FBP Q1 Deep Dive: Margin Expansion and Capital Deployment Amid Deposit Stability

Puerto Rican financial institution First BanCorp (NYSE: FBP) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 7.6% year on year to $248.1 million. Its non-GAAP profit of $0.47 per share was 10% above analysts’ consensus estimates.

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StockStory’s Take

First BanCorp’s results for Q1 were driven by a combination of net interest margin expansion and disciplined capital deployment, as discussed by management on the earnings call. CEO Aurelio Aleman highlighted, “We delivered what I consider a very strong quarter for the franchise driven by the margin expansion and positive operating leverage.” Credit performance remained stable despite some normalization in consumer credit trends, and early delinquency rates improved compared to the prior quarter. The company also benefited from lower funding costs and stable core deposit growth, underscoring operational resilience in a steady economic environment.

Looking ahead, management maintained its mid-single-digit loan growth outlook for the year, underpinned by a healthy lending pipeline and ongoing investments in digital capabilities. CFO Orlando Berges stated that net interest margin should continue to expand in the next few quarters, supported by additional repricing opportunities on the investment portfolio and lower funding costs. While management acknowledged that upcoming changes in fiscal policy and tariffs could influence consumer confidence, they remain committed to disciplined execution and opportunistic capital deployment, including ongoing share repurchases and digital banking enhancements.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to higher net interest margins, improved deposit granularity, and a focus on operational efficiency, while noting ongoing normalization in consumer credit and a one-off commercial real estate event in Florida.

• Net interest margin expansion: The company’s margin increased due to redeployment of cash flows from lower-yielding investments into higher-yielding assets and successful efforts to reduce funding costs. Management expects further margin improvement as more investment portfolio cash flows reprice at higher yields.

• Deposit stability and granularity: Core deposits, particularly non-interest-bearing accounts, displayed growth and resilience. Excluding a few large, price-sensitive deposit outflows, overall deposit trends were stable in both Puerto Rico and Florida. Management highlighted that deposit granularity continues to improve, which supports funding stability.

• Consumer credit normalization: Early delinquency rates in consumer loans decreased, but the company observed ongoing normalization in credit trends, with net charge-offs remaining in line with expectations. Management expects consumer charge-off rates to improve over the course of the year as older, underperforming loan vintages roll off the books.

• Commercial real estate exposure: The quarter saw a one-off migration of a hospitality sector loan in Florida to nonperforming status. Management emphasized that this case was collateralized with good loan-to-value and does not anticipate losses, while overall commercial real estate exposure remains well-diversified and under strict underwriting standards.

• Capital deployment and share repurchases: During the quarter, First BanCorp redeemed subordinated debentures, increased tangible book value, and resumed stock buybacks, with $22 million repurchased in Q1 and an additional $28 million targeted for completion in the second quarter. Management retains flexibility to deploy up to $100 million more in share repurchases later in the year.

Drivers of Future Performance

First BanCorp’s outlook is shaped by expectations for continued margin expansion, stable funding, and disciplined loan growth, while monitoring potential impacts from macroeconomic and policy changes.

• Pipeline-driven loan growth: Management maintained its guidance for mid-single-digit loan growth this year, supported by a growing pipeline in commercial, construction, and residential lending. The company anticipates consumer loan growth to slow compared to prior years, but expects construction and residential segments to offset this trend.

• Net interest margin tailwinds: CFO Orlando Berges projects margin expansion of five to seven basis points per quarter through year-end, contingent on normal deposit flows, continued repricing of investment portfolio cash flows, and anticipated rate cuts in the second half of the year. The company’s proactive reduction in funding costs and redeployment into higher-yielding assets remain key contributors.

• Economic and policy uncertainty: Management highlighted that evolving fiscal policies and potential tariff changes in Puerto Rico could impact consumer confidence and market dynamics. While the current environment is stable, the company is monitoring these factors and remains ready to adjust its strategy as necessary.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will focus on (1) the pace and mix of loan growth across commercial, construction, and residential segments, (2) continued net interest margin expansion as the investment portfolio reprices and funding costs evolve, and (3) the impact of any changes in Puerto Rico’s fiscal policy and tariffs on consumer behavior and deposit flows. The effectiveness of digital banking initiatives and the company’s ability to maintain credit quality will also be closely monitored.

First BanCorp currently trades at $20.46, down from $20.94 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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