First BanCorp. New

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 start followed by one on your telephone keypads. 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 Bank Corp'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 Bank Corp are Aurelio Alemán, President and Chief Executive Officer, and Orlando Vérez, Executive Vice President and Chief Financial Officer. Before we begin today's call, it is my responsibility to inform you that this call may involve certain forward-looking statements, such as projections of revenue, earnings, and capital structure, as well as statements on the plans and objectives of the company's business. The company's actual results could differ materially from the forward-looking statements made due to the important factors described in the company's latest SEC file. The company assumes no obligation to update any forward-looking statements made during the call. If anyone does not already have a copy of the webcast presentation or press release, you can access them at our website at fbbinvestor.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 stable credit performance. We did deliver top-performing bank across multiple metrics. We produced $87 million in net income for $0.855 per share, generated a top quarter return on answer of 1.8%, and prudently managed our expense base, resulting in a 49% efficiency ratio for the quarter. Turning to the balance sheet, we continued to first and foremost deploy our capital to support our client by facilitating a $1.4 billion in loan reanimation 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. A core customer deposit increased by $267 million, and more importantly, we achieved this while practically continuing to reduce total deposit costs. In addition, government deposit 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 peak of 3.2 percent peak of non-interest-bearing deposits during the quarter. On the asset quality side, the ratio of non-performing assets to total assets continues to decrease, reaching an all-time low level of 60 basis points during the quarter. Consumer credit continues to stabilize, and HR jobs to average loans at 63 basis points, essentially flat to the private quarter. And finally, this quarter, we repurchased 50 million in shares of common stock and declared 28 million in dividends. I think to put in perspective, since we began the buyback program in 2021, we have repurchased over 28% of shares of funding. 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 20 cents per share starting in the first quarter 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 as we demonstrate that 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 allows us to continue returning approximately 95% of earnings to shareholders, while increasing Tangi World Book value per share by 24%. Our consistent investments to advance our omnichannel strategy and improve our interaction with customers across multiple channels, meaning digital branch, continue to show incredible results in both Channels, digital, and personalized branch contact results were improved. Active retail users were all 5% when compared to last year. 95% of deposit transactions were captured through self-service channels. And our branch sales and service delivery efforts continue to pay off. In terms of the macro, I think the second half of the year show slightly lower economy in our main market. In spite of this, we do remain constructive on the underlying trends to the economy for 2026. On one side, we do expect consumer confidence to moderate somewhat. You know, impact of study-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 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. Pasadena traffic at the airport up 3%. Reaching a record height of 13.6 million passengers. Already over 2.2 billion in announced investment to expand manufacturing capacity in the island. driven by the assuring efforts and the consistent flow of federal disaster relief funds that will support critical infrastructure development for the year 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 disbursements 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 with our markets and deliver consistent return to shareholders. Our guidance remains largely unchanged. We're focused on delivering 3% to 5% organic loan growth, sustaining a 52% or better efficiency ratio, maintaining a strong profitability matrix, and returning close to 100% of final earnings back to shareholders. As equality is expected to remain stable, with consumer credit quality gradually returning to the pandemic levels that we have seen, driven by basically inflationary pressure to the consumer, even though compensation is better and there is a stable unemployment. We are in great capital position, continue to make the right investments to modernize and enhance our franchise to drive both growth and efficiencies. and deliver strong performance in 2026. With that, I thank you for your continued trust. 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, 55 cents per share, which compares to the 100.5 million or 63 cents 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 12 cents per chair for the quarter. Comparing the quarters excluding these items, earnings per chair was 8% higher this quarter from the amounts in the third quarter. I just said pre-tax, pre-provision income was 129.2 million, which compares to 121.5 in the third quarter. For the full year 25, net income was $344.9 million, which represents $2.15 per chair. And adjusted pre-tax preparation income reached an all-time high of $499.2 million, which is 10% higher than 2024. On an on-gap basis, adjusted for the items I mentioned before, net income reached $325.3 million for the year, which is $2.02 per share, which is 8.6% higher than 2024. Return on average assets for 2025 was 1.81%, which compares to 158 in 2024. And on a non-GAAP adjusted basis, return assets was 171 for the year. 2025 marks the fourth consecutive year that we surpassed our return average target, return average asset target of 150. Again, you know, strong, strong year, and we're pleased, very pleased with that. In terms of net interest income for the quarter, we have an increase of 4.9 million, 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 465, 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 accounts. 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 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 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 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 CNI 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 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 fact, partially compensated by an increase of $155 million in the average balance of 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 2036 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 two to three basis points per quarter during 2026. Other income items, we had a 3.5 million increase against prior quarter. Part of it was related to a 1.8 million gain from purchase income tax credits, and we also had an increase of 1.6 million in mortgage banking revenues and 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 third quarter. Actual increase was $1.1 million which was doing part to the full quarter effect of merit increases that were granted in the third quarter. We also saw there 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 REO operations. Since we, you might remember that during the third quarter, we booked 2.8 million valuation allowance on a repossessed property that we didn't have this quarter. And we also had this quarter a reversal of 1.1 million part of the accrual for the FDIC special assessment. Expenses before ORIA results and the reversal of the accrual of the FDIC. Special assessment worth $128.8 million for the quarter, which compares to $126.2 million in the third quarter, adding back the employee retention credit. This is slightly higher than our guidance and reflects some of the investments we're doing in technology, but the efficiency ratio remains 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 to 130 million, excluding the OREO losses. Gains or losses, I mean. However, we do believe that our efficiency ratio will still be in that range of 50 to 52% considering the changes on the expense side, but also on the income component. In terms of asset quality, we saw a stable quarter and NPAs 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, as a result of the sales we achieved during the quarter. On the other hand, we had two CNI 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 third quarter. In terms of inflows to non-accrual, there were 14 million higher this quarter, 46 million, but it's related to these two cases that I mentioned that went into non-performing, the two CNI loan cases. In terms of delinquency, we saw loans in early delinquency, which we defined as 30 to 89 days past due, increased 2.1 million. It was mostly on the Carlos Ortiz- Auto portfolio that increased 7 million, but we had some reductions of 6 million in the Florida CNI loan delinquencies. Carlos Ortiz- The allowance for credit losses on loans increase 2 million in the quarter to 249 million represent 1.9% of loans compared to 1.89% in the in the third quarter. This increase mostly relates to the growth we had in the commercial and residential mortgage portfolios. Net charge 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, 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 PCE ratio expanded to 10%, mostly due to the $38 million improvement in the fair value of available for sale investment securities. The remaining AOCL now represent $2.22 in tangible book value per share and slightly over 160 basis points in our tangible common equity ratio. Again, this year we sustained our commitment to deliver close to 100% of earnings, as Aurelio mentioned, through capital actions. We repurchased, this year we repurchased $150 million in common shares. We paid $150 million in dividends and 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 chair 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 chairs 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.

Thank you. If you wish to ask a question, please press start 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 Rabaton from Hoverday Group. Your line is now open. Please go ahead.

Hi, guys, this is Anya Paltrow speaking on behalf of Brett. You know, we're just wondering if you feel there's any more mixed shift change with lower liquidity and any other levers that might aid the NIM going forward from here.

The levers would be similar. I think it's going to come from this cash flows on the investment portfolio. We still have those, 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 going to be probably two more rates toward the end of the year, and two more cuts, I mean, and that would have some impact. But clearly, the repricing of the commercial portfolio, the floating side, you know, does have some impact, and that's included in our numbers. You know, the rate reduction we had in mid-December obviously is going to reflect more on that portfolio now in the first quarter. But the overall, we still feel that there should be an improvement in margin.

Thank you. And, 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 cities mostly. Those are repricing with market and, you know, we don't have long-term issues of brokers. Mostly they were originally issued somewhere between nine months and 18 months. So those are coming due and are being reissued to fund our Florida operation at lower rates. The other component is 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 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. If you go back, you'll see that they didn't go up as much either when rates were going up. So 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.

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?

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 of. So, you know, I think we call it stable when you look at the mix of assets, you know, mortgage is 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.

Thank you. That's all for me.

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

Good morning.

Morning. Good morning, Steve.

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

Yeah, 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 studies were implemented. So, if you consider that it's actually the second half of the year, the reduction was over 15% compared to prior year. So, so we are, 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. You're considering that their normalization in the last quarter, unless, you know, there's some, 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 tariffs immediately, others didn't. The ones that didn't, you know, obviously regained some of the shares, the other lost shares. So this is, you know, the percentage that I provided you is a combination of all the industries. So we, you know, 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 in the segment. So unless there is adjustments on tariff or excess tax in 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. And then the 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.

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

Well, as you know, we don't take credit risk on the portfolio, so it's a market-driven kind of situation. 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 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, 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. Orlando Arocena- You know, I would see I see it always as a two to three basis points pick up on on the on those one 165 that are my two years on the first half of the year.

Okay. Joseph Baeta, Supt of Schools & Appreciate that Orlando and then on the telecom npl is that that a club deal just kind of curious any call you can give there and kind of thoughts on maybe timing of potential resolution.

Yeah, 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 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 MPA towards resolution. That's the main goal. It's just a matter of time and progress. For us, it's a small, very small dissipation, yeah.

Right. Okay. And then just one last one for me here. You know, on capital, you guys have been, you know, you know, betting 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 of shareholders and reducing, you know, common equity tier one ratios. Just kind of curious if you guys are thinking about anything along those lines these days.

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. We just opened in the last quarter, you know, an office in Boca Raton. And then, you know, obviously, There could be non-organic opportunities always open and looking unless, you know, 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.

Okay, great. I appreciate all that, Koda, and I'll 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 for Kelly model. Thanks for the question. Just a point of clarification. I was wondering, I'm good. I was just wondering specifically how you guys are calculating the efficiency ratio. You're gotten to 52%. Is that X Oreo games or just point of clarification there? Thank you.

The efficiency ratio is typically calculated with everything. As you saw, the number this quarter was included in everything. So we tend to calculate it on a gap 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 50 to 52 guidance is on a gap basis considering movements in expenses and in revenues.

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

Well, that is a goal. You know, we, 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, you know, 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 banker. A competing, so that that's an area that we've been expanding. So, and that that obviously. The goal is to, you know, grow customers, a growing interest, varying deposits and 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. So, you know, it's like a strategy and, you know, obviously, you know. You have to, you have to look for tactics and sell strategies and products to to achieve it.

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

Thank you. Thank you.

Thank you. As a reminder, if you did want to ask a question, please press start followed by one on your telephone keypads now. That's start followed by one. We currently have no further questions, so I'll hand back over to Ramon for closing remarks.

Thanks to everyone for participating in today's call. We will be attending BOA's Financial Services Conference in Miami on February 10 and KBW's Conference in Boca on February 12. We look forward to seeing a number of you at these events, and we greatly appreciate your continued support. Have a great day. Thank you.

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