REVENUE FROM CONTRACTS WITH CUSTOMERS

9 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

REVENUE FROM CONTRACTS WITH CUSTOMER

NOTE 26 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue Recognition

In accordance with ASC Topic 606, “Revenues from Contracts with Customers” (“ASC Topic 606”) revenues are recognized when control of promised goods or services is transferred to customers and in an amount that reflects the consideration to which the Corporation expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC Topic 606, the Corporation performs the following five steps: (i) identifies the contract(s) with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when (or as) the Corporation satisfies a performance obligation. The Corporation only applies the five-step model to contracts when it is probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC Topic 606, the Corporation assesses the goods or services that are promised within each contract, identifies those that contain performance obligations, and assesses whether each promised good or service is distinct. The Corporation then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Disaggregation of Revenue

The following table summarizes the Corporation’s revenue, which includes net interest income on financial instruments and non-interest income, disaggregated by type of service and business segment for the quarters and nine-month periods ended September 30, 2020 and 2019:

(In thousands)	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
Quarter Ended September 30, 2020:
Net interest income (1)	$	20,666	$	54,323	$	35,803	$	18,577	$	12,918	$	6,409	$	148,696
Service charges and fees on deposit accounts		-		3,021		2,044		-		125		658		5,848
Insurance commissions		-		1,377		-		-		5		91		1,473
Merchant-related income		-		1,941		-		-		-		276		2,217
Credit and debit card fees		-		4,778		16		-		(2)		350		5,142
Other service charges and fees		49		846		700		-		537		142		2,274
Not in scope of ASC Topic 606 (1)		6,707		352		78		5,457		393		(7)		12,980
Total non-interest income		6,756		12,315		2,838		5,457		1,058		1,510		29,934
Total Revenue	$	27,422	$	66,638	$	38,641	$	24,034	$	13,976	$	7,919	$	178,630
(In thousands)	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
Quarter Ended September 30, 2019:
Net interest income (1)	$	16,991	$	62,164	$	25,699	$	18,147	$	14,977	$	6,447	$	144,425
Service charges and fees on deposit accounts		-		3,771		1,443		-		172		722		6,108
Insurance commissions		-		1,854		-		-		22		107		1,983
Merchant-related income		-		1,017		271		-		-		310		1,598
Credit and debit card fees		-		4,897		283		-		212		525		5,917
Other service charges and fees		67		828		300		-		169		76		1,440
Not in scope of ASC Topic 606 (1)		4,333		338		34		(433)		65		18		4,355
Total non-interest income		4,400		12,705		2,331		(433)		640		1,758		21,401
Total Revenue	$	21,391	$	74,869	$	28,030	$	17,714	$	15,617	$	8,205	$	165,826

(In thousands)	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
Nine-Month Period Ended September 30, 2020:
Net interest income (1)	$	55,177	$	165,609	$	86,631	$	55,549	$	39,939	$	19,650	$	422,555
Service charges and fees on deposit accounts		-		8,777		5,049		-		416		2,038		16,280
Insurance commissions		-		6,933		-		-		24		479		7,436
Merchant-related income		-		3,535		-		-		-		570		4,105
Credit and debit card fees		-		12,380		45		-		12		1,076		13,513
Other service charges and fees		215		1,882		1,591		89		1,366		1,393		6,536
Not in scope of ASC Topic 606 (1) (2)		14,628		3,127		988		13,688		716		9		33,156
Total non-interest income		14,843		36,634		7,673		13,777		2,534		5,565		81,026
Total Revenue	$	70,020	$	202,243	$	94,304	$	69,326	$	42,473	$	25,215	$	503,581
(In thousands)	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
Nine-Month Period Ended September 30, 2019:
Net interest income (1)	$	52,051	$	185,914	$	69,171	$	52,804	$	47,328	$	19,884	$	427,152
Service charges and fees on deposit accounts		-		10,704		4,355		-		458		2,194		17,711
Insurance commissions		-		7,799		-		-		51		408		8,258
Merchant-related income		-		2,953		467		-		-		789		4,209
Credit and debit card fees		-		14,040		927		-		561		1,561		17,089
Other service charges and fees		141		2,651		1,042		-		526		875		5,235
Not in scope of ASC Topic 606 (1)		12,114		1,091		355		(287)		346		46		13,665
Total non-interest income		12,255		39,238		7,146		(287)		1,942		5,873		66,167
Total Revenue	$	64,306	$	225,152	$	76,317	$	52,517	$	49,270	$	25,757	$	493,319

Most of the Corporation’s revenue is not within the scope of ASC Topic 606. The guidance explicitly excludes net interest income from financial assets and liabilities, as well as other non-interest income from loans, leases, investment securities and derivative financial instruments.For the nine-month period ended September 30, 2020, includes a $5.0 million benefit resulting from the final settlement of the Corporation’s business interruption insurance claim related to lost profits caused by Hurricanes Irma and Maria in 2017. This insurance recovery is presented as part of other non-interest income in the consolidated statements of income.

For the nine-month periods ended September 30, 2020 and 2019, substantially all of the Corporation’s revenue within the scope of ASC Topic 606 was related to performance obligations satisfied at a point in time.

The following is a discussion of revenues under the scope of ASC Topic 606.

Service Charges and Fees on Deposit Accounts

Service charges and fees on deposit accounts relate to fees generated from a variety of deposit products and services rendered to customers. Charges include, but are not limited to, overdraft fees, non-sufficient fund fees, dormant fees and monthly service charges. Such fees are recognized concurrently with the event on a daily basis or on a monthly basis depending upon the customer’s cycle date. These depository arrangements are considered day-to-day contracts that do not extend beyond the services performed, as customers have the right to terminate these contracts with no penalty or, if any, nonsubstantive penalties.

Insurance Commissions

For insurance commissions, which include regular and contingent commissions paid to the Corporation’s insurance agency, the agreements contain a performance obligation related to the sale/issuance of the policy and ancillary administrative post-issuance support. The performance obligations are satisfied when the policies are issued, and revenue is recognized at that point in time. In addition, contingent commission income may be considered to be constrained, as defined under ASC Topic 606. Contingent commission income is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or payments are received. The Corporation recognized revenue at the time that payments were confirmed and constraints were released in the amount of $3.3 million for the nine-month period ended September 30, 2020, compared to $3.0 million for the nine-month period ended September 30, 2019.

Merchant-related Income

For merchant-related income, the determination of which included the consideration of a 2015 sale of merchant contracts that involved sales of point of sale (“POS”) terminals and entry into a marketing alliance under a revenue-sharing agreement, the Corporation concluded that control of the POS terminals and merchant contracts was transferred to the customer at the contract’s inception. With respect to the related revenue-sharing agreement, the Corporation satisfies the marketing alliance performance obligation over the life of the contract, and recognizes the associated transaction price as the entity performs and any constraints over the variable consideration are resolved.

Credit and Debit Card Fees

Credit and debit card fees primarily represent revenues earned from interchange fees and ATM fees. Interchange and network revenues are earned on credit and debit card transactions conducted with payment networks. ATM fees are primarily earned as a result of surcharges assessed to non-FirstBank customers who use a FirstBank ATM. Such fees are generally recognized concurrently with the delivery of services on a daily basis.

Other Fees

Other fees primarily include revenues generated from wire transfers, lockboxes, and bank issuances of checks. The Corporation recognizes such fees concurrently with the event or on a monthly basis.

Contract Balances

A contract liability is an entity’s obligation to transfer goods or services to a customer in exchange for consideration from the customer. During 2019, the Bank entered into a growth agreement with an international card service association to expand the customer base and enhance product offerings. The contract requires the Bank to either launch a new debit card product by March 30, 2021 or maintain a ratio of over 50% of the portfolio with the related card service association by the end of year 2021. In connection with this agreement, the Corporation recognized a contract liability as the revenue is constrained to the fulfillment of either of the above conditions. In addition, as discussed above, during 2015, the Bank entered into a long-term strategic marketing alliance under a revenue-sharing agreement with another entity to which the Bank sold its merchant contracts portfolio and related POS terminals. Merchant services are marketed through FirstBank’s branches and offices in Puerto Rico and the Virgin Islands. Under the revenue-sharing agreement, FirstBank shares with this entity revenues generated by the merchant contracts over the term of the 10-year agreement. As of September 30, 2020 and December 31, 2019, these contract liabilities amounted to $2.2 million and $2.5 million, respectively, which will be recognized over the remaining term of the contracts. For the quarter and nine-month period ended September 30, 2020, the Corporation recognized revenue and its contract liabilities decreased by approximately $0.1 million and $0.3 million, respectively, due to the completion of performance over time. There were no changes in contract liabilities due to changes in transaction price estimates.

A contract asset is the right to consideration for transferred goods or services when the amount is conditioned on something other than the passage of time. As of September 30, 2020 and December 31, 2019, there were no receivables from contracts with customers or contract assets recorded on the Corporation’s consolidated financial statements.

The following table shows the activity of contract liabilities for the quarters and nine-month periods ended September 30, 2020 and 2019:

	Quarter Ended				Nine-Month Period Ended
	September 30,				September 30,
(In thousands)	2020		2019		2020		2019
Beginning Balance	$	2,314	$	1,909	$	2,476	$	2,071
Less:
Amortizations		(81)		(81)		(243)		(243)
Ending balance	$	2,233	$	1,828	$	2,233	$	1,828

Other

Except for the contract liabilities noted above, the Corporation did not have any significant performance obligations as of September 30, 2020. The Corporation also did not have any material contract acquisition costs and did not make any significant judgments or estimates in recognizing revenue for financial reporting purposes.