Accounting gaffe surfaces at First Bancorp in Puerto Rico
First Bancorp in San Juan, Puerto Rico, has disclosed a problem with the way it calculates its provision for problem loans.
The $12 billion-asset First Bancorp said in its recently filed 10-K that the problem was limited to the company’s commercial loan book. In calculating its provision, it failed to incorporate the actual historical loss rate for loans classified as “substandard.”
First Bancorp was not required to restate its results as a result of the error. In the 10-K, it outlined a remediation plan that includes a third-party review of the assumptions it uses in its loan-loss calculations.
“Management is committed to timely remediating the identified deficiency, with appropriate oversight from the corporation’s audit committee,” First Bancorp said.
The accounting problem is one of several challenges facing the company, which along with other banks in Puerto Rico continues to assess the financial impact of hurricanes Irma and Maria. The storms devastated the island in September, damaging property and knocking out power for months.
First Bancorp reported a storm-related provision of $71.3 million, according to the 10-K. Profits fell 28% from a year earlier to $66.9 million.
In disclosing the mistake, First Bancorp joins many of its peers. Last year, several community banks once known for their squeaky-clean accounting practices unexpectedly reported material weaknesses flagged by their auditors.
First Bancorp has 45 branches in Puerto Rico, 11 in the U.S. and British Virgin Islands and 11 in Florida.