First BanCorp. Q4 2024 Earnings Call Transcript

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January 23, 2025
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Operator

Hello, everyone, and thank you for joining the First Bancorp Fourth Quarter 20 24 and Full Year Financial Results. My name is Becky, and I'll be your operator today.

Operator

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

Ramon Rodriguez
Ramon Rodriguez
Senior Vice President of Corporate Strategy / Investor Relations at First BanCorp

Thank you, Becky. Good morning, everyone, and thank you for joining FirstBank Corp's conference call and webcast to discuss the company's financial results for the Q4 and full year 2024. Joining you today from FirstBank Corp are Aurelio Aleman, President and Chief Executive Officer and Orlando Verrejes, 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

Ramon Rodriguez
Ramon Rodriguez
Senior Vice President of Corporate Strategy / Investor Relations at First BanCorp

the plans and objectives of

Ramon Rodriguez
Ramon Rodriguez
Senior Vice President of Corporate Strategy / Investor Relations at First BanCorp

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 fppinvestor.com. At this time, I'd like to turn the call over to our CEO, Rodrigo Raymondo.

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

Thank you, Ramon. Good morning to everyone and thanks for joining our earnings call today. I will begin by briefly discussing the business performance for the Q4, then we'll move on to provide some high level highlights of how we performed during the full year. We're quite excited how we closed 2024 and with another quarter of consistent execution and a strong financial performance. We earned $76,000,000 in net income and grew pretax pre provision income by 5% to $117,000,000 primarily driven by net interest margin income expansion and our disciplined expense management process.

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

Return on average asset was again strong at 1.56 percent and the organization continued to operate at an efficiency ratio close to 52%, which is in line with our guidance. Turning to the balance sheet. The quarter was strong. Total loans grew by $330,000,000 or 9.7% in the quarter annualized, driven by growth actually across all business segments, consumer, commercial and mortgage and between Puerto Rico and the Florida region primarily, particularly within the commercial and construction lending segments. However, we saw we were expecting some portfolio repayments in the quarter, which came a little bit lower.

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

We anticipate that some of that will come in between the 1st and second quarter of this year in the range of probably $50,000,000 to $100,000,000 In terms of deposit, core deposit trends were also very encouraging with total deposits other than broker and government up 2% sequentially from prior quarter and 4% when we include government deposit. As we have seen in prior quarters, we did some we see some seasonality in deposit inflow during the quarter that they are temporary in nature or they have to do with the variability of the government sector funding of reconstruction activity. Credit performance was relatively stable during the quarter with nonperforming asset hitting another record low of 61 basis points of total assets. On the capital front and liquidity, our liquidity and capital position remains very strong. We sustain our commitment to deliver over 100% of earnings in the form of capital actions by redeeming $50,000,000 of our outstanding junior debentures and paying $26,300,000 in common dividends.

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

Even when accounting for these actions, our regulatory capital ratios increased during the quarter and remained significantly above well capitalized. We still have $200,000,000 left in our capital plan authorization, which we expect to continue deploying through 2025 in a matter that best suits the long term interest of the franchise. Please let's turn to Slide 5 to provide some highlights of the year. The solid performance of the quarter got a year of record results for the franchise in the back of a positive economic backdrop of our operating markets. We raised actually total record revenue, 6% increase in earnings per share and reached a multiyear low in nonperforming assets.

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

The loan portfolio expanded by 4.7% of $569,000,000 We added $267,000,000 in core customer deposit and distributed 100% of earnings to shareholder. Loan growth was actually quite in line with our guidance of mid single digit growth. Consistent with our strategy, our well positioned balance sheet allows us to capitalize on bond book and non repricing opportunities under the current rate environment, while proactively managing funding costs that actually will continue through 2025. We're considering stable deposits going forward. Our asset mix will continue to skew towards higher yielding assets, which coupled with gradually declining funding costs should drive additional net interest income expansion in 2025.

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

Over the course of 2024, our franchise made great progress advancing technology initiatives to improve our interaction with customers through all the convenient digital channels and service focused relationship officers. We are achieving the targets we've set to make sure we're starting success and we're seeing the benefit of the investment we made in technology to accelerate our growth and improve how we serve our communities and customers. As we look ahead, the operating environment, the 2024, 2025 actually the operating environment seems conductive of another year of positive performance and organic capital generation. If we look at the key economic metrics in the environment during the Q4, peso unemployment continued to improve, tourism metrics and passenger activity are our main airport reached record levels again and disaster relief from this version rate registered another year of sequential increments in 2024. We do expect this trend to continue as per the Puerto Rico planning board is forecasting another year of economic growth in 2025.

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

So given this backdrop for 2025, we're sustaining our mid single digit loan growth guidance. We're sustaining our 100% net payout ratio of our capital. That includes the redeeming the remaining $61,000,000 of towards Unis oriented debentures and executing recent over share repurchase opportunities and definitely maintaining a sustainable dividend payout policy. In light with this guidance, we're very pleased to announce earlier this week that our Board approved 13% increase in our quarterly common stock dividend that was raised to $0.18 per share. Again, we will continue to monitor general macro, how things develop, political changes as we execute our strategy, as we execute our capital deployment plan.

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

And to close, I have to say that I'm really, really proud of what our teams have accomplished so far. We are very positive and look forward to a very positive 2025 with optimism and excitement of our life ahead of us. Now I will turn the call over to Orlando to go over some more detail and we will be back for questions. Thanks to all.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

Good morning, everyone. Sabrielio mentioned we recorded very strong results during the quarter earning $75,700,000 in net income or $0.46 a share, which compares with $0.45 a share in the 3rd quarter. We saw the results for the quarter saw improvements in net interest income, which were partially offset by the higher provision for credit losses. The provision for the 4th quarter was $5,700,000 higher than last quarter, but this was mostly related to a $5,500,000 release we had in the allowance for residential mortgage loans during the Q3 based on the consistent positive outlook on macroeconomic variables. But also this quarter, we provided for the higher loan portfolios that we achieved at the end of the quarter.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

In general, the economic outlook remained fairly consistent going forward from what we had in the Q3 in terms of estimating the allowance. Income tax expense for the quarter was $20,300,000 which is $2,300,000 lower than last quarter. At the end, we ended up with a higher proportion of exempt income for the year, which resulted in a slightly lower effective tax rate. Effective tax rate was just under 24% for the year 2024, and we are expecting that tax rate for 'twenty five will be in that same range from 24% to 24.5%. For the full year 'twenty four, net income was 299,000,000 dollars very similar to the $303,000,000 we achieved in 'twenty three, but earnings per share were $1.81 for this year, which is $0.10 higher than we had in 'twenty three, which is the benefit of the share count reduction based on the buybacks we have done over the last few years.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

Return on average assets for the year was 1.58 and return on equity was 19.1 percent on a GAAP basis. If we were to eliminate the other comprehensive loss impact from the capital on a non GAAP basis, the adjusted return on equity would be 13.6%. As I mentioned, net interest income for the quarter was $7,200,000 higher than last quarter, reaching 209,300,000 dollars You might recall from last quarter's earnings call, we had mentioned that we were expecting that the net interest margin for the Q4 would be similar to the Q3. However, we were able to achieve an 8 basis points improvement in margin from 4.25% to 4.33% in this 4th quarter. At that time, we were expecting loan repricing impact would offset some other improvements.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

Even though we did see that repricing impact on the floating rate commercial loans. The commercial portfolio grew on average $192,000,000 more than compensated for this pricing reduction, while we achieved $37,000,000 in growth in the residential and consumer portfolios. Also, growth in deposits for the quarter allowed us to reinvest about $220,000,000 of maturing investment securities at a rate of 540. We look at cash flows. During the quarter, cash flows for the investment portfolio were $470,000,000 and that includes $367,000,000 in securities that mature with an average deal of 65 basis points.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

So the pickup in margin in yield was quite significant as compared to those 65 basis points. Deposits on interest for retail and commercial transaction accounts grew $348,000,000 on average for the quarter. These deposits have an average cost of 1.52%. On the other hand, higher cost time deposits and broker CDs decreased by $130,000,000 Also during the quarter, Unior Civil Diventures with a cost of $78,000,000 decreased by with a cost of 7.78 percent, I'm sorry, decreased $50,000,000 on average, and we did redeem an additional $50,000,000 at the end of the 3rd of Q4, the impact would be seen now in 2025. The reduction in borrowings and broker CDs resulted in an interest expense reduction of $2,800,000 for the Q4.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

As we look ahead into 2025, we still see opportunities for both our net interest income and margin expansion as we redeploy what we estimate to be somewhere between $1,500,000,000 to 1 $600,000,000 of investment portfolio cash flows in 'twenty five that are currently yielding about 1.25 percent towards other either loans or higher yielding securities or paying down some of the higher cost borrowings. If we were to assume normal flow of deposits, we expect that margin could improve around 20 basis points by the end of 2025. In terms of other income, it was fairly online. It was down a bit mostly from a decrease in insurance income due to lower production. On the expense side, expenses were $124,500,000 a $1,600,000 increase from the Q3.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

Oreo gains this quarter were $1,000,000 or $300,000 less than last quarter. Excluding OREO, expenses for the quarter were $125,600,000 which is $1,300,000 higher than last quarter and higher than the top range guidance we had provided. The increase was in part related to business promotion initiatives that took place at the end of the year and were a bit higher than we had originally anticipated. However, we did register operating leverage as an increase in the net interest income was enough to offset increase in expenses, resulting in a lower efficiency ratio of 51.6% for the quarter. Based on the current stage of several ongoing technology projects, branch network expansions planned for 2025, we estimate that our expense base for the next couple of quarters would be in the range of $125,000,000 to $126,000,000 excluding any OREO gains.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

We continue to estimate that our efficiency ratio will be around 52%, considering the changes in expenses and income components. In terms of asset quality, NPAs decreased $800,000 that now represents 61 basis points of assets. Most of the reduction was due to a repayment of a $1,800,000 nonaccrual commercial loan. Inflows for the quarter were $1,600,000 lower than last quarter, mostly consumer, even though that we have seen some early delinquency increases. The macro is fairly stable and the labor market is healthy, but consumer credit continues to show weaknesses.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

Overall loans in early delinquency increased $9,600,000 from last quarter, with consumer loans increasing $14,000,000 obviously offset by a decrease of $5,400,000 in commercial loans. We continue to proactively manage this credit cycle on the consumer side and the vintages that had impacts. And we're estimating somewhere in the middle part of the year towards the end of the year to achieve the stability we had anticipated on the consumer. The allowance for credit losses decreased $3,100,000 to $244,000,000 during the quarter, mostly from $4,000,000 reduction in the allowance for commercial loans. Based on the improvements we have seen on both the financial condition of borrowers and obviously the macroeconomic forecast, particularly on the consumer real estate indexes, which have continued to show improvement.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

The allowance for the consumer portfolio did increase $1,000,000 due to the recent loss trends. Overall, the allowance came down to 1.91 percent of loan from 1.98 percent as we continue to see these good credit trends in the commercial and residential mortgage portfolio. However, the allowance on consumer loan has gone up to 3.85 percent of loans based on loss trends that we have had in the portfolio. Net charge off for the quarter were $24,600,000 or 78 basis points average loans, pretty much in line with the prior quarter. Consumer charge off increased $1,300,000 but we had a $1,200,000 decrease in commercial charge On the capital front, regulatory ratios increased during the quarter, and we continue to operate significantly above the regulatory well capitalized levels.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

We deployed, as Aurelio mentioned, 100% of our quarterly earnings for the redemption of $50,000,000 in the Unior subordinated debentures and $26,000,000 payment of common dividends, consistent with the guidance we have provided. The tangible book value per share did decrease to $9.91 and TCE decreased to $8,400,000 which was mostly due to an $82,000,000 decrease in the fair value of available for sale investment portfolio. The remaining adjusted other comprehensive loss that we have on the books still represent $3.41 intangible book value per share and over 2.58 basis points in intangible common equity ratio. We as Aurelio mentioned, we will continue to deploy excess capital in a thoughtful manner, always looking for the long term best interest of our franchise and our shareholders. This concludes our remarks.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

Operator, please open the call for questions.

Operator

Thank you. Our first question is from Frank Schiraldi from Piper Sandler. Frank, your line is now open. Please go ahead.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Thanks. Good morning.

Ramon Rodriguez
Ramon Rodriguez
Senior Vice President of Corporate Strategy / Investor Relations at First BanCorp

Good morning, Frank.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

On the 52% efficiency ratio for 2025, I guess that's just sustaining where you are, right? I mean, I believe that's a non FTE NII is in that calculation. But then can you just remind us, is the are OREO gains, is there some level of that assumed in 2025 that's also in that calc? Or could OREO gains kind of move that even lower?

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

No, it's included in that. We do the numbers have been coming down, as we have mentioned. We do expect to still achieve probably OREA gains on the first half of the year, but that's significantly going to go down by the second half of twenty twenty five. So it's mostly the other expense components and obviously the income side, as you mentioned.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Okay.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

And you've been pretty consistent there around that 52% level. How focused are you, I guess, in 2025 on that? Do you see opportunities to ramp up or delay investments depending upon the revenue outlook to kind of really hone in on that 52%?

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

Well, in reality, we see the consistent revenue side and the we're counting on some of the opportunities that we're executing. As Fernando mentioned, we expect some margin improvement. You have the reinvestment of the portfolio or the cash flows and then we have a single mid single day target of growing the portfolio again. So those components, we bring some revenue. We're not really stopping on investments.

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

We have included we are including significant investment in technology to continue, which is bringing other benefit, which some of them would be more long term, but they are. And we also have some branch openings that are part of that number that will start happening during the we're moving branches into areas that we're not we don't have a presence where there is a deposit opportunity and a commercial bank opportunity on the small and medium market side. So we're not really halting on those investments.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Okay. And then just a point of clarification, I just Orlando, I heard you mentioned the NIM. I think you said NIM could be up 20 basis points year over year.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Is that the number you gave?

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

20 basis points is based on the quarterly pickup we expect. It would be like the margin at the end of the Q4 of the year as compared to the Q4 of 2024. That's what we're talking. It's like with the reinvestment of the portfolio and obviously considering expected deposit flows and expected new loan productions, we believe margin will continue to pick up based on that.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

As I mentioned, the cash flows that are coming due from the investment portfolio or estimated cash flows that are going to be around $1,500,000,000 to $1,600,000,000 in 2025. On average, yield $125,000,000,000 is not equally distributed. It's the ones that mature in the first half of the year are like $150,000,000 and then the other half, it's smaller. It's a lower amount of yield, but it's still you're going to get a good take up on the reinvestment or the amounts that could be channeled to loan portfolios. Obviously, we're still dealing with what's the expectation on rates.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

We had a 100 basis point assumption originally like 3 months ago that would happen in 25. But now we feel it's probably going to be 25 or 50 basis points. So we will see that part. But still, assuming these rates and the pickup on those components, we'll have a good push on the margin.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Okay. And then just lastly on the I think there's about $60,000,000 I think you said in redemption left. So is it a pretty fair expectation or assessment that stock buybacks is probably another quarter of to go before you get back into the market there and repurchases will be sort of the return to capital story more for the last three quarters of the year?

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

Yes. I think your assessment is the most probable scenario right now as we speak.

Ramon Rodriguez
Ramon Rodriguez
Senior Vice President of Corporate Strategy / Investor Relations at First BanCorp

Yes.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Okay.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

All right.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Great. Thank you.

Operator

Thank you. Our next question is from Timur Braziler from Wells Fargo. Your line is now open. Please go ahead.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Hi, good morning.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

Good morning, Dewar.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Looking

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

at the linked quarter deposit growth, particularly on the public fund side, I guess, what was the dynamic this quarter that drove balances higher in a period that maybe typically see some seasonal outflows? Was that market share gain? Is that a little bit transitory in nature? Maybe just give us a dynamic to some of the deposit growth seen in the 4Q?

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

I would say there's a combination. Obviously, we have a very strong strategy that we're executing on cash management payment services to government entities and municipalities. And that is coupled with the parallel strategy that we have with some of the large participants in the reconstruction area. So there was inflow of funds from both sides. Obviously, on the infrastructure side, there's always some chunkiness, so funds have come in and out.

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

So that was not the growth was on the entirely the growth is really the net of what came in and out. So it was a significant quarter of projects and funds moving from FEMA or CDBG into these entities for completing projects. So it's a combination. We have a core strategy on services to municipalities and other entities, and we have a strategy to support the entities that are actively in the reconstruction phases. But yes, there's always some seasonality in the later part

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

of the year.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Okay. For the loan growth, the U. S. Mainland loan growth was strong in 4Q. Look like C and I

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

on the

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Virgin Islands is also pretty strong in 4Q. Can you just maybe give us a little bit of color of where you're seeing the growth on the mainland? And is that primarily where you were expecting maybe some elevated payoff activity that didn't come to bear in the Q4?

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

Yes. I think when you look at the core strategy of Florida, again, it's commercial in all the segments, small, middle and large with the balance sheet of the larger corporation, which is part of the region, which is part of the larger bank. So if you look through the year, there was also good quarters and active quarters. Obviously, it happened last year too that we have supported that some of the cases that closed that were pending to close finally concluded in the year. So there is some and then in Puerto Rico, there is some large deal and construction noise that happened also in the quarter.

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

Some of them move ahead or completed. So again, it's very difficult to predict at the pace. That's why we focus on the mid single digit when we add and subtract. So we do expect more growth in the commercial this year. We expect some growth in the mortgage.

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

We didn't have last in the plans before. And then continue to have growth in the consumer even though we acknowledge it as a lower rate growth rate than we have achieved over the last 5 years. It's just the different cycles of each of the business and portfolios and then we have booked construction loans that we'll continue to fund until completion, which was probably one of the highlights of 2020 4, the volume of construction activity that was booked that is there and will continue to it doesn't need to close along for this business to continue to move ahead. So it's a mix. Predicting quarter by quarter, it's almost impossible for this commercial activity.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Okay. Makes sense. And then just last for me. Looking at the allowance, looking at the performance of the consumer, I guess, a, what gives you greater confidence that consumer credit begins to stabilize middle of 2025? And then B, as we look at all the different components of the allowance, it's come down now for 6 straight quarters, it looks like.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Are we nearing a plateau there for allowance? Or do you foresee continued mix shift and continued ability to maybe continue releasing some reserves here throughout

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

the course of the year?

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

That we we have to divide it by portfolio. We feel that the residential mortgage portfolio has continued to behave extremely well as that's what ended up resulting in some releases. Home price index has been very strong and home sale prices that we see on even on the OREOs we sell are definitely strong. So that helps that, I think that probably there is a little bit in there, not necessarily a lot based on the size of the portfolio. It's going to the portfolio has been growing a little bit as compared to what we had before that we were coming down.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

On the commercial side, probably we're there. I mean, it's been quite good for quite a long time. On the consumer side, we feel, as I mentioned, feel there is some volatility. The allowance on the consumer side has gone up like 20 basis points from the end of 'twenty three to the end of 'twenty four or something like that. And obviously, the growth has mostly been on the auto portfolios that entail lower losses.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

But there is still going to be a little bit of noise, I would say, on the allowance. So in general, we would be sort of at this level is my expectation for the next couple of quarters.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Great. Thank you.

Operator

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

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

Hey, good morning. Thanks for the question.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

Good morning.

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

I was hoping to dig in a bit more on expenses. I appreciate the I think you said $125,000,000 to $126,000,000 per quarter outlook.

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

But looking at Q4, can you remind us, it looks like you've had a larger tick up in business promotion expenses in the Q4 these past 2 years. Could you remind us the seasonality of that and kind of if that had any relation to the meaningful increase in deposits you saw this quarter?

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

The end of the year typically has a combination of things. It's events we do for customers as part of the year end kind of Christmas celebrations and recognition of us recognizing our customers' loyalty. So that's one thing. There are trends on campaigns that we would like to start early in 2025 that we start towards the end of the year to start moving some things. Those are mostly on the lending side, not so much on the deposit side.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

Obviously, things on the digital front and the deposits are big, and we try to push for that and participation in activities that happen at the end of the year. So it's a combination. Is it directly completely related to what the deposit growth? I won't say that. But clearly, our marketing people are going to say yes, that it has to do with all the different efforts they put out there.

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

I appreciate that. And I mean, the deposit growth is obviously very nice, and I understand partly seasonal and partly unique to flows that's happening with government deposits. But I'm hoping just on the core Puerto Rico deposit base, I was hoping you could provide an update on just the competitive environment there, if you're seeing any ability to lower those core deposit costs, which are already pretty low when compared to Mainland Banks and rationally priced?

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

To be honest, if rates don't move lower than they are today, we don't see a lot of opportunities in what is in the core. I think competitively is reasonable. But obviously, the movement in rate is not supporting at this stage that any other competitor below behaving like in that scenario of lowering rates. So I think we have to see what happened with the Fed and the potential additional moves. On the other hand, there is a lot of funding that is maturing and it's already been either eliminated or out of the cost or it's been renewed at a lower rate.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

Yes. There are opportunities on the broker CDs as whatever we renew. If we renew anything, rates are lower than what they're coming due. Same thing, we see some opportunities in some of the advances we take on the from the FHLB. Some government deposits have been repriced as treasury rates have come down.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

But some of the core accounts, I still feel like Aurelio that they are not necessarily going to come down a lot assuming rates are at this level.

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

Got it. Maybe last question for me is just on balance sheet size. I think you already hit on this pretty well, but just as a point of clarification, earning assets for the quarter were about just over $19,000,000,000 It sounds like based on the cadence of investment portfolio maturities like $1,500,000,000 to 1.6 coupled with your mid single digit loan growth guidance, it seems like the balance sheet is probably flat to slightly down over 2025. Is that the right way to think about it as we look ahead with the positive growth in NII just driven off of the remix and the higher yielding assets?

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

Yes. The way I see it, Kelly, the cash flows from the investment portfolio are not necessarily going to reduce the size of the balance sheet because we'll end up mostly with other investments or with loans. There is a level of investment that we need to keep on the books for Coladar, for public funds and some of the other things that we do. So we are we have taken down that portfolio significantly on all the excess that we had, but it's now reaching a level that we'll probably going to be either going to loans or slightly or going to securities. So that would keep the balance sheet sort of where we are.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

We grow the investment loan portfolio as expected. It's going to push that a little bit up. Obviously, deposits have a lot to do with this. So the assumption that it's sort of flat to I would say flat to slightly higher other than some of the seasonality Aurelio mentioned the deposits. So that range of 18.8% to 19.3% or 4%, it's probably going to be a reasonable range of the balance sheet size.

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

Awesome. Thank you so much for all the color. I'll step back.

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

Thank you, Kelly.

Operator

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

Steve Moss
Steve Moss
Director - Banking & Arlington at Raymond James Financial

Hi, good morning.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

Good morning, Steve.

Steve Moss
Steve Moss
Director - Banking & Arlington at Raymond James Financial

Maybe just on loan pricing here, I apologize if I missed it, but just kind of curious given the rate volatility we've seen here over the last couple of months, what you guys are seeing for loans these days?

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

Loan pricing, you mean?

Steve Moss
Steve Moss
Director - Banking & Arlington at Raymond James Financial

Yes.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

Well, we I mean, it hasn't changed much in terms of what you would call the spreads, no? Obviously, pricing has come down a bit in because we most of the pricing, it's either LIBOR based or sulfur based. Sulfur is down and prime is down.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

So that means that pricing on some of the portfolios have been down, doesn't necessarily mean that the spread, it's down from what it used to be. That I'm talking commercial at this point. On the consumer side, it's has changed a bit, but the credit cards, we do adjust based on prime, but some of the other portfolios have remained fairly consistent. So if you think about yields, loan yields are down like 20 basis points or 10 basis points compared to last quarter.

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

Actually 12, if you look at the loan portfolio yield on Page 8 of the presentation, the overall loan portfolio.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

So that's been a function of the 52%, 53% floating components that we have on the commercial side more than anything that reprice with prime and so forth mostly, a little bit with treasury. But other than that, I would say it's similar kind of pricing strategy.

Steve Moss
Steve Moss
Director - Banking & Arlington at Raymond James Financial

Okay, great. Appreciate that. And then in terms of just the $1,500,000,000 in cash flows, it sounds like it's fairly just equally distributed over the 4 quarters. Is that a fair assumption?

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

No. Let me give you some color on that. It's not equally hold on one second. So it's going to be about, 1st quarter, it's maybe somewhere between 3.25% and 3.75%. It's a range we estimate.

Orlando Berges-González
Orlando Berges-González
Executive VP & CFO at First BanCorp

2nd quarter, it's going to be around 240,000,000 to 260,000,000. 4th quarter 3rd quarter, I'm sorry, it's somewhere around 400,000,000 and the last quarter, it's going to be about 525 to 550.

Steve Moss
Steve Moss
Director - Banking & Arlington at Raymond James Financial

Okay, great. Appreciate all that. Most of my questions is asked and answered at this point. So thank you very much.

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

Thank you, Steve.

Operator

Thank you. We currently have no further questions. So I'll hand back to Ramon for closing remarks.

Ramon Rodriguez
Ramon Rodriguez
Senior Vice President of Corporate Strategy / Investor Relations at First BanCorp

Thanks to everyone for participating in today's call. We will be attending BOB's conference in Miami on February 11, KBW's conference in Boca on February 13 and Raymond James conference in Orlando on March 4. We look forward to seeing a number of you at these events and we greatly appreciate your continued support. Have a great day. Thank

Ramon Rodriguez
Ramon Rodriguez
Senior Vice President of Corporate Strategy / Investor Relations at First BanCorp

you.

Aurelio Aleman
Aurelio Aleman
President and CEO at First BanCorp

Thank you all.

Operator

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

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Earnings Conference Call
First BanCorp. Q4 2024
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