Celebrating
Our 75th Anniversary
About us
First chartered in 1948, FirstBank was the first “savings & loans”
institution established in Puerto Rico. Since its inception, it has played
a fundamental role in improving the quality of life in Puerto Rico by
providing capital for businesses, citizens, and their communities to grow
and thrive. It converted to a commercial bank charter and changed its
name to “First Federal Savings Bank” in 1983 and later became a
stockholder-owned savings bank by going public and trading on the
New York Stock Exchange under the symbol “FBP”. In 1994, the name
changes to FirstBank Puerto Rico, and four years later it reorganized
into a holding company under the name of First BanCorp.
In the 2000s, FirstBank established its presence in the state of Florida
and the United States Virgin Islands and, most recently, solidified its
leadership position in Puerto Rico when it acquired Banco Santander
operations, becoming the second largest financial institution in the
Island. As of December 31, 2023, FirstBank had $18.9 billion in total
assets serving more than 675,000 customers across Puerto Rico,
Florida, and the Eastern Caribbean regions.
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FINANCIAL HIGHLIGHTS
(In thousands, except per share amounts and financial ratios)
Year ended December 31
Condensed Income Statements:
Net interest income
Provision for credit losses
Non-interest income
Non-interest expenses
Income before income taxes
Income tax expense
Net income
Net income attributable to common stockholders
Per Common Share Results:
Net earnings per share - basic
Net earnings per share - diluted
Cash dividends declared
Average shares outstanding
Average shares outstanding - diluted
Book value per common share
Tangible book value per common share
Common Stock Price: End of period
SELECTED FINANCIAL RATIOS (IN PERCENT):
Profitability:
Return on Average Assets
Net Interest Margin
Return on Average Common Equity
Total capital
Common equity Tier 1 capital
Tier 1 capital
Leverage
Tangible common equity ratio
Dividend payout ratio
Efficiency ratio
Asset Quality:
Non-performing assets to total assets
Nonaccrual loans held for investment to total loans held for investment
Balance Sheet Data:
Loans, including loans held for sale
Allowance for credit losses for loans and finance leases
Total assets
Deposits
Borrowings
Total common equity
Accumulated other comprehensive loss, net of tax
Total equity
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2023
797,110
60,940
132,694
471,428
397,436
94,572
302,864
302,864
1.72
1.71
0.56
176,504
177,180
8.85
8.54
16.45
1.62%
4.33%
21.86%
18.57%
16.10%
16.10%
10.78%
7.67%
32.64%
50.70%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2022
795,293
27,696
123,092
443,105
447,584
142,512
305,072
305,072
1.60
1.59
0.46
190,805
191,968
7.25
6.93
12.72
1.57%
4.29%
18.66%
19.21%
16.53%
16.53%
10.70%
6.81%
28.77%
48.25%
0.67%
0.69%
0.69%
0.78%
$
$
$
$
$
$
$
$
12,192,851
261,843
18,909,549
16,555,985
661,700
2,136,779
(639,170)
1,497,609
$
$
$
$
$
$
$
$
11,565,131
260,464
18,634,484
16,143,467
933,895
2,130,318
(804,778)
1,325,540
To Our Fellow Shareholders, Clients,
and Colleagues:
Over recent years and in the present day, the
banking industry has been filled with uncer-
tainty. Since 2020, banks have navigated an
unprecedented global pandemic and its
implications, the fastest rise in short-term
interest rates in recent memory, and the
industry fallout stemming from bank failures
driven by lack of diversification and misman-
agement of asset liability strategies. In this
dynamic environment, First BanCorp (the
“Company”) has performed remarkably well
and delivered consistent results due to its
clear sense of strategic direction, risk man-
agement culture, and disciplined capital
allocation approach.
By many measures, 2023 was another excep-
tional year for the Company. We celebrated
our 75th anniversary, registered strong finan-
cial results, drove meaningful growth for the
franchise, and prioritized capital deployment
activities to maximize long-term shareholder
value creation. The Company remains well
positioned to continue selectively growing
market share across our operating markets
by enabling the most service-driven omni-
channel experience for our customers. We
believe that our size, relationship-centric
model, and expanded footprint within the
Puerto Rico market has allowed us to differ-
entiate ourselves from in-market peers, all
while building a more resilient banking organi-
zation for the benefit of our stakeholders.
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“We aim to leverage our size and
relationship-centric business model
to strike the ideal balance between
providing value-added physical
customer interactions and digital
convenience.”
Aurelio Alemán
President and
Chief Executive Officer
Roberto R. Herencia
Chairman of the Board
FRANCHISE PERFORMANCE
2023 performance showcased our ability to
capitalize on market opportunities and
strengthen existing customer relationships
amid unforeseen challenges and changing
industry dynamics. We reported full-year
earnings of $303 million, generated a 1.62%
return on average assets, and increased
tangible book value per share by 23%. Net
interest income benefitted from a higher rate
environment as sustained deposit pricing
pressures were partially offset by overall
higher rates and strong consumer loan origi-
nations at higher yields. We ended the year
with an efficiency ratio of 50.7% which com-
pares favorably to peers and is reflective of
our proven expense management discipline.
Importantly, we maintained a strong capital
position and stable asset quality, reaching a
decade-low non-performing assets to total
assets ratio of 0.67%.
RETURN ON AVERAGE ASSETS (%)
2022
1.57%
TANGIBLE BOOK VALUE PER SHARE
2022
$6.93
0.05%
CHANGE
23%
CHANGE
NON-PERFORMING ASSETS RATIO (%)
2022 0.69%
-0.02%
CHANGE
LOAN PORTFOLIO ($ Billions)
2022
$11,565
5%
CHANGE
CAPITAL DISTRIBUTIONS AS A % OF EARNINGS
2022
119%
EARNINGS PER SHARE (Diluted)
2022
$1.59
8%
CHANGE
“2023 performance showcased our
strong profitability and risk manage-
ment profile while highlighting our
capital management discipline and
return flexibility”
First BanCorp
Celebrating 30th NYSE listing anniversary.
We added $628 million or 5.4% to our
well-diversified and balanced loan portfolio
during the year by executing organic growth
strategies that are managed within the guard-
rails established by our risk appetite frame-
work. Our commercial loan book specifically
is comprised of borrowers across multiple
industries, with manageable exposure to
office commercial real estate in Florida and
Puerto Rico and minimal refinancing risk over
the coming years. We are proud to have
executed well against our loan growth goals,
and more importantly, to have guided our
customers throughout this period of rising
rates and elevated inflation.
Our colleagues worked hard throughout the
year to sustain our core deposit franchise.
Once again, our customers called on them to
restore calm and confidence in the face of
uncertainty during the first half of the year
and they stepped up to the task by highlight-
ing the strength of our balance sheet, diversi-
fied business model, and strong liquidity
position. Our deposit franchise continues to
be underpinned by the composition of our
deposit base, which is comprised of an
attractive mix of commercial and retail
accounts, a solid non-interest-bearing ratio of
34%, and the fact that 72% of deposits are
either insured or fully collateralized.
PROGRESS ON OUR STRATEGIC PILLARS
AND STAKEHOLDERS
We believe that banks exist to improve the
wellbeing of the communities they serve.
We provide mortgages to expand household
formation, capital for small businesses to
grow and create jobs, and a safe home for
depositors to save and plan for their future.
All these objectives are predicated on our
ability to maintain their trust and within the
context of operating a safe and sound institu-
tion which is regularly examined by regulatory
bodies. We pride ourselves on the healthy
relationship we have developed with our
regulators over the last decade, and main-
taining a healthy dialogue and overall compli-
ance with regulatory expectations remains a
core component of the Company’s strategic
priorities.
FirstBank for Business.
We continued our long history of promoting
economic opportunity and development for
our clients and our communities during
2023. We facilitated access to financial
products and services to low- and moder-
ate-income communities, while leveraging
existing partnerships with non-profit organi-
zations (“NPO”) and our corporate donations
program to enable financial literacy and other
social development initiatives across these
communities. This year, the Company
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Retail Digital Banking application and
corporate website revamp.
We are extremely proud of supporting over
675 thousand commercial and retail custom-
ers across our operating regions. Our team-
mates continued to expand our product and
service offerings and enhance our distribution
capabilities to enable a more seamless bank-
ing experience for our clients and facilitate
their interaction with the Company. Over the
course of 2023, our Retail Digital Banking
application and corporate website were
revamped to increase the number of services
and online sales capabilities available to
customers without them having to visit a
branch; this resulted in a 14% increase in
retail banking registered users during the
year. In terms of commercial clients, we
leveraged our revamped commercial offering
brand campaign, FirstBank for Business, to
promote the launch of commercial online
account opening in Puerto Rico and the
expansion of online commercial loan origina-
tions under $1 million to the Florida region.
All in, approximately 56% of our customer
base is now interacting digitally with the
Company.
First BanCorp
by executing our strategic imperatives,
reporting positive earnings, and generating
organic capital. 2023 was no exception.
We registered top-quartile financial perfor-
mance and distributed close to 100% of
annual earnings to shareholders in the form
of share repurchases and the payment of
common stock dividends for the third con-
secutive year. These results have been
evidenced by the strong performance that our
stock price has shown over the course of the
year against the KBW Nasdaq Regional Bank
Index (“KRX”). In fact, we were the best
performing stock among the 50 KRX constit-
uents during 2023. Our industry-leading
profitability and confidence behind our ability
to execute irrespective of the market environ-
ment continue to support our organic growth
and capital deployment plans for the next
years.
“We have consistently delivered for
shareholders by complementing our
organic and non-organic growth
strategies with capital distributions
and investments that result in the
highest form of long-term franchise
value.”
launched the “Rescue Your Coasts”
Island-wide initiative in Puerto Rico, a 3-year
multisectoral coastal erosion mitigation pro-
gram which is supported by government
entities, academic institutions, NPOs, and the
participation of some of our commercial
clients as well. We invite you to read our most
recent Corporate Sustainability Report for a
detailed review of the Company’s sustainabil-
ity practices and environmental initiatives.
75th anniversary employee celebration.
Our colleagues are the driving force behind
our success, and their dedication and enthu-
siasm are crucial to providing an exceptional
service to our clients. Maintaining their
engagement and loyalty is an integral part of
the Company’s long-standing vision and we
rely on engagement surveys, among other
tools, to track engagement and strengthen
commitment and satisfaction. Additionally,
we deployed multiple talent management
initiatives during the year, including strength-
ening our talent review, succession planning
process, and expanding career opportunities
through specialized trainings, which together
with improved employee engagement, con-
tributed to a reduction in turnover rates,
particularly for high-performing colleagues.
Finally, over the last ten years, the Company
has consistently delivered for its shareholders
Rescue Your Coasts multisectoral coastal
erosion mitigation program.
The South Florida economy continues to
benefit from encouraging demographic trends
and strong commercial activity, while the
Eastern Caribbean region is also expected
to benefit from the flow of approximately $6
billion in disaster relief funds still pending to
be deployed to support reconstruction activi-
ties within the region. We are highly encour-
aged by these structural tailwinds and remain
uniquely positioned to capitalize on growth
opportunities across all regions.
“Focused on Achieving Indutry-
Leading Profitability and Our Ability
to Execute Irrespective of Market
Environment”
OUTLOOK FOR 2024
Our Company’s overarching strategy relies on
selectively growing our share of the markets
we serve by enabling the most convenient
and agile omnichannel experience for our
customers. This strategy rests on leveraging
our size, particularly within our main market,
to strike the right balance between
value-added physical customer interactions
and enhanced self-service channels. This
ideal balance is achieved by setting up an
infrastructure that allows our colleagues to
spend their time focusing on what our cus-
tomers really need beyond just transactions,
and at the same time, adopting the appropri-
ate technology to facilitate convenient
self-service options.
In recent years, the Company has successfully
navigated through industry challenges by
making the necessary investments to grow
our physical presence in Puerto Rico, adopt
new technologies, and better position our-
selves to implement modern banking
platforms in the coming years. For example,
we have significantly improved our digital
Financing of affordable housing project.
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ECONOMIC ENVIRONMENT
Since 2017, Puerto Rico has endured multi-
ple unprecedented challenges and natural
disasters but has shown resolve and resilien-
cy in moving forward. After several years of
litigation with bondholders and other credi-
tors, the Government succeeded in restruc-
turing $74 billion in claims to approximately
$31 billion in new debt, including the most
recent plan of adjustment for the Puerto
Electric Power Authority (“PREPA”) which has
yet to be confirmed. This milestone has been
complemented by positive increases in gov-
ernment collections and an overall improved
liquidity position driven by expense manage-
ment measures, revenue outperformance,
and lower levels of debt service payments.
The economic backdrop in our main market
continues to be supported by a strong labor
market, increased business activity across a
broad range of sectors, and the unprecedent-
ed level of federal relief funds expected to
finance reconstruction and economic devel-
opment initiatives in Puerto Rico for the
foreseeable future. We believe that local
depositary institutions, as the main suppliers
of banking services and credit in Puerto Rico,
will continue to complement these funds and
provide additional fuel to support the Island’s
economic recovery.
banking and website capabilities by adding
new functionalities and self-service offerings
for both retail and commercial customers,
while upgrading the core infrastructure across
our branch network to better serve customers
that prefer a physical interaction.This year, we
began a multi-year process to migrate our
core systems and mainframe to cloud-based
and open system environments. More recent-
ly, we announced a strategic partnership with
cloud banking pioneer nCino, Inc. (NASDAQ:
NCNO) to develop a more modern and con-
venient commercial banking experience for
our customers. We are very excited to deploy
this customer-centric platform which will
simplify our online commercial lending opera-
tions, accelerate loan-cycle times, streamline
processes, and ultimately allow for a more
seamless interaction between our customers
and the Company within a single-cloud
based platform. All these investments are
complemented by recurring branch network
optimization initiatives and executing poten-
tial expansion opportunities.
Our thesis for profitable growth remains the
same. As we look forward to 2024, we expect
to carry our loan growth momentum to con-
tinue growing market share on the back of an
improving economy in Puerto Rico and
across our operating regions. We do expect
that average deposit balances will gradually
come down in line with recent trends as
excess liquidity in the system decreases
during the year. Our top priority will be to
leverage the short duration of our investment
portfolio to redeploy low-yielding maturing
securities into higher yielding assets, while
actively managing credit, particularly in the
consumer lending business. A timeless truth
about banking lies in the inherently variable
nature of risk and that’s why we operate with
ample reserve levels, a strong capital posi-
tion, and within the limits established by our
proven risk management framework.
First BanCorp
“We are proud of the position we are
in, the trust we have earned, and the
opportunity we have to meaningfully
expand our presence in the markets
we serve”
We are very pleased of how our franchise has
supported businesses, households, and
ultimately, the Puerto Rico economy over the
last 75 years by investing in our people,
upgrading our product offerings and services
to grow within the markets we serve, and
advancing initiatives to constantly enhance
our physical and IT infrastructure to achieve
operational leverage over the long run. We
want to thank all our colleagues for their
valuable contributions and dedication during
the year.
We would also like to thank our Board for
their guidance and support. These results
reflect our commitment to execute our strate-
gic priorities and create value for our share-
holders and other stakeholders. Looking
ahead, we are confident that we have the
right strategic direction, a proven manage-
ment team, and the right vision to navigate
the challenges and opportunities that lie
ahead. Thank you for investing in First Ban-
Corp, we are grateful for your trust and sup-
port, and we look forward to sharing our
progress with you next year.
Sincerely,
Roberto R. Herencia
Chairman of the Board
Aurelio Alemán
President and
Chief Executive Officer
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Investor Information
Independent Registered Public
Accounting Firm for the Fiscal Year
Ended December 31, 2023
Crowe LLP
488 Madison Avenue, Floor 3
New York, NY 10022-5722
Investor Relations
Ramón Rodríguez
Senior Vice President, Corporate Strategy
and Investor Relations
First BanCorp
787-729-2989
ramon.rodriguez@firstbankpr.com
Additional Information and Form 10-K
Additional financial information about
First BanCorp may be requested by
contacting Ramón Rodríguez, Corporate
Strategy and Investor Relations, 1519
Ponce de Leon Ave., Stop 23, PO Box
9146, San Juan, PR 00908-0146.
First BanCorp's filings with the Securities
and Exchange Commission (SEC) may be
accessed on the website maintained by the
SEC at http://www.sec. gov and on our
website at www.1firstbank com, Investor
Relations section, SEC Filings link
General Counsel
Sara Álvarez, Esq
Executive Vice President and
General Counsel
First BanCorp
787-729-8041
sara.alvarez@firstbankpr.com
Common Stock
The Company's common stock trades
on the New York Stock Exchange under
the symbol FBP.
Transfer Agent and Registrar
Computershare
P.O. Box 505000
Louisville, KY 40233-5000
or
Overnight Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
Toll free: 866-230-0168
Toll: 201-680-6578
Website: www.computershare.com/investor
NYSE and SEC Certifications
The Corporation filed on June 6, 2023,
the certification of the Chief Executive
Officer required under section 303A.12(a)
of the New York Stock Exchange’s
listed Company Manual. The Corporation
also filed, as exhibits to its 2023 Annual
Report on Form 10-K, the CEO and the
CFO certifications as required by
Sections 302 and Section 906 of the
Sarbanes-Oxley Act.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended December 31, 2023
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ___________________ to ___________________
COMMISSION FILE NUMBER 001-14793
FIRST BANCORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Puerto Rico
(State or other jurisdiction of
incorporation or organization)
1519 Ponce de León Avenue, Stop 23
San Juan, Puerto Rico
(Address of principal executive office)
66-0561882
(I.R.S. Employer
Identification No.)
00908
(Zip Code)
Registrant’s telephone number, including area code:
(787) 729-8200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock ($0.10 par value)
FBP
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1408) No (cid:1407)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes (cid:1407) No (cid:1408)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:1408) No (cid:1407)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes (cid:1408) No (cid:1407)
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 (cid:1408)
Non-accelerated filer (cid:1407)
Accelerated filer
(cid:1407)
Smaller reporting company (cid:1407)
Emerging growth company (cid:1407)
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. (cid:1407)
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. (cid:1408)
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error
to previously issued financial statements. (cid:1407)
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive
officers during the relevant recovery period pursuant to §240.10D-1(b). (cid:1407)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:1407) No (cid:1408)
The aggregate market value of the voting common equity held by non-affiliates of the registrant as of June 30, 2023 (the last trading day of the registrant’s most recently completed second
fiscal quarter) was $2,096,201,179 based on the closing price of $12.22 per share of the registrant’s common stock on the New York Stock Exchange on June 30, 2023. The registrant had no
nonvoting common equity outstanding as of June 30, 2023. For the purposes of the foregoing calculation only, the registrant has defined affiliates to include (a) the executive officers named in
Part III of this Annual Report on Form 10-K; (b) all directors of the registrant; and (c) each shareholder, including the registrant’s employee benefit plans but excluding shareholders that file on
Schedule 13G, known to the registrant to be the beneficial owner of 5% or more of the outstanding shares of common stock of the registrant as of June 30, 2023. The registrant’s response to
this item is not intended to be an admission that any person is an affiliate of the registrant for any purposes other than this response.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 167,317,829 shares as of February 21, 2024.
Documents incorporated by reference:
incorporated by reference in response to Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K.
Portions of the definitive proxy statement relating to the registrant’s annual meeting of stockholders scheduled to be held on May 23, 2024 are
FIRST BANCORP.
2023 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
PART II
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 1C.
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 9C.
Disclosure regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
Exhibit Index
SIGNATURES
2
5
21
35
35
36
36
36
37
40
41
114
115
235
235
235
235
236
236
236
236
237
237
237
Forward-Looking Statements
This Annual Report on Form 10-K (this “Form 10-K”) contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), which are subject to the safe harbor created by such sections. When used in this Form 10-K or future filings by
First BanCorp. (the “Corporation,” “we,” “us,” or “our”) with the U.S. Securities and Exchange Commission (the “SEC”), in the
Corporation’s press releases or in other public or stockholder communications made by the Corporation, or in oral statements made on
behalf of the Corporation by, or with the approval of, an authorized executive officer of the Corporation, the words or phrases
“would,” “intends,” “will,” “expect,” “should,” “plans,” “forecast,” “anticipate,” “look forward,” “believes,” and other terms of
similar meaning or import, or the negatives of these terms or variations of them, in connection with any discussion of future operating,
financial or other performance are meant to identify “forward-looking statements.”
The Corporation cautions readers not to place undue reliance on any such “forward-looking statements,” which speak only as of the
date made or, with respect to such forward-looking statements contained in this Form 10-K, the date hereof, and advises readers that
any such forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, estimates, and
assumptions by us that are difficult to predict . Various factors, some of which are beyond our control, could cause actual results to
differ materially from those expressed in, or implied by, such forward-looking statements.
Factors that could cause results to differ materially from those expressed in, or implied by, the Corporation’s forward-looking
statements include, but are not limited to, risks described or referenced in Part I, Item 1A, “Risk Factors,” and the following:
(cid:404) the effect of the current interest rate environment or changes in interest rates on the level, composition and performance of
the Corporation’s assets and liabilities, and corresponding effects on the Corporation’s net interest income, net interest
margin, loan originations, deposit attrition, overall results of operations, and liquidity position;
(cid:404) the effect of changes in the interest rate environment, including any adverse change in the Corporation’s ability to attract and
retain clients and gain acceptance from current and prospective customers for new products and services, including those
related to the offering of digital banking and financial services;
(cid:404) volatility in the financial services industry, including failures or rumored failures of other depository institutions, and actions
taken by governmental agencies to stabilize the financial system, which could result in, among other things, bank deposit
runoffs, liquidity constraints, and increased regulatory requirements and costs;
(cid:404) the effect of continued changes in the fiscal and monetary policies and regulations of the United States (“U.S.”) federal
government, the Puerto Rico government and other governments, including those determined by the Board of the Governors
of the Federal Reserve System (the “Federal Reserve Board”), the Federal Reserve Bank of New York (the “FED”), the
Federal Deposit Insurance Corporation (the “FDIC”), government-sponsored housing agencies and regulators in Puerto Rico,
the U.S., and the U.S. Virgin Islands (the “USVI”) and British Virgin Islands (the “BVI”), that may affect the future results
of the Corporation;
(cid:404) 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;
(cid:404) adverse changes in general economic conditions in Puerto Rico, the U.S., and the USVI and the BVI, including in the interest
rate environment, unemployment rates, market liquidity, housing absorption rates, real estate markets, and U.S. capital
markets, which may affect funding sources, loan portfolio performance and credit quality, market prices of investment
securities, and demand for the Corporation’s products and services, and which may reduce the Corporation’s revenues and
earnings and the value of the Corporation’s assets;
(cid:404) 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;
(cid:404) the ability of the Corporation, FirstBank, and third-party service providers on which we rely 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 such cybersecurity incidents that occur, such as
an April 2023 security incident at one of our third-party vendors, 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;
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(cid:404) general competitive factors and other market risks as well as the implementation of strategic growth opportunities, including
risks, uncertainties, and other factors or events related to any business acquisitions or dispositions;
(cid:404) uncertainty as to the implementation of the debt restructuring plan of Puerto Rico (“Plan of Adjustment” or “PoA”) and the
fiscal plan for Puerto Rico as certified on April 3, 2023 (the “2023 Fiscal Plan”) by the oversight board established by the
Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), or any revisions to it, on our clients and
loan portfolios, and any potential impact from future economic or political developments and tax regulations in Puerto Rico;
(cid:404) the impact of changes in accounting standards, or assumptions in applying those standards, and of forecasts of economic
variables considered for the determination of the allowance for credit losses (“ACL”);
(cid:404) the ability of FirstBank to realize the benefits of its net deferred tax assets;
(cid:404) the ability of FirstBank to generate sufficient cash flow to make dividends to the Corporation;
(cid:404) environmental, social and governance (“ESG”) matters, including our climate-related initiatives and commitments;
(cid:404) the impacts of natural or man-made disasters, the emergence or continuation of widespread health emergencies, geopolitical
conflicts (including sanctions, war or armed conflict, such as the ongoing conflict in Ukraine, the conflict between Israel and
Hamas, and the possible expansion of such conflicts in surrounding areas and potential geopolitical consequences), terrorist
attacks, or other catastrophic external events, including impacts of such events on general economic conditions and on the
Corporation’s assumptions regarding forecasts of economic variables;
(cid:404) the risk that additional portions of the unrealized losses in the Corporation’s debt securities portfolio are determined to be
credit-related, resulting in additional charges to the provision for credit losses on the Corporation’s debt securities portfolio,
and the potential for additional credit losses that could emerge from the downgrade of the U.S.’s Long-Term Foreign-
Currency Issuer Default Rating to ‘AA+’ from ‘AAA’ in August 2023 and subsequent negative ratings outlooks;
(cid:404) the impacts of applicable legislative, tax, or regulatory changes, as well as of the 2024 U.S. and Puerto Rico general election,
on the Corporation’s financial condition or performance;
(cid:404) 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;
(cid:404) 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;
(cid:404) any need to recognize impairments on the Corporation’s financial instruments, goodwill, and other intangible assets;
(cid:404) 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
(cid:404) 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.
The Corporation does not undertake to, and specifically disclaims any obligation to update any “forward-looking statements” to
reflect occurrences or unanticipated events or circumstances after the date of such statements, except as required by the federal
securities laws.
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Item 1. Business
GENERAL
PART I
First BanCorp. is a publicly owned financial holding company that is subject to regulation, supervision and examination by the
Federal Reserve Board. The Corporation was incorporated under the laws of the Commonwealth of Puerto Rico in 1948 to serve as the
bank holding company for FirstBank. Through its subsidiaries, including FirstBank, the Corporation provides full-service commercial
and consumer banking services, mortgage banking services, automobile financing, insurance agency services, and other financial
products and services in Puerto Rico, the U.S., the USVI and the BVI. As of December 31, 2023, the Corporation had total assets of
$18.9 billion, including loans of $12.2 billion, total deposits of $16.6 billion, and total stockholders’ equity of $1.5 billion.
The Corporation has two wholly-owned subsidiaries: FirstBank and FirstBank Insurance Agency, Inc. (“FirstBank Insurance
Agency”). FirstBank is a Puerto Rico-chartered commercial bank, and FirstBank Insurance Agency is a Puerto Rico-chartered
insurance agency.
FirstBank is subject to the supervision, examination and regulation of both the Office of the Commissioner of Financial Institutions
of Puerto Rico (“OCIF”) and the FDIC. Deposits are insured through the FDIC Deposit Insurance Fund (the “DIF”). In addition,
within FirstBank, the Bank’s USVI operations are subject to regulation and examination by the USVI Division of Banking Insurance,
and Financial Regulation; its BVI operations are subject to regulation by the BVI Financial Services Commission; and its operations
in the state of Florida are subject to regulation and examination by the Florida Office of Financial Regulation. The Consumer
Financial Protection Bureau (“CFPB”) regulates FirstBank’s consumer financial products and services. FirstBank Insurance Agency
is subject to the supervision, examination and regulation of the Office of the Insurance Commissioner of the Commonwealth of Puerto
Rico (the “Insurance Commissioner of Puerto Rico”) and the Division of Banking, Insurance and Financial Regulation in the USVI.
FirstBank conducts its business through its main office located in San Juan, Puerto Rico, 58 banking branches in Puerto Rico, eight
banking branches in the USVI and the BVI, and eight banking branches in the state of Florida. FirstBank has six wholly-owned
subsidiaries with operations in Puerto Rico: First Federal Finance Corp. (d/b/a Money Express La Financiera), a finance company
specializing in the origination of small loans with 25 offices in Puerto Rico; First Management of Puerto Rico, a Puerto Rico
corporation, which holds tax-exempt assets; FirstBank Overseas Corporation, an international banking entity (an “IBE”) organized
under the International Banking Entity Act of Puerto Rico; two companies engaged in the operation of certain real estate owned
(“OREO”) properties and limited liability corporation organized in 2022 under the laws of the Commonwealth of Puerto Rico and
Puerto Rico Tax Incentive Code (“Act 60 of 2019”), which commenced operations in 2023 and engages in qualified investing and
lending transactions.
For a discussion of certain significant events that have occurred in the year ended December 31, 2023, please refer to “Significant
Events” included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this
Form 10-K.
BUSINESS SEGMENTS
The Corporation has six reportable segments: Commercial and Corporate Banking; Mortgage Banking; Consumer (Retail) Banking;
Treasury and Investments; United States Operations; and Virgin Islands Operations. These segments are described below, as well as in
Note 27 – “Segment Information” to the audited consolidated financial statements included in Part II, Item 8 of this Form 10-K.
Commercial and Corporate Banking
The Commercial and Corporate Banking segment consists of the Corporation’s lending and other services for large customers
represented by specialized and middle-market clients and the government sector in the Puerto Rico region. The Commercial and
Corporate Banking segment offers commercial loans, including commercial real estate and construction loans, as well as other
products, such as cash management and business management services. A substantial portion of the commercial and corporate
banking portfolio is secured by the underlying real estate collateral and the personal guarantees of the borrowers.
Mortgage Banking
The Mortgage Banking segment consists of the origination, sale and servicing of a variety of residential mortgage loan products and
related hedging activities in the Puerto Rico region. Originations are sourced through different channels, such as FirstBank branches
and purchases from mortgage bankers, and in association with new project developers. The Mortgage Banking segment focuses on
originating residential real estate loans, some of which conform to the U.S. Federal Housing Administration (the “FHA”), the U.S.
Veterans Administration (the “VA”) and the U.S. Department of Agriculture Rural Development (the “RD”) standards. Originated
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loans that meet the FHA’s standards qualify for the FHA’s insurance program whereas loans that meet the standards of the VA or the
RD are guaranteed by those respective federal agencies.
Mortgage loans that do not qualify under the FHA, the VA or the RD programs are referred to as conventional loans. Conventional
real estate loans can be conforming or non-conforming. Conforming loans are residential real estate loans that meet the standards for
sale under the U.S. Federal National Mortgage Association (“FNMA”) and the U.S. Federal Home Loan Mortgage Corporation
(“FHLMC”) programs. Loans that do not meet FNMA or FHLMC standards are referred to as non-conforming residential real estate
loans. The Mortgage Banking segment also acquires and sells mortgages in the secondary markets. Residential real estate conforming
loans are sold to investors like FNMA and FHLMC. Most of the Corporation’s residential mortgage loan portfolio consists of fixed-
rate, fully amortizing, full documentation loans. The Corporation has commitment authority to issue Government National Mortgage
Association (“GNMA”) mortgage-backed securities (“MBS”). Under this program, the Corporation has been selling FHA/VA
mortgage loans into the secondary market since 2009.
Consumer (Retail) Banking
The Consumer (Retail) Banking segment consists of the Corporation’s consumer lending and deposit-taking activities conducted
mainly through FirstBank’s branch network , ATMs and online banking in the Puerto Rico region. Loans to consumers include auto
loans, finance leases, boat and personal loans, credit card loans, and lines of credit. Deposit products include interest-bearing and non-
interest-bearing checking and savings accounts, Individual Retirement Accounts (“IRAs”) and retail certificates of deposit (“retail
CDs”). Retail deposits gathered through each branch of FirstBank’s retail network serve as one of the funding sources for its lending
and investment activities. This segment also includes the Corporation’s insurance agency activities in the Puerto Rico region through
FirstBank Insurance Agency.
Treasury and Investments
The Treasury and Investments segment is responsible for the Corporation’s treasury and investment management functions. The
treasury function, which includes funding and liquidity management, lends funds to the Commercial and Corporate Banking, the
Mortgage Banking, the Consumer (Retail) Banking and the United States Operations segments to finance their respective lending
activities and borrows from those segments. The Treasury and Investments segment also obtains funding through brokered deposits,
advances from the FHLB, and repurchase agreements involving investment securities, among other possible funding sources.
United States Operations
The United States Operations segment consists of all banking activities conducted by FirstBank on the U.S. mainland. FirstBank
provides a wide range of banking services to individual and corporate customers, primarily in southern Florida through eight banking
branches. The United States Operations segment offers an array of both consumer and commercial banking products and services.
Consumer banking products include checking, savings and money market accounts, retail CDs, internet banking services, residential
mortgages, home equity loans, and lines of credit. Retail deposits, as well as FHLB advances and brokered CDs assigned to this
segment, serve as funding sources for its lending activities.
Commercial banking services include checking, savings and money market accounts, retail CDs, internet banking services, cash
management services, remote deposit capture, and automated clearing house (“ACH”) transactions. Loan products include the
traditional commercial and industrial (“C&I”) and commercial real estate products, such as lines of credit, term loans and construction
loans.
Virgin Islands Operations
The Virgin Islands Operations segment consists of all banking activities conducted by FirstBank in the USVI and the BVI regions,
including consumer and commercial banking services, with a total of eight banking branches serving the islands of St. Thomas, St.
Croix, and St. John in the USVI, and the island of Tortola in the BVI. The Virgin Islands Operations segment is driven by its
consumer, commercial lending and deposit -taking activities.
Loans to consumers include auto loans, lines of credit, and personal and residential mortgage loans. Deposit products include
interest-bearing and non-interest-bearing checking and savings accounts, IRAs, and retail CDs. Retail deposits gathered through each
branch serve as the funding sources for its own lending activities.
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CORPORATE SUSTAINABILITY PROGRAM OVERVIEW
The Corporation is committed to supporting our clients, employees, shareholders and communities in which we serve. Our
Corporate Sustainability program, which includes environmental, social and governance (“ESG”) matters, builds on the Corporation’s
core values, including being a socially responsible company. The Corporation sees effective ESG management as a critical step
towards a sustainable, inclusive and successful future.
During 2021, the Corporation adopted an ESG framework through which it established and communicated its corporate
sustainability strategy and overarching governance policy. In 2023, the Corporation continued evolving its Corporate Sustainability
program, including the publication of its annual First BanCorp. Corporate Sustainability Report for 2022 (the “2022 Report”). The
2022 Report disclosed information on a wide range of ESG topics, including governance and oversight; business ethics and
compliance; responsible marketing and sales practices; ESG integration in credit analysis; data security and cyber management;
people and culture; community impact; and environmental stewardship.
ESG Governance
The Corporation’s Board of Directors and executive leadership team share responsibilities relating to oversight of our ESG policies
and practices. In February 2022, the Corporate Governance and Nominating Committee of the Board of Directors amended its charter
to include oversight responsibility of ESG matters, and it has primary oversight of ESG policies, practices and disclosures.
Nonetheless, other committees of the Corporation’s Board of Directors also play a role in ESG oversight in matters related to risk and
cybersecurity management, human capital management, investment management and credit risk management.
As part of the ESG governance structure set forth in FirstBanCorp.’s Sustainability Policy, which was approved by the
Corporation’s Board of Directors in 2022, the responsibility of day-to-day management of our ESG framework and strategy has been
delegated to a management-level ESG Committee, comprised of leaders from different areas, such as Human Resources, Enterprise
Risk Management, Strategic Planning and Investor Relations, Legal and Corporate Affairs, Marketing, Compliance, Finance, and
Corporate Internal Audit. The ESG Committee is tasked with aligning priorities and initiatives for the year, setting and monitoring
long-term objectives and goals, and leading the annual reporting process on ESG related topics. The ESG Committee reports to the
Corporate Governance and Nominating Committee of the Board of Directors.
HUMAN CAPITAL MANAGEMENT
First BanCorp. strives to be recognized as a leading and diversified financial institution, offering superior experience to our clients
and employees. We believe that the key to our success is caring about our team as much as we care about our customers. Our goal is to
be an employer of choice within our primary operating regions, which we believe is achieved and sustained by adding value to our
employees’ lives and providing satisfying and evolving work experience. The core of our employer value proposition, “The
Experience of Being 1,” is our commitment to our employees’ well-being, success, professional development, and work environment.
Employees
As of December 31, 2023, the Corporation and its subsidiaries had 3,168 regular employees representing a 1% increase in overall
headcount from December 31, 2022. The Corporation had 2,797 employees in the Puerto Rico region, 209 employees in the Florida
region, and 162 employees in the Virgin Islands region. As of December 31, 2023, approximately 67% of the total employee
population and 57% of management positions were women.
Oversight
Our Human Resources Division reports directly to the Corporation’s Chief Risk Officer and manages all elements of the
Corporation’s human capital programs and strategies, including talent management, talent acquisition, engagement, learning and
development, compensation and benefits.
The Human Resources Division’s efforts are also overseen by the Corporation’s Chief Executive Officer (CEO) and the executive
management team through regular work-related interactions. Our leaders focus on strengthening employee management and
engagement and maximizing collaboration between departments and talents by promoting an open-door culture that stimulates
frequent communication between employees and management. This provides more opportunities to identify employees' needs, obtain
feedback about their work-life experience, and act upon such feedback to improve employee engagement. In addition, the
Corporation’s Board of Directors and its Compensation and Benefits Committee monitor and are regularly updated on the
Corporation’s human capital management strategies.
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Talent Management
First BanCorp. is an equal opportunity employer which considers qualified candidates for employment to fill its open positions. We
focus our efforts on attracting and retaining the best talent for the Corporation, including college graduates, and promoting internal
mobility. The attraction and selection process includes:
(cid:404) Promoting and posting our vacant positions internally and externally;
(cid:404) Building our employer brand by participating in professional events and job fairs and maintaining relationships with
universities through internship programs and career forums;
(cid:404) Collaboration with hiring managers to ensure an accurate match between roles and candidates to accelerate the recruitment
process and secure top candidates;
(cid:404) A robust management information system to enhance the effectiveness of the recruitment process and provide candidates with
a unique experience; and
(cid:404) A robust on-boarding process to engage and support new employees ’ induction process, including assignment of a “FirstPal”
from day one to help with the organizational culture transition and learning process.
We believe that financial security is critical for our employees. Our goal is to maintain compensation levels that are competitive
with the market and comparable job categories in similar organizations. Our salary administration program is designed to provide a
compensation structure that is consistent with our employees’ level of responsibilities to attract the best talent for each job and
commensurately pay for performance.
In addition to base salaries, some job positions are eligible to participate in variable pay programs. The Corporation has incentive
programs for revenue generation and sales support business units. The incentive programs are reviewed annually to align them to
business strategies and ensure sound risk management. Further, the Corporation’s Management Award Program recognizes and
rewards outstanding performance for exempt employees who do not participate in other variable pay programs. The Corporation also
has a long-term incentive plan for top-performing leaders and employees with high potential. These programs provide awards based
upon the Corporation’s and individual’s performance and are key for the attraction and engagement of the best talent. The
Corporation’s investment in its employees has resulted in a stable-tenured workforce, with an average tenure of 10 years of service as
of December 31, 2023, and a voluntary turnover rate of 10.97%, mostly related to hourly employees in call centers, collections centers
and branches. The Corporation measures turnover among high performers ; such employees’ turnover rate was 2.8% for 2023.
Talent Development and Engagement
We believe that a culture of learning and development maximizes the talent of human capital and is the foundation for sustained
business success. Our commitment to employee engagement continues throughout employees’ time with the Corporation.
Our learning and development program strives to reflect both employees’ and the organization’s needs. The Corporation offers
more than 8,000 training opportunities through online courses and in-person or virtual classes, as well as development activities,
special projects, and partial tuition reimbursement to complete a bachelor’s or master's degree to eligible employees. Training is
offered on various subjects within five areas: fundamentals, compliance and corporate governance, specialized technical subjects, soft
skills-professional development, and leadership skills.
In 2023 we provided over 92 training topics through virtual and in-person modalities allowing our employees to continue learning
and complete development plans. In 2023, we delivered more than 98,000 hours of training and each employee completed an average
of 31 training hours.
Every year around 100 new and existing supervisors and managers receive training specialized in supervision and talent
management. In addition, our leadership curriculum also has a program to strengthen skills of supervisors that includes several days of
training and encourages managers to review their leadership skills after feedback received by co-workers. For new supervisors, we
offer a program intended to train in basic supervision, leadership and communication skills, and our human resources policies and
practices. In addition, our program for active supervisors and managers encourages leaders to review their leadership skills with
feedback received from instructors and co-workers. The program has been delivered to 61% of our current leaders since its launch,
accounting for over 22,000 training hours.
In addition to these training opportunities, we have processes to promote professional development and career growth, including the
promotion of internal career opportunities, performance management processes, annual talent review, and robust succession planning.
We also encourage employees to participate in our commitment to our communities through our volunteer and community
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reinvestment programs. In 2023, our employees supported 32 organizations with more than 2,154 hours of volunteer work. The Bank
also encourages its employees to serve on non-profit organizations’ boards of directors. In 2023, First BanCorp employees were
members of the board of directors for 30 non-profit organizations across the Puerto Rico, Florida, and Virgin Islands regions and
offered approximately 2,276 hours of service.
Health & Wellness
Health and well-being programs are a strong component of the benefits we provide to our employees. First BanCorp. provides
competitive benefits programs to address even the most pressing needs of our employees and their families to promote occupational,
physical, emotional, and financial health. Our comprehensive wellness package includes health, dental and vision insurance offered
through different insurance company options that enable employees to choose those that best accommodate their and their families’
needs. We also offer life insurance and disability plans, as well as a defined contribution retirement plan option where both employee
and employer contribute. In addition, the Corporation offers a fitness facility in its main offices which allows employees to participate
in fitness activities including instructor-led wellness sessions.
To promote work-life balance, we grant a variety of paid time off for vacation, sick, maternity and paternity leave, bereavement
leave, marriage and personal days, in-house health services, and a complete wellness program, including nutrition, fitness, health fairs,
personal finance education, and preventive healthcare activities, nursing services, among others. The Corporation subsidizes a
substantial portion of the cost of these benefits. Also, more flexible work arrangements were implemented across the organization,
including hybrid work for the Florida region and certain groups in Puerto Rico, such as Internal Audit and Enterprise Risk
Management. Flexible programs are constantly under review for expansion and amendment according to business demands and
employees’ needs.
MARKET AREA AND COMPETITION
The Corporation operates in highly competitive markets and is subject to significant business, economic and competitive
uncertainties and contingencies. In particular, the banking market is highly competitive in Puerto Rico, the main geographic service
area of the Corporation. As of December 31, 2023, the Corporation also had presence in the state of Florida and in the USVI and the
BVI. Puerto Rico banks are subject to the same federal laws, regulations and supervision that apply to similar institutions on the
United States mainland.
Competitors include other banks, insurance companies, mortgage banking companies, small loan companies, automobile financing
companies, leasing companies, brokerage firms with retail operations, credit unions and certain retailers that operate in Puerto Rico,
the USVI, the BVI, and the state of Florida, as well as financial technology (“fintech”) companies and emerging competition from
digital platforms. The Corporation’s businesses compete with these other firms with respect to the range of products and services
offered and the types of clients, customers and industries served.
See Part I, Item 1A, “Risk Factors” for further discussion of risks related to competition.
SUPERVISION AND REGULATION
The Corporation and FirstBank, its bank subsidiary, are subject to comprehensive federal and Puerto Rican supervision and
regulation. These supervisory and regulatory requirements apply to all aspects of the Corporation’s and the Bank’s activities,
including commercial and consumer lending, deposit taking, management, governance and other activities. As part of this regulatory
framework, the Corporation and the Bank are subject to extensive consumer financial regulatory legal and supervisory requirements.
Further, U.S. financial supervision and regulation is dynamic in nature, and supervisory and regulatory requirements are subject to
change as new legislative and regulatory actions are taken. See Part I, Item 1, “Business–General” above for additional regulatory
oversight and supervision of FirstBank Insurance Agency. Future legislation may increase the regulation and oversight of the
Corporation and the Bank. Any change in applicable laws or regulations, however, may have a material adverse effect on the business
of commercial banks and bank holding companies, including the Bank and the Corporation.
The Corporation is also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, both as administered by the SEC, as well as the rules applicable to companies with
securities listed on the New York Stock Exchange.
The following discussion summarizes certain laws, regulations and policies to which the Company is subject. It does not address all
applicable laws, regulations and policies that affect the Company currently or might affect it in the future. This discussion is qualified
in its entirety by reference to the full texts of the laws, regulations and policies described.
9
Bank Holding Company Activities and Other Limitations
The Corporation is registered under the Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”), and
is subject to ongoing supervision, regulation and examination by the Federal Reserve Board. The Corporation is required to file with
the Federal Reserve Board periodic and annual reports and other information concerning its own business operations and those of its
subsidiaries.
The Bank Holding Company Act also permits a bank holding company to elect to become a financial holding company and engage
in a broader range of financial activities. The Corporation has elected to be a financial holding company under the Bank Holding
Company Act. Financial holding companies may engage, directly or indirectly, in any activity that is determined to be (i) financial in
nature, (ii) incidental to such financial activity, or (iii) complementary to a financial activity and does not pose a substantial risk to the
safety and soundness of depository institutions or the financial system generally. The Bank Holding Company Act specifically
provides that the following activities have been determined to be “financial in nature”: (i) lending, trust and other banking activities;
(ii) insurance activities; (iii) financial or economic advice or services; (iv) pooled investments; (v) securities underwriting and dealing;
(vi) domestic activities permitted for an existing bank holding company; (vii) foreign activities permitted for an existing bank holding
company; and (viii) merchant banking activities.
A financial holding company that ceases to meet certain standards is subject to a variety of restrictions, depending on the
circumstances, including precluding the undertaking of new financial activities or the acquisition of shares or control of other
companies. Until compliance is restored, the Federal Reserve Board has broad discretion to impose appropriate limitations on the
financial holding company’s activities. The Corporation and FirstBank must be “well-capitalized” and “well-managed” for regulatory
purposes, and FirstBank must earn “satisfactory” or better ratings on its periodic Community Reinvestment Act (“CRA”)
examinations for the Corporation to preserve its financial holding company status.
Under federal law and Federal Reserve Board policy, a bank holding company such as the Corporation is expected to act as a
source of strength to its banking subsidiaries and to commit required levels of support to them. This support may be required at times
when, absent such policy, the bank holding company might not otherwise provide such support. In the event of a bank holding
company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain capital of a
subsidiary bank will be assumed by the bankruptcy trustee and be entitled to a priority of payment. In addition, any capital loans by a
bank holding company to any of its subsidiary banks must be subordinated in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. As of December 31, 2023, and the date hereof, FirstBank was and is the only banking
subsidiary of the Corporation.
State-Chartered Non-Member Bank and Banking Laws and Regulations in General
FirstBank is subject to regulation and examination by the OCIF, the CFPB and the FDIC, and is subject to comprehensive federal
and state (including, for this purpose, the Commonwealth of Puerto Rico) regulations that regulate, among other things, the scope of
its businesses, its investments, its reserves against deposits, the timing and availability of deposited funds, and the nature and amount
of collateral for certain loans.
The OCIF, the CFPB and the FDIC periodically examine FirstBank to test the Bank’s conformance to safe and sound banking
practices and compliance with various statutory and regulatory requirements. This oversight establishes a comprehensive framework
of permissible activities, and the supervision by the FDIC is also intended for the protection of the FDIC’s insurance fund and
depositors. These regulatory authorities have discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Their enforcement authority includes, among other things, the ability to assess civil monetary penalties, issue
cease-and-desist or removal orders, and initiate injunctive actions against banking organizations and institution-affiliated parties. In
general, these enforcement actions may be initiated for violations of laws and regulations and for engaging in unsafe or unsound
practices. In addition, certain bank actions are required by statute and implementing regulations. Other actions or failure to act may
provide the basis for enforcement action, including the filing of misleading or untimely reports with regulatory authorities.
Regulatory Capital Requirements
The federal banking agencies have implemented rules for U.S. banks that establish minimum regulatory capital requirements, the
components of regulatory capital, and the risk-based capital treatment of bank assets and off-balance sheet exposures. These rules
currently apply to the Corporation and FirstBank, and generally are intended to align U.S. regulatory capital requirements with
international regulatory capital standards adopted by the Basel Committee on Banking Supervision (“Basel Committee”), in particular,
the international capital accord known as “Basel III.” The current rules require a minimum common equity capital requirement and an
additional common equity Tier 1 capital conservation buffer.
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Under the fully phased-in Basel III rules, in order to be considered adequately capitalized and not subject to the above-described
limitations, the Corporation is required to maintain: (i) a minimum common equity Tier 1 Capital (“CET1”) to risk-weighted assets
ratio of at least 4.5%, plus the 2.5% “capital conservation buffer,” resulting in a required minimum CET1 ratio of at least 7%; (ii) a
minimum ratio of total Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer, resulting in a
required minimum Tier 1 capital ratio of 8.5%; (iii) a minimum ratio of total Tier 1 plus Tier 2 capital to risk-weighted assets of at
least 8.0%, plus the 2.5% capital conservation buffer, resulting in a required minimum total capital ratio of 10.5%; and (iv) a required
minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average on-balance sheet (non-risk adjusted) assets.
Further, as part of its response to the impact of COVID-19, on March 31, 2020, federal banking agencies issued an interim final
rule that provided the option to temporarily delay the effects of current expected credit losses (“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 initial impact of the adoption of CECL on retained earnings plus 25% of the change in the ACL (excluding
purchased credit deteriorated (“PCD”) loans) from January 1, 2020 to December 31, 2021 will be delayed for two years and phased-in
at 25% per year beginning on January 1, 2022 over a three-year period, resulting in a total transition period of five years. The
Corporation and the Bank elected to phase in the full effect of CECL on regulatory capital over the five-year transition period.
The Corporation and the Bank compute risk-weighted assets using the Standardized Approach required by the Basel III rules. The
Standardized Approach expands the risk-weighting categories from the four major categories under the previous regulatory capital
rules (0%, 20%, 50%, and 100%) to a much larger and more risk-sensitive number of categories, depending on the nature of the assets.
Specific changes to the risk-weightings of assets included, among other things: (i) applying a 150% risk weight instead of a 100% risk
weight for high volatility commercial real estate acquisition, development and construction loans, (ii) assigning a 150% risk weight to
exposures that are 90 days past due (other than qualifying residential mortgage exposures, which remain at an assigned risk-weighting
of 100%), (iii) establishing a 20% credit conversion factor for the unused portion of a commitment with an original maturity of one
year or less that is not unconditionally cancellable, in contrast to the 0% risk-weighting under the prior rules and (iv) requiring capital
to be maintained against on-balance-sheet and off-balance-sheet exposures that result from certain cleared transactions, guarantees and
credit derivatives, and collateralized transactions (such as repurchase agreement transactions).
In addition, the Collins Amendment to the Dodd-Frank Act, among other things, eliminates certain trust-preferred securities
(“TRuPs”) from Tier 1 capital. Preferred securities issued under the U.S. Treasury’s Troubled Asset Relief Program (“TARP”) are
exempt from this change. Bank holding companies, such as the Corporation, were required to fully phase out these instruments from
Tier 1 capital by January 1, 2016; however, these instruments may remain in Tier 2 capital until the instruments are redeemed or
matured. As of December 31, 2023, the Corporation had $156.9 million in TRuPs that were subject to a full phase-out from Tier 1
capital under the final regulatory capital rules discussed above.
Set forth below are the Corporation's and FirstBank's capital ratios as of December 31, 2023 based on Federal Reserve and FDIC
guidelines:
As of December 31, 2023
Total capital (Total capital to risk-weighted assets)
CET1 Capital (CET1 capital to risk-weighted assets)
Tier 1 capital ratio (Tier 1 capital to risk-weighted assets)
Leverage ratio (1)
_______________
(1) Tier 1 capital to average assets.
First BanCorp.
FirstBank
Well-Capitalized
Minimum
Banking Subsidiary
18.57%
16.10%
16.10%
10.78%
18.36%
16.33%
17.11%
11.45%
10.00%
6.50%
8.00%
5.00%
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Stress-Testing and Capital Planning Requirements
Federal regulations currently do not impose formal stress-testing requirements on banking organizations with total assets of less
than $100 billion, such as the Corporation and FirstBank. The federal banking agencies have indicated through interagency guidance
that the capital planning and risk management practices of institutions with total assets of less than $100 billion will continue to be
reviewed through the regular supervisory process. Notwithstanding, the Corporation monitors its capital consistent with the safety and
soundness expectations of the federal regulators and continues to perform internal stress testing as part of its annual capital planning
process.
Dividend Restrictions
The Federal Reserve Board has a policy that, as a matter of prudent banking, a bank holding company should generally not pay
cash dividends unless its net income available to common shareholders for the past four quarters, net of dividends previously paid
during that period, has been sufficient to fully fund the dividends and the prospective rate of earnings retention appears to be
consistent with the organization’s capital needs, asset quality, and overall current and prospective financial condition. Furthermore, the
Federal Reserve Board’s regulatory capital rule (Regulation Q) limits the amount of capital a bank holding company may distribute
under certain circumstances. A banking organization must maintain a capital conservation buffer of CET1 capital in an amount greater
than 2.5% of total risk weighted assets to avoid being subject to limitations on capital distributions. The Corporation is also subject to
certain restrictions generally imposed on Puerto Rico corporations with respect to the declaration and payment of dividends (i.e., that
dividends may be paid out only from the Corporation’s capital surplus or, in the absence of such excess, from the Corporation’s net
earnings for such fiscal year and/or the preceding fiscal year).
The principal source of funds for the Corporation, as a parent holding company, is dividends declared and paid by its subsidiary,
FirstBank. The ability of FirstBank to declare and pay dividends on its capital stock is regulated by the Puerto Rico Banking Law of
1933, as amended (the “Puerto Rico Banking Law”), the Federal Deposit Insurance Act (the “FDIA”), and FDIC regulations. In
general terms, the Puerto Rico Banking Law provides that when the expenditures of a bank are greater than receipts, the excess of
expenditures over receipts shall be charged against undistributed profits of the bank and the balance, if any, shall be charged against
the required reserve fund of the bank. If the reserve fund is not sufficient to cover such balance in whole or in part, the outstanding
amount must be charged against the bank’s capital account. The Puerto Rico Banking Law provides that, until said capital has been
restored to its original amount and the reserve fund to 20% of the original capital, the bank may not declare any dividends. In general,
regulations of the FDIA and the FDIC restrict the payment of dividends when a bank is undercapitalized (as discussed in Prompt
Corrective Action below), when a bank has failed to pay insurance assessments, or when there are safety and soundness concerns
regarding such bank.
Refer to Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities” of this Form 10-K for further information on the Corporation ’s distribution of dividends and repurchases of common stock.
Consumer Financial Protection Bureau
The CFPB has primary examination and enforcement authority over FirstBank and other banks with over $10 billion in assets with
respect to consumer financial products and services.
The CFPB’s primary functions include the supervision of “covered persons” (broadly defined to include any person offering or
providing a consumer financial product or service and any affiliated service provider) for compliance with federal consumer financial
laws. It implements amendments to and has primary authority to enforce the federal consumer financial laws, including the Equal
Credit Opportunity Act, the Truth in Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”), among others.
The CFPB also has broad powers to prescribe rules applicable to a covered person or service provider in connection with any
transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.
Among other actions, the CFPB has issued regulations setting forth mortgage servicing rules that apply to the Bank, which affect
consumer notices regarding delinquency, foreclosure alternatives, modification applications, interest rate adjustments and options for
avoiding “force-placed” insurance. Further, the CFPB has adopted rules and forms that combine certain disclosures that consumers
receive in connection with applying for and closing on a mortgage loan under the TILA and the RESPA.
The Volcker Rule
Section 13 of the Bank Holding Company Act (commonly known as the Volcker Rule), generally prohibits a banking entity such as
the Corporation or the Bank from acquiring or retaining any ownership in, or acting as sponsor to, a hedge fund or private equity fund
(“covered fund”). The Volcker Rule also prohibits these entities from engaging, for their own account, in short-term proprietary
trading of certain securities, derivatives, commodity futures and options on these instruments.
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The Corporation and the Bank are not engaged in “proprietary trading” as defined in the Volcker Rule. In addition, the Corporation
has reviewed its investments and concluded that they are not considered covered funds under the Volcker Rule.
Community Reinvestment Act and Home Mortgage Disclosure Act Regulations
The CRA encourages banks to help meet the credit needs of the local communities in which they offer services, including low- and
moderate-income individuals, consistent with the safe and sound operation of the bank.
The CRA requires the federal supervisory agencies, as part of the general examination of supervised banks, to assess a bank’s
record of meeting the credit needs of its community, assign a performance rating, and take such record and rating into account in their
evaluation of certain applications by such bank, such as an application for approval of a merger or the establishment of a branch. A
rating of less than “satisfactory” could result in the denial of such applications. The CRA also requires all institutions to make public
disclosure of their CRA ratings. FirstBank received a “satisfactory” CRA rating in its most recent examination by the FDIC.
In October 2023, the U.S. federal banking regulatory agencies issued a final rule to strengthen and modernize their regulations
implementing the CRA. The final rule, among other things, revises the CRA regulations to better achieve the CRA’s core purpose of
encouraging banks to help meet the credit needs of their local communities; provides greater clarity and consistency in the application
of CRA regulations; tailors performance standards, data collection, and reporting requirements to account for differences in bank size,
business model, and local conditions; and promotes a consistent regulatory approach that applies to banks regulated by the OCC, the
Federal Reserve Board and the FDIC. The final rule takes effect on April 1, 2024, with staggered compliance dates of January 1, 2026,
and January 1, 2027.
USA PATRIOT Act and Other Anti-Money Laundering Requirements
As a regulated depository institution, FirstBank is subject to the Bank Secrecy Act, which imposes a variety of reporting and other
requirements, including the requirement to file suspicious activity and currency transaction reports that are designed to assist in the
detection and prevention of money laundering, terrorist financing and other criminal activities. In addition, under Title III of the USA
PATRIOT Act of 2001, all financial institutions are required to identify their customers, adopt formal and comprehensive anti-money
laundering programs, scrutinize or prohibit certain transactions of special concern, and be prepared to respond to inquiries from U.S.
law enforcement agencies concerning their customers and their transactions.
In January 2021, major legislative amendments to U.S. anti-money laundering requirements became effective through the
enactment of Division F of the National Defense Authorization Act for fiscal year 2021, otherwise known as the Anti-Money
Laundering Act of 2020 (the “AML Act”). The AML Act includes a variety of provisions designed to modernize the anti-money
laundering regulatory regime and remediate gaps in the U.S.’s approach to anti-money laundering and countering the financing of
terrorism, including the creation of a national database of absence corporate beneficial ownership along with significantly enhanced
reporting requirements, increased penalties for Bank Secrecy Act violations, clarification of Suspicious Activity Report filing and
sharing requirements, and provisions addressing the adverse consequences of “de-risking,” namely, the practice of financial
institutions’ termination or limitation of business relationships with clients or classes of clients in order to manage the risks associated
with such clients.
Regulations implementing the Bank Secrecy Act and the USA PATRIOT Act are published and primarily enforced by the Financial
Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Treasury. Failure of a financial institution, such as the Corporation or
the Bank, to comply with the requirements of the Bank Secrecy Act or the USA PATRIOT Act could have serious legal and
reputational consequences for the institution, including the possibility of regulatory enforcement or other legal actions, such as
significant civil monetary penalties. The Corporation is also required to comply with federal economic and trade sanctions
requirements enforced by the Office of Foreign Assets Control (“OFAC”), a bureau of the U.S. Treasury.
The Corporation believes it has adopted appropriate policies, procedures and controls to address compliance with the Bank Secrecy
Act, USA PATRIOT Act and economic/trade sanctions requirements, and to implement banking agency, FinCEN, OFAC and other
U.S. Treasury regulations.
Financial Privacy and Cybersecurity
The Gramm-Leach-Bliley Act limits the ability of financial institutions to disclose non-public information about consumers to non-
affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow
consumers to prevent disclosure of certain personal information to a non-affiliated third party.
The federal banking regulators regularly issue guidance regarding cybersecurity intended to enhance cyber risk management
standards among financial institutions. A financial institution is expected to establish multiple lines of defense and to ensure their risk
management processes address the risk posed by potential threats to the institution. A financial institution’s management is expected
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to maintain sufficient processes to effectively respond and recover the institution’s operations after a cyber-attack. A financial
institution is also expected to develop appropriate processes to enable recovery of data and business operations if a critical service
provider of the institution falls victim to this type of a cyber-attack. Our Corporate Information Security Program (“CISP”) reflects
these requirements and outlines our overall vision, direction, and governance efforts to protect the confidentiality, integrity, and
availability of customer information and prevent access by unauthorized personnel.
In July 2023, the SEC adopted rules requiring registrants to disclose material cybersecurity incidents they experience and to
disclose on an annual basis material information regarding their cybersecurity risk management, strategy, and governance. The new
rules require registrants to disclose on the new Item 1.05 of Form 8-K any cybersecurity incident they determine to be material
generally within four business days of such determination and to describe the material aspects of the incident’s nature, scope, and
timing, as well as its material impact or reasonably likely material impact on the registrant. The new rule also added Regulation S-K
Item 106, which requires disclosure of the registrant’s processes, if any, for assessing, identifying, and managing material risks from
cybersecurity threats, as well as the material effects or reasonably likely material effects of risks from cybersecurity threats and
previous cybersecurity incidents on the new Item 1C. Cybersecurity of Form 10-K. Item 106 also requires registrants to describe the
board of directors’ oversight of risks from cybersecurity threats and management’s role and expertise in assessing and managing
material risks from such threats. These disclosures were included in Part I, Item 1C, “Cybersecurity” to this Form 10-K.
Limitations on Transactions with Affiliates and Insiders
Certain transactions between FDIC-insured banks financial institutions such as FirstBank and its affiliates are governed by Sections
23A and 23B of the Federal Reserve Act and by Federal Reserve Regulation W. An affiliate of a bank is, in general, any corporation
or entity that controls, is controlled by, or is under common control with the bank, including the bank’s parent holding company and
any companies that are controlled by such holding company.
Generally, Sections 23A and 23B of the Federal Reserve Act (i) limit the extent to which the bank or its subsidiaries may engage in
“covered transactions” with any one affiliate to an amount equal to 10% of such bank’s capital stock and surplus, and contain an
aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such bank’s capital stock and surplus and (ii)
require that all “covered transactions” be on terms that are substantially the same, or at least as favorable to the bank or affiliate, as
those provided to a non-affiliate. The term “covered transaction” includes the making of loans, purchase of assets, issuance of a
guarantee, credit derivatives, securities lending and other similar transactions entailing the provision of financial support by the bank
to an affiliate. In addition, loans or other extensions of credit by the bank to the affiliate are required to be collateralized in accordance
with the requirements set forth in Section 23A of the Federal Reserve Act.
In addition, Sections 22(h) and (g) of the Federal Reserve Act, implemented through Regulation O, place restrictions on
commercial bank loans to executive officers, directors, and principal stockholders of the bank and its affiliates. Under Section 22(h) of
the Federal Reserve Act, bank loans to a director, an executive officer, a greater than 10% stockholder of the bank, and certain related
interests of these persons, may not exceed, together with all other outstanding loans to such persons and affiliated interests, the bank’s
limit on loans to one borrower, which is generally equal to 15% of the bank’s unimpaired capital and surplus in the case of loans that
are not fully secured, and an additional 10% of the bank's unimpaired capital and unimpaired surplus in the case of loans that are fully
secured by readily marketable collateral having a market value at least equal to the amount of the loan. Section 22(h) of the Federal
Reserve Act also requires that loans to directors, executive officers, and principal stockholders be made on terms that are substantially
the same as offered in comparable transactions to other persons and also requires prior board approval for certain loans. In addition,
the aggregate amount of extensions of credit by a bank to insiders cannot exceed the bank’s unimpaired capital and surplus.
Furthermore, Section 22(g) of the Federal Reserve Act places additional restrictions on loans to executive officers.
Executive Compensation
The federal banking agencies have adopted interagency guidance governing incentive-based compensation programs, which applies
to all banking organizations regardless of asset size. This guidance uses a principles-based approach to ensure that incentive-based
compensation arrangements appropriately tie rewards to longer-term performance and do not undermine the safety and soundness of
banking organizations or create undue risks to the financial system. The interagency guidance is based on three major principles: (i)
balanced risk-taking incentives; (ii) compatibility with effective controls and risk management; and (iii) strong corporate governance.
The guidance further provides that, where appropriate, the banking agencies will take supervisory or enforcement action to ensure that
material deficiencies that pose a threat to the safety and soundness of the organization are promptly addressed.
In May 2016, the federal financial regulators proposed regulations (first proposed in 2011) governing incentive-based compensation
practices at covered banking institutions, which would include, among others, all banking organizations with assets of $1 billion or
greater. Portions of these proposed rules would apply to the Corporation and FirstBank. Those applicable provisions would generally
(i) prohibit types and features of incentive-based compensation arrangements that encourage inappropriate risk because they are
“excessive” or “could lead to material financial loss” at the banking institution; (ii) require incentive-based compensation
arrangements to adhere to three basic principles: (1) a balance between risk and reward; (2) effective risk management and controls;
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and (3) effective governance; and (iii) require appropriate board of directors (or committee) oversight and recordkeeping and
disclosures to the banking institution’s primary regulatory agency. The nature and substance of any final action to adopt these
proposed rules, and the timing of any such action, are not known at this time.
In October 2022, the SEC finalized a rule that directs stock exchanges to require listed companies to implement clawback policies
to recover incentive-based compensation from current or former executive officers in the event of certain financial restatements, and
requires companies to, among other things, file their clawback policies as Exhibit 97 of Form 10-K. Our Compensation Clawback
Policy is compliant with NYSE’s listing standards pursuant to this new rule, and is filed as Exhibit 97.1 to this Form 10-K.
Prompt Corrective Action
The “prompt corrective action” provisions of the FDIA require the federal bank regulatory agencies to take prompt corrective
action against any insured depository institution that is undercapitalized. The FDIA establishes five capital categories: well-
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Well-capitalized
insured depository institutions significantly exceed the required minimum level for each relevant capital measure.
A bank’s capital category may not constitute an accurate representation of the overall financial condition or prospects of a bank,
such as the Bank, and should be considered in conjunction with other available information regarding the financial condition and
results of operations of such bank.
Deposit Insurance
FirstBank is subject to FDIC deposit insurance assessments, which increased for all banks, including FirstBank, following the
increase in deposit insurance coverage to up to $250,000 per customer and the FDIC’s expanded authority to increase insurance
premiums implemented by the Dodd-Frank Act. The FDIA further requires that the designated reserve ratio for the DIF for any year
not be less than 1.35% of estimated insured deposits or the comparable percentage of the new deposit assessment base. In addition,
the FDIC was required to take the necessary actions for the reserve ratio to reach 1.35% of estimated insured deposits by September
30, 2020. The FDIC managed to reach the goal early, achieving a reserve ratio of 1.36% in September 2018. However, in the third
quarter of 2020, the FDIC announced that the reserve ratio of the DIF fell nine basis points between the first and second quarters of
2020, from 1.39% to 1.30%. The decline was attributed to an unprecedented surge in deposits. The FDIC approved a plan that is
expected to restore the DIF to at least 1.35% within eight years, as required by the FDIA. Under the plan, the FDIC will maintain the
current schedules of assessment rates for all banks; monitor deposit balance trends, potential losses and other factors that affect the
reserve ratio; and provide updates to its loss and income projections at least twice a year. The FDIC has also adopted a final rule
raising its industry target ratio of reserves to insured deposits to 2%, 65 basis points above the statutory minimum, but the FDIC has
indicated that it does not project that goal to be met for several years.
In October 2022, the FDIC adopted a final rule, applicable to all insured depository institutions, to increase initial base deposit
insurance assessment rate schedules uniformly by 2 basis points, beginning in the first quarterly assessment period of 2023. The FDIC
also concurrently maintained the designated reserve ratio for the DIF at 2% for 2023. The increase in assessment rate schedules is
intended to increase the likelihood that the reserve ratio of the DIF reaches the statutory minimum of 1.35% by the statutory deadline
of September 30, 2028. The new assessment rate schedules will remain in effect unless and until the reserve ratio meets or exceeds 2%
in order to support growth in the DIF and progress toward the FDIC’s long-term goal of a 2% designated reserve ratio. Progressively
lower assessment rate schedules will take effect when the reserve ratio reaches 2% and again when it reaches 2.5%. For 2023, the
Corporation recognized an increase of approximately $2.4 million in deposit insurance expense, when compared to 2022, as a result of
the increase on the initial base deposit insurance assessment rate.
In November 2023, the FDIC approved a final rule to implement a special assessment to recover the loss to the DIF associated with
protecting uninsured depositors following the closure of Silicon Valley Bank and Signature Bank during the first half of 2023. Under
the final rule, the FDIC will collect the special assessment at a quarterly rate of 3.36 basis points beginning with the first quarterly
assessment period of 2024 (i.e, January 1 through March 31, 2024) with an invoice payment date of June 28, 2024, and will continue
to collect special assessments for an anticipated total of eight quarterly assessment periods. The base for the special assessment is
equal to the estimated uninsured deposits reported for the December 31, 2022 reporting period, adjusted to exclude the first $5 billion
of such amount. In association with this final rule, during the fourth quarter of 2023, the Corporation recorded a charge of $6.3 million
in the consolidated statements of income as part of “FDIC deposit insurance expenses,” which reflects the expected total payment to
be made to the FDIC as of December 31, 2023. The FDIC retains the ability to cease collection early, extend the special assessment
collection period beyond the eight-quarter collection period, or impose an additional shortfall special assessment on a one-time basis
after the receiverships for the two banks are terminated.
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FDIC Insolvency Authority
Under Puerto Rico banking laws, the OCIF may appoint the FDIC as conservator or receiver of a failed or failing FDIC-insured
Puerto Rican bank, and the FDIA authorizes the FDIC to accept such an appointment. In addition, the FDIC has broad authority under
the FDIA to appoint itself as conservator or receiver of a failed or failing state bank, including a Puerto Rican bank. If the FDIC is
appointed conservator or receiver of a bank upon the bank’s insolvency or the occurrence of other events, the FDIC may sell or
transfer some, part or all of a bank’s assets and liabilities to another bank, or liquidate the bank and pay out insured depositors, as well
as uninsured depositors and other creditors to the extent of the closed bank’s available assets. As part of its insolvency authority, the
FDIC has the authority, among other things, to take possession of and administer the receivership estate, pay out estate claims, and
repudiate or disaffirm certain types of contracts to which the bank was a party if the FDIC believes such contract is burdensome and
its disaffirmance will aid in the administration of the receivership. The FDIA provides that, in the event of the liquidation or other
resolution of an insured depository institution, including the Bank, the claims of depositors of the institution (including the claims of
the FDIC as subrogee of insured depositors) and certain claims for administrative expenses of the FDIC as a receiver would have
priority over other general unsecured claims against the institution. If the Bank were to fail, insured and uninsured depositors, along
with the FDIC, would have priority in payment ahead of unsecured, non-deposit creditors, including the Corporation, with respect to
any extensions of credit they have made to such insured depository institution.
Activities and Investments
The principal activities of FDIC-insured, state-chartered banks, such as FirstBank, are generally limited to those that are
permissible for national banks. Similarly, under regulations dealing with equity investments, an insured state-chartered bank generally
may not directly or indirectly acquire or retain any equity investments of a type, or in an amount, that is not permissible for a national
bank.
Federal Home Loan Bank System
FirstBank is a member of the FHLB system. The FHLB system consists of eleven regional FHLBs governed and regulated by the
Federal Housing Finance Agency. The FHLBs serve as reserve or credit facilities for member institutions within their assigned
regions.
FirstBank is a member of the FHLB of New York and, as such, is required to acquire and hold shares of capital stock in the FHLB
of New York in an amount calculated in accordance with the requirements set forth in applicable laws and regulations. FirstBank is in
compliance with the stock ownership requirements of the FHLB of New York. All loans, advances and other extensions of credit
made by the FHLB to FirstBank are secured by a portion of FirstBank’s mortgage loan or securities portfolios, certain other
investments and the capital stock of the FHLB held by FirstBank.
The board of directors of each FHLB can increase the minimum investment requirements if it has concluded that additional capital
is required to meet its own regulatory capital requirements. Any increase in the minimum investment requirements outside of specified
ranges requires the approval of the Federal Housing Finance Agency. Because the extent of any obligation to increase our investment
in any of the FHLBs depends entirely upon the occurrence of a future event, the amount of any future investment in the capital stock
of the FHLBs is not determinable.
Ownership and Control
Because of FirstBank’s status as an FDIC-insured bank, as defined in the Bank Holding Company Act, the Corporation, as the
owner of FirstBank’s common stock, is subject to certain restrictions and disclosure obligations under various federal laws, including
the Bank Holding Company Act and the Change in Bank Control Act (the “CBCA”). Regulations adopted pursuant to the Bank
Holding Company Act and the CBCA generally require prior Federal Reserve Board or other federal banking agency approval or non-
objection for an acquisition of control of an “insured institution” (as defined in the Act) or holding company thereof by any person (or
persons acting in concert). Control is deemed to exist if, among other things, a person (or group of persons acting in concert) acquires
25% or more of any class of voting stock of an insured institution or holding company thereof. Under the CBCA, control is presumed
to exist subject to rebuttal if a person (or group of persons acting in concert) acquires 10% or more of any class of voting stock and
either (i) the corporation has registered securities under Section 12 of the Exchange Act, or (ii) no person (or group of persons acting
in concert) will own, control or hold the power to vote a greater percentage of that class of voting securities immediately after the
transaction. The concept of acting in concert is broad and subject to certain rebuttable presumptions, including, among others, that
relatives, business partners, management officials, affiliates and others are presumed to be acting in concert with each other and their
businesses. The regulations of the FDIC implementing the CBCA are generally similar to those described above.
The Puerto Rico Banking Law requires the approval of the OCIF for changes in control of a Puerto Rico bank. See “Puerto Rico
Banking Law” below for further detail.
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Standards for Safety and Soundness
The FDIA requires the FDIC and other federal bank regulatory agencies to prescribe standards of safety and soundness. Bank
regulators have various remedies available if they determine that the financial condition, capital resources, asset quality, earnings
prospects, management, liquidity, or other aspects of a banking organization’s operations are unsatisfactory. The regulators may also
take action if they determine that the banking organization or its management is violating or has violated any law or regulation. The
regulators have the power to, among other things, prohibit unsafe or unsound practices, require affirmative actions to correct any
violation or practice, issue administrative orders that can be judicially enforced, direct increases in capital, direct the sale of
subsidiaries or other assets, limit dividends and distributions, restrict growth, assess civil monetary penalties, remove officers and
directors, and terminate deposit insurance.
Engaging in unsafe or unsound practices or failing to comply with applicable laws, regulations, and supervisory agreements could
subject the Corporation, its subsidiaries, and their respective officers, directors, and institution-affiliated parties to the remedies
described above, and other sanctions. In addition, the FDIC may terminate a bank’s deposit insurance upon a finding that the bank’s
financial condition is unsafe or unsound or that the bank has engaged in unsafe or unsound practices or has violated an applicable rule,
regulation, order, or condition enacted or imposed by the bank’s regulatory agency.
Brokered Deposits
FDIC regulations adopted under the FDIA govern the receipt of brokered deposits by banks. Well-capitalized institutions are not
subject to limitations on brokered deposits, while adequately capitalized institutions are able to accept, renew or rollover brokered
deposits only with a waiver from the FDIC and subject to certain restrictions on the interest paid on such deposits. Undercapitalized
institutions are not permitted to accept brokered deposits. In October 2020, the FDIC adopted revisions to its brokered deposit
regulations that became effective on April 1, 2021, with full compliance extended to January 1, 2022. For brokered deposits, the final
rule established a new framework for analyzing certain parts of the “deposit broker” definition, including a new interpretation for the
“primary purpose” exception and the business relationships that meet the exception. Pursuant to this revision, during the fourth quarter
of 2021, certain non-maturity deposits previously reported as brokered deposits were recharacterized as non-brokered deposits.
Puerto Rico Banking Law
As a commercial bank organized under the laws of the Commonwealth of Puerto Rico, FirstBank is subject to supervision,
examination and regulation by the commissioner of OCIF (the “Commissioner”) pursuant to the Puerto Rico Banking Law of 1933, as
amended (the “Banking Law”).
The Banking Law contains various provisions relating to FirstBank and its affairs, including its incorporation and organization, the
rights and responsibilities of its directors, officers and stockholders and its corporate powers, lending limitations, capital requirements,
and investment requirements. In addition, the Commissioner is given extensive rule-making power and administrative discretion under
the Banking Law.
The Banking Law requires every bank to maintain a legal reserve, which shall not be less than 20% of its demand liabilities, except
government deposits (federal, state and municipal) that are secured by actual collateral. The reserve is required to be composed of any
of the following securities or a combination thereof: (i) legal tender of the United States; (ii) checks on banks or trust companies
located in any part of Puerto Rico that are to be presented for collection during the day following the day on which they are received;
(iii) money deposited in other banks provided said deposits are authorized by the Commissioner and subject to immediate collection;
(iv) federal funds sold to any Federal Reserve Bank and securities purchased under agreements to resell executed by the bank with
such funds that are subject to be repaid to the bank on or before the close of the next business day; and (v) any other asset that the
Commissioner identifies from time to time.
Section 17 of the Banking Law permits Puerto Rico commercial banks to make loans to any one person, firm, partnership or
corporation in an aggregate amount of up to 15% of the sum of: (i) the bank’s paid-in capital; (ii) the bank’s reserve fund; (iii) 50% of
the bank’s retained earnings, subject to certain limitations; and (iv) any other components that the Commissioner may determine from
time to time. If such loans are secured by collateral worth at least 25% of the amount of the loan, the aggregate maximum amount may
reach 33.33% of the sum of the bank’s paid-in capital, reserve fund, 50% of retained earnings, subject to certain limitations, and such
other components that the Commissioner may determine from time to time. There are no restrictions under the Banking Law on the
amount of loans that may be wholly secured by bonds, securities and other evidences of indebtedness of the government of the United
States, or of the Commonwealth of Puerto Rico, or by bonds, not in default, of municipalities or instrumentalities of the
Commonwealth of Puerto Rico.
The Banking Law requires that Puerto Rico commercial banks prepare each year a balance summary of their operations and submit
such balance summary for approval at a regular meeting of stockholders, together with an explanatory report thereon. The Banking
Law also requires that at least 10% of the yearly net income of a Puerto Rico commercial bank be credited annually to a reserve fund
until such reserve fund is in amount equal to the total paid-in-capital of the bank.
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The Banking Law also provides that when the expenditures of a Puerto Rico commercial bank are greater than its receipts, the
excess of the expenditures over receipts must be charged against the undistributed profits of the bank, and the balance, if any, charged
against the reserve fund, as a reduction thereof. If there is no reserve fund sufficient to cover such balance in whole or in part, the
outstanding amount must be charged against the capital account and no dividend may be declared until said capital has been restored
to its original amount and the amount in the reserve fund equals 20% of the original capital.
The Finance Board, which is composed of nine members from enumerated Puerto Rico Government agencies, instrumentalities and
public corporations, including the Commissioner, has the authority to regulate the maximum interest rates and finance charges that
may be charged on loans to individuals and unincorporated businesses in Puerto Rico. The current regulations of the Finance Board
provide that the applicable interest rate on loans to individuals and unincorporated businesses, including real estate development loans
but excluding certain other personal and commercial loans secured by mortgages on real estate properties, is to be determined by free
competition. Accordingly, the regulations do not set a maximum rate for charges on retail installment sales contracts, small loans, and
credit card purchases. Furthermore, there is no maximum rate set for installment sales contracts involving motor vehicles, commercial,
agricultural and industrial equipment, commercial electric appliances and insurance premiums.
International Banking Center Regulatory Act of Puerto Rico (“IBE Act 52”)
The business and operations of FirstBank International Branch (“FirstBank IBE” or the “IBE division of FirstBank”) and FirstBank
Overseas Corporation (the IBE subsidiary of FirstBank) are subject to supervision and regulation by the Commissioner. FirstBank and
FirstBank Overseas Corporation were created under Puerto Rico Act 52-1989, as amended, known as the “International Banking
Center Regulatory Act” (the IBE Act 52), which provides for total Puerto Rico tax exemption on net income derived by an IBE
operating in Puerto Rico on the specific activities identified in the IBE Act 52. An IBE that operates as a unit of a bank pays income
taxes at the corporate standard rates to the extent that the IBE’s net income exceeds 20% of the bank’s total net taxable income. Under
the IBE Act 52, certain sales, encumbrances, assignments, mergers, exchanges or transfers of shares, interests or participation(s) in the
capital of an IBE may not be initiated without the prior approval of the Commissioner. The IBE Act 52 and the regulations issued
thereunder by the Commissioner (the “IBE Regulations”) limit the business activities that may be carried out by an IBE. Such
activities are limited in part to persons and assets located outside of Puerto Rico.
Pursuant to the IBE Act 52 and the IBE Regulations, each of FirstBank IBE and FirstBank Overseas Corporation must maintain in
Puerto Rico books and records of its transactions in the ordinary course of business. FirstBank IBE and FirstBank Overseas
Corporation are also required to submit to the Commissioner quarterly and annual reports of their financial condition and results of
operations, including annual audited financial statements.
The IBE Act 52 empowers the Commissioner to revoke or suspend, after notice and hearing, a license issued thereunder if, among
other things, the IBE fails to comply with the IBE Act 52, the IBE Regulations or the terms of its license, or if the Commissioner finds
that the business or affairs of the IBE are conducted in a manner that is not consistent with the public interest.
In 2012, the Puerto Rico government approved Act Number 273 (“Act 273”). Act 273 replaces, prospectively, IBE Act 52 with the
objective of improving the conditions for conducting international financial transactions in Puerto Rico. An IBE existing on the date
of approval of Act 273, such as FirstBank IBE and FirstBank Overseas Corporation, can continue operating under IBE Act 52, or it
can voluntarily convert to an International Financial Entity (“IFE”) under Act 273 so it may broaden its scope of Eligible IFE
Activities, as defined below, and obtain a grant of tax exemption under Act 273. As of the date of the issuance of this Form 10-K,
FirstBank IBE and FirstBank Overseas Corporation are operating under IBE Act 52.
On February 16, 2024, the Governor of Puerto Rico approved Act 45 of 2024 which amends the IBE Act. The amendments of the
IBE Act are effective on May 15, 2024, and, among other things, the amendments include an increase to the annual license fee paid by
the IBEs to OCIF from $5 thousand to $25 thousand and amends certain other compliance matters. The Corporation continues to
evaluate the complete impact of the amendments but understands that they do not have a material impact to the Corporation.
Puerto Rico Income Taxes
Under the Puerto Rico Internal Revenue Code of 2011, as amended (the “PR Tax Code”), the Corporation and its subsidiaries are
treated as separate taxable entities and are not entitled to file consolidated tax returns and, thus, the Corporation is generally not
entitled to utilize losses from one subsidiary to offset gains in another subsidiary. Accordingly, to obtain a tax benefit from a net
operating loss (“NOL”), a particular subsidiary must be able to demonstrate sufficient taxable income within the applicable NOL
carry-forward period. However, certain subsidiaries that are organized as limited liability companies with a partnership election are
treated as pass-through entities for Puerto Rico tax purposes. The PR Tax Code provides a dividend received deduction of 100% on
dividends received from “controlled” subsidiaries subject to taxation in Puerto Rico and 85% on dividends received from other taxable
domestic corporations.
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The Corporation has maintained an effective tax rate lower than the maximum statutory rate in Puerto Rico, which has resulted
mainly from conducting business through certain entities that have special tax treatments, including doing business through an IBE
unit of the Bank and through FirstBank Overseas Corporation, each of which are generally exempt from Puerto Rico income taxation
under IBE Act 52, and through a wholly-owned subsidiary that engages in certain Puerto Rico qualified investing activities that have
certain tax advantages under Act 60 of 2019.
United States Income Taxes
As a Puerto Rico corporation, First BanCorp. is treated as a foreign corporation for U.S. and USVI income tax purposes and,
accordingly, is generally subject to U.S. and USVI income tax only on its income from sources within the U.S. and USVI or income
effectively connected with the conduct of a trade or business in those jurisdictions. Any such tax paid in the U.S. and USVI is also
creditable against the Corporation’s Puerto Rico tax liability, subject to certain conditions and limitations.
Insurance Operations Regulation
As a financial holding company under the Bank Holding Company Act, we are permitted to engage in a broader range of activities,
including insurance activities, that are permitted to bank holding companies.
FirstBank Insurance Agency is registered as an insurance agency with the Insurance Commissioner of Puerto Rico and is subject to
regulations issued by the Insurance Commissioner of Puerto Rico and the Division of Banking, Insurance and Financial Regulation in
the USVI relating to, among other things, the licensing of employees and sales and solicitation and advertising practices, and by the
Federal Reserve Board as to certain consumer protection provisions mandated by the Gramm-Leach-Bliley Act and its implementing
regulations.
Mortgage Banking Operations
In addition to FDIC and CFPB regulations, FirstBank is subject to the rules and regulations of the FHA, VA, FNMA, FHLMC,
GNMA, and the U.S. Department of Housing and Urban Development (“HUD”) with respect to originating, processing, selling and
servicing mortgage loans and the issuance and sale of MBS. Those rules and regulations, among other things, prohibit discrimination
and establish underwriting guidelines that include provisions for inspections and appraisals, require credit reports on prospective
borrowers and fix maximum loan amounts, and, with respect to VA loans, fix maximum interest rates. Moreover, lenders such as
FirstBank are required annually to submit audited financial statements to the FHA, VA, FNMA, FHLMC, GNMA and HUD and each
regulatory entity has its own financial requirements. FirstBank’s affairs are also subject to supervision and examination by the FHA,
VA, FNMA, FHLMC, GNMA and HUD at all times to assure compliance with applicable regulations, policies and procedures.
Mortgage origination activities are subject to, among other requirements, the Equal Credit Opportunity Act, TILA and the RESPA and
the regulations promulgated thereunder that, among other things, prohibit discrimination and require the disclosure of certain basic
information to mortgagors concerning credit terms and settlement costs. FirstBank is licensed by the Commissioner under the Puerto
Rico Mortgage Banking Law, and, as such, is subject to regulation by the Commissioner, with respect to, among other things,
licensing requirements and the establishment of maximum origination fees on certain types of mortgage loan products.
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WEBSITE ACCESS TO REPORT
The Corporation makes available annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K,
and amendments to those reports, and proxy statements on Schedule 14A, filed or furnished pursuant to Sections 13(a), 14(a) or 15(d)
of the Exchange Act, free of charge on or through its internet website at www.1firstbank.com (under “Investor Relations”) or directly
through the Corporation’s investor relations website, fbpinvestor.com, as soon as reasonably practicable after the Corporation
electronically files such material with, or furnishes it to, the SEC. The SEC maintains a website that contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.
The Corporation also makes available its Corporate Governance Guidelines and Principles, the charters of the Audit,
Asset/Liability, Compensation and Benefits, Credit, Risk, Trust, and Corporate Governance and Nominating Committees and the
documents listed below, free of charge on or through its internet website at www.fbpinvestor.com (under Corporate Governance):
• Code of Ethics for CEO and Senior Financial Officers (the “Code of Ethics”)
• Code of Ethical Conduct applicable to all employees
•
Independence Principles for Directors
• Corporate Sustainability/ESG Reports
• Sustainability Policy
The Corporate Governance Guidelines and Principles and the aforementioned charters and documents may also be obtained free of
charge by sending a written request to Mrs. Sara Alvarez Cabrero , Executive Vice President, General Counsel and Secretary of the
Board, PO Box 9146, San Juan, Puerto Rico 00908.
Website addresses referenced in this Form 10-K are provided as textual references and for convenience only, and the content on the
referenced websites does not constitute a part of this Form 10-K or any other report or document that the Corporation files with or
furnishes to the SEC.
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Item 1A. Risk Factors
Below is a discussion about material risks and uncertainties that could impact the Corporation’s businesses, results of operations
and financial condition, including by causing the Corporation’s actual results to differ materially from those projected in any forward-
looking statements. Other risks and uncertainties, including those not currently known to the Corporation or its management and those
that the Corporation or its management currently deems to be immaterial, could also materially adversely affect the Corporation in
future periods. Thus, the following should not be considered a complete discussion of all of the risks and uncertainties the Corporation
may face. See the discussion under “Forward-Looking Statements,” in this Form 10-K.
RISKS RELATING TO THE BUSINESS ENVIRONMENT AND OUR INDUSTRY
The effect of the current interest rate environment or changes in interest rates or the level or composition of the Corporation’s
assets and liabilities may impact the Corporation’s net interest income, net interest margin, loan originations, deposit attrition,
overall results of operations, and its liquidity position.
Net interest income is the difference between the amounts received by us on our interest-earning assets and the interest paid by us
on our interest-bearing liabilities. Differences in the re-pricing structure of our assets and liabilities may result in changes in our
profits when interest rates change. For instance, higher interest rates increase the cost of mortgage and other loans to consumers and
businesses and may reduce future demand for such loans, which may negatively impact our profits by reducing the amount of loan
interest income due to declines in volume. Interest rates are highly sensitive to many factors that are beyond our control, including
general economic conditions, inflationary trends, changes in government spending and debt issuances and policies of various
governmental and regulatory agencies, in particular, the Federal Reserve Board.
Additionally, basis risk is the risk of adverse consequences resulting from unequal changes in the difference, also referred to as the
“spread” or basis, between the rates for two or more different instruments with the same maturity and occurs when market rates for
different financial instruments or the indices used to price assets and liabilities change at different times or by different amounts. For
example, the interest expense for liability instruments might not change by the same amount as interest income received from loans or
investments. To the extent that the interest rates on loans and borrowings change at different rates and by different amounts, the
margin between our variable rate-based assets and the cost of the interest-bearing liabilities might be compressed and adversely affect
net interest income.
Also, changes in interest rates may impact demand for new loan originations, affect the composition of the Corporation’s interest-
earning assets, and may impact the extent of any re-shifting between non-interest-bearing and interest-bearing liabilities. Further,
changes in interest rates impact the value of our fixed-rate securities. Any unrealized gains or losses from these portfolios impact other
comprehensive income, stockholders’ equity, and the tangible common equity ratio. Any realized gains or losses from these portfolios
impact regulatory capital ratios.
Changes in prepayments may adversely affect net interest income.
Net interest income could also be affected by prepayments of MBS. Generally, when rates rise, prepayments of principal and
interest will decrease, and the duration of MBS securities will increase. Conversely, when rates fall, prepayments of principal and
interest will increase, and the duration of mortgage-backed securities will decrease. Such acceleration in the prepayments of MBS
would lower yields on these securities, as the amortization of premiums paid upon the acquisition of these securities would accelerate.
Conversely, acceleration in the prepayments of MBS would increase yields on securities purchased at a discount, as the accretion of
the discount would accelerate. Also, net interest income in future periods might be affected by our investment in callable securities
because decreases in interest rates might prompt the early redemption of such securities.
The volatility in the financial services industry, 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.
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In the aftermath of these bank failures, the banking agencies have increased regulatory requirements and costs that may impact
capital ratios or the FDIC deposit insurance premium. For example, in November 2023, the FDIC approved a final rule to implement a
special assessment to recover the loss to the DIF associated with protecting uninsured depositors following the closure of Silicon
Valley Bank and Signature Bank during the first half of 2023. Under the final rule, the FDIC will collect the special assessment at a
quarterly rate of 3.36 basis points beginning with the first quarterly assessment period of 2024 (i.e, January 1 through March 31, 2024)
with an initial invoice payment date of June 28, 2024, and will continue to collect special assessments for an anticipated total of eight
quarterly assessment periods. The base for the special assessment is equal to the estimated uninsured deposits reported for the
December 31, 2022 reporting period, adjusted to exclude the first $5 billion of such amount. In association with this final rule, during
the fourth quarter of 2023, the Corporation recorded a charge of $6.3 million in the consolidated statements of income as part of
“FDIC deposit insurance expenses,” which reflects the expected total payment to be made to the FDIC as of December 31, 2023. The
FDIC retains the ability to cease collection early, extend the special assessment collection period beyond the eight-quarter collection
period, or impose an additional shortfall special assessment on a one-time basis after the receiverships for the two banks are
terminated.
Difficult market and general economic conditions have affected the financial industry and could adversely affect us in the
future.
Given that most of our business is in Puerto Rico and the U.S. and given the degree of interrelation between Puerto Rico’s economy
and that of the U.S., we are exposed to downturns in the U.S. economy, including factors such as employment levels in the U.S. and
real estate valuations. The deterioration of these conditions has adversely affected us in the past and in the future could adversely
affect the credit performance of mortgage loans, and result in significant write-downs of asset values by financial institutions,
including U.S. government-sponsored entities (“GSEs”) as well as major commercial banks and investment banks.
In particular, we may face the following risks:
(cid:404) Our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select,
manage, and underwrite the loans become less predictive of future behaviors.
(cid:404) The models used to estimate losses inherent in the credit exposure, particularly those under CECL, require difficult,
subjective, and complex judgments, including forecasts of economic conditions and how these economic predictions might
impair the ability of the borrowers to repay their loans, which may no longer be accurately estimated and which may, in
turn, impact the reliability of the models.
(cid:404) Our ability to borrow from other financial institutions or to engage in sales of mortgage loans to third parties (including
mortgage loan securitization transactions with GSEs and repurchase agreements) on favorable terms, or at all, could be
adversely affected by further disruptions in the capital or credit markets or other events, including deteriorating investor
expectations.
(cid:404) Competitive dynamics in the industry could change as a result of strategic growth opportunities in connection with current
market conditions.
(cid:404) Expected future regulation of our industry may increase our compliance costs and limit our ability to pursue business
opportunities.
(cid:404) There may be downward pressure on our stock price.
Any deterioration of economic conditions in the U.S. and disruptions in the financial markets could adversely affect our ability to
access capital, our business, financial condition, and results of operations. Unfavorable or uncertain economic and market conditions
have been and could cause declines in economic growth, business activity or investor or business confidence; limitations on the
availability or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment; natural disasters;
epidemics and pandemics; or a combination of these or other factors.
Additionally, the residential mortgage loan origination business is impacted by home values and has historically been cyclical,
enjoying periods of strong growth and profitability followed by periods of shrinking volumes and industry-wide losses. During periods
of rising interest rates, including the series of interest rate increases that have occurred, the refinancing of many mortgage products
tends to decrease as the economic incentives for borrowers to refinance their existing mortgage loans are reduced.
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Any sustained period of increased delinquencies, foreclosures, or losses could adversely affect our ability to sell loans, the prices
we receive for loans, the values of mortgage loans held for sale, or residual interests in securitizations, which could adversely affect
our financial condition and results of operations. In addition, any additional material decline in real estate values would further
weaken the loan-to-value ratios and increase the possibility of loss if a borrower defaults. In such event, we will be subject to the risk
of loss on such real estate arising from borrower defaults to the extent not covered by third-party credit enhancements.
We operate in a highly competitive industry and market area.
We face substantial competition in all areas of our operations from a variety of different competitors, including other banks,
insurance companies, mortgage banking companies, small loan companies, automobile financing companies, leasing companies,
brokerage firms with retail operations, credit unions, certain retailers, fintech companies and digital platforms. The Corporation’s
ability to compete effectively depends on the relative performance of its products, the degree to which the features of its products
appeal to customers, and the extent to which the Corporation meets clients’ needs and expectations. The Corporation’s ability to
compete also depends on its ability to attract and retain professional and other personnel, and on its reputation.
The Corporation encounters intense competition in attracting and retaining deposits and in its consumer and commercial lending
activities. The Corporation competes for loans with other financial institutions. The Corporation’s ability to originate loans depends
primarily on the rates and fees charged and the service it provides to its borrowers in making prompt credit decisions. There can be no
assurance that in the future the Corporation will be able to increase its deposit base, originate loans in the manner or on the terms on
which it has done so in the past, or otherwise compete effectively.
The Corporation’s credit quality and the value of the portfolio of Puerto Rico government securities has been, and in the future
may be, adversely affected by Puerto Rico’s economic condition, and may be affected by actions taken by the Puerto Rico
government or the PROMESA oversight board to address the ongoing fiscal and economic challenges in Puerto Rico.
A significant portion of the Corporation’s business activities and credit exposure is concentrated in the Commonwealth of Puerto
Rico, which has undergone significant economic challenges and debt reforms over the last decade.
On June 15, 2023, the Puerto Rico Planning Board (“PRPB”) presented the updated Economic Report to the Governor, which
provides an analysis of Puerto Rico’s economy during fiscal year 2022 and a short-term forecast for fiscal years 2023 and 2024.
According to the PRPB, Puerto Rico’s real gross national product (“GNP”) expanded by 3.7% in fiscal year 2022, which was the
highest annual real GNP growth registered in Puerto Rico since fiscal year 1999. The growth was primarily driven by a sharp increase
in personal consumption expenditures reflecting an increase of approximately 8.5% when compared to fiscal year 2021, increase in
exports of 4.8%, and growth in fixed capital investments of 12.6%, partially offset by an increase in imports of 10.3%.
The 2023 Fiscal Plan prioritizes resource allocation across three major pillars: (i) entrenching a legacy of strong financial
management through the implementation of a comprehensive financial management agenda, (ii) instilling a culture of public -sector
performance and excellence to properly delivery quality public services, and (iii) investing for economic growth to ensure sufficient
revenues are generated to support the delivery of services. According to the Transformation Plan, the fiscal and economic turnaround
of Puerto Rico cannot be accomplished without the implementation of structural economic reforms that promote sustainable economic
development. These reforms include power/energy sector reform to improve availability, reliability and affordability of energy,
education reform to expand opportunity and prepare the workforce to compete for jobs of the future, and an infrastructure reform
aimed at improving the efficiency of the economy and facilitating investment. The 2023 Fiscal Plan projects that these reforms, if
implemented successfully, will contribute 0.75% in GNP growth by fiscal year 2026. Additionally, the 2023 Fiscal Plan provides a
roadmap for a tax reform directed towards establishing a tax regime that is more competitive for investors and more equitable for
individuals.
The 2023 Fiscal Plan notes that Puerto Rico has had a strong recovery in the aftermath of the COVID-19 pandemic crisis with
labor participation trending positively and unemployment at historically low levels. However, it recognizes that such recovery has
been primarily fueled by the unprecedented influx of federal funds which have an outsized and temporary impact that may mask
underlying structural weaknesses in the economy. As such, the 2023 Fiscal Plan projects a 0.7% decline in real GNP for the current
fiscal year 2023, followed by a period of near-zero real growth in fiscal years 2024 through 2026. Also, the fiscal plan projects that
Puerto Rico’s population will continue the long-term trend of steady decline. Notwithstanding, the Transformation Plan depicts that, if
managed properly, these non-recurring federal funds can be leveraged into sustainable longer-term growth and opportunity.
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The 2023 Fiscal Plan projects that approximately $81 billion in total disaster relief funding, from federal and private sources, will
be disbursed as part of the reconstruction efforts over a span of 18 years (fiscal years 2018 through 2035). These funds will benefit
individuals, the public (e.g., reconstruction of major infrastructure, roads, and schools), and will cover part of Puerto Rico’s share of
the cost of disaster relief funding. Also, the 2023 Fiscal Plan projects the $9.3 billion in remaining COVID-19 relief funds to be
deployed in fiscal years 2023 through 2025, compared to $4.5 billion projected in the previous fiscal plan. Additionally, the 2023
Fiscal Plan continues to account for $2.3 billion in federal funds to Puerto Rico from the Bipartisan Infrastructure Law directed
towards improving Puerto Rico’s infrastructure over fiscal years 2022 through 2026.
As of December 31, 2023, the Corporation had $297.9 million of direct exposure to the Puerto Rico government, its municipalities
and public corporations. As of December 31, 2023, approximately $189.0 million of the exposure consisted of loans and obligations of
municipalities in Puerto Rico that are supported by assigned property tax revenues and for which, in most cases, the good faith, credit
and unlimited taxing power of the applicable municipality have been pledged to their repayment, and $59.4 million consisted of loans
and obligations which are supported by one or more specific sources of municipal revenues. The municipalities are required by law to
levy special property taxes in such amounts as are required for the payment of all of their respective general obligation bonds and
notes. In addition to municipalities, the total direct exposure also included $8.9 million in loans to an affiliate of PREPA, $37.4
million in loans to an agency of the Puerto Rico government, and obligations of the Puerto Rico government, specifically a residential
pass-through MBS issued by the PR Housing Finance Authority (“PRHFA”), at an amortized cost of $3.2 million as part of its
available-for-sale debt securities portfolio (fair value of $1.4 million as of December 31, 2023).
In addition, as of December 31, 2023, the Corporation had $77.7 million in exposure to residential mortgage loans that are
guaranteed by the PRHFA. 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 regulations adopted by the PRHFA require the
establishment of adequate reserves to guarantee the solvency of its mortgage loans insurance program . As of June 30, 2022, the most
recent date as of which information is available, the PRHFA had a liability of approximately $1 million as an estimate of the losses
inherent in the portfolio.
As of December 31, 2023, the Corporation had $2.7 billion of public sector deposits in Puerto Rico, which are fully collateralized.
Approximately 20% of the public sector deposits as of December 31, 2023 were from municipalities and municipal agencies in Puerto
Rico and 80% were from public corporations, the Puerto Rico central government and agencies, and U.S. federal government agencies
in Puerto Rico.
Instability in economic conditions, delays in the receipt of disaster relief funds allocated to Puerto Rico, and the potential impact on
asset values resulting from past or future natural disaster events, when added to Puerto Rico’s ongoing fiscal challenges, could
materially adversely affect our business, financial condition, liquidity, results of operations and capital position.
A deterioration in economic conditions in the U.S. Virgin Islands and British Virgin Islands could harm our results of
operations.
For many years, the USVI has been experiencing several fiscal and economic challenges that have deteriorated the overall financial
and economic conditions in the area. However, on May 22, 2023, the United States Bureau of Economic Analysis (the “BEA”)
released its estimates of real gross domestic product (“GDP”) for 2021. According to the BEA, the USVI’s real GDP increased 2.8%
in 2021 after decreasing 1.9% in 2020. The increase in real GDP reflected increases in exports and personal consumption
expenditures. These increases were partly offset by decreases in private inventory investment, private fixed investment, and
government spending. Imports, a subtraction item in the calculation of GDP, also decreased.
Over the past three years, the USVI has been recovering from the adverse impact caused by COVID-19 and has continued to make
progress on its rebuilding efforts related to Hurricanes Irma and Maria, which occurred in 2017. According to data published by the
government, over $5.0 billion in disaster recovery funds were disbursed as of November 2023 and $6.2 billion were remaining
obligated funds waiting to be disbursed. On the fiscal front, revenues have trended positively and the USVI government successfully
completed the restructuring of the government employee retirement system. Moreover, labor market trends remain stable with payroll
employment for the month of December 2023 up 0.3% when compared to December 2022.
Finally, PROMESA does not apply to the USVI and, as such, there is currently no federal legislation permitting the restructuring of
the debts of the USVI and its public corporations and instrumentalities. To the extent that the fiscal condition of the USVI government
deteriorates again, the U.S. Congress or the government of the USVI may enact legislation allowing for the restructuring of the
financial obligations of the USVI government entities or imposing a stay on creditor remedies, including by making PROMESA
applicable to the USVI.
As of December 31, 2023, the Corporation had $90.5 million in loans to USVI public corporations, compared to $38.0 million as of
December 31, 2022. As of December 31, 2023, all loans were currently performing and up to date on principal and interest payments.
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We are subject to ESG risks that could adversely affect our reputation and the market price of our securities.
There is an increased focus from certain government regulators, investors, customers, business partners and other stakeholders
concerning ESG matters, and the expectations related to ESG matters are rapidly evolving. The increased focus by investors and other
stakeholders on the ESG practices of publicly traded companies, like us, has included or may in the future include expanding
mandatory and voluntary reporting, diligence, and disclosure on topics such as climate change, human capital, labor and risk
oversight, and could expand the nature, scope, and complexity of matters that we are required to control, assess and report. These
requirements would likely result in increased ESG-related compliance costs, which could result in increases to our overall operational
costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could
negatively impact our reputation, ability to do business with certain partners, and our stock price.
For example, we may be exposed to negative publicity based on the identity and activities of those to whom we lend and with
which we otherwise do business and the public’s view of the approach and performance of our customers and business partners with
respect to ESG matters. Any such negative publicity could arise from adverse news coverage in traditional media and could also
spread through the use of social media platforms. The Corporation’s relationships and reputation with its existing and prospective
customers and third parties with which we do business could be damaged if we were to become the subject of any such negative
publicity. This, in turn, could have an adverse effect on our ability to attract and retain customers and employees and could have a
negative impact on our business, financial condition and results of operations. In addition, we could be criticized by ESG detractors
for the scope or nature of our ESG initiatives or policies or for any revisions to these policies. We could also be subjected to negative
responses by governmental actors (such as anti-ESG legislation or retaliatory legislative treatment) or consumers (such as boycotts or
negative publicity campaigns) that could adversely affect our reputation, results of operations and financial condition.
Our results of operations could be adversely affected by natural disasters, public health crises, political crises, negative global
climate patterns or other catastrophic events.
Natural disasters, whose nature and severity may be impacted by climate change, such as hurricanes, floods, extreme cold events
and other adverse weather conditions; public health crises; political crises, such as terrorist attacks, war, labor unrest, other political
instability, trade policies and sanctions, including the repercussions of the ongoing conflict in Ukraine, the conflict between Israel and
Hamas, and the possible expansion of such conflicts to surrounding areas and potential geopolitical consequences; negative global
climate patterns, especially in water stressed regions; or other catastrophic events, such as fires or other disasters occurring at our
locations, whether occurring in Puerto Rico, the U.S., or internationally, could cause a significant adverse effect on the economy and
disrupt our operations. Certain areas in which our business is concentrated, including Puerto Rico and the USVI, are particularly
susceptible to earthquakes, hurricanes, and major storms. Further, climate change may increase both the frequency and severity of
extreme weather conditions and natural disasters, which may affect our business operations, either in a particular region or globally, as
well as the activities of our customers. The Corporation is also not able to predict the positive or negative effects that future events or
changes to the U.S. or global economy, financial markets, or regulatory and business environment could have on our operations.
Climate change, and efforts to mitigate its long-term effects, may materially adversely affect the Corporation's business and
results of operations.
Concerns over the long-term effects of climate change have led and will continue to lead to governmental efforts around the world
to mitigate those impacts. Consumers and businesses also may voluntarily change their behavior as a result of these concerns. The
Corporation and its customers will need to respond to new laws and regulations as well as consumer and business preferences
resulting from climate change concerns. The Corporation and its customers may face cost increases, asset value reductions and
operating process changes. The impact on our customers will likely vary depending on their specific attributes, including reliance on
our role in fossil fuel activities. Among the impacts to the Corporation, we could face reductions in creditworthiness on the part of
some customers or in the value of assets securing loans. The Corporation’s efforts to take these risks into account in making lending
and other decisions, including increasing our business with climate-responsible companies, may not be effective in protecting the
Corporation from the negative impact of new laws and regulations or changes in consumer or business behavior.
Deterioration in collateral values may result in additional losses.
Our business is affected by the value of the assets securing our loans or underlying our investments.
We had a commercial and construction loan portfolio held for investment in the amount of $5.7 billion as of December 31, 2023.
Due to their nature, these loans entail a higher credit risk than consumer and residential mortgage loans, since they are larger in size,
concentrate more risk in a single borrower and are generally more sensitive to economic downturns. Furthermore, in the case of a
slowdown in the real estate market, it may be difficult to dispose of the properties securing these loans upon any foreclosure of the
properties. We may incur losses over the near term, either because of continued deterioration in the quality of loans or because of sales
of problem loans, which would likely accelerate the recognition of losses. Any such losses could adversely impact our overall
financial performance and results of operations.
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Deterioration of the value of real estate collateral securing our construction and commercial loan portfolios, whether located in
Puerto Rico or elsewhere, would result in increased credit losses. Whether the collateral that underlies our loans is located in Puerto
Rico, the USVI, the BVI, or the U.S. mainland, the performance of our loan portfolio and the collateral value backing the transactions
are dependent upon the performance of, and conditions within, each specific real estate market. As of December 31, 2023, $2.5
billion, or 21% of the total loan portfolio held for investment, of our commercial and construction loan portfolio held for investment
consisted of commercial mortgage and construction loans , of which $1.8 billion was in the Puerto Rico region.
We measure credit losses for collateral dependent loans based on the fair value of the collateral, which is generally obtained from
appraisals, adjusted for undiscounted selling costs as appropriate. Updated appraisals are obtained when we determine that loans are
collateral dependent and are updated annually thereafter. In addition, appraisals are also obtained for certain residential mortgage
loans on a spot basis based on specific characteristics, such as delinquency levels, and age of the appraisal. The appraised value of the
collateral may decrease, or we may not be able to recover collateral at its appraised value. A significant decline in collateral valuations
for collateral dependent loans has required and, in the future, may require, increases in our credit loss expense on loans. Any such
increase would have an adverse effect on our future financial condition and results of operations.
Labor shortages and constraints in the supply chain could adversely affect our clients’ operations as well as our operations.
Many sectors in Puerto Rico, the United States, the Virgin Islands and around the world are experiencing a shortage of workers.
Many of our commercial clients have been impacted by this shortage along with disruptions and constraints in the supply chain, which
could adversely impact their operations and could lead to reduced cash flow and difficulty in making loan repayments. The
Corporation’s industry has also been affected by the shortage of workers, as well as increasing wages for entry level and certain
professional roles. This may lead to open positions remaining unfilled for longer periods of time, which may affect the level of service
provided by the Corporation, or a need to increase wages to attract workers.
The failure of other financial institutions could adversely affect us.
Our ability to engage in routine financing transactions could be adversely affected by future failures of financial institutions and the
actions and commercial soundness of other financial institutions. Financial institutions are interrelated as a result of trading, clearing,
counterparty and other relationships. We have exposure to different industries and counterparties and routinely execute transactions
with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, investment
companies and other institutional clients. In certain of these transactions, we are required to post collateral to secure the obligations to
the counterparties. In the event of a bankruptcy or insolvency proceeding involving one of such counterparties, we may experience
delays in recovering the assets posted as collateral, or we may incur a loss to the extent that the counterparty was holding collateral in
excess of the obligation to such counterparty or under other circumstances.
In addition, many of these transactions expose us to credit risk in the event of a default by our counterparty or client. The credit risk
may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount
of the loan or derivative exposure due to us. Any losses resulting from our routine funding transactions may materially and adversely
affect our financial condition and results of operations.
RISKS RELATING TO THE CORPORATION’S BUSINESS
Certain funding sources may not be available to us, and our funding sources may prove insufficient and/or costly to replace.
FirstBank relies primarily on customer deposits, the issuance of brokered CDs, and advances from the FHLB of New York to
maintain its lending activities and to replace certain maturing liabilities. As of December 31, 2023, we had $783.3 million in brokered
CDs outstanding, representing approximately 5% of our total deposits. Approximately $700.9 million, or 89% in brokered CDs mature
over the twelve months ending December 31, 2024, and the average remaining term to maturity of the brokered CDs outstanding as of
December 31, 2023 was approximately 11 months. None of these brokered CDs are callable at the Corporation’s option. In addition,
the Corporation had $500.0 million of long-term FHLB advances outstanding as of December 31, 2023, which mature over one to five
years.
Although FirstBank has historically been able to replace maturing deposits and advances, we may not be able to replace these funds
in the future if our financial condition or general market conditions change. If we are unable to maintain access to funding sources, our
results of operations and liquidity would be adversely affected.
Alternate sources of funding may carry higher costs than sources currently utilized. If we are required to rely heavily on more
expensive funding sources, profitability would be adversely affected.
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We may determine to seek debt financing in the future to achieve our long-term business objectives. Additional borrowings, if
sought, may not be available to us, or if available, may not be on acceptable terms. The availability of additional financing will depend
on a variety of factors, such as market conditions, the general availability of credit, our credit ratings and our credit capacity. In
addition, FirstBank may seek to sell loans as an additional source of liquidity. If additional financing sources are unavailable or are not
available on acceptable terms, our profitability and future prospects could be adversely affected.
Downgrades in our credit ratings could further increase the cost of borrowing funds.
The Corporation’s ability to access new non-deposit sources of funding could be adversely affected by downgrades in our credit
ratings. The Corporation’s liquidity is to a certain extent contingent upon its ability to obtain external sources of funding to finance its
operations. The Corporation’s current credit ratings and any downgrades in such credit ratings can hinder the Corporation’s access to
new forms of external funding and/or cause external funding to be more expensive, which could in turn adversely affect results of
operations.
We depend on cash dividends from FirstBank to meet our cash obligations.
As a holding company, dividends from FirstBank, our banking subsidiary, have provided a substantial portion of our cash flow used
to service the interest payments on our TRuPs and other obligations. FirstBank is limited by law in its ability to make dividend
payments and other distributions to us based on its earnings and capital position. A failure by FirstBank to generate sufficient cash
flow to make dividend payments to us may have a negative impact on our results of operations and financial condition.
Our level of non-performing assets may adversely affect our future results of operations.
Although non-performing assets decreased by $3.3 million to $125.9 million as of December 31, 2023, or 3%, from $129.2 million
as of December 31, 2022, we continue to have a relevant amount of nonaccrual loans. If we are unable to effectively maintain the
quality of our loan portfolio, our financial condition and results of operations may be materially and adversely affected.
Our ACL may not be adequate to cover actual losses, and we may be required to materially increase our ACL, which may
adversely affect our capital ratios, financial condition and results of operations.
We are subject, among other things, to the risk of loss from loan defaults and foreclosures with respect to the loans we originate and
purchase. We recognize periodic credit loss expenses on loans, which leads to reductions in our income from operations, in order to
maintain our ACL on loans at a level that our management deems to be appropriate based upon an assessment of the quality of the
loan and lease portfolios. Management may fail to accurately estimate the level of credit losses or may have to increase our credit loss
expense on loans in the future as a result of new information regarding existing loans, future increases in nonaccrual loans beyond
what was forecasted, foreclosure actions and loan modifications, changes in current and expected economic and other conditions
affecting borrowers or for other reasons beyond our control. In addition, the bank regulatory agencies periodically review the
adequacy of our ACL on loans and may require an increase in the credit loss expense on loans or the recognition of additional
classified loans and loan charge-offs, based on judgments that differ from those of management.
The level of the ACL reflects management’s estimates based upon various assumptions and judgments as to specific credit risks;
evaluation of industry concentrations; loan loss experience; current loan portfolio quality; present economic, political and regulatory
conditions; unidentified losses inherent in the current loan portfolio and reasonable and supportable forecasts. The determination of
the appropriate level of the ACL on loans inherently involves a high degree of subjectivity and requires management to make
significant estimates and judgments regarding current credit risks and future trends, all of which may undergo material changes. If our
estimates prove to be incorrect, our ACL on loans may not be sufficient to cover losses in our loan portfolio and our credit loss
expense on loans could increase substantially.
In addition, any increases in our credit loss expense on loans or any loan losses in excess of our ACL on loans could have a material
adverse effect on our future capital ratios, financial condition and results of operations.
The Corporation’s force-placed insurance policies could be disputed by the customer.
The Corporation maintains force-placed insurance policies that have been put into place when a borrower’s insurance policy on a
property has been canceled, lapsed or was deemed insufficient and the borrower did not secure a replacement policy. A borrower may
make a claim against the Corporation under such force-placed insurance policy, and the failure of the Corporation to resolve such a
claim to the borrower’s satisfaction may result in a dispute between the borrower and the Corporation, which if not adequately
resolved, could have an adverse effect on the Corporation.
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Defective and repurchased loans may harm our business and financial condition.
In connection with the sale and securitization of loans, we are required to make a variety of customary representations and
warranties relating to the loans sold or securitized. Our obligations with respect to these representations and warranties are generally
outstanding for the life of the loan, and relate to, among other things, the following: (i) compliance with laws and regulations; (ii)
underwriting standards; (iii) the accuracy of information in the loan documents and loan files; and (iv) the characteristics and
enforceability of the loan.
A loan that does not comply with the representations and warranties made may take longer to sell, may impact our ability to obtain
third-party financing for the loan, and may not be saleable or may be saleable only at a significant discount. If such a loan is sold
before we detect non-compliance, we may be obligated to repurchase the loan and bear any associated loss directly, or we may be
obligated to indemnify the purchaser against any loss, either of which could reduce our cash available for operations and liquidity.
Management believes that it has established controls to ensure that loans are originated in accordance with the secondary market’s
requirements, but certain employees may make mistakes or may deliberately violate our lending policies.
Our controls and procedures may fail or be circumvented, our risk management policies and procedures may be inadequate and
operational risks could adversely affect our consolidated results of operations.
We may fail to identify and manage risks related to a variety of aspects of our business, including, but not limited to, liquidity risk;
interest rate risk; market risk; credit risk; operational risk; legal, regulatory and compliance risk; reputational risk; model risk; capital
risk; strategic risk; and information technology and cybersecurity risk. We have adopted and periodically improve various controls,
procedures, policies and systems to monitor and manage risk. Any improvements to our controls, procedures, policies and systems,
however, may not be adequate to identify and manage the risks in our various businesses. If our risk framework is ineffective, either
because it fails to keep pace with changes in the financial markets or our businesses or for other reasons, we could incur losses, suffer
reputational damage, or find ourselves out of compliance with applicable regulatory mandates or expectations.
We may also be subject to disruptions from external events, such as natural disasters and cyber-attacks, which could cause delays or
disruptions to operational functions, including information processing and financial market settlement functions. In addition, our
customers, vendors and counterparties could suffer from such events. Should these events affect us, or the customers, vendors or
counterparties with which we conduct business, our consolidated results of operations could be negatively affected. When we record
balance sheet reserves for probable loss contingencies related to operational losses, we may be unable to accurately estimate our
potential exposure, and any reserves we establish to cover operational losses may not be sufficient to cover our actual financial
exposure, which may have a material impact on our consolidated results of operations or financial condition for the periods in which
we recognize the losses.
Our failure to attract and retain a qualified workforce could harm our overall business and results of operations.
The Corporation’s success depends, in large part, on its ability to attract and retain skilled, experienced personnel. Competition for
qualified candidates in the activities and markets that the Corporation and FirstBank serves is intense, and while the Corporation
invests significantly in the training and development of its employees, it may not be able to hire people or to retain them. In addition,
high inflation has impacted both cost structure and employee demand for wage growth, which may lead to sustained higher turnover
rates. If the Corporation is unable to retain its most qualified employees, its performance and competitive positioning could be
materially adversely affected.
Our businesses may be adversely affected by litigation.
We have, in the past, been party to claims and legal actions by our customers, or subject to regulatory supervisory actions by the
government on behalf of customers, relating to our performance of fiduciary or contractual responsibilities. In the past, we have also
been subject to securities class action litigation by our shareholders and we have also faced employment lawsuits and other legal
claims. In any future claims or actions, demands for substantial monetary damages may be asserted against us, resulting in financial
liability or an adverse effect on our reputation among investors or on customer demand for our products and services. A securities
class action suit against us in the future could result in substantial costs, potential liabilities and the diversion of management’s
attention and resources. We may be unable to accurately estimate our exposure to litigation risk when we record balance sheet
reserves for probable loss contingencies. As a result, reserves we establish to cover any settlements or judgments may not be sufficient
to cover our actual financial exposure, which has occurred in the past and may occur in the future, resulting in a material adverse
impact on our consolidated results of operations or financial condition.
In the ordinary course of our business, we are also subject to various regulatory, governmental and law enforcement inquiries,
investigations and subpoenas. These may be directed generally to participants in the businesses in which we are involved or may be
specifically directed at us. In regulatory enforcement matters, claims for disgorgement, the imposition of penalties and the imposition
of other remedial sanctions are possible.
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The resolution of legal actions or regulatory matters, when unfavorable, has had, and could in the future have, a material adverse
effect on our consolidated results of operations for the quarter in which such actions or matters are resolved or a reserve is established.
Our businesses may be negatively affected by adverse publicity or other reputational harm.
Our relationships with many of our customers are predicated upon our reputation as a fiduciary and a service provider that adheres
to the highest standards of ethics, service quality and regulatory compliance. Adverse publicity, regulatory actions, litigation,
operational failures, the failure to meet customer expectations and other issues with respect to one or more of our businesses, including
FirstBank as our banking subsidiary, could materially and adversely affect our reputation, or our ability to attract and retain customers
or obtain sources of funding for the same or other businesses. Preserving and enhancing our reputation also depends on maintaining
systems and procedures that address known risks and regulatory requirements, as well as our ability to identify and mitigate additional
risks that arise due to changes in our businesses, the market places in which we operate, the regulatory environment and customer
expectations. If we fail to promptly address matters that bear on our reputation, our reputation may be materially adversely affected
and our business may suffer.
Any impairment of our goodwill or other intangible assets may adversely affect our operating results.
If our goodwill or other intangible assets become impaired, we may be required to record a significant charge to earnings.
Goodwill is tested for impairment on an annual basis, and more frequently if events or circumstances lead management to believe
the values of goodwill may be impaired. Other intangible assets are amortized over the projected useful lives of the related intangible
asset, generally on a straight-line basis, and these assets are reviewed periodically for impairment when events or changes in
circumstances indicate that the fair value may not exceed their carrying amount. Factors that may be considered a change in
circumstances indicating that the carrying value of the goodwill or amortizable intangible assets may not be recoverable includes
reduced future cash flow estimates, decreases in the current market price of our common shares, negative information concerning the
terminal value of similarly situated insured depository institutions, and slower growth rates in the industry.
The goodwill annual impairment evaluation process includes a qualitative assessment of events and circumstances that may affect
each relevant reporting unit's fair value to determine whether it was more likely than not that the fair value of any reporting unit was
less than its carrying amount, including goodwill. If the result of the qualitative assessment indicates that it is more likely than not that
the carrying value of goodwill exceeds its fair value, a quantitative analysis is made to determine the amount of goodwill impairment.
Analyzing goodwill includes consideration of various factors that continue to rapidly evolve and for which significant uncertainty
remains. Weakening in the economic environment, which could in turn cause a decline in the performance of the reporting units, could
cause the fair value of one or more of the reporting units to fall below their carrying value, resulting in a goodwill impairment charge.
Actual values may differ significantly from this assessment. Such differences could result in future impairment of goodwill that
would, in turn, negatively impact our results of operations and the reporting unit to which the goodwill relates. During the fourth
quarter of 2023, management performed a qualitative analysis of the carrying amount of each relevant reporting unit’s goodwill and
concluded that it is more-likely-than-not that the fair value of the reporting units exceeded their carrying value. Therefore, no
quantitative analysis was required.
As of December 31, 2023, the book value of our goodwill was $38.6 million, which was recorded at FirstBank. If an impairment
determination is made in a future reporting period, our earnings and book value of goodwill will be reduced by the amount of the
impairment. If an impairment loss is recorded, it will have little or no impact on the tangible book value of our common stock, or our
regulatory capital levels, but such an impairment loss could significantly reduce FirstBank’s earnings and thereby restrict FirstBank’s
ability to make dividend payments to us without prior regulatory approval, because Federal Reserve policy states that the bank holding
company dividends should be paid from current earnings.
Recognition of deferred tax assets is dependent upon the generation of future taxable income by the Bank.
As of December 31, 2023, the Corporation had a deferred tax asset of $150.1 million (net of a valuation allowance of $ $139.2
million, including a valuation allowance of $111.4 million against the deferred tax assets of FirstBank). Under the PR Tax Code, the
Corporation and its subsidiaries, including FirstBank, are treated as separate taxable entities and are not entitled to file consolidated
tax returns. Accordingly, in order to obtain a tax benefit from a NOL, a particular subsidiary must be able to demonstrate sufficient
taxable income within the applicable NOL carry-forward period. Pursuant to the PR Tax Code, the carry-forward period for NOLs
incurred during taxable years that commenced after December 31, 2004 and ended before January 1, 2013 is 12 years; for NOLs
incurred during taxable years commencing after December 31, 2012, the carryover period is 10 years. Accounting for income taxes
requires that companies assess whether a valuation allowance should be recorded against their deferred tax asset based on an
assessment of the amount of the deferred tax asset that is more likely than not to be realized. Due to significant estimates utilized in
determining the valuation allowance and the potential for changes in facts and circumstances in the future, the Corporation may not be
able to reverse the remaining valuation allowance or may need to increase its current deferred tax asset valuation allowance.
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The Corporation’s judgments regarding tax accounting policies and the resolution of tax disputes may impact the Corporation’s
earnings and cash flow, and changes in the tax laws of multiple jurisdictions can materially affect our operations, tax obligations,
and effective tax rate.
Significant judgment is required in determining the Corporation’s effective tax rate and in evaluating its tax positions. The
Corporation provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement
criteria prescribed by applicable generally accepted accounting principles in the United States (“GAAP”).
Fluctuations in federal, state, local, and foreign taxes or a change to uncertain tax positions, including related interest and penalties,
may impact the Corporation’s effective tax rate. When particular tax matters arise, a number of years may elapse before such matters
are audited and finally resolved. In addition, the Puerto Rico Department of Treasury (“PRTD”), the U.S. Internal Revenue Service
(“IRS”), and the tax authorities in the jurisdictions in which we operate may challenge our tax positions and we may estimate and
provide for potential liabilities that may arise out of tax audits to the extent that uncertain tax positions fail to meet the recognition
standard under applicable GAAP. Unfavorable resolution of any tax matter could increase the effective tax rate and could result in a
material increase in our tax expense. Resolution of a tax issue may require the use of cash in the year of resolution.
First BanCorp. is subject to Puerto Rico income tax on its income from all sources. FirstBank is treated as a foreign corporation for
U.S. and USVI income tax purposes and is generally subject to U.S. and USVI income tax only on its income from sources within the
U.S. and USVI or income effectively connected with the conduct of a trade or business in those regions. The USVI jurisdiction
imposes income taxes based on the U.S. Internal Revenue Code under the “mirror system” established by the Naval Service
Appropriations Act of 1922. However, the USVI jurisdiction also imposes an additional 10% surtax on the USVI tax liability, if any.
These tax laws are complex and subject to different interpretations. We must make judgments and interpretations about the
application of these inherently complex tax laws when determining our provision for income taxes, our deferred tax assets and
liabilities, and our valuation allowance. In addition, legislative changes, particularly changes in tax laws, could adversely impact our
results of operations.
Changes in applicable tax laws in Puerto Rico, the U.S., or other jurisdictions or tax authorities’ new interpretations could result in
increases in our overall taxes and the Corporation’s financial condition or results of operations may be adversely impacted.
Our ability to use our NOL carryforwards may be limited.
The Corporation has U.S. and USVI sourced NOL carryforwards. Section 382 of the U.S. Internal Revenue Code (“Section 382”)
limits the ability to utilize U.S. and USVI NOLs for income tax purposes, respectively, at such jurisdictions following an event of an
ownership change. Generally, an “ownership change” occurs when certain shareholders increase their aggregate ownership by more
than 50 percentage points over their lowest ownership percentage over a three-year testing period. Section 1034.04(u) of the PR Tax
Code is significantly similar to Section 382. However, Ac No. 60 of 2019 amended the PR Tax Code to repeal the corporate NOL
carryover limitations upon change in control for taxable years beginning after December 31, 2018.
Upon the occurrence of a Section 382 ownership change, the use of NOLs attributable to the period prior to the ownership change is
subject to limitations and only a portion of the U.S. and USVI NOLs, as applicable, may be used by the Corporation to offset the
annual U.S. and USVI taxable income, if any. In 2017, the Corporation completed a formal ownership change analysis within the
meaning of Section 382 covering a comprehensive period, and concluded that an ownership change, for U.S. and USVI purposes only,
had occurred during such period. The Section 382 limitation has resulted in higher U.S. and USVI income tax liabilities than we
would have incurred in the absence of such limitation.
It is possible that the utilization of our U.S. and USVI NOLs could be further limited due to future changes in our stock ownership,
as a result of either sales of our outstanding shares or issuances of new shares that could separately or cumulatively trigger an
ownership change and, consequently, a Section 382 limitation. Any further Section 382 limitations may result in greater U.S. and
USVI tax liabilities than we would incur in the absence of such a limitation and any increased liabilities could adversely affect our
earnings and cash flow. We may be able to mitigate the adverse effects associated with a Section 382 limitation in the U.S. and USVI
to the extent that we could credit any resulting additional U.S. and USVI tax liability against our tax liability in Puerto Rico. However,
our ability to reduce our Puerto Rico tax liability through such a credit or deduction will depend on our tax profile at each annual
taxable period, which is dependent on various factors.
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RISKS RELATING TO CYBERSECURITY AND TECHNOLOGY
Cyber-attacks, system risks and data protection breaches to our computer systems and networks or those of third-party service
providers could adversely affect our ability to conduct business, manage our exposure to risk or expand our business, result in the
disclosure or misuse of confidential or proprietary information, increase our costs to maintain and update our operational and
security systems and infrastructure, and present significant reputational, legal and regulatory costs.
Our business is highly dependent on the security, controls and efficacy of our infrastructure, computer and data management
systems, as well as those of our customers, suppliers, and other third parties. To access our network, products and services, our
employees, customers, suppliers, and other third parties, including downstream service providers, the financial services industry and
financial data aggregators, with whom we interact, on whom we rely or who have access to our customers’ personal or account
information, increasingly use personal mobile devices or computing devices that are outside of our network and control environments
and are subject to their own cybersecurity risks. Our business relies on effective access management and the secure collection,
processing, transmission, storage and retrieval of confidential, proprietary, personal and other information in our computer and data
management systems and networks, and in the computer and data management systems and networks of third parties.
Information security risks for financial institutions have significantly increased in recent years, especially given the increasing
sophistication and activities of organized computer criminals, hackers, and terrorists and our expansion of online and digital customer
services to better meet our customer’s needs. These threats may derive from fraud or malice on the part of our employees or third-
party providers or may result from human error or accidental technological failure. These threats include cyber-attacks, such as
computer viruses, malicious or destructive code, phishing attacks, denial of service attacks, or other security breach tactics that could
result in the unauthorized release, gathering, monitoring, misuse, loss, destruction, or theft of confidential, proprietary, and other
information, including intellectual property, of ours, our employees, our customers, or third parties, damages to systems, or otherwise
material disruption to our or our customers’ or other third parties’ network access or business operations, both domestically and
internationally.
While we maintain an Information Security Program that continuously monitors cyber-related risks and ultimately ensures
protection for the processing, transmission, and storage of confidential, proprietary, and other information in our computer systems
and networks, as well as a vendor management program to oversee third party and vendor risks, there is no guarantee that we will not
be exposed to or be affected by a cybersecurity incident. For example, as previously disclosed, one of our third-party vendors was the
victim of a security incident in April 2023 involving a set of data that included some information on FirstBank’s mortgage loan
business. In response to learning of the incident, we promptly launched our own internal investigation, which confirmed that our own
systems were not compromised, and any operational and financial impact was minimal. Our vendor has indicated (and we have no
evidence to the contrary) that to date there is no evidence that there has been any actual or attempted misuse of information. The
Corporation has not incurred any material expenses related to the incident and does not expect any future impact.
Cyber threats are rapidly changing, and future attacks or breaches could lead to other security breaches of the networks, systems, or
devices that our customers use to access our integrated products and services, which, in turn, could result in unauthorized disclosure,
release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary, and other information (including account data
information) or data security compromises. As cyber threats continue to evolve, we may be required to expend significant additional
resources to modify or enhance our protective measures, investigate, and remediate any information security vulnerabilities or
incidents and develop our capabilities to respond and recover. The full extent of a particular cyberattack, and the steps that the
Corporation may need to take to investigate such attack, may not be immediately clear, and it could take considerable additional time
for us to determine the complete scope of information compromised, at which time the impact on the Corporation and measures to
recover and restore to a business-as-usual state may be difficult to assess. These factors may also inhibit our ability to provide full and
reliable information about the cyberattack to our customers, third-party vendors, regulators, and the public.
A successful penetration or circumvention of our system security, or the systems of our customers, suppliers, and other third parties,
could cause us serious negative consequences, including significant operational, reputational, legal, and regulatory costs and concerns.
Any of these adverse consequences could adversely impact our results of operations, liquidity, and financial condition. In addition,
our insurance policies may not be adequate to compensate us for the potential costs and other losses arising from cyber-attacks,
failures of information technology systems, or security breaches, and such insurance policies may not be available to us in the future
on economically reasonable terms, or at all. Insurers may also deny us coverage as to any future claim. Any of these results could
harm our growth prospects, financial condition, business, and reputation.
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Our operational or security systems or infrastructure, or those of third parties, could fail or be breached. Any such future
incidents could potentially disrupt our business and adversely impact our results of operations, liquidity, and financial condition,
as well as cause legal or reputational harm.
The potential for operational risk exposure exists throughout our business and, as a result of our interactions with, and reliance on,
third parties, is not limited to our own internal operational functions. Our operational and security systems and infrastructure,
including our computer systems, data management, and internal processes, as well as those of third parties that perform key aspects of
our business operations, such as data processing, information security, recording and monitoring transactions, online banking
interfaces and services, internet connections, and network access are integral to our performance. We rely on our employees and third
parties in our day-to-day and ongoing operations, who may, because of human error, misconduct, malfeasance, failure, or breach of
our or of third-party systems or infrastructure, expose us to risk.
Our ability to implement backup systems and other safeguards with respect to third-party systems is more limited than with respect
to our own systems. In addition, our financial, accounting, data processing, backup, or other operating or security systems and
infrastructure may fail to operate properly or become disabled, damaged, or otherwise compromised as a result of a number of factors,
including events that are wholly or partially beyond our control. We may need to take our systems offline if they become infected
with malware or a computer virus or because of another form of cyberattack. If backup systems are utilized, they may not process data
as quickly as our primary systems and some data might not have been saved to backup systems, potentially resulting in a temporary or
permanent loss of such data.
We frequently update our systems to support our operations and growth and to remain compliant with applicable laws, rules, and
regulations. In addition, we review and strengthen our security systems in response to any cyber incident. Such strengthening entails
significant costs and risks associated with implementing new systems and integrating them with existing ones, including potential
business interruptions and the risk that this strengthening may not be entirely effective. Implementation and testing of controls related
to our computer systems, security monitoring, and retaining and training personnel required to operate our systems also entail
significant costs. Such operational risk exposures could adversely impact our operations, liquidity, and financial condition, as well as
cause reputational harm. In addition, we may not have adequate insurance coverage to compensate for losses from a major
interruption.
We must respond to rapid technological changes, and these changes may be more difficult or expensive than anticipated. We
may also be negatively affected if we fail to identify and address operational risks associated with the introduction of or changes to
products and services, or if we fail to respond to emerging technologies that seek to displace traditional financial services.
Like most financial institutions, FirstBank significantly depends on technology to deliver its products and other services and to
otherwise conduct business. To remain technologically competitive and operationally efficient, FirstBank invests in system upgrades,
new technological solutions, and other technology initiatives. If competitors introduce new products and services embodying new
technologies, or if new industry standards and practices emerge, our existing product and service offerings, technology and systems
may become obsolete. Furthermore, if we fail to adopt or develop new technologies or to adapt our products and services to emerging
industry standards, we may lose current and future customers, which could have a material adverse effect on our business, financial
condition and results of operations. The financial services industry is changing rapidly and, in order to remain competitive, we must
continue to enhance and improve the functionality and features of our products, services and technologies. These changes may be
more difficult or expensive to implement than we anticipate.
When we launch a new product or service, introduce a new platform for the delivery or distribution of products or services
(including mobile connectivity and cloud computing), or make changes to an existing product or service, we may not fully appreciate
or identify new operational risks that may arise from those changes, or we may fail to implement adequate controls to mitigate the
risks associated with those changes. Significant failure in this regard could diminish our ability to operate our business or result in
potential liability to our customers and third parties, increased operating expenses, weaker competitive standing, and significant
reputational, legal and regulatory costs.
Additionally, some recent innovations may trend toward replacing traditional banks as financial service providers rather than
merely augmenting those services. For example, companies which claim to offer applications and services based on artificial
intelligence are beginning to compete much more directly with traditional financial services companies in areas involving personal
advice, including high-margin services such as financial planning and wealth management. The low-cost, high-speed nature of these
“robo-advisor” services can be especially attractive to younger, less-affluent clients and potential clients, as well as persons interested
in “self-service” investment management. Similarly, inventions based on blockchain technology eventually may be the foundation for
greatly enhancing transactional security throughout the banking industry, but also eventually may reduce the need for banks as secure
deposit-keepers and intermediaries. Any of the foregoing consequences could materially and adversely affect our businesses and
results of operations.
32
The Corporation is subject to stringent and changing privacy laws, regulations, and standards as well as policies, contracts, and
other obligations related to data privacy and security. Our failure to comply with privacy laws and regulations, as well as other
legal obligations, could have a material adverse effect on our business.
State, federal, and foreign governments are increasingly enacting laws and regulations governing the collection, use, retention,
sharing, transfer, and security of personally identifiable information and data. A variety of federal, state, local, and foreign laws and
regulations, orders, rules, codes, regulatory guidance, and certain industry standards regarding privacy, data protection, consumer
protection, information security, and the processing of personal information and other data apply to our business. State laws are
changing rapidly, and new legislation proposed or enacted in a number of other states imposes, or has the potential to impose,
additional obligations on companies that process confidential, sensitive and personal information, and will continue to shape the data
privacy environment nationally. The U.S. federal government is also focused on privacy matters. Any failure by us or any of our
business partners to comply with applicable laws, rules, and regulations may result in investigations or actions against us by
governmental entities, private claims and litigation, fines, penalties or other liabilities. Such events may increase our expenses, expose
us to liabilities, and impair our reputation, which could have a material adverse effect on our business. While we aim to comply with
applicable data protection laws and obligations in all material respects, there is no assurance that we will not be subject to claims that
we have violated such laws and obligations, will be able to successfully defend against such claims, or will not be subject to
significant fines and penalties in the event of non-compliance. Additionally, to the extent multiple state-level laws are introduced in
the U.S. with inconsistent or conflicting standards and there is no federal law to preempt such laws, compliance with such laws could
be difficult and costly, or impossible, to achieve, and we could be subject to fines and penalties in the event of non-compliance.
RISK RELATING TO THE REGULATION OF OUR INDUSTRY
We are subject to certain regulatory restrictions that may adversely affect our operations.
We are subject to supervision and regulation by the Federal Reserve Board and the FDIC. We are a bank holding company and a
financial holding company under the Bank Holding Company Act of 1956, as amended. The Bank is also subject to supervision and
regulation by OCIF.
Under federal law, financial holding companies are permitted to engage in a broader range of “financial” activities than those
permitted to bank holding companies that are not financial holding companies. A financial holding company that ceases to meet
certain standards is subject to a variety of restrictions, depending on the circumstances, including the prohibition from undertaking
new activities or acquiring shares or control of other companies. If we fail to comply with the requirements from our regulators, we
may become subject to regulatory enforcement action and other adverse regulatory actions that might have a material and adverse
effect on our operations.
The FDIC insures deposits at FDIC-insured depository institutions up to certain limits (currently, $250,000 per depositor account).
The FDIC charges insured depository institutions premiums to maintain the DIF. In the event of a bank failure, the FDIC takes control
of a failed bank and, if necessary, pays all insured deposits up to the statutory deposit insurance limits using the resources of the DIF.
The FDIC is required by law to maintain adequate funding of the DIF, and the FDIC may increase premium assessments to maintain
such funding. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires the FDIC to
increase the DIF’s reserves against future losses, which will require institutions with assets greater than $10 billion, such as FirstBank,
to bear an increased responsibility for funding the prescribed reserve to support the DIF.
The FDIC may further increase FirstBank’s premiums or impose additional assessments or prepayment requirements in the future.
The Dodd-Frank Act removed the statutory cap for the reserve ratio, leaving the FDIC free to set this cap going forward.
Our compensation practices are subject to oversight by the Federal Reserve Board and the FDIC. Any deficiencies in our
compensation practices may be incorporated into our supervisory ratings, which can affect our ability to make acquisitions or
perform other actions.
Our compensation practices are subject to oversight by the Federal Reserve Board and the FDIC. As discussed in Part I, Item 1,
“Business” of this Form 10-K, the Corporation currently is subject to the interagency guidance governing the incentive compensation
activities of regulated banks and bank holding companies, and other financial regulators have also implemented regulations regarding
compensation practices. Our failure to satisfy these restrictions and guidelines could expose us to adverse regulatory criticism,
lowered supervisory ratings, and restrictions on our operations and acquisition activities.
33
We are subject to regulatory capital adequacy guidelines, and, if we fail to meet these guidelines, our business and financial
condition will be adversely affected.
We are subject to stringent regulatory capital requirements. Although the Corporation and FirstBank met general well-capitalized
capital ratios as of December 31, 2023, and we expect both companies will continue to exceed the minimum risk-based and leverage
capital ratio requirements for well-capitalized status under the current capital rules, we cannot assure that we will remain at such
levels. If we fail to meet these minimum capital guidelines and other regulatory requirements, our business and financial condition
will be materially and adversely affected. If we fail to maintain certain capital levels or are deemed not well managed under regulatory
exam procedures, or if we experience certain regulatory violations, our status as a financial holding company, and our ability to offer
certain financial products will be compromised and our financial condition and results of operations could be adversely affected.
Monetary policies and regulations of the Federal Reserve Board could adversely affect our business, financial condition and
results of operations.
In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal
Reserve Board. An important function of the Federal Reserve Board is to regulate the money supply and credit conditions. Among the
instruments used by the Federal Reserve Board to implement these objectives are open market operations in U.S. government
securities, adjustments of the discount rate and changes in reserve requirements for bank deposits. These instruments are used in
varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their
use also affects interest rates charged on loans or paid on deposits.
The monetary policies and regulations of the Federal Reserve Board, which include d, but were not limited to, multiple increases in
the federal funds rate to reduce inflation, have had a significant effect on the operating results of commercial banks and are expected
to continue to do so in the future. The effects of such policies upon our business, financial condition and results of operations have
been adverse in the past and may be adverse in the future.
We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending
laws, and failure to comply with these laws could lead to a wide variety of sanctions.
The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and
regulations impose nondiscriminatory lending requirements on financial institutions. The U.S. Department of Justice and other federal
agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution's performance
under the Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act or any of the other fair lending laws
and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions
on mergers and acquisitions activity, restrictions on expansion and restrictions on entering new business lines. Private parties may also
have the ability to challenge an institution's performance under fair lending laws in private class action litigation. Such actions could
have a material adverse effect on our business, financial condition and results of operations.
We face a risk of noncompliance and enforcement action related to the Bank Secrecy Act and other anti-money laundering
statutes and regulations.
The Bank Secrecy Act, the USA PATRIOT Act, and other laws and regulations require financial institutions to institute and
maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate,
among other duties. The Financial Crimes Enforcement Network is authorized to impose significant civil money penalties for
violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking
regulators, as well as the U.S. Department of Justice’s Drug Enforcement Administration. We are also subject to increased scrutiny of
our compliance with trade and economic sanctions requirements and rules enforced by OFAC. If our policies, procedures and systems
are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our
ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including
our acquisition plans. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could
also have serious reputational consequences for us. Any of these results could have a material adverse effect on our business, financial
condition and results of operations.
34
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
The Corporation recognizes the significance of cybersecurity in the financial industry and the potential risks associated, such as the
risks arising from the loss of confidentiality, integrity, or availability of information systems. The Corporation’s processes to identify,
assess, and monitor material risks from cybersecurity threats are part of its Enterprise Risk Management (“ERM”) Program, which is
documented as part of the Corporate Incident Response Program and under which the Corporation has implemented a comprehensive
Corporate Information Security Program (“CISP”). Cybersecurity risk is managed as part of the overall information technology risk,
under the direction of the Corporate Security Office (“CSO”) led by the Corporate Security Officer (“CSO Officer”), who directly
reports to the Chief Operations Officer. The CSO Officer also serves as Chief Information Security Officer (“CISO”).
The CISP outlines the Corporation’s overall vision, direction, and governance to protect the confidentiality, integrity, and
availability of customer information and seeks to prevent unauthorized access as required by regulatory guidelines and industry
security best practices. The CISP is based on well-renowned frameworks such as the International Organizational Standard ISO 27000
series and the NIST Cybersecurity Framework. As such, it serves as a guide for the implementation of security safeguards across the
Corporation and its subsidiaries. The CISP also addresses cybersecurity breaches and procedures for appropriate response efforts,
including any required notification, depending on the severity of the specific security incident. In addition, the CISP incorporates a
risk-based approach to ensure that risk is treated in a consistent and effective matter and is designed to protect classified information
to prevent disclosure to unauthorized individuals; prioritize the use of information security resources by concentrating on critical
business applications; develop quality, cost-effective, and reliable systems; ensure the proper and secure disposal of sensitive
information; and implement adequate processes to ensure compliance.
The ERM Program includes a risk-based escalation process to manage corporate incidents, including cybersecurity incidents, and
notify the Risk Committee of the Board of Directors and applicable stakeholders as appropriate. The Corporation incorporates the
ERM Department, which is comprised of several members such as the ERM Director who is part of senior management, as well as
external expertise, in the review of its processes, including an independent third-party assessment of cybersecurity measures and
controls. The Corporation also invests in threat intelligence, vulnerability management, and incident response drills. Furthermore, all
of the Corporation’s employees and consultants with access to the Corporation’s network are required to complete a comprehensive
cybersecurity awareness program on an annual basis. Additionally, awareness and training on information technology and
cybersecurity risk is provided to the Board on a regular basis.
The Corporation has a Vendor Management Program and a Third-Party Risk Management function to manage the cybersecurity
risks associated with conducting business with third-party vendors, which includes the requirement for third-party vendors to
implement appropriate measures to ascertain security and confidentiality of the Corporation’s resources. The Corporation places
vendors into tiers based on the inherent risk due to the nature of the relationship with that vendor to determine any additional security
requirements commensurate to such level of risk.
The Corporation does not believe that risks from cybersecurity threats or attacks, including as a result of any previous cybersecurity
incidents, have materially affected the Corporation ’s business strategy, results of operations or financial condition as of December 31,
2023. While the Corporation continues to closely monitor cyber risk and has implemented processes that are intended to assess,
identify, and manage material risks from cybersecurity threats, security controls, no matter how well designed or implemented, may
only partially mitigate and not fully eliminate these risks. Events, when detected by security tools or third parties, may not always be
immediately understood or acted upon. See Item 1A, “Risk Factors – Risks Relating to Cybersecurity and Technology” for more
information on how cybersecurity risk could adversely affect the Corporation, which should be read in conjunction with this Item 1C.
35
Governance
Responsibility for risk oversight and management generally lies with the Corporation’s Board of Directors. To effectively manage
oversight of the CISP’s governance and cybersecurity risk management, the Board has delegated such responsibility to the Risk
Committee. As part of its oversight, the Risk Committee receives reports from the Executive Risk Management Committee and
Information Technology (“IT”) Steering Committee, which are committees at the management level, on the Corporation’s
cybersecurity processes. The Corporate Internal Audit Department performs periodic audits of the Corporation’s information security
practices and presents them to the Audit Committee of the Board. The scope of testing is in accordance with applicable regulatory
guidance and prudent business practices. The periodicity of testing is determined by the Corporate Internal Audit Department based on
their risk assessment. Findings from internal audit procedures are reported to Management and the Audit Committee of the Board of
Directors. In addition, the Vendor Management Committee periodically reports to the Risk Committee about the Vendor Management
program status. The Risk Committee provides the Board with updated information on the matters discussed in the Risk Committee
meetings as it relates to the CISP and the overall information security strategic direction and evaluates and approves (if necessary)
reports presented by executive management related to the information security strategic direction of the Corporation.
The CSO, led by the CSO Officer, oversees the CISP, its development, and any applicable updates in response to changes in
operations and other circumstances, and reports on a quarterly basis to the IT Steering Committee and to the Board’s Risk Committee.
The CSO Officer, who has been in charge since 2016, has over 20 years of experience in functional expertise concerning all aspects of
information security, integrity and privacy of systems, and data resources, and holds several relevant licenses and/or certifications.
Also, certain topics related to information security are presented on an ad hoc basis to the Executive Risk Management Committee.
The CSO provides the Board’s Risk Committee regular reports and engages in discussions on the effectiveness of the CISP, including
risk mitigation strategy and progress. The Board’s Risk Committee reviews and approves the CISP annually and receives a report on
the security safeguards annually.
See “Risk Management – Risk Governance” for more information on the Corporation’s risk governance structure.
Item 2. Properties
As of December 31, 2023, First BanCorp. has ownership in the following principal buildings:
-
-
-
Headquarters – Located at First Federal Building, 1519 Ponce de León Avenue, San Juan, Puerto Rico. Approximately 51%
of this 16-story office building is owned by the Corporation.
Service Center – Located at 1130 Muñoz Rivera Avenue, San Juan, Puerto Rico. This facility, which is fully occupied by the
Corporation, houses over 1,000 employees from Human Resources, Data processing and operations, Administrative
Operation, Mortgage operations, collections, and Loss Mitigation, and certain other departments.
Consumer Lending Center – Located at 876 Muñoz Rivera Avenue, San Juan, Puerto Rico. This three-story facility is fully
occupied by the Corporation and accommodates a retail branch, Money Express Headquarters, Auto Wholesale and Retail
Financing, and Leasing Financing, among others.
The Corporation owns 18 retail branches and 10 office centers, other facilities, and/or parking lots. It leases 88 branch premises,
loan and office centers and other facilities. In certain situations, financial services such as mortgage and insurance businesses and
commercial banking services are in the same building or branch. All of these premises are in Puerto Rico, Florida, the USVI and the
BVI. Management believes that the Corporation’s properties are well maintained and are suitable for the Corporation’s business as
presently conducted.
Item 3. Legal Proceedings
Reference is made to Note 29 – “Regulatory Matters, Commitments and Contingencies” to the audited consolidated financial
statements included in Part II, Item 8 of this Form 10-K, which is incorporated herein by reference.
Item 4. Mine Safety Disclosure.
Not applicable.
36
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
INFORMATION ABOUT MARKET AND HOLDERS
The Corporation’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol FBP. On February 21,
2024, there were 296 holders of record of the Corporation’s common stock, not including beneficial owners whose shares are held in
the name of brokers or other nominees.
As of December 31, 2023 and 2022, the Corporation had 54,360,304 and 40,954,057 shares held as treasury stock, respectively.
Refer to “Stock Repurchases” for more information on common stock repurchases during the fourth quarter of 2023 held as treasury
stock.
DIVIDENDS
Since November 2018, the Corporation has made quarterly cash dividend payments on its shares of common stock. On February 8,
2024, the Corporation announced that its Board of Directors had declared a quarterly cash dividend of $0.16 per common share, which
represents an increase of $0.02 per common share, or a 14% increase, compared to its most recent quarterly dividend paid in
December 2023. The dividend is payable on March 8, 2024 to shareholders of record at the close of business on February 23, 2024.
The Corporation intends to continue to pay quarterly dividends on common stock. However, the Corporation’s common stock
dividends, including the declaration, timing and amount, remain subject to consideration and approval by the Corporation’s Board
Directors at the relevant times. Information regarding restrictions on dividends, is set forth in Part I, Item 1, “Business -Supervision
and Regulation– Dividend Restrictions” and incorporated herein by reference.
The PR Tax Code requires the withholding of income taxes from dividend income sourced within Puerto Rico to be received by any
individual, resident of Puerto Rico or not, trusts and estates and by non-resident custodians, partnerships, and corporations.
Residents of Puerto Rico
A special tax of 15% withheld at source is imposed, in lieu of a regular tax, on any eligible dividends paid to individuals, trusts, and
estates. Eligible dividends include dividends paid by a domestic Puerto Rico corporation. However, the taxpayer can elect to be
excluded from the 15% special tax and be taxed at regular rates. Once this election is made, it is irrevocable. The election allows the
taxpayer to include the eligible dividends received in ordinary income and take a credit for the amount of tax withheld in excess, if
any.
Individuals that are residents of Puerto Rico are subject to an alternative minimum tax (“AMT”) on the AMT Net Taxable Income
if their regular tax liability is less than the alternative minimum tax liability. The AMT applies to individual taxpayers whose AMT
Net Taxable Income exceeds $25,000. The individual AMT rate ranges from 1% to 24% depending on the AMT Net Taxable Income.
The AMT Net Taxable Income includes various categories of tax-exempt income and income subject to preferential rates as provided
by the PR Tax Code, such as dividends on the Corporation’s common stock and long-term capital gains recognized on the disposition
of the Corporation’s common stock.
Nonresident U.S. Citizens
Dividends paid to a U.S. citizen who is not a resident of Puerto Rico will be subject to a 15% income tax. Nonresident U.S. citizens
have the right to partial or total exemptions under section 1062.08 of the PR Tax Code.
Nonresident individuals that are not US citizens
Dividends paid to any individual who is not a citizen of the United States and who is not a resident of Puerto Rico will generally be
subject to a 15% Puerto Rico income tax which will be withheld at source.
Foreign Corporations and Partnerships
Corporations and partnerships not organized under Puerto Rico laws that have not engaged in a trade or business in Puerto Rico
during the taxable year in which the dividend, if any, is paid are subject to the 10% dividend tax withholding. Corporations or
partnerships not organized under the laws of Puerto Rico that have engaged in a trade or business in Puerto Rico are not subject to the
10% withholding, but they must declare any dividend as ordinary income on their Puerto Rico income tax return.
37
STOCK REPURCHASES
Since April 2021, the Corporation’s Board of Directors has announced three repurchase program authorizations for repurchases
totaling up to $875 million of the Corporation’s outstanding stock. Repurchases under the program may be executed through open
market purchases, accelerated share repurchases and/or privately negotiated transactions or plans, including under plans complying
with Rule 10b5-1 under the Exchange Act. During 2023, the Corporation repurchased 14,050,830 shares of its common stock at an
average price of $14.23 for a total cost of $200.0 million, of which 8,969,998 million shares for a total cost of $125.0 million, were
associated with the remaining amount of the 2022 capital plan authorization of $350 million and 5,080,832 million shares, for a total
cost of $75.0 million, were associated with the 2023 capital plan authorization of $225 million. As of December 31, 2023, the
Corporation has remaining authorization to repurchase approximately $150 million of common stock. The amount and timing of stock
repurchases will be based on various factors, including our capital requirements, market conditions (including the trading price of our
stock), and regulatory and legal considerations.
The following table provides information relating to the Corporation’s purchases of shares of its common stock in the fourth quarter
of 2023.
Period
Total Number of Shares
Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar Value
of Shares That May Yet be
Purchased Under The Plans
or Programs (in thousands)
(1)
October 1, 2023 - October 31, 2023
November 1, 2023 - November 30, 2023
December 1, 2023 - December 31, 2023
Total
$
1,835,096
1,701,847
1,544,899
5,081,842 (2) (3)
13.63
14.69
16.18
1,834,086 $
1,701,847
1,544,899
5,080,832
200,000
175,000
150,000
(1) As of December 31, 2023, 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 $75 million had been utilized. The remaining $150 million in the table represents the remaining amount authorized under the stock repurchase program as of December 31,
2023. The program does not obligate the Corporation to acquire any specific number of shares, does not have an expiration date and may be modified, suspended, or terminated at any time
at the Corporation's discretion. Under the stock repurchase program, shares may be repurchased through open market purchases, accelerated share repurchases and/or privately negotiated
transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.
(2) Includes 5,080,832 shares of common stock repurchased in the open market at an average price of $14.76 for a total purchase price of approximately $75 million.
(3) Includes 1,010 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.
38
STOCK PERFORMANCE GRAPH
The following graph shall not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act,
except to the extent that First BanCorp. specifically incorporates this information by reference, and shall not otherwise be deemed
filed with the SEC.
The graph below compares the cumulative total stockholder return of First BanCorp. during the measurement period with the
cumulative total return, assuming reinvestment of dividends, of the S&P 500 Index and the S&P Supercom Banks Index (the “Peer
Group”). The Performance Graph assumes that $100 was invested on December 31, 2018 in each of First BanCorp. common stock,
the S&P 500 Index and the Peer Group. The comparisons in this table are set forth in response to SEC disclosure requirements and are
therefore not intended to forecast or be indicative of future performance of First BanCorp.’s common stock.
The cumulative total stockholder return was obtained by dividing (i) the cumulative amount of dividends per share, assuming dividend
reinvestment since the measurement point, December 31, 2018, plus (ii) the change in the per share price since the measurement date,
by the share price at the measurement date.
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Item 6. [Reserved]
40
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (“MD&A”)
The following MD&A relates to the accompanying audited consolidated financial statements of First BanCorp. (the “Corporation,”
“we,” “us,” “our,” or “First BanCorp.”) and should be read in conjunction with such financial statements and the notes thereto. This
section also presents certain financial measures that are not based on generally accepted accounting principles in the United States of
America (“GAAP”). See “Non-GAAP Financial Measures and Reconciliations” below for information about why non-GAAP
financial measures are presented, reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures,
and references to non-GAAP financial measures reconciliations presented in other sections.
The detailed financial discussion that follows focuses on 2023 results compared to 2022. For a discussion of 2022 results compared
to 2021, see Part I, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the
Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022, filed on February 28, 2023.
In this discussion and analysis of our financial condition and results of operations, we have included information that may
constitute “forward-looking statements” within the meaning of the safe harbor provisions of Section 27A of the Securities Act and
Section 21E of the Exchange Act. Forward-looking statements are not historical facts or statements of current conditions, but instead
represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. By
identifying these statements for you in this manner, we are alerting you to the possibility that our actual results, financial condition,
liquidity and capital actions may differ materially from the anticipated results, financial condition, liquidity and capital actions in these
forward-looking statements. Important factors that could cause our results, financial condition, liquidity and capital actions to differ
from those in these statements include, among others, those described in “Risk Factors” in Part I, Item 1A of this Form 10-K.
EXECUTIVE SUMMARY
First BanCorp. is a diversified financial holding company headquartered in San Juan, Puerto Rico offering a full range of financial
products to consumers and commercial customers through various subsidiaries. First BanCorp. is the holding company of FirstBank
Puerto Rico (“FirstBank” or the “Bank”) and FirstBank Insurance Agency. Through its wholly -owned subsidiaries, the Corporation
operates in Puerto Rico, the United States Virgin Islands (“USVI”), the British Virgin Islands (“BVI”), and the state of Florida,
concentrating on commercial banking, residential mortgage loans, credit cards, personal loans, small loans, auto loans and leases, and
insurance agency activities.
Significant Events
Economy and Market Volatility
The Federal Reserve Board has implemented monetary policies designed to curb inflation. On January 11, 2024 the Federal
Reserve Board published the core Personal Consumption Expenditures Price Index over the last 12 months, which showed that the all
items index increased 2.9 percent before seasonal adjustment. Other recent indicators suggest that economic activity has been
expanding. For 2023 as a whole, GDP has expanded at 3.1%. Although still strong, the labor market remains tight as payroll job gains
have been well below those seen in 2022. In January 2024, the national unemployment rate was 3.7% for the third month in a row.
Following its January 31, 2024 meeting, the Federal Reserve Board announced its decision to leave the federal funds rate
unchanged, at a target rate of 5.25% to 5.50%. The Federal Reserve Board commentary suggested that its policy rate is likely at its
peak and that, if the economy continues to evolve as expected, it will likely be dialing back policy restraint at some point this year.
Notwithstanding, it does not expect to reach such level of confidence by the time of the March 2024 meeting.
The Corporation closed an unprecedented and challenging year for the banking industry with strong financial performance and solid
loan growth. Core deposits, other than government and brokered, contracted due to the use of excess liquidity across all market
segments. Although the Corporation is seeing an expected correction in the credit cycle of the consumer lending business driven by
lower levels of excess liquidity and inflationary pressures, the Corporation expects its ample reserve coverage levels and risk
management framework to withstand the impact of any additional credit deterioration during 2024.
For 2024, the Corporation expects a reduction in the overall average cost of its deposits as interest rates start to decrease but expects
to continue to be impacted by the shift from non-interest-bearing deposits to interest-bearing deposits, though at a lower degree. Also,
the Corporation expects some reductions in deposit balances due to the customers’ use of their excess liquidity, which could be
replaced with wholesale funding sources. Assuming no meaningful changes to deposit balances, the Corporation expects net interest
income to improve in 2024 since approximately $1 billion in expected cash inflows from the repayments and maturities of the
investment portfolio, which is yielding less than 1.5%, will fund loan growth or be reinvested in higher yielding securities.
41
The Corporation remains confident that the economic prospects of Puerto Rico, its primary market, driven by a strong labor market
and an unprecedented level of federal support, will support the Corporation in continuing to have a strong financial performance,
sustainable levels of loan growth, and any additional credit deterioration contained.
Return of Capital to Shareholders and Dividend Payment Increase
In 2023, the Corporation returned approximately $300 million, or close to 100% of 2023 earnings, to its shareholders through $200
million in repurchases of common stock and the payment of approximately $100 million in common stock dividends.
For the year ended December 31, 2023, the Corporation repurchased 14.1 million shares of its common stock for a total cost of
$200 million. Of this total, $75 million of common stock, representing 5.1 million common shares at a weighted-average price of
$14.76, were repurchased under the $225 million stock repurchase program announced on July 24, 2023 (the “2023 Repurchase
Plan”). As of February 21, 2024, the Corporation has repurchased approximately 7.1 million shares of common stock totaling $107.9
million through open market purchases under the 2023 Repurchase Plan. With the additional purchases, the Corporation has $117.1
million remaining for share repurchases under the 2023 Repurchase Plan, which it expects to execute through the end of the third
quarter of 2024.
On February 8, 2024, the Corporation’s Board of Directors declared a quarterly cash dividend of $0.16 per common share, which
represents an increase of $0.02 per common share, or a 14% increase, compared to its most recent quarterly dividend paid in
December 2023. The dividend is payable on March 8, 2024, to shareholders of record at the close of business on February 23, 2024.
The increased quarterly dividend level equates to an annualized dividend of $0.64 per common share.
Legislative and Regulatory
A comprehensive discussion of legislative and regulatory matters affecting us can be found in Part I, Item 1, “Business –
Supervision and Regulation” of this Form 10-K.
42
Overview of Results of Operations
The Corporation’s results of operations depend primarily on its net interest income, which is the difference between the interest
income earned on its interest-earning assets, including investment securities and loans, and the interest expense incurred on its
interest-bearing liabilities, including deposits and borrowings. Net interest income is affected by various factors, including the
following: (i) the interest rate environment; (ii) the volumes, mix, and composition of interest-earning assets, and interest-bearing
liabilities; and (iii) the repricing characteristics of these assets and liabilities. The Corporation ’s results of operations also depend on
the provision for credit losses, non-interest expenses (such as personnel, occupancy, professional service fees, the FDIC insurance
premium, and other costs), non-interest income (mainly service charges and fees on deposits, cards and processing income, and
insurance income), gains (losses) on mortgage banking activities, and income taxes.
The Corporation had net income of $302.9 million, or $1.71 per diluted common share, for the year ended December 31, 2023,
compared to $305.1 million, or $1.59 per diluted common share, for the year ended December 31, 2022. Other relevant selected
financial indicators for the periods presented are included below:
Key Performance Indicator: (1)
Return on Average Assets (2)
Return on Average Common Equity (3)
Efficiency Ratio (4)
2023
Year Ended December 31,
2022
2021
1.62 %
21.86
50.70
1.57 %
18.66
48.25
1.38 %
12.56
57.45
(1) These financial ratios are used by management to monitor the Corporation’s financial performance and whether it is using its assets efficiently.
(2)
Indicates how profitable the Corporation is in relation to its total assets and is calculated by dividing net income by its average total assets.
(3) Measures the Corporation’s performance based on its average common stockholders’ equity and is calculated by dividing net income by its average total common stockholders’ equity.
(4) Measures how much the Corporation incurred to generate a dollar of revenue and is calculated by dividing non-interest expenses by total revenue.
The key drivers of the Corporation’s GAAP financial results for the year ended December 31, 2023, compared to the year ended
December 31, 2022, include the following:
(cid:404) Net interest income for the year ended December 31, 2023 increased to $797.1 million, compared to $795.3 million for the
year ended December 31, 2022. The increase in net interest income reflects a 10 basis points increase in net interest margin to
4.22%, which was mainly associated with the effect of both a higher interest rate environment, driving an increase in loan
and investment security yields, and the growth in the consumer loan portfolio, partially offset by higher rates paid on deposits
coupled with a change in the mix of deposit and borrowing composition. See "Net Interest Income" below for additional
information.
(cid:404) The provision for credit losses on loans, finance leases, unfunded loan commitments and debt securities for the year ended
December 31, 2023 was $60.9 million, compared to $27.7 million for the year ended December 31, 2022. The increase was
mainly driven by a combination of loan growth, higher delinquency and historical charge-off levels in the consumer loan and
finance lease portfolios, and the effect in 2022 of reductions in qualitative reserves associated with reduced uncertainty
around the economic impact of the COVID-19 pandemic, particularly on loans in the hotel, transportation and entertainment
industries.
Net charge-offs totaled $67.4 million for the year ended December 31, 2023, or 0.58% of average loans, compared to $34.2
million, or 0.31% of average loans, for the year ended December 31, 2022, mainly driven by a $29.1 million increase in
consumer loans and finance leases net charge-offs. See “Provision for Credit Losses” and “Risk Management” below for the
analysis of the allowance for credit losses (“ACL”) and non-performing assets and related ratios.
(cid:404) The Corporation recorded non-interest income of $132.7 million for the year ended December 31, 2023, compared to $123.1
million for the year ended December 31, 2022. The increase of $9.6 million in non-interest income was mainly driven by a
$3.6 million gain recognized from a legal settlement, a $3.5 million increase in card and processing income, and a $3.0
million gain related to the sale of banking premise in the Florida region, partially offset by lower revenues from mortgage
banking activities. See “Non-Interest Income” below for additional information.
43
(cid:404) The Corporation recorded non-interest expenses of $471.4 million for the year ended December 31, 2023, compared to
$443.1 million for the year ended December 31, 2022. The increase of $28.3 million in non-interest expenses mainly reflects
a $16.8 million increase in employees’ compensation and benefits expenses, mostly driven by annual salary merit increases
and minimum wage adjustments, and a FDIC special assessment expense of $6.3 million. The efficiency ratio for the year
ended December 31, 2023 was 50.70%, compared to 48.25% for the year ended December 31, 2022. See “Non-Interest
Expenses” below for additional information.
(cid:404) Income tax expense decreased to $94.6 million for the year ended December 31, 2023, compared to $142.5 million for 2022
driven by a lower effective tax rate and lower pre-tax income. The Corporation’s annual effective tax rate, excluding entities
with pre-tax losses from which a tax benefit cannot be recognized and discrete items, decreased to 23.5% for the year ended
December 31, 2023, compared to 31.2% for 2022. See “Income Taxes” below and Note 22 – “Income Taxes ” to the audited
consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information.
(cid:404) As of December 31, 2023, total assets were approximately $18.9 billion, an increase of $275.1 million from December 31,
2022, primarily reflecting a $627.7 million increase in the total loan portfolio before the ACL and a $182.7 million increase
in cash and cash equivalents, partially offset by a $452.4 million decrease in total investment securities net of a $165.4
million increase in the fair value of available-for-sale debt securities.
(cid:404) As of December 31, 2023, total liabilities were $17.4 billion, an increase of $103.0 million from December 31, 2022, driven
by a $412.5 million increase in total deposits, which includes a $677.5 million increase in brokered certificates of deposit
(“CDs”), partially offset by a $272.2 million decrease in borrowings, primarily in short-term borrowings. See “Liquidity Risk
Management” below for additional information about the Corporation’s funding sources and strategy.
(cid:404) The Bank’s primary sources of funding are consumer and commercial core deposits, which exclude government deposits and
brokered CDs. As of December 31, 2023, these core deposits, amounting to $12.6 billion, funded 66.64% of total assets.
Excluding fully collateralized government deposits, estimated uninsured deposits amounted to $4.4 billion as of December
31, 2023. In addition to approximately $2.8 billion in cash and free high-quality liquid assets, the Bank maintains borrowing
capacity at the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank of New York ’s (the “FED”) Discount
Window. As of December 31, 2023, the Corporation had approximately $1.5 billion available for funding under the FED’s
Discount Window and $924.2 million available for additional borrowing capacity on FHLB lines of credit based on collateral
pledged at these entities. On a combined basis, as of December 31, 2023, the Corporation had $5.2 billion, or 118% of
estimated uninsured deposits, available to meet liquidity needs. See “Liquidity Risk Management” below for additional
information about the Corporation’s funding sources and strategy.
(cid:404) As of December 31, 2023, the Corporation’s total stockholders’ equity was $1.5 billion, an increase of $172.1 million from
December 31, 2022, mainly driven by a $165.4 million increase in the fair value of available-for-sale debt securities recorded
as part of accumulated other comprehensive loss and net income generated in 2023, partially offset by $200.0 million in
repurchases of common stock and $99.6 million in dividends declared in 2023. The Corporation’s CET1 capital, tier 1
capital, total capital, and leverage ratios were 16.10%, 16.10%, 18.57%, and 10.78%, respectively, as of December 31, 2023,
compared to CET1 capital, tier 1 capital, total capital, and leverage ratios of 16.53%, 16.53%, 19.21%, and 10.70%,
respectively, as of December 31, 2022. See “Risk Management – Capital” below for additional information.
(cid:404) Total loan production, including purchases, refinancings, renewals, and draws from existing revolving and non-revolving
commitments, decreased by $230.8 million to $5.1 billion for the year ended December 31, 2023. See “Financial Condition
and Operating Data Analysis” below for additional information.
(cid:404) Total non-performing assets were $125.9 million as of December 31, 2023, a decrease of $3.3 million, from December 31,
2022, primarily related to a decrease of $10.6 million in nonaccrual residential mortgage loans, partially offset by a $7.6
million increase in nonaccrual consumer loans, mainly in the auto loan and finance lease portfolios. See “Risk Management –
Nonaccrual Loans and Non-Performing Assets” below for additional information.
(cid:404) Adversely classified commercial and construction loans decreased by $26.1 million to $67.5 million as of December 31,
2023, compared to December 31, 2022, mainly driven by the payoff of a $24.3 million commercial and industrial (“C&I”)
participated loan in the Florida region.
44
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS
The Corporation has included in this Form 10-K the following financial measures that are not recognized under GAAP, which are
referred to as non-GAAP financial measures:
Net Interest Income, Interest Rate Spread, and Net Interest Margin, Excluding Valuations , and on a Tax -Equivalent Basis
Net interest income, interest rate spread, and net interest margin, excluding the changes in the fair value of derivative instruments
and on a tax-equivalent basis, are reported in order to provide to investors additional information about the Corporation’s net interest
income that management uses and believes should facilitate comparability and analysis of the periods presented. The changes in the
fair value of derivative instruments have no effect on interest due or interest earned on interest-bearing liabilities or interest-earning
assets, respectively. The tax-equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable
and tax-exempt assets and assumes a marginal income tax rate. Income from tax-exempt earning assets is increased by an amount
equivalent to the taxes that would have been paid if this income had been taxable at statutory rates. Management believes that it is a
standard practice in the banking industry to present net interest income, interest rate spread, and net interest margin on a fully tax-
equivalent basis. This adjustment puts all earning assets, most notably tax-exempt securities and tax-exempt loans, on a common basis
that facilitates comparison of results to the results of peers.
See “Result 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. Management and
many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with more
traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other
intangible assets, typically stemming from the use of the purchase method of accounting for mergers and acquisitions. Accordingly,
the Corporation believes that disclosures of these financial measures may be useful to investors. Neither tangible common equity nor
tangible assets, or the related measures, should be considered in isolation or as a substitute for stockholders’ equity, total assets, or any
other measure calculated in accordance with GAAP. Moreover, the manner in which the Corporation calculates its tangible common
equity, tangible assets, and any other related measures may differ from that of other companies reporting measures with similar names.
See “Risk Management – Capital” below for the table that reconciles the Corporation’s total equity and total assets in accordance
with GAAP to the tangible common equity and tangible assets figures used to calculate the non-GAAP financial measures of tangible
common equity ratio and tangible book value per common share.
Adjusted Net Income, Adjusted Non-Interest Income and Adjusted Non-Interest Expenses
To supplement the Corporation’s financial statements presented in accordance with GAAP, the Corporation uses, and believes that
investors benefit from disclosure of, non-GAAP financial measures that reflect adjustments to net income, non-interest income and
non-interest expenses to exclude items that management believes are not reflective of core operating performance (“Special Items”).
The financial results for the year ended December 31, 2022 did not include any significant Special Items. The financial results for the
years ended December 31, 2023 and 2021 included the following Special Items:
Year Ended December 31, 2023
-
A $6.3 million ($3.9 million after-tax) FDIC special assessment expense recognized as a result of the final rule approved by
the FDIC Board of Directors on November 16, 2023 to recover the loss to the Deposit Insurance Fund associated with
protecting uninsured deposits following certain financial institution failures during the first half of 2023 by means of a
quarterly special assessment rate of 3.36 basis points to be applied to the special assessment base during an eight-quarter
collection period. The special assessment base is equal to estimated uninsured deposits reported as of December 31, 2022,
adjusted to exclude the first $5 billion of such deposits. The FDIC special assessment is reflected in the consolidated
statements of income as part of “FDIC deposit insurance” expenses, which reflects the expected total payment to be made to
the FDIC as of December 31, 2023.
45
-
-
A $3.6 million ($2.3 million after-tax) 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 (“TRuPs”). The 7.5% discount resulted in the gain of $1.6 million.
The gain, realized at the holding company level, had no effect on the income tax expense recorded in 2023.
Year Ended December 31, 2021
- Merger and restructuring costs of $26.4 million ($16.5 million after-tax) in connection with the Banco Santander Puerto Rico
(“BSPR”) acquisition integration process and related restructuring initiatives. Merger and restructuring costs included
approximately $6.5 million related to a Voluntary Employee Separation Program (the “VSP”) as well as involuntary
separation actions implemented in the Puerto Rico region. In addition, merger and restructuring costs included costs related
to system conversions, accelerated depreciation charges related to planned closures and consolidation of branches in
accordance with the Corporation’s integration and restructuring plan, and other integration related efforts.
-
Costs of $3.0 million ($1.9 million after-tax) related to the COVID-19 pandemic response efforts, primarily costs related to
additional cleaning, safety materials, and security measures.
Adjusted Net Income – The following table reconciles for the years ended December 31, 2023 and 2021, the reported net income to
adjusted net income, a non-GAAP financial measure that excludes the Special Items identified above, and shows the net income
reported for the year ended December 31, 2022.
(In thousands)
Net income, as reported (GAAP)
Adjustments:
Merger and restructuring costs
FDIC special assessment expense
COVID-19 pandemic-related expenses
Gain recognized from a legal settlement
2023
2022
2021
Year Ended December 31,
$
302,864
$
305,072
$
-
6,311
-
(3,600)
-
-
-
-
281,025
26,435
-
2,958
-
Gain on early extinguishment of debt
Income tax impact of adjustments (1)
-
(1,605)
(11,023)
(1,017)
299,395
302,953
Adjusted net income (Non-GAAP)
(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
-
-
305,072
$
$
$
the Puerto Rico statutory tax rate of 37.5%, as applicable.
Adjusted non-interest expenses – Non-interest expenses for the year ended December 31, 2023 were adjusted for the
aforementioned $6.3 million FDIC special assessment expense reflected in the consolidated statements of income as part of “FDIC
deposit insurance” expenses.
46
The following table reconciles for the year ended December 31, 2021 the non-interest expenses to adjusted non-interest expenses,
which is a non-GAAP financial measure that excludes the relevant Special Items identified above:
2021
(In thousands)
Non-interest expenses
Employees' compensation and benefits
Occupancy and equipment
Business promotion
Professional service fees
Taxes, other than income taxes
FDIC deposit insurance
Net gain on OREO operations
Credit and debit card processing expenses
Communications
Merger and restructuring costs
Other non-interest expenses
Non-Interest Expenses
(GAAP)
Merger and
Restructuring Costs
COVID 19 Pandemic-
Related Expenses
Adjusted (Non-GAAP)
$
488,974
$
200,457
93,253
15,359
59,956
22,151
6,544
(2,160)
22,169
9,387
26,435
35,423
26,435
$
2,958
$
-
-
-
-
-
-
-
-
-
26,435
-
67
2,601
22
-
261
-
-
-
-
-
7
459,581
200,390
90,652
15,337
59,956
21,890
6,544
(2,160)
22,169
9,387
-
35,416
47
CRITICAL ACCOUNTING ESTIMATES
The accounting principles of the Corporation and the methods of applying these principles conform to GAAP. In preparing the
consolidated financial statements, management is required to make estimates, assumptions, and judgments that affect the amounts
recorded for assets, liabilities and contingent liabilities as of the date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Accounting estimates require assumptions and judgments about uncertain matters that
could have a material effect on the consolidated financial statements. The Corporation’s critical accounting estimates that are
particularly susceptible to significant changes include the following: (i) the ACL; (ii) valuation of financial instruments; and (iii)
income taxes. Actual results could differ from estimates and assumptions if different outcomes or conditions prevail.
Allowance for Credit Losses
The Corporation maintains an ACL for loans and finance leases based upon management’s estimate of the lifetime expected credit
losses in the loan portfolio, as of the balance sheet date, excluding loans held for sale. Additionally, the Corporation maintains an ACL
for held-to-maturity and available-for-sale debt securities, and other off-balance sheet credit exposures ( e.g., unfunded loan
commitments). For loans and finance leases, unfunded loan commitments, and held-to-maturity debt securities, the estimate of lifetime
credit losses includes the use of quantitative models that incorporate forward-looking macroeconomic scenarios that are applied over
the contractual lives of the portfolios, adjusted, as appropriate, for prepayments and permitted extension options using historical
experience. For purposes of the ACL for lending commitments, such allowance is determined using the same methodology as the
ACL for loans, while also taking into consideration the probability of drawdowns or funding, and whether such commitments are
cancellable by us. The ACL for available-for-sale debt securities is measured using a risk-adjusted discounted cash flow approach that
also considers relevant current and forward-looking economic variables and the ACL is limited to the difference between the fair
value of the security and its amortized cost. Judgment is specifically applied in the determination of economic assumptions, the length
of the initial loss forecast period, the reversion of losses beyond the initial forecast period, historical loss expectations, usage of
macroeconomic scenarios, and qualitative factors, which may not be adequately captured in the loss model, as further discussed
below.
The macroeconomic scenarios utilized by the Corporation include variables that have historically been key drivers of increases and
decreases in credit losses. These variables include, but are not limited to, unemployment rates, housing and commercial real estate
prices, gross domestic product levels, retail sales, interest rate forecasts, corporate bond spreads, and changes in equity market prices.
The Corporation derives the economic forecasts it uses in its ACL model from Moody's Analytics. The latter has a large team of
economists, database managers and operational engineers with a history of producing monthly economic forecasts for over 25 years.
The Corporation has currently set an initial forecast period (“reasonable and supportable period”) of two years and a reversion
period of up to three years, utilizing a straight-line approach and reverting back to the historical macroeconomic mean for Puerto Rico
and the Virgin Islands regions. For the Florida region, the methodology considers a reasonable and supportable forecast period and an
implicit reversion towards the historical trend that varies for each macroeconomic variable. After the reversion period, a historical loss
forecast period covering the remaining contractual life, adjusted for prepayments, is used based on the change in key historical
economic variables during representative historical expansionary and recessionary periods. Changes in economic forecasts impact the
probability of default (“PD”), loss-given default (“LGD”), and exposure at default (“EAD”) for each instrument, and therefore
influence the amount of future cash flows for each instrument that the Corporation does not expect to collect.
Further, the Corporation periodically considers the need for qualitative adjustments to the ACL. Qualitative adjustments may be
related to and include, but not be limited to, factors such as the following: (i) management’s assessment of economic forecasts used in
the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions; (ii)
organization specific risks such as credit concentrations, collateral specific risks, nature, and size of the portfolio and external factors
that may ultimately impact credit quality, and (iii) other limitations associated with factors such as changes in underwriting and loan
resolution strategies, among others. The qualitative factors applied at December 31, 2023, and the importance and levels of the
qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of
economic conditions and management's assessment of the level of credit risk within the loan portfolio as a result of such changes,
compared to the amount of ACL calculated by the model. The evaluation of qualitative factors is inherently imprecise and requires
significant management judgment.
48
The ACL can also be impacted by factors outside the Corporation’s control, which include unanticipated changes in asset quality of
the portfolio, such as deterioration in borrower delinquencies, or credit scores in our residential real estate and consumer portfolio.
Further, the current fair value of collateral is utilized to assess the expected credit losses when a financial asset is considered to be
collateral dependent.
Our process for determining the ACL is further discussed in Note 1 – “Nature of Business and Summary of Significant Accounting
Policies” included in Part II, Item 8 of this Form 10-K. Also, see “Allowance for Credit Losses for Loans and Finance Leases” below
for additional information on the weighting of economic scenarios to estimate the ACL, changes in key economic variables, and the
ACL sensitivity analysis performed as of December 31, 2023.
Valuation of financial instruments
The measurement of fair value is fundamental to the Corporation’s presentation of its financial condition and results of operations.
The Corporation holds debt and equity securities, derivatives, and other financial instruments at fair value. The Corporation’s
significant assets reflected at fair value on a recurring basis on the Corporation’s financial statements consisted of available-for-sale
debt securities amounting to $5.2 billion as of December 31, 2023. In addition, fair value is also used on a non-recurring basis for
measuring the fair value of assets such as collateral dependent loans, other real estate owned (“OREO”) properties, and loans held for
sale.
Assets and liabilities carried at fair value inherently include subjectivity and may require the use of significant assumptions,
adjustments and judgment including, among others, discount rates, cash flows, default rates, and loss rates. A significant change in
assumptions may result in a significant change in fair value, which in turn, may result in a higher degree of financial statement
volatility and could result in significant impact on our results of operations, financial condition or disclosures of fair value
information.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The Corporation categorizes the fair value of its available-
for-sale debt securities using a three-level hierarchy for fair value measurements that distinguishes between market participant
assumptions developed based on market data obtained from sources independent of the Corporation (observable inputs) and the
Corporation’s own assumptions about market participant assumptions developed based on the best information available in the
circumstances (unobservable inputs). The hierarchy of inputs used in determining the fair value maximizes the use of observable
inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. The hierarchy level
assigned to each security in the Corporation’s investment portfolio was based on management’s assessment of the transparency and
reliability of the inputs used to estimate the fair values at the measurement date.
The fair value of U.S. Treasury securities included as part of the available-for-sale debt securities portfolio and equity securities
with readily determinable fair values was based on unadjusted quoted market prices (Level 1). If quoted market prices are unavailable,
the fair value is based on market prices for comparable assets (as is the case with mortgage-backed securities (“MBS”) and U.S.
agency debt securities) that are based on observable market parameters, including benchmark yields, reported trades, quotes from
brokers or dealers, issuer spreads, bids, offers, and reference data, including market research operations, when available (Level 2).
Observable prices in the market already consider the risk of nonperformance. If listed prices or quotes are not available, fair value is
based upon discounted cash flow models that use unobservable inputs due to the limited market activity of the instrument, as is the
case with private label MBS held by the Corporation (Level 3). Assets are classified in their entirety based on the lowest level of input
that is significant to their fair value measurement.
Private label MBS are collateralized by fixed-rate mortgages on single-family residential properties in the U.S. with original FICO
scores over 700 and moderate loan-to-value ratios (under 80%), as well as moderate delinquency levels. The interest rate on these
securities is variable, tied to 3-month CME Term Secured Overnight Financing Rate (“SOFR”) plus a tenor spread adjustment of
0.26161% and the original spread limited to the weighted-average coupon of the underlying collateral. The market valuation
represents the estimated net cash flows over the projected life of the pool of underlying assets applying a discount rate that reflects
market observed floating spreads over SOFR, with a widening spread based on a nonrated security. The market valuation is derived
from a model that utilizes relevant assumptions such as the prepayment rate, default rate, and loss severity on a loan level basis. The
Corporation modeled the cash flow from the fixed-rate mortgage collateral using a static cash flow analysis according to collateral
attributes of the underlying mortgage pool (i.e., loan term, current balance, note rate, rate adjustment type, rate adjustment frequency,
rate caps, and others) in combination with prepayment forecasts based on historical portfolio performance. The Corporation models
the variable cash flow of the security using the 3-month CME Term SOFR forward curve.
Declines in fair value that are credit-related are recorded on the balance sheet through an ACL with a corresponding adjustment to
provision for credit losses and declines that are non-credit-related are recognized through other comprehensive income (loss).
49
If the Corporation intends to sell a debt security in an unrealized loss position or determines that it is more likely than not that the
Corporation will be required to sell a debt security before it recovers its amortized cost basis, the debt security is written down to fair
value through earnings. As of December 31, 2023, the Corporation did not intend to sell any debt securities in an unrealized loss
position and it is not more likely than not that the Corporation will be required to sell any debt securities before recovery of their
amortized cost basis.
For debt securities in an unrealized loss position for which the Corporation does not intend to sell the debt security and it is not
more likely than not that the Corporation will be required to sell the debt security, the Corporation determines whether the loss is due
to credit-related factors or non-credit-related factors. For debt securities in an unrealized loss position for which the losses are
determined to be the result of both credit-related and non-credit-related factors, the credit loss is determined as the difference between
the present value of the cash flows expected to be collected, and the amortized cost basis of the debt security.
Available-for-sale debt securities held by the Corporation at year-end primarily consisted of securities issued by U.S. government-
sponsored entities (“GSEs”), and the aforementioned private label MBS. Given the explicit and implicit guarantees provided by the
U.S. federal government, the Corporation believes the credit risk in securities issued by the GSEs is low. For the year ended December
31, 2023, the Corporation determined the credit losses for private label MBS based on a risk-adjusted discounted cash flow
methodology that considers qualitative and quantitative factors specific to the instruments, including PDs and LGDs that considered,
among other things, historical payment performance,
loan-to-value attributes, and relevant current and forward-looking
macroeconomic variables, such as regional unemployment rates and the housing price index. Under this approach, expected cash
flows (interest and principal) were discounted at the U.S. Treasury yield curve as of the reporting date.
See Note 25 – “Fair Value” to the audited consolidated financial statements included in Part II, Item 8 of this Form 10-K, for
additional information.
Income Taxes
The Corporation is required to estimate income taxes in preparing its consolidated financial statements. This involves the estimation
of current income tax expense together with an assessment of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. The determination of current income tax
expense involves estimates and assumptions that require the Corporation to assume certain positions based on its interpretation of
current tax regulations. Management assesses the relative benefits and risks of the appropriate tax treatment of transactions, taking into
account statutory, judicial and regulatory guidance, and recognizes tax benefits only when deemed probable. Changes in assumptions
affecting estimates may be required in the future and estimated tax liabilities may need to be increased or decreased accordingly. The
Corporation adjusts the accrual of tax contingencies in light of changing facts and circumstances, such as the progress of tax audits,
case law and emerging legislation. The Corporation’s effective tax rate includes the impact of tax contingencies and changes to such
accruals, as considered appropriate by management. When particular tax matters arise, a number of years may elapse before such
matters are audited by the taxing authorities and finally resolved. Favorable resolution of such matters or the expiration of the statute
of limitations may result in the release of tax contingencies that the Corporation recognizes as a reduction to its effective tax rate in the
year of resolution. Unfavorable settlement of any particular issue could increase the effective tax rate and may require the use of cash
in the year of resolution.
As of December 31, 2023, we had $150.1 million of deferred tax assets, net of a related valuation allowance of $139.2 million. The
determination of deferred tax expense or benefit is based on changes in the carrying amounts of assets and liabilities that generate
temporary differences and recognizes enacted changes in tax rates and laws in the period in which they occur. The carrying value of
the Corporation’s net deferred tax asset assumes that the Corporation will be able to generate sufficient future taxable income based on
estimates and assumptions. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that is
more likely than not to be realized. The determination of whether a valuation allowance for deferred tax assets is appropriate is subject
to considerable judgment and requires the evaluation of positive and negative evidence that can be objectively verified. Positive
evidence necessary to overcome the negative evidence includes whether future taxable income in sufficient amounts and character
within the carryforward periods is available under the tax law. Consideration must be given to all sources of taxable income including,
as applicable, the future reversal of existing temporary differences, future taxable income forecasts exclusive of the reversal of
temporary differences and carryforwards, and tax planning strategies. When negative evidence (e.g., cumulative losses in recent years,
history of operating loss or tax credit carryforwards expiring unused) exists, more positive evidence than negative evidence will be
necessary. The Corporation has concluded that based on the level of positive evidence, it is more likely than not that the deferred tax
asset will be realized, net of the existing valuation allowances at December 31, 2023 and 2022. However, there is no guarantee that the
tax benefits associated with the deferred tax assets will be fully realized. The positive evidence considered by management in arriving
at its conclusion included factors such as the following: FirstBank’s three-year cumulative income position; and sustained periods of
profitability; management’s proven ability to forecast future income accurately and execute tax strategies. The negative evidence
considered by management included the following: uncertainties about the state of the Puerto Rico economy, including considerations
50
relating to the pandemic recovery funds together with Puerto Rico government debt restructuring and the ultimate sustainability of the
latest fiscal plan certified by the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) oversight board.
See Note 22 – “Income Taxes ” to the audited consolidated financial statements included in Part II, Item 8 on Form 10-K for further
information related to income taxes.
OTHER ESTIMATES
In addition to the critical accounting estimates we make in connection with the ACL, fair value measurements, and the accounting
for income taxes, the use of estimates and assumptions is also important in determining the accounting for goodwill and identifiable
intangible assets, pension and postretirement benefit obligations, and provisions for losses that may arise from litigation and
regulatory proceedings (including governmental investigations).
Goodwill is assessed for impairment at least annually and more frequently if circumstances exist that indicate a possible reduction
in the fair value of a reporting unit below its carrying value. When assessing goodwill for impairment, first, a qualitative assessment
can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated
carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Estimating the
fair value of our reporting units requires judgment. Critical inputs to the fair value estimates may include projected earnings,
macroeconomic conditions, interest rate levels, and peers performance. See Note 1 – “Nature of Business and Summary of Significant
Accounting Policies” and Note 9 – “Goodwill and Other Intangibles” to the audited consolidated financial statements included in Part
II, Item 8 of this Form 10-K for further information about goodwill and identifiable intangible assets. Based on our annual impairment
qualitative analysis of goodwill conducted in the fourth quarter of 2023, it was determined that it is more-likely-than-not that the fair
value of the reporting units exceeded their carrying value; therefore, goodwill is considered not impaired.
Identifiable intangible assets are tested for impairment when events or changes in circumstances suggest that an asset’s or asset
group’s carrying value may not be fully recoverable. Judgment is required to evaluate whether indications of potential impairment
have occurred, and to test intangible assets for impairment, if required. An impairment is recognized if the estimated undiscounted
cash flows relating to the asset or asset group is less than the corresponding carrying value. The amortization of identified intangible
assets is based upon the estimated economic benefits to be received over their economic life, which is also subjective. Customer
attrition rates that are based on historical experience are used to determine the estimated economic life of intangibles assets.
The Corporation maintains two frozen qualified noncontributory defined benefit pension plans, and a related complementary
postretirement benefits plan covering medical benefits and life insurance after retirement. Calculation of the obligations and related
expenses under these plans requires the use of actuarial valuation methods and assumptions, which are subject to management
judgment and may differ if different assumptions are used. The discount rate assumption used to measure the postretirement benefit
obligation is estimated as the single equivalent rate such that the present value of the plan’s projected benefit obligation cash flows
using the single rate equals the present value of those cash flows using the above mean actuarial yield curves. See Note 19 –
“Employee Benefit Plans” to the audited consolidated financial statements included in Part II, Item 8 of this Form 10-K, for
disclosures related to the benefit plans.
As necessary, we also estimate and provide for potential losses that may arise out of litigation and regulatory proceedings to the
extent that such losses are probable and can be reasonably estimated. Judgment is required in making these estimates and our final
liabilities may ultimately be materially different. Our total estimated liability with respect to litigation and regulatory proceedings is
determined on a case-by-case basis and represents an estimate of probable losses after considering, among other factors, the progress
of each case, our experience and the experience of others in similar cases, proceedings or investigations, and the opinions and views of
legal counsel. The outcomes of legal actions are unpredictable and subject to significant uncertainties, and it is inherently difficult to
determine whether any loss is probable or even possible. It is also inherently difficult to estimate the amount of any loss and there may
be matters for which a loss is probable or reasonably possible but not currently estimable. Accordingly, actual losses may be in excess
of the established accrual or the range of reasonably possible loss. See Note 29 – “Regulatory Matters, Commitments and
Contingencies” to the audited consolidated financial statements included in Part II, Item 8 of this Form 10-K.
51
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is the excess of interest earned by First BanCorp. on its interest-earning assets over the interest incurred on its
interest-bearing liabilities. First BanCorp.’s net interest income is subject to interest rate risk due to the repricing and maturity
mismatch of the Corporation’s assets and liabilities. In addition, variable sources of interest income, such as loan fees, periodic
dividends, and collection of interest in nonaccrual loans, can fluctuate from period to period. Net interest income for the year ended
December 31, 2023 was $797.1 million, compared to $795.3 million for the year ended December 31, 2022. On a tax-equivalent basis
and excluding the changes in the fair value of derivative instruments, net interest income for the year ended December 31, 2023 was
$818.0 million, compared to $828.4 million for the year ended December 31, 2022.
The following tables include a detailed analysis of net interest income for the indicated periods. Part I presents average volumes
(based on the average daily balance) and rates on an adjusted tax-equivalent basis and Part II presents, also on an adjusted tax-
equivalent basis, the extent to which changes in interest rates and changes in the volume of interest-related assets and liabilities have
affected the Corporation’s net interest income. For each category of interest-earning assets and interest-bearing liabilities, the tables
provide information on changes in (i) volume (changes in volume multiplied by prior period rates), and (ii) rate (changes in rate
multiplied by prior period volumes). The Corporation has allocated rate-volume variances (changes in rate multiplied by changes in
volume) to either the changes in volume or the changes in rate based upon the effect of each factor on the combined totals.
Net interest income on an adjusted tax equivalent basis and excluding the change in the fair value of derivative instruments is a
non-GAAP financial measure. For the definition of this non-GAAP financial measure, refer to the discussion in “Non-GAAP
Financial Measures and Reconciliations” above.
Part I
Year Ended December 31,
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
Government obligations (2)
MBS
FHLB stock
Other investments
Total investments (3)
Residential mortgage loans
Construction loans
C&I and commercial mortgage loans
Finance leases
Consumer loans
Total loans (4)(5)
Total interest-earning assets
Interest-bearing liabilities:
Time deposits
Brokered CDs
Other interest-bearing deposits
Securities sold under agreements to repurchase
Advances from the FHLB
Other borrowings
Total interest-bearing liabilities
Net interest income on a tax-equivalent basis and excluding
valuations - non-GAAP
Interest rate spread
Net interest margin
Average volume
Interest income (1) / expense
2023
2022
2021
2023
2022
2021
2023
Average rate (1)
2022
2021
$
$
$
$
584,083
2,843,284
3,702,908
36,606
14,167
7,181,048
2,814,102
172,952
5,244,503
789,870
2,704,877
11,726,304
$
1,156,127
2,870,889
4,052,660
20,419
12,747
8,112,842
2,886,594
121,642
5,092,638
636,507
2,461,632
11,199,013
$
$ 2,012,617
2,065,522
4,064,343
28,208
10,254
8,180,944
3,277,087
181,470
5,228,150
518,757
2,207,685
11,413,149
18,907,352
$ 19,311,855
$ 19,594,093
2,590,313
$
2,213,145
$ 2,636,303
348,829
7,664,793
54,570
541,000
171,184
11,370,689
69,694
8,279,320
194,948
141,959
8,162,280
300,482
179,452
184,173
$ 11,120,732
354,055
183,762
$ 11,778,841
$
$
$
$
30,419
40,314
67,641
2,799
490
141,663
160,009
14,811
365,185
60,909
301,756
902,670
1,044,333
68,605
16,630
100,226
2,769
24,608
13,538
226,376
817,957
$
$
$
$
$
11,791
39,033
85,090
1,114
126
137,154
160,359
7,350
281,486
46,842
262,542
758,579
895,733
18,102
1,500
26,759
7,555
5,136
8,269
67,321
828,412
$
$
$
$
$
2,662
27,058
57,159
1,394
61
88,334
177,747
12,766
261,333
38,532
239,725
730,103
818,437
26,138
2,982
12,362
9,963
8,199
5,135
64,779
753,658
5.21%
1.42%
1.83%
7.65%
3.46%
1.97%
5.69%
8.56%
6.96%
1.02%
1.36%
2.10%
5.46%
0.99%
1.69%
5.56%
6.04%
5.53%
0.13%
1.31%
1.41%
4.94%
0.59%
1.08%
5.42%
7.03%
5.00%
7.71%
7.43%
7.36%
11.16% 10.67% 10.86%
6.40%
6.77%
7.70%
5.52%
4.64%
4.18%
2.65%
4.77%
1.31%
5.07%
4.55%
7.91%
1.99%
0.82%
2.15%
0.32%
3.88%
2.86%
4.49%
0.61%
0.99%
2.10%
0.15%
3.32%
2.32%
2.79%
0.55%
3.53%
4.33%
4.03%
4.29%
3.63%
3.85%
(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 $11.9 million, $11.2 million and $10.5 million for the years ended December 31, 2023, 2022 and 2021, respectively, of income from prepayment penalties and late
fees related to the Corporation’s loan portfolio.
52
Part II
Year Ended December 31,
2023 Compared to 2022
Variance due to:
2022 Compared to 2021
Variance due to:
Volume
Rate
Total
Volume
Rate
Total
(In thousands)
Interest income on interest-earning assets:
Money market and other short-term investments
$
(17,813)
$
36,441
$
18,628
$
(4,934) $
14,063
$
Government obligations
MBS
FHLB stock
Other investments
Total investments
Residential mortgage loans
Construction loans
C&I and commercial mortgage loans
Finance leases
Consumer loans
Total loans
Total interest income
Interest expense on interest-bearing liabilities:
Time deposits
Brokered CDs
Other interest-bearing deposits
Securities sold under agreements to repurchase
Advances from the FHLB
Other borrowings
Total interest expense
$
$
(382)
(6,963)
1,118
16
(24,024)
(4,075)
3,751
8,618
11,737
26,758
46,789
22,765
3,574
11,608
(5,011)
(6,282)
15,066
(805)
18,150
$
$
1,663
(10,486)
567
348
28,533
3,725
3,710
75,081
2,330
12,456
97,302
125,835
46,929
3,522
78,478
1,496
4,406
6,074
$
$
1,281
(17,449)
1,685
364
4,509
(350)
7,461
83,699
14,067
39,214
144,091
148,600
50,503
15,130
73,467
(4,786)
19,472
5,269
$
$
10,914
(205)
(405)
17
5,387
(21,437)
(3,793)
(7,132)
8,706
27,330
3,674
9,061
(3,844)$
(1,537)
180
(3,795)
(4,520)
9
1,061
28,136
125
48
43,433
4,049
(1,623)
27,285
(396)
(4,513)
24,802
68,235
$
(4,192)$
55
14,217
1,387
1,457
3,125
140,905
159,055
(13,507)
16,049
Change in net interest income
$
4,615
$
(15,070)
$
(10,455)
$
22,568 $
52,186
$
9,129
11,975
27,931
(280)
65
48,820
(17,388)
(5,416)
20,153
8,310
22,817
28,476
77,296
(8,036)
(1,482)
14,397
(2,408)
(3,063)
3,134
2,542
74,754
Portions of the Corporation’s interest-earning assets, mostly investments in obligations of some U.S. government agencies and
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 22 – “Income
Taxes” to the audited 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.
53
The following table reconciles net interest income in accordance with GAAP to net interest income, excluding valuations, and net
interest income on an adjusted tax-equivalent basis for the indicated periods. The table also reconciles net interest spread and net
interest margin on a GAAP basis to these items excluding valuations, and on an adjusted tax-equivalent basis:
$
$
$
$
$
$
$
$
$
$
$
(Dollars in thousands)
Interest income - GAAP
Unrealized loss (gain) on derivative instruments
Interest income excluding valuations - non-GAAP
Tax-equivalent adjustment
Interest income on a tax-equivalent basis and excluding valuations - non-GAAP
Interest expense - GAAP
Net interest income - GAAP
Net interest income excluding valuations - non-GAAP
Net interest income on a tax-equivalent basis and excluding valuations - non-GAAP
Average Balances
Loans and leases
Total securities, other short-term investments and interest-bearing cash balances
Average Interest-Earning Assets
Average Interest-Bearing Liabilities
Average Assets
Average Non-Interest-Bearing Deposits
Average Yield/Rate
Average yield on interest-earning assets - GAAP
Average rate on interest-bearing liabilities - GAAP
Net interest spread - GAAP
Net interest margin - GAAP
Average yield on interest-earning assets excluding valuations - non-GAAP
Average rate on interest-bearing liabilities
Net interest spread excluding valuations - non-GAAP
Net interest margin excluding valuations - non-GAAP
Average yield on interest-earning assets on a tax-equivalent basis and excluding valuations
non-GAAP
Average rate on interest-bearing liabilities
Net interest spread on a tax-equivalent basis and excluding valuations - non-GAAP
Net interest margin on a tax-equivalent basis and excluding valuations - non-GAAP
2023
Year Ended December 31,
2022
2021
1,023,486
$
862,614
$
8
1,023,494
20,839
1,044,333
226,376
797,110
797,118
817,957
11,726,304
7,181,048
18,907,352
11,370,689
18,706,423
5,741,345
$
$
$
$
$
$
$
$
$
$
5.41%
1.99%
3.42%
4.22%
5.41%
1.99%
3.42%
4.22%
5.52%
1.99%
3.53%
4.33%
(30)
862,584
33,149
895,733
67,321
795,293
795,263
828,412
11,199,013
8,112,842
19,311,855
11,120,732
19,378,649
6,391,171
$
$
$
$
$
$
$
$
$
$
4.47%
0.61%
3.86%
4.12%
4.47%
0.61%
3.86%
4.12%
4.64%
0.61%
4.03%
4.29%
794,708
(24)
794,684
23,753
818,437
64,779
729,929
729,905
753,658
11,413,149
8,180,944
19,594,093
11,778,841
20,303,033
6,063,715
4.06%
0.55%
3.51%
3.73%
4.06%
0.55%
3.51%
3.73%
4.18%
0.55%
3.63%
3.85%
54
Net interest income amounted to $797.1 million for the year ended December 31, 2023, an increase of $1.8 million, when compared
to $795.3 million for same period in 2022. The $1.8 million increase in net interest income was primarily due to:
(cid:404) A $142.7 million increase in interest income on loans consisting of:
-
-
-
An $89.0 million increase in interest income on commercial and construction loans, driven by the effect of higher market
interest rates on the upward repricing of variable-rate loans and on new loan originations and, to a lesser extent, an
increase of $259.0 million in the average balance of this portfolio (excluding Small Business Administration Paycheck
Protection Program (“SBA PPP”) loans). These variances were partially offset by a $7.6 million reduction in interest
income from SBA PPP loans.
As of December 31, 2023, the interest rate on approximately 55% of the Corporation’s commercial and construction
loans was tied to variable rates, with 33% based upon SOFR of 3 months or less, 13% based upon the Prime rate index,
and 9% based on other indexes. For the year ended December 31, 2023, the average one-month SOFR increased 321
basis points, the average three-month SOFR increased 298 basis points, and the average Prime rate increased 333 basis
points, compared to the average rates for such indexes for the year ended December 31, 2022.
A $53.3 million increase in interest income on consumer loans and finance leases, driven by an increase of $396.6
million in the average balance of this portfolio and, to a lesser extent, the upward repricing of the credit cards portfolio.
A $0.4 million increase in interest income on residential mortgage loans, driven by the positive effect of new loan
originations at higher current market interest rates, partially offset by a decline of $72.5 million in the average balance of
this portfolio.
(cid:404) An $18.2 million increase in interest income from interest-bearing cash balances and investment securities, consisting of:
-
-
An $18.6 million increase in interest income from interest-bearing cash balances, which consisted primarily of cash
balances deposited at the FED, mainly associated with the effect of higher market interest rates, partially offset by a
decline of $572.0 million in the average balance.
A $2.1 million increase in dividend income on equity securities, of which $1.7 million was associated with income from
FHLB stock.
Partially offset by:
-
A $2.5 million net decrease in interest income on debt securities, including a net decrease of $4.5 million on U.S.
government and agencies debt securities and MBS driven by a net decline of $343.1 million in the average balance,
partially offset by an increase of $2.0 million in interest income on Puerto Rico municipal bonds that was mainly
attributable to the upward repricing of variable-rate bonds.
55
Partially offset by:
(cid:404) A $139.1 million increase in interest expense on interest-bearing deposits, consisting of:
-
-
-
A $73.5 million increase in interest expense on interest-bearing checking and saving accounts, mainly driven by a $76.5
million increase associated with higher interest rates paid in 2023 as a result of the overall higher interest rate
environment, partially offset by a $2.9 million decrease resulting from a $614.5 million decline in the average balance of
these deposits. The average cost of interest-bearing checking and saving accounts increased by 99 basis points to 1.31%
for 2023 as compared to 0.32 % for 2022, mostly driven by government deposits in the Puerto Rico region. Excluding
government deposits, the average cost of interest-bearing checking and savings accounts for 2023 was 0.68%, compared
to 0.26% for 2022.
A $50.5 million increase in interest expense on time deposits, excluding brokered CDs, of which $46.9 million was
related to higher rates paid in 2023 on new issuances and renewals also associated with the higher interest rate
environment. The average cost of time deposits for 2023, excluding brokered CDs, increased 183 basis points to 2.65%
when compared to 2022. Excluding public sector time deposits, the average cost of non-brokered time deposits for 2023
increased 177 basis points to 2.61% when compared to 2022, reflecting the effect of customers allocating more cash into
higher yielding alternatives.
A $15.1 million increase in interest expense on brokered CDs, driven by the increase of $279.1 million increase in the
average balance.
(cid:404) A $20.0 million net increase in interest expense on borrowings, consisting of:
-
-
A $19.5 million increase in interest expense on advances from the FHLB, associated with a $361.5 million increase in
the average balance.
A $5.3 million increase in interest expense on other borrowings, mainly driven by the upward repricing of junior
subordinated debentures, partially offset by a reduction in the average balance.
Partially offset by:
-
A $4.8 million decrease in interest expense on repurchase agreements, driven by a $6.3 million decrease associated with
a $140.4 million decline in the average balance, partially offset by a $1.5 million increase associated with new short-term
repurchase agreements entered into during 2023 at higher interest rates.
Net interest margin increased by 10 basis points to 4.22% for 2023, compared to 4.12% for 2022. The net interest margin increase
primarily reflects the higher interest rate environment, driving the upward repricing of variable-rate commercial loans, and higher
yields earned on new loan originations. The net interest margin also benefited from an improved earnings -asset mix reflected in the
growth of higher yielding commercial and consumer loans. These factors were partially offset by an increase in the average cost of
interest-bearing liabilities, mainly reflecting the effect of higher rates paid on deposits, and a continued migration from non-interest-
bearing and other low-cost deposits to higher-cost deposits.
56
Provision for Credit Losses
The provision for credit losses for loans and finance leases was $66.6 million for the year ended December 31, 2023, compared to
$25.7 million for the year ended December 31, 2022. The variances by major portfolio category were as follows:
(cid:404) Provision for credit losses for the consumer loan and finance lease portfolios was an expense of $67.8 million for the year
ended December 31, 2023, compared to an expense of $57.5 million for the year ended December 31, 2022. The increase
primarily reflects the increases in the size of the consumer loan portfolios coupled with higher delinquency and historical
charge-off levels in all major portfolio classes, partially offset by improvements in the forecasted macroeconomic variables
such as the regional unemployment rate and retail sales in the case of credit cards.
(cid:404) Provision for credit losses for the commercial and construction loan portfolios was an expense of $5.7 million for the year
ended December 31, 2023, compared to a net benefit of $23.1 million for year ended December 31, 2022. The expense
recognized during 2023 was mainly due to the increase in the size of the commercial and construction loan portfoli os, a $6.0
million charge associated with a nonaccrual C&I participated loan in the Florida region in the power generation industry, a
$1.7 million incremental reserve recorded during 2023 associated with the inflow to nonaccrual status of a $9.5 million C&I
loan in the Puerto Rico region, and a $1.0 million charge-off recorded on a nonaccrual commercial mortgage loan transferred
to OREO during 2023, partially offset by an improvement on the economic outlook of certain macroeconomic variables, such
as the unemployment rate. Meanwhile, the net benefit recorded during 2022 mainly reflects reductions in qualitative reserves
associated with reduced COVID-19 uncertainties, partially offset by loan growth and a less favorable economic outlook of
certain macroeconomic variables, such as the CRE price index.
(cid:404) Provision for credit losses for the residential mortgage loan portfolio was a net benefit of $6.9 million for the year ended
December 31, 2023, compared to a net benefit of $8.7 million for the year ended December 31, 2022. The net benefit
recorded during 2023 was primarily related to updated macroeconomic variables, such as the Regional Home Price Index and
the unemployment rate, partially offset by newly originated loans which have a longer life.
Provision for credit losses for unfunded loan commitments
The provision for credit losses for unfunded commercial and construction loan commitments and standby letters of credit was an
expense of $0.4 million for the year ended December 31, 2023, compared to $2.7 million for year ended December 31, 2022. The
expense recorded during 2022 was mainly driven by an increase in unfunded loan commitments principally due to then newly
originated facilities which remained undrawn as of December 31, 2022.
Provision for credit losses for held-to-maturity and available-for-sale debt securities
The provision for credit losses for held-to-maturity debt securities was a net benefit of $6.1 million for the year ended December
31, 2023, compared to a net benefit of $0.3 million for year ended December 31, 2022. The net benefit recorded during 2023 was
mostly driven by the refinancing of a $46.5 million municipal bond into a shorter-term commercial loan structure and, to a lesser
extent, a reduction in qualitative reserves driven by updated financial information of certain bond issuers received during 2023.
The provision for credit losses for available-for-sale debt securities was an expense of $20 thousand for the year ended December
31, 2023, compared to a net benefit of $0.4 million for the year ended December 31, 2022.
57
Non-Interest Income
Non-interest income for the year ended December 31, 2023 amounted to $132.7 million, compared to $123.1 million for the same
period in 2022. Non-interest income for the year ended December 31, 2023 includes 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 $4.4 million primarily due to:
(cid:404) A $6.3 million net increase in adjusted other non-interest income including: (i) a $2.6 million increase in net gains from
sales of fixed assets, of which $3.0 million was related to the sale of a banking premise in the Florida region; (ii) a $1.4
million increase related to higher benefit recognized in relation to purchased income tax credits realized; (iii) $0.8 million
in debit card incentives collected during 2023; (iv) a $0.5 million decrease in unrealized losses on marketable equity
securities; (v) a $0. 4 million increase related to higher unused loan commitment fees; and (vi) $0.4 million in insurance
proceeds received during 2023.
(cid:404) A $3.5 million increase in card and processing income mainly in interchange income related to higher transactional
volumes.
Partially offset by:
(cid:404) A $4.7 million decrease in revenues from mortgage banking activities, mainly driven by a decrease in the net realized gain
on sales of residential mortgage loans in the secondary market due to a lower volume of sales and lower margins. During
2023 and 2022, net gains of $3.3 million and $8.4 million, respectively, were recognized as a result of GNMA
securitization transactions and whole loan sales to U.S. GSEs amounting to $155.2 million and $238.3 million,
respectively.
(cid:404) A $0.9 million decrease in insurance commission income.
Non-Interest Expenses
Non-interest expenses for the year ended December 31, 2023 amounted to $471.4 million, compared to $443.1 million for the same
period in 2022. The efficiency ratio for the year ended December 31, 2023 was 50.70%, compared to 48.25% for the year ended
December 31, 2022. Non-interest expenses for the year ended December 31, 2023 include the FDIC special assessment expense of
$6.3 million. 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 $22.0 million primarily due to:
(cid:404) A $16.8 million increase in employees’ compensation and benefits expenses, mainly driven by annual salary merit
increases and minimum wage adjustments, and increases in bonuses accruals, medical insurance premium costs, and stock-
based compensation expense; partially offset by higher deferral of loan origination costs.
(cid:404) A $3.3 million increase in credit and debit card processing expenses, mainly driven by higher transactional volumes.
(cid:404) A $3.0 million increase in other non-interest expenses, mainly due to an increase of $1.8 million in net periodic cost of
pension plans and a $0.8 million increase in charges for legal and operational reserves.
(cid:404) A $2.4 million increase in the adjusted FDIC deposit insurance expense, driven by the two basis points increase on the
initial base deposit insurance assessment rate that came into effect during the first quarter of 2023.
(cid:404) A $1.4 million increase in business promotion expenses, mainly as a result of a $0.9 million increase in sponsorship and
public relations activities and a $0.7 million increase in marketing and advertising expenses.
(cid:404) A $1.0 million increase in taxes, other than income taxes, primarily related to higher municipal license taxes and sales and
use taxes.
58
Partially offset by:
(cid:404) A $2.4 million decrease in occupancy and equipment expenses, primarily reflecting reductions in depreciation charges,
rental expenses, and energy costs, partially offset by an increase in maintenance charges and property taxes.
(cid:404) A $2.0 million decrease in professional service fees, in part due to a reduction of $0.8 million in collections, appraisals,
and other credit-related fees.
(cid:404) A $1.3 million increase in net gains on OREO operations, mainly driven by a $0.9 million decrease in property values
write-downs and a $0.7 million increase in net realized gains on sales of OREO properties , primarily residential properties
in the Puerto Rico region.
Income Taxes
For the year ended December 31, 2023, the Corporation recorded an income tax expense of $94.6 million, compared to $142.5
million for the same period in 2022. The decrease in income tax expense for 2023, as compared to the same period in 2022, was
mainly driven by a lower effective tax rate and lower pre-tax income. The reduction in the effective tax rate was due to increased
business activities with preferential tax treatment under the Puerto Rico tax code, which resulted in additional deductions in the
banking subsidiary, as well as a higher proportion of exempt income to taxable income.
The Corporation’s annual effective tax rate for the year ended December 31, 2023, excluding entities from which a tax benefit
cannot be recognized and discrete items, was 23.5%, compared to 31.2% for 2022. The effective tax rate of the Corporation is
impacted by, among other things, the composition and source of its taxable income. Based on current strategies, we expect that the
effective tax rate for 2024 will be around the same levels of 2023. See Note 22 - Income Taxes, to the audited consolidated financial
statements included in Part II, Item 8 of this Form 10-K, for additional information .
As of December 31, 2023, the Corporation had a deferred tax asset of $150.1 million, net of a valuation allowance of $139.2
million against the deferred tax asset, compared to a deferred tax asset of $155.6 million, net of a valuation allowance of $185.5
million, as of December 31, 2022. The reduction in the valuation allowance was related primarily to changes in the market value of
available-for-sale debt securities and the expiration of capital losses, both which resulted in an equal change in the deferred tax asset
without impacting earnings. Income tax paid for the year ended December 31, 2023 amounted to $109.5 million, compared to $51.8
million in 2022. The increase is related to the full utilization during 2022 of certain deferred tax assets related to NOLs that were
available for regular income tax which decreased the amount due for income taxes.
59
OPERATING SEGMENTS
Based upon the Corporation’s organizational structure and the information provided to the Chief Executive Officer and
management of the Corporation, the operating segments are based primarily on the Corporation’s lines of business for its operations in
Puerto Rico, the Corporation’s principal market, and by geographic areas for its operations outside of Puerto Rico. As of December
31, 2023, the Corporation had six reportable segments: Commercial and Corporate Banking; Consumer (Retail) Banking; Mortgage
Banking; Treasury and Investments; United States Operations; and Virgin Islands Operations. Management determined the reportable
segments based on the internal structure used to evaluate performance and to assess where to allocate resources. Other factors, such as
the Corporation’s organizational chart, nature of the products, distribution channels, and the economic characteristics of the products,
were also considered in the determination of the reportable segments. For additional information regarding First BanCorp.’s reportable
segments, please refer to Note 27, “Segment Information” to the audited consolidated financial statements included in Item 8 of this
Form 10-K.
The accounting policies of the segments are the same as those described in Note 1, “Nature of Business and Summary of
Significant Accounting Policies” to the audited consolidated financial statements included in Item 8 of this Form 10-K. The
Corporation evaluates the performance of the segments based on net interest income, the provision for credit losses, non-interest
income, and direct non-interest expenses. The segments are also evaluated based on the average volume of their interest-earning
assets, less the ACL. For the years ended December 31, 2023 and 2022, other operating expenses not allocated to a particular segment
amounted to $168.7 million and $155.3 million, respectively. 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.
The Treasury and Investments segment lends funds to the Consumer (Retail) Banking, Mortgage Banking, Commercial and
Corporate Banking and 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 Corporation allocates the interest rates charged or
credited by the Treasury and Investment and the Consumer (Retail) Banking segments 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 .
60
Commercial and Corporate Banking
The Commercial and Corporate Banking segment consists of the Corporation’s lending and other services for large customers
represented by specialized and middle-market clients and the public sector. The Commercial and Corporate Banking segment offers
commercial loans, including commercial real estate and construction loans, as well as other products, such as cash management and
business management services. A substantial portion of the commercial and corporate banking portfolio is secured by the underlying
real estate collateral and the personal guarantees of the borrowers. Since commercial loans involve greater credit risk than a typical
residential mortgage loan because they are larger in size and more risk is concentrated in a single borrower, the Corporation has and
maintains a credit risk management infrastructure designed to mitigate potential losses associated with commercial lending, including
underwriting and loan review functions, sales of loan participations, and continuous monitoring of concentrations within portfolios.
Segment income before taxes for the year ended December 31, 2023 decreased to $42.4 million, compared to $111.1 million for
2022. The highlights of the Commercial and Corporate Banking segment’s financial results for the years ended December 31, 2023
and 2022 include the following:
(cid:404) Net interest income for the year ended December 31, 2023 was $54.7 million, compared to $109.8 million for 2022. The
decrease in net interest income was primarily attributable to an increase in the cost of funds charged to this segment,
resulting from higher market interest rates, that exceeded the effect of the upward repricing of variable-rate commercial
and construction loans and higher average loan balances.
(cid:404) For 2023, the provision for credit losses was a net benefit of $6.2 million, compared to a net benefit of $20.2 million for
2022. The net benefit recorded during 2023 mainly reflects a more favorable economic outlook in the projection of
certain macroeconomic variables such as the unemployment rate, partially offset by a $1.7 million incremental reserve
recorded during 2023 associated with the inflow to nonaccrual status of a $9.5 million C&I loan and a $1.0 million
charge-off recorded on a nonaccrual commercial mortgage loan transferred to OREO during 2023. Meanwhile, the net
benefit recorded in 2022 mainly reflects reductions in qualitative reserves associated with reduced uncertainties
regarding the economic impact of the COVID-19 pandemic, particularly on loans in the hotel, transportation and
entertainment industries, partially offset by loan growth and a less favorable economic outlook in the projection of
certain forecasted macroeconomic variables, such as the CRE price index.
(cid:404) Total non-interest income for the year ended December 31, 2023 amounted to $21.3 million compared to $18.2 million
for 2022. The increase in non-interest income was mainly related to the aforementioned $3.6 million gain recognized
from a legal settlement related to a commercial relationship which was settled and collected in 2023.
(cid:404) Direct non-interest expenses for the year ended December 31, 2023 were $39.7 million, compared to $37.1 million for
2022. The increase is due to a $2.9 million increase in the FDIC deposit insurance expense allocated to this segment
driven by the aforementioned FDIC special assessment expense and the two basis points increase on the initial base
deposit insurance assessment rate that came into effect during the first quarter of 2023; a $0.6 million increase in taxes,
other than income taxes, primarily related to higher municipal license taxes; and a $0.4 million increase in business
promotion expenses mainly in sponsorship activities. These variances were partially offset by a $0.6 million decrease in
occupancy and equipment expenses, primarily reflecting reductions in rental expenses and energy costs; and a $0.4
million increase in net gains on OREO properties, mainly driven by a decrease in property values write-downs.
61
Consumer (Retail) Banking
The Consumer (Retail) Banking segment consists of the Corporation’s consumer lending and deposit-taking activities conducted
mainly through FirstBank’s branch network and loan centers in Puerto Rico. Loans to consumers include auto loans and finance
leases, boat loans, personal loans, credit card loans, and lines of credit. Deposit products include interest-bearing and non-interest-
bearing checking and savings accounts, individual retirement accounts (“IRAs”), and retail CDs. Retail deposits gathered through each
branch of FirstBank’s retail network serve as one of the funding sources for the lending and investing activities.
Consumer lending historically has been mainly driven by auto loan and leases originations. The Corporation follows a strategy of
seeking to provide outstanding service to selected auto dealers that provide the channel for the bulk of the Corporation’s auto loan
originations.
Personal loans, credit cards, and, to a lesser extent, boat loans also contribute to interest income generated on consumer lending.
Management plans to continue to be active in the consumer loan market, applying the Corporation’s strict underwriting standards.
Other activities included in this segment are insurance activities in the Puerto Rico region.
Segment income before taxes for the year ended December 31, 2023 increased to $419.6 million, compared to $301.3 million for
2022. The highlights of the Consumer (Retail) Banking segment’s financial results for the years ended December 31, 2023 and 2022
include the following:
(cid:404) Net interest income for the year ended December 31, 2023 was $575.4 million, compared to $442.6 million for 2022.
The increase was mainly due to higher income from funds loaned to other business segments resulting from higher
market interest rates that exceeded the decrease in interest rate spreads resulting from the increase in interest rates paid
on retail deposits to customers.
(cid:404) The provision for credit losses for the year ended December 31, 2023 increased by $8.8 million to $65.9 million,
compared to $57.1 million for the year ended December 31, 2022. The increase primarily reflects the increases in the
size of the consumer loan portfolios and higher delinquency and historical charge-off levels in all major portfolio classes,
partially offset by improvements in the forecasted macroeconomic variables such as the regional unemployment rate and
retail sales in the case of credit cards.
(cid:404) Non-interest income for the year ended December 31, 2023 was $83.2 million, compared to $78.5 million for 2022. The
increase includes a $4.5 million increase in card and processing income driven by higher transactional volumes, a $1.4
million increase related to higher benefit recognized in relation to purchased income tax credits realized and a $0.8
million increase in debit card incentives collected during 2023. These variances were partially offset by decreases of $0.8
million in insurance commission income and $0.7 million in service charges and fees on deposit accounts.
(cid:404) Direct non-interest expenses for the year ended December 31, 2023 were $173.2 million, compared to $162.7 million for
2022. The increase was primarily related to a $4.5 million increase in employees’ compensation and benefits expenses,
mainly driven by annual salary merit increases and minimum wage adjustments and increases in medical insurance
premium costs, and stock-based compensation expense, partially offset by higher deferral of loan origination costs; a
$3.1 million increase in credit and debit card processing expenses, mainly driven by higher transactional volumes; a $2.7
million increase in the FDIC deposit insurance expense allocated to this segment due to the aforementioned FDIC special
assessment expense and the two basis points increase on the initial base deposit insurance assessment rate that came into
effect during the first quarter of 2023; and a $0.5 million increase in business promotion expenses. These variances were
partially offset by a $0.6 million decrease in occupancy and equipment expenses and a $0.3 million decrease in taxes,
other than income taxes.
62
Mortgage Banking
The Mortgage Banking segment conducts its operations mainly through FirstBank. The Mortgage Banking segment consists of the
origination, sale, and servicing of a variety of residential mortgage loan products. Originations are sourced through different channels,
such as FirstBank branches and purchases from mortgage bankers, and in association with new project developers. The mortgage
banking segment focuses on originating residential real estate loans, some of which conform to the Federal Housing Administration
(the “FHA”), the Veterans Administration (the “VA”), and U.S. Department of Agriculture Rural Development (“RD”) standards.
Loans originated that meet the FHA’s standards qualify for the FHA’s insurance program whereas loans that meet the standards of the
VA or the RD are guaranteed by their respective federal agencies.
Mortgage loans that do not qualify under the FHA, VA, or RD programs are referred to as conventional loans. Conventional real
estate loans can be conforming or non-conforming. Conforming loans are residential real estate loans that meet the standards for sale
under the U.S. Federal National Mortgage Association (“FNMA”) and the U.S. Federal Home Loan Mortgage Corporation
(“FHLMC”) programs. Loans that do not meet FNMA or FHLMC standards are referred to as non-conforming residential real estate
loans. The Mortgage Banking segment also acquires and sells mortgages in the secondary markets. Residential real estate conforming
loans are sold to investors like FNMA and FHLMC. The Corporation has commitment authority to issue GNMA MBS.
Segment income before taxes for the year ended December 31, 2023 decreased to $74.2 million, compared to $99.5 million for
2022. The highlights of the Mortgage Banking segment’s financial results for the years ended December 31, 2023 and 2022 include
the following:
(cid:404) Net interest income for the year ended December 31, 2023 was $78.7 million, compared to $98.9 million for 2022. The
decrease in net interest income was primarily attributable to an increase in the cost of funds charged to this segment,
resulting from higher market interest rates, as well as a decrease in average loan balances.
(cid:404) The provision for credit losses for 2023 was a net benefit of $7.5 million, compared to a net benefit of $7.6 million for
2022. The net benefit recorded during 2023 was primarily related to updated macroeconomic variables, such as the
Regional Home Price Index and the unemployment rate, partially offset by newly originated loans which have a longer
life. The net benefit recorded during 2022 reflects the effect of a decrease in the size of the loan portfolio as well as
reductions in qualitative reserves associated with reduced COVID-19 uncertainties.
(cid:404) Non-interest income for the year ended December 31, 2023 was $11.4 million, compared to $16.0 million for 2022. The
decrease was mainly driven by a $4.9 million decrease in the net realized gain on sales of residential mortgage loans in
the secondary market mainly due to a lower volume of sales and lower margins.
(cid:404) Direct non-interest expenses for the year ended December 31, 2023 were $23.5 million, compared to $23.0 million for
2022. The increase was mainly related to a $1.5 million increase in the FDIC deposit insurance expense allocated to this
segment due to the aforementioned FDIC special assessment expense and the two basis points increase on the initial base
deposit insurance assessment rate that came into effect during the first quarter of 2023. This variance was partially offset
by a $0.9 million increase in net gains on OREO operations mainly driven by a $0.4 million decrease in property values
write-downs and a $0.4 million increase in net realized gains on sales of OREO properties.
63
Treasury and Investments
The Treasury and Investments segment is responsible for the Corporation’s treasury and investment management functions. The
treasury function, which includes funding and liquidity management, lends funds to the Commercial and Corporate Banking segment,
the Mortgage Banking segment, the Consumer (Retail) Banking segment, and the United States Operations segment to finance their
respective lending activities and borrows from those segments. The Treasury function also obtains funds through brokered deposits,
advances from the FHLB, and repurchase agreements involving investment securities, among other possible funding sources.
The investment function is intended to implement a leverage strategy for the purposes of liquidity management, interest rate risk
management and earnings enhancement.
The interest rates charged or credited by Treasury and Investments are based on market rates.
Segment loss before taxes for the year ended December 31, 2023 was $15.7 million, compared to segment income before taxes of
$36.3 million for 2022. The highlights of the Treasury and Investments segment’s financial results for the years ended December 31,
2023 and 2022 include the following:
(cid:404) Net interest loss for the year ended December 31, 2023 was $13.9 million, compared to net interest income of $39.6
million for 2022. The decrease was mainly related to an increase in the net transfer pricing charge associated to the cost
of funds borrowed from the Consumer (Retail) Banking segment, resulting from higher market interest rates, coupled
with a reduced interest rate spread driven by a higher cost of funding.
(cid:404) Non-interest income for the year ended December 31, 2023 was $2.0 million, compared to non-interest loss of $0.1
million for 2022. The variance primarily reflects a $1.6 million gain recognized on the repurchase of $21.4 million in
junior subordinated debentures and a $0.5 million decrease in unrealized losses on marketable equity securities.
(cid:404) Direct non-interest expenses for 2023 were $3.8 million, compared to $3.7 million for 2022. The increase was primarily
reflected in employees’ compensation and benefits expenses.
64
United States Operations
The United States Operations segment consists of all banking activities conducted by FirstBank on the U.S. mainland. FirstBank
provides a wide range of banking services to individual and corporate customers primarily in southern Florida through eight banking
branches. The United States Operations segment offers an array of both consumer and commercial banking products and services.
Consumer banking products include checking, savings and money market accounts, retail CDs, internet banking services, residential
mortgages, and home equity loans and lines of credit. Retail deposits, as well as FHLB advances and brokered CDs, allocated to this
operation serve as funding sources for its lending activities.
Commercial banking services include checking, savings and money market accounts, retail CDs, internet banking services, cash
management services, remote data capture, and automated clearing house (“ACH”) transactions. Loan products include the traditional
C&I and commercial real estate products, such as lines of credit, term loans, and construction loans.
Segment income before taxes for the year ended December 31, 2023 decreased to $42.8 million, compared to $53.1 million for
2022. The highlights of the United States operations ’ segment’s financial results for the years ended December 31, 2023 and 2022,
include the following:
(cid:404) Net interest income for the year ended December 31, 2023 was $79.4 million, compared to $80.5 million for 2022. The
decrease was mainly due to an increase in the cost of funds charged to this segment, that exceeded the benefit from a
slight increase in interest rate spread driven by increases in yields and average balance of loans.
(cid:404) The Corporation recognized a provision for credit losses of $8.7 million for the year ended December 31, 2023,
compared to a net benefit of $3.1 million for the same period in 2022. The provision for credit losses for 2023 includes a
provision expense of $7.8 million for the commercial and construction loan portfolios mainly due to a $6.0 million
charge associated with a nonaccrual C&I participated loan in the power generation industry. Meanwhile, the net benefit
recorded during 2022 mainly reflects reductions in qualitative reserves associated with reduced COVID-19 uncertainties,
partially offset by loan growth.
(cid:404) Total non -interest income for the year ended December 31, 2023 amounted to $6.7 million, compared to $2.9 million for
2022. The increase was primarily related to a $3.2 million increase in net gains from sales of fixed assets, of which $3.0
million was related to the sale of a banking premise; a $0.3 million increase related to higher unused loan commitment
fees; and a $0.2 million increase in income from insurance commissions.
(cid:404) Direct non-interest expenses for the year ended December 31, 2023 were $34.7 million, compared to $33.4 million for
2022. The increase was mainly associated to a $1.0 million increase in the FDIC deposit insurance expense allocated to
this segment due to the aforementioned FDIC special assessment expense and the two basis points increase on the initial
base deposit insurance assessment rate that came into effect during the first quarter of 2023, and a $0.8 million increase
in employees’ compensation and benefits expenses. These variances were partially offset by a $0.3 million decrease in
occupancy and equipment expenses.
65
Virgin Islands Operations
The Virgin Islands Operations segment consists of all banking activities conducted by FirstBank in the USVI and BVI, including
consumer and commercial banking services, with a total of eight banking branches currently serving the islands in the USVI of St.
Thomas, St. Croix, and St. John, and the island of Tortola in the BVI. The Virgin Islands Operations segment is driven by its
consumer, commercial lending, and deposit -taking activities.
Loans to consumers include auto and boat loans, lines of credit, and personal and residential mortgage loans. Deposit products
include interest-bearing and non-interest-bearing checking and savings accounts, IRAs, and retail CDs. Retail deposits gathered
through each branch serve as the funding sources for its own lending activities.
Segment income before taxes for the year ended December 31, 2023 increased to $2.9 million, compared to $1.7 million for 2022.
The highlights of the Virgin Islands operations’ segment’s financial results for the years ended December 31, 2023 and 2022 include
the following:
(cid:404) Net interest income for the year ended December 31, 2023 was $22.8 million, compared to $23.8 million for the same
period in 2022. The decrease was mainly related to an increase in interest expense, particularly in time deposits due to
higher rates paid on new issuances and renewals, partially offset by an increase in interest income on commercial loans
driven by the upward repricing of commercial and construction variable-rate loans and on new loan originations as well
as higher average loan balances and an increase in interest income on consumer loans mainly related to higher average
loan balances and higher yields.
(cid:404) The provision for credit losses for the year ended December 31, 2023, was $0.1 million compared to $2.0 million in
2022. The decrease was driven by a more favorable economic outlook in the projection of certain macroeconomic
variables, such as the unemployment rate. Meanwhile, the provision recorded during 2022 was primarily related to
consumer loans reflecting the effects of loan growth, higher delinquency and charge-off levels, and a less favorable
outlook of certain macroeconomic variables.
(cid:404) Non-interest income for the year ended December 31, 2023 was $8.0 million, compared to $7.7 million for 2022. The
increase was primarily related to a $0.4 million increase in card and processing income and a $0.2 million increase
related to higher unused loan commitment fees, partially offset by a $0.3 million decrease in income from insurance
commissions.
(cid:404) Direct non-interest expenses for the year ended December 31, 2023 remained flat at $27.9 million compared to the same
period in 2022. Non-interest expenses include a $0.6 million increase in the FDIC deposit insurance expense allocated to
this segment due to the aforementioned FDIC special assessment expense and the two basis points increase on the initial
base deposit insurance assessment rate that came into effect during the first quarter of 2023 and a $0.2 million increase in
credit and debit card processing expenses, partially offset by a $0.9 million decrease in occupancy and equipment
expenses.
66
FINANCIAL CONDITION AND OPERATING DATA ANALYSIS
Financial Condition
The following table presents an average balance sheet of the Corporation for the following years:
2023
December 31,
2022
2021
(In thousands)
ASSETS
Interest-earning assets:
Money market and other short-term investments
U.S. and Puerto Rico government obligations
MBS
FHLB stock
Other investments
Total investments
Residential mortgage loans
Construction loans
Commercial loans
Finance leases
Consumer loans
Total loans
Total interest-earning assets, excluding valuation
allowances and ACL
Total non-interest-earning assets
Valuation allowances and ACL (1)
Total assets
LIABILITIES
Interest-bearing liabilities:
Time deposits
Brokered CDs
Other interest-bearing deposits
Interest-bearing deposits
Securities sold under agreements to repurchase
Advances from the FHLB
Other long-term borrowings
Total interest-bearing liabilities
Total non-interest-bearing liabilities (2)
Total liabilities
STOCKHOLDERS' EQUITY
Stockholders' equity:
Preferred stock
Common stockholders' equity
Stockholders' equity
$
584,083 $
2,843,284
3,702,908
36,606
14,167
7,181,048
2,814,102
172,952
5,244,503
789,870
2,704,877
11,726,304
18,907,352
573,010
(773,939)
18,706,423 $
2,590,313 $
348,829
7,664,793
10,603,935
54,570
541,000
171,184
11,370,689
5,950,495
17,321,184
$
$
1,156,127 $
2,870,889
4,052,660
20,419
12,747
8,112,842
2,886,594
121,642
5,092,638
636,507
2,461,632
11,199,013
19,311,855
603,728
(536,934)
19,378,649 $
2,213,145 $
69,694
8,279,320
10,562,159
194,948
179,452
184,173
11,120,732
6,622,638
17,743,370
-
1,385,239
1,385,239
18,706,423 $
-
1,635,279
1,635,279
19,378,649 $
2,012,617
2,065,522
4,064,343
28,208
10,254
8,180,944
3,277,087
181,470
5,228,150
518,757
2,207,685
11,413,149
19,594,093
720,240
(11,300)
20,303,033
2,636,303
141,959
8,162,280
10,940,542
300,482
354,055
183,762
11,778,841
6,285,942
18,064,783
32,938
2,205,312
2,238,250
20,303,033
Total liabilities and stockholders' equity
$
(1) Includes, among other things, the ACL on loans and finance leases and debt securities, as well as unrealized gains and losses on available-for-sale debt securities.
(2) Includes, among other things, non-interest-bearing deposits.
67
The Corporation’s total average assets were $18.7 billion for the year ended December 31, 2023, compared to $19.4 billion for the
year ended December 31, 2022, a net decrease of $672.2 million. The variance primarily reflects the following: (i) a decrease of
$572.0 million in the average balance of interest-bearing cash, which consisted primarily of deposits maintained at the Federal
Reserve Bank; (ii) a decrease of $377.4 million in debt securities, mainly due to principal repayments of U.S. agencies MBS; and (iii)
an increase of $239.0 million in unrealized losses on available-for-sale debt securities. These variances were partially offset by a
$527.3 million increase in the average balance of total loans, consisting of an increase of $396.6 million in consumer loans mainly in
the auto loan and finance lease portfolios, a $203.2 million increase in the commercial and construction loans, and a decrease of $72.5
million in residential mortgage loans.
The Corporation’s total average liabilities were $17.3 billion for the year ended December 31, 2023, a net decrease of $422.2
million compared to December 31, 2022. The net decrease was mainly related to a combined decrease of $1.3 billion in the average
balance of non-interest and interest-bearing demand deposits, checking, and savings accounts, primarily reflecting the effect of
customers allocating more cash into higher yielding alternatives. This variance was partially offset by increases of $377.2 million in
the average balance of non-brokered time deposits, $279.1 million in the average balance of brokered CDs, and $208.2 million in the
average balance of total borrowings, mainly associated with long-term FHLB advances.
68
Assets
The Corporation’s total assets were $18.9 billion as of December 31, 2023, an increase of $275.1 million from December 31, 2022,
primarily related to a $627.7 million increase in the total loan portfolio before the ACL, mainly in consumer and commercial and
construction loans, and a $182.7 million increase in cash and cash equivalents , mainly driven by the net effect of the end of period
overall increase in deposits, net of the decrease in borrowings, partially offset by a $452.4 million decrease in total investment
securities net of a $165.4 million increase in the fair value of available-for -sale debt securities.
Loans Receivable, including Loans Held for Sale
As of December 31, 2023, the Corporation’s total loan portfolio before the ACL amounted to $12.2 billion, an increase of $627.7
million compared to December 31, 2022. In terms of geography, the growth consisted of increases of $648.9 million and $44.9 million
in the Puerto Rico and Virgin Islands regions, respectively, partially offset by a $66.1 million decrease in the Florida region. On a
portfolio basis, the growth consisted of increases of $330.2 million in consumer loans, including a $276.8 million increase in auto
loans and finance leases, and $328.0 million in commercial and construction loans, partially offset by a $30.5 million decrease in
residential mortgage loans.
As of December 31, 2023, the Corporation’s loans held-for-investment portfolio was comprised of commercial and construction
loans (47%), residential real estate loans (23%), and consumer and finance leases (30%). Of the total gross loan portfolio held for
investment of $12.2 billion as of December 31, 2023, 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 December 31, 2023
(In thousands)
Residential mortgage loans
Construction loans
Commercial mortgage loans
C&I loans
Total commercial loans
Consumer loans and finance leases
Total loans held for investment, gross
Loans held for sale
Total loans, gross
As of December 31, 2022
(In thousands)
Residential mortgage loans
Construction loans
Commercial mortgage loans
C&I loans
Total commercial loans
Consumer loans and finance leases
Total loans held for investment, gross
Loans held for sale
Total loans, gross
Puerto Rico
Virgin Islands
United States
Total
$
$
$
$
$
$
2,187,875
111,664
1,725,325
2,130,368
3,967,357
3,583,272
9,738,504
7,368
9,745,872
Puerto Rico
2,237,983
30,529
1,768,890
1,791,235
3,590,654
3,256,070
9,084,707
12,306
9,097,013
$
$
$
$
$
$
168,131
3,737
65,312
119,040
188,089
68,498
424,718
-
424,718
$
$
$
465,720
99,376
526,446
924,824
1,550,646
5,895
2,022,261
-
2,022,261
Virgin Islands
United States
179,917
4,243
65,314
68,874
138,431
61,419
379,767
-
379,767
$
$
$
429,390
98,181
524,647
1,026,154
1,648,982
9,979
2,088,351
-
2,088,351
$
$
$
$
$
$
2,821,726
214,777
2,317,083
3,174,232
5,706,092
3,657,665
12,185,483
7,368
12,192,851
Total
2,847,290
132,953
2,358,851
2,886,263
5,378,067
3,327,468
11,552,825
12,306
11,565,131
First BanCorp. relies primarily on its retail network of branches to originate residential and consumer personal loans. The
Corporation manages its construction and commercial loan originations through centralized units and most of its originations come
from existing customers, as well as through referrals and direct solicitations. Auto loans and finance leases originations rely primarily
on relationships with auto dealers and dedicated sales professionals who serve selected locations in order facilitate originations.
69
The following table sets forth certain additional data (including loan production) related to the Corporation's loan portfolio net of the
ACL on loans and finance leases as of and for the indicated dates:
For the Year Ended December 31,
2023
2022
2021
(Dollars in thousands)
Beginning balance as of January 1
Residential real estate loans originated and purchased
Construction loans originated
C&I and commercial mortgage loans originated and purchased
Finance leases originated
Consumer loans originated
$
Total loans originated and purchased
Sales of loans
Repayments and other decreases (1)
Net increase (decrease)
Ending balance as of December 31
Percentage increase (decrease)
$
11,304,667
424,641
154,720
2,750,817
327,528
1,468,794
5,126,500
(155,733)
(4,344,426)
626,341
$
10,826,783
468,599
112,640
2,950,904
308,811
1,516,316
5,357,270
(293,213)
(4,586,173)
477,884
$
11,931,008
$
11,304,667
$
5.54%
4.41%
11,441,691
623,290
102,538
2,994,893
240,419
1,287,487
5,248,627
(620,227)
(5,243,308)
(614,908)
10,826,783
-5.37%
_____________
Includes, among other things, the change in the ACL on loans and finance leases and cancellation of loans due to the repossession of the collateral and loans repurchased.
(1)
Residential Real Estate Loans
As of December 31, 2023, the Corporation’s total residential mortgage loan portfolio, including loans held for sale, decreased by
$30.5 million, as compared to the balance as of December 31, 2022. The decline in the residential mortgage loan portfolio reflects
decreases of $55.0 million in the Puerto Rico region and $11.8 million in the Virgin Islands region, partially offset by an increase of
$36.3 million in the Florida region. The decline was driven by repayments, foreclosures, and charge-offs, which more than offset the
volume of new loan originations kept on the balance sheet.
As of December 31, 2023, the majority of the Corporation’s outstanding balance of residential mortgage loans in the Puerto Rico
and the Virgin Islands regions consisted of fixed-rate loans that traditionally carry higher yields than residential mortgage loans in the
Florida region. In the Florida region, approximately 38% of the residential mortgage loan portfolio consisted of hybrid adjustable-rate
mortgages. In accordance with the Corporation’s underwriting guidelines, residential mortgage loans are primarily fully documented
loans, and the Corporation does not originate negative amortization loans.
Residential mortgage loan originations for the year ended December 31, 2023 amounted to $424.6 million, compared to $468.6
million for 2022. The decrease in residential mortgage loan originations of $44.0 million consisted of declines of $38.6 million in the
Puerto Rico region and $9.2 million in the Virgin Islands region, partially offset by a $3.8 million increase in the Florida region.
Approximately 46% of the $324.3 million residential mortgage loan originations in the Puerto Rico region during 2023 consisted of
conforming loans, compared to 54% of $363.0 million for 2022.
Commercial and Construction Loans
As of December 31, 2023, the Corporation’s commercial and construction loan portfolio increased by $328.0 million, as compared
to the balance as of December 31, 2022.
In the Puerto Rico region, commercial and construction loans increased by $376.7 million, as compared to the balance as of
December 31, 2022. This increase was driven by the origination of several term loans, including nine commercial relationships, each
in excess of $10 million, which increased the portfolio by $256.6 million, including a $150.0 million participation on a C&I loan
funded in connection with the financial closing of a public-private partnership (P3) for improvement of infrastructure for toll roads.
The increase also reflects the effect of higher utilization of lines of credit including an increase of $61.1 million associated with three
lines of credit; and a $73.3 million increase in the outstanding balance of floor plan lines of credit. The variance also reflects the
aforementioned refinancing of a $46.5 million municipal loan into a shorter commercial loan structure. These variances were partially
offset by multiple payoffs and paydowns, including four C&I relationships, each in excess of $10 million, totaling $89.3 million.
In the Virgin Islands region, commercial and construction loans increased by $49.6 million, as compared to the balance as of
December 31, 2022. The increase was driven by the utilization of $57.2 million of a new $100.0 million collateralized line of credit
facility extended to a government public corporation.
70
In the Florida region, commercial and construction loans decreased by $98.3 million, as compared to the balance as of December
31, 2022. This decrease reflects, among other things, the effect of $138.1 million in payoffs and paydowns of eight C&I relationships,
each in excess of $10 million, including the aforementioned payoff of a $24.3 million adversely classified C&I participated loan,
partially offset by the originations of five C&I term loans, each in excess of $10 million, which increased the portfolio amount by
$71.0 million.
As of December 31, 2023, the Corporation had $187.7 million outstanding in loans extended to the Puerto Rico government, its
municipalities, and public corporations, compared to $169.8 million as of December 31, 2022. See “Exposure to Puerto Rico
Government” below for additional information.
The Corporation also has credit exposure to USVI government entities. As of December 31, 2023, the Corporation had $90.5
million in loans to USVI government public corporations, compared to $38.0 million as of December 31, 2022.The increase in loans
to USVI government public corporations was driven by the aforementioned $57.2 million line of credit utilization. See “Exposure to
USVI Government” below for additional information.
As of December 31, 2023, the Corporation’s total commercial mortgage loan exposure amounted to $2.3 billion, or 19% of the
total loan portfolio. Relationships that have an exposure of at least $5 million amounted to $1.9 billion, or 84% of the total of such
portfolio, as of December 31, 2023. The $1.9 billion exposure consisted of $1.5 billion and $0.4 billion in the Puerto Rico and Florida
regions, respectively. The $1.5 billion exposure in the Puerto Rico region was comprised mainly of 44% in the retail industry, 24% in
office real estate, and 20% in the hotel industry. The $0.4 billion exposure in the Florida region was comprised mainly of 41% in the
hotel industry, 20% in the retail industry, and 8% in office real estate.
As of December 31, 2023, the Corporation’s total exposure to shared national credit (“SNC”) loans (including unused
commitments) amounted to $1.2 billion as of December 31, 2023 compared to $1.1 billion as of December 31, 2022. The increase was
primarily related to the aforementioned $150.0 million participation on a C&I loan origination. As of December 31, 2023,
approximately $389.8 million of the SNC exposure is related to the portfolio in the Puerto Rico region and $828.6 million is related to
the portfolio in the Florida region.
Commercial and construction loan originations (excluding government loans) for the year ended December 31, 2023 amounted to
$2.7 billion, compared to $3.0 billion for 2022. The decrease of $287.5 million consisted of a decrease of $305.1 million in the Florida
region, partially offset by increases of $17.3 million in the Puerto Rico region and $0.3 million in the Virgin Islands region.
Government loan originations for the year ended December 31, 2023 amounted to $180.7 million, compared to $51.1 million for
2022. Government loan originations for 2023 were mainly related to the aforementioned refinancing of a $46.5 million municipal loan
into a shorter commercial loan structure , the aforementioned $57.2 million cash collateralized line of credit utilization in the Virgin
Islands region, and a $12.8 million loan to an agency of the Puerto Rico government for a low-income housing project. On the other
hand, government loan originations for 2022 were mainly related to the renewal of a public corporation line of credit in the Virgin
Islands region, the renewal of a municipal loan in the Puerto Rico region, and the utilization of an arranged overdraft line of credit of a
government entity in the Virgin Islands region.
Consumer Loans and Finance Leases
As of December 31, 2023, the Corporation’s consumer loan and finance lease portfolio increased by $330.2 million to $3.7 billion,
as compared to the portfolio balance of $3.3 billion as of December 31, 2022. This increase was mainly related to increases of $138.6
million and $138.2 million in the finance leases and auto loans portfolios, respectively. The growth in consumer loans was mainly
reflected in the Puerto Rico region across all portfolio classes.
Originations of auto loans (including finance leases) for the year ended December 31, 2023 decreased by $31.3 million to $1.0
billion, as compared to the same period in 2022. The decrease consisted of a $34.3 million decrease in the Puerto Rico region, partially
offset by a $3.0 million increase in the Virgin Islands region. Other consumer loan originations, other than credit cards, for the year
ended December 31, 2023 amounted to $302.6 million, compared to $304.5 million for 2022. The utilization activity on the
outstanding credit card portfolio for the year ended December 31, 2023 amounted to $492.6 million, compared to $488.3 million for
2022.
71
Maturities of Loans Receivable
The following tables present the loans held for investment portfolio as of December 31, 2023 by remaining contractual maturities and
interest rate type:
(In thousands)
Residential mortgage
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans
Total loans (1)
Residential mortgage
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans
Total loans (1)
$
$
$
$
One Year or Less
Through Five Years
Through 15 Years
After 15 Years
Total Portfolio
After One Year
After Five Years
68,105 $
173,170
1,007,107
1,274,423
1,121,631
3,644,436 $
433,368 $
40,035
1,137,810
1,535,068
2,269,326
5,415,607 $
1,212,861 $
1,121
168,208
362,088
265,700
2,009,978 $
1,107,392 $
451
3,958
2,653
1,008
1,115,462 $
2,821,726
214,777
2,317,083
3,174,232
3,657,665
12,185,483
Amount due in one year or less at:
Amount due after one year:
Fixed Interest Rates
Variable Interest
Rates
Fixed Interest Rates
Variable Interest
Rates
Total Portfolio
64,349 $
40,611
798,063
290,933
866,565
2,060,521 $
3,756 $
132,559
209,044
983,490
255,066
1,583,915 $
2,568,850 $
26,239
887,301
524,848
2,530,169
6,537,407 $
184,771 $
15,368
422,675
1,374,961
5,865
2,003,640 $
2,821,726
214,777
2,317,083
3,174,232
3,657,665
12,185,483
(1) Scheduled repayments are included in the maturity category in which the payment is due. The amounts provided do not reflect prepayment assumptions related to the loan portfolio.
72
Investment Activities
As part of its liquidity, revenue diversification, and interest rate risk management strategies, First BanCorp. maintains a debt
securities portfolio classified as available for sale or held to maturity.
The Corporation’s total available-for-sale debt securities portfolio as of December 31, 2023 amounted to $5.2 billion, a $369.5
million decrease from December 31, 2022. The decrease was mainly driven by repayments of approximately $396.4 million of U.S.
agencies MBS and debentures; and repayments of $137.0 million associated to matured securities, of which $129.0 million were U.S
agencies callable debentures; partially offset by a $165.4 million increase in fair value attributable to changes in market interest rates.
As of December 31, 2023, the Corporation had a net unrealized loss on available-for-sale debt securities of $632.8 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 December 31, 2023, substantially all of the Corporation’s available-for-sale debt securities portfolio was invested in U.S.
government and agencies debentures and fixed-rate GSEs’ MBS. In addition, as of December 31, 2023, the Corporation held a bond
issued by the PRHFA, classified as available for sale, specifically a residential pass-through MBS in the aggregate amount of $3.2
million (fair value - $1.4 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 $1.7 million as
of December 31, 2023, of which $0.4 million is due to credit deterioration. During 2021, the Corporation placed this instrument in
nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.
As of December 31, 2023, the Corporation’s held-to-maturity debt securities portfolio, before the ACL, decreased to $354.2
million, compared to $437.5 million as of December 31, 2022, mainly due to the refinancing of a $46.5 million municipal bond into a
shorter-term commercial loan structure and $38.9 million in repayments. Held-to-maturity debt securities include fixed-rate GSEs’
MBS with a carrying value of $247.1 million (fair value of $235.2 million) as of December 31, 2023, compared to $271.8 million as
of December 31, 2022. 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 December 31, 2023, approximately 54% of
the Corporation’s municipal bonds consisted of obligations issued by three of the largest municipalities in Puerto Rico. The
municipalities are required by law to levy special property taxes in such amounts as are required for the payment of all of their
respective general obligation bonds and loans. Given the uncertainties as to the effects that the fiscal position of the Puerto Rico
central government, and the measures taken, or to be taken, by other government entities may have on municipalities, and the higher
interest rate environment, the Corporation cannot be certain whether future charges to the ACL on these securities will be required. As
of December 31, 2023, the ACL for held-to-maturity debt securities was $2.2 million, compared to $8.3 million as of December 31,
2022. The decrease in the ACL of held-to-maturity debt securities was mostly driven by the aforementioned refinancing of a $46.5
million municipal bond into a shorter-term commercial loan structure and, to a lesser extent, a reduction in qualitative reserves driven
by updated financial information of certain bond issuers received during 2023.
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 “Credit Risk Management” below for the ACL of the
exposure to Puerto Rico municipal bonds.
73
The following table presents the carrying values of investments as of the indicated dates:
(In thousands)
Money market investments
Available-for-sale debt securities, at fair value:
U.S. government and agencies obligations
Puerto Rico government obligations
MBS:
Residential
Commercial
Other
Total available-for-sale debt securities, at fair value
Held-to-maturity debt securities, at amortized cost:
MBS:
Residential
Commercial
Puerto Rico municipal bonds
ACL for held-to-maturity Puerto Rico municipal bonds
Total held-to-maturity debt securities
December 31, 2023
December 31, 2022
$
1,239
$
2,025
2,443,790
1,415
2,633,161
151,618
-
5,229,984
146,468
100,670
107,040
(2,197)
351,981
2,492,228
2,201
2,941,458
163,133
500
5,599,520
166,739
105,088
165,710
(8,286)
429,251
55,289
6,086,085
Equity securities, including $34.6 million and $42.9 million of FHLB stock
as of December 31, 2023 and 2022, respectively
Total money market investments and investment securities
$
49,675
5,632,879
$
The carrying values of debt securities as of December 31, 2023 by contractual maturity (excluding MBS), are shown below:
(Dollars in thousands)
U.S. government and agencies obligations:
Due within one year
Due after one year through five years
Due after five years through ten years
Due after ten years
Puerto Rico government and municipalities obligations:
Due within one year
Due after one year through five years
Due after five years through ten years
Due after ten years
MBS
ACL on held-to-maturity debt securities
Total debt securities
Carrying Amount
Weighted-Average Yield %
605,185
1,821,545
8,163
8,897
2,443,790
3,165
51,230
36,050
18,010
108,455
3,031,917
(2,197)
5,581,965
0.75
0.86
2.64
5.49
0.85
9.30
7.78
7.13
7.46
7.55
1.69
-
1.45
$
$
74
Net interest income in future periods could be affected by prepayments of MBS. Any acceleration in the prepayments of MBS
purchased at a premium would lower yields on these securities, since the amortization of premiums paid upon acquisition would
accelerate. Conversely, acceleration of the prepayments of MBS would increase yields on securities purchased at a discount, since the
amortization of the discount would accelerate. These risks are directly linked to future period market interest rate fluctuations. Net
interest income in future periods might also be affected by the Corporation’s investment in callable securities. As of December 31,
2023, the Corporation had approximately $1.9 billion in callable debt securities (U.S. agencies debt securities) with an average yield
of 0.79% of which approximately 62% were purchased at a discount and 3% at a premium. See “Risk Management” below for further
analysis of the effects of changing interest rates on the Corporation’s net interest income and the Corporation’s interest rate risk
management strategies. Also, refer to Note 3 – “Debt Securities” to the audited consolidated financial statements included in Part II,
Item 8 of this Form 10-K, 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.
Risk Definition
Liquidity Risk
Liquidity risk is the risk to earnings or capital arising from the possibility that the Corporation will not have sufficient cash to meet
its short-term liquidity demands, such as from deposit redemptions or loan commitments. See “Liquidity Risk and Capital Adequacy”
below for further details.
Interest Rate Risk
Interest rate risk is the risk arising from adverse movements in interest rates. See “Interest Rate Risk Management” below for
further details.
Market Risk
Market risk is the risk of loss in the value of assets or liabilities due to changes in market conditions, including movements in
market rates or prices, such as interest rates or equity prices. The Corporation evaluates market risk together with interest rate risk.
Both changes in market values and changes in interest rates are evaluated and forecasted. See “Interest Rate Risk Management” below
for the effects of changes in interest rates on net interest income.
Credit Risk
Credit risk is the risk arising from a borrower’s or a counterparty’s failure to meet the terms of a contract with the Corporation or
otherwise to perform as agreed. See “Credit Risk Management” below for further details.
Operational Risk
Operational risk is the risk arising from problems with the delivery of services or products. This risk is a function of internal
controls, information systems, employees and operating processes. It also includes risks associated with the Corporation’s
preparedness for the occurrence of an unforeseen event. This risk is inherent across all functions, products, and services of the
Corporation. See “Operational Risk” below for further details.
75
Legal, Regulatory and Compliance Risk
Legal and regulatory risk is the risk arising from the Corporation’s failure to comply with laws or regulations that can adversely
affect the Corporation’s reputation and/or increase its exposure to litigation or penalties.
Reputational Risk
Reputational risk is the risk arising from any adverse effect on the Corporation’s market value, capital, or earnings arising from
negative public opinion, whether true or not. This risk affects the Corporation’s ability to establish new relationships or services, or to
continue servicing existing relationships.
Model Risk
Model risk is the potential for adverse consequences from decisions based upon incorrect or misused model outputs and reports or
based upon an incomplete or inaccurate model. The use of models exposes the Corporation to some level of model risk. Model errors
can contribute to incorrect valuations and lead to operational errors, inappropriate business decisions, or incorrect financial entries.
The Corporation seeks to reduce model risk through rigorous model identification and validation.
Capital Risk
Capital risk is the risk that the Corporation may lose value on its capital or have an inadequate capital plan, which would result in
insufficient capital resources to meet minimum regulatory requirements (the Corporation’s authority to operate as a bank is dependent
upon the maintenance of adequate capital resources), support its credit rating, or support its growth and strategic options.
Strategic Risk
Strategic risk is the risk arising from adverse business decisions, poor implementation of business decisions, or lack of
responsiveness to changes in the banking industry, and operating environment. This risk is a function of the compatibility of the
Corporation’s strategic goals, the business strategies developed to achieve those goals, the resources deployed against these goals, and
the quality of implementation.
Information Technology and Cybersecurity Risk
Information technology risk is the risk arising from the loss of confidentiality, integrity, or availability of information systems and
risk of cyber incidents or data breaches. It includes business risks associated with the use, ownership, operation, involvement,
influence, and adoption of information technology within the Corporation.
Risk Governance
The following discussion highlights the roles and responsibilities of the key participants in the Corporation’s risk management
framework:
Board of Directors
The Board of Directors oversees the Corporation’s overall risk governance program with the assistance of the Board committees
discussed below.
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Risk Committee
The Board of Directors has appointed the Risk Committee to assist the Board in fulfilling its responsibility to oversee the
Corporation’s management of its company-wide risk management framework. The committee’s role is one of oversight, recognizing
that management is responsible for designing, implementing, and maintaining an effective risk management framework. The
committee’s primary responsibilities are to:
(cid:404) Review and discuss management’s assessment of the Corporation’s aggregate enterprise-wide profile and the alignment of the
Corporation’s risk profile with the Corporation’s strategic plan, goals , and objectives;
(cid:404) Review and recommend to the Board the parameters and establishment of the Corporation’s risk tolerance and risk appetite;
(cid:404) Receive reports from management and, if appropriate, other Board committees, regarding the Corporation’s policies and
procedures related to the Corporation’s adherence to risk limits and its established risk tolerance and risk appetite or on
selected risk topics;
(cid:404) Oversee the strategies, policies, procedures, and systems established by management to identify, assess, measure, and manage
the major risks facing the Corporation, which may include an overview of the Corporation’s credit risk, operational risk,
information technology risk, compliance risk, interest rate risk, liquidity risk, market risk, and reputational risk, as well as
management’s capital management, planning, and process;
(cid:404) Oversee the Corporation’s Loan Review program;
(cid:404) Oversee management’s activities with respect to capital stress testing, model risk management, information technology risk
and operational risk;
(cid:404) Review and discuss with management risk assessments for new products and services;
(cid:404) Review periodically the scope and effectiveness of the Corporation’s regulatory compliance policies and programs; and
(cid:404) Annually assess the Corporation’s institutional insurance programs.
The Risk Committee also receives regular reports and engages in discussions throughout the year on the effectiveness of the
Corporate Information Security Program (“CISP”), including its inherent risk, the roadmap for addressing those risks, and the progress
in doing so. The Risk Committee annually reviews and approves the CISP and annually receives a report on related security
safeguards in accordance with the Gramm-Leach-Bliley Act.
Asset and Liability Committee
The Board of Directors has appoint ed the Asset and Liability Committee to assist the Board in its oversight of the Corporation’s
asset and liability management policies related to the management of the Corporation’s funds, investments, liquidity, market and
interest rate risk, and the use of derivatives. In doing so, the committee’s primary functions involve:
(cid:404) The establishment of a process to enable the identification, assessment, and management of risks that could affect the
Corporation’s assets and liabilities management;
(cid:404) The identification of the Corporation’s risk tolerance levels for yield maximization relating to its assets and liabilities
management;
(cid:404) The evaluation of the adequacy, effectiveness, and compliance with the Corporation’s risk management process relating to
the Corporation’s assets and liabilities management, including management’s role in that process; and
(cid:404) Oversight of the Corporation’s liquidity position and liquidity stress testing.
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Credit Committee
The Board of Directors has appointed the Credit Committee to assist the Board in its oversight of the Corporation’s policies related
to the Corporation’s lending function, or credit management. The committee’s primary responsibilities are to:
(cid:404) Monitor the performance and quality of the Corporation’s credit portfolio through the review of selected measures of credit
quality and trends and such other information as it deems appropriate;
(cid:404) Oversee the effectiveness and administration of credit-related policies through the review of such processes, reports and other
information as it deems appropriate, including the loan-quality grading and examination process, internal and external audits
and examinations of the Corporation’s credit processes, the incidence of new problem assets, the frequency and reasons for
credit policy exceptions, the loan review functions and the asset classification process;
(cid:404) Review on an annual basis and recommend to the Board the lending authorities;
(cid:404) Approve loans as required by the lending authorities approved by the Board; and
(cid:404) Report to the Board regarding credit management.
Audit Committee
The Board of Directors has appointed the Audit Committee to assist the Board in fulfilling its responsibility to oversee management
regarding:
(cid:404) Oversight of the charter, strategic plan execution, annual internal audit plan execution, staffing, budget and organizational
structure of the internal audit function;
(cid:404) The conduct and integrity of the Corporation’s financial reporting to any governmental or regulatory body, stockholders,
other users of the Corporation’s financial reports and the public;
(cid:404) The Corporation’s internal control over financial reporting and disclosure controls and procedures;
(cid:404) The qualifications, engagement, compensation, independence, and performance of the Corporation’s independent auditors,
their conduct of the annual audit of the Corporation’s financial statements, and their engagement to provide any other
services;
(cid:404) The application of the Corporation’s related parties transaction policy as established by the Board;
(cid:404) The application of the Corporation’s code of business conduct and ethics as established by management and the Board;
(cid:404) The preparation of the Audit Committee report required to be included in the proxy statement for the Corporation’s annual
stockholders’ meeting by the rules of the SEC; and
(cid:404) The Corporation’s legal and ethical compliance.
Corporate Governance and Nominating Committee
The Board of Directors has appointed the Corporate Governance and Nominating Committee to develop, review, and assess
corporate governance principles. The Corporate Governance and Nominating Committee is responsible for director succession,
orientation and compensation, identifying and recommending new director candidates, overseeing the evaluation of the Board and
management, annually recommending to the Board the designation of a candidate to hold the position of the Chairman of the Board,
and directing and overseeing the Corporation’s executive succession plan. In addition, the Corporate Governance and Nominating
Committee is responsible for overseeing the Corporation’s sustainability and environmental, social, and governance (“ESG”) policies.
Compensation and Benefits Committee
The Board of Directors has appoint ed the Compensation and Benefits Committee to oversee compensation policies and practices
including the evaluation and recommendation to the Board of the proper and competitive salaries and incentive compensation
programs of the executive officers and key employees of the Corporation.
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Trust Committee
The Board of Directors of the Bank has appointed the Trust Committee to assist such Board of Directors in fulfilling its oversight
responsibilities with respect to the Trust Department and its fiduciary responsibilities. The Trust Committee’s main responsibilities are
to ensure proper exercise of the fiduciary powers of the Bank and to review the activities of the Trust Department. The Trust
Committee has jurisdiction over all aspects of the Trust Department and may act on behalf of the Board of Directors of the Bank.
Management Roles and Responsibilities
While the Board of Directors has the responsibility to oversee the risk governance program, management is responsible for
implementing the necessary policies and procedures, and internal controls. To carry out these responsibilities, the Corporation has a
clearly defined risk governance culture. To ensure that risk management is communicated at all levels of the Corporation, and each
area understands its specific role, the Corporation has established several management level committees to support risk oversight, as
follows:
Executive Risk Management Committee
The Executive Risk Management Committee is responsible for exercising oversight of information regarding the Corporation’s
enterprise risk management framework, including the significant policies, procedures, and practices employed to manage the
identified risk categories (credit risk, operational risk, legal and regulatory risk, reputational risk, model risk, and capital risk). In
carrying out its oversight responsibilities, each committee member is entitled to rely on the integrity and expertise of those people
providing information to the committee and on the accuracy and completeness of such information, absent actual knowledge of an
inaccuracy.
The Chief Executive Officer appoints the Executive Risk Management Committee and members of the Corporation’s senior and
executive management have the opportunity to share their insights about the types of risks that could impede the Corporation’s ability
to achieve its business objectives. The Chief Risk Officer of the Corporation directs the agenda for the meetings and the Enterprise
Risk Management (“ERM”) and Operational Risk Director serves as secretary of the committee and maintains the minutes on behalf
of the committee. The General Auditor also participates in the committee as an observer.
The committee provides assistance and support to the Chief Risk Officer to promote effective risk management throughout the
Corporation. The Chief Risk Officer and the ERM and Operational Risk Director report to the Committee matters related to the
enterprise risk management framework of the Corporation, including, but not limited to:
(cid:404) The risk governance structure;
(cid:404) The risk assessments and profile of the Corporation;
(cid:404) The Corporation’s risk appetite statement and risk tolerance;
(cid:404) The risk management strategy and associated risk management initiatives and how both support the business strategy
and business model of the Corporation; and
(cid:404) The Corporate Incident Response Program.
Other Management Committees
As part of its governance framework, the Corporation has various additional risk management-related committees. These
committees are jointly responsible for ensuring adequate risk measurement and management in their respective areas of authority. At
the management level, these committees include:
(cid:404) Management’s Investment and Asset Liability Committee (the “MIALCO”) – oversees interest rate and market risk, liquidity
management and other related matters, including sensitivity of the Corporation’s earnings under various interest rate
scenarios. This committee makes recommendations as to any adjustments to asset liability management and financial resource
allocation in light of current events, risks, exposures, and regulatory requirements and approves related policies. Refer to
“Liquidity Risk and Capital Adequacy” and “Interest Rate Risk Management” below for further details.
(cid:404) Information Technology Steering Committee – oversees and counsels on matters related to information technology and cyber
security, including the development of information management policies and procedures throughout the Corporation.
(cid:404) Bank Secrecy Act Committee – oversees, monitors, and reports on the Corporation’s compliance with the Bank Secrecy Act.
79
(cid:404) Credit Committees (consisting of a Credit Management Committee and a Delinquency Committee) – oversees and establishes
standards for credit risk management processes within the Corporation. The Credit Management Committee is responsible for
the approval of loans above an established size threshold. The Delinquency Committee is responsible for the periodic review
of credit exceptions, past-due loans, portfolio concentrations, foreclosures, collection, loan mitigation programs, risk appetite,
leveraged loans, business production and the Bank’s internal credit-risk rating classification;
(cid:404) Vendor Management Committee – oversees policies, procedures, and related practices related to the Corporation’s vendor
management efforts. The Vendor Management Committee’s primary functions involve the establishment of processes and
procedures to enable the recognition, assessment, management, and monitoring of vendor management risks.
(cid:404) ESG Committee – primarily responsible for aligning ESG priorities and initiatives for the year, setting and monitoring long-
term objectives and goals, and leading the annual reporting process on ESG related topics. The Committee also oversees the
sustainability policy and integrates climate change risk factors into the corporate governance, strategy and risk management.
The ESG Committee regularly reports to the Corporate Governance and Nominating Committee of the Board of Directors.
(cid:404) The Community Reinvestment Act Executive Committee – oversees, monitors, and reports on the Corporation’s compliance
with Community Reinvestment Act regulatory requirements.
(cid:404) Anti-Fraud Committee – oversees the Corporation’s policies, procedures and related practices relating to the Corporation’s
anti-fraud measures.
(cid:404) Regulatory Compliance Committee – oversees the Corporation’s Regulatory Compliance Management System. The
Regulatory Compliance Committee reviews and discusses any regulatory compliance laws and regulations that impact
performance of regulatory compliance policies, programs and procedures. The Regulatory Compliance Committee also
ensures the coordination of regulatory compliance requirements throughout departments and business units.
(cid:404) Regulatory Reporting Committee – oversees and assists the senior officers in fulfilling their responsibility for oversight of the
accuracy and timeliness of the required regulatory reports and related policies and procedures, addresses changes and/or
concerns communicated by the regulators, and addresses issues identified during the regulatory reporting process. The
Regulatory Reporting Committee oversees and updates, as necessary, the established controls and procedures designed to
ensure that information in regulatory reports is recorded, processed, and accurately reported and on a timely basis.
(cid:404) Complaints Management Committee – assists in overseeing the complaint management process implemented across the
Corporation. The Complaints Management Committee supports the Corporation’s complaints management program relating
to resolution of complaints within the lines of business. When appropriate, the Complaints Management Committee evaluates
existing corrective actions within the lines of business related to complaints and complaint management practices within those
business units.
(cid:404) Project Portfolio Management Committee – reviews and oversees the performance of the portfolio and individual technology
projects during the Project Management Cycle (Initiation, Planning, Execution, Control & Monitoring, and Closing). The
Project Portfolio Management Committee balances conflicting demands between projects, decides on priorities assigned to
each project based on organizational priorities and capacity, and oversees project budgets, risks, and actions taken to control
and mitigate risks.
(cid:404) Current Expected Credit Losses (“CECL”) Committee – oversees the Corporation’s requirements for the calculation of CECL,
including the implementation of new models, if necessary, selection of vendors and monitoring of the guidance from different
regulatory agencies with regards to CECL requirements. The CECL Committee reviews estimated credit loss inputs, key
assumptions, and qualitative overlays. In addition, the Committee approves the determination of reasonable and supportable
periods used with respect to macroeconomic forecasts, and the historical loss reversion method and parameters. The CECL
Committee reports to the Audit Committee the results of the ACL each reporting period.
(cid:404) Capital Planning Committee – oversees the Capital Planning Process and is responsible for operating in accordance with the
Capital Policy and ensuring compliance with its guidelines. The Capital Planning Committee develops and proposes to the
Board changes to the Capital Policy and the capital plan targets, limits, performance metrics, internal stress testing and
guidelines for Capital Management Activities.
(cid:404) Business Continuity Committee – responsible to create governance and planning structure that will enable FirstBank to craft
an enterprise Business Continuity Management (BCM) program that ensures the Bank is able to continue business operations
after a major disruption occurs.
80
(cid:404) Emergency Committee – Responsible to activate an emergency or disaster recovery procedure to ensure the safety of Bank’s
personnel and the continuity of critical Bank services.
(cid:404) Data Governance Council – Responsible for ensuring the effective governance of data assets. This includes establishing
policies, standards, and procedures to promote data quality, security, compliance, and strategic data utilization. The Data
Governance Council reports to the Executive Risk Management Committee.
Officers
As part of its governance framework, the following officers play a key role in the Corporation’s risk management process:
(cid:404) The Chief Executive Officer (“CEO”) is responsible for the overall risk governance structure of the Corporation. The CEO is
ultimately responsible for business strategies, strategic objectives, risk management priorities, and policies.
(cid:404) The General Auditor is responsible for leading the corporate internal audit function and reporting matters directly to the Audit
Committee and administratively to the CEO.
(cid:404) The Chief Operating Officer (“COO”) manages the Corporation’s operational framework, including information technology
(“IT”), facilities, banking operations, corporate security, and enterprise architecture. The COO oversees the effective and
efficient execution of the various technology initiatives to support the Corporation’s growth and improve overall efficiency.
(cid:404) The Chief Information Officer (“CIO”) is responsible for overseeing technology services provided by IT vendors including
the following: (i) the fulfillment of contractual obligations and responsibilities; (ii) the development of policies and standards
related to the technology; (iii) services provided; (iv) Service Level Agreement (SLA) metrics and compliance; and v) the
Business Continuity Strategy. The Corporate Data Officer works with the CIO in the supervision of the Data Governance
practices.
(cid:404) The Corporate Security Officer (“CISO”) leads the Corporate Security Office (“CSO”), which manages the controls designed
to identify, detect, protect against, respond to, and recover from physical and logical events, including cybersecurity threats
and cybersecurity incidents. The CSO is responsible for developing and implementing a CISP that protects the organization's
data and systems. The Corporation engages in a continuous risk monitoring process that seeks to identify internal and external
threats to our information security systems and data and assesses the sufficiency of the controls in place to mitigate these
threats to acceptable levels on a risk-based basis. The CISO reports on a regular basis to the Risk Committee on the CISP.
(cid:404) The Chief Credit Officer is responsible for the approval of loans and for reporting to the Board regarding Credit Management
activities as required by lending authorities. The Chief Credit Officer, Portfolio Risk Manager, Loan Review Manager and
other Senior Executives are responsible for managing and executing the Corporation’s credit risk program. The credit risk
program aims to i) maintain the quality of the Corporation’s credit portfolio, ii) review the trends affecting the portfolio, and
iii) oversee the effectiveness and administration of credit-related policies.
(cid:404) The Chief Financial Officer (“CFO”), together with the Corporation’s Treasurer and the Asset and Liability Management
(“ALM”) Director, manage the Corporation’s interest rate and market and liquidity risk programs, including the liquidity
stress testing and policy limits. The CFO supervises Capital Planning and Capital Stress Testing. The CFO, jointly with the
Chief Accounting Officer (“CAO”) and the Corporate Controller, are responsible for the development and implementation of
the Corporation’s accounting policies and practices and the review and monitoring of critical accounts and transactions to
ensure that they are reported in accordance with GAAP and the applicable regulatory requirements for financial and regulatory
reporting purposes.
(cid:404) The Corporate Strategic and Business Development Director is responsible for the development of the Corporation’s strategic
and business plan, by coordinating and collaborating with the executive team and all corporate groups involved with the
strategic and business planning process.
(cid:404) The Corporate Strategy and Investor Relations Officer is responsible for managing communications with the investor
community and sell-side research analysts and for coordinating and collaborating with the executive team and all corporate
groups involved with the adequate execution of the strategic and business planning process.
(cid:404) The Chief Risk Officer (“CRO”) is responsible for the oversight of the risk management of the Corporation as well as the risk
governance processes. The CRO, together with the ERM and Operational Risk Director, monitor key risks and manage the
81
operational risk program. The CRO provides the leadership and strategy for the Corporation’s risk management and
monitoring activities and is responsible for the oversight of regulatory compliance, loan review, model risk, and operational
risk management. The CRO supervises talent management efforts, maintains adequate succession planning practices and
promotes employee engagement. The Human Resources Director supports the CRO in the human capital and talent
management efforts. The CRO reports regularly to the Risk Committee of the Board on risk management activities including
risk assessments, risk tolerances, regulatory matters, and emerging risks. The CRO co-leads with the CFO the
CECL/allowance quarterly financial assessment.
(cid:404) The ERM and Operational Risk Director is responsible for driving the identification, assessment, measurement, mitigation,
and monitoring of key risks throughout the Corporation. The ERM and Operational Risk Director promotes and instills a
culture of risk control, identifies and monitors the resolution of major and critical operational risk issues across the
Corporation and serves as a key advisor to business executives with regards to risk exposure to the organization, corrective
actions and corporate policies and best practices to mitigate risks. ERM and Operational Risk Director also supervises the
Corporate Incident Response Program. The Financial and Model Risk Manager, IT Risk Manager, Retail Quality Assurance
Manager, Regulatory Affairs Manager and Corporate Risk Managers assist the ERM and Operational Risk Director in the
monitoring of key risks and oversight of risk management practices. The ERM and Operational Risk Director assist the CFO
in the review and oversight of the Corporation’s internal control over financial reporting and disclosure controls and
procedures.
(cid:404) The Compliance Director is responsible for oversight of regulatory compliance. The Compliance Director implements an
enterprise-wide compliance risk assessment, and monitors compliance with significant regulations. The Compliance Director
is responsible for building awareness of and educating business units and subsidiaries on, regulatory risks.
(cid:404) The General Counsel is responsible for the oversight of legal risks, including matters such as contract structuring, litigation
risk, and all legal-related aspects of the Corporation’s business. The Corporate Affairs Officer assists the General Counsel
with various legal areas, including, but not limited to SEC reporting matters, insurance coverage and liability, and the ESG
Program.
Liquidity Risk and Capital Adequacy, Interest Rate Risk Management, Credit Risk Management, Operational Risk, Legal
and Compliance Risk and Concentration Risk
The following discussion highlights First BanCorp.’s adopted policies and procedures for liquidity risk and capital adequacy,
interest rate risk, credit risk, operational risk, legal and compliance risk, and concentration risk.
Liquidity Risk and Capital Adequacy
Liquidity risk involves the ongoing ability to accommodate liability maturities and deposit withdrawals, fund asset growth and
business operations, and meet contractual obligations through unconstrained access to funding at reasonable market rates. Liquidity
management involves forecasting funding requirements and maintaining sufficient capacity to meet liquidity needs and
accommodate fluctuations in asset and liability levels due to changes in the Corporation’s business operations or unanticipated
events.
The Corporation manages liquidity at two levels. The first is the liquidity of the parent company, or First Bancorp., which is the
holding company that owns the banking and non-banking subsidiaries. The second is the liquidity of the banking subsidiary,
FirstBank.
The Asset and Liability Committee of the Board is responsible for overseeing management’s establishment of the Corporation’s
liquidity policy, as well as approving operating and contingency procedures and monitoring liquidity on an ongoing basis. The
MIALCO, which reports to the Board’s Asset and Liability Committee, uses measures of liquidity developed by management that
involve the use of several assumptions to review the Corporation’s liquidity position on a monthly basis. The MIALCO oversees
liquidity management, interest rate risk, market risk, and other related matters.
The MIALCO is composed of senior management officers, including the Chief Executive Officer, the Chief Financial Officer, the
Chief Risk Officer, the Corporate Strategic and Business Development Director, the Business Group Director, the Treasury and
Investments Risk Manager, the Financial Planning and 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 Treasury and Investments
Accounting and Operations area of the Corporate Controller’s Department is responsible for calculating the liquidity measurements
used by the Treasury and Investment Division to review the Corporation’s liquidity position on a weekly basis. The Financial
Planning and ALM Division is responsible for estimating the liquidity gap for longer periods.
82
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 $663.2 million as of December 31, 2023, compared to $480.5 million as of December 31, 2022. When adding
$2.2 billion of free high-quality liquid securities that could be liquidated or pledged within one day (which includes assets such as U.S.
government and GSEs obligations), the total core liquidity amounted to $2.8 billion as of December 31, 2023, or 14.93% of total
assets, compared to $3.5 billion, or 19.02% of total assets as of December 31, 2022.
In addition to the aforementioned $2.8 billion in cash and free high quality liquid assets, the Corporation had $924.2 million
available for credit with the FHLB based on the value of loan collateral pledged with the FHLB. As such, the basic liquidity ratio
(which adds available secured lines of credit to the core liquidity) was approximately 19.82% of total assets as of December 31, 2023,
compared to 22.48% of total assets as of December 31, 2022.
Further, the Corporation also maintains borrowing capacity at the FED Discount Window. The Corporation does not consider
borrowing capacity from the FED Discount Window as a primary source of liquidity but had approximately $1.5 billion available for
funding under the FED’s Borrower-in-Custody (“BIC”) Program as of December 31, 2023 as a contingent source of liquidity. Total
loans pledged to the FED BIC Program amounted to $2.5 billion as of December 31, 2023. The Corporation also does not rely on
uncommitted inter-bank lines of credit (federal funds lines) to fund its operations and does not include them in the basic liquidity
measure. On a combined basis, as of December 31, 2023, the Corporation had $5.2 billion, or 118% of uninsured estimated deposits,
excluding fully collateralized government deposits, available to meet liquidity needs.
Liquidity at the Bank level is highly dependent on bank deposits, which fund 87.7% of the Bank’s assets (or 83.6% 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.
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Commitments to extend credit and standby letters of credit
As a provider of financial services, the Corporation routinely enters into commitments with off -balance sheet risk to meet the
financial needs of its customers. These financial instruments may include loan commitments and standby letters of credit. These
commitments are subject to the same credit policies and approval processes used for on-balance sheet instruments. These
instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statements
of financial condition. As of December 31, 2023, the Corporation’s commitments to extend credit amounted to approximately $2.0
billion. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Since certain commitments are expected to expire without being drawn upon, the total commitment
amount does not necessarily represent future cash requirements. For most of the commercial lines of credit, the Corporation has the
option to reevaluate the agreement prior to additional disbursements. There have been no significant or unexpected draws on
existing commitments. In the case of credit cards and personal lines of credit, the Corporation can cancel the unused credit facility at
any time and without cause.
The following table summarizes commitments to extend credit and standby letters of credit as of the indicated dates:
(In thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit:
Construction undisbursed funds
Unused credit card lines
Unused personal lines of credit
Commercial lines of credit
Letters of credit:
Commercial letters of credit
Standby letters of credit
December 31, 2023
December 31, 2022
$
$
234,974
882,486
38,956
862,963
69,543
8,313
170,639
936,231
41,988
761,634
68,647
9,160
The Corporation engages in the ordinary course of business in other financial transactions that are not recorded on the balance
sheet or may be recorded on the balance sheet in amounts that are different from the full contract or notional amount of the
transaction and, thus, affect the Corporation’s liquidity position. These transactions are designed to (i) meet the financial needs of
customers, (ii) manage the Corporation’s credit, market and liquidity risks, (iii) diversify the Corporation’s funding sources, and (iv)
optimize capital.
In addition to the aforementioned off-balance sheet debt obligations and unfunded commitments to extend credit, the Corporation
has obligations and commitments to make future payments under contracts, amounting to approximately $4.4 billion as of December
31, 2023. 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.
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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
contingent sources borrowing capacity at the FED’s BIC Program and the FED’s BTFP, which provides an additional short-term
source of funding until March 11, 2024.
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 foreseeable future.
The Corporation’s principal sources of funding are discussed below:
Deposits
The following table presents the composition of total deposits as of the indicated
dates:
(Dollars in thousands)
Interest-bearing checking accounts
Interest-bearing saving accounts
Time deposits
Interest-bearing deposits (1)
Non-interest-bearing deposits
Total
Interest-bearing deposits:
Average balance outstanding
Weighted average rate during the period on interest-bearing deposits
Non-interest-bearing deposits:
Average balance outstanding
As of December 31,
2023
2022
3,937,945 $
3,596,855
3,617,064
11,151,864
5,404,121
16,555,985 $
3,770,993
3,902,888
2,356,702
10,030,583
6,112,884
16,143,467
10,603,935 $
1.75%
10,562,159
0.44%
5,741,345 $
6,391,171
$
$
$
$
(1) The weighted-average interest rate on total interest-bearing deposits as of December 31, 2023 and 2022 was 2.24% and 1.03%, respectively.
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Retail and commercial core deposits – The Corporation’s deposit products include regular saving accounts, demand deposit
accounts, money market accounts, and retail CDs. As of December 31, 2023, the Corporation’s core deposits, which exclude
government deposits and brokered CDs, decreased by $667.9 million to $12.6 billion from $13.3 billion as of December 31, 2022. The
decrease was primarily related to non-interest bearing and saving deposits across all regions. Notwithstanding, these reductions were
partially offset by an increase in time deposits, including a shift from non-interest bearing or low-interest bearing products to time
deposits, driven by higher market interest rates. Over the last year, the Federal Reserve Board’s policies to control the inflationary
economic environment, including repeated market interest rate increases, have resulted in excess liquidity gradually tapering off and
impacting the Corporation’s core deposit balances. Further shifts may continue to increase the overall cost of funding for the
Corporation and adversely affect the net interest margin.
Government deposits (fully collateralized) – As of December 31, 2023, the Corporation had $2.7 billion of Puerto Rico public
sector deposits ($2.6 billion in transactional accounts and $137.2 million in time deposits), compared to $2.3 billion as of December
31, 2022. The increase was related to higher balances of interest-bearing transactional accounts. Government deposits are insured by
the FDIC up to the applicable limits and the uninsured portions are fully collateralized. Approximately 20% of the public sector
deposits as of December 31, 2023 were from municipalities and municipal agencies in Puerto Rico and 80% were from public
corporations, the central government and its agencies, and U.S. federal government agencies in Puerto Rico.
In addition, as of December 31, 2023, the Corporation had $449.4 million of government deposits in the Virgin Islands region as
compared to $442.8 million as of December 31, 2022 and $10.2 million in the Florida region as compared to $11.6 million as of
December 31, 2022.
The uninsured portions of government deposits were collateralized by securities and loans with an amortized cost of $3.5 billion
and $3.1 billion as of December 31, 2023 and 2022, respectively, and an estimated market value of $3.1 billion and $2.7 billion,
respectively. In addition to securities and loans, as of December 31, 2023 and 2022, the Corporation used $175.0 million and $200.0
million, respectively, in letters of credit issued by the FHLB as pledges for a portion of public deposits in the Virgin Islands.
Estimate of Uninsured Deposits – As of December 31, 2023 and 2022, the estimated amount of uninsured deposits totaled $7.4
billion and $7.3 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. The balances presented as of December 31, 2023 and 2022 include the uninsured
portion of fully collateralized government deposits which amounted to $3.0 billion and $2.6 billion, respectively. Excluding fully
collateralized government deposits, the estimated amount of uninsured deposits amounted to $4.4 billion, which represent 28.13% of
total deposits (excluding brokered CDs), as of December 31, 2023, compared to $4.7 billion, or 29.43%, as of December 31, 2022.
During the fourth quarter of 2023, Management was able to obtain information at the participant level for a specific retirement deposit
account, which resulted in the exclusion of such account from the estimate of uninsured deposits as of December 31, 2023 and 2022.
The amount of uninsured deposits is calculated based on the same methodologies and assumptions used for our bank regulatory
reporting requirements adjusted for cash held by wholly-owned subsidiaries at the Bank.
The following table presents by contractual maturities the amount of U.S. time deposits in excess of FDIC insurance limits (over
$250,000) and other time deposits that are otherwise uninsured as of December 31, 2023:
(In thousands)
U.S. time deposits in excess of FDIC insurance limits
Other uninsured time deposits
3 months or
less
328,227 $
16,597 $
$
$
3 months to
6 months
6 months to
1 year
Over 1 year
145,423 $
9,090 $
294,847 $
22,063 $
249,564 $
4,694 $
Total
1,018,061
52,444
Brokered CDs – Total brokered CDs increased by $677.5 million to $783.3 million as of December 31, 2023, compared to $105.8
million as of December 31, 2022. The increase reflects the effect of new issuances amounting to $1.3 billion with an all-in cost of
5.26%, partially offset by approximately $583.0 million of maturing brokered CDs, with an all-in cost of 5.02%, that were paid off
during 2023.
The average remaining term to maturity of the brokered CDs outstanding as of December 31, 2023 was approximately 11 months.
The increased use of brokered CDs in our Puerto Rico and Florida regions was primarily driven by short-term funding needs due to
the overall decrease in deposits. The future use of brokered CDs will depend on multiple factors including excess liquidity at each of
the regions, future cash needs and any tax implications. Brokered CDs are insured by the FDIC up to regulatory limits and can be
obtained faster than regular retail deposits.
86
The following table presents the contractual maturities of brokered CDs as of December 31, 2023:
(In thousands)
Three months or less
Over three months to six months
Over six months to one year
Over one year to three years
Over three years to five years
Over five years
Total
Total
195,308
174,591
330,963
22,574
44,466
15,432
783,334
$
$
Refer to “Net Interest Income” above for information about average balances of interest-bearing deposits and the average interest
rate paid on such deposits during 2023, 2022, and 2021.
Borrowings
As of December 31, 2023, total borrowings amounted to $661.7 million, compared to $933.9 million as of December 31, 2022.
The following table presents the composition of total borrowings as of the indicated dates:
(Dollars in thousands)
Short-term fixed-rate repurchase agreements
Short-term fixed-rate advances from the FHLB
Long-term fixed-rate advances from the FHLB
Variable -rate long-term borrowings
Total
Weighted Average
Rate as of
December 31, 2023
As of December 31,
2023
2022
- $
-
4.45%
8.20%
5.37% $
- $
-
500,000
161,700
661,700 $
75,133
475,000
200,000
183,762
933,895
Securities sold under agreements to repurchase - As of December 31, 2023, there were no outstanding repurchase agreements
(December 31, 2022 – $75.1 million).
Under the Corporation’s repurchase agreements, as is the case with derivative contracts, the Corporation is required to pledge cash
or qualifying securities to meet margin requirements. To the extent that the value of securities previously pledged as collateral declines
due to changes in interest rates, a liquidity crisis or any other factor, the Corporation is required to deposit additional cash or securities
to meet its margin requirements, thereby adversely affecting its liquidity. Given the quality of the collateral pledged, the Corporation
has not experienced margin calls from counterparties arising from credit-quality-related write-downs in valuations.
Advances from the FHLB – The Bank is a member of the FHLB system and obtains advances to fund its operations under a
collateral agreement with the FHLB that requires the Bank to maintain qualifying mortgages and/or investments as collateral for
advances taken. As of December 31, 2023, the outstanding balance of fixed-rate FHLB advances was $500.0 million, compared to
$675.0 million as of December 31, 2022. During 2023, the Corporation added $300.0 million of long-term FHLB advances at an
average cost of 4.59% and repaid its short-term FHLB advances. Of the $500.0 million in FHLB advances as of December 31, 2023,
$400.0 million were pledged with investment securities and $100.0 million were pledged with mortgage loans. As of December 31,
2023, the Corporation had $924.2 million available for additional credit on FHLB lines of credit based on collateral pledged at the
FHLB of New York.
Trust Preferred Securities – In 2004, FBP Statutory Trusts I and II, statutory trusts that are wholly-owned by the Corporation and
not consolidated in the Corporation’s financial statements, sold to institutional investors variable-rate TRuPs and used the proceeds of
these issuances, together with the proceeds of the purchases by the Corporation of variable rate common securities, to purchase junior
subordinated deferrable debentures. The subordinated debentures are presented in the Corporation’s consolidated statements of
financial condition as other long-term borrowings. Under the indentures, the Corporation has the right, from time to time, and without
causing an event of default, to defer payments of interest on the Junior Subordinated Deferrable Debentures by extending the interest
payment period at any time and from time to time during the term of the subordinated debentures for up to twenty consecutive
quarterly periods.
87
During 2023, the Corporation completed the repurchase of $21.4 million of TRuPs of the FBP Statutory Trust I as part of a
privately-negotiated transaction, resulting in a commensurate reduction in the related floating rate junior subordinated debentures. The
purchase price equated to 92.5% of the $21.4 million par value of the TRuPs. The 7.5% discount resulted in a gain of approximately
$1.6 million, which is reflected in the consolidated statements of income as “Gain on early extinguishment of debt.” As of December
31, 2023 and 2022, the Corporation had junior subordinated debentures outstanding in the aggregate amount of $161.7 million and
$183.8 million, respectively, with maturity dates ranging from June 17, 2034 through September 20, 2034. As of December 31, 2023,
the Corporation was current on all interest payments due on its subordinated debt. See Note 14 – “Other Borrowings” and Note 10 –
“Non-Consolidated Variable Interest Entities (“VIEs”) and Servicing Assets” to the audited consolidated financial statements included
in Part II, Item 8 of this Form 10-K for additional information.
Other Sources of Funds and Liquidity - The Corporation’s principal uses of funds are for the origination of loans, the repayment of
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 FHA, VA, U.S. Department of Housing and
Urban Development (“HUD”), FNMA and FHLMC. During 2023 , loans pooled into GNMA MBS amounted to approximately $125.4
million. Also, during 2023, the Corporation sold approximately $29.8 million of performing residential mortgage loans to FNMA and
FHLMC.
The FED Discount Window is a cost-efficient contingent source of short-term funding for the Corporation in highly-volatile market
conditions. As previously mentioned, as of December 31, 2023, the Corporation had approximately $1.5 billion fully available for
funding under the FED’s Discount Window and BTFP.
Effect of Credit Ratings on Access to Liquidity
The Corporation’s liquidity is contingent upon its ability to obtain deposits and other external sources of funding to finance its
operations. The Corporation’s current credit ratings and any downgrade in credit ratings can hinder the Corporation’s access to new
forms of external funding and/or cause external funding to be more expensive, which could, in turn, adversely affect its results of
operations. Also, changes in credit ratings may further affect the fair value of unsecured derivatives whose value takes into account the
Corporation’s own credit risk.
The Corporation does not have any outstanding debt or derivative agreements that would be affected by credit rating downgrades.
Furthermore, given the Corporation’s non-reliance on corporate debt or other instruments directly linked in terms of pricing or volume
to credit ratings, the liquidity of the Corporation has not been affected in any material way by downgrades. The Corporation’s ability
to access new non-deposit sources of funding, however, could be adversely affected by credit downgrades.
As of the date hereof, the Corporation’s credit as a long-term issuer is rated BB+ by S&P and BB by Fitch. As of the date hereof,
FirstBank’s credit ratings as a long-term issuer are BB+ by S&P, one notch below S&P’s minimum BBB- level required to be
considered investment grade; and BB by Fitch, two notches below Fitch’s minimum BBB- level required to be considered investment
grade. The Corporation’s credit ratings are dependent on a number of factors, both quantitative and qualitative, and are subject to
change at any time. The disclosure of credit ratings is not a recommendation to buy, sell or hold the Corporation’s securities. Each
rating should be evaluated independently of any other rating.
88
Cash Flows
Cash and cash equivalents were $663.2 million as of December 31, 2023, an increase of $182.7 million when compared to
December 31, 2022. The following discussion highlights the major activities and transactions that affected the Corporation’s cash
flows during 2023 and 2022:
Cash Flows from Operating Activities
First BanCorp.’s operating assets and liabilities vary significantly in the normal course of business due to the amount and timing of
cash flows. Management believes that cash flows from operations, available cash balances, and the Corporation’s ability to generate
cash through short and long-term borrowings will be sufficient to fund the Corporation’s operating liquidity needs for the foreseeable
future.
For the years ended December 31, 2023 and 2022, net cash provided by operating activities was $363.0 million and $440.5 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. The decrease in net cash provided by operating activities was driven by an
increase in income taxes paid during 2023, reflecting the effect in 2022 of the full utilization of certain deferred tax assets related to
NOLs that were available for regular income tax and lower volume and margins on sales of residential mortgage loans in the
secondary market.
Cash Flows from Investing Activities
The Corporation’s investing activities primarily relate to originating loans to be held for investment, as well as purchasing, selling,
and repaying available-for-sale and held-to-maturity debt securities. For the year ended December 31, 2023, net cash used in investing
activities was $78.5 million, primarily due to net disbursements on loans held for investment, partially offset by repayments of
available-for-sale and held-to-maturity debt securities and proceeds from sales of repossessed assets.
For the year ended December 31, 2022, net cash used in investing activities was $681.5 million, primarily due to purchases of
available-for-sale and held-to-maturity debt securities, and net disbursements on loans held for investment, partially offset by
repayments of available-for-sale and held-to-maturity debt securities and proceeds from sales of commercial loan participations.
Cash Flows from Financing Activities
The Corporation’s financing activities primarily include the receipt of deposits and the issuance of brokered CDs, the issuance of
and payments on long-term debt, the issuance of equity instruments, return of capital, and activities related to its short-term funding.
For the year ended December 31, 2023, net cash used in financing activities was $101.9 million, mainly reflecting a $269.9 million net
decrease in borrowings and $299.7 million of capital returned to stockholders, partially offset by a $471.0 million net increase in
deposits.
For the year ended December 31, 2022, net cash used in financing activities was $1.8 billion, mainly reflecting a $1.7 billion net
decrease in deposits and $362.8 million of capital returned to stockholders. These variances were partially offset by a $250.1 million
net increase in borrowings.
89
Capital
As of December 31, 2023, the Corporation’s stockholders’ equity was $1.5 billion, an increase of $172.1 million from December
31, 2022. The increase was driven by a $165.4 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 and net income generated in 2023,
partially offset by $200.0 million in repurchases of common stock and common stock dividends declared in 2023 totaling $99.6
million or $0.56 per common share.
On February 8, 2024, the Corporation’s Board declared a quarterly cash dividend of $0.16 per common share, which represents an
increase of $0.02 per common share, or a 14% increase, compared to its most recent quarterly dividend paid in December 2023. The
dividend is payable on March 8, 2024 to shareholders of record at the close of business on February 23, 2024. The Corporation intends
to continue to pay quarterly dividends on common stock. The Corporation’s common stock dividends, including the declaration,
timing and amount, remain subject to the consideration and approval by the Corporation’s Board at the relevant times.
During 2023, the Corporation repurchased 14.1 million shares of its common stock for a total cost of $200.0 million, of which 9.0
million shares, for a total cost of $125.0 million, were associated with the remaining amount of the 2022 capital plan authorization of
$350 million and 5.1 million shares, for a total cost of $75.0 million, were associated with the 2023 capital plan authorization of
$225.0 million. Repurchases under the aforementioned $225.0 million stock repurchase program may be executed through open
market purchases, accelerated share repurchases, and/or privately negotiated transactions or plans, including under plans complying
with Rule 10b5-1 under the Exchange Act. The Corporation’s stock repurchase program is subject to various factors, including the
Corporation’s capital position, liquidity, financial performance and alternative uses of capital, stock trading price, and general market
conditions. The Corporation’s stock repurchase program does not obligate it to acquire any specific number of shares and does not
have an expiration date. The stock repurchase program may be modified , suspended, or terminated at any time at the Corporation’s
discretion. As of February 21, 2024, the Corporation has repurchased approximately 7.1 million shares of common stock for a total
cost of $107.9 million under the $225 million stock repurchase program approved in July 2023. 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.
90
The following table is a reconciliation of the Corporation’s tangible common equity and tangible assets, non-GAAP financial
measures, to total equity and total assets, respectively, as of December 31, 2023 and 2022, respectively:
(In thousands, except ratios and per share information)
Total equity - GAAP
Goodwill
Purchased credit card relationship intangible
Core deposit intangible
Insurance customer relationship intangible
Tangible common equity - non-GAAP
Total assets - GAAP
Goodwill
Purchased credit card relationship intangible
Core deposit intangible
Insurance customer relationship intangible
Tangible assets - non-GAAP
Common shares outstanding
Tangible common equity ratio - non-GAAP
Tangible book value per common share - non-GAAP
December 31, 2023
December 31, 2022
$
$
$
$
$
1,497,609
(38,611)
-
(13,383)
-
1,445,615
18,909,549
(38,611)
-
(13,383)
-
18,857,555
169,303
7.67%
8.54
$
$
$
$
$
1,325,540
(38,611)
(205)
(20,900)
(13)
1,265,811
18,634,484
(38,611)
(205)
(20,900)
(13)
18,574,755
182,709
6.81%
6.93
See Note 29 – “Regulatory Matters, Commitments and Contingencies” to the audited consolidated financial statements included in
the Part II, Item 8 of this Form 10-K for the discussion related to the regulatory capital positions of the Corporation and FirstBank as
of December 31, 2023 and 2022, respectively.
The Puerto Rico Banking Law of 1933, as amended (the “Puerto Rico Banking Law”) requires that a minimum of 10% of
FirstBank’s net income for the year be transferred to a legal surplus reserve until such surplus equals the total of paid-in-capital on
common and preferred stock. Amounts transferred to the legal surplus reserve from retained earnings are not available for distribution
to the Corporation without the prior consent of the Puerto Rico Commissioner of Financial Institutions. The Puerto Rico Banking Law
provides that, when the expenditures of a Puerto Rico commercial bank are greater than receipts, the excess of the expenditures over
receipts must be charged against the undistributed profits of the bank, and the balance, if any, must be charged against the legal
surplus reserve, as a reduction thereof. If the legal surplus reserve is not sufficient to cover such balance in whole or in part, the
outstanding amount must be charged against the capital account and the Bank cannot pay dividends until it can replenish the legal
surplus reserve to an amount of at least 20% of the original capital contributed. During the years ended December 31, 2023, 2022 and
2021, the Corporation transferred $31.1 million, $30.9 million and $28.3 million, respectively, to the legal surplus reserve. FirstBank’s
legal surplus reserve, included as part of retained earnings in the Corporation’s consolidated statements of financial condition,
amounted to $199.6 million and $168.5 million as of December 31, 2023 and 2022, respectively.
Capital risk is the risk that our capital is insufficient to support our business activities under normal and stressed market conditions
or we face capital reductions or risk-weighted assets increases, including from new or revised rules or changes in interpretations of
existing rules, and are therefore unable to meet our internal capital targets or external regulatory capital requirements. Capital
adequacy is of critical importance to us. Accordingly, we have in place a comprehensive capital management policy that provides a
framework, defines objectives and establishes guidelines to maintain an appropriate level and composition of capital in both business-
as-usual and stressed conditions. Our capital management framework is designed to provide us with the information needed to
comprehensively manage risk and develop and apply projected stress scenarios that capture idiosyncratic vulnerabilities with a goal of
holding sufficient capital to remain adequately capitalized even after experiencing a severe stress event. We have established a
comprehensive governance structure to manage and oversee our capital management activities and compliance with capital rules and
related policies. Capital planning activities are overseen by the Capital Planning Committee which is chaired by the CEO and is
comprised of the following members: the CFO, CRO, and the Corporate Strategy and Investor Relations Officer. In addition,
committees and members of senior management are responsible for the ongoing monitoring of our capital adequacy and evaluate
current and future regulatory capital requirements, review the results of our capital planning and stress tests processes and the results
of our capital models, and review our contingency funding and capital plan and key capital adequacy metrics, including regulatory
capital ratios.
91
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 basis points (“bps”) during a twelve-month period, or
immediate upward or downward changes in interest rate movements of 200 bps, for interest rate shock scenarios. The Corporation
carries out the simulations in two ways:
(1) Using a static balance sheet, as the Corporation had on the simulation date, and
(2) Using a dynamic balance sheet based on recent patterns and current strategies.
The balance sheet is divided into groups of assets and liabilities by maturity or repricing structure and their corresponding interest
yields and costs. As interest rates rise or fall, these simulations incorporate expected future lending rates, current and expected future
funding sources and costs, the possible exercise of options, changes in prepayment rates, deposit decay and other factors, which may
be important in projecting net interest income.
The Corporation uses a simulation model to project future movements in the Corporation’s balance sheet and income statement. The
starting point of the projections corresponds to the actual values on the balance sheet on the simulation date. These simulations are
highly complex and are based on many assumptions that are intended to reflect the general behavior of the balance sheet components
over the modeled periods. It is unlikely that actual events will match these assumptions in all cases. For this reason, the results of these
forward-looking computations are only approximations of the sensitivity of net interest income to changes in market interest rates.
Several benchmark and market rate curves were used in the modeling process, primarily, SOFR curve, Prime Rate, U.S. Treasury
yield curve, FHLB rates, brokered CDs rates, repurchase agreements rates, and the mortgage commitment rate of 30 years.
As of December 31, 2023, the Corporation forecasted the 12-month net interest income assuming December 31, 2023 interest rate
curves remain constant. Then, net interest income was estimated under rising and falling rates scenarios. For the rising rate scenario, a
gradual (ramp) and immediate (shock) parallel upward shift of the yield curve is assumed during the first twelve months (the “+300
ramp”, “+200 ramp” and “+200 shock” scenarios). Conversely, for the falling rate scenario, a gradual (ramp) and immediate (shock)
parallel downward shift of the yield curve is assumed during the first twelve months (the “-300 ramp”, “-200 ramp” and “-200 shock”
scenarios).
The SOFR curve for December 31, 2023, as compared with December 31, 2022, reflects an increase of 40 bps on average in the
short-term sector of the curve, or between one to twelve months; a decrease of 29 bps in the medium-term sector of the curve, or
between 2 to 5 years; and a decrease of 7 bps in the long-term sector of the curve, or over 5-year maturities. A similar behavior in
market rates changes was observed in the Constant Maturity Treasury yield curve with an increase of 75 bps in the short-term sector, a
decrease of 18 bps in the medium-term sector, and an increase of 4 bps in the long-term sector.
92
The following table presents the results of the static simulations as of December 31, 2023 and 2022. Consistent with prior years,
these exclude non-cash changes in the fair value of derivatives:
Gradual Change in Interest Rates:
+ 300 bps ramp
+ 200 bps ramp
- 300 bps ramp
- 200 bps ramp
Immediate Change in Interest Rates:
+ 200 bps shock
- 200 bps shock
Net Interest Income Risk
(% Change Projected for the next 12 months)
December 31, 2023
December 31, 2022
1.08%
0.73%
-3.09%
-2.02%
2.45%
-5.67%
1.42%
0.96%
-2.78%
-1.61%
2.35%
-4.71%
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 “Liquidity Risk Management” above for liquidity ratios.
As of December 31, 2023, and 2022, the net interest income simulations show that the Corporation continues to have an asset
sensitive position for the next twelve months under a static balance sheet simulation.
Under gradual rising scenarios, the net interest income simulation shows reduction in interest rate sensitivity as compared with
December 31, 2022, due to higher sensitivity in the liability side. The increase in sensitivity in the liabilities side reflects shifts in
funding mix, including an increased migration from non-interest-bearing deposits and other low-cost deposits to higher-cost deposits,
an increase in the average balance of brokered CDs, and updated assumptions about depositor behavior, impacting both beta and
decay assumptions, as a result of the higher interest rate environment, and options outside the traditional banking sector. However, the
falling rates scenarios show an increase in interest rate sensitivity, as compared with December 31, 2022, due to lower sensitivity in
the liability side as a result of a lower level of beta assumptions than the rising rate scenarios that were applied in anticipation of
pricing pressures, deposits competition and retention strategies. Notwithstanding, the sensitivity in the asset side remained relatively
consistent, when compared to December 31, 2022.
Under the static simulation, the Corporation assumes that maturing instruments are replaced with like instruments at the repricing
rate with the proportional remaining change in interest rate in the period that the instrument matures. The Corporation’s results may
vary significantly from the ones presented above under alternative balance sheet compositions, such as a dynamic balance sheet
scenario which, for example, would assume that cash flows from the investment securities portfolio and loan repayments will be
redeployed into higher yielding alternatives.
Derivatives
First BanCorp. uses derivative instruments and other strategies to manage its exposure to interest rate risk caused by changes in
interest rates beyond management’s control.
As of December 31, 2023 and 2022, the Corporation considered all of its derivative instruments to be undesignated economic
hedges. For detailed information regarding the volume of derivative activities (e.g., notional amounts), location and fair values of
derivative instruments in the consolidated statements of financial condition and the amount of gains and losses reported in the
consolidated statements of income, see Note 24 – “Derivative Instruments and Hedging Activities” to the audited consolidated
financial statements included in Part II, Item 8 of this Form 10-K.
93
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 “Liquidity Risk and Capital Adequacy” 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.
94
Allowance for Credit Losses and Non-Performing Assets
Allowance for Credit Losses for Loans and Finance Leases
The ACL for loans and finance leases represents the estimate of the level of reserves appropriate to absorb expected credit losses
over the estimated life of the loans. The amount of the allowance is determined using relevant available information, from internal and
external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience
is a significant input for the estimation of expected credit losses, as well as adjustments to historical loss information made for
differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency level,
or term. Additionally, the Corporation’s assessment involves evaluating key factors, which include credit and macroeconomic
indicators, such as changes in unemployment rates, property values, and other relevant factors to account for current and forecasted
market conditions that are likely to cause estimated credit losses over the life of the loans to differ from historical credit losses. Such
factors are subject to regular review and may change to reflect updated performance trends and expectations, particularly in times of
severe stress. The process includes judgments and quantitative elements that may be subject to significant change. Further, the
Corporation periodically considers the need for qualitative reserves to the ACL. Qualitative adjustments may be related to and include,
but are not limited to, factors such as the following: (i) management’s assessment of economic forecasts used in the model and how
those forecasts align with management’s overall evaluation of current and expected economic conditions; (ii) organization specific
risks such as credit concentrations, collateral specific risks, nature and size of the portfolio and external factors that may ultimately
impact credit quality, and (iii) other limitations associated with factors such as changes in underwriting and loan resolution strategies,
among others. The ACL for loans and finance leases is reviewed at least on a quarterly basis as part of the Corporation’s continued
evaluation of its asset quality.
The Corporation generally applies probability weights to the baseline and alternative downside economic scenarios to estimate the
ACL with the baseline scenario carrying the highest weight. The scenarios that are chosen each quarter and the weighting given to
each scenario for the different loan portfolio categories depend on a variety of factors including recent economic events, leading
national and regional economic indicators, and industry trends. As of December 31, 2023, the Corporation applied the baseline
scenario for the commercial mortgage and construction loan portfolios as deterioration in the commercial real estate price index
(“CRE price index”) in these portfolios was expected at a lower extent than projected in the alternative downside scenario. The
economic scenarios used in the ACL determination contained assumptions related to economic uncertainties associated with
geopolitical instability, the CRE price index, unemployment rate, inflation levels, and expected future interest rate adjustments in the
Federal Reserve Board’s funds rate. As of December 31, 2023, the Corporation’s ACL model considered the following assumptions
for key economic variables in the probability-weighted economic scenarios:
(cid:404) CRE price index at the national level with an average projected contraction of 5.94% for the year 2024 and an average
projected appreciation of 2.01 % for the year 2025, compared to an average projected contraction of 1.64% for the year 2023
and an average projected appreciation of 0.74% for the year 2024 as of December 31, 2022.
(cid:404) Regional Home Price Index forecast in Puerto Rico (purchase only prices) shows an improvement of 7.65% for the year 2024
when compared to the same period as of December 31, 2022. For the Florida region, the Home Price Index forecast shows an
improvement of 11.28% for the year 2024 when compared to the same period as of December 31, 2022.
(cid:404) Average regional unemployment rate in Puerto Rico is forecasted at 7.16% for the year 2024, compared to 8.58% for the
same period as of December 31, 2022. For the Florida region, the average unemployment rate for the year 2024 is expected to
remain flat when compared to the same period as of December 31, 2022. For the U.S. mainland, the average unemployment
rate is forecasted at 4.61% for the year 2024, compared to 4.54% for the same period as of December 31, 2022.
(cid:404) Annualized change in GDP in the U.S. mainland of 1.13% for the year 2024, compared to 1.87% for the same period as of
December 31, 2022.
It is difficult to estimate how potential changes in one factor or input might affect the overall ACL because management considers a
wide variety of factors and inputs in estimating the ACL. Changes in the factors and inputs considered may not occur at the same rate
and may not be consistent across all geographies or product types, and changes in factors and inputs may be directionally inconsistent,
such that improvement in one factor or input may offset deterioration in others. However, to demonstrate the sensitivity of credit loss
estimates to macroeconomic forecasts as of December 31, 2023, management compared the modeled estimates under the probability-
weighted economic scenarios against a more adverse scenario. The more adverse scenario incorporates an additional adverse scenario
and decreases the weight applied to the baseline scenario. Under this more adverse scenario, as an example, average unemployment
rate for the Puerto Rico region increases to 7.62% for the year 2024, compared to 7.16% for the same period on the probability-
weighted economic scenario projections.
95
To demonstrate the sensitivity to key economic parameters used in the calculation of the ACL at December 31, 2023, 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 $45 million at December 31,
2023. This analysis relates only to the modeled credit loss estimates and is not intended to estimate changes in the overall ACL as it
does not reflect any potential changes in other adjustments to the qualitative calculation, which would also be influenced by the
judgment management applies to the modeled lifetime loss estimates to reflect the uncertainty and imprecision of these estimates
based on current circumstances and conditions. Recognizing that forecasts of macroeconomic conditions are inherently uncertain,
particularly in light of recent economic conditions and challenges, which continue to evolve, management believes that its process to
consider the available information and associated risks and uncertainties is appropriately governed and that its estimates of expected
credit losses were reasonable and appropriate for the period ended December 31, 2023.
As of December 31, 2023, the ACL for loans and finance leases was $261.8 million, an increase of $1.3 million, from $260.5
million as of December 31, 2022. The ACL for consumer loans increased by $5.6 million, primarily reflecting the effect of the
increase in the size of the consumer loan portfolios coupled with delinquency and historical charge-off levels, partially offset by
updated macroeconomic variables. The ACL for commercial and construction loans increased by $1.1 million, mainly due to the
growth in the commercial and construction loan portfolios and a $1.7 million incremental reserve recorded during 2023 associated
with the inflow to nonaccrual status of a $9.5 million C&I loan in the Puerto Rico region, partially offset by an improvement on the
economic outlook of certain macroeconomic variables such as the unemployment rate. The ACL for residential mortgage loans
decreased by $5.4 million, mainly driven by updated macroeconomic variables, such as the Regional Home Price Index and the
unemployment rate, partially offset by newly originated loans that have a longer life and the $2.1 million cumulative increase in the
ACL due to the adoption of Accounting Standards Update (“ASU”) 2022-02, “Financial Instruments – Credit Losses (Topic 326):
Troubled Debt Restructurings and Vintage Disclosures”, for which the Corporation elected to discontinue the use of a discounted cash
flow methodology for restructured accruing loans. See Note 1 –Nature of Business and Summary of Significant Accounting Policies
to the audited consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information related to the
adoption of ASU 2022-02 during 2023.
The ratio of the ACL for loans and finance leases to total loans held for investment decreased to 2.15% as of December 31, 2023,
compared to 2.25% as of December 31, 2022. An explanation for the change for each portfolio follows:
(cid:404) The ACL to total loans ratio for the residential mortgage portfolio decreased from 2.20% as of December 31, 2022 to
2.03% as of December 31, 2023, primarily reflecting a more favorable economic outlook in the projection of certain
forecasted macroeconomic variables, such as the Regional Home Price Index and the unemployment rate, partially offset
by newly originated loans that have a longer life and the aforementioned $2.1 million cumulative increase in the ACL due
to the adoption of ASU 2022-02 during 2023.
(cid:404) The ACL to total loans ratio for the construction loan portfolio increased from 1.74% as of December 31, 2022 to 2.61%
as of December 31, 2023 mainly due to newly originated loans which have a longer life.
(cid:404) The ACL to total loans ratio for the commercial mortgage portfolio decreased from 1.49% as of December 31, 2022 to
1.41% as of December 31, 2023, mainly driven by updated financial information received during 2023.
(cid:404) The ACL to total loans ratio for the C&I portfolio decreased from 1.14% as of December 31, 2022 to 1.05% as of
December 31, 2023, mainly due to updated macroeconomic variables, such as the unemployment rate, and the repayment
of a $24.3 million adversely classified C&I participated loan in the Florida region.
(cid:404) The ACL to total loans ratio for the consumer loan portfolio decreased from 3.83% as of December 31, 2022 to 3.64% as
of December 31, 2023, mainly due to a more favorable than previously estimated outlook of certain macroeconomic
variables, such as unemployment rates estimates and retail sales in the case of credit cards.
The ratio of the total ACL for loans and finance leases to nonaccrual loans held for investment was 312.81% as of December 31,
2023, compared to 289.61% as of December 31, 2022.
Substantially all of the Corporation’s loan portfolio is located within the boundaries of the U.S. economy. Whether the collateral is
located in Puerto Rico, the U.S. and British Virgin Islands, or the U.S. mainland (mainly in the state of Florida), the performance of
the Corporation’s loan portfolio and the value of the collateral supporting the transactions are dependent upon the performance of and
conditions within each specific area’s real estate market. The Corporation believes it sets adequate loan-to-value ratios following its
regulatory and credit policy standards.
96
As shown in the following tables, the ACL for loans and finance leases amounted to $261.8 million as of December 31, 2023, or
2.15% of total loans, compared with $260.5 million, or 2.25% of total loans, as of December 31, 2022. See “Results of Operations -
Provision for Credit Losses” above for additional information.
(Dollars in thousands)
ACL for loans and finance leases, beginning of year
$
Impact of adoption of ASU 2022-02
Provision for credit losses - (benefit) expense:
Residential mortgage
Construction
Commercial mortgage
C&I
Consumer and finance leases
Total provision for credit losses - expense (benefit)
Charge-offs:
Residential mortgage
Construction
Commercial mortgage
C&I
Consumer and finance leases
Total charge offs
Recoveries:
Residential mortgage
Construction
Commercial mortgage
C&I
Consumer and finance leases
Total recoveries
Net charge-offs
Year Ended December 31,
2023
2022
2021
260,464
$
2,116
269,030
$
-
(6,866)
1,408
(2,086)
6,372
67,816
66,644
(3,245)
(62)
(1,133)
(6,936)
(76,726)
(88,102)
2,692
1,951
786
841
14,451
20,721
(67,381)
(8,734)
(2,342)
(18,994)
(1,770)
57,519
25,679
(6,890)
(123)
(85)
(2,067)
(48,165)
(57,330)
3,547
725
1,372
2,459
14,982
23,085
(34,245)
ACL for loans and finance leases, end of period
$
261,843
$
260,464
$
ACL for loans and finance leases to period-end total loans held for investment
Net charge-offs to average loans outstanding during the period
Provision for credit losses - expense (benefit) for loans and finance leases to net charge-offs
during the period
2.15%
0.58%
0.99x
2.25%
0.31%
0.75x
(1) Includes net charge-offs totaling $23.1 million associated with a bulk sale of residential nonaccrual loans and related servicing advance receivables.
(2) Excluding net charge-offs associated with the bulk sale, total net charge-offs to related average loans for 2021 was 0.28%.
385,887
-
(16,957)
(1,408)
(55,358)
(8,549)
20,552
(61,720)
(33,294)(1)
(87)
(1,494)
(1,887)
(43,948)
(80,710)
4,777
163
281
6,776
13,576
25,573
(55,137)
269,030
2.43%
0.48%(2)
-1.12x
97
The following tables set forth information concerning the composition of the Corporation's loan portfolio and related ACL by loan
category, and the percentage of loan balances in each category to the total of such loans as of the indicated dates:
As of December 31, 2023
(Dollars in thousands)
Total loans held for investment:
Residential
Mortgage
Loans
Construction
Loans
Commercial
Mortgage
Loans
C&I Loans
Consumer and
Finance
Leases
Total
Amortized cost of loans
Percent of loans in each category to total loans
Allowance for credit losses
Allowance for credit losses to amortized cost
$
$
2,821,726
23 %
57,397
2.03 %
$
$
214,777
2 %
5,605
2.61 %
$
$
2,317,083
19 %
32,631
1.41 %
$
$
3,174,232
26 %
33,190
1.05 %
$
$
3,657,665
30 %
133,020
3.64 %
$
$
12,185,483
100 %
261,843
2.15 %
As of December 31, 2022
(Dollars in thousands)
Total loans held for investment:
Residential
Mortgage
Loans
Construction
Loans
Commercial
Mortgage
Loans
C&I Loans
Consumer and
Finance Leases
Total
Amortized cost of loans
Percent of loans in each category to total loans
Allowance for credit losses
Allowance for credit losses to amortized cost
$
$
2,847,290
25 %
62,760
2.20 %
$
$
132,953
1 %
2,308
1.74 %
$
$
2,358,851
20 %
35,064
1.49 %
$
$
2,886,263
25 %
32,906
1.14 %
$
$
3,327,468
29 %
127,426
3.83 %
$
$
11,552,825
100 %
260,464
2.25 %
Allowance for Credit Losses for Unfunded Loan Commitments
The Corporation estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk as a
result of a contractual obligation to extend credit, such as pursuant to unfunded loan commitments and standby letters of credit for
commercial and construction loans, unless the obligation is unconditionally cancellable by the Corporation. The ACL for off-balance
sheet credit exposures is adjusted as a provision for credit loss expense. As of December 31, 2023, the ACL for off-balance sheet
credit exposures increased by $0.4 million to $4.6 million, when compared to December 31, 2022.
Allowance for Credit Losses for Held-to-Maturity Debt Securities
As of December 31, 2023, the ACL for held-to-maturity securities portfolio was entirely related to financing arrangements with
Puerto Rico municipalities issued in bond form, which the Corporation accounts for as securities, but which were underwritten as
loans with features that are typically found in commercial loans. As of December 31, 2023, the ACL for held-to-maturity debt
securities was $2.2 million, compared to $8.3 million as of December 31, 2022. The decrease was mostly driven by the refinancing of
a $46.5 million municipal bond into a shorter-term commercial loan structure and, to a lesser extent, a reduction in qualitative reserves
driven by updated financial information of certain bond issuers received during 2023.
Allowance for Credit Losses for Available -for-Sale Debt Securities
The ACL for available-for-sale debt securities, which is associated with private label MBS and a residential pass-through MBS
issued by the PRHFA, was $0.5 million as of each of December 31, 2023 and 2022.
98
Nonaccrual Loans and Non-Performing Assets
Total non-performing assets consist of nonaccrual loans (generally loans held for investment or loans held for sale for which the
recognition of interest income was discontinued when the loan became 90 days past due or earlier if the full and timely collection of
interest or principal is uncertain), foreclosed real estate and other repossessed properties, and non-performing investment securities, if
any. When a loan is placed in nonaccrual status, any interest previously recognized and not collected is reversed and charged against
interest income. Cash payments received are recognized when collected in accordance with the contractual terms of the loans. The
principal portion of the payment is used to reduce the principal balance of the loan, whereas the interest portion is recognized on a
cash basis (when collected). However, when management believes that the ultimate collectability of principal is in doubt, the interest
portion is applied to the outstanding principal. The risk exposure of this portfolio is diversified as to individual borrowers and
industries, among other factors. In addition, a large portion is secured with real estate collateral . See Note 1 – “Nature of Business and
Summary of Significant Accounting Policies” to the audited consolidated financial statements included in Part II, Item 8 of this Form
10-K, for additional information.
Nonaccrual Loans Policy
Residential Real Estate Loans — The Corporation generally classifies real estate loans in nonaccrual status when it has not received
interest and principal for a period of 90 days or more.
Commercial and Construction Loans — The Corporation classifies commercial loans (including commercial real estate and
construction loans) in nonaccrual status when it has not received interest and principal for a period of 90 days or more or when it does
not expect to collect all of the principal or interest due to deterioration in the financial condition of the borrower.
Finance Leases — The Corporation classifies finance leases in nonaccrual status when it has not received interest and principal for
a period of 90 days or more.
Consumer Loans — The Corporation classifies consumer loans in nonaccrual status when it has not received interest and principal
for a period of 90 days or more. Credit card loans continue to accrue finance charges and fees until charged-off at 180 days delinquent.
Purchased Credit Deteriorated Loans (“PCD”) — For PCD loans, the nonaccrual status is determined in the same manner as for
other loans, except for PCD loans that prior to the adoption of CECL were classified as purchased credit impaired (“PCI”) loans and
accounted for under ASC Subtopic 310-30, “Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality”
(“ASC Subtopic 310-30”). As allowed by CECL, the Corporation elected to maintain pools of loans accounted for under ASC
Subtopic 310-30 as “units of accounts,” conceptually treating each pool as a single asset. Regarding interest income recognition, the
prospective transition approach for PCD loans was applied at a pool level, which froze the effective interest rate of the pools as of
January 1, 2020. According to regulatory guidance, the determination of nonaccrual or accrual status for PCD loans with respect to
which the Corporation has made a policy election to maintain previously existing pools upon adoption of CECL should be made at the
pool level, not the individual asset level. In addition, the guidance provides that the Corporation can continue accruing interest and not
report the PCD loans as being in nonaccrual status if the following criteria are met: (i) the Corporation can reasonably estimate the
timing and amounts of cash flows expected to be collected; and (ii) the Corporation did not acquire the asset primarily for the rewards
of ownership of the underlying collateral, such as the use in operations or improving the collateral for resale. Thus, the Corporation
continues to exclude these pools of PCD loans from nonaccrual loan statistics.
Other Real Estate Owned
OREO acquired in settlement of loans is carried at fair value less estimated costs to sell the real estate acquired. Appraisals are
obtained periodically, generally on an annual basis.
Other Repossessed Property
The other repossessed property category generally includes repossessed boats and autos acquired in settlement of loans.
Repossessed boats and autos are recorded at the lower of cost or estimated fair value.
Other Non-Performing Assets
This category consists of a residential pass-through MBS issued by the PRHFA placed in non-performing status in the second
quarter of 2021 based on the delinquency status of the underlying second mortgage loans.
99
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.
The following table presents non-performing assets as of the indicated dates:
December 31, 2023
December 31, 2022
(Dollars in thousands)
Nonaccrual loans held for investment:
Residential mortgage
Construction
Commercial mortgage
C&I
Consumer and finance leases
Total nonaccrual loans held for investment
OREO
Other repossessed property
Other assets (1)
Total non-performing assets
Past due loans 90 days and still accruing (2) (3) (4)
Non-performing assets to total assets
Nonaccrual loans held for investment to total loans held for investment
ACL for loans and finance leases
ACL for loans and finance leases to total nonaccrual loans held for investment
ACL for loans and finance leases to total nonaccrual loans held for investment, excluding residential real estate loans
$
32,239
$
1,569
12,205
15,250
22,444
83,707
32,669
8,115
1,415
125,906
59,452
$
$
0.67 %
0.69 %
261,843
$
312.81 %
508.75 %
$
$
$
42,772
2,208
22,319
7,830
14,806
89,935
31,641
5,380
2,202
129,158
80,517
0.69 %
0.78 %
260,464
289.61 %
552.26 %
(1) Residential pass-through MBS issued by the PRHFA held as part of the available-for-sale debt securities portfolio.
(2) Includes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans as “units of
account” both at the time of adoption of CECL on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from nonaccrual loan
statistics as long as the Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due
90 days or more amounted to $8.3 million and $12.0 million as of December 31, 2023 and 2022, 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 $15.4 million and $28.2 million
of FHA government guaranteed residential mortgage loans that were over 15 months delinquent as of December 31, 2023 and 2022, respectively.
(4) These includes rebooked loans, which were previously pooled into GNMA securities, amounting to $7.9 million and $10.3 million as of December 31, 2023 and 2022, 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.
100
Total nonaccrual loans were $83.7 million as of December 31, 2023. This represents a net decrease of $6.2 million from $89.9
million as of December 31, 2022, consisting of decreases of $10.6 million and $3.2 million in nonaccrual residential mortgage loans
and nonaccrual commercial and construction loans, respectively, partially offset by an increase of $7.6 million in nonaccrual consumer
loans.
The following table shows non-performing assets by geographic segment as of the indicated dates:
December 31, 2023
December 31, 2022
(In thousands)
Puerto Rico:
Nonaccrual loans held for investment:
Residential mortgage
Construction
Commercial mortgage
C&I
Consumer and finance leases
Total nonaccrual loans held for investment
OREO
Other repossessed property
Other assets
Total non-performing assets
Past due loans 90 days and still accruing
Virgin Islands:
Nonaccrual loans held for investment:
Residential mortgage
Construction
Commercial mortgage
C&I
Consumer
Total nonaccrual loans held for investment
OREO
Other repossessed property
Total non-performing assets
Past due loans 90 days and still accruing
United States:
Nonaccrual loans held for investment:
Residential mortgage
C&I
Consumer
Total nonaccrual loans held for investment
OREO
Other repossessed property
Total non-performing assets
Past due loans 90 days and still accruing
$
$
$
$
$
$
$
$
$
18,324
595
3,106
13,414
21,954
57,393
28,382
7,857
1,415
95,047
53,308
6,688
974
9,099
1,169
419
18,349
4,287
252
22,888
6,005
7,227
667
71
7,965
-
6
7,971
139
$
$
$
$
$
$
$
$
$
28,857
831
14,341
5,859
14,142
64,030
28,135
5,275
2,202
99,642
76,417
6,614
1,377
7,978
1,179
469
17,617
3,475
76
21,168
4,100
7,301
792
195
8,288
31
29
8,348
-
101
Nonaccrual C&I loans increased by $7.5 million to $15.3 million as of December 31, 2023, from $7.8 million as of December 31,
2022. Inflows to nonaccrual loans of $21.1 million for the year ended December 31, 2023 included a $9.5 million C&I loan in the
Puerto Rico region and a $7.1 million C&I participated loan in the Florida region associated with the power generation industry, for
which a $6.2 million charge-off was recorded in 2023 and the remaining balance was collected. These variances were partially offset
by $5.3 million in collections.
Nonaccrual commercial mortgage loans decreased by $10.1 million to $12.2 million as of December 31, 2023, from $22.3 million
as of December 31, 2022. The decrease of $10.1 million was mainly related to a $5.3 million nonaccrual commercial mortgage loan
transferred to OREO in the Puerto Rico region, for which a $1.0 million charge -off was recognized; and $5.6 million in collections
and loans returned to accrual status, including a $2.7 million commercial mortgage loan in the Puerto Rico region; partially offset by
inflows of $2.6 million.
Nonaccrual construction loans decreased by $0.6 million to $1.6 million as of December 31, 2023, from $2.2 million as of
December 31, 2022.
The following tables present the activity of commercial and construction nonaccrual loans held for investment for the indicated
periods:
Construction
Commercial
Mortgage
C&I
Total
(In thousands)
Year Ended December 31, 2023
Beginning balance
Plus:
Additions to nonaccrual
Less:
Loans returned to accrual status
Nonaccrual loans transferred to OREO
Nonaccrual loans charge-offs
Loan collections
Reclassification
Nonaccrual loans sold
Ending balance
(In thousands)
Year Ended December 31, 2022
Beginning balance
Plus:
Additions to nonaccrual
Less:
Loans returned to accrual status
Nonaccrual loans transferred to OREO
Nonaccrual loans charge-offs
Loan collections
Reclassification
Ending balance
$
$
$
2,208
$
22,319
$
7,830
$
133
-
(367)
(14)
(391)
-
-
2,633
(3,466)
(5,544)
(1,120)
(2,097)
6
(526)
21,088
(765)
(742)
(6,910)
(5,251)
-
-
1,569
$
12,205
$
15,250
$
32,357
23,854
(4,231)
(6,653)
(8,044)
(7,739)
6
(526)
29,024
Construction
Commercial
Mortgage
C&I
Total
2,664
$
25,337
$
17,135
$
45,136
20
(48)
(130)
(114)
(184)
-
2,934
(1,585)
(549)
(83)
(3,333)
(402)
2,749
(6,864)
(273)
(385)
(4,934)
402
$
2,208
$
22,319
$
7,830
$
5,703
(8,497)
(952)
(582)
(8,451)
-
32,357
102
Nonaccrual residential mortgage loans decreased by $10.6 million to $32.2 million as of December 31, 2023, compared to $42.8
million as of December 31, 2022. The decrease was primarily related to $12.0 million of loans restored to accrual status; $5.5 million
of loans transferred to OREO; and $7.0 million in collections, including a $1.4 million collection in the Puerto Rico region; partially
offset by inflows of $14.9 million.
The following table presents the activity of residential nonaccrual loans held for investment for the indicated periods:
(In thousands)
Beginning balance
Plus:
Additions to nonaccrual
Less:
Loans returned to accrual status
Nonaccrual loans transferred to OREO
Nonaccrual loans charge-offs
Loan collections
Reclassification
Ending balance
Year Ended December 31,
2023
2022
42,772
$
14,946
(12,028)
(5,523)
(902)
(7,020)
(6)
32,239
$
55,127
20,320
(15,362)
(3,895)
(1,594)
(11,824)
-
42,772
$
$
The amount of nonaccrual consumer loans, including finance leases, increased by $7.6 million to $22.4 million as of December 31,
2023, compared to $14.8 million as of December 31, 2022. The increase was mainly reflected in the auto loan and finance lease
portfolios.
As of December 31, 2023, approximately $12.8 million of the loans placed in nonaccrual status, mainly commercial and residential
mortgage loans, were current, or had delinquencies of less than 90 days in their interest payments. Collections on these loans are being
recorded on a cash basis through earnings, or on a cost-recovery basis, as conditions warrant.
During the year ended December 31, 2023, interest income of approximately $0.5 million related to nonaccrual loans with a
carrying value of $24.4 million as of December 31, 2023, 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 $150.8
million as of December 31, 2023, an increase of $45.9 million, compared to $104.9 million as of December 31, 2022. The variances
by major portfolio categories are as follows:
(cid:404) Consumer loans in early delinquency increased by $41.1 million to $112.0 million, mainly in the auto loan portfolio.
(cid:404) Residential mortgage loans in early delinquency increased by $8.3 million to $36.5 million.
(cid:404) Commercial and construction loans in early delinquency decreased by $3.5 million to $2.3 million, mainly in the commercial
mortgage loan portfolio.
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 restructurings of individual C&I, commercial mortgage, construction, and residential mortgage loans. See
Note 1 – “Nature of Business and Summary of Significant Accounting Policies” to the audited consolidated financial statements
included in Part II, Item 8 of this Form 10-K for additional information related to the accounting policies of loan modifications granted
to borrowers experiencing financial difficulty. In addition, see Note 4 – “Loans Held for Investment” to the audited consolidated
financial statements included in Part II, Item 8 of this Form 10-K for additional information and statistics about the Corporation’s
modified loans.
103
The OREO portfolio, which is part of non-performing assets, amounted to $32.7 million as of December 31, 2023 and $31.6 million
as of December 31, 2022. The following tables show the composition of the OREO portfolio as of December 31, 2023 and 2022, as
well as the activity of the OREO portfolio by geographic area during the year ended December 31, 2023:
OREO Composition by Region
(In thousands)
Residential
Construction
Commercial
(In thousands)
Residential
Construction
Commercial
OREO Activity by Region
(In thousands)
Beginning Balance
Additions
Sales
Write-downs and other adjustments
Ending Balance
Puerto Rico
Virgin Islands
Florida
Consolidated
As of December 31, 2023
18,809 $
1,576
7,997
28,382 $
1,452 $
25
2,810
4,287 $
- $
-
-
- $
20,261
1,601
10,807
32,669
Puerto Rico
Virgin Islands
Florida
Consolidated
As of December 31, 2022
23,388 $
1,705
3,042
28,135 $
606 $
59
2,810
3,475 $
31 $
-
-
31 $
24,025
1,764
5,852
31,641
Puerto Rico
Virgin Islands
Florida
Consolidated
Year Ended December 31, 2023
28,135 $
20,301
(18,445)
(1,609)
28,382 $
3,475 $
1,970
(1,000)
(158)
4,287 $
31 $
378
(409)
-
- $
31,641
22,649
(19,854)
(1,767)
32,669
$
$
$
$
$
$
104
Net Charge-offs and Total Credit Losses
Net charge-offs totaled $67.4 million for the year ended December 31, 2023, or 0.58% of average loans, compared to $34.2 million,
or 0.31% of average loans, for the year ended December 31, 2022.
Consumer loans and finance leases net charge -offs for the year ended December 31, 2023 were $62.3 million, or 1.78% of related
average loans, compared to net charge-offs of $33.2 million, or 1.07% of related average loans, for the year ended December 31, 2022.
The increase was primarily reflected in the auto, personal, and credit card loan portfolios.
C&I loans net charge-offs for the year ended December 31, 2023 were $6.1 million, or 0.21% of related average loans, compared to
net recoveries of $0.4 million, or 0.01% of related average loans, for the year ended December 31, 2022. The net charge-offs for the
year ended December 31, 2023 included a $6.0 million net charge-off recorded on a C&I participated loan in the Florida region in the
power generation industry.
Residential mortgage loans net charge-offs for the year ended December 31, 2023 were $0.6 million, or 0.02% of related average
loans, compared to net charge-offs of $3.3 million, or 0.12% of related average loans, for the year ended December 31, 2022. The $3.3
million in charge-offs recorded during 2023 included $1.4 million in charge-offs resulting from foreclosures, compared to $6.9 million
in charge-offs recorded during 2022 that included $2.6 million in charge-offs resulting from foreclosures. Meanwhile, the $2.7 million
in recoveries recorded during 2023 included a $0.4 million recovery associated with the payoff of a residential mortgage loan in the
Puerto Rico region, compared to $3.6 million in recoveries recorded during 2022.
Commercial mortgage loans net charge -offs for the year ended December 31, 2023 were $0.3 million, or 0.01% of related average
loans, compared to net recoveries of $1.3 million, or 0.06% of related average loans, for the year ended December 31, 2022. The $1.1
million in charge-offs recorded during 2023 included a $1.0 million charge -off recorded on a nonaccrual commercial mortgage loan
transferred to OREO during 2023. Meanwhile, the $0.8 million in recoveries recorded during 2023 included a $0.3 million recovery
associated with the sale of a commercial mortgage loan in the Puerto Rico region. For the year ended December 31, 2022, commercial
mortgage loans net recoveries included recoveries totaling $1.2 million associated with two commercial mortgage relationships.
Construction loans net recoveries for the year ended December 31, 2023 were $1.9 million, or 1.09% of related average loans,
compared to net recoveries of $0.6 million, or 0.49% of related average loans, for the year ended December 31, 2022. For the years
ended December 31, 2023 and 2022, a recovery of $1.4 million and $0.5 million, respectively, was recorded on a construction loan in
the Puerto Rico region.
105
The following table presents net charge-offs (recoveries) to average loans held-in-portfolio for the indicated periods:
Residential mortgage (1)
Construction
Commercial mortgage
C&I
Consumer and finance leases
Total loans (1)
2023
2022
2021
Year Ended December 31,
0.02%
(1.09)%
0.01%
0.21%
1.78%
0.58%
0.12%
(0.49)%
(0.06)%
(0.01)%
1.07%
0.31%
0.87%
(0.04)%
0.06%
(0.16)%
1.11%
0.48%
(1)For the year ended December 31, 2021, includes net charge -offs totaling $23.1 million associated with the bulk sale of residential nonaccrual loans and related servicing advance
receivables. Excluding net charge-offs associated with the bulk sale, residential mortgage and total net charge-offs to related average loans for 2021 was 0.17% and 0.28%, respectively.
The following table presents net charge-offs (recoveries) to average loans held in various portfolios by geographic segment for the
indicated periods:
Year Ended December 31,
2023
2022
2021
PUERTO RICO:
Residential mortgage (1)
Construction
Commercial mortgage
C&I
Consumer and finance leases
Total loans (1)
VIRGIN ISLANDS:
Residential mortgage
Construction
Commercial mortgage
Consumer and finance leases
Total loans
FLORIDA:
Residential mortgage
Construction
Commercial mortgage
C&I
Consumer and finance leases
Total loans
0.03 %
(2.66)%
0.03 %
(0.01)%
1.78 %
0.65 %
- %
0.03 %
(0.02)%
0.26 %
0.04 %
(0.01)%
(0.05)%
(0.02)%
0.67 %
(0.50)%
0.30 %
0.14 %
(1.68)%
(0.04)%
(0.11)%
1.07 %
0.37 %
0.18 %
- %
(0.22)%
1.23 %
0.23 %
(0.03)%
(0.06)%
(0.10)%
0.17 %
0.30 %
0.05 %
1.09 %
(0.05) %
0.08 %
(0.30) %
1.10 %
0.59 %
0.06 %
- %
(0.23) %
1.16 %
0.13 %
(0.01) %
(0.04) %
(0.01) %
0.10 %
2.15 %
0.07 %
(1) For the year ended December 31, 2021, includes net charge -offs totaling $23.1 million associated with the bulk sale of residential nonaccrual loans and related servicing advance
receivables. Excluding net charge-offs associated with the bulk sale, residential mortgage and total net charge-offs to related average loans in the Puerto Rico region for 2021 was 0.21%
and 0.34%, respectively.
106
The following table presents information about the OREO inventory and credit losses for the indicated periods:
(Dollars in thousands)
OREO
OREO balances, carrying value:
Residential
Construction
Commercial
Total
OREO activity (number of properties):
Beginning property inventory
Properties acquired
Properties disposed
Ending property inventory
Average holding period (in days)
Residential
Construction
Commercial
Total average holding period (in days)
OREO operations (gain) loss:
Market adjustments and (gains) losses on sale:
Residential
Construction
Commercial
Total net gain
Other OREO operations expenses
Net Gain on OREO operations
$
$
$
$
Year Ended December 31,
2023
2022
2021
20,261
1,601
10,807
32,669
$
$
24,025
1,764
5,852
31,641
$
$
344
171
(238)
277
483
2,412
1,491
911
(8,962)
(61)
(305)
(9,328)
2,190
(7,138)
$
$
418
156
(230)
344
606
2,185
2,570
1,057
(7,742)
418
(420)
(7,744)
1,918
(5,826)
$
$
29,533
3,984
7,331
40,848
513
167
(262)
418
700
2,115
2,018
1,075
(4,166)
(820)
1,182
(3,804)
1,644
(2,160)
107
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 $12.2 billion as of December 31, 2023, 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.
108
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. 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 June 15, 2023, the Puerto Rico Planning Board (“PRPB”) presented the updated Economic Report to the Governor, which
provides an analysis of Puerto Rico’s economy during fiscal year 2022 and a short-term forecast for fiscal years 2023 and 2024.
According to the PRPB, Puerto Rico’s real gross national product (“GNP”) expanded by 3.7% in fiscal year 2022, which was the
highest annual real GNP growth registered in Puerto Rico since fiscal year 1999. The growth was primarily driven by a sharp increase
in personal consumption expenditures reflecting an increase of approximately 8.5% when compared to fiscal year 2021, increase in
exports of 4.8%, and growth in fixed capital investments of 12.6%, partially offset by an increase in imports of 10.3%.
There are other indicators that gauge economic activity and are published with greater frequency, for example, the Economic
Development Bank for Puerto Rico’s Economic Activity Index (“EDB-EAI”). Although not a direct measure of Puerto Rico’s real
GNP, the EDB-EAI is correlated to Puerto Rico’s real GNP. For November 2023, estimates showed that the EDB-EAI stood at 129.5,
up 5.9% on a year-over-year basis. Over the 12-month period ended November 30, 2023, the EDB-EAI averaged 127.2, the highest
level since October 2014 and approximately 3.0% above the comparable figure a year earlier.
Labor market trends remain positive. Data published by the Bureau of Labor Statistics showed that December 2023 payroll
employment in Puerto Rico increased by 2.4% when compared to December 2022, supported by a year-over-year increase of 8.3% in
Leisure and Hospitality payroll employment and an 11.6% year-over-year increase in construction -related payroll employment. The
unemployment rate continued to trend downward and stood at a record -low of 5.7%.
Fiscal Plan
On April 3, 2023, the PROMESA oversight board certified the 2023 Fiscal Plan for Puerto Rico (the “2023 Fiscal Plan”). Unlike
previous versions of the fiscal plan, the PROMESA oversight board segregated the 2023 Fiscal Plan into three different volumes. As
the first fiscal plan certified in a post-bankruptcy environment, Volume 1 presents a Transformation Plan that highlights priority areas
to cement fiscal responsibility, accelerate economic growth in a sustainable manner, and restore market access to Puerto Rico. Volume
2 provides additional details on economic trends and financial projections, and Volume 3 maps out the supplementary implementation
details to guide the government’s implementation of the requirements of the 2023 Fiscal Plan, as well as additional initiatives from
prior fiscal plans which remain mandatory and are still pending to be implemented.
The 2023 Fiscal Plan prioritizes resource allocation across three major pillars: (i) entrenching a legacy of strong financial
management through the implementation of a comprehensive financial management agenda, (ii) instilling a culture of public -sector
performance and excellence to properly delivery quality public services, and (iii) investing for economic growth to ensure sufficient
revenues are generated to support the delivery of services. According to the Transformation Plan, the fiscal and economic turnaround
of Puerto Rico cannot be accomplished without the implementation of structural economic reforms that promote sustainable economic
development. These reforms include power/energy sector reform to improve availability, reliability and affordability of energy,
education reform to expand opportunity and prepare the workforce to compete for jobs of the future, and an infrastructure reform
aimed at improving the efficiency of the economy and facilitating investment. The 2023 Fiscal Plan projects that these reforms, if
implemented successfully, will contribute 0.75% in GNP growth by fiscal year 2026. Additionally, the 2023 Fiscal Plan provides a
roadmap for a tax reform directed towards establishing a tax regime that is more competitive for investors and more equitable for
individuals.
109
The 2023 Fiscal Plan notes that Puerto Rico has had a strong recovery in the aftermath of the COVID-19 pandemic crisis with labor
participation trending positively and unemployment at historically low levels. However, it recognizes that such recovery has been
primarily fueled by the unprecedented influx of federal funds which have an outsized and temporary impact that may mask underlying
structural weaknesses in the economy. As such, the 2023 Fiscal Plan projects a 0.7% decline in real GNP for the current fiscal year
2023, followed by a period of near-zero real growth in fiscal years 2024 through 2026. Also, the fiscal plan projects that Puerto Rico’s
population will continue the long-term trend of steady decline. Notwithstanding, the Transformation Plan depicts that, if managed
properly, these non-recurring federal funds can be leveraged into sustainable longer-term growth and opportunity.
The 2023 Fiscal Plan projects that approximately $81 billion in total disaster relief funding, from federal and private sources, will
be disbursed as part of the reconstruction efforts over a span of 18 years (fiscal years 2018 through 2035). These funds will benefit
individuals, the public (e.g., reconstruction of major infrastructure, roads, and schools), and will cover part of Puerto Rico’s share of
the cost of disaster relief funding. Also, the 2023 Fiscal Plan projects the $9.3 billion in remaining COVID-19 relief funds to be
deployed in fiscal years 2023 through 2025, compared to $4.5 billion projected in the previous fiscal plan. Additionally, the 2023
Fiscal Plan continues to account for $2.3 billion in federal funds to Puerto Rico from the Bipartisan Infrastructure Law directed
towards improving Puerto Rico’s infrastructure over fiscal years 2022 through 2026.
Debt Restructuring
Over 80% of Puerto Rico’s outstanding debt has been restructured to date. On March 15, 2022, the Plan of Adjustment of the
central government’s debt became effective through the exchange of more than $33 billion of existing bonds and other claims into
approximately $7 billion of new bonds, saving Puerto Rico more than $50 billion in debt payments to creditors. Also, the
restructurings of the Puerto Rico Sales Tax Financing Corporation (“COFINA”), the Highways and Transportation Authority
(“HTA”), and the Puerto Rico Aqueducts and Sewers Authority (“PRASA”) are expected to yield savings of approximately $17.5
billion, $3.0 billion, and $400 million, respectively, in future debt service payments. The main restructurings pending include that of
the Puerto Rico Electric Power Authority (“PREPA”) and the Puerto Rico Industrial Company (“PRIDCO”).
On June 23, 2023, the Fiscal Oversight and Management Board for Puerto Rico certified a new fiscal plan for PREPA which
included the most recent projections of energy consumption in Puerto Rico and consequently reflected a significant reduction in the
projected revenues for PREPA over the next years. As such, PREPA concluded that its ability to repay its outstanding debt was
significantly less than what was previously stated. On June 26, 2023, Judge Laura Taylor Swain resolved that PREPA’s bondholders
have an unsecured claim of $2.4 billion against PREPA and not the approximately $9.0 billion that bondholders were claiming.
On August 25, 2023, the PROMESA oversight board announced that it filed the third amended Plan of Adjustment to reduce more
than $10 billion of total asserted claims by various creditors against PREPA by approximately 80% to $2.5 billion, excluding pension
liabilities. According to the PROMESA oversight board, bondholders who support the plan would recover 12.5% of their original
asserted claim, while bondholders who do not agree to the proposed plan would recover 3.5% of their asserted claim. Combined with
other previous agreements and settlements that remain in place, approximately 43% of PREPA’s creditors support the third amended
plan. In addition to conforming to Judge Taylor Swain’s ruling made in June, the amended plan also conforms to the previously
disclosed debt sustainability analysis in the revised PREPA Fiscal Plan certified in June 2023 that is based on the most recent
projections of PREPA’s operating costs and future demand for its services. The PREPA pension treatment remains unchanged under
the third amended plan. PREPA retirees will be paid in full for all benefits earned through the effective date of the plan. After that
date, no further benefits can be earned under the defined benefit plan by existing or new participants. The disclosure statement hearing
for the amended plan has been scheduled for November 14, 2023, and the confirmation hearing is expected to take place in March
2024, according to a court order dated September 11, 2023.
110
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 11 -month period
ended November 30, 2023, over $2.95 billion in disaster relief funds have been disbursed through FEMA Public Assistance program
and the Department of Housing and Urban Development’s Community Development Block Grant program, a 48% increase when
compared to the same period in 2022. These funds will continue to play a key role in supporting Puerto Rico’s economic stability and
are expected to have a positive impact on the Island’s infrastructure. For example, approximately 86% of the projects that FEMA has
obligated to address damage caused by Hurricane Maria have resources to reinforce their infrastructure, among other hazard
mitigation measures, that will prepare these facilities for future weather events. As of January 22, 2024, over 2,250 projects had
already been completed under FEMA’s Public Assistance programs while over 21,100 projects were active across different stages of
execution for a total cost of $10.3 billion, equivalent to approximately 31% of the agency’s $33 billion obligation, according to the
Central Office for Recovery, Reconstruction and Resiliency (“COR3”).
On June 21, 2023, Fitch Ratings issued a credit rating research note highlighting the government’s commitment to improving its
continuing disclosure practices and the release of the 2021 audited financial statements. The government has made great strides in
recent years with regards to its financial transparency and is on target to release its audited financial statements on time and in line
with regulatory expectations.
On October 17, 2023, the Government of Puerto Rico announced the execution of a $2.85 billion concession agreement with Puerto
Rico Tollroads LLC, a subsidiary of Abertis Infraestructuras SA, to operate, maintain, and improve the four Puerto Rico toll roads
currently managed by HTA over the next 40 years. Pursuant to the agreement, the $2.85 billion concession fee will enable HTA to pay
off approximately $1.6 billion of its outstanding debt. In addition, the concession fee will provide an estimated $1.1 billion in new
funding to be dedicated for road-maintenance purposes and other long-term investments of transportation projects. This transaction,
which was in part financed by 11 banks, including FirstBank, resulted in the origination of the aforementioned $150.0 million
participation on a C&I loan funded during the fourth quarter of 2023.
111
Exposure to Puerto Rico Government
As of December 31, 2023, the Corporation had $297.9 million of direct exposure to the Puerto Rico government, its municipalities
and public corporations, compared to $338.9 million as of December 31, 2022. As of December 31, 2023, approximately $189.0
million of the exposure consisted of loans and obligations of municipalities in Puerto Rico that are supported by assigned property tax
revenues and for which, in most cases, the good faith, credit and unlimited taxing power of the applicable municipality have been
pledged to their repayment, and $59.4 million consisted of loans and obligations which are supported by one or more specific sources
of municipal revenues. Approximately 73% of the Corporation’s exposure to Puerto Rico municipalities consisted primarily of senior
priority loans and obligations concentrated in four of the largest municipalities in Puerto Rico. The municipalities are required by law
to levy special property taxes in such amounts as are required for the payment of all of their respective general obligation bonds and
notes. Furthermore, municipalities are also likely to be affected by the negative economic and other effects resulting from expense,
revenue, or cash management measures taken to address the Puerto Rico government’s fiscal problems and measures included in fiscal
plans of other government entities. In addition to municipalities, the total direct exposure also included $8.9 million in loans to an
affiliate of PREPA, $37.4 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 $3.2 million as
part of its available-for-sale debt securities portfolio (fair value of $1.4 million as of December 31, 2023).
The following table details the Corporation’s total direct exposure to Puerto Rico government obligations according to their
maturities:
(In thousands)
Puerto Rico Housing Finance Authority:
After 10 years
Total Puerto Rico Housing Finance Authority
Agencies and public corporation of the Puerto Rico government:
After 1 to 5 years
After 5 to 10 years
Total agencies and public corporation of the Puerto Rico government
Affiliate of the Puerto Rico Electric Power Authority:
After 1 to 5 years
Total Puerto Rico government affiliate
Total Puerto Rico public corporations and government affiliate
Municipalities:
Due within one year
After 1 to 5 years
After 5 to 10 years
After 10 years
Total Municipalities
Total Direct Government Exposure
$
$
As of December 31, 2023
Investment
Portfolio
(Amortized
cost)
Loans
Total
Exposure
$
3,156
3,156
$
-
-
-
-
-
-
-
-
3,165
51,230
36,050
16,595
107,040
110,196
$
12,837
24,563
37,400
8,908
8,908
46,308
7,176
52,330
81,859
-
141,365
187,673
$
3,156
3,156
12,837
24,563
37,400
8,908
8,908
46,308
10,341
103,560
117,909
16,595
248,405
297,869
112
In addition, as of December 31, 2023, the Corporation had $77.7 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, 2022 – $84.7 million). Residential mortgage loans guaranteed by the PRHFA are secured by the underlying properties and the
guarantees serve to cover shortfalls in collateral in the event of a borrower default. The Puerto Rico government guarantees up to $75
million of the principal for all loans under the mortgage loan insurance program. According to the most recently released audited
financial statements of the PRHFA, as of June 30, 2022, the PRHFA’s mortgage loans insurance program covered loans in an
aggregate amount of approximately $418 million. The regulations adopted by the PRHFA require the establishment of adequate
reserves to guarantee the solvency of the mortgage loans insurance program. As of June 30, 2022, the most recent date as of which
information is available, the PRHFA had a liability of approximately $1 million as an estimate of the losses inherent in the portfolio.
As of December 31, 2023, the Corporation had $2.7 billion of public sector deposits in Puerto Rico, compared to $2.3 billion as of
December 31, 2022. Approximately 20% of the public sector deposits as of December 31, 2023 were from municipalities and
municipal agencies in Puerto Rico and 80% were from public corporations, the Puerto Rico central government and agencies, and U.S.
federal government agencies in Puerto Rico.
Exposure to USVI Government
The Corporation has operations in the USVI and has credit exposure to USVI government entities.
For many years, the USVI has been experiencing several fiscal and economic challenges that have deteriorated the overall financial
and economic conditions in the area. However, on May 22, 2023, the United States Bureau of Economic Analysis (the “BEA”)
released its estimates of GDP for 2021. According to the BEA, the USVI’s real GDP increased 2.8% in 2021 after decreasing 1.9% in
2020. The increase in real GDP reflected increases in exports and personal consumption expenditures. These increases were partly
offset by decreases in private inventory investment, private fixed investment, and government spending. Imports, a subtraction item in
the calculation of GDP, also decreased.
Over the past three years, the USVI has been recovering from the adverse impact caused by COVID-19 and has continued to make
progress on its rebuilding efforts related to Hurricanes Irma and Maria, which occurred in 2017. According to data published by the
government, over $5.0 billion in disaster recovery funds were disbursed as of November 2023 and $6.2 billion were remaining
obligated funds waiting to be disbursed. On the fiscal front, revenues have trended positively and the USVI government successfully
completed the restructuring of the government employee retirement system. Moreover, labor market trends remain stable with payroll
employment for the month of December 2023 up 0.3% when compared to December 2022.
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 December 31, 2023, the Corporation had $90.5 million in loans to USVI public corporations, compared to $38.0 million as of
December 31, 2022. The increase in loans to USVI public corporations was driven by the aforementioned $57.2 million line of credit
utilization. As of December 31, 2023, all loans were currently performing and up to date on principal and interest payments.
113
CEO and CFO Certifications
First BanCorp.’s Chief Executive Officer and Chief Financial Officer have filed with the SEC certifications required by Section 302
and Section 906 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1, 31.2, 32.1 and 32.2 to this Form 10-K.
In addition, in 2023, First BanCorp’s Chief Executive Officer provided to the NYSE his annual certification, as required for all
NYSE listed companies, that he was not aware of any violation by the Corporation of the NYSE corporate governance listing
standards.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The information required herein is incorporated by reference to the information included under the sub-caption “Interest Rate Risk
Management” in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this
Form 10-K.
114
Item 8. Financial Statements and Supplementary Data
FIRST BANCORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB No. 173)….…………………………..
116
Management’s Report on Internal Control over Financial Reporting………………………………………… 118
Consolidated Statements of Financial Condition ……………………………………………………………...
119
Consolidated Statements of Income ……...…………………………………………………………………...
120
Consolidated Statements of Comprehensive Income (Loss) ……...………………………………………..… 121
Consolidated Statements of Cash Flows……………………………………………………………………… 122
Consolidated Statements of Changes in Stockholders’ Equity ………………………………………………..
123
Notes to Consolidated Financial Statements …………………………………………………………………..
124
115
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors of First BanCorp.
San Juan, Puerto Rico
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial condition of First BanCorp. (the "Company") as of December
31, 2023, and 2022, the related consolidated statements of income, comprehensive income (loss), cash flows, and changes in
stockholders’ equity for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively
referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of
December 31, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company
as of December 31, 2023, and 2022, and the results of its operations and its cash flows for each of the years in the three-year period
ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023,
based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s
financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud,
and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
116
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the
critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Allowance for Credit Losses – Economic Forecasts and Macroeconomic Variables
As described in Notes 1 and 5 to the financial statements, the allowance for credit losses (“ACL”) for loans and finance leases is an
accounting estimate of expected credit losses over the contractual life of financial assets carried at amortized cost and off-balance-
sheet credit exposures.
The calculation of the ACL for loans and finance leases, is primarily measured based on a probability of default / loss given default
modeled approach. The estimate of the probability of default and loss given default assumptions uses one or more economic forecasts
of relevant current and forward-looking macroeconomic variables determined by portfolio segment, such as: unemployment rate;
housing and real estate price indices; interest rates; market risk factors; and gross domestic product, and considers conditions
throughout Puerto Rico, the Virgin Islands, and the State of Florida. A significant amount of judgment is required to assess the
reasonableness of the selection of economic forecasts and macroeconomic variables. Changes to these assumptions could have a
material effect on the Company’s financial results.
The economic forecasts and current and forward-looking macroeconomic variables used contribute significantly to the determination
of the ACL for loans and finance leases. We identified the assessment of economic forecasts and relevant macroeconomic variables as
a critical audit matter as the impact of these judgments represents a significant portion of the ACL for loans and finance leases and
because management’s estimate required especially subjective auditor judgment and significant audit effort, including the need for
specialized skill.
The primary procedures we performed to address these critical audit matters included:
(cid:404) Testing the effectiveness of controls over the evaluation of the selection of economic forecasts and the current and forward-
looking macroeconomic variables, including controls addressing:
(cid:82) Management’s review and approval of the economic forecasts and macroeconomic variables.
(cid:82) Management’s review of the reasonableness of the results of the selection of economic forecasts and
macroeconomic variables used in the calculation.
(cid:404) Substantively testing management’s process, including evaluating their judgments and assumptions, for economic forecast
selection and macroeconomic variables, which included:
(cid:82) Evaluation of reasonableness of economic forecasts selection.
(cid:82) Evaluation of the completeness and accuracy of data inputs used as a basis for the adjustments relating to
macroeconomic variables.
(cid:82) Evaluation, with the assistance of professionals with specialized skill and knowledge, of the reasonableness of
management’s judgments related to the economic forecast and macroeconomic variables used in the determination
of the ACL for loans. Among other procedures, our evaluation considered, evidence from internal and external
sources, loan portfolio performance trends and whether such assumptions were applied consistently period to period.
(cid:82) Analytical evaluation of the variables period to period for directional consistency and testing for reasonableness.
We have served as the Company’s auditor since 2018.
/s/ Crowe LLP
Fort Lauderdale, Florida
February 28, 2024
Stamp No. E511125 of the
Puerto Rico Society of Certified
Public Accountants was affixed to
the record copy this report.
117
Management’s Report on Internal Control over Financial Reporting
To the Stockholders and Board of Directors of First BanCorp.:
First BanCorp.’s (the “Corporation”) internal control over financial reporting is a process designed and effected by those charged
with governance, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of reliable financial statements in accordance with accounting principles generally accepted in the United States of
America (“GAAP”). The Corporation’s internal control over financial reporting includes those policies and procedures that:
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Corporation; (2) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of
financial statements in accordance with GAAP, and that receipts and expenditures of the Corporation are being made only in
accordance with authorizations of management and directors of the Corporation; and (3) provide reasonable assurance regarding
prevention, or timely detection and correction of unauthorized acquisition, use, or disposition of the Corporation’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent, or detect and correct misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management is responsible for establishing and maintaining effective internal control over financial reporting. Management
assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2023, based on the
framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-
Integrated Framework (2013). Based on that assessment, management concluded that, as of December 31, 2023, the Corporation’s
internal control over financial reporting is effective based on the criteria established in Internal Control-Integrated Framework (2013).
The Corporation’s independent registered public accounting firm, Crowe LLP, has audited the effectiveness of the Corporation’s
internal control over financial reporting as of December 31, 2023, as stated in their report dated February 28, 2024.
First BanCorp.
/s/ Aurelio Alemán
Aurelio Alemán
President and Chief Executive Officer
Date: February 28, 2024
/s/ Orlando Berges
Orlando Berges
Executive Vice President
and Chief Financial Officer
Date: February 28, 2024
118
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(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:
Securities pledged with creditors’ rights to repledge
Other available-for-sale debt securities
Total available-for-sale debt securities, at fair value (amortized cost of $5,863,294 as of December 31, 2023, and
$6,398,197 as of December 31, 2022; allowance for credit losses (''ACL'') of $511 as of December 31, 2023 and $458 as of
December 31, 2022)
Held-to-maturity debt securities, at amortized cost, net of ACL of $2,197 as of December 31, 2023 and $8,286
as of December 31, 2022 (fair value of $346,132 as of December 31, 2023 and $427,115 as of December 31, 2022)
Equity securities
Total investment securities
Loans, net of ACL of $261,843 as of December 31, 2023 and $260,464 as of December 31, 2022
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
Short-term securities sold under agreements to repurchase
Advances from the Federal Home Loan Bank ("FHLB"):
Short-term
Long-term
Total advances from the FHLB
Other long-term borrowings
Accounts payable and other liabilities
Total liabilities
Commitments and contingencies (See Note 29)
STOCKHOLDERS’ EQUITY
Common stock, $0.10 par value, 2,000,000,000 shares authorized; 223,663,116 shares issued; 169,302,812
shares outstanding as of December 31, 2023 and 182,709,059 as of December 31, 2022
Additional paid-in capital
Retained earnings, includes legal surplus reserve of $199,576 as of December 31, 2023 and $168,484 as of December 31, 2022
Treasury stock (at cost), 54,360,304 shares as of December 31, 2023 and 40,954,057 shares as of December 31, 2022
Accumulated other comprehensive loss, net of tax of $8,581 as of December 31, 2023 and $8,468 as of December 31, 2022
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these statements.
119
December 31, 2023
December 31, 2022
$
661,925
$
478,480
300
939
1,239
-
5,229,984
300
1,725
2,025
81,103
5,518,417
5,229,984
5,599,520
351,981
49,675
5,631,640
11,923,640
7,368
11,931,008
77,716
142,016
32,669
150,127
38,611
13,383
229,215
18,909,549
5,404,121
11,151,864
16,555,985
-
-
500,000
500,000
161,700
194,255
17,411,940
$
$
429,251
55,289
6,084,060
11,292,361
12,306
11,304,667
69,730
142,935
31,641
155,584
38,611
21,118
305,633
18,634,484
6,112,884
10,030,583
16,143,467
75,133
475,000
200,000
675,000
183,762
231,582
17,308,944
(nil)
(nil)
22,366
965,707
1,846,112
(697,406)
(639,170)
1,497,609
18,909,549
$
22,366
970,722
1,644,209
(506,979)
(804,778)
1,325,540
18,634,484
$
$
$
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share information)
Interest and dividend income:
Loans
Investment securities
Money market investments and interest-bearing cash accounts
Total interest and dividend income
Interest expense:
Deposits
Securities sold under agreements to repurchase:
Short-term
Long-term
Advances from the FHLB:
Short-term
Long-term
Other borrowings:
Short-term
Long-term
Total interest expense
Net interest income
Provision for credit losses - expense (benefit):
Loans and finance leases
Unfunded loan commitments
Debt securities
Provision for credit losses - expense (benefit)
Net interest income after provision for credit losses
Non-interest income:
Service charges and fees on deposit accounts
Mortgage banking activities
Gain on early extinguishment of debt
Insurance commission income
Card and processing income
Other non-interest income
Total non-interest income
Non-interest expenses:
Employees' compensation and benefits
Occupancy and equipment
Business promotion
Professional service fees
Taxes, other than income taxes
Federal Deposit Insurance Corporation ("FDIC") deposit insurance
Net gain on OREO operations
Credit and debit card processing expenses
Communications
Merger and restructuring costs
Other non-interest expenses
Total non-interest expenses
Income before income taxes
Income tax expense
Net income
Net income attributable to common stockholders
Net income per common share:
Basic
Diluted
2023
Year Ended December 31,
2022
2021
$
890,562 $
102,505
30,419
1,023,486
747,901 $
102,922
11,791
862,614
185,461
46,361
2,769
-
4,811
19,797
3
13,535
226,376
797,110
66,644
365
(6,069)
60,940
736,170
38,042
10,587
1,605
12,763
43,909
25,788
132,694
222,855
85,911
19,626
45,841
21,236
14,873
(7,138)
25,997
8,561
-
33,666
471,428
397,436
94,572
302,864 $
302,864 $
1.72 $
1.71 $
1,017
6,538
1,475
3,661
16
8,253
67,321
795,293
25,679
2,736
(719)
27,696
767,597
37,823
15,260
-
13,743
40,416
15,850
123,092
206,038
88,277
18,231
47,848
20,267
6,149
(5,826)
22,736
8,723
-
30,662
443,105
447,584
142,512
305,072 $
305,072 $
1.60 $
1.59 $
$
$
$
$
719,153
72,893
2,662
794,708
41,482
-
9,963
-
8,199
-
5,135
64,779
729,929
(61,720)
(3,568)
(410)
(65,698)
795,627
35,284
24,998
-
11,945
36,508
12,429
121,164
200,457
93,253
15,359
59,956
22,151
6,544
(2,160)
22,169
9,387
26,435
35,423
488,974
427,817
146,792
281,025
277,338
1.32
1.31
The accompanying notes are an integral part of these statements.
120
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Net income
Other comprehensive income (loss), net of tax:
Available-for-sale debt securities:
Net unrealized holding gains (losses) on debt securities (1)
Defined benefit plans adjustments:
Net actuarial gain (loss)
Reclassification adjustment for amortization of net actuarial loss
Other comprehensive income (loss) for the year, net of tax
Total comprehensive income (loss)
(In thousands)
Income tax effect of items included in other comprehensive income (loss):
Defined benefit plans adjustments:
Net actuarial gain (loss)
Reclassification adjustment for amortization of net actuarial loss
Total income tax effect of items included in other comprehensive income (loss)
Year Ended December 31,
2022
2023
2021
$
302,864
$
305,072
$
281,025
165,420
(718,582)
(143,115)
177
11
165,608
468,472
$
(2,199)
2
(720,779)
(415,707) $
3,660
1
(139,454)
141,571
Year Ended December 31,
2023
2022
2021
(107) $
(6)
(113) $
1,319
(1)
1,318
$
$
(2,199)
-
(2,199)
$
$
$
(1) Net unrealized 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")
unit or subsidiary, or have a full deferred tax asset valuation allowance.
The accompanying notes are an integral part of these statements.
121
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(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 - expense (benefit)
Deferred income tax expense
Stock-based compensation
Gain on early extinguishment of debt
Unrealized gain on derivative instruments
Net gain on disposals or sales, and impairments of premises and equipment and other assets
Net gain on sales of loans and loans held-for-sale valuation adjustments
Net amortization of discounts, premiums, and deferred loan fees and costs
Originations and purchases of loans held for sale
Sales and repayments of loans held for sale
Amortization of broker placement fees
Net amortization of premiums and discounts on investment securities
(Increase) decrease in accrued interest receivable
Increase (decrease) in accrued interest payable
(Increase) decrease in other assets
(Decrease) increase in other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Net (disbursements) repayments on loans held for investment
Proceeds from sales of loans held for investment
Proceeds from sales of repossessed assets
Purchases of available-for-sale debt securities
Proceeds from principal repayments and maturities of available-for-sale debt securities
Purchases of held-to-maturity debt securities
Proceeds from principal repayments and maturities of held-to-maturity debt securities
Additions to premises and equipment
Proceeds from sales of premises and equipment and other assets
Net redemptions (purchases) of other investments securities
Proceeds from the settlement of insurance claims - investing activities
Net cash paid from business combination
Net cash used in investing activities
Cash flows from financing activities:
Net increase (decrease) in deposits
Net (repayments) proceeds of short-term borrowings
Repayments of long-term borrowings
Proceeds from long-term borrowings
Repurchase of outstanding common stock
Dividends paid on common stock
Dividends paid on preferred stock
Redemption of preferred stock- Series A through E
Net cash (used in) provided by financing activities
Net increase (decrease) 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
2023
Year Ended December 31,
2022
2021
$
302,864
$
305,072
$
281,025
20,501
7,735
60,940
6,105
7,799
(1,605)
(301)
(3,514)
(1,572)
1,223
(147,460)
149,888
309
4,967
(5,437)
18,430
(16,619)
(41,290)
362,963
(758,232)
7,736
53,870
(5,458)
549,644
-
85,988
(22,599)
4,475
5,643
483
-
(78,450)
470,981
(550,133)
(19,795)
300,000
(203,241)
(99,666)
-
-
(101,854)
182,659
480,505
663,164
661,925
1,239
663,164
22,289
8,816
27,696
54,216
5,407
-
(1,098)
(706)
(5,498)
(7,853)
(214,962)
235,199
106
3,435
(11,340)
1,706
(2,437)
20,437
440,485
(603,853)
62,168
46,281
(512,327)
626,802
(289,784)
32,153
(20,459)
1,196
(23,637)
-
-
(681,460)
(1,706,118)
550,133
(500,000)
200,000
(277,769)
(87,824)
-
-
(1,821,578)
(2,062,553)
2,543,058
480,505
478,480
2,025
480,505
$
$
$
$
$
$
24,965
11,407
(65,698)
118,323
5,460
-
(4,227)
(32)
(14,791)
(25,294)
(503,200)
528,253
218
26,549
7,701
(2,776)
24,344
(12,506)
399,721
599,097
81,458
55,867
(3,447,921)
1,445,873
-
12,677
(13,349)
832
5,322
550
(3,381)
(1,262,975)
2,472,579
-
(240,000)
-
(216,522)
(65,021)
(2,453)
(36,104)
1,912,479
1,049,225
1,493,833
2,543,058
2,540,376
2,682
2,543,058
$
$
$
The accompanying notes are an integral part of these statements.
122
FIRST BANCORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
2023
Year Ended December 31,
2022
2021
(In thousands, except per share information)
Preferred Stock:
Balance at beginning of year
Redemption of Series A through E Preferred Stock
Balance at end of year
Common Stock:
Balance at beginning of year
Common stock issued under stock-based compensation plan
Balance at end of year
Additional Paid-In Capital:
Balance at beginning of year
Stock-based compensation expense
Common stock reissued/issued under stock-based compensation plan
Restricted stock forfeited
Issuance costs of Series A through E Preferred Stock redeemed
Balance at end of year
Retained Earnings:
Balance at beginning of year
Cumulative adjustment of adoption of Accounting Standards Update ("ASU") 2022-02 (See Note 1)
Net income
Dividends on common stock (2023 - $0.56 per share; 2022 - $0.46 per share; 2021 - $0.31 per share)
Dividends on preferred stock
Excess of redemption value over carrying value of Series A through E Preferred Stock redeemed
Balance at end of year
Treasury Stock (at cost):
Balance at beginning of year
Common stock repurchases (See Note 17)
Common stock reissued under stock-based compensation plan
Restricted stock forfeited
Balance at end of year
Accumulated Other Comprehensive Loss, net of tax:
Balance at beginning of year
Other comprehensive income (loss), net of tax
Balance at end of year
Total stockholders’ equity
$
$
-
-
-
$
-
-
-
22,366
-
22,366
970,722
7,799
(13,531)
717
-
965,707
1,644,209
(1,357)
302,864
(99,604)
-
-
1,846,112
(506,979)
(203,241)
13,531
(717)
(697,406)
(804,778)
165,608
(639,170)
22,366
-
22,366
972,547
5,407
(7,365)
133
-
970,722
1,427,295
-
305,072
(88,158)
-
-
1,644,209
(236,442)
(277,769)
7,365
(133)
(506,979)
(83,999)
(720,779)
(804,778)
36,104
(36,104)
-
22,303
63
22,366
965,385
5,460
(63)
531
1,234
972,547
1,215,321
-
281,025
(65,364)
(2,453)
(1,234)
1,427,295
(19,389)
(216,522)
-
(531)
(236,442)
55,455
(139,454)
(83,999)
$
1,497,609
$
1,325,540
$
2,101,767
The accompanying notes are an integral part of these statements.
123
FIRST BANCORP.
INDEX TO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 –
Note 2 –
Note 3 –
Note 4 –
Note 5 –
Note 6 –
Note 7 –
Note 8 –
Note 9 –
Note 10 –
Note 11 –
Note 12 –
Note 13 –
Note 14 –
Note 15 –
Note 16 –
Note 17 –
Note 18 –
Note 19 –
Note 20 –
Note 21 –
Note 22 –
Note 23 –
Note 24 –
Note 25 –
Note 26 –
Note 27 –
Note 28 –
Note 29 –
Note 30 –
Nature of Business and Summary of Significant Accounting Policies
Money Market Investments
Debt Securities
Loans Held for Investment
Allowance for Credit Losses for Loans and Finance Leases
Premises and Equipment
Other Real Estate Owned
Related-Party Transactions
Goodwill and Other Intangibles
Non-Consolidated Variable Interest Entities (“VIEs”) and Servicing Assets
Deposits
Securities Sold Under Agreements to Repurchase (“Repurchase Agreements”)
Advances from the Federal Home Loan Bank (“FHLB”)
Other Borrowings
Earnings per Common Share
Stock-Based Compensation
Stockholders’ Equity
Accumulated Other Comprehensive Loss
Employee Benefit Plans
Other Non-Interest Income
Other Non-Interest Expenses
Income Taxes
Operating Leases
Derivative Instruments and Hedging Activities
Fair Value
Revenue from Contracts with Customers
Segment Information
Supplemental Statement of Cash Flows Information
Regulatory Matters, Commitments, and Contingencies
First BanCorp. (Holding Company Only) Financial Information
124
PAGE
125
141
142
152
179
182
183
183
184
186
191
193
193
194
195
196
199
201
202
206
206
207
211
212
215
221
224
227
228
232
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
First BanCorp. (the “Corporation”) is a publicly owned, Puerto Rico-chartered financial holding company organized under the laws
of the Commonwealth of Puerto Rico in 1948. The Corporation is subject to regulation, supervision, and examination by the Board of
Governors of the Federal Reserve System (the “Federal Reserve Board”). Through its subsidiaries, including its banking subsidiary,
FirstBank Puerto Rico (“FirstBank” or the “Bank”), the Corporation provides full-service commercial and consumer banking services,
mortgage banking services, automobile financing, trust services, insurance agency services, and other financial products and services
with operations in Puerto Rico, the United States, the U.S. Virgin Islands (the “USVI”), and the British Virgin Islands (the “BVI”).
The Corporation has two wholly-owned subsidiaries: FirstBank Puerto Rico (“FirstBank” or the “Bank”), and FirstBank Insurance
Agency, Inc. (“FirstBank Insurance Agency”). FirstBank is a Puerto Rico-chartered commercial bank, and FirstBank Insurance
Agency is a Puerto Rico-chartered insurance agency. FirstBank is subject to the supervision, examination, and regulation of both the
Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico (the “OCIF”) and the FDIC. Deposits are
insured through the FDIC Deposit Insurance Fund. FirstBank also operates in the State of Florida, subject to regulation and
examination by the Florida Office of Financial Regulation and the FDIC; in the USVI, subject to regulation and examination by the
USVI Division of Banking, Insurance and Financial Regulation; and in the BVI, subject to regulation by the British Virgin Islands
Financial Services Commission. The Consumer Financial Protection Bureau (the “CFPB”) regulates FirstBank’s consumer financial
products and services.
FirstBank Insurance Agency is subject to the supervision, examination, and regulation, including the Office of the Insurance
Commissioner of the Commonwealth of Puerto Rico and the Division of Banking, Insurance and Financial Regulation in the USVI.
FirstBank conducts its business through its main office located in San Juan, Puerto Rico, 58 banking branches in Puerto Rico, eight
banking branches in the USVI and the BVI, and eight banking branches in the state of Florida (USA). FirstBank has six wholly-owned
subsidiaries with operations in Puerto Rico: First Federal Finance Corp. (d/b/a Money Express La Financiera), a finance company
specializing in the origination of small loans with 25 offices in Puerto Rico; First Management of Puerto Rico, a Puerto Rico
corporation, which holds tax-exempt assets; FirstBank Overseas Corporation, an international banking entity (an “IBE”) organized
under the International Banking Entity Act of Puerto Rico; two companies engaged in the operation of certain real estate properties;
and a limited liability corporation organized in 2022 under the laws of the Commonwealth of Puerto Rico and Puerto Rico Tax
Incentives Code (“Act 60 of 2019”), which commenced operations in 2023 and engages in investing and lending transactions.
General
The accompanying consolidated audited financial statements have been prepared in conformity with generally accepted accounting
principles in the United States of America (“GAAP”). The following is a description of the Corporation’s most significant accounting
policies.
Principles of consolidation
The consolidated financial statements include the accounts of the Corporation and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. The results of operations of companies or assets acquired in a
business combination are included from the date of acquisition. Entities in which the Corporation holds a controlling financial interest
are consolidated. For a voting interest entity, a controlling financial interest is generally where the Corporation holds, directly or
indirectly, more than 50 percent of the outstanding voting shares. For a VIE, a controlling financial interest is where the Corporation
has the power to direct the activities of an entity that most significantly impact the entity’s economic performance and has an
obligation to absorb losses or the right to receive benefits from the VIE. Statutory business trusts that are wholly owned by the
Corporation and are issuers of trust-preferred securities (“TRuPs”) and entities in which the Corporation has a non-controlling interest,
are not consolidated in the Corporation’s consolidated financial statements in accordance with authoritative guidance issued by the
Financial Accounting Standards Board (“FASB”) for consolidation of VIEs.
125
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
significantly affect amounts reported in the consolidated financial statements. Although estimates and assumptions about future
economic and market conditions (for example, unemployment, market liquidity, real estate prices, etc.) contemplate current conditions
and how we expect them to change in the future, it is reasonably possible that actual conditions could be worse than anticipated in
those estimates, which could materially affect our results of operations and financial condition.
The Corporation utilizes processes that involve the use of significant estimates and the judgements of management in determining
the amount of its ACL, income taxes, as well as fair value measurements of investment securities, goodwill, other intangible assets,
pension plans, mortgage servicing rights, and loans held for sale. As with any estimate, actual results could differ from those
estimates.
Cash and cash equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash items in transit, and amounts due from
the Federal Reserve Bank of New York (the “FED”) and other depository institutions. The term also includes money market funds and
short-term investments with original maturities of three months or less.
Investment securities
The Corporation classifies its investments in debt and equity securities into one of four categories:
Held-to-maturity — Debt securities that the entity has the intent and ability to hold to maturity. These securities are carried at
amortized cost. The Corporation may not sell or transfer held-to-maturity securities without calling into question its intent to
hold other debt securities to maturity, unless a nonrecurring or unusual event that could not have been reasonably anticipated has
occurred.
Trading — Debt securities that are bought and held principally for the purpose of selling them in the near term. These securities
are carried at fair value, with unrealized gains and losses reported in earnings. As of December 31, 2023, and 2022, the
Corporation did not hold debt securities for trading purposes.
Available-for-sale — Debt securities not classified as held-to-maturity or trading. These securities are carried at fair value, with
unrealized holding gains and losses, net of deferred taxes, reported in other comprehensive loss (“OCL”) as a separate
component of stockholders’ equity. The unrealized holding gains and losses do not affect earnings until they are realized, or an
ACL is recorded.
Equity securities — Equity securities that do not have readily available fair values are classified as equity securities in the
consolidated statements of financial condition. These securities are stated at cost less impairment, if any. This category is
principally composed of FHLB stock that the Corporation owns to comply with FHLB regulatory requirements. The realizable
value of the FHLB stock equals its cost. Also included in this category are marketable equity securities held at fair value with
changes in unrealized gains or losses recorded through earnings in other non-interest income.
Premiums and discounts on debt securities are amortized as an adjustment to interest income on investments over the life of the
related securities under the interest method without anticipating prepayments, except for mortgage-backed securities (“MBS”) where
prepayments are anticipated. Premiums on callable debt securities, if any, are amortized to the earliest call date. Purchases and sales of
securities are recognized on a trade-date basis, the date the order to buy or sell is executed. Gains and losses on sales are determined
using the specific identification method.
A debt security is placed on nonaccrual status at the time any principal or interest payment becomes 90 days delinquent. Interest
accrued but not received for a security placed on nonaccrual is reversed against interest income. See Note 3 – “Debt Securities” for
additional information on nonaccrual debt securities.
Allowance for Credit Losses – Held-to-Maturity Debt Securities: As of December 31, 2023, the held-to-maturity debt securities
portfolio consisted of U.S. government-sponsored entities (“GSEs”) MBS and Puerto Rico municipal bonds.
126
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The ACL on held-to-maturity debt securities is based on an expected loss methodology referred to as current expected credit loss
(“CECL”) methodology by major security type. Any expected credit loss is provided through the ACL on held-to-maturity debt
securities and is deducted from the amortized cost basis of the security so that the statement of financial condition reflects the net
amount the Corporation expects to collect.
The Corporation does not recognize an ACL for GSEs’ MBS since they are either explicitly or implicitly guaranteed by the U.S.
government, are highly rated by major rating agencies, and have a long history of no credit losses. For the ACL of held-to-maturity
Puerto Rico municipal bonds, the Corporation considers historical credit loss information that is adjusted for current conditions and
reasonable and supportable forecasts. These Puerto Rico municipal obligations typically are not issued in bearer form, nor are they
registered with the Securities and Exchange Commission (“SEC”) and are not rated by external credit agencies. These financing
arrangements with Puerto Rico municipalities were issued in bond form and accounted for as securities but underwritten as loans with
features that are typically found in commercial loans. Accordingly, similar to commercial loans, an internal risk rating ( i.e., pass,
special mention, substandard, doubtful, or loss) is assigned to each bond at the time of issuance or acquisition and monitored on a
continuous basis with a formal assessment completed, at a minimum, on a quarterly basis. The Corporation determines the ACL for
held-to-maturity Puerto Rico municipal bonds based on the product of a cumulative probability of default (“PD”) and loss given
default (“LGD”), and the amortized cost basis of each bond over its remaining expected life. PD estimates represent the point -in-time
as of which the PD is developed, and are updated quarterly based on, among other things, the payment performance experience,
financial performance and market value indicators, and current and forecasted relevant forward-looking macroeconomic variables
over the expected life of the bonds, to determine a lifetime term structure PD curve. LGD estimates are determined based on, among
other things, historical charge-off events and recovery payments (if any), government sector historical loss experience, as well as
relevant current and forecasted macroeconomic expectations of variables, such as unemployment rates, interest rates, and market risk
factors based on industry performance, to determine a lifetime term structure LGD curve. Under this approach, all future period losses
for each instrument are calculated using the PD and LGD loss rates derived from the term structure curves applied to the amortized
cost basis of each bond. For the relevant macroeconomic expectations of variables, the methodology considers an initial forecast
period (a “reasonable and supportable period”) of two years and a reversion period of up to three years, utilizing a straight-line
approach and reverting back to the historical macroeconomic mean. After the reversion period, the Corporation uses a historical loss
forecast period covering the remaining contractual life based on the changes in key historical economic variables during representative
historical expansionary and recessionary periods. Furthermore, the Corporation periodically considers the need for qualitative
adjustments to the ACL. Qualitative adjustments may be related to and include, but not be limited to, factors such as: (i)
management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall
evaluation of current and expected economic conditions; (ii) organization specific risks such as credit concentrations, collateral
specific risks, nature and size of the portfolio and external factors that may ultimately impact credit quality, and (iii) other limitations
associated with factors such as changes in underwriting and resolution strategies, among others.
The Corporation has elected not to measure an ACL on accrued interest related to held-to-maturity debt securities, as uncollectible
accrued interest receivables are written off on a timely manner. See Note 3 – “Debt Securities” for additional information about ACL
balances for held-to-maturity debt securities, activity during the period, and information about changes in circumstances that caused
changes in the ACL for held-to-maturity debt securities during the years ended December 31, 2023, 2022, and 2021.
Allowance for Credit Losses – Available-for-Sale Debt Securities: For available-for-sale debt securities in an unrealized loss
position, the Corporation first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security
before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the difference between
fair value and amortized cost is considered to be impaired and recognized in provision for credit losses. For available-for-sale debt
securities that do not meet the aforementioned criteria, the Corporation evaluates whether the decline in fair value has resulted from
credit losses or other factors. In making this assessment, management considers the cash position of the issuer and its cash and capital
generation capacity, which could increase or diminish the issuer’s ability to repay its bond obligations, the extent to which the fair
value is less than the amortized cost basis, any adverse change to the credit conditions and liquidity of the issuer, taking into
consideration the latest information available about the financial condition of the issuer, credit ratings, the failure of the issuer to make
scheduled principal or interest payments, recent legislation and government actions affecting the issuer’s industry, and actions taken
by the issuer to deal with the economic climate. The Corporation also takes into consideration changes in the near-term prospects of
the underlying collateral of a security, if any, such as changes in default rates, loss severity given default, and significant changes in
prepayment assumptions and the level of cash flows generated from the underlying collateral, if any, supporting the principal and
interest payments on the debt securities. If this assessment indicates that a credit loss exists, the present value of cash flows expected
to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to
be collected is less than the amortized cost basis, a credit loss exists and the Corporation records an ACL for the credit loss portion,
limited to the amount by which the fair value is less than the amortized cost basis. Meanwhile, the non-credit portion is recognized in
OCL. Non-credit-related impairments result from other factors, including increased liquidity spreads and higher interest rates.
127
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Losses are charged against the ACL when management believes the uncollectability of an available-for-sale debt security is
confirmed or when either of the criteria regarding intent or requirement to sell is met. The Corporation has elected not to measure an
ACL on accrued interest related to available-for-sale debt securities, as uncollectible accrued interest receivables are written off in a
timely manner as indicated above.
Substantially all of the Corporation’s available-for-sale debt securities are issued by GSEs. These securities are either explicitly or
implicitly guarant.eed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses.
Accordingly, there is a zero-credit loss expectation on these securities. For further information, including the methodology and
assumptions used for the discounted cash flow analyses performed on other available-for-sale debt securities such as private label
MBS and bonds issued by the Puerto Rico Housing Finance Authority (“PRHFA”), see Note 3 – “Debt Securities” and Note 25 –
“Fair Value.”
Loans held for investment
Loans that the Corporation has the ability and intent to hold for the foreseeable future, or until maturity or payoff, are classified as
held for investment and are reported at amortized cost, net of its ACL. The substantial majority of the Corporation’s loans are
classified as held for investment. Amortized cost is the principal outstanding balance, net of unearned interest, cumulative charge-offs,
unamortized deferred origination fees and costs, and unamortized premiums and discounts. The Corporation reports credit card loans
at their outstanding unpaid principal balance plus uncollected billed interest and fees net of such amounts deemed uncollectible.
Interest income is accrued on the unpaid principal balance. Fees collected and costs incurred in the origination of new loans are
deferred and amortized using the interest method or a method that approximates the interest method over the term of the loan as an
adjustment to interest yield. Unearned interest on certain personal loans, auto loans, and finance leases and discounts and premiums
are recognized as income under a method that approximates the interest method. When a loan is paid-off or sold, any remaining
unamortized net deferred fees, or costs, discounts and premiums are included in loan interest income in the period of payoff.
Nonaccrual and Past-Due Loans – Loans on which the recognition of interest income has been discontinued are designated as
nonaccrual. Loans are classified as nonaccrual when they are 90 days past due for interest and principal, except for residential
mortgage loans insured or guaranteed by the Federal Housing Administration (the “FHA”), the Veterans Administration (the “VA”) or
the PRHFA, and credit card loans. It is the Corporation’s policy to report delinquent mortgage loans insured by the FHA, or
guaranteed by the VA or the PRHFA, as loans past due 90 days and still accruing as opposed to nonaccrual loans since the principal
repayment is insured or guaranteed, and such loans continue to accrue interest at the rate guaranteed by the government agency.
However, when such FHA/VA loans are over 15 months delinquent, the Corporation discontinues the recognition of income taking
into consideration the FHA interest curtailment process, and with respect to PRHFA loans when such loans are over 90 days
delinquent. Credit card loans continue to accrue finance charges and fees until charged off at 180 days. Loans generally may be placed
on nonaccrual status prior to when required by the policies described above when the full and timely collection of interest or principal
becomes uncertain (generally based on an assessment of the borrower’s financial condition and the adequacy of collateral, if any).
When a loan is placed on nonaccrual status, any accrued but uncollected interest income is reversed and charged against interest
income and amortization of any net deferred fees is suspended. Interest income on nonaccrual loans is recognized only to the extent it
is received in cash. However, when there is doubt regarding the ultimate collectability of loan principal, all cash thereafter received is
applied to reduce the carrying value of such loans (i.e., the cost recovery method). Under the cost-recovery method, interest income is
not recognized until the loan balance has been collected in full, including the charged -off portion. Generally, the Corporation returns a
loan to accrual status when all delinquent interest and principal becomes current under the terms of the loan agreement, or after a
sustained period of repayment performance (six months ) and the loan is well secured and in the process of collection, and full
repayment of the remaining contractual principal and interest is expected. Loans that are past due 30 days or more as to principal or
interest are considered delinquent, with the exception of residential mortgage, commercial mortgage, and construction loans, which
are considered past due when the borrower is in arrears on two or more monthly payments. The Corporation has elected not to
measure an ACL on accrued interest related to loans held for investment, as uncollectible accrued interest receivables are written off
on a timely manner.
Collateral-dependent Loans – Certain commercial, residential and consumer loans for which repayment is expected to be provided
substantially through the operation or sale of the loan collateral are considered to be collateral-dependent. Commercial and
construction loans of $ 0.5 million or more and for which borrowers exhibit specific risk characteristics, such as repayment capacity or
credit deterioration, are considered collateral dependent. Residential mortgage loans and home equity lines of credit are considered
collateral dependent when they are 180 days or more past due. The ACL of collateral dependent loans is based on the fair value of the
collateral at the reporting date, adjusted for undiscounted estimated costs to sell, as further discussed below. Auto loans and finance
leases are not considered collateral dependent because its ACL is calculated using a PD/LGD model as further discussed below.
128
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Charge-off of Uncollectible Loans – Net charge -offs consist of the unpaid principal balances of loans held for investment that the
Corporation determines are uncollectible, net of recovered amounts. The Corporation records charge -offs as a reduction to the ACL
and subsequent recoveries of previously charged-off amounts are credited to the ACL.
Collateral dependent loans in the construction, commercial mortgage, and commercial and industrial (“C&I”) loan portfolios are
written down to their net realizable value (fair value of collateral, less estimated costs to sell) when loans are considered to be
uncollectible. Within the consumer loan portfolio, closed-end consumer loans, including auto loans and finance leases, are charged off
when payments are 120 days in arrears. Open-end (revolving credit) consumer loans, including credit card loans, are charged off when
payments are 180 days in arrears. Residential mortgage loans that are 180 days delinquent are reviewed and charged-off, as needed, to
the fair value of the underlying collateral less cost to sell. Generally, all loans may be charged off or written down to the fair value of
the collateral prior to the application of the policies described above if a loss-confirming event has occurred. Loss-confirming events
include, but are not limited to, bankruptcy (unsecured), continued delinquency, or receipt of an asset valuation indicating a collateral
deficiency when the asset is the sole source of repayment.
Modifications Granted to Debtors Experiencing Financial Difficulties – Effective January 1, 2023, the Corporation adopted ASU
2022-02 Financial Instruments – Credit Losses (Topic 326) Troubled Debt Restructurings (“TDR”) and Vintage Disclosures. Upon
adoption, modifications granted to debtors experiencing financial difficulties during the current reporting period in which there was a
change in the timing and/or amount of contractual cash flows in the form of a reduction in interest rate, term extension, an other-than-
insignificant payment delay, or any combination thereof are disclosed. For comparative reporting periods, modifications resulting in
troubled debt restructurings (“TDRs”) in which the creditor for economic or legal reasons related to the debtor’s financial difficulties
grants a concession to the debtor that it would not otherwise consider are disclosed. A debtor is considered to be experiencing
financial difficulties when there is significant doubt about the debtor’s ability to make required payments on the debt or to get
equivalent financing from another creditor at a market rate for similar debt. Modified loans are classified as either accrual or
nonaccrual loans. Loans in accrual status may remain in accrual status when their contractual terms have been modified if the loans
had demonstrated performance prior to the restructuring and payment in full under the restructured terms is expected. Otherwise,
modified loans on nonaccrual status at the time of the restructuring will remain on nonaccrual status until the borrower has proven the
ability to perform under the modified structure, generally for a minimum of six months, and there is evidence that such payments can,
and are likely to, continue as agreed. Furthermore, the Corporation applies a non-discounted flow portfolio-based approach for the
estimation of the ACL of modified loans to borrowers experiencing financial difficulties for all portfolios.
Refer to Accounting Standards Updates (“ASU”) 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt
Restructurings and Vintage Disclosures” below for the financial impact recognized upon adoption of this standard and information on
the amendments to the TDR guidance that were effective on or after January 1, 2023.
Allowance for credit losses for loans and finance leases
The ACL for loans and finance leases held for investment is a valuation account that is deducted from the loans’ amortized cost
basis to present the net amount expected to be collected on loans. Loans are charged -off against the ACL when management confirms
the loan balance is uncollectable.
The Corporation estimates the ACL using relevant available information, from internal and external sources, relating to past events,
current conditions, and reasonable and supportable forecasts. Historical credit loss experience is a significant input for the estimation
of expected credit losses, as well as adjustments to historical loss information made for differences in current loan-specific risk
characteristics, such as any difference in underwriting standards, portfolio mix, delinquency level, or term. Additionally, the
Corporation’s assessment involves evaluating key factors, which include credit and macroeconomic indicators, such as changes in
unemployment rates, property values, and other relevant factors, to account for current and forecasted market conditions that are likely
to cause estimated credit losses over the life of the loans to differ from historical credit losses. Expected credit losses are estimated
over the contractual term of the loans, adjusted by prepayments when appropriate. The contractual term excludes expected extensions,
and renewals, unless the extension or renewal options are included in the original or modified contract at the reporting date and are not
unconditionally cancellable by the Corporation.
The Corporation estimates the ACL primarily based on a PD/LGD modeled approach, or individually primarily for collateral
dependent loans. The Corporation evaluates the need for changes to the ACL by portfolio segments and classes of loans within certain
of those portfolio segments. Factors such as the credit risk inherent in a portfolio and how the Corporation monitors the related
quality, as well as the estimation approach to estimate credit losses, are considered in the determination of such portfolio segments and
classes. The Corporation has identified the following portfolio segments:
129
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(cid:404) Residential mortgage – Residential mortgage loans are loans secured by residential real property together with the right to
receive the payment of principal and interest on the loan. The majority of the Corporation’s residential loans are fixed-rate
first lien closed-end loans secured by 1-4 single-family residential properties.
(cid:404) Commercial mortgage – Commercial mortgage loans are loans secured primarily by commercial real estate properties for
which the primary source of repayment comes from rent and lease payments that are generated by an income-producing
property.
(cid:404) Commercial and Industrial – C&I loans include both unsecured and secured loans for which the primary source of repayment
comes from the ongoing operations and activities conducted by the borrower and not from rental income or the sale or
refinancing of any underlying real estate collateral; thus, credit risk is largely dependent on the commercial borrower’s
current and expected financial condition. The C&I loan portfolio consists of loans granted to large corporate customers as
well as middle-market customers across several industries, and the government sector.
(cid:404) Construction – Construction loans consist generally of loans secured by real estate made to finance the construction of
industrial, commercial, or residential buildings and include loans to finance land development in preparation for erecting new
structures. These loans involve an inherently higher level of risk and sensitivity to market conditions. Demand from
prospective tenants or purchasers may erode after construction begins because of a general economic slowdown or otherwise.
(cid:404) Consumer – Consumer loans generally consist of unsecured and secured loans extended to individuals for household, family,
and other personal expenditures, including several classes of products.
For purposes of the ACL determination, the Corporation stratifies portfolio segments by two main regions (i.e., the Puerto
Rico/Virgin Islands region and the Florida region). The ACL is measured using a PD/LGD model that is calculated based on the
product of a cumulative PD and LGD. PD and LGD estimates are updated quarterly for each loan over the remaining expected life to
determine lifetime term structure curves. Under this approach, the Corporation calculates losses for each loan for all future periods
using the PD and LGD loss rates derived from the term structure curves applied to the amortized cost basis of the loans, considering
prepayments.
For residential mortgage loans, the Corporation stratifies the portfolio segment by the following two classes: (i) government-
guaranteed residential mortgage loans, and (ii) conventional mortgage loans. Government-guaranteed loans are those originated to
qualified borrowers under the FHA and the VA standards. Originated loans that meet the FHA’s standards qualify for the FHA’s
insurance program whereas loans that meet the standards of the VA are guaranteed by such entity. No credit losses are determined for
loans insured or guaranteed by the FHA or the VA due to the explicit guarantee of the U.S. federal government. On the other hand, an
ACL is calculated for conventional residential mortgage loans, which are loans that do not qualify under the FHA or VA programs.
PD estimates are based on, among other things, historical payment performance and relevant current and forward-looking
macroeconomic variables, such as regional unemployment rates. On the other hand, LGD estimates are based on, among other things,
historical charge-off events and recovery payments, loan-to-value attributes, and relevant current and forecasted macroeconomic
variables, such as the regional housing price index.
For commercial mortgage loans, PD estimates are based on, among other things, industry historical loss experience, property type,
occupancy, and relevant current and forward-looking macroeconomic variables. On the other hand, LGD estimates are based on
historical charge-off events and recovery payments, industry historical loss experience, specific attributes of the loans, such as loan-to-
value, debt service coverage ratios, and net operating income, as well as relevant current and forecasted macroeconomic variables
expectations, such as commercial real estate price indexes, the gross domestic product (“GDP”), interest rates, and unemployment
rates, among others.
For C&I loans, PD estimates are based on industry historical loss experience, financial performance and market value indicators,
and current and forecasted relevant forward-looking macroeconomic variables. On the other hand, LGD estimates are based on
industry historical loss experience, specific attributes of the loans, such as loan to value, as well as relevant current and forecasted
expectations for macroeconomic variables, such as unemployment rates, interest rates, and market risk factors based on industry
performance and the equity market.
For construction loans, PD estimates are based on, among other things, historical payment performance experience, industry
historical loss experience, underlying type of collateral, and relevant current and forward-looking macroeconomic variables. On the
other hand, LGD estimates are based on historical charge-off events and recovery payments, industry historical loss experience,
specific attributes of the loans, such as loan-to-value, debt service coverage ratios, and relevant current and forecasted macroeconomic
variables, such as unemployment rates, GDP, interest rates, and real estate price indexes.
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For consumer loans, the Corporation stratifies the portfolio segment by the following five classes: (i) auto loans; (ii) finance leases;
(iii) credit cards; (iv) personal loans; and (v) other consumer loans, such as open-end home equity revolving lines of credit and other
types of consumer credit lines, among others. In determining the ACL, management considers consumer loans risk characteristics
including, but not limited to, credit quality indicators such as payment performance period, delinquency and original FICO scores. For
auto loans and finance leases, PD estimates are based on, among other things, the historical payment performance and relevant current
and forward-looking macroeconomic variables, such as regional unemployment rates. On the other hand, LGD estimates are primarily
based on historical charge-off events and recovery payments. For the credit card and personal loan portfolios, the Corporation
determines the ACL on a pool basis, based on products PDs and LGDs developed considering historical losses for each origination
vintage by length of loan terms, by geography, payment performance and by credit score. The PD and LGD for each cohort consider
key macroeconomic variables, such as regional GDP, unemployment rates, and retail sales, among others.
For the ACL determination of all portfolios, the expectations for relevant macroeconomic variables related to the Puerto Rico and
Virgin Islands region consider an initial reasonable and supportable period of two years and a reversion period of up to three years,
utilizing a straight-line approach and reverting back to the historical macroeconomic mean. For the Florida region, the methodology
considers a reasonable and supportable forecast period and an implicit reversion towards the historical trend that varies for each
macroeconomic variable. After the reversion period, a historical loss forecast period covering the remaining contractual life, adjusted
for prepayments, is used based on the changes in key historical economic variables during representative historical expansionary and
recessionary periods.
Furthermore, the Corporation periodically considers the need for qualitative adjustments to the ACL. Qualitative adjustments may
be related to and include, but not be limited to, factors such as: (i) management’s assessment of economic forecasts used in the model
and how those forecasts align with management’s overall evaluation of current and expected economic conditions, including, but not
limited to, expectations about interest rate, inflation, and real estate price levels, as well as labor market challenges; (ii) organization
specific risks such as credit concentrations, collateral specific risks, nature and size of the portfolio and external factors that may
ultimately impact credit quality, and (iii) other limitations associated with factors such as changes in underwriting and loan resolution
strategies, among others.
The ACL of non-collateral dependent loans previously written down to their respective realizable values, is generally measured
using a risk-adjusted discounted cash flow method. Under this approach, all future cash flows (interest and principal) for each loan are
adjusted by the PDs and LGDs derived from the term structure curves and prepayments and then discounted at the effective interest
rate as of the reporting date to arrive at the net present value of future cash flows.
See Note 5 – “Allowance for Credit Losses for Loans and Finance Leases” for additional information about reserve balances for
each portfolio segment, activity during the period, and information about changes in circumstances that caused changes in the ACL for
loans and finance leases during the years ended December 31, 2023, 2022, and 2021.
Refer to ASU 2022-02 discussion below for information on the amendments to the TDR guidance that are effective on or after
January 1, 2023.
Allowance for credit losses on off-balance sheet credit exposures and other assets
The Corporation estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk via a
contractual obligation to extend credit unless the obligation is unconditionally cancellable by the Corporation. The ACL on off-
balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood
that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. As of
December 31, 2023, the off-balance sheet credit exposures primarily consisted of unfunded loan commitments and standby letters of
credit for commercial and construction loans. The Corporation utilized the PDs and LGDs derived from the above-explained
methodologies for the commercial and construction loan portfolios. Under this approach, all future period losses for each loan are
calculated using the PD and LGD loss rates derived from the term structure curves applied to the usage given default exposure. The
ACL on off-balance sheet credit exposures is included as part of accounts payable and other liabilities in the consolidated statements
of financial condition with adjustments included as part of the provision for credit losses in the consolidated statements of income.
See Note 5 – “Allowance for Credit Losses” for Loans and Finance Leases for additional information about reserve balances for
unfunded loan commitments, activity during the period, and information about changes in circumstances that caused changes in the
ACL for off-balance sheet credit exposures during the years ended December 31, 2023, 2022 and 2021.
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The Corporation also estimates expected credit losses for certain accounts receivable, primarily claims from government-
guaranteed loans, loan servicing-related receivables, and other receivables. The ACL on other assets measured at amortized cost is
included as part of other assets in the consolidated statements of financial condition with adjustments included as part of other non-
interest expenses in the consolidated statements of income. As of December 31, 2023 and 2022, the ACL on other assets measured at
amortized cost was immaterial.
Loans held for sale
Loans that the Corporation intends to sell or that the Corporation does not have the ability and intent to hold for the foreseeable
future are classified as held-for-sale loans. Loans held for sale are recorded at the lower of cost or fair value less costs to sell.
Generally, the loans held-for-sale portfolio consists of conforming residential mortgage loans that will be pooled into Government
National Mortgage Association (“GNMA”) MBS, which are then sold to investors, and conforming residential mortgage loans that the
Corporation intends to sell to GSEs, such as the Federal National Mortgage Association (“FNMA”) and the U.S. Federal Home Loan
Mortgage Corporation (“FHLMC”). Generally, residential mortgage loans held for sale are valued on an aggregate portfolio basis and
the value is primarily derived from quotations based on the MBS market. The amount by which cost exceeds market value in the
aggregate portfolio of residential mortgage loans held for sale, if any, is accounted for as a valuation allowance with changes therein
included in the determination of net income and reported as part of mortgage banking activities in the consolidated statements of
income. Loan costs and fees are deferred at origination and are recognized in income at the time of sale and are included in the
amortized cost basis when evaluating the need for a valuation allowance. The fair value of commercial and construction loans held for
sale, if any, is primarily derived from external appraisals, or broker price opinions that the Corporation considers, with changes in the
valuation allowance reported as part of other non-interest income in the consolidated statements of income.
In certain circumstances, the Corporation transfers loans from/to held for sale or held for investment based on a change in strategy.
If such a change in holding strategy is made, significant adjustments to the loans’ carrying values may be necessary. Reclassifications
of loans held for investment to held for sale are made at the amortized cost on the date of transfer and establish a new cost basis upon
transfer. Write-downs of loans transferred from held for investment to held for sale are recorded as charge-offs at the time of transfer.
Any previously recorded ACL is reversed in earnings after applying the write-down policy. Subsequent changes in value below
amortized cost are recorded through a valuation allowance and are reflected in non-interest income in the consolidated statements of
income. Reclassifications of loans held for sale to held for investment are made at the amortized cost on the transfer date and any
previously recorded valuation allowance is reversed in earnings. Upon transfer to held for investment, the Corporation calculates an
ACL using the CECL impairment model.
Transfers and servicing of financial assets and extinguishment of liabilities
After a transfer of financial assets in a transaction that qualifies for accounting as a sale, the Corporation derecognizes the financial
assets when it has surrendered control and derecognizes liabilities when they are extinguished.
A transfer of financial assets in which the Corporation surrenders control over the assets is accounted for as a sale to the extent that
consideration other than beneficial interests is received in exchange. The criteria that must be met to determine that the control over
transferred assets has been surrendered include the following: (i) the assets must be isolated from creditors of the transferor; (ii) the
transferee must obtain the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the
transferred assets; and (iii) the transferor cannot maintain effective control over the transferred assets through an agreement to
repurchase them before their maturity. When the Corporation transfers financial assets and the transfer fails any one of the above
criteria, the Corporation is prevented from derecognizing the transferred financial assets and the transaction is accounted for as a
secured borrowing.
Servicing assets
The Corporation recognizes as separate assets the rights to service loans for others, whether those servicing assets are originated or
purchased. In the ordinary course of business, loans are pooled into GNMA MBS for sale in the secondary market or sold to FNMA or
FHLMC, with servicing retained. When the Corporation sells mortgage loans, it recognizes any retained servicing right (“servicing
assets” or “MSRs”) at the time of sale, based on its fair value.
MSRs retained in a sale or securitization arise from contractual agreements between the Corporation and investors in MBS and
mortgage loans. Under these contracts, the Corporation performs loan-servicing functions in exchange for fees and other
remuneration. The MSRs, included as part of other assets in the statements of financial condition, entitle the Corporation to servicing
fees based on the outstanding principal balance of the mortgage loans and the contractual servicing rate. The servicing fees are
credited to income on a monthly basis when collected and recorded as part of mortgage banking activities in the consolidated
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statements of income. In addition, the Corporation generally receives other remuneration consisting of mortgagor-contracted fees such
as late charges and prepayment penalties, which are credited to income when collected.
Considerable judgment is required to determine the fair value of the Corporation’s MSRs. Unlike highly liquid investments, the fair
value of MSRs cannot be readily determined because these assets are not actively traded in securities markets. The initial carrying
value of an MSR is determined based on its fair value. The Corporation determines the fair value of the MSRs using a discounted
static cash flow analysis, which incorporates current market assumptions commonly used by buyers of these MSRs and was derived
from prevailing conditions in the secondary servicing market. The valuation of the Corporation’s MSRs incorporates two sets of
assumptions: (i) market-derived assumptions for discount rates, servicing costs, escrow earnings rates, floating earnings rates, and the
cost of funds; and (ii) market assumptions calibrated to the Corporation’s loan characteristics and portfolio behavior for escrow
balances, delinquencies and foreclosures, late fees, prepayments, and prepayment penalties.
Once recorded, the Corporation periodically evaluates MSRs for impairment. Impairments are recognized through a valuation
allowance for each individual stratum of servicing assets. For purposes of performing the MSR impairment evaluation, the servicing
portfolio is stratified on the basis of certain risk characteristics, such as region, terms, and coupons. Impairment charges are recorded
as part of revenues from mortgage banking activities in the consolidated statements of income. If the value of the MSRs subsequently
increases, the recovery in value is recognized in current period earnings also as part of revenues from mortgage banking activities and
the carrying value of the MSR is adjusted through a reduction in the valuation allowance. The Corporation conducts an other-than-
temporary impairment analysis to evaluate whether a loss in the value of the MSR in a particular stratum, if any, is other than
temporary or not. When the recovery of the value is unlikely in the foreseeable future, a write-down of the MSR in the stratum to its
estimated recoverable value is charged to the valuation allowance.
The MSRs are amortized over the estimated life of the underlying loans based on an income forecast method as a reduction of
servicing income. The income forecast method of amortization is based on projected cash flows. A particular periodic amortization is
calculated by applying to the carrying amount of the MSRs the ratio of the cash flows projected for the current period to total
remaining net MSR forecasted cash flow.
Premises and equipment
Premises and equipment are carried at cost, net of accumulated depreciation and amortization. Depreciation is provided on the
straight-line method over the estimated useful life of each type of asset. Amortization of leasehold improvements is computed over the
terms of the leases ( i.e., the contractual term plus lease renewals that are reasonably assured) or the estimated useful lives of the
improvements, whichever is shorter. Costs of maintenance and repairs that do not improve or extend the life of the respective assets
are expensed as incurred. Costs of renewals and betterments are capitalized. When the Corporation sells or disposes of assets, their
cost and related accumulated depreciation are removed from the accounts and any gain or loss is reflected in earnings as part of other
non-interest income in the consolidated statements of income. When the asset is no longer used in operations, and the Corporation
intends to sell it, the asset is reclassified to other assets held for sale and is reported at the lower of the carrying amount or fair value
less cost to sell. Premises and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. Impairments on premises and equipment are included as part of occupancy and
equipment expenses in the consolidated statements of income.
Operating leases
The Corporation, as lessee, determines if an arrangement is a lease or contains a lease at inception. Operating lease liabilities are
recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the
commencement date, or at acquisition date in case of a business combination. As the rates implicit in the Corporation’s operating
leases are not readily determinable, the Corporation generally uses an incremental borrowing rate based on information available at
the commencement date to determine the present value of future lease payments. The incremental borrowing rate is calculated based
on fully amortizing secured borrowings. Operating right-of-use (“ROU”) assets are generally recognized based on the amount of the
initial measurement of the lease liability. Non-lease components, such as common area maintenance charges, are not considered a part
of the gross-up of the ROU asset and lease liability and are recognized as incurred. The Corporation’s leases are primarily related to
operating leases for the Bank’s branches. Most of the Corporation’s leases with operating ROU assets have terms of two years to 30
years, some of which include options to extend the leases for up to ten years . The Corporation does not recognize ROU assets and
lease liabilities that arise from short-term leases (less than 12 months). Operating lease expense, which is included as part of
occupancy and equipment expenses in the consolidated statements of income, is recognized on a straight-line basis over the lease term
that is based on the Corporation’s assessment of whether the renewal options are reasonably certain to be exercised. The Corporation
includes the ROU assets and lease liabilities as part of other assets and accounts payable and other liabilities, respectively, in the
consolidated statements of financial condition.
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As of December 31, 2023 and 2022, the Corporation, as lessee, did not have any leases that qualified as finance leases.
Other real estate owned
OREO, which consists of real estate acquired in settlement of loans, is recorded at fair value less estimated costs to sell the real
estate acquired. Generally, loans have been written down to their net realizable value prior to foreclosure. Any further reduction to
their net realizable value is recorded with a charge to the ACL at the time of foreclosure or within six months after foreclosure.
Thereafter, costs of maintaining and operating these properties, losses recognized on the periodic reevaluations of these properties, and
gains or losses resulting from the sale of these properties are charged or credited to earnings and are included as part of net gain on
OREO operations in the consolidated statements of income. Appraisals are obtained periodically, generally on an annual basis.
Claims arising from FHA/VA government-guaranteed residential mortgage loans
Upon the foreclosure on property collateralizing an FHA/VA government-guaranteed residential mortgage loan, the Corporation
derecognizes the government-guaranteed mortgage loan and recognizes a receivable as part of other assets in the consolidated
statements of condition if the conditions in ASC Subtopic 310-40, “Reclassification of Residential Real Estate Collateralized
Consumer Mortgage Loans upon Foreclosure,” (“ASC Subtopic 310-40”) are met. See Note 7– “Other Real Estate Owned” for
additional information on foreclosures associated to FHA/VA government-guaranteed residential mortgage loans reclassified to other
assets as of December 31, 2023 and 2022.
Goodwill and other intangible assets
Goodwill – Goodwill represents the cost in excess of the fair value of net assets acquired (including identifiable intangibles) in
transactions accounted for as business combinations. The Corporation allocates goodwill to the reporting unit(s) that are expected to
benefit from the synergies of the business combination. Once goodwill has been assigned to a reporting unit, it no longer retains its
association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are
available to support the value of the goodwill. The Corporation tests goodwill for impairment at least annually and more frequently if
circumstances exist that indicate a possible reduction in the fair value of a reporting unit below its carrying value. If, after assessing all
relevant events or circumstances, the Corporation concludes that it is more-likely-than-not that the fair value of a reporting unit is
below its carrying value, then an impairment test is required. In addition to the goodwill recorded at the Commercial and Corporate,
Consumer Retail, and Mortgage Banking reporting units in connection with the acquisition of Banco Santander Puerto Rico (“BSPR”)
in 2020, the Corporation’s goodwill is mostly related to the United States (Florida) reporting unit. See Note 9– “Goodwill and Other
Intangible Assets” for information on the qualitative assessment performed by the Corporation during the fourth quarter of 2023.
Other Intangible Assets – As of December 31 2023, Corporation’s other intangible assets relate to core deposits. The Corporation
amortizes core deposit intangibles based on the projected useful lives of the related deposits, generally on a straight -line basis, and
reviews these assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not exceed
their fair value.
Securities purchased and sold under agreements to repurchase
The Corporation accounts for securities purchased under resale agreements and securities sold under repurchase agreements as
collateralized financing transactions. Generally, the Corporation records these agreements at the amount at which the securities were
purchased or sold. The Corporation monitors the fair value of securities purchased and sold, and obtains collateral from, or returns it
to, the counterparties when appropriate. These financing transactions do not create material credit risk given the collateral involved
and the related monitoring process. The Corporation sells and acquires securities under agreements to repurchase or resell the same or
similar securities. Generally, similar securities are securities from the same issuer, with identical form and type, similar maturity,
identical contractual interest rates, similar assets as collateral, and the same aggregate unpaid principal amount. The counterparty to
certain agreements may have the right to repledge the collateral by contract or custom. The Corporation presents such assets separately
in the consolidated statements of financial condition as securities pledged with creditors’ rights to repledge. Repurchase and resale
activities may be transacted under legally enforceable master repurchase agreements that give the Corporation, in the event of default
by the counterparty, the right to liquidate securities held and to offset receivables and payables with the same counterparty. The
Corporation offsets repurchase and resale transactions with the same counterparty in the consolidated statements of financial condition
where it has such a legally enforceable right under a master netting agreement, the intention of setoff is existent, the transactions have
the same maturity date, and the amounts are determinable.
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From time to time, the Corporation modifies repurchase agreements to take advantage of prevailing interest rates. Following
applicable GAAP guidance, if the Corporation determines that the debt under the modified terms is substantially different from the
original terms, the modification must be accounted for as an extinguishment of debt. The Corporation considers modified terms to be
substantially different if the present value of the cash flows under the terms of the new debt instrument is at least 10% different from
the present value of the remaining cash flows under the terms of the original instrument. The new debt instrument will be initially
recorded at fair value, and that amount will be used to determine the debt extinguishment gain or loss to be recognized through the
consolidated statements of income and the effective rate of the new instrument. If the Corporation determines that the debt under the
modified terms is not substantially different, then the new effective interest rate is determined based on the carrying amount of the
original debt instrument. The Corporation has determined that none of the repurchase agreements modified in the past were
substantially different from the original terms, and, therefore, these modifications were not accounted for as extinguishments of debt .
Income taxes
The Corporation uses the asset and liability method for the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Corporation’s financial statements or tax returns. Deferred income tax
assets and liabilities are determined for differences between the financial statement and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future. The computation is based on enacted tax laws and rates applicable to periods in
which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income at the time of enactment of such change in tax rates. Any interest or penalties due for payment of
income taxes are included in the provision for income taxes. Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount that is more likely than not to be realized. In making such assessment, significant weight is given to evidence
that can be objectively verified, including both positive and negative evidence. The authoritative guidance for accounting for income
taxes requires the consideration of all sources of taxable income available to realize the deferred tax asset, including the future reversal
of existing temporary differences, tax planning strategies and future taxable income, exclusive of the impact of the reversal of
temporary differences and carryforwards. In estimating taxes, management assesses the relative merits and risks of the appropriate tax
treatment of transactions considering statutory, judicial, and regulatory guidance. The Corporation releases income tax effects from
OCL as pension and postretirement liabilities are extinguished. Discounts on purchased income tax credits are recognized in non-
interest income when realized. See Note 22 – “Income Taxes ” for additional information.
Under the authoritative accounting guidance, income tax benefits are recognized and measured based on a two-step analysis: i) a
tax position must be more likely than not to be sustained based solely on its technical merits in order to be recognized; and ii) the
benefit is measured at the largest dollar amount of that position that is more likely than not to be sustained upon settlement. The
difference between a benefit not recognized in accordance with this analysis and the tax benefit claimed on a tax return is referred to
as an unrecognized tax benefit.
Stock repurchases
Treasury shares are recorded at their reacquisition cost, as a reduction of stockholders’ equity in the consolidated statements of
financial condition. When reissuing treasury shares for the granting of stock-based compensation awards, treasury stock is reduced by
the cost allocated to such stock and additional paid-in capital is credited for gains and debited for losses when treasury stock is
reissued at prices that differ from the reacquisition cost.
Stock-based compensation
Compensation cost is recognized in the financial statements for all share-based payment grants. The First BanCorp. Omnibus
Incentive Plan, as amended (the “Omnibus Plan”) provides for equity-based and non-equity-based compensation incentives (the
“awards”) through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares,
other stock-based awards and cash-based awards. The compensation cost for an award, determined based on the estimate of the fair
value at the grant date (considering forfeitures and any post-vesting restrictions), is recognized over the period during which an
employee or director is required to provide services in exchange for an award, which is the vesting period, taking into account the
retirement eligibility of the award.
Stock-based compensation accounting guidance requires the Corporation to reverse compensation expense for any awards that are
forfeited due to employee or director turnover. Changes in the estimated forfeiture rate may have a significant effect on stock-based
compensation as the Corporation recognizes the effect of adjusting the rate for all expense amortization in the period in which the
forfeiture estimate is changed. If the actual forfeiture rate is higher than the estimated forfeiture rate, an adjustment is made to increase
the estimated forfeiture rate, which will decrease the expense recognized in the financial statements. If the actual forfeiture rate is
lower than the estimated forfeiture rate, an adjustment is made to decrease the estimated forfeiture rate, which will increase the
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expense recognized in the financial statements. For additional information regarding the Corporation’s equity-based compensation and
awards granted, see Note 16– “Stock-Based Compensation.”
Comprehensive income (loss)
Comprehensive income (loss) for First BanCorp. includes net income, as well as changes in unrealized gains (losses) on available-
for-sale debt securities and change in unrecognized pension and post-retirement costs, net of estimated tax effects.
Pension and other postretirement benefits
The Corporation maintains two frozen qualified noncontributory defined benefit pension plans (the “Pension Plans”) (including a
complementary postretirement benefits plan covering medical benefits and life insurance after retirement) that it assumed in the BSPR
acquisition.
Pension costs are computed on the basis of accepted actuarial methods and are charged to current operations. Net pension costs are
based on various actuarial assumptions regarding future experience under the plan, which include costs for services rendered during
the period, interest costs and return on plan assets, as well as deferral and amortization of certain items such as actuarial gains or
losses.
The funding policy is to contribute to the plan, as necessary, to provide for services to date and for those expected to be earned in
the future. To the extent that these requirements are fully covered by assets in the plan, a contribution may not be made in a particular
year.
The cost of postretirement benefits, which is determined based on actuarial assumptions and estimates of the costs of providing
these benefits in the future, is accrued during the years that the employee renders the required service.
The guidance for compensation retirement benefits of ASC Topic 715, “Retirement Benefits,” requires the recognition of the
funded status of each defined pension benefit plan, retiree health care plan and other postretirement benefit plans on the statements of
financial condition.
In addition, the Corporation maintains contributory retirement plans covering substantially all employees. Employer contributions
to the plan are charged to current earnings as part of employees’ compensation and benefits expenses in the consolidated statements of
income.
Segment information
The Corporation reports financial and descriptive information about its reportable segments. Operating segments are components of
an enterprise about which separate financial information is available that is evaluated regularly by the Chief Executive Officer and
management in deciding how to allocate resources and in assessing performance. The Corporation’s management determined that the
segregation that best fulfills the segment definition described above is by lines of business for its operations in Puerto Rico, the
Corporation’s principal market, and by geographic areas for its operations outside of Puerto Rico. As of December 31, 2023, the
Corporation had the following six operating segments that are all reportable segments: Commercial and Corporate Banking; Mortgage
Banking; Consumer (Retail) Banking; Treasury and Investments; United States Operations; and Virgin Islands Operations. The
accounting policies for the reportable business segments are the same as those used in the preparation of the Consolidated Financial
Statements with respect to activities specifically attributable to each business segment. However, management methodologies utilized
in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative
guidance similar to GAAP. As a result, reported segment results are not necessarily comparable with similar information reported by
other financial institutions. See Note 27 – “Segment Information” for additional information.
Valuation of financial instruments
The measurement of fair value is fundamental to the Corporation’s presentation of its financial condition and results of operations.
The Corporation holds debt and equity securities, derivatives, and other financial instruments at fair value. The Corporation holds its
investments and liabilities mainly to manage liquidity needs and interest rate risks. A meaningful part of the Corporation’s total assets
is reflected at fair value on the Corporation’s financial statements.
The FASB’s authoritative guidance for fair value measurement defines fair value as the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
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transaction between market participants on the measurement date. This guidance also establishes a fair value hierarchy for classifying
financial instruments. The hierarchy is based on whether the inputs to the valuation techniques used to measure fair value are
observable or unobservable.
Under the fair value accounting guidance, an entity has the irrevocable option to elect, on a contract-by-contract basis, to measure
certain financial assets and liabilities at fair value at the inception of the contract and, thereafter, to reflect any changes in fair value in
current earnings. The Corporation did not make any fair value option election as of December 31, 2023 or 2022. See Note 25 – “Fair
Value” for additional information.
Revenue from contract with customers
See Note 26 – “Revenue from Contracts with Customers” for a detailed description of the Corporation’s policies on the recognition
and presentation of revenues from contracts with customers, including the income recognition for the insurance agency commissions’
revenue.
Earnings per common share
Basic earnings per share is calculated by dividing net income attributable to common stockholders by the weighted-average number
of common shares issued and outstanding. Net income attributable to common stockholders represents net income adjusted for any
preferred stock dividends, if any, including any preferred stock dividends declared but not yet paid, and any cumulative preferred
stock dividends related to the current dividend period that have not been declared as of the end of the period. Basic weighted-average
common shares outstanding excludes unvested shares of restricted stock that do not contain non-forfeitable dividend rights. The
computation of diluted earnings per share is similar to the computation of basic earnings per share except that the number of weighted-
average common shares is increased to include the number of additional common shares that would have been outstanding if the
dilutive common shares had been issued, referred to as potential common shares.
Potential dilutive common shares consist of unvested shares of restricted stock that do not contain non-forfeitable dividend rights,
warrants outstanding during the period, and common stock issued under the assumed exercise of stock options, if any, using the
treasury stock method. This method assumes that the potential dilutive common shares are issued and outstanding and the proceeds
from the exercise, in addition to the amount of compensation cost attributable to future services, are used to purchase common stock at
the exercise date. The difference between the number of potential dilutive shares issued and the shares purchased is added as
incremental shares to the actual number of shares outstanding to compute diluted earnings per share. Unvested shares of restricted
stock, stock options, and warrants outstanding during the period, if any, that result in lower potential dilutive shares issued than shares
purchased under the treasury stock method are not included in the computation of dilutive earnings per share since their inclusion
would have an antidilutive effect on earnings per share. Potential dilutive common shares also include performance units that do not
contain non-forfeitable dividend rights if the performance condition is met as of the end of the reporting period.
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Adoption of New Accounting Requirements
Standard
ASU 2022-02 – Financial
Instruments – Credit Losses
(Topic 326): Troubled Debt
Restructurings and Vintage
Disclosures, Issued March
2022
Description
The amendments in this update eliminate
TDR accounting while enhancing disclosure
requirements for certain loan modifications
when a borrower is experiencing financial
difficulty. The ASU also requires disclosure
of current period gross charge-offs by year of
origination for financing receivables and net
investment in leases.
Effective Date
Management adopted the guidance
during the first quarter of 2023.
Effect on the financial statements
The ASU has been applied
prospectively, except for the portion
of the standard related to the
recognition and measurement of
TDRs where we elected to use a
modified retrospective transition
method. The adoption resulted in a
net increase to the ACL of $2.1
million and a decrease to retained
earnings of $1.3 million, after tax,
predominantly driven by residential
mortgage loans. Modifications that
do not impact the contractual
payment terms, such as covenant
waivers, insignificant payment
deferrals, and any modifications
made to loans held-for-sale and
leases are not included in the
disclosures. TDRs disclosures are
presented for comparative periods
only.
138
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Recently Issued Accounting Standards Not Yet Effective or Not Yet Adopted
Effective Date
Effective for fiscal years ending
on December 31, 2025. Early
adoption is permitted for annual
financial statements not yet issued.
The amendments in this ASU
should be applied on a prospective
basis. Retrospective application is
permitted.
Effect on the financial statements
The Corporation will be impacted by
the standard and will disclose
required information by the adoption
date.
The Corporation will be impacted by
the standard and will disclose
required information by the adoption
date.
Effective for fiscal years ending
on December 31, 2024 and interim
periods beginning on January 1,
2025. Early adoption is permitted.
The amendments in this ASU
apply retrospectively to all periods
presented in the financial
statements, unless impracticable to
do so.
Standard
ASU 2023-09 - Income
Taxes (Topic 740):
Improvements to Income
Tax Disclosures, Issued
December 2023
ASU 2023-07 - Segment
Reporting (Topic 280):
Improvements to Reportable
Segment Disclosure, Issued
November 2023
Description
In December 2023, the FASB issued ASU
2023-09 to improve the annual income tax
disclosures to, among other things, require
disclosure of the following: eight prescribed
categories in the tabular rate reconciliation
(using both percentages and dollar amounts)
with certain reconciling items at or above 5%
further broken out by nature and/or
jurisdiction; income taxes paid (net of refunds
received) disaggregated by federal, state, and
foreign taxes; the amount of income taxes
paid (net of refunds received) disaggregated
by individual jurisdictions in which income
taxes paid (net of refunds received) is equal to
or greater than 5% of total income taxes paid
(net of refunds received); income or loss from
continuing operations before income tax
expense or benefit disaggregated between
domestic and foreign; and income tax expense
or benefit from continuing operations
disaggregated by federal, state, and foreign.
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.
139
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Corporation does not expect to be impacted by the following ASUs issued during 2023 that are not yet effective or have not yet been
adopted:
(cid:404) ASU 2023-08, “Goodwill and Other – Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets”
(cid:404) ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and
Simplification Initiative”
(cid:404) ASU 2023-05, “Business Combinations – Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement”
(cid:404) ASU 2023-02, “Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit
Structures Using the Proportional Amortization Method”
(cid:404) ASU 2023-01, “Leases (Topic 842): Common Control Arrangements”
(cid:404) ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual
Sale Restrictions”
140
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 2 – MONEY MARKET .INVESTMENTS
Money market investments are composed of time deposits, overnight deposits with other financial institutions, and other short-term
investments with original maturities of three months or less.
Money market investments were as follows as of the indicated dates:
(Dollars in thousands)
Time deposits with other financial institutions (1)
Overnight deposits with other financial institutions (2)
Other short-term investments (3)
As of December 31,
2023
2022
$
$
300
439
500
1,239
$
$
300
541
1,184
2,025
(1) Consists of time deposits segregated for compliance with the Puerto Rico International Banking Law. Interest rate of 1.05% and 0.40% as of December 31, 2023 and 2022, respectively.
(2) Weighted-average interest rate of 5.33% and 4.33% as of December 31, 2023 and 2022, respectively.
(3) Weighted-average interest rate of 2.47% and 0.14% as of December 31, 2023 and 2022, respectively.
As of December 31, 2023, the Corporation had $0.4 million (2022 - $0.5 million) in money market investments pledged as
collateral as part of margin calls associated to derivative contracts.
141
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 3 – DEBT SECURITIES
Available-for-Sale Debt Securities
The amortized cost, gross unrealized gains and losses, ACL, estimated fair value, and weighted-average yield of available-for-sale
debt securities by contractual maturities as of December 31, 2023 and December 31, 2022 were as follows:
December 31, 2023
Gross
Unrealized
Amortized cost (1)
Gains
Losses
ACL
Fair value (2)
Weighted-
average yield%
(Dollars in thousands)
U.S. Treasury securities:
Due within one year
After 1 to 5 years
U.S. GSEs obligations:
Due within one year
After 1 to 5 years
After 5 to 10 years
After 10 years
Puerto Rico government obligations:
After 10 years (3)
United States and Puerto Rico government obligations
MBS:
Residential MBS:
FHLMC certificates:
After 1 to 5 years
After 5 to 10 years
After 10 years
GNMA certificates:
Due within one year
After 1 to 5 years
After 5 to 10 years
After 10 years
FNMA certificates:
After 1 to 5 years
After 5 to 10 years
After 10 years
Collateralized mortgage obligations (“CMOs”) issued
or guaranteed by the FHLMC, FNMA, and GNMA:
After 10 years
Private label:
After 10 years
Total Residential MBS
Commercial MBS:
After 1 to 5 years
After 5 to 10 years
After 10 years
Total Commercial MBS
Total MBS
Total available-for-sale debt securities
$
$
80,314
60,239
$
$
$
2,144
3,016
-
-
-
49
-
8
-
57
-
-
15
15
-
-
8
87
95
-
-
83
83
-
-
193
-
-
-
-
193
250
15,832
135,347
687
2
1,346
158,374
868
12,721
161,197
174,786
3
872
2,247
22,786
25,908
1,423
23,146
156,344
180,913
52,263
2,185
436,055
6,898
2,685
29,037
38,620
474,675
633,049
$
$
-
-
-
-
-
-
395
395
-
-
-
-
-
-
-
-
-
-
-
-
-
-
116
116
-
-
-
-
116
511
$
$
78,170
57,223
527,015
1,764,322
8,163
8,897
1,415
2,445,205
18,693
140,587
829,878
989,158
251
16,010
25,677
183,555
225,493
31,066
270,346
891,037
1,192,449
221,276
4,785
2,633,161
38,124
19,701
93,793
151,618
2,784,779
5,229,984
0.66
0.75
0.77
0.86
2.64
5.49
-
0.85
2.06
1.55
1.41
1.44
3.27
1.19
1.62
2.57
2.38
2.11
1.70
1.37
1.46
1.54
7.66
1.55
2.17
2.16
1.36
1.64
1.55
1.24
542,847
1,899,620
8,850
8,891
3,156
2,603,917
19,561
153,308
991,060
1,163,929
254
16,882
27,916
206,254
251,306
32,489
293,492
1,047,298
1,373,279
273,539
7,086
3,069,139
45,022
22,386
122,830
190,238
3,259,377
5,863,294
$
(1) Excludes accrued interest receivable on available-for-sale debt securities that totaled $10.6 million as of December 31, 2023 reported as part of accrued interest receivable on loans and investment securities in the
(2)
consolidated statements of financial condition, and excluded from the estimate of credit losses.
Includes $477.9 million (amortized cost - $527.2 million) that was pledged at the FHLB as collateral for borrowings and letters of credit as well as $2.8 billion (amortized cost - $3.2 billion) pledged as collateral for the
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.
142
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2022
Gross
Unrealized
Amortized cost (1)
Gains
Losses
ACL
Fair value (2)
Weighted-
average yield%
$
7,493 $
141,366
- $
-
309 $
9,675
- $
-
(Dollars in thousands)
U.S. Treasury securities:
Due within one year
After 1 to 5 years
U.S. GSEs’ obligations:
Due within one year
After 1 to 5 years
After 5 to 10 years
After 10 years
Puerto Rico government obligations:
After 10 years (3)
United States and Puerto Rico government obligations
MBS:
Residential MBS:
FHLMC certificates:
After 1 to 5 years
After 5 to 10 years
After 10 years
GNMA certificates:
Due within one year
After 1 to 5 years
After 5 to 10 years
After 10 years
FNMA certificates:
After 1 to 5 years
After 5 to 10 years
After 10 years
CMOs issued or guaranteed by the FHLMC, FNMA,
and GNMA:
After 10 years
Private label:
After 10 years
Total Residential MBS
Commercial MBS:
After 1 to 5 years
After 5 to 10 years
After 10 years
Total Commercial MBS
Total MBS
Other
Due within one year
129,018
2,395,273
56,251
12,170
3,331
2,744,902
4,235
201,072
1,092,289
1,297,596
5
15,508
45,322
232,632
293,467
9,685
358,346
1,186,635
1,554,666
302,232
7,903
3,455,864
30,578
44,889
121,464
196,931
3,652,795
500
-
22
13
36
-
71
-
-
-
-
-
-
1
51
52
-
-
124
124
-
-
176
-
-
-
-
176
4,036
227,724
7,670
-
755
250,169
169
18,709
186,558
205,436
-
622
3,809
27,169
31,600
521
31,620
186,757
218,898
56,539
2,026
514,499
4,463
5,603
23,732
33,798
548,297
-
-
-
-
375
375
-
-
-
-
-
-
-
-
-
-
-
-
-
-
83
83
-
-
-
-
83
-
247 $
-
798,466 $
-
458 $
7,184
131,691
124,982
2,167,571
48,594
12,206
2,201
2,494,429
4,066
182,363
905,731
1,092,160
5
14,886
41,514
205,514
261,919
9,164
326,726
1,000,002
1,335,892
245,693
5,794
2,941,458
26,115
39,286
97,732
163,133
3,104,591
500
5,599,520
0.22
0.70
0.32
0.83
1.54
4.62
-
0.83
2.33
1.55
1.38
1.41
1.73
2.00
1.31
2.47
2.27
1.76
1.68
1.38
1.45
1.44
6.83
1.52
2.43
1.89
1.23
1.56
1.52
0.84
1.22
Total available-for-sale debt securities
$
6,398,197 $
(1) Excludes accrued interest receivable on available-for-sale debt securities that totaled $11.1 million as of December 31, 2022 reported as part of accrued interest receivable on loans and investment securities in the
(2)
consolidated statements of financial condition, and excluded from the estimate of credit losses.
Includes $250.6 million (amortized cost - $286.5 million) that was pledged at the FHLB as collateral for borrowings and letters of credit as well as $2.4 billion (amortized cost - $2.8 billion) pledged as collateral for the
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.
143
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Maturities of available-for-sale debt securities are based on the period of final contractual maturity. Expected maturities might
differ from contractual maturities because they may be subject to prepayments and/or call options. The weighted-average yield on
available-for-sale debt securities is based on amortized cost and, therefore, does not give effect to changes in fair value. The net
unrealized loss on available-for-sale debt securities is presented as part of accumulated other comprehensive loss in the consolidated
statements of financial condition.
The following tables present the fair value and gross unrealized losses of the Corporation’s available-for-sale debt securities,
aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as
of December 31, 2023 and 2022. The tables also include debt securities for which an ACL was recorded.
As of December 31, 2023
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
$
2,544
-
$
2
-
2,428,784
1,415
$
157,026
$
1,346 (1)
2,431,328
1,415
$
157,028
1,346
9
12,257
-
-
100
-
988,092
202,390
1,183,275
174,786
25,808
180,913
988,101
214,647
1,183,275
174,786
25,908
180,913
(In thousands)
U.S. Treasury and U.S. GSEs’
obligations
Puerto Rico government obligations
MBS:
Residential MBS:
FHLMC
GNMA
FNMA
CMOs issued or guaranteed by the FHLMC,
FNMA, and GNMA
Private label
Commercial MBS
52,263
2,185
38,620
633,049
(1) Unrealized losses do not include the credit loss component recorded as part of the ACL. As of December 31, 2023, the PRHFA bond and private label MBS had an ACL of $ 0.4 million
221,276
4,785
151,618
5,196,445
221,276
4,785
140,248
5,170,265
-
-
11,370
26,180
38,602
632,929
-
-
18
120
2,185 (1)
52,263
$
$
$
$
$
$
and $0.1 million, respectively.
(In thousands)
U.S. Treasury and U.S. GSEs’
obligations
Puerto Rico government obligations
MBS:
Residential MBS:
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
As of December 31, 2022
$
298,313
-
$
$
18,057
-
2,174,724
2,201
$
231,357
$
755 (1)
2,473,037
2,201
$
249,414
755
FHLMC
GNMA
FNMA
CMOs issued or guaranteed by the FHLMC,
FNMA, and GNMA
Private label
Commercial MBS
260,524
74,829
405,977
45,370
-
30,179
1,115,192
$
$
45,424
3,433
49,479
6,735
-
2,215
125,343
831,637
179,854
920,200
160,012
28,167
169,419
200,323
5,794
132,953
4,447,686
$
$
49,804
2,026 (1)
31,583
673,123
$
1,092,161
254,683
1,326,177
245,693
5,794
163,132
5,562,878
$
205,436
31,600
218,898
56,539
2,026
33,798
798,466
(1) Unrealized losses do not include the credit loss component recorded as part of the ACL. As of December 31, 2022, the PRHFA bond and private label MBS had an ACL of $ 0.4 million
and $0.1 million, respectively.
144
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Assessment for Credit Losses
Debt securities issued by U.S. government agencies, U.S. GSEs, and the U.S. Treasury, including notes and MBS, accounted for
substantially all of the total available-for -sale portfolio as of December 31, 2023, and the Corporation expects no credit losses on these
securities, given the explicit and implicit guarantees provided by the U.S. federal government. Because the decline in fair value is
attributable to changes in interest rates, and not credit quality, and because, as of December 31, 2023, the Corporation did not have the
intent to sell these U.S. government and agencies debt securities and determined that it was likely that it will not be required to sell
these securities before their anticipated recovery, the Corporation does not consider impairments on these securities to be credit
related. The Corporation’s credit loss assessment was concentrated mainly on private label MBS and on Puerto Rico government debt
securities, for which credit losses are evaluated on a quarterly basis.
Private label MBS held as part of the Corporation’s available for sale portfolio consist of trust certificates issued by an unaffiliated
party backed by fixed-rate, single-family residential mortgage loans in the U.S. mainland with original FICO scores over 700 and
moderate loan-to-value ratios (under 80%), as well as moderate delinquency levels. The interest rate on these private label MBS is
variable, tied to 3-month CME Term Secured Overnight Financing Rate (“SOFR”) plus a tenor spread adjustment of 0.26161% and
the original spread limited to the weighted-average coupon of the underlying collateral. The Corporation determined the ACL for
private label MBS based on a risk-adjusted discounted cash flow methodology that considers the structure and terms of the
instruments. The Corporation utilized PDs and LGDs that considered, among other things, historical payment performance, loan-to-
value attributes, and relevant current and forward-looking macroeconomic variables, such as regional unemployment rates and the
housing price index. Under this approach, expected cash flows (interest and principal) were discounted at the U.S. Treasury yield
curve as of the reporting date. See Note 25 – “Fair Value ” for the significant assumptions used in the valuation of the private label
MBS as of December 31, 2023 and 2022.
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.
145
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following tables present a roll-forward of the ACL on available-for-sale debt securities by major security type for the years
ended December 31, 2023, 2022 and 2021:
(In thousands)
Beginning balance
Provision for credit losses - expense
Net recoveries
ACL on available-for-sale debt securities
(In thousands)
Beginning balance
Provision for credit losses - (benefit) expense
Net charge-offs
ACL on available-for-sale debt securities
(In thousands)
Beginning balance
Provision for credit losses - benefit
Net charge-offs
ACL on available-for-sale debt securities
Year Ended December 31, 2023
Puerto Rico
Government
Obligations
Private label MBS
Total
$
$
83
-
33
116
$
$
375
20
-
395
$
$
Year Ended December 31, 2022
Puerto Rico
Government
Obligations
Private label MBS
Total
$
$
797
(501)
(213)
83
$
$
308
67
-
375
$
$
Year Ended December 31, 2021
Puerto Rico
Government
Obligations
Private label MBS
Total
$
$
1,002
(136)
(69)
797
$
$
308
-
-
308
$
$
458
20
33
511
1,105
(434)
(213)
458
1,310
(136)
(69)
1,105
During 2023, the Corporation recognized $78.3 million of interest income on available-for-sale debt securities (2022 - $86.1
million; 2021 - $ 62.7 million), of which $39.1 million was exempt (2022 - $40.7 million; 2021 - $ 25.7 million). The exempt securities
primarily relate to MBS and government obligations held by IBEs (as defined in the International Banking Entity Act of Puerto Rico),
whose interest income and sales are exempt from Puerto Rico income taxation under that act.
146
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Held-to-Maturity Debt Securities
The amortized cost, gross unrecognized gains and losses, estimated fair value, ACL, weighted-average yield and contractual
maturities of held-to-maturity debt securities as of December 31, 2023 and 2022 were as follows:
Amortized cost (1) (2)
Gains
Losses
Fair value
ACL
December 31, 2023
Gross Unrecognized
Weighted-
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:
Residential 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
FHLMC, FNMA, and GNMA:
After 10 years
Total Residential MBS
Commercial MBS:
After 1 to 5 years
After 10 years
Total Commercial MBS
Total MBS
Total held-to-maturity debt securities
$
$
3,165
51,230
36,050
16,595
107,040
$
8
994
3,540
269
4,811
$
38
710
210
-
958
$
3,135
51,514
39,380
16,864
110,893
50
1,266
604
277
2,197
16,469
18,324
34,793
16,265
67,271
28,139
146,468
9,444
91,226
100,670
247,138
354,178
-
-
-
-
-
-
-
-
-
-
-
4,811
$
$
556
714
1,270
789
2,486
1,274
5,819
297
5,783
6,080
11,899
12,857
$
15,913
17,610
33,523
15,476
64,785
26,865
140,649
9,147
85,443
94,590
235,239
346,132
$
-
-
-
-
-
-
-
-
-
-
-
2,197
9.30
7.78
7.13
8.87
7.78
3.03
4.32
3.71
3.32
4.18
3.49
3.84
3.48
3.15
3.18
3.57
4.84
(1) Excludes accrued interest receivable on held-to-maturity debt securities that totaled $4.8 million as of December 31, 2023 reported as part of accrued interest receivable on loans and investment securities in the
consolidated statements of financial condition, and excluded from the estimate of credit losses.
(2) Includes $126.6 million (fair value - $125.9 million) that serves as collateral for the uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.
147
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Amortized cost (1) (2)
Gains
Losses
Fair value
ACL
December 31, 2022
Gross Unrecognized
Weighted-
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 held-to-maturity debt securities
$
MBS:
Residential 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
FHLMC, FNMA, and GNMA:
After 10 years
Total Residential MBS
Commercial MBS:
After 1 to 5 years
After 10 years
Total Commercial MBS
Total MBS
$
1,202
42,530
55,956
66,022
165,710
$
-
886
3,182
-
4,068
$
15
1,076
360
1,318
2,769
$
1,187
42,340
58,778
64,704
167,009
2
656
3,243
4,385
8,286
21,443
19,362
40,805
19,131
72,347
34,456
166,739
9,621
95,467
105,088
271,827
-
-
-
-
-
-
-
-
-
-
-
746
888
1,634
20,697
18,474
39,171
943
18,188
3,155
69,192
1,424
7,156
396
4,169
4,565
11,721
33,032
159,583
9,225
91,298
100,523
260,106
-
-
-
-
-
-
-
-
-
-
-
Total held-to-maturity debt securities
$
437,537
$
4,068
$
14,490
$
427,115
$
8,286
(1) Excludes accrued interest receivable on held-to-maturity debt securities that totaled $5.5 million as of December 31, 2022 reported as part of accrued interest receivable on loans and investment securities in the
consolidated statements of financial condition, and excluded from the estimate of credit losses.
(2) Includes $190.1 million (fair value - $189.4 million) that serves as collateral for the uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.
5.20
6.34
6.29
7.10
6.62
3.03
4.21
3.59
3.35
4.14
3.49
3.78
3.48
3.15
3.18
3.55
4.71
148
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
During 2023, there were no purchases of debt securities classified as held-to-maturity. During 2022, the Corporation purchased
approximately $289.9 million of GSEs’ MBS, which were classified as held-to-maturity debt securities.
The following tables present the Corporation’s held-to-maturity debt securities’ fair value and gross unrecognized losses,
aggregated by category and length of time that individual securities had been in a continuous unrecognized loss position, as of
December 31, 2023 and 2022, including debt securities for which an ACL was recorded:
(In thousands)
Puerto Rico municipal bonds
MBS:
Residential MBS:
FHLMC certificates
GNMA certificates
FNMA certificates
CMOs issued or guaranteed by FHLMC,
FNMA, and GNMA
Commercial MBS
Total held-to-maturity debt securities
(In thousands)
Puerto Rico municipal bonds
MBS:
Residential MBS:
FHLMC certificates
GNMA certificates
FNMA certificates
CMOs issued or guaranteed by FHLMC,
FNMA, and GNMA
Commercial MBS
Total held-to-maturity debt securities
$
$
$
$
Less than 12 months
As of December 31, 2023
12 months or more
Total
Fair Value
Unrecognized
Losses
Fair Value
Unrecognized
Losses
Fair Value
Unrecognized
Losses
-
-
-
-
-
-
-
$
$
-
-
-
-
-
-
-
$
34,682
$
958
$
34,682
$
958
33,523
15,476
64,785
1,270
789
2,486
33,523
15,476
64,785
26,865
94,590
269,921
$
$
1,274
6,080
12,857
$
26,865
94,590
269,921
$
1,270
789
2,486
1,274
6,080
12,857
Less than 12 months
As of December 31, 2022
12 months or more
Total
Fair Value
Unrecognized
Losses
Fair Value
Unrecognized
Losses
Fair Value
Unrecognized
Losses
-
$
-
$
98,797
$
2,769
$
98,797
$
2,769
39,171
18,188
69,192
1,634
943
3,155
-
-
-
-
-
-
39,171
18,188
69,192
33,032
100,523
260,106
$
1,424
4,565
11,721
$
-
-
98,797
$
-
-
2,769
$
33,032
100,523
358,903
$
1,634
943
3,155
1,424
4,565
14,490
149
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Corporation classifies the held-to-maturity debt securities portfolio into the following major security types: MBS issued by
GSEs and Puerto Rico municipal bonds. The Corporation does not recognize an ACL for MBS issued by GSEs since they are highly
rated by major rating agencies and have a long history of no credit losses. In the case of Puerto Rico municipal bonds, the Corporation
determines the ACL based on the product of a cumulative PD and LGD, and the amortized cost basis of the bonds over their
remaining expected life as described in Note 1 – “Nature of Business and Summary of Significant Accounting Policies.”
The Corporation performs periodic credit quality reviews on these issuers. All of the Puerto Rico municipal bonds were current as to
scheduled contractual payments as of December 31, 2023. The ACL of Puerto Rico municipal bonds decreased to $ 2.2 million as of
December 31, 2023, from $8.3 million as of December 31, 2022, mostly driven by the refinancing of a $46.5 million municipal bond into
a shorter-term commercial loan structure and, to a lesser extent, a reduction in qualitative reserves driven by updated financial
information of certain bond issuers received during 2023.
The following tables present the activity in the ACL for held-to-maturity debt securities by major security type for the years ended
December 31, 2023, 2022 and 2021:
Puerto Rico Municipal Bonds
Year Ended December 31,
2022
2023
2021
(In thousands)
Beginning Balance
Provision for credit losses - benefit
ACL on held-to-maturity debt securities
$
$
8,286
(6,089)
2,197
$
$
8,571
(285)
8,286
$
$
8,845
(274)
8,571
During the second quarter of 2019, the oversight board established by Puerto Rico Oversight, Management, and Economic Stability
Act (“PROMESA”) announced the designation of Puerto Rico’s 78 municipalities as covered instrumentalities under PROMESA.
Municipalities may be affected by the negative economic and other effects resulting from expense, revenue, or cash management
measures taken by the Puerto Rico government to address its fiscal situation, or measures included in 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.
From time to time, the Corporation has held-to-maturity securities with an original maturity of three months or less that are
considered cash and cash equivalents and are classified as money market investments in the consolidated statements of financial
condition. As of December 31, 2023 and 2022, the Corporation had no outstanding held-to-maturity securities that were classified as
cash and cash equivalents.
During 2023, the Corporation recognized $ 20.9 million of interest income on held-to-maturity debt securities (2022 - $ 15.5
million; 2021 - $ 8.8 million), of which $20.5 million was exempt (2022 - $15.4 million; 2021 - $8.8 million). The exempt securities
relate to tax-exempt Puerto Rico municipal bonds and MBS held by IBEs (as defined in the International Banking Entity Act of Puerto
Rico), whose interest income and sales are exempt from Puerto Rico income taxation under that act.
150
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Credit Quality Indicators:
The held-to-maturity debt securities portfolio consisted of GSEs’ MBS and financing arrangements with Puerto Rico municipalities
issued in bond form. As previously mentioned, the Corporation expects no credit losses on GSEs MBS. The Puerto Rico municipal
bonds are accounted for as securities but are underwritten as loans with features that are typically found in commercial loans.
Accordingly, the Corporation monitors the credit quality of these municipal bonds through the use of internal credit-risk ratings, which
are generally updated on a quarterly basis. The Corporation considers a municipal bond as a criticized asset if its risk rating is Special
Mention, Substandard, Doubtful, or Loss. Puerto Rico municipal bonds that do not meet the criteria for classification as criticized
assets are considered to be Pass-rated securities. The asset categories are defined below:
Pass – Assets classified as Pass have a well-defined primary source of repayment, with no apparent risk, strong financial position,
minimal operating risk, profitability, liquidity and strong capitalization and include assets categorized as Watch. Assets classified as
Watch have acceptable business credit, but borrowers’ operations, cash flow or financial condition evidence more than average risk
and requires additional level of supervision and attention from loan officers.
Special Mention – Special Mention assets have potential weaknesses that deserve management’s close attention. If left uncorrected,
these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Corporation’s credit position
at some future date. Special Mention assets are not adversely classified and do not expose the Corporation to sufficient risk to warrant
adverse classification.
Substandard – Substandard assets are inadequately protected by the current sound worth and paying capacity of the obligor or of the
collateral pledged, if any. Assets classified as Substandard must have a well-defined weakness or weaknesses that jeopardize the
liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies
are not corrected.
Doubtful – Doubtful classifications have all the weaknesses inherent in those classified Substandard with the added characteristic
that the weaknesses make collection or liquidation in full highly questionable and improbable, based on currently known facts,
conditions and values. A Doubtful classification may be appropriate in cases where significant risk exposures are perceived, but loss
cannot be determined because of specific reasonable pending factors, which may strengthen the credit in the near term.
Loss – Assets classified as Loss are considered uncollectible and of such little value that their continuance as bankable assets is not
warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical
or desirable to defer writing off this asset even though partial recovery may occur in the future. There is little or no prospect for near
term improvement and no realistic strengthening action of significance pending.
The Corporation periodically reviews its Puerto Rico municipal bonds to evaluate if they are properly classified, and to measure
credit losses on these securities. The frequency of these reviews will depend on the amount of the aggregate outstanding debt, and the
risk rating classification of the obligor.
The Corporation has a Loan Review Group that reports directly to the Corporation’s Risk Management Committee and
administratively to the Chief Risk Officer. The Loan Review Group performs annual comprehensive credit process reviews of the
Bank’s commercial loan portfolios, including the above-mentioned Puerto Rico municipal bonds accounted for as held-to-maturity
debt securities. The objective of these loan reviews is to assess accuracy of the Bank’s determination and maintenance of loan risk
rating and its adherence to lending policies, practices and procedures. The monitoring performed by this group contributes to the
assessment of compliance with credit policies and underwriting standards, the determination of the current level of credit risk, the
evaluation of the effectiveness of the credit management process, and the identification of any deficiency that may arise in the credit-
granting process. Based on its findings, the Loan Review Group recommends corrective actions, if necessary, that help in maintaining
a sound credit process. The Loan Review Group reports the results of the credit process reviews to the Risk Management Committee.
As of December 31, 2023 and 2022, all Puerto Rico municipal bonds classified as held-to-maturity were classified as Pass.
No held-to-maturity debt securities were on nonaccrual status, 90 days past due and still accruing, or past due as of December 31,
2023 and 2022. A security is considered to be past due once it is 30 days contractually past due under the terms of the agreement.
151
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 4 – LOANS HELD FOR INVESTMENT
The following table provides information about the loan portfolio held for investment by portfolio segment and disaggregated by
geographic locations as of the indicated dates:
As of December 31,
2023
As of December 31,
2022
(In thousands)
Puerto Rico and Virgin Islands region:
Residential mortgage loans, mainly secured by first mortgages
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans
Loans held for investment
Florida region:
Residential mortgage loans, mainly secured by first mortgages
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans
Loans held for investment
$
$
$
$
2,356,006
115,401
1,790,637
2,249,408
3,651,770
10,163,222
465,720
99,376
526,446
924,824
5,895
2,022,261
$
$
$
$
2,417,900
34,772
1,834,204
1,860,109
3,317,489
9,464,474
429,390
98,181
524,647
1,026,154
9,979
2,088,351
Total:
Residential mortgage loans, mainly secured by first mortgages
Construction loans
Commercial mortgage loans
C&I loans (1)
Consumer loans
2,847,290
132,953
2,358,851
2,886,263
3,327,468
11,552,825
(260,464)
11,292,361
(1) As of December 31, 2023 and 2022, includes $787.5 million and $838.5 million, respectively, of commercial loans that were secured by real estate and for which
Loans held for investment (2)
ACL on loans and finance leases
Loans held for investment, net
2,821,726
214,777
2,317,083
3,174,232
3,657,665
12,185,483
(261,843)
11,923,640
$
$
$
$
the primary source of repayment at origination was not dependent upon such real estate.
(2) Includes accretable fair value net purchase discounts of $24.7 million and $29.3 million as of December 31, 2023 and 2022, respectively.
As of December 31, 2023, and 2022, the Corporation had net deferred origination costs on its loan portfolio amounting to $6.1
million and $11.2 million, respectively. The total loan portfolio is net of unearned income of $ 132.6 million and $103.4 million as of
December 31, 2023 and 2022, respectively, of which $128.0 million and $99.2 million are related to finance leases as of December 31,
2023 and 2022, respectively.
As of December 31, 2023, the Corporation was servicing residential mortgage loans owned by others in an aggregate amount of
$3.8 billion (2022 — $3.9 billion), and commercial loan participations owned by others in an aggregate amount of $230.5 million as
of December 31, 2023 (2022 — $ 305.1 million).
Various loans were assigned as collateral for borrowings, government deposits, time deposits accounts, and related unused
commitments. The carrying value of loans pledged as collateral amounted to $4.6 billion and $4.3 billion as of December 31, 2023
and 2022, respectively. As of each of December 31, 2023 and 2022, loans pledged as collateral include $1.8 billion that were pledged
at the FHLB as collateral for borrowings and letters of credit; $ 2.5 billion that were pledged at the FED Discount Window as collateral
for borrowings, compared to $ 2.2 billion as of December 31, 2022; and $166.9 million serve as collateral for the uninsured portion of
government deposits, compared to $123.7 million as of December 31, 2022. See Note 13 – “Advances from the Federal Home Loan
Bank (“FHLB”)” and Note 14 – “Other Borrowings” for information related to the unused portion of FHLB advances and FED
programs, respectively.
152
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Corporation’s aging of the loan portfolio held for investment, as well as information about nonaccrual loans with no ACL, by
portfolio classes as of December 31, 2023 and 2022 are as follows:
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:
FHA/VA government-guaranteed loans (1) (3) (6)
Conventional residential mortgage loans (2) (6)
$
68,332
$
2,644,344
Commercial loans:
Construction loans
Commercial mortgage loans (2) (6)
C&I loans
Consumer loans:
Auto loans
Finance leases
Personal loans
Credit cards
Other consumer loans
210,911
2,303,753
3,148,254
1,846,652
837,881
370,746
313,360
147,278
-
-
-
17
1,130
60,283
13,786
5,873
5,012
3,084
$
2,592
$
29,312
$
-
$
100,236
$
33,878
11,029
32,239
2,721,490
-
-
1,143
13,753
1,861
2,815
3,589
1,997
2,297
1,108
8,455
-
-
-
7,251
-
1,569
12,205
15,250
15,568
3,287
1,841
-
1,748
214,777
2,317,083
3,174,232
1,936,256
856,815
381,275
329,212
154,107
-
1,742
972
2,536
1,687
4
12
-
-
-
Total loans held for investment
$
11,891,511
$
89,185
$
61,628
$
59,452
$
83,707
$
12,185,483
$
6,953
(1) It is the Corporation's policy to report delinquent FHA/VA government-guaranteed residential mortgage loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans. The Corporation continues
accruing interest on these loans until they have passed the 15 months delinquency mark, taking into consideration the FHA interest curtailment process. These balances include $ 15.4 million of residential mortgage
loans guaranteed by the FHA that were over 15 months delinquent as of December 31, 2023.
(2) Includes purchased credit deteriorated ("PCD") loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans as “units of
account” both at the time of adoption of CECL on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from nonaccrual loan statistics as long as the
Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due 90 days or more, amounting to $ 8.3 million as of
December 31, 2023 ($7.4 million conventional residential mortgage loans and $0.9 million commercial mortgage loans), is presented in the loans past due 90 days or more and still accruing category in the table above.
(3) Include rebooked loans, which were previously pooled into GNMA securities, amounting to $7.9 million as of December 31, 2023. Under the GNMA program, the Corporation has the option but not the obligation to
repurchase loans that meet GNMA’s specified delinquency criteria. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting
liability.
(4) Nonaccrual loans in the Florida region amounted to $8 million as of December 31, 2023, primarily nonaccrual residential mortgage loans and C&I loans.
(5) There were no nonaccrual loans with no ACL in the Florida region as of December 31, 2023.
(6) According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal
Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA government-guaranteed loans,
conventional residential mortgage loans, and commercial mortgage loans past due 30-59 days, but less than two payments in arrears, as of December 31, 2023 amounted to $8.2 million, $69.9 million, $1.1 million,
respectively.
153
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2022
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:
FHA/VA government-guaranteed loans (1) (3) (6)
Conventional residential mortgage loans (2) (6)
$
67,116
$
2,643,909
Commercial loans:
Construction loans
Commercial mortgage loans (2) (6)
C&I loans
Consumer loans:
Auto loans
Finance leases
Personal loans
Credit cards
Other consumer loans
Total loans held for investment
-
-
-
300
1,984
$
2,586
$
48,456
$
-
$
118,158
$
25,630
16,821
42,772
2,729,132
-
2,367
1,128
7,089
1,791
1,894
2,238
1,458
128
3,771
6,332
-
-
-
4,775
-
2,208
22,319
7,830
10,672
1,645
1,248
-
1,241
132,953
2,358,851
2,886,263
1,798,071
718,230
353,246
311,731
146,190
-
2,292
977
15,991
3,300
2,136
330
-
-
-
130,617
2,330,094
2,868,989
1,740,271
40,039
707,646
346,366
301,013
141,687
7,148
3,738
3,705
1,804
$
11,277,708
$
58,718
$
46,181
$
80,283
$
89,935
$
11,552,825
$
25,026
(1)
(2)
(3)
It is the Corporation's policy to report delinquent FHA/VA government-guaranteed residential mortgage loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans. The Corporation continues
accruing interest on these loans until they have passed the 15 months delinquency mark, taking into consideration the FHA interest curtailment process. These balances include $ 28.2 million of residential mortgage loans
guaranteed by the FHA that were over 15 months delinquent as of December 31, 2022.
Includes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans as “units of account” both at the time of adoption
of CECL on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing
and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due 90 days or more, amounting to $12.0 million as of December 31, 2022 ($11.0 million conventional
residential mortgage loans and $1.0 million commercial mortgage loans), is presented in the loans past due 90 days or more and still accruing category in the table above.
Include rebooked loans, which were previously pooled into GNMA securities, amounting to $10.3 million as of December 31, 2022. Under the GNMA program, the Corporation has the option but not the obligation to
repurchase loans that meet GNMA’s specified delinquency criteria. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting
liability.
(4) Nonaccrual loans in the Florida region amounted to $8.3 million as of December 31, 2022, primarily nonaccrual residential mortgage loans.
(5)
Includes $0.3 million of nonaccrual C&I loans with no ACL in the Florida region as of December 31, 2022.
(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, 2022 amounted to $6.1 million, $65.2 million, and $1.6 million,
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 $2.7 million, $1.7 million, and $2.0 million for the years ended December 31, 2023, 2022, and 2021, respectively. For the
years ended December 31, 2023, 2022, and 2021, the cash interest income recognized on nonaccrual loans amounted to $1.8 million,
$1.5 million, and $2.3 million, respectively.
As of December 31, 2023, the recorded investment on residential mortgage loans collateralized by residential real estate property
that were in the process of foreclosure amounted to $39.4 million, including $17.1 million of FHA/VA government-guaranteed
mortgage loans, and $5.2 million of PCD loans acquired prior to the adoption, on January 1, 2020, of CECL. The Corporation
commences the foreclosure process on residential real estate loans when a borrower becomes 120 days delinquent. Foreclosure
procedures and timelines vary depending on whether the property is located in a judicial or non-judicial state. Occasionally,
foreclosures may be delayed due to, among other reasons, mandatory mediations, bankruptcy, court delays, and title issues.
Credit Quality Indicators:
The Corporation categorizes loans into risk categories based on relevant information about the ability of the borrowers to service
their debt such as current financial information, historical payment experience, credit documentation, public information, and current
economic trends, among other factors. The Corporation analyzes non-homogeneous loans, such as commercial mortgage, C&I, and
construction loans individually to classify the loans’ credit risk. As mentioned above, the Corporation periodically reviews its
commercial and construction loans to evaluate if they are properly classified. The frequency of these reviews will depend on the
amount of the aggregate outstanding debt, and the risk rating classification of the obligor. In addition, during the renewal and annual
review process of applicable credit facilities, the Corporation evaluates the corresponding loan grades. The Corporation uses the same
definition for risk ratings as those described for Puerto Rico municipal bonds accounted for as held-to-maturity debt securities, as
discussed in Note 3 – “Debt Securities.”
For residential mortgage and consumer loans, the Corporation evaluates credit quality based on its interest accrual status.
154
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Based on the most recent analysis performed, the amortized cost of commercial and construction loans by portfolio classes and by
origination year based on the internal credit-risk category as of December 31, 2023 and 2022, and the gross charge -offs for the year
ended December 31, 2023 by portfolio classes and by origination year, were as follows:
Puerto Rico and Virgin Islands Regions
As of December 31, 2023
Term Loans
Amortized Cost Basis by Origination Year (1)
2023
2022
2021
2020
2019
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
CONSTRUCTION
Risk Ratings:
Pass
Criticized:
Special Mention
Substandard
Doubtful
Loss
$
52,675
$
40,825
$
15,936
$
-
-
-
-
-
-
-
-
-
-
-
-
Total construction loans
Charge-offs on construction loans
$
$
52,675
-
$
$
40,825
-
$
$
15,936
-
$
$
-
-
-
-
-
-
-
$
$
$
-
-
-
-
-
-
-
$
3,734
$
-
2,231
-
-
$
$
5,965
62
$
$
-
-
-
-
-
-
-
$
113,170
-
2,231
-
-
$
$
115,401
62
COMMERCIAL MORTGAGE
Risk Ratings:
Pass
Criticized:
Special Mention
Substandard
Doubtful
Loss
$
176,519
$
381,695
$
135,163
$
319,111
$
276,078
$
326,420
$
3,418
$
1,618,404
-
-
-
-
4,394
124
-
-
-
-
-
-
30,169
-
-
-
-
-
-
-
112,063
25,483
-
-
-
-
-
-
146,626
25,607
-
-
Total commercial mortgage loans
Charge-offs on commercial mortgage loans
$
$
176,519
-
$
$
386,213
-
$
$
135,163
-
$
$
349,280
-
$
$
276,078
-
$
$
463,966
1,133
$
$
3,418
-
$
$
1,790,637
1,133
C&I
Risk Ratings:
Pass
Criticized:
Special Mention
Substandard
Doubtful
Loss
Total C&I loans
Charge-offs on C&I loans
(1) Excludes accrued interest receivable.
$
410,721
$
298,285
$
158,636
$
155,984
$
249,481
$
171,586
$
729,246
$
2,173,939
542
1
-
-
-
-
-
-
578
3,848
-
-
-
599
-
-
476
12,844
-
-
2,447
16,477
-
-
36,333
1,324
-
-
40,376
35,093
-
-
$
$
411,264
-
$
$
298,285
-
$
$
163,062
-
$
$
156,583
-
$
$
262,801
-
$
$
190,510
218
$
$
766,903
140
$
$
2,249,408
358
155
Florida Region
(In thousands)
CONSTRUCTION
Risk Ratings:
Pass
Criticized:
Special Mention
Substandard
Doubtful
Loss
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2023
Term Loans
Amortized Cost Basis by Origination Year (1)
2023
2022
2021
2020
2019
Prior
Revolving Loans
Amortized Cost
Basis
Total
$
995
$
57,712
$
38,289
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
$
-
-
-
-
-
-
-
$
$
$
-
-
-
-
-
-
-
$
2,380
$
99,376
-
-
-
-
-
-
-
-
$
$
2,380
-
$
$
99,376
-
Total construction loans
Charge-offs on construction loans
$
$
995
-
$
$
57,712
-
$
$
38,289
-
$
$
COMMERCIAL MORTGAGE
Risk Ratings:
Pass
Criticized:
Special Mention
Substandard
Doubtful
Loss
$
28,814
$
186,098
$
63,561
$
39,844
$
63,332
$
119,460
$
24,344
$
525,453
-
-
-
-
-
-
-
-
-
-
-
-
-
993
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
993
-
-
Total commercial mortgage loans
Charge-offs on commercial mortgage loans
$
$
28,814
-
$
$
186,098
-
$
$
63,561
-
$
$
40,837
-
$
$
63,332
-
$
$
119,460
-
$
$
24,344
-
$
$
526,446
-
C&I
Risk Ratings:
Pass
Criticized:
Special Mention
Substandard
Doubtful
Loss
Total C&I loans
Charge-offs on C&I loans
(1) Excludes accrued interest receivable.
$
139,800
$
237,189
$
166,998
$
47,394
$
109,123
$
48,106
$
130,585
$
879,195
-
-
-
-
-
-
-
-
19,485
-
-
-
-
252
-
-
11,725
191
-
-
10,836
3,140
-
-
-
-
-
-
42,046
3,583
-
-
$
$
139,800
-
$
$
237,189
-
$
$
186,483
-
$
$
47,646
376
$
$
121,039
-
$
$
62,082
6,202
$
$
130,585
-
$
$
924,824
6,578
156
Total
(In thousands)
CONSTRUCTION
Risk Ratings:
Pass
Criticized:
Special Mention
Substandard
Doubtful
Loss
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2023
Term Loans
Amortized Cost Basis by Origination Year (1)
2023
2022
2021
2020
2019
Prior
Revolving Loans
Amortized Cost
Basis
Total
$
53,670
$
98,537
$
54,225
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
$
-
-
-
-
-
-
-
$
3,734
$
2,380
$
212,546
-
2,231
-
-
-
-
-
-
-
2,231
-
-
$
$
5,965
62
$
$
2,380
-
$
$
214,777
62
Total construction loans
Charge-offs on construction loans
$
$
53,670
-
$
$
98,537
-
$
$
54,225
-
$
$
COMMERCIAL MORTGAGE
Risk Ratings:
Pass
Criticized:
Special Mention
Substandard
Doubtful
Loss
$
205,333
$
567,793
$
198,724
$
358,955
$
339,410
$
445,880
$
27,762
$
2,143,857
-
-
-
-
4,394
124
-
-
-
-
-
-
30,169
993
-
-
-
-
-
-
112,063
25,483
-
-
-
-
-
-
146,626
26,600
-
-
Total commercial mortgage loans
Charge-offs on commercial mortgage loans
$
$
205,333
-
$
$
572,311
-
$
$
198,724
-
$
$
390,117
-
$
$
339,410
-
$
$
583,426
1,133
$
$
27,762
-
$
$
2,317,083
1,133
C&I
Risk Ratings:
Pass
Criticized:
Special Mention
Substandard
Doubtful
Loss
Total C&I loans
Charge-offs on C&I loans
(1) Excludes accrued interest receivable.
$
550,521
$
535,474
$
325,634
$
203,378
$
358,604
$
219,692
$
859,831
$
3,053,134
542
1
-
-
-
-
-
-
20,063
3,848
-
-
-
851
-
-
12,201
13,035
-
-
13,283
19,617
-
-
36,333
1,324
-
-
82,422
38,676
-
-
$
$
551,064
-
$
$
535,474
-
$
$
349,545
-
$
$
204,229
376
$
$
383,840
-
$
$
252,592
6,420
$
$
897,488
140
$
$
3,174,232
6,936
157
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Puerto Rico and Virgin Islands Regions
As of December 31, 2022
Term Loans
Amortized Cost Basis by Origination Year (1)
2022
2021
2020
2019
2018
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
CONSTRUCTION
Risk Ratings:
Pass
Criticized:
Special Mention
Substandard
Doubtful
Loss
$
9,463
$
18,385
$
-
-
-
-
-
-
-
-
Total construction loans
$
9,463
$
18,385
$
-
-
-
-
-
-
$
$
-
-
-
-
-
-
$
$
-
-
-
-
-
-
$
4,031
$
-
2,893
-
-
$
6,924
$
-
-
-
-
-
-
$
31,879
-
2,893
-
-
$
34,772
COMMERCIAL MORTGAGE
Risk Ratings:
Pass
Criticized:
Special Mention
Substandard
Doubtful
Loss
$
391,589
$
141,456
$
363,115
$
296,954
$
193,795
$
267,793
$
1,026
$
1,655,728
1,198
135
-
-
-
-
-
-
3,583
-
-
-
6,919
2,819
-
-
12,042
-
-
-
121,673
30,107
-
-
-
-
-
-
145,415
33,061
-
-
Total commercial mortgage loans
$
392,922
$
141,456
$
366,698
$
306,692
$
205,837
$
419,573
$
1,026
$
1,834,204
C&I
Risk Ratings:
Pass
Criticized:
Special Mention
Substandard
Doubtful
Loss
$
297,932
$
195,460
$
184,856
$
315,987
$
88,484
$
179,201
$
527,652
$
1,789,572
138
203
-
-
912
351
-
-
-
1,324
-
-
500
14,119
-
-
9,867
725
-
-
2,631
10,238
-
-
29,176
353
-
-
43,224
27,313
-
-
Total C&I loans
$
298,273
$
196,723
$
186,180
$
330,606
$
99,076
$
192,070
$
557,181
$
1,860,109
(1) Excludes accrued interest receivable.
158
Florida Region
(In thousands)
CONSTRUCTION
Risk Ratings:
Pass
Criticized:
Special Mention
Substandard
Doubtful
Loss
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2022
Term Loans
Amortized Cost Basis by Origination Year (1)
2022
2021
2020
2019
2018
Prior
Revolving Loans
Amortized Cost
Basis
Total
$
48,536
$
42,841
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
14
$
-
-
-
-
$
14
$
-
-
-
-
-
-
$
$
-
-
-
-
-
-
$
6,790
$
98,181
-
-
-
-
-
-
-
-
$
6,790
$
98,181
Total construction loans
$
48,536
$
42,841
$
COMMERCIAL MORTGAGE
Risk Ratings:
Pass
Criticized:
Special Mention
Substandard
Doubtful
Loss
$
176,131
$
70,525
$
41,413
$
54,839
$
71,404
$
70,316
$
18,556
$
503,184
-
-
-
-
-
-
-
-
6,986
1,168
-
-
13,309
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,295
1,168
-
-
Total commercial mortgage loans
$
176,131
$
70,525
$
49,567
$
68,148
$
71,404
$
70,316
$
18,556
$
524,647
C&I
Risk Ratings:
Pass
Criticized:
Special Mention
Substandard
Doubtful
Loss
$
277,637
$
163,210
$
77,027
$
223,504
$
66,484
$
35,028
$
136,261
$
979,151
-
-
-
-
-
-
-
-
-
267
-
-
5,974
24,852
-
-
-
-
-
-
11,931
3,678
-
-
-
301
-
-
17,905
29,098
-
-
Total C&I loans
$
277,637
$
163,210
$
77,294
$
254,330
$
66,484
$
50,637
$
136,562
$
1,026,154
(1) Excludes accrued interest receivable.
159
Total
(In thousands)
CONSTRUCTION
Risk Ratings:
Pass
Criticized:
Special Mention
Substandard
Doubtful
Loss
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2022
Term Loans
Amortized Cost Basis by Origination Year (1)
2022
2021
2020
2019
2018
Prior
Revolving Loans
Amortized Cost
Basis
Total
$
57,999
$
61,226
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
14
$
-
-
-
-
$
14
$
-
-
-
-
-
-
$
4,031
$
6,790
$
130,060
-
2,893
-
-
-
-
-
-
-
2,893
-
-
$
6,924
$
6,790
$
132,953
Total construction loans
$
57,999
$
61,226
$
COMMERCIAL MORTGAGE
Risk Ratings:
Pass
Criticized:
Special Mention
Substandard
Doubtful
Loss
$
567,720
$
211,981
$
404,528
$
351,793
$
265,199
$
338,109
$
19,582
$
2,158,912
1,198
135
-
-
-
-
-
-
10,569
1,168
-
-
20,228
2,819
-
-
12,042
-
-
-
121,673
30,107
-
-
-
-
-
-
165,710
34,229
-
-
Total commercial mortgage loans
$
569,053
$
211,981
$
416,265
$
374,840
$
277,241
$
489,889
$
19,582
$
2,358,851
C&I
Risk Ratings:
Pass
Criticized:
Special Mention
Substandard
Doubtful
Loss
$
575,569
$
358,670
$
261,883
$
539,491
$
154,968
$
214,229
$
663,913
$
2,768,723
138
203
-
-
912
351
-
-
-
1,591
-
-
6,474
38,971
-
-
9,867
725
-
-
14,562
13,916
-
-
29,176
654
-
-
61,129
56,411
-
-
Total C&I loans
$
575,910
$
359,933
$
263,474
$
584,936
$
165,560
$
242,707
$
693,743
$
2,886,263
(1) Excludes accrued interest receivable.
160
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following tables present the amortized cost of residential mortgage loans by portfolio classes and by origination year based on
accrual status as of December 31, 2023 and 2022, and the gross charge-offs for the year ended December 31, 2023 by origination year:
As of December 31, 2023
Term Loans
Amortized Cost Basis by Origination Year (1)
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Amortized Cost
Basis
Total
(In thousands)
Puerto Rico and Virgin Islands Regions:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
Non-Performing
Total FHA/VA government-guaranteed loans
Conventional residential mortgage loans
Accrual Status:
Performing
Non-Performing
Total conventional residential mortgage loans
Total
Accrual Status:
Performing
Non-Performing
Total residential mortgage loans
Charge-offs on residential mortgage loans
(1) Excludes accrued interest receivable.
(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.
$
$
$
$
$
$
$
$
$
$
$
$
$
$
378
-
378
173,086
-
173,086
173,464
-
173,464
-
$
$
$
$
$
$
$
681
-
681
164,895
69
164,964
165,576
69
165,645
2
$
$
$
$
$
$
$
942
-
942
69,253
35
69,288
70,195
35
70,230
-
$
$
$
$
$
$
$
525
-
525
29,558
-
29,558
30,083
-
30,083
3
$
$
$
$
$
$
$
1,468
-
1,468
44,289
173
44,462
45,757
173
45,930
12
$
$
$
$
$
$
$
95,299
-
95,299
1,750,620
24,735
1,775,355
1,845,919
24,735
1,870,654
3,222
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
-
$
$
$
$
$
$
$
99,293
-
99,293
2,231,701
25,012
2,256,713
2,330,994
25,012
2,356,006
3,239
As of December 31, 2023
Term Loans
Amortized Cost Basis by Origination Year (1)
2023
2022
2021
2020
2019
Prior
Revolving Loans
Amortized Cost
Basis
Total
-
-
-
90,018
-
90,018
90,018
-
90,018
-
$
$
$
$
$
$
$
-
-
-
77,960
16
77,976
77,960
16
77,976
-
$
$
$
$
$
$
$
-
-
-
45,781
-
45,781
45,781
-
45,781
-
$
$
$
$
$
$
$
-
-
-
29,166
-
29,166
29,166
-
29,166
-
$
$
$
$
$
$
$
-
-
-
26,903
257
27,160
26,903
257
27,160
-
$
$
$
$
$
$
$
943
-
943
187,722
6,954
194,676
188,665
6,954
195,619
6
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
-
$
$
$
$
$
$
$
943
-
943
457,550
7,227
464,777
458,493
7,227
465,720
6
161
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2023
Term Loans
Amortized Cost Basis by Origination Year (1)
2023
2022
2021
2020
2019
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
Total:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
Non-Performing
Total FHA/VA government-guaranteed loans
Conventional residential mortgage loans
Accrual Status:
Performing
Non-Performing
Total conventional residential mortgage loans
Total
Accrual Status:
Performing
Non-Performing
Total residential mortgage loans
Charge-offs on residential mortgage loans
(1) Excludes accrued interest receivable.
(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
(1) Excludes accrued interest receivable.
$
$
$
$
$
$
$
$
$
$
$
$
$
378
-
378
263,104
-
263,104
263,482
-
263,482
-
$
$
$
$
$
$
$
681
-
681
242,855
85
242,940
243,536
85
243,621
2
$
$
$
$
$
$
$
942
-
942
115,034
35
115,069
115,976
35
116,011
-
$
$
$
$
$
$
$
525
-
525
58,724
-
58,724
59,249
-
59,249
3
$
$
$
$
$
$
$
1,468
-
1,468
71,192
430
71,622
72,660
430
73,090
12
$
$
$
$
$
$
$
96,242
-
96,242
1,938,342
31,689
1,970,031
2,034,584
31,689
2,066,273
3,228
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
-
As of December 31, 2022
Term Loans
Amortized Cost Basis by Origination Year (1)
2022
2021
2020
2019
2018
Prior
Revolving Loans
Amortized Cost
Basis
700
-
700
172,628
-
172,628
173,328
-
173,328
$
$
$
$
$
$
693
-
693
75,397
35
75,432
76,090
35
76,125
$
$
$
$
$
$
802
-
802
31,885
-
31,885
32,687
-
32,687
$
$
$
$
$
$
1,407
-
1,407
47,911
219
48,130
49,318
219
49,537
$
$
$
$
$
$
3,784
-
3,784
72,285
279
72,564
76,069
279
76,348
$
$
$
$
$
$
110,030
-
110,030
1,864,907
34,938
1,899,845
1,974,937
34,938
2,009,875
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
$
$
$
$
$
$
$
$
$
$
$
$
$
100,236
-
100,236
2,689,251
32,239
2,721,490
2,789,487
32,239
2,821,726
3,245
Total
117,416
-
117,416
2,265,013
35,471
2,300,484
2,382,429
35,471
2,417,900
162
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2022
Term Loans
Amortized Cost Basis by Origination Year (1)
2022
2021
2020
2019
2018
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
Florida Region:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
Non-Performing
Total FHA/VA government-guaranteed loans
Conventional residential mortgage loans
Accrual Status:
Performing
Non-Performing
Total conventional residential mortgage loans
Total
Accrual Status:
Performing
Non-Performing
Total residential mortgage loans
(1) Excludes accrued interest receivable.
$
$
$
$
$
$
-
-
-
82,968
-
82,968
82,968
-
82,968
$
$
$
$
$
$
-
-
-
49,479
-
49,479
49,479
-
49,479
$
$
$
$
$
$
-
-
-
31,405
-
31,405
31,405
-
31,405
$
$
$
$
$
$
-
-
-
31,144
272
31,416
31,144
272
31,416
$
$
$
$
$
$
-
-
-
37,268
477
37,745
37,268
477
37,745
$
$
$
$
$
$
742
-
742
189,083
6,552
195,635
189,825
6,552
196,377
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
$
$
$
$
$
$
742
-
742
421,347
7,301
428,648
422,089
7,301
429,390
163
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2022
Term Loans
Amortized Cost Basis by Origination Year (1)
2022
2021
2020
2019
2018
Prior
Revolving Loans
Amortized Cost
Basis
Total
(In thousands)
Total:
FHA/VA government-guaranteed loans
Accrual Status:
Performing
Non-Performing
Total FHA/VA government-guaranteed loans
Conventional residential mortgage loans
Accrual Status:
Performing
Non-Performing
Total conventional residential mortgage loans
Total
Accrual Status:
Performing
Non-Performing
Total residential mortgage loans
(1) Excludes accrued interest receivable.
$
$
$
$
$
$
700
-
700
255,596
-
255,596
256,296
-
256,296
$
$
$
$
$
$
693
-
693
124,876
35
124,911
125,569
35
125,604
$
$
$
$
$
$
802
-
802
63,290
-
63,290
64,092
-
64,092
$
$
$
$
$
$
1,407
-
1,407
79,055
491
79,546
80,462
491
80,953
$
$
$
$
$
$
3,784
-
3,784
109,553
756
110,309
113,337
756
114,093
$
$
$
$
$
$
110,772
-
110,772
2,053,990
41,490
2,095,480
2,164,762
41,490
2,206,252
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
$
$
$
$
$
$
118,158
-
118,158
2,686,360
42,772
2,729,132
2,804,518
42,772
2,847,290
164
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following tables present the amortized cost of consumer loans by portfolio classes and by origination year based on accrual
status as of December 31, 2023 and 2022, and the gross charge-offs for the year ended December 31, 2023 by portfolio classes and by
origination year:
As of December 31, 2023
Term Loans
Amortized Cost Basis by Origination Year (1)
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Amortized
Cost Basis
Total
(In thousands)
Puerto Rico and Virgin Islands Regions:
Auto loans
Accrual Status:
Performing
Non-Performing
Total auto loans
Charge-offs on auto loans
Finance leases
Accrual Status:
Performing
Non-Performing
Total finance leases
Charge-offs on finance leases
Personal loans
Accrual Status:
Performing
Non-Performing
Total personal loans
Charge-offs on personal loans
Credit cards
Accrual Status:
Performing
Non-Performing
Total credit cards
Charge-offs on credit cards
Other consumer loans
Accrual Status:
Performing
Non-Performing
Total other consumer loans
Charge-offs on other consumer loans
Total
Accrual Status:
Performing
Non-Performing
Total consumer loans
Charge-offs on total consumer loans
(1) Excludes accrued interest receivable.
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
630,507
2,474
632,981
1,969
311,620
309
311,929
473
169,905
190
170,095
1,118
-
-
-
-
82,245
634
82,879
2,151
$
1,194,277
3,607
$
$
1,197,884
5,711
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
532,854
4,031
536,885
8,029
246,085
1,188
247,273
1,889
118,433
1,078
119,511
9,028
-
-
-
-
32,594
537
33,131
7,397
929,966
6,834
936,800
26,343
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
384,103
3,103
387,206
4,688
152,028
663
152,691
1,162
32,104
207
32,311
2,881
-
-
-
-
9,897
113
10,010
2,308
578,132
4,086
582,218
11,039
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
178,566
1,426
179,992
1,854
64,930
351
65,281
557
16,282
106
16,388
1,191
-
-
-
-
5,612
61
5,673
577
265,390
1,944
267,334
4,179
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
131,913
2,610
134,523
2,413
54,207
191
54,398
593
28,224
145
28,369
2,317
-
-
-
-
4,915
72
4,987
1,043
219,259
3,018
222,277
6,366
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
61,640
1,912
63,552
1,665
24,658
585
25,243
725
14,213
115
14,328
1,284
-
-
-
-
3,731
135
3,866
361
104,242
2,747
106,989
4,035
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
329,212
-
329,212
18,276
8,919
137
9,056
453
338,131
137
338,268
18,729
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,919,583
15,556
1,935,139
20,618
853,528
3,287
856,815
5,399
379,161
1,841
381,002
17,819
329,212
-
329,212
18,276
147,913
1,689
149,602
14,290
3,629,397
22,373
3,651,770
76,402
165
(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)
As of December 31, 2023
Term Loans
Amortized Cost Basis by Origination Year (1)
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Amortized
Cost Basis
Total
-
-
-
-
-
-
-
-
71
-
71
-
-
-
-
-
223
-
223
-
294
-
294
-
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
328
-
328
-
328
-
328
-
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
135
-
135
24
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
135
-
135
24
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
970
12
982
300
-
-
-
-
-
-
-
-
-
-
-
-
2,246
19
2,265
-
3,216
31
3,247
300
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,548
40
1,588
-
1,548
40
1,588
-
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,105
12
1,117
324
-
-
-
-
273
-
273
-
-
-
-
-
4,446
59
4,505
-
5,824
71
5,895
324
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
202
-
202
-
-
-
-
-
54
-
54
-
256
-
256
-
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
47
-
47
-
47
-
47
-
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
166
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2023
Term Loans
Amortized Cost Basis by Origination Year (1)
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Amortized
Cost Basis
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
630,507
2,474
632,981
1,969
311,620
309
311,929
473
170,107
190
170,297
1,118
-
-
-
-
82,299
634
82,933
2,151
$
1,194,533
3,607
$
$
1,198,140
5,711
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
532,854
4,031
536,885
8,029
246,085
1,188
247,273
1,889
118,433
1,078
119,511
9,028
-
-
-
-
32,641
537
33,178
7,397
930,013
6,834
936,847
26,343
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
384,103
3,103
387,206
4,688
152,028
663
152,691
1,162
32,175
207
32,382
2,881
-
-
-
-
10,120
113
10,233
2,308
578,426
4,086
582,512
11,039
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
178,566
1,426
179,992
1,854
64,930
351
65,281
557
16,282
106
16,388
1,191
-
-
-
-
5,940
61
6,001
577
265,718
1,944
267,662
4,179
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
132,048
2,610
134,658
2,437
54,207
191
54,398
593
28,224
145
28,369
2,317
-
-
-
-
4,915
72
4,987
1,043
219,394
3,018
222,412
6,390
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
62,610
1,924
64,534
1,965
24,658
585
25,243
725
14,213
115
14,328
1,284
-
-
-
-
5,977
154
6,131
361
107,458
2,778
110,236
4,335
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
329,212
-
329,212
18,276
10,467
177
10,644
453
339,679
177
339,856
18,729
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,920,688
15,568
1,936,256
20,942
853,528
3,287
856,815
5,399
379,434
1,841
381,275
17,819
329,212
-
329,212
18,276
152,359
1,748
154,107
14,290
3,635,221
22,444
3,657,665
76,726
(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.
167
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2022
Term Loans
Amortized Cost Basis by Origination Year (1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
$
$
$
$
$
$
$
$
$
$
674,145
1,666
675,811
292,995
176
293,171
175,875
348
176,223
-
-
-
79,630
409
80,039
$
1,222,645
2,599
$
1,225,244
$
$
$
$
$
$
$
$
$
$
$
$
510,950
2,140
513,090
192,435
253
192,688
55,993
249
56,242
-
-
-
21,488
201
21,689
780,866
2,843
783,709
$
$
$
$
$
$
$
$
$
$
$
$
254,196
1,596
255,792
88,196
305
88,501
29,320
135
29,455
-
-
-
9,345
61
9,406
381,057
2,097
383,154
$
$
$
$
$
$
$
$
$
$
$
$
206,345
2,508
208,853
81,186
219
81,405
53,911
289
54,200
-
-
-
11,941
119
12,060
353,383
3,135
356,518
$
$
$
$
$
$
$
$
$
$
$
$
99,008
1,385
100,393
48,332
384
48,716
22,838
112
22,950
-
-
-
4,030
20
4,050
174,208
1,901
176,109
$
$
$
$
$
$
$
$
$
$
$
$
39,138
1,301
40,439
13,441
308
13,749
13,727
115
13,842
-
-
-
3,761
241
4,002
70,067
1,965
72,032
$
$
$
$
$
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
311,731
-
311,731
8,921
71
8,992
320,652
71
320,723
$
$
$
$
$
$
$
$
$
$
$
$
1,783,782
10,596
1,794,378
716,585
1,645
718,230
351,664
1,248
352,912
311,731
-
311,731
139,116
1,122
140,238
3,302,878
14,611
3,317,489
(In thousands)
Puerto Rico and Virgin Islands Regions:
Auto loans
Accrual Status:
Performing
Non-Performing
Total auto loans
Finance leases
Accrual Status:
Performing
Non-Performing
Total finance leases
Personal loans
Accrual Status:
Performing
Non-Performing
Total personal loans
Credit cards
Accrual Status:
Performing
Non-Performing
Total credit cards
Other consumer loans
Accrual Status:
Performing
Non-Performing
Total other consumer loans
Total
Accrual Status:
Performing
Non-Performing
Total consumer loans
(1) Excludes accrued interest receivable.
168
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2022
Term Loans
Amortized Cost Basis by Origination Year (1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
$
$
$
$
$
$
$
$
$
$
$
$
-
-
-
-
-
-
254
-
254
-
-
-
49
-
49
303
-
303
$
$
$
$
$
$
$
$
$
$
$
$
-
-
-
-
-
-
71
-
71
-
-
-
231
-
231
302
-
302
$
$
$
$
$
$
$
$
$
$
$
$
-
-
-
-
-
-
9
-
9
-
-
-
464
-
464
473
-
473
$
$
$
$
$
$
$
$
$
$
$
$
305
-
305
-
-
-
-
-
-
-
-
-
-
-
-
305
-
305
$
$
$
$
$
$
$
$
$
$
$
$
2,333
36
2,369
-
-
-
-
-
-
-
-
-
39
-
39
2,372
36
2,408
$
$
$
$
$
$
$
$
$
$
$
$
979
40
1,019
-
-
-
-
-
-
-
-
-
2,588
21
2,609
3,567
61
3,628
$
$
$
$
$
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
2,462
98
2,560
2,462
98
2,560
$
$
$
$
$
$
$
$
$
$
$
$
3,617
76
3,693
-
-
-
334
-
334
-
-
-
5,833
119
5,952
9,784
195
9,979
(In thousands)
Florida Region:
Auto loans
Accrual Status:
Performing
Non-Performing
Total auto loans
Finance leases
Accrual Status:
Performing
Non-Performing
Total finance leases
Personal loans
Accrual Status:
Performing
Non-Performing
Total personal loans
Credit cards
Accrual Status:
Performing
Non-Performing
Total credit cards
Other consumer loans
Accrual Status:
Performing
Non-Performing
Total other consumer loans
Total
Accrual Status:
Performing
Non-Performing
Total consumer loans
(1) Excludes accrued interest receivable.
169
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2022
Term Loans
Amortized Cost Basis by Origination Year (1)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
$
$
$
$
$
$
$
$
$
$
674,145
1,666
675,811
292,995
176
293,171
176,129
348
176,477
-
-
-
79,679
409
80,088
$
1,222,948
2,599
$
1,225,547
$
$
$
$
$
$
$
$
$
$
$
$
510,950
2,140
513,090
192,435
253
192,688
56,064
249
56,313
-
-
-
21,719
201
21,920
781,168
2,843
784,011
$
$
$
$
$
$
$
$
$
$
$
$
254,196
1,596
255,792
88,196
305
88,501
29,329
135
29,464
-
-
-
9,809
61
9,870
381,530
2,097
383,627
$
$
$
$
$
$
$
$
$
$
$
$
206,650
2,508
209,158
81,186
219
81,405
53,911
289
54,200
-
-
-
11,941
119
12,060
353,688
3,135
356,823
$
$
$
$
$
$
$
$
$
$
$
$
101,341
1,421
102,762
48,332
384
48,716
22,838
112
22,950
-
-
-
4,069
20
4,089
176,580
1,937
178,517
$
$
$
$
$
$
$
$
$
$
$
$
40,117
1,341
41,458
13,441
308
13,749
13,727
115
13,842
-
-
-
6,349
262
6,611
73,634
2,026
75,660
$
$
$
$
$
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
311,731
-
311,731
11,383
169
11,552
323,114
169
323,283
$
$
$
$
$
$
$
$
$
$
$
$
1,787,399
10,672
1,798,071
716,585
1,645
718,230
351,998
1,248
353,246
311,731
-
311,731
144,949
1,241
146,190
3,312,662
14,806
3,327,468
(In thousands)
Total:
Auto loans
Accrual Status:
Performing
Non-Performing
Total auto loans
Finance leases
Accrual Status:
Performing
Non-Performing
Total finance leases
Personal loans
Accrual Status:
Performing
Non-Performing
Total personal loans
Credit cards
Accrual Status:
Performing
Non-Performing
Total credit cards
Other consumer loans
Accrual Status:
Performing
Non-Performing
Total other consumer loans
Total
Accrual Status:
Performing
Non-Performing
Total consumer loans
(1) Excludes accrued interest receivable.
As of December 31, 2023 and 2022, the balance of revolving loans converted to term loans was not material.
Accrued interest receivable on loans totaled $62.3 million as of December 31, 2023 (2022 - $53.1 million), was 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.
170
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following tables present information about collateral dependent loans that were individually evaluated for purposes of
determining the ACL as of December 31, 2023 and 2022
:
As of December 31, 2023
(In thousands)
Residential mortgage loans:
Collateral Dependent Loans -
With Allowance
Amortized Cost
Related
Allowance
Collateral Dependent
Loans - With No
Related Allowance
Collateral Dependent Loans - Total
Amortized Cost
Amortized Cost
Related
Allowance
Conventional residential mortgage loans $
25,355
$
1,732
$
-
$
25,355
$
Commercial loans:
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans:
Personal loans
Other consumer loans
As of December 31, 2022
(In thousands)
Residential mortgage loans:
-
4,454
9,390
28
123
39,350
$
$
-
135
1,563
1
12
3,443
$
956
40,683
6,780
-
-
48,419
$
956
45,137
16,170
28
123
87,769
$
1,732
-
135
1,563
1
12
3,443
Collateral Dependent Loans -
With Allowance
Amortized Cost
Related
Allowance
Collateral Dependent
Loans - With No
Related Allowance
Collateral Dependent Loans - Total
Amortized Cost
Amortized Cost
Related
Allowance
Conventional residential mortgage loans $
36,206
$
2,571
$
-
$
36,206
$
2,571
Commercial loans:
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans:
Personal loans
Other consumer loans
-
2,466
1,513
56
207
40,448
$
$
-
897
322
1
29
3,820
$
956
62,453
17,590
64
-
81,063
956
64,919
19,103
120
207
121,511
$
$
-
897
322
1
29
3,820
The underlying collateral for residential mortgage and consumer collateral dependent loans consisted of single-family residential
properties, and for commercial and construction loans consisted primarily of office buildings, multifamily residential properties, and
retail establishments. The weighted-average loan-to-value coverage for collateral dependent loans as of December 31, 2023 was 65%,
compared to 70% as of December 31, 2022, mainly related to a nonaccrual commercial mortgage loan, with a loan-to-value over
100%, transferred to OREO during 2023.
171
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Purchases and Sales of Loans
In the ordinary course of business, the Corporation enters into securitization transactions and whole loan sales with GNMA and
GSEs, such as FNMA and FHLMC. During the years ended December 31, 2023, 2022, and 2021, loans pooled into GNMA MBS
amounted to approximately $125.4 million, $ 144.5 million, and $190.8 million, respectively, for which the Corporation recognized a
net gain on sale of $2.6 million, $4.2 million, and $8.8 million, respectively. Also, during the years ended December 31, 2023, 2022,
and 2021, the Corporation sold approximately $29.8 million, $93.8 million, and $328.2 million, respectively, of performing residential
mortgage loans to FNMA and FHLMC, for which the Corporation recognized a net gain on sale of $0.7 million, $4.2 million, and
$11.4 million, respectively. The Corporation’s continuing involvement with the loans that it sells consists primarily of servicing the
loans. In addition, the Corporation agrees to repurchase loans if it breaches any of the representations and warranties included in the
sale agreement. These representations and warranties are consistent with the GSEs’ selling and servicing guidelines ( i.e., ensuring that
the mortgage was properly underwritten according to established guidelines).
For loans pooled into GNMA MBS, the Corporation, as servicer, holds an option to repurchase individual delinquent loans issued
on or after January 1, 2003 when certain delinquency criteria are met. This option gives the Corporation the unilateral ability, but not
the obligation, to repurchase the delinquent loans at par without prior authorization from GNMA. Since the Corporation is considered
to have regained effective control over the loans, it is required to recognize the loans and a corresponding repurchase liability
regardless of its intent to repurchase the loans. As of December 31, 2023 and 2022, rebooked GNMA delinquent loans that were
included in the residential mortgage loan portfolio amounted to $ 7.9 million and $10.4 million, respectively.
During the years ended December 31, 2023, 2022, and 2021, the Corporation repurchased, pursuant to the aforementioned
repurchase option, $2.9 million, $8.2 million, and $1.1 million, respectively, of loans previously pooled into GNMA MBS. The
principal balance of these loans is fully guaranteed, and the risk of loss related to the repurchased loans is generally limited to the
difference between the delinquent interest payment advanced to GNMA, which is computed at the loan’s interest rate, and the interest
payments reimbursed by FHA, which are computed at a pre-determined debenture rate. Repurchases of GNMA loans allow the
Corporation, among other things, to maintain acceptable delinquency rates on outstanding GNMA pools and remain as a seller and
servicer in good standing with GNMA. 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 years ended December 31, 2023, 2022, and 2021, the Corporation purchased C&I loan participations in the Florida
region totaling $61.3 million, $135.4 million, and $174.7 million, respectively.
There were no significant sales of commercial loans during the year ended December 31, 2023. Meanwhile, during the year ended
December 31, 2022, the Corporation sold a $35.2 million C&I loan participation in the Puerto Rico region and a $23.9 million
criticized C&I loan participation in the Florida region. During the year ended December 31, 2021, the Corporation sold a $3.1 million
construction loan in the Puerto Rico region and four criticized commercial loan participations in the Florida region totaling $ 43.1
million.
Further, during the third quarter of 2021, the Corporation sold $ 52.5 million of non-performing residential mortgage loans and
related servicing advances of $2.0 million. The Corporation received $31.5 million, or 58% of book value before reserves, for the
$54.5 million of non-performing loans and related servicing advances. Approximately $20.9 million of reserves had been allocated to
the loans sold. The transaction resulted in total net charge-offs of $ 23.1 million and an additional loss of approximately $ 2.1 million
recorded as charge to the provision for credit losses in the third quarter of 2021.
172
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Loan Portfolio Concentration
The Corporation’s primary lending area is Puerto Rico. The Corporation’s banking subsidiary, FirstBank, also lends in the USVI
and the BVI markets and in the United States (principally in the state of Florida). Of the total gross loans held for investment portfolio
of $12.2 billion as of December 31, 2023, credit risk concentration was approximately 80% in Puerto Rico, 17% in the U.S., and 3%
in the USVI and the BVI.
As of December 31, 2023, the Corporation had $187.7 million outstanding in loans extended to the Puerto Rico government, its
municipalities and public corporations, compared to $169.8 million as of December 31, 2022. As of December 31, 2023,
approximately $115.8 million consisted of loans extended to municipalities in Puerto Rico that are general obligations supported by
assigned property tax revenues, and $25.6 million of loans which are supported by one or more specific sources of municipal
revenues. The vast majority of revenues of the municipalities included in the Corporation’s loan portfolio are independent of
budgetary subsidies provided by the Puerto Rico central government. These municipalities are required by law to levy special property
taxes in such amounts as are required to satisfy the payment of all of their respective general obligation bonds and notes. In addition to
loans extended to municipalities, the Corporation’s exposure to the Puerto Rico government as of December 31, 2023 included $ 8.9
million in loans granted to an affiliate of the Puerto Rico Electric Power Authority (“PREPA”) and $ 37.4 million in loans to agencies
or public corporations of the Puerto Rico government.
In addition, as of December 31, 2023, the Corporation had $ 77.7 million in exposure to residential mortgage loans that are
guaranteed by the PRHFA, a government instrumentality that has been designated as a covered entity under PROMESA, compared to
$84.7 million as of December 31, 2022. Residential mortgage loans guaranteed by the PRHFA are secured by the underlying
properties and the guarantees serve to cover shortfalls in collateral in the event of a borrower default.
The Corporation also has credit exposure to USVI government entities. As of December 31, 2023, the Corporation had $90.5
million in loans to USVI government public corporations, compared to $ 38.0 million as of December 31, 2022. As of December 31,
2023, all loans were currently performing and up to date on principal and interest payments.
173
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Loss Mitigation Program for Borrowers Experiencing Financial Difficulty
Effective January 1, 2023, the Corporation adopted ASU 2022-02. For additional information on the adoption, see Note 1 – “Nature
of Business and Summary of Significant Accounting Policies.”
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 $3.9 million in
restructured residential mortgage loans that are government-guaranteed (e.g., FHA/VA loans) and were modified during the year
ended December 31, 2023.
174
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents the amortized cost basis as of December 31, 2023 of loans modified to borrowers experiencing
financial difficulty during the year ended December 31, 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:
Payment Delay Only
Year Ended December 31, 2023
Forbearance
Payment Plan
Trial
Modification
Interest Rate
Reduction
Term
Extension
Combination
of Interest
Rate
Reduction
and Term
Extension
Other
Total
-
-
-
-
2,084
(1)
-
-
29
(1)
$
1,738
-
32,392
371
2,773
340
1,424
531
Percentage
of Total by
Portfolio
Classes
0.06%
-
1.40%
0.01%
0.14%
0.09%
0.43%
0.34%
(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
Total modifications
$
-
-
-
-
-
-
-
-
-
$
$
-
-
-
-
-
-
-
-
-
$
501
$
-
-
-
-
-
-
-
-
-
-
186
-
-
1,424
(2)
-
$
999
$
238
$
-
2,222
185
474
138
-
424
-
30,170
-
215
202
-
78
$
501
$
1,610
$
4,442
$
30,903
$
2,113
$
39,569
(1) Modification consists of reduction to 0% interest rate for remaining loan term to borrowers in bankruptcy proceedings or consumer credit counseling programs unless dismissal occurs.
(2) Modification consists of reduction in interest rate and revocation of revolving line privileges.
The following table presents by portfolio classes the financial effects of the modifications granted to borrowers experiencing
financial difficulty, other than those associated to payment delay, during the year ended December 31, 2023. The financial effects of
the modifications associated to payment delay were discussed above and, as such, were excluded from the table below:
Year Ended December 31, 2023
Combination of Interest Rate Reduction and Term
Extension
Weighted-Average
Interest Rate Reduction
(%)
Weighted-Average Term
Extension (in months)
Weighted-Average
Interest Rate Reduction
(%)
Weighted-Average Term
Extension (in months)
- %
- %
- %
0.45 %
- %
- %
16.09 %
- %
93
-
13
72
23
36
-
26
2.95 %
- %
0.25 %
- %
2.95 %
4.57 %
- %
1.60 %
105
-
64
-
24
29
-
22
(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
175
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents by portfolio classes the performance of loans modified during the year ended December 31, 2023
that were granted to borrowers experiencing financial difficulty:
30-59
60-89
90+
Total
Delinquency
Current
Total
Year Ended December 31, 2023
(In thousands)
Conventional residential mortgage loans
$
14
$
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans:
Auto loans
Personal loans
Credit cards
Other consumer loans
Total modifications
-
-
-
27
52
43
46
$
182
$
-
-
-
-
18
-
16
11
45
$
$
-
-
-
-
18
15
2
20
55
$
14
$
1,724
$
-
-
-
63
67
61
77
-
32,392
371
2,710
273
1,363
454
1,738
-
32,392
371
2,773
340
1,424
531
$
282
$
39,287
$
39,569
The following table presents the amortized cost basis of classes of financing receivables that had a payment default (failure by the
borrower to make payments of either principal, interest, or both for a period of 90 days or more) and were modified to borrowers
experiencing financial difficulty during the year ended December 31, 2023:
Year ended December 31, 2023
Combination
of Interest
Rate
Reduction
and Term
Extension
Forgiveness of
Principal
and/or
Interest
Interest Rate
Reduction
Term
Extension
Other
Total
(In thousands)
Conventional residential mortgage
Construction loans
loans
Commercial mortgage loans
C&I loans
Consumer loans:
Auto loans
Personal loans
Credit cards
Other consumer loans
Total modifications
$
$
-
-
-
-
-
-
2
-
2
$
$
-
-
-
-
-
-
-
20
20
$
$
-
-
-
-
-
15
-
-
15
$
$
-
-
-
-
-
-
-
-
-
$
$
-
-
-
-
18
-
-
-
18
$
$
-
-
-
-
18
15
2
20
55
176
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Troubled Debt Restructuring ("TDR") Disclosures Prior to Adoption of ASU 2022-02
The following provides additional disclosures previously required by ASC Subtopic 310-40, Receivables - Troubled Debt
Restructurings by Creditors, related to the years ended December 31, 2022 and 2021. Prior to the adoption of ASU 2022-02, a
restructuring of a loan constituted a TDR if the creditor, for economic or legal reasons related to the borrower's financial difficulties,
granted a concession to the borrower that it would not otherwise consider. See Note 1 - "Nature of Business and Summary of
Significant Accounting Policies" and Note 4 - "Loans Held For Investment" to the audited consolidated financial statements included
in the Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023, for additional
discussion of TDRs. The following tables present TDR loans completed during the years ended December 31, 2022 and 2021:
Total
(In thousands)
TDRs:
Conventional residential mortgage loans
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans:
Auto loans
Finance leases
Personal loans
Credit cards
Other consumer loans
Total TDRs
Interest rate
below market
Maturity or
term extension
Year Ended December 31, 2022
Combination
of reduction in
interest rate
and extension
of maturity
Forgiveness of
principal
and/or interest
Other (1)
Total
$
$
433
-
-
2,402
2,877
-
99
816 (2)
112
6,739
$
$
1,551
-
245
-
232
573
171
-
272
3,044
$
$
242
-
5,178
618
345
-
105
-
16
6,504
$
$
-
-
-
825
-
-
-
-
43
868
$
$
4,874
-
467
1,083
-
18
19
-
-
6,461
$
$
7,100
-
5,890
4,928
3,454
591
394
816
443
23,616
(1) Other concessions granted by the Corporation include payment plans under judicial stipulation or loss mitigation programs, or a combination of two or more of the concessions listed in
the table. Amounts included in Other that represent a combination of concessions are excluded from the amounts reported in the column for such individual concessions.
(2) Concession consists of reduction in interest rate and revocation of revolving line privileges.
Total
(In thousands)
TDRs:
Conventional residential mortgage loans
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans:
Auto loans
Finance leases
Personal loans
Credit cards
Other consumer loans
Total TDRs
Interest rate
below market
Maturity or
term extension
Year Ended December 31, 2021
Combination
of reduction in
interest rate
and extension
of maturity
Forgiveness of
principal
and/or interest
Other (1)
Total
$
$
365
-
-
-
1,888
-
13
1,426 (2)
110
3,802
$
$
859
-
-
300
433
645
60
-
79
2,376
$
$
2,647
-
10,586
9,100
277
26
387
-
-
23,023
$
$
-
-
-
-
-
-
-
-
77
77
$
$
3,723
-
637
508
-
26
44
-
-
4,938
$
$
7,594
-
11,223
9,908
2,598
697
504
1,426
266
34,216
(1) Other concessions granted by the Corporation include payment plans under judicial stipulation or loss mitigation programs, or a combination of two or more of the concessions listed in
the table. Amounts included in Other that represent a combination of concessions are excluded from the amounts reported in the column for such individual concessions.
(2) Concession consists of reduction in interest rate and revocation of revolving line privileges.
177
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Year Ended December 31, 2022
Year Ended December 31, 2021
Number of
contracts
Pre-modification
Amortized Cost
Post-modification
Amortized Cost
Number of
contracts
Pre-modification
Amortized Cost
Post-modification
Amortized Cost
(Dollars in thousands)
TDRs:
Conventional residential mortgage loans
68
$
7,165
$
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans:
Auto loans
Finance leases
Personal loans
Credit Cards
Other consumer loans
Total TDRs
-
3
17
168
33
26
170
115
600
-
5,897
5,156
3,404
592
366
815
434
7,100
-
5,890
4,928
3,454
591
394
816
443
$
23,829
$
23,616
66
$
7,687
$
-
7
6
134
42
46
246
65
612
-
11,285
10,031
2,601
692
497
1,426
266
$
34,485
$
7,594
-
11,223
9,908
2,598
697
504
1,426
266
34,216
Loan modifications considered TDR loans that defaulted (failure by the borrower to make payments of either principal, interest, or
both for a period of 90 days or more) during the years ended December 31, 2022 and 2021, and had become TDR loans during the 12-
months preceding the default date, were as follows:
Year Ended December 31, 2022
Year Ended December 31, 2021
Number of contracts
Amortized Cost
Number of contracts
Amortized Cost
(Dollars in thousands)
Conventional residential mortgage loans
Construction loans
Commercial mortgage loans
C&I loans
Consumer loans:
Auto loans
Finance leases
Personal loans
Credit cards
Other consumer loans
Total
124
-
-
-
2,049
16
-
156
30
2,375
- $
-
-
-
92
-
1
24
11
128 $
-
-
-
-
1,625
-
1
126
45
1,797
2 $
-
-
-
96
1
-
28
8
135 $
178
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 5 – ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES
The following tables present the activity in the ACL on loans and finance leases by portfolio segment for the indicated periods:
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
C&I
Loans
Consumer Loans
Total
Year Ended December 31, 2023
(In thousands)
ACL:
Beginning balance
Impact of adoption of ASU 2022-02
Provision for credit losses - (benefit) expense
Charge-offs
Recoveries
Ending balance
(cid:3)
Year Ended December 31, 2022
(In thousands)
ACL:
Beginning balance
Provision for credit losses - (benefit) expense
Charge-offs
Recoveries
Ending balance
Year Ended December 31, 2021
(In thousands)
ACL:
Beginning balance
Provision for credit losses - (benefit) expense
Charge-offs
Recoveries
Ending balance
$
$
62,760
$
2,308
$
35,064
$
32,906
$
127,426
$
260,464
2,056
(6,866)
(3,245)
2,692
-
1,408
(62)
1,951
-
(2,086)
(1,133)
786
7
6,372
(6,936)
841
53
67,816
(76,726)
14,451
57,397
$
5,605
$
32,631
$
33,190
$
133,020
$
2,116
66,644
(88,102)
20,721
261,843
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
C&I
Loans
Consumer Loans
Total
$
$
74,837 $
4,048 $
(8,734)
(6,890)
3,547
(2,342)
(123)
725
52,771 $
(18,994)
(85)
1,372
34,284 $
103,090 $
(1,770)
(2,067)
2,459
57,519
(48,165)
14,982
62,760 $
2,308 $
35,064 $
32,906 $
127,426 $
269,030
25,679
(57,330)
23,085
260,464
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
C&I
Loans
Consumer Loans
Total
$
$
120,311 $
5,380 $
109,342 $
37,944 $
112,910 $
(16,957)
(33,294)
4,777
(1,408)
(87)
163
(55,358)
(1,494)
281
(8,549)
(1,887)
6,776
20,552
(43,948)
13,576
74,837 $
4,048 $
52,771 $
34,284 $
103,090 $
385,887
(61,720)
(80,710)
25,573
269,030
179
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Corporation estimates the ACL following the methodologies described in Note 1 – “Nature of Business and Summary of
Significant Accounting Policies” for each portfolio segment.
The Corporation generally applies probability weights to the baseline and alternative downside economic scenarios to estimate the
ACL with the baseline scenario carrying the highest weight. The scenarios that are chosen each quarter and the weighting given to
each scenario for the different loan portfolio categories depend on a variety of factors including recent economic events, leading
national and regional economic indicators, and industry trends. As of December 31, 2023, the Corporation applied the baseline
scenario for the commercial mortgage and construction loan portfolios as deterioration in the commercial real estate price index
(“CRE price index”) in these portfolios was expected at a lower extent than projected in the alternative downside scenario, particularly
in the Puerto Rico region.
As of December 31, 2023, the ACL for loans and finance leases was $ 261.8 million, an increase of $1.3 million, from $260.5
million as of December 31, 2022. The ACL for consumer loans increased by $5.6 million, primarily reflecting the effect of the
increase in the size of the consumer loan portfolios and increases in delinquency and historical charge-off levels, partially offset by
updated macroeconomic variables. The ACL for commercial and construction loans increased by $ 1.1 million, mainly due to the
growth in the commercial and construction loan portfolios and a $1.7 million incremental reserve recorded during 2023 associated
with the inflow to nonaccrual status of a $9.5 million C&I loan in the Puerto Rico region, partially offset by an improvement on the
economic outlook of certain macroeconomic variables, such as the CRE price index. The ACL for residential mortgage loans
decreased by $5.4 million, mainly driven by updated macroeconomic variables, such as the Regional Home Price Index and the
unemployment rate, partially offset by newly originated loans that have a longer life and the $ 2.1 million cumulative increase in the
ACL due to the adoption of ASU 2022-02 on January 1, 2023. See Note 1 –“Nature of Business and Summary of Significant
Accounting Policies” for additional information related to the adoption of ASU 2022-02.
Net charge-offs totaled $67.4 million for the year ended December 31, 2023, compared to $ 34.2 million for the year ended
December 31, 2022, mainly driven by a $29.1 million increase in consumer loans and finance leases net charge-offs, mainly reflected
in the auto, personal, and credit card loan portfolios; and a $6.5 million increase in C&I loans mainly driven by a $6.0 million net
charge-off recorded on a C&I participated loan in the Florida region in the power generation industry.
180
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The tables below present the ACL related to loans and finance leases and the carrying values of loans by portfolio segment as of
December 31, 2023 and 2022:
As of December 31, 2023
(Dollars in thousands)
Total loans held for investment:
Amortized cost of loans
Allowance for credit losses
Allowance for credit losses to
amortized cost
As of December 31, 2022
(Dollars in thousands)
Total loans held for investment:
Amortized cost of loans
Allowance for credit losses
Allowance for credit losses to
amortized cost
Residential Mortgage
Loans
Construction
Loans
Commercial Mortgage
Loans
C&I
Loans
Consumer Loans
Total
$
2,821,726
$
214,777
$
2,317,083
$
3,174,232
$
3,657,665
$
12,185,483
57,397
5,605
32,631
33,190
133,020
261,843
2.03 %
2.61 %
1.41 %
1.05 %
3.64 %
2.15 %
Residential Mortgage
Loans
Construction
Loans
Commercial Mortgage
Loans
C&I
Loans
Consumer Loans
Total
$
2,847,290
$
132,953
$
2,358,851
$
2,886,263
$
3,327,468
$
11,552,825
62,760
2,308
35,064
32,906
127,426
260,464
2.20 %
1.74 %
1.49 %
1.14 %
3.83 %
2.25 %
In addition, the Corporation estimates expected credit losses over the contractual period in which the Corporation is exposed to
credit risk via a contractual obligation to extend credit, such as unfunded loan commitments and standby letters of credit for
commercial and construction loans, unless the obligation is unconditionally cancellable by the Corporation. See Note 29 –
“Regulatory Matters, Commitments and Contingencies” for information on off-balance sheet exposures as of December 31, 2023 and
2022. The Corporation estimates the ACL for these off-balance sheet exposures following the methodology described in Note 1 –
“Nature of Business and Summary of Significant Accounting Policies.” As of December 31, 2023, the ACL for off-balance sheet
credit exposures increased to $4.6 million, from $4.3 million as of December 31, 2022.
The following table presents the activity in the ACL for unfunded loan commitments and standby letters of credit for the years
ended December 31, 2023, 2022 and 2021:
(In thousands)
Beginning Balance
Provision for credit losses - expense (benefit)
Ending balance
$
$
2023
Year Ended December 31,
2022
2021
4,273 $
365
4,638 $
1,537 $
2,736
4,273 $
5,105
(3,568)
1,537
181
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 6 – PREMISES AND EQUIPMENT
Premises and equipment comprise:
(Dollars in thousands)
Buildings and improvements
Leasehold improvements
Furniture, equipment and software
Accumulated depreciation and amortization
Land
Projects in progress
Total premises and equipment, net
Useful Life Range In Years
As of December 31,
Minimum
Maximum
2023
2022
10
1
2
35
10
10
$
$
143,470
77,702
161,886
383,058
(277,853)
105,205
29,965
6,846
142,016
$
$
135,802
76,390
155,567
367,759
(264,233)
103,526
24,485
14,924
142,935
Depreciation and amortization expense amounted to $20.5 million, $22.3 million, and $25.0 million for the years ended December
31, 2023, 2022, and 2021, respectively.
During the year ended December 31, 2023, the Corporation recognized $3.5 million in net gains from sales of fixed assets, of which
$3.0 million was related to the sale of a banking premise in the Florida region, compared to $ 0.9 million during the year ended
December 31, 2022.
During the year ended December 31, 2023, the Corporation received insurance proceeds of $0.7 million, of which $0.2 million was
related to the collection of an insurance claim associated with property damage caused by Hurricane Fiona. Also, during the year
ended December 31, 2021, the Corporation received insurance proceeds of $0.6 million related to the settlement and collection of an
insurance claim associated with a damaged property. These amounts are included as part of other non-interest income in the
consolidated statements of income.
See Note 25 – “Fair Value” for information on write-downs recorded on long-lived assets held for sale.
182
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 7 (cid:884) OTHER REAL ESTATE OWNED
The following table presents the OREO inventory as of the indicated dates:
(In thousands)
OREO balances, carrying value:
Residential (1)
Construction
Commercial
Total
December 31, 2023
December 31, 2022
$
$
20,261
1,601
10,807
32,669
$
$
24,025
1,764
5,852
31,641
(1) Excludes $ 16.6 million and $23.5 million as of December 31, 2023 and 2022, respectively, of foreclosures that met the conditions of ASC Subtopic 310-40 “Reclassification of Residential
Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” and are presented as a receivable as part of other assets in the consolidated statements of financial condition.
See Note 25 – “Fair Value” for information on the subsequent measurement recorded on OREO properties in the consolidated
statements of income within “Net gain on OREO operations” during the years ended December 31, 2023, 2022, and 2021.
NOTE 8 – RELATED-PARTY TRANSACTIONS
The Corporation has granted loans to its directors, executive officers, and certain related individuals or entities in the ordinary
course of business. The movement and balance of these loans were as follows:
(In thousands)
Balance at December 31, 2021
Additions
Payments
Balance at December 31, 2022
Additions
Payments
Balance at December 31, 2023
Amount (1)
943
89
(149)
883
333
(389)
827
$
$
(1) Includes loans granted to related parties which were then sold in the secondary market.
These loans were made subject to the provisions of the Federal Reserve Board’s Regulation O – “Loans to Executive Officers,
Directors and Principal Shareholders of Member Banks,” which governs the permissible lending relationships between a financial
institution and its executive officers, directors, principal shareholders, their families, and related parties. There were no changes in the
status of related parties during 2023 and 2022.
From time to time, the Corporation, in the ordinary course of its business, obtains services from related parties or makes
contributions to non-profit organizations that have some association with the Corporation.
183
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 9 – GOODWILL AND OTHER INTANGIBLES
Goodwill
Goodwill as of each of December 31, 2023 and 2022 amounted to $38.6 million. The Corporation’s policy is to assess goodwill and
other intangibles for impairment on an annual basis during the fourth quarter of each year, and more frequently if events or
circumstances lead management to believe that the values of goodwill or other intangibles may be impaired. During the fourth quarter
of 2023, management performed a qualitative analysis of the carrying amount of each relevant reporting units’ goodwill and
concluded that it is more-likely-than-not that the fair value of the reporting units exceeded their carrying value, and thus no
impairment charges for goodwill were recorded. This assessment involved identifying the inputs and assumptions that most affect fair
value, including evaluating significant and relevant events impacting each reporting entity, and evaluating such factors to determine if
a positive assertion can be made that it is more-likely-than-not that the fair value of the reporting units exceeded their carrying
amount.
In the qualitative assessment performed for each reporting unit, the Corporation evaluated events and circumstances that could
impact the fair value including the following:
(cid:404)(cid:3)(cid:48)(cid:68)(cid:70)(cid:85)(cid:82)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:68)(cid:86)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:85)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:76)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30)
(cid:404)(cid:3)(cid:44)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30)
(cid:404)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:73)(cid:79)(cid:88)(cid:70)(cid:87)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30)
(cid:404)(cid:3)(cid:50)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:88)(cid:81)(cid:76)(cid:87)(cid:30)
(cid:404)(cid:3)(cid:51)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:3)(cid:83)(cid:72)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:68)(cid:86)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)
(cid:404)(cid:3)(cid:53)(cid:72)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
There were no changes in the carrying amount of goodwill during the years ended December 31, 2023 and 2022. The changes in the
carrying amount of goodwill attributable to operating segments during the year ended December 31, 2021 are reflected in the
following table.
(In thousands)
Goodwill, January 1, 2021
Measurement period adjustment (1)
Goodwill, December 31, 2021 (2)
Mortgage Banking
Consumer (Retail)
Banking
Commercial and
Corporate Banking
United States
Operations
Total
$
$
959 $
53
1,012 $
2,733 $
74
2,807 $
8,248 $
(148)
8,100 $
26,692 $
-
26,692 $
38,632
(21)
38,611
(1) Relates to the fair value estimate update performed within one year of the closing of the BSPR acquisition, in accordance with ASC Topic 805, "Business Combinations"("ASC 805").
(2) Includes $10.5 million related to the BSPR acquisition.
Merger and Restructuring Costs – BSPR Acquisition
In connection with the BSPR acquisition on September 1, 2020, the Corporation recognized acquisition expenses of $26.4 million
during the year ended December 31, 2021. Acquisition, integration, and restructuring expenses were included in merger and
restructuring costs in the consolidated statements of income, and consisted primarily of costs related to voluntary and involuntary
separation actions and systems conversions, as well as accelerated depreciation charges related to planned closures and consolidation
of branches in accordance with the Corporation’s integration and restructuring plan, and other integration related efforts.
184
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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:
(Dollars in thousands)
Core deposit intangible:
Gross amount
Accumulated amortization
Net carrying amount
Remaining amortization period (in years)
Purchased credit card relationship intangible:
Gross amount
Accumulated amortization
Net carrying amount
Remaining amortization period (in years)
Insurance customer relationship intangible:
Gross amount
Accumulated amortization
Net carrying amount
Remaining amortization period (in years)
As of
December 31,
2023
As of
December 31,
2022
$
$
$
$
$
$
87,544
(74,161)
13,383
6.0
-
-
-
-
-
-
-
-
$
$
$
$
$
$
87,544
(66,644)
20,900
7.0
3,800
(3,595)
205
0.7
1,067
(1,054)
13
0.1
During the years ended December 31, 2023, 2022, and 2021, the Corporation recognized $ 7.7 million, $8.8 million, and $11.4
million, respectively, in amortization expense on its other intangibles subject to amortization .
The Corporation amortizes core deposit intangibles based on the projected useful lives of the related deposits. Core deposit
intangibles are analyzed annually for impairment, or sooner if events and circumstances indicate possible impairment. Factors that
may suggest impairment include customer attrition and run-off. Management is unaware of any events and/or circumstances that
would indicate a possible impairment to the core deposit intangibles as of December 31, 2023.
The estimated aggregate annual amortization expense related to the intangible assets subject to amortization for future periods was
as follows as of December 31, 2023
:
(In thousands)
2024
2025
2026
2027
2028
2029 and after
$
6,416
3,509
872
872
872
842
185
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 10 – NON-CONSOLIDATED VARIABLE INTEREST ENTITIES (“VIEs”) AND SERVICING ASSETS
The Corporation transfers residential mortgage loans in sale or securitization transactions in which it has continuing involvement,
including servicing responsibilities and guarantee arrangements. All such transfers have been accounted for as sales as required by
applicable accounting guidance.
When evaluating the need to consolidate counterparties to which the Corporation has transferred assets, or with which the
Corporation has entered into other transactions, the Corporation first determines if the counterparty is an entity for which a variable
interest exists. If no scope exception is applicable and a variable interest exists, the Corporation then evaluates whether it is the
primary beneficiary of the VIE and whether the entity should be consolidated or not.
Below is a summary of transactions with VIEs for which the Corporation has retained some level of continuing involvement:
Trust-Preferred Securities (“TRuPs”)
In April 2004, FBP Statutory Trust I, a financing trust that is wholly owned by the Corporation, sold to institutional investors $ 100
million of its variable -rate TRuPs. FBP Statutory Trust I used the proceeds of the issuance, together with the proceeds of the purchase
by the Corporation of $3.1 million of FBP Statutory Trust I variable-rate common securities, to purchase $103.1 million aggregate
principal amount of the Corporation’s Junior Subordinated Deferrable Debentures. In September 2004, FBP Statutory Trust II, a
financing trust that is wholly owned by the Corporation, sold to institutional investors $125 million of its variable-rate TRuPs. FBP
Statutory Trust II used the proceeds of the issuance, together with the proceeds of the purchase by the Corporation of $ 3.9 million of
FBP Statutory Trust II variable-rate common securities, to purchase $128.9 million aggregate principal amount of the Corporation’s
Junior Subordinated Deferrable Debentures. The debentures, net of related issuance costs, are presented in the Corporation’s
consolidated statements of financial condition as other long-term borrowings. These TRuPs are variable-rate instruments indexed to 3-
month CME Term SOFR plus a tenor spread adjustment of 0.26161% and the original spread of 2.75% for the FBP Statutory Trust I
and 2.50% for the FBP Statutory Trust II. The Junior Subordinated Deferrable Debentures mature on June 17, 2034, and September
20, 2034, respectively; however, under certain circumstances, the maturity of Junior Subordinated Deferrable Debentures may be
shortened (such shortening would result in a mandatory redemption of the variable-rate TRuPs).
During 2023, the Corporation completed the repurchase of $21.4 million of TRuPs of FBP Statutory Trust I as part of a privately-
negotiated transaction with investors, resulting in a commensurate reduction in the related floating rate junior subordinated debentures.
The purchase price paid by the Corporation equated to 92.5% of the $21.4 million par value. The 7.5% discount resulted in a gain of
approximately $1.6 million, which is reflected in the consolidated statements of income as a “Gain on early extinguishment of debt.”
As of December 31, 2023 and 2022, these Junior Subordinated Deferrable Debentures amounted to $ 161.7 million and $183.8 million,
respectively.
Under the indentures of these instruments, the Corporation has the right, from time to time, and without causing an event of default,
to defer payments of interest on the Junior Subordinated Deferrable Debentures by extending the interest payment period at any time
and from time to time during the term of the subordinated debentures for up to twenty consecutive quarterly periods. As of December
31, 2023, the Corporation was current on all interest payments due on its subordinated debt.
186
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Private Label MBS
During 2004 and 2005, an unaffiliated party, referred to in this subsection as the seller, established a series of statutory trusts to
effect the securitization of mortgage loans and the sale of trust certificates (“private label MBS”). The seller initially provided the
servicing for a fee, which is senior to the obligations to pay private label MBS holders. The seller then entered into a sales agreement
through which it sold and issued the private label MBS in favor of the Corporation’s banking subsidiary, FirstBank. Currently, the
Bank is the sole owner of these private label MBS; the servicing of the underlying residential mortgages that generate the principal
and interest cash flows is performed by another third party , which receives a servicing fee. These private label MBS are variable -rate
securities indexed to 3-month CME Term SOFR plus a tenor spread adjustment of 0.26161% and the original spread limited to the
weighted-average coupon of the underlying collateral. The principal payments from the underlying loans are remitted to a paying
agent (servicer), who then remits interest to the Bank. Interest income is shared to a certain extent with the FDIC, which has an
interest only strip (“IO”) tied to the cash flows of the underlying loans and is entitled to receive the excess of the interest income less a
servicing fee over the variable rate income that the Bank earns on the securities. The FDIC became the owner of the IO upon its
intervention of the seller, a failed financial institution. No recourse agreement exists, and the Bank, as the sole holder of the securities,
absorbs all risks from losses on non-accruing loans and repossessed collateral. As of December 31, 2023, the amortized cost and fair
value of these private label MBS amounted to $7.1 million and $4.8 million, respectively, with a weighted average yield of 7.66%,
which is included as part of the Corporation’s available-for-sale debt securities portfolio. As described in Note 3 – “Debt Securities,”
the ACL on these private label MBS amounted to $ 0.1 million as of December 31, 2023.
Servicing Assets (MSRs)
The Corporation typically transfers first lien residential mortgage loans in conjunction with GNMA securitization transactions in
which the loans are exchanged for cash or securities that are readily redeemed for cash proceeds and servicing rights. The securities
issued through these transactions are guaranteed by GNMA and, under seller/servicer agreements, the Corporation is required to
service the loans in accordance with the issuers’ servicing guidelines and standards. As of December 31, 2023, the Corporation
serviced loans securitized through GNMA with a principal balance of $2.1 billion. Also, certain conventional conforming loans are
sold to FNMA or FHLMC with servicing retained. The Corporation recognizes as separate assets the rights to service loans for others,
whether those servicing assets are originated or purchased. MSRs are included as part of other assets in the consolidated statements of
financial condition.
The changes in MSRs are shown below for the indicated periods:
(In thousands)
Balance at beginning of year
Capitalization of servicing assets
Amortization
Temporary impairment recoveries
Other (1)
Balance at end of year
2023
Year Ended December 31,
2022
2021
$
$
29,037
2,240
(4,322)
12
(26)
26,941
$
$
30,986
3,122
(4,978)
66
(159)
29,037
$
$
33,071
5,194
(7,215)
124
(188)
30,986
(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.
187
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Changes in the impairment allowance were as follows for the indicated periods:
(In thousands)
Balance at beginning of year
Temporary impairment recoveries
Balance at end of year
2023
Year Ended December 31,
2022
2021
$
$
12
(12)
-
$
$
78
(66)
12
$
$
202
(124)
78
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:
(In thousands)
Servicing fees
Late charges and prepayment penalties
Other (1)
Servicing income, gross
Amortization and impairment of servicing assets
Servicing income, net
(1) Mainly represents adjustments related to the repurchase of loans serviced for others.
2023
Year Ended December 31,
2022
2021
$
$
10,595
708
(26)
11,277
(4,310)
6,967
$
$
11,096
823
(159)
11,760
(4,912)
6,848
$
$
12,176
697
(189)
12,684
(7,091)
5,593
188
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Corporation’s MSRs are subject to prepayment and interest rate risks. Key economic assumptions used in determining the fair
value at the time of sale of the related mortgages for the indicated periods ranged as follows:
Weighted Average
Maximum
Minimum
Year Ended December 31, 2023
Constant prepayment rate:
Government-guaranteed mortgage loans
Conventional conforming mortgage loans
Conventional non-conforming mortgage loans
Discount rate:
Government-guaranteed mortgage loans
Conventional conforming mortgage loans
Conventional non-conforming mortgage loans
Year Ended December 31, 2022
Constant prepayment rate:
Government-guaranteed mortgage loans
Conventional conforming mortgage loans
Conventional non-conforming mortgage loans
Discount rate:
Government-guaranteed mortgage loans
Conventional conforming mortgage loans
Conventional non-conforming mortgage loans
Year Ended December 31, 2021
Constant prepayment rate:
Government-guaranteed mortgage loans
Conventional conforming mortgage loans
Conventional non-conforming mortgage loans
Discount rate:
Government-guaranteed mortgage loans
Conventional conforming mortgage loans
Conventional non-conforming mortgage loans
6.6 %
7.3 %
6.0 %
11.5 %
9.5 %
12.6 %
6.7%
7.4%
6.0%
11.7%
9.7%
12.5%
6.2%
6.2%
6.4%
12.0%
10.0%
12.8%
18.0 %
16.9 %
9.0 %
11.5 %
10.0 %
14.0 %
18.3 %
18.4 %
21.9 %
12.0 %
10.0 %
14.5 %
17.1 %
18.2 %
14.5 %
12.0 %
10.0 %
14.5 %
3.8 %
2.4 %
2.1 %
11.5 %
9.5 %
11.0 %
4.8 %
3.4 %
3.6 %
11.5 %
9.5 %
11.5 %
3.7 %
2.8 %
4.4 %
12.0 %
10.0 %
12.0 %
189
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The weighted averages of the key economic assumptions that the Corporation used in its valuation model and the sensitivity of the
current fair value to immediate 10% and 20% adverse changes in those assumptions for mortgage loans were as follows as of the
indicated dates:
(In thousands)
Carrying amount of servicing assets
Fair value
Weighted-average expected life (in years)
Constant prepayment rate (weighted-average annual rate)
Decrease in fair value due to 10% adverse change
Decrease in fair value due to 20% adverse change
Discount rate (weighted-average annual rate)
Decrease in fair value due to 10% adverse change
Decrease in fair value due to 20% adverse change
$
$
$
$
$
$
December 31,
2023
December 31,
2022
26,941
45,244
7.79
6.27 %
886
1,731
10.68 %
1,927
3,712
$
$
$
$
$
$
29,037
44,710
7.80
6.40 %
1,048
2,054
10.69 %
1,925
3,704
These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10%
variation in assumptions generally cannot be extrapolated because the relationship between the change in assumption and the change
in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the MSR is
calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (for example,
increases in market interest rates may result in lower prepayments), which may magnify or counteract the sensitivities .
190
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 11 – DEPOSITS
The following table summarizes deposit balances as of the indicated dates:
(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")
Total
December 31, 2023
December 31, 2022
$
$
5,404,121
3,937,945
3,596,855
2,833,730
783,334
16,555,985
$
$
6,112,884
3,770,993
3,902,888
2,250,876
105,826
16,143,467
The weighted-average interest rate on total interest-bearing deposits as of December 31, 2023 and 2022 was 2.24% and 1.03%,
respectively.
As of December 31, 2023, the aggregate amount of unplanned overdrafts of demand deposits that were reclassified as loans
amounted to $1.4 million (2022 - $1.7 million). Pre-arranged overdrafts lines of credit, also reported as loans, amounted to $ 23.8
million as of December 31, 2023 (2022 - $24.5 million).
The following table presents the contractual maturities of time deposits, including brokered CDs, as of December 31, 2023:
(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
Total
852,660
666,652
1,280,377
542,834
72,558
86,611
92,787
22,585
3,617,064
$
$
Total Puerto Rico and U.S. time deposits with balances of more than $250,000 amounted to $ 1.4 billion and $1.0 billion as of
December 31, 2023 and 2022, respectively. This amount does not include brokered CDs that are generally participated out by brokers
in shares of less than the FDIC insurance limit. As of December 31, 2023, unamortized broker placement fees amounted to $ 1.0
million (2022 - $0.3 million), which are amortized over the contractual maturity of the brokered CDs under the interest method.
As of December 31, 2023, deposit accounts issued to government agencies amounted to $3.2 billion (2022 – $ 2.8 billion). These
deposits are insured by the FDIC up to the applicable limits. The uninsured portions were collateralized by securities and loans with an
amortized cost of $3.5 billion (2022 – $3.1 billion) and an estimated market value of $3.1 billion (2022 – $2.7 billion). In addition to
securities and loans, as of December 31, 2023 and 2022, the Corporation used $175.0 million and $200.0 million, respectively, in
letters of credit issued by the FHLB as pledges for public deposits in the Virgin Islands. As of December 31, 2023 the Corporation had
$2.7 billion of government deposits in Puerto Rico (2022 – $2.3 billion), $449.4 million in the Virgin Islands (2022 – $442.8 million)
and $10.2 million in Florida (2022 – $11.6 million).
191
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
A table showing interest expense on interest-bearing deposits for the indicated periods follows:
(In thousands)
Checking accounts
Saving accounts
Time deposits
Brokered CDs
Total
2023
Year Ended December 31,
2022
2021
$
$
74,271 $
25,955
68,605
16,630
$
15,568
11,191
18,102
1,500
185,461
$
46,361
$
5,776
6,586
26,138
2,982
41,482
The total interest expense on deposits included the amortization of broker placement fees related to brokered CDs amounting to
$0.3 million, $0.1 million, and $0.2 million for 2023, 2022 and 2021, respectively. Total interest expense also included $0.2 million,
$0.5 million and $1.3 million for 2023, 2022 and 2021, respectively, for the accretion of premiums related to time deposits assumed in
the BSPR acquisition.
192
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 12 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (“REPURCHASE AGREEMENTS”)
Repurchase agreements consisted of the following as of the indicated dates:
(In thousands)
Short-term Fixed-rate repurchase agreements (1) (2)
(1) Weighted-average interest rate of 4.55% as of December 31, 2022.
December 31, 2023
December 31, 2022
$
-
$
75,133
(2) As of December 31, 2022, the securities underlying such agreements were delivered to the dealers with which the repurchase agreements were transacted. In accordance with the master
agreements, in the event of default, repurchase agreements have a right of set-off against the other party for amounts owed under the related agreement and any other amount or obligation
owed with respect to any other agreement or transaction between them. As of December 31, 2022, repurchase agreements were fully collateralized and not offset in the consolidated
statements of financial condition. See Note 24 - "Derivative Instruments and Hedging Activities" for information on rights of set-off associated to economic undesignated hedges.
The following securities were sold under agreements to repurchase as of the indicated date:
Underlying Securities
(Dollars in thousands)
U.S. government-sponsored agencies
MBS
Total
Accrued interest receivable
As of December 31, 2022
Amortized Cost
of Underlying
Securities
Balance of
Borrowing
Approximate
Fair Value of
Underlying
Securities
Weighted Average
Interest Rate of
Security
$
$
$
60,081 $
29,959
90,040 $
137
50,134 $
24,999
75,133 $
54,093
27,010
81,103
0.62 %
2.08 %
The maximum aggregate balance of repurchase agreements outstanding at any month-end for the years ended December 31, 2023
and 2022 was $173.0 million and $300.0 million, respectively. The average balance during 2023 was $54.6 million (2022- $194.9
million).
NOTE 13 – ADVANCES FROM THE FEDERAL HOME LOAN BANK (“FHLB
”)
The following is a summary of the advances from the FHLB as of the indicated dates:
(In thousands)
Short-term Fixed-rate advances from the FHLB (1)
Long-term Fixed-rate advances from the FHLB (2)
December 31, 2023
December 31, 2022
$
$
-
500,000
500,000
$
$
475,000
200,000
675,000
(1) Weighted-average interest rate of 4.56% as of December 31, 2022.
(2) Weighted-average interest rate of 4.45% and 4.25% as of December 31, 2023 and 2022, respectively.
Advances from the FHLB mature as follows as of the indicated date:
(In thousands)
Over one to five years (1)
(1) Average remaining term to maturity of 2.49 years.
December 31, 2023
$
500,000
During 2023, the Corporation added $300.0 million of long-term FHLB advances at an average cost of 4.59%, and repaid its short-
term FHLB advances.
193
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The maximum aggregate balance of advances from the FHLB outstanding at any month end during the years ended December 31,
2023 and 2022 was $925.0 million and $675.0 million, respectively. The total average balance of FHLB advances during 2023 was
$541.0 million (2022 - $179.5 million).
The Corporation receives advances and applies for the issuance of letters of credit from the FHLB under an Advances, Collateral
Pledge, and Security Agreement (the “Collateral Agreement”), which requires the Corporation to maintain a minimum of qualifying
mortgage collateral or U.S. Treasury or U.S. agencies MBS collateral, as applicable. The amount of collateral required for an advance
incorporates a collateral discount or “haircut,” which is incorporated into the member’s pledge and determined by the FHLB. Haircut
refers to the percentage by which an asset’s market value is reduced for the purpose of collateral levels. As of December 31, 2023 and
2022, the estimated value of specific mortgage loans pledged as collateral, net of haircut, amounted to $ 1.2 billion and $1.3 billion,
respectively, as computed by the FHLB for collateral purposes. As of December 31, 2023 and 2022, the estimated value of U.S.
government-sponsored agencies’ obligations and U.S. agencies MBS pledged as collateral, net of haircut, amounted to $454.0 million
and $238.1 million, respectively. As of December 31, 2023, the Corporation had additional capacity of approximately $ 978.3 million
on this credit facility based on collateral pledged at the FHLB, adjusted by a haircut reflecting the perceived risk associated with the
collateral. Advances may be repaid prior to maturity, in whole or in part, at the option of the borrower upon payment of any applicable
fee specified in the contract governing such advance. In calculating the fee, due consideration is given to (i) all relevant factors,
including, but not limited to, any and all applicable costs of repurchasing and/or prepaying any associated liabilities and/or hedges
entered into with respect to the applicable advance; (ii) the financial characteristics, in their entirety, of the advance being prepaid; and
(iii), in the case of adjustable-rate advances, the expected future earnings of the replacement borrowing as long as the replacement
borrowing is at least equal to the original advance’s par value and the replacement borrowing’s tenor is at least equal to the remaining
maturity of the prepaid advance.
NOTE 14 – OTHER BORROWINGS
Junior Subordinated Debentures
Junior subordinated debentures, as of the indicated dates, consisted of:
(In thousands)
Long-term floating rate junior subordinated debentures (FBP Statutory Trust I) (1) (3) $
Long-term floating rate junior subordinated debentures (FBP Statutory Trust II) (2) (3)
$
December 31, 2023
December 31, 2022
43,143
118,557
161,700
$
$
65,205
118,557
183,762
(1) Amount represents junior subordinated interest-bearing debentures due in 2034 with a floating interest rate of 2.75% over 3-month CME Term SOFR plus a 0.26161% tenor spread
adjustment as of December 31, 2023 and 2.75% over 3-month LIBOR as of December 31, 2022 ( 8.39% as of December 31, 2023 and 7.49% as of December 31, 2022).
(2) Amount represents junior subordinated interest-bearing debentures due in 2034 with a floating interest rate of 2.50% over 3-month CME Term SOFR plus a 0.26161% tenor spread
adjustment as of December 31, 2023 and 2.50% over 3-month LIBOR as of December 31, 2022 ( 8.13% as of December 31, 2023 and 7.25% as of December 31, 2022).
(3) See Note 10 - "Non-Consolidated Variable Interest Entities (“VIEs”) and Servicing Assets," for additional information on these debentures.
Loans Payable
The Corporation participates in the Borrower-in-Custody Program (the “BIC Program”) of the FED. Through the BIC Program, a
broad range of loans (including commercial, consumer, and residential mortgages) may be pledged as collateral for borrowings
through the FED Discount Window. As of December 31, 2023, pledged collateral that is related to this credit facility amounted to $ 1.5
billion, net of haircut, mainly commercial, consumer, and residential mortgage loans, which is fully available for funding. The FED
Discount Window program provides the opportunity to access a low-rate short-term source of funding in a high volatility market
environment.
In addition, the Corporation participates in the FED’s Bank Term Funding Program (“BTFP”), which provides an additional short-
term source of funding until March 11, 2024. Through the BTFP, eligible collateral such as U.S. Treasuries, U.S. agency securities,
and U.S. agency MBS, may be pledged as collateral and valued at its par value. As of December 31, 2023, pledged collateral that is
related to this credit facility amounted to $2.1 million, which is fully available for funding.
194
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 15 – EARNINGS PER COMMON.SHARE
The calculations of earnings per common share for the years ended December 31, 2023, 2022, and 2021 are as follows:
(In thousands, except per share information)
Net income
Less: Preferred stock dividends
Less: Excess of redemption value over carrying value of Series A through E
Preferred Stock redeemed
Net income attributable to common stockholders
Weighted-Average Shares:
Average common shares outstanding
Average potential dilutive common shares
Average common shares outstanding - assuming dilution
Earnings per common share:
Basic
Diluted
Year Ended December 31,
2022
2021
2023
$
$
$
$
302,864 $
305,072 $
-
-
-
-
302,864 $
305,072 $
176,504
676
177,180
190,805
1,163
191,968
281,025
(2,453)
(1,234)
277,338
210,122
1,178
211,300
1.72 $
1.71 $
1.60 $
1.59 $
1.32
1.31
Earnings per common share is computed by dividing net income attributable to common stockholders by the weighted-average
number of common shares issued and outstanding. Net income attributable to common stockholders represents net income adjusted for
any preferred stock dividends, including any dividends declared but not yet paid, and any cumulative dividends related to the current
dividend period that have not been declared as of the end of the period. For 2021, net income attributable to common stockholders was
also adjusted due to the one -time effect to retained earnings of the excess of the redemption value paid over the carrying value of the
Series A through E Preferred Stock redeemed as discussed in Note 17 – “Stockholders’ Equity.” Basic weighted-average common
shares outstanding exclude unvested shares of restricted stock that do not contain non-forfeitable dividend rights.
Potential dilutive common shares consist of unvested shares of restricted stock and performance units (if any of the performance
conditions are met as of the end of the reporting period) that do not contain non-forfeitable dividend or dividend equivalent rights
using the treasury stock method. This method assumes that proceeds equal to the amount of compensation cost attributable to future
services is used to repurchase shares on the open market at the average market price for the period. The difference between the
number of potential dilutive shares issued and the shares purchased is added as incremental shares to the actual number of shares
outstanding to compute diluted earnings per share. Unvested shares of restricted stock outstanding during the period that result in
lower potentially dilutive shares issued than shares purchased under the treasury stock method are not included in the computation of
dilutive earnings per share since their inclusion would have an antidilutive effect on earnings per share. There were no antidilutive
shares of common stock during the years ended December 31, 2023, 2022 and 2021.
195
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 16 – STOCK-BASED .COMPENSATION
The Omnibus Plan, which is effective until May 24, 2026, provides for equity-based and non-equity-based compensation incentives
(the “awards”). The Omnibus Plan authorizes the issuance of up to 14,169,807 shares of common stock, subject to adjustments for
stock splits, reorganizations and other similar events. As of December 31, 2023, there were 3,153,621 authorized shares of common
stock available for issuance under the Omnibus Plan. The Corporation’s Board of Directors, based on the recommendation of the
Compensation and Benefits Committee of the Board, has the power and authority to determine those eligible to receive awards and to
establish the terms and conditions of any awards, subject to various limits and vesting restrictions that apply to individual and
aggregate awards.
Restricted Stock
Under the Omnibus Plan, the Corporation may grant restricted stock to plan participants, subject to forfeiture upon the occurrence
of certain events until the dates specified in the participant’s award agreement. While the restricted stock is subject to forfeiture and
does not contain non-forfeitable dividend rights, participants may exercise full voting rights with respect to the shares of restricted
stock granted to them. The fair value of the shares of restricted stock granted was based on the market price of the Corporation’s
common stock on the date of the respective grant. The shares of restricted stocks granted to employees are subject to the following
vesting period: fifty percent (50%) of those shares vest on the two-year anniversary of the grant date and the remaining 50% vest on
the three-year anniversary of the grant date. The shares of restricted stock granted to directors are generally subject to vesting on the
one-year anniversary of the grant date. The Corporation issued 522,801 shares during the year ended December 31, 2023 in
connection with restricted stock awards, which were reissued from treasury shares.
The following table summarizes the restricted stock activity under the Omnibus Plan during the years ended December 31, 2023,
2022 and 2021:
2023
Year Ended December 31,
2022
Number of
shares of
restricted
stock
Unvested shares outstanding at beginning of year
938,491
$
Granted (1)
Forfeited
Vested
522,801
(63,133)
(508,517)
Unvested shares outstanding at end of year
889,642
$
Weighted-
Average
Grant Date
Fair Value
9.14
12.07
11.36
6.36
12.30
Number of
shares of
restricted
stock
1,148,775
$
327,195
(15,108)
(522,371)
938,491
$
Weighted-
Average
Grant Date
Fair Value
6.61
13.21
8.79
6.13
9.14
2021
Number of
shares of
restricted
stock
1,320,723
324,360
(82,486)
(413,822)
$
1,148,775
$
Weighted-
Average
Grant Date
Fair Value
5.74
11.47
6.42
7.69
6.61
(1) For the year ended December 31, 2023, includes 28,793 shares of restricted stock awarded to independent directors and 494,008 shares of restricted stock awarded to employees, of
which 33,718 shares were granted to retirement-eligible employees and thus charged to earnings as of the grant date. For the year ended December 31, 2022, includes 27,529 shares of
restricted stock awarded to independent directors and 299,666 shares of restricted stock awarded to employees, of which 6,084 shares were granted to retirement-eligible employees and
thus charged to earnings as of the grant date. For the year ended December 31, 2021, includes 29,291 shares of restricted stock awarded to independent directors and 295,069 shares of
restricted stock awarded to employees, of which 19,804 shares were granted to retirement-eligible employees and thus charged to earnings as of the grant date.
For the years ended December 31, 2023, 2022 and 2021, the Corporation recognized $5.7 million, $ 3.7 million and $3.5 million,
respectively, of stock-based compensation expense related to restricted stock awards. As of December 31, 2023, there was $4.1
million of total unrecognized compensation cost related to unvested shares of restricted stock that the Corporation expects to recognize
over a weighted average period of 1.6 years.
196
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Performance Units
Under the Omnibus Plan, the Corporation may award performance units to participants, with each unit representing the value of one
share of the Corporation’s common stock. These awards, which are granted to executives, do not contain non-forfeitable rights to
dividend equivalent amounts and can only be settled in shares of the Corporation’s common stock.
On March 16, 2023, the Corporation granted 216,876 performance units to executives. Performance units granted on March 16,
2023 will vest on the third anniversary of the effective date of the award based on actual achievement of two performance metrics
weighted equally: relative total shareholder return (“Relative TSR”), compared to companies that comprise the KBW Nasdaq
Regional Banking Index, and the achievement of a tangible book value per share (“TBVPS”) goal, which is measured based upon the
growth in the tangible book value during the performance cycle, adjusted for certain allowable non-recurring transactions. The
participant may earn 50% of their target opportunity for threshold level performance and up to 150% of their target opportunity for
maximum level performance, based on the individual achievement of each performance goal during a three-year performance cycle.
Amounts between threshold, target and maximum performance will vest in a proportional amount. Performance units granted prior to
March 16, 2023 vest subject only to achievement of a TBVPS goal and the participant may earn only up to 100% of their target
opportunity.
The following table summarizes the performance units activity under the Omnibus Plan during the years ended December 31, 2023,
2022 and 2021:
2023
Number
of
Performance
Units
$
791,923
216,876
(474,538)
-
534,261 $
Weighted-
Average
Grant Date
Fair Value
7.36
12.24
4.08
-
12.25
Year Ended December 31,
2022
Number
of
Performance
Units
$
814,899
166,669
(189,645)
-
791,923 $
Weighted-
Average
Grant Date
Fair Value
7.06
13.15
11.16
-
7.36
2021
Number
of
Performance
Units
1,006,768 $
160,485
(304,408)
(47,946)
814,899 $
Weighted-
Average
Grant Date
Fair Value
6.16
11.26
6.29
7.08
7.06
Performance units at beginning of year
Additions (1)
Vested (2)
Forfeited
Performance units at end of year
(1) Units granted during 2023 are subject to the achievement of the Relative TSR and TBVPS performance goals during a three-year performance cycle beginning January 1, 2023 and ending on December 31, 2025. Units
granted during 2022 are subject to the achievement of the TBVPS performance goal during a three-year performance cycle beginning January 1, 2022 and ending on December 31, 2024. Units granted during 2021 are
subject to the achievement of the TBVPS performance goal during a three-year performance cycle beginning January 1, 2021 and ending on December 31, 2023.
(2) Units vested during 2023 and 2022 are related to performance units granted in 2020 and 2019, respectively, that met certain pre-established targets and were settled with shares of common stock reissued from treasury
shares. Units vested during 2021 are related to performance units granted in 2018 that met certain pre-established targets and were settled with new shares of common stock.
The fair value of the performance units awarded during the years ended December 31, 2023, 2022 and 2021, that was based on the
TBVPS goal component, was calculated based on the market price of the Corporation’s common stock on the respective date of the
grant and assuming attainment of 100% of target opportunity. As of December 31, 2023, there have been no changes in management’s
assessment of the probability that the pre-established TBVPS goal will be achieved; as such, no cumulative adjustment to
compensation expense has been recognized. The fair value of the performance units awarded during 2023, that was based on the
Relative TSR component, was calculated using a Monte Carlo simulation. Since the Relative TSR component is considered a market
condition, the fair value of the portion of the award based on Relative TSR is not revised subsequent to grant date based on actual
performance.
197
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 2023:
Risk-free interest rate (1)
Correlation coefficient
Expected dividend yield (2)
Expected volatility (3)
Expected life (in years)
Year Ended
December 31, 2023
3.98 %
77.16
-
41.37
2.79
(1) Based on the yield on zero-coupon U.S. Treasury Separate Trading of Registered Interest and Principal of Securities as of the grant date.
(2) Assumes that dividends are reinvested at each ex-dividend date.
(3) Calculated based on the historical volatility of the Corporation's stock price with a look-back period equal to the simulation term using daily stock prices.
For the years ended December 31, 2023, 2022 and 2021, the Corporation recognized $2.1 million, $ 1.7 million and $2.0 million,
respectively, of stock-based compensation expense related to performance units. As of December 31, 2023, there was $ 3.0 million of
total unrecognized compensation cost related to unvested performance units that the Corporation expects to recognize over a weighted
average period of 1.8 years.
Shares withheld
During 2023, the Corporation withheld 289,623 shares (2022 – 205,807 shares; 2021 – 214,374 shares) of the restricted stock that
vested during such period to cover the officers’ payroll and income tax withholding liabilities; these shares are held as treasury shares.
The Corporation paid in cash any fractional share of salary stock to which an officer was entitled. In the consolidated financial
statements, the Corporation presents shares withheld for tax purposes as common stock repurchases.
198
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 17 – STOCKHOLDERS’ EQUITY
Stock Repurchase Programs
During 2023, the Corporation repurchased 14,050,830 shares of its common stock at an average price of $14.23 for a total cost of
$200.0 million, of which 8,969,998 shares of its common stock at an average price of $13.94 for a total cost of $125.0 million
completed the $350 million stock repurchase program approved by the Board of Directors on April 27, 2022.
On July 24, 2023, the Corporation announced that its Board of Directors approved a new stock repurchase program, under which
the Corporation may repurchase up to $225 million of its outstanding common stock which it expects to execute through the end of the
third quarter of 2024. Repurchases under the program may be executed through open market purchases, accelerated share repurchases,
and/or privately negotiated transactions or plans, including under plans complying with Rule 10b5-1 under the Exchange Act. The
Corporation’s stock repurchase program is subject to various factors, including the Corporation’s capital position, liquidity, financial
performance and alternative uses of capital, stock trading price, and general market conditions. The Corporation’s stock repurchase
program does not obligate it to acquire any specific number of shares and does not have an expiration date. The stock repurchase
program may be modified, suspended, or terminated at any time at the Corporation’s discretion. During 2023, the Corporation
repurchased 5,080,832 shares of common stock through open market transactions at an average price of $14.76 for a total cost of
approximately $75.0 million under this stock repurchase program. As of December 31, 2023, the Corporation has remaining
authorization to repurchase approximately $ 150 million of common stock. The Corporation’s holding company has no operations and
depends on dividends, distributions and other payments from its subsidiaries to fund dividend payments, stock repurchases, and to
fund all payments on its obligations, including debt obligations.
Common Stock
The following table shows the changes in shares of common stock outstanding for the years ended December 31, 2023, 2022 and
2021:
Common stock outstanding, beginning of year
Common stock repurchased (1)
Common stock reissued/issued under stock-based compensation plan
Restricted stock forfeited
Common stock outstanding, end of year
2023
182,709,059
(14,340,453)
997,339
(63,133)
169,302,812
Total Number of Shares
2022
201,826,505
(19,619,178)
516,840
(15,108)
182,709,059
2021
218,235,064
(16,954,841)
628,768
(82,486)
201,826,505
(1) For 2023, 2022 and 2021, includes 289,623; 205,807 and 214,374 shares, respectively, of common stock surrendered to cover plan participants' payroll and income taxes.
For the years ended December 31, 2023, 2022 and 2021, total cash dividends declared on shares of common stock amounted to
$99.6 million ($0.56 per share), $88.2 million ($0.46 per share) and $65.4 million ($0.31 per share), respectively. On February 8,
2024, the Corporation’s Board declared a quarterly cash dividend of $ 0.16 per common share, which represents an increase of $0.02
per common share, or a 14% increase, compared to its most recent quarterly dividend paid in December 2023. The dividend is payable
on March 8, 2024 to shareholders of record at the close of business on February 23, 2024. The Corporation intends to continue to pay
quarterly dividends on common stock. However, the Corporation’s common stock dividends, including the declaration, timing, and
amount, remain subject to consideration and approval by the Corporation’s Board Directors at the relevant times.
Preferred Stock
The Corporation has 50,000,000 authorized shares of preferred stock with a par value of $1.00, subject to certain terms. This stock
may be issued in series and the shares of each series have such rights and preferences as are fixed by the Board when authorizing the
issuance of that particular series and are redeemable at the Corporation’s option. No shares of preferred stock were outstanding as of
December 31, 2023 and 2022.
On November 30, 2021, the Corporation redeemed all of its 1,444,146 then outstanding shares of Series A through E Preferred
Stock for its liquidation value of $ 25 per share totaling $36.1 million. The difference between the liquidation value and net carrying
value was $1.2 million, which was recorded as a reduction to retained earnings in 2021. The redeemed preferred stock shares were not
listed on any securities exchange or automated quotation system. For the year ended December 31, 2021, total cash dividends paid on
shares of preferred stock amounted to $ 2.5 million.
199
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Treasury Stock
The following table shows the changes in shares of treasury stock for the years ended December 31, 2023, 2022 and 2021:
Treasury stock, beginning of year
Common stock repurchased
Common stock reissued under stock-based compensation plan
Restricted stock forfeited
Treasury stock, end of year
FirstBank Statutory Reserve (Legal Surplus)
2023
40,954,057
14,340,453
(997,339)
63,133
54,360,304
Total Number of Shares
2022
21,836,611
19,619,178
(516,840)
15,108
40,954,057
2021
4,799,284
16,954,841
-
82,486
21,836,611
The Puerto Rico Banking Law of 1933, as amended (the “Puerto Rico Banking Law”), requires that a minimum of 10% of
FirstBank’s net income for the year be transferred to a legal surplus reserve until such surplus equals the total of paid-in-capital on
common and preferred stock. Amounts transferred to the legal surplus reserve from retained earnings are not available for distribution
to the Corporation without the prior consent of the Puerto Rico Commissioner of Financial Institutions. The Puerto Rico Banking Law
provides that, when the expenditures of a Puerto Rico commercial bank are greater than receipts, the excess of the expenditures over
receipts must be charged against the undistributed profits of the bank, and the balance, if any, must be charged against the legal
surplus reserve, as a reduction thereof. If the legal surplus reserve is not sufficient to cover such balance in whole or in part, the
outstanding amount must be charged against the capital account and the Bank cannot pay dividends until it can replenish the legal
surplus reserve to an amount of at least 20% of the original capital contributed. During the years ended December 31, 2023, 2022, and
2021, the Corporation transferred $31.1 million, $30.9 million, and $28.3 million respectively, to the legal surplus reserve. FirstBank’s
legal surplus reserve, included as part of retained earnings in the Corporation’s consolidated statements of financial condition,
amounted to $199.6 million as of December 31, 2023 and $168.5 million as of December 31, 2022.
200
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 18 – ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents the changes in accumulated other comprehensive loss for the years ended December 31, 2023, 2022,
and 2021:
(In thousands)
Unrealized net holding losses on available-for-sale debt securities:
Beginning balance
Other comprehensive income (loss)
Ending balance
Adjustment of pension and postretirement benefit plans:
Beginning balance
Other comprehensive income (loss)
Ending balance
(1) All amounts presented are net of tax.
Changes in Accumulated Other Comprehensive Loss by Component (1)
Year Ended December 31,
2023
2022
2021
$
$
$
$
(805,972)
165,420
(640,552)
1,194
188
1,382
$
$
$
$
(87,390)
(718,582)
(805,972)
3,391
(2,197)
1,194
$
$
$
$
55,725
(143,115)
(87,390)
(270)
3,661
3,391
The following table presents the amounts reclassified out of each component of accumulated other comprehensive loss for the years
ended December 31, 2023, 2022, and 2021:
(In thousands)
Adjustment of pension and postretirement benefit plans:
Amortization of net loss
Affected Line Item in the Consolidated
Statements of Income
Reclassifications Out of Accumulated Other
Comprehensive Loss
Year Ended December 31,
2022
2023
2021
Other expenses
Total before tax
Income tax expense
Total, net of tax
$
$
$
17
17
(6)
11
$
$
$
3
3
(1)
2
$
$
$
1
1
-
1
201
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 19 – EMPLOYEE BENEFIT PLANS
The Corporation maintains two frozen qualified noncontributory defined benefit pension plans (the “Pension Plans”), and a related
complementary post-retirement benefit plan (the “Postretirement Benefit Plan”) covering medical benefits and life insurance after
retirement that it obtained in the BSPR acquisition on September 1, 2020. One defined benefit pension plan covers substantially all of
BSPR’s former employees who were active before January 1, 2007, while the other defined benefit pension plan covers personnel of
an institution previously acquired by BSPR. Benefits are based on salary and years of service. The accrual of benefits under the
Pension Plans is frozen to all participants.
The Corporation requires recognition of a plan’s overfunded and underfunded status as an asset or liability with an offsetting
adjustment to accumulated other comprehensive loss pursuant to the ASC Topic 715, “Compensation-Retirement Benefits.”
The following table presents the changes in projected benefit obligation and changes in plan assets for the years ended December
31, 2023 and 2022:
December 31, 2023
December 31, 2022
(In thousands)
Changes in projected benefit obligation:
Projected benefit obligation at the beginning of year, defined benefit pension plans
Interest cost
Actuarial loss (gain) (1)
Benefits paid
Projected benefit obligation at the end of year, pension plans
Projected benefit obligation, other postretirement benefit plan
Projected benefit obligation at the end of year
Changes in plan assets:
Fair value of plan assets at the beginning of year
Actual return on plan assets - gain (loss)
Benefits paid
Fair value of pension plan assets at the end of year (2)
$
$
$
$
$
73,508
3,800
1,966
(5,727)
73,547
244
73,791
77,189
5,903
(5,727)
77,365
$
$
$
$
$
Net asset, pension plans
Net benefit obligation, other postretirement benefit plan
Net asset
(1) For 2022, significant components of the Pension Plans’ actuarial loss (gain) that changed the benefit obligation were mainly related to updates in discount rates.
(2) Other postretirement plan did not contain any assets as of December 31, 2023 and 2022.
3,818
(244)
3,574
$
$
97,867
2,614
(21,265)
(5,708)
73,508
182
73,690
103,487
(20,590)
(5,708)
77,189
3,681
(182)
3,499
The weighted-average discount rate used to determine the benefit obligation as of December 31, 2023 and 2022, was 5.14% and
5.43%, respectively. The discount rate is estimated as the single equivalent rate such that the present value of the plan’s projected
benefit obligation cash flows using the single rate equals the present value of those cash flows using the above mean actuarial yield
curve. In developing the expected long-term rate of return assumption, the Corporation evaluated input from a consultant and the
Corporation’s long-term inflation assumptions and interest rate scenarios. Projected returns are based on the same asset categories as
the plan using well-known broad indexes. Expected returns are based on historical returns with adjustments to reflect a more realistic
future return. The Corporation anticipated that the Plan’s portfolio would generate a long-term rate of return of 5.51% and 4.80% as of
December 31, 2023 and 2022. Adjustments are done by categories, taking into consideration current and future market conditions. The
Corporation also considered historical returns on its plan assets to review the expected rate of return. The investment policy statement
for the Pension Plans includes the following: (i) liability hedging assets to reduce funded status risk, (ii) diversified return seeking
assets to reduce equity risk, and (iii) establishes different glidepaths specific for each plan to systematically reduce risk as the funded
status improves.
202
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents information for the plans with a projected benefit obligation and accumulated benefit obligation in
excess of plan assets for the years ended December 31, 2023 and 2022:
(In thousands)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
December 31, 2023
December 31, 2022
$
$
49,793
49,793
46,801
48,501
48,501
46,398
The following table presents the components of net periodic cost (benefit) for the years ended December 31, 2023, 2022, and 2021:
Affected Line Item
in the Consolidated
Year Ended December 31,
Statements of Income
2023
2022
2021
(In thousands)
Net periodic benefit, pension plans:
Interest cost
Expected return on plan assets
Net periodic cost (benefit), pension plans
Other expenses
Other expenses
Net periodic cost, postretirement plan
Other expenses
Net periodic cost (benefit)
$
$
3,800
$
(3,543)
257
25
282
$
2,614
$
(4,158)
(1,544)
8
(1,536)
$
2,473
(4,523)
(2,050)
6
(2,044)
The following table presents the weighted-average assumptions used to determine the net periodic cost (benefit) for the pension and
other postretirement benefit plans for the years ended December 31, 2023, 2022, and 2021:
Discount rate
Expected return on plan assets
Year Ended December 31,
2023
2022
2021
5.43%
4.80%
2.77%
4.43%
2.36%
5.99%
The following table presents the changes in pre-tax accumulated other comprehensive income of the Pension Plans and
Postretirement Benefit Plan for the years ended December 31, 2023, 2022, and 2021:
(In thousands)
Accumulated other comprehensive income (loss) at beginning of year, pension plans
Net gain (loss)
Accumulated other comprehensive income at end of year, pension plans
Accumulated other comprehensive loss at end of year, postretirement plan
Accumulated other comprehensive income at end of year
Year Ended December 31,
2023
2022
2021
$
$
1,974
$
5,457
$
395
2,369
(155)
2,214
$
(3,483)
1,974
(61)
1,913
$
(404)
5,861
5,457
(29)
5,428
The following are the pre-tax amounts recognized in accumulated other comprehensive income for the years ended December 31,
2023, 2022, and 2021:
(In thousands)
Net actuarial gain (loss), pension plans
Net actuarial loss, other postretirement benefit plan
Amortization of net loss
Net amount recognized
2023
Year Ended December 31,
2022
2021
395
(111)
17
301
$
$
(3,483)
(35)
3
(3,515)
$
$
5,861
(2)
1
5,860
$
$
203
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Pension Plans asset allocations by asset category are as follows as of the indicated dates:
Asset category
Investment in funds
Other
December 31, 2023
December 31, 2022
97%
3%
100%
97%
3%
100%
As of December 31, 2023 and 2022, substantially all of the plan assets of $ 77.4 million and $77.2 million, respectively, were
invested in common collective trusts, which primarily consist of equity securities, MBS, corporate bonds and U.S. Treasuries.
Determination of Fair Value
The following is a description of the valuation inputs and techniques used to measure the fair value of pension plan assets:
Investment in Funds - Investment in common collective trusts have been measured at fair value using the net asset value per unit as
a practical expedient and, accordingly, have not been classified in the fair value hierarchy. Fair value is based on the calculated net
asset value of shares held by the Plan as reported by the sponsor of the funds.
Interest-Bearing Deposits - Interest-bearing deposits consist of money market accounts with short-term maturities and, therefore,
the carrying value approximates fair value.
The Corporation does not expect to contribute to the Pension Plans during 2024.
The Corporation’s investment policy with respect to the Corporation’s Pension Plans is to optimize, without undue risk, the total
return on investment of the Plan assets after inflation, within a framework of prudent and reasonable portfolio risk. The investment
portfolio is diversified in multiple asset classes to reduce portfolio risk, and assets may be shifted between asset classes to reduce
volatility when warranted by projections of the economic and/or financial market environment, consistent with Employee Retirement
Income Security Act of 1974, as amended (ERISA). As circumstances and market conditions change, the Corporation’s target asset
allocations may be amended to reflect the most appropriate distribution given the new environment, consistent with the investment
objectives.
Expected future benefit payments for the plans during the next ten years are as follows:
(In thousands)
2024
2025
2026
2027
2028
2029 through 2033
Amount
6,386
6,060
6,071
5,923
5,692
27,144
57,276
$
$
204
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Defined Contribution Plan
In addition, FirstBank provides contributory retirement plans pursuant to Section 1081.01 of the PR Tax Code for Puerto Rico
employees and Section 401(k) of the U.S. Internal Revenue Code for USVI and U.S. employees (the “Plans”). Eligible employees
may participate in the Plans after completion of three months of service for purposes of making elective deferral contributions and one
year of service with at least 1,000 hours of service for purposes of sharing in the Bank’s matching, qualified matching, and qualified
non-elective contributions. The Bank contributes a matching contribution of fifty cents for every dollar up to the first 6% of the
participants’ eligible compensation that a participant contributes to the Plan on a pre-tax basis. The matching contribution of fifty
cents for every dollar of the employee’s contribution is comprised of: (i) twenty-five cents for every dollar of the employee’s
contribution up to 6% of the employee’s eligible compensation to be paid to the Plan as of each bi-weekly payroll; and (ii) an
additional twenty-five cents for every dollar of the employee’s contribution up to 6% of the employee’s eligible compensation to be
Puerto Rico employees were permitted to contribute up to $15,000 for each of
deposited as a lump sum subsequent to the Plan Year.
the years ended December 31, 2023, 2022 and 2021 (USVI and U.S. employees - $22,500 for 2023, $20,500 for 2022 and $19,500 for
2021). Additional contributions to the Plans may be voluntarily made by the Bank as determined by its Board of Directors. No
additional discretionary contributions were made for the years ended December 31, 2023, 2022, and 2021. The Bank had total plan
expenses of $3.4 million for the year ended December 31, 2023 (2022 - $ 3.5 million; 2021 - $3.5 million).
205
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 20 – OTHER NON-INTEREST INCOME
A detail of other non-interest income is as follows for the indicated periods:
(In thousands)
Non-deferrable loan fees
Mail and cable transmission commissions
Gain from insurance proceeds
Net gain (loss) on equity securities
Insurance referrals commissions
Gain from sales of fixed assets (1)
Gain recognized from legal settlement
Other
Total
Year Ended December 31,
2023
2022
2021
$
$
4,412 $
3,289
379
21
2,722
3,514
3,600
7,851
25,788
$
3,167 $
3,100
-
(522)
2,660
924
-
6,521
15,850
$
2,990
3,116
550
(102)
1,162
32
-
4,681
12,429
(1) See Note 6 - "Premises and Equipment" for additional information related to gains from sales of fixed assets.
NOTE 21 – OTHER NON-INTEREST EXPENSES
A detail of other non-interest expenses is as follows for the indicated periods:
(In thousands)
Supplies and printing
Amortization of intangible assets
Servicing and processing fees
Insurance and supervisory fees
Provision for operational losses
Net periodic cost (benefit), pension and other postretirement plans
Other
Total
Year Ended December 31,
2023
2022
2021
$
$
1,543 $
7,735
5,342
9,385
3,305
282
6,074
33,666
$
1,505 $
8,816
5,343
9,354
2,518
(1,536)
4,662
30,662
$
1,830
11,407
5,121
9,098
5,069
(2,044)
4,942
35,423
206
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 22 – INCOME TAXES
The Corporation is subject to Puerto Rico income tax on its income from all sources. Under the PR Tax Code, the Corporation and
its subsidiaries are treated as separate taxable entities and are not entitled to file consolidated tax returns. However, certain subsidiaries
that are organized as limited liability companies with a partnership election are treated as pass-through entities for Puerto Rico tax
purposes. The Corporation conducts business through certain entities that have special tax treatments, including doing business
through an IBE unit of the Bank and through FirstBank Overseas Corporation, each of which are generally exempt from Puerto Rico
income taxation under the International Banking Entity Act of Puerto Rico (“IBE Act”), and through a wholly-owned subsidiary that
engages in certain Puerto Rico qualified investing and lending activities that have certain tax advantages under Act 60 of 2019.
Under the PR Tax Code, the Corporation is generally not entitled to utilize losses from one subsidiary to offset gains in another
subsidiary. Accordingly, in order to obtain a tax benefit from a net operating loss (“NOL”), a particular subsidiary must be able to
demonstrate sufficient taxable income within the applicable NOL carry-forward period. Pursuant to the PR Tax Code, the carry-
forward period for NOLs incurred during taxable years that commenced after December 31, 2004 and ended before January 1, 2013 is
12 years; for NOLs incurred during taxable years commencing after December 31, 2012, the carryover period is 10 years. The PR Tax
Code provides a dividend received deduction of 100% on dividends received from “controlled” subsidiaries subject to taxation in
Puerto Rico and 85% on dividends received from other taxable domestic corporations. In addition, the IBE unit of the Bank and
FirstBank Overseas Corporation, which were created under the IBE Act, have an exemption on net income derived from specific
activities identified in such Act. An IBE that operates as a unit of a bank pays income taxes at the corporate standard rates to the extent
that the IBE’s net income exceeds 20% of the bank’s total net taxable income.
Income tax expense also includes USVI income taxes, as well as applicable U.S. federal and state taxes. As a Puerto Rico
corporation, FirstBank is treated as a foreign corporation for U.S. and USVI income tax purposes and is generally subject to U.S. and
USVI income tax only on its income from sources within the U.S. and USVI or income effectively connected with the conduct of a
trade or business in those jurisdictions. Such tax paid in the U.S. and USVI is also creditable against the Corporation’s Puerto Rico tax
liability, subject to certain conditions and limitations.
The components of income tax expense are summarized below for the indicated periods:
(In thousands)
Current income tax expense
Deferred income tax expense
Total income tax expense
2023
Year Ended December 31,
2022
2021
$
$
88,467 $
6,105
94,572 $
88,296
54,216
142,512
$
$
28,469
118,323
146,792
207
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Corporation maintains an effective tax rate lower than the Puerto Rico maximum statutory tax rate of 37.5%. The
differences between the income tax expense applicable to income before the provision for income taxes and the amount computed
by applying the statutory tax rate in Puerto Rico were as follows for the indicated periods:
2023
2022
2021
Year Ended December 31,
Amount
% of Pretax
Income
Amount
% of Pretax
Income
Amount
% of Pretax
Income
(Dollars in thousands)
Computed income tax at statutory rate
Federal and state taxes
Benefit of net exempt income
Disallowed NOL carryforward resulting from net exempt income (1)
Deferred tax valuation allowance (1)
Share-based compensation windfall
Preferential tax treatment on qualified investing and lending activities
Other permanent differences
Tax return to provision adjustments
Other-net
Total income tax expense
$
$
149,038
10,008
(35,153)
-
-
(2,134)
(19,125)
(5,138)
(1,709)
(1,215)
94,572
37.5 % $
2.4 %
(8.8) %
- %
- %
(0.5) %
(4.8) %
(1.3) %
(0.4) %
(0.3) %
167,844
10,268
(31,266)
14,221
(8,410)
(1,492)
(4,500)
(3,147)
(519)
(487)
37.5 % $
160,431
37.5 %
2.2 %
(7.0) %
3.2 %
(1.9) %
(0.3) %
(1.0) %
(0.7) %
(0.1) %
(0.1) %
7,014
(20,717)
8,791
(13,572)
(1,044)
-
(1,185)
(406)
7,480
1.6 %
(4.8) %
2.0 %
(3.2) %
(0.2) %
- %
(0.3) %
(0.1) %
1.7 %
23.8 % $
142,512
31.8 % $
146,792
34.2 %
(1) During 2022 the Corporation fully utilized certain NOLs which under the PR Tax Code were disallowed for carryforward purposes; therefore, there was no adjustment in 2023 in the amount of disallowed NOL
carryforward and any related deferred tax valuation allowance.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and their tax bases. Significant components of the Corporation's deferred tax assets and liabilities as of
December 31, 2023 and 2022 were as follows:
As of December 31,
2023
2022
(In thousands)
Deferred tax asset:
NOL and capital loss carryforwards
Allowance for credit losses
Alternative Minimum Tax credits available for carryforward
Unrealized loss on OREO valuation
Settlement payment-closing agreement
Legal and other reserves
Reserve for insurance premium cancellations
Differences between the assigned values and tax bases of assets
and liabilities recognized in purchase business combinations
Unrealized loss on available-for-sale debt securities, net
Other
Total gross deferred tax assets
Deferred tax liabilities:
Servicing assets
Pension Plan assets
Other
Total gross deferred tax liabilities
Valuation allowance
Net deferred tax asset
$
$
$
48,633
102,005
39,898
6,360
-
4,059
824
6,690
82,944
7,833
299,246
9,002
832
97
9,931
(139,188)
150,127
$
$
$
72,485
104,014
40,823
6,462
7,031
6,345
781
5,665
100,776
7,722
352,104
9,786
719
509
11,014
(185,506)
155,584
208
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Accounting for income taxes requires that companies assess whether a valuation allowance should be recorded against their
deferred tax asset based on an assessment of the amount of the deferred tax asset that is “more likely than not” to be realized.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be
realized. Management assesses the valuation allowance recorded against deferred tax assets at each reporting date. The determination
of whether a valuation allowance for deferred tax assets is appropriate is subject to considerable judgment and requires the evaluation
of positive and negative evidence that can be objectively verified. Consideration must be given to all sources of taxable income
available to realize the deferred tax asset, including, as applicable, the future reversal of existing temporary differences, future taxable
income forecasts exclusive of the reversal of temporary differences and carryforwards, and tax planning strategies. In estimating taxes,
management assesses the relative merits and risks of the appropriate tax treatment of transactions considering statutory, judicial, and
regulatory guidance.
As of December 31, 2023, the Corporation had a deferred tax asset of $ 150.1 million, net of a valuation allowance of $ 139.2
million, compared to a deferred tax asset of $155.6 million, net of a valuation allowance of $185.5 million, as of December 31, 2022.
The net deferred tax asset of the Corporation’s banking subsidiary, FirstBank, amounted to $ 150.1 million as of December 31, 2023,
net of a valuation allowance of $111.4 million, compared to a net deferred tax asset of $155.6 million, net of a valuation allowance of
$149.5 million, as of December 31, 2022. The decrease in the valuation allowance was related primarily to changes in the market
value of available-for-sale debt securities and the expiration of capital loss carryforwards, both which resulted in an equal change in
the deferred tax asset without impacting earnings. The Corporation maintains a full valuation allowance for its deferred tax assets
associated with capital loss carryforwards, NOL carryforwards, and unrealized losses of available-for-sale debt securities.
Management’s estimate of future taxable income is based on internal projections that consider historical performance, multiple
internal scenarios and assumptions, as well as external data that management believes is reasonable. If events are identified that affect
the Corporation’s ability to utilize its deferred tax assets, the analysis will be updated to determine if any adjustments to the valuation
allowance are required. If actual results differ significantly from the current estimates of future taxable income, even if caused by
adverse macro-economic conditions, the remaining valuation allowance may need to be increased. Such an increase could have a
material adverse effect on the Corporation’s financial condition and results of operations.
As of December 31, 2023, approximately $253.9 million of the deferred tax assets of the Corporation are attributable to temporary
differences or tax credit carryforwards that have no expiration date, compared to $279.9 million in 2022. The valuation allowance
attributable to FirstBank’s deferred tax assets of $ 111.4 million as of December 31, 2023 is related to the change in the market value
of available-for-sale debt securities, NOLs attributable to the Virgin Islands jurisdiction, and capital loss carryforwards. The remaining
balance of $ 27.8 million of the Corporation’s deferred tax asset valuation allowance non-attributable to FirstBank is mainly related to
NOLs at the holding company level. The Corporation will continue to provide a valuation allowance against its deferred tax assets in
each applicable tax jurisdiction until the need for a valuation allowance is eliminated. The need for a valuation allowance is eliminated
when the Corporation determines that it is more likely than not the deferred tax assets will be realized. The ability to recognize the
remaining deferred tax assets that continue to be subject to a valuation allowance will be evaluated on a quarterly basis to determine if
there are any significant events that would affect the ability to utilize these deferred tax assets. As of December 31, 2023, of the $ 48.6
million of NOL and capital loss carryforwards deferred tax assets, $ 35.4 million, which are fully valued, have expiration dates ranging
from year 2024 through year 2037. From this amount, approximately $15.3 million expires in year 2024 and are not expected to be
realized.
In 2017, the Corporation completed a formal ownership change analysis within the meaning of Section 382 of the U.S. Internal
Revenue Code (“Section 382”) covering a comprehensive period and concluded that an ownership change had occurred during such
period. The Section 382 limitation has resulted in higher U.S. and USVI income tax liabilities than we would have incurred in the
absence of such limitation. The Corporation has mitigated to an extent the adverse effects associated with the Section 382 limitation as
any such tax paid in the U.S. or USVI can be creditable against Puerto Rico tax liabilities or taken as a deduction against taxable
income. However, our ability to reduce our Puerto Rico tax liability through such a credit or deduction depends on our tax profile at
each annual taxable period, which is dependent on various factors. For 2023, 2022, and 2021, FirstBank incurred current income tax
expense of approximately $9.9 million, $10.3 million, and $6.8 million, respectively, related to its U.S. operations. The limitation did
not impact the USVI operations in 2023, 2022, and 2021.
209
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Corporation accounts for uncertain tax positions under the provisions of ASC Topic 740. The Corporation’s policy is to report
interest and penalties related to unrecognized tax positions in income tax expense. As of December 31, 2023, the Corporation had $0.2
million of accrued interest and penalties related to uncertain tax positions in the amount of $ 0.8 million that it acquired from BSPR,
which, if recognized, would decrease the effective income tax rate in future periods. During 2023, a $ 0.3 million benefit was
recognized as a result of the expiration of uncertain tax positions acquired from BSPR. The amount of unrecognized tax benefits may
increase or decrease in the future for various reasons, including adding amounts for current tax year positions, expiration of open
income tax returns due to the statute of limitations, changes in management’s judgment about the level of uncertainty, the status of
examinations, litigation and legislative activity, and the addition or elimination of uncertain tax positions. The statute of limitations
under the PR Tax Code is four years after a tax return is due or filed, whichever is later; the statute of limitations for U.S. and USVI
income tax purposes is three years after a tax return is due or filed, whichever is later. The completion of an audit by the taxing
authorities or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Corporation’s
liability for income taxes. Any such adjustment could be material to the results of operations for any given quarterly or annual period
based, in part, upon the results of operations for the given period. For U.S. and USVI income tax purposes, all tax years subsequent to
2019 remain open to examination. For Puerto Rico tax purposes, all tax years subsequent to 2018 remain open to examination.
210
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 23 (cid:884) OPERATING LEASES
The Corporation accounts for its leases in accordance with ASC 842 “Leases” (“ASC Topic 842). The Corporation’s operating
leases are primarily related to the Corporation’s branches. Our leases mainly have terms ranging from two years to 30 years, some of
which include options to extend the leases for up to ten years . Liabilities to make future lease payments are recorded in accounts
payable and other liabilities, while ROU assets are recorded in other assets in the Corporation’s consolidated statements of financial
condition. As of December 31, 2023 and 2022, the Corporation did not classify any of its leases as a finance lease.
Operating lease cost for the year ended December 31, 2023 amounted to $17.3 million (2022 - $18.4 million; 2021 - $ 18.2 million),
and is recorded in occupancy and equipment in the consolidated statements of income.
Supplemental balance sheet information related to leases was as follows as of the indicated dates:
(Dollars in thousands)
ROU asset
Operating lease liability
Operating lease weighted-average remaining lease term (in years)
Operating lease weighted-average discount rate
As of December 31,
2023
2022
$
$
$
$
68,495
71,419
7.0
2.63%
78,855
81,954
7.5
2.37%
Generally, the Corporation cannot practically determine the interest rate implicit in the lease. Therefore, the Corporation uses its
incremental borrowing rate as the discount rate for the lease. See Note 1 – “Nature of Business and Summary of Significant
Accounting Policies” for information on how the Corporation determines its incremental borrowing rate.
Supplemental cash flow information related to leases was as follows:
2023
Year Ended December 31,
2022
2021
(In thousands)
Operating cash flow from operating leases (1)
ROU assets obtained in exchange for operating lease liabilities (2) (3)
$
$
17,307
4,960
$
$
18,202
5,744
$
$
19,328
5,833
(1) Represents cash paid for amounts included in the measurement of operating lease liabilities.
(2) Represents non-cash activity and, accordingly, is not reflected in the consolidated statements of cash flows.
(3) For the years ended December 31, 2023, 2022 and 2021 excludes $0.1 million, $3.0 million, and $1.3 million, respectively, of lease terminations.
Maturities under operating lease liabilities as of December 31, 2023, were as follows:
Amount
(In thousands)
2024
2025
2026
2027
2028
2029 and after
Total lease payments
Less: imputed interest
Total present value of lease liability
$
$
211
17,000
15,942
14,839
6,768
5,507
19,274
79,330
(7,911)
71,419
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 24 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
One of the market risks facing the Corporation is interest rate risk, which includes the risk that changes in interest rates will result
in changes in the value of the Corporation’s assets or liabilities and will adversely affect the Corporation’s net interest income from its
loan and investment portfolios. The overall objective of the Corporation’s interest rate risk management activities is to reduce the
variability of earnings caused by changes in interest rates.
As of December 31, 2023 and 2022, all derivatives held by the Corporation were considered economic undesignated hedges. The
Corporation records these undesignated hedges at fair value with the resulting gain or loss recognized in current earnings.
The following summarizes the principal derivative activities used by the Corporation in managing interest rate risk:
Interest Rate Cap Agreements – Interest rate cap agreements provide the right to receive cash if a reference interest rate rises above
a contractual rate. The value of the interest rate cap increases as the reference interest rate rises. The Corporation enters into interest
rate cap agreements for protection from rising interest rates.
Forward Contracts – Forward contracts are primarily sales of to-be-announced (“TBA”) MBS that will settle over the standard
delivery date and do not qualify as “regular way” security trades. Regular-way security trades are contracts that have no net
settlement provision and no market mechanism to facilitate net settlement and that provide for delivery of a security within the time
frame generally established by regulations or conventions in the marketplace or exchange in which the transaction is being
executed. The forward sales are considered derivative instruments that need to be marked to market. The Corporation uses these
securities to economically hedge the FHA/VA residential mortgage loan securitizations of the mortgage banking operations. The
Corporation also reports as forward contracts the mandatory mortgage loan sales commitments that it enters into with GSEs that
require or permit net settlement via a pair-off transaction or the payment of a pair-off fee.
Interest Rate Lock Commitments – Interest rate lock commitments are agreements under which the Corporation agrees to extend
credit to a borrower under certain specified terms and conditions in which the interest rate and the maximum amount of the
residential mortgage loan are set prior to funding. Under the agreement, the Corporation commits to lend funds to a potential
borrower, generally on a fixed rate basis, regardless of whether interest rates change in the market.
Interest Rate Swaps – An interest rate swap is an agreement between two entities to exchange cash flows in the future. The
agreements consist of the Corporation offering borrower-facing derivative products using a “back-to-back” structure in which the
borrower-facing derivative transaction is paired with an identical, offsetting transaction with an approved dealer-counterparty. By
using a back-to-back trading structure, both the commercial borrower and the Corporation are largely insulated from market risk
and volatility. The agreements set the dates on which the cash flows will be paid and the manner in which the cash flows will be
calculated.
To satisfy the needs of its customers, the Corporation may enter into non-hedging transactions. In these transactions, the
Corporation generally participates as a buyer in one of the agreements and as a seller in the other agreement under the same terms and
conditions.
In addition, the Corporation enters into certain contracts with embedded derivatives that do not require separate accounting as these
are clearly and closely related to the economic characteristics of the host contract. When the embedded derivative possesses economic
characteristics that are not clearly and closely related to the economic characteristics of the host contract, it is bifurcated, carried at fair
value, and designated as a trading or non-hedging derivative instrument.
212
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table summarizes for derivative instruments their notional amounts, fair values and location in the consolidated
statements of financial condition as of the indicated dates:
Notional Amounts (1)
December 31,
2023
2022
Statements of Financial
Condition Location
Fair Value
December 31,
2023
2022
Statements of Financial Condition
Location
Fair Value
December 31,
2023
2022
Asset Derivatives
Liability Derivatives
(In thousands)
Undesignated economic hedges:
Interest rate contracts:
Interest rate swap agreements
$
8,969 $
9,290
Other assets
$
283 $
313
Accounts payable and other liabilities
$
255 $
Written interest rate cap agreements
Purchased interest rate cap agreements
-
-
14,500
14,500
Other assets
Other assets
Interest rate lock commitments
2,252
3,225
Other assets
Forward Contracts:
Sales of TBA GNMA MBS pools
7,000
$
18,221 $
11,000
52,515
Other assets
(1) Notional amounts are presented on a gross basis with no netting of offsetting exposure positions.
-
-
58
-
$
341 $
-
Accounts payable and other liabilities
199
Accounts payable and other liabilities
63
Accounts payable and other liabilities
-
-
-
58
633
Accounts payable and other liabilities
62
317 $
$
The following table summarizes the effect of derivative instruments on the consolidated statements of income for the indicated
periods:
(In thousands)
Undesignated economic hedges:
Interest rate contracts:
Location of Gain (Loss)
on Derivatives Recognized in
Statements of Income
Gain (Loss)
Year Ended
December 31,
2022
2023
2021
Interest rate swap agreements
Interest income - loans
$
(7) $
28
$
Written and purchased interest rate cap agreements
Interest income - loans
Interest rate lock commitments
Mortgage banking activities
Forward contracts:
Sales of TBA GNMA MBS pools
Mortgage banking activities
Forward loan sales commitments
Mortgage banking activities
(1)
(74)
(119)
-
2
(322)
135
(20)
Total loss on derivatives
$
(201) $
(177)
$
278
197
-
-
1
476
24
-
(687)
114
-
(549)
Derivative instruments are subject to market risk. As is the case with investment securities, the market value of derivative
instruments is largely a function of the financial market’s expectations regarding the future direction of interest rates. Accordingly,
current market values are not necessarily indicative of the future impact of derivative instruments on earnings. This will depend, for
the most part, on the shape of the yield curve, and the level of interest rates, as well as the expectations for rates in the future.
As of December 31, 2023 and 2022, the Corporation had not entered into any derivative instrument containing credit -risk-related
contingent features.
213
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Credit and Market Risk of Derivatives
The Corporation uses derivative instruments to manage interest rate risk. By using derivative instruments, the Corporation is
exposed to credit and market risk.
If the counterparty fails to perform, credit risk is equal to the extent of the Corporation’s fair value gain on the derivative. When
the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty owes the Corporation which,
therefore, creates a credit risk for the Corporation. When the fair value of a derivative instrument contract is negative, the Corporation
owes the counterparty. The Corporation minimizes its credit risk in derivative instruments by entering into transactions with reputable
broker dealers (i.e., financial institutions) that are reviewed periodically by the Management Investment and Asset Liability
Committee of the Corporation (the “MIALCO”) and by the Corporation’s Board of Directors. The Corporation also has a policy of
requiring that all derivative instrument contracts be governed by an International Swaps and Derivatives Association Master
Agreement, which includes a provision for netting. The Corporation has a policy of diversifying derivatives counterparties to reduce
the consequences of counterparty default. The cumulative mark-to-market effect of credit risk in the valuation of derivative
instruments in 2023, 2022, and 2021 was immaterial.
Market risk is the adverse effect that a change in interest rates or implied volatility rates has on the value of a financial instrument.
The Corporation manages the market risk associated with interest rate contracts by establishing and monitoring limits as to the types
and degree of risk that may be undertaken.
In accordance with the master agreements, in the event of default, each party has a right of set-off against the other party for
amounts owed under the related agreement and any other amount or obligation owed with respect to any other agreement or
transaction between them. As of December 31, 2023 and 2022, derivatives were overcollateralized. See Note 12 – “Securities Sold
Under Agreements to Repurchase (“Repurchase Agreements”)” for information on rights of set-off associated to assets sold under
agreements to repurchase.
214
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 25 – FAIR VALUE
Fair Value Measurement
ASC Topic 820, “Fair Value Measurement,” defines fair value as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. This guidance also establishes a fair value hierarchy for classifying assets and
liabilities, which is based on whether the inputs to the valuation techniques used to measure fair value are observable or unobservable.
One of three levels of inputs may be used to measure fair value:
Level 1
Level 2
Level 3
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.
Valuations of Level 2 assets and liabilities are based on observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
Valuations of Level 3 assets and liabilities are based on unobservable inputs that are supported by little or no market
activity and are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial
instruments whose value is determined by using pricing models for which the determination of fair value requires
significant management judgment as to the estimation.
Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as
the classification of such instruments pursuant to the fair value hierarchy. There were no transfers of assets and liabilities measured at
fair value between Level 1 and Level 2 measurements during the years ended December 31, 2023 and 2022.
Financial Instruments Recorded at Fair Value on a Recurring Basis
Debt securities available for sale and marketable equity securities held at fair value
The fair value of investment securities was based on unadjusted quoted market prices (as is the case with U.S. Treasury securities
and equity securities with readily determinable fair values), when available (Level 1), or market prices for comparable assets (as is the
case with U.S. agencies MBS and U.S. agency debt securities) that are based on observable market parameters, including benchmark
yields, reported trades, quotes from brokers or dealers, issuer spreads, bids, offers and reference data, including market research
operations, when available (Level 2). Observable prices in the market already consider the risk of nonperformance. If listed prices or
quotes are not available, fair value is based upon discounted cash flow models that use unobservable inputs due to the limited market
activity of the instrument, as is the case with certain private label MBS held by the Corporation (Level 3).
Derivative instruments
The fair value of most of the Corporation’s derivative instruments is based on observable market parameters (Level 2) and takes
into consideration the credit risk component of paying counterparties, when appropriate. On interest rate caps, only the seller's credit
risk is considered. The Corporation valued the interest rate swaps and caps using a discounted cash flow approach based on the related
reference rate for each cash flow.
215
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Assets and liabilities measured at fair value on a recurring basis are summarized below as of December 31, 2023 and 2022:
As of December 31, 2023
Fair Value Measurements Using
As of December 31, 2022
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
Puerto Rico government obligations
Other investments
Equity securities
Derivative assets
Liabilities:
Derivative liabilities
(1) Related to private label MBS.
$
135,393
-
-
-
-
-
4,893
-
$
- $
433,437
1,874,960
2,779,994
-
-
-
341
- $
-
-
4,785 (1)
1,415
-
-
-
$
135,393
433,437
1,874,960
2,784,779
1,415
-
4,893
341
138,875
-
-
-
-
-
4,861
-
$
- $
389,787
1,963,566
3,098,797
-
-
-
633
- $
-
-
5,794 (1)
2,201
500
-
-
138,875
389,787
1,963,566
3,104,591
2,201
500
4,861
633
-
317
-
317
-
476
-
476
The table below presents a reconciliation of the beginning and ending balances of all assets measured at fair value on a recurring
basis using significant unobservable inputs (Level 3) for the years ended December 31, 2023, 2022, and 2021:
Level 3 Instruments Only
(In thousands)
Beginning balance
Total (losses) gains:
Included in other comprehensive income (loss) (unrealized)
Included in earnings (unrealized) (2)
Purchases
Other (3)
Ending balance
(1) Amounts mostly related to private label MBS.
2023
Securities Available for Sale (1)
2022
2021
$
$
8,495
$
11,084
$
(750)
(20)
-
(1,525)
6,200
$
(401)
434
-
(2,622)
8,495
$
11,977
1,281
136
1,000
(3,310)
11,084
(2) Changes in unrealized gains included in earnings were recognized within provision for credit losses - expense (benefit) and relate to assets still held as of the reporting date.
(3) Mainly includes principal repayments.
216
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The tables below present quantitative information for significant assets measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) as of December 31, 2023 and 2022:
Fair Value
Valuation Technique
Unobservable Input
Minimum
Maximum
December 31, 2023
Range
(Dollars in thousands)
Available-for-sale debt securities:
Private label MBS
Puerto Rico government obligations
(Dollars in thousands)
Available-for-sale debt securities:
Private label MBS
Puerto Rico government obligations
$
$
$
$
4,785
Discounted cash flows
Discount rate
Prepayment rate
Projected cumulative loss rate
1,415
Discounted cash flows
Discount rate
Projected cumulative loss rate
December 31, 2022
16.1%
0.0%
0.1%
14.1%
25.8%
16.1%
6.9%
10.9%
14.1%
25.8%
Range
Fair Value
Valuation Technique
Unobservable Input
Minimum
Maximum
5,794
Discounted cash flows
Discount rate
Prepayment rate
Projected cumulative loss rate
2,201
Discounted cash flows
Discount rate
Projected cumulative loss rate
16.2%
1.5%
0.3%
12.9%
19.3%
16.2%
15.2%
15.6%
12.9%
19.3%
Weighted
Average
16.1%
3.7%
4.2%
14.1%
25.8%
Weighted
Average
16.2%
11.8%
5.6%
12.9%
19.3%
Information about Sensitivity to Changes in Significant Unobservable Inputs
Private label MBS: The significant unobservable inputs in the valuation include probability of default, the loss severity assumption,
and prepayment rates. Shifts in those inputs would result in different fair value measurements. Increases in the probability of default,
loss severity assumptions, and prepayment rates in isolation would generally result in an adverse effect on the fair value of the
instruments. The Corporation modeled meaningful and possible shifts of each input to assess the effect on the fair value estimation.
Puerto Rico Government Obligations: The significant unobservable input used in the fair value measurement is the assumed loss rate
of the underlying residential mortgage loans that collateralize a pass-through MBS guaranteed by the PRHFA. A significant increase
(decrease) in the assumed rate would lead to a (lower) higher fair value estimate. See Note 3 – “Debt Securities” for information on
the methodology used to calculate the fair value of these debt securities.
217
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Additionally, fair value is used on a nonrecurring basis to evaluate certain assets in accordance with GAAP.
As of December 31, 2023, the Corporation recorded losses or valuation adjustments for assets recognized at fair value on a non-
recurring basis and still held at December 31, 2023, as shown in the following table:
Carrying value as of December 31,
2022
2023
2021
Related to losses recorded for the Year Ended
December 31,
2022
2023
2021
(In thousands)
Level 3:
Loans receivable (1)
OREO (2)
Premises and equipment (3)
Level 2:
Loans held for sale (4)
$
$
15,609 $
3,218
-
11,437 $
5,461
1,242
31,534 $
9,126
-
(1,839) $
(416)
-
(736) $
(917)
(218)
(5,466)
(48)
-
- $
12,306 $
- $
- $
(106) $
-
(1) Consists mainly of collateral dependent commercial and construction loans. The Corporation generally measured losses based on the fair value of the collateral. The Corporation derived the fair values from external
appraisals that took into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the collateral (e.g., absorption rates), which
are not market observable. The haircuts applied on appraisals ranged from 16% to 20%.
(2) The Corporation derived the fair values from appraisals that took into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of
the properties (e.g., absorption rates and net operating income of income producing properties), which are not market observable. Losses were related to market valuation adjustments after the transfer of the loans to the
OREO portfolio. The haircuts applied on appraisals ranged from 1% to 28%.
(3) Relates to a banking facility reclassified to held-for-sale and measured at the fair value of the collateral.
(4) The Corporation derived the fair value of these loans based on published secondary market prices of MBS with similar characteristics.
Qualitative information regarding the fair value measurements for Level 3 financial instruments as of December 31, 2023 are as
follows:
Loans
OREO
Method
Income, Market, Comparable
Sales, Discounted Cash Flows
December 31, 2023
Inputs
External appraised values; probability weighting of broker price
opinions; management assumptions regarding market trends or other
relevant factors
Income, Market, Comparable
Sales, Discounted Cash Flows
External appraised values; probability weighting of broker price
opinions; management assumptions regarding market trends or other
relevant factors
Premises and equipment Market
External appraised value
218
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following tables present the carrying value, estimated fair value and estimated fair value level of the hierarchy of financial
instruments as of December 31, 2023 and 2022:
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:
Held-to-maturity debt securities (amortized cost)
Less: ACL on held-to-maturity debt securities
Held-to-maturity debt securities, net of ACL
Equity securities (amortized cost)
Other equity securities (fair value)
Loans held for sale (lower of cost or market)
Loans held for investment:
Loans held for investment (amortized cost)
Less: ACL for loans and finance leases
Loans held for investment, net of ACL
MSRs (amortized cost)
Derivative assets (fair value) (2)
Liabilities:
Deposits (amortized cost)
Advances from the FHLB (amortized cost):
Long-term
Other long-term borrowings (amortized cost)
Derivative liabilities (fair value) (2)
$
$
$
$
663,164 $
5,229,984
663,164 $
663,164 $
-
$
5,229,984
135,393
5,088,391
-
6,200
354,178
(2,197)
351,981
44,782
4,893
7,368
12,185,483
(261,843)
11,923,640
26,941
341
346,132
44,782
4,893
7,476
11,762,855
45,244
341
-
-
4,893
-
-
-
-
16,555,985 $
16,565,435 $
- $
16,565,435
$
500,000
161,700
317
500,522
159,999
317
-
-
-
500,522
-
317
235,239
110,893
44,782 (1)
-
7,476
-
-
-
-
-
341
11,762,855
45,244
-
-
-
159,999
-
(1) Includes FHLB stock with a carrying value of $ 34.6 million, which is considered restricted.
(2) Includes interest rate swap agreements, interest rate caps, forward contracts, and interest rate lock commitments.
219
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Total Carrying
Amount in Statement
of Financial Condition
as of December 31,
2022
Fair Value Estimate as of
December 31, 2022
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money market investments (amortized cost)
$
480,505
$
480,505
$
480,505
$
-
$
5,599,520
5,599,520
138,875
5,452,150
-
8,495
Available-for-sale debt securities (fair value)
Held-to-maturity debt securities:
Held-to-maturity debt securities (amortized cost)
Less: ACL on held-to-maturity debt securities
Held-to-maturity debt securities, net of ACL
Equity securities (amortized cost)
Other equity securities (fair value)
Loans held for sale (lower of cost or market)
Loans held for investment:
Loans held for investment (amortized cost)
Less: ACL for loans and finance leases
Loans held for investment, net of ACL
MSRs (amortized cost)
Derivative assets (fair value) (2)
Liabilities:
Deposits (amortized cost)
Short-term securities sold under agreements to repurchase (amortized cost)
Advances from the FHLB (amortized cost)
Short-term
Long-term
Other long-term borrowings (amortized cost)
Derivative liabilities (fair value) (2)
$
$
$
437,537
(8,286)
429,251
50,428
4,861
12,306
11,552,825
(260,464)
11,292,361
29,037
633
427,115
50,428
4,861
12,306
11,106,809
44,710
633
16,143,467
$
16,139,937
$
75,133
475,000
200,000
183,762
476
75,230
474,731
199,865
187,246
476
-
-
4,861
-
-
-
-
-
-
-
-
-
-
260,106
167,009
50,428 (1)
-
12,306
-
-
-
-
-
633
$ 16,139,937
$
75,230
474,731
199,865
-
476
11,106,809
44,710
-
-
-
-
-
187,246
-
(1) Includes FHLB stock with a carrying value of $42.9 million, which is considered restricted.
(2) Includes interest rate swap agreements, interest rate caps, forward contracts, interest rate lock commitments, and forward loan sales commitments.
The short-term nature of certain assets and liabilities result in their carrying value approximating fair value. These include cash and
cash due from banks and other short-term assets, such as FHLB stock. Certain assets, the most significant being premises and
equipment, goodwill and other intangible assets, are not considered financial instruments and are not included above. Accordingly,
this fair value information is not intended to, and does not, represent the Corporation’s underlying value. Many of these assets and
liabilities that are subject to the disclosure requirements are not actively traded, requiring management to estimate fair values. These
estimates necessarily involve the use of assumptions and judgment about a wide variety of factors, including but not limited to,
relevancy of market prices of comparable instruments, expected future cash flows, and appropriate discount rates.
220
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 26 – REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue Recognition
In accordance with ASC Topic 606, “Revenue from Contracts with Customers” (“ASC Topic 606”), revenues are recognized when
control of promised goods or services is transferred to customers and in an amount that reflects the consideration to which the
Corporation expects to be entitled in exchange for those goods or services. At contract inception, once the contract is determined to be
within the scope of ASC Topic 606, the Corporation assesses the goods or services that are promised within each contract, identifies
the respective performance obligations, and assesses whether each promised good or service is distinct. The Corporation then
recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the
performance obligation is satisfied.
Disaggregation of Revenue
The following tables summarize the Corporation’s revenue, which includes net interest income on financial instruments that is
outside of ASC Topic 606 and non-interest income, disaggregated by type of service and business segment for the years ended
December 31, 2023, 2022 and 2021:
Year Ended December 31, 2023
(In thousands)
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
Net interest income loss (1)
$
78,710
$
575,436
$
54,658
$
(13,916)
$
79,423
$
22,799
$
797,110
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)
Total non-interest income
-
-
-
288
11,112
11,400
21,207
11,906
40,177
5,592
4,359
83,241
13,289
-
98
3,723
4,167
21,277
-
-
-
-
2,038
2,038
649
202
99
2,484
3,263
6,697
2,897
655
3,535
855
99
38,042
12,763
43,909
12,942
25,038
8,041
132,694
Total Revenue
$
90,110
$
658,677
$
75,935
$
(11,878)
$
86,120
$
30,840
$
929,804
Year Ended December 31, 2022
(In thousands)
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
Net interest income (1)
$
98,920
$
442,624
$
109,822
$
39,600
$
80,485
$
23,842
$
795,293
Service charges and fees on deposit accounts
Insurance commission income
Card and processing income
Other service charges and fees
Not in scope of ASC Topic 606 (1)
Total non-interest income (loss)
-
-
-
341
15,609
15,950
21,906
12,733
35,683
4,558
3,577
78,457
12,412
-
1,568
3,397
812
18,189
-
-
-
-
(74)
(74)
607
15
67
2,113
58
2,860
2,898
995
3,098
684
35
37,823
13,743
40,416
11,093
20,017
7,710
123,092
Total Revenue
$
114,870
$
521,081
$
128,011
$
39,526
$
83,345
$
31,552
$
918,385
221
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Year Ended December 31, 2021
(In thousands)
Net interest income (1)
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)
Total non-interest income
Mortgage
Banking
Consumer
(Retail)
Banking
Commercial and
Corporate
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
$
104,638
$
281,703
$
191,917
$
59,331
$
65,967
$
26,373
$
729,929
-
-
-
771
23,507
24,278
20,083
11,166
32,639
4,185
1,701
69,774
11,807
-
1,161
2,641
423
16,032
-
-
-
-
227
227
555
114
51
1,844
1,399
3,963
2,839
665
2,657
556
173
35,284
11,945
36,508
9,997
27,430
6,890
121,164
Total Revenue
$
128,916
$
351,477
$
207,949
$
59,558
$
69,930
$
33,263
$
851,093
(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 2023, 2022, and 2021, most of the Corporation’s revenue within the scope of ASC Topic 606 was related to performance
obligations satisfied at a point in time.
The following is a discussion of the revenues under the scope of ASC Topic 606.
Service Charges and Fees on Deposit Accounts
Service charges and fees on deposit accounts relate to fees generated from a variety of deposit products and services rendered to
customers. Charges primarily include, but are not limited to, overdraft fees, insufficient fund fees, dormant fees, and monthly service
charges. Such fees are recognized concurrently with the event at the time of occurrence or on a monthly basis, in the case of monthly
service charges. These depository arrangements are considered day-to-day contracts that do not extend beyond the services performed,
as customers have the right to terminate these contracts with no penalty or, if any, nonsubstantive penalties.
Insurance Commissions
For insurance commissions, which include regular and contingent commissions paid to the Corporation’s insurance agency, the
agreements contain a performance obligation related to the sale/issuance of the policy and ancillary administrative post-issuance
support. The performance obligations are satisfied when the policies are issued, and revenue is recognized at that point in time. In
addition, contingent commission income may be considered to be constrained, as defined under ASC Topic 606. Contingent
commission income is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of
cumulative revenue recognized will not occur or payments are received, thus, is recorded in subsequent periods. For the years ended
December 31, 2023, 2022, and 2021, the Corporation recognized contingent commission income at the time that payments were
confirmed and constraints were released of $2.5 million, $3.2 million, and $3.3 million, respectively, which was related to the volume
of insurance policies sold in the prior year.
Card and processing income
Card and processing income includes merchant-related income, and credit and debit card fees.
For merchant-related income, the determination of income recognition included the consideration of a 2015 sale of merchant
contracts that involved sales of point of sale (“POS”) terminals and a marketing alliance under a revenue-sharing agreement. The
Corporation concluded that control of the POS terminals and merchant contracts was transferred to the customer at the contract’s
inception. With respect to the related revenue-sharing agreement, the Corporation satisfies the marketing alliance performance
obligation over the life of the contract, and recognizes the associated transaction price as the entity performs and any constraints over
the variable consideration are resolved.
Credit and debit card fees primarily represent revenues earned from interchange fees and ATM fees. Interchange and network
revenues are earned on credit and debit card transactions conducted with payment networks. ATM fees are primarily earned as a result
of surcharges assessed to non-FirstBank customers who use a FirstBank ATM. Such fees are generally recognized concurrently with
the delivery of services on a daily basis.
222
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Corporation offers products, primarily credit cards, that offer various rewards to reward program members, such as airline
tickets, cash, or merchandise, based on account activity. The Corporation generally recognizes the cost of rewards as part of business
promotion expenses when the rewards are earned by the customer and, at that time, records the corresponding reward liability. The
Corporation determines the reward liability based on points earned to date that the Corporation expects to be redeemed and the
average cost per point redemption. The reward liability is reduced as points are redeemed. In estimating the reward liability, the
Corporation considers historical reward redemption behavior, the terms of the current reward program, and the card purchase activity.
The reward liability is sensitive to changes in the reward redemption type and redemption rate, which is based on the expectation that
the vast majority of all points earned will eventually be redeemed. The reward liability, which is included in other liabilities in the
consolidated statements of financial condition, totaled $ 8.9 million and $9.2 million as of December 31, 2023 and 2022, respectively.
Other Fees
Other fees primarily include revenues generated from wire transfers, lockboxes, bank issuances of checks and trust fees recognized
from transfer paying agent, retirement plan, and other trustee activities. Revenues are recognized on a recurring basis when the
services are rendered and are included as part of other non-interest income in the consolidated statements of income.
Contract Balances
As of December 31, 2023 and 2022, there were no contract assets recorded on the Corporation’s consolidated 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.
223
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 27 – 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 December 31, 2023, the
Corporation had six reportable segments: Mortgage Banking; Consumer (Retail) Banking; Commercial and Corporate Banking;
Treasury and Investments; United States Operations; and Virgin Islands Operations. Management determined the reportable segments
based on the internal structure used to evaluate performance and to assess where to allocate resources. Other factors, such as the
Corporation’s organizational chart, nature of the products, distribution channels, and the economic characteristics of the products,
were also considered in the determination of the reportable segments.
The Mortgage Banking segment consists of the origination, sale, and servicing of a variety of residential mortgage loans. The
Mortgage Banking segment also acquires and sells mortgages in the secondary markets. The Consumer (Retail) Banking segment
consists of the Corporation’s consumer lending and deposit -taking activities conducted mainly through its branch network and loan
centers. The Commercial and Corporate Banking segment consists of the Corporation’s lending and other services for large customers
represented by specialized and middle-market clients and the public sector. The Commercial and Corporate Banking segment offers
commercial loans, including commercial real estate and construction loans, and floor plan financings, as well as other products, such
as cash management and business management services. The Treasury and Investments segment is responsible for the Corporation’s
investment portfolio and treasury functions that are executed to manage and enhance liquidity. This segment lends funds to the
Commercial and Corporate Banking, the Mortgage Banking, the Consumer (Retail) Banking, and the United States Operations
segments to finance their lending activities and borrows from those segments. The Consumer (Retail) Banking segment also lends
funds to other segments. The interest rates charged or credited by the Treasury and Investments and the Consumer (Retail) Banking
segments are allocated based on market rates. The difference between the allocated interest income or expense and the Corporation’s
actual net interest income from centralized management of funding costs is reported in the Treasury and Investments segment. The
United States Operations segment consists of all banking activities conducted by FirstBank in the United States mainland, including
commercial and consumer banking services. The Virgin Islands Operations segment consists of all banking activities conducted by the
Corporation in the USVI and the BVI, including commercial and consumer banking services.
The accounting policies of the segments are the same as those referred to in Note 1 – “Nature of Business and Summary of
Significant Accounting Policies.”
The Corporation evaluates the performance of the segments based on net interest income, the provision for credit losses, non-
interest income and direct non-interest expenses. The segments are also evaluated based on the average volume of their interest-
earning assets less the ACL.
The following tables present information about the reportable segments for the indicated periods:
(In thousands)
Year Ended December 31, 2023
Interest income
Net (charge) credit for transfer of funds
Interest expense
Net interest income (loss)
Provision for credit losses - (benefit) expense
Non-interest income
Direct non-interest expenses
Segment income (loss)
Average earnings assets
Mortgage
Banking
Consumer (Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
$
$
$
$
126,625
(47,915)
-
78,710
(7,531)
11,400
23,469
74,172 $
$
354,970
356,262
(135,796)
575,436
65,887
83,241
173,158
419,632 $
$
265,395
(210,737)
-
54,658
(6,189)
21,277
39,718
42,406 $
$
116,382
(93,405)
(36,893)
(13,916)
20
2,038
3,799
(15,697) $
$
132,490
(4,205)
(48,862)
79,423
8,687
6,697
34,682
42,751 $
$
27,624
-
(4,825)
22,799
66
8,041
27,900
2,874 $
1,023,486
-
(226,376)
797,110
60,940
132,694
302,726
566,138
2,143,179 $
3,295,486 $
3,780,195 $
6,186,018 $
2,072,292 $
389,489 $
17,866,659
224
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands)
Year Ended December 31, 2022
Interest income
Net (charge) credit for transfer of funds
Interest expense
Net interest income
Provision for credit losses - (benefit) expense
Non-interest income (loss)
Direct non-interest expenses
Segment income
Average earnings assets
(In thousands)
Year ended December 31, 2021:
Interest income
Net (charge) credit for transfer of funds
Interest expense
Net interest income
Provision for credit losses - (benefit) expense
Non-interest income
Direct non-interest expenses
Segment income
Average earnings assets
Mortgage
Banking
Consumer (Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
$
130,185
(31,265)
-
98,920
(7,643)
15,950
23,049
99,464 $
$
302,631
173,917
(33,924)
442,624
57,123
78,457
162,663
301,295 $
$
205,888
(96,066)
-
109,822
(20,241)
18,189
37,131
111,121 $
$
104,215
(43,838)
(20,777)
39,600
(434)
(74)
3,702
36,258 $
$
94,782
(2,748)
(11,549)
80,485
(3,073)
2,860
33,365
53,053 $
$
24,913
-
(1,071)
23,842
1,964
7,710
27,911
1,677 $
862,614
-
(67,321)
795,293
27,696
123,092
287,821
602,868
2,233,245 $
2,918,800 $
3,626,107 $
7,300,208 $
2,069,030 $
369,504 $
18,516,894
Mortgage
Banking
Consumer (Retail)
Banking
Commercial
and Corporate
Banking
Treasury and
Investments
United States
Operations
Virgin Islands
Operations
Total
$
144,203
(39,565)
-
104,638
(16,030)
24,278
29,125
115,821 $
$
271,127
38,859
(28,283)
281,703
20,322
69,774
165,357
165,798 $
$
201,684
(9,767)
-
191,917
(67,544)
16,032
36,219
239,274 $
$
67,841
14,687
(23,197)
59,331
(136)
227
4,093
55,601 $
$
82,194
(4,214)
(12,013)
65,967
(975)
3,963
33,902
37,003 $
$
27,659
-
(1,286)
26,373
(1,335)
6,890
28,084
6,514 $
794,708
-
(64,779)
729,929
(65,698)
121,164
296,780
620,011
2,506,365
$
2,551,278
$
3,793,945
$
7,827,326
$
2,126,528
$
430,499
$
19,235,941
$
$
$
$
$
$
The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods:
(In thousands)
Net income:
Total income for segments
Other operating expenses (1)
Income before income taxes
Income tax expense
Total consolidated net income
Average assets:
Total average earning assets for segments
Average non-earning assets
Total consolidated average assets
2023
Year Ended December 31,
2022
2021
$
$
$
$
566,138
168,702
397,436
94,572
302,864
17,866,659
839,764
18,706,423
$
$
$
$
602,868
155,284
447,584
142,512
305,072
18,516,894
861,755
19,378,649
$
$
$
$
620,011
192,194
427,817
146,792
281,025
19,235,941
1,067,092
20,303,033
(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.
225
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents revenues (interest income plus non-interest income) and selected balance sheet data by geography based on the
location in which the transaction was originated as of the indicated dates:
2023
2022
2021
(In thousands)
Revenues:
Puerto Rico
United States
Virgin Islands
Total consolidated revenues
Selected Balance Sheet Information:
Total assets:
Puerto Rico
United States
Virgin Islands
Loans:
Puerto Rico
United States
Virgin Islands
Deposits:
Puerto Rico (1)
United States (2)
Virgin Islands
$
$
$
$
$
$
981,328
139,187
35,665
$
855,441
97,642
32,623
1,156,180
$
985,706
$
$
$
$
16,308,000
2,141,427
460,122
9,745,872
2,022,261
424,718
13,429,303
1,631,402
1,495,280
$
$
$
16,020,987
2,213,333
400,164
9,097,013
2,088,351
379,767
12,933,570
1,623,725
1,586,172
795,166
86,157
34,549
915,872
18,175,910
2,189,440
419,925
8,755,434
1,948,716
391,663
14,113,874
1,928,749
1,742,271
(1)For 2023, 2022, and 2021, includes $420.2 million, $1.4 million, and $34.2 million, respectively, of brokered CDs allocated to Puerto Rico operations.
(2)For 2023, 2022, and 2021 includes $363.1 million, $104.4 million, and $ 66.2 million, respectively, of brokered CDs allocated to United States operations.
226
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 28 – SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
Supplemental statement of cash flows information is as follows for the indicated periods:
(In thousands)
Cash paid for:
Interest
Income tax
Operating cash flow from operating leases
Non-cash investing and financing activities:
Additions to OREO
Additions to auto and other repossessed assets
Capitalization of servicing assets
Loan securitizations
Loans held for investment transferred to held for sale
ROU assets obtained in exchange for operating lease liabilities,
net of lease terminations
Acquisition (1):
Consideration
Fair value of assets acquired
Year Ended December 31,
2023
2022
2021
$
$
207,829 $
109,512
17,307
$
65,986
51,798
18,202
22,649
66,796
2,240
122,732
3,451
15,350
45,607
3,122
141,909
4,632
4,861
2,733
- $
-
- $
-
68,668
15,477
19,328
19,348
33,408
5,194
191,434
33,010
4,553
584
605
(1) Relates to the fair value estimate update performed within one year of the closing of the BSPR acquisition (measurement period adjustments), in accordance with ASC 805.
227
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 29 – REGULATORY MATTERS, COMMITMENTS AND CONTINGENCIES
Regulatory Matters
The Corporation and FirstBank are each subject to various regulatory capital requirements imposed by the U.S. federal banking
agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions
by regulators that, if undertaken, could have a direct material adverse effect on the Corporation’s financial statements and activities.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific
capital guidelines that involve quantitative measures of the Corporation’s and FirstBank’s assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. The Corporation’s capital amounts and classification are also subject
to qualitative judgments and adjustment by the regulators with respect to minimum capital requirements, components, risk weightings,
and other factors. As of December 31, 2023 and 2022, the Corporation and FirstBank exceeded the minimum regulatory capital ratios
for capital adequacy purposes and FirstBank exceeded the minimum regulatory capital ratios to be considered a well-capitalized
institution under the regulatory framework for prompt corrective action. As of December 31, 2023, management does not believe that
any condition has changed or event has occurred that would have changed the institution’s status.
The Corporation and FirstBank compute risk-weighted assets using the standardized approach required by the U.S. Basel III capital
rules (“Basel III rules”).
The Basel III rules require the Corporation to maintain an additional capital conservation buffer of 2.5% on certain regulatory
capital ratios to avoid limitations on both (i) capital distributions (e.g., repurchases of capital instruments, dividends and interest
payments on capital instruments) and (ii) discretionary bonus payments to executive officers and heads of major business lines.
As part of its response to the impact of COVID-19, on March 31, 2020, the federal banking agencies issued an interim final rule
that provided the option to temporarily delay the effects of CECL on regulatory capital for two years, followed by a three-year
transition period. The interim final rule provides that, at the election of a qualified banking organization, the day one impact to
retained earnings plus 25% of the change in the ACL (as defined in the final rule) from January 1, 2020 to December 31, 2021 will be
delayed for two years and phased-in at 25% per year beginning on January 1, 2022 over a three-year period, resulting in a total
transition period of five years. Accordingly, as of December 31, 2023, the capital measures of the Corporation and the Bank included
$32.4 million associated with the CECL day one impact to retained earnings plus 25% of the increase in the ACL (as defined in the
interim final rule) from January 1, 2020 to December 31, 2021, and $32.4 million remains excluded to be phased-in during the
remainder of the three-year transition period. The federal financial regulatory agencies may take other measures affecting regulatory
capital to address macroeconomic conditions, as well as the effect of regional bank failures in the U.S. mainland during the first half
of 2023, although the nature and impact of such actions cannot be predicted at this time.
228
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The regulatory capital position of the Corporation and FirstBank as of December 31, 2023 and 2022, 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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,403,319
2,376,003
2,084,432
2,113,995
2,084,432
2,213,995
2,084,432
2,213,995
2,385,866
2,346,093
2,052,333
2,090,832
2,052,333
2,190,832
2,052,333
2,190,832
18.57% $
18.36% $
16.10% $
16.33% $
16.10% $
17.11 % $
10.78% $
11.45 % $
19.21% $
18.90% $
16.53% $
16.84% $
16.53% $
17.65% $
10.70% $
11.43 % $
1,035,589
1,035,406
528,519
582,416
776,692
776,554
773,615
773,345
993,405
993,264
558,790
558,711
745,054
744,948
767,075
766,714
8.0%
8.0% $
4.5%
4.5% $
6.0%
6.0% $
4.0%
4.0% $
8.0%
8.0% $
4.5%
4.5% $
6.0%
6.0% $
4.0%
4.0% $
N/A
1,294,257
N/A
841,267
N/A
1,035,406
N/A
966,682
N/A
1,241,580
N/A
807,027
N/A
993,264
N/A
958,392
N/A
10.0%
N/A
6.5%
N/A
8.0%
N/A
5.0%
N/A
10.0%
N/A%
6.5%
N/A
8.0%
N/A
5.0%
(Dollars in thousands)
As of December 31, 2023
Total Capital (to Risk-Weighted Assets)
First BanCorp.
FirstBank
CET1 Capital (to Risk-Weighted Assets)
First BanCorp.
FirstBank
Tier I Capital (to Risk-Weighted Assets)
First BanCorp.
FirstBank
Leverage ratio
First BanCorp.
FirstBank
As of December 31, 2022
Total Capital (to Risk-Weighted Assets)
First BanCorp.
FirstBank
CET1 Capital (to Risk-Weighted Assets)
First BanCorp.
FirstBank
Tier I Capital (to Risk-Weighted Assets)
First BanCorp.
FirstBank
Leverage ratio
First BanCorp.
FirstBank
Cash Restrictions
Cash and cash equivalents include amounts segregated for regulatory purposes. The Corporation’s bank subsidiary, FirstBank, is
required by the Puerto Rico Banking Law to maintain minimum average weekly reserve balances to cover demand deposits. The
amount of those minimum average weekly reserve balances for the period that ended December 31, 2023 was $1.0 billion (2022 - $1.1
billion). As of December 31, 2023 and 2022, the Bank complied with the requirement. Cash and due from banks as well as other
highly liquid securities are used to cover the required average reserve balances.
As of December 31, 2023, and as required by the Puerto Rico International Banking Law, the Corporation maintained $0.3 million
in time deposits, related to FirstBank Overseas Corporation, an international banking entity that is a subsidiary of FirstBank.
229
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Commitments
The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument on
commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. Management
uses the same credit policies and approval process in entering into commitments and conditional obligations as it does for on-balance
sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any conditions established in
the contract. Commitments generally have fixed expiration dates or other termination clauses. Since certain commitments are expected
to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. For most
of the commercial lines of credit, the Corporation has the option to reevaluate the agreement prior to additional disbursements. In the
case of credit cards and personal lines of credit, the Corporation can cancel the unused credit facility at any time and without cause.
In general, commercial and standby letters of credit are issued to facilitate foreign and domestic trade transactions. Normally,
commercial and standby letters of credit are short-term commitments used to finance commercial contracts for the shipment of goods.
The collateral for these letters of credit includes cash or available commercial lines of credit. The fair value of commercial and
standby letters of credit is based on the fees currently charged for such agreements, which, as of December 31, 2023 and 2022, were
not significant.
The following table summarizes commitments to extend credit and standby letters of credit as of the indicated dates:
(In thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit:
Construction undisbursed funds
Unused credit card lines
Unused personal lines of credit
Commercial lines of credit
Letters of credit:
Commercial letters of credit
Standby letters of credit
December 31,
2023
2022
$
$
234,974
882,486
38,956
862,963
69,543
8,313
170,639
936,231
41,988
761,634
68,647
9,160
230
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Contingencies
As of December 31, 2023, First BanCorp. and its subsidiaries were defendants in various legal proceedings, claims and other loss
contingencies arising in the ordinary course of business. On at least a quarterly basis, the Corporation assesses its liabilities and
contingencies in connection with threatened and outstanding legal proceedings, claims and other loss contingencies utilizing the latest
information available. For legal proceedings, claims and other loss contingencies where it is both probable that the Corporation will
incur a loss and the amount can be reasonably estimated, the Corporation establishes an accrual for the loss. Once established, the
accrual is adjusted as appropriate to reflect any relevant developments. For legal proceedings, claims and other loss contingencies
where a loss is not probable or the amount of the loss cannot be estimated, no accrual is established.
Any estimate involves significant judgment, given the varying stages of the proceedings (including the fact that some of them are
currently in preliminary stages), the existence in some of the current proceedings of multiple defendants whose share of liability has
yet to be determined, the numerous unresolved issues in the proceedings, and the inherent uncertainty of the various potential
outcomes of such proceedings. Accordingly, the Corporation’s estimate will change from time to time, and actual losses may be more
or less than the current estimate.
While the final outcome of legal proceedings, claims, and other loss contingencies is inherently uncertain, based on information
currently available, management believes that the final disposition of the Corporation’s legal proceedings, claims and other loss
contingencies, to the extent not previously provided for, will not have a material adverse effect on the Corporation’s consolidated
financial position as a whole.
If management believes that, based on available information, it is at least reasonably possible that a material loss (or material loss in
excess of any accrual) will be incurred in connection with any legal contingencies, the Corporation discloses an estimate of the
possible loss or range of loss, either individually or in the aggregate, as appropriate, if such an estimate can be made, or discloses that
an estimate cannot be made. Based on the Corporation’s assessment as of December 31, 2023, no such disclosures were necessary.
On November 16, 2023, the FDIC approved a final rule to implement a special assessment to recover the loss to the Deposit
Insurance Fund associated with protecting uninsured depositors following the closure of Silicon Valley Bank and Signature Bank
during the first half of 2023. Under the final rule, the FDIC will collect the special assessment at quarterly rate of 3.36 basis points,
beginning with the first quarterly assessment period of 2024 (i.e, January 1 through March 31, 2024) with an invoice payment date of
June 28, 2024, and will continue to collect special assessments for an anticipated total of eight quarterly assessment periods. The base
for the special assessment is equal to the estimated uninsured deposits reported for the December 31, 2022 reporting period, adjusted
to exclude the first $5 billion of such amount. In association with this final rule and as required by ASC Topic 450, “Contingencies,”
during the fourth quarter of 2023, the Corporation recorded a charge of $6.3 million in the consolidated statements of income as part
of “FDIC deposit insurance expenses”, which reflects the expected total payment to be made to the FDIC as of December 31, 2023.
On February 23, 2024, the FDIC informed that the estimated loss attributable to the protection of uninsured depositors of the
aforementioned failed institutions is $20.4 billion, an increase of approximately $4.1 billion from the estimate of $16.3 billion
described in the final rule. The FDIC retains the ability to cease collection early, extend the special assessment collection period
beyond the eight-quarter collection period, or impose an additional shortfall special assessment on a one-time basis after the
receiverships for the two banks are terminated. The collection period may change due to updates to the estimated loss pursuant to the
systemic risk determination or if assessments collected change due to corrective amendments to the amount of uninsured deposits
reported for the December 31, 2022 reporting period. The FDIC will provide any updates on the estimated loss and collection period
for the special assessment with the first quarter 2024 special assessment invoice, released in June 2024. As of December 31, 2023, the
Corporation cannot reasonably estimate the additional impact on the initial estimate of the special assessment, as such estimate is
dependent on the progress of liquidation efforts of the failed institutions.
231
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 30 – FIRST BANCORP. (HOLDING COMPANY ONLY) FINANCIAL INFORMATION
The following condensed financial information presents the financial position of First BanCorp. at the holding company level only
as of December 31, 2023 and 2022, and the results of its operations and cash flows for the years ended December 31, 2023, 2022 and
2021:
Statements of Financial Condition
(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
Dividends receivable
Other assets
Total assets
Liabilities and Stockholders’ Equity
Liabilities:
Long-term borrowings
Accounts payable and other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
As of December 31,
2023
2022
11,452
825
1,627,172
24,948
1,289
3,561
713
476
1,670,436
161,700
11,127
172,827
1,497,609
1,670,436
$
$
$
$
19,279
735
1,464,026
28,770
1,951
3,561
624
430
1,519,376
183,762
10,074
193,836
1,325,540
1,519,376
$
$
$
$
232
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Statements of Income
(In thousands)
Income
Interest income on money market investments
Dividend income from banking subsidiaries
Dividend income from non-banking subsidiaries
Gain on early extinguishment of debt
Other income
Total income
Expense
Interest expense on long-term borrowings
Other non-interest expenses
Total expense
Income before income taxes and equity
in undistributed earnings of subsidiaries
Income tax expense
Equity in undistributed earnings of subsidiaries
(distribution in excess of earnings)
Net income
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
Year Ended December 31,
2022
2023
2021
$
$
$
$
228
319,683
12,000
1,605
406
333,922
13,535
1,817
15,352
318,570
3,126
$
79
368,670
-
-
248
368,997
8,253
1,730
9,983
359,014
3,448
(12,580)
302,864
165,608
468,472
$
$
(50,494)
305,072
(720,779)
(415,707) $
$
51
98,060
30,000
-
154
128,265
5,135
1,929
7,064
121,201
2,854
162,678
281,025
(139,454)
141,571
233
FIRST BANCORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation
Equity in undistributed earnings of subsidiaries
Gain on early extinguishment of debt
Net (increase) decrease in other assets
Net increase in other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of equity securities
Return of capital from wholly-owned subsidiaries (1)
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Repurchase of common stock
Repayment of junior subordinated debentures
Dividends paid on common stock
Dividends paid on preferred stock
Redemption of preferred stock - Series A through E
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of year
Cash and cash equivalents include:
Cash and due from banks
Money market instruments
Year Ended December 31,
2022
2021
2023
$
302,864
$
305,072
$
281,025
145
12,580
(1,605)
(146)
1,127
314,965
(90)
-
(90)
(203,241)
(19,795)
(99,666)
-
-
(322,702)
(7,827)
19,279
11,452
11,452
-
11,452
$
$
$
148
50,494
-
(688)
1,545
356,571
(450)
8,000
7,550
(277,769)
-
(87,824)
-
-
(365,593)
(1,472)
20,751
19,279
19,279
-
19,279
$
$
$
149
(162,678)
-
1,657
3,578
123,731
-
200,000
200,000
(216,522)
-
(65,021)
(2,453)
(36,104)
(320,100)
3,631
17,120
20,751
20,751
-
20,751
$
$
$
(1) During 2022 and 2021, FirstBank, a wholly-owned subsidiary of First BanCorp., redeemed 0.3 million and 8 million shares of its preferred stock,
respectively, for a total price of approximately $8.0 million and $200 million, respectively.
234
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
First BanCorp.’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of
First BanCorp.’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the
end of the period covered by this Form 10-K. Based on this evaluation as of the period covered by this Form 10-K, our CEO and CFO
concluded that the Corporation’s disclosure controls and procedures were effective and provide reasonable assurance that the
information required to be disclosed by the Corporation in reports that the Corporation files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and
reported to the Corporation’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required
disclosure.
Management’s Report on Internal Control over Financial Reporting
Management’s Report on Internal Control over Financial Reporting is included in Part II, Item 8 of this Form 10-K and
incorporated herein by reference.
The effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2023 has been audited by Crowe
LLP, an independent registered public accounting firm, as stated in their report included in Part II, Item 8 of this Annual Report on
Form 10-K.
Changes in Internal Control over Financial Reporting
There have been no changes to the Corporation’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-
15(f) under the Exchange Act) during our most recent quarter ended December 31, 2023 that have materially affected, or are
reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
Item 9B. Other Information
Rule 10b5-1 Trading Arrangements
During the quarter ended December 31, 2023, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the
Exchange Act) adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms
are defined in Item 408 of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
235
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information in response to this item is incorporated herein by reference from the sections entitled “Information With Respect to
Nominees Standing for Election as Directors and With Respect to Executive Officers of the Corporation,” “Corporate Governance and
Related Matters,” “Delinquent Section 16(a) Reports” and “Audit Committee Report” contained in First BanCorp.’s definitive Proxy
Statement for use in connection with its 2024 Annual Meeting of Stockholders (the “2024 Proxy Statement”) to be filed with the SEC
within 120 days of December 31, 2023.
Item 11. Executive Compensation.
Information in response to this item is incorporated herein by reference from the sections entitled “Compensation Committee
Interlocks and Insider Participation,” “Compensation of Directors,” “Non-Management Chairman and Specialized Expertise,”
“Executive Compensation Disclosure – Compensation Discussion and Analysis,” “Executive Compensation Tables and Compensation
Information” and “Compensation Committee Report” in the 2024 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Securities authorized for issuance under equity compensation plans
The following table sets forth information about First BanCorp. common stock authorized for issuance under First BanCorp.’s
existing equity compensation plan as of December 31, 2023:
Plan category
Equity compensation plans, approved by stockholders
Equity compensation plans not approved by stockholders
Total
(a)
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights
(b)
Weighted Average Exercise
Price of Outstanding
Options, Warrants and
Rights
534,261 (1)
N/A
534,261
$
$
-
N/A
-
(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
(2)
3,153,621
N/A
3,153,621
(1) Amount represents unvested performance-based units granted to executives, with each unit representing one share of the Corporation's common stock. Performance shares will vest on the
achievement of a pre-established performance target goal at the end of a three-year performance period. Refer to Note 16 - "Stock-Based Compensation" to the consolidated financial
statements for more information on performance units.
(2) Securities available for future issuance under the First BanCorp. 2008 Omnibus Incentive Plan (the "Omnibus Plan"), which was initially approved by stockholders on April 29, 2008. On
May 24, 2016, the Omnibus Plan was amended to, among other things, increase the number of shares of common stock reserved for issuance under the Omnibus Plan and extend the term
of the Omnibus Plan to May 24, 2026. The Omnibus Plan provides for equity-based compensation incentives through the grant of stock options, stock appreciation rights, restricted stock,
restricted stock units, performance shares, and other stock-based awards. As amended, the Omnibus Plan provides for the issuance of up to 14,169,807 shares of common stock, subject to
adjustments for stock splits, reorganization and other similar events.
Additional information in response to this item is incorporated by reference from the section entitled “Security Ownership of
Certain Beneficial Owners and Management” in the 2024 Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information in response to this item is incorporated herein by reference from the sections entitled “Certain Relationships and Related
Person Transactions” and “Corporate Governance and Related Matters” in the 2024 Proxy Statement.
236
Item 14. Principal Accountant Fees and Services.
Audit Fees
Information in response to this item is incorporated herein by reference from the section entitled “Audit Fees” and “Audit
Committee Report” in the 2024 Proxy Statement.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) List of documents filed as part of this report.
(1) Financial Statements.
The following consolidated financial statements of First BanCorp., together with the reports thereon of First BanCorp.’s
independent registered public accounting firm, Crowe LLP (PCAOB ID No. 173), dated February 28, 2024, are included in Part II,
Item 8 of this Form 10-K:
– Report of Crowe LLP, Independent Registered Public Accounting Firm.
– Attestation Report of Crowe LLP, Independent Registered Public Accounting Firm on Internal Control over Financial
Reporting.
– Consolidated Statements of Financial Condition as of December 31, 2023 and 2022.
– Consolidated Statements of Income for Each of the Three Years in the Period Ended December 31, 2023.
– Consolidated Statements of Comprehensive Income (Loss) for Each of the Three Years in the Period Ended December 31,
2023.
– Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2023.
– Consolidated Statements of Changes in Stockholders’ Equity for Each of the Three Years in the Period Ended December 31,
2023.
– Notes to the Consolidated Financial Statements.
(2) Financial statement schedules.
All financial schedules have been omitted because they are not applicable or the required information is shown in the financial
statements or notes thereto.
(b) Exhibits listed in the Exhibit Index below are filed herewith as part of this Annual Report on Form 10-K and are incorporated
herein by reference.
Item 16. Form 10-K Summary
Not applicable.
237
EXHIBIT INDEX
Exhibit No.
Description
3.1
3.2
4.1
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
18.1
21.1
23.1
31.1
31.2
32.1
32.2
97.1
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
104
Restated Articles of Incorporation, incorporated by reference from Exhibit 3.1 of the Registration Statement on Form S-
1/A, filed on October 20, 2011.
Amended and Restated By-Laws, incorporated by reference from Exhibit 3.2 of the Form 8-K, filed on March 31, 2020.
Description of First BanCorp. capital stock.
First BanCorp Omnibus Incentive Plan, as amended, incorporated by reference from Exhibit 99.1 of the Form S-8, filed on
June 21, 2016.
Form of Restricted Stock Award Agreement
Form of First BanCorp Long-Term Incentive Award Agreement, incorporated by reference from Exhibit 10.1 of the Form
10-Q for the quarter ended March 31, 2023, filed on May 10, 2023.
Employment Agreement between First BanCorp and Aurelio Alemán, incorporated by reference from Exhibit 10.6- of the
Form 10-K for the year ended December 31, 1998, filed on March 26, 1999.
Amendment No. 1 to Employment Agreement between First BanCorp and Aurelio Alemán, incorporated by reference from
Exhibit 10.2 of the Form 10-Q for the quarter ended March 31, 2009, filed on May 11, 2009.
Amendment No. 2 to Employment Agreement between First BanCorp and Aurelio Alemán, incorporated by reference from
Exhibit 10.6 of the Form 10-K for the year ended December 31, 2009, filed on March 2, 2010.
Employment Agreement between First BanCorp and Orlando Berges, incorporated by reference from Exhibit 10.1 of the
Form 10-Q for the quarter ended June 30, 2009, filed on August 11, 2009.
Letter Agreement between First BanCorp. and Roberto R. Herencia, incorporated by reference from Exhibit 10.1 of the
Form 8-K/A, filed on November 2, 2011.
Offer Letter between First BanCorp and Juan Acosta Reboyras, incorporated by reference from Exhibit 10.1 of the Form 8-
K, filed on September 3, 2014.
Offer Letter between First BanCorp and Luz A. Crespo, incorporated by reference from Exhibit 10.1 of the Form 8-K, filed
on February 9, 2015.
Offer Letter between First BanCorp and John A. Heffern, incorporated by reference from Exhibit 10.1 of the Form 8-K,
filed on November 1, 2017.
Offer Letter between First BanCorp and Daniel E. Frye, incorporated by reference from Exhibit 10.1 of the Form 8-K, filed
on August 31, 2018.
Offer Letter between First BanCorp and Félix M. Villamil, incorporated by reference from Exhibit 10.1 of the Form 8-K,
filed on November 5, 2020.
Offer Letter between First BanCorp and Patricia M. Eaves, incorporated by reference from Exhibit 10.1 of the Form 8-K,
filed on April 1, 2021.
Form of Executive Employment Agreement executed by each executive officer, incorporated by reference from Exhibit
10.1 of the Form 10-Q for the quarter ended June 30, 2018, filed on August 9, 2018.
Revised Non-Management and Non-Employee Directors of the Board of Directors Compensation Structure, incorporated
by reference from Exhibit 10.1 of the Form 10-Q for the quarter ended September 30, 2022, filed on November 8, 2022.
Preferability letter from Crowe, LLP regarding a change in accounting method dated November 8, 2022, incorporated by
reference form Exhibit 18 of the Form 10-Q for the quarter ended September 30, 2022, filed on November 8, 2022.
List of First BanCorp’s subsidiaries
Consent of Crowe LLP
CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
FirstBanCorp Compensation Clawback Policy
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.
Inline XBRL Taxonomy Extension Schema Document, filed herewith
Inline XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith
Inline XBRL Taxonomy Extension Label Linkbase Document, filed herewith
Inline XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith
Inline XBRL Taxonomy Extension Definitions Linkbase Document, filed herewith
The cover page of First BanCorp. Annual Report on Form 10-K for the year ended December 31, 2023, formatted in Inline
XBRL (included within the Exhibit 101 attachments)
_____________________________
*Management contract or compensatory plan or agreement.
238
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.
By:
/s/ Aurelio Alemán
Aurelio Alemán
President, Chief Executive Officer and Director
Date: 2/28/2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Aurelio Alemán
Aurelio Alemán
President, Chief Executive Officer and Director
/s/ Orlando Berges
Orlando Berges, CPA
Executive Vice President and Chief Financial Officer
/s/ Roberto R. Herencia
Roberto R. Herencia,
Director and Chairman of the Board
/s/ Patricia M. Eaves
Patricia M. Eaves,
Director
/s/ Luz A. Crespo
Luz A. Crespo,
Director
/s/ Juan Acosta-Reboyras
Juan Acosta-Reboyras,
Director
/s/ John A. Heffern
John A. Heffern,
Director
/s/ Daniel E. Frye
Daniel E. Frye,
Director
/s/ Tracey Dedrick
Tracey Dedrick,
Director
/s/ Felix Villamil
Felix Villamil,
Director
/s/ Said Ortiz
Said Ortiz, CPA
Senior Vice President and Chief Accounting Officer
239
Date: 2/28/2024
Date: 2/28/2024
Date: 2/28/2024
Date: 2/28/2024
Date: 2/28/2024
Date: 2/28/2024
Date: 2/28/2024
Date: 2/28/2024
Date: 2/28/2024
Date: 2/28/2024
Date: 2/28/2024
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 4.1
First BanCorp. (the “Corporation,” “we,” or “our”) has authorized capital stock consisting of 2,000,000,000 shares of common
stock, par value $0.10 per share (the “Common Stock”) and 50,000,000 shares of preferred stock, par value $1.00 per share (the
“Preferred Stock”). The Corporation has outstanding one class of Common Stock registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended. The following summary describes the rights of holders of our Common Stock as set forth in our
Restated Articles of Incorporation (the “Articles of Incorporation”), and our Amended and Restated By-laws (the “By-laws”), each of
which is filed as an exhibit to the Annual Report on Form 10-K of which this exhibit is a part. Holders of our Common Stock have the
rights set forth in Puerto Rico law, except as otherwise provided in the Articles of Incorporation and the By-laws. The following
summary does not purport to be complete and is subject to and qualified in its entirety by reference to the Articles of Incorporation,
the By-laws and the applicable provisions of the General Corporations Act of Puerto Rico.
Common Stock
Dividends
Holders of our Common Stock are entitled to receive dividends only if, when and as declared by our Board of Directors out of
funds legally available for the payment of dividends, subject to certain restrictions imposed by applicable laws and the preferential
dividend rights of any Preferred Stock then outstanding.
Ranking
The Common Stock ranks junior with respect to dividend rights and rights upon liquidation, dissolution or winding-up of the
Corporation to all other securities and indebtedness of the Corporation.
Voting Rights
Holders of shares of our Common Stock are entitled to one vote per share on all matters voted on by our stockholders. There are no
cumulative voting rights for the election of directors. Except as otherwise provided by the Articles of Incorporation and the By-laws,
the vote required to take action is a majority of the votes of the stockholders represented in person or by proxy at a meeting of the
Corporation’s stockholders and entitled to vote.
Except as otherwise permitted by the Articles of Incorporation, the prior affirmative vote at a meeting of the Corporation’s
stockholders of: (a) the holders of not less than seventy-five (75%) of the outstanding Voting Shares (as defined in the Articles of
Incorporation), voting separately as a class, and (b) an Independent Majority of Stockholders (as defined in the Articles of
Incorporation), is required to approve a business combination, which includes, but is not limited to, the sale or purchase of all or
substantially all of the Corporation’s or any of its subsidiaries’ assets or business, as well as transactions with any Affiliate or a
Related Person (each as defined in the Articles of Incorporation).
At a meeting of the Corporation’s stockholders called expressly for that purpose, directors may only be removed for cause by a vote
of seventy-five (75%) of the shares then entitled to vote at an election of directors.
Other Rights and Preferences
The Common Stock has no redemption, preemption or sinking fund privileges. The shares of Common Stock are not convertible
into other securities.
Advance Notice Requirements
Under the By-laws, if a stockholder of the Corporation seeks to propose a nominee for director for consideration at the annual
meeting of stockholders, written notice must be received by the Corporate Secretary of the Corporation at least thirty (30) days prior to
the date of the annual meeting of stockholders.
Preferred Stock
The Articles of Incorporation authorize the issuance of preferred stock, in one or more series, which may be issued by our Board of
Directors without stockholder approval, and may contain such voting powers, liquidation, preferences, qualifications, and other rights
thereof, as shall be expressed in resolution or resolutions of the Board of Directors.
1
FIRST BANCORP
RESTRICTED STOCK AWARD AGREEMENT
EXHIBIT 10.2
THIS AGREEMENT is entered into as of the ___ day of _________, and effective as of the ___ day of _____, ____ (the
“Effective Date”), by and between First BanCorp (the "Corporation"), and ____________ (the "Participant").
The Corporation, pursuant to its First BanCorp Omnibus Incentive Plan, as amended (the "Plan"), hereby grants the following
stock award to the Participant, which award shall have the terms and conditions set forth in this Agreement:
1. Definitions
All capitalized terms used herein and not otherwise specifically defined herein shall have the meanings ascribed to such terms in
the Plan.
2. Award
The Corporation, as of the Effective Date, hereby grants to the Participant a restricted stock award of _____ shares (the "Shares")
of common stock, par value $0.10 per share, of the Corporation (the "Common Stock"), subject to the terms and conditions set forth
herein and subject to the terms and conditions of the Plan which is incorporated herein by reference and made a part hereof for all
purposes.
The restricted period shall commence upon the Effective Date and shall lapse with respect to the Shares on such date the vesting
period of the Shares elapses.
3. Vesting
Subject to the terms and conditions of this Agreement, the Shares shall vest solely on the basis of the passage of time over a three-
year period as follows: fifty percent (50%) of the Shares shall vest on the second anniversary date of the Effective Date of the award
and the remaining fifty percent (50%) shall vest on the third anniversary date of the Effective Date of the award. Notwithstanding the
foregoing, and subject to earlier vesting as provided in Section 7 hereof, Shares may vest more quickly in the event of death,
Disability, Retirement, or a Change in Control or other specified permitted vesting events.
4. Restriction on Transfer
Until the Shares vest pursuant to Section 3 hereof, none of the Shares may be sold, assigned, transferred, pledged, hypothecated,
or otherwise encumbered, and no attempt to transfer the Shares, whether voluntary or involuntary, by operation of law or otherwise,
shall vest the transferee with any interest or right in or with respect to the Shares.
5. Issuance and Custody
(a) Shares of Common Stock shall be issued in book-entry form only and shall not be represented by a certificate and shall be
registered in the name of the Participant. Each such book-entry shall bear the following legend:
“THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED BY THIS BOOK-ENTRY
FORM ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN RESTRICTED STOCK AWARD
AGREEMENT EFFECTIVE AS OF _______, _____, AS AMENDED FROM TIME TO TIME, AND THE FIRST
BANCORP OMNIBUS INCENTIVE PLAN, AS AMENDED. COPIES OF SUCH AGREEMENT AND PLAN
MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS BOOK-ENTRY FORM TO THE SECRETARY OF THE CORPORATION.”
1
(b) Participant shall execute stock powers relating to the Shares and deliver the same to the Corporation. The Corporation shall
use such stock powers only for the purpose of canceling any unvested Shares that are forfeited.
(c) Each book-entry form issued pursuant to Section 5(a) hereof, together with the stock powers relating to the Shares, shall be
deposited by the Corporation with the Secretary of the Board of Directors (the “Secretary”) of the Corporation or a custodian
designated by the Secretary. Unless otherwise determined by the Committee, delivery of the Shares will be by book-entry credit to an
account maintained by the registrar and transfer agent of the shares with the applicable restrictions on transferability imposed on such
Shares by this Agreement.
(d) After any Shares vest pursuant to Section 3 hereof and there exists no restrictions on transfer pursuant to Section 4 hereof, the
Corporation shall promptly cause issue a book-entry form evidencing such vested Shares, free of the legend provided in section 5(a)
hereof, and shall be delivered to the Participant or the Participant's legal representatives, beneficiaries, or heirs.
6. Distributions and Adjustments
(a) If all or any portion of the Shares vest subsequent to any change in the number or character of Shares of Common Stock
(through stock dividend, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares of Common Stock or other securities of the Corporation, issuance of warrants or other
rights to purchase Shares of Common Stock or other securities of the Corporation or other similar corporate transaction or event
affecting the Shares such that an adjustment is determined by the Compensation and Benefit Committee of the Board of Directors (the
"Committee") to be appropriate in order to prevent dilution or enlargement of the interest represented by the Shares), Participant shall
then receive upon such vesting the number and type of securities or other consideration which he would have received if the Shares
had vested prior to the event changing the number or character of outstanding Shares of Common Stock.
(b) Any additional Shares of Common Stock, any other securities of the Corporation and any other property (except for cash
dividends) distributed with respect to the Shares prior to the date the Shares vest shall be subject to the same restrictions, terms, and
conditions as the Shares.
(c) Any additional Shares of Common Stock, any securities, and any other property (except for cash dividends) distributed with
respect to the Shares prior to the date such Shares vest shall be promptly deposited with the Secretary, or the custodian designated by
the Secretary to be held in custody in accordance with Section 5(c) hereof.
(d) Shares shall have the rights to dividends or dividend equivalents, as applicable, during the Restriction Period. Such dividends
or dividend equivalents will accrue during the Restriction Period, but not be paid until restrictions lapse.
(e) The Participant will have the right to vote the Shares.
7. Forfeiture; Termination of Services; Change of Control
(a) In the event of the death of the Participant while employed by the Corporation, Shares held by the Participant which have not
vested, shall vest irrespective of whether the vesting period has been completed.
(b) In the event the Participant’s employment is terminated by reason of Disability, Shares held by such participant which have
not vested, shall vest irrespective of whether the vesting period has been completed.
(c) In the event the Participant’s employment is terminated by the Corporation or any Affiliate for Cause, Shares held by the
Participant which have not vested shall be forfeited and canceled upon such termination.
(d) Unless otherwise determined by the Committee, in the event the Participant’s employment ends as a result of the Participant’s
resignation from the Corporation or an Affiliate, any Shares held by such Participant which has not vested, shall be forfeited and
canceled upon such termination.
(e) In the event the Participant’s employment is terminated by reason of Retirement, or who is voluntarily or involuntarily
terminated within one year after a Change in Control, Shares held by the Participant shall vest irrespective of whether the vesting
period has been completed.
(f) Based on particular circumstances evaluated by the Committee as they may relate to the termination of a Participant, the Board
may, with the recommendation of the Committee, grant the full vesting of the Shares held by the Participant upon termination of
employment.
2
(g) If awards are accelerated for reasons other than death, disability, retirement, or change in control, those discretionarily
accelerated shares will be limited to 10% of the total number of shares authorized under Section 5(a) of the Plan.
8. Taxes
The Corporation is authorized to withhold from any Award granted, any payment relating to an Award under the Plan, including
from a distribution of shares of Common Stock, or any payroll or other payment to a participant, amounts of withholding and other
taxes due or potentially payable in connection with any transaction involving an Award, and to take such other action as the
Committee may deem advisable to enable the Corporation and participants to satisfy obligations for the payment of withholding taxes
and other tax obligations relating to any Award. This authority shall include authority to withhold or receive shares of Common Stock
or other property and to make cash payments in respect thereof in satisfaction of a participant’s withholding obligations, either on a
mandatory or elective basis in the discretion of the Committee, or in satisfaction of other tax obligations if such withholding will not
result in additional accounting expense to the Corporation. Notwithstanding other provisions of the Plan, only the minimum amount of
shares of Common Stock deliverable in connection with an Award necessary to satisfy statutory withholding requirements will be
withheld, unless withholding of any additional amount of shares of Common Stock will not result in additional accounting expense to
the Corporation.
9. Miscellaneous
(a) This Agreement is issued pursuant to the Plan and is subject to its terms. Participant hereby acknowledges receipt of a copy of
the Plan. The Plan is also available for inspection during business hours at the principal office of the Corporation.
(b) This Agreement shall not confer on the Participant any right with respect to continuance of employment of the Corporation or
any of its subsidiaries.
(c) This Agreement shall be governed by and construed under the laws of the Commonwealth of Puerto Rico, without regard for
conflicts of laws principles thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, and the corporate seal
affixed, by its officers thereunto duly authorized, and the Participant has hereunto set his hand, all on the day and year first above
written.
Corporate Seal
FIRST BANCORP
PARTICIPANT
By:
By:
3
FIRST BANCORP.
AS OF DECEMBER 31, 2023
EXHIBIT 21.1
Subsidiaries of the Registrant
Name
Jurisdiction of Incorporation
FirstBank Puerto Rico
First Federal Finance Limited Liability Company (D/B/A Money Express)
FirstBank Overseas Corp.
First Management of Puerto Rico, LLC
FB Private Equity LLC
FirstBank Insurance Agency, LLC
Puerto Rico
Puerto Rico
Puerto Rico
Puerto Rico
Puerto Rico
Puerto Rico
1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
The Board of Directors
First BanCorp.:
We consent to the incorporation by reference in Registration Statements on Form S-3 (No. 333-209516) and on Form S-8 (Nos. 333-
212157, 333-181178, 333-155764, 333-106661, and 333-106656) of First BanCorp. of our report dated February 28, 2024 relating to
the consolidated financial statements and effectiveness of internal control over financial reporting appearing in this Annual Report on
Form 10-K of First BanCorp. for the year ended December 31, 2023.
/s/ Crowe, LLP
Fort Lauderdale, Florida
February 28, 2024
1
EXHIBIT 31.1
I, Aurelio Alemán, certify that:
1.
I have reviewed this Form 10-K of First BanCorp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures, and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 28, 2024
By:
/s/ Aurelio Alemán
Aurelio Alemán
President and Chief Executive Officer
1
I, Orlando Berges, certify that:
1.
I have reviewed this Form 10-K of First BanCorp.;
EXHIBIT 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures, and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 28, 2024
By:
/s/ Orlando Berges
Orlando Berges
Executive Vice President and
Chief Financial Officer
1
EXHIBIT 32.1
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 Title 18,
United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18,
United States Code), the undersigned officer of First BanCorp., a Puerto Rico corporation (the “Company”), does hereby certify, to
such officer’s knowledge, that:
The Annual Report on Form 10-K for the year ended December 31, 2023 (the “Form l0-K”) of the Company fully complies
with the requirements of section l3(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-K
fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 28, 2024
/s/ Aurelio Alemán
Name: Aurelio Alemán
Title: President and Chief Executive Officer
1
EXHIBIT 32.2
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 Title 18,
United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18,
United States Code), the undersigned officer of First BanCorp., a Puerto Rico corporation (the “Company”), does hereby certify, to
such officer’s knowledge, that:
The Annual Report on Form 10-K for the year ended December 31, 2023 (the “Form l0-K”) of the Company fully complies
with the requirements of section l3(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-K
fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 28, 2024
/s/ Orlando Berges
Name: Orlando Berges
Title: Executive Vice President and Chief Financial Officer
1
FIRSTBANCORP
COMPENSATION CLAWBACK POLICY
EXHIBIT 97.1
Introduction
Purpose
The Compensation & Benefits Committee (the “Committee”) of First BanCorp. (the “Corporation”) believes that it is in the best
interest of the Corporation to reinforce its compensation philosophy by adopting this Compensation Clawback Policy (the “Policy”)
for the adjustment or recovery of Incentive-Based Compensation awards to Executive Officers and other Covered Employees (each as
defined below), In the event of a Restatement (as defined below). In this regard, the Board of Directors of the Corporation has adopted
compensation recovery guidelines as set forth in this Policy. This Policy has been amended and adopted in compliance with Section
10D of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, and Rule 10D-1 promulgated thereunder and Section
303A.14 of the New York Stock Exchange (“NYSE”) Listing Standards Manual.
Applicability
This Policy is applicable to all Incentive-Based Compensation received by Executive Officers and Covered Employees of the
Corporation, including its subsidiaries and affiliates, after the effective date of this Policy.
Definitions
TERM
Covered
Employee
Excess
Compensation
Executive Officer
DEFINITION
Any recipient of Incentive-Based Compensation from the Corporation or a subsidiary who is not
an Executive Officer.
Any amount of Incentive-Based Compensation (calculated on a pre-tax basis) received by an
Executive Officer or Covered Employee that exceeds the amount of Incentive-Based
Compensation that otherwise would have been received had it been determined based on the
restated amounts.
The Corporation’s president, principal financial officer, principal accounting
officer (or if there is no such accounting officer, the controller), any vice-
president of the Corporation in charge of a principal business unit, division,
or function (such as sales, administration, or finance), any other officer who
performs a policy-making function, or any other person who performs similar
policy-making functions for the Corporation. Executive Officers of the
Corporation or its subsidiaries are deemed Executive Officers of the
functions.
Corporation
policy-making
perform
such
they
if
1
Financial Reporting
Measure
Incentive-Based
Compensation
Received
Restatement
A measure that is determined and presented in accordance with the
accounting principles used
the Corporation’s financial
in preparing
statements (including “non-GAAP” financial measures, such as those
appearing in earnings releases or MD&A), and any measure that is derived
wholly or in part from such measure. Examples of Financial Reporting
Measures include measures based on revenues, net income, operating
income, financial ratios, EBITDA, liquidity measures, return measures (such
as return on assets), and profitability of one or more segments. Stock price
and total shareholder return are also Financial Reporting Measures.
Any compensation (whether in the form of cash or equity) granted, earned,
or vested, based wholly or in part upon the attainment of a Financial
Reporting Measure. Incentive-Based Compensation does not include (i) base
salary; (ii) “sign-on” bonuses or other compensation granted solely due to
the commencement of employment with the Corporation; (iii) compensation
exclusively based on completion of a specific period of employment or
service, without any performance condition; or (iv) compensation awarded
based on subjective, non-financial, strategic, or operational measures that are
not Financial Reporting Measures.
Incentive-Based Compensation is deemed received in the issuer’s fiscal
period during which the Financial Reporting Measure specified in the
Incentive-Based Compensation award is attained, even if the payment or
grant of the Incentive-Based Compensation occurs after the end of that
period. For example, (i) if the grant of an award is based, either wholly or in
part, on satisfaction of a Financial Reporting Measure performance goal, the
award would be deemed received in the fiscal period when that measure was
satisfied; or (ii) if an equity award vests only upon satisfaction of a Financial
Reporting Measure performance condition, the award would be deemed
received in the fiscal period when it vests.
An accounting restatement of the Corporation’s financial statements due to
material noncompliance with any financial reporting requirement under
federal securities laws, regardless of whether misconduct was the cause for
such restatement. Restatements include any required accounting restatement
to correct an error in previously issued financial statements that is material
to the previously issued financial statements (commonly referred to as “Big
R” restatements), or that would result in a material misstatement if the error
were corrected in the current period or left uncorrected in the current period
(commonly referred to as “little r” restatements).
to
the Corporation’s
The following retrospective changes
financial
statements are not considered a Restatement which would require
application of this Policy, among others: (i) application of a change in
accounting principle; (ii) revisions to reportable segment information due to
a change in internal organization; (iii) reclassification due to a discontinued
operation; (iv) application of a change in reporting entity, such as from a
reorganization of entities under common control; and (v) revisions for stock
splits, reverse stock splits, stock dividends or other changes in capital
structure.
References
(cid:404) N/A
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Policy
I.
Clawback Period
The Committee will reasonably promptly recover (unless the Committee determines impracticable to do so, after
exercising a normal due process review of all the relevant facts and circumstances as explained below) Excess
Compensation received during the three completed fiscal years preceding the date on which the Corporation is required
to prepare a Restatement (the “Recovery Period”). The “date on which the Corporation is required to prepare a
Restatement” is the earlier of the following: (1) the date upon which the Board of Directors of the Corporation (the
“Board”), a committee of the Board, or the officer or officers of the Corporation authorized to take such action if Board
action is not required, concludes, or reasonably should have concluded, that a Restatement is required; or (2) the date a
court, regulator or other legally authorized body directs the Corporation to prepare a Restatement, in each case regardless
of if or when the restated financial statements are filed.
The Committee may determine impracticable to reasonably promptly recover Excess Compensation after exercising a
normal due process review of all relevant facts and circumstances to the extent that (i) the direct expense paid to a third
party to assist in enforcing the Policy would exceed the amount recovered (under these circumstances, the Corporation
would document its reasonable attempts to recover the Incentive-Based Compensation and provide such documentation
to the NYSE); (ii) recovery would violate home country law that was adopted prior to November 28, 2022 (under these
circumstances, the Corporation would obtain an opinion of home country counsel and provide it to the NYSE); or (iii)
recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to
employees of the Corporation, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 411(a) and regulations
thereunder.
II.
Repayment
This Policy applies to all Incentive-Based Compensation Received by (1) a person (i) after beginning services as an
Executive Officer and (ii) if that person served as an Executive Officer at any time during the performance period for
such Incentive-Based Compensation and (2) any Covered Employee who the Committee determines was directly
responsible for the Restatement or the Committee determined engaged in intentional fraud or gross misconduct. Any
recoupment of compensation pursuant to this Policy will be in addition to any other remedies that may be available to the
Corporation under applicable law, including termination of employment.
The Corporation will make all reasonable attempts to recover any amounts due under this Policy by way of direct
payment from the Executive Officer or Covered Employee, if applicable, recovery over time, the reduction of future pay
and/or awards, and/or any other method which will provide for recovery within a reasonable manner and without undue
delay.
III.
Administration
This Policy will be enforced in accordance with Section 10D of the Exchange Act, and Rule 10D-1 promulgated
thereunder and Paragraph 303A.14 of the Listing Standards Manual of the NYSE. The Committee shall be responsible
for monitoring the application of this Policy, and has the sole authority to construe, interpret and implement this Policy
and make any determinations necessary or advisable in administering this Policy. The Committee may modify,
supplement, rescind or replace all or any portion of this Policy at any time in accordance with applicable law.
IV.
Other Policies and Laws
In the event of any conflict or inconsistency between this Policy and any other policies, plans, or other materials of the
Corporation, this Policy shall govern. However, to the extent another policy, plan, or agreement calls for adjustment or
recovery of an Incentive-Based Compensation award when this Policy would not require such adjustment or recovery,
this Policy will not interfere with application of such other policy, plan, or agreement. The Corporation is prohibited
from indemnifying any Executive Officer or Covered Employee against the loss of erroneously awarded compensation.
This Policy will be amended as necessary to comply with applicable law or any rules or standards adopted by a national
securities exchange on which the Corporation’s securities are listed in. Notwithstanding anything to the contrary in this
Policy, in no event shall the Committee seek any recoupment described in this Policy if, by doing so, the Corporation
would be in violation of any applicable state law enacted on or before November 28, 2022.
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V.
Disclosures
Appropriate disclosures and other filings with respect to this Policy will be made in accordance with SEC rules and
applicable NYSE listing standards.
VI.
Acknowledgement by Executive Officers
The Committee, through the Board’s Secretary Office, on an annual basis shall provide notice and seek
acknowledgement of this Policy from each Executive Officer, provided that the failure to provide such notice or obtain
such acknowledgement shall have no impact on the applicability or enforceability of this Policy.
List of Exhibits
(cid:404) N/A
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