REVENUE FROM CONTRACTS WITH CUSTOMERS

12 Months Ended

Dec. 31, 2020

Revenue from Contract with Customer [Abstract]

Revenue from Contract with Customer [Text Block]

NOTE 31 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue Recognition

In accordance with 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 years ended December 31, 2020 and 2019:

(In thousands)	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
Year ended December 31, 2020:
Net interest income (1)	$	76,025	$	220,678	$	135,591	$	87,879	$	54,025	$	26,124	$	600,322
Service charges and fees on deposit accounts		-		13,286		8,026		-		553		2,747		24,612
Insurance commissions		-		8,754		-		-		52		558		9,364
Merchant-related income		-		4,516		478		-		41		809		5,844
Credit and debit card fees		-		18,218		62		-		16		1,469		19,765
Other service charges and fees		342		2,900		2,260		184		1,800		1,508		8,994
Not in scope of ASC Topic 606 (1)(2)		21,727		3,288		1,780		13,524		2,168		160		42,647
Total non-interest income		22,069		50,962		12,606		13,708		4,630		7,251		111,226
Total Revenue	$	98,094	$	271,640	$	148,197	$	101,587	$	58,655	$	33,375	$	711,548

(In thousands)	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
Year ended December 31, 2019:
Net interest income (1)	$	68,803	$	244,535	$	91,266	$	73,626	$	62,539	$	26,312	$	567,081
Service charges and fees on deposit accounts		-		14,534		5,811		-		631		2,940		23,916
Insurance commissions		-		9,621		-		-		67		498		10,186
Merchant-related income		-		4,120		466		-		-		1,049		5,635
Credit and debit card fees		-		19,014		104		-		43		1,744		20,905
Other service charges and fees		216		3,012		2,690		-		1,558		1,313		8,789
Not in scope of Topic 606 (1)		16,609		1,428		2,643		(225)		508		178		21,141
Total non-interest income		16,825		51,729		11,714		(225)		2,807		7,722		90,572
Total Revenue	$	85,628	$	296,264	$	102,980	$	73,401	$	65,346	$	34,034	$	657,653

(In thousands)	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
Year ended December 31, 2018:
Net interest income (1)	$	79,389	$	217,933	$	78,675	$	61,628	$	59,056	$	28,702	$	525,383
Service charges and fees on deposit accounts		-		13,332		4,965		-		559		2,812		21,668
Insurance commissions		-		7,889		-		-		87		455		8,431
Merchant-related income		-		3,561		748		-		-		934		5,243
Credit and debit card fees		-		17,538		1,225		-		618		2,061		21,442
Other service charges and fees		252		4,391		1,280		71		1,351		525		7,870
Not in scope of Topic 606 (1)		16,821		995		(3,060)		2,434		405		61		17,656
Total non-interest income		17,073		47,706		5,158		2,505		3,020		6,848		82,310
Total Revenue	$	96,462	$	265,639	$	83,833	$	64,133	$	62,076	$	35,550	$	607,693

(1)Most of the Corporation’s revenue is not within the scope of ASC Topic 606. The guidance explicitly excludes net interest income from financial assets and liabilities, as well as other non-interest income from loans, leases, investment securities and derivative financial instruments.(2)For the year ended December 31, 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 2020, 2019, and 2018, 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 the revenues under the scope of ASC Topic 606.

Service Charges and Fees on Deposit Accounts

Service charges and fees on deposit accounts relate to fees generated from a variety of deposit products and services rendered to customers. Charges include, but are not limited to, overdraft fees, insufficient fund fees, dormant fees and monthly service charges. Such fees are recognized concurrently with the event 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 of $3.3 million, $3.0 million, and $2.4 million, for the years ended December 31, 2020, 2019, and 2018, respectively.

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. For the year ended December 31, 2020, other fees also included trust fees recognized from transfer paying agent, retirement plan, and other trustee activities. Revenues are recognized on a recurring basis when the services are rendered.

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 until 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 December 31, 2020 and 2019, these contract liabilities amounted to approximately $2.2 million and $2.5 million, respectively, which will be recognized over the remaining term of the contracts. In each of the years ended December 31, 2020, 2019, and 2018, the Corporation recognized revenue and its contract liabilities decreased by approximately $0.3 million, 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 December 31, 2020 and 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 years ended December 31, 2020, 2019 and 2018: 

(In thousands)	2020		2019		2018
Beginning Balance	$	2,476	$	2,071	$	2,396
Plus:
Additions		-		730		-
Less:
Amortizations		(325)		(325)		(325)
Ending balance	$	2,151	$	2,476	$	2,071

Other

Except for the contract liabilities noted above, the Corporation did not have any significant performance obligations as of December 31, 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.