FIRST BANCORP /PR/ (FBP) stock intrinsic value fair value estimate & owner earnings analysis

First BanCorp is the parent of FirstBank, the second-largest bank in Puerto Rico, with smaller operations in Florida and the U.S. and British Virgin Islands. It gathers about $16.9 billion of deposits (roughly $13.1 billion of them core retail and commercial deposits, plus about $3 billion of fully collateralized Puerto Rico government deposits) and lends about $13.0 billion, mostly consumer, auto, residential mortgage and commercial loans on the island. Since buying Banco Santander's Puerto Rico operations in 2020, it operates in a market dominated by three local banks, which is the main reason its deposit base is cheap and sticky. How we measure earnings. We start from the cash the bank generates for shareholders: operating cash flow, less timing swings, less stock compensation, less the capital spending needed to keep branches and systems running. For a bank that measure adds back the loan-loss provision, but the loans that actually go bad are a real, recurring cash cost. We therefore deduct actual net loan losses each year: $67.4 million in 2023 and $80.8 million in each of 2024 and 2025. On that basis the bank earned about $1.75, $1.88 and $2.11 per share in 2023, 2024 and 2025, which lines up closely with reported earnings per share. We anchor on the middle of those three years, about $1.88. We use 2023-2025 because earlier years either predate the Santander purchase or were inflated by one-off use of old tax losses (2021-2022), and the 2025 tax benefit of $16.6 million from Puerto Rico Act 65-2025 is excluded because it was a non-cash accounting release. How debt is treated. For a bank, deposits and borrowings are the raw material of the business, and the interest paid on them is an operating cost already deducted in the earnings above. So the value to shareholders is the value of those after-interest earnings, and no debt is subtracted a second time. The holding company itself now owes nothing: it redeemed the last of its trust-preferred debentures ($61.7 million in 2025, $111.7 million over 2024-2025), and the bank's only remaining wholesale borrowing is about $200 million of Federal Home Loan Bank advances at June 30, 2026. Leverage still matters, and it is charged in the bear case through credit losses on a balance sheet roughly ten times its equity. The bank also holds more capital than it needs: its common equity tier 1 ratio was 16.76% at the end of 2025, well above the 6.5% regulatory well-capitalized level and above a 14% cushion we judge prudent for a single-island bank exposed to hurricanes. Capital above that cushion is a real asset owners could receive. Base case (about $35.99 per share). Earnings grew 12.2% in 2025; we assume 12% for 2026, to about $2.10, and a further 5% in 2027, to about $2.21. That step is supported by results already reported for the first half of 2026: earnings per share of $1.19 versus $0.97 a year earlier, with cash interest paid down to $119.0 million from $129.8 million after the debenture redemptions and borrowing repayments, and provisions down to $34.6 million from $45.4 million. After that we credit no growth: the loan book has grown about 3% a year recently, but deposits have been flat at about $16.7-16.9 billion since the end of 2024 and Puerto Rico's population keeps shrinking, so further growth is not assured. Beyond 2035 we let earnings shrink 1% a year, in line with the island's population decline of about 12% between the 2010 and 2020 censuses, with the three-bank market structure keeping the franchise alive. The ten years are worth about $16.16 per share, the years after about $17.44, and capital above a 14% cushion adds about $2.40. The business is worth about $35.99 per share to owners after all its funding costs, the holding company owes nothing further, so the shares are worth about $35.99. Bear case (about $24.21 per share). Earnings hold at the $1.88 anchor in 2026, then credit losses return to the rates the bank suffered in 2016-2019, when net charge-offs averaged about $104 million a year on a loan book two-thirds today's size (more than 1% of loans, against 0.63% in 2025). A hurricane on the scale of Maria in 2017 or a Puerto Rico fiscal setback would drive that. Earnings fall to about $1.45 for 2027-2029, recover only to $1.75 from 2030 and shrink 2% a year after 2035 as population loss and deposit competition bite. All surplus capital is assumed to be consumed by losses. The ten years are worth about $12.24 and the years after about $11.97. The business is worth about $24.21 per share after funding costs, with nothing further owed at the holding company, so the shares are worth about $24.21. Even in this case the bank keeps earning comfortably more than it pays in interest. Bull case (about $48.41 per share). The 2026 earnings rate shown in the first half, about $2.30 for the year, holds. The loan growth of about 3% a year seen in 2024-2025, funded from earnings, continues through 2030 and slows to 1.5% through 2035, reaching about $2.79. Earnings then stay flat rather than shrinking, and capital above a 12.5% ratio (about $3.70 per share) is returned. The ten years are worth about $18.76, the years after about $25.95, and the shares about $48.41, again with no holding-company debt to subtract. What changed since our previous estimate. We previously put the shares at about $30 to $64 with a base near $54. That estimate counted the bank's loan-loss provisions as if they would be added back each year without deducting the loans that actually go bad, which overstated earnings by about $0.40-0.50 per share. It also assumed the franchise keeps growing forever after ten years and counted share buybacks as growth. We now charge actual loan losses as a cost, assume the franchise shrinks slowly with Puerto Rico's population after ten years, and count the bank's surplus capital separately. We also now state plainly how the bank's borrowings are treated: as funding for the loan book, with the interest already deducted and nothing owed at the holding-company level. Recent results were stronger than we had assumed, which partly offsets these changes. What would make this wrong. On the downside, a severe hurricane, a Puerto Rico government funding setback, or a withdrawal of the roughly $3 billion of government deposits. On the upside, loan growth continuing longer than we credit, or the bank returning much more of its surplus capital. Roughly half of the value in each case comes from years beyond 2035, so the durability of the Puerto Rico deposit franchise is the key judgement. Margin-of-safety price. Because the bank depends on a single island economy exposed to hurricanes and a government still recovering from bankruptcy, and because a bank's leverage turns credit mistakes into large losses for shareholders, the estimate calls for a wide margin of safety of about 36% below the base value. The margin-of-safety price is about $23 per share, close to the bear-case value.