First BanCorp. Q3 Earnings Call Highlights

Key Points

• First BanCorp. reported third-quarter net income of $96.1 million, or $0.63 per share, with stable credit quality and commercial loan growth offsetting weaker net interest income, lower non-interest income and higher expenses. Return on assets was 1.98%, marking the 19th consecutive quarter above 1.5%.
• Total loans grew at a 3.3% annualized rate, driven by commercial lending, while deposits remained stable with $120 million of core-balance growth. Management reaffirmed its full-year loan-growth target of 3% to 5% and expects Puerto Rico’s economy and commercial pipeline to remain resilient.
• The company increased its quarterly dividend by 25% and authorized a new $350 million share-repurchase program; it returned about $80 million to shareholders during the quarter. Credit quality remained stable, although annualized net charge-offs rose to 55 basis points, mainly due to consumer and auto-related losses.

First BanCorp. NYSE: FBP reported third-quarter net income of $96.1 million, or $0.63 per share, as stable credit quality and commercial loan growth helped offset softer net interest income, lower non-interest income and higher operating expenses.

President and Chief Executive Officer Aurelio Alemán said earnings were essentially unchanged from the prior quarter, while year-to-date earnings per share increased 14% from the same period a year earlier. The company reported a return on assets of 1.98%, marking its 19th consecutive quarter above 1.5%.

“We delivered another quarter of strong, consistent performance supported by healthy balancing trends in both deposits and loans, stable credit quality, and continued profitability,” Alemán said.

Loans, Deposits and Puerto Rico Economy

Total loans increased at a 3.3% annualized rate from the second quarter, led by broad-based commercial lending growth. Consumer loans declined modestly, in line with the company’s expectations. Deposits remained stable, supported by $120 million of growth in core customer balances.

Alemán said the Puerto Rico economy remained resilient, supported by reconstruction activity, steady unemployment conditions, and manufacturing and reshoring announcements. He said the bank continued to see healthy customer activity and constructive commercial pipelines entering the fourth quarter.

Commercial loan demand has been supported by new construction projects, merger-and-acquisition activity involving competitors, business expansions, warehouse projects and commercial real estate transactions, according to Alemán. While some projects can be delayed when interest rates rise, he said the company had not yet seen a meaningful impact on its current commercial lending pipeline.

The bank reiterated its expectation to reach the lower end of its 3% to 5% full-year loan-growth target. Management said it remains focused on commercial lending, while opportunities to expand consumer portfolios are more limited. Mortgage lending posted growth year to date, while auto lending has faced lower marketwide sales volumes.

Margin Pressures Offset by Repricing Opportunities

Net interest income totaled $227.5 million, down approximately $1.6 million from the second quarter. Chief Financial Officer Said Ortiz said the comparison reflected the absence of roughly $3.4 million in purchase discount and deferred-fee accelerations recorded in the prior quarter, along with higher funding costs.

Excluding the impact of the prior-quarter one-time items and the additional day in the third quarter, Ortiz said net interest income increased by about $500,000, aided by commercial and construction loan growth and securities portfolio reinvestment.

Net interest margin declined 14 basis points sequentially to 4.73%. About half of the decline was tied to the second-quarter one-time items, while the remainder reflected higher funding costs. Ortiz cited a shift toward higher-interest-bearing products, including time deposits, and higher rates on government market-linked accounts.

Management expects core margin to remain near third-quarter levels in the fourth quarter. The company expects higher funding costs and competitive deposit pricing to remain headwinds, but said those pressures should be partly offset by loan repricing and reinvestment of securities cash flows.

• About $252 million of securities are expected to mature or reprice in the fourth quarter at an average yield of 2.23%.
• The company purchased about $400 million of securities during the third quarter at a 5.44% yield, Ortiz said.
• Management said First BanCorp. remains asset-sensitive and could benefit if interest rates move higher over time.

Alemán said competition for larger deposit balances has intensified, particularly from some credit unions, though the company does not intend to pursue deposits at uneconomic rates. The bank said it is renewing certificates of deposit at rates above the existing portfolio’s 3.30% cost.

Credit Quality Remains Stable

Credit quality remained stable, with the nonperforming assets ratio unchanged at 0.59%. The allowance for credit losses represented 1.81% of total loans, slightly below the prior quarter but still at a level management described as healthy.

Annualized net charge-offs increased to 55 basis points of average loans, primarily due to higher consumer and auto-related losses. Early-stage delinquencies also rose, although Ortiz said the increase included a mature construction credit that was fully repaid after quarter-end.

Alemán said auto sales have been pressured by tariffs and inflation, while consumer budgets have been affected by electricity, fuel and other costs. He said the company is monitoring those pressures closely and remains prudent in its consumer underwriting. Management expects reserve levels to remain generally stable if credit quality, delinquency trends and the Puerto Rico economic outlook remain favorable.

Capital Returns Increased

First BanCorp. returned approximately $80 million to shareholders during the quarter, consisting of $50 million in share repurchases and $30 million in dividends. The amount represented about 84% of quarterly earnings.

The company’s common equity Tier 1 ratio ended the quarter at 16.9%. Tangible book value per share was $12.15, affected by unrealized securities losses through accumulated other comprehensive loss. Excluding those unrealized losses, adjusted tangible book value per share was $15.34, Ortiz said.

The board approved a 25% increase in the quarterly common dividend and authorized a new $350 million share repurchase program. Management expects to complete an additional $50 million in buybacks during the fourth quarter and continues to target capital returns of around 100% of earnings, while retaining flexibility to act opportunistically.

Non-interest expenses totaled $130.2 million, including a $2.8 million contingency reserve tied to an adverse court ruling involving a commercial other real estate owned property in the U.S. Virgin Islands. Excluding that item, expenses were essentially unchanged from the prior quarter. The efficiency ratio was 50%, below the company’s long-term operating target of 52%.

About First BanCorp. (NYSE:FBP)

First BanCorp. is a bank holding company headquartered in San Juan, Puerto Rico. Its principal subsidiary, FirstBank Puerto Rico, provides a broad range of financial products and services to individuals, businesses and government-related entities. The company's offerings include consumer and commercial lending, residential mortgages, deposit accounts, cash-management services, credit cards, electronic banking and other financial solutions.

FirstBank serves customers through a network of branches, automated teller machines and digital banking channels.

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