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Puerto Rico's First BanCorp. discloses material weakness

First BanCorp. has determined a material weakness in its internal control over financial reporting in connection with how it estimates the allowance for loan losses for commercial loans.

The San Juan, Puerto Rico-based company had failed to incorporate actual historical loss rate for substandard loans in its commercial loan books. The loss rate had instead been based on a blended rate using aggregate historical charge-offs and portfolio balance data for special mention, substandard and doubtful loans.

The related internal control was therefore deemed "not effective," as of Dec. 31, 2017. The deficiency, however, required no adjustment to financial statements. To address the issue, the company is applying a new procedure to determine historical loss rates, implementing a sensitivity analysis using the actual loss rates and establishing sensitivity thresholds, as well as engaging a third-party allowance framework assessor.

First BanCorp. plans to have the review procedures in place by the end of the first quarter and the testing complete within the year.