10-Q: First BanCorp. Posts Strong Q3 Earnings, Boosts Buyback

First BanCorp. reported a significant increase in net income and diluted EPS for Q3 2025, driven by improved net interest income and a one-time tax benefit, while announcing a new $200 million stock repurchase program.

Summary

• Net income for the third quarter of 2025 increased by 36.3% to $100.5 million, up from $73.7 million in Q3 2024.
• Diluted earnings per share rose to $0.63 in Q3 2025, compared to $0.45 in Q3 2024.
• Net interest income grew by $15.8 million to $217.9 million in Q3 2025, with net interest margin expanding by 32 basis points to 4.57%.
• Total loans surpassed $13 billion for the first time since 2010, increasing 5.6% on a linked-quarter annualized basis, primarily in commercial and construction lending.
• Core franchise deposits expanded by $139 million during the quarter.
• The efficiency ratio improved to 50.22% in Q3 2025 from 52.41% in Q3 2024.
• A one-time reversal of approximately $16.6 million in valuation allowance related to deferred tax assets at the holding company level significantly impacted income tax expense.
• The Board of Directors approved a new stock repurchase program of up to an additional $200 million, expected to be executed through Q4 2026.
• Quarterly cash dividend increased to $0.18 per common share, payable on December 12, 2025.
• Total non-performing assets increased slightly by $1.1 million to $119.4 million as of September 30, 2025, mainly due to an increase in nonaccrual commercial and construction loans.
• Full-year loan growth guidance was revised downwards to 3%-4% from a previous mid-single-digit outlook, reflecting slower consumer loan production.

Sentiment

Score: 8

Explanation: The company delivered strong financial results with significant increases in net income, EPS, and net interest margin, supported by a one-time tax benefit and robust capital deployment plans including a new stock repurchase program and increased dividends. While there are some headwinds from slowing U.S. economic momentum and revised loan growth guidance, the overall financial health, strategic initiatives, and strong liquidity position are highly positive.

Positives

• Net income for Q3 2025 increased significantly to $100.5 million, a 36.3% rise from Q3 2024.
• Diluted EPS grew to $0.63 in Q3 2025, up from $0.45 in the prior year's quarter.
• Net interest income increased by $15.8 million, and net interest margin improved by 32 basis points to 4.57% in Q3 2025.
• Total loans exceeded $13 billion, driven by strong commercial and construction lending in Puerto Rico and Florida.
• Core franchise deposits expanded by $139 million, indicating strong customer relationships.
• Net charge-offs decreased to $19.9 million in Q3 2025 from $24.0 million in Q3 2024.
• Non-performing loans declined, underscoring stable credit performance.
• The efficiency ratio improved to 50.22% in Q3 2025, reflecting better cost management.
• A one-time reversal of a $16.6 million valuation allowance on deferred tax assets boosted income, following the enactment of Act 65-2025.
• Capital ratios remain strong, with CET1 at 16.67% and total capital at 17.93% as of September 30, 2025.
• Tangible book value per common share increased to $11.79 as of September 30, 2025, from $9.91 at December 31, 2024.
• A new $200 million stock repurchase program was approved, signaling confidence and commitment to shareholder returns.
• The quarterly cash dividend was increased to $0.18 per common share.
• The company maintains a strong liquidity position with $6.2 billion available, representing 134% of estimated uninsured deposits.

Negatives

• The U.S. economy's momentum slowed during Q3 2025, with a slight softening in the labor market and an increase in the unemployment rate to 4.3% in August 2025.
• The Federal Reserve implemented two rate cuts, bringing the federal funds target range down to 3.75%-4.00%, which may reduce yields on variable-rate commercial loans and interest-earning cash.
• Competitive pressures on deposit pricing are expected to partially offset benefits from redeploying cash flows into higher-yielding assets.
• Full-year loan growth guidance was revised downwards to 3%-4% from a previous mid-single-digit outlook, primarily due to slower consumer loan production, particularly in auto loans.
• Non-interest income decreased by $1.7 million in Q3 2025, mainly due to lower realized gains from purchased income tax credits and insurance proceeds received in the prior year.
• A $2.8 million valuation adjustment was recorded on a commercial OREO property in the Virgin Islands due to ongoing litigation.
• Nonaccrual commercial and construction loans increased by $13.9 million, including a $12.6 million commercial mortgage loan in Florida and a $4.3 million construction loan in Puerto Rico, both in the hospitality industry.
• Adversely classified commercial and construction loans increased by $13.9 million to $101.2 million as of September 30, 2025.
• Net charge-offs for the nine-month period ended September 30, 2025, increased to $60.4 million from $56.2 million in the comparable period of 2024.

Risks

• Changes in the interest rate environment and inflation levels could affect the level, composition, and performance of assets and liabilities, impacting net interest income, loan originations, deposit attrition, and liquidity.
• Volatility in the financial services industry could lead to bank deposit runoffs, liquidity constraints, and increased regulatory requirements and costs.
• Changes in fiscal, monetary, and trade policies and regulations of the U.S. federal government, Puerto Rico government, and other governments could affect future results.
• Uncertainty regarding the implementation of Puerto Rico's debt restructuring plan (Plan of Adjustment or PoA) and the revised fiscal plan could impact clients and loan portfolios.
• Cyber-security incidents, such as data security breaches, ransomware, and hacking, could result in misuse of information, system disruption, increased costs, and reputational damage.
• General competitive factors and other market risks, as well as the implementation of strategic growth opportunities, could affect performance.
• Changes in accounting standards or assumptions, particularly for the allowance for credit losses (ACL), could materially impact financial statements.
• The ability to realize the benefits of net deferred tax assets is uncertain.
• The ability to generate sufficient cash flow to pay dividends to the Corporation is a risk.
• Environmental, social, and governance (ESG) matters, including climate-related initiatives, could incur potential costs.
• Impacts of natural or man-made disasters, widespread health emergencies, and geopolitical conflicts (e.g., Ukraine, Middle East) could affect economic conditions and forecasts.
• The risk that additional portions of unrealized losses in the debt securities portfolio are determined to be credit-related, leading to additional charges to the provision for credit losses.
• Impacts of applicable legislative, tax, or regulatory changes, including the 'One Big Beautiful Bill Act,' U.S. federal government shutdowns, and political impasses, could affect financial condition.
• Risk of possible failure or circumvention of internal controls and procedures, and inadequacy of risk management policies.
• The FDIC may further increase deposit insurance premiums or require special assessments, increasing non-interest expenses.
• Need to recognize impairments on financial instruments, goodwill, and other intangible assets.
• The impact of uncertainties on capital could preclude further growth or dividend declarations.
• Uncertainty regarding FirstBank's ability to satisfy regulators concerning asset quality, liquidity plans, capital levels, and compliance.
• Geographic concentration risk in Puerto Rico, the U.S. Virgin Islands, and Florida.
• Ongoing litigation in the U.S. Virgin Islands regarding leasehold interests in a commercial property could result in further losses.
• The USVI has experienced fiscal and economic challenges, and the pausing of GDP statistics production creates uncertainty regarding its economic health.
• The termination of five members of the PROMESA oversight board by the Trump administration introduces uncertainty regarding fiscal policy and the economic environment in Puerto Rico.

Future Outlook

Net interest margin is expected to remain stable through the fourth quarter of 2025. Approximately $0.6 billion in cash flows from investment securities (excluding U.S. Treasury securities) are anticipated to be redeployed into higher-yielding interest-earning assets. However, these benefits may be partially offset by recent Federal Reserve rate cuts, which could reduce yields on variable-rate commercial loans and interest-earning cash, as well as by competitive pressures on deposit pricing. The full-year loan growth guidance has been revised downwards to 3%-4% from the previous mid-single-digit outlook, primarily due to slower consumer loan production, particularly in auto loans. The company expects to execute the remaining $38.3 million authorization of its current repurchase program during the remainder of 2025 and the new $200 million stock repurchase program through the end of the fourth quarter of 2026. Unrealized losses on available-for-sale debt securities are expected to reverse over time, as the company does not intend to sell these securities before their anticipated recovery.

Management Comments

• Total loans surpassed $13 billion for the first time since 2010, increasing 5.6% on a linked-quarter annualized basis, led by commercial and construction lending in both Puerto Rico and Florida.
• Core franchise deposits expanded by $139 million, consumer charge-offs remained stable, and non-performing loans declined further, underscoring stable credit performance.
• Net interest margin is expected to remain stable through the fourth quarter of 2025.
• Cash flows of approximately $0.6 billion from investment securities (excluding U.S. Treasury securities) are expected to be redeployed into higher-yielding interest-earning assets.
• These benefits, however, are expected to be partially offset by the recent FED rate cuts, which may reduce yields on variable-rate commercial loans and interest-earning cash held at the FED, as well as by competitive pressures on deposit pricing.
• The Corporation has revised its full-year loan growth guidance to 3%-4%, down from the previous mid-single-digit outlook, primarily reflecting slower consumer loan production, particularly in auto loans.
• Management believes that cash flows from operations, available cash balances, and the Corporation's ability to generate cash through short and long-term borrowings will be sufficient to fund the Corporation's operating liquidity needs for the foreseeable future.
• Management believes that its process to consider the available information and associated risks and uncertainties is appropriately governed and that its estimates of expected credit losses were reasonable and appropriate for the period ended September 30, 2025.
• Management will continue to closely monitor any developments and assess any implications on fiscal policy and the overall economic environment in Puerto Rico.

Industry Context

Economic conditions in Puerto Rico remained generally stable, with positive GNP growth and improved fiscal conditions. In contrast, the broader U.S. economy experienced a slowdown in momentum during Q3 2025, characterized by a softening labor market and two Federal Reserve rate cuts. This shift in monetary policy is expected to impact yields on variable-rate loans and cash, while competitive pressures on deposit pricing persist across the banking sector. The U.S. federal government shutdown also introduced near-term uncertainty. The U.S. Virgin Islands continues to face fiscal and economic challenges, with a decrease in real GDP in 2022 and a pause in the production of GDP statistics, highlighting regional disparities in economic recovery and stability.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• FirstBank is involved in ongoing litigation in the U.S. Virgin Islands regarding its leasehold interests in a commercial property, which resulted in a $2.8 million valuation adjustment to OREO and a $1.9 million reserve for escrowed payments and disputes over interest and late fees.
• The Supreme Court of the Virgin Islands ruled in favor of FirstBank's declaratory judgment regarding an undeveloped parcel but affirmed the defendant's claim for possession and damages regarding other parcels under the lease.
• FirstBank filed a petition for rehearing before the Supreme Court of the Virgin Islands on September 12, 2025, maintaining that all eviction orders remain stayed and legal possession continues.

Related Party Transactions

• FBP Statutory Trusts I and II, wholly-owned financing trusts, previously sold variable-rate Trust-Preferred Securities (TruPS) to institutional investors. These trusts were liquidated during the first half of 2025 following the redemption of the remaining $61.7 million of outstanding TruPS.

Stakeholder Impact

• Shareholders are positively impacted by increased net income, diluted EPS, higher quarterly dividends, and the approval of a new $200 million stock repurchase program.
• Employees benefit from the recognition of a $2.3 million Employee Retention Credit (ERC) and stock-based compensation expenses.
• Customers benefit from continued loan growth, particularly in commercial and construction segments, and the availability of loss mitigation programs.
• Creditors see reduced long-term borrowings and the redemption of junior subordinated debentures, indicating a stronger balance sheet.
• Regulatory bodies observe the company exceeding minimum regulatory capital ratios, though the company is subject to FDIC special assessments and ongoing regulatory scrutiny.

Next Steps

• Execute the remaining $38.3 million authorization of the current stock repurchase program during the remainder of 2025.
• Execute the new $200 million stock repurchase program through the end of the fourth quarter of 2026.
• Pay a quarterly cash dividend of $0.18 per common share on December 12, 2025, to shareholders of record on November 28, 2025.
• Continue to monitor developments and assess implications on fiscal policy and the overall economic environment in Puerto Rico.
• Adopt ASU 2023-09 (Income Taxes) in the Form 10-K for the year ending December 31, 2025, applying a retrospective approach.
• Adopt ASU 2025-05 (Financial Instruments – Credit Losses) during the first quarter of 2026.
• Adopt ASU 2025-06 (Intangibles – Goodwill and Other – Internal-Use Software) during the first quarter of 2028.

Key Dates

Recommendation

First BanCorp. delivered exceptional Q3 2025 results, significantly exceeding prior year performance in net income and EPS. The expansion of net interest margin, robust loan growth, and improved efficiency ratio highlight strong operational execution. The company's capital position is solid, and the announcement of a new $200 million stock repurchase program, coupled with an increased dividend, demonstrates a strong commitment to shareholder returns. While there are some macroeconomic headwinds and a revised, albeit still positive, loan growth outlook, the overall financial strength, strategic capital deployment, and one-time tax benefit make First BanCorp. a compelling 'strong buy' for investors seeking value and growth in the regional banking sector.

Keywords

Banking, Financial Services, Puerto Rico, Florida, USVI, Commercial Lending, Consumer Lending, Mortgage Banking, Net Interest Margin, Loan Growth, Capital Ratios, Stock Repurchase, Dividends, SEC Filing, Regional Banking, Credit Quality, Liquidity, Deferred Tax Assets