarter
and
nine-month
period ended
September 30,
2024 was
$202.1 million
and $598.2
million, respectively,
compared to
$199.7 million
and
$600.4 million for
the comparable periods
in 2023, respectively.
On a tax-equivalent
basis and excluding
the changes in the
fair value
of derivative instruments, net interest income for the quarter and
nine-month period ended September 30, 2024 was $206.6 million
and
$612.4 million, respectively,
compared to $204.4 million and $617.0 million for the comparable periods in 2023,
respectively.
The
following
tables
include a
detailed
analysis
of net
interest income
for
the indicated
periods.
Part I
presents
average volumes
(based
on
the
average
daily
balance)
and
rates
on
an
adjusted
tax-equivalent
basis
and
Part
II
presents,
also
on
an
adjusted
tax-
equivalent basis,
the extent
to which
changes in
interest rates
and changes
in the
volume of
interest-related assets
and liabilities
have
affected
the Corporation’s
net interest
income. For
each category
of interest-earning
assets and
interest-bearing
liabilities, the
tables
provide
information
on
changes
in
(i)
volume
(changes
in
volume
multiplied
by
prior
period
rates),
and
(ii)
rate
(changes
in
rate
multiplied by
prior period
volumes). The
Corporation has
allocated rate-volume
variances (changes
in rate
multiplied by
changes in
volume) to either the changes in volume or the changes in rate based upon the
effect of each factor on the combined totals.
Net interest
income on
an adjusted
tax-equivalent
basis and
excluding
the changes
in the
fair value
of derivative
instruments is
a
non-GAAP
financial
measure.
For
the
definition
of
this
non-GAAP
financial
measure,
refer
to
the
discussion
in
“Non-GAAP
Financial Measures and Reconciliations” above.
Part I
Average volume
Interest income
(1)
Average rate
(1)
Quarter ended September 30,
2024
2023
2024
2023
2024
2023
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
$
645,398
$
807,883
$
8,782
$
10,956
5.40
%
5.38
%
Government obligations
(2)
2,520,133
2,817,646
8,458
9,415
1.33
%
1.33
%
MBS
3,290,547
3,650,737
13,830
15,677
1.67
%
1.70
%
FHLB stock
33,985
34,666
804
768
9.39
%
8.79
%
Other investments
19,726
14,294
73
61
1.47
%
1.69
%
Total investments
(3)
6,509,789
7,325,226
31,947
36,877
1.95
%
2.00
%
Residential mortgage loans
2,816,343
2,800,675
41,505
39,640
5.85
%
5.62
%
Construction loans
195,001
183,507
4,417
4,937
8.99
%
10.67
%
C&I and commercial mortgage loans
5,616,658
5,261,849
102,768
93,711
7.26
%
7.07
%
Finance leases
885,807
808,480
17,290
15,802
7.74
%
7.75
%
Consumer loans
2,840,870
2,728,945
81,281
77,125
11.35
%
11.21
%
Total loans
(4)(5)
12,354,679
11,783,456
247,261
231,215
7.94
%
7.78
%
$
18,864,468
$
19,108,682
$
279,208
$
268,092
5.87
%
5.57
%
Interest-bearing liabilities:
Time deposits
$
3,057,918
$
2,708,297
$
27,768
$
19,852
3.60
%
2.91
%
Brokered CDs
600,319
318,831
7,656
3,830
5.06
%
4.77
%
Other interest-bearing deposits
7,429,163
7,956,856
28,280
30,616
1.51
%
1.53
%
Securities sold under agreements to repurchase
-
26,254
-
359
-
%
5.43
%
Advances from the FHLB
500,000
500,000
5,672
5,675
4.50
%
4.50
%
Other borrowings
155,722
161,700
3,235
3,345
8.24
%
8.21
%
Total interest-bearing liabilities
$
11,743,122
$
11,671,938
$
72,611
$
63,677
2.45
%
2.16
%
Net interest income on a tax-equivalent basis and excluding
valuations - non-GAAP
$
206,597
$
204,415
Interest rate spread
3.42
%
3.41
%
Net interest margin
4.34
%
4.24
%
84
Part I
Average volume
Interest income
(1)
Average rate
(1)
Nine-Month Period Ended September 30,
2024
2023
2024
2023
2024
2023
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
$
615,679
$
611,308
$
25,096
$
23,486
5.43
%
5.14
%
Government obligations
(2)
2,607,706
2,878,603
26,458
31,153
1.35
%
1.45
%
MBS
3,366,866
3,756,654
43,407
52,160
1.72
%
1.86
%
FHLB stock
34,217
37,234
2,476
1,969
9.64
%
7.07
%
Other investments
17,978
13,729
383
258
2.84
%
2.51
%
Total investments
(3)
6,642,446
7,297,528
97,820
109,026
1.96
%
2.00
%
Residential mortgage loans
2,811,447
2,814,667
122,664
119,298
5.81
%
5.67
%
Construction loans
219,601
159,914
13,909
10,516
8.44
%
8.79
%
C&I and commercial mortgage loans
5,550,259
5,207,216
302,761
268,886
7.27
%
6.90
%
Finance leases
874,508
771,366
51,672
44,325
7.87
%
7.68
%
Consumer loans
2,822,909
2,679,261
240,809
222,531
11.36
%
11.10
%
Total loans
(4)(5)
12,278,724
11,632,424
731,815
665,556
7.94
%
7.65
%
$
18,921,170
$
18,929,952
$
829,635
$
774,582
5.84
%
5.47
%
Interest-bearing liabilities:
Time deposits
$
2,984,413
$
2,522,061
$
78,766
$
46,301
3.52
%
2.45
%
Brokered CDs
675,226
273,586
25,926
9,178
5.11
%
4.49
%
Other interest-bearing deposits
7,497,046
7,674,759
85,708
70,308
1.52
%
1.22
%
Securities sold under agreements to repurchase
-
72,648
-
2,756
-
%
5.07
%
Advances from the FHLB
500,000
553,993
16,892
18,899
4.50
%
4.56
%
Other borrowings
159,693
174,307
9,921
10,135
8.28
%
7.77
%
Total interest-bearing liabilities
$
11,816,378
$
11,271,354
$
217,213
$
157,577
2.45
%
1.87
%
Net interest income on a tax-equivalent basis and excluding
valuations - non-GAAP
$
612,422
$
617,005
Interest rate spread
3.39
%
3.60
%
Net interest margin
4.31
%
4.36
%
(1)
On an adjusted tax-equivalent
basis. The Corporation
estimated the adjusted
tax-equivalent yield by dividing
the interest rate spread
on exempt assets by
1 less the Puerto Rico
statutory tax
rate
of 37.5%
and
adding
to
it the
cost
of interest-bearing
liabilities.
The
tax-equivalent
adjustment
recognizes
the
income
tax savings
when comparing
taxable
and
tax-exempt
assets.
Management believes that it is a standard practice
in the banking industry to present net interest income,
interest rate spread and net interest margin
on a fully tax-equivalent basis. Therefore,
management believes these
measures provide useful information
to investors by allowing
them to make peer
comparisons. The Corporation
excludes changes in
the fair value of
derivatives
from interest income because the changes in valuation do not affect
interest received. See "Non-GAAP Financial Measures
and Reconciliations" above.
(2)
Government obligations include debt issued by government-sponsored
agencies.
(3)
Unrealized gains and losses on available-for-sale debt securities
are excluded from the average volumes.
(4)
Average loan balances include
the average of nonaccrual loans.
(5)
Interest income
on loans
includes $3.2
million and
$2.9 million
for the
quarters ended
September 30,
2024 and
2023, respectively,
and $9.5
million and
$8.9 million
for the
nine-month
periods ended September 30, 2024 and 2023, respectively,
of income from prepayment penalties and late fees related to
the Corporation’s loan portfolio.
85
Part II
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2024 Compared to 2023
2024 Compared to 2023
Variance due to:
Variance due to:
Volume
Rate
Total
Volume
Rate
Total
(In thousands)
Interest income on interest-earning assets:
Money market and other short-term investments
$
(2,207)
$
33
$
(2,174)
$
170
$
1,440
$
1,610
Government obligations
(996)
39
(957)
(2,822)
(1,873)
(4,695)
MBS
(1,520)
(327)
(1,847)
(5,185)
(3,568)
(8,753)
FHLB stock
(16)
52
36
(189)
696
507
Other investments
22
(10)
12
87
38
125
Total investments
(4,717)
(213)
(4,930)
(7,939)
(3,267)
(11,206)
Residential mortgage loans
223
1,642
1,865
(138)
3,504
3,366
Construction loans
285
(805)
(520)
3,853
(460)
3,393
C&I and commercial mortgage loans
6,442
2,615
9,057
18,261
15,614
33,875
Finance leases
1,511
(23)
1,488
6,053
1,294
7,347
Consumer loans
3,193
963
4,156
12,138
6,140
18,278
Total loans
11,654
4,392
16,046
40,167
26,092
66,259
Total interest income
$
6,937
$
4,179
$
11,116
$
32,228
$
22,825
$
55,053
Interest expense on interest-bearing liabilities:
Time deposits
$
2,778
$
5,138
$
7,916
$
9,605
$
22,860
$
32,465
Brokered CDs
3,576
250
3,826
15,205
1,543
16,748
Other interest-bearing deposits
(2,011)
(325)
(2,336)
(1,829)
17,229
15,400
Securities sold under agreements to repurchase
(359)
-
(359)
(2,756)
-
(2,756)
Advances from the FHLB
-
(3)
(3)
(1,821)
(186)
(2,007)
Other borrowings
(125)
15
(110)
(879)
665
(214)
Total interest expense
3,859
5,075
8,934
17,525
42,111
59,636
Change in net interest income
$
3,078
$
(896)
$
2,182
$
14,703
$
(19,286)
$
(4,583)
Portions of the Corporation’s
interest-earning assets, mostly investments
in obligations of some U.S.
government agencies and U.S.
government-sponsored
entities (“GSEs”),
generate interest
that is
exempt from
income tax,
principally in
Puerto Rico.
Also, interest
and gains
on sales of
investments held by
the Corporation’s
international banking
entities (“IBEs”) are
tax-exempt under
Puerto Rico
tax
law
(see
Note
16
–
“Income
Taxes”
to
the
unaudited
consolidated
financial
statements
herein
for
additional
information).
Management
believes
that
the
presentation
of
interest
income
on
an
adjusted
tax-equivalent
basis
facilitates
the
comparison
of
all
interest data
related to
these assets. The
Corporation estimated
the tax
equivalent yield
by dividing
the interest
rate spread
on exempt
assets
by
1
less
the
Puerto
Rico
statutory
tax
rate
(37.5%)
and
adding
to
it
the
average
cost
of
interest-bearing
liabilities.
The
computation considers the interest expense disallowance required
by Puerto Rico tax law.
Management
believes
that
the
presentation
of
net
interest
income,
excluding
the
effects
of
the
changes
in
the
fair
value
of
the
derivative
instruments
(“valuations”),
provides
additional
information
about
the
Corporation’s
net
interest
income
and
facilitates
comparability and analysis from
period to period. The changes
in the fair value of
the derivative instruments have
no effect on interest
earned on interest-earning assets.
86
The following
table reconciles
net interest
income in
accordance with
GAAP to
net interest
income, excluding
valuations, and
net
interest
income
on
an
adjusted
tax-equivalent
basis
for
the
indicated
periods.
The
table
also
reconciles
net
interest
spread
and
net
interest margin on a GAAP basis to these items excluding valuations, and
on an adjusted tax-equivalent basis:
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
2024
2023
2024
2023
(Dollars in thousands)
Interest income - GAAP
$
274,675
$
263,405
$
815,425
$
758,005
Unrealized loss (gain) on derivative instruments
5
(3)
3
-
Interest income excluding valuations - non-GAAP
274,680
263,402
815,428
758,005
Tax-equivalent adjustment
4,528
4,690
14,207
16,577
Interest income on a tax-equivalent basis
and excluding valuations - non-GAAP
$
279,208
$
268,092
$
829,635
$
774,582
Interest expense - GAAP
$
72,611
$
63,677
$
217,213
$
157,577
Net interest income - GAAP
$
202,064
$
199,728
$
598,212
$
600,428
Net interest income excluding valuations - non-GAAP
$
202,069
$
199,725
$
598,215
$
600,428
Net interest income on a tax-equivalent basis
and excluding valuations - non-GAAP
$
206,597
$
204,415
$
612,422
$
617,005
Average Balances
Loans and leases
$
12,354,679
$
11,783,456
$
12,278,724
$
11,632,424
Total securities, other short-term investments and interest-bearing
cash balances
6,509,789
7,325,226
6,642,446
7,297,528
Average Interest-Earning Assets
$
18,864,468
$
19,108,682
$
18,921,170
$
18,929,952
Average Interest-Bearing Liabilities
$
11,743,122
$
11,671,938
$
11,816,378
$
11,271,354
Average Assets
(1)
$
18,883,374
$
18,895,980
$
18,875,397
$
18,748,479
Average Non-Interest-Bearing Deposits
$
5,341,589
$
5,621,233
$
5,333,838
$
5,861,680
Average Yield/Rate
Average yield on interest-earning assets - GAAP
5.78%
5.47%
5.74%
5.35%
Average rate on interest-bearing liabilities - GAAP
2.45%
2.16%
2.45%
1.87%
Net interest spread - GAAP
3.33%
3.31%
3.29%
3.48%
Net interest margin - GAAP
4.25%
4.15%
4.21%
4.24%
Average yield on interest-earning assets excluding valuations
- non-GAAP
5.78%
5.47%
5.74%
5.35%
Average rate on interest-bearing liabilities
2.45%
2.16%
2.45%
1.87%
Net interest spread excluding valuations
- non-GAAP
3.33%
3.31%
3.29%
3.48%
Net interest margin excluding valuations - non-GAAP
4.25%
4.15%
4.21%
4.24%
Average yield on interest-earning assets on a tax-equivalent
basis and excluding
valuations - non-GAAP
5.87%
5.57%
5.84%
5.47%
Average rate on interest-bearing liabilities
2.45%
2.16%
2.45%
1.87%
Net interest spread on a tax-equivalent basis
and excluding valuations - non-GAAP
3.42%
3.41%
3.39%
3.60%
Net interest margin on a tax-equivalent basis and excluding
valuations - non-GAAP
4.34%
4.24%
4.31%
4.36%
(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.
87
Net
interest
income
amounted
to
$202.1
million
for
the
quarter
ended
September
30,
2024,
an
increase
of
$2.4
million,
when
compared to $199.7 million for the same period in 2023. The $2.4
million increase in net interest income was primarily due to:
●
A $15.8 million increase in interest income on loans,
including:
-
An
$8.3
million
increase
in
interest
income
on
commercial
and
construction
loans,
driven
by
a
$6.6
million
increase
associated
with
a
$366.3
million
increase
in
the
average
balance,
and
a
$2.9
million
increase
related
to
the
effect
of
higher market interest
rates on the upward
repricing of variable-rate
loans and on new
loan originations. These
variances
were partially
offset by
interest income of
$1.2 million
recognized in
the third quarter
of 2023
due to the
collection of a
previously charged-off construction loan in the
Puerto Rico region.
As
of
September
30,
2024,
the
interest
rate
on
approximately
54%
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 9% based on other indexes.
-
A
$5.6
million
increase
in
interest
income
on
consumer
loans
and
finance
leases,
primarily
associated
with
a
$189.3
million increase in the average balance of this portfolio, mainly auto
loans and finance leases.
Partially offset by:
●
An $8.9 million increase in interest expense on interest-bearing liabilities, including
:
-
A $7.9 million
increase in interest expense
on time deposits,
excluding brokered CDs,
of which $5.1
million was related
to higher rates on renewals, associated with the overall higher interest rate
environment,
and $2.8 million was driven by a
$349.6 million
increase in the
average balance. The
average cost of
time deposits in
the third quarter
of 2024, excluding
brokered CDs, increased 69 bps to 3.60% when compared to the same period
in 2023.
-
A $3.8 million increase in interest expense on brokered CDs, driven by
a $281.5 million increase in the average balance.
Partially offset by:
-
A $2.3 million decrease
in interest expense on interest-bearing
checking and saving accounts,
driven by a $527.7
million
decrease in the average balance.
●
A $4.5
million
decrease
in interest
income
from
total investments,
consisting
of
a $2.4
million
decrease
in interest
income
from debt securities,
mainly associated with
a $657.7 million
decrease in the
average balance,
and a $2.1
million decrease in
interest income from interest-bearing cash balances,
primarily cash balances deposited at the FED, driven
by a $162.5 million
decrease in the average balance.
Net interest
margin
for the
third quarter
of 2024
was 4.25%,
compared to
4.15% for
the same
period in
2023. The
increase in
the
net interest
margin was
driven by
a change
in asset
mix resulting
from the
deployment of
cash flows
from lower-yielding
investment
securities to
fund loan
growth as well
as the
effect of
the higher
interest rate
environment on
commercial and
consumer loans
yields.
These variances were
partially offset by
the higher cost of
funds associated with
the higher interest
rate environment combined
with a
change in deposit mix reflecting a continued migration from non-interest-bearing and other
low-cost deposits to higher-cost deposits.
88
Net interest
income amounted
to $598.2
million for
the nine-month
period ended
September 30,
2024, a
decrease of
$2.2 million,
when compared to $600.4 million for same period in 2023. The $2.2 million
decrease in net interest income was primarily due to:
●
A $59.6 million increase in interest expense on interest-bearing liabilities, consisting
of:
-
A
$32.5
million
increase
in
interest
expense
on
time
deposits,
excluding
brokered
CDs,
of
which
$22.9
million
was
related
to higher
rates in
the first
nine
months of
2024 on
new issuances
and renewals
,
also associated
with the
higher
interest rate environment
,
and $9.6 million
was driven
by a $462.4
million increase
in the average
balance. The
average
cost of time deposits for the first nine months of 2024,
excluding brokered CDs, increased 107 bps to 3.52% as compared
to 2.45% for the same period in 2023.
-
A
$16.7
million
increase
in
interest
expense
on
brokered
CDs,
driven
by
a
$401.6
million
increase
in
the
average
balance.
-
A $15.4 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
30 bps
to
1.52%
for
the
first
nine
months
of
2024
as
compared
to
1.22%
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 the
first nine
months of
2024 was
0.75%, compared
to 0.69%
for the
same period
in
2023.
Partially offset by:
-
A
$5.0
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
in the first
nine months of
2024, and a
$2.0 million
decrease on advances from the FHLB, mainly associated with a $54.0
million decrease in the average balance.
●
A
$6.7
million
decrease
in
interest
income
from
total
investments,
mainly
due
to
a
$9.0
million
net
decrease
in
interest
income
from
debt securities,
mainly
associated with
a $660.7
million
decrease
in the
average
balance,
partially
offset
by a
$1.6
million
increase
in
interest
income
from
interest-bearing
cash
balances,
which
consisted
primarily
of
cash
balances
deposited at the FED, due to the effect of higher market interest rates.
Partially offset by:
●
A $64.1
million increase in interest income on loans,
including:
-
A $35.1
million
increase
in
interest income
on
commercial
and
construction
loans,
driven
by
a
$23.1
million
increase
associated
with
a
$402.7
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.
-
A
$25.6
million
increase
in
interest
income
on
consumer
loans
and
finance
leases,
primarily
due
to
a
$246.8
million
increase in the average balance of this portfolio, mainly auto loans and finance
leases.
Net
interest
margin
for
the nine-month
period
ended
September
30,
2024
was 4.21%,
compared
to 4.24%
for
the same
period
in
2023.
The
decrease
in
the
net
interest
margin
was
driven
by
the
higher
cost
of
funds
associated
with
the
higher
interest
rate
environment
combined
with
a
change
in
deposit
mix
reflecting
a
continued
migration
from
non-interest-bearing
and other
low-cost
deposits to higher-cost
deposits,
as well as the
increase in balance
of brokered CDs.
These variances were
partially offset by
a change
in asset mix resulting
from the deployment
of cash flows from
lower-yielding investment securities
to fund loan growth
as well as the
effect of the higher interest rate environment on commercial and
consumer loans yields.
89
Provision for Credit Losses
The provision
for credit
losses consists of
provisions for
credit losses on
loans and
finance leases,
unfunded loan
commitments, as
well as the debt securities portfolio. The principal changes in the provision
for credit losses by main categories follow:
Provision for credit losses for
loans and finance leases
The
provision
for
credit
losses
for
loans
and
finance
leases
was
$16.5
million
for
the
third
quarter
of
2024,
compared
to
$10.6
million for the third quarter of 2023.
The variances by major portfolio category were as follows:
●
Provision for
credit losses
for the
consumer
loan and
finance lease
portfolios
was an
expense of
$28.4 million
for the
third
quarter of 2024, compared to an expense of $14.0 million for the third
quarter of 2023. The increase in provision expense was
driven by higher charge-off levels in these
portfolios.
●
Provision for
credit losses
for the
commercial and
construction loan
portfolios
was a net
benefit of
$6.4 million
for the third
quarter of
2024, compared
to a
net benefit
of $0.1
million for
the third
quarter of
2023. The
net benefit
recorded during
the
third
quarter
of
2024
was
associated
with
the
improved
financial
condition
of certain
borrowers
and,
to
a
lesser extent,
an
improvement on the economic outlook of certain macroeconomic
variables, particularly variables associated with commercial
real estate property performance and the forecasted commercial real
estate (“CRE”) price index.
●
Provision for credit
losses for the residential
mortgage loan portfolio
was a net benefit
of $5.5 million for
the third quarter of
2024, compared to a net
benefit of $3.3 million for the
third quarter of 2023. The net benefit
recorded during the third quarter
of 2024 was driven
by a higher benefit
associated with updated
macroeconomic variables, mainly
in the long-term projection
of the unemployment rate in the Puerto Rico region.
The provision
for credit losses
for loans
and finance leases
was $41.3
million for the
first nine months
of 2024, compared
to $47.7
million for the same period of 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 $13.4 million
for the first
nine months of
2024, compared
to an expense
of $10.6 million
for the same
period of 2023.
The net benefit
recorded during
the first nine months of 2024 was driven by the
aforementioned improved financial condition of certain
borrowers, 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 increased
volume. Meanwhile,
the expense
recorded during
the first
nine months
of
2023 was mainly due
to a deterioration in the
forecasted CRE price index,
a $6.2 million charge
associated with a nonaccrual
participated
C&I
loan
in
the Florida
region
associated
with
the
power
generation
industry,
the aforementioned
incremental
reserve associated
with the
inflow to
nonaccrual status
of a
$9.5 million
C&I loan
in the
Puerto Rico
region and,
to a
lesser
extent, portfolio growth.
●
Provision
for
credit
losses
for
the
residential
mortgage
loan
portfolio
was
a
net
benefit
of
$16.6
million
for
the
first
nine
months of
2024, compared
to a net
benefit of
$6.8 million
for the
same period
of 2023.
The increase
in net
benefit recorded
during the first
nine months of 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
3
–
“Loans
Held
for
Investment”
to
the
unaudited
consolidated
financial
statements
herein,
and
the
aforementioned
updated
macroeconomic variables, partially offset by newly originated
loans.
●
Provision
for
credit losses
for
the consumer
loan
and
finance lease
portfolios
was an
expense
of $71.3
million
for
the first
nine
months
of
2024,
compared
to
an
expense
of
$43.9
million
for
the
same
period
of
2023.
The
increase
in
provision
expense
was driven
by
higher charge
-off
levels in
these
portfolios
and
increases
in
portfolio
volumes,
partially
offset
by
a
$10.0 million recovery associated with the bulk sale of fully charged
-off loans recorded during the first nine months of 2024.
90
The
provision
for
credit losses
for
unfunded
commercial
and
construction
loan
commitments and
standby
letters of
credit for
the
third
quarter
and
the
first
nine
months
of
2024
was
a
net
benefit
of
$1.0
million
and
$1.1
million,
respectively,
compared
to
a
net
benefit of $0.1
million and an expense
of $0.5 million,
for the same periods
in 2023, respectively.
The net benefit
recorded during the
third
quarter
and
first
nine
months
of
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 $0.1 million
and a net benefit of $1.1
million
for
the
third
quarter
and
first
nine
months
of
2024,
respectively,
compared
to
a
net
benefit
of
$6.2
million
and
$6.0
million,
respectively,
for the same
periods in 2023.
The net benefit
recorded during
the third quarter
and first nine
months of 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 the third quarter of 2023.
The
provision
for
credit
losses for
available-for-sale
debt
securities for
the third
quarter
and
first
nine
months
of 2024
was a
net
benefit
of $36
thousand
and a
net benefit
of $45
thousand, respectively,
compared to
an expense
of $32
thousand
and $7
thousand,
respectively, for the
same periods in 2023.
91
Non-Interest Income
Non-interest
income
amounted
to
$32.5
million
for
the
third
quarter
of
2024,
compared
to
$30.3
million
for
the
same
period
in
2023.
The $2.2 million increase in non-interest income was primarily due to:
●
A $0.9 million increase in card and processing income,
mainly in merchant-related fees and interchange income
due to higher
transactional volumes.
●
A
$0.6
million
increase
in
other
non-interest
income,
driven
by
$0.8
million
in
insurance
proceeds
received
in
the
third
quarter of 2024 related to a 2020 outstanding insurance claim.
●
A $0.4
million
increase
in revenues
from mortgage
banking activities,
driven
by a
$0.8 million
increase
in the
net realized
gain on
sales of
residential mortgage
loans in
the secondary
market
due to
higher margins,
partially offset
by a
$0.3 million
decrease
in
the
fair
value
of
to-be-announced
(“TBA”)
forward
contracts.
During
the
third
quarters
of 2024
and
2023,
net
realized gains of $1.7 million and
$0.9 million, respectively,
were recognized as a result of GNMA
securitization transactions
and whole loan sales to U.S. GSEs amounting to $38.2 million and $42.3
million, respectively.
Non-interest
income for
the nine-month
period ended
September 30,
2024 amounted
to $98.5
million, compared
to $99.1
million
for the same period
in 2023. Non-interest income
for the nine-month period
ended September 30, 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 $4.6
million primarily due to:
●
A
$1.7
million
increase
in
card
and
processing
income,
mainly
in
merchant-related
fees
and
interchange
income
due
to
higher transactional volumes.
●
A $1.0 million
increase in revenues
from mortgage banking
activities, driven by
a $1.4 million increase
in the net
realized
gain on sales
of residential mortgage
loans in the secondary
market due to
higher margins. During
the first nine months
of
2024
and
2023,
net
realized gains
of $4.3
million
and
$2.9
million,
respectively,
were recognized
as a
result of
GNMA
securitization
transactions
and
whole
loan
sales
to
U.S.
GSEs
amounting
to
$113.2
million
and
$131.5
million,
respectively.
●
A $0.9 million increase in insurance commission income,
mainly related to higher contingent commissions.
●
The
aforementioned
$0.8
million
in
insurance
proceeds
received
in
the
third
quarter
of 2024,
included
as
part of
“other
non-interest income.”
92
Non-Interest Expenses
Non-interest
expenses for
the quarter
ended September
30, 2024
amounted to
$122.9 million,
compared to
$116.6
million for
the
same period in 2023.
The efficiency ratio
for the third quarter of
2024 was 52.41%, compared
to 50.71% for the
third quarter of 2023.
The $6.3 million increase was primarily due to:
●
A $2.5 million increase in employees’ compensation and benefits expenses,
driven by annual salary merit increases.
●
A
$1.5
million
increase
in
professional
service
fees,
due
to
increases
of
$1.0
million
in
consulting
fees
driven
by
information technology infrastructure enhancements and $0.5 million
in outsourced technology service fees.
●
A $0.9 million increase in other
non-interest expenses, mainly due to
a $1.8 million increase in charges
for operational and
fraud
losses,
partially
offset
by
decreases
of
$0.4
million
in
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), $0.3 million in insurance fees, and $0.2 million
in net periodic cost of pension plans.
●
A $0.8 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.
Non-interest
expenses
for
the
nine-month
period
ended
September
30,
2024
amounted
to
$362.5
million,
compared
to
$344.8
million for
the same
period in
2023. The
efficiency ratio
for the
first nine
months of
2024 was
52.03%, compared
to 49.29%
for the
first
nine
months
of
2023.
Non-interest
expenses
for
the
nine-month
period
ended
September
30,
2024
include
the
$1.1
million
additional
FDIC
special
assessment
expense.
See
“Non-GAAP
Financial
Measures
and
Reconciliations”
above
for
additional
information.
On
a
non-GAAP
basis,
excluding
the
effect
of
this
Special
Item,
adjusted
non-interest
expenses
increased
by
$16.6
million primarily due to:
●
An $8.8
million increase
in employees’
compensation and
benefits expenses,
driven by
annual salary
merit increases
and
increases
in
stock-based
compensation
expense,
matching
contributions
to
the
employees’
retirement
plan
and
medical
insurance premium costs.
●
A
$3.1
million
increase
in
professional
service
fees,
mainly
due
to
a
$2.4
million
increase
in
consulting
fees
driven
by
information technology infrastructure enhancements.
●
A $1.8 million increase in credit and debit card processing fees, driven
by higher transactional volumes.
●
A
$1.6
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 other
non-interest expenses, mainly due to
a $2.8 million increase in charges
for operational and
fraud
losses, partially
offset
by
decreases
of
$0.8
million
in amortization
of
intangible
assets due
to
the
aforementioned
core deposit intangible assets which were fully amortized in 2024, and $0.5 million
in net periodic cost of pension plans.
93
Income Taxes
For
the
third
quarter
and
first nine
months
of 2024,
the
Corporation
recorded
an
income tax
expense
of $22.7
million
and
$72.2
million, respectively,
compared to $27.0 million and $89.2 million,
respectively, for
the same periods in 2023. The decrease
in income
tax expense
for the
third quarter
of 2024
was mainly
due to
lower pre-tax
income and,
to a
lesser extent,
a lower
estimated effective
tax rate due
to increased business
activities with preferential
tax treatment under
the PR Tax
Code and a
$0.4 million tax
contingency
accrual release
in connection with
the expiration
of the statute
of limitation on
some uncertain tax
positions. Meanwhile, the
decrease
in income
tax expense
for the first
nine months
of 2024
was driven
by a lower
estimated effective
tax rate due
to the
aforementioned
increased business activities with preferential tax treatment and,
to a lesser extent, lower pre-tax income.
The
Corporation’s
annual
estimated
effective
tax
rate,
excluding
entities
with
pre-tax
losses
from
which
a
tax
benefit
cannot
be
recognized
and
discrete
items,
was
23.7%
for
the
first
nine
months
of
2024,
compared
to
28.2%
for
the
same
period
in
2023.
The
estimated effective
tax rate
of the
Corporation is
impacted by,
among other
things, the
composition and
source of
its taxable
income.
See Note 16 – “Income Taxes,
”
to the unaudited consolidated financial statements herein for additional
information.
As of
September 30,
2024, the
Corporation had
a net
deferred tax
asset of
$137.5 million,
net of
a valuation
allowance of
$121.6
million against
the deferred
tax asset,
compared to
a net
deferred tax
asset of
$150.1 million,
net of
a valuation
allowance of
$139.2
million, as
of December
31, 2023.
The decrease
in the
net deferred
tax asset
was mainly
related to
the usage
of alternative
minimum
tax credits
and the
decrease in
the ACL.
Meanwhile, the
decrease in
the valuation
allowance was
related primarily
to changes
in the
market
value
of available
-for-sale
debt
securities
which
resulted
in
an
equal
change
in
the net
deferred
tax
asset without
impacting
earnings.
94
Assets
The Corporation’s
total assets
were $18.9
billion as
of September
30, 2024,
a decrease
of $50.4
million from
December 31,
2023,
primarily related to repayments of investment securities, partially offset
by an increase in total loans and cash and cash equivalents.
Loans Receivable, including Loans Held for Sale
As of
September 30,
2024, the
Corporation’s
total loan
portfolio before
the ACL
amounted to
$12.5 billion,
an increase
of $265.8
million
compared
to
December
31,
2023.
In
terms
of
geography,
the
growth
consisted
of
increases
of
$162.9
million
in
the
Puerto
Rico region and
$146.0 million in
the Florida region,
partially offset
by a decrease
of $43.1 million
in the Virgin
Islands region. On
a
portfolio basis,
the growth
consisted of
increases of
$178.4 million
in commercial
and construction
loans,
$83.7 million
in consumer
loans,
primarily auto loans and finance leases, and $3.7 million in residential mortgage loans.
As of
September
30,
2024,
the Corporation’s
loans
held-for-investment
portfolio
was
comprised
of
commercial
and
construction
loans
(48%),
consumer
and
finance
leases
(29%),
and
residential
real
estate
loans
(23%).
Of
the
total
gross
loan
portfolio
held
for
investment
of
$12.4
billion
as
of
September
30,
2024,
the
Corporation
had
credit
risk
concentration
of
approximately
80%
in
the
Puerto Rico region,
17% in the
United States region
(mainly in the
state of Florida),
and 3% in
the Virgin
Islands region, as
shown in
the following table:
As of September 30, 2024
Puerto Rico
Virgin Islands
United States
Total
(In thousands)
Residential mortgage loans
$
2,168,590
$
159,088
$
492,469
$
2,820,147
Construction loans
173,352
2,001
31,989
207,342
Commercial mortgage loans
1,728,552
68,781
674,547
2,471,880
C&I loans
2,161,688
81,942
961,683
3,205,313
4,063,592
152,724
1,668,219
5,884,535
Consumer loans and finance leases
3,663,990
69,751
7,601
3,741,342
$
9,896,172
$
381,563
$
2,168,289
$
12,446,024
Loans held for sale
12,641
-
-
12,641
$
9,908,813
$
381,563
$
2,168,289
$
12,458,665
As of December 31, 2023
Puerto Rico
Virgin Islands
United States
Total
(In thousands)
Residential mortgage loans
$
2,187,875
$
168,131
$
465,720
$
2,821,726
Construction loans
111,664
3,737
99,376
214,777
Commercial mortgage loans
1,725,325
65,312
526,446
2,317,083
C&I loans
2,130,368
119,040
924,824
3,174,232
3,967,357
188,089
1,550,646
5,706,092
Consumer loans and finance leases
3,583,272
68,498
5,895
3,657,665
$
9,738,504
$
424,718
$
2,022,261
$
12,185,483
Loans held for sale
7,368
-
-
7,368
$
9,745,872
$
424,718
$
2,022,261
$
12,192,851
95
Residential Real Estate Loans
As of
September 30,
2024, the
Corporation’s
total residential
mortgage
loan portfolio,
including loans
held for
sale, increased
by
$3.7
million
compared
to
the
balance
as
of
December
31,
2023.
The
increase
in
the
residential
mortgage
loan
portfolio
reflects
an
increase of $26.7 million in the Florida region, partially offset
by decreases of $14.0 million in the Puerto Rico region and $9.0 million
in the
Virgin
Islands region.
The increase
was driven
by the
volume of
new loan
originations kept
on the
balance sheet,
which more
than
offset
repayments.
Approximately
48%
of
the
$254.5
million
residential
mortgage
loan
originations
in
the
Puerto
Rico
region
during
the first
nine
months
of
2024 consisted
of conforming
loans, compared
to 52%
of the
$243.2
million
originated
for
the first
nine months
of 2023.
As of
September 30,
2024, the
majority of
the Corporation’s
outstanding balance
of residential
mortgage loans
in the
Puerto Rico
and the Virgin
Islands regions consisted
of fixed-rate loans
that traditionally carry
higher yields than
residential mortgage loans
in the
Florida region. In
the Florida region,
approximately 35% of the
residential mortgage loan
portfolio consisted of
hybrid adjustable-rate
mortgages. In
accordance with
the Corporation’s
underwriting guidelines,
residential mortgage
loans are
primarily fully
documented
loans, and the Corporation does not originate negative amortization loans.
Commercial and Construction Loans
As of September
30, 2024, the
Corporation’s
commercial and construction
loans portfolio increased
by $178.4 million,
as compared
to the
balance as
of December
31, 2023.
The growth
included an
increase of
$117.6
million in
the Florida
region, reflecting,
among
other things, the effect of the origination
of various commercial and construction relationships, each in
excess of $10 million, of which
$109.3
million
are related
to six
C&I relationships
and
$52.3
million
are related
to three
commercial
mortgage
relationships.
These
variances were partially
offset by payoffs
and paydowns of four
C&I relationships totaling
$56.6 million and
lower utilization of C&I
lines of credit.
The
Puerto
Rico region
also grew
by $96.2
million, when
compared
to the
balance
as of
December 31,
2023.
This increase
was
driven by a $61.7
million increase in construction
loans; the origination
of two commercial
relationships with an
aggregate balance of
$72.4 million; higher utilization
of C&I lines of
credit; and the origination
of two loans to
municipalities with an
aggregate balance of
$27.7 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.
In
the
Virgin
Islands
region,
commercial
and
construction
loans
decreased
by
$35.4
million,
as
compared
to
the
balance
as
of
December 31, 2023, mainly associated with a $42.6 million repayment 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
September
30, 2024,
the Corporation’s
total commercial
mortgage
loan
exposure amounted
to $2.5
billion,
or 20%
of the
total loan portfolio. In terms of
geography, $1.7 billion
of the exposure was in the Puerto
Rico region, $0.7 billion of the exposure
was
in the
Florida region,
and $0.1
billion of
the exposure
was in
the Virgin
Islands region.
The $1.7
billion exposure
in the
Puerto Rico
region was
comprised mainly
of 41%
in the
retail industry,
26% in
office real
estate, and
21% in
the hotel
industry.
The $0.7
billion
exposure
in the
Florida region
was comprised
mainly of
33% in
the retail
industry,
23% in
the hotel
industry,
and 8%
in office
real
estate.
Of
the
Corporation’s
total
commercial
mortgage
loan
exposure
of
$2.5
billion,
$400.2
million
matures
within
the
next
12
months and has a weighted-average
interest rate of approximately 6.17%.
Commercial mortgage loan exposure
in the office real estate
industry,
which
matures
within
the
next
12
months,
amounted
to
$108.1
million
and
has
a
weighted-average
interest
rate
of
approximately 6.22%.
As
of
September
30,
2024
and
December
31,
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
September
30,
2024,
approximately
$385.3 million of the SNC exposure is related to the portfolio
in the Puerto Rico region and $870.3 million is related to
the portfolio in
the Florida region.
Consumer Loans and Finance Leases
As of September 30, 2024, the Corporation’s
consumer loans and finance leases portfolio increased
by $83.7 million to $3.7 billion,
mainly in
the Puerto
Rico region,
reflecting growth
of $69.4
million and
$36.6 million
in the
auto loan
and finance
lease portfolios,
respectively,
partially offset by decreases in the remaining portfolio classes.
96
Loan Production
First BanCorp.
relies primarily
on its
retail network
of branches
to originate
residential and
consumer loans.
The Corporation
may
supplement
its residential
mortgage originations
with wholesale
servicing released
mortgage loan
purchases from
mortgage bankers.
The
Corporation
manages
its
construction
and
commercial
loan
originations
through
centralized
units
and
most
of
its
originations
come
from
existing
customers,
as
well
as
through
referrals
and
direct
solicitations.
Auto
loans
and
finance
leases
originations
rely
primarily on relationships with auto dealers and dedicated sales professionals who
serve selected locations to facilitate originations.
The
following
table
provides
a
breakdown
of
First
BanCorp.’s
loan
production,
including
purchases,
refinancings,
renewals
and
draws from existing revolving and non-revolving commitments by geographic
segment,
for the indicated periods:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2024
2023
2024
2023
(In thousands)
Puerto Rico:
$
94,258
$
93,237
$
254,525
$
243,202
33,898
36,758
108,008
94,025
63,646
25,763
165,400
122,454
419,673
452,889
1,162,239
1,267,866
406,448
452,264
1,204,999
1,318,950
$
1,017,923
$
1,060,911
$
2,895,171
$
3,046,497
Virgin Islands:
$
791
$
1,320
$
2,913
$
3,089
131
-
293
6
6,949
112
7,372
3,971
18,447
21,545
41,907
96,159
9,995
9,581
26,788
31,189
$
36,313
$
32,558
$
79,273
$
134,414
Florida:
$
21,864
$
35,295
$
69,849
$
76,114
10,510
9,585
31,165
34,817
30,539
33,357
108,472
63,883
184,936
125,947
576,189
342,812
530
187
3,957
1,216
$
248,379
$
204,371
$
789,632
$
518,842
Total:
$
116,913
$
129,852
$
327,287
$
322,405
44,539
46,343
139,466
128,848
101,134
59,232
281,244
190,308
623,056
600,381
1,780,335
1,706,837
416,973
462,032
1,235,744
1,351,355
$
1,302,615
$
1,297,840
$
3,764,076
$
3,699,753
97
Commercial
and
construction
loan
originations
(excluding
government
loans)
for
the
quarter
and
nine-month
period
ended
September 30,
2024 increased
by $102.8
million in
the third
quarter of
2024, as
compared to
the same
period in
2023, mainly
due to
increases of
$57.1
million
in the
Florida
region
and $39.9
million
in the
Puerto
Rico region.
For the
first nine
months
of 2024,
the
increase of $259.8
million was mainly
due to an increase
of $274.3 million
in the Florida region.
The growth in the
Florida region for
the first
nine
months
of 2024
includes
the effect
of the
origination
of ten
C&I relationships,
each in
excess of
$10 million,
with an
aggregate
balance
of
$193.7
million,
increased
utilization
of
C&I
lines
of
credit,
and
an
increase
in
the
commercial
mortgage
loan
portfolio of $44.6 million.
Government
loan
originations
for
the
quarter
and
nine-month
period
ended
September
30,
2024
amounted
to
$45.1
million
and
$83.9
million,
respectively,
compared
to
$85.1
million
and
$168.7
million,
respectively,
for
the
comparable
periods
in
2023.
The
decrease for
the first nine
months of 2024
was mainly related
to the refinancing
of a $46.5
million municipal
bond into a
commercial
loan in the Puerto Rico region for the first nine months of 2023 and lower
line of credit utilization in the Virgin
Islands region.
Originations of auto
loans (including finance
leases) for the
quarter and nine-month
period ended September
30, 2024 amounted
to
$238.8
million
and
$700.8
million,
respectively,
compared
to
$259.2
million
and
$754.6
million,
respectively,
for
the
comparable
periods
in
2023.
The
decrease
in
the
third
quarter
and
first
nine
months
of
2024,
as
compared
with
the
same
periods
in
2023,
was
mainly
in
the
Puerto
Rico
region.
Other
consumer
loan
originations,
other
than
credit
cards,
for
the
quarter
and
nine-month
period
ended September 30, 2024 amounted
to $60.9 million and $185.4 million,
respectively,
compared to $79.5 million and $229.0 million,
respectively,
for the
comparable periods
in 2023.
Most of
the decrease
in other
consumer loan
originations for
the third
quarter and
first nine
months
of 2024,
as compared
with the
same periods
in 2023,
was in
the Puerto
Rico region.
The utilization
activity on
the
outstanding
credit card
portfolio
for
the
quarter
and
nine-month
period
ended
September
30,
2024
amounted
to $117.2
million
and
$349.5 million, respectively,
compared to $123.4 million and $367.8 million, respectively,
for the comparable periods in 2023.
98
Investment Activities
As
part
of
its
liquidity,
revenue
diversification,
and
interest
rate
risk
management
strategies,
First
BanCorp.
maintains
a
debt
securities portfolio classified as available for sale or held to maturity.
The
Corporation’s
total
available-for-sale
debt
securities
portfolio
as
of
September
30,
2024
amounted
to
$4.9
billion,
a
$335.2
million decrease
from December 31,
2023. The decrease
was driven by
repayments of approximately
$274.3 million of
U.S. agencies
MBS and
debentures,
and repayments
of $255.9
million
associated to
matured securities
.
These variances
were partially
offset
by a
$155.5
million
increase
in
fair
value
attributable
to
changes
in
market
interest
rates
and
$44.1
million
in
purchases
of
Community
Reinvestment Act qualified debt
securities,
mainly commercial MBS, during
the first nine months of 2024.
As of September 30, 2024,
the Corporation had a net
unrealized loss on available-for-sale
debt securities of $477.3 million.
This net unrealized loss is attributable
to instruments on
books carrying a
lower interest rate
than market rates.
The Corporation expects
that this unrealized
loss will reverse
over time and it is likely
that it will not be
required to sell the securities before
their anticipated recovery.
The Corporation expects the
portfolio will
continue to
decrease and
the accumulated
other comprehensive
loss will
decrease accordingly,
excluding the
impact of
market interest rates.
As of September
30, 2024, approximately
$480 million and
$350 million in
cash inflows, which
are expected to
be received during the remainder of 2024 and in the first quarter
of 2025, respectively, from
contractual maturities of the available-for-
sale debt securities
portfolio,
are expected
to be redeployed
to fund
loan growth,
reinvested into
higher-yielding securities,
or used to
repay maturing brokered CDs.
As
of
September
30,
2024,
substantially
all
of
the
Corporation’s
available-for-sale
debt
securities
portfolio
was
invested
in
U.S.
government and
agencies debentures
and fixed-rate
GSEs’ MBS. In
addition, as
of September
30, 2024,
the Corporation
held a
bond
issued
by
the
Puerto
Rico
Housing
Finance
Authority
(“PRHFA”),
classified
as
available
for
sale,
specifically
a
residential
pass-
through
MBS in
the
aggregate
amount
of
$3.0
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 $1.4 million as of
September 30, 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.
Held-to-maturity
debt
securities
include
fixed-rate
GSEs’
MBS
with
a
carrying
value
of
$231.0
million
(fair
value
of
$222.2
million) as of September 30, 2024,
compared to $247.1 million as of December
31, 2023. Held-to-maturity debt securities also
include
financing
arrangements
with
Puerto
Rico
municipalities
issued
in
bond
form,
which
the
Corporation
accounts
for
as securities,
but
which were
underwritten as
loans with
features that
are typically
found in
commercial loans.
Puerto Rico
municipal bonds
typically
are
not
issued
in
bearer
form,
are
not
registered
with
the
SEC,
and
are
not
rated
by
external
credit
agencies.
These
bonds
have
seniority to the payment of operating costs and expenses of
the municipality and, in most cases, are supported by assigned
property tax
revenues.
As
of
September
30,
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. As
of September
30, 2024,
the
Corporation’s
held-to-maturity debt
securities portfolio,
before the
ACL, decreased
to $323.1
million, compared
to $354.2
million as
of December 31,
2023, driven by
repayments of approximately
$16.6 million of
U.S. agencies MBS and
$15.9 million of
Puerto Rico
municipal bonds.
See
“Risk Management
–
Exposure
to Puerto
Rico
Government”
below
for
information
and
details
about
the Corporation’s
total
direct exposure
to the
Puerto Rico
government, including
municipalities,
and “Risk
Management
– Credit
Risk Management”
below
and Note
2 –
“Debt Securities”
to the
unaudited consolidated
financial statements
herein for
the ACL
of the
exposure to
Puerto Rico
municipal bonds.
99
September 30, 2024
December 31, 2023
(In thousands)
Money market investments
$
1,343
$
1,239
Available-for-sale
debt securities, at fair value:
U.S. government and agencies obligations
2,261,777
2,443,790
Puerto Rico government obligations
1,567
1,415
MBS:
2,438,532
2,633,161
191,905
151,618
Other
1,000
-
4,894,781
5,229,984
Held-to-maturity debt securities, at amortized cost:
MBS:
133,852
146,468
97,164
100,670
Puerto Rico municipal bonds
92,126
107,040
(1,119)
(2,197)
322,023
351,981
Equity securities, including $34.0 million and $34.6 million of FHLB stock
as of September 30, 2024 and December 31, 2023
52,432
49,675
Total money market
investments and investment securities
$
5,270,579
$
5,632,879
Carrying Amount
Weighted-Average
Yield %
(Dollars in thousands)
U.S. government and agencies obligations:
Due within one year
$
1,037,767
0.82
Due after one year through five years
1,215,849
0.85
Due after ten years
8,161
5.21
2,261,777
0.85
Puerto Rico government and municipalities obligations:
Due within one year
2,131
5.62
Due after one year through five years
61,119
7.81
Due after five years through ten years
13,121
6.42
Due after ten years
17,322
7.39
93,693
7.48
Other
1,000
2.34
MBS
2,861,453
1.72
ACL on held-to-maturity debt securities
(1,119)
-
Total debt securities
$
5,216,804
1.46
100
Net
interest
income
in
future
periods
could
be
affected
by
prepayments
of
MBS.
Any
acceleration
in
the
prepayments
of
MBS
purchased
at
a
premium
would
lower
yields
on
these
securities,
since
the
amortization
of
premiums
paid
upon
acquisition
would
accelerate. Conversely,
acceleration of the
prepayments of MBS would
increase yields on
securities purchased at
a discount, since
the
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 September
30, 2024,
the
Corporation had
approximately $1.5
billion in
callable debt
securities (U.S.
agencies debt
securities) with
an average
yield of
0.81%
of which
approximately 62%
were purchased
at a discount
and 2% at
a premium.
See “Risk Management”
below for
further analysis
of the
effects of
changing interest
rates on
the Corporation’s
net interest
income and
the Corporation’s
interest rate
risk management
strategies.
Also,
refer
to
Note
2
–
“Debt
Securities”
to
the
unaudited
consolidated
financial
statements
herein
for
additional
information regarding the Corporation’s
debt securities portfolio.
RISK MANAGEMENT
General
Risks
are
inherent
in
virtually
all
aspects
of
the
Corporation’s
business
activities
and
operations.
Consequently,
effective
risk
management
is
fundamental
to
the
success
of
the
Corporation.
The
primary
goals
of
risk
management
are
to
ensure
that
the
Corporation’s
risk-taking activities are
consistent with the
Corporation’s
objectives and risk
tolerance, and that
there is an appropriate
balance between risks and rewards to maximize stockholder value.
The
Corporation
has
in
place
a
risk
management
framework
to
monitor,
evaluate
and
manage
the
principal
risks
assumed
in
conducting its activities. First BanCorp.’s
business is subject to eleven
broad categories of risks: (i) liquidity
risk; (ii) interest rate risk;
(iii) market risk; (iv)
credit risk; (v) operational
risk; (vi) legal and
regulatory risk; (vii)
reputational risk; (viii) model
risk; (ix) capital
risk; (x)
strategic risk;
and (xi)
information technology
risk. First
BanCorp. has
adopted policies
and procedures
designed to
identify
and manage the risks to which the Corporation is exposed.
The
Corporation’s
risk
management
policies
are
described
below,
as
well
as
in
Part
II,
Item
7,
“Management’s
Discussion
and
Analysis of Financial Condition and Results of Operations,” in the 2023
Annual Report on Form 10-K.
Liquidity Risk
Liquidity
risk
involves
the
ongoing
ability
to
accommodate
liability
maturities
and
deposit
withdrawals,
fund
asset growth
and
business operations,
and meet
contractual obligations
through unconstrained
access to funding
at reasonable
market rates. Liquidity
management
involves
forecasting
funding
requirements
and
maintaining
sufficient
capacity
to
meet
liquidity
needs
and
accommodate
fluctuations
in
asset
and
liability
levels
due
to
changes
in
the
Corporation’s
business
operations
or
unanticipated
events.
The Corporation
manages liquidity
at two
levels. The
first is
the liquidity
of the
parent company,
or First
Bancorp., which
is the
holding
company
that
owns
the
banking
and
non-banking
subsidiaries.
The
second
is
the
liquidity
of
the
banking
subsidiary,
FirstBank.
The
Asset
and
Liability
Committee
of
the
Corporation’s
Board
of
Directors
is
responsible
for
overseeing
management’s
establishment
of
the
Corporation’s
liquidity
policy,
as
well
as
approving
operating
and
contingency
procedures
and
monitoring
liquidity
on
an
ongoing
basis.
The
Management’s
Investment
and
Asset
Liability
Committee
(“MIALCO”),
which
reports
to
the
Board’s
Asset
and
Liability
Committee,
uses
measures
of
liquidity
developed
by
management
that
involve
the
use
of
several
assumptions
to
review
the
Corporation’s
liquidity
position
on
a
monthly
basis.
The
MIALCO
oversees
liquidity
management,
interest rate risk, market risk, and other related matters.
The MIALCO is composed of
senior management officers, including
the Chief Executive Officer,
the Chief Financial Officer,
the
Chief
Risk
Officer,
the
Corporate
Strategic
and
Business
Development
Director,
the
Business
Group
Director,
the
Treasury
and
Investments Risk
Manager,
the Financial
Planning and
Asset and
Liability Management
(“ALM”) Director,
and the
Treasurer.
The
Treasury
and
Investments
Division
is
responsible
for
planning
and
executing
the
Corporation’s
funding
activities
and
strategy,
monitoring
liquidity availability
on a
daily basis,
and reviewing
liquidity measures
on a
weekly basis.
The Financial
Planning and
ALM Division is responsible for estimating the liquidity gap.
101
To
ensure
adequate liquidity
through the
full range
of potential
operating
environments and
market conditions,
the Corporation
conducts
its
liquidity
management
and
business
activities
in
a
manner
that
is
intended
to
preserve
and
enhance
funding
stability,
flexibility,
and
diversity.
Key
components
of
this
operating
strategy
include
a
strong
focus
on
the
continued
development
of
customer-based
funding, the
maintenance
of direct
relationships with
wholesale
market funding
providers, and
the maintenance
of
the ability to liquidate certain assets when, and if, requirements warrant.
The
Corporation
develops
and
maintains
contingency
funding
plans.
These
plans
evaluate
the
Corporation’s
liquidity
position
under various
operating circumstances
and are
designed to
help ensure
that the
Corporation will
be able
to operate
through periods
of stress when
access to normal
sources of funds
is constrained. The
plans project funding
requirements during
a potential period
of
stress, specify and quantify sources of liquidity,
outline actions and procedures for effectively managing
liquidity through a period of
stress, and
define roles
and responsibilities
for the
Corporation’s
employees. Under
the contingency
funding plans,
the Corporation
stresses the
balance sheet
and the
liquidity position
to critical levels
that mimic
difficulties in
generating funds
or even maintaining
the current
funding position
of the
Corporation and
the Bank
and are
designed to
help ensure
the ability
of the
Corporation and
the
Bank to honor
their respective commitments.
The Corporation has
established liquidity
triggers that the
MIALCO monitors in
order
to maintain the
ordinary funding of
the banking business.
The MIALCO has
developed contingency funding
plans for the
following
three
scenarios:
a
credit rating
downgrade,
an
economic
cycle
downturn
event,
and
a
concentration
event.
The
Board’s
Asset and
Liability Committee reviews and approves these plans on an annual basis.
Liquidity Risk Management
The Corporation manages
its liquidity in
a proactive manner and
in an effort
to maintain a sound
liquidity position. It uses
multiple
measures
to monitor
its liquidity
position,
including
core
liquidity,
basic
liquidity,
and time-based
reserve
measures. Cash
and
cash
equivalents
amounted
to
$685.4
million
as
of
September
30,
2024,
compared
to
$663.2
million
as
of
December
31,
2023.
When
adding $1.8 billion of free high-quality
liquid securities that could be liquidated
or pledged within one day (which
includes assets such
as U.S.
government and
GSEs obligations),
the total
core liquidity
amounted to
$2.5 billion
as of
September 30,
2024, or
13.32% of
total assets, compared to $2.8 billion, or 14.93% of total assets as of December
31, 2023.
In
addition
to
the
aforementioned
$1.8
billion
in
cash
and
free
high
quality
liquid
assets,
the
Corporation
had
$964.7
million
available
for
credit
with
the FHLB
based
on
the
value
of loan
collateral
pledged
with
the
FHLB.
As
such,
the
basic
liquidity
ratio
(which adds such
available secured
lines of credit
to the core
liquidity) was approximately
18.43% of total
assets as of September
30,
2024,
compared to 19.82% of total assets as of December 31, 2023.
Further,
the
Corporation
also
maintains
borrowing
capacity
at
the
FED
Discount
Window
and
had
approximately
$2.6
billion
available
for
funding
under
the FED’s
Borrower-in-Custody
(“BIC”)
Program
as of
September
30,
2024
as an
additional
source
of
liquidity.
Total loans
pledged to the FED
BIC Program amounted
to $3.4 billion as of
September 30, 2024. The
Corporation also does
not rely
on uncommitted
inter-bank
lines of
credit (federal
funds lines)
to fund
its operations.
In the
aggregate,
as of
September 30,
2024,
the
Corporation
had
$6.1
billion
available
to
meet
liquidity
needs,
or
131%
of
estimated
uninsured
deposits,
excluding
fully
collateralized government deposits.
Liquidity
at
the Bank
level
is highly
dependent
on
bank deposits,
which
fund
86.9%
of the
Bank’s
assets (or
84.1%
excluding
brokered CDs).
In addition,
as further
discussed below,
the Corporation
maintains a
diversified base
of readily
available wholesale
funding
sources,
including
advances
from
the
FHLB
through
pledged
borrowing
capacity,
securities
sold
under
agreements
to
repurchase, and access to brokered CDs. Funding
through wholesale funding may continue to increase
the overall cost of funding for
the Corporation and adversely affect the net interest margin.
102
Commitments to extend credit and standby
letters of credit
As
a
provider
of
financial
services,
the
Corporation
routinely
enters
into
commitments
with
off-balance
sheet
risk
to
meet
the
financial
needs
of
its
customers.
These
financial
instruments
may
include
loan
commitments
and
standby
letters
of
credit.
These
commitments
are
subject
to
the
same
credit
policies
and
approval
processes
used
for
on-balance
sheet
instruments.
These
instruments involve, to varying degrees,
elements of credit and interest rate risk
in excess of the amount recognized in the
statements
of financial
condition. As
of September
30, 2024,
the Corporation’s
commitments to
extend credit
amounted to
approximately $2.1
billion.
Commitments
to
extend
credit
are
agreements
to
lend
to
a
customer
as
long
as
there
is
no
violation
of
any
condition
established
in
the
contract.
Since
certain
commitments
are
expected
to
expire
without
being
drawn
upon,
the
total
commitment
amount does
not necessarily
represent future
cash requirements. For
most of the
commercial lines of
credit, the
Corporation has
the
option
to
reevaluate
the
agreement
prior
to
additional
disbursements.
There
have
been
no
significant
or
unexpected
draws
on
existing commitments. In the case of
credit cards and personal lines
of credit, the Corporation can
cancel the unused credit facility
at
any time and without cause.
September 30, 2024
December 31, 2023
(In thousands)
Financial instruments whose contract amounts represent credit risk:
$
250,597
$
234,974
795,338
882,486
37,869
38,956
1,026,159
862,963
48,507
69,543
18,968
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
$4.3
billion
as
of
September 30,
2024. Our
material cash
requirements comprise
primarily of
contractual obligations
to make future
payments related
to time
deposits, long-term
borrowings, and
operating lease
obligations.
We
also have
other contractual
cash obligations
related to
certain binding agreements
we have entered
into for services
including outsourcing
of technology services,
security,
advertising and
other
services
which
are
not material
to
our
liquidity
needs.
We
currently
anticipate
that our
available
funds,
credit
facilities, and
cash flows from
operations will be
sufficient to meet
our operational cash
needs and support
loan growth and
capital plan execution
for the foreseeable future.
Off-balance sheet
transactions are continuously
monitored to consider
their potential impact
to our liquidity
position and changes
are applied to the balance between sources and uses of funds, as deemed appropriate,
to maintain a sound liquidity position.
103
Sources of Funding
The Corporation
utilizes different
sources of
funding to
help ensure
that adequate
levels of
liquidity are
available when
needed.
Diversification
of
funding
sources
is
of
great
importance
to
protect
the
Corporation’s
liquidity
from
market
disruptions.
The
principal
sources
of
short-term
funding
are
deposits,
including
brokered
CDs.
Additional
funding
is
provided
by
securities
sold
under agreements
to repurchase and
lines of credit
with the FHLB.
In addition,
the Corporation also
maintains as additional
sources
borrowing capacity at the FED’s BIC Program
,
as discussed above.
The Asset and Liability Committee reviews credit availability
on a regular basis. The Corporation may
also sell mortgage loans as
a supplementary source of funding and obtain long-term funding
through the issuance of notes and long-term brokered CDs.
While
liquidity
is
an
ongoing
challenge
for
all
financial
institutions,
management
believes
that
the
Corporation’s
available
borrowing capacity and
efforts to grow
core deposits will be
adequate to provide
the necessary funding
for the Corporation’s
business
plans in the next 12 months and beyond.
Retail
and
commercial
core
deposits
–
The
Corporation’s
deposit
products
include
regular
saving
accounts,
demand
deposit
accounts, money market accounts,
and retail CDs. As of September 30,
2024 and
December 31, 2023 the Corporation’s
core deposits,
which
exclude
government
deposits
and
brokered
CDs,
totaled
$12.7
billion
and
$12.6
billion,
respectively.
The
$69.2
million
increase
in
such
deposits
consisted
of
increases
of
$58.8
million
in
the
Florida
region
and
$40.2
million
in
the Puerto
Rico
region,
partially
offset
by
a
$29.8
million
decrease
in
the
Virgin
Islands
region.
This
increase
includes
a
$198.2
million
increase
in
time
deposits.
Government
deposits
(fully
collateralized)
sector
deposits
($2.5
billion
in
transactional
accounts
and
$150.1
million
in
time
deposits),
relatively
unchanged
compared
to
the
balance as of December 31,
2023. Government deposits are insured
by the FDIC up to the applicable
limits and the uninsured portions
are
fully
collateralized.
Approximately
22%
of
the
public
sector
deposits
as
of
September
30,
2024
were
from
municipalities
and
municipal agencies
in Puerto Rico
and 78%
were from public
corporations, the
central government
and its agencies,
and U.S. federal
government agencies in Puerto Rico.
In addition,
as of
September 30,
2024, the
Corporation
had $443.9
million of
government deposits
in the
Virgin
Islands region,
as
compared
to
$449.4
million
as
of
December
31,
2023,
and
$19.2
million
in
the
Florida
region
as
compared
to
$10.2
million
as
of
December 31, 2023.
The
uninsured
portions of
government
deposits were
collateralized
by securities
and
loans with
an amortized
cost of
$3.3
billion
and $3.5
billion as
of September
30, 2024
and December
31, 2023,
respectively,
and an
estimated market
value of
$3.1 billion
as of
each of
such periods.
In addition
to securities
and loans,
as of
each of
September 30,
2024 and
December 31,2023,
the Corporation
used $175.0 million in letters of credit issued by the FHLB as pledges for
a portion of public deposits in the Virgin
Islands.
Estimate of Uninsured
Deposits –
As of September
30, 2024 and
December 31, 2023,
the estimated amounts
of uninsured deposits
totaled $7.6
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
September 30,
2024 and
December 31,
2023, the
uninsured
portion
of
fully
collateralized
government
deposits
amounted
to
$2.9
billion
and
$3.0
billion,
respectively.
Excluding
fully
collateralized government
deposits, the estimated
amounts of uninsured
deposits amounted to
$4.6 billion, which
represent 29.25%
of
total deposits (excluding brokered CDs), as of September 30, 2024,
compared to $4.4 billion, or 28.13%, as of December 31, 2023.
reporting requirements adjusted for cash held by wholly-owned subsidiaries
at the Bank.
104
$250,000) and other time deposits that are otherwise uninsured as of September
30, 2024:
(In thousands)
3 months or
less
3 months to
6 months
6 months to
1 year
Over 1 year
Total
U.S. time deposits in excess of FDIC insurance limits
$
400,953
$
322,432
$
223,200
$
143,931
$
1,090,516
Other uninsured time deposits
$
18,400
$
11,720
$
16,134
$
2,133
$
48,387
Brokered
CDs
million
as
of
December
31,
2023.
The
decline
reflects
maturing
brokered
CDs
amounting
to
$540.5
million
with
an
all-in
cost
of
5.43%
that
were
paid
off
during
the
first
nine
months
of
2024,
partially
offset
by
$277.2
million
of
new
issuances
with
original
average maturities of approximately 2 years and an all-in cost of 4.91%.
The average remaining term to maturity of the brokered CDs outstanding
as of September 30, 2024 was approximately 1.2 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.
September 30, 2024:
Total
Weighted-average
interest rate %
(In thousands)
Three months or less
$
173,980
5.15
Over three months to six months
35,698
4.79
Over six months to one year
100,287
4.86
Over one year to two years
121,687
4.65
Over two years to three years
15,328
4.13
Over three years to four years
30,280
4.03
Over four years to five years
27,342
4.44
Over five years
15,446
4.61
$
520,048
4.80
Refer to
“Net Interest
Income” above
for information
about average
balances of
interest-bearing deposits
and the
average interest
rate paid on such deposits for the quarters and nine-month periods ended
September 30, 2024 and 2023.
Securities
sold
under
agreements
to
repurchase
–
additional source of funding. As of September 30, 2024 and December
31, 2023, there were no outstanding repurchase agreements.
When
the
Corporation
enters
into
repurchase
agreements,
as is
the
case
with
derivative
contracts,
the
Corporation
is
required
to
pledge
cash
or
qualifying
securities
to
meet
margin
requirements.
To
the
extent
that
the
value
of
securities
previously
pledged
as
collateral
declines
due
to
changes
in
interest
rates,
a
liquidity
crisis
or
any
other
factor,
the
Corporation
is
required
to
deposit
additional
cash
or
securities
to
meet
its
margin
requirements,
thereby
adversely
affecting
its
liquidity.
Given
the
quality
of
the
collateral
pledged,
the
Corporation
has
not
experienced
margin
calls
from
counterparties
arising
from
credit-quality-related
write-
downs in valuations.
105
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
September
30,
2024
and
December
31,
2023,
the
outstanding
balance
of
long-term
fixed-rate
FHLB
advances was
$500.0 million.
Of the
$500.0 million
in FHLB advances
as of
September 30,
2024, $400.0
million were
pledged with
investment securities
and $100.0
million were
pledged with
mortgage loans.
As of
September 30,
2024, the
Corporation had
$964.7
million available for additional credit on FHLB lines of credit based on collateral
pledged at the FHLB of New York.
as of September 30, 2024:
Total
Weighted-average
interest rate %
(In thousands)
Over three months to six months
$
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 three years to four years
200,000
4.25
(1)
$
500,000
4.45
(1) Average remaining term to maturity
of 1.73 years.
Trust-Preferred
Securities –
In 2004,
FBP Statutory
Trusts
I and
II, statutory
trusts that
are wholly-owned
by the
Corporation and
not consolidated
in the Corporation’s
financial statements, sold
to institutional investors
variable-rate TruPS
and used the
proceeds of
these issuances, together
with the proceeds
of the purchases by
the Corporation of
variable rate common
securities, to purchase
junior
subordinated
deferrable
debentures.
The
subordinated
debentures
are
presented
in
the
Corporation’s
consolidated
statements
of
financial condition as
other long-term borrowings.
Under the indentures,
the Corporation has the
right, from time
to time, and without
causing an
event of
default, to defer
payments of
interest on the
Junior Subordinated
Deferrable Debentures
by extending
the interest
payment
period
at
any
time
and
from
time
to
time
during
the
term
of
the
subordinated
debentures
for
up
to
twenty
consecutive
quarterly periods.
In September
2024,
the Corporation
redeemed $50.0
million,
or 42%,
of outstanding
TruPS
issued by
FBP Statutory
Trust
II (or
$48.5 million after
excluding the Corporation’s
interest in the Trust
of approximately $1.5
million) at a contractual
call price of 100%
as part
of the
2024 repurchase
program.
As of
September 30,
2024 and
December 31,
2023, the
Corporation had
junior subordinated
debentures outstanding
in the aggregate
amount of
$111.7
million and
$161.7 million,
respectively,
with maturity
dates ranging
from
June 17, 2034 through September
20, 2034. As of September 30,
2024, the Corporation was current on
all interest payments due on its
subordinated
debt.
See
Note
10
–
“Other
Long-Term
Borrowings”
and
Note
7
–
“Non-Consolidated
Variable
Interest
Entities
(“VIEs”) and Servicing Assets” to the unaudited
consolidated financial statements herein for additional
information. Also, see Note 13
– “Stockholders’ Equity”
to the unaudited consolidated
financial statements herein
for additional details
of capital actions that
include
the approval
of a
2024 repurchase
program
of $250
million that
could
include repurchases
of common
stock or
junior subordinated
debentures.
Other Sources
of Funds and
Liquidity
maturing deposits
and borrowings,
and deposits
withdrawals. Over
the years,
in connection
with its
mortgage banking
activities, the
Corporation has invested in technology and personnel to enhance the
Corporation’s secondary mortgage
market capabilities.
These enhanced capabilities
improve the Corporation’s
liquidity profile as they
allow the Corporation to
derive liquidity,
if needed,
from the
sale of mortgage
loans in
the secondary
market. The
U.S. (including
Puerto Rico)
secondary mortgage
market is
still highly
liquid,
in
large
part because
of
the
sale of
mortgages
through
guarantee
programs
of
the Federal
Housing
Authority
(“FHA”),
U.S.
Department of
Veterans
Affairs (“VA”),
U.S. Department
of Housing
and Urban
Development (“HUD”),
Federal National
Mortgage
Association (“FNMA”) and Federal
Home Loan Mortgage Corp. (“FHLMC”).
During the first nine months
of 2024, loans pooled into
Government
National
Mortgage
Association
(“GNMA”)
MBS amounted
to approximately
$87.4
million.
Also, during
the first
nine
months of 2024, the Corporation sold approximately $25.8 million of
performing residential mortgage loans to FNMA.
The
FED
Discount
Window
is
a
cost-efficient
source
of
short-term
funding
for
the
Corporation
in
highly-volatile
market
conditions.
As
previously
mentioned,
as
of
September
30,
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.
106
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.
107
Cash Flows
Cash
and
cash
equivalents
were
$685.4
million
as
of
September
30,
2024,
an
increase
of
$22.2
million
when
compared
to
December
31,
2023.
The
following
discussion
highlights
the
major
activities
and
transactions
that
affected
the
Corporation’s
cash
flows during the first nine months of 2024 and 2023:
Cash Flows from Operating Activities
First BanCorp.’s
operating assets and
liabilities vary significantly
in the normal course
of business due to
the amount and timing
of
cash flows.
Management believes
that cash
flows from
operations, available
cash balances,
and the
Corporation’s
ability to
generate
cash through
short and long-term
borrowings will be
sufficient to
fund the Corporation’s
operating liquidity
needs for the
foreseeable
future.
For the first nine
months of September 30,
2024 and 2023, net
cash provided by operating
activities was $307.3 million
and $283.7
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 nine
-month period
ended September
30, 2024
,
net cash
provided by investing activities was $213.8 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
Community Reinvestment Act qualified
debt securities during the
first nine months of 2024.
For the nine-month
period ended September
30, 2023, net
cash provided by
investing activities was $17.5
million, primarily due
to
repayments
of
U.S.
agencies
MBS,
U.S.
agencies
debentures,
and
Puerto
Rico
municipal
bonds;
and
proceeds
from
sales
of
repossessed assets; partially offset by net disbursements
on loans held for investment.
The Corporation’s
financing activities
primarily
include the
receipt of
deposits and
the issuance
of brokered
CDs, the
issuance of
and payments
on long-term
debt, the
issuance of
equity instruments,
return of
capital, and
activities related
to its
short-term funding.
For
the
nine-month
period
ended
September
30,
2024,
net cash
used
in
financing
activities was
$498.9
million,
mainly
reflecting
a
decrease in total deposits,
capital returned to stockholders and the redemption
of junior subordinated debentures in September 2024,
as
further explained in Note 7 – “Non-Consolidated Variable
Interest Entities (“VIEs”) and Servicing Assets”.
For the nine
-month period
ended September 30,
2023, net cash
used in financing
activities was $196.8
million, mainly reflecting
a
$269.9 million
net decrease
in borrowings
and $200.8
million of
capital returned
to stockholders,
partially offset
by a
$275.8 million
net increase in deposits.
108
Capital
As of
September 30,
2024, the
Corporation’s
stockholders’ equity
was $1.7
billion, an
increase of
$203.3 million
from December
31, 2023.
The increase
was driven
by net
income generated
in the
first nine
months of
2024 and
a $155.5
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
$100.0
million
in
common
stock
repurchases
under
the
2023
stock
repurchase
program,
and
common stock dividends declared in the first nine months of 2024 totaling
$79.7 million or $0.48 per common share.
On
October
30,
2024,
the
Corporation’s
Board
declared
a
quarterly
cash
dividend
of
$0.16
per
common
share.
The
dividend
is
payable on
December 13,
2024 to
shareholders of
record at
the close
of business
on November
29, 2024.
The Corporation
intends to
continue
to
pay
quarterly
dividends
on
common
stock.
However,
the
Corporation’s
common
stock
dividends,
including
the
declaration, timing and amount, remain subject to the consideration and
approval by the Corporation’s Board
at the relevant times.
On
July
24, 2023,
the Corporation
announced
that its
Board
of Directors
approved
a stock
repurchase
program,
under which
the
Corporation
may repurchase
up
to $225
million
of its
outstanding
common
stock, which
commenced
in
the fourth
quarter
of 2023.
During the
first nine
months of 2024,
the Corporation
repurchased approximately
5.8 million
shares of
common stock for
a total cost
of $100.0
million. Furthermore,
on July
22, 2024,
the Corporation
announced that
its Board
of Directors
approved a
new repurchase
program,
under which
the Corporation
may
repurchase
up to
an
additional
$250 million
that
could
include
repurchases
of
common
stock or
junior subordinated
debentures, which
it expects
to execute
through the
end of
the fourth
quarter of
2025. As
of September
30,
2024,
the
Corporation
has
remaining
authorization
of
approximately
$250.0
million
under
both
repurchase
programs
after
the
$50.0 million redemption of
junior subordinated debentures in
September 2024, as further
explained above. For more
information, see
Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds,”
of this Quarterly Report on Form 10-Q.
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.
109
measures, to total equity and total assets, respectively,
as of September 30, 2024 and December 31, 2023, respectively:
September 30, 2024
December 31, 2023
(In thousands, except ratios and per share information)
Total common equity
- GAAP
$
1,700,885
$
1,497,609
Goodwill
(38,611)
(38,611)
Other intangible assets
(8,260)
(13,383)
Tangible common
equity - non-GAAP
$
1,654,014
$
1,445,615
Total assets - GAAP
$
18,859,170
$
18,909,549
Goodwill
(38,611)
(38,611)
Other intangible assets
(8,260)
(13,383)
Tangible assets - non
-GAAP
$
18,812,299
$
18,857,555
Common shares outstanding
163,876
169,303
Tangible common
equity ratio - non-GAAP
8.79%
7.67%
Tangible book value
per common share - non-GAAP
$
10.09
$
8.54
See Note 21 – “Regulatory
Matters, Commitments and Contingencies”
to the unaudited consolidated
financial statements herein for
the regulatory capital positions of the Corporation and FirstBank as of
September 30, 2024 and December 31, 2023, respectively.
The
Puerto
Rico
Banking
Law
of
1933,
as
amended
(the
“Puerto
Rico
Banking
Law”),
requires
that
a
minimum
of
10%
of
FirstBank’s
net income
for
the year
be transferred
to a
legal surplus
reserve
until such
surplus
equals the
total of
paid-in-capital
on
common and preferred
stock. Amounts transferred
to the legal surplus
reserve from retained
earnings are not available
for distribution
to the Corporation without the
prior consent of the Puerto
Rico Commissioner of Financial Institutions.
The Puerto Rico Banking
Law
provides that,
when the
expenditures of
a Puerto
Rico commercial
bank are
greater than
receipts, the
excess of
the expenditures
over
receipts
must
be
charged
against
the
undistributed
profits
of
the
bank,
and
the
balance,
if
any,
must
be
charged
against
the
legal
surplus
reserve,
as
a
reduction
thereof.
If
the
legal
surplus
reserve
is
not
sufficient
to
cover
such
balance
in
whole
or
in
part,
the
outstanding
amount
must
be charged
against
the
capital
account
and
the
Bank
cannot
pay
dividends
until
it
can
replenish
the
legal
surplus reserve
to an
amount of
at least
20% of
the original
capital contributed.
FirstBank’s
legal surplus
reserve, included
as part
of
retained
earnings
in
the
Corporation’s
consolidated
statements
of
financial
condition,
amounted
to
$199.6
million
as
of
each
of
September
30, 2024
and
December 31,
2023,
respectively.
There
were no
transfers to
the legal
surplus
reserve
during the
first nine
months of 2024.
110
Interest Rate Risk Management
First
BanCorp
manages
its
asset/liability
position
to
limit
the
effects
of
changes
in
interest
rates
on
net
interest
income
and
to
maintain stability
of profitability
under varying
interest rate
scenarios. The
MIALCO oversees
interest rate
risk and
monitors, among
other things,
current and expected
conditions in global
financial markets, competition
and prevailing rates
in the local
deposit market,
liquidity,
loan
originations
pipeline,
securities
market
values,
recent
or
proposed
changes
to
the
investment
portfolio,
alternative
funding sources
and related costs,
hedging and the
possible purchase of
derivatives such as
swaps and caps,
and any tax
or regulatory
issues which may be
pertinent to these areas.
The MIALCO approves funding
decisions in light of
the Corporation’s
overall strategies
and objectives.
On
at
least
a
quarterly
basis,
the
Corporation
performs
a
consolidated
net
interest
income
simulation
analysis
to
estimate
the
potential change
in future
earnings from
projected changes
in interest
rates. These
simulations are
carried out
over a
one-to-five-year
time horizon.
The rate
scenarios considered
in these
simulations reflect
gradual upward
or downward
interest rate
movements in
the
yield
curve,
for
gradual
(ramp)
parallel
shifts
in
the
yield
curve
of
200
and
300
bps
during
a
twelve-month
period,
or
immediate
upward or downward
changes in interest
rate movements of 200
bps, for interest
rate shock scenarios.
The Corporation carries
out the
simulations in two ways:
(1)
Using a static balance sheet, as the Corporation had on the simulation date,
and
(2)
Using a dynamic balance sheet based on recent patterns and current
strategies.
The balance
sheet is
divided into
groups of
assets and
liabilities by
maturity or
repricing structure
and their
corresponding interest
yields and
costs. As interest
rates rise or
fall, these
simulations incorporate
expected future
lending rates,
current and
expected future
funding sources
and costs,
the possible
exercise of
options, changes
in prepayment
rates, deposit
decay and
other factors,
which may
be important in projecting net interest income.
The
Corporation
uses a
simulation
model
to
project
future movements
in
the
Corporation’s
balance
sheet
and
income
statement.
The starting
point of
the projections
corresponds to
the actual
values on
the balance
sheet on
the simulation
date. These
simulations
are
highly
complex
and
are
based
on
many
assumptions
that
are
intended
to
reflect
the
general
behavior
of
the
balance
sheet
components over
the modeled
periods. It
is unlikely
that actual
events will
match these
assumptions in
all cases.
For this
reason, the
results of
these forward-looking
computations are
only approximations
of the
sensitivity of
net interest
income to
changes in
market
interest rates. Several
benchmark and market
rate curves were used
in the modeling process,
primarily,
SOFR curve, Prime Rate,
U.S.
Treasury yield curve, FHLB rates, brokered
CDs rates, and repurchase agreements rates.
As of September
30, 2024, the
Corporation forecasted
the 12-month net
interest income assuming
September 30, 2024
interest rate
curves remain constant.
Then, net interest income was
estimated under rising
and falling rates scenarios.
For the rising rate
scenario, a
gradual (ramp)
and immediate
(shock) parallel
upward shift
of the
yield curve
is assumed
during the
first twelve
months (the
“+300
ramp”, “+200
ramp” and
“+200 shock”
scenarios). Conversely,
for the
falling rate
scenario, a
gradual (ramp)
and immediate
(shock)
parallel downward shift
of the yield
curve is assumed during
the first twelve months
(the “-300 ramp”,
“-200 ramp” and “-200
shock”
scenarios).
The
SOFR curve
for
September
30, 2024,
as compared
with December
31, 2023,
reflects a
decrease
of 74
bps on
average in
the
short-term
sector
of
the
curve,
or
between
one
to
twelve
months;
a
decrease
of
55
bps
in
the
medium-term
sector
of
the
curve,
or
between
2 to
5 years;
and
a decrease
of 13
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
76
bps
in
the
short-term
sector
and
a
decrease of 42 bps in the medium-term sector.
However, the long-term sector of the curve remains practically
unchanged.
111
prior years, these exclude non-cash changes in the fair value of derivatives:
Net Interest Income Risk
(% Change Projected for the next 12 months)
September 30, 2024
December 31, 2023
Gradual Change in Interest Rates:
2.55
%
1.08
%
1.71
%
0.73
%
-4.15
%
-3.09
%
-2.70
%
-2.02
%
Immediate Change in Interest Rates:
4.90
%
2.45
%
-7.45
%
-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 September 30, 2024, and December 31, 2023,
the net interest income simulations show that the Corporation continues
to have
an asset sensitive position for the next twelve months under a static balance sheet
simulation.
Under
gradual
rising
and
falling
rate
scenarios,
the
net
interest
income
simulation
shows
an
increase
in
interest
rate
sensitivity,
when
compared
with December
31,
2023,
due to
lower sensitivity
in the
liabilities
side
as a
result of
updated
assumptions.
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.
112
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.
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 September
30, 2024
and December
31, 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.
113
the probability-weighted economic scenarios:
●
CRE
price
index
at
the
national
level
with
an
average
projected
contraction
of
4.00%
for
the
remainder
of
2024
and
an
average
projected
appreciation of
0.92% for
the year
2025, compared
to an
average projected
contraction
of 6.24%
for the
remainder of 2024 and an average projected appreciation of 2.01%
for the year 2025 as of December 31, 2023.
●
Regional
Home
Price
Index
forecast
in
Puerto
Rico
(purchase
only
prices)
is
projected
to
remain
relatively
flat
for
the
remainder of 2024,
while for the
year 2025 shows
a deterioration of
1.48%, when compared
to the same
period projection as
of December 31, 2023. For the Florida region,
the Home Price Index forecast shows an improvement
of 8.50% and 7.05% for
the remainder of 2024 and for the year 2025, respectively,
when compared to the same period as of December 31, 2023.
●
Average
regional unemployment rate
in Puerto Rico is
forecasted at 6.07%
for the remainder
of 2024 and 6.30%
for the year
2025,
compared to
7.68% for
the remainder
of 2024
and 8.08%
for the
year 2025
as of December
31, 2023.
For the
Florida
and
the
U.S.
mainland,
average
unemployment
rate
is
forecasted
at
3.94%
and
4.45%,
respectively,
for
the
remainder
of
2024, and
4.51% and 4.96%,
respectively,
for the year
2025, compared
to 4.51%
and 4.94%,
respectively,
for the remainder
of 2024, and 4.12%
and 4.52%, respectively, for
the year 2025 as of December 31, 2023.
●
Annualized change in
GDP in the U.S.
mainland of 1.69% for
the remainder of 2024
and 1.04%
for the year 2025,
compared
to 0.53%
for the remainder of 2024 and 1.64%
for the year 2025 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
September 30, 2024,
management compared the
modeled estimates under
the probability-
weighted
economic
scenarios
against
a
more
adverse
scenario.
Such
scenario
incorporates
an
additional
adverse
scenario
and
decreases the
weight applied
to the
baseline scenario.
Under this
more adverse
scenario, as
an example,
average unemployment
rate
for the
Puerto Rico
region increases
to 6.33%
for the
remainder of
2024, compared
to 6.07%
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 September
30, 2024, management
calculated
the
difference
between
the
quantitative
ACL
and
this
more
adverse
scenario.
Excluding
consideration
of
qualitative
adjustments, this sensitivity analysis would result in a hypothetical
increase in the ACL of approximately $40 million at September
30,
2024.
This analysis
relates only
to the
modeled credit
loss estimates
and is
not intended
to estimate
changes in
the overall
ACL as
it
does
not
reflect
any
potential
changes
in
other
adjustments
to
the
qualitative
calculation,
which
would
also
be
influenced
by
the
judgment
management
applies
to
the
modeled
lifetime
loss
estimates
to
reflect
the
uncertainty
and
imprecision
of
these
estimates
based
on
current
circumstances
and
conditions.
Recognizing
that
forecasts
of
macroeconomic
conditions
are
inherently
uncertain,
particularly in
light of
recent economic
conditions and
challenges, which
continue to
evolve, management
believes that
its process
to
consider the
available information
and associated
risks and
uncertainties is
appropriately governed
and that
its estimates
of expected
credit losses were reasonable and appropriate for the period ended
September 30, 2024.
As of
September 30,
2024, the
ACL for
loans and
finance leases
was $247.0
million, or
1.98% of
total loans,
a decrease
of $14.8
million, from $261.8
million, or 2.15% of
total loans, as of
December 31, 2023. The
ACL for residential mortgage
loans decreased by
$16.7 million, driven 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 $8.8
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, particularly in the Puerto Rico region, partially offset
by increased volume.
Meanwhile, the
ACL for
consumer loans
increased by
$10.7 million
driven by
higher charge-off
levels and
loan portfolio
growth,
mainly in auto loans.
The ratio
of the ACL
for loans and
finance leases
to total
loans held
for investment
decreased to
1.98%
as of September
30, 2024,
compared to 2.15% as of December 31, 2023. An explanation for the change
for each portfolio follows:
●
The ACL to total
loans ratio for the
residential mortgage loan
portfolio decreased from
2.03% as of December
31, 2023 to
1.44% as
of September
30, 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.
114
●
The ACL
to total
loans ratio
for the construction
loan portfolio
decreased from
2.61% as
of December
31, 2023
to 1.93%
as of
September
30,
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 0.98%
as of September
30, 2024, driven
by the
aforementioned reserve
releases associated
with the
improved financial
condition
of
certain
borrowers
and
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
C&I
loan
portfolio
remained
relatively
flat
at
1.07%
as
of
September
30,
2024,
compared to 1.05% as of December 31, 2023.
●
The ACL
to total
loans ratio
for the
consumer loan
portfolio increased
from 3.64%
as of December
31, 2023
to 3.84% as
of September 30, 2024, driven by increases in charge-off
levels.
2024,
compared to 312.81% as of December 31, 2023.
above for additional information.
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2024
2023
2024
2023
(Dollars in thousands)
ACL for loans and finance leases, beginning of year
$
254,532
$
267,058
$
261,843
$
260,464
Impact of adoption of ASU 2022-02
-
-
-
2,116
Provision for credit losses - (benefit) expense:
Residential mortgage
(5,476)
(3,349)
(16,533)
(6,776)
Construction
(1,659)
(642)
(1,642)
1,420
Commercial mortgage
(5,914)
(1,344)
(8,900)
5,901
C&I
1,138
1,931
(2,890)
3,278
Consumer and finance leases
28,381
14,047
71,282
43,846
Total provision for credit losses
- expense
16,470
10,643
41,317
47,669
Charge-offs:
Residential mortgage
(421)
(499)
(1,428)
(2,628)
Construction
-
(4)
-
(42)
Commercial mortgage
-
(1)
-
(107)
C&I
(1,350)
(9)
(2,141)
(6,477)
Consumer and finance leases
(27,274)
(19,746)
(81,229)
(53,006)
Total charge offs
(29,045)
(20,259)
(84,798)
(62,260)
Recoveries:
Residential mortgage
497
534
1,215
1,788
Construction
11
1,463
35
1,935
Commercial mortgage
41
75
474
299
C&I
210
161
6,287
383
Consumer and finance leases
4,280
3,940
20,623
(1)
11,221
Total recoveries
5,039
6,173
28,634
(1)
15,626
Net charge-offs
(24,006)
(14,086)
(56,164)
(46,634)
ACL for loans and finance leases, end of period
$
246,996
$
263,615
$
246,996
$
263,615
ACL for loans and finance leases to period-end total loans
held for investment
1.98%
2.21%
1.98%
2.21%
Net charge-offs (annualized) to average loans
outstanding during the period
0.78%
0.48%
0.61%
(2)
0.54%
Provision for credit losses - expense for loans and finance
leases to net charge-offs during
the period
0.69x
0.76x
0.74x
1.02x
(1)
For the nine-month period ended September 30, 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 11 basis points.
115
category, and the percentage
of loan balances in each category to the total of such loans as of the indicated dates:
As of September 30, 2024
Residential
Mortgage
Loans
Commercial
Mortgage
Loans
C&I Loans
Consumer and
Finance
Leases
Construction
Loans
(Dollars in thousands)
Total
Total loans held for investment:
$
2,820,147
$
207,342
$
2,471,880
$
3,205,313
$
3,741,342
$
12,446,024
23
%
2
%
20
%
26
%
29
%
100
%
$
40,651
$
3,998
$
24,205
$
34,446
$
143,696
$
246,996
1.44
%
1.93
%
0.98
%
1.07
%
3.84
%
1.98
%
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
September
30,
2024,
the
ACL
for
off-balance
sheet
credit exposures
decreased by
$1.1 million
to $3.5
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
September
30,
2024,
the ACL
for
held-to-maturity
securities
portfolio
was entirely
related
to
financing
arrangements
with
Puerto
Rico
municipalities
issued
in
bond
form,
which
the
Corporation
accounts
for
as
securities,
but
which
were
underwritten
as
loans
with
features
that
are
typically
found
in
commercial
loans.
As
of
September
30,
2024,
the
ACL
for
held-to-maturity
debt
securities
was
$1.1
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 September 30, 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.
116
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.
117
September 30, 2024
December 31, 2023
(In thousands)
Puerto Rico:
Nonaccrual loans held for investment:
Residential mortgage
$
16,047
$
18,324
Construction
3,687
595
Commercial mortgage
2,734
3,106
C&I
17,131
13,414
Consumer and finance leases
22,763
21,954
Total nonaccrual loans held for investment
62,362
57,393
OREO
15,715
28,382
Other repossessed property
8,655
7,857
Other assets
1,567
1,415
Total non-performing assets
$
88,299
$
95,047
Past due loans 90 days and still accruing
$
40,458
$
53,308
Virgin Islands:
Nonaccrual loans held for investment:
Residential mortgage
$
6,434
$
6,688
Construction
964
974
Commercial mortgage
8,762
9,099
C&I
1,231
1,169
Consumer
307
419
Total nonaccrual loans held for investment
17,698
18,349
OREO
3,615
4,287
Other repossessed property
186
252
Total non-performing assets
$
21,499
$
22,888
Past due loans 90 days and still accruing
$
3,152
$
6,005
United States:
Nonaccrual loans held for investment:
Residential mortgage
$
9,248
$
7,227
C&I
-
667
Consumer
36
71
Total nonaccrual loans held for investment
9,284
7,965
Other repossessed property
3
6
Total non-performing assets
$
9,287
$
7,971
Past due loans 90 days and still accruing
$
-
$
139
Total
Nonaccrual loans held for investment:
Residential mortgage
$
31,729
$
32,239
Construction
4,651
1,569
Commercial mortgage
11,496
12,205
C&I
18,362
15,250
Consumer and finance leases
23,106
22,444
Total nonaccrual loans held for investment
89,344
83,707
OREO
19,330
32,669
Other repossessed property
8,844
8,115
Other assets
(1)
1,567
1,415
Total non-performing assets
$
119,085
$
125,906
Past due loans 90 days and still accruing
(2) (3) (4)
$
43,610
$
59,452
Non-performing assets to total assets
0.63%
0.67%
Nonaccrual loans held for investment to total loans held for investment
0.72%
0.69%
ACL for loans and finance leases
246,996
261,843
ACL for loans and finance leases to total nonaccrual loans held
for investment
276.46%
312.81%
ACL for loans and finance leases to total nonaccrual loans held
for investment, excluding residential real estate loans
428.70%
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
$6.5 million and $8.3 million as of September 30, 2024 and December 31, 2023, respectively.
(3)
Includes FHA/VA
government-guaranteed residential
mortgage as
loans past-due
90 days
and still
accruing as
opposed to
nonaccrual loans.
The Corporation
continues accruing
interest on
these
loans
until
they
have
passed
the
15
months delinquency
mark,
taking
into
consideration
the
FHA
interest
curtailment
process.
These
balances
include
$9.0
million
and
$15.4
million of
FHA
government guaranteed residential mortgage loans that were over 15 months delinquent as of September 30, 2024 and
December 31, 2023, respectively.
(4)
These includes
rebooked loans,
which were
previously pooled into
GNMA securities,
amounting to
$6.6 million
and $7.9
million as
of September 30,
2024 and
December 31,
2023, respectively.
Under the GNMA program, the Corporation
has the option but not
the obligation to repurchase loans
that meet GNMA’s
specified delinquency criteria. For
accounting purposes, the loans subject to
the repurchase option are required to be reflected on the financial statements with an offsetting liability.
118
Total
non-performing assets
decreased by
$6.8 million
to $119.1
million as of
September 30,
2024, compared
to $125.9 million
as
of December
31, 2023. The
decrease in non-performing
assets was driven
by a $13.3
million decrease in
the OREO portfolio
balance
in
the
Puerto
Rico
region,
mainly
attributable
to
the
sale
of
a
$5.3
million
commercial
real
estate
OREO
property
and
sales
of
residential OREO properties, partially offset by a $5.6
million increase in total nonaccrual loans held for investment.
Total
nonaccrual
loans
were
$89.3
million
as
of
September
30,
2024.
This
represents
a
net
increase
of
$5.6
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. The sale resulted in a $1.2 million charge
-off that had been previously reserved.
periods:
Construction
Commercial
Mortgage
C&I
Total
(In thousands)
Quarter Ended September 30, 2024
Beginning balance
$
4,742
$
11,736
$
27,661
$
44,139
Plus:
Additions to nonaccrual
-
100
902
1,002
Less:
Nonaccrual loans charge-offs
-
-
(1,350)
(1,350)
Loan collections
(91)
(340)
(651)
(1,082)
Nonaccrual loans sold, net of charge-offs
-
-
(8,200)
(8,200)
Ending balance
$
4,651
$
11,496
$
18,362
$
34,509
Construction
Commercial
Mortgage
C&I
Total
(In thousands)
Quarter Ended September 30, 2023
Beginning balance
$
1,677
$
21,536
$
9,194
$
32,407
Plus:
Additions to nonaccrual
-
522
10,569
11,091
Less:
Loans returned to accrual status
-
-
(199)
(199)
Nonaccrual loans transferred to OREO
-
-
(547)
(547)
Nonaccrual loans charge-offs
-
(1)
(9)
(10)
Loan collections
(37)
(425)
(199)
(661)
Ending balance
$
1,640
$
21,632
$
18,809
$
42,081
119
Construction
Commercial
Mortgage
C&I
Total
(In thousands)
Nine-Month Period Ended September 30, 2024
Beginning balance
$
1,569
$
12,205
$
15,250
$
29,024
Plus:
Additions to nonaccrual
3,300
107
26,743
30,150
Less:
Loans returned to accrual status
(35)
(77)
(9,226)
(9,338)
Nonaccrual loans transferred to OREO
(48)
-
(684)
(732)
Nonaccrual loans charge-offs
-
-
(2,141)
(2,141)
Loan collections
(135)
(739)
(3,380)
(4,254)
Nonaccrual loans sold, net of charge-offs
-
-
(8,200)
(8,200)
Ending balance
$
4,651
$
11,496
$
18,362
$
34,509
(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)
Nine-Month Period Ended September 30, 2023
Beginning balance
$
2,208
$
22,319
$
7,830
$
32,357
Plus:
Additions to nonaccrual
127
1,505
20,730
22,362
Less:
Loans returned to accrual status
-
(361)
(725)
(1,086)
Nonaccrual loans transferred to OREO
(332)
(223)
(730)
(1,285)
Nonaccrual loans charge-offs
-
(107)
(6,477)
(6,584)
Loan collections
(363)
(1,507)
(1,819)
(3,689)
Reclassification
-
6
-
6
Ending balance
$
1,640
$
21,632
$
18,809
$
42,081
120
The following table presents the activity of residential nonaccrual loans
held for investment for the indicated periods:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2024
2023
2024
2023
(In thousands)
Beginning balance
$
31,396
$
33,252
$
32,239
$
42,772
4,678
4,510
12,671
9,600
(2,692)
(3,788)
(7,662)
(10,439)
(477)
(984)
(1,624)
(5,243)
(2)
(83)
(280)
(704)
(1,174)
(961)
(3,615)
(4,034)
-
-
-
(6)
Ending balance
$
31,729
$
31,946
$
31,729
$
31,946
The amount of nonaccrual
consumer loans, including finance
leases, increased by $0.7
million to $23.1 million
as of September 30,
2024,
compared to
$22.4 million
as of December
31, 2023.
The increase
was mainly
reflected in
the auto loan
portfolio. The
inflows
of nonaccrual
consumer loans
during the
first nine
months of
2024 amounted
to $86.6
million, compared
to inflows
of $63.2
million
for the same period in 2023.
As of September 30, 2024,
approximately $24.3 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 nine-month period ended
September 30, 2024, interest income of
approximately $0.6 million related to
nonaccrual loans
with a
carrying value
of $30.9
million as
of September
30, 2024,
mainly nonaccrual
commercial and
construction loans,
was applied
against the related principal balances under the cost-recovery method.
Total loans in early
delinquency (
i.e.
, 30-89 days past due loans, as defined in regulatory reporting
instructions) amounted to $143.4
million as of September
30, 2024, a decrease of
$7.4 million, compared to
$150.8 million as of December
31, 2023.
The variances by
major portfolio categories are as follows:
●
Consumer loans in early delinquency decreased by $8.1 million to $103.9
million, mainly reflected in the auto loan portfolio.
●
Residential mortgage loans in early delinquency decreased by $4.6
million to $31.9 million.
Partially offset by:
●
Commercial
and
construction
loans
in
early
delinquency
increased
by
$5.3
million
to
$7.6
million,
mainly
due
to
certain
commercial loans
that matured
and are
in the
process of
renewal but
for which
the Corporation
continues to
receive interest
and principal payments from the borrowers.
In addition,
the Corporation
provides
homeownership
preservation
assistance to
its customers
through
a loss
mitigation
program.
Depending
upon
the
nature
of
a
borrower’s
financial
condition,
restructurings
or
loan
modifications
through
this
program
are
provided,
as well
as other
modifications of
individual C&I,
commercial
mortgage, construction,
and residential
mortgage loans.
For
the
quarter
and
nine-month
period
ended
September 30,
2024,
loans modified
to borrowers
experiencing
financial
difficulty
had
an
amortized
cost
basis
of
$6.8
million
and
$126.9
million,
respectively.
The
modifications
for
the
first
nine
months
of
2024
include
$110.7 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.
See
Note
3
–
“Loans
Held
for
Investment”
to
the
unaudited
consolidated financial statements herein for additional information and
statistics about the Corporation’s modified
loans.
121
The
OREO
portfolio,
which
is
part
of
non-performing
assets,
amounted
to
$19.3
million
as
of
September
30,
2024
and
$32.7
million as
of December
31, 2023.
The following
tables show
the composition
of the
OREO portfolio
as of
September 30,
2024 and
December 31,
2023, as well
as the activity
of the OREO
portfolio by geographic
area during the
nine-month period
ended
September
30, 2024:
OREO Composition by Region
As of September 30, 2024
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Residential
$
13,646
$
805
$
-
$
14,451
Construction
1,125
-
-
1,125
Commercial
944
2,810
-
3,754
$
15,715
$
3,615
$
-
$
19,330
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
Nine-Month Period Ended September 30, 2024
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Beginning Balance
$
28,382
$
4,287
$
-
$
32,669
Additions
7,568
-
67
7,635
Sales
(18,747)
(639)
(67)
(19,453)
Subsequent measurement adjustments
(227)
(33)
-
(260)
Other adjustments
(1,261)
-
-
(1,261)
Ending Balance
$
15,715
$
3,615
$
-
$
19,330
122
Net Charge-offs and Total
Credit Losses
$14.1 million, or
an annualized 0.48%
of average loans,
for the third quarter
of 2023. For the
nine-month period ended
September 30,
2024,
net
charge-offs
totaled
$56.2
million,
or
an
annualized
0.61%
of
average
loans,
compared
to $46.6
million,
or an
annualized
0.54% of
average loans,
for the
same period
in 2023.
Net charge-offs
for the
nine-month period
ended September
30, 2024
include a
$10.0
million
recovery
associated
with
the
bulk
sale
of
fully
charged-off
consumer
loans
and
finance
leases,
which
reduced
by
11
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
third
quarter
of
2024
were
$23.0
million,
or
an
annualized
2.47%
of
related
average
loans,
compared
to
net
charge-offs
of
$15.8
million,
or
an
annualized
1.79%
of
related
average
loans,
for
the
third
quarter
of
2023.
Net
charge-offs
of
consumer
loans
and
finance
leases
for
the
nine-month
period
ended
September
30,
2024
were
$60.6
million,
or
2.19%
of
related
average
loans,
compared
to
net
charge-offs
of
$41.8
million,
or
an
annualized
1.61%
of
related
average loans, for
the same period
in 2023. The
increase for the third
quarter and first
nine months of
2024 was driven
by an increase
in charge-offs
across all major portfolio classes, which have been
trending higher towards historical loss experience, partially
offset by
the
aforementioned
recovery
associated
with
the
aforementioned
bulk
sale,
which
reduced
by
36 basis
points
the
ratio of
consumer
loans and finance leases net charge-offs to related average
loans for the first nine months of 2024.
Construction loans net recoveries
for the third quarter
of 2024 were $11
thousand, or an annualized
0.02% of related average
loans,
compared to net recoveries of $1.4 million, or an
annualized 3.18% of related average loans, for the same period
in 2023. Construction
loans
net
recoveries
for
the
nine-month
period
ended
September
30,
2024
were
$35
thousand,
or
an
annualized
0.02%
of
related
average
loans, compared
to net
recoveries
of $1.9
million,
or
an
annualized
1.58%
of
related
average
loans, for
the same
period
in
2023.
The
net
recoveries
for
the
third
quarter
and
first
nine
months
of
2023
included
a
$1.4
million
recovery
recorded
on
a
construction loan in the Puerto Rico region.
C&I
loans
net
charge-offs
for
the
third
quarter
of
2024
were
$1.1
million,
or
an
annualized
0.14%
of
related
average
loans,
compared to
net recoveries
of $0.2
million, or
an annualized
0.02% of related
average loans,
for the third
quarter of
2023. C&I loans
net
recoveries
for
the
nine-month
period
ended
September
30,
2024
were
$4.1
million,
or
an
annualized
0.17%
of
related
average
loans, compared
to net charge-offs
of $6.1 million,
or an annualized
0.28% of related
average loans, for
the same period
in 2023.
The
results for the third
quarter and first nine
months of 2024 include
the aforementioned $1.2
million charge-off
recorded on the sale
of a
nonaccrual
C&I
loan
in
the
Puerto
Rico
region.
The
results
for
the
first
nine
months
of
2024
also
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.
Meanwhile, the net charge-offs
for the first nine months of 2023
include a $6.2 million charge-off
recorded on a participated C&I loan
in the Florida region associated with the power generation industry.
Commercial
mortgage
loans
net
recoveries
for
the
third
quarter
were
$41
thousand,
or
an
annualized
0.01%
of
related
average
loans,
compared
to
net
recoveries
of
$0.1
million,
or
an
annualized
0.01%
of
related
average
loans,
for
the
third
quarter
of
2023.
Commercial mortgage
loans net
recoveries for
the nine-month
period ended
September 30,
2024 were
$0.5 million,
or an
annualized
0.03% of
related average
loans, compared
to net
recoveries of
$0.2 million,
or an
annualized 0.01%
of related
average loans,
for the
same period
in 2023.
The net
recoveries for
the first
nine months
of 2024
include a
$0.4 million
recovery recorded
on a
commercial
real estate loan in the Florida region.
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2024
2023
2024
2023
Residential mortgage
(0.01)
%
(0.01)
%
0.01
%
0.04
%
Construction
(0.02)
%
(3.18)
%
(0.02)
%
(1.58)
%
Commercial mortgage
(0.01)
%
(0.01)
%
(0.03)
%
(0.01)
%
C&I
0.14
%
(0.02)
%
(0.17)
%
0.28
%
Consumer and finance leases
2.47
%
1.79
%
2.19
%
(1)
1.61
%
Total loans
0.78
%
0.48
%
0.61
%
(1)
0.54
%
(1)
The $10.0 million recovery associated with the bulk sale
of fully charged-off consumer loans and finance leases
during the first nine months of 2024 reduced the ratios of consumer loans
and finance leases and total net charge-offs to related
average loans by 36 basis points and 11 basis
points, respectively.
123
segment for the indicated periods:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2024
2023
2024
2023
PUERTO RICO:
Residential mortgage
(0.01)
%
-
%
0.01
%
0.06
%
Construction
-
%
(7.30)
%
-
%
(4.32)
%
Commercial mortgage
-
%
(0.01)
%
-
%
-
%
C&I
0.21
%
(0.03)
%
(0.22)
%
-
%
Consumer and finance leases
2.46
%
1.78
%
2.17
%
(1)
1.61
%
Total loans
0.96
%
0.59
%
0.76
%
(1)
0.58
%
VIRGIN ISLANDS:
Residential mortgage
-
%
(0.12)
%
-
%
-
%
Construction
-
%
0.42
%
-
%
-
%
Commercial mortgage
(0.23)
%
(0.21)
%
(0.22)
%
(0.02)
%
Consumer and finance leases
3.48
%
2.15
%
3.23
%
0.33
%
Total loans
0.57
%
0.26
%
0.50
%
0.05
%
FLORIDA:
Residential mortgage
-
%
(0.01)
%
-
%
(0.02)
%
Construction
(0.16)
%
(0.05)
%
(0.07)
%
(0.05)
%
Commercial mortgage
-
%
-
%
(0.08)
%
(0.03)
%
C&I
-
%
(0.01)
%
(0.08)
%
0.88
%
Consumer and finance leases
(1.48)
%
(0.16)
%
(1.61)
%
(0.37)
%
Total loans
(0.01)
%
(0.01)
%
(0.07)
%
0.39
%
(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 nine-month period ended September 30,
2024 by 37 basis points and 14 basis points, respectively.
124
The following table presents information about the OREO inventory
and related gains and losses for the indicated periods:
Quarter ended September 30,
Nine-Month Period Ended September 30,
2024
2023
2024
2023
(Dollars in thousands)
OREO
OREO balances, carrying value:
Residential
$
14,451
$
20,740
$
14,451
$
20,740
Construction
1,125
1,861
1,125
1,861
Commercial
3,754
5,962
3,754
5,962
Total
$
19,330
$
28,563
$
19,330
$
28,563
OREO activity (number of properties):
Beginning property inventory
222
320
277
344
Properties acquired
26
36
75
139
Properties disposed
(51)
(75)
(155)
(202)
Ending property inventory
197
281
197
281
Average holding period (in days)
Residential
501
464
501
464
Construction
2,491
2,302
2,491
2,302
Commercial
3,992
2,598
3,992
2,598
Total average holding period (in days)
1,295
1,029
1,295
1,029
OREO operations (gain) loss:
Market adjustments and (gains) losses on sale:
Residential
$
(1,543)
$
(2,577)
$
(5,287)
$
(7,620)
Construction
(49)
(52)
(68)
(99)
Commercial
(246)
(41)
(2,468)
26
Total net gain
(1,838)
(2,670)
(7,823)
(7,693)
Other OREO operations expenses
499
517
1,423
1,560
Net Gain on OREO operations
$
(1,339)
$
(2,153)
$
(6,400)
$
(6,133)
125
Operational Risk
The
Corporation
faces
ongoing
and
emerging
risk
and
regulatory
pressure
related
to
the
activities
that
surround
the
delivery
of
banking
and
financial
products.
Coupled
with
external
influences,
such
as
market
conditions,
security
risks,
and
legal
risks,
the
potential for
operational and
reputational loss
has increased.
To
mitigate and
control operational
risk, the
Corporation has
developed,
and continues
to enhance, specific
internal controls,
policies and procedures
that are designed
to identify and
manage operational risk
at
appropriate
levels
throughout
the
organization.
The
purpose
of
these
mechanisms
is
to
provide
reasonable
assurance
that
the
Corporation’s business operations
are functioning within the policies and limits established by management.
The
Corporation
classifies operational
risk
into
two
major
categories:
business-specific
and
corporate-wide
affecting
all business
lines. For business specific risks,
Enterprise Risk Management
works with the various
business units to ensure consistency
in policies,
processes
and
assessments.
With
respect
to
corporate-wide
risks,
such
as
information
security,
business
recovery,
and
legal
and
compliance,
the
Corporation
has
specialized
groups,
such
as
the
Legal
Department,
Information
Security,
Corporate
Compliance,
Operations and Enterprise
Risk Management. These
groups assist the lines
of business in
the development and
implementation of risk
management practices specific to the needs of the business groups.
Legal and Compliance Risk
Legal and compliance risk includes
the risk of noncompliance with applicable
legal and regulatory requirements, the
risk of adverse
legal
judgments
against
the
Corporation,
and
the
risk
that
a
counterparty’s
performance
obligations
will
be
unenforceable.
The
Corporation
is
subject
to
extensive
regulation
in
the
different
jurisdictions
in
which
it
conducts
its
business,
and
this
regulatory
scrutiny has
been significantly
increasing over
the years.
The Corporation
has established,
and continues
to enhance,
procedures that
are designed
to ensure
compliance with
all applicable
statutory,
regulatory
and any
other legal
requirements.
The Corporation
has a
Compliance
Director
who
reports
to
the
Chief
Risk
Officer
and
is
responsible
for
the
oversight
of
regulatory
compliance
and
implementation
of an
enterprise-wide compliance
risk assessment
process.
The Compliance
division
has officer
roles in
each major
business area with direct reporting responsibilities to the Corporate Compliance
Group.
Concentration Risk
The Corporation conducts
its operations in
a geographically concentrated
area, as its main
market is Puerto
Rico. Of the
total gross
loan portfolio held
for investment of
$12.4 billion as
of September 30,
2024, the Corporation
had credit risk
of approximately 80%
in
the Puerto Rico region, 17% in the United States region, and 3% in the
Virgin Islands region.
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 August
2024,
estimates showed
that the
EDB-EAI
stood
at 126.9,
down 0.8%
on a
year-over-year
basis. Over
the 12-month
period ended
August 31,
2024, the
EDB-EAI averaged
126.5, 1.0%
above
the comparable figure a year earlier.
126
Labor market trends remain
positive. Data published
by the Bureau of
Labor Statistics showed that
non-farm payrolls in September
2024 in Puerto
Rico increased by
1.6% when compared
to September 2023,
primarily driven by
payrolls in the
private sector as
these
increased by
2.2% from
the comparable
figure a
year earlier.
Key industries
driving private-sector
payroll growth
include Leisure
&
Hospitality
with
a
year-over-year
increase
of
6.5%
and
Construction
with
a
positive
variance
of
5.0%.
The
unemployment
rate
continued to trend in the right direction to a record-low level of 5.5% in
September 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.
127
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
November
13,
2024,
pursuant
to
a
Court
order
dated
October
7,
2024,
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 August 31,
2024, over $3.4 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,
an
11%
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 October
10, 2024,
over 3,411
projects
had already been completed
under FEMA’s
Public Assistance programs
while over 20,600 projects
were active across different
stages
of execution
for a
total cost
of $11.5
billion, equivalent
to approximately
32% 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.
128
Exposure to Puerto Rico Government
As of September
30, 2024, the Corporation
had $309.0 million
of direct exposure
to the Puerto Rico
government, its municipalities
and
public
corporations,
compared
to
$297.9
million
as
of
December
31,
2023.
The
$11.1
million
increase
was
mainly
due
to
the
origination
of
two
loans
to
municipalities,
with
an
aggregate
balance
of
$27.7
million,
that
are
supported
by
assigned
property
tax
revenues
and
$15.5
million
in
disbursements
on
two
construction
loans
to
an
agency
and
a
public
corporation,
partially
offset
by
multiple repayments.
As of
September 30,
2024, approximately
$195.6 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 $50.9
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,
$50.7
million
in
loans
to
agencies
or
public
corporations
of
the
Puerto
Rico government
,
and obligations
of the
Puerto
Rico
government,
specifically
a residential
pass-through
MBS issued
by the
PRHFA,
at an
amortized cost
of $3.0
million as
part of
its available-for-sale
debt securities
portfolio (fair
value of
$1.6 million
as of
September 30, 2024).
The
following
table
details
the
Corporation’s
total
direct
exposure
to
Puerto
Rico
government
obligations
according
to
their
maturities:
As of September 30,2024
Investment
Portfolio
(Amortized cost)
Loans
Total
Exposure
(In thousands)
Puerto Rico Housing Finance Authority:
$
3,008
$
-
$
3,008
Total Puerto Rico Housing Finance Authority
3,008
-
3,008
Agencies and public corporation of the Puerto Rico government:
-
28,303
28,303
-
22,363
22,363
Total agencies and public corporation of the Puerto Rico government
-
50,666
50,666
-
8,819
8,819
Total Puerto Rico government affiliate
-
8,819
8,819
Total Puerto Rico public corporations and government affiliate
-
59,485
59,485
Municipalities:
2,131
26,337
28,468
61,119
39,220
100,339
13,121
88,818
101,939
15,755
-
15,755
Total Municipalities
92,126
154,375
246,501
Total Direct
Government Exposure
$
95,134
$
213,860
$
308,994
In
addition,
as
of
September
30,
2024,
the
Corporation
had
$73.5
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.
As
of
each
of
September
30,
2024
and
December
31,
2023,
the
Corporation
had
$2.7
billion
of
public
sector
deposits
in
Puerto
Rico. Approximately
22% of the
public sector deposits
as of September
30, 2024 were
from municipalities and
municipal agencies
in
Puerto Rico
and 78%
were from
public corporations,
the Puerto
Rico central
government and
agencies, and
U.S. federal
government
agencies in Puerto Rico.
129
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
$5.5 billion in disaster recovery
funds had been disbursed through
August 2024 and nearly $11
billion were
remaining
obligated
funds
pending
to
be disbursed.
Moreover,
labor
market
trends
remain
stable
with
non-farm
payrolls during
the
third quarter of 2024 slightly down by 0.4% and 0.8% on a quarter
-over-quarter and year-over-year basis, respectively.
On December 14, 2023,
Fitch Ratings announced that it
withdrew the ratings of the
U.S. Virgin
Islands Water
and Power Authority
(“WAPA”)
primarily
due
to
limited
availability
of
the
authority’s
operating
and
financial
information
from
public
sources
or
from
WAPA’s
management.
Finally, PROMESA
does not apply to
the USVI and, as such,
there is currently no federal
legislation permitting the restructuring
of
the debts of the USVI and
its public corporations and instrumentalities.
To the
extent that the fiscal condition of the
USVI government
deteriorates
again,
the
U.S.
Congress
or
the
government
of
the
USVI
may
enact
legislation
allowing
for
the
restructuring
of
the
financial
obligations
of
the
USVI
government
entities
or
imposing
a
stay
on
creditor
remedies,
including
by
making
PROMESA
applicable to the USVI.
As of
September 30,
2024 and
December 31,
2023, the
Corporation had
$48.4 million
and $90.5
million, respectively,
in loans
to
USVI public
corporations, of
which $15.0
million and
$57.2 million,
respectively,
were fully
collateralized by
cash balances
held at
the Bank. As of September 30, 2024, all loans were currently performing
and up to date on principal and interest payments.
130
ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES
ABOUT MARKET
RISK
For
information
regarding
market
risk
to
which
the
Corporation
is
exposed,
see
the
information
contained
in
Part
I,
Item
2,
“Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results of
Operations
— Risk
Management”
in
this Quarterly
Report on Form 10-Q.
ITEM 4.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
First
BanCorp.’s
management,
including
its
Chief
Executive
Officer
and
Chief
Financial
Officer,
evaluated
the
effectiveness
of
First
BanCorp.’s
disclosure
controls
and
procedures
(as
defined
in
Rules
13a-15(e)
and
15d-15(e)
under
the
Exchange
Act)
as
of
September
30,
2024,
the
end
of
the
period
covered
by
this
Quarterly
Report
on
Form
10-Q.
Based
on
this
evaluation,
the
Chief
Executive
Officer and
Chief Financial
Officer
concluded that
the Corporation’s
disclosure controls
and procedures
were effective
as
of September
30, 2024
and provide
reasonable assurance
that the
information
required to
be disclosed
by the
Corporation in
reports
that the Corporation
files or submits under
the Exchange Act is
recorded, processed, summarized
and reported within the
time periods
specified
in SEC
rules and
forms and
is accumulated
and reported
to the
Corporation’s
management,
including
the Chief
Executive
Office and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosures.
Internal Control over Financial Reporting
There were
no changes
to the
Corporation’s
internal control
over financial
reporting (as
defined
in Rules
13a-15(f) and
15d-15(f)
under
the Exchange
Act) during
our most
recent
quarter
ended September
30, 2024
that have
materially
affected,
or are
reasonably
likely to materially affect, the Corporation’s
internal control over financial reporting.
131
PART II - OTHER INFORMATION
In accordance with the instructions to Part II
of Form 10-Q, the other specified items in
this part have been omitted because they are not
applicable, or the information has been previously reported.
ITEM 1.
LEGAL PROCEEDINGS
For
a
discussion
of
legal
proceedings,
see
Note
21
–
“Regulatory
Matters,
Commitments
and
Contingencies,”
to
the
unaudited
consolidated financial statements herein, which is incorporated by reference
in this Part II, Item 1.
ITEM 1A.
RISK FACTORS
The Corporation’s business, operating results and/or the market price of our common stock may be significantly affected by a number of
factors. A detailed
discussion of certain
risk factors that
could affect
the Corporation’s future
operations, financial
condition or results
for
future periods is set forth in Part I, Item 1A, “Risk Factors,” in the 2023 Annual Report on Form 10-K. These risk factors, and others, could
cause actual
results to
differ materially
from historical
results or
the results
contemplated by
the forward-looking statements
contained in
this report. Also,
refer to the
discussion in
“Forward-Looking Statements” and
Part I, Item
2, “Management’s
Discussion and
Analysis of
Financial Condition and Results
of Operations,” in this Quarterly
Report on Form 10-Q for
additional information that may supplement
or
update the discussion of risk factors in the
2023 Annual Report on Form 10-K.
Other than as described below, there have been
no material changes from those risk factors previously
disclosed in Part I, Item 1A, “Risk
Factors,” in the 2023 Annual Report on Form
10-K.
The
volatility
in
the
financial
services
industry,
including
failures
or
rumored
failures
of
other
depository
institutions,
and
actions taken by governmental
agencies to stabilize the financial
system, could result in,
among other things, bank deposit
runoffs,
liquidity constraints,
and increased regulatory requirements and costs.
The closure and
placement into receivership
with the FDIC
of certain large
U.S. regional banks with
assets over $100 billion
in March
and
May
2023,
and
adverse
developments
affecting
other
banks,
resulted
in
heightened
levels
of
market
volatility
and
consequently
negatively
impacted
customer
confidence
in
the
safety
and
soundness
of
financial
institutions.
These
developments
resulted
in
certain
regional banks experiencing higher than normal
deposit outflows and an elevated
level of competition for available
deposits in the market.
The impact of market
volatility from the adverse
developments in the banking industry,
along with continued elevated interest
rates on our
business and related financial results, will
depend on future developments, which are highly uncertain
and difficult to predict.
In the
aftermath of
these recent
bank failures,
the banking
agencies have
increased regulatory
requirements and
costs that
may impact
capital ratios or the FDIC deposit insurance premium. For example,
in 2023, the FDIC issued a final rule to impose a
special assessment to
recover
certain estimated
losses
to
the
Deposit
Insurance
Fund
(“DIF”) arising
from
the
closures of
Silicon Valley
Bank
and
Signature
Bank. The
estimated losses
will be recovered
through quarterly special
assessments collected
from certain
insured depository
institutions,
including the
Bank, and
collection began
during the
quarter ended
June 30,
2024. In
connection with
updates made
by the
FDIC to
the
initial estimated
losses to
the DIF,
the Corporation
recorded charges
of $1.1
million during
the nine-month
period ended
September 30,
2024 in
the consolidated
statements of
income as
part of
“FDIC deposit
insurance” expenses.
As of
September 30,
2024, the
estimated
FDIC special assessment amounted to $7.4 million,
of which $1.6 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.
132
ITEM 2.
UNREGISTERED
SALES OF
EQUITY SECURITIES
AND USE OF
PROCEEDS
The Corporation did not have any unregistered sales
of equity securities during the quarter ended September
30, 2024.
Issuer Purchases of Equity Securities
The
following
table
provides
information
in
relation
to
the
Corporation’s
purchases
of
its
common
stock
during
the
quarter
ended
September
30, 2024.
Period
Total Number of Shares
Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (1)
Approximate Dollar Value
of Shares that May Yet
be
Purchased Under the Plans
or Programs (in
thousands) (1)
July 1, 2024 - July 31, 2024
-
$
-
-
$
300,000
August 1, 2024 - August 31, 2024
-
-
-
300,000
September 1, 2024 - September 30, 2024
898
21.17
-
250,000
Total
898
(2)
-
(1)
As of September 30, 2024,
the Corporation was authorized
to purchase up to $225 million
of the Corporation’s
common stock under the
program that was publicly announced
on July 24,
2023, of
which $175
million had
been utilized.
In addition,
the Corporation
was authorized
to purchase
up to
$250 million
that could
include repurchases
of common
stock or
junior
subordinated
debentures
under
the
program
that
was
publicly
announced
on
July
22,
2024.
During
the
third
quarter
of
2024,
the
Corporation
redeemed
$50.0
million
of
junior
subordinated debentures
under the
$250 million
repurchase program,
as further
explained in
Note 7
- “Non-Consolidated
Variable
Interest Entities
(“VIEs”) and
Servicing Assets.
The
remaining $250.0
million in the
table represents
the remaining amount
authorized under
both repurchase
programs. 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. Under
the stock
repurchase program,
shares may
be repurchased
through open
market purchases,
accelerated share
repurchases and/or
privately negotiated
transactions, including
under plans
complying with Rule 10b5-1 under the Exchange Act.
(2)
Consists of 898 shares
of common stock acquired
by the Corporation to
cover minimum tax
withholding obligations upon
the vesting of equity-based
awards. The Corporation
intends to
continue to satisfy statutory tax withholding obligations in connection
with the vesting of outstanding restricted stock and
performance units through the withholding of shares.
ITEM 5.
OTHER INFORMATION
During
the quarter
ended
September
30,
2024, none
of the
Corporation’s
directors or
officers
(as defined
in Rule
16a-1(f)
of the
Exchange Act)
are defined in Item 408 of Regulation S-K.
133
ITEM 6.
EXHIBITS
See the Exhibit Index below, which is incorporated by
reference herein:
EXHIBIT INDEX
Exhibit No.
Description
31.1
31.2
32.1
32.2
101.INS
Inline XBRL Instance Document, filed herewith. The
instance document does not appear in the interactive
data file because
its XBRL tags are embedded within the inline XBRL
document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document, filed herewith
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document, filed herewith
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith
101.DEF
Inline XBRL Taxonomy Extension Definitions Linkbase Document, filed herewith
104
The cover page of First BanCorp. Quarterly Report on Form 10-Q
for the quarter ended September 30, 2024, formatted in
Inline XBRL (included within the Exhibit 101 attachments)
134
SIGNATURES
Pursuant to
the requirements
of the
Securities Exchange
Act of
1934, the
Corporation has
duly caused
this report
to be
signed on
its
behalf by the undersigned hereunto duly authorized:
First BanCorp.
Registrant
Date:
November 8, 2024
By:
/s/ Aurelio Alemán
Date: November 8, 2024
By:
/s/ Orlando Berges
TABLE OF CONTENTS
Part IPart IIPart Ii, Item 2, Unregistered Sales Of Equity Securities and Use Of Proceeds, Of This Quarterly Report on Form 10-qItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II - Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 5. Other InformationItem 6. Exhibits