FIRST BANCORP /PR/ (FBP) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
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,