First BanCorp (FBP) 2025 Q1 法說會逐字稿

Hello everyone and thank you for joining the First BanCorp first quarter 2025 financial results conference call. My name is Mary, and I will be coordinating your call today. (Operator Instructions) pi

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

Thank you, Mary. Good morning, everyone and thank you for joining First BanCorp's conference call and webcast to discuss the company's financial results for the first quarter of 2025. Joining you today from First BanCorp are Aurelio Aleman-Bermudez, 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 filings. 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 Aleman.

Thank you, Ramon, and actually, good afternoon to everyone and thanks for joining our call today. I usually, will start with, a brief discussion on the financial performance and then we'll move on to some highlights on economic matters.

Again, we deliver what I consider a very strong quarter for the franchise, even by the marging expansion and the positive operating leverage, quite strong profitability ROA and ROE. A return on average assets was solid at 164 and pay tax-free provision of income grew by 7%, reaching $125 million. during the quarter.

The continues to perform quite well as we enter 2025, with strength of the balance sheet, the trend of capital. And obviously a proven track record to successfully navigate unforeseen conditions while supporting our clients, that's really the main goal.

Turning to the balance sheet, total loss were slightly down on the late quarter basis. I think I mentioned last quarter that we were. Repayment that didn't happen and took place this quarter. On the other hand, the nations were healthy and reached $1.2 billion in line with usually the first quarter.

On the other hand, the pipeline is, we have a healthy pipeline in place and it actually continues to build. As we continue to work with our clients supporting them in this current operating cycle. As we know, it's difficult to predict closing of junky deals usually.

But at this time, we continue to sustain our mid single digit growth for the year that remains unchanged. Core deposit flows were stable. We saw and I speak of in no bearing which grew $70 million. And when you look at deposits in Puerto Rico, they have an growth what we consider core excluding government of$ 75 million.

And actually, if we adjust, actually, we actually lose two large chunky deals on the deposit side, on the pricing side of about $175 million. So it's going to be much better, but I think we're very pleased that the annuality continues to improve.

Credit performance was stable, and we continue to see the normalization that we talk about in the consumer credit plans, early delinquency is down when compared to private quarter. And finally, regarding capital, as we always say, we continue to be opportunistic in our approach how to deploy.

We redeem approximately $50 million in some the ventures and declared $30 million in common stock dividends. In addition, we decided to resume our stock purchase program during the quarter, and we repurchased $22 million in the first quarter in addition to the drops.

And we are expected to complete our $28 million during April, which will reach the goal for the second quarter of $50 million in common stock. Just as a reminder, we still have $100 million left of the prior year approval, which, obviously, as we continue to be opportunistic, we're looking to deploy in the second half of this year.

Please let's turn to slide 5. Again, the financial results are a product of, execution of the teams and a stable economic backdrop, which continues to show, positive metrics.

Visa activity continue healthy, obviously consumer confidence, is as of today, it's about to be determined based on your policies, fiscal policies and tariffs which are on the evaluation, the everybody pending to see what the impact is going to be in that confidence.

On the other hand, here today fiscal government tax collection are up by 3%, unemployment rate, again, another low time, another low register in the first quarter. And when we look at, quarter today, David and credit card sales were 30% on the first quarter in 2024.

This version of the disaster relief fund, continue, and we continue to participate in affordable housing projects primarily and looking in some infrastructure improvement too. On the data front, we have continued to invest this quarter, we achieved the very important step in converting to the centralized FIS cloud, our core system now all our core systems are in the cloud and then our franchise investment continue in the digital environment which digit adoption continues to progress in line with our objective.

And then capital utilization, first priority is really TRY to grow the balance sheet and obviously improve our products and improve our infrastructure. We still believe it's early to assess the broader economic implications of the changes in policy we have in Puerto Rico.

But again, we'll keep you updated. I think we all bankers are just, in the same place looking at, potential implications to our economies and our core customers. So as I mentioned, fully guidance may not change, and I guess we'll put an update in the next call in July.

So despite these concerns, we remain committed to our discipline approach of delivering consistent results and creating shoulder value. Now with that I pass it to Orlando to give you, a little more detail on the financial results. Thanks for joining today.

Thanks Aurelio. Good afternoon, everyone. So Aurellio just mentioned we recorded another, strong quarter, highlighted by the net interest, expansion. We earn $77 million in net income, which is $0.47 per share, compared to the $76 million or $0.46 we had, last quarter. This translate to, with on average assets of 164.

The provision for credit losses for the quarter increased $4 million is primarily some projected deterioration on the consumer real estate the commercial real estate price index, I'm sorry, that affected the allowance for credit losses for commercial and construction loans. And some higher adjustments we did to the qualitative framework due to the uncertainty of the economic environment under considering all the things that are going on with the terrorists.

Net interest income for the quarter was $212 million which is up $3 million versus the prior quarter. The income does include a $1.2 million prepayment penalty collected on a prepaid commercial loan, but it's also a net of $2.7 million impact from two less working days in the quarter.

Funding cost, drive a lot of this, it was down $5.8 million in the quarter, including the data's impact. As the cost of the interest-bearing checking and savings accounts decreased 7 basis points to 1,145 basis points is the cost and the cost of time deposits, came down 12 basis points to 3.39 basis points

We also registered with options in wholesale borrowing cost, due to the full quarter effect of the redemption during the fourth quarter of the $50 million in subordinated the ventures and a decrease in the average balance of advances.

We had some maturities, during the month of March that we repaid this quarter. In addition, we had in the quarter an improvement of 11 basis points in the yield of cash and investment securities. Some of the lower yielding, cash flows from the investment portfolio where we invested, or kept at the Fed account, which is a higher rate.

On the other hand, the loan portfolio yields did decrease to basis points, mostly on the commercial, which decreased 9 basis points to the repricing of the floating rate component of the portfolio which was compensated by increases in the yield of the consumer portfolios or that net effect.

The net interest margin dynamics continued to play out well. Margin expanded 19 basis points in the quarter to 452. However, this expansion did include an increase of 4 basis points which was related to the pre-payment penalty I just mentioned and some higher income on late fees in the consumer portfolios. The adjusted margin eliminated some of these items, was really 448, which is a 15 basis points pick up from last quarter.

This increase reflects our plan changing asset, makes, as we deploy the cash flow from the investment, lower yielding investment portfolio to higher yielding earning assets, and also the repayment of the borrowings, the higher costs borrowings.

We also had the benefit of the additional reductions in funding costs we achieved as I just mentioned. This quarter, we received approximately $352 million in cash flows that were yielding around 1.5%, which obviously we priced it at higher rates with benefits coming in the future quarters.

At this point, as you may a normal flow of deposits and stability on the on the lending side on the loan portfolio, we believe that NAM should continue expanding over the next few quarters. We benefit from benefit from additional repricing opportunities on the investment portfolio cash flows, either through lending, higher yielding securities or even the cash at the Fed, as well as the cancellation of some of the higher cost, funding.

The projected investment portfolio cash flows for the second quarter amount to approximately $260 million with a runoff yield of 1.5%, and we also expect approximately $1 billion in additional cash flows during the second half of the year that will also be priced at higher yields.

Depending on the timing and amount of rate cuts in the second half of the year, we estimate that a margin should improve approximately 5basis points to 7 basis points per quarter for the remaining months of this year. In terms of other income items, it was stable, but we did have a $3.45 million increase related to continued insurance commission that were collected during the quarter that happens in the first quarter of every year and some additional income we had from purchase tax credits.

On the expenses were $123 million which is $1.5 million lower than last quarter. Business promotion was $2.1 million lower based on the seasonality of marketing efforts, but also, we had dividend credit card, lower dividend and credit card processing expenses, due to $2.2 million in expense reimbursements we received in the quarter.

On the other hand, compensation expense was $2.5 million higher in the quarter, which, it's related to seasonal payroll taxes and $2.9 million in bonuses and stock-based compensation, usually take place in the first quarter, which offset a reduction of $1.6 million related to two less working days in the quarter. If we were to normalize compensation and car expenses for the quarter would have been $123.9 million.

And if we exclude OREO's they would have been $125.1 million which are within the guidance range we have provided in the last call. Last quarter, just to remind you, last quarter expenses, including OREO's were $125.6 million.

The efficiency ratio for the quarter was 49.6%, which compares with 51.6% in the fourth quarter. But if we adjust some of these income and expense items that don't happen in every quarter, the efficient efficiency ratio would have been approximately 51.3%. roughly in line with our targets.

Based on our estimates, we expect that our expense base for the next couple of quarters, excluding the OREO's, will continue to be in the range of 125, 126. And our efficiency ratio will be around the 50 to 52% considering the changes in expenses and projected income components.

In terms of credit quality, the NPA did increase in the quarter $11 million which is basically due to an inflow of one non-accrual commercial real estate loan, in the Florida region that amounted to $12.6 million. On the other hand, we had a residential reduction in residential mortgage, non-performing and OREO's balances which have set some of this, increase.

The MPA ratio was 568 basis points to total assets for the quarter. Just to mention this, non-performing loan that migrated in the Florida region did not impact the allowance for credit losses, because it's collateralized but a good value collateral, at this point.

The inflows to non-performing for the quarter were $43.4 million, which is $6.3 million higher than last quarter, basically related to this one, CRE case that went into non-performing, but we did have reductions of $6.5 million in in consumer loan inflows. In general, I would say credit metrics are holding up well. Loans in early delinquency were down $21.8 million during the quarter.

We have started to see some normalization trends in consumer credit, with consumer loans in early delinquency decreasing by $19.5 million when compared to prior quarter. The allowance for the quarter did increase by $3.4 million to $237.3 million. And this reflects the higher qualitative adjustments that we incorporated to consider the uncertainty in the economic environment.

The ratio of the allowance grew 4 basis points, allowance to loans grew 4 basis points to 195, mostly in the commercial side, driven by the forecasted, deterioration on the com commercial real estate price indexes. However, we did see some improvements in the unemployment rate projections, on the shorter term which led to 5 basis points reduction in the allowance for consumer loans. Which ended up at 3.78% of loans.

Net charge-offs for the quarter were $21.4 million or 68 basis points of average loans. It's down $3.2 million from last quarter, but this reduction includes a recovery of 2.4 million we recognize related to a bulk sale of consumer charge of loans we had in the quarter.

Excluding this recovery a charge off to average loans would have been 76 basis points, which is slightly lower than the 78 basis points charge off rate that we had in the fourth quarter. On the capital front, as Aurelio mentioned, we executed, on our capital deployment priorities during the quarter. We redeemed approximately $50 million in subordinated the ventures on top of the, of what we have already redeemed in prior quarters.

We, it's only $11 million left of those adventures. We also declared $29.6 million in dividends, and we purchased $21.8 million in common stock. In terms of capital impact, these actions were offset by the earnings, obviously, which at the end resulted in higher regulatory capital ratios, when we compare them to last quarter.

During the quarter, we also register a 7% increase in tangible book value per share to $10.64 and the and the tangible common equity ratio expanded to 9.1%. Mostly due to an $84 million improvement in the fair value of the securities that lower the outstanding, the amount of adjusted other comprehensive loss.

The remaining other comprehensive laws represents $2.91 on tangible book value per share and about 220 basis points in the tangible common equity ratio. Aurelio just mentioned, we will continue with our strategy of deploying excess capital as thoughtful as possible, to improve franchise and shareholder value and we continue with our execution of our plans.

This concludes our prepared remarks. Operator, please, we'd like to open the call for questions.

(Operator Instructions) Our first question comes from the line of Frank Shiroti of Piper Sandler. Please go ahead.

Hey. Good afternoon, just. Orlando, I think you mentioned some numbers around securities book in terms of yield in terms of cash flowing, and I think you said 1.5% for the second quarter. Did you share what, those, yields are coming off, in the back half of the year?

The yields on the second half of the year are slightly lower. They're going to be. Talking from the top of my head, but they're going to be around 135 to 140, what's on the second half of the year.

Yeah, and then. Could you share just a ballpark in terms of that assumption you gave around margin expansion, I think 5 to 7 bits of what that assumes in terms of pick up on that, what do you expect the new.

I don't know if it's a mix of loans and securities you assume this is going at these cash flows are going into, but what kind of pick up do you anticipate? What sort of blended rate are you looking for on the new. Origination to get to that sort of margin expansion.

We're assuming there are a few things, obviously we're assuming it's going to be a couple of somewhere around 150 basis points to 300 basis points, but remember that assumption considers that there might be some rate reductions in the year at this point it's become a little bit unpredictable, but.

When we had done our original estimates for 2025, we were assuming two costs in the second half of the year, maybe we're looking at 3 now, so, that reflects, what would be what we can keep on the investment portfolio, cash and obviously it depending on what's the growth on the loan portfolio.

It could move a little bit higher than that, but also, it all depends. We were able to move funding costs this quarter a little bit more than we had anticipated that that helped the margin pick up this quarter. So, depending on that, the next quarter, assumptions are based on those, numbers I just gave you.

Okay, and just one more on that line of questioning in terms of, the 1.5% in the second quarter back half the year 13 to 14 in terms of the cash flows, just looking out beyond 2025, is it similar levels of cash flowing out of that book and at sort of similar, yield coming off you share any sort of you know detail there.

I don't have, with me the additional, Frank, I need to get that in future years. Remember that duration in the portfolio is not high, so, that's the amounts from through March of next year with a (105) that includes that that billion 5, I'm sorry, that includes that billion I just gave you.

And the 260, so it's 250 more million in the first quarter of 2026. But I don't have the full report with me here to give you some more indications of the full year.

Okay, alright, so, at least for the first quarter you said 250.

And the first quarter it's about 250.

Yes. Okay, I appreciate it. And then just lastly, if I could just sneak in one more in terms of the commercial mortgage loan, or even just commercial mortgage in general in Florida, I think you have the one large payoff, and, you talked about I think it fell from 4 to 12, but just in terms of the general thoughts around, your CRE in Florida, something that you got.

Are looking to continue to grow and then kind of where you're seeing, where are you seeing the stress, and if you could just talk about that large payoff of, is that I guess that's by design, maybe a little more detail there. Thanks.

The large payer was in Puerto Rico and the MPA was in Florida regarding CRE. The large payoff was a refinancing that we did not participate. And based on terms, expected terms, and the one in Florida, I think we put some details in the release, it's a, we believe it's a one-off case.

It's in the hospitality sector, really good loan to value. We actually don't expect any losses in that one. Okay, alright, I appreciate it. And on the CRE front, we continue to originate. We have a good pipeline and obviously under our underwriting criteria’s, we continue to move up the balance sheet, yeah.

Our next question is from Brett Rabatin of Hovde Group. Please go ahead.

Hey, thanks for the time. Wanted to ask on the loan origination side, I know com commercial can be a little lumpy, and obviously 4Q is really strong, but I, if I heard correct that, the guidance for the year is kind of that mid-single digit number and just wanted to see if you think that the commercial side. That's on slide 13 if that that grows from here or if you'll see more on the, consumer side just looking for some color on where you guys see the originations coming from.

Yeah, actually, we think this year, different to it's different to prior years, obviously where we see the opportunities, where we see the performance of the books, and we believe, both construction and commercial will grow.

We believe the consumer will grow at a slower pace than five years. And we believe that actually we're going to see some growth in residential, which we already actually experienced this border, which was not the case if you look back, very slight growth over the past year. So that, that's the way we see them in single that the growth being combined.

Okay. And then I noticed you guys were, didn't roll out the Apple Pay, any color on if that was, by choice or, what was the function there and then if you guys might be looking to do that going forward.

Yeah, we have about, we'll say a dozen of improvements to the data functionality that are currently being worked on. We did launch, Samsung Pay and Google Pay, for the Mastercard debit side. We do have; we are do a brand. We do both Visa and Mastercard.

The Apple Pay project is ongoing, we have some vendors that are involved in the execution and. And you know there's priorities and timing of those, but you should see that happening during this year. Combined with, some of all the other functionalities that we continue to enhance in our digital front.

Okay. And then Aurelio, would you consider, if you just think about Puerto Rico versus Florida, I know sometimes you said you think there's probably more risk, credit wise in Florida than there is in Puerto Rico, but, what do you think today, just in terms of where you see the credit risk, particularly on the commercial side?

Well, I think I make comments regarding competitive landscape and obviously Florida, it's more competitive on the deposit side. Puerto Rico is competitive, but at a different level, Florida has a multiple number of competitors and very large banks also there.

In terms of credit, we continue to see a healthy pipeline, we have our underwriting guidelines. The portfolios have performed, if you look at the segregation of the ACL portfolio has performed really well in Florida, cases that we see obviously is a smaller portfolio than Puerto Rico, so, you have less.

But, at this point, we continue to see (Freudia) as a healthy portfolio. We have very limited office there, small, and it's a well diversified book, so. Puerto Rico, when we say slow rate on the CRD, remember, there was no construction built for many years in Puerto Rico, and asset values didn't, increase rapidly. So loan to values are quite healthy in the Puerto Rico portfolio.

So that, that's why, and yes, there's opportunities for growth, but we keep ourselves to our underwriting guidelines and TRY not to deviate from those.

Okay, Appreciate all the color guys.

Thank you.

Our next question comes from the line of Steve Moss of Raymond James. Please go ahead.

Good morning. Maybe just following up on loan growth here morning maybe following up on loan growth here just kind of curious, with pipeline building, I hear you guys are a little bit more uncertainty in the market, but do you think loan growth will happen, pick up this quarter, it sounds like it'll be a little bit positive, but do you think it'll be more back half weighted as we think of the Mid single digit growth?

Well, in the last call, we actually said that we see long growth, in the second half of the year. And if I recall, we did cover that item. To be H1st, we, In today's environment with, the conclusion of tariffs.

It's going to be the answer to your question because you know some investors are sitting on the sidelines waiting to see if I close this or I don't close it. So that, that's happening all over the industry, not only in Puerto Rico.

So, I think it's the conclusion which will happen over the next 90 days, it will bring conclusion to that the pipelines continue to build. So if I look at my pipeline today versus the one that I have in January, it's actually better. Which is a positive, but obviously, the uncertainty on the market is different. It's, that's just a reality that we have to deal with.

Obviously, if you go back to the pandemic, same thing happened, all of a sudden, we didn't know how to project, that's what I said in my remarks, we're not, we have a good pipeline, we're not modifying our guidance, but, only policies impact will tell how markets will behave.

And it's not going to be just a first bank thing. It's going to be, a market thing. So, we're very closely with our working with our clients to continue moving the needle and supporting them, but market could change a perspective of risk and perspective of investors and turning into deals or not.

So that's just a reality that we have to deal with in a recycle. But yes for now our missing digit guidance continues.

Got you. I appreciate that color. And then in terms of just kind of curious, on the, I think the phrase was some normalization of consumer credit, I see like the consumer charge offs were up year over year just kind of curious how you guys are thinking about consumer charge offs for the full year.

We expect an improvement on that metric, yes. From prior year we expected reduction prior year on the charge of rate on a rate on the rate itself, obviously it's a, balances could grow and and absolute amounts could grow, but charge of rate should improve here every year.

Remember Steve that we saw a ramp up of charge of through 2024. On the consumer side, so when you compare to first quarter, it's, we're looking more at to prior quarters because that's where we say that.

The benefit is going to start coming at some of these older vintages that that started to be that behave worse are getting run off, so we have that, and we remember we also have the sale of the charge of loans that improved the debt charge on the consumer side.

Yes, okay. Great, I appreciate that color there. And just one last one for me just for clarification, the 5 basis points to 7 basis points of margin expansion is off the 448 adjusted margin correct.

That is correct. That is correct.

Okay, perfect. Well that's all for me. I appreciate all the call here thank you very much.

Our next question comes from the line of Kelly Motta of KBW. Please go ahead.

Hey, good afternoon, thanks so much for the question. Maybe piggybacking off that margin outlook. I really appreciate all the color on the securities re pricing as well as, your outlook there for 5 basis points to 7 basis point expansion during the quarter.

Just turning to the other side of the balance sheet, I would imagine, given your security flows that the overall size is going to be dictated by what you're seeing on the deposit side.

So on that note, what are you seeing on the deposit side? I think One of your competitors said that you know there's some better deposit trends that flows have been improving wondering what you're seeing in your overall outlook here given what you're seeing from your customers so far, Thanks.

We're seeing more stability than the two prior years. We're seeing, more transactional activity, actually some growth in what we consider the core transactional and non-in bearing.

Obviously, we have an appetite for government deposits which we are there and we continue to support, as long as, there are 100% collateralized have to be. That is our appetite. That would change, we change our appetite, but for now, we see stability, we see the market, fairly stable on that front.

When we compare market numbers to 2024, there was a contraction, slight contraction. We had a, we have a slight increase, and, we continue to monitor this. It's really the very critical strategy for all of us but are definitely stable.

Got it. That's really helpful. And then and maybe just a small modeling question on the expense side I appreciate the outlook on a quarterly basis ahead it looks like insurance and supervisory fees were about $2 million lower linked quarter. Was there anything, any, reversal there, just wondering if 4 is a better run rate going forward from here and any dynamics that may have impacted one.

I'm thinking here there was nothing. Are you looking versus last year or you're looking versus December?December remember that last year we had a special assessment from the FDIC. Let me see, I don't remember anything specific, Kelly, I would have to look for some more details to provide you.

Got it, appreciate it. Last, just, a point of clarification for me on the buyback. I think you had said you've done $28 million in April. Based on your commentary, would you expect to, still continue to do be active in the shares here, opportunistic for the rest of the quarter or, I need to go back and look at the transcript. I thought you may have implied you might be out for the quarter just wanted to clarify that point.

Yeah, our goal for this quarter was $50 million and we're going to complete that by the end of April. And we always keep the optionality. Right now the plan is to deploy that $100 million in the second half, but it's a con it's always a consideration if a unique opportunity shows up on the market that we have, we have the flexibility, so. But they got it.

Got it. And, last one that 448 adjusted margins that's on a GAAP basis, right? Not an FTE. I believe you said the interest recovery was 4 basis points.

That's right, it's on a GAAP basis not a full taxable equivalent.

Awesome thank you so much.

Thank you. Kelly.

Our next question comes from the line of Timor Braziler of Wells Fargo. Please go ahead.

Hi, good afternoon. I want to first follow up on the deposit line of questioning. I think if I heard correctly there was some chunkiness and deposit flows one you.

I'm just wondering if you look at that portfolio if there's anything that's expected to exit the bank here in the near term. And just talking to maybe more near-term deposit trends, can you just remind us what kind of the seasonal cadence is for First Bank and what the expectation is maybe over the next couple of quarters on the deposit side.

The, I mean, if you look, we had a couple of cases that were deposited at the deposits we got at the end of the year, meaning at the end of the year, meaning in the last quarter of the year. One Florida, customer, one Puerto Rico customer that they mentioned that they were, the monies were earmarked for some specific projects, and they would have be moved, we thought it was going to be at the end of last year, did not happen, it happened early this year, so that was chunky component that that moved out.

But there's nothing specifically on what we have in the portfolio today other than there's always going to be some kind of variability on the deposits on the public fund side, because they have large components that come in and out. But on the commercial and retail side, we don't have any, like what we knew from, what we had at the end of the year on those two specific customers.

Okay and then so that, maybe just going back to the Florida conversation you had talked about the $12.6 million dollar. Hospitality credit. It looks like there was another one that was called out that that migrated to Classified.

Can you just maybe talk through what that loan was and more recently there's some news on just the Florida condo market and how much more expensive that's become. Can you just remind us of what exposure, if any, you have to the condo market in Florida?

To the condo market. Well, this one in hospitality was not condo. I'm trying to remember which one was moved to Classified because that was the one that was moved. There's nothing significant that I remember. Let me take a look at here. Other.

Than this, it's only one case of Florida.

But condo market in terms of exposures, we don't have any in Florida.

We don't have any on the construction. We do have some in the mortgage portfolio, but it's very small.

Great, thank you.

And We currently have no further questions, so I will hand back to Ramon Rodriguez for closing remarks.

Thanks to everyone for participating in today's call. We will be attending Wells Fargo Financial Services conference in Chicago on May 13th. We look forward to seeing a number of you at this event and we greatly appreciate your continued support. Have a great day. Thank you.

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