First BanCorp (FBP) 2024 Q4 法說會逐字稿

Hello, everyone and thank you for joining the First BanCorp fourth-quarter 2024 and full year financial results.

My name is Becky and I'll be your operator today.

(Operator Instructions)

I will now hand over to your host, Ramon Rodriguez, Investor Relations Officer to begin. Please go ahead.

Thank you, Becky.

Good morning, everyone and thank you for joining First BanCorp's conference call and webcast to discuss the company's financial results for the fourth-quarter and full year 2024.

Joining you today from First BanCorp are Aurelio Aleman, President and Chief Executive Officer; and Orlando Berges, Executive Vice President and Chief Financial Officer.

Before we begin today's call, it is my responsibility to inform you that this call may involve certain forward-looking statements such as projections of revenue earnings and capital structure as well as statements on the plans and objectives of the company's business. The company's actual results could differ materially from the forward-looking statements made due to the important factors described in the company's latest sec filing the company assumes no obligation to update any forward-looking statements made during the call. If anyone does not already have a copy of the webcast presentation or press release, you can access them at our website at fbpinvestor.com.

At this time, I'd like to turn the call over to our CEO, Aurelio.

Thank you, Ramon.

Good morning to everyone and thanks for joining our earnings call today.

I will begin by briefly discussing the business performance for the fourth quarter. Then we'll move on to provide some high level highlights of how we performed during the full year.

We're quite excited how we closed 2024 and with another quarter of consistent execution and strong financial performance, we earned $76 million in net income and grew pretax preprovision income by 5% to $117 million, primarily driven by net margin income expansion and our disciplined expense management process return average asset was again strong at 1.56% and the organization continued to operate at an efficiency ratio close to 52% which is in line with our guidance turning to the balance sheet.

The quarter was strong. Total loans grew by $310 million or 79.7% a quarter analyzed driven by growth actually across all business segments, consumer commercial and mortgage and, and between Puerto Rico and the Florida region, primarily particularly within the commercial and construction lending segments.

However, we saw we were expecting some portfolio repayments in the quarter which came a little bit lower. We anticipate that some of that will come in between the first and second quarter of this year in the range of probably $200 million in terms of deposit. Core deposit trends were also very encouraging with total deposits other than broker and government, up 2% sequentially from private quarter and 4%. When we include, government deposit as we have seen in private quarters, we did some -- we see some seasonality and deposit inflow during the quarter that they are temporary in nature or they have to do with the variability of the government sector.

Funding of reconstruction activity credit performance was relatively stable during the quarter. With nonperforming assets hitting another record low of 61 basis points of total assets on the capital front and liquidity. Our liquidity and capital position remains very strong. We sustain our commitment to deliver over 100% of earnings in the form of capital actions by redeeming $50 million of our outstanding geneity ventures and paying $26.3 million in common dividends.

Even when accounting for these actions, our regulatory capital ratios increased during the quarter and remained significantly above way capitalized.

We still have $200 million left in our capital plan authorization which we expect to continue deploying through 2025 in a manner that best suits the long term interest of the franchise.

Please let's turn to slide 5 to provide some highlights of the year, the solid performance of the quarter have a year of record results for the franchise in the back of a positive economic backdrop of our operating markets. A total, we raised that actually total record record revenue 6% increase in per share and reach a multiyear loan of performing assets.

The low profile expanded by 4.7% of of five of $569 million. We added $267 million in core customer deposit and distributed 100% of earning to shareholder loan growth was actually quite in line with our guidance of single digit growth.

Consistent with our strategy, our web position balance sheet allow us to capitalize on one book and non repricing opportunities under the current rate environment while properly managing funding costs that actually will continue to through 2025.

We're considering stable deposits going forward. Our asset mix will continue to skew towards a skew towards higher yielding assets which coupled with gradually declining funding costs should drive additional interest income expansion in 2025.

Over the course of 2024 our franchise made great progress, advancing technology initiatives to improve our interaction with customers through both the convenience, digital channels and service focused relationship officers.

We are achieving the target we set to make sure our strategic success and we're seeing the benefit of the investment we made in technology to accelerate our growth and improve how we serve our communities and customers. As we look ahead, the operating environment, the 2025 actually, the operating environment seems conductive of another year of positive performance and organic capital generation. If we look at the key economic metrics in the environment as during the fourth quarter, based on employment, continue to improve tourism metrics and passenger activity are our at our main airport reached record level again and disaster relief fund, this version rate register another year of of sequential in increments in 2024. And we do expect this trend to continue as per the Puerto Rico Planning Board is for start forecasting another year of economic growth in 2025.

So given this backdrop for for 2025 we're sustaining our meeting at the longer of guidance.

We're sustaining our 100% net payout ratio of our, of our capital.

That includes the redeeming the remaining $61 million of the jus or into the ventures and executing reason which should purchase opportunities and and definitely maintaining a sustainable dividend payout policy.

In line with this guideline. We were very pleased to announce earlier this week that our board approved a 13% increase in our quarterly common stock dividend that was raised to $0.18 per share again, we will continue to monitor general macro how they develop political changes as we, as we execute our strategy, as we execute our capital deployment plan.

And to close, I have to say that I'm really, really proud of what our teams have accomplished so far. We are very positive and look forward to, to a very positive 2025 with optimism and excitement of our life ahead of us.

Now I will turn the call over to Orlando to go over some more detail and we will be back for questions and thanks to all.

Good morning, everyone.

Sao mentioned, we recorded very strong results during the quarter earning $75.7 million in net income or $0.46 a share which compares with the $0.45 a share. In the third quarter, we saw the results for the quarter saw improvements in that interest income which were partially offset by the a higher provision for credit losses.

The provision for the fourth quarter was $5.7 million higher than than last quarter, but this was mostly related to a $5.5 million release we had in the allowance for residential mortgage loans during the third quarter based on the consistent positive outlook on macroeconomic variables. But also this quarter we provided for the higher loan portfolios that we achieve at the end of the quarter.

In general, the economic outlook remain fairly consistent going forward from what we had in the third quarter. In terms of the allowance, the income tax expense for the quarter was $20.3 million, which is $2.3 million lower than last quarter. At the end, we ended up with a higher proportion of exempt income for the year which resulted in a slightly lower effective tax rate.

The effective tax rate was just under 24% for the year '24. And we're expecting that tax rate for '25 will be in that same range from 24% to 24.5% for for the full year. '24 net income was $299 million, very similar to the $303 million we achieved in '23 but earnings per share were $1.81 or for this year, which is $0.10 higher than we had in '23 which is the benefit of the, of the share count reduction based on the buybacks we have done over the last few years. Return on average assets for the year was 158 and return on equity was 19.1% on a GAAP basis. If we, if we were to eliminate the other comprehensive loss impact on the capital on a nongaap basis, the adjusted return on equity would be 13.6%.

As I mentioned that interest income for the quarter was $7.2 million higher than last quarter reaching $209.3 million.

You might recall from last quarter's earnings call, we have mentioned that we were expecting that the net interest margin for the fourth quarter would be similar to the third quarter. However, we were able to achieve an eight basis points improvement in margin from 425 to 433. In this fourth quarter. At that time, we were expecting loan repricing impact would offset some other improvements. Even though we did see that repricing impact on the floating rate, commercial loans.

The commercial portfolio grew on average $192 million more than compensated for for this pricing reduction. While we achieve $237 million in growth in the residential and consumer portfolios, also growth in deposits for the quarter allowed us to, to reinvest about $220 million of maturing investment securities at a rate of 540. We look at cash flows during the quarter. Cash flows for the investment portfolio were $470 million and that includes $367 million. Insecurities that mature with an average deal of 65 basis point. So the pickup in margin yield was was quite significant as compared to to those 65 basis point.

The deposits on interest for retail and commercial transaction accounts grew $348 million average for the quarter. These deposits have an average cost of about 1.52%. On the other hand, higher cost time deposits and broker cities decreased by $130 million.

Also during the quarter. Union, the ventures with a cost of $78 million decreased by with a cost of 7.78%. I'm sorry, decreased $50 million average.

And we did redeem an additional $50 million at the end of the third of the fourth quarter of the impact would be seen, now in 2025 the reduction in borrowings and broker cities resulted in an interest expense reduction of $2.8 million for the fourth quarter.

As we look ahead into '24, '25, we still see opportunities for both our net interest income and margin expansion that we will employ what we estimate to be somewhere between $1.5 billion to $1.6 billion of investment portfolio cash flows in 25 that are currently yielding about 1.25% to other, either loans or higher yielding securities or, paying down some of the higher cost borrowings.

If we were to assume normal flow of deposits, we expect that margin could improve our own 20 basis points by the end of 2025.

In terms of other income was fairly, fairly online. It was down a bit mostly from a decrease in insurance income due to lower production. On the expense side, expenses were $124.5 million, $1.6 million increase from the third quarter or gains this quarter were $1 million or $300,000 less than last quarter.

Excluding Oreo expenses for the quarter were $125.6 million, which is at $1.3 million higher than last quarter. And, and higher than the top range guidance we had provided the increase was in part related to business promotion initiative initiatives that took place at the at the end of the year and were a bit higher than we had originally anticipated. However, we did register operating lever leverage as an increase in the net interest income was enough to offset increases in expenses resulting in a lower efficiency ratio of 51.6% for the quarter.

Based based on the current stage of several ongoing technology projects. Branch network expansion plan for '25. We estimate that our expense base for the next couple of quarters would be in the range of $125 million to $126 million excluding any Oreo gains.

We continue to to estimate the efficiency ratio will be around 52% considering the changes in expenses and income components in terms of asset quality and pas decreased $800,000. That now represent 61 basis points of assets. Most of the reduction was due to a repayment of a $1.8 million accrual commercial loan inflows for the quarter were $1.6 million lower than last quarter. Mostly consumer.

Even though that we have seen some, some early delinquency increases, the macro is fairly stable and the labor market is healthy. But consumer credit continues to show weaknesses. Overall loans in early delinquency increased $9.6 million from last quarter with consumer loans increasing $14 million.

Obviously offset by a decrease of $5.4 million in commercial loans. We continue to to proactively manage this credit cycle that on the consumer side and, and the vs that had impacts and we'll, we'll we're estimating some somewhere in the middle part of the, of the, of the year towards the end of the year to achieve the stability we had anticipated on the consumer.

The allowance for credit losses decreased $3.1 million to $244 million during the quarter, mostly from a $4 million reduction in the allowance for commercial loans. Based on the improvements we have seen on both the financial condition of borrowers and, and obviously, the macroeconomic forecast particularly on the consumer real state indexes which have continued to show improvement.

The allowance for for the consumer portfolios did increase $1 million due to the recent loss trends. Overall, the allowance came down to to 1.91% of loan from 1.98% as we continue to see these good trends, good credit credit trends in the commercial and residential mortgage portfolio. However, the allowance on consumer loan has gone up to 3.85% of of loans based on lost strengths that we have had in the portfolio.

Net charge for the quarter were $24.6 million or 78 basis points of average loans of average loans pretty much in line with the prior quarter, consumer charge charge of increased $1.3 million. But but we had a $1.2 million decrease in commercial chargeoff on the capital front, our regulatory ratios increased during the quarter and we continue to operate significantly above the regulatory well capitalized levels we deployed as a mentioned, 100% of our quarterly earnings for the redemption of $50 million in the un subordinated ventures and $26 million payment of common dividends are consistent with the guidance we have provided the tangible book value per share did decrease to 991 and T ce decreased to 8.4 which was mostly due to an $82 million decrease in the fair value of available for sale investment portfolio.

This the remaining adjusted other comprehensive loss that we have on the books still represent $3.41 in tangible book value per share and over 258 basis points in tangible common equity ratio.

You know, we as Aurelio mentioned, we will continue to employ XX capital in a, in a thoughtful manner. Always looking for the long term best interest of our franchise and and our shareholders.

This concludes that our our remarks that the operator please open the call for questions.

(Operator Instructions)

Frank Shiroti, Piper Sandler.

On the 52% efficiency ratio for for 2025. You know, I guess that's just sustaining where you are, right? I mean, I believe that's a non te nI is in that calculation, but then can you just remind us is the our Oreo Games? Is there some level of that assumed in 2025 that's also in that CALC or could, Oreo games kind of move that even lower.

No, it's, it's included in that. We do, the numbers have been coming down, as we have mentioned. We do expect to still achieve, probably, or gains on the first half of the year. But that, that's significantly going to go down by the second half of 2025. So it's mostly the other expense components and obviously the income side as you mentioned.

Okay. And and you've been pretty consistent there around that 52% level. You know, how focused are you, I guess in 2025 on that, do you see opportunity to ramp up or delay investments depending upon, the revenue outlook to kind of really H1 in on that 52%.

Well, in reality, we see we see the consistent, the consistent revenue side and the, and we're counting on some of the opportunities that we're executing. As Fernando mentioned, we expect some margin improvement and you have the investment on the portfolio of the cash flows and then we have, a single, miss the target of growing the portfolio again.

So those components, we bring some revenue, we're not really stopping on investments, we have included, we are including, significant investment in technology to continue which is bringing other benefits, which some of them will be more long term than they are. And we also have some branch openings that are part of that number that will start, happening during the, we're, we're moving branches into areas that we are not, we don't have a presence where there is a deposit opportunity, a on a on a commercial bank opportunity on the on the small and middle market side. So we're not really halting on those investments.

And then just a point of clarification, I just Orlando, I heard you mentioned the NIM, I think you said Nim could be up to 2020 basis points year over year. Is that the number you gave.

The 20 basis points is you know, based on the quarterly pickup we expect, it's it would be like the margin at the end of the fourth quarter of the year as compared to the to the to the fourth quarter of 2024. That's what what we're talking, it's like with the reinvestment of the portfolio and obviously considering expected deposit flows and unexpected new loan productions.

We believe margin will continue to pick up based on that as I mentioned, the cash flows that are coming due from the investment portfolio or estimated cash flows that are going to be around $1.5 billion to $1.6 billion in 2025 on average yield of 125. And it's not equally distributed. It's, it's, the ones that mature in the first half of the year are like 150 and then the other half, it's, it's smaller. It's a lower amount of deal, but it's still, you're going to get a good take up on, the reimbursement or the, or the amounts that could be channeled to, to loan portfolio.

You know, the obviously all we still you know, dealing with what, what's the expectation rates? We had 100 basis point assumption originally in like three months ago, that would happen in 25.

But now we feel it's probably going to be 25 basis points or 50 basis points. So we will see that part of it, but still the assuming these rates and and the pickup on those components, we will have a good push on the margin.

Okay. And then just, just lastly on the, I think there's, there's about $60 million, I think you said in redemption left. So, is it a pretty fair expectation or assessment that stock buybacks is probably another quarter of to go before you get back into the market there? And, and and, and, and we purchases will be sort of the, return to capital story more for the last three quarters of the year.

Yeah, I think your assessment is the most probable scenario right now as we speak.

Timur Braziler, Wells Fargo.

Looking at the link quarter deposit growth, particularly on the public fund side. I guess what was the dynamic this quarter that drove balances higher in a period that maybe typically see some seasonal outflows with that market share gain. Is that a little bit transitory in nature? Maybe just give us a dynamic to, to some of the deposit growth.

I would say there's a combination. Obviously, we have a very strong strategy that we're executing on cash management, payment services to government entities and municipalities. And that is coupled with, the parallel strategy that we have with some of the large participants in the reconstruction area. So there was there was inflow of funds from both sides.

Obviously on the on the infrastructure side, there's always some chunkiness of funds have come in and out. So that was not the growth was not necessarily the growth is really the net of what came in and out. So it was a a significant quarter of projects and, and, and funds moving from FMA or CDBG into these entities for completing projects. So it's a combination, we have a, a poor strategy on services to municipalities and other entities and we have a strategy to support, the entities that are actively in the reconstruction phases.

But yes, there's always some seasonality in the later part of the year.

For the long growth, the US mainland loan growth was strong in 4Q. Look like C&I on the Virgin Islands is also pretty strong in 4Q. Can you just maybe give us a little bit of color of where you're seeing the growth on the mainland. And I is that primarily where you were expecting maybe some elevated payoff activity that didn't come to bear in the fourth quarter.

Yeah, the, I think, when you look at the core strategy of Florida, again, it's commercial in all the segments, small me and, and, and large with the balance sheet of the larger corporation, which is part of the region, is part of the, of the larger event.

So, there, there, if you look through the year, there's, there was also, good quarters and, and, and and active quarters, obviously, we, it happened last year too that we have supported that, some of the cases that closed, that were pending to go finally concluded the year. So there's some and then in Puerto Rico, there's some large deal and construction, noise that happened also in the quarter, some of them move, move ahead or completed.

So again, it's very difficult to predict the pace and that's why we focus on the mix DGI when we add and subtract. So we do expect more growth in the commercial this year. We expect some growth in the mortgage. We didn't have last, in the plans before and, and, and then continue to have growth in the consumer even though we have knowledge is at a lower rate, growth rate than we have achieved over the last five years.

It's just, the different cycles of, of each of the business and portfolios. And then, we have both, construction loans that will continue to fund until completion, which was probably one of the highlights of 2024. The volleyball construction activity that was booked that is, is is there and will continue to, it doesn't need to, to close along for this person to continue to, to, to move ahead.

So it's a mix that, predict, predicting, predicting quarter by quarter. It's almost impossible for this commercial activity.

And then just last for me, looking at the allowance, looking at the performance of the consumer, I guess A, what gives you greater confidence that consumer credit begins to stabilize middle of '25. And then b as we look at all the different components of the allowance, it's come down now for six straight quarters, it looks like are we nearing a plateau there for for allowance or do you foresee continued mix shift and continued ability to maybe continue releasing some reserves here throughout the course of the year.

If that we have to divide our portfolio. We feel that the residential mortgage portfolio has continued to behave extremely well as a that's what ended up resulting in some releases. Home price index has been very strong and, and home sale prices that are, that, that we see on even on the Oreos we sell that are, are definitely strong so that help that I think that probably probably there's a little bit in there, not, not necessarily a lot based on the size of the portfolio.

It's going to the portfolio has been growing a little bit as compared to what we had before that we were coming down on the commercial side, probably we're, we're there. I mean, it's, it's you know, it's been quite good for quite a long time.

On the consumer side, we feel as I mentioned, feel, there is some volatility if you know, the allowance on the, on the consumer side has gone up like 20 basis point from the end of '23 to the to the end of '24 or something like that. And then obviously the growth has mostly been on the auto portfolios that entail lower losses. But there is still going to be a little bit of a noise I would say on the allowance. So in general, we would be sort of at this level is my expectation for the next, the next couple of quarters.

Kelly Motta, KBW.

I was hoping to dig in a bit more on expenses. I appreciate the, I think you said $125 million to $126 million per quarter outlook. But looking at fourth quarter, can you remind us, it looks like you've had a larger kick up in business promotion expenses in the fourth quarter these past two years. Could you write the seasonality of that? And kind of if that had any relation to you know, the meaningful increase in deposits, you saw this quarter.

The end of the year typically has a combination of things. It's events we do for customers. It's part of the, yearend kind of a of a Christmas celebrations and recognition of, of us recognizing our customer loyalty. So that's, that's one thing. There are trends on campaigns that we would like to start early in 25 that we start, towards the end of the year to start moving some things.

Those, those are mostly on the lending side, not so much on the on the deposit side, obviously, things are on the digital front, on the deposits are are big and, and we try to push for that and participation in activities that happened towards the end of the year. So it's a combination of is it directly completely related to what deposit, the deposit growth? I wouldn't say that. But clearly, our marketing people are going to say yes, that it has to do with all the different efforts they put out there.

I appreciate that. And I mean, the deposit growth is obviously very nice. And I understand partly seasonal and partly you know, unique to flows, that's what's happening with government deposits. But I'm hoping just on the core Puerto Rico deposit base, I was hoping you could provide an update on just the competitive environment there. If you're seeing, any ability to, lower those core deposit costs, which are already, pretty low when compared to mainland banks and rationally price.

To be honest, if rates don't move lower than they are today, we don't see a lot of opportunities in what is in the core core. I think competitive is reasonable.

But, but obviously the move in rate is not, is not supporting at this stage that that any other competitor, you know, behaving like in that scenario of lowering rates. So I think we have to see, what happened with the, with the Fed and, and, and the potential in, additional model. On the other hand, there is a lot of funding that is that is assuring and it's already being, either either eliminated or out of the cost or it's been renewed at a lower rate. So.

Yeah, there, there are opportunities on the broker cities as whatever we renew. If we renew anything rates are lower than what, what they're coming to. Same thing. We see some opportunities and in some of the advances we take on the from the HB some government deposits have been repriced as treasury rates have come down.

But some of the core accounts II still feel like aure that you know, that they are, they are not necessarily going to come down a lot assuming rates are at these levels.

Got it maybe last question for me is just on balance sheet side. I think you already hit on this pretty well, but it just as a point of clarification, earning assets for the quarter were about just over $19 billion. It sounds like based on the cadence of investment portfolio maturities like 1.5 to 1.6 coupled with your mid single digit loan growth guidance. It seems like the balance sheet is probably flat to slightly down over over 2025. Is that, is that the right way to think about it as we look ahead with the positive growth in nI just driven off of the remix of the higher yielding assets.

The Yes, the way, the way I see it Kelly, it's, the cash flow from the investment portfolio are not necessarily going to reduce the size of the balance sheet because we'll end up mostly with other investments or with loans. And you know, there is a level of investment that we need to keep on the book for collateral for public funds and some of the other things that we do. So we are -- we have taken out that portfolio significantly on all the excess that we had. But it's now reaching a level that we're probably going to be, either going to loans or slightly or going to securities

So that would keep the balance sheet sort of where we are, you know, we grow the investment, the loan portfolio as expected. It's going to push that a little bit up, but obviously deposits have a lot to do with it. So, the assumption that it's sort of flat to, I would say flat to slightly higher other than some of the seasonality I mentioned on the deposit. So that range of 18.8 to 19.3 or four, it's probably going to be a reasonable range of the balance sheet size.

Steve Moss, Raymond James.

Maybe just on morning. I just on loan pricing here. I apologize if I missed it, but just kind of curious, given the rate volatility we've seen here over the last couple of months. You know what you guys are seeing for, for loans these days.

Loan pricing, you mean?

Yeah.

Well, we I mean, it hasn't changed much in terms of what, what, what you would call the spread. No, obviously pricing has come down a bit in because you know, we most of the pricing, it's either labor based or, or sour based so far is down and and prime is down. So that that means that pricing on some of the portfolios have been down, doesn't necessarily mean that the spread. It, it's down from what it used to be. That I'm talking commercial at this point. On the consumer side, it, it's has changed a bit. But and you know, the credit cards, we do, we do adjust based on prime. But some of the other portfolios have remained fairly consistent.

So if you think about yields, the loan yields are down like 20 basis points or 10 basis points compared to last quarter.

Actually 12, if you look at the loan portfolio yield on page 8 of the presentation, the overall portfolio.

So that's been, that's been a function of, the 52 53% floating components that we have on the on the commercial side more than anything that, that reprise with prime and and so forth mostly a little bit, a little bit with treasury.

But, but other than that, I would say it's similar kind of a strategy.

And then in terms of just the billion five in cash flows, it sounds like it's fairly equally distributed over the four quarters. Is that a fair assumption?

No, let me give you some color on that. It's not equally hold on second.

So it's going to be about 1st, 1st quarter. It's maybe somewhere between 325 and, and, and 375. It's a range we estimate second quarter, it's going to be around 240 to 260.

Fourth quarter, third quarter, I'm sorry, it's somewhere around 400 the last quarter it's going to be about 525 to 550.

Thank you. We currently have no further questions. So I'll hand back to Ramon for closing remarks.

Thanks to everyone for participating in today's call. We will be attending BO A's conference in Miami on February 11 kbws conference in Boca on February 13th and Raymond James conference in Orlando on March 4th. We look forward to seeing a number of you at these events and we greatly appreciate your continued support. Have a great day. Thank you.

Thank you.

This concludes today's call. Thank you for joining you may now disconnect your lines.