# FIRST BANCORP /PR/ (FBP) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from FIRST BANCORP /PR/'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1057706/000105770625000002/fbp-20241231.htm
Accession: 0001057706-25-000002
Filing date: 2025-02-28
Report date: 2024-12-31
Extracted from Item 7 to the first post-MD&A boundary after HTML sanitization.
Confidence: high

Company profile: /company/FBP/
All MD&A years: /company/FBP/mda/
Previous year: /company/FBP/mda/fy2023/ (FY 2023)
Next year: /company/FBP/mda/fy2025/ (FY 2025)

ITEM
 
7.
 
MANAGEMENT’S
 
DISCUSSION
 
AND
 
ANALYSIS
 
OF
 
FINANCIAL
 
CONDITION
 
AND
 
RESULTS
 
OF

OPERATIONS (“MD&A”)

The following MD&A
 
relates to the
 
accompanying audited consolidated
 
financial statements of
 
First BanCorp. (the
 
“Corporation,”

“we,” “us,”
 
“our,”
 
or “First
 
BanCorp.”) and
 
should be
 
read in
 
conjunction
 
with such
 
financial statements
 
and the
 
notes thereto.
 
This

section also
 
presents certain
 
financial measures
 
that are not
 
based on
 
generally accepted
 
accounting principles
 
in the
 
United States
 
of

America
 
(“GAAP”).
 
See
 
“Non-GAAP
 
Financial
 
Measures
 
and
 
Reconciliations”
 
below
 
for
 
information
 
about
 
why
 
non-GAAP

financial measures are
 
presented, reconciliations
 
of non-GAAP financial
 
measures to the
 
most comparable GAAP
 
financial measures,

and references to non-GAAP financial measures reconciliations presented
 
in other sections.

The detailed financial discussion
 
that follows focuses on
 
2024 results compared to
 
2023. For a discussion of
 
2023 results compared

to 2022, see Part I, Item 7,
 
“Management’s Discussion
 
and Analysis of Financial Condition
 
and Results of Operations” included
 
in the

Corporation’s Annual Report
 
on Form 10-K for the year ended December 31, 2023, filed on February
 
28, 2024.

In
 
this
 
discussion
 
and
 
analysis
 
of
 
our
 
financial
 
condition
 
and
 
results
 
of
 
operations,
 
we
 
have
 
included
 
information
 
that
 
may

constitute
 
“forward-looking
 
statements”
 
within
 
the
 
meaning
 
of
 
the
 
safe
 
harbor
 
provisions
 
of
 
Section
 
27A
 
of
 
the
 
Securities
 
Act
 
and

Section 21E
 
of the
 
Exchange Act.
 
Forward-looking statements
 
are not
 
historical facts
 
or statements
 
of current
 
conditions, but
 
instead

represent only our beliefs
 
regarding future events, many
 
of which, by their nature,
 
are inherently uncertain and
 
outside our control. By

identifying
 
these statements
 
for you
 
in this
 
manner,
 
we are
 
alerting you
 
to the
 
possibility that
 
our actual
 
results, financial
 
condition,

liquidity and capital actions may differ materially
 
from the anticipated results, financial condition, liquidity
 
and capital actions in these

forward-looking
 
statements. Important
 
factors
 
that could
 
cause our
 
results, financial
 
condition, liquidity
 
and capital
 
actions to
 
differ

from those in these statements include, among others, those described in
 
“Risk Factors” in Part I, Item 1A of this Form 10-K.

EXECUTIVE SUMMARY

First BanCorp.
 
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. First
 
BanCorp.
 
is the
 
holding company
 
of FirstBank

Puerto
 
Rico
 
(“FirstBank”
 
or the
 
“Bank”)
 
and
 
FirstBank
 
Insurance
 
Agency.
 
Through
 
its wholly
 
-owned
 
subsidiaries,
 
the Corporation

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.

Significant Events

Economy and Market Update

For
 
the
 
year
 
ended
 
December
 
31,
 
2024,
 
the
 
Corporation
 
was
 
able
 
to
 
achieve
 
year-over-year
 
growth
 
on
 
its
 
loan
 
portfolio
 
of

approximately
 
$569.0 million
 
or 4.7%
 
and expand
 
its core
 
deposit base
 
by $267.1
 
million or
 
2.1%,
 
while safeguarding
 
asset quality

and improving its
 
earnings profile. The
 
U.S. and Puerto
 
Rico economy remain
 
on solid footing
 
driven by positive
 
labor market trends

and increased business activity.
 
Unemployment in the Puerto Rico market has continued to decrease
 
during 2024 to 5.4% in December

2024, while in the U.S. the
 
unemployment rate was 4.1% for the
 
same period and real gross domestic product
 
(“GDP”) increased at an

annual rate of 2.3%.

The
 
Federal
 
Reserve
 
(the
 
“FED”)
 
has
 
continued
 
to
 
make
 
progress
 
on
 
stabilizing
 
inflation
 
with
 
Consumer
 
Price
 
Index
 
(“CPI”)

reaching 2.9%
 
year-over-year,
 
which is
 
above the
 
2% target
 
but has
 
allowed the
 
FED to
 
continue its
 
path toward
 
the economy’s
 
soft

landing.
 
With
 
a
 
strong
 
labor
 
market,
 
stable
 
economic
 
growth
 
and
 
inflation
 
stabilizing,
 
the
 
market
 
expects
 
the
 
FED
 
to
 
continue

lowering interest rates but at a slower pace during 2025.

As
 
we
 
look
 
ahead
 
into
 
2025,
 
assuming
 
no
 
meaningful
 
changes
 
in
 
deposit
 
balances,
 
the
 
Corporation
 
sees
 
opportunities
 
for
 
net

interest
 
income
 
and
 
margin
 
expansion
 
as
 
cash
 
flows
 
from
 
the
 
investment
 
portfolio
 
will
 
be
 
redeployed
 
into
 
loans,
 
higher
 
yielding

securities
 
or
 
used
 
to
 
pay
 
down
 
higher-cost
 
borrowings.
 
Credit
 
quality
 
continues
 
to
 
remain
 
stable
 
in
 
the
 
residential
 
mortgage
 
and

commercial
 
loan
 
portfolios
 
while
 
the
 
consumer
 
loan
 
portfolios
 
have
 
shown
 
increases
 
in
 
delinquency
 
levels
 
which
 
are
 
expected
 
to

stabilize
 
during
 
the
 
second
 
half
 
of
 
2025.
 
The
 
Corporation
 
expects
 
its
 
reserve
 
coverage
 
and
 
capital
 
levels
 
will
 
allow
 
it
 
to
 
continue

executing its capital plans and continue its strategic technology and branch
 
expansion projects.

42

Capital Deployment Actions and Dividend Payment Increase

In 2024, the Corporation delivered approximately $306.0
 
million, or over 100% of 2024 earnings, in the form of capital deployment

actions
 
through
 
$100.0
 
million
 
in
 
repurchases
 
of
 
common
 
stock,
 
$100.0
 
million
 
in
 
the
 
redemption
 
of
 
outstanding
 
trust-preferred

securities (“TruPS”)
 
issued by
 
FBP Statutory
 
Trust II,
 
and approximately
 
$106.0 million
 
in common
 
stock dividends
 
declared. In
 
the

aggregate, as of
 
February 21, 2025,
 
the Corporation has
 
remaining authorization
 
of approximately $200.0
 
million, which it
 
expects to

execute during 2025.

On January
 
21, 2025,
 
the Corporation’s
 
Board of
 
Directors declared
 
a quarterly
 
cash dividend
 
of $0.18
 
per common
 
share, which

represents
 
an
 
increase
 
of
 
$0.02
 
per
 
common
 
share,
 
or
 
a
 
13%
 
increase,
 
compared
 
to
 
its
 
most
 
recent
 
quarterly
 
dividend
 
paid
 
in

December 2024.
 
The dividend
 
is payable
 
on March
 
7, 2025
 
to shareholders
 
of record
 
at the
 
close of
 
business on
 
February 21,
 
2025.

The increased quarterly dividend level equates to an annualized dividend
 
of $0.72 per common share.

Legislative and Regulatory

A
 
comprehensive
 
discussion
 
of
 
legislative
 
and
 
regulatory
 
matters
 
affecting
 
us
 
can
 
be
 
found
 
in
 
Part
 
I,
 
Item
 
1,
 
“Business
 
–

Supervision and Regulation” of this Form 10-K.

43

Overview of Results of Operations

The
 
Corporation’s
 
results
 
of operations
 
depend
 
primarily
 
on
 
its
 
net
 
interest
 
income,
 
which
 
is
 
the
 
difference
 
between
 
the
 
interest

income
 
earned
 
on
 
its
 
interest-earning
 
assets,
 
including
 
investment
 
securities
 
and
 
loans,
 
and
 
the
 
interest
 
expense
 
incurred
 
on
 
its

interest-bearing
 
liabilities,
 
including
 
deposits
 
and
 
borrowings.
 
Net
 
interest
 
income
 
is
 
affected
 
by
 
various
 
factors,
 
including
 
the

following:
 
(i)
 
the
 
interest
 
rate
 
environment;
 
(ii)
 
the
 
volumes,
 
mix,
 
and
 
composition
 
of
 
interest-earning
 
assets,
 
and
 
interest-bearing

liabilities; and
 
(iii) the
 
repricing
 
characteristics of
 
these assets
 
and liabilities.
 
The Corporation
 
’s
 
results of
 
operations also
 
depend on

the
 
provision
 
for
 
credit
 
losses,
 
non-interest
 
expenses
 
(such
 
as
 
personnel,
 
occupancy,
 
professional
 
service
 
fees,
 
the
 
FDIC
 
insurance

premium,
 
and
 
other
 
costs),
 
non-interest
 
income
 
(mainly
 
service
 
charges
 
and
 
fees
 
on
 
deposits,
 
cards
 
and
 
processing
 
income,
 
and

insurance income), gains (losses) on mortgage banking activities, and income
 
taxes.

The
 
Corporation
 
had
 
a
 
net
 
income
 
of
 
$298.7
 
million
 
($1.81
 
per
 
diluted
 
common
 
share),
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2024,

compared
 
to
 
$302.9
 
million
 
($1.71
 
per
 
diluted
 
common
 
share),
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2023.
 
Other
 
relevant
 
selected

financial indicators for the periods presented are included below:

Year
 
Ended December 31,

2024

2023

2022

Key Performance Indicator:

(1)

Return on Average
 
Assets

(2)

1.58

%

1.62

%

1.57

%

Return on Average
 
Common Equity

(3)

19.09

21.86

18.66

Efficiency Ratio

(4)

51.92

50.70

48.25

(1)

These financial ratios are used by management to monitor the Corporation’s
 
financial performance and whether it is using its assets
 
efficiently.

(2)

Indicates how profitable the Corporation is in relation to its total assets
 
and is calculated by dividing net income by its average total assets.

(3)

Measures the Corporation’s performance
 
based on its average common stockholders’ equity and is calculated
 
by dividing net income by its average total common stockholders’
 
equity.

(4)

Measures how much the Corporation incurred to generate a
 
dollar of revenue and is calculated by dividing non-interest expenses
 
by total revenue.

The key
 
drivers of
 
the Corporation’s
 
GAAP financial
 
results for
 
the year
 
ended December
 
31, 2024,
 
compared to
 
the year
 
ended

December 31, 2023, include the following:

●

Net interest
 
income for
 
the year
 
ended December
 
31, 2024
 
increased to
 
$807.5 million,
 
compared to
 
$797.1 million
 
for the

year ended
 
December 31,
 
2023, driven
 
by loan
 
growth, partially
 
offset by
 
an increase
 
in interest expense
 
due to
 
higher rates

on interest-bearing
 
deposits given
 
the higher
 
interest rate
 
environment and
 
the change
 
in deposit
 
mix reflecting
 
a continued

migration
 
from
 
non-interest-bearing
 
and
 
other
 
low-cost
 
deposits
 
to
 
higher-cost
 
deposits.
 
See
 
“Result
 
of
 
Operations
 
–
 
Net

Interest Income”
 
below for additional information.

●

The provision
 
for credit
 
losses on
 
loans, finance
 
leases, unfunded
 
loan commitments
 
and debt
 
securities for
 
the year
 
ended

December 31,
 
2024 was $59.9
 
million, compared
 
to $60.9 million
 
for the year
 
ended December
 
31, 2023. The
 
results reflect

a decrease
 
in provision
 
for the
 
commercial and
 
residential mortgage
 
loan portfolios,
 
which was
 
almost entirely
 
offset
 
by an

increase in provision
 
for the consumer
 
loan and finance
 
lease portfolios
 
due to higher
 
charge-off and
 
delinquency levels and

portfolio growth.

Net charge-offs
 
totaled $80.8
 
million for
 
the year
 
ended December
 
31, 2024,
 
or 0.65%
 
of average
 
loans, compared
 
to $67.4

million, or
 
0.58% of
 
average loans,
 
for the
 
year ended
 
December 31,
 
2023, driven
 
by a
 
$22.6 million
 
increase in
 
consumer

loans
 
and
 
finance
 
leases
 
net
 
charge-offs,
 
which
 
is
 
net
 
of
 
a
 
$10.0
 
million
 
recovery
 
associated
 
with
 
the
 
bulk
 
sale
 
of
 
fully-

charged
 
off loans,
 
partially offset
 
by a
 
$5.0 million
 
recovery recorded
 
during 2024
 
on a
 
commercial
 
and industrial
 
(“C&I”)

loan
 
in
 
the
 
Puerto
 
Rico
 
region
 
and
 
a
 
$6.0
 
million
 
net
 
charge-off
 
recorded
 
during
 
2023
 
on
 
a
 
C&I
 
participated
 
loan
 
in
 
the

Florida
 
region
 
in
 
the
 
power
 
generation
 
industry.
 
See
 
“Results
 
of
 
Operations
 
–
 
Provision
 
for
 
Credit
 
Losses”
 
and
 
“Risk

Management” below for the analysis of the allowance for credit losses (“ACL”) and
 
non-performing assets and related ratios.

●

Non-interest income
 
for the year
 
ended December
 
31, 2024 decreased
 
to $130.7
 
million, compared
 
to $132.7 million
 
for the

year
 
ended
 
December
 
31,
 
2023,
 
mainly
 
due
 
to
 
the
 
effect
 
during
 
2023
 
of
 
a
 
$3.0
 
million
 
gain
 
associated
 
with
 
the
 
sale
 
of
 
a

banking premise in the Florida
 
region and a $3.6 million gain
 
recognized from a legal settlement
 
,
 
partially offset by increases

of $2.8
 
million
 
in card
 
and processing
 
income and
 
$2.1 million
 
in revenues
 
from mortgage
 
banking activities
 
during 2024.

See “Result of Operations – Non-Interest Income”
 
below for additional information.

44

●

Non-interest expenses for
 
the year ended December 31,
 
2024 increased to $487.1 million,
 
compared to $471.4 million
 
for the

year ended December
 
31, 2023, mainly due
 
to a $12.8 million
 
increase in employees’
 
compensation and benefits
 
expenses in

part due
 
to annual salary
 
merit increases. The
 
results for the
 
year ended
 
December 31,
 
2024 and 2023
 
include a $1.1
 
million

and $6.3 million FDIC special
 
assessment expense,
 
respectively.
 
See “Results of Operations
 
– Non-Interest Expenses” below

for additional information.

●

Income tax
 
expense decreased
 
to $92.5
 
million for
 
the year
 
ended December
 
31, 2024,
 
compared to
 
$94.6 million
 
for 2023,

driven by lower pre-tax
 
income. See “Income Taxes”
 
below and Note 20
 
– “Income Taxes
 
”
 
included in Part II,