First BanCorp (FBP) 2025 Q4 法說會逐字稿

Hello, and welcome everyone to the first BanCorp 4Q 2025, and full year 2025 financial results. My name is [Becky], and I will 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 2025. 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 file. 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.

Thanks, Ramon, and good morning to everyone, and thank you for joining our call today. Our result for this quarter represents a strong capstone to a year of outstanding performance, and discipline execution highlighted by record revenues, positive operating leverage, and a stable credit performance.

We did deliver top performing bank across multiple metrics. We produced $87 million in net income or $0.55 per share, generated a top quarter return on asset of 1.8%, and prudently manage our expense base resulting in a 49% efficiency ratio for the quarter.

Turning to the balance sheet, we continue to first and foremost deploy our capital to support our client by facilitating a $1.4 billion in loan origination during the quarter. Total loans grew by $80 million, mainly reflecting growth across the commercial segments. Growth, was slightly impacted by elevated commercial loan payoff, and slightly lower consumer loan production.

A core customer deposits increased by $267 million, and more importantly, we achieved this while proactively continuing to reduce total deposit costs. In addition, government deposit decreased during the quarter as we continue to look for efficiencies in higher cost deposits in this part of the cycle.

That said, we also see a peak of a 3.2% peak up in core non-interest-bearing deposit during the quarter. On the asset quality side, the ratio of non-performing assets to total assets continued to decrease, reaching an all-time low level of 60 basis points during the quarter.

Consumer credit continued to stabilize and charged off to average loans at 63 basis points, essentially flat to the private quarter. And finally, this quarter, we repurchased $50 million in shares of common stock, and declared $28 million in dividends. I think to put in perspective, since we began the buyback program in 2021, we have repurchased over 28% of shares outstanding.

Still, given our excess capital position and meaningful capital generation, we're well positioned to further increase our return of capital to shareholders in 2026. As such, we were very pleased that our Board approved an 11% increase to the quarterly common stock dividend to $0.20 per share starting in the first quarter of 2026.

Please let's move to slide 5 to provide some highlights of the whole year. Definitely 2025 was a year of changes, geopolitical, and the macro, but again, significant progress as we demonstrate that investment we're making and driving strong operating performance.

We crossed $1 billion in total revenues, generate the record net income of $345 million, grew earnings per share by 90%, and posted a strong 1.8% return on assets for the year, all while improving our capital and liquidity levels. The -- our strong profitability allow us to continue returning approximately 95% of earnings to shareholders while increasing tangible book value per share by 24%.

Our consistent investments to advance our initial strategy, and improve our interaction with customers with multiple across multiple channels, meaning digital branch continue to show in current results in both channels, digital, and personalized branch contact results were improved.

Active retail digital users were up 5% when compared to last year. 95% of deposit transactions were captured through self-service channels and our branch sales and service delivery efforts continue to pay off. In terms of the macro, I think the second half of the year show, slightly lower economy in our main market. In spite of this, we do remain constructive on the underlying trends to the economy for 2026.

On one side, we do expect consumer confidence to moderate somewhat, impact oft-related, pricing inflationary pressures, and geopolitical tensions will continue to develop through the year. On the other hand, we see multiple developments that will serve as important driver of stability in the future -- for the future for the growth of the economy, both in Puerto Rico and actually our second market, Florida.

Resilient labor market here, unemployment rate hovering above 5.7%. Another year of strong tourism activity, passing the traffic at the airport up 3%, reaching a record height of 13.6 million passengers. Already over $2.2 billion in announced investment to expand manufacturing capacity in the island driven by the offshoring efforts and the consistent flow of federal disaster relief funds that will support critical infrastructure development for the years to come.

There's still 40 billion. In the year, we don't have final numbers yet on the last quarter, but it seems it was basically flat to prior year in terms of disbursement of the federal fund programs. Looking ahead to 2026, again, we have ample experience navigating dynamic environments, and we are definitely well positioned to continue growing within our markets and deliver consistent returns to the shareholders.

Our guidance remains largely unchanged. We're focused on delivering 3% to 5% organic loan growth, sustaining a 52% or better efficiency ratio, maintaining a strong profitability metrics, and returning close to 100% of annual earnings back to shareholders.

Asset quality is expected to remain stable, with consumer credit quality gradually returning to pre-pandemic levels that we have seen driven by basically, inflationary pressure to the consumer, even though compensation is better and there is a stable unemployment.

We are in great capital position, continue to make the right investments to modernize and enhance our franchise to drive both growth and efficiencies, and deliver strong performance in 2026. With that, I thank you for your continued trust.

Thank -- I thank our clients and we're very grateful to our dedicated employees for their commitment and support, and we're looking forward to another exceptional year for our institution. With that, I will now turn the call over to Orlando.

Thanks Aurelio, and good morning, everyone. As you saw in the release this quarter, we earn $87.1 million, $0.55 per share, which compares to the $100.5 million or $0.63 a share, we had in the third quarter. Last quarter results included the reversal of a $16.6 million valuation allowance on deferred tax assets related to net operating losses of the holding company.

And we also had a $2.3 million employee tax credit that if we exclude represent both of them represent about $0.12 per share for the quarter. Comparing the quarters excluding these items, earnings per share was 8% higher this quarter, from the amounts in the third quarter.

Adjusted pre-tax-free prohibition income was $129.2 million, which compares to [$121.5 million] in the third quarter. For the full year '25, net income was $344.9 million, which represents $2.15 per share. And adjusted pre-tax pre-provision income reached an all-time high of $499.2 million, which is 10% higher than 2024.

On a non-GAAP basis, adjusting for the items, I mentioned before, net income reached $325.3 million for the year, which is $2.02 per share, which is 8.6% higher than 2024. Return on average assets for 2025 was 1.81%, which compares to [$158 million] in 2024.

And, on a non-GAAP adjusted basis, return assets was $171 million for the year. 2025 marks the fourth consecutive year that we surpassed our return average target, return average assets target of $150 million. Again, a strong year, and we're pleased, very pleased with that.

In terms of net interest income for the quarter, we have an increase of $4.9 million, for reaching $222.8 million. This includes, 800,000 we collected on a non-accrual loan that was paid off, as well as, 500,000 collected on a prepayment penalty on a loan that also was paid off in the Florida region.

Net interest margin for the quarter was 4.68%, but adjusted for these items would have been 4.65% or 8 basis points higher than last quarter. You recall we were expecting that margin would be sort of flat for the quarter, but we were able to achieve a $2.2 million reduction in interest expense on deposits, largely due to a 31 basis points reduction in the cost of our government deposits.

This was higher than we had anticipated. We were able to reprise some of the accounts based on market rates, and the reduction we had in government deposits that Aurelio mentioned was mostly seen on the higher cost accounts. Also, the cost of other interest-bearing checking and savings accounts decreased 4 basis points during the quarter.

We combine all of these items with the fact that we grew non-interest-bearing deposits by about $170 million in the quarter. This helped reduce the overall funding costs for the quarter by 5 basis points. Meanwhile, we continue to see the pickup in the investment portfolio yields through the reinvestment of cash flows that we have been mentioning.

During the quarter, we registered$ 4 million increase in income from investments, as we continue to replace lower yielding maturing securities with higher yielding ones. This resulted in a 33 basis points improvement in the yield.

A little bit offset or by $2.4 million decrease in income from cash accounts due to the reduction on the Fed funds rate and lower average balances in the quarter. On the lending side, the yield on the C&I portfolio came down 27 basis points, as compared to last quarter, as the floating rate portion of the portfolio repriced, tied to the reduction in prime rate and the reduction in so forth.

But, the yields on the other loan portfolios remain at very similar levels, resulting in an overall reduction of only eight of the loan portfolios of only 7 basis points. This reduction in yields was, in fact, partially compensated by an increase of 155 million in the average balance of the of loan portfolios.

What we what we expect it's that some of the same dynamics in 2026, some of the same dynamics that drove a margin for 2025. We have approximately $848 million in cash flows during 2026 coming from securities that have an average yield above 1.65% that would definitely be repriced at higher rates.

Out of this amount, $494 million are expected in the first half of the year, benefiting the second part of the year. Based on current expectations that we have for interest rate changes in the year in 2026, and our projected loan and deposit movements, we expect that margin will grow 2 basis points to 3 basis points per quarter during 202,026.

Other income items, we had, a $3.5 million increase against prior quarter. Part of it was related to a $1.8 million gain, from purchase income tax credits, and we also had an increase of $1.6 million in mortgage banking revenues, and car processing income based on volumes of sales and transactions. Operating expenses for the quarter were $126.9 million, which is $2 million higher than last quarter.

Employee compensation was $3.4 million higher, basis was, related to the $2.3 million employee retention credit that was recorded during the third quarter. The actual increase was $1.1 million, which was due in part to the full quarter effect of merit increases that were granted in the third quarter.

We also saw that in the quarter, an increase of $2.1 million in business promotion, which it's mostly related to seasonal marketing efforts. These increases were partially compensated by an improvement in RREO operations. Since we, during the -- you might remember that during the third quarter, we booked $2.8 million valuation allowance on a repossessed property, that we didn't have this quarter.

And we also had this quarter, a reversal of $1.1 million of part of the accrual for the FBIC special assessment. Expenses, before OREO results, and then the reversal of the approval of the ABIC special assessment, worth $128.8 million for the quarter, which compares to $126.2 million in the third quarter, adding back the employee retention credit.

This is a slightly higher than our guidance and reflects some of the investments we're doing in technology, but the efficiency ratio remained strong, coming down to 49% in the quarter. At this point, based on the projected trend for ongoing technology projects, and some of the business promotion efforts we're undertaking at the beginning of the year, we expect that quarterly expense base for 2026 will be in the range of $128 million to 130 million, excluding the OREO losses -- gains or losses.

I mean, however, we do believe that our efficiency ratio will still be in that range of 50% to 52% considering the changes on the expense side, but also on the income component. In terms of asset quality, we saw a stable quarter, and NPAs decrease by $3 -- $5.3 million.

Basically, we had two commercial cases, non-accrual cases that amounted to 1$5 million that were collected in the quarter. And we had a reduction of $1.8 million in OREO, other real estate owned assets, as a result of the sales we achieved during the quarter.

On the other hand, we had the two C&I loan cases amounting to $12 million that migrated to non-performing in the quarter. Overall, non-accrual loans, 3%, 70 basis points of total loans compared to 74 basis points at the end of the third quarter. In terms of inflation an accrual, there were $14 million higher this quarter, $46 million, but it's related to these two cases that I mentioned that went into non-performing, the two C&I loan cases.

In terms of delinquency, we saw loans in early delinquency, which we define as 30 to 89 days past due, increase $2.1 million. It was mostly on the auto portfolio that increased $7 million, but we had some reductions of $6 million in the Florida C&I loan delinquencies.

The allowance for credit losses on loans increased $2 million in the quarter to $249 million, represent 1.9% of loans compared to 1.89% in the in the third quarter. This increase mostly relates to the growth we had in the commercial and residential mortgage portfolios.

Net charge up for the quarter were $20.4 million or 63 basis points of average loans, fairly in line with the 62 basis points we had in the prior quarter. On the capital front, we -- obviously, our strong profitability allowed us to repurchase, continue the repurchase. We did $50 million in repurchase of shares in the quarter, and we declared $28 million in dividends.

Regulatory capital ratios continue to build up as these capital actions were offset by the earnings we generated in the quarter. We also registered a 4% increase in tangible book value per share to $12.29, and the PCE ratio expanded to 10%, mostly due to the $38 million improvement in the fair value of available for sale investment securities.

The remaining AOCL now represent $2.22 in tangible book value per share, and slightly over 160 basis points in our tangible common equity ratio. Again, this year, we sustain our commitment to deliver close to the 100% of earnings, as Aurelio mentioned through capital actions. We repurchased, this year we repurchased $150 million in common shares.

We paid $150 million in dividends, and redeem the remaining $62 million in subordinated debentures, while growing our tangible com book value per share by 24%. As we announced yesterday, our Board of Directors approved an increase of $0.02 per share quarterly dividends.

And again, our intention is to continue the approach of executing our capital actions, based on market circumstances with our base assumption of repurchasing approximately $50 million in shares per quarter through the end of 2026. But again, as we have done so far, we will continue to deploy our excess capital in a thoughtful manner, always looking for the long-term best interest of the franchise and our shareholder holders.

This concludes our prepared remarks. Operator, please open up the call for questions.

(Operator Instructions)

Brett Rabatin, Hovde Group

Hi guys. This is Anya Pelshaw speaking on behalf of Brett. We were just wondering if you feel there's any more mixed shift change with lower liquidity, and any other levers that might aid the NIM going forward from here?

The levers would be similar. I think it's going to come from this cash flows on the investment portfolio. We still have those low yield in securities that are coming due. And again, as Aurelio mentioned, we see the loan pipeline on the commercial side and residential being really strong, not so much on the consumer side, which are higher yielding assets, but still the mix of these items, with the options to reprice some of the deposit components as rates come down.

Those would be the key drivers. That's, the mix, the 2 basis points to 3 basis points, we just mentioned, it's that mix that we expect happening. Right now we're assuming there's going to be probably two more rates, toward the end of the year, and two more cuts.

I mean, and that would have some impact, but clearly the reprising of the commercial portfolio, the floating side, does have some impact, and that's included in our numbers that the rate reduction we had in mid-December. Obviously, it's going to reflect more on that portfolio now in the first quarter. But the overall, we still feel that there should be an improvement in margin.

Thank you and what are you guys seeing as far as competition goes? how much more do you think the cost of funds could be lower with lower rates? Yeah, I mean what are you seeing as far as the competitive front?

Well, we haven't -- we haven't set a specific number, but you have to look at components. Number one, we do have still some wholesale funding through broker cities, mostly. Those are repricing with market, and we don't have long-term issues of brokers. Mostly, they were originally issued somewhere between nine months and 18 months.

So those are coming due and are being reissued to fund our Florida operation at lower rates. The other component, it's, the time deposit side. Obviously with rates coming down, we're seeing some of the ones that were issued at a higher rates, now being repriced at a slightly lower rates, and as rates come down, some of the other government deposit accounts will have some repricing, those -- some of them are tied to market indexes.

So those are the where we see most of it. The regular transaction accounts, they could come down a little bit but not so much, as if you go back, you'll see that they didn't go up as much, either when rates were going up. So we'll -- we expect similar trends. Those accounts had, like a 14% EBITDA. So, we don't see that changing that much, but the other components are expected to come down.

Thank you, and you guys touched on credit quality a little bit during your talk, but I was just wondering if you could expand on. It's obviously fairly stable but is there anything that you see might change that for better or for worse?

No, in reality, we believe there's stability. We don't see any specific noise; we saw some deterioration on the consumer delinquencies which is normalized. It also charge of, so I think we call it stable when you look at the mix of assets, mortgages at its lowest ever point, and commercial, similar to that.

So we don't see potential disruptors on that and closely monitoring the unsecured market and the consumer, but we -- we're encouraged by the recent trends that we see in the portfolios.

Thank you. That's all for me. Thank you.

Steve Moss, Raymond James.

Good morning. Starting here with -- maybe just, on the loan growth front, just curious with regard to auto if you have any updated thoughts about what you're seeing in that market. I heard Aurelio, your tariff comments earlier, but just kind of curious, any new thoughts or incremental call you may have?

Yeah. I -- when we look at what happened last year, the overall market retail on the retail side was down 10%, and most of that contraction happened after the tariffs were implemented. So, if you see that it's actually the second half of the year, the reduction was over 15% compared to prior year.

So, we are -- we believe we have seen months of stabilization, at a level that would be around an additional 5% this year contraction, considering that normalization in the last quarter unless, there's some reversion on the pricing. It's very fluid because some of the manufacturers are still looking to adjust pricing down.

They -- some of them implemented the tariff immediately, others didn't. The ones that didn't, obviously regain some of the share. The other lost share. So this is the percentage that provided you is a combination of all of the industry. So, we saw the quarter, we saw a contraction in the portfolio of about $6 million.

Overall, in the two segments, a little bit, probably $7 million in that range. So obviously we're looking forward to stable the portfolio -- to stabilize the portfolio, and recuperate that contraction, but we don't expect any growth at all in the segment. So, unless there are adjustments on tariff or excise tax in the island that could help that industry.

Still a pretty good year for the auto sector. We're just coming from exceptional year, so everything is relative to the prior period. But it will be a stable, if we compare to other cycles of the auto sector. And then the consumer demand on the other products is kind of stable, but we don't expect -- we don't see growth. He has to continue to focus on underwriting in its own manner.

Okay. That's helpful and then on the securities cash flow is just kind of curious as to how you're thinking about the reinvestment of the proceeds here, is that largely continued, new investment securities purchases, and just maybe curious as to what you're assuming for the yield on those cash flows?

Well, as we don't take a credit risk on the portfolio, so it's a market-driven kind of situation, but, we're expecting that we can see somewhere between 2 basis points and 3 basis points pick up on those cash flows depending on the securities and the loan side, both of them.

But we'll continue to see agency investments, CMO investments that agency pass through, that's the kind of things that we typically do most. So, the first half of the year, at this point we're not expecting, significant changes on rates, probably, end of June, early July, it's where we are expecting that.

I think that the market, it's somewhere in there also, and that allows us to maximize some of the reinvestment of these items, but I would see -- I see it always as a 2 basis points to 3 basis points pick up on the -- on those 1 -- 165 that are matures on the first half of the year.

Okay. Appreciate that, Orlando. And then on the telecom NPL, is that is that a club deal? Just kind of curious any call you can give there and kind of thoughts on, maybe timing of potential resolution.

Yeah, there's not a lot of new information on it, I think, all banks continue to work with the lead bank on understanding, under -- understanding with the resolution, there's a lot of value behind it. So, obviously, I think it's just waiting as we manage any other MPA to towards resolution. That's the main goal. It's just a matter of time and progress, yeah. For us, it's a small, very small participation, yeah.

Right. Okay. And then just one last one for me here, on capital, you guys been, grow steady with your capital ratios here. Just kind of curious, definitely on the mainland, there's more of an attitude towards greater return on capital shareholders and reducing, common equity tier one ratios.

Just kind of curious, if you guys are thinking of about anything along those lines, these days.

Well, obviously our priorities are to organic growth as much as we can. We continue organic expansion in Florida also, like we just opened in the last quarter, a pump an office in Boca Raton. We -- and then, obviously, there could be no organic opportunities, always open and looking, unless, but if nothing comes to the table that meets our, accretion and value -- strategic value.

We continue, using the capital to continue deploying to shareholders buying by the shares. So, we always have the three options organic is the most efficient in terms of returns. The others, we continue to play them both as markets show opportunities, we try to be as opportunistic as we can, so.

Okay. Great. I appreciate all that call, and I'll step back in the queue. Nice quarter.

Thank you.

Kelly Motta, KBW.

Hi. This is Charlie on for Kelly Motta. Thanks for the question. Just a point of clarification. I was wondering -- I'm good. I was just wondering, specifically how you guys are calculating the efficiency ratio you've gotten to 52%? is that ex OREO gains or just point of clarification there? Thank you.

The efficiency ratio is typically calculated with everything. As you saw the number, this quarter was included in everything. So we tend to calculate it on a GAAP basis, so that it's reported consistently. That number has been coming down as we have continued to sell some of those OREO properties we've had on the market.

And the older properties that we had, repossessed, were taken at a lower values, and that's being compensated. So we do include it as part of the guidance of the 52%, even though we do include the expense guidance without it because of the volatility it could present on total expenses. But the 52 -- 50 to 52 guidance is on a GAAP basis considering movements that in expenses and in revenues.

Great. Thank you And then you saw some great, non-interest-bearing deposit flows this quarter. Just wondering if you could dig into that a little and remind us of any seasonality or changes in your go-to-market strategy that drove this. Thank you.

Well. That is a goal. We -- that's the value of the franchise and, we have multiple initiatives always in play to achieve that and build core relationships that bring that. So, it's a core strategy that we put a lot of emphasis across our regions and, for this year, we -- it's the inefficiency ratio Orlando mentioned. For example, we will be opening a new branch in the West Coast in a town that there's only one bank, competing.

So, that's an area that we've been expanding so -- and that obviously the goal is to grow customers, grow non-interest-bearing deposits, and grow loans in the same regions which the branch also is a vehicle for small business lending, and all type of loan origination. So, it's a good strategy and obviously, you have to look for tactics, and sales strategies and products to achieve it.

Great. Thanks for taking my questions. I'll step back.

(Operator Instructions) We currently have no further questions, so I'll hand back over to Ramon for closing remarks.

Thanks to everyone for participating in today's call. We will be attending BOA's Financial Services conference in Miami on February 10, and KBW's conference in Boca on February 12. 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.

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