FBP - NYSE

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

Thank you, Becky. Good morning, everyone. 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 this call may involve certain forward-looking statements such as projections of revenue, earnings, 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.

Thanks, Ramon, 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 $0.8055 per share, generated a top quartile return on asset 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 work 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. Core customer deposits increased by $267 million and more importantly, we achieved this while gradually continuing to reduce total deposit cost. 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 pickup, a 3.2% pickup in core non-interest bearing deposit during the quarter. On the asset quality side, the ratio of nonperforming 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 off to average loans at 63 basis points, essentially flat to the prior 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 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 the investment we're making are driving strong operating performance. We crossed $1 billion in total revenues, generated 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. Our strong profitability allows 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 you know, multi across multiple channels, meaning digital branch continue 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 continue to pay off. In terms of the macro, I think the second half of the year showed, you know, slightly lower economy in our main market. In spite of this, we do remain constructive on the underlying trend to the economy for 2026. On one side, we do expect consumer confidence to moderate somewhat, you know, 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 drivers of stability in 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 level market here, unemployment rate hovering above 5.7%. Another year with strong tourism activity, pass-through 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 on 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 the 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 our 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 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 rather returning to the pandemic levels that we have seen driven by basically, you know, inflationary pressure to the consumer. Even though compensation is better. And there is stable unemployment. We are in a great capital position, continue to make the right investments to modernize and help 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.

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 $0.63 a share we had in the third quarter. Last quarter results included the reversal of $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. If comparing the quarters, excluding these items, earnings per share was 8% higher this quarter from the amounts in the third quarter. Adjusted pretax pre-provision income was $129.2 million, 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 pretax 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. And on a non-GAAP adjusted basis, a return was 1.71% for the year. 2025 marks the fourth consecutive year that we surpassed our return average target return average assets target of 1.50%. Again, you know, strong year, and we are very pleased with that. In terms of net interest income for the quarter, we have an increase of $4.9 million 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 eight 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 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 account. Also, the cost of other interest-bearing checking and savings accounts decreased four basis points during the quarter. We combine all of these items with the fact that we grew noninterest-bearing deposits by about $170 million in the quarter, this helped reduce the overall funding cost 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 a $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 a $0.4 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 SOFR. 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 seven basis points. This reduction in yields was in part partially compensated by an increase of $155 million in the average balance of loan portfolios. We expect 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 and 2026, and our projected loan and deposit movement. We expect that margin will grow two to three basis points per quarter during 2026. Other income items, we had a $3.5 million increase against the 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 card processing income based on volumes of sales and transactions. Operating expenses for the quarter were $120.9 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 third quarter. The actual increase was $1.1 million which was due in part to the full quarter effect merit increases that were granted in the third quarter. We also saw during the quarter an increase of $2.1 million in business promotion which is mostly related to seasonal marketing efforts. These increases were partially compensated by an improvement in OREO operations. Since you might remember that during the third quarter, 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 third quarter. Adding back the employee retention credit, it is slightly higher than our guidance and reflects 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, ongoing technology projects, and some of the business promotion efforts we were undertaking at the beginning of the year, we expect that the quarterly expense base for 2026 would be in the range of $128 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 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 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 assets, the result of sales we achieved during the quarter. On the other hand, we had two C&I loan cases amounting to $12 million that migrated to nonperforming in the quarter. Overall, nonaccrual loans represent 70 basis points of total loans compared to 74 basis points at the end of the third quarter. In terms of inflows to non-accrual, they were $14 million higher this quarter, $46 million, but it related to these two cases that I mentioned that went into nonperforming. The two C&I loan cases. In terms of delinquency, we saw loans in early delinquency which we define as thirty to eighty-nine days past due. Increased $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 representing 1.9% of loans compared to 1.89% in the third quarter. This increase mostly relates to the growth we had in the commercial and residential mortgage portfolios. Net charge off 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 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 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 represents, the $2 and $22 intangible 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 a 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 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 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.

Thank you. If you wish to ask a question, please press. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Brett Rabatin from Hobday Group. Your line is now open. Please go ahead.

Hi, guys. This is Anya Pulsar 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?

The levers would be similar. I think it's gonna come from this cash flows on the investment portfolio. We still have those 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 that you know, the rate reduction we had in mid-December obviously, it's going to reflect more on that portfolio now in the first quarter. But overall, we still feel that there should be an improvement in margin.

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

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 broker CDs mostly. Those are repricing with market and you know, we don't have long-term issues of brokers mostly eighteen months. So those are coming they were originally issued somewhere between nine months and coming due and are being reissued to fund our Florida operation at a lower rate. The other component, it's the time deposit side. Obviously, with rates coming down, we are seeing some of the ones that were issued at higher rates now being repriced at slightly lower rates. And as rates come down, some of the other, government deposit accounts will have some repricing. Some of them are tied to market indexes. So those are 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 didn't go up as much either when rates were going up. So we'll 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.

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 it's obviously fairly stable, but is there anything that you see might change that for better or for worse?

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 off. So, you know, I think we call it stable when you look at the mix of assets. You know, mortgages, at least. 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 portfolio.

Thank you. That's all for me.

Thank you.

Thank you. Our next question comes from Steve Moss from Raymond James. Your line is now open. Please go ahead.

Good morning. Good morning, Steve. Starting here with morning. Maybe just you know, on the loan growth part, just curious regarding 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. 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 tariff were implemented. So if you consider that it's actually the second half of the year, the reduction was over 15%. Compared to the prior year. So we believe we have seen months of stabilization, you know, at a level at a level you know, that would be around, you know, an additional 5% this year. Contraction. Considering that their normalization in the last quarter. Unless, you know, there's some reversion on the pricing, you know, it's very fluid because some of the manufacturers are still looking to adjust pricing down. Some of them implemented the tariff immediately, others didn't. The ones that didn't, you know, obviously, regain some of the share. The other lost shares. So this is you know, the percentage that I provided you is a combination of all. The industry. So 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 seven 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's adjustments on tariff or excise tax on the island. That could help that industry. Still a pretty good year 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. Okay. And then the consumer demand consumer demand demand on the other products is kind of stable, but we don't expect we don't see we don't see growth as you continue to focus on underwriting in a sound manner.

Okay. That's helpful. And then on the security cash flow, 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, 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 agent investments, CMO investments that 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, 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 would see I see it always as a two to three basis points pickup. On those one sixty-five that matures on the first half of the year.

Okay. Appreciate that, Orlando. And then on the telecom NPL, 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.

Yeah. You know, there's not a lot of new information on it. Know, I think, all banks continue to work with the lead bank on understanding with the resolution. There's, you know, a lot of value behind it. So obviously, you know, I think it's just waiting as we manage any other NPA towards resolution. That's the main goal. It's just a matter of time and progress.

Yeah. It us, it's a small very small. Participation. Yeah. Right. Okay. And then just one last one for me here, you know, on capital, you guys been growing, 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 to shareholders and reducing, you know, common equity Tier one ratios. Just kind of curious if you guys are thinking about anything along those lines being based.

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. Like, we just opened in the last quarter, you know, a bump in an office in Boca Raton. We and then, you know, obviously, there could be non-organic opportunities always open and looking unless yeah. 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 by the shares. So we always have the three options. Organic, the most efficient. In terms of returns. The others, you know, we continue to play them both as market show opportunities. You know, we try to be as opportunistic as we can. So.

Okay. Great. I appreciate all that color, and step back in the queue. Nice quarter. Thank you.

Thank you. Our next question comes from Kelly Motta from KBW. Your line is now open. Please go ahead.

Hi. This is Charlie on 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 efficiency ratio. You're guiding to 52%. Is that ex OREO gains or just one 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. 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 on the older properties that we had repossessed, you know, were taken at lower values and that being compensated. So we do include it as part of the guidance of 52%, even though we do include the expense guidance without it. Because of the volatility it could present on total expenses. But the fifty-two to fifty-two guidance is on a GAAP basis considering movements and expenses and earnings and revenues.

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

Well, that is, you know, that is a goal. You know, that's the value of the franchise, 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, we know, it's the inefficiency ratio Orlando mentioned, for example, we will be opening a new branch on 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, 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 types of loan origination. So, you know, it's a good strategy and, you know, 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. Thank you.

Thank you. That's star followed by one. 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 Financial Services Conference in Miami on February 10, 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.