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FIRST BANCORP /PR/

FIRST BANCORP /PR/FBPEarnings & Financial Report

NYSE · commercial bank

First Midwest Bancorp, Inc. was headquartered in Chicago, Illinois, just east of O'Hare Airport. The company's predecessor traces back to Joliet, Illinois. From there the company has grown to serve many Chicago suburbs including northwest Indiana, downstate Illinois, southeast Wisconsin and the Quad Cities area including Iowa. First Midwest Bank is one of the largest banking institutions in the United States

What changed in FIRST BANCORP /PR/'s 10-K — 2022 vs 2023

Top changes in FIRST BANCORP /PR/'s 2023 10-K

243 paragraphs added · 361 removed · 185 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

69 edited+15 added−127 removed56 unchanged
The Mortgage Banking segment focuses on originating residential real estate loans, some of which conform to the U.S. Federal Housing Administration (the “FHA”), U.S. Veterans Administration (the “VA”) and the U.S. Department of Agriculture Rural Development (the “RD”) standards.
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.
Virgin Islands Operations The Virgin Islands Operations segment consists of all banking activities conducted by FirstBank in the USVI and BVI regions, including consumer and commercial banking services, with a total of eight banking branches serving the islands in the USVI of St. Thomas, St. Croix, and St. John, and the island of Tortola in the BVI.
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.
HUMAN CAPITAL MANAGEMENT First BanCorp. strives to be recognized as a leading and diversified financial institution, offering a 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.
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.
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.
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.
The Volcker Rule also prohibits these entities from engaging, for their own account, in short-term proprietary trading of certain securities, derivatives, commodity futures and options on these instruments. The Corporation and the Bank are not engaged in “proprietary trading” as defined in the Volcker Rule.
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. 13 The Corporation and the Bank are not engaged in “proprietary trading” as defined in the Volcker Rule.
A financial institution’s management is expected to maintain sufficient processes to effectively respond and recover the institution’s operations after a cyber-attack. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations if a critical service provider of the institution falls victim to this type of a cyber-attack.
A financial institution’s management is expected 14 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.
Through its subsidiaries, including FirstBank, 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 in Puerto Rico, the U.S., the USVI and the BVI.
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.
First BanCorp. provides competitive benefits programs that are intended 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.
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.
The Human Resources Division 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.
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.
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’ wellbeing, success, professional development, and work environment.
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.
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 in the Puerto Rico region.
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.
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 and commercial real estate products, such as lines of credit, term loans and construction loans.
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.
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, 2022, and the date hereof, FirstBank was and is the only banking subsidiary of the Corporation.
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.
Retail deposits gathered through each branch of FirstBank’s retail network serve as one of the funding sources for the lending and investment activities. This segment also includes the Corporation’s insurance agency activities in the Puerto Rico region. Treasury and Investments The Treasury and Investments segment is responsible for the Corporation’s treasury and investment management functions.
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 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 underwriti ng 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.
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.
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.
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.
FirstBank provides a wide range of banking services to individual and corporate customers, primarily in southern Florida through nine banking branches. The United States Operations segment offers an array of both consumer and commercial banking products and services.
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.
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 and the Division of Banking and Insurance Financial Regulation in the USVI.
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.
The Corporation has elected to be a financial holding company under the Bank Holding 10 Company Act.
The Corporation has elected to be a financial holding company under the Bank Holding Company Act.
Treasury regulations. 14 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.
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.
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.
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.
FirstBank conducts its business through its main office located in San Juan, Puerto Rico, 59 banking branches in Puerto Rico, eight banking branches in the USVI and the BVI, and nine banking branches in the state of Florida. FirstBank has six wholly-owned subsidiaries with operations in Puerto Rico: First Federal Finance Corp.
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.
On January 1, 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 (“AML Act”).
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 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 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 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.
Bank holding companies, such as the Corporation, were required to fully phase out these instruments from Tier 1 capital by 11 January 1, 2016; however, these instruments may remain in Tier 2 capital until the instruments are redeemed or mature.
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.
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 (Commonwealth of Puerto Rico) regulations that regulate, among other things, the scope of their businesses, their investments, their reserves against deposits, the timing and availability of deposited funds, and the nature and amount of collateral for certain loans.
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.
In addition, the Corporation’s Board of Directors and its Compensation and Benefits Committee monitor and are regularly updated on the Corporation’s human capital management strategies. 8 Talent Acquisition and Retention First BanCorp. is an equal opportunity employer, which considers qualified candidates for employment to fill its available positions.
In addition, the Corporation’s Board of Directors and its Compensation and Benefits Committee monitor and are regularly updated on the Corporation’s human capital management strategies. 8 Talent Management First BanCorp. is an equal opportunity employer which considers qualified candidates for employment to fill its open positions.
We believe that financial security is critical for our employees. Our goal is to maintain compensation levels that are competitive with comparable job categories in similar organizations.
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.
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 CECL on regulatory capital for two years, followed by a three -year transition period.
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.
Refer to Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Annual Report on Form 10-K for further information on the Corporation’s distribution of dividends and repurchases of common stock.
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.
The attraction and selection process includes: ● Promoting and posting our vacant positions internally and externally. ● Building our employer brand by participating in professional events and job fairs and maintaining a relationship with universities through internship programs and career forums. ● A collaboration with hiring managers to ensure an accurate match between role and candidate and reasonably speed up the recruitment process to secure top candidates. ● A robust management information system to enhance the effectiveness of the recruitment process and provide candidates with a unique experience. ● A robust on-boarding process to engage and support the new employee’s induction process, including assignment of a “FirstPal” from day one to help with the organizational culture transition and learning process.
The attraction and selection process includes: ● Promoting and posting our vacant positions internally and externally; ● Building our employer brand by participating in professional events and job fairs and maintaining relationships with universities through internship programs and career forums; ● Collaboration with hiring managers to ensure an accurate match between roles and candidates to accelerate the recruitment process and secure top candidates; ● A robust management information system to enhance the effectiveness of the recruitment process and provide candidates with a unique experience; and ● A robust on-boarding process to engage and support new employees ’ induction process, including assignment of a “FirstPal” from day one to help with the organizational culture transition and learning process.
Originated 6 loans that meet the FHA’s standards qualify for the FHA’s insurance program whereas loans that meet the standards of the VA or RD are guaranteed by those 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.
Originated 6 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.
In 2022, First BanCorp employees were members of the board of directors for 24 non-profit organizations across the Puerto Rico, Florida, and Virgin Islands regions and offered approximately 1,500 hours of service. Health & Wellness Health and well-being programs are a strong component of the benefits we provide to our employees.
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.
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 Virgin Islands and the state of Florida, as well as fintech companies and emerging competition from digital platforms.
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.
As part of the ESG governance structure set forth in the Sustainability Policy, 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.
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.
Our efforts are focused on attracting and retaining the best talent for the Corporation, including college graduates, and promoting internal mobility.
We focus our efforts on attracting and retaining the best talent for the Corporation, including college graduates, and promoting internal mobility.
For a discussion of certain significant events that have occurred in the year ended December 31, 2022, please refer to “Significant Events” included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10- K.
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.
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. In a number of cases, the Standardized Approach resulted in higher risk weights for a variety of asset categories.
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.
As of December 31, 2022, approximately 67% of the total employee population and 57% of top and middle management, were women. Oversight The Human Resources Division manages all elements of the Corporation’s human capital programs and strategies, including talent recruiting and engagement, training and development, and compensation and benefits, and directly reports to the Corporation’s Chief Risk Officer.
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.
FirstBank Well-Capitalized Minimum As of December 31, 2022 Total capital (Total capital to risk-weighted assets) 19.21% 18.90% 10.00% CET1 Capital (CET1 capital to risk-weighted assets) 16.53% 16.84% 6.50% Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) 16.53% 17.65% 8.00% Leverage ratio (1) 10.70% 11.43% 5.00% _______________ (1) Tier 1 capital to average assets. 12 Stress-Testing and Capital Planning Requirements Federal regulations currently do not impose formal stress-testing requirements on banking organizations with total assets of less than $100 billion, such as the Corporation and FirstBank.
FirstBank Well-Capitalized Minimum As of December 31, 2023 Total capital (Total capital to risk-weighted assets) 18.57% 18.36% 10.00% CET1 Capital (CET1 capital to risk-weighted assets) 16.10% 16.33% 6.50% Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) 16.10% 17.11% 8.00% Leverage ratio (1) 10.78% 11.45% 5.00% _______________ (1) Tier 1 capital to average assets. 12 Stress-Testing and Capital Planning Requirements Federal regulations currently do not impose formal stress-testing requirements on banking organizations with total assets of less than $100 billion, such as the Corporation and FirstBank.
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.
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.
In addition, 12 U.S.C. 5371 (the “Collins Amendment”), 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.
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.
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. Future legislation may increase the regulation and oversight of the Corporation and the Bank.
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.
Our salary administration program is designed to provide compensation that is consistent with our employees’ assigned duties and responsibilities in order to recognize differences in individual performance levels and to attract the right and best talent for each job. In addition to salary, some job positions are eligible to participate in variable pay programs.
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.
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.
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. 11 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.
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.
This discussion is qualified in its entirety by reference to the full texts of the laws, regulations and policies described. 10 Bank Holding Company Activities and Other Limitations The Corporation is registered under the Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”), and is subject to ongoing supervision, regulation and examination by the Federal Reserve Board.
The Corporation has different incentive programs for most of its business units. These incentive programs are periodically reviewed to align them to business strategies and ensure sound risk management. Further, the Corporation’s Management Award Program is used to recognize and reward outstanding performance for exempt employees who do not participate in other 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.
(d/b/a Money Express La Financiera), a finance company specializing in the origination of small loans with 27 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”) property and one private equity fund.
(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.
Retail deposits gathered through each branch serve as the funding sources for its own lending activities. 7 ENVIRONMENTAL , SOCIAL AND GOVERNANCE (“ESG”) PROGRAM OVERVIEW The Corporation is committed to supporting our clients, employees, shareholders and communities in which we serve. Our ESG program builds on the Corporation’s core values, including being a socially responsible company.
Retail deposits gathered through each branch serve as the funding sources for its own lending activities. 7 CORPORATE SUSTAINABILITY PROGRAM OVERVIEW The Corporation is committed to supporting our clients, employees, shareholders and communities in which we serve.
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. 13 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.
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.
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 and our commitment to employee engagement continues throughout employees’ time with the Corporation. Our training program strives to reflect both employees’ and the organization’s needs.
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.
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.
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.
Employees As of December 31, 2022, the Corporation and its subsidiaries had 3,133 regular employees, nearly all of whom are full-time, representing a 2% increase in overall headcount from December 31, 2021. The Corporation had 2,773 employees in the Puerto Rico region, 200 employees in the Florida region, and 160 employees in the Virgin Islands region.
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, 2022, the Corporation had total assets of $18.6 billion, including loans of $11.6 billion, total deposits of $16.1 billion, and total stockholders’ equity of $1.3 billion. The Corporation provides a wide range of financial services for retail, commercial and institutional clients. The Corporation has two wholly-owned subsidiaries: FirstBank and FirstBank Insurance Agency, Inc. (“FirstBank Insurance Agency”).
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”).
Puerto Rico banks are subject to the same federal laws, regulations and supervision that apply to similar institutions on the United States mainland.
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.
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 main areas: fundamentals, compliance and corporate governance, specialized technical subjects, professional development, and leadership development.
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.
We also encourage employees to participate in our commitment to our communities through our volunteer and community reinvestment programs. In 2022, our employees supported 36 organizations with more than 1,800 hours of volunteer work. The Bank 9 also encourages its employees to serve on non-profit organizations’ boards of directors.
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.
This provides more opportunities to identify employees' needs, obtain feedback about work experience, and adapt our employee engagement as we believe is appropriate.
This provides more opportunities to identify employees' needs, obtain feedback about their work-life experience, and act upon such feedback to improve employee engagement.
As of December 31, 2022, the Corporation had $178.3 million in TRuPs that were subject to a full phase-out from Tier 1 capital under the final regulatory capital rules discussed above.
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: Banking Subsidiary First BanCorp.
In 2022, we delivered more than 6,200 hours of supervision and management-related training. 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 coworkers.
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.
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 establishes and communicates its ESG strategy and overarching governance policy. In 2022, the Corporation continued evolving its ESG program, including the publication of its initial First BanCorp.
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 program has been delivered to 63% of our current leaders since launched, accounting for over 21,000 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.
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 9 reinvestment programs.
We also offer life insurance and disability plans, as well as a defined contribution retirement plan option where both employee and employer contribute.
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.
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, 2022. In 2022, employee voluntary turnover rates remained significantly higher than pre-pandemic levels, reflecting workforce challenges affecting most industries.
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.
In 2022 we provided over 80 training topics through virtual and in-person modalities allowing our employees to continue learning and complete development plans. In 2022, we delivered more than 108,000 hours of training and each employee completed an average of 30.6 training hours. Every year around 100 new and existing supervisors and managers receive training.
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.
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.
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.
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. SUPERVISION AND REGULATION The Corporation and FirstBank, its bank subsidiary, are subject to comprehensive federal and Puerto Rican supervision and regulation.
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.
MARKET AREA AND COMPETITION Puerto Rico, where the banking market is highly competitive, is the main geographic service area of the Corporation. As of December 31, 2022, the Corporation also had a presence in the state of Florida and in the USVI and BVI.
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.
Environmental, Social and Governance Report for 2021 (the “2021 ESG Report”). The 2021 ESG Report discloses information on a wide range of ESG topics, including governance and leadership; responsible business practices; employees and culture; diversity, equity and inclusion; community engagement; and environmental stewardship. The ESG Report for 2022 is expected to be published during the second quarter of 2023.
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.
Removed
These segments are described below, as well as in Note 27 - “Segment Information,” to the consolidated financial statements for the year ended December 31, 2022 included in Item 8 of this Form 10-K.
Added
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.
Removed
Also in 2022, the Corporation’s Board of Directors (the “Board of Directors” or the “Board”) approved First BanCorp.’s Sustainability Policy (the “Sustainability Policy”), which establishes the Corporation’s framework to address ESG matters. ESG Governance The Corporation’s Board of Directors and executive leadership team share responsibilities relating to oversight of our ESG policies and practices.
Added
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.
Removed
Our employee voluntary turnover rate for 2022 was 13.3%, mostly related to hourly employees in call centers and branches. For high performers , employees’ turnover was relatively low at 5.5%.
Added
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.
Removed
The Corporation subsidizes a substantial portion of the cost of these benefits. Initiatives for the safety and security of employees have always been an important priority. In 2022, in response to the ongoing impacts of the COVID-19 pandemic, certain business units in the Florida and Puerto Rico regions incorporated hybrid work schedules.
Added
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.
Removed
Additional activities implemented by the Corporation to support employees included: ● COVID-19 monitoring and contact tracing processes. ● Free laboratory testing for all employees. ● Paid leave for employees affected by the virus and special leave of absence without pay for unique needs. ● Training activities related to COVID-19, safety measures, stress management, and remote work. ● Reinforce COVID-19 vaccination to protect our workforce. ● Offered multiple onsite vaccination clinics, including updated bivalent COVID-19 vaccine clinics.
Added
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.
Removed
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 increase the quantity and quality of capital required by, among other things, establishing a minimum common equity capital requirement and an additional common equity Tier 1 capital conservation buffer.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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The impact on our customers will likely vary depending on their specific attributes, including reliance on or 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 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 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. 28 We depend on cash dividends from FirstBank to meet our cash obligations.
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.
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 30 risks that arise due to changes in our businesses, the market places in which we operate, the regulatory environment and customer expectations.
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.
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.
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.
The FDIC charges insured depository institutions premiums to maintain the DIF. In the event of a bank failure, the FDIC takes control 34 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 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.
In particular, we may face the following risks: ● Our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage, and underwrite the loans become less predictive of future behaviors. ● The models used to estimate losses inherent in the credit exposure, particularly those under CECL, require difficult, subjective, and complex judgments, including forecasts of economic conditions and how these economic predictions might impair the ability of the borrowers to repay their loans, which may no longer be accurately estimated and which may, in turn, impact the reliability of the models. ● Our ability to borrow from other financial institutions or to engage in sales of mortgage loans to third parties (including mortgage loan securitization transactions with government-sponsored entities and repurchase agreements) on favorable terms, or at all, could be adversely affected by further disruptions in the capital or credit markets or other events, including deteriorating investor expectations. ● Competitive dynamics in the industry could change as a result of strategic growth opportunities in connection with current market conditions. 23 ● Expected future regulation of our industry may increase our compliance costs and limit our ability to pursue business opportunities. ● There may be downward pressure on our stock price.
In particular, we may face the following risks: ● Our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage, and underwrite the loans become less predictive of future behaviors. ● The models used to estimate losses inherent in the credit exposure, particularly those under CECL, require difficult, subjective, and complex judgments, including forecasts of economic conditions and how these economic predictions might impair the ability of the borrowers to repay their loans, which may no longer be accurately estimated and which may, in turn, impact the reliability of the models. ● Our ability to borrow from other financial institutions or to engage in sales of mortgage loans to third parties (including mortgage loan securitization transactions with GSEs and repurchase agreements) on favorable terms, or at all, could be adversely affected by further disruptions in the capital or credit markets or other events, including deteriorating investor expectations. ● Competitive dynamics in the industry could change as a result of strategic growth opportunities in connection with current market conditions. ● Expected future regulation of our industry may increase our compliance costs and limit our ability to pursue business opportunities. ● There may be downward pressure on our stock price.
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 enhancement.
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.
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 2011 PR Code is significantly similar to Section 382.
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.
The goodwill annual impairment evaluation process includes a qualitative assessment of events and circumstances that may affect the 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.
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.
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. 36
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. 35
Pursuant to the 2011 PR Code, the carry-forward period for NOLs incurred during taxable years that commenced after December 31, 2004 and ended before January 1, 2013 is 12 years; for NOLs incurred during taxable years commencing after December 31, 2012, the carryover period is 10 years.
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 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, 2021, the most recent date as of which information is available, the PRHFA had a liability of approximately $5 million as an estimate of the losses inherent in the portfolio.
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.
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. 25 A deterioration in economic conditions in the U.S.
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.
The deterioration of these conditions 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 government-sponsored entities as well as major commercial banks and investment banks.
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 addition, as of December 31, 2022, the Corporation had $84.7 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.
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.
As of December 31, 2022, approximately $183.4 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 $114.0 million of loans and obligations which are supported by one or more specific sources of municipal revenues.
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.
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 (such as the COVID-19 pandemic); or a combination of these or other factors.
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.
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 may materially adversely affect the Corporation's business and results of operations.
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.
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 $5.4 billion as of December 31, 2022.
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.
The monetary policies and regulations of the Federal Reserve Board, which during 2022 included, 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 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.
Under the 2011 PR Code, as amended, 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 net operating loss (“NOL”), a particular subsidiary must be able to demonstrate sufficient taxable income within the applicable NOL carry-forward period.
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.
In addition to municipalities, the total direct exposure also included $10.8 million in loans to an affiliate of PREPA, $27.4 million in loans to an agency of the Puerto Rico central 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 $3.3 million as part of its available-for-sale debt securities portfolio (fair value of $2.2 million as of December 31, 2022).
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).
We are subject to stringent regulatory capital requirements. Although the Corporation and FirstBank met general well-capitalized capital ratios as of December 31, 2022, 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.
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.
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.
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.
As discussed in Item 1 of this Annual Report on 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.
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.
Virgin Islands and British Virgin Islands could harm our results of operations. For many years, the USVI has been experiencing a number of fiscal and economic challenges that have deteriorated the overall financial and economic conditions in the area.
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.
Nonetheless, over the past two 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 in 2017.
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.
These changes may be more difficult or expensive to implement than we anticipate. 32 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.
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.
Any unrealized loss from these portfolios impacts other comprehensive income, stockholders’ equity, and the tangible common equity ratio. Any realized loss from these portfolios impacts regulatory capital ratios. Changes in prepayments may adversely affect net interest income. Net interest income could also be affected by prepayments of MBS.
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.
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. Further, rising interest rates reduce the value of our fixed-rate securities.
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.
Further weakening in the economic environment, such as decline in the performance of the reporting units or other factors, 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.
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.
However, Act 60-2019 amended the PR Code to repeal the corporate NOL carryover limitations upon change in control for taxable years beginning after December 31, 2018.
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.
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, 2022, we had $105.8 million in brokered CDs outstanding, representing approximately 1% of our total deposits.
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.
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. In addition, the regulation of our compensation practices has and may continue to change in the future. 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.
Natural disasters, which nature and severity may be impacted by climate change, such as hurricanes, floods, extreme cold events and other adverse weather conditions; political crises, such as terrorist attacks, war, labor unrest, other political instability, trade policies and sanctions, including the repercussions of the ongoing conflict between Russia and Ukraine; 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.
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.
On November 10, 2022, the Puerto Rico Planning Board (“PRPB”) presented the Economic Report to the Governor, which provides an analysis of Puerto Rico’s economy during fiscal year 2021 and a short-term forecast for fiscal years 2022 and 2023.
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.
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.
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. 28 Defective and repurchased loans may harm our business and financial condition.
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.
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.
Any improvements to our controls, procedures, policies and systems, however, may not be adequate to identify and manage the risks in our various businesses.
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.
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.
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.
Approximately $55.7 million, or 53% in brokered CDs mature over the twelve months ending December 31, 2023, and the average remaining term to maturity of the brokered CDs outstanding as of December 31, 2022 was approximately 1.6 years. None of these brokered CDs are callable at the Corporation’s option.
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.
Any such increase would have an adverse effect on our future financial condition and results of operations. 27 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.
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.
Recognition of deferred tax assets is dependent upon the generation of future taxable income by the Bank. As of December 31, 2022, the Corporation had a deferred tax asset of $155.6 million (net of a valuation allowance of $185.5 million, including a valuation allowance of $149.5 million against the deferred tax assets of FirstBank).
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).
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.
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.
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.
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.
Such actions could have a material adverse effect on our business, financial condition and results of operations. 35 We face a risk of noncompliance and enforcement action related to the Bank Secrecy Act and other anti-money laundering statutes and regulations.
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.
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.
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.
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.
In regulatory enforcement matters, claims for disgorgement, the imposition of penalties and the imposition of other remedial sanctions are possible. 29 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.
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.
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.
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.
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.
During the fourth quarter of 2022, management performed a qualitative analysis of the carrying amount of 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, 2022, the book value of our goodwill was $38.6 million, which was recorded at FirstBank.
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.
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.
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.
The effects of such policies upon our business, financial condition and results of operations have been and may continue to be adverse. 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.
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.
Alternate sources of funding may carry higher costs than sources currently utilized. If we are required to rely heavily on more expensive funding sources, profitability would be adversely affected. We may determine to seek debt financing in the future to achieve our long-term business objectives.
If we are required to rely heavily on more expensive funding sources, profitability would be adversely affected. 27 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.
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. 33 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 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.
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.
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.
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.
A significant portion of the Corporation’s business activities and credit exposure is concentrated in the Commonwealth of Puerto Rico, which has experienced an economic and fiscal crisis for more than a decade.
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.
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.
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.
As of December 31, 2022, the Corporation had $2.3 billion of public sector deposits in Puerto Rico. Approximately 24% of the public sector deposits as of December 31, 2022 was from municipalities and municipal agencies in Puerto Rico and 76% was from the public corporation, the Puerto Rico central government and agencies, and U.S. federal government agencies in Puerto Rico.
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.
According to data published by the government, over $1.4 billion in disaster recovery funds were disbursed during 2021 and 2022, up 22% from the preceding 2-year period. On the fiscal front, revenues have trended positively and the USVI Government successfully completed the restructuring of the government employee retirement system.
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.
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 transition from LIBOR to alternative rates and other potential interest rate reforms may affect the interest rates we pay or receive.
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.
Differences in the re-pricing structure of our assets and liabilities may result in changes in our profits when interest rates change.
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.
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. 29 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.
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.
When particular tax matters arise, a number of years may elapse before such matters 31 are audited and finally resolved. In addition, the Puerto Rico Department of Treasury (“PRTD”), the U.S.
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.
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.
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.
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. 24 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.
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.
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.
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. 23 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.
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.
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. 30 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.
We may fail to identify and manage risks related to a variety of aspects of our business, including, but not limited to, operational risk, interest rate risk, trading risk, fiduciary risk, legal and compliance risk, liquidity risk and credit risk. We have adopted and periodically improve various controls, procedures, policies and systems to monitor and manage risk.
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.
In addition, we may not have adequate insurance coverage to compensate for losses from a major interruption.
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.
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.
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.
Cyber-attacks, system risks and data protection breaches 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 .
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. 31 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.
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. Like most financial institutions, FirstBank significantly depends on technology to deliver its products and other services and to otherwise conduct business.
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.
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. 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.
Any of the foregoing consequences could materially and adversely affect our businesses and results of operations. 33 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.
As of December 31, 2022, our commercial mortgage and construction real estate loans held for investment in the Puerto Rico and Virgin Islands regions and Florida region amounted to $1.9 billion and $0.6 billion, respectively, which constituted 22% of the total loan portfolio held for investment.
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.
As of December 31, 2022, the Corporation had $38.0 million in loans to USVI government and public corporations, compared to $39.2 million as of December 31, 2021. As of December 31, 2022, all loans were currently performing and up to date on principal and interest payments.
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.
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 liquidity is to a certain extent contingent upon its ability to obtain external sources of funding to finance its operations.
Non-performing assets decreased by $28.9 million to $129.2 million as of December 31, 2022, or 18%, from $158.1 million as of December 31, 2021.
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.
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.
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.
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. Any of the foregoing consequences could materially and adversely affect our businesses and results of operations.
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.

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Item 2. Properties

Properties — owned and leased real estate

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This facility, which is fully occupied by the Corporation, houses over 1,000 employees from operations and accommodates branch operations, mortgage operations, Collections and Loss Mitigation, data processing and administrative and certain other offices. - Consumer Lending Center – Located at 876 Muñoz Rivera Avenue, Hato Rey, 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, Auto Financing and Leasing and a FirstBank Insurance Agency office, among others. The Corporation owns 16 retail branches and 6 office centers, other facilities, and/or parking lots. It leases 89 branch premises, loan and office centers and other facilities.
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.
Item 2. Properties As of December 31, 2022, First BanCorp. has ownership in the following three main buildings located in Puerto Rico: - Headquarters – Located at First Federal Building, 1519 Ponce de León Avenue, San Juan, Puerto Rico.
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.
Removed
Approximately 51% of this 16-story office building is owned by the Corporation. - Service Center – Located at 1130 Muñoz Rivera Avenue, Hato Rey, Puerto Rico.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Individuals that are residents of Puerto Rico are subject to an alternative minimum tax (“AMT”) on the AMT Net 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.
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.
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 2011 PR Code.
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.
The Performance Graph assumes that $100 was invested on December 31, 2017 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 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, 2017 plus (ii) the change in the per share price since the measurement date, by the share price at the measurement date. 40
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. 40
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. 38 STOCK REPURCHASES Since April 2021, the Corporation’s Board of Directors has announced two repurchase program authorizations for repurchases totaling up to $650 million of the Corporation’s outstanding stock.
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. 38 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.
Refer to “Stock Repurchases” section for more information on common stock repurchases during the fourth quarter of 2022 held as treasury stock. DIVIDENDS Since November 2018, the Corporation has made quarterly cash dividend payments on its shares of common stock.
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.
Information regarding restrictions on dividends, is set forth in Item 1, “Business -Supervision and Regulation – Dividend Restrictions” and incorporated herein by reference.
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 remaining $125 million in the table represents the remaining amount authorized under the stock repurchase program as of December 31, 2022. 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.
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.
As of December 31, 2022, the Corporation has remaining authorization to repurchase approximately $125 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.
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 2022.
The following table provides information relating to the Corporation’s purchases of shares of its common stock in the fourth quarter of 2023.
The 2011 PR Code, as amended, 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.
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.
(3) Includes 3,158 shares of common stock acquired by the Corporation to cover minimum tax withholding obligations upon the vesting of equity-based awards.
(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 dividend is payable on March 10, 2023 to shareholders of record at the close of business on February 24, 2023. 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.
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.
In addition, on February 9, 2023 the Corporation announced that its Board of Directors had declared a quarterly cash dividend of $0.14 per common share, which represents an increase of 17% or $0.02 per common share compared to its most recent dividend paid in December 2022.
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.
Under the stock repurchase program, shares may be repurchased through open market purchases, accelerated share repurchases and/or privately negotiated transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. (2) Includes 3,549,273 shares of common stock repurchased in the open market at an average price of $14.09 for a total purchase price of approximately $50 million.
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.
The individual AMT rate ranges from 1% to 24% depending on the AMT Net Income. The AMT Net Income includes various categories of tax-exempt income and income subject to preferential rates as provided by the PR 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.
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.
On February 21, 2023, there were 320 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, 2022 and December 31, 2021, the Corporation had 40,954,057 and 21,836,611 shares held as treasury stock, respectively.
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.
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.
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.
However, the taxpayer can perform an election 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 in ordinary income the eligible dividends received and take a credit for the amount of tax withheld in excess, if any.
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.
Approximate Dollar Value of Shares Total Number of That May Yet be Shares Purchased Purchased Under Average as Part of Publicly These Plans or Total number of Price Announced Plans Programs Period shares purchased Paid Or Programs (In thousands) (1) October 1, 2022 to October 31, 2022 1,649,963 $ 15.18 1,646,805 150,000 November 1, 2022 to November 30, 2022 - - - 150,000 December 1, 2022 to December 31, 2022 1,902,468 13.14 1,902,468 125,000 Total 3,552,431 (2)(3) 3,549,273 (1) As of December 31, 2022, the Corporation was authorized to purchase up to $350 million of the Corporation’s common stock under the program, that was publicly announced on April 27, 2022, of which $225 million had been utilized.
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 1,835,096 $ 13.63 1,834,086 $ 200,000 November 1, 2023 - November 30, 2023 1,701,847 14.69 1,701,847 175,000 December 1, 2023 - December 31, 2023 1,544,899 16.18 1,544,899 150,000 Total 5,081,842 (2) (3) 5,080,832 (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.
Removed
On April 27, 2022, the Corporation announced that it had increased the quarterly cash dividend payment on common stock, from $0.10 to $0.12 per share, commencing in the second quarter of 2022.
Added
The individual AMT rate ranges from 1% to 24% depending on the AMT Net Taxable Income.
Removed
During 2022, the Corporation repurchased 3,409,697 shares of its common stock for the $50 million remaining under an authorization to repurchase covering up to $300 million in shares of outstanding stock approved by the Board of Directors and publicly announced by the Corporation on April 26, 2021, and 16,003,674 shares of its common stock for $225.0 million under the most recent authorized $350 million stock repurchase program publicly announced on April 27, 2022.
Added
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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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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 Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Annual Report on Form 10-K. 112
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. 115

Other FBP 10-K year-over-year comparisons