First Bancorp (FBP) Q2 2026 Earnings Call Transcript

to the first Bancorp second quarter 2026 financial results conference call. All participants are in a listen only mode. After the speaker's remarks, we will conduct a question and answer session. To ask a question at this time, you will need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I'd now like to turn the call over to Ramon Rodriguez, first Bancorp's corporate strategy and investor relations officer. Thank you. Please go ahead.

Thank you, Julian. Good morning, everyone, and thank you for joining First Bank Corp's conference call and webcast to discuss the company's financial results for the second quarter of 2026. I'm here with Aurelio Aleman, President and Chief Executive Officer, and Zahid Ortiz, CFO, Chief Financial Officer. Before we begin today's call, it is my responsibility to inform you that this call may involve certain forward-looking statements, such as rejections of revenue, earnings, and capital structure, as well as statements on the plans and objectives of the company's business. The company's actual results could differ materially from the forward-looking statements made due to the important factors described in the company's SEC filings. The company assumes no obligations to update any forward-looking statements made during If anyone does not already have a copy of the webcast presentation or press release, you can access them at our website at fbpinvestor.com. At this time, I'd like to turn the call over to our CEO, Aurelio Aleman.

Thank you, Ramon. Good morning to everyone and thanks for joining our earnings call again. We concluded the first half of the year with, you know, another quarter of strong core performance delivering growth across the franchise and generating very attractive returns for our shareholders. We earned $96 million in net income for $0.62 per share. That is up 24% when compared to same quarter last year. Underlying revenue trends, I have to say, remain very strong during the quarter, with pre-tax preprovision income reaching an all-time high of $138 million, which is actually up 11% from a year ago. This translates into a 2% return on average assets, and this is our 18 consecutive ROA above 1.5%, continuing the strongest and most consistent period of financial performance in our actual history. Moving to the balance sheet, I'm very pleased on how loan growth accelerated during the quarter. It's driven primarily by commercial activity in Puerto Rico, reaching $13.3 billion in total loans. That is of 5% on a late quarter analyzed basis. Total loan for the quarter, we're very encouraging, reaching $1.7 billion during the quarter, reflecting a 21% year-over-year increase. Given what we see in our pipelines, we do expect this level of activity to continue for the remainder of the year. This actually reinforced our path to achieve our full-year growth objective for 2026. Total deposits grew by $274 million during the quarter, primarily driven by an increase in the government deposit, but also we have slight increase in the core customer deposit. Great performance remains sound with, you know, lower net charge of and non-performing asset remaining near historical lows. That said, you know, early delinquency, early state delinquency came out during the quarter, but essentially when we look at it, you know, over the same period last year was flat to prior year, June, and was actually below in December 2025. So we continue to monitor decision and delinquency trends and broader consumer market conditions. Regarding capital deployment, you know, consistent with private quarters, we completed our $50 million of year buybacks and we paid $0.20 per share dividend. You know, even after these actions, we ended the quarter with a very strong CD1 of 17 percent, which leaves, you know, ample room to continue investing strategically in our franchise technology, enhance competitiveness, and improve the customer experience, which is our primary objective. Moving to slide five, you know, happy to see that in spite of the, you know, global noise and war, we continue to see an environment that is positive and stable, supportive of the long activity that we see. If we look at the main market, unemployment stands at 5.6 percent, which is, you know, pretty good for our market, considering trends. Reconstruction activity continues to provide economic support, and the islands continue to benefit from from encouraging reshoring and manufacturing investments announcements that that will that will that represent actually future benefit while industry on the other hand industry-wide sales continue to reflect the impact of tariffs the recent trends for the last quarter suggests that the the market is beginning to normalize with uh june industry-wide auto sales down three percent only three percent year over year So, we believe, you know, sales are stabilizing. Again, again, this backdrop, core business continues to perform really well. Long growth is accelerating in the second half of the year as business activity in Puerto Rico continues and actually Florida is having, you know, a really good pipeline also. That said, you know, we sustain our long growth guidance target of 3 to 5 percent for the year. Obviously, you know, So, looking forward to achieve that in the second half of the year. We also continue, depending on the customer engagement through the multi-channel strategy, active digital users continue to grow with 6% versus prior year, and we continue to increase to 95% now, deposit transaction capture to digital and third service channels. As we look ahead, you know, the priorities really remain unchanged, very focused on our execution, focus on selectively growing the market share in your core business, confident and willing to grow organically to discipline execution while evaluating potential alternative strategic opportunities as they arise, maximizing the significant organic growth opportunities that we see in front of us. At the same time, you know, continue to invest in the franchise technology, leveraging AI to automate routine processes and enhance the client experience. I think we all are in the early innings of this AI journey and we're encouraged by the opportunities that we see. At the end, it's about how you can service the customer better, how you can improve processes, short-term life cycle, and improve the management of potential of fraud. This quarter reflects what has become a hallmark in our franchise from profitability, discipline risk management, robust capital generation, and what is most important is consistent execution across our different cycles. As always, I really thank you for your interest in First Bank. We appreciate your continued support. Now, I will turn the call to Saeed, our recently appointed CFO to go welcome side to the call to go over the financial results in more detail.

Right? Thanks, Aurelio, and good morning, everyone. As Aurelio mentioned, for the second quarter of 2026, we earned $96.1 million, or 62 cents per dealer shares, which compared to 88.1 million, or 57 cents per share last quarter. Pre-tax-free provision income increased by six million or five percent when compared to the previous quarter and reached an all-time high of 138 million. The return on average assets was 2.02 percent for the quarter compared to 189 on the previous quarter. Results for the quarter did include additional interest income on approximately 3.4 million dollars related to two refinancings during the quarter, commercial loan and a municipal bond which resulted in accelerated recognition of deferred fees or discounts if we exclude this impact net income would have amounted to 93 million dollars or about 60 cents per diluted share the provision for the quarter was relatively flat the provision did benefit from a reduction in charges of approximately 5 million dollars primarily in the auto portfolio this was offset by long growth particularly in the commercial residential portfolio The macro, as I already mentioned, continues to show slight improvements in the unemployment projection and the home price index for a lower degree than on the previous quarter. Income tax expense for the quarter was $24 million, compared to $25 million in the previous quarter. Results included about 1.3 million benefit from a lower estimated tax rate for the year as a result of the proportion of tax exempt income to taxable income. The estimated annual effective tax rate is expected to be closer to 21% compared to 21.6% in the previous quarter. Moving on to slide 8, looking at net interest income, it grew about 3.7% quarter over quarter and amounted to 229.1 million compared to 221 million in the previous quarter. The increase of 8.1 million in net interest income includes the 3.4 million of additional interest income related to the aforementioned refinancings of which 1.8 was included as part of interest income of investment securities and 1.6 was include 1.6 million was included as interest income on loans excluding the impact of the fee acceleration interest income on loans grew by 1.7 million primarily due to the initial day in the quarter interest income investment and cash increased by 4.5 million, excluding the aforementioned refinancing, the yield on the investment portfolio continued to increase and increased by 18 basis points as we have continued to reinvest cash flows from majoring securities into highly yielding instruments. Looking at the interest expense side, we continue to proactively manage our funding costs with overall deposit costs declining by two basis points versus the prior quarter. The cost of time deposits excluding broker deposits and public funds decreased by eight basis points to 326. On the other hand cost of interest bearing checking and savings accounts increased by five basis points to 126 percent driven by higher rates on certain government accounts. Additionally the cost of broker deposits decreased by nine basis points and the average balance in the quarter was down by approximately 27 million dollars. Our net interest margin on a gap basis was 487 um a 12 points 12 basis points increase when compared to the previous quarter if we exclude the acceleration of these discounts recognized in the quarter our nerd net interest margin would have been closer to 480 reflecting a five basis points increase when compared to our prior quarter it was slightly higher than the two to three basis points per quarter guidance we have provided at the beginning of the year as you know the rate environment has continued to evolve and absent any rate cuts in the second half of the year we believe our asset sensitive balance shift position continues to be well positioned for additional name expansion we expect for the remainder of 2036 our margin to expand by three to five basis points per quarter out of the 480 base shifting to other income and operating expenses on page nine or income was up it amounted to 35.7 million versus 37 point I'm sorry it was down but it amounted to 35.7 million versus 37.7 million in the previous quarter the decrease was mostly related to seasonal continuing commissions which are typically received in the first quarter operating expenses for the quarter were relatively flat when compared to the previous quarter reaching 127.3 million if we exclude the gains from oreo operations expenses amounted to 128.2 million and were on the lower end of our guidance the efficiency ratio was 48.1 percent slightly lower than the 49.1 percent on the previous quarter associated to the higher levels of income we saw this quarter we expect our quarterly expense base for the remainder of 2026 excluding oreo gains or losses to range between 128 to 130 million dollars as may increase take effect during the third quarter combined with pick-up in business promotions and project and expense trends on our technology projects we believe that our efficiency ratio levels for 2026 will be closer to the lower end of our 52 52 percent range as the changes in expenses and income components continue to play out in the future moving to 10 to slide 10 to discuss asset quality non-performing assets grew 5.1 million dollars when compared to the previous quarter mainly related to the inflow of a cni loan in the florida region of approximately four point fourteen point eight million dollars which is which this one is well collateralized excluding this relationship non-performing assets decreased by 9.7 million as we did see reductions in the residential mortgage portfolio, consumer portfolio, and repossessed house. Inflows to nonaccrual were $40.7 million, which is $6.4 million higher than last quarter. Excluding the aforementioned inflow in the employer region, inflows to nonaccruals were $8.4 million lower than prior quarter, mostly driven by a 4.6 million decrease on the auto finance lease portfolio. On the other hand, we did see early stage delinquency up in the quarter by approximately $32.9 million when compared to the previous quarter, mainly due to a 20.7 million increase in the out on finance lease portfolio. In the first quarter, we did see a reduction in early delinquency as consumers typically receive tax refunds early in the year. Early delinquency in the consumer portfolio if compare if we compare it to December 2025 is actually lower by approximately 10.3 million dollars we continue to see stability in the overall delinquency trends and credit quality and continue to closely monitor consumer behaviors more broadly moving on to the allowance and capital on slide 11. in terms of the allowance it amounted to to $245 million, which represents 1.85% of total loans, and was relatively flat when compared to the previous quarter. In general, the allowance increased due to loan growth, particularly in the commercial and residential portfolios, and higher delinquency in the out-and-finite lease portfolios just Such increase was offset by multiple factors, including improvement in the macroeconomic projections, particularly on employment and HPI, combined with improvements in delinquency the consumer unsecured portfolio. Net charges for the quarter were approximately 60 million or 49 basis points of average loans, significantly lower than 65 basis points we had in the prior quarter. This improvement was mostly due to a decrease of 4.7 million dollars in consumer and finance leases net charges, mainly the auto portfolio. Capital remains strong and our healthy and consistent profitability levels have enabled us to repurchase 15 million dollars shares of common stocks and declared 31 million dollars in dividends our regulatory capital ratios continue to exceed regulatory levels and remain relatively unchanged against prior quarter as earnings have offset capital deployment actions and growth in rwa tangible book value per share grew to 12 6 to 12.68 while tangible common equity ratio decreased three basis points to 10.08 percent mainly related to growth intangible assets. We still hold about $2.36 intangible book value per share and about 166 basis points intangible common equity ratio related to the other comprehensive loss adjustments from the investment portfolio. Overall we're very satisfied with the results for the second quarter and remain focused on supporting our clients and growing our business while delivering close to 100% of earnings to shareholders in the form of buybacks and This concludes our prepared remarks. Operator, please open the call for questions.

Thank you. As a reminder to ask a question, please press star followed by the number 1 on your telephone keypad. To withdraw any questions, press star 1 again. Our first question comes from Erin Siganovich from Truist Securities. Please go ahead. Your line is open.

Erin, you may be on mute. sorry about that um loan growth uh very solid uh this quarter and and sounds like your pipelines are are going well both in puerto rico and in florida um you know maybe you talk a little bit about what types of originations you're doing what kind of spreads you're seeing uh in the competitive environment yeah you know as i said before you know obviously you know the growth this quarter, you know, primarily was commercial.

You know, on the other hand, better stability on the auto consumer portfolios than we have anticipated. So there was a little slightly growth there too, not a contraction, which is very positive. On the commercial side, you know, I think it's a good mix of, you know, some acquisitions by the larger player, some CRE, some construction, C&I. So, it's a good mix of assets around development of warehousing, you know, hotels, actually a small piece on the healthcare part of it. But it's all, I would say, commercial activity, not necessarily focused on the very large, but for the middle market. And there was some transaction in the government of significance size, which was the refinancing of debt, restructural debt, which we increased our exposure in a very solid municipality in terms of financial. So, overall, that – and there was some infrastructure refinancing, too, which led to an increase. So, I think if, you know, we look for diversification of risk and where we position our capital that in terms of the asset classes that are embedded.

Thanks. And, you know, just around 17% of CET1, what are you seeing on, you know, maybe M&A front? Something that you might be able to utilize all that excess capital?

You know, as I mentioned before, you know, we look into things like potential activity. You know, there's not much we can say about that, but, you know, we're active, you know, participants in looking at what could be, you know, a strategic fit for our franchise, you know, that could follow our same operating model and could deliver, you know, the consistent results that we have. But there's not much we can say other than that. It's opportunistic. In the meantime, we continue to deliver, execute our buyback and deliver a competitive dividend. And obviously, primary organic growth, so we're seeing good activity in our new region in Florida that we opened in the last year, the Boca that's at the office, so we continue to see pretty good activity there too. So the organic play continues to lead, you know, the front of our efforts. Okay. Thank you.

Our next question comes from Kelly Mota from KBW. Please go ahead. Your line is open.

Hi. Thank you so much for the question. Great quarter. Thank you.

Thank you, Kelly.

Maybe to kick it off, you know, the margin clearly a highlight and even, And, you know, if you exclude those loan fees, definitely came in well above where we had expected with what it sounds like some expansion ahead. Can you walk through some—remind us the repricing dynamics of the securities, because clearly that's a big driver here.

I'm going to make a few comments and pass it to Zahid. I think it's important that, you know, there's—obviously the yield curve, you know, has to do with this versus our projection. rates continue to be better in the investment portfolio, those majorities, as I will talk But also, you know, long activity on the commercial book, which, you know, a significant portion of our book is variable. So those two components are important in understanding how our margin continues to get better, which is good to say that it's better than anticipated. And that's why, you know, we revisit the forward guidance to a higher range. Obviously, this quarter, we did have what we consider, you know, non-recording items regarding these two loans that were renewed and had some benefits underneath.

Yeah, in terms of repricing in the investment portfolio, we expect about $400 million on the second half of the year. Those are yielding around 1.92%. So, looking at 2027, there are about $100 million coming in of securities yielding about 1.73%. So all in, in the next 18 months, it's about $1.2 billion of repricing coming.

Okay, that's helpful. And then I apologize if you hit on this, but with the deposit growth, looks like about two-thirds of that was on the government deposits. Can you help us out with the expectations around flows on that side, as well as any commentary on how competitive pricing dynamics are holding up for the core portfolio? Thank you.

Yeah, when you look at the deposit cost, it's almost flat. Obviously, you know, there's a portion of government deposits that are linked to an index. And there's always been volatility on that government book in terms of, you know, large chunks moving in or out in a specific quarter, based on key relationships that receive funds primarily for reconstruction and funds come in and go out and some other time deposits that we negotiate with our core relationships that are transactional based. I will say, you know, just, you know, think about where the enrollment deposits stay around this average that we have for the last year, you know, you know, liquidity is very solid in in in still you know funding coming in through you know both cdbg and fema for for different purpose uh reconstruction you know even you know prep power or some of the other entities that we have in the portfolio i think in the core customer we we're seeing again uh obviously linked to money market rates in the and and treasury rates you know you start to see again you know high balances to the need to be retained in the quarter. We, for example, we, for example, increased customers in both retail and commercial on the deposits, but in some of the large customers, we lose some of the deposits. And then that was positive, but we start to see a little bit of that noise, you know, and we start to compete, you know, to retain, you know, better. So I will say, you know, deposit costs will continue to be in the same place that we are because it's a very large deposit base. And when you look at the aggressivities in a very specific component that you can actually play and not really impact the franchise. So I will say stability in both government deposits and obviously we continue to target growing our core franchise.

Great. I'll step back next quarter again.

Thank you so much. our next question comes from steve moss from raymond james please go ahead your line is open uh good morning morning nice morning here guys thank you morning um maybe just uh you know thinking about you know expenses here in the efficiency ratio longer term i mean obviously you know healthy healthy business trends here um i know you guys are still going towards the 50 percent uh or being at the low end at the 50 efficiency ratio range just kind of curious you know longer term do you think you can go a little lower here just kind of given balance sheet dynamics just better growth on the island or uh you know 50 still kind of where you

think i'll try to shake out later longer term yeah if you see you know the absolute number on expense is very close to the guidance that we provided so so you know we are we're banking investments in both the technology and actually some of the branch expansion that we what we talk about in the early part of the year you know there's a you know one one of the new branches just opened last week and and there's another one opening in a couple of weeks so so that continues and and then the technology transformation to cloud and the ai investment is there so so again you know i think it's always you know like always like to see efficiency ratio going down by more revenue. And that's what happened this year. Obviously, again, I think the, you know, the, there's being as insensitive. So there's a part, we're doing, you know, really good growth on loans, but also there's a contribution coming from the right environment that we, that is helping every bank. So that was as insensitive. So, yes, there's always an opportunity to move below 50. We're there today and, you know, if revenues continue at the pace and It's a simple relationship of revenue and expense, so we'll be there, but obviously we still have, you know, significant investments ahead that we will continue doing either way without the new revenue opportunity or not. So that's why we are placed in that 50% target, yeah.

Great, that's helpful there. And then just kind of, you know, thinking about, you know, business activity on the island, it's quite the step up here year over year in originations. You know, I realize there's onshoring, obviously favorable dynamics with the government. You know, is there, you know, as you think, look at business activity here, just kind of curious, you know, what you think are the biggest drivers maybe versus a year ago. Obviously healthy pipeline, it's good to hear the outlook for the second half of the year.

I think, you know, I have to highlight one sector, which is hospitality. You know, vitality sector in Puerto Rico continues to show, you know, significant trends, better trends than prior cycles, sustainable, both ADRs, occupancy, visitors. There's still, you know, hotel projects coming around and some of them are ongoing. And you know, I think investor confidence, this investment continues to show, you know, a very positive investor confidence in the island uh for you know whatever you know political and macro challenges are out there uh both in puerto rico and the u.s the economy continues to sustain these trends and investors are looking to play some of their their sexual equity projects so so we're benefiting out of that and and and i think the island the island is it's a it's being a positive place for that for some years now yeah yeah and then you know on capital deployment here i know you guys generally target a 100 payout ratio um obviously earnings have been strong and run ahead of your planned buyback you know should we expect you know a catch-up in the with the buyback or special dividend later this year uh you know we as you know we we keep the optionality and every quarter we sit down uh that will happen now in August and September uh in October you you will see our we will publish again our our capital plan uh which we it's a cycle that we do so we'll you know definitely that that that is our strategic goal and and you know we haven't concluded on how we're going to get there so but you know we'll we'll probably talk about that in next call in more detail okay aurelio i appreciate all the color here thank you very much thank you

for any additional questions please press star followed by the number one our next question comes from manuel navas from piper sandler please go ahead your line is open a lot of my questions have been asked and answered i just want to circle back on the uh early delinquency rise uh you had some commentary around it is there anything more specific in the auto portfolio we should be watching um is there any particular fico scores that are that are rising more than others anything you could add on on that delinquency rise to be honest you know obviously you know we i say i i say seasonal because when we compare to prior videos you know we see

We saw a significant improvement in the first quarter that we attribute to a lot of liquidity that came in the island for, you know, taxes, benefits, and other matters. We're back to what I could say a more normal level, normalized level. We don't expect, you know, significant uptakes from here in those delinquency levels. When we look at the charge of going through, it's really focused on the early delinquency buckets. So we don't see anything, you know, we don't see anything that tells us that this is going to continue at this stage. Yeah. It's actually better than December and in line with prior years.

Okay. And most other credit metrics are pretty solid. I just wanted to ask about that one.

Yeah. No, I'm all right.

Additionally, as we look at this new kind of, uh can we reset uh on the margin um your sensitivities to hikes or or potential declines i appreciate the new kind of go forward guidance with with the kind of flat rates but what would happen in either increases or decreases from here well we we we just close that on on on the thank queue uh those of any pickups and and it's going to be similar consistent with with what has been disclosed in the queue uh on on nii right so two to three percent which we and and you have the breakdowns there by each of the the scenarios that we evaluate okay okay thank you thank you

man our next question comes from aaron seganovich from truest securities please go ahead your line is open thanks for the follow-up i just wanted to um to just clarify on the nim guidance you're not assuming any rate increases uh through the end of the year thank you yeah and we have no further questions this will conclude today's conference call Thank you for your participation. You may now disconnect.