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Research: Rating Action: Moody’s Raises FirstBank Puerto Rico’s Long-Term Deposit Ratings from Baa2 to Ba1, Final Review; stable outlook

New York, September 16, 2022 — Moody’s Investors Service (“Moody’s”) has updated the ratings and assessments of FirstBank Puerto Rico (“FirstBank”), including the long-term deposit rating from Ba1 to Baa2 and the Standalone Basic Credit Assessment (BCA) at ba1 from ba3. While the bank’s short-term deposit rating and short-term counterparty risk rating were upgraded to Prime-2 from Not Prime and Prime-3(cr) from Not Prime(cr), respectively , its short-term counterparty risk rating was affirmed at Not First. The rating outlook is stable. This action concludes the review of the upgrade, announced by Moody’s on May 11, 2022.

Updates :

..Issuer: FirstBank Puerto Rico

…. Adjusted base credit rating, upgrade to ba1 from ba3

…. Basic credit assessment, upgrade to ba1 from ba3

…. ST counterparty risk rating, upgrade to P-3(cr) from NP(cr)

…. LT counterparty risk rating, upgrade to Baa3(cr) from Ba2(cr)

…. LT (foreign currency) counterparty risk rating, upgraded from Ba3 to Ba1

…. Counterparty risk rating LT (local currency), upgraded from Ba3 to Ba1

…. LT issuer rating, upgraded from B1 to Ba2, stable from ratings under review

…. Bank deposit ST (local currency), upgraded to P-2 from NP

…. Bank deposit LT (local currency), upgraded to Baa2 from Ba1, stable from ratings under review

Statement:

..Issuer: FirstBank Puerto Rico

…. Counterparty risk rating ST (foreign currency), NP confirmed

…. Counterparty risk rating ST (local currency), NP confirmed

Outlook Actions:

..Issuer: FirstBank Puerto Rico

…. Outlook, changed to stable from rating under review

RATINGS RATIONALE

The ratings and BCA upgrade reflect the continued strength of FirstBank’s balance sheet and its operational and financial resilience during the coronavirus pandemic, as well as the benefits to creditors of FirstBank’s growing banking franchise and the stability of its credit profile. improved funding. In addition, federal reconstruction funds expected from the U.S. government (United States of America, Government of; Aaa stable) and structural reforms proposed by the Federal Oversight and Management Board (FOMB) for Puerto Rico have improved the Puerto Rico operating environment for banks. Moody’s expects the Puerto Rican government’s recent exit from bankruptcy to lead to better near-term economic prospects for the island.

FirstBank has benefited from the consolidation of the island’s banking sector, which has led to increased operating margins for the remaining banks. The bank’s capitalization is also strong, with Moody’s Adjusted Tangible Equity (TCE) as a percentage of risk-weighted assets of 17.3% as of June 30, 2022. FirstBank’s capital position is a credit strength key because it provides the bank with a strong buffer. against unexpected credit and operating losses.

FirstBank has made significant efforts to reduce its reliance on traded deposits by capturing a greater proportion of more stable core deposits in recent years. The acquisition of Banco Santander Puerto Rico (BSPR), which closed on September 1, 2020, further reduced the bank’s reliance on traded deposits and other confidence-sensitive market funds, thereby reducing refinancing risk. As of June 30, 2022, market-based funding was just 2% and Moody’s expects FirstBank to continue to maintain its position as the second-largest bank by retail deposits on the island in a foreseeable future.

Asset quality remains a credit challenge for the bank, as Puerto Rico’s weak economy is reflected in FirstBank’s relatively high problem loan ratio of 4.6% as of June 30, 2022, which remains significantly high relative to its regional bank counterparts in the continental United States. Moody’s assessment also factors in FirstBank’s limited geographic diversification beyond Puerto Rico.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

The BCA could be raised if Moody’s assesses a sustained improvement in the bank’s asset quality profile without deterioration in the bank’s capital, funding and/or liquidity. The BCA could also be raised if Moody’s were to assess a sustained improvement in the operating environment for Puerto Rico’s banks, which would lead to reduced problem lending levels while maintaining stable profitability, capitalization and/or liquidity. A higher BCA would likely result in upgraded ratings.

Ratings could be downgraded if Moody’s assesses a sharp deterioration in operating conditions in Puerto Rico beyond its current expectations. In addition, the BCA could be lowered if Moody’s believes that FirstBank’s risk appetite has increased, for example due to above peer average loan growth or a notable increase in loan concentrations. A lower capitalization could also lead to a deterioration of the BCA. A lower BCA would likely lead to a downgrading of FirstBank’s rating.

The main methodology used in these ratings is the Methodology for Banks published in July 2021 and available on https://ratings.moodys.com/api/rmc-documents/71997. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Sadia Nabi
Vice President – Senior Analyst
Financial Institutions Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Donald Robertson
Associate General Manager
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653


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