NON-CONSOLIDATED VARIABLE INTEREST ENTITIES (VIEs) AND SERVICING ASSETS

12 Months Ended

Dec. 31, 2024

NON-CONSOLIDATED VARIABLE INTEREST ENTITIES (VIEs) AND SERVICING ASSETS [Abstract]

NON-CONSOLIDATED VARIABLE INTEREST ENTITIES (VIEs) AND SERVICING ASSETS

NOTE 10 – NON-CONSOLIDATED VARIABLE INTEREST ENTITIES (“VIEs”) AND SERVICING ASSETS

The Corporation transfers residential mortgage loans in sale or securitization transactions in which it has continuing involvement,

including servicing responsibilities and guarantee arrangements. All such transfers have been accounted for as sales as required by

applicable accounting guidance.

When evaluating the need to consolidate counterparties to which the Corporation has transferred assets, or with which the

Corporation has entered into other transactions, the Corporation first determines if the counterparty is an entity for which a variable

interest exists. If no scope exception is applicable and a variable interest exists, the Corporation then evaluates whether it is the

primary beneficiary of the VIE and whether the entity should be consolidated or not.

Below is a summary of transactions with VIEs for which the Corporation has retained some level of continuing involvement:

Trust-Preferred Securities (“TruPS”)

In April 2004, FBP Statutory Trust I, a financing trust that is wholly owned by the Corporation, sold to institutional investors $

100

million of its variable-rate TruPS. FBP Statutory Trust I used the proceeds of the issuance, together with the proceeds of the purchase

by the Corporation of $

3.1

 million of FBP Statutory Trust I variable-rate common securities, to purchase $

103.1

 million aggregate

principal amount of the Corporation’s Junior Subordinated Deferrable Debentures. In September 2004, FBP Statutory Trust II, a

financing trust that is wholly owned by the Corporation, sold to institutional investors $

125

 million of its variable-rate TruPS. FBP

Statutory Trust II used the proceeds of the issuance, together with the proceeds of the purchase by the Corporation of $

3.9

 million of

FBP Statutory Trust II variable-rate common securities, to purchase $

128.9

 million aggregate principal amount of the Corporation’s

Junior Subordinated Deferrable Debentures. The debentures, net of related issuance costs, are reflected in the Corporation’s

consolidated statements of financial condition as “Long-term borrowings.” These TruPS are variable-rate instruments indexed to

3-

month CME Term SOFR

 plus a tenor spread adjustment of

0.26161

% and the original spread of

2.75

% for the FBP Statutory Trust I

and

2.50

% for the FBP Statutory Trust II.

The Junior Subordinated Deferrable Debentures mature on June 17, 2034, and September

20, 2034, respectively; however, under certain circumstances, the maturity of Junior Subordinated Deferrable Debentures may be

shortened (such shortening would result in a mandatory redemption of the variable-rate TruPS).

During 2024, the Corporation redeemed $

100.0

 million, or

84

%, of outstanding TruPS issued by FBP Statutory Trust II (or $

97.0

million after excluding the Corporation’s interest in the Trust of approximately $

3.0

 million) at a contractual call price of

100

%, as

further explained in Note 15 – “Stockholders’ Equity.” As of December 31, 2024 and 2023, these Junior Subordinated Deferrable

Debentures amounted to $

61.7

 million and $

161.7

 million, respectively. On February 18, 2025, the Corporation notified the holders of

the debentures of the Corporation’s intent to redeem $

50.0

 million in debentures in March 2025. The Corporation expects to execute

the redemption of the remaining junior subordinated debentures also in 2025.

Under the indentures of these instruments, the Corporation has the right, from time to time, and without causing an event of default,

to defer payments of interest on the Junior Subordinated Deferrable Debentures by extending the interest payment period at any time

and from time to time during the term of the subordinated debentures for up to twenty consecutive quarterly periods. As of December

31, 2024, the Corporation was current on all interest payments due on its subordinated debt.

Private Label MBS

During 2004 and 2005, an unaffiliated party, referred to in this subsection as the seller, established a series of statutory trusts to

effect the securitization of mortgage loans and the sale of trust certificates (“private label MBS”). The seller initially provided the

servicing for a fee, which is senior to the obligations to pay private label MBS holders. The seller then entered into a sales agreement

through which it sold and issued the private label MBS in favor of the Corporation’s banking subsidiary, FirstBank. Currently, the

Bank is the sole owner of these private label MBS; the servicing of the underlying residential mortgages that generate the principal

and interest cash flows is performed by another third party, which receives a servicing fee. These private label MBS are variable -rate

securities indexed to

3-month CME Term SOFR

 plus a tenor spread adjustment of

0.26161

% and the original spread limited to the

weighted-average coupon of the underlying collateral. The principal payments from the underlying loans are remitted to a paying

agent (servicer), who then remits interest to the Bank. Interest income is shared to a certain extent with the FDIC, which has an

interest only strip (“IO”) tied to the cash flows of the underlying loans and is entitled to receive the excess of the interest income less a

servicing fee over the variable rate income that the Bank earns on the securities. The FDIC became the owner of the IO upon its

intervention of the seller, a failed financial institution. No recourse agreement exists, and the Bank, as the sole holder of the securities,

absorbs all risks from losses on non-accruing loans and repossessed collateral. As of December 31, 2024, the amortized cost and fair

value of these private label MBS amounted to $

6.1

 million and $

4.2

 million, respectively, with a weighted-average yield of

6.62

%,

which is included as part of the Corporation’s available -for-sale debt securities portfolio, compared to an amortized cost and fair value

of $

7.1

 million and $

4.8

 million, respectively, with a weighted average yield of

7.66

% as of December 31, 2023. As described in Note

3 – “Debt Securities,” the ACL on these private label MBS amounted to $

0.2

 million as of December 31, 2024.

Servicing Assets, or Mortgage Servicing Rights (“MSRs”)

The Corporation typically transfers first lien residential mortgage loans in conjunction with GNMA securitization transactions in

which the loans are exchanged for cash or securities that are readily redeemed for cash proceeds and servicing rights. The securities

issued through these transactions are guaranteed by GNMA and, under seller/servicer agreements, the Corporation is required to

service the loans in accordance with the issuers’ servicing guidelines and standards. As of December 31, 2024, the Corporation

serviced loans securitized through GNMA with a principal balance of $

2.1

 billion. Also, certain conventional conforming loans are

sold to FNMA or FHLMC with servicing retained. The Corporation recognizes as separate assets the rights to service loans for others,

whether those servicing assets are originated or purchased. MSRs are included as part of other assets in the consolidated statements of

financial condition.

The changes in MSRs are shown below for the indicated periods:

Year Ended December 31, 

2024

2023

2022

(In thousands)

Balance at beginning of year

$

26,941

$

29,037

30,986

Capitalization of servicing assets

2,342

2,240

3,122

Amortization

(4,175)

(4,322)

(4,978)

Temporary impairment (charges) recoveries

(44)

12

66

Other

(1)

(45)

(26)

(159)

Balance at end of year

$

25,019

$

26,941

29,037

(1)

Mainly represents adjustments related to the repurchase of loans serviced for others.

Impairment charges are recognized through a valuation allowance for each individual stratum of servicing assets. The valuation

allowance is adjusted to reflect the amount, if any, by which the cost basis of the servicing asset for a given stratum of loans being

serviced exceeds its fair value. Any fair value in excess of the cost basis of the servicing asset for a given stratum is not recognized.

Changes in the impairment allowance were as follows for the indicated periods:

Year Ended December 31,

2024

2023

2022

(In thousands)

Balance at beginning of year

$

-

$

12

$

78

Temporary impairment charges (recoveries)

44

(12)

(66)

 Balance at end of year

$

44

$

-

$

12

The components of net servicing income, included as part of mortgage banking activities in the consolidated statements of income,

are shown below for the indicated periods:

Year Ended December 31,

2024

2023

2022

(In thousands)

Servicing fees

$

10,315

$

10,595

$

11,096

Late charges and prepayment penalties

710

708

823

Other

(1)

(45)

(26)

(159)

 Servicing income, gross

10,980

11,277

11,760

Amortization and impairment of servicing assets

(4,219)

(4,310)

(4,912)

 Servicing income, net

$

6,761

$

6,967

$

6,848

(1) Mainly represents adjustments related to the repurchase of loans serviced for others.

The Corporation’s MSRs are subject to prepayment and interest rate risks. Key economic assumptions used in determining the fair

value at the time of sale of the related mortgages for the indicated periods ranged as follows:

Weighted Average

Maximum

Minimum

Year Ended December 31, 2024

Constant prepayment rate:

 Government-guaranteed mortgage loans

6.7

%

17.1

%

3.0

%

 Conventional conforming mortgage loans

6.8

%

20.6

%

2.1

%

 Conventional non-conforming mortgage loans

6.2

%

8.0

%

2.8

%

Discount rate:

 Government-guaranteed mortgage loans

11.5

%

11.5

%

11.5

%

 Conventional conforming mortgage loans

9.5

%

9.5

%

9.5

%

 Conventional non-conforming mortgage loans

11.4

%

12.5

%

11.0

%

Year Ended December 31, 2023

Constant prepayment rate:

 Government-guaranteed mortgage loans

6.6

%

18.0

%

3.8

%

 Conventional conforming mortgage loans

7.3

%

16.9

%

2.4

%

 Conventional non-conforming mortgage loans

6.0

%

9.0

%

2.1

%

Discount rate:

 Government-guaranteed mortgage loans

11.5

%

11.5

%

11.5

%

 Conventional conforming mortgage loans

9.5

%

10.0

%

9.5

%

 Conventional non-conforming mortgage loans

12.6

%

14.0

%

11.0

%

Year Ended December 31, 2022

Constant prepayment rate:

 Government-guaranteed mortgage loans

6.7

%

18.3

%

4.8

%

 Conventional conforming mortgage loans

7.4

%

18.4

%

3.4

%

 Conventional non-conforming mortgage loans

6.0

%

21.9

%

3.6

%

Discount rate:

 Government-guaranteed mortgage loans

11.7

%

12.0

%

11.5

%

 Conventional conforming mortgage loans

9.7

%

10.0

%

9.5

%

 Conventional non-conforming mortgage loans

12.5

%

14.5

%

11.5

%

The weighted averages of the key economic assumptions that the Corporation used in its valuation model and the sensitivity of the

current fair value to immediate

10

% and

20

% adverse changes in those assumptions for mortgage loans were as follows as of the

indicated dates:

December 31, 2024

December 31, 2023

(In thousands)

Carrying amount of servicing assets

$

25,019

$

26,941

Fair value

$

43,046

$

45,244

Weighted-average expected life (in years)

7.63

7.79

Constant prepayment rate (weighted-average annual rate)

6.34

%

6.27

%

 Decrease in fair value due to 10% adverse change

$

858

$

886

 Decrease in fair value due to 20% adverse change

$

1,675

$

1,731

Discount rate (weighted-average annual rate)

10.72

%

10.68

%

 Decrease in fair value due to 10% adverse change

$

1,815

$

1,927

 Decrease in fair value due to 20% adverse change

$

3,495

$

3,712

These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10%

variation in assumptions generally cannot be extrapolated because the relationship between the change in assumption and the change

in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the MSR is

calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (for example,

increases in market interest rates may result in lower prepayments), which may magnify or counteract the sensitivities

.