First Bancorp
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Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Hello, everyone, and thank you for joining the First BanCorp. First Quarter 2025 Financial Results Conference Call. My name is Marie, and I will be coordinating your call today.
[Operator Instructions] I will now hand over to your host, Ramon Rodriguez, Investor Relations Officer, to begin. Please go ahead.
Thank you, Marie. 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, 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. And usually, I will start with a brief discussion on the financial performance, and then we'll move on to some highlight economic matters.
Again, we delivered what I consider a very strong quarter for the franchise driven by the margin expansion and the positive operating leverage, [ rise ] from profitability, ROA and ROE. International was solid at 1.64% and pretax pre-provision income grew by 7%, reaching $125 million during the quarter. The project [indiscernible] performed quite well as we enter 2025 with strength, in terms of the balance sheet, in terms 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 loans were slightly down on a linked quarter basis. I think I mentioned last quarter that we were expecting a repayment that didn't happen and took place this quarter. On the other hand, originations were healthy and reached $1.2 million 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 chunky 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 -- [ soon ] -- I speak of in noninterest-bearing, which grew $70 million. And when you look at deposits in Puerto Rico, they [ have an enroll ] what we consider core, excluding government of $75 million. And actually, if we adjust -- actually, we actually [ lose ] 2 large chunky deals on the deposit side, on the pricing side of about $175 million. So it is going to be much better, but I think we're very pleased that the granularity continues to improve.
Credit performance was stable, and we continue to see the normalization that we talk about in the consumer credit trends early delinquencies down when compared to prior 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 debentures and declare $30 million income of 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 [ trough ]. And we are expecting 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 -- very proud of execution of the teams and a stable economic backdrop, which continues to show positive metrics business activity continue healthy. Obviously, consumer confidence is -- as of today, it's about to be determined based on new policies. Fiscal policies and tariffs, which are under evaluation, see -- everybody depending to see what the impact is going to be in that confidence.
On the other hand, year-to-date fiscal government escalation are [ on ] by 3% unemployment rate, again, another low register in the first quarter. And when we look at quarter-to-date, debit and credit card sales were 3% than the first quarter in 2024. This [indiscernible] continue, and we continue to participate in [ the front of office ] projects primarily and looking in some infrastructure improvement, too.
On the data front, we have continued to invest. This quarter, we achieved a very important step in converting to the centralized FIS cloud. Our core system, now all our core systems are in the cloud. And our franchise investment continue in the digital environment, which the data [ option ] continued 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, improve our infrastructure. We still believe it's early to assess the broader economic implication of the changes in policy we'll 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, full year guidance remain unchanged, and I guess we'll provide an update in the next call in July. So despite this concern, we remain committed to our disciplined approach of delivering consistent results and creating shareholder value.
Now with that, I'll 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 Aurelio just mentioned, we recorded another strong quarter, highlighted by the net interest income expansion. We earned $77 million in net income, which is $0.47 per share. compared to the $76 million or $0.46 we had last quarter. This translates to a return on average assets of 1.64%.
The provision for credit losses for the quarter increased $4 million. It's 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 tariffs.
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 net of $2.7 million impact from 2 less working days in the quarter. Funding costs drives a lot of this, it was down $5.8 million in the quarter, including the days impact. As the cost of the interest-bearing checking and savings accounts decreased 7 basis points to 145 basis points as a cost and the cost of time deposits came down 12 basis points to 3.39%. We also raised our reductions in wholesale borrowing costs due to the full quarter effect of the redemption during the fourth quarter of the $50 million in subordinated debentures and a decrease in the average balance of Federal Home Loan Bank advances, we had so much [ reduced ] during the month of March that were 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 the Fed account, which is a higher rate. On the other hand, the loan portfolio yields did decreased 2 basis points, mostly on the commercial, which decreased 9 basis points due 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 continue to play out well. Margin expanded 19 basis points in the quarter to 4.52%. However, this expansion did include an increase of 4 basis points, which was related to the prepayment 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 4.48%, which is a 15 basis point pickup from last quarter. This increase reflects our planned change in asset mix 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 cost 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 repriced at higher rates with benefits coming in the future quarters. At this point, as you may know, a normal flow of deposits and stability on the lending side on the loan portfolio, we believe that NIM should continue expanding over the next few quarters, as we 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 reprice at higher yields. Depending on the timing and amount of rate cuts in the second half of the year, we estimate that margin should improve approximately 5 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 $3.5 million increase related to contingent insurance commission that were collected during the quarter that happens in the first quarter of every year and some income -- some additional income we had from purchase tax credits.
On the expenses, 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 the dividend credit card, lower dividend 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 is 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 2 less working days in the quarter. If we were to normalize compensation and card expenses, expenses for the quarter would have been $123.9 million. And if we exclude OREO, they would have been $125.1 million, which are within the guidance range we had provided in the last call. Last quarter, just to remind you, last quarter, expenses including OREO, 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 every quarter, the 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 OREOs will continue to be in the range of $125 million to $126 million. 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, NPAs did increase in the quarter, $11 million, which is basically due to an inflow of 1 nonaccrual commercial real estate loan in the Florida region that amounted to $12.6 million. On the other hand, we had a residential -- reductions in residential mortgage, nonperforming and OREO balances, which offset some of this increase. The NPA ratio was 68 basis points to total assets for the quarter. Just to mention, this nonperforming 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 nonperforming 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 nonperforming. But we did have a reduction of $6.5 million 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 $247.3 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 1.95% mostly in the commercial side, driven by the forecasted deterioration on the commercial real estate price indexes. However, we did see some improvement 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 recognized related to a bulk sale of consumer charge-off loans we had in the quarter. Excluding this recovery, net charge-offs to average loans would have been 76 basis points, which is slightly lower than the 78 basis points charge-off rate 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 debentures on top of the of what we have already redeemed in prior quarters. We -- it's only $11 million left of those debentures. We also declared $29.6 million in dividends and repurchased $21.8 million in common stock.
In terms of our 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 registered a 7% increase in tangible book value per share to $10.64 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 amount of adjusted other comprehensive loss.
The remaining other comprehensive loss represents $2.91 on tangible book value per share and about 220 basis points in the tangible common equity ratio. So Aurelio just mentioned, we will continue with our strategy of deploying excess capital 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 Schiraldi of Piper Sandler.
Right. Just Orlando, I think you mentioned some numbers around the securities book in terms of yields, 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 is slightly lower. They're going to be -- talking from the top of my head, but they're going to be around 1.35% to 1.40% on the second half of the year.
Okay. And then -- could you share just a ballpark in terms of that assumption you gave around margin expansion, I think, 5 to 7 bps, what that assumes in terms of pick up on that, what do you expect the new -- I don't know if the mix of loans and securities, you assume this is going -- these cash flows are going into, but what kind of pickup do you anticipate, what sort of blended rate are you looking for on the new originations 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 pickup of somewhere 250 to 300 basis points. But remember that, 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 2 cuts 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, 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 helped the margin pick up in 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 in the year, 1.3% to 1.4% 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 yields coming off, is there any sort of detail there?
I don't have with me the additional, Frank. I need to get that in the future years. Remember that duration in the portfolio is not high. So that's -- the amount, the amount from -- through March of next year was $1.5 million. That includes that -- [ $1.5 ] billion, I'm sorry. That includes that $1 billion I just gave you. And the $260 million. So it's $250 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. All right. So at least for the first quarter, you said $250 million.
In the first quarter, it's about $250 million, 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 and [ to Florida ], I think you had the one large payoff. And you had talked about, I think it fell from 4Q to 1Q. But just in terms of the general thoughts around CRE, your CRE in Florida, something that you guys are looking to continue to grow and kind of where you're seeing -- where are you seeing the stress? And if you could just talk about that large payoff is that -- I guess that's by design. So maybe a little more detail there.
The large payoff was in Puerto Rico and the NPA was in Florida regarding CRE. The large payoff was a refinancing that we not participated based on terms -- expected terms. And the one in Florida, I think we put some details in the release. It's -- we believe it's a one-off case. It's on the hospitality sector, really good loan-to-value. We actually don't expect any losses in that one. And on the CRE front, we continue to originate. We have a good pipeline and obviously, under our underwriting criteria, we continue to move up the balance sheet, yes.
Our next question is from Brett Rabatin of Hovde Group.
I wanted to ask on the loan origination side. I know commercial can be a little lumpy. And obviously, 4Q was really strong. But if I heard correct, 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. 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?
Yes. Actually, we think this year, 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 prior years. And we believe that actually we're going to see some growth in residential which we already actually experienced this quarter, which was not the case if you look back, very slight growth over the past year. So that's the way we see the mid single-digit 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.
Yes, we have about, I would say, a dozen of improvement to the digital 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 dual brand. We do both Visa and Mastercard. The Apple Pay project is ongoing. We have some vendors that are involved in the execution. And there's priority and timing of those, but you should see that happening during this year, combined with some 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. What do you think today just in terms of where you see the credit risk, particularly on the commercial side?
Well, I think I made 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, very large banks also there. In terms of credit, we continue to see a healthy pipeline. We have our underwriting guidelines. The portfolio has performed. If you look at the segregation of the ACL outperformed really well in Florida. Cases that we see, obviously, it's a smaller portfolio than Puerto Rico. So you have less [ variety ]. But at this point, we continue to see Florida as a healthy portfolio. We have very limited office they're small and it's a well-diversified book.
So Puerto Rico, when we say slower rate on the CRE, remember, there was no construction build 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's why -- and yes, there's opportunity for growth, but we keep ourselves to our underwriting guidelines and try not to deviate from those.
Our next question comes from the line of Steve Moss of Raymond James.
Maybe just following up on loan growth here. Maybe following up on loan growth here. Just kind of curious with the 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 will be a little bit positive, but do you think it will be more back half weighted as we think about the mid-single-digit growth.
Well, in the last call, we actually said that we see loan growth in the second half of the year, if I recall, we did cover that item. To be honest, we in today's environment with the conclusion of tariffs is going to be the answer to your question because some investors are sitting on the sidelines waiting to see if I close this or I don't close this. So that's happening over the industry, not only in Puerto Rico.
So I think it's -- the conclusion which should happen over the next 90 days will bring conclusion to that. The pipelines continue to build. So if I look at my pilot 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. 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 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 BanCorp. thing, it's going to be a marketing. So we're very closely working with our clients to continue moving the needle and supporting them. But market could change, perspective of risk and perspective of investors in turning into deals or not. So that's just a reality that we have to deal with in every cycle. But yes, for now our mid-single-digit guidance continues.
Got it. I appreciate that color. And then in terms of just kind of curious on the -- I think it 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 in that metric, yes, from prior year. We expect a reduction prior year on the charge-off -- on the rate itself, obviously, it's -- balances could grow and absolute amounts could grow [ both ] charge-off rates should improve year-over-year.
Remember, Steve, that we saw a ramp-up of charge-offs through 2024 on the consumer side. So when you compare it to first quarter, it's -- we're looking more to prior quarters because that's where we say that the benefit is going to start coming as some of these older vintages that started -- that behave worse are getting [ runoff ]. So we have that -- and remember, we also have the sale of charge-off loans that improved the net charge-off on the consumer side.
Yes. Okay. Great. I appreciate that color there. And just one last one for me, just for clarification. The 5 to 7 basis points of margin expansion is off the 4.48% adjusted margin correct?
That is correct. That is correct.
Our next question comes from the line of Kelly Motta of KBW.
Question. maybe piggybacking off that margin outlook. I really appreciate all the color on the securities repricing as well as your outlook there for 5 to 7 basis points of expansion during the quarter. Just turning to the other side of the balance sheet, I would imagine given your securities 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 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?
We're seeing more stability than the 2 prior years. We're seeing from our transactional activity, actually some growth in what we consider core [ transaction and ] noninterest-bearing. Obviously, we have an appetite for government deposits, which we are there and we continue to support as long as they are 100% collateralized to be. That is our appetite. If that would change, we'll 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 have a slight increase and we continue to monitor. It's really a very critical strategy for all of us, but are definitely really stable.
Got it. That's really helpful. And then 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 4Q is a better run rate going forward from here? And any dynamics that may have impacted 1Q?
I'm thinking here, there was nothing -- are you looking versus last year? Or are you looking versus December?
Versus December.
Because 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 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.
Yes. Our goal for this quarter was $50 million, and we are -- 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 always a consideration if a unique opportunity shows up on the market that we at -- we have the flexibility so. But the goal is [indiscernible] the $50 million.
Yes. Got it. And last one, that 4.48% adjusted margin, 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.
Our next question comes from the line of Timur Braziler of Wells Fargo.
I want to first follow up on the deposit line of questioning. I think if I heard correctly, there was some chunkiness in deposit flows 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 FirstBank and what the expectation is maybe over the next couple of quarters on the deposit side.
I mean if you look -- we had a couple of cases that were deposits we got at the end of the year, meaning at the end of the year, mainly 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 been moved. We thought it was going to be at the end of last year. It did not happen. It happened early this year. So that was a chunky component 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 2 specific customers.
Okay. And then to that, maybe just going back to the Florida conversation, you had talked about the $12.6 million hospitality credit. It looks like there was another one that was called out 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 that 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.
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 13. 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.