First Bancorp's NIM Hits 4.87% as Deposit Mix Shifts Wholesale
First Bancorp's net interest margin expanded 12 basis points to 4.87% in the second quarter, its fifth straight quarterly gain, even as core deposit growth stalled and government and brokered funding filled the gap.
First Bancorp (FBP), the Puerto Rico-based commercial bank, reported net interest margin of 4.87% in the second quarter, up 12 basis points from 4.75% in the first quarter and 31 basis points from 4.56% a year earlier. About 7 basis points of the sequential gain came from the acceleration of unamortized purchase discount and deferred fees tied to refinancings, with the balance from redeploying cash flows out of lower-yielding securities into higher-yielding assets. The margin has now widened for five consecutive quarters, from 4.33% in the fourth quarter of 2023 to 4.87% in the second quarter of 2024, as asset-yield repricing has consistently outpaced the rise in deposit costs.
Net interest income rose to $229.1 million, up 3.7% from $221.0 million in the first quarter and 6.2% from $215.9 million a year earlier, reflecting higher securities yields, loan interest income including the C&I refinancing fee acceleration, and an extra day in the quarter. Total loans grew $168.8 million to $13.3 billion, led by a $151.3 million increase in commercial and construction loans, including $129.9 million of C&I growth in Puerto Rico. Total loan originations reached $1.7 billion, up $469.5 million, or roughly 21% year over year — a marked acceleration from the 3% full-year loan growth First Bancorp posted in 2023 amid elevated payoffs.
The funding side told a different story. Core deposits excluding brokered and government balances grew just $18.3 million to $13.2 billion, while government deposits, which are fully collateralized, rose $167.7 million to $3.0 billion and brokered CDs in Florida climbed $87.7 million to $594.8 million. The shift means deposit growth is increasingly coming from higher-cost, wholesale sources rather than core relationship accounts. Deposit costs reflected that split: the average cost of interest-bearing checking and savings rose 5 basis points to 1.26%, driven by higher rates paid on government deposits, but excluding those balances the cost held flat at 0.66%, while time-deposit and brokered-CD expense fell on lower rates and balances.
Capital returns moderated from an unusually high prior-quarter pace. First Bancorp's CET1 ratio stayed at a top-quartile 16.96%, roughly flat versus recent quarters, while the bank returned 84% of earnings to shareholders through $50.0 million in buybacks and $31.0 million in dividends, down from a 92% payout ratio in the first quarter.
Credit quality improved on the charge-off line even as early warning signs emerged elsewhere. Net charge-offs fell to $16.1 million, or an annualized 0.49% of average loans, from $21.1 million (0.65%) in the first quarter, driven by a $4.7 million drop in consumer and auto charge-offs and extending a decline from 0.63% in the fourth quarter of 2023 and 0.60% a year earlier. The provision for credit losses held flat at $17.3 million, down from $20.6 million a year earlier and well below the $23.0 million-to-$24.8 million range seen in the fourth and first quarters, though the quarter's provision reflected a smaller macro-factor benefit than the first quarter, offset by loan growth and the charge-off improvement.
Non-performing assets rose $5.1 million to $113.9 million, reversing several quarters of decline, after a single $14.8 million commercial-and-industrial relationship in Florida migrated to nonaccrual status. Early-stage delinquency of 30 to 89 days also climbed $32.9 million to $143.4 million, led by a $20.7 million increase in auto-loan delinquencies. The allowance for credit losses coverage ratio slipped to 1.85% of loans from 1.87%, even as reserves against residential mortgages rose $1.2 million on loan growth, while consumer and C&I reserves declined modestly on improved macro projections and lower delinquency.
Non-interest income fell $2.0 million to $35.7 million, largely because $3.6 million of seasonal contingent insurance commissions booked in the first quarter did not repeat, partially offset by a $0.8 million rise in card and processing income tied to higher transaction volumes. Expenses stayed essentially flat at $127.3 million versus $127.1 million, so the efficiency ratio improved to 48.07% from 49.14% in the first quarter and 49.97% a year earlier, continuing a steady decline from 50.22% in the third quarter of 2023.
The combination of margin expansion and expense discipline pushed adjusted pre-tax, pre-provision income to a record $137.5 million, up from $131.4 million in the first quarter and $129.2 million in the fourth quarter of 2023, while return on average assets reached 2.02%, its 18th consecutive quarter above 1.5%. The open question heading into the second half is whether loan originations running 21% ahead of last year can be funded by relationship deposits rather than government and brokered balances, and whether the Florida nonaccrual migration and rising auto delinquencies prove isolated or the start of a broader credit drift.