First BanCorp (FBP) Q3 2026 earnings review
First BanCorp raises its payout, but deposit costs squeeze margins
First BanCorp, the holding company for FirstBank Puerto Rico, kept profits high even as rising deposit costs squeezed its lending spread. Profit per share excluding one-offs rose 24% from a year ago to $0.63, and chief executive Aurelio Alemán announced a $350 million buyback plan plus a 25% dividend raise. However, the net interest margin—its profit spread on loans and bonds—fell to 4.73% as customers moved cash into pricier time deposits.
| Profit per share, excluding one-offs | $0.63 +24% from a year ago |
|---|---|
| Net interest margin | 4.73% -0.14 percentage points from last quarter |
| Loans held for investment | $13.4B +1.8% year to date |
| Full-year loan growth outlook | Unchanged 3–5% target, now tracking at the low end |
⚖️ Verdict: 🔴 Bearish
The story got worse because deposit competition reversed the bank's margin expansion and loan growth fell behind schedule. Management had planned for bond reinvestments to lift the net interest margin each quarter, but higher deposit costs pushed the underlying spread down instead. On the positive side, the new buyback and dividend hike settle how the bank will deploy its excess capital.
The question now is whether third-quarter funding pressure and slow net loan additions were a one-quarter pause or a ceiling on growth. Either fourth-quarter commercial pipelines close fast enough to hit the 3% loan growth floor and restore the 4.80% margin baseline, or deposit costs and loan payoffs eat up the benefit of higher bond yields. Fourth-quarter loan balances and deposit costs will decide it.
🐂 Bull Case
A New Buyback and Higher Dividend Lift Payouts
First BanCorp aims to return almost all of its annual earnings to shareholders through buybacks and dividends. In the third quarter, the bank bought back $50 million of its shares and declared $30.4 million in dividends, which equaled 84% of its quarterly profit. Those steady repurchases reduced its diluted share count by 5.1% from a year ago.
To close the gap to its full-year payout target, chief executive Aurelio Alemán announced "a new $350 million stock repurchase program and a 25% increase in our common stock dividend". That new authorization replaces the smaller $200 million programs the bank used in prior years. It works because First BanCorp holds a common equity Tier 1 capital ratio—its core measure of financial strength—of 16.91%, well above regulatory minimums, so it can fund larger payouts while still growing its loan book.
What to watch: fourth-quarter share repurchases in the next earnings release. A step-up above the usual $50 million quarterly pace would show management is using the new authorization to reach its 100% annual payout goal.
Core Profits Grew Double Digits After One-Offs
Reported net income fell 4.4% from a year ago to $96.1 million, but that comparison is distorted by two one-time gains in last year's third quarter: a $16.6 million tax benefit from a Puerto Rico law change and a $2.3 million pandemic employee retention credit. Excluding those one-offs, profit rose 17.8% from a year ago, and diluted profit per share rose 23.5% from $0.51 to $0.63. Return on average assets reached 1.98%, marking the nineteenth straight quarter above the bank's 1.50% benchmark.
The quarter's profit held steady from the second quarter even though operating costs rose $2.9 million to $130.2 million. Other non-interest expenses—overhead costs outside of payroll, branches and technology—rose 1.0 percentage point of revenue from last quarter, and employee pay and benefits rose 0.8 percentage points, lifting the efficiency ratio (operating expenses as a share of revenue) by 2.0 points to 50.06%. That jump included a $2.8 million legal reserve for "an adverse court ruling involving a commercial OREO property in the U.S. Virgin Islands", while a lower projected annual tax rate of 20.5% cut the quarterly tax bill by $4.9 million.
What to watch: quarterly non-interest expenses in the fourth quarter. A return to the $128 million to $130 million range would confirm the third-quarter expense rise was a one-time legal charge rather than permanent cost creep.
🐻 Bear Case
Deposit Costs Reversed the Margin Expansion
Rising yields on bond reinvestments were supposed to lift First BanCorp's net interest margin—the profit spread between what the bank earns on loans and securities and what it pays on deposits—by 3 to 5 basis points per quarter in the second half. Alemán said the bank delivered strong results "against the backdrop of an increasingly volatile rate environment". Instead of expanding, the net interest margin fell 14 basis points from the second quarter to 4.73%.
- Underlying margin change: down 7 basis points from last quarter's 4.80% baseline (excluding $3.4 million of second-quarter refinancing fee accelerations)
- Deposit interest expense: up $4.8 million from last quarter, as average cost of funds rose 8 basis points to 1.47%
- Customer time deposits: up $253.0 million, while non-interest-bearing deposits fell $116.6 million
This matters because funding pressure outweighed the benefit of reinvesting maturing bonds at higher yields. The company attributed the margin drop to "a shift in the mix of interest-bearing deposits toward higher-yielding options, such as time deposits", along with a 7 basis point increase in rates paid on checking and savings accounts, mainly for government funds.
What to watch: fourth-quarter net interest margin against the full-year baseline target of 4.80%. By our math, hitting that target requires the margin to rebound to 4.86% next quarter, and a second straight decline would show deposit competition is eating up the bond repricing benefit.
Loan Growth Trails the Full-Year Target
First BanCorp targets 3% to 5% loan growth for 2026, relying on commercial lending in Puerto Rico and Florida to offset a smaller consumer book. In the third quarter, loans held for investment grew by $107.3 million to $13.36 billion, led by $90.5 million of new commercial loan participations in Florida. Total loan originations—new loans, renewals and credit line draws—were $1.48 billion, up 7.9% from a year ago but down $238.5 million from the second quarter, which had included $270.6 million of one-time public-sector refinancings.
Nine months into the year, the loan book has grown 1.8%, or 2.4% on an annualized basis, which management now labels at the low end of its 3% to 5% plan. Because commercial repayments remained high, third-quarter net loan additions fell short of the $131 million to $262 million quarterly pace needed in the second half. By our math, the bank must add $154.6 million of net loans in the fourth quarter just to reach the 3% floor, and $285.9 million to hit the 4% middle of the range.
What to watch: fourth-quarter net loan additions in the next earnings release. Anything below $155 million would leave full-year loan growth below the 3% target floor for a second year in a row.
Auto Loans and Florida Participations Pressured Credit
Management aims to keep credit losses low while growing commercial loans in Florida and monitoring inflation pressure on Puerto Rico consumers. Overall non-performing assets—loans stop-paying interest plus foreclosed property—were flat at 0.59% of total assets, and the bank released $2.1 million of mortgage loss reserves because of better home price and unemployment forecasts. Beneath that headline, however, consumer auto loans and syndicated Florida commercial loans showed new strain.
- Annualized net charge-offs (loans written off as uncollectible): rose to 0.55% of average loans from 0.49% last quarter, on $2.0 million higher auto and consumer write-offs
- Early delinquencies (loans 30 to 89 days past due): rose $12.1 million to $155.5 million, including $6.8 million in auto and consumer loans and an $8.3 million matured construction loan repaid in October
- Adversely classified commercial loans: rose $15.8 million to $103.0 million
The commercial downgrade was driven by "the downgrade of a $13.1 million participated C&I loan in the Florida region that is part of the Shared National Credit program", one quarter after a separate $14.8 million Florida commercial relationship stopped paying interest. Because Florida growth relies heavily on these shared loan participations, credit slips there directly test the expansion strategy.
What to watch: consumer net charge-offs and Florida non-performing loans in the fourth quarter. A second straight rise in auto write-offs or another shared loan downgrade would require higher credit provisions instead of mortgage reserve releases.
👓 Other Themes
Puerto Rico Economy Holds Steady as Government Debt Falls
Puerto Rico accounts for 76% of First BanCorp's loan book, so island economic conditions and municipal finances shape its baseline risk. In the third quarter, the bank's direct exposure to the Puerto Rico government and its municipalities fell by $23.9 million to $355.5 million through scheduled repayments, reversing part of last quarter's refinancing increase. Island economic activity grew 0.1% from a year ago in August with a 6.1% unemployment rate, while retail auto sales rose 1.2% in September after falling 13% over the first nine months of the year.
💲 Other KPIs
Core customer deposits—which exclude brokered certificates of deposit and government funds—rose by $120.4 million, or 3.6% annualized, from the second quarter. Growth came from Puerto Rico retail and commercial customers adding $253.0 million in time deposits, which offset a $132.6 million drop in checking and savings accounts and a $76.7 million decline in government deposits.
Tangible book value per share—the bank's net physical net worth per share, excluding goodwill and intangibles—fell 4.2% from $12.68 last quarter after rising for three straight quarters. Market interest rate swings reduced the fair value of its available-for-sale bond portfolio by $119.4 million, which also lowered the tangible common equity ratio from 10.08% to 9.55%.
The tax-equivalent yield on total investments—what the bank earns on its bond portfolio and cash, adjusted for tax-exempt securities—edged down from 3.57% in the second quarter, when a one-time municipal bond refinancing added $1.8 million of income. Compared with a year ago, the portfolio yield is up 92 basis points as the bank bought $422.4 million of agency mortgage bonds yielding 5.44%.
🔮 Guidance
Unchanged, but now specified as tracking toward the low end. The plan calls for 3% to 5% loan growth for the full year, compared with 1.8% delivered through September. By our math, reaching the 3% floor requires $154.6 million of net loan additions in the fourth quarter, and the 4% middle of the range requires $285.9 million, up from $107.3 million in the third quarter.
Cut. The presentation sets a full-year baseline target of about 4.80%, replacing last quarter's call for 3 to 5 basis points of quarterly expansion off a 4.80% base (which pointed to 4.86% to 4.90% by year-end). With the nine-month margin at 4.78% and the third quarter down to 4.73% on higher deposit costs, hitting 4.80% for the year requires a fourth-quarter rebound to 4.86% by our math.
Unchanged. First BanCorp plans to keep operating expenses between 50% and 52% of total revenue for the year. At 49.09% through the first nine months and 50.06% in the third quarter, the bank is running ahead of its target, and by our math the fourth quarter could rise to 56.7% before the full-year average would exceed the 51% middle of the range.
Unchanged. The Puerto Rico lender still plans to return roughly all of its 2026 profit to shareholders through buybacks and dividends. Having returned 86% of earnings over the first nine months ($150.0 million in share repurchases and $92.9 million in dividends), hitting 100% for the year implies returning more than 100% of fourth-quarter profit using the new $350 million buyback program.
Improved. The bank lowered its estimated full-year effective tax rate by 0.5 percentage points from its second-quarter forecast, and by 1.0 percentage point from its June six-month rate of 21.5%. Management said a larger share of its lending and investment activity qualified for preferential tax rates under the Puerto Rico tax code.
❓ Key Questions
Will fourth-quarter buybacks exceed $50 million to hit 100% payout?
First BanCorp has returned 86% of its earnings through September via a fixed $50 million quarterly buyback and dividends. With the new $350 million repurchase program and a 25% dividend hike, how much will management buy back in the fourth quarter?
Has the migration into expensive time deposits slowed in October?
A $253 million jump in retail and commercial time deposits pushed funding costs up 8 basis points and cut the net interest margin to 4.73%. Without a slowdown in deposit mix shifts, the 4.80% full-year margin baseline is at risk.
What is the status of the Shared National Credit portfolio in Florida?
A $13.1 million participated commercial loan in Florida was downgraded to adversely classified this quarter, following a $14.8 million Florida commercial nonaccrual in the second quarter. What industries are driving these downgrades across the shared national credit book?
Where stands the motion to dismiss the June 2026 lawsuit?
Last quarter's filing disclosed a putative class action (Jane Doe v. FirstBank Puerto Rico) alleging Trafficking Victims Protection Act claims, which management moved to dismiss. Because the third-quarter filing is not yet out, what is the procedural status of that motion?