First BanCorp (FBP) Q2 2025 Earnings Call Transcript
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What the data shows is What's particularly noteworthy is Image source: The Motley Fool. Moreover, DATETuesday, July 22, 2025, at 10 a. EDTCALL PARTICIPANTSPresident and Chief Executive Officer — Aurelio...
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real estate
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July 22, 2025
11:36 AM
The Motley Fool
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What the data shows is What's particularly noteworthy is Image source: The Motley Fool
Moreover, DATETuesday, July 22, 2025, at 10 a
EDTCALL PARTICIPANTSPresident and Chief Executive Officer — Aurelio AlemanChief Financial Officer — Orlando BergesChairman — Ramon RodriguezNeed a quote from one of our analysts (fascinating analysis). [ tected]TAKEAWAYSNet Income: Net income was $80 million, resulting in earnings per of $0
However, Return on Assets: 1, in today's financial world
On the other hand, 69% return on assets, up from the prior quarter, attributed to record net interest income (GAAP) and stable asset quality
Additionally, Net Interest Income: $215 (noteworthy indeed). 9 million in net interest income, a $3
In contrast, 5 million sequential increase, including a $1
Nevertheless, Meanwhile, 6 million benefit for an extra day
Net Interest Margin: 4, in this volatile climate. 56% on a GAAP basis, up four basis points from last quarter; normalized margin increased eight basis points sequentially when excluding prior period nonrecurring fees, given the current landscape
On the other hand, Pretax Pre-vision Income: Pretax pre-vision income was up 9% compared to the prior year, slightly below the previous quarter
Efficiency Ratio: 50%, at the low end of the 50%-52% target range
Furthermore, Total Loan Growth: 6% annualized, led by commercial loan duction in Puerto Rico and Florida, given the current landscape
Deposit Change: Decline concentrated in large commercial accounts, with five customers accounting for a $120 million outflow; retail deposits remained stable
On the other hand, Allowance for Credit Losses: $248. 6 million allowance for loan losses, reflecting portfolio growth and imving unemployment outlook in Puerto Rico; ratio decreased two basis points to 1
Net Charge-Offs: Net charge-offs were $19
In contrast, 1 million, representing 60 basis points of average loans, down from 68 basis points in the first quarter
On the other hand, However, the first quarter included $2 (quite telling). 4 million in recoveries related to a bulk sale of consumer charge-off loans; excluding that, the net charge-off rate for the first quarter would have been 76 basis points
In contrast, Non-Performing Assets (NPA) Ratio: 0, in today's market environment
Moreover, 68% of total assets, unchanged from the prior quarter
Nevertheless, Operating Expenses: $123. 3 million in operating expenses, flat compared to the prior quarter; guided to rise to $125-$126 million in the next couple of quarters (excluding OREO gains or losses) due to investments
Tax Rate Guidance: Management expects an effective tax rate of 23% for the full year 2025
Investment Purchases: $397 million in securities purchased at a 4
Additionally, 78% average yield (noteworthy indeed)
Capital Actions: $29 million in dividends declared and $28 million in repurchases, with a remaining $100 million of buyback authorization for 2024
At the same time, Tangible Book Value Per : Tangible book value per increased 5% to $11, given the current landscape
Nevertheless, 16; accumulated other comprehensive loss (AOCL) represents $2. 69 in tangible book value
Nology Investments: focus on cloud migration and digital channel expansion, supporting efficiency and customer engagement initiatives, as evidenced by an 8% annual rise in active digital customers achieved consistently over the past five years (2020 to 2025)
At the same time, Guidance: Management reiterated confidence in achieving mid-single-digit loan growth for the full year, based on current pipelines and reduced market uncertainty (this bears monitoring), in this volatile climate
Additionally, SUMMARYFirst BanCorp (FBP -2
On the other hand, 06%) reported modest sequential imvements in net interest margins on a GAAP basis, driven by asset mix optimization and disciplined funding cost management
Management emphasized that the reduction in customer deposits was mostly attributable to nonrecurring outflows from a small number of large commercial clients, while retail deposits remained stable, and customer counts increased
The company achieved sequential imvements in key credit quality indicators, while maintaining stable non-performing asset ratios (GAAP) at 0 (an important development). 68% and lowering charge-off rates
In contrast, Operating expenses remained well controlled despite nology investments, with management reiterating its 50%-52% efficiency ratio target for future quarters and guiding to modestly higher expense levels for the coming quarters (something worth watching), given current economic conditions
Furthermore, At the same time, Strategic capital deployment remained focused on holder returns, with repurchases and dividends, and a commitment to using excess investment portfolio cash flows to support anticipated loan growth in the second half of the year
The company noted anticipated investment portfolio cash flows exceeding $1 billion in the second half of 2025, of which $460 million of that in the third quarter and $600 million in the fourth quarter
Targeted for redeployment into loans
However, Chief Financial Officer Orlando Berges stated, "We continue to sustain the five to seven basis point pickup in the margin in each of the next quarters, as we mentioned during the first quarter call. "President and Chief Executive Officer Aurelio Aleman described the labor market as remaining strong and resilient in core
Additionally, Aleman said the bank’s buyback gram aims to deploy 100% of our annual earnings to holders in the form of capital actions for FY2024
Additionally, Roughly $100 million of the 2024 buyback authorization remains and is expected to be executed over the next two quarters
Meanwhile, INDUSTRY GLOSSARYOREO: Other Real Estate Owned, referring to perty acquired by a bank through foreclosure or similar ceedings, held for eventual sale, in today's market environment
However, AOCL: Accumulated Other Comprehensive Loss, a component of holders' equity reflecting unrealized losses on securities or other items not included in net income
PCE Ratio: Presumed to be Price-to-Common Equity Ratio as used in context, representing the ratio of market capitalization to common equity
Nonaccrual Loans: Loans on which the bank has stopped accruing interest due to uncertainty repayment (noteworthy indeed), considering recent developments
Full Conference Call TranscriptAurelio Aleman: Good morning to everyone, and thanks for joining our earnings call today
Furthermore, As usual, I will begin with discussing our financial performance in the second quarter and then vide some high-level macro observations and also some highlights
We're very pleased to report another strong quarter (remarkable data)
The financial results underscore the strength of the franchise and ability to der returns to our holders
Additionally, However, We earned $80 million in net income, which translated into a strong return on assets of 1
On the other hand, 69%, driven by record net interest income, solid loan duction, and well-managed expense growth
Pretax pre-vision income was slightly below the prior quarter but up 9% when compared to the prior year
Furthermore, In contrast, More importantly, we sustained our top card file efficiency ratio at 50%, actually in the low end range of our range of 50% to 52%
Turning to the balance sheet, we were very encouraged to see commercial loan origination activity pick up during the quarter, a indication of a stable macro across our and obviously the successful execution of our teams
We grew total loans by 6% for the quarter annualized, mostly driven by strong commercial loan duction in Puerto Rico and Florida (this bears monitoring)
Commercial lending pipelines actually continue to be strong as we enter the second half of the year, which is crucial for our strategy (an important development)
Moving on to deposits, we did see a reduction in customer deposits during the quarter, mostly driven by frustration in a few large commercial accounts, while retail deposit accounts remain fairly stable
Nevertheless, When we actually look at the detail of this decline, it was concentrated on very high balance, large commercial accounts, given the current landscape
As an example, five customers accounted for $120 million of that reduction
In terms of asset quality, the environment continues stable, I will say stable to imving from a credit standpoint, with most recent metrics moving in the right direction
Recent vintages are performing better than prior vintages
Non-performing assets remained flat at 68 basis points of total assets, and net charge-offs came down during the quarter
This highlights the benefit of prior year's credit policy calibration and the imvement in the consumer vintages
Moreover, Furthermore, Finally, our capital continues to build quite nicely even though we continue to execute on our capital deployment plan during the first half of the year
Consistent with the strategy that we announced year to date, we have deployed over 107% of earnings in the form of dividend buybacks and relation with drops (remarkable data)
Nevertheless, On the other hand, We definitely feel this action best suits the long-term interest of the franchise and our holders, given the current landscape
Nevertheless, So let's turn to page five to vide some highlights on the macro
Talking the main market, we believe the economic conditions and activity in Puerto Rico and Florida are favorably (fascinating analysis)
Obviously, there are economic concerns and uncertainty around tariffs and changes in US policies (which is quite significant)
On the other hand, The potential effect of this represents a degree of uncertainty for both retail and commercial customers
Additionally, But we continue to see investments and commitment moving forward
However, The labor market remains strong and resilient, reflecting the lowest unemployment rate in decades, considering recent developments
Additionally, After a few months of government transition, we're seeing some encouraging trends in disaster relief inflow, which continue to support economic activity and infrastructure development on the island
In contrast, Those jects, which we also participate in as it relates to affordable housing
Additionally, In terms of the franchise, our key investments are in nology, and we continue to increase that investment to achieve long-term growth for our
We're also contributing to der our best-in-class efficiency ratio, in today's financial world
Market analysis shows franchise investment remains focused on imving our interaction with customers and viding them with a seamless experience through our multiple channels
The successful execution of our omnichannel strategy has been evidenced by the 8% annual rise in digital active customers achieved consistently over the past five years, coupled with a steady reduction in branch active customers over the same period, in today's financial world
Nevertheless, When we look at our strategy for the franchise, supporting economic development in our market is a main priority
Lending to both consumers and corporations
If we break down our loan growth for the first half of the year, commercial credit demand has been very strong while residential mortgage saw a slight increase and consumer credit demand has been relatively steady
Based on current lending pipelines, reduction in broader market uncertainty, and our outlook for imving consumer health in Puerto Rico, we remain confident that we can achieve our mid-single-digit loan growth guidance for the full year
We still have half of the year to catch up (something worth watching)
Our track record will continue to be return-focused and allocate our capital where it makes more sense to our customers and holders
Moreover, As we do every year, we are reviewing our capital plan and will vide an when we report third-quarter results in October
However, Remember that we still have $100 million left of our 2024 buyback authorization, which we expect to opportunistically execute over the next two quarters aiming to achieve our target of deploying 100% of our annual earnings to holders in the form of capital actions, in light of current trends
However, Thank you for your interest and support, and thanks to our colleagues for their collective achievements supporting our customers
I will now turn the call to Orlando to go over financial results in more detail (fascinating analysis)
Meanwhile, Orlando Berges: Good morning to everyone
As Aurelio mentioned, we had a strong second quarter, highlighted by a net income of $80 million, which is $0
The return on assets that he mentioned increased to 1, considering recent developments
On the other hand, 69% and an expansion of the net interest margin to 4. 56% for the quarter
The vision for the quarter decreased $4 million from $24. 8 million in the first quarter, which was driven by reductions in net charge-offs in consumer net charge-offs and imvements in the macroeconomic forecast
Specifically, the jected unemployment rate in Puerto Rico, which has an impact on jected losses
Furthermore, The income tax expense for the quarter includes a benefit of $500,000 related to a reversal of a tax contingency accrual
But also the effective tax rate is coming in lower based on a higher portion of exempt income
Nevertheless, Considering the jected consolidated income for the year, we believe that the effective tax rate for the year should be around 23%
In terms of net interest income, it increased to $215. 9 million in the quarter, $3. 5 million higher than last quarter
At the same time, This quarter includes a $1, in this volatile climate. 6 million imvement for an extra day in the quarter (noteworthy indeed)
However, as we discussed in the previous quarter earnings call, the net interest income for the first quarter included $1 (an important development). 2 million in fees on penalties collected on the early cancellation of a $74 million commercial mortgage loan
Nevertheless, This analysis suggests that quarter, we didn't have anything similar to that
On average, the commercial and construction loan portfolios grew $100 million this quarter, but yields were down four basis points to 6. 67% when considering normalization of the second quarter yield
However, In the case of the consumer portfolios, the average balances were slightly down $2 million, basically on the unsecured lending
Auto and leasing portfolios grew $24 million on average
On the other hand, The yields on the overall consumer portfolios were down from 10
Moreover, 57%, in part due to a change in the mix as auto loans have a lower yield than some of the other unsecured lending portfolios, given current economic conditions
Additionally, Regarding the investment securities portfolio, we're starting to see the pickup in yields, given current economic conditions
We saw a growth of six basis points in the quarter as we continue to reinvest the lower-yielding maturing cash flows into higher-yielding instruments
This quarter, we purchased $397 million in securities at an average yield of 4
Furthermore, On the funding side, we the redemption of the remaining junior subordinated debentures and paid down at the end of the first quarter $180 million in Federal Loan Bank advances that were higher-cost funding
As a result, the overall cost of interest-bearing liabilities decreased $2, in this volatile climate
On the other hand, 3 million for the quarter, and the average cost was 2. 14%, which is nine basis points lower
In the case of deposits, even though at the end of the quarter they were down, as Aurelio mentioned, on average, interest-bearing deposits, excluding brokered, were $110 million higher than last quarter
Furthermore, The cost of interest-bearing transaction accounts was 1. 38%, which is six basis points lower than last quarter, and the cost of time deposits was 3. 36%, which is three basis points lower (this bears monitoring)
All of this translates into a net interest margin of 4. 56%, which is four basis points higher than the 4. 52% reported last quarter on a GAAP basis
Additionally, However, as we discussed in the prior earnings call, if we exclude the items I mentioned before, the fees on the loan that we canceled, the normalized margin for the first quarter was really 4. 48%, thus resulting in an eight basis point sequential margin increase this quarter as compared to the first quarter, in today's market environment
In terms of guidance, we continue to sustain the five to seven basis points pickup in the margin in each of the next quarters as we mentioned during the first quarter call, considering recent developments
Assuming the normal flow of deposits, we're confident we'll be able to continue to reinvest incoming cash flows from lower-yielding securities into higher-yielding assets over the coming months and into 2026
Investment portfolio cash flows are expected to reach just over $1 billion in the second half of 2025, $460 million of that in the thir, in this volatile climate.
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