FirstBank Puerto Rico

The stable outlook incorporates our view that FirstBank will maintain its very strong capital ratios, but we expect asset quality to remain worse than most rated U.S. banks' over the next year. We expect the company to remain firmly profitable over the next few years, but we see tougher year-over-year comparisons in 2022. We also expect loan losses to rise somewhat over time from very low levels in 2021 but remain well below pre-pandemic levels. We could lower the rating if we believe the bank's RAC ratio will decline below 15%, which could result from very high share repurchases, reduced profitability, and strong loan growth. A meaningful acquisition paid in cash, which we view as unlikely in the next year,

...FirstBank Puerto Rico is highly concentrated in Puerto Rico, which has faced several challenges in recent years. We view FirstBank's concentration in Puerto Rico as a weakness given the territory's weaker economic growth over the past decade compared to the mainland U.S. However, we think the Puerto Rican economy will benefit from ongoing fiscal stimulus related to the COVID-19 pandemic and residual disbursements of private insurance payments and federal aid related to Hurricane Maria, which should modestly benefit asset quality metrics. We assess FirstBank's capital ratios as very strong but expect they will decline modestly. The bank's Tier 1 capital ratio was 19.03% and its risk-adjusted capital (RAC) ratio was 17.6% as of year-end 2021, both up year-over-year and well above most rated U.S. banks. We expect capital ratios to decline modestly and gradually over the next few years primarily because of elevated share repurchases and higher common dividends, but we expect the RAC ratio to...

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