Business Overview
First BanCorp (FBP) is a diversified financial holding company headquartered in San Juan, Puerto Rico, offering a full range of financial products to consumers and commercial customers through various subsidiaries. The company operates in Puerto Rico, the United States Virgin Islands (USVI), the British Virgin Islands (BVI), and the state of Florida, concentrating on commercial banking, residential mortgage loans, credit cards, personal loans, small loans, auto loans and leases, and insurance agency activities.
First BanCorp was founded in 1948 as the bank holding company for FirstBank Puerto Rico. Over the years, the company has grown through strategic acquisitions and expansion into new markets. In 2004, First BanCorp established FBP Statutory Trusts I and II, which sold trust-preferred securities to institutional investors, providing additional funding sources for the company's growth. A significant milestone in the company's history was the acquisition of Banco Santander Puerto Rico in 2020, which expanded its operations and customer base in Puerto Rico. This acquisition allowed the company to offer a broader range of products and services to its clients, although it also presented operational challenges that the company had to navigate.
Throughout its history, First BanCorp has faced various economic and regulatory headwinds. The Commonwealth of Puerto Rico's fiscal and economic distress over the last decade significantly impacted the company's operations and credit exposure in the region. First BanCorp has had to adapt its strategies to manage the risks associated with its concentrated geographic footprint. Additionally, in the aftermath of the 2008 financial crisis, the company has contended with increased regulatory scrutiny and compliance requirements. To address these challenges, First BanCorp has invested in strengthening its risk management and compliance functions to ensure it operates within the applicable legal and regulatory frameworks, which has been crucial in maintaining the company's reputation and preserving its license to operate in its markets.
In more recent years, the company has navigated the fiscal and economic crisis in Puerto Rico, which began in 2006 and culminated in the territory's bankruptcy filing in 2016. Despite the significant headwinds, First BanCorp has demonstrated resilience, posting consistent profitability with a return on average assets (ROAA) of 1.58% and a return on average equity (ROAE) of 19.1% in 2024.
A key factor in First BanCorp's performance has been its diversified business model. While the majority of the company's operations are centered in Puerto Rico, which accounted for 80% of its gross loan portfolio as of September 30, 2024, it has also established a presence in Florida and the USVI/BVI, which represented 17% and 3% of its loan portfolio, respectively. This geographic diversification has helped offset some of the volatility in the Puerto Rican market.
First BanCorp's loan portfolio is also well-diversified by product type, with commercial and industrial (C&I) loans comprising 26% of the total, residential mortgages at 23%, consumer and finance leases at 29%, and commercial mortgages at 20% as of September 30, 2024. The company's credit quality has remained relatively strong, with nonperforming assets (NPAs) at a record low of 0.61% of total assets as of the same date.
The company's financial performance in 2024 was impressive, with net income of $298.7 million, or $1.81 per diluted share, compared to $302.9 million, or $1.71 per diluted share, in 2023. This was driven by a 6% increase in revenue, disciplined expense management, and stable credit quality. First BanCorp's efficiency ratio improved to 52% in 2024, down from 52.4% in the prior year.
Looking ahead, First BanCorp provided guidance for 2025, targeting mid-single-digit loan growth and maintaining its 100% payout ratio of earnings through a combination of common stock dividends and share repurchases. The company anticipates further net interest margin expansion, with an expected increase of around 20 basis points by the end of 2025, driven by the redeployment of cash flows from its investment portfolio into higher-yielding assets and the gradual decline in funding costs.
One of the key risks facing First BanCorp is its significant exposure to the Puerto Rican market, which has historically been subject to economic and political volatility. The company's direct exposure to the Puerto Rican government and its municipalities totaled $309 million as of September 30, 2024, representing approximately 1.6% of its total assets. While the territory's fiscal situation has improved in recent years, further deterioration could adversely impact First BanCorp's performance.
Another risk is the company's reliance on deposits, particularly from the public sector, which accounted for approximately 16.5% of its total deposits as of the same date. Any disruption in the flow of these deposits could put pressure on First BanCorp's funding and liquidity. The company mitigates this risk by maintaining a strong liquidity position, with cash and cash equivalents representing 3.6% of its total assets and an additional $2.6 billion in borrowing capacity at the Federal Reserve's discount window as of September 30, 2024.
Despite these risks, First BanCorp has demonstrated its ability to navigate challenging environments and maintain consistent financial performance. The company's disciplined approach to risk management, focus on diversification, and strategic investments in technology and digital capabilities have positioned it well for long-term success.
Overall, First BanCorp's strong financial position, diversified business model, and management's commitment to shareholder value creation make it an intriguing proposition for investors seeking exposure to the growing Puerto Rican and Florida markets. While the company faces some inherent risks, its track record of resilience and its focused strategy for 2025 suggest it is well-equipped to weather any future storms and continue delivering value to its shareholders.
FINANCIAL OVERVIEW
For the full year 2024, First BanCorp reported net income of $298.7 million, or $1.81 per diluted share, compared to $302.9 million, or $1.71 per diluted share, in 2023. The company's return on average assets (ROAA) was 1.58% and its return on average equity (ROAE) was 19.1% in 2024.
First BanCorp's total assets stood at $18.9 billion as of September 30, 2024, a slight decrease from $18.91 billion as of December 31, 2023. The company's loan portfolio grew by 4.7% year-over-year to $12.45 billion, driven by increases in commercial and construction loans, as well as residential mortgages and consumer loans.
The company's credit quality remained strong, with nonperforming assets (NPAs) at a record low of 0.61% of total assets as of September 30, 2024, down from 0.67% as of December 31, 2023. First BanCorp's allowance for credit losses (ACL) stood at $247 million, or 1.91% of total loans, as of the same date, compared to $261.8 million, or 2.15% of total loans, as of the end of 2023.
First BanCorp's capital position also remained robust, with a common equity Tier 1 (CET1) ratio of 16.18%, a total capital ratio of 18.25%, and a leverage ratio of 10.96% as of September 30, 2024. These ratios were well above the regulatory well-capitalized thresholds, providing the company with ample flexibility to deploy capital through dividends and share repurchases.
QUARTERLY PERFORMANCE
In the fourth quarter of 2024, First BanCorp reported net income of $75.7 million, or $0.46 per diluted share, compared to $73.7 million, or $0.45 per diluted share, in the third quarter of 2024 and $79.5 million, or $0.46 per diluted share, in the fourth quarter of 2023.
The company's net interest income increased by $7.2 million to $209.3 million in the fourth quarter, driven by loan growth and the deployment of cash flows from the investment portfolio into higher-yielding assets. First BanCorp's net interest margin expanded by 8 basis points to 4.33% during the quarter.
Non-interest income was relatively stable at $32.5 million in the fourth quarter, compared to $32.3 million in the prior quarter. Non-interest expenses increased by $1.6 million to $124.5 million, due in part to higher business promotion costs, but the company still managed to maintain an efficiency ratio of 51.6% for the quarter.
Asset quality remained strong, with nonperforming assets decreasing by $0.8 million to 0.61% of total assets as of December 31, 2024. The company's allowance for credit losses declined by $3.1 million to $244 million, or 1.91% of total loans, reflecting improved credit quality in the commercial and residential mortgage portfolios.
OUTLOOK AND GUIDANCE
For 2025, First BanCorp is targeting mid-single-digit loan growth, while maintaining its 100% payout ratio of earnings through a combination of common stock dividends and share repurchases. The company expects to redeem the remaining $61 million of its outstanding junior subordinated debentures during the year.
Additionally, First BanCorp anticipates further net interest margin expansion of around 20 basis points by the end of 2025, driven by the redeployment of $1.5 billion to $1.6 billion in investment portfolio cash flows into higher-yielding assets or paying down higher-cost borrowings. The company's efficiency ratio is expected to remain around 52% in 2025.
First BanCorp estimates its expense base for the next couple of quarters to be in the range of $125 million to $126 million, excluding any OREO gains. The company expects its effective tax rate for 2025 to be in the range of 24% to 24.5%.
The company's guidance reflects its confidence in the continued strength of its core markets and its ability to execute on its strategic priorities, which include leveraging technology to enhance the customer experience, expanding its presence in Florida, and maintaining disciplined cost management.
LIQUIDITY
First BanCorp maintains a strong liquidity position to mitigate risks associated with its reliance on deposits, particularly from the public sector. As of September 30, 2024, the company's cash and cash equivalents represented 3.6% of its total assets. Additionally, First BanCorp had $2.6 billion in borrowing capacity at the Federal Reserve's discount window, providing further liquidity support if needed.
The company's diverse funding sources, including retail and commercial deposits, as well as access to wholesale funding markets, contribute to its robust liquidity profile. First BanCorp's liquidity management strategy focuses on maintaining sufficient liquid assets to meet its obligations and fund loan growth while optimizing its balance sheet structure to enhance profitability.
BUSINESS SEGMENTS
First BanCorp operates through several key business segments, each contributing to the company's overall performance:
Mortgage Banking Segment This segment focuses on the origination, sale, and servicing of residential mortgage loans, as well as acquiring and selling mortgages in secondary markets. For the quarter ended September 30, 2024, it contributed $13.59 million in net interest income, incurred a provision for credit losses expense of $4.98 million, and generated $3.41 million in non-interest income.
Consumer Retail Banking Segment This segment encompasses consumer lending and deposit-taking activities, primarily conducted through the company's branch network and loan centers. In the quarter, it generated $146.59 million in net interest income, recorded a provision for credit losses expense of $28.00 million, and produced $21.21 million in non-interest income.
Commercial and Corporate Banking Segment This segment provides lending and other services to large customers, including specialized and middle-market clients and the government sector. It offers commercial loans, commercial real estate and construction loans, floor plan financings, and cash management services. For the quarter, it reported $19.93 million in net interest income, a provision for credit losses expense of $6.52 million, and $4.71 million in non-interest income.
Treasury and Investments Segment Responsible for managing the company's investment portfolio and treasury functions to enhance liquidity, this segment reported $1.63 million in net interest income, a provision for credit losses expense of $36,000, and $238.00 million in non-interest income for the quarter.
United States Operations Segment This segment covers all banking activities conducted by FirstBank in the United States mainland, including commercial and consumer banking services. It contributed $19.01 million in net interest income, recorded a provision for credit losses expense of $1.01 million, and generated $951.00 million in non-interest income.
Virgin Islands Operations Segment Encompassing all banking activities in the U.S. Virgin Islands and British Virgin Islands, this segment generated $4.58 million in net interest income, incurred a provision for credit losses expense of $206,000, and produced $1.98 million in non-interest income.
Across these segments, First BanCorp reported total net interest income of $202.06 million and a provision for credit losses expense of $15.24 million for the quarter ended September 30, 2024. Non-interest income totaled $32.50 million, contributing to a net income of $73.73 million, or $0.45 per diluted common share, for the quarter.
CONCLUSION
First BanCorp's consistent financial performance, strong credit quality, and disciplined approach to capital management make it an attractive investment proposition. The company's diversified business model, strategic focus on growth opportunities, and commitment to shareholder value creation position it well to navigate the challenges ahead and deliver long-term success.
While the company faces certain risks, such as its concentration in the Puerto Rican market and reliance on public sector deposits, First BanCorp's track record of resilience and management's proactive strategies suggest that it is well-equipped to overcome these obstacles. Investors seeking exposure to the growing Puerto Rican and Florida markets, coupled with a focus on shareholder returns, may find First BanCorp a compelling investment opportunity.