FBP Q3 Deep Dive: Commercial Lending and Deposit Mix Offset Consumer Credit Weakness

Puerto Rican financial institution First BanCorp (NYSE:FBP) fell short of the market’s revenue expectations in Q3 CY2025, but sales rose 6% year on year to $248.7 million. Its non-GAAP profit of $0.63 per share was 29.7% above analysts’ consensus estimates.

Is now the time to buy FBP? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

First BanCorp’s third quarter results reflected a mixed operating environment, as the company delivered year-over-year revenue growth but missed Wall Street’s top-line expectations. Management attributed the quarter’s performance to continued discipline in commercial and construction lending, which offset lower-than-anticipated consumer loan demand, particularly in the auto sector. CEO Aurelio Alemán-Bermúdez highlighted, “Most of the improvement came from record net interest income and well-managed expense base and disciplined loan production,” while also noting that consumer credit demand, especially in auto loans, slowed significantly after sector-specific tariffs impacted industry-wide sales.

Looking into the remainder of the year and beyond, First BanCorp’s management expects the local economy to benefit from ongoing manufacturing sector expansions and the consistent inflow of federal disaster funds. The company plans to focus its growth around commercial and residential lending, with CEO Alemán-Bermúdez stating, “We expect stability on the consumer, but we don’t expect portfolio growth as we achieved for some years.” Management also anticipates moderating deposit costs as rate cuts materialize, while emphasizing the franchise’s ability to adapt to evolving competitive pressures and macroeconomic changes affecting Puerto Rico.

Key Insights from Management’s Remarks

Management cited commercial lending strength, deposit franchise stability, and a disciplined approach to credit and expenses as key drivers of the quarter’s performance. The mix shift away from consumer loans and deposit pricing competition were focal points.

• Commercial and construction lending growth: The company executed on its strategy to diversify the loan portfolio, with commercial and construction loans offsetting weakness in consumer credit, particularly as auto loan originations fell due to industry-wide slowdown linked to new tariffs.
• Deposit franchise resilience: Core franchise deposits grew despite heightened competition, especially from smaller banks and government-related flows. Management believes competitive deposit pricing could be temporary, and continues focusing on operational accounts and bundled services to retain and attract depositors.
• Expense and efficiency control: The expense base remained stable, with only marginal increases tied to specific items like payroll credits and OREO adjustments. The efficiency ratio held at 50%, and management reiterated guidance for controlled spending in technology and business promotion into the next quarters.
• Asset quality stability: Credit metrics remained solid, with consumer charge-offs stabilizing and nonperforming assets declining. Management noted that credit risk methodology prioritizes the company’s own portfolio trends, rather than reacting to competitor moves or isolated industry events.
• Share buyback expansion: The Board authorized an additional $200 million share repurchase program, with management reiterating its commitment to returning 100% of annual earnings to shareholders, typically executing $50 million in buybacks per quarter, subject to market conditions.

Drivers of Future Performance

First BanCorp’s outlook is shaped by muted consumer loan demand, continued commercial lending momentum, and evolving deposit pricing dynamics.

• Commercial lending as growth engine: Management expects loan growth in the next quarters to be driven primarily by commercial and residential mortgages, with consumer lending remaining subdued. The company views its diversified lending platform and strong commercial pipelines as foundations for organic growth.
• Deposit cost pressures and relief: As the interest rate environment shifts, management anticipates some relief in deposit costs, especially for government and time deposits that reprice with market rates. However, competitive pressures from smaller banks and affluent customers could moderate the pace of cost reductions.
• Macro and regulatory environment: Expansion in Puerto Rico’s manufacturing sector and ongoing federal disaster funding are expected to provide economic tailwinds. At the same time, management is closely monitoring potential risks from shifting trade dynamics, tariff-related inflation, and possible U.S. Federal Reserve policy changes.

Catalysts in Upcoming Quarters

In upcoming quarters, our analyst team will closely watch (1) whether commercial and residential lending pipelines can compensate for ongoing weakness in consumer credit demand, (2) the degree to which deposit costs moderate as rate cuts are implemented and competitive pressures abate, and (3) the pace and execution of the newly authorized share repurchase program. Additional focus will be placed on how Puerto Rico’s manufacturing investments and federal funding affect local loan demand and asset quality.

First BanCorp currently trades at $20.38, in line with $20.52 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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