First BanCorp's Q2 Earnings: Can Puerto Rico and the Virgin Islands Bank on Growth?

The upcoming earnings report for First BanCorp (FBP) on July 25, 2025, will be a litmus test for financial resilience in Puerto Rico and the U.S. Virgin Islands. As the largest bank in Puerto Rico and a key player in the Virgin Islands, FBP's performance hinges on navigating macroeconomic headwinds while capitalizing on pockets of opportunity. Here's why investors should pay close attention—and what to watch for.

The Macro Backdrop: Growth vs. Gravity

Puerto Rico's economy faces a delicate balancing act. While GDP is projected to grow 1.5% in Q3 2025—down from 2.1% in Q2 2024—the island's inflation rate is ticking upward to 3% in Q2, driven by rising energy costs and supply-chain pressures. Unemployment, though stable at 6.1%, remains a reminder of the island's long-term structural challenges. Meanwhile, the Virgin Islands' economy, reliant on tourism, struggles with post-pandemic recovery and the lingering effects of hurricanes. Their GDP growth is expected to slow to 1.4% in 2025, down from 2.8% in 2024, as global trade uncertainties and climate risks loom large.

But here's the twist: Both territories are also in play for federal infrastructure spending and debt relief. Puerto Rico's push toward renewable energy (aiming to cut fossil fuel dependency from 95% to 15% by 2035) could create construction and utility sector tailwinds. The Virgin Islands, meanwhile, may benefit from tourism rebound as cruise lines expand itineraries and governments invest in coastal infrastructure. These factors could boost demand for commercial loans, mortgages, and consumer credit—key drivers for FBP's top line.

Why First BanCorp Could Win

FBP is uniquely positioned to profit from these trends. As Puerto Rico's largest bank, it holds 23% of the island's deposits and 25% of its loans. Its Virgin Islands subsidiary, Banco Popular de V.I., gives it a foothold in a smaller but tourism-driven market. Here's the bull case:

1. Loan Growth: If Puerto Rico's construction sector picks up steam (think solar farms, roads), FBP's commercial real estate and infrastructure lending could surge.
2. Deposit Stability: FBP's low-cost deposits (70% of total funding) provide a buffer against rising interest rates.
3. Resilience in Volatility: The bank's non-performing loan ratio fell to 0.69% in Q1 2025, reflecting strong credit discipline.

Red Flags: Don't Overlook the Risks

The Virgin Islands' overexposure to tourism is a double-edged sword. A single hurricane or a dip in cruise bookings could crater local businesses, hitting FBP's small-business loan portfolios. Meanwhile, Puerto Rico's inflation spike could pressure borrowers' ability to repay. The bank's net interest margin (NIM), already under pressure from rate cuts, might shrink further if the Fed's pause leads to flattening yield curves.

What to Look For in the Earnings

• Loan Growth: Is commercial and industrial lending accelerating? A 5%+ quarterly rise would be bullish.
• Provisions: Are reserves adequate if economic conditions sour? A NPL ratio above 0.8% could spook investors.
• Fee Income: Cross-selling insurance and wealth management services could offset loan-margin pressures.

The Cramer Verdict: Buy the Dip, But Stay Alert

If FBP's earnings beat estimates (expectations are for 5% EPS growth), I'd view it as a buy. The bank's 10% dividend yield is mouthwatering, but only if earnings can support it. However, I'd hedge by setting a stop-loss below $15—the stock's 52-week low.

Bottom Line: FBP is a play on Puerto Rico's slow grind back and the Virgin Islands' fragile rebound. The macro outlook isn't perfect, but for income investors willing to stomach volatility, this earnings report could be a golden opportunity—if management delivers the goods.