First BanCorp - Q4 2025
January 27, 2026
Transcript
Operator (participant)
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. All lines will be muted throughout the presentation portion of the call, with a chance for Q&A at the end. If you wish to ask a question in this time, please press star followed by one on your telephone keypads. I will now hand over to your host, Ramón Rodríguez, Investor Relations Officer, to begin. Please go ahead.
Ramón Rodríguez (Investor Relations Officer)
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 Q4 and full year 2025. Joining you today from First BanCorp are Aurelio Alemán, 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 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, 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 Alemán.
Aurelio Alemán (President and CEO)
Thanks, Ramón, and good morning to everyone, and thank you for joining our call today. Our results for this quarter represent a strong capstone to a year of outstanding performance and disciplined 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 $0.85 per share, generated a top quarter return on assets of 1.8%, and prudently managed 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 $1.4 billion in loan origination during the quarter. Total loans grew by $80 million, mainly reflecting growth across the commercial segments.
Growth, you know, was slightly impacted by elevated commercial loan payoffs and slightly lower consumer loan production. Core customer deposits increased by $267 million, and more importantly, we achieved this while proactively continuing to reduce total deposit costs. In addition, government deposits decreased during the quarter as we continued to look for efficiencies in higher cost deposits in this part of the cycle. That said, we also see a pickup, a 3.2% pickup in core non-interest-bearing deposits 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, Net charge-offs to average loans at 63 basis points, essentially flat to the prior quarter.
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 are 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 Q1 of 2026. Please let's move to slide five to provide some highlights of the full year.
Definitely, 2025 was a year of changes, geopolitical, and the macro, but again, significant progress that we demonstrated investment we're making are driving strong operating performance. We crossed $1 billion in total revenues, generated a record net income of $345 million, grew earnings per share by 90%, and posted a strong 1.9% return on assets for the year, all while improving our capital and liquidity levels. 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 omnichannel strategy and improve our interaction with customers with, you know, across multiple channels, meaning digital branch, continued to show encouraging 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 continued to pay off. In terms of the macro, I think the second half of the year show, you know, 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. You know, impact of tariff-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 and the future for the, you know, 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 about 5.7%. Another year with strong tourism activity, passenger traffic at the airport up 8%, reaching a record high of 13.6 million passengers. Already over $2.2 billion in announced investment to expand manufacturing capacity in the island, driven by the onshoring 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 a whole experience navigating dynamic environments, and we are definitely well positioned to continue growing within our markets and deliver consistent return to our shareholders. Our guidance remains largely unchanged. We're focused on delivering 3%-5% organic loan growth, sustaining a 52% or better efficiency ratio, maintaining 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, you know, 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. I thank our clients, and we are 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.
Orlando Berges (EVP and CFO)
Thanks, Aurelio, and good morning, everyone. As you saw in the release, this quarter, we earned $87.1 million, $0.55 per share, which compares to the $100.5 million or 63 cents a share we had in the Q3. 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 Q3.
Adjusted pre-tax, pre-provision income was $129.2 million, which compares to $121.5 million in the Q3. For the full year 2025, 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 1.58% in 2024. On a non-GAAP adjusted basis, return on assets was 1.71% for the year. 2025 marks the fourth consecutive year that we surpassed our return on average target, return on average assets target of 1.50%. Again, you know, strong, strong year, and we are 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. If 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 reprice 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 account decreased four 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 five 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 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 reprice tied to the reduction in prime rate and the reduction in SOFR.
But, the yields from the other loan portfolios remain at very similar levels, resulting in an overall reduction of only seven basis points. This reduction in yields was, in fact, partially compensated by an increase of $155 million in the average balance of the loan portfolios. What we expect is that some of the same dynamics in 2026, some of the same dynamics that drove margin for 2025. We have approximately $848 million in cash flows during 2026, coming from securities that have an average yield of 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, you know, 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 2-3 basis points per quarter during 2026. Other income items, we had a $3.5 million increase against prior quarter. A 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 card 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, but this was related to the $2.3 million employee retention credit that was recorded during the Q3. Actual increase was $1.1 million, which was due in part to a full quarter effect of merit increases that were granted in the Q3. We also saw 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 OREO operations, since during the Q3, you might remember that we booked a $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, part of the accrual for the FDIC special assessment. Expenses before OREO results and the reversal of the accrual of the FDIC special assessment were $128.8 million for the quarter, which compares to $126.2 million in the Q3, adding back the employee retention credit.
This is 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 were undertaking at the beginning of the year, we expect that quarterly expense base for 2026 will be in the range of $128 million-$130 million, excluding the OREO gains or losses, I mean. However, we do believe that our efficiency ratio will still be in that range of 50%-52%, considering the changes on the expense side, but also on the income components.
In terms of asset quality, we saw a stable quarter, and NPAs decreased by $5.3 million. Basically, we had two commercial cases, non-accrual cases, that amounted to $15 million that were collected in the quarter. And we had a reduction of $1.8 million in OREO, other real estate owned, as a result of the sales we achieved during the quarter. On the other hand, we had two C&I loan cases that amounted to $12 million that migrated to non-performing in the quarter. Overall, non-accrual loans represent 70 basis points of total loans, compared to 74 basis points at the end of the Q3.
In terms of inflows to non-accrual, they 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 30-89 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, and represent 1.9% of loans, compared to 1.89% in the Q3.
This increase mostly relates to the growth we had in the commercial and residential mortgage portfolios. Net charge-offs 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 quarter profitability allowed us to continue the repurchase. We did $50 million in repurchase of shares in the quarter, and we declared $28 million in dividends. Regulatory capital ratios continued 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 TCE 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 sustained our commitment to deliver close to the 100% of earnings, as Aurelio mentioned. Through capital actions, this year, we repurchased $150 million in common shares.
We paid $150 million in dividends and redeemed the remaining $62 million in subordinated debentures while growing our tangible 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 shareholders. This concludes our prepared remarks.
Operator, please open up the call for questions.
Operator (participant)
Thank you. If you wish to ask a question, please press star followed by one on your telephone keypads now. If you feel your question has been answered or for any reason you would like to remove yourself from the queue, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Brett Rabotin from Hovde Group. Your line is now open. Please go ahead.
Anya Pelshaw (Equity Research Associate)
Hi, guys. This is Anya Palsha speaking on behalf of Brett. You know, we were just wondering if you feel there's any more mix shift change with lower liquidity and any other levers that might aid the NIM going forward from here?
Orlando Berges (EVP and CFO)
The levers would be similar. I think it's gonna come from these cash flows on the investment portfolio. We still have those, you know, low-yielding 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, you know, the mix, the two to three basis points we just mentioned, it's that mix that we expect happening.
Right now, we're assuming there is gonna 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 repricing of the commercial portfolio, the floating side, you know, does have some impact, and that's included in our numbers. So, you know, the rate reduction we had in mid December, obviously, is gonna reflect more on that portfolio now in the Q1. But the overall, we still feel that there should be an improvement in margin.
Anya Pelshaw (Equity Research Associate)
Thank you. And, you know, what, what are you guys seeing as far as competition goes? You know, how much, how much more do you think the cost of funds could be lower with lower rates? And, yeah, I mean, what are, what are you seeing as far as the competitive front?
Orlando Berges (EVP and CFO)
Well, we haven't set a specific number, but you have to look at components. Number one, we do have still some wholesale funding through brokered CDs mostly. Those are repricing with market and you know, we don't have long-term issues of brokered CDs. Mostly, they were originally issued somewhere between 9 months and 18 months, so those are coming-
... coming due and are being reissued, to fund our Florida operation at, 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 higher rates now being, repriced at a, 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% beta. So we don't see that changing that much, but the other components are expected to come down.
Anya Pelshaw (Equity Research Associate)
Thank you. And, you know, you guys touched on credit quality a little bit, you know, during your talk, but I was just wondering if you could expand on, you know, it's obviously fairly stable, but, you know, is there anything that you see might change that for better or for worse?
Aurelio Alemán (President and CEO)
No, you know, in reality, you know, we believe there's stability. We don't see any specific noise. You know, we saw some deterioration on the consumer delinquencies, which is normalized, also charge-offs. So, you know, I think we call it stable. When you look at the mix of assets, you know, mortgages at its lowest ever point and commercial, you know, similar to that, so we don't see potential disruptors on that, and closely monitoring the unsecured market and the consumer, but, you know, we're encouraged by the recent trends that we see in the portfolios. Yeah.
Anya Pelshaw (Equity Research Associate)
Thank you. That's all for me.
Aurelio Alemán (President and CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from Steve Moss from Raymond James. Your line is now open. Please go ahead.
Steve Moss (Managing Director)
Good morning.
Aurelio Alemán (President and CEO)
Morning. Good morning, Steve.
Steve Moss (Managing Director)
Morning, maybe just, you know, on the loan growth part, just curious with regard to auto, if you have any updated thoughts about what you're seeing in that market. I heard earlier, earlier your tariff comments earlier, but just kind of curious, any new thoughts or incremental call you may have?
Aurelio Alemán (President and CEO)
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 consider that is actually the second half of the year, the reduction was over 15% compared to prior years. So we believe we have seen months of stabilization, you know, at a level, at a level, you know, that will be around, you know, an additional 5% this year, contraction, considering that, the normalization of the last quarter, unless, you know, there is some, some reversion on the pricing. You know, it, it's, it's very fluid because some of the manufacturers are still looking to adjust pricing down. They, they-- some of them implemented the tariff immediately, others didn't.
The ones that didn't, you know, obviously regained some of the share, the other lost shares. So this is, you know, the percentages I provided you is a combination of all, the industry. So we, you know, we, we saw the quarter, you know, 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, so obviously, we're looking forward to, to stable the portfolio, to stabilize the portfolio and, and, and recuperate that contraction, but we don't expect any growth at all in the, in the segment. So unless there is adjustments on, on tariff or, or excise tax in the island, that could help that industry. Still a pretty good year for, for the auto sector.
We're just coming from exceptional years, so everything is relative to the prior period. But, you know, it will be stable if we compare to other cycles of the auto sector. Mm-hmm.
Steve Moss (Managing Director)
Okay.
Aurelio Alemán (President and CEO)
And then the consumer demand-
Steve Moss (Managing Director)
...
Aurelio Alemán (President and CEO)
Consumer demand on the other products is kind of stable, but we don't expect, we don't see growth as you continue to focus on underwriting in a sound manner.
Steve Moss (Managing Director)
Okay. That's helpful. And then on the securities cash flows, just kind of curious as to how you're thinking about the reinvestment of the proceeds here. You know, is that largely continued new investment securities purchases? Just maybe curious as to what you're assuming for the yield on those cash flows.
Orlando Berges (EVP and CFO)
Well, as you know, we don't take credit risk on the portfolio, so it's a market-driven kind of situation. But, we're expecting that we can see somewhere between two and three basis points pick up on those cash flows, depending on the securities and the loan side, both of them. But we'll continue to, you know, to see agency investments, CMO investments at agency pass-through. That's the kind of things that we typically do most. So, you know, the first half of the year, at this point, we're not expecting significant changes on rates. Probably, you know, end of June, early July, it's where we are expecting that.
I think that, you know, the market is somewhere in there also, and that allows us to maximize some of the reinvestment of these items. But, you know, I see it always as a 2-3 basis points pick up on those 1.165 that are maturing on the first half of the year.
Steve Moss (Managing Director)
Okay. Appreciate that, Orlando. And then on the telecom NPL, is that, was that a club deal? Just kind of curious, any color you can give there and kind of thoughts on maybe timing of potential resolution.
Aurelio Alemán (President and CEO)
Yeah. You know, there's not a lot of new information on it. You know, I think all banks continue to work with the lead bank on understanding, you know, understanding what the resolution, there's, you know, a lot of value behind it. So, obviously, you know, I think it's just waiting as we, as we manage any other NPA towards resolution, that's the main goal. It's just matter of time and progress. Yeah. For us, it's a small-
Steve Moss (Managing Director)
Okay.
Aurelio Alemán (President and CEO)
Very small participation. Yeah.
Steve Moss (Managing Director)
Right. Okay, and then just one last one for me here. You know, on capital, you guys been, you know, grow, you know, steady with your capital ratios here. Just kind of curious, you know, definitely on the mainland, there's more of an attitude towards greater return on capital shareholders and reducing, you know, common equity tier one, tier one ratios. Just kind of curious, if you guys are thinking about anything along those lines these days?
Aurelio Alemán (President and CEO)
Well, you know, obviously, our priorities are to, you know, organic growth as much as we can. You know, we continue organic expansion in Florida also, but we just opened in the last quarter, you know, a new branch office in Boca Raton. And then, you know, obviously, there could be non-organic opportunities, always open and looking, unless, you know, but if nothing comes to the table that meets our, you know, our accretion and value, strategic value, we continue, you know, using the capital to continue deploying to shareholders, buying back the shares. So we always have the three options. Organic is the most efficient in terms of returns. The others, you know, we continue to play them both as markets show opportunities.
You know, we try to be as opportunistic as we can, so.
Steve Moss (Managing Director)
Okay, great. I appreciate all that color, and I'll step back in the queue. Nice quarter.
Aurelio Alemán (President and CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from Kelly Motta from KBW. Your line is now open. Please go ahead.
Charlie Driscoll (Equity Research Associate)
Hi, this is Charlie on for Kelly Motta. Thanks for the question. Just a point of clarification.
Aurelio Alemán (President and CEO)
Good morning.
Charlie Driscoll (Equity Research Associate)
I was wondering... I'm good. I was just wondering, specifically how you guys are calculating the efficiency ratio, you got into 52%. Is that, ex-OREO gains or just point of clarification there? Thank you.
Orlando Berges (EVP and CFO)
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. You know, that number has been coming down as we have continued to, you know, sell some of those OREO properties we've had on the market. And the older properties that we had repossessed, you know, were taken at 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, 50-52 guidance is on a GAAP basis, considering movements in expenses and earnings and revenues.
Charlie Driscoll (Equity Research Associate)
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.
Orlando Berges (EVP and CFO)
Well, that is, you know, that is a goal. You know, we-- that's the value of the franchise and, and, you know, we have multiple initiatives always in play to achieve that and build, you know, core relationships that bring that. So, you know, it's a core strategy that we put a lot of emphasis across our regions. And, you know, for this year, you know, it's in the efficiency 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, that's an area that we've been expanding.
That obviously the goal is to, you know, 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 originations. So, you know, it's a key strategy and, you know, obviously, you know, you have to look for tactics and sales strategies and products to achieve it.
Charlie Driscoll (Equity Research Associate)
Great. Thanks for taking my questions. I'll step back.
Aurelio Alemán (President and CEO)
Thank you.
Orlando Berges (EVP and CFO)
Thank you.
Operator (participant)
Thank you. As a reminder, if you did want to ask a question, please press star followed by one on your telephone keypads now. That's star followed by one. We currently have no further questions, so I'll hand back over to Ramón for closing remarks.
Ramón Rodríguez (Investor Relations Officer)
Thanks to everyone for participating in today's call. We will be attending BofA Financial Services Conference in Miami on February 10th, and KBW's conference in Boca on February 12th. 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.
Operator (participant)
This concludes today's call. Thank you all for joining us. You may now disconnect your lines.