FIRST BANCORP /PR/ (FBP) FY 2025 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
2025 results compared to
2024. For a discussion of
2024 results compared
to 2023, 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, 2024, filed on February
28, 2025.
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
Economic conditions in Puerto
Rico remained generally stable
during 2025. The unemployment
rate decreased from 5.63% in
2024
to 5.56% in 2025, remaining near historic lows and reflecting a resilient labor
market with steady labor force participation.
In
the
broader
U.S.
economy,
momentum
moderated
during
the
second
half
of
2025
following
a
strong
first
half.
Labor
market
indicators softened but remained orderly,
with slower hiring activity and a modest increase in unemployment.
The U.S. unemployment
rate
stood
at 4.3%
in
January,
unchanged
from
August
2025,
underscoring
a transition
toward
a
more balanced
labor market
rather
than
a
deterioration
in
employment
conditions.
In
response
to
these
trends,
the
Federal
Reserve
(the
“FED”)
implemented
three
25
basis points (“bps”)
rate cuts in
September, October,
and December 2025,
reducing the federal
funds target range
to 3.50%-3.75%, its
lowest level in several years.
Looking ahead
to 2026, the
economic backdrop
remains broadly
constructive and
supportive of
our strategic
priorities.
We
remain
focused on delivering
organic loan growth,
primarily on commercial
and residential mortgage
loans despite anticipated
declines in the
consumer loan portfolio,
and maintaining strong
profitability metrics. Asset quality
is expected to remain
stable, with consumer
credit
trends
continuing
to
normalize.
From
an
earnings
perspective,
we
expect
several
of
the
favorable
dynamics
that
drove
net
interest
margin expansion in 2025 to continue into 2026.
Based on our current outlook, which assumes two additional FED rate
cuts during the
second half of
2026, along with
projected loan growth
and deposit mix
changes, we expect
quarterly net
interest margin
expansion of
approximately 2
to 3 bps.
Cash flows of
approximately $1.1 billion
from the investment
securities portfolio
(excluding U.S. Treasury
securities)
are
expected
to be
received
during
the year
and redeployed
into higher-yielding
interest-earning
assets. These
dynamics,
combined with continued
reductions in funding costs,
including brokered CDs, non-brokered
time deposits, and government
accounts,
position
us
well
to
sustain
margin
performance.
Overall,
the
Corporation
enters
2026
with
strong
capital
levels,
ample
liquidity,
diversified earnings profile, and expects to return
close to 100% of annual earnings to shareholders
through capital deployment actions
positioning it well to navigate a moderating economic environment
while continuing to deliver value to shareholders.
40
Capital Deployment Actions and Dividend Payment Increase
In
2025,
the
Corporation
delivered
approximately
$327.4
million,
or
95%
of
2025
earnings,
in
the
form
of
capital
deployment
actions through
$150.0 million
in repurchases
of common
stock, approximately
$115.7
million in
common stock
dividends declared,
and $61.7 million in the redemption
of the remaining outstanding trust-preferred
securities (“TruPS”) issued
by FBP Statutory Trusts
I
and
II.
As of
February
20,
2026,
the
Corporation
has
remaining
authorization
of approximately
$187.2
million,
which
it expects
to
execute during 2026.
On January
26, 2026,
the Corporation’s
Board of
Directors declared
a quarterly
cash dividend
of $0.20
per common
share, which
represents
an
increase
of
$0.02
per
common
share,
or
an
11%
increase,
compared
to
its
most
recent
quarterly
dividend
paid
in
December
12, 2025.
The dividend
is payable
on March
13, 202
6
to shareholders
of record
at the
close of
business on
February
26,
2026. The increased quarterly dividend level equates to an annualized dividend
of $0.80 per common share.
Recent Tax
Developments and Other Special Items
The financial results
for 2025 include a one-time
reversal of approximately
$16.6 million in valuation
allowance related to deferred
tax assets
primarily associated
with net
operating loss
(“NOL”) carryforwards
at the
holding company
level following
the enactment
of Act 65-2025,
and a $2.3
million employee
retention credit (“ERC”),
net of $0.3
million in related
commissions. For further
details
related to these Special Items, refer to the
Non-GAAP Disclosures – Special Items
section below.
Legislative and Regulatory
A
comprehensive
discussion
of
legislative
and
regulatory
matters
affecting
the
Corporation
can
be
found
in
Part
I,
Item
1,
“Business – Supervision and Regulation” of this Form 10-K.
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
had
net
income
of
$344.9
million
($2.15
per
diluted
common
share),
for
the
year
ended
December
31,
2025,
compared
to
$298.7
million
($1.81
per
diluted
common
share),
for
the
year
ended
December
31,
2024.
Other
relevant
selected
financial indicators for the periods presented are included below:
Year
Ended December 31,
2025
2024
2023
Key Performance Indicator:
(1)
Return on Average
Assets
(2)
(5)
1.81
%
1.58
%
1.62
%
Return on Average
Common Equity
(3) (5)
18.74
19.09
21.86
Efficiency Ratio
(4)
49.77
51.92
50.70
(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.
(5)
For the year ended December 31, 2025, the employee retention credit
(“ERC”) and the one-time reversal in valuation allowance
related to deferred tax assets increased the return on
average assets by 10 bps and the return on average equity ratio by
98 bps.
41
The key
drivers of
the Corporation’s
GAAP financial
results for
the year
ended December
31, 2025,
compared to
the year
ended
December 31, 2024, include the following:
●
Net interest
income for
the year
ended December
31, 2025
increased to
$868.9 million,
compared to
$807.5 million
for the
year
ended
December
31,
2024,
driven
by
a
lower
cost
of
funds
and
the
redeployment
of
cash
flows
from
lower-yielding
investment securities
into loans
and higher-yielding
investment securities.
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,
2025 was
$86.0 million,
compared to
$59.9 million
for the year
ended December
31, 2024,
driven by
a $27.9
million increase
in the
provision for
the commercial
and construction
loan portfolios
mainly due
to C&I
loan growth
and a
deterioration
on
the
economic
outlook
of
certain
macroeconomic
variables,
particularly
those
related
to
commercial
real
estate property performance and the forecasted CRE price index
.
Net charge-offs totaled $80.8 million for
each of the years ended December 31, 2025 and 2024, or
0.63% of average loans for
the year ended December 31, 2025,
compared to 0.65% of average loans
for the year ended December 31,
2024. 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,
2025 increased
to $131.9
million, compared
to $130.7
million for
the
year
ended
December
31,
2024,
mainly
due
to
a
$1.4
million
increase
in
revenues
from
mortgage
banking
activities.
The
results for
the year
ended
December 31,
2024 include
$1.5 million
in insurance
proceeds mostly
associated
with insurance
claims associated with property damage caused by Hurricane Fiona.
●
Non-interest expenses for the year ended December
31, 2025 amounted to $498.1 million, compared
to $487.1 million for the
year
ended
December
31,
2024.
Non-interest
expenses
for
the
year
ended
December
31,
2025
include
the
aforementioned
benefit in
payroll taxes
related to
the $2.3
million ERC,
and the
aforementioned benefit
of $1.1
million related
to the
FDIC
special assessment, while
non-interest expenses for
the same period
in 2024 include
the $1.1 million additional
FDIC special
assessment
expense.
On
a
non-GAAP
basis,
excluding
the
effect
of
these
Special
Items,
adjusted
non-interest
expenses
increased by
$15.5 million,
driven by
an $11.7
million increase
in adjusted
employees’ compensation
and benefits
expenses
and a $5.9 million
unfavorable variance in
net gain on OREO
operations, which includes
a $2.8 million valuation
adjustment
recorded in a
commercial OREO property
in the Virgin
Islands region. See
“Results of Operations
– Non-Interest Expenses”
below for additional information.
●
Income
tax
expense
decreased
to
$71.9
million
for
the
year
ended
December
31,
2025,
compared
to
$92.5
million
for
the
same period in
2024, driven by a
one-time reversal of
approximately $16.6 million
in valuation allowance
related to deferred
tax assets primarily
associated with NOL
carryforwards at
the holding company
level as a
result of the
enactment of
Act 65-
2025,
and
a
lower
annual
effective
tax
rate
due
to
a
higher
proportion
of
exempt
to
taxable
income.
See
“Income
Taxes”
below and Note 17 – “Income Taxes
”
included in Part II, Item 8 of this Form 10-K for additional information.
●
As of
December
31,
2025,
total assets
were
approximately
$19.1
billion,
a decrease
of $160.0
million
from
December 31,
2024, primarily related
to a decrease
in cash and
cash equivalents resulting
from the repayment
of long-term borrowings
and
a decrease in
total deposits, partially
offset by an
increase in total
loans and an
increase in the
fair value of
available-for-sale
debt securities due to changes in market interest rates.
●
As of
December 31,
2025, total
liabilities were
$17.2 billion,
a decrease
of $457.6
million from
December 31,
2024, driven
by a $271.7 million decrease in borrowings,
which includes the repurchase of $61.7 million in
junior subordinated debentures
associated with
the aforementioned
TruPS redemption,
and a
$201.2 million
decrease in
deposits. See
“Risk Management
–
Liquidity Risk” below for additional information about the Corporation’s
funding sources and strategy.
●
The
Corporation’s
primary
sources
of
funding
are
consumer
and
commercial
core
deposits,
which
exclude
government
deposits
and
brokered
certificates
of
deposit
(“CDs”).
Excluding
fully
collateralized
government
deposits,
estimated
uninsured
deposits
amounted
to
$4.8
billion
as
of
December
31,
2025.
The
Corporation
had
approximately
$2.6
billion
in
cash and cash
equivalents and
free high-quality
liquid securities as
of December
31, 2025. When
adding approximately
$2.6
billion available
for funding
under the FED’s
Discount Window
and $1.1
billion available
for additional
borrowing capacity
on the
Federal Home
Loan Bank
(“FHLB”) lines
of credit
based on
collateral pledged
at these
entities, the
Corporation had
$6.3
billion, or 132%
of estimated uninsured
deposits (excluding fully
collateralized government
deposits), available
to meet
liquidity needs.
See “Risk
Management –
Liquidity Risk”
below for
additional information
about the
Corporation’s
funding
sources and strategy.
42
●
As of
December 31,
2025, the
Corporation’s
total stockholders’
equity was
$2.0 billion,
an increase
of $297.6
million from
December 31, 2024. The
increase was driven by
net income generated in
2025 and a $212.4
million increase in the
fair value
of available-for-sale
debt securities recorded
as part of
accumulated other
comprehensive loss in
the consolidated
statements
of
financial
condition,
partially
offset
by
$150.0
million
in
common
stock
repurchases
and
$115.7
million,
or
$0.72
per
common share, in common stock dividends declared
in 2025. The Corporation’s
CET1 capital, tier 1 capital, total capital, and
leverage
ratios
were
16.76%,
16.76%,
18.01%,
and
11.58%,
respectively,
as
of
December
31,
2025,
compared
to
CET1
capital, tier 1 capital, total capital, and leverage ratios of 16.32%, 16.32%,
18.02%, and 11.07%, respectively,
as of December
31, 2024. See “Risk Management – Capital” below for additional information.
●
Total
loan
production,
including
purchases,
refinancings,
renewals,
and
draws
from
existing
revolving
and
non-revolving
commitments,
decreased
by $65.1
million
to $5.4
billion
for the
year
ended
December 31,
2025.
See “Financial
Condition
and Operating Data Analysis” below for additional information.
●
Total
non-performing
assets were
$114.1
million as
of December
31, 2025,
a decrease
of $4.2
million, from
December 31,
2024,
driven by
a $9.8
million
decrease
in the
other
real
estate owned
(“OREO”)
portfolio
balance,
which
includes
a $2.8
million valuation adjustment
recorded in a commercial
OREO property in the
Virgin
Islands region,
partially offset by a
$5.1
million
increase
in
nonaccrual
loans,
which
includes
a
$9.2
million
increase
in
nonaccrual
commercial
and
construction
loans,
driven
by
the
inflows
of
three
commercial
and
construction
loans
totaling
$16.2
million,
partially
offset
by
a
$3.1
million
payoff
of
a
C&I
loan
in
the
Puerto
Rico
region.
See “Risk
Management
–
Nonaccrual
Loans
and
Non-Performing
Assets” below for additional information.
●
Adversely classified commercial
and construction loans
decreased by $5.9 million
to $81.4 million as of
December 31, 2025,
when
compared
to December
31,
2024, driven
by
the upgrade
of a
$12.0 million
commercial
mortgage
loan in
the Florida
region, partially offset by the downgrade of a $10.0
million C&I loan in the Puerto Rico region.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS
The Corporation
has included
in this
Annual Report
on Form
10-K the
following financial
measures that
are not
recognized under
GAAP,
which are referred to as non-GAAP financial measures:
Net Interest Income,
Interest Rate Spread,
and Net Interest Margin on
a Tax
-Equivalent Basis
Net
interest
income,
interest
rate
spread,
and
net
interest
margin
are
reported
on
a
tax-equivalent
basis
in
order
to
provide
to
investors
additional
information
about
the
Corporation’s
net
interest
income
that
management
uses
and
believes
should
facilitate comparability and
analysis
of
the
periods
presented.
The
tax-equivalent
adjustment
to
net
interest
income
recognizes
the
income tax savings
when comparing
taxable and tax-exempt
assets and assumes
a marginal
income tax rate.
Income from tax-exempt
earning assets is increased
by an amount equivalent
to the taxes that would
have been paid if this
income had been taxable
at statutory
rates. Management believes that it
is a standard practice in the banking
industry to present net interest income,
interest rate spread, and
net interest margin
on a fully tax-equivalent basis.
This adjustment puts all earning
assets, most notably tax-exempt
securities and tax-
exempt loans, on a common basis that facilitates comparison of
results to the results of peers.
See
“Results
of
Operations
–
Net
Interest
Income
–
Part
I”
below
for
a
reconciliation
of
the
Corporation’s
non-GAAP
financial
measure of net interest income on a tax-equivalent basis to net interest income
in accordance with GAAP.
Tangible
Common Equity Ratio and Tangible
Book Value
Per Common Share
The tangible
common equity
ratio and
tangible book
value per
common share
are non-GAAP
financial measures
that management
believes are generally
used by the financial
community to evaluate
capital adequacy.
Tangible
common equity is total
common equity
less goodwill
and other
intangible assets.
Similarly,
tangible assets
are total
assets less
goodwill and
other intangible
assets. Tangible
common
equity
ratio
is
tangible
common
equity
divided
by
tangible
assets.
Tangible
book
value
per
common
share
is
tangible
common
equity divided
by the
number of
common shares
outstanding.
Management uses
and believes
that many
stock analysts
use
the tangible
common equity
ratio and
tangible book
value per
common share
in conjunction
with other
more traditional
bank capital
ratios
to
compare
the
capital
adequacy
of
banking
organizations
with
significant
amounts
of
goodwill
or
other
intangible
assets,
typically
stemming
from
the use
of
the
purchase
method
of
accounting
for
mergers
and
acquisitions.
Accordingly,
the Corporation
believes that
disclosures of
these financial
measures may
be useful
to investors.
Neither tangible
common equity
nor tangible
assets,
or the related
measures, should be
considered in isolation
or as a substitute
for stockholders’
equity,
total assets, or any
other measure
calculated in accordance
with GAAP.
Moreover,
the manner in which
the Corporation calculates its
tangible common
equity, tangible
assets, and any other related measures may differ from
that of other companies reporting measures with similar names.
43
See “Risk
Management –
Capital” below
for the
table that
reconciles the
Corporation’s
total equity
and total
assets in
accordance
with GAAP to
the tangible common
equity and tangible
assets figures used
to calculate the
non-GAAP financial measures
of tangible
common equity ratio and tangible book value per common share.
Adjusted Net Income,
Adjusted Non-Interest Income, Adjusted Non-Interest
Expenses,
and Adjusted Income Tax
Expense
To
supplement the
Corporation’s