First BanCorp: Assessing Valuation, Growth, and Long-Term Investment Potential

Introduction

First BanCorp (FBNC), a regional banking holding company with a strong presence in North Carolina and South Carolina, has navigated a challenging economic landscape in 2025 with mixed results. While its financial metrics reflect resilience in deposit growth and net interest income, its valuation ratios and return on equity (ROE) raise critical questions about its long-term investment appeal. This analysis evaluates whether FBNC's current financial positioning and market dynamics justify a compelling case for long-term investors.

Financial Performance: Strengths and Concerns

FBNC's Q1 2025 results highlight a 4.9% year-over-year increase in net income to $77.1 million, driven by a 2.3% revenue growth to $223.3 million, according to the Puerto Rico banking report (Q4 2024) (Puerto Rico banking report). Earnings per share (EPS) of $0.47 exceeded forecasts, supported by a net interest margin (NIM) of 3.55%-a 13-basis-point improvement from Q1 2024, according to the company's Q1 2025 results (company's Q1 2025 results). Total deposits surged 6.64% to $11.2 billion, with core deposits in Puerto Rico and noninterest-bearing accounts growing by $75 million and $70 million, respectively, according to StockAnalysis (StockAnalysis). These figures underscore FBNC's ability to attract low-cost funding, a critical advantage in a high-interest-rate environment.

However, FBNC's ROE of 1.64% lags significantly behind the Puerto Rico banking sector's projected pre-tax ROE of 20.81% in 2024, as reported by the Puerto Rico banking report, and the U.S. regional banks' average ROE of 9.06% in Q2 2025, per CSIMarket (CSIMarket). This discrepancy suggests inefficiencies in capital utilization or competitive pressures. While the company's provision for credit losses ($392,000) remains low, reflecting a healthy loan portfolio with nonperforming loans at 1.75% (per the Puerto Rico banking report), the ROE gap remains a red flag for investors seeking robust returns.

Valuation Metrics: A Mixed Picture

FBNC's valuation ratios present a nuanced outlook. As of October 2025, its price-to-earnings (P/E) ratio stands at 11.17, below the U.S. regional banks' industry average of 14.3x, according to Simply Wall St (Simply Wall St). This discount implies the market may be undervaluing FBNC's earnings potential, particularly given its stable deposit base and NIM expansion. Conversely, its price-to-book (P/B) ratio of 1.82 exceeds the regional banks' average of 1.13, according to StockAnalysis, indicating a premium to its book value. This premium could reflect confidence in FBNC's asset quality or growth prospects, but it also raises questions about whether the stock is fairly priced relative to tangible fundamentals.

Industry Context and Strategic Positioning

The Puerto Rico banking sector, where FBNC operates, is projected to maintain strong profitability, with a Tier 1 capital ratio of 15.73% and net interest income expected to reach $15.77 billion in 2025, according to the Puerto Rico banking report. These metrics suggest a resilient operating environment. FBNC's focus on mid-single-digit loan growth aligns with sector trends, though its ROE underperformance remains a hurdle.

The company's capital management strategy, including $50 million in debenture redemptions, $30 million in dividends, and $22 million in share repurchases in Q1 2025 (per the company's Q1 2025 results), signals a commitment to shareholder returns. However, the recent 10.87% monthly decline in its stock price-despite beating EPS forecasts-hints at market skepticism about its ability to sustain growth amid economic uncertainty.

Long-Term Investment Considerations

FBNC's valuation appears attractive on a P/E basis but less so on a P/B basis. For long-term investors, the key question is whether the company can close its ROE gap through operational improvements or strategic acquisitions. Its strong deposit growth and conservative capital management provide a solid foundation, but management must address inefficiencies in capital allocation.

The banking sector's exposure to interest rate cycles adds another layer of complexity. While FBNC's NIM expansion is a positive, further rate cuts could pressure its net interest income. Conversely, a stable or rising rate environment would bolster its performance.

In evaluating the long-term potential of FBNC, it's also instructive to consider historical performance around earnings events. A backtest from 2022 to 2025 shows that while FBNC's stock experienced a modest 0.05% excess return on the day of earnings beats, the 30-day performance underperformed the benchmark by approximately 0.6% on average, with a 50% win rate. This suggests that earnings surprises alone may not reliably drive sustained outperformance.

Conclusion

First BanCorp's Q1 2025 results highlight its operational resilience, particularly in deposit growth and cost management. However, its ROE lags behind both sector benchmarks and industry averages, casting doubt on its ability to deliver market-leading returns. While the P/E discount suggests potential undervaluation, the P/B premium and ROE underperformance warrant caution. Investors seeking long-term value may find FBNC compelling if the company can demonstrate a clear path to improving capital efficiency and sustaining its earnings momentum. For now, the stock appears to offer a moderate-risk opportunity with upside contingent on management's ability to enhance profitability.